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Toula Holdings Pty Ltd v Morgo's Leisure Pty Ltd

 

[2014] QCA 201

 

SUPREME COURT OF QUEENSLAND

  

CITATION:

Toula Holdings Pty Ltd & Ors v Morgo’s Leisure Pty Ltd & Ors [2014] QCA 201

PARTIES:

TOULA HOLDINGS PTY LIMITED
ACN 059 859 684
(first appellant)
DANTE (NQ) PTY LTD
ACN 100 998 169
(second appellant)
TOULA CASSIMATIS
(third appellant)
v
MORGO’S LEISURE PTY LTD
ACN 143 902 836
(first respondent)
GRANT RYAN MORGAN
(second respondent)
ASHLEE GAI HASSETT
(third respondent)
DAVARK PTY LTD
ACN 165 706 856
(not a party to the appeal)

FILE NO/S:

Appeal No 12198 of 2013

SC No 634 of 2013

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Townsville

DELIVERED ON:

22 August 2014

DELIVERED AT:

Brisbane 

HEARING DATE:

18 June 2014

JUDGES:

Muir and Gotterson JJA and Henry J>

Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

The declaration in paragraph 1 of the orders made on 21 November 2013 and paragraph 2 of those orders be set aside. Direct that:

  1. within seven (7) days of today’s date the appellants file and serve submissions as to any further orders to reflect the reasons of this Court including orders as to costs; and
  2. within seven (7) days of service on the respondents of such submissions they file and serve any submissions in reply.

CATCHWORDS:

APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE FINDINGS BASED ON CREDIBILITY OF WITNESSES – GENERALLY – where the first appellant owned and operated a hotel – where the third appellant is the sole director and shareholder of the first appellant – where the first and second appellants leased the hotel premises to the first respondent, a company controlled by the second and third respondents – where the respondents commenced proceedings against the appellants in the Supreme Court in Townsville claiming relief including an injunction restraining the appellants from settling a contract for the sale of the hotel premises and an order declaring the whole of the lease void ab initio by reason of contravention by the appellants of s 18 of the Australian Consumer Law – where the primary judge declared the lease and guarantee void ab initio and adjourned the respondents’ claim for other relief to a date to be fixed for further directions – where the appellants appeal against the primary judge’s orders – where the primary judge preferred the evidence of the second respondent over that of the third appellant – whether the primary judge erred in law in deciding questions of credibility without adverting to evidence

APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – RIGHT OF APPEAL – WHEN APPEAL LIES – ERROR OF LAW – WHAT IS – GENERALLY – where at trial the respondents submitted that the third appellant had broken various promises about the amount of rent payable after the third year of the lease, payment of outgoings and first right of refusal – whether the primary judge erred in finding that the promise to cancel the lease after three years and enter into a new lease at market rent of $120,000 was made as alleged by the respondents – whether the primary judge erred in that his findings that the promises made in regards to payment of outgoings and first right of refusal were contrary to compelling inferences called for by the evidence

APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE CONFLICT OF EVIDENCE – where the appellant contends that the primary judge erred in not making a finding that the respondents had been informed that the property was for sale and that the first respondent was afforded an opportunity to purchase the property – where the primary judge expressed reservations about whether the appellants had notified the respondents of the sale of the hotel – whether there was evidence capable of justifying the subject findings of the primary judge

Australian Consumer Law (Cth), s 18

Competition and Consumer Act 2010 (Cth), s 87

Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47, cited

Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1, considered

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, cited

Browne v Dunn (1893) 6 R 67, considered

Brunskill v Sovereign Marine & General Insurance Co Pty Ltd (1985) 59 ALJR 842; [1985] HCA 61, cited

Curwen v Vanbreck Pty Ltd (2009) 26 VR 335; [2009] VSCA 284, followed

Devries v Australian National Railways Commission (1993) 177 CLR 472; [1993] HCA 78, considered

Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (1999) 87 FCR 134; [1999] FCA 773, considered

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, followed

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133; [1919] HCA 64, cited

Jones v Hyde (1989) 63 ALJR 349; [1989] HCA 20, cited

Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325, considered

MWJ v The Queen (2005) 80 ALJR 329; [2005] HCA 74, cited

R v Birks (1990) 19 NSWLR 677, considered

R v Manunta (1989) 54 SASR 17, considered

COUNSEL:

M M Stewart QC for the appellants

K C Fleming QC for the respondents

SOLICITORS:

Russells Lawyers for the appellant

Connolly Suthers Lawyers for the respondent

  1. MUIR JA: Introduction Before March 2013, Toula Holdings Pty Ltd owned and operated the Newmarket Hotel in Townsville.  Ms Toula Cassimatis is, and was at material times, the sole director and shareholder of Toula Holdings.  By a lease and a guarantee dated 19 March 2013, Toula Holdings and Dante (NQ) Pty Ltd, another company controlled by Ms Cassimatis, leased the hotel premises to Morgo’s Leisure Pty Ltd, a company controlled by Grant Morgan and his wife, Ashlee Hassett.
  1. On 8 October 2013, Morgo’s, Mr Morgan and Ms Hassett commenced proceedings against the appellants in the Supreme Court in Townsville claiming relief including:
  1. an injunction restraining the appellants from settling a contract for the sale of the hotel premises; and
  2. an order pursuant to s 87(1) and/or s 87(1A) of the Competition and Consumer Act 2010 (Cth) (the Act), declaring the whole of the lease void ab initio by reason of contravention by the appellants of s 18 of the Australian Consumer Law (ACL).
  1. On 10 October 2013, the primary judge set a timetable for the filing and service of pleadings and ordered that the trial of the proceedings take place on 16 and 17 October 2013.
  1. After a trial in Mackay on 12 and 13 November and in Townsville on 15 November 2013, the primary judge on 21 November 2013 declared the lease and guarantee void ab initio and adjourned the respondents’ claim for other relief to a date to be fixed for further directions.  The appellants appeal against the primary judge’s orders which were:
  1. A declaration that the lease and declaration were void ab initio.
  1. Liberty to apply for any further order necessary to give effect to the declaration.
  1. The respondents’ claim for other relief be adjourned to a date to be fixed.
  1. The seven grounds of appeal are somewhat prolix and it is inconvenient to set them out in full. The first ground alleges that the primary judge erred in holding that:
  1. the issue to be determined was whether or not the representations alleged to have been made by Ms Cassimatis were made, although their timing was relevant to reliance and credit;
  2. the respondents had made an application to seek leave to amend the statement of claim; and
  3. he was not prepared to hold the respondents to the allegation in the pleading that the representations were made in February 2013.
  1. Paragraphs 2 – 7 inclusive challenge the primary judge’s findings of fact. On the hearing of the appeal, leave was given to amend ground 7 to include allegations of a general nature to the effect that the primary judge erred in that he failed to advert to evidence that was logically probative on the issue of credit; failed to consider evidence probative of an issue of fact before deciding it; made findings which were inconsistent with incontrovertible fact, contrary to compelling inferences and glaringly improbable.

The allegations in the amended statement of claim

  1. The respondents’ allegations may be summarised as follows. Prior to the execution of the lease and guarantee, Ms Cassimatis, on behalf of the first appellants, informed Mr Morgan, on behalf of Morgo’s, himself and Ms Hassett, that:
  1. the lease of the hotel premises would be for a 30 year term;
  1. the rental would be $180,000 per annum;
  2. the term of the lease and the rental would be fixed for only three years;
  3. the hotel business would be sold to Morgo’s for $1;
  4. the corporate appellants would pay for the lease outgoings for the first three years “and in any subsequent agreement reached”;
  5. the corporate appellants would offer Morgo’s the right to purchase the real property if the first appellants “determined to sell same”; and
  6. after the first three years of the lease, assuming that Morgo’s had not purchased the hotel premises from the corporate appellants, they would cancel the lease and enter into a new lease “at a rental in the order of $120,000 per annum”.
  1. Morgo’s entered into the lease and Mr Morgan and Ms Hassett entered into the guarantee in reliance upon and induced by the representations.
  1. The representations in (c), (e) and (g) were false in that the corporate appellants had no intention of:
  1. cancelling the lease and entering into a new lease;
  2. offering Morgo’s the right of first refusal in respect of any sale of the hotel premises; or
  3. paying for the outgoings of the lease.
  1. The conduct of the corporate appellants and Ms Cassimatis, in making the representations, was in trade or commerce within the meaning s 18 of the ACL and was misleading or deceptive in contravention of s 18.
  1. The particulars to paragraph 3 of the statement of claim stated that the representations were made in the course of a conversation between Mr Morgan and Ms Cassimatis at the hotel on an unspecified date in February 2013.

The evidence and relevant findings

  1. The following account of the facts is taken from the reasons, except where the contrary is indicated.
  1. The primary judge stated that he was impressed with Mr Morgan and Ms Hassett when they gave evidence.[1]  He made no express findings about the credibility of Ms Cassimatis.  The appellants complain that the primary judge accepted all of Mr Morgan’s evidence, even when irreconcilable with evidence of other witnesses.
  1. Mr Morgan and Ms Cassimatis, who had known each other since 2002, had become quite friendly by 2012. Mr Morgan had worked for Ms Cassimatis and her late husband in a number of licensed premises. In the latter half of 2012, Mr Morgan and Ms Cassimatis had many telephone discussions in which Ms Cassimatis sought Mr Morgan’s advice concerning aspects of the operation of the Newmarket Hotel. There were discussions about a possible lease or acquisition by Mr Morgan of the Newmarket Hotel when he visited Townsville in November 2012. In an email of 29 November 2012, Mr Morgan offered to purchase the hotel business and lease the hotel premises on the following terms:
  • purchase price of the business – $1;
  • lease period – 30 years commencing 4 February 2013;
  • the right of “the 1st opportunity to purchase the hotel before its offered to the open market”; and
  • rent:
    • first year – $135,000 including GST,
    • second year – $150,000 including GST,
    • third year – $160,000 including GST,
    • rent increases “in line with CPI” after the third year.
  1. Ms Cassimatis and the other appellants made a counter-offer in an email sent by Ms Cassimatis’ son, Yianni Cassimatis, on 3 December 2012.  The counter-offer proposed a purchase price for the business of $1 plus stock at valuation, a lease term of 30 years commencing on 4 February 2013 and rent as follows:[2]

“RENT SCHEDULE

1st Year $160,000.00 Including GST ($14,000 under our last tenant)

2nd Year $170,000.00 Including GST ($4000 under our last tenant)

3rd Year $180,000.00 Including GST (only in the 3rd year would we actually meet and slightly exceed the rent we enjoyed during the past years.)

After the 3rd year of lease, rent increased will be in line with CPI.

After the 5th year of lease, rent will be determined by a market review and set for a following 5 years where additional annual increase will be limited to CPI increases only.”

  1. In relation to the right of first refusal proposed by Mr Morgan, the email stated:[3]

“OPTION TO PUCHASE

For various reasons, we would prefer not to have a contractual obligation to issue you ‘first right of refusal’. Of course our courtesy would dictate that we inform you of any intent to sell and you would always be free to make an offer to us at any time. The building would not be sold before you could place an offer. Legally your lease would be permanently set irrespective of owner in any event.

In addition to this, legally we of course would be obliged to inform you if any sale was imminent. The building will essentially always be on the open market. We will always be fielding and actively considering offers. We have a few genuine offers right now.

The way we would market the freehold would make any real ‘first right of refusal’ clause redundant, but that does not preclude you from making offers to us.” (emphasis added)

  1. In an email sent on 4 December 2012, Mr Morgan accepted the counter-offer and requested that contracts be drawn up. He asked if the “lease date” could be changed to 18 February 2013. A draft lease prepared on the appellants’ instructions by Strategic Lawyers included: the 30 year term; a commencing date of 18 February 2013; and the rentals for the first three years of the term of the lease put forward in the counter-offer, except that there was no express mention of GST. There was also a slight change in relation to the CPI provisions in that the rent after review was said to be “CPI or 4% whichever is greater” for years four and five.
  1. Another solicitor, Mr Turnbull, gave unchallenged evidence that he received instructions from Ms Cassimatis on 3 January 2013 to draw up a contract for the sale and purchase of the hotel business and a lease. Those documents were forwarded to Mr Morgan on 10 January 2013. The draft lease, which was a schedule to the business contract, provided for a rent of $180,000 per annum exclusive of GST for each of the first three years with various CPI reviews and market reviews in specified later years.  The primary judge observed:[4]

“Mr Turnbull received a telephone call from Mr Morgan who had issues about a number of matters including the rent which was stipulated as exclusive of GST, the security bond, the right of the landlord to inspect books and records and air conditioning ducting. Mr Turnbull took instructions about these matters and on 21 January 2013 he sent copies of a revised business contract and lease to both Mr Morgan and his client.”

  1. Mr Morgan gave evidence that, after he received a copy of the draft lease from Strategic Lawyers, he went to Townsville for about a week at the end of January 2013. Ms Cassimatis then told him that matters had been held up because her bank would not agree to a lease at the negotiated rent and that the rent would need to be $180,000 per annum “for the deal to go through”. She told him that the bank needed the rent to be that high so that she could service her debt. Mr Morgan said, “… If you agree to the terms of paying the outgoings, I’ll agree to the lease”.[5]
  1. Concerning the right of first refusal, the primary judge stated:[6]

“In evidence concerning discussions at the time of the visit in November Mr Morgan said there was a discussion with [Ms Cassimatis] concerning his eventual purchase of the hotel. It was with this in mind that he wanted a ‘first right to buy’ for he wanted ‘an incentive to come back to Townsville’ as the purchase of the lease would require selling his business in Newcastle and relocating his family. In evidence he said [Ms Cassimatis] said, concerning the sale of the hotel and the business, ‘Don’t ever worry, Grant, you’ll always get the hotel’. To that end he said that [Ms Cassimatis] told him that after three years of the lease, when she had settled her debts with her bank, the lease would be changed. This was important to him he said as the proposed CPI increases in rent after three years made the lease unattractive in light of the trading of the hotel at the time of purchase. Mr Morgan’s evidence was that the three year period was significant. His hope was that then, if his plans to improve trading paid off, he would be able to finance the purchase of the hotel.” (citations omitted)

  1. Subsequently, Mr Morgan was not told by Ms Cassimatis or anyone on her behalf that the hotel was on the market or that the appellants proposed to enter into a contract for its sale.  When told of the sale by a Mr Pascoe in September 2013, he promptly consulted his solicitors.
  1. The primary judge found, in effect, that the appellants were suffering severe financial difficulties at the time of the negotiations concerning the lease and guarantee. He concluded that Ms Cassimatis knew “that the financial position was deteriorating rapidly, that unless she secured a reliable tenant for the hotel who could operate the business and pay a commercial rental a forced sale of the hotel might occur”.[7]  He found also that:[8]

[36]… The continued financial accommodation by the bank was dependent upon an updated valuation of the Newmarket Hotel. That valuation assumed a 25 year lease commencing at an annual rental of $160,000.

[38]The foregoing evidence of the financial circumstances of the [appellants] lead me to conclude that [Ms Cassimatis] was prepared to afford any assurance, accommodation or incentive to Mr Morgan providing he and those associated with him would commit to a lease of the business of the hotel on terms satisfactory to the [appellants’] bank; [Ms Cassimatis] was prepared to agree that the rental would be GST inclusive and to forego a requirement for a security bond. I accept Mr Morgan’s evidence that at a meeting prior to he and his wife signing the contract and the next lease (exhibit 6) he said to [Ms Cassimatis] that he would agree to the lease if she agreed to pay the outgoings and that she agreed to this.

[39]It is likely, in the view I take, that Mr Morgan would have sought to obtain the concession with respect to outgoings prior to committing to any contract and lease by signing it. The opportunity for these discussions arose in the meetings in late January at the hotel. Both Mr Morgan and [Ms Cassimatis] were then on friendly terms. He was interested in the business proposition but I accept that he was only prepared to agree to the increase in rent on the condition the [appellants] would accommodate him with respect to outgoings. I find that the representation was made at a meeting in late January.”[9] (emphasis added)

  1. The primary judge found that the other representations on which the respondents relied were also made at the meeting in late January 2013.[10]  He accepted the evidence of Mr Morgan in preference to that of Ms Cassimatis in relation to the representations.[11]  He also accepted that Mr Morgan, Ms Hassett and Morgo’s were induced by the representations to enter into the lease and guarantee.  He found that each of the representations was false, misleading and deceptive.[12]
  1. In discussing the parties’ respective contentions, it is more convenient to follow the format of the appellants’ outline of argument than attempt to relate the appellants’ arguments to the amended grounds of appeal.

The first error of law – the primary judge erred in law in deciding questions of credibility without adverting to the evidence referred to below

The appellants’ contentions

  1. The following matters were relied on by the appellants:
  1. Mr Morgan’s eagerness to enter into and finalise a lease promptly from the outset;
  2. Morgo’s or the Morgans had sold their business in Newcastle by as early as 4 December 2012;
  3. it was Mr Morgan who had pushed for a 30 year term rather than a 25 year term; and
  4. Mr Morgan believed that he could do renovations to increase customer flow and felt that the proposal was a good investment.
  1. Those matters were said to support the conclusion that Mr Morgan had an incentive, at least equally as strong as Ms Cassimatis’, to secure the lease in late 2012.
  1. The matters which gave the respondents a strong incentive to escape the lease by late 2013 were:
  1. by September 2013 the business was running at a loss of $9,000; and
  2. the respondents sought no relief that would have had the effect of rectifying the lease so as to make it conform with the three promises.
  1. The reasons show that there were two matters which principally influenced the primary judge to accept Mr Morgan’s evidence, even where he accepted irreconcilable evidence of other witnesses. The first of those matters was the positive impression Mr Morgan and Ms Hassett gave when giving evidence. The second, based on the uncontroversial proposition that Ms Cassimatis was under severe financial pressure, was that Ms Cassimatis in early 2013 “was prepared to afford any assurance, accommodation or incentive to Mr Morgan” in order to secure a long term lease.

Consideration

  1. It is plain that Mr Morgan and Ms Hassett were interested in acquiring the hotel business and leasing the hotel. Their interest in doing so had been engaged by the discussions between Mr Morgan and Ms Cassimatis throughout 2012. That led to Mr Morgan’s email to Ms Cassimatis on 29 November 2012. No doubt Mr Morgan thought that his offer, if accepted, would give rise to a sound investment on his part.
  1. These matters, however, do not establish that Mr Morgan had an eagerness to conclude the transaction such that he would be tempted to make substantial financial concessions during negotiations in the hope or expectation that he might redeem the situation later. The probability was that, through his extensive discussions with Ms Cassimatis about the hotel, Mr Morgan was well aware of Ms Cassimatis’ financial predicament.  His knowledge in that regard was sworn to in an affidavit filed in the proceedings.  Mr Morgan also gave oral evidence to like effect.  Ms Cassimatis accepted that the bank had to approve the terms of the proposed lease and that it was a requirement of the bank that the rent be a minimum of $180,000 per annum.
  1. The fact that Mr Morgan wanted, and was given, a 30 year lease is further evidence of the strength of his negotiating position and of Ms Cassimatis’ corresponding weakness. However, it does not seem to me to bear strongly on the extent of his enthusiasm to enter into the lease or on his credibility.
  1. The central theme of Mr Morgan’s evidence was that he was persuaded to accept a higher than market rental for the first three years, accompanied by relief from outgoings and GST, in order to assist the appellants to overcome their difficulties with their bank.  This account derives modest support, as will be explained later, from the evidence that Morgo’s did not pay outgoings, except by way of an adjustment on settlement, despite the obligation on the lessee under the terms of the lease to pay outgoings.  However, as the subsequent discussion shows, if the agreement was as Mr Morgan alleges, the appellants’ financial position would have deteriorated rather than improved and this would have been obvious enough to Mr Morgan.
  1. I do not accept that the first error was proved by the matters relied on by the appellants in the preceding discussion. Nor do I accept that the failure of the primary judge to mention particular matters in his reasons necessitates the conclusion that he failed to consider them. Some of the facts that the primary judge is alleged to have overlooked are of the nature of uncontested obvious background information. It is not surprising that the primary judge did not single out such matters for attention.

The second error – the finding of the primary judge that the first promise was made as alleged by the respondents

  1. The first promise was identified by the appellants as:

“Despite the fact that the lease provided that the rent payable should be $180,000 including GST per year for each of the first three years followed by two years of CPI increases, followed by a review to market, the first appellant would cancel the lease after three years and enter into a new lease at a market rent in the order of $120,000.”

The appellants’ contentions

  1. The reasons do not refer to the magnitude of the difference in rent. The counter-offer of 3 December 2012, accepted by Mr Morgan on 4 December 2012, included a rental of $160,000, $170,000 and $180,000 respectively for the first, second and third years including GST.  The lease prepared by Mr Turnbull provided for a rent of $180,000 plus GST for each of the first three years.  It also required the lessee to pay outgoings.  The difference between the rent in the counter-offer and that in the lease was so small as to make it implausible that there would have been discussion about this topic at all in early 2013.  That is particularly so as Mr Morgan raised with, and gained agreement from, Ms Cassimatis to make the “opening rents of $180,000 inclusive of GST”.  This had a flow on effect for the full 30 year life of the term – a term proposed by Mr Morgan.
  1. It is also implausible that Mr Morgan, having accepted rents of $160,000, $170,000 and $180,000 including GST on 4 December 2012, the parties would have agreed that after three years the lease would be renegotiated to provide for a rental of $120,000. Mr Morgan’s offer of 29 November 2013 proposed rents for the first three years of $135,000, $150,000 and $160,000, all including GST. This matter is not adverted to in the reasons. Had Mr Morgan any concern about the rent, the natural time to raise it was when he spoke with Mr Turnbull in mid January 2013 and raised nine features of the lease he wanted changed.
  1. That there was discussion between Ms Cassimatis and Mr Morgan about the commencing rent and the need to renegotiate it after three years is inconsistent with Mr Morgan’s failure to raise that matter with Mr Turnbull in mid January 2013. It is also inconsistent with Mr Morgan succeeding in having the rent of $180,000 per annum made inclusive of GST.

Consideration

  1. Mr Turnbull’s draft lease sent to Mr Morgan on 10 January 2013 increased the rent for the first two years beyond that previously agreed.  The effective increase, however, was minimal once the rent was made inclusive of GST.  Once Mr Morgan had perused the draft and requested that Mr Turnbull make various changes to it, there was no point in any further discussion between Ms Cassimatis and Mr Morgan about rent.
  1. The failure of Mr Morgan to raise with Mr Turnbull the proposed new rent arrangements after the first three years would be most surprising if there was such a proposal, particularly as Mr Morgan did raise the inclusion of GST.  It was not contended by the respondent that it was explicable by reference to Mr Morgan’s evidence to the effect that he and Ms Cassimatis arrived at a private agreement that any arrangement concerning a possible sale of the hotel would be kept from her children.  According to Mr Morgan, they opposed the sale of the hotel.  Mr Cassimatis was not invited to comment on Mr Morgan’s evidence in this regard.  Nor was it suggested to Mr Morgan in cross-examination that his evidence was at odds with Mr Cassimatis’ assertion in his email of 3 December 2013 that, “The building will essentially always be on the open market.  We will always be fielding and actively considering offers”.  Significantly, it was not suggested that Mr Cassimatis or any of his siblings played any role in the negotiations for or the entering into of the lease except for Mr Cassimatis’ quite limited involvement which ended before Mr Turnbull was instructed.
  1. Mr Morgan had shown by his original offer that he was prepared to accept rents for the first three years of the term of the proposed lease that were substantially higher than the anticipated rent “in the order of $120,000”, said to apply after negotiations, to the fourth and subsequent years. Although Ms Cassimatis was in a weak bargaining position, her acceptance of rents after the first three years so far below those originally offered would appear, on the face of things, to be unlikely.
  1. It is also unlikely that Mr Morgan would have considered requesting such a change. The $180,000 per annum rent was not significantly greater than the rents proposed in Mr Morgan’s original offer, even recognising the change from excluding to including GST and they were close to the rents specified in the counter-offer of 3 December which Mr Morgan accepted.
  1. Mr Morgan was not cross-examined on the seeming oddity of Ms Cassimatis’ acceptance of the significant reduction in rent after three years. Nevertheless, the singularly poor bargain in that regard cast doubt on Mr Morgan’s account of events. That is, if as appears to be the case, the market rent was much closer to the agreed $180,000 per annum than $120,000. If the market rent was to the order of $180,000, there would be little point in the collateral arrangement alleged. The obvious course would have been to alter the lease to provide for a market rent review in year four. The lease provides for such a review in year six.
  1. Another difficulty with the alleged representations about the change in the terms of the lease is that they appear to be more properly characterised as aspirations rather than representations or promises. The following exchange occurred in Mr Morgan’s evidence-in-chief:

“And was [the $180,000 per annum rent] to be payable over the 30 years of the lease?--No. It was only supposed to be for three.

Well, how – how did you come to that understanding? What was said by Ms Cassimatis and what was said by you about that topic?--Well, [Ms Cassimatis] told me the lease would be – would be changed after the banks were satisfied with her debt.

Well, what did she tell you about the time in which she might be able to settle her debts with the banks?--The time? Three years.

And when did – do you recall her telling you that?--In her upstairs office.”

  1. This suggests that any arrangement, if there was one, concerning a change in the rent payable under the lease was conditional on the level of the appellants’ debt and on Ms Cassimatis being able to discharge her indebtedness to her bank or negotiate an arrangement with the bank satisfactory to her.
  1. Mr Morgan anticipated being “able to build up the business in three years” and then being able to “get the … amount of dollars [he] needed to purchase the hotel”.
  1. In an affidavit, Mr Morgan swore in this regard:

“After three (3) years of the lease at $180,000 per annum, and assuming I had not purchased the real property, Toula Holdings would be debt free, and [Ms Cassimatis] would on behalf of Toula Holdings cancel that lease and enter into a new lease reflecting the actual market rental – that is to say on today’s values somewhere in the order of $120,000.00 per annum.”

  1. Again, it would appear to be implicit in the foregoing that any alteration of the lease was dependent on Toula Holdings becoming debt free. How that was to be achieved with the lessors receiving virtually no net return from the lease was unexplained.
  1. There is need, however, to bear in mind some other matters. The hotel was in a run down condition. The respondent promptly commenced to make extensive improvements to the hotel premises. The cost of these was in excess of $190,000. Mr Morgan swore in an affidavit that the improvements cost $220,000. The impression given by Ms Cassimatis’ oral evidence was that the hotel business was loss making. Ms Cassimatis, speaking of the costs of running the hotel’s steak house, which was its primary source of income, said, “So it was really important to stop the bleeding and try and get the business … sold”.
  1. Ms Cassimatis implicitly acknowledged that $180,000 per annum was above the market rent, or at least at the higher end of the market. She swore that:

“I therefore do not agree that the business had no value. The trade-off for no consideration being paid for the business, was Grant’s agreement to fix the rental at $180,000.00 per annum for the first three years, and to be responsible for all outgoings, renovations, repairs and improvements to the freehold property as is evidenced by the terms of the Lease and in particular, the wording of clause 5 and the acknowledgement in the last paragraph of that clause of the Lease.”

  1. Mr Morgan’s affidavit evidence did not support the alleged representation set out in paragraph 7(g) above which corresponds with sub-paragraph (i) below. Mr Morgan swore that in the conversation in the Hotel in February 2013 at which he, Ms Cassimatis and Mr Muller were present, it was proposed by Ms Cassimatis that:

“… the terms of the Lease would be as follows:-

(a)The Lease would be for a term of thirty (30) years to satisfy the Bank’s requirements;

(b)The Lease would be in the amount of$180,000.00 per annum;

(c)The Lease arrangements of the Lease for thirty (30) years and $180,000.00 per annum were only to last for a period of three (3) years;

(d)I would do improvements to the property (improvements cost $220,000.00);

(e)The ‘Newmarket’ Business would then be sold to me for $1.00 in recognition of the making of the improvements;

(f)Toula would pay for the outgoings of the Lease for the first three (3) years and in any subsequent agreement reached;

(g)Toula would offer me the first right to purchase the real property as constituted the Newmarket Hotel if she ever sold it;

(h)Toula would live upstairs;

(i)After three (3) years of the lease at $180,000 per annum, and assuming I had not purchased the real property, Toula Holdings would be debt free, and Toula would on behalf of Toula Holdings cancel that lease and enter into a new lease reflecting the actual market rental – that is to say on today's values somewhere in the order of $120,000.00 per annum.” (emphasis added)

  1. The representation, according to Mr Morgan, was thus not that the rental after the first three years would be “in the order of $120,000” but that it would be the “actual market rental”. Mr Morgan claimed to be of the understanding that such rental would be “in the order of $120,000 per annum”. He swore that the $180,000 rent was “at least $60,000 per annum more than market”. If Mr Morgan is to be believed, there was an associated representation that Toula Holdings would be debt free after three years.
  1. Mr Morgan was not cross-examined on this evidence of market rent which is inconsistent with the opinion of Mr Lyons, a registered valuer. In his valuation report dated 18 February 2013, he concluded that rentals of $160,000, $170,000 and $180,000 respectively for the first three years of the term of the lease were “in accordance with market parameters”. That opinion was supported by the unchallenged assertions of past rents in the 3 December 2012 counter-offer.  It was not suggested to Mr Morgan either that it was unlikely that Ms Cassimatis would be prepared to reduce the rent to about $120,000 given that he had offered much higher rents in his first offer.
  1. There was no explanation of why, at the time of Mr Morgan’s offer and his acceptance of the 3 December counter-offer, Mr Morgan understood that the market rent was substantially higher than $120,000 per annum.  That he did so may be safely inferred from his offer and his acceptance of Mr Cassimatis’ counter-offer.
  1. Counsel for the respondents was unable to offer any explanation that shed light on any of the above curiosities. He placed reliance on the primary judge’s findings on credit and on the authorities stating the principles applicable to the constraints on appellate courts in interfering with such findings. Nevertheless, it is appropriate to defer expressing a concluded view on the merits of the appellants’ arguments in this regard until after discussion of the outgoings representations.

The third error – the primary judge erred in that his finding that the second promise was made was contrary to the compelling inference called for by the evidence

  1. The second promise was restated by the appellants as, “despite the fact that the lease provided that the first respondent must pay all outgoings, the first appellant would pay those outgoings”.

The appellants’ contentions

  1. Mr Morgan’s uncontested evidence was that the annual outgoings payable under the lease were about $150,000. It is implausible that Ms Cassimatis would have agreed to incur such large annual liabilities in return for no more than an extra $20,000 rent less GST in the first year and an extra $10,000 less GST in the second. The reasons make no mention of these matters.
  1. The fact that Mr Morgan made no mention of the amount of, or liability for, rent or outgoings in his discussion with Mr Turnbull over changes to the draft lease is a compelling basis for the inference that there was no discussion about these matters between Mr Morgan and Ms Cassimatis.  The primary judge did not advert to this consideration.
  1. Mr Morgan caused Morgo’s to pay a substantial sum for outgoings at the settlement on 19 March 2013. There was even discussion at the time of settlement about whether the lease obliged the lessee to pay “one particular type of outgoing”; a particular type of insurance.  Yet Mr Morgan did not question the lessee’s requirement to pay other outgoings under the lease.
  1. Mr Morgan accepted that he had paid for outgoings at the settlement. There was a question concerning an adjustment for rates at settlement which was answered but after an objection the question was withdrawn. Otherwise the evidence was that Mr Morgan agreed that he had been paying “outgoings towards the business”.
  1. The primary judge dismissed the evidence that the settlement statement showed that the first respondent had paid some outgoings for rates, remarking that, although Mr Morgan was cross-examined to the effect that he had paid them, he was not challenged concerning this apparent inconsistency.[13]  There was no re-examination on the point.  The fact that there had been no cross-examination on any such inconsistency did not destroy the general strength of the matters against the primary judge’s conclusion.

Consideration

  1. The state of the evidence was that Morgo’s paid for outgoings only by the adjustment to the price paid on settlement of the business contract and that the appellants, or one or the other of them, otherwise paid the outgoings notwithstanding their contention that they had no obligation to do so.
  1. Mr Morgan’s statement that he had paid “outgoings towards the business” is somewhat opaque. The respondents contended that Mr Morgan was referring to payment of the lessee’s business expenses. There was no clarification of the answer and the primary judge was entitled to regard the answer as being of no assistance to the appellants. Moreover, it was not suggested to Mr Morgan that the discussions about insurance with Mr Turnbull related to the question of liability for other “outgoings” under the lease.
  1. The primary judge’s conclusions derive some support from the fact that apart from some outgoings paid on settlement by way of apportionment, the respondents made no payment in respect of outgoings and there is no evidence of a written demand for payment being made on the respondents.  Ms Cassimatis implied in cross-examination that there were text messages that raised late payment but it is unclear whether Ms Cassimatis was referring only to insurance.  If she was referring to outgoings other than insurance, the documentary evidence did not support her account.
  1. There was an adjustment on settlement in relation to insurance premiums but after that the respondents did not meet insurance outgoings either. The settlement statement drawn up by Mr Turnbull was altered by him on settlement to reflect the wishes of Ms Cassimatis and Mr Morgan by the addition of notes as follows:

“NOTE 1:The rent has been paid in advance to the 18th April 2014.

NOTE 2:The insurance is to be adjusted separately between the parties.”

  1. The note suggests that the parties were intending that liability for insurance was to be shared in a way agreed or to be agreed between them.
  1. That the appellants in fact paid the outgoings, except to the extent of the adjustment on settlement on account of outgoings, is only of limited assistance to the respondents’ case. The sale and purchase of the hotel business was not completed until 19 March 2013 and the lease commenced on that date. Mr Morgan accepted that prior to 26 June he had been in dispute with Ms Cassimatis over the lessee’s liability to pay outgoings. She said in effect that their relationship began to sour at about the end of May 2013 when he threatened to sue her. Ms Cassimatis said in cross-examination that she had a discussion or discussions with Mr Turnbull about “breaching” the lessee for not paying insurance or rates. Although this evidence waived privilege, at least in part, in respect of the subject communications, Mr Turnbull was not cross-examined in relation to it.  Perhaps even more significantly, Mr Morgan was of the understanding that the outgoings were only payable annually.  That understanding was not consistent with clause 2.2 of the lease, which is not without complexity.
  1. The foregoing discussion reveals that some support for either side’s contention is to be found in the evidence.
  1. The objective probabilities, however, overwhelmingly favour the appellants. Under the counter-offer of 3 December, which Mr Morgan accepted, the rent for the first three years was $510,000. The rent finally agreed for this period was only $30,000 more: $540,000. Once the change to a rent inclusive of GST is taken into account, the amount of the increase is minimal. If outgoings to the order of $150,000 per annum are deducted from $540,000 the effective total net income for the first three years is just $90,000, before allowing for capital maintenance and the inclusion of GST. The valuation report allowed $10,000 per annum for capital maintenance. The bank manager’s commercial submission dated 11 February 2013 calculated net rental payments of $163,636.36 per annum.
  1. Mr Morgan was not probed in cross-examination about the improbabilities of the agreement he asserted. The consequences of the alleged outgoings concession were only touched on in addresses by the then counsel for the appellants, who submitted:

“Insofar as the allegation that the [third appellant] represented that she would pay all of the outgoings, that flies in the face of the financial difficulty which she was in.”

  1. The submission was right, in as far as it went, but was a singularly masterful piece of understatement. The evidence suggests that Ms Cassimatis was astute and reasonably capable of protecting her financial interests.  It is objectively improbable that she would have made a bargain so adverse to those interests.  The point is highlighted by the finding in paragraph [39] of the reasons that Mr Morgan “was only prepared to agree to the increase in rent on the condition the [appellants] would accommodate him with respect to outgoings”.  That meant that Mr Morgan proposed and Ms Cassimatis accepted that, in exchange for an increase in rent of far less than $30,000 over three years, she would undertake a liability of around $450,000.  That is glaringly improbable.  Consequently, Mr Morgan’s evidence in this regard can be accepted only if there is something that explains this remarkable agreement which contradicts the terms of the lease.
  1. Counsel for the respondents submitted that the explanation was that Ms Cassimatis was in a desperate financial situation and looking for an immediate solution to her financial problems. Once Ms Cassimatis secured a 30 year lease with a rent of $180,000 per annum she was in a position to market the hotel on that basis without informing prospective purchasers of her promises to Mr Morgan.  That was not put to her in cross-examination and it is highly implausible.  Ms Cassimatis would have known that Mr Morgan would not have quietly accepted being bound by a 30 year lease that obliged him to pay above market rent (if, as he claimed, the market rent was believed by him to be about $120,000 per annum) as well as the outgoings for which Ms Cassimatis had agreed to take responsibility.  Ms Cassimatis would have been well aware that a purchaser of her interest in the hotel would have quickly discovered that it had been defrauded.  It was not as if she did not have in Mr Morgan a keen prospective lessee anxious to go into the business.
  1. It would not have made any sense for the appellants to be committed to obtaining such a meagre income from the hotel when their finances were in disarray. The bank was financing the appellants on an assumption that the lease was for 30 years at a rent of $180,000 per annum for each of the first three years with normal provisions for rent increases and outgoings. As noted earlier, the bank calculated a net rental in the first three years of $163,636.36.  A condition of the bank’s loan approval was that certified management accounts including “detailed profit and loss statements, balance sheet, aged debtors and creditors” be provided quarterly.  Consequently, the bank would soon have become aware of the lessors’ minimal return from the lease even if there had not been a marked and rapid increase in Ms Cassimatis’ indebtedness.  According to Mr Morgan, Ms Cassimatis had told him that “the banks … needed the rent to be that high to service that debt”.  Yet his alleged bargain plainly made that impossible.
  1. Mr Morgan’s agreement to do work on the premises to a cost of up to $230,000 does not provide an explanation for the reversal of the parties’ respective positions on overheads.  Mr Morgan did not suggest such an explanation, nor did his counsel.
  1. Ms Cassimatis’ evidence was that “the trade off” for the $1 consideration for the sale of the business was Mr Morgan’s agreement to pay the $180,000 rent and to be “responsible for all outgoings, renovations, repairs and improvements to the freehold as is evidenced by the terms of the lease and in particular, the wording of clause 5[.1]”.
  1. Mr Morgan was not cross-examined on how the $1 purchase price for the business came about.  In evidence-in-chief, he said that Ms Cassimatis had told him, in effect, that she paid $475,000 for the business but that it was valued at around “the 330 mark at the time”.
  1. It seems unlikely that the business would not have been considered by the parties at relevant times to have had a value far greater than $1. There is no valuation of the hotel business in evidence but a valuation of the real property dated 18 February 2013 referred to “historical trading data” indicating a gross profit for the hotel business for each of the years ending 30 June 2009 and 2010. The report noted that the valuer had not been provided with financial data but concluded that a net profit of between $320,000 and $340,000 was reasonable.
  1. The collateral agreements in respect of overheads and renegotiation of the lease after three years, alleged to have been entered into before the entering into of the lease are contrary to its express terms. Plainly they could not be enforced by Morgo’s as collateral contracts.[14]  That does not prevent the respondents relying on them as misleading or deceptive conduct but it does mean that Mr Morgan’s evidence in this regard should be closely scrutinised.
  1. Mr Morgan was familiar with the terms of the lease.  He was sent a draft of it annexed to a draft agreement for the sale and purchase of the hotel business by Mr Turnbull on 10 January 2013.  Mr Morgan rang Mr Turnbull about the draft on or before 18 January.  He objected to some matters and queried others.  Mr Turnbull took instructions from Ms Cassimatis.  Some changes were made and a further draft was emailed to the parties by Mr Turnbull on 21 January.  No further changes, apart from the insertion of the commencement date of 19 March 2013 were made to the draft lease before its execution.
  1. At no time did Mr Morgan raise with Mr Turnbull any change to the lease in respect of its overheads or its 30 year term. Mr Morgan did, however, succeed in having the rent made inclusive of GST. That showed that he gave consideration to the rent in his discussion with Mr Turnbull. None of the foregoing suggests that Mr Morgan did not understand that the terms of a lease when entered into would be legally binding and would establish the parties’ contractual rights and obligations.
  1. By the time of the meeting, which he alleged in the statement of claim and in an affidavit sworn by him took place in February 2013, the business contract with the lease annexed had been entered into.[15]  The annexed lease provided for a 30 year term and rent of $180,000 per annum inclusive of GST for the first three years.  The business contract provided for a purchase price of $1.00.  It, therefore, could not have been correct, as Mr Morgan swore in an affidavit, that Ms Cassimatis proposed these terms in the presence of Mr Muller.[16]  Although there is no mention in the business contract or attached lease of the improvements to be made by Mr Morgan, it seems clear, even on his oral evidence, that the obligation or promise to make these improvements was one of the reasons for the $1.00 sale price.  Ms Cassimatis agreed with that in her affidavit evidence.  Consequently, there was no reason to bring this up again after 3 January.
  1. Additionally, Mr Morgan swore that one of Ms Cassimatis’ proposals was that the 30 year term was needed “to satisfy the Bank’s requirements”.  There is no credible evidence that the bank had any such requirement.  The valuation report was prepared with regard to a proposed 25 year lease.  Mr Morgan sought a 30 year term in his 29 November 2012 offer and he agreed in cross-examination that the 30 year term was his idea.
  1. All of these matters make it highly improbable that a conversation along the lines of that set out in paragraph [50] hereof took place.

The fourth error – the finding that the third promise made was contrary to compelling inferences

The appellants’ contentions

  1. The third promise, as stated by the appellants, was that, “the first appellant would offer the first respondent the opportunity to buy the property, in the event that it decided to sell”. The pleaded case was that in a single conversation in February 2013, when all alleged representations were made, Ms Cassimatis told Mr Morgan that “the first [appellants] would offer the first [respondents] the first right to purchase the real property if the first [appellants] determined to sell the same”. The primary judge stated in paragraph [14] of the reasons:[17]

“In evidence concerning discussions at the time of the visit in November Mr Morgan said there was a discussion with [Ms Cassimatis] concerning his eventual purchase of the hotel. It was with this in mind that he wanted a ‘first right to buy’ for he wanted ‘an incentive to come back to Townsville’ as the purchase of the lease would require selling his business in Newcastle and relocating his family. In evidence he said [Ms Cassimatis] said, concerning the sale of the hotel and the business, ‘Don’t ever worry, Grant, you’ll always get the hotel’.” (citations omitted)

  1. Mr Morgan said he was content with what was set out in Ms Cassimatis’ email of 3 December 2012 under the “Option to Purchase” as it gave him what he wanted, namely “the first right to buy”.  This evidence was consistent with the appellants’ case at trial, which was that this issue was agreed upon and put to bed with Mr Morgan’s acceptance of the counter-offer by his email of 4 December 2012.
  1. The uncontroversial fact that the matter had been agreed between the parties in early December 2012 renders it implausible that the topic would have been raised again in late January or February 2013.

Consideration

  1. Mr Morgan’s affidavit evidence in relation to the right of first refusal representation is set out in subparagraph (g) in paragraph [50] above. Relevantly, he asserted, “[Ms Cassimatis] would offer me the first right to purchase the real property as constituted the Newmarket Hotel if she ever sold it”. Asked in evidence-in-chief whether there was any “further mention of the sale of the business”, Mr Morgan said that what was said in that regard was “Don’t ever worry, Grant; you’ll always get the hotel”. It is not immediately apparent why this statement, if it is to be accepted, would support the allegation of a representation that the corporate appellants would offer Morgo’s the first right to purchase the real property if the corporate appellants “determined to sell same”.
  1. There is substance in the appellants’ contention that it was unlikely that this matter would have been raised in the meeting at which Mr Muller was present. The appellants’ position had been stated in Mr Cassimatis’ 3 December 2012 email.  Mr Morgan accepted the rejection of his proposed term that there should be a right of “the first opportunity to purchase the hotel before it’s offered to the open market”.  This was despite being told in the email that “The building will essentially always be on the open market.  We will always be fielding and actively considering offers”.
  1. Mr Morgan did not raise with Mr Turnbull the possibility of amending the draft lease to include such a term when he spoke to him in January 2013 seeking changes in the proposed lease.
  1. With this background it does seem unlikely that Mr Morgan would have raised the matter with Ms Cassimatis at the meeting attended by Mr Muller. He does not contend that at that meeting he sought the granting of some contractually binding right or thought that he had been given one. He had been given assurances in the 3 December email which he had been prepared to accept and there was no need for him or Ms Cassimatis to raise the matter again.  Earlier discussion has shown that it was highly unlikely that some of the significant matters said by Mr Morgan to have been discussed at the meeting with Mr Muller would have been discussed.  Those matters were: the term of the lease; the rent of $180,000; and the sale of the business for $1.00.  Discussion in relation to the first and second promises also demonstrates that the conversations about those matters alleged by Mr Morgan were unlikely to have taken place at all, let alone at that meeting.
  1. It follows that Mr Morgan’s evidence needed to be treated with great caution. Aspects of it were so inherently improbable that it should have been accepted only where corroborated, inherently objectively probable or consistent with the appellants’ evidence or case. The allegation about what was said at the meeting in relation to the right of first refusal meets none of these criteria.
  1. The evidence also suggests Mr Morgan was unlikely to have relied on any representation by Ms Cassimatis as to “the first right to purchase the real property”.
  1. Mr Morgan accepted in cross-examination that there were no propositions put to him which induced him to enter into the business contract.  He accepted also that he did not seek to have inserted into the business contract a right of first refusal.  Earlier in his cross-examination, responding to an assertion that the absence of an option to purchase in the counter-offer of 3 December 2012 was not a “game breaker”, he said, “Yes, it was”.  Asked why he agreed to the terms of the counter-offer, he responded, “Because there were discussions that [Ms Cassimatis] and I had towards each other”.
  1. The respondents’ pleaded case, however, and Mr Morgan’s evidence was that the representations he relied on were made in the February meeting, at which Mr Muller was present.  Mr Morgan confirmed in cross-examination that the meeting was after he had signed the business agreement.  If it was the case that Mr Morgan was prepared to enter into the business agreement with the draft lease annexed prior to the representation about the right of first refusal having been made, his assertion that he relied on the representation, in effect, in ultimately executing the lease is greatly weakened.  That is particularly so because of the express refusal by the appellants of his proposed term that there be a right of “the 1st opportunity to purchase the hotel before it’s offered to the open market”.
  1. According to Mr Morgan, Ms Cassimatis was not proposing to sell the hotel for three years, at which time her expectation was that her indebtedness to her bank would be extinguished. Mr Morgan anticipated that it might take him three years to build up the business to the extent that he could obtain a bank loan to finance the purchase of the hotel. It did not seem to occur to Mr Morgan that improvements in the returns from the business were likely to be reflected in an increase in the value of the freehold. Nor could Mr Morgan sensibly have ruled out the possibility that Ms Cassimatis might not be able to extinguish her indebtedness to the bank or, for that matter, that she might die and not be able to make good any representation or promise.
  1. Even on Mr Morgan’s version of events, Ms Cassimatis gave no assurance that the freehold would not be sold before Mr Morgan was in a position to make an offer to acquire it. It will be recalled that he was told in the counter-offer email not only that the hotel would “essentially always be on the open market” but that the appellants would “always be fielding and actively considering offers”.
  1. It would have been apparent to Mr Morgan that the offer of “the first right to purchase the real property if the [appellants] determined to sell same” had very little value. The appellants had told Mr Morgan in writing that the property was on the open market.  Mr Morgan had no right to buy at a particular price.  In order to secure the property, it would have been necessary for him to better the price of any other offeror.  If the respondents’ contentions are to be accepted, the price that such an offeror would have been willing to pay would have been greater than the price Mr Morgan would or could sensibly pay.  Other offerors, on Mr Morgan’s version of events, would determine the market value of the property by reference to the term of the lease and not by reference to the alleged oral arrangements.
  1. Counsel for the respondents argued that the issue was not the commercial viability of alleged arrangements but whether “there was evidence [of representations] to induce [Mr Morgan] to enter into the contract” and “whether or not in the Fox v Percy sense there’s something completely improbable about it”.  He submitted, as he had submitted in relation to the first and second promises, that the primary judge’s findings were not “glaringly improbable” or “contrary to compelling inferences”.  He summarised why this was so as follows:

“But, in our submission, the fact that people might enter into an uninviting arrangement doesn’t mean that it’s glaringly improbable and it doesn’t mean that that points decisively and not merely persuasively to error.  So, in our submission, our learned friends haven’t satisfied the Fox v Percy test to get behind the findings of his Honour.  Especially where his Honour has, with great care, analysed the evidence and his Honour, no doubt, was conscious of the parlous condition.  His Honour makes that finding, a parlous financial condition of Mrs Cassimatis.

She wanted somebody in there.  That was her short-term aim and she had to satisfy the bank.  That was her second short-term aim.  And what she did in the end was get somebody in there to whom she had made promises and she was able to go back to the bank and at least get over that difficulty that she had.”

  1. It is convenient to consider the “seventh error” before stating any conclusions in respect of the right of first refusal issue.

The seventh error – the contract that obliged Morgo’s to execute the lease upon the transfer of the liquor license being achieved was signed by the respondents on 29 January 2013

The appellants’ contentions

  1. If the alleged representations were made after 29 January 2013, the respondents’ case of reliance was weak.  The primary judge’s conclusion that Mr Morgan would have sought to obtain the alleged concession with respect to outgoings prior to committing to any contract and lease is a questionable basis for his findings.
  1. The primary judge found that all documents had been executed on 29 January 2013.[18]  Mr Morgan’s evidence was, at first that the meeting occurred in February 2013 (and therefore after the respondents signed the contract and the lease).  By the time of the trial, his evidence was that the conversation at which Mr Morgan contended all representations were made occurred after the contract had been signed.  This misapprehension of the evidence is another error that reinforces the impression that the primary judge’s conclusions are unreliable and contrary to the evidence.

Consideration

  1. The respondents’ pleaded case was always that the subject representations were made in February prior to execution of the lease and guarantee. In his affidavit sworn on 8 October 2013, Mr Morgan swore that the subject conversation took place on an unspecified day in February 2013 prior to the signing of the lease in April 2013. He swore that he flew to Townsville and that he had his flight details. These were not put in evidence and his failure to adduce evidence to support his claims was unexplained. In evidence-in-chief he said that the subject conversations took place at the end of January on the occasion of his visit to Townsville.
  1. In response to counsel for the appellants putting to him that the meeting at which Mr Muller was present occurred in February 2013, Mr Morgan replied, “To my recollection I thought it was January”. He agreed with the appellants’ counsel that he had sworn in his first affidavit that the subject meeting was in February. Shown the relevant paragraph of his affidavit and asked, “Well, which was the truth? Was it in February or was it in January?” he responded, “It would have to be February”. Later in the cross-examination, Mr Morgan admitted that the subject meeting took place after he had signed the business contract. The “Date of Contract” is stated in that document as 31 January 2013 and 18 February 2013 is nominated as the date of completion.  A proposed lease of the hotel premises was also signed on behalf of Morgo’s Leisure on 29 January and by the first and second appellants on 31 January 2013.
  1. The actual lease of the hotel premises, in substantially the same terms as the earlier draft lease, was signed on 17 March 2013 by the first and second appellants and on 19 March 2013 by Morgo’s Leisure. The draft lease and the lease had different commencement dates and:
  1. the rent was changed from exclusive of GST under the draft to inclusive of GST under the lease; and
  2. a security bond requirement was not included in the lease.
  1. The primary judge said in paragraph [15] of his reasons, addressing Mr Morgan’s cross-examination about the date of the meeting:

“His evidence was that he thought the representations had been made at a meeting in January but after being shown his affidavit he accepted that the meeting may have occurred in February consistently with his affidavit and that may have been after he signed the contract to purchase the business which is exhibit 6.”

  1. The following passage from Mr Morgan’s cross-examination is instructive:

“Now, the reality of the matter, sir, is this: that if that meeting had taken place in February, you then signed the contract prior to it being - to that meeting taking place. Would you agree with that or not?---The contract that was dated January 31st? Yes.

So if in fact the meeting had taken place in February, it’s taken place after you’ve already entered into the contract to purchase the business and after you’d entered into the lease agreement That’s so, isn’t it?---Yes.

Right. So we’re in agreement that meeting has taken place after you have already signed up on the 31st January?---Yes.

Now, then insofar as any other representations were made, how often did you come to Townsville in January?---Once.

Once. And you came up on the 31st essentially to sign off and settle the contract for the sale of the business and the lease?---Picked up the contract, yes.

So at no stage in January were you actually – you say you couldn’t have any other meeting with Toula at the hotel concerning this in January, could you?---Not at the hotel, no.”

  1. Mr Morgan’s acceptance that the business sale agreement was signed before the meeting with Mr Muller was ultimately unqualified. The primary judge appears not to have understood this and to have disregarded the last two questions and answers which supported the conclusion that the meeting with Mr Muller was not in January 2013.
  1. In view of the foregoing and the lack of credence able to be placed on Mr Morgan’s evidence unless corroborated or against interest, the primary judge, in my view, erred in finding that there was a meeting in late January between Mr Muller, Ms Cassimatis and Mr Morgan in which the third representation was made.[19]

Summary of principles and conclusions in respect of the second, third and seventh errors

  1. In Fox v Percy,[20] Gleeson CJ, Gummow and Kirby JJ described Devries v Australian National Railways Commission[21] as one of three cases which, in reminding of the limits under which appellate judges typically operate when compared with trial judges, did not depart from established doctrine.
  1. In Devries, Brennan, Gaudron and McHugh JJ said:

“More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact.[22]  If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge ‘has failed to use or has palpably misused his advantage’ or has acted on evidence which was ‘inconsistent with facts incontrovertibly established by the evidence’ or which was ‘glaringly improbable’.” (citations omitted)

  1. In Fox v Percy,[23] in discussing the circumstances in which an appellate court might depart from a trial judge’s findings of fact, said:

“[T]he mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.

That this is so is demonstrated in several recent decisions of this Court. In some, quite rare, cases, although the facts fall short of being ‘incontrovertible’, an appellate conclusion may be reached that the decision at trial is ‘glaringly improbable’ or ‘contrary to compelling inferences’ in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must ‘not shrink from giving effect to’ its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.” (citations omitted)

  1. In my respectful opinion, the earlier discussions show that in finding for the respondents in respect of the first, second and third promises, the primary judge “failed to use or has palpably misused his advantage” and has acted on evidence which was “glaringly improbable” and “contrary to compelling inferences”.
  1. Why the fact finding miscarried is explicable, at least in part, by the manner in which the case proceeded. The trial was expedited. The parties sought an urgent determination and the reasons were given very expeditiously. Because of this urgency, oral and documentary evidence was usually limited. Cross-examinations and addresses were also truncated with the result that the consequences of accepting Mr Morgan’s account of events were left substantially unexplored.
  1. As previously discussed, the glaring improbability of Mr Morgan’s evidence in relation to the second representation, in particular, falsifies the primary judge’s findings as to his credibility. Mr Morgan’s evidence in respect of the first representation also strains credulity and is contrary to compelling inferences. Mr Morgan’s evidence in respect of the third representation is also far from compelling, even putting aside the demonstrated unreliability of his evidence.  When that is taken into account, as it must be, the inevitable conclusion is that the respondents failed to prove on the balance of probabilities that the third representation was made.  Even if the respondents had proved that the third representation was made, they would have failed to establish that they relied on it in entering into the lease and guarantee.

The fifth error – the primary judge erred in not making a clear finding that Morgo’s had been informed that the property was for sale in the second half of 2013 and that, as a result, the promise made as a matter of “courtesy” had been complied with in that Morgo’s was afforded an opportunity to purchase the property

The appellants’ contentions

  1. Ms Cassimatis gave evidence that on 26 June 2013 she told Mr Morgan that she was listing the property for sale. The primary judge rejected this evidence without explaining why. Mr Cusack gave evidence that on 19 July 2013 he called Mr Morgan, told him that he had been engaged by Ms Cassimatis to sell the hotel and sought Mr Morgan’s permission to bring a prospective buyer to inspect the hotel.  He said that he attended the hotel with a prospective buyer on 22 July 2013 and introduced the prospective buyer, Mr Simpson, to Mr Morgan.  Mr Morgan showed Mr Simpson around the property.  Mr Morgan denied that the telephone call had occurred and that Mr Cusack had told him that he had been retained by Ms Cassimatis to sell the hotel.  He claimed that Mr Cusack and two other men were simply lunching at the hotel although conceding that he showed Mr Simpson around the hotel and told him that he (Mr Morgan) had a “first right” to the hotel.
  1. The primary judge, although accepting that the visit occurred and that Mr Morgan had shown a person around the hotel, expressed reservations about whether Mr Cusack told Mr Morgan that he had been engaged by Ms Cassimatis to sell the hotel.  No elucidation of the basis for the reservation was given.  That Mr Cusack would introduce himself in this way is plausible given that he had in fact been formally appointed to act as agent and was seeking Mr Morgan’s permission to show a prospective purchaser over the property.

Consideration

  1. The respondents argued, and I accept, that there was evidence capable of justifying the subject findings of the primary judge. It was:
  1. Mr Morgan denied being told by Mr Cusack that he had been engaged by Ms Cassimatis as an agent to sell the hotel.
  2. Mr Cusack had a financial interest in asserting to the contrary.
  3. Mr Cusack and Mr Morgan seem not to have been on friendly terms: Mr Cusack as Ms Cassimatis’ managing agent was robustly rebuffed when he demanded a rental payment of Mr Morgan.  He accepted that he was not then “on the best of terms with Mr Morgan”.
  4. Mr Simpson, the person said to have been introduced by Mr Cusack as the prospective buyer of the hotel, and his agent, who was said to have been present at the time, were not called to give evidence and their absence was unexplained.  Mr Cusack said that he had regular dealings with the agent and that Mr Simpson was a solicitor practising in Brisbane.
  5. Mr Cusack appeared to be aggressive and confrontational when giving his evidence.

The sixth error – the primary judge’s findings of dishonesty are contrary to inferences compelled by the evidence and the primary judge appeared not to have applied the Briginshaw test[24]

The appellants’ contentions

  1. The respondents’ case that Ms Cassimatis promised to reduce the rent to about $120,000 per year after about three years, to pay the outgoings and to give the respondents a first right to buy the hotel at any time when her intention was to the contrary was not put to her in cross-examination. The reasons make no reference to this. The primary judge’s findings are irreconcilable with the evidence that Ms Cassimatis and Mr Morgan were good friends in early 2013 when the representations were allegedly made and contrary to Ms Cassimatis’ expressed preference to hold the property until Morgo’s had established a profitable business and cemented itself as a reliable tenant, thereby improving the property’s value.  The conclusion also overlooked the evidence that Ms Cassimatis’ preference was corroborated by contemporaneous independent bank records which revealed that as at 11 February 2013 Ms Cassimatis had applied for a further advance to permit debts to be paid so that she and the lessors would be left with a clean slate to commence life as a long term recipient of rental income.  The reasons do not refer to this evidence, yet it provides a firm basis for concluding that, had the representations been made, Ms Cassimatis would have had no reason to depart from them as of January or February 2013.
  1. The change in the relationship between Ms Cassimatis and Mr Morgan after May 2013 and other matters could explain why she acted inconsistently with the alleged promises. Mr Morgan received a text message from Ms Cassimatis on 29 May 2013 which stated:

“Hi Grant cancelling Friday’s meeting I don’t believe it will achieve anything face to face Please issue Cameron Turnbull any issues you may have with the building or the lease in writing from hereon I acknowledge receipt of your email to Cameron regarding plumbing and that you intend to litigate No need to return any of my calls I will liaise with you in writing as things pop up Kind Regards Toula”

  1. The sale in late 2013 was necessitated by financial pressure and there was no evidence that the appellants did anything to solicit any offer to purchase the property between late 2012 and early July 2013 when Mr Cusack was appointed as agent to sell it. In fact, the respondents conducted their case on the basis that it was the change in the appellants’ circumstances that prompted the sale, without extending the benefits that had allegedly been promised. Senior counsel for the respondents informed the primary judge in the course of the respondents’ case that:

“… between December 2012 and June 2013, or July 2013 the [appellants’ group] ran into a remarkable financial problem and it’s the [respondents’] case that this resulted in the necessity to sell the hotel and to sell it without honouring the promises that had been made, that which had been represented.”

  1. The arguments advanced by the appellants have substance. Obviously, it does not follow from the fact that the appellants did not advise the respondents, contrary to earlier assurances, that they would be informed of any impending sale and that they would have an opportunity to make an offer to purchase, that at the time of making any such representation there was no intention to honour it. However, in view of the foregoing conclusion that the respondents failed to prove the first, second and third promises, it is unnecessary to make findings in respect of the sixth error. I propose therefore to only make some limited observations on the arguments advanced.
  1. The appellants relied on the rule in Browne v Dunn.[25]  The rule was explained as follows by Hunt J in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation:[26]

“It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner’s intention to rely upon such matters, it is necessary to put to an opponent’s witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn. That rule of practice follows from what I have always believed to be rules of conduct which are essential to fair play at the trial and which are generally regarded as being established by the decision of the House of Lords in Browne v Dunn.” (citations omitted)

  1. The consequences of breaching the rule depend on the circumstances in which the rule is breached. In R v Birks,[27] Gleeson CJ, in discussing the circumstances in which breach of the rule may lead to the drawing of adverse inferences, said:[28]

“It is one thing to remark upon the fact that a witness or a party appears to have been treated unfairly. It is quite another thing to comment that the evidence or unsworn statement of a person should be disbelieved, perhaps as a recent invention, because it raises matters that were not put in cross-examination to other witnesses by that person’s counsel. Depending upon the circumstances of the case either or both of those comments may be available: see, eg, R v Robinson. However, especially in a criminal trial, there are considerations which may indicate the need for caution.” (citations omitted)

  1. Gleeson CJ adopted the following views of King CJ in R v Manunta, which, although relating to a criminal jury trial, have general relevance for present purposes:[29]

“It seems to me that the failure of counsel to cross-examine the police officers on the topic left open the inference that the challenge to the notes was an afterthought on the part of the appellant and was simply a lie told in cross-examination because he thought it would serve his interests. The cogency of such an inference might be open to question. It is possible that the idea that the police were referring to notes other than those made at the time might not have occurred either to the appellant or to his legal advisers. The appellant may have realised it only when the notes were placed in his hands during cross-examination. No such explanation, however, was elicited in re-examination. I think that the point was open for the consideration of the jury; its weight was for them to determine.

I have been concerned about the prominence which the learned judge gave to these matters in the course of the summing-up. It is legitimate, of course, to draw appropriate conclusions from counsel’s failure to put in cross-examination some matter to which his client or his witnesses subsequently depose. It is a process of reasoning, however, which is fraught with peril and should therefore be used only with much caution and circumspection. There may be many explanations of the omission which do not reflect upon the credibility of the witnesses. Counsel may have misunderstood his instructions. The witnesses may not have been fully co-operative in providing statements. Forensic pressures may have resulted in looseness or in exactitude in the framing of questions. The matter might simply have been overlooked. I think that where the possibility of drawing an adverse inference is left to the jury, the jury should be assisted, generally speaking, by some reference to the sort of factors which I have mentioned. Jurors are not familiar with the course of trial or preparation for trial and such considerations may not enter spontaneously into their minds.”

  1. Counsel for the appellant also placed reliance on the observations of Gummow, Kirby and Callinan JJ in MWJ v The Queen.[30]
  1. The respondents contended that it was unnecessary to put to Ms Cassimatis the matters the appellants claim should have been put because the issues were squarely raised on the pleadings and in affidavits. In this regard, it was submitted that the parties’ respective cases as pleaded and stated in affidavits were stark. Mr Morgan asserted that the subject representations were made in conversation with Ms Cassimatis.  Ms Cassimatis asserted that no such conversations had been held.
  1. The respondents relied in this regard on the following observation of the Court in Flower & Hart v White Industries (Qld) Pty Ltd:[31]

“As a general rule, before an adverse finding is made against a witness in contradiction of sworn testimony given by that witness, a matter in issue, the subject of that finding, must be put to the witness in cross-examination to enable him or her to give an explanation. However, there can be no need to put such an issue to a witness who has notice that there is other material in the proceedings that will be relied upon to contradict the evidence of the witness: see Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth); R Cross, Cross on Evidence.” (citations omitted)

  1. Even if there was no obligation on the part of the respondents’ counsel to cross-examine, the failure to do so gave rise to the dangers identified in the reasons of the Court in Curwen v Vanbreck Pty Ltd:[32]

“If the appellants’ submission is accepted without qualification, the fact that the party calling the witness is on notice that it is intended to challenge the witness’s evidence or impugn the witness or party’s conduct in a particular way means that compliance with the rule in that circumstance is no longer obligatory. But whatever the effect of ‘notice’, the burden of persuasion as to that fact does not shift. It remains upon the party who seeks to establish the allegation. The cross-examiner who because of ‘notice’ refrains from ‘putting’ the allegations to the witness embarks upon a potentially dangerous forensic course. The tribunal may not be persuaded of the fact in issue if there is no cross-examination on the issue. That risk increases where the party who makes the allegation can adduce no direct evidence as to it and the other party, having adduced no evidence in chief as to the issue, is not cross-examined.”

  1. I note that it was never put to Ms Cassimatis that she was prepared to offer Mr Morgan virtually anything he asked for so as to obtain a 30 year lease with written terms as to rent and otherwise which would be attractive to potential purchasers and facilitate the prompt sale of the hotel.
  1. What was put was merely:

“And what you sought to do is to make him promises that wouldn’t be made known to the bank, so that once you disposed of your banking problem, there would be a benefit to him?”

Conclusion

  1. For the above reasons, I would order that the declaration in paragraph 1 of the orders made herein on 21 November 2013 and paragraph 2 of those orders be set aside.
  1. I would direct that:
  1. within seven (7) days of today’s date the appellants file and serve submissions as to any further orders to reflect the reasons of this Court including orders as to costs; and
  2. within seven (7) days of service on the respondents of such submissions they file and serve any submissions in reply.
  1. GOTTERSON JA:  I agree with the orders proposed by Muir JA and with the reasons given by his Honour. 
  1. HENRY J:  I have read the reasons of Muir JA.  I agree with those reasons and the orders proposed.

Footnotes

[1] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [35].

[2] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [8].

[3] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [8].

[4] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [10].

[5] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [14].

[6] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [14].

[7] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [37].

[8] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [36] and [38]–[39].

[9] In his evidence-in-chief, Mr Morgan said that his discussion with Ms Cassimatis about the payment of the outgoings by the first appellant took place in the presence of a Mr Muller, an insurance agent.

[10] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [39].

[11] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [44], [45] and [48].

[12] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [53].

[13] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [42].

[14] Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133.

[15] Mr Morgan swore in his evidence-in-chief that the meeting was at “the end of January”.  In cross-examination he said that the meeting “would have to be February”.

[16] Mr Morgan accepted in cross-examination that there was no “suggestion of purchasing the property for $1” in the meeting attended by Mr Muller.

[17] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [14].

[18] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [34].

[19] Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 at [39] and [41].

[20] (2003) 214 CLR 118 at 127.

[21] (1993) 177 CLR 472 at 479.

[22] See Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842; Jones v Hyde (1989) 63 ALJR 349; Abalos v Australian Postal Commission (1990) 171 CLR 167.

[23] (2003) 214 CLR 118 at 128.

[24] Briginshaw v Briginshaw (1938) 60 CLR 336.

[25] (1893) 6 R 67.

[26] [1983] 1 NSWLR 1 at 16.

[27] (1990) 19 NSWLR 677.

[28] R v Birks (1990) 19 NSWLR 677 at 690–691.

[29] (1989) 54 SASR 17 at 22–23.

[30] (2005) 80 ALJR 329 at 339.

[31] (1999) 87 FCR 134 at 148.

[32] (2009) 26 VR 335 at 349.

Close

Editorial Notes

  • Published Case Name:

    Toula Holdings Pty Ltd & Ors v Morgo's Leisure Pty Ltd & Ors

  • Shortened Case Name:

    Toula Holdings Pty Ltd v Morgo's Leisure Pty Ltd

  • MNC:

    [2014] QCA 201

  • Court:

    QCA

  • Judge(s):

    Muir JA, Gotterson JA, Henry J

  • Date:

    22 Aug 2014

Litigation History

Event Citation or File Date Notes
Primary Judgment [2013] QSC 325 21 Nov 2013 -
Appeal Determined (QCA) [2014] QCA 201 22 Aug 2014 -

Appeal Status

{solid} Appeal Determined (QCA)