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Cairns Shelfco No 16 Pty Ltd v Armanel Pty Ltd

 

[2004] QSC 122

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Cairns Shelfco No 16 Pty Ltd v Armanel Pty Ltd & Ors [2004] QSC 122

PARTIES:

CAIRNS SHELFCO NO 16 PTY LTD ACN 010 327 312
(plaintiff)
v
ARMANEL PTY LTD ACN 010 779 665
(first defendant)
COOLCOURT PTY LTD ACN 062 445 541
(second defendant)
IGNAZIO SCIACCA & RHONDA SCIACCA
(third defendant)
PETER STRANGMAN
(fourth defendant by counterclaim)

FILE NO/S:

SC 3632 of 2000

DIVISION:

Trial

PROCEEDING:

Claim

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

30 April 2004

DELIVERED AT:

Brisbane

HEARING DATE:

10, 11, 12, 13, 14 and 18 November 2003

JUDGE:

White J

ORDER:

  1. Judgment for the plaintiff against the first, second and third defendants in the sum of $647,800.92 together with interest as calculated
  1. The claim by the first, second and third defendants against the plaintiff and the fourth defendant by counter-claim is dismissed
  1. The defendants pay the costs of the plaintiff in the claim and counter-claim and of the fourth defendant by counter-claim in the counter-claim to be assessed

CATCHWORDS:

LANDLORD AND TENANT – RENT – ACTION TO RECOVER – where first and second defendants entered into a lease agreement with the plaintiff  - where monies claimed as owed for rent under the lease

TRADE AND COMMERCE – TRADE PRACTICES AND RELATED MATTERS – CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT – CHARACTER AND ATTRIBUTES OF CONDUCT – GENERALLY – where the third defendant executed a deed as to representations on behalf of the first and second defendants – whether the plaintiff through the fourth defendant misrepresented a number of things about the shopping centre and the shop which the first and second defendants leased and third defendant guaranteed - whether the first, second and third defendants relied on the statements made by the fourth defendant - whether the representations made by the fourth defendant caused the first, second and third defendants loss

TRADE AND COMMERCE – TRADE PRACTICES AND RELATED MATTERS – ENFORCEMENT AND REMEDIES – ACTIONS FOR DAMAGES – LIMITATION PERIOD FOR ACTION – WHEN CAUSE OF ACTION ACCRUES – whether loss accrued when first and second defendants entered into the lease

Retail Shop Leases Act 1994 (Qld)

Trade Practices Act 1974 (Cth), s 52, s 53A, s 82, s 87

Blacker v National Australia Bank Ltd [2001] FCA 254 of 19 March 2001, cited

Henville v Walker (2001) 206 CLR 459, cited

I & L Securities Pty Ltd v HT W Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, considered

IOOF Australian Trustees (NSW) v Tantipech (1998) 156 ALR 470, cited

Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46-048, cited

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, considered

Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565, cited

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, considered

COUNSEL:

R G Bain QC, with M K Conrick, for the plaintiff and the fourth defendant by counter claim

M P Amerena for the first, second and third defendants

SOLICITORS:

Praeger Batt for the plaintiff and fourth defendant by counter claim

MacDonnells for the first, second and third defendants

  1. The plaintiff, at all relevant times, was the owner of The Pier Marketplace, a large two-level retail centre of some 85 specialty shops located within a marina and hotel complex on Trinity Inlet, Cairns. The plaintiff leased the land from the Cairns Port Authority. The Pier Marketplace opened for business in December 1989. The first and second defendants, companies associated with the third defendant, Mr and Mrs Sciacca, subleased premises from the plaintiff pursuant to a sublease dated 1 February 1997 and executed in April 1997 in which they sold the United Colours of Benetton range of fashion clothing.  Mr and Mrs Sciacca, guaranteed the due performance of the sublease (which it will be convenient, consistently with the terminology used at the trial, to describe as “the lease”).
  1. Trading commenced at the end of March 1997 and from the outset the first and second defendants struggled to pay the rent and outgoings. Eventually they vacated the premises in early 2000. The plaintiff sues the defendants for approximately $330,000 for arrears. The lease was for six years and the plaintiff seeks damages for the period after the premises were vacated until they were able to be re-leased. The plaintiff sought the return of fixtures and fittings and equipment allegedly belonging to the plaintiff removed when the premises were vacated. At the beginning of the trial I was informed that the issue about fixtures and fittings had been resolved.
  1. The defendants joined Peter Strangman, the general manager of The Pier Marketplace from the mid-1980’s whilst the complex was still being planned and constructed until its sale in February 2003, as fourth defendant in their counter-claim against the plaintiff.
  1. The gist of the counter-claim is that the plaintiff through Mr Strangman misrepresented a number of things about the shopping centre and the shop which they leased upon which they relied when entering into the lease. The principle allegations of misrepresentation are that The Pier Marketplace had 5 million visitations per year which were expected to increase and that the Benetton store would achieve an annual turnover of up to $1,000,000 in a very short time and would be very profitable. These matters did not come to pass and the defendants allege that the losses they sustained were due to these and other representations. The first, second and third defendants claim damages for negligent misrepresentation, damages pursuant to s 82 of the Trade Practices Act 1974 (“the Act”) for contravention of s 52 and/or s 53A of the Act, alternatively orders pursuant to s 87, rescission of the lease and $831,000 as damages.  The plaintiff and Mr Strangman deny that the representations were made, or, if made, were relied upon and deny that any such misrepresentations caused the loss which was, they contend, wholly attributable to the conduct of Benetton.  They also plead that the proceedings pursuant to the Act are time barred having been commenced more than 3 years after the cause of action allegedly accrued.
  1. The plaintiff’s action is straightforward and not contested insofar as it relates to the formal matters of the lease and the quantum of loss. Neither were the defendants’ pleaded losses and damage the subject of challenge. The preponderance of the trial was devoted to the counter-claim. Mr Sciacca, a Cairns solicitor and director of the first and second defendants, gave lengthy evidence. His evidence-in-chief was principally contained in a statement dated 25 March 2003 with numerous documentary exhibits (exhibit 26). Mr Strangman was extensively cross-examined as was Mr Sciacca. It is common ground that the resolution of the central issue is dependant on the acceptance or otherwise of Mr Strangman and Mr Sciacca about their pre-contractual conversations. As will be apparent, I preferred the evidence of Mr Strangman to that of Mr Sciacca, and, where relevant Mrs Sciacca. There is some pre-contractual and a body of post-contractual documentary material which has assisted in reaching this conclusion.

Background

  1. Mr Sciacca was admitted to practice in Queensland as a solicitor in 1971 and has been a principal in various firms from 1973. Since 1989 he has practiced alone with several large clients. He has acted for landlords in strip shop developments, for tenants, particularly involving conveyancing matters, and in the leasing of commercial warehouses. Mr Sciacca’s letterhead proclaims him to be a mediator. He said that he has mediated very few disputes – one a partnership dispute, another a sub-division. He said his practice had little exposure to litigation and was mainly concerned with land development.
  1. Mr Sciacca also engaged in land development projects on his own behalf or, more precisely, through company structures. He owned a one-third share in a very large development project in respect of land at Trinity Point which was involved in very extensive litigation with the State of Queensland. He had also been a party (or companies controlled by him) in other litigation.  The relevance of adducing this information from Mr Sciacca was to show that he was not inexperienced in commercial dealings and acknowledged in cross-examination his understanding of the desirability of keeping documentary records of negotiations.  Mr Sciacca did not appear enthusiastic in revealing his commercial experience either as a solicitor or on his own behalf. 
  1. Mrs Sciacca had had considerable business experience by the time she and Mr Sciacca became interested in a shop in The Pier Marketplace.  She, too, is a director of the first and second defendants.  Armanel Pty Ltd, the first defendant, is her operating company.  Coolcourt Pty Ltd is Mr Sciacca’s company.  Mrs Sciacca had been involved in her family’s hotel business in Cairns, in many ventures with her first husband in hotels, a nightclub, a resort and property development in and around Cairns, and in further property development with Mr Sciacca.  She had set up and operated the boutique in the Cairns Colonial Club Resort which she and her first husband had built and owned.  Neither Mrs Sciacca nor her husband had any significant retail fashion experience.
  1. When The Pier Marketplace opened in December 1989 it was the largest shopping centre specifically targeted to the tourist market in Cairns. Unlike most large shopping centres it did not have an anchor tenant. It had instead approximately 85 specialty shops directed towards tourist spending. Many of the shops sold apparel (clothes and shoes) and there were numerous food outlets. Very approximately, the visitors to the shopping centre were one third international tourists, one third domestic tourists and one third local tourists. The complex also contained a Radisson Hotel and Gilhooley’s Irish Bar and the Pier Tavern.
  1. The adjoining marina and nearby wharf along Trinity Inlet was (and is) the departure point for many cruises to the Great Barrier Reef and other water-based activity. The Pier Marketplace was approximately a half a kilometre from the City Mall in the Cairns central business district. In 1996 the Cairns Port Authority was planning (and has subsequently brought to fruition) an extensive development of the tourist bus drop off area and cruise ship terminal adjacent to the complex.

The alleged representations which are pleaded to be false and misleading

  1. Mr Strangman is alleged in the counter-claim to have represented to Mr and Mrs Sciacca on or about 31 October 1996 that
  • a top class seafood restaurant would be installed on the boardwalk and seating would be on the boardwalk adjacent to the proposed leased premises and go “right to the door of the demised premises”;
  • a little mezzanine area nearby would be converted to an outdoor area for music and live shows including weekends with jazz sessions;
  • the whole area surrounding the exit/entrance from The Pier Marketplace by Governor’s Way [the location of the shop] was being changed and the exit/entrance would become effectively the bus drop off point for all tourists coming to The Pier Marketplace;
  • the area of The Pier Marketplace near the exit/entrance would attract tourists and the area would become a very busy and active location;
  • the Pier had 5 million visitations a year which would increase;
  • Brian Rochford were very happy with the site D1;
  • there were problems with the former tenants of the restaurant Quay Largo who had to be taken to court to remove and who were bad operators;
  • Mr and Mrs Sciacca would gross over $1 million per annum (very quickly) on this site;

On or about 31 December Mr Strangman is alleged to have represented that

  • the Benetton store would achieve a lot more than $5,000 per sq metre per annum;
  • the defendants “would do $7,000 per sq metre per annum”;
  • the defendants would achieve a gross turnover in excess of $1 million per annum;
  • the Benetton store would be very competitive with Esprit.

Pre-contractual conduct

  1. Mr Strangman and Mr Sciacca and, to a lesser extent, Mrs Sciacca had known each other for some years prior to the events giving rise to this litigation. Mr Strangman regarded Mr Sciacca as a friend – they played golf together, dined out and generally socialised. Mr Sciacca sought to reduce the relationship to that of mere acquaintances. Perhaps that is how he saw it but he did seem anxious to put some distance between them. Certainly their relationship had cooled as a consequence of this litigation. There were a number of matters of detail about which the two men were in disagreement. It is unnecessary to resolve them all. Mr Sciacca’s statement which constituted the bulk of his evidence-in-chief was prepared in March 2003 and was the first time his recollection of the crucial events of late 1996 and early 1997 was committed to writing. Nonetheless it is replete with precise quotations of conversations although some are prefaced with the time-honoured phrase “words to that effect”. Mr Sciacca was not prepared readily to depart from this text or admit that he might not have recalled something accurately. An exception was the date of Mr and Mrs Sciacca’s initial meeting at The Pier Marketplace to discuss their interest in a tenancy with Mr Strangman. Mr Sciacca was adamant that it took place on 31 October 1996 until the final edition of their pleading dated 18 June 2003 when, no doubt, in light of Mr Strangman’s disclosed diary page that showed the meeting was on 1 November 1996 and other documents, the words “or about” were added. Mr Sciacca’s oral evidence demonstrated a reluctance to concede even this. Mr Strangman, in contrast, was prepared to concede that certain conversations might have taken place even though he had no recollection of them although he was not prepared to make such concessions for conversations he could not accept that he could have made.
  1. Mr Strangman had some understanding in mid 1996 that Mr and Mrs Sciacca were looking for a retail business for Mrs Sciacca. At about the same time Mr Tony Miller from AV Miller & Associates, retail management consultants, contacted Mr Strangman about two of his clients, United Colours of Benetton (“Benetton”) and Victoria’s Secrets.  At a meeting in Cairns on 27 August 1996 Mr Miller told Mr Strangman that these two clients were investigating establishing outlets at The Pier Marketplace in Cairns in about March/April 1997.  Mr Miller inspected potential tenancies with Mr Strangman.
  1. The complex is triangular with a boardwalk frontage along the Trinity Inlet waterfront. It has deep water and large ocean-going cruise ships are able to travel past the complex and tie up several hundred metres upstream at Trinity Wharf. It is bounded to the south-west by Pierpoint Road and to the north by another boardwalk which encompasses Gilhooley’s Irish Bar and the Pier Tavern.  The complex has a number of entrances.  The main entrance adjacent to the car park and looking very approximately towards the Cairns central business district is known as Trader’s Row.  It was bounded, internally, by something like a dozen shops such as a newsagent, bakery, jeans shop and a camera shop.  It led, as did all entrances, into the atrium centre where there were small shops and barrows.  Following Pierpoint Road around towards Trinity Inlet to the south led to the reception entrance to the Radisson Plaza Hotel built as part of the complex.  An external covered area described as the porte cochere bounded the external wall of the hotel up to the entrance to Governor’s Way where those wishing to enter the hotel could be deposited by bus and car. 
  1. Governor’s Way contained 10 or so fashion shops. An area on the corner position near the porte cochere on Governor’s Way on the right entering the complex with external display windows became the Benetton store leased by the first and second defendants. The space was originally part of the tenancy of a restaurant and bar, Quay Largo, opening onto the boardwalk. That restaurant was no longer operating and at the time Mr Miller inspected The Pier Marketplace a smaller tenancy was to be configured with its frontage on Trinity Inlet for a new seafood restaurant and retail shops – one of which was to operate in about 140 sq m fronting Governor’s Way. JAG and Country Road stores were situated on the same side of Governor’s Way next to this area.
  1. A little further along Governor’s Way towards the centre stood an island of tenancies occupied by Esprit, Brian Rochford, Just Jeans and Oroton. There was a direct entrance from the back of the hotel lobby into the extension of Governor’s Way opposite the Esprit tenancy. Governor’s Way led into the central atrium area of the shopping centre past the entrance from the boardwalk fronting Trinity Inlet. There were other shops on the upper or mezzanine level. The layout of the ground level including the names of the tenancies at the relevant time is shown in the Location Plan (exhibit 2).
  1. Mr Miller required approximately 150 sq metres for a Benetton store and the only tenancy likely to be available, Mr Strangman told him, was that to be formed as C2 from the previous restaurant space. Mr Miller was taken through the entire complex including the hotel. Mr Strangman knew Mr Miller as a business acquaintance and an expert retail management consultant. By a letter dated 16 September Mr Miller confirmed to Mr Strangman that his two clients were interested in taking space in The Pier Marketplace. In the event, after further negotiations, Victoria’s Secrets, a United States lingerie line, did not become a tenant. In follow up telephone conversations Mr Miller said that a licencee would be required for the Benetton store. Mr Strangman telephoned Mr Sciacca on 28 October and discussed with him the proposed licence of a Benetton store in The Pier Marketplace. He told Mr Sciacca that Benetton did not require any licence or royalty fees and that the landlord (plaintiff) would possibly make a substantial contribution to fit-out.  Mr Sciacca expressed his interest and Mr Strangman asked Mr Miller to provide more information which he could relay to “an interested party”.  In due course The Pier Marketplace advertised for expressions of interest.
  1. Mr Miller faxed a letter in response on 30 October which Mr Strangman said he immediately faxed on to Mr Sciacca. Mr Sciacca said that he first saw the letter when Mr Strangman placed it before him in Mr Strangman’s office during the visit on 1 November with Mrs Sciacca. It is of no great importance who is correct but it is much more likely that Mr Strangman would have sent the letter to Mr Sciacca for his consideration. There was little point in keeping it to himself and it contained financial parameters which would have to be acceptable to Mr and Mrs Sciacca before they would contemplate going further. More compellingly, the copy of the letter exhibited to Mr Sciacca’s affidavit has The Pier Marketplace fax number at the top of the document with the fax machine date of 30 October 1996. A subsequent letter written by Mr Sciacca also supports this conclusion.  The point is that Mr and Mrs Sciacca had had the opportunity to think about the contents before the meeting at The Pier Marketplace.
  1. It is worth setting the letter out in full. It contains at least one proposition which has found its way into the alleged misrepresentations and also makes clear the active role of Benetton in, for example, the choice of premises, the fit-out and choice of merchandise. Mr Sciacca and Mr Strangman agreed that they discussed its contents at this first meeting.

“As discussed, set out below is a background on the Benetton company indicating in broad terms what is involved in becoming a Benetton licencee.

Benetton SPA is a manufacturing company and approves qualified business people as licencees to operate retail stores under the business name “The United Colours of Benetton”.

Benetton charges no licencee fee nor does it require any percentage of sales as a fee or royalties.

Benetton as a manufacturer seeks their returns out of the sales of their products to a retailer.  The growth in a retailer’s sales is a growth to their business.

The company supports the retailer in the following ways:-

  1. The company designs the store to the anticipated and final marketing plan.
  2. The company initially will select merchandise in conjunction with the licencee to provide the best selection possible.
  3. The company supports the Australian Market with a corporate advertising appropriation.
  4. The company’s advertising material can be used by a licencee in their own stores advertising campaigns.
  5. The store is set up and merchandised by Benetton merchandisers, product knowledge and training is provided during this period.
  6. There is a P.O.S. computer linked to our office by modern and weekly and monthly financial trading reports are provided as well as a review of stock performance, and recommendations for action are proposed.
  7. Buying can be co-ordinated to provide “the group” items for sale in each individual store at special prices.

As consultants to Benetton, our role is to assist, advise, co-ordinate and develop the Benetton stores within Australia.

The company policy is to have a limited number (20-30) high profile stores within Australia over the next 3-5 year period.  The stores will be approximately 100-150 sq. metres carrying adult, childrens and the accessory ranges.

They will be destination stores to maximise sales within each outlet.

A successful licencee must be able to demonstrate they have the managerial capacity to operate up to a A$1 million trading entity as well as the financial capacity to fund a business of this size. (A$300,000 – A$400,000)

A licencee is responsible for:-

  1. The fitout cost of the store.
  2. The lease commitments of the store.
  3. The stock funding by L.C [letter of credit] of the store.
  4. All allied sales and management costs associated with the store’s trading.

Our firm negotiates all sites and the occupancy costs (rents etc.) and these must comply with our financial models as to confirm the potential viability.

The Benetton Hong Kong office has been established to provide greater service to this region and personnel from this office assist in the product and marketing of a licencee’s store.

As one of the few companies that can provide the benefits of a vertical structure as well as being one of the five most recognised brands in the world, the benefits to a licencee can be extremely rewarding.

We enclose some information on our firm as well as background on the Benetton Group SPA.

We would appreciate confirmation in writing of your interest as well as brief details of the proposed parties who may be involved, and in addition, confirmation that the financial commitment required is acceptable.

Upon receipt of this information, we will arrange a meeting to develop this proposal, as there is the excellent opportunity available for a commencement date in March/April, 1997.”

  1. Mr Strangman understood at the time of this meeting with Mr and Mrs Sciacca that Benetton would negotiate the lease with the landlord through Mr Miller although the licencee would be responsible for meeting the rent payment and, at least initially, thought that Benetton would be the lessee. So far as he was concerned the location of the store, the size of the premises and the amount of the rent was something to be negotiated between him as the landlord’s agent and Mr Miller as Benetton’s representative although QED Enterprises Pty Ltd, an independent entity which provided financial services to the landlord, would also be involved. Mr and Mrs Sciacca knew that Benetton through Mr Miller would do the negotiating from the letter of 30 October. Mr Strangman and Mr and Mrs Sciacca had preliminary discussions in his office and then walked around the centre. They discussed the letter and in particular the support which Benetton would give retailers and that the successful licence needed to be able to demonstrate that it had the managerial and financial capacity to manage a business of approximately 100-150 sq metres with a turnover of $1,000,000.
  1. Mrs Sciacca did not purport to have a detailed recollection of the various conversations which took place during that visit. She had looked at the Benetton website to find out more about the label since there were not many stores in Australia and it was not well known. She was interested in the label and running a retail business successfully. She eschewed any interest in, or understanding of, figures, leaving such matters to her husband. I am confident that she would have been a competent store manager. However she seemed rather vague about matters of detail relating to this initial exploration with Mr Strangman and I did not find her evidence about this meeting of great assistance. There seemed to be a reluctance to express an understanding of the relative merits of the various fashion labels both by Mr Sciacca and Mrs Sciacca which I thought surprising. They were both very commercially oriented people and had been involved in commercial enterprises for many years and Mrs Sciacca had built and operated a resort boutique and understood in a general way retail fashion.
  1. Mr Strangman said that he gave more information to Mr and Mrs Sciacca about figures from other fashion stores in the centre because of their friendship than was otherwise proper for him to do. He told them much of this information was confidential and that he was only making it available to them because of their friendship. He said he was attempting to give them an insight into the trading performances of the Governor’s Way fashion tenancies. I accept that Mr Strangman told Mr Sciacca (it is not possible to say if Mrs Sciacca heard or participated in all of these conversations) that Esprit was trading successfully at approximately $1.3 million per annum but they should not expect to achieve that sort of turnover.  I also accept that he talked to them about the features of Esprit which made it successful – they were well known internationally and appealed to international travellers; they sold lightweight, affordable clothing, very suitable to the climate; the merchandise was colourful which suited the holiday atmosphere in Cairns and appealed to Asian tourists; and prior to opening in The Pier Marketplace Esprit’s merchandise was not readily available in Cairns.  When discussing Esprit he pointed out that it operated out of a bigger tenancy and was established and dynamic in Australia but denies that he told Mr and Mrs Sciacca that a Benetton store would be very competitive with Esprit or that it would gross somewhere near $1 million in a very short time.  I accept that Mr Strangman mentioned other traders who were achieving much less per sq metre per annum but he focused particularly on the trading performance of the fashion tenancies in the Governor’s Way precinct.  Mr Strangman said that he had in his office the September monthly report which referred to the year to date $ per sq metre achieved by the fashion tenancies.  These indicated a range of figures from as high as Musfelt at $9,675 sq metre per annum to Country Road at $5,293 per sq metre per annum to JAG at $4,600 per sq metre per annum.  Mr Strangman said that he may have told Mr Sciacca that the average of sales from all fashion tenants in the centre was $7,000 per sq metre per annum and that a successful international fashion retailer should be able to achieve sales at least equal to the average being achieved by the fashion retailers in the complex. 
  1. In the course of the meeting Mr Strangman and Mr and Mrs Sciacca walked around the shopping complex and had further discussions. Whether some of those discussions occurred in the office or as they were walking around seems not to be of any significance. Further Mr Strangman said Mr and Mr Sciacca made several visits to the centre and some conversations of relevance may have occurred then. Mr Strangman told Mr and Mrs Sciacca that the rent could be expected to be about $1,000 per sq metre per annum. This was the figure being negotiated with Mr Miller.  Mr Strangman had with him a ground level location plan of the complex and made notes on it during the inspection in a red felt point pen.  He hatched out the area which would be the Benetton store which he had discussed with Mr Miller and calculated the rent per annum at $145,000.  In note form he wrote that gross turnover in excess of $1.2 million per annum would lead to a 10 per cent increase in rent.  He made notations about other tenancies from those which appeared on the plan such as Nautica taking up part of the Costa Moda tenancy.  On the back in abbreviated figures he wrote $1 million ÷ 145 sq metres = $6,900 per sq metre per annum.  Nearby he wrote in brackets “AV $7,800” per sq metre per annum. 
  1. It was suggested to Mr Strangman that this demonstrated that he had told Mr and Mrs Sciacca that the Benetton store would gross $1 million sales turnover. Mr Strangman, whilst he had no clear recollection of the circumstances in which he came to write those figures on the back of the floor plan, said that it could have been a response to a question about what a $1 million dollar turnover related to in terms of sales per sq metre per annum.  This would hardly have been surprising in light of the Benetton requirement that a successful licencee had to be able to demonstrate to Benetton’s satisfaction that it had the managerial capacity to operate up to $1 million dollars trading and they had just been discussing the letter from Mr Miller.  The figure of $6,900 could be seen against the average of $7,800.  The average moving annual turnover for 1996 was just below $9,000 per sq metre for all tenancies and the average of the fashion tenancies for that year was just under $6,500, (exhibit 21).  Standing alone, the notations made by Mr Strangman could reflect Mr Sciacca’s allegations but I accept Mr Strangman’s evidence that he did not represent to Mr and Mrs Sciacca or to Mr Sciacca alone that they would gross an average of $6,900 per sq metre if they took up the Benetton tenancy or $1 million in a very short time or in any time
  1. Mr Strangman agreed that he told Mr and Mrs Sciacca that the landlord (plaintiff) was considering a significant contribution to the fit out of the premises and that there was usually no rent payable during a tenancy fit out period, and the rent would commence on the first day of trade. There is no challenge that a contribution of $100,000 was made to the fit-out and, as will be mentioned, Mr and Mrs Sciacca negotiated even more favourable terms about the rent. A number of representations said to have been made about the rent were deleted from the final version of the counter-claim filed on 12 March 2003. One was that the rent would be calculated on the return expected from the store. There was no basis advanced for this allegation although Mr Sciacca was attached to it and regularly tried to achieve a variation in the rent on this basis when things were going very badly for the shop. The point in mentioning this deleted pleading is that instructions must have been given to plead such a representation – its withdrawal could not be because of the realisation of a minor or some other explicable error. It is a factor to take it account in considering credibility.
  1. An allegation of misrepresentation concerned the Brian Rochford shop. That company had a very successful shop elsewhere in the centre and wished to develop a new range of women’s resort wear and took up a second shop, D1, on Governor’s Way.  Mr Strangman agreed in cross-examination that the early figures (it had just opened) for the new store suggested that it was not trading very well but said that Mr Brian Rochford had said to him that he was happy with the new shop and he told Mr Sciacca this.  The company in Australia went into receivership shortly afterwards but the shops in the centre continued to trade under the receiver for a further six or so months.  I had no reason to disbelieve Mr Strangman’s understanding of Mr Rochford’s expressed satisfaction with the site of the new store.  The figures for the month or so of trading were weak but it was not unreasonable for Mr Strangman to conclude in light of the success of the other store nearby and the development of a new line that he was right not to qualify his response to Mr and Mrs Sciacca. 
  1. Mr Strangman said that he could not recall talking to Mr Sciacca about the poor performance of the owner of the restaurant Quay Largo. He was of the opinion that the reported turnover of the store indicated a successful business. It was his understanding that the proprietor was using the cash flow outside the business itself for purposes other than meeting the rent obligations. It was said against him that it was misleading to say that he had to take the tenant to court. But a perusal of the proceedings (exhibit 13) makes it clear that the lessor had issued a notice to quit and in response the tenant sought an injunction to restrain eviction. This does not conflict with the alleged conversation which Mr Sciacca says took place.
  1. At the time of Mr Strangman’s first meeting with Mr and Mrs Sciacca the plaintiff was finalising negotiations for the establishment of a seafood restaurant on the boardwalk in part of Quay Largo’s former premises. The principal of the new lessee restaurant company was a Mr Donnini, well known to Mr Sciacca, who had had a successful restaurant in The Pier Marketplace since about 1992. Mr Sciacca contends that Mr Strangman told him that a top sea food restaurant would be located next to the proposed Benetton store and seating on the boardwalk adjacent to C2 would go right up to its door. The new restaurant commenced trading from 1 February 1997.  Mr Strangman said that he had sought approval on behalf of the plaintiff from the Cairns Port Authority to utilise the boardwalk areas for customer dining and this was in the lease agreement which provided for 70 outside diners.  I accept that Mr Strangman understood that Mr Donnini intended to provide tables and chairs adjacent to the windows of the premises C2.  In fact the restaurant was successful without doing so and did not expand around the side.  In a letter of 5 November 1997 Mr Sciacca accepted, “disappointing as it was”, that this was a decision made by the owner of the restaurant.    Mr Strangman denies that he would have said to Mr Sciacca that the seating for the restaurant would go right to the door of C2 since this was unlikely to have been permitted as interfering with access.  I accept Mr Strangman’s evidence.  Mr Strangman said that Mr Donnini had told him that it was his intention to use the small adjacent mezzanine area for weekend jazz sessions in order to create a “very social weekend situation” and he conveyed this to Mr Sciacca.  Mr Strangman estimated that this area was utilised for jazz sessions in the first 12 months of the restaurant’s operation approximately 10-20 times on either a Saturday or a Sunday afternoon.  He was not challenged on this evidence.
  1. Mr Sciacca contends that Mr Strangman said the Governor’s Way entrance would be the busy entrance to The Pier Marketplace for tourists because the Cairns City Council was reconfiguring the area and it would be the bus drop off point. Mr Strangman denies that he said this.  Mr Strangman said that in 1996 the Cairns Port Authority was developing plans to upgrade the tourist facilities on the waterfront surrounding The Pier Marketplace.  The stated intention of the Cairns Port Authority and the Cairns City Council was for the entire area surrounding the entrance to be upgraded and transformed into a centralised drop off point for tourists to the reef.  This project involved a reconfiguration of the marina and the creation of a terminal building for those seeking water-bound destinations.  Mr Strangman said that the scope and purpose of the redevelopment was common knowledge to persons of the Cairns area as the media constantly reported on it.  Mr Sciacca was a long-time resident of Cairns and active in the commercial community.  It is unlikely that he was not cognisant of those proposals and I found unconvincing his position of ignorance.
  1. Mr Strangman said that as adjoining lessee the plaintiff was involved in the Cairns Port Authority plans which included the demolition of the coach station opposite what became C2 and a proposal to use the area for a tourist departure point to the reef. During the second half of 1996 it was envisaged that those works would commence sometime within the next 12-18 months but due to delay in State government funding the works did not commence until late 2001. The new tourist departure terminal was completed sometime in 2003. During the delay the coach station continued to be utilised by the tour boat operators as it existed at the time when Mr and Mrs Sciacca conducted their inspection of the shopping centre. The tour boat operators continued to utilise the coach station premises.  The coaches pulled up at the coach terminal and discharged passengers for the reef who would walk through the terminal and past the shop front of what became the Benetton store.  On their return from the reef they passed the Benetton shop on their way to catch their buses.  It is unlikely that Mr Strangman would have made representations inconsistent with this knowledge.
  1. Mr Sciacca said that in response to his question to Mr Strangman “so what can we expect to receive by way of profit in this business?” Mr Strangman said that rental should be no more than 22 per cent of the gross turnover and in the case of this potential shop the rental would only be in the vicinity of 14-15 per cent. He then is alleged to have said that he (Mr Strangman) had worked out the rental at 15 per cent of expected turnover of $1 million per annum giving a rent of $1,000 per sq metre per annum. Mr Strangman thought it unlikely that he would have said that he had worked out the rental at 15% of expected turnover of $1 million per annum. He thought it was a “funny way” of expressing it because he was negotiating with Mr Miller and the rent was $1,000 a sq metre.  It was not a percentage of anything.  The question of profit was hardly one that Mr Strangman could have embarked upon with Mr Sciacca, particularly at this stage.  At best for Mr Sciacca he has misunderstood what Mr Strangman said or has seized upon many calculations playing with figures. 
  1. Mr Sciacca makes much of the allegation that Mr Strangman said to him on more than one occasion on this first visit to his office and then on the inspection of the shopping centre that The Pier Marketplace had more than 5 million visitations per annum and pointed out the traffic counter at the entrance of Governor’s Way. The traffic flow meters were located at the entrances to The Pier Marketplace and recorded by a light beam the number of person entering or leaving.  Mr Strangman is unlikely to have explained further to Mr and Mrs Sciacca that the beam of light could not distinguish between staff and service personnel and customers or that when a number of people entered together the counter may see them only as one.  I do, however, accept that he would have said that there were approximately 5 million visits.  He said he recalled explaining that it was approximate.  Mrs Sciacca agreed that the figure was expressed to be approximate.  Mr Sciacca did not. 
  1. The traffic flow metre count was collected by security officers and recorded in a book. There was conflicting evidence about what happened to those books when they were filled. Mr Strangman said they were discarded but a former security officer at the centre said they were kept in the centre management office. Mr Amerena, for the defendants, contended that there was something sinister to be inferred from the failure to disclose these filled books, on the assumption that they did exist.  The figures were entered into the monthly reports and available.  Mr Jon Norling, an urban economics expert, was able to access them for his report.  It seems to me not to add anything to the allegation whether Mr Strangman’s recollection of the books simply being discarded when they were filled was correct or whether the recollection of a former security officer that they were kept in the centre management office was correct.  The fact is there is very little in dispute about the actual numbers.  The traffic flow meters showed that in 1995, 4,969,296 people were recorded and in 1996 4,792,945.  Those figures were forwarded to QED Enterprises Pty Ltd for further analysis and inclusion within the monthly reports.  Mr Norling’s report, using these monthly management reports, showed pedestrian traffic counts consistently increasing from 1991 to 1995 from 3.5 million per annum to 5.1million per annum.  He noted the 1996 figure tracking slightly below the 1995 total.  The Property Council of Australia provided data of 5.3 million for each of 1996 and 1997 for The Pier Marketplace but Mr Norling thought those figures unreliable. 
  1. Mr Norling thought it fair to assume that the annual traffic volumes would return to and exceed 5 million within a short time subject to the opening of Cairns Central Shopping Centre which was due to occur in September 1997. According to Mr Sciacca, Mr Strangman tended to discount the impact of this very large new shopping centre on The Pier Marketplace’s patronage.  Mr Norling suggested that it could have been anticipated to fall by about 20 per cent in the short term and 15 per cent thereafter.  Mr Strangman told Mr and Mrs Sciacca that surveys undertaken from time to time utilising external people to conduct exit surveys suggested that one-third were international visitors, one-third were domestic visitors and one-third were local residents.  Further information was gained from traders within The Pier Marketplace who were able to register the kind of customers who patronised their stores.  This information was provided to management.  There were factors other than a surplus of retail space in Cairns which led to a downturn in visitors but particularly the Asian economic crisis and an economic downturn in Australia which was felt in late 1997.
  1. The real complaint was not about the numbers of visitors to The Pier Marketplace rather that those visitors did not come to the end of Governor’s Way if coming from inside the centre. It was seen, according to Mr and Mrs Sciacca, as a “dead-end”. The Governor’s Way entrance did not constitute a sufficiently popular entrance to the centre to bring in great numbers. It was said that Benetton would “brighten up” this end of Governor’s Way in the initial conversations with Mr Strangman. There seemed little doubt from Mr Sciacca’s evidence that it was the international tourists who were familiar with and enthusiastic about the Benetton label – Japan, England, China, America and Canada – and sought out the store.  The problem was two fold – when those who knew and liked the label came to the shop there was nothing, or little, they wanted to buy and the label was poorly known in Cairns and Australia and uncompetitive with Esprit and Country Road as to price.  This will be discussed below.
  1. At the time when Mr Strangman told Mr Sciacca he was negotiating with Mr Miller for Victoria’s Secret to take up a tenancy next door to C2 he believed that the negotiations would prove successful. No evidence has been advanced to suggest that this was foolish optimism on his part. Nonetheless Victoria’s Secret did not take a tenancy. The area was subsequently split and a small shop leased to Kangarruci while the remaining area was given to the first and second defendants until mid 1999 as an area to unpack stock on a temporary basis.
  1. Mr Sciacca had a conference call with Mr Miller in Mr Strangman’s office on 1 November after they had walked around the shopping centre.  Mr Miller confirmed to him that Benetton was keen to open in Cairns and Brisbane, that he had looked at other sites and that Benetton had decided on The Pier Marketplace.  Mr Sciacca told Mr Miller that he was interested in the store in Cairns but not Brisbane and would write.  He arranged to meet Mr Miller in Sydney with Mrs Sciacca in early November.
  1. On 1 November Mr Sciacca wrote to Mr Miller confirming that he would meet him in Sydney.

“We have perused your letter of 30 October in detail and have also spent some time today with Peter Strangman at The Pier Marketplace.

We are very impressed with the plans Peter has for the area proposed for the Benetton store.  We have had discussions concerning Lease conditions and fit out conditions.  He had also given us a great deal of helpful information on the retail activity and performance of The Pier Marketplace and the selection of the site appears to indicate a very good potential for success.”

  1. The defendants seize upon some of the expressions used to support Mr Sciacca’s contention that Mr Strangman made numerous representations during the visit. But the letter does no more than confirm that Mr Strangman gave Mr and Mrs Sciacca information about the retailers in the centre and had discussions about what he saw as happening at that end of Governor’s Way. 
  1. On 6 November Mr Strangman set out in a letter to Mr Miller the terms and conditions for the lease for a Benetton store in C2.
  1. On 8 November Mr and Mrs Sciacca visited Mr Miller in Sydney and went with him to some four Benetton stores in Sydney. Mr Miller told them that they would need to go to Hong Kong to select Benetton products for the second delivery but the first delivery would be selected for them by Benetton if they became the licensee. Mr and Mrs Sciacca were aware that they would have no input into the selection of the first opening order for the store. Mr and Mrs Sciacca were confident that they had sufficient financial resources available to them either from their own sources or with the assistance of their bank to support the business on the figures that were canvassed with Mr Miller.
  1. When they returned home Mr Strangman gave Mr Sciacca a copy of the lease proposal about which there is no complaint. The proposed date for the commencement of the lease was 1 February 1997 with rent to commence from 1 May.  The lease term was for 6 years and the gross rental payable in the first year was $1,000 per sq metre per annum.  During the first year 10 per cent of gross sales in excess of $1.2 million was payable as an additional rent.  This threshold level was similarly to increase in following years.  The lessor was prepared to contribute a maximum amount of $100,000 towards the interior fit-out of the premises. 
  1. Mr Sciacca said he indicated to Mr Miller that he wanted a little time to consider an assessment of the business and apply to his bank but Mr Miller said that there was some urgency because of the need to get stock organised from Italy. Accordingly, Mr Sciacca wrote to him on 13 November expressing a desire to operate a licence from Benetton “under the terms outlined in our discussion” and in the offer for lease for the area set aside in The Pier Marketplace.
  1. On the same day Mrs Sciacca wrote to Mr Miller, as she expressed it, “to paint a picture” of what she thought should be included in their first range of clothing for the Cairns shop opening in March or April 1997.

“We feel that the clothes generally should be lively, colourful, light-weight, fun and stylish. 

Casual day wear, resort wear, smart-casual after hours attire for dining and for night clubs, logo wear, some light-weight knits, possibly some swimwear.  Linens, cottons and light-weight fabrics are popular – full synthetics are generally considered too hot. 

Nothing much in the way of winter lines ... no underwear at this stage.  Menswear to be along similar lines of light-weight, smart-casual and appropriate children’s wear to be included.”

  1. On 20 November Mr Miller wrote to Mr Strangman indicating that Benetton had appointed Mr and Mrs Sciacca as licencee for the store and that the lessee would be a partnership of their two companies. On the same date Mr Miller wrote to Mr and Mrs Sciacca that their companies had been approved as licencee for the Benetton store. In a more detailed letter of the same date Mr Miller set out for Mr and Mrs Sciacca the financial commitments associated with being a Benetton licensee.  This included bridging the fit-out costs of approximately $100,000 from the lessor (he failed to mention the very expensive fit-out from Italy which would not be covered by this amount); a letter of credit of US$75,000 available in December for draw down in February/March; approximately $40,000 to clear the goods through customs; costs associated with the computer system, software and hardware and training costs with extra costs because of the remote location Cairns to about $14,500; and further set up costs of about $10,000.  Mr and Mrs Sciacca were also required to have installed two telephone lines with links to the head office computer in Sydney.  Mr Miller told them that the plans for the fit-out had been sent to Italy for design, that the opening stock was being prepared and that Hong Kong had been advised that they would attend the buying conference from 15-19 January 1997.
  1. Mr Sciacca and, to a lesser extent, Mrs Sciacca commenced work on draft cash flows, for their bank based, said Mr Sciacca, on sales figures given to him by Mr Strangman.  He said they were based on approximately half the estimate of $1 million per annum and the average of The Pier Marketplace at $7,800. 
  1. Mr Miller, in response to a request from Mr Sciacca, provided a set of figures demonstrating various sale scenarios. He wrote “from information provided by the owners, it would appear that No 3 at $7,000/sq metre is not unrealistic”. He indicated the basis for the gross profit levels which were, apart from rent, all Benetton based.  This was faxed to Mr Sciacca on 30 December 1996.  The scenarios were for 140 sq metres with turnovers of $5,000, $6,000 and $7,000 per sq metre per annum.  The latter represented gross sales of $980,000.  A disclaimer at the foot of that document indicated that the figures were a guide only and “in no circumstances to be taken as accurate or achievable”. 
  1. Mr Strangman said that on about 6 November 1996 Mr Miller had told him that for the first 12 months the business might struggle due to stock availability but then he expected the business to trade at around $750,000 to $1 million per annum. He does not suggest that he discussed this with Mr Sciacca. He said that most businesses have some start-up difficulties and thought that it would be overcome after an initial period which was an internal business matter for the tenant and the supplier and for this reason did not raise it with Mr or Mrs Sciacca.  He thought that perhaps Mr Miller might have done so but apparently he did not.  Mr Strangman received a budget from Mr Sciacca indicating gross sales for the first 12 months of $510,000.
  1. Mr Strangman met with Mr and Mrs Sciacca on 22 November at his office. This meeting is not referred to by Mr Sciacca.  Mr Strangman said that they met to discuss their appointment as licencee for Benetton and that the lease would be in the names of their companies.  Mr Strangman said that he asked them if they were happy about being the lessees.  He had previously thought that Benetton would hold the lease.  They assured him that they were.
  1. Mr Sciacca said that from mid-November 1996 he was working on cash flows for the future business which he said was

“based on approximately half the estimate of Peter Strangman’s assurance to us that we would very quickly gross $1 million per year”

He exhibited a document purporting to be the cash flow to which he referred (exhibit “IS12”).  But, as emerged in cross-examination, this was a work in progress and contained many figures which evolved after Mr and Mrs Sciacca had gone to Hong Kong and received further indications from Benetton Italy about costings.  What Mr Sciacca advanced as his cash flow projection sourced from Mr Strangman in mid-November was not.

  1. Mr Sciacca and Mr Strangman played golf together in an annual year end event on Friday 27 December 1996. Each had a different account of the conversation on that occasion. Mr Strangman’s recollection was that Mr Sciacca was very motivated about the store. Mr Sciacca, on the other hand, said that since he and his wife were about to embark on a big business and to go to Hong Kong to spend a lot of money he wanted to discuss the matter further. Mr Sciacca said they had a meeting on 30 December at The Pier Marketplace and he gave Mr Strangman a copy of Mr Miller’s table of figures which he had received that day.  Mr Strangman has no recollection of that meeting; it is not noted in his diary.  Mr Sciacca said that he told Mr Strangman that they needed to have a return of about $5,000 per sq metre based on Mr Miller’s figures.  Mr Sciacca alleges that Mr Strangman said that he would achieve a lot more than that – in excess of $1 million per annum and that Mr and Mrs Sciacca “would do $7,000 per sq metre” and would be very competitive with Esprit.  Mr Strangman can merely say that at no time in any discussions did Mr Miller express to him the necessity of having a return of at least $5,000 per sq metre and he did not recall seeing the letter and he did not represent to Mr Sciacca that the Benetton store would achieve a lot more than that figure.  Based on the average reported sales from all fashion tenants of $7,000 per sq metre per annum, in any discussions about turnover with Mr Sciacca Mr Strangman said that a successful retailer of an internationally known label should be able to achieve at least equal to the average being achieved in the centre.
  1. On 31 December 1996 late in the afternoon Mr Strangman faxed a block graph to Mr Sciacca. The message read

“As promised, graph showing monthly fashion sales as a % of annual sales mainly fashion traders in the Governor’s Way precinct.”

Mr Sciacca said this was not what he wanted and telephoned Mr Strangman who does not recall that telephone conversation.  Mr Sciacca said Mr Strangman then told him that the Benetton store would do very well and would achieve “more than a million in a very short time”.  If there was a conversation that day I am not persuaded that Mr Strangman made the comment attributed to him.  Although Mr Sciacca maintained that the figures in the graph were useless to him the point was not taken up again in any subsequent conversations or correspondence with Mr Strangman.  Mr Bain QC for the plaintiff and fourth defendant by counter-claim submitted that Mr and Mrs Sciacca were shortly to leave for Hong Kong to place future orders and the relevant of seasonal trends was, therefore, apparent.

  1. Mr and Mrs Sciacca travelled to Sydney on 4 January 1997 on their way to Hong Kong. They met Mr Miller and discussed the figures in his letter of 27 December. Mr and Mrs Sciacca then spent five days in Hong Kong meeting the officers and employees of Benetton Far East and ordering stock for the following autumn/winter collection. The selection of merchandise for each store was made from the fashion showings and the order relayed to Benetton in Italy by Benetton in Hong Kong. Based on projected cash flow figures prepared by Mr Miller on gross sales of $7,000 per sq metre, Mr and Mrs Sciacca purchased approximately $200,000 of stock in the first purchase for the second six months of 1997.
  1. Mr and Mrs Sciacca sought a loan of $350,000 from their bank in Cairns in order to set up the operation of the Benetton business. The borrowers were to be their two companies. Mr Sciacca said that he and Mrs Sciacca researched Benetton thoroughly before making the application and the extensive submission bears this out. Under the heading “United Colours of Benetton” in the submission appears the following

“Some years ago an Australian business man convinced them [Benetton] to allow him to licence Benetton Stores throughout Australia.  Because of the tyranny of distance they left the control of these operations to that business man.  The operation did not follow the “Benetton Formula” and most have closed since then.  Those businesses which came through this era have now joined the new arrangement and are now beginning to improve dramatically. 

Approximately 18 months ago, Benetton established a regional office for South East Asia in Hong Kong and have included Australia in this operation.  AV Miller & Associates of Sydney have been commissioned to ensure that stores are opened in the proper locations with the proper Management, Marketing and Merchandising controls and direction to ensure successful operations.”

The application included a projected cash flow which Mr Sciacca says was dependant upon figures provided by Mr Strangman but they were, more correctly, based on figures provided by Mr Miller as to stock purchases, staff training, advertising, computer charges.  They did include a reference to the average gross turnover per sq metre per annum of The Pier Marketplace tenancies of $7,800 per sq metre. Mr Sciacca noted that the lease conditions had been provided by AV Miller & Associates and that the plaintiff would contribute a maximum of $100,000 towards the interior fit-out.  Mr Sciacca noted that a substantial quantity of fit-out materials would be provided by Benetton and would cost in the vicinity of $65,000.  The close connection with AV Miller & Associates was noted

“A computer with a ‘point of sale’ linked to AV Miller & Associates in Sydney will be purchased by us.  We already have a PC Computer with MYOB which will handle basic administration, accounting, wages, etc.”

Under Staff Training/Management Mr Sciacca stated

“You will note from the attached material that AV Miller & Associates have a history and expertise in retail ... AV Miller & Associates will provide on-going management, advice and assistance, as will the Benetton organisation ... Daily sales will be analysed from the ‘point of sale’ computer system by ourselves and by AV Miller & Associates who receive our figures every night by overnight polling.  They provide advice and report on the progress of the business and advise on how the operation should be improved or altered.”

  1. Under the heading “Sales” Mr Sciacca wrote

“The average takings for the retails stores in The Pier is approximately $7,800 per sq metre.  Some stores achieve figures of in excess $10,000 per sq metre but these are generally small stores in the area. 

The lowest per sq metre takings average of the retail outlets in The Pier Marketplace for 1996 to date is in the vicinity of $6,000 per sq metre per annum.  This is on the larger areas of in excess of $200 sq metres stores.”

It may be observed that these figures are consistent with those reported by Mr Norling.  Mr Sciacca pointed out that The Pier Marketplace brochure showed that there were at that time in excess of 5 million visitations each year made up of one third local, one third domestic and one third overseas tourists but that the overseas tourists were the targeted consumers since they spent more than locals.  He noted that he and Mrs Sciacca had visited Benetton stores in Auckland and Sydney whose operators consistently said that their prime customer was the Asian tourist. 

  1. Mr Sciacca wrote to his bank on 29 January 1997 setting out further lengthy material about his and Mrs Sciacca’s approach to the acquisition of the Benetton business. He noted that they had been looking for a business for “a good nine months” and eventually settled on The Pier Marketplace.

“In about September of last year, Peter Strangman, the Manager of The Pier Marketplace commenced negotiations with the Benetton representative and after a great deal of negotiation he convinced Benetton to settle on The Pier Marketplace rather than the Myers Centre or the CBD.  He took possession of the Quay Largo site in October and we were offered the Benetton licence in late October.  We did not immediately accept the licence formally, but then commenced our own investigations.”

He set out their visits or discussions with the licence holders of the 8 Benetton stores in Australia and the 3 in New Zealand.  He wrote

“We expect that after all costs and expenses, this business will gross in excess of $1.1 Million in sales within two years of commencing operations.  This will equate with the existing per sq metre sales by similar established businesses in The Pier.  The profit goal is to achieve approximately $150,000 per annum before tax. 

In 1996 Esprit achieved $6,900 per sq metre in sales which equates to $1,180,000, and Country Road achieved sales of approximately $1,200,000.  This is despite the down turn in other shopping centres. 

The sales of JAG achieved $755,000 but their product does not have the range of Benetton, Country Road or Esprit.”

Mr Sciacca said he could not recall when Mr Strangman gave him those figures but thought it was in the conversation that he thought they had on New Year’s Eve 1996.  Mr Strangman’s recollection was that the figures were discussed on several occasions prior to the end of the year.

  1. Under the heading “Threats” Mr Sciacca raised the past history of businesses in The Pier Marketplace.  He noted that a few had “moved on” or closed down and that the proposed store was to be at a site which was originally a restaurant which had closed down.  He observed

“Over the past few years the successful businesses in The Pier are those that have concentrated on the tourist shopper.  In such cases those businesses have proved to be very successful.  What now remains in The Pier in respect to the Fashion Industry, are shops dedicated to one line of product, eg. Country Road, Oroton, Canterbury, Brian Rochford, JAG, etc.  All of these are now established as top-line fashion stores and they are all successful.”

  1. Mr and Mrs Sciacca took possession of the premises on 1 February 1997.

The lease agreement

  1. The lease was executed by Mr and Mrs Sciacca for their respective companies on 13 February 1997.  It was executed for the plaintiff on 10 April 1997.  The Cairns Port Authority approved the sub-lease on 16 May 1997.  The lease commenced on 1 February 1997 for a term of 6 years with a base rate of $140,000 being $1,000 per sq metre per annum.  Mr and Mrs Sciacca signed guarantees on 13 February 1997.  The requisite disclosure statement under the Retail Shop Leases Act 1994 was executed. 

Deed as to representations

  1. Mr Sciacca executed a Deed as to Representations on behalf of the companies undated save as to the year 1997 but Mr Sciacca said he did so when the other documents were executed. The Deed provided in clause 1 for statements to be set which had been made to the lessee in relation to the proposed lease which had induced or influenced the lessee to decide to enter into the proposed lease or to agree to any or all of its terms or which had been relied upon in any way as being accurate by the lessee, or had been taken into account by the lessee as being of importance to the lessee’s decision to enter into the proposed lease or to agree to any or all of its terms. The pro forma Deed provides in a marginal note that the clause was to be completed either by the lessee filling in the blank space for which there is approximately 10cm in the document or attaching a separate piece of paper or by writing in the blank space “no such statements have been taken into account in any manner whatsoever by me”. Nothing appears in that part of the document nor is there any attachment.
  1. Clause 2 provides that apart from anything that might appear in clause 1, the lessee

“Hereby represents and warrants and undertakes to the lessor ... that in consideration of the lessor agreeing to enter into the proposed Lease:

  1. no Statements whatsoever have been made to the Lessee which Statements have in any way induced or influenced the Lessee to decide to enter into the Proposed Lease or to agree to any or all of its terms or which Statements have been relied upon by the Lessee in any way as being accurate for the purpose of the Lessee making any such decision or agreement or which Statements have been warranted to the Lessee as being true or which Statements have been taken into account by the Lessee as being of any importance whatsoever to the Lessee’s decision to enter into the Proposed Lease or to agree to any or all of its terms; and
  2. the Proposed Lease contains the whole of the terms of the bargain and the agreement between the Lessor and the Lessee in relation to the Proposed Lease.”

Clause 3 provides that there were no statements relating to the suitability of the premises for the business proposed to be carried on there and other “standard” representations.

  1. Initially the plaintiff maintained that the Deed raised an estoppel against the counter-claim. In light of authorities such as Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46-048 and IOOF Australian Trustees (NSW) v Tantipech (1998) 156 ALR 470 this was abandoned and no allied argument pursued.  The Deed was sought to be made relevant as a document signed by Mr Sciacca and probative of the issue whether the defendants were, in fact, induced by the alleged misrepresentations to enter into the lease, IOOF Australia Trustees at 480.
  1. Mr Sciacca said that he neglected to fill in the representations upon which he relied and should have been more careful. By the time he and Mrs Sciacca entered into the lease on behalf of their companies and gave their personal guarantee for the due performance of the lease he said that Mr Strangman on many occasions had been very emphatic that they would achieve a turnover of more than $1 million very quickly. He said he was very conscious of the costs involved in setting up the store after his trip to Hong Kong and although full of enthusiasm, as the correspondence reveals for the internationally stylish label they were bringing to Cairns, the figures were very important to him. Neither Mr nor Mrs Sciacca was a novice in business and Mr Sciacca had experience in litigation. The failure to make any reference to the representations which are alleged to have misled them either in the Deed or the extensive analysis which was presented to the bank at about the same time is another factor which assists in evaluating whether the representations were made or, if made, whether there was any reliance upon them. Mr Amerena submitted that this failure (and a failure in a solicitor’s letter written on Mr Sciacca’s behalf on 17 May 2000 to set out the pleaded misrepresentations) could be explained by concluding that Mr Sciacca, although a solicitor and experienced in commerce, was careless in his own interests. 

Post-contractual conduct

  1. In his statement Mr Sciacca said that business commenced in the first week of March 1997 but that it was interrupted by a cyclone. It was anticipated that the business would commence in the first weeks of March and cash flows were prepared on that basis. In fact the Benetton store opened for trade on 23 March 1997 which Mr Sciacca conceded in cross-examinations. This might be seen as an example of Mr Sciacca having no true recollection of some events but working as best he could from existing documents.
  1. From the outset the business experienced cash flow difficulties. The bank had lent Mr and Mrs Sciacca $50,000 less than the amount for which they had applied. By letter dated 7 March 1997 Mr Sciacca asked Mr Strangman for an interim payment of almost $17,000 which had been incurred for fit out against the reimbursement entitlement for fit-out from the landlord.  When the first stock from Benetton arrived in March it was starkly apparent that there was a problem.  The selections of clothes made by Benetton were quite inappropriate for Cairns or, probably, any store.  On 11 April 1997 Mr Sciacca wrote to Mr Diego Menarin and Mr Sergio Azzolare, mangers of Benetton in Hong Kong with whom Mr and Mrs Sciacca had dealt on their visit.  The closely type-written five page letter complains bitterly about the inappropriate stock.  Some extracts will give the flavour

“We have expended some A$300,000 on stock for our opening order for Cairns.  Initially we anticipated and were told that at most our opening expenditure would be all up approximately A$150,000 which included duty.  From there we would be able to assess our market and then order lines according to our needs.  The Flash which we ordered for September would fill in the stock requirement.  This appeared to us to be a sensible approach and quite safe and according to good business.

There is no complaint by us on the level of expenditure – only on the way in which Benetton has allocated our working capital for stock.  There is absolutely no complaint on the quality of our stock. 

On the day before we left Hong Kong, we were told that an opening order had been arranged for us.  At that time we were not aware of its size or of its contents. ... We left the whole matter to Benetton and we had considerable discussion about the needs for the Cairns store.”

The opening order contained a total of 1,187 unisex and women’s jeans – requiring sales of 120 per month.  Mr Sciacca wrote “this is absolutely an impossible expectation”.  He went on

“As an example of how we rated Jeans as a product for Cairns, when we ordered our stock for the Flash and for October of this year, we ordered 178 Jeans of traditional colours – with some safe colours.  We are prepared to accept that we should have a fair number of Jeans but we believe that we have been give far too many.”

The Cairns shop was sent 422 women’s jackets.  Mr Sciacca wrote

“Once again someone has anticipated we will sell 40 jackets per month by February next year – in the Tropics.  We cannot expect more than 4 per month.  At most, we should have perhaps 50 jackets rather than 422.”

In summary Mr Sciacca said that 33 per cent of their expenditure on adult stock had been on only two lines which would not be big selling items in Cairns and this had reduced the availability of lines that would sell well in the Cairns area.

  1. He further complained that they had received or would receive just 157 women’s dresses made up of only four different styles. That was less than one dress item per day for sale over the next 10 months. Mr Sciacca concluded

“We cannot compete with Esprit or Country Road or any other of our normal competitors over the next six months.  We had expected to cater mostly to women but in a short time we have no traditional stock to allow us to interest customers.”

Mr Sciacca noted, trenchantly, that they had received no hot weather menswear and that the stock purchased for them was “unsaleable in the Tropics”.  Mr Sciacca complained that they had received no traditional t-shirts in the first delivery and receiving none in the second.  He commented “this is a warm weather store without T-shirts!”.  Mr Sciacca summarised

“It has now become clear to us that we do not have a proper range of saleable stock to see us through the next few months, let alone until the Flash stock.”

He said that they could not accept the jeans, women’s jackets and unisex denim due to arrive at the end of April and it would be returned to Italy or Hong Kong.  The same was proposed for the further unwanted jackets.  Neither were they prepared to accept the whole of the delivery for jeans and jackets in the first shipment.  Tellingly, he added

“For this store to continue it can only happen if a proper balance of stock is delivered to us within 6-8 weeks.”

  1. Mr Sciacca noted that March/June were quiet months in Cairns something of which he was aware from figures obtained from The Pier Marketplace. The cash flow problems were immediate and Mr and Mrs Sciacca wrote to Mr Strangman seeking an extension of the first rental date to 1 July rather than 1 May as had been agreed. Although they remained extremely optimistic about the store and its future they wrote that their present position had come about “by an incredible and unforseen set of circumstances”. In summary they were
  1. they were introduced to the retail clothing business through Tony Miller and were not put on the right track to start off with;
  1. they visited almost all of the Benetton stores in Australia and attended in Hong Kong and felt confident that they had a good understanding of the Benetton business; “we also believed that Benetton would guide us through the early period.  In fact as it turns out, to date, all Benetton is really interested in is selling as much stock to us as possible and it is probable that this may be one of the main reasons so many Benetton stores “go broke” around the world every year.”  Mr and Mrs Sciacca noted that they were suspicious that a fair percentage of their opening stock had been “dumped” on them without any serious attempt to appreciate customer needs;
  1. the bank did not give them the extent of overdraft requested;
  1. the bad opening order mix prepared by Benetton much of which was unsuitable for the area “and also much of it is now proven to be wrong in sizes, etc”.  Mr and Mrs Sciacca noted they had to expend approximately a further $50,000 on suitable stock and although Benetton were to credit them with approximately $25,000 that had not occurred;
  1. the opening day was the day of cyclone followed by a disappointing Easter although they did achieve their April budget of approximately $20,000 in gross sales;
  1. “May is proving to be a disaster and coupled with all of the matters mentioned above, makes it extremely difficult for us to continue at the moment”;
  1. they were both working very long hours and expected to do so “while the further stock arrives in dribs and drabs – and until the tourist season arrives”;
  1. they had paid for and would have on hand some 13,000 items in clothing to last for 10 months and theoretically this was a correct quantity;
  1. they had prepared the following promotional program
  • advertising in Japanese in tourist magazines
  • a high quality Japanese language brochure would shortly be available
  • a Japanese employee was to commence work on a casual basis
  • planning to prepare a brochure in Korean, Chinese and English
  • Very Important Customer cards were being printed.
  1. Mr and Mrs Sciacca suggested a new commencement day for the lease be 1 July. They concluded

“If you have any alternative proposals to discuss I would be very happy to discuss these with you, with the objective of ensuring that we are not in default and that we can carry on into the tourist season to take advantage of all the work we have done and all the funds we have expended to make our business successful.”

As is apparent, there was no suggestion that any of their problems were attributable to the location of the store in Governor’s Way or the number of visitations to the store.  The problem was the very bad mix of stock and the need to expend far more than was budgeted for and the need to buy suitable replacement stock.  Mr and Mrs Sciacca have never suggested that opening their store in the low season which would continue for some months was something about which they were ignorant or had not given consideration.  The plaintiff agreed to delay the rental commencement day until 1 June and that rent was to be reduced by 50 per cent.

  1. Messrs Menarin and Azzolare came to Cairns in June. Mr Sciacca negotiated with them to take back some of the initial stock and for it to be redirected to other stores. Mr and Mrs Sciacca were in Hong Kong in early July ordering stock for the following spring/summer collection due for delivery in February 1998. Mr Sciacca said that they had extensive discussions with those at Benetton responsible for filling the orders as to what was suitable for Cairns. They were, he said, optimistic that the tourist season would be successful.
  1. On 4 August 1997 Mr Sciacca wrote to Mr Menarin. Clearly there was a continuing problem.

“We have opened a fairly major sized Benetton store in an untried and unproven area.  The product is virtually unknown to the locals so we are targeting and marketing towards the tourists and at the same time trying to get the locals interested in the product.  Our local customer base is only about 140,000 people so we don’t have the luxury of the numbers of the Capital Cities and the Capital Gold Coast.  The tourist industry is a bit soft this year particularly in the Japanese and Asian market and sales in the city are down somewhere in the vicinity of 20-30% from last year.”

Mr Sciacca continued to complain about the opening order and the fact that they had been left with huge numbers of unsaleable items which they would like to dispose of elsewhere.  Not surprisingly, the trading for the ensuing months was poor.

  1. As Mr Norling noted in a report that he prepared for the plaintiff

“The Asian crisis began on 02/07/97 when Thailand floated its currently resulting in a depreciation of the bhat by 20%.  By the end of the month other Asian currencies had fallen.  These beginnings shook Wall Street on 27 October, with the Dow Jones falling 7%.

Japan, whose currency was also falling during this period became caught up in this crisis during the later months of 1997.  Japanese visitations to Australia first fell in December 1997.  This pattern became entrenched by June 1998.”

  1. Mr Sciacca maintained that throughout September and October when he discussed with Mr Strangman the very poor figures the Benetton store was achieving Mr Strangman would urge patience and reassure him that the store would achieve $1 million per year.  Mr Strangman denies that he made such a representation.  By letter dated 5 November 1997 Mr Sciacca gave Mr Strangman a letter which he was considering sending to the plaintiff.  He wrote that no matter how hard they tried they could not get their figures up and noted that there had to be some reason why Benetton was selling at half the average retail figures for The Pier Marketplace.   This is the first time that there is any reference to conduct on the part of the plaintiff which might have influenced Mr and Mrs Sciacca in their decision to lease premises in The Pier Marketplace and much is made of it on behalf of the defendants.  Mr Sciacca wrote

“When we commenced negotiations for the Radisson Entrance Corner of The Pier Marketplace we were presented with historical trading figures for the fashion stores.  It is those figures upon which we relied as a basis for determining viability and potential of the proposed site.  Also, on those figures we felt that the proposed rental was reasonable, and we felt that even if we achieved approximately 2/3 rds of the average in takings that the rental could be met.  Also there appeared to be a strong commitment to liven up that area surrounding our store which had proven to be a dead end of the centre. 

A number of factors have affected the trading situation since we opened, and they are:

(a) the cyclone caused some destruction to the tourist business in April and May;

(b) the recent opening of Coles-Myer has affected trading more than expected;

(c) the general downturn in retail trading in Cairns (and Australia generally) could probably not have been foreseen.”

  1. Mr Sciacca identified a number of factors which were believed to have had effects on trading. He noted that despite “brightening up” the Radisson entrance, the vast majority of shoppers to The Pier Marketplace entered by the city entrance and the car park and nothing had been done by management to promote traffic direction towards that end of the complex. He noted

“We have observed over and over again, that shopping traffic enters Governor’s Way and sees it as a dead end and turns back to the centre.”

In his view the majority of people stopped once they reached Country Road, Esprit or JAG and turned around seeing the “exit” sign at the end of Governor’s Way.  Those who walked through, Mr Sciacca complained, had completed their shopping.  It is difficult to know what this means.  It seems to convey little more than shoppers did not know the Benetton label and therefore were not attracted into the shop.  Mr Sciacca complained about a large Kangarruchi sign which blocked the Benetton sign; that there was no specific marketing directed to the opening or location of the Benetton store; no specific signage to indicate that Benetton was located at the end of Governor’s Way; he complained of the hype about livening up the boardwalk area adjoining their shop and conceded that some work had been done to lighten up the area.  He added

“It is disappointing that ‘Pesci’ restricted its activities to the front of the boardwalk and has not extended to the area around our shop as we were told would happen.  Naturally that is a commercial decision by Pesci but in itself speaks for the low level of attraction of our corner of The Pier.  No doubt in due course, when the wind and weather problem is resolved we will see Pesci expand.”

  1. After further discussion and complaint about the position of the Benetton store Mr Sciacca sought a reduction in the rent to half the current rental to bring it into line with their trading position at half the average retail fashion store income in the centre.  They still had “an enormous faith in the long term future of this business” but asked the plaintiff to take into consideration that Benetton did not have the luxury of having had “the good trading times over the past few years upon which all rentals have been based and which your other tenants have enjoyed”. 
  1. The letter falls far short of the allegations now maintained. Mr Sciacca said that it would not have been a good negotiating tactic to complain of misrepresentations at that time but there are plenty of complaints about management not doing more to help and there is an air of “blame” in the letter.
  1. At about the beginning of 1998 Mr and Mrs Sciacca negotiated to take a store on Green Island selling amongst other things Benetton items. This store was immediately successful. Mr Sciacca had negotiated the provision of Indian-made stock with Benetton which was significantly less expensive than that sourced from Italy and more suitable for the tropical climate. Mr Sciacca was also expressing an interest in a shop, Socks & Accessories for Benetton, located in the Cairns Central Shopping Centre which had opened in September 1997 and operated by a company for whom he appeared to be acting which had been trading at a considerable loss.
  1. The tone of Mr Sciacca’s statement of evidence is that during this period from late 1997 to 1998 Benetton was doing its best to assist and, in effect, it was The Pier Marketplace which was making life financially difficult because of its failure to live up to its promises.  However the contemporary correspondence makes it clear that Mr and Mrs Sciacca continued to regard Benetton as the real source of their troubles.  Mr Sciacca faxed a copy of a letter dated 30 June 1998 he proposed sending to Benetton Far East to Mr Strangman.  He described a selling trip to Melbourne to dispose of the “huge remaining volume of unsold stock from our opening order last year and our large quantity of winter children’s wear which is unsaleable in Cairns” as “a difficult and expensive warehouse sale operation” which was largely unsuccessful.  This was rather different from the description he gave in his evidence as being a “very successful” trip.  In the letter Mr Sciacca identified a number of reasons for the failure of the Cairns store.  He referred to representations made by Mr Miller and Benetton in Hong Kong in January 1997 which led him and Mrs Sciacca to believe that Benetton knew and understood the Australian market and what product was saleable.  He noted that Benetton knew that they were inexperienced in retail and relied heavily on Benetton and its assurances that a product awareness program was to take place in Australia.  “The fact is that Benetton had done no research into the buying patterns of the Australian market.  It is only doing that now.” 
  1. Mr Sciacca summarised the opening stock

We were sent AU$120,000 with tax worth of 1,500 jeans, 750 pairs of 206 polyester trousers and 440 women’s jackets – one third of our money was paid for three product items which, in the case of the 206 Trousers and the Jackets were totally unsuitable for our climate.  We were told that the 206 was an exclusive Benetton item.  Had we known that 206 was simply polyester we would have advised you that such a product is not suitable for the Tropics.  I doubt whether any Benetton store in the world would ever get this terrible mix of clothing.

When you did this to us it was a recipe for disaster for our first year, as these items are not items for the Tropics nor, for that matter, for an opening of any retail clothing store of any type anywhere.”

Mr Sciacca complained that although Benetton had agreed to return US$21,000 in April 1997 that had not occurred “until quite recently” and “we all know the story how you tried to withdraw from that agreement after 12 months”.  He noted that at least a further one third of the opening order was in stock that they were still unable to sell it even at a warehouse sale at 70 per cent off.  Mr Sciacca noted that although Benetton in Hong Kong decided the percentage mix of product, after only a year in the business, they (Mr and Mrs Sciacca) knew that children’s clothes would not sell in such large quantities as were ordered for them.  He noted that they had A$36,000 of clothes which they were unable to sell.

  1. Mr Sciacca complained that it was disappointing to be told by the director of Benetton Far East that “we must expect to lose money in the first two years of operation”. He was concerned that Mr Miller was employed by Benetton as its agent and, although no longer so employed, still received 7 per cent of all sales made by Benetton to Mr and Mrs Sciacca (and, it seems, all Benetton stores in Australia). He complained of the large quantities of expensive items consigned to them which were hard to sell and that small items which were easy to sell, did not arrive. He complained that Benetton did no research into the styles and product which would sell in Australia. He observed that in January 1997 he was told on a number of occasions by the directors in Hong Kong that Esprit and Country Road “had it all wrong in Australia” and that Benetton would do very much better. Mr Sciacca expressed his disappointment that their trust and enthusiasm for the product had been misplaced.  He referred to the other five Benetton retailers in Australia who were experiencing precisely the same problems with Benetton.  As Mr Sciacca noted in his oral evidence, they all failed.
  1. In a letter dated 2 July 1998 Mr Sciacca told Mr Menarin and Mr Azzolare that it was “with great regret and with some considerable anger on our part” that they were closing the Benetton store in Cairns and placed “the blame of this on Benetton Far East”. Mr Sciacca had met the founder of Benetton at the Grand Prix races in Melbourne, Benetton being a sponsor, and with whom he had, it seems, developed a rapport. Mr Sciacca indicated that the letter of complaint was to be translated into Italian and sent to him in Italy. In a further letter of 3 July 1998, Mr Sciacca after setting out numerous grounds of complaint and making suggestions for resolution, wrote

“I repeat again that the only reason our store is trading at about one third of the Esprit store in the Centre is because of the stock that you have, for whatever reason, or whosever fault, imposed upon us.  It may or may not be the fault of any individual in your organisation other than taking advice from your agent [Mr Miller] but the fact is it is Benetton’s fault and not ours that we have lost so much money”.

  1. In a letter to Mr Strangman of 19 August 1998 Mr Sciacca enclosed Mr Miller’s projections from the beginning of 1997. As Mr Sciacca expressed it

“He [Mr Miller] gave us projections, and I attach a copy of his assessments and I particularly refer to his “worst case” scenario (our trading has been about 1/3 of his “worst case” scenario!).”

There was no suggestion of representations about profitability by Mr Strangman except that “The Pier was extremely confident that we would trade at least somewhere in the vicinity of Esprit”.  Mr Sciacca proposed that the payment of rent should be 12 per cent of gross proceeds until the business improved.  Mr Stephens, the Managing Director of QED Enterprises Pty Ltd, responded expressing sympathy for the situation and offering a reduction in rent to $500 per sq metre per annum or 15% of gross sales, whichever was the greater for the period 1 April 1998 to 31 December 1998 conditioned upon the payment of arrears in two 50 per cent payments and confidentiality. 

  1. Mr Sciacca’s response to this rejection of his proposal showed a slight shift. He maintained that he and Mrs Sciacca had taken on the Benetton franchise at the invitation of The Pier Marketplace because it wished to “brighten up” the “dead-end” of Governor’s Way.  He said that during discussions before committing themselves it was represented to them on a number of occasions that

“The expected annual return from this site would equal or exceed the average for fashion retail at The Pier:

That a program was being developed to brighten up and encourage activity at that end of The Pier”.

He referred to representations about gross figures made by Mr Miller.  He complained that nothing had been done to liven up the end of Governor’s Way but continued to focus the blame for their large losses on Benetton.  In summary, Mr Sciacca noted that both they and The Pier Marketplace presumed that they were dealing with a reputable company in Benetton which understood the market and The Pier Marketplace and that the famous Benetton label in the C2 location would trade at the average of the other fashion stores.  He continued to seek rent at 12 per cent of gross turnover for the foreseeable future.

  1. Meanwhile the group of Benetton store owners in Australia were considering taking action against Benetton and Mr Miller. The material tendered includes letters of complaint by other shop operators to the ACCC which it is unnecessary to elaborate here but it is relevant to the extent that it supports the conclusion, strenuously articulated by Mr and Mrs Sciacca in their correspondence with Benetton, that Benetton had completely failed to research the Australian market and its significant geographical and demographical differences, and had made false representations about Benetton businesses in Australia.
  1. Mr Sciacca wrote to Mr Strangman on 13 October 1998 outlining some recent discussions with Benetton noting that they would need to meet with him to decide upon the fate of the store. He does not suggest that any conduct on the part of the landlord had contributed to their parlous financial situation.
  1. A letter to Benetton Far East dated 14 October 1998 goes a long way to disposing of the defendants’ claim so far as causation is concerned.

“Benetton cannot yet offer us enough product to immediately compete with Esprit and JAG in price or market need except with some limited cheaper Indian stock which will come over the next 12 months.  Benetton does not do advertising to compete with the major competitors so it does not make sense for us to stay with the structure that you have set up and continue to lose money.

Our location should be generating $7,000 per sq metre per annum.  Esprit does $9,500, Ralph Lauren does $8,000+, Country Road is, some years, the biggest selling per sq metre store in Australia.  All these stores are within 40m of our store.”

  1. Notwithstanding the trenchant complaints, Benetton Far East continued to provide Mr and Mrs Sciacca with inappropriate stock. In a letter dated 19 October 1998 Mr Sciacca wrote

“The other problem which I am disgusted about is the order of 181 one piece bathers which arrived in one style broken down to two sizes being S and XS and totalling nearly $7,000 worth of wholesale.  Let me repeat this – you sent us one style of bather in virtually one colour (light blue and dark blue) and virtually one size (being XS and S) totalling $6,818 of wholesale!! One style!”. 

Mrs Sciacca expressed her disgust to Benetton Far East rather more pithily

“I am sick of being treated like an idiot by these people in Italy who continue to attempt to take advantage of retailers to dump their leftover crap on them – and at full price!  They don’t even ask if we might be interested in some leftover stock that they could not sell elsewhere at a reduced price – they just dump the whole lot on us.  These bathers should retail at $95.  Well they can stuff their bathers up their fuzzy Benetton jumpers because I do not want 89 pair of one size/one style of bathers plus 94 pair of the other with no M or L at all.  I can assure you I am not keeping them.”

  1. On 29 January 1999 Mr Sciacca wrote to Mr Strangman alleging that they had gone into the Benetton shop, the site for which he had selected, at his invitation. “Actual sales have never come close to the sum which was represented that we would achieve”.  He accused The Pier Marketplace of doing nothing of substance over the past two years to increase the traffic flow to that end of the complex.  A claim for damages was foreshadowed.

Were the alleged misleading representations made?

  1. As will be apparent as from what has gone before I was not persuaded by Mr Sciacca (or Mrs Sciacca) that the specific representations pleaded in the most recent form of the counter-claim alleged to be misleading were made by Mr Strangman, subject to some further comment.  I accept Mr Strangman’s evidence as to the limits of what he told Mr and Mrs Sciacca or one of them.  The flavour of Mr Sciacca’s evidence was that of “recasting” some general discussions about turnover and, in particular, the turnover achieved by certain well know fashion label tenancies to representations about what would be achieved in the future from the C2 location by a Benetton shop operated by Mr and Mrs Sciacca.  The figures about turnover were correct as Mr Norling’s report and the monthly management reports demonstrate.  Turning then to specific representations,

(a) 5 million visitations to The Pier Marketplace per annum

  1. Although Mr Sciacca did not accept (Mrs Sciacca did) that the figure was an approximate one and accepting Mr Norling’s opinion that the opening of the Cairns Central Shopping Centre in September 1997 was a factor to take into account, mentioning the figure (and in The Pier Marketplace brochure) of 5 million visitations could not and did not relevantly mislead Mr and Mrs Sciacca. They were sophisticated business people. They were made aware of the method used for assessing this figure, its limitations and that it related to all entrances to the complex. It was neither here nor there whether there were 4.5 million or 5 million visitations. Of interest to them to obtain from Mr Strangman were the centre average gross turnover, the retail fashion gross turnover figures and the rent.

(b) Restaurant seating, entertainment and bus drop-off area

  1. “Brightening up” the end of Governor’s Way was discussed by Mr and Mrs Sciacca and Mr Strangman on their preliminary walk around. Benetton was, in part, to provide this “brightening up”. In so far as Mr Strangman said that it was proposed that tables would extend around the boardwalk outside their shop, that was his reasonable expectation at the time. That expectation was reflected in the lease entered into with the restaurant operator’s company shortly afterwards. Mr Sciacca clearly understood that it was a matter for the proprietor as can be seen from his letter of               5 November 1997 to which reference has been made.
  1. Similarly, the matter of live entertainment on the mezzanine area was something that Mr Strangman reasonably expected to be implemented by the restaurant and, it did, in fact, occur on a number of occasions.
  1. It is quite unlikely that Mr Strangman would have made representations about the bus drop-off area and its development quite at odds with what he understood from discussions with the Cairns Port Authority was to happen. The proposals were well-known. Any time frame mentioned was reasonable in light of what was understood about the proposals and was generally in the public arena at the time.
  1. At best for the defendants Mr Strangman may have been enthusiastic about the advent of Benetton, the new restaurant (operated by an already successful restaurateur in the complex) and the prospect of the new bus terminal being developed to “brighten up” that part of The Pier Marketplace. But that did not make them representations of the kind caught by s 52 or s52A of the Act.

(c) The Brian Rochford second shop

  1. Much has been made of the conversation about this shop. It was not a direct competitor for Benetton insofar as its product was rather different. I have accepted Mr Strangman’s evidence that when asked about it he truthfully responded that having spoken to Mr Rochford he understood him to be happy with the shop. This has been discussed earlier. 

(d) Quay Largo

  1. There is nothing in this allegation. Mr Strangman’s explanation, as discussed above, was sufficiently close to the mark. As Mr Amerena noted in submissions, the point was to warn Mr and Mrs Sciacca that this may not be a good position. But Mr Strangman’s evidence was that the trading figures for this tenancy were quite satisfactory and he had supposed that the tenant had redirected the profits elsewhere rather than pay the rent.

(e) The figures

  1. I accept that Mr Strangman made available some of the gross turnover figures for the fashion retailers to Mr and Mrs Sciacca particularly those trading in and around Governor’s Way to assist them. From his perspective they were his friends. There were other possible tenants for the proposed Benetton store. As I have said, those figures were generally consistent with the recorded figures. Observations about Esprit and Country Road were not representations and it was not misleading to say that he could see no reason why an international fashion label could not achieve as well as the average of the fashion shops in the centre in that position.

Reliance

  1. In a case such as this issues of reliance tend to be caught up in considerations of causation. It may be accepted that Mr and Mrs Sciacca relied upon the general accuracy of the figures as to gross turnover provided by Mr Strangman in helping with them with their financial modelling. There was no reliance on anything he might have said about the product Benetton. They did their own research. Their investigations before executing the lease were exceedingly thorough with visits and discussions with other licensees in Australia and New Zealand, discussions with Mr Miller and finally the visit to Hong Kong. 
  1. Statements about “brightening up” Governor’s Way and how that might be achieved were little more than background once Mr and Mrs Sciacca were convinced of the worth of being associated with such an important international label as Benetton.

Causation

  1. The relevant question to ask about causation in respect of contravention of the Act is whether “the contravention was a cause of (in the sense of the materially contributed to) the loss”, I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 per McHugh J at para 62. 
  1. Although Mr Bain submitted otherwise, this does not seem to me to be the kind of case identified in Henville v Walker (2001) 206 CLR 459 and Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565 where separate damage, some caused by contravention of the Act and some caused by some other non-compensable cause, can be properly identified.  The evidence did not go so far.  Such an attempt to do so would be to engage in the impermissible contributory negligence type apportionment criticised in Henville v Walker and I & L Securities.  As these reasons indicate, I am not persuaded that any representations made by Mr Strangman, even if of the kind alleged by the defendant, caused their losses. Mr and Mrs Sciacca’s own correspondence (supplemented by the fate of other Australian Benetton store proprietors) makes clear that if there had been timely and suitable merchandise for sale in The Pier Marketplace together with a proper assessment of the Australian market as had been represented by Benetton had occurred there would have been no want of customers to the shop.  Overseas visitors knowing the label sought it out but there was nothing suitable to buy.  Fashion shops, as Mr Sciacca wrote, only 40m away were doubling Benetton’s turnover. 
  1. There was little evidence about attempts at recompense from Benetton or AV Miller & Associates. The strongly worded letters to Benetton Far East were clearly ineffectual. It looks rather as though Mr and Mrs Sciacca turned against The Pier Marketplace when action was to be taken to recover rent and arrears and arrangements for the future could not be made satisfactorily.

The limitation point

  1. The relevant limitation period is three years. The counter-claim seeking damages pursuant to s 82 of the Act for contravention of s 52 was filed on 2 June 2000. Accordingly, if the defendants’ cause of action accrued before 1 June 1997 it will be statute barred. If that should be the conclusion then the defendants rely on common law negligence.
  1. Mr Bain contends that the loss or damage accrued when the lease (and guarantee) was entered into because thenceforth the defendants were bound. It is unnecessary to canvas the authorities in detail. Relevantly for these proceedings they are helpfully gathered in the joint judgment of Whitlam, Tamberlin and Sackville JJ in Blacker v National Australia Bank Ltd [2001] FCA 254 of 19 March 2001. 
  1. The leading case is Wardley Australia Ltd v Western Australia (1992) 175 CLR 514.  In the joint judgment of Mason, Dawson, Gaudron and McHugh JJ is found the following at 527

“When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement.  That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff.  But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of “loss or damage”.  And that is just as well.  In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired.  To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust.  Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events.  In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater.”

As their Honours observed in Blacker at para 71 applying observations made in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, “what loss or damage has been caused by the contravening conduct is the ultimate enquiry”.  So far as the defendants were concerned this did not crystallise until after the initial stock problems with Benetton had been sorted out if it could be said that those problems were ever sorted out and that did not occur until well into 1998.  Accordingly, had the result otherwise been favourable to the defendants in these proceedings I would not have held the counter-claim relying on the Trade Practices Act to have been statute barred. 

Conclusion

  1. It follows that there should be judgment for the plaintiff against the defendants. There was no challenge to the figures set out in exhibit 16. The total monies claimed as owed under the lease is $647,800.92. Interest is claimed in amounts set out on p 11 of exhibit 16 at 10 per cent per annum on various amounts. I will request counsel to provide an up to date schedule of interest to judgment.
  1. The formal orders are:

1.Judgment for the plaintiff against the first, second and third defendants in the sum of $647,800.92 together with interest as calculated.

2.The counter-claim by the first, second and third defendants against the plaintiff and the fourth defendant by counter-claim is dismissed.

3.Unless there are submissions to the contrary the defendants should pay the plaintiff’s and the fourth defendant by counter-claim’s costs of and incidental to the claim and the counter-claim to be assessed.

Close

Editorial Notes

  • Published Case Name:

    Cairns Shelfco No 16 Pty Ltd v Armanel Pty Ltd & Ors

  • Shortened Case Name:

    Cairns Shelfco No 16 Pty Ltd v Armanel Pty Ltd

  • MNC:

    [2004] QSC 122

  • Court:

    QSC

  • Judge(s):

    White J

  • Date:

    30 Apr 2004

Litigation History

No Litigation History

Appeal Status

No Status