New South Wales Supreme Court CITATION : Commonwealth v Dovoro / Commonwealth v Stonecat [1999] NSWSC 807 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 10290/93; 10288/93 HEARING DATE(S) : 4,5,6,9,10,11,12,13 February 1998 JUDGMENT DATE : 5 August 1999 Commonwealth of Australia (Plaintiff) PARTIES : Dovoro Pty. Limited (Defendant) Stonecat Pty. Limited (Defendant) JUDGMENT OF : Dowd J COUNSEL : Mr D.H. Murr SC (Plaintiff) Mr J.R. Wilson (Defendants) Australian Government Solicitor (Plaintiff) SOLICITORS : Harrington, Maguire & Co (Defendants) CATCHWORDS : Misleading representations and reliance thereon; Lease by operation of law; Variation of rent for breach of Pt.5 of TP Act Trade Practices Act 1974 (Cwlth) ACTS CITED : National Health Act 1953 (Cwlth) Conveyancing Act 1919 CASES CITED : Sellara v Adelaide Petroleum (1994) 120 ALR 16 Finucane v NSW Egg Corporation (1988) AdLAR 486 DECISION : Verdict for the plaintiff in each matter on the statement of claim subject to cross claim relief.; Rental varied under s.87 of TP Act in both actions.; Damages awarded against plaintiff in respect of each cross action.; Costs and interest reserved. THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DOWD J 5 August 1999 10290/93 - COMMONWEALTH OF AUSTRALIA v DOVORO PTY. LIMITED 10288/93 - COMMONWEALTH OF AUSTRALIA v STONECAT PTY. LIMITED REASONS FOR JUDGMENT 1 HIS HONOUR: The Commonwealth of Australia, ("the Commonwealth"), the Plaintiff in both of these proceedings, erected at 2/12 Macquarie Street, Parramatta, premises to house various Commonwealth Government departments. The building was known as The Jessie Street Centre. It is on the fringe of the Parramatta business district, and was removed from the main shopping area. Limited public parking was available in the vicinity of this location. 2 On the ground floor was constructed an area for occupation as a cafeteria and restaurant, and a separate area for a drugstore, pharmacy and newsagency, as well as other shops. Although access to the ground floor of the building is from various doors, the majority of potential customers for both areas must enter the Parramatta Commonwealth Offices building through its main entrance. 3 The location of the Parramatta Commonwealth Offices was not in an area likely to attract passing pedestrian traffic or casual shopping or trade in normal business hours. The Parramatta Mall and Westfield Shopping Complex are some short distance from the Commonwealth Offices, providing retail banking and service facilities. The building itself had very limited retail activities. Facilities such as the law courts and nearby offices, but principally the building's occupants, were the potential main source of custom. 4 A department of the Commonwealth, known as the Australian Property Group, ("APG"), carried out leasing and property arrangements on behalf of the Commonwealth for the leasing of the Jessie Street Centre. In August 1989, APG advertised for tenders to lease the shop designated as a newsagency/drug store/general purpose store, being Shop number 6 in the retail area of the Jessie Street Centre. 5 On behalf of Stonecat, a consortium of persons who ultimately became directors of Stonecat submitted to the Commonwealth a tender for the lease of the premises, as a result of which APG, on 14 March 1990, granted approval to proceed with a lease on a base rent of $140,000 per annum adjusted annually in accordance with CPI, with additional charges estimated at $35,000 per annum. 6 Subsequently, officers of APG advised that approval had been granted to proceed with a lease, and as a result the consortium on behalf of Stonecat entered into possession pursuant to the agreement to lease, without a formal lease being executed. On 15 March 1991 Stonecat was advised that payment of outgoings and rent would commence on 15 April 1991. 7 On 18 December 1992 a notice to quit was served for non-payment of rent, and a summons for possession of the shop was filed on 29 January 1993, on which summons, on 1 May 1995, Simpson J. granted an adjournment on Stonecat's application, on the condition that Stonecat would consent to an order for possession. The premises were vacated on 3 July 1995. 8 The Commonwealth, after a series of amended pleadings, sued for the sum of $273,912.07, being rent and outgoings from 15 April 1991 to 18 January 1993, the expiry of the Notice to Quit, and claimed mesne profits from February 1993 to July 1995 at a rate of $14,633.33 per month, being the average monthly amount due for rent and outgoings during the term of Stonecat's tenancy, being an amount of $424,366.57, less payments of $36,000 from the period 8 March 1993 to 16 February 1995. The amount therefore owing, as claimed in the statement of claim, is the sum of $662,278.64. In addition to rent and mesne profits the Commonwealth claimed damages, interest and costs. 9 Stonecat eventually brought a cross claim which alleged that the Commonwealth, through APG, made representations to representatives of Stonecat that the total staff at the Jessie Street Centre would be some three thousand persons, and that there would be approximately two thousand visitors per day. 10 It was further alleged that the Commonwealth represented the leased premises could be used as a pharmacy, which would permit a dispensing of pharmaceutical products, and further that the Commonwealth would not do anything to prevent an NHS pharmacy, that there would be no staff canteens or vending machines operating in the complex, and that the Commonwealth would approve or ensure approval for a dispensing pharmacy with full NHS benefits. 11 It was alleged that Stonecat, in reliance on the Commonwealth's representations, undertook a fitout of the subject premises costing approximately $200,000, and entered into the agreement for lease of the premises. It was alleged that the Commonwealth's representations were future matters, and that the Commonwealth did not have reasonable grounds for making such representations. 12 Stonecat alleged misleading or deceptive conduct on the Commonwealth's behalf within s.52 of the Trade Practices Act 1974 ("the TP Act") in that the Commonwealth did not have reasonable grounds for holding the beliefs on which the representations were made and further alleged that the Commonwealth did not have a residential staff of approximately 3,000 as represented, and that at any particular time it did not exceed 2,000. Stonecat alleged further that the Commonwealth complex did not contain a 400 seat conference room as represented. 13 It was further alleged that the rental was not a proper and reasonable commercial rent, and that the premises could not be used as a dispensing pharmacy, and that a staff canteen and vending machines operated through the complex, and the lessee of the cafeteria did not have exclusive rights for the provision of food and associated services. It was further alleged by Stonecat that the Commonwealth would ensure grant of full NHS benefits for the dispensing pharmacy, notwithstanding an announcement to the contrary under the National Health Act 1953, announced on 6 August 1990, and that the premises could not in fact be used as a pharmacy with full NHS benefits. 14 Stonecat claimed loss and damage, being the cost of fitting out the dispensing pharmacy, and loss of profits that would have come from the business if it had included a dispensing pharmacy with full NHS benefits. It claimed a setoff against any sum which the claimant may be entitled to under the agreement for lease. Stonecat further claimed relief against forfeiture under the agreement for lease. 15 Stonecat also sought an order under s.87 of the TP Act, varying the agreement to release the cross-claimant from payment of rents other than the sum of $36,400 per annum, or such other figure as the court thinks fit, and further seeks damages under s.82 of the Trade Practices Act, and damages generally. The cross claimant claimed interest including compound interest. 16 The Commonwealth admitted in its defence to the cross claim the representation that the total staff in the Jessie Street Centre would be 3,000, but otherwise denied the facts alleged. The Commonwealth also admitted a representation that one of the objectives of the premises was a retail area providing a comprehensive range of retail services which might include a dispensing pharmacy, but denied that it did not have reasonable grounds for making the representations. 17 In relation to the allegation that the Commonwealth would do all that was reasonably necessary to have a full dispensing NHS pharmacy, the Commonwealth contended that it was an implied term of the agreement that the terms agreed were subject to the laws of the Commonwealth, and to administrative acts carried out in the implementation of the policy of the Commonwealth Government from time to time. 18 The Commonwealth admitted that an agreement had been entered into by the relevant Minister and the Pharmacy Guild, which caused the determination which prevented the creation of an NHS pharmacy, but revoked this from 23 January 1991. The Commonwealth denied that Stonecat was prevented from conducting a dispensing pharmacy, but says that a Mr. Peter Marshall, the proposed pharmacist of Stonecat, was unable to conduct a dispensing pharmacy as a consequence of the determination. The Commonwealth denied breach of any contract and said there was no basis for any relief against forfeiture. 19 As to the other claim, in August 1989 there were discussions between officers of APG and those negotiating on behalf of Dovoro, concerning the tender for the lease of restaurant premises to be known as "The Atrium", being substantially the same person negotiating for Stonecat, to provide restaurant and cafeteria services for the occupants of the building. An invitation to tender was issued to persons ultimately becoming directors of Dovoro in September 1989, as a result of which a number of meetings took place with officers of APG. 20 On 16 October 1989 a letter tendering for the lease was forwarded to APG, subsequent to which, on 16 November 1989, a tender was submitted for lease of the restaurant/cafeteria, which was accepted on 4 January 1990 by APG. There then followed, during 1990, a series of discussions and negotiations concerning the fitting out of the restaurant and alterations to the cafeteria, and concerning problems with the liquor licence and fitout. 21 In November 1990 Dovoro entered into occupation of "The Atrium". On 15 March 1991 APG advised Dovoro of the date of commencement of rent, namely 1 April 1991, Dovoro having gone into possession on the terms of the draft lease which had been submitted subject to variations negotiated by correspondence. On 18 December 1992 a notice to quit was issued for non-payment of rent. Dovoro vacated the premises on 30 July 1995. 22 The Commonwealth brought proceedings against Dovoro for rent in pursuance of the lease agreed between the parties from 1 April 1991, from which date the plaintiff claimed rents and outgoings until 18 January 1993 of $854,377, and mesne profits from February 1993 to July 1995 at a rate of $37,500 per month, being the average amount due for rent during the period of the tenancy, being an amount of $1,087, 500, making a total of $1,937,877 for rent and mesne profits, less rent paid from 21 January 1992 to 16 February 1995 of $83,988.37, leaving an amount owing of $1,853,888.63. The Commonwealth claimed damages and interest. 23 Dovoro pleaded a cross claim that the Commonwealth represented that the lessee of the cafeteria/restaurant premises would have exclusive rights to the provision of food and associated services in the complex, and that the staff of the premises would be approximately 3,000, with some 2,000 visitors per day, and that there would be anticipated daily sales of at least $10,000 for the cafeteria; that everything would be done to attract patronage, that the foyer of the complex would be used for concerts, balls and functions including weddings and formals, that the premises would be able to supply liquor and that no liquor licence was required, that there would be a 400 seat conference room on the fourth floor, that the rental of the premises at $300,000 per annum and $120,000 for lease of the kitchen equipment was a proper and reasonable commercial rent, and that there would be no staff canteens or vending machines operating elsewhere in the complex. 24 Dovoro undertook renovations and works on the premises of some $120,000, and entered into the premises pursuant to the agreement for lease. 25 Dovoro alleged against the Commonwealth that the Commonwealth had engaged in deceptive or misleading conduct, or conduct likely to deceive in breach of s.52 of the TP Act in that it is alleged that the Commonwealth did not have reasonable grounds for holding the opinions and beliefs that were asserted, in that Dovoro was not granted the exclusive rights for provision of catering, that sales in the cafeteria were not of the order of $10,000 per day, and that at no stage did the residential staff approximate 3,000 persons, nor did it exceed 2,000 persons. 26 It was further alleged that, contrary to the assertion of the Commonwealth, the foyer centre was not available for concerts, balls and large functions including weddings and formals, that approval for sale of liquor was still required from the New South Wales Liquor Administration Board, that the complex did not contain a 400 seat conference room, that rental as proposed was not a proper and reasonable commercial rent, and that the Commonwealth had not received two other tenders offering a rent as high as represented by it, and there was a staff canteen and vending machines throughout the complex. 27 It was also alleged that the Commonwealth represented that the premises would be ready for occupation by March 1990. It was alleged that the Commonwealth had made the above representations falsely and recklessly, as a result of which Dovoro suffered loss and damage. 28 The cross claimant further claimed an order under s.87 of the TP Act varying the agreement for lease by reducing the rental to 5%, or alternatively 10%, of the gross turnover of the cross claimant's business conducted, or such other rent as the court deems fit. Dovoro also sought damages under s.82 of the said Act. It was alleged by Dovoro that the loss of profits for the year ending 30 April 1991 to 30 April 1995 due to the Taxation office canteen and vending machines, was $490.000. 29 The Commonwealth admitted that it had represented there would be no food retail outlet other than the proposed cafeteria/restaurant, and admitted that it had represented the total staff would be 3,000, but otherwise denied the contentions of Dovoro, and also admitted that the fitout would be completed so as to allow occupation by March 1990, and otherwise denied the facts alleged. 30 The Commonwealth further admitted that it represented to Dovoro that the foyer was suitable for functions, and that it would be available for hire on request, but otherwise denied the facts as alleged. The Commonwealth admitted that it expected wine and beer to be served, but otherwise denied the facts alleged. The Commonwealth admits that it represented that the market value of the restaurant was some $300,000, but otherwise denied the facts alleged, but disputed Dovoro's entitlement to damages or relief against forfeiture. 31 Both actions were heard together, and the evidence in one matter was evidence in the other. Obviously some evidence, particularly as to damages, would relate to one or other action only, but most of the evidence was common. 32 In accordance with the pleadings, Mr Murr on behalf of the Commonwealth conceded that the existence of an Australian Taxation Office ("ATO") was at variance with the representation made by the Commonwealth that no other retail food outlet would be on the premises, and it was conceded that the existence of the canteen had an adverse effect on the trading of Dovoro. It is conceded that it was a representation that did not come to fruition, and that it cost Dovoro money. The Commonwealth said that its expert evidence said that the amount was of the order of $50,000 per annum. 33 Mr Murr conceded that as to the second major alleged misrepresentation that there were to be some 3,000 public servants working in the building, that that in fact had been represented, but it was not conceded that the figure of approximately 3,000 fulltime staff was wrong. Mr Wilson for the defendants did not accept that there were only two misrepresentations, although it was not proposed to rely on all of the assertions set out in the pleadings. 34 The proceedings were conducted on the basis of a large number of affidavits filed by all parties to the proceedings, and by the tender of documents produced on subpoena. There was then oral evidence given by witnesses who had sworn affidavits or given a statement. 35 The restaurant the subject of the lease to Dovoro had access from the building, but the building was secured at 6 o'clock at night. It also had external access after that hour from the adjoining street. It was necessary for occupants of the building to actually leave the building in Macquarie Street and walk round into O'Connell Street to access the restaurant. It was an agreed condition of the use of the restaurant that public servants would have the right to bring in their own food and consume it within the cafeteria area, free of charge, and in fact a number did so throughout the period of the lessee's occupation. 36 A considerable part of the affidavit evidence and the oral evidence in the hearing related to a series of conversations which had occurred from the time of the awarding of the tender to each consortium, and the commencement of the business by Stonecat and Dovoro respectively. Those conversations occurred between the various combinations of parties, both at the APG offices at Chatswood and on the Jessie Street site. 37 Involved in the discussions was Mr Peter Hampson, who was the Director of Development of APG. He was at the time of the hearing retired for some years. Responsible to him was a Mr Ron Mead, the Supervisor of the person responsible for much of the negotiations, Mr Phillip Beggs. One of the meetings involved Mr Arthur Gallery, the State head of APG. Negotiations on behalf of Stonecat and Dovoro involved Directors of that company, Mr Barry William Brown, Mr Michael Berger and Mr Paul Berger. 38 Section 52 of the TP Act prohibits conduct that is misleading or deceptive, or likely to mislead or deceive, and provides that where a representation is made and the corporation does not have reasonable grounds for making it, it shall be taken to be misleading, and in relation to a representation as to a future matter, the corporation shall, unless it produces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation. 39 The TP Act provides that a person who suffers loss or damage as a result of misleading or deceptive conduct may recover such damage against a person involved in that conduct. Section 87 of the TP Act provides that the court may make an order which the court considers appropriate against a person who is engaged in a contravention of certain parts of the Act, including breach of s.52, to compensate for loss or damage. 40 There has been no issue in these proceedings concerning the coming into effect of the lease on the basis of the submitted agreement to lease, as varied by correspondence in respect of each premises. The lease at common law came into effect from the taking of possession. Both parties seem to have accepted that there would be a rent holiday until a stipulated date, and there has been no challenge to the fact that rent became payable under the lease in accordance with the draft lease submitted from the nominated date by the Commonwealth, subject to the rent holiday. The lease then by virtue of s.127 of the Conveyancing Act 1919 became a tenancy at will, terminable on one month's notice. 41 I wish to now set out an examination of the various issues raised in the cross-claims by Stonecat and Dovoro. These are not ranked in order of importance. Conference Facility: 42 It is clear from the evidence of all relevant witnesses that there were discussions which involved talk of a 400 seat conference facility. I do not accept that this was a formal representation made by the representatives of the Commonwealth. I do not accept the evidence on behalf of Dovoro which asserts that it was proposed that a conference facility would be installed. I accept the version of Mr Beggs at p.197 of the transcript: "…we propose to install a conference facility on the fourth floor. This is words to the effect that this is not set in concrete as yet, because we are going to undertake a feasibility study to see what patronage we could expect, and to see whether we had enough money to actually build this facility." There was therefore no representation that this conference centre would be carried out at any time. I accept that such a suggestion is a matter which a proposed lessee would take into account as a possibility, but there being no assertion that the conference centre would occur, Dovoro was not entitled to rely on this as a representation. Liquor Licence: 43 It is clear that the Commonwealth representatives were of the view, and represented to Dovoro, that it was not necessary for there to be State law approval for the creation of a facility for the retailing of alcohol. Dovoro clearly relied on this. The legal advice that was ultimately accepted was however that the State could in fact regulate the premises as though they were premises covered by State law, but that the State could not charge a licensing fee. The evidence, which was uncontested, was that the Managers of the restaurant premises did in fact supply liquor, and were not restricted in this respect, even though they did not advertise liquor as being available. There is in fact no restriction or detriment which Dovoro suffered, since they were in fact supplying liquor as the Commonwealth represented that they could. Sole Distributor of Food through the Jessie Street Complex: 44 There is no contest on the evidence between the parties, and it is admitted in the course of the hearing, that it was represented by the Commonwealth that the canteen restaurant would be the sole provider of food, except insofar as there was a food outlet contained within the Stonecat drugstore/newsagency for certain lines of prepackaged foods and normal articles found in a drugstore/newsagency. 45 The Taxation Department, being the major tenant of the premises, had always operated at its previous address and in other locations a staff canteen, the proceeds of which went towards a Christmas club. There were also a number of vending machines in the various Government departments. 46 These had been operating prior to Dovoro entering into the premises, but were the subject of discussions in April 1991, at about the time that the rent was to commence well after the date of commencement of obligations under the lease. 47 Mr. Arthur Gallery, the State Manager, indicated that it was desirable that arrangements should be made for the staff canteen to be discontinued and the vending machines removed. The Directors of Dovoro realised however that an imposed solution such as the closing of the canteen would result in disaffection on the part of the employees of the Australian Tax Office, being the principal occupant of the building. It was clear that there may be resentment and even black bans on the restaurant if the staff of the Taxation Department considered that it was the restaurant that had forced the closure of the staff canteen. 48 As I have set out earlier, the Commonwealth has conceded that the existence of the canteen probably had an adverse effect on the trading of Dovoro in the restaurant. It is on the evidence abundantly clear that the presence of the canteen, and its peculiar circumstances as a staff canteen, seriously affected the potential income of Dovoro, as did the vending machines. It is not just the profit of the canteen and the vending machines that needs to be taken into account in assessing this loss, it is the fact that people who come to use a restaurant are more likely to return to it, and people who come for instance to buy coffee will often on impulse also buy something to eat. The detriment to the restaurant, and therefore Dovoro, is in fact considerably more than merely the profit earned by the canteen. 49 I consider that the representation as to the exclusive food provision being for the benefit of Dovoro was made recklessly, that it was relied upon by Dovoro, and that Dovoro suffered loss as a result of such reliance. Delay in Completion: 50 I am satisfied on the evidence, which does not appear to be in contest, that representations were made that the building would be completed in early 1990, and that it was in fact not available to Dovoro until about October 1990. However, Dovoro has not demonstrated on the evidence before me that it did any act in reliance on such representation, or that it suffered any damage as a result of it independent of the other heads of damage. Number of Building Occupiers: 51 The evidence, particularly that of Michael Berger, was that he had assumed that the figure asserted by the Commonwealth of 3,000 employees was a "ball park figure", and that it would be somewhere between 2,800 and 3,000. It is clear however that the Commonwealth concedes 3,000 as the number that it represented, and it is also clear that Dovoro relied in general terms on that representation. 52 The evidence before me discloses that during the period before the expiry of the notice to quit the numbers were somewhere between 2,100 and 2,200. Subsequently the removal of the Penrith Tax Office took out some 700 employees, but this was a matter not within the knowledge of the Commonwealth at the time the representations were made. The reduction in potential occupiers of the building to use the restaurant was of the order of 25%. That reduction obviously however had an even greater impact on restaurant usage, since most of a restaurant's costs are fixed, and employees cost the same whether they are working or not, and food and fixtures and other outgoings are not all proportionate to the number of users. The loss therefore of an additional third again of users on top of the number in fact available would have a very much higher impact on turnover of the restaurant. Dovoro clearly suffered significant damage as a result of this. Use of The Atrium: 53 As part of the discussions leading up to the tender, I accept the evidence of the Dovoro Directors, which is not substantially disputed, that it had been suggested that The Atrium in the centre of the complex would be available for functions and weddings. The evidence of the Dovoro Directors was that there may have been one or two occasions when use of The Atrium was sought, and permission was refused. This has not been shown to be a significant part of the trading results of Dovoro. The restaurant itself was used for special functions on a large number of occasions, sometimes for Taxation Department employees. I do not consider that there has been shown to be a formal representation that The Atrium would be available, the Commonwealth's officers indicating that it would be a matter for permission to be sought from the Building Manager. Number of Meals: 54 There was considerable contest between the parties about the assertion on behalf of the Dovoro Directors that a document was photostated and made available to them to the effect that the Commonwealth officers estimated that there would be some 1,000 meals per day at $10 per meal. The officers of the Commonwealth asserted that no such document was made available, and produced a document which I accept was that which was provided to the Dovoro Directors. This document was not compatible with that asserted by Dovoro's directors. 55 In any event, the evidence of the Dovoro Directors was that they had carried out their own calculations, and on their own estimates the Commonwealth figures were conservative, and it is clear on the evidence that Dovoro's officers were capable of making their own calculations of the likely use of the restaurant/cafeteria. I accept the evidence of Mr Ronald Bruce Mead at p 152 of the transcript: "Q. In your affidavit at paragraph 7 you say that Mr Hampson had a copy of this document and had referred to it? A. Correct. Q. What did he say about it? A. From memory it was words to the effect that 'this document has been prepared and you may be able to use it, it may be of some assistance in preparing your tender, but you will have to do your own sums', or words to that effect." I consider that the document made available was as asserted by the officers of the Commonwealth, and that in any event Dovoro relied on its own estimates, which they considered to be "conservative". No representation was made and there was no reliance proven in any event. Numbers of Visitors: 56 Although there was an assertion on the part of the officers of Dovoro that a representation was made that there would be 2,000 visitors per day, I accept the evidence of Mead and Beggs that no such representation was made, although there may have been discussion on the issue. Representation that Dovoro should pay $300,000 for rental of the premises: 57 It was contended by Dovoro that because of the superior position of the Commonwealth, and the nature of the negotiations, that it was not unreasonable for Dovoro's representatives to have assumed that the $300,000 was a proper valuation of the rental of the premises for use as a cafeteria/restaurant. 58 The evidence discloses that the officers of Dovoro were experienced at restaurant management and financial matters, Mr Michael Berger being particularly so qualified, and it was clear that they were prepared to allow a higher percentage for rent in their estimates than would be normal. I accept that Dovoro was told that $300,000 was necessary to secure the tender, but I do not accept this as a representation that the rent was represented as being a fair and reasonable rent. This was a normal commercial transaction by way of tender, to some extent at arm's length. The proposed lessee was capable of making its own assessment, and I do not accept that a representation as to the proper level of rent was made by the Commonwealth, as alleged, such that Dovoro's officers relied on it in deciding on the rent that they were prepared to pay. Dovoro's officers clearly made their own calculations and tendered accordingly. The Stonecat NHS Dispensing Facility: 59 On 8 August 1990 the Commonwealth Government announced a change of National Health policy in relation to NHS dispensing pharmacies, to the effect that no further NHS pharmacies would be permitted within five kilometres of existing NHS pharmacies, and on certain other conditions. The Commonwealth provided transitional provisions for arrangements that were already in place, but with these the Stonecat pharmacy was unable to comply. 60 Stonecat was free to have a pharmacy without such benefits, but medication would have to be purchased at full price, which would make it unlikely to attract customers of the volume that an NHS pharmacy would do. 61 I do not consider, notwithstanding that the APG officers clearly wanted an NHS dispensing pharmacy, and that to lose that capacity would severely affect the income and customer drawing capacity of a pharmacy, that in fact any representation was made that the Commonwealth would succeed in having the Stonecat pharmacy exempted. 62 At page 100 to page 101 the following evidence occurred: "Q. See if you can recall Mr Beggs saying anything to this effect, 'We can take this up with the Department of Health in Canberra", and then he referred to the names of two people and continued, 'I will contact them and see if it is possible to have this particular pharmacy exempted on the basis that after all it is a government building and the tenders had already been let for the establishment of a pharmacy before the government announced the new legislation". Do you recall Mr Beggs saying words to that effect at any meetings you attended? It is quite important, I am putting to you a conversation that someone has said has taken place. I want to ask you first of all whether you recall being at a meeting where either those words or words similar to those words were said? A. Yes. Q. The second part of this question is do you agree that Mr Beggs said words to the effect that I have read out to you? A. Yes. Q. Can I put some more conversation to you and see if you can recall first of all being at a meeting where words to this effect were said and what your recollection of the relevant conversation was. Mr Brown saying these words, 'What progress is being made with the Department of Health to overcome the problems we are experiencing with the establishment of a pharmacy'. Mr Beggs saying these words, 'We are still having discussions with the Department of Health. I am confident that one governmeent department can work with another to overcome these problems'. First of all do you recall words to that effect being said in your presence? A. On many occasions. Q. and do you accept that that is an accurate or sufficiently accurate version of what was said? A. Yes. Q. You would agree with me, wouldn't you, that in the course of your negotiations in relation to Stonecat it was never represented to you or to anyone to your knowledge that National Health Service benefits would be available in the pharmacy? A. No, that's not true. We were alway promised that we would have those benefits available. Q. You were always promised that? A. That was the understanding of Phil Beggs. Q. Let me put the question again, the question wasn't what the understanding was or what you thought it was or what you thought was going to happen. The question was nobody said to you that National Health Service benefits would be available? A. Yes they did, I was told that. Q. Who told you that and when? A. I would say on several occasions, Mr Hampson and Mr Beggs. I think at one stage Mr Hampson was going to the Minister in Canberra to get it pushed through." 63 I accept that the officers of Stonecat believed that it would be possible for an NHS pharmacy to be brought into being, but the evidence does not support the fact that a representation was made that the officers of the APG would succeed in it. In this respect I refer to the evidence of Mr. Paul Berger at page 120 of the transcript: "Q. I will repeat that last sentence. Mr Hampson replied, 'Does that mean you won't be putting the pharmacy in?'. Mr Brown said, 'No, our desire is still to proceed but obviously we are going to need assistance to overcome this latest government legislation'. Mr Beggs said, 'We can take this up with the Department of Health in Canberra', do you recall that being said? A. Yes, that could be part of it. Q. Could be part of it? A. I could have heard that." 64 Mr Beggs at transcript page 217 confirmed that attempts were made to persuade the Commonwealth to exempt The Atrium drugstore, but no representation had been made at the time that the lease came into existence in late 1990 that the Commonwealth would succeed in securing an NHS dispensing capacity.. Submissions of the Parties on Quantum: 65 The Commonwealth claimed only the equivalent of rent at the contractual rate for the period that Dovoro was in occupation, and not for the loss of the benefit of its bargain. 66 I accept that the Commonwealth is entitled to recover, as submitted, subject to what is provided below on the cross-claims, that as the figure for mesne profits is less than rent at the contractual rate, the Commonwealth is entitled to the difference in damages for repudiation of the agreement to lease. 67 As to Dovoro's claim against the Commonwealth, the correct measure of damages is the difference edthat Dovoro did not proved what the true rental value would have been. 68 The Commonwealth says in relation to Stonecat that the only representation relied on relates to the NHS pharmacy, and that there is no reliable evidence as to damages, and says in relation to staff and visitor numbers that the expert called by the Commonwealth, Borthwick, reconstructed the evidence of Cheadle, the Stonecat expert, and arrived at a figure of $5,901. 69 In relation to damages the submission of Mr Wilson is that Stonecat, as a result of the loss of business for the reduction in number of occupants of the building, is entitled to claim one-half of the sum in Exhibit 11 of $111,424 for cost of installationless cost of cash registers, vacuum, safe and other common items, and therefore claims $53,155, being half of the balance expended. I consider that this is not correct basis for apportioning the allocated costs, but consider that some part of the cost of fitting out is a sum for which Stonecat should be compensated on the basis of the representation as to the numbers of building occupants, and consider that the sum of $25,000 is an appropriate award of damages to Stonecat. 70 Mr Cheadle, the expert for Stonecat, calculates loss of revenue as a result of reliance on staff number representation at a total of $104,280, in his affidavit of 30 November 1995. I consider that this figure, taking into account the different assumptions made by each of the experts, is very close to a proper sum reflecting revenue loss, and I therefore allow $100,000 as a result of Dovoro's reliance on staff number representation. 71 I do not accept that Stonecat has shown that it relied on representation of the Commonwealth as to what was a proper rent, but I do consider, leaving aside the issue of the NHS pharmacy, that the significant reduction in numbers of the Commonwealth public servants occupying the building is an appropriate matter for the exercise of the Court's powers under s.87 on the basis of a contravention of the Act. I think it is therefore appropriate, since the reduction in numbers of users of the drugstore is approximately one-quarter of the total sum represented, but the costs of running a drugstore would be proportionately higher on the smaller turnover. It seems to me therefore that for the period of lease and occupation from after the cooling period, that from 1 April 1991 to the vacating of the premises, that the rent should be reduced by $40,000 per annum, resulting in a rent of $100,000 in lieu of the $140,000 charged. Damages of Dovoro: 72 I accept the submission of Mr Wilson on behalf of Dovoro that Dovoro has suffered loss or damage by contravention of the Commonwealth of s.52 of the TPA and that an order should be made against the Commonwealth reducing the rent payable. I have indicated above that I consider that the fact that there is a 25% reduction in the number of persons potentially using the cafeteria/restaurant should not be reflected in a directly proportional reduction in the rent, as I consider that the cost effectiveness of the premises are significantly reduced by the reduction in turnover. The evidence was that at no stage was the cafeteria/restaurant much more than 50% utilised. The loss of trading custom and profits, and the assessment of a proper rental if it had been known that the Tax Office would continue to have its own canteen, and the fact that there were other vending machines in the building, would have significantly altered the basis upon which the rent should have been calculated. 73 I consider that an appropriate order which the Court should make as a result of the conduct of the Commonwealth relied on, taking into account that the rent is split into an amount for plant and equipment hire and an amount for rent in addition to other outgoings, is a reduction of the fixed rent component of $300,000 to an amount of $150,000 from 1 April 1991 to the termination of the occupancy of Dovoro that this figure should be taken from the rent and mesne profits claimed. Claim for Damages: 74 I accept the submission that in relation to the representation as to the number of public servants, and that Dovoro would have an exclusive food and beverage provision, that a breach of s.52 of the TPA has been established. It appears to me in terms of the decisions cited by the counsel for Dovoro, Sellara v Adelaide Petroleum (1994) 120 ALR 16, that the misrepresentations can be linked to a significant loss of profits in the carrying on of the trading enterprise. I further accept that in applying Finucane v NSW Egg Corporation (1988) AdLAR 486 at 519, that damages should be assessed as actual damages, and that there is no discretionary component within that assessment. 75 I accept the submission of Mr Wilson for Dovoro that Dovoro had sunk sufficient time, energy and cost into the carrying of the trading enterprise, on the assumption that the representations would be made out, and that it had no choice other than to remain in possession after termination of the agreement for lease. 76 It is submitted by Dovoro that Mr Cheadle, its expert's, figures result in additional sales varying between $125,664 and $194,734 in the period 30 April 1991 to 30 April 1995. Mr Cheadle calculates gross profits for the year ending 30 April 1992 at $107,103, for the following year $102,888, for the following $103,211, and the year ending 30 April 1995 at $97,692. I consider the sum of $400,000, taking into account the various assumptions made, as a figure for loss of profits for the period of the lease, and I accept Mr Cheadle's view that there is no increase in variable costs as a result of the additional scales, or that such sum is relatively slight. 77 As some calculations need be done, I would prefer to leave it to the parties to calculate the amounts payable in respect of each cross-claim and in respect of the original claim. Interest will need to be calculated on the figures, and further submissions as to costs. The orders that I propose therefore are: 1. Subject to the compensatory orders hereunder made on the cross-action, verdict for the plaintiff in each claim in respect of the amounts set out in the statement of claim. 2. On the Dovoro cross-action, that the rent payable under the lease to Dovoro be reduced by the sum of $150,000 per annum. 3. That the plaintiff pay damages to Dovoro in the sum of $400,000 as set out above. 4. On the Stonecat cross action, that the rent in the lease to Stonecat be varied by a reduction of $40,000 per annum in respect of the period from commencement of the lease on 1 April 1991 to termination of occupancy. 5. On the Stonecat Cross-action, that the Commonwealth pay damages to Stonecat in the sum of $25,000. 6. On the Stonecat cross-action, that the Commonwealth compensate Stonecat for revenue lost in terms of staff number representation in the sum of $100,000. 7. That the parties have liberty to apply to submit orders based on calculation of damages above. 8. That interest calculation be reserved. 9. Costs reserved. ********** Last Modified: 08/06/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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