In 2004, NB2 Pty Ltd (Tenant) purchased an independent fresh fruit and vegetable business operating from a premises in the Fresh Food Precinct at Westfield’s Miranda Shopping Centre (Centre).
The Tenant was one of three operators selling fresh fruit and vegetables in the Centre, the others being a Woolworths supermarket (located at the opposite end of the Centre) and a smaller retailer, In Season (also located in the Fresh Food Precinct).
In 2008, In Season’s business failed and the Tenant took a 5 year lease over the In Season premises in an effort to expand its business and capture the entire fresh fruit and vegetable market at the Centre. As the Tenant’s first lease was due to expire shortly thereafter, the Tenant began negotiations with the owners of the Centre (Landlord) in respect of the first premises.
During negotiations the Landlord and Tenant disagreed on rent. The Landlord argued that the Tenant effectively had a monopoly over the sale of fresh fruit and vegetables and should therefore pay a higher rent. The Tenant was happy to do so provided that it was granted exclusivity to sell fresh fruit and vegetables in exchange.
The Tenant put forward multiple proposals for exclusivity including proposing different rentals based on whether or not exclusivity was granted. Ultimately the Landlord agreed “to grant exclusive right [to the Tenant] to be the sole independent [FFV] operator in the current [Fresh Food Precinct]”.
Just prior to the Landlord executing the Tenant’s lease, Franklins supermarket (which operated in the Fresh Food Precinct) applied for development consent to refurbish the Franklins store. The application included detailed plans to refurbish and use the store to sell fresh food produce. The Landlord had consented to Franklins’ application before signing the Tenant’s lease. In March 2011, the newly refurbished Franklins introduced the display and sale of fresh food produce and, as a result, the Tenant’s sales suffered. The Tenant began to default in 2012.
The Lease was terminated by the Landlord in 2014 as a result of the Tenant failing to pay rent and the Landlord brought proceedings to recover unpaid rent and damages. The Tenant argued that the Landlord’s conduct during negotiations amounted to misleading and deceptive conduct or unconscionable conduct under the former Trade Practices Act 1974 (which has since been replaced by the Australian Consumer Law).
At first instance, the Tenant’s claim failed. The Court held the Landlord did not represent or promise that the Tenant would be the only fresh food retailer in the Fresh Food Precinct and had made good on its obligation that the Tenant would be “… the sole independent speciality [FFV] retailer in the [Fresh Food Precinct] …”. There was no obligation to protect the Tenant from competition from supermarkets so its failure to disclose Franklins’ plans to the Tenant did not amount to misleading and deceptive conduct or unconscionable conduct. The Tenant appealed the decision.
The New South Wales Court of Appeal dismissed the Tenant’s appeal with costs and unanimously upheld the primary judge’s decision.
This case reinforces the ever-quoted position in ACCC v Dukemaster Pty Ltd, that Courts will take into account all of the surrounding evidence of lease negotiations to determine the obligations of the parties.
Landlords and their agents must continue to be mindful of the representations they make to prospective tenants during lease negotiations and to confirm those discussions in writing. Although, in this case, the Court confirmed no wrong doing on the part of the Landlord or its agents, the consequence of representations found to be misleading can have significant consequences.
Jurisdiction: New South Wales
Date delivered: 14 February 2018
Property type: Retail