Re Constantine Pappas (By His Next Friend George Pappas) and Panagiota Pappas v Soulac Pty Limited and LJ Hooker Pty Limited SA NoG8 of 1983 Trade Practices [1983] FCA 3 (14 January 1983)

FEDERAL COURT OF AUSTRALIA

Re: CONSTANTINE PAPPAS (BY HIS NEXT FRIEND GEORGE PAPPAS) AND PANAGIOTA
PAPPAS
And: SOULAC PTY. LIMITED AND L.J. HOOKER PTY. LIMITED
S.A. No.G8 of 1983
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Fisher J.

CATCHWORDS

Trade Practices - Consumer Protection - Misleading and deceptive conduct - Sale of Shopping Centre - Misrepresentations during negotiations - Whether inducement to purchase - Proper measure of damages and assessment thereof

TRADE PRACTICES ACT 1974 ss.52, 53A(1)(b), 82.

HEARING

ADELAIDE
14:1:1983

ORDER

1. This application be dismissed.

2. The applicants Constantine Pappas and Panagiota Pappas do pay to the respondents Soulac Pty. Limited and L.J. Hooker Pty. Limited their costs, the same to be taxed if not agreed.

DECISION

This action arises out of the sale by the respondent Soulac Pty. Ltd. ("Soulac") to the applicants Constantine Pappas ("Mr. Pappas") and Panagiota Pappas ("Mrs. Pappas") of a shopping centre at Christies Beach in South Australia. Essentially the applicants contend that Soulac engaged in misleading or deceptive conduct which contravened s.52 of the TRADE PRACTICES ACT 1974 ("The Act") and in consequence the applicants suffered loss. They seek to recover this loss pursuant to s.82 of the Act from Soulac and from its agent L.J. Hooker Limited ("Hookers"). It is alleged that Hooker's employee Kelvin James Spencer ("Mr. Spencer") made a number of false representations during negotiations for the purchase, which misled the applicants who in consequence paid an excessive price for the shopping centre. The background of undisputed facts can be stated reasonably shortly.

Early in 1981 the applicants sold certain business premises and were seeking to invest the proceeds in an income producing property. Mr. Pappas had some years earlier suffered a stroke and was unable to give evidence during the proceedings. He took little part in the negotiations leading up to the purchase of the shopping centre, which were substantially left in the hands of the applicants' son and daughter. In June 1981 Mr. Spencer told them of Soulac's shopping centre at Beach Road, Christies Beach which comprised six shops. This information was conveyed by telephone to Mrs. Paxinos, the daughter of the applicants, and she and her parents inspected the premises on the following day. They found that one of the shops was vacant and Mrs. Paxinos spoke of this to Mr. Spencer during the evening. On the following day the applicants and Mrs. Paxinos inspected the premises with Mr. Spencer and in the evening Mrs. Paxinos telephoned Mr. Spencer to say her parents wished to make an offer. Mr. Spencer visited the applicants' home on the following day, 16 June 1981, and the latter signed a contract offering to purchase the shopping centre for $200,000. This offer was then accepted by Soulac, the contract being dated 17 June ("the first contract").

Shortly prior to the expiration of the cooling off period under this contract the applicants' son George Pappas was informed of the purchase. With his mother and wife he visited the centre during the evening and they had a conversation with Mrs. Hajisava the tenant of shop numbered 1. She made a number of derogatory comments concerning the shopping centre and indicated that she anticipated vacating her premises. Later that same evening George Pappas telephoned Mr. Spencer and said his parents wished to cool off and not proceed with the purchase. This action was accepted and the first contract lapsed.

Subsequently Mr. Spencer introduced a Mr. Memmos to George Pappas as a prospective tenant of the vacant shop numbered 2 and Mrs. Hajisava's shop number 1. George Pappas accepted Mr. Memmos as the new tenant of these shops and obtained from Mr. Spencer the leases of the other four shops. Mrs. Paxinos spoke with the lessees of these shops concerning their businesses and generally. On 1 July 1981 the applicants signed, in the presence of their son, another contract agreeing to purchase and to make settlement on the succeeding 13 July. Prior to the date of settlement George Pappas instructed a land broker to prepare a lease for Mr. Memmos and the latter was let into possession before settlement. However he did not sign a lease and left the centre for other premises some weeks after settlement. The applicants suffered disappointments with other tenants and incurred unexpected expense in cleaning up and repairing water damage. Moreover they found that some of the tenants of the other shops had not been, for one reason or another, regular in their payments of rent to Soulac. In these circumstances they seek to be compensated by Soulac for their disappointments and although originally claiming rescission, agreed they had affirmed the purchase. Their contention was that they had suffered loss in that they paid more for the shopping centre than its true value at the relevant time.

It was in these circumstances that the applicants alleged that representations concerning the shopping centre were made by Mr. Spencer which contravened the provisions of s.52 and s.53A of the Act. It is sufficient to consider s.52 alone in the first instance. Before proceeding to relate the differing versions of what was said, it is important on a number of grounds to appreciate the characteristics of the various persons with whom Mr. Spencer spoke. That which is misleading to one person may not be misleading to a person with different characteristics. Likewise persons with differing characteristics are unlikely to attach the same significance to the statements of another.

An important factor in this matter is that, with the exception of Mrs. Pappas, each member of the family had had considerable commercial experience. Mr. Pappas had, in his wife's words, been a very clever businessman and had owned shops and flats. Moreover he had 5 years experience with a land salesman. His daughter Mrs. Paxinos who conducted all negotiations leading to the first contract, had had considerable business experience gained whilst employed by land agents and land brokers. She had worked for a period as a land saleswoman and she and her husband had engaged in some private buying and selling of properties. Furthermore she had for 12 months prior to May 1981 conducted her own dress boutique business at Morphett Vale, a few kilometres from Christies Beach. Her brother George Pappas had graduated with a Bachelor of Economics degree and had for the three years prior to the hearing been managing his own Chicken Take-away food shop business. Both brother and sister were thus intelligent people, with considerable business expertise and experience. On many matters I did not find their evidence very satisfactory or convincing, perhaps because of their very close involvement in the decision to make the purchase. They were not disinterested witnesses. I gained the impression that each was inclined to attempt to shift to the other the blame for the disappointment their parents felt in the months after settlement. Mrs. Pappas had assisted her husband in the management of his properties since his illness but had not otherwise had business experience. She gave her evidence through an interpreter, though claimed to have sufficient knowledge of English to understand Mr. Spencer's statements.

The other principal witness, Mr. Spencer, was a land salesman, employed by Hookers and he had had considerable experience both with that company and the Taxation Department. I found him to be a conscientious and careful witness and a person who was prepared to give truthful testimony without regard to the consequences. In general I prefer his version of the conversations to that of the applicants and their children except where he is, if ever contradicted by corroborrated evidence. He was prepared freely to admit having made certain statements which, construed in the manner in which the applicants or their children claimed they understood them, could have misled the applicants. The evidence of the two directors of Soulac, Mr. Little and Mr. Tippins, is not, on the view I take of the matter, of much significance. However I should state, should it subsequently become relevant, that I found Mr. Little a careful witness whose evidence generally I can accept. I cannot say the same of Mr. Tippins.

The negotiations took place over a number of weeks and there were numerous discussions (telephone and otherwise) and meetings of the applicants and their children, or some of them, with Mr. Spencer. The crucial question for determination is the probable state of mind of the applicants, to the extent induced by Mr. Spencer, at the time of signing of the contracts. The applicants must establish, as a threshold consideration, that they held a mistaken belief as a result of something said to them by Mr. Spencer.

They relied primarily on establishing a breach of s.52 of the Act and it was conceded or not in issue that each of the respondents was a corporation engaged in trade or commerce. Hookers was acknowledged to be the agent of Soulac in connection with the sale and Mr. Spencer was a servant or agent of Hookers. In the light of conflicting evidence it is necessary to determine what I find Mr. Spencer did say to one or more of the applicants or their children on the topics of misrepresentation pleaded. However first of all a few general comments must be made.

For the purpose of determining whether any of the respondents engaged in misleading conduct statements can not be assessed in isolation but in the overall context of the negotiations. I adopt with respect what was said in 'Parkdale Custom Built Furniture Pty. Ltd. v Puxu Pty. Ltd. [1982] HCA 44; (1982) 42 A.L.R. 1 by Gibbs C.J. at page 7.
"The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or acts which, alone, would be likely to mislead if those words or acts, when viewed in their context were not capable of misleading. It is obvious where the conduct complained of consists of words, it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words. The same is true of facts."

It is important to appreciate that many of the statements alleged or admittedly made by Mr. Spencer were wholly or in part statements of opinion, not capable of being objectively proved to be true or false. They were also essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations for the purpose of attracting the interest of a possible purchaser. As such they became irrelevant or of little if any significance when detailed information is subsequently given a fortiori, to a potential purchaser with commercial experience. To the extent that they are essentially puffery, it is proper to be reluctant to elevate them to the status of potentially misleading conduct. The comments of Holmes J. on this aspect, which he denotes as a rule of law, in Denning v Darling 20 N.E. 107 at 108-9, referred to in Donald & Heydon Trade Practices Law vol.2 p.539 are on point.
"The rule of law is hardly to be regretted, when it is considered how easily and insensibly words of hope or expectation are converted by an interested memory into statements of quality and value when the expectation has been disappointed."
The statement of claim identifies 9 topics on which misleading statements were alleged to have been made by Mr. Spencer. The evidence supporting the applicants' case discloses these statements as having been made in various forms and various words and in at least one instance quite differently from that as pleaded. Mrs. Pappas, Mrs. Paxinos and George Pappas gave her or his version of what Mr. Spencer said on a number of these topics and Mr. Spencer stated his account of what was said. Generally I prefer the version of Mr. Spencer and I do not propose to recite what was pleaded on each topic and what if anything each witness had to say. This can if necessary be gathered from the extensive evidence taken at the hearing.

The first contentious topic concerned the amount of maintenance required to be performed on the shopping centre. It was contended that Mr. Spencer said that there would or should not be any maintenance required to be performed on the premises because they were new. There was however only Mrs. Paxinos' uncorroborated evidence to this effect and she has not satisfied me that he made a statement in these terms. He said, which I accept and which Mrs. Paxinos confirms, that she brought up the topic of maintenance and I accept his statement that he merely agreed with her when she said that there should be little maintenance because the premises were, as they indeed were, relatively new. There is no justification for a finding of misleading conduct on this topic.

The next topic concerned the return and the income to be produced by the shopping centre. There is no doubt that early in the negotiations Mr. Spencer said that the shopping centre had a good income, namely $36,000 and an excellent return. This however was not a statement of a fact but of opinion based on his judgment. Furthermore in the words of Gibbs C.J. it is necessary to see the words in context. As negotiations progressed the applicants became aware of the actual rents the tenants were obliged to pay and the fact that one shop was vacant. This information was in the first contract. The conversation with Mrs. Hajisava cast doubt on some assumptions and alerted them to the fact that they ought to make their own enquiries. They exercised their right to cool-off for this very purpose. Mrs. Paxinos also said that she was disappointed with Mr. Spencer, especially as she expected him to be acting as their agent as well as for the vendor. Thereafter they were less inclined to accept or rely upon general statements and made their own enquiries. Mrs. Paxinos however said that prior to signing the second contract she asked Mr. Spencer if her parents "would be getting a good return". It is quite out of keeping for a person of her experience and in her then state of knowledge to ask such a simplistic question, let alone place any reliance on the answer. Mr. Spencer's reply when this matter was put to him in evidence is more in accord with reality.
"We were pretty well advanced in negotiations on the shops. I think they were talking about specifically the new tenants and supplying information. We had gone over all that before."

At the time of signing the second contract the applicants were well aware of the rents the tenants were obliged to pay and the arrangements concerning Mr. Memmos. The matter of regularity of payment of rents is more appropriately dealt with in relation to Mr. Spencer's representation that they were good tenants. This contract and accompanying documents set out the rents under 4 existing leases and that in respect of shops 1 and 2 a tenant had agreed to pay $160 per week. It was not the fault of either the vendor or Mr. Spencer that this tenant had not been committed to a lease before entering into possession. I do not find any conduct which was, or was likely to be, misleading on this aspect of the applicants' case.

The next contention was that Mr. Spencer represented both orally and in the contracts and vendor's statements that shops 4 and 6 were let at $120 per week. It was not disputed that there was such a representation or that this was the rent payable under the leases. However it was contended that the rent at the time payable had been reduced by agreement between the parties. The applicants abandoned this contention at trial in respect of shop 6 and I find that they failed to establish such an agreement with the tenant of shop 4. Mr. Little, satisfied me that no such agreement had been made.

It was then said that Mr. Spencer orally represented that there would be no trouble in letting shop 2. Again this is a statement of an opinion and not a serious assertion of fact, whether present or future. The shop was shown as vacant at the time of the first contract but shortly thereafter a tenant Mr. Memmos was introduced. He was checked by Mr. George Pappas who found him acceptable but arranged for his landbroker to prepare the necessary documents. It was the applicants' fault that Mr. Memmos was not committed to an enforceable written lease. I can not accept that any statement made by Mr. Spencer as to the prospects of obtaining a tenant could have encouraged the applicants to believe that it would always be easy to fill vacancies and to fill them at $120 per week. I accept Mr. Spencer's evidence, that Mrs. Paxinos was aware of a number of vacancies in Beach Road at the commencement of negotiations. George Pappas however for his part was insistent that his parents should not sign a second contract until a tenant was obtained for shops 1 and 2. This requirement was satisfied and it was on his instructions that Mr. Memmos was allowed into possession without a lease.

Mr. Spencer was also alleged to have represented that the nearby Colonnades Shopping Centre had not any effect on the tenants' businesses and that there would be no problems from this source. Mrs. Paxinos' evidence was that on the first telephone call Mr. Spencer made this statement. She went further to say that Mr. Spencer's view was that rather than having a detrimental effect Colonnades had helped Beach Road. I can not accept her evidence in this regard. It is out of character for Mr. Spencer, as I assess him, to be so dogmatic on matters of which he had no knowledge. I accept his version of the conversations on this topic.
" . . . yes we did. We had quite a lengthy discussion on Colonnades and its impact. I felt she, perhaps, knew as much - if not more than I did - having had previous business experience in the area. She was of the opinion that Colonnades had caused the number of vacancies and perhaps a downturn in the business in that area and I agreed. I felt it had quite a serious effect on Beach Road trading, and my comment to her was that I felt that the worst of the impact was nigh over and that we would probably begin to see, in my opinion, a recovery down there; and I think she agreed."

Then it was said Mr. Spencer represented all of the tenants as good tenants. Mr. Spencer admitted he used these words and he did not attempt to equivocate. This unequivocal admission of a matter unfavourable to him confirms my view that I should accept his evidence in preference to that of Mrs. Paxinos. He was far more inclined to be objective, whereas Mrs. Paxinos was to some extent an advocate in her own cause or that of her parents. In saying that they were good tenants Mr. Spencer was, as he said, doubtless relying upon what he observed of the general conduct of their businesses, namely that they had stock on hand and customers in evidence and were trading and appeared generally to be operating in a professional manner.

However it is my view that the applicants were entitled to assume that he was saying that the tenants were paying their rent regularly, were not in arrears and were complying with their obligations under their leases. In fact this was not the case and Soulac had experienced difficulties with some of the tenants.

Both Mrs. Hajisava and Mr. Hart had been from time to time in arrears with their rent and neither of them could be said to have been good tenants. However the applicants' counsel conceded that they were aware of this position at the time of signing the second contract. Mr. Van Wyck, a tenant of shops 2 and 3, had fallen very substantially in arrears with his rent, to the extent of approximately $5,000 and was making unreasonable demands upon the directors of Soulac in respect of damage to his carpet. He certainly cannot be said to have been a good tenant and the applicants were not made aware of this situation when they signed the second contract.

It was also contended that Mr. Spencer orally represented that the information given by Mrs. Hajisava, that the businesses were not doing well, was misleading. This representation, it was said, was false in that the information which Mrs. Hajisava gave was correct. In this instance even if the contentions were each correct I could not find that any of them constituted misleading conduct under s.52. It is an area in which vague and general statements, in many instances based on second or third hand information, were bandied about between the parties. Mrs. Paxinos said she discussed with Mr. Spencer what she had been told by her mother or brother of their conversation with Mrs. Hajisava. George Pappas' version was that Mr. Spencer told him that Mrs. Hajisava was "a bad operator and not to worry because it would be better for her to be out of the centre". Mr. Spencer agreed that he told the applicants they should not accept what Mrs. Hajisava said, saying
" . . . that they ought to perhaps use a little care in interpreting what she had to say. I was merely pointing out that she had run a very bad business, she was leaving the centre and would probably be, like any human natured tenant leaving, she was going to have a lot of negative things to say."
I accept Mr. Spencer's version of this matter and reject the allegation that what he said concerning Mrs. Hajisava amounted to misleading conduct.

The final contention was that Mr. Spencer orally represented that the shopping centre was a good investment for the applicants and that it was a good shopping centre. On a number of grounds it was alleged that this representation was false. At best however it was again a statement of opinion, the type of puffing which would normally fall from a selling agent and which was incapable of being proved to be correct or incorrect. Mr. Spencer did not dispute that he made general statements of this nature but it is impossible to assess them as material representations of fact. Likewise in the light of the relatively long period during which the parties were negotiating and the experience of the applicants and their children it is not possible to assess them as misleading conduct.

The end result is that, leaving aside the representation that the tenants were good tenants, I am not prepared to find that the various statements, whether standing alone or taken in context, amounted to misleading conduct under s.52 or false or misleading statements under s.53A(1)(b) of the Act. However I do find that the statement that the tenants were good tenants meant to the applicants that the tenants were not in arrears with their rent and thus the statement was false. The applicants were justified in their contention that they were lead into error on this score and thus they have established a contravention of s.52, but not of s.53A(1)(b).

The applicants will only be entitled to an award of damages under s.82 of the Act if they establish that they were induced by the representation concerning the tenants to enter into the second contract. The situation is the same under s.7(1) of the Misrepresentation Act 1971 (South Australia) pursuant to which a claim in the alternative is made. The question in each instance is whether they acted upon the statements of Mr. Spencer in the sense of placing reliance upon this conduct in entering into the contract. There must be a causal connection between the conduct and the loss for which they seek to be compensated. In my opinion this conduct was not a material factor for the reasons which follow.

All of the circumstances in which the second contract was negotiated make it, to say the least, extremely unlikely that this representation was a determining factor. I would find that the probabilities are that the applicants, in their disappointment, now attach far more significance to this statement concerning the tenants than they did at the time. There was no positive evidence to the effect that the applicants relied upon Mr. Spencer and were motivated by the statement to sign the contract, and much evidence to the contrary. Mrs. Paxinos said that they were disappointed in Mr. Spencer at the time of the first contract, believing it was his duty to look after their interests and that he had let them down. Mr. Spencer agreed that there was thereafter a cooling off in their relationship. There is no doubt that they made their own enquiries; Mrs. Paxinos of the tenants and George Pappas in perusing the leases. Mrs. Paxinos said that she did not assume that the tenants were good tenants and that she approached them, in some instances on more than one occasion, to see if they had any problems either with their businesses or their rentals. She said her parents were prepared to sign the second contract because Mrs. Hajisava was not to be a tenant. This coincides with the attitude of George Pappas whose particular interest was Mr. Memmos and his proposed tenancy of Mrs. Hajisava's shop. The evidence as to what motivated the second contract establishes that the applicants were primarily interested in obtaining a tenant for shops 1 and 2 and that the appearance of Mr. Memmos and his acceptance by George Pappas was the deciding factor. Mr. Spencer said that George Pappas told him as follows of his parents' attitude
"Sure they are interested but they are going to inquire (sic) that the centre really meets their requirements. If you have a new tenant coming in, we certainly want to make sure that he is worthy as a tenant."
This statement by Mr. Spencer was not challenged in cross-examination and is in accord with George Pappas' attitude generally. It confirms that the applicants were making their own enquiries and that the worth of Mr. Memmos, the new tenant, was the crucial factor. His worth was established by George Pappas and he took over from Mr. Spencer and the respondents arrangements concerning the lease agreement. I do not accept the evidence of George Pappas that he left it with Mr. Spencer to have this done. It is clear that the applicants did not sign the second contract in reliance upon the representations of Mr. Spencer and in particular his statement concerning the quality of the tenants.

It follows that in my opinion, if the applicants suffered a loss, it was not as a result of any contravention of the Act or any misrepresentation. Their claim for damages must fail.

There was however much evidence before me on the question of damages and it is appropriate I should indicate my views in case I am found to be wrong on my earlier conclusions. There was no dispute that the proper measure of damages was the difference between the purchase price of the shopping centre, $200,000, and what would have been a fair price to have paid for the shopping centre at the time of the purchase. This entailed an investigation as to the market value as at 1 July 1981 of the shopping centre and each side called an expert valuer to express his opinion. The applicants' valuer assessed the value as $150,000 at the relevant time and the lowest value placed by the respondents' expert was $200,000. A relevant question is the extent of the obligation which lies on the applicants to support their contention that they had suffered a loss. A subsidiary question is whether I am bound to conduct an investigation of the valuations to determine, as far as possible, the true market value at the relevant time, or whether I merely assess what I conceive the possible amount of loss, in like manner to a jury.

In Potts v Miller [1940] HCA 43; (1940) 64 C.L.R. 282 Dixon J.,(as he then was) considered the question of the obligation of plaintiffs in these circumstances. On page 299, after approving on page 297 the view that there was no difference in the measure of damages for deceit depending upon the nature of the transaction, he said:
"The burden lies upon the plaintiff of proving that the shares acquired were, at the time when they were allotted or purchased, of less value than the amount paid or payable for them by the plaintiff. For the plaintiff must establish his damage and show that the shares for which he subscribed were not really worth what he paid for them (Stevens v Hoare (1904) 20 T.L.R. per Joyce J. at p.409). You begin therefore with the assumption that the shares subscribed for are worth their par value . . .

But as the authorities stand, the plaintiff in a case of the present description must establish that the 'fair', 'real' or 'intrinsic' 'value' of the shares he subscribed for was at the date of allotment less than the face value for which he made himself responsible, and the amount recoverable is the excess. If the difficulties of doing so are insurmountable, then apparently his action must fail. For here too the burden of proof remains upon the plaintiff. It is for him to show how low is the real value of the shares and he can not sustain an assessment of damage in his favour based upon a greater reduction of value than might positively be inferred by a reasonable man from all the circumstances appearing in the evidence." I have added the emphasis.

In the ultimate I am of opinion that the evidence is insufficient to enable me to infer positively that the fair value of the shopping centre on 1 July 1980 was less than $200,000. Each of the valuers made a careful assessment of what in his opinion a willing but not anxious purchaser would pay for the shopping centre on the basis of a capitalization of rentals. Each based his calculation on a fair rental considerably lower than that payable under the leases and the different result each reached was the consequence of adopting differing rates of capitalization. After making a number of assumptions concerning likely occupancy of premises comprising comparable sales, Mr. Taylor selected the capitalization rate which the hypothetical purchaser would use as 17%. It is my opinion that this rate is too high, being much higher than the actual capitalization rate disclosed by his comparable sales prior to making adjustments for increased occupancy. In addition I am of opinion that he incorrectly took into account when selecting this high capitalization rate "the disabilities suffered by the subject premises in relation to disposition, location and condition" when he had previously taken these disabilities into account in assessing the fair rental as $80 per week per shop. In consequence of my opinion on these matters and in the light of Mr. Fenwick's valuation and criticism of Mr. Taylor's result, I am not satisfied that $150,000 was the fair value of the shopping centre at the relevant time. In the words used by Dixon J., I am not prepared positively to infer that this reduction in value is justified. The evidence of the applicants was directed only to establishing that $150,000 was the fair value. It follows as I am not satisfied that they have established that this is the fair value, they have failed to discharge their burden of proof. No onus lies on the respondents to establish the value of the land, but if I had to indicate my preference I would select the lowest valuation of Mr. Fenwick as being closest to the fair market value. But I do not see it as part of my task to make what adjustments, if any, I consider necessary to his valuation to assess, as would be required of a Court in assessing compensation for acquisition of land, the actual market value on the relevant date. The applicants have failed to discharge the onus of positively satisfying me that it is $150,000 or any amount less than $200,000.

However the application fails primarily on the ground that the applicants have not established that they have suffered loss in consequence of any misleading conduct on the part of the respondents. Their action must be dismissed with costs.