La Donna Fashions Pty Ltd trading as Leesa Fashions v Lend Lease Property Management Pty Ltd trading as Erina Fair Shopping Centre [2007] NSWADT 228

CITATION: La Donna Fashions Pty Ltd trading as Leesa Fashions v Lend Lease Property Management Pty Ltd trading as Erina Fair Shopping Centre [2007] NSWADT 228

DIVISION: Retail Leases Division

APPLICANT PARTIES: La Donna Fashions Pty Ltd t/as Leesa Fashions RESPONDENT Lend Lease Management Pty Ltd t/as Erina Fair Shopping Centre

FILE NUMBER: 065177

HEARING DATES: 27 June 2007

SUBMISSIONS CLOSED: 27 June 2007

DATE OF DECISION: 28 September 2007

BEFORE: Hole M - Judicial Member

CATCHWORDS: Claim for compensation for pre lease misrepresentations

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Retail Leases Act 1994

CASES CITED: Golden Harvest (Aust) P/L v Paing P/L & Ors [2004] NSWCA 85

APPLICANT E Chrysostomou, barrister REPRESENTATION: RESPONDENT D Robertson, barrister

ORDERS: 1.The lease was not entered into as the result of a false or misleading statement by the representative of the respondent.; 2.No liability for damage.

REASONS FOR DECISION 1 The applicant has applied for an order that the respondent pay reasonable compensation, to be assessed, for damage suffered by the applicant as a result of the alleged false and misleading statement or representation made by the respondent to the applicant prior to entering into the lease pursuant to section 10 of the Retail Leases Act 1994 ("the Act"). 2 A lease was entered into between the applicant and the respondent for a term commencing on 8 November 2004 for a period of five (5) years. This lease has been registered and is a lease which is subject to the provisions of the Act. 3 Section 10 of the Act is the particular section pursuant to which the application has been made. 4 Section 10 of the Act provides: "Section 10 – Right to compensation for pre-lease misrepresentations (1) A party to a retail shop lease is liable to pay another party to the lease (the injured party) reasonable compensation for damage suffered by the injured party that is attributable to the injured party's entering into the lease as a result of a false or misleading statement or representation made by the party, or any person acting under the party's authority, with knowledge that it was false or misleading. (2) The giving of a lessor's disclosure statement to a prospective lessee under a retail shop lease is considered to be the making of a representation by the lessor to the lessee as to the information in the disclosure statement. (2A) The making of a representation by a prospective lessee in a lessee's disclosure statement given to a prospective lessor under a retail shop lease that the prospective lessee has sought independent advice, or as to statements or representations relied on by the prospective lessee in entering the lease, is considered to be the making of a representation by a lessee to the lessor. (3) This section extends to apply to a statement or representation made before the commencement of this section." 5 Section 11A of the Act provides: "Section 11A – Lessee's disclosure statement (1) Not later than 7 days after receiving a lessor's disclosure statement, or within such further period as may be agreed with the prospective lessor, the lessor must be given a lessee's disclosure statement. A lessee's disclosure statement is a statement in writing that contains the information that is contained in or required to complete the form of lessee's disclosure statement set out in the prescribed form (but only to the extent that it is relevant to the lease concerned). The layout of the lessee's disclosure statement need not comply with that of the prescribed form. (2) If a lease is entered into by way of the renewal of a lease, a written statement (a lessee's disclosure update) that updates the provisions of an earlier lessee's disclosure statement given to the lessor is, in conjunction with that earlier lessee's disclosure statement, considered to be the lessee's disclosure statement given for the purposes of this section at the time the lessee's disclosure update is given. (3)A lessee under a retail shop lease is guilty of an offence if subsection (1) is not complied with in relation to the lease. Maximum penalty: 50 penalty units. (4)The regulations may prescribe additional matters to be included in the form of lessee's disclosure statement for the purposes of this section. Note: Clause 20 of Schedule 3 provides that the form set out in Part 2 of Schedule 2 is taken to be prescribed for the purposes of section 11A until regulations prescribing the form and repealing Schedule 2 are made." 6 Prior to the applicant entering into the lease the subject premises being Shop T80 in Erina Fair Shopping Centre ("the Centre") had been subject of a prior lease which had been due to expire on 30 June 2007. The lessees of that lease had surrendered the premises to the lessor. 7 According to a plan supplied to the Tribunal, annexed to the affidavit of Mr David Hooper, Shop T80 is positioned opposite Big W on a broad walkway and a travelator is located between Big W and T80 (the access and egress to the travelator is close to the front of T80), T88 (the post office site) is located at the rear of the travelator and on the opposite side of the walkway, there are three shops on the same side of the walkway between T80 and the post office. 8 Evidence to be referred to later was provided by both the applicant and the respondent in relation to representations made prior to the lease being entered into. 9 A disclosure statement was provided to the applicant prior to the lease being entered into and that disclosure statement was executed on behalf of the applicant. The disclosure statement was provided under cover of a letter from the respondent to the applicant dated 18 August 2004. 10 As at 8 November 2004 and prior thereto premises situated near to the subject premises were occupied by a lessee from which a post office was operated. In July 2005 these premises were vacated and the post office moved to a different position in the Centre. 11 The applicant has alleged the following: the post office was relocated in July 2005; the respondent knew that the post office was to be moved as at the time that certain representations were made to the applicant prior to the applicant entering into the lease; and as a result of the move of the post office the income of the applicant has been adversely affected and that the combination of these items entitles the applicant to compensation being for the loss of income. Evidence 12 The applicant filed a statement by Mr Carol Rose the Managing Director of the applicant and a statement by Mrs Roslyn Nelson a Business Consultant of the applicant. 13 Mr Rose gave oral evidence in support of the statement made by him. His evidence was principally in relation to the activity that occurred in August 2004 and then as to the alleged takings of the applicant during the period from the date of entry into the lease commencing on 8 November 2004 through to 8 July 2005. 14 Mr Rose attested to a conversation between himself and a Senior Leasing Executive Officer, Mr David Hooper, of the respondent in August 2004 wherein Mr Rose alleged that after comments made by him as to the position being "awful, it's a blind corner" Mr Hooper responded that "Yes, it's not the best position, but look we have the Big W here and over there is the post office and it's just past this shop. The post office is a very good draw card as everyone uses the post office these days." Further that Ms Nelson commented "Well, yes that is good, I think the post office would be terrific." Whereupon Mr Rose responded "The post office could work well for us." 15 Mr Rose further stated that when he was advised by one of his employees in July 2005 that the post office had gone he telephoned Mr Hooper and said words to the following effect "I have just been told the post office is gone" and he was then advised by Mr Hooper who said words to the effect of "Yes it has been relocated". Mr Rose responded that "I want to meet you to discuss. This is not acceptable. You must have known the post office was going to move when we met that first time." 16 Mr Rose provided a handwritten sheet to the Tribunal setting out figures against references to months between and including November 2004 to July 2006. Mr Rose was cross examined on these figures and he stated that they were figures supplied to him by an employee of the applicant and that the figures corresponded with the months takings of the applicant and that those figures were used for tax purposes. He also included in his statement that the average takings for the eight (8) month period through to June 2005 was $38,754.00 and in the period from July 2005 to June 2006, being the period after the post office was relocated, as $28,487.00. Mr Rose explained that the figures for November and December 2005 were not because those months are the best trading months, that this period was a 'honeymoon' period, that he would expect August to be better than July. He attested that he could work out how a shop is performing by turnover. 17 Mr Rose responded vigorously to the cross examination by Counsel for the respondent, he did not recall the letter forwarded to him by the respondent dated 18 August 2004 although he agreed that the letter had been received in his office and signed by "E Matta" on 18 August 2004. Mr Rose identified "E Matta" as Elizabeth Matta an employee in the applicant's head office who works for all his stores and is responsible for noting the takings of his stores every month. The recollection of Mr Rose was of the meeting with Mr Hooper. The letter dated 18 August 2004 was not referred to in the affidavit by Mr Rose, likewise Mr Rose's recollection of his view of the intended premises was that he saw the post office and the position of the Big W shop, but not the travelator. Mr Rose attested that he relied on a solicitor as to the documentation for a lease although he did not advise the solicitor that the position of the post office was important to him as he did not think that was part of what he should tell the solicitor and did not discuss it with the solicitor. 18 Mr Rose attested that he made up his mind to lease the premises based on his knowledge of his customers and would make enquiries about other outlets daily customer numbers. He attested he was concerned about the position of the premises in a blind corner and that his kind of customers would go to the post office although they would not be ones that go to Big W. 19 Ms Nelson gave evidence in support of her statement and she recalled saying to Mr Hooper "I don't know about this position" and she recalled that Mr Hooper said in reply "I know it's not the best position but you have the Big W over there and the post office is just past the shop. They are very good draw cards especially the post office. Everyone needs a post office." She also recalled that Mr Hooper offered further assurances saying "Look, I do think the post office is a terrific draw card, you can't do much better than that." 20 Ms Nelson recalled the meeting between Mr Rose and Mr Hooper which she attended, although she did not recall the date. Her recollection was of the conversation as set out in paragraph 20. Her recollection was that she was initially reserved about the site and that Mr Hooper's reassurance about the post office had impressed her. Ms Nelson did recall the travelator although she attested that she did not take this into account. Ms Nelson's recollections were similar and supportive of Mr Rose's recollections although Ms Nelson recalled the meeting with Mr Hooper as being sometime in October 2004 or thereafter. 21 Mr David Hooper was the Senior Leasing Officer, and is now employed as a Senior Leasing Executive, of the respondent gave evidence which was directed to his recollection of the negotiations with Mr Rose prior to the lease coming into effect. His recollection was that he did not say words to the effect of "Everyone uses the post office these days". He stated that he saw the post office as "Just one of a number of draw cards for the premises". He drew attention to the lessor and lessee disclosure statement which states "The lessor is always considering the best use and appropriate development of the centre and for this reason, it is likely that changes (including tenancy reconfiguration, refurbishment and extensions of the centre) may occur from time to time". Mr Hooper attested that the first time he heard of any proposal to relocate the post office was in the first quarter of 2005 when it was discussed by a colleague of his, Ms Sarah Neilson, at a meeting with fellow leasing executives. 22 When cross examined by Counsel for the applicant Mr Hooper was not able to give meaning to the words included in an email to him from Andrew Lazarou to Michelle Tierney (both employees of the respondent) dated 14 October 2004 referring to the tenant of site T80 and noting that "The tenant is quite difficult to deal with, the deal is now slightly NPV negative however we must hold this deal so as to avoid a vacancy over the xmas (sic) period". 23 Mr Hooper recalled that he had met with Mr Rose on 2 August 2005, together with Mr Michael Feros of Centre Management when it was indicated that Mr Rose may benefit from assistance from the respondent's marketing department. Mr Hooper recalled that the lease of the post office had been due to expire in June 2007 and that the relocation had occurred in June 2005, knowledge of impending expiry of leases would only have been available to him on the system of the respondent between six and twelve months in advance; the lease of the subject site T80 was commenced by the applicant in November 2004 and his clear recollection was that any consideration of the move of the post office was not undertaken until the first quarter of 2005. 24 Mr Hooper attested that: "Immediately opposite the premises there was and remains a Big W store. In addition, there was significant pedestrian traffic flows from both the travelators, which are directly in front of the tenancy, taking pedestrians to and from the under cover car park, and also from the entrance to the shopping centre from the on grade car park. Near the entrance to the centre from the on grade car park, and some shops further down form [sic] the premises there was an Australia Post Office. I annex hereto and mark with the letter "A" a scale drawing of the floor plan of the Centre." 25 Ms Sarah Neilson, a leasing executive employed by Westfield who was previously employed by the applicant, gave evidence and she attested to the work that she undertook from mid January 2005 until later that year when she was requested to look at the leasing strategy for Erina Fair and ways of improving the strategy. Prior to her taking on this task in mid January 2005 she had been employed by the respondent at its centre on the Sunshine Coast. She attested that she had first thought of the possibility of changing the location of the post office at Erina Fair in about mid February and that it was probably some weeks later that she first approached the tenants of the Australia Post premises relating to a potential move. That part of her reasoning concerned difficulties in respect of tenant mix in another area of Erina Fair and this was not related to the then existing position of the post office which was not experiencing difficulties. She attested that she believed that the concept of moving the location of the post office was not considered prior to mid February 2005 as she believed she first conceived of that strategy. 26 Further that: "To my knowledge, it was not until I raised the concept of moving the location of the Post Office at Erina Fair in the first quarter of 2005, that such a strategy was first conceived." 27 The Rental Manager of the Erina Fair Shopping Centre, Mr Michael Feros, provided an affidavit to the Tribunal. He also gave evidence. Annexed to his affidavit is a list noted "C" disclosing the gross monthly sales figures of the applicant as supplied to him by the applicant. The figures were similar to the handwritten set of figures handed up to the Tribunal. 28 A Tenancy Selection Committee ("TSC") Tenancy Proposal ("Proposal") regarding proposals to lease the new premises to be occupied for use of an Australia Post retail shop in another part of the Centre was referred to in an email from Sarah Neilson to Michelle Tierney on 2 May 2005. Ms Neilson attested that this Proposal was prepared after a previous TSC prepared close to 10 March 2005. Her evidence was that she had thought of the possibility of moving the location of the post office in February 2005. 29 A copy of a letter dated 18 August 2004 from Lend Lease Real Estate Investments addressed to C Rose, La Donna Fashions Pty Limited was tendered to the Tribunal by the respondent. The letter sets out the details of the offer by the respondent to lease Shop T80 to La Donna Fashions Pty Limited. The letter sets out under a heading "Warranties and Representations": "You and we must let each other know below, anything we have promised, said or done which has influenced your decision to take the premises in the Centre, or our decision to grant you a lease." You must let us know of these things BEFORE you enter the lease." The letter further includes under a heading "Things we have said to you": "Please detail any statements made by us to you in the attached Lessee's Disclosure Statement (Part 2) which must be completed and signed by you. Refer acceptance and tenant declaration." The acceptance by the tenant in the letter has been signed by "E Matta" and dated 18.08.04. The lessor and lessee disclosure statement accompanying the letter has been signed also by "E Matta" on 18/08/04. There are no details of any representations shown on the disclosure statement Applicant's Submissions 30 The representative of the applicant submitted that: the main issue was that Mr Hooper made representations in respect of the post office when Mr Hooper knew of the difficulties involved with the post office. The provisions of Section 10 of the Act require that knowledge of these difficulties should have been disclosed to the applicant prior to the lease being entered into. Further that Mr Hooper as the leasing manager would have known in advance between six and twelve months of the issues occurring, that there was a protocol within the respondent to alert Mr Hooper as to any such difficulties and that there had been discussions that the post office would be relocated prior to the lease subject of this application being entered into; the location of the post office was important as part of the considerations of the tenant prior to entering into the lease and that the representations had been made by Mr Hooper and in accordance with the understanding of Ms Nelson that they had been relied upon. He further submitted that Mr Hooper in his evidence was seeking to reduce the importance of the post office in the decision of Mr Rose to enter into the lease; the communication of the discussions concerning the problem of a proposed site to which the post office would be removed indicated that there was a strategy of the respondent during the period of August to November 2004 to relocate the post office because of those difficulties. He drew attention to the email referring to the keenness to lease out the T80 site during the Christmas period and that it appeared that the respondent was concerned to do so before the lease was signed on behalf of the respondent; Mr Hooper knew of the intention to relocate the post office and therefore any indication that it would be a drawcard in respect of the leasing of the T80 site was false and/or misleading and that therefore the requirement as set out in Section 10(1) of the Act was made out; the respondent was anxious to lease out during the Christmas period and that was a significant motivational reason for entering into the lease notwithstanding the disclosure document and that a solicitor had been acting for the applicant in respect of the lease documentation; that the lease had been negotiated and that the representatives of the applicant had relied on the statements or representations made by Mr Hooper and had then negotiated the terms of the lease in a standard form and that not much weight should be given to the disclosure statement on this basis; and each matter concerning Section 10 of the Act must be determined on its own facts Respondent's Submissions 31 The representative of the respondent submitted that there were three requirements in Section 10(1) of the Act, firstly being that there be a representation, secondly that the statement was false and misleading and thirdly that the person who made the statement knew that it was false or misleading. The representative submitted that the representation made by Mr Hooper that "the post office is over there" was a representation made and that it was true as at that time and it was an existing fact. Insofar as the second requirement that the person had made that statement, this is also was true as Mr Hooper had done so. That the suggestion that the statement made by Mr Hooper that the post office was to remain was not true in that there was no such representation made and the reference in the disclosure statement that there was no guarantee as to the mix of tenancies disclosed this. It would only be false and misleading if it had been made knowing that the post office would not continue as a tenant in the location as at the time the lease was entered into. 32 The representative of the respondent drew attention to the evidence provided by Ms Nielson which disclosed that the suggestion that the post office could be moved did not occur to her until February/March 2005 and there was no suggestion that the post office be closed or moved altogether until May 2005. The evidence disclosed that Mr Hooper did not and could not know in August that the post office was to be moved as such a suggestion did not occur until late February or early March 2005. Thus as at the critical dates being during the period pre lease that is between August 2004 and November 2004 there was no false or misleading statement made. 33 The representative of the respondent submitted that the statement that "the post office over there" could not be misleading as there was no implicit representation that the situation would not change and it would only have been false or misleading if Mr Hooper knew of the proposals as at August 2004. 34 The representative of the respondent drew attention to the evidence provided by Mr Rose and Ms Nelson and suggested that their evidence was a reconstruction of the meeting held in August 2004 and that their evidence was contradictory, that accordingly the evidence of Mr Hooper should be preferred as it was not coloured by the strength of the case being put. Attention was drawn to the oral evidence given by Mr Rose which at times was contradictory and also that he conceded that the representations as set out in Mr Hooper's statement were correct. 35 The representative of the respondent referred to Golden Harvest (Aust) P/L v Paing P/L & Ors [2004] NSWCA 85 ("Golden Harvest"), particularly to the analysis by Bryson JA at paragraph 32:- "32 I turn to the operation of s.10. No pleadings and no formal written statements spelling out the grounds of the lessees' claims under s.10 exist or are required. Before the Judicial Member the burden of establishing the facts on which entitlement to remedy existed was on the lessees, and the lessees bore the burden of proving and obtaining findings of all facts on which entitlement to remedy depended, other than facts which were established by the lessor's making its applications for orders for payment of rent under the leases, and facts established by concessions made by the lessor at the hearing. It was at least necessary for the lessees to establish: (a) that a statement or representation was made; (b) that it was made by the lessor or a person acting under the lessor's authority; (c) that the statement or representation was false; or that the statement or representation was misleading; (d) that each lessee entered into a lease as a result of the statement or representation; (e) that the lessor made the statement or representation with knowledge that it was false or misleading. (f) that each lessee suffered damage attributable to the lessee's entering into the lease; and its amount; …" 36 The representative of the respondent submitted that the comments made by Mr Hooper did not add anything to the consideration by the applicant to enter into the lease. 37 In relation to damages the representative of the respondent submitted that there had been no attempt to prove any alleged damage, that the tendering of turnover figures did not support any basis for assessing any damage if in fact damages were to be awarded. That a honeymoon period had been expected by Mr Rose and that the fall in the figures was attributable to the end of the honeymoon period. Further that the turnover figures disclosed that the turnover had increased in August 2005 which was subsequent to the closing of the post office and discloses that therefore there was no significant effect on the turnover. Further that there would not be a delayed effect on turnover following removal of the post office and therefore the increase in August supports this. The representative of the respondent submitted that no quantum of damages had been established and in any event in view of the circumstances it could not be established. Reasons for decision 38 The applicant has not established that a false or misleading statement or representation was made by the respondent or by the representative of the respondent with knowledge that it was a false and misleading statement. 39 The apparent recollection of Mr Rose and Ms Nelson does not disclose that they relied on the statement of Mr Hooper concerning the post office and in any event when offered the opportunity to disclose any reliance on a statement, as set out in the letter of offer dated 18 August 2004 and signed by the representative of the respondent on 18 August 2004, the alleged reliance on the statement of Mr Hooper to the effect that the post office would not move was not disclosed. In any event the respondent had indicated in writing to the applicant that it was likely that changes including tenancy configuration of the Centre may occur from time to time. This indication, when considered with the suggestions in respect of the post office, was a representation on which the applicant relied would require that the lessee disclosed reliance on that in the disclosure statement returned to the respondent and dated 18 August 2004. 40 Mr Rose indicated that he had used the services of a solicitor in relation to the finalisation of the documentation concerning the lease and that he, Mr Rose, had negotiated the lease with the respondent and that although there was a solicitor acting for the applicant the advice of the solicitor was not sought in respect of the representations allegedly made by Mr Hooper. 41 Insofar as evidence provided relating to damages alleged to be suffered by the applicant, the figures set out on the sheet in handwriting tendered to the Tribunal by the applicant at the hearing, do not disclose any damages allegedly incurred and cannot be used for the purposes of calculating any damages. In the absence of supporting documentary evidence disclosing the source of the figures provided and discounting any external causes of the differences in figures a calculation of damages could not be made if damages were to be awarded. The handwritten figures disclose, if they are to be relied on, that there was a significant drop in turnover for the months of January through to June 2005 in comparison to November and December 2004, that after the post office had closed the figures fell for July and August 2004 which could be attributable to seasonal sales and that from September 2005 through to January 2006 the turnover increased to a similar amount, if not above a similar amount, to the period from January 2005 through to June 2005. 42 The evidence provided by Mr Hooper is preferred to that given by Mr Rose and Ms Neilson in respect of the statements and representations made orally by Mr Hooper prior to entry into the lease. 43 A statement or representation was made by a person acting under the respondent's authority which indicated the physical position of the post office and that the post office was just one of a number of draw cards for the premises; this satisfies subparagraphs (a) and (b) of paragraph 32 set out in Golden Harvest. 44 The statement or representation referred to in paragraph 42 was true at the time that it was made as consideration of moving the physical position of the post office was not conceived until February 2005. Alternatively the statement was misleading at the time that it was made, in this regard the statement was true and at the time that it was made there was no consideration being given to moving the post office and the disclosure statement provided by the respondent to the applicant indicated the potential for changes, including tenancy reconfiguration, may occur from time to time. Thus subparagraph (c) of paragraph 32 set out in Golden Harvest is not satisfied. 45 The applicant did not rely on the statement or representation which was not included in the disclosure statement in accordance with Section 11A. The evidence supports the view that the statement or representation was made in August 2004 and that the applicant entered into the lease relying on Mr Rose's and Ms Neilson's assessment of the position of the premises and their knowledge of the applicant's customers; thus subparagraph (d) of paragraph 32 set out in Golden Harvest is not satisfied. 46 At the time that the statement or representation was made by the representative of the respondent it was not made with knowledge that it was false or misleading, it was made as a statement of fact indicating the position of the post office; therefore subparagraph (e) of paragraph 32 set out in Golden Harvest is not satisfied. 47 The applicant has not suffered damage attributable to entering into the lease relying on the alleged statement or misrepresentation and the evidence does not disclose the quantum of any alleged damage. 48 As the lease was not entered into as the result of a false or misleading statement by the representative of the respondent then the applicant has not suffered damage as a result thereof. In any event no evidence of damage was provided. ORDER 1. The lease was not entered into as the result of a false or misleading statement by the representative of the respondent. 2. No liability for damage