New South Wales Supreme Court CITATION : Fenshaw Pty Ltd v Nguyen [2005] NSWSC 250 HEARING DATE(S) : 28/2/05, 1-2/3/05 JUDGMENT DATE : 30 March 2005 JUDGMENT OF : Burchett AJ DECISION : Relief to be granted to the plaintiffs to correct erroneous title position subject to order, pursuant to the cross-claim, under s.87 of the Trade Practices Act 1974. CATCHWORDS : Contract to redevelop shopping centre by changing strata titles to separate Torrens titles, utilising common property to enlarge supermarket - contract partly oral and partly implied - part performance - misleading conduct under s.52 Trade Practices Act - relief under s.87 - breadth of Court's powers Conveyancing Act 1919 (NSW) LEGISLATION CITED : Trade Practices Act 1974 Carr v McDonald's Australia Ltd (1994) 63 FCR 358 at 367 Kizbeau Pty Limited v W G & B Pty Limited (1995) 184 CLR 281 at 298 Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 Australia and New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21 at 33-37 CASES CITED : Steadman v Steadman [1976] AC 536 Regent v Millett (1976) 133 CLR 679, 683 Maddison v Alderson (1883) 8 App Cas 467 at 479 Watson v Delaney (1991) 22 NSWLR 358 at 366 Fenshaw Pty Limited (First Plaintiff) Zhong Ting Tian & Jing Liu (Second Plaintiffs) Thanh Chay Loi and Huyen Phung Kha (Third Plaintiffs) Dung Ly and Thi Thu Nguyen (Fourth Plaintiffs) PARTIES : Saba Guler (Fifth Plaintiff) Ngoc Tuan Nguyen (First Defendant) Giang Thanh Nguyen (Second Defendant) FILE NUMBER(S) : SC 6438/2004 Robert Weber SC and Sacha Moran (Plaintiffs) COUNSEL : John Kelly SC and Roland Anthony (Defendants) Minter Ellison - Plaintiffs SOLICITORS : LTD Lawyers - Defendants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Burchett AJ 30 March 2005 FENSHAW PTY LTD &ORS V NGOC TUAN NGUYEN & ANOR JUDGMENT 1 These proceedings are about an attempt to revive a failed shopping centre known as Smithfield Square at Smithfield in the western suburbs of Sydney. The centre was a strata development, in which provision was made for one lot to be the, site of a major supermarket, with about a dozen satellite shops and a general parking area on the common property. On all sides, it is accepted that the reason for the failure of Smithfield Square was the unsuitability of the area intended for the supermarket, both in size and in configuration. It is vacant, and more than half of the other shops are vacant. Some vandalism has developed at the centre. The Managing Director, Mr Shane Chedid, of the first plaintiff, Fenshaw Pty Limited (Fenshaw), which owns eight of the lots including that designated for a supermarket, the other plaintiffs being owners of the remaining lots, except one which is owned by the defendants, conceived the idea of solving the problems of the centre by converting the title from strata title back to Torrens title, in 'order to utilise the common property to enlarge the supermarket and to provide new and more attractive facilities for parking. Implementing this plan would, of course, involve the owners of the other lots in the loss of their right to the common property, but, if it were successful, it would be expected greatly to increase the values of their shops, and in substitution for the parking rights they previously had in the common property, each would receive two parking spaces in the new parking area, secured by easement. 2 On 3 May 2002, Mr Chedid spoke at the annual general meeting of the Owners Corporation of the Strata Plan (the Owners Corporation) about his ideas for the supermarket, and in August of that year he met with various other lot owners to-discussthe-matter. In-January2003 both- he-and the first defendant attended a workshop organised by Fairfield City Council to consider the redevelopment of the centre. By February 2003, Mr Chedid was able to put forward, at an extraordinary general meeting of the Owners Corporation, a plan for redevelopment of the site, involving the termination of the strata plan. There was agreement "in principle". By April 2003, legal steps were being taken by Fenshaw and other lot owners, including the defendants, to have the strata plan terminated and replaced by individual Torrens titles. At the annual general meeting of the Owners Corporation held on 12 May 2003, a Mr Saxon, a surveyor, attended at Mr Chedid's request to explain what would be involved, including the need for a development application to the Council, to the lodgment of which assent was given. Mr Saxon explained: "Fenshaw's proposal requires it to own the car-park common property and the arcade ways, however, easements for access would be created over the arcades and car-park such that for all intents and purposes the building functions exactly the same as it does under a strata scheme." Notwithstanding the last part of this statement, it was made clear that the parking arrangements would be different. It was also made clear that strata levies would cease and the strata lots giving title to the shops would become separate individual lots held upon Torrens title. By 12 September 2003, all owners had signed an authority to Mr Chedid to lodge the development application, which he .did on 16 December 2003. 3 Pursuant to his express authority, in the case of the first defendant, and in order to secure the Council's approval to the development, Fenshaw arranged to have work done upgrading a number of the shops, including the defendants' shop. The Fairfield City Council did consent ,to the development application on 15 January 2004. At the annual general meeting of the Owners Corporation held on 15 March, 2004, a special resolution was passed giving approval to the registration of the plan of redevelopment. By 17 March 2004, all owners including the defendants had signed the linen plan of subdivision and a s.88B instrument to replace the str_ata_plan. When the-defendants-did-so-l-am-satisfied-they-knew-that an essential aspect of the arrangement was the allocation of the common property to the enlargement of the supermarket with the provision of two parking spaces by easement to each lot owner. 4 The long process I have summarized led to the lodgment of the application for termination of the strata scheme in June, and its grant on 1 July 2004. Then, on 6 July, a certificate of title folio identifier 1/628048 issued in the names of the plaintiffs and the defendants in various shares as tenants in common (but some shares held by two persons as tenants in common with other parties were held in joint tenancy as between the two persons themselves). That was never contemplated by the parties, who, whatever else may have left room for dispute, intended that six separately owned Torrens title lots would be created. But when Fenshaw attempted to have the title of each of the participants corrected, the defendants objected, raising the allocation of the former common property to the supermarket as an unacceptable inequality, notwithstanding their prior agreement to this as an essential aspect of the scheme, which had also been disclosed in writing by Fenshaw's solicitor to the defendants' mortgagee on 16 March 2004. 5 The plaintiffs then instituted these proceedings, seeking an order requiring the defendants to execute the appropriate documents of correction. 6 During the progress of Mr Chedid's efforts towards a solution of the centre's problems, he was also endeavouring to secure an appropriate supermarket operator. After initial discussions with Woolworths, he was able to negotiate an agreement to take a lease with Coles Supermarkets Pty Ltd (Coles) dated 4 April 2003. It was a term of this agreement that Fenshaw would construct the supermarket premises and remain the owner and that it could only seek approval to assign the agreement or sell its interest in the premises to an assignee or purchaser being (a) respectable and financially secure; (b) capable of carrying out the development in timely fashion; and (c) prepared to covenant to perform Fenshaw's part. But--in-about August 2003; Mr-Ghedid-came-to the conclusion- that Fenshaw would not have the funds required to commit itself safely to the construction of the supermarket. He spoke to representatives of Coles, who referred him to a company FKP Commercial Developments Pty Limited (FKP). As a result, on 23 October 2003, FKP (which had access to ample funds) and Fenshaw agreed conditionally upon terms for the purchase of Fenshaw's interest in the centre. Contracts were actually exchanged considerably later, on 31 May 2004. Completion has since been delayed by the lack of resolution of the difficulty as to the title created by the mistaken form in which the current certificate of title issued and the failure of appropriate substituted certificates of title to issue. 7 In the amended statement of claim, the plaintiffs allege that by a combination of their words and actions and what was implicit therein the parties agreed to the carrying out of the various - steps I have described, the area formerly owned by Fenshaw and the former common property to be redeveloped as a site appropriate for a supermarket, and all necessary documents and steps to be executed and taken, but the defendants have refused and failed to execute. certain documents that are required. An order is sought for the execution of the necessary transfers. Alternatively, relief is sought on the ground of estoppel. 8 The defence alleges Fenshaw "proposed" and "represented" that it would construct a new supermarket at the centre; and would not "bring about a situation in which ...the common property and the parking area would be transferred to it [and] then sold for a profit, without any guaranteed benefit to the other owners"; and the defendants and other owners would receive legal rights to two car parking spaces. The defendants rely on s.23C(1)(a) of the Conveyancing Act 1919 (NSW), a provision replacing the Statute of Frauds in respect of a disposition of an interest in land. They also allege in their defence that the first plaintiff Fenshaw was guilty of conduct in trade or commerce that was misleading and deceptive in contravention of s.52 of the Trade Practices Act 1974 (Cwlth) and they seek relief under ss.87 and 82, in' respect of which they have filed a cross claim. The alleged--misrepresentations and misleading--conduct consisted-of an alleged implied representation that Fenshaw would not bring about a situation where lots including the common property and parking area would be transferred to it and then sold at a profit without a guaranteed benefit to other owners; and of the alleged non-disclosure of an intention to sell the site in about October 2003, an invitation to FKP to offer for it at that time, the receipt of an offer of $4,000,000 then, and entry into a contract for sale of the land. 9 In addition to the affidavit evidence, oral evidence was adduced, both Mr Chedid and Mr Nguyen being cross-examined at length. Each made significant admissions, upon which the opposing arguments placed stress. Mr Chedid, for his part, conceded that he had represented on 7 April 2003 that "Fenshaw...was going to demolish the buildings on [certain] lots and construct a supermarket". Specifically to Mr Nguyen, he had made representations to which he referred in answering several questions: "Q. What you did say to him [i.e. Mr Nguyen] from time to time was that Fenshaw would be building the supermarket? A. Initially the intention was to build a supermarket. Q. And initially you said to him that Fenshaw would be building a supermarket? A. Initially when we first started Fenshaw was going to build a supermarket, yes. Q. You said to Mr Nguyen as part of this trusting and relying process you said to him that Fenshaw would be building a supermarket? A. I would have said that to him in the early stages, yes. Q. And when the point came when you changed your mind because you found out you couldn't afford it, what I would like to, suggest is you kept secret from him the fact that you had found a purchaser to sell the consolidated site to? A. I wouldn't say kept secret, I would say I was carrying on my business - that was none of his business, as far as I was concerned, what I was doing." 10 One of the difficulties of the case is to determine the effect of this evidence. Did some obligation - and, if so, precisely what? - to build a supermarket become a term of a contract binding on Fenshaw? Or does this evidence refer to representations which might be relevant to the cross­claim under s.52 of the Trade Practices Act - that may have induced a contract not containing any term reflecting the representations themselves? An aspect of the case is the lack of any formal setting down of terms, and this may reflect both the gloom the parties felt about the centre and the limited nature of what they considered. The evidence leaves the impression they were much concerned about the cost to them of the maintenance of common property which had become a "white elephant", so that the idea of replacing the strata scheme by a hopefully viable redevelopment proposal was attractive. On the whole, I conclude there was an agreement, partly oral and partly to be implied from their conduct, in the terms pleaded in the amended statement of claim. Having reached this conclusion, I need not examine in detail the evidence on which it is based for a reason which will appear. 11 So far as the defence under s.23C(1)(a) of the Conveyancing Act is concerned, for the same reason it is appropriate that I express quite briefly my opinion to the effect the pleading of this section cannot prevail. I examined a similar defence in Carr v McDonald's Australia Ltd (1994) 63 FCR 358 at 367, where I said: "The principle of part performance is available to enable a contract, which does not comply with the requirement of writing under one of the provisions re-enacting the Statute of Frauds, to be enforced in equity: Greig and Davis, The Law of Contract (1987), p 735. What is required to be shown to establish part performance was recently restated in Australia and New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21 . at 33-37. The Court there, while acknowledging the attractiveness of the views expressed in Steadman v Steadman [1976] AC 536, applied the doctrine as it was applied in Regent v Millett (1976) 133 CLR 679. On that basis, while it may be that less will suffice, at any rate it is "enough that the acts [of an applicant relied upon as constituting part performance] are unequivocally and in their own nature referable to some contract of the general nature of that alleged", as Gibbs J put it in Regent v Millett at 683, adopting the test stated by the Earl of Selborne LC in Maddison v Alderson (1883) 8 App Cas 467 at 479. See also Watson v Delaney (1991) 22 NSWLR 358 at 366, per Meagher JA." 12 One of the problems attending any argument to the effect that the representation about building a supermarket was a term of the contract is that it is unlikely the parties, if intending such a term, would have left it in so vague a form. What was Fenshaw actually to do? Was it bound to act as a builder? There is no suggestion it really was a builder. But if it was not to do the work, could it introduce a partner, and if so, how much control was it intended it might be able to cede to the partner? What other types of arrangements was it intended Fenshaw mighi be able to make? In fact, to be solely responsible for a project of this magnitude would, on the evidence, stretch its capacity to the point where a successful conclusion would be in doubt. When it is plain that implications played a significant part in the formation of any contract which was concluded, these difficulties are very real. 13 Turning to the question whether the statements Mr Chedid made, particularly to Mr Nguyen, amounted to representations the making of which constituted misleading conduct within s.52, I observe that Mr Nguyen's admissions in evidence tend to undercut his assertion that his refusal to join in correcting the error in the titles was based on his concluding he had been misled into a situation where he could no longer rely on the supermarket being built. Mr Nguyen gave the following evidence in his cross-examination: "Q. Didn't you agree with me that you understood that the effect of the agreement to lease the supermarket that Coles have entered into is that if it is carried into effect there will be a supermarket built to Coles specifications? A. Yes. Q. And you have agreed with me that there is now a high commercial-probability that if the transactions are allowed to be completed such a supermarket will be built and Coles will be in it, you have agreed with that, haven't you? A. Yes." 14 This evidence, combined with the nature of his initial response when asked to join with all other parties in correcting what, on any view, was a mistake in the documents, casts doubt on his claim now to have relied upon the representations made by Mr Chedid. However, I have come to the conclusion that, although the parties reached, by their words and conduct, an agreement which did not include a term that Fenshaw would itself carry out the building, or any term requiring it to continue to be involved in some way beyond the contractual arrangements it has since entered into, the defendants have shown a representation to them, on which they placed some reliance when they were induced to enter into the contract. That representation was, in terms, that Fenshaw would be building the supermarket, and it was reasonably understood as involving that Fenshaw would retain some significant interest in the lots on which the supermarket was to be built until the building was completed. So understood, it gave some assurance of Fenshaw's continuing efforts and indicated. to the defendants that they would have the protection, perhaps rather illusory by reason of the probability of a mortgage or charge, but for what it was worth, of an interest in land held by Fenshaw upon which to levy execution in the event of their recovering a judgment. The question, then, is how I should reflect this finding in the orders to be made. 15 I have indicated there is a reason, in this case, why I do not find it necessary to explain at length all the details concerning the foundation of my finding of a contract. In his final submissions, senior counsel for the defendants, Mr J. Kelly S.C., began by saying: "KELLY: The issues in these proceedings fall into three categories; firstly, what I might describe as the contract questions going to the existence of a contract or an estoppel precluding the denial of a contract. All of the contract questions gathered together I will, if I may, put in one category, A. The second set of issues fall into a discrete and d ifferent-category, -they-relate-to-all-the-Trade-Practices-Act­issues. As my friend has fairly said they are issues for me and he has not touched upon them, apart from one little point which I will come. back to. And the third category of issues falls under the general heading of relief. I rush to say, indeed as your Honour has already observed, that this is a case in which the parties are at present caught ' in a position which is temporary and not intended. Therefore there must be some form of relief. The ultimate question will be what form of relief. It did occur to me overnight upon looking at the precise terms of s 87 of the Trade Practices Act, in particular 87(2)(b), that it is within your Honour's power to make an order varying a contract or an arrangement in such manner as is specified in an order, if the Court thinks fit declaring a contract or an arrangement to have had effect [as] so varied on and after a certain date, et cetera, et cetera. In other words it is within your Honour's powers. HIS HONOUR: But that's only if I make the appropriate findings, you are jumping ahead. KELLY: Certainly, but the font of power is wide enough to deal not only with contracts but arrangements, and on one view one may even go so far as to say the contract questions can be put to one side for the moment, even if they do not rise to the status of giving rise to a valid and enforceable contract for one or other reason. On any view the parties are in a position where there is an arrangement and it would be, in my ultimate submission 'I Will come back to it in due course, well within your Honour's power to make an order in effect dealing with the current situation so as to give effect to what is just in these circumstances. For example, from the plaintiffs' point of view they seek an order in the nature of specific performance, but it may well be an order otherwise discarded [scilicet described] under s.87(2)(b) in the nature of a specific performance ordering the defendants to proceed to sign the transfers...." Mr Kelly S.C. said later: "KELLY: This is a case in which we rushed to concede what needed to be conceded, it is a case in which the defendants consented to and supported the application for expedition, everyone has a common interest in the resolution of the current problem. But relief alternative (1) I_ just d escribe as an order in the nature of specific performance and the effect of that conveying away the land is clear enough." Mr Kelly S.C added that "an order under s.87 setting aside the contractor declining to enforce it and making orders to [restore] the original position has no attraction, because everyone wants a supermarket". 16 After some further argument, Mr Kelly S.C. said: "KELLY: In open court I am instructed to say that the order we seek and the order we concede in all the circumstances of this case to be equitable and just, bearing in mind all the competing considerations, is appropriately fashioned along these lines, making whatever adjustments to time, money value and terms, accommodates all of the competing interests. .............. Whether your Honour makes an order ' in the nature of specific performance, exercising your Honour's jurisdiction in equity, or if your Honour makes an order under section' 87, the end result can be exactly the same. This case really cries out for it." 17 When Mr Kelly S.C. referred to an order "fashioned along these lines" I understood him to refer to an order, not in the precise terms he had proposed, but of that general nature. He conceded I might think it proper to remould those terms, but he was concerned to seek an order under s.87(2)(b) which the Court considered appropriate to enable the project to go ahead as currently planned. He accepted - indeed, his argument otherwise insisted - that the sale to FKP involved some dangers for that project. 18 In the ultimate determination whether an order effectively securing specific performance should be made, it seems to me to be relevant to take account of the fact that the agreement, to which the defendants as well as the plaintiffs were parties, created rights and expectations in the other plaintiffs, -quite-apart from Fenshaw, and there is no equitable consideration which militates against the provision of relief to them. 19 Mr Kelly's proposed order was indicated in paras. 17 to 20 of certain final submissions presented by him: "Section 87 is of very wide import. It includes, in s.87(2)(b) the power to make an order varying a contract or arrangement in such manner as may be specified in an order and if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified. See Kizbeau Pty Limited v W G & B Pty Limited (1995) 184 CLR 281 at 298. In a case such as the present, that power is wide enough to empower the Court to make an order that would achieve practical justice as between the parties by varying the contract, if one is found, or the arrangement, if the series of events in question in this case falls short of achieving the status of a contract, by fashioning an order to the effect that Fenshaw be at liberty to sell the consolidated site to FKP Commercial Developments Pty Limited upon the terms of the contract comprised in Exhibit "SC 9" subject to certain conditions. The conditions should include provisions to the effect that a sum of money (calculated by reference to the value of the defendants' share of the common property and the car park) be deducted from the proceeds of the sale on completion of that contract and held in an interest bearing account in the joint names of the solicitors for the parties to abide completion of construction . of the Lessor's Works as presently contemplated by the Agreement for Lease contained in Exhibit "SC 10" or a period of three years from the date of order, whichever is the sooner, provided that in the event that completion of construction of those works takes place within that time, that sum of money and any interest thereon shall be paid out to Fenshaw and provided further that, in the event that completion of construction of those works does not take place within that time, or FKP sells the land or FKP makes any application for development approval for any further or other development which is not substantially in accordance with the Lessor's Works within that time, that sum of money together with such interest shall be paid out to Mr & Mrs Nguyen. The sum in question should be $453,560, which equates to the value of the share of the common property attributable to Lot 4 in the Strata Plan, or some other rounded sum which the Court thinks fit." 20 In Kizbeau Pty Limited v W G & B Pty Limited at 298, the joint judgment of the High Court does affirm that s.87 "confers a wide discretionary power on courts to make remedial orders in appropriate cases to ensure a fair result". That power is wide enough to authorize the court here to make an order of the kind counsel suggests, and some such order is required, although, in my opinion, there is a number of reasons why the relief should not go as far as he seeks. 21 I have held that the representation did not become a term of the contract; it did not involve a guarantee that nothing could go wrong, and it would be contrary to the principle of Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 to make an order for the purpose of protecting the defendants against the possibility of disappointed expectations. What the defendants are entitled to receive, in respect of the contravention of s.52, must relate, not to what they might have received under their contract, but to what they have lost by the contravention. In this case, there is an enormous difference. For I have held on clear evidence that at the time they were induced to enter into the contract with Fenshaw and the other plaintiffs, the shopping centre had failed. It would not be "a fair result" to allow them compensation based on a value given to the common property only by the efforts and considerable expenditure of Fenshaw and the partial performance of the contract in question. 22 There are other difficulties which prevent me accepting the precise form of order suggested. The amount has been calculated by an allocation of the gross price to be received by Fenshaw on the basis of the number of square metres making up the areas of the centre, the defendants' lot, and an apportioned part of the common property assumed to "belong" to the defendants' lot. There has been nothing like an expert valuation of what the-defendants-would-have-lost when--they-transferred-away their-interest in the common property, assuming the development simply does not proceed. Nor has the allocation of the price to be received by Fenshaw involved any expert assessment of the value of the common property to . the defendants per square metre compared with the value per square metre of the lots in the centre. It is not clear what benefit the defendants have received from alleyways, which they or their customers may or may not have used, depending on all sorts of factors relating to their shop, or what use they or their customers have made of the parking area, or would have been likely to make of it in the future if no redevelopment agreement had been reached. The only continuing use of the parking area for which they were concerned to stipulate in the agreement was two car parking spaces, which may or may not have represented a gain over their previous use of it. 23 Although the defendants have failed to show with precision what relief they should be awarded, they have established a contravention of s.52, as a result of which their position has been adversely affected. In that situation, I think it is within the Court's discretion to make a broad assessment under s.87 to achieve a just result. Also, as senior counsel for the defendants submitted, it would be open to the Court to frame a condition, having the same object, under its discretionary power which the plaintiffs invoke. In my opinion, it would be appropriate to include, in orders to be made to correct the erroneous title position, an order under s.87 requiring Fenshaw to set aside the sum of $100,000 upon settlement of the sale to FKP, to be placed in a suitable interest bearing deposit in the joint names of the solicitors for the defendants and Fenshaw, and to be retained until: (a) the completion of the construction of the supermarket building and parking area substantially in accordance with the development application lodged for the plaintiffs and the defendants; or (b) in the event that (a) is not satisfied within three (3) years from this judgment, but the defendants have not within that period , instituted proceedings against Fenshaw for damages in respect of that non-satisfaction, the expiry of that period; or (c)) in the event that (a) is not satisfied within three (3) years from this judgment, and the defendants have within that period instituted such proceedings, the completion of those proceedings or a date when it can be said the defendants have not prosecuted them with diligence. In event (a) or (b) or if in event (c) the defendants fail in the proceedings or do not prosecute them with diligence, the sum and the interest earned thereon is to be paid to Fenshaw. If in event _(c) the defendants recover in damages and costs at least the amount of $100,000 plus the amount of the interest thereon, the whole sum is to be paid to the defendants in full or partial satisfaction of the judgment and/or costs. If the defendants recover some amount of damages and/or costs, but not to the full amount of the sum and interest, the money shall be divided accordingly. 24 I direct that counsel for the defendants bring in on a date to be fixed short minutes of orders appropriate to be made in accordance with these reasons, which should provide for the correction of the titles, and may provide for any minor variation of the formulation of the order under s.87 which may appear desirable. At that time, I shall hear any argument as to costs. ******* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.