CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37 (1 April 2010)

Last Updated: 6 April 2010

NEW SOUTH WALES COURT OF APPEAL

CITATION:
CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37


FILE NUMBER(S):
40247/08; 40248/08

HEARING DATE(S):
10 June 2009

JUDGMENT DATE:
1 April 2010

PARTIES:
40247/08:
CH Real Estate Pty Ltd t/as Raine & Horne Commercial Penrith (Appellant)
Jainran Pty Ltd (Respondent)
40248/08:
Boyana Pty Ltd (First Appellant)
Joseph Sgro (Second Appellant)
Jainran Pty Ltd (First Respondent)
CH Real Estate Pty Ltd t/as Raine & Horne Commercial Penrith (Second Respondent)


JUDGMENT OF:
Beazley JA Basten JA Young JA

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
SC 3205/05

LOWER COURT JUDICIAL OFFICER:
Bryson AJ

LOWER COURT DATE OF DECISION:
15 May 2008

LOWER COURT MEDIUM NEUTRAL CITATION:
Jainran Pty Ltd v Boyana [2008] NSWSC 468

COUNSEL:
40247/08:
B W Rayment QC and J S Drummond (Appellant)
S W Climpson and T Rickard (Respondent)
40248/08:
A Fernon (Appellants)
S W Climpson and T Rickard (First Respondent)
B W Rayment QC and J S Drummond (Second Respondent)

SOLICITORS:
40247/08:
Bateman Battersby (Appellant)
Ellison Tillyard Callanan (Respondent)
40248/08:
Joseph Grassi & Associates (Appellants)
Ellison Tillyard Callanan (First Respondent)
Bateman Battersby (Second Respondent)

CATCHWORDS:
CONTRACT- rescission- misrepresentations- whether purchaser for sale of land entitled to rescind. CONVEYANCING- whether adverse affectation sufficiently disclosed- when purchaser may be said to be unaware of affectation- consequences of false answer to requisition. PROFESSIONS AND TRADES- estate agent- commission- absence of signed contract at trial- significance- sale not completed- whether agent entitled to commission. TORT- duty of care- whether vendor owed estate agent duty with respect to the provision of information for preparing sale brochure- whether commercial property agent could be considered "vulnerable". TRADE PRACTICES- false and misleading conduct- involvement of estate agent in producing brochure principally from information obtained from client- whether agent a mere conduit or liable as principal- whether agent entitled to indemnity from client- whether sole director of corporate client liable as accessory- Trade Practices Act 1974 (Cth), ss 52, 75B.

LEGISLATION CITED:
Conveyancing Act 1919, ss 52A, 55(2A)
Conveyancing (Sale of Land) Regulation 2000, cl 7 (now Conveyancing (Sale of Land) Regulation 2005, cl 8)
Fair Trading Act 1987, ss 4(4), 42, 45(1)(b), 61, 68, Schedule 3, cl 19
Property, Stock and Business Agents Act 2002, ss 19(3), 55(1)(c)
Trade Practices Act 1974 (Cth), ss 52, 75B, 82, 87CD

CATEGORY:
Principal judgment

CASES CITED:
Allen v Tobias [1958] HCA 13; 98 CLR 367
Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Ltd [2008] NSWCA 233
Bursill Enterprises Pty Limited v Berger Bros Trading Co Pty Limited [1971] HCA 9; 124 CLR 73
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304
Chandra v Perpetual Trustees Australia Ltd [2007] NSWSC 694; 13 BPR 24,675
Chief Commissioner of State Revenue v Pacific National (ACT) Ltd [2007] NSWCA 325; (2008) NSW Conv R 56-202
Concrete Construction (NSW) Pty Ltd v Nelson [1990] HCA 17; 169 CLR 594
Fox v Percy [2003] HCA 22; 214 CLR 118
Gardam v George Wills & Co Ltd [1988] FCA 194; (1988) 82 ALR 415
General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; 45 FCR 164
Hamilton v Whitehead [1988] HCA 65; 166 CLR 121
Hornsby Building Informaton Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; 140 CLR 216
Houghton v Arms [2006] HCA 59; 225 CLR 553
Mahon v Ainscough [1952] 1 All ER 337
Minister of State for the Army v Dalziel [1944] HCA 4; 68 CLR 261
Re Tooth & Co Ltd; Re Tooheys Ltd [1977] TPRS 203.99
Saloman v A Saloman & Co Ltd [1897] AC 22
Sanders v Glev Franchise Pty Ltd [2002] FCA 1332
Westfield Management Ltd v Perpetual Trustee Company Ltd [2007] HCA 45; 233 CLR 528
Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515
Yorke v Lucas [1985] HCA 65; 158 CLR 661

TEXTS CITED:


DECISION:
(1) In the appeal of Boyana and Mr Sgro against Jainran and CH Real Estate (40248/08):
(a) allow the appeal in part, including that relating to the interlocutory orders against Mr Sgro, the subject of leave granted during the hearing;
(b) set aside orders (5), (6), (7) and (8) made in the Equity Division on 15 May 2009;
(c) in lieu of order (8), order that Boyana and Mr Sgro pay 50% of CH Real Estate's costs of its cross-claim;
(d) otherwise, dismiss the appeal;
(e) order that the appellants pay Jainran's costs of the appeal;
(f) order that the appellants pay 2/3rds of CH Real Estate's costs of the appeal.
(2) In the appeal of CH Real Estate against Jainran (40247/08):
(a) dismiss the appeal; and
(b) order that the appellant pay the respondent's costs of the appeal.




JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40247/08

CA 40248/08

BEAZLEY JA

BASTEN JA

YOUNG JA

Thursday 1 April 2010


CH REAL ESTATE PTY LTD v JAINRAN PTY LTD
BOYANA PTY LTD v JAINRAN PTY LTD


Headnote

Jainran Pty Ltd, the respondent in both appeals, entered into a contract in the standard form to purchase a commercial property including a service station and a convenience store from the vendor Boyana Pty Ltd, the second appellant, a company controlled by Mr Sgro. CH Real Estate, the first appellant was the real estate agent involved in the transaction.

The contract contained a standard form of requisition with standard answers.

Four months later, Jainran rescinded the contract for failure to disclose the existence of a road-widening proposal and misrepresentation as to the state of the vendor’s relationship with the tenant. Jainran also sought return of its deposit and damages from both the agent and Mr Sgro for misleading and deceptive conduct. Boyana cross-claimed for the balance of the deposit. The agent cross-claimed against Boyana and Mr Sgro for an indemnity and also for payment of its commission.

Bryson AJ gave judgment against Boyana holding that Jainran had validly rescinded the contract and also awarded damages against the agent for misleading and deceptive conduct and against Mr Sgro for his own conduct or as an abettor under s 75B of the Trade Practices Act 1974 (Cth). The judge dismissed Boyana’s cross-claim but gave judgment for the agent to be indemnified with respect to monies payable to the purchaser and held that the agent was entitled to damages to be assessed from Mr Sgro.

In the first appeal, the agent challenged Bryson AJ’s findings against it on the basis of clause 37.3 of the contract which disclaimed reliance on anything outside of the contract and it argued it was a mere conduit for information. Boyana and Mr Sgro argued that Bryson AJ’s findings did not support the conclusion that there was an enforceable commission agreement with the agent.

In the second appeal, Boyana and Mr Sgro argued that there was sufficient disclosure of the road-widening proposal such that the purchaser could not claim that it was unaware of that proposal. Further, the requisition seeking details of any litigation “which might or will affect property” was truthfully answered “No” because the proceedings between the tenant and Boyana did not challenge the validity of any interest in the property. Mr Sgro argued that there was no misleading or deceptive conduct on his part and that he was not responsible under s 79B for Boyana’s misrepresentations.

The Court dismissed the first appeal, but allowed the second appeal in part.

The appeals involved five issues, viz:

(1) whether Jainran validly rescinded the contract;

(2) whether Boyana and Mr Sgro engaged in false and misleading conduct;

(3) whether the agent was liable for false and misleading conduct in relation to information in the brochure advertising the sale;

(4) whether the agent was entitled to damages by way of indemnity from Boyana and Mr Sgro;

(5) whether the agent was entitled to commission on the sale.

The Court dealt with these issues as follows:

(1) As to rescission, there were three bases upon which the primary judge held that the purchaser was entitled to rescind the contract:

(a) breach of the implied warranty under what is now clause 8 of the Conveyancing (Sale of Land) Regulation 2005;

(b) misrepresentation; and

(c) misleading answers to requisitions.

The Court held:

(a) The primary judge’s decision on this was a finding on a question of fact. The property was adversely affected by an undisclosed road-widening. The statutory warranty conferred on the purchaser the right to rescind if a purchaser was unaware of the affectation and would not have entered into the contract had it been so aware. The primary judge held that “unaware” meant unaware in fact and did not involve any question of constructive notice. In any event, there were insufficient indications in the contract to put the purchaser on notice of the affectation. Accordingly the trial judge’s findings that the purchaser was unaware of the affectation and that it was material and a proper basis for rescission were supported by the evidence.

(b) The advertising brochure, the non-disclosure of the road-widening proposal and the information as to the status of the tenant involved misrepresentations which entitled the purchaser to rescind.

(c) In the circumstances, the answers to requisitions attached to the contract formed part of the contract.

Young JA (Beazley JA agreeing): the standard but false answer to the requisition as to the status of the tenant amounted at least to an innocent misrepresentation entitling the purchaser to rescind the contract.

Basten JA: the answer to the requisition denying any litigation affecting the lease or land was not false because the litigation affecting the commercial stability of the tenant was not a legal proceeding affecting the land in question.

Bursill v Enterprises Pty Limited v Berger Bros Trading Co Pty Limited [1971] HCA 9; 124 CLR 73 considered.

(2) As to false and misleading conduct:

Basten JA (Beazley JA agreeing; Young JA not deciding): the vendor and Mr Sgro were liable to the purchaser for misleading and deceptive conduct under s 42 of the Fair Trading Act because there is neither a requirement of knowledge nor of an intention to mislead or deceive for conduct to be characterised as misleading or deceptive and because it was clear that in signing and presenting the contract, Mr Sgro was involved in any contravention of s 42 by the vendor.

Re Tooth & Co Ltd; Re Tooheys Ltd [1977] TPRS 203.99; Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; 140 CLR 216, referred to; Concrete Constructions (NSW) v Nelson [1990] HCA 17; 169 CLR 594, applied.

Basten JA (Beazley JA and Young JA agreeing): it is a question of fact for the trial judge whether Mr Sgro engaged in misleading conduct as a director of Boyana Pty Ltd, or on his own behalf. However, there was insufficient evidence to show that Mr Sgro was aware of the misleading and deceptive nature of the conduct to an extent that would support accessorial liability under s 75B of the Trade Practices Act.

Hamilton v Whitehead [1988] HCA 65; 166 CLR 121; Houghton v Arms [2006] HCA 59; 225 CLR 553, considered; Yorke v Lucas [1985] HCA 65; 158 CLR 661, applied.

(3) As to whether the agent engaged in misleading and deceptive conduct:

Young JA (Beazley JA and Basten JA not deciding): there is a difference between statements of introductory opinion, and more detailed information that can be correct or incorrect. However, the distinction between puffery and misrepresentation is a matter of fact regarding which the trial judge did not err.

General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; (1993) 117 ALR 629, discussed.

Young JA: there was sufficient evidence for the trial judge’s findings that misrepresentations, including material contained in the advertising brochure, the contract, the requisition and other conduct were misleading and deceptive.

Basten JA (Beazley JA agreeing): the conjunction of the appearance that the corporation was not the source of the information with the existence of an express or implied disclaimer in the truth or falsity of the information were not cumulative conductions for the purpose of a Yorke v Lucas defence but factors tending towards the same direction. The commercial real estate agent was liable for presentation of information from which an inference could be drawn that the agent professionally judged the information to be reliable to the extent that it conveyed a false impression by omission of a clause disclosing the true position regarding rent free periods under the lease.

Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Ltd [2008] NSWCA 233; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, applied.

Young JA: as a question of fact, the agent was not a conduit because it was correct to understand the agent as owning and compiling the brochure.

Basten JA (Beazley JA and Young JA not deciding): a contractual provision expressly denying reliance on matters outside of the contract does not operate as a complete answer to a statutory remedy for misleading and deceptive conduct.

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304, referred to.

Young JA (Basten JA not deciding): the failure to disclose the real situation with the tenant’s claim against the vendor constituted misleading and deceptive conduct, having regard to the conduct of the principal in regard to the tenant’s claim and litigation.

(4) As to the indemnity claim:

Basten JA (Beazley JA and Young JA agreeing): there was an implied term in the agency agreement that Boyana would indemnify its agent against loss in respect of its faithfully carrying out the transaction.

Basten JA (Beazley JA agreeing): there is no causation as to loss under the agency agreement. The agent did not suffer any loss directly, but as a result of a claim under the Trade Practices Act which has its own scheme of liability and should not be supplemented by the general law in cases where it does not operate.

Young JA: a professional estate agent specialising in commercial property dealings will seldom be considered “vulnerable” and could not be considered as at the mercy of its customer. The factual findings of the trial judge were insufficient to support a duty of care.

Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515, considered; Chandra v Perpetual Trustees Australia Limited [2007] NSWCA 694; 13 BPR 24,675, referred to; Borzi Smythe Pty Limited v Campbell Holdings (NSW) Pty Limited [2008] NSWCA 233, applied.

(5) The relevant clause in the agency agreement was:

“11. The fee to which the agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the principal after the parties have entered into a binding contract.”

There were two issues: (a) whether the contract had been signed at all; and (b) if it was, whether the commission was payable. The trial judge concluded that because the contract was last in the possession of Mr Sgro and it was not produced, he could infer that it was signed. Basten JA with whom Beazley JA agreed, held that the finding that the contract was signed could not stand; Young JA dissented. In any event, the signed contract was not served on the vendor and so it was unenforceable for lack of compliance with s 55 of the Property Stock and Business Agents Act.

As to the construction of clause 11, Young JA, with whom Beazley JA agreed, held that the reference to “after the parties have entered into a binding contract” referred to the time of completion or of demand, not to the time of default. Basten JA held to the contrary.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40247/08

CA 40248/08

BEAZLEY JA

BASTEN JA

YOUNG JA

Thursday 1 April 2010


CH REAL ESTATE PTY LTD v JAINRAN PTY LTD
BOYANA PTY LTD v JAINRAN PTY LTD

Judgment

1 BEAZLEY JA: There are two appeals before the Court from a judgment of Bryson AJ in the Equity Division of the Supreme Court: Jainran Pty Limited v Boyana [2008] NSWSC 468.

2 The dispute subject of the proceedings before Bryson JA arose out of a purchase of a service station (the property) by Jainran Pty Limited (Jainran) (the respondent in each appeal) from Boyana Pty Limited (Boyana) (the appellant in the second appeal). Jainran rescinded the contract on the basis that Boyana had failed to disclose that the land was subject to a road widening proposal and had provided a false answer to a requisition as to whether there were contemplated or existing legal proceedings that might or would affect the property.

3 Jainran brought proceedings against Boyana claiming the return of the deposit. Relief was also sought under the Trade Practices Act 1974 (Cth), s 52 against Boyana and its principal, Joseph Sgro (Mr Sgro) and against Mr Sgro under the Fair Trading Act 1987, s 42 and s 45(1)(b).

4 Boyana, by way of cross-claim (the first cross-claim), claimed the balance of the deposit. CH Real Estate Pty Limited (the agent) (the appellant in the first appeal) was the real estate agent acting on the sale. In the second cross-claim in the proceedings, the agent claimed it was entitled to its commission on the sale. It also claimed it was entitled to an indemnity from Boyana and/or Mr Sgro for any amount for which it was held liable to Jainran for false and misleading conduct. (The specific claims made in the proceedings are to be found in the judgment of Basten JA at [27]-[39] and in the judgment of Young JA at [170]-[172].)

5 The issues on the appeal may be categorised as follows:

Whether Jainran validly rescinded the contract;

Whether Boyana and Mr Sgro engaged in false and misleading conduct;

Whether the agent was liable for false and misleading conduct in relation to information in the brochure advertising the sale;

Whether the agent was entitled to damages by way of indemnity from Boyana and Mr Sgro;

Whether the agent was entitled to commission on the sale.

6 The resolution of the various claims revolved, in the first instance, around Jainran’s entitlement (or not) to rescind the contract. That issue was resolved by Bryson AJ in Jainran’s favour and remains the central issue on Boyana’s appeal. The other issues on the appeal are the same as at trial, all of which were decided in Jainran’s favour.

7 As Basten JA and Young JA have given lengthy reasons, I am able to express my agreement or otherwise briefly.

Rescission

8 Jainran’s entitlement to rescind the contract was advanced on two bases: first, for failure to adequately disclose the existence of a road widening proposal; and, second, for failing to disclose that the lessee of the service station was in litigation with Boyana.

9 Both Basten JA and Young JA reject the challenge to the trial judge’s conclusion that Jainran’s rescission of the contract was justified: Basten JA at [68]; Young JA at [238]. Basten JA deals with the legal basis for rescission by reference to the statutory scheme: see the Conveyancing Act 1919, s 55(2A). Young JA does so by reference to the common law. Both found that the trial judge was correct in finding that Jainran was entitled to rescind the contract. I agree that Jainran was entitled to rescind the contract on either basis for the reasons expressed by their Honours in their respective judgments.

10 Their Honours, again by reference to the statutory scheme and the common law respectively, consider that Jainran was therefore entitled to the return of the deposit. I agree with their Honours’ respective conclusions in this regard. These findings mean that Boyana’s appeal from the rejection of its claim for the balance of the deposit should be dismissed.

11 There was a second basis upon which Jainran claimed to be entitled to rescind, namely, because in its reply to requisitions, Boyana failed to disclose the existence of litigation with the lessee.

12 I agree with Basten JA that the answers to requisitions, which unusually were attached to the contract, as were the standard form of requisitions, formed part of the contract. The question then became whether the negative answer given by Boyana to the requisition: “Is the Vendor aware of any contemplated or current legal proceedings which might or will affect the property?” was false. Bryson AJ found, at [31], that the negative answer was “plainly untrue”. His Honour continued, at [32]:

“... [in proceedings brought by the tenant against Boyana, the tenant] claimed that the lease was entered into as a result of misrepresentation, there were claims for damages of which the rent and outgoings were part and the proceedings were plainly current legal proceedings which might affect the property. Counsel for these defendants put forward a narrow reading in which the requisition related only to land title, but this contention was not related to the meaning of the requisition and answer in the ordinary use of language, according to which litigation by the tenant impeaching the basis on which the lease of a service station was granted for misrepresentation might affect the property, even though the only remedy claimed was damages. On any fair use of language, the requisition did not call for an answer governed solely by the terms of the claims made in the litigation: a lawsuit by the tenant of a 20-year lease which he claims was entered into on the basis of misrepresentations might affect the property and the acquisition could not be honestly answered without disclosing the lawsuit.”

13 Basten JA has found the answer was not false: see at [77]-[85]. I agree with Young JA, at [265] and with the reasons of the trial judge, that the answer was false. Accordingly, the false answer to this requisition provided another basis upon which Jainran was entitled to rescind.

Claims alleging false and misleading conduct

14 Jainran sought damages against Boyana under the Trade Practices Act, ss 52 and 82 for misleading and deceptive conduct, including for failure to adequately disclose the road widening proposal and for the false answers it gave to the requisitions: see Young JA at [270]. Basten JA has pointed out, at [86], that as the relief granted by the trial judge in respect of this claim was the same as that for rescission, it is not necessary to deal with it. Young JA, at [297], has noted that Boyana is devoid of assets, so that the practical importance for Jainran was in being able to retain its verdict against Mr Sgro or the agent. For the same reasons, I do not find it necessary to consider this issue, but observe that I do not consider there was any error in the trial judge’s approach to this question.

15 A claim was also brought against Mr Sgro, both under the Trade Practices Act, ss 52 and 82 and the Fair Trading Act 1987, ss 42 and 45(1)(b). Basten JA has concluded that Mr Sgro was directly liable to Jainran for misleading and deceptive conduct, under the Fair Trading Act, for failure to disclose the road widening proposal, but not liable under the Trade Practices Act. Young JA did not consider the claim under the Fair Trading Act, s 42, but held that Mr Sgro was not liable under the Trade Practices Act. I agree with the reasons of Basten JA that Mr Sgro was liable under the Fair Trading Act but not under the Trade Practices Act.

Did the agent engage in false and misleading conduct in relation to the information in the brochure?

16 This issue is dealt with by Basten JA at [106]-[125] and I agree with his Honour’s reasons. Young JA at [270]-[295] identifies the misleading and deceptive conduct found by the trial judge and deals with the submissions of the parties. Young JA concludes, as does Basten JA, that the trial judge was entitled to find that the agent’s conduct in respect of the brochure was misleading and deceptive. It follows that the trial judge’s determination on this issue should be upheld.

The indemnity claim

(a) Is the agent entitled to indemnity from Boyana?

17 The trial judge held that both Boyana and Mr Sgro were liable to indemnify the agent in respect of its liability to Jainran. Basten JA notes, at [133] that no relevant issue was raised on the appeal challenging the trial judge’s conclusion that Boyana was liable to indemnify the agent, as its agent. Young JA also concludes that Boyana was liable to indemnify the agent for its liability to Jainran. Given that this question was not seriously in issue on the appeal, nothing further needs to be said other than this aspect of Boyana’s appeal should also be dismissed.

(b) Is the agent entitled to damages from Mr Sgro?

18 The ‘indemnity’ claim against Mr Sgro was advanced on the basis that Mr Sgro breached a duty of care he owed to Jainran to exercise reasonable care not to cause it economic loss.

19 Both Basten JA and Young JA conclude that this claim was not made out: see Basten JA at [151]; Young JA at [355]. I agree with the reasons of Basten JA at [147]-[150] on this issue. Accordingly, this argument in the agent’s appeal fails.

Was the agent entitled to commission?

20 Their Honours disagree as to whether the agent is entitled to commission pursuant to its agency agreement with Boyana: see Basten JA at [134]-[146]; Young JA at [318]-[341].

21 Two questions arose for determination on this issue. One related to the proper construction of cl 11. The other related to the trial judge’s finding of fact that the agency agreement had been signed by Boyana.

22 Their Honours disagree on both these issues. I agree with Basten JA, at [144], that the trial judge’s finding that the contract had been signed was not justified and should be set aside. I also agree with his Honour’s further finding that there was no evidence that the signed contract had been served on Boyana as required by the Property, Stock and Business Agents Act 2002, s 55(1)(c).

23 That is sufficient to determine that the agent is not entitled to any commission on the sale and it is strictly unnecessary to determine the proper construction of cl 11. However, it is appropriate that I indicate that, in common with Young JA, I agree with the construction given to the clause by the trial judge. It is convenient to set out both the clause and the trial judge’s construction, so that this aspect of the case is self-contained within the reasons of this Court:

Clause 11

“The fee to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the Principal after the parties have entered into a binding contract.”

24 The trial judge, at [136], stated:

“On the findings that I have made elsewhere relating to the entitlement of Jainran to rescind it is in my opinion plain that the contract was not completed owing to default of the principal. Counsel disputed that there had been a default, but I regard the position as altogether clear. Counsel's submissions also put the position that on a correct reading of cl 11 the default must be a default which occurred after the parties entered into a binding contract. In my opinion this contention was not based on a correct reading of cl 11, as the reference to the parties entering into a binding contract is a statement of one of the conditions upon which entitlement to a fee depends, not a limitation of the defaults of the principal which are relevant to entitlement to the fee. I am unable to see any reason for which the parties might have decided to limit defaults of the principal to defaults occurring at a relatively late stage. On the fair and correct reading of cl 11, the temporal reference is to the times of completion or of demand after non-completion, not to the time of the default of the principal. I conclude that R & H became entitled to payment of the fee referred to.”

25 It follows, therefore, that this argument in Boyana’s appeal fails. However, the result on this issue is that the appeal is upheld on the basis that the agency agreement was not signed.

Conclusion

26 The effect of my consideration is that although there are aspects of the reasons of Basten JA with which I disagree, I agree with the orders he proposes.

27 BASTEN JA:

(1) Background

On 28 May 2004 Jainran Pty Ltd (“the purchaser”) entered into a contract to purchase a service station and convenience store from Boyana Pty Ltd (“the vendor”). Some four months later, on 23 September 2004, the purchaser rescinded the contract.

28 The sale was arranged through CH Real Estate Pty Ltd, trading as Raine & Horne Commercial, Penrith (“the agent”). Although the contract price was $2.495 million, the deposit paid under the contract was only $150,000. That amount had been released by the agent (in accordance with the terms of the contract) to the vendor, well prior to rescission. If the purchaser were entitled to rescind, it would have been entitled to recover that part of the deposit which had been paid.

29 The entitlement to rescind was said to have arisen primarily by reason of the failure of the vendor to disclose that the land was affected by a proposal for acquisition of part thereof for the purposes of road widening.

30 The purchaser also sought damages from both the vendor and the agent on the basis of misleading and deceptive conduct, being a number of representations made by them to the purchaser prior to it entering into the sale contract with the vendor. Somewhat later in the procedural history, the purchaser joined Mr Sgro, who was the principal of the vendor, in the proceedings and asserted liability on his part also for the misleading and deceptive conduct.

31 The vendor disputed the entitlement of the purchaser to rescind and made a cross-claim for the balance of the deposit, being $92,500.

32 The agent also brought proceedings by way of cross-claim, seeking an indemnity from the vendor and Mr Sgro in relation to any amount for which it might be held liable to the purchaser, together with a claim for the sum of $53,350, being the commission payable by the vendor under the agency agreement.

33 The proceedings ran in the Equity Division for eight days in March and April 2008. The trial judge, Bryson AJ, gave judgment on 15 May 2008: Jainran Pty Ltd v Boyana Pty Ltd [2008] NSWSC 468.

34 In relation to the purchaser’s claim, his Honour gave judgment for the purchaser against “the defendants” for $150,000, with interest. He ordered the defendants to pay the purchaser’s costs. The “defendants” referred to the vendor, Mr Sgro and the agent. The judgment against the vendor was based upon the conclusion that the purchaser was entitled to rescind the contract. It followed from that finding that the vendor’s claim for the balance of the deposit (the first cross-claim) must fail and his Honour ordered that it be dismissed with costs. The judgments in respect of the agent and Mr Sgro were based on findings that each had engaged in misleading and deceptive conduct.

35 On the second cross-claim, being that brought by the agent, his Honour first gave judgment for the agent against the vendor for the amount of the commission, together with interest, payable under the agency agreement. Secondly, his Honour gave judgment in favour of the agent against the vendor “for an indemnity against all damages, costs and interest payable by [the agent] to the [purchaser]”. That indemnity presumably covered the judgments for $150,000, together with interest and costs for which the agent was found liable to the purchaser.

36 Thirdly, his Honour held that the agent was entitled to judgment against Mr Sgro “for damages to be assessed”. This finding was interlocutory and Mr Sgro required leave to appeal against the finding. That leave was granted in the course of the hearing in this Court: Tcpt, 10/06/09, p 18 (15).

(2) Issues on appeal

37 The principal appeal in this Court was that brought by the vendor and Mr Sgro. Their interests in the matter may not have been identical, but no complaint was made as to their joinder in a single notice of appeal and their joint representation at the hearing, although there was some ambiguity as to whether particular grounds and submissions were made on behalf of both, or one only. They challenged findings as to their respective liabilities with respect to both the claims by the purchaser and by the agent. The primary challenge was directed to the findings on the basis of which his Honour held that rescission was justified. Accordingly, it is convenient to address those matters first.

38 Secondly, the vendor and Mr Sgro raised issues concerning the responsibility of themselves, and consequentially the agent, in relation to the underlying misrepresentations. These questions arose both from the appeal by the vendor and Mr Sgro on the one hand, and in a separate appeal brought by the agent challenging the judgment against it in favour of the purchaser on the basis of its responsibility for the misrepresentations.

39 Thirdly, Mr Sgro independently challenged his personal liability to the purchaser and the agent, he having acted on behalf of the vendor, but not being a party to the contractual arrangements.

(3) Justification for rescission

(a) failure to disclose road widening affectation

40 Attached to the contract were two documents. One was a standard form of requisitions with answers provided; the second was a planning certificate given under s 149 of the Environmental Planning and Assessment Act 1979 (NSW).

41 The former document included the questions and answers set out at [203] in the judgment of Young JA. Their effect was to deny any affectation resulting from a proposal to realign or widen the adjacent Mulgoa Road. The second document, the planning certificate, included a statement that the land was not affected by any “road widening or road realignment under”, amongst other matters, the Roads Act 1993 (NSW). The planning certificate, issued by Penrith City Council, was dated 11 September 2003.

42 The land was in fact affected by a road widening proposal for Mulgoa Road. The affectation was identified in a plan for subdivision proposed under the State Roads Act 1986 (NSW), before its repeal by the Roads Act 1993. The notice given under the repealed Act continued in effect under Sch 2, cl 23 of the Roads Act 1993.

43 How the Council came to issue the planning certificate indicating that there was no affectation is unclear. The Council was not a party to the proceedings. The relevant issues for present purposes were the consequences in relation to a possible right to rescind flowing from:

(i) the annexure of an inaccurate planning certificate, and

(ii) the provision of an incorrect answer to a requisition, attached to the draft contract.

(b) relationship with tenant

44 The land was sold subject to a commercial lease in favour of a tenant known as Jo-Al Pty Ltd (“the tenant”) which enjoyed a 20-year lease granted by the vendor. The tenant conducted the business of the service station and the convenience store. The existence of a secure business run by an established tenant, providing an income stream to the landowner, was obviously a matter of significance to the purchaser, who was looking for a passive investment. A brochure circulated by the agent stated that the land was an “outstanding investment” with a “20-year lease” and “net income $257,200 pa”. Under the heading “Comments” it was noted:

“Solid investment leased to highly experienced operator. ... Great opportunity for long term security and income.”

45 The brochure was not a contractual document and was not relied upon to justify the rescission. However, his Honour did uphold the right to rescind on the basis of the answer “No” to question 5 in the requisitions which asked, “Is the vendor aware of any contemplated or current legal proceedings which might or will affect the property?”

46 The relationship between the vendor and the tenant dated back to 11 December 2001: discussed by the trial judge at [63]. The tenant had apparently made a loan of $300,000 to the vendor to enable the construction of the service station to be completed. The tenant had also complained about misrepresentations concerning investigations and surveys of traffic flow and the projected gross sales. As his Honour described it, the tenant alleged that “the agreement for lease had been induced by misrepresentations”. Litigation between the vendor and the tenant was commenced by the latter on 30 December 2003. His Honour also referred to assertions in the correspondence that “the business was unable to meet its rental obligation under the lease and that rent adjustments would bankrupt the business”: at [64]. The proceedings brought by the tenant against the vendor claimed damages at common law and under s 82 of the Trade Practices Act 1974 (Cth), on the basis of misrepresentations made by the vendor, in which Mr Sgro had participated: at [28].

47 The questions which were raised with respect to this issue were:

(i) whether the litigation constituted “legal proceedings which might or will affect the property?”, and

(ii) if so, the entitlement of the purchaser to rescind on the basis of the misrepresentation in the answer to requisition 5.

(c) legal basis for rescission

48 The trial judge held that a basis for rescission arose both under the general law and under the Conveyancing Act 1919 (NSW). It is sufficient to address the statutory scheme. The starting point for that inquiry is s 52A of the Conveyancing Act which provides:

“52A Contracts for sale of land

...

(2) A vendor under a contract for the sale of land:

...

(b) shall be deemed to have included in the contract such terms, conditions and warranties as may be prescribed.

...

(4) Except in so far as the regulations may otherwise provide, a provision, whether in a contract for the sale of land or any other agreement:

(a) which purports to exclude, modify or restrict any provision of this section or a regulation made for the purposes of this section, or

(b) which would, but for this subsection, have the effect of excluding, modifying or restricting any such provision,

is void.

...

(6) The regulations may make provision for or with respect to the remedies and relief available to a purchaser under a contract for the sale of land ...:

(a) for any failure or refusal to comply with any of the provisions of this section or the regulations made for the purposes of this section, and

(b) for any breach of a term, condition or warranty deemed to be included in the contract under this section.

(7) Without limiting the generality of subsection (6), the remedies and relief may include remedies and relief by way of rescission of the contract by the purchaser and the payment of compensation by the vendor.”

49 The relevant warranties were, at the time of the contract, found in the Conveyancing (Sale of Land) Regulation 2000 (NSW), since repealed. Schedule 3 of the Regulation, given effect by cl 7, provided:

“Part 1 Warranty in contract

1. The vendor warrants that, as at the date of the contract and except as disclosed in the contract:

(a) the land is not subject to any adverse affectation, and

...

(c) the section 149 certificate attached to the contract specifies the true status of the land the subject of the contract in relation to the matters set out in Schedule 4 (item 3 excepted) to the Environmental Planning and Assessment Regulation 1994 ....

2. For the purposes of this warranty:

(a) land is subject to an adverse affectation if anything listed in Part 3 of Schedule 3 to the Conveyancing (Sale of Land) Regulation 2000 applies in respect of the land ...

Part 3 Adverse affectations

1 A proposal for re-alignment, widening or siting, or alteration of the level, of a road ... by the Roads and Traffic Authority ....”

50 The right to rescind for breach of an implied warranty arose under cl 19 of the Regulation, which is subject to a qualification discussed below. It is sufficient at this stage to refer to the operative provision, which was in the following terms:

“19 Circumstances under which purchaser may rescind contract or option

(1) The purchaser under a contract for the sale of land may rescind the contract:

...

(b) for breach of the warranty (referred to in clause 7 and Part 1 of the Schedule 3) prescribed under section 52A(2)(b) of the Act.”

51 The existence of an RTA proposal was not in contention, nor was the requirement that it be disclosed. The appellants argued that the affectation had in fact been disclosed because, annexed to the contract of sale was a certificate of title which bore the annotation:

“DP 791852: Plan of Acquisition.”

52 The trial judge held that this document did not create restrictions on the use of land, within the terms of Schedule 1, item 4(c) of the Regulation, and therefore was not a prescribed document to be attached the contract: at [9]. Nevertheless, his Honour noted that ordinarily “a title search paper would include a copy of any deposited plan referred to in it” and that the solicitor for the vendor gave evidence that he had simply “omitted to attach it”: at [16] and Tcpt, 14/03/08, p 409 (35).

53 The trial judge further noted at [18]:

“The notation does not refer to RTA, roads or road widening, and contains no indication whether the planned acquisition had taken place or was still to take place. It does not constitute a disclosure of an adverse affectation as referred to in the Regulation. If it otherwise had any force as such a disclosure that force would be contradicted by the answer to requisition 22 and by the s 149 Certificate.”

54 His Honour further stated at [21]:

“The proposition that the contract disclosed something while the contract contained clear statements that that thing did not exist has inherent difficulties which counsel's submissions did not acknowledge.”

55 His Honour noted that in effect the submission amounted to the proposition that the notation on the title search should have been sufficient to put the purchaser on notice that it should carry out its own searches with respect to the land. His Honour rejected this submission in the following terms:

“A purchaser and its solicitor cannot reasonably be expected to make searches before entering into a contract; searches are prudently made after entering into a contract for the purpose of ascertaining whether the vendor is then in a position to transfer title in accordance with the contract, and while searches may sometimes be made before exchange, there is no substance in the proposition that anything which careful searches would disclose to a purchaser if title searches were made before exchange is in effect disclosed by the vendor.”

56 His Honour further held that it was not reasonable to expect a purchaser to carry out such searches in the light of the expressed denials in the contract. He stated that the position might be different “if other attached documents did not say that there was no road widening proposal; but that is not this case”: at [21]. He therefore concluded that there were both misrepresentations and a breach of the implied warranty: at [22].

(d) sufficient disclosure?

57 The appellants made two broad complaints about these conclusions. First, they repeated the submission made below that the annexure of a title search which referred to the plan as a plan of acquisition was sufficient to notify a prospective purchaser of everything which would come to attention if reasonable searches were made. The second limb of the argument was that given the notation, a prudent solicitor should have undertaken a title search, and that the failure to do so, prior to exchange, was a failure to undertake reasonable searches.

58 In support of the first limb of the proposition, the appellants relied upon the decision of the High Court in Bursill Enterprises Pty Ltd v Berger Bros. Trading Co Pty Ltd [1971] HCA 9; 124 CLR 73, recently referred to with approval in Westfield Management Ltd v Perpetual Trustee Company Ltd [2007] HCA 45; 233 CLR 528 at [5]. However, Bursill was addressing a different question, namely what interests were “notified on the folium of the register-book constituted by ... the certificate of title”, being the language of s 42 of the Real Property Act, as then in force. The registered title holder held the land subject to any interest “notified” by the certificate of title. Windeyer J (at 93) held that “what is ‘notified’ to a prospective purchaser by his vendor’s certificate of title is everything that would have come to [his] knowledge if he had made such searches as ought reasonably to have been made by him as a result of what there appears”.

59 The application of Bursill would lead to the conclusion that, had the purchase gone ahead in the present case, the interest in land obtained by the purchaser would have been subject to any affectation resulting from the plan of acquisition. However, that was not the question the Court was required to answer in this case. The question was rather whether that circumstance was adequately disclosed, in accordance with the statutory requirements set out above. The relevance of Bursill is in fact supportive of the approach taken by the trial judge, which was to consider not merely the absence of information as to the road widening proposal, but also whether the notation was sufficient disclosure, by reference to the concept of such searches as ought reasonably to have been made. There were two factors which persuaded his Honour that a search which would have disclosed the nature of the affectation was not reasonably required in the circumstances. The first was the expressed denial of the relevant affectation elsewhere in the contract. The second was that the searches would have been required before exchange, rather than between exchange and completion. The appellants did not demonstrate that the factual conclusion was erroneous in the circumstances.

(e) materiality of breach

60 Secondly, the appellants denied that any failure to disclose was material. The entitlement of the purchaser to rescind for breach of a warranty prescribed under s 52A(2)(b) is governed by cl 19(3) of the Regulation, which is in the following terms:

“19 Circumstances under which purchaser may rescind contract or option

...

(3) A contract ... may not be rescinded on the grounds referred to in subclause (1)(b) ... unless:

(a) the breach constitutes a failure to disclose to the purchaser the existence of a matter affecting the land, and

(b) the purchaser was unaware of the existence of the matter when the contract ... was entered into, and

(c) the matter is such that the purchaser would not have entered into the contract ... had he or she been aware of its existence.”

61 The appellants challenged the findings of the trial judge in respect of the materiality of the matter under paragraph (c).

62 The trial judge dealt with paragraph (c) by reference to the evidence of Mr d’Albora (the principal of the purchaser) who had stated that he would not have entered into the contract if he had known of the road widening proposal. As his Honour noted, the matter was explored in some detail in cross-examination and he agreed he would have obtained a “report” to determine what the impact would have been on the property as a service station site. He also agreed he would have gone ahead if satisfied that there was no impact on the site: cross-examination set out in part by the trial judge at [25]. His Honour considered the evidence and concluded “the prospects that he would have received a report, however much time he gave to the exercise, which he would have regarded as satisfactory are at the most extremely slight, if there are any such prospects”: at [26]. His Honour continued at [27]:

“Mr Sgro sought to maintain in evidence the position that the road widening proposal lacked significance or contained advantages; his endeavours were hollow and served only to make it clear that it is significant. An illustration of its significance is found in cl 13.1 of the Lease which contains a break clause on resumption. People who own or lease service stations do not want slices taken off their frontages for road widening. They do not want to lose one-twentieth of their land at the busiest part, and they do not want to deal with a resuming authority. In my opinion there can be no doubt of the materiality and importance of the road widening proposal. If it had been known, the probabilities are that no contract would have been made [at] all or that it would have been made on renegotiated terms with the assistance of an expert's report on its commercial implications.”

63 On the appeal, the appellants called in aid Mr d’Albora’s evidence that, if he had been aware of the affectation, he would have obtained a report as to its commercial consequences. As no such report was obtained, the appellants contended, there was no evidence before his Honour with respect to a matter as to which the purchaser bore the onus of proof, namely that the report would have supported the conclusion that the affectation was material and adverse to the interests of the landowner. His Honour’s approach, it was submitted, made findings in that respect which were not based upon the evidence but on assumptions about the attitudes of service station owners as a class. Furthermore, the appellants noted that Mr Sgro gave evidence that a road widening would bring the roadway closer to the canopy of the service station which was a benefit rather than a disadvantage: Tcpt, 13/03/08, pp 321-322.

64 His Honour did not find Mr Sgro’s evidence helpful. That was no doubt in part because it was based upon a resumption and not upon a proposal to resume. The existence of the proposal, described in the evidence as a “reservation” was to require that the canopy, with its advertising potential, be set back further from the road than would otherwise have been necessary. It was therefore an adverse affectation, pending the acquisition and reconstruction of the roadway,

65 Otherwise, his Honour was entitled to accept the evidence of Mr d’Albora. One factor which tended to support Mr d’Albora’s evidence was the fact that on learning of the affectation, he took steps to rescind the contract. In cross-examination, it was put to him that he did not rely upon the affectation because, had he intended to do so, he would have obtained a report as to its commercial significance. Rather, it was put that he had obtained a valuation which indicated that he had offered too much for the property and, for that reason, opportunistically took what he believed to be a legal justification for rescission.

66 When that proposition was put to him by counsel for the agent, he responded that that was “definitely not” the reason for rescission: Tcpt, 6/03/08, p 92 (50). When it was put to him that he had decided to rescind the contract “regardless of what any expert would say” in a report as to the significance of the affectation, he effectively denied that proposition also: pp 97-98. He also denied that the valuation meant that the property fell outside his investment criteria, explained why he was comfortable with the figures and noted that the valuation had been obtained at the request of the bank, which was also comfortable with the figures: Tcpt, p 117 (5-15).

67 His Honour was entitled to accept Mr d’Albora’s evidence and reject that of Mr Sgro. No reason was given on the appeal why this Court would interfere with such findings. His Honour’s comment as to why the affectation might be thought to impact adversely on the land was no more than a commonsense explanation as to why the evidence made sense to him. It was not a finding of fact without evidential basis. Accordingly, this challenge must fail. The appellants have not made good their challenge to the conclusion that the purchaser’s rescission of the contract was justified.

68 That conclusion is sufficient to dispose of the claim for return of the deposit from the vendor and the rejection of its claim for payment of the balance of the deposit.

(f) failure to disclose litigation with lessee

69 As noted above, the contract presented to the purchaser contained standard requisitions and answers. Question 5 and its answer were stated in the following form:

Q. Is the Vendor aware of any contemplated or current legal proceedings which might or will affect the property?

A. No.”

70 In fact, on 30 December 2003, the lessee had brought proceedings against the vendor and Mr Sgro claiming damages for breach of an agreement under which the lease had been granted: [2008] NSWSC 468 at [28]. Some aspects of the proceedings appeared not to be relevant to the continuing operation of the lease, but one claim was based on a breach of warranty with respect to the results of investigations and surveys of traffic flows, the likely customer base and the amount of gross sales. In these circumstances, the primary judge concluded that the answer to the requisition constituted both a breach of warranty justifying rescission and a false, misleading and deceptive representation: at [33] and [35].

71 The appellants challenged this conclusion on two bases, namely:

(i) the answers to requisitions were not part of the contract and hence there was no breach of any implied warranty, and

(ii) the answer was not false because the proceedings brought by the lessee were not “proceedings which might or will affect the property”. Rather, they were proceedings against the vendor and Mr Sgro personally for damages.

(g) role of requisitions attached to contract

72 The appellants’ submissions started with the uncontentious proposition that the contract should be read as a whole and that the role played by any document annexed to the contract must be understood in accordance with the contractual terms. The next step in the argument was that the effect of the document entitled “Requisitions on title” was identified by special condition 44 in the contract. That condition stated:

“44 REQUISITIONS ON TITLE

44.1 The Purchaser agrees that the only form of general requisitions on title the Purchaser may make pursuant to clause 5 shall be in the form of the requisitions on title annexed hereto.

44.2 Nothing in this clause shall prevent the Purchaser from making any requisitions on title not dealt with in the requisitions on title annexed hereto.”

73 A requisition is an inquiry requiring a response. The effect of clause 44 (or at least of clause 44.1) was to limit the purchaser to making inquiries of the kinds identified in the annexed form. It said nothing about the answers to those inquiries. However, the annexure of the document with answers had effect pursuant to other provisions of the contract. In particular, clause 20.2 provided that “[a]nything attached to this contract is part of this contract”. Clause 10 imposed restrictions on the rights of a purchaser both to make requisitions and to rescind or terminate the contract. Pursuant to clause 10.1.9, neither requisitions nor rescission could be made in respect of “anything the substance of which is disclosed in this contract ...”. Further, additional clause 30.4 read:

“30.4 Documents attached to the Contract ...

(a) For the purpose of clause 10, the substance of all material contained in any document (or copy of any document) attached to this contract is disclosed in this contract.”

74 The submission of the appellants that these clauses, read together, deny effect to the answers given in the standard form requisitions is without substance. His Honour described it as “a wrong reading of the contract; indeed altogether impossible”: at [128]. The description was apt. In other circumstances, it would be remarkable if the vendor could not rely in its favour on having made a disclosure by providing answers to requisitions annexed to the contract. Further, it was not for the purchaser to have to determine whether these were ‘real’ answers or not.

75 Clause 44 had little relevance in answering this question: it said nothing about the answers given to the general requisitions annexed pursuant to its terms. The earlier clauses clearly adopted the answers and included them in the contract. This is a practical approach based on the unimpeachable expectation that purchasers will make requisitions and will do so to the limits of any contractual entitlement. It is entirely pragmatic for the vendor to assume that such requisitions will be made and to provide the answers which the vendor would give and include them in the contract documentation. To assert, as the vendor appeared to do, that the answers are in standard form and have nothing to do with the particular contract in question is merely an attempt to justify incompetence and a failure to attend to the matter in hand. The fact that such an approach can be found in evidence given by a solicitor in the course of proceedings provides no basis for any more attractive a characterisation of the conduct.

76 Nor is any different conclusion warranted by reference to clause 5 of the standard terms, which provided that, to the extent that the purchaser was entitled to make a requisition, that must be done within 21 days after the contract date (subject to certain exceptions). The fact that requisitions will be expected and answered within a relatively short period after the contract date demonstrates the practicality of providing answers to the extent of the requisitions permitted, with the contract. His Honour’s conclusions with respect to the significance of the answers provided to the requisitions were correct.

(h) should the undisclosed proceedings have been disclosed?

77 The second issue raised by the appellant is of more substance. The submission commenced with the proposition that the actual or possible effect of the proceedings must relate to “the property”, a term defined in the requisitions to mean “land together with improvements and fixtures”.

78 The next step in the appellant’s submission was that “land” should be given a geographical definition as an area of the earth’s surface together with a relevant column above and below the surface.

79 The justification for that step is not clear. A contract for the sale of land does not transfer a geographical area or physical thing. In Australian law, no citizen can own the land itself, but only an estate in land: Minister of State for the Army v Dalziel [1944] HCA 4; 68 CLR 261 at 277 (Latham CJ) and 285 (Rich J); Chief Commissioner of State Revenue v Pacific National (ACT) Ltd [2007] NSWCA 325; (2008) NSW Conv R 56-202 at [73]- [75]. As further explained by Gray and Gray, Elements of Land Law (5^th ed, OUP, 2009) at [1.3.14], discussing the scheme of title registration now found in the Land Registration Act 2002 (UK):

“Modern property legislation thus faithfully maintains the ancient theory that land ownership and use are mediated, not by the attribution to individuals of any direct ownership of or dominium over the land itself, but rather by the distribution of intangible jural entitlements which are interposed between persons and land. In this respect at least, the perspective embraced by the statutory scheme is, essentially, of property as an abstract right rather than as a physical resource, precisely on the footing that the only property in land which one can have is necessarily property in the form of a right.”

80 That is not to say that the reference to property in the requisitions is confined to legal rights and interests, but it certainly includes them and is not confined to the physical state of the land. Indeed, in most circumstances, litigation is concerned with rights involving the use of a particular geographical space, rather than its physical characteristics directly, although the latter may be affected by the former.

81 On the approach adopted by the appellant, the only relevance of the litigation between the vendor and the tenant was its potential to affect the commercial stability of the tenant. There are many kinds of dispute which could lead to legal proceedings, which could have such an effect. Any proceedings, including those arising from matters unrelated to the use of the land, might lead to the insolvency of the tenant and the surrender of the lease. A construction which would require the disclosure of such litigation (or even the contemplation of such litigation) would appear to be an unlikely construction in a requisition involved not with the sale of the business, but with the sale of the land subject to the lease pursuant to which the business is able to operate.

82 The trial judge took a different view, based in part upon the fact that the lessee asserted that it had suffered loss and damage which included all of the costs incurred in establishing the business, losses incurred in running the business and “[r]ent and other outgoings due under the lease of the land including the service station and the convenience store”: at [32].

83 Despite that linkage, the proceedings were based upon two causes of action. The first arose under an agreement to grant a lease, which included the payment of moneys to assist the lessee to start the business and a loan from the lessee to the vendor to allow the latter to complete construction of the service station and convenience store. The statement of claim, whilst leaving the date blank, appeared to concede that the loan and interest thereon had been repaid.

84 It is by no means clear how the claim for damages against the vendor and Mr Sgro, including a somewhat imprecise claim for “rent and other outgoings due under” the lease, could affect the property. If the claim were successful and the payments made, presumably the tenant would be in a better financial position than otherwise. If the proceedings were unsuccessful, the tenant’s financial position would no doubt be diminished to the extent of the legal costs payable in respect of the unsuccessful litigation. In neither respect would the outcome have any direct effect on the property, beyond that discussed above.

85 It follows that the trial judge was in error in thinking that there was a breach of an implied warranty with respect to the requisition 5. Although this complaint provided no basis for rescission, that course was justified for a different reason discussed above. It also follows that, to the extent that the answer to the requisition constituted relevant conduct for the purposes of the Trade Practices Act, the statement was not false, although there might be a separate question as to whether it was misleading or deceptive.

(4) Purchaser’s claim for damages: misleading and deceptive conduct

86 In addition to the relief by way of repayment of the deposit, the trial judge granted the purchaser damages based upon misleading and deceptive conduct under ss 52 and 82 of the Trade Practices Act. However, to the extent that the relief given was identical to that resulting from a valid rescission of the contract, namely a judgment for the deposit with interest, these questions do not arise. In particular, that is so in respect of the vendor. It is therefore convenient to deal in this respect with the findings in relation to Mr Sgro.

87 In relation to Mr Sgro, his Honour held that Mr Sgro’s evidence served to show “that non-disclosure of the road widening proposal was in accordance with Mr Sgro’s intentions”: at [34]. (The basis in the evidence is not clearly explained, but appears to have been Mr Sgro’s maintenance of the proposition that the road widening either lacked significance or contained advantages: at [27].) His Honour continued, holding that “[o]n this ground alone” the purchaser was entitled to damages for misleading conduct against the vendor and Mr Sgro in respect of the loss of the deposit.

88 The conduct of Mr Sgro said to be misleading or deceptive included the inclusion in the contract of the s 149 certificate and the answer to the requisition, denying affectation by any road widening proposal. In addition to the comments at [34] referred to above, his Honour returned to the liability of Mr Sgro in this respect at [90]-[91]. He found that the preparation and signing of the contract were both activities in which Mr Sgro was directly involved and that the misleading statements in the contract were his own conduct as well as giving rise to liability under s 75B of the Trade Practices Act. Although he was to say at [143] that it was not necessary to determine whether Mr Sgro was liable as a person involved in the vendor’s conduct, his Honour had earlier concluded at [91]:

“If not otherwise liable Mr Sgro would in my opinion be liable as an abettor under section 75B.”

89 Given that the conduct constituted the execution and forwarding of the draft contract of sale, it was necessary to have regard to additional condition 37.3 of the contract which stated:

“37.3 No representations

Without limiting the generality of the preceding paragraph, the Purchaser acknowledges that neither the Vendor nor anyone on behalf of the Vendor has made any representation or warranty upon which the Purchaser relies as to the fitness or suitability for any particular purpose otherwise in respect of the property or any part thereof or of any financial return or income to be derived there from”

90 His Honour said of this condition that it had “no contractual force and no other force” as between the purchaser and Mr Sgro: at [99]. However, that cannot be right: if other aspects of the contract were misleading, and the conduct complained of was the execution and forwarding of the contract to the purchaser, it is necessary to characterise the conduct having regard to the contract as a whole. It might equally have been said that because the statements made in the contract had and were intended to have no contractual or legal effect as between Mr Sgro and the purchaser, Mr Sgro could not be liable for them. That approach also would be erroneous.

91 Care must be taken in identifying the basis of liability under the Trade Practices Act.

92 Mr Sgro was added to the proceedings pursuant to a further amended statement of claim filed by leave granted on 13 June 2007. Pursuant to that document, the road widening proposal was pleaded as a breach of the statutory warranty under the Conveyancing Act: paragraphs 5-12. The second section of the document headed “Misleading and deceptive conduct” specified various representations made to the purchaser with respect to the nature of the lease and the business run by the lessee, and included the denial of any road widening proposal: paragraphs 13-20. The conduct was said to contravene ss 52 and 53A(1)(b) of the Trade Practices Act and ss 42 and 45(1)(b) of the Fair Trading Act 1987 (NSW).

93 The approach adopted by the trial judge was capable of being misunderstood in that it failed to distinguish between the various statutory bases of liability. Sections 52 and 82 of the Trade Practices Act may give rise to liability in a corporation for misleading or deceptive conduct, but the liability of an individual must arise as a result of his or her involvement in the corporation’s contravention and the operation of s 75B. The Fair Trading Act, on the other hand, is not so limited, prohibiting misleading or deceptive conduct by any “person” in trade or commerce: s 42. Section 68, like s 82 of the Trade Practices Act, provides a remedy against any person “involved in the contravention” and s 61 (like s 75B of the Trade Practices Act) defines what is comprised in the concept of being “involved in a contravention”. For present purposes, it is not necessary to determine whether Mr Sgro was a person engaging in conduct in trade or commerce, for the purposes of s 42(1), as it is clear that he was involved in any contravention of s 42 (or s 52) effected by the vendor.

94 It is also convenient to note the extended definition of “conduct” in s 4(2) of the Trade Practices Act (as s 4(4) of the Fair Trading Act) in the following terms:

“(2) In this Act:

(a) a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement ....”

95 Section 4(4)(a) of the Fair Trading Act is not in identical terms, but the differences are of no consequence for the present case. Of greater significance is the indication that the conduct itself must not be inadvertent: see Re Tooth & Co Ltd; Re Tooheys Ltd (1977) TPRS 203.99 at 203.133. Nevertheless, a distinction must be drawn between the requirement for a deliberate act or refusal, and the characterisation of the conduct as misleading or deceptive, in respect of which there is no requirement of an intention to mislead or deceive: see Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; 140 CLR 216 at 228 (Stephen J) and 234 (Murphy J). Further, although it is of more consequence to the position of the agent, a person will not necessarily engage in conduct capable of being described as misleading or deceptive if the person merely passes on information supplied by another in circumstances where it is sufficiently clear that the person in question is not making a representation: see Yorke v Lucas [1985] HCA 65; 158 CLR 661 at 666; Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 83 ALJR 903 at [30] (French CJ).

96 The primary judge found that Mr Sgro was liable for the misrepresentations contained within the contract on the basis that he was the “human embodiment” of the vendor and “all its actions were his actions”. He gave instructions for the preparation of the contract and signed the contract on behalf of the company: at [90]. His Honour continued at [91]:

“Mr Sgro cannot escape liability for his engagement in misleading and deceptive conduct by showing that he did not know of the inclusion of the requisitions and answers, or of the Planning Certificate in the contract .... He no less engaged in the conduct of putting forward the contract in the terms it had and entering into the contract whether or not he had a full understanding of what he was doing; he can no more escape on this ground than Boyana can.”

97 The submissions on appeal took issue with the suggestion that Mr Sgro was liable for “entering into the contract”, when that was not the conduct complained of by the purchaser. That submission should be accepted, but it is clear that what his Honour had in mind was the signing and presentation of a contract executed by the vendor to the purchaser. That was the conduct which gave rise to the claim for damages.

98 More persuasively, the submissions complained that the conduct of “putting forward the contract” was that of the vendor and its solicitor, not that of its director, Mr Sgro. A point was sought to be made as to the distinction between the acts of the solicitor and those of Mr Sgro, who gave instructions to prepare and despatch the contract. It was not the instructions which were complained of as being misleading, but rather the contract and what it contained. There was, the submissions continued, no evidence that Mr Sgro gave instructions to include the relevant form of requisitions and answers or the s 149 certificate. Mr Sgro gave evidence, which the trial judge appears to have treated as irrelevant, that he was not aware of reference to the road widening affectation: Tcpt, p 280 (20). It was submitted that, consistently with Yorke v Lucas, Mr Sgro could not be liable unless he knew of the existence of the representations in the contract. Further, even if aware of the existence of the representations, it was necessary that he also have knowledge of their falsity before he could be found liable pursuant to s 75B.

99 These submissions must be accepted: the authority of York v Lucas at 666-670 (Mason ACJ, Wilson, Deane and Dawson JJ) and at 677 (Brennan J) confirms that involvement for the purposes of s 75B depends upon knowing involvement of the person said to have procured or otherwise been involved in the conduct, with knowledge, in the case of a representation, of its falsity. As pithily expressed by Brennan J at 677:

“The operation of s 75B(a) in conjunction with s 52 may be incongruous, for s 52 throws a strict liability on a corporation, but s 75B(a) does not extend liability for a s 52 contravention to a person who procures the corporation to engage in contravening conduct if that person is honestly ignorant of the circumstances that give that conduct a contravening character.”

100 It follows that Mr Sgro should not have been liable for contraventions by the vendor of the prohibition in the Trade Practices Act. That conclusion, however, does not dispose of the claim against him under the Fair Trading Act. Although the conclusion with respect to the operation of s 75B of the Trade Practices Act will apply in respect of accessorial liability under the Fair Trading Act, there remains the question as to whether Mr Sgro was liable as a principal for a contravention of s 42 of that Act.

101 In relation to liability under the Fair Trading Act, counsel for Mr Sgro argued that the question could only be answered by identifying with precision the conduct which might constitute a contravention of s 42. This was said to fall into one of four categories in relation to the statements in the contract, namely:

(a) giving instructions to the solicitor for the vendor;

(b) preparing the contract of sale;

(c) executing the contract on behalf of the vendor, and

(d) presenting the contract to the purchaser.

Counsel submitted, first, that there had been no suggestion that the instructions included any misleading or deceptive misrepresentations; secondly, Mr Sgro had not been responsible for the preparation of the contract; thirdly, there was nothing misleading or deceptive in the act of executing the contract, and fourthly, Mr Sgro was not responsible for presenting the contract to the purchaser. He was therefore not personally liable for any conduct which constituted misleading or deceptive conduct under s 42. Further, it was noted that to impose liability on Mr Sgro for conduct undertaken as the human agent of the corporate entity had the effect of withdrawing the protections available to an individual who sought to run a business through a corporate vehicle.

102 It is convenient to deal first with the last submission, namely that Mr Sgro was not acting on his own behalf, before returning to the nature of the conduct. In Houghton v Arms [2006] HCA 59; 225 CLR 553 the High Court considered a claim made under the Victorian equivalent of s 42, namely the Fair Trading Act 1999 (Vic), s 9. The misleading and deceptive conduct was found in representations made by two employees of a company in the course of and for the purposes of its business. The Court concluded at [35]:

“It was the business of [the company] to provide such advice and services. It is not to the point that Mr Houghton and Mr Student [the employees] themselves were not business proprietors or that their activities were an aspect or element of the trade or commerce of [the company] but not of ‘their’ trade or commerce. Mr Houghton and Mr Student nevertheless engaged in conduct in the course of trade or commerce and were thus within the ambit of the FT Act.”

103 In support of that conclusion, their Honours referred to the principle explained in Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; 169 CLR 594 at 603-604 that the expression “in trade or commerce” referred to conduct having the character of trading or commercial activities or transactions and did not qualify the relationship between the individual whose conduct was in question and his or her engagement in trade or commerce: Houghton at [33]-[34]. It was therefore open in the present case for the trial judge to find, as he did, that the conduct engaged in by Mr Sgro on behalf of the vendor could be characterised as conduct “in trade or commerce”. As the High Court further noted in Houghton at [40]:

“As a general proposition, and as Lord Rodger of Earlsferry stressed in Standard Chartered Bank v Pakistan National Shipping Corporation [No 2] [2002] UKHL 43; [2003] 1 AC 959 at 973-974, in the world of tort the status of an individual as an employee does not divest that person of personal liability for wrongful acts committed while an employee. There is no good reason for treating the text of s 9 any differently and, in particular, for construing the section as if it read ‘[a] person, as principal, must not ...’.”

104 There remains a question whether the conduct of the corporation in presenting the contract with its misleading representations to the purchaser, was also the conduct of Mr Sgro. Whilst, as the mind of the company, he directed the preparation of the contract and executed it on behalf of the company, he was not aware that the contract contained the precise representations relied upon, nor was he aware of the falsity. The latter element of ignorance is not presently relevant, there being at this stage no question of accessorial liability. The question is whether, because s 42 requires no intent, or even negligence, on the part of the person engaging in the prohibited conduct, the fact that Mr Sgro may not have been aware of the existence of the statements in the contract would relieve him of liability. Just as the corporation will be liable because it presented a contract to the purchaser containing statements which were in fact misleading or deceptive, so Mr Sgro will be liable under s 42 if he engaged in conduct of the same kind. Apart from the conduct involved in signing the contract, his conduct was engaged in through the agency of the solicitors. They, acting on instructions received from him (albeit on behalf of the vendor) prepared the contract and, after obtaining its execution by him (on behalf of the vendor), again acting on his instructions as the human embodiment of the corporation, forwarded the contract to the purchaser. Mr Sgro submitted that the acts of the solicitors were carried out purely as agent for the vendor, and not on behalf of Mr Sgro himself, who was not their client. In terms of legal analysis, that was correct; in terms of the characterisation of the conduct, it was nevertheless conduct which can be attributed to the direction of Mr Sgro, as a matter of fact. That the mechanical task of presenting the contract was delegated to someone in the solicitor’s office (probably a clerk) does not prevent the conduct being properly attributed to Mr Sgro, as the person directing the affairs of the vendor.

105 It follows that his Honour was correct at [91] in concluding that Mr Sgro was directly liable for the misleading and deceptive conduct because “he engaged in it” and “his liability is the product of his own conduct” and was not merely accessorial liability.

(5) Purchaser’s claim for damages: liability of agent

106 It is convenient to put to one side for present purposes the cross-claim brought by the agent and consider the further claim made by the purchaser, namely that it was entitled to damages against the agent.

107 The trial judge dealt with this question largely by reference to the brochure distributed by the agent, including to the purchaser, which he described as providing a “serene depiction” of the relationship between tenant and vendor, which he concluded was misleading and deceptive. The brochure stated that the tenant was “fully responsible for full and comprehensive outgoings and operating expenses”; was an “highly experienced operator” and described the investment as a “[g]reat opportunity for long-term security and income”.

108 In addition to providing Mr d’Albora, the principal of the purchaser, with a copy of the brochure, there were also conversations between Mr d’Albora and a representative of the agent, Mr McGarity. His Honour summarised the discussions at [54] in the following terms:

“It was Mr McGarity's evidence that he told Mr d’Albora to the effect that the business was very busy, was run by a highly experienced operator, that the tenant and the landlord did not particularly like each other as the tenant had originally wanted to buy the property himself. His evidence differed from Mr d’Albora’s evidence [in] that Mr d’Albora asked whether there were any problems with the tenant and Mr McGarity said ‘Not to my knowledge. You have seen the CV I sent you.’”

109 His Honour found that the description of the relationship was “completely inadequate and misleading” and “concealed an important fact which Mr McGarity knew, that there was litigation pending over obligations under the lease”: at [58]. His Honour continued:

“This was a seriously misleading statement, and reinforced the misleading tendency of statements in the brochure. Mr McGarity was actually aware that the litigation was pending.”

110 His Honour undertook a careful and detailed discussion of the evidence concerning the representations by the agent, what Mr McGarity and Mr Shatford (the principal of the agent) knew and what was the true position in respect of the tenant’s claims against the vendor and the litigation instituted by the tenant in late 2003, some months before the contract was entered into.

111 His Honour made the following findings:

“95 The expectation that the rent - net income - referred to in the brochure could be expected actually to come in was central to the force of statements in the brochure.

- outstanding investment

- net income of $257,200.00 per annum

- tenant [fully] responsible

- highly experienced operator

- great opportunity for long-term income

96 The characteristics of the tenant were put forward in close association with claims about the net income. The omission of any facts showing dispute or contention by the tenant about whether the income could or should be paid was misleading. So too for not referring to the litigation. So too for not referring to the further $100,000 rent free period, which showed that the lease clause 19 was less than the whole truth about rent relief, as there had been an extra four or five rent-free months, about nine or 10 months in 25 months.”

112 The agent took issue on its appeal with the factual findings and the characterisation of the statements as misleading or deceptive. However, its principal complaint related to what it described as the “conduit defence”, invoking the principles established by the High Court in Yorke v Lucas and in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592. The principle raised is not so much a defence as a need, in defining the claim, to identify with care the conduct engaged in by the defendant which is said to be misleading or deceptive. As explained in Yorke v Lucas at 666:

“If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading and deceptive.”

113 In Butcher, it was said that characterising the agent’s conduct requires consideration of “the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself”: at [40] (Gleeson CJ, Hayne and Heydon JJ). This statement explains the nature of the exercise proposed in Yorke v Lucas; the conjunction of the appearance that the corporation was not the source of the information with the existence of an express or implied disclaimer in the truth or falsity of the information was not intended to identify cumulative conditions, both of which had to be satisfied, but rather that two relevant factors both tended in the same direction. That approach was applied by this Court in Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Ltd [2008] NSWCA 233 at [52]- [56] (Beazley JA, Handley AJA agreeing). I also suggested at [87], after referring to Yorke v Lucas at 666 (Handley AJA also agreeing):

“Nor is it necessary, for the [representor] to avoid liability, for it both to identify itself as passing on information, rather than being the source of the information, and to disclaim any belief in its truth or falsity. It may be inferred ... from the fact that an agent passes on information without comment, that the agent does not in fact disbelieve the truth of the representation. It should not necessarily be inferred that the agent is affirmatively accepting the truth of the representation in the absence of any express or implied disclaimer. Rather, it will be necessary to consider the circumstances of the particular case in order to determine the terms of the representation.”

114 Significant factors in Butcher, which also involved the presentation of a brochure, prepared by a real estate agent on the basis of information supplied to it, to a prospective purchaser included the fact that the misrepresentation involved what appeared to be a survey diagram, the fact that the agent would not be understood to be a surveyor or expert in the niceties of title verification, and the fact that the purchasers were self-reliant investors.

115 In the present case the trial judge noted that Butcher could be limited or distinguished in a number of respects: at [109]. First, he noted the remark in the joint judgment in Butcher that a different conclusion would have led to the inference that a real estate agent represents a vendor as having good title: at [59]. That was not the kind of representation made in the present case. Secondly, the judgment purported to do no more than draw principles from Yorke v Lucas. Thirdly, he noted that there were two clear express disclaimers in the brochure and, fourthly, that the misrepresentation occurred in the reproduction of a survey diagram. The points with respect to the nature of the representation and the disclaimers are valid and carry weight.

116 His Honour also obtained assistance from the principles expressed by McHugh J in a dissenting judgment in Butcher at [123]-[124]. In particular he applied the following test:

“However, the courts have held that in three situations a corporation does not contravene s 52 when it passes on erroneous information. They are:

(1) where the circumstances make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity and is merely passing on the information for what it is worth ...;

(2) where the corporation, while believing the information, expressly or impliedly disclaims personal responsibility for what it conveys ...; and

(3) where the corporation, while believing the information, ensures that its name is not used in association with the information ....”

117 As none of these circumstances was satisfied, his Honour held that the agent was liable in respect of the erroneous information passed on in the brochure: at [114]-[116].

118 His Honour held that the presentation by the agent of the property as a “solid investment”, with a secure lease and income, misrepresented the true position in that it did not refer to the dispute between the vendor and the tenant in relation to payments under the lease nor to the true extent of the rent relief which had been granted under the lease: at [95]-[97]. His Honour rejected the proposition that the agent was a mere “conduit” for information supplied by Mr Sgro, concluding that such a view was “refuted by the terms of the brochure”: at [109]. An important factor weighed in reaching this conclusion was the removal of what had been “additional condition 51” in an earlier version of the contract. That condition had disclosed the correct position with respect to the rent free periods under the lease. His Honour considered the omission of this clause significant in that it qualified a statement in the lease (clause 14.2) which indicated that the lease contained the whole of the contractual relationship between the parties: at [81].

119 Because the solicitor for the vendor took the view that the disclosures related to a period ending in late 2003, and thus before the proposed sale in 2004, the disclosures were no longer relevant. His Honour concluded that, whilst arguably not relevant to the contractual documentation, they remained relevant as to the investment potential of the property, as disclosed in the brochure: at [84].

120 However, his Honour found the agent liable because it was party to that step, which had commercial significance. The factual support for his Honour’s conclusions derived in part from the oral evidence of Mr Shatford, but also from a letter which he sent on behalf of the agent to the vendor and Mr Sgro dated 29 March 2004. That letter stated in part:

“As confirmed by telephone we feel it would be best to review the contract form in order to remove any queries being made relating to rent free and the loan that took place between yourself and the tenant and we will discuss this with [the solicitor].”

121 Having found liability in the agent, his Honour considered a cross-claim brought by the agent against the vendor and Mr Sgro. He stated at [140]:

“With very minor exceptions, anything that [the agent] did was done in accordance with instructions given to them and approvals given to them by Mr Sgro in the exercise of his control over [the vendor’s] affairs .... Mr Sgro decided what to tell them, the terms in which they would be told, and what not to tell them. He approved the terms of the brochure, and did not give any new instructions for the brochure as it continued to be used through changing events. ... . [The agent was] for all practical purposes entirely in Mr Sgro's hands as to what they were to do, if they were to act at all; in this way they were in the relevant sense vulnerable.”

122 As discussed above, liability under the Trade Practices Act does not depend upon a finding that the person who has engaged in the misleading or deceptive conduct knew that the conduct was of that kind. However, in circumstances where one party is conveying information as the agent of another, its knowledge or apparent state of knowledge may be relevant in identifying the conduct in which it engaged. Thus, the conduct of an agent may, depending on the circumstances, include a representation that it is:

(a) conveying accurate information;

(b) conveying information obtained from other sources, but which it believes to be correct;

(c) conveying information as to which it is wholly reliant upon other sources and as to the accuracy of which it has no view.

123 No doubt there will be variations on the theme, depending upon circumstances. In the case of surveyed boundaries of land, it is understandable that information provided by a real estate agent may be assumed to have come from other sources, the accuracy of which it cannot and does not purport to assess. With respect to commercial information, the appropriate inference is less clear. However, the name of the agent, as indicated on the brochure and in advertisements as “Raine & Horne Commercial” indicated that the sale of commercial property was its business. No doubt, in respect of a particular property which it had not managed, it could be assumed that the information conveyed would be supplied by the owner or manager. Nevertheless, characterisation of the property in a particular way, such as a “solid investment”, might be taken to involve the exercise of professional judgment by the agent itself. That judgment would, in turn, depend upon the accuracy of financial and contractual arrangements as conveyed to the agent. By making such a judgment absent any disclaimer, the agent is in effect, not guaranteeing the accuracy of the information, but expressing a belief in its reliability. Such an inference was appropriately drawn in the present case. Thus, liability would not arise in the agent merely because the information turned out to be misleading or deceptive, but there would be liability in the agent if, on the information available to it, a belief in its reliability was not supportable. His Honour was satisfied that, at [84]:

“In so far as it is relevant, it is clear to me that while [the agent] may not have known all the circumstances which made the disclosures to Mr d’Albora misleading or deceptive, they knew a substantial part of them, quite enough to demonstrate to [the agent], if an objective view had been taken, that the conduct in which they were engaged was misleading and deceptive. The position is much the same whether or not Mr Shatford had ever read Additional Condition 51; his evidence was to the effect that he knew of its contents vaguely, it is clear that he knew sufficient of its contents to seek its removal, and in my finding he had an altogether sufficient understanding of what it said.”

124 As explained by his Honour at [86], in identifying the conduct engaged in by the agent:

“The character of the brochure as a statement by [the agent] carries with it the meaning that [the agent] knew facts which justified the statements and did not know any facts which would require the statements to be modified or qualified.”

125 To the extent that his Honour accepted that the statements in the brochure were not in themselves false, but conveyed a false impression by omission, it is the latter aspect of his Honour’s finding at [86] which justified the conclusion that the agent was liable. His Honour’s factual findings in that regard, which were not shown to be erroneous, require that the agent’s appeal in that respect should be rejected.

(6) Liability of vendor (and Mr Sgro) for conduct of agent

126 Both the vendor and Mr Sgro challenged his Honour’s findings with respect to the advertising brochure and, consequentially, the underlying liability of the agent.

127 The appellants placed significant emphasis on well-established principles that take into account, in assessing whether conduct is misleading or deceptive, the “common understanding of commercial people” and the expectation that,

(i) “a certain degree of ‘puffing’ or exaggeration is to be expected”, and

(ii) that parties to commercial dealings will “not ordinarily be informed of information which is regarded as confidential”: General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; 45 FCR 164 at 177-178 (Davies and Einfeld JJ, Gummow J agreeing).

128 However, as the trial judge correctly noted, there is a distinction between general statements of opinion which are inherently incapable of being shown to be true or false and which tend to be in the nature of introductory comment, and more detailed information of a kind which can be correct or incorrect: see Sanders v Glev Franchise Pty Ltd [2002] FCA 1332 at [270]- [272] (Kenny J), referring to earlier authority to similar effect. His Honour held that the brochure in the present case, when read as a whole, could not be dismissed as mere puffery.

129 Secondly, the vendor and Mr Sgro placed reliance upon the terms of cl 37.3 in the contract, by which the purchaser acknowledged that neither the vendor nor anyone else on its behalf “has made any representation or warranty upon which the Purchaser relies as to the fitness or suitability for any particular purpose or otherwise in respect of the property or any part thereof or of any financial return or income to be derived there from”.

130 A clause in that form appears to accept that representations may have been made but provides an acknowledgment by the purchaser that it has not relied upon any such representation. The purpose of the acknowledgment is, of course, to limit or avoid liability on the part of the vendor for anything done by its agent. As the trial judge noted, it does not in terms address any statutory claim which the purchaser may have against the agent: at [99]. There is, as noted in Butcher, a significant difference between a disclaimer in a brochure that an agent has any knowledge of the matters set out therein and an acknowledgment in a contract that no reliance has been placed upon a representation: at [69]. Nevertheless, like a disclaimer in a brochure, such an acknowledgment has “some significance” and should be read as part of the overall conduct of the relevant parties in order to assess what conduct they engaged in and, where relevant, what reliance was placed on that conduct: see Butcher at [50]. In the present case, the primary emphasis on the role of c. 37.3, at least at trial, was to refute the reliance claimed to have been placed on the representations by the purchaser. On the appeal, no challenge was pursued to his Honour’s findings in respect of reliance. Accordingly, the role of cl 37.3 need not be further addressed.

131 The challenge pursued, at least by Mr Sgro, in relation to the liability of the agent was otherwise directed to the order that he and the vendor indemnify the agent in respect of its liability to the purchaser. That liability was said to arise not merely because Mr Sgro (and the vendor) were involved in the conduct of the agent, but because they were responsible both for providing the contents of the brochure and for approving it for distribution.

132 The basis of Mr Sgro’s appeal appears to have been that his Honour was in error in finding that he had a duty of care with respect to the provision of information to the agent which could, if inaccurate, give rise to liability for misleading or deceptive conduct; this will be addressed further below, as it arises on Mr Sgro’s leave application.

133 Initially, the agent sought to assert error on the part of the trial judge in failing to apportion liability pursuant to s 87CD of the Trade Practices Act. However, that assertion was withdrawn, the purchaser pointing out that no such issue had been run below. (Similarly, no issue was raised at trial as to the possible application of s 82(1B), which might have resulted in a reduction of the liability of various parties to the purchaser.) So far as the liability of the vendor to indemnify the agent was concerned, the cross-claim was based upon principles of agency, and no issue appears to have been raised on the appeal as to the correctness of his Honour’s conclusion in that regard.

(7) Liability of vendor for agent’s commission

(a) issues arising

134 Finally, the vendor resisted the entitlement of the agent to claim a commission under the terms of the agency agreement. The relevant clause in the agreement provided:

“11. The fee to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the Principal after the parties have entered into a binding contract.”

135 Two issues were raised in terms of the construction of this provision, namely:

(i) whether the failure to complete was owing to “the default” of the vendor, and

(ii) whether the clause required that the default arise “after the parties have entered into a binding contract”, or whether that phrase provided a precondition to the entitlement to payment.

136 In addition, the vendor relied upon the statutory prohibition against recovery of a commission by a real estate agent in the absence of an agreement signed by the principal: see Property, Stock and Business Agents Act 2002 (NSW), s 55, which relevantly provides:

“55 No entitlement to commission or expenses without agency agreement

(1) A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless:

(a) the services were performed pursuant to an agreement in writing (an agency agreement) signed by or on behalf of:

(i) the person, and

(ii) the licensee, and

(b) the agency agreement complies with any applicable requirements of the regulations, and

(c) a copy of the agency agreement signed by or on behalf of the licensee was served by the licensee on that person within 48 hours after the agreement was signed by or on behalf of the person.

...

(4) A court or tribunal before which proceedings are taken by a licensee for the recovery of commission or expenses from a person, ... may order that the commission or expenses concerned are wholly or partly recoverable despite a failure by the licensee to serve a copy of the relevant agency agreement on the person within 48 hours after it was signed by or on behalf of the person.

(5) A court or tribunal is not to make such an order unless satisfied that:

(a) the failure to serve a copy of the agreement within the required time was occasioned by inadvertence or other cause beyond the control of the licensee, and

(b) the commission or expenses that will be recoverable if the order is made are in all the circumstances fair and reasonable, and

(c) failure to make the order would be unjust.”

137 In relation to the last argument, it was common ground that no signed contract was in evidence. However, his Honour inferred that a contract had been sent to Mr Sgro to be executed by the vendor and that, because Mr Sgro continued to market the property through the agent, the agreement had been signed by him on behalf of the vendor, although not returned to the vendor. His Honour placed reliance upon the fact that he was satisfied that the draft contract, executed by the agent, had been sent to the vendor and that no copy of the contract, unexecuted by the vendor, had been discovered by it.

138 The vendor asserted that such a finding involved speculation and did not logically follow from the established facts. It was not argued, the vendor submitted, that there was no contractual arrangement between the agent and the vendor; rather, it was submitted that there was no written agreement in compliance with s 55 and, accordingly, the statutory constraint on payment of a commission operated.

(b) construction of clause 11

139 It is convenient to consider first whether, in accordance with the agency contract, any entitlement to a fee arose.

140 The primary circumstance envisaged by the contract was a fee payable on completion. Thus, there was no entitlement in the agent in a case where, although a contract was entered into, it was not completed through no fault of the principal (the vendor). However, a fee entitlement arose where the contract was not completed, due to the default of the vendor. In that case the obligation to pay the fee was contingent upon a demand being made. The temporal element introduced by the words “after the parties have entered into a binding contract” was, in this respect, ambiguous. A demand could not be made until the time for completion had arrived. Even then, time might be extended. It cannot have been intended that a demand could be made at any time after the parties had entered into a binding contract. Accordingly, that language seems inappropriate to impose a temporal condition on the demand. The usual case in which a contract will not be completed is where one or other party fails to comply with its side of the bargain. Thus, the purchaser may be unable or unwilling to pay the purchase price, or the vendor may be unable or unwilling to make good its title. Generally speaking, it will not be possible to identify the party responsible for failing to complete until the time for completion has arrived.

141 The term “default” should also be understood in this context. Its primary operation must be as a description of the reason why the contract was not completed. It makes sense in circumstances where one or other party is unable or unwilling to comply with its obligations under the contract. It also makes sense to refer to that concept of default as arising after the parties have entered into a binding contract, as opposed to events which might have occurred before the contract was entered into.

142 Clause 11 does not in terms deal with a situation in which the contract is rescinded, although that might be an example of a contract not being completed, through the default of the principal. However, if the default is one which must arise after the parties have entered into the contract, no entitlement to payment would arise because of rescission based on earlier “default” of the vendor, if the existence of a right to rescission could properly be so described. Further, as the vendor argued, the reference to a “binding contract” is at least open to a construction which excludes a contract which is susceptible to rescission from the moment it is entered into, which is not apt to be described as a binding contract until, for example, the right to rescind is waived.

143 All the words in cl 11 must be given work to do. On the basis that the temporal element only has work to do in respect of the default, it should be concluded that no right to payment of the agency fee arose under the contract.

(c) was contract signed by vendor?

144 Accordingly, it is not necessary to determine whether there was a contract in writing, enforceable by the agent against the vendor, in accordance with s 55 of the Property, Stock and Business Agents Act. Nevertheless, the vendor was entitled to succeed also on other grounds. The agent was not able to provide a copy of a document signed by or on behalf of the vendor, but his Honour was able to infer that such a document existed on the basis of the prevarication on the part of Mr Sgro, who had admitted that he received a copy of the agreement, but was unable to say whether he had signed it on behalf of the vendor and was unable to produce the copy, signed or not signed. Accepting the unsatisfactory nature of Mr Sgro’s evidence, there may be some doubt as to whether such uncertainty can form a basis for an inference that he did in fact sign the agreement. The submission that this finding was not justifiable should be accepted.

(d) contract not served on vendor

145 However, even if his Honour’s finding were accepted, it would not demonstrate compliance with s 55. The scheme of sub-s (1) appears to envisage that the agreement would be provided to the vendor first for its signature and then signed by the licensee, so that the licensee can then serve a copy of the duly executed agreement on the other person, in accordance with par (1)(c). There is no suggestion that that occurred in this case. Pursuant to sub-s (4), the Court has power to order that the commission be partly or wholly recoverable despite failure to comply with paragraph (1)(c), but that power was not relied upon by the trial judge, nor was the order sought to be supported on that basis in this Court.

(e) conclusion

146 It follows that the judgment in favour of the agent on the agency agreement should be set aside.

(8) Judgment for damages against Mr Sgro

147 His Honour held that the agent was entitled to a judgment against Mr Sgro, apparently under general law principles based on the duty of care Mr Sgro was found to owe to the agent to exercise reasonable care not to cause it economic loss.

148 It is not entirely clear what loss his Honour had in mind other than a loss caused by a finding of liability on the part of the agent to the purchaser. If, on the one hand, it were intended to cover the loss under the agency agreement, it is by no means clear that any such loss was caused by Mr Sgro, rather than the failure of the agent to comply with s 55 of the Property, Stock and Business Agents Act. On the other hand, because Mr Sgro has been found liable to indemnify the agent with respect to any amounts payable by it to the purchaser, there appears to be no useful purpose in the additional finding with respect to such liability, which, it is anticipated, will result in a further hearing dealing with assessment of damages.

149 His Honour held that Mr Sgro “incurred a duty of care to prevent economic loss” to the agent, where the loss would follow from the information and instructions given by Mr Sgro to the agent: at [138]. His Honour based the duty of care on the concept of “vulnerability”, as discussed in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515 at [23] (Gleeson CJ, Gummow, Hayne and Heydon JJ). However, in the present case the loss was not suffered by the agent directly, but only as a result of a claim under the Trade Practices Act brought against it by the purchaser.

150 It is by no means clear that a general law duty of care can properly be called in aid in such a case. The better view is that the Trade Practices Act provides its own scheme of liability and relief, which is not appropriately supplemented by the general law, in circumstances where it does not operate. Mr Sgro will be liable for loss suffered as a result of misleading or deceptive conduct of the agent in which he was involved; if he were not so involved, within the meaning of the Act, to find a general law liability would be to create a new basis of liability which would not arise under the general law, absent the statutory duty and would not arise under the statute, absent a general law duty. To create a confluent liability in such circumstances would be equivalent to finding a breach of a general law duty through failure to comply with a statute, where no cause of action arose for breach of statutory duty. That course should not be followed.

151 Mr Sgro’s application for leave to appeal should be granted and the appeal upheld.

(9) Conclusions

152 On the purchaser’s claim, the trial judge gave judgment “against the defendants” for $150,000 with interest and costs: orders (1) and (2). There were three defendants, namely the vendor, the agent and Mr Sgro. The relief sought was primarily limited to a claim against the vendor and Mr Sgro, although one order sought in the alternative compensation under the Trade Practices Act or the Fair Trading Act, and included an application for relief against the agent. Because of the indemnity given on the second cross-claim, it may be assumed that his Honour intended all three defendants to be liable to the purchaser. For the reasons given above, the basis for such an order has not been shown to be erroneous.

153 Secondly, his Honour made an order dismissing (with costs) the first cross-claim brought by the vendor against the purchaser for the balance of the deposit: order (3). That order should stand.

154 The second cross-claim was brought by the agent against the vendor and Mr Sgro seeking indemnity for any amount the agent was ordered to pay in favour of the purchaser, together with the fee due under the agency agreement.

155 His Honour gave judgment for the agent against the vendor for the indemnity sought: order (4). This order should stand.

156 His Honour also gave judgment for the agent against the vendor for the fee on the agency agreement, in an amount of $53,350: order (5). That order should be set aside.

157 His Honour gave judgment for the agent against Mr Sgro for damages to be assessed: order (6). That order should also be set aside, as should the consequential reservation of liberty to apply for an assessment of damages: order (7). It is not clear that any separable costs could be attributed to the agitation of that issue, either here or in the Court below, and accordingly no separate costs order should now be made.

158 Orders with respect to costs followed the event. Accordingly, the only costs order which requires variation is that with respect to the second cross-claim, as to which the agent was partly successful and partly unsuccessful. The argument with respect to the agency fee was a discrete issue, although it involved a contested factual matter, namely whether there was in existence an agency agreement signed by the vendor. The more substantial issue on the cross-claim was the liability of the vendor and Mr Sgro to indemnify the agent, being the matter on which the agent was successful. On the other hand, the issues raised by that matter overlapped significantly with the questions arising on the purchaser’s claim, namely whether the agent was itself engaged in conduct which was misleading or deceptive.

159 The appropriate order is that the vendor and Mr Sgro pay 50% of the agent’s costs of its cross-claim.

160 On the appeal, the vendor and Mr Sgro were jointly represented. Apart from the vendor’s success in avoiding liability for the agency fee, the appellants were unsuccessful in their appeal against the agent and wholly unsuccessful in their appeal against the purchaser. The appellants should pay the purchaser’s costs of their appeal and 2/3rds of the agent’s costs.

161 The agent was unsuccessful in its appeal against the purchaser and should pay the purchaser’s costs of that proceeding.

162 Mr Sgro was successful on his leave application and the consequent appeal but there should be no separate order as to the costs of that proceeding in this Court: see [157] above. If Mr Sgro seeks to vary that order, he may do so by notice of motion filed within 14 days of delivery of this judgment.

163 I would accordingly propose the following orders:

(1) In the appeal of Boyana and Mr Sgro against Jainran and CH Real Estate (matter No 40248/08):

(a) allow the appeal in part, including that relating to the interlocutory orders against Mr Sgro, the subject of leave granted during the hearing;

(b) set aside orders (5), (6), (7) and (8) made in the Equity Division on 15 May 2009;

(c) in lieu of order (8), order that Boyana and Mr Sgro pay 50% of CH Real Estate’s costs of its cross-claim;

(d) otherwise, dismiss the appeal;

(e) order that the appellants pay Jainran’s costs of the appeal;

(f) order that the appellants pay 2/3rds of CH Real Estate’s costs of the appeal.

(2) In the appeal of CH Real Estate against Jainran (matter No 40247/08):

(a) dismiss the appeal, and

(b) order that the appellant pay the respondent’s costs of the appeal.

164 YOUNG JA: These two appeals arise from a single judgment given by Bryson AJ in the Equity Division of this Court coded [2008] NSWSC 468.

165 The proceedings arose out of a contract exchanged on 28 May 2004 for the sale by Boyana Pty Ltd (“Boyana”) to Jainran Pty Ltd (“Jainran”) of land at Wallacia, being Lot 934 DP 1030731 or Folio Identifier 934/1030731.

166 The land at all material times was used as an Ampol Service Station and an associated convenience store.

167 Boyana had granted a lease for 20 years from 3 April 2002 to Jo-Al Pty Ltd (“Jo-Al”) and that company conducted the service station and the convenience store which it called the “Spar Express Supermarket”.

168 Jainran purchased the property subject to the lease to Jo-Al, a copy of the lease being annexed to the contract. The purchase price was $2,425,000.00 with a deposit of $150,000 to be paid to the vendor forthwith on exchange of contracts.

169 Jainran came to know about the property through the activities of CH Real Estate Pty Ltd which trades as Raine & Horne Commercial Penrith (“R & H”). That appellant is a real estate agent allegedly specialising in commercial property.

170 Jainran rescinded the contract by notice dated and delivered on 23 September 2004. As a consequence it claimed against Boyana return of the deposit, and alternatively, claimed the loss of deposit as damages under the Trade Practices Act 1974 (Cth). In a further alternative it claimed the return of the deposit under s 55(2A) of the Conveyancing Act 1919. The Trade Practices claim was for misleading or deceptive conduct in breach of s 52.

171 Jainran also claimed damages for misleading and deceptive conduct against Mr Joseph Sgro, who was as described by the primary judge at [3], the “principal and practically the only person active in the affairs of Boyana”. He is the second appellant in 40248/08. The claim against R & H was also for misleading and deceptive conduct under the Trade Practices Act.

172 His Honour also dealt with cross-claims. One was by Boyana against Jainran for the balance of the deposit, and the second was by R & H for indemnity and also for commission on sale.

173 Although only a relatively small sum was involved, the trial at first instance occupied 8 hearing days. One can thus assume that, by now, the costs payable by unsuccessful parties will be the most significant practical outcome of these appeals.

174 His Honour’s decision was that Jainran was entitled to rescind the contract and recover its deposit from Boyana. He also found that Jainran was induced to enter into the contract by material misrepresentations and was entitled to rescind under the general law, whether or not the misrepresentations were made innocently.

175 However, his Honour further held that the judgment against Boyana for recovery of the deposit with interest would be of no value, having regard to evidence which clearly showed that Boyana has no assets. After thoroughly discussing the applicable facts and law, his Honour gave judgment for $150,000 with interest against all defendants for breaches of the Trade Practices Act, gave judgment for R & H against Boyana for indemnity, also gave judgment for R & H against Boyana for $53,350.00 for commission, and gave judgment for R & H against Mr Sgro for damages to be assessed.

176 The appeals were brought without leave; however, on the day of hearing a summons was filed seeking leave to appeal by Boyana and Mr Sgro and that leave was granted.

177 The two notices of appeal challenged virtually everything that his Honour decided.

178 The appeals were heard on 10 June 2009, Mr A Fernon appeared for Boyana, Mr B W Rayment QC and Mr J S Drummond for CH Real Estate Pty Ltd, and Mr S W Climpson and Mr T Rickard for Jainran.

179 It seems to me convenient to deal first with the appeal of Boyana and Mr Sgro (40248/08).

180 The appellants’ submissions split the issues in the appeal into two groups, (a) concerning Jainran; and (b) concerning the estate agent. It is convenient to deal with the issues in this way, and accordingly I will deal with the issues that arise in this appeal under the following heads, which are mainly derived from those submissions. However, there is some overlap and I will deal with this in the course of dealing with the first head in which the relevant matter occurs. My heads are:

1. Background facts

2A. Boyana/Sgro v Jainran - The Contract Case

(1) The RTA plan of resumption;

(2) Non-disclosure of legal proceedings against Boyana;

(3) The removal of special condition 51;

(4) The requisitions and their answers;

(5) The finding that Jainran was entitled to rescind and recover its deposit and damages;

(6) The result.

2B. Boyana/Sgro v Jainran - The Trade Practices Case

(1) Alleged misleading and deceptive conduct;

(2) The finding that Sgro was personally responsible for misleading and deceptive conduct;

(3) The result.

3. Boyana/Sgro v the agent

(1) The finding that the agent was entitled to commission;

(2) The finding that Mr Sgro owed and breached the duty of care to the agent.

4. Conclusions about the first appeal (40248/08)

181 I will then deal with the issues that arise in the second appeal (40247/08) as follows:

5. R & H v Jainran

A. Generally;

B. The Conduit Defence;

C. Other matters;

D. Is there liability?

6. Conclusions about the second appeal (40247/08)

182 Then under sub-head 7. Final Conclusions I will give my opinion as to the result of the appeals and the orders that we should make.

1. Backgound Facts

183 Jainran is a company whose sole director is Mr Jeffrey d’Albora who conducted all its affairs and made all relevant decisions.

184 Jainran and Mr d’Albora are responsible for investment of large resources.

185 As set out at [36] by the primary judge, in May 2004, Mr d’Albora became interested: “in well located commercial properties involving a capital outlay between $2,000,000 to $4,000,000, a yield of at least 9% per annum, with secure long-term rental income provided by quality tenants, suitable for leaving day-to-day management of the property in the hands of a real estate agent. He was seeking passive investment in commercial properties with long-term rental income that he could leave alone for an indefinite period of time and which would take care of themselves.”

186 His Honour continued: “[Mr d’Albora] saw an advertisement by R & H in the Sydney Morning Herald of Saturday 8 May 2004 which gave brief particulars of the property, consistent with later communications; there were no adverse disclosures. About 11 May he contacted R & H, spoke to Mr McGarity and explained his interest. Mr McGarity gave him some information about the property.”

187 Mr d’Albora said that he told Mr McGarity (on about 11 May 2004) “I am interested in the property at Mulgoa Road, Wallacia. I am looking for a good passive investment property with a guaranteed long term rental income, little input from me, that will basically take care of itself. I don’t want any problems. What can you tell me about the property and will it suit my needs?”

188 There was some difference in the evidence of Mr d’Albora and Mr McGarity as to exactly what was said, but the primary judge said at [40] “What is clear, undisputed and significant [from Mr McGarity’s evidence] ... that he said that he told Mr d’Albora that the property would suit Mr d’Albora's requirements” and that that statement supports the finding that Mr d’Albora told him what were his requirements.

189 There was some discussion about Mr McGarity sending a property report and further information and about arranging an inspection.

190 The primary judge found at [45] that: “Mr McGarity referred to the tenant as a highly experienced operator, and presented the lease and the business in an unqualifiedly favourable light without going to great detail, and while indicating that there would be written material”.

191 The primary judge found at [46]: “The information pack which Mr McGarity sent to Mr d’Albora about 14 May 2004 consisted of a brochure, the Reference Schedule from the lease, a copy of the tenant’s curriculum vitae, which had been edited by R & H from a curriculum vitae for Mr Deevey of Jo-Al which Mr Deevey had given to Mr Sgro several years earlier, a copy of Jo-Al’s Petroleum Products Supply Agreement with its supplier (perhaps incomplete) showing a monthly estimate of petrol 250,000 litres and distillate 30,000 litres, a plan prepared by A Blefari Design & Construction Pty Ltd at some earlier stage showing what was then a proposed new service station and its layout, and a Xerox copy of a survey dated 17 July 2001, showing part of the property as it was before the modern service station and store were erected. Its terms show that the object of the survey was to define the position of the proposed store on the land. The Reference Schedule in the lease stated several significant matters including the original rent before any rent review, the rent review intervals, the term of 20 years and two options of five years, and said there were guarantees by Mr and Mrs Deevey and some other significant matters.”

192 The text of the brochure as set out by the primary judge at [49] was:

“FOR SALE

OUTSTANDING INVESTMENT

20-YEAR LEASE

NET INCOME $257,200 pa

PROPERTY 181-183 Mulgoa Road, Wallacia

LOCATION The site is situated on a prominent location on Mulgoa Road, Wallacia. Directly opposite the Wallacia Hotel and Park Road intersection.

Area adjoins catchment of Wallacia, Luddenham, Mulgoa Village & Silverdale. Close vicinity to Warragamba Dam Tourist Area.

TITLE Lot 934 in Deposited Plan 1030731

DIMENSIONS FRONTAGE 30.86 metres to Mulgoa Road

64.05 metres to Alwyn Avenue

LAND AREA 1,896.28 sqm

DESCRIPTION Near new service station/supermarket development. Large typical retail outlet targeting high catchment, tourist trade and adjoining caravan park.

Convenience store 393.75 sqm

Lease term – 20 years + 5+5 years

Commencing Date 3 April 2002

Expiry Date – 2 April 2022

Tenant fully responsible for full and comprehensive outgoings and operating expenses.

Final agreement with Caltex T/As Spar Express Supermarket.

COMMENTS Solid investment leased to highly experienced operator. Excellent Depreciation Benefits. Great opportunity for long term security and income.

True net lease – all costs paid by tenant.

Net income $257,200.00 pa. NB> CPI Annual Review falls due April 2004

SALE PRICE Raine & Horne

$2,600,000 Commercial Penrith

(exclusive of GST) Phone: [phone]

Fax: [phone]

Email: [e-mail]

Website: raineandhorne.com.au/commercialpenrith”

193 The primary judge found at [51]: “The brochure was prepared by Mr Shatford, a director of R & H in September 2003 with the aid of various documents which Mr Sgro had sent him, some of them perhaps already several years old. Mr Sgro approved of the use of the brochure by R & H. Mr Sgro supplied the curriculum vitae which Mr Deevey had given to him; R & H removed some references which identified Mr Deevey and his referees. It dealt only with his activities up to 1999 and contained no information about business at Wallacia.”

194 His Honour continued at [52]: “Mr d’Albora was of the view that the contents of these documents met the criteria he was looking for. On Saturday 22 May 2004 he observed the property on his own from his car parked at the side of Mulgoa Road. Soon afterwards he rang Mr McGarity and arranged an inspection, which took place on Monday 24 May 2004 and was a thorough inspection of the site lasting about one hour during which Mr McGarity made some oral representations.”

195 Mr d’Albora asked Mr McGarity whether there were any outstanding issues with the council or any other authority. There was some dispute as to the exact conversations, but the primary judge accepted that Mr d’Albora’s version was more likely to be correct.

196 Mr McGarity denied there were any such problems. He was then asked about the tenant. He again said that there were no problems to his knowledge.

197 Mr d’Albora said during the inspection: “I will consider making an offer later today of $2.425 million with a $150,000 deposit” to which Mr McGarity replied: “I’m sure that will be well received.”

198 That offer was made on 24 May 2004 and accepted. A draft contract was prepared which was not entirely in the same form as a contract which was later exchanged. A complete copy of the lease was attached, but the “standard” requisitions and answers were not attached.

199 As found by the primary judge at [48]: “What the lease provided for rent, options to renew and other matters was available to read. Clause 14.2 of the lease provided that the provisions of the lease comprised the whole agreement between the parties. Clause 19 stated that the lessee was not obliged to pay rent for the first five months of the term. A Section 149 certificate attached to the draft contract said that there were no road widening proposals.”

200 Contracts were exchanged on 28 May 2004. In accordance with the contract, the deposit was then paid and released to Boyana. The date appointed for settlement was 27 September 2004.

201 The contract as exchanged was in the 2000 edition of the standard form. Additional clause 39 noted that the purchaser purchased the property subject to the lease between the vendor and Jo-Al Pty Ltd.

202 The contract included the following provisions as to requisitions:

Clause 5 set out time limits for making requisitions.

Clause 10.1.9 said that the purchaser cannot make a claim or requisition or rescind or terminate in respect of anything the substance of which is disclosed in this contract (except a caveat, charge, mortgage or writ).

Additional clause 44 said that the purchaser was to make general requisitions in the form of those annexed to the contract, but could make any other requisitions not dealt with in that form.

203 The standard requisitions annexed to the contract included the following:

“5 Q. Is the Vendor aware of any contemplated or current legal proceedings which might or will affect the property?

A. No ...

22 Q. Is the Vendor aware of any of the following affecting the whole or part of the property: ...

(c) Any notice of resumption or intended resumption?

(d) Any proposal to re-align or widen any road which is adjacent to the property?

(e) Any proposal by any public or statutory authority? ...

A. No.”

204 As found by the primary judge at [12], the contract provided in clause 20.2 "Anything attached to this contract is part of this contract." One of the documents attached was a Planning Certificate under the Environmental Planning and Assessment Act 1979, s 149 issued by Penrith City Council on 11 September 2003 which among many other things said:

“6. Road widening and road realignment

The land is not affected by any road widening or road realignment under:

(a) Division 2, Part 3 of the Roads Act 1993, or

(b) an environmental planning instrument, or

(c) a resolution of Council.”

205 His Honour found at [13] that: “in the Planning Certificate the contract makes a plain statement to the effect there was no road widening proposal such as the one which actually existed.”

206 However, the contract also annexed a copy of the relevant Certificate of Title which bore on it the words “DP 791852 NOTE: PLAN OF ACQUISITION”.

207 Additional clause 37.3 provided:

“Without limiting the generality of the preceding paragraph [headed ‘no objections’], the Purchaser acknowledges that neither the Vendor nor anyone on behalf of the Vendor has made any representations or warranty upon which the Purchaser relies as to the fitness or suitability for any particular purpose or otherwise in respect of the property or any part thereof or of any financial return or income to be derived there from.”

208 As Mr d’Albora and his solicitors soon discovered, not all was well with the contract. First, there was litigation pending between the tenant and the vendor. Secondly, there were road widening proposals affecting a substantial part of the site, about 4.9% of its area (see primary judgment at [10] for area measurements).

209 As I have said, Jainran rescinded the contract, effectively it claims, by a notice dated and delivered on 23 September 2004.

210 As indicated earlier, Jainran claimed against Boyana for return of the deposit under contractual entitlement on rescission, and alternatively claimed the loss of the deposit as damages under the Trade Practices Act for misleading or deceptive conduct in breach of s 52; in a further alternative, an order for return of the deposit under s 55(2A) of the Conveyancing Act.

211 The case both before the primary judge and before us was in three tranches: (1) involving discussion on the law as to contracts for the sale of land; (2) issues under the Trade Practices Act; and (3) miscellaneous subsidiary issues, importantly the personal liability of Mr Sgro.

2A. Boyana/Sgro v Jainran - The Contract Case

(1) The RTA plan of resumption

212 The primary judge found, and his finding is not challenged on appeal, that there was in fact an adverse affectation, the RTA proposal for widening Mulgoa Road shown in DP 791852.

213 His Honour found at [8] that: “Deposited Plan 791852 was prepared by Mr Surveyor McKellar of the Roads and Traffic Authority, certified by him on 14 November 1988 and registered on 11 September 1989.” The plan affects 4.9% of the land which was the subject of the contract for sale in the present case.

214 The subject land is Lot 934 DP 1030731 which is a consolidation of Lots 9, 11 and 12 of former DP 22669.

215 The RTA Plan provided for a re-subdivision of land in earlier plans including DP 22669. Its aim was to provide for a narrow strip suitable for widening Mulgoa Road. A panel in DP 791852 says “Lots 6-9 incl are required for road and after acquisition and the removal of improvements will ultimately be declared public road.” The acquisition has never taken place and the intended road widening has never occurred.

216 The primary judge said at [9] that “DP 791852 appears to have been prepared and lodged as part of an uncompleted realignment under State Roads Act 1986 (since repealed) section 19; or possibly in contemplation of an acquisition under s 52 (as then in force). No realignment was completed while the State Roads Act 1986 was in force, as the land the subject of realignment would have passed into the ownership of the Council and the Torrens Register would show that. Notices under section 19(2) were continued in effect after the repeal of the State Roads Act 1986 by Roads Act 1993 Sch. 2 cl 23. It does not appear whether there ever was a notice under s 19(2), which refers in para (b) to notice of the realignment served on the owner under s 19(2)(b); probably there was not. That being so, Sch. 3 cl 13 of the Roads Act 1993 would preserve the existing alignments.”

217 His Honour continued at [10]: “The area of Lot 934 Deposited Plan 1030731 is shown as 1912 square metres; the two parts of the strip to be acquired are shown on DP 791852 as lots 8 and 9, with areas totalling 93.7 square metres, that is 4.9% of 1912 square metres. This is not a slight or negligible part of the land sold, particularly as it forms part of the land used for access and forecourt, between the service station and store building and Mulgoa Road, where activity is most intense.”

218 However, the primary Judge noted at [10] that, whilst the area involved was significant, it was not the only consideration. Other considerations “include the relative utility of what remains, the impact on further redevelopment, readiness to accept disruption involved in road widening works, and readiness to accept the need for dealing with the public authority over compensation for resumption. Disruption would be particularly significant in relation to a service station, even though the period of disruption might not extend for very long. Buying into a resumption claim is a problem similar to buying into a law-suit.”

219 The primary judge held that the contract itself provided a number of reasons why the purchaser was able to rescind the contract. These were: (a) breach of the implied warranty under cl 7 of the Conveyancing (Sale of Land) Regulation 2000 (now see cl 8 of the 2005 Regulation); (b) misrepresentation; and (c) the misleading answers to requisitions.

220 Section 52A(2)(b) of the Conveyancing Act prescribes that contracts for the sale of land shall include statutory warranties as prescribed. The effect of the Conveyancing (Sale of Land) Regulation is that one of those statutory warranties is that the vendor warrants that the land is not subject to any adverse affectation (see Part 1 Sch 3 of both the 2000 and 2005 regulations). “Adverse affectation” includes any proposal for the re-alignment or widening of any road (see Part 3 of Sch 3).

221 If a vendor breaches an implied warranty whose source is the Regulation, the purchaser may rescind provided that rescission is not prevented by cl 19(3) or (4) of the Conveyancing (Sale of Land) Regulation 2000 which included sub-clause (3) which provided:

“(3) A contract or option may not be rescinded on the grounds referred to in subclause (1)(b) or (2) unless:

(a) the breach constitutes a failure to disclose to the purchaser the existence of a matter affecting the land,

and

(b) the purchaser was unaware of the existence of the matter when the contract or option was entered into, and

(c) the matter is such that the purchaser would not have entered into the contract or option had he or she been aware of its existence.”

Regulation 19(3) and (4) of the 2005 Regulation is the same.

222 The primary judge ruled at [24] that there was a failure to disclose the road proposal, the word “unaware” in sub-clause 3(b) meant “unaware in fact” and that no element of constructive notice was involved. He held as a matter of fact at [25] and following that the purchaser was unaware of the proposal and that the purchaser would not have entered into the contract had it been aware of the existence of the proposal.

223 The primary judge thus held that this matter was a sufficient ground for rescission, though he found other matters were as well.

224 The appellants challenge the ruling that no constructive notice is involved in the word “unaware” and also the finding of fact that the purchaser would not have entered into the contract had it been aware of the existence of the proposal.

225 Mr Fernon took us to the legislative history of the Conveyancing Regulation. He pointed out that the 1985 version of the Regulation required that the affectations be specifically disclosed in the contract. The word specifically was removed in later editions of the Regulation which gives the flavour that something less is all that is now required.

226 Mr Fernon referred to the High Court’s decision in Bursill Enterprises Pty Limited v Berger Bros Trading Co Pty Limited [1971] HCA 9; 124 CLR 73 at 93 where Windeyer J (with whom Barwick CJ agreed) said, in a case involving an ancient easement, that “what is ‘notified’ to a prospective purchaser [under s 42 of the Real Property Act 1900] is everything that would come to [the knowledge of the purchaser] if he [or she] had made such searches as ought reasonably to have been made [in view of the notification]”.

227 Mr Fernon says that, here, the contract annexed a copy of the certificate of title, the notification of the RTA’s DP was endorsed on it and that was sufficient disclosure.

228 The primary judge dealt with Mr Fernon’s submissions to the effect that the contents of DP 791852 were disclosed in the contract by the reference in the copy search paper to DP 791852 as a plan of acquisition. He said at [21] that “the proposition that the contract disclosed something while the contract contained clear statements that that thing did not exist has inherent difficulties which counsel's submissions did not acknowledge.”

229 The primary judge ruled at [21] that “there is no substance in the proposition that the vendor disclosed the existence of the road widening proposal by including the search paper in the contract. A purchaser and its solicitor cannot reasonably be expected to make searches before entering into a contract; searches are prudently made after entering into a contract for the purpose of ascertaining whether the vendor is then in a position to transfer title in accordance with the contract, and while searches may sometimes be made before exchange, there is no substance in the proposition that anything which careful searches would disclose to a purchaser if title searches were made before exchange is in effect disclosed by the vendor. A purchaser who knew what was said in the contract about road widening proposals, reinforced by the implied warranty, could not reasonably be expected to make searches and ascertain that the express disclosures were not correct and that a different story underlay the reference to a plan of acquisition in the search paper. The position might be different if other attached documents did not say there was no road widening proposal; but that is not this case.”

230 In my view, one cannot say that an affectation is or is not disclosed by the application of some formula. It is a question of fact in each case. It is really inappropriate to refer to “constructive notice”: what is required is to consider all the material in the purchaser’s possession to see of what the purchaser was aware. Whilst it may be that if the only material on the subject is a bald notification on a certificate of title, one might conclude that there was disclosure, where there are a series of statements in a contract and in requisitions that the affectation does not exist, a trial judge is entitled to take the view, as the primary judge here did, that there has not been disclosure of the road affectation.

231 As to whether Mr d’Albora would have entered into the contract if he had known of the road widening proposals, the primary judge accepted Mr d'Albora’s affidavit evidence that that was the situation; see [25] and following.

232 However, Mr Fernon says that there was really no evidence upon which his Honour could have based that finding. It is submitted that the onus of proving that, but for the misrepresentations, the contract would not have been entered into was on Jainran and what his Honour did was, in effect, reverse the onus of proof.

233 I do not accept that submission.

234 I can understand that the interests opposing Jainran might suspect that there were other reasons for rescinding the contract as it would appear that Jainran had received a valuation which showed it may have paid too much for the property. However, the evidence did not allow a conclusion to be reached that that was the basic reason for the rescission rather than a factor that assisted in the motivation.

235 As far as misrepresentation is concerned, the court is usually entitled to say that if there is a significant misrepresentation and the affected party rescinds and there are no complicating factors that the misrepresentation was the basis of the rescission.

236 The primary judge referred at [25] to the fact that in oral evidence Mr d’Albora was asked about what he would have done in a hypothetical situation where the road widening proposal had in fact been disclosed to him. “This was much explored in cross-examination, and a significant passage is at T75: after referring to para 27 of Mr d’Albora’s affidavit:

‘Q. In the second last line you say, “if I had been told there was a proposal by the RTA to widen the road immediately in front of the property I would not have entered into a contract to purchase it, and would not have proceeded further until I had received an expert report satisfying me that there was no impact on the property as a service station and convenience store site, or the business being operated from the site”, correct?

A. Yes.

Q. And I suggest, sir, that in that aspect of your affidavit you were intending to say to the Court that you would have in effect obtained a report to determine what the impact would have been on the property as a service station site?

A. I would have.

Q. And if that report had disclosed that there was no impact, or no detrimental impact on the property then I suggest, sir, you would still have proceeded to acquire the site?

A. If I received a report that says there was no impact on the site I probably would get a second report because I would have trouble believing that with what I know now.

Q. Even so on obtaining that if you had obtained such a second report, and it still disclosed there was no impact on site, then would you still have proceeded to purchase the property, correct?

A. If it satisfied me that there was no, no impact on the site.

Q. The answer is yes?

A. Yes.

Q. Because the site was still an attractive site for you, wasn’t it, given the long term lease that was in place?

A. Yes.’ “

237 The primary judge assessed that evidence as indicating to him that if he had a more concrete hint of a problem Mr d'Albora would have “set off on a chain of inquiries and considerations which never happened; the outcome of that chain of inquiries cannot be known and is available only by speculation”: at [26]. His Honour further found that it was “clear that a course Mr d’Albora would not have taken if he had been aware of the existence of the failure to disclose the road widening proposal is entering into the contract by exchanging contracts on 28 May 2004.”

238 The primary judge was well within his mandate in making these findings.

(2) Non-disclosure of legal proceedings against Boyana

239 Although the primary judge preferred Mr d’Albora’s version of the conversations he had with Mr McGarity, he seems to have accepted Mr McGarity’s evidence that, when asked about the tenant, he replied that the vendor and the tenant did not like each other.

240 The primary judge’s reaction was to say at [58] that the statement about the tenant and the landlord not particularly liking each other was an “understatement of the truth. However this was completely inadequate and misleading; to say that the tenant and the landlord did not particularly like each other as the tenant had originally wanted to buy the property himself concealed an important fact which Mr McGarity knew, that there was litigation pending over obligations under the lease.”

241 The basal facts of that litigation as outlined by the primary judge at [63] and following were that: “the Jo-Al proceedings were commenced on 30 December 2003 in the Equity Division. Jo-Al alleged a number of breaches of the agreement to lease pursuant to which the lease was granted, and a number of misrepresentations made before the agreement to lease. There were also claims relating to repayment of a loan of $300,000 by Jo-Al to Boyana to enable Boyana to complete construction of the service station, and to misrepresentations about investigations and surveys of traffic flows and customer base of the proposed business and its projected gross sales. [Jo-Al] alleged that the agreement for lease had been induced by misrepresentations. The Defence filed on 24 March 2004 alleged that there had been an agreement to set-off the $100,000 against rent for September, October, November and December 2002 and part of January 2003. The claims in the Statement of Claim and proposals to resolve them had been dealt with in a lengthy correspondence before action between solicitors which began on 11 December 2001, in the course of which Jo-Al by its solicitors argued for an extra rent-free period based on hardship, said that the business was unable to sustain the rental payments and sought a negotiated reduction of the rent.”

242 His Honour continued at [647]: “The correspondence before the Jo-Al litigation began included many indications that Jo-Al and Mr Deevey did not regard the leasehold relationship, the arrangements for rent and other aspects as satisfactory. Mr Deevey had other complaints, and one was that he objected to his curriculum vitae being used in connection with attempts to sell the property. There were assertions that the business was unable to meet its rental obligation under the lease and that rent adjustments would bankrupt the business, and that Mr Deevey wished to meet any new owner to discuss rent commitments. ... There were many months of correspondence, some of it quite forceful in its terms, expressing grievances about the leasehold relationship, principally about the rent, and seeking relief, culminating in the litigation. The existence of these long-standing and continuing expressions of grievance made the serene depiction in the brochure misleading and deceptive.”

243 The primary judge found at [65] that R & H “knew something but not much of this history. Mr Shatford’s evidence shows that Mr Sgro told him by telephone on 20 January 2004 that Mr Grassi had received a letter from Mr Deevey which could present a problem which he would discuss with Mr Grassi, the solicitor. On 4 February 2004 Mr Sgro telephoned Mr Shatford and told him that Mr Deevey had asked for rent relief and there was a court case pending.”

244 There was then a meeting on 6 February 2004 at the Heritage Terrace Cafe at Penrith attended by Mr Sgro, Mr Shatford and Mr McGarity. Mr Shatford told Mr Sgro that R & H needed to find out more about what was happening about rent relief and the court case.

245 Mr Sgro said that it was a claim by the tenant for rent relief which he was not prepared to grant. He further said that Mr Deevey is a good operator and has a good business. He has had no trouble paying the rent and that Mr Sgro will personally meet with any prospective purchaser to satisfy them in that regard.

246 Mr Sgro further said that the court case relates to the payment of moneys by Mr Deevey towards the construction of the property which he intended to form part of the deposit for a proposed purchase of the property by him and that the case posed no problems whatsoever with the sale.

247 The primary judge found at [69] that this history of correspondence, dispute and litigation of itself shows “that the serene depiction of the leasehold relationship made in the brochure was misleading and deceptive. It also shows that the answer to requisition 5 in the contract of sale was false. It also shows that Mr McGarity was not frank, but was untruthful, in his conversation with Mr d’Albora on 24 May.”

248 Mr Fernon challenges this finding. He first submits that the primary judge seems to have overlooked the fact that the Jo-Al proceedings did not challenge the validity of the lease or any interest in the property: it merely sought damages against Boyana.

249 Thus, Mr Fernon submits, the requisition which sought details of any litigation “which might or will affect the property” was appropriately answered.

(3) The removal of special condition 51

250 In an earlier sale of the property which was not completed and with earlier attempts to sell the property, the contract or draft contract included an additional clause which was numbered 51. No complete draft of this clause was produced in evidence. However, the primary judge found that, had it been included, it would have disclosed the fact that the tenant had a rent free period on the first five months, expiring 2 September 2002, then a rent subsidy of $100,000 and then, there was a further $12,000 to be paid by the vendor to the tenant in consideration of the tenant disclosing its trading figures to the vendor: see judgment at [79].

251 The evidence showed that the clause was omitted after discussions amongst Messrs Sgro, Shatford and Grassi that the draft contract should be revised. In particular there had been allegations that draft clause 51 was confusing by at least one solicitor for a proposed purchaser.

252 His Honour explained at [81]: “Additional Condition 51 qualified what cl 14.2 of the lease indicated, because [it] disclosed other arrangements between the parties to the lease which did not appear in the lease. The reader of the lease was told that the lease contained the whole terms of the relationship; this was not correct. Additional Condition 51 had overcome this, and the primary judge held that its withdrawal was the withdrawal of disclosure of a respect in which the terms of the contract including the attached lease were misleading.”

253 The primary judge also held at [83] that: “There was misleading conduct of R & H in continuing to make the disclosures in the brochure but no longer making the disclosures which had earlier been made in Additional Condition 51, the absence of which contributed to the tendency to mislead or deceive.” His Honour concluded his finding by saying, “Like the work of JMW Turner on Varnishing Day, the picture was transformed by deft omission”.

(4) The requisitions and their answers

254 The primary judge devoted an excursus to the topic of the way in which the requisitions and their answers affected the result of the case.

255 I have already set out the provisions of the contract dealing with requisitions and the key requisitions and answers.

256 In [127]-[129] of the judgment, in the excursus on requisitions, the learned primary judge said at [127] that “the purchaser could make the requisitions in exercise of its right to make requisitions under Printed Clause 5, but that as the purchaser did not make requisitions within 21 days as provided by Printed Clause 5.1, by adopting the requisitions annexed to the contract or in any other way, the requisitions and the answers to them have no significance.”

257 At [127] his Honour said: “According to a contention made by counsel for the first and third defendants the annexed document ‘requisitions on title’ is a standard form of requisitions and replies; counsel contended that this appears from requisition 1(b) which offers an opportunity to furnish a different reply in column 2 to the printed replies which appear in column 1 and begins ‘Any reply in column 1 should be altered when it is inappropriate or inaccurate in respect of the property ...’ .”

258 His Honour continued at [127]: “Counsel contended that the printed answers to requisitions would be significant only if the requisitions were made, and if the vendor replied to the requisitions and adopted the replies; but on the other hand it was open to the vendor, if requisitions were made, to cross out an answer and give a different answer in column 2.”

259 The primary judge ruled at [128] that that was the wrong, and indeed altogether impossible, reading of the contract. “No-one reading or signing the form of contract would think otherwise than that the vendor gave the information in the answers to requisitions, and did so when proffering the document for the purchasers to sign, and when exchanging contracts.”

260 His Honour ruled that “Printed Clause 10.1.9 makes this the ordinary and natural meaning of finding the requisitions and answers annexed to the contract. This is reinforced by Printed Clause 20.2. The same is stated in another way in Additional Clause 30.4(a). If a purchaser made requisitions in the terms of the requisitions annexed to the contract, the only general form he could use [cl 44], the vendor would not be obliged to reply because Printed Clause 10.1 prevents the purchaser from making any requisition in respect of anything the substance of which is disclosed in the contract. The answers to the requisitions have already been disclosed.”

261 Thus, as his Honour said at [129]: “the significance of the requisitions and answers is that the vendor, and Mr Sgro as its principal stated clearly to the purchaser before and at the time of making the contract that (requisition and answer 5) the vendor was not aware of any contemplated or current legal proceedings which might or would affect the property and (requisition and answer 22) that the vendor was not aware of any proposal such as is referred to in Deposited Plan 791852.”

262 The primary judge at [129] held that “both these replies were clearly false: they were misleading and deceptive. The suggestion that the reference to DP 791852 in a notation on the title search meant that the purchaser should be taken to have knowledge of everything that could be known from making searches and seeing what could be known from the plan is completely answered by the fact that the contract states elsewhere that the vendor is not aware of anything of the kind which the plan discloses. Only in disregard of information furnished in the contract would it occur to the purchaser or its legal advisers that it should investigate what was on DP 791852.”

263 I will later deal with the significance of a false answer to a requisition as deceptive and misleading conduct. I will here deal with the matter as a representation which could lead to rescission.

264 The effect of false answers to requisitions is not completely clear. Voumard, The Sale of Land, 6^th (Loose-leaf) edition at [10.540] says that there is a “somewhat surprising absence of clear and direct authority as to the effect of an incorrect answer to a requisition.” The learned author then splits requisitions into requisitions strictly so called and inquiries. He says that in the case of requisitions strictly so called, an incorrect answer operates as a warranty on whose truth a purchaser can freely rely and sue upon: in the latter case it operates as a representation, see Mahon v Ainscough [1952] 1 All ER 337.

265 In my view, the primary judge was correct in the way he considered the standard requisitions. Unless the standard answer is modified, the standard requisition and standard answer amount at the very least to a representation. If incorrect, even innocently, that may well give the purchaser cause to rescind the contract. It had that effect in the instant case.

266 It follows that there is no need to consider whether otherwise the deposit should be refunded pursuant to s 55(2A) of the Conveyancing Act.

(5) The finding that Jainran was entitled to rescind and recover its deposit

267 It follows from what I have said that that Jainran was entitled to rescind the contract and to recover its deposit.

268 Although I have had to spend considerable time getting to this point, in practical terms it means very little. This is because the deposit was released to Boyana which it would seem now has no assets. However, fortunately, a considerable amount of what has been discussed is relevant to the Trade Practices case (section 2B of this judgment).

(6) The result

269 It follows that the appeal on this aspect of the matter must be dismissed.

2B. Boyana/Sgro v Jainran - Trade Practices Case

(1) Alleged misleading and deceptive conduct

270 The primary judge found that there was deceptive and misleading conduct in the following matters:

(i) Misrepresentations in the very terms of the draft contract for sale at [6] including (a) the treatment of the road widening proposal; and (b) the lack of problems with the tenant;

(ii) Misrepresentations in the answers to requisitions at [28];

(iii) Misrepresentations in Mr McGarity’s conversations with Mr d’Albora both by what was said and what was not said at [62];

(iv) Misrepresentations in the advertising brochure;

(v) Misrepresentations as to the tenancy at [64];

(vi) Misrepresentations by the removal of draft clause 51 without compensating disclosure at [81].

271 There is clearly overlap amongst these six categories and, indeed, one must judge misrepresentations by the totality of the effect of what was said and not said and, in one sense, splitting the facts into categories is unhelpful. However, for analysis purposes, it needs to be done.

272 I have already dealt with (i) and (vi) and deal further with (ii) in the next following paragraph. I have touched on the other matters, but need to consider further aspects of them.

273 The requisitions and their answers were misrepresentations. When viewed in the context of the entire transaction, they also constituted a goodly part to the whole conduct of the vendor’s side being guilty of misleading and deceptive conduct.

274 As to (iii), I have already summarized some of the conversations that Mr d’Albora had with Mr McGarity before the contract was signed. I have noted that the two men gave different versions as to some vital parts of those conversations and, where this occurred, the primary judge preferred Mr d’Albora.

275 The primary judge said that he did not consider the conversations were as significant in the whole of the case as the documents. However, the primary judge found at [69] that Mr McGarity was untruthful and not frank in his conversations with Mr d’Albora.

276 As to (iv), the primary judge considered the misleading nature of the advertising brochure was one of the most significant matters in his decision.

277 In particular the brochure praised the tenancy relationship and noted that because of it the investment was solid with the shop and service station leased to a highly experienced operator.

278 It was clear to everybody that the purchaser was looking for an income-producing investment so that the situation with the tenancy was of the utmost importance.

279 I have already set out many details with respect to the brochure and its preparation and the involvement of the various actors in its preparation in section 1: Background facts.

280 As I have noted earlier, the primary judge found at [69] that this history shows “that the serene depiction of the leasehold relationship made in the brochure was misleading and deceptive”.

281 Mr Fernon puts that in evidence Mr d’Albora accepted that there was no guarantee that the information contained in the brochure was accurate and realised that he would need to make his own enquiries. Further, Mr d’Albora acknowledged that he had read and understood clause 37.3 of the contract which I have set out earlier at [207] of this judgment.

282 These submissions have some validity. However, one must judge the situation as a whole. The evidence as a whole showed that in fact the brochure was prepared to attract investors like Jainran and its employment by Mr McGarity in securing the contract read in the light of the other surrounding circumstances mean that the factors stressed by Mr Fernon do not have the significance they might otherwise have.

283 R & H submit that it is necessary to ask whether a reasonable prospective purchaser would have a reasonable expectation that the brochure would provide accurate information upon which he could rely.

284 The submissions noted that the primary judge found at [97] that there was nothing that was untrue or fraudulent in the brochure. This is correct, though this finding was followed with the words, “the conduct in communicating the material without qualification ... was ... misleading ... having regard to the” known facts.

285 R & H say that another relevant fact is that Mr d’Albora was clearly an extremely acute and shrewd businessman and must have been accustomed to the common puffery and exaggeration employed by salespeople.

286 Indeed, R & H submit, the evidence shows that Mr d’Albora placed much more significance on the contract than on the brochure.

287 That last statement may be true, but I consider that the primary judge was justified in treating the brochure and the conversations before it was handed over as significant in the whole factual circumstances of misrepresentation.

288 As to (v), Mr Sgro claimed that the tenant’s claims were baseless. His Honour remarked at [73] that if this was so “or [even if] Mr Sgro truly believed that they were [baseless], the existence of the proceedings would still be adverse to the defendants' case.”

289 The primary judge correctly said at [73] that “if the tenant is a person who brings baseless proceedings against his landlord, that fact would disturb the serene picture projected by the brochure. If the tenant had a long history of claiming rent relief on bases which were unjustified so as to try his luck, that too was significant. A tenant who is a continuing source of baseless trouble could not be reconciled with the brochure.”

290 There was great stress laid upon the fact that the tenant’s proceedings were a mere personal action and did not impinge on the validity of the lease as a piece of property. With respect, this is misdirection. The circumstances were that the purchaser was seeking a good investment property. It was being assured that the tenant was good and the investment sound. However, the matters referred to by the primary judge showed that there was considerable doubt about those statements.

291 R & H, and also to an extent, Boyana, submit that it is unrealistic to take the statements in the brochure as anything more than mere puffery.

292 Mr Rayment quotes the words of Davies and Einfeld JJ (with whom Gummow J agreed) in General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; (1993) 117 ALR 629 at 642:

“in the ordinary course of commercial dealings, a certain degree of ‘puffing’ or exaggeration is to be expected. Indeed, ‘puffery’ is part of the ordinary stuff of commerce. So also is a certain degree of ‘put-off’ evasion or obfuscation by commercial people seeking to resist disclosing information ... .”

293 However, statements like this take the matter nowhere as one has to judge where to draw the line between exaggerated sales talk and misleading and deceptive conduct, between a commercial gilding of the lily and misrepresentation.

294 That drawing of the line is a matter of fact for the trial judge and I do not see any appealable error in his Honour’s finding in the present case.

295 I have already set out some of the principal submissions as to why the brochure and other conduct was not misleading and deceptive. The primary judge held otherwise: there was ample material on which he could make that finding and the submissions made against that view do not incline me against that view.

296 Ultimately, there was no challenge to the finding on reliance.

(2) The finding that Sgro was personally responsible for misleading and deceptive conduct

297 As I have noted, Boyana appears to be devoid of assets and so the practical importance of the result of this appeal is whether the verdicts against Mr Sgro and/or R & H can be retained.

298 The primary judge’s findings of Mr Sgro’s personal liability are to be found in [90]-[92] of his reasons which contain the following propositions:

A. Mr Sgro is and was the only director of Boyana, it has no other officer, manager or other staff.

B. Mr Sgro is the only possible source of instructions upon which the contract was prepared; and he signed the contract on behalf of Boyana. His position is quite unlike that of a manager, sales representative or other employee of a corporation who takes some part in its affairs which brings him under consideration for his engagement in misleading or deceptive conduct.

C. Mr Sgro is the human embodiment of the company and all its actions were his actions; in particular, putting the form of contract forward for exchange, signing the duplicate original and participating in the exchange was all conduct in which both of Boyana and Mr Sgro engaged, and representing all facts represented by the terms of the document was conduct in which both of them engaged.

D. Unless Mr Sgro had done these things there would have been no exchange of contracts; the conduct in which Mr Sgro engaged was directly causative of Jainran’s entering into the contract, with all the representations of fact in it.

E. Mr Sgro saw the contract and signed it, with its inherent deficiencies, and he was of course fully aware of the true facts relating to those deficiencies; the existence of legal proceedings, the road widening proposal and the difference between the provisions of the lease relating to rent and the arrangements which had actually had effect.

F. Mr Sgro cannot escape liability for his engagement in misleading and deceptive conduct by showing that he did not know of the inclusion of the requisitions and answers, or of the planning certificate in the contract; his evidence was to the effect that he had no recollection of their inclusion and that he had no awareness of the reference to the road widening affectation. He no less engaged in the conduct of putting forward the contract in the terms it had and entering into the contract whether or not he had a full understanding of what he was doing; he can no more escape on this ground than Boyana can.

G. The conduct was misleading and [Mr Sgro] engaged in it. Limited understanding of what he was doing is not relevant, his liability is the product of its own conduct, and not only of the provisions of s 75B of the Trade Practices Act relating to aiding, abetting, counselling and procuring conduct.

H. If not otherwise liable Mr Sgro would be liable as an abettor under section 75B.

I. Representations made by R & H, whether in writing or orally, should be attributed to Boyana and Mr Sgro, and in so far as they are misleading or deceptive, Boyana and Mr Sgro engaged in misleading or deceptive conduct in making them.

299 Mr Fernon challenges many of these propositions and submits that the primary judge has virtually overruled the line of cases which commences with Saloman v A Saloman & Co Ltd [1897] AC 22 and has identified the controller of a one man company and the company itself as virtually one person.

300 One’s first reading of his Honour’s comments incline one to agree with that submission.

301 However, Mr Climpson submits that when one reads what his Honour said in context, propositions E and F mean that, to the extent that representations were made in the draft contract, particularly with respect to the road widening and the Jo-Al matter, such conduct was equally the conduct of Mr Sgro as it was of Boyana for the purposes of s 52 of the Trade Practices Act.

302 The High Court has indicated that there can be situations where an act is both the act of a corporation and the act of an individual; see eg Hamilton v Whitehead [1988] HCA 65; 166 CLR 121 at 128 and Houghton v Arms [2006] HCA 59; 225 CLR 553 at 568 [46].

303 Mr Climpson says that the primary judge found that Mr Sgro not only put forward the contract, when he did so he knew of an array of facts which seriously qualified the accuracy of the picture presented. He approved of the brochure and, indeed, had sent to R & H some of the documents from which it was prepared. He had “fobbed off” various enquiries made by R & H in relation to Jo-Al even though he knew that he had facts which seriously qualified the facts set out in the brochure.

304 Further, it is submitted that Mr Sgro gave instructions to the agents including the removal of draft clause 51 and kept insisting that the Jo-Al proceedings had no impact on the sale. He obtained the s 149 certificate attached to the contract.

305 There is no doubt that Mr Sgro did do these things. The question is whether they were solely done as a director of Boyana or whether they were also done on his own behalf.

306 This was a question of fact for the primary judge who decided it against Mr Sgro and this was within his mandate.

307 The appellants submitted that there was not enough material to find accessorial liability of Mr Sgro under s 75B of the Trade Practices Act in the light of Yorke v Lucas [1985] HCA 65; 158 CLR 661.

308 Section 75B of the Trade Practices Act provides that a person who aids, abets, counsels or procures a contravention of particular parts of the Act or is in any way directly or indirectly concerned in or party to such contravention is personally liable for that contravention.

309 In Yorke v Lucas, the High Court held that what was required to show liability under the section was that the person in question had knowledge of the essential elements of the contravention.

310 Jainran argued that Mr Sgro knew and supported the decisions to remove draft clause 51 from the draft contract and knew that he had only given limited information in respect of the Jo-Al proceedings and did so to boost the material that he knew that R & H would deploy in their “fresh approach” to marketing the property. Mr Sgro, thus, had knowledge of the acts which constituted the contravention and the circumstances which gave those acts the character of being misleading and deceptive.

311 Mr Sgro submitted that the misleading and deceptive conduct involved a number of elements. These were the misleading answers to requisitions, problems with the s 149 certificate annexed to the contract, the form of the contract and the brochure. Mr Sgro knew nothing about most of these matters and the information he did give the agent was truthful.

312 There was no evidence at all to show that Mr Sgro had any knowledge about the problems with the requisitions or the s 149 certificate, or indeed that he had even seen the brochure after the Jo-Al proceedings had been commenced.

313 As to this last matter, counsel referred us to Mr Shatford’s affidavit evidence at Blue 352-353 where he said that in September 2003, he received information from Mr Sgro to enable him to prepare the brochure. In a telephone conversation with Mr Sgro, Mr Sgro had told Mr Shatford that he was happy with the brochure.

314 The Jo-Al proceedings did not commence until December 2003 and the brochure was not handed to Mr d’Albora until May 2004.

315 Mr Fernon says that there was no evidence to show that Mr Sgro knew that the brochure was being handed out, unamended in May 2004.

316 I consider that there is insufficient in the evidence to show that Mr Sgro had a sufficient degree of knowledge of the matters which have been held to constitute misleading and deceptive conduct on the part of R & H to make him liable for that conduct under s 75B.

(3) The Result

317 It follows that the appeal of Boyana against Jainran must be dismissed with costs, but that the appeal of Mr Sgro against Jainran should be allowed with costs.

3. Boyana/Sgro v the agent

(1) The finding that the agent was entitled to commission

318 In accordance with R & H’s standard practice, it provided Mr Sgro and Boyana with a form of agency agreement.

319 That agreement included cl 2, giving selling rights, and cl 3 conferring an entitlement to a fee "If during the agency period they effectively introduce a purchaser of the property who subsequently entered into a binding contract". Condition 8 provided that: “the sale of the property is to be advertised and/or otherwise promoted ... as discussed between agent/vendor.”

320 Clause 11 of the agency agreement provided that the commission was “due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the Principal after the parties have entered into a binding contract.”

321 Section 55 of the Property, Stock and Business Agents Act 2002 provides that an estate agent is not entitled to commission except pursuant to an agency agreement signed by or on behalf of the person for whom the services were performed.

322 Mr Sgro argued at first instance that he had never signed nor returned to R & H the draft agency agreement which R & H had given him.

323 The primary judge found against him on that issue finding that Mr Sgro continually shifted his position from admitting that he might have signed the document but could not now remember to outright denial: see [132].

324 However, the evidence of Mr Shatford in his affidavit of 28 June 2007 was that the agreement was never returned to him. His Honour seems to have given little weight to this fact.

325 The finding that Boyana would have been dishonest to use the services of the agents knowing that the agreement had not been signed, is, as Mr Fernon submits, of insufficient substance on which to base a finding that the agreement must have been signed. The agency of R & H was never in dispute, nor the terms of the agency agreement; however, the existence of an agreement signed by Boyana was disputed.

326 It may well be unconscientious or even dishonest to use the services of an estate agent not intending to pay for them, but whether that is correct or not, s 55 of the Act must be enforced.

327 The onus was on R & H to prove that Boyana had signed the agency agreement. It could not produce any such agreement and Mr Shatford swore that the agreement was never returned. Mr Sgro initially said that he might have signed it and did not produce under subpoena any copy of it signed or unsigned. The primary judge did not believe Mr Sgro. However, to my mind in the light of the evidence on R & H’s side of the case, that in itself would be insufficient to discharge the onus that the agreement was signed.

328 There was discussion of the principle endorsed by the High Court in Allen v Tobias [1958] HCA 13; 98 CLR 367 at 375 that if a person cannot produce a document which he has allegedly signed and says he has destroyed it, yet he has acted as if the document was in force, the presumption of regularity applies and the finding can be made that the document was signed.

329 The primary judge applied this principle on the grounds that non-production on subpoena was virtually the same as the destruction of the document. The reasoning is that Mr Sgro could have produced the unsigned document if he had it. Thus, the inference must be that he had signed it and sent it away or else he had signed it and retained it.

330 The primary judge put these matters together and added the fact that he found Mr Sgro an unreliable witness and found that, on the balance of probabilities the agency agreement was signed: see [132]-[133].

331 Were I to decide the question of fact for myself, I would have been sufficiently unsure to have found that R & H had discharged its onus of proving that the document had been signed.

332 However, I cannot say, under the principles of Fox v Percy [2003] HCA 22; 214 CLR 118, that his Honour’s view is so glaringly improbable or contrary to clear inferences that this court should interfere with it.

333 The other point on this aspect of the case is whether, in any event, R & H was entitled to commission.

334 Clause 3 of the agency agreement gave R & H an entitlement to commission if they were the effective introducer of a purchaser who signed a contract of sale. This occurred. However, cl 11 provided that the commission was payable on completion (which never occurred) unless completion did not occur owing to the principal’s default.

335 However, clause 11 ends with the words “after the parties have entered into a binding contract”.

336 Boyana says that these words qualify “default’ and there was no default of the principal after exchange of contracts.

337 The primary judge rejected that submission at [136]. He said that “this contention was not based on a correct reading of cl 11, as the reference to the parties entering into a binding contract is a statement of one of the conditions upon which entitlement to a fee depends, not a limitation of the defaults of the principal which are relevant to entitlement to the fee.” He could not see “any reason for which the parties might have decided to limit defaults of the principal to defaults occurring at a relatively late stage.”

338 The primary judge said at [136] that “on the fair and correct reading of cl 11, the temporal reference is to the time of completion or of demand after non-completion, not to the time of the default of the principal.”

339 I would agree with the primary judge’s construction.

340 On the primary judge’s findings the contract for sale was not completed owing to default of the principal.

341 Thus, this part of the appeal must also fail.

(2) The finding that Mr Sgro owed and breached the duty of care to the agent

342 Although there was nothing explicit in the agency agreement, it is clear that there was an implied term that Boyana would indemnify its agent against loss in respect of its faithfully carrying out the transaction.

343 Because of this, there is no need to consider whether Boyana owed a duty of care to its agent either in contract or tort.

344 However, the primary judge held at [138] that “Mr Sgro incurred a duty of care to prevent economic loss to R & H caused by the information and instructions which Mr Sgro gave to R & H, on behalf of Boyana.” His Honour acknowledged that there was no real debate before him on this question, but said that as Boyana had to indemnify its agent, by analogy “the law imposes a duty of care with respect to economic loss on Mr Sgro as he, as the personification of Boyana gave instructions to R & H under which R & H was to act in the obvious risk of incurring liability if they engaged in misleading or deceptive conduct by conforming with the instructions”: see [139].

345 His Honour said at [138] that “there was plainly foreseeability of economic loss to R & H if R & H should incur liability under the Trade Practices Act or in some other way in respect of information passed on to prospective purchasers substantially based on what Mr Sgro told them and the instructions he gave to them”. He said that “the vulnerability of R & H, in relation to Mr Sgro [was] also plain, as he was in possession of the relevant material and, in their commercial relationship, likely to be the only source of commercial information on which they would act.”

346 The primary judge then reviewed Mr Sgro’s involvement in the transaction and said at [140] that “Mr Sgro let R & H proceed with conduct which incurred liability, as from his point of view was plainly likely; in doing so he acted in breach of his duty of care to R & H and he is himself liable to them in damages.”

347 Thus, the judge said, “R & H were for all practical purposes entirely in Mr Sgro's hands as to what they were to do, if they were to act at all; in this way they were in the relevant sense vulnerable.”

348 The word “vulnerable” in the present context is to be understood as defined by the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515 at 530 [23]:

“‘Vulnerability’, in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather ‘vulnerability’ is to be understood as a reference to the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.”

349 The judge then said at [140] that he had reviewed the considerations which the court addresses where it is contended that there is a duty of care with respect to economic loss in Chandra v Perpetual Trustees Australia Ltd [2007] NSWSC 694; 13 BPR 24,675 at [74]-[99] and [114]-[129] to which he adhered. He saw a close parallel between the responsibility of Boyana to R & H, responsibility to indemnify, and the position of Mr Sgro, completely controlling Boyana, as strongly supporting the imposition on him of a duty of care with respect to economic loss.

350 Mr Fernon notes that his Honour does not state how it is that the agent was not able to protect itself in relation to the instructions it received.

351 Indeed, it is hard to see how a professional estate agent, an alleged specialist in commercial property dealings, could in any way be considered as at the mercy of the customer. Such people are seldom considered to be “vulnerable”; cf Borzi Smythe Pty Limited v Campbell Holdings (NSW) Pty Limited [2008] NSWCA 233 at [56]. At the very least it could have stipulated for a warranty about the information supplied by the customer to amplify its implied indemnity.

352 Mr Fernon points out that the situation here was that Mr Sgro instructed a professional in the business of marketing real estate. He was looking for advice and expertise in the marketing. Nothing Mr Sgro told the agent was untrue: the most that can be said is that he did not tell the whole truth.

353 R & H have an implied indemnity from Boyana which in theory covers it for all liabilities suffered in carrying out the principal’s instructions. However, as Boyana seems to be without assets that is cold comfort.

354 The fact that the indemnity is of little value because the customer is without assets is no ground in itself for saying that the controller of the customer owes a duty of care.

355 There is no authority which directly supports his Honour’s view that a duty of care to the agent arose in circumstances such as the present. With respect to his Honour, the facts he found were, in my view, insufficient to find a duty of care.

356 There was also a claim made that Mr Sgro was liable to R & H because of the operation of s 75B of the Trade Practices Act.

357 I have already considered the operation of that section under section 2B(2) of these reasons.

358 The amended second-cross claim filed by R & H included a claim that Boyana’s conduct towards it was misleading and deceptive.

359 However, the primary judge does not appear to have made a finding that that claim was made out or that the agent relied on any such alleged misleading and deceptive conduct.

360 Although the primary judge was clearly unimpressed with Mr Sgro and considered that he fobbed off the agent, it is true that he did not make a finding that Boyana acted in a misleading or deceptive manner against the agent. Of course he did not need to do so in view of his decision on the implied indemnity provision.

361 The material does not enable me to find that there was misleading and deceptive conduct towards the agent which it relied upon. Although Mr Sgro did not tell the agent the whole story, the agent was a professional in the real estate marketing business, it was able to ask questions and, indeed it did so.

362 Thus, I do not consider that Mr Sgro is liable to the agent under s 75B.

363 In my view, this part of the appeal should succeed on this ground and orders made requiring Mr Sgro personally to pay damages more or less to indemnify the agent against loss must be set aside.

4. Conclusions about the First Appeal

364 For the reasons given above, the appeal (40248/08) must fail, save in respect of the finding that Mr Sgro is personally liable to pay damages to be assessed in respect of breach of a duty of care.

5. R & H v Jainran

A. Generally

365 I have already canvassed some of the factual matters which arise under this head earlier in these reasons.

366 It is to be noted that the appeal based on the challenge to the primary judge’s finding on reliance was abandoned.

367 One of the matters which led to the primary judge’s findings of misleading and deceptive conduct against R & H was connected with the understanding that R & H were said to have had about the problems with the tenant. This led, in the primary judge’s words to R & H knowing that the “serene picture” being painted about the tenancy was questionable. This state of affairs was made worse by the deletion of draft clause 51.

368 The primary judge said at [84] that “The terms of the disclosures in Additional Condition 51, the enquiries which had resulted from those disclosures [with earlier proposed purchasers], expressions of disinterest relating to them from prospective purchasers and the part taken by R & H in the removal of Additional Condition 51 and its disclosures strongly reinforce other proofs that the disclosures that were made to Mr d’Albora, in the brochure and otherwise, were misleading because they depicted the relationship as it would appear if the matters disclosed in Additional Condition 51 had not happened; as well as depicting it as if the lengthy correspondence, grievances and litigation had not happened.”

369 The primary judge said that, insofar as it is relevant, “[while] R & H may not have known all the circumstances which made the disclosures to Mr d’Albora misleading or deceptive, they knew a substantial part of them, quite enough to demonstrate to R & H, if an objective view had been taken, that the conduct in which they were engaged was misleading and deceptive. He said that the position is much the same whether or not Mr Shatford had ever read Additional Condition 51; his evidence was to the effect that he knew of its contents vaguely, it is clear that he knew sufficient of its contents to seek its removal.”

370 The primary judge found that although R & H had been provided with little information it had enough and that Mr Shatford had an altogether sufficient understanding of the matter to demonstrate to R & H if an objective view had been taken that the conduct in which it was engaged was misleading and deceptive: see [84].

371 Mr Rayment challenges that finding. It is expedient to first deal with the submissions made to the effect that R & H was, and was known to be, a mere conduit for the representations of its customer.

B. The Conduit Defence

372 The term “mere conduit” derives from a judgment of French J (when a member of the Federal Court) in Gardam v George Wills & Co Ltd [1988] FCA 194; (1988) 82 ALR 415 at 427. As his Honour said in that case, whether or not the defendant is a “mere conduit” is a question of fact.

373 One could argue, especially in the light of subsequent cases, that asking whether the defendant is a “mere conduit” is not an accurate statement of the defence that a person is not itself engaged in misleading or deceptive conduct just because it passes on a false statement. However, the tag has become common and is useful as such.

374 In Yorke v Lucas (supra) the High Court ruled that if the person sued is “not the source of the information and it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, [it is difficult to say that that person] is itself engaging in misleading and deceptive conduct”: see p 666.

375 The present case, admittedly, did not involve any express disclaimer. However, R & H argued that the existence or non-existence of a disclaimer was not fatal to this line of defence. It is sufficient if a reasonable person in the position of the plaintiff could reasonably treat the relevant statements as being information merely being passed on.

376 Of course, information passed on, may still be considered to be material endorsed by the passer on, such as “Dr Jones maintains, and I know her to be the leading authority in the field, that...”.

377 The High Court re-examined the law in this area in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592. In that case estate agents had issued a brochure which contained misleading material. The brochure contained the statement that the information had been obtained from other people, it was believed to be reliable, but purchasers should make their own enquiries.

378 At 605 [38]-[39], the High Court (Gleeson CJ, Hayne and Heydon JJ) re-endorsed what it had said in Yorke, but added that it was too artificial just to examine the content of the material to determine whether there was an express or implied disclaimer. What was required was to examine the agent’s conduct as a whole to determine whether the agent merely passed on information without endorsing it.

379 McHugh J dissented in the result. However, his analysis was not inconsistent with that of the majority. At pp 629-630 [123] McHugh J said that there were three situations where a person who gave information which was misleading or deceptive would not be liable under the Trade Practices Act, namely “(1) where the circumstances make it apparent that the [defendant] is not the source of the information and ... disclaims any belief in its truth or falsity, ... (2) where the [defendant] ... disclaims personal responsibility for [the information] ... and (3) where the [defendant], while believing the information, ensures that its name is not used in association with the information.”

380 The most recent consideration of this defence by this court is Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Limited (supra).

381 In that case, Basten JA focussed on what effect the agent’s statement would have had on a prospective purchaser. Could such a purchaser reasonably assume from the agent’s conduct that the statement was sourced from the agent’s direct knowledge or was he or she merely passing on information received from others? see especially at [82].

382 In the present case, Bryson AJ at [111] quoted from the judgment of McHugh J in Butcher (as produced earlier in this judgment) and then said at [114] that there was “no basis upon which the information conveyed to Mr d’Albora by R & H, in the brochure or otherwise falls within the first situation mentioned by McHugh J. [Further], there was no indication of any kind, express or implied, that R & H disclaimed any belief in the truth or falsity of what they had to say ... . There [was] no echo in the present case of the element of disclaimer of belief in truth or falsity, or of the element of passing on information of which R & H was not the source, the worth of which was left to the judgment of the recipient.”

383 His Honour continued at [115]:

“With respect to McHugh J’s third situation R & H used its name prominently, indeed exclusively in association with the information, and did not allude even distantly to another source. The brochure itself and everything in it is, on its own plain terms, a communication by R & H to whomever should be the recipient. It is full of assurance; nothing in its terms is a suggestion to the effect that R & H did not really know the position and left the recipient to draw his own conclusions. The brochure is full of conclusions. It makes comments, plainly put forward as the comments of R & H, and expressed as conclusions.”

384 The primary judge concluded at [116] that although counsel for R & H had made extensive claims, developed at considerable length, characterising R & H as a mere conduit of information, there was no basis for a finding that R & H put itself forward as a mere conduit of information for which it had no responsibility.

385 The primary judge further said at [116] that the evidence of Mr Shatford established, to the judge’s satisfaction, that he [Shatford] “understood the brochure as his own and R & H’s document. It is in that sense that it is objectively correct to understand it. In purport the brochure is a communication from R & H; no other author is attributed to it, and in fact it was compiled (as Mr Shatford's evidence showed) by Mr Shatford in September 2003 from various sources to which the brochure does not refer.”

386 This was a finding of fact. It was challenged before us. However, the same type of arguments were presented to us as were put to the primary judge. The primary judge was entitled to come to the decision on the question of fact that he reached.

C. Other matters

387 It was put that clause 37.3 of the contract (see [207] above), which provided that the purchaser acknowledged that it was not influenced by anything outside the contract, operated as a defence.

388 The primary judge rightly rejected this contention. He said at [100]-[101] so far as is relevant:

“Entering into a contract with a clause like Additional Condition 37.3 is an illustration of the potency of misleading and deceptive conduct. Courts administering the Trade Practices Act have taken this approach consistently and from the beginning, a notable early instance being Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83. Cross-examinations of Mr d’Albora on Additional Condition 37.3 provided scenes of his embarrassment, scenes of kinds which in no doubt have been enacted many times in litigation under the Trade Practices Act; but their main force in my mind was their illustration of the damage which misleading and deceptive conduct can do. Cross-examination established that Mr d’Albora read and understood cl 37.3, and understood its effect on his contractual entitlement. Counsel made a number of submissions which relied on the limiting effect of Additional Condition 37.3, but sought the benefit of the limitations so imposed on Jainran's contractual entitlements as in some way an answer to its statutory remedies; which they cannot be.

The difference between Jainran's position tested according to its contractual entitlements and its position tested according to its rights under the Trade Practices Act is well illustrated by this passage from Mr d’Albora’s evidence (at t 53):

Q. And you also understood by reason of cl 37.3 that the purchaser in entering into the contract was not relying upon anything that the vendor, Boyana, or its agent had said, in relation to such matters as to the success or otherwise of the business being carried out?

A. Yes.

Q. And in fact not relating at all in relation to any matters relating to the financial return or income it derived from the property?

A. Yes, although I did take it when I asked those questions, I took it what they told me as being correct.

Q. But you also understood, I suggest, no matter what you had been told that you were agreeing that you or the purchaser was not going to rely upon such statements as a basis for entering into the contract, correct?

A. Agreed, although I didn’t expect to be misled either.”

389 His Honour held at [102] that “these answers well illustrate a result which remedies under the Trade Practices Act achieve notwithstanding contractual entitlements.”

390 I cannot see any appealable error in that finding.

391 Indeed the primary judge’s approach is reinforced by what the High Court said recently in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 83 ALJR 903 at 930 [130].

392 The principal other point raised on this issue was whether the failure to disclose the real situation with the tenant Jo-Al constituted misleading and deceptive conduct (appeal grounds 9-11).

393 R & H submit that as no evidence was called from the officers of Jo-Al and as Mr Sgro always claimed that the Jo-Al claims were baseless, there was not the factual material to make out a case that the statements about the tenants and the alleged failure to disclose other matters constituted misleading and deceptive conduct.

D. Is there liability?

394 However, in view of the claims that were made, the litigation that was commenced, the efforts Mr Sgro made to compromise claims by granting rent holidays and the like and Mr Sgro’s conduct in fobbing off deeper enquiries made the finding of fact made by the primary judge appropriate and probably inevitable.

6. The result of the second appeal

395 It follows that the second appeal should be dismissed with costs.

7. Final Conclusions

396 In the light of what I have written, I would propose the following orders:

A. In the appeal by Boyana/Sgro

1. Appeal allowed in part.

2. Order 2 made by Bryson AJ varied by deleting the word “defendants” and substituting “first defendant”.

3. Order 6 made by Bryson AJ set aside.

4. Otherwise confirm orders made below apart from orders as to costs affecting Mr Sgro.

5. Order that Boyana pay the costs of the respondents to the appeal.

6. Order that the first respondent pay Mr Sgro’s costs of the trial and the appeal.

B. In the appeal by R & H

Appeal dismissed with costs.

397 However as there is some slight divergence of views on some aspects of the case, I agree that the orders of the Court will be as per [163] of the reasons of Basten JA.

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LAST UPDATED:
1 April 2010