Re Western Mail Securities Pty Ltd v Forrest Plaza Developments Pty Ltd and Bjr Nominees Pty Ltd [1987] FCA 11 (23 January 1987)

FEDERAL COURT OF AUSTRALIA

Re: WESTERN MAIL SECURITIES PTY LTD
And: FORREST PLAZA DEVELOPMENTS PTY LTD and BJR NOMINEES PTY LTD
No. WA G8 of 1987
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.

CATCHWORDS

Trade Practices - misleading and deceptive conduct - application for interlocutory order - option to purchase commercial development under construction - option to expire on date of certification of practical completion - certification issued - option exercised "under protest" - settlement due 30 days after exercise of option - certification allegedly misleading and deceptive - claim for interlocutory orders including order extending date of settlement - reservations as to power - absence of causal relationship between conduct alleged and detriment suffered.

Trade Practices Act 1974 s.52

HEARING

PERTH
23:1:1987

Counsel for the Applicant Mr M. Bennett instructed by Messrs. Keall Brinsden

Counsel for the First Respondent Mr R. Ainslie instructed by Mallesons Stephen Jaques

ORDER

The applicant's claim for interlocutory relief be
dismissed.

The costs of this application be reserved.

There be liberty to the first respondent to apply for further orders.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. (See also Order 37 rule 2(3)).

DECISION

On 25 November 1986 the Bell Group Limited entered into a written agreement with the first respondent, under which it acquired an option to purchase the land and buildings under construction thereon known as the Forrest Centre at 219-221 St. George's Terrace, Perth. The purchase price specified in the option agreement was $88,000,000.00. The option agreement was made in settlement of litigation in the Supreme Court of Western Australia, the details of which it is not necessary to explore for present purposes.

2. On 22 December 1986, the Bell Group Limited assigned the benefit of its option agreement to the applicant. Under the agreement the option granted to it could be exercised at any time up to and including midnight on the date certified by the first respondent's architect as that on which the buildings comprising the Forrest Centre were practically complete and fit for occupation.

3. The second respondent is said to be the first respondent's architect and to carry on business under the name: Robert Cann and Associates. The agreement required the first respondent to give to the applicant at least 48 hour's notice of the date he reasonably believed would be the date of practical completion and at least 24 hour's notice of the actual date of practical completion.

4. On 19 December 1986, a telex was sent to the Bell Group Limited from Michael Beaver, the accountant for what is known as the Forrest Plaza Joint Venture, the developers of the Forrest Centre. It is not disputed that for present purposes, I can regard this and certain like telexes as sent on behalf of the first respondent. The telex said:-

"We hereby give notice that we believe practical
completion will be on Tuesday, 22 December 1986."

5. This was evidently intended to be a reference to 23 December. On 22 December a revised telex notice was sent, nominating Wednesday, 23 December as the expected practical completion date. Then on 23 December at 4.40 pm, Beaver advised Bell Group Limited by telex:-

"I confirm the proposed date of practical completion
referred to in my telex yesterday should be Wednesday 24
December, 1986 as discussed with you today."

6. A second telex was sent at 4.55 on the same day from Beaver to Bell Group Limited:-

"We hereby confirm that practical completion will be on
Wednesday, 24 December 1986."

7. The building project comprised one 8-storey office tower with three storeys of car-parking, one 27 storey office building and a 2-storey colonial building between the office towers. The 8-storey office tower was completed in March 1986 and is evidently fully leased. On 24 December 1986 according to Bevan Clyde Johns, an employee of the second respondent and project co-ordinator for the Forrest Centre, he signed a notice of practical completion for the whole of the building works. The applicant thereupon exercised the option. It did so by a letter to the first respondent dated 24 December 1986 and in the following terms inter alia:-

"In exercise of our rights pursuant to the Option Deed,
we hereby give you unconditional notice of acceptance
and exercise of the Option (as that term is defined in
the Option Deed)."

8. And further:-

"Please note this notice of exercise of option is served
under protest. We are of the view the Date of Practical
Completion has not occurred, in that the Centre (as that
term is defined in the Option Deed) is not yet
practically complete and fit for occupation. In our
opinion the certification by your architect, Robert Cann
& Associates is not bona fide and reasonable as required
by the terms of the Option Deed."

9. The terms of the option agreement require payment of the full purchase price to be made on the expiration of 30 days from the date of exercise of the option. This means that settlement is due on 23 January 1987, today's date. The applicant in these proceedings contends that the Forrest Centre was not practically complete as at 24 December, when it was so certified. It alleges that the action of the second respondent in certifying the practical completion constituted conduct by the second respondent in trade or commerce which was misleading or deceptive, or likely to mislead or deceive contrary to s.52 of the Trade Practices Act.

10. It further alleges that the first respondent gave a notice to the applicant on 24 December 1986, in which it said that the second respondent had certified that the Forrest Centre was practically complete. There is, it should be pointed out, no evidence before the court that the first respondent ever sent out a notice of that kind. The telexes referred to earlier are by way of prediction, not by way of information.

11. The applicant contends that the conduct of the first respondent in giving its notice constituted: "an adoption and ratification of the second respondent's certification and was conduct by the first respondent in contravention of s.52".

12. On 21 January, the applicant filed an application with statement of claim and affidavits in support of a claim for interlocutory relief. The claim for interlocutory relief came on for hearing before me on 22 January 1987 and occupied the greater part of the day.

13. At the conclusion of argument and in view of the urgency of the matter, I informed the parties that I would give my decision on the claim for interlocutory relief and these reasons for decision delivered orally at 9 a.m. on 23 January, and that the reasons subject to minor corrections, would be published in writing later.

14. The statement of claim alleges, as has already been pointed out, contraventions of s.52 by the respondents in connection with the certification of the Forrest Centre, as having reached a stage of practical completion.

15. There is evidence before me to indicate a real question as to whether the Centre had in fact reached that stage.

16. An architect, Bruce Robinson, was engaged by the Bell Group Limited to evaluate the state of completion of the works. He inspected the site on 23 and 24 December. On 23 December, according to Robinson, he met on site with Messrs. Hutchinson and Gavin Cann, both of the second respondent firm. They agreed, he said, with his view that neither the tall office tower nor the 2-storey colonial tavern were practically complete within the terms of the building contract.

17. Gavin Cann in an affidavit filed on behalf of the respondents, denies that either he or Hutchinson had informed Robinson that the building was not practically complete. Robinson inspected the building, took photographs and prepared a list of defects or incomplete work, which list is in evidence. It is undesirable for me to say more on this aspect than that there is a serious question raised as to whether the building was in a state of practical completion and could reasonably be said to have been in such a state.

18. The definition of that term, which is relevant for present purposes is that set out in the conditions of contract in the standard form of the Major Building Works Contract (MBW1) which on the evidence governed the building contracts for the centre.

19. Clause 1.06.09 of MBW1 defines the state of practical completion in the following terms:-

"1.06.09 Practical Completion - The state of being
substantially complete and fit for use and/or
occupation by the Proprietor, all tests required
under the provisions of this Agreement having been
satisfactorily completed and omissions or defects
being limited to items:

(a) The immediate making good of which by the
Builder is not practicable;

(b) the existence of which and/or the making good
of which by the Builder will not significantly
inconvenience the Proprietor, taking into
account the use or intended use of the items
concerned and of the areas in which they
occur; and

(c) which do not cause any legal impediment to the
Proprietor's use and/or occupation."

20. It is necessary to set out some of the relevant provisions of the option agreement. Clause 1 contains a number of definitions, but the central definition is of the term: "date of practical completion":-

"Date of Practical Completion" means the date certified
by the Grantor's architect, Robert Cann & Associates, to
be the date the Centre (or the date the last part or
portion of the Centre, as the case may be) is
practically complete and fit for occupation, Provided
such certification is bona fide and reasonable."

21. The "settlement date" is defined as:-

"Settlement Date" means the date occurring upon the
expiration of thirty (30) days from the date of exercise
of the Option by (or on behalf) of the Grantee."

22. The key clauses in relation to the exercise of the option are those numbered 2.01 to 2.03, which provide:-

"2.01 The Grantor Hereby Grants to the Grantee the
Option to purchase the Land, free of all
Encumbrances (other than the Permitted
Encumbrances), and otherwise upon and subject to
the following terms and conditions.

2.02 Option Term
The Grantee shall be entitled to exercise the
Option at any time up to and including midnight on
the Date of Practical Completion.

2.03 Manner of Exercise of Option
The Grantee is entitled to exercise the Option by
giving unconditional notice of acceptance in
writing or by telex, telegram or facsimile
communication, served upon the Grantor at its
address set out in this Deed."

23. The payment of the purchase price is provided for in clause 3, which in the material parts provide:-

"In the event of exercise of the Option:

(a) the Purchase Price shall be tendered, and if
accepted, paid by the Grantee to or at the
direction of the Grantor upon the Settlement Date;

.

.

.

(d) In the event the Purchase Price is not tendered and
if accepted, paid in full by the Grantee to the
Grantor on the Settlement Date then the Grantee's
Option to purchase the Land as recorded in this
Deed shall terminate without prejudice to the
parties rights to sue for breach of contract, and
the Grantee shall forthwith remove all caveats from
the Land protecting its rights and interests in
respect to the Option but not in respect to the
Leases and Licences. To enable the Grantor to
withdraw the Grantee's caveat in respect to the
Option (in the event the Grantee fails or refuses
to withdraw the same) the Grantee Hereby Appoints
the Grantor the attorney of the Grantee for the
purposes of executing a withdrawal of caveat form."

24. The latter provision is curiously worded as, in the circumstances it addresses, the option no longer subsists. There is a concluded contract to purchase the land.

25. The grantor's obligations are set out in clause 6 and include the following:

"(a) The Grantor Covenants and Agrees with the Grantee
that on and from the date of execution hereof it
shall:

(i) promptly answer the Grantee's reasonable
enquiries as to the progress of
construction and fitting out of the
Centre;

(ii) allow the Grantee (and its employees and
authorised representatives) reasonable
access to the Land and the Centre so as
to enable the Grantee to personally
monitor the state of progress of
construction and fitting out of the
Centre, Provided the Grantee gives to the
Grantor reasonable notice of its
intention to inspect, the Grantee (and
its employees and personal
representatives) are accompanied on each
such inspection by a representative of
the Grantor and such inspection does not
interfere with the construction and
fitting out of the Centre;

(iii)forthwith deliver to the Grantee copies
of all Third Party Contracts and continue
to supply copies of all new Third Party
Contracts to the Grantee up to the Date
of Practical Completion; and

(iv) give the Grantee at least forty eight
(48) hours notice of the date it
reasonably believes will be the Date of
Practical Completion and at least twenty
four (24) hours notice of the actual Date
of Practical Completion, Provided that if
for any reason the expected date for Date
of Practical Completion is not the actual
Date of Practical Completion the Grantor
shall not be relieved of its obligations
hereunder to serve such notices on the
Grantee but shall continue to be bound
by the provisions hereof until the Date
of Practical Completion actually occurs."

26. The 1985 Joint Form of General Conditions for the Sale of Land are incorporated in the contract in a truncated form, excluding usual default notice provisions by clause 7.01, which provides:-

"In the event of the Grantee exercising the Option the
contract formed upon exercise of the Option between the
Grantor and the Grantee shall be deemed to incorporate
the 1985 Joint Form of General Conditions for the Sale
of Land (a copy of which are annexed hereto and marked
with the letter "A") so far as the same are not
inconsistent with the terms hereof and excepting
conditions 2, 3, 4, 5, 6, 8, 9, 11, 12, 13, 14, 16 and
17."

27. The general effect of the terms seem to be that the contract will terminate in the event that payment of the purchase price is not made on the settlement date. It is evident from the materials before the Court that at the time it exercised its option on 24 December 1986 the applicant did not accept that practical completion had been achieved and that the notice issued by the second respondent was, in the terms of the option agreement "bona fide and reasonable".

28. Why did it choose to exercise the option at that time? For, if the view held by the applicant were correct, the certificate of practical completion was ineffective and the time limited for exercising the option would not have expired at midnight on 24 December. As put by counsel for the applicant, it exercised the option as a matter of prudence to protect its position. It is for these reasons that one finds in the letter from the applicant to the first respondent of 24 December 1986, a reference to exercising its option under protest.

29. The term is one with which I have some difficulty in this context. The option is either exercised or it is not exercised. There can be no half way house except perhaps if it were a conditional exercise but this was expressed to be unconditional. But whatever the true significance of the words: "under protest", the applicant accepts, as I understand it, that it has exercised the option and that there is a subsisting contract for the purchase of the Centre.

30. In paragraph 7 of the statement of claim, the applicant alleges:-

"By reason of the certification and notification
referred to in paragraph 6 hereof by a notice in writing
dated and given 24 December 1986 Mail exercised the
Option reserving its right to protest, inter alia, the
validity of the certification of practical completion of
the Forrest Centre by the Architect, Developments or
otherwise."

31. It should be noted that in the statement of claim the terms "Mail" "Developments" and "Architect" are used to refer to the applicant and the first and second respondents respectively.

32. Paragraph 8 pleads that the Centre was not practically complete at 24 December 1986 and gives extensive particulars of work remaining to be performed. The statement of claim then continues:-

"9. By reason of the matters referred to in paragraph 8
hereof the certification of practical completion
referred to in paragraph 6(a) hereof was neither
bona fide nor reasonable.

10. By reason of the matters referred to in paragraphs
7 and 8 hereof the certification referred to in
paragraph 6(a) hereof was and is void and of no
effect.

11. The certification of practical completion referred
to in paragraph 6(a) hereof constituted conduct by
the Architect in trade or commerce within the
meaning of those expressions in section 52 of the
Trade Practices Act 1974.

12. By reason of the matters referred to in paragraphs
8 and 9 hereof the certificatation referred to in
paragraph 6(a) hereof was and is false and
misleading or liable to mislead or deceive and is
thereby conduct in breach of section 52 of the
Trade Practices Act 1974.

13. The notification by Developments referred to in
paragraph 6(b) hereof constituted an adoption and
ratification of this certification and was conduct
by Developments in trade or commerce within the
meaning of those expressions in section 52 of the
Trade Practices Act 1974.

14. By reason of the matters referred to in paragraphs
8 and 9 hereof the notification referred to in
paragraph 6(b) hereof was and is false and
misleading and likely to mislead or deceive in
breach of the Trade Practices Act 1974."

33. There is then a pleading of negligence and the statement of claim continues:-

"16. By reason of the matters referred to in paragraphs
6 and 7 hereof Mail has suffered loss and damage.

PARTICULARS
Full particulars of loss and damage will be
provided prior to trial.

17. Further and in the alternative it was and is an
implied term of the Option that Developments would
not give notice to Mail of the certification of
practical completion where:

(a) the Forrest Centre was not practically
complete; and

(b) the certification by the Architect was not
reasonable or bona fide.

PARTICULARS
The term is to be implied:

(a) as a matter of law;

(b) by reason of the fact that:

(i) the term is obvious;

(ii) the term is reasonable;

(iii) the term is not inconsistent with the
express terms of the Option;

(iv) the term is necessary so as to give
business efficacy to the Option."

34. The interlocutory relief sought by the applicant is in the following terms:-

"12. Pursuant to section 87(1A) of the Trade Practices
Act that until trial of the within action or until
further order of this Honourable Court the Deed of
Option dated 25 November 1986:

(a) be varied by substituting for the definition
of "Settlement Date" therein appearing the
following words, namely "within 48 hours from
the date upon which the order of this
Honourable Court is discharged or otherwise
lapses";

(b) take effect as varied."

35. A sub-paragraph (c) which was inserted by leave yesterday claims:-

"Upon the Applicant undertaking to this Honourable
Court that it waives any claim or rights of
rescission as against the First Respondent for
breach of the contract formed by the exercise of
the Option the First Respondent be restrained and
an injunction be granted restraining the First
Respondent until trial or until further order,
from:

(a) calling on or holding any settlement in
respect of the said contract; or

(b) receiving from the Applicant the sum of said
$88,000,000.00 pursuant to the said contract."

36. Alternative relief is sought under paragraph 13 of the application in the following terms:-

"13. Alternatively to the relief sought in paragraph 12
hereof, an order that until trial of the within
action or until further order of this Honourable
Court:

(a) the First Respondent be ordered and an
injunction be granted requiring the First
Respondent to pay so much of the sum of
$88,000,000.00 to be received by the
First Respondent from the Applicant as
remains after discharge of all
encumbrances registered against the Land
referred to in paragraph 1(d) of the
Statement of Claim filed herewith;

(i) into an account in the joint names
of the Applicant and First
Respondent with such financial
institution as may be agreed between
the Applicant and the First
Respondent;and

(ii) failing agreement into this
Honourable Court;

(b) in the alternative the First Respondent
be restrained and an injunction be
granted restraining the First Respondent
from paying distributing or otherwise
disposing of or granting any interest in
or otherwise transferring any title
interest or control to so much of the sum
of $88,000,000.00 to be received by the
First Respondent from the Applicant as
remains after discharged of all
encumbrances registered against the Land
referred to in paragraph 1(d) of the
Statement of Claim filed herewith."

37. A real question arises as to the power of the court to make an order of the kind sought under subparagraph 12(a).

38. The argument is that an interim variation of the term of the contract is possible under s.23 of the Federal Court Act, having regard to the nature of the final relief that the court may award under s.87. I must express serious reservations about the propriety of effecting, as it were, a holding position by varying the terms of the contract to extend time limits prescribed by it.

39. In any event, the applicant, by its counsel, indicated that the restraints sought under subparagraph 12(c) would meet its objectives. Whether it would or not is immaterial in the end for in my opinion, this is not a case in which interlocutory relief should be granted.

40. One can assume for the sake of argument that in some sense the issue of the certificate by the second respondent can be characterised as conduct in contravention of s.52 of the Trade Practices Act. Indeed, there may be a serious question in that regard.

41. One can assume that the first respondent has somehow participated in that conduct or, by its adoption and ratification of the certificate, of which there is no direct evidence has in its own right contravened s.52. These assumptions, of course, gloss over the difficulties that arise where s.52 conduct is said to be constituted by what is an evaluative judgment on facts which are plain for all to see.

42. But even making those assumptions, there is on the materials presently before me no evidence of the kind of causal relationship between the conduct complained of and the exercise of the option necessary to establish a cause of action and an entitlement to relief under either ss.82 or 87 of the Trade Practices Act.

43. One can accept that it is not necessary in an action based on a contravention of s.52 to show that any person was actually misled. One can accept that it is not necessary to show that the person who claims to have suffered the damage was misled. A clear example of the latter situation is in those cases where the conduct in contravention of s.52 is analogous to passing off. There is in such cases a direct causal connection between the conduct complained of and the loss suffered.

44. In this case I am not presently persuaded that it can be shown that there is any serious question to be tried, of a causal relationship between the conduct complained of and the position of disadvantage that the applicant now complains of, in the sense necessary to establish a cause of action under either ss.82 or 87.

45. The position of disadvantage arises in essence from the fact that the applicant has, as a matter of prudence, felt obliged to exercise the option earlier than it would have had the notice of practical completion not issued. I think it is undesirable that I should say more about that matter at this interlocutory stage. It may be that at trial the materials and the benefit of argument in a less hurried context will persuade me, or some other judge, to take a different view. The views I express now are expressed solely for the purposes of the claim for interlocutory relief. And I am satisfied, on the basis that I have set out, that that claim should be dismissed.