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Federal Court of Australia |
Last Updated: 15 September 1999
Tenji v Henneberry & Associates Pty Ltd [1999] FCA 1029
FRANK TENJI & MATTHEW TENJI v HENNEBERRY & ASSOCIATES PTY LTD ACN 009 168 629 & ORS and HENNEBERRY & ASSOCIATES PTY LTD ACN 009 168 629 v PALERMO NOMINEES PTY LTD ACN 008 871 618 & ANOR and PALERMO NOMINEES PTY LTD ACN 008 871 618 & GAETANO PALERMO v HENNEBERRY & ASSOCIATES PTY LTD ACN 009 168 629
WG 44 OF 1997
LEE J
30 JULY 1999
PERTHGENERAL DISTRIBUTION
WESTERN AUSTRALIA DISTRICT REGISTRY WG 44 OF 1997
BETWEEN: FRANK TENJI & MATTHEW TENJI
Applicants
AND: HENNEBERRY & ASSOCIATES PTY LTD
ACN 009 168 629
First Respondent
PALERMO NOMINEES PTY LTD
ACN 008 871 618
Second Respondent
GAETANO PALERMO
Third Respondent
BETWEEN: HENNEBERRY & ASSOCIATES PTY LTD
ACN 009 168 629
Cross-Applicant in First Cross-Claim
AND: PALERMO NOMINEES PTY LTD
ACN 008 871 618
First Cross-Respondent in First Cross-Claim
GAETANO PALERMO
Second Cross-Respondent in First Cross-Claim
BETWEEN: PALERMO NOMINEES PTY LTD
ACN 008 871 618 & GAETANO PALERMO
Cross-Applicants in Second Cross-Claim
AND: HENNEBERRY & ASSOCIATES PTY LTD
ACN 009 168 629
Cross-Respondent in Second Cross-Claim
JUDGE: LEE J
DATE: 30 JULY 1999
PLACE: PERTH
Please note that at page 25, at the end of paragraph 83 the citation should read: (See: King v Milpurrurru (1996) 66 FCR 474.)
Associate:
Date:
Tenji v Henneberry & Associates Pty Ltd [1999] FCA 1029
TRADE PRACTICES - misleading and deceptive conduct - whether representations made during negotiations for the sale and purchase of property constituted misleading and deceptive conduct contravening s 52 of Trade Practices Act 1974 - whether representations were relied upon by the applicants - assessment of loss.
NEGLIGENCE, CONTRACT - whether settlement agent instructed by applicants failed to exercise reasonable skill and care in the performance of its duties by failing to explain the nature and effect of easements affecting title and by failing to obtain instructions thereon from applicants - whether applicants suffered loss.
Trade Practices Act 1974 (Cth) ss 52, 75B, 87
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) ATPR 40-307 followed
Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) ATPR 40-782 cited
Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1993) ATPR 41-203 followed
The Green Team (WA) Pty Ltd v Brulee Pty Ltd [1995] FCA 1571; (1995) ATPR 41-435 cited
Cusmano v Pinner (1998) 157 ALR 61 cited
Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 cited
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 163 ALR 611 cited
Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWLR 211 cited
Stewart v Layton [1992] FCA 618; (1992) 111 ALR 687 cited
Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 cited
Alati v Kruger [1955] HCA 64; (1995) 94 CLR 216 cited
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 cited
Paper Sales (Australia) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142 cited
Radferry Pty Ltd v Starborne Holdings Pty Ltd (1999) ATPR 46-189 cited
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 cited
Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 cited
Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 cited
FRANK TENJI & MATTHEW TENJI v HENNEBERRY & ASSOCIATES PTY LTD ACN 009 168 629 & ORS and HENNEBERRY & ASSOCIATES PTY LTD ACN 009 168 629 v PALERMO NOMINEES PTY LTD ACN 008 871 618 & ANOR and PALERMO NOMINEES PTY LTD ACN 008 871 618 & GAETANO PALERMO v HENNEBERRY & ASSOCIATES PTY LTD ACN 009 168 629
WG 44 OF 1997
LEE J
30 JULY 1999
PERTH
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
1. The respondents pay the applicants the sum of $13,005.
2. The applicants and respondents are to file submissions in respect of costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
JUDGE: |
LEE J |
DATE: |
30 JULY 1999 |
PLACE: |
PERTH |
1 This is an application under s 87 of the Trade Practices Act 1974 (Cth) ("the Act") in which the applicants ("Mr Tenji (Snr)", "Mr Tenji (Jnr)") seek an order that the respondents compensate them for loss or damage said to have been suffered by them by conduct of the respondents which, it is said, contravened s 52 of the Act. At the relevant time Mr Tenji (Snr), and his wife (Mrs Tenji), had been carrying on business as market gardeners for twenty-five years on a property at Wanneroo, north of Perth. Mr Tenji (Jnr), their son, had been a real estate salesman for approximately one year.
2 The first respondent ("Henneberry & Associates") carried on business as a real estate and settlement agent. The second respondent ("Palermo Nominees") carried on business as, inter alia, a service station proprietor and had done so for a number of years. The third respondent ("Palermo") was a director of Palermo Nominees.
3 The respondents have made cross-claims against each other. Henneberry & Associates seeks an order that Palermo Nominees and Palermo indemnify it against, or contribute to, any sum it is ordered to pay Messrs Tenji or, alternatively, pay damages for loss occasioned by Henneberry & Associates by reason of Palermo Nominees or Palermo's negligence, or by Palermo Nominees' contravention of s 52 of the Act. Palermo Nominees and Palermo seek an order that Henneberry & Associates pay damages for breach of a contract of agency, to the extent that Palermo Nominees and Palermo are liable to pay any sum to Messrs Tenji by reason of the conduct of Henneberry & Associates.
4 In November 1996 Palermo Nominees instructed Henneberry & Associates to offer for sale, for a price of $375,000, land and buildings ("the property") on which a service station business was conducted at Hamilton Hill, a suburb south of Perth. Palermo Nominees became the registered proprietor of the property in 1981 and operated the service station between 1982 and 1984. Thereafter the service station premises had been leased to, and operated by, a lessee, Niandra Holdings Pty Ltd ("Niandra"). Several days after Henneberry & Associates was instructed by Palermo Nominees, Mr Tenji (Snr) and Mr Tenji (Jnr) offered to purchase the property for a price of $370,000. The offer was accepted. Messrs Tenji say they relied upon representations made by Henneberry & Associates and Palermo Nominees in deciding to offer to purchase the property.
Evidence
5 The substance of the evidence adduced by the parties was as follows.
6 In 1986 Mr Tenji (Snr) and Mrs Tenji had purchased, for the purpose of investment, a residential property in Victoria Park, an inner Perth suburb, for a price of $65,000. In 1992 Mr Tenji (Snr) and Mrs Tenji had transferred proprietorship of the investment to Mr Tenji (Jnr), their only child. In September 1996 the investment was sold and the proceeds of sale, $400,000, became available for reinvestment. Mr Tenji (Jnr) treated the proceeds of sale as monies to be used at the direction of his parents.
7 Some time before October 1996 Mr Tenji (Snr) and Mrs Tenji, in cooperation with neighbouring landowners, took steps to have their market-garden properties zoned by the local authority as residential land. They instructed Henneberry & Associates to assist them. In the course of those activities Mr Tenji (Snr) and Mrs Tenji had frequent contact with Mr Henneberry and with Mr Murphy, a business broker employed by Henneberry & Associates.
8 In October 1996 Mrs Tenji discussed with Henneberry & Associates whether it had on its books a property that would be suitable for purchase as an investment that would provide an appropriate return. The type of investment Mr Tenji (Snr) and Mrs Tenji had in mind, as they informed Henneberry & Associates, was a strip-development of retail shops. Henneberry & Asssociates advised Mrs Tenji that at that time it did not have such a property for sale.
9 On 6 November 1996 Henneberry & Associates received authority in writing from Palermo Nominees to sell the property at Hamilton Hill. Late on Friday 8 November 1996 Mr Robinson, a salesman employed by Henneberry & Associates, informed Mrs Tenji that the property was for sale for $375,000. Mrs Tenji stated in her evidence that Mr Robinson said that it would be an excellent investment. She responded that she and her husband knew nothing about service stations and were not really interested. In his evidence Mr Robinson did not say that he had told Mr Tenji (Snr) and Mrs Tenji that it would be an excellent investment but did say that at the time he spoke to Mrs Tenji he held the opinion that, on the information provided to him, the property would provide a good return on investment. Mr Tenji (Snr) and Mrs Tenji were told by Mr Robinson that Mr Murphy, was the person to speak to about the property.
10 Mr Tenji (Snr) and Mrs Tenji drove out to have a look at the property on 8 November 1996. They did not go on to the property or speak to the operator of the service station. High voltage power lines, suspended between towers, traverse part of the property, and, in particular, part of the service station premises. Mr Tenji (Snr) and Mrs Tenji said that they did not notice the power lines.
11 On 11 November 1996 Mr Tenji (Snr) and Mrs Tenji went to the office of Henneberry & Associates and spoke to Mr Murphy. Mr Murphy had considerable experience in selling service stations having sold forty to fifty in a period of fifteen years. In particular, Mr Murphy was aware that "there were always potential problems with the tanks and pumps as well as environmental problems with the fuel storage at service stations". Mr Murphy's evidence was to the effect that this meeting took place about 8 November 1996 although he did not specify that date. At that meeting Mr Murphy handed to Mr and Mrs Tenji a leaflet, prepared by Henneberry & Associates on 6 November 1996, which set out information relevant to the "service station". Included in the leaflet were statements that the service station was leased to Gull Petroleum (WA) Pty Ltd ("Gull") until 30 June 1999 for a current rent of $55,296, reviewable annually on 1 July, with an option for the lessee to renew the lease for a term of five years. The leaflet stated that the "litreage" of the service station was "160,000 per month = 1,920,000 per annum".
12 It was the evidence of Mr Tenji (Snr) and Mrs Tenji that Mr Murphy had said that he had more than seventeen years experience dealing with service stations and that the property -
i) had only just come on the market;
ii) was worth more than $370,000 and was a desirable investment opportunity;
iii) had development potential; and
iv) was leased to Gull for an annual rent of $55,296 which was an excellent and reliable return on capital.
Those representations were admitted by Henneberry & Associates, either in its defence or in the evidence it adduced.
13 It was also said by Mr Tenji (Snr) and Mrs Tenji that Mr Murphy had told them that -
i) purchase of the property was a "golden" opportunity;
ii) the lessee, Gull, would purchase the property immediately if given the opportunity;
iii) when the property market picked up in February/March 1997 the purchaser could probably expect to sell it for approximately $500,000;
iv) the property had potential for an entity like "BP" to redevelop it as a "BP Plus" service station/convenience store; and
v) the service station was well equipped with good-sized fuel tanks.
In its defence, Henneberry & Associates denied that such statements were made. Henneberry & Associates adduced evidence from Mr Murphy to support that defence.
14 Mr Tenji (Snr) and Mrs Tenji on the one hand, and Mr Murphy on the other, provided differing accounts as to the date they met and the statements made by Mr Murphy at that meeting. The whole of the material adduced suggests that it is probable that what was said fell somewhere between the respective recollections of Mr Tenji (Snr) and Mrs Tenji, and Mr Murphy.
15 First, Mr Murphy may not have used the word "golden" but his experience in service station sales and his enthusiasm for the property as an investment conveyed to Mr Tenji (Snr) and Mrs Tenji that at a price of $370,000 or $375,000 the property represented a good opportunity. Second, Mr Murphy may not have said that Gull would purchase the property immediately if given the opportunity to do so but the impression conveyed to Mr Tenji (Snr) and Mrs Tenji by Mr Murphy was that it could only make sense commercially for Gull to buy the property. He said, in effect, that it would be to Gull's advantage to purchase the property. Third, Mr Murphy may not have said in precise terms that the property could be sold in February/March 1997 for $500,000 but by saying that "when you're getting into the second operative part of the lease" the property might be worth $500,000, he used words which indicated that the property was an appreciating asset capable of reaching a value of $500,000 in the short term. Fourth, with regard to use of the property as a "BP Plus" site, it was admitted by Henneberry & Associates in its defence that Mr Murphy told Mr Tenji (Snr), and Mrs Tenji, that the vendor had contemplated developing the property as a "BP Plus" site but he had also said that the vendor had not taken that proposal any further by submitting plans to the local authority. Mr Tenji (Snr) and Mrs Tenji may have understood that statement as having some positive import but it was not a statement an ordinary purchaser in the field would, or could, have taken to be a representation of particular worth of the property. Fifth, with regard to the size of the fuel tanks, I accept that Mr Murphy did not use the words "well equipped with good-sized fuel tanks" but I am satisfied that the tenor of his remarks was to the effect that a purchaser would not be required to consider whether the operation of the service station would be affected by inadequacy in the size of the fuel tanks. Mr Murphy said in his evidence that Mrs Tenji had said that the size of the diesel fuel tank was small. The capacity of the tank used for diesel fuel storage was 2,000 litres. There was no discussion of the proportion of the monthly "litreage" sold as diesel fuel and Mr Tenji (Snr) and Mrs Tenji were wholly inexperienced in the operation of a service station. I accept Mrs Tenji's denial that she made any comment on the size of the diesel fuel tank and that Mr Murphy's recollection to that effect was ill-founded. Mrs Tenji did ask if any work was needed on the underground tanks, but that question was directed to ascertaining whether there were leaking tanks that may cause a problem for a purchaser, and not to the size of any tank.
16 Mr Tenji (Snr) and Mrs Tenji were satisfied at that meeting that the property offered opportunity for further development. The service station lease covered only two-thirds of the 2,600m² property and the remainder was undeveloped. When the opportunity for further development was coupled with the represented return on investment provided by the service station lease, 14.75 per cent according to the leaflet, it suggested to them that the property at the selling price represented a good investment. As a result, an "offer and acceptance" form was prepared in which Messrs Tenji, as purchasers, offered to purchase the property for $370,000.
17 The decision to purchase the property was made by Mr Tenji (Snr) and Mrs Tenji. It was their decision that Mr Tenji (Jnr) would purchase the property with his father.
18 Mr Tenji (Jnr) did not inspect the property. On 11 November 1996 he was asked by his parents to attend Henneberry & Associates and sign the offer document. Mr Tenji (Jnr) stated that, as requested, he attended Henneberry & Associates on the afternoon of 11 November 1996 and signed the offer and acceptance. He said that at that time Mr Murphy had told him, inter alia, that Gull had contracted to supply petrol to the site for the duration of the lease, including the renewed lease, and that there would be no difficulty in having the property re-zoned as a commercial site if his parents wanted to develop it as a "mini-market". As set out above, the decision to purchase the property was made by Mr Tenji (Snr) and Mrs Tenji. In agreeing to be a co-purchaser, Mr Tenji (Jnr) gave effect to a decision his parents had made and he relied upon that decision to make the commitment to be a purchaser. Nothing said by Mr Murphy at the time the offer and acceptance form was signed by Mr Tenji (Jnr) caused him to make the decision to enter the contract.
19 According to Mr Murphy's evidence, Mr Tenji (Jnr) attended Henneberry & Associates, with his parents, on 11 November 1996 and Mr Tenji (Jnr) and his father signed the offer document at that time. I accept the evidence of Mr Tenji (Jnr) that he was not with his parents when they met Mr Murphy that day and the evidence of Mr Tenji (Snr) and Mrs Tenji that the offer was prepared by Mr Murphy at their first meeting with Mr Murphy on the morning of 11 November 1996 and signed by Mr Tenji (Snr) at that time.
20 Mr Murphy said that at the "first" meeting with Mr Tenji (Snr) and Mrs Tenji in his office, he told them that there was an easement on the property for the overhead power lines and gave them a photocopy of the search of the certificates of title. I am not satisfied that Mr Murphy made any mention of the easement nor delivered copies of the title searches. I prefer the evidence of Mr Tenji (Snr) and Mrs Tenji which denies that such information was provided by Mr Murphy. I think that Mr Murphy's recollection is a favourable re-construction rather than a positive recollection of events. On observing the delivery of his evidence I was not satisfied that he had full and accurate recall of relevant matters. Mr Murphy did not discuss the property with Mr Tenji (Snr) and Mrs Tenji on 8 November 1996. The first discussion he had with them about the property was at the meeting at the office of Henneberry & Associates on 11 November 1996, when the offer to purchase the property was prepared by Mr Murphy and signed by Mr Tenji (Snr).
21 It was not in issue that shortly after the offer was signed Mr Murphy telephoned Mrs Tenji and advised her that information he had provided in respect of the lease was incorrect. It is most likely that the date of that contact was 12 November 1996. According to Mrs Tenji, Mr Murphy said that Gull was not the lessee and that the lessee was Niandra. She said that Mr Murphy also said that Niandra was a good operator, had a lease of the service station for seven years and that Gull had contracted to supply fuel to the site for the duration of that lease.
22 In his evidence, Mr Murphy said that in that telephone call he told Mr Tenji (Snr) and Mrs Tenji that they should make sure they were "happy" with the identity of the lessee because it was a "private individual" and not Gull. He said that when Mr Tenji (Snr) and Mrs Tenji came to see him after that telephone call he told them he was concerned about the difference it made for the lessee to be a private company instead of a petroleum supplier and that although the return on the investment appeared to be good, they should think about obtaining independent advice from a solicitor or an accountant.
23 Mr Tenji (Snr) and Mrs Tenji deny that Mr Murphy expressed any caution or made any recommendation and I accept their version.
24 At that meeting at Mr Murphy's office on 12 November 1996, Mr Tenji (Snr) initialled an alteration to the offer document which recorded that Niandra was lessee and that it had "first right of refusal". Mr Tenji (Jnr) attended Henneberry & Associates' office that afternoon and added his initials to the amended document.
25 Niandra did not exercise its "first right of refusal" and settlement of the purchase was effected on 29 November 1996. On 21 December 1996 Mr Tenji (Snr) received the duplicate copies of the two certificates of title. His evidence, which I accept, was that he took the copy titles to Mr Murphy and asked what the meaning was of the shaded portions depicted on the plans of the property shown on the titles. He said that Mr Murphy responded that the shading probably represented the service station building which straddled both titles. Mr Murphy did not say anything about an easement.
26 In February 1997 the lessee contacted Mr Tenji (Snr) and said that Gull had informed it that Gull intended to cease supplying petrol to the site because it was unprofitable for Gull to make small fuel deliveries. The lessee also informed Mr Tenji (Snr) that the annual sales of fuel to the service station were 1 million to 1.2 million litres and that the business "had never sold anything like 2 million litres" per annum.
27 Mrs Tenji said that as a result of further discussions with the lessee she learnt of the easement that restricted development of land under the power lines. She contacted Mr Murphy by telephone and asked if he was aware that there was an easement over the property to which he responded that all commercial properties had easements. Mr Murphy's version of the conversation, when cross-examined on the point, did not differ significantly other than to dispute that he said "all" commercial properties.
28 In March 1997 the lessee wrote to Mr Tenji (Snr) and Mrs Tenji informing them that it had received a letter from Gull advising that it would cease supplying fuel to the service station on 14 April 1997. A copy of Gull's letter, dated 17 March 1997, was enclosed. The relevant parts read as follows:
"...This decision has been brought about by the high cost of servicing your site. The problem of the small fuel holding on your site means that we have to deliver relatively small quantities of fuel on a high frequency basis. The cost associated with these deliveries has made your site uneconomical for us to supply.
In addition to the above, the pricing in your area has become fiercely aggressive which has meant that if we are to keep you competitive we are often supplying fuel to you below our cost price.
These two matters have been discussed with you on previous occasions and during February the situation came to a head with the low volume of fuel pumped by your site and the pricing that accompanied it.
..."
29 On 27 March 1997 solicitors for Mr Tenji (Snr) and Mrs Tenji and Mr Tenji (Jnr) wrote to Palermo Nominees and Henneberry & Associates giving notice of "rescission" of the agreement to purchase the property and of claims against each of those parties under the Act and at common law. There was no response to that letter.
30 Although the letter stated that the agreement had been "rescinded", the contents of the letter, and subsequent conduct, indicated that the purported act of rescission was equivocal. In these proceedings Messrs Tenji seek an order from the Court, under s 87 of the Act, that would have the effect of "rescinding" the agreement.
31 As at the date of the trial, Gull had continued to supply fuel to the service station and Niandra had met its obligations under the lease. As noted earlier, Niandra had operated the service station since 1984. Between 1984 and 1994 the service station sold fuel and oil supplied by The Shell Company of Australia Limited ("Shell"). Shell, as lessee, operated the service station from the time it was built, 1964, until surrender of the lease in 1982. Between 1982 and 1994 Palermo Nominees received a payment from Shell for maintaining the site as a Shell service station. In 1994, when Shell ceased supplying fuel to the site, and Gull became the supplier of fuel and oil, it was agreed between Gull and Palermo Nominees that Palermo Nominees would continue to receive a benefit similar to the amount paid to it by Shell. The arrangement by which that benefit was to be received by Palermo Nominees consisted of an increase in the "margin" on fuel sales payable to Niandra by Gull and a corresponding increase in the rent payable by Niandra to Palermo Nominees. The amount of the increase in the rent was calculated by reference to the "litreage" sold in the previous year.
32 The "margin" received by Niandra from Shell was 3¢ per litre. Gull paid Niandra 4.5¢ per litre, irrespective of the retail sale price. Niandra, in effect, was a commission agent for Gull, receiving a sum for sales made each month at a fee of 4.5¢ per litre. Of that payment 1.5¢ represented the benefit payable to Palermo Nominees as an increase in rent.
33 Messrs Tenji now say that they relied upon the representations made by Palermo Nominees and Henneberry & Associates in deciding to purchase the property and that by making those representations Palermo Nominees and Henneberry & Associates engaged in misleading or deceptive conduct in trade or commerce in contravention of the Act. Nominally on the pleadings, it was in issue that any conduct by, or on behalf of, Palermo Nominees was conduct in trade or commerce. Palermo Nominees owns and operates several service stations and is a trading entity. The sale of the property was not a transaction of a private, non-trading, non-commercial character. It was a business transaction made by Palermo Nominees for the sale of a commercial investment and at material times Palermo Nominess was engaged in trade or commerce.
Contravention of s 52
34 The question to be asked is whether conduct, which in totality may consist of acts, omissions, statements and silence, has created an impression which is, or is likely to be, misleading or deceptive. It is the entire conduct that is relevant, not restricted to positive events such as acts or statements.
35 The importance of this point was emphasised by Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) ATPR 40-307 at 43,783 where his Honour stated:
"The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or act 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 that 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."
36 In the present case, the representations made are to be considered with other elements of conduct.
37 Silence is conduct which consists of refraining from doing an act when the circumstances provide the reasonable expectation that disclosure of relevant facts will be made. In Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) ATPR 40-782 at 48,536 - 48,537 Wilcox J stated:
"There may be circumstances importing an obligation to speak out if misleading conduct is to be avoided. One such case is where a qualification is necessary to avoid a party being actively misled."
38 The obligation to speak out may be something less than a "duty" to disclose. In Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1993) ATPR 41-203 at 40,851 Gummow J stated:
"The use of the term `duty' is apt to suggest a necessary connection with the general law, which does not exist and is not required by the statute;...consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive."
39 In agreeing with Gummow J, Black CJ (at 40,844 - 40,845) made the following comments:
"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 of 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."
Effect of Conduct
40 It is appropriate to deal in seriatim with the representations I have found to have been made to determine whether those representations, considered in the context of the entire conduct of Henneberry & Associates and Palermo Nominees, constituted misleading or deceptive conduct relied upon by Messrs Tenji in deciding to purchase the property.
1. "The property had just come on the market"
41 The evidence established that the property had been offered for sale by Palermo Nominees in October 1994 for a price of $495,000. Palermo Nominees had given selling agents an exclusive authority to sell the property for a period of 120 days. The exclusive authority was reinstated for a period of sixty days in May 1995. There was no evidence of how, or when, the property was offered for sale by the agents, either pursuant to an exclusive authority or at any other time, although the lessee gave evidence that over two or three years prior to the sale to Messrs Tenji an agent had brought prospective purchasers to the property. The evidence of Mr Robinson and Mr Murphy as to how Henneberry & Associates received instructions to act as agents for the sale of the property suggests that Henneberry & Associates was aware that Palermo Nominees wanted to sell the property and, accordingly, Mr Robinson approached Palermo Nominees to obtain the "listing". That evidence also suggests that the "listing" was sought to be able to offer the property to Mr Tenji (Snr) and Mrs Tenji as a suitable asset for them to purchase as an investment.
42 In November 1996 it would have been of interest to a prospective purchaser to know that the property have been offered for sale in 1994 and 1995 but it does not follow that failure to disclose that information invalidated a statement that the property was being offered for the first time to the market as it stood in November 1996. Given the substantial alteration in price and the apparent period of sixteen months that had elapsed since the property had been last offered for sale through a formally appointed agent, there were sufficient circumstances to permit the conclusion that a statement that the property had "just come on the market", although on the margin of accuracy, was not rendered inaccurate by refraining to say that the property had been offered for sale between October 1994 and July 1995 and that it was not conduct that was misleading or deceptive. It was not contended by Messrs Tenji that failure to disclose that the property had been offered for sale in 1994 and 1995 itself constituted misleading or deceptive conduct by Palermo Nominees.
2. "The property was worth more than $370,000 and represented a good opportunity to obtain a property that could be resold for $500,000 in the short term."
43 The worth of the investment and, therefore, the opportunity to acquire it for the price of $370,000, depended upon the return that could be generated by the investment over the period the investment was held and the prospect of the value of the property being enhanced by further development on the land.
44 The rental payable under the lease did not reflect the market rental payable for the business conducted on the property. The arrangement for the inflated margin on fuel sales paid to Niandra by Gull permitted Palermo Nominees and Niandra to reach an agreement to pay a distorted rent. Mr Murphy was an experienced broker who had specialised in the sale of service station businesses and but for the misrepresentation as to the annual volume of fuel sold on the leased premises, may have been expected to have been aware that the rent paid under the lease was well above the market rate and, therefore, that the return received by the vendor as lessee could not be relied upon as reflecting the underlying value of the property. According to the volume of fuel sales as represented by Palermo Nominees, the rental payable under the lease may have appeared to be consistent with market rates, albeit at the higher end of the market.
45 There was no evidence which suggested that there were reasonable grounds for an opinion that the property would be worth $500,000 in the short term. Given, as appears later in these reasons that the value of the property was $360,000, the statement that the property was worth more than $370,000 and represented a good opportunity, was not in accordance with fact and it was misleading conduct under the Act. A statement to the effect that the property was undervalued at $370,000 and represented a "good opportunity" at that price did more than "puff" the attributes of the property on offer. It was directed to obtaining a commitment to purchase the property without regard to the limitations on value imposed by a number of circumstances.
46 It was also pleaded as a further element of misleading or deceptive conduct relevant to the worth of the property that at the time the property was offered for sale, Henneberry & Associates and Palermo Nominees knew, and failed to disclose to Messrs Tenji, that on a number of occasions prior to November 1996 Gull had threatened to cease supply of fuel to the service station because, inter alia, of the frequent deliveries required to be made to serve small-capacity fuel tanks. It was pleaded that Palermo Nominees had persuaded Gull to withdraw its threats and to continue the supply of fuel.
47 No evidence was adduced to support this pleading. The only evidence on the point was that Gull had raised the issue of frequency of deliveries with Niandra in February 1997 and in discussions several months before that.
3. "The service station was a desirable investment and Gull would purchase it if given the opportunity."
48 Implied in the representation I have found Mr Murphy to have made to Mr Tenji (Snr) and Mrs Tenji is the representation that Gull, as lessee, was providing a high rate of return for the lessor's investment and would be better off buying the property. When Mr Murphy advised Mr Tenji (Snr) and Mrs Tenji that he had erred in stating that Gull was the lessee of the service station, the principal impact of this representation fell away, although its effect as reinforcement of a representation that the market rent provided a good return on the investment remained.
4. "The property had development potential."
49 As discussed later in these reasons, the property did have potential for further development and the representation as made, in broad terms, did not amount to misleading conduct.
5. "The rental of $55,296 per year represented an excellent and reliable return on capital."
50 The implied statement in this representation was that the rent being paid under the lease was a market rent on which the value of the property could be calculated. As set out above it was an arranged rent involving an understanding with a third party, Gull, that an increased and unusual margin would be paid to Niandra in order that the rent payable under the lease may be increased to provide a benefit payable by Gull to Palermo Nominees as rent payable under the lease by Niandra.
51 If that circumstance was not to be disclosed, no statement should have been made to an intending purchaser which implied that the rent represented a return on investment set by the market. The conduct of making the statement and failing to reveal how the rent had been constructed was misleading conduct by Palermo Nominees and Henneberry & Associates.
6. "1.92 million litres of fuel per annum was sold at the service station."
52 The fuel sold at the service station for the year ending October 1996 was 1.612 million litres. The difference between that volume and the represented volume was substantial. Furthermore, the misstatement reinforced an implied statement that $55,296 represented market rent when it would be assumed that market rent would be tied to the volume of sales. The net market rent calculated by the valuers, $34,500, would have been more than $47,000 if calculated on sales of 1.92 million litres per annum.
53 There is no doubt that the conduct of Palermo Nominees in representing that 160,000 litres per month was sold at the service station, and that the conduct of Henneberry & Associates in representing that the annual volume of sales was 1.92 million litres, constituted misleading conduct under the Act.
Breach of duty of care by Henneberry & Associates
54 Messrs Tenji also claimed that Henneberry & Associates breached a duty to exercise reasonable skill and care in the performance of its contract with them to act as their agents in settlement of the purchase of the property. It was claimed that Henneberry & Associates failed to explain to Messrs Tenji the nature and effect of the easements referred to earlier and failed to deliver to Palermo Nominees prior to settlement any requisitions in respect of encumbrances on title.
55 Messrs Tenji claimed that if Henneberry & Associates had duly performed its duties pursuant to its engagement as agent, Messrs Tenji, upon learning of the effect of the easements, would have rescinded the agreement before settlement pursuant to cl 2 of the Joint Form of General Conditions for the Sale of Land, 1994 Revision (Adopted jointly by The Law Society of Western Australia (Inc) and The Real Estate Institute of Western Australia (Inc) and approved by The Settlement Agents Association (Inc) and The Associated Settlement Agents of Western Australia (Inc)) ("General Conditions"), incorporated as terms of the agreement for sale and purchase of the property.
56 Clause 2 of the General Conditions reads as follows:
"2. Encumbrances(1) The property is sold free from encumbrances except:-
(a) as specified in the contract;
(b) any reservation or condition contained in the Crown Grant of the land;
(c) as provided in Condition 12(6) (where the land is a strata lot or an estate or interest therein); and
(d) as provided in Condition 2(2).
(2) If the land is not vacant land and:-
(a) there is a restrictive covenant or easement registered on the title to the land which is not specified as an encumbrance in the contract; and
(b) the restrictive covenant or easement does not unreasonably interfere with the actual use of the land at the date of the contract; then the Purchaser has no right to rescind the contract on the ground that the land is encumbered by the restrictive covenant or easement.
(3) If the Purchaser has the right to rescind under this Condition that right must be exercised not later than 5 business days prior to the settlement date.
(4) Conditions 2(2) and 2(3) are without prejudice to any other right or remedy available to the Purchaser."
57 The clause provides no right of rescission if the land being purchased, and affected by an easement, is vacant land. The right of rescission only arises if the easement unreasonably interferes with the actual use of the land at the date of the contract. The prospect of there being severe restriction of a possible use of the land would not provide a right to rescind under that clause. At the date of contract the actual use of that part of the land purchased by Messrs Tenji that was not vacant land, was for the business of the service station. There was no evidence that the easement unreasonably interfered with that use at the date of the contract.
58 As a party professing to be skilled in arranging and effecting settlement of the sale of land on behalf of vendors or purchasers, Henneberry & Associates, when instructed to arrange and conduct settlement on behalf of Messrs Tenji, undertook the duty to make full searches of the title and of any encumbrances notified thereon. That duty would have extended to the obligation to enquire from Messrs Tenji, as purchasers, what further instructions they would give Henneberry & Associates upon discovery, by reason of such searches, of the existence of an encumbrance not specified in the contract to purchase the property.
59 A settlement agent does not offer the range of skills expected of a solicitor instructed to perform the same task and, correspondingly, the services provided will be less, and the duty of care owed by the settlement agent, whether regarded as a contractual obligation, or a duty under the general law, will not be as onerous as the duty imposed on a solicitor. It would be the duty of a solicitor to advise the client upon the meaning and effect of the terms of the contract and to take appropriate steps to protect the client thereunder, for example, by rendering requisitions on title to the vendor. There was no evidence to suggest that at the relevant time the preparation and issue of such requisitions was regarded by the legal profession, or by settlement agents, as part of the duties performed by settlement agents. (See: The Green Team (WA) Pty Ltd v Brulee Pty Ltd [1995] FCA 1571; (1995) ATPR 41-435; Cusmano v Pinner (1998) 157 ALR 61.)
60 However, a settlement agent would be expected to seek instructions from the principal, when fundamental work carried out by the agent on the principal's behalf, such as title and encumbrance searches, made it apparent that the principal had to determine, under the terms of the contract, whether settlement of the purchase was to proceed. It would be obvious to any settlement agent, possessing the ordinary skills of such a party, that not only would the principal have to be informed of the result of the searches but also the agent would have to seek from the principal further instructions in respect of the settlement. It was not a requirement that the agent provide advice to the principal on the rights available to the principal under the contract, a step beyond the agent's obligation to arrange and conduct the settlement, but it was a requirement that the agent keep the principal informed on all matters central to the purchaser's obligation to complete the contract and that the agent seek and obtain further instructions from the principal in carrying out that obligation on the principal's behalf where it was apparent that the circumstances required it.
61 In the present case it was in dispute whether Henneberry & Associates informed Messrs Tenji of the existence and nature of the easements at any time prior to settlement. Although I prefer the evidence of Mr Tenji (Snr) and Mrs Tenji on that issue, the important question in deciding whether Henneberry & Associates was in breach of a duty owed to Messrs Tenji was whether Henneberry & Associates sought instructions from Messrs Tenji when it knew that the contract, the performance of which it was to effect on behalf of the purchasers, did not specify the encumbrance that was revealed by the searches it had made on behalf of the purchasers. At that point Henneberry & Associates, also acting for Palermo Nominees on settlement, could not proceed without enquiring from Messrs Tenji what instructions they proposed to give to Henneberry & Associates pursuant to cl 2 of the General Conditions. (See: Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 per Wilcox and Lindgren JJ at 511 - 512.)
62 The breach of that duty meant that settlement proceeded without further instructions being obtained by Henneberry & Associates. I am not satisfied by the evidence, however, that if instructions had been sought from Messrs Tenji by Henneberry & Associates the contract would have been rescinded. Perhaps Messrs Tenji would have sought legal advice, but that advice would have pointed out that a right to rescind was not obvious on the material. At best it may be said that the loss suffered by Messrs Tenji by reason of the breach, whether regarded as a breach of contract, duty of care, or of a fiduciary duty as claimed, was the loss of an opportunity to seek rescission of the agreement. In the circumstances the worth of that opportunity could not be said to be greater than the sum recoverable under the Act for the loss sustained by reason of the misleading conduct engaged in by Henneberry & Associates which caused Messrs Tenji to enter and complete the agreement to purchase the property, even if it may be said that the sum to be discounted to ascertain the worth of the opportunity lost, may include consideration of a decline in the market value of the property as at the date of trial as part of the measure that may have applied if, but for the breach of duty, settlement would not have proceeded. (See: Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 163 ALR 611; Australian Breeders Cooperative Society Ltd v Jones at 545; Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWLR 211 per Street J at 216; Stewart v Layton [1992] FCA 618; (1992) 111 ALR 687 per Foster J at 713 - 715.)
Reliance
63 I am satisfied that when Mr Tenji (Snr) and Mrs Tenji made the decision that Messrs Tenji would offer to purchase the property for $370,000, they relied upon the conduct I have found above to have constituted misleading conduct under the Act. That conduct would have caused Mr Tenji (Snr) and Mrs Tenji to understand that the price to be offered by them was less than the true value of the property and, therefore, a "safe" price at which to purchase the asset. They would have been encouraged to make the decision to buy the property for that price by the assurance implicit in that conduct that the return on the investment as set by the market would be a high return providing security for the value of the asset as well as a good level of income. The effect of the representations was to convince Mr Tenji (Snr) and Mrs Tenji, very quickly, that an offer to purchase the property should be made at, or near, the vendor's asking price.
Value of the property
64 Messrs Tenji claim that they paid substantially more for the property than it was worth.
65 Messrs Tenji and Henneberry & Associates, respectively, adduced evidence from licensed valuers as to the value of the property at the time of acquisition, 29 November 1996. Mr Dunn, the valuer called by Messrs Tenji, valued the property at $271,000. Mr Zucal, called by Henneberry & Associates, valued the property at $368,000. Palermo Nominees adduced no evidence on the issue and relied upon the evidence of Mr Zucal.
66 The property is a corner location on two suburban streets, each of which has relatively low traffic flows. The property is contained in two certificates of title. The lease of the service station straddles the two titles. As to the part of the property that is not subject to the lease, approximately half of that land is outside the easement granted to the electricity authority in respect of the power lines.
67 The buildings on the leased area are approximately thirty-five years old and in need of substantial maintenance. Mr Zucal described it as a "third rate" service station. The business conducted on the leased land is not restricted to the sale of fuel products and includes a workshop for vehicle repairs and maintenance. The area in which the property is situated is a fully-developed, low-density residential suburb with dwellings built and maintained to a good standard. The property constitutes an isolated commercial zone in a residential area. There is no other commercially-zoned land in the vicinity. It has been used for a neighbourhood service station for thirty-five years. Ninety-five per cent of the trade in fuel sales and vehicle repairs is provided by local residents. Land not included in the land leased for the service station has been vacant land at all material times and separated from the service station by a fence. The power lines are an unsightly disfigurement both for the suburb and the property.
68 The principal points of difference between the valuers in arriving at their respective valuations relate to the rate of yield assumed to be required by a prospective purchaser when calculating a value by capitalisation of a net market rental and to whether the unused vacant land added further value to the foregoing calculation. The valuers agreed that the net market rental at the relevant time was $34,500 per annum. Mr Dunn applied a capitalisation rate of 15 per cent to that annual rent and was of the opinion that no value was to be added to that figure by the prospect of further development of the vacant land.
69 Mr Zucal used a capitalisation rate of 12.5 per cent which he considered to be relatively high and, therefore, one which included consideration of the adverse effects of the easement on future redevelopment of the property. Mr Zucal included a further component of value for the worth of the vacant land having regard to the prospective use thereof.
70 Although closure of fuel-selling outlets has been occurring for some years, as at 29 November 1996 a reasonable purchaser aware of the various matters likely to impact on the conduct of such a business and, therefore, upon the security of the return obtainable from an investment in land on which such a business was conducted, may have been satisfied by a yield of 12.5 per cent as a yield sufficient to take into account the depreciating effects of the easement on the property and the cost of overdue repairs, maintenance and improvements. It appears from Mr Zucal's report that the volume of fuel sold in the years ending June 1995, 1996 and 1997 was, in each year, substantially in excess of the volume sold in 1993 and 1994 suggesting that the service station business was able to hold its locally-based customers despite strong competition in an area in which fuel was sold at discounted prices. I do not accept that a willing purchaser would not appear unless the sum invested in this property would bring a rate of return of not less than 15 per cent. Having considered the evidence of each valuer, I prefer, in most respects, the evidence of Mr Zucal.
71 With regard to the question of whether the vacant land added further value to the property, I accept the opinion of Mr Zucal and I am satisfied that the value of the property is not restricted to a value calculated for the area, the subject of the service station lease.
72 I accept Mr Zucal's evidence that it is feasible that the vacant land may be developed for a viable commercial purpose there being available adequate access to, and space for parking on, that land. I accept that the electricity authority is prepared to amend the easement to reduce the impact of the easement on the property and that the restrictions of the easement would not be incompatible with a suitable development.
73 Both valuers allowed as a component of value a calculation for the benefit of the "super" rent receivable by a purchaser as assignee of the vendor's interest as lessor under the lease for the balance of the term of the lease, approximately 2½ years. Mr Dunn calculated the worth of that benefit at $41,000 and Mr Zucal at $43,000.
74 The elements of Mr Dunn's valuation were $230,000 for the capitalised net market rent of the service station and $41,000 for the present value of the "super" rent receivable by a purchaser. Mr Zucal's valuation contained a calculation of the capitalised net market rent of the service station of $258,000, after deducting provision for accumulated maintenance not previously expended and provision for the cost of obtaining amendment of the easement; $43,000 for the worth of the "super" rent as a capital sum; and $67,000 for the vacant land, depreciated for the effect of the easement thereon.
75 I think a willing, but not over-anxious purchaser would have regarded $360,000 as an appropriate price to be paid for the property. Such a purchaser would have been satisfied that a return of 13.5 per cent on the land leased for the service station would provide adequately for the substantial outgoings due on the improvements on the leased premises; for the effect of the easement on possible redevelopment of that area; and for contingencies that may arise in connection with the leased premises, for example, the collection of the "super" rent. The net market rent of $34,500, capitalised at 13.5 per cent, is $255,000, in round terms. When the sums allocated by Mr Zucal for the "super" rent, and the vacant land, are added and $5,000 is allowed for the cost of obtaining amendment of the easement and for further incidentals and contingencies in respect of using the vacant land in a manner compatible with the easement, the net value is $360,000.
76 There are no circumstances subsequent to purchase which confirm that some other approach to valuation would, and should, have been taken at the relevant time. (See: Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281.)
Loss
77 As described above, the principal loss occasioned by the conduct was the expenditure of $10,000 more than the property was worth. That loss is calculated after taking into account as a capital sum the benefit received from the "super" rent payable under the lease and no offset is required for the revenue advantage received as a result of the purchase. Although Messrs Tenji purported to rescind the transaction in March 1997, the notice of rescission was qualified in that if Palermo Nominees did not "accept" rescission and retake possession of the property, Messrs Tenji would seek an order from the Court to rescind the bargain either under the general law, or pursuant to s 87 of the Act. Although the solicitor's letter in March 1997 referred to Messrs Tenji having no alternative but to act as caretakers if the matter was not resolved promptly, it appeared that after March 1997 Messrs Tenji retained possession of the property on their own account and did not undertake an obligation to account to Palermo Nominees from day-to-day thereafter, a result that would have followed actual rescission, leaving it to the Court to adjudicate upon the validity of that act at law. (See: Alati v Kruger [1955] HCA 64; (1995) 94 CLR 216 at 223 - 224.) Accordingly, the relief sought by Messrs Tenji in these proceedings was expressed in the alternative, namely, as a claim for an order under s 87 of the Act declaring the agreement for the sale of the property "void ab initio" or an order for the payment of damages.
78 I am not satisfied that in all the circumstances of this case, an order under s 87 of the Act, having the effect of an order for rescission in equity, is appropriate. Although Messrs Tenji paid more for the property than it was worth, the overpayment was not a substantial sum, and that fact suggests that they may not have made a different decision had the misleading or deceptive conduct not occurred.
79 Calculation of the amount of loss suffered and an order that Messrs Tenji be recompensed in that sum is the appropriate remedy. The loss suffered on settlement of the purchase was, the sum of $10,000 paid in excess of the value of the property, and the overpayment of stamp duty in a sum of $455. Damages for loss of use of those sums is to be calculated by applying thereto an appropriate rate of interest from the date of settlement to the date of judgment. It was not in issue that the appropriate rate is 8.5 per cent. The amount of interest, compounded on annual rests, is $2,550.00.
80 Messrs Tenji also claimed as part of their loss, diminution in the value of the property they claimed had occurred since the date of purchase. Where damages are assessed by analogy with measures for a breach of duty arising in tort or contract, there may be circumstances, or the nature of the contractual relationship, which allows consideration of the difference between the value of the property at the relevant time and the price received on sale, or the value at date of trial, but normally, damages will not include loss occasioned by market decline. (See: Kenny & Good Pty Ltd v MGICA (1992) Ltd (supra); Potts v Miller [1940] HCA 43; (1940) 64 CLR 282.) If it may be said that such a measure may apply where, but for negligence or misleading conduct under the Act, a party would not have entered a transaction that occasioned loss, there are no circumstances in this case which permit the calculation of loss to include a decline in value occurring subsequent to the transaction. As indicated above, had the misleading conduct not occurred and Messrs Tenji understood that the value of the property was $10,000 less than the asking price, it is likely in the circumstances that they would have offered that sum and it would have been accepted. That is, if the effect of the misleading conduct were removed, namely that the property represented good value at $370,000; that the annual volume of fuel sold was 1.92 million litres; and that the market rent for the service station was, as paid under the lease, $55,296 per annum; and Messrs Tenji had been informed that the annual volume of fuel sales was 1.612 million litres and the market rent $34,500 per annum, they would have been able to determine that no more than $360,000 should be offered for the property. It is to be remembered that any consideration of whether an offer should be made to purchase the property, made free of the impact of the conduct found to have been misleading, would not have included knowledge of Gull's misgivings about continuing fuel supplies to the site due to inadequacy in the fuel tanks, or of restrictions on development of the property imposed by the easement.
81 Although included as an item of loss particularised in the statement of claim, no evidence was adduced capable of supporting a conclusion that by purchasing the property Messrs Tenji lost the opportunity to enter an alternative transaction that would have brought demonstrable profit or gain. (See: Paper Sales (Australia) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142 at 53,055; Radferry Pty Ltd v Starborne Holdings Pty Ltd (1999) ATPR 46-189.) No sum can be calculated under this head.
Palermo
82 There is sufficient material on which to conclude that Palermo had knowledge of the material facts which gave the conduct of Palermo Nominees the character of misleading conduct under s 52 of the Act and, therefore, pursuant to s 75B of the Act Palermo was a person knowingly concerned in that contravention. (See: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 670.)
Cross-Claims
83 It is plain that Palermo Nominees acted negligently in instructing Henneberry & Associates that the volume of fuel sold at the service station was equivalent to 1.92 million litres per year. Repetition of those instructions by Henneberry & Associates to a prospective purchaser could attract liability under the Act to Henneberry & Associates and cause it to suffer loss. It does not follow, however, that Palermo, acting for, and on behalf of, Palermo Nominees, can be said to have made that act of Palermo Nominees his own with the result that he became separately liable in negligence for breach of a separate duty of care owed to Henneberry & Associates. Something more is needed for a director to be made personally liable when acting, at all material times, as the organ of a corporation. (See: Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240.)
84 The same conduct contravened the Act, as conduct in trade or commerce likely to mislead, and, as discussed above, Palermo was a person knowingly concerned in that contravention and liable to Henneberry & Associates to the same extent as Palermo Nominees.
85 However, the loss sustained by Henneberry & Associates does not flow from the conduct of Palermo Nominees alone, whether that conduct brings liability in negligence or under the Act. The conduct in contravention of the Act, which involved representations that the property was undervalued at a price of $370,000 and that there was a prospect for substantial appreciation in value in the short term, was separate conduct by Henneberry & Associates which contributed to the decision of Messrs Tenji to enter a contract to purchase the property. Although the representations made were within the ambit of its authority as agent for Palermo Nominees, and liability for that conduct extended to Palermo Nominees under the Act, it was a liability attracted by the acts of Henneberry & Associates. It would be inappropriate for Henneberry & Associates to recover as loss it has suffered the whole of the sum it is required to pay to Messrs Tenji by reason of that conduct and by reason of its breach of duty of care as settlement agent.
86 In its cross-claim against Henneberry & Associates, Palermo Nominees claimed that in making representations about the property that were relied upon by Messrs Tenji, Henneberry & Associates acted beyond the authority conferred by Palermo Nominees and in breach of the contract of agency.
87 There can be no doubt that in making the representations it did Henneberry & Associates, in the main, relied upon material supplied by its principal, and, in any event, at all times acted within the authority, ostensible and actual, provided by the instructions to act as agent for Palermo Nominees. The cross-claim of Palermo Nominees against Henneberry & Associates cannot succeed.
88 In so far as Palermo, Palermo Nominees and Henneberry & Associates are liable to Messrs Tenji for loss suffered by them by the conduct of Palermo Nominees and Henneberry & Associates that contravened the Act, there is no power in s 87 of the Act to order that there be contribution between them. However, at law or in equity, an obligation to contribute will arise where all parties share a common liability and in this case such a liability arises under the Act. (See: Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 at 12.)
89 The appropriate result in the litigation is that there be an order that each respondent is liable for the judgment sum, with the effect that if the judgment is discharged by one respondent that respondent has a right to a rateable contribution from the remaining respondents.
90 There will be judgment for Messrs Tenji in the sum of $13,005. I will receive submissions from the parties in respect of the appropriate order for costs.
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. |
Associate:
Dated:
Counsel for the Applicants: |
C B Edmonds |
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Solicitors for the Applicants: |
Jackson McDonald |
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Counsel for the First Respondent, Cross-Applicant in First Cross-Claim, and Cross-Respondent in Second Cross-Claim: |
P G McGowan |
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Solicitors for the First Respondent, Cross-Applicant in First Cross-Claim, and Cross-Respondent in Second Cross-Claim: |
Corser & Corser |
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Counsel for the Second and Third Respondents, Cross-Respondents in First Cross-Claim, and Cross-Applicants in Second Cross-Claim: |
A Metaxas |
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Solicitor for the Second and Third Respondents, Cross-Respondents in First Cross-Claim, and Cross-Applicants in Second Cross-Claim: |
Arthur Metaxas |
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Dates of Hearing: |
26, 27, 28 and 30 October 1998, 10 December 1998 |
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Date of Judgment: |
30 July 1999 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1999/1029.html