HEARD : 10-12, 20, 21 & 24 FEBRUARY, 8, 26-28 & 30 MAY 2003

BETWEEN : NEWMARKET CORPORATION PTY LTD (ACN 082 463 474)

Contract - Whether void - Whether losses caused by breach or too remote - Whether failure to mitigate - Whether losses speculative - Turns on own facts

Trade Practices Act - Whether representations made - Whether representation relied on - Whether loss caused by breach or too remote - Whether failed to mitigate - Turns on own facts

Trade Practices Act 1974 (Cth), s 51A, s 52, s 75B, s 87(2)

Supreme Court Act 1935 (WA), s 32

Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) [1989] FCA 246; (1989) 89 ALR 539

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286

Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91

Placer Development Ltd v The Commonwealth [1969] HCA 29; (1969) 121 CLR 353

Scanlan's New Neon Ltd v Tooheys Ltd [1943] HCA 43; (1943) 67 CLR 169

Seddon v North Eastern Salt Company Ltd [1905] 1 Ch 326

Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177

Trade Practices Commission v Tubemakers of Australia Ltd [1983] FCA 93; (1983) 47 ALR 719

Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40­940

York Air Conditioning & Refrigeration (Australasia) Pty Ltd v The Commonwealth [1949] HCA 23; (1949) 80 CLR 11

1 At all material times the first defendant, Kee-Vee Properties Pty Ltd ("Kee-Vee"), was the registered proprietor of the land on the corner of Rockingham Road and Cockburn Road South Fremantle on which stood premises licensed under the Liquor Licensing Act 1988 (WA) called the Newmarket Inne ("Hotel").

2 Until July 1998 Kee-Vee carried on business at the Hotel pursuant to a tavern licence. The Hotel comprised a heritage building with a "modern" (out of character) extension and a separate bottle shop. The bottle shop consisted of a transportable unit on a steel frame with a lean-to verandah. A lounge bar was conducted from the extension to the heritage building. It was known as the "blood bar" to reflect the propensity of patrons to resort to aggressive or violent behaviour. The Hotel featured "skimpys", "raunchy girls" and the like.

3 The second defendant, Keith Boucher is, and was at all material times, a director of Kee-Vee. In 1997 Kee-Vee retained the third defendant, Cardiff Nominees Pty Ltd trading as White & Associates, as its agent to sell the Hotel business. The fourth defendant, Allan Maller, was a servant or agent of the third defendant and acted for Kee-Vee in relation to the proposed sale. Mr Maller was also a long time friend of the fifth defendant, Charles Clifford. Mr Clifford, a chartered accountant, provided accounting services to the second plaintiffs, Giuseppe and Desley Sansone. The Sansones had money to invest. Mr Clifford recommended the Hotel business to them. The Sansones and Messrs Clifford and Maller formed a syndicate to purchase the Hotel business which was done through the first plaintiff, Newmarket Corporation Pty Ltd ("Newmarket"), a company incorporated in May 1998.

4 Messrs Clifford, Maller and Boucher were primarily involved in the negotiations leading to the sale. The parties intended that the existing Hotel premises would be renovated and upgraded and a new bottle shop constructed. In essence, it was proposed that the heritage building be renovated, the modern extension and existing bottle shop be demolished and a new bottle shop constructed. Kee-Vee was to undertake the structural work and Newmarket was to fit out the renovated and upgraded premises.

5 By an undated agreement in writing between, inter alia, Kee-Vee and Newmarket, Kee-Vee sold the Hotel business to Newmarket ("Sale Agreement"). It was a condition of the Sale Agreement that Newmarket enter into a lease with Kee-Vee for a term to coincide with the redevelopment works to be undertaken by Kee-Vee ("short term lease") and on completion of those works to enter into a long term lease.

6 Newmarket and Kee-Vee entered into the short term lease on 1 July 1998. Newmarket went into possession of the Hotel on 8 July 1998, being the settlement date under the Sale Agreement. By October/November 1998 Kee-Vee had commenced the redevelopment works. On 13 November 1998 Newmarket and Kee-Vee entered into a Deed of Agreement for Lease ("Agreement for Lease") which identified the works to be undertaken by each of Newmarket and Kee-Vee. Annexed to the Agreement for Lease was the long term lease which was to commence on completion of the works to be undertaken by Kee-Vee ("the Lessor's Works").

7 It was accepted that Kee-Vee did not complete the Lessor's Works. Kee-Vee says it was prevented from doing so by Newmarket's conduct.

8 The relevant local government authority, the City of Cockburn, issued Notices dated 23 October 2002 to vacate the Hotel on the ground that it was unfit for human habitation. As a consequence, the Director of Liquor Licensing suspended the Hotel's liquor licence. Newmarket carried on the Hotel business from 8 July 1998 until around 25 October 2002 when it vacated the Hotel. It then ceased paying rent.

9 By Notice of Default under the short term lease Kee-Vee required Newmarket to comply with its obligation to pay rent and thereafter issued a Notice dated 26 November 2002 terminating the short term lease upon Newmarket's failure to remedy the default.

10 It is fair to describe the venture as an unmitigated disaster for all involved.

(a) was in breach of contract in failing to complete the Lessor's Works under the Agreement for Lease;

(b) by its agents Messrs Boucher and Maller engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) ("TPA") on which Newmarket relied in purchasing the Hotel business.

Kee-Vee filed a defence and counterclaim. It claims inter alia that:

(i) the clause of the Agreement for Lease relating to the Lessor's Works (cl 5) is void for uncertainty; alternatively

(ii) in breach of contract Newmarket prevented Kee-Vee from completing the Lessor's Works;

(iii) Newmarket was in breach of the short term lease in failing to comply with Notices from the City of Cockburn resulting in the City declaring the Hotel unfit for human habitation and the Director of Liquor Licensing suspending the liquor licence;

(iv) Newmarket failed to pay rent due on 1 November 2002 and failed to comply with a notice of default in relation thereto as a result of which Kee-Vee terminated the short term lease. Kee-Vee also relies on Newmarket's abandonment of the Hotel.

12 Kee-Vee claims damages for Newmarket's conduct in preventing the redevelopment and damages for breach of the short term lease.

13 Newmarket does not in its reply specifically plead to the matters referred to in (i), (iii) and (iv) above and does not plead that Newmarket terminated the short term lease (or any other agreement) for Kee-Vee's breach.

14 Newmarket's claims against the third, fourth and fifth defendants were settled prior to trial as were claims for contribution and indemnity between defendants.

15 The following factual matters are not in dispute. Newmarket, Kee-Vee and the Sansones and Messrs Clifford and Maller as guarantors entered into three agreements. The first in time was the Sale Agreement.

16 The business purchased by Newmarket was "the goodwill, Business Name, and all licences of the Business and all the plant, equipment, fittings and fixtures of the Business and the Stock-in-Trade" of the licensed tavern business carried on by Kee-Vee at the Hotel.

17 The Sale Agreement contains a number of conditions labelled as conditions precedent to the Sale Agreement. Clauses 2.3 and 2.4 materially provide:

"2.3 Lease

The agreement for sale contained in this Deed is subject to and conditional upon the parties hereto prior to the Settlement Date entering into a Lease in the form annexed hereto and marked with the letter "A".

2.4 Agreement for Lease

The agreement for sale contained in this Deed is subject to and conditional upon the parties hereto prior to the Settlement Date entering into an Agreement for Lease (with Lease annexed) for the Lease of the Premises after the completion of renovation, demolition and re-building of the Premises."

18 Settlement date is defined to mean the date on which settlement is actually effected. It is common cause that settlement occurred on 8 July 1998. The lease referred to in cl 2.3 is the short term lease which was executed by Newmarket, Kee-Vee and the guarantors on 1 July 1998. The Agreement for Lease (with or without Lease annexed) was not executed prior to the settlement date. As previously mentioned, the Agreement for Lease was entered into on 13 November 1998. The failure to satisfy cl 2.4 prior to the settlement date is not an issue in these proceedings. I infer that the clause was waived by the parties.

19 The purchase price of the business was $175,000. A deposit of $5,000 was payable shortly after execution of the Sale Agreement. Half of the balance of the purchase price ($85,000) was payable on settlement and the other half three months after settlement. Newmarket paid the purchase price.

20 The second agreement executed by the parties is the short term lease made on 1 July 1998. The rent clause of the short term lease provides:

"Clause 5.01 - Minimum annual rental

The Lessee shall pay to the Lessor a minimum annual rental for each year at the rate specified in Item 3 of the Second Schedule hereto subject always to the provisions herein for review and variation."

21 The minimum annual rental is specified in the schedule as $85,000. However, the short term lease makes no provision for a review or variation of the rental.

22 The termination date of the short term lease is stated to be:

"The date that the Lessor and the Lessee enter into a new Lease for the Tavern in the form of Lease annexed to the Deed of Agreement for Lease dated the of 1998."

23 As stated earlier, the long term lease was intended to be annexed to the Agreement for Lease which in turn was to be executed before the settlement date under the Sale Agreement. However, it is common cause that the parties had not at that stage signed the Agreement for Lease or the proposed long term lease.

24 The third agreement, the Agreement for Lease was made on 13 November 1998. The Agreement for Lease provides that the long term lease shall commence on the date of issue of the certificate of practical completion of the Lessor's Works. The long term lease is annexed in the Fifth Schedule. It is signed by the parties but the provision for the minimum rental is left blank. However, particulars of the initial annual rental payable under the long term lease are set out in the Fourth Schedule of the Agreement for Lease as follows:

"An amount calculated in accordance with the following formula:

(a) ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000.00) plus

(b) TEN (10%) per cent of the amount certified by the Lessor's authorised representative as the Lessor's costs for the Lessor's Works specified in the Third Schedule."

25 The recitals to the Agreement for Lease acknowledge that Kee-Vee was in the process of renovating the heritage building, demolishing the extension and existing bottle shop and constructing new buildings (being the new bottle shop and an addition to the heritage building). The proposed works are shown on a plan annexed to the Agreement for Lease.

26 Clause 5 of the Agreement for Lease refers to the Lessor's Works. It provides:

"5. COMPLETION OF THE BUILDING AND THE LEASED PREMISES

The Lessor shall cause the Building and the Leased Premises to be completed diligently and within a reasonable time period and in accordance with the particulars set forth in the Third Schedule hereto ('the Lessor's Works') and the Lessor shall not be bound to perform any work other than that shown or specified therein. If the Lessee shall request any variations or additions to the Lessor's Works such variations or additions may be carried out by the Lessor at the Lessor's absolute discretion but at the cost of the Lessee."

27 "Building" is defined as the renovated existing building and the new building. It is necessary to set out the Third Schedule in full. It provides:

"1. The Lessor will complete the Building and the Leased Premises substantially in accordance with the Plans and Specifications prepared by the Lessor's architects annexed hereto (including all work required by the local authority and any statutory or government bodies) with the exception of the Lessee's Works PROVIDED THAT the Lessor shall carry out the works specified in paragraph 2 hereof.

2. It is acknowledged that the Lessor will at the Lessor's expense carry out the following works to the Lease Premises:-

(a) Demolition of existing bottleshop, external structures around hotel including lounge bar and formation of wall openings in the ground floor of the existing hotel building shown on drawing WD2. Lounge bar to remain trading during constructions. Demolish bars, suspended ceiling etc., in existing hotel.

(b) Carry out site excavation, regrading and general preparation for the carpark and driveway and provision of new pavement and drainage works.

(c) Construction of median requirements of Main Roads WA in Cockburn Road including verge parking provisions.

(d) Landscape site to Council requirements.

(a) Construction of the building shell including concrete floor, steel frame brick inner walls, limestone external face with brick features, custom orb roof, roller shutters, security barriers, steel entry feature and automatic doors.

(b) Provision of suspended ceilings using prepainted plasterboard in 'T bar' section to retail areas.

(c) Construction of toilets and entry pavement.

(d) Provision of general lighting.

(e) Provision of wall finishes.

Hotel Reinstatement and building works by the Lessor:

(a) Make good new openings in ground floor walls.

(b) Construct toilets including facility for disables (sic).

(c) Extend building into courtyard and complete with glazed wall and folding timber framed door wall.

(d) Provide entry on south face.

(e) Repair external walls, and repoint as required.

(f) Prepare Conservation Plan for Council.

(g) Replace raised floor in existing kitchen, toilet and lounge with new floor at general floor level (RL 13.19AHD).

(h) Replace super six asbestos cement roof covering with custom orb zincalume.

(i) Refurbish verandah front to resemble original verandah and extend southwards along the Cockburn Road frontage.

(j) Rewire hotel to provide for general lighting and power only (balance by Lessee).

(k) Extend sewer to one main connection point to service all ablution areas and kitchen (to service fitout by Lessee).

(l) Erect courtyard and service area walls and pave courtyard.

(m) Repair and make good external stair and southern verandah balustrade.

(n) Extenral (sic) pipe runs.

(o) Making good and polishing timber floors in marked areas only.

(p) Paint interior with standard paint.

(q) Provision of piping gas heating in bars."

28 It is common ground that the plans and specifications referred to in cl 1 of the Third Schedule were not annexed to the Agreement for Lease. Kee-Vee pleaded that there was an oral agreement made on 7 October and 2 November 1998 to carry out the works in accordance with specified working drawings. However, no evidence to that effect was adduced at trial and the first and second defendants abandoned the claim in closing.

29 The Lessee's Works are dealt with in cl 3 and the Second Schedule of the Agreement for Lease. Clause 3 provides:

"3. WORK TO BE CARRIED OUT BE LESSEE

The Lessee shall carry out and perform at the expense of the Lessee the works described in the Second Schedule ('the Lessee's Works') and shall complete the Lessee's Works within TWELVE (12) months after the granting of the licence and authority referred to in clause 4."

30 The licence referred to in cl 4 is a licence from the Lessor to the Lessee to enter upon the leased premises for the purpose of carrying out the Lessee's Works.

31 The Second Schedule of the Agreement for Lease relevantly provides:

"1. Subject to the provisions of paragraph 2 of the Third Schedule hereto the Lessee shall carry out all works required to complete the Leased Premises to enable the Lessee to carry on the business specified in Item 7 of the Schedule to the Lease and shall include but not be limited to the following works:-

(a) Provision of coolroom with display doors, compressors and other works associated with the coolroom.

(b) Provision of floor coverings, sales counters, display fitments, computer and security installations.

(a) Fitout of kitchen and bars including all fitments, floor treatment and internal pipe runs.

(b) Provision of carpet in Bistro-Lounge.

(c) Fit doors and coolroom to cellar.

(d) Construct reception area in foyer.

(e) Install electrical requirements other than basic lighting and power including any new telephone, television and entertainment systems.

(f) Provide new carpet and all necessary furnishings to bedrooms.

(1) comply in all respects with the requirements of the local authority and any other applicable authority;

(2) utilise first class materials and workmanship and shall possess features in conformity with the general character of the Building;

(3) be subject to approval by the Lessor or the Lessor's architects as hereinafter provided.

3. No work (including, but not limited to, signage) shall be carried out upon the Leased Premises until first approved in writing by the Lessor or by the Lessor's architects or project manager such approval not to be unreasonably withheld and any costs incurred by the Lessor in obtaining approval from its architects for such works shall be paid by the Lessee."

32 Against that background I turn to the issues that arise for determination.

(i) Whether cl 5 of Agreement for Lease Void

33 As I understand the defence it raises both limbs of the classic statement of the law on contractual uncertainty. The first limb is to the effect that there is no concluded contract where an essential or critical term is omitted or expressly left to be settled by future agreement of the parties. The second limb is that there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 436-437 per Barwick CJ; Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101.

34 Thus, a contract is affected by uncertainty only if its essential terms are lacking or alternatively are so vague and obscure as to be incapable of any definite or precise meaning. In relation to the second limb, ambiguity does not mean uncertainty. As long as the language is not so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention, the contract cannot be held to be uncertain or meaningless.

35 In this case it is not pleaded that the parties to the Agreement for Lease lacked contractual intention. Indeed, such intention is readily assumed in most commercial situations. I am satisfied in this case that the evidence clearly supports an inference of contractual intention. In such circumstances, the principle that courts should be the upholders not the destroyers of bargains is applicable: Anaconda Nickel (supra) at 133 per Anderson J.

36 The question of how to identify an essential term was considered by Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. He said (at 548):

"... [in what can] broadly be described as a Masters v Cameron ((1954) [1954] HCA 72; 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, ... there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties."

37 As Ipp J pointed out in Anaconda Nickel (supra), expert evidence is usually required in this regard.

38 There is evidence that Newmarket and Kee-Vee were aware of the failure to annex plans and specifications at or about the time of execution of the Agreement for Lease.

39 Mr Clifford's evidence was that the Agreement for Lease was signed in the offices of Kee-Vee's solicitors, Michael Whyte & Co, in October 1998. Someone on behalf of Newmarket, he thought Mr Sansone, pointed out that there was still no plans or specifications attached to the Agreement for Lease and Mr Harford (the solicitor acting for Kee-Vee) assured them that he would have the plans and specifications attached. In reliance on this Mr Clifford said they signed the Agreement for Lease and left it with Mr Harford to arrange signing by the Lessor and to attach the plans and specifications. Mr Clifford understood the Agreement for Lease was signed by Kee-Vee on 13 November 1998, the date of the document.

40 Mr Sansone's evidence was that his comment to Mr Harford concerning the plans and specifications was not made in November 1998 (which I infer is intended to be a reference to the meeting at which the Agreement for Lease was signed) but in May 1998 at the time of the execution of the Sale Agreement. However, in an earlier statement Mr Sansone put that discussion in November 1998. Mrs Sansone's evidence at trial was that at a meeting at the offices of Michael Whyte & Co in May 1998 just before they took over the business it was raised that the plans and specifications were not attached and Mr Harford said that he would find out and would make sure that they were attached when Mr Boucher signed the contract. Mr Boucher was not present at the meeting. However, in her written statement which was to be tendered in evidence at trial, Mrs Sansone said that this exchange took place later in 1998. As the Sale Agreement does not in terms refer to plans and specifications annexed it is highly unlikely that the exchange occurred in May 1998. It is clear that Mr Clifford's recollection is accurate.

41 The evidence also establishes that by 13 November 1998 Kee-Vee's architect had prepared working drawings of the redevelopment works, which contained some building specifications, and a document headed "Construction Finishes, Fixtures and Equipment Schedule"; that Mr Clifford on behalf of Newmarket had inspected the working drawings and requested variations; that Kee-Vee had entered into two building contracts with Town & Country Constructions Pty Ltd ("TCC") (one contract for the bottle shop and the other for the renovations and additions to the heritage building) in accordance with the working drawings; that a copy of WD2 referred to in cl 2 of the Third Schedule of the Agreement for Lease had been given to Newmarket and that construction work had commenced. It is common cause that the architect at no stage prepared separate or comprehensive specifications of the Lessor's Works. The evidence also establishes that the bottle shop (eventually) reached the stage of practical completion and work on the heritage building continued until February 1999.

42 Notwithstanding the evidence, Newmarket did not in its pleading or at any other time and Kee-Vee did not in closing advance a case to the effect that there were contractual plans, whether identifiable by extrinsic evidence at the time of the Agreement for Lease or as a result of a subsequent agreement (express or implied or otherwise) or purport to identify what those plans were. As I see it, I am asked to resolve the question of contractual uncertainty on the basis that there were no contractual plans or specifications. On that basis, the omission of the plans and specifications has the effect of confining Kee-Vee's obligations to the works identified in cl 2 of the Third Schedule of the Agreement for Lease. In my view the reference in cl 2(a) to WD2 is a reference to working drawing 2 which was current at the time of the execution of the Agreement for Lease.

43 Kee-Vee did not identify any specific problems or difficulties that rendered cl 5 of the Agreement for Lease unworkable in the absence of plans and specifications. Whether the clause is unworkable is determined by reference to usual principles of contractual construction including the implication of terms, both in law and in fact: see Anaconda Nickel (supra) at 121 - 127 per Ipp J.

44 There is no expert evidence that cl 2 of the Third Schedule is unworkable without reference to plans and specifications. In my assessment, although the failure to annex plans and specifications may make the Lessor's Works described in cl 2 of the Third Schedule less clearly defined than one would want or expect with resulting difficulties as well as a greater discretion in the Lessor, the Agreement for Lease is not thereby rendered unworkable. Even if I am in error on that point, in my view Kee-Vee has not discharged its onus of establishing that cl 5 is unworkable as a result of the absence of the plans and specifications.

45 Further, Kee-Vee has not identified any specific aspect of cl 2 of the Third Schedule that it says is so obscure and so incapable of any definite or precise meaning as to satisfy the test of the second limb of legal uncertainty. There is nothing on my (unaided) assessment which falls within that category. I am not satisfied that cl 5 is void on either limb of the test for uncertainty.

46 It is not in dispute that Kee-Vee had failed to complete the Lessor's Works by the time Newmarket vacated the premises in October 2002. In particular, the evidence establishes that in relation to the heritage building, the works specified in subparagraphs (d), (g), (i), (j), (l), (m), (n), (o), (p), (q) of cl 2 of the Third Schedule of the Agreement for Lease had not been done, the works specified in subparagraphs (a), (b), (c) and (e) were incomplete, and Newmarket had not seen a conservation plan for Council. In essence, the renovation and upgrading of the heritage building was far from complete.

47 As to the site works, the paving and earth works had not been completed and the lounge bar had not been demolished by October 2002 (because that was to continue trading during the renovation and upgrading of the heritage building which was at all material times substantially incomplete).

48 As to the new bottle shop, the architect issued a certificate of practical completion under the building contract in July 1999. However, Newmarket could not at that stage occupy the new bottle shop because it was incomplete and the City of Cockburn refused to issue a certificate permitting occupancy. Newmarket took possession of the bottle shop in September 1999 (by changing the locks). After discussions with the City of Cockburn, Newmarket spent its own funds to complete outstanding works to enable it to operate the drive through section only of the bottle shop. By October 2000 certain matters relating to the bottle shop, including matters relating to fire safety, still had to be attended to by Kee-Vee before the City would grant its certificate. In October or November 2000, Kee-Vee paved the car park at the front and in the immediate surrounds of the bottle shop.

(iii) Whether the Failure to Complete Lessor's Works Caused by Newmarket

49 The first and second defendants plead that the redevelopment has not been completed by reason of:

"a. the delays caused by the number and scope of variations requested by the first plaintiff for (sic) time to time and agreed to by the first defendant of the Bottleshop Works and Hotel Works which variations were agreed during the period between and including the execution of the Deed and in or about mid February 1999;

b. delays caused by the agreements as to specifications made from time to time between the first plaintiff and first defendant during the period between and including the execution of the deed and in or about mid February 1999;

c. ... the continued failure of the first plaintiff to allow the first defendant access to the heritage listed part of the building since in or about February 1999 to carry out necessary works which failure prevented the renovation of the heritage listed part of the building and the planned subsequent demolition of the 'blood bar'."

50 In relation to par (c) the first and second defendants further plead that:

"There were implied terms of each of the Earlier Agreements and the Deed to the effect that:

(i) the first plaintiff would allow access to the heritage listed part of the hotel by persons engaged by the first defendant to carry out the Redevelopment work; and

(ii) the first plaintiff would act reasonably so as to facilitate the carrying out and completion of the Redevelopment ('the Implied Term').

Particulars of Implication

The terms are:

(i) reasonable;

(ii) equitable;

(iii) capable of clear expression;

(iv) not contrary to any express term in the Agreement;

(v) necessary to give business efficacy to the Agreement; and

(vi) so obvious that they 'go without saying'."

51 The Earlier Agreements referred to in the pleading are the oral agreements. The Deed is a reference to the Agreement for Lease.

52 Kee-Vee did not provide particulars of the variations and agreements as to specifications on which it relied. There is very little (if any) evidence as to the number and scope of agreements as to specifications and none were brought to my attention by Kee-Vee in closing. It seems they are dealt with as a job lot with the variations and I will treat them accordingly. All future references to variations includes any agreement as to specifications. There is also very little evidence concerning the delay attributable to each variation or indeed to the cumulative effect of all of the variations.

53 However, this is not a case about the extent of the delay per se. Kee-Vee relies on delay to explain or justify the fact that the redevelopment "is currently uncompleted". There is no evidence that any relevant variation made between the date of execution of the Agreement for Lease and February 1999 has any causal connection with Kee-Vee's failure to complete the Lessor's Works by October or November 2002 or thereafter.

54 It seems to me the pleading is intended to operate in a stepped fashion. That is, as a result of variations there were delays in completing the Lessor's Works in the period to February 1999 and that the delay from February 1999 was caused by Newmarket refusing to provide access to the heritage building. I will approach the pleading in that way.

55 The first issue is the identification of the variations requested by Newmarket. In relation to Newmarket's contractual claim, that can only relate to variations requested after the execution of the Agreement for Lease, being the date on which the contractual obligations arose. The logical next question is variations to what - to which neither party ventured a complete answer. The answer is supplied in part in cl 5 of the Agreement for Lease. It is variations or additions to the Lessor's Works. Kee-Vee's pleaded case was that the contractual plans were the working architectural and engineering drawings specified in the building contracts for the bottle shop and the hotel renovations. If that were so, those drawings together with the description of the Lessor's Works in cl 2 of the Third Schedule of the Agreement for Lease would be the yardstick by which variations (or additions) to the scope of works could be identified. However, as noted earlier no evidence was led of an oral agreement incorporating those drawings and Kee-Vee abandoned that aspect of its pleading in closing. It then had no option but to rest its case on the identification of the Lessor's Works in cl 2 of the Third Schedule of the Agreement for Lease. That is, whether or not there was a variation has to be determined by reference to the identification of the Lessor's Works in cl 2 of the Third Schedule. The resolution of this issue is complicated by the fact that the evidence was not presented by reference to that yardstick.

56 There is evidence concerning variations under the building contracts. Newmarket's expert, Mr Chris Courtney, prepared a convenient summary of those variations. However, I am unable to identify from that summary or from the builder's progress claims those variations to the building contracts which were requested by Newmarket quite apart from whether they were variations from the Lessor's Works defined in cl 2 of the Third Schedule.

57 Kee-Vee's architect, Mr Christopher Thompson, gave evidence concerning variations requested by Newmarket. He said that it requested numerous variations to the plans. I take that to be a reference to the plans specified in the building contracts. He identified the changes to the bottle shop as including:

• deletion of gable treatment to western elevation and; replacement with parapet to make building look bigger;

• provision of retractable bollards in lieu of fixed bollards;

• deletion of a ceiling to the bottle shop and exposing insulated underside of roof;

• expansion of the bottle shop to two-thirds of the building in lieu of initial one-third of the building.

58 Mr Thompson does not identify when Newmarket requested the changes. However, it would appear that at least some of the changes were requested by Newmarket before the execution of the Agreement for Lease.

59 As to the heritage building, it seems that the two major changes requested by Newmarket were firstly to reverse the position of the toilets and kitchen on the ground floor and secondly for a lounge or function room to be constructed on the first floor of the building. It appears from Mr Thompson's evidence that the request in relation to these matters preceded the execution of the Agreement for Lease. In relation to the upstairs lounge or function room, Mr Thompson obtained engineering advice concerning floor and verandah loads for public building use. Following receipt of advice from the engineer, Newmarket decided not to proceed with that variation.

60 Mr Thompson said that on commencement of work in the old kitchen wing, extensive termite damage was revealed which required complete removal of the floor and treatment before replacing it at a later date with concrete. Indeed, in the first half of February 1999 a detailed termite inspection was carried out and extensive damage was revealed in the ground floor and first floor entry halls.

61 Mr Thompson's list of what he describes as "tenant generated variations" is as follows:

• demolish chimney (in anticipation of first floor lounge);

• remove termite damaged floor and anti-termite treatment;

• supply and install three soak wells for courtyard.

62 Mr Thompson identifies an item of work as "tenant generated" if it is connected with a change requested by Newmarket for example termite damage or rock discovered in the amended location for the kitchen or toilets.

63 On Mr Thompson's evidence, all of the above variations had been carried out by February 1999. The only variations said to be generated by Newmarket but not implemented by that date were a passage from the courtyard bar to a disabled toilet and amendments to the courtyard design.

64 Mr Ryan of TCC gave evidence concerning the variations to the original scope of works for the heritage building. He said that they were required due to the age of the heritage building, the discovery of many concealed building defects and a substantial amount of limestone rocks below ground being discovered during the execution of the works. Mr Ryan had prepared a document as at 30 January 1999 showing the revised scope of works which specifically identifies the variations, whether by way of addition or omission, to his scope of works. He updated that document on 9 February 1999 to add the cost of further variations (identified as being to remove rocks from the toilets, remove rocks from the stairwell to the cellar, repairs to timber floors on the first floor, repairs to timber floor on ground floor entry and replace new door of door frame with side lights), all of which variations totalled $70,044. Mr Ryan said some of the variations in that list had been done but not all of them and that he was unable to say from the list which variations were requested by Newmarket.

65 Mr Ryan of TCC also prepared construction programmes which were updated from time to time. A construction programme updated as at 2 February 1999 programmed the vacation of the office and kitchen in the week commencing 8 February 1999 and the completion of the works on the heritage building for some time in March 1999. He said that if there had been no variations to the work he would have completed it within the time specified in the building contract for the hotel works.

66 Under the building contracts (which were standard Lump Sum Contracts for Minor Works MWC-2) if the builder is delayed for reasons beyond his control and claims extra time for delay, the architect is required to extend the date for practical completion. The building contract for the bottle shop specified the date for practical completion as 13 weeks from execution, excluding nominated days, being 20 January 1999. The contractually specified date for practical completion under the building contract for the hotel works was 15 weeks, excluding specified days, being the first half of February 1999. My attention was drawn to only one application by the builder for an extension of time and that was under the building contract for the hotel works and was as a result of the suspension of the works in February 1999 to which I refer later.

67 Mr Thompson was asked in cross-examination how long it would have taken to have completed the Lessor's Works in the heritage building if there had been no issue as to access to the premises. He said it would have taken well over four months but that it would not have taken two years. He said the tenant generated variations to the hotel delayed progress but he was unable to be more specific other than to say that it delayed the progress for weeks. However, he noted that there were other issues quite independent from the tenant created variations. Mr Thompson's evidence-in-chief was that the scope of works for the bottle shop (as evidenced in the plans and schedules) would have taken between four and four and a half months to complete. In relation to the hotel the scope of work (as evidenced on the plans and schedules) would in his opinion have taken a minimum of six to seven months. That is with no tenant generated variations. Mr Thompson confirmed that he was involved in arranging the building contracts with TCC. In re-examination he was asked why the construction period for the hotel was nominated as 15 weeks in the building contract in light of his evidence-in-chief that the work would take six to seven months without variations. His answer was in effect that the completion of the hotel work was more problematic because of the unknown factors found in the very old building which included rotten floors, plaster and rubble walls, termite damage, old wiring and lack of connection to the sewer. I infer from his answer that his estimate of a minimum of six to seven months included a hindsight provision for these factors.

68 Even relying solely on Kee-Vee's expert evidence and taking into account all variations to the building contract, whether requested by Newmarket or not, they do not provide an explanation or justification for Kee-Vee's continuing failure to complete the Lessor's Works. The defence stands or falls on the allegation that Newmarket prevented it from completing the Lessor's Works. It is to that question I now turn.

69 The evidence establishes that, apart from minor matters, work on the heritage building effectively ceased from February 1999. At all material times thereafter the heritage building was in effect a dormant building site. Work had commenced on the Lessor's Works but it was incomplete. Work on the bottle shop and aspects of the site works progressed after February 1999, albeit very slowly. There is a conflict of evidence as to the cause of the impasse in relation to the Lessor's Works to be performed on the heritage building.

70 Kee-Vee says that Newmarket denied it and its agents access to the heritage building. Kee-Vee relies on the evidence of its architect Mr Thompson and its builder in support of its defence. Mr Boucher was in Albany during the construction and relied in large measure on reports from his agents. Messrs Sansone and Clifford gave evidence on this subject on behalf of Newmarket.

71 Mr Thompson's evidence-in-chief, in the form of an amended supplementary statement in writing, was as follows:

"1. Some time during early February 1999 I rang Joe Sansone concerning the movement of the office which was situated on the ground floor. He said he was adamant that the office could not be moved to another location under any circumstances.

2. It was necessary to demolish the downstairs walls before any of the work on the outside could proceed and for this reason the denial of access to the office created the difficulty in completing the work. This was the only conversation I had with Sansone.

3. Subsequently in 1999 I had a conversation with one of Mr Sansone's staff when I went to the site. He told me that I was not permitted into the inside of the building where the office was located.

4. I have not returned to site since that date. The purpose of my visit to site on that date was to obtain further quotations for work to be done to complete the hotel works."

72 Mr Thompson's supplementary statement originally referred to the year 2000 in both paragraphs 1 and 3. Following an objection, Mr Thompson said that the correct year was 1999 for both paragraphs 1 and 3. In cross-examination and subsequently in re-examination, Mr Thompson said that on further reflection the original reference to the year 2000 in par 3 was correct.

73 By letter dated 3 February 1999 from Mr Thompson to Mr Clifford on behalf of Newmarket Mr Thompson advised as follows:

"... I remind you that the work in Stage 2 of the hotel works requires the kitchen to be closed down and partly demolished.

As soon as services can be diverted to the new office, office facilities will need to be relocated.

Even if the existing bar remains in use during Stage 2, variations will need to be made to male toilets providing new access. The alternative will be provision of safe access across to the new toilets through the building site."

74 Mr Thompson said that he had been involved in discussions with Newmarket and reached agreement concerning the relocation of the office. It was to be on the first floor at the eastern end and was to be part of a manager's suite of three rooms that were going to be modified.

75 Mr Thompson wrote again to Newmarket by letter dated 16 February 1999 (again addressed to Mr Clifford) in which he states the building work had continued but was fast approaching a serious check in progress. It was suggested that the office be relocated to the room above the then present location and the kitchen be closed down. The letter records that it was necessary to gain access to the area proposed for the new bistro lounge, which included the office, in order to make wall openings and that his main concern was the loss of the team making the openings which he said was a specialised trade and the team was then on site.

76 There is no mention in Mr Thompson's letters of 3 and 16 February 1999 of his conversation with Mr Sansone referred to in par 1 of his supplementary statement. Mr Thompson was asked why he had made no reference to his conversation with Mr Sansone. His response was that Mr Sansone may have been speaking for Mr Sansone and not for Newmarket. He was asked again and the following exchange took place:

"How could you fail, on that basis, to mention it in your letter of 16 February 1999, if it happened?---Because the phrase used by Mr Sansone was clearly an exaggeration; that if he wished the job to proceed, accommodation for his office was going to have to be done, so 'under any circumstances' was a remark that I treated as something where he was exaggerating.

Mr Thompson, is it not the case that Mr Sansone never refused to vacate the office or move the office to another location under any circumstances. He did not say those words or anything like that?---He may not have - he certainly didn't refuse to me in terms of another location but the reference was to the specific location that had previously been agreed upon.

So are the words in your supplementary statement, that he was adamant that the office could not be moved to another location under any circumstances, what he said or not?---I believe that's what he said, but the intention at the time that we were both discussing, was a particular location.

So what did [he] say?---Well, he said he just wasn't going to move his office. That's basically what he was saying. At the time Mr Sansone appeared to be very angry and people say things that they sometimes exaggerate when they're in that condition.

Are you saying he said that but you didn't believe him to be - - -?---Well, I treated it as an exaggeration, sir."

77 Further, Mr Thompson had prepared three statements of his evidence to be given at the trial in addition to the supplementary statement. In none of those statements had he referred to a conversation he had with Mr Sansone to the effect referred to in his supplementary statement.

78 Mr Thompson accepted that before Newmarket moved its office, certain matters required action. He said he was giving Mr Sansone reasonable notice so that an office could be made ready (I infer by the builder) for Newmarket and for Mr Sansone to attend to matters such as security and telephone systems. The alternatives for the proposed office were both on the first floor of the heritage building which at that stage was incomplete. There was termite damage to the joists of the first floor which Mr Thompson described as dangerous and which had been screened off. However, he said access to the proposed office was not affected by the termite damage.

79 Mr Thompson also agreed that there was work the builder could have done at the hotel whether or not Newmarket moved its office. He was asked why then did all the works stop at the hotel in early February 1999. Mr Thompson's answer was as follows:

"Because we were still trying to get access. We were trying to get upstairs to move things and at that stage we started to be denied access. I don't know why we were actually denied access, sir, and I don't believe the denial of access was specific[ally] related to the relocation of the office."

80 Mr Thompson repeated that it was his understanding that Newmarket was refusing to allow the builder to come onto the site. The following exchange took place:

"When you say that, Mr Thompson, upon what basis do you make that statement?---On the basis of the reason why the builder wouldn't - spoke to me and that was his - - -

All right, it's hearsay?---No, that was his reason - - -

It's hearsay?---Sir, that was his reason for not going on the site when I asked him.

It's hearsay. It's what the builder told you, is it?---Yes, sir, and I suggest that you will have to ask the builder what - - -."

"Mr Thompson, the damage to the floor on the first floor level caused by termites, what was the impediment to the owner making good at that location?---Again, the contractor being able to get there to do it. The builder had actually given me a quotation for doing the repair work.

Why didn't the work proceed?---Because he couldn't go in there.

What, because Mr Sansone, as you understand it, was refusing to permit any builder on the site?---That's correct.

Absolutely, totally?---That was my understanding.

Wouldn't even let them go to the first floor to fix the termite damage to the floors, okay. On that basis that's why all work stopped at the Newmarket Hotel in February 1999?---Yes, sir."

81 Mr Thompson was referred to a letter dated 16 February 1999 to him from Mr Ryan of TCC in which he said that they had not been allowed possession of the existing kitchen and office areas since 8 February 1999.

"... He doesn't say he was denied access to the building overall. He says not allowed possession to the kitchen and office areas. Do you retract what you said previously about him being refused entry to the building?---No, sir.

Okay, that's fine?---Because that was - that was my understanding."

83 It is clear from Mr Thompson's evidence that he was relying on what the builder allegedly told him about being denied access to all parts of the heritage building. Mr Thompson also gave evidence concerning an attempt to gain access in 2000. He said he went with a new builder to try and get a quote and he was unable to obtain access.

84 Mr Ryan of TCC did not corroborate Mr Thompson's evidence concerning a general denial of access. Mr Ryan said that on 8 February 1999 he was told by Mr Thompson to suspend all further works on the development because of denial of access to the kitchen and office areas by the tenant. Mr Ryan did not have any discussions with representatives of Newmarket on this topic. Nor did he attempt to get possession of the existing kitchen and office area himself because Mr Thompson, from whom he was receiving instructions, was the architect in charge of the works.

85 Mr Ryan said in cross-examination he accepted that even if he was denied access to the office and kitchen, there was other work he could do if he had the authorisation to proceed but that Mr Thompson had suspended all works.

86 Mr Sansone's evidence-in-chief was as follows. At a meeting he attended in late December 1998 or early January 1999 with Messrs Thompson, Ryan, Clifford and Maller it was agreed that the builder would do all the work on the upstairs area, the sportsmen's bar and the exterior and then Newmarket would relocate its office and trading activities into the renovated area. Subsequently Mr Thompson told him at the hotel that he wanted them out of the office so they could demolish walls in the office and relocate the kitchen and this would involve doing work in the lounge bar. He said:

"When are you going to finish the other side where we can move into."

"We've got demolition crew working and we want to keep them on site otherwise we'll lose them."

Mr Thompson said something to Mr Sansone about putting a temporary partition in the lounge bar and a temporary access to the men's toilets. Mr Sansone denied saying anything along the lines that they would not move from the office. He said he asked Mr Thompson when he was going to finish the floors, the walls, the plastering etc in the old hotel building so they would then be able to move the bar into that part of the hotel and trade from there whilst they built the remaining areas and demolished the existing bar. After this the builder stopped work on the old hotel building. Mr Sansone denied having any telephone conversation with Mr Thompson about the matter saying the discussion occurred in the office. Mr Sansone's evidence was that there was no alternative location for an office that was ready and available for use. They had two staff working and had cash in a safe in the office containing between $10,000 to $20,000. Mr Sansone said that his position was that he wanted Kee-Vee to make provision elsewhere so that they could have somewhere to work from.

87 It is clear from Mr Sansone's evidence both in-chief and in cross-examination that he perceived the proposed work as affecting not only the office but the lounge bar which was the only bar in the Hotel that was in operation and generating income.

88 Mr Clifford's evidence was to the effect that at one stage in early 1999 Mr Thompson and Mr Ryan wanted to knock down walls in the room in the heritage building that they used as an office and in the lounge bar and toilet so that they could start work on the new bistro area. However, he said that would have given them no working space whatsoever and would have stopped them from trading in the lounge bar. He said they advised Mr Thompson of this and Mr Thompson and Mr Boucher agreed that they would complete the front/sportsmen's bar area in the old hotel first. Renovating the sportsmen's bar area first would enable Newmarket to commence trading from the new bar and allow the builder to knock down the other walls and complete the balance of the development. He also said that Newmarket required a toilet and an office to allow the lounge bar to remain trading during construction.

89 In cross-examination Mr Clifford said that the agreement with the builder and the architect was that they would finish the sportsmen's bar area in the old hotel completely and at the same time complete the work upstairs so that they could move an office upstairs before they started to do any work in the lounge bar. The kitchen on which the builder proposed to work intruded into the lounge bar. Mr Clifford described the builder's approach in the heritage building up to that time as haphazard and chaotic. He said, as the photographs attest, the builder had knocked down a few walls, made some holes in the floor, pulled off the false ceiling and exposed the rafters and started on the toilets which were only half completed.

90 Mr Boucher accepted that the Hotel had to keep trading to maintain its liquor licence and for the Hotel to keep trading it was essential that there be co-operation between the builder, architect and Newmarket in order that the works could progress while enabling the Hotel's operations to continue.

91 It is of assistance to see the evidence given by the witnesses in the broader context disclosed by the contemporaneous correspondence and other documentary evidence.

92 During the negotiation stages for the Hotel purchase Mr Clifford on behalf of Newmarket had attempted to secure an option to purchase the freehold of the land on which the Hotel stood. He was unsuccessful in that regard. However, after the execution of the Sale Agreement and other contracts it remained Newmarket's preferred course to purchase the freehold. Kee-Vee and Mr Boucher were aware of that. In a letter dated 9 December 1998 from Newmarket to Kee-Vee, Mr Clifford advised Mr Boucher that Newmarket was progressing with an application for finance to position itself to make an offer to acquire the freehold.

93 Newmarket wrote to Kee-Vee again on 18 December 1998. Mr Clifford advised Mr Boucher of continuing problems with the redevelopment. They were in essence, he said, that Newmarket had only just received the Schedule of Finishes, which he described as the poorest set of specifications he had ever seen, the chimney was taken off the kitchen which prevented cooking, the wrong colour roof was put on the heritage building and the bottle shop, part of the heritage building brickwork was painted and had to be stripped because it was going to be sandblasted and the wrong brick was used in the bottle shop. The letter continues:

"We feel that the current position is unworkable, and having said that, we find there is only one possible solution, and that is that you assign the building contract with the Builder and Architect, to ourselves. Of course, we would repay you for any monies you have expended. We then make an offer to purchase the freehold at the agreed price of $1,200,000, and take over your responsibility of the redevelopment costs.

We have spoken to our bank, and after we have spent an estimated $500,000 on the fit out, we come up short $300,000.

I would formally ask you Keith, to consider selling us the freehold at the agreed $1,200,000 and be prepared to carry $300,000 by way of vendor finance, of course at a commercially acceptable return."

94 Newmarket had retained an architect, Christopher Courtney to advise it on matters associated with the redevelopment. Mr Courtney reported to Newmarket in a letter dated 2 January 1999 in which he expressed concern that Newmarket did not have a full understanding in detail of the hotel and property improvements they were going to lease nor a firm date for handover and that work to date had fallen short of expectations. In a subsequent report dated 7 January 1999 Mr Courtney advised that Newmarket should seek from Kee-Vee an updated and complete set of contract documents including drawings, specifications, notes, schedules of finishes and materials selection.

95 Newmarket also sought and received legal advice from lawyers Richard Payne & Associates ("Paynes") in the middle of January 1999. Paynes then wrote to Kee-Vee. Although the communications from and between the parties' lawyers are marked "without prejudice" they were tendered in evidence without objection. Paynes' letter identifies a number of alleged breaches by Kee-Vee of s 52 of the TPA and proposes that Newmarket purchase the freehold or, alternatively, that Kee-Vee assign its contracts with the builder and architect to Newmarket and make a financial contribution to the redevelopment.

96 Mr Thompson then wrote his letter of 3 February 1999 to Newmarket in which he refers to stage 2 and the new office. There is no reference to any refusal to vacate.

97 Newmarket conducted regular management meetings which were minuted. There was a management meeting on 8 February 1999. The minutes note:

"The builder is pressing for us to move out of the office so they can start the renovation in this area. Chris is not to do anything unless he has the okay from The Chairman. This has come up several times and this is becoming very unnerving to both management and staff."

98 By late January early February 1999, all parties became aware of the nature and extent of termite damage in the heritage building.

99 On 9 February 1999 Mr Courtney met with Mr Thompson for the purpose of ascertaining the estimated cost of completion of the building work for which Kee-Vee was responsible. Mr Thompson and Mr Courtney came to the view that a reasonable order of extra costs was $254,000. Mr Courtney advised Newmarket of these matters in a letter dated 10 February 1999.

100 Next in the sequence is Mr Thompson's letter of 16 February 1999 which also makes no mention of any conversation with Mr Sansone or the denial of access. In that letter Mr Thompson refers to a new temporary access to the men's toilet, a temporary entrance from the existing lounge bar and that, as further work proceeds including the southern expansion of the kitchen, he suggested they partition off a portion of the northern end of the existing lounge so openings could be formed and walls built. Where the bar cannot be intruded upon, he said, the southern expansion of the kitchen will have to wait on relocation of the bar into the sportsmen's bar. This letter from Mr Thompson supports the evidence of Mr Clifford and Mr Sansone that the issue was not confined to the removal of the office but involved construction work directly affecting the lounge bar.

101 By letter also dated 16 February 1999 Mr Ryan of TCC advised Mr Thompson as follows:

"As we have not been allowed possession of the existing kitchen and office areas since 8th February 1999, the commencement of the proposed works in these areas have been delayed.

In view of the above development, we request that reasonable extension of time to the practical completion date shall be granted accordingly for the indefinite suspension of the proposed works in the above areas which is beyond our control."

102 In a letter dated 26 February 1999 Kee-Vee's solicitors, Michael Whyte & Co, responded to Newmarket's solicitors. The letter refers to a number of matters but does not refer to any refusal by Newmarket to vacate the office. The letter materially provides:

"Your clients have not indicated when they will vacate the office and kitchen in the existing building to enable the Builder access to those areas to complete the Lessor's Works in so far as they relate to the existing building."

103 The letter then contains a demand that Newmarket vacate the kitchen and office of the existing building.

104 In a letter dated 4 March 1999 from Paynes to Michael Whyte & Co, Newmarket denies the allegations and puts forward a further settlement offer involving the purchase of the freehold.

105 Mr Boucher's evidence was that in about February or March 1999 Mr Clifford, Mr Sansone and Mr Boucher attended a meeting in Albany to discuss the acquisition of the freehold. At the meeting in Albany it was agreed between Kee-Vee and Newmarket that Kee-Vee would sell the land and building for the sum of $1.2 million plus costs and a draft heads of agreement was prepared. Newmarket arranged for the legal documentation to be prepared to implement the agreement but was unable to secure finance and the agreement did not "succeed". That evidence was not challenged.

106 In a letter dated 2 July 1999 from Kee-Vee's solicitors to Newmarket's solicitors, Kee-Vee advised that it no longer wished to sell the freehold to Newmarket and would proceed on the basis of the already executed documents.

107 Also in evidence was a letter dated 1 March 2000 to Kee-Vee from its solicitors Michael Whyte & Co. It materially states:

"We refer to yesterday's telephone conversation between Keith Boucher and Mal Harford in which you advised us that you wish to now proceed and complete the Lessor's Works to the existing Newmarket Inne premises. As you are aware, the Third Schedule to the Deed of Agreement for Lease sets out the Lessor's Works that are required to be done by you. Clause 1 of the Third Schedule refers to annexed 'Plans and Specifications prepared by the Lessor's architects'. As you are aware, no Plans or Specifications were annexed to the Deed of Agreement of Lease due to them being unavailable at the time of execution of the Deed of Agreement for Lease.

...

Prior to putting the Lessee on notice through its solicitors, Richard Payne & Associates, as to your intention to proceed and complete the Lessor's Works, we need to be provided with a copy of the Plans and Specifications which will be followed in completing the Lessor's Works as we wish to annex a copy of those Plans and Specifications to our letter to Richard Payne & Associates."

108 Then Michael Whyte & Co wrote to Paynes on 7 April 2000 enclosing plans and specifications and continuing:

"Our client intends commencing work as per the Plans and Specifications no later than twenty one days from the date of this letter and that will necessarily involve, amongst other things, your client in vacating the existing bar area which is identified with the letter 'B' on the plan annexed to the Deed. Your client needs to make immediate arrangements for its new bar fitout in order for our client to complete the Lessor's Works."

109 The existing bar area identified with the letter "B" on the plan annexed to the Agreement for Lease is the lounge or blood bar.

110 Paynes responded by letter dated 20 April 2000. They pointed out that the plans and specifications had not been approved by the relevant authorities and that no new building licence had been issued in respect of them in which case it was unlawful to build in accordance with them. They then repeated Newmarket's position concerning the agreed sequence of works.

111 In early May 2000 Mr Thompson lodged amended plans and specifications with the City of Cockburn for its approval. The City of Cockburn did not process the plans because they did not contain sufficient information for its purposes. Mr Thompson did not lodge the additional drawings required to obtain the City's approval. In relation to Mr Thompson's statement that he tried to get access with builders to obtain a quote he accepted that without local government approval of the amended plans and specifications, the proposed work could not proceed.

112 The first and second defendants submitted that Mr Courtney gave evidence to the effect that Mr Clifford was extremely pleased with the delays in the building works and Mr Courtney was provided with instructions to delay matters. The submission is based on Mr Courtney's responses in cross-examination concerning detailed diary notes he made contemporaneously with his involvement on behalf of Newmarket in the redevelopment works.

113 There is a diary entry dated 16 April 1999 which was at a time when Mr Thompson was overseas and subcontractors were approaching him (Courtney) in relation to matters. The entry reads:

"Calls from CIC [Clifford], Jo, and Saacha - all about my role - confirmed to CIC that I was telling anyone who rang that I am not supervising - just trying to keep the project running if possible - told CIC that paperwork and confirmation of payments was proving difficult - many payments seem to have been withheld by Boucher. CIC was pleased with the delay - it suited his activities."

114 Mr Courtney did not accept in cross-examination that Mr Clifford said to him that he was happy with the delay in the redevelopment. However, he was unable to recall the details. In context, the delay is likely to refer to the withholding of payments by Mr Boucher. In another entry on 20 April 1999 Mr Courtney records:

"... called back to CIC at 1215 and went through matters from his end. Seems to be in no hurry for my input - said could deliver within 24 hours notice."

"The last letter I had produced for CIC was copied and handed to the NAB, and after the meeting CIC forwarded this same letter on to Boucher. It was concluded that, and I was instructed by CIC, to complete the assessment of work done to date and the value of work outstanding. CIC was happy if this were to take some little time as the pub is operating at a small profit, and any delay can only hurt Boucher. CIC was happy for me to conclude matters after Chris Thompson's return."

116 All of these notes of events are made at a time when the parties are negotiating a settlement of their dispute and it is clear that Mr Clifford is not pressing Mr Courtney for his input. However, I do not infer from the diary notes or Mr Courtney's answers in cross-examination that the focus or intention was to delay the redevelopment works which had all but ceased but rather to delay to increase the pressure on Mr Boucher to settle the dispute.

117 I now turn to my findings on the issues surrounding the defence of denial of access. I start with whether the implied terms relied on by Kee-Vee formed part of the Agreement for Lease and if so whether there has been a breach thereof.

118 The first implied term for which Kee-Vee contends is that Newmarket would allow access to the heritage building by persons engaged by Kee-Vee to carry out the redevelopment work. An implied term of such scope is potentially inconsistent with the express terms of the Agreement for Lease, in particular, the contractual requirement that the lounge bar remain trading during construction. However, applying the test in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, I accept that it is an implied term that Newmarket allow access to the heritage building by persons engaged by Kee-Vee in order to carry out the redevelopment work in accordance with the express terms of the Agreement for Lease.

119 I also accept that it is an implied term of the Agreement for Lease that Newmarket (and Kee-Vee) would act reasonably so as to facilitate the carrying out and completion of the redevelopment works in accordance with the express terms of the Agreement for Lease.

120 I accept the evidence of Mr Clifford and Mr Sansone of an agreement with Mr Thompson that the sequence of works would be that the new sportsmen's bar and the upper floor of the heritage building would be completed then the office would be moved to the first floor and trading would commence from the sportsmen's bar, following which works would commence on the existing office area and kitchen and the lounge bar would be demolished. An agreement to this effect was not denied by Mr Thompson (or by Mr Boucher).

121 I also accept Mr Clifford's and Mr Sansone's uncontradicted evidence that what was subsequently proposed, to enable the builder to take advantage of specialist trades on site at the time, would result in the closure of the lounge bar. Mr Thompson in his letter of 16 February 1999 put forward a compromise proposal which involved providing temporary access from the lounge bar to the toilets (through the building site) and works being undertaken in part of the lounge bar which would be partitioned off from the rest. Thus, it is not simply a question of whether Newmarket had refused to vacate the office and whether there was suitable alternative accommodation for the office. In that regard the facts are clear. At the time at which discussions were held, there was no accommodation on the first floor which was ready and available for use as office space. Mr Thompson agreed that they needed to take steps to prepare the space which was not done because of the impasse.

122 On the subject of denial of access, I prefer Mr Sansone's evidence to that of Mr Thompson where it is in conflict. It would be expected that if Mr Sansone's response had been as Mr Thompson said, it would have been referred to in Mr Thompson's correspondence to Newmarket and in the letter dated 26 February 1999 from Kee-Vee's solicitors. There is no reference in that correspondence to any denial of access. I have also had regard to Mr Thompson's failure to refer to the exchange with Mr Sansone in his initial statements. Accordingly, I find that Newmarket did not refuse to move the office under any circumstances. The builder wanted to alter the agreed sequence and have access to the hotel to conduct work which would result in the closure of Newmarket's only operating bar, namely the lounge bar. Newmarket was prepared to move when it had been provided by Kee-Vee with a works proposal that was consistent with Kee-Vee's contractual obligation in cl 2 of the Third Schedule of the Agreement for Lease that the lounge bar remain trading during construction.

123 I infer from the parties agreement as to the sequence of works which would protect Newmarket's trade from the lounge bar that the agreed arrangement was reasonable. The impetus to revisit that agreement was the presence on site of a specialist team to make openings in the walls of the heritage hotel. That might be reasonable as between Kee-Vee and the builder but is not in my view reasonable vis-à-vis Newmarket and Kee-Vee's obligations under the Agreement for Lease.

124 Thereafter, Mr Thompson put a compromise proposal in his letter of 16 February 1999 aimed at keeping part of the lounge bar trading. However, against a backdrop of settlement negotiations on broader matters, Kee-Vee simply stopped work on the hotel and did not pursue the matter further until much later. Newmarket did not press for performance either for understandable commercial reasons whilst settlement was a possibility, that is until July 1999. However, there is no plea of any agreement to vary, waiver or estoppel. The defence is confined to a denial of access. Questions of intentions and motives for delay are equivocal on the issue of denial of access. They are equally applicable to achieving an acceptable settlement arrangement.

125 I also find that there were other aspects of the Lessor's Works in the heritage building that could have been attended to by Kee-Vee notwithstanding Newmarket's continued occupation of the office. I do not accept that Newmarket denied the builder general access to the heritage building. Mr Ryan of TCC stopped all work, he said, because of a direction from Mr Thompson. There is no proper evidential foundation for Mr Thompson's "understanding" from the builder that Newmarket had denied access.

126 As to Mr Thompson's evidence that he was denied access at some unspecified time in the year 2000 with his builder the following points arise. Mr Thompson does not identify who denied him access. Accordingly, it is not possible to say whether the unidentified person was duly authorised by Newmarket to do so. In those circumstances I am not satisfied that Mr Thompson was denied access. In any event, as Mr Thompson accepted, no building work could proceed on the site in any event. Although Mr Thompson had submitted amended plans to the City of Cockburn those plans were not processed because they contained insufficient information and no further plans were submitted or approval given.

127 In summary, I find that Kee-Vee's failure to complete the Lessor's Works was not as a result of a breach by Newmarket of any implied term as alleged or at all.

128 There remains the issue of whether Kee-Vee's failure to complete the Lessor's Works was in breach of the Agreement for Lease and if so when the Lessor's Works should have been completed.

129 Messrs Courtney and Thompson collaborated in the period between February 1999 and May 1999 in order to identify all the outstanding work required on the hotel and bottle shop and the cost of that work. Their work covered items not originally foreseen or provided for in the building contracts with TCC. It was Mr Courtney's evidence that the completion of the heritage building as identified in the original building contract and the further items identified by him and Mr Thompson would take some six to nine months. However, that estimate included remedial action in respect of the work already done by TCC. Mr Thompson's evidence was that leaving aside the variations requested by Newmarket, the works the subject of the building contract together with the unforeseen matters that subsequently arose (termites, rock etc) would take six or seven months to complete. Based on Mr Ryan's February construction program, the works to the hotel would have been completed by March 1999. That programme did not include the further variations in the updated document of 9 February 1999. Having regard to the evidence of Messrs Courtney, Thompson and Ryan, the date of entry into the building contract for the hotel and the issue of the building licence and allowing for unforeseen matters I am satisfied on the balance of probabilities that the Lessor's Works should reasonably have been completed by the end of the 1999 financial year. That was conceded by the first and second defendants in closing. Based on Mr Thompson's evidence the bottle shop should have been completed in around four months. That is, by the end of January 1999.

130 As I have already found, much of the work was still not complete in October/November 2002. I have no hesitation in finding that Kee-Vee was in breach of its obligation to cause the "Building and the Leased Premises to be completed diligently and within a reasonable time period".

131 In its statement of claim Newmarket claims damages and interest thereon under the Supreme Court Act 1935 (WA), an order that Kee-Vee specifically perform its obligations under the Agreement for Lease or alternatively an indemnity for the costs for Newmarket to complete the works and an order for rescission of the Sale Agreement, the Agreement for Lease, short term lease and long term lease. At trial, Newmarket confined its claim for contractual relief to damages and interest.

"22. The first plaintiff has operated the Hotel since about 8 July 1998 without the first defendant having completed the Redevelopment with a result that:

22.1 by reason of the first defendant's breaches of contract the first plaintiff has suffered loss and damage as follows:

(a) the first plaintiff should by January of 1999 have been operating the Hotel after its redevelopment and in that event the first plaintiff would not have incurred trading losses as follows:

(b) the first plaintiff should in the operation of the Hotel earned profits as follows:

and continuing thereafter at $135,000 per annum for a further 21 years."

133 In its closing submissions Newmarket claimed that the profit should be assessed at 75 per cent in the financial year to 30 June 1999 and 100 per cent thereafter. In addition it claimed that had Kee-Vee performed, the plaintiff would not have lost the business for which it paid $175,000.

134 I deal firstly with the claimed trading losses. Newmarket relies on financial statements in evidence for the financial year ending 30 June 1999 prepared by Mr Clifford and reviewed by Newmarket's new accountant Mr Barnao and financial statements prepared by Mr Barnao for the financial years ending 30 June 2000 and 2002.

135 Those financial statements show trading losses as follows:

136 It is to be noted that Newmarket did not claim trading losses for the financial year ending June 2001. Mrs Sansone was cross-examined at length on items of detail in the financial statements. Two matters of particular focus were a refund of consultancy fees for Mr Clifford in the sum of $15,683 for the financial year ending June 2000 and a loan of $15,000 to Mr and Mrs Sansone shown in the balance sheet for the financial year ending June 1999 but which had reduced to zero for the financial year ending June 2000.

137 She was also cross-examined on the differences between a MYOB computer generated profit and loss statement and balance sheet for the financial year ending 30 June 2001 and the financial statements for that financial year prepared by Mr Barnao. In particular, there were substantial differences in the quantum of income, total expenses, gross profit and total assets. Mrs Sansone was unable to explain the reason for the differences. However she explained that the MYOB generated document contained the day-to-day trading figures done by a bookkeeper employed by Newmarket. She said that at the end of the financial year she supplied Mr Barnao with the computer generated general ledger and other material for the purposes of preparing the financial statements. Mrs Sansone said, and Mr Barnao confirmed, that he would liase with Newmarket's bookkeeper if he required further information as to where an entry came from or why it was made and he made any appropriate adjustments.

138 Mr Barnao provided a detailed explanation for a number of items appearing in the financial statements and the differences between the MYOB generated financial information and the financial statements prepared by him. He explained that part of his role as an accountant was to do reversals that may have been brought to account the previous year. An entry would be reversed if it had not been paid. In the 1999 accounts, Mr Clifford had debited consulting fees of $15,683 and credited accruals. Thus, a consultancy fee was shown as owing at the end of June 1999 but was unpaid and Mr Barnao reversed it the following year because it was not going to be paid. To reverse the entry he credited a refund of consultant's fees and debited the relevant accrual account.

139 Mr Barnao also explained why the Sansone's loan of $15,000 shown in the 1999 accounts was reduced to zero in the 2000 accounts. His recollection was that Mr Clifford had debited wages for the Sansones at the end of June 1999 and had credited "loan Sansone" for $15,000, being wages they should have been paid but did not receive for the year ended 30 June 1999. In 2000 he reversed that entry in the same way as he had done for Mr Clifford's consulting fees. Mr Barnao credited wages and reduced the loan. In his review of the 1999 financial statements, Mr Barnao also identified adding errors which he rectified for the purpose of including the 1999 figures in the financial statements for the financial year ending 30 June 2000.

140 Mr Barnao was cross-examined on the discrepancies between his financial statements and the MYOB generated documents. I do not intend to address in detail his explanation for the numerical differences. However, the reasons for the differences were various and included:

1. input errors by the bookkeeper (either numerical errors or placed in the wrong account);

2. some inflexibility in the MYOB system (for example MYOB showed a National Australia Bank account in overdraft as a negative asset not a liability);

3. the MYOB system only records transactions shown in the business' bank account and not other accounts;

4. the requirement for adjustments for year-end journal entries.

141 Kee-Vee did not challenge Mr Barnao's qualifications or experience and did not adduce any evidence, expert or otherwise, critical of Mr Barnao's methodology or the reliability of the financial statements he produced. In the circumstances, I find that the financial statements prepared by Mr Barnao are accurate and reliable records of the trading losses incurred by Newmarket in the relevant period.

142 The second element of Newmarket's contractual damages claim is for loss of profit. It relies on the evidence of Mr Mark Christie, a licensed property valuer. He obtained an Associate Diploma in Valuation from the Western Australian Institute of Technology (now known as Curtin University) and has 20 years valuation experience, including significance experience in valuing hotel properties. There was no challenge to his expertise. Mr Christie prepared two reports, one dated January 2001 and the other dated February 2002.

143 Mr Christie was provided with draft reports prepared by Hotel and Leisure Advisory Pty Ltd ("Hotel and Leisure") and by White & Associates. He said he had regard to the draft reports and then from his own experience and what he knew of the trading of other properties, concluded that scenario C of a profit and loss extract from a Hotel and Leisure report was the best representation as to the likely trading of the Hotel on completion of the intended redevelopment. Scenario C was predicated on the basis of income of $45,000 per week from the bottle shop and $10,000 per week from the bar together with other sundry items.

144 In his first report he gives his opinion that the adjusted annual net profit of the completed intended redevelopment, excluding the commercial tenancy rent but before the Hotel rent, any lease payments and manager's wages, was approximately $400,000. That figure was based on an estimated turnover figure of $3.093 million (excluding rental for the commercial tenancy) and a gross profit of $989,106, being 31.98 per cent of turnover. This was an estimate of the maintainable trading on an ongoing basis which would be achieved after an appropriate start up or establishment period. He said:

"... in relation to making an estimate as to the trading, what I was talking about was trying to make an estimate as to the maintainable trading on an ongoing business, and ... there would be some start-up or establishment period whereby it would take a certain period of time to get to that maintainable trading level. I'm not in any way suggesting that the property was going to trade at what I have adopted from day one, and what I am alluding to here is that it would take some time in re-establishing a new business as such, so in relation to the point that's been put to me, I have imagined the property to be up and running and that establishment phase having been finished, if you like, and that I am in adopting this particular set of figures as being what I think the property will trade at on a maintainable basis..."

145 Mr Christie said the establishment phase would take 18 months to two years. He also agreed that the establishment phase could take longer (or shorter) than two years. In his opinion, in the first year of trading Newmarket would be doing reasonably well to achieve 75 per cent of the maintainable level of $3.093 million.

146 Scenario C itemises the revenue from different sources (bar, bottle shop, food, accommodation etc), the cost of sales and expenses. Save for the bar and bottle shop income, Mr Christie did not satisfy himself as to the accuracy of the sums allocated for individual items. He said that on these matters he drew on his personal knowledge of the trading of a raft of licensed properties that he had been involved with and his knowledge of industry ratios and averages to conclude that the bottom line figure was reasonable. In particular, that with the turnover of $3.093 million, an adjusted annual net profit of $400,000 was consistent with industry averages.

147 Mr Christie stated in his first report that in the absence of historical trading figures for the redeveloped Hotel any view as to trading potential is extremely subjective. That was also in recognition of the difficulty in identifying truly comparative market evidence because of the number of variables that affect the trading result of licensed premises such as location, competition, affiliation, physical attributes and presentation.

148 Mr Christie in his first report did not expressly identify the comparative evidence on which he relied but said he reached his view based on the knowledge he had of other relevant properties. In his second report he refers to the Hotel's trading figures for the period 1998 to January 2002 and comparative evidence including Liquorland Spearwood, the Spearwood Tavern, the Hamilton Hill Tavern and a variety of other licensed premises.

149 The Hotel trading figures provided to Mr Christie understate the figures shown in the financial statements prepared by Mr Barnao. Mr Christie said that did not affect his opinion because he had decided from the outset that the trading for the property as it existed had no relevance to what the trading of the property would have been had it been completed because the trading of the property in a redeveloped format would be vastly different.

150 Mr Christie referred to the comparative evidence in order to ascertain whether there was anything in their trading results to lead him to believe that his conclusion in his first report as to turnover (of $3.093 million) was erroneous. He concluded there was not.

151 Mr Christie was cross-examined on the comparative evidence. He agreed that Liquorland Spearwood could be discounted as a comparative property because of its buying power. Although the Spearwood Tavern had a turnover of only $2.2 million in 1999, Mr Christie was of the opinion that that outlet was inferior because the bottle shop was a lot smaller, the premises had less exposure and the redeveloped property had more expansive and attractive bar areas so the trading potential would be superior. On the other hand, the Spearwood Tavern had the advantage of an adjoining neighbourhood size shopping centre.

152 The Hamilton Hill Tavern had a turnover of approximately $1.8 million in both 1999 and 2000. Mr Christie's opinion was that these figures did nothing to change his mind on turnover because the redeveloped Hotel would have been far superior to the Hamilton Hill Tavern which is run down, outdated and with limited exposure.

153 In annexures to his reports, Mr Christie lists metropolitan hotel tavern rental evidence and leasehold sales evidence. Of the 13 properties listed, only two had turnover, actual or anticipated, in excess of $3 million. However, the information in the annexures was for the purpose of identifying market rental as a proportion of turnover and net profit. There was little evidence as to the comparability of the premises listed in the annexures for the purpose of comparing turnover.

154 I accept that Mr Christie's opinion as to turnover is extremely subjective, that he could not be categoric as to what the trading figures would be and that in the absence of a trading history there was an increased risk as to whether the $3.093 million would be achieved. However, he said based on "lots of training and experience in relation to these matters, that was my best anticipated, most likely result".

155 Kee-Vee did not adduce any expert evidence contradicting Mr Christie. I have no reason to reject his evidence. It was reasoned and reasonable having regard to the material he had available to him and he had long experience in valuing hotels. His evidence may be subjective (not uncommon in valuation evidence) but I do not regard it as speculative. Accordingly I find that:

(a) it would take two years from the completion of the redevelopment of the Hotel to achieve a maintainable adjusted net annual profit of $400,000 (excluding commercial tenancy rent but before the premises' rent, any lease payments and wages of $45,000);

(b) in the establishment phase, the adjusted net annual profit would be 75 per cent of the figure in (a).

156 Kee-Vee denies that the trading losses were caused by the alleged breach of contract and says further that any trading losses for the period after January 2000 are too remote.

157 The first and second defendants also plead that if the plaintiffs have suffered loss and damage as alleged, it was caused by the plaintiffs' inexperience and incompetent management of the business. They particularise the allegation as follows:

1. Newmarket provided unpopular entertainment and promotional activities;

2. Newmarket discontinued use of scantily clad staff and/entertainment;

3. the plaintiffs failed to supervise the staff in the performance of their employment duties;

4. the plaintiffs disregarded the fourth defendant's advice from the outset of the plaintiffs operation of the business to dismiss the manager, Mr Wilmot, for incompetence;

4A. Newmarket employed and relied on inexperienced management, being Mr Gifford and then the second plaintiffs, to manage and operate the business;

5. the plaintiffs failed to promote the business with new businesses in the area;

6. the Sansones and Mr Clifford assumed responsibility for management of the business and excluded Mr Maller from such management;

8. the business was undercapitalised to the extent that the Sansones' investment of $450,000 into the business was inadequate to achieve the projected turnover and results referred to in par 22 of the statement of claim.

158 It is also pleaded that "the plaintiffs failed to mitigate their loss ... and failed from in or about 1999 to take any steps to complete the alleged incomplete works. Any loss or damage (which is denied) was caused or contributed to by such failure".

159 Finally, the first and second defendants submitted in closing that the plaintiffs had failed to prove that Newmarket had suffered any identifiable loss of profit. I deal with that issue first.

160 A plaintiff has the onus of establishing both the fact and the amount of the loss suffered: Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80, 99, 118, 137-138. Mere difficulty does not relieve a court from estimating damages and it is open to take a broad brush approach: Howe v Teefy (1927) 27 SR (NSW) 301 at 306 per Street CJ; Rosser v Marine Ministerial Holding Corp [1999] NSWCA 72 at [65].

161 However, damages will not be awarded if the evidence does not comply with the minimum standard: Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 8 FCR 481 at 494-496; Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [31-32]. In Commonwealth of Australia v Amann (supra) Mason CJ and Dawson J said (at 80):

"The onus of proving damages sustained lies on the plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than mere expectation."

162 If the evidence is speculative it should not be accepted. I have already concluded that Mr Christie's evidence is not properly characterised as speculative. I am satisfied on the balance of probabilities that there was a likelihood of attaining the claimed profits.

163 The issues of causation, remoteness and mitigation can overlap: Burns v MAN Automotive (Australia) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 673. I will deal with them together. Whether a loss was caused by a particular breach is determined by applying the criteria of common sense. Although it is necessary to show that the loss would not have occurred "but for the breach relied on" that may not in all circumstances be sufficient if there are reasons of justice or policy against attributing causal responsibility: Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 at 418; 456-457; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at 493 - 494; March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 at 509, 515, 522, 524-525.

164 It is unnecessary for the relevant breach to be the exclusive or dominant cause of the loss, it being sufficient that the breach materially caused or contributed to the harm suffered: Chappel v Hart (1998) 195 CLR 232 at 238, 244; Henville v Walker (supra) at 493.

165 However, if the loss claimed is the apparent or likely result of the breach, the onus shifts to the defendant to prove that it was not a result of the breach: Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd [1968] HCA 64; (1968) 120 CLR 516.

166 The causal link between breach and loss can be severed by an act or event subsequent to and independent of the breach (novus actus interveniens). A plaintiff's own conduct may sever the causal link: Mallesons Stephen Jaques v Trenorth Ltd [1999] 1 VR 727. However, an event cannot be relied on as breaking the chain of causation if the risk of its occurrence was created or enlarged by the breach itself or if the event was foreseeable as "a serious possibility or a not unlikely occurrence" of the breach in question: Kenny v Good Pty Ltd v MGICA (1992) Ltd (supra); Mallesons Stephen Jaques v Trenorth Ltd (supra).

167 A loss is too remote if it was not reasonably foreseeable as likely to result from the breach either because of imputed knowledge or because of a defendant's actual knowledge: Commonwealth v Amman Pty Ltd (supra) at 91 - 92.

168 A failure to terminate a contract in response to its breach may make loss caused by the breach too remote if the continued operation of the contract could not be reasonably expected: Burns v MAN Automotive (Australia) Pty Ltd (supra). In that case MAN contracted to supply a prime mover to a finance company for hire to Burns. MAN falsely warranted that the engine had been fully reconditioned. After the first year of hire it was clear that the prime mover in its unreconditioned state was unsuitable for the known purpose of interstate haulage. However, Burns used it for a further year until it broke down. Burns sued for damages for the loss of profits he would have earned over the useful life of the engine as warranted, being four years. The High Court limited damages to the loss of profit incurred in the first year of hire on the ground that it could not have been reasonably foreseeable that Burns would persist in operating the prime mover after becoming fully aware of the state of the engine. Loss of profit thereafter was too remote.

169 On the other hand, an accountant was held liable for trading losses incurred by the buyer of a business acquired as a result of the accountant's negligence where the decision to continue the business was justifiable in the circumstances: Mann Judd (A Firm) v Papers Sales Australia (WA) Pty Ltd, unreported; FCt SCt of WA; Library No 980565; 25 September 1998.

170 Damages cannot be recovered for any loss which could have been prevented by reasonable mitigating action by the injured party. The party in breach has the onus of establishing the failure to mitigate: Burns v MAN Automotive (Australia) Pty Ltd (supra) at 673.

171 There seems to be no reason in principle why a failure to terminate a contract at law for breach may not amount to a failure to mitigate if the continued operation of the contract would lead to further loss: Mann Judd (A Firm) v Papers Sales Australia (WA) Pty Ltd (supra); Burns v MAN Automotive (Australia) Pty Ltd (supra) at 660 and 675.

172 However, an injured party is only obliged to take such steps as are reasonable and need not resort to measures that are costly, complex or extravagant as where the expenditure in mitigation would exceed the loss: Freemantle's Pastoral Pty Ltd v Hyett [1999] VSC 129. A plaintiff is not obliged to act otherwise in the ordinary course of business and the standard is not a high one because the defendant is the wrongdoer: Sacher Investments Pty Ltd v Forma Stereo Consultants Ltd [1976] 1 NSWLR 5 at 9.

173 I turn now to the facts. It is necessary to make factual findings concerning the allegations of inexperienced and incompetent management. The first two matters relate to entertainment and promotional activities. The gravamen of the complaint appears to be the discontinuance of "skimpys" and "raunchy girls". It was Newmarket's intention from the outset to change the culture and clientele of the Hotel following its redevelopment. Mr Boucher accepted that there would be no basis upon which the refurbishment of the Hotel in the manner envisaged by Newmarket and Kee-Vee would make sense unless a different clientele were attracted to the Hotel. Newmarket's proposal was that the Hotel become a family hotel. Skimpys and raunchy girls would play no part in the redeveloped business.

174 It is the case and I find that Newmarket discontinued the use of scantily clad staff and entertainment of a similar nature for some period while it was in possession of the Hotel. Mrs Sansone objected to entertainment of that nature. Mr Clifford said he would have liked to see it continue during the redevelopment period but if it did Newmarket was in danger of losing its liquor licence because it was against the law. Mr Boucher accepted that in 1995 the Hotel had ceased to comply with the public building regulations of the City of Cockburn and, as a result, entertainment in the Hotel was not permitted although he thought (based on what his daughter had said) that the Council had withdrawn the notice prohibiting any form of entertainment. Mr Boucher's understanding is based on hearsay and is not supported by the evidence.

175 At the time this form of entertainment was discontinued it was expected that Kee-Vee would perform its contractual obligations. But of course the redevelopment of the heritage building did not occur and the lounge (blood) bar continued, although it was now attached to the heritage building which was an unfinished building site. Mr Sansone's uncontradicted evidence was that at some stage Newmarket recommenced using raunchys and skimpys notwithstanding that it was not permitted to do so.

176 I am satisfied that Newmarket ceased this form of "entertainment" for an unspecified time because it was not permitted by the City of Cockburn and because it intended to attract a new clientele. The risk to its liquor licence was sufficient justification on its own for its action. I am not persuaded that the withdrawal of skimpys and raunchys broke the chain of causation between the breach (failure to complete the redevelopment) and the losses.

177 Mr Sansone's uncontradicted evidence was that Newmarket advertised and promoted its business in the local newspaper and in pamphlets delivered to caravan parks and the surrounding industrial areas. The pamphlets were issued once a week. They conducted promotions such as giveaways every two months. However, the bar was not the kind of place that would attract people in the business sector. Newmarket looked at employing marketers but were told that they should wait until the redevelopment was finished because it would be a waste of time and money before that. Mr Sansone said:

"We did the advertising that we could, what was possible and what we needed to do, but there was no point advertising the hotel when it's a building site, when we've only got a lounge bar that can only accommodate 20 or 30 people and in very poor conditions. When it's hot, it's hot. When it rains, it rains in, and all that sort of stuff."

178 Mr Boucher agreed that in order for a new clientele to be attracted to the Hotel, the refurbishment had to be completed. He also agreed that there was no point marketing the blood bar whilst it continued in the form in which it had existed for some time. Further, at no time did Newmarket have a full bottle shop to promote as they were only permitted by the City of Cockburn to use the drive through section. The paving around the bottle shop was not completed until October 2000 and areas remained unpaved.

179 It was suggested that following the commencement of this action in August 2000 the plaintiffs took no steps to grow the business. I accept Mr Sansone's evidence that they did what was reasonable in very trying circumstances of Kee-Vee's making.

180 Mr Clifford's evidence, which I accept, is that the losses were caused by:

(a) the condition of the Hotel resulting from the manner in which the building work had been undertaken and the mess left by the builder;

(b) the significant delays in the time taken to undertake the Lessor's Work;

(c) the additional costs and expenses incurred in hiring containers, including a refrigeration container for use as a temporary bottle shop;

(d) security problems suffered with many break-ins to the temporary bottle shop which required the services of a security firm;

(e) the general condition of the Hotel and surrounds caused by Kee-Vee's contractors meant the premises were very unattractive and there was flooding of the bottle shop and hotel as a result of either incomplete works or the standard of works performed.

181 In my view there is no substance to grounds 1 and 2 of the particulars. There is insufficient evidence to persuade me that the plaintiffs failed to supervise staff. As to Mr Wilmot, he was recommended for the position of manager by Mr Maller. He had previous managerial experience at the Norfolk Hotel and enjoyed a very good reputation. However, in the first week of the operation Mr Maller and Mr Wilmot had a falling out and Mr Maller wanted to dismiss him. Mr Clifford and Mr Sansone differed from Mr Maller about Mr Wilmot's capacities however they came to accept in due course that Mr Wilmot did not relate well with patrons or staff. Mr Wilmot's relationship with Newmarket ceased in about November 1998. The defendants' complaint is that Newmarket disregarded Mr Maller's advice to immediately dismiss Mr Wilmot. In light of Mr Maller's earlier recommendation and Mr Wilmot's reputation and experience, it is difficult to see any proper basis for acting on Mr Maller's desire. Particulars 3 and 4 are not made out.

182 Mr Wilmot was succeeded by Mr Chris Gifford who was interviewed by Mr Maller and his staff at White & Associates. Mr Gifford was unsuccessful in the role as manager and in about March/April 1999 Mr and Mrs Sansone took over the day-to-day management of the hotel. They had no prior experience in managing licensed premises.

183 Both Mr Wilmot and Mr Gifford were managing the Hotel during a difficult time. It was anticipated that the culture and style of the Hotel would change after the redevelopment which commenced in October/November 1998. The evidence establishes that the redevelopment caused significant disruption to the business. It became clear that the works were going to take significantly longer than anticipated and by February 1999 there was an impasse in relation to the renovation of the hotel. In the circumstances it was reasonable for Mr and Mrs Sansone to become actively involved in view of the situation that had arisen. I am not satisfied that Mr Maller was "excluded from management" without cause. In my view, the management issues upon which the first and second defendants rely are connected with the breach and do not break the chain of causation.

184 As to Newmarket's capitalisation, Mrs Sansone's evidence was that she and her husband intended to advance $450,000 to Newmarket as and when required to purchase the business and pay for the fit out. By August 2000 the Sansones had advanced a total of $374,525 to Newmarket to complete the purchase of the business and to assist it to meet its liabilities as and when they fell due. That amount had been expended before any work to undertake the fit out of the Hotel had occurred because the Lessor's Work were never completed. By August 2000 the Sansone cash reserves were about $163,000 being less than the cost of the fit out. However, Mr and Mrs Sansone had other assets including a five-acre property east of Wanneroo which they could have mortgaged to obtain funds for the fit out if the hotel had ever been completed.

185 Further, as stated by Mr Clifford and confirmed in his letter of 6 April 1998, it was intended that the money required to run the Hotel business was to be funded from cash flow and the syndicate members had agreed if necessary, to contribute working capital pro rata to their shareholding. However, it did not get to the stage where they had to contribute because the redevelopment did not proceed. In any event, the first and second defendants' plea is not that Newmarket did not have funds which could have been made available to it but rather that the sum of $450,000 was inadequate to achieve the projected turnover and results. There is no positive evidence that the cash flow was unlikely to fund the business. I am not persuaded that, if Kee-Vee had performed its contractual obligations, the sum of $450,000 would have been inadequate as alleged.

186 It is also suggested that Newmarket should have completed the Lessor's Works. That occurred in relation to aspects of the bottle shop. Newmarket took possession of the new bottle shop in September 1999 by changing the locks. It gave Kee-Vee the opportunity to complete the Lessor's Works which it failed to do. Newmarket had discussions with the City of Cockburn in respect of matters that needed completion. Newmarket spent approximately $14,700 for works associated with the bottle shop which enabled them to operate the drive through but not the bottle shop. Newmarket commenced trading from the bottle shop on 25 November 1999. In my view, it was not reasonable for Newmarket to carry out the balance of the Lessor's Works at a further cost of some hundreds of thousands of dollars. I am satisfied that the matters relied on by the first and second defendants, whether taken singly or together, do not break the chain of causation.

187 However, in considering issues of causation it is necessary to have regard to my finding that if Kee-Vee had complied with its contractual obligation to complete the Lessor's Works diligently and within a reasonable time, the redevelopment would have been completed by 30 June 1999. There also remains the question of the fit out to be undertaken by Newmarket. There was no direct evidence concerning the time it would take to complete the fit out. However, the evidence of Messrs Clifford and Sansone, which I have accepted, was to the effect that the new bars in the heritage building would be trading before completion of the Lessor's Works which means the fit out in that area would have to be achieved concurrently with the Lessor's Works. I am satisfied that the construction work and fit out of the bottle shop and the bars in the heritage building would have been substantially completed by 30 June 1999. It follows that the expert evidence of the profits generated by the redeveloped Hotel applies from the beginning of the 1999/2000 financial year.

188 As to the claim for trading losses, Newmarket must prove a causal connection between the breach complained of (failure to complete the Lessor's Works diligently and in a reasonable time period) and the trading losses before (and after) redevelopment should have been completed. I see no basis on which Newmarket can claim in contract for trading losses related to the failure to complete the heritage building before it was contractually due for completion. However, it could claim any losses from Kee-Vee's failure to complete the bottle shop by the end of January 1999. Although Mr Clifford gave evidence of the types of cost increases incurred there is little direct evidence on quantum and any attempted apportionment of the trading loss in the first financial year (to 30 June 1999) has significant difficulties. In those circumstances, I propose to adopt a very conservative estimate of 20 per cent of the average monthly trading losses for five months (20% of ($237,487 [rparenmid] 12) x 5) being $19,791. I am not prepared to take the same approach to expected profits because they are generated by the Hotel as a package.

189 The next issue is whether the trading losses after January 2000 are too remote. As previously discussed, a loss is too remote if it was not reasonably foreseeable or likely to result from the breach. In my view, it was within the reasonable contemplation of the parties that if Kee-Vee did not complete the Lessor's Works, Newmarket would or might incur losses, including loss of profit.

190 The test of remoteness in contract is the same as in tort and in a damages claim for breach of s 52 of the TPA. That is, whether it was reasonable in all the circumstances for Newmarket to continue trading for as long as it did: Gould v Vaggelas [1984] HCA 68; (1985) 157 CLR 215 at 222-223 and 227-228 per Gibb CJ; Mann Judd (A Firm) v Papers Sales Australia (WA) Pty Ltd (supra); Doyle v Olby (Ironmongers) Ltd [1969] EWCA Civ 2; [1969] 2 QB 158. Whether it is reasonable in all the circumstances depends upon the range of available alternatives including termination for breach (unless the contracts have been affirmed), sale to a third party, making good Kee-Vee's breaches or continuing on in an attempt to make the business profitable.

191 I have already concluded that Newmarket did not act unreasonably in failing to itself complete the Lessor's Works.

192 Mr Boucher gave evidence concerning approaches to Newmarket from third parties to purchase the business from Newmarket. Mr Clifford's evidence was that although indications of interest were received no concrete offers were made. He was asked about a signed offer from an estate agent for $200,000 for the whole business but Mr Clifford was sure the offer emanated from the first and second defendants. In the circumstances in which Newmarket found itself, it is not surprising that it did not receive offers to purchase from independent third parties. I accept Mr Clifford's evidence on this matter.

193 Although Newmarket traded for what is, prima facie, a long time after it first became aware of Kee-Vee's failure to complete the Lessor's Works diligently and within a reasonable time, the circumstances of this case are unusual. The Lessor's Works on the hotel ceased in February 1999. Work on the bottle shop and the site works was very slow. Newmarket and Kee-Vee became aware of unanticipated cost overruns which had significant adverse financial consequences for both parties. In the period February to July 1999 the parties were negotiating a settlement which did not proceed. By July 1999 Kee-Vee indicated it intended to proceed with the Lessor's Works. Nothing happened in relation to the heritage building. By March 2000 Kee-Vee indicated a renewed intention to proceed with works on the hotel. It did not. Newmarket commenced these proceedings in 2000. It was unsuccessful in interlocutory applications to restrain Kee-Vee from re-entering and taking possession of the premises if Newmarket ceased paying rent. Newmarket only vacated the Hotel when it was left with no alternative by the City of Cockburn whose action resulted in the suspension of the liquor licence. The evidence also establishes that if Kee-Vee had completed the Lessor's Works, the Hotel would have been profitable. Mr Clifford remained of the view that if Kee-Vee performed, it would have been an excellent investment. In all of these circumstances, I am not persuaded that Newmarket acted unreasonably in continuing to trade or that the claimed trading losses for the years ending 2000 and 2002 are too remote.

194 The pleading of the failure to mitigate relates to the failure to take any steps to complete the Lessor's Works. I have already concluded that Newmarket did not act unreasonably in that regard.

195 For the reasons given, I conclude that Newmarket is entitled to its trading losses as follows:

196 There is no pleaded claim by Newmarket that by reason of Kee-Vee's breach it terminated the Agreement for Lease (and other agreements) or for any consequential claim for loss of bargain damages. However, it is not contested that Newmarket had abandoned the Hotel and failed to pay rent and that Kee-Vee purported to terminate the short term lease for the failure to pay rent. Theoretically that might leave the Agreement for Lease and long term lease on foot. That cannot be the case because the agreements are interdependent. The fact is, and I find, that Newmarket abandoned the Hotel on 25 October 2002 and by its conduct evidenced an intention to terminate the Sale Agreement, Agreement for Lease, short term lease and long term lease. One way or another the termination was effected either because Newmarket was legally entitled to terminate or, if not, because Kee-Vee terminated for Newmarket's breach. Whether or not Newmarket lawfully terminated the agreements for cause does not have to be decided in these proceedings because Newmarket has not claimed, and Kee-Vee has not proved or pursued, loss of bargain damages. In light of the finding of termination there is no proper basis for Newmarket's claim for loss of profit (on an undiscounted basis) from 2002 for the balance of the term of the long term lease (a further 21 years).

197 Newmarket claims a net profit of $135,000 per annum. That is based on a rental of $220,000 per annum to reflect the likely cost of the Lessor's Works. Relying on Mr Christie's opinion of a net annual profit of $400,000 before rent and a manager's salary of $45,000, that results in a net annual profit of $135,000. Kee-Vee has not suggested that approach is wrong in principle.

198 As to the claim for profits, I find that Newmarket is entitled to the following:

199 I dismiss the claim made in closing for the return of the purchase price for the business. That is a claim for, in effect, a wasted expense that is inconsistent with the claim for contractual profits.

200 The plaintiffs rely on a number of representations. For ease of reference I propose to give each representation a number and refer to it thereafter by that number. In its pleading, Newmarket relies on oral representations made in or about March/April of 1998 by Mr Maller to Mr Clifford to the effect that:

1. the Hotel business could be purchased by Newmarket for $170,000;

2. Kee-Vee would renovate the hotel and construct a drive through bottle shop on the land adjoining the hotel. The redevelopment would involve restoration of the hotel to a standard commensurate with the Albion Hotel in Cottesloe;

3. bottle shop patrons would have unrestricted right to use a right of way between Rockingham and Cockburn Roads to provide ease of access;

4. Kee-Vee would spend $750,000 to effect the redevelopment;

5. Kee-Vee required a 10 per cent return on the value of the Hotel (then estimated by Kee-Vee at $1.2 million) plus the money Kee-Vee was to expend on the redevelopment so that the rent after redevelopment would be about $195,000 per annum;

6. the redevelopment would include retail premises on the southern end of the proposed bottle shop which Newmarket could sublet for $28,000 per annum;

7. Newmarket would have to undertake the work to fit out the Hotel and the bottle shop which would not cost more than $250,000;

8. this was an excellent investment opportunity and the best opportunity Mr Maller had seen in his experience as a hotel broker;

9. a Fremantle based team would join the National Soccer League and its preferred choice for a 27,000 seat stadium was to be built on land opposite the Hotel on Rockingham Road.

Based on express representations 1 to 9, the plaintiffs say that the following (10 and 11) were implied representations;

10. the proposed rental for the Hotel was reasonable;

11. the proposed rental for the shop was reasonable and that there were reasonable prospects for finding a sub-tenant.

201 It is also pleaded that in or about May or June of 1998 Mr Maller provided to Mr Clifford a Budget and Cash Flow forecast for the Hotel:

12. which predicted for the financial year to end 30 June 1999 that the Hotel would have:

- expenses (excluding cost of sales) and inclusive of $159,996 rent of $765,197;

202 It is further pleaded that in about April 1998 Mr Boucher orally represented to Mr Clifford that:

13. Mr Boucher was aware of the proposal to build the soccer stadium on Rockingham Road and was of the opinion that this would ensure the commercial success of the bottle shop;

14. Kee-Vee could not agree to an initial rent of $55,000 per annum (it is pleaded that Kee-Vee had earlier provided to Newmarket a draft agreement to lease the Hotel which provided for a rental at the rate of $55,000 per annum until completion of the redevelopment);

15. the initial rent would have to be $85,000 per annum;

16. to compensate Newmarket for the increase in rental Kee-Vee would sell to Newmarket $35,000 worth of plant and equipment at the Hotel in accordance with the schedule to be provided by Kee-Vee to Newmarket;

17. the redevelopment would be completed within 12-16 weeks;

18. the redevelopment would commence within 4-5 weeks of Newmarket taking over the Hotel enabling completion of the bottle shop before Christmas 1998;

19. as an additional inducement Kee-Vee would grant a 15 year lease with two options each for five years in lieu of the previously proposed 15 year lease.

203 The plaintiffs do not plead that representations 1, 5, 14, 15, 16 and 19 are misleading and deceptive. They plead that representations 2, 3, 4, 6, 7, 9, 12, 13, 17 and 18 are representations as to future matters as defined in s 51A of the TPA.

204 As to representations 8, 10 and 11 the plaintiffs plead that a return of 10 per cent on the value of the Hotel as it stood in June 1998 plus 10 per cent of the cost of the redevelopment would require a rental payment significantly in excess of market rental so that the acquisition by Newmarket of the business was not and could not have been an excellent investment opportunity.

205 Notwithstanding that the plaintiffs plead that representations 17 and 18 concern future matters, they plead in connection with them that:

(a) the drawings for the redevelopment were inadequate and insufficiently detailed for budgeting the cost to complete;

(b) the plans were little more than indicative of the scope of the Lessor's Works so that they could be the foundation for indicative costings only;

(c) there were no working drawings for the proposed builder, no specifications, no sufficient schedule of finishes and no construction programme for staging the redevelopment making the represented time for construction improbable;

(d) a reasonable construction period for the redevelopment would have been about nine to twelve months.

206 The first and second defendants conceded in closing that representations 2, 3, 4, 6, 7, 12, 13, 17 and 18 were as to future matters. Accordingly, the onus is on the first and second defendants to prove that they had reasonable grounds for making the relevant representations: s 51A of the TPA.

207 The first and second defendants do not plead that there were reasonable grounds for making the representations as to future matters. The first and second defendants deny that the representations were made and plead further that if (which is denied) they were made, they were not relied upon by Newmarket to enter into the agreements. The first and second defendants say the plaintiffs entered into the agreements solely in exercise of the own judgment and further that:

(a) by cl 11 of the Agreement for Lease the plaintiffs acknowledge that they did not rely on any statement, warranty or representation of fact made by the vendor or the vendor's agent;

(ii) prior to entry into the agreements, the plaintiffs received advice from a legal practitioner who was involved in the settlement of the terms of the agreements.

208 The defendants also plead that at all material times Mr Maller was acting as agent for and on behalf of Newmarket and made any representations in that capacity.

209 Mr Clifford was at the material times a chartered accountant and had undertaken many substantial property developments including the Walkabout Motels in Port Hedland and Mount Newman, the Pilbara and Port Hedland bakeries and the South Hedland Shopping Centre.

210 Mr Clifford's evidence-in chief (by way of statement) is to the following effect. He was approached by Mr Maller of White & Associates as agent for Kee-Vee. Mr Clifford had known Mr Maller on a personal basis for over 30 years and regarded him as a friend. He had a number of meetings with Mr Maller that took place in March and April 1998 in which Mr Maller told him (inter alia) that:

(a) Mr Boucher would renovate the existing hotel building and build a liquor barn bottle shop on the land adjacent to the existing hotel building and that the driveway for the bottle shop would run between Rockingham and Cockburn Roads using a right of way which would allow easy and convenient access to patrons;

(b) the bottle shop and its patrons would have unrestricted rights at all times to use the driveway between Rockingham and Cockburn Roads and this was an enforceable legal right;

(c) Mr Boucher would value the undeveloped land on an as is basis at $1.2 million and that Mr Maller agreed with that valuation based on his knowledge and experience in hotel broking over a period of more than 30 years;

(d) the purchaser of the leasehold would have to pay a rental equivalent to 10 per cent of the $1.2 million valuation and what the landlord spent on the development which would not be more than $750,000. This meant that the rent would not be more than $195,000 per annum;

(e) the purchaser would be able to sublease the shop on the southern end of the bottle shop and net approximately $28,000 per annum from this source;

(f) the fit out the lessee had to undertake would not cost more than $250,000 and that he was led to understand by Mr Maller that this figure came from an architect who had done some work on the proposed development.

(g) it was planned that Fremantle would launch their own soccer team in the national soccer competition and that the preferred choice for the stadium, a 27,000 seat stadium, was to be built opposite the hotel and Mr Maller showed him a newspaper clipping to that effect;

(h) it was a really good deal in fact Mr Maller said in all his time in hotel broking this was the best deal he had ever seen.

211 In reliance on what he was told by Mr Maller, Mr Clifford calculated that he needed to find $420,000 to enter into the deal. He advised Mr Maller that he had no money of his own to put into the deal however he was looking at investing over $450,000 on behalf of a client (the Sansones) and that he would put the deal to them. Mr Maller said that he was excited at the prospect of the development proceeding and that he wanted to take part in the development as a part owner. In particular, he was excited at the prospect of having "walking money" at the end of every week, so much was Mr Maller's confidence in the development.

212 During the period that Mr Clifford and Mr Maller were negotiating the deal and leading up to the signing of the contracts, Mr Maller provided Mr Clifford with projected budget and cash flow figures for the Hotel which showed a substantial projected profit of over $300,000 in a 12 month period. The document Mr Clifford said he was shown is headed "Projected Budget and Cash Flow" prepared by White & Associates and shows total sales of $3,380,000 (of which 76.92 per cent was generated from the bottle shop) a gross profit of $1,063,400, expenses of $765,197 (with annual rental of $159,996) and a profit of $333,203. There is nothing in the document to indicate that it is for a particular financial year. Mr Clifford was not asked why the rent was not $195,000 as represented.

213 Mr Clifford did calculations of the funds required to undertake the deal based on what Mr Maller and Mr Boucher had told him and a handwritten worksheet dated 21 April 1998 is in evidence. That shows his calculation of Kee-Vee's development costs at $790,000 which in addition to the land value of $1.2 million made the rental 10 per cent of $1,990,000. However, he calculates the income from the sublease of the shop at $48,000 and deducts that figure from the rent the purchaser would pay showing a net rental of $151,000. I infer from Mr Clifford's workings that the rental of $159,996 in the White & Associates Budget and Cash Flow is the projected net rental having regard to the income from the shop.

214 Mr Clifford also said that following discussions with Mr Maller in March and April 1998 he decided to put the deal to the Sansones on the basis that they take 40 per cent, Mr Clifford take 40 per cent and Mr Maller take 20 per cent. Mr Clifford said that he met with them in late March/early April 1998 to discuss the deal. Mr Clifford wrote a letter dated 6 April 1998 to the Sansones outlining the proposal. The letter refers to a meeting with them that day and sets out (and confirms) the proposal which was that a company be set up to purchase the business; that the shareholdings be 40 per cent (Sansones), 40 per cent (Clifford interests) and 20 per cent (Maller interests) and that the directors be the Sansones and Messrs Clifford and Maller. It was further proposed that the Sansones would contribute capital costs (by way of loan to the company) of between $400,000 - $450,000; that Newmarket would guarantee the Sansone's interest at the rate of 10 per cent per annum prior to any distribution to Messrs Clifford and Maller who would also guarantee Newmarket's obligations to repay the loan to the Sansones; that in the event working capital was needed for stock it would be contributed by the shareholders on a pro rata basis and that White & Associates and Mr Clifford's practice provide the professional management for which they would be paid a total of $4,000 per month. The letter refers to the costs of refurbishment including fees at $900,000. The letter closes with the following:

"Really hope you can both see your way clear to acquiesce to what Mr Maller and the writer feels is a unique opportunity, to come in on the ground floor and create a development which will give us a wonderful opportunity, not only for working profits, but for a very genuine capital appreciation for our investment."

215 A "Capability Statement" on Mr Maller is also said to be attached to the letter.

216 Subsequently a written loan agreement between the Sansone's personal company Claremont Services Pty Ltd ("Claremont"), Newmarket, the Sansones and Messrs Clifford and Maller was executed. It provided for a loan by Claremont to Newmarket of $425,000 on which interest was payable and Messrs Clifford and Maller guaranteed Newmarket's obligations.

217 In early April 1998 Mr Maller provided to Mr Clifford a draft Agreement to Purchase Lease. The draft provided for the purchaser to operate the Hotel from settlement until completion of the development at a rental of $55,000 per annum and thereafter under a 10 year lease with two five year options at a base rent of $135,000 per annum with the owner carrying out the renovation.

218 Some days after Mr Maller gave Mr Clifford the draft agreement, Mr Maller informed Mr Clifford that Mr Boucher wanted to meet them both. It appears there were at least two meetings between Messrs Boucher, Maller and Clifford. Mr Clifford said that at one meeting at Mr Maller's office, Mr Boucher advised him that because of his own situation he could not agree to an initial rent of $55,000 per annum but would need to have rent of $85,000 per annum and that to compensate for this additional rent he would include in the purchase some $35,000 worth of plant and equipment. He said that he would provide a schedule of the plant and equipment. Mr Clifford said he would not agree to the increased rental. Mr Boucher then made to walk out but Mr Maller persuaded him to stay. Mr Boucher then said:

(a) the development would be completed in a short time frame, 12-16 weeks and hence his increase in rent was not significant;

(b) he would commence construction of the development within 4-5 weeks of us taking over to enable us to commence trading in the new bottle shop before Christmas;

(c) as an additional inducement he agreed to give us a 15 year lease with two five year options.

219 On that basis Mr Clifford said he agreed to pay the additional rent. He said he knew $85,000 rent was in excess of market value because he checked it out with a person from Allied and Leisure Industries.

220 According to Mr Clifford the general terms of the proposed deal were agreed before the end of April 1998. Mr Harford of Michael Whyte & Co prepared the documentation for the transaction on behalf of Kee-Vee and Mr Boucher. Mr Harford prepared a draft Sale Agreement, short term lease and Agreement for Lease. In April 1998 Kee-Vee's solicitors provided further drafts of these documents to Newmarket's solicitor, Grant Milner & Associates ("Milners") for their review. The Sale Agreement was executed by Newmarket on or about 25 May 1998. Newmarket signed the short term lease some time later. There is no evidence as to when Kee-Vee signed these agreements.

221 By letter of 2 July 1998 Kee-Vee's solicitors advised Mr Maller that the Agreement for Lease could not be executed until Kee-Vee knew that it had finance for its renovation. Settlement under the Sale Agreement took place on 8 July 1998. By that stage the terms of the Agreement for Lease had still not been finalised and Milners continued to negotiate the terms with Mr Harford on behalf of Kee-Vee. At settlement, Newmarket did not pay the full purchase price as it had been agreed that $85,000 would not have to be paid until 8 October 1998, three months after settlement date. In the light of that Mr Clifford said they were happy to proceed to settlement without the Agreement for Lease having been signed.

222 Mr Clifford received preliminary plans of the redevelopment from Kee-Vee's architect Chris Thompson in July 1998 and he discussed them with Mr Thompson.

223 The negotiations on the Agreement for Lease continued throughout August and September 1998. Under cover of a letter dated 12 August 1998 Kee-Vee's solicitors provided to Newmarket's solicitors a copy of the details of works to be undertaken by the Lessor and the Lessee which had been provided by Mr Thompson and a final draft of the Agreement for Lease requesting their comments. Milners responded by letter of 3 September 1998 seeking amendments to the Second and Third Schedules (the Lessee's and Lessor's Works) and requesting a copy of drawing WD2 referred to in the Third Schedule. By letter dated 10 September 1998, Michael Whyte & Co provided Newmarket with a copy of drawing WD2 (which are drawings covering both the bottle shop and the hotel) which were given to him by Mr Harford.

224 Milners wrote again on 11 September 1998. In commenting on cl 5 of the draft Agreement for Lease the solicitors state:

"We would like to see some provision inserted requiring your client to complete the Lessor's Works diligently and within a specified or reasonable time frame."

225 The letter also notes that Mr Boucher had agreed to shift several of the obligations in the Second Schedule to the Third Schedule.

226 By letter from the architect dated 1 October 1998 Mr Clifford was provided with two further sets of drawings for the bottle shop and the hotel. I have already referred to Mr Clifford's evidence of the circumstances surrounding the execution of the Agreement for Lease which was to the effect that the plans and specifications would be annexed to the Agreement for Lease when it was signed by Kee-Vee.

227 Mr Clifford on behalf of Newmarket wrote to Mr Boucher's daughter Louise in October 1998 enclosing a cheque for $85,000 being the balance of the purchase price payable under the Sale agreement. Mr Clifford confirms his concerns about certain delays and asks for a rental reduction. The letter is in the following terms:

"Louise, as discussed on the telephone yesterday, we are concerned on the following matters:-

1 We are not aware at the point of writing that Kee-Vee Properties Pty Ltd have signed a building contract in terms with the Deed of Agreement for Lease.

2 We are not aware if the Lessor has arranged necessary finance for the building and refurbishment as per the Deed of Agreement for Lease.

3 As discussed, the Water Corporation and others are now issuing accounts directly to our company, but are including arrears brought forward, being outstandings by Kee-Vee Properties Pty Ltd.

We need acknowledgement that all outstandings will be met by Kee-Vee Properties Pty Ltd, so as not to restrict the financing required to complete the redevelopment.

4 We have, on several occasions, requested a schedule of plant and equipment, that we effectively took over on 8 July 1998. To date, this has not been forthcoming.

5 We need the undertaking of Kee-Vee Properties Pty Ltd to meet any expenses that are incurred, in cleaning up the incredible mess left after the 'Dongers' were removed this week.

The enclosed cheque is handed to you on the understanding and conditional upon the beforementioned be taken care of. Louise, I'm sure you won't have a problem here, but if you do, please contact me immediately.

Further, I wonder if you could contact your father, to plead my case for a rental reduction, until completion date.

You see Louise, when we agreed to pay $85,000 per year ($7,083 per month) lease, until completion date, it was on the understanding that whilst this was in fact excessive, we had to take into account that approximately $25,000 - $30,000 worth of equipment was being included in the lease, and still further, the construction for the refurbishment would start in approximately 4 - 5 weeks time from takeover.

Louise, we are now in our 12th week and construction still hasn't started, the plant and equipment taken over it seems is negotiable, with no intrinsic value, and in fact, we had to pay in the vicinity some $14,000 to make good the equipment taken over, and for other repairs and maintenance necessary for us to carry on trading.

I did ask Allan Maller to contact Keith in the first three weeks, to negotiate a decrease in our lease, but things were a little sensitive then, and Allan chose not to proceed.

We are now 'hurting' because of the beforementioned, but not taking into account our Management.

In summing up, I wonder Louise, if you would ask Keith to reduce the monthly lease payments to $4,167 per month until completion date."

228 Mr Clifford in cross-examination gave evidence of his independent investigations of the deal. He called in Australian Liquor Marketers and Swan Brewery representatives and two or three others and asked them to verify the figures that Mr Maller had put to Mr Clifford. In context, it is clear he is referring to the White & Associates' Budget and Cash Flow Forecast. Representatives from Australian Liquor Marketers came to Mr Maller's office and in front of Mr Maller, Mr Clifford and he thinks the Sansones, checked out the figures that Mr Maller had provided showing about a $333,000 profit for the year and confirmed them. The figures were also confirmed by the Swan Brewery people and Mr Maller's business partner Lance White.

229 Mr Clifford also spoke to Trevor Sprigg of Easy Street, a bulk liquor house like Liquor Barons, and asked his opinion as to the turnover to expect in the bottle shop. Mr Sprigg supported the forecast that Mr Maller had given to Mr Clifford as to the sort of turnover to expect through the bottle shop, the percentages that were proposed and the sort of gross profit and net profit they would be able to obtain. He also discussed the proposal with the owners of the Cottesloe Beach Hotel and the Inglewood Hotel who were positive.

230 In addition, he had the hotel valued by Eddy Tate & Associates who confirmed that Mr Boucher's figure of $1.2 million was about right for the land and buildings.

231 Mr Clifford said that based on his independent investigations, everything had stacked up "beautifully". He remained of the view that it would have been a very viable project if Mr Boucher and his team, including the builder, had performed.

232 In relation to the fit out costs, Mr Clifford said that Mr Maller produced a list of the fit out for a cost of $250,000. Mr Maller had that listing from Mr Boucher's architect although Mr Clifford did not take any other steps to verify them.

233 Mr Clifford also spoke to the people connected with the soccer proposal. In particular, he spoke to a Mr Don Evans who was behind the push for the Fremantle team and he said there was a chance, a very good chance that it would happen. They had selected two sites, one of which was a rubbish dump opposite the Hotel and that was the preferred site. He said Mr Maller presented to them a newspaper clipping concerning the soccer proposal.

234 Mr Clifford also said in cross-examination that after Mr Maller had made the representations of which he gave evidence he told the Sansones exactly what Mr Maller had told him. He said he relied very much on Mr Maller. He was a friend of his for some 30 years, and he had been in the hotel game for a very long time. By the end of the meeting between the Sansones and Messrs Maller and Clifford referred to in his letter of 6 April 1998, the group had in essence agreed to go ahead with the deal. He could not recall when he told the Sansones of what Mr Maller had represented to him but conceded that it was possible he conveyed the information to them after the letter of 6 April 1998. However, he thought not.

235 He was unable to recall the source of the information in his letter of 6 April 1998 that the refurbishment, including fees, was estimated at $900,000 plus. He thought it came from Mr Maller. He also said that he did not put any of the representations made by Mr Maller in his letter of 6 April to the Sansones because, "they were irrelevant".

236 Mr Clifford was also unclear as to when Mr Maller provided the Budget and Cash Flow forecast. He first said that it was after the Sansones had decided to go ahead with the deal on 6 April 1998. He then said he was sure that Mr Maller gave him the forecast (which was not for the period ending June 1999 but a forecast of figures for 12 months) on or about 6 April 1998. Mr Clifford conceded that if he got the forecast in May or June 1998 it could not have influenced the decision to proceed.

237 He also said he was crazy not to get Newmarket's solicitors to put the representations in the contracts and the solicitor should be shot.

238 Mr Maller and Mr Boucher gave evidence for the first and second defendants. Mr Maller said in his evidence-in-chief that at the beginning of 1998 Mr Clifford said he had some clients who were looking for an investment and he asked Mr Maller to find one on their behalf in the hospitality industry. Mr Maller mentioned to him the availability of the Hotel and by the early part of 1998 Mr Clifford seemed to be very interested in the notion of becoming involved. In about January or February 1998 Mr Clifford said to him that he proposed that there be a syndicate formed for the purchase of the business and he asked him (Mr Maller) whether or not he would be interested in becoming a shareholder in such a syndicate. Mr Maller said he was not interested in investing in a syndicate or getting involved as a minority shareholder in a business venture.

239 However, Mr Clifford said to him that his clients would be prepared to put up all the money in order to acquire and renovate the Hotel premises and that he could arrange things so that Mr Maller would acquire a 20 per cent shareholding to which he responded he would be quite content with a 10 per cent interest. Mr Maller had a number of meetings with the Sansones and Mr Clifford.

240 Mr Maller said he informed Mr Boucher of his proposed involvement in the purchase and he was happy with that.

241 Mr Maller's evidence concerning the alleged representations is as follows. He did not say to Mr Clifford that the proposed redevelopment would involve restoration of the Hotel to a standard commensurate with the Albion Hotel in Cottesloe. He said that the Sail and Anchor in Fremantle was the benchmark. He agreed that he made representation 3, namely that bottle shop patrons would have the unrestricted right to use the right of way between Rockingham and Cockburn Roads. He did say that Kee-Vee would spend $750,000 to effect the redevelopment. That is, he agreed he made representation 4. He also agreed that he made representation 5 which was that the rent after the redevelopment would be about $195,00 per annum.

242 As to representation 6, he said to Mr Clifford that the redevelopment would include retail premises on the southern end of the proposed bottle barn but he did not say that Newmarket could sublet those premises for $28,000 per annum. He had considered that question well prior to speaking to Mr Clifford about the matter. The area of the premises when completed was going to be 200 square metres and he had spoken to local agents about the matter. He came to the view that the likely rental for the shop would be about $100 per square metre and accordingly he believed that the likely rental would be about $20,000 per annum plus variable outgoings and he told Mr Clifford that. He had earlier in his evidence said $18,000. However, that is arithmetically inconsistent with the area and rate per square metre. Mr Maller was approached by representatives of a fast-food outlet concerning leasing the retail shop. However, there was what he described as an overwhelming difficulty which was that he could not give them a firm possession date based upon completion of the works.

243 As to representation 7, Mr Maller did say to Mr Clifford that Newmarket would have to undertake the work to fit out the Hotel and the bottle shop but that he did not say that the work would not cost more than $250,000. He did recall however an assertion being made at one stage that those works would not cost more than $250,000. He recalled a meeting he attended in about April 1998 with Messrs Clifford, Boucher, Thompson at which Mr Thompson said that he believed the works would cost approximately $250,000.

244 As to representation 8, he did not say that this was the best opportunity he had seen in his experience as a hotel broker. He neither believed that to be the case and did not say it. Whether he said that the Hotel was an excellent investment opportunity he did believe that the Hotel had the potential to be an excellent investment and said to Mr Clifford words to the following effect:

"The whole area is being rezoned from heavy industrial and light industrial development is going to occur over the next few years.

There might be 25 new businesses in the area in the next 18 months.

If the project is going to be done, it's going to have to be done properly.

Even though thousands of cars drive past every day, this is going to have to be done to a standard like the Sail & Anchor Hotel with a bottle barn that is going to be in harmony with the hotel because otherwise people will just drive by, as they do now, because it will be unattractive - and there will be no reason for them to stop.

The hotel also has extremely good parking, which other hotels in Fremantle generally do not have.

My investigations suggest that a number of local people like the idea of parking somewhere where they can be away from the tourists.

I think it's an excellent investment opportunity provided that it is all done properly."

245 As to representation 9, he did not say that a Fremantle based team would join the National Soccer League and that its preferred choice for a 27,000 seat stadium was to be built on land opposite the Hotel on Rockingham Road or anything of that kind. Indeed, he said that was not a consideration to which he had any regard in forming his views about the success of the redevelopment.

246 Mr Maller denied providing to Mr Clifford the Budget and Cash Flow forecast to which Mr Clifford referred. However, in a previous statement prepared for these proceedings, Mr Boucher had said that Mr Maller told him that he (Maller) had provided Mr Clifford with a Budget and Cash Flow forecast for the Hotel.

247 In cross-examination, Mr Maller said he was not present at a meeting with Messrs Clifford and Boucher when Mr Boucher sought to increase the short term rental from $55,000 to $85,000. However, he said it was his understanding that the bottle shop would be finished by Christmas 1998 and the balance of the Hotel would be completed within three or four months of that. His understanding was that they would be working on the old hotel at the same time as building the new bottle barn.

248 Mr Boucher's evidence was to the following effect. In about May 1997 he appointed Mr Maller as agent for the sale of the Hotel business and lease of the premises. Mr Maller was a director of White & Associates. Mr Boucher had previously appointed Mr Maller as agent for the sale of the land (and Hotel) in 1992. In about March 1998 Mr Maller advised Mr Boucher of the interest of the Sansones (as passive investors) and Mr Clifford in the business.

249 Mr Boucher confirmed that Mr Maller was acting as Kee-Vee's selling agent when he advised him of Mr Clifford's interest and during the subsequent negotiations for the sale of the business, transfer of the liquor licence and lease. In about April 1998 Mr Maller and Mr Clifford met on several occasions and on these occasions Mr Maller acted as Kee-Vee's agent but Mr Boucher said he was uncertain what representations were made or what the substance of their conversations were on those occasions.

250 In about April 1998 Mr Boucher attended a meeting with Mr Clifford and Mr Maller at Mr Maller's residence to discuss the purchase. During negotiations, Mr Boucher informed Messrs Maller and Clifford that if they could not agree with the $85,000 rent per annum then Kee-Vee would walk away from the deal. That amount was more than previously given in Mr Maller's confirmation of instructions in May 1997 but was required so that Kee-Vee could meet its financial commitments. Mr Boucher said that the interim rental of $55,000 was in relation to an initial proposal which involved the construction of a new combined bottle shop and bar in which it was not contemplated that the old hotel be renovated. He also said that he was not concerned to secure a deal because there had been interest by three or four people previously that he had knocked back. After discussion, Messrs Maller and Clifford agreed to the terms outlined in a draft agreement to purchase/lease. He said as a gesture of goodwill he advised Maller and Clifford that they could have the existing plant and equipment in the hotel. Mr Clifford asked him what the value of the plant and equipment was and he told Mr Clifford that he did not know what the written down value was and he would get back to him on that. At the meeting the purchase price of the business was agreed in the sum of $175,000, that Newmarket's fit out contribution would be $250,000 and that Kee-Vee would be responsible for major structural renovations and construction. The costs of construction were to be determined and it was agreed that there was to be no cap on the construction costs to take into consideration any unforeseen contingencies. He said that it was also agreed at the meeting that:

(a) the cost of the hotel, land, renovation and construction was to give Kee-Vee a 10 per cent return;

(b) the renovations to the existing hotel would be to heritage standards.

251 His evidence concerning the alleged representations is as follows. He was asked firstly whether he made representation14:

"Yes?---The only thing I can remember about that is that Maller and Clifford had got a newspaper with the football - it was on the front of this local paper, stating that there was a proposed thing for a soccer stadium across the road from the pub. I think it's true to say that everybody involved was rather excited if that was going to happen, because obviously it would've been a good thing.

Did you represent to Mr Clifford that that was going to happen and that would ensure the commercial success of the bottle shop?---No, that never had anything to do with the commercial success or it going to happen. They were going to proceed with it, as they did, irrespective of whether that occurred.

I see. Then it is said further that at Mr Maller's offices you represented to Mr Clifford that Kee-Vee could not agree to an initial rental of $55,000 per annum and the initial rent would have to be $85,000 per annum?---That was not at anybody's office. That was at Maller's house on a Sunday. That was when we had the meeting and we nutted it all out and we agreed it. Prior to that, look, I can't be responsible for what Maller and Clifford discussed amongst themselves. I wasn't privy to that discussion, but the only thing I attended was a meeting on a Sunday at Maller's home, nobody's office, when the rental was discussed.

It's then said that you represented that to compensate Newmarket for the increase in rental, Kee-Vee would sell to the first plaintiff $35,000-worth of plant and equipment at the hotel in accordance with a schedule to be provided?---Yes, I heard that evidence. That's not true.

Then you represented as well, it is said, that the redevelopment would be completed within 12 to 16 weeks?---I hardly think so. I wouldn't know. I've never done this before. I mean, it had to have all sorts of discussions with architects, plans, different permissions from various councils and different governing bodies, Main Roads. All sorts of people were involved in a development like this. I couldn't have said and would not have said that, no.

...

What about the alleged representation that you said the redevelopment would commence within 4 to 5 weeks of Newmarket taking over the hotel enabling completion before Christmas of 1998?---To be candid with you, it took several months for us to get approvals for the - - -

METAXAS, MR: With respect, the witness is commenting on the question.

McLURE J: Yes?---the answer to that is I didn't say that, you know.

...

HERSHOWITZ, MR: Did you or did you not represent that the redevelopment would commence within 4 to 5 weeks?---No.

Then, lastly, it's alleged that a further representation was made by you to Mr Clifford, and that is as an additional inducement Kee-Vee would grant a 15-year lease with two options of a 5-year lease, 5 years, in view of the previously proposed 15-year lease?---No inducement was made to Clifford at all.

Did you make that representation?---No."

252 Mr Boucher said that having previously been through the process of attempting to obtain approval for a proposal to construct a new building comprising a bottle shop and tavern he was aware of the approvals and permits required and that it takes time.

253 Kee-Vee instructed Mr Thompson to prepare draft plans for the construction of a free standing bottle shop and refurbishment of the existing heritage building and Mr Thompson provided his preliminary plans on 26 April 1998. Mr Thompson, acting as Kee-Vee's architect, negotiated on Kee-Vee's behalf with all authorities concerning approval and permits. He also corresponded and negotiated on Kee-Vee's behalf with Newmarket with respect to any variations to the proposed development. Mr Boucher's instructions to Mr Thompson were that he was to make such amendments to the plans as were requested by Newmarket within reason. On 29 April 1998 he signed an application to the City of Cockburn for approval to commence development. Mr Boucher said that Mr Thompson estimated the cost of carrying out the development would most likely be $770,000 but no cap was placed on the renovation and construction costs.

254 On 7 October 1998 a building licence for the bottle shop issued. On the same date, Kee-Vee entered into the building contract for the bottle shop with TCC. On 5 November 1998 a building licence for the hotel issued. The building contract between Kee-Vee and TCC for the hotel is dated 2 November 1998.

255 By letter dated 24 April 1998 Kee-Vee's solicitors provided to Mr Maller for review by the intending purchasers a draft Sale Agreement, Lease and Agreement for Lease. The solicitors note that the short term lease varies from the second lease in that there is no need for any rent review provisions in the first lease "as we understand that the second Lease will commence within twelve months of the settlement date" (emphasis added).

256 Mr Boucher was asked questions concerning the intended length of the short term lease. The following exchange took place:

"Mr Boucher, the lease of the premises for the period of the redevelopment was intended to be a short-term lease only, wasn't it?---It was only to be up to however many months it took, yes.

How many months?---How long is a piece of string, sir? We don't know. With the way your clients kept altering it, it kept going on ad infinitum. I don't know.

Mr Boucher, how long did you think the redevelopment would take?---Mr Metaxas, and I sincerely hope you believe this as an answer, I wanted it finished quickly, sir.

Mr Boucher, please answer the question. How long did you think?---As soon as possible.

How long did you think the redevelopment would take, Mr Boucher?---We hoped several months, as soon as it could.

How many is 'several months', Mr Boucher?---How long is it? That's exactly it. 6 months, 9 months, as long as it took."

257 Mr Boucher was aware in February 1999 (from Mr Thompson it would appear) that the project was going to cost another $254,000. He said that he had the money. On the commerciality of proceeding the following exchange took place in cross-examination:

"But, in your opinion, refurbishment of the hotel at that additional cost wouldn't have been commercially sensible, would it?---For your clients it wouldn't have been no.

No, I'm asking you, Mr Boucher, because if you had spent another $250,000, but would you have got $250,000 worth more of a building?---I would have got my 10 per cent rent, so that's what it was all about. That's why it was an open-capped thing."

258 He accepted that Kee-Vee would have to bear the larger part of the additional costs but rejected the proposition that Newmarket's failure to move the office became a pretext on which he simply stopped the construction work. In Mr Boucher's explanation for instructing his solicitors in March 2000 to write to Newmarket to say that Kee-Vee wished to proceed and complete the Lessor's Works to the Hotel, he canvassed a variety of matters not pleaded. I do not intend to deal with them.

(iii) Analysis and Findings - Whether Representations Made

259 The first issue is whether the representations were made. There is a conflict between the evidence of Mr Clifford on the one hand and Messrs Maller and Boucher on the other.

260 It was put by the first and second defendants in closing that I should reject Mr Clifford's evidence generally on the basis that he was not a credible witness. The submission was based largely on his responses in cross-examination.

261 Mr Clifford was on occasions in cross-examination testy and combative with counsel. He responded in that way when, in my estimation, the witness was irritated by what he perceived to be counsel's failure to accept or alternatively understand the substance or significance of his responses. This occurred, for example, in relation to what was intended to be Mr Clifford's role in the management of the business and the commerciality or appropriateness of Mr Clifford (and Mr Maller) obtaining an interest in the business without making a capital contribution. Another example of the interaction was in relation to the Hotel's historic trading figures. Mr Clifford said in his evidence-in-chief that he did not consider them to be relevant although he did say that Mr Maller showed him the figures for the Hotel for the period 1993-1996 and that the 1996 figures, once bank interest was taken out, showed a profit in excess of $160,000 per annum. The following exchange occurred in cross-examination:

"Then why yesterday in your evidence and cross-examination - or in chief rather you specifically refer to these 96 statements, financials, as having used them to prepare those handwritten notes of 20 April?---I agree; I did. I did.

What are you talking about, not relevant?---I will repeat myself. They are not relevant for the coming year where we were going to remodel and reshape the hotel.

I asked you whether you relied on them. You said no, but clearly you did?---I didn't rely on them, no.

But clearly you did. You told us yesterday as well - - -?The answer is no.

You can't have it every which way you want it, Mr Clifford. Please we're trying to get to the bottom of things here. You on the one hand say, 'They are not relevant, I didn't rely on them'?---I'm not the defendant.

Now when faced with evidence which shows that you're contradicting yourself or you're not telling it as it is - - - ?---I repeat myself. I didn't rely on them.

You didn't rely on them?---I did not rely on them. It was very healthy to know that there was a good bottom line profit after excluding an abnormal item. The whole thing of the Newmarket hotel was a new project. It was a whole new project, and that's why we took all that time to turn around - to try and determine the turnover, the gross profit percentage and the bottom line, not what existed in the past. I knew how good that hotel used to trade in the old days.

Mr Clifford, for what purpose did you have regard to the 96 statements?---Collateral.

Collateral purpose?---Mm.

What was that collateral purpose?---It's good to know that they would have made a profit had it not been an abnormal item of expense.

Do you remember yesterday you were talking about your handwritten notes of 20 April and in compiling those figures you had regard to these 96 statements? Do you remember you said that?---I can't recall but I probably did. It's still not relevant. You can ask me this till the cows come home; it's still not relevant. We're talking about a year's projection. We're not talking about what happened in 1994, 96 or any other year.

Forget the relevance. I'm asking you whether you relied on these and you said no, but clearly you did?---Clearly I didn't."

262 Mr Clifford did not say in his evidence-in-chief that he had used the 1996 projections to prepare his handwritten notes of 20 April (or any other date). There does not appear to be any handwritten notes of 20 April. This exchange gives some flavour to the way the cross-examination proceeded.

263 Mr Clifford had fallen on hard financial times. He had introduced his clients, the Sansones to an investment that turned out to be an unmitigated disaster. He and the Sansones had a falling out some time it would appear in the year 2000. He was personally indebted to the Sansones, they had sued him in this action and, it appears, Claremont Services Pty Ltd sued him in the District Court under the loan agreement. He was defensive and at times emotional in giving his evidence but that was understandable in the broader context. I do not regard Mr Clifford's testiness and on occasions aggressive responses as reflecting adversely on his credit, by which term I intend to encompass his veracity and reliability as a witness.

264 As to whether or not the representations were made, it is the case that Mr Clifford did not in his letter of 6 April 1998 to the Sansones refer to the representations allegedly made by Mr Maller or Mr Boucher. His explanation for the failure to refer to them in the letter is that they were irrelevant. He did not elaborate. However, as appears from Mr Clifford's file notes of the meeting on 6 April 1998 and from the letter of the same date, the focus was on the arrangement between the proposed syndicate members as distinct from the deal with Kee-Vee. Further, Mr Clifford was uncertain as to the timing of the representations, a large number of which are admitted by Mr Maller. In those circumstances I do not regard the failure to refer to these representations in the letter as significant on this issue.

265 Mr Clifford's evidence supports the making of the pleaded representations. In the case of the representations allegedly made by Mr Maller, it is not in dispute that Mr Maller made representation 3 (the right of way), 4 (Kee-Vee would spend $750,000 to effect the redevelopment) and 5 (the rent after redevelopment would be about $195,000). I find that those representations were made.

266 Representation 1 is not relied upon by the plaintiffs. In relation to representation 2, Mr Maller denies referring to the Albion Hotel. He said the Sail and Anchor in Fremantle was the benchmark. There is no conflict as to the substance of the representation made by Mr Maller to Mr Clifford which is to the effect that the hotel would be restored to a standard in keeping with its heritage value. I find that Mr Maller made a representation to that effect.

267 Representation 6 relates to the likely rental for the retail premises at the southern end of the bottle shop. It is not disputed that Mr Maller told Mr Clifford about the rental that could be obtained for that shop but there is a conflict as to the quantum of the rental. Mr Maller said the likely rental would be $20,000 per annum (plus variable outgoings) and Mr Clifford said Mr Maller told him $28,000. Mr Clifford's handwritten notes dated 21 April 1998 do not support his figure of $28,000. His workings show an area of 400 square metres at a rate of $120 per square metre for a total rent of $48,000. Mr Maller worked on an area for the shop of 200 square metres which at $120 per square metre would total $24,000. There is no other evidence as to the shop area from time to time or indeed whether it changed, and if so how, when the area of the bottle shop was increased. There is no indication in the White & Co Budget and Cash Flow forecast how the net rent of $159,996 was arrived at. It is also clear from Mr Clifford's evidence that he discussed numbers with a range of people. In my view, the conflict in evidence is likely to be a function of reliability and that Mr Maller's recollection is likely to be more reliable as he had investigated the question. In the circumstances, I am satisfied on the balance of probabilities that Mr Maller represented to Mr Clifford that the shop could be sublet for $20,000 per annum.

268 Mr Maller and Mr Boucher both agreed that it was understood that Newmarket's fit out contribution would be $250,000. Against that background I am satisfied that Mr Maller made representation 7.

269 Representation 8 is to the effect that Mr Maller said the Hotel was an excellent investment opportunity and the best he had seen in his experience. Mr Maller agreed that he said to Mr Clifford that it was an excellent investment opportunity provided it was done properly but denies the balance of the alleged representation. He said he did not believe it was the best opportunity he had seen and did not say it. I find that Mr Maller did say to Mr Clifford that the proposal was an excellent investment opportunity, which view was underlined by his agreement to be involved in the business. Nothing turns on whether he made the balance of the representation and it is unnecessary to resolve the conflict.

270 Representation 9 is to the effect that a Fremantle based team would join the National Soccer League and its preferred choice of stadium was opposite the Hotel. I do not accept that the representation was made in those terms. It is clear from Mr Clifford's evidence, including his discussions with the people directly involved, that he understood there was a proposal for a Fremantle team to join the league. Nothing more concrete than that.

271 Representations 10 and 11 are said to be implied from the express representations. Having regard to Mr Maller's occupation, his long experience in the industry and the express representations that I have found he made, I find that he did impliedly represent that the proposed rental for the Hotel was reasonable and that the proposed rental of $20,000 for the retail shop was reasonable with reasonable prospects for finding a sub-tenant. Of course the implied representations relate to the position after the completion of the redevelopment of the Hotel and the retail shop.

272 Representation 12 is based on the provision by Mr Maller to Mr Clifford of the Projected Budget and Cash Flow prepared by White & Associates. I accept Mr Clifford's evidence that Mr Maller provided him with that document which then formed the basis of his discussions with experienced people in the industry as to the reasonableness of the numbers. Although it is pleaded that the document predicted results for the financial year ending 30 June 1999, that is not established by the evidence. Mr Clifford said the document was not for any particular year as is clear on its face. I accept that the document predicts the likely financial outcome for the redeveloped Hotel, being total sales of $3,380,000, a gross profit of $1,063,400, expenses of $765,197 (with annual rental of $159,906) and a profit of $333,203. Implicit in the prediction is that the maker had reasonable grounds for making it.

273 Mr Boucher accepted in his evidence, in my view correctly, that Mr Maller was acting as Kee-Vee's agent up to the execution of the Sale Agreement. Whether or not Mr Maller was concurrently acting as agent for Newmarket does not affect the legal position. I am satisfied and find that Mr Maller made the representations to Mr Clifford in his capacity as the duly authorised agent of Kee-Vee.

274 The balance of the representations (13 - 19) are alleged to have been made by Mr Boucher. Representation 13 concerns the proposed soccer stadium. The evidence does not support this claim. Mr Clifford did not give evidence that Mr Boucher made the pleaded representation. In any event, Mr Clifford was always of the understanding that there was only a proposal for a Fremantle team and that the promoters preferred site for a stadium was close to the Hotel.

275 It is not pleaded that representations 14, 15, 16 and 19 are misleading and deceptive and they are not relied on in the action. Mr Clifford's evidence is that Mr Boucher made representations 17 (the redevelopment would be completed with 12 - 16 weeks), 18 (the redevelopment would commence within 4 - 5 weeks of Newmarket taking over) and 19 (as an additional inducement Kee-Vee would grant a 15-year lease with two five-year options). Mr Boucher denied making the representations.

276 Aspects of Mr Boucher's evidence relating to this subject is inconsistent with the surrounding circumstances. In 1997 Mr Boucher had retained Mr Thompson, the architect, in relation to the earlier proposal to build a new tavern and bottle shop ("original proposal"). The documentary evidence establishes that the original proposal also involved the demolition of the existing lounge bar and restoration of the heritage building. The City of Cockburn granted planning permission to which it attached a special condition to the effect that prior to the issue of a building licence, Kee-Vee had to provide details of all proposed external works to the heritage building, including restoration works to the façade and verandah, materials and colours to be used and the restoration works had to be commenced within 12 months of the date of issue of the certificate of classification for the new tavern. In September 1997 TCC provided a quotation to Mr Boucher for the cost of the original proposal including the demolition of the existing bar and upgrading the heritage building. Thus, when the proposed redevelopment changed to a freestanding bottle shop and refurbishment of the heritage building into a tavern, Kee-Vee was not starting with a blank sheet of paper. Kee-Vee's application for approval of the redevelopment was lodged with the City of Cockburn on 29 April 1998 and was approved, subject to conditions, on 19 May 1998.

277 Mr Thompson's estimate of the cost of carrying out the redevelopment and constructing a showroom unrelated to the redevelopment (which he costed at $100,000) was $770,000 with a contingency of $20,000. Mr Boucher was aware of this estimate. The building contract for the bottle shop specified 13 weeks for the builder to bring the works to practical completion and the contract for the hotel specified 15 weeks. Mr Thompson was involved on behalf of Kee-Vee in negotiating the terms of the building contracts, including the times within which to achieve practical completion. Although not all of the proposed works were included in the TCC building contracts there is no suggestion that they would add significantly to the redevelopment period. No provision for a rent review was included in the short term lease because, as Kee-Vee's solicitors made clear, it was expected that the long term lease would be in operation within 12 months of settlement of the Sale Agreement, that is, before early July 1999. Mr Courtney gave evidence, borne out by subsequent developments and which I accept, that Mr Thompson had failed to make adequate provision for contingencies.

278 The objective circumstances, in particular, the failure to make any adequate provision for contingencies and Mr Thompson's involvement in the building contracts strongly suggests that Mr Thompson and thus Mr Boucher had not anticipated or planned for or expected the "many concealed building defects" found in the heritage building and which added significantly to the time and cost of the redevelopment. Having regard to these failures I do not accept Mr Thompson's evidence or that of Mr Boucher that they were aware of or had factored in the possibilities of hidden defects and the potential cost and delay consequences.

279 Mr Clifford's evidence concerning the timing of commencement of development was confirmed in his letter of October 1998 to Mr Boucher's daughter. Mr Maller also said it was his understanding that it was the intention to complete the bottle shop before Christmas 1998. Further, Newmarket entered into the Sale Agreement notwithstanding that the terms of the Agreement for Lease had not been agreed or finalised. In that context, it is very likely that the parties had discussed the matters the subject of the pleaded representations and more so in the context of a demand for an increased rental which Mr Clifford knew to be above market. Finally, my impression of Mr Boucher in the witness box is that he is readily prepared to form and share his views with others. I prefer Mr Clifford's evidence to that of Mr Boucher where they are in conflict.

280 It is the case that Newmarket's solicitors did not request that the representations be incorporated in any of the agreements. Newmarket's solicitors when commenting on cl 5 of the draft Agreement for Lease said that they would like to see some provision inserted requiring Kee-Vee to complete the Lessor's Works diligently and within a specified or reasonable timeframe. They did not mention in the letter the representation concerning the time for completion of the works. However, I do not regard the failure to include the representations in the contracts as inconsistent with Mr Clifford's evidence that Mr Boucher (and Mr Maller) made the representations. I am satisfied on the balance of probabilities that Mr Boucher made representations 17, 18 and 19 to Mr Clifford.

281 I also find that the representations that I have found were made, were made in trade or commerce. The first and second defendants did not suggest the position to be otherwise.

(iv) Whether Representations Misleading or Deceptive

282 As previously stated, the first and second defendants do not plead or attempt to prove that there was a reasonable basis for making the representations as to future matters. In those circumstances it is unnecessary to make findings concerning the reasonableness of representations 17 and 18. However, there is evidence from Mr Courtney, which I accept, concerning the inadequacy of the drawings and other documentation with the consequence that they do not provide a reasonable basis for estimating the cost or timing of the Lessor's Works. Having regard to s 51A of the TPA I find that representations 2, 3, 4 (and so much of 5 relating to rental which is linked with 4), 6 (as varied), 7, 12, 17 and 18 are misleading or deceptive.

283 It is common cause that representations 8, 10 and 11 do not relate to future matters and thus the plaintiffs must prove that they are misleading or deceptive. The plaintiffs rely on the evidence of Mr Christie. According to Mr Christie, the net rental value of licensed premises is a function of trading level and profitability. Based on the rental evidence for properties such as the Davilak Tavern, the Mt Henry Tavern and the Stock Road Markets Tavern he concluded that the fair market net annual rental for the redeveloped hotel was "say $150,000". Working on the basis that the retail shop was 160 square metres and based on the rental of unspecified adjacent commercial premises, the shop had a net annual rental value of "say $12,000" so that a total fair market net annual rental of the redeveloped hotel and adjoining shop was "say $162,000" some $33,000 less than the market rental assuming Kee-Vee's redevelopment costs were $750,000.

284 Further, in his opinion the effect of the rental clause in the long term lease was to transfer to Newmarket the risk of cost escalation the effect of which was to make the transaction potentially uneconomic. I deal with that issue first. Whether or not a representation is misleading or deceptive is to be determined at the time the representation was made. Insofar as the terms of the Agreement for Lease affect the evaluation of whether the deal was commercial or an excellent investment opportunity, the evidence is that the terms of the Agreement for Lease were still being negotiated after entry into the Sale Agreement. Mr Maller's implied representations have to be seen in the light of his express representation that the rental would be about $195,000. The question then is whether that was unreasonably above market rental.

285 It was Mr Christie's opinion that in determining market rental it was more reliable to look to rental as a proportion of net profit rather than rental as a proportion of turnover. That is because the gross profit margin for bottle shop trade differs from bar trade and rental as a proportion of turnover will vary according to the mix of bottle and bar trade. In reaching his opinion on market rental for the Hotel, he relied on rental as a proportion of net profit and used the figure of 37.5 per cent of his projected net annual profit of $400,000 in determining the market rental of $150,000. However, the comparative evidence of rent as a proportion of net profit shows variations from 36.25 per cent to 44.83 per cent.

286 It appears that the ratio of rental as a proportion of net profit in the Budget and Cash Flow forecast supplied by Mr Maller to Mr Clifford would not exceed 37.5 per cent having regard to the projected gross income of $3,380,000 less the relevant expenses to get to a net income figure. At the end of the day the reasonableness of the rental depends on the reasonableness of the projected turnover or net profit. White & Associates' projection for the redeveloped Hotel of a turnover of $3,380,000 compares with Mr Christie's estimate of $3,093,000. However, Mr Christie did not give evidence that the White & Associates' figures were unreasonable or outside the margin of acceptable variation. I am not persuaded that the intended rental of $195,000 was significantly above market or otherwise unreasonable.

287 Further, I am not persuaded that Mr Maller's opinion as to the net annual rental value of the shop was unreasonable. Firstly, he used an area of 200 square metres, Mr Christie used 160 square metres and Mr Clifford's calculations are based on 400 square metres. There is no reliable evidence of when the representation was made and the area of the shop at that time. Secondly, Mr Christie refers to the rental of adjacent commercial premises without identifying the premises or how comparative they are. I am not satisfied that Mr Maller's statement as to the proposed rental for the shop was unreasonable. Further, there is no evidence as to whether or not there were reasonable prospects of finding a sub-tenant for the retail shop after the completion of the redevelopment. For these reasons I am not satisfied that representations 8, 10 and 11 are misleading or deceptive.

288 The next issue is reliance. Newmarket must prove that the loss or damage claimed to have been suffered was "by" conduct in breach of the TPA. In Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 Mason CJ, Dawson, Gaudron and McHugh JJ said (at 525):

"... s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & M H) Pty Ltd except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act."

289 Thus, as with the breach of contract claim, causation is a question of fact to be determined by reference to commonsense and experience and one in which policy considerations and value judgments enter.

290 Causation does not have to be established by direct evidence of the part that the relevant representation played because it is open to infer the effect which the representation is to be taken to have had: Gould v Vaggelas (supra). Further, the misleading conduct need not be the only inducement. It is sufficient if it plays a part in the applicant suffering loss and damage: Henville v Walker (supra).

291 There is no precondition that reliance be reasonable or that the applicant not be careless or otherwise at fault unless the conduct is such as to destroy the causal connection between the contravention and the loss or damage: Henville v Walker (supra) at [13] and [14].

292 The first and second defendants also rely on cl 11 of the Sale Agreement. That materially provides:

"The Purchaser acknowledges that he has thoroughly inspected and examined all the assets of the Business, the Licence, the Premises and the Chattels prior to entering into this Deed and purchases them with full knowledge of their condition in all respects ... and solely in reliance on that inspection and his own judgment and agrees that no statement, warranty or representation of fact made by the Vendor or the Vendor's Agent ... has influenced or induced the Purchaser to enter into this Deed."

293 In a situation where misleading or deceptive conduct has occurred and an acknowledgement such as this is contained in the contract said to have resulted from the conduct, it is necessary to take that clause into consideration in determining as a matter of fact whether the conduct is negatived or whether there is any nexus between the conduct complained and the damage alleged to have been suffered as a consequence: Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233; Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043; Waltip Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) ATPR 40-975.

294 The same principle applies when the applicant is legally represented. That goes into the factual mix but is not determinative: McMahon v Pomeray Pty Ltd (1991) ATPR 41-125.

295 Mr Clifford gave evidence that in agreeing to purchase the business and enter into the short term lease he and the Sansones relied on the information provided and statements and assurances made by Messrs Maller and Boucher. No objection was taken to Mr Clifford speaking on behalf of the Sansones. Mr and Mrs Sansone's evidence was that Mr Clifford was acting for them in the negotiations and he reported to them. I am satisfied that at all material times Mr Clifford was, to the knowledge of Messrs Maller and Boucher, acting for and on behalf of the syndicate members including Mr and Mrs Sansone and Newmarket upon its incorporation. I am also satisfied that the Sansones were relying upon Mr Clifford who was negotiating and receiving information on their behalf. Whether or not Mr and Mrs Sansone and Newmarket relied upon the pleaded representations is determined by whether or not Mr Clifford relied on them. That is, the plaintiffs' reliance case stands or falls on my findings in relation to Mr Clifford.

296 I infer from the cross-examination of Mr Clifford that the first and second defendants take the view that any representation made after 6 April 1998 or 24 April 1998 has no relevant causal connection with the loss because the decision to proceed had been made. I do not accept that to be the case. Mr Clifford and the Sansones had agreed in principle on 6 April 1998 to proceed with the proposed deal and draft agreements were supplied to their solicitor on 24 April 1998. However, they did not sign the Sale Agreement until 28 May 1998 and it did not become binding until signed by Kee-Vee on a date unknown. An agreement in principle is no agreement. It may not survive the negotiation process. I see no reason why a representation made prior to the execution of the Sale Agreement could not induce the relevant reliance notwithstanding the syndicate members had reached agreement in principle to proceed.

297 I accept Mr Clifford's evidence to the effect that the representations, including the representations made in the Budget and Cash Flow forecast prepared by White & Associates, were made before entering into the Sale Agreement. I am also satisfied from Mr Clifford's evidence as to his independent investigations concerning the reasonableness of those figures that he had them before any agreement in principle was reached.

298 As stated previously, the fact that the applicant is legally represented is not determinative. In this case there is no evidence of the extent of the lawyers' involvement or knowledge such as to negative Mr Clifford's evidence on the reliance issue.

299 As to cl 11 of the Sale Agreement, it does not in terms or effect negate or erase the misleading and deceptive conduct. Mr Clifford was not asked any questions about cl 11. There is no evidence that he was aware of it.

300 Further, the fact that Mr Clifford made extensive investigations in order to verify the accuracy or reasonableness of what he had been told by Mr Maller does not prevent a finding of reliance. Mr Maller had very extensive experience in the industry and was positive about the investment. I accept Mr Clifford's evidence that he relied on the representations made by Mr Maller and on the representations made by Mr Boucher in entering into the Sale Agreement and short term lease. The representations made by Mr Maller and Mr Boucher assumed even greater significance when regard is had to the fact that Newmarket entered into the Sale Agreement and short term lease notwithstanding that the terms of the Agreement for Lease had not been fully negotiated or executed. Newmarket was, in effect, committed once it had purchased the hotel business. It follows that the fact that the representation concerning the commencement of works was known to be false by the time Newmarket executed the Agreement for Lease and that it did not specify a time for completion of the Lessor's Works does not prevent a finding of reliance in relation to all of the agreements.

301 Different questions would have arisen if the terms of the Agreement for Lease had been negotiated and executed by the settlement date under the Sale Agreement as originally proposed. It would then be necessary to compare the representations made with what was agreed in order to determine whether there was any necessary inconsistency between the representation and the contract. If so, I would be reluctant to find reliance. However, my preliminary view is that there is no necessary inconsistency between the representations and the terms of the Agreement for Lease. An experienced person such as Mr Clifford may not insist on a contractually fixed rental or time for completion of works notwithstanding reliance on predictions for which it is implicit the maker had reasonable grounds to make.

302 It follows, and I find, that Newmarket and the Sansones as guarantors of Newmarket's obligations executed the Sale Agreement, short term lease, Agreement for Lease and long term lease in reliance on the first and second defendants' representations.

303 The case against Mr Boucher is dependent on s 75B of the TPA. It is alleged that Mr Boucher was "knowingly concerned in and a party to" the pleaded conduct. Section 75B requires an intentional participation in the conduct, the necessary intent being based on knowledge of the essential facts constituting the contravention: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 667.

304 It is clear that in situations when s 51A of the TPA has no application, an applicant for relief must prove that the representor had knowledge of the falsity of the representation. It is not clear to me how the knowledge requirement operates when the representation is as to a future matter. Does the applicant have to prove that the representor knew that there were no objectively reasonable grounds for the representation or is the onus on the representor to prove that he did not know there were no reasonable grounds (alternatively, that he believed there were reasonable grounds) for the representation. However, it is unnecessary to decide that question because Mr Boucher conceded that there were no reasonable grounds for the representations as a ground for denying he made them. Accordingly, I find that Mr Boucher was a party to the contravention in respect of the representations made by him.

305 In relation to its trade practices claim, Newmarket claims damages and interest, an order pursuant to s 87(2) of the TPA declaring the Sale Agreement, short term lease, Agreement for Lease and long term lease void ab initio and a consequential order for the taking of accounts to do equity between Newmarket and Kee-Vee. It also claims in the alternative an order varying the provisions of the short term lease and long term lease to reduce the rental payable which has been overtaken by events.

306 The second plaintiffs claim against the first and second defendants an order discharging their guarantees under the Sale Agreement, short term lease, Agreement for Lease and long term lease and an indemnity in respect of any liability of the second plaintiffs to Kee-Vee or Mr Boucher.

307 The plaintiffs' damages claim is pleaded as follows:

"22.2 by reason of the first and second defendants' misleading and deceptive conduct the first plaintiff has suffered loss and damages as follows:

(a) the first plaintiff would not but for the misleading and deceptive conduct have entered into the [Sale Agreement] and would not have paid $175,000 to purchase the Business which sum has been totally lost;

(b) the first plaintiff would not but for the misleading and deceptive conduct have entered into the [short term lease, Agreement for Lease and long term lease] and would not have suffered trading losses as follows;

(c) the first defendant should have performed in accordance with its representations and the first plaintiff would not have suffered the trading losses and would have earned a net profit of $193,000 per annum in each year of the lease."

308 Generally an applicant may not recover loss of profits in the business which it purchased as a result of misleading or deceptive conduct: Milner v Delita Pty Ltd (1985) 9 FCR 299 at 309. The claim in (c) is for the contractual measure of damages for which I see no basis in this case.

309 The usual measure of damages in this type of case is the difference between the market value of the business as a going concern and the price paid for the business. In addition, trading losses flowing directly from the misleading and deceptive conduct are also recoverable: Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 26 FCR 305; Corbidge v The Bakery Fun Factory Fun Shop Pty Ltd (1984) ATPR 40-493 at 45, 688. However, in order to claim consequential losses it is not sufficient to simply prove that but for the misleading conduct the agreement to purchase the business would not have been made. The allowance for trading losses is not automatic because reversals in fortune on a change of management may be due to inferior management or some other cause unrelated to the conduct complained of: Netaf Pty Ltd v Bikane Pty Ltd (supra) at 308. Further, whether or not Newmarket affirmed the agreements does not affect its entitlement to recover its losses under s52/82 of the TPA: T N Lucas Pty Ltd v Centrepoint Freeholds Pty Ltd [1984] FCA 73; (1984) 1 FCR 110 of 118.

310 There is a significant overlap between the representations made and the contractual promises except that the redevelopment should have started and finished earlier based on the representations. My findings on causation, and remoteness and mitigation in relation to the contract claim are equally applicable to the trade practices claim. Accordingly, I am satisfied that the trading losses I have found were made were attributable to the misleading and deceptive conduct and not caused by unrelated matters.

311 As the object of damages under s 82 of the TPA is to put the plaintiffs in the position they would have been in if the misleading conduct had not occurred, Newmarket is entitled to recover the claimed trading losses for the financial years ending June 1999, 2000 and 2002.

312 The next question is whether the plaintiffs are entitled to recover the full purchase price of $175,000. Although the primary entitlement to damages is the difference between the price paid for the business and its value at the time of purchase, it is possible to claim a fall in value after purchase but it must be attributable to the misleading and deceptive conduct: Netaf Pty Ltd v Bikane Pty Ltd (supra). There is no specific evidence of the value of the business at the time it was abandoned. However, I find, based on the City of Cockburn's order to vacate the Hotel, its condition at that time, the suspension of the licence for the Hotel as a whole, the provisions of the short term lease and long term lease and Kee-Vee's continuing breach of the Agreement for Lease that the business was by that time of no market value to a third party. I am also satisfied that the fall in value is attributable to the misleading and deceptive conduct.

313 However, credit must be given for the value of the property acquired by Newmarket in running the business. Mr Burford of Gregson's Auctioneers valued specified equipment at its gross auction value at a total of $3,500. His evidence was to the effect that the auction value of items such as computer equipment and security alarms is a fraction of its installed value when sold as part of a going concern.

314 Mrs Sansone's evidence was that Newmarket sold the cool room it had installed in the bottle shop for $12,000. Newmarket had purchased it for $46,000.

315 A depreciation schedule in Newmarket's 2000 financial statements shows the cost to Newmarket of the plant and equipment of the business at $117,847. I am not persuaded that the cost of the property or its value in situ when sold as part of a going concern is an appropriate indicator of its value to Newmarket after its removal from the Hotel. I find that the plant and equipment is worth $15,500.

316 In summary, I find that Newmarket is entitled to recover its claimed trading losses and the purchase price of the business less the value of the plant and equipment salvaged from it as follows:

317 As Newmarket remained in the Hotel and traded for more than four years, it is not appropriate to declare the relevant agreements void ab initio. However, for the reasons given below, I have concluded that as a consequence of Kee-Vee's continuing failure to perform in accordance with its representations, the City of Cockburn issued the Notices to Vacate and the liquor licence was suspended. Accordingly, I would grant an order under s 87 of the TPA terminating the Sale Agreement, short term lease and Agreement for Lease as and from 25 October 2002 being the date the Hotel was abandoned by Newmarket. As the Agreement for Lease is to be terminated, the obligation to perform the long term lease will never be triggered. However, it has been executed and should also be set aside.

318 As I have found that the Sansones relied on the first and second defendants' misleading and deceptive conduct it is also appropriate to grant the relief sought by the second plaintiffs.

319 The counterclaim contains a number of different claims. The first is based on the allegation that Kee-Vee was prevented from completing the Lessor's Works by reason of Newmarket's breach of the implied terms referred to earlier. I dealt with this matter in detail when addressing the contractual claim. It follows from my findings in that context that Kee-Vee's claim must fail.

320 The next claim concerns Newmarket's failure to comply with the Notices issued by the City of Cockburn resulting in the City declaring the Hotel unfit for human habitation and the Director of Liquor Licensing suspending Newmarket's licence.

321 Kee-Vee relies on clauses 6.01(a), 6.05, 11.07 and 11.27 of the short term lease in support of this claim. It is necessary to set out the relevant provisions. They are as follows:

- "The Lessee shall keep and maintain the Tavern ... in good substantial and tenantable order repair and condition ..." (cl 6.01(a));

- "The Lessee shall punctually comply with and observe at the expense of the Lessee all present and future Acts (State or Federal) regulations and by-laws and all orders and requirements of any statutory public or other competent authority ... which relate to the Tavern ... and with all notices received either by the lessor or the lessee from any such authority ... PROVIDED FURTHER THAT nothing herein contained or implied shall render the Lessee liable to make any other structural alterations additions or improvements to the Tavern or any part thereof which it would not otherwise be obliged to make in terms of this Lease." (cl 6.05);

- "The Lessee shall ... manage and control the Tavern and the business carried on thereon ... so that neither the Lessee nor any ... other person ... shall do omit permit or suffer anything which may offend against any statute for the time being in force or whereby the Licence may be or become liable to be suspended or cancelled ..." (11.07);

- " ... the Lessee shall at the Lessee's own cost and expense ... [k]eep the Tavern free and clear of all vermin ... rodents and inspect (sic) pests". (cl 11.27).

322 The City of Cockburn's Notices to Vacate applied to the heritage building and the lounge bar. They were issued under s 135(2) of the Health Act 1911 (WA).

323 The City of Cockburn's solicitors provided particulars of the conditions of the hotel which resulted in the notices. They included:

- roofs, guttering and downpipes not in good condition;

- several areas within the premises severely damaged by termites and the brick, mortar and cement work in some areas not in a sound condition;

- several floor areas within the premises with an uneven surface, and not free from cracks, crevices or other defects;

- several ceilings, internal wall finishes, skirtings, architraves, and other fixtures and fittings not complete and do not have a smooth unbroken surface;

- several doors and windows not in good working order:

- electrical wiring, gas services and fittings in some areas of the premises not compliant;

- the footings and walls of the building in some areas do not appear to be sound and may possibly collapse;

- water fixtures and fittings in some ablution areas not in sound working order or condition.

324 In relation to the lounge bar there were further particulars as follows:

- the area had not been provided with compliant exit signage;

- one of the designated emergency units was reported to be via a sliding door with a damaged lock and handle;

- the solid wood heater appeared to be in an unsound condition;

- water was entering the ceiling space and then entering the bar via air conditioning ducted outlets.

325 It is clear from the descriptions in the letter (and acknowledged in evidence by Mr Boucher) that most of the defects arose from Kee-Vee's failure to complete the Lessor's Works which in turn resulted in the suspension of Newmarket's liquor licence, which related to all aspects of the Hotel including the bottle shop.

326 It is a fundamental presumption of Australian (and English) law that a party to a contract cannot take advantage of his own wrong: Commissioner for Main Roads v Reed & Stewart Pty Ltd [1974] HCA 53; (1974) 131 CLR 378; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441; Alghussein Establishment v Eton College [1991] 1 All ER 267. The express terms of the short term lease have to be construed in the context of Kee-Vee's admitted obligations in the Agreement for Lease to undertake the Lessor's Works during the period of the short term lease. The express terms relied on by Kee-Vee must be read subject to Kee-Vee's obligations in that regard. Alternatively, Kee-Vee cannot rely on conditions in the Hotel which are directly attributable to its own breaches of the Agreement for Lease. Accordingly, I conclude that there is no relevant breach of the short term lease or no relevant breach for which Newmarket can be held contractually liable. I mention again for the sake of completeness that although Kee-Vee claimed loss of bargain damages (for early termination of the leases) it did not particularise or prove them.

327 Kee-Vee also relies upon the failure of Newmarket to pay rent due on 1 November 2002 in the sum of $7,083.33 and Newmarket's abandonment of the Hotel. It is not disputed that Newmarket did not pay the rent and that Kee-Vee issued relevant notices under the short term lease which it purported to terminate. It is not disputed that Newmarket abandoned the Hotel. As already noted Newmarket does not plead that by its conduct in abandoning the Hotel in accordance with the Notices of the City of Cockburn it thereby elected to terminate the Agreement for Lease and other agreements by reason of Kee-Vee's breaches thereof. In those circumstances Kee-Vee would be entitled to rent in the sum of $7,083.33 in the event that I do not order the termination of the agreements as at the date Newmarket abandoned the premises, thereby relieving Newmarket of any obligation to pay any outstanding rent as and from 25 October 2002. Otherwise, the counterclaim will be dismissed.

328 On the contract claim, I have concluded that Newmarket is entitled to trading losses and loss of profits as follows:

329 Thus, the damages I would award for breach of contract total $494,316. I would also order interest thereon at the rate payable from time to time under s 32 of the Supreme Court Act 1935 (WA) from the end of the financial year in which the trading loss was sustained or alternatively the profit not made until the date of judgment.

330 On the trade practices claim, I would award the sum of $489,012 being the claimed trading losses ($329,512) and the purchase price of the business ($175,000) less the value of the plant and equipment ($15,500). I would order interest on those amounts on the same basis as the contract claim.

331 Newmarket claims damages against Kee-Vee only. The order to be made will be so confined. Further it was common cause that Newmarket is required to deduct from its damages claim moneys received from its settlement of the claims against Mr Clifford and Mr Maller. Under the settlement agreement, Mr Maller covenanted with the defendants to pay to Newmarket the sum of $75,000. That has been paid and is to be deducted from the damages. Mr Clifford agreed to pay to Newmarket $80,000 by 120 equal monthly instalments from 21 March 2002. Mr Clifford is in default of his obligations under the settlement agreement. He has paid $3,733.32. That amount should also be deducted from the damages. Kee-Vee referred without elaboration in closing to a number of other deductions it says should be paid, such as moneys received from Paynes (and already accounted for in Newmarket's financial statements) and wages. I am not persuaded that it is appropriate to reduce the damages award by these amounts.

332 I would also order pursuant to s 87 of the TPA that the Sale Agreement, the short-term lease, the Agreement for Lease and long term lease be terminated as and from 26 October 2002.

333 I will also order against the first and second defendants:

(a) the discharge of the second plaintiffs' guarantees under the Sale Agreement, short-term lease, Agreement for Lease and long-term lease; and

(b) an indemnity in respect of any liability of the second plaintiffs to the first or second defendants.

334 Finally, subject to Newmarket's election referred to below, I would dismiss the counterclaim.

335 Newmarket cannot recover both at common law and under the TPA. It must make an election: Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 194 ALR 337 at [130] per Gummow and Hayne JJ and at [228] per Kirby J; United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 19. The parties did not address the Court on the question of election. They are at liberty to make submissions on the question of the extent to which the doctrine applies in this case. In the circumstances, I propose to stand the matter over to a date to be fixed for the purpose of making orders giving effect to these reasons. The parties are to provide at least two days before the adjourned hearing an agreed minute of the orders to be made which give effect to these reasons and if agreement has not been reached the parties are to file a minute of proposed orders for which they will contend.