Set aside by Appeal : Set aside by appeal on 29/11/02 CITATION: Golden Harvest (Aust) Pty Ltd -v- Paing Pty Ltd & Ors [2002] NSWADT 102 DIVISION: Retail Leases Division APPLICANT Golden Harvest (Aust) Pty Ltd 1.RESPONDENT Paing Pty Ltd PARTIES: 2. RESPONDENT Icontact Optometrist Pty Limited 3. RESPONDENT Shen Zhen Famtec (Australia) Pty Ltd 4. RESPONDENT Wingsing Pty Ltd FILE NUMBER: 015043; 015045; 015046; 015047 HEARING DATES: 27/07/2001, 21/09/2001, 15/11/2001 SUBMISSIONS CLOSED: 03/15/2002 DATE OF DECISION: 06/21/2002 BEFORE: Fox R - Judicial Member APPLICATION: Claim for compensation for pre lease misrepresentations MATTER FOR DECISION: Preliminary matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: APPLICANT REPRESENTATION: P McDowell, barrister RESPONDENTS R Pearson, solicitor ORDERS: 1. Respondents to file expert evidence to establish damage or loss flowing from failure to built residential development; 2. Registrar to appoint further direction hearing when evidence filed. 1 In these proceedings four separate Lessees, all of whom had at least been threatened with forfeiture of their leases because of their failure to pay rent, seek orders (in effect) to reassess their rent because they were induced to enter into their leases by false or misleading representations made on behalf the Applicant Lessor. The entitlement to relief arises from section 10 of the Retail Leases Act 1994 ("the Act"); the full text of the relevant parts of the section appear later on in these reasons. All of the leases are in the Carlingford Village Shopping Centre ("the Centre") which in 1998 and 1999 was being rebuilt, or at least extensively refurbished, to become a focus for Asian traders and presumably to cater to the Asian inhabitants of the surrounding suburbs. 2 Despite the forensic difficulties which that course might cause, it seemed to be appropriate to hear evidence in all four matters together, limited to the alleged misrepresentations. This was a course which might not necessarily mean that the hearing would be final, because if the misrepresentations were proven, it would still be necessary to hear evidence to establish the damage which the Lessees had suffered as a result of the misrepresentations, but it was attractive because, if misrepresentations were found, it would always be possible for the parties to again explore further settlement prospects in a mediation. 3 The first of the matters heard was the Golden Harvest claim (015047). The Lessee Company conducted a white and brown goods emporium trading as "Vincent's Electrical". The moving spirit behind the Company was Mr Lui who gave evidence before me both by way of statement and orally. He spoke no English at all and all of the oral evidence was through an interpreter. 4 Mr Lui responded to a billboard invitation, interpreted through his friend Mr Ma. I am satisfied that there were at least 2 meetings with Aaron Barnes – the "selling agent" and David Whittaker, who seems to have been site representative. One of those meetings was in a room in the Centre where there was a substantial architectural model on view. I am satisfied that this was similar to the model produced as evidence before me. 5 The evidence also established that the statutory Disclosure Statement was properly served on the Lessee, and that it had annexed to it many pages of artists' impressions and drawings of the Centre with a two tower thirteen storey residential development on top of it. 6 Clearly, the purpose of the words in the Disclosure Statement was to guard the Lessor against any claims for interruption to trade in the event of construction being actually undertaken. 7 The relevant text was: "Changes or developments planned by the Lessor for": Yes Retail shopping centre Stage two residential tower The Lessor specifically discloses that residential development consisting of a residential tower, additional car parking spaces and multi level car parking is proposed as set out in the attached plans and drawings. Inconvenience to the flow of customers particularly off Marsden Road, noise, dust and temporary disruption to services to the Centre are likely to occur and the Lessor shall use its reasonable endeavours to control such occurrences so as to keep any disruption to Lessee's trading in the Premises to a minimum. No claim for compensation for such disturbance may be made by the Lessee." 8 There followed three pages of plans of the commercial levels of the Centre, one page showing the west and east elevation of "south building" which is clearly a thirteen story residential tower, a page showing the south elevation of the south building in detail, and showing an outline of a similar building (presumably a second residential tower). There then followed a further page showing a schematic representation of fourteen floors of residential units and three levels of residential parking, two levels of retail parking and one and a half levels of visitor parking. There then followed a page headed "typical floor plan, north buildings levels 3-11 south building levels 3-13" and that very clearly shows an architectural floor plan of two separate towers containing a total of 8 residential home units per floor. There then followed a further four pages of architectural details of the commercial levels, parking, landscaping and similar. 9 I accept Mr Lui's evidence that he believed that such residential development would provide a core base of customers, but I draw no conclusion about the effect which such a residential development would have had on his sales turnover. 10 I am also satisfied that representations were made to Mr Lui by both Aaron Barnes and David Whittaker in relation to the tenancy mix proposed for the Centre. Of course, Mr Lui's evidence suffered from the fact that it was clear that whatever was said to him by either Barnes or Whittaker, in the initial stages, was through Mr Lui's interpreter friend Mr Ma, who himself gave evidence before me, but chose to give it through an interpreter. 11 I am satisfied that Aaron Barnes held out to Mr Lui that there would be a core tenancy, being Thai Kee Asian Supermarket, and that there would be a quite diverse tenancy mix. I am also satisfied that the original proposals did not quite pan out, and that the tenancy mix never built up to the point where it got off the ground as a successful draw card. However I do not accept that these representations were accepted by Mr Lui as more than a very general outline of the proposed mix and I do not accept that these tenancy mix representations were made other than honestly on behalf of the Centre. 12 The second claim heard was Icontact Optometrists Pty Ltd (015045), and I had statement and oral evidence from directors Debra Yu and Henry Wong. 13 Debra impressed me as a particularly candid witness and I accept her evidence about the representations which were made to her by Mr Antonios to the effect that there would be a suburban version of Market City, the development which is adjacent to Paddy's Markets in the City of Sydney, with a wide tenancy mix and residential tower on top. I accept that she saw an architectural model similar to the one before me, but showing no residential tower. 14 I accept that these general representations were the background to the decision to occupy. However the representation which triggered the decision was made after the Centre had opened and had commenced trading, to the effect that another optometrist was coming in. I was given no evidence that this representation was not true. 15 I am also satisfied that the tenancy mix was clearly on view at the date of signing of the Lease, and I do not accept that Mrs Yu was mislead in this regard. On the other hand I do accept that the representation of proposed residential towers played an important part in the decision. Mrs Yu, specifically, in her oral evidence referred to the detailed annexures which were the same as those described in relation to the Winsing matter. I note that Mrs Yu indicated that her solicitor, when the Lease was being signed, had drawn her attention to the risk involved in trade interruption during construction. 16 The other director was Henry Tone Wong, the husband of Debra Feng Yu. His evidence satisfied me that he was not mislead by the tenancy mix representation. I was satisfied that he was fully aware of the initial difficulties, worried about them, sought guarantee about occupancy levels which he was not given and then went ahead anyway. But his oral evidence underscored the effect upon him of the Disclosure Statement. "McDowell:- I suggest that Mr Antonios told you that if the development application was approved and if the building [the residential tower] was built, then there would be disruption caused to your business?" "Wong:- Yes, yes. My solicitor also addressed this issue with me several times completely and asked me to think about my decision before I make that decision because she said to me, once I saw the construction work beside a shopping centre, the traffic flow would be significantly decreased and because your signing the five years of lease and it could disrupt your business. My partner and I intend to go in there, it is because we saw the success of Market City and because if the people, like 2000 people live there, that's what Joe said to me, its going to be a lot of business." 17 After Mr Wong's evidence I heard the evidence of Mr Antonios, General Manager of Retail Estate Pty Ltd, which was appointed leasing manager for the project. Retail Estate Pty Ltd employed Aaron Barnes and David Whittaker. 18 Mr Antonios is a leader in the retail leasing field, and a most impressive witness, who, I am satisfied, was aware of the need to ensure that all prospective tenants were aware of the residential tower proposal, and I am satisfied disclosed that it was a proposal which was to be put to the local Council for development approval. It is also clear that at no time did Mr Antonios actually have the Disclosure Statement available to him. Because of his expertise in this field, I assume that he complied fully with the law and had available for view by prospective Lessees, a full draft lease, but I make no finding whether it included all of the architectural detail which was part of the Disclosure Statements. I accept his evidence that that was a matter left to the solicitors once the initial negotiations had resulted in a formal proposal for lease. 19 I note and accept Mr Antonios' denials in cross examination and accept his insistence that he held the residential development out to be a proposal only. But I am also satisfied that the Disclosure Statement raises a very strong impression that there was to be a residential development. 20 I found it difficult to reconcile Mr Antonios' evidence to the effect that it was his view that the residential towers would make little difference to the trading of the Centre, with his evidence (which I accept) when he said:- [ "….we mention the butcher which was subleased to Thai Khi and the Seafood shop and that there would be restaurants and take away food so that would be the basis of the food mix and then mention to him that we would have convenience type stores like the newsagency and the Pharmacists and those style of stores".] 21 Paing Pty Ltd (015043) related to the bakery and the dry cleaners. I had evidence (statement and oral) from David Paing, and Annie Crabbe (nee Paine) and Belinda Paine (their mother). The evidence again raised a suggestion that there was a display model on the premises which had some kind of multi story residential development which was proposed to be built. It also established, quite clearly that there were discussions with Aaron Barnes and David Whittaker from which they were entitled to assume that there would be a Bank, a post office, and a McDonalds. I am satisfied that these were matters which had a bearing on the decision to enter into the Lease, but I cannot ignore the fact that almost two years elapsed between the original indications which were made, and the signing of the Leases, although I note that, in between, there were some "update" meetings with Aaron Barnes and David Whittaker. I find it difficult to accept that people as skilled in business as the Paings were mislead by those various representations, especially considering that the Leases were signed a mere month or so before the Centre was officially opened, and at a time when a number of businesses had already commenced trading, and the tenancy mix was on view. 22 I am, however, again, satisfied that the same representations were made in relation to the residential tower proposal, and that both Disclosure Statements carried the words quoted earlier in these reasons, and the full compliment of architectural drawings of the tower proposal. Although the evidence of the involvement of a Mr Yip, who may not have been any representative of the Lessor and who according to the Paings made representations to them, raises some questions about their evidence, I am satisfied, especially in view of the nature of their businesses, that the prospect of the residential towers was pivotal to their decision to occupy. 23 The last of the matters was Shen Zhen Famtec (number 015046), a Company which conducts a shoe and handbag shop within the Centre. I am satisfied that the offer of Lease dated 9 November, 1999 (after the Centre had officially opened) contained the same detailed architectural pages and the same disclosure statement text. 24 The evidence was by way of statement and orally by the trader Sam Feng, and his daughter Sophia who at the time was a Year 10 High School student. Sophia's evidence was that she had met with Aaron Barnes on several occasions, in the company of her father and she had translated. She had undergone 9 years of primary etc. schooling in China and in the witness box demonstrated a good clear and confident command of the English language. I note that in particular, under cross-examination she indicated that David Whittaker had used words "another Chinatown in northern Sydney". I am also satisfied that there were words used that there would be a residential tower, a post office, and a McDonalds outlet. I note these words were used at a time when the Centre was already trading, and at a time when it was possible for David Whittaker to use words to the effect " most of the shops are leased, others are under offer, and this is the only one available". In view of the fact that the Centre was trading, and apparently fairly fully occupied, I am not at all satisfied that the representations about further occupancy had any real effect on Mr Feng, but accept his evidence that he was swayed by the proposal for a residential tower and of course his particular Disclosure Statement contained the same words and architectural detail. 25 The question of the display model of the centre, and the suggestion that at one time it had a tower or towers upon it, caused me much concern. However, on reflection, in view of the evidence of Mr Antonios, Mr Barnes and Mr Whittaker, despite the applicant witnesses' various assertions to the contrary, I am not prepared to accept that Antonios, Barnes and Whittaker were not truthful. I am satisfied that the fact is that applicant witnesses all formed their belief in the towers from the graphic detail in the Disclosure Statements, and not from any mock-up on the display model. 26 In relation to all four matters, it seems to me that Mr Antonios' evidence is more than telling when he said: "…the ownership had proposed to put a residential tower on the property and that there was a D A in place with Council, but it required obviously – well it required Council approval, and if they [the prospective lessees] ask me the timing of all that I said we're in the lap of the gods basically, we really don't what the timing of that would be, and if the approval would be forthcoming." 27 Despite the final words, I am satisfied that these or similar words would mean to any prospective lessee that a residential development of some sort would be built upon the Centre. 28 I note that in this regard that Aaron Barnes responded, in relation to a question "So the tenants would have been quite within their rights to rely on the wording contained in the Disclosure Statement?" "No I don't – I think that most of the tenants coming in would have seen [the residential tower] as a bonus. I mean, they were only working off the facts that we did have Thai Kee Supermarket, that [the Centre] was going to have a second floor, with a semi professional office suites and it was going to be a retail level supporting the supermarket. That's what I believe they formed their facts off". 29 Having heard all of the evidence I accept most of what Mr Barnes said, save that I do not accept that the applicants regarded the residential tower as a bonus, I am satisfied that it was an integral part of each of their decisions. 30 In summary it is clear that all of the Applicants were people experienced in business, and, as a matter of general observation, I am satisfied that they were well enough aware of the true situation that the representations in relation to the various proposed occupants were made to them on the basis of intent or proposal, rather than established reality, and I am satisfied that as persons experienced in business they knew that these were statements of ambition only and I am not satisfied that these were in any way central to the individual decisions made to enter into the leases. 31 I am satisfied that each of the Lessees resolved in their own way to take a small part of the same entrepreneurial risk which the Lessor took in seeking to establish the Centre. 32 It seems to me however that a different quality of representation arises in relation to the residential tower proposal. I am satisfied that in their own way each of the applicants asked about those proposals, and I am also satisfied that the representatives of the Lessor had a standard response which indicated that the residential tower was a proposal to the Local Council. 33 I have some sympathy for what was in effect the Lessor's proposition, :- "you're damned if you do, and you're damned if you don't" because it was very clear that, if the proposal ever went ahead, the tenants would have to be warned of the substantial disturbance to their trade. Indeed, that is the way Mr McDowell addressed the matter, indicating to me that the matters in the Disclosure Statements were not representations, they were simply in response to the statutory obligation. That may well be so, and I can conceive of a circumstance where that might have applied, had the Disclosure Statement limited itself to the text. That would, in my view, have been sufficient to address any later complaints which the tenants might make about the disturbance during rebuilding. However, the pictorial details of artist's impressions and architectural plans to show how the tower or towers would look above the existing Shopping Centre, in my view went far beyond that need, and was the cause of each of the witnesses before me being convinced that they had been told that there would be a residential tower built and that they had seen a model of it. 34 In my view, the essential difference between the "trading mix" representations, and the "residential tower" representation was the fact that the latter was enshrined in the Disclosure Statements, in graphic pictorial detail. 35 It is appropriate to consider the words of Section 10: "(i) 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. (ii) The giving of the 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." 36 The Section does not require exclusivity in the sense that the representation be the only reason for entering into the lease, but I am satisfied that the proper construction would not envisage a representation in relation to a minor or peripheral aspect. I am satisfied that the Section requires a representation to have been one which had a substantial influence on the decision making process of the party affected, but it need not be the only influence. It is in this sense that I am satisfied that all four applicants entered into the leases as a result of the representation that there would be a major residential development on the Centre. 37 It is clear from the text in the Disclosure Statement, and generally from the evidence, that there was a time when it was true that an application was being considered by Council, and it seems to be just as clear that there was a later time when the representation was untrue because the application was no longer before Council. Regrettably I was not given any evidence in this regard, and consequently am unable to take this aspect of the matter further at this time. 38 Fortunately, the fact that the Disclosure Statements were included in the leases makes it possible to identify a date of currency of the representation, and the date of its formal effect on the respondents, being the date of signing of the leases. So, in relation to Winsing, I find that the representation was current on the 7 September 1999 and that it resulted in the respondent entering into the lease on the 4 November 1999. In relation to Eyecontact the representation was current on 23 November 1999 and resulted in the entry into the lease on 4 February 2000. In relation to the Paings the representation was current on July 1999 and resulted in the entry into the Bakery Lease on 23 August 1999 and Dry Cleaning Lease on the 16 August 1999. In relation to Sam Feng representation was current on the 22 November 1999 and resulted in the entry into the Lease on 14 December 1999. 39 I assume that the date of the Local Council's rejection of the development application is identifiable and not controversial. 40 It also seems to me to be clear that the representation, even if not technically false, was misleading if that representation was maintained after the Local Council had formally rejected the application, but the appeal period had not yet expired. 41 I am also satisfied that the necessary level of knowledge of false hood in the Lessor arose on the date of receipt by the Lessor of the counsel's Notice of Rejection. 42 I note that there is a possibility that the zoning of the Centre was such that the application to the Local Council had no real prospect of being granted, and in that case, too, the representation might well be technically true but in fact misleading and dishonestly made. 43 In that same vein, if the Lessor, or the Lessor's represent a true making application to Council became aware of the fact that the Council would not approve the application as made unless there were substantial amendments, then, again, the Lessor could not thereafter deny that the representation was dishonest or misleading. 44 On reflection it seems to be to be pointless to direct the parties back to a mediation unless there is some actual expert evidence to indicate what effect the residential tower representation might have had on the trading prospects of the Lessees, and so I now direct that the Lessees within 28 days file such expert evidence. 45 In order to further assist, I point out that I am satisfied that the Disclosure Statement, on close analysis, indicated that there would be a total of 80 three bedroom units, 40 two bedroom units and 40 one bedroom units, but gave no detail to indicate either the date of commencement or the length of time it would take before the building would be complete. 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