NB2 Pty Ltd v P.T. Ltd

1. [1]

   MACFARLAN JA: On 1 October 2004 the first appellant (the “Tenant”) entered into a five year lease of a fruit and vegetable shop (Shop 2082) in the Westfield Shopping Centre at Miranda from the respondent owners of the Centre (the “Landlords”). Following negotiations in 2009 and early 2010, the parties entered into a 10 year lease (the “Lease”) commencing after expiry of the previous lease. Mr Michael Panetta and Mr Nicholas Basile, the second and third appellants and directors of the first appellant, guaranteed the Tenant’s obligations under the Lease. Following the Tenant’s defaults, commencing in 2012, in paying the rent due under the Lease, the Landlords terminated the Lease on 31 July 2014. Subsequently, the Landlords brought the present proceedings against the Tenant and its guarantors for recovery of rent and damages.

2. [2]

   In their defence and cross-claim, the appellants contended that, during the course of the negotiations for the Lease, the Landlords engaged in misleading and deceptive conduct, or alternatively acted unconscionably, in contravention of ss 51AC and 52 of the Trade Practices Act 1974 (Cth) and corresponding provisions in the Retail Leases Act 1994 (NSW). After a five day hearing before McDougall J in the Equity Division, his Honour rejected the defence and cross-claim and directed the entry of judgment for the Landlords against the appellants in the amount of $3,537,040.50 (P.T. Ltd v NB2 Pty Ltd [2017] NSWSC 309).

3. [3]

   On appeal, the appellants contend that the primary judge erred in not finding that:

   1. (1)

      Prior to entry into the Lease, the Landlords represented that the Tenant would be the only fresh fruit and vegetable (“FFV”) retailer in the Fresh Food Precinct (an area at the eastern end of the 3rd Level of the Centre).

   2. (2)

      But for the Landlords’ representations, the Tenant would not have entered into the Lease.

   3. (3)

      The Landlords’ conduct was misleading and deceptive, and unconscionable, because, prior to the Lease being executed, the Landlords became aware, but did not disclose to the Tenant, that the operator of a supermarket in the Fresh Food Precinct, Franklins Pty Ltd, proposed to commence to retail fresh food and vegetables. (The appellants further contend that the Landlords did not have reasonable grounds for making the representation insofar as they were representations as to what would occur in the future).

   4. (4)

      The Tenant suffered substantial loss as a result of its entry into the Lease.

   5. (5)

      The Landlords failed to prove that they suffered any loss or damage consequent upon termination of the Lease or alternatively failed to mitigate their loss.

4. [4]

   For the reasons given below, I consider however that the appeal should be dismissed with costs.

THE FACTUAL CIRCUMSTANCES

1. [5]

   The following are the factual circumstances relevant to determination of the issues on appeal. The conversations referred to are as the primary judge found them to have occurred. There are no challenges on appeal to his Honour’s findings in this respect.

2. [6]

   In 2009 the Tenant’s business (known as “Panetta Fruits” or “Panetta Mercato”) and another business known as “In Season” (Shop 2089/90) were the only retailers of FFV in the Fresh Food Precinct. The only other retailer of FFV in the Centre as a whole was a Woolworths Supermarket which was situated at the western end of the Centre. When the business of In Season failed in about 2009, the Tenant acquired a lease of its premises and continued retailing FFV from those premises, as well as from Shop 2082.

3. [7]

   In late March or early April 2009, Mr Fuller (General Manager Leasing of the Landlords) and Mr Panetta had a conversation concerning a new lease of Shop 2082 (the “First Conversation”) which included the following exchanges:

4. [8]

   On 4 April 2009 Mr Panetta sent an email to Mr Fuller referring to matters discussed at their meeting, including “exclusive fruit & vege operator in centre”.

5. [9]

   On 10 June 2009 the Landlords sent to the Tenant a proposal for a new lease of Shop 2082. It contained the following in the “LESSOR’S DISCLOSURE STATEMENT” provided pursuant to s 11 of the Retail Leases Act:

6. [10]

   In mid to late June 2009, Mr Basile and Mr Fuller had a conversation (the “Second Conversation”) which included an exchange in substantially the following terms:

7. [11]

   By email of 5 July 2009 to Mr Fuller, Mr Basile made two alternative proposals. The first involved the Tenant paying an annual rental of $788,500 plus GST. The second involved an annual rental of $888,500 plus GST with the following included as a term of the lease:

8. [12]

   On 1 August 2009 Mr Courtney Kingston, an employee of the Landlords, said the following to Mr Panetta in the course of a conversation (the “Third Conversation”) concerning the terms of the proposed lease of Shop 2082:

9. [13]

   Mr Kingston gave evidence that he then told Mr Panetta that the Landlords could not offer exclusivity for the whole of the Centre. The primary judge appears to have implicitly accepted this evidence. Certainly, it accords with what was said in the conversation to which I next refer.

10. [14]

    On 11 August 2009 Mr Basile and Mr Fuller had a conversation (the “Fourth Conversation”) which included the following:

11. [15]

    In response to Mr Basile’s request for exclusivity in the Fresh Food Precinct, Mr Fuller agreed to exclusivity limited to the Tenant being “the sole independent fruit and vegetable [operator] in the Fresh Food Precinct” (Judgment [122]-[123]).

12. [16]

    On 30 September 2009 Mr Basile signed and returned an annotated copy of the Landlords’ lease proposal of 10 June 2009. Mr Basile’s handwritten additions included the following:

13. [17]

    On 26 October 2009 Mr Lachlan Gelder (General Manager – Lease Administration for the Landlords) sent an email to Mr Fuller and Mr John Papagiannis (Director of Leasing for the Landlords) in the following terms:

14. [18]

    Mr Fuller replied on the same day as follows:

15. [19]

    On 27 October 2009 Ms Monique O’Brien of Leasing Administration for the Landlords made a note of a telephone conversation with Mr Gelder which included the following:

16. [20]

    On the same day the Landlords sent a letter to the Tenant concerning the proposed lease terms. It included the following:

17. [21]

    On 19 April 2010 the Landlords noted their consent on an application by Franklins for development consent to “refurbishment” of its existing supermarket in the Fresh Food Precinct. The notes on the form on which the Landlords’ consent appears include statements that four copies of “detailed plans and specifications” must accompany the application and that “[p]lans or drawings describing the proposed development must indicate … floor plans of proposed buildings showing layout, partitioning, room sizes and intended uses of each part of the building”. The Landlords’ consent was signed by Mr Breen, a member of their development team, on their behalf.

18. [22]

    The new lease for Shop 2082, that is, the Lease, was executed on 7 May 2010. It had a commencement date of 1 October 2009.

19. [23]

    Franklins closed in September/October 2010 for renovation, which was completed in March 2011. Its existing business had not included the sale of fruit and vegetables. The refurbishment included an area enabling their sale and in March Franklins commenced to offer fresh food and vegetables.

20. [24]

    The Tenant defaulted in payment of rent in May 2012 and, after further default, the Landlords terminated the Lease on 31 July 2014.

21. [25]

    On 6 February 2015 the Landlords entered into an agreement for lease with Coles Ltd. That lease commenced on 11 November 2015. Its demised premises included what had been Shop 2082 and also the area previously occupied by Franklins, which surrendered its lease on 6 February 2015.

THE APPELLANTS’ PLEADINGS

1. [26]

   In their cross-claim (which the defence incorporated by reference), the appellants alleged that the Landlords made the following representations to the Tenant:

2. [27]

   Under the heading “Unconscionable conduct”, the appellants alleged that the Landlords:

3. [28]

   They alleged that this failure was unconscionable by reason of the following circumstances:

THE JUDGMENT AT FIRST INSTANCE

1. [29]

   The primary judge made the following observations concerning the parties’ approaches to the negotiations for a new lease:

The first representation: the Tenant would capture all the FFV retail market in the Fresh Food Precinct.

1. [30]

   The primary judge said that the “striking feature” of the principal conversation relied upon in relation to this representation (the First Conversation) was that “it was Mr Panetta (or, according to Mr Fuller, Mr Basile) who first volunteered the proposition standing at the heart of the first representation: namely, that the Tenant would ‘capture all of the market share for fruit and vegetable in the Fresh Food Precinct” (Judgment [129]). His Honour stated that at the most “Mr Fuller appears to have adopted the stated belief of whoever it was he was speaking to, and to have used it in support of his negotiating position” (Judgment [130]), with the result that Mr Fuller did not make the first representation alleged.

Second representation: sole retailer of FFV at the eastern end of the Centre

1. [31]

   The primary judge concluded that the second alleged representation “omits some crucial words that Mr Fuller said he used, and that Mr Basile accepted (by the email of 13 August 2009) were used” (Judgment [134]). These limited the reference to exclusivity to the Tenant being “the sole independent fruit and vegetable operator”. His Honour rejected the appellants’ submission that, taking into account all the relevant communications between the parties, the only limitation on the representation of exclusivity was “the exclusion of Woolworths and an FFV retailer at the western end of the Centre” (Judgment [136]). Rather, the exclusion was of all supermarket chains (therefore including Franklins) because the representation was only that the Tenant would be the “sole independent fruit and vegetable operator”.

2. [32]

   His Honour further held that, even if the second representation was made, it was superseded by the express limited representation contained in the letter of 27 October 2009.

The third representation: sole independent speciality FFV retailer in the Fresh Food Precinct

1. [33]

   The primary judge noted that the making of this representation was not in dispute and that it was made in the Landlords’ written offer of lease dated 27 October 2009 (see [20] above). His Honour said that the representation conveyed that the Tenant would be the only business in the Fresh Food Precinct:

2. [34]

   His Honour rejected the Tenant’s submission that the third representation, understood in its context, was that the Tenant would be the only FFV retailer in the Fresh Food Precinct. His Honour considered that the submission wrongly gave no role to the words “sole independent” and “sole independent specialty” which were used in a number of communications between the parties (Judgment [151]), notably the email of 5 July 2009 ([11] above), Mr Basile’s annotations on the Landlords’ lease proposal ([16] above) and the Landlords’ letter of offer of 27 October 2009 ([20] above).

3. [35]

   Furthermore, after reviewing Mr Panetta and Mr Basile’s evidence, the primary judge concluded that:

4. [36]

   His Honour also found that the appellants did not rely on the alleged first and second representations. As to the former, in the conversations from which the representation was said to arise, “Mr Kingston was not telling Mr Panetta anything Mr Panetta did not already know or believe” (Judgment [168]). In respect of the latter, the communications between the parties after the conversations alleged to have given rise to the second representation were “inconsistent with any ongoing belief in the terms of the second representation, assuming it had been made” (Judgment [169]).

5. [37]

   Accordingly, his Honour concluded that the only reliance proved by the appellants was on the third representation, understood in the manner that his Honour said it should be understood (see [33] above). This conclusion did not assist the appellants’ case as Franklins commencing to sell FFV did not conflict with any representation of the Landlords.

The Landlords’ knowledge of Franklins’ proposed refurbishment

1. [38]

   The appellants did not contend that the alleged representations were misleading or deceptive because they misstated the Landlords’ state of mind at the time that they were made. They contended instead that the representations related to future matters (that is, as to the competition that the Tenant would face in the future) and that the Landlords did not have reasonable grounds for making the representations. However, the only basis upon which it might have been concluded that such reasonable grounds were absent, or that the Landlords’ conduct was otherwise misleading or deceptive, or was unconscionable, would have been that prior to the parties’ entry into the Lease on 7 May 2010, the Landlords became aware (and failed to disclose to the Tenant) that Franklins proposed to refurbish its store in the Fresh Food Precinct to enable it to retail fresh food and vegetables, in competition with the Tenants’ business.

2. [39]

   In this connection, the primary judge referred to an affidavit of Mr Panetta that annexed a “Stage 6 Plan” (or “Control Plan”) relating to Franklins’ proposed refurbishments. This was produced to the appellants in the course of the proceedings from the Landlords’ custody. Mr Panetta said that he could identify on the plan a significant area provided for fruit and vegetable produce cabinets and bins. Mr Fuller said however that he had not seen any such floor plan before the lease was executed (Judgment [179]) and Mr Kingston was not asked whether he had seen the plan.

3. [40]

   His Honour’s conclusions on the issue were as follows:

The Tenant’s damages

1. [41]

   In light of the primary judge’s conclusion adverse to the Tenant on liability, his Honour did not undertake a complete assessment of the Tenant’s damages.

The Landlords’ damages

1. [42]

   The primary judge found that the Landlords were entitled to damages as follows:

2. [43]

   It is unnecessary to consider whether the claim for arrears of rent was properly characterised as a claim for damages or for liquidated accrued sums due under the Lease prior to its termination.

3. [44]

   His Honour rejected two arguments that the appellants raised in relation to the quantification of the Landlords’ damages. The first was that the Landlords failed to take reasonable steps to mitigate their loss.

4. [45]

   As to this, his Honour found that, because the appellants had not pleaded that there had been a failure to mitigate loss, it would be unfair to the Landlords to permit the appellants to raise that issue in their closing submissions. His Honour noted that Mr Kingston had given relatively brief evidence of efforts that the Landlords made to re-lease shop 2082 and said that the appellants’ failure to plead a failure to mitigate denied the Landlords the opportunity to put on more detailed, firsthand evidence. His Honour also noted that the appellants did not themselves adduce any evidence on the issue. For these reasons, his Honour rejected the appellants’ first argument.

5. [46]

   The appellants’ second argument was that the Landlords’ damages representing post-termination rental loss should be calculated only to 6 February 2015 (when the Landlords signed an agreement for lease with Coles) and not to 10 November 2015 (when Coles commenced to occupy and pay rent). His Honour rejected the argument because it had not been pleaded or otherwise flagged by the appellants, and to permit them to raise it at the conclusion of the hearing would have caused significant injustice to the Landlords.

The alleged representations

1. [47]

   To assess the appellants’ case that they were misled, it is necessary to examine the communications between the parties upon which the appellants relied with it in mind that the communications were part of ongoing negotiations culminating in the parties’ entry into the Lease.

2. [48]

   The First Conversation (in late March or early April 2009) occurred early in the negotiations (see [7] above). In it, Mr Fuller, on behalf of the Landlords, sought to persuade Mr Panetta, on behalf of the Tenant, that the Tenant should pay increased rent because, with its contemplated acquisition of the competing In Season business, the Tenant would become the sole FFV retailer in the Fresh Food Precinct. Nothing was said in the conversation about competition for the Tenant other than in the immediate future. Future competition in the longer term, however, was an obvious matter that the Tenant would, as it subsequently did, need to address as the higher rent would be payable (subject to variation in accordance with the terms of the proposed lease) for the whole of its anticipated 10 year term. The conversation finished with Mr Fuller saying that he would let the Tenant have a proposal.

3. [49]

   Standing on its own, the conversation was unexceptionable. Mr Fuller took a predictable negotiating stance which was likely to provoke the type of response that in fact came from the Tenant, namely, a request for exclusivity in FFV retailing. In my view, the Landlords did not make any express or implied representation or promise about the future in that conversation.

4. [50]

   Mr Panetta’s email of 4 April 2009 (see [8] above) recorded an implicit request for exclusivity. It implied that the topic had been discussed in the First Conversation but the other evidence did not indicate that that was so.

5. [51]

   The Landlords responded on 10 June 2009 by stating in their “Lessor’s Disclosure Statement” that the Tenant would not have any exclusivity (see [9] above).

6. [52]

   In the mid to late June 2009 conversation (the “Second Conversation”), Mr Basile on behalf of the Tenant requested exclusivity for the Tenant in the sale of FFV in the Centre (see [10] above). Mr Fuller’s reference to Woolworths’ retailing of FFV (at the other end of the Centre) could not reasonably be taken as an indication that the Landlords were prepared to give the Tenant exclusivity subject only to the exclusion of Woolworths. This is confirmed by Mr Fuller’s immediately following indication that the Landlords might agree to exclusivity for the Tenant “as the only independent fruit and vegetable operator in the Centre” and his request for the Tenant to send a counter proposal.

7. [53]

   It follows that, contrary to the appellants’ submissions, in the Second Conversation the Landlords did not make the second representation pleaded by the appellants (see [26] above) that, in effect, the Tenant would be the only FFV retailer in the Fresh Food Precinct. At most, the Landlords foreshadowed the possibility of giving the Tenant exclusivity “as the only independent fruit and vegetable operator in the Centre” (emphasis added).

8. [54]

   As indicated in [31] above, the primary judge found that the use of the word “independent” in this conversation, and later communications between the parties, confined the possibility of exclusivity for the Tenant to it being the only non-supermarket chain FFV retailer in the Fresh Food Precinct.

9. [55]

   His Honour’s finding reflected the ordinary meaning of the word “independent” when used in a context such as that in the present case: “an independent store” is one that is independent of other stores. A store that is part of a supermarket chain, which the Franklins store was acknowledged to be, was not of that description and sale of FFV by it would not have been inconsistent with the exclusivity contemplated by the Landlords.

10. [56]

    To the extent that it might be relevant, the parties’ representatives’ evidence of their subjective belief as to the meaning of the word “independent” confirmed this to be the case. Mr Fuller indicated that this was his belief (transcript p 109), as did Mr Basile and Mr Panetta. This evidence was at least relevant to the issue of reliance with which I deal below.

11. [57]

    Mr Basile’s evidence on this topic included the following exchanges:

12. [58]

    Mr Panetta’s evidence included the following exchanges:

13. [59]

    A further answer to the appellants’ submission that the Second Conversation gave rise, in whole or part, to the second alleged representation is, as the primary judge concluded, that the conversation constituted only a step in the negotiations between the parties and that any representation made during it was superseded by the subsequent written formulations of what the Landlords proposed (see [16] and [20]).

14. [60]

    I interpolate that Mr Fuller agreed in cross-examination that the exclusivity clause that the Landlords offered to the Tenant (apparently a reference to the letter of 27 October 2009 – see [20]) was “carefully crafted … to exclude Franklins” (transcript pp 119-120). This offer was made well before the time at which the appellants allege that the Landlords became aware of a proposal by Franklins to refurbish its store and commence to sell FFV. Nevertheless, Mr Fuller acknowledged that before that time he “knew that we would never be able to preclude Franklins from selling fruit veg should they ever choose to do so” (transcript p 109) and it can be inferred that the intent of his reference to “independent” operators in the Second Conversation ([10] above) was to ensure that the Tenant was not promised that it would not have FFV retailing competition from supermarkets.

15. [61]

    Mr Basile responded to Mr Fuller’s invitation to submit a counter proposal by submitting two alternative proposals by email of 5 July 2009 (see [11] above). The first did not involve any proposed exclusivity and the second adopted Mr Fuller’s word “independent” in defining the ambit of the exclusivity sought. By this stage, the Tenant therefore did not pursue its earlier, broader request for exclusivity precluding non-independent stores selling FFV.

16. [62]

    In the Third Conversation (of 1 August 2009), Mr Kingston adhered to the negotiating position stated in the Landlords’ proposal of 10 June 2009 ([12] above) that the Tenant would not have any exclusivity. He sought to support this by stating that, upon the Tenant’s acquisition of the In Season store, it would be the only FFV retailer in the Fresh Food Precinct. He did not expressly, nor in my view impliedly, represent or promise that that monopoly position would continue for the term of the lease, or for any other period. That was clear from his reaffirmation, by reference to the Landlords’ 10 June 2009 proposal, that the Landlords would not confer any right of exclusivity, at all, on the Tenant. There was nothing sharp or underhand in Mr Kingston putting the negotiating point that he did (about In Season) when he made it clear to the Tenant that if it was not prepared to rely on its own assessment of the probabilities of what might occur in the future but wanted some protection from the Landlords against competition, it would have to persuade the Landlords to change their communicated position on exclusivity.

17. [63]

    For these reasons, the Landlords did not make the first or second pleaded representations (see [26] above) in the Third Conversation. A further reason for the same conclusion is, consistently with what I said above in relation to the Second Conversation, that the Third Conversation was part of ongoing negotiations which culminated in written formulations of the parties’ positions. What was said in the conversation was thus superseded by the later communications.

18. [64]

    In these circumstances, it was not in my view incumbent on Mr Kingston to draw Mr Panetta’s attention to the possibility of Franklins commencing to retail FFV in the future. Having not said anything misleading to Mr Panetta, he had no obligation to refer to a matter that was equally within the knowledge of, and obvious to, both parties.

19. [65]

    The following observation of Gleeson CJ in Lam v Ausintel Investments Australia Pty Ltd (1990) 97 FLR 458 at 475 is pertinent in this respect:

20. [66]

    To similar effect is the following observation of Burchett J in Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 at 26:

21. [67]

    Similar comments to those that I have made about the Third Conversation are applicable to the Fourth Conversation (of 11 August 2009) (see [14] above). In it, Mr Fuller clearly indicated that the Landlords were not prepared to give a right of exclusivity beyond one that the Tenant would be “the sole independent fruit and vegetable operator in the Fresh Food Precinct”. On appeal, the appellants were not able to advance any reasonable basis for their argument that the word “independent” when used in this conversation did not have the meaning referred to in [33] above. As a result, the Fourth Conversation did not provide any support for the appellants’ contention that the Landlords made the first or second representation they pleaded ([26] above). Nor, as I have said, did the First, Second or Third Conversations.

22. [68]

    A similar analysis applies to the Landlords’ letter to the Tenant of 27 October 2009. That also limited the protection against competition to that from “independent” retailers, reflecting the language that Mr Basile himself used in his annotations of 30 September 2009 of the Landlords’ lease proposal of 10 June 2009 (see [16] above). The limited nature of the proposed protection was confirmed by the inclusion in the Landlords’ letter of 27 October 2009 of the additional adjective “specialty” to describe the retailers against whose competition the Tenant was to be protected. It can be inferred that this was added as a result of Mr Papagiannis’ queries recorded in Mr Gelder’s email of 26 October 2009 ([17] above) and Mr Fuller’s response of the same day ([18] above). There is no doubt that Franklins was not a “specialty” store. As a result, the effect of inclusion of the word “specialty” was to confirm that the exclusivity right would not extend to competition from supermarkets.

23. [69]

    The appellant contended that the Landlords’ letter of 27 October 2009 gave rise to the third pleaded representation ([26] above) that the Tenant “would have the right to be the sole independent specialty fruit and vegetable retailer in the food precinct”. It clearly did this. As the primary judge held, however, the statement in the letter in these terms, and consequent representation, had its ordinary meaning which did not involve a right of the Tenant to be protected against competition from supermarkets. Contrary to the Tenant’s submission, I do not consider that the reference early in the negotiations to Woolworths selling FFV permits or requires this representation to be understood as confined to competition from Woolworths. The Landlords’ language in its 27 October 2009 letter and the parties’ language in their earlier communications was not so confined.

Misleading and deceptive conduct

1. [70]

   The Tenant’s primary case was that the Landlords made the representations referred to in [26] above and that those representations became misleading and deceptive (because reasonable grounds for making the representations ceased to exist, or otherwise) when, after the conclusion of negotiations but prior to entry into the Lease on 7 May 2010, the Landlords became aware of Franklins’ intention to commence retailing FFV and did not disclose that knowledge to the Tenant. This case fails as I have found that the first and second alleged representations were not made and the third representation, although made, did not bear the meaning that the Tenant contends that it had.

2. [71]

   If however the representations had been made, and had borne the meaning alleged by the Tenant, there would have been a firm basis for concluding that they became misleading or deceptive if and when the Landlords acquired the alleged knowledge. Likewise the Tenant’s reliance upon the representations could have been inferred if the Tenant proved that it had understood them at the time to have the meaning now contended for. However, it is apparent from the evidence of the Tenant’s principals, Mr Basile and Mr Panetta, that the Tenant did not understand the Landlord’s communications in this way (see [57] and [58] above).

3. [72]

   The Tenant’s alternative case was that, even if the representations were not made as alleged, the Landlords nevertheless still engaged in misleading and deceptive conduct, and acted unconscionably, because they did not disclose to the Tenant their alleged knowledge concerning Franklins’ intentions.

4. [73]

   In this regard, the Tenant alleged that “by at latest 19 April 2010, Mr Breen (or other informed readers) on behalf of the Landlords knew the contents of … [Franklins’] Control Plan, and knew that the Control Plan showed that Franklins would renovate to include a substantial FFV section” (written submissions, [54]). This knowledge was said to be evidenced by the Landlords’ provision on 19 April 2010 of consent to Franklins’ “refurbishment” of its existing supermarket in the Fresh Food Precinct (see [21] above).

5. [74]

   Assuming in favour of the Tenant that the Landlords had the alleged knowledge, I nonetheless do not consider that the Tenant is entitled to succeed on its alternative case. My reasons are as follows.

6. [75]

   If (as I assume to be the case for the purposes of the Tenant’s alternative case) the Landlords did not represent to, or promise, the Tenant that it would be the only FFV retailer in the Fresh Food Precinct, there was nothing misleading, deceptive or unconscionable in the Landlords not disclosing to the Tenant their assumed knowledge of Franklins intent to retail FFV. In particular, there was in my view nothing in the dealings between the parties that gave rise to a reasonable expectation that the Landlords would disclose to the Tenant knowledge concerning a commercial matter about which it made no express or implied misrepresentation (see Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 38; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 at [14]-[23]). In Miller at [21] French CJ and Kiefel J cited with approval the observation of Burchett J in Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 at 26 that “s 52 does not strike at the traditional secretiveness and obliquity of the bargaining process” (see [66] above, and also the observations of Gleeson CJ in Lam quoted in [65] above).

The quantum of the damages claimed by the appellants

1. [76]

   Although the primary judge made a number of contingent findings on this topic, he did not proceed to a complete assessment of the Tenant’s damages. In these circumstances, and as the appellants’ appeal on liability fails, it is not appropriate for this Court to address the submissions made on this topic.

The Landlords’ damages

1. [77]

   The primary judge awarded damages to the Landlords to reflect three heads of loss: first, arrears of rent up to the date of termination of the lease (31 July 2014); secondly, lost rent from that date until 10 November 2015 when Coles commenced to pay rent as tenant of premises that included the former Shop 2082; and, thirdly, the cost of removing the Tenant’s fixtures and fittings.

2. [78]

   The appellants challenged this award on three bases as follows.

3. [79]

   First, the appellants complained that the primary judge did not deal with their argument that the Landlords had not proved any loss or damage consequent upon termination of the Lease.

4. [80]

   It is correct that his Honour did not deal with this argument but, if he had, he would have been bound to reject it for the following reasons.

5. [81]

   The Landlords established a prima facie case that they suffered such loss by proving that the Lease required the Tenant to pay substantial rent until completion of the term of the Lease on 30 September 2019, that on 31 July 2014 the Landlords terminated the Lease due to defaults by the Tenant in payment of rent, that a replacement tenant (Coles) did not commence paying rent until 11 November 2015, and that the Tenant did not pay rent for the period 31 July 2014 to 11 November 2015. Thus the Landlords lost the rent that they should have received for the period 31 July 2014 to 11 November 2015.

6. [82]

   Moreover, the evidence did not indicate that the Landlords obtained any benefit from their termination of the Lease. In particular, the evidence demonstrated that the rent paid by Coles from 11 November 2015 was at a substantially lower rate than that required to be paid by the Tenant under the Lease, and there was insufficient evidence to justify a finding by the Court that the Landlords derived an identifiable benefit from leasing the premises from 11 November 2015 to Coles rather than the Tenant.

7. [83]

   In light of the prima facie case proved by the Landlords, the Tenant had an evidentiary onus to adduce evidence to contradict that case. It did not do this.

8. [84]

   The appellants’ second challenge to the primary judge’s assessment of the Landlords’ damages was that his Honour erred in not finding that the Landlords had failed to mitigate their loss. His Honour concluded that it would have been unfair to permit the appellants to contend in their closing submissions that that finding should be made, as they had not pleaded that the Landlords failed to mitigate their loss (the onus being on the appellants to prove that there was such a failure) and had not earlier made a submission to that effect. His Honour considered that in these circumstances the Landlords had been deprived of the opportunity to deal with the mitigation point by detailed firsthand evidence.

9. [85]

   On appeal, the appellants contended that mitigation was “a live issue” at the trial but could not identify in the transcript any reference to mitigation prior to closing submissions. They pointed to brief evidence given on behalf of the Landlords concerning efforts to re-let the premises, and to cross-examination on that evidence, but that evidence assisted proof of the Landlords’ loss and its introduction was not therefore explicable only as a response to an implicit but unpleaded defence of a failure to mitigate. The appellants also referred to pre-trial discovery during which there was at least one reference to mitigation. What occurred then, however, did not mean that the Landlords should have appreciated that sometime later, at the trial, an unpleaded defence of a failure to mitigate was being advanced by the appellants.

10. [86]

    The appellants thirdly challenged the primary judge’s assessment of the Landlords’ damages on the basis that the Landlords’ loss of rent after termination of the Lease on 31 July 2014 should have been found to have ceased on 6 February 2015 when the Landlords entered into an Agreement for Lease with Coles. That challenge should however be rejected as Coles did not commence to pay rent until 11 November 2015. His Honour, appropriately, adopted this date as the conclusion of the period for which the Landlords were entitled to damages. For the reasons given above in relation to the appellants’ first challenge, the Landlords proved that they suffered loss in the period up to this date.

11. [87]

    The Tenant’s challenges to the quantum of the damages awarded to the Landlords should accordingly be rejected.

ORDERS

1. [88]

   For the reasons above, the appeal should be dismissed with costs.

2. [89]

   MEAGHER JA: I agree for the reasons given by Macfarlan JA that this appeal should be dismissed with costs.

3. [90]

   GLEESON JA: I agree with Macfarlan JA.