Court of Appeal (WA)|2005-09-16|Before: Steytler P, McLure JA, Pullin JA, Smith J

Warwick Entertainment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174 (16 September 2005)

WARWICK ENTERTAINMENT CENTRE PTY LTD & ANOR -v- ALPINE HOLDINGS PTY LTD & ORS [2005] WASCA 174 (16 September 2005)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : WARWICK ENTERTAINMENT CENTRE PTY LTD & ANOR -v- ALPINE HOLDINGS PTY LTD & ORS [2005] WASCA 174

BETWEEN : WARWICK ENTERTAINMENT CENTRE PTY LTD (ACN 054 246 918)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : ALPINE HOLDINGS PTY LTD & ORS -v- WARWICK ENTERTAINMENT CENTRE PTY LTD & ORS [2003] WASC 53

Trade practices - Misleading or deceptive conduct - Lease for coffee shop in entertainment centre - Whether lessee misled and induced to enter lease by representations made by agents of the lessor - Whether express terms of the lease negated effect of misleading conduct

Trade practices - Misleading or deceptive conduct - Causation and reliance - Whether causation established where lessee relied on numerous representations, only some of which were misleading - Effect of exclusion clauses - Whether conduct amounting to an affirmation of the lease at common law precluded a finding of reliance on misleading conduct

Damages - Trade practices - Misleading or deceptive conduct - Expectation damages - Quantification of damages - Calculation of interest

First Appellant : Mr S D Rares QC & Mr N D C Dillon

Second Appellant : Mr S D Rares QC & Mr N D C Dillon

First Respondent : Mr N W McKerracher QC & Mr A Metaxas

Second Respondent : Mr N W McKerracher QC & Mr A Metaxas

Third Respondent : Mr N W McKerracher QC & Mr A Metaxas

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1 STEYTLER P: This appeal and cross-appeal raise a number of issues concerning s 52 of the Trade Practices Act 1974 (Cth) ("Act") and the relief which should be awarded in a case of breach of that section. As with so many of such cases, it arises out of misrepresentations which were made to a prospective tenant of commercial premises.

2 The first and second appellants (respectively "Warwick Entertainment" and "Westgem") are subsidiaries of Westpoint Corporation Pty Ltd ("Westpoint"). Westpoint is owned by its sole beneficial shareholder, Mr Norman Carey. The fifth respondent, Mr Brian McCubbing, was, at the material time, a licensed valuer and real estate agent and a director of Westgem, which traded as Westpoint Realty. The fourth respondent, Mr Robert Steele, was employed by Westpoint Realty. The first respondent ("Alpine") is owned by the second and third respondents, Mr Egon Konig and Mrs Shelley Konig. Mr Konig is a chef. The fourth and fifth respondents were not represented at, and took no part in, the appeal.

3 There is little controversy as regards the facts which were found to have been established by the evidence which was led at the trial.

4 In the late 1980's and early 1990's Westpoint and associated companies developed a site in Warwick for the construction of an entertainment centre ("Centre"). The focal point of the Centre was to be a cinema complex. Warwick Entertainment ultimately became the landlord of the Centre. While the Centre was under construction, Westpoint Realty, by Mr McCubbing and Mr Steele, set about finding tenants for it.

5 In May 1992 Mrs Konig saw a full-page advertisement in the Stirling Times. It advertised tenancies in the Centre. The advertisement revealed that the Centre would be adjacent to an existing shopping centre and that, once completed, it would contain a large cinema complex, an international food hall and restaurants. Mrs Konig showed the advertisement to her husband. At that time he operated two businesses in Perth. Both were located in the Carillon Arcade in the city. They were respectively named Egon's Coffee and Patisserie ("Egon's") and Carillon Beverages. Egon's was owned by Mr and Mrs Konig and Carillon Beverages was owned by Alpine. The Konigs wanted to open a business in the northern suburbs, closer to where they lived. They consequently proposed to sell one of the two businesses in order to enable them to do this.

6 On 21 May 1992 Mr Konig wrote to Westpoint Realty making inquiries about the Centre. He also spoke, on the telephone, to Mr Steele. Mr Steele invited him to attend a meeting at the offices of Westpoint. He did so. At that meeting, he was told that a number of tenants had already been procured for, or were in the course of negotiations in respect of, the Centre, including Hungry Jack's, Pancake Parlour or a bistro, Kentucky Fried Chicken, Hospital Benefit Fund, a bank and video stores. Mr Konig was shown a plan of the Centre, which was to be built on two levels. This meeting was followed by a second meeting between Mr Konig and Mr Steele at some time between May and July 1992.

7 Towards the end of July or in early August 1992 a third meeting took place. This was attended by Mr Steele, Mr McCubbing and Mr Konig. Mr Konig (who attended the meeting in his capacity as a director of Alpine) was told that a tenancy was available on the upper level of the Centre. Mr Konig claimed that a number of misrepresentations were made to him during this third meeting. These are pleaded in pars 7 and 7A of the statement of claim filed on behalf of Alpine and Mr and Mrs Konig (to whom I shall refer, together, as "the respondents"). It is convenient to set out those paragraphs in full:

"7. During the negotiations ... both Steele and McCubbing represented to the Second Plaintiff [Mr Konig] and thereby to him, the First Plaintiff [Alpine] and the Third Plaintiff [Mrs Konig] that:

(a) in addition to the business [proposed to be operated at the Centre by Alpine], the upper level of the Centre would also include an Indian Restaurant, or Bistro, Kentucky Fried Chicken, Hungry Jacks and a Pancake Parlour and such occupancy together with the cinema complex in the upper level would attract patrons to the Business and produce spinoff sales;

(b) the construction of the Centre including car parks, cinema and control of patrons to the Centre would be such as to place the First Plaintiff's shop in a prime location attracting patrons from those attending the cinema as well as those using the parking premises at the entrance to the Centre and availing themselves of shopping facilities in the Warwick Shopping Centre proper;

(c) there would be adequate signage on the upper and lower levels of the Centre advertising facilities including the Business;

(d) the tenants in the upper level of the Centre would not be permitted to sell coffee and cappuccino on its own, such sales being preserved for exclusive sales from the Business; which was to be the only coffee shop in the foyer;

(e) no shop in the upper level of the Centre would be permitted to sell drinks, ice creams or any food direct to patrons in the foyer of the cinema complex;

(f) with the exception of the Indian Restaurant, Kentucky Fried Chicken, Hungry Jacks and the Pancake Parlour the Business would be the only shop to operate in the foyer of the cinema.

7A. During the negotiations ... and contrary to the representations pleaded in paragraph 7(e), both Steele and McCubbing knew but failed to disclose to, and concealed from, the Second Plaintiff and thereby to him, the First Plaintiff and the Third Plaintiff, that there would be a 'Candy Bar' on the premises to be situated in and around the foyer selling food and drinks direct to patrons of the cinema.

During negotiations ... McCubbing failed to include the 'Candy Bar' in the proposed tenanted floor plan, when such floor plan was filled in and shown to the Second Plaintiff and thereby to the First and Second [sic] Plaintiffs."

8 The representations referred to in par 7 were said to have been made by Messrs Steele and McCubbing on behalf of Westgem and Warwick Entertainment.

9 Alpine was subsequently approved as a tenant of the Centre and, according to Mrs Konig, at some time between August and October 1992 she and her husband "decided to go ahead with the coffee shop at the complex" and submitted an application accordingly. During this period, a fourth meeting took place. It was between Mr Steele and Mr and Mrs Konig, although Mr McCubbing attended briefly. During the meeting, Mr Konig asked whether other tenants had been signed up for the upper level of the Centre. Mr Steele told him that negotiations were going very well with all tenants.

10 On 18 August 1992 Mr and Mrs Konig entered into a contract for the sale of Egon's. The business was sold for $385,000 and settlement took place on 30 November 1992.

11 Prior to that, on 15 September 1992, a fifth meeting took place. It was held at the Konigs' home and was attended by Mr Steele and Mr and Mrs Konig. Mr Steele brought with him a proposed written agreement to lease the premises proposed to be used for the coffee shop. The Konigs were provided with plans of the Centre at or prior to the meeting. These were consistent with the information which they had been given at the third meeting. Although the agreement to lease which was ultimately executed by the respondents is dated 4 February 1993, Mr and Mrs Konig said in evidence at the trial that they executed it that evening. The trial Judge found, in this respect, that the agreement to lease which was produced by Mr Steele at this meeting was a handwritten draft from which a more formal document was later prepared. Whatever may be the position in that respect, there is no doubt that, by 4 February 1993, the agreement to lease had been executed by the parties to it, being Warwick Entertainment (as lessor), Alpine (as lessee) and Mr and Mrs Konig (as guarantors). The agreement annexed a deed of lease. Clause 7.5 of the agreement to lease provided that, within 14 days from the date of availability of the leased premises for fit-out, Warwick Entertainment would deliver the deed of lease to Alpine and, within seven days thereafter, Alpine and the Konigs would execute it. The term of the lease was to be a period of 15 years.

12 The Konigs began to fit out the shop, styled the "Beverley Hills Café", in January 1993. The fit-out was completed in September 1993. It cost $248,192. In addition, Alpine paid a fee of $300 for approval of the fit-out. The Centre opened on 11 September 1993 and Alpine began trading on 27 September 1993.

13 The Konigs were permitted access to the Centre only a few days before it opened. They then learned, for the first time, that the two fast-food outlets (originally said to have been Kentucky Fried Chicken and Hungry Jack's, but now to be McDonald's and Chicken Treat) would not be located on the upper level of the Centre, on the same floor as the Beverley Hills Café, as they had been led to believe. Instead, they were to be drive-through restaurants in a different part of the Centre. This was a matter of concern to the Konigs because they had expected to achieve a considerable volume of "spin-off" business from these outlets. Moreover, a candy bar for the cinema complex had been built in the foyer directly opposite the Beverley Hills Café. The Konigs were also concerned by the fact that two large pillars had been built in front of the coffee shop's carpark entrance, almost obstructing that entrance (although these had been shown on the plans which had earlier been provided to them). Notwithstanding all of this, because a large amount of money had already been spent on the business, Mr and Mrs Konig decided that they "had to work hard, prepare for the venue opening, and hope for the best".

14 Shortly after opening their business on 27 September 1993, the Konigs received a letter, dated 28 September 1993, from Westpoint Realty enclosing the deed of lease and also plans of the Centre. The Konigs said that this was the first time that they had been given plans which showed that Hungry Jack's and Kentucky Fried Chicken were not to be tenants in the Centre and that the two fast-food outlets which were to replace them were to be in different locations to those which had originally been represented to the Konigs in respect of Hungry Jack's and Kentucky Fried Chicken. These plans also disclosed that there was to be another café, to be known as "Frederico's", which would trade from a location close to the Beverley Hills Café.

15 Matters went from bad to worse when, by early October, the Konigs discovered that another food outlet, "Deadly Desserts", was to open in the Centre close to the Beverley Hills Café. Uncertain as to what they should do, the Konigs "put off" signing the deed of lease. Their business was going badly and the Centre was then still not fully leased.

16 On 6 October 1993 Mrs Konig wrote to Mr Ian Scott of Westpoint Realty. He was its property manager. Alpine had, by then, received an account for rent for the Beverley Hills Café for the period from 15 September 1993 onwards. Mrs Konig's letter objected to this, because the premises had been open only from 27 September 1993. She made a number of other complaints in the letter, including one about the opening of Deadly Desserts. She said that she and her husband had been led to believe that they would have a monopoly in the "coffee shop trade", that their "out of meal time" trade was almost completely cakes and coffee and that this was exactly what Deadly Desserts would be selling. She asked that Alpine be allowed a rent-free period until 15 October 1993, in order to enable its business to be established.

17 On 27 October 1993 Alpine ceased to operate Carillon Beverages. That business had been sold for $262,000.

18 On 6 December 1993 Mrs Konig wrote, once again, to Mr Scott. Again, she made a number of complaints. She asked that the business be permitted to reduce its hours of trading. She also sought a rent review. She received no response to either request.

19 In December 1993 the Konigs sought legal advice in respect of their position "regarding the lease". They believed that they had been misled. The solicitors approached by them, Murie and Edward, advised them (as Mrs Konig put it) that "because ... [they] had signed an agreement to lease ... [they] should also sign the lease as ... [they] were immediately bound already". She said that Murie and Edward told them that, once they had signed the lease, they could take legal action at a later date if they so wished.

20 On 23 December 1993 Murie and Edward wrote to Mr Scott on Alpine's behalf. The letter was as follows:

"We act for the proprietors of the Beverley Hills Café, the lessees.

Our client has provided us with instructions in relation to difficulties which they have faced in their business arising out of representations made to them by the lessor and/or yourselves as agents prior to them entering into leases in relation to the Warwick Entertainment Centre Complex.

Furthermore, there are also various other complaints relating to unsatisfactory conditions which have had some impact on the profitability of our clients' business and appear to have impeded its future growth. We understand that some of these complaints have been addressed in our clients' letter to you dated 6 December 1993, a copy of which we have sighted.

Would you please note our interest in the matter and respond directly to us in relation to this matter. In the New Year, we will communicate with you again but with a view to opening further lines of communication in the hope that this matter can be resolved without litigation."

21 At around this time (the timing was unclear from the evidence) Mr and Mrs Konig received a letter from Westpoint (which appears not to have been tendered at trial) which told them that they had two working days within which to sign the lease, failing which legal action would be taken at their expense. They ultimately signed the lease, in reliance upon their solicitors' advice, on 21 February 1994.

22 On 5 May 1994, Frederico's Café Restaurant opened for business, close to the Beverley Hills Café. It advertised cappuccinos for sale.

23 Business continued to be bad for the Beverley Hills Café. Mr and Mrs Konig wrote to Mr Carey on a number of occasions, complaining about their trading losses and attributing these to misrepresentations which had been made to them. They sought a rent reduction. They met with Mr Carey to discuss these issues. Their complaints were dismissed and no rent relief was given to them.

24 Alpine had attempted to sell the business from January 1994 onwards. It continued with these attempts. It wanted a purchase price of $195,000. Between August 1994 and September 1996, five agents were appointed in order to sell the business. Only one offer was received. This was at a price of $20,000.

25 In September or October 1996 Mr Konig again met with Mr Carey. Mr Konig suggested that Westpoint purchase the space occupied by the Beverley Hills Café for $50,000 in order to build another cinema. This offer was later refused.

26 Eventually, in January 1997, Alpine found a buyer for the business. It entered into an agreement with a Mr and Mrs Lilburne for the sale of the business for $8000 (including $1000 for stock). The agreement was conditional upon either a satisfactory assignment to the Lilburnes of the existing lease or the grant of a new lease to them. Confident that the sale would go through, Mr and Mrs Konig handed over the business to the Lilburnes in February 1997 and moved to Pemberton. However, the sale agreement fell through when Warwick Entertainment declined to agree to the assignment or to grant a new lease to the Lilburnes. When Mr and Mrs Konig learned of this, they travelled back to Perth. This was in early February 1997. They went to the coffee shop at about midnight and removed all of its chairs, tables, fridges, freezers and other removable items. They took these to Pemberton. They had, by then, been operating the coffee shop for just under three and a half years.

27 On 11 February 1997 Warwick Entertainment terminated the lease and re-entered the premises. It demanded from Alpine, and from the Konigs as guarantors, payment of the sum of $627,581.08. This was said to be the total of the rent payable under the lease, had it not been terminated, and the variable outgoings and rates and taxes payable by Alpine, less the rent and variable outgoings which Warwick Entertainment expected to receive for the premises after reletting them.

The principal issues which arose at the trial and their manner of resolution

28 At the trial, counsel for the respondents contended that, were it not for the misrepresentations which had been made to them, the respondents would not have entered into the lease and suffered the losses made by them. However, the appellants denied that any misrepresentations had been made by them. They said that, in any event, cls 20.1 and 20.2 of the agreement to lease (which I will discuss below) excluded a cause of action for any misleading conduct which might have taken place prior to the execution of that agreement. Counsel for the appellants also contended that, if there had been any misleading conduct, causation and reliance had not been established. He submitted that any misrepresentations made by the appellants did not affect the decision of the respondents to enter into the lease and guarantee. The appellants counterclaimed for unpaid rent and other moneys owing under the lease.

29 The trial Judge was satisfied that the representations pleaded in pars 7(a), (d) and (f) of the statement of claim had been made, that these had been misleading and that the appellants had consequently contravened s 52 of the Act. He also found that these misrepresentations had caused the respondents to enter into the lease and guarantee. He said that the exclusion clauses in the agreement to lease were ineffective because they had not prevented the respondents from relying on the misrepresentations at the time at which they entered into that agreement, as they were then still unaware that the representations were untrue.

30 The trial Judge made an order under s 87 of the Act declaring the lease to be void ab initio. He awarded to Alpine the amount of its estimated trading losses between 23 May 1993 and 6 January 1997, amounting in all to $169,786. He also awarded to Alpine "Forecast profit foregone over 15 year lease period", amounting to $738,510. From the total of those amounts he deducted the balance of a loan owed by Alpine to Mr and Mrs Konig, being $168,436. This produced an amount of $739,860. However, because Alpine had only claimed damages amounting to $548,296, he reduced his award to that sum. He also awarded to Mr and Mrs Konig damages amounting to $309,209, comprising $15,607, being the expenses incurred in selling Egon's, $168,436, being the unpaid balance of the moneys loaned by them to Alpine, and $125,166 in respect of lost wages. In addition, he awarded to each of Mr and Mrs Konig an amount of $10,000 as compensation for distress, inconvenience and anxiety. He ordered that Alpine be paid interest on the sum of $548,296 from 12 September 1997 and that the Konigs be paid interest on $140,773 (the total of the lost wages of $125,166 and the selling expenses of $15,607 incurred in respect of Egon's) from 12 September 1997. He dismissed the counterclaim.

31 There were originally 10 grounds of appeal. The appellants have since moved to add a further three grounds, each of which has been objected to by the respondents upon the ground that the amendments were moved too late in the proceedings and raise issues which were not raised at the trial and which, if they had been so raised, might have been met by additional evidence. These are proposed grounds 1 (the original ground 1 has become ground 1A), 5A and 6A.

32 Proposed grounds 1 and 5A are related. During closing submissions made on the last day of the trial, on 14 November 2003, Warwick Entertainment applied to amend its defence so as to plead that, when the respondents executed the lease, they knew that they had been misled in the respects pleaded in the statement of claim and were consequently estopped from relying upon those matters, or had abandoned or waived any entitlement to raise them, or had "affirmed their acceptance of the terms of the lease" notwithstanding those matters. The trial Judge refused to allow the amendment. He considered that it might raise factual issues requiring further evidence and that any prejudice to the respondents could not be satisfactorily accommodated by an adjournment of the trial and an order for costs. By proposed ground 1, the appellants contend that these proposed amendments would not have required any additional evidence and that the trial Judge, having "held that on the evidence and (probably) on the pleadings the defences raised by the proposed amendments would be open to the ... Appellants in any event", "... should have allowed the amendments". Proposed ground 5A contends that the trial Judge erred in declaring the lease to have been void ab initio and in awarding the respondents damages in circumstances in which, knowing of the falsity of the misrepresentations pleaded in pars 7(a), (d) and (f) of their statement of claim, they had elected to affirm the agreement to lease by executing the lease.

33 Proposed ground 6A challenges the trial Judge's calculation, for the purpose of the damages awarded by him to Alpine, of the annual net profit before tax which Alpine would have earned had the misrepresentations been true.

34 The grounds of appeal which are not objected to are, in essence, as follows:

1A The trial Judge erred in finding that the representation pleaded in par 7(a) of the statement of claim was misleading at the time it was made or that there were then no reasonable grounds for making it.

2 The trial Judge erred in that, having found that the respondents "had failed to prove or falsify three of the pleaded representations and one allegation of Fraud, the representations that were pleaded in paragraphs 7(a), (d) and (f) ... caused the loss alleged to have been suffered".

3 The trial Judge erred in finding that the misrepresentations pleaded in pars 7(d) and (f) "were not materially affected by the express terms of the Lease".

4 The trial Judge erred in finding that the respondents relied upon, or were induced by, the misrepresentations pleaded in pars 7(a), (d) and (f) of the statement of claim in entering into the Lease and that any such reliance or inducement was the cause of the loss or damage claimed by them. The appellants rely, in this respect, upon the fact that the respondents knew, at the time of executing the lease, of the inaccuracy of the representations which had been made to them and also upon the terms of cls 20.1 and 20.2 of the agreement to lease (which are set out later in these reasons).

5 The trial Judge erred in failing to give effect to cls 20.1 and 20.2 of the agreement for lease.

6 The trial Judge erred in awarding "expectation" damages to Alpine.

7 The trial Judge erred in awarding Mr and Mrs Konig the amount of $168,486.

7A The trial Judge erred in awarding lost profits to Alpine as well as lost wages to Mr and Mrs Konig.

8 The trial Judge erred in awarding to Mr and Mrs Konig the sum of $15,607 in respect of the expenses of selling Egon's.

10 (Ground 9 was deleted). The trial Judge erred in declaring the lease to have been void ab initio and in dismissing the counterclaim.

35 The grounds of cross-appeal (which, unusually, start with a ground numbered 15) are in essence as follows:

15. The trial Judge erred in limiting the award of damages in favour of Alpine to the sum of $548,296.

16. Alternatively, "and to the extent that the appeal is allowed as regards the award of profits foregone after 7 January 1997", the trial Judge erred, in a number of identified respects (which I will set out later in these reasons), in his calculation of the respondents' damages, and interest, until that date.

17. In the further alternative, "and if the first, second and third respondents' ... losses were to be assessed by reference to the tortious measure then the ... trial Judge erred in law ...", in a number of identified respects (which I will also set out later in these reasons), in his calculation of the damages which should be awarded.

18. The trial Judge erred in calculating interest on the awards made by him from 12 September 1997 rather than from the date of the breach or of the loss.

19. The trial Judge erred in his calculation of the amount in respect of which interest should be awarded to Mr and Mrs Konig.

20. The trial Judge erred in failing to allow a claim for indemnity costs, from 10 October 2002, which had been made on behalf of the respondents.

36 I propose to deal with the grounds of appeal and cross-appeal in order, save that I will defer dealing with proposed ground 1 of the grounds of appeal until I come to deal with ground 5A thereof.

37 I have said that ground 1A challenges the trial Judge's findings as regards the misleading character of the representations pleaded in par 7(a) of the statement of claim. While some written submissions were addressed, also, to the question whether the representations pleaded in pars 7(d) and (f) had been shown to be misleading, the amendments to the grounds of appeal deleted the ground which had formerly existed in respect of these representations.

38 As will be apparent, the representation pleaded in par 7(a) was that the tenants on the upper level of the Centre would include an Indian restaurant or bistro, a Kentucky Fried Chicken outlet, a Hungry Jack's outlet and a Pancake Parlour and that these tenants, together with the cinema complex, would attract patrons to Alpine's business. I have said that this representation was found to have been made at the third meeting. Also, the plan of the Centre that Mr Konig was then given had been marked by Mr McCubbing with the letters "HJ's", "KFC" and "Pancake Parlour" at various places on the upper level of the Centre.

39 It is common cause that none of those tenancies was secured for the Centre. The shop premises that were to have been taken by Pancake Parlour were split into two areas. One of these was taken up by the business "Deadly Desserts" and the other remained vacant for the first 12 months of the operation of the Centre. The premises earmarked for the bistro were ultimately used as office space by a federal member of parliament. One of the sites marked as "HJ's" or "KFC" became Frederico's Café Restaurant. I have said that neither Hungry Jack's nor Kentucky Fried Chicken became a tenant of the Centre, although they were respectively replaced by McDonald's and Chicken Treat. The respondents had no difficulty with the substitution of Hungry Jack's for McDonald's or with that of Kentucky Fried Chicken for Chicken Treat. As I have mentioned, what concerned them was that these fast-food businesses were not to be on the same level as the Beverley Hills Café and were instead to be drive-through facilities in a separate part of the building, with the consequence that their customers did not need to enter the Centre.

40 While all of this is accepted by the appellants, they contend that, at the time at which the representation concerning these tenants was made, that representation was true or there were, at least, reasonable grounds for making it. They argue, also, that the trial Judge gave no reasons for his conclusion that there were not reasonable grounds for making it.

41 The trial Judge found (at [186]) that, although the representation did not go so far as to assert that these tenancies had been secured, it did go so far as to assert that they, or similar tenancies, "would be" secured. That, he said (at [186]), was sufficient in the circumstances to give rise to an obligation on the part of the appellants to inform the respondents if the position changed. Moreover, he said (ibid) that the representation which was made "overstated the actual position to a misleading extent".

42 The trial Judge also found that the appellants had drawn up new plans for drive-through, fast-food outlets in about August 1992 (possibly after the third meeting). This was, of course, prior to the execution of the agreement for lease by the respondents. He said, in this respect (at [190]), that the representation that the fast-food outlets would be inside the Centre and on the same level as Alpine's business was important to the Konigs. He went on to say (ibid):

"They were not specifically informed when the decision was made to change that and did not become aware of it until after they had committed to the lease. I am satisfied the Konigs were not given a copy of the revised plans until late September 1993. In the circumstances there was a duty of disclosure upon the defendants which they failed to discharge (see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83, 95 and Winterton Constructions Pty Ltd v Hambros Australia Ltd [1992] FCA 582; (1992) 39 FCR 97)."

43 In my opinion it was undoubtedly open to the trial Judge to find, as he did, that the representation made by the appellants had overstated the position. It was not in dispute that neither Kentucky Fried Chicken nor Hungry Jack's had ever committed to a tenancy and hence that they "would be" tenants. Moreover, while Mr Konig had understood, at the third meeting, that Pancake Parlour was still negotiating for a tenancy, he said that he had then been led to believe that Pancake Parlour and the bistro were competing for the same tenancy in the Centre. His evidence in this respect was obviously accepted by the trial Judge. However, on the face of the evidence, Pancake Parlour and the bistro had never been competing for the same tenancy - I have said that neither became tenants of the Centre.

44 It also seems to me to have been open to the trial Judge to conclude, as he did, that, when it became apparent to the appellants that they would not be able to secure the tenants which had been the subject of the representations made to the respondents, and, most importantly, that the fast-food outlets would be in a different part of the Centre than that which had been represented, they were under an obligation to inform the respondents accordingly.

45 In considering whether s 52 has been contravened, the question is "whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive": Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at 41, per Gummow J (Black CJ and Cooper J agreeing). Under the common law, when a person makes a representation which he or she knows, or expects, another will rely upon, and the circumstances afterwards alter to the knowledge of the party who made the representation, then that party has a duty to communicate the change to the other: Traill v Baring (1864) 4 De GJ & Sm 318 at 329, per Turner LJ; and With v O'Flanagan [1936] Ch 575 at 583, per Lord Wright MR. This principle has long been held to apply to s 52: Tiplady v Gold Coast Carlton Pty Ltd [1984] FCA 152; (1984) 3 FCR 426. In Demagogue, the Court held that conduct may be misleading or deceptive under s 52 if there is a reasonable expectation of disclosure of information and that information is not disclosed (see also Hardy v Your Tabs Pty Ltd (in liq) [2000] NSWCA 150).

46 The evidence established, and the trial Judge found, that the representations to which I have referred were important to the respondents. That must have been obvious to the appellants, who must consequently have known that the respondents would rely upon them. In these circumstances it was reasonable for the respondents to expect that, if the situation altered, they would be told of this.

47 It follows from all that I have said as regards this ground that the trial Judge's findings in respect of the representation pleaded in par 7(a) of the statement of claim were open to him on the evidence accepted by him and that his reasons for arriving at those findings are sufficiently expressed in his judgment. Ground 1A has consequently not been made out.

48 By ground 2, the appellants contend that, because the respondents failed to prove that they were misled in the respects contended for in pars 7(b), (c) and (e) and 7A of the statement of claim, and because they had relied, also, on the representations there pleaded (in the case of par 7A, the failure to disclose) in entering into the agreement to lease, the trial Judge erred in finding that their reliance upon the representations pleaded in pars 7(a), (d) and (f) of the statement of claim caused their loss.

49 It appears from the evidence at trial that the respondents did rely upon the representations or conduct pleaded in pars 7(b), (c) and (e) and 7A of their statement of claim (transcript pages 241 to 243). However, it is well accepted that, for there to be the necessary causal relationship between a contravention of s 52 and loss or damage, so as to satisfy the requirements of s 82(1), it is not essential that the contravention be the sole cause of the loss or damage: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at 469, per Gleeson CJ. In this case the trial Judge found that the misrepresentations which were proved to have been made played a part in causing the respondents' loss and the evidence undoubtedly left that finding open to him.

50 There was, in particular, a good deal of evidence from each of Mr and Mrs Konig to the effect that the projected customer flow through the Centre was a matter of great importance to them (see, for example, transcript pages 70, 72, 108 and 293) and that the existence of the fast-food outlets inside the Centre and on the same level as the Beverley Hills Café was an important factor in that regard. Moreover, as I have earlier said, they considered that the presence of those outlets on the same level was important in respect of "spin-off" business. Mr Konig said in evidence (transcript page 67) that he considered that "having Hungry Jack's, KFC, etcetera as part of the upper level ... [was] a real bonus and incentive, as well as a positive reason ... to become part of the centre" and that this "convinced" him "to enter into an agreement ... to lease a tenancy on the upper level". He said also (transcript pages 67 - 68) that if he had been told that there were "not going to be such tenants in the upper floor [he] ... probably ... [w]ould have reconsidered". Mrs Konig's evidence was that if she and her husband had been told "that the tenancy mix was completely different to what ... [they] thought it was going to be, that the fast food outlets were going to be completely separate as drive-throughs and would not attract any customers to ... [their] business, ... [they] would serious[ly] have rethought and ... asked for more options and sat back and had another look at it". She said that it definitely "would have been a big hurdle that ... [they] would have had to cross" (transcript page 294). She also said that "[their] main concern was that ... [they] had Hungry Jack's and KFC there, and with access to the foyer" and that that was "what ... [they] were signing up on" (transcript page 287).

51 The trial Judge accepted that evidence and found that causation under ss 82 and 87 had been established. It is consequently irrelevant that the Konigs relied, also, upon other conduct which was not found to have been misleading.

53 As ground 3 is particularised, there are two limbs to it. The first challenges the trial Judge's finding of causation upon the ground that the respondents knew of the untruth of the misrepresentations made to them prior to entering into the lease, but nevertheless entered into it. That limb is better addressed in dealing with grounds 4 and 5A (this was the approach adopted by counsel for the appellants) and I will deal with it then. The second limb is that, as to the representations pleaded in pars 7(d) and (f) of the statement of claim, the trial Judge erred in not giving effect to cl 24.7 of the lease. That clause reads as follows:

"24.7 Non-Exclusive Permitted Use

The Permitted Use of the Premises is not exclusive to the Lessee and the Lessor may permit other persons to conduct similar or competing businesses in the Centre."

54 In my opinion this clause provides no answer to the claim advanced by the respondents. On the evidence accepted by the trial Judge, none of the respondents would have entered into the agreement to lease were it not for their reliance upon the misrepresentations made to them. Nor, as he found, would they have entered into the lease were it not for the position in which they then found themselves as a consequence of their reliance upon the appellants' misleading conduct. The fact that the lease contained a provision which provided that Alpine's permitted use of the leased premises was not exclusive does not detract from those propositions.

55 I should add that cl 24.7 is relevant only to the representation pleaded in par 7(d) and that the existence of a right to permit other parties to conduct similar or competing businesses in the Centre does not entirely override a misrepresentation to the effect Alpine's business would, in fact, be the only coffee shop in the foyer and that tenants in the upper level of the Centre would not be permitted to sell coffee or cappuccino on its own.

56 I propose to deal with this collection of grounds in three stages. First, I propose to deal with that part of ground 4 in which reliance is placed upon cls 20.1 and 20.2 of the agreement to lease and also with ground 5 which deals with the same topic. Then, I propose to deal with the wider issues arising out of the fact of the respondents' knowledge of the untruth of the misrepresentations at the time of their execution of the lease. Finally, I will deal with proposed ground 1.

57 Clauses 20.1 and 20.2 of the agreement to lease read as follows:

This document constitutes the entire agreement between the Parties with respect to the subject matter of this Document and contains all of the representations, warranties, covenants and agreements of the Parties in relation to the subject matter of this Document as at the date of this Document.

Any oral statement, representation, undertaking, covenant or agreement made prior to the date of this Document and not contained in this Document is void_._"

58 Senior counsel for the appellants contended that these clauses preclude any reliance upon pre-contractual misleading conduct. He referred, in this respect, to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 79 ALJR 129 at 137 [45], where the Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) said:

"It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents ... whatever they might be."

59 What was there said is of limited assistance in the circumstances of this case. In the case of a claim arising out of a contravention of s 52 of the Act the relevant question, in this context at least, is always one of reliance or inducement. If, as a result of misleading conduct, a person is induced to enter into a contract and suffers loss, the right to a remedy will subsist whatever the parties may provide in their agreement: Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371, per Sheppard J with whom Fox J and, relevantly, Jackson J were in agreement; Petera Pty Ltd v EAJ Pty Ltd [1985] FCA 277; (1985) 7 FCR 375 at 378, per Wilcox J; and Oraka Pty Ltd v Leda Holdings Ltd [1997] FCA 297; (1997) ATPR 41-558 at 43,717. Exclusion clauses in a contract will only preclude a remedy under the Act when those clauses demonstrate that the party in question did not, in fact, rely on the conduct or where the conduct could not, as a whole, have been seen to be misleading: Lezam Pty Ltd v Seabridge Australia Pty Ltd [1992] FCA 206; (1992) 35 FCR 535 at 557; Kewside Pty Ltd v Warman International Ltd (1990) ATPR 41-012.

60 I have said that, when the agreement to lease was signed by the respondents, they were unaware that they had been misled and, as the trial Judge found, they relied upon the appellants' misleading conduct in entering into that contract. Consequently, their cause of action is not precluded by anything contained within cls 20.1 and 20.2.

61 That brings me to those parts of grounds 3, 4 and 5 which deal with the issue of execution of the lease by the respondents with knowledge of the untruth of the misrepresentations which had earlier been relied upon by them, and also to proposed ground 5A which, as I have said, raises the issue of affirmation of the agreement to lease arising out of the execution of the lease itself.

62 I should mention, in this respect, that the respondents lodged a notice of contention immediately prior to the hearing of the appeal. In it, they contended that if, pursuant to grounds 4 or 5 of the notice of appeal, the Court was to find that they did not execute the lease in reliance on the misleading and deceptive conduct of the appellants, the judgment of the trial Judge should nonetheless be upheld upon the ground that they executed the agreement to lease in reliance on the appellants' misleading and deceptive conduct and, by execution of that agreement, they were bound by the same covenants as were subsequently contained in the lease. Because I have concluded that grounds 3, 4 and 5 fail, it is unnecessary for me to deal with the notice of contention.

63 The basis for the contentions made on behalf of the appellants in support of the grounds of appeal addressed under this sub-heading, as it emerged in the course of oral argument, is that, when the respondents came to sign the lease, they no longer relied upon the appellants' misrepresentations (knowing of their untruth) and the chain of causation was broken either because of the fact of their execution of the lease with that knowledge or, if the respondents relied upon erroneous legal advice in executing it, by the fact of that advice.

64 As to the first of these propositions, senior counsel for the appellants points to the principle that a material misrepresentation inducing entry into a contract gives rise to a right to rescind the contract and to the fact that, in this case, the right to rescind the agreement to lease arose prior to execution of the lease itself, the respondents having by then known of the untruth of the representations which were relied upon by them in executing the agreement to lease. That, he said, gave rise to the need for the respondents to make an election whether or not to rescind the agreement to lease or to affirm it by executing the lease itself: see, for example, Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26. He contends that, by electing to affirm, the respondents not only lost any right to avoid or rescind the agreement to lease and, necessarily, to avoid or rescind the lease itself, but also lost any right to complain about the misrepresentations, having consciously chosen to go forward notwithstanding that they had been misled. He submitted, as regards this proposition, that, because the doctrine of election focuses on the words and conduct of the party faced with a choice between inconsistent rights rather than upon an intention to affirm or avoid (as to which see, for example, Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622 at 633 - 634), the fact that the respondents had been given wrong legal advice was irrelevant to the question whether or not they had made an election. He also submitted (relying upon Pallos v Munro [1970] 3 NSWR 110 at 113 and Coghlan v Pyoanee Pty Ltd [2003] QCA 146; [2003] 2 Qd R 636 at 639) that, as a consequence of their election, the respondents' rights in respect of the agreement to lease, including those under the Trade Practices Act, merged in the new legal estate they obtained under the lease and any causes of action which they might have had were lost.

65 There is no doubt that, under the common law, where a party affirms a contact in circumstances in which he or she has a right to rescind it, the right to rescind the contract will be lost. That will be so even if the party in question is unaware of his or her right to terminate the contract, so long as that party is aware of all of the facts which give rise to the right: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634. Senior counsel for the appellants urged upon us the proposition that the common law doctrine is applicable in this case and that it precluded a grant of relief, under s 87 of the Act, in the form of a declaration that the lease is void.

66 However, the courts have often said that common law concepts are not automatically to be transposed into a cause of action for misleading or deceptive conduct under the Act. Section 82 allows a remedy in damages for conduct caused "by" a contravention of s 52. Section 87 has been described as providing a "remedial smorgasbord": Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 366 per Mason P. That section reads, so far as is relevant, as follows:

"(1) Without limiting the generality of section 80, where, in a proceeding instituted under this Part ... the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in ... in contravention of a provision of Part ... V ... the Court may, whether or not it ... makes an order under section 82 ... make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention ... if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

...

(2) The orders referred to in subsection (1) and (1A) are:

(a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct ... to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date on which the order is made as is specified in the order ...".

67 The section has been described by the High Court as conferring a wide discretionary power on courts to make remedial orders in appropriate cases in order to ensure a fair result: Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 298. The power is broader than that provided for under the common law or in equity and the scope of the orders available is not to be constrained because, in particular cases, they may resemble common law or equitable remedies: Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at 510, per McHugh, Hayne and Callinan JJ, and see also at 505, per Gaudron J, and 545 - 546, per Kirby J.

68 In JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 at 380, the Court (Keely, Hill and Drummond JJ) said:

"The power of the Court to grant relief under the statutory provision [s 87] is wider than the power of the equity court to grant rescission: the bars to rescission in equity, such as affirmation and the non-availability of restitutio in integrum, are no more than discretionary matters that the Court will take into account in deciding whether in a given case to grant relief under the statutory provision: see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) [1988] FCA 40; (1988) 39 FCR 546 at 564-571; Platz v Creative's Landscape Design Centre Pty Ltd [1989] ATPR 50,309 at 50,312-50,313, approved on appeal in Creative's Landscape Design Centre Pty Ltd v Platz [1989] ATPR at 50,686."

69 Similarly, in Byers v Dorotea Pty Ltd (1986) 69 ALR 715 at 722, and again at 730, Pincus J, after mentioning that affirmation precludes a right of rescission at common law, expressed the opinion that the right to grant relief under the Trade Practices Act is not necessarily brought to an end by affirmation of the contract. Also, in Tenji v Henneberry & Associates Pty Ltd [2000] FCA 550; (2000) 98 FCR 324 at 333, French J (with whom Whitlam J agreed at 335) said:

"The effect of an order for avoidance of a contract under s 87 is to be equated only in a limited sense to that of an order for rescission in equity. For orders made under s 87(2)(a) declaring a contract void in whole or in part and ab initio or from a later date have their effect entirely by operation of the statute."

70 See also Tenji, at 330, per French J; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) [1989] FCA 246; (1989) 40 FCR 76 at 93, per Lee J; Demagogue, above, at 48; Akron Securities, above, at 366; Newmarket Corporation Pty Ltd v Kee-Vee Properties Pty Ltd [2003] WASC 157 at [309]; and Mann Judd (A Firm) v Paper Sales Australia (WA) Pty Ltd, unreported, SCt of WA; Library No 980565; 25 September 1998; but cf Andrew Knox Holdings Pty Ltd v ANZ Banking Group Ltd [1997] ANZ ConvR 101.

71 There is also authority for the proposition that, in the context of ss 52, 82 and 87 of the Act, an election to affirm a contract which was induced by misleading conduct does not necessarily disentitle the person so induced from recovering damage occasioned by the performance of the contract if, at least, the decision to affirm was reasonably made: Tiplady, above, at 464, per Fitzgerald J; and TN Lucas Pty Ltd v Centrepoint Freeholds Pty Ltd [1984] FCA 73; (1984) 1 FCR 110 at 118, per Jenkinson J. There is, in this respect, a distinction between an election in respect of contractual rights and one to waive any entitlement to relief under ss 82 and 87.

72 The issue of causation has recently been considered by the High Court in each of Henville and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109. The effect of what was held in each of those cases is that conduct on the part of a person who has been misled will sever causation only where it is unreasonable, even in circumstances in which the conduct takes place after the misled person has become aware of the misrepresentations. However, as Northrop J pointed out in Mister Figgins v Centrepoint Freeholds Pty Ltd [1981] FCA 15; (1981) 36 ALR 23 at 60:

"Although the difficulties inherent in the traditional problems of deciding whether to rescind a contract or to affirm the contract and sue for damages in the event of deceit are to be avoided as far as possible in proceedings under ss 82 and 87 of the Act, nevertheless some consideration and weight must be given to the actions of the parties after knowledge of the existence of misleading or deceptive conduct. Section 87 enables the court to overcome many of those types of difficulties, but at the same time the conduct of the parties ... is relevant to be considered in the exercise of the discretion conferred by s 87 of the Act, and more particularly for present purposes in determining the amount of damages to be recovered under s 82."

73 In that case, Northrop J concluded that the applicant had affirmed leases into which it had entered as a consequence of misleading or deceptive conduct upon which it had relied and found that consequential losses suffered since the affirmation had not been caused by the conduct of the respondent but by the actions of the applicant. He found that the applicant was not entitled to recover damages over and above the difference in value between what it got and what it had bargained to get.

74 As will already be apparent, in the present case the trial Judge considered that the conduct of the respondents in executing the lease did not have the consequence that the chain of causation was broken or that reliance on the misleading and deceptive conduct had not been established. The basis for his conclusion appears from what was said by him when dealing with the representation pleaded in par 7(a) of the statement of claim (at [189]):

"That representation was relied upon by ... [the respondents] and it was a strong inducement to them to take up the tenancy for the Beverley Hills Café. The representation was still operative when they signed the agreement to lease and although they became aware of the real situation by the time tenants were given access to the premises, even before the Entertainment Centre opened for business, and so were very much alive to it when they executed the lease, by then it was too late - they were told they were already bound."

75 In my opinion the conduct of the respondents was not unreasonable in this case. At the time at which they sought legal advice, after learning of the untruth of the misrepresentations, the respondents were left in circumstances of considerable dilemma as a consequence of the misleading and deceptive conduct to which they had been subjected. They had expended a considerable sum in establishing their business and had made a very substantial attempt to make a success of it in circumstances in which the business, being new and in a new environment, was still largely an unknown quantity. Their position in that regard was similar to that of the respondents in Brothers v Park [2004] NSWCA 241 (currently on appeal to the High Court). There the appellant had sold to the respondents, Mr and Mrs Park, a farming property, after making misleading representations concerning the property's water storage and approval for farming. The contract gave to the purchasers a right of rescission. However, after learning the true situation, they did not exercise that right and instead continued with the contract and later claimed compensation for misleading conduct. They had by then expended a good deal of money and effort on the farm, on which a rice crop had been grown and sheep had been grazed. The trial Judge found that, had they chosen to end the contract, they would probably have needed to bring a lawsuit in order to recover the money that they had, by then, expended. He considered that in these circumstances their freedom of action was circumscribed and he did not regard their decision to complete the contract, rather than terminate it, as an event which severed the causal connection with the initial misrepresentation. On appeal, Giles JA, with whom Wood CJ and Ipp JA agreed, said (at [49] - [50]):

"The purchasers' ... decision to proceed with the contract was a reasonable decision itself a consequence of entering into the contract under the inducement of the misleading conduct. If the purchasers terminated the contract, they would lose the benefit of their expenditure on the rice crop and the work Mr Park had done. The profit from the rice crop, the product of the expenditure and the work, would go to the vendor, not to them. Mr Park's work in relation to the sheep would be wasted to the purchasers, who would not receive its benefit. Apart from concern over recovery of expenditure, these matters provided a sound basis for a reasonable choice to continue with the contract ...".

76 Given the circumstances in which the respondents found themselves, and taking into account the fact of the legal advice which had been given to them (to which I shall return in a moment), I do not consider that their conduct in executing the lease can be said to have been unreasonable and to have broken the chain of causation. Even if it be accepted that the legal advice which was given to the respondents was wrong, their loss and damage after entering into the lease was, for the reasons which I have given, still caused "by" the misleading and deceptive conduct upon which they had relied.

77 Senior counsel for the appellants contended, so far as the legal advice is concerned, that, as a matter of common sense, this was the actual cause of the respondents' loss. He referred to what was said by Wilson J in Gould v Vaggelas [1984] HCA 68; (1985) 157 CLR 215 at 238, to the effect that an inference that false misrepresentations played at least some part in inducing a plaintiff to enter into a contract can be rebutted by showing that "... the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the ... representations". Because the respondents knew of the true facts at the time of executing the lease (and that they were the truth), he contended that, absent their legal advice, they would either have declined to execute the lease at all (and rescinded the agreement to lease) or executed the lease, thereby disavowing any reliance on the representations.

78 In my opinion, the position was not that simple. Even accepting that no more is known of the legal advice than that it was to the effect that the respondents were bound to sign the lease but could take legal action later, if they wished (this was the evidence of Mrs Konig, elicited in cross-examination - Mr Konig did not refer to the legal advice in the course of his evidence), the situation was, without the benefit of hindsight, not as clear as it might now seem to have been. The misleading conduct which was relied upon was essentially oral. The appellants had made no admission of the fact that the respondents had been misled. The prospect of lengthy, and expensive, litigation against parties with considerable resources must have been a daunting one. So much is apparent from the conciliatory tone of the letter which was written by Murie and Edward on 23 December 1993. Moreover, while the business was already experiencing difficulty, it had, as I have said, by then been operating for only a short time as had the Centre itself. While it is plain, from the fact that the respondents sought advice as regards the question whether they were bound to execute the lease, that they were contemplating not doing so, it is by no means clear, given the considerations to which I have referred, that their legal advice should have been unequivocally to the effect that they should rescind the agreement for lease. Nor is it clear that, if equivocal advice had been given, they would have rescinded the agreement (this issue was not explored in evidence, although Mrs Konig did say, at transcript page 271, that she and her husband had not wanted to sign the lease and that they had signed it after they had sought legal advice and after they had received "letters of legal threat"). In all of these circumstances, and given the considerable dilemma in which, as I have said, the respondents then found themselves, it seems to me that there is nothing in the fact of the legal advice which should be taken to have broken the chain of causation.

79 I am consequently satisfied that there is nothing in the fact of execution of the lease which should have precluded relief in the form granted by the trial Judge under s 87. What his Honour did, in effect, was to avoid the lease from 6 January 1997 (although he said that he did so ab initio). It is plain that he did this in order to reduce the loss or damage suffered by the appellants (that being one of the purposes expressly contemplated by s 87). The authorities to which I have referred support the exercise of a discretion of that kind in circumstances such as those which prevailed in this case.

80 Of course, Alpine remained in possession of the Beverley Hills Café for a further three years after signing the lease and, although it made a number of complaints and representations to the lessor, and sought rent reductions and reduced hours of trading during that time (and also made a number of attempts to sell the business), it did not, during that time, seek to enforce its legal rights against the appellants. However, no argument was put to us to the effect that it was unreasonable for Alpine to have remained in possession of the premises for that length of time. Indeed, an argument of that kind was expressly disclaimed, no such argument having been raised at trial. It is consequently unnecessary to consider that issue.

81 There remains, so far as the grounds of appeal on the merits are concerned, only the proposed ground 1 relating to the trial Judge's refusal to allow an amendment of the statement of claim so far as it related to the alleged affirmation of the agreement to lease. It is unnecessary for me to consider this proposed ground, given that I have concluded that, even if there was an affirmation, it provided no bar to relief in this case under the Trade Practices Act.

82 Before dealing with the remaining grounds of appeal, all of which address issues of damages, I propose to make some preliminary comments.

83 The trial Judge's award of damages in favour of the respondents was underpinned by his finding that they would not have entered into the agreement to lease, or the lease itself, were it not for the misleading conduct of the appellants. The appellants acknowledged, for the purposes of the appeal, that if the misrepresentations were made out, and causation established, the respondents were entitled to some measure of consequential loss. They take no issue with the application of ordinary principles in this respect (as to which see, for example, Corbidge v Bakery Fun Factory Fun Shop Pty Ltd (1984) ATPR 40-493 at 45,688, per Woodward J). However, they contend that the trial Judge erred in awarding various items and amounts of consequential loss.

84 At the trial, the respondents relied upon the expert evidence of a chartered accountant, Mr Russell Morgan, in quantifying their loss. The appellants likewise relied upon the expert evidence of a chartered accountant, Mr Lindsay Stagoll. The trial Judge preferred the evidence of Mr Morgan to that of Mr Stagoll.

85 Mr Morgan calculated that Alpine's total trading loss over the period of its operation of the Beverley Hills Café amounted to $169,786, including an allowance in respect of the fixtures and fittings that the Konigs were unable to remove from the business premises when they were vacated. The losses also take into account rent paid in respect of the premises up to 28 February 1997.

86 Mr Morgan prepared an assessment of what the income of the business would have been had the representations which were relied upon by the respondents been true. Utilising the trading figures of Egon's, and other comparable businesses, he concluded that the total income of the business would have been $418,723 per annum. He then calculated what would have been its net profit before depreciation and interest expenses as follows:

" Per Annum

Income $

Sales 418,723

Deduct: Cost of sales 167,489

Gross Profit from Trading 251,234

Expenses

Rents and outgoings 53,000

Other overheads 30,000

Wages - Staff 65,000

- Directors 30,000

178,000

Forecast Net Profit Before

Depreciation and Interest Expense $73,234"

Depreciation $24,000

(at a rate of 10% p/a to a total capital expenditure

of $240,000, on estimated life-span of 10 years)

Interest Expenses $24,000

87 The trial Judge did not award interest expenses but otherwise adopted all of Mr Morgan's figures. He consequently arrived at a forecast net annual profit, before income tax, of $49,234. He then multiplied that figure by 15 to take account of the 15-year term of the lease, arriving at a total loss of $738,510. To this, as I have earlier mentioned, he added the trading losses of $169,786 over the period 23 May 1993 to 6 January 1997, giving a total estimated loss, by Alpine, of $908,296. From that amount he deducted the sum of $211,030, representing the repayment to the Konigs of money borrowed from them by Alpine (while the evidence of the identity of the lender was somewhat ambiguous, all parties were content to treat the loan as having been made by Mr and Mrs Konig) in order to fund the business during the period of its trading losses. That gave rise to a total loss of $697,266. However, as I have earlier mentioned, because Alpine had claimed losses of only $548,296, the trial Judge awarded it the lower figure.

88 I have earlier said that the trial Judge awarded the Konigs $125,166, being the value of wages or directors' fees which would have been received by them over the 15 years of the lease, had the representations been true, and that he also awarded them the cost of selling Egon's ($15,607), seemingly upon the basis that this was a loss incurred by them in setting up and operating the Beverley Hills Café. Next, he awarded to the Konigs the amount of $211,030 owing by Alpine in respect of the loan, although, in supplementary reasons given by him ([2003] WASC 53(S)), he reduced this by a figure of $42,594 (giving a balance of $168,436) in order to allow for the value of plant and equipment removed from the leased premises by Mr and Mrs Konig for their own benefit. Finally, as I have earlier mentioned, the trial Judge awarded to each of Mr and Mrs Konig $10,000 by way of compensation for distress, inconvenience and anxiety.

89 The appellants take no issue with the proposition that Alpine incurred trading losses amounting to $169,786 over its period of operation of the Beverley Hills Café. There is also no appeal against the award of damages to the Konigs in respect of their distress, inconvenience and anxiety. Consequently, the remaining issues relate to the other heads of loss awarded. These are dealt with in grounds of appeal 6 to 9.

90 I have mentioned that the trial Judge awarded to Alpine the amount of the net profit which, on Mr Morgan's calculations, it would have earned over the term of the 15-year lease had the representations relied upon by it been true. In his supplementary reasons, he explained the basis for this award (at [10]) as follows:

"[My reasoning] was not that damages for future profits should be awarded to Alpine Holdings because that was what had been promised, but because Alpine Holdings had lost that profit as a result of the misrepresentations. That conclusion was based on the likelihood those profits would otherwise have been made had it not been for the misrepresentations and involved an acceptance of the plaintiffs' expert evidence in that respect."

91 His Honour went on to say (at [14]) that he did not consider that an award of that kind would constitute "expectation damages" in the sense in which that expression has been used in such cases as Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11 - 12 and 502 - 503, per Mason, Wilson and Dawson JJ.

Warwick Entertainment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (268 paragraphs)

Warwick Entertainment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174 (16 September 2005)

WARWICK ENTERTAINMENT CENTRE PTY LTD & ANOR -v- ALPINE HOLDINGS PTY LTD & ORS [2005] WASCA 174 (16 September 2005)

Parties

Legislation Cited (2)

Cases Cited (53)