Conias v Highpoint Pty Ltd[1998] QDC 39

[Before Brabazon QC DCJ]

[A & CA Conias v Highpoint P/L]

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JUDGMENT

Judgment delivered: 6 March 1998

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REASONS FOR JUDGMENT - JUDGE BRARAZON Q.C.

Delivered the 6th day of March, 1998

In Waterworks Road, Ashgrove, Brisbane, there is a shopping centre called Highpoint. The main building consists of a basement carpark, a floor level, and an upper level.

Shop No 17 is on the upper level. Mr and Mrs Conias became tenants in the shopping centre when they signed a lease in October 1989. The lease was for five years. However, they left the centre on 31st January 1993, some 3½ years later. For years now, there has been a dispute between them and the owner of the shopping centre, Highpoint Pty Ltd. Were they justified in leaving, and not paying any more rent? They say they were. Highpoint disagrees, and claims unpaid rent, and interest, in its counterclaim.

In early 1989, Mr Conias was an experienced real estate agent. He had his office in Ashgrove, not far away from Highpoint. He wanted to move, and became interested in going to Highpoint. At that time the construction of Highpoint was not quite complete. A developer, Mr Jack De Longa, had started the building but got into financial trouble. It was sold to Highpoint Pty Ltd. Another developer, Mr Lou Ferro, is the principal of that company. When Mr Conias looked at the unfinished building, Mr Ferro was trying to get it ready for its first tenants. He appointed leasing agents to act on behalf of his company. His leasing agent was Mr Gary Unsworth-Smith, who was the principal of Gary Unsworth-Smith Real Estate Pty Ltd, trading as The Professionals, in the city. Mr Unsworth-Smith was also experienced in real estate matters. He employed a salesman called Alan Riches.

At first, Mr Conias asked his manager, Mr Vince Byrne, to make some enquiries about a possible office in Highpoint. Mr Byrne got in touch with Mr Riches. That was by telephone. Their discussion led to a meeting on site, and Mr Conias joined them. Also, there were numerous telephone conversations, about the usual details of leasing. Mr Conias said in evidence that he spoke to Mr Unsworth-Smith on site, but he was mistaken about that. Almost nine years has now passed, and it must be that his memory of events has faded, and become confused. All the important conversations took part between Mr Riches and Messrs Conias and Byrne. Mr Conias did not speak to Mr Unsworth-Smith about the lease until 30 August 1996 when he telephoned him to talk about these legal proceedings.

When the three men met on site, Messrs Conias and Byrne made it clear that the only part of the building that would suit them would be on the front, looking towards Waterworks Road. The tenancies at the rear were of no interest to them, as those tenancies did not have any exposure to the road. That is what they said they wanted, as real estate agents.

As it happened, there were four tenancies that might have been suitable. Two on the ground floor were already committed to other tenants, and that left two on the first floor.

Mr Riches disappeared years ago, so that Mr Conias's account of what was said to him, and by him, was not contradicted. It became clear at the trial that Mr Conias's evidence about those things suffered from the passing of time, and that a degree of reconstruction and confusion had affected his memory of events so long ago. It may be accepted that Mr Conias made it clear to him, that he wanted an office that not only overlooked Waterworks Road, but also overlooked the entrance to the shopping centre. He said that he wanted everyone who entered the shopping centre to see where they were. He asked if he could have a large sign on the front of the office, and Mr Riches said that he could. It was to be a neon sign.

After conversation about other details, the men walked up a ramp on the western side of the building and onto the flat roof. The roof was designed for the parking of 50 or 60 cars. According to Mr Conias, Mr Riches pointed out that a considerable proportion of all the parking was on the roof, and that everybody who parked up there would walk down past that part of the centre which contained the office they had been discussing. That was said to be an attractive feature of that tenancy. Mr Conias wanted to know how the cars would get onto the roof. Mr Riches indicated that they came through the front entrance, in front of the tenancy, then turned to their right, and drove up the ramp onto the roof.

The entrance in which Mr Conias was interested was just about directly in front of the proposed tenancy. As the Highpoint land sloped down from Waterworks Road, cars leaving Waterworks Road to enter the shopping centre, would drive down a slope, before entering the basement carpark. That was the apparent position, for the uncompleted building, when Messrs Conias and Byrne inspected it.

At the time of the inspection, the Brisbane City Council had given approval for Highpoint's architects to complete the centre as they proposed. The effect of that approval, and the approved plans, meant that the true state of affairs as they were soon expected to be was rather different to that which Mr Conias and Mr Byrne observed. First, the rooftop parking area was not approved. It was a condition of the building approval that it be blocked off to vehicles by landscaping. Secondly, the entrance which Mr Conias observed, in front of the proposed tenancy, was really only an interim service vehicle access point. Under the conditions of approval, gates had to be provided to limit access to service vehicles. Thirdly, the approved plans showed that the principal entrance was to be about 40 metres to the east, in line with the additions that Highpoint had proposed to the De Longa building. That change of the apparent entrance to another one, 40 metres away, meant that the permanent entrance would be on the other side of two buildings which were on Waterworks Road, immediately in front of the shopping centre. The entrance, as Mr Conias would have observed it, was immediately to the west of a Commonwealth Bank building. As the plans showed, when the centre was finished, the entrance would be immediately to the east of a small building which adjoined the Commonwealth Bank building. That is the distance of 40 metres or so.

Mr Conias actually moved into the new office before signing the lease, and before the shopping centre received its certificate of classification, allowing lawful occupancy. During that time, he realized the true position about the rooftop carpark - customers were not going to be allowed to park their cars there. He made no complaint about that. He said that he knew nothing about the permanent entrance for a long time after signing the lease. However, the weight of evidence is against his recollection. The position of the main entrance must have been apparent to him by the time he signed the lease, on 19th October 1989. The entrance in front of his tenancy remained open to members of the public for a long time after the first tenants moved in. During that time both entrances were open. I accept that Mr Conias personally used the entrance immediately in front of his office, as did Mr McCarthy, the pharmacist.

Both the Highpoint Centre and Mr Conias went through unhappy times, after the centre opened. The centre has never been a success. It is badly designed, and on an awkward part of Waterworks Road, from the point of view of access. It competes with busy and established shops on the other side of Waterworks Road. There has always been difficulty in obtaining tenants for it. Mr Conias's new office always made a profit. However, by about 1992, he was under financial pressure because of some difficulty that he had with another business project elsewhere. He fell behind in paying the rent.

Then, in about the middle of 1992, the entrance in front of his office, which had always been intended to be temporary, was finally closed to the public. The actual closure seems to have been connected with a road widening project carried out by the Council, anticipated in the building approval. The closing of the entrance prompted him to write to Highpoint's leasing agent:

The parties were not able to agree about those differences. Mr Conias vacated the office on 31st January 1993. He then regarded the lease as being at an end, as a result of Highpoint's action in closing the original entrance.

Mr and Mrs Conias issued a plaint on 21 June 1993, relying on s.52 of the Trade Practices Act. They alleged that Highpoint, by its agents, had engaged in misleading or deceptive conduct in not making it clear that the entrance in front of the proposed real estate office was only temporary. Essentially, the complaint was and always has been, that there was silence when the facts demanded that the true position be explained.

When the action came on for trial, there was an application to amend the plaint, by adding claims for innocent misrepresentation and negligence. That application was reserved, as Mr Bell Q.C. for Highpoint resisted the addition of new causes of action which might otherwise be out of time. However, because the new causes of action arise almost entirely out of the same facts, it is appropriate that leave be given to make the amendments. See Rule 104 and the decision of the Full Court in Adam v Shiavon 1985 1 Qd.R. 1.

(There was also an application to add an allegation of fraud. That was refused, because of its lateness. As the evidence unfolded, it became clear that the conduct of the defendant and its agents could not amount to fraud, in any case).

Whatever the cause of action, Mr and Mrs Conias have to show that a material misrepresentation was made, that it was relied on by them, and that they suffered, or were likely to suffer, some damage as a result. Here, accepting that a misrepresentation was made, the facts do not show that it was of any importance, or that Mr Conias relied upon the continuing presence of the original entrance to the extent that he complained of. His failure to complain about the absence of rooftop carparking, the fact that he must have realised for a long time that the main entrance was 40 metres to the east, the fact that he was under financial pressure and could move to a new office nearby and pay less rent there, and the fact that he accepted the lease up to mid-1992, all lead to the conclusion that, in reality, the closing of the entrance was not a significant event. It did stop motorists (though not pedestrians) from entering the shopping centre at that point, but the actual contribution that stream of traffic made to public exposure of his office is very doubtful. Inbound motorists on Waterworks Road could see the sign in any case, as could pedestrian shoppers on the other side of the road. Outbound motorists could also see it, if they looked to their left. The true impact of the closure of the entrance on the real estate business has to be kept in mind. All things considered, by mid-1992, it had become a minor feature of the financial performance of the real estate office. It should also not be forgotten, that the office was on the first floor, and not the ground floor. It was not in the best position to attract passing customers, in any event.

Any misrepresentation about that entrance had ceased to have any significance, practical or legal, long before the middle of 1992.

Mr Conias said that his business suffered loss because of the closure. According to some records that he kept, his sales in the seven months before the closure were $147,000, but then fell to $118,00 in the seven months after the closure. Likewise, he said there were 100 tenants on the office's rent roll in July 1992, but only 84 tenants by September or October.

There was a controversy at the trial as to whether or not Mr Conias had given discovery of the best records of the office's financial performance. It appeared that he had not done so. The records he produced in court were incomplete. Their evidence is not sufficient to show that any actual loss was suffered. There was also an issue as to whether there was evidence or not, as to a likelihood of loss being suffered. That had to be demonstrated, and the financial evidence did not do that. I accept the evidence of the accountant, Mr Vincent, in that respect. Assuming a misrepresentation, it cannot be sued upon here because of its lack of materiality, and the absence of provable damage, or likely damage.

If the misrepresentation were material, and damage was suffered, or was likely, then Mr and Mrs Conias could rely on s.87 of the Trade Practices Act. That statute provides that:

Here, because of the change to the rooftop parking and the principal entrance, it is appropriate the time should run from the signing of the lease. Enough of the true position had then become clear, to make it just that time began running against any claim that Mr and Mrs Conias might have had. The consequence is that the three year limitation period expired on 26 October 1992 - before the plaint was issued. See the decision of the Full Federal Court in Demagogue Pty Ltd v Ramensky (1993) ATPR 41-203, and the decision of the High Court of Australia in Western Australia v Wardley Australia 175 CLR 514.

The common law claims have a six year limitation period, and so would be within time, as the amendment dates back to the issue of the plaint. Those claims were that with the submission, that there is no right in principle to rescind an executed lease, where there has been misrepresentation, without any fraud. The traditional view has always been that rescission is not available after execution of a contract, especially one for an interest in real property. There have been suggestions in this country that the principle is not universal. See, with respect to a sale of goods, the decision in Leason Pty Ltd v Princes Farm Pty Ltd 1983 2 NSWLR 381. It was held that an executed contract of sale of a chattel might be rescinded on the ground of innocent misrepresentation.

To the contrary effect, is the later New South Wales case, of Vimig Pty Ltd v Contract Toohey Pty Ltd 1986 9 NSWLR 731. There, Mr Justice Wood held that an executed contract for the sale of a business might not be rescinded for innocent misrepresentation. As this is a dispute over an executed lease, the later decision should be followed.

Also, clause 16.06 of the lease sets out to make the lease itself the entire record of the parties' transaction. In it Mr and Mrs Conias agree they did not rely on any other representation. While such clauses are not effective against otherwise valid claims under s.52 or for fraud, they are an effective shield against claims for misrepresentation or negligence.

Because of the findings of fact, it is unnecessary to consider the possibility of a claim for compensation under the Retail Shop Leases Act.

Therefore, Mr and Mrs Conias fail in their attack upon the validity and effect of their lease. They were not entitled to rescind it, and this Court is not in a position to rescind it. They were in breach of the lease when they left the office. How much will they have to pay Highpoint? There were disputes at the trial about the appropriate damages that it should recover.

Mr Conias persuaded Highpoint to give him a rent holiday for the first 12 months. The base rental was $25,900 a year. It was agreed that it should be reduced by 50%, to $12,950. The agreement about the reduction appears in the special conditions of the letter of intent signed on 4th June 1989; paragraph 1(e) of the Memorandum of 8th June 1989, and in clause 2.02 of the lease. That clause refers to the payment of base rental, and then continues:

Highpoint's solicitors, in a letter of 15th April 1993, demanded payment of the $12,950. Mr and Mrs Conias resisted payment for two reasons. First, it is suggested for them, on the proper construction of the clause quoted above, the possibility of paying the full amount on demand can only arise out of a breach during that twelve month period. In that case, nothing would be payable, because it is common ground that no breach of any obligation is alleged during the first twelve months.

Alternatively, if the clause should refer to breach of an obligation at any time during the full five year period of the lease, then it is submitted that it is a penalty, and unenforceable. Reference was made to the decisions of the High Court in O'Dea v Allstates Leasing System (1983) 152 C.L.R. 159 and Lamson Store Service v Russell Wilkins & Sons (1906) 4 C.L.R. 672, and Acron Pacific Ltd v Offshore Oil N.L. 1985 157 C.L.R. 514.

In my opinion, this clause does not come within the “indulgence” category of permissible clauses. Rather, it grants absolutely the reduction in rent for the first year, and then continues with a threat to recover the money at any time during the remainder of the lease, if there is a breach of obligation, no matter when committed, and no matter how trivial. The true compensation for that breach may be nothing like the $12,950. The law does not permit such an unfair arrangement which is designed to punish any default. The clause is a penalty, and unenforceable.

Therefore, whichever construction of the clause is preferred, the result is that Mr and Mrs Conias do not have to pay the $12,950.

There was also a controversy about the fate of further reductions of rental, agreed after the end of the first twelve months. It appears from the L.J. Hooker letter of 15th January 1991, and another undated letter following shortly afterwards, that the 50% rent holiday was extended by agreement for the months of October, November, December 1990, and January and February 1991. It then appears that there was an agreement for Mr and Mrs Conias to pay 75% of the base rental, for the six months from 1st March 1991 to 1st September 1991.

They paid those reduced amounts, and were not in breach of any obligation during that time. However, Highpoint now seeks to recover the money from them. It has made a demand. It submits there is no consideration for the reductions, and that they are recoverable. Mr and Mrs Conias say that there was a variation of the lease, that the right to payment of the full rental had been waived, and that Highpoint should now be estopped from claiming full rental. They also point to some Magistrates Court proceedings which were taken by Highpoint, in October 1992.

Those proceedings can be shortly summarised. By September 1992, Mr and Mrs Conias had fallen behind in the payment of rent. Details appear in Highpoint's solicitor's letter of 18th September 1992 - they had failed to pay the rent and outgoings for July, August and September 1992, a total of $7,359.77. That demand was not met. In a plaint dated 19th October 1992, an action was commenced against them to recover the $7,359.77. The statement of particulars and claims gave no further particulars of how that sum was calculated, or to which period of the lease it related. But the correspondence makes it clear what was being claimed.

Mr and Mrs Conias did not contest the claim. In a letter of 13th November 1992, they admitted the obligation to pay the amount claimed. When some further costs, rent and outgoings were added, they admitted to a total amount outstanding up to January 1993 of $12,796.21. However, they did not pay it. In the result, judgment was entered against them for the $7,359.77, together with costs and interest, to 15th January 1993.

The further rent holiday arrangements could have been incorporated into the lease by a formal variation of lease document. They would then have been enforceable, to the same extent as the terms of the original lease. But that was not done. The arrangements were not supported by consideration - that is, in the eyes of the law, they gave nothing of value to Highpoint in return for them. The law allows Highpoint to ignore the arrangements and sue for the money.

No question of a penalty arises, as it would if the arrangement were a variation of Clause 2.02. Rather, the agreements for the reductions can be ignored by Highpoint. At law, it is entitled to all the unpaid rent. It was submitted that, in equity, Highpoint should be estopped from resiling from the arrangement. However, no relevant prejudice can be identified. There is no estoppel.

It was submitted that Highpoint should not be allowed to retreat from the position asserted in the Magistrates Court, making no mention of the present claims. Reliance was placed on the High Court decision in Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 589. There, a second action was stayed, as it was unreasonable not to have raised it in the first action since it would have been a defence in the first action and was closely connected with the subject matter of the first action. A judgment in the second action would conflict with the judgment in the joint action. The Anshun principle only applies where claims are based on the same facts. See Bryant v. Commonwealth Bank of Australia (1995) 57 FCR 287.

That is not this case. There is no conflict between the two judgments. In addition, Clause 13.03 of the lease provides that Highpoint can bring separate suits for the different amounts of outstanding rent.

Therefore, Highpoint is entitled to recover the following amounts which are set out in Exhibit 2:

According to the terms of the lease, simple interest on the outstanding balance is payable at 18.5%. The total interest is $64,946.

The claims of Mr and Mrs Conias and the third party proceedings are dismissed. Highpoint Pty Ltd is entitled to judgment on its counterclaim for $77,435.56, together with interest of $64,946, a total of $142,381. Subject to any submissions by counsel, Mr and Mrs Conias are ordered to pay both Highpoint's costs and the costs of the third parties of the action to be taxed on the scale where the judgment recovered exceeds $50,000.