In the recent decision in EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172, non-disclosure by Woolworths was held to amount to misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA). This case is a reminder of the importance of disclosure in commercial negotiations where there is a reasonable expectation that disclosure will be made and the risk of silence in these cases.

The facts

Woolworths was interested in establishing a supermarket in Auburn, New South Wales. Since at least 1995, it had engaged in negotiations with a third party regarding a preferred site in Queen Street, Auburn. Negotiations for this site subsequently failed.

In 1998, Woolworths commenced negotiations for a supermarket site with the plaintiff, EK Nominees, a developer and the owner of a site in Auburn Road, Auburn.

EK Nominees knew of Woolworths' negotiations on the Queen Street site and sought an assurance from Woolworths that its interest in the Auburn Road site was genuine. Woolworths provided this assurance in a letter dated April 1998, acknowledging the Queen Street negotiations but stating that Woolworths was 'genuinely pursuing' the Auburn Road site. In mid 1999, Woolworths informed EK Nominees that it would not proceed with the Queen Street site.

From about December 1999, for the following 12 months, there was extensive consultation between Woolworths, EK Nominees and their respective consultants with a view to preparing plans and drawings for a supermarket on the Auburn Road site.

On 5 December 2000, Woolworths made a formal offer to take a lease of a supermarket to be constructed on the Auburn Road site. The offer was subject to board approval, which was obtained and communicated on 18 July 2001. The approval was subject to entry into an agreement for lease and lease.

In the period that followed, EK Nominees, in anticipation of entry into a formal agreement for lease, expended significant moneys to prepare the land for development in accordance with Woolworths' specifications. Woolworths was aware of this expenditure and generally pressed for the earliest possible opening of the supermarket. The parties' solicitors also negotiated the agreement for lease and lease documentation.

On 10 January 2002, a third party approached Woolworths to see if it would be interested in leasing supermarket premises at the Queen Street site which was to be developed. Woolworths did not disclose this approach to EK Nominees but subsequently made a formal expression of interest in relation to the Queen Street site, which it again did not disclose to EK Nominees.

From 29 January 2002, Woolworths pressed ahead with the Auburn Road development and negotiation of the lease documentation, while concurrently engaged in negotiations for the Queen Street site.

On 6 May 2002, a representative from EK Nominees informed Woolworths that he had heard (from a contractor) that Woolworths was not proceeding with the Auburn Road site, but rather was proceeding with the Queen Street site. The Woolworths representative responded 'there is no decision made whether we go on your site, the Queen Street site, or both'. The trial judge found that this was the first EK Nominees knew that Woolworths was considering the Queen Street site as an alternative to or as an addition to the Auburn Road site.

On 7 May 2002, Woolworths decided to proceed with the development proposal at the Queen Street site. In June 2002, Woolworths resolved not to proceed with the agreement for lease of the Auburn Road site.

The claims

EK Nominees issued proceedings seeking, among other things, damages for misleading and deceptive conduct in contravention of s 52 of the TPA. EK Nominees claimed that:

  1. By issuing the approval letter of 18 July 2001, Woolworths represented that it intended to enter into an agreement for lease and a lease of the Auburn Road site on the terms contained in the lease offer (First Representation).

  2. The First Representation was a continuing representation. By no later than January 2002, Woolworths did not intend to enter into a lease with EK Nominees and, by failing to disclose this fact until 6 May 2002, Woolworths engaged in conduct which was misleading or deceptive. By not disclosing to EK Nominees that it intended to enter into negotiations for a lease of the Queen Street site until May 2002, Woolworths represented to EK Nominees in the period 29 January 2002 to May 2002 that there had been no material change to the likelihood of entry by Woolworths into a lease for the Auburn Road site (Second Representation). The Second Representation was conveyed by conduct and silence and was misleading.

The decision

The Court found that the First Representation was made on and from 18 July 2001. The Court held that Woolworths' subsequent conduct confirmed the representation, which remained until 7 May 2002. The Court noted that while there were outstanding issues to be resolved, they were 'commercial issues' only and there was no reason to doubt they would have been resolved and an agreement for lease and lease executed.

The Court also found that the Second Representation was made by Woolworths' failure to disclose its negotiations in relation to the Queen Street site. The Court considered this case an exception to 'usual commercial negotiations' where there is generally no obligation of full disclosure. The Court said:

'This is not merely a case in which the parties were negotiating with a view to entering into an agreement for lease. EK Nominees had spent, and was continuing to spend, substantial sums … in order to … move the development forward as quickly as possible, with a view to expediting the date on which Woolworths could open its supermarket. It was doing so with Woolworths' knowledge and encouragement.'

In this case, the Court found that EK Nominees could reasonably expect that if a new proposal for the Queen Street site arose, 'it would be told about it, or at least, it would be told that Woolworths may have to reconsider whether to proceed with the Auburn Road site.' Woolworths' frank and fulsome disclosure on 15 April 1998 was relevant to finding this expectation.

The Court held that EK Nominees was entitled to 'wasted expenditure' from 29 January 2002 less any retained benefit (in this case, the purchase price of a shovel) in the amount of $738,782.98 (excluding GST and interest).

The Court also found that Woolworths' representation that it would enter into an agreement for lease founded an estoppel entitling EK Nominees to compensation for expenditure in reliance.

Comment

This case illustrates the risk of allowing another party to proceed on a particular basis without correction of their expectations when circumstances change. While parties do not generally have an obligation of full disclosure in commercial transactions, the history and relationship between the parties may alter that situation.

If a change in plan does occur, it is important to consider the history between the parties and the actions that the other party may be taking and form a view on the need to inform the other party of the change or other possibility in order to avoid exposure to the 'wasted expenditure' incurred by the other party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.