CATCHWORDS

 

CONTRACT - loan facility - whether term of contract that interest margin could be varied - whether terms ambiguous - whether regard can be had to extrinsic evidence

 

MISLEADING AND DECEPTIVE CONDUCT - promotional brochure represented that interest margin fixed - contract allowed for variation of margin - contract included no representations clause - borrowers recommended to seek legal advice

 

EVIDENCE - relevance of extrinsic evidence to terms of contract - relevance of evidence to provide context for assessing whether conduct misleading and deceptive

 

DAMAGES - whether damages for misleading and deceptive conduct to be assessed as for tort or contract - whether detriment to applicants caused by contravening conduct of respondents - whether difference between fixed and variable margin is a loss sustained or non-attainment of benefit - whether lost commercial opportunity - whether appropriate to hold respondents to bargain represented

 

REPRESENTATIVE PROCEEDINGS- whether proceedings apt to be run as a group action - difference in individual circumstances -necessity for individual evidence relating to reliance and damages - whether same questions of law and fact

 

 

Fair Trading Act 1987 (NSW)

Trade Practices Act 1974 (Cth) s 52

Federal Court of Australia Act 1976

Government Insurance Office (Privatisation) Act (NSW) 1991

Contracts Review Act 1980 (NSW)

 

 

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] 138 CLR 423

Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Ltd [1979] 144 CLR 596

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] 149 CLR 191

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1981-2] 149 CLR 337

Gould v Vaggelas [1985] 157 CLR 215

Gates v City Mutual Life Assurance Society Limited [1986] 160 CLR Wardley Australia Limited & Anor v The State of Western Australia [1992] 175 CLR 514

Sellars v Adelaide Petroleum NL & Ors [1994] 179 CLR 332

Petera Pty Ltd v EAJ Pty Ltd [1985] 7 FCR 375

Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No2) [1987] 16 FCR 410

Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] 26 FCR 112

Ricochet v Equity Trustees Executor and Agency Company Ltd [1993] 41 FCR 229

Lockyer Investment Co Pty Ltd v Smallacombe [1994] 50 FCR 358

Frith v Gold Coast Mineral Springs Pty Ltd [1983] 47 ALR 547

Enzed Holdings Ltd v Wynthea [1984] 57 ALR 167

Sutton v A J Thompson Pty Ltd (In Liq) [1987] 73 ALR 233

Soverina v Natwest [1993] 118 ALR 298

 

Zhang De Yong v Minister for Immigration, Local Government and Ethnic Affairs [1993] 118 ALR 165

Tropical Shine Holdings Pty Ltd (t/as K C Country) v Lake Gesture Pty Ltd & Ors [1993] 118 ALR 510

Poignand v NZI Securities Australia [1994] 120 ALR 237

Jenkins v NZI Securities Australia Ltd [1994] 124 ALR 605

Shepherd v Nodes Bros Pty Ltd [1985] ATPR 40-588

Benelist Pty Ltd v Olivetti Australia Pty Ltd [1990] ATPR 41-043

Gates v City Mutual Life Assurance Society Ltd [1983] 68 FLR 101

Lam v Ausintel Investments Pty Ltd [1989] 97 FLR 458

Asea Brown Boveri Pty Ltd v Burns Philp Trustee Company Limited (Giles J, Supreme Court of NSW Commercial Division No 50361 of 1989, unreported 23 April 1990)

Metcalf v NZI Securities Australia Ltd & Ors (Sackville J unreported, 31 May 1995)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MARKS & ORS V GIO AUSTRALIA HOLDINGS LTD & ORS

NG 379/93

 

 

 

 

 

 

 

EINFELD J

 

SYDNEY

 

9 FEBRUARY 1996

IN THE FEDERAL COURT OF AUSTRALIA    )

NEW SOUTH WALES DISTRICT REGISTRY    )    No. G 379 of 1993

GENERAL DIVISION                     )

 

 

                     Between:        MICHAEL MARKS in a representative capacity

                                               First Applicant

 

                                     JEREMY KINROSS

                                               Second Applicant

 

                                     PAUL McCULLAGH

                                               Third Applicant

 

                                     ALEXANDRA WILLIAMSON

                                               Fourth Applicant

 

                         And:        GIO AUSTRALIA HOLDINGS LIMITED

                                     ACN 054 573 401

                                               First Respondent

 

                                     GIO GENERAL LIMITED

                                     ACN 002 861 583

                                               Second Respondent

 

                                     GIO FINANCE LIMITED

                                     ACN 002 812 704

                                               Third Respondent

 

                                     GIO BUILDING SOCIETY LIMITED

                                     ABN 055 994 093

                                               Fourth Respondent

 

                 MINUTES OF ORDER AND DECLARATIONS

 

The Court declares that:

 

1.   The respondents by their conduct have breached section 52 of the Trade Practices Act 1974 (Cth).

 

2.   The respondents by their conduct have breached section 42 of the Fair Trading Act 1987 (NSW).

 

The Court orders that:

 

1.   The matter be relisted for directions at 9.30 am Friday 16 February 1996, at which time the parties shall hand up a schedule of agreed damages to reflect the conclusion that the respondents pay to the applicants the difference between the fixed and variable interest margins on their respective loans, calculated from 1 August 1992 to six weeks from

     today, in the case of those who opt out of the current facility and to today in the case of those who remain in, together with interest.

 

2.   If no agreement is reached the parties are to supply to my associate their own statement of the appropriate damages with written submissions by not later than 4pm on 14 February 1996.

 

3.   The parties are similarly to agree as to the appropriate order(s) for costs or if there is no agreement, supply written submissions in accordance with the timetable fixed in order 2.

 

4.   There will be liberty to apply on 2 days notice.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

 

 

 

 

 

 

 

 

 

 

 

 

 

EINFELD J

 

SYDNEY

 

9 FEBRUARY 1996

 

IN THE FEDERAL COURT OF AUSTRALIA    )

NEW SOUTH WALES DISTRICT REGISTRY    )    No. G 379 of 1993

GENERAL DIVISION                     )

 

 

 

                     Between:        MICHAEL MARKS in a representative capacity

                                               First Applicant

 

                                     JEREMY KINROSS

                                               Second Applicant

 

                                     PAUL McCULLAGH

                                               Third Applicant

 

                                     ALEXANDRA WILLIAMSON

                                               Fourth Applicant

 

 

 

                         And:        GIO AUSTRALIA HOLDINGS LIMITED

                                     ACN 054 573 401

                                               First Respondent

 

                                     GIO GENERAL LIMITED

                                     ACN 002 861 583

                                               Second Respondent

 

                                     GIO FINANCE LIMITED

                                     ACN 002 812 704

                                               Third Respondent

 

                                     GIO BUILDING SOCIETY LIMITED

                                     ABN 055 994 093

                                               Fourth Respondent

 

 

                       REASONS FOR JUDGMENT

 

 

EINFELD J                    SYDNEY               9 FEBRUARY 1996

 

INTRODUCTION

 

At various times between February 1991 and April 1992 the represented and individual applicants each borrowed money from the first respondent (the GIO) or its predecessor, the Government Insurance Office of New South Wales (the old GIO).  The loan facility, known as the `Asset Accumulator Account' (the facility), is a secured line of credit and offers flexible, long term floating rate funding.  The payable interest rate is calculated monthly by reference to the 90 day bank bill rate which fluctuates with market forces.  The interest rate payable tracks this rate and therefore changes monthly.

 

The facility has a number of attractive features such as no start up costs (subject to maintenance of the facility for a minimum of 10 years) and considerable flexibility.  Funds can be drawn down or repaid at any time, the facility can be easily converted to fixed rate funding, and the security provided can be substituted.  Funds can be borrowed for a large range of purposes.  The facility also offers tax-efficient savings.

 

THE DISPUTE BETWEEN THE PARTIES

 

At the heart of the dispute between the parties is an integer in the formula applied to calculate the interest rate payable under the facility.  The applicants allege that the respondents promised them that this integer or margin would remain fixed for the entire period of their loans.

 

The total interest rate applicable to the facility is comprised of various components.  The first step is to calculate the "Base Rate" defined in the applicable Conditions of Use as the average for the month of the daily 90 day Bank Bill Rate available to
authorised dealers, generally known as the commercial bill or money market rate.  The next step is to add a "margin" to the Base Rate, presumably to cover administration and profits, so as to create the aggregate figure, called the "Lower Interest Rate" or the "Prime Rate".  In some loans a further 2% is added to the "Lower Interest Rate" creating a total called the "Higher Interest Rate" or "Prime Rate plus".  This rate is applicable in cases with higher loan/valuation ratios or to certain categories of security.  In the present case the "Lower Interest Rate" was the applicable rate payable by each applicant.

 

At the commencement of the facility, the margin was 1.25%.  However, in April 1992 borrowers received a letter from the GIO advising them of various changes to the terms and conditions of the facility.  The letter stated that as a result of a credit rating review conducted in anticipation of the GIO becoming a listed company, its cost of funds had increased.  This increase in the cost of borrowing was to be passed on to the customer as of 1 August 1992 by increasing the margin by 1%.

 

The applicants have contested the legality of this increase.  Their submissions in essence were twofold:

 

     1.   that it was a term of their contract with the GIO that the margin be set at 1.25% for the life of the facility and therefore that the GIO is in breach of contract; or,

     2.   that the GIO had engaged in misleading and deceptive conduct by representing, and falsely represented, that the margin was fixed for the life of the facility.

 

The respondents contended that the GIO had the power to vary the margin and that they had not represented otherwise.

 

The hearing took place over three days at the close of which the parties were directed to deliver written submissions which have now been filed.  I am grateful to the legal representatives for their comprehensive submissions.

 

RELEVANT DOCUMENTATION

 

Various documents sent by the GIO to each borrower are central to the issues between the parties.  It is convenient to describe them here and note some of their relevant passages.

 

The brochure

 

Prior to entering into the transaction each borrower received a promotional brochure outlining the features and advantages of the facility.  It contained information concerning the nature of the facility, credit limits, acceptable securities, associated costs, and details of how to obtain further information or to apply.  Additionally there was an application form which asked for each applicant's personal and security details.

 

The applicable interest rates were described in the brochure (p.8) [emphasis added]:

 

     The Prime Rate which is applicable to your AAA facility for the initial period will be that being advertised at the time your application is received.  After this period, the Prime Rate for each subsequent month will be determined at the end of that month and will be set at a margin of 1.25% above the professional money market rate for 90 day funds.  This money market rate is defined as the Authorised Dealers' 90 day bank bill rate.  The GIO AUSTRALIA Prime rate for each month will be the daily average of these rates plus the margin.

 

By contrast, periodical fees and charges were also described at page 8 of the brochure [emphasis added]:

 

     Your AAA facility will be subject to the relevant government charges together with a monthly account management fee which has been set at $55 for the period ending June, 1992.

 

The brochure anticipated that the interest rate payable by the borrower might vary depending on the type of security offered or changes in the loan/valuation ratio (p.5).  The brochure did not state that the margin itself might vary in this circumstance, simply that the interest payable could be the Prime Rate plus 0.05% or 1%.

 

Letter of Offer

 

Accompanied by a bundle of documents sent to each borrower was a letter stating the GIO's conditional approval of the loan (letter of offer) subject to the terms and conditions contained in the letter which incorporated the accompanying Conditions of
Use.  The letter of offer defined various terms including the base rate, margin and the lower interest rate:

 

     Base Rate:          The Base Rate shall be determined in accordance with the Conditions of Use.

 

     Margin:              1.25 per cent per annum, as it may vary from time to time in accordance with the Conditions of Use.

 

     Lower Interest

     Rate:                The Lower Interest Rate chargeable under the Facility is the aggregate from time to time of the Base Rate and the Margin, as such rates may vary from time to time in accordance with the Conditions of Use.  Until 29th February 1992 the Lower Interest Rate shall not be greater than 12.00 per cent per annum.

 

     No Representations:Save as specifically set out in the documentation duly executed by GIO pursuant to this Letter of Offer, no representations, warranties or statements whatsoever are, or have been, made by GIO to induce you to enter into any transaction.  Any arrangements between you and GIO shall only be binding if reduced to writing and signed by both parties.

 

The letter advised the borrower to consult a solicitor to advise on the terms and conditions.

 

Conditions of Use

 

These conditions were incorporated into the letter of offer and relevantly provided:

     Base Rate:(a)  means for any month, the rate of interest (expressed as a rate per cent per annum) determined by GIO on the last day of such month as being the arithmetic mean (rounded upwards to two decimal places) for that month of the daily Bank Bill Rate; and

 

                     (b)  means for any period of less than one month, such rate as GIO may determine from time to time, in its absolute discretion, as being the Base Rate for such period.

 

     [The "Bank Bill Rate" was defined as the 90 day money market rate.]

 

     Margin:         means the rate per cent per annum specified as such in the Letter of Offer, as varied from time to time in accordance with these Conditions of Use.

 

     Higher Interest

     Rate:      means for any period, the rate per cent per annum equal to the aggregate of the Lower Interest Rate for that period and the rate of two per cent (2%) per annum.

 

     [The Lower Interest Rate was defined as in the letter of offer.]

 

Clause 11 relevantly provided:

 

     11.  VARIATION AND SWITCHING

 

     11.1GIO may, on giving prior notice to the Customer, vary any of these terms and conditions as it sees fit.  Unless otherwise provided herein, any such variation shall take effect upon expiration of ninety (90) days after such notice is served  on the Customer.

 

     11.2The Customer may at any time request that GIO switch the Facility into a fixed interest rate facility or such other facility as GIO may at the time make available to its customers generally.  GIO may, in its absolute discretion and at the cost of the Customer, agree to such request upon such terms and conditions as GIO thinks fit.

Whilst the facility had no establishment fees, there was provision for recoupment of such fees if the facility was not maintained for a minimum of 10 years.  An intricate formula to calculate the particular amount was detailed in clause 6 of the Conditions of Use.

 

Calculation of Prime Rate

 

The last two documents can therefore be seen to replace what the brochure had called the Prime Rate with the term 'Lower Interest Rate'.  Yet one of the documents sent to each of these borrowers upon receipt of a completed application for a loan was a document headed GIO Asset Accumulator Account Calculation of Prime Rate which detailed the procedure for determining the Prime Rate.  It explained the terms "authorised dealers" and "90 day bank bills" and defined the Prime Rate as

 

     set at a margin of 1.25% pa above the average of the Authorised Dealers' 90 day bank bill rate for the month.

 

It is odd and apparently unexplained why Prime Rate was still being defined at all at a time when it had apparently otherwise been replaced by another term.

 

Acceptance of Letter of Offer and Customer's Acknowledgment

 

The borrower was then directed to sign and return a document so named which among other things asked for the borrower's acknowledgment that the letter of offer and the Conditions of Use had been received and read and that the GIO had the right to vary the terms and conditions thereof

 

     including, without limitation, the Account Management Fee and the Facility Limit.

 

THE PARTIES

 

The applicants

 

The applicants fell into two categories.  The first was a group of borrowers represented by the first applicant Mr Marks who pleaded breach of contract and causes of action pursuant to the Trade Practices Act 1974 (Cth) (TPA).  The names of these persons are:

 

     Mr Michael Marks

     Mr Bruce Foy

     Mr Gos Cory

     Ms Elizabeth Knight

     Mr Dieter Lucas and Mrs Jill Lucas

 

The second group consisted of the second, third and fourth applicants.  These borrowers entered into arrangements with the old GIO and in consideration of the interlocutory judgment I delivered in these proceedings on 29 November 1994 (the November decision) holding that the old GIO was immune to proceedings under the TPA as an emanation of the Crown, did not plead causes
of action under the TPA, but maintained substantially the same actions under the Fair Trading Act 1987 (NSW) (FTA) and in contract.  The composition of these groups reflects the substance of the second interlocutory judgment I delivered on 21 April 1995 (the April decision) concerning the amenability of these proceedings to representative action pursuant to Part IVA of the Federal Court of Australia Act 1976.  Because the FTA actions would ordinarily not be within the jurisdiction of this Court, the proceedings brought by the second group of applicants were cross vested to the Federal Court and ordered to be heard with the representative TPA action.

 

The respondents

 

The November decision canvassed the character of the respondents in detail.  Briefly, the facility was originally a product of the old GIO.  However, on 1 January 1992 the first respondent acquired the business of the old GIO and pursuant to section 15(1) of the Government Insurance Office (Privatisation) Act 1991 (NSW) (the Privatisation Act) was treated as a continuation of and the same legal entity as the old GIO.  Subsequently the assets of the GIO were transferred to subsidiary companies, including the obligations of each of these borrowers such that upon transfer the rights and obligations of the GIO became the rights and obligations of the second, third or fourth respondent (as appropriate) pursuant to section 39(1)(b) of the Privatisation Act.  As it happens, only the second applicant had in fact drawn down funds before 1 January 1992 and is therefore
the only applicant to have actually borrowed funds from the old GIO.  The remaining applicants received their funds from the first respondent, the GIO.

 

REPRESENTATIVE ACTION

 

The suitability for representative proceedings of the action brought by the first applicant was considered in the April decision.  Essentially, the respondents argued that the matter was unsuitable for group action because of the need for evidence from each and every member of the group concerning such issues as reliance, damages and each individual's circumstances and relationship with the GIO.  As the April decision noted, submissions from the applicants indicated that the case was not anticipated to be a complicated evidentiary or forensic exercise.  The pleadings were restricted to ensure that only the generic aspects of the contract claim in each case would be argued.  On that basis I was prepared to let the proceedings continue as a representative action.

 

However, at the hearing the respondents submitted that in fact the trial had become a detailed investigation of the individual circumstances of each group member.  Consequently they again argued that it was not suitable for group action.  Although it seems to me somewhat too late now, this submission necessitates my revisiting the question.

 

The respondents pointed to the differing circumstances of each group member.  These included but were not limited to the individual's legal or financial expertise, whether or not they received legal advice, and how carefully they read the documentation.  The respondents said that reliance evidence must be determined on an individual basis and any enquiry into damage or loss suffered necessitated a detailed investigation of individual circumstances.  Indeed it was only because this group now comprised a mere six members that the evidentiary requirements were manageable; if the group had comprised say 500 members the evidence would have been unmanageable.  Therefore, the respondents said, the provisions of Part IVA of the Federal Court of Australia Act (Part IVA) were not apt for these proceedings.

 

I am not convinced that mere volume of evidence disqualifies a proceeding from being undertaken as a class action.  Nor in my experience has complexity ever been a reason for failure to determine an issue.  I am also not persuaded that substantial differences in individual circumstances disqualify a case from being a class action.  Part IVA anticipates that individuals in the group will have differing circumstances.  Section 33C states:

 

     (1)  Subject to this Part, where:

 

          (a)  7 or more persons have claims against the same person; and

 

          (b)  the claims of all those persons are in respect of, or arise out of, the same or similar or related circumstances; and

 

          (c)  the claims of all those persons give rise to a substantial common issue of law or fact;

 

          a proceeding may be commenced by one or more of those persons as representing some or all of them.

 

     (2)  A representative proceeding may be commenced:

 

          (a)  whether or not the relief sought:

               

                i)   is, or includes, equitable relief; or

 

                ii)   consists of, or includes damages; or

 

                iii)  includes claims for damages that     would require individual assessment; or

 

                iv)   is the same for each person  represented; and

 

          (b)  whether or not the proceeding:

 

                i)   is concerned with separate contracts or transactions between the respondent in the proceeding and individual group members; or

 

                ii)   involves separate acts or omissions of the respondent done or omitted to be done in relation to individual group members.

 

As far as group actions provided for by Part IVA are concerned, what is relevant is similarity not difference.  My conclusion in the April judgment that a class action will not be consistent with the need for a 'detailed investigation of the individual circumstances' cannot be taken in isolation.  If in substance there are only superficial common features, no basic or generic claims, and minimal uniting characteristics, then the trial becomes fundamentally an investigation of individual circumstances.  Obviously if the common thread is only tangentially relevant or no more than coincidence, and will not
have a bearing on the determination of the issues, it would not be apt for the proceeding to be pursued as a group action.

 

One example of this situation occurred in Soverina v Natwest [1993] 118 ALR 298 where at 303 Justice Hill considered that it was inappropriate that the proceedings continue as a representative action for the reason that:

 

     What Soverina has purported to do here is to join together, under the guise of a representative proceeding, proceedings by it and various diverse others which arise out of factual circumstances related only in an historical sense many of which involve discrete factual and legal issues.

 

On the other hand, in Zhang De Yong v Minister for Immigration, Local Government and Ethnic Affairs [1993] 118 ALR 165, Justice French held that disparity of individual circumstances per se was not a bar to having the matter considered as a representative action.  Mr Zhang brought a representative action on behalf of all persons who had applied for and been refused refugee status since March 1992.  The group was defined (at 179) as persons present in Australia:

 

     1.   who have sought recognition of their status as refugees

 

     2.   whose applications have been refused since 4 March 1992

 

     3.   who have sought review of the decisions to refuse their applications and whose applications have on or before 30 June 1993 again been refused after review by a Refugee Status Review Committee

 

The claim in that case was that the Minister had breached the rules of natural justice by failing to offer each member of the group an oral hearing by the reviewing delegate.  In each case the person sought to set aside the decision to refuse refugee status and an injunction restraining removal from Australia.  In order to determine if the proceedings were suitable for representative proceedings, Justice French reviewed the history of Part IVA.  His Honour noted at 183, with particular relevance to the question in the present case, that the emphasis of public discussion on Part IVA was on its application to possible consumer class actions, though that did not mean it was so limited:

 

     The foundation for a grouped proceeding was expressed to be (Parl Deb H of R 12 Sept 1991 p 1448):

 

          ...a proceeding on behalf of a group of persons where the claims of those persons arise out of the same, similar or related circumstances and a common question of law or fact arises with respect to all their claims.

 

     The new procedure was said to enable groups of people, whether they be shareholders or investors or people pursuing consumer claims, to obtain redress and do so more cheaply and efficiently than would be the case with individual actions.

 

His Honour considered the scope of section 33C at 185:

     The outer limits of eligibility for participation in representative proceedings are defined by reference to claims in respect of or arising out of related circumstances.  The word "related" suggests a connection wider than identity or similarity.  In each case there is a threshold judgment on whether the similarities or relationships between circumstances giving rise to each claim are sufficient to merit
their grouping as a representative proceeding.  At the margins, these will be practical judgments informed by the policy and purpose of the legislation.  At some point along the spectrum of possible classes of claim, the relationship between the circumstances of each claim will be incapable of definition at a sufficient level of particularity, or too tenuous or remote to attract the application of the legislation.

 

     In the present case, the relationship between the circumstances of each group member is defined by a few common integers which leaves room for considerable diversity in circumstances which might support individual claims to set aside review decisions.  Some applicants may have complaints about aspects of the decision-making process which have nothing to do with the question whether or not they should be afforded an oral hearing.  There may be applicants who are able to show that even if there is no common entitlement to the opportunity of an oral hearing, the particular circumstances of their cases require such a hearing as a matter of natural justice.  Notwithstanding that possibility, I am satisfied that the claims of the members of the group as defined in the present application are connected by circumstances sufficiently related to warrant the use of the procedure under Pt IVA for the determination of the common issue of law defined in the application.  In so holding I have regard to the need for a purposive approach to the construction of s 33C(1)(b), bearing in mind the utility of determining the common issue in this way.

 

Justice French declared that the respondent had not by reason alone of failure to adopt a practice of offering to each person the opportunity of an oral hearing breached the requirements of natural justice.  However, in order not to prejudice any claims based upon individual circumstances, Justice French made an order under section 33N(1)(d) that it was in the interests of justice that the proceedings not continue as representative proceedings.  What is relevant to the case at hand is that the disparity of individual circumstances alone in Dzang was not the reason the proceedings did not continue as a group action.

In Tropical Shine Holdings Pty Ltd (t/as K C Country) v Lake Gesture Pty Ltd & Ors [1993] 118 ALR 510, the applicant, a furniture trader, brought representative proceedings under Part IVA claiming that the respondents had inter alia engaged in misleading and deceptive conduct.  The personal claim of the group representative was that it lost sales because of the respondents' conduct in that people who would otherwise have purchased furniture from it instead purchased from the first respondent through allegedly false advertising.  The other members of the group were persons who had purchased furniture from the first respondent induced, so they claimed, by false statements in the advertisements to make their purchases for a price in excess of their true value.  Justice Wilcox noted at 517:

 

     If the cases are so divergent as to be incompatible, there will be a conflict between the representative party's personal interest and the interests of the group members which will certainly lead the court to conclude that it is inappropriate that the claims be pursued by means of a representative proceeding.

 

     Because the personal claim of Tropical Shine differs from that of the group members, I have considered whether it would be inappropriate that the claims be pursued in a representative proceeding.  I have concluded that this would not be inappropriate.  Although the claims differ, the applicant's personal claim is not incompatible with the group members' claims.  On the contrary, it is an essential ingredient of the applicant's personal claim that people were misled by the advertisements into purchasing furniture from Federation Furniture Company.  The cases divide only after that fact is established.  The group members' claims require that they then establish their individual losses; the applicant's claim requires proof that, absent the influence of the advertisement, the people who purchased from Federation Furniture Company would have dealt with it.  Having regard to the substantial overlap in the facts requiring to be established and
the absence of any discernible conflict of interest, it seems to me impossible to conclude that this will not be an efficient and effective means of dealing with the various claims.  Neither is there any reason to think it otherwise inappropriate that the claims be pursued in this way.

 

Similarly, disparity of circumstances concerning reliance and damages was not a bar to representative proceedings being pursued in Metcalf v NZI Securities Australia Ltd & Ors (Sackville J unreported, 31 May 1995).  That case was a retrial of Poignand v NZI Securities Australia Ltd & Ors [1994] 120 ALR 237 where a class action was permitted at first instance.  On appeal as Jenkins v NZI Securities Australia Ltd & Ors [1994] 124 ALR 605, a Full Court of this Court (Beaumont, Gummow and Carr JJ) reviewed certain findings of fact and ordered a new trial, but did not disturb, and in fact extended, the representative nature of the proceedings.  Ripoll Holdings Pty Ltd (Ripoll), as trustee of a unit trust formed for the purpose of acquiring land for the construction of a retirement village, had entered into a loan facility which, it was alleged, had an initial draw down period of four years, but an option to extend for a further two years contingent upon a review at the end of the third year.  As events transpired, the facility expired after four years and a receiver was appointed to the assets of Ripoll.  The suing group originally included Ripoll; the representative applicant Mr Metcalf as secretary of Ripoll; Rosewick Holdings Pty Ltd which replaced Ripoll as trustee when it went into receivership; persons described as guarantors, each having executed a guarantee and indemnity in favour of NZI Capital, the second respondent, for all monies owed by Ripoll under the loan facility in respect
of the development project; and persons described as unit holders in the trust.

 

In a somewhat similar scenario to the present case, the applicant Metcalf submitted that there had been a disparity between the letters describing the facility which preceded its execution and the terms of the facility itself, that this disparity was not highlighted to the directors who signed the facility on behalf of Ripoll and the other members of the group, and that this conduct by the respondents was misleading and deceptive.  Additionally, there was a claim that the respondents had breached their contractual duty to perform the review of the facility after the third year.  The relief sought by the applicant included orders varying the terms of the finance facility and preventing the second respondent from enforcing its rights under the guarantee as well as a declaration that the appointment of the receiver to the assets of Ripoll was invalid.  The almost 160 page judgment of Justice Sackville on the retrial and his Honour's follow up judgment delivered on 29 June 1995 are testament to the difficulties and intricacies of that trial.  But they did not disqualify its pursuit as a representative action.

 

Of the fact in the present case that the first applicant now represents only himself and five other persons in contrast with the apparent requirement of section 33C(1)(a) of at least seven persons, the respondents requested further and better particulars.  The applicants responded that this was a question of law, and nothing more seems to have been done about the
matter.  The issue was not raised when the matter of Crown immunity was argued prior to the November decision.  It was not mentioned in the hearing preceding the April decision either, the respondents only objecting to the opting out of group members on the basis that they might relitigate the same issues.

 

It is sufficient if the evidence before the Court justifies the assumption that at least seven persons have such a potential claim:  see Tropical Shine at 513.  In any event, if it appears that there are fewer than seven members of the group, the Court may under section 33L order the proceedings to continue, or may discontinue the proceedings.  However, as Justice Wilcox stated in Tropical Shine at 515, to terminate a representative proceeding:

 

     ..... would be a drastic course, often productive of injustice and inconvenience; and it would conflict with the policy expressed by s. 51 of the Federal Court of Australia Act that proceedings are not invalidated by a formal defect or irregularity unless the court thinks substantial and irremediable injustice has occurred.

 

Perhaps that is why the question was not raised at this hearing or in any of the documentary material supplied by the parties.  Perhaps the applicants' suggested question of law was that according to section 33C the representation may be of only some of the seven or more people.

 

Notwithstanding the differences in individual circumstances in the present case and the necessity at the hearing to consider the evidence on reliance and damages on an individual basis, the case was in my opinion appropriately dealt with under Part IVA.  There are substantial common issues of both fact and law and no discernible conflicts of interest.  The documents relied upon to ground the contracts claim are identical in each case.  Similarly, the documents relied upon to establish the representations complained of in the TPA/FTA claims are identical for each applicant and represented party.  Each applicant and represented party pleads in substance the same causes of action pursuant to the TPA or the FTA.  Each applicant and represented party maintains the same actions in contract.  Every one of them relies on substantially the same evidence.  In the circumstances I do not consider that the need for individual evidence on reliance and damages disqualifies the proceedings from continuing as a representative proceeding, despite the fact that there are only six members remaining in the group.  Notwithstanding my belief that the cases are increasingly demonstrating the difficulties involved in having TPA Part V cases determined as class actions at all, nothing advanced during this case has persuaded me of its inappropriateness for a representative proceeding.

 

ORAL STATEMENTS

 

The applicants sought to adduce evidence of certain conversations between various borrowers and officers of the GIO.  The
applicants did not assert that the substance of these conversations became a term of any of the contracts, nor that they constituted a representation pursuant to either the TPA or the FTA.  Nevertheless they submitted that the material was admissible and over the respondents' objection I allowed the evidence "subject to relevance" in order to progress the trial.

 

Section 56 of the Evidence Act 1995 (Cth) states:

 

     56  (1)    Except as otherwise provided by this Act, evidence that is relevant in a proceeding is admissible in the proceeding.

 

         (2)    Evidence that is not relevant in the proceeding is not admissible.

 

Section 55 states:

 

     55  (1)    The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.

 

Of course the Evidence Act will not make irrelevant material relevant, and the respondents maintained that the oral representations were relevant neither to the construction of the contract nor to the conduct complained of.  The applicants submitted that whether or not the margin was fixed was a fact in issue in the contract claim and that section 55 makes relevant any evidence which aided in determining that fact.  Further, the facts in issue in the misrepresentation claims include the
meaning of the written representations, the context in which they were received, and the reasonableness of the borrowers' reliance on them.  The applicants said that the evidence was thus admissible for that purpose as well.

 

Oral statements and the contract claims

 

Authority on the admissibility of extrinsic evidence to aid in the construction of written contracts was cited by both sides.  There can be no dispute with Mason J's statement in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1981-2] 149 CLR 337 at 352 that:

 

     The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning.  But it is not admissible to contradict the language of the contract when it has plain meaning.

 

The applicants said, no doubt correctly, that whether or not the margin was fixed is a fact in issue and it is possible that the oral representations could aid in the determination of this fact.  However, this is a trite analysis.  If there is no ambiguity in the words of the contract itself, previous conversations between the parties cannot alter the plain meaning of the contract made.  Even if the parties once or at some time agreed that the margin was meant to be fixed for the life of the facility, their agreement could not affect a plain and unambiguous construction of the contract intended to give effect to their bargain denoting that the margin could be varied.  The previous conversations will
then not be relevant except perhaps to illustrate that both sides were mistaken, which is not the meaning of 'relevance' for the purposes of the Evidence Act.  In my view, the Evidence Act has codified the common law in this regard and will not make relevant what is intrinsically irrelevant.  If there is no ambiguity:

 

     In truth the evidence [of the prior conversations] is not evidence of surrounding circumstances; it is evidence of the antecedent oral negotiations and expectations of the parties and as such it cannot be used for the purpose of construing the words of a written contract intended by the parties to comprehensively record the terms of the agreement which they have made: Mason J in Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Ltd [1979] 144 CLR 596 at 606

 

The contract was that which had been reduced to writing and signed by the parties.  The contractual documents included the letter of offer and the Conditions of Use.  The letter of offer stated that the margin 'may vary from time to time in accordance with the Conditions of Use'.  The Conditions of Use provided that the margin is the rate 'specified as such in the letter of offer as varied from time to time in accordance with [the] Conditions of Use'.  Clause 11.1 of the Conditions of Use gave the GIO express power to vary any term.  The only restriction was notice.  The definition of lower interest rate in the letter of offer as the Base Rate and the Margin 'as such rates may vary from time to time' also foreshadowed that the margin may vary.  The margin is obviously a rate and the use of the plural clearly provided that both the base rate and the margin may vary, powerfully supporting the respondents' submission that the contract provided the GIO with power to vary the margin.

 

The applicants submitted that an alternative construction, and therefore the ambiguity, was that the variation of the margin depended only upon the type of security or loan to valuation ratio, not simply at the discretion of the GIO.  By way of illustration, the applicants pointed to the terms of the brochure that refer to the interest payable as being either the Prime Rate or the Prime Rate plus.  However, this interpretation of the right to vary is not consistent with the terms of the contract.  The margin was defined in the Conditions of Use as the annual percentage rate specified in the letter of offer which was to be added to the average bank bill rate to achieve the Lower Interest Rate.  In contrast to the applicants' argument, the integer that varied with changes in security was the further 2% that was added to the lower interest rate to create the higher interest rate.  Presumably this is the "Prime Rate plus" that the brochure referred to.

 

Whilst it is thus true that the final interest rate payable may have varied according to differing security/loan ratios, this result was not because of variations in the margin.  Nor was it expressed to be due to changes in the margin in either the brochure or the Conditions of Use.  I agree with the respondents' submission in this regard that the applicants cannot introduce extrinsic evidence to create an ambiguity where none exists in the actual terms of the contract.

 

A further point not specifically raised by the applicants but alluded to and deserving of mention is the scope of the words in clause 11.1 'vary any term'.  In my view, these words have an inherent limitation and must be read down so as not to infringe either equitable principles or such legislation as the Contracts Review Act 1980 (NSW).  If a contract allows for the unilateral variation of any term or condition whatsoever, it ceases to be a bargain between the parties.  It would be a gamble, the borrower virtually placing a bet that the GIO would honour its so-called contractual obligations.  In essence, the contract would have no efficacy if at the whim of one party it could be cancelled or otherwise made impossible for the borrower to comply with by the unilateral amendment of one or more of its terms.

 

It cannot therefore be that the GIO could in fact 'vary any term'.  For instance, the GIO could not vary the repayment period, or without cause (such as default by the borrower) cancel the facility and demand immediate repayment.  Nor could it unilaterally alter the security it held, nor raise the borrower to the higher interest rate without cause, nor suddenly declare that the family home was no longer satisfactory security without a reasonable occurrence such as a decline in that home's value relative to the loan amount.  Nor could the GIO switch the underlying 90 day bank bill rate to, say, the 180 day bill rate, or switch the customer to fixed rate funding.  If the GIO truly had power to 'vary any term', it could vary its obligation to return the security on repayment of the loan.

 

Thus these words in clause 11.1 must be read with common sense.  Of course there could be a total failure of consideration from the GIO.  Perhaps this is what was meant by the High Court when it said in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] 138 CLR 423 at 429:

 

     A court may admit evidence of surrounding circumstances in the form of "mutually known facts" "to identify the meaning of a descriptive term" and it may admit evidence of the "genesis" and objectively the "aim" of a transaction to show that the attribution of a strict legal meaning would "make the transaction futile".

 

However, in relation to the question of whether the margin was variable there is no ambiguity.  The letter of offer in its definition of margin and lower interest rate clearly provides for the margin to vary in accordance with the Conditions of Use.  Therefore whatever was the position in relation to the variability of all the other terms, the issue of whether or not the margin was one of the variable terms is ascertainable and unambiguous from reading the contract alone.

 

The oral representations are thus not admissible evidence in the contract claims as they cannot affect the construction of the contract which is plain in its terms.  They are not relevant for the purposes of the Evidence Act.

 

Oral statements and the TPA/FTA

 

The applicants also submitted that oral statements by GIO representatives are relevant to provide the context, identifying the major facts in issue in this connection as the meaning of the written representations and the reasonableness of the borrowers' reliance on them.  In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] 149 CLR 191 at 199, Gibbs CJ said:

 

     The conduct of the Defendant must be viewed as a whole.  It would be wrong to select some words or acts, which, alone, would be likely to mislead if these words or acts, when viewed in their context, were not capable of misleading.  It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words.

 

The respondents submitted that

 

     the oral "representations" fall into two categories.  Either they say no more about the margin than what is contained in either the brochure or the calculation of prime rate document or they go further.  In the former case they add nothing to the written representations complained of.  In the latter case, to the extent that they affected the mind of the borrowers to whom they were addressed, so as to say something more or other than what is contained in the written representation about the margin, they can themselves have no other operation than as representations about the margin.  That is [to] say, they only provide "context" to the representations complained of in the pleadings by in fact either saying precisely the same thing about the margin or something different.  To the extent they say something different that different thing is itself a representation separate and apart from the representations complained of in the pleadings.  It cannot be otherwise.

 

In my opinion this analysis is spurious.  If the oral conversations say exactly the same as the written representations, the oral representations by GIO staff would advance the case substantially by lending force and weight to the written representations and adding to the reasonableness of reliance on the written word.  Certainly oral conversations can provide the context within which to assess the conduct of the respondents in relation to the written representations.  If, on the other hand, the oral representations contradicted the written representations, they would provide the context for determining that in all the circumstances the conduct of the respondents was not misleading.  If the two lots of representations were somewhat similar, then to the extent that the oral statements concurred with the written representations they might be relevant to determine the reasonableness of the borrowers' reliance on the written representations and the emphasis expected to be placed upon them.  In other words, the oral statements cannot be viewed as representations for the purposes of the TPA or FTA claims, but they are admissible to provide the context for the respondents' behaviour as a whole.

 

Indisputably, the conversations between borrowers and GIO representatives are unique to the parties to the conversation.  Of itself this fact will not be a bar to admissibility for the representative component of these proceedings because Part IVA anticipates that individual circumstances might vary and consequently that evidence of their individual circumstances might be taken.  Thus the oral conversations will be admissible
for the purposes of considering the circumstances of the individuals within the group as each conversation relates to that person and the respondents' behaviour generally.  Whilst a conversation between one borrower and the GIO cannot affect the circumstances of another borrower, it does provide contextual evidence for the respondents' conduct to be viewed as a whole.

 

As far as the individual applicants are concerned, evidence of oral conversations each has had with the GIO is also admissible for the purposes of defining the individual circumstances of each person and in providing the context within which to assess the conduct of the respondents.

 

Evidence from former GIO representatives

 

The applicants also sought to adduce evidence of former GIO officers as to the GIO's objective intention for the facility.  In my view, this evidence is not relevant to the contract claim for the same reason as stated earlier, viz. the contract is unambiguous on this point.  As far as the misrepresentation claim is concerned, the question posed by section 55(1) of the Evidence Act is whether this oral evidence could

 

     rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.

 

The relevant facts in issue are the identification and interpretation of the written representations relied upon by the applicants and whether or not they were misleading in all the circumstances.  In my view the evidence concerned is capable of providing a contextual framework for the allegations made and it appears also to have some bearing upon the relief sought by the applicants.  It is relevant to that extent.

 

THE CONTRACT CLAIMS

 

The applicants submitted that it was a term of the contract that the margin be fixed at 1.25% for the life of the facility and that the increase in the margin by the GIO was a breach of contract.   I do not agree.  The terms of the contract are plainly laid out in the letter of offer and the Conditions of Use which allow for variation by the GIO of this among other terms.  While there may be some limitations on the right to vary, as discussed earlier, the power to vary the margin is not one of them.  The letter of offer sets up an expectation that the margin will or may be varied and clause 11.1 provides the power.

 

The applicants submitted that the word "margin" was not part of the Conditions of Use in that it was merely defined in that document but was not a term of the contract.  Therefore, it was said, clause 11 did not govern it.  I do not agree with this submission.  The term "margin" was clearly within the frame of reference of the Conditions of Use.  There is no ambiguity in the terms of the contract.  The words 'may vary from time to time' did not refer only to changes in the security, nor was it merely an expression with no force.  The words of the brochure combined
with subsequent conversations with GIO representatives might explain how a contrary view might be taken, but it does not change the fundamental fact that the GIO was not in breach of contract by increasing the margin.

 

THE MISREPRESENTATION CLAIM

 

The representation

 

Based on two documents the applicants submitted that the respondents represented that the margin would be set for the life of the facility.  The first document is the brochure which preceded the contract.  The brochure stated the margin was set at 1.25% which could be contrasted with the management fee that was set for a particular period.  The second document is the Calculation of Prime Rate document which stated that the margin was set at 1.25% and then gave a worked example of how to calculate the prime rate for the month.

 

The respondents submitted that a representation that the margin was set is not a representation that the margin is fixed for the life of the facility.  It is, they said, consistent with a representation that the margin is set for a period as yet undetermined.

 

The particular circumstances of this case

 

In order to assess whether these statements are misleading, it is imperative to consider all the circumstances and the conduct of the respondents as a whole.

 

All applicants received the brochure as the initiating process for the transaction.  The brochure set the tone and created the framework within which the borrowers assessed their interest in the facility and then applied for and received the additional material, including the Calculation of Prime Rate document, the letter of offer and the Conditions of Use.  On the one hand, the last two documents stated that the margin could vary from time to time in accordance with the Conditions of Use.  Additionally the GIO advised each borrower to seek legal advice as to the terms and conditions of the contract.  The "no representations" clause emphasised that the bargain between the parties was encapsulated within the written contract and did not encompass prior negotiations.

 

Moreover, the product was apparently marketed to individuals of comparatively high net worth, with presumably some financial expertise or the capacity to obtain it.  The facility had a number of unusual features compared to other retail funding options.  Its duration and flexibility along with its pricing structure made it unique in the marketplace.  The product was certainly deserving of careful scrutiny and the borrowers it
attracted were certainly capable of reading and understanding the documentation involved.

 

On the other hand, nothing in the Conditions of Use described the circumstances under which the margin could be varied, or made direct reference to its variation.  It was clause 11.1, the all encompassing clause, that in fact governed the margin, although this consequence was not spelt out in so many words.  The GIO specifically alerted the borrower to the possibility that the account management fee and the facility limit could be varied, but did not do so as far as the margin was concerned.  Additionally, the Calculation of Prime Rate document explained how to calculate the prime rate based upon a set margin.

 

Of some significance was evidence from  Mr Peter Smith, a former Marketing Manager of GIO Financial Services, who I considered a credible witness.  Mr Smith indicated that at about the time the borrowers entered into the agreements, the GIO was marketing the product to its sales staff as a fixed margin product.  According to his evidence, the sales "pitch" at the time was that the margin was fixed.

 

The respondents objected to Mr Smith's evidence on several fronts, primarily on the basis of relevance, but also because, as they argued, his evidence was contradictory in that it was inconsistent with his having co-authored a memorandum to GIO retail staff dated 23 April 1992 noting that the letter of offer highlighted the potential change of margin.  They said that any
misunderstanding he had of the product was his own doing and not the GIO's because he read the documents and based his understanding of how the facility worked on his industry experience.

 

I reject these submissions.  In my view the sales staff were the GIO's public face who conveyed the objectives of the GIO and its products to the public, and Mr Smith's evidence should be viewed as establishing and carrying out that role.  As to the respondents' other criticisms, the discrepancy between Mr Smith's two views is understandable given that the memorandum concerning the increase in the margin was written after the GIO had in fact increased the margin and he would have been bound to justify and defend the company's decision.  I do not consider that Mr Smith's industry experience, presumably brought to bear on the documents he read in order to form his view of the meaning of the term "margin", altered the admissibility of his evidence.

 

Several of the borrowers had conversations with a range of GIO sales and accounts staff consistent with Mr Smith's evidence, suggesting that it was not only Mr Smith who was promoting the product in that fashion.  The substance of the conversations with Mr Marks, Mr Foy, Mr Lucas, Mr Kinross, Mr McCullagh and Mr Williamson (a borrower, but not a party to these proceedings), at about the time they saw the brochure, was that the GIO confirmed the fixed margin of 1.25% above bank bill throughout the term of the facility.  Mr Marks, Mr Foy, Mr Lucas, and Mr McCullagh had additional conversations with the GIO at about the
time they received the letter of offer and the Conditions of Use, again confirming in substance that the margin was set.  Mr Williamson relayed his conversations to his wife, the fourth respondent, as did Mr Lucas to his wife.

 

Misleading or deceptive conduct

 

In the context in which the word set was used in the brochure and in the Calculation of Prime Rate document in connection with the margin, it seems to me to bear the meaning set for the life of the facility and not, as the respondents submitted, set for a period to be determined.  The words used, and the comparison in the words of the brochure between "set" (for the margin) and "set for a period" (for the account management fee), were persuasive of that view, especially in the context, as testified by Mr Smith, that GIO sales persons considered and communicated that the margin was set at 1.25% for the life of the facility.  Since, in the events which have transpired, the margin was in fact not fixed for the life of the facility, the terms of the brochure and the Calculation of Prime Rate document are misleading.

 

But whether or not the representation was misleading in all the circumstances must also be addressed.  Parkdale Furniture is authority that in certain circumstances it is necessary to consider the steps the applicant might have taken to avoid being misled, in order to assess whether or not the conduct was misleading for the purposes of contravention of section 52.  As
I see it, the forensic or reasoning process available to a borrower would essentially have been as follows:

 

     1.  The brochure was the initiating process in the transaction and it represented that the margin was set or fixed.

 

     2.  The Calculation of Prime Rate document was consistent with the brochure substantially adding to the inference.

 

     3.  The letter of offer provided that the margin can vary in accordance with the Conditions of Use.

 

     4.  The Conditions of Use stated that the margin can vary in accordance with those conditions.

 

     5.  Whilst not expressly mentioning the margin, clause 11 of the Conditions of Use gave the GIO express power to vary any term, which by implication included the margin as one of the terms.

 

     6.  The GIO recommended that each borrower obtain legal advice, presumably to explain the terms and conditions of the contract.  If this had been done by everyone, the lawyers would most likely have noted the confusion or anomaly in the documents about the margin and suggested that their clients telephone the GIO to ask, or done so themselves.

 

     7.  If the borrowers or their lawyers had called the GIO to resolve any remaining doubt, the evidence suggested that assurances would have been given by sales staff that the margin was fixed for the life of the facility.

 

As it turned out, only two of the borrowers (Mr and Mrs Lucas) took legal advice, and even then it was not clear that their solicitor advised them that the margin was variable.  In light of my earlier conclusion that clause 11.1 has implicit limitations, coupled with the context framed by the brochure, the worked example in the Calculation of Prime Rate document and the GIO's own sales staff's response to queries, even a solicitor's warning of the possible variability of the margin may not have been sufficient to disabuse the applicants of their view that the margin was fixed for the life of the facility.

 

To some extent the types of individuals who were in the market for the facility, and therefore the part of the population that might have been misled by the respondents' conduct, regulates or qualifies, if not reduces, the burden on the GIO to ensure that their conduct was not misleading, as it was only a select section of the public they were targeting.  In some circumstances, the facts that:

 

     a)  the borrowers were experienced educated individuals,

 

     b)  the GIO was insistent that the potential customers seek legal advice,

 

     c)  the GIO required that the contract be reduced to the written agreement, and

 

     d)  the letter of offer and Conditions of Use implied that the margin was variable,

 

may well have acted to negate the misrepresentation.  In my opinion, not so in this case.  On the facts before me, the conduct of the respondents was misleading and deceptive.  Even to experienced financiers, the convoluted path that would have been necessary to be taken in order to negate the representation that the margin was fixed was too onerous.  Moreover, had the individuals sought legal advice and that advice had highlighted the potential for the margin to be varied, the borrowers or their lawyers would probably have telephoned the GIO where they would have been assured that it would not.  In other words, no matter how diligent the borrower, the result would have been the same.  There was simply no way for the potential borrower to find out from the GIO that the margin was not fixed for the life of the facility; the representation inducing their involvement was that the margin was not variable.

 

However, the verbal confirmations of the fixed margin by the GIO officers, whilst reinforcing the misrepresentation, is not the deciding factor.  For even without the individual conversations with the GIO, there was a representation of a fixed margin, it was misleading, and it was not negated by subsequent conduct.

 

There are several simple ways by which the GIO could have avoided this situation.  The first is that the Conditions of Use, instead of this ex post facto rationalisation that the margin was entitled to be varied by means of a "catch all" provision like clause 11.1, could have plainly stated it.  Secondly, the GIO could have pointed out by separate letter that the margin, as opposed to the way it was presented in the brochure, was actually variable.  Thirdly, the examples in the letter of offer of how the variable terms operated could have included the margin as one of the variables.  Finally, the GIO sales staff could have been instructed to answer queries regarding the margin with a simple statement that the margin is only fixed for the time being or for a determined period.

 

The "no representations" clause

 

The "no representations" clause is not a defence to the actions pleaded: Petera Pty Ltd v EAJ Pty Ltd [1985] 7 FCR 375 at 377-378.  Nor did the respondents seek to rely on it for this purpose.  They asserted that in all the circumstances, which includes the "no representations" clause and other aspects of the documentation, the conduct of the respondents was not misleading -- see the remarks of Justice Burchett in Benelist Pty Ltd v Olivetti Australia Pty Ltd [1990] ATPR 41-043 at page 51590:

 

     It has been held on many occasions that the perpetrator of misleading conduct cannot, by resorting to such a clause, evade the operation of the Trade Practices Act.  Of course, if the clause actually has the effect of erasing whatever is misleading in the conduct, the clause will be effective, not by any independent force of its own, but by actually modifying the contract.

 

In my opinion, the "no representations" clause does not have that result in this case, even when considered in the entirety of the respondents' conduct.

 

Were the borrowers misled?

 

In the circumstances, the conduct of the respondents was misleading and deceptive for the purposes of both the TPA and the FTA.  Moreover, the evidence was, and I accept, that at the time of entering the agreement, each borrower believed that the margin was set at 1.25% for the duration of the facility.  The evidence also indicated, and I find, that the inconsistency between the brochure and the contractual documents was not apparent to the borrowers at the time with the exception of Mr McCullagh who nonetheless was of the view the margin was fixed.  I accept the evidence of the borrowers that they believed that the words in clause 11.1 of the Conditions of Use "vary any term" did not apply to the margin.  In my view the conclusion was reasonable.  If any doubt remained, the evidence suggested that the GIO would have clarified the matter by assuring them that the margin was fixed.  I find that each borrower was in fact misled when signing the acceptance of the letter of offer and Customer's Acknowledgment.

 

RELIANCE

 

The onus of establishing that the misrepresentation induced the borrower into entering the contract rests with the borrower.  However, it is not necessary to prove that the representation was the sole or primary inducement.  Further, if a representation has been made and was calculated to induce the representee to enter the contract, there will be an inference that the representee was so induced, although this inference may be rebutted by the facts: Gould v Vaggelas [1985] 157 CLR 215 at 238-238 per Wilson J, in relation to the common law action of deceit.  In Sutton v A J Thompson Pty Ltd (In Liq) [1987] 73 ALR 233 at 240 a Full Court of this Court (Forster, Woodward and Wilcox JJ) adopted those principles as applicable to breaches of section 52 of the TPA.  Although it will not be sufficient for the borrower to show that the representation might have contributed to the decision to enter into the contract, it must be shown on the balance of probabilities that the representation played a non-trivial part in the inducement: Ricochet v Equity Trustees Executor and Agency Company Ltd [1993] 41 FCR 229 at 233-5.

 

Mr Cory

 

Mr Cory's statement of April 1995 included the following:

 

     I obtained from GIO a brochure detailing the conditions of the AAA Facility.  Elizabeth [Knight] and I reviewed the brochure and we noted the key items of relevance to us.  I particularly recall a passage in the brochure which stated that the margin was set at 1.25%...

 

     I received a letter from GIO ...  The letter explained the rationale for the manner of fixing the interest rate.... reinforcing my understanding gained from the brochure...

 

     Had I known that my belief was wrong we may not have chosen to switch financiers...

 

     We received the Letter of Offer and examined it carefully.  I read the part which relates to the variation of margin.  I believed that this referred to margin rate changes which might occur if GIO were offered a different security to that on which the facility was initially based...

 

     I had investigated a number of alternative facilities including Citibank, Waratah Mortgage and Equus, however, in purely financial terms they did not compare favourably to GIO's proposal.  Had I believed at the time it was open to GIO to change the margin on the borrowing as and when it wished I may not have taken up this offer or may have done something else.

 

The respondents submitted that a letter written by Mr Cory to the GIO in response to the purported increase in margin evidenced that he was aware of the GIO's power to vary the margin and that this statement negated his assertion that he had relied upon the representation.  This letter spoke of the "fine print relating to your ability to vary the rate" and an "assumption that the lender not take advantage of these clauses".  Whereas the letter did not refer to Mr Cory's view that the margin change related only to changes in security, in cross examination Mr Cory stated that at the time he wrote the letter he was not taking a legalistic stance, but rather making an "emotive plea" attempting to engage the GIO's moral, ethical or public relations side "without admission".   He maintained (T139):

 

     From the day I read the first brochure I received from the GIO through to today, I do not believe that the
GIO can vary the margin apart from the circumstances alluded to in my statement.

 

In my view it has been established on the balance of probabilities that Mr Cory did rely on the GIO's representation that the margin was fixed.

 

Ms Knight

 

Ms Knight reviewed all documentation with her partner Mr Cory.  Her statement noted that she considered the interest rate was based upon the 90 day bank bill rate plus a margin of 1.25%.  Her evidence indicated that she relied on the advice of Mr Cory in terms of how this was calculated.  The respondents submitted that Ms Knight's reliance was rebutted for the same reasons as in the case of Mr Cory.  The submission must have the same fate.  In my view Ms Knight was induced to enter the facility by her belief and understanding that the margin was fixed.

 

Mrs Williamson

 

This borrower's statement noted that from reading the brochure she formed the view that the margin was fixed for the life of the facility, a view which she says was confirmed by the Calculation of Prime Rate document.  Whilst admitting under cross examination that she could now see that the GIO did have contractual power to vary the margin, she did not recant her statement that at the time of entering into the contract she believed that the margin was not variable and that it was this set margin that made the
product attractive.  In relation to the possibility of a variation in the margin, Mrs Williamson said in her statement of 18 April 1995:

 

     [After referring to the letter of offer] I took the clauses relating to changes in the margin merely to be standard wordings which would obviously not interfere with the important aspect of the AAA product and the basis on which it was clearly being sold.

 

Mrs Williamson adhered to this statement under cross examination (T176):

 

     The words next to "margin" in the Letter of Offer, it didn't alter my view that the margin was anything but [set] at 1.25%.

 

It was clear from her evidence that she did rely on the representation in the brochure that the margin was fixed and that nothing in the subsequent documentation dissuaded her of this view.  I accept this evidence.

 

Mrs Williamson also relied on the advice of her husband, who in turn had relied on Mrs Williamson's brother Mr Kinross.  As will be seen, Mr Kinross' evidence adequately established that he relied upon the representations in the brochure and was consequently induced to enter the transaction.  Mr Williamson's evidence, though not credible in part, nonetheless supports the conclusion that he had relied upon the representation in the brochure and was not disabused of those views by subsequent
documentation.  Thus Mrs Williamson's reliance can also be driven home to the respondents' conduct.

 

Mr Kinross

 

In his statement dated 18 April 1995 Mr Kinross stated:

 

     I specifically recall reading the item titled 'Interest Rates' on page 8 of the brochure and my attention being drawn to the words '...the Prime Rate... will be set at a Margin of 1.25% above the professional money market rate for 90 day funds'.  This feature of the AAA appealed to me as it offered a fixed rate over a floating rate and I relied on this principally in making my decision to borrow funds from GIO.

 

Mr Kinross' oral evidence satisfied me that he did rely on the representation in the brochure.

 

Mr McCullagh

 

Mr McCullagh testified that two factors influenced his decision to enter into the facility.  The first was the ability to "control the margin" and the second was his personal view on where interest rates were headed.  Mr McCullagh did perceive an inconsistency between the terms of the brochure and the Conditions of Use.  Nonetheless in his statement dated 17 April 1995 he stated:

 

     I say that at the time of completing the application and on the basis of the brochure, I believed the margin would be set at 1.25 per cent per annum for the term of the AAA facility.

 

In oral testimony Mr McCullagh said (T99):

 

     ..... the brochure, which I regard as an important document which is what enticed me to sign the application fee in the first place.

 

Mr McCullagh had previously stated (T89):

 

     what I was looking for as between the brochure and these documents was consistency.  I don't contend that [the brochure] induced me to sign.

 

The respondents hone in on the last sentence and submit that in fact Mr McCullagh's reliance was not on the brochure, but on a conversation with a GIO representative whom he contacted in order to clarify the point.  As mentioned earlier, there is no need for the applicant to prove that the respondents' conduct was the sole inducement.  Taking his evidence as a whole, it seems to me that the brochure did play a non-trivial role in the decision of Mr McCullagh to enter into the facility.

 

Mr Marks

 

As is the case with many of the individual applicants and represented persons, Mr Marks is highly educated and well experienced in financial transactions and loan documentation.  At the time of entering the transaction, he was Chief Manager, Investment Banking, for the Bank of New Zealand, having held that position for six years.  Under cross examination Mr Marks admitted that his understanding of the product was influenced by
his industry experience.  The respondents submitted that Mr Marks had therefore not in fact relied upon the written representations of the GIO as pleaded but had formed his belief as to the margin by a combination of his own industry experience and particular conversations with the GIO representatives.  They submitted that Lam v Ausintel Investments Pty Ltd [1989] 97 FLR 458 at 476-7 was authority for the proposition that if Mr Marks was acting on the basis of his own appreciation of the facility rather than on the faith of the written representations, that did not constitute reliance on the written representations.

 

I do not consider that Mr Marks' industry experience removes the responsibility for his misapprehension about the product from the respondents' conduct.  The context of his own experience was obviously relevant for him as it would have been for any potential customer for any product but Mr Marks formed his initial view of this product from the written words in the brochure as confirmed by the Calculation of Prime Rate document, and it was not negated by his reading of the subsequent contractual documents.  His conversations with GIO representatives gave added confidence.  Of course a different background, education and experience may again have brought about a different result, but it is not necessary to prove that the written representations were the sole inducement to the transaction.  I have concluded that in significant part Mr Marks relied upon the misleading conduct of the respondents in their documentation.

 

Mr Foy

 

The respondents again submitted that it was Mr Foy's own experience and training and the individual conversations he had with GIO representatives that induced him to enter the contract.  Whilst I agree that these factors all played a role, I do not consider that they supplant, as opposed to supplement, the reliance Mr Foy placed upon the written representations.  After all, the brochure was the crucial framework-setting document that influenced later communications on the subject.  In my view Mr Foy did rely on the written representation as pleaded.

 

Mr and Mrs Lucas

 

This couple were the only borrowers who sought the advice of a solicitor in relation to the terms and conditions of the facility.  However, they apparently completed the application form for the facility prior to seeing their solicitor so that their decision to enter into the facility had apparently already been made in reliance on the written representations.  As it happens, their solicitor does not seem to have alerted them to the possibility that the margin was variable.  However, as stated previously, I am not convinced that even if he had, it would have been sufficient to break the inducement by the respondents' conduct of the Lucas' entry into the contract.

 

CAUSATION

 

The respondents submitted that because Mrs Williamson admitted under cross examination that her current reading of the documents permitted her to see that the GIO had power to vary the margin, she could not blame the GIO for her original mistake.  In effect, because she could not reconcile her original view that the margin was not variable with her current reading of the contractual documentation, the error was hers alone.  It follows, the respondents said, that Mrs Williamson must have failed to take reasonable care when checking through the documents, and that any loss was due to her own negligence and not the conduct of the respondents.  The respondents also submitted that given Mr Foy's background, it must be inferred that he was either "cavalier in his reading of the documentation or incompetent in his attempts to construe it".  In support of those submissions the respondents cited the decisions in Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] 26 FCR 112 at 138 and Asea Brown Boveri Pty Ltd v Burns Philp Trustee Company Limited (Giles J, Supreme Court of NSW Commercial Division No 50361 of 1989, unreported 23 April 1990).

 

In my view, a diligent reading of the contractual documents would have alerted these educated borrowers to at least the possibility that the margin was variable.  Further, a solicitor applying reasonable attention and skill would in all likelihood have noted that the margin was at least arguably variable at the discretion of the lender.  The evidence showed that very few of the
borrowers did scrutinise the Conditions of Use or take up the GIO's suggestion to see a lawyer.  Yet in my view these facts did not break the chain of causation.  The respondents' submission does not sufficiently allow for the weight and repetition of the misrepresentation nor the reasonableness of the borrowers' reliance on it.  Nor, importantly, does it accommodate the borrowers' inability to finally determine whether the margin was variable, because the GIO's own sales staff were of the opinion that it was fixed.

 

Without the inestimable advantage of hindsight, a current and therefore highly informed reading of the documents is not indicative that their own negligence was the cause of these borrowers' purchase of the facility, either solely or at least to the exclusion of the offending misrepresentation.  In my view, it was not negligence or a 'cavalier attitude or incompetence' that principally or significantly led to the representees' reliance on the written representations of the respondents, but the respondents' own conduct.  I do not consider that the applicants and the represented persons by their conduct broke the chain of causation between the misleading conduct and any loss.

 

RELIEF

 

The applicants sought the following relief:

 

     1.  a declaration that one or all of the respondents engaged in misleading or deceptive conduct in
breach of section 42 of the FTA and section 52 of the TPA

 

     2.  a declaration that the margin is set, and will remain set, at 1.25% per annum

 

     3.  a declaration that each facility was unjust or unconscionable in the circumstances in which it was made and the margin should not be varied

 

     4.  damages or other orders including compensation for the increase in the margin from 1 August 1992

 

     5.  damages or other orders under sections 87 and 82 of the TPA

 

     6.  interest and costs

 

The applicants submitted that the respondents should be held to the bargain represented to their borrowers.  They suggested that the easiest way to provide for this determination is by way of an order under section 87 of the TPA and section 72 of the FTA that it was a term of the contract that the margin remain fixed at 1.25%, subject to any alteration in the nature and value of the security, for the life of the facility.  Section 87(1) provides:

 

     Without limiting the generality of section 80, where, in a proceeding instituted under, or for an offence
against, this Part, 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 sub-section) in contravention of a provision of Part IV, IVA or V, the Court may, whether or not it grants on injunction under section 80 or makes an order under section 80A or 82, 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 sub-section (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.

 

On the other hand, the respondents said that the usual rule in cases such as this is to measure the damage as for tort: Gates v City Mutual Life Assurance Society Limited [1986] 160 CLR 1, where Mason, Wilson and Dawson JJ said at 14:

 

     The question then is whether it is appropriate to apply the contract measure of damages to the contraventions found to have taken place.  The courts are not bound to make a definitive choice between the two measures of damages so that one applies to all contraventions to the exclusion of the other.  However, there is much to be said for the view that the measure of damages in tort is appropriate in most, if not all, Pt V cases, especially those involving misleading or deceptive conduct and the making of false statements.  Such conduct is similar both in character and effect to tortious conduct, particularly fraudulent misrepresentation and negligent misstatement.

 

Their Honours said at 15:

 

     In all the cases in which a plaintiff has sought to recover damages on the footing that a representation amounts to a collateral contract, a fraudulent misrepresentation or a negligent misstatement, damages for expectation loss have only been awarded when the representation amounted to a collateral contract.  Neither the fact that the representation induces entry into a contract nor the fact that it is a statement of the benefits to which the plaintiff will be entitled under that contract is enough to justify compensation for expectation loss.

 

The respondents also submitted that if regard is had to the terms of both section 82 of the TPA and its FTA equivalent, section 68, and section 87 of the TPA (section 72 of the FTA), the damage alleged by the applicants is not recoverable.  Section 82(1) provides:

 

     A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

 

The respondents submitted that there are two insurmountable hurdles for the applicants.  The first is that the measure of damage is to be quantified by regard to loss rather than the non-attainment of a benefit.  The second is that the loss must be referable to the contravening conduct.  Both these principles were encapsulated by a Full Court of this Court (Fox, Lockhart and Fitzgerald JJ) in Gates v City Mutual Life Assurance Society Ltd [1983] 68 FLR 101 at 104:

 

     Section 87 like section 82 is concerned with loss or damage 'by' the offending conduct and it is sufficient for present purposes to observe that, in this case, the question is not how much better off Mr Gates would have been if the statements had been true but how much worse off he is by reason of having taken the steps which he did on reliance on the statements.

 

Justice Spender said much the same in Shepherd v Nodes Bros Pty Ltd [1985] ATPR 40-588 at page 46,750:

 

     It seems to me that when one has regard to the words of s 82, two fundamental observations may be made.

 

     The requirement that the entitlement to damages is to 'a person who suffered loss or damage' suggests that the essential ingredient of the statutory cause of action is not of the non-attainment of a benefit or the non-realisation of a profit but the incurring of loss or damage, inviting a comparison between the position of the applicant after the contravention with his position before the contravention.  This is the 'worse off' approach.

 

     The second important aspect of the statutory formulation of the cause of action is that that loss or damage has to be suffered 'by' the conduct of another person that constitutes a contravention of Pt IV or V of the Act.  This makes it plain that it is only loss or damage that is caused by the contravening conduct which can be recovered in the statutory cause of action.

 

As I see it, there are four possible approaches to the issue of damages in this case:

 

1.   To apply section 87 and, having regard to the contract, award to the applicants a 1.25% set margin for the life of each borrower's facility.  This option would give the applicants what they thought they were getting at the time they signed the contract.

 

2.   An award under section 82 in the nature of expectation damages amounting to the difference between 1.25% and the rate which the GIO would charge for the provision of the life facility in each case.

3.   Damages for the difference between the 1.25% and the 2.25% that the applicants paid when the rate was raised from 1 August 1992 to the present.  An award of this kind would need to allow a period from now to allow the applicants time to seek and obtain alternative more favourable finance.  This award would also have to include the penalty for early cancellation of the GIO facility including the establishment fees only payable if the facility is not retained for 10 years.

 

4.   No damages at all on the basis that no real loss has been suffered as a result of the misleading conduct.

 

Essentially, the first two possibilities are the same but in both examples, damages are in the nature of contract rather than tort.  In my view, it would be impossible to calculate the damages for life, amongst other reasons because it is unknown how often each applicant would use the draw down facility, how long a term would be required in each case, and what the margin rate will be in the future.

 

The respondents submitted that a common sense approach should be taken, as expressed by the High Court in Wardley Australia Limited & Anor v The State of Western Australia [1992] 175 CLR 514 at 530. Such an approach would lead to the conclusion that the detriment suffered by the applicants is the difference between the fixed and variable margin but, so the respondents said, because this loss was not caused by the respondents' contravening conduct, it is therefore outside the scope of both
sections 82 and 87 of the TPA and their FTA equivalents.  The respondents emphasised that the contract allowed the GIO to vary the margin, therefore the conduct that caused the detriment was not wrongful.  Consequently, only if the applicants could point to loss caused in reliance on the representation that the margin would be fixed would loss be proved, such as for instance if the applicants could have shown that but for the representation they would have financed elsewhere at a better rate.

 

 

The respondents asserted, and it seems to be common ground, that at the time of entering into the facility, there was no cheaper financing on the market.  Moreover, not one of the borrowers said that they would not have borrowed at all if the facility was not as represented.  The respondents accepted that Mr Marks was able to finance his borrowing at a cheaper rate, but emphasised that this would have been for a shorter term than the facility provided and that Mr Marks admitted that the GIO facility had other features that attracted him to it.  The respondents submitted that there is no relevant damage here, that the borrowers were still better off in the variable margin facility than they could have been elsewhere, and that the increase in margin was not a loss to the applicants caused by the misrepresentations.

 

Mr Andrew Willink, Managing Director of Cannex (Aust) Pty Ltd, a company that operates an interest rate and product information service, prepared a report (the Cannex report) comparing the facility to alternative financing products in the market at the relevant time.  He concluded that the AAA facility was the most competitive product in the market against both the standard owner-occupied and investment property loans.  The applicants pointed out that because the facility was the only commercial bill facility of its kind, the Cannex report was not actually comparing like with like.  Additionally, the interest rates compared were for lending ratios above 70%, yet the report had not added the GIO's penalty for exceeding the 70% loan/valuation threshold ratio.  Nor had the report considered that if a borrower had approached a lending institution with a prime security, the lender may have been inclined to provide a special deal.  Nonetheless, I accept that even with a variable margin, the facility was highly competitive in the market place.

 

Whilst not conceding that they could not point to a better deal for the borrowers, the applicants preferred to present parallel arguments in respect of the quantum of damages.  They firstly submitted that the Court was not bound to award damages on a tortious basis: Frith v Gold Coast Mineral Springs Pty Ltd [1983] 47 ALR 547 at 565; Lockyer Investments v Smallacombe [1994] 50 FCR 358; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No2) [1987] 16 FCR 410.  Secondly, they submitted that the respondents' analysis, if accepted, was reason enough to depart from the general rule in Gates because it would leave the applicants without relief.  They said that it would encourage lending institutions to engage in attractive but misleading competitive practices to take advantage of unsuspecting and uninformed borrowers.

Whilst this argument has some validity, I do not completely agree with it.  At the very least the applicants are entitled to the declarations sought that the conduct of the respondent was misleading and deceptive.  Secondly, neither section 82 nor section 87 nor their FTA equivalents are concerned with punishment for contravening conduct.  In Enzed Holdings Ltd v Wynthea [1984] 57 ALR 167, a Full Court of this Court (Sheppard, Morling and Wilcox JJ) said at 183:

 

     The principle is clear.  If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guesswork is involved ...We emphasise, however, that the principle applies only when the court finds that loss or damage has occurred.  It is not enough for the plaintiff merely to show wrongful conduct by the defendant.

 

As I see it, the best argument in favour of a finding that no loss occurred here is simply that if the applicants had been told the truth at the outset, they would have been presented with two options:

 

1.   they could have accepted the GIO's term that the margin was variable, or

 

2.   they could have sought finance elsewhere.

 

On the face of it, neither of these options represents a detriment to the applicants, as the facility offered by the GIO seems to be accepted as the best available at the time, even with a variable margin, and when the GIO raised the margin it only did
what the contract permitted.  Both of these options continue to exist for these borrowers today.

 

However, I consider that the applicants did in fact suffer a detriment from the misrepresentation when the rate was increased from 1.25% to 2.25%.  Since 1 August 1992 the applicants have had an obligation to pay a greater margin of interest than they were told at the time they signed up.  To the extent that the increased interest has been paid, the case differs from Gates as it is not the mere non-attainment of a represented benefit.  I disagree with the respondents' submission that it was lawful conduct that caused the detriment.  To my mind that isolates the two parts of the conduct beyond what is practical.  It was the prior unlawful conduct that coloured the subsequent raising of the margin as 'damage' or 'loss'.  The difference between the variable margin and the fixed margin is a loss suffered as a direct result of the respondents' conduct in contravention of section 52 of the TPA and section 42 of the FTA.

 

To state this in terms equivalent to those used by Chief Justice Gibbs in Gould v Vaggelas at 220, there is a difference in the real value of what the applicant paid for and what it is worth.  It is no answer that even as a variable loan the applicants received, as the respondents say, a 'good deal'.  What the applicants paid for was a loan facility with a fixed margin.  What they were given was a loan facility with a variable margin and a consequently greater interest obligation.  Notwithstanding how unlikely it is that a fixed margin product would have been
offered for 26 years regardless of the cost of funds to the lender, it is my view that the correct measure of damage is that which adequately compensates the applicants for this loss which was caused by the respondents' wrongful conduct.  There is no need to delve into the distinction between damages in contract and tort.  The applicants' past loss is the 1% difference between the fixed margin and the variable margin from 1 August 1992 to the present time.

 

As to future interest obligations, Chief Justice Gibbs said in Gates at 12:

 

     In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss).

 

If there had been no misrepresentation, a potential borrower would presumably have believed that the interest obligation of the facility was variable.  Armed with this knowledge, each person could have chosen one of the options to which I earlier referred.  To my mind any future interest payments at an increased margin would not represent a loss to the applicants, but would at most be the non-attainment of the expected benefit of a fixed margin and would therefore not be recoverable.  However, I have decided to extend the period of loss for six weeks after the date of judgment to allow the applicants the opportunity to negotiate out of the respondents' facility if they so choose.

 

The establishment fees for the facility payable on early exit must also be considered.  No offer to waive these fees having been made, they should be included in the damages of those applicants now wishing to seek alternative funding.  If of course they are not charged, either because individual borrowers do not go elsewhere or because the GIO does not insist upon them, they will not be payable as damages.  On the other hand, establishment fees associated with new alternative funding arrangements do not represent loss or damage to the borrowers because they would in all likelihood have been payable if the borrowers had chosen to take another facility in the first place.  The applicants did not suggest that any of their number might not be able to raise a new loan because of change of circumstances or for any other reason.

 

Mr Marks and Mr Foy also claimed what they described as consequential damages.  In an attempt to reduce their exposure to any further margin increases following the increase of 1% from 1 August 1992, they switched part of their borrowing from the facility to the GIO's fixed rate loan.  The fixed term loan has a higher interest rate than the facility and required the payment of establishment fees.  These applicants claim both the establishment fee and the difference in interest payable between the two facilities.

 

Consequential damages are certainly recoverable: Gould v Vaggelas, see in particular Gibbs CJ at 222.  However, in this case I do not consider that the loss claimed resulted directly from the contravening conduct.  These two applicants' decision
to switch a portion of their funding was made as a result of their becoming aware that the margin was variable when the GIO exercised its power to increase it.  The increased interest burden is a result of a commercial decision by these borrowers, and the establishment fee is simply a cost associated with this choice that would have been payable even if the borrowers had never been induced to enter the facility at all but had chosen the alternative funding option in the first place.

 

Mr Marks and Mr Foy submitted in the alternative that their damages should be calculated on the entire loan amount as if they had never switched any part of the borrowings away from the facility.  I do not agree with this submission.  Their loss should be calculated in the same way as for every other borrower viz. the amount in interest they have actually paid to the GIO on the facility in excess of the 1.25% margin from its inception to the present time.  As the facility was a draw down facility not a mortgage, the amount borrowed could go up or down for each borrower from time to time.  Thus the damages for each person should be calculated on what has actually been borrowed.

 

It is also necessary to consider one other submission by the applicants, viz. that the damages should have regard to and should reflect lost commercial opportunities of which, they said, there were a myriad available to them.  Therefore they said that their loss extends to the future, because what they have actually missed out on is a fixed margin draw down facility for up to 26 years.

 

In Gates in the High Court, Mason, Wilson and Dawson JJ stated at 13:

 

     Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation.  If that reliance has deprived him of an opportunity of entering into a different contract for the purchase of goods on which he could have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation.  This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed; cf Esso Petroleum Co Ltd v Mardon; Doyle v Olby (Ironmongers) Ltd.  The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation.  In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the contract.

 

This case among others was considered by the High Court in Sellars v Adelaide Petroleum NL & Ors [1994] 179 CLR 332 where Mason CJ, Dawson, Toohey and Gaudron JJ said at 355:

 

     ...the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage.  Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage.  However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.  It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to
value the commercial opportunity by reference to a standard of proof which is inapplicable.

 

Justice Brennan in a separate concurring judgment said at 368:

 

     Although the issue of a loss caused by the defendant's conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered.  Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation.

 

I discussed some of the difficulties in applying these statements in Lockyer v Smallacombe at 886.  But as I understand these expressions, there is a two step approach to valuing loss of commercial opportunity.  The first step is to assess whether or not there was on the balance of probabilities a commercial opportunity the applicants could in fact have had.  If the answer to that is yes, the next step is for the Court, whilst taking account of contingencies, to assess the value of that opportunity, regardless of whether or not on the balance of probabilities it had any value.

 

One lost opportunity suggested by the applicants was their ability to obtain written confirmation from the GIO that the margin was in fact fixed, effectively varying the contract.  I have serious doubts about whether the failure to obtain confirmation of the invariability of the margin is a loss of a commercial opportunity referred to in the authorities.  Assuming that it could be, the applicants said that the evidence of Mr
Smith that he would have gladly given the applicants the written confirmation they required was proof that the opportunity was available.  However, other than Mr Williamson (not a party to these proceedings), none of the borrowers suggested that this is the course of action they would have taken.  Additionally, other than Mr Smith's assertion that he would have had the authority to write such a letter, no evidence was led of his authority to do so.  Whilst I accept Mr Smith's evidence, I simply do not know what the process would have been.  Would the confirmation letter have had to go to or via the GIO's legal representatives?  Would it have needed approval by more senior staff?  Would the request have found its way to Mr Smith in the first place?  Would other marketing managers have taken the same approach?  There was no evidence to enable me to answer these questions.

 

Mr McCullagh sought written confirmation in respect of his ability to switch part or all of his funding to a fixed term.  The confirmation letter (Annexure G to Mr McCullagh's statement of 17 April 1995) came from Messrs Webeck Farland Pender, Solicitors, suggesting that any similar request for confirmation of the invariability of the margin would also have gone to the GIO's solicitors.  Having regard to the terms of the contract, it seems unlikely that they would have confirmed that the margin was set for the life of the facility.  There is simply not enough evidence to convince me that on the balance of probabilities the applicants would have opted for this approach or that the GIO would have granted their request.  I do not consider on the
balance of probabilities that such a letter would have issued from the GIO.

 

As Mason CJ, Dawson, Toohey and Gaudron J said in Sellars at 352 of the evidence in Gates:

 

     There was no evidence as to what the appellant would have done had he known that the respondent insurance company did not offer insurance on the terms he wanted; nor was there any evidence that insurance was available on those terms elsewhere.  Consequently there was no evidence to show that there was a chance of making alternative arrangements for insurance in Gates.

 

Even if the suggested loss of opportunity qualified for consideration as such, in my view the applicants have not passed the first step of the Sellars approach and I decline to speculate on the value of such a lost opportunity.  I do not consider that the applicants have established satisfactorily that there actually were any true commercial opportunities lost at all.

 

CONCLUSION

 

It is not possible to make final orders and declarations at this time because the individual figures have not been made available.  I shall declare that the respondents' conduct as identified was misleading and deceptive in contravention of section 52 of the TPA and section 42 of the FTA.  For the purposes of section 33ZB of the Federal Court Act, this decision applies to each of the borrowers represented by the first applicant as well the other individual applicants.  The respondents will be ordered to pay
to all these persons the difference between the fixed margin and the varied margin on the respective loans between 1 August 1992 and six weeks from today along with interest for those who opt out of the facility and to today for those who do not.

 

The parties are to bring in a minute of agreed orders to reflect these findings and conclusions and stating the appropriate damages in each case.  The matter shall be relisted at 9.30am on 16 February 1996 for the purpose of the finalisation of the case.  If no agreement is reached, the parties are to present their own versions of the appropriate orders along with short submissions in writing by not later than 4pm on 14 February 1996.  Costs will similarly be dealt with, either by consent or by written submission, according to the same timetable.  There will be liberty to apply.

For the applicants                   S.G. Finch instructed by Vera Culkoff of Cashman & Partners

 

 

 

 

 

 

 

 

 

 

For the respondents                  C. Gee QC and S.D. Kalfas instructed by Scott McDonald of Phillips Fox

 

 

 

 

 

 

 

 

 

 

 

Date of hearing                      13, 14, 15 June 1995

 

 

 

 

 

 

 

 

 

 

 

 

 

Written submissions                  31 August 1995

completed

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of judgment                     9 February 1996