Re Phillip & Anton Homes Pty Limited v the Commonwealth of Australia [1987] FCA 39 (16 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: PHILLIP & ANTON HOMES PTY. LIMITED
And: THE COMMONWEALTH OF AUSTRALIA
No. ACT G57 of 1983
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Neaves J.

CATCHWORDS

Trade Practices - auction of leasehold interest in land for medium density housing - Documents made available to prospective bidders including drawing showing fill resulting from engineering works carried out prior to land being offered for lease - Additional fill discovered on land after purchase - Whether false or misleading statement made concerning the characteristics of the land - Measure of damages.

Trade Practices Act 1974 (Cth), ss.2A, 53A, 82

HEARING

CANBERRA
16:2:1987

Counsel for the applicant: Mr T.J. Higgins

Solicitors for the applicant: O'Neills

Counsel for the respondent: Mr J. Boultbee

Solicitor for the respondent: Australian Government Solicitor

ORDER

The application be dismissed.

The applicant pay the respondent's costs of the application excluding the costs of the cross-claim filed on behalf of the respondent and of the application by the applicant to strike out the same.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Phillip & Anton Homes Pty. Limited ("the applicant") sues the Commonwealth of Australia ("the respondent") under s.82 of the Trade Practices Act 1974 (Cth) ("the Act") for loss or damage alleged to have been suffered by conduct done in contravention of sub-s.53A(1), a provision contained in Part V of the Act. That sub-section, so far as material, provides:

"(1) A corporation shall not, in trade or

commerce, in connexion with the sale or grant, or
the possible sale or grant, of an interest in
land or in connexion with the promotion by any
means of the sale or grant of an interest in
land -

(a) ....

(b) make a false or misleading statement
concerning the nature of the interest in
the land, the price payable for the
land, the location of the land, the
characteristics of the land, the use to
which the land is capable of being put
or may lawfully be put or the existence
or suitability of facilities associated
with the land; or

(c) ....".

In that sub-section, "interest" in relation to land includes a legal or equitable estate or interest in the land (sub-s.53A(3)). It is alleged that the respondent made a false or misleading statement concerning the characteristics of the land.

2. As the claim is made against the Commonwealth of Australia, the applicant relies on s.2A of the Act which relevantly provides:

"2A(1) Subject to this section, this Act (other
than Part X) binds the Crown in right of the
Commonwealth in so far as the Crown in right of
the Commonwealth carries on a business, either
directly or by an authority of the Commonwealth.

(2) Subject to the succeeding provisions of this
section, this Act applies as if -

(a) the Commonwealth, in so far as it
carries on a business otherwise than by
an authority of the Commonwealth; and

(b) each authority of the Commonwealth
(whether or not acting as an agent of
the Crown in right of the Commonwealth)
in so far as it carries on a business,

were a corporation.

(3) ....

(4) Part IV does not apply in relation to the
business carried on by the Commonwealth in
developing, and disposing of interests in, land
in the Australian Capital Territory."

3. Although the respondent, by its defence, did not admit that it was at all material times engaged in the business of selling land, that issue was not pursued at the hearing and the case proceeded on the basis that, in relation to the activities in question, the respondent was bound by the relevant provisions of the Act as if it were a corporation.

4. On 6 April 1981 the respondent sold by public auction leasehold interests in certain land in the Australian Capital Territory including a leasehold interest in land known as Block 4, Section 48, Division of Scullin. The applicant was the highest and the successful bidder for that interest, the successful bid being $171,000.

5. It is necessary to refer to certain events which took place prior to 6 April 1981. The forthcoming auction was advertised in "The Canberra Times" newspaper several weeks prior to it being held, such advertisement indicating that certain documents concerning the land to be offered and the conditions of sale were available to interested persons. The documents included a document headed "General Information on Sites for Medium Density Housing" and a document headed "Residential Land Auction, 6 April 1981. Sites for Lease for Residential Units". The first document contained the following paragraphs:

"1. The information provided herein, or in any
other plans or schedules made available by the
Commonwealth, is for general knowledge only and
is in no way to be taken as binding on the
Commonwealth of Australia or the National Capital
Development Commission.

2. These conditions are for the information of
intending bidders for leases of land for Medium
Density housing offered at auction and should be
read in conjunction with the schedules and plans.

3. Prospective lessees are expected to take all
prudent steps to ascertain the conditions
applying to the block/s."

6. The second document related specifically to Blocks 1-3 and 12, Section 46 and Blocks 1, 2 and 4, Section 48, Division of Scullin. It provided, in cl.2, that the lease of each block would provide for the commencement and completion within 6 months and 24 months respectively from the date of sale of approved buildings in accordance with an approved scheme of development costing not less than the sum nominated as the building covenant as shown in the schedule. Clause 3 provided, inter alia, that each lease would require the lessee to provide not more than the number of private dwelling units or residential units as specified in the schedule and to construct adequately illuminated vehicle access roads and vehicle access drives. In respect of Block 4, Section 48, the schedule showed a building covenant of $198,000 and specified as the maximum number of units 11 one storey units or 17 two storey units. A note indicated that a mixed development of one and two storey units would be considered. Under the heading "General Conditions", cl.11 was in the following terms:

"Regrading and Fill

As part of the engineering works carried out
prior to the blocks being offered for lease some
changes to the natural surface have occurred as
depicted on Drawing No.769/76. Prospective
lessees are advised to exercise special care in
this regard. Neither the Commonwealth nor the
National Capital Development Commission their
agents or servants shall be liable for any
disability on the blocks."

7. Block 4, Section 48 is substantially rectangular in shape with dimensions of approximately 133 metres by 62 metres and an area of 8256 square metres. Vehicular access is from Barlow Street, Scullin to which the block has a frontage of approximately 24 metres at its south-western corner. The drawing No.796/76, which was entitled "Scullin - Reconditioned Blocks, Sections 1, 46, 47, 48" and was dated April 1976, depicted certain shaded areas which, according to the legend on the drawing, were areas of fill. Spot depths were also shown in metres at various places on the drawing. The drawing depicted two comparatively small areas of fill on Block 4, Section 48, one being at the south-western corner where the block fronts Barlow Street, the other being at the south-eastern corner. Spot depths were shown at three places relevant to Block 4, two at the south-western corner of 0.3m. and 0.6m. and one at the south-eastern corner of 0.8m.

8. It is not in dispute that prior to the holding of the auction Mr Drago Domazet, the proprietor and managing director of the applicant and a builder by trade, obtained copies of the above documents and read them. He had followed the occupation of a builder in the Australian Capital Territory since 1972 and during the years between then and 1981 he or the applicant had purchased from the respondent a leasehold interest in a large number of blocks of land including blocks suitable for individual dwellings and blocks suitable for medium density housing. It was, he said, his invariable practice before attending an auction to obtain copies of the documents relating to the land to be offered made available by the respondent and he was generally familiar with the kind of documentation made available to prospective bidders. He gave evidence that his experience was that the information given in documents so made available concerning the land to be offered was accurate.

9. Mr Domazet also gave evidence that, having obtained the documents to which I have referred, he inspected Block 4, Section 48. He spent about one hour on the site visualising how he could position 13 units, five two storey and eight one storey, on the block allowing for the necessary access roads and driveways. He concluded that, except in relation to the south-eastern corner of the block where he planned to build two units, the fill as depicted on Drawing No.796/76 would not present any problem so far as construction of the units was concerned. In the case of the two units which he planned for the south-eastern corner of the block, he recognised that additional costs would necessarily be incurred for the foundations by reason of the presence of the depth of fill shown on the drawing in that area. He also recognised that a relatively small part of the access road was to be built on the other area shown as containing fill. He said that, at the time, he thought the presence of the fill as shown on the drawing would not affect him financially at all, an answer which he subsequently explained as meaning that the additional cost of the two units where the fill would require additional foundations was only of the order of $2,000 to $3,000 per unit.

10. I accept that, at the time of Mr Domazet's inspection, the land was grassed over and it was not possible by visual inspection to discover whether there was any fill on the land or, if so, the extent of it. It is also clear that Mr Domazet did not have any work done on the site to determine whether fill was present.

11. Having inspected the block, Mr Domazet attended the auction. Immediately prior to its commencement, the auctioneer read a prepared statement. After making specific reference to the fact that the documents available included plans containing information about regrading and fill on the blocks being offered for sale in Scullin, the statement continued:

"Intending purchasers should note, however, that
the Commonwealth does not warrant the correctness
of the plans and the information shown thereon.
It is a condition of sale that a purchaser shall
not be entitled to raise any objection,
requisition or claim compensation against the
Commonwealth in respect of the existence of
regrading, fill or any other disability on the
land."

Mr Domazet, in his evidence, acknowledged that he heard and understood the statement by the auctioneer. He agreed, in cross-examination, that he had heard similar statements made at earlier land auctions he had attended.

12. Bidding commenced for Block 4, Section 48 at the reserve price of $52,700 and, after a number of bids were made, the applicant was, as already mentioned, the highest and the successful bidder at $171,000. Mr Domazet on behalf of the applicant signed a document immediately after the auction acknowledging that the company was the successful bidder on and subject to the advertised conditions of sale. A short time thereafter a lease of the land was granted under the City Area Leases Ordinance 1936 (A.C.T.)

13. Subsequently, the applicant had plans prepared for the erection of 13 units on the block and these, after some modification, were approved by the National Capital Development Commission and by the Building Controller under the Building Ordinance 1972 (A.C.T.). Those plans provided for two units, those numbered 6 and 7, to be constructed on the south-eastern corner of the block.

14. It is convenient to mention at this stage that the applicant, by letter dated 30 June 1981 and signed by Mr Domazet, offered to surrender the block to the Commonwealth upon a refund of the moneys paid. It did this on the basis of the changed economic situation since the block was purchased, the falling market for medium density housing and the circumstance that it was holding other land for such housing on which construction work had not then commenced. A further enquiry in this regard was made by the applicant by letter dated 19 August 1981 and by letter dated 28 September 1981 the applicant was informed that the Department of the Capital Territory was not prepared to recommend to the Minister that the offer be accepted.

15. On the evidence I find that the excavation work for the foundations for the units was not commenced until towards the end of October 1981. In the course of that excavation work it was discovered that there was much more fill on the block than was disclosed by Drawing No.769/76 and, as a result, it was necessary to excavate for the foundations of a number of the units to a greater depth than would otherwise have been the case. Measurements of the depth of the fill at about 6 locations on the block were taken by Mr Domazet. Work ceased on the site and Mr Domazet approached the Department of the Capital Territory on 2 November 1981 seeking rescission of the contract of purchase because of the presence of the fill and a refund of the price paid. That was followed by a letter dated 3 November 1981 from the applicant's solicitors asking whether the respondent was prepared to accept a surrender of the block with a consequent refund of the purchase price or, alternatively, to make good to the applicant the loss it would suffer by proceeding to build on the site. In the event, neither course was adopted by the respondent.

16. The applicant took engineering advice as to the type of construction necessary because of the presence of the additional fill. It then proceeded with the building work, completed the units and sold them. There is no evidence before the Court as to the total cost of the project or of the prices at which the units were sold. There is, however, a general statement by Mr Domazet that the units were sold at a profit.

17. In the course of carrying out the necessary excavation work for the foundations for the units, Mr Domazet took further measurements of the depth to which it had been necessary to dig the trenches for the foundations of the outside walls of each unit in order to ensure that the concrete footings would be in solid ground for the prescribed depth. He transcribed the measurements on to a copy of the approved plans. The measurements ranged between 0.5m. and 1.5m. In some cases the figure shown is said to be an accurate measurement of the depth of the trench along the wall in question. In others it is said to be an average ascertained by taking a number of measurements along the particular wall. So far as the south-eastern corner of the block is concerned where two units, those numbered 6 and 7, were to be built, there is little difference in the depth of fill shown on Drawing No.769/76 and that measured by Mr Domazet. The former was 0.8m., the latter 0.9m. Mr Domazet also took some measurements along the area of the proposed access road, these measurements ranging between 0.8m. and 1.0m. Although the evidence as to the manner in which the measurements were taken is to some extent unsatisfactory, I accept that, from the various measurements recorded, a general picture of the amount of fill on the land and its distribution can be obtained.

18. There is no doubt, on the evidence, that there was on Block 4, Section 48 a substantial amount of fill additional to that depicted on Drawing No.769/76 and that its presence necessitated additional expenditure by way of building costs. On the evidence, I find that the fill on the block additional to that depicted on Drawing No.769/76 was not placed on the block as part of the engineering works carried out prior to the block being offered for lease. I accept in this regard the evidence of Mr John Stanley McInerney, an engineer employed by the National Capital Development Commission, who inspected the site after the excavation work for the foundations had commenced. According to his evidence, the additional fill consisted of poor quality material containing rubbish and debris and was not, in his opinion, properly described as clear fill which, as I understand his evidence, he would have expected it to be had it resulted from the engineering works carried out in the construction of roads and the provision of services in the area.

19. Mr Domazet did not suggest that, had he known of the true extent of the fill on the land, he would not have bid for the block. What he said was that he would not have bid as much as he did - that the difference in the price he would have been prepared to pay would have been of the order of $40,000 to $50,000 though he did not explain on what basis he had arrived at those figures. His evidence amounts to this - that the price he was prepared to bid at auction for land for medium density housing was very dependent upon his evaluation of the likely trend in the market. As he said: "If business is going well then you obviously pay more for the land". He also said that the price he was prepared to bid depended to some extent upon the competition in the market for the land. He said he had gone to the auction with an upper bidding limit of $165,000 but had, in fact, bid in excess of that figure. There is no evidence before the Court as to the other bids made nor as to the state of knowledge of the other bidders concerning the amount of fill on the land.

20. It may be accepted for the present, though I shall need to refer again to this aspect of the matter, that, in bidding for the land, Mr Domazet acted on the basis that there was no fill on the land other than that shown on Drawing No.769/76 and that he did so having read the documents made available by the respondent to prospective bidders and having heard and understood the statement read by the auctioneer at the commencement of the auction. The applicant asserts that, by the documents so made available and, in particular, by Drawing No.769/76, the respondent made a statement, which was false or misleading, concerning the characteristics of the land, namely that there was no fill on the land other than that depicted on the drawing. The question is whether such a statement was made. If it was, there is no doubt that it did not state the true position as at the date of the auction. The claim originally made that, at the relevant time, those for whom the respondent was responsible knew that there was fill on the land additional to that depicted on the drawing was not pursued at the hearing. There is no evidence to support a finding to that effect. Indeed, the evidence is to the contrary. Absence of such knowledge, however, is not fatal to the applicant's claim based on s.53A of the Act.

21. The essence of the applicant's case is that Drawing No.769/76 would be understood by those receiving it as expressly making a statement that, in relation to Sections 1, 46, 47 and 48, Division of Scullin, there were no areas of fill where the sections were not shaded. Alternatively, it was said that a statement to that effect was to be implied from the express statement which the drawing made that the shaded areas were areas of fill. Either approach, it was submitted, resulted in the drawing making the statement relied upon.

22. There would be much to be said for the view that the drawing would convey the statement ascribed to it by the applicant's submission if the drawing had been provided without qualification or explanation and divorced from the documents of which it, in fact, formed an integral part. Such, however, was not the case. The accompanying documents expressly stated that what was depicted on the drawing were the changes to the natural surface of the land which had occurred as part of the engineering works carried out prior to the blocks being offered for lease. In considering what the drawing was, in its context, saying to prospective bidders, regard may also be had to the other statements in the accompanying documents. These included the statement that the information provided was for general knowledge only and was not in any way to be taken as binding on the respondent, the statement that prospective lessees should exercise special care in regard to regrading and fill and the statement that the respondent was not to be liable for any disability on the blocks. There is the further consideration that the sites were being offered for medium density housing so that the prospective bidders would be builders and developers with some experience in these matters and not individual members of the public seeking to purchase a home site. Regard must also be had to the statement by the auctioneer at the commencement of the auction that the respondent did not warrant the correctness of the plans and the information shown thereon.

23. Taking all these matters into consideration, I am unable to accept the applicant's submission that the respondent was making a statement, either expressly or by implication, that there were no areas of fill on Block 4, Section 48 other than the shaded areas shown in relation to that block on Drawing No.769/76. The statement that was made was that there were areas of fill on the block which had resulted from the engineering works carried out by or on behalf of the respondent or the National Capital Development Commission. That statement has not been shown to be false or misleading.

24. Mr Domazet was at the time of the auction a builder of many years' experience and I am unable to accept that he read the drawing and its accompanying documents as making the statement concerning the characteristics of the land upon which the applicant's case depends. It may be accepted that, in bidding at the auction, Mr Domazet made the assumption that there was no fill on the land other than that depicted on Drawing No.769/76. It may also be accepted that that assumption may have been based, at least in part, on his experience that documents of that kind made available by the respondent in respect of the sale of other land had invariably been found by him to be accurate. But to accept those propositions does not establish the essential ingredient of the applicant's case.

25. For the reasons set out above the applicant's claim must fail.

26. I should, however, express my views on the other aspects of the matter on the basis that I had been of opinion, contrary to that already expressed, that the respondent had, in relation to the land, made the statement relied upon by the applicant as the foundation of its cause of action. In that situation there would have been no doubt that the statement was false or misleading and thus in contravention of s.53A of the Act.

27. A submission was made on behalf of the respondent that, even assuming the statement relied upon by the applicant had been made and that it was false or misleading, the evidence fell short of establishing that Mr Domazet, in bidding at the auction, relied upon the absence of fill other than that depicted on the drawing. The only evidence of reliance is Mr Domazet's assertion to that effect and it was submitted that I should not accept that evidence because of a number of matters going to his credit as a witness. It is, perhaps, of some significance in this regard that as early as 30 June 1981, that is to say at least 3 months before the presence of the additional fill was discovered, the applicant, through Mr Domazet, had offered to surrender the lease of Block 4, Section 48. That offer was not accepted and it is at least a possible view that, when the filling was discovered and a further request to accept a surrender of the lease was refused, Mr Domazet found it convenient, in retrospect, to elevate in importance the place which the question of fill on the block had played in his consideration of the amount which he was prepared to bid at the auction. There is some support for this view in the circumstance that, in answer to interrogatories, Mr Domazet on behalf of the applicant swore that no costings of the applicant's building project on the block were carried out prior to the auction on 6 April 1981. In evidence, however, Mr Domazet said that prior to the auction he had done some costings in his head but had made no record of them. The respondent also pointed to Mr Domazet's lack of frankness in asserting that it was only after the presence of the additional fill had been discovered, and on that ground alone, that the acceptance of a surrender of the lease had been sought. Mr Domazet's evidence to that effect was clearly incorrect having regard to the terms of the applicant's letter dated 30 June 1981 to which reference has already been made.

28. These matters have caused me some concern but, after due consideration, I am satisfied that there was no intention on Mr Domazet's part to mislead the Court and I accept that, in bidding at the auction, he was acting in the belief that there was no fill on the block other than that depicted on Drawing No.769/76. However that belief, as I have already said, was not induced, in my opinion, by any false or misleading statement made by the respondent.

29. On the question of damages, I would, on the assumptions made, have been prepared to accept that the reasonable cost of carrying out the additional building work made necessary by the presence of the additional fill provided an appropriate measure.

30. Particulars of damage as set out in the applicant's statement of claim total $24,090.45 as follows:

"(a) Footings - 108 cubic metres
of additional footings
including cost of trenching,
trimming, clearing and filling
with concrete at $170.00 per
cubic metre $18,360.00

(b) Internal footings required for
load bearing walls in five
townhouses, 10 cubic metres of
additional footings, including
cost of trenching, trimming,
clearing and filling with
concrete at a cost of $170.00
per cubic metre $ 1,700.00

(c) Road and driveways. It was
necessary to upgrade the F42 to
F52 (steel mesh), the difference
being $7.50 per sheet $ 525.00

(d) Removal costs. The cost of
excavating soil and filling $ 2,600.00

(e) Engineer required for
consultation $ 650.00

(f) Extra interest. A 30 day delay
caused by the misrepresentation
from 19th October, 1981 until the
18th November 1981 resulting in
extra costs on a loan for
development $ 255.45"

31. During the course of the hearing the amount claimed in respect of the engineer (par.(e)) was reduced to $80.

32. Mr Domazet's evidence as to the additional costs incurred by reason of the additional fill lacked precision. It was unsupported by any contemporary documentation other than his own notebook. That notebook was not produced until after Mr Domazet had concluded his evidence and was said to have been found as a result of a search at his home on the evening of the day on which he had given evidence. When the hearing resumed, Mr Domazet was recalled to identify the entries which he said related to the additional costs incurred and to explain the significance of those entries. The entries are, to say the least, difficult to follow and they provide no reliable guide by reference to which one can ascertain with the necessary degree of assurance what additional work was carried out and what was its cost to the applicant. No invoices, cancelled cheques, bank statements or other supporting documents were produced in substantiation of the claim.

33. Mr J. Rasic was said by Mr Domazet to have been the sub-contractor who carried out the work of trenching, trimming, clearing and filling with concrete identified in pars (a) and (b) of the particulars of damage set out in the statement of claim. The particulars so given must be taken to include the cost of the additional concrete. It was also said that the price agreed with Mr Rasic for the whole of that work (including the supply of concrete) was $170 per cubic metre. There are, however, entries in the notebook which suggest that the concrete was supplied by Pioneer Concrete (N.S.W.) Pty. Limited and that it was paid for in December 1981 and January 1982 by the applicant and not by Mr Rasic. One can only conclude that the amount agreed to be paid by the applicant to Mr Rasic was considerably less than $170 per cubic metre. According to the notebook, Mr Rasic was paid $15,200 but I am satisfied that that amount included work done on the site in addition to the work made necessary by the presence of the additional fill.

34. Evidence was also given by Mr William James Gordon, a consulting structural and civil engineer of many years' experience. He had carried out in May 1981 certain of the design work in connection with the applicant's proposed development of the land in question and was consulted by the applicant about the construction problems that might arise from the presence of the additional fill. In relation to the latter, Mr Gordon said he had advised the applicant that the best and most economical solution was to use concrete fill underneath the footings.

35. During the course of the hearing Mr Gordon was asked to make a calculation of the volume of additional concrete made necessary by the presence of the additional fill, using for this purpose the architectural drawings prepared in relation to the project and the copy of the approved plans on which the measurements taken by Mr Domazet of the depth of fill had been recorded. The calculation he made resulted in a figure of 97.22 cubic metres which he described as the theoretical volume of additional concrete so required. The calculation was described as being of the theoretical volume because it assumed that the trenches in fact dug would be of the precise dimensions shown on the architectural drawings, a situation which would not be achieved in practice. The theoretical volume, he said, would be somewhat less (5 to 10 per cent) than the volume achievable in practice. The theoretical volume of additional concrete for the internal footings required for load-bearing walls was calculated by Mr Gordon at 16.33 cubic metres, that figure being included in the figure of 97.22 cubic metres. In calculating the figure of 16.33, Mr Gordon said that, in order to estimate the depth of fill where the internal walls were located, he had assumed a graded profile between the points to which Mr Domazet's measurements related.

36. Mr Gordon also gave evidence that in November 1981, the amount which a contractor might reasonably have charged for going on the site, excavating the footings, trimming them out, placing the reinforcing steel, supplying and placing the concrete and finishing it off was $125 to $130 per cubic metre.

37. Taking into account the various assumptions, estimates and approximations that are involved and noting that Mr Gordon's calculation in respect of the footings for the internal walls is substantially in excess of the volume in respect of which the relevant claim is made, I would have been prepared to allow as damages under this head an amount of $12,500 based on an estimate of 100 cubic metres at $125 per cubic metre.

38. The claim for the additional cost of $525 for upgrading the steel mesh used in the road and driveways and the claim for $2,600 in respect of the removal of the excavated soil and fill depend on Mr Domazet's evidence and entries in his notebook. Notwithstanding the paucity of the evidence in relation to these items, I would, on balance, have allowed both amounts.

39. In addition, I would have allowed the amount of $80 paid to Mr Gordon in respect of the work he did arising out of the presence of the additional fill.

40. The evidence is, in my opinion, insufficient to substantiate the claim for additional interest.

41. If, therefore, I had been of opinion that the applicant had established its cause of action against the respondent, I would have awarded damages in the sum of $15,705. However, for the reasons I have given, the application is dismissed with costs.