Carpet Fashion Pty Limited v Forma Holdings Pty Limited

The plaintiff, Carpet Fashion Pty Ltd ["Carpet Fashion"] has since 1973 carried on the business of retail sale of carpet, carpet underlay, rugs, floor coverings, vinyl and timber flooring at various shopping centres and shops throughout Sydney. These items are principally installed in residences and to a lesser extent commercial premises.

Carpet Fashion brings these proceedings in relation to representations which it alleges were made during its inquiries directed to the defendant, Forma Holdings Pty Ltd ["Forma"], concerning the leasing of a shop in a shopping centre owned by Forma at the corner of Homebush Bay Drive and Underwood Road, Homebush, New South Wales. The centre was known as " HIA Building and Renovata Supa Centre " ["the Centre"].

By registered lease 3438596R, Carpet Fashion became the lessee of Shops 7E and 7F on level 3 of the centre for a term of five years from 18 March 1997 (“the lease”). The lease permitted Carpet Fashion to use Shops 7E and 7F for the retail sale of carpets and floor coverings and provided for an option to renew for another term of five years.

Carpet Fashion conducted a retail shop business from its premises in the Centre until it purported to terminate the lease on 18 September 2000. It subsequently ceased trading and vacated the premises on 30 November 2000.

Carpet Fashion's claim for damages is founded on two asserted causes of action: · the contention that Forma made a certain representation to it [“the representation”] that was misleading or deceptive or likely to mislead or deceive (in contravention of section 52 of the Trade Practices Act 1974) [“the Act”] and that the lease was entered into in reliance on that representation. · the contention that Forma, by its actions since the grant of the lease derogated from the grant of the lease. The representational case The alleged representation

The alleged representation was “that the Centre was to be used exclusively for the sale of bulky goods and retail sales of products, used in the home building and renovation industry”. Particulars of the representation as pleaded were as follows: (a) Advertising brochures (b) Conversation with the Defendant’s officer or representative Mr Sid Londish on a number of occasions prior to November, 1996. The substance of the conversations between Mr Glyn John, the principal of the Plaintiff, and Mr Londish was to the following effect: (i) That the centre would be the hub of Sydney in home renovations. (ii) That the centre would be the biggest bathroom and kitchen display in Sydney. (iii) That the Defendant’s research had shown that these bathroom and kitchen elements were the crucial components in successful home renovation centres and would attract a lot of customers to the centre. (iv) That the centre was going to be the biggest home renovation centre in the southern hemisphere and when Woolworths moved out, the centre would take over their space. (v) That floor coverings were a necessary part of the centre. (vi) There were plans to extend the centre over the roof area to permit more home renovation businesses. (vii) The defendant had development consent to use the centre as a home renovation centre. (viii) That the centre would be laid out specifically for use as a home renovation centre. (ix) The floor was inlaid with a sign “HIA Renovator Super Centre”. (c) The Retail Leases Act disclosure statement received prior entering into the lease The derogation from grant/breach of lease cases

Fashion also claims that: · actions of Forma in changing the usage of the Centre constituted a derogation from grant by reason of which it suffered loss and damage · the giving by Forma to Carpet Fashion of a "Relocation Notice" - requiring Carpet Fashion to vacate the premises on 4 December 2000, - notifying Carpet Fashion that the existing lease would terminate on that date, constituted a repudiation of the lease, accepted by Carpet Fashion which terminated the lease on 18 September 2000. Damages are claimed in this regard.

No cause of action was pressed pursuant to the Retail Leases Act 1994 (NSW). [cf Transcript 28 May 2003 at 48] The principal issues

The principal issues appear to be: · Whether the representation as pleaded was made [In the fashion litigated in the final hearing the issues were in narrow compass]; · Whether the representation was misleading or deceptive or likely to mislead or deceive; · It being conceded by Carpet Fashion that the representation is appropriately characterised as related to future conduct , did the defendant have reasonable grounds for making the representation? [cf s51A(2) of the Act]; · Whether the lease contained an implied term: - that the lessor would not derogate from the grant of the lease; or - that the lessor would not during the term of the lease and option, if exercised, alter the type of tenant mix or the type of products sold in the Centre (paragraph 19A summons); · If either or both of such terms are to be implied, whether the conduct of the defendant in changing the usage of the Centre and/or by altering the type of tenant mix or the type of products sold in the Centre constituted a breach of such term by reason of which loss and damage was suffered; · Whether the defendant's said conduct was such as to constitute a repudiation of the lease?; and · The quantum of damages for breach of the contract or under the Act. Case management of the issues before the court during the final hearing

A particular difficulty arose during the final hearing concerning the service of a statement of Mr David John many months following the time limited for filing by Carpet Fashion of statements in chief. The statement was served on the afternoon of Friday 23 May 2003 and deals with a number of matters of significance in relation to assumptions made by the expert retained by Carpet Fashion and sought to be relied upon in the damages case. Forma's counsel made it plain that there was very real prejudice in permitting the statement to be now relied upon for the reason that Forma had not had any opportunity to deal with this new material. In the light of this development the Court raised with counsel the question of whether or not either party would oppose the case management of the final hearing involving the taking during the first tranche, only of evidence going to all matters outside of relief. A judgment would then be delivered dealing with all matters outside of relief. In the event that the judgment would be favourable to Carpet Fashion relief would be dealt with in a second tranche where only evidence given by the experts or by Forma in replying to the new evidence sought to be adduced from evidence given by Mr David John, would be permitted. It was made plain to counsel that no order of a separation of issues pursuant to Part 31 of the Supreme Court Rules was proposed to be made or should be regarded as having been made. Both counsel agreed with this course and explicitly accepted that no difficulties with respect to credit would arise by treating with the matter in this bifurcated fashion. In consequence this judgment deals only with all matters outside of relief. Brief overview of background matters

The Centre was the subject of a number of changes in direction.

The original development and situation of the property at the time when Forma acquired it, had been as a two storey warehouse and distribution centre for Woolworths and also for David Jones.

The original redevelopment up to and including 1996 comprised the renovation of the second floor of the warehouse and distribution facility to transform it into shop spaces. Ceiling height meant that there was an attraction for the sale of larger style goods. The second floor was redeveloped as the shopping centre. At the time Carpet Fashion moved into the Centre, it occupied space on the second floor, Woolworths continuing its distribution function from below.

Woolworths are still present but part of the downstairs section includes a few shops. As a general proposition however it can be said that by and large the centre is still a one level shopping centre on the second floor of a warehouse building. The evidence

It cannot be suggested that much of the factual evidence was in any way in dispute. A number of statements were read and cross-examination took place in relation to disparate but very limited issues. Both parties prepared chronologies for the assistance of the court. To my mind the convenient course is to proceed: · by first giving a general overview of evidence adduced from witnesses by statement and then in the witness box; and · by in essence, then using the chronologies but interpolating, as necessary, where a particular matter may have been pointed up during the final hearing as a live issue for focus . General overview of evidence adduced from witnesses who had made statements and were cross-examined Mr Glyn John

Mr Glyn John has been a director of Carpet Fashion since its incorporation in 1973. He gave detailed evidence in relation to Carpet Fashion and its business; in relation to the negotiations anterior to the execution of the lease; and in relation to the communications dealing with and discussions concerning the closure of the Homebush store.

His evidence included: · The centre at Homebush Bay was ideally suited to the company's needs because it was easily accessible by good roads from the north, west and south. There was substantial building being carried out or proposed in the area of Homebush and a new suburb, Newington, was proposed. There were to be many new home units built in the area. · In that regard the Homebush centre was near to the new development and in his opinion would have attracted many customers seeking to lay carpet or timber flooring or linoleum in their properties. Because of the road access the centre would also have attracted people from surrounding suburbs who would have found it easy to visit the Centre. · Although there was a new centre at Parramatta Road, Auburn described as the "Megacentre Auburn" this complex would not have been suitable for a Carpet Fashion Pty. Limited store as that centre was too close to Carpet Fashion’s store at Parramatta and instead of getting new customers it would be drawing off those customers who would go to the Parramatta store. Additionally at Parramatta there were three other carpet stores in the immediate vicinity. · Homebush was in a different location and drawing area and did not conflict with either the Parramatta store or any other stores operated by Carpet Fashion. · With the success of the Homebush store it was feasible to lease a warehouse for storage of carpet and other items sold in the shop. Storage of carpet is an ongoing problem as a large warehouse is needed to keep sufficient quantities of stock. · With the closure of the Homebush store it was not practical to lease a further warehouse and this had an effect on the amount of stock that the company could keep. This also had a run on effect as to the overall expansion of the company. · The closure of Homebush was a severe blow to Carpet Fashion Pty Limited as Homebush was a central and forward position in establishing the Carpet Fashion brand in the inner city and eastern suburbs. It was in turn crucial to its advertising program and its loss limited the amount which could be spent on advertising. · From his experience in thirty years of carpet retailing, for a carpet store to be successful in a centre such as the Homebush centre it must have predominantly homeware or bulky goods sold in the immediate vicinity. The centre itself must be associated with homeware products. If the centre changed its style of business to sale of fashion goods or sale of clothing and footwear, a carpet store would not be successful as a stand alone homeware store. Such a store however needs other stores of the type previously at the centre in order to be successful as, collectively, such a mixture of shops will attract more customers and each shop can benefit from the customers of the other.

His evidence as to the decision to take a lease in the Centre included: “Q. How did you come to make that decision? A. The decision to take a lease? Q. Yes. A. I was very aware of the Homebush centre for some time. I had been approached previously about it, about taking a static display on it. I watched the centre develop. They had a weekend type sale there prior to it opening and they attracted a lot of people. The marketing strategy and the support literature was very impressive. All the statistics about who would visit the centre, where it was located, and the general demographics were perfect for us. Q. What support literature? A. They had very good marketing. It went into depth about how many people they would attract, the general demographics of the area, the houses that would be built in the area. They seemed to have a strategy that I subscribed to that the majority of money that is spent is spent on bathrooms and kitchens and that type of thing in renovations and it was going to be the biggest and largest in the southern hemisphere, we were told, and from that would flow on the normal renovation and building, et cetera. ….. Q. And did those conversations, and if so in what way, influence your decision or Carpet Fashion's decision to take a lease? A. Well, the conversations were along the line, as the centre was developing, the tenants that they had already engaged in the centre and the expansion of the centre, the renovation centre and the promotional plans and everything they had for the centre. Q. And did those conversations have any influence on the company in taking a lease? A. Very definitely. … Q. Did those conversations and, if any, which have the basis for the company taking a lease? A. I think it was a commitment to making it the largest renovation bulky good centre in the southern hemisphere, or certainly in the Sydney basin, and the amount of people that would be attracted to it, and the suggestion that we would also have a reference centre to other stores, all of that was very attractive in location. As I say, there was - during that period they were very prone and very heavy at approaching people to go into the centre and it was very dominant, a very big thing at the time within the bulky goods industry. Q. What do you mean "a reference centre to other stores"? A. Well, the idea of the renovation centre was to be an all encompassing centre where people would go for information on building, hence the exhibitors' centre. It was to attract people within a very very wide area that would get information on building. There would be architects there; there would be planners there; there would be, you know, samples of bricks, window designs, an all composite thing, kitchen designers. So people would come not only from our normal catchment area but they would be travelling from far and abroad, which indeed they did and it enabled us to actually on send customers, for example to Tuggerah, or to Campbelltown or to areas like that which wouldn't necessarily come back to purchase for us, so we had great referral to our stores. [Transcript 26 May 2003, 73-74] Q. The company moved out of the centre on 30 November 2000? A. Yes. Q. And what steps after that time did you take to try to find other premises in the Homebush area? A. We looked extensively. There was nothing suitable in the Homebush area. I negotiated with Simons Carpets at Lidcombe, had a couple of meetings with them, because I heard he was retiring and he had approached me, but that didn't come up. We looked at the Joyce Mayne centre at the time, which was a bit further up Parramatta Road. We had negotiations with Michael Slade. Q. In respect of Joyce Mayne, did you find that suitable or not? A. Nothing suitable. Q. Why not? A. Because there wasn't premises available. Q. Right, and sorry, what about the premises other than Joyce Mayne? A. The ones I mentioned or - Q. You were about to mention one and then there were some others? A. Well, we looked at the Mega Centre at Auburn. Q. Yes and why wasn't that suitable? … WARREN: Q. Were there any areas available around Homebush Bay that you looked at that were available for lease? A. There just aren't rental premises available at Homebush Bay. There is none there. In the adjoining suburbs we did look. There was nothing suitable.” [Transcript 26 May 2003, 77] Mr Jan Koch

Mr Koch had made a statement on 10 April 2003. He had been Forma's chief representative in Australia since approximately August or September 1995. He is employed by a company which provides management services to Forma and gave evidence that all the directors of the company (save for Mr Wise) are located overseas. His evidence was that Forma is in general terms a property investment company and that its primary asset is the Homebush shopping centre. His evidence covered the history of the Centre and of the involvement of Forma with the Centre. His evidence also covered the original intentions of Forma, in terms of the development of a shopping centre specifically dedicated to the retail sale of bulky goods; the concept of the Centre having changed in about 1995 to combine both a retail centre (with retailers of bulky goods, and home improvement and renovation products) and a permanent exhibition centre. The aim was to develop a 'one stop shop' for building and renovating products where consumers could view a wide range of retailers and products, and see and compare different products at one time, as well as purchase such products.

He gave evidence to the following effect: · Forma had commissioned a number of research studies regarding the viability of the Centre, including its likely trading levels and the consumer acceptance of the Centre. · In 1993, Davlon commissioned Plant Location International ('PLI') on behalf of Forma to carry out a market assessment of the Homebush site for use as a bulky goods retail centre ('PLI Report'). The PLI Report concluded that the Homebush site had an excellent chance of success as a bulky goods retail centre. · The PLI Report was referred to in an internal report prepared for Forma in about late 1993 by Davlon ('First Davlon Report'). Davlon was managing the development of the Centre on behalf of Forma and its principals had been involved in other retail developments, including the successful Moore Park Supacenta, one of the few shopping centres that existed at that time that specialised in the retail sale of bulky goods. The First Davlon Report provided a summary of the current status of the then Homebush project. The First Davlon Report noted that there had been little development of shopping centres for bulky goods: 'Throughout the 1970's and 1980's whilst conventional main stream property development grew into its current super-regional shopping centre concept, bulky goods retailers with high floor space requirements and specialist logistical infrastructures were forced into secondary strip locations, in free standing environments, and little or no synergy from integrated marketing or one-stop shopping facilities.' · The First Davlon Report noted that the Homebush site was an excellent location for a bulky goods retail centre, given its excellent road access, close proximity to major suburbs, high visibility and constant high volume passing traffic. · A further report was prepared by Davlon in about mid 1995 ('Second Davlon Report'). By that stage, the decision had been made that the Centre would comprise both a retail and exhibition centre. The Second Davlon Report concluded that the prospects for the Centre were very good, given the lack of competition in the vicinity, the size of the market for home renovation and building products, the potential customer base and the proposed services to be provided by the Centre. · The Second Davlon Report included the following statements: (a) 'The development will concentrate on providing an extensive range of products and services for the home. It is concerned with filling a gap in the exhibition and home show market, through establishment of a one stop centre for the purchase of these products and increasing the level of service currently available in this area.'; (b) '[T]he Homebush area, through its central geographic location, is able to access trade areas which are both significant in size and variable in terms of demographic composition.'; (c) 'The primary and secondary trade areas represent 30.9% of the total population of the Sydney Region. Within these trade areas it is estimated that there are approximately 300,000 homes which are older than thirty years - it is expected that all of these homes will necessarily undergo some form of renovation in the next twenty years. Furthermore, by the year 2001 the proposed Homebush Centre will have access to a total population of 1.2 million persons.'; (d) 'The Sydney Region has a very limited number of purpose-designed bulky goods retail centres'; (e) '[T]he Homebush complex will have a significant impact on the market through the provision of 624 car parking spaces - one third of which are under cover - which are easily accessed and by its offer of maximum shopper comfort, including ample food services and a child minding centre.'; (f) 'The strength of the Renovata Centa is intensified by the fact that, with the demonstration area, customers will be provided with a permanent home show where they will be able to purchase or order their goods. In contrast to all of the competition, the Renovata Centa will incorporate an extensive range of home renovations products and services, including financial services, kitchens, bathrooms, lighting and computers. People can experience the products first hand - as opposed to traditional exhibitions, the products displays will not be static.'; (g) 'The owners of the Homebush Supa Centa have retained the highly successful team which developed and marketed the Moore Park Supa Centa. The design and layout of the centre capitalises and improves on the substantial knowledge and experience gained from the development of the Moore Park Supa Centa …'; (h) 'The majority of renovations generally involve new kitchen or bathroom installations. Hence any renovation centre which customers perceive as offering a total one-stop bathroom and kitchen option will necessarily control the renovation market in New South Wales. … 'To capitalise on the 'wet area' of the renovation market, 2000 square meters of floor space on the northern side of the development have been allocated to bathroom presentations, complete with tiling, lighting and all bathroom accessories … 'Kitchen and other related products will take up 1,000 square meters of floor space on the main retail floor of the Renovata Centre. This should provide a full selection of variety and price of more than 100 kitchens. …'; (i) '[The Housing Industry Association of New South Wales'] endorsement [of the Centre] will have enormous ramifications for the Centre's credibility as a location for exhibitors and general tenants. It will also serve as a reference for anyone in the home renovations market.'; and (j) 'The Renovata Centa is the first of its size and scope in Australia …'. · In June 1996, Leyshon Consulting Pty Ltd ('Leyshon') was commissioned by Davlon to provide a report regarding the proposed development and the size of the market in Sydney and New South Wales for home-related products and services ('Leyshon Report'). That research indicated that at that time, there were few central venues for home products retailers in the Sydney region. It concluded that there was a considerable market for home renovation products, and suggested that the number of visits to the Centre per year could extend into the millions. · The Leyshon Report included the following statements: (a) 'To our knowledge the proposed development will be by far the largest home products display centre in the Sydney Region or, for that matter, anywhere in Australia. … In view of the size of the proposed Homebush development it should have a revolutionary effect on the display and promotion of home-related products in the Sydney Region.'; (b) 'The home renovation and building products industry in the Sydney Region is highly disaggregated both in terms of the number of operators and their locational distribution. In essence, the industry in the Sydney Region is at present characterised by: · a limited number of major operators with multiple outlets; · operators occupying relatively small floorspace areas; and · the general absence of a centralised display area of any significant scale.'; (c) 'In our opinion, the proposed site at Homebush has two major locational advantages. First, the site is close to the acknowledged demographic centre of Sydney. Second, the metropolitan road system facilitates access to the site from all directions throughout the Sydney metropolitan area.'; (d) '[T]he market for additions, alterations and improvements in the Sydney Region is currently estimated at some $1,957 billion per annum and can be expected to grow in real terms … by some $230.4 million annually to $2.187 billion per annum in 2001.'; (e) 'Spending on household contents is currently estimated to be some $3.192 billion per annum in the Sydney Region alone with a projected annual increase of some $375.9 million to $3.568 billion by 2001 in real terms.'; (f) 'It is likely … that the Homebush centre could be visited in much the same way as are leading bulky goods retail centres. That is, a low frequency and incidence of visitors on a household basis but when spread over a large trade area producing a significant number of visits per annum.'; and (g) 'In our opinion, the Moore Park SupaCenta provides the most comparable development to that proposed at Homebush in terms of potential visitor numbers. We understand that in 1994 the Moore Park SupaCenta attracted some 3.4 million visitors based on retail floorspace of approximately 25,000 sq.m.. Given the slightly smaller floorspace proposed at Homebush and the fact that the development is not a retail centre, we would expect the potential number of visits to the centre to range between 2.7 and 3 million visits per annum.' · The Centre was endorsed by the Housing Industry Association ('HIA'). The aim was that HIA would also actively participate in the operation of the Centre by operating a training centre within the Centre for consumers and tradespeople. The Centre was in fact initially called the 'HIA Building and Renovata SupaCenta'. · Once completed in 1996, the Centre was in fact the largest home renovation retail and exhibition centre in Australia.

Mr Koch also gave evidence in relation to the leasing of the Centre and in relation to the commissioning of numerous feasibility studies on the Centre. This evidence included: “At the time of leasing negotiations with prospective tenants in 1996 and 1997, Forma had commissioned numerous feasibility studies on the Centre, and was of the view that the Centre would be a unique facility of considerable size, with a large customer patronage. The retail component of the Centre was largely leased, however, there were still vacancies in the exhibition centre. However, Forma was of the view that with the drawing power of anchor tenants such as HIA and CSR, the exhibition area would be a success. Forma had also spent approximately one million dollars on innovative swipe card technology for the exhibition area. Forma made statements regarding the Centre to prospective tenants such as Carpet Fashion on the basis of the conclusions contained in the numerous feasibility studies commissioned by it in relation to the Centre. At the time of leasing the Centre, Forma had made a significant financial commitment to the development of the Centre. Its intention at that time was that the Centre would operate as a home renovation centre.”

He also gave evidence in relation to the launch of the Centre and the position which had obtained thereafter: · Whilst the Centre was not officially opened until 18 March 1997, some tenants commenced trading in the Centre before then, including Carpet Fashion. Throughout late 1996 and early 1997, Byvan undertook promotion and marketing of the Centre in readiness for its full launch in March. Such promotion included newspaper advertisements, a competition and a live radio broadcast. · The Centre was officially opened on 18 March 1997 under the name 'HIA Building & Renovata SupaCenta'. The launch of the Centre went well. At that stage, 19 of the 26 retails stores had fully executed leases, with three leases outstanding and four vacancies. However, only three of the 21 external stores were leased, with 18 vacancies. · At that time, Forma commissioned focus group research by Q2 Strategic Market Research Pty Ltd ('Q2'), which showed very positive feedback to the Centre ('Q2 Report'). That research contained conclusions regarding the range of facilities that the Centre should offer (such as adequate parking, accessible and knowledgeable staff, child care facilities, good signage, refreshment areas, and so forth), the range of retail stores desired, and indicated that there was a strong desire amongst potential visitors for independent advice on renovation and building issues. · As at the date of the launch, Forma had invested a total sum of $45 million in relation to the Centre, comprised of: (a) $14.5 million - purchase price and acquisition costs; and (b) $30.5 million - redevelopment costs and expenses, promotion and marketing of the Centre. · Following the launch of the Centre, he was involved as the initial point of contact for the landlord. He received monthly management reports setting out the operations at the Centre, weekly leasing reports regarding vacancies, and so forth. He also attended meetings to discuss the Centre. · During the year after the launch of the Centre, there were concerns about the trading at the Centre. For instance, the 'traffic count' (the number of customers attending the Centre in a given period of time) was below expectations. The traffic count showed an immediate spike at the launch of the Centre, but thereafter remained well below March 1997 levels. · Management at Forma was concerned at the performance of the Centre. It was considered that despite having spent a significant amount of money on developing and marketing the Centre, the results had been inadequate. In response, Forma took action to boost the trading at the Centre, including: (a) commissioning further market research on the Centre, which resulted in a change of the name of the Centre to 'Homebush Home Improvement Centre' and a relaunch under this name on 15 March 1998; (b) hiring an executive to assist in managing the Centre, in addition to the existing centre manager; and (c) spending further money on promotion, advertising and signage. · Approximately $5 million was spent on marketing the Centre in the four years to 30 June 2000. · In addition, there were some unanticipated but significant difficulties following the launch of the Centre. · First, the exhibition space was still largely vacant and expected anchor tenants substantially delayed their arrival, causing difficulties in leasing exhibition space to prospective tenants. For instance, as at March 1997, CSR was expected to be a major anchor tenant at the outdoor exhibition area on the roof of the Centre. Forma had entered into an agreement with CSR prior to the opening of the Centre. However, after the launch of the Centre and despite its agreement, CSR decreased its scale of involvement, and ultimately did not open its exhibition until late 1999. · In addition, Forma had planned that HIA would have a strong involvement in the marketing of the Centre. HIA had agreed to have an exhibit at the Centre. However, HIA did not put up their exhibit until 1999. · Second, there were difficulties with the swipe card technology used at the Centre. Forma's plan was that customers could use a swipe card to access information at the Centre. For instance, if an exhibit was not staffed, a customer could swipe a card to obtain written information or connect by phone to the owner of the exhibit. Forma anticipated that this technology would be a resounding success. However, the technology was extremely erratic and did not operate properly despite attempts to remedy it. The equipment had actually been recalled by the manufacturer due to faults, but Forma was not advised of this until March 1999. · The trading of the Centre was also affected by the opening of the Mega Mart in Auburn in March 1999. Some tenants left the Homebush Centre and moved to the Auburn Centre. Furthermore, prospective tenants took leases at Auburn rather than at the Homebush Centre. Despite this and other difficulties, Forma continued marketing and advertising the Centre. · Despite the initiatives, the traffic count for the Centre did not show a substantial increase from the first year. · The Centre operated continuously as a home renovator centre from March 1997 to November 2000. In this period, Forma committed funds in excess of $14 million to the Centre. Its returns from the Centre were well below this amount, resulting in the following losses: (a) financial year 1996/1997: $6.2 million; (b) financial year 1997/1998: $6.8 million; (c) financial year 1998/1999: $6.0 million; and (d) financial year 1999/2000: $5.4 million (after adjusting for extraordinary items). · The losses would have been approximately $2 million higher each year if income from the Woolworths distribution centre had not been taken into account. · By late 1999, it was clear to Forma that the Centre was not viable in its then current form. The Centre was incurring considerable losses and there were no indications that trading levels would improve. The main source of income for Forma was the rental from Woolworths. · Forma commenced discussions with Austexx during 1999 in relation to a joint venture to redevelop the Centre. In 2000, Forma entered into a joint venture with Austexx in relation to the redevelopment of the Centre. The Centre closed in November 2000 so that redevelopment could take place. · On 13 September 2001, the Centre was relaunched as a direct factory outlets centre. · In his opinion, Carpet Fashion would have traded well had it remained at the Centre. Bing Lee, a tenant selling electrical goods, remained at the Centre throughout the redevelopment and following the relaunch in 2001 and has traded well. The current tenant mix includes retailers of homewares, including a furniture and furnishings shop. Furthermore, the current traffic count for the Centre is four times that of when it traded as a home renovation centre. He also understands that the Direct Factory Outlets Centre in Melbourne, which is similar to the Homebush Centre, has a tenant selling floor coverings. More recently, Supa Factory Outlets Tuggerah on the central coast of New South Wales has opened, with a combination of fashion and accessories stores as well as furniture/homemaker stores. · It is his understanding that most of the tenants of the Home Improvement Centre who elected to terminate their leases in 2000 easily found new leases in the vicinity, including at the Auburn Centre.

Mr Koch gave evidence in chief as follows: “Q. Can I ask you to cast your mind back to late 1999. You say in your statement that it was clear to Forma Holdings at that time that the centre was not viable in its then current form; do you remember that? A. Distinctly, yes. … Q. There was a company called Byvan that managed the centre? A. Yes. Q. They were managing the centre? A. They were, yes. Q. In or about late 1999 did you have any conversation with any representative of Byvan or give any instruction to such person in relation to the way they were managing the centre? … I had numerous discussions with Byvan. I'm not sure exactly what the question was. I might have misunderstood it. LANCASTER: Q. The question is specifically on the way they managed the centre? A. It's difficult because we had numerous discussions on the fact the centre was faring so badly and whether it specifically - the question was their performance, that's the question. We discussed the performance of the centre as opposed to their performance… A. We said to them, "We need to do something to rescue this centre" and there were a couple of planning type discussions with them but they looked at the possibility of abandoning the exhibition centre. LANCASTER: Q. Are these things they discussed with you? A. Yes. They explored the possibility then and that was our first choice rather than spend any more money to see whether we could make the bulky goods side work and they looked at the possibility of us abandoning the exhibition centre and making the whole centre a bulky goods centre and many months were spent looking at that possibility to no avail.” [Transcript 27 May 2003, 28] Ms Jean Smith

Ms Smith is the Centre Manager of the Direct Factory Outlets shopping centre. She commenced employment as Centre Manager of the Centre on 11 May 1999. Her employer was Byvan Management (NSW) Pty Limited ('Byvan'), which undertook the day to day management of the Centre. Since 1 December 2000, she had been directly employed by Direct Factory Outlets Homebush Pty Ltd as Centre Manager.

Her evidence included a detailed statement of the nature of the Centre at the time when she commenced in employment as Centre Manager; her responsibilities which included matters concerning lease administration; vacancies in the retail centre from time to time; traffic counts [cf Exhibit 2]; the numerous marketing and advertising promotions in respect of the Centre and the fact that despite the continued attempts of Forma to market and promote the Centre, there was no significant change in the performance of the Centre in 1999. Tenants were leaving the Centre or remaining in the Centre as monthly or casual tenants rather than renewing their leases.

Her evidence was also that the Centre was detrimentally affected by the opening of a new purpose built homemaker centre in Auburn (known as the Auburn Megamart) in or about early 1999. Following the opening of the Auburn Megamart, it had become more difficult to attract tenants to the Centre.

She gave evidence as to her own knowledge towards the end of 2000 about the availability of these premises for a shop in the order of 200 approximate sq metres. Her evidence was that there was space available in the Auburn Mega Store which was probably only one third leased. [Transcript 27 May 2000, 65]

She also gave some evidence in relation to alternative premises obtained by a number of the tenants who elected to terminate their leases at the Centre in 2000.

In relation to the redevelopment of the Centre she gave evidence that: · On 13 September 2001, the Centre reopened under the name 'Direct Factory Outlets'. The new Centre has proven to be extremely popular and the tenants are trading well. There are no longer any vacant stores within the Centre. There is now a waiting list for tenancies. · The traffic counts in the new Centre are approximately four times greater than the traffic counts for the Centre prior to September 2000 Mr De Rango

Mr De Rango gave evidence by statement dated 9 April 2003. He is the Managing Director of Direct Factory Outlets Pty Ltd and of Direct Factory Outlets Homebush Pty Ltd. His evidence was that: · Direct Factory Outlets Pty Ltd and Direct Factory Outlets Homebush Pty Ltd are responsible for the management and development of the Direct Factory Outlet centres in Moorabbin, Melbourne and Homebush, Sydney respectively. · Centre Managers are employed at each centre. The centre managers each report to him. · He was involved in the Direct Factory Outlet since its establishment in 1997 and in the Direct Factory Outlet at Homebush since the redevelopment of the Centre in 2000/01. The Melbourne centre was the first factory outlet established in Australia. · He has been involved in the retail sales and leasing area since 1994. Prior to that, he was involved in a retail and wholesale clothing business. He is generally familiar with the retail and retail leasing markets in Melbourne. · He also gave evidence in relation to the fact that the Carpet Fashion store at the Centre sold carpet, rugs, floor coverings, vinyl and timber flooring. He believed that Carpet Fashion had the capacity to modify its product mix in order to maximise sales from premises at the Centre following the redevelopment in 2000/01. In addition, he gave evidence that it was possible that the store could provide a referral point for other stores in the Carpet Fashion chain of stores in Sydney given the number and geographic range of shoppers which the Centre attracts.

He also gave evidence that after the Centre commenced trading as a Direct Factory Outlet he had not approached any prospective new tenant who sold bulky goods to come into the Centre. This was not necessarily because the size of those goods was different from the type of product and tenant mix which he wanted in the new outlet but " it was primarily because the bulky goods traders that had been there had not been successful ". He could not recall meeting a single tenant who had told him that they had an active, viable, strong business that was flourishing or trading well. Everyone he had met had been only too willing to tell him how bad the centre was and how poor trading was and how there was no traffic. [Transcript 27 May 2003, 51-52] Mr Geoffrey Solomons

Mr Solomons gave evidence by statement dated 15 May 2003. He is employed by By Dezign Pty Ltd (‘By Dezign’) in the position of Customer Services Manager. He works at the By Dezigns store located in the Auburn Megamall located on Parramatta Road, Auburn. He is also a shareholder in By Dezign. He had previously been a director of By Dezign.

He gave evidence as to the circumstances in which having had two stores at the Homebush shopping centre, upon being informed by Forma of the proposed redevelopment of the Centre, By Dezign located available premises at Auburn. His evidence was generally that: · By Dezign is a retailer of furniture, kitchenware and giftware. · By Dezign is also a retailer of flooring, namely Forbo vinyl flooring and German laminated floating floor. · By Dezign is not a retailer of carpet. · From March 1997 to November 2000, By Dezign had two stores located at the Homebush shopping centre in Underwood Road, Homebush (‘Centre’). One store was called ‘By-Dezign’ and the other store was called ‘By-Dezign Kitchenware’ . · The ‘By-Dezign’ store was located next to the store operated at the Centre by Carpet Fashion before the redevelopment of Homebush Centre. · By Dezign started looking for alternative premises in about July 2000. It took By Dezign approximately eight to ten weeks to find and secure a new lease. · The process of searching for a new lease involved speaking with agents, research on available premises and inspecting possible shopping centres and shopping areas. · Amongst others, By Dezign located available premises at the Auburn Megamall, the bulky goods precinct on Parramatta Road, the Norwest Homemaker Centre, the Liverpool MegaCenta, the David Jones site at Parramatta and the Red Barn Centre on the corner of Silverwater Road and Parramatta Road. · These premises ranged in size, however many were too small for By Dezign as it required premises about 3,000m2 in size. Many would have been suitable for a retailer seeking premises less than about 500m2 in size. · Suitable premises for By Dezign were located at the Auburn Megamall. It was decided to merge the ‘By Dezign’ and ‘By Dezign Kitchens’ stores into one By Dezign store. By Dezign vacated its premises at the Homebush Centre in November 2000 and moved into the new premises at the Auburn Megamall on 16 November 2000. The new By Dezign store commenced trading on 23 December 2000. · At that stage, there were three vacant premises in the Auburn Megamall and at least one tenant who wanted to assign its lease. The available premises ranged in size from approximately 250 to 700m 2 . One of the available premises later became a rug store. · From his experience as a bulky goods retailer, he did not agree that an existing store at Parramatta would be a restriction on opening a new store at the Auburn Megamall or the nearby bulky goods precinct on Parramatta Road. · Whilst the catchment areas for Parramatta and the Auburn Megamall (including the nearby bulky goods precinct) overlap to some extent, they are by and large separate catchments. Mr Peter Leyshon

Mr Leyshon is a qualified town planner and corporate member of the Planning Institute of Australia. His current occupation is research analyst and town planner. In that capacity, he operates a consulting business specialising in retail analysis and the planning of business and shopping centres. He has operated this consulting business for 17 years.

He was asked to provide an expert opinion on: · whether the redeveloped Homebush Centre was suitable for the continued trading of a carpet and rug store; and · whether alternative premises were available in the Homebush vicinity for the relocation of the Carpet Fashion store in around late 2000.

His evidence was: · In his opinion, although the redeveloped Centre is not a location that is typical for a carpet and rug store (or for general homewares retailing), the redeveloped Centre at Homebush presents a particularly unique retailing opportunity for a number of reasons, in particular: - the Centre draws customers from the entire Greater Sydney area (save for the area from the eastern suburbs of the city) to the site. He does not believe that there is any other location in Sydney which has such a wide catchment area for customers except for the Sydney Fish Markets at Pyrmont; - a survey of customers to the Centre in April 2002 indicated that 51% of shoppers are 'first time shoppers' (as compared to repeat customers to the Centre); and - the redeveloped Centre has a high volume of foot traffic (that is, customer numbers) passing through the Centre each month, which he believes to be considerably in excess of the foot traffic at the Centre prior to redevelopment. · The above factors mean that if Carpet Fashion had remained as a tenant in the Centre, it would have: - been exposed to customers from a wide geographic in Sydney; - had a constant flow of new shoppers from areas outside what it likely to be its traditional customer base; and - obtained the benefit of significantly increased foot traffic. · These factors would have given Carpet Fashion the opportunity of conducting a successful business at the Centre. · Because of these unique aspects of the Homebush area and the Centre, he considers that: - any disadvantages of the change in the tenant mix after the redevelopment would have been outweighed by the advantages of being situated in the Centre, in particular the wide trade area of the Centre; and - it is likely that Carpet Fashion could have traded at the same level or better had it remained in the redeveloped Centre. · In addition, Carpet Fashion would have also had the opportunity to alter or modify its product mix (for example, more towards rugs or to a change in range) to maximise its returns or mitigate its loss. In this regard, he is aware that there is a rug retailer at the Direct Factory Outlet conducted in Moorabbin, Melbourne.

He understands that Carpet Fashion operated stores in the following areas in the Greater Sydney area at the time of the termination of the its lease at Homebush in late 2000: North Parramatta; Prospect; Campbelltown; Caringbah; Chatswood; Castle Hill; Minchinbury; Penrith; Tuggerah; Warwick Farm.

He believes that there were two broad alternatives available to Carpet Fashion after it terminated its lease at the Centre, namely: (a) it could have relocated the Homebush store to a location within the region surrounding Homebush; or (b) it could have used the newly available funds to launch a new store in an area where it did not already have a presence and tap into a new market.

He believes that the most appropriate relocation of the Homebush store would have been to the Auburn area, either within the 'Megacentre Auburn' ('Auburn Centre') or in the strip shopping area running eastward of the Auburn Centre along the Great Western Highway/Parramatta Road for approximately two kilometres. This area contains the largest concentration of bulky goods and homeware stores in Sydney, is very well known and would have been a very good alternative to the Homebush store.

He does not agree that the Auburn Centre was not a suitable replacement for the Carpet Fashion store at the Centre because it would draw on customers already served by the North Parramatta store for a number of reasons: · the Auburn Centre is less than five kilometres closer to the North Parramatta store than the Centre. Therefore, while it may draw on the North Parramatta store's customers to some degree, he does not believe that it would do so to such an extent that Carpet Fashion should not have considered opening a store in that area; · the North Parramatta store is likely to attract a very different customer base to a store set up in either the Auburn Centre or the surrounding area. He would expect that the North Parramatta store would draw areas principally from the north of Parramatta whereas a store in Auburn would tend to draw customers predominantly from areas to the south, east and west of Auburn. These customers tend to be from different sociological groups and therefore may be attracted to the different centres; · customers who would have frequented the Homebush store and those in the catchment area for an Auburn store would be unlikely to frequent the North Parramatta store. As mentioned above, customers to the North Parramatta store would be more likely to come from the north and would be unlikely to bypass the North Parramatta store in favour of an Auburn store if their primary purpose was to inspect or purchase carpet. Similarly, given the quality of the Auburn Centre and the range of homewares tenants in the surrounding area, it is unlikely that customers from around the Homebush area who would have frequented Carpet Fashion's store at the Centre would now proceed past Auburn to the North Parramatta store. Instead, they would shop at one of Carpet Fashion's competitors who had a store in Auburn. By establishing its own store in Auburn, Carpet Fashion could regain these customers who have taken their business elsewhere; and · one of Carpet Fashion's main competitors, Carpet Choice, has stores at 570 Church Street, Parramatta and 265 Parramatta Road, Auburn. The Parramatta Carpet Choice is very close to Carpet Fashion's North Parramatta Store and the Auburn Carpet Choice is very close to the Auburn Centre. He presumes that both these stores are profitable and therefore Carpet Fashion could also trade profitably in both locations.

His evidence was that: · if Carpet Fashion chose not to establish a store at the Auburn Centre, or elsewhere in the Auburn area, the resources which became available to it after it terminated its lease at the Centre could have been used to open a store in an area where Carpet Fashion did not already have a presence. · Given Carpet Fashion's stores in operation in late 2000, there were several bulky goods and homewares precincts in the Greater Sydney area where Carpet Fashion did not have a presence and where it could have opened a new store and thus tapped into a new market. · In late 2000, the areas in and around South Bankstown, Moore Park, Norwest/Bella Vista, Erina and Balgowlah were all developing or developed bulky goods and homewares precincts. Carpet Fashion did not have stores in or around any of these areas. Upon the freeing up of resources after the termination of the lease at the Homebush Centre, Carpet Fashion could have opened and, in his belief, run a successful store from any of these areas. · He understood from an expert's report that Carpet Fashion in fact opened a new store in the Bella Vista / Norwest area in February 2001. This store is located in an area of Sydney which is experiencing rapid population growth as a consequence of new housing development. Arguably, this store was a replacement for the Homebush Centre, despite the fact that it is in a different area of the city to the Centre.

Significantly he did not put himself forward as having any experience in relation to carpets and flooring and floor coverings. Most of his experience had been in retailing, the planning and development of retail shopping centres, particularly bulky goods shopping centres. [Transcript 27 May 2003, 58] Mr Lechmere

From about September 1997 to mid 1999, Mr Lechmere was employed by Forma. Part of his job involved negotiating with prospective tenants for leases of retail and/or exhibition space at the centre. Prior to that, he was employed by Supa Dupa Promotions Pty Ltd from about early 1996. Supa Dupa had been engaged to assist in finding tenants for the exhibition space at the Centre. The Centre was to contain both retail and exhibition space. The brief to Supa Dupa was to create a permanent home show at the Centre. Mr Lechmere was heavily involved in this work when he was employed by Supa Dupa. He had had considerable experience in organising the International Home Show that is held in Sydney. Over the course of time, in addition to negotiating with prospective tenants of exhibition space, he also conducted negotiations with prospective tenants of retail space.

During 1996, he was involved in negotiations with Carpet Fashion. His evidence covered these negotiations.

He gave evidence concerning the prospects of success of the Centre as follows: · At the time he was negotiating with Mr John with respect to Carpet Fashion taking a lease of premises at the Centre, he believed that the Centre had a very good prospect of success as a specialist centre for the exhibition and retail sale of homemaker and renovator products. He was aware that Forma had commissioned reports into the viability and likely success of the Centre. He was provided with and read extracts from these reports. [The mid 1995 and June 1996 reports] He recalled in particular that the reports indicated that the Centre would attract high customer levels due to its accessibility and location in the demographic centre of Sydney. · He believed that one of the main reasons why the Centre was not successful was due to problems leasing out the exhibition space. By the time the Centre officially opened in March 1997, the retail space was mostly leased – there were only about three or four vacancies. In contrast, the exhibition space was only about a third full. He expected that the remaining exhibition space would be leased once the Centre opened. However he subsequently experienced difficulties in getting potential exhibitors to commit to leasing exhibition space. Some major exhibitors, such as CSR, were late in opening their exhibitions. Some expected exhibitors did not actually open their exhibitions. For instance, companies including General Electrical, Major Electrical Appliances and Schollets were negotiating to lease a major area to build a complete display of electrical products. However, this display was eventually built at another location. Finally, he found that some companies, despite initially enthusiastic, elected to direct their marketing budget towards the International Home Show, rather than having a permanent display at the Centre. · He believed that had the Centre (including the exhibition space) been fully leased, it would have been a success. As it turns out, there were ongoing problems filling vacancies in the exhibition area, despite concerted efforts to locate prospective exhibitors, and a decision to transform some of the exhibition space into retail space. Chronological sequence of events 1973

Carpet Fashion commences business of retailing carpet, rugs, floor coverings, underlay, vinyl and timber flooring at premises Old Northern Road, Castle Hill. 1993 March 1993

Mr Londish commences as adviser to Forma group of companies.

Mr Londish identifies the site at Underwood Road, Homebush for possible purchase and development as a shopping centre. [Statement of Mr Jan (known as John) Godfried Koch dated 10 April 2003 ('Koch Statement'), paras 7, 21] June 1993

Plant Location International prepares market assessment of the site at Homebush for use as a bulky goods retail centre. [Koch Statement, para 11] 1 June 1993

Forma becomes registered proprietor of the land on which the centre is constructed. Woolworths had a current lease of part of the land being the ground floor which it used as a distribution centre for food. David Jones leased the upper level which was used by that company and related companies as a warehouse. Late June 1993

Davlon prepares first report on Homebush development. The intention of Forma at this time was to develop a shopping centre on the Homebush site specifically dedicated to the retail sale of bulky goods. [Koch Statement, paras 4, 8, 12, 13; Exhibit JGK - 1] Mid 1995

Davlon prepares second report on Homebush development. This report is prepared based on the concept now favoured by Forma, namely a centre combining retail space and a permanent exhibition space. [Koch Statement, paras 9, 15, 16; Exhibit JGK-2]

In Mid 1995 Supa Dupa Promotions is engaged to assist in leasing negotiations for the exhibition component of the Centre. [Koch Statement, para 22] August/September 1995

Mr John Koch commences as chief representative of Forma in Australia. [Koch Statement, para 2] Late 1995

Construction of new upstairs premises at Centre commences. Premises comprise both retail shops and exhibition centre. [Koch Statement, para 6] Early 1996

Mr Melvyn Lechmere commences employment with Supa Dupa Promotions, assisting with negotiating leases at the Centre. Mr Lechmere was originally only involved in lease of exhibition space, but was later involved in negotiating with prospective retail tenants. [Statement of Mr Lechmere dated 15 May 2003 ('Lechmere Statement'), para 3]

Two agents visited Mr John of Carpet Fashion. The agents were trying to sell static display space in the HIA Building and Renovata Supa Centa (the “Centre”). A static display is an arrangement whereby customers can visit the space where details of products are displayed and then if they are interested, they can telephone for more details. [Mr John Statement, para 6; Lechmere Statement, para 8]

Mr John advised the agents that he was not interested in a static display. However, he did express some interest in leasing a shop in the Centre. [Mr John Statement, para 7]

The agents returned at a later date and Mr John supplied them with some details of the requirements he had for a shop. He did not hear from them again. [Mr John Statement, para 8] June 1996

Leyshon Consulting Pty Ltd prepares a report regarding the proposed development of the Centre and the market in Sydney and New South Wales for home-related products and services. [Koch Statement, paras 7, 8; Exhibit JGK-3] End of 1996

Mr John became more interested in leasing a shop in the Centre, in light of the expansion of the company. [Mr John Statement, para 9] September/October 1996

Mr John telephones Mr Lechmere, a representative of the leasing agent, and expressed interest in the Centre. [Mr John Statement, para 10] First meeting with Mr Lechmere

Mr John and Mr Lechmere met at the Centre for approximately ninety minutes. During the meeting Mr Lechmere took Mr John to inspect the Centre. [Mr John Statement, para 10; Lechmere Statement, paras 9-13]

Various issues were discussed during the meeting, including the term of the proposed lease, the renewal option of the proposed lease, the tenant mix of the Centre and the various spaces available for lease. [Mr John Statement, paras 12-15]

Mr John gave the following evidence in respect of the term of the lease and the renewal option: “I enquired of Mr. Lechmere as to the term being offered. I wanted a three year lease with a three year option as this would give me enough time to determine whether the centre would be successful. Mr. Lechmere indicated that the lessor required a five year lease with a five year option.” [Mr John Statement, para 12]

In reply to paragraph 12 of Mr John’s affidavit, Mr Lechmere gave the following evidence: “I refer to paragraph 12. I cannot recall our precise discussion in relation to the proposed terms of any lease to Carpet Fashion. However, I recall that I was generally flexible in negotiating shorter initial terms because the Centre was only newly opening.” [Lechmere Statement, para 10]

Mr John gave evidence that during the meeting he enquired about the tenant mix in the Centre: “I said:- Mr John: "What is the tenant mix?" Mr Lechmere: "We want the centre where people can purchase everything for the home and for refurbishment and renovations." Mr John: "Who are some of your tenants?" Mr. Lechmere told me the names of certain organizations but I cannot now recall the names of the prospective tenants. I do recall that at the time I considered that the names of prospective tenants were well known in the field of retail sales of furniture, home furnishings, electrical appliances, lighting and bedding. Mr. Lechmere also continued, saying:- Mr Lechmere: "We are very anxious to get floor coverings to complete the mix. We have done a lot of research and are aware of your company. We have done research that people spend more money on renovations in the kitchen and bathroom. We are going to have large displays of bathroom and kitchen display centres."” [Mr John Statement, para 13]

In reply to the paragraph 13 of Mr John’s Statement, Mr Lechmere agreed that he made statements to the effect of those attributed to him. [Lechmere Statement, para 11]

Mr John and Mr Lechmere also discussed spaces which were available for lease. Mr John gave the following evidence: “Mr. Lechmere and I spoke about the various spaces which were available for lease in the centre. Mr. Lechmere suggested a specific shop but in my opinion the shop was too small. At that time the centre was only on one level, the lower level being occupied by Woolworths. Mr. Lechmere said about this arrangement: Mr Lechmere: "The premises below is the Woolworths dispatch centre. When their lease is up the centre will expand into that area as stage two." [Mr John Statement, para 14]

Mr Lechmere did not take issue with the affidavit evidence given by Mr John in paragraph 14. [Lechmere Statement, para 12]

Mr John gave further evidence in relation to the proposed expansion of the Centre in stage two of the development: “I was happy with this as in my opinion the worth of the centre as a home renovation and refurbishment store would be enhanced if it had as many different stores over as large an area as possible.” [Mr John Statement, para 15]

Mr John and Mr Lechmere discussed the displays proposed for the rooftop of the Centre. Mr John recalled the conversation as follows: “Mr Lechmere: "We plan to build on the roof top two complete homes to exhibit display products. One will be built by the HIA. There will also be the largest display of outdoor furniture as well as pavers and artificial grass in Sydney. We will have a demonstration area every weekend for people who want to lay their own pavers or build pergolas or do their own work. You can take advantage of this to show how to install timber floors and lino. We will also have architects and draftsmen operating out of the centre and have one of the areas downstairs to be used for business conferences."” [Mr John Statement, para 15]

Mr Lechmere put on affidavit evidence agreeing with the general effect of the statements attributed to him. [Lechmere Statement, para 13] He then continued his evidence: “These statements were borne out in the finished Centre as it traded from March 1997 onwards. There was a display area on the roof on which was built fully furnished homes and cabins. The surrounding areas were landscaped and swimming pools installed. Later, large sails were installed across the external areas so that they would be under cover. We also opened retail shops in the external area so that customers could purchase items displayed in the outdoor area.” [Lechmere Statement, para 13]

During the first meeting, specific rent was not discussed but Mr Lechmere indicated that it would be in the high $300 per square metre range, although he informed Mr John that this would have to be discussed with his superior, Mr Sid Londish. [Mr John Statement, para 17] The weeks following the first meeting

Further meetings were held between Mr John and Mr Lechmere in the weeks following their initial meeting. His brother Noel John, who was also a director of Carpet Fashion, accompanied Mr John to one of the meetings. [Mr John Statement, para 18] First meeting with Mr Londish

At a meeting about a month after the first meeting with Mr Lechmere, Mr John was introduced to Mr Londish, who he recalled being described by Mr Lechmere as “the decision maker”. [Mr John Statement, paras 19, 20]

Mr Londish, Mr John and his brother Richard John, and a note taker attended the meeting, held at Mr Londish’s office. It lasted half an hour. Mr John spoke on behalf of Carpet Fashion. [Mr John Statement, paras 21] Details of the meeting with Mr Londish

Mr John gave evidence of the meeting with Mr Londish as follows: “After introductions Mr. Londish started the conversation by extolling the virtues of the centre, saying:- Mr Londish: "We are spending an unbelievable amount of Hong Kong money on this centre. I have no interest other than in an advisory capacity. The rents are way under what we were hoping to get and what it is worth. We do want a complete centre with carpets. The centre is to be outfitted and if you are the tenant you will get the work." Carpet Fashion Pty. Limited subsequently did get the work laying carpet for the centre. Mr. Londish continued:- Mr Londish: "The bathroom and kitchen centre will be the like of things Sydney has never seen before. Everything for the home will flow from these displays. We will be pulling people from all over New South Wales. You will be seen to be an exhibitor in the centre." I raised the question of rent with Mr. Londish. He was not then prepared to drop the rent.” [Mr John Statement, paras 22-24]

The meeting concluded with Mr John indicating he would get back to Mr Londish after considering his position. [Mr John Statement, para 25]

Mr Londish did not give evidence.

Mr Lechmere gave evidence about the discussions at this meeting.

Mr Lechmere agreed generally with Mr John’s version of the meeting, only taking issue with two matters.

Firstly: “I agree that Mr Londish made statements to the effect of those attributed to him, but for the alleged statement regarding ‘Hong Kong’ money. We did not generally discuss the owner of the Centre with prospective tenants.” [Lechmere Statement, para 15]

And Secondly: “I agree that Mr Londish made statements to the effect of those attributed to him, but for the alleged statement that ‘we will be pulling people from all over New South Wales.” [Lechmere Statement, para 16] Second meeting with Mr Londish

A further meeting was held between Mr Londish and Mr John at the Centre a week or two later. Mr John gave the following evidence of the discussions at the meeting: “Mr Londish: "There are other carpet people looking at it. One of the tenants is much bigger than you but if you commit they will not worry about it."… Mr Londish: "Things are progressing. The money set aside for launching the centre is significant. It will put its best foot forward at opening. We want a decision whether you can get in and open within a short time. The centre will be an unqualified success. The second stage most certainly will be required." Mr John: "But what about the rent?" Mr Londish: "I can't do much with the rent. I can give you a discount in the first year but it has to come up to market in the second. I am confident that the business and the referral will be beyond your expectations. I have had involvements with other properties and the section of the centre is presently being tendered for carpet. If you become a tenant I will ensure you get it. I will also look at you for other commercial projects."” [Mr John Statement, paras 26-27]

Mr John also stated in his affidavit that Carpet Fashion was to be the only carpet retailer in the Centre. [Mr John Statement, para 26] However under cross examination his evidence was that he asked Mr Londish for exclusivity as regards floor coverings only to be told that exclusivity would not be given but that there would only be one other retailer permitted to sell floor coverings (ie carpets) [Transcript 26 May 2003, 71]. 20 November 1996 – Disclosure Statement signed

The Disclosure Statement was signed on 20 November 1996. [Exhibit JGK-4] Late 1996

First tenants move into the Centre. [Koch Statement, para 6] December 1996

Carpet Fashion made the decision to lease Shops 7E and 7F on Level 3 of the Centre. The company was given possession from December 1996 to commence fitting out the Premises. [Mr John Statement, para 29; Koch statement, para 29] Late 1996/early 1997

Byvan Management (engaged by Forma to undertake the day to day management of the Centre) undertakes promotion and marketing work in readiness for its official launch in March. The promotion work includes newspaper advertisements, a competition and a live radio broadcast. [Koch Statement, para 31] March 1997 to February 1998

Traffic count for Centre (excluding May and June 1997): March 1997: 37,432; April 1997: 22,381; July 1997: 29,425; August 1997: 23,816; September 1997: 34,727; October 1997: 27,339; November 1997: 22, 847; December 1997: 26,004; January 1998: 27,793; and February 1998: 23,905. [Koch statement, para 36] 18 March 1997

The Centre was officially opened under the name 'HIA Building & Renovata SupaCenta' . At that stage, 19 of the 26 retails stores had fully executed leases, with three leases outstanding and four vacancies. However, only three of the 21 external stores were leased, with 18 vacancies. [Koch Statement, paras 32, 34]

As at the date of launch of the Centre, Forma has spent a total of $45 million in relation to the Centre, comprised of: § $14.5 million - purchase price and acquisition costs; and § $30.5 million - redevelopment costs and expenses, promotion and marketing of the Centre. [Koch Statement, paras 32, 34] March 1997 (approx)

Q2 Strategic Market Research Pty Ltd ('Q2') performs market research on Centre. That research contained conclusions regarding the range of facilities that the Centre should offer (such as adequate parking, accessible and knowledgeable staff, child care facilities, good signage, refreshment areas), the range of retail stores desired, and indicated that there was a strong desire amongst potential visitors for independent advice on renovation and building issues. [Koch Statement, para 33; Exhibit GJK-5] 8 March 1997 – commencement of the lease

The Forma lease commenced on 8 March 1997 for a term of five years with an option to renew for a further five years. March 1997 – Carpet Fashion commences trading

Shortly after the commencement of the lease, Carpet Fashion commenced trading. [Mr John Statement, para 34] According to Mr John’s evidence, at this stage there were approximately 37 shops operating from the upper floor of the Centre. The tenancy mix was observed by Mr John to be 30% selling bulky items and 70% selling goods for home building and renovation. [Mr John Statement, para 34] 30 June 1997

For the financial year ending 30 June 1997, Forma sustained a loss of $6.2 million. [Koch Statement, para 46] 30 June 1998

For the financial year ending June 1998, Forma sustained a loss of $6.848 million. [Exhibit JGK – 7] 15 February 1998

Forma relaunched the centre under the name ‘Homebush Home Improvement Centre’ following the commissioning of further market research. [Koch Statement, para 37] March 1998 to August 2000

Traffic count for the Centre: March 1998: 30,616 ; June 1998: 38,449 ; July 1998: 30,711 ; August 1998: 29,845 ; September 1998: 29,112 ; October 1998: 33,350 ; November 1998: 29,777 ; December 1998: 22,219 ; January 1999: 34,894 ; February 1999: 29,849 ; March 1999: 35,222 ; April 1999: 30,206 ; May 1999: +4.9% cf same time last year; June 1999: 31,750 ; July 1999: 34,364 ; August 1999: -5.40% cf same time last year; September 1999: -3.55% cf same time last year; October 1999: +8.6% cf same time last year; November 1999: 26,512; December 1999: -13% cf same time last year; January 2000: 36,319; February 2000: +3% cf same time last year; March 2000: +3% cf same time last year; April 2000: +3.2% cf same time last year; May 2000: -3% cf same time last year; June 2000: 26,908; July 2000: +1% cf same time last year; August 2000: +1% cf same time last year. March 1999

Bulky Goods Megamart opens in Auburn. [Koch Statement, para 43; Statement of Jean Smith dated 9 April 2003 (‘Smith Statement'), para 11] 11 May 1999

Jean Smith commences as Centre Manager of the Centre. [Smith Statement, para 3] May 1999 to December 1999

Marketing and advertising promotions at the Centre include: · the 'Sydney worst bathroom' promotion in July 1999; · a Spring sale catalogue promotion; · a mini bathroom expo; · a radio broadcast from the Centre in October 99; · a themed 'Security month' and 'Cool Weekend' promotion in November 1999; · press and electronic media advertising. [Smith Statement, para 9] Mid 1999

Mr Lechmere ceases employment with Forma. [Lechmere Statement, para 2] 30 June 1999

Forma sustains a loss of $6.0 million for the financial year ending 30 June 1999. [Koch statement, para 46] 30 June 2000

Forma sustains a loss of $5.4 million for the financial year ending 30 June 2000. [Koch Statement, para 46]

Forma claims to have spent approximately $5 million on marketing the Centre during the four years ended 30 June 2000. [Koch Statement, para 38]

According to the evidence of Ms Smith, the centre manager of the Centre, she met with Mr John to advise of the proposed redevelopment of the Centre on 30 June 2000. The meeting was held at the centre management offices. [Smith Statement, para 14]

Ms Smith prepared notes following this meeting: “JS advised she had been asked by the Owners to have an initial meeting with all retailers regarding major changes planned for the HHIC. Council have approved the HHIC be changed from its present concept and developed into a factory outlet centre. The exhibition, bathroom and conference centre would no longer exist. Three staff were made redundant on Monday with more redundancies to come over the next few months. The information given to GJ was: Construction would commence November 2000. It was unclear at the moment whether the centre would close during construction or whether trade would continue throughout the building period. GJ initial reaction was that a factory outlet concept would not suit his business. He had put a lot of work into his shop and was disappointed in the change of direction. JS advised that it was a commercial decision each retailer must make, however, she suggested he keep his options open and speak to the project management team who have been appointed to handle the refurbishment. JS advised these people would be available towards the end of next week. GJ would like to meet with these people. JS advised she would make an early appointment. The meeting finished at 11.50am.”' [Annexure A to Smith’s Statement] July 2000

Mr John gave evidence that he was informed about the proposed redevelopments in July 2000. [Mr John Statement, para 27]

According to his recollection, Mr John was asked by Ms Smith to attend a meeting scheduled for 5 July 2000. 5 July 2000

Mr John gave the following affidavit evidence about the discussion at the meeting of 5 July 2000: “Ms Smith: "The centre will be closing in October and will be redeveloped. The centre will then be selling fashion goods and there will be no room for bulky goods." Mr John: "How disappointing. We have been very happy with our performance in the centre." Ms Smith: "There is room for rugs and we will be happy to make space available if you want to operate a rug store." Mr John: "Rugs are not our core business. I do not think we would be interested in a stand alone rug store." Ms Smith: "They have a very successful rug store in Melbourne and there is a store operating at Birkenhead Point with similar outlets to what we propose to develop. We have tried everything to give the centre the opportunity of expanding the sale of bulky goods but unfortunately the Mega centre at Auburn has soaked up all the big anchor tenant names and it is just too close to all of them to attract the key tenants."” [Mr John Statement, para 38]

In reply to the evidence given by Mr John in paragraphs 37 and 38 of his Statement, Ms Smith gave the following evidence: “I refer to paragraph 37 and 38 of the John Statement. I met with Mr John to advise him of the proposed redevelopment of the Centre on 30 June 2002. The meeting took place at centre management offices at the Centre. The document annexed and marked 'A' are notes I prepared following the meeting on 30 June 2002. I attended a subsequent meeting with Mr John in relation to the redevelopment of the Centre. That meeting was also attended by Frank De Rango of Direct Factory Outlets Pty Ltd and Geoff Porz of Austexx Developments Pty Ltd. Similar meetings took place with the other tenants of the Centre. The meeting was a more formal meeting to discuss the redevelopment of the Centre. The tenants were told that they would continue to have premises at the Centre if they wished and that it was their decision as to what they wanted to do. I do not recall the specific terms of the discussion which took place at the meeting with Mr John. I do not believe that I prepared notes of that meeting.” [Smith Statement, paras 14-15]

Under cross-examination in relation to this meeting it was put to Mr John that Ms Smith had not said to him on this occasion that " the centre will then be selling fashion goods and there will be no room for bulky goods ". He paused for a period before answering the question by first stating that to his recollection she had said this to him. The cross examiner then made the point that Mr John had paused before answering the question and his following answers were: “A. Well I was told it would be a factory outlook. Q. She didn’t say to you there would be no room for bulky goods, did she? A. I can’t be precise in my recollection. Q. So you accept that it may well be the case that she didn’t say those words to you? A. Yes.” [Transcript 27 May 2003 at 8]

Mr De Rango had not taken notes at the relevant meeting and under cross-examination gave evidence that he could not recall having said to a representative of Carpet Fashion that there was no place for bulky goods in the new outlet. [Transcript 27 May 2003, 50]

The matter of whether or not these words were said remains a real question of doubt and in my view Carpet Fashion has not, in the light of all of the evidence, established on the balance of probabilities that the words were said. July or August 2000

In July or August 2000 a meeting was held with Mr Frank De Rango, Mr John Koch, Ms Jean Smith, Mr Geoff Porz and Mr Glyn John.

Mr De Rango alleges that: · he said that he thought that the Carpet Fashion business, in particular the sale of rugs, was a very viable business to conduct from the Centre following redevelopment; · he said there was a rug shop which traded very successfully at the Direct Factory Outlet in Moorabbin, Melbourne; and · in response, Carpet Fashion's representative said that he would go down and have a look at the operation of the Centre in Melbourne and would specifically look at the rug business and would come back to us as to what he wanted to do. [Mr De Rango Statement, paras 5-9]

Mr John Koch alleges that at that meeting, Mr Glyn John was advised that the Centre was to be relaunched as a direct factory outlet and that Carpet Fashion could either relocate to different premises within the Centre or bring its lease to an end. Mr Glyn John said that he would consider these options and get back Forma. [Koch Statement, para 51]

Mr John did not put on any affidavit evidence in relation to this meeting. 15 August 2000

On 15 August 2000, Mr Solomons (an employee of By Dezigns Pty Limited), spoke with a man from Carpet Fashion. He gave the following evidence about their conversation: “On 15 August 2000, I spoke with a male from the Carpet Fashion store. I cannot now recall the name of that person. I asked this man about the trading intentions of Carpet Fashion. He said to me that Carpet Fashion were not going to trade on at the Centre and that they would close the Carpet Fashion store. He told me that Carpet Fashion intended to utilise another trading location. I cannot now recall where this location was, or whether it was a new or existing Carpet Fashion store. The person I spoke with did not say anything to suggest that Carpet Fashion were having difficulties locating alternative premises.” [Mr Solomons Statement, para 7]

Mr John did not put on any affidavit evidence about this conversation. 31 August 2000

Ms Smith sent a letter to Mr John on 31 August 2000. This letter enclosed a relocation notice dated 1 September 2000 and a disclosure statement in respect of Shop T58. Shop T58 had been offered to Carpet Fashion as an alternative shop. [Mr John Statement, para 40; Smith Statement, para 16]

On 31 August 2000, Mr Warren Fox of Norwest Limited writes to Mr Glyn John in relation to new tenancy at the Norwest Homemaker Centre. The letter refers to 'previous correspondence and recent discussions'. [Plaintiff's discovered documents number 37] 4 September 2000

Mr John received a further letter from the management of the Centre. The letter enclosed details of the proposed tenancy mix for the Centre when operating as a factory outlet centre. Shop T58 was described as “homewares”. [Mr John Statement, para 41; Smith Statement, para 19] 15 September to 1 October 2000

The Centre was closed from 15 September 2000 to 1 October 2000 (inclusive), for the duration of the Olympics. 18 September 2000

Mr John’s solicitors replied to the Centre management letters by letter dated 18 September 2000. The letter also sought to terminate the lease. [Mr John Statement, para 42] 28 September 2000

Minter Ellison responded to the letter dated 18 September 2000 on behalf of Forma Holdings on 28 September 2000. [Mr John Statement, para 43] November 2000

The centre is closed for redevelopment. [Koch Statement, para 50] 30 November 2000

Carpet Fashion vacates the Premises. [Mr John Statement, para 44; Smith Statement, para 20] February 2001

Carpet Fashion opened a store at the Norwest Homemaker Centre (Bella Vista). [Statement of Mr Glyn Christopher John dated 23 May 2003, para 5] 13 September 2001

The Centre relaunched as direct factory outlets centre. The traffic count for the Centre for the period 13 September 2001 to 31 October 2002 was: · September 2001 - 65,200; · October 2001 - 135,175; · November 2001 - 131,120; · December 2001 - 153,779; · January 2002 - 118,932; · February 2002 - 91,083; · March 2002 - 106,342; · April 2002 - 131,945; · May 2002 - 113,423; · June 2002 - 119,856; · July 2002 - 130,322; · August 2002 - 109,104; · September 2002 - 121,961; and · October 2002 - 121,716. [Koch Statement, para 52; Smith Statement, paras 21, 22] Dealing with some disparate factual issues

It was quite plain from his evidence that Mr John had a very strong and firm belief that to have continued trading at the Homebush Centre, to use his words, "would have been a disaster" And this notwithstanding that his company had been offered 230 sq m in the redeveloped Centre in shop T58 being slightly larger than the existing premises had been. The reason for his strong opinion was that the clientele would have been completely different. His evidence included the following: “Q. In any event the physical size and configuration of the new premises offered to you could have been fitted out in precisely the same way as your existing store? A. Yes. Q. No 258 was in a location in the proposed re-developed store from which you have conducted precisely the same carpet and floor covering business, wasn’t it? A. No. I could have done, yes. Q. You could have sold exactly the same things to passers by in exactly the same way had you stayed where you were? A. No. .. Q. The successful operation of the Carpet Fashion Store depends primarily doesn’t it on the number of people who become aware of the store and link that with some need of theirs for carpet or floor coverings? A. No. Q. The store you were offered was described in the relocation notice as a homeware store? A. Yes. Q. You agree that that was an appropriate description for carpets and other floor coverings that one might use in the home? A. No. Q. It is a ware that one uses in one’s home, isn’t it? A. I have never seen a carpet store described anywhere as homewares. Q. I will put it this way: have you ever visited the re-developed Homebush centre? A. Yes. … Q. Will you agree with me that the items sold by the furniture stores I mentioned to you and Bing Lee at least fall within the definition of bulky goods? A. Yes, Bing Lee does… Q. Could I ask you to assume that in the re-developed centre the traffic numbers for the centre were something in the order of four times the number of people as visited the centre when you were a tenant of it. Will you make that assumption? A. Yes. Q. On that assumption you could very well have continued a very profitable carpet fashion store from the re-developed Homebush Centre, couldn’t you? A. No. Q. Four times the traffic through the centre would have provided a very good retail opportunity for you, wouldn’t it? A. In my experience, no. Q. Isn’t the success of tenancies directly related to the traffic numbers through the centre? A. Not in our business, no. Q. It is an extremely important factor, isn’t it? A. The type of client in our business is more important than the volume of business. The type of consumer attracted to bulky goods is of more importance than the number. Q. If you have four times the number of visitors you are more likely to get more people, more interest in your carpet fashion store, aren’t you? A. I don’t agree. HIS HONOUR: Why not? A. Because I have had experience of that your Honour and it doesn’t work that way. We have the experience at a centre at Bankstown which is quite a good centre and we were trading there quite successfully. Management in their wisdom put a Hungry Jack’s store close to us and we eventually left that store because we were not attracting the right kind of people. People couldn’t get parks and it wasn’t just successful. There was high volume traffic and we could not continue there. Our carpet sales and our main line sales could not be justified even though we had extra staff and the flow through, people are not in the frame of mind. In some areas people are taken in bus loads from miles around, and we had a similar experience in Tuggerah when we had a direct factory outlet type business above our premises and as well as traffic have increased, our business has decreased slightly but none the less it is a decrease.” [Transcript 27 May 2003, 9 – 12] The Principles The misleading and deceptive conduct case General propositions

The following propositions appear to be clearly established: · Whether particular conduct is misleading or deceptive is a question of fact to be determined in the context of the evidence as to the alleged conduct and as to the whole of the complex of relevant surrounding facts and circumstances; · Effect should be given to the ordinary meaning of the words used which should not be qualified or (if it be possible) expanded by reference to established common law principles of liability: Brown v Jam Factory Pty Ltd (1981) ATPR 40-213 at 42,928 per Fox J. · ‘ Misleading ' is a word which is capable of expressing various shades of meaning. Its meaning is apt to be decisively influenced, by the context in which it is found: Re Creditor Tribunal (1977) 137 CLR 545 at 561. · The two words , "misleading" and “deceptive" are not synonymous. That is not to say that each word may not catch some of the same conduct and that there may not be some degree of overlap. " Misleading " does not necessarily involve an element of intent and it is a word of wider reach than " deceive "... Trickery, craft and guile, though not essential elements of liability, are typically at the heart of this second element of the statutory provision directed to the protection of the public from unfair trading practices": Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) ATPR 40-850 per Lockhart J · The words " likely to mislead or deceive " make clear that it is unnecessary to prove that the conduct in question actually deceived or misled anyone. Conduct is likely to mislead or to deceive if there is a real or not remote chance or possibility regardless of whether it is less or more than 50%: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87 · The question of whether conduct is misleading or deceptive or likely to mislead or deceive is an objective question and is a matter for determination by the court for itself. Evidence that particular persons have been misled, although admissible and commonly likely to be very persuasive, will not be determinative of the issue. · An essential issue in determining whether a person’s conduct has contravened Section 52(1) is determining “ what is to be taken from that conduct ”: Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 at 683 per Mahoney JA – cited with approval by Mason P in Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 at paragraph 51. · The intent of the defendant is not relevant under section 52; · It is necessary to inquire why any misconception has arisen for the reason that it is only by such an inquiry that the evidence of those shown to have been led into error can be evaluated to determine whether they were confused by misleading conduct of the defendant: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; · The fact that a person who has been the subject of a misrepresentation has been careless or could have discovered the misrepresentation had he made proper inquiries does not absolve the maker of the misrepresentation from liability for breach of section 52; · A genuine change of mind does not make earlier predictions as to future conduct misleading or deceptive: James v ANZ Banking Group Ltd (1986) 64 ALR 347 at 372 per Toohey J; · Silence is capable of giving rise to an actionable misrepresentation when the circumstances give rise to an obligation to disclose relevant facts as well as in other circumstances. Consistently with the natural meaning of the terms of section 52, the essential question is whether, in all of the circumstances constituted by acts, omissions, statements or silence, there has been conduct likely to mislead or deceive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. Disclaimers

The following propositions appear to be correct as a matter of principle: · Where disclaimers form part of the matrix of fact under consideration, it is necessary for the court to consider the relevant conduct as a whole so as to determine whether the representation in question, including the circumstances in which the disclaimer was made, is misleading or deceptive. · Disclaimer cases in terms of section 52 include a necessity to focus upon: · The timing of the disclaimer in relation to the conduct which would otherwise be misleading or deceptive; and · Whether, and if so in what manner, and to what extent, the disclaimer was effectively brought to the attention of the relevant party. · The fact that a disclaimer does not have some form of automatic effect in terms of permitting the perpetrator of misleading conduct, by resorting to the disclaimer, to evade the operation of section 52: Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043 at 51,590.

Clearly a business person of experience in particular circumstances, may well be likely to be more aware of and to better understand the nature of a disclaimer then would a person without that form of experience or background.

A disclaimer is effective simply as being one of a number of relevant parameters constituting the conduct in focus and alleged to have constituted a relevant misrepresentation.

In short the presence of a disclaimer is part of the evidence to be taken into account in deciding whether there was reliance in fact, and the presence of a disclaimer is by no means necessarily inconsistent with the fact of reliance: Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 107 ALR 291 at 312-3 (Burchett J); Karawi Constructions Pty Ltd v Bonefind Pty Ltd (1993) ATPR 41-265 at 41,571 (Beaumont J); Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601 at 40,516 (Branson and Emmett JJ).

As a matter of principle, if a person is induced to enter a contract by misleading conduct and suffers loss, an action lies notwithstanding that the contract may purport to exclude or disclaim reliance on pre-contractual representations or release claims based upon them: Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 377-378 (Wilcox J); Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371 (Sheppard J, with whom Jackson J agreed at 375); Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 561 (Lockhart J, with whom Burchett and Foster JJ agreed); Lezam v Seabridge Australia Pty Ltd (1992) 107 ALR 291 at 312-3 (Burchett J).

Burchett J in Oraka Pty Ltd v Leda Holdings Pty Ltd ( 1997) ATPR 41-558 dealt with a clause which he described as " very formidable ": "9.1 The Tenant represents and warrants that: (a) the Tenant was not induced to enter into this deed by and has not relied on any statements, representations or warranties whether orally or in writing or contained in any brochure and including, without limitation, statements, representations or warranties about the fitness or suitability for any purpose of the Premises or about any financial return or income to be derived from the Premises; and (b) in entering into this deed the Tenant has relied entirely on inquiries relating to an inspection of the Premises made by or on behalf of the Tenant; and (c) the Tenant has obtained independent legal advice on and is satisfied about the Tenant's obligations and rights under this deed; and (d) the Tenant has obtained independent expert advice on and is satisfied about the nature of the Premises and the purposes for which the Premises may be lawfully used. 9.2 The Tenant acknowledges that the Landlord has entered into this deed on the basis that the representations and warranties contained in clause 9.1 are true and not misleading…”

Burchett J put the matter as follows: “Counsel for Leda sought to place reliance on clause 9 of the agreement for lease, and on the corresponding provision in the letter of intent. Clause 9 has been drawn in formidable language, as a representation and warranty by Oraka, reinforced by what is expressed as an indemnity in clause 9.3, that Oraka was not induced by and did not rely on any representations made to it. But there is a difficulty in depending on such a provision according to its literal terms. It cannot be thought that the very agreement that was obtained by a misrepresentation can be made good by incorporating in it a further misrepresentation falsely asserting that it was not procured by the means which were in fact employed. The agreement that so seeks to sustain itself was obtained by a misrepresentation, and no verbal magic of an added clause can change that. Many authorities have made this clear. It is sufficient to refer to the judgment of Sheppard J (with whom in this respect Jackson J agreed) in Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371; my own judgment in Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 at 556-557; and the judgment of Foster J (with whom in this respect Wilcox and Tamberlin JJ agreed) in GIO Australia Holdings Limited v Marks (1997) ATPR 43,541 at 43,555. Clause 9.1, in the present case, goes further than most such clauses, in so far as it is expressed as a representation and warranty by the very party that was misled. However, the same was true of the exclusion clause considered by Tamberlin J in Brookteck Pty Limited v Lumocol Australia Pty Limited (unreported, 23 October 1996), where his Honour nevertheless thought the clause could not be given effect contrary to the statute…In my opinion, a clause of this kind could only assist the respondent if, in reality, its terms formed part of a complex of circumstances leading to the conclusion that the respondent's conduct was not truly misleading, or did not truly induce the action it was alleged to induce. If, on the other hand, the conduct really was misleading, and did induce the applicants to execute the document…, the fact that this document happened to include clause 9 cannot enable the respondent to evade the consequences of its conduct.”

In Henjo Lockhart J put the matter as follows: "Irrespective of the construction of these two special conditions it does not matter ultimately whether the impugned conduct with which this case is concerned falls literally within them or not. Section 52 is a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special conditions 6 and 7 are examples, cannot operate to defeat claims under section 52. It may be… that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of section 52and the making of the agreement in the issue." [Henjo at page 49,155 – 49,156] Causation and Reliance

Section 82 (1) of the Trade Practices Act provides: "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention." [Emphasis added]

In Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, McHugh, Hayne and Callinan JJ pointed out that the power of the Court to make orders under section 87 (1) was predicated upon the Court finding " that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another " engaged in the contravention of Part IV, IVA or V “ and that relevantly, section 87 (1A) was also predicated upon the applicant being "a person who has suffered, or is likely to suffer, loss or damage by conduct of another " engaged in the contravention of, relevantly, Part V.

In the same joint judgment their Honours said: “The question presented by S 82…is what loss or damage has been caused by the conduct contravening the Act.”

It follows, then, that a comparison must be made between the position in which the party that allegedly has suffered loss or damage is in and the position in which that party would have been, but for the contravening conduct. [cf Australian Development Corporation Pty Ltd v White Construction (ACT) Pty Ltd , Supreme Court of New South Wales, 8 February 1999 unreported, at paragraph 60 et seq.] And even this inquiry may not conclude the question. As McHugh, Hayne and Callinan JJ pointed out, “Analysing the question of causation only by reference to what is, in essence, a "but for" test has been found wanting in other contexts and it may well be that it is not an exclusive test of causation in this area either. But that is not a question which we need to consider in this case. For the moment it is enough to say that S 82 requires identification of a causal link between loss or damage and conduct done in contravention of the Act." [at paragraph 42]

In Henville v Walker [2001] 75 ALJR 1410, the High Court again addressed the issue of causation. A convenient summary of the facts is given in an article 'Monetary Remedies under the Trade Practices Act' by Wright, 22 Australian Bar Review 39 at 41 in the following terms: “By the time that Henville v Walker reached the High Court it was not in issue that Walker had made a series of representations to Henville which breached s 52 of the TPA. The first of the representations was that there was a market for luxury, top of the range units in Albany, Western Australia. The second was that Walker had represented that the sale of these luxury units would be for between $250,000 and $280,000 each. Nor was it an issue that Henville bought the land that the units were to be built on for $190,000 and he constructed three units on this land. But as the representations were inaccurate, Henville sold the units for a joint amount of only $545,000. In total, including building costs, his loss on the project was $319,846.51. Before buying the land Henville had prepared a feasibility study, but with regard to the revenue side of it the figure that was employed was that supplied by Walker’s misrepresentation. With regard to cost, Henville estimated $551,000. However, both the revenue side of it and the cost side of the feasibility study were greatly inaccurate (the revenue side over-estimated the revenue, while the cost side greatly underestimated the cost). Henville brought an action against Walker in the Supreme Court of Western Australia for breach of s 52 and sought recovery of his loss under s 82. At first instance, Henville received most of the money he was seeking, but was not able to recover a certain amount because his own actions were the cause of that part of the overall loss. On appeal to the Full Court of the Supreme Court of Western Australia, Henville was not able to recover any of the loss as his own action, that is by preparing the feasibility study, broke the chain of causation. The question in the appeal was the amount of the recoverable loss under the action. All five members of the High Court allowed the appeal but their Honours wrote separate judgments, except for Gummow J who agreed with both McHugh and Hayne JJ.”

Gleeson CJ [at paragraph 14] said: “For there to be the necessary causal relationship between a contravention of s 52, and loss or damage, so as to satisfy the requirements of s 82(1), it is not essential that the contravention be the sole cause of the loss or damage. As Brennan J pointed out in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 356-357, where the making of a false representation induces a person to act in a certain manner, loss or damage may flow directly from the act and only indirectly from the making of the representation; but in such a case the act “is a link – not a break – in the chain of causation”.

Gaudron J cited the 'common-sense' approach articulated by the High Court in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 holding: "that common-sense approach requires no more than that the act or event in question should have materially contributed to the loss or injury suffered. And there is nothing in the Act to suggest that any different approach should be taken in the case of a misrepresentation that constitutes a contravention of S 52(1)”

Mc Hugh J [at paragraph 106] said “If the defendant’s breach has “materially contributed” ( Bonnington Castings Ltd v Wardlaw [1956] AC 613 at 620, per Lord Reid) to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage.” At paragraph 132 his Honour said: “In this case, the most appropriate approach is to identify what Mr Henville has suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the breach of the Act ( Toteff v Antonas (1952) 87 CLR 647at 650, referred to, inter alia in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526, Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 512 [41]). The measure of that loss is not determined by reference to what he would have received if Mr Walker’s representations had been true. As the New Zealand Court of Appeal pointed out in Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15, a case concerned with s 43(1) of the Fair Trading Act 1986 (NZ), a representation can give rise to a claim for a lost benefit or loss of expectation only where there is an obligation to perform the representation. The Court of Appeal held that s 43(1) was directed against the making of a false representation, as opposed to the failure to perform it. Similarly, the wrong which s 52 of the Act prohibits is the making of, not the failure to honour, the false representation. By entering upon the project, Mr Henville has lost $319,846.51. If Mr Walker had not made representations in breach of the Act, none of this loss would have occurred. The loss suffered is therefore directly attributable to a contravention of the Act even though other factors played their part in bring about the loss.”

Hayne J [at paragraph 162] put the matter as follows: “The conclusion that the appellants suffered loss requires comparison between the position in which the appellants found themselves after the project was finished, and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project. It does not invite attention to what would have been their position if an accurate estimate of selling price had been given by the respondents ( Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514-515 [48]-[52]). Moreover, the conclusion that the appellants suffered loss neither requires nor permits consideration of some third or intermediate position in which the appellants undertook some project or transaction other than the one they did. It is, therefore, not relevant to consider what the loss might have been if the costs had been estimated properly.” Section 51A

The plaintiff has approached their case of misleading and deceptive conduct by relying upon section 51A. Section 51A is of course an evidentiary, rather than a substantive provision: Bowler v Hilda Pty Ltd (1998) 80 FCR 191 per Heerey J.

Clearly section 51A does not prove that a representation as to a future matter was relied upon by the other contracting party: Cf Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670 at para. 166 per Mason P. Nor does it address whether at the time of the representation as to the future matter, it was reasonable for the maker of the representation to have made it. The onus of proof having shifted, the representor must show objectively that it had reasonable grounds for making the representation. Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 per Ormiston J at 240: referred to with approval by Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 506. Clearly also the plaintiff has an onus of showing demonstrable loss which flowed from any reliance by the plaintiff upon the defendant’s section 51A deemed misleading conduct: Concrete Constructions at para 160. Dealing with the misrepresentation case Characterising the subject representations

Forma claims that the representation pleaded namely " that the Centre was to be used exclusively for the sale of bulky goods and retail sales of products used in the home building and renovation industry " is not a representation that was made in terms by the defendant, nor is it a reasonable approximation of the effect of the statements that were made to the plaintiff. Forma accepts that the evidence of Mr Glyn John and Mr Lechmere and Mr Koch is in substantial agreement, subject to a few apparently minor matters, about the content of the negotiations between the parties in the period before Carpet Fashion entered into the lease.

In my view on the evidence neither those conversations nor the advertising brochures may be characterised as conveying the representation that the Centre would be “exclusively” of any particular type – rather, the message to Carpet Fashion was that it was Forma’s intention to open and operate a Centre with retail and exhibition space relating to goods sold in the trade area of home and building renovation. The Retail Leases Act disclosure statement does not further the matter.

Under cross-examination Mr Glyn John gave the following evidence: “Q. I am sorry. You dealt with Mr Londish and Mr Lechmere? A. Yes. Q. And you understood the shopping centre that was proposed by them was a shopping centre that included a great variety of types of goods being available for sale in the centre? A. Yes. … Q. You knew, didn't you, that what was proposed would include, as a proposal, shops that sold furniture and home furnishings, electrical appliances, lighting and bedding? A. Yes. Q. And you knew, didn't you, that the home furnishings might include a whole range of goods? A. Yes. Q. And certainly home furnishings is something that is apt to describe, I put it to you, items from very small decorative items through to larger items used in the day-to-day running of the house? A. Yes. … Q. In the course of your negotiation with Mr Lechmere and Mr Londish one or other of them had said to you that there would be various food outlets in the shopping centre? A. Yes. Q. And by 1996 I think you told his Honour that other Carpet Fashion stores had been opened in shopping centres too? A. Yes. Q. And you were aware from that experience, weren't you, that the tenants in a shopping centre tend to come and go? A. Yes. Q. And you anticipated, when you were considering the Homebush centre, that the same sort of thing would occur in practice at the Homebush centre? A. Yes. Q. In other words, from time to time, certain tenants would move out? Yes? A. Yes. Q. And new tenants would move in? A. Yes. … Q. Neither Mr Lechmere nor Mr Londish, could I suggest to you, ever said to you that if a tenant left the Homebush centre, a tenant who sold exactly the same kind of goods would have to be the new tenant? A. Not necessarily. Q. That was never said to you, was it? A. No. Q. No, and you expected, didn't you, that the Homebush centre would operate much the same as other shopping centres, namely, that there would be a flexibility retained by the lessor to grant leases to tenants selling different types of goods in the future? A. Yes. [Transcript 26 May 2003, 84 - 85]

I accept as of substance the Forma submission that no such representation should be inferred – that is, the proper holding on the evidence is that Mr John did not conclude (and a reasonable person in his position could not have concluded) that the exclusive future use of the Centre was as suggested. The circumstances warranting that conclusion include: · Mr John expected that the Centre lessor would retain flexibility to grant leases to tenants selling different types of goods in the future (Transcript 26 May 2003, 85.36 - 85.41); · Mr John was aware that at least one food outlet was intended to open and operate from the Centre, which is quite inconsistent with the suggested “ exclusivity ” of future use (Transcript 27 May 2003, 4.23 - 4.38); · Mr John was well aware of the proposal to use a large area of the Centre as an exhibition area (Mr John Statement, paras 13,15); · At the time of the “relaunch” of the Centre, under a new name and logo, in early 1998, Mr John made no complaint (Transcript 27 May 2003, 20.44 – 21.21); · The terms of the Disclosure Statement to Carpet Fashion before its entry into the Lease (Bundle, p 47 ff at items 25 and 45); · The terms of the various drafts of the Lease reviewed by Mr John and known to him in intimate detail (Transcript 26 May 2003, 80.53 - 80.56), namely clauses 8.2, 8.3.1, 17, and 27. Reasonable grounds for the making of representations as to future matters

It is particularly important to note that on the evidence not only did Forma effectively represent that the Centre would be opened and operated as a home building and renovation shopping centre, but in addition, that intention was actually realised with the opening of the Centre and its operation for some years as a home building and renovation centre.

It is fair to say that towards the close of final address counsel for Carpet Fashion acknowledged the weakness in the misleading and deceptive conduct case for very obvious reasons.

The court's finding is that: · at the time discussions were being held between Forma and Carpet Fashion as a prospective lessee, Forma had abundant research information and other business advice that a building and home renovation centre would be a viable and successful commercial enterprise; and · any predictions made by Forma about the future character of the Centre accorded with its then intentions for the Centre and were based on reasonable grounds.

Evidence of the information known to Forma that constituted reasonable grounds for the making of the representations and of Forma’s genuine belief about the use and likely success of the Centre, includes the statement of John Koch (paras 8-20, 25, 31-34) (see also the PLI Report, the First Davlon Report, the Second Davlon Report and the Leyshon Report). Genuine change of mind

The courts findings set out below accept as correct and generally adopt a number of Forma’s submissions.

The evidence establishes that Forma made every reasonable effort to promote the Centre and create a successful commercial enterprise at the Centre: Koch Statement, paras 35 - 48; Smith Statement, paras 5-11. Nevertheless, the Centre clearly did not trade well. Its viability came into question. It made a decision to redevelop the Centre: Koch Statement, paras 49 - 51; Smith Statement, paras 12 - 25. This was a genuine change of mind by Forma and appears on the evidence to have been a proper and reasonable commercial response to the very questionable viability of the continued operation of the Centre in its original form. A genuine change of mind does not make earlier predictions as to future conduct misleading or deceptive: James v ANZ Banking Group Ltd supra. That is particularly so after a number of years had passed during which the earlier predictions were converted into reality. As Forma has submitted, the evidence establishes that its decision to redevelop was not a badge of misleading or deceptive conduct, but rather what appears to have been a responsible commercial decision forced upon it by the exigencies of business life. Reliance

In any event Carpet Fashion has not discharged its onus of proof in relation to proving reliance. As counsel for Forma submitted, the evidence makes quite plain that: · the plaintiff’s director and the active participant in the negotiations for lease, Mr Glyn John, was a very experienced business person; · his evidence was that by late 1996 there were nine Carpet Fashion stores throughout Sydney; he had started Carpet Fashion and had grown it to the point it had achieved by late 1996; by late 1996 the gross sales for Carpet Fashion was something in the order of $10 million; he had personally conducted many negotiations over the years between 1973 and 1996 for the purpose of taking up leases for new Carpet Fashion stores; when it came to the decision-making in that regard, he spoke for the company; by about late 1996 he had been involved with in the order of 20 rounds of negotiations for leases; it was his practice when involved in such negotiations to take a direct interest in the terms of the lease being proposed; it was his practice to read draft leases carefully when they came to be entered into; when it came to the Homebush Centre negotiations, he took a direct and personal interest in the negotiation of the lease; he reviewed a number of drafts of the lease; he read those drafts carefully and either gave instructions to his solicitor or conducted negotiations with the lessor about the terms; he also performed the review of the draft lease terms that were proposed carefully and with the best interests of Carpet Fashion in mind; by the time he came to execute the lease he was intimately familiar with its terms; each of the terms in the draft that he came to execute were terms with which he agreed ; it was his practice when he negotiated the leases to involve his solicitor; that practice was applied in the negotiations for the Homebush Centre lease; in the course of those negotiations he took legal advice about the terms of the proposed draft leases; he discussed in detail the terms of the proposed draft and their effect, both legal and commercial , with his solicitor in the course of his consideration of those drafts; he knew from his experience with entering into leases and from his discussions with his solicitor that there was no binding agreement until he executed the lease document; this did not occur until sometime after January 1997 in relation to the Homebush lease.

The Court’s finding is that Carpet Fashion must have realised or be taken to have been on notice that the lessor had reserved to itself (among other things) the power and capacity to change the name and logo of the Centre, to redevelop it, to move the premises of Carpet Fashion in the course of that redevelopment, and to change the other tenants and tenancy mix of the Centre. So much is of course apparent from: · the terms of the Lease; and · the terms of the Disclosure Statement. Dismissal of misleading and deceptive conduct case

For those reasons Carpet Fashion fails in its misleading and deceptive conduct case. Non-derogation from grant The principles

The principles appear to be as follows: The general principle · There is a general principle of property law that a grantor must not derogate from the grant: 2 Shepp.Touchst. by Preston, p.286; cf the reference to “the taking away with one hand what the other hand has given”: Birmingham , Dudley and District Banking Co v Ross (1888) 38 Ch.D 295 at 312; D W Elliott, “ Non-Derogation from Grant ” (1964) 80 LQR 244 at 244, citing Peech v Best [1931] 1 KB 1 where the rule was applied to prevent a grantor of sporting rights from so acting as to annihilate the game Vendor or and purchaser context · The matter was put (in the context of vendor and purchaser) by Griffith CJ in Nelson v Walker (1910) 10 CLR 560 at 572 in terms of an implied term of the transaction that: “the grantor should not use the land which he retains in such a way as to preclude any use of the land which he sells, or that use for which he knows he is selling it to the purchaser”. Lessor and lessee context · The principle has application in the lessor and lessee context where premises let for a purpose would be rendered unfit by a particular use of adjoining premises retained by the landlord or let to another tenant; cf Harrington & Anor v Harrington Services Pty Ltd [2002] 55 NSWLR 618 per Palmer J at [81]. Degree of affectation of use by lessee · "Premises will be regarded as having been rendered unfit for the demised purpose if the facts, even though falling short of establishing absolute unfitness, are sufficient to enable the Court to conclude that the premises are for practical purposes to be fairly regarded as having been rendered unfit". Gordon v Lidcombe Developments Pty Ltd [1966] 2 NSWR 9 at 15-16, per Street J · None of the tests propounded require a plaintiff lessee to establish that the premises were rendered totally unfit for their intended use. The question is whether, having regard to all the circumstances, the interference with the lessee’s use was so ‘substantial’ or ‘ material ’ that it is to be regarded as rendering the premises unfit for their particular use: Kazas & Associates Pty Ltd v Multiplex (Mountain Street) Pty Ltd [2002] NSWSC 840 at [73] per Palmer J. Implied covenant not to derogate from grant of lease is subject to agreement · the implied covenant of a lessor not to derogate from the grant of a lease is subject to any relevant agreement between lessor and lessee, whether in the lease itself or otherwise: "It is both consistent with principle and authority of long standing that parties can, by specific arrangement, modify or vary covenants that will otherwise be implied from the relationship of lessor and lessee". ( Lend Lease Development Pty Ltd v Zemlicka (1985) 3 NSWLR 207 at 218 per Kirby P (with whom Hope and Samuels JJA agreed (dealing with the context of considering an asserted derogation from the grant of a lease). · “[o]f course, express words might reserve to the grantor the right to derogate in some way” : D W Elliott, “ Non-Derogation from Grant ” supra at 259; cf Myers v Catterson (1889) 43 Ch.D. 470

W D Duncan, “ Non-Derogation from Grant and Tenant Mix ” (1998) 6 APLJ 197, discusses the principle of non-derogation from grant in the context of leases of retail shops. The author suggests, it seems to me, entirely correctly, that the doctrine may be simply stated as follows: “Where a lessee leases part of the lessor’s property for carrying on a particular business, the lessor is bound to abstain from doing anything on the remaining portion of the property which would render the leased premises unfit for conducting that business in a way it is ordinarily carried on. At the crux of the obligation is the broader principle that if one person confers a particular benefit on another, the former must not do anything which substantially deprives the latter of the enjoyment of that benefit.” [at 197 – 198]

As Handley JA observed in Wilcox v Richardson (1997) 43 NSWLR 4 at 18, it does appear that in the lessor/lessee context, claims invoking the non-derogation from grant implied term have rarely succeeded and then only in extreme circumstances. Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450 was cited by Handley JA as one of the very few modern authorities in which a lessor has been found to have derogated from the grant of a lease of retail premises by reason of the identity and operations of nearby premises (leased to other parties by the lessor). The extreme circumstances in Nordern were that the third floor of a city building was let for commercial use as a computer personnel bureau. The lessor subsequently let the fourth floor to an escort agency and permitted its (illegal) use as a brothel. The lessor’s actions were regarded as a derogation from grant constituting a repudiation of the lease. Dealing with the issue

Naturally in approaching the non-derogation from grant cause of action, the fact that Carpet Fashion has failed in its section 52 case is highly significant. The non-derogation from grant case requires that there be taken as a given the fact that Carpet Fashion is not shown to have entered into the lease by misleading or deceptive conduct. Hence all reliance upon alleged wrongdoing in the form of pre-contractual representations must be put to one side and the issue is determined upon the basis that the lease represents the binding contract.

Clearly the issue requires to be determined taking into account the whole of the facts, matters and circumstances thrown up by the evidence. However it is pertinent at the threshold to note clause 27.12 of the lease which expressly provides that the exercise by the lessor of the relocation notice procedures does not constitute a derogation from the grant of the lease. The precise term

During the final hearing Carpet Fashion submitted that the relevant term for present purposes was " that the lessor will not during the term of the lease and option, if exercised, alter the type of tenant mix or the type of products sold in the Centre” : [“the specific implied term formulation”]. Overview Submissions [24]

On it becoming apparent that the Summons, albeit including a pleading that "there was a term implied that Forma would not derogate from the grant of the lease " ["the general implied term formulation"] [paragraph 19], had not pleaded the specific implied term formulation, Carpet Fashion was granted leave to amend the summons accordingly. Forma's submissions

Here again, in my view Forma’s submissions are generally of substance and they are, in a number of instances, simply adopted in findings which follow. The specific implied term formulation

Forma submitted in relation to the specific implied term formulation, that such a term would not be implied because: (1) it is not so obvious that it goes without saying; (2) it is not clearly expressed; and (3) it is contradicted by express terms of the lease.

In my view it is sufficient for present purposes to uphold the third of these submissions. A careful examination of the lease makes good the proposition that the term for which Carpet Fashion contended would not be implied because it is contradicted by express terms of the lease. [I interpolate to note that the general test of objectivity is pervasive in the law of contract. Naturally the wording of the lease identifies the terms. However the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words or conduct notwithstanding that he did not consciously formulate that intention in his own mind; cf Gissing v Gissing [1971] AC 886 per Diplock LJ]

The lease expressly provides for the lessor to determine the tenant mix of the Centre as it sees fit. Clause 8.2 of the lease provides: “The right to conduct a business of the kind referred to in Item 9 [ namely, the retail sale of carpets and floor coverings ] is not exclusive to the Lessee and the Lessor may permit other persons to conduct in or from the Centre such businesses as it thinks fit notwithstanding that any such business is similar in whole or in part to the business permitted to be conducted in the Premises. Provided that the Lessor shall not in any circumstances permit more than one [other] specialist floor covering business (excluding ceramic floor tiles) within the Centre at any time.”

I accept that Carpet Fashion has thereby agreed that “ the Lessor may permit other persons to conduct in or from the Centre such businesses as it thinks fit ”, subject to the limited proviso in the second sentence of clause 8.2. That agreement, I accept, contradicts the implied term contended for.

Clause 8.3.1 of the lease provides in part: “The Lessee covenants with the Lessor that it has not in entering into this Lease relied upon any promise, representation, warranty or undertaking given by or on behalf of the Lessor in respect of any one or more of the following: … 8.3.1.5 the name, nature, quality, number of or profitability of any occupiers of the Centre or of any premises or properties adjoining or near the Centre (whether owned by the Lessor or not); …”

In other words, and as Forma has submitted, the plaintiff has agreed that it did not rely on (among other things) the “ nature ” and “ quality ” of other occupiers of the Centre when it took its Lease. Whilst that term would have had no weight in relation to the Trade Practices Act misleading and deceptive conduct claim [the inducement to enter into a contract by misleading and deceptive conduct will outflank/render inoperative the exclusion or disclaimer provided for in the contract], the term clearly has significant weight coming into its own once the lease is shown to have had binding legal effect. Hence Carpet Fashion's agreement that it did not rely on (among other things) the “ nature ” and “ quality ” of other occupiers of the Centre when it took its lease, also contradicts the implied term now contended for.

Clause 17 of the lease provides in part: The Lessor reserves the following exclusive rights, exercisable at any time and from time to time: 17.1 To increase or reduce the area of the Land comprising the Centre or to sell, transfer, lease, mortgage, encumber or otherwise deal with any of the Land from time to time comprising the Centre; 17.2 … 17.3 … 17.4 To effect alterations or additions or to enlarge, vary or reduce the Centre (other than the Premises) and in so doing (but without limiting the above) to do any one or more of the following : 17.4.1 construct new buildings or improvements on the Land ; 17.4.2 renovate, refurbish, reconstruct, modify or extend the existing buildings or improvements ; 17.4.3 change the location or layout of the Common Areas or the nature or location of the facilities ; 17.4.4 … 17.4.5 … and in so doing may temporarily during the course of works interrupt the water, gas, electrical, air conditioning or other services and access to the Premises. In exercising any such rights the Lessor will reasonably endeavour to cause as little inconvenience to the Lessee as is possible in the circumstances and will not unreasonably interfere with the conduct of the Lessee’s business and the estate or interest of the Lessee under this Lease will be subject to all such reservations; 17.5 The Lessor reserves the right at any time and from time to time to name or create a logo or change the name or logo of the Centre and the Lessee will not make any claim for compensation in respect thereof; 17.6 … 17.7 … 17.8 … 17.9 … 17.10 … 17.11 The Lessee will not make any demand or claim for compensation or institute any proceedings in respect of the exercise by the Lessor of any one or more of the Lessor’s rights under Clause 17. 17.12 … .” [emphasis added]

In express terms, clause 17.4 permits very substantial alterations of and additions to the Centre by the lessor and clause 17.5 expressly permits the lessor to change the name or logo of the Centre at any time. Those provisions are, I accept, only consistent with an agreement between the parties that the lessor would have the right, exercisable at any time, to ‘rebadge’ the Centre – that is, change its name, change its appearance and (when read with clause 8.2 and 8.3.1 set out above) change its tenant mix and the ‘character’ of the Centre at its discretion.

Clause 27 of the lease describes the “Relocation Notice” procedures and provides in part: 27.1 “The Lessor is entitled at any time during the Term to relocate the Lessee to alternative premises (“New Premises”) within the Centre where: 27.1.1 the Premises are required by the Lessor for the extension, renovation, refurbishment or redevelopment of the Centre; and 27.1.2 the Lessor presents current plans for the refurbishment, redevelopment or extension of the Centre which directly or indirectly affect the Premises; 27.1.3 the New Premises are, in the Lessor’s opinion, reasonably suitable for the Lessee to conduct its business according to the Permitted Use. 27.2 … 27.3 … 27.4 … 27.5 … 27.6 … 27.7 … 27.8 … 27.9 … 27.10 … 27.11 The Lessee agrees that under no circumstances is the Lessor under any liability for any loss or damage suffered by the Lessee at any time (including, without limit, loss of profits or economic loss) as a result of or directly or indirectly arising in any way out of the relocation of the Premises or the location, profitability, suitability or any other matter in respect of the New Premises and the Lessee releases the Lessor from all liability in respect of such loss or damage. 27.12 The Lessee agrees that the exercise by the Lessor of its rights to relocate the Lessee to the New Premises does not constitute a derogation from the grant of this Lease or a breach of the covenant for quiet enjoyment contained in this Lease.”

Clause 27.1.1 expressly provides that the lessor may extend, renovate, refurbish or redevelop the Centre, including the plaintiff’s premises. The effect of the clause (when read with the lease provisions referred to above) is clear – as Forma has submitted, it entirely contradicts the implied term alleged by the plaintiff.

Clause 27.12 as earlier mentioned, expressly provides that the exercise by the lessor of the relocation notice procedures does not constitute a derogation from the grant of the lease.

The plaintiff has not sought to litigate the proposition that the conditions in clauses 27.1.1, 27.1.2 and 27.1.3 were not satisfied. The general implied term formulation

Approaching the matter in terms of the general implied term formulation that the lessor would not derogate from the grant of the lease [cf Harrington & Anor v Harrington Services Pty Ltd supra], the court’s finding is that for the same reasons , the conduct of Forma is not shown to have constituted a breach of any such term.

Further Forma’s decision to redevelop the Centre did not render Carpet Fashion’s premises unfit for their use as a carpet and floor coverings shop because: (a) The decision to redevelop did not itself have any physical or proved financial effect upon the operation of Carpet Fashion’s business; (b) The proposed relocation of Carpet Fashion’s premises within the redeveloped Centre would have provided them with equivalent floor space in the same building and on the same level from which they had always traded. There was nothing suggested or required by Forma that would have prevented Carpet Fashion operating precisely the same shop, selling precisely the same goods in precisely the same way, in the redeveloped Centre; (c) The proposed tenant mix of the redeveloped Centre was quite consistent with (and an appropriate context for) a retail outlet selling carpets, rugs and other floor coverings. It was, in any event, certainly not a trading context that would have rendered Carpet Fashion’s premises ‘unfit’ for the purpose of the retail sale of carpets and floor coverings; cf Mr Leyshon’s opinions about the very advantageous retailing opportunities for the plaintiff at the redeveloped Centre (d) There was no physical interference with Carpet Fashion’s business. Remaining Matters

There remain two matters for examination.

The first concerns the submission by Forma that the alleged derogation from grant in the manner in which Carpet Fashion elected to litigate the proceedings, is no more than the mere declaration of an intention to develop the Centre. The submission is that this is no more than a form of anticipatory derogation from grant and that it was necessary, at the least, for Carpet Fashion to prove in some tangible way, that the proposed relocation would constitute a substantial or material interference with the lessee’s use and for that reason, is to be regarded as rendering the premises unfit for their particular use. Whilst there is some substance in the submission it does not seem to me, in the light of the reasons already given, the submission need be further examined.

The second matter concerns the submission by Carpet Fashion that notwithstanding the terms of the lease it is appropriate to infer the existence of an overarching implied non-derogation from grant term. The proposition for which Carpet Fashion contended was that the whole of the facts, matters and circumstances anterior to the entry into of the lease have to be taken into account and that the representations said to have been made by Forma in the negotiations, require the implication of such an overarching term to which the terms of the lease are necessarily subordinated. Such a proposition in my view only needs to be stated to be rejected out of hand. Reasons for this conclusion have already been given.

During the course of taking final submissions from Forma and although this matter had never been pleaded or referred to during the final hearing, the Court raised a question concerning the definition of the word Centre in the lease. That definition was: "Centre" means the Land, all buildings and other improvements (including all plant, machinery, equipment and fittings provided by the Lessor for the Centre) from time to time existing on the Land and which the Lessor is developing or has developed a home renovation, building products exhibition and bulky goods retail centre known as the "HIA Building & Renovata SupaCenta", excluding that part of the Land leased by the Lessor to Woolworths Limited for non-retail purposes and any other improvements on the Land which the Lessor may from time to time exclude from the Centre." [emphasis added]

The Court sought to examine with counsel whether or not this definition in some fashion qualified or limited provisions such as: · Clause 8.2 where the lessor was expressly granted the right to permit persons other than the lessee to conduct in or from the Centre, such businesses as the lessor might think fit; · Clause 17.4 or 17.5; · Clause 27.1 and following.

Upon reflection it seems to me that none of these clauses can be read down by reference to the definition of Centre. The entitlement of the lessor to change the name of the Centre, to construct new buildings, to modify or extend existing buildings or improvements and to make the changes to the Centre treated with in clause 17, as well as the reservation to the lessor of the right to permit others to conduct in or from the Centre, such businesses as the lessor might think fit, all make plain that the lessor was not, upon the proper construction of the lease, restricted to ensuring that the Centre never move outside of being a home renovation, building products exhibition and bulky goods retail centre. Further the description was no more than that - a description given at a static point in time, which may be changed, depending as the re-location provisions might be enlivened. The change of name entitlement of the lessor is of particular weight in confirming this construction.

In any event the matter was not litigated in terms of any such proposition. Ultimate finding

For the reasons given above Carpet Fashion has not established that having regard to all the circumstances, any reasonably anticipated interference with its use by reason of: · the relocation notice or · the circumstances in which the redevelopment and proposals were communicated to Carpet Fashion was so substantial or material that it is to be regarded as rendering the premises unfit for their particular use. Notwithstanding the evidence given by Mr John as to the inappropriateness of the new Centre for Carpet Fashion's business, the evidence of Ms Smith that there were at least two retailers which could be appropriately described as ‘bulky goods retailers’ operating from the new Centre, is accepted. The problem may simply inhere in Mr John's personal opinion and anathema to being required to permit Carpet Fashion to trade in the new Centre, and this by reason of his general knowledge, understanding and beliefs based upon his experience as to situations which may and situations which may not on the balance of probabilities, permit satisfactory trading. But these proceedings necessarily require to be determined upon the appropriate application of legal principle and centrally fail by reason of the express terms of the lease. The Retail Leases Act 1994

Mention has been made of the fact that the parties elected to litigate the proceedings without relying upon this Act in any way. For this reason the effect, if any, of section 7, upon a term providing for non - derogation from grant, whether express or implied, receives no consideration in this judgment. This is a matter which doubtless may fall for consideration on some other occasion in other proceedings.

In any event the reasons for decision given above are unlikely to have been different even in the face of any argument based upon the Act.

Further my own brief inspection of the Act does not suggest that Forma likely did otherwise than comply with the obligations set out in section 34A. In particular it appears that: · The Relocation Notice enclosed details of the proposed refurbishment, redevelopment and extension of the Centre (Relocation Notice, clause 1(a)) · The Relocation Notice, dated 1 September 2000 gave Carpet Fashion until 4 December 2000 to vacate (being more than 3 months) (Relocation Notice, clause 1(b)) · The Relocation Notice contained an offer of lease for Shop T58 (Relocation Notice, clause 1(c)) on the same terms and conditions as the existing lease for the unexpired term of the existing lease · The Relocation Notice notified Carpet Fashions of their right to terminate the lease within 1 month of receipt of the Relocation Notice. (Relocation Notice, clause 2) · The Relocation Notice notified Carpet Fashions of the fact that if they do not terminate within a month, it would be taken to have accepted the relocation offer. (Relocation Notice, clause 2) · The Relocation Notice acknowledged Forma’s obligation to pay Carpet Fashions reasonable relocation costs. (Relocation Notice, clause 1(d))

Whether or not I be correct in relation to these matters, as I have said it appears that for forensic purposes the parties have elected to litigate without reliance in any way upon the Act. With some hesitation, but conscious of the dictate of the Supreme Court’s Overriding Purpose Rule, the matter has been determined accordingly. Short Minutes/Costs

The parties are to bring in short minutes of order. Costs may be argued. I certify that paragraphs 1 - 201 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 5 June 2003 ___________________ Susan Piggott Associate 5 June 2003