Zhang v VP302 SPV & Ors [2009] NSWSC 73 (23 February 2009)

Last Updated: 24 February 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Zhang v VP302 SPV & Ors [2009] NSWSC 73


JURISDICTION:
Equity

FILE NUMBER(S):
5383/05

HEARING DATE(S):
18-20 June 2008; 23, 24 and 27 June 2008

JUDGMENT DATE:
23 February 2009

PARTIES:
Chao Zhang & Anor
v
VP302 SPV Pty Ltd & 2 Ors

JUDGMENT OF:
White J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiffs: D A Smallbone with D O'Connor
2nd & 3rd Defendants: J Hassett (solicitor)

SOLICITORS:
Plaintiffs: Austin Haworth & Lexon Legal
2nd & 3rd Defendants: Hassett Dixon Solicitors and Attorneys


CATCHWORDS:
CONTRACTS - particular parties - principal and agent - solicitor amended terms of contract for the sale of land without actual authority of plaintiffs - solicitor exchanged amended contracts with other party - solicitor had ostensible authority to exchange contract - binding contract came into existence between the parties
TRADE PRACTICES - misleading and deceptive conduct - whether plaintiffs entered into sale of land contract because of representations made as to future management fees and future value of property - whether reasonable grounds for representations - plaintiffs did not rely on representations as to future management fees - plaintiffs relied on representations as to future value of property - representations not mere puffery - plaintiffs entitled to rescission of the contract and return of the deposit from the first and second defendants
CONTRACTS - unjust contracts - Contracts Review Act - plaintiffs' entry into contract induced by misrepresentations - contract is an unjust contract - if necessary, order for rescission pursuant to the Act

LEGISLATION CITED:
Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)
Contracts Review Act 1980 (NSW)
Conveyancing Act 1919 (NSW)
Civil Procedure Act 2005 (NSW)

CATEGORY:
Principal judgment

CASES CITED:
Pianta v National Finance and Trustees Ltd [1964] HCA 61; (1964) 180 CLR 146
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Summit Properties Pty Ltd v Comserv (No. 784) Pty Ltd (1981) 2 BPR 9173
CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588
Magripilis v Baird [1926] St R Qd 89
Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606
Rymark Australia Development Consultants Pty Ltd v Draper [1977] Qd R 336
Nowrani Pty Ltd v Brown [1989] 2 Qd R 582
Lockett v Norman-Wright [1925] 1 Ch 56
Eccles v Bryant [1948] 1 Ch 93
Domb v Isoz [1980] 1 Ch 548
Watson v Foxman (1995) 49 NSWLR 315
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Pappas v Soulac Pty Ltd (1983) 50 ALR 231
Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189
Petty v Penfold Wines Pty Ltd (1994) 49 FCR 282 Jainran Pty Ltd v Boyana Pty Ltd [2008] NSWSC 468
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191
Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [1999] QSC 320
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109
Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546
Smith v Land and House Property Corporation (1885) 28 ChD 7
Swindle v Knibb (1929) 29 SR (NSW) 325
Alati v Kruger (1955) 94 CLR 216
Attorney General of NSW v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557

TEXTS CITED:
Bowstead & Reynolds on Agency, 16th ed

DECISION:
Refer to para 133 of judgment.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


WHITE J

Monday, 23 February 2009


5383/05 Chao Zhang & Anor v VP302 SPV Pty Ltd & 2 Ors

JUDGMENT

1 HIS HONOUR: These proceedings arise from a contract for the sale of a building off-the-plan. On or about 11 September 2003, the plaintiffs through their solicitor, Ma & Co, exchanged contracts for the purchase of a four-storey terrace yet to be constructed in a building known as “Form” in a development known as Victoria Park in Zetland, Sydney. The first defendant was the vendor. It was developing the blocks of units and adjoining new terrace houses known as “Form”. That was but part of the development of the Victoria Park precinct. The second defendant (“Sydney Advance Realty”) is a real estate agent and was engaged by the first defendant to market the development. The third defendant, Ms Lisa Huo, was employed as a real estate agent by Sydney Advance Realty.

2 The purchase price of the property was $1,070,000, although there was a provision for a rebate of $20,000 so that the effective purchase price was $1,050,000. The terrace was part of a strata development which included ten four-storey terraces. Completion was due 14 days after the vendor served notice of registration of the strata plan. Contracts were exchanged at about the peak of the market. The strata plan was registered on or before 7 July 2005. The vendor appointed 21 July 2005 for settlement. By that time the market had fallen substantially from its level at September 2003. On 27 July 2005, the vendor’s solicitors served a notice to complete requiring completion on 10 August 2005. By notices dated 24 August 2005 the vendors terminated the contract for the purchasers’ failure to complete. On 26 August 2005, Sydney Advance Realty released the deposit of $107,000 and accrued interest to the vendor.

3 Shortly prior to the hearing, the first defendant went into voluntary administration. I gave leave to the plaintiffs to proceed against it, but it took no part in the hearing.

4 The deposit was paid to Sydney Advance Realty as stakeholder. The plaintiffs claim the return of the deposit from Sydney Advance Realty notwithstanding that it has been released to the vendor. The grounds upon which the plaintiffs claim that the deposit should be returned may broadly be summarised as follows.

5 First, the plaintiffs contend that no contract was entered into. They pleaded that there was no exchange of identical counterparts. This part of the claim was not pressed. They also pleaded that the contracts as exchanged between the solicitors included terms to which the plaintiffs had not agreed. The plaintiffs submitted that their solicitor did not have express, implied or ostensible authority to exchange contracts which included those terms, and accordingly no contract came into existence.

6 Secondly, if a contract did come into existence, the plaintiffs contended that they were induced to enter into the contract by misrepresentations made by the defendants. The alleged misrepresentations were that:

“a) that the development site was the leader of the three suburbs that would be doubled [sic] in value within 5 years and that there was a reasonable basis for this statement;

b) the property would be a good investment and its value would be higher than the purchase price at the date of settlement and that there was a reasonable basis for these statements;

c) management fees would be extremely low and that there was a reasonable basis for this statement;

d) that management fees would be low, that there was a reasonable basis for concluding that they would be approximately $450 to $480 per quarter, and that they would not exceed $500 per quarter and that there was a reasonable basis for this statement, because there would be no swimming pool and no shared lift appurtenant to the property;

e) there would be a park or garden behind the property and that there was a reasonable basis for this statement;

f) the property would be full of sunshine or would have a lot of sunshine with no problem and that there was a reasonable basis for this statement;

g) the building behind the terraces in which the property was to be situated would be an (at most) three-storey building and that there was a reasonable basis for this statement;

h) there would be a home office and study in the property, the study having natural light and that there was a reasonable basis for this statement;

i) the property would have a park view and that there was a reasonable basis for this statement;

j) the property would be set in a garden-like living environment and that there was a reasonable basis for this statement.”

7 The representations were alleged to have been made by Sydney Advance Realty and Ms Huo. The plaintiffs allege that there was not a reasonable basis for any of the representations and they were entitled to avoid the contract by reason of them. They allege that by the same conduct the defendants engaged in trade or commerce in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW).

8 Thirdly, the plaintiffs claim relief under the Contracts Review Act 1980 (NSW). They contend that the contract was unjust in the circumstances relating to it at the time it was made (Contracts Review Act, s 7). They also say that their entry into the contract was procured by undue harassment in contravention of s 53A(2) of the Trade Practices Act and s 45(2) of the Fair Trading Act. They contend that they made it known that they did not have the funds to complete the purchase, and were reliant on a significant improvement in the value of the property to enable them to borrow funds to complete the purchase, or on re-selling. They also say that the defendants took unconscientious advantage of their special disabilities in procuring their entry into the contract which, they contend, was manifestly disadvantageous. They allege a contravention of s 51AA of the Trade Practices Act. They also maintain a claim based on undue influence whereby they, as recent immigrants from China, placed trust and confidence in Ms Huo.

9 Fourthly, if any contract is not liable to be avoided on these grounds, the plaintiffs contend that the first defendant was not entitled to give a notice to complete. They contend that the notice to complete was invalid and that the first defendant’s purported termination of the contract was a repudiation which they accepted, or alternatively that the contract was mutually abandoned. The grounds for their contention that the first defendant was not entitled to give a notice to complete, or that the notice was otherwise invalid, were originally that:

i) the first defendant allegedly refused to permit the plaintiffs to inspect the premises for the purpose of obtaining a survey;

ii) the first defendant did not supply proper answers to requisitions;

iii) the answers to requisitions were sent to the firm of solicitors originally acting for the plaintiffs and not to the solicitors then acting for the plaintiffs;

iv) the notice to complete gave less than 14 days for completion after service of the notice, contrary to the terms of the contract;

v) by reason of s 52A(2) of the Conveyancing Act 1919 (NSW) reg 6A and Sch 2 item 2 of the Conveyancing (Sale of Land) Regulation 2000, the plaintiffs were not required to complete earlier than 14 days after service of an occupation certificate, which was not supplied until 19 July 2005 and hence, as at 27 July 2005, when the notice to complete was allegedly served, the plaintiffs were not in default.

The first of these claims was not pressed.

10 The first defendant pleaded that the plaintiffs were estopped from alleging that no binding contract came into existence. That claim was not raised by the plaintiffs until 2007. The second and third defendants contended that even if the first defendant was not entitled to terminate the contract on the ground that the plaintiffs had failed to complete after time for completion had been made essential, the termination was effective because the plaintiffs were incapable of completing, and had evinced their intention not to do so.

The Deposit

11 There is a preliminary issue as to the amount paid by the plaintiffs by way of deposit or instalments of the purchase price. The contract provided for a deposit of ten percent of the price, namely, $107,000. Clause 32.2 provided for $20,000 to be paid to the deposit holder on the date of the contract. Clause 32.3 required the remainder of the deposit to be paid within 14 days. Various payments of cash were made by the plaintiffs, with the last instalment of $20,000 not being paid until about 15 or 17 December 2003. The plaintiffs contend on the basis of receipts they produced that they paid $120,000, not $107,000.

12 The matter is complicated because the defendants issued two kinds of receipts. The plaintiffs asked that the cash payments be put through the books of Sydney Advance Realty in batches of less than $10,000. Mr Zhang asked Ms Huo not to bank all of the amounts in cash at once because he did not want large cash deposits to be put into a bank account in the plaintiffs’ name. Sometimes the plaintiffs handed over cash to Ms Huo at their house. She issued hand-written receipts. Hand-written receipts totalling $84,000 were in evidence. They cover the period from 26 August 2003 to 12 November 2003. In addition there were computer-generated receipts. The computer-generated receipts covered the same payments as the hand-written receipts, but this was not always obvious. For example, a hand-written receipt was given on 3 September 2003 for a payment of $20,000 in cash made on that day. Two computer-generated receipts were issued on 4 and 6 September 2003 in amounts of $9,500 and $10,500 respectively.

13 In accordance with Sydney Advance Realty’s office practice, the computer-generated receipts should have been sent by mail to the plaintiffs. Mr Zhang gave contradictory evidence as to whether he received computer-generated receipts through the mail. Initially, he accepted that when he handed over cash he received a handwritten receipt and later, when the money was banked, he received a computer-generated receipt. I accept that that is what occurred, notwithstanding his later retraction of that evidence. It is only by aggregating some of the computer-generated receipts with the hand-written receipts that the plaintiffs can contend that the receipts show payments totalling $120,000.

14 The evidence as to these matters was complicated by the fact that Ms Huo exhibited to her affidavit what was said to be all copies of the receipts provided to the plaintiffs. The exhibit omitted some receipts and duplicated others. However, when the paperwork is put in order, it is clear that Sydney Advance Realty issued computer-generated receipts totalling $107,000.

15 There was no reason for the plaintiffs to have paid more than $107,000. They said that they were unaware in 2003 of having paid more than $107,000. It is most unlikely that they would have paid more than they were required to pay, and even more unlikely that had they done so they would have been unaware of that fact. Rather, what appears to have happened is that after they were unable to complete the contract in 2005, they then assembled the various receipts, both hand-written and computer-generated, which they were able to find. By adding these together they were able to suggest that they had paid $120,000.

16 Sums totalling $107,000 were received by Sydney Advance Realty and placed on interest bearing deposit. The plaintiffs were told that $107,000 had been invested to earn interest. They raised no objection. On the plaintiffs’ case Sydney Advance Realty misappropriated $13,000. There is no basis, except the plaintiffs’ record-keeping, for thinking that could be so. It is clear that the plaintiffs only paid $107,000. Their persistence in their claim to have paid $120,000 reflects adversely on their credibility.

17 The instalments of the deposit were paid as follows on or about the dates shown below:

26 August 2003 $ 1,000

3 September 2003 $ 20,000

23 September 2003 $ 15,000

14 October 2003 $ 8,000

7 November 2003 $ 10,000

12 November 2003 $ 13,000

17 November 2003 $ 20,000

13 December 2003 $ 20,000

TOTAL $107,000

Exchange of Contracts

18 The plaintiffs paid a holding deposit of $1,000 for the property on 26 August 2003. On 28 August 2003, Sydney Advance Realty issued a sales advice naming the vendor and its solicitors (Mallesons Stephen Jaques) and the purchasers and their solicitor (Mr Ronald Ma of Ma & Company Solicitors). On 29 August 2003, Mallesons Stephen Jaques forwarded to Mr Ma a draft contract for the sale of land and s 66W certificate certifying that the purchaser agreed there was to be no cooling-off period to be completed. On the same day, Mallesons Stephen Jaques advised Sydney Advance Realty that contracts had been issued to the purchasers’ solicitors and a copy of the front page of the contract was enclosed for its information.

19 On 3 September 2003, in circumstances described in more detail later in these reasons, the plaintiffs agreed with Ms Huo of Sydney Advance Realty to proceed with the purchase. They paid a further $20,000 towards the deposit. Mr Ma’s name was given to the plaintiffs by Ms Huo. He was one of a number of Chinese solicitors to whom Sydney Advance Realty introduced prospective purchasers.

20 The plaintiffs attended a meeting with Mr Ma in the week following 3 September 2003. Ms Huo also attended. Mr Ma explained some of the essential details of the contract to the plaintiffs. The contract was not to be completed until the development had been built and the strata plan registered. Completion was expected in 2005. The plaintiffs had negotiated through Ms Huo for a two-year rental guarantee from the developer, a discount of $20,000 from the price of $1,070,000 to be refunded after settlement, and for the purchasers to be entitled to interest earned on the deposit. During the meeting with Mr Ma, hand-written changes were made to certain of the special conditions in the draft contract provided by Mallesons Stephen Jaques to reflect these matters. Relevant to the present issues are the changes in relation to the earning of interest on the deposit and the payment of a $20,000 rebate on settlement. The draft contract provided by Mallesons Stephen Jaques stated:

“32.7 No Interest

The vendor and purchaser agree that no interest will be earned or paid on the deposit (or any part of it).”

21 During the conference with Mr Ma this was changed to read:

“32.7 Interest

The vendor and purchaser agree that all interest earned or paid on the deposit (or any part of it) will be paid to the purchaser only.”

22 A new clause 63 was inserted by hand and initialled by Mr Zhang which stated:

“63 The parties hereby agree that the purchasers will be paid a $20,000 rebate by the vendor upon settlement.”

23 The contract consisted of about 330 pages. The special conditions, in the form in which they were discussed at the conference with Mr Ma, ran to about 46 pages. The plaintiffs did not initial each page of the contract. They signed the execution page (the second last page of the document) and left the contract with Mr Ma. Mr Ma had their actual authority to exchange contracts incorporating the terms to which they had assented at their meeting, which assent was evidenced by Mr Zhang’s initialling of the hand-written alterations to the conditions.

24 On 8 September, Mr Ma wrote to Mallesons Stephen Jaques as follows:

“RE: ZHANG & LIU PURCHASE FROM VP302 SPV PTY LTD PROPERTY: UNIT DG.08 (LOT 8), ‘FORM’, THE CRESCENT, LEVY WALK,

HUDCHINSON WALK & DEFRIES AVE, ZETLAND

We refer to the above matter and are instructed to request the following amendments to the Contract:

1. Purchaser’s name to read: Chao Zhang & Le Liu as Joint Tenants.

2. Deposit: The sum of $20,000.00 paid upon exchange and the balance to be paid within 7 days from the date of exchange.

3. Special Condition 32.7 to be amended as: The vendor and purchaser agree that all interest earned or paid on the deposit (or any part of) will be paid to the purchaser only.

4. Special Condition 62.1: 12 months to read 24 months.

5. Special Condition 62.7: Guarantee Period, second line ‘first’ to read ‘second’.

6. Please add special condition 63: The parties hereby agree that the purchaser will be paid a sum of $20,000.00 rebate by the vendor upon settlement.”

25 Mallesons Stephen Jaques replied the following day as follows:

“VP302 SPV Pty Ltd

Sale to Zhang & Liu

Property: Apartment DG.08 (Lot 4) ‘Form’ The Crescent

Your ref 8153/03 RM:cc

We refer to your facsimile dated 8 September 2003 and are instructed to respond as follows:

1 Noted.

2 Agreed. Please amend clause 32.2 to show $20,000.00 rather than $5,000.00

3 Agreed. Attached is replacement clause 32.6. Please delete clause 32.7.

4 Agreed.

5 Agreed.

6 Agreed. Please see attached clause 63. This clause only applies if the vendor is paying a cash deposit.”

26 Whilst Mallesons Stephen Jaques expressed their client’s agreement to the changes requested by Mr Ma, the replacement clauses 32.6 and 63 modified that agreement. The effect of clause 32.6A and 32.6B submitted by Mallesons Stephen Jaques was that the purchaser would be entitled to interest earned on the deposit, unless the purchaser defaulted. The new clause 32.6B provided that if a party terminated the contract because of the other party’s default then the terminating party would be entitled to keep the interest earned on the deposit. The new clause 63 provided:

“63.1 A rebate of $20,000 from the purchase price will be given by the vendor to the purchaser by way of adjustment on completion.

63.2 The parties agree that if for some reason the purchaser substitutes the cash deposit for a bond at any time prior to settlement, the rebate will not apply.”

27 The plaintiffs gave evidence that they were unaware of these modifications. It was submitted for the second and third defendants that the plaintiffs’ memory of their meeting with Mr Ma was so uncertain that the plaintiffs evidence should not be accepted when they said that they did not know of and approve of the changes contained in the special conditions proffered by Mallesons Stephen Jaques. However, it is unlikely that the meeting with Mr Ma occurred after he had received Mallesons Stephen Jaques’ letter of 9 September 2003 enclosing the replacement conditions. Had he had that letter to hand, he would not have had the plaintiffs sign the amendments to the original set of conditions. Accordingly, unless the plaintiffs gave Mr Ma authority to agree on their behalf to any reasonable modifications that the vendor might propose, he would have needed their approval to the replacement conditions forwarded by Mallesons Stephen Jaques on 9 September 2003 if he were to have actual authority to bind the plaintiffs to those conditions. The plaintiffs gave no evidence of having authorised Mr Ma to agree on their behalf to any modification of the conditions which Mr Zhang signed. They gave no evidence of any subsequent conversation with Mr Ma, and it was not put to them in cross-examination that any subsequent conversation took place. As I have said, Mr Ma was not called. I conclude that the plaintiffs did not give him their actual authority to exchange contracts which included the replacement clauses forwarded by Mallesons Stephen Jaques on 9 September.

28 On 10 September 2003, Ma & Co sent to Mallesons Stephen Jaques through the document exchange a “contract duly signed by our client”. The contract was sent on the basis that Mallesons Stephen Jaques would return an identical counterpart duly signed by the vendor within the next five days. On 11 September 2003 Mallesons Stephen Jaques sent to Ma & Co the vendor’s executed counterpart of the contract by way of exchange and advised that both contracts were dated 11 September. The contracts exchanged included the amendments which had been agreed with Ma & Co and the clauses 32.6A, 32.6B and 63 referred to above. The exchanged contracts contained identical terms.

29 The vendor and its solicitors did not know that the plaintiffs had not agreed to clauses 32.6B or 63.2. It was submitted for the plaintiffs that the vendor was on notice that that was or might be the fact because the counterpart executed by the purchasers included the original clause 32.6 and 32.7 which had been crossed out, and there was a visible signature against the hand-written amendments to clause 32.7. The purchasers’ counterpart also included the hand-written clause 63 quoted above at [22] which had been initialled but that clause had been crossed out and replaced by an uninitialled page including clauses 63.1 and 63.2. Likewise, the replacement page including clauses 32.6, 32.6A and 32.6B was inserted without having been initialled.

30 I do not accept that the physical form of the contract put the vendor on notice that the plaintiffs had not given authority to their solicitor to exchange the contract on terms which included clauses 32.6B and 63.2. All that the enclosed pages showed was that the initial changes proposed by Ma & Co had been made by hand and initialled by one of the plaintiffs but then crossed out and replaced with the clauses submitted by the vendor. Mallesons Stephen Jaques could reasonably assume that the plaintiffs had agreed to the clauses they had submitted.

31 The plaintiffs contend that Ma & Co did not have actual or implied authority to exchange contracts which included clauses 32.6B or 63.2. They also submitted that Ma & Co did not have ostensible authority to exchange contracts which included those clauses.

32 The plaintiffs made no claim against Ma & Co. It is unfortunate that no evidence was adduced from Mr Ma where questions of his actual authority have to be decided. However, the third defendant, Ms Huo, was present during the only meeting the plaintiffs say they had with Mr Ma. She did not contradict the plaintiffs’ evidence as to the extent of their instructions. The first defendant, who might have been expected to call Mr Ma, did not participate in the hearing. On the plaintiffs’ uncontradicted evidence, I accept that Mr Ma did not have actual authority to exchange contracts which included clauses 32.6B and 63.2 to which his clients had not assented. Nor would such actual authority be implied. Mr Ma might have thought that he had authority to agree to reasonable modifications of the terms to which his clients had assented if the vendor did not give its unqualified acceptance to his request for amendment to the draft contract. It is possible that he had express authority to do so, but there is no evidence that he did. I therefore conclude that Ma & Co did not have actual authority, express or implied, to bind his clients to a contract which included those terms. An actual authority of a solicitor to contract on behalf of his or her client for the sale or purchase of land must be conferred expressly or by necessary implication (Pianta v National Finance and Trustees Ltd [1964] HCA 61; (1964) 180 CLR 146 at 152).

Ostensible Authority

33 Did Ma & Co have ostensible authority to exchange contracts on behalf of the plaintiffs which included those terms? There is surprisingly little authority on that question. The relevant principle is stated in Bowstead & Reynolds on Agency, 16th ed, Article 74 as follows:

“Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority.”

34 Such authority must be conveyed by the principal, but the representation of authority may be implied from a course of dealing, including by permitting the agent to conduct the principal’s business with other persons (Bowstead & Reynolds on Agency at [8-017]; Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503). In this case the plaintiffs made it known to the vendor’s agent and the vendor that they had retained Ma & Co to act on their behalf on the exchange of contracts. They knew that the vendor’s solicitor had forwarded a draft contract to Ma & Co. In the presence of the vendor’s agent they discussed with Mr Ma changes to be made to the draft contract. They authorised Ma & Co to exchange contracts on their behalf. (It was not submitted that the vendor through its agent, Sydney Advance Realty, knew of any limitations on Ma & Co’s authority.) The plaintiffs must also have known that Ma & Co would communicate with the vendor’s solicitors for the incorporation into the contract of the amendment to the draft contract which the first plaintiff had initialled at their meeting. They impliedly authorised Ma & Co to negotiate such changes with the vendor and by permitting Ma & Co to do so, they held out that firm’s authority to negotiate such changes.

35 The trend of recent authority is that a solicitor does not have implied or ostensible authority to commit his or her client to a contract by negotiation or correspondence with the opposite party. That is different from the question whether a solicitor has ostensible authority to bind his or her client by an exchange of identical counterparts.

36 In Pianta v National Finance and Trustees Ltd, Barwick CJ said (at 152):

“So far as the solicitor is concerned, however, the terms of his retainer are clearly enough defined in the evidence. He was retained, in the capacity of a solicitor, to settle written terms of sale which he could advise his clients to accept and sign. For this purpose, he could negotiate and agree with the representatives of the respondent the terms which the respondent could be expected to accept or, if the representatives were so authorized, which they could accept on behalf of the respondent and which the solicitor could advise his clients as satisfactory in their interest. But this does not confer on the solicitor authority to contract on behalf of the clients to sell the land. If he is to have that authority it must be given expressly or by necessary implication.”

37 Menzies J said (at 154):

“... unless Mr Ackland [the solicitor] had authority from the Piantas to sell the land on their behalf there was, apart from anything else, no contract of sale between the appellants and the respondent. No express authority was proved and, of course, none can be implied. A solicitor is not a salesman and a finding that a client had authorized a solicitor whom he consulted to sell his land would require clear and cogent evidence.”

38 The High Court appears to have been of the view that the solicitor did not have ostensible authority to bind his client to a contract for the sale of land. But in Pianta v National Finance and Trustees Ltd, the question was whether the solicitor had made an oral agreement on behalf of his client to sell the land.

39 In Summit Properties Pty Ltd v Comserv (No. 784) Pty Ltd (1981) 2 BPR 9173, the Court of Appeal held that a firm of solicitors had no authority to commit their client to an agreement for lease in the course of correspondence with the lessee’s solicitor. Although put in terms of actual authority conferred expressly or by necessary implication, it necessarily follows from the Court’s reasoning that the solicitor did not have ostensible authority to bind their client to a contract for lease in that way.

40 The plaintiffs relied upon CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588. The question there was whether the defendant had entered into a contract to grant to the plaintiff an option to purchase land. The defendant company had executed a draft contract and given it to its solicitor who forwarded it to the plaintiff’s solicitor. The plaintiff’s solicitor and the defendant’s solicitor then discussed amendments to the terms of the contract. The defendant’s solicitor agreed to certain changes as to the apportionment of consideration which was of no concern to his client, but to which he had no actual, or, as it was held, implied, authority to agree. On his agreeing to the amendment, the plaintiff’s solicitor made alterations to both copies of the agreement, had one executed by the plaintiff and returned it to the defendant’s solicitor. Needham J held that the defendant’s solicitor not only had no express or implied authority to agree to the change to the contract executed by his client but also had no ostensible authority to do so. On the claim that the defendant’s solicitor had ostensible authority, the plaintiff relied upon Magripilis v Baird [1926] St R Qd 89, and in particular the judgment of Isaacs J where his Honour said (at 91):

“Where a principal holds out his solicitors as his medium of communication in business negotiations as to the settlement of a lease, their letters on the subject of that business may either absolutely bind him in carrying ostensible authority, or may, in the absence of satisfactory evidence to the contrary, be regarded by a jury as authorised by him.”

41 Needham J held that this was not part of the ratio of the High Court’s decision. His Honour held that merely because the solicitor was held out by the defendant as the medium of communication in relation to the settlement and exchange of the option agreement did not confer ostensible authority on him to agree to and effect the requested alteration (at 9590-9591). That is consistent with the cases referred to above. However, it does not indicate that a solicitor does not have ostensible authority to exchange contracts on behalf of his or her client so as to bind the client to the terms of the contract exchanged.

42 The plaintiffs also relied upon Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606. There, the principal question was whether the parties were bound where the counterparts exchanged were not identical. It was held that they were not. The purchaser’s solicitor had amended in material respects a clause in the draft contract which provided for completion to be subject to finance. The vendor’s solicitor had no actual authority to agree to the amendment. Applying Pianta v National Finance and Trustees Ltd, Hope JA held that the vendor’s solicitor had no implied authority as no such implication was necessary (at 9611). There is no discussion in the reported judgment of any issue concerning ostensible authority and it was not a case in which the solicitors exchanged identical counterparts.

43 There are other authorities which affirm that the appointment of a person as a solicitor confers no implied authority to make contracts on behalf of his or her client (Rymark Australia Development Consultants Pty Ltd v Draper [1977] Qd R 336; Nowrani Pty Ltd v Brown [1989] 2 Qd R 582). In the latter case, McPherson J said (at 586):

“The mere fact that a person is a solicitor confers no implied authority to make contracts on behalf of one who happens to be his client: Pianta v. National Finance & Trustees Ltd (1964) 38 A.L.J.R. 232; Rymark Australia Development Consultants Pty Ltd v. Draper [1977] Qd.R. 336, 344. Nor, apart from express authority, does a solicitor have authority to agree to a variation of his client’s contract: see George v. Pottinger [1969] Qd.R. 101, 107.”

44 In the passage cited from Rymark Australia Development Consultants Pty Ltd v Draper, W B Campbell J said (at 344):

“Solicitors are not, in the absence of express authority, agents of their clients to conclude a contract for them: Lockett v. Norman-Wright [1925] Ch. 56, at p. 62; Eccles v. Bryant and Pollock [1948] 1 Ch 93 at 106.”

45 In Lockett v Norman-Wright [1925] 1 Ch 56, Tomlin J said (at 62):

“Solicitors are not, in the absence of specific authority, agents of their clients to conclude a contract for them ...”

That was said in the context of correspondence passing between solicitors for the negotiation of an agreement for lease where the parties contemplated the exchange of a formal contract. Likewise, in Eccles v Bryant [1948] 1 Ch 93, where the parties contemplated an exchange, Lord Greene MR (at 102-103) and Cohen LJ (at 106) said that a solicitor did not have authority to conclude a contract by correspondence without an exchange.

46 But that is not to say that a solicitor does not have ostensible authority, whatever his actual instructions, to conclude a contract on behalf of his client by exchanging identical counterparts. In Eccles v Bryant, Lord Greene MR said (at 102):

“... the principals in this case, in instructing their solicitors, must, in my opinion, be assumed to have given them authority to carry the business through in the ordinary way recognized as the customary way for dealing with conveyancing matters of this kind, in the absence of any evidence to the contrary. It would be quite impossible to carry through business unless one made some such assumption when a principal puts a matter into the hands of a solicitor.”

47 His Lordship had earlier explained that the customary method of exchange of counterparts provide certainty. His Lordship said (at 99-100):

“It was argued that exchange is a mere matter of machinery, having in itself no particular importance and no particular significance. So far as significance is concerned, it appears to me that not only is it not right to say of exchange that it has no significance, but it is the crucial and vital fact which brings the contract into existence. As for importance, it is of the greatest importance, and that is why in past ages this procedure came to be recognized by everybody to be the proper procedure and was adopted. When you are dealing with contracts for the sale of land, it is of the greatest importance to the vendor that he should have a document signed by the purchaser, and to the purchaser that he should have a document signed by the vendor. It is of the greatest importance that there should be no dispute whether a contract had or had not been made and that there should be no dispute as to the terms of it. This particular procedure of exchange ensures that none of those difficulties will arise.”

48 Such certainty can only exist if a solicitor has ostensible authority as well as implied actual authority to conclude a contract on behalf of his or her client through the usual method of exchange.

49 In Domb v Isoz [1980] 1 Ch 548, one of the questions was whether a solicitor had implied or ostensible authority to conclude a contract on behalf of his client by agreeing by telephone that contracts should be treated as immediately exchanged at that moment. Buckley LJ said (at 557-558) that:

“In my judgment, the essential characteristic of exchange of contracts is that each party shall have such a document signed by the other party in his possession or control so that, at his own need, he can have the document available for his own use. Exchange of a written contract for sale is in my judgment effected so soon as each part of the contract, signed by the vendor or the purchaser as the case may be, is in the actual or constructive possession of the other party or of his solicitor. Such possession need not be actual or physical possession; possession by an agent of the party or of his solicitor, in such circumstances that the party or solicitor in question has control over the document and can at any time procure its actual physical possession will, in my opinion, suffice. In such a case the possession of the agent is the possession of the principal. A party's solicitor employed to act in respect of such a contract has, subject to express instructions, implied authority to effect exchange of contracts and so to make the bargain binding upon his client. This he can, in my judgment, do by any method which is effectual to constitute exchange.

In the present case, in my judgment, Mr Bond on February 9 constituted himself Mr Redstone's agent to hold the defendant's part of the contract to Mr Redstone's order from the moment of the telephonic agreement, and to despatch it to Mr Redstone forthwith, or upon Mr Redstone's demand. At the same time Mr Bond became the holder of the plaintiffs' part of the contract to the order of his own client, the defendant, and was discharged from any continuing obligation to hold it to Mr Redstone's order as he had theretofore been bound to do in pursuance of the letter of December 22.

It is, I think, erroneous to suggest that any special authority from the defendant would have been necessary to enable Mr Bond to take this course. He had authority to effect exchange, and he had ostensible authority to effect exchange at any time, and he did effect exchange of the defendant's part of the contract for the plaintiffs' part of the contract.”

50 Bridge and Templemann LJJ agreed with these reasons. Bridge LJ also said (at 560) that:

“A solicitor acting for a vendor or a purchaser who holds his client's signed part of the contract has his client's ostensible authority to effect exchange of contracts; so much is common ground.”

51 So far as I am aware, it is not usual conveyancing practice in this State to require a solicitor who has been nominated by the vendor or purchaser to act on the vendor’s or purchaser’s behalf to produce evidence of his actual authority to exchange contracts on behalf of his or her client. In my view, the vendor’s solicitors were entitled to assume that Ma & Co had authority to forward by way of exchange the contract which had been signed by the purchasers on the execution page. They were entitled to assume that the purchasers assented to all of the terms in the document so forwarded. By holding out Ma & Co as the solicitors who would act for them in effecting an exchange of contracts, the plaintiffs are bound by the conduct of their agent in effecting the exchange. For these reasons, I conclude that a binding contract came into existence between the parties.

Conventional Estoppel

52 It is unnecessary to deal with the defendants’ contention that the plaintiffs are estopped from denying the existence of a contract because they and the vendor adopted the assumption that they were contractually bound and the plaintiffs played such a part in the vendor’s adoption of that assumption that it would be unconscionable for them to deny it. However, in case I am wrong in my earlier conclusion, and in case it is relevant to a decision on estoppel, I should say that I do not accept the plaintiffs’ evidence that they were shocked when they learned of the changes to the contractual terms to which they had not agreed.

Misleading and Deceptive Conduct

53 Both plaintiffs emigrated to Australia from China. The first plaintiff, Mr Zhang, emigrated in 1998 when he was 28. He is a chef by occupation. In about 2000 or 2001 he purchased a two-bedroom flat in Campsie. He does not read English and his spoken English is poor.

54 The second plaintiff, Ms Liu, emigrated to Australia in September 2001 aged 23. She is a waitress by occupation. She and Mr Zhang became de facto partners at the end of 2003. She has a better knowledge of English than Mr Zhang, but she is not fluent. Both plaintiffs gave their evidence through an interpreter.

55 In 2003, Mr Zhang and Ms Liu decided to buy a property together. Ms Liu had not bought any real property before. They looked for properties advertised in Chinese publications circulating in Sydney. In about May 2003, they read an advertisement for the Victoria Park development placed by Sydney Advance Realty in two newspapers. The advertisement was mostly in Mandarin. Translated, it relevantly stated:

“Victoria Park BRAND NEW OFFER FORM

New units to be put on market this week.

One area which was acclaimed by Sydney Morning Herald to be the number one district amongst three areas which is going to double in value in five years.

...

Suitable for both investment and owner occupier

* Extremely low property management fees (around $410 for two bedrooms) in gardenesque living environment

...

* Extremely convenient transportation, a modern multi-functional building combining residential, commercial, retail, entertainment and community services. Offer job opportunities to 8,000 to 10,000 people. A reliable guarantee for leasing opportunities.

...

Our well trained investment consultant will provide service, professionally analyse your financial status, answer all your inquiries with regards to the investment and tax, set your future investment plan, help you easily step onto your path to wealth.”

56 The same statements were made in various advertisements which the plaintiffs read.

57 Another advertisement placed by Sydney Advance Realty stated in relation to the Victoria Park project that “Green Square City Centre will offer 7,500 job opportunities, which is a reliable guarantee for leasing opportunities.”

58 Another advertisement for Victoria Park referring to the Form development stated “integrated top-grade commercial, retail and residential building at east side, offering 8,000 to 10,000 job opportunities, undoubted guarantee for leasing opportunities.” Another advertisement advertised a seminar. After referring to Sydney Advance Realty and containing photographs of various of its employees or salesmen, the advertisement (as translated) stated:

“GREEN SQUARE Big News

- praised as ‘the next city centre in Sydney’ ‘the biggest project in Sydney after Olympic Games’ by various newspapers and radio ‘the budget of Green Square City Centre project is high as $2 billion, including 2,500 resident units, park, cultural activity centre, shopping centre, entertainment centre, and is the biggest rebuild project in Sydney after the Olympic Game project in Homebush in 2000’

Are Not Allowed To Miss Property Investment Seminar

In the seminar you will able to know: * the tendency analysis of the current real estate market, which location in Sydney will doubly appreciate in five years.

* Why Green Square is praised as ‘the biggest project in city centre and Sydney after Olympic Games’

* How to invest in Green Square, the hottest investment location in Sydney, and generate profit for you

* How to achieve the goal of owning a property every year within five years, and becoming really rich and financially free.”

59 Two of the advertisements referred to the availability of a one-year five percent rental guarantee. In one of those advertisements the one-year rental guarantee was advertised only in relation to the Nova Development within Victoria Park.

60 The Victoria Park development is planned to have about 2,500 residences and retail and commercial facilities. The development was to proceed, and has proceeded, in stages. The development is a Landcom project. Landcom is responsible for building the infrastructure and is responsible for the “Master Plan” of the complex. It appears that particular stages of the development have been undertaken by different private developers. A holding company of the first defendant was the developer for stage 2, and the developer of the Form complex. This involved the completion of buildings known as Eco 1, Eco 2, Nova, Airia and Nest. These buildings were completed between September 2002 and February 2004. By May 2003, the buildings known as Eco, Nova and Centric were complete. Airia and Nest were under construction. The Form development was part of stage 3.

61 The plaintiffs discussed a potential purchase in the Victoria Park development with Ms Huo of Sydney Advance Realty in August and September 2003. She showed them the site and a large model depicting how the entire Victoria Park development would look on completion. At this time some of the buildings in stage 2 were complete, or were almost complete. The buildings known as Ark and Nest were under construction. The Form complex included a building with two and three-bedroom apartments and also a four-storey townhouse building comprising ten town-houses or, as they were called, terraces. There were four components to the Form development. Form A, Form B and Form C comprised units. Form D comprised ten four-storey terraces. While the evidence was not very clear, Ms Huo thought that no part of the Form development was underway at the time of her discussions with the plaintiffs.

62 There was a conflict in the evidence as to the number of occasions on which the plaintiffs inspected the Victoria Park site with Ms Huo, but it is unnecessary to resolve that conflict. It is common ground that on either the first or second attendance the plaintiffs were shown models of the entire Victoria Park development showing the relative size and location of the terraces and surrounding buildings and open spaces.

63 The plaintiffs were shown the outside of a three-level terrace in the Centric Building. They were told that these had sold two years previously for $800,000 off-the-plan and that recently one of the owners had turned down an offer to purchase such a terrace for over $1 million. Ms Huo referred to the fact that the market had risen substantially between 2001 and 2003. The plaintiffs were also shown some two and three-bedroom apartments in the Nova building. Mr Zhang deposed that he and Ms Liu showed interest in one such apartment but was told by Ms Huo that all of the apartments in that building were sold. I do not accept that evidence. It was denied by Ms Huo who said that there were units for sale.

64 During the course of the inspection, Ms Huo told the plaintiffs that she had bought a unit in Victoria Park. Ms Huo had purchased a unit in the Eco building about two years previously for $330,000. She told the plaintiff that a one-bedroom unit without car space was then selling for $370,000.

65 During the visit, Ms Huo told the plaintiffs that she and her husband had been too conservative in their investment in property and that had they invested earlier, they would be rich by then.

66 Ms Huo showed the plaintiffs where the four-level terraces for Victoria Park would be built. According to Mr Zhang she said of the ten terraces to be built:

“There are only ten of them in the whole Victoria Park. It is much better than the apartments you have seen, and will increase in value rapidly. The three-level terraces are already going up quickly. This is better. I would buy if I could afford it.”

According to Mr Zhang, he said that he really liked the terrace but could not afford it and Ms Huo said:

“This is an off-plan purchase. You don’t have to pay immediately. You only need a 10% deposit. After 2 years if you still think that you cannot afford to buy it, it has already risen in value and you can sell it. The 10% deposit will be placed in a bank account and you will earn interest on it.”

67 Ms Liu gave evidence to the same effect, although according to her, Ms Huo also said “you’ve got nothing to lose”. According to them both, Ms Huo said that after two years the property could be sold at an increased price.

68 Ms Huo denied saying that the terraces “will increase in value rapidly” or saying that after two years the terrace would have risen in value. She denied saying that a terrace “will” go up in value and she denied saying that by investing the plaintiffs would have nothing to lose. She said that she believed the property was a good investment and that over the long-term real estate increases in value. She denied saying any words in the nature of a promise that by the time settlement was required in two years, the property would definitely have a higher value.

69 In Watson v Foxman (1995) 49 NSWLR 315, McLelland CJ in Eq said (at 318-319):

“Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as “misleading”) within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

...

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration.”

70 That applies here with even greater force because I do not consider any of Mr Zhang, Ms Liu or Ms Huo to be entirely reliable witnesses. In the case of the plaintiffs, I have already referred to their claim that they paid $120,000 rather than $107,000 by way of deposit. This was an exaggeration based on a faulty reconstruction of records. They also gave evidence that they understood that the ground floor of the terrace to be constructed would include both a study and an office, and they both identified the study as being an area on the plan marked with an “S”. Whilst the plan did refer to the terrace as being “3-bed plus study plus office” no separate study was shown. I do not accept that they could have believed, as they deposed, that the area marked “S” was a study. The area in question was less than 1m² and was a cupboard for storage.

71 There were also difficulties with Ms Huo’s evidence. Her answers to questions in cross-examination were frequently unresponsive and I do not attribute this entirely to the fact that she gave evidence through an interpreter. One of the plaintiffs’ complaints concerned representations alleged to have been made about the level of strata levies or management fees. In her affidavit, Ms Huo deposed that she and the plaintiffs discussed the strata levies for units in the city which she said she estimated at around $1,500 per quarter for a two-bedroom unit. At one point in her cross-examination she said that Mr Zhang told her that a strata levy in a city unit would be more than $1,500 and she said that it was not she who provided such an estimate. After being taken to her affidavit, she said that the plaintiffs mentioned that strata fees for a city two-bedroom apartment would be more than $1,000 and that she said that the levy would be about $1,500. Although the point was not of major significance in itself, her oral evidence on this point was designed to paint the plaintiffs as being knowledgeable investors with an understanding of strata levies for city apartments. Having been caught out by the discrepancy between her oral evidence and her affidavit, she shifted her position. I am not satisfied that any such conversation to which she deposed, either orally or in her affidavit, occurred. Her credit was adversely affected by this evidence.

72 Of course, it does not follow that because I am not satisfied that Ms Huo is a reliable witness as to what was said between her and the plaintiffs that I accept the plaintiffs’ version. Rather, I am not satisfied that Ms Huo said words that amounted to an assurance that the value of the terrace would increase over the following two years. Nonetheless, there is no doubt that Ms Huo emphasised that the property market generally, and the units in the Victoria Park development in particular, had shown substantial capital appreciation. Understandably from her own perspective, she did nothing to qualify the representations which Sydney Advance Realty had made in their newspaper advertisements to hold out the area as one whose value was expected to double in five years.

73 In her oral evidence Ms Huo said that she told the plaintiffs that according to the newspapers, including the Sydney Morning Herald, the value of the Victoria Park development would double in five years.

74 The plaintiffs did not give evidence of Ms Huo having made that last statement, and accordingly I do not find that they relied on that statement from Ms Huo, as distinct from the statements made in the newspaper advertisements.

75 Accordingly, I do not accept that Ms Huo made the second representation set out at [6b]. However, Sydney Advance Realty did in substance represent that the development site was the leader of three suburbs that would double in value within five years. There was no express representation that there was a reasonable basis for that prediction. However, it was a prediction as to a future matter and would be misleading or deceptive unless there were reasonable grounds for it. The onus of establishing such reasonable grounds was on the defendants (Trade Practices Act, s 51A). At paras [86]-[94] below, I deal with the question as to whether by making the representation, Sydney Advance Realty engaged in misleading and deceptive conduct.

76 The third and fourth representations can be considered together. In the course of her cross-examination, Ms Huo admitted that she told the plaintiffs that there would be extremely low management fees. She later denied saying that to the plaintiffs, but I do not accept that denial. The advertisement referred to above at [55] for units in the Form development, parts of which are quoted at [55], referred to there being “extremely low property management fees (around $410 for 2 bedrooms)”.

77 No representation was made as to the likely level of management fees for a four-storey terrace which would be almost double the floor area of a two-bedroom unit (230m² compared with 125m²). The plaintiffs said that at a meeting on 19 August 2003 they asked Ms Huo what the strata levies would be and she said “$450 to $480 per quarter because there is no swimming pool and no elevator. It won’t be very expensive.” Ms Liu said that at the time she made a note of being told “management fee not high approx $450 because not provide elevator and swimming pool etc.”.

78 All parties understood the reference to “management fees” to include strata levies. Ms Huo denied saying that management fees or strata levies would be around $450. She said that she did mention the fact that there was no lift or swimming pool which would have the overall effect of reducing management fees, but she did not know what the fees for the Form terraces would be and did not mention any specific sum.

79 Notwithstanding the note made by Ms Liu, I am not satisfied that Ms Huo represented that management fees for the Form terrace would be about $450 per quarter. There was discussion about management fees not only for the Form terrace but also for two-bedroom units in the Nova building and in the Form building. Whilst it is likely that the figure of $450 was mentioned, I am not satisfied that the figure was mentioned as being the likely management fees for the terrace the plaintiffs purchased. Accordingly, I accept that a representation was made by the second defendant and by Ms Huo that management fees would be extremely low (see allegation set out above at [6c]). There was no express representation that there was a reasonable basis for that statement, but the statement was a statement as to a future matter and would be misleading unless there were a reasonable basis for it. Ms Huo also represented that the reason the management fees would be extremely low was that there would be no swimming pool and no shared lift for the property. Otherwise I am not satisfied that representation was made in the terms alleged at [6d].

80 In para [84] below, I deal with the question as to whether there was a reasonable basis for the representation that was made.

81 The alleged representations set out at [6(e)], [(f)], [(g)], [(i)] and [(j)] can be considered together. There was discussion about the desirability of the property being exposed to sunshine and about gardens or parks surrounding it. Critical to the allegation concerning sunshine is the height of the building to be constructed behind the terraces. The building behind the terraces is six storeys high and the plaintiffs say it obscures the sunshine. They say that Ms Huo represented that at most it would be no more than three storeys high. Ms Huo denied the plaintiffs’ allegation that she had said that “you would definitely get a lot of sunshine with no problem”. I accept that denial. I do not accept that Ms Huo represented that the building at the rear of the terraces would be no more than three storeys high. The height of that building was shown on the model the plaintiffs inspected and the building which was constructed was in accordance with the model. Likewise, the landscaping was in accordance with the model the plaintiffs were shown. There is no substance in relation to these allegations of misleading conduct.

82 The representation alleged by the plaintiffs set out at [6(h)] was that the property would have both a home office and a study, the latter having natural light. The terrace was built in accordance with the plan and had as much light as would be expected from the model the plaintiffs were shown. As noted above at [70], it is true that the plan provided to the plaintiffs by Ms Huo referred to the terrace as comprising three bedrooms, plus study, plus office (although the plan attached to the contract referred only to three bedrooms, plus office). However it was plain from the plan itself that there was no study in addition to the area designated as home office. In particular, for the reasons explained at [70], the plaintiffs could not have understood that the area on the plan marked with an “S” was a study. When the plan is considered as a whole, the alleged representation was not conveyed. In any event, the plaintiffs did not rely upon a representation that the property would include both a home office and a separate study.

83 Sections 51A and 52 of the Trade Practices Act provide:

“51A Interpretation

(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

52 Misleading or deceptive conduct

(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).”

Reasonableness of Predictions – Management Fees

84 It is convenient first to deal with whether there was a reasonable basis for the prediction that management fees would be extremely low. Strata levies for the property were $1,150.60 per quarter. There was no evidence of how this compared with strata levies (or management fees) for similar developments. The onus is on the defendants to establish that there was a reasonable basis for the prediction. However, even in the absence of evidence as to strata levies or management fees for comparable properties, there was a reasonable basis for the prediction made by Sydney Advance Realty and Ms Huo. Management fees had been set for the Nova apartments by the time of Ms Huo’s meetings with the plaintiffs. It was not disputed that management fees for the Nova apartments were low. It was reasonable to expect that without a shared lift or swimming pool, the levies or management fees for the property purchased by the plaintiffs would be considerably lower on a per square metre basis.

Reliance – Management Fees

85 I am not satisfied that the prediction as to the low level of management fees was a material inducement to the plaintiffs’ entering into the contract for the purchase of the property. After having inspected the Victoria Park site and having paid a $1,000 holding deposit for the terrace, the plaintiffs saw another property in Hornsby for sale for $690,000. On the morning of 3 September 2003, they exchanged contracts to purchase the Hornsby property. According to the plaintiffs, Mr Zhang went to meet Ms Huo to get back the holding deposit but was persuaded to proceed with the purchase of the terrace at Victoria Park. According to Ms Huo the plaintiffs were still determined to proceed with the purchase of the terrace in addition to the Hornsby property and came to see Ms Huo in order to work out how they could purchase both properties. However that might be, the plaintiffs accepted that they could not afford to complete the purchase of both properties. The plaintiffs proceeded with the purchase of the terrace at Victoria Park because they believed they could resell the property at a profit. They believed they could resell at a profit before completion, or could borrow the finance to complete the purchase against an increased valuation. Without a material increase in value they could not complete. The representation concerning the level of management fees was not material to their decision, except insofar as that was likely to reflect in the value of the property. Critical to their decision to purchase the property was their belief that its value would increase before completion was due. In my view, their belief that the property would increase in value was not influenced by the representation concerning the level of management fees.

Reasonableness of Prediction of Future Value

86 Accordingly, the critical question in relation to ss 51A and 52 of the Trade Practices Act is whether there were reasonable grounds for the representations concerning the future value of the property, and whether the plaintiffs relied on those representations.

87 The newspaper advertisement for the Form development in Victoria Park stated that it was an area praised (or acclaimed) by the Sydney Morning Herald as being the primary (or number one) district amongst three areas which were going to double in value within five years.

88 The article to which Sydney Advance Realty was referring in this advertisement was published by the Sun Herald (not the Sydney Morning Herald) on 17 February 2002. It was well out of date by May and August 2003, particularly as the property market had shown substantial growth of in the order of 16 percent per annum over that period. A real estate agent and valuer who gave evidence for the plaintiffs, Mr Phippen, said that as at early 2003 the market had been increasing at an above average rate from 2000 with a significant increase in that period in turnover and improvement in values. There was an increasing supply of new apartments in the Zetland/Waterloo area, such that by 2003 the supply of apartments in that area was becoming saturated.

89 The plaintiffs gave no evidence that they placed any reliance on the representation that the article referred to in the advertisement had been published by the Sydney Morning Herald as distinct from some other newspaper. Therefore, even if there were evidence that one publication had greater credibility than the other, it would not be material that the advertisement wrongly stated the newspaper in which the article had been published.

90 The newspaper article did not say that the Zetland area or the Victoria Park development was the primary suburb where values were expected to double. The article had a headline “The Suburbs Where Values will Double in Five Years”. Three suburbs were referred to, namely Zetland, Rhodes and Wolli Creek. Zetland was not given primacy. Significantly, the reason the author of the article opined in 2002 that values would double in five years was that the high prices being asked and received for new high-rise residential developments in those suburbs affected the prices of other housing. The author wrote:

“Property values at Zetland, Rhodes and Wolli Creek are expected to more than double within five years.

Highrise residential development and what is now vacant land in the three Sydney suburbs is to boost the value of existing homes as it did in Cabarita, near Concord. ...

Landcom’s $1.5b Vic Park development in Zetland will set a new price trend for the inner southern Sydney suburb.

Airia, a $65m development, is part of the second stage of the 24.5ha development.

Being developed by Waltcorp and designed by Nick Turner of Turner & Associates, a one-bedroom unit will cost $420,000, the current average price for Zetland. A three-bedroom unit will cost as much as $910,000.

...

‘It was paramount to provide residents with units that offered high-comfort levels and maximise orientation and outlook over the adjacent parks’, Mr Turner said.

‘You can be assured that Victoria Park as a whole will dramatically increase the value of Zetland.’

...

At present the average price in Arncliffe is $360,000. In Proximity [a development in Wolli Creek, formerly North Arncliffe] prices for a two-bedroom unit will start at $360,000, with penthouses going for between $800,000 and $1 million.

At Rhodes, the average price is $470,000. Meriton will building [sic] 700 units and, while prices are yet to be set, they should be about $450,000 for a two-bedroom flat.”

91 The thesis of the article was that the higher priced new developments would increase the values for the suburb as a whole. The author did not opine that units in the highly priced new developments would themselves double in value in five years. It was misleading to suggest that the article supported a prediction that properties in the Victoria Park development could be expected to double in value in five years. Sydney Advance Realty did not simply convey the opinion of the author of the Sun Herald article for whatever it was worth without adopting or endorsing it (Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 666; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at 605 [38]-[40]).

92 There was no reasonable basis for a prediction that the value of property in the Victoria Park development, or the Form complex, would double in value in five years. The advertisements themselves represented that the rental value of the units would be underpinned by the creation of new jobs from the commercial and retail developments. Although the advertisements did not say so, the commercial and retail developments were the last stage of the overall development of Victoria Park. By the time of the hearing in 2008, construction of those developments had still not commenced. Although it might have been reasonable to predict that those developments would provide some support for the rental values of units in the Victoria Park development, that provided no reasonable basis for a prediction that capital values of units in the development would double in five years.

93 I should add that evidence was given by the plaintiffs that they were not told that the retail and commercial developments would be the last stage of the development of Victoria Park and that they understood that those developments would be constructed simultaneously with the construction of the Form development. However, in their statement of claim, the plaintiffs did not allege that the defendants misrepresented the time at which the retail and commercial developments would be undertaken.

94 The defendants did not lead evidence that there was a reasonable basis for the prediction that values would double in five years. The uncontradicted evidence of Mr Phippen was that there was no proper basis for such a claim. He said that it would require an average annual growth rate of 20 percent, whereas properties in the area had averaged growth over the preceding ten years of 10.2 percent and that this was over a period that was considered to be the greatest increase in property values in Sydney in a century. Nearly 5,000 apartments had been constructed in the Zetland area up to 2005 and another 1,000 apartments were proposed. The supply of apartments in the area was saturated. There was no reasonable basis for the prediction that the value of property in Victoria Park would double in five years.

95 Mr Hassett, solicitor, who appeared for the second and third defendants, submitted that the plaintiffs read the article in the Sun Herald and therefore could not have been misled by the advertisements published by Sydney Advance Realty. The plaintiffs denied having seen the article published in the Sun Herald and I accept that denial. Indeed at least Mr Zhang would have been unable to read the article even if he had been shown it.

Puffery

96 Mr Hasset also submitted that the article in the Sun Herald was puffery. Although the submission was not very clear, I take him also to have submitted that the newspaper advertisements which the plaintiffs saw amounted to puffery insofar as they referred to Victoria Park doubling in value. It is sometimes said that puffery falls outside the reach of s 52 of the Trade Practices Act (Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234-235; Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 at 205-206), although it is more usual to infer that the plaintiff did not rely on an obvious puff (e.g. Petty v Penfold Wines Pty Ltd (1994) 49 FCR 282). In Jainran Pty Ltd v Boyana Pty Ltd [2008] NSWSC 468, Bryson AJ said (at [117]):

“There were contentions by counsel for all defendants to the effect that some parts of the material in the brochure (and perhaps elsewhere) can properly be defined (and disregarded for the purpose of s 52) as ‘puffery,’ an expression which has been used in many judgments. I do not know of any clear exposition of what is referred to as ‘puffery’ but its connotation is statements which the hearer to whom they are addressed is not expected to take literally and to treat seriously, obviously so to a reasonable hearer. Categorisation of a statement as puffery is to my mind a signal that the speaker’s thinking has taken a particular turn rather than an explanation for that turn. A characteristic which is often attributed to puffery is that it is incapable of being proved to be correct or incorrect; Pappas v Soulac (1983) 50 ALR 231 at 238 (Fisher J). It is usually difficult to isolate any real content in such statements – ‘The greatest show on earth’, ‘the best car in its class on the market today’, ‘leading a new wave of talent’ and ‘we've already been getting interest in this property’. The expression does not include communications which the recipient is expected to take seriously, even if they are not in highly precise terms. The brochure cannot in my view be treated as puffery; nor can anything contained in it. It contains many statements of fact and many commendations, not highly specific but clearly capable of being misleading or deceptive if facts and circumstances make them so.”

97 I agree. I do not consider that it is useful to approach the construction of s 52 using an overlay of whether the advertisements are puffery, with the implication that if they are, they fall outside the ambit of the section. No doubt in considering whether the advertisements were misleading or deceptive, regard is to be had to reasonable members of the class of readers who might be expected to act on the advertisement (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 199). The advertisements were directed to Mandarin speakers including persons such as the plaintiffs who were recent immigrants. The advertisements conveyed that an apparently reputable organisation was of the view that the Victoria Park development could be expected to double in value in five years. A reasonable member of that class of readers could properly assume that such a view had been expressed, and that there were reasonable grounds for it. Neither was the case.

98 It cannot be said that the statements were puffery merely because reasonable readers might be expected to make further inquiries if they were to rely upon the statements. Whilst the advertisements were intended to provoke further inquiry, no further information was to be given which would in any way qualify the representations as to likely future value. In Pappas v Soulac Pty Ltd, Fisher J said (at 234-235):

“... many of the statements ... were also essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations for the purpose of attracting the interest of a possible purchaser. As such they became irrelevant or of little, if any, significance when detailed information is subsequently given a fortiori to a potential purchaser with commercial experience.”

99 No further detailed information was given on the topic of the likely future value of the property. Nor were the plaintiffs persons of commercial experience.

Reliance

100 Both plaintiffs understood that there was a risk that the market value of the property might fall. Mr Zhang gave the following evidence:

“Q. You wanted to buy one of these terraces because you thought they would go up in value before you had to settle, didn't you?

A. Yes.

Q. And you knew you wouldn't have to pay for it for about two years, didn't you?

A. That was what Lisa told me later.

Q. She told you at the time, didn't she, on your second visit?

A. Yes. That's what I remembered.

Q. You believed that, didn't you?

A. Yes.

Q. So the reason that you didn't buy a Nova existing unit but instead bought an off the plan unit was because you knew you wouldn't have to pay for it for some years?

A. Firstly, because the units I want to buy were sold out and, secondly, she told me this terrace was quite good and the value would go up.

Q. You know that nobody can guarantee whether property prices go up or down, don't you?

A. Yes.

Q. And you knew that if anyone said to you property prices will double in five years, they can't predict that for sure; you know that, don't you?

A. Yes. Apart, except for this Victoria Park.

Q. It's the only property in Australia you can guarantee will go up; is that right?

A. After I read the advertisement at the time I believed so.

...

Q. She told you that you could sell the unit off the plan, but she did not guarantee to you that it would go up in value?

A. Yes.

Q. Because you knew that nobody can promise that, don't you? You knew that at the time?

A. Yes. Except for this Victoria Park. I still believed that the price would go up.

Q. You hoped it would go up; isn't that more correct?

A. I thought it would double in five years' time as they said so. Even if not double in five years' time, but at least the price would go up in two years.”

101 I do not accept that Mr Zhang thought there was no risk that the price for property at Victoria Park would fall and that it was guaranteed that the price would rise. Nonetheless, he believed that the price would rise and bought the terrace because of that belief. A material reason for his holding that belief was the advertisements published by Sydney Advance Realty referred to above at [55]-[58].

102 Ms Liu gave the following evidence in cross-examination.

“Q. But you knew that you had purchased the off the plan unit?

A. Yes.

Q. And you were hoping it was going to go up so you could sell it before time to settle?

A. That was part of the reason I was thinking.

Q. Was there any other part?

A. If the property appreciate over time like on a re-finance, I can purchase it as well.

Q. But you realised it might go down, didn’t you?

A. Correct.

Q. You understand that property goes up and down?

A. Yes.

Q. And you knew you were taking a risk that it might go down?

A. I didn’t think this property purchase was a risk.

Q. Why would every other property go down but not this one?

A. I didn’t have much experience because this is my first time dealing with property.

Q. Yes, but you have just told us that you knew properties could go up or down?

A. That’s right.

Q. And you knew this one might go down too, didn’t you?

A. Yes.

Q. And you and your partner decided to take that risk?

A. Because we believe in the agent’s persuasion. Therefore, we decided to take this risk.

Q. But you know no one can promise you whether property will go up or down, don’t you?

A. That’s right.”

103 In her affidavit, Ms Liu said:

“At the time of signing the contract I believed the abovementioned statements which had been made to me by Lisa Huo and in the abovementioned newspapers. I would not have signed if I had not believed those statements.”

104 The fact that the plaintiffs did not understand that it was guaranteed that the value of the property would double in five years or would rise before completion was due does not mean that they did not rely upon the statements as to value in the advertisements (Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359 at 370 [43]).

105 The statements in the abovementioned newspapers included that Victoria Park was an area that would double in value within five years. The fact that the advertisement falsely stated that Victoria Park had been praised or acclaimed by the Sydney Morning Herald as being the leader or having primacy of three suburbs which would double in value in five years does not detract from the fact that the advertisements conveyed that it was expected that Victoria Park would double in value in five years. Neither Mr Zhang nor Ms Liu was challenged in their evidence that their belief that Victoria Park would double in value in five years was based on what they read in the advertisements and were told by the agent. Whilst I have not accepted their evidence that Ms Huo made statements to the effect that the property would double in value in five years, I am satisfied that the plaintiffs believed that that would happen, and that they believed that the property would increase in value within two years before settlement was required. I am satisfied that the advertisements materially contributed to both of them holding that belief.

106 Mr Hassett submitted that such reliance was not reasonable and unless reliance was reasonable, the chain of causation was broken. No authority was cited for that proposition, although Mr Hassett did cite I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [1999] QSC 320 (Unreported, Williams J, 22/10/99) as authority for the proposition that damages may be reducd for careless conduct. The decision cited was reversed by the High Court (I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109).

107 In Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, Hill J said (at 138):

“A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.”

108 That is not this case. The plaintiffs were immigrants from China who placed naïve faith in what was represented by Sydney Advance Realty which no doubt accorded with their own observation of movements in the property market since they had arrived in Australia. The mere fact that they were naïve or, if you like, careless, does not break the chain of causation (Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 240-241; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 558).

109 It follows that by publishing the advertisements Sydney Advance Realty engaged in trade or commerce in conduct that was misleading or deceptive. The plaintiffs relied on the advertisements and are entitled to recover damages against Sydney Advance Realty for the loss thereby occasioned (Trade Practices Act, s 82). If the contract is not liable to be rescinded, the measure of damages under s 82 would be the amount of the deposit and the amount payable by the plaintiffs to the first defendant for breach of contract.

Rescission

110 Sections 87(1) and 87(1A) of the Trade Practices Act provide:

“87 Other orders

(1) Subject to subsection (1AA) but without limiting the generality of section 80, where, in a proceeding instituted under this Part, or for an offence against Part VC, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IV, IVA, IVB, V or VC, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 82, 86C or 86D, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

(1A) Subject to subsection (1AA) but without limiting the generality of section 80, the Court may:

(a) on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of Part IVA, IVB, V or VC; or

(b) on the application of the Commission in accordance with subsection (1B) on behalf of one or more persons who have suffered, or who are likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of Part IV (other than section 45D or 45E), IVA, IVB, V or VC;

make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will:

(c) compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or

(d) prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.”

111 There was no evidence that the first defendant was aware of the terms of the advertisements or knew of the facts which made the advertisements misleading. The first defendant is not a person involved in the contravention by Sydney Advance Realty of s 52 (Trade Practices Act, s 75B; Yorke v Lucas). The plaintiffs are therefore not entitled pursuant to s 87(1) or (1A) of the Trade Practices Act to an order for rescission of the contract between them and the first defendant.

112 However, the advertisements were published by Sydney Advance Realty whilst acting as agent for the first defendant. The representation that Victoria Park had been praised by the Sydney Morning Herald as the leader or having primacy of three suburbs that would double in value within five years was a representation of fact and was false. The plaintiffs did not plead the representation in the terms in which it appeared in the advertisement and did not give evidence that they relied upon the representation that the Sydney Morning Herald had praised the Victoria Park development as having the primacy of three suburbs that would double in value in five years. They took from the advertisement that Victoria Park would double in value in five years: an opinion, not a representation of fact. However, that statement of opinion would imply that there were facts known to the person expressing the opinion that there were grounds to justify the opinion, which is itself a representation of fact (Smith v Land and House Property Corporation (1885) 28 ChD 7 at 15). The plaintiffs relied on the representation and are entitled to an order for rescission of the contract and return of the deposit.

113 The deposit was held by Sydney Advance Realty as stakeholder. Notwithstanding that it was aware of the dispute between the plaintiffs and the first defendant, it accounted to the first defendant for the deposit, rather than interpleading and paying the deposit into court. Both it and the first defendant are liable to the plaintiffs for the return of the deposit. Sydney Advance Realty is liable because it received the deposit as stakeholder and is liable to pay it to the person entitled. The first defendant is liable because after rescission it is liable to put the purchasers in the same position as they were in before the contract was entered into (Swindle v Knibb (1929) 29 SR (NSW) 325 at 329). Even if Sydney Advance Realty was not liable as stakeholder to return the deposit, it would be liable to pay damages for its contravention of s 52 if the plaintiffs were unable to recover the deposit and interest thereon from the first defendant.

Contracts Review Act

114 For the reasons which follow, I also consider that the plaintiffs are entitled to an order avoiding the contract as an unjust contract under the Contracts Review Act.

115 There was nothing unjust in the substantive terms of the contract. The plaintiffs bought the property for what was fair market value at the time and suffered loss because of the general fall in the market. Nonetheless, the contract was unjust in the circumstances relating to it at the time it was made. The primary reason for this is that the plaintiffs’ entry into it was induced by the misrepresentations in the advertisements placed by Sydney Advance Realty.

116 There are additional considerations which demonstrate that the procedure by which the contract was entered into was unjust. It was an imprudent gamble for the plaintiffs to enter into the contract to buy the property when they could not afford to complete the purchase and were relying on the market continuing to improve up to the time completion was due. That imprudent gamble was induced by the misleading advertisements, and was encouraged by Sydney Advance Realty. The plaintiffs did not even have the funds to pay the deposit when the deposit was due under the contract. The deposit was paid by instalments. The last instalment was not made until 17 December 2003 although the contract was entered into on 3 September 2003.

117 The plaintiffs did not obtain any independent financial advice in relation to the transaction. They did not retain their own solicitor. Mr Ma was retained to act for them by Sydney Advance Realty. It was liable to pay his fees. According to the evidence of Sydney Advance Realty, it was only liable to pay his fees out of its commission on completion of the purchase. Ms Huo was present during the plaintiffs’ meeting with Mr Ma. Mr Ma did not ask the plaintiffs how they would complete the purchase. No financial advice was proffered.

118 As noted earlier in these reasons, although I am not satisfied that Ms Huo made any express prediction that the market would double in five years, or that the value of the property would increase before completion was required, or that the plaintiffs could resell at a profit, on the other hand, nothing was said during her meetings with the plaintiffs to qualify the impression conveyed by the advertisements that the market would continue to increase. Rather, that impression was confirmed by her statements to the plaintiffs as to how values of properties in the development had increased to that point.
119 The plaintiffs were recent immigrants to this country. Mr Zhang had little experience in the property market and Ms Liu had none. In those circumstances, the misrepresentations contained in the advertisements meant that the contract was unjust in the circumstances relating to it at the time it was made. Were it necessary to do so, I would make orders for rescission of the contract pursuant to s 7 and Sch 1 of the Contracts Review Act. In light of my earlier conclusions it is not necessary to make orders under that Act.

Interest

120 On 26 August 2005 Sydney Advance Realty paid $117,451.05 to the nominee of the first defendant. This represented the $107,000 deposit and $10,451.05 interest earned on the deposit. The order for rescission operates ab initio (Alati v Kruger (1955) 94 CLR 216 at 224). The first defendant was not entitled to the deposit and interest, and is liable to restore the sum paid. The plaintiffs are entitled to interest on that sum pursuant to s 100 of the Civil Procedure Act 2005 (NSW) at the rates prescribed in Sch 5 of the Uniform Civil Procedure Rules from 26 August 2005. The plaintiffs would be entitled to at least the same relief from Sydney Advance Realty which was liable as stakeholder to hold the deposit for the plaintiffs. However, the cause of action for damages for misleading and deceptive conduct arose from the time the instalments of the deposit were paid. The plaintiffs are entitled to judgment against Sydney Advance Realty for $107,000 and are entitled to interest on the payments totalling $107,000 from the various dates of payment between 26 August 2003 and 13 December 2003. This yields a slightly higher sum than the judgment to which the plaintiffs are entitled against the first defendant.

Other Grounds

121 I do not consider that the plaintiffs established the other grounds upon which they sought to have the contract set aside outlined in summary in paras [8] and [9] above, but it is unnecessary to deal with those grounds in detail.

122 The conduct of Sydney Advance Realty and Ms Huo did not amount to harassment, let alone “undue harassment” within the meaning of s 53A(2) of the Trade Practices Act and s 45(2) of the Fair Trading Act.

123 The plaintiffs contended that they were harassed into entering into the contract on 3 September 2003. That morning they placed a ten percent deposit on the Hornsby property and paid an unidentified cash sum towards the purchase of furniture. According to Mr Zhang they went to Ms Huo’s office to give her notice that they had purchased the Hornsby property and would not be proceeding. He said he asked for the return of the $1,000 holding deposit. According to Mr Zhang he and Ms Liu were reluctantly persuaded to buy the Victoria Park terrace by being assured that the property market was continually rising; that the market doubled in value every seven years; and that in two years the terrace would definitely have increased in value. I have not accepted that evidence, but even if it were accepted, it would not amount to harassment.

124 The plaintiffs say that Mr Zhang sought to resist the sales pressure by saying that he would not make a decision and would have to speak to Ms Liu. He said that Ms Huo said to call Ms Liu by telephone and he did not feel able to refuse. He called Ms Liu who spoke to Ms Huo. Ms Liu spoke to Ms Huo and deposed that representations were made concerning increasing value. I have not accepted that such representations were made. However, if they were made such conduct would not constitute harassment, let alone undue harassment.

125 On 3 September 2003 the plaintiffs negotiated a two-year mutual guarantee. This was in addition to a $20,000 discount which had been negotiated at a previous meeting on 26 or 27 August.

126 Ms Huo’s evidence was that rather than asking for the return of the holding deposit, on 3 September, Mr Zhang wanted to know how he could buy the terrace as well as the Hornsby property. There is some corroboration for this in that Mr Zhang was able to pay $20,000 towards the deposit on that same day.

127 I do not accept the plaintiffs’ versions of the events of 3 September 2003, but if I were to do so, I would not conclude that the plaintiffs were harassed into signing the contract. Nor was their will overborne. Rather, they were misled into an over-optimistic confidence that property values for Victoria Park would continue to increase.

128 I do not accept that any of the defendants engaged in unconscionable, as distinct from misleading, conduct. Such a finding “... requires a high level of moral obloquy.” (Attorney General of NSW v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557 at [120]-[121]). It is not synonymous with misleading conduct, nor with a contract being unjust.

129 It is true to say that to some degree the plaintiffs placed confidence in Ms Huo. The plaintiffs emphasised that they called Ms Huo “elder sister”. That was a mark of respect customary in their culture. It did not denote anything more than respect. The confidence the plaintiffs placed in Ms Huo did not go beyond that which any customer places in the words of a salesman whom he or she believes. There was no undue influence, as distinct from reliance.

130 It is also unnecessary to deal with the plaintiffs’ contentions that even if the contract was not liable to be rescinded by reason of the circumstances in which it was entered into, the first defendant was not entitled to terminate the contract and its purported termination was a repudiation which they accepted, or, alternatively, that the contract was mutually abandoned. The questions raised require no findings of disputed fact. Had it been necessary to decide these questions, I would have concluded that the first defendant was not entitled to serve the notice to complete, but nonetheless it was entitled to terminate the contract because the plaintiffs had repudiated the contract. They unequivocally evinced an intention not to be bound by the contract by saying that they would not complete it. The first defendant elected to affirm the contract by serving a notice to complete, but the election was not irrevocable. On the plaintiffs failing to complete and continuing to evince their intention not to be bound by the contract, the first defendant would have been entitled to terminate the contract for their repudiation of it.

Conclusion and Orders

131 The first defendant brought a cross-claim for damages for the loss suffered on resale of the property. It did not appear at the hearing to seek to maintain that claim. In view of my conclusion that the contract is liable to be rescinded, its cross-claim should be dismissed. There should be judgment against the first defendant for $117,451.05 and interest at the prescribed rates from 26 August 2005. There should be judgment against the second defendant for $107,000, and interest at the prescribed rates from the time each of the instalments of the deposit was paid.

132 I have not concluded that Ms Huo personally engaged in misleading or deceptive conduct. The claim against her should be dismissed.

133 For these reasons I make the following orders:

1. Order that the contract dated 11 September 2003 between the plaintiffs and the first defendant in respect of Lot 8 in a draft strata plan being the part of the land comprised in the former Lot 302 in Deposited Plan 1032762 be rescinded.

2. Direct entry of judgment in favour of the plaintiffs against the first defendant in the sum of $117,451.05 together with interest pursuant to s 100 of the Civil Procedure Act on that sum from 26 August 2005 at the rates prescribed by Sch 5 of the Uniform Civil Procedure Rules.

3. Order that the plaintiffs not execute the judgment against the first defendant’s assets without prior leave of the Court.

4. Order that the first defendant’s cross-claim be dismissed.

5. Direct entry of judgment in favour of the plaintiffs against the second defendant in the sum of $107,000 together with interest pursuant to s 100 of the Civil Procedure Act on that sum at the rates prescribed by Sch 5 of the Uniform Civil Procedure Rules from the dates of payment set out at para [17] of these reasons.

6. Direct entry of judgment for the third defendant on the plaintiffs’ claim.

7. Exhibits may be returned after 28 days.

134 I will hear the parties on costs.

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LAST UPDATED:
23 February 2009