THE IMPACT OF MISLEADING AND DECEPTIVE CONDUCT
ON CONTRACTS FOR THE SALE OF LAND
by Stephen Climpson, Barrister
1.
In this paper, I will cover the following topics:
(a)
An
overview
of
the
general
law
in
relation
to
misrepresentations made in connection with the sale of
land and remedies that may flow from such conduct;
(b)
An overview of the statutory law relating to misleading or
deceptive conduct in connection with the sale of land and
the remedies that flow from such conduct;
(c)
The impact of provisions in the Law Society standard
Contract for the sale of land (2005 ed.) where there has
been misleading and deceptive conduct;
(d)
Two recent decisions that dealt with the impact of
misleading and deceptive conduct on contracts for the sale
of land.
I
General Law
2.
Where a statement is made by one person to induce another to enter
into a contract, the statement may take effect as a term of the contract
or as a collateral contract. Alternatively, it may, as a false inducement
to enter into the contract, give rise to rights and remedies even though
not effective as a term of the contract.
This distinction may be
expressed as between a “warranty” (which is enforceable as a legally
binding promise) and a “mere representation” which may be actionable
(although not as a term of the contract).
116098835
2
_____________________________________________________________
3.
A misrepresentation may be defined as a false statement of a material
fact made by one party (the representor) to another (the representee)
to induce that other party to enter into the contract and which has this
effect.1 The misrepresentation does not prevent the contract coming
into being, or render the contract void. Instead, the contract is voidable
and the principal response of the general law to this misinformation is
to say that, because the representee’s decision to contract was based
on a false understanding, the representee should be permitted to resile
from the contract. In this respect, rescission has been described as the
usual remedy for misrepresentation.2
4.
Rescission may be described as the reversal of a transaction so that
each party is restored to their original position and the contract is
treated as though it was never made.
5.
Traditionally, there was an important difference between common law
rescission and equitable rescission. Common law rescission was only
available where there has been a fraudulent misrepresentation.
Equitable rescission was also available when the misrepresentation
was innocent, equity holding that it would be unconscionable for the
representor to hold the representee to the bargain.
6.
The approach of equity, which now prevails, is that the representor,
notwithstanding the absence of moral delinquency, is not allowed to
enforce a contract against the representee who is permitted to rescind
the contract ab initio, provided the parties can be restored substantially
to their pre-contractual positions.3
Halsbury’s Laws of Australia, para 110-5025.
Halsbury’s Laws of Australia, para 110-5025.
3 Halsbury’s Laws of Australia, para 110-5205.
1
2
3
_____________________________________________________________
7.
For rescission to be available at general law, one of the parties to the
agreement must elect to rescind the contract. In Alati v Kruger (1955)
94 CLR 216 at 224, the High Court said:
“Rescission for misrepresentation is always the act of the party
himself… The function of a court in which proceedings for rescission
are taken is to adjudicate upon the validity of a purported
disaffirmance as an act avoiding the transaction ab initio, and if it is
valid, to give effect to it and make appropriate consequential orders.”
8.
Further, when a contract is rescinded, the law recognises that, if the
contract is to be treated as though it was never made, each party must
be able to get back what they have given under the contract in return
for what they have been given. In other words, the parties must be
able to be, at the very least, substantially restored to their respective
pre-contractual positions. This is known as the requirement of restitutio
in integrum.
9.
Without these three conditions of misrepresentation of a material fact;
an election to rescind the contract and the availability of restitutio in
integrum, a court will not make an order to rescinding a contract under
general law.
10.
Apart from rescission, a purchaser has a right to damages from the
vendor at common law if there has been fraudulent misrepresentations.
At common law, a purchaser may also be entitled to damages for
negligent misrepresentation. The position at general law is still that
damages are not available for a misrepresentation that is innocent, that
is, neither fraudulent nor negligent.4
11.
Apart from the remedies of rescission or damages, a purchaser may
also be entitled to the equitable remedy known as relief against
forfeiture if the vendor has made representations such as to make it
4
Halsbury’s Laws of Australia, para 110-5205.
4
_____________________________________________________________
unconscionable for the vendor to rely on a breach by the purchaser of
an essential term of the contract to rescind and claim forfeiture of the
deposit.
Relief against forfeiture was the subject of High Court
authority in Tanwar Enterprises Pty Limited v Couchi (2003) 217 CLR
315 and Pentagold Investments Pty Limited v Raminos (2003) 217
CLR 367.5
II
Overview of the statutory law relating to misleading and deceptive
conduct
(a)
Overview of the statutory provisions
12.
The Trade Practices Act (“TPA”) and the Fair Trading Act (“FTA”) are
the primary sources of statute law relating to misleading and deceptive
conduct concerning contracts for the sale of land.
13.
Apart from the TPA and the FTA, there are provisions in the
Conveyancing Act which are also relevant when considering remedies
for misrepresentations in connection with contracts for the sale of land.
(i)
The prohibition
14.
Under s.52 TPA, there is a general prohibition that corporations must
not, in trade or commerce, engage in conduct that is misleading or
deceptive or likely to mislead or deceive. Section 42 FTA provides a
similar prohibition against “persons”.
15.
Section 53A TPA (and the equivalent provision in s.45 FTA) contains
specific provisions relating to false representations concerning land
including that a corporation (or persons under the FTA) shall not, in
5
These cases and relief against forfeiture were the subject of a Legalwise Seminar paper
presented by the author in October 2004 entitled “Notices to Complete, Time of Essence
clauses and Relief against Forfeiture”.
5
_____________________________________________________________
trade or commerce, in connection with the sale or possible sale of an
interest in land, make a false or misleading representation concerning
the nature of the interest in the land, the characteristics of the land, the
use to which the land is capable of being put or the availability of
facilities associated with the land.
16.
Other potentially relevant provisions in the TPA include s.51A (and the
equivalent provision in s.41 FTA) which is to the effect that where a
representation in relation to a future matter is made, and there is no
reasonable grounds for making the representation, the representation
is taken to be misleading. In this regard, the section also provides that,
where representations concerning future matters have been made, the
maker will be deemed not to have reasonable grounds unless it
adduces evidence to the contrary.
(ii)
The remedies
17.
Remedies for misleading conduct under the Trade Practices Act (and
the equivalent provisions of the FTA) fall essentially under two
sections.
18.
Section 82 of the TPA (and the equivalent provision in s.68 FTA)
provides that a person who suffers loss or damage by the conduct of
another person in contravention of a provision of the relevant parts of
the Act, may recover the amount of the loss or damage by action
against the other person or against any person involved in the
contravention.
19.
The second remedial section is s.87 of the TPA (and the equivalent
provision in s.72 FTA).
6
_____________________________________________________________
20.
Section 87(1) gives the Court a general power to make orders where a
party has suffered or is likely to suffer loss by the conduct of another
person engaged in contravention of a relevant provision of the TPA.
The court can make any orders it thinks appropriate in order to
compensate the person suffering loss in whole or in part for the
damage or to prevent or reduce the loss or damage. The court’s power
to make “any orders it thinks are appropriate” includes any of the
orders referred to in s.87(2). It has been observed that this section
provides a “remedial smorgasbord”.6 The critical provisions relating to
rescission are s.87(2)(a) and (ba).
21.
Under s.87(2)(a), the court may make an order declaring the whole or
any part of a contract made between the person who suffered, or is
likely to suffer, the loss or damage and the person who has engaged in
the conduct, or a person who was involved in the contravention
constituted by the conduct, to have been void ab initio or at all times on
or after such date as is specified in the order.
22.
Under s.87(2)(ba), the court can make an order refusing to enforce any
or all of the provisions of such a contract. If the court chooses to
refuse to enforce all of the provisions of such a contract, this is a
remedy very much like rescission.
23.
Apart from ss.82 and 87 TPA, the Court also has power to grant
injunctive relief under s.81 (and the equivalent provision in s.61 FTA).
24.
It is important to remember that ss.82 and 87 TPA (and the equivalent
FTA provisions) provide that damages and other relief may be awarded
not only against those persons who engage in the misleading and
deceptive conduct but also those who were “involved in the
contravention”.
6
Section 75B TPA (and the equivalent s.61 FTA)
Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 366 per Mason P.
7
_____________________________________________________________
provides that a person “involved in a contravention” is a person who
has aided or abetted or procured the contravention; has induced the
contravention or has, in any way, directly or indirectly been knowingly
concerned in or a party to the contravention. Those provisions have
particular significance in relation to circumstances where the vendor in
the transaction is a company and relief is needed against those who
stand behind the company or where there have been other parties who
have participated or assisted the vendor in the relevant conduct.
However, it is important to bear in mind that a person will not be held to
have been involved in a contravention unless it is established that that
person was aware or should have been aware of the facts that gave
rise to the contravention and intentionally participated in the
contravention (see Yorke v Lucas (1985) 158 CLR 661 at 666-669 and
Quinlivan v ACCC (2004) ATPR 40-010). It is unnecessary to prove
that the respondent knew that his or her participation was a breach of
the Act.
All this is required is actual knowledge of the essential
elements of the contravention and intentional participation in it.
25.
In relation to the conduct of a body corporate, it is also valuable to keep
in mind s.84 TPA (and the equivalent provision in s.70 FTA) which
deems that any conduct engaged in on behalf of a body corporate by a
director, servant or agent of the body corporate within the scope of that
person’s actual or apparent authority is deemed to have been engaged
in also by the body corporate.
(iii)
Provisions apportioning responsibility
26.
Under s.82(1B) TPA, if a plaintiff has made a claim in relation to
economic loss or damage to property caused by conduct in
contravention of s.52 and the plaintiff has suffered loss or damage
partly as a result of the plaintiff’s own failure to take reasonable care
and as a result of the defendant’s conduct in contravention, the
8
_____________________________________________________________
damages that the plaintiff may recover are to be reduced to the extent
that the court thinks “just and equitable” having regard to the plaintiff’s
share of responsibility for the loss or damage.
A proviso to the
operation of the section is that the defendant did not intend to cause
the loss or damage or did not fraudulently cause the loss or damage.
The provision only applies to causes of action that arose on or after 26
July 2004 (see AFP Properties Pty Limited v Kestrel Holdings (No. 2)
Pty Limited [2007] FCA 1561 at [366]-[367]). The section may be said
to be analogous to a limited form of contributory negligence.
27.
Part VIA TPA provides for proportionate liability for misleading and
deceptive conduct. As with s.82(1B), that part of the Act only applies to
causes of action arising on or after 26 July 2004. The provisions in
Part VIA TPA may be said to be analogous to rights of contribution
where there are two or more parties whose acts or omissions caused
the damage or loss that is the subject of the claim. However, there is
the significant difference that, where there are such “concurrent
wrongdoers”, the damages award to which a plaintiff is entitled will be
limited as against each wrongdoer to the proportion of the damage or
loss which the court assesses as being that defendant’s responsibility
for such damage or loss.
28.
The purpose of a similar provision in the Civil Liability Act (which
applies to the operation of the FTA and is referred to hereunder) was
explained by Palmer J in Yates v Mobile Marine Repairs Pty Limited
[2007] NSWSC 1463 at [93]-[94] as follows:
“The object of Part IV Civil Liability Act7 is remedial and it dramatically
changes the previous law. Formerly, a plaintiff could choose to sue
only one of several wrongdoers who caused the same loss and the
court could enter judgment for the whole of that loss against that
defendant. Even if the defendant cross-claimed in the proceedings for
indemnity or contribution against the other wrongdoers, the plaintiff
could enforce a judgment against the defendant alone for the whole of
the loss, leaving the defendant to recover from the cross-defendants,
7
The provisions there are similar to those in Part VIA TPA.
9
_____________________________________________________________
if it could. Sometimes a defendant obtains judgment against a crossdefendant but could not recover the judgment because of the crossdefendants’ insolvency.
“Part IV is designed to alleviate this perceived injustice. It is intended
to visit on each concurrent wrongdoer only that amount of liability
which the Court considers “just” having regard to the comparative
responsibility of all wrongdoers for the plaintiff’s loss.”
29.
As with s.82(1B) TPA, Part VIA only applies to claims for damages
made under s.82 for economic loss or damage to property caused by
conduct which was done in contravention of s.52 (section 87CB(1)).
Those claims are referred to as “apportionable claims”. The section
has no operation if a concurrent wrongdoer intended to cause the
economic loss or fraudulently cause that loss (section 87(CC(1)).
30.
Part VIA applies even if the loss or damage is based on more than one
cause of action (for example, if the cause of action is brought under
general law as well as s.52).
31.
Under s.87CD(1), in any proceedings involving an apportionable claim,
the liability of a defendant who is a concurrent wrongdoer is limited to
an amount reflecting that proportion of the damage or loss claimed that
the court considers just, having regard to the extent of the defendant’s
responsibility for the loss or damage, and the court may give judgment
against the defendant for not more than that amount.
“Concurrent
wrongdoer” is defined in s.87CB(3) as being a person who is one of
two or more persons whose acts or omissions are caused,
independently of each other or jointly, the damage or loss that is the
subject of the claim.
32.
In the event that proceedings involve both an apportionable claim and
a non-apportionable claim, the liability for the apportionable claims is to
be determined in accordance with the provisions of Part VIA and the
10
_____________________________________________________________
liability for the other claim was to be determined in accordance with the
legal rules that are relevant (i.e. the law as it applies without the
operation of Part VIA) (section 87CD(2)).
33.
In apportioning responsibility between defendants in the proceedings,
the court is to exclude that proportion of the damage or loss in relation
to which the plaintiff is contributorially negligent under any relevant law
and the court may have regard to the comparative responsibility of any
concurrent wrongdoer who is not a party to the proceedings
(s.87CD(2)).
The section is to apply whether or not all concurrent
wrongdoers are parties to the proceedings (s.87CD(4)).
34.
A defendant against whom judgment is given under Part VIA as a
concurrent wrongdoer in relation to an apportionable claim cannot be
required to contribute to any damages or contribution recovered from
another concurrent wrongdoer in respect of the apportionable claim
and cannot be required to indemnify any such wrongdoer.
35.
Similar provisions apply in relation to s.42 FTA. In this respect, the
relevant provisions concerning proportionate liability are ss.34-39 of the
Civil Liability Act.
36.
The other important statutory provision in the context of misleading and
deceptive conduct in connection with contracts for the sale of land is
s.55(2A) Conveyancing Act which provides the court with a power, if it
thinks fit, to order the repayment of any deposit with or without interest
thereon. Under sub-section 3, the court may also declare and enforce
a lien in respect of the repayment on the property the subject of the
contract.
The court’s exercise of discretion under this provision is
referred to later in this paper.
(b)
Comparison between General Law and TPA/FTA Statutes
11
_____________________________________________________________
37.
There are a number of significant differences between rescission which
may be granted under s.87 compared to rescission under the general
law. Some of those differences include:
(a)
Under the TPA, it is not necessary that a party has made an
election to rescind, although the existence of affirmation will be
relevant to the exercise of the court’s discretion to make orders
under s.87.8
(b)
Under the TPA, it would appear that restitutio in integrum is not
essential provided that “practical justice is seen to be done
between the parties”.9
(c)
Orders under s.87 can be made against third parties.
(d)
Under the TPA, where a party rescinds, the remedies of
rescission and contractual damages are not mutually exclusive.
(e)
The TPA explicitly allows for partial rescission and enables the
court to make order that rescission occur from a particular date
(not necessarily ab inititio).
As a result of this and other
remedies, there is a greater degree of flexibility in relation to a
TPA rescission.
(f)
With rescission under the TPA, the remedy is at the court’s
discretion whereas, under common law, rescission is the act of
the party and the role of the court is to decide on the validity of
that act.
Accordingly, affirmation by the purchaser of the
relevant contract after knowing of the wrong is not an automatic
8
See Tenji v Henneberry & Associates Pty Limited (2000) 98 FCR 324.
See Henjo Investments Pty Limited v Collins Marrickville Pty Limited (1998) 39 FCR 546,
564; Acron Securities Limited v Iliffe (1997) 41 NSW 353, 369-370 (Mason P);
9
12
_____________________________________________________________
bar to TPA rescission although, as mentioned above, it will be
relevant to the exercise of the court’s discretion to grant the
remedy.
(c)
Legal principles relating to section 52 (and FTA equivalent) – what is
misleading and deceptive conduct?
38.
The legal principles concerning the application of s.52 TPA to the
conduct of a real estate agents who acted for vendors on the sale of
land were considered in Butcher v Lachlan Elder Realty Pty Limited
(2004) 218 CLR 592. Although that case primarily turned on the effect
of disclaimers contained within a brochure distributed by the real estate
agent, and although he was a dissentient in relation to that issue,
McHugh J’s decision contains a helpful summary of the principles
concerning s.52 Trade Practices Act and the following outline is
primarily from his Honour’s analysis in that decision.
The same
principles should apply to s.42 TPA.
39.
First, in relation to the construction of s.52, the section should be
construed flexibly to give the fullest relief which the fair meaning of
language of the section will allow. 10 In this respect, the courts must
give effect to the natural and ordinary meaning of the section even if to
do so “may result in the imposition of liability and the administration of
remedies which differ from those supplied by the general law. This is
because the relevant conduct falls to be judged under section 52 not,
as at common law, by the state of mind or intention of the maker of the
statement”.11
10
Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 per McHugh J at 621,
paragraph 97.
11 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 621-622, paragraph 98.
13
_____________________________________________________________
40.
Secondly, the words “engage in conduct” in s.52 are not confined to
conduct which involves the making of representations.12 Section 52
requires the Court to examine the impugned conduct as a whole.
41.
Thirdly, conduct will be misleading or deceptive if it induces or is
capable of inducing error.13 A corporation does not avoid liability for
breach of s.52 because a person who has been the subject of
misleading or deceptive conduct could have discovered the misleading
or deceptive conduct by proper inquiry. Conduct that objectively leads
one into error is misleading.14 Conduct is likely to mislead or deceive if
there is a real and not remote chance or possibility that a person is
likely to be misled or deceived.15
42.
McHugh J in Butcher v Lachlan Elder Realty Pty Limited (2004) 218
592 at 625 at paragraph 109 stated:
“The question whether conduct is misleading or deceptive or is likely
to mislead or deceive is a question of fact. In determining whether a
contravention of s.52 has occurred, the task of the Court is to examine
the relevant course of conduct as a whole. It is determined by
reference to the alleged conduct in the light of the relevant
surrounding facts and circumstances. It is an objective question that
the Court must determine for itself (93)”.
43.
At page 634, paragraph 139, McHugh J also stated:
“Section 52 looks at the conduct of a corporation and is only
concerned with whether that conduct misled or was likely to mislead a
consumer. It is not concerned with the mental state of the corporation.
As Hill J observed in Equity Access Pty Limited v Westpac Banking
Corporation [1990] ATPR 40-994 at 50, 951 (135):
‘Section 52 is not confined to conduct which is intended to
mislead or deceive... and a corporation which acts honestly
12
Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 603, paragraph 32 (per
Gleeson CJ, Hayne and Haydon JJ); pages 623-625, paragraphs 103-108 per McHugh J; and
page 646 at paragraph 179 per Kirby J.
13 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 625-626, paragraph 111
and the authorities referred to therein.
14 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 626, paragraph 111 and
the authorities referred to therein.
15 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 626, paragraph 112.
14
_____________________________________________________________
and reasonably may nonetheless engage in conduct that is
likely to mislead or deceive’.”
44.
That s.52 is not concerned with the mental state of the corporation is
supported by further authority in Johnson Tiles Pty Limited v Esso
Australia Pty Limited (2000) 104 FCR 564 where at paragraph 66,
French J, Beaumont and Finkelstein JJ said:
“In the case of an alleged non-disclosure it is not necessary to show
that the contravenor knew of the facts not disclosed. In Fraser v
NRMA Holdings Limited (1985) 55 FCR 452 at 467, the Full Court
said:
‘… For the purposes of s.52, if by reason of what was said and
what was left unsaid the conduct of the corporation is
misleading and deceptive or likely to mislead or deceive, a
contravention would occur even if the corporation through its
directors and officers did not have knowledge of the
undisclosed facts which rendered the conduct in breach of
s.52. A contravention of s.52 may occur without knowledge or
fault on the part of the corporation, and notwithstanding the
exercise of reasonable care: Parkdale Custom Built Furniture
Pty Limited v Puxu Pty Limited [1982] 149 CLR 191 at [197]’.
“That is not to say that knowledge may
circumstance. For in a case where disclosure
expected of a fact if that fact were known to the
make disclosure may convey the implication
known.”
45.
not be a relevant
would reasonably be
corporation, failure to
that that fact is not
The requirement to examine the overall conduct (including silence)
objectively and in context is also supported in Demagogue Pty Limited
v Ramensky (1992) 39 FCR, where Black CJ observed at 32:
“Silence is to be assessed as a circumstance like any other. To say
this is certainly not to impose any general duty of disclosure; the
question is simply whether, having regard to all the relevant
circumstances, there has been conduct that is misleading or deceptive
or that is likely to mislead or deceive. To speak of ‘mere silence’ or a
duty of disclosure can divert attention from that primary question.
Although ‘mere silence’ is a convenient way of describing some fact
situations, there is in truth no such thing as ‘mere silence’ because the
significance of silence always falls to be considered in the context in
which it occurs. That context may or may not include facts giving rise
to a reasonable expectation, in the circumstances of the case, that if
particular matters exist they will be disclosed.”
15
_____________________________________________________________
46.
Gummow J also observed in that case (Cooper J agreeing) at 40:
“… In any case where a failure to speak is relied upon the question
must be whether in the particular circumstances the silence
constitutes or is part of misleading and deceptive conduct.”
47.
Overall, the relevant test for whether there is a contravention of s.52
(and the FTA equivalent), in the light of all of the relevant
circumstances constituted by acts, omissions, statements and silence,
the defendant engaged in misleading and deceptive conduct (see
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 32, 40-1;
110 ALR 68.
(d)
Legal principles relating to section 52 – what is “trade and commerce”?
48.
In O’Brien v Smolonogov (1983) 53 ALR 107, the Federal Court held
that a private sale of a parcel of rural land was not a transaction “in
trade or commerce”. The Federal Court applied American decisions
which drew a distinction between private sales and sales in a business
context.
49.
In Bevanere Pty Limited v Lubidineuse (1985) 7 FCR 325 at 330, the
Full Federal Court said that the ratio of the O’Brien case was that “a
private sale of property by an individual is not conduct in trade or
commerce except if done in a course of a business activity or otherwise
arising in a business context”. The Full Court distinguished O’Brien’s
case on the basis that the land in that case was not used for any
business activity.
50.
In Vella v Permanent Mortgages Pty Limited (2008) NSWSC 505,
Young CJ said that, whether any individual case activity comes within
trade or commerce is essentially a matter of fact to be decided in all the
circumstances of the case.
16
_____________________________________________________________
51.
In Havyn Pty Limited v Webster [2005] NSWCA (referred to
hereunder), the New South Wales Court of Appeal upheld the trial
judge’s determination that, in circumstances where a vendor had
inherited flats and let them out for the purpose of deriving an income
did constitute the carrying on of a business on the property and that
representations made concerning the size of the flats during the course
of negotiations for the sale of the property was conduct “in trade or
commerce”.
52.
Overall, the TPA and FTA will not apply to circumstances where there
is a sale of land which is used for residential purposes only and where
the vendor has used and the purchaser intends to use the premises for
domestic use only. However, where the property has been rented out
and the vendor is selling the asset with an intention to invest the
proceeds in more profitable rental properties, conduct in that context
will be in trade or commerce.
(e)
Legal principles relating to relief for a contravention of section 52 (and
the FTA equivalent) – the suffering of loss “by” the misleading and
deceptive conduct
53.
In Havyn Pty Limited v Webster [2005] NSWCA 182, at paragraphs
116-117, Santow JA (Tobias AJ and Brownie AJA concurring) provided
a very useful summary of the law in relation to causation and relief for
breaches of s.52 (and s.42 FTA). The following is a summary of the
propositions which his Honour derived from High Court authority.
(i)
Causation generally
54.
First, when seeking relief under sections 82 or 87 TPA (and the FTA
equivalents) it is necessary to show that there is loss or damage
caused by the contravention. The relevant question is whether the
17
_____________________________________________________________
innocent person has suffered loss “by” conduct of the contravening
party.
55.
The term “by” invokes the “common law practical or common-sense”
concept of causation.
56.
Second, causation is a question of fact to be determined by reference
to common sense and experience, and one upon which policy
considerations and value judgments necessarily enter. The law looks
at what influences the actions of parties, acknowledging that people
can be swayed by several considerations to varying extents, rather
than considering cause and effect in mathematical or philosophical
terms.
57.
Third, loss or damage is causally connected to a contravention of the
Act if the conduct materially contributed to the loss or damage. It is not
necessary that the conduct be the sole, principal or dominant cause
and causation is satisfied even if, without more, the contravention
would not have brought about the loss.
58.
In the context of s.52, where the form of misleading conduct is
constituted by misrepresentation, acts done by the representee in
reliance upon the misrepresentation amount to a sufficient connection
to satisfy the concept of causation.
59.
Fourth, causation does not have to be established by direct evidence of
the part that the relevant conduct played. The court may by inference
determine the effect which a representation is taken to have. Such an
inference may arise where a representation operated as an
inducement in circumstances where it was materially likely to induce a
representee to enter into a contract and the person actually enters into
the contract.
18
_____________________________________________________________
60.
It is for the person whose contravening conduct materially contributed
to the loss or damage to prove that some component of that loss or
damage is referable only to some act or event other than his or her
contravention.
(ii)
Monetary compensation
61.
In relation to monetary compensation pursuant to s.82 or s.87 TPA
(and the equivalent FTA provisions), the following is a summary of
what Santow JA described as the propositions emerging from the
authorities.
62.
Once causation is established, the measure of relief available under
s.82 is not to be confined by analogy to breach of contract, tort or
equitable remedies.
63.
Although the amount of loss or damage caused by a contravention for
misrepresentation will often coincide with what would have been
awarded in an action for deceit, the question is what damage flowed
from (in the sense of being caused by) the contravention.
64.
It is necessary to identify the detriment which is said to be the loss or
damage which has occurred or which is likely to occur. The language
of the statute does not support any assumption that loss in this context
should be necessarily singular, or be incurred either on capital account
or on revenue account.
65.
Economic loss caused by a contravention of the Act may take a variety
of forms. But where it is caused by misleading or deceptive conduct, it
is essential that the plaintiff has sustained a prejudice or disadvantage
19
_____________________________________________________________
as a result of altering his or her position under the inducement of the
misleading conduct.
66.
Such loss is usually quantified by comparing the value of what was
acquired (based on the price freely contracting fully informed parties
would have offered and accepted for it) with what was paid, in order to
assess whether the party misled could have acted in some other way
(or refrained from acting) which would have resulted in him or her
obtaining greater benefit or incurring less detriment.
67.
Thus the loss can be described as akin to “reliance loss”, and the
measure of damages is that which applies in relation to torts (especially
deceit and negligent misrepresentation), although it is the plain words
of the statute which are ultimately determinative and it should not be
assumed that the common law rules apply to all claims for relief under
the Act.
68.
A measure of damages for reliance loss will generally not include
damages for loss of expectation or profits, unless it be shown, for
example, that reliance has deprived the innocent party of the
opportunity of entering into a different contract in respect of which he
would have made a profit.
69.
The measure of damages may vary depending upon whether the
innocent party elects to affirm or rescind the contract, as it affects the
terms of the comparison of what was acquired of what was paid for it.
However, in all cases, it depends upon proper identification of the
relevant loss or damage actually sustained and the application of the
Act to compensate for that loss.
III
Impact of the standard Contract of Sale
20
_____________________________________________________________
70.
A good starting place where an issue arises concerning misleading and
deceptive conduct is the contract itself.
71.
Annexure “A” to the this paper contains the provisions in the Law
Society’s standard Contract for the sale of land (2005 ed.) which
potentially may be relevant to misleading and deceptive conduct in
connection with the sale of land.
72.
I wish to make a few observations in relation to those standard
provisions.
73.
First, clause 7 contains provisions concerning how a “claim” is to be
made by a purchaser before completion. Claims under that clause
include, among other things, claims where there have been errors or
misdescriptions in the contract concerning “property, the title or
anything else and whether substantial or not” (see clause 6.1). The
expression “claim” is not defined. However, it includes a claim under
clause
6
for
“misdescription”
which
may
clearly
include
misrepresentations. Does a claim under clause 7 include other claims
for misleading and deceptive conduct generally? Whilst clause 10.1
precludes claims in respect of certain matters including “a promise,
representation or statement about this contract, the property or the title
not set out or referred to in this contract” (clause 10.1.5) or “anything
the substance of which is disclosed in this contract” (clause 10.1.9), if
there has been misleading and deceptive conduct outside those areas,
in my opinion, clause 7 provides a mechanism whereby claims for such
conduct can be made. For example, if the misleading and deceptive
arises from oral misrepresentations or from the non-disclosure of
certain matters, clause 7 is arguably an appropriate mechanism
whereby claims for compensation arising out of such matters are to be
made (if those matters become apparent before completion). Whilst
clause 7 uses the word “can”, not the word “must”, it provides that a
21
_____________________________________________________________
claim for compensation where it is made before completion can be
made “only” by serving it in the manner provided in that clause.
74.
The clause provides valuable rights to both vendor and purchaser if
such a claim is made. From the vendor’s perspective, it provides a
valuable right to rescind the contract if the total amount claimed
exceeds five percent of the price. In those circumstances, the vendor
can serve a Notice of Intention to Rescind and, if the purchaser does
not waive the claims within 14 days, the vendor can rescind under
clause 19.2 (unless otherwise provided).
If the vendor elects to
rescind, the deposit and any money paid by the purchaser is refunded;
the vendor can claim a reasonable adjustment if the purchaser has
been in possession; either can party claim for damages, costs and
expenses arising out of a breach of the contract, but otherwise the
parties are not liable to the other party for damages, costs or expenses
(clause 19.2).
75.
Under clause 7.2, if the vendor does not rescind, there is a mechanism
whereby the parties are required to complete under the following
procedure:

the lesser of the amount claimed and 10% of the price is held by
the deposit holder until the claims are finalised or lapse (clause
7.2.1);

the claims must be finalised by an arbitrator appointed by the
parties or by an arbitrator appointed by the President of the Law
Society (clause 7.2.3);

If the parties do not appoint an arbitrator and neither party
requests the President to appoint an arbitrator within three
months after completion, the claims lapse (clause 7.2.6).
76.
The above provides a valuable right to the parties to a low cost method
of seeking to resolve claims arising out of misleading and deceptive
22
_____________________________________________________________
conduct where the purchaser does not wish to rescind the contract but
wishes to affirm it but with a reduction in the purchase price. The
downside from a purchaser’s perspective is that, if such a claim is
made, and the claim exceeds five percent of the price, the vendor may
wish to rescind the contract if the purchaser does not waive its claim
within 14 days after service of such a notice.
77.
Some interesting issues arise if the purchaser serves a notice waiving
such claim (presumably to avoid the result that the vendor would
otherwise rescind the contract).
Would a purchaser in those
circumstances be waiving any residual rights which it may have to
claim damages under the TPA or FTA after completion has occurred?
Whilst parties cannot contract out of the provisions of the TPA or FTA
in relation to misleading and deceptive conduct, a purchaser who, with
knowledge that there has been misleading and deceptive conduct,
makes a claim under clause 7 for compensation and then “waives”
those claims in accordance with the clause is arguably estopped from
subsequently bringing a claim for damages after completion. Such an
estoppel argument could potentially be supported if the vendor gave
evidence that, if such a waiver had not been made, he or she would
have rescinded the contract rather than be faced with a claim for
misleading and deceptive conduct.
78.
On the other hand, an estoppel may be avoided if any waiver is
expressed to be limited to a waiver of contractual rights under clause 7
and not a waiver in relation to rights which the purchaser may have
under the TPA or FTA. The likely consequence of such an approach
would be that the purchaser would be required to complete by paying
the whole of the purchase price on settlement, but proceed to claim
damages under the TPA or FTA after completion.
In my view, the
better argument is that clause 7 does not operate to require a
purchaser to relinquish his or her rights under the TPA or FTA arising
23
_____________________________________________________________
out of misleading and deceptive conduct after he or she has made a
claim under clause 7.
79.
Similarly, the provision in clause 10.1.5 to the effect that the purchaser
cannot make a claim for a representation or statement about the
property or the title not set out in the contract (clause 10.1.5) or
anything the substance of which is disclosed in the contract (clause
10.1.9), whilst relevant to the operation of clause 7, will not operate to
prevent a purchaser from seeking relief under the TPA or FTA.
Similarly, the provisions of clause 10.1 which prohibit a purchaser from
rescinding by reason of the various matters set out in that clause would
also not prevent the court from finding that a purchaser validly
rescinded the contract for misleading and deceptive conduct or from
exercising its discretion under clause 87 to do so, although the
existence of the provision will be relevant to the exercise of that
discretion.
80.
In Clark Equipment Australia Limited v Kovcat Pty Limited (1987) 71
ALR 367, Sheppard J at 371 said:
“Parties may agree that statements and representations made
antecedently to their entering into a contract are not to form the basis
of any remedy in the event of there being a subsequent disagreement.
Except in the case of fraud, the common law will give effect to their
contract. But the remedy conferred by s.52 of the Trade Practices Act
will not be lost, whatever the parties may provide in their agreement.
If a vendor of goods has engaged in misleading and deceptive
conduct, the law makes him accountable for loss and damage
suffered as a result of his unlawful conduct. That conduct will usually
have been committed, as in this case, prior to the signing of any
contract. If, as a result of the conduct, a person is induced to enter
into a contract and suffers loss, an action to recover it lies. The terms
of the contract are irrelevant. As Wilcox J said in Petera Pty Limited v
EAJ Pty Limited (1985) 7 SCR 375 at 378:
‘Whatever may be the effect of cl.19 [the exemption clause in that
case] in relation to an action brought in contract, in which reliance is
placed upon an alleged warranty or condition not included in the
contract of sale, that clause should not be allowed to defeat a claim
based on s.52. To permit such a clause to defeat such a claim would
be to accept the possibility that a vendor might exacerbate his
24
_____________________________________________________________
deception, as by actively misleading a purchaser as to the existence
or nature of such an exclusion, and thereby ensure that he would
escape liability’.”16
81.
Another interesting question arises in circumstances where the
purchaser, after completion, commences proceedings for damages
which could have been the subject of a claim under clause 7 because
he or she was aware of the contravention before completion, but chose
not to invoke rights under clause 7. In those circumstances, the vendor
could defend the proceedings on the basis that clause 7 provided a
mandatory procedure for claims for compensation before completion
which entitled the vendor to rescind the contract if the purchaser was
not prepared to waive the claims.
If clause 7 does provide a
mandatory procedure for the making of claims before completion, it
may be argued by the vendor that the subsequent claim after
completion was in breach of clause 7, that he or she would have
rescinded the contract unless a waiver was provided and that
accordingly the damages which he or she has suffered by reason of
the breach is the detriment of having to face a damages claim itself
after completion, when he or she would otherwise have rescinded and
sold the property elsewhere. In my view, the better view is that clause
7 should not be regarded as providing a mandatory procedure for
claims for misleading and deceptive conduct under s.52 where those
claims are known before completion, particularly in the light of the
abovementioned authorities to the effect that you cannot contract out of
the provisions of the TPA/FTA.
IV
Recent cases
(a)
Havyn Pty Limited v Webster [2005] NSWCA per Santow, Tobias JJA
and Brownie AJA
16
Also see The Full Federal Court in Hanjo Investments Pty Limited & Ors (1988) 79 ALR 83
at 98.
25
_____________________________________________________________
(i)
Background facts and issues
82.
The vendor/respondent was the vendor of a property at Bronte upon
which was erected a block of six flats. The building was a three storey
building with two flats on each floor.
The property had not been
brought under the Strata Schemes (Freehold Development) Act 1973.
83.
The vendor’s agent prepared a coloured brochure or flyer for the
purpose of advertising the property in contemplation of an auction on
19 September 2002. The front of the brochure had a large coloured
picture of the property with a number of listed features in bullet-point
form which included the following dot points:






84.
Block of 6 x two bedroom flats with Panoramic Ocean Views.
100 metres to Bronte Beach, shops, cafes, park and city buses.
Each flat approximately 63 square metres.
Two lock-up garages.
Well maintained with scope for further improvement.
Unsurpassed opportunity for investor or developer.
After the abovementioned bullet points, the brochure set out particulars
of the auction and the inspection dates as well as details of the agent.
At the foot of the page was the following small print statement:
“E&OE. The information contained herein given has been supplied to
us and we have no reason to doubt its accuracy. However, we cannot
guarantee it. Accordingly, all interested parties should make their own
enquiries to verify the information.”
85.
On the obverse side of the brochure there appeared a sketch plan
showing the layout of an unidentified flat with certain dimensions
marked. The dimensions were only given for the living room and two
bedrooms, with no dimensions given for other parts of the flat. The
dimensions were therefore incomplete so far as the rest of the depicted
flat was concerned. Below the sketch plan appeared figures showing
the income, outgoings and land value, and the agent’s details. At the
foot of the page was another small print statement which stated:
26
_____________________________________________________________
“All measurements are approximates only. While we trust them to be
correct we cannot guarantee them.”
86.
The measurements contained on the sketch plan had been determined
by the agent simply by “pacing out” the bedrooms and living room and
using that method to calculate an approximate size for the units.
Those measurements were the only measurements made available by
the vendor to potential purchasers. There was no extant survey plan of
the building to be made available for inspection prior to auction. Nor
was it disclosed to the purchaser or its principal that pacing out was the
method used.
87.
The purchaser/appellant became interested in purchasing the property
for the purpose of refurbishment and resale.
He intended to
amalgamate the two flats on each floor such that the property would
contain three luxury strata apartments which could be resold at a
substantial profit. On 17 September 2002, he inspected the interior of
two units in the property when it was open for inspection and was given
a copy of the brochure. The purchaser gave evidence that he read the
brochure but could not recall reading the two warnings at the foot of
each page. The next day, he returned to the property and took some
measurements of the stairwells in order to calculate the total amount of
floor space on each floor. He gave evidence that he relied on the 63
square metres referred to in the brochure in order to calculate that
amalgamating the stairwell area of each floor with each of the flats on
that floor would yield an area of approximately 146 square metres per
refurbished flat. He did not seek independently to verify the figures
given.
88.
At auction on 19 September 2002, the property was knocked down to
the purchaser for $3.130 million. The under-bidder was $3.125 million.
Contracts were exchanged with a settlement to occur in six weeks on
31 October 2002. The purchaser paid a deposit of $313,000.
27
_____________________________________________________________
89.
When the date for completion arrived on 31 October 2002, the
purchaser had not been able to find the purchase price. Therefore, on
1 November 2002, the vendor’s solicitors issued a Notice to Complete
requiring completion by 18 November 2002. On 14 November 2002,
following a request by the purchaser, the vendor agreed to extend the
time for completion to 2 December 2002, time being of the essence.
This was agreed in consideration of the purchaser agreeing to the
release of the deposit forthwith and to pay interest on the balance of
the purchase price at a certain rate from 31 October to 18 November
2002 and at 20% per annum from 19 November 2002 to 2 December
2002.
90.
On 21 November 2002, the purchaser discovered that the area of the
flats was substantially less than 63 square metres. In fact, the area
(including the balcony) for units 1 to 6 varied between about 5% and
10% less than 63 square metres. The trial judge (Palmer J) found that,
applying a valuation of $10,000 per square metre, and assuming
balconies were included, there was an aggregate of $220,000.
If
balconies were not included, the aggregate shortfall became $401,000.
The shortfall represented in value terms, using the trial judge’s $10,000
per square metre, around 7% of the agreed purchase price of $3.130
million.
91.
On 29 November 2002, the purchaser’s solicitors wrote to the vendor
urgently requesting access to the property to measure the actual
dimensions and disputing the efficacy of the Notice to Complete
previously issued and the variation of the Notice to Complete. On the
same day, the purchaser lodged a caveat claiming an interest as
purchaser. On the same day, the vendor’s solicitors responded by
refusing to concede that time would not run and refusing to concede
the inefficacy of the Notice to Complete.
28
_____________________________________________________________
92.
The vendor appointed a time for settlement on 2 December 2002. The
purchaser did not have sufficient funds to complete. On 3 December
2002, the purchaser endeavoured to obtain further extensions of time
for completion but would not agree to the vendor’s condition that the
purchaser provide releases from any claims found on alleged
misrepresentation.
93.
On 4 December 2002, the vendor issued a Notice of Termination and
on 10 December 2002 requested removal of the caveat.
The
purchaser refused.
94.
The vendor commenced proceedings on 16 December 2002 seeking a
declaration that the contract had been validly terminated, damages and
an order for the caveat to be removed.
95.
On 23 December 2002, the purchaser filed a cross-claim seeking
orders pursuant to s.72(2) of the FTA varying the contract to allow
completion within a reasonable time, together with an abatement of the
purchase price by way of compensation for the misrepresentation. In
the alternative, the purchaser claimed either orders rescinding the
contract and refunding the deposit with damages for expenditure or a
declaration that the vendor was not entitled to terminate together with
an order for specific performance.
Failing all that, the purchaser
alternatively claimed an order for the return of the deposit pursuant to
s.55(2A) Conveyancing Act 1919.
96.
In early 2003, the vendor entered into a conditional contract to sell the
property to the under-bidder at the auction for $3 million. On 14 March
2003, the parties agreed for the caveat to be released to allow the
vendor to sell the property to the under-bidder in consideration of the
monies representing the purchaser’s deposit being invested pending
29
_____________________________________________________________
determination of the proceedings. Those consent orders were made
without prejudice to the rights asserted by the purchaser in its crossclaim.
97.
In order to reflect the remaining issues after the consent orders were
made, the purchaser filed amended points of claim in March 2004
seeking a declaration that the vendor had made false and misleading
representations as to the size of the units, and in consequence was
disentitled from relying on the Notice to Complete and/or the Notice of
Termination. The points of claim also sought the return of the deposit
(because the contract was validly rescinded) or alternatively pursuant
to s.55(2A) and damages suffered by the purchaser in reliance of the
misrepresentation.
98.
The issues before the trial judge were as follows:
(a)
Was the vendor entitled to give a Notice to Compete and then to
terminate for failure to complete?
(b)
Was the representation (as to the approximate size of the flats)
an actionable representation either at common law for the tort of
deceit or as misleading and deceptive conduct in trade or
commerce, within s.42 FTA?
(c)
If it was such an actionable representation, did it occasion loss
or damage to the purchaser and, if so, in what quantum?
(d)
Should the discretion to order forfeiture of the appellant’s
deposit to be returned pursuant to s.55(2A) have been exercised
by requiring it to be returned in full?
99.
The trial judge found that the vendor had validly terminated the contract
and was entitled to damages; that the purchaser was not entitled to
damages either in tort or for misleading and deceptive conduct
pursuant to s.42 FTA; and that the forfeited deposit ought be refunded
pursuant to s.55(2A) as otherwise the vendor would receive a
30
_____________________________________________________________
substantial and unmerited windfall; but that that order should be staid
until the results of the damages inquiry before the Master was known.
(ii)
Entitlement to terminate
100.
The Court of Appeal upheld the trial judge’s determination that the
vendor’s termination of the contract was valid. The Court of Appeal
noted that it was clear on the evidence that the purchaser’s failure to
complete was in no way the result of any misrepresentation by or on
behalf of the vendor. There was, for example, no suggestion that the
purchaser was unable to obtain funding because of the over-statement
of the area of the flats. The Court of Appeal held that a reasonable
inference from the events that happened is that the purchaser might
have had in mind obtaining damages or a reduction of the purchase
price by reason of the claimed misrepresentation but had every
intention
of
completing
the
contract
notwithstanding
the
misrepresentation. In this respect, the Court of Appeal was content to
rely on dicta of the High Court in Tanwar Enterprises Pty Limited v
Couchi at [58]:
“But, at least where accidents and mistakes are not involved, it will be
necessary to point to the conduct of the vendor as having in some
significant respect caused or contributed to the breach of the essential
time stipulation.”
101.
The Court of Appeal noted that, neither accident nor mistake were
involved and that the purchaser had expressly refrained from putting
any submission that failure to complete was in any way contributed to
by the claimed misrepresentation. Accordingly, the Court of Appeal
held that the trial judge was correct to hold that the vendor had
established an entitlement to relief in the form of damages for breach of
contract by the purchaser. It is interesting to note that the Court of
Appeal did not address the issue of whether the vendor was entitled to
issue the Notice to Complete.
In this respect, it is a well known
principle under general law that a party is not entitled to issue a Notice
31
_____________________________________________________________
to Complete if it is not ready, willing and able to perform the contract.
In this respect, the vendor was only prepared to settle the contract on
terms that the whole of the purchase price be paid without any
reduction by reason of the misleading and deceptive conduct. If a
claim had been made under the 2005 form of contract by reason of the
misleading and deceptive conduct, and the vendor had issued a Notice
to Complete demanding completion without an appropriate adjustment
in accordance with the procedures stipulated in that form of contract, it
may well have been arguable by the purchaser that the issuing of the
Notice to Complete was not valid because the vendor was not ready,
willing and able to complete in accordance with the terms of the
contract.
102.
In relation to the question of damages suffered by the vendor, the trial
judge had ruled earlier in the trial before him that the question of
damages should be determined by the Master. In this respect, the trial
judge had gone further, ruling that damages should include the sum of
$130,000 in favour of the vendor, that sum representing the difference
between the purchase price agreed to be paid by the purchaser ($3.13
million) and the sale price to the subsequent purchaser ($3 million).
The Court of Appeal held that the trial judge erred by pre-ordaining a
minimum amount of damage to be determined by the Master, holding
that the inquiry before the Master should be with no pre-ordained
minimum amount of damage.
In this respect, the Court of Appeal
noted that, if the deposit was found to have been forfeited to the
vendor, the vendor was required to give a credit in relation to that
deposit in relation to any assessment of damage.
(iii)
Was there misleading and deceptive conduct by the vendor?
103.
In relation to the misrepresentation issue, the Court of Appeal identified
two primary issues:
32
_____________________________________________________________
(i)
Was the representation by the vendor misleading and
deceptive, in particular was representation within the tolerance
of the word “approximately” such that it was not a
misrepresentation:
(ii)
If there was a misrepresentation, did it occasion loss and
damage, and, if so, in what amount?
104.
In relation to the first issue, the Court of Appeal warned against merely
concentrating on the actual representation “each flat approximately 63
metres”. In this respect, they referred to the High Court in Butcher v
Lachlan Elder Realty Pty Limited which emphasises that one cannot
look at a representation forming part of a course of conduct in isolation
from the character of the transaction in the overall conduct of the
person involved.
105.
In this respect, the Court of Appeal noted the evidence that it was the
agent’s own casual pacing out of the area which had been used as the
basis for the statement that each flat was approximately 63 square
metres; that it was done by pacing out only one of the front units and
overlooked the fact that one of the units did not have a balcony. The
agent admitted under cross-examination that the pacing out involved
walking around tenant’s possessions.
106.
The Court of Appeal noted that the disclaimer was incorrect to the
extent that it stated that the information contained in the brochure was
supplied to the agent and also rendered that part of the disclaimer
inapplicable by way of qualification to what is earlier stated. It also
negated the proposition immediately following in the disclaimer that
“We have no reason to doubt its accuracy”. Further, the disclaimer
about not guaranteeing the information and that “All interested parties
should make their own enquiries to verify the information” is therefore
itself introduced on a misleading basis. This was so in two respects.
33
_____________________________________________________________
First, it was affirmed that those providing it had no reason to doubt the
accuracy of the information, and, second, it had been given to the
agent rather than represented the agent’s own work.
107.
Applying the principles in Butcher, looking at the totality of the conduct,
the Court of Appeal held that it could not be said that the remainder of
that part of the disclaimer provided any justification for giving greater
latitude or tolerance to the earlier representation that each flat was
“approximately 63 square metres”.
108.
The Court of Appeal rejected the trial judge’s finding that the statement
concerning the size of each flat was merely a statement of the agent’s
belief. In this respect, the Court of Appeal pointed to the fundamental
difficulty that there was no adequate foundation upon which the agent
could have had a rational belief that each flat was approximately 63
square metres in area.
Nor was any basis for the purchaser to
understand that what the agent’s conduct conveyed in making the
representation he did was merely his subjective belief as to the
measurement being approximately correct. In this respect, the Court of
Appeal pointed to the words of the majority in Butcher that the question
remains:
“What a reasonable person in the position of the purchasers, taking
into account what they knew, would make by the agent’s behaviour”.
109.
The Court of Appeal held that, in this instance, reasonable purchasers
would have read the whole document and assumed the following:
(a)
the information came from the vendor and not the agent;
(b)
the method of measurement used would be such as was reliable
enough to produce an approximate correspondence between
the measurement made and the actual position, with a degree of
tolerance no greater than implied by the word “approximately”,
so that
34
_____________________________________________________________
(c)
such purchasers, acting reasonably, would have had no
appreciation that the method actually used was that here
employed, namely by pacing out the approximate dimensions of
the only three rooms of one flat thereby producing an average
area per flat in value terms of around 7% and in area terms of
around 5%.
110.
The Court of Appeal concluded that the conduct in question, including
both the statement of the approximate area on the flyer and the two
disclaimers was misleading and deceptive. It held that a reasonable
purchaser reading the whole document would not have reason to
suppose that the area of each flat stated by the agent was outside the
real estate agent’s ordinary competence to calculate and provide in an
approximately accurate manner. The Court of Appeal held that the
situation was in no way analogous to that in Butcher where the matter
was one of some complexity concerning title where, as the majority
pointed out, “It is a matter of common experience that questions of title
to land can be complex, both legally and factually” so that “they have to
be dealt with by specialists”.
(iv)
Causation and damages
111.
Having overturned the trial judge’s finding that there was no misleading
and deceptive conduct, the Court of Appeal then considered causation
and damages.
I have already summarised above Santow JA’s
statement of the principles concerning causation and damages insofar
as they relate to misleading and deceptive conduct. After stating those
principles, Santow JA stated that it was clear from the evidence that
the misrepresentation induced the purchaser to purchase the property.
112.
He referred to the evidence from the purchaser that, had he been
aware that each flat was smaller than represented, there would have
35
_____________________________________________________________
been 42 square metres less available to be sold after refurbishment
and conversion to strata title and would have reduced his profit
projections by about $600,000 and thereby reduced the bid he would
have made for the property to considerably less than $3 million. Apart
from that evidence, Santow JA said that, apart from that evidence,
such a conclusion may have been inferred objectively because a
representation was materially likely to have such an inducing effect.
113.
The Court of Appeal rejected the finding of the trial judge that, if there
had been a misrepresentation, he would not have found there to be a
sufficient causal link between the conduct and the purchaser’s loss and
damage because the purchaser “has failed to take reasonable care for
its own interests and has sought to rely on particular words in the flyer
which, although misleading in isolation, do not have that character
when viewed in the light of the documents as a whole”. The Court of
Appeal held that, in adopting that approach, the trial judge had
elevated the improvident conduct of the purchaser to a cause of the
purchaser’s loss to the exclusion of any causative influence of the
representation. Santow JA went on to say:
“Where a representation is in fact relied on by an innocent party to
induce him or her to enter into a contract it is, with respect, difficult to
see how that very reliance can be treated as cancelling the causative
effect of the misrepresentation because of some supposed
carelessness by the party in so relying. The law recognises that
multiple factors may have a causative influence in bringing about a
person’s decision to act in a particular way, and does not require the
conduct of the defendant to be the sole or even principal cause of the
loss. Although a misrepresentation alone has no causative effect in
the absence of some action being taken in reliance upon it, for that
reliance (or the unreasonableness of it) to be taken as the cause of
the loss requires a finding that it is so significant, essential, direct or
effective a cause as to negate entirely the materiality of the causative
influence of the misrepresentation. It will be a rare case indeed where
the quality of the reliance is such that it can in that way be regarded as
so dominant in the causal chain to be properly regarded as the real or
effective cause of the loss. The onus of establishing that it should be
so regarded lies on the contravening party. The vendor did not
discharge this onus in the present case.”
36
_____________________________________________________________
114.
It should be noted that the events in this case were before 26 July 2004
and therefore the provisions apportioning responsibility for loss did not
apply. If they had, there may well have been a good basis for a case
that the damages should be reduced because of a lack of reasonable
care on the part of the plaintiff to investigate the size of the rooms
independently of the brochure.
115.
In paragraph 124, Santow JA raised the interesting point that the
vendor had not put in issue whether the particular heads of damage
claimed by the purchaser (being wasted expense and the deposit)
were occasioned “by” the conduct of the vendor or whether they were
properly to be regarded as caused by the purchaser’s own breach of
contract (which led to the vendor rescinding the contract).
In this
respect, Santow JA said that it must remain for another day to consider
whether an innocent representee who affirms a contract instead of
rescinding it, and then itself breaches the contract, so that the
misrepresenting party validly terminates the contract, suffers loss “by”
his own breach or whether in a normative sense, responsibility for that
loss should still be laid at the door of the party who contravened the
statute.
116.
Whether the deposit ought to have been recoverable as damages
pursuant to s.72 FTA was not canvassed in argument before the Court
of Appeal and Santow JA said that, subject to what follows in the
Court’s determination concerning the operation of s.55(2A) for the
return of the deposit, the appropriate order would have been for the
question of damages to be referred to the Master.
117.
As will be seen, the question of whether the deposit was the damage
suffered by the purchaser by reason of the misleading and deceptive
conduct never had to be determined by the Master as the Court held
that, in the exercise of a discretion under s.55(2A), the deposit was to
37
_____________________________________________________________
be returned to the purchaser. However, if this had not been the case
and if the vendor had put in issue whether such a loss had been
caused by the breach of contract as distinct from the misleading and
deceptive conduct, this would have raised very interesting issues as to
causation and whether the real cause of the loss of the deposit was the
purchaser’s breach of an essential term of the contract for sale rather
than the reliance on the misrepresentation to enter into the contract
and to pay the deposit in the first place.
As Santow JA said, this
question remains for another day.
118.
The Court of Appeal concluded that the purchaser’s appeal must
succeed on the claim that it was entitled to damages for misleading
and deceptive conduct being the legal and financing fees incurred by it
in reliance upon the representation (being $92,739).
119.
Having considered the contractual issues (whether the vendor was
entitled to issue a Notice to Complete and was entitled to damages)
and the misleading and deceptive conduct issues (whether the vendor
engaged in misleading and deceptive conduct and whether the
purchaser was entitled to damages), the final issue concerned whether
the Court should order the return of the forfeited deposit under s.55(2A)
Conveyancing Act.
(v)
Section 55(2A) Conveyancing Act
120.
The trial judge exercised his discretion under that section to require
that the deposit be returned in full. That sub-section provided:
“(2A) In every case where the court refuses to grant specific
performance of a contract, or in any proceeding for the return of a
deposit, the court may, if it thinks fit, order the repayment of any
deposit with or without interest thereon.”
121.
The trial judge concluded that, taking into account the circumstances,
forfeiture of the deposit would result in a substantial and unmerited
38
_____________________________________________________________
windfall to the vendor and a correspondingly large and unnecessary
loss to the purchaser.
His Honour found this, even though it was
through the fault of the purchaser that the contract for sale was
terminated. The circumstances relied on by the trial judge included
that the loss so far proved by the vendor was $130,000 whereas the
deposit was double that; if the vendor’s loss was confined to that sum,
her windfall will be $183,000, but if it is more, she has the right to claim
damages from the purchaser; the vendor had had the benefit of
possession of the property and rentals throughout the whole period up
to completion with the under-bidder; the vendor had had the benefit of
the deposit from 14 November 2002 until 14 March 2003 (when the
consent orders were made); and the deposit represented a substantial
proportion of the defendant’s assets, forfeiture of which in addition to
his expenses would represent to him a severe loss.
122.
In the above circumstances, the trial judge concluded that an
appropriate order was for the deposit to be returned but ordered that
such an order be staid until the result of the damages inquiry before the
Master was known.
This was because the purchaser might not
otherwise have the means to pay any additional damages.
123.
Santow JA provided a very useful analysis of the operation of s.55(2A)
at paragraph 126-155 of the judgment. He summarised that analysis at
paragraph 173 as follows:
“(a)
Section 55(2A) confers upon the Court as ?? jurisdiction to
return forfeited deposits which was not available either at
common law or in equity. Therefore, it would be wrong to seek
to confine the jurisdiction conferred by the words of the statute
by analogy with the jurisdiction of common law and equity to
relieve against penalties or forfeiture.
(b)
Notwithstanding this, it is important for a Court in considering
the scope of the discretion conferred by s55(2A) to bear in
mind that a deposit is an earnest of performance. That fact
forms part of the context in which the discretion falls to be
exercised, and means that a Court will not likely be moved to
order the return of a deposit paid as an earnest of
39
_____________________________________________________________
performance, and forfeited in accordance with the express
terms of the contract when performance does not occur.
124.
(c)
That context is significant when considering the justice and
equity of the case, and whether the Court “sees fit” to order the
deposit to be returned. It does not involve putting a gloss on
the words of the statute requiring the applicant to show
“special circumstances” (or satisfy any like test) before a
deposit will be returned.
(d)
In particular, this principle mandates against characterising a
forfeited deposit as a windfall to the vendor, merely because it
is forfeited.
(e)
In considering an application under s55(2A), it will often be
material for the Court to consider a number of factors,
including (though not exhaustively) the nature of a deposit, the
terms of the contract providing for its forfeiture and the
circumstances in which the deposit was forfeited.”
The Court of Appeal concluded that the approach taken by the trial
judge in the exercise of the discretion was in error insofar as he did not
consider the context out of which the application arose, including the
terms of the contract, and the circumstances of its breach.
In
particular, the trial judge made no reference to the terms of the contract
or to what Bryson J reminded himself of in Delgado v Walker
Developments Pty Limited as “The importance in the public interest of
the due performance of agreements and of the effective working of the
mechanism under which it is customary to require purchasers of land to
pay deposits”.
125.
Santow JA then went on determine his own view as to how the
discretion ought to have been exercised. In exercising that discretion,
Santow JA recounted the circumstances giving rise to the forfeiture of
the deposit: the purchaser had not obtained sufficient finance to
complete on the appointed day, but had procured an extension of time
from the vendor. However, in the interim, the purchaser learned that
the dimensions of the property were smaller than represented in the
sales brochure and the precise extent of the variants. By the extended
date for settlement, the purchaser for its part still wanted the property
40
_____________________________________________________________
(but with an abatement in the purchase price) but still had not procured
finance. The vendor for its part was willing to further extend the dates
of settlement but only if it was released from any claim to
misrepresentation (i.e. without an abatement in purchase price). The
vendor terminated the contract relying on its contractual right; its
conduct was not in any way inequitable or unconscionable (to the
extent to which that is relevant to s.55(2A)). The purchaser at all times
believed that the vendor was not entitled to rely on the Notice to
Complete because of the misrepresentation; that belief forming the
basis of its claim before the trial judge and the appeal. It is reasonable
to infer that the origin of that belief was advice given from the
purchaser’s solicitors who wrote in those terms to the vendor’s
solicitors on 29 November 2002 (some three days before the extended
date for settlement). That belief was wrong (as it now transpires) but it
does perhaps provide some explanation for why the purchaser did not
expedite its attempts to finalise finance prior to the extended settlement
date. It is that kind of circumstance which, although irrelevant to the
question of whether purchaser elected to affirm the contract thus
foregoing rights of rescission, may become relevant in the exercise of a
judicial discretion under s.55(2A).
126.
The Court of Appeal noted that the vendor had a contractual right to
terminate the contract for the purchaser’s default in meeting an
essential time stipulation which had already been extended. Yet the
evidence discloses that the purchaser was genuinely willing to
complete the transaction at all times.
Although it did not as at 2
December 2002 have the total funds necessary to pay the balance of
the purchase price, the evidence discloses that it was only $300,000
short of having sufficient to complete the purchase at the contract price
of $3.13 million (and had reasonable prospects of obtaining the
balance within a short period of time). That fact was known to the
vendor’s legal representatives, the settlement clerk for the vendor gave
41
_____________________________________________________________
evidence that at the aborted settlement on 2 December 2002, the
purchaser instructed his settlement clerk by telephone that he needed
another 24 hours to obtain the balance of his finance.
127.
In addition to the above, the Court of Appeal also took into account that
the contract price by reason of a misrepresentation was in excess of
the true value of the property at that time by $220,000 or some
$400,000 (if the balconies were excluded as the purchaser thought
they were). Also to be remembered was that the purchaser only found
out the true extent of the misrepresentations on the extended
settlement date of 2 December 2002.
The purchaser had been
endeavouring to obtain an extension of time and abatement of the
purchase price prior to settlement (rather than settling for the contract
price and suing for damages), a course which would have saved all
parties a great of time and money. The vendor refused to bargain, first
denying (without any basis as it transpires) any misrepresentation, and
then demanding releases from any liability before it would extend time
(although knowing that the purchaser needed only a short time to
obtain the finance).
The purchaser understandably did not want to
release the vendor in that way. Furthermore, that context is coloured,
as I have previously said, by the purchaser’s apparent belief that the
vendor would be disentitled from relying on the essential time
stipulation because of the misrepresentation.
128.
Overall, the Court of Appeal held that, whilst the vendor was legally
entitled to terminate as it did, and the purchaser was imprudent to rely
on its apparent contrary belief, it still ordered the return of the deposit in
the exercise of its discretion. In this respect, the Court held that the
purchaser’s conduct may have been tactically imprudent, but it was not
unreasonable. The vendor’s conduct was entirely legal and could not
be said to be unconscionable or inequitable (so far as those concepts
have relevance), that it was considerably less reasonable given the
42
_____________________________________________________________
context of the misrepresentation having come to light and the evident
willingness of the purchaser to perform. The purchaser was only given
the information as to the precise shortfall on 2 December 2002, being
the date for settlement, and the shortfall was contrary to what had been
represented. That shortfall clearly affected the value of what he was
buying. He was, not unreasonably, seeking a further extension of time
to settle. Why should he have been required to give a release for any
claim founded on misrepresentation when, as has been demonstrated,
he was entitled to damages? Accordingly, the Court of Appeal held
that the trial judge’s decision to exercise the discretion under s.55(2A)
to order the return of the deposit should be affirmed, although for
different reasons. The Court of Appeal upheld the trial judge’s decision
that the deposit should not be returned prior to the result of the
vendor’s damages inquiry. Accordingly, the Court of Appeal affirmed
the stay of the order to release the deposit pending the result of that
inquiry.
129.
Overall, the result of the Court of Appeal’s decision was as follows:
(a)
The vendor had validly issued a Notice to Complete and then
terminated the contract and became entitled to damages for
breach of contract against the purchaser.
(b)
Notwithstanding the above, the vendor had engaged in
misleading and deceptive conduct which had caused the
purchaser to suffer loss and damage, at least in the form of
wasted expenditure incurred by the purchaser in entering into
the contract.
There is no argument and no need for a final
determination in relation to whether the purchaser’s loss also
included the deposit of $310,000 paid on exchange of contract.
(c)
The trial judge had erred in the exercise of his discretion
pursuant to s.55(2A), although his decision was affirmed on
other grounds, notwithstanding that the vendor was legally
43
_____________________________________________________________
entitled to terminate the contract and did not engage in any
conduct that could be said to be unconscionable or inequitable.
(b)
Jainran Pty Limited v Boyana & Ors (2008) NSWFC 468
Background
130.
On 24 May 2004, the purchaser exchanged contracts to purchase a
commercial property at Wallacia from the defendant vendor for $2.495
million. The property was subject to a registered 20 year long-term
commercial lease.
The lessee carried on the business of a petrol
station and convenience store from the property. On exchange, the
purchaser paid a deposit equivalent to 5% of the purchase price which
was released to the vendor. The vendor was a company. Prior to
exchange, the vendor’s agent had discussions with the purchaser
about the property and provided a brochure and “information pack” to
the purchaser which included a copy of a 20 year lease, a draft
contract for the sale of land and a c.v. of the director of the corporate
tenant who operated the business.
131.
Shortly before settlement was to occur, the purchaser’s solicitor
received a Notice from the RTA as a result of a routine enquiry to the
effect that approximately 5% of the property may be resumed by the
RTA for road widening purposes.
132.
The purchaser, on carrying out an inspection of the property to
ascertain the possible impact of the RTA affectation, had a discussion
with the lessee who advised that he had commenced Supreme Court
proceedings against the owner seeking damages for misleading and
deceptive conduct concerning the lease. The alleged misleading and
deceptive conduct included representations concerning the likely
income to be derived from the business.
44
_____________________________________________________________
133.
The existence of the proceedings was subsequently confirmed, a copy
of the pleadings being provided by the vendor’s solicitors. The claim
was limited to damages against the lessor (there then being no claim
that the lease be declared void or amended).
134.
The purchaser rescinded the contract on the basis of statutory
warranties under the Conveyancing Act which entitle a purchaser to
rescind if there is a failure to disclose an RTA affectation in the
contract.
135.
The vendor contended that the RTA affectation was “disclosed” in the
contract by reason of the fact that the copy of the search on the title
referred to the RTA’s proposal under the heading “Notations – Plan of
Acquisition” and a DP number.
A search of the DP would have
disclosed the existence of the RTA proposal, but no such search was
carried out before exchange.
136.
The vendor treated the rescission by the purchaser as a repudiation of
the contract and commenced proceedings in the District Court claiming
the balance of the deposit. In this respect, the contract contained a
provision that, if there was a breach of contract by the purchaser, the
balance of the 10% was to be paid immediately.
The claim was
eventually abandoned because the provision was an unenforceable
penalty in the light of Luu v Sovereign Developments Pty Limited
[2006] NSWCA 40 and Iannello v Sharpe [2007] NSWCA 61.
137.
The purchaser commenced proceedings in the Supreme Court seeking
orders that the 5% deposit be returned on the grounds that it had
validly rescinded the contract under the statutory warranties. In the
alternative, it sought orders under s.87 Trade Practices Act that the
Contract for Sale be declared void because of misleading and
45
_____________________________________________________________
deceptive conduct and that the deposit be repaid. In the alternative,
orders under s.55(2A) were sought. The original Statement of Claim
also sought a declaration that the purchaser had an equitable lien on
the property as security for the repayment of the deposit.
138.
In this respect, there is High Court authority to the effect that a
purchaser validly rescinding a contract to purchase land, where the
deposit has been released to the vendor, has an equitable lien on the
land as security for the repayment of that deposit (Hewett & Ors v
Court & Ors [1981-1982] 149 CLR 639). A caveat was lodged on the
title by the purchaser claiming that interest.
139.
Subsequently, the vendor had financial difficulties and wished to sell
the property to a third party. The amount secured by mortgages over
the land (which took priority over any equitable lien) exceeded the
purchase price for the land. An application was made for removal of
the caveat in those circumstances, the caveat was removed and the
property sold.
140.
In light of the fact that it was then highly unlikely that the purchaser
would be able to recover the deposit from the vendor company, the
purchaser joined the real estate agent who had advertised the property
and the sole director of the vendor who had instructed the agent as
defendant. The claim against the agent was that it had engaged in
misleading and deceptive conduct by not disclosing the existence of
the litigation between the tenant and the owner.
141.
The claim against the sole director of the vendor was on the basis that
he had been knowingly concerned in a contravention of s.52 Trade
Practices Act by the company and was therefore personally liable. It
was also alleged that he was directly liable under the provisions of the
Fair Trading Act.
46
_____________________________________________________________
142.
The damages claimed against the agent for contravention of the Trade
Practices Act was the deposit of $150,000 that had been paid on
exchange.
The claim was made on the basis that, because the
purchaser was unlikely to recover the deposit from the vendor
company, the damages which the purchaser had suffered by entering
into the contract (in reliance on the misleading and deceptive conduct)
was the 5% deposit which it paid and agreed to release to the vendor
on exchange.
The Court’s decision
143.
Bryson J found that the purchaser was entitled to rescind the contract
and recover its deposit from Boyana for breach of the statutory
warranty. He also found that Jainran was entitled to rescind under
general law on the grounds of material misrepresentation in relation to
the RTA affectation (whether or not the misrepresentations were made
innocently). He found there were further bases for the claim for the
return of the deposit for misleading and deceptive conduct for nondisclosure of the litigation.
His Honour also held that if no other
remedy had been available, he would have granted relief under
s.55(2A).
(i)
Statutory warranties
144.
In relation to the statutory warranties, his Honour found that there had
been a breach of the deemed warranty that, at the date of the contract,
except as disclosed in the contract, the land was not the subject of an
adverse affectation. Adverse affectation is defined in the regulations to
include a proposal for realignment, widening or siting of a road by the
RTA.
47
_____________________________________________________________
145.
The judge rejected the defendant’s contention that there had been
disclosure of the affectation because a search paper annexed to the
contract contained a notation referring to DP791852 and “Note: plan of
acquisition”. That DP referred to the RTA proposal to widen the road
and identified the portion of the property which would be the subject of
such a widening if it proceeded.
146.
The defendant contended that, acting reasonably, the purchaser would
have made searches and ascertained the contents of the DP.
147.
The judge rejected the defendant’s contention on a number of grounds
including that a purchaser and its solicitor cannot reasonably be
expected to make searches before entering into a contract. Secondly,
there were other parts of the contract that specifically represented that
there was no road widening or road realignment proposal.
In this
respect, a s.149 Certificate attached to the contract specifically stated
that there was no such proposal. Also attached to the contract was a
set of requisitions on title and answers which included a plain
statement to the effect that there was no proposal to realign the road to
the vendor’s knowledge (when in fact the vendor did have such
knowledge). His Honour accepted evidence from the vendor’s solicitor
that ordinarily a title search paper would include a copy of any DP
referred to it, that a copy should have been attached to the contract
and that the vendor’s solicitor was unable to give any explanation as to
why it was absent.
148.
Having found that there was a breach of the statutory warranty, his
Honour went on to find that the purchaser was entitled to rescind for
breach of the warranty because the purchaser was unaware of the
existence of the matter when the contract was entered into and that the
purchaser would not have entered into the contract had he or she been
aware of its existence. The defendant sought to maintain that the road
48
_____________________________________________________________
widening
proposal
lacked
significance
and
actually
contained
advantages to the purchaser. The road widening proposal, it was said,
would result in more traffic passing by the service station which would
have increased clientele and would not have affected the store or the
driveway access to the petrol station. The judge rejected this argument
referring to the commercial reality that there should be no doubt in
relation to the materiality and importance of the road widening proposal
that would affect five percent of the property. His Honour also found
significance in the fact that the lease itself contained a break clause on
resumption.
(ii)
Misleading conduct of vendor in answers to requisitions
149.
His Honour also found another misleading statement in the answer to
requisition 5 (which was attached to the contract).
It said that the
vendor was not aware of any contemplated or current legal
proceedings which might or will affect the property.
In fact,
proceedings in the Equity Division of the Supreme Court were pending
between the tenant and the owner and the director of the owner.
Those proceedings had been commenced on 30 December 2003 by
the tenant (Jo-Al). Jo-Al claimed damages for an alleged breach of an
agreement under which the lease been granted; it was also claimed
that there had been misrepresentations by the vendor in which the
director had participated in the course of negotiations for the lease and
there were damages under the common law and s.82 TPA including a
head of damage which was rent and other outgoings under the 20 year
lease. His Honour rejected counsel’s submissions to the effect that the
litigation was not litigation “which might or will affect the property”
because Jo-Al made no allegations in relation to the lease and sought
no relief in respect of the lease and did not seek to set it aside. His
Honour found that the argument assumed a restricted meaning on the
requisition which did not accord with the ordinary and natural use of
49
_____________________________________________________________
language. His Honour concluded that the answer to requisition 5 was
untrue and that the requisition did not call for an answer governed
solely by the terms of the claim made in the litigation. His Honour said
that a lawsuit by the tenant of a 20 year lease which he claimed was
entered into on the basis of misrepresentation might affect the property
and the requisition could not be honestly answered without disclosing
the lawsuit.
150.
His Honour therefore concluded that, apart from the statutory
warranties, the purchaser had other bases on which to rescind the
contract because of misrepresentations that the property was not
affected by any RTA affectation and the answer to requisition that the
vendor was not aware of any contemplated or current legal
proceedings which might or will affect the property.
(iii)
Misleading and deceptive conduct of the agents
151.
His Honour found that, in answer to an advertisement in the Sydney
Morning Herald, a director of the purchaser (Mr d’Albora) contacted the
agent by phone. He informed the agent that he was interested in the
property and was looking for a good passive investment with a
guaranteed long-term rental income with little input from him that would
basically take care of itself. He said he did not want any problems and
asked whether the property would suit his needs. The agent said that
the property would suit his requirements and was looking for a
reasonable offer so that there would be an exchange by the end of the
month. After some further discussion, Mr d’Albora asked about the
tenant, to which the agent replied that he has been there for a couple
of years and has lots of experience running service stations.
He
offered to send Mr d’Albora a c.v. of the tenant. Mr d’Albora asked for
a copy of the c.v. and a property report. Subsequently, the agent sent
an information pack which consisted of a brochure, a copy of the
50
_____________________________________________________________
tenant’s curriculum vitae (which had been edited by the agent from a
c.v. that the tenant had provided to the landlord several years earlier)
together with other documents including a Petroleum Product Supply
Agreement showing monthly estimates of petrol and distillate and a
copy of a survey. The pack also included a draft contract (not entirely
in the same form as that which was later exchanged) and a complete
copy of the lease. Clause 14.2 of the lease stated that the provisions
of the lease comprised the whole agreement between the parties.
Clause 19 stated that the lessee was not obliged to pay rent for the first
five months of the term. A Section 149 Certificate attached to the draft
contract said there was no road widening proposals.
152.
The text of the brochure included:
FOR SALE
OUTSTANDING INVESTMENT
20-YEAR LEASE
NET INCOME $257,200 PA
DESCRIPTION – Near new service station/supermarket development.
Large typical retail outlet targeting high catchment,
tourist trade and adjoining caravan park …
LEASE TERM
– 20 years + 5 + 5 years
COMMENCING DATE - 3 APRIL 2002
EXPIRY DATE
- 2 APRIL 2022
Tenant fully responsible for full and comprehensive
outgoings and operating expenses.
COMMENTS
Solid investment leased to highly experienced
operator. Excellent Depreciation Benefits. Great
opportunity for long-term security and income.
True net lease – all costs paid by tenant.
Net income $257,200 pa. NB: CPI annual review
falls due April 2004.
SALE PRICE
Raine & Horne
$2.6 million (exclusive of GST)
Commercial Penrith
Phone: 02 4722 8500
Fax: 02 4722 8511
Email: sales@rhcom.penrith.com.au
Website: raineandhorne.com.au/commercialpenrith
153.
The brochure was prepared by a director of the agent in September
2003 with the aid of various documents provided by Mr Sgro, the sole
director of the vendor. Mr Sgro approved the use of the brochure and
51
_____________________________________________________________
supplied the curriculum vitae of the tenant. The agent had removed
some references which identified some of the referees of the tenant. It
dealt with activities up to 1999 and contained no information about the
business at Wallacia.
154.
Mr d’Albora was of the view that the contents of the documents met the
criteria he was looking for. On 24 May 2004, he inspected the site with
the agent. His Honour found that, during that inspection, Mr d’Albora
asked if there were any issues outstanding with the Council or the EPA
or any other authority to which the agent answered “No, it’s all okay”.
In answer to the question: “And what about the tenant – are there any
problems?”, the agent answered: “Not to my knowledge, you have
seen the c.v. I sent you”.
155.
It was the agent’s evidence that he told Mr d’Albora that the business
was very busy, was run by a highly experienced operator and that the
tenant and landlord “do not particularly like each other as the tenant
had originally wanted to buy the property himself”. His Honour found
that what the agent said he told Mr d’Albora about the tenant and the
landlord not particularly liking each other was an understatement of the
truth and was inadequate and misleading and concealed an important
fact which the agent knew, namely, that there was litigation pending
over obligations under the lease.
156.
His Honour found that the history of correspondence between the
landlord and the tenant and the litigation between the landlord and
tenant demonstrated that the serene depiction of the leasehold
relationship made in the brochure was misleading and deceptive. He
found that the agent was not frank, but untruthful in his conversations
with Mr d’Albora on 24 May 2004.
His Honour found that the
correspondence before the proceedings were commenced included
many indications that the tenant did not regard the leasehold
52
_____________________________________________________________
relationships and the arrangements for rent satisfactory. His Honour
referred to the proceedings that had been commenced by the tenant on
30 December 2003 in the Equity Division, alleging a number of the
breaches
of
the
agreement
to
lease
and
a
number
of
misrepresentations made before the agreement to lease. His Honour
referred to the evidence that the claims in the Statement of Claim and
proposals
to
resolve
them
had
been
dealt
with
in
lengthy
correspondence between the solicitors for both parties with such
correspondence
beginning some
years two
years before the
commencement of the proceedings on 11 December 2001 in which the
tenant argued for extra rent-free periods based on hardship and that
the business was unable to sustain the rental payments and wanted to
negotiate a reduction in the rent.
157.
His Honour found that the agent knew something of that history,
although not much. In meetings in February 2004, his Honour found
that Raine & Horne were told about the claims for rent relief and knew
about the pending litigation at least in outline but continued to use the
brochure which had been prepared in September 2003 before they had
that knowledge, without telling Mr d’Albora anything which in any way
disturbed the picture of serene security of income and favourable
circumstances which it presented.
158.
Bryson J found that the existence of litigation seriously qualified the
serene depiction in the brochure.
159.
His Honour said that he did not think that the position could be stated in
terms of a duty to disclose the existence of the litigation. Rather, his
Honour said that the existence of those proceedings made the
statements that were made by the agent misleading. His Honour found
that this was the case even if it were established that the proceedings
were baseless. In this respect, his Honour stated that if the tenant was
53
_____________________________________________________________
a person who brings baseless proceedings against his landlord, that
fact alone would disturb the serene picture projected by the brochure,
as would be the case if the tenant had a long history of claiming rent
relief on bases which are unjustified so as to “try his luck”. His Honour
found that a tenant who is a continuing source of baseless trouble
could not be reconciled with the brochure.
160.
Bryson J also found that the agent engaged in misleading conduct by
continuing to make the disclosures in the brochure but no longer
making disclosures which had been in earlier versions of the contract,
the absence of which contributed to the tendency to mislead and
deceive. In this respect, earlier versions of the contract which had
been distributed to potential purchasers had included an additional
condition 51 which disclosed that, in addition to the five month rent-free
period referred to in the lease, that the vendor had provided assistance
of $100,000 towards rent due by the lessee (which equated to a further
rent holiday of four months). The disclosure also included reference to
amounts totalling $10,350 which had been paid by the landlord to the
tenant as a payment for turnover figures. Overall, additional condition
51 had overcome the statement in the lease that it contained the whole
of the terms of the relationship when this was not correct.
That
condition was withdrawn from the draft contract by the vendor’s
solicitor at the suggestion of the agent in circumstances where the
agent was having difficulties selling the property. The agent knew that
that additional condition had been withdrawn and was not included in
the draft contract that was provided to Mr d’Albora. His Honour found
that the absence of that additional condition 51 contributed to the
tendency of the disclosures in the brochure to mislead or deceive.
161.
His Honour found that the character of the brochure as a statement by
the agent carried with it the meaning that the agent knew facts which
justified the statements and did not know any facts which would require
54
_____________________________________________________________
the statements to be modified or qualified. There was no indication of
the existence of any risk that the expectation of long-term security and
income or the advantages of a highly experienced operator could not
be fulfilled.
His Honour further held that the brochure gave rise to a
reasonable expectation on the part of the purchaser that if relevant
facts impacted on the matters stated in the brochure they would be
disclosed.
162.
Overall, his Honour found that there was misleading and deceptive
conduct in the agent circulating a comment that the property is a “solid
investment, leased to a highly experienced operator” and “great
opportunity for long-term security and income” without mentioning that
the same operator is currently suing the vendor and making allegations
that he entered into the lease as a result of the misrepresentation. His
Honour said that he could not see how an honest person could mention
“great opportunity for long-term security and income” without
mentioning the known fact that the tenant was complaining about the
rent in a current lawsuit.
(iv)
Reliance and causation
163.
His Honour rejected the defendant’s contention that a provision in the
contract in which the purchaser acknowledged that there had been no
representation or warranty upon which the purchaser relied as to
fitness or suitability in respect of the property had any effect on the
meaning and effect of the brochure. His Honour stated that, whilst that
clause had contractual force between the vendor and purchaser, it had
no contractual force and no other force as between the purchaser and
the agent and the purchaser and Mr Sgro.
He emphasized that
enforcement of s.52 is not enforcement of contractual obligation and
that the TPA gives remedies where damage occurs by misleading and
deceptive conduct and does so notwithstanding that the conduct
55
_____________________________________________________________
complained of caused the plaintiff to enter into a contract according to
the terms of which he has no remedies or his remedies are qualified.
His Honour referred to the decision in Henjo Investments v Collins
Marrickville (referred to above).
(v)
Mere conduit defence
164.
His Honour found that the surrounding circumstances furnished a
strong basis for finding that the conduct complained of caused the
purchaser to exchange contracts. His Honour emphasized that, apart
from Mr d’Albora’s evidence of reliance, there is usually little difficulty in
finding causation where an intended outcome occurs.
His Honour
found that that was the case here with representations to Mr d’Albora
being intended to bring about entry into the contract.
165.
His Honour also rejected the agent’s contention that the agent was a
“mere conduit” for the vendor and that, based on Butcher v Lachlan
Elder Realty Pty Limited (2004) 218 CLR 592, the agent should not be
liable.
In this respect, his Honour stated that the abovementioned
dissenting judgment of McHugh J in that decision was a valuable guide
in relation to a question of whether the “mere conduit” defence should
apply.
166.
His Honour noted that there was no indication of the agent disclaiming
any belief from the truth or falsity of what they had to say or that they
were “merely passing on the information for what it is worth”.
His
Honour also noted that there was no disclaimer of personal
responsibility or knowledge or otherwise in the brochure. Rather, his
Honour noted that the brochure was full of assurance with nothing in its
terms suggesting to the effect that the agent did not really know the
position and left the recipient to drawn his own conclusions.
His
Honour noted that the comments in the brochure were put forward as
56
_____________________________________________________________
comments of the agent and expressed his conclusions. His Honour
also referred to the fact that the agent, under cross-examination, gave
evidence that he understood that the brochure was his own and was a
Raine & Horne document.
167.
His Honour further rejected the defendant’s contention that the
statements in the brochure were “puffery”. In this respect, his Honour
found that the brochure contained many statements of fact and
commendations which were not highly specific but were clearly capable
of being misleading and deceptive if facts and circumstances made
them so.
(iv)
Liability of the sole director of the vendor
168.
Mr Sgro was the only director of Boyana and there were no other
officers, managers or other staff. He was the only source of instruction
upon which the contract was prepared and he signed the contract on
behalf of the vendor. His Honour described Mr Sgro as the human
embodiment of the vendor company and all of its actions were his
actions. As a consequence, the conduct in which Mr Sgro engaged
was directly causative of Jainran’s entering the contract with all the
representations of fact in it.
169.
The court found that Mr Sgro could not escape liability for misleading
and deceptive conduct by showing he did not know of the inclusion of
the requisitions in the contract or of the planning certificates attached to
the contract. The court found that he engaged in the conduct of putting
forward the contract in the terms that it had whether or not he had a full
understanding of what he was doing which his Honour found was not
relevant. His Honour found that Mr Sgro’s liability was the product of
his own conduct, and not only by reason of the provisions of s.75B
57
_____________________________________________________________
TPA. If he were not otherwise liable directly, his Honour found that he
would be liable as an abettor under s.75B.
170.
The court emphasized that the brochure (which Mr Sgro had approved)
gave prominence to the positive characteristics of the tenant, a copy of
the c.v. of which had been provided to the agent by Mr Sgro. The
characteristics of the tenant and the brochure were put forward in close
association with the claims about net income. The omission of any
facts showing dispute or contention by the tenant about whether the
income could or should be paid was misleading, as was the failure to
refer to the litigation. The court also found that the failure to refer to the
further $100,000 rent-free period (which had previously been disclosed
in an earlier version of the contract) was also misleading and
deceptive. His Honour found that whilst nothing in the brochure can be
said to be untrue or fraudulent, the conduct in communicating the
material without qualification was misleading and deceptive having
regard to an array of facts known by Mr Sgro which seriously qualified
the accuracy of the picture being projected.
171.
His Honour rejected the contention of the agent that, under the
apportioning provisions, there ought to be some apportioning of any
damages found as between the agent on the one hand and the vendor
on the other. It was also contended that the purchaser had engaged in
what was tantamount to “contributory negligence” by not making
enquiries in relation to the financial circumstances of the tenant. His
Honour rejected those contentions on the basis that the relevant cause
of action was not complete on or after 26 July 2004 and hence part VIA
TPA was not applicable to the present case.
172.
His Honour found that, as there were no prospects of recovery of the
deposit from Boyana, Jainran’s damages against the agent and Mr
58
_____________________________________________________________
Sgro was the $150,000 which it had paid away on exchange.
He
awarded that amount as damages together with interest.
173.
His Honour further found that, if he were wrong in his conclusion that
the purchaser did have a right to rescind because the contract stated in
two places that there were no road widening proposals (which he could
not see how this could be), the purchaser would have a compelling
case for a favourable discretionary decision under s.552A.
174.
In conclusion, his Honour gave judgment for the purchaser against
each of the defendants for $150,000 with interest plus costs.
Dated: 9 September 2008
Stephen Climpson, Barrister
11th Floor Wentworth Chambers