CATCHWORDS

Trade Practices - whether representations misleading or deceptive or likely to mislead or deceive - whether mere puffery - tests applicable

Trade Practices - alleged failure to disclose - whether silence constituted misleading or deceptive conduct - whether "engaging in conduct" - tests applicable

Trade Practices - alleged misleading or deceptive conduct - representations made - whether made with the authority of the respondent - whether authority can be inferred from the circumstances

Trade Practices - alleged misleading or deceptive conduct - whether respondent aided or procured or was knowingly concerned in a contravention

Trade Practices - alleged misleading or deceptive conduct - loss suffered - damages applicable

Contract - lease - whether repudiated - whether lessor waived its rights - whether breaches occurred with the leave and licence of the lessor - whether mutual abandonment

Contract - lease - accepted repudiation - damages applicable - whether applicant acted properly to mitigate loss

Equity - estoppel - whether lessor estopped from relying upon strict legal rights - whether representations sufficiently clear and precise

Deed of Guarantee - irregularities - non est factum - whether made out - tests applicable - position of innocent third parties

Deed of Guarantee - whether avoidable - whether material alterations made after execution - tests applicable

Deed of Guarantee - whether benefit thereof assigned either at law or in equity - principles applicable

Evidence - principle in Jones v Dunkel - strength of principle diluted by the fact that the witness who was not called was in a position to provide illumination on almost every issue in the proceedings

Trade Practices Act 1974 s 52, s 53A(1)(b), s 75B, s 82, s 87

Conveyancing Act 1919 (NSW) s 12, s 36C

Jones v Dunkel (1959) 101 CLR 298

Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 53 FLR 307 at 311

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, 41, 42

General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 177, 178, 194

Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 143

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, 41, 42

Legione v Hateley (1983) 152 CLR 406 at 436, 437

Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17

Gallie v Lee [1971] AC 1004 at 1016, 1026, 1027

Petelin v Cullen (1975) 132 CLR 355 at 360

Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 at 282, 283

Farrow Mortgage Services Pty Ltd (In Liq) v Slade (1996) 38 NSWLR 636 at 640

Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238

International Leasing Corporation (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 451

Beswick v Beswick [1968] AC 58

Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107

Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423

Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 374

Three Rivers District Council v Bank of England [1996] QB 292

Long Leys Co Pty Ltd v Silkdale Pty Ltd (1992) NSW ConvR 59,476

ZAKNIC PTY LIMITED v SVELTE CORPORATION PTY LIMITED & ORS

No. NG 216 of 1994

CORAM:       Lehane J

PLACE:          Sydney

DATE:            14 August 1996

IN THE FEDERAL COURT OF AUSTRALIA                               )

NEW SOUTH WALES DISTRICT REGISTRY                              )

GENERAL DIVISION                                                                    )             No. NG 216 of 1994

                      BETWEEN:          ZAKNIC PTY LIMITED

                                                     (A.C.N. 003 803 496)                                                 Applicant

                      AND:                     SVELTE CORPORATION PTY LIMITED

                                                     (A.C.N. 056 992 877)                                     First Respondent

                                                     HARRY SIALEPIS                                   Second Respondent

                                                     CRYPTA FUELS PTY LIMITED

                                                     (A.C.N. 010 036 512)                                    Third Respondent

                                                     ROBERT JOSEPH HAGAN                     Fourth Respondent

                                                     HARRY SIALEPIS                                  First Cross-Claimant

                                                     SVELTE CORPORATION PTY LIMITED

                                                     (A.C.N. 056 992 877)                          Second Cross-Claimant

                                                                        CRYPTA FUELS PTY LIMITED

                                                     (A.C.N. 010 036 512)                           First Cross-Respondent

                                                     ROBERT JOSEPH HAGAN         Second Cross-Respondent

                                                     DES MITCHELL                               Third Cross-Respondent

CORAM:     Lehane J

PLACE:        Sydney

DATE:          14 August 1996

                                                       MINUTE OF ORDERS

THE COURT ORDERS:

1.         THAT the cross‑claim is dismissed with costs.

THE COURT DIRECTS:

1.         THAT the applicant within 7 days after the publication of these reasons file and serve on the other parties draft minutes of orders which it proposes as appropriate to give effect to the conclusions contained in these reasons for judgment.

2.         THAT the proceedings be adjourned to a date to be fixed for argument on the form of the orders to be made.

NOTE:            Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA                               )

NEW SOUTH WALES DISTRICT REGISTRY                              )

GENERAL DIVISION                                                                    )             No. NG 216 of 1994

                      BETWEEN:          ZAKNIC PTY LIMITED

                                                     (A.C.N. 003 803 496)                                                 Applicant

                      AND:                     SVELTE CORPORATION PTY LIMITED

                                                     (A.C.N. 056 992 877)                                     First Respondent

                                                     HARRY SIALEPIS                                   Second Respondent

                                                     CRYPTA FUELS PTY LIMITED

                                                     (A.C.N. 010 036 512)                                    Third Respondent

                                                     ROBERT JOSEPH HAGAN                     Fourth Respondent

                                                     HARRY SIALEPIS                                  First Cross-Claimant

                                                     SVELTE CORPORATION PTY LIMITED

                                                     (A.C.N. 056 992 877)                           Second Cross-Claimant

                                                     CRYPTA FUELS PTY LIMITED

                                                     (A.C.N. 010 036 512)                           First Cross-Respondent

                                                     ROBERT JOSEPH HAGAN         Second Cross-Respondent

                                                     DES MITCHELL                               Third Cross-Respondent

CORAM:     Lehane J

PLACE:        Sydney

DATE:          14 August 1996

                                                  REASONS FOR JUDGMENT

LEHANE J:

The proceedings: background and claims

This case concerns claims by the purchaser of a service station at Port Kembla (to which I shall refer as the service station).  The claims are against the vendor of the service
station and one of its directors and against the lessee of the service station and one of its directors.

The first respondent (to which I shall refer as Svelte) carries on business as a trustee. Its directors were the second respondent (Mr Sialepis) and Mr James John Smiles (Mr Smiles). Towards the end of 1992 Svelte purchased the service station.  One of the vendors, Dragan (known as Danny) Nicolic (Mr Nicolic), remained, by arrangement with Svelte, in occupation of a workshop forming part of the service station. Virtually simultaneously with its purchase, Svelte leased the service station to the third respondent (Crypta). It is alleged, but denied, that the fourth respondent (Mr Hagan), a director of Crypta, guaranteed Crypta's obligations under the lease.

The applicant (Zaknic) is engaged principally in a truck repair business. It has two directors, Mr Ivan Zaknic and his brother Mr Boris Zaknic. Early in 1993 Zaknic was seeking an investment. In circumstances which it will be necessary to examine more closely, Zaknic entered into an agreement in March 1993 to buy the service station from Svelte, subject to the lease to Crypta.  The agreement was completed on 6 May 1993.  Shortly before its completion, the second respondent (Mr Sialepis) executed a document by which he guaranteed, in favour of Zaknic, Crypta's obligations under the lease for a period ending on 6 May 1995.  Zaknic says that on completion it acquired by assignment the benefit of the lease to Crypta and the benefit of the alleged guarantee by Mr Hagan.

After completion Crypta did not pay any rent or any other amount claimed by Zaknic to be due to it under the lease. Zaknic claims to have taken that failure as a repudiation of the lease and to have accepted the repudiation on about 31 August 1993. At that time, in any event, Crypta ceased to have possession of the service station. On 1 September 1993 Zaknic let into possession a company called Ryledar Pty Ltd (Ryledar) which pays rent to Zaknic. There have been negotiations between Zaknic and Ryledar for a lease of the service station for a term, but agreement has not yet been reached on the provisions of such a lease.

Zaknic claims damages or compensation against each of the four respondents. Against Svelte, Zaknic claims damages under s 82 of the Trade Practices Act 1974 (the Act) on the basis of what it claims was misleading or deceptive conduct on the part of Svelte by which it was induced to purchase the service station and as a result suffered loss.  The misleading or deceptive conduct is said to comprise two specific misrepresentations and a failure to notify Zaknic of matters of which it had an entitlement to be notified by Svelte. The specific misrepresentations are said to have been contained in an advertisement of the service station in the Sydney Morning Herald of 6 February 1993 and in a letter to Mr Boris Zaknic from Sidney Raper Real Estate, purporting to act as agent of Svelte. In broad terms, the representations related to the value and soundness of the lease to Crypta. The alleged failure to notify concerns matters relating to Crypta's ability or willingness to make payments due under the lease and to conduct on the part of Svelte and Mr Sialepis and claims of Crypta against them.  It is said against Svelte that its conduct breached both s 52 and s 53A(1)(b) of the Act.

Zaknic has, in essence, two claims against Mr Sialepis. The first is that he was, within the meaning of s 75B of the Act, a person involved in Svelte's contraventions.  The second is that he is liable under his guarantee for the rent and other amounts which fell due under the lease during the period covered by the guarantee, but which have not been paid.

The defence filed on behalf of Svelte and Mr Sialepis admits the representation in the advertisement in the Sydney Morning Herald, denies the authority of Sidney Raper Real Estate to make the representations in the letter and denies the other allegations of misleading or deceptive conduct. The guarantee given by Mr Sialepis is admitted (and in the defence Mr Sialepis admits that by that document he guaranteed the obligations of Crypta under the lease for the period from 6 May 1993 to 6 May 1995). Mr Sialepis (though he admits the amount of rent which would have fallen due under the lease during that period) puts Zaknic to proof that any (and if so what) amount is payable under his guarantee.

Zaknic's allegations against Crypta are that Zaknic is entitled to the benefit of the lease (Crypta by its defence admits that it executed a lease but does not admit Zaknic's entitlement); that Crypta failed to pay rent from 1 June 1993 to 31 August 1993 and other amounts payable under the lease during the same period (both are denied); and that Crypta repudiated the lease and Zaknic accepted the repudiation and suffered loss (all are denied).

Zaknic's claim against Mr Hagan is that he is liable under his alleged guarantee for the amount of Crypta's liability under the lease and on its accepted repudiation (that is denied: particularly, the guarantee, and its assignment to Zaknic, are denied).

A number of other matters are pleaded in the amended defence filed by Crypta and Mr Hagan in answer to the allegations made against them in the statement of claim.  I shall describe them shortly without, at this stage, further comment.  The defence seeks to incorporate within itself the statement of claim filed by Crypta and Mr Hagan in other proceedings (No. NG 975 of 1993) in which they are applicants and Svelte and Mr Sialepis are among the respondents. I shall call those the Crypta proceedings. It will be necessary to say more about the Crypta proceedings later.  Crypta claims in those proceedings that it was induced to enter into the lease by misleading or deceptive conduct on the part of, among others, Svelte and Mr Sialepis; as a result, Crypta and Mr Hagan allege, the lease is either void or, if not void, is not enforceable by Zaknic.  Additionally, Crypta and Mr Hagan say in their defence that as a result of various conversations which are pleaded Zaknic is estopped from denying that it would not seek to recover rent under the lease, has waived the payment of moneys due under the lease or has given its "leave and licence" to the non‑payment.  It is said also that Zaknic engaged in misleading or deceptive conduct disentitling it to maintain an action for relief by reason of the provisions of the Act or the principles of equity. Then it is said that the obligations of Crypta under the lease were discharged by conduct of Zaknic (including obtaining the guarantee by Mr Sialepis) and, additionally or in the alternative, that the lease was mutually abandoned, thereby apparently both estopping Zaknic from "bringing any suit"
under it and also discharging all obligations of Crypta and Mr Hagan as from 6 May 1993 or, alternatively, as from 1 September 1993.  Finally, Mr Hagan denies that he ever knowingly signed a guarantee of payment of rent and outgoings under the lease or that any liability ever arose pursuant to such a guarantee; he also says that if he did indeed sign such a document, he was not guilty of negligence in so doing; or if he signed the document negligently (which is denied), Zaknic did not act either at all, or to its loss, upon the faith of the document.

Position of Mr Sialepis and Svelte

Mr Sialepis is a bankrupt.  Zaknic, however, obtained leave to proceed against him (under para 58(3)(b) of the Bankruptcy Act 1966) by an order made in these proceedings on 24 August 1995.  Mr Sialepis was not represented at the hearing and did not give evidence.  Nor was any evidence read or called by Svelte.  Svelte was, however, represented at the hearing by Mr C J Hockey of counsel, who cross‑examined witnesses called by the other parties and made submissions.

Cross-Claim

There is also a cross‑claim.  The cross‑claimants are Mr Sialepis and Svelte; the first cross‑respondent is Crypta and the second Mr Hagan.  There is a third cross‑respondent, Des Mitchell.  He was involved in negotiations on behalf of Crypta and gave evidence in the proceedings.  I shall have to consider his role in the transactions in more detail later. 
By the cross‑claim Mr Sialepis asserts that if he is obliged to make a payment under his guarantee then he is entitled to an indemnity from Crypta as principal debtor and contribution from Mr Hagan as co‑guarantor.  There is also a claim that, to the extent that Svelte is liable to Zaknic for non payment of rent and other amounts due under the lease, Crypta and Mr Hagan are liable to indemnify Svelte.  No precise basis for that claim is stated; but, in addition, it is claimed that the entry by Mr Sialepis (this must be a mistake for Svelte) into the lease with Crypta and any representations made by Svelte or Mr Sialepis to Zaknic were induced by misleading or deceptive conduct on the part of Crypta, Mr Hagan and Mr Mitchell.  The matters pleaded in the cross‑claim as giving rise to a liability on the part of the three cross‑respondents are denied in a defence to the cross‑claim filed in September 1994.

The position in relation to the cross‑claim is not crystal clear.  Mr Mitchell gave evidence that he became bankrupt in March 1994.  The result is that in any event, under subs 58(3) of the Bankruptcy Act 1966, proceedings on the cross‑claim are stayed as against him.  Leave to proceed against him has not been obtained.  Mr Sialepis is, as I have said, also a bankrupt.  That means, I think, that the causes of action which he seeks to assert by the cross‑claim vested, on his bankruptcy, in his trustee under subs 58(1) of the Bankruptcy Act.  Thus, his cross‑claim must be dismissed, though that dismissal would not affect the right of his trustee to pursue any of the causes of action separately, e.g., for an indemnity or for contribution in respect of liability under the guarantee.  Svelte, as I have said, was represented at the hearing by Mr Hockey of counsel.  Though the cross‑claim was not formally abandoned, no evidence was given nor were any submissions made in support of
it.  It follows, I think, that Svelte's cross‑claim should be dismissed also.  In sum, therefore, the appropriate order in relation to the cross‑claim is simply that it be dismissed with costs.

The Crypta proceedings

Before dealing with the applicant's claims against the various respondents, the Crypta proceedings require further brief mention.  Crypta and Mr Hagan are the applicants in those proceedings.  The respondents are Svelte, Mr Sialepis, Mr Smiles and a company, of which Mr Smiles was a director, which formerly traded as Smiles, Poulos & Associates, chartered accountants.  The applicants claim to be entitled to relief under the Act as a result of what they assert was misleading and deceptive conduct by the respondents in connection with the transaction by which Crypta entered into the lease of the service station and acquired the service station business.

On 29 July 1994 the Court ordered that these proceedings and the Crypta proceedings be heard together and that evidence in each, so far as relevant, be evidence in the other.  There was obvious merit in taking that course because there are substantial areas of overlap between the issues in the two proceedings and, more particularly, the evidence relating to those issues.  The hearing, however, originally estimated to take two weeks, was protracted as aspects of the transactions were examined at great length and in considerable detail.  On 27 March 1996, on the motion of Zaknic, I ordered that these proceedings and the Crypta proceedings be heard separately after 28 March 1996, so that
these proceedings would be heard before the Crypta proceedings but that evidence in either given on or before 28 March, and certain evidence of Mr Smiles which then remained to be given, would be evidence in the other as well.  I made that order having been convinced that it provided the best chance of bringing these already protracted proceedings to a conclusion as speedily as possible.

Zaknic's claim against Svelte

(a)  The advertisement and the Sidney Raper letter

Mr Boris Zaknic gave evidence that on 6 February 1993 he saw an advertisement published in the Sydney Morning Herald.  The advertisement read:

            SERVICE STATION.  Freehold.  Leased for $150,000 year.  Brand new 10 x 5 year lease.  Bargain price $1,150,000.  Urgent sale.

                        Ph  523 0792 all hours

Then on 13 February 1993 he saw another advertisement, as follows:

            INVESTMENT.  Service Station.  Showing 13 5 pc net return with guaranteed increase.  Min 5 pc pa 10 yr lease Plus option.  Good SAFE INVESTMENT at only $1 15 million.

                         Sidney Raper Real Estate

                         92 Pitt St Sydney  232 3326

The following day he telephoned the number in the first advertisement, heard a recorded message and left his name and telephone number.  He then telephoned the number of Sidney Raper Real Estate and had a conversation with someone who identified himself as John Raper.  In the course of that conversation, Mr Zaknic understood for the first time that each of the advertisements which he had seen related to the same service station.  He also gathered that the name of the person who had placed the first advertisement was Harry.  He said: "I think it might be better if I go through Harry since I contacted him first." Nevertheless, on about 17 February 1993 Mr Zaknic received a letter from Sidney Raper Real Estate, which should be quoted in full.  It reads:

                                                                                                     15TH February 1993

            Dear Sir

            Re:  Investment Property

            We are pleased to offer for sale this excellent long term investment opportunity.  The investment is supported by a property on the prime corner of Church street and Kembla Streets at Port Kembla.  A self‑service Ampol service station.

            The Income from this property is secured by a long term net lease to a proven successful operator.  The lease is for 10 YEARS with a 5 year option from the 1st November 1992 to 31st October 2002 (plus option).  There is an annual rent review at CPI or 5% which ever is the greater.

            The Lease is a triple net lease with the tenant paying all outgoings including upkeep and insurance.  The net income in year one is $150,000.00 net. per annum.

            The service station has just been up graded and has a 2 bay workshop and a Huge Convenience store which be [sic] completed during February 1993.

            This site is one of the BEST if not the BEST site in the City of Wollongong.  The site commands and obtains huge consistent fuel sales

            The sale of Prime Service Stations for other uses during the 1980's has effectively rationalised the industry.  Making the business of retail sales of petrol a [sic] increasingly financially attractive business which is further enhanced by the incorporation of convenience store, motorist accessories, car and trailer hire etc.  Now is the right time to look seriously at this essential service industry.

            This property can be purchased for $1,150,000.00 giving a return on purchase price from day one of 13% net per annum.  This price has been reduced to obtain a quick sale.

            Yours faithfully

            SIDNEY RAPER REAL ESTATE

            John Raper

In the meantime, on 15 February 1993 Mr Sialepis telephoned Mr Boris Zaknic.  Mr Zaknic said he was interested in the possibility of purchasing the service station and asked for a copy of the lease, which Mr Sialepis agreed to send.  Some days later Mr Sialepis again telephoned Mr Zaknic and asked whether he had given any further thought to the service station; Mr Zaknic responded that he was still waiting for a copy of the lease.  Mr Sialepis said that he would send a contract for sale with a copy of the lease attached.  Shortly after that conversation Zaknic received a draft contract for sale to which a copy of the lease was attached: Zaknic sent those documents to its solicitor.  On 5 March 1993 Zaknic exchanged contracts with Svelte for the purchase of the service station.

Before contracts were exchanged there was no other relevant communication between Zaknic and Svelte: that is, there was no relevant correspondence and there were no relevant conversations between anyone on behalf of either with anyone on behalf of the
other.  Nor was there any communication, before contracts where exchanged, between Zaknic and Crypta or Mr Hagan.  If it matters, the only visit made by anyone on behalf of Zaknic to the service station before contracts where exchanged was one made by Mr Boris Zaknic, who inspected the service station from the outside: he did not enter the property or speak to anyone there.

No evidence was given to contradict Mr Boris Zaknic's account of those events (in particular, as I have said, Mr Sialepis did not give evidence) and his account was not subjected to any substantial challenge in cross‑examination.  I have no difficulty in accepting it.

Svelte admits on the pleadings that it represented, by the advertisement published on 6 February 1993, that the service station had been leased for $150,000 per annum and that the rental of the service station for the next 10 years would be not less than that.  Accordingly, I find that Svelte made those representations by that advertisement and that the other events, occurring up to the time of exchange of contracts, described in Mr Zaknic's evidence took place as he described them: particularly, that Sidney Raper Real Estate made the representations in the advertisement of 13 February 1993 and the letter of 15 February 1993 purporting to act as agent of Svelte.

(b)  Sidney Raper's authority

Whether I should find that Sidney Raper Real Estate had authority from Svelte to offer the service station for sale and to make the representations which appear in the letter is a more difficult question.  Svelte, in its defence, denies that Sidney Raper Real Estate had that authority.  Mr Smiles denied in evidence that he, as a director of Svelte, gave any such authority and said that he was not involved "in that marketing of the service station".  On the other hand, however, there is in evidence not only the letter which I have set out but also a further letter from Sidney Raper Real Estate to Mr Boris Zaknic dated 12 March 1993 which offers for sale three other service stations of which Svelte was at least the legal owner.  Mr Smiles conceded that it was obvious that details relating to those service stations, and leases of them, had been given to Sidney Raper Real Estate by someone (though not Mr Smiles himself) on behalf of Svelte.  It was submitted on behalf of Zaknic that I should infer that Sidney Raper Real Estate was the agent of Svelte and that the representations made by it in the letter of 15 February were made on behalf of Svelte: for unless Sidney Raper Real Estate was appointed as agent of Svelte in order to obtain a purchaser of the service station (and the other properties) how did it obtain the detailed information set out in the letters of 15 February and 12 March 1993?

Clearly it is open to me, on the evidence to which I have referred, to infer that information was provided to Sidney Raper Real Estate by Svelte for the purpose of enabling the properties to be offered for sale.  Although in my view the strength of the application of the principle in Jones v Dunkel (1959) 101 CLR 298 in relation to the
failure of Svelte to call Mr Sialepis is, in relation to any one issue on which he might have given evidence, diluted by the fact that there is almost no issue in these proceedings upon which he could not have provided illumination, the absence of his evidence does enable me to draw the inference with greater confidence than I might otherwise have done.  It is noteworthy also that Mr Hockey, while he made lengthy submissions on behalf of Svelte as to whether the letter of 15 February should be read as making the representations complained of and as to the effect of the letter on what may be loosely described as Svelte's suggested duty of disclosure, said nothing in response to the submission of Mr Harris (who appeared for Zaknic) that I should infer that Sidney Raper Real Estate acted with Svelte's authority.  In all those circumstances, I find that Sidney Raper Real Estate, when it published the advertisement of 13 February and wrote and sent to Zaknic the letter of 15 February 1993, did so as agent of Svelte and with its authority.

(c)  Character of representations in advertisement and letter

It is useful to consider at this point whether the publication of the advertisement of 6 February or sending to Mr Boris Zaknic the letter of 15 February 1993 was conduct engaged in by Svelte, in trade or commerce, that was misleading or deceptive or was likely to mislead or deceive.  Apart from certain puffery (a concept to which I shall return) - "brand new", "bargain price", "urgent sale" - the advertisement of 6 February amounted to a statement that what was offered for sale was a freehold title to a service station which was leased for 10 years, with an option of renewal for a further 5 years, for
a rental of $150,000 per year.  So regarded, the statement is literally true - in fact, an understatement, in that there is no reference to the provision for increases in the rent payable.  Zaknic does not rely on any representation made in the advertisement of 13 February, but does rely on the letter of 15 February 1993 as representing that Crypta was trading profitably from the premises and had been trading profitably since going into possession under the lease.  Reliance is placed on the statement in the letter that the service station is leased to a "proven successful operator", supported no doubt by the claims as to the excellence of the site, the size and consistency of fuel sales and the enhancement said to arise from the "incorporation" of a convenience store.  Mr Hockey argued, rightly I think, that the letter is in large part to be regarded as mere puffery.  I think that the warning given by Lockhart J, in a case concerning television commercials about instant coffee, is equally applicable to a good deal of what an estate agent may say about a property for which the agent is retained to find a purchaser.  In Stuart Alexander & Co (Interstate) Pty Ltd  v Blenders Pty Ltd (1981) 53 FLR 307 at 311 his Honour said:

            However, I think a robust approach is called for when determining whether television commercials of this kind are false, misleading or deceptive.  The public is accustomed to the puffing of products in advertising.  Although the class of persons likely to see this commercial is wide, it is inappropriate to make distinctions that are too fine and precise.

Nevertheless, Mr Harris argued that the statement that Crypta, the company to which the property was leased, was a "proven successful operator" was not mere puffery but a representation of fact, and I think that also is right: it is a clear enough statement that the person operating the service station has what might be called a successful track record in
such ventures.  But Crypta itself had been procured as a shelf company specifically for the purpose of entering into the lease of the service station and could not, by any stretch of the imagination, be said to be a proven operator, successful or otherwise, of anything.  Nor, the evidence makes clear, could Mr Hagan properly be described as a "proven successful operator" of service stations.  Mr Mitchell (who, as will be seen, played a large part in the negotiation of the lease and in subsequent dealings between Crypta and Svelte) certainly had some relevant experience, but on the evidence I would hesitate to say that it qualified him as a "proven successful operator".  In any event, his role was only that of Crypta's adviser.  Mr Harris submitted accordingly that the representation, that the service station was leased to a proven successful operator, was false; I think the submission is correct, and I so find.  Plainly the making of it, then, was conduct in trade or commerce which was both deceptive and misleading.  I should add, however, the qualification that that finding does not lead to the conclusion that the letter should be read as making the representation pleaded: it may be read as implying that the service station was likely, given its attributes and those of its lessee, to trade successfully; I do not think it can be read as claiming that as a matter of fact Crypta had been trading profitably ever since going into possession.

(d)  Alleged failure to disclose

That brings me to the question of silence in relation to matters of which, it was claimed, Svelte knew, so that the silence constituted in the circumstances misleading or deceptive conduct.  It is pleaded that Svelte misrepresented to Crypta the fuel turnover and profits
of the service station business; that those misrepresentations had induced Crypta to enter into the lease; that Crypta had accused Svelte of having made the misrepresentations; that Crypta had refused to pay rent due to Svelte under the lease and that as a result of the misrepresentations it was likely that Crypta would refuse to perform its obligations under the lease and that the rent actually received from the service station during the 10 year term would be significantly less than $150,000 per annum; and that Crypta had not traded, and was not trading, profitably from the service station.  Zaknic says that Svelte, knowing those things and failing to inform Zaknic of them, engaged in conduct which was misleading or deceptive or was likely to mislead or deceive.  Svelte denies that.

The resolution of that issue requires a consideration in some detail of the dealings and relationship between Svelte and Crypta, and the principals of each, up to 5 March 1993, the date on which Zaknic exchanged contracts with Svelte to purchase the service station.  Before embarking on that consideration, however, there is a matter arising out of my order that these proceedings and the Crypta proceedings be heard separately which, although submissions where not directed to it on the motion for separate hearing, must be mentioned.  The Crypta proceedings are part heard before me; a very substantial part, at least, of the hearing of those proceedings has already taken place.  It is obvious that Zaknic, in these proceedings, relies to a large extent on silence of Svelte as to matters which are very much in issue between the parties to the Crypta proceedings.  I must, of course, make findings of fact sufficient to enable me to decide these proceedings; equally clearly, however, it is desirable that while the Crypta proceedings remain part heard I
should not make findings of fact as to matters seriously in contention in those proceedings.

I have mentioned that Svelte purchased the service station in 1992.  Although the contract provided that the purchase price was $670,000 and that completion was to occur on 1  November 1992, time in that respect being of the essence of the contract, the price in fact paid was $470,000 and completion occurred only on 20 November 1992.  So much is undisputed.  A great deal of time was spent in cross‑examination of Mr Smiles and Mr Milios, who was the solicitor for Svelte, on the reasons for the discrepancy between the price stated in the contract and the price actually paid.  Mr Smiles gave evidence that the difference resulted from an oral agreement for payment of a reduced price should settlement occur promptly and Mr Milios gave evidence that that was his understanding also.  Mr Sialepis, as I have said, gave no evidence.  In circumstances where a written contract did not include a term so apparently important and the reduced price was paid though settlement occurred not promptly but some three weeks after the date fixed by the contract, I view that explanation with great scepticism and find it difficult to resist the conclusion that the discrepancy is to be explained by other considerations; but I think it is unnecessary for me to pursue that issue further at present.  What is clear on the evidence is that having negotiated to acquire the service station Svelte immediately sought to dispose of the service station business and lease the premises, while retaining the freehold (though it is clear also that the freehold was for sale at an appropriate price).

In September 1992 a business broker, Mr Ron Nelson, introduced the principals of Svelte to Mr Mitchell, a businessman from Queensland whose principal activity was the doing, on his own behalf or for others, of "deals".  After some initial negotiations, Mr Mitchell in turn introduced to Svelte (represented by Mr Sialepis and Mr Smiles) Mr Hagan as the party whose corporate vehicle would negotiate for a lease of the service station premises and the acquisition of the service station business.  That negotiation resulted in two transactions: one was the purchase by Crypta (which turned out to be the corporate vehicle concerned) of the service station business for a consideration of $65,000 made up of two parcels of land in Queensland, together valued at $60,000, and $5,000 in cash; the other was a lease of the service station premises on the terms which I have mentioned.  The precise date of execution of the lease is unclear (I shall have to return to that later) but it was expressed to commence on 1 November 1992 and the evidence is that Crypta took possession on 23 November (Svelte's purchase had, of course, been completed only three days earlier).  Importantly, the transaction included an arrangement under which Svelte was to construct at the service station premises a "convenience store" on part of the site occupied by some service bays.  It was orally agreed, though not recorded in the lease, that rent would be payable, until the convenience store was complete, at the rate of $10,000 per month rather than the $12,500 per month for which the lease provided.  To put it briefly, and as neutrally as I can, there were provided to Crypta, during the negotiations, information as to the trading history of the service station and as to arrangements for the supply of fuel to it (particularly a rebate available from the supplier, Ampol) and certain projections prepared by Mr Smiles.  If those projections were realised, trading at the service station would have been profitable.  Also, suggestions
where made by Mr Smiles as to the way in which, particularly, the convenience store should be arranged and managed: that process continued after Crypta had taken possession.

Two comments may be made at this point.  One is that the negotiations and transactions to which I have referred were the subject, during the hearing, of extensive examination.  Even so, a good deal of the detail (including precise dates) remains unclear or controversial; but the account which I have given represents, I think, common ground, is undoubtedly supported by the evidence and constitutes, for present purposes, sufficient findings as to those negotiations and transactions.  The second comment is that Svelte had, on the face of it, negotiated a transaction which might be regarded as rather a coup.  It had acquired for $470,000 a property which it was able immediately to lease for a term and at a rental which appeared amply to justify a sale price substantially exceeding double that which it had paid; a sale price realised by the contract entered into with Zaknic on 5 March.  In addition, Svelte had realised a modest premium by the sale to Crypta of the service station business.

Before returning to matters relating specifically to the service station at Port Kembla, I should mention one other aspect of the relationship between Svelte and Crypta.  It is clear on the evidence that almost from the beginning of discussions between their representatives it was contemplated that their relationship might extend to other properties, including particularly other service stations.  It is also clear that matters advanced well beyond preliminary discussions.  Mr Hagan, in affidavit evidence, spoke of
"heads of agreement" entered into in relation to other service stations, but he conceded in cross‑examination, when referred to certain documents, that leases had been executed in relation to four of them.  The documentary evidence in relation to those leases (to which I shall refer as the additional leases) is somewhat sparse; but there are in evidence an original executed lease in relation to one service station, the first page of what apparently is a draft of a lease in relation to another and a Land Titles Office search in relation to a third, at Lugarno, which shows Svelte as registered proprietor and Crypta as lessee under a registered lease expiring on 12 July 2008 but with an option of renewal for a further five years.  It is clear also that none of the additional leases took effect in a practical sense: that is, Crypta never took possession and no rent was ever paid.  Mr Hagan's evidence was that they were entered into conditionally: that is to say, each party had an option to withdraw at least until the Port Kembla operation was shown to be successful.  That arrangement, however, was not reduced to writing.

On 13 May 1993 a meeting took place in Brisbane, at which Mr Smiles, Mr Hagan and Mr Mitchell were present.  At that meeting a document was written out and signed by Mr Hagan and Mr Smiles (it purports also to have been signed by Mr Hagan's wife, Laurel Hagan).  It is expressed to be an agreement made between Robert Joseph and Laurel Hagan representing Crypta and James Smiles representing Svelte.  It contains two operative provisions.  The first says that "on the giving of notice in 7 days by RJ & L Hagan that James Smiles release Crypta Fuels Pty Ltd from the lease over service stations situated at 1044-1066 Forest Rd, Lugarno & 125 Maitland Rd., Cessnock & 128 Pacific
Highway, Kempsey".  The second provides that "by" Mr Smiles giving notice to Mr and Mrs Hagan "they will release Svelte Pty Ltd from all three leases previously mentioned".

Again, a great deal of time was spent during the hearing in examining those transactions, their precise details, timing and purpose.  I think it is unnecessary for present purposes to enter into that detail or attempt to resolve aspects of it which are controversial.  The basic outline which I have given is not in controversy between the parties and, so far as it goes, clearly represents what occurred.

One of the matters thus left unresolved is the question of when the additional leases were entered into.  The executed lease specifies a commencement date of "February 1993"; the front page of the draft lease states as its commencing date "May 1993"; neither is dated.  The registered lease of the Lugarno property must be dated, but there is no evidence before me of its date or, for that matter, of its commencement date.  What I can and do confidently find, however, is that discussions concerning the proposed additional leases began before the end of 1992, they had been executed by 13 May 1993 and their negotiation was at least well advanced by the time Svelte and Zaknic exchanged contracts on 5 March 1993.

I can now return to the course of events at Port Kembla.  First, construction of the convenience store proceeded slowly.  Mr Smiles's affidavit evidence was to the effect that it was substantially finished in February 1993, but that evidence lacks conviction if only because of the wholesale revision (in some respects very confusing) made by Mr Smiles,
in oral evidence, of the dates of various events to which he had deposed.  Mr Faulkner, who from January 1993 managed the service station on behalf of Crypta, gave evidence that substantial works were still being done in mid March and that at the end of March work still remained to be done on the office which formed part of the convenience store complex.  In fact, his evidence is that the store was not entirely complete until May.  I accept Mr Faulkner's evidence, supported as it is by his contemporaneous diary entries.  Secondly, the rent.  Between the date when Crypta took possession and 5 March 1993 the rent was not paid regularly.  The lease required rent to be paid monthly in advance.  The amount of the monthly payments specified in the lease was $12,500, but as I have said that amount had been reduced by oral agreement, pending completion of the convenience store, to $10,000.  A payment of $10,000 was made at the end of November 1992.  No payment was made then until 1 March 1993, when the sum of $30,000 was paid.  A further payment of $10,000 was made, after exchange of contracts, on or about 31 March 1993.  No more payments of rent were made either to Svelte or to Zaknic.  On 2 February 1993 Mr Milios wrote on behalf of Svelte to the directors of Crypta.  Omitting formal parts, the letter reads as follows:

            We refer to previous correspondence and in particular to rental payments pursuant to the lease in relation to the above property.

            We note that you are currently in arrears, in the sum of $20,000.00, such arrears being as follows:

            Rent due 23rd December, 1992           $10,000.00

            Rent due 23rd January, 1993  $10,000.00

            In addition, a sum of $12,550.00 has been incurred by the lessor in relation to the construction of the convenience store and such sum is now also due.

            The lessor seeks immediate finalisation of both the rental arrears and the reimbursement of its expenses.

            The lessor reserves its rights pursuant to the lease.

            Should such sum not be forthcoming, our client questions the capacity of the lessee to fulfill [sic] its obligations in relation to other proposed projects.

Mr Milios gave evidence that he wrote that letter on instructions and there is no reason to doubt that that is so.  Indeed, Mr Smiles deposes to having given the instructions, a claim which sits rather oddly with evidence which he gave in cross‑examination that he was not "aware of the day to day rents that were paid and were not paid.  I left it up to Sialepis".  It was also Mr Milios's evidence that his instructions came usually from Mr Sialepis rather than Mr Smiles.  Be all that as it may, I find that Mr Milios was instructed by Svelte to send the letter.  It is noteworthy that no payment of rent was made until almost a month after the letter was sent; the payment then made followed, apparently, the submission of a handwritten invoice signed by Mr Sialepis.  There is no evidence that the other amounts demanded had been paid at the time contracts where exchanged with Zaknic.

Mr Hagan and Mr Mitchell both gave evidence of complaints made to Mr Sialepis and Mr Smiles.  Mr Hagan deposed to conversations which he had throughout the time Crypta operated the service station, but particularly during the first two-thirds of 1993, to the effect that petrol sales where below expectations, the rebate which they expected to receive from Ampol was not consistently allowed, the service station was not making profits and rent could not be paid.  Mr Hagan's evidence is that those complaints were
made to both Mr Smiles and Mr Sialepis, though more frequently to Mr Sialepis than to Mr Smiles.  Mr Mitchell also deposed to repeated complaints to Mr Sialepis, between November 1992 and early May 1993, about both the lack of profit and slow progress with the building of the convenience store.  In cross‑examination Mr Hagan, while somewhat more vague, confirmed his recollection that complaints to Mr Sialepis started in mid‑January, though he did not specifically recall complaining at that stage about the volume of fuel sold.

I should interpolate here a comment about the affidavit evidence.  Mr Thomas, who until 15 December 1995 appeared as counsel for Crypta and Mr Hagan, did not by any means make fully clear on which affidavit evidence he sought to rely; this lack of clarity was not, unfortunately, entirely removed during the hearing.  It is clear at least, however, that counsel relied on the affidavits of Mr Hagan in which the evidence to which I have just referred was given.  Mr Mitchell swore one affidavit only.  He was required and made available for cross‑examination.  I think counsel must be taken to rely on his affidavit.  That conclusion is reinforced by comments made by Mr Thomas in the course of an exchange between counsel during the cross‑examination of Mr Milios.

It is noteworthy that neither Mr Hagan nor Mr Mitchell was challenged, in cross‑examination by counsel for Svelte, as to his account of complaints made to Mr Smiles and Mr Sialepis.  Mr Smiles deposed that at no time before completion with Zaknic did either Mr Mitchell or Mr Hagan suggest that the service station business was not going well and in cross‑examination he said that "they never moaned to us about a
rent reduction".  On this matter I accept the evidence of Mr Hagan and Mr Mitchell.  It accords, I think, with the probabilities.  The fact that rent was not paid on time is not, as between parties otherwise enjoying at that stage what was apparently a cordial and expanding business relationship, suggestive of a business which was going well; there is no doubt that the construction of the convenience store was long drawn out and disruptive; Mr Faulkner's evidence, which I accept, supports that and also gives an eloquent account of difficult trading conditions: difficulties which increased later in the year, but were evident from the beginning.  It is clear that Mr Hagan and Mr Mitchell, on the one hand, and Mr Sialepis and Mr Smiles, on the other, were in frequent touch with each other: I cannot accept that these matters were not ventilated.

In summary, then, in the period between the first conversation between Mr Sialepis and Mr Boris Zaknic and exchange of contracts Svelte knew, but Zaknic did not know, the following:

(a)        Svelte had negotiated a lease on terms which justified a sale price more than double the price for which Svelte had very recently agreed to purchase the service station.

(b)        In the course of negotiating the lease Svelte had provided Crypta with information and projections which, if realised, would have resulted in profit to Crypta from the operation of the service station.

(c)        Crypta had made numerous complaints, commencing at least as early as mid-January 1993, that the business was not performing well, or in accordance with projections supplied to it.

(d)        The rental payable had been reduced during the construction of the convenience store; nevertheless, until a few days before contracts were exchanged with Zaknic, payments of the reduced rent were significantly in arrears and on 2 February Svelte had caused its solicitor to write demanding payment of amounts outstanding.

(e)        Svelte had a commercial relationship with Crypta, of a somewhat unusual kind, which extended, or at least potentially extended, beyond the relationship connected with the Port Kembla service station.

(e)  Misleading or deceptive conduct?

The question now to be answered is whether, having advertised the service station for sale emphasising the lease, having by its agent written to Zaknic stressing the strength and value of the lease, having provided to Zaknic a copy of the lease after Mr Boris Zaknic made it clear that Zaknic would not consider purchasing the service station until one was supplied, and having then not disclosed to Zaknic any of the matters which I have just listed, Svelte engaged in conduct which was misleading or deceptive or likely to mislead
or deceive.  Subsection 4(2) of the Act tells us what is meant by the phrase "engaging in conduct".  It provides that:

            In this Act:

            (a)        a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act ...

            ...

            (c)        a reference to refusing to do an act includes a reference to:

                        (i)         refraining (otherwise that inadvertently) from doing that act ...

Thus, if a failure to disclose is inadvertent it will not, at least on its own, amount to engaging in conduct: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 42 per Gummow J.  But in a case where silence or a failure to disclose is relied on it is not necessary or relevant to ask whether there is a duty to disclose at common law or in equity.  The question is "whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive": Demagogue at 41 per Gummow J.  In the same case Black CJ, agreeing with Gummow J, expressed (at 32) the same test in slightly different words:

            Silence is to be assessed as a circumstance like any other.  To say this is  certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.  To speak of "mere silence" or of a duty of disclosure can divert attention from that primary question.  Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to
be considered in the context in which it occurs.  That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

The test propounded in Demagogue was endorsed and applied by the Full Court in General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 177, 178 per Davies and Einfield JJ and at 194 per Gummow J.

Certainly Mr Hagan's evidence suggests a belief on his part, during the early months of 1993, that things might improve once the convenience store was completed; certainly also Mr Faulkner's evidence was that the most difficult period for the business commenced well after contracts with Zaknic had been exchanged.  But I think that in the circumstances Zaknic had a reasonable expectation that if Svelte knew of matters suggesting a substantial risk that Zaknic would not, having purchased the property, receive from the lessee the return for which the lease by its terms provided, reflected in the advertisements and in the agent's letter, it would be so informed.  I cannot escape the conclusion that the circumstances I have listed necessarily indicated to Svelte that there was such a substantial risk.  Svelte's failure to disclose cannot (if it matters) reasonably be described as inadvertent.  In the factual context the failure was, I think, conduct which was misleading or deceptive.

Two additional circumstances encourage me the more readily to reach that conclusion.  One arises from the submissions made by Mr Hockey on behalf of Svelte: he referred to the authorities about silence as misleading or deceptive conduct, but only in support of a
proposition that because the rent was indeed brought up to date some few days before contracts were exchanged I should take it that any complaints made by Mr Hagan were mere bluff (and made for the sole purpose of trying to achieve a rent reduction) and that there was no basis on which Svelte should have doubted the capacity or willingness of Crypta to pay the agreed rent.  He did not suggest that I should find that the complaints were not made.  It is sufficient to say that on the evidence I do not think the complaints were mere bluff or that Svelte could have supposed that they were.  Additionally, Mr Hockey submitted that having discovered after exchange of contracts that Crypta was indeed complaining that the business was not producing the expected returns and that it would not be possible to pay rent (I shall have to consider those circumstances in more detail later) Zaknic "had two options: to avoid the contract or proceed with the contract with full knowledge of the difficulties that Crypta Fuels was experiencing in paying rent or in trading, rather".  But whence arose the right to "avoid" the contract, if not from circumstances surrounding or preceding its formation?

The second of the two circumstances arises from the guarantee which Mr Sialepis entered into in favour of Zaknic shortly before Zaknic's purchase was completed.  Certainly the guarantee was prepared by solicitors acting for Zaknic, but handwritten amendments made in the interests of Mr Sialepis indicate that it was a negotiated document.  The first recital to the guarantee reads:

            WHEREAS the Purchaser did on 5th March, 1993 enter into an Agreement with Svelte Corporation Pty. Limited for the purchase of the premises described in the Schedule hereto on the basis of the warranties provided by
Svelte Corporation Pty. Limited and the Guarantor that Crypta was solvent and would not breach the Lease by the non payment of rental.

(f)  Reliance; loss or damage

If Zaknic has suffered loss or damage by the conduct of Svelte which I have held to be misleading or deceptive it may, under s 82 of the Act, recover the amount of the loss or damage from Svelte.  The evidence of both Mr Boris Zaknic and Mr Ivan Zaknic was that Zaknic bought the service station as an investment and that the strength of the lease was critical to their decision.  No evidence was led in contradiction, and although there was some challenge in cross‑examination the challenge in my view was unsuccessful.  I accept the evidence.  I infer, accordingly, that Zaknic would not have entered into the contract if it had been informed that there was a serious risk that it would not receive under the lease the return for which it provided.  It follows equally, I think, that I should not accept the submissions of Mr Hockey based on the proposition that Zaknic need not have completed the contract but could have avoided it.  For one thing, Mr Ivan Zaknic gave evidence, which again I accept, that Svelte was insisting upon its right to have the contract completed and threatened legal action should Zaknic fail to do so.  More significantly, however, I do not think the evidence adds anything as to the circumstances in which the contract was completed which should lead to a conclusion that any loss suffered by Zaknic, having entered into and completed the contract, was not relevantly caused by the misleading conduct by which it was induced to enter into the contract: the case is quite unlike, for instance, Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112.

As Hill J said in Argy at 143:

            The normal measure of damages in a case brought under s 82(1) of the Trade Practices Act as a result of misleading and deceptive conduct constituted by a misrepresentation is, by analogy with the measure of damages applicable in deceit, determined by considering what the prejudice and disadvantage is that has been suffered by the applicant in consequence of his altering his position under the inducement of the misrepresentation: cf Toteff v Antonas (1952) 87 CLR 647.  In mathematical terms it is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it: Gould v Vaggelas (1985) 157 CLR 215.

No complicating circumstance exists here similar to that which was found to exist in Argy.  As will be seen, however, there is a different complicating circumstance.  Subject to that, the measure of Zaknic's loss or damage resulting from Svelte's misleading conduct is the difference between the price paid by Zaknic for the property and its value at the time of purchase.  Zaknic paid $1,100,000 for the service station.  Mr Wyllie, a licensed valuer called as an expert on behalf of Zaknic, gave evidence valuing the service station at the date of purchase at $500,000.  No valuation evidence was called by Svelte.  Mr Wyllie was cross-examined at length, but not so as to induce me to doubt the soundness of his valuation.  I thought he was an impressive witness and it was evident that he had ample experience in the valuation of properties of this kind.  As Mr Harris submitted, Mr Wyllie's evidence received support from the circumstance that a very short time before the sale to Zaknic the property changed hands - and there is no reason to doubt that it did so on an arms' length basis - for a price of $470,000.  Zaknic would ordinarily, therefore, be entitled to judgement against Svelte for $600,000 together with interest from the date of settlement (6 May 1993).  In accordance with the usual practice,
interest should be calculated applying the rates set out in Schedule J to the Supreme Court Rules (NSW).

The complicating circumstance is Zaknic's claim against Crypta.  If Zaknic is successful against Crypta in its claim for damages arising from a repudiatory breach of the lease, and actually recovers those damages, it will apparently have suffered a loss, caused by Sveltes's conduct, which is considerably less than $600,000.  To put it another way, if Zaknic recovers damages from Crypta, having already received $600,000 plus interest from Svelte, it will in effect have realised, on an investment of $500,000, the return over 10 years appropriate to an investment of $1,100,000.  No submissions were made about this, but I propose in the circumstances to give counsel an opportunity to make submissions as to the orders which are appropriate to give effect to my findings.

Finally, I should note that implicit in my findings is a rejection of Mr Hockey's submission that the damages should be reduced to the amount of the deposit paid by Zaknic, on the ground that Zaknic, knowing what it knew on 6 May 1993, was nevertheless anxious to complete and did so, rather than terminate the contract.  There is no evidentiary support for the submission: particularly, the evidence is that though the directors of Zaknic were indeed anxious, the anxiety by no means took the form of a desperate enthusiasm to complete the purchase.

(g)  Representations in connection with sale of land

I have mentioned that Zaknic's claim against Svelte was based not only on s 52 but also on s 53A, particularly para 53A(1)(b).  But in my opinion the conduct which I have found to have been engaged in by Svelte does not include false or misleading representations of any of the particular kinds to which that paragraph refers.  In his submissions Mr Harris, counsel for Zaknic, placed no reliance on s 53A and I think the omission was appropriate.

Zaknic's claims against Mr Sialepis

(a)  Claim under the Trade Practices Act

Zaknic claims that Mr Sialepis is a person who aided or procured, or at least was knowingly concerned in, Svelte's contravention of s 52 and is therefore a person involved in the contravention, so that he has a concurrent liability with Svelte, under s 82, for the loss or damage suffered by Zaknic resulting from Svelte's contravention.  The findings of fact which I have already made coupled with my conclusions as to Svelte's liability inevitably result, in my view, in the success of this claim.  In particular:

(a)        Mr Sialepis was clearly concerned in the placing of the advertisement of 6 February 1993.  The telephone number stated in the advertisement was his and he responded to Mr Boris Zaknic's telephone call.

(b)        It was Mr Sialepis who was told that Zaknic required a copy of the lease in order to make a decision as to the purchase and I infer that it was he who provided the copy or caused it to be provided.

(c)        The discussions between representatives of Svelte and Crypta involved, on the Svelte side, primarily, though not exclusively, Mr Sialepis.  Particularly, the evidence is that though complaints about the performance of the business were made both to Mr Sialepis and to Mr Smiles, principally they were made to Mr Sialepis.

(d)        It is evident that Mr Sialepis knew that up to the beginning of March Crypta was in arrears: it was his invoice which shortly preceded the payment of $30,000.

Additionally, there is the recital, to which I have referred, in Mr Sialepis's guarantee.  Those matters, in my view, provide a clear basis for the conclusion that Mr Sialepis is liable to pay the damages which Zaknic is entitled to recover under s 82 and interest.

(b)  Claim under guarantee

Zaknic claims that by deed dated 6 May 1993 Mr Sialepis guaranteed to Zaknic the obligations of Crypta under the lease of the service station for the period from 6 May 1993 to 6 May 1995.  So much is admitted by Mr Sialepis in his defence.  However, he does not admit Zaknic's claim for compensation under the guarantee in respect of losses
which Zaknic claims to have suffered as a result of the alleged breaches by Crypta of the lease: in other words, Zaknic is put to proof that Mr Sialepis is liable to pay compensation under the guarantee and, if he is, as to the amount which he is obliged to pay.

The deed of guarantee dated 6 May 1993 is in evidence.  There is no need for present purposes to describe the circumstances in which the deed was executed: the guarantee is admitted.  It is necessary, however, to consider some of its provisions.  Clause 1 provides as follows:

            In consideration of these presents the Gurantor [sic] hereby gurantees [sic]  to the Purchaser that Crypta will duly pay the rent reserved in and all other moneys due under the Lease and perform and observe all the obligations on behalf of the Lessee to be performed and observed pursuant to the Lease or by reason of occupation by Crypta of the demised premises.

Clause 2 provides in part:

            Without prejudice to the aforesaid guarantee or to the generality thereof:-

            ...

            (b)        if Crypta as Lessee shall make default in the performance or obligations [sic] of any of the provisions on its part contained in the Lease, the Guarantor covenants with the Purchaser to pay to the Lessor all damages, expenses and costs which the Purchaser shall be entitled to recover by reason of such default and the Purchaser may treat the Guarantor as though he were liable as principal and included in the expression "the Lessee" in the Lease and liable in the first degree jointly and severally with Crypta as Lessee.

Despite some obvious mistakes (eg "obligations" should presumably be "observance" and the word "Lessor" is used where obviously "Purchaser" is intended - that is the term used to refer to Zaknic) the meaning of those provisions is clear enough.

Clause 3 provides, so far as is relevant, as follows:

            The guarantees and covenants on the part of the Guarantor herein contained shall continue for a period of two (2) years from the date hereof whether Crypta or any assignee or transferee or sub-lessee of the Lessee is in occupation of the demised premises or any part thereof and during this period shall not be revocable or discharged by reason of the death or bankruptcy of the Guarantor ...

It is common ground that no rent was ever paid to Zaknic under the lease.  It is also common ground, though I shall have to consider the circumstances in more detail later, that Crypta ceased to have possession under the lease on about 31 August 1993.  Zaknic claims (but Crypta denies) that Crypta repudiated the lease and that Zaknic accepted the repudiation.  Nevertheless, Zaknic claims that it is entitled to a sum of $198,373.87 under the guarantee; that sum is made up of $313,535.16, claimed to be the amount of rent and other moneys (rates and taxes) which would have fallen due under the lease on the assumption that it remained on foot during the period from 1 June 1993 to 6 May 1995, less $115,161.29 which is, apparently, the amount received from Ryledar in respect of its occupation of the premises during the same period.

Mr Sialepis was not represented before me and no argument was directed to this aspect of the matter.  But, in my view, the problem with the claim as Zaknic has quantified it is
that it assumes a construction of the guarantee to the effect that Mr Sialepis promises, whether the lease remains on foot or not, to pay to Zaknic the amount by which what would have fallen due from the Lessee during the 2 year period should exceed actual receipts in respect of that period.

I do not think, however, that that is what the guarantee says.  Clause 1 imposes, in conventional terms, the ordinary accessory liability of a guarantor: to the extent that moneys fall due for payment under the lease and the lessee fails to pay them, the guarantor agrees that he will do so.  In other words, the guarantor's liability is coextensive with that part of the principal liability as to which there is a default: it goes no further.  If Zaknic is right in saying that the lease was repudiated and the repudiation was accepted, then the lease came to an end.  No doubt Clause 1 of the guarantee would, in those circumstances, remain as a source of liability for the guarantor to pay amounts which had already fallen due under the lease (but had not been paid) at the time the repudiation was accepted.  Clause 2(b), however, clearly enough gives Zaknic the right to recover from Mr Sialepis as guarantor "all damages, expenses and costs" which Zaknic is entitled to recover from Crypta by reason of any default made by Crypta in the performance of its obligations under the lease.  In my view, that language is wide enough to cover damages payable upon acceptance of a repudiation.  Thus, apart from whatever effect Clause 3 may have, to the extent that Crypta is liable under the lease or for damages resulting from acceptance of its repudiation, Mr Sialepis is liable as well.

The question then is, what is the meaning of the relevant part of Clause 3?  That clause simply says that the guarantees and covenants on the part of Mr Sialepis "shall continue for a period of two (2) years from the date hereof".  I think those words should be taken to mean that the guarantor is liable in respect of a debt, the payment of which it guarantees or which it covenants to pay, which, in either case, fell due within the period of two years from the date of the guarantee.  Anticipating what I shall say about Crypta's liability, what fell due within the period of two years was a greater sum than that which Zaknic claims against Mr Sialepis.

It follows that Zaknic is entitled under this head at least to the amount of the damages it claims against Mr Sialepis.

Zaknic's claim against Crypta

This claim is in essence very simple.  It is that upon completion of its purchase of the service station, Zaknic became entitled to the benefit of the lease; that Crypta repudiated the lease by refusing to pay any rent; and that Zaknic accepted the repudiation and is entitled to damages accordingly.

Crypta relies on a number of defences to that claim.  It does not deny that it entered into the lease (although it does not admit the date of execution of the lease, an issue of no present importance).  Crypta denies the pleaded "assignment" of the lease to Zaknic but on the evidence the purchase was settled in the usual way and the appropriate notices
were given so that (assuming the validity of the lease at the time of settlement) there is no substance in that defence.  There are, however, a number of additional defences, which may be summarised as follows:

(a)        By reason of the matters claimed against Svelte in the Crypta proceedings, the lease was void ab initio or, alternatively, the lease is unenforceable at the suit of Zaknic.

(b)        Zaknic is estopped from denying that it would not seek to recover the amount, or the full amount, of rent owing under the lease or, alternatively, waived its right to payment of moneys owing under the lease.

(c)        If Crypta failed to make payments due under the lease then it did so by and with the leave and licence of Zaknic.

(d)        There was a "mutual abandonment" of the lease, rather than a repudiation.

(e)        Zaknic engaged in misleading or deceptive conduct and by reason of that is not entitled to maintain an action against Crypta; alternatively, that conduct gives rise to an equitable estoppel so that Zaknic is not entitled to rely upon its strict legal rights.

The first of those defences apparently relies on s 87 of the Act and is based on the proposition that the Court would, on the application of Crypta, declare the lease to be void as a result of the misleading conduct in which, Crypta alleges, Svelte engaged.  The alternative defence that the lease is unenforceable by Zaknic presumably relies on the proposition either that the Court would make an order of a kind referred to in  subs 87(2) or that the lease is voidable, not merely against Svelte but against Zaknic as well.  I think it is convenient to deal with that defence after considering the others, and to deal with the others it is necessary to turn to the evidence.

Although there is some confusion about precise dates, particularly in the period before Zaknic's purchase was settled, there is no significant conflict between the various accounts of the circumstances relevant to the issues between Zaknic and Crypta.  There was no communication between those parties before contracts between Svelte and Zaknic were exchanged.  At some time after exchange of contracts, Mr Ivan Zaknic asked Mr Faulkner how the business was going and Mr Faulkner told Mr Zaknic that he should direct his enquires to Mr Hagan.  Both Mr Zaknic and Mr Faulkner gave evidence of that.  Both Mr Zaknic and Mr Hagan gave evidence of a number of conversations - perhaps up to six - which took place between them before settlement.  It may be, but I think it does not matter, that in at least one of those conversations Mr Mitchell was a participant.  Mr Zaknic agreed that Mr Hagan said to him words to the effect of the following, as it appears in Mr Hagan's affidavit evidence:

            We could never stay in the premises under the present rent.  We are having trouble making ends meet.  The sales are nowhere near what they're
supposed to be.  Ampol doesn't regularly give us the rebate, which it's supposed to be giving us either.  Ampol gives it one day and cuts it out the next.  We need to have the rent reduced considerably if we're to stay.

Mr Zaknic also agreed that Mr Hagan had complained to him that in Mr Hagan's view misrepresentations as to the business had been made to Crypta by Svelte.  Indeed, Mr Zaknic's evidence was that during his first conversation with Mr Hagan, Mr Hagan said:

            We are losing money like you wouldn't believe at the service station.  We just got the accountant's figures and something has to happen, we have to renegotiate the rent.  I've been trying to talk to Harry but I can't contact him.  The business is not bringing in the money that Harry said it did.

Mr Zaknic said also that he spoke to Mr Sialepis and mentioned Mr Hagan's complaints:  Mr Sialepis's response was that Crypta's troubles, if they existed, were due to their own incompetence and he added:

            Don't worry, the lease is foolproof and Hagan is paying the rent anyway.  He is just trying to put pressure on you to lower the rent.

Mr Sialepis added, according to Mr Zaknic: "You can't do anything, you've exchanged contracts.  Your solicitor should explain to you what it means when you exchange contracts".  Mr Zaknic says, and Mr Hagan agrees, that Mr Zaknic asked Mr Hagan to put his complaints in writing (and Mr Zaknic says that he told Mr Sialepis that he had made that request).  Again, Mr Zaknic says, and Mr Hagan agrees, that although the
request that the complaints be reduced to writing was repeated (including once by Zaknic's solicitor) this was not done.  Mr Hagan conceded that he had received advice from a lawyer in Brisbane to the effect that one option available to Crypta was to terminate the lease, that he had decided at that stage not to pursue that option and that he wished to keep his options open.  Indeed, though Mr Zaknic did not know this, shortly before settlement of Zaknic's purchase Crypta's Queensland lawyers wrote to Svelte's solicitor requesting a reduction in  the rent payable under the lease.

Mr Zaknic's evidence was then that shortly before settlement he had a further conversation with Mr Sialepis in which he repeated his concerns about what he had heard from Mr Hagan; and that Mr Sialepis repeated in substance his previous assurances and threats but agreed to guarantee for a period of two years the lessee's obligations under the lease (and, of course, just before settlement Mr Sialepis did in fact provide such a guarantee).

Mr Zaknic gave evidence that he was advised by Zaknic's solicitor that Zaknic was obliged to complete the contract for purchase.  Zaknic completed it.

The evidence, particularly that of Mr Faulkner, is that after completion the service station business went from bad to worse.  Crypta did not pay rent or any other money falling due under the lease.  Further conversations took place between Mr Zaknic and Mr Hagan.  According to Mr Zaknic, Mr Hagan repeatedly said "I'm not making any money, I can't
pay you any rent" or words to that effect.  Mr Zaknic gave the following evidence in cross-examination:

            When Mr Hagan said to you: if you cannot organise a rent reduction I will have to walk away - do you recall that being put by my friend? --- I can't recall Mr Hagan saying "walk away".  I can recall Harry saying "walk" but not Mr Hagan.  Not his words, I don't believe.

            My question is this: when Crypta ceased paying you rent, did you ever contemplate offering Crypta Fuels a rent reduction? --- Yes.

            Did you actually offer a rent reduction? --- I pleaded with Mr Hagan to pay me some money.  Some - not the full amount.  I said: pay me some money - because I did not believe that the place was running at a loss, even after the rent wasn't paid.

(I should mention, though I do not think it matters, that in earlier cross-examination Mr Zaknic gave somewhat equivocal evidence as to whether Mr Hagan, before settlement, had threatened to "walk away" if there was no reduction in the rent).  I have referred to the letter from Crypta's Queensland lawyers to Svelte's solicitor, shortly before settlement, proposing a rent reduction.  The reduced rent suggested was $8,500 per month.  Mr Hagan in cross‑examination gave the following evidence:

            Now, why was it that you did not pay to Zaknic Pty Limited $8500 per month? --- Because we couldn't afford to do it.

            But you had offered to do that through your solicitor on 5 May 1993? --- Yes.

            But in fact you paid no money at all in the next three months? --- That's correct.

            And Mr Ivan Zaknic had said to you on at least one occasion, "Look, if you can't pay the $12,500 per month, at least pay something"? --- That's correct.

            You did not pay any rent at all because you say the company was not trading sufficiently profitably to be able to pay rent; is that right? --- That is correct.

            Yet, you did not terminate the agreement; correct? --- How could I do that?

Mr Faulkner gave evidence (which, like the evidence I have so far recounted, I accept) that in August 1993 he had discussions with both Mr Ivan Zaknic and Mr Boris Zaknic.  His evidence, in relation to an entry in his diary for 17 August 1993, was:

            Does that indicate that you had some discussion with Ivan in which there was some negotiation about the possible future rent? --- Yes.  Yes, and spoke to Ivan - a minimum of $6000 is 12 months and then 7000 plus CPI increase.  Boris will be down Thursday, that would have been a discussion that took place, yes.

            All right.  And then if you look at Thursday, the 19th? --- Mm.

            The last entry there concerns Boris? --- Mm.

            And there are some more figures there? --- That's right.

            Now, is that what you were offering to pay or was it what he was suggesting that you ought to pay? --- It looks as though that's what Boris was actually offering.  The bottom line, 6250 for 6 months and then 7000 plus CPI, or 5 percent ...

Meantime, in July 1993, Zaknic advertised the service station for sale or lease.  Mr Ivan Zaknic's evidence was that the advertisement resulted in about 10 enquiries; that 3 or 4  people "turned up"; only one was interested on the basis of a rental of $6,250 per month, but that enquirer was not an experienced service station operator and required provisions
in a lease which Zaknic was not prepared to accept.  Shortly after that, Zaknic arranged that Ryledar would take possession of the service station and would pay a monthly rent of $6,000; no lease, however, was executed and, at the time of the hearing, Zaknic and Ryledar had not fully agreed on the terms of a lease.  Having made that arrangement with Ryledar, Zaknic, relying on Crypta's failure to pay rent, gave Crypta notice of re-entry and termination of the lease to take effect on 31 August 1993.  Crypta went out of possession on that day.

Crypta says, on that evidence, that Zaknic is estopped from denying that it would not seek to recover the amount, or the full amount, of the rent or that it waived its right to recover it.  I do not think there is any basis for such a conclusion.  It is plain enough that after settlement, though not before, Zaknic made it perfectly clear that it was prepared to enter into negotiations for a reduced rent and, meantime, would (not surprisingly) prefer to be paid something than to be paid nothing.  But all overtures from Zaknic were met either by a refusal to pay anything (in the form of a statement that Crypta could pay nothing) or, so far as the evidence goes, no response at all other than a failure to make any payment.  That does not indicate a waiver, nor does it provide a foundation for an estoppel.  Mr Levitt (the solicitor for Crypta and Mr Hagan, who appeared for them during the later part of the hearing) in final submissions placed considerable reliance on Legione v Hateley (1983) 152 CLR 406: but it is to be recalled that in that case the purchaser, though succeeding on other grounds, failed in a claim that the vendors were estopped from enforcing their legal right to treat the contract as at an end.  It is clear from the judgements in that case that if a representation is to give rise to an estoppel it
must be reasonably clear and precise: see especially per Mason and Deane JJ at 436, 437.  Nothing said here on behalf of Zaknic, in my view, comes close to satisfying that requirement.

The same conclusion, I think, is required in relation to the defence that the failure to pay was with the "leave and licence" of Zaknic.  I must say that it is not entirely clear to me what legal principle, apart from estoppel, that defence is intended to invoke.  In any event, I do not think there is any support in the evidence for a conclusion that Zaknic in some way granted permission to Crypta to refrain from paying moneys owing under the lease.  In fact, in the circumstances, the suggestion borders on the absurd.

There is then the defence that Zaknic represented to Crypta that "if it stayed on and did not avoid or terminate the lease by reason of Svelte's conduct and/or implied repudiation of the lease, being conduct which Zaknic well knew to have taken place, [Zaknic] engaged in misleading or deceptive conduct" and therefore is not entitled to enforce, or is estopped from relying on, its strict legal rights.  The sentence is not completed by saying what was supposed to happen if Crypta "stayed on" etc.  However, the defence is to be dealt with, I think, simply by saying that there is no evidence of any such representation.

Finally, there is the defence that the lease would be declared void as against Svelte by reason of misleading or deceptive conduct alleged by Crypta against Svelte and would be declared void also against Zaknic or would not be enforceable by Zaknic.  I have formed no view about the likelihood or otherwise that Crypta will succeed in its claims against Svelte.  For the purpose of considering this defence I shall assume that Crypta is entitled to succeed and that if Svelte had not sold the service station the lease would have been declared void.  But clearly Zaknic was not concerned in any conduct on the part of Svelte or those connected with it.  Before exchange of contracts, it had no knowledge of the conduct alleged.  Certainly after exchange Mr Ivan Zaknic heard from Mr Hagan of the allegations which Crypta made against Svelte, of the difficulties Crypta was experiencing and of its stated inability to pay the full rent.  On the other hand, Mr Sialepis was telling Mr Zaknic a rather different story and Mr Hagan both did not respond to repeated requests to put his complaints in writing (a course which might have assisted Zaknic in avoiding the contract for purchase) and decided not, at least at that time, to exercise any right that Crypta might have had to terminate or avoid the lease.  In those circumstances, equity would not in my view avoid the lease as against Zaknic or by any other means deprive Zaknic of its entitlement to enforce it.  The remedies available under s 87 of the Act are discretionary, and in the circumstances as I have described them I can see no basis on which the Court would declare the lease to be void as against Zaknic.  Accordingly, that defence fails also.

In the circumstances, I think it is clear Crypta repudiated the lease.  Mr Hagan made it plain that rent would not be paid.  No payments where in fact made.  There was no response to Zaknic's request for some payment or suggestions that matters be negotiated.  I find that Crypta repudiated the lease and that Zaknic accepted the repudiation by terminating the lease and is entitled to damages for breach on that basis.  That is so despite the fact that the lease was terminated in accordance with a provision for
termination in various events, not all of which are repudiatory breaches; what matters is that the occasion of the use of the right to terminate was in fact a repudiation: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17.  I should add that the same evidence which leads to a finding of repudiation necessarily excludes a finding of "mutual abandonment".

Subject to questions of mitigation, the damages to which Zaknic is entitled are measured by reference to the present value of the amounts which would have fallen due under the lease but for the acceptance of Crypta's repudiation plus, of course, the amount due at the time the repudiation was accepted.  As for mitigation, I have already referred to the evidence of Zaknic's attempts to relet the service station and the arrangements made, as from 1 September 1993, with Ryledar.  I have considered the evidence given by Mr Ivan Zaknic and Mr Boris Zaknic as to those matters and also the evidence of Mr Magar who controls Ryledar.  I take into account the curious coincidence that a lease signed by Ryledar was received by Zaknic at the commencement of the hearing (though in terms which Zaknic was not prepared to accept).  I see no basis for a finding that the arrangements between Zaknic and Ryledar are not at arm's length or are in any other respect other than they appear.  Nor do I think there is any basis in the evidence for suggesting that Zaknic did not act properly to mitigate its loss.  In the end, no submissions to the contrary were made to me.

On that footing, an actuarial calculation of the loss resulting from Crypta's repudiatory breach was made by Ms Sally Grummitt, an actuary employed by Towers Perrin, called
on behalf of Zaknic.  There was no evidence contrary to hers; her evidence was not significantly or successfully challenged in cross-examination; it was not ultimately suggested that I should not accept it; and I do accept it.  The result is that in accordance with Ms Grummitt's calculation the damages to which Zaknic is entitled as against Crypta are $635,832, together with interest calculated in accordance with the rates specified in Schedule J to the Supreme Court Rules (NSW).

Zaknic's claim against Mr Hagan

(a)  Claim and defence

This claim arises under what purports to be a deed of guarantee by Mr Hagan of the obligations of Crypta under the lease, two apparently signed copies of which are in evidence.  Zaknic says that Mr Hagan is liable under that document for the damages recoverable from Crypta resulting from its repudiation of the lease.  Zaknic pleads that it obtained the benefit of the guarantee by way of assignment.  That is denied by Mr Hagan and certainly, unless what happened on settlement of the purchase can be construed as incorporating an equitable assignment of the benefit of the guarantee, there is no evidence that there was a transaction by which the benefit of the guarantee was assigned by Svelte to Zaknic.  I shall, however, defer discussion of any difficulties to which that may give rise.

Mr Hagan's principal defence is non est factum; that is, he says that he did not intend to, and did not, sign a document the effect of which was to guarantee the obligations of Crypta under the lease.  He also says that if he signed such a document he did not do so negligently; that if he would otherwise have been liable under the guarantee he is discharged by reason of conduct which he attributes to Zaknic; and, as with the lease, that as a result of representations on behalf of Zaknic an estoppel arises preventing it from claiming against Mr Hagan under the guarantee.

(b)  The documents in evidence

The principal defence, and the one which gives rise to the greatest difficulty in this case, is non est factum.  A conclusion on that defence requires a detailed consideration of the evidence.  The documents are perhaps the appropriate starting point.  There are in evidence two signed (a word which I use simply in the sense of "bearing signatures") original documents, each to all intents and purposes identical with the other.  Each is expressed to be a "Deed of Guarantee re: Lease from Svelte Corporation Pty Ltd to Crypta Pty Limited" between Svelte and "Bob Hagan".  Each bears the date 18 December 1992.  In the documents Svelte is described as "Lessor" and "Bob Hagan" as "the Guarantor".  Crypta is described as "the Lessee" and the lease of the service station, between Svelte and Crypta, is described as "the Lease".  The "Guarantor" is identified in the first schedule, and one of the curious features of each document is that whereas the rest of the document (other than the date attributed to the document itself and to the lease) is typewritten, the identification of the "Guarantor" in the first schedule takes the form of
what looks like a signature "RJ Hagan" followed by "Bob Hagan" printed by hand.  Similarly, where the document is executed by the Guarantor on the last page it is expressed to be "signed sealed and delivered by the said Bob Hagan as Guarantor", "Bob Hagan" being again printed by hand.  Each document appears to have been executed on the last page by Svelte under its common seal, the affixing of the seal being attested by the signatures of a director (Mr Sialepis) and a secretary (Mr Smiles).  There is no issue as to the execution of the documents by Svelte.  Each document appears on its last page to have been executed by "RJ Hagan" whose signature appears to have been witnessed.  There is no evidence as to the identity of the witness.  It will be recalled that the preceding page bears what appears to be the signature "RJ Hagan" where the Guarantor is intended to be identified.  At the foot of that page there are also, in one of the documents, what purport to be three sets of initials and, in the other, two.  On each of the two preceding pages of each copy of the document there are, at the foot, what appear to be three sets of initials.

The first three clauses of the document are important, and I shall set them out in full:

            1.         In consideration of the Lessor granting at the request of the Guarantor to the Lessee the Lease, the Guarantor hereby guarantees to the Lessor that the Lease [sic] will duly pay the rent reserved in and all other moneys due under the lease and perform and observe all the obligations on behalf of the Lessee to to [sic] be performed and observed pursuant to the Lease or by reason of occupation by the Lessee of the demised premises.

            2.         Without prejudice to the aforesaid guarantee or to the generality thereof:-

                        (a)        if there shall be any default by the Lessee in the payment of the rent reserved by the Lease for a period of fourteen (14) days the Guarantor covenants with the Lessor that upon a request being made by the Lessor or by the Lessor's Solicitors, the Guarantor will pay promptly to the Lessor the rent which shall be so in arrears and the Lessor may after default as aforesaid treat the Guarantor as though he were liable as principal and included in the expression "the Lessee" in the Lease and liable in the first degree jointly and severally with the Lessee;

                        (b)        if the Lessee shall make default in the performance or obligations of any of the provisions on its part contained in the Lease, the Guarantor covenants with the Lessor to pay to the Lessor all damages, expenses and costs which the Lessor shall be entitled to recover by reason of such default and the Lessor may treat the Guarantor as though he were liable as principal and included in the expression "the Lessee" in the Lease and liable in the first degree jointly and severally with the Lessee.

            3.         The guarantees and covenants on the part of the Guarantor herein contained shall continue for the term of the Lease and the further term and also continue as long as the Lessee or any assignee or transferee or sub-lessee of the Lessee is in occupation of the demised premises or any part thereof and during these periods shall not be revocable or discharged by reason of the death or bankruptcy of the Guarantor or by termination of the Lease or by the Lessor granting time or indulgence to the Lessee or any assignee or transferee of the Lease and shall be unaffected by any admission, delay or mistake on the part of the Lessee and shall enure to the benefit of any assignee or principal of the Lessor of its interest in the Lease of the demised premises.

(c)  Signatures, initials and completion of names and dates

Mr Hagan denies in his defence, and denied in evidence, guaranteeing Crypta's obligations under the lease.  I shall have to consider aspects of Mr Hagan's evidence in
more detail.  For the present, however, it is sufficient to say that he does not deny that the signature on the last page of each of the documents, where it purports to be executed by the Guarantor, is his.  He denies that the signature in the first schedule, on the immediately preceding page of each document, is his and he denies also that initials purporting to be his, on that and each preceding page of each of the documents, were placed there by him. In those denials Mr Hagan is supported by the expert evidence of a forensic document examiner, Dr Steven James Strach, called on his behalf.  Dr Strach gave affidavit evidence and also detailed oral evidence in chief; he was cross-examined at some length.  No expert evidence was called by any of the other parties, and in the end I do not think Dr Strach's evidence was seriously disputed.  Again, I thought he was an impressive witness and I have no hesitation in accepting his evidence.  That being so, it is sufficient to state its effect summarily.  Dr Strach had been provided with a number of specimen signature of Mr Hagan, all admittedly genuine signatures.  He concluded that the signature "RJ Hagan" on the last page of each original document, where it purports to be executed by the Guarantor, was written by the person who wrote the specimen signatures. In relation to one of the two documents, he added "in other words, there is no doubt in my mind that this is a genuine signature of Mr Hagan".  However, in relation to the signature in the first schedule to each document, Dr Strach's conclusion was quite different.  Referring to one of the documents, exhibit A2, he expressed it this way:

            My conclusion with regard to that signature on comparing it with all the specimens was that there was no evidence that it was written by the writer of the specimen signatures which I examined in the name of R.J. Hagan.  I further concluded that I considered it unlikely or improbable that Mr Hagan could have written it in such a different style and the third conclusion with
regard to that signature was that it was written as a simulation of the genuine signature of Mr Hagan.

In relation to the other document, exhibit C4, he expressed the conclusion as follows:

            The signature on page 3 at bottom left, signature which reads R.J. Hagan, on comparing those with the specimens I have described many, many differences and my conclusion with that was that there was no evidence it was written by R.J. Hagan - or by the writer of the specimens [who] I was told was R.J. Hagan.  I further concluded that it was unlikely that the writer of the specimen signatures would have written this signature in such a different style and thirdly, I concluded that this signature was written as a simulation of the genuine R.J. Hagan signature.

Similarly, Dr Strach concluded that initials at the foot of each of the first three pages of each document, purportedly those of Mr Hagan, were not his.  Accepting Dr Strach's evidence as I do, and bearing in mind that it is consistent with Mr Hagan's own evidence, I have no hesitation in finding that the signature of "RJ Hagan" on the last page of each document is a genuine signature of Mr Hagan; that is, that Mr Hagan signed in the place appropriate for execution by the Guarantor.  I find also, however, that Mr Hagan did not place his initials at the foot of the preceding pages and did not write the signature in the first schedule of each document which purports to be his.  Plainly, someone else wrote those signatures and initials: and, particularly in the case of the signatures, in a way intended to simulate Mr Hagan's genuine signature.  There is no evidence which enables me to make a finding as to who wrote the signatures and initials, or when or in what circumstances they were written, beyond the obvious inference that they were written after Mr Hagan signed the last page; or, as I should perhaps express it at this stage, after Mr Hagan signed what now appears as the last page of each of the documents.

Before considering, so far as I can on the evidence before me, the history of the document from its creation to the time when it came into the hands of Zaknic (I think I can now for convenience speak simply of one document, though there are of course two signed copies) it is convenient to refer to one other aspect of the way in which it was completed.  Mr Hagan in his evidence was adamant that he did not see the words "Bob Hagan" printed as they now appear in the document.  Mr Milios, who as I have said acted for Svelte (and, Crypta says, acted also for Crypta though this is controversial), gave evidence that he wrote the words "Bob Hagan" where they appear in printing on each of the last two pages of the document, after the document had been signed.  I accept that evidence, and also Mr Milios's evidence that it was he who wrote the date "18 December 1992" as the date of both the guarantee and the lease.  Whether or not he wrote the dates during a visit to the Stamp Duties Office, as he claimed, does not in the end matter: I should record, however, that I see no reason not to accept his evidence as to that also.  Finally, Mr Milios gave evidence that he had the name "Bob Hagan" typed on the cover sheet of the document when it was returned to him after being signed.

Thus, I find that the name "Bob Hagan" did not appear when Mr Hagan signed the last page but was added, after he had done so, by or at the direction of Mr Milios in each of the three places where that name now appears.  If it matters, it is evident from the way in which the first schedule has been completed, and I find, that the simulated signature "RJ Hagan" was written there before Mr Milios printed the words "Bob Hagan".

(d)  Provenance and history of the guarantee

The lease was prepared by Mr Milios.  His evidence was that he prepared the guarantee as well.  There is evidence that by 9 October 1992 Mr Milios had already prepared a draft lease.  The form of lease which he used incorporates provision for a guarantee: that is, there is provision for a party, to be named in a schedule to the lease, to be joined in the lease as a guarantor of the obligations of the lessee under it; there is provision for execution of the lease by such a guarantor; and the lease document incorporates provisions of a familiar kind intended to protect the lessor in relation to various legal and equitable rules which might otherwise operate for the benefit of the guarantor.  The draft lease which Mr Milios prepared had typed in the schedule, where the guarantor is to be identified, "n/a": intended to indicate, possibly, that there was not to be a guarantor.  The final version of the document omitted "n/a": the relevant item in the schedule was left blank.  Mr Milios gave evidence that he handed Mr Mitchell, on Mr Mitchell's first visit to Sydney on 12 October 1992, copies of the lease and guarantee.  Mr Mitchell denies that he was given any documents on that occasion other than some "figures"; it is unnecessary, I think, to resolve that conflict of evidence.  Mr Milios then says that on 13 October he faxed to Crypta care of a firm of Queensland solicitors, Melville McGregor, a letter, a copy of the lease, a copy of the guarantee and a memorandum of Mr Milios's costs and disbursements incurred in acting for Svelte as lessor; and he says that the letter was posted to Crypta care of Melville McGregor the same day.  The correspondence supports Mr Milios's evidence that at least the letter and the memorandum of costs and disbursements were faxed and posted; the letter itself, however, notes that items one and two, that is the lease in duplicate and the guarantee in duplicate, were handed to Mr Mitchell on 12 October.  It may be that, on the footing that they had already been handed to Mr Mitchell, they where not in fact enclosed with the letter; such an inference may perhaps be supported by Mr Milios's further evidence that at his first meeting with Mr Hagan, having been told that the documents previously handed to Mr Mitchell had not reached their destination, he handed to Mr Hagan further copies of the lease and guarantee.  Mr Hagan's evidence was that he did not recall being handed the documents.  As with much else in this case, exactly what happened is somewhat obscure but I do not think it greatly matters.  The letter and memorandum of costs undoubtedly reached Melville McGregor; the lease reached Brisbane and on the evidence was signed there; and, as will be seen, I think it should be inferred that the guarantee reached Brisbane and was signed there also.

A good deal of time was devoted during the hearing to the role of Melville McGregor in the transaction.  The evidence of Messrs Hagan and Mitchell was that because the transaction was principally a New South Wales one, and involved a lease of New South Wales land, they instructed Mr Milios (who of course was in any event acting for Svelte) to act for Crypta as well.  Mr Milios denies that and says that he dealt with Melville McGregor on the footing that they were acting for Crypta.  There is in evidence a later letter from Melville McGregor in which they assert that they did not act in the matter except in a limited role, as agents for Mr Milios, in relation to the transfer to Svelte of the two parcels of Queensland land which, it will be recalled, formed part of the purchase price of the service station business.

It was put to me forcefully on behalf of Crypta that I should regard Mr Milios as an unreliable witness and that I should not accept his evidence.  Three elements, particularly, in his evidence were emphasised as indicating unreliability.  The first was his evidence that the "reduction", to $470,000, of the purchase price paid by Svelte for the service station was indeed a reduction in consideration of prompt settlement.  Mr Milios insisted in evidence that that was so, in his understanding, and rejected, particularly, a suggestion that the contract was drawn showing a price of $670,000 for the purpose of deceiving financiers into a belief that that was the true price.  As I have said, I regard with great scepticism the theory that the real price was $670,000 but that it was reduced by almost a third for prompt settlement in circumstances where settlement took place almost three weeks after the date fixed by the contract, time being expressed to be of the essence.  Mr Milios's insistence on the theory in the face of what seems to me its obvious improbability is surprising and does require his evidence to be treated with some caution.

The second matter referred to on behalf of Svelte was Mr Milios's evidence as to the way in which he arranged the assessment and payment of stamp duty on the lease and guarantee and the dating of those documents.  I do not think I need spend any time on that: the procedure adopted was in some respects a little odd and demonstrates a somewhat relaxed attitude by Mr Milios to the significance of what is stated in a document to be its date or, more particularly, the date of its execution.  I am inclined, however, to accept what Mr Milios said on that subject.

The third matter arose out of cross-examination of Mr Milios by Mr Thomas in relation to what must again be regarded as the somewhat cavalier way in which documents were completed relating to the transfer of the Queensland land.  I do not intend, by the use of the word "cavalier", to gloss over this: the way in which the documents apparently were completed certainly appears to exhibit a lack of understanding of the importance of completing such documents accurately so as to inform the relevant public authorities correctly as to the true character of a transaction.

In the light of those matters, the evidence must be approached with caution.  I am not prepared, however, simply to reject the evidence of Mr Milios that he was not acting for Crypta and to accept that of Messrs Mitchell and Hagan that Melville McGregor, and in particular Mr Melville, a partner of that firm, had no substantial role in the transaction beyond that of an agent in relation to the Queensland land.  I think the evidence is clear that Mr Melville had a role substantially greater than that which the evidence of Messrs Hagan and Mitchell would allow him.  It is apparent from their evidence that Mr Melville was a solicitor whom Mr Mitchell and Mr Hagan consulted frequently about a variety of matters and was a trusted adviser of each of them.  Mr Mitchell gave evidence that he went to see Mr Melville "probably three times, four times a week" about various matters. The diary of Mr Nelson (the business broker who introduced Mr Mitchell to Mr Sialepis, to whom I have referred earlier) for the relevant period is in evidence.  It refers to a series of discussions with Mr Mitchell and, apparently, Mr Melville during the period 19 to 27 October which suggest that Mr Melville had, during that period, a continuing involvement in discussions concerning the lease of the service station (as Mr Levitt
pointed out, while the diary entries contain numerous references to the lease they do not mention a guarantee).  Mr Mitchell himself gave evidence of two meetings which he and Mr Hagan had with Mr Melville concerning the transaction.

Mr Hagan, as I have mentioned, gave evidence that he did not recall collecting the guarantee and lease from Mr Milios.  His evidence (during cross-examination by Mr Harris) continued:

            Mr Hagan, you will see there where Mr Milios advises your solicitor that you collected the guarantee and the lease from him to take to your solicitor for advice? --- I don't recall that.

            You do not recall that happening? --- No.

            But you cannot say that it did not? --- I think it was sent to him by the post actually to Melville McGregor.

            You cannot recall it happening but you cannot say that it did not happen?  --- No, not positively, no.  I never saw a deed of guarantee that's for sure but the lease was either in preparation stage or whatever but I know it was sent to Melville McGregors.

            Well, it was delivered to them by you having been collected from Mr Milios' office on 13 October? --- I don't recall that.

            And the deed of guarantee was with it and was collected by you on 13 October and taken to Mr McGregor? --- Well, I don't recall doing it.

Although Mr Hagan denied that he had ever seen a deed of guarantee, he accepted that he saw Mr Milios's account which accompanied the letter of 13 October, that the account explicitly included an amount relating to the preparation of a deed of guarantee and that he signed a cheque drawn on an account of a company called Cableriver Pty Limited in payment of that account (in a reduced amount, apparently negotiated with Mr Milios by Mr Mitchell or Mr Melville).  He said that this happened in Mr Melville's office and that he believed that the cheque had been written out by a member of Mr Melville's staff.  Mr Hagan was cross-examined on two separate occasions as to the circumstances in which the lease was executed.  On the first occasion he gave evidence that the lease must have been executed in Brisbane because it was signed by his wife and his wife had not, during the relevant period, travelled to Sydney.  On the second occasion he confirmed that evidence and said "I now feel that it was in Melville's office and he's sent it to Sydney or it was given to Mitchell and he brought it to Sydney".  He also gave evidence as to his reliance on his solicitor (meaning, plainly, Mr Melville) to advise him that documents presented to him for his signature were in order.  I find that the lease was indeed executed in Mr Melville's office.  Given that Mr Hagan signed the last page of each copy of the deed of guarantee, and given the evidence as to the history (up to this point) of the documents, I am satisfied that Mr Hagan signed those pages also, at the same time, in Mr Melville's office.  As counsel for Zaknic pointed out, the signature of the witness to Mr Hagan's signature on the last page of each copy of the guarantee appears to be the same as the signature of a witness (perhaps superfluous) appearing on the lease.

The evidence to which I have referred makes the findings inevitable, I think, that Mr Melville was quite closely involved in discussions about the lease transaction and with the execution of the documents; they were executed in his office; and, by one means or another, they were dispatched from his office.  It will be recalled also that the letter
written to Crypta on behalf of Svelte, demanding payment of sums due under the lease, was sent to Mr Melville's office; and the letter to Svelte proposing a reduced rent was written by Mr Melville's firm.  Clearly, whatever the precise role (if any) Mr Milios may have played on behalf of Crypta, Mr Melville was more than a mere agent or "post box".

Despite his involvement with the events surrounding the execution of the documents, Mr Melville was not called.  It is, of course, perfectly true, as Mr Levitt submitted, that the Jones v Dunkel principle does not provide a basis for an inference where no other basis for it exists.  However, I think the evidence to which I have referred provides a basis for inferring that Mr Hagan's signature on the last page of each copy of the deed of guarantee was placed there in Mr Melville's office and, that being so, I can and do infer that Mr Melville's evidence would not have assisted Mr Hagan's case in relation to the execution of the guarantee.

The evidence of Mr Milios is then that both copies of the lease and both copies of the guarantee, signed by "Crypta", were returned to him either by Mr Sialepis or by Mr Smiles: how they may have reached the hands of Mr Sialepis or Mr Smiles does not appear.  He says that he then sent them to Mr Smiles's office for execution by Svelte.  There is in evidence an undated handwritten note on Mr Milios's letterhead which reads:

            Attn: Jim

            Leases and deed of guarantees for execution by the company.

            Nick.

There is a notation at the bottom of the note - "4.11.92 - stamped & sign JSS & HS" - in handwriting which Mr Milios said that he did not recognise.  In any case, it is clear from Mr Milios's evidence that the documents - lease and guarantee - came back to him executed by Svelte and that he proceeded to arrange for them to be stamped.

Mr Smiles's evidence adds little to the story.  He says that when he signed the lease he saw the deed of guarantee signed by Mr Hagan; he says that at the time it was "attached" to the lease.  He also accepted that he may have visited Mr Milios's office, with Mr Sialepis, on or shortly before 6 May 1993 in order to "check" the lease and so that they might satisfy themselves that Mr Hagan had indeed executed a deed of guarantee.

Mr Milios gave evidence that on the completion of the sale to Zaknic (on which also he acted for Svelte) the guarantee was, as would be expected, handed over with the lease and other documents.  I have no difficulty in accepting that evidence of Mr Milios: it is supported by evidence of the Zaknic brothers, to which I shall refer.

Mr Ivan Zaknic said that the documents received from Mr Sialepis before exchange of contracts included what he described as a "pamphlet" comprising "just a few pages stapled together".  He said that it was among the documents sent by Zaknic to its solicitor Mr Harper, and that at a meeting shortly afterwards Mr Harper described the "pamphlet" as "a deed of guarantee" or "personal guarantee".  He gave evidence also that that same document was among those submitted to Zaknic's bank before exchange for the purpose of obtaining approval for a loan to assist with the purchase.  There is in evidence a letter
from the bank indicating that that approval was given shortly before exchange.  Mr Boris Zaknic had little to say as to the guarantee in the period before exchange or between exchange and settlement except for the somewhat curious evidence that some two weeks before settlement Mr Harper said to him and his brother, apparently in passing, that there was no deed of guarantee: a statement which, Mr Zaknic said, Mr Harper corrected shortly afterwards.  Mr Zaknic also said that the National Australia Bank had a copy of the guarantee as "the bank wanted to check the contract and the deed of guarantee so we can get the loan".

That, I think, is a reasonably complete summary of the evidence as to the preparation of the deed of guarantee and the history of that document up to settlement of Zaknic's purchase.  However, there is other evidence, to which I now turn, relevant to the question whether Mr Hagan guaranteed Crypta's obligations under the lease.

(e)  Other evidence

It is appropriate first to consider Mr Hagan's own evidence.  His evidence was that at his first meeting with Mr Milios, on 13 October 1992, he handed to Mr Milios, or at least showed him and Mr Sialepis, a statement of his personal assets and liabilities.  He denied that this was done because he was to guarantee the lease and to establish that he was a substantial guarantor.  Rather, he said:

            ... the statement of assets and liabilities was being put forward to show that I or the company that I was going to put the business into, had the ability to pay the rent - or to back it up.

Mr Hagan's evidence was clear that he did not intend to guarantee Crypta's performance of its obligations under the lease and did not sign a document which he recognised as a guarantee of those obligations.  On the other hand, he was unable to explain how his signature came to be on the last page of the document.  It is evident that Mr Hagan is no stranger to guarantees: that appears from various passages in the evidence, including the following exchange with Mr Harris:

            So how can you be sure that the documents which you signed were not the document [one of the signed copies of the guarantee] that you have in front of you now? --- I have signed probably 50 documents like that in my time.

I have mentioned the additional service station leases which were entered into between Svelte and Crypta and that a signed copy of one of them is in evidence.  Mr Hagan has signed that lease (as, apparently, has Mrs Hagan by Mr Hagan as her attorney) as guarantor.  In cross-examination by Mr Moore, who appeared for Mr Smiles, Mr Hagan admitted that he gave guarantees in relation to the "other service stations".  That admission, and Mr Hagan's explanation of the circumstances, appear from the following exchange:

            ... Now, in relation to the guarantees of the other service stations, do you agree that you did give personal guarantees in ...? --- Yes.

            ... relation to any of them? --- Which was all subject to the arrangement if the Port Kembla site was going to be successful.

            And that was an oral arrangement? --- That's right.

            Mr Hagan, do you regard it as a matter of prudence that you or your companies would execute a document saying one thing, where you or your companies are endeavouring to rely on an oral understanding which is inconsistent with the documents signed? --- Well, I didn't feel as though the future sites were binding until such time as we agreed that the Port Kembla service station had reached its potential or what it was said to have done and that by giving - I wouldn't consider giving it a guarantee anyway in a risk situation at Port Kembla, but once it was proved then we were going on to other ventures then that was no problem.

That and similar evidence prompted the obvious question, if at the time when the various leases (including guarantees of them) were signed there was no binding arrangement (or if there was an arrangement that either party could withdraw from if it chose, which is not far removed from another way of saying the same thing), why enter into them at all? The answer emerged in the following exchange between Mr Harris and Mr Hagan:

            But your company had executed leases? --- For a purpose I think that the Svelte company were endeavouring to arrange finance for various sites that they had possession of.

            Are you saying that Crypta had entered into leases with Svelte to help Svelte obtain finance? --- Yes.

            And I take it that the leases ... ? --- See, some of these places don't exist, they hadn't been built, Lugarno was an operating service station, the other three - I never went to the sites even.  This was all being formulated as a proposal to have a number of service stations under our control that were being built by Sialepis and Jim.

            The leases, I take it, provided for the payment of a very generous amount of writ [sc rent] by ... ? --- Well, it was similar to what we where paying at Port Kembla.  They were giving us estimates of fuel volume and as a result of those fuel volumes and convenient [sic] store sales as I think there's a document that gives projections of the business at Port Kembla and they were being used as the guide to the potential of these other sites which showed they would be profitable under those conditions.

            So are you saying that you were given trading figures and financial information about these other sites? --- Projections.

            You agreed to enter into leases of these other sites so as to enable Svelte to borrow money? --- That's my understanding.

            And about the same time as you agreed to enter into these leases, you also agreed that at you auction [sc option], that is at Crypta's auction or at Svelte's auction, the leases could be terminated? --- That's correct.

            Well, was this not just a device to assist Svelte to mislead financiers? --- I'm not sure what their intention was, I mean they had all information regarding the potential of building these service stations other than Lugarno and the projections were given to us as per the Port Kembla site and that we understood that if certain things happened we in a term had our foot on these places to operate them in due course if and when they were built.

Then, a little later during Mr Harris's cross-examination of Mr Hagan:

            ... it was your opinion that Svelte was trying to deceive its financiers, was not it? --- No, absolutely not.  As I say I have no opinion on it whatsoever but I understood that the reason for us going to these arrangements was to assist them to raise finance for other projects.

Before leaving this topic, I should mention that the lease to which I have referred, on which Mr Hagan's signature as guarantor appeared, was admitted into evidence subject to relevance; Mr Thomas had objected to the tender on the ground that the document was not relevant.  As will now be evident, the document is relevant to the issue whether Mr Hagan is liable as guarantor.

There are two other matters arising from Mr Hagan's evidence.  One relates to his business experience.  It was put to me by Mr Levitt, on behalf of Crypta and Mr Hagan, that I should regard Zaknic (and its directors) and Mr Hagan (perhaps Mr Mitchell as well) as "green", substantially inexperienced and therefore gullible.  Certainly, on the evidence, it can be said of the directors of Zaknic that, while they had substantial experience of the particular business in which Zaknic is engaged, they were otherwise relatively inexperienced in business (particularly investment) matters.  But that is not true of Mr Hagan.  He gave evidence that he was chief executive officer of a rugby league club, that he had operated numerous hotels ("I have had an interest shareholding and overseeing role probably four or five at a time") and had been involved in various other businesses.  He accepted the description of himself as a "fairly experienced businessman", and so, on the evidence, he is.  The other matter is that Mr Hagan made it clear that he takes a "broad brush" approach to business matters and expects others to attend to the detail.  Particularly, it is evident from his answers in cross-examination that he paid little attention to the detail of legal documents he was asked to sign, relying on his solicitor to ensure that they were in order and gave effect to his instructions.  It can be added that on his own evidence he was quite prepared, even in dealings with other business people with whom he had a relationship that was not of very long standing, to sign legal documents whose effect was intended to be modified substantially by an oral "understanding": the leases of the five service stations other than the one at Port Kembla are the clearest example; the arrangements relating to the convenience store and the reduction of rent pending its completion are another.

Next, there is evidence of both Mr Boris Zaknic and Mr Ivan Zaknic.  After giving evidence that he did not, before settlement of the purchase, raise with Mr Hagan his belief that Mr Hagan was liable as guarantor of the lease, Mr Ivan Zaknic said that he did raise that matter with Mr Hagan after settlement; and he said that, at Mr Hagan's request, he faxed to Mr Hagan a copy of the deed of guarantee.  Mr Boris Zaknic gave evidence that he also, on the same day, faxed to Mr Hagan a copy of the guarantee.  There is in evidence a facsimile cover sheet (which states its subject to be "deed of guarantee") dated 13 July 1993 addressed to Mr Hagan from Mr Ivan Zaknic, but of which Mr Boris Zaknic said he was the writer, the text of which reads "please confirm authenticity of this document": Mr Boris Zaknic said that that cover sheet accompanied the guarantee when he faxed it to Mr Hagan.  The fax evoked neither a confirmation nor an immediate and vigorous denial: the evidence is that there was simply no response at all.

Thirdly, there is the evidence of Mr Mitchell.  Mr Mitchell gave evidence of a meeting between Mr Sialepis, Mr Milios, Mr Hagan and himself at which there was a discussion as to whether Mr Hagan would sign a deed of guarantee.  In short, Mr Mitchell gave an account of a debate in which either Mr Sialepis or Mr Milios, or both, attempted to insist that Mr Hagan sign a guarantee and Mr Hagan steadfastly refused.  When questioned further, he added that he had difficulties recalling these matters, because it was some time ago but when asked whether the reason he could not recall it was because it did not happen, he replied that it definitely happened.  Somewhat earlier in his evidence the following exchange took place between Mr Moore and Mr Mitchell:

            Are you satisfied in your mind that a deed of guarantee was prepared by Mr Milios and forwarded to Mr Melville? --- No, I've never seen the deed of guarantee, but by the same token I never read the lease either, it was just there, it could have been with the lease and it may not have been with the lease but by the same token we were still arguing about deeds of guarantees and all the rest of it at all stages.

            I see.  Now, do you ... ? --- So it probably was there, I don't know.

            Yes.  Now, is it your evidence that Mr Hagan decided that he was not prepared to sign a deed of guarantee? --- No, that's wrong.  He wouldn't sign it until the service station was up and running.  He was going to buy other service stations and he did, he signed guarantees on all of those, but he wouldn't sign on this particular one until it was proven.  Now, the other service stations were subject to this one being okay.  If this one wasn't okay the others were null and void.

(f)  Findings of fact

I have no difficulty in finding, on that evidence, that when the sale to Zaknic was completed a signed copy of the document described as a deed of guarantee, in the form of the two documents now in evidence, was handed to Zaknic's solicitors.  I find that it was handed to them by a representative of Mr Milios, acting for Svelte.

I have already found that the signature, appearing as that of the guarantor, on the last page of each copy of the document was written there by Mr Hagan.  It is written in the way in which Mr Hagan usually writes his signature: the finding is inevitable that he wrote the signature on that page intending to sign it.  I have already found that he did so in Queensland, in the office of Melville McGregor and Co.

It was put to me, however, that I should not find that the document took then the form which it takes now: instead, I should infer that it was simply a loose page, containing no operative provisions.  It was said that I should draw that inference because, first, I should accept the clear evidence given by Mr Hagan that at the time the lease was executed he did not see a deed of guarantee in the form of the document on which Zaknic now seeks to rely and he had no intention of giving a personal guarantee of the lease.  The evidence of Mr Mitchell was said to point in the same direction.  Additionally, my attention was drawn to what were said to be odd and unsatisfactory features of the evidence relating to the origin and provenance of the guarantee: its incomplete nature before dates and the name "Bob Hagan" were written in; the appearance of the simulated signatures and initials; what was said to be the unreliability of the evidence of Mr Milios; the curious fact that Mr Smiles, who claimed some months previously to have seen the executed guarantee, found it appropriate to join in an expedition with Mr Sialepis, shortly before settlement of the sale to Zaknic, to ensure that Mr Hagan had indeed signed it; Mr Harper's temporary belief that there was no personal guarantee by Mr Hagan; and the Zaknics' failure to mention its existence, or that they were placing any reliance on it, until some two months after settling the purchase.

Stress was placed also on the form of the document: it was put to me that my suspicion should be heightened by the fact that, unlike other guarantees of leases which Mr Hagan apparently signed (and Mr Milios apparently prepared), this one took the form not of the standard guarantee incorporated in the lease document itself but of a separate deed.  Mr Milios was cross‑examined at some length about that, but to no very enlightening effect.  Finally, Mr Levitt relied on the omission, in Mr Nelson's diary entries, of any mention of the guarantee.

I have no doubt that there are features of the evidence, including those to which I have just referred, which are unsatisfactory or at least odd.  But, with all respect, the matters which were put to me on behalf of Mr Hagan on this aspect of the case seem to me altogether too flimsy a foundation, in the light of the whole of the evidence, to support an inference that Mr Hagan executed not one but two loose pages, each in the same form as the other, in circumstances where the place where he put his signature was that which the document made clear was the place where the "Guarantor" should sign and where those pages, while containing no operative provisions, included a description of the land at Port Kembla.  Scepticism as to that hypothesis can only be increased when my finding is recalled (and the evidence on which it is based) that the two signatures were written in the office of Mr Melville (no other venue, or time, being suggested on Mr Hagan's behalf) and when one recalls also Mr Hagan's evidence as to his reliance upon his solicitor for assurance that documents placed before him for signature were in order.  Added to that is the evidence of Mr Milios that he prepared the deed of guarantee and sent it (three or possibly four times) to Melville McGregor and Co and Mr Milios's covering letter (and the fact that Mr Melville did not give evidence should not be forgotten): I can see no reason to reject Mr Milios's evidence that he prepared the document and dispatched it; that seems to me a great deal more credible than an alternative theory that he or someone prepared two copies of a separate page which somehow and somewhere were placed before Mr Hagan who signed them, and which
(together with a cover sheet) then were attached to the three preceding pages (in duplicate) of the document as it now exists.

I find that the document (both copies), as signed by Mr Hagan, did not include the three references to 18 December 1992 which appear in the document as it now stands, the name "Bob Hagan" in any of the three places where it now appears or the signatures or initials purporting to be those of Mr Hagan now appearing on the first three pages but that otherwise the document, when Mr Hagan wrote his signature on the last page, took its present form.

That finding necessarily involves a rejection of Mr Hagan's evidence that he did not sign the deed of guarantee in its present form (subject to the exceptions to which I have referred).  It does not, however, depend upon a conclusion that Mr Hagan knowingly gave false evidence.  I have referred to his evidence that he does not give detailed personal attention to legal documents.  I have, of course, also referred to evidence that he is not unwilling to sign documents which are subject to an unexpressed condition or are intended to take effect in some way other than the way their express terms suggest.  He signed a document (in duplicate) the clear effect of which was that he guaranteed the obligations of Crypta under the lease of the service station.  He may have been careless in signing it; there is no evidence that anyone misled or duped him into doing so.  In the end it is said only - and I have given my reasons for rejecting the suggestion - that he signed an incomplete document which was later completed without his authority.  I add, by way of postscript, that Mr Hagan's silence, as opposed to prompt and vigorous
protest, upon being sent a copy of the signed guarantee suggests that he was not, at that time and faced with an apparently genuine signature at the end of the document, entirely confident that he had not given a guarantee.

(g)  Legal principles applicable: (i) non est factum

Having made those findings, I can deal with this defence quite briefly.  It is to be recalled that the case is concerned with the defence in relation to a claim by Zaknic, not in relation to a claim by Svelte.  I can see in the evidence no basis for a suggestion that, in relation to this defence, Zaknic is other than an innocent third party (I shall consider below some other matters argued in relation to other defences).  There is no room for doubt about the applicable legal principles: they are established by the unanimous judgment of the House of Lords Gallie v Lee [1971] AC 1004, followed and applied by the unanimous joint judgment of the High Court in Petelin v Cullen (1975) 132 CLR 355.

In the former case Lord Wilberforce said at 1026:

            ... a man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of ordinary education and competence, he chooses to sign it without informing himself of its purport and effect.

His Lordship added at 1027:

            In my opinion, the correct rule ... is that ... a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor.  I would add that the onus of proof in this matter rests upon him, i.e., to prove that he acted carefully, and not upon the third party to prove the contrary.

I can interpolate here that it is not possible, on the evidence, to hold that Mr Hagan discharged the onus of proving that he acted with care.

Lord Reid said, at 1016:

            The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document.  Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisers without making any inquiry as to their purpose or effect.  But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different.  He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief.

Finally, in Petelin v Cullen, at 360, the Court said:

            It is now settled beyond any shadow of doubt that when we speak of negligence or carelessness in connexion with non est factum we are not referring to the tort of negligence but to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it.  The insistence that such precautions should be taken as a condition of making out the defence is of fundamental importance when the defence is asserted against an innocent person, whether a third party to the transaction or not, who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed.

In my opinion it follows inevitably that Mr Hagan's defence of non est factum fails.

            (ii) Other defences

I have dealt with Crypta's defences to Zaknic's claims against it in reliance on the lease; Mr Hagan relied on those defences as well, on the footing that if the lease were void or, being voidable, avoided, or if it were abandoned or Zaknic were estopped from relying on its rights under the lease, then Mr Hagan would be relieved of liability under the guarantee.  But I have held that those defences fail so far as Crypta is concerned and, there being no material before me which would give them independent life for the benefit of Mr Hagan, they fail so far as he is concerned also.  There are, however, two defences pleaded which require brief discussion.

In paragraph 18 of the defence of Crypta and Mr Hagan, Mr Hagan says that if he in fact signed a document in the form of the deed of guarantee "he was not guilty of any negligence in so doing; alternatively, if (which is denied) he signed the said document negligently, the Applicant did not act either at all or to its loss upon the faith of the document".  I have dealt with the question of "negligence" in my discussion of the defence of non est factum.  The short answer to the "reliance" defence is that reliance of the kind pleaded is not necessary to give Zaknic rights under the document.  Assuming for the present that what happened at settlement of Zaknic's purchase was sufficient to entitle Zaknic to the rights of the Lessor under the document, nothing further was required to entitle Zaknic to enforce those rights.

The second of Mr Hagan's separate defences appears in paragraph 19 of the defence.  In that paragraph, Mr Hagan says that "in the events which have happened and by reason of the conduct of the Applicant, he is absolutely discharged and released from any liability which may have arisen under the said guarantee".  In support of that defence, Mr Hagan relied on two matters: one is Zaknic's action in procuring the guarantee of Mr Sialepis and not informing Mr Hagan that it had done so; the other is the failure of Zaknic to make it clear, at least at any time before mid July 1993, that it proposed to rely on Mr Hagan's guarantee.  Once again, however, in my view that defence has no substance.  The taking of a guarantee from Mr Sialepis did not cause detriment to Mr Hagan: if anything, it gave him a potential benefit.  There is no principle which operates to discharge a guarantor where a separate guarantee or security is taken, in such circumstances, from another party.  I do not think that the circumstance that Mr Hagan was not told, at the time, that Mr Sialepis had also given a guarantee makes any difference.  I have already referred at some length to the dealings between Zaknic and its directors on the one hand and Crypta and Mr Hagan on the other, both between exchange of contracts and settlement and after settlement; in my view there is nothing in any conduct to be attributed to Zaknic, as it appears from that evidence, amounting to a representation or promise by Zaknic to Mr Hagan that Zaknic would not rely on Mr Hagan's guarantee: Zaknic was, after all, entitled to assume, at least until mid July when the question arose, that Mr Hagan knew perfectly well that he had given a guarantee.  From mid July, Mr Hagan could have been in no doubt that Zaknic had the document and proposed, if it could, to rely on it.  That defence fails also.

It is not suggested in Mr Hagan's defence that the guarantee might have been avoided as a consequence of material alterations made to it after its execution by Mr Hagan.  Because the matter was canvassed, however, by Mr Harris in his closing submissions I should deal with it briefly.  I have found that when Mr Hagan signed the two copies of the deed of guarantee they took the form in which they now appear with the following exceptions only: first, the name "Bob Hagan" did not appear anywhere but now appears in three places; the date "18 December 1993" did not appear anywhere but now appears in three places; and there were no signatures or initials, purporting to be those of Mr Hagan, on the first three pages.  There is no reason to doubt, however, that at the time when Mr Hagan executed the guarantee its terms, despite the gaps, were unambiguous: Mr Hagan had signed as guarantor: the lease was adequately described, despite the absence of a date; the document operated as a guarantee by Mr Hagan of the lessee's obligations under the lease.  With the insertions and additions made after execution the document, as a matter of construction, has precisely the same effect.  That being so, it would be odd indeed if it were avoided by a principle relating to material alterations.  That is all the more so when one has regard to the trend of modern Australian authority.  In Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 Bray CJ said, at 282:

            ... it is highly desirable, in my view, that this primitive and arbitrary rule should be confined as closely as respect for the doctrine of precedent will admit.

That comment was made in the course of a judgment referred to in Farrow Mortgage Services Pty Ltd (In Liq) v Slade (1996) 38 NSWLR 636 as "a notable discussion of the modern operation of the rule": see per Gleeson CJ at 640.  The judgment of Bray CJ in Armor was delivered in the Full Court of the Supreme Court of South Australia, and Mitchell and Walters JJ agreed with it.  The approach taken by Bray CJ has been twice approved and followed in the New South Wales Court of Appeal: Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 and Farrow.  More particularly, Armor and Warburton are direct authority for the proposition that insertions of the sort made by Mr Milios are not to be regarded as material alterations avoiding a document: indeed, this case is a fortiori Armor and Warburton.  The placing of the signatures and initials on the document, whoever did it and for whatever purpose, plainly did not effect a material alteration.  Authority is hardly needed for that proposition, but Walters J (with whom Mitchell J agreed) said in his concurring judgement in Armor, at 283:

            To my mind, the question of materiality depends on whether the altered writing purports to affect the legal relations previously existing, that is, whether the alteration would result in a change in the contractual obligations between the parties, as they previously existed, so as to vary injuriously the rights against, and the duties to, the party making the alteration.

            (3) Assignment

The remaining issue, barely touched upon by evidence or argument, is whether Zaknic is entitled to sue Mr Hagan on his guarantee.  Zaknic's statement of claim includes an allegation that the benefit of the guarantee was assigned to Zaknic and that allegation is denied in Mr Hagan's defence.  The only evidence of an actual assignment, however, is the evidence, to which I have referred, about what happened at settlement of the purchase.  On the other hand, Mr Hagan's counsel and solicitor did not suggest that if the defence of non est factum, and the other defences with which I have already dealt, should fail, Zaknic would nevertheless not be entitled to succeed: evidently the denial of an assignment was based on a proposition that, there being no guarantee, there was nothing to assign rather than one to the effect that, if Svelte had rights against Mr Hagan, those rights where not effectively assigned to Zaknic.  In my view the assumption on which each side proceeded is correct but, because the matter is not entirely free of complexities, I think I should explain why I take that view.

Counsel for Zaknic referred, rather in passing, to the concluding words of clause 3 of the guarantee, which provide that "the guarantees and covenants on the part of the Guarantor herein contained" are to "enure to the benefit of any assignee or principal of the Lessor of its interest in the Lease of the demised premises".  If the reference was intended to suggest that the effect of that provision was that an assignee of the lease would be entitled to the benefit of the guarantee (and to enforce the guarantee) without any further assignment of the guarantee itself, the suggestion may derive some support from the judgment of Asprey JA in International Leasing Corporation (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 451.  It faces the obvious difficulty, however, that assignees of the lease are not parties to the deed and can claim directly under it only if an exception to the doctrine of privity applies in their favour.  That is difficult territory into which I shall not
venture, without the benefit of argument, beyond saying that an exception which might conceivably be applicable is that provided by s 36C of the Conveyancing Act 1919 (NSW); but, as Beswick v Beswick [1968] AC 58 and Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 demonstrate, the construction of that section is by no means a straightforward matter and again I should not attempt to reach a conclusion on it without the benefit of argument.  Still less should I search for a principle, applicable to the present case, which might be found in, or derived from, Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.

Unless clause 3 can be relied on directly, however, it is clear that Zaknic cannot rely on the guarantee unless the benefit of the guarantee has been assigned to it: as a general proposition, an assignment of the benefit of a principal obligation does not, without more, carry with it the benefit of a guarantee which may have been given to the assignor: Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423.  It is equally clear that, where a principal obligation is guaranteed, it is not possible to separate the two obligations by assigning the benefit of one without the benefit of the other or by assigning the benefit of the principal obligation to one party and the benefit of the guarantee to another: following such a transaction, the guarantee will be unenforceable, at least while its benefit is held by a person other than the person entitled to the principal obligation: International Leasing Corporation (Vic) Ltd v Aiken; Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367.

In this case it is clear that, on settlement, Zaknic became entitled, at law and in equity, to the benefit of Crypta's obligations under the lease.  There is no evidence that the guarantee was assigned in the manner required by s 12 of the Conveyancing Act: there is no evidence of a written assignment signed by the assignor or of express written notice to Mr Hagan.  I am satisfied, however, that the evidence establishes that the benefit of the guarantee was assigned in equity: the delivery of the document at settlement, to Zaknic's solicitors, I think, clearly shows an intention to pass the benefit of the guarantee to Zaknic and, of course, payment of the purchase price was consideration sufficient to support an equitable assignment.  The principles being, I think, to that extent uncontroversial, perhaps I may be excused for referring simply to Meagher, Gummow and Lehane, Equity: Doctrines and Remedies 3rd ed 1992, paras 609 to 613.  I do not think there can be any difficulty about the enforcement of the guarantee arising from the fact that the legal (as opposed to equitable) title to this benefit remains vested in Svelte: see Hutchens v Deauville at 374.  Svelte is a respondent to these proceedings.  That being so, I think it is now established by authority that Zaknic, as equitable assignee, may sue on the guarantee in its own name: it is sufficient to refer to Three Rivers District Council v Bank of England [1996] QB 292 (where the earlier authorities are discussed) and Long Leys Co Pty Ltd v Silkdale Pty Ltd (1992) NSW ConvR 59,476 (see also Mark Leeming, "BCCI: the Real Party in Interest?" (1995) 111 LQR 549).

(j) Conclusion

It follows that Zaknic is entitled to judgement against Mr Hagan for the sum which I have held Zaknic is entitled to recover from Crypta.

Conclusions and settlement of orders

The overall result is that Zaknic succeeds in its claims against all respondents and is entitled to its costs.  There remains the question of the precise measure of the damages which Zaknic may recover against Svelte, having regard to its success against Crypta and, for that matter, Mr Hagan.  Obviously it is desirable that these proceedings be brought to a prompt conclusion.  That objective is best achieved, I think, by a direction that the applicant prepare and serve on the other parties short minutes of orders which it proposes as appropriate to give effect to my conclusions.  The matter can then be listed before me in order that any matters in controversy, as to the draft orders, may be argued and final orders made.

                                                     I certify that this and the preceding 83 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

                                                     Associate: 

                                                     Dated:  14 August 1996

Heard:                                          23, 24, 25, 26, 27, 30 and 31 October 1995

                                                     1, 2 and 3 November 1995

                                                     6, 7, 8, 13, 14 and 15 December 1995

                                                     14, 25, 26 and 27 March 1996

                                                                        30 April 1996

                                                     1 and 2 May 1996

Place:                                            Sydney

Decision:                                       14 August 1996

Appearances:Mr C M Harris of counsel instructed by Robert A Harper & Co. appeared for the applicant.

                                                     Mr C J Hockey of counsel instructed by Galloways Solicitors appeared for the first respondent/second cross‑claimant.

                                                     Mr G M Thomas of counsel instructed by Stewart Levitt & Company appeared for the third and fourth respondents/first and second cross‑respondents.