In 2006, the Applicants, Kathleen Miletich and her son Adrian Miletich responded to an advertisement by Foodco Group Pty Ltd (Foodco) which was designed to attract people interested in running a “Muffin Break” franchise. Through their dealings with Foodco and its development manager Anthony Brusch, the Applicants determined a “Jamaica Blue” franchise would be better suited to their aspirations.
Foodco identified a potential site for the coffee shop within “The Foundry” shopping centre development (the Centre) in Melbourne. Negotiations were entered into between Wilmot Murchie Pty Ltd (Wilmot) who was the leasing agent engaged in respect of the development of the Centre and Anthony Brusch. The Applicants were subsequently introduced to the developer’s representatives and visited their leasing suite, where representations were made as to the nature and extent of the tenancies available within the Centre and the level of patronage that would be generated.
It was stated that the area of the premises, known as shop “T37”, would be 37 square metres plus a licenced seating area in the central atrium of the Centre. It was represented to the Applicants that shop T37 would take advantage of heavy foot traffic coming down from the travelators.
The Applicants were given a ‘walk through’ of the development identifying the scale and location of all the tenancies. Promotional material including a disclosure statement and a brochure were also provided to the Applicants. The brochure contained coloured site plans and promised the occupation of “40 quality tenants” within the Centre. Importantly, the brochure contained an express disclaimer that its contents shouldn’t be relied upon and prospective lessees should make their own enquiries.
Wilmot represented to the Applicants that at the time they would be opening their coffee shop, the other shops in the Centre would be occupied and trading thus generating a lot of foot traffic throughout the Centre.
The Applicants relied upon these representations and entered into a franchise agreement with Foodco to establish a Jamaica Blue Coffee Outlet within the Centre, and a subsequent lease agreement for shop T37.
When the Jamaica Blue outlet opened, there were virtually no other tenanted shops in the Centre and the common areas were operating at less than full capacity. None of the shops that were stated to be in existence were in the Centre. There were no leases for a majority of the shops, and no prospective tenants for the shops that were unlet.
Further issues encountered by the Applicants were that the travelators were not always in operation, technical issues with the running of extractor fans in the kitchen of Jamaica Blue due to further constructions and the existence of sewage leaks from the floor above. The combination of these elements lead to the Centre being a less than appealing place for people to shop or walk through.
Due to all of these factors, there were a very limited number of customers and at no time did the Applicant’s business make a trading profit. The Applicants eventually abandoned Shop T37 after dismissing their staff. The total losses incurred by the Applicants totalled almost $400,000.
Law and Application
An application was bought against the Respondents, who included Wilmot and the sole director of the Centre’s developer, for misleading and deceptive conduct pursuant to the Trade Practices Act 1974 (Cth) (TPA).
In deciding the application, the court took into consideration the following issues:
- Whether the representations related to future matters and were misleading and deceptive
- Whether the representations were relied upon
- Whether the disclaimer found in the brochure negated any liability for other statements, and
- The total amount of loss suffered by the Applicants.
As to the first three considerations, section 51A(1) of the TPA provides that where a corporation makes a representation as to future matters, in the absence of reasonable grounds, the representation is taken to be misleading. The court deemed that representations made were indeed as to future matters, these being what the Centre would look like when completed and open for business. The Respondents were deemed to have had no reasonable grounds for making such representations, particularly given no feasible evidence was tendered to support the making of their representations.
Section 52(1) of the TPA further provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive. Questions were raised as to whether disclaimers contained within the brochure operated to negate liability for other statements made during the course of negotiations. The question came down to whether the document itself was misleading or deceptive, or likely to mislead and deceive.
This was answered by asking whether a reasonable person in the position of the Applicants, upon viewing the brochure as a whole, would rely upon the representations. The court found that there was no doubt that the brochure was created to attract tenants and that a fine print disclaimer in legalistic language is unlikely to have dispelled the overall effect of the brochure.
In determining the loss suffered, for the Applicants to successfully claim damages upon representations made by the Respondent’s, section 82(1) of the TPA requires that they must establish that they have suffered loss or damage by that conduct and that they acted to their detriment in relying on the representations.
The Applicants also argued a contravention of section 9 of the Fair Trading Act 1999 (Vic) (“FTA”), which adopts the Australian Consumer Law to the Victorian Jurisdiction. The court considered section 159 (1) of the FTA, which requires that in order for the Applicants to claim damages, loss and damage is required to be shown because of the contravention.
In consideration of the reliance and ascertainment of damages, the court subsequently accepted the Applicants’ evidence that the representations made to them in the brochure, video and from Wilmot were relied upon to their detriment, in deciding to enter into the lease agreement. The loss suffered by the Applicants included their set up and operating costs and a claim for loss of income which would have accrued if they had remained in their previous occupations. The court calculated that the loss suffered by the Applicants was in the vicinity of $400,000.
The case is a reminder that commercial landlords must be especially vigilant when providing representations in order to encourage prospective tenants to enter into retail leases. Any representations made in the advertising and promotion of specific premises should be carefully scrutinised to ensure that they are truthful accounts of what the tenants are likely to expect upon entering a lease agreement and commencing trade.