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Federal Court of Australia |
Last Updated: 11 July 2000
Bowler v Hilda Pty Ltd [2000] FCA 899
TRADE PRACTICES - alleged contraventions of Part V of the Trade Practices Act 1974 (Cth) - purchase of unit in property redevelopment - alleged contravention arising from representation that unit purchased by applicants could be lived in, rented out privately or rented as a serviced apartment - whether representation false because residential use of unit not authorised upon registration of units plan: Land (Planning and Environment) Act 1991 (ACT), s 175 - whether representation false because residential use of building not approved by Building Controller: Building Act 1972 (ACT), s 54A - whether representation relied upon by applicants.
ACCESSORIAL LIABILITY - Part V contraventions made out - whether directors of property redevelopment company and of real estate companies liable under s 75B of the Trade Practices Act 1974 (Cth) - whether requisite actual knowledge present.
DAMAGES - assessment of damages under s 82 of the Trade Practices Act 1974 (Cth) - applicants claim difference between price paid for, and "true value" of, unit at date of acquisition - extent to which subsequent events expose "true value": Kizbeau Pty Ltd v WG&B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 - applicants claim difference between total outlays and receipts - whether all losses flowed directly from contraventions.
Trade Practices Act 1974 (Cth), s 52, s 53(g), s 53A, s 53A(1)(b), s 75B, s 75B(a), s 75B(c), s 82, s 84(2)
Federal Court of Australia Act 1976 (Cth), s 51A
Land (Planning and Environment) Act 1991 (ACT), s 159, s 175, s 225, s 227, s 228, s 230, s 230(3), s 235, s 235(1), s 245(1), s 245(2), s 249
Unit Titles Act 1970 (ACT), s 16(1)(a), s 24, s 25, s 25(1)(b)
Building Act 1972 (ACT), s 32(1), s 32(1)(a)(iii), s 32(1)(a)(iv), s 33(1), s 33(6), s 54A
Buildings (Design and Siting) Act 1964 (ACT), s 6
Bowler v Hilda Pty Ltd (1998) 80 FCR 191 referred
Grant v Estill Holdings Pty Limited (SC of ACT, 5 February 1990, Lockhart J) referred
Auburn Municipal Council v Szabo (1971) 67 LGRA 427 referred
Ryde Municipal Council v Royal Ryde Homes (1970) 19 LGRA 321 referred
Baulkham Hills SC v O'Donnell (1990) 69 LGRA 404 referred
Leichardt MC v Terminals Pty Ltd (1970) 21 LGRA 44 referred
Matijesevic v Logan City Council (1983) 51 LGRA 51 referred
Parramatta CC v Shell (1972) 2 NSWLR 632 referred
Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445 referred
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 referred
Holloway v McFeeters [1956] HCA 25; (1956) 94 CLR 470 applied
Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 discussed
Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 referred
Westbay Seafoods (Australia) Pty Ltd v Transpacific Standardbred Agency Pty Ltd (FCA, 6 June 1996, Full Court) referred
Giorgianni v R [1985] HCA 29; (1985) 156 CLR 473 referred
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 referred
Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 referred
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 discussed
Kizbeau Pty Ltd v WG&B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 discussed
Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904 referred
Radferry Pty Ltd v Starborne Holdings Pty Ltd (unreported, FCA, 18 December 1998, Full Court) referred
Carlton v Pix Print Pty Ltd [2000] FCA 337 referred
Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (1997) 148 ALR 271 referred
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307 referred
Janssen-Gilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 referred
Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 discussed
Sanrod Pty Ltd v Dainford Ltd (1984) 54 ALR 179 referred
Milner v Delita Pty Ltd (1985) 61 ALR 557 referred
Frith v Gold Coast Mineral Springs Pty Ltd (1983) 47 ALR 547 distinguished
Geale v Glenhoun Holdings Pty Ltd (in liq) (1985) 7 ATPR 40-615 distinguished
BRUCE WILLIAM BOWLER & ANOR v HILDA PTY LIMITED & ORS
AG13 of 1995
FINN J
CANBERRA
7 JULY 2000
IN THE FEDERAL COURT OF AUSTRALIA |
|
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY |
1. judgment be given for the applicants against the first, second and third respondents in the sum of $37,000.00;
2. leave be given to the applicants to apply for interest under s 51A of the Federal Court of Australia Act 1976 (Cth);
AND DIRECTS THAT:
3. the parties make submissions on the issue of the costs of the proceeding.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY |
JUDGE: |
FINN J |
DATE: |
7 JULY 2000 |
PLACE: |
CANBERRA |
1 This matter has been remitted to me by the Full Court for determination of the outstanding issues between the parties: see Bowler v Hilda Pty Ltd (1998) 80 FCR 191. On 25 October 1996 I gave judgment in this action on the issue of liability and, as a matter of convenience, I will reiterate here what I then said as to the nature of the proceeding and its general factual setting.
2 Before so doing I would note that the applicants' claim is, in the circumstances that now obtain, for damages under s 82 of the Trade Practices Act 1974 (Cth) ("the TP Act") in respect of an alleged infringement of provisions of Part V of that Act. The principal outstanding issues that now fall for determination are (a) the falsity or otherwise of the representations alleged to constitute Part V infringements; (b) whether the representations were relied upon; (c) accessorial liability of directors of the corporate respondents under s 75B of the TP Act; and (d) damages and their assessment. The facts peculiarly relevant to each of these will be detailed separately as each issue is considered
General Background
3 This proceeding is a representative one brought under Part IVA of the Federal Court of Australia Act 1976 (Cth). There are twenty-eight other members of the group. All are purchasers of units from Hilda Pty Limited ("Hilda"), the first respondent. The proceeding itself arises out of the redevelopment and then sale to the public through the vehicle of a corporate Units Plan of residential and serviced apartments. The applicants, Mr and Mrs Bowler, acquired a unit (Unit 23) in the Units Plan which for convenience I will call the Regency Apartments.
4 The redevelopment was undertaken by Hilda the then lessee of the property. I should note in passing that the fourth and fifth respondents, Mr and Mrs McDonald, were directors of Hilda at all relevant times. The public marketing of the units can be said for the moment to have been undertaken by either or both of Leader Real Estate Pty Ltd and Leader Holdings Pty Ltd, the second and third respondents, in consequence of an agency agreement with Hilda. I will not differentiate between the two and will, for convenience, refer to them collectively as "the Leader companies". Mr Whitcombe, the sixth respondent, was a director of the Leader companies.
5 The essence of the complaint made by the Bowlers is that the Leader companies in promoting the sale of the units made representations to them which were misleading or deceptive and which induced them to acquire Unit 23 to their damage and loss. Contraventions of the TP Act, s 52, s 53(g) and s 53A(1)(b) were alleged. Relief was sought in consequence, that relief now being limited to a claim for damages.
6 The contravening conduct alleged is claimed to have occurred during meetings between the Bowlers and a Mr Singh, an employee of one of the Leader companies, which occurred on 22 and 23 July 1993. The impugned representations (said to have been both oral and written) were, in substance, that:
(i) the income the Bowlers were to receive from their unit would be at least equal to 10 per cent of the purchase price paid for up to nine years from the date of completion of the purchase and this was "guaranteed" (the "rental guarantee");
(ii) their unit could be lived in, rented out privately or rented as serviced apartments (the "unit use" representation); and
(iii) Mr Singh's father had bought one of the units.
7 I have already rejected the Bowlers' claim in relation to the first and third of these. For Part V purposes I am concerned solely with the second - the unit use representation - and then only with the issue of its falsity: see Bowler v Hilda Pty Ltd, above.
A Chronology
8 (1) Hilda, as lessee of Crown leases of adjacent blocks in the Canberra suburb of Griffith, applied to the Australian Capital Territory Department of the Environment, Land and Planning on 17 February 1993 for a variation of the purpose clauses of the leases and for a boundary realignment of the two blocks. Insofar as presently relevant the application proposed that:
"Remainder of site (present Regency Motel area) to be changed to permit residential use - present motel to be refurbished, then unit titled."
An amended application was lodged the following day requesting "Development rights" as well. It in turn described the proposal as:
"Boundary re-alignment and purpose variation to include medium density residential units."
The applications were accompanied by an authorisation to a Mr Carl Ryman to act on Hilda's behalf in the matter. Mr Ryman, who apparently conducts his own business, had been engaged by Hilda for that purpose.
9 (2) On 26 February 1993 Mr McDonald on behalf of Hilda and Mr Whitcombe on behalf of Leader Real Estate executed an exclusive agency agreement under which Leader Real Estate was appointed Hilda's sales agent of the "proposed refurbished units". Leader advertisements for the units began to appear sometime thereafter in "The Canberra Times". These in terms would seem to suggest that the units were being sold for either owner-residence or rental purposes.
10 (3) On 4 March 1993, as required by s 235(1) of the Land (Planning and Environment) Act 1991 (ACT) - "the L(P&E) Act" - the ACT Planning Authority was called on to advise the Minister in writing whether it:
"(a) does not object to the approval of the application;(b) does not object to the approval of the application if the approval is given subject to conditions; or
(c) objects to the approval of the application."
11 (4) A meeting occurred in mid-April between officers of the ACT Planning Authority and Mr Ryman at which, according to the evidence of Mr Stubbs (an officer of the Authority), the chief planner indicated by reference to a plan of the development that if units numbered 1 to 19 were used only for residential purposes and the remainder (42) were used as serviced apartments then he would be happy to support the application as it stood. Mr Ryman is said to have said that he would amend the application to reflect this. It is in dispute between the parties as to whether such an amendment formally was ever sought.
12 (5) I should interpolate that the redevelopment was of three buildings. What were to become the nineteen residential-only units were to be housed in what was referred to as building A. Almost all of the serviced apartments were in buildings B and C.
13 (6) In mid-May 1993 Hilda changed the manner in which the units were to be presented to the public. Nineteen units were to be sold as one bedroom residential units, the remainder as serviced apartments. Furthermore, a management arrangement was to be offered for purchasers of serviced apartments under which units were to be sub-leased to the management company.
14 (7) On 7 July 1993 Mr Ryman wrote to the Department of the Environment, Land and Planning in terms (omitting formal parts):
"I refer to the application currently before you in respect of the above property for a re-alignment of boundary between Blocks 5 & 6 and also a lease purpose variation in respect of the new parcels.
Following discussions with your Mr Guild, Mr Tomlins, Mr Stubbs and Mr Nowak, I can now outline the course proposed for the application which satisfied departmental criteria.
The boundary re-alignment between Blocks 5 & 6 will only affect the boundary between the two current blocks forming new blocks 9 & 10. The external boundaries of the two blocks will remain as for Blocks 5 & 6.
The purpose clause variations to the new blocks will add the following use:
Block 9 - residential purposes to permit a maximum of 72 townhouses;
Block 10 - residential purposes to permit a maximum of 19 residential units.
The use for Block 10 will be in addition to the proposed 42 serviced apartments currently permitted under the present lease. The 19 units will replace what is presently 27 motel units and a restaurant.
Would you please proceed to process this application as a matter of urgency as my client is now in a position to commence work on both sites."
I should add that Block 10 is the one relevant to the present proceedings.
15 (8) On 22 July Mr Singh of Leader Real Estate visited the Bowlers at their residence. It was at this meeting he is alleged to have made the representations and to have provided the Bowlers with the "Regency Apartments" brochure which are said to embody the contravening conduct. Insofar as is now relevant in light of the decision of the Full Court, the brochure stated:
"CHOICE OF TWO TYPES OF TITLE
1. RESIDENTIAL: BLOCK A APARTMENTS 1-19
Ideal for live-in owners being the largest apartments in the development. May be rented out as with all properties, but not as serviced apartments at this point in time. However it is relatively easy to change titles from Residential to Serviced Apartments, as opposed to changing from Serviced Apartments to Residential.
...
2. SERVICED APARTMENTS: UNITS 20-60 (BLOCKS B & C)
May be lived in, rented out privately, or rented to management company which will sublet them as serviced apartments. The management company will rent at 10% of purchase price. ie) on $66,000, $550pm ($127pw), on $70,000, $583pm ($135pw), on $75,000, $625pm ($144pw) on $110,000, $917pm ($211pw), all paid per calendar month.
The management company will enter into a lease with the unit owners at 10% rental in year 1, then 10% plus consumer price index increase for years 2 and 3. It is the intention that the management company will renew their lease indefinitely.
After 3 years, buyers may take up the option for another 6 years. Rental will be determined by negotiation, based on previous performance and prevailing market conditions. However, the rental is guaranteed never to fall below the initial rental."
The following day Mr Singh took the Bowlers to the site of the units for an inspection.
16 (9) By letter dated 7 August 1993 approval was given to the "application of 18 February 1993 to vary the purpose clause, and realign the boundary between blocks 5 & 6". The approval, though, was made subject to the conditions (inter alia):
"Upon registration of that lease it shall be surrendered in favour of two new leases with realigned boundaries, for the purpose of medium density residential units and/or a residential hotel with ancillary carparking;
...
That the lessee demonstrates that any development proposal meets the Development Guidelines to the satisfaction of the Authority and in accordance with Attachment A."
The attachment referred to commenced as follows:
"The proposed conversion of the motel rooms to residential units fails to satisfy a number of the Development Guidelines for Section 84, specifically:"
It then referred to five distinct matters (all arising from the "Guidelines" referred to) and indicated the shortcomings in the proposal in relation to these. I will describe the five matters as referring to (1) landscaping; (2) air-conditioning units; (3) privacy and overlooking; (4) useable open space; and (5) building design and appearance. They are not of any moment in this proceeding.
17 (10) The attachment concluded with the following two paragraphs:
"Although not specifically referred to in the Development Guidelines a comparison of of [sic] typical floor areas for each dwelling unit type shows that the proposed units are on average 25-50% smaller than comparable medium density developments elsewhere in the inner Canberra area. For example, the single bedroom units have an average floor area of 45m2 compared to 60m2 elsewhere and the proposed bedsitter units have an average floor area of only 20m2 compared to 54m2 elsewhere. A copy of the floor plan of a bedsitter unit is attached. This unit is little bigger than an average car port and concern is expressed about its ability to function effectively for permanent residential occupation.It is considered that the amenity standards required for transient occupation of motel units are quite different to those required for long term or permanent residents. The Authority considers that in failing to meet the reasonable amenity standards set out in the development guidelines the proposal as submitted should not be supported."
I would draw particular attention to the second of the above paragraphs given its claimed bearing on the applicants' case as to the falsity of the unit use representation.
18 (11) On 24 August the Bowlers contracted to buy Unit 23 from Hilda. The contract provided for a lease-back to Hilda or its nominee on the terms of a schedule to the contract. The lease-back arrangement put into effect the "management company" proposal for serviced apartments referred to in the "Regency Apartments" brochure set out above.
19 (12) On 14 September an application for approval of building plans was lodged on Hilda's behalf with the ACT Building Control section of the Department of Urban Services. The plans were approved on 29 October 1993. As the application and approval raise a discrete issue in the proceeding they will be considered specifically later in these reasons.
20 (13) On 18 November 1993 a new lease was granted to Hilda under the L(P&E) Act in respect of the Regency Units property. The lessee covenants of that lease contained (inter alia) the following provisions (cl 3):
"COMMENCEMENTOF BUILDING (a) That the lessee shall within twelve months from the date of commencement of the lease or within such further time as may be approved in writing by the Territory commence to erect nineteen one bedroom units carparking and landscaping on the said land at a cost not less than the sum of eight hundred thousand dollars in accordance with plans and specifications prepared by the Lessee and previously approved by the Territory;
COMPLETION
OF BUILDING (b) That the lessee shall within twenty four months from the date of the commencement of the lease or within such further time as may by approved in writing by the Territory complete the erection of the said nineteen one bedroom units carparking and landscaping in accordance with the said plan and specifications and in accordance with every Act Statute ordinance or Regulation applicable thereto;
PURPOSE (c) To use the said land for residential units and serviced apartments;
SINGLE UNIT
DWELLINGS (d) That the buildings on the said land shall contain a maximum of nineteen one bedroom residential units and forty two serviced apartments;" emphases added.
21 (14) The Units Plan No 1000 for the redeveloped site was registered under the Unit Titles Act 1970 (ACT) ("the UT Act") on 24 February 1994. The "Schedule of Provisions Covenants and Conditions Subject to which Leases of Units are Held" under Units Plan No 1000, provided (inter alia) in clause 3 that:
"PURPOSE (c) To use the said parcel for residential units and serviced apartments;SINGLE UNIT
DWELLINGS (d) That the buildings on the said parcel shall contain a maximum of nineteen one bedroom residential units and forty two serviced apartments;"
I would note that a later title search of the Bowlers' interest in the property held under the Units Plan contains (inter alia) the following notification:
"RESTRICTIONS CONDITIONS AND EASEMENTSPURPOSES CLAUSE REFER UNITS PLAN"
This, then, refers to clause 3(c) of the Units Plan set out above.
22 (15) Regency Apartments Pty Limited ("Regency"), the seventh respondent which took no part in these proceedings, was nominated by Hilda as the sublessee of units purchased subject to the lease-back arrangement (as was the case with the Bowlers) in March 1994.
23 (16) On 22 March 1994 settlement of the Bowlers' purchase of Unit 23 occurred.
24 (17) For several months after completion the Bowlers received the contracted-for 10 percent of their purchase price by way of rental from Regency. Nothing was received in July and August 1994, then a reduced amount was paid for several months as was one 10 per cent payment in December. Thereafter nothing was received from Regency.
25 (18) In 1995 a group of unit owners (apparently twenty-eight in number) began to lease out their units. A real estate agency had been engaged to act as the agent in this for at least some number of these owners.
The Unit Use Representation
26 The sole issue for me to determine in light of the Full Court's decision is whether or not the representation was false in the event. The applicants put their allegation of falsity on either of two bases. The first is that the Bowlers' unit (Unit 23) could not lawfully be lived in as a residence (contrary to what was stated in the Regency Apartments brochure) because such was not an authorised use of that unit upon registration of Units Plan 1000 and was in consequence prohibited by s 175 of the L(P&E) Act. I will refer to this as "the unauthorised lease use". Secondly, even if the Unit Plan permitted such use, it is alleged that s 54A of the Building Act 1972 (ACT) prohibited such a use of the building in which Unit 23 was located. This will be referred to as "the unauthorised building use".
27 Before dealing with each of these in turn it is necessary, regrettably, to observe that much of the difficulty that exists in providing an easy answer to the questions raised by the applicants results from poor public administration. A more scrupulous adherence to the legislative scheme of the L(P&E) Act and a more appropriate insistence upon compliance with the requirements of the UT Act in the translation of a Crown lease into an intelligible units lease would have averted the difficulties that now need to be resolved. The latter problem, unfortunately, seems not to be a novel one: cf Grant v Estill Holdings Pty Limited (SC of ACT, 5 February 1990, Lockhart J).
1. The Unauthorised Lease Use
28 It is unnecessary to set out any additional factual material beyond that referred to in the Chronology, above. Reference, though, needs to be made to some number of provisions in the UT Act and the L(P&E) Act.
(i) The UT Act
29 The UT Act embodies a scheme for the subdivision of a parcel of leasehold land into units and common property. Where the requisite ministerial approval is sought for a proposal for such subdivision made in the manner provided in the Act (see Part III), the Minister is nonetheless directed not to approve the proposal unless:
"each unit is suitable for separate occupation and for use in a manner not inconsistent with the covenants in the lease of the parcel": s 16(1)(a).
If approval is given, the proponent lessee is obliged to submit a "units plan" to the Minister for endorsement for registration if the proposal is to proceed: s 22. On and after registration of the units plan, the leasehold parcel is subdivided into units, etc in the manner specified in the plan: s 24.
30 The effect of the registration on the hitherto existing lease of the parcel is provided for in s 25. Insofar as presently relevant that section provides:
"25 (1) On the registration of the units plan -(a) the lease of the parcel is determined;
(b) the person who was, immediately before the registration of the units plan, the lessee of the parcel becomes possessed of an estate of leasehold in each unit for the term fixed under subsection (2) and subject to the provisions, covenants and conditions set out in the units plan in relation to that unit as if a separate lease of that unit for that term and subject to those provisions, covenants and conditions had been granted to him or her by the Commonwealth under the Land Act; and"
The Land Act referred to is the L(P&E) Act. Paragraph (b) of s 25(1) is of particular significance in the present matter.
(ii) The L(P&E) Act
31 Section 159 defines a "lease" to mean (inter alia) "a lease granted under the Unit Titles Act 1970". By virtue of s 175 such a lease "shall not be used for any purpose other than a purpose authorised by the lease".
32 Part VI of the L(P&E) Act contains a not-altogether coherent scheme which allows for ministerial approval to be obtained for the conduct of a "controlled activity" in relation to leasehold land. One form of "controlled activity" is the execution of a variation of a lease of Territory land: L(P&E) Act, s 225 and Sched 4. All that need be said of the processes and procedures leading to the giving of an approval is that (i) a public register of applications and approvals is to be kept by the Minister (ss 227 and 228); (ii) a public notification and objection procedure is prescribed; (iii) the Minister is not to approve an application without obtaining the concurrence of the appropriate prescribed "concurring authority": s 230(3); (iv) where the application is referred to the "concurring authority" - in the present matter this was the ACT Planning Authority - the authority has the duties and powers prescribed by s 235. That section provides, insofar as presently relevant:
"235 (1) A concurring authority to which an application is referred by the Minister shall, within the prescribed period, give notice in writing to the Minister that the concurring authority -(a) does not object to the approval of the application;
(b) does not object to the approval of the application if the approval is given subject to conditions specified by the concurring authority in the notice.
...
(2) The Authority shall, before giving notice under subsection (1) in relation to a controlled activity ... consider whether or not the controlled activity proposed to be conducted would be inconsistent with -
(a) the planning principles set out in the Plan; or
(b) any directions of the Executive in force under section 37.
(3) For the purposes of paragraph (1)(b), a concurring authority may include a condition that a controlled activity to which the application relates is to be done to the satisfaction of the concurring authority or a person or body specified by the concurring authority in the notice."
33 The Minister can approve a proposal subject to conditions and must include in an approval any condition required to be included by the concurring authority: s 245(1) and (2). The Act prescribes from when an approval takes effect: s 249; and obliges the Executive then to "cause the variation of the lease ... to be executed in accordance with the terms of the approval".
(iii) Submissions and Conclusions
34 As noted in the Chronology, Hilda as lessee of two Crown leases sought and obtained a lease purpose variation under the L(P&E) Act. That variation resulted in the issue of a new lease to Hilda the covenants of cl 3 of which have been set out above. Here I simply restate the terms of cl 3(c) and (d):
"PURPOSE (c) To use the said land for residential units and serviced apartments;SINGLE UNIT
DWELLINGS (d) That the buildings on the said land shall contain a maximum of nineteen one bedroom residential units and forty two serviced apartments."
As I will indicate below the identification of the specified nineteen one bedroom residential apartments can be arrived at relying upon orthodox principles of interpretation.
35 When Units Plan No 1000 was registered the schedule of covenants subject to which leases of units were to be held adopted cl 3(c) and (d) notwithstanding that those clauses were designed to prescribe the use of the parcel of land in its entirety and not the use of individual units. Herein lies the principal difficulty in this case.
36 Insofar then as the Bowlers were concerned, and in consequence of the deemed lease created by s 25(1)(b) of the UT Act of which they were assignees, they held Unit 23 subject to the covenants set out in the Units Plan "in relation to that unit". The Schedule to the Units Plan purports to make cl 3(c) and (d) applicable to "leases of units". For the reason given above, these clauses are obviously inappropriate for the purpose. They relate to the use of the totality of the units and the division of those units into residential units and serviced apartments (if the cl 3(c) uses are mutually exclusive). They do not in terms provide for which purpose Unit 23 can be used and into which category - residential unit or serviced apartment - the Bowlers' unit falls.
37 The respondents' submissions can be briefly put: (i) cl 3(d) is void for uncertainty because it prescribes no objective criteria to determine which of the units are the nineteen residential units specified; (ii) that sub-clause is not itself an essential term and can be severed; (iii) the lease itself should be construed benevolently: Grant v Estill Holdings, above: (iv) cl 3(c) so construed prescribes the uses - residential and serviced apartments - to which all of the units may be put; (v) the clause is not one which is ambiguous or for the interpretation of which the use of extrinsic evidence is permissible in the circumstances.
38 As to the last of the above, reliance is placed upon a line of authorities dealing with the construction of development consents (planning approvals) given under planning legislation which are said to establish the propositions that (i) in construing a document comprising a development consent it is not permissible to have regard to other documents except to the extent, if at all, that they have been expressly or by necessary implication incorporated into the document which comprises the development consent: Auburn Municipal Council v Szabo (1971) 67 LGRA 427 at 433-434; Ryde Municipal Council v Royal Ryde Homes (1970) 19 LGRA 321; Baulkham Hills SC v O'Donnell (1990) 69 LGRA 404 at 407; Leichardt MC v Terminals Pty Ltd (1970) 21 LGRA 44 at 50-51; Matijesevic v Logan City Council (1983) 51 LGRA 51 at 52; (ii) the reason is that the consent (or planning approval) inures to the benefit of all future owners and occupiers: Auburn Municipal Council v Szabo, at 433-434; Leichardt MC v Terminals Pty Ltd, at 50-51; Parramatta CC v Shell (1972) 2 NSWLR 632 at 637; (iii) in particular it is not possible to go to the form of application for approval unless it has been incorporated by reference: Auburn Municipal Council v Szabo, at 433-434; (iv) it would be inapt to go to the negotiations or correspondence between the Council and the original applicant: Leichardt MC v Terminals Pty Ltd, at 51; (v) where plans or building applications are attached it is no doubt permissible to go to those: Auburn Municipal Council v Szabo, at 433-434; Matijesevic v Logan City Council, at 52; (vi) extrinsic evidence may be admitted to identify the nature of the site: Leichardt MC v Terminals Pty Ltd, at 50-51; Parramatta CC v Shell, at 637; and (vii) where planning approvals are ambiguous it would accord with principle to construe them in a way that places the least burden on the landowner: Matijesevic v Logan City Council, at 57. The applicability of these principles to the construction of a lease is a consequence, it is submitted, of the planning purpose served by lease purpose clauses in the ACT leasehold system.
39 Finally the respondents submit that though there is no uncertainty in cl 3(d) of the Crown lease upon which the Units Plan 1000 cl 3(d) is based, that is of no assistance to the applicants. Hilda as lessee of the Crown lease had the discretion to choose which were to be the nineteen residential units - hence the clause was workable. Under the Units Plan, though, with multiple individual unit owners, a like clause is simply uncertain for want of a means of specification of the nineteen units.
40 Though a variety of alternate submissions on falsity were made by the applicants, I need only refer to those that bear on the question of construction. It is contended that (i) when cl 3(c) and (d) are read in the context of the entire Units Plan, their plain import is to require that Block 10 (ie the parcel) be used for no more than nineteen one bedroom and no more than forty-two serviced apartments - in other words the respective uses are exclusive not mutual; (ii) the ascertainment of the prescribed residential units may be derived (a) as a matter of inference from the Units Plan itself or (b) because of ambiguity in the clause, with the aid of extrinsic evidence; (iii) the relevant extrinsic evidence is (a) the Crown lease: Chronology (13); (b) the application for approval for the lease purpose variation: Chronology (1); (c) Ryman's letter of 7 July 1993: Chronology (7); (d) the Minister's approval: Chronology (9) and (10); and (e) the oral evidence of departmental officers (which has not been set out in these reasons); (iv) construed in light of the extrinsic evidence, the prescribed units are numbers 1-19; and (v) Unit 23 could not be used for residential purposes.
41 I should add that the applicants have placed particular reliance in their submissions on the last two paragraphs of Attachment A to the Minister's approval (set out in Chronology (10)) in aid of their submissions. Given the view I take of the matter it is unnecessary for me to have regard to those paragraphs. I would, though, indicate that I do not see them as in any way imposing an independent condition on the approval affecting unit use: cf L(P&E) Act, s 235(1). The first of the two paragraphs is purely descriptive (albeit with a critical edge) and does not in its subject matter relate to the Guidelines referred to in the approval. The second paragraph refers, in my view, to the five matters - "the amenity standards" - set out in the Guidelines that were required to be met. It does not deal with use of units.
42 I have been assisted by the submissions on the falsity issue made by the Australian Capital Territory which was joined as a party to the proceeding. The Territory contends that cl 3(c) and (d) of the covenants to the Bowlers' lease are clearly ambiguous but that that ambiguity is to be resolved by resort to admissible extrinsic evidence and most particularly the Crown lease. In having resort to such evidence it is proposed that the ordinary rules applicable to contractual interpretation ought be applied, the instrument to be construed being of a deemed contractual character by s 25(1)(b) of the UT Act. In consequence, it is said the planning decisions referred to by the respondents are distinguishable.
43 For my own part I am satisfied that the use of Unit 23 for residential purposes is not authorised by the s 25(1)(b) "lease" and that, in consequence, the unit use representation was false at the time of settlement. In light of the Full Court's decision in Bowler v Hilda Pty Ltd, a contravention of s 52 and of s 53A(1)(b) of the TP Act has been made out. I can state my reasons for this conclusion relatively shortly.
44 First, because of the quite inappropriate transposition of cl 3(c) and (d) from the covenant in the Crown lease to the covenants prescribed in the Units Plan, those sub-clauses as they apply to the Bowlers' unit are on their face patently ambiguous. While together they plainly contemplate that the permitted uses of units subject to the plan (ie residential purposes and serviced apartments) are to be mutually exclusive and that only nineteen units are to be used for the former purpose, they do not in terms specify how any particular unit is to be identified as a residential unit and hence how any particular unit can properly be used.
45 Secondly, a consequence of what the sub-clauses together plainly contemplate is that it is impermissible to construe each in isolation and by so doing to achieve the outcomes of having cl 3(d) found void for uncertainty and then of having cl 3(c) interpreted in a fashion it manifestly was never intended to have. Read together with cl 3(d) the "and" in cl 3(c) means "or" in the sense that some units are to be used only for one purpose (ie residential units), the rest for the other (ie serviced apartments). In other words cl 3(d) is, and was intended as a covenant to be, integral to the definition of the rights of use that a unit holder was to acquire under his or her lease by virtue of cl 3(c): cf Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445 at 461-462; see also Cheshire and Fifoot, Law of Contract, 7th Aust ed, para 6.17. It cannot in my view be severed from cl 3. Rather, I am of the view that cl 3(c) and (d) must be construed together. If they cannot be ascribed a certain meaning applying the appropriate rules and techniques of construction, then the question of their severability, or else the validity of the lease itself, will arise.
46 Thirdly, in construing the s 25(1)(b) "lease" as it relates to the Bowlers' unit, the following principles should be applied. (a) Consistent with the deeming provision of the sub-section, the lease should be construed as if a contractual document containing cl 3 of the Units Plan covenants and conditions. (b) Nonetheless the deemed lease is itself both a creature of statute and an element in a statutory scheme that effects, amongst other things, planning purposes. For these reasons it is appropriate to have regard to the UT Act and the L(P&E) Act and to their respective policies and purposes in determining what are, or ought to be, permissible extrinsic materials that can be used in the interpretation of the lease's covenants. The present situation is a hybrid one of contract in a statutory setting and that setting may itself contrive in some degree the materials to which it is proper to have resort. (c) Given the contractual character of the lease, the various planning decisions referred to by the respondents are not applicable directly to the question of the permissible use of extrinsic materials. (d) As the parties appear to accept, a benevolent approach should be adopted to the construction of cl 3(c) and (d): Grant v Estill Holdings, above.
47 Under the scheme of the UT Act a subdivision proposal is not to be approved by the Minister unless each unit is suitable for use in a manner not inconsistent with the covenants in the lease of the parcel: s 16(1)(a). Moreover when a units plan is registered it determines that lease. In these circumstances both for reasons related to the statutory scheme and because the lease of the parcel would, for contract interpretation purposes, be part of "the objective framework of facts within which the contract came into existence": Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352; that lease itself is admissible in aid of construction of the s 25(1)(b) deemed lease.
48 Given that the provisions of cl 3(c) and (d) of Hilda's Crown lease of 18 November 1993 are relevantly identical to cl 3(c) and (d) of the Units Plan, then if the former construed in their setting are themselves certain, that certainty may itself be able to cure the uncertainty that would otherwise afflict the Units Plan provisions.
49 I am satisfied not only that cl 3 of the Crown lease is certain in its meaning, but also that that meaning provides the method for identification of the nineteen residential units. The provisions of cl 3 of the Crown lease are set out in full in the Chronology (13). I precis them here. Clause 3(a) contains a covenant to erect nineteen one bedroom units in accordance with plans and specifications prepared by the lessee and previously approved by the Territory. Clause 3(b) specifies a time for completion of the erection of those nineteen units. Given that cl 3(d) prescribes that the buildings shall contain a maximum of "nineteen one bedroom residential units", it is reasonably apparent on the face of the clause that those nineteen are intended to be the nineteen referred to in cl 3(a) and (b) notwithstanding the omission of the word "residential" in the latter two sub-clauses. So considered, when cl 3(c) refers to the use of the land for residential units and serviced apartments, it means use for residential units in relation to the nineteen units so identified and for serviced apartments in relation to the rest.
50 The method of identification of the nineteen units was by reference to Hilda's plans and specifications. I should state in passing I do not for this reason accept the respondents' submission that the question of which were to be the nineteen residential units was simply a matter of choice for Hilda.
51 When one turns to the "plans and specifications prepared by the lessee [ie Hilda] and previously approved by the Territory", it is clear even as a matter of inference from those plans that the nineteen one bedroom units to be constructed were Units 1 to 19 in Block A of the plans. Under the Territory's building and planning regime in a case such as the present, a composite of approvals was required and was obtained. First, on 9 September, the plans were approved by the ACT Planning Authority under s 6 of the Buildings (Design and Siting) Act 1964 (ACT). The plans were further approved by the ACT Planning Authority for the purposes of s 230 of the L(P&E) Act on 19 October 1993. Finally they were approved by the Deputy Building Controller on 29 October 1993 under Part III of the Building Act. As I will later indicate the Application for Approval of Plans lodged with the Building Controller - though not in terms the approval given - described Block A as being a "Class 2" building, while describing Blocks B and C as "Class 3".
52 Insofar as relevant for present purposes, the plans so variously approved were identical in content. I would note in passing that they did not in express terms describe any particular units as one bedroom residential units. Nonetheless, the most probable deduction from them considered in light of the provisions of cl 3 of the Crown lease - and it is a deduction that may reasonably be drawn: Holloway v McFeeters [1956] HCA 25; (1956) 94 CLR 470 at 477 - is that the one bedroom units stipulated for in cl 3(a) and (b) were Units 1-19. Those sequentially numbered one bedroom units were together in, and occupied almost the entirety of, a single building (Block A). The two studio apartments that occupied the balance of the building are obviously adjectival to the main purpose of the building in that they fill the remnant of space not required for the nineteen units. The other grouping of one bedroom units, seven in number (Units 20-26), are in the single storey Block B that contains eight units. It is improbable that any of these were contemplated by the plans to be a part of the cl 3(a) nineteen one bedroom units. I would add that the terms of cl 3(a) of the Crown lease are consistent with a set of approved plans in which the nineteen units are in a discrete structure (or structures) rather than being dispersed randomly or undifferentiatedly over two or more structures. The significant difference in size between the one bedroom units in Block A and those in Block B likewise suggests that the former in their entirety were intended to be those used for residential purposes, while the latter (being single bedroom rather than studio units) were intended as more spacious and comfortable serviced apartments. I should add that the units in Block C (all being studio units) would not satisfy the description of "one bedroom units" for the purposes of cl 3 of the Crown lease.
53 The conclusion I have so arrived at is reflected, incidentally, in the manner in which Block A is described in the Application for Approval of Plans prepared, apparently, by Mr Dowling, Hilda's architect. That application contains (inter alia) two blocks to be filled in: the one under the heading "Type of Construction"; the other, "Class of Building". The boxes, for present purposes, may well be able to be regarded as part of the "plans" in any event: Building Act, s 32(1)(a) (iii) and (iv); though I do not go so far as to find this to be so. The former box was filled out vertically referring first to "BLD A - B" then "BLD B - C", and finally "BLD C - B". I would note in passing that the letters "B" and "C" following the dashes in the previous sentence refer to type of construction, and are of no present relevance. The second box, likewise filled out vertically and aligned with the first, contained the numbers "2", "3" and "3". The proper interpretation of the two boxes is that Mr Dowling for the applicant has described Block A as a "Class 2" building for the purposes of the Building Code of Australia ("the Code") and has differentiated it from Blocks B and C which are described as "Class 3". While both classes contemplate a building having "residents", Class 2 is directed at "sole-occupancy units": the Code, Table A3.2. Both the differentiation of the buildings in the application and the explicit purpose of the Class 2 classification are consistent with the inference I have otherwise drawn.
54 I will refer below to the form of approval given the application. I would merely note here that I do not consider that the approval (which does not differentiate between the buildings) derogates from what I have said of the application itself or of its significance, though, as will be indicated, the approval is of no little importance to the claim based on unauthorised building use.
55 I am, then, satisfied that Units 1-19 were those contemplated for residential use by the plans prepared by Hilda and approved by the Territory.
56 The inference I have drawn from the plans themselves is sufficient to dispel the uncertainty alleged by the applicants. There is, of course, a large element of artificiality in limiting oneself to the plans for the purpose of identifying the relevant units in a case such as the present where the parties who are setting up the alleged uncertainty against the persons with whom they have dealt, have clearly and repeatedly represented to the public (via the Regency Brochure: Chronology (8)) and to "the Territory" via officers of the Department of the Environment, Land and Planning (eg the Ryman letter of 7 July 1993: Chronology (7)) that what were to become Units 1 to 19 in Block A were the nineteen residential units. It is, however, unnecessary for me to rely upon the documentary and other evidence demonstrating this for the purpose of arriving at the conclusion I have above. I would, nonetheless, add the following. Given the role the Crown lease ascribed to "the plans and specifications" in identifying both what was to be erected and the manner of its user, I am satisfied that were the approved plans themselves unclear or ambiguous it would be appropriate in interpreting them as the approved plans for the purposes of the Crown lease to have resort to extrinsic evidence to ascertain what was the common understanding (if any) of Hilda and the Territory as to what the plans signified or were taken to be signifying and as to what in consequence was being approved. Consistent with what I said earlier in relation to the use of extrinsic materials in interpreting a lease under the UT Act, a like approach ought be taken to a lease granted under the L(P&E) Act.
2. The Unauthorised Building Use
57 Given my earlier conclusion it is strictly unnecessary for me to reach a conclusion on this claim. Nonetheless I will indicate my own views briefly. The Bowlers' claim is that, even if use of their unit for residential purposes was an authorised one for the purposes of their lease, s 54A of the Building Act prohibited such a use of the actual building (ie Block B) in which Unit 23 was located.
58 That section provides (inter alia):
"54A(1) A persons shall not occupy or use, or permit another person to occupy or use, a building or portion of a building -(a) in the case of a building in relation to the erection or alteration of which plans have been approved under this Act - as a building or portion of a building of a class other than the class specified in the plans so approved in respect of the most recent building work that has been carried out in relation to that building; or
...
unless the Building Controller has given his or her approval in writing to such occupation and use.
Penalty:
(a) in the case of a natural person - 50 penalty units; or
(b) in the case of a body corporate - 250 penalty units."
59 Section 32(1) of the Building Act requires that when an application for approval of plans is made, the application must be accompanied by copies of the plans:
"(iii) specifying the class of the building, classified as provided by the Building Code according to the use to which it is intended that the building will be put when erected or altered."
The Building Controller is required to approve the plans if the building as proposed to be erected or altered is structurally sufficient, safe and stable for the purpose: s 33(1). That approval is to be signified by the Building Controller signing a memorandum of that fact "attached to, or inscribed on" the plans: s 33(6) In the present case the approval both was recorded on the application itself, a space having been provided in the standard form document for the purpose, and was stamped on the plans.
60 As part of the approval recorded in the application itself, other notations were made in the "For Office Use Only" section of the form. Significantly in a box entitled "Class of Building" the annotation read "2, 3 & 4". It did not ascribe any particular class to any particular building in the Hilda proposal. As I earlier indicated Mr Dowling filled out the applicants' counterpart box in the form in a way that designated Block A to be class 2 and Blocks B and C to be class 3.
61 The approval stamped on the plans contained the following information (not reproduced exactly):
"Type of construction Block A & C = BBlock B = C
APPROVED FOR CONSTRUCTION BY THE HOLDER OF A "B" CLASS LICENCE
TYPE OF CONSTRUCTION REQUIRED. B & C
CLASS OF OCCUPANCY. 3, 4 & 2
... ... ... ... ... ... [signed]................................[dated] ... ... ... ... ... ...
DEPUTY BUILDING CONTROLLER UNDER BUILDING ACT 1972.
THIS APPROVAL DOES NOT SUPERSEDE THE REQUIREMENTS OF THE BUILDING CODE OF AUSTRALIA"
62 The scheme of building classification adopted in the Code is set out in Part A3. Clauses A3.1 and A3.2 (insofar as presently relevant) are as follows:
"A3.1 Principles of classificationThe classification of a building or part of a building is determined by the purpose for which it is designed, constructed or adapted to be used.
A3.2 Classifications
Buildings are classified as follows:
Class 1: one or more buildings which in association constitute -
(a) Class 1a - a single dwelling being -
(i) a detached house; or
(ii) one or more attached dwellings, each being a building, separated by a fire-resisting wall, including a row house, terrace house, town house or villa unit; or
(b) Class 1b - a boarding house, guest house, hostel or the like with a total floor area not exceeding 300m2 and in which not more than 12 persons would ordinarily be resident,
which is not located above or below another dwelling or another Class of building other than a private garage.
Class 2: a building containing 2 or more sole-occupancy units each being a separate dwelling.
Class 3: a residential building, other than a building of Class 1 or 2, which is a common place of long term or transient living for a number of unrelated persons, including -
(a) a boarding-house, guest house, hostel, lodging-house or backpackers accommodation; or
(b) a residential part of an hotel or motel; or
(c) a residential part of a school; or
(d) accommodation for the aged, disabled or children; or
(e) a residential part of a health-care building which accommodates members of staff.
Class 4: a dwelling in a building that is Class 5, 6, 7, 8 or 9 if it is the only dwelling in the building."
63 On 18 February 1994, the Deputy Building Controller issued a "Certificate of Occupancy or Use" in which it indicated (inter alia) that the "Classes of occupancy" of the Regency Apartments were "02, 03, 04". On 21 February 1994 the same officer confirmed that the "sixty one units and associated structures" in Regency Apartments were "suitable for subdivision into Unit Titles". That confirmation was in response to a request from the Lease Administration Branch of the Department of 10 December 1993 to:
"advise whether each unit is suitable for separate occupation and for use in a manner not inconsistent with the following lease covenants -TO USE THE SAID LAND FOR RESIDENTIAL UNITS AND SERVICED APARTMENTS."
64 The case put by the Bowlers is that the application for approval of the plans designated Block A as a class 2 building and Blocks B and C as class 3; a class 3 building approval, though allowing long term residential occupation, does not permit the kind of use and occupation admitted by class 2 (including owner occupation); and as the approval given was to the classes of occupancy sought in the application, Block B was not approved for use other than for the purposes of class 3.
65 In analysing the documentation to which I have referred, and bearing in mind that that analysis is being undertaken under the shadow of a penal provision (ie s 54A), it is appropriate to take an approach to construction that is benevolent to the person whose rights of use or occupation of a building are being called into question.
66 It clearly is the case that in the application made for approval the buildings were classified as the Bowlers contend. Likewise their type of construction ("B" or "C") was specified. The approval given confirmed the type of construction specified by reference to each block. It did not, though, similarly specify each block's class of building. And not only did it not do this, it anomalously added as a class one that was not sought, ie class 4. A building in class 4, I would note, seemingly could not be part of a class 1, 2 or 3 building: see the Code, A3.2 "Class 4".
67 It was suggested in evidence by an official from within the office of the Building Controller that the class 4 classification would have related to the manager's residence. While this may or may not be the explanation of its unexplained appearance, the need to make the suggestion is itself indicative of how the approval ought be treated. I do not consider the failure to relate the classifications to particular buildings is a matter that can be disregarded, as the applicants contend. Rather I consider it probably reflected a process of approval that was of an omnibus character that gave an aggregate approval to the various classifications which this building alteration attracted without differentiating between the particular buildings or parts of buildings that attracted one or other of the classifications. The Certificate of Occupancy or Use and the confirmatory letter of 21 February 1994 seem consistent with this view of the matter. One can speculate whether the process of approval was adopted because no one building was all of a piece. Each contained several types of unit. Be this as it may, the form the approval has taken prevents it being said that the use of Unit 23 for residential purposes in Block B would of itself infringe s 54A. Accordingly I would reject this claim.
Reliance
68 In my reasons for judgment of 25 October 1996 I held that, for distinctive reasons in each instance, the other two representations about which the Bowlers have complained were not material inducements to their contracting decision. The applicants, though, propose in their present submissions that, as there was no express finding made in those reasons that the unit use representation was not relied upon, an implicit finding to the contrary was made. Of this I need only say that there was no such finding made, it being unnecessary given the view I took of the Leader companies' actions in making the unit use representation. The issue of reliance must now be settled positively.
69 First, brief reference should be made to the evidence given by the Bowlers.
70 The subject of "living in" the unit was visited by Mrs Bowler on several occasions in her evidence in chief. I note the following as the principal instances:
"MR ARTHUR: Why were you interested in buying a one bedroom unit? Were there any other alternatives? --- There were bed sitting units available and a small number of one bedroom units. We bought the one bedroom unit because it would be easier to live in or to rent out if the management folded.
...
Now, Mrs Bowler, would you tell his Honour the thought processes that you went through, before you decided to sign that contract, in terms of making a decision about committing yourself? --- I liked the area that Regency Apartments were situated in. I felt that it was central and it was accessible to a lot of traffic. I liked the idea that it was a 10 per cent guarantee, and that we would only have to pay $30 a week. I liked the idea that we could live in it if we needed to, if the management situation didn't work out. I liked the idea that it was at the lower end of the market, so families always need places to stay and our unit was a one bedroom unit, which would allow for that. They were the main thought processes going through my mind."
71 Though not referring to this representation in his evidence in chief, Mr Bowler was cross-examined both on the issue of living in and on the Bowlers' discussing the matter with their solicitor, Mrs Harris:
"MR FOSTER: It never occurred to you, did it, before you exchanged contracts, that one of the solutions to management failure might be for you to live in this place yourselves and rent out Theodore? --- Yes.Did you discuss that with Mrs Harris? --- I think we did, yes.
And she said that was ridiculous, did she not? --- Not ridiculous, no.
Nonsense? --- No.
Not what you were buying it for? --- It wasn't what we were buying it for but it was a backdoor.
Did not think you should put much weight on that? --- I can't remember exactly.
That is the substance of what she said though? --- We didn't want to live in it, put it that way.
No? --- But, if the crunch came, we wanted that as a possibility and we thought we were entitled to that.
But it was about as low down on the scale of factors of importance as anything could be, was it not? --- Well, it was the very last resort, yes.
And of course you have never - in all of the troubles you have had in the last little while you have never moved out of Theodore, rented it and lived in this unit, have you? --- Well, we felt that we weren't able to.
Well, what happens if that was wrong, Mr Bowler? You have never tried to do it, have you? --- No, we haven't tested the situation, no.
The reason you haven't tested is that you don't want to do that, do you? --- We would rather not."
72 It is clear on the evidence that the Bowlers purchased Unit 23 as an investment and not for the purpose of its being their residence. Not surprisingly their primary preoccupations were with the investment as such and this was reflected in the advice they sought from Mrs Harris. Moreover they had looked at other serviced apartments that could not be lived in. What the respondents seek to draw from this is that, given their purpose of investment, any inducing effect the unit use investment may have had - if it had any of significance at all - faded and was spent when they had their discussions with Mrs Harris.
73 For my own part I am quite satisfied that the unit use representation was relied upon by the Bowlers - was a material inducement to them - in their decision to purchase from Hilda: cf Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 at 236. They were making an investment; their primary concern was with the rental return; they did advert to the risks they ran because the rental return was not guaranteed; and their discussions with Mrs Harris focussed essentially on the purchase as an investment. But none of this is inconsistent with the unit use representation being a material and subsisting inducement up to and in their decision to purchase. It was from the time of its making a given that did not need further probing or consideration. It is not surprising that it did not loom large in their discussions subsequently.
74 In my reasons of 25 October 1996 I indicated that, while I rejected aspects of the Bowlers' evidence, I in no way questioned their truthfulness. In the present instance I fully accept what they have said in evidence. There is no doubt that living in would have been the "very last resort", as Mr Bowler indicated. But it was a possibility for them, unpleasant though it doubtless would have been, that provided some material level of comfort in their decision to purchase.
Accessorial Liability: the TP Act, s 75B
75 The applicants seek to hold directors of the two Leader companies and Hilda liable under s 75B as persons involved in the Part V contraventions I have found. In relation to Mr Whitcombe, a director of the Leader companies, he is alleged both to have aided, abetted, counselled, or procured: s 75B(a); and to have been knowingly concerned in: s 75B(c); the unit use representation made by his companies. In relation to Mr and Mrs McDonald, both directors of Hilda, they are alleged to have likewise aided etc, and to have been knowingly concerned in, the Leader companies' representation.
76 As quite distinct issues arise in relation to all three directors it is necessary that each's alleged liability be considered separately. First, though, I should refer to the principles applicable to a finding of liability under s 75B in circumstances such as the present.
77 (i) A consistent line of authorities both in this Court and in the High Court have settled that nothing less than actual knowledge of the essential elements constituting contravention of s 52 or of s 53A will suffice for a finding of liability against a person alleged to have been involved in the contravention within the meaning of s 75B: see Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 and the cases referred to therein; Westbay Seafoods (Australia) Pty Ltd v Transpacific Standardbred Agency Pty Ltd (FCA, 6 June 1996, Full Court).
78 (ii) "Wilful blindness" is not as such synonymous with actual knowledge. While "exposure to the obvious may warrant the inference of knowledge, the shutting of one's eyes to the obvious is not ... an alternative to the actual knowledge that is required": Giorgianni v R [1985] HCA 29; (1985) 156 CLR 473 at 507-508; and see the discussion of "wilful blindness" - an ambiguous term - in Richardson & Wrench, at 693-694.
79 (iii) Where the person whose state of knowledge is in question could have, but unexplainedly failed to, give evidence that failure is properly to be taken into account as a circumstance in favour of drawing an inference as to that person's knowledge where such an inference is open from facts proved by direct evidence: on the Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 inference see generally Cross on Evidence, Aust ed, para 1215. The proven facts must, though, be capable of raising the inference: Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125. It is insufficient that they invite conjecture or suspicion.
(i) Mr Whitcombe
80 As already noted Mr Whitcombe is a director of the two Leader companies. The two pieces of direct evidence that associated him with the Regency Apartments development were (a) his signature of acceptance on a letter of 26 February 1993 from Hilda appointing Leader Real Estate its exclusive selling agent for the Regency development; and (b) a letter of 8 September 1993 under his name but signed per pro by an unidentified person that registered concern at the cessation of progress on the Regency Apartments.
81 It is likewise clear on the evidence before me that the practical effectuation of the Leader companies' agency was entrusted to others (eg Mr Singh), but notably to a Peter Hughes who, I am prepared to infer, had significant responsibility for the performance of the agency. Mr Hughes had ongoing contact, for example, with Hilda's agent, Mr Ryman, with its legal advisers, with the architect, Mr Dowling, and for some purposes at least with Mr McDonald (as witness his fax to a Ms Jenvey of 22 August 1993 where information is sought "so that I may report to John McDonald"). There is, further, evidence that the Leader companies were aware from probably April 1993 of the differentiation made in the Regency plan between residential units and serviced apartments. Leader correspondence and documentation from mid-May drew the distinction as, obviously, did the Regency brochure itself.
82 The applicants' claim against Mr Whitcombe is based on the composite of (a) his office as director in the Leader companies and the duties formally associated with that office; (b) of his being a party to the two letters to which I have referred; and (c) of the companies' knowledge of the progress of the development and of the changes made in it particularly in April 1993 as a result of the attitude taken by the ACT Planning Authority.
83 The evidence clearly indicates the knowledge that ought be attributed to the Leader companies as such. But it goes no distance in my view towards suggesting that Mr Whitcombe had the knowledge s 75B would require of him for liability purposes. In relation to the Hilda agency in which some number of Leader employees were heavily engaged, all that emerges from the evidence insofar as Mr Whitcombe is concerned is that, consistent with his position, he was the occasional signatory of what could be described as letters of strategic significance to the agency. There is nothing to suggest a level of involvement in the conduct of that agency that was capable of raising an inference that Mr Whitcombe possessed the knowledge claimed. The state of the evidence was not such that a Jones v Dunkel inference could be made against him because he did not give evidence.
84 I reject the claim made against him.
(ii) Mr McDonald
85 Hilda's liability in this matter results from the contravening conduct of its agents, the Leader companies: TP Act, s 84(2). Likewise if Mr McDonald is to found to be liable within s 75B, it will be because of the knowledge he had of that Leader conduct. It is important to emphasise this. No claim was made against Hilda directly. In consequence its knowledge - and for that matter the actual manner in which it conducted its affairs internally - were not issues in the proceeding and were not matters on which evidence was adduced directly.
86 In a number of respects Mr McDonald's circumstances differ markedly from those of Mr Whitcombe. The multi-million dollar Regency project was Hilda's. According to the annual company returns filed by it, Hilda experienced a sharp collapse in net worth between 30 June 1991 and 30 June 1993. In the 1993 financial year it showed an operating loss of almost half a million dollars. Its shareholders' equity was of an almost equivalent negative sum.
87 Mr McDonald was, along with Mrs McDonald, a director of the company. There is no evidence to suggest that, apart from signing documents required to be signed by a director, Mrs McDonald was an active participant in the company's affairs. Mr McDonald engaged both an architect, Mr Dowling, and a consultant, Mr Ryman, the latter of whom appears to have had the day to day carriage of the development for Hilda at least in relation to planning matters.
88 From the terms of Mr Ryman's letter to the Land Administration Division of 7 July 1993 (see Chronology (7)), it would be reasonable to infer that Hilda, hence Mr McDonald, was aware of and consented to changes to the Regency proposal that would result in the construction of nineteen residential units and forty-two serviced apartments on Block 10. Correspondence both prior to the time of the contravening conduct (the Leader letter of 10 March 1993 to Mr Ryman and Mr McDonald) as well as after (the Leader facsimile of 22 August 1993 and the agenda for the Hughes, McDonald and Ryman meeting of 2 September 1993) suggest positive concern by Mr McDonald in the project over its life.
89 Essentially from the above, though placing particular emphasis upon Mr McDonald's corporate responsibility, the applicants contend that the evidence is capable of raising the inference that Mr McDonald had actual knowledge of the unit use representation and of the circumstances that would falsify it at the time. In consequence of his failure to give evidence in the circumstances, a Jones v Dunkel inference ought be made against him and in favour of the inference of actual knowledge.
90 The evidence is sufficient to satisfy me that it would be proper to infer that Mr McDonald was aware that the project involved the marketing of residential units and serviced apartments. But notwithstanding the obvious financial significance of the project to Hilda's fortunes, I am not satisfied that the circumstantial evidence is sufficient to raise an inference that Mr McDonald, as distinct from consultants he had engaged for the project (eg Mr Ryman), was aware that the serviced apartments were being marketed in accordance with the units use representation at the time of the contravening conduct. The actual marketing and the representations used in it were Leaders'. Mr McDonald may in fact deliberately or fortuitously have become acquainted with the actual manner of the serviced apartments' marketing after the variation to the initial proposal necessitated the differentiation of residential units from serviced apartments. But equally he may not. The evidence of his knowledge of and/or participation in the Leader companies' activities is so slight that it would be conjecture or, more accurately, suspicion on my part that he had the actual knowledge required for s 75B purposes. And I simply do not have the evidence that could found an inference that such knowledge had been acquired either from the consultants/agents Hilda engaged or from the internal workings of Hilda itself. To resort to Jones v Dunkel in such circumstances would be to use the principle of that case to plug gaps in the applicants' proof - that proof itself not reasonably admitting of the most probable deduction of actual knowledge: Holloway v McFeeters [1956] HCA 25; (1956) 94 CLR 470 at 477.
(iii) Mrs McDonald
91 Apart from evidence indicating that Mrs McDonald was a director of Hilda and that she signed some of the company's financial returns, there is no evidence suggesting positive participation on her part in the management of the company's affairs let alone in the Regency Apartments development. In the circumstances it would be pure speculation to suggest she had the knowledge required for s 75B purposes. I dismiss the claim against her.
Damages
92 The purchase price paid by the Bowlers on settlement in March 1994 was $110,597.52. They allege this to be significantly in excess of the real (or true) value of the unit at that time. That is alleged to be $35,000. Accordingly they claim that the difference between the two sums is a compensable loss for the purposes of s 82 of the TP Act in that it was loss they suffered by the respondents' conduct in making the unit use representation in contravention of Part V of the Act. That claim, though, is but part of a larger claim they assert is maintainable under s 82. That larger claim is for the difference between their outlays and their receipts. These have been particularised in their Further Amended Particulars of Loss. For the moment I need only note that the outlays are $180,741.65 (made up largely of moneys borrowed to finance the purchase plus interest) and $12,017.62 (being outgoings on Unit 23). The receipts are itemised as $35,000 (being the present value of the unit) and $25,375.46 (the earnings from the letting of the unit). The resultant loss is claimed to be $132,383.81.
93 The respondents contest both the alleged true value at the time of settlement (their contention being that it was equivalent to the purchase price) and the larger claim for outlays less receipts (they allege this is an inappropriate measure of damages essentially for reasons of causation and that it involves impermissible "double-dipping").
94 Before expanding on the parties' contentions it is necessary to refer to the evidence bearing on the issue of damages.
Evidentiary Matters
95 (1) As noted in the Chronology, the Bowlers contracted to buy their unit on 24 August 1993. Settlement took place on 22 March 1994. The parties accept that it is on the latter date that the true value of the property is to be ascertained for s 82 loss purposes.
96 (2) The Bowlers' outlays both in acquiring and in holding their unit and their receipts from its letting have been particularised and are not in dispute. For reasons I later give, it is unnecessary to set out those particulars in these reasons.
97 (3) The applicants and the respondents tendered valuation reports. The two valuers who prepared these - Mr Swinbourne and Mr Brodrick - were cross-examined. Each valuer was asked to provide valuations as of August 1993, March 1994 and February 2000. Mr Swinbourne's valuations were:
August 1993 $ 73,000
March 1994 $ 73,000
February 2000 $ 35,000
Mr Brodrick's valuations were:
August 1993 $110,000
March 1994 $110,000
February 2000 $ 35,000
98 (4) Mr Swinbourne's valuation report. In each of the above instances the market value was assessed on the basis that the unit could only be used as a serviced apartment. In relation to the 1993 and 1994 valuations the unit was valued as a commercial investment providing a return tied to the Regency Apartment business and on the basis of the lease back arrangement to Regency providing for a 10 per cent per annum return (or $11,000) on the purchase price. The approach involved the capitalisation of returns.
99 The "Valuation Rationale" was stated to be as follows:
"For these initial valuations it must be assumed that the business of Regency apartments would continue to trade and meet its commitments at least for the initial term of the sub-lease.Having regard to the number of sales that were effected in the subject development in 1993/94 it is reasonable to conclude that had all the expectations of the purchasers been met, those initial sales prices were not unreasonable. The task here therefore is to deduce what inflationary influence the unmet expectations of the purchasers had on the final decision to proceed at the price. In other words, if the purchasers had been aware there was no alternate use, how high a return would they have sought and what effect would this higher return have on the price paid.
In our view, the prices paid reflected the basis that they were securely underpinned by the value for owner occupation and the long term rental market. Without (or removal of) these underlying values exposed the value of the unit to an unproven higher risk venture. The more specialised and narrow the use, the higher the return will be as a measure of risk.
The value of the unit in February 2000 has been initially based on the return available on a per room basis as a motel/serviced apartment. An alternative approach is possible as a redevelopment site. This requires acceptance that the cost and practicalities of a variation to the Crown Lease and required building works are insurmountable, leaving demolition and redevelopment as an option.
The value on a per room basis as a motel is further supported by sales of existing motels in Canberra and Queanbeyan, analysed on a price per room."
100 Having regard to the gross weekly rental to be paid by Regency (considered to be high and at some risk), the returns for other similar properties and no alternate uses for the unit, a 15 per cent capitalisation rate was adopted leading to a valuation of $73,000. While this was substantially below the sale price for other developments referred to in the report, it was considered a substantial discount from their sales figures was required to adjust for "location", "age and condition", "established trade" and "amenities and attractions".
101 The February 2000 calculation, using a variety of methods, produced an average figure of $35,000. One basis was as a serviced apartment without a lease to a management company. This produced a figure of $32,000 based on a room rate of $70 per night with a 50 per cent occupancy rate and operating expenses of 50 per cent of gross income. The alternate basis was as part of a redevelopment to new home units similar to adjoining sites, producing a figure of about $36,000.
102 For reasons I give below Mr Swinbourne's report has some real limitations given the issues raised in this case.
103 (5) Mr Swinbourne's oral evidence. In his evidence-in-chief Mr Swinbourne was taken to a valuation report of the Bowlers' unit prepared within his own company for the Advance Bank and mortgage insurers, by a Mr Northmore as at 18 August 1993, that placed a value on it of $107,000. Though then disclaiming personal responsibility for it, he admitted in cross-examination that he took part in it, significantly in relation to the language used in the assessment considerations. He attributed the high valuation to the property's being compared with other real estate transactions disregarding the lease back to Regency.
104 Further in his evidence-in-chief he indicated the factors operating between March 1994 and February 2000 that explained the decline in value of the unit. These were, primarily, the failure of the management company and the progressive reluctance of financiers and mortgage insurers to lend funds on serviced apartment-hotel/motel conversions. He gave evidence, which I do not consider reliable, that his recollection of concerns about the adequacy of serviced apartments as security dates from mid-to-late 1993.
105 It is notable that none of these matters that are said to explain the decline in value from 1994 was referred to in Mr Swinbourne's report.
106 In cross-examination, he accepted that a higher rental was achievable as a serviced apartment but he maintained this did not mean the property was to be attributed a higher value for that reason. He accepted that the problems with the Bowlers' management company occurred in the second half of 1994. He also acknowledged that other valuations done by his company in 1993 of two other units in the Regency development gave values of $107,000 and $103,000 to the units respectively.
107 (6) Mr Brodrick's valuation report. This report was prepared with knowledge of Mr Swinbourne's. In relation to the 1993/1994 valuations, the report proceeded on the following basis:
"In assessing the value of the subject unit at the relevant dates we have concluded that the serviced apartment sales provide the most direct evidence of value.As previously outlined the sales within Capital Executive and Canberra International [both serviced apartments] were on the basis of an initial 9% yield. Yields for the subject development were on the basis of 10% pa which we have concluded takes into consideration the inferior location and quality of the subject units compared to the sales evidence outlined above.
We confirm at the relevant valuation dates the serviced apartment industry was in its infancy and it provided an opportunity for developers to achieve maximum prices in lease back situations which could not be achieved if leased as residential units. We have therefore concluded as at the relevant valuation dates the unit is to be valued on a serviced apartment basis, based on the weighted evidence provided within the subject development and sales within Capital Executive and Canberra International at the relevant date."
108 Mr Brodrick's company had prepared a report in May 1993 on the ACT residential investment market and his report in this proceeding drew significantly upon it. The earlier report is a far from pessimistic one in relation to the unit title and serviced apartments market.
109 The Brodrick report considered that the strong demand for serviced apartments in 1993 was driven by guaranteed returns, no vacancy problems and ease of management. For this reason it concluded the direct sales method provided the best evidence of value and highlighted this by Mr Swinbourne's firm's own valuation of the Bowlers' unit in August 1993 at $107,000.
110 As to the February 2000 valuation, Mr Brodrick accepted Mr Swinbourne's valuation. In so doing he observed:
"As highlighted previously there have been limited sales of serviced apartments in the ACT since 1998. We confirm that due to the failure of the management of the Regency Apartments and the Canberra International that funding to serviced apartments is now very difficult which has resulted in values falling for this type of property."
111 (7) Mr Brodrick's oral evidence. In cross-examination Mr Brodrick accepted that (a) his valuations for 1993/1994 were given on the basis that the rental return of 10 per cent was supported by substantial guarantees; (b) his report did not take account of the risk associated with the rent not being guaranteed; and (c) from 1993 the demand for serviced apartments eased. Insofar as the fall in the market was concerned, he saw the explanations for this lying in the difficulty in obtaining finance and mortgage insurance and concerns with management companies.
112 (8) Mr Brodrick's company provided valuations of two units in the Regency Apartments development in May and June of 1993. By letter of 16 June 1993 the company indicated additionally that their valuations adopted a premium of $8,000 for each of the subject units "if there were substantial guarantors over the sublease". The letter went on:
"We have therefore reassessed the value of the subject units for mortgage purposes as follows:Units [sic] 27
. Value assuming vacant possession - $62,000.
. Value assuming sublease in place with substantial guarantors - $70,000
Unit 56
. Value assuming vacant possession - $67,000.
. Value assuming sublease in place with substantial guarantors - $75,000."
I would simply note that the higher of the two prices in each instance equalled the actual purchase price paid for those units in 1993.
113 (9) The applicants tendered an extract (p 35) from the 4 November 1993 edition of a publication "Australian Property News". Though now defunct, this was an Australia-wide monthly publication. Under the heading "Strata conversions popular in Canberra" it noted the strong swing towards conversion of hotels and motels to residential units and serviced apartments. It then went on to note some essentially cautionary comments about this phenomenon made by four, presumably Canberra-based, real estate agents and valuers one of whom, Mr McCann, was from Mr Brodrick's company. Mr McCann was reported as follows:
"Although the tourism market in the ACT is strong and has growth prospects, there could be problems in the future with the financing of serviced apartments.He says valuers experience difficulty when valuing serviced apartments because it is very hard to quantify the management agreement and potential income factors. 'We end up having to value them on a vacant possession basis, disregarding the potential income stream' he says. This produces a figure which is understandably significantly less than the purchase price. Consequently, lending institutions may have difficulty with their calculations and, in turn, investors may find their capacity to borrow reduced."
114 (10) Such evidence as there is of transfers of units in Regency Apartments subsequent to their initial sales is limited to the following paragraph in Mr Swinbourne's report:
"The following transfers have been recorded in Regency Apartments:Unit 42 70m2 February 1997 $40,000 (first transfer)
Unit 43 21m2 July 1998 $28,000 (previously
transferred 7/97
at $59,000)
Unit 44 21m2 February 1999 $25,000 (previously
transferred 10/97
@ $30,000 and
3/94 @ $59,000)
Unit 2 53m2 February 1997 $52,000 (previously
transferred 3/94
@ $103,000)
Unit 9 53m2 May 1999 $75,800 (previously
transferred 4/94
@ $95,000)
Note: It is understood Units 2 and 9 above are not restricted to serviced apartment use."
Submissions and Conclusions
115 There was no significant divergence between the parties as to the principles to be applied in assessing damages under s 82 of the TP Act in a case such as this. Under the shadow of the decisions of the High Court in Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 and Kizbeau Pty Ltd v WG&B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, they have been expounded regularly by judges of this Court in appellate and first instance decisions: see eg Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904; Radferry Pty Ltd v Starborne Holdings Pty Ltd (unreported, FCA, 18 December 1998, Full Court); Carlton v Pix Print Pty Ltd [2000] FCA 337; see also Jacobs, Damages in a Commercial Context, Ch 7. Here I need only advert to the following.
116 (i) In assessing damages under s 82, the Court is not constrained by, though it may be assisted by, doctrines developed at common law and in equity. "The question presented by s 82 ... is what loss or damage has been caused by the conduct contravening the Act": Marks v GIO Australia Holdings Ltd, above, at 512. That loss is to be gauged by a comparison "between the position in fact of the party which alleges loss and the position that would have obtained had there been no contravention": Radferry Pty Ltd v Starborne Holdings Pty Ltd, above.
117 (ii) The usual starting point in a case of the present kind is to measure the difference between the price paid for the property acquired and its value in fact at the date of acquisition. That latter value is to be assessed "according to what price freely contracting, fully informed parties would have offered and accepted for it": Marks, at 514 (emphasis added). The value in fact is the "real value" of what was acquired and this is not necessarily the same as its market value: see the discussion in Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (1997) 148 ALR 271 at 310-317.
118 (iii) Though value in fact is to be assessed as at the date of acquisition, subsequent events may be looked at insofar as they illuminate the value of the thing at that date:
"A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose."
Kizbeau Pty Ltd v WG&B Pty Ltd, above, at 291; see also Anema E Core Pty Ltd v Aromas Pty Ltd, above.
119 (iv) "[W]here property acquired in a transaction induced by a misrepresentation subsequently declines in value, damages are not awarded in respect of that decline if it is attributable to an independent, extrinsic or supervening cause": Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307 at 330.
120 (v) Though the comparison between price paid and value in fact will generally provide a measure of the loss suffered, there may nonetheless be other ways as well in which loss has been suffered. "For example, consequential loss may be suffered": Marks, at 514.
121 (vi) A causal connection must be established between the loss or damage suffered and the conduct done in contravention of the Act: Marks, at 513. In order to recover losses subsequent to purchase, it is not enough to show that the transaction was induced by the misrepresentation and that the losses would not have occurred but for the transaction: Anema E Core Pty Ltd v Aromas Pty Ltd, at [43]. The factual question in each case is "whether the loss claimed resulted directly from the misleading and deceptive conduct, rather than from some supervening cause": ibid, at [40]; Janssen-Gilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 530.
122 It is convenient to deal with the applicants' claim in two stages. The first is to ascertain whether the value in fact of Unit 23 was less than the price paid at the date of acquisition, it being accepted that if such is found to be the case damages are payable to that extent. The second is to consider what I have called the larger claim in which the applicants allege they are entitled to recover the difference between their outlays in and as a result of the purchase, and their receipts in and after the purchase.
(i) The Value in Fact of Unit 23
123 The applicants' claim is the rather bold one that the value in fact was the unit's present (ie 2000) value of $35,000. This conclusion is justified by reliance upon Kizbeau, it being claimed that the subsequent events that explain the current value were ones that arose from the nature and use of the unit itself. In consequence they are admissible to prove the real value at the date of acquisition. These factors (events) were said to have been publicly known to valuers in March 1994 but had not then operated to send down values in the relevant sector of the market (ie hotel/motel conversions to serviced apartments). The factors were (a) the lack of substance in guaranteed rents and management companies; (b) the impermissibility of permanent residence in serviced apartments; and (c) a growing reluctance and conservatism amongst financiers. Such, it is said, were the factors identified by the valuers in their oral evidence. When those factors are treated as facts and not simply as risks at the date of acquisition, then the real value at that time was $35,000.
124 In making this submission the applicants disavow Mr Swinbourne's valuation report seemingly on the basis that it was an opinion on the market value as at March 1994, not the real value having regard to admissible subsequent events. A like charge is levelled at Mr Brodrick's report.
125 The respondents, relying primarily on Mr Brodrick's report, as also those of Mr Swinbourne's company of 1993, contend that the price paid by the Bowlers was the price that "freely contracting, fully informed parties" would have offered and accepted at the time. The relevant market maintained itself until the second half of 1994 when the slow-down occurred. The market was by the second half of 1993 aware of the risks associated with serviced apartments and yet was paying the values that were then paid by (inter alia) the Bowlers.
126 Insofar as Kizbeau is concerned, it is said that a market reaction after the date of acquisition is a totally extraneous event. The particular risks relied upon by the applicants in their submissions were not intrinsic to the unit itself. They existed across the particular market. They involve attitudes and actions of third parties and, in the case of the collapse of management companies, ineptitude. The risks do not relate to or inhere in "the thing" or its use.
127 For my own part and given the nature and course of the evidence, I have found it by no means easy to divine a conclusion from the evidence as to the probable value in fact of Unit 23 as at March 1994. My difficulty is attributable to a number of causes. First I have not found the evidence of either of the valuers to be of real assistance in a variety of matters. Neither valuer appears to have taken account in the 1994 valuation of what each said were risks known in 1993. Mr Swinbourne's "Valuation Rationale" was premised expressly upon the assumption that Regency would meet its commitments at least for the initial term of the sub-lease, though it was acknowledged that there was a risk element in achieving the rentals needed to meet the "guarantee".
128 The difference between Mr Swinbourne's company's 1993 valuations (that in each instance approximated with the price paid for the respective unit) and his own report on 1993/1994 market values, is arresting. His explanation that the difference between the two was attributable to the assumptions in the former that the unit had alternate uses, while on the latter that it did not, was not elaborated upon sufficiently - if it could have been at all - so as to be particularly convincing. Mr Brodrick's report, as I have previously noted, proceeded upon a misconception as to the rental guarantee and would need revision downwards in any event.
129 Secondly, the late introduction (in oral evidence) of the alleged 1993 risk factors said to be highlighted in the "Australian Property News" article and the examination of the valuers thereon only increased my disquiet with the evidence adduced. The article exposed the uncertain recall of Mr Swinbourne, in particular. It purported, through a most imperfect medium, to elevate into supposedly known risks what may have been idiosyncratic or at least contestable views of only several, probably Canberra-based, estate agents/valuers. Again I note that the "risks" so exposed find no real resonance in the two reports put in by the valuers as they related to the 1993/1994 valuations of the Bowlers' unit. Neither is its tenor consistent with the 1993 report prepared by Mr Brodrick's company. It is evidence which, in my view, should be treated with appropriate reserve.
130 Thirdly, the evidence I have on sales of units in the Regency Apartments post-1994 provides some indication that the decline over time was progressive. But it leaves open the question as to what market factors at particular times were operative in driving prices downwards: see eg the various sale prices of Units 43 and 44. It is a large assumption to make that the value as at February 2000 was the product of (was preordained by) factors that arose from the nature and use of the unit itself and was not in any way the product of supervening or extraneous sources.
131 While I am satisfied that the value in fact of the Bowlers' unit was less than the $110,000 paid for it at the time of its acquisition, I do not accept that it was the $35,000 contended for by the applicants. Even if, contrary to my view, the risk factors relied upon by the applicants that materialised subsequent to the purchase were admissible Kizbeau factors, I am not satisfied that they alone can, or should six years later, be taken to be the events that contrive the present value of the unit. I do not consider the evidence adequate to sustain such a conclusion. It is simply too thin.
132 More significantly, though, I do not consider the risk factors relied upon - and in particular concerns with management companies, "rental guarantees" and the availability of finance in the hotel/motel renovation sector of the market - are ones that arose from the nature or use of the units themselves. Rather they reflect third party attitudes, perceptions about aptitude and competency, judgments made between competing investment opportunities, prophecies etc that may or may not have coalesced with greater or lesser severity upon this particular type of investment over time. The likelihood of their so doing may equally have been more or less predictable - a factor of which account would ordinarily be taken when deciding to make an investment and at a particular level. But the risks themselves are, in Kizbeau terms, "supervening upon or extraneous to the ... inducement". They have a provenance apart from the nature or use of the units themselves though they operate upon the units in the sense that, as they become actualised risks, they affect the value of the units. It is not the case that, where a Cassandra of the market place accurately fortells the future fate of a type of investment, that investment for that reason is to be subject to the Kizbeau subsequent events treatment whenever value falls to be assessed. What is important for Kizbeau purposes is that the subsequent events that affect the fate of the investment have that relationship to it that Kizbeau requires. In the present case they do not.
133 Having rejected the applicants' primary submission, I nonetheless am required to make a finding on the unit's value in fact in March 1994. By way of fallback position, the applicants invite me to accept Mr Swinbourne's valuation as it stands. In the event I am prepared with some hesitation to settle upon the figure he suggests, though not simply for the reasons he advances.
134 On neither Mr Brodrick's nor Mr Swinbourne's report is the value of $110,000 sustainable. Mr Brodrick's view is premised on the faulty assumption that there was a substantial rental guarantee in place. In 1993, he placed a premium of $8,000 on such a guarantee for units that would otherwise be valued at $62,000 and $67,000: see Evidentiary Matters (8). There is no evidence as to whether a premium of a like or greater sum would be placed on a unit of significantly greater value. It is, though, probable that some sum should be taken as having been given by way of premium in the present matter and ought be deducted from his valuation. I am satisfied that it would be a sum of some significance and would be likely to exceed the $8,000 figure. Equally, his valuation does not seem to take account of the matters that in his oral evidence, to which I earlier referred, he accepted were associated with the "easing" of, or "slowing down" in, the serviced apartments market in Canberra from mid-1993. In my view, for the purpose of determining value in fact, they are matters of which a "fully informed" purchaser would be expected to take account. Given that the Regency development was, on the evidence, at the bottom end of the market, but given (as the Swinbourne report indicates) the rental level required to meet the 10 per cent "rental guarantee" was "high", those matters - ie the concerns both about obtaining finance and mortgage insurance and about management companies - should, in my view, be accorded some significance in determining value in fact. Mr Swinbourne's report, as far as it goes, addresses at least the level of rent issue (although it assumes the viability of the rental guarantee for at least three years). To this extent, in its more sanguine view of the value of the property, Mr Swinbourne's value is more likely to reflect the value in fact in March 1994. Distinctly, both valuers referred to the inferior location, quality etc of the Regency Apartments. The substantial discount upon sales figures of other properties that Mr Swinbourne considered necessary to reflect this (ie in the capitalisation rate chosen) would seem quite realistic in the circumstances.
135 Beyond Mr Swinbourne's report I can only speculate as to what the actual value was in March 1994. The evidence is simply not there to do otherwise. In these circumstances, and having concluded that the Swinbourne report is more likely to reflect what was the actual value at the time, I intend to adopt the value it propounds (ie $73,000) as the value in fact at the relevant time. If this is less generous to the applicants than might otherwise be their due (given the criticism even they have made of the report), they nonetheless cannot complain that a "conservative approach" is being taken: see Radferry Pty Ltd v Starborne Holdings Pty Ltd, above.
136 My conclusion is then that the direct loss suffered in the purchase itself was $37,000 and that the Bowlers are at least entitled to judgment in that sum.
The Receipts and Outlays Claim
137 The real matter of contention in relation to this claim is whether, in the circumstances, it provides a proper and appropriate basis for the assessment of damages in a matter such as this.
138 The Bowlers' case is that, with the tort measure being the appropriate one to be adopted in a TP Act case of the present variety, then in putting them in the position they would have been but for the contravention in question, a comparison of total outlays and receipts is an appropriate approach where (as allegedly here) all the losses flowed directly from the breach: Gould v Vaggelas, above, at 222-223; Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 at 312-314. The applicants further contend that an interest award under s 51A of the Federal Court of Australia Act 1976 (Cth) would not adequately compensate them for consequential losses in this case though they submit that they would in any event be entitled to interest on borrowings as a component of damages: Sanrod Pty Ltd v Dainford Ltd (1984) 54 ALR 179 at 190-191.
139 The respondents in contrast have contended that the difference between outlays and receipts does not represent the direct consequential loss suffered "by" the respondents' contravening conduct. Accordingly the usual measure in such a case (ie the difference between price paid and value in fact) should be applied and consequential losses should be reflected in an interest award under s 51A of the Federal Court of Australia Act. The respondents dispute in any event that the costs and expenses of borrowing claimed by the Bowlers would be recoverable as damages. Further they submit as a matter of principle that, having not rescinded the purchase and having retained the asset, it would provide a windfall for the respondents to be required to reimburse them the costs of acquiring or holding the property in that they would have the property at full value and have its acquisition costs repaid.
140 The central thrust of the respondents' claim, though, relates to causation. They contend that the losses sustained after purchase of the unit only came about because of the failure of the management company (ie for reasons unrelated to the alleged misleading conduct about unit use) and were not losses suffered "by" the conduct. Further as there was a decision made to affirm the contract the Bowlers continued to suffer losses as a result of their decision to keep that which they had acquired. The ongoing losses had nothing to do with the unit use representation.
141 When a business is acquired in consequence of conduct contravening the TP Act and the purchasers carry on trading thereafter, a measure of damages based on the difference between receipts and outlays may sometimes be an entirely appropriate one in the circumstances: see Gould v Vaggelas, above, at 222-223. The reason for this will be that the consequential losses no less than the primary loss (arising from the difference between price paid and value in fact) will have flowed directly from the contravention so that this measure can be "safely adopted": cf Gould, at 223.
142 It is not the case, though, simply because consequential loss has been suffered by the contravening conduct that that method is therefore appropriate for that reason. The particular consequential loss might more properly be compensated by a specific award of damages in respect of it: eg Milner v Delita Pty Ltd (1985) 61 ALR 557. Or, it may more appropriately and conveniently be remedied in an award of interest up to judgment under a statutory provision such as s 51A of the Federal Court of Australia Act; eg Neilsen v Hempston Holdings Pty Ltd, above. As Pincus J indicated in Neilsen's case, what is necessary to provide the level of compensation proper in the circumstances of a given case will ordain which approach to compensation is the appropriate one to be adopted.
143 In the present case the applicants clearly are entitled to be compensated as I have already found for the primary loss suffered. Prior to the amendment of the Federal Court of Australia Act giving the Court its s 51A power to award interest up to judgment, persons in the Bowlers' situation would, probably, have been awarded some sum in respect of interest on their borrowings as a component of their damages: see eg Frith v Gold Coast Mineral Springs Pty Ltd (1983) 47 ALR 547; Geale v Glenhoun Holdings Pty Ltd (in liq) (1985) 7 ATPR 40-615. Today the cost of borrowing would normally be subsumed simply in such s 51A interest award as is made, unless that cost itself was merely an aspect of consequential losses that together would more appropriately be remedied through another approach to compensation.
144 In the present matter I am not satisfied that another approach ought be adopted. In particular resort to the receipts and outlays basis for assessment would be quite impermissible. It doubtless would provide compensation for losses that would not have occurred but for the unit purchase. But those losses are not, for that reason, recoverable under the TP Act. To be compensible they must result directly from the contravening conduct and not from some other cause.
145 The Bowlers' receipts and outlays subsequent to the purchase were doubtless quite different from what they hoped for when making the investment. But their dramatic loss in anticipated earnings in particular resulted not from the contravening conduct, but from the materialisation of a risk of which they were aware and took account at the time of purchase. That was the possible failure of the management company. I have considered their assumption of that risk in my reasons of 25 October 1996 when rejecting their claim based on the "rental guarantee" representation. I need not repeat what I there said.
146 I quite agree with the respondents' submission that the losses resulting from the defaults by, and then failure of, the management company and, then, from their decision to affirm the contract were not losses suffered "by" the contravening conduct. They did not result directly from the unit use representation.
Conclusion on Damages
147 This case is, then, one in which the appropriate measure of damages is the usual measure to be applied to purchases induced by misrepresentations, ie the difference between the price paid and the value in fact of the property purchased. I have assessed those damages in the sum of $37,000. The applicants have not in their application sought an award of interest under s 51A of the Federal Court of Australia Act. In light of the approach I have taken to consequential loss, and given that I have not been addressed on the issue of costs, I will allow the applicants the opportunity to make such an application when the costs issue is addressed.
148 The purchase of Unit 23 has proved to be quite an improvident one for the Bowlers and they doubtless regret ever having entered into it. But the losses they have sustained from it cannot be shifted as of course onto the respondents. In some measure those losses resulted from causes other than the respondents' conduct - most notably from the Bowlers' own optimism in the potential of the investment they were making and from the risks they were prepared to take in consequence.
The Leader Companies
149 I have not in these reasons sought to differentiate between the Leader companies for liability purposes. It has, nonetheless, been submitted by them that such differentiation is necessary - the more so as there is no allegation made against them of joint conduct. It is claimed that the contravening conduct I have found was engaged in by Leader Holdings Pty Ltd alone, that company using the name Leader Real Estate at the relevant time. Leader Real Estate Pty Ltd, I would note, was by then a registered corporation.
150 The companies' submission is quite compromised by their own pleading. By way of defence, they admit that Leader Real Estate Pty Ltd was the agent of Hilda and that it prepared the Regency Apartments brochure. But they deny any of the impugned conduct was engaged in by Leader Holdings Pty Ltd.
151 In the face of the dual admissions and dual denials of responsibility for the conduct in question, the respondents' submission that I should differentiate between the two was less than vigorously prosecuted. The applicants for their part rely upon the dual admissions. That is the course I intend to take in the anomalous circumstances I have described. The real issue relates to the possible liability of Leader Real Estate Pty Ltd. That issue is settled by the admission in the pleadings. Accordingly my orders will be made against both companies.
Orders
152 I will give judgment for the applicants against the first, second and third respondents in the sum of $37,000.00. I give leave to the applicants to apply for interest under s 51A of the Federal Court of Australia Act. I will direct the parties to make submissions on the issue of the costs of the proceeding.
I certify that the preceding one hundred and fifty-two (152) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. |
Associate:
Dated: 7 July 2000
Counsel for the Applicants: |
Mr R Garratt QC with Mr R Arthur |
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Solicitor for the Applicants: |
Bernard Collaery & Associates |
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Counsel for the Second, Third and Sixth Respondents: |
Mr M Holmes QC |
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Solicitor for the Second, Third and Sixth Respondents: |
Abbott Tout Harper & Blain |
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Council for the Fourth and Fifth Respondents: |
Mr M Flint |
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Solicitor for the Fourth and Fifth Respondents: |
Bradley Allen |
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Counsel for the Eighth Respondent: |
Mr P Walker |
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Solicitor for the Eighth Respondent: |
ACT Government Solicitor |
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Date of Hearing: |
21-24 February 2000 |
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Date of Judgment: |
7 July 2000 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2000/899.html