FEDERAL COURT OF AUSTRALIA

Tenji v Henneberry & Associates Pty Ltd (ACN 009 168 629) [2000]

FCA 550

TRADE PRACTICES – misleading or deceptive conduct – contravention of s 52 of Trade Practices Act – sale of land – service station premises – misrepresentations as to value, rent and fuel sales – non-disclosure amounting to misleading or deceptive conduct – presence of easements – adequacy of fuel tanks – notice of purported rescission – no undertaking to account to vendors – small difference between value of land and purchase price – claim for avoidance of contract ab initio – s 87(2)(a) Trade Practices Act – criteria for grant of relief – relevance of equitable analogues – whether relief limited to declarations relating to contracts void by operation of some other rule of law – appeal allowed – cross-appeals dismissed – order for avoidance of contract – conditions attaching to declaration.

Trade Practices Act 1974  (Cth) s 52, s 87

Trade Practices Act Amendment Act 1977 (No 81 of 1977)

Trade Practices Revision Act 1986 (No 17 of 1987)

Trade Practices Legislation Amendment Act 1992 (No 222 of 1992)

Trade Practices Amendment (Fair Trading) Act 1998 (No 36 of 1998)

Trade Practices Commission v Milreis (1977) 29 FLR 144 distinguished

Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 cited

Fenech v Sterling (1984) 4 FCR 372 discussed

Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 applied

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 applied

Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15 distinguished

Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 discussed

Collier v Electrum Acceptance Pty Ltd (1986) 69 ALR 355 discussed

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 applied

Munchies Management Pty Ltd v Belperio  (1988) 84 ALR 700 referred to

ASX Operations v Pont Data Australia Pty Ltd (No 2) (1991) 27 FCR 492 applied

Alati v Kruger (1955) 94 CLR 216 distinguished

Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) (1965) 113 CLR 265distinguished

Maguire v Makaronis (1997) 188 CLR 449 applied

Brickenden v London Loan and Savings Co [1934] 3 DLR 465 applied

Gould v Vaggelas (1985) 157 CLR 215 applied

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 followed

Harland, The Statutory Prohibition of Misleading or Deceptive Conduct in Australia and its Impact on the Law of Contract (1995) 111 LQR 100

Skapinker, ‘Other Remedies ’under the Trade Practices Act – The Rise and Rise of Section 87 (1995) 21 Mon Univ Law Rev 188

Meagher, Gummow and Lehane, Equity Doctrines and Remedies (3^rd Edition Butterworths 1992)

FRANK TENJI and MATTHEW TENJI v HENNEBERRY & ASSOCIATES PTY LTD (ACN 009 168 629), PALERMO NOMINEES PTY LTD (ACN 008 871 618) and GAETANO PALERMO

PALERMO NOMINEES PTY LTD (ACN 008 871 618) and GAETANO PALERMO v FRANK TENJI and MATTHEW TENJI, HENNEBERRY & ASSOCIATES PTY LTD (ACN 009 168 629)

HENNEBERRY & ASSOCIATES PTY LTD (ACN 009 168 629) v FRANK TENJI and MATTHEW TENJI, PALERMO NOMINEES PTY LTD (ACN 008 871 618), GAETANO PALERMO

W82 of 1999

FRENCH, WHITLAM and CARR JJ

 3 MAY 2000

PERTH

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal is allowed.

2.         The cross-appeals are dismissed.

3.         It is hereby declared that subject to the performance of terms to be ordered  the contract dated 12 November 1996 between the Appellants and the Second Respondent is void ab initio.

4.         The parties endeavour to agree within twenty one days the terms upon which the declaration set out in 3 above shall be made including orders providing for retransfer of the land, an account by the Appellants to the Second Respondent for any net financial benefit which has accrued to them by reason of their possession of the land and compensation by the Respondents to the Appellants for their reasonable expenses relating to the purchase including stamp duty, settlement agency fees and title registration fees and such other orders as are necessary to give effect to this judgment.

5.         In default of agreement, the Appellants and the Respondents file minutes of proposed terms within twenty one days accompanied by their written submissions in support thereof.

6.         The Respondents to pay the Appellants’ costs of the appeal and of the cross-appeals.

7.         The Respondents to file written submissions within twenty one days as to the costs of the cross-appeals inter se.

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

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

French J:

Introduction

1                     This case concerns the sale of land at Hamilton Hill upon which there is erected a service station.  The sale was found, by a Judge of this Court, to have been induced by misleading and deceptive conduct on the part of the owners and their agents who had contravened s 52 of the Trade Practices Act 1974 (Cth) by reason of that conduct.  His Honour found, however, that the loss suffered by the purchasers was small, the sum of $10,000 representing the difference between the purchase price and the value of the land as he found it.  He held also that the purchasers had given only a qualified notice of their intention to rescind the contract upon discovering the misleading or deceptive conduct and that they had remained in possession without making arrangements to account to the vendors for rents derived from the land during the occupation of it. 

2                     His Honour declined the purchasers’ claim for relief under s 87 of the Trade Practices Act.  They had sought an order that the contract be declared void ab initio.  They have appealed against that aspect of his Honour’s decision and against the failure to find certain other misleading or deceptive conduct which they had alleged relating to the failure of the agent to disclose to them the presence of an easement over the land and the inadequacy of the fuel tanks constructed on the land to meet the requirements of the station.

3                     Subject to my own observations about s 87 of the Trade Practices Act I agree with Carr J, for the reasons which his Honour has set out, that this appeal should be allowed.

4                     It is not necessary here to repeat the factual background, the summary of the reasons for judgment below and the grounds of appeal which are set out in his Honour’s reasons.  My remarks are directed principally to the application of s 87 of the Trade Practices Act and orders under s 87(2)(a). 

Section 87 Trade Practices Act 1974

5                     The relevant parts of s 87 of the Trade Practices Act are as follows:

“87(1)  Without limiting the generality of section 80, where, in a proceeding instituted under, or for an offence against, this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IV, IVA, IVB or V, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 80A or 82, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

(1A)  Without limiting the generality of section 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IVA, IVB or V or on the application of the Commission in accordance with subsection (1B) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.

(1B) [Relates to representative actions by the Commission]

(1C) An application may be made under subsection (1A) in relation to a contravention of Part IVA, IVB or V notwithstanding that a proceeding has not been instituted under another provision of this Part in relation to that contravention.

(1CA)  [Relates to time limits for commencement of applications under subsection (1A)].

(1D)  For the purpose of determining whether to make an order under this section in relation to a contravention of Part IVA, the Court may have regard to the conduct of parties to the proceedings since the contravention occurred.

(1E)  [Repealed in 1994]

(2)  The orders referred to in subsections (1) and (1A) are:

(a)       an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date on which the order is made as is specified in the order;

(b)       an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified;

(ba)     an order refusing to enforce any or all of the provisions of such a contract;

(c)        an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;

(d)       an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;

(e)        an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage;

(f)        an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage; and

(g)       an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that:

            (i)         varies, or has the effect of varying, the first-mentioned instrument; or

            (ii)        terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first-mentioned instrument.

(3)  Where:

(a)       a provision of a contract made, or a covenant given, whether before or after the commencement of the Trade Practices Amendment Act 1977:

            (i)        in the case of a provision of a contract, is unenforceable by reason of section 45 in so far as it confers rights or benefits or imposes duties or obligations on a corporation; or

            (ii)       in the case of a covenant, is unenforceable by reason of section 45B in so far as it confers rights or benefits or imposes duties or obligations on a corporation or on a person associated with a corporation; or

(b)       the engaging in conduct by a corporation in pursuance of or in accordance with a contract made before the commencement of the Trade Practices Amendment Act 1977 would constitute a contravention of section 47;

the Court may, on the application of a party to the contract or of a person who would, but for subsection 45B(1), be bound by, or entitled to the benefit of, the covenant, as the case may be, make an order:

(c)       varying the contract or covenant, or a collateral arrangement relating to the contract or covenant, in such manner as the Court considers just and equitable; or

(d)       directing another party to the contract, or another person who would, but for subsection 45B(1), be bound by, or entitled to the benefit of, the covenant, to do any act in relation to the first-mentioned party or person that the Court considers just and equitable.

(4)  The orders that may be made under subsection (3) include an order directing the termination of a lease or the increase or reduction of any rent or premium payable under a lease.

(5)  The powers conferred on the Court under this section in relation to a contract or covenant do not affect any powers that any other court may have in relation to the contract or covenant in proceedings instituted in that other court in respect of the contract or covenant.

(6)  In subsection (2), “interest”, in relation to land, has the same meaning as in section 53A.”

6                     In its earliest incarnation in 1974, the power to make orders under s 87 was conditioned upon a finding that there had been a contravention of Part IV or Part V of the Act and upon the imposition of a penalty under s 79 or the grant of relief under ss 80 or 82.  The orders that could be made were “such other orders as [the court] thinks fit to redress injury to persons caused by any conduct to which the proceeding relates or any like conduct engaged in by the defendant”.  Subsection 2 allowed then, as it does now, for orders avoiding or varying contracts to be made. 

7                     The orders that could be made under s 87 were described in early commentary as “sui generis” – Donald and Heydon, Trade Practices Law, Law Book Company(1978) p 851 and as bearing “some similarity to the unlimited power given to the [US Federal Trade Commission] under s 11(b) of the Clayton Act to issue cease and desist orders for the purpose of ensuring the cessation of unfair trading practices” – Donald and Heydon at 852.  The section did not offer a stand-alone remedy.  It was conditional upon the grant of primary relief under ss 79, 80 or 82. Subsections 87(1) and (2) were described by Bowen CJ in Trade Practices Commission v Milreis Pty Ltd (1977) 29 FLR 144 at 155 as “…ancillary provisions, which would only occasionally be found appropriate to be applied”, see also Brennan J at 157 and Deane J at 167.   The Swanson Committee’s discussion of the section in its 1976 report appeared under the heading “Ancillary Orders”.  The Committee did however recommend the decoupling of s 87 relief from the grant of primary relief under other provisions of the Act – Trade Practices Review Committee – Report to the Minister for Business and Consumer Affairs, August 1976, pars 9.158-9.159. 

8                     The recommendation of the Swanson Committee was reflected in the Trade Practices Act Amendment Act 1977, (No 81 of 1977).  Subsections (1), (2) and (3) were replaced by new subsections bearing those numbers.  Subsection (1A) was also introduced by the amendment.  The general power under subs 87(1) to make orders was conditioned upon a finding by the Court that a party to proceedings under Part VI of the Act had suffered or was likely to suffer loss by the conduct of another person engaged in a contravention of a provision of Part IV or Part V of the Act.  The power was expressly stated not to depend upon whether an order had been made under s 80 or s 82.  The requirement was also introduced, in lieu of the reference to “redress”, that the Court consider that the order or orders concerned would compensate the party suffering loss or damage in whole or in part for that loss or damage.

9                     Subsection (1A) allowed orders under s 87 to be made, in proceedings in which a contravention was established, on the application of a person not a party, who had suffered or was likely to suffer loss or damage by conduct of another person in contravention of Part V. Paragraphs (a) and (b) of subs (2) as enacted in 1977 were in the same terms as at present.  Paragraphs (ba) and (g) were introduced by later amendment.  The words “without limiting the generality of section 80” were inserted at the beginning of subss (1) and (1A) by the Statute Law (Miscellaneous Provisions) (No 1) Act 1983), (No 39 of 1983), see Schedule 1.  The decoupling of the right to relief under s 87 from the grant of primary relief under ss 79, 80 and 82 did not transform the section into a source of stand-alone remedies.  Section 87(1) and (1A) provided respectively for the discretionary grant of compensatory relief for parties and others applying in proceedings for primary relief under a provision of Part VI of the Act other than s 87 – Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 at 545, disapproving the decision of the Full Court of the Federal Court in Fenech v Sterling (1984) 4 FCR 372 in so far as it suggested that s 87(1A) was a stand-alone remedial provision.

10                  Subsection (1A) was amended in 1986 to include provision for representative applications for relief to be made by the Commission on behalf of persons who had suffered loss or damage or were likely to suffer loss or damage by conduct of another in contravention of Part V.  Subsections (1B) to (1E) inclusive were introduced at that time as were paragraphs (ba) and (g) of subsection (2) – Trade Practices Revision Act 1986 (No 17 of 1987), s 55. The insertion of pars (ba) and (g) in to subs 87(2) of the Act was referred to in par 191 of the Explanatory Memorandum for the 1986 Bill thus:

“191.  Sub-s (2) is being amended to further specify the remedial powers of the Court, in regard to orders refusing to enforce any or all of the provisions of a contract, or orders directing the person who engaged in the offending conduct to vary, terminate or otherwise affect an instrument creating or transferring an interest in land by executing another instrument.  The first order is being inserted because para (2)(a) only refers to the Court’s power to declare contracts or parts of contracts void, rather than just declaring the contract or parts of the contract unenforceable.  The second order specifies that the Court has power to undo transactions involving land where it considers it appropriate to do so.”

Paragraph 191 appears to have been written on the assumption that s 87(2)(a) is remedial rather than merely declaratory.

11                  The effect of the decision in Sent v Jet Corporation in so far as it prevented non-parties from seeking relief under s 87(1A) as a stand-alone remedy was overcome by substitution of a new subs 87(1C) by the Statute Law (Miscellaneous Provisions) (No 2) Act 1986, (No 168 of 1986).  The subsection inserted by that amendment is substantially in the terms of the subsection as it stands today, amended only to broaden it to actions based on contraventions of Parts IVA and IVB. With the enactment of Part IVA, relating to unconscionable conduct, consequential amendments were made to s 87 by the Trade Practices Legislation Amendment Act 1992 (No 222 of 1992), Schedule 1.  As a result s 87 relief is able to be granted in relation to contraventions of Part IVA.  Similar insertions occurred in 1998 consequential upon the enactment of Part IVB of the Act relating to Industry Codes – Trade Practices Amendment (Fair Trading) Act 1998 (No 36 of 1998). 

12                  It may be observed generally of s 87 in its current form that it provides a variety of remedial orders which cover the large range of circumstances which may conceivably attach to contraventions of Parts IV, IVA, IVB and V of the Trade Practices Act.  It has been described in the High Court as conferring a wide discretionary power on courts to make remedial orders in appropriate cases to ensure a fair result – Kizbeau Pty Ltd v W G & B Pty Ltd  (1995) 184 CLR 281 at 298.  The scope of the orders it authorises is not to be constrained because, in particular cases, they may resemble common law or equitable remedies – Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 510 (McHugh, Hayne and Callinan JJ) and see also at 505 (Gaudron J) and 545-546 (Kirby J).  Gummow J, at 535, described the paragraphs of s 87(2) as creating “new remedies which have an affinity to the equitable remedies of rescission and rectification”. His Honour went on to observe that:

“The principles regulating the administration of equitable remedies afford guidance for, but do not dictate, the exercise of the statutory discretion conferred by s 87.  Orders under provisions of s 87(2) which vary the contracts or declare them void ab initio may be granted on terms.  Such remedies, like their equitable analogues, are not directed to providing a measure of damage by way of monetary compensation.”

They are nevertheless, by virtue of s 87(1) conditioned upon loss (actual or potential) causally linked to a contravention.

13                  The power of the Court under s 87(2)(a), in its earliest manifestation, to declare a contract void or void ab initio was narrowly construed by the Full Court of the Federal Court as limited to declarations of invalidity derived from some other rule of law or statutory provision – Trade Practices Commission v Milreis at 161 (Brennan J) and 168 (Deane J).  That view might be thought to have been linked to the parasitic character of the remedies available under s 87, dependent as they were upon the grant of primary relief.  Nevertheless it was endorsed in respect of what was, for present purposes, the current form of s 87(2)(a) in Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15.  There, the holders of non-withdrawable shares in a building society being wound up claimed to have been misled, by the Society, as to the character of the shares. The liquidator applied to the Supreme Court of Victoria for directions as to the position of the non-withdrawable shareholders.  The Court was asked to assume that there had been deceit or misleading or deceptive conduct within the meaning of s 52 of the Trade Practices Act.  In the High Court the majority (Mason CJ, Deane, Dawson and Toohey JJ, McHugh J dissenting at 37) held that the Trade Practices Act:

“…is not to be seen as eliminating “by a side wind” the detailed provisions established for more than a hundred years to govern the winding up of a company.” (37)

Their Honours added, immediately following the preceding passage:

 “Furthermore, in Trade Practices Commission v Milreis Pty Ltd …Brennan J and Deane J, as members of the Federal Court, made it clear that s 87(2)(a) is not to be understood as conferring a power to declare void a contract which was valid at its inception, other than through the operation of some other provision of the Trade Practices Act or by reason of some alteration in circumstances.

That brief but important, and in my respectful opinion, obiter dictum, has been the subject of some critical academic reflection – Harland, The Statutory Prohibition of Misleading or Deceptive Conduct in Australia and its Impact on the Law of Contract (1995) 111 LQR 100 at 124 and Skapinker, ‘Other Remedies’ under the Trade Practices Act – The Rise and Rise of Section 87 (1995) 21 Mon Univ Law Rev 188 at pp 203-212.

14                  In the sixteen years that elapsed between Milreis and Webb there was legislative activity which resulted in the amendments to s 87 outlined earlier and which have substantially enhanced its importance as a remedial provision.  There was also a number of decisions expounding and applying it in various ways.  A number of the cases proceeded on the assumption, without ever directly confronting Milreis, that s 87(2)(a) provided a remedy which could be granted having regard to, but not limited to, the circumstances relevant to the grant of the equitable remedy of rescission.  Northrop J appears to have so regarded s 87(2)(a) in Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 at 60, as did the Full Court in Fenech v Sterling (1984) 4 FCR 372 at 378 where reference was made to avoidance and variation of contracts under s 87(2) as though both were remedies provided by that subsection.In Collier v Electrum Acceptance Pty Ltd (1986) 69 ALR 355, Woodward J declined to make an order declaring an aircraft lease to be void ab initio under s 87(2)(a).  That refusal was discretionary and not based on any view of want of power to make a remedial declaration.  The Full Court in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 made observations about the operation of s 87 in circumstances in which it was held not to be appropriate to grant rescission on any basis, statutory or equitable.  Lockhart J, with whom Burchett J agreed, said:

“In granting a remedy under s 87, the court is not restricted by the limitations under the general law of a party’s right to rescind for breach of contract or misrepresentation.” (564)

In Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700, the Full Court characterised the role of s 87 as providing its own statutory remedies.  Referring to Henjo, Fisher, Gummow and Lee JJ in their joint judgment saw that case as seeming to emphasise:

“…that in the exercise of the discretion in these matters given the court by s 87, the equitable principles concerning rescission give safe, if not necessarily exclusive, guidance.” (714)

ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 2) (1991) 27 FCR 492 involved agreements made for the supply of information concerning financial transactions on the Melbourne and Sydney Stock Exchanges.  The agreements were held on appeal to involve contraventions of s 46(1)(c) of the Trade Practices Act.  The trial judge made orders under s 87 varying the agreements.  The Full Court, which upheld the trial judge’s findings of a contravention of s 46(1)(c), albeit it allowed the appeal in other respects, observed that the agreements were “the product of … contravention of the statute… and, in their very inception were tainted by it.”  The respondent could be compensated at least partly for its consequential loss and damage if the agreements were to be declared void ab initio on terms.  The Court said at 503:

“In that regard, relief may be granted under s 87 on terms dealing with allowances and payment of moneys as part of a process of rescission ab initio; the equitable principles concerning rescission give some guidance here, in a general sense: see Munchies Management Pty Ltd v Belperio …”

The Court made a declaration that two agreements were void ab initio but on terms requiring payments by the respondent to the first appellant.  A further direction was made that the declaration as to invalidity not commence to operate until the filing of a written undertaking by the respondent.  The Court could be seen here to have been applying s 87(2)(a) as an operational remedy and not as a declaration of some independently occurring invalidity deriving from a finding of illegality.  See also the observations about s 87 in Meagher, Gummow and Lehane – Equity, Doctrines and Remedies (3^rd Edition Butterworths 1992) at par 1324, consistent with an operational rather than declaratory role for s 87(2)(a). In my respectful opinion, the apparently obiter observation of the majority in Webb Distributors, referring to Milreis, must be regarded as having been overtaken by the width of operation attributed to s 87 in Marks v GIO, although neither Milreis nor Webb was mentioned in the judgments in the latter case.  

The Claim for Relief under Section 87

15                  The amended application before the Learned Primary Judge sought an order against Palermo Nominees in the following terms:

“…that the sale agreement dated 11 November 1996 for the sale of the land the subject of Certificates of Title Volume 1270 Folio 613 and Volume 1278 Folio 614(“the service station”) be declared to be void ab initio, alternatively that its provisions not be enforced and an order that the second respondent do repay all monies paid by the applicants thereunder.”

16                  His Honour’s decision to refuse relief under s 87 appears to have been based on considerations set out at pars 77 and 78 of his judgment:

“77.     Although Messrs Tenji purported to rescind the transaction in March 1997, the notice of rescission was qualified in that if Palermo Nominees did not “accept” rescission  and retake possession of the property, Messrs Tenji would seek an order from the Court to rescind the bargain either under the general law, or pursuant to s 87 of the Act.  Although the solicitor’s letter in March 1997 referred to Messrs Tenji having no alternative but to act as caretakers if the matter was not resolved promptly, it appeared that after March 1997 Messrs Tenji retained possession of the property on their own account and did not undertake an obligation to account to Palermo Nominees from day-to-day thereafter, a result which would have followed actual rescission, leaving it to the Court to adjudicate upon the validity of that act at law. (See: Alati v Kruger (1955) 94 CLR 216 at 223-224)

            Accordingly, the relief sought by Messrs Tenji in these proceedings was expressed in the alternative, namely, as a claim for an order under s 87 of the Act declaring the agreement for the sale of the property “void ab initio” or an order for the payment of damages.

78.       I am not satisfied that in all the circumstances of this case, an order under s 87 of the Act, having the effect of an order for rescission in equity, is appropriate.   Although Messrs. Tenji paid more for the property than it was worth, the overpayment was not a substantial sum, and that fact suggests that they may not have made a different decision had the misleading or deceptive conduct not occurred.”

17                  His Honour characterised the claim for relief under s 87 as “having the effect of an order for rescission in equity”.  Alati v Kruger was cited for the proposition that, in equitable rescission, the Court adjudicates on the validity of the act of a party in disaffirming a contract.  In the joint judgment in that case, at 224, it was said:

“The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance….”

But Alati v Kruger was a case of pre-contractual fraudulent misrepresentation – concerning the takings of a business which was for sale.  As was pointed out in Meagher, Gummow and Lehane (supra) at par 2416:

“In the auxiliary and exclusive jurisdictions it is not clear whether rescission was in equity effected by act of the party so that the Court confirmed something already accomplished, or whether rescission was entirely by the decree of the Court.  The time at which the possibility of restitutio in integrum (if this were necessary) was to be assessed would depend upon the correct answer.”

Inferentially from the approach taken by the High Court to the power to set aside a mortgagee sale for abuse of the power of sale in Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) (1965) 113 CLR 265 the learned authors concluded:

“The plaintiff in the auxiliary and exclusive jurisdictions will be seeking not a declaration that he himself has already validly rescinded but a decree of the court taking effect from its date.  This is a suit for rescission properly so called.”

The effect of an order for avoidance of a contract under s 87 is to be equated only in a limited sense to that of an order for rescission in equity.  For orders made under s 87(2)(a) declaring a contract void in whole or in part and ab initio or from a later date have their effect entirely by operation of the statute.  The other element which is of importance in this case is the compensatory principle that informs the exercise of the power conferred by s 87.  That principle derives from s 87(1) which conditions the power to make orders under the section upon the Court considering that the orders concerned will compensate a party who has suffered or is likely to suffer loss by reason of a contravention in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

18                  His Honour observed that the Tenjis “may not have made a different decision had the misleading or deceptive conduct not occurred”.  Expressed as a firm finding that might  be a relevant consideration but even in equity it is not determinative of the availability of rescission.  The equity of rescission in relation to a transaction procured by a breach of fiduciary duty will not be defeated by a finding that disclosure of the true position would not have led to a different decision – Maguire v Makaronis (1997) 188 CLR 449 at 465, 470-474, the latter passage applying the reasoning of the Privy Council in Brickenden v London Loan and Savings Co [1934] 3 DLR 465.

19                  Loss or potential loss causally linked to contravention conditions the exercise of the remedial powers under s 87 and their exercise must be directed to compensate for that loss.  The same may be said, limited to actual loss, for the award of damages under s 82.  The conditions for the exercise of power under s 87 having been satisfied and the compensatory outcome identified, the grant of such relief is discretionary as is the particular kind of order under s 87(2) that may be made.  The exercise of that discretion and the choice of order may then be affected by other considerations.  The making of an order under s 87(2)(a) declaring a contract to be void may be based upon a number of factors including those which would affect the grant of analogous relief in equity.  But, while relevant, they are not determinative.  The question whether there has been a disaffirmation or a commitment to the performance of the contract by the party suffering loss will generally be relevant.  The question whether the party would have decided to continue with the purchase, even if aware of the true position, may also be relevant although, as has been pointed out, that does not determine the availability of equitable rescission. 

20                  Rescission in equity transcends compensation.  Avoidance under s 87 must serve a compensatory purpose but may serve other purposes in doing justice between the parties.  There are cases in which a party who enters a contract as a result of misleading or deceptive conduct may be compensated in a pecuniary sense by an award of monetary damages but is left nonetheless with a continuing burden of unforeseen risk, a transaction soured by the events that surrounded it and a property, once the repository of hope for the future that is now an albatross around its neck.  Absent misleading or deceptive conduct, an informed commitment to the acquisition and all its difficulties and shortcomings is easier to bear than one into which a party has been misled as was found to be the case here.

21                  His Honour did not make a finding that the Tenjis would have made the same decision had the misleading or deceptive conduct not occurred.  He found no more than that there was a possibility.  Factors critical therefore in the refusal of relief under s 87 as they appear from his Honour’s reasons were:

1.         The qualified nature of the letter of purported rescission sent by the Tenjis’ solicitors on 27 March.

2.         The small amount of the overpayment made as a result of the misleading and deceptive conduct.

It was submitted for the Tenjis on appeal that some four months after taking possession and upon discovering the misleading conduct of the respondents, they gave notice of rescission and were then in a position to make restitution or substantial restitution, that is, to return the service station in the same condition as that in which they had received it and to account to Palermo Nominees for rent received.

22                  As already observed the absence of a notice of rescission is not determinative of the availability of relief under s 87(2)(a).  A positive affirmation of the contract coupled with a demand for compensation might well weigh heavily against the making of such an order, if only because the other party in such a case could be led to adopt a position or not alter its position on the assumption that there would be no claim for avoidance of the contract.  But that is not this case.  In my opinion, in any event, the letter of 27 March should not have been regarded as anything less than notice of a decision to set the contract aside, albeit it accepted the necessity for the Tenjis to “act as caretakers and make decisions affecting the future of the service station”. 

23                  The small quantum of the loss was a factor to which his Honour was entitled to have regard but in my opinion and for the reasons I have already outlined, was not of itself determinative.  Moreover it is apparent from the uncertainties concerning the valuations and the particular circumstances of the service station that the Tenjis, in continuing in ownership of the land assumed the risk of a greater loss than that quantified by his Honour.  In my respectful opinion his Honour’s discretion miscarried because of the matters to which I have referred.  The discretion having miscarried, it is open to the Court on appeal to substitute its own view of the appropriate order to be made.

24                  The conditions for the exercise of the power under s 87(2)(a) are satisfied.  The avoidance of the contract would, in my opinion, serve the purpose of compensating the Tenjis for their loss.  It would also have the utility of relieving the Tenjis from a transaction in which though their economic loss was found not to be great, their hopes and expectations of the transaction could reasonably have been expected to be raised by the misrepresentations made to them.  The misrepresentations as found by his Honour were that:

1.         The property was worth more than $370,000 and represented a good opportunity.

2.         The rent of $55,296 per year represented a good return on investment, a representation “reinforced” his Honour found by the assertion that Gull would purchase it if given the opportunity.  That reinforcement persisted even after the disclosure that Gull was not the lessee of the station.

3.         The misrepresentation as to fuel sales, which again reinforced the statement that the rental then being received was at market value.

On those findings of his Honour, in my opinion, notwithstanding the small quantum of the pecuniary loss, an order under s 87(2)(a) would be appropriate and would have effected a more complete justice between the parties than the award of damages.  I agree with Carr J as to the general form of order that should be made subject to further submissions from the parties.

Challenge to Findings of Fact

25                  I have assumed thus far the correctness of his Honour’s findings of fact in relation to misleading or deceptive conduct, the possible response of the Tenjis to the proposed acquisition had they known the true position and the quantum of the loss which they suffered.

26                  The three findings of misleading or deceptive conduct referred to above were challenged by way of cross-appeal.  For the reasons given by Carr J, which I have had the advantage of reading, I agree that those cross-appeals do not succeed in this or in any other respect and should be dismissed.  As to the Tenjis’ challenges in relation  to his Honour’s failure to find misleading or deceptive conduct in respect of the non-disclosure of the easements and the inadequacy of the fuel tanks, it is not strictly necessary to decide those issues having regard to my views about the application of s 87 on the findings which his Honour did make.  Nevertheless, in my opinion, a finding of misleading or deceptive conduct in those respects, if anything, strengthens the case for avoidance of the contract under s 87.  I agree with Carr J that his Honour should have found misleading or deceptive conduct by reason of the non-disclosure of those matters.

Associate:

Dated:             

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

WHITLAM J

27                  I agree that the appeal and the two cross-appeals should be disposed of in the way proposed by Carr J.  I also agree generally with his Honour's reasons for judgment subject to one qualification.  I do not think it is necessary to make further findings of fact in respect of the alleged non-disclosure of the capacity of the underground tanks and of the registered easements.

28                  The trial judge found that s 52 of the Trade Practices Act 1974 ("the Act") had been contravened and that the appellants had suffered loss because the value of the property was less than the purchase price.  The causal connection between that loss and the contravening conduct was established.  The power to make the discretionary orders under s 87 of the Act was thus enlivened.  The appellants' case was that, but for the contravention of s 52 of the Act, they would not have entered into the contract to purchase the property.  Carr J demonstrates why an inference could not be drawn that, had the misleading conduct not occurred, the appellants would have proceeded with the purchase.  The contrary conclusion of the trial judge meant that the exercise of his discretion under s 87 of the Act miscarried.  In exercising that wide discretion afresh, regard may also be had to any loss or damage that the appellants are "likely to suffer".  This must include the risk on any re-sale to which the appellants are exposed in the circumstances described by Carr J.

29                  I should add that the view I have taken of the width of the powers under s 87 of the Act means that I also respectfully agree with what French J says about the observation by the majority in Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15 at 37.

Associate:

Dated:              May  2000

REASONS FOR JUDGMENT

CARR J:

Introduction

30                  This is an appeal, by the applicants at first instance, from a judgment of a Judge of this Court awarding them damages against the respondents in the sum of $13,005.  The learned primary judge found that the respondents had engaged in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) (“the Act”) in relation to the sale to the appellants of a service station business and that the appellants were entitled to damages pursuant to s 87 of the Act.  The appellants claim that the trial judge was in error in refusing to declare the contract of sale to be void and in limiting the amount of the loss or damage suffered by the appellants to $10,000 (plus overpayment of stamp duty and interest).  Each of the respondents cross-appeal.  The respective cross-respondents are referred to in the above heading.  I shall refer below in more detail to those cross-appeals.

Factual Background and the Proceedings at First Instance

31                  The following factual background is taken largely from the reasons of the trial judge.  The appellants are Mr Tenji (Snr) and Mr Tenji (Jnr).  The first respondent (“Henneberry & Associates”) carried on business as a real estate and settlement agent.  The second respondent, Palermo Nominees Pty Ltd (“Palermo Nominees”) carried on business as, inter alia, a service station proprietor and had done so for a number of years.  The third respondent (“Mr Palermo”) was a director of Palermo Nominees. 

32                  At some time before October 1996 Mr Tenji (Snr) and Mrs Tenji, in cooperation with neighbouring landowners, engaged the services of Henneberry & Associates to assist them in relation to the rezoning of certain land.  In the course of those activities Mr Tenji (Snr) and Mrs Tenji had frequent contact with Mr Henneberry and with Mr Murphy, a business broker employed by Henneberry & Associates.

33                  In October 1996, Mrs Tenji discussed with Henneberry & Associates whether it had a property on its books that would be suitable for purchase as an investment.

34                  On 6 November 1996 Palermo Nominees instructed Henneberry & Associates to offer for sale, at a price of $375,000, land and buildings on part of which a service station business was conducted at Hamilton Hill, a suburb south of Perth (“the property”).  Palermo Nominees had been the registered proprietor of the property since 1981 and had operated the service station between 1982 and 1984.  This was not the first time Palermo Nominees had offered the property for sale.

35                  On 8 November 1996 Mr Robinson, a salesman employed by Henneberry & Associates, informed Mrs Tenji that the property was for sale.  Mrs Tenji said that Mr Robinson told her that it would be an excellent investment.  Mr Robinson gave evidence that, at the time when he spoke to Mrs Tenji, he held the opinion that the property would provide a good return on investment.

36                  On 8 November 1996 Mr Tenji (Snr) and Mrs Tenji drove out to look at the property.  They did not go on to the property or speak to the operator of the service station.  The service station was at that time leased to and operated by Niandra Holdings Pty Ltd (“Niandra”).  Mr and Mrs Tenji said they did not notice high voltage power lines suspended between towers which traversed part of the property. 

37                  On 11 November 1996 Mr Tenji (Snr) and Mrs Tenji went to the office of Henneberry & Associates and spoke to Mr Murphy.  Mr Murphy had considerable experience in selling service stations, having sold forty or fifty in a period of 15 years.  Mr Murphy was aware that “there were always potential problems … with the fuel storage at service stations”.  Mr Murphy handed Mr and Mrs Tenji a leaflet, prepared by Henneberry & Associates on 6 November 1996, which set out information relevant to the service station.  The leaflet included statements that the service station was leased to Gull Petroleum (WA) Pty Ltd (“Gull”) until 30 June 1999 for a current rent of $55,296 per annum reviewable annually on 1 July, with an option for the lessee to renew the lease for a term of 5 years.  The “literage” of the service station was said to be “160,000 per month = 1,920,000 per annum”.

38                  Mr and Mrs Tenji gave evidence of the following representations alleged to have been made by Mr Murphy on behalf of Henneberry & Associates at the meeting on 11 November 1996:

1.    Mr Murphy said that he had more than seventeen years experience dealing with service stations and that the property –

       (i)      had only just come onto the market;

       (ii)     was worth more than $370,000 and was a desirable investment opportunity;

       (iii)    had development potential; and

       (iv)    was leased to Gull for an annual rent of $55,296 which was an excellent and reliable return on capital.

39                  Those representations were admitted by Henneberry & Associates, either in its defence or in the evidence which it adduced. 

2.    Mr Murphy also told Mr and Mrs Tenji that –

       (i)      the purchase of the property was a “golden” opportunity;

       (ii)     the lessee, Gull, would purchase the property immediately if given the opportunity;

       (iii)    when the property market picked up in February/March 1997 the purchaser could probably expect to sell it for approximately $500,000;

       (iv)    the property had potential for an entity like “BP” to redevelop it as a “BP Plus” service station/convenience store; and

       (v)     the service station was well equipped with good-sized fuel tanks.

40                  In its defence, Henneberry & Associates denied that such statements were made.  Henneberry & Associates adduced evidence from Mr Murphy to support that defence.

41                  The trial judge found that Mr Tenji (Snr) and Mrs Tenji were satisfied at that meeting that the property offered opportunity for further development.  The service station lease covered only two-thirds of the 2,600 square metre property and the remainder was undeveloped.  When the opportunity for further development was coupled with the represented return on investment provided by the service station lease, 14.75% according to the leaflet, it suggested to them that the property at the selling price represented a good investment. 

42                  An “offer and acceptance” form (“the Contract”) was prepared in which Mr Tenji (Snr) and Mr Tenji (Jnr) offered to purchase the property for $370,000.  Mr Tenji (Snr) signed the offer to purchase the property at the meeting on 11 November 1996.

43                  The decision to purchase the property was made by Mr Tenji (Snr) and Mrs Tenji.  It was their decision that Mr Tenji (Jnr) would purchase the property with his father.

44                  In the afternoon of 11 November 1996 Mr Tenji (Jnr) attended the offices of Henneberry & Associates and signed the offer and acceptance form.  At that time, so Mr Tenji (Jnr) swore, Mr Murphy told him, inter alia, that Gull had contracted to supply petrol to the site for the duration of the lease, including the renewed lease, and that there would be no difficulty in having the property rezoned as a commercial site if his parents wanted to develop it as a “mini-market”.  The trial judge said that as Mr Tenji (Jnr)’s decision to enter into the Contract was made to give effect to the decision to purchase the property that his parents had already made, nothing said by Mr Murphy at the time the offer and acceptance form was signed by Mr Tenji (Jnr) caused him to make the decision to enter the Contract. 

45                  Shortly after the offer was signed, on or about 12 November 1996, Mr Murphy telephoned Mrs Tenji and advised her that information he had provided regarding the lease was incorrect.  Mrs Tenji gave evidence that Mr Murphy said the lessee was Niandra and not Gull, that Niandra was a good operator and had a lease for the service station for seven years and that Gull had contracted to supply fuel to the site for the duration of that lease.

46                  On 12 November 1996 Mr Tenji (Snr) and Mr Tenji (Jnr) initialled an alteration to the offer document which recorded Niandra as lessee.  Settlement was effected on 29 November 1996.

47                  On 21 December 1996, Mr Tenji (Snr) received the duplicates of the two certificates of title for the property.  He took the duplicate certificates of title to Mr Murphy and asked the meaning of the shaded portions depicted on the plans of the property.  He said Mr Murphy responded that the shading probably represented the service station building which straddled both titles.  Mr Murphy did not mention an easement.

48                  In further discussions with the lessee, Mrs Tenji learnt of an easement in favour of what was, at the time of grant, The State Electricity Commission of Western Australia.  The easement restricted development of land under the power lines.  Mrs Tenji gave evidence that she telephoned Mr Murphy and asked if he was aware that there was an easement over the property, to which he responded that all commercial properties have easements.  [There are in fact two, relevantly identical, easements – one recorded on each of the two certificates of title.  I shall refer to them variously in the singular and the plural.]

49                  In February 1997 a director of the lessee (who I shall describe as “the lessee”) contacted Mr Tenji (Snr) and said that Gull had informed him that it intended to cease supplying petrol to the site because it was unprofitable for Gull to make small fuel deliveries.  The lessee also informed Mr Tenji (Snr) that the annual sales of fuel to the service station were 1 million to 1.2 million litres and that the business “had never sold anything like 2 million litres” per annum.

50                  In March 1997 the lessee wrote to Mr Tenji (Snr) and Mrs Tenji informing them that it had received a letter from Gull advising that it would cease supplying fuel to the service station on 14 April 1997.  A copy of Gull’s letter, dated 17 March 1997, was enclosed.  The relevant parts read as follows:

“This decision has been brought about by the high costs of servicing your site.  The problem of the small fuel holding on your site means that we have to deliver relatively small quantities of fuel on a high frequency basis.  The cost associated with these deliveries has made your site uneconomical for us to supply.

In addition to the above, the pricing in your area has become fiercely aggressive which has meant that if we are to keep you competitive we are often supplying fuel to you at below our cost price.

These two matters have been discussed with you on previous occasions and during February the situation came to a head with the low volume of fuel pumped by your site and the pricing that accompanied it.”

51                  On 27 March 1997 the appellants’ solicitors wrote to the respondents complaining about the misrepresentations which, according to their instructions, had been made and the misleading or deceptive conduct which had thereby occurred.  The letter also contained the following paragraph:

“Our client hereby rescinds the agreement.  If the rescission of the agreement is not accepted and the purchase price and costs of sale not repaid we have firm instructions to commence proceedings against Palermo and Henneberry for rescission of the agreement, damages and costs.”

52                  There was no response to that letter.  Messrs Tenji retained possession of the property.  Gull continued to supply fuel to the service station and Niandra continued to meet its obligations under the lease.

53                  In their application (so far as is now relevant) the appellants claimed that they relied upon representations made by Henneberry & Associates and Palermo Nominees in deciding to offer to purchase the property and that by making those representations Palermo Nominees and Henneberry & Associates engaged in misleading or deceptive conduct in trade or commerce in contravention of the Act.  They also sued Mr Palermo as being a person involved in that contravention and on the basis that he was liable to them in negligence.  They sought orders which included a declaration that the Contract was void ab initio and damages.

Statutory Framework

54                  Section 52 of the Act provides that:

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

55                  Section 87 of the Act provides that the Court may make such order or orders as it thinks appropriate against a person who engaged in misleading or deceptive conduct or who was involved in a contravention if the Court considers that the order or orders will compensate the person who has suffered, or is likely to suffer, loss or damage by that conduct.  That section is expressed in broad terms.  Orders of the type sought by the appellants are expressly referred to in s 87(2).

56                 Since writing the immediately preceding paragraph I have had the benefit of reading French J’s draft reasons for judgment and in particular his Honour’s review of the decisions relating to s 87.  I agree, respectfully, with his Honour’s assessment that Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 and the series of decisions of Full Courts of this Court to which his Honour refers, provide more authoritative guidance on the operation of s 87 than what was said in Trade Practices Commission v Milreis (1977) 29 FLR 144 and, by way of obiter dictum, in Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15.  I think that Parliament’s intention was quite clearly to confer on the Court wide discretionary powers, including the power to declare contracts void ab initio, in circumstances where the common law would not provide a basis for the grant of such relief.

The Decision at First Instance

The Representations

57                  The trial judge found that the representations set out below had been made in the course of the negotiations prior to sale.  His Honour then considered whether, in the context of the entire conduct of Henneberry & Associates and Palermo Nominees, the making of those representations constituted misleading or deceptive conduct upon which Messrs Tenji had relied in deciding to purchase the property.  The findings of fact made by his Honour in relation to the statements made at the meeting on 11 November 1996 between Mr Tenji (Snr), Mrs Tenji and Mr Murphy of Henneberry & Associates were as follows:

1.         “The property has just come on the market”

58                  The property had been offered for sale by Palermo Nominees in October 1994 for a price of $495,000.  Palermo Nominees had given selling agents (not Henneberry & Associates) an exclusive authority to sell the property for a period of 120 days.  The exclusive authority was reinstated for a period of 60 days in May 1995.  The lessee gave evidence that over two or three years prior to the sale to Messrs Tenji an agent had brought prospective purchasers to the property.

59                  Henneberry & Associates was aware that Palermo Nominees wanted to sell the property and, accordingly, Mr Robinson approached Palermo Nominees to obtain the “listing”.  The evidence was that the “listing” was sought to be able to offer the property to Mr Tenji (Snr) and Mrs Tenji as a suitable asset to purchase as an investment.

60                  His Honour found that it did not follow that failure to disclose that information invalidated a statement that the property was being offered for the first time to the market as it stood in November 1996.  His Honour said that there were sufficient circumstances to permit the conclusion that a statement that the property had “just come on the market” although, as his Honour put it, “on the margin of accuracy” was not rendered inaccurate by refraining to say that the property had been offered for sale between October 1994 and July 1995.  The trial judge found that this was not conduct that was misleading or deceptive.

2.         “The property is worth more than $370,000 and represents a good opportunity to obtain a property that could be resold for $500,000 in the short term.”

61                  The primary judge found that the worth of the investment and, therefore, the opportunity to acquire it for the price of $370,000, depended upon the return that could be generated by the investment over the period the investment was held and the prospect of the value of the property being enhanced by further development on the land.

62                  His Honour found that Mr Murphy’s experience in service station sales and his enthusiasm for the property as an investment conveyed to Mr Tenji (Snr) and Mrs Tenji that at a price of $370,000 to $375,000 the property represented a good opportunity. 

63                  The primary judge also found that the rental payable under the lease did not reflect and was higher than the market rental payable for the business conducted on the property.  The rent paid under the agreement between Palermo Nominees and Niandra was distorted because Gull paid an inflated margin on sales to Niandra and Palermo Nominees received a corresponding increase in the rent payable by Niandra.  [The origins of this arrangement were that:

·          between 1982 and 1994 Palermo Nominees had received a payment from the Shell Company of Australia Limited (“Shell”) for maintaining the site as a Shell Service Station;

·          Palermo Nominees owned and operated several service stations and thus had some market power as a purchaser; and

·          When Gull became the supplier of fuel to the site, it was agreed that Palermo Nominees would continue to receive a benefit similar to the amount paid to it by Shell, but via Niandra.]

64                  His Honour held that the return received by the vendor as lessor could not be relied upon as reflecting the underlying value of the property.  Mr Murphy, as an experienced broker, may have been expected to be aware of this but for the misrepresentation to him, by Palermo Nominees, of the annual volume of fuel sold on the leased premises.

65                  His Honour also held that, given that the value of the property was $360,000 (as found by him later in his reasons), the statement that the property was worth more than $370,000 and represented a good opportunity, was not in accordance with fact, was more than “puff” and was misleading conduct under the Act.  The statement was “… directed to obtaining a commitment to purchase the property without regard to the limitations on value imposed by a number of circumstances”.

66                  [His Honour found there was no evidence to support the pleading that “at the time the property was offered for sale, Henneberry & Associates and Palermo Nominees knew, and failed to disclose to Messrs Tenji, that on a number of occasions prior to November 1996 Gull had threatened to cease supply of fuel to the service station because, inter alia, of the frequency of deliveries required to be made to serve small-capacity fuel tanks.  The appellants had pleaded that Palermo Nominees had persuaded Gull to withdraw its threats and continue the supply of fuel.  His Honour said the only evidence on this point was that Gull had raised the issue of frequency of deliveries with Niandra in February 1997 and in discussions several months before that.]

3.         “The service station is a desirable investment and Gull would purchase it if given the opportunity.”

67                  The trial judge found that the impression conveyed to Mr Tenji (Snr) and Mrs Tenji by Mr Murphy was that it could only make commercial sense for Gull to buy the property as Gull, as lessee, was providing a high rate of return for the lessor’s investment and would be better off buying the property.  His Honour found that the principal impact of this representation fell away when Mr Murphy told Mr Tenji (Snr) and Mrs Tenji that Gull was not the lessee.  However, the statement reinforced the representation that the market rent provided a good return on the investment.

4.         “The property has development potential”

68                  His Honour found that the property did have potential for further development and the representation as made, in broad terms, did not amount to misleading conduct.  It was admitted by Henneberry & Associates that Mr Murphy told Mr Tenji (Snr) and Mrs Tenji that the vendor had contemplated developing the property as a “BP Plus” site, but no plans had been submitted to the local authority.  His Honour said that this was not a statement an ordinary purchaser would or could have taken to be a representation of particular worth of the property.

5.         “The rental of $55,296 per year represents an excellent and reliable return on capital.”

69                  The primary judge found that by making this statement and failing to reveal how the rent had been constructed, Palermo Nominees and Henneberry & Associates had engaged in misleading conduct.  The rent being paid under the lease was not market rent and it did not represent a return on investment set by the market.  The evidence of two valuers was that the net market rental at the relevant time was $34,500 per annum.

6.         “1.92 million litres of fuel per annum is sold at the service station”

70                  In the year ending October 1996, 1.612 million litres of fuel was sold at the service station.  The trial judge said there was no doubt that the conduct of Palermo Nominees in representing that 160,000 litres per month were sold at the service station, and the conduct of Henneberry & Associates in representing that the annual volume of sales was 1.92 million litres constituted misleading conduct contrary to s 52 of the Act.

Reliance

71                  The trial judge was satisfied that Mr Tenji (Snr) and Mrs Tenji relied upon the conduct which his Honour found constituted misleading conduct under the Act when they offered to purchase the property for $370,000.  He said:

“That conduct would have caused Mr Tenji (Snr) and Mrs Tenji to understand that the price to be offered by them was less than the true value of the property and, therefore, a “safe” price at which to purchase the asset.  They would have been encouraged to make the decision to buy the property for that price by the assurance implicit in that conduct that the return on the investment as set by the market would be a high return providing security for the value of the asset as well as a good level of income.  The effect of the representations was to convince Mr Tenji (Snr) and Mrs Tenji, very quickly, that an offer to purchase the property should be made at, or near, the vendor’s asking price.”

Liability for misleading or deceptive conduct

72                  As mentioned above, his Honour found that Palermo Nominees and Henneberry & Associates had engaged in misleading or deceptive conduct.  He also held that Mr Palermo was a person knowingly concerned in the contravention by Palermo Nominees.  By that finding his Honour identified Mr Palermo as a person “who was involved in the contravention” and thus a person against whom orders could be made under sections which included s 87 of the Act – see s 75B and s 87(1).

Value of the Property

73                  Evidence was adduced from two licensed valuers as to the value of the property at the time of acquisition on 29 November 1996.  Mr Dunn, who was called by the appellants, said that the value of the property was $271,000.  Mr Zucal, called by Henneberry & Associates, said that the property was worth $368,000.

74                  His Honour preferred the evidence of Mr Zucal (who calculated the value using a capitalisation rate of 12.5% of net market rental and added some value for the vacant land).  His Honour found that a reasonable purchaser, aware of the various matters likely to impact upon the purchase of such a business and, therefore, upon the security of the return obtainable from an investment in land on which such a business was conducted, would have regarded $360,000 as an appropriate price to be paid for the property.

75                  His Honour calculated the value of the property at $360,000, based on :

·       the net market rent of $34,500 capitalised at 13.5% (approximately $255,000);

·       the “super” rent (ie. rent receivable by the purchaser as assignee of the vendor’s interest under the lease for the balance of the term of the lease) $43,000;

·       the vacant land $67,000 (depreciated for the effect of the easement); and

·       a deduction of $5,000 for the cost of obtaining amendment of the easement and for further incidentals and contingencies in respect of using the vacant land in a manner compatible with the easement.

Loss

76                  The trial judge said that the principal loss occasioned by the conduct was the expenditure of $10,000 more than the property was worth.

77                  The trial judge was not satisfied in all the circumstances that an order under s 87 of the Act, having the effect of an order for rescission in equity, was appropriate.  The trial judge said that the appellants had paid more for the property than it was worth, however, the overpayment was not a substantial sum and the facts suggested that Messrs Tenji may not have made a different decision had the misleading or deceptive conduct not occurred. 

78                  His Honour found that calculation of the loss suffered and an order that the appellants be recompensed in that sum, was the appropriate remedy.  The loss suffered on the settlement of the purchase was the sum of $10,000 paid in excess of the value of the property, and the overpayment of stamp duty in the sum of $455.  Damages for loss of use of those sums was calculated by applying a rate of interest of 8.5% from the date of settlement to the date of judgment which amounted to $2,550.

79                  His Honour held that had the effect of the misleading conduct been removed, namely that the property represented good value at $370,000 (in fact no more than $360,000), that the annual volume of fuel sold was 1.92 million litres (in fact 1.612 million litres), and that the market rent for the service station was, as paid under the lease $55,296 per annum (in fact $34,500 per annum), it was likely that Messrs Tenji would have offered $10,000 less than the asking price and that sum would have been accepted.

80                  His Honour said that there were no circumstances in this case which would permit the calculation of loss to include a decline in value occurring since the date of purchase.  He said:

“It is to be remembered that any consideration of whether an offer should be made to purchase the property, made free of the impact of the conduct found to have been misleading, would not have included knowledge of Gull’s misgivings about continuing fuel supplies to the site due to inadequacy in the fuel tanks, or of restrictions on development of the property imposed by the easement.”

Grounds of Appeal

81                  The grounds of appeal can be summarised as follows (the numbering below does not coincide with the numbering in the Notice of Appeal):

1.         The trial judge erred in law in refusing to grant rescission under s 87 of the Act in that:

(a)        The evidence of the appellants was in effect that but for the respondents’ misrepresentations they would not have offered to purchase and purchased the property; and

(b)        There was no evidence to support the trial judge’s conclusion that had the misleading conduct not occurred and the appellants understood the value of the property was as the trial judge found $360,000, it was likely that they would have offered that sum.  The trial judge ought to have found that had the appellants known the true position, they would not have offered to buy the property at the price offered or at all.

2.         The trial judge erred in excluding from his consideration of whether an offer would be made, Gull’s misgivings about continuing fuel supplies, and the restrictions imposed by the easement.

3.         The trial judge erred in law to the extent that he refused to grant rescission on the grounds that the appellants did not undertake an obligation to account to the second respondent from day to day.

4.         The trial judge erred in that, in effect, he imposed on the appellants the risk that the property was worth less than the amount determined by the trial judge when, in justice, that risk should have been imposed on the respondents who by their misleading conduct induced the purchase of the property. 

5.         The trial judge erred in law in determining the appellants’ loss at $10,000.

6.         The trial judge erred in finding in substance that there were no circumstances at the date of the trial material to the valuation, and in fixing a value based on a return of 13.5% based in part on the increased volumes of fuel sold in 1995-1997 over 1993 and 1994.  The trial judge, in determining the value of the property, failed to have any or sufficient regard to the evidence that, as at the date of the trial:

(a)        the tenant did not intend to renew at the end of its lease;

(b)        the fuel supplier, Gull, intended to cease to supply as quickly as possible;

(c)        the decreasing sales of fuel from 1995;

(d)        there was no or limited alternative commercial use of the service station site;

(e)        the limitation on development of the property in the event the SEC agreed to vary the easement; and

(f)         the costs of the required vapour recovery system and upgrade of the service station building and of the costs of removal of the encroachments, soil decontamination and subdivision in respect of the suggested second lot.

7.         The trial judge erred in failing to find that non-disclosure of the easement was itself misleading conduct in breach of s 52 of the Act which caused the appellants’ loss.

8.         The trial judge erred in failing to find that the non-disclosure of the problems of supply inherent in inadequate tanks was itself misleading.

The Cross-Appeals

82                  Henneberry & Associates cross-appealed on three main fronts.  First, they challenged the primary judge’s three findings of misleading conduct.  Secondly, they contended that the primary judge had erred in law by dismissing its cross-claim against Mr Palermo and Palermo Nominees.  Henneberry & Associates contended that the primary judge, having found that they had “at all times acted within the authority, ostensible and actual, provided by the instructions to act as agent for Palermo Nominees”, should have found that, to the extent to which Mr Palermo and Palermo Nominees were negligent in providing information to them, they were entitled to an order that they indemnify them for any liability to the appellants.  Thirdly, they challenged the primary judge’s decision on costs. 

83                  Mr Palermo and Palermo Nominees also cross-appealed.  In their cross-appeal they challenged the primary judge’s three findings of misleading or deceptive conduct.  One of those challenges was abandoned at the hearing of the appeal.  They also challenged the primary judge’s decision to dismiss Palermo Nominees’ cross-claim against Henneberry & Associates for indemnity in respect of such amounts as they were ordered to pay to the appellants.  Finally, they too challenged the primary judge’s exercise of discretion in relation to costs.

My Reasoning

84                  I turn first to the challenges, made in the cross-appeals, to the primary judge’s three findings of misleading conduct.  Henneberry & Associates referred to the first representation which, as pleaded, was:

“That the service station was worth more than $370,000 and when the property market picked up in February/March 1997 the purchaser could confidently expect to sell it for approximately $500,000.”

85                  They submitted that the trial judge had made a different finding which was “tantamount to a rejection of the appellants’ allegation”. 

86                  His Honour’s findings in relation to this matter were as follows:

“First, Mr Murphy may not have used the word “golden” but his experience in service station sales and his enthusiasm for the property as an investment conveyed to Mr Tenji (Snr) and Mrs Tenji that at a price of $370,000 or $375,000 the property represented a good opportunity.

. . .

Third, Mr Murphy may not have said in precise terms that the property could be sold in February/March 1997 for $500,000 but by saying that “when you’re getting into the second operative part of the lease” the property might be worth $500,000, he used words which indicated that the property was an appreciating asset capable of reaching a value of $500,000 in the short term.”

87                  In my opinion, this was not a different finding.  Contrary to the submissions made on behalf of Henneberry & Associates, it is consistent with the evidence given by Mr Murphy and Mr and Mrs Tenji and it is a matter which the appellants asserted was represented to them and on which they said they relied.  The representation as found was, in my view, substantially as pleaded and as given in evidence.

88                  Both cross-appellants challenged the second representation which was pleaded as:

“the service station was leased to Gull for $55,296.00 p.a. which represented an excellent and reliable return on capital.”

89                  It is to be noted that Henneberry & Associates (in para 13 of their re-amended defence) admitted making a representation in these terms.  Mr Palermo and Palermo Nominees, in their defence, did not admit (but did not deny) that the statement had been made, but pleaded that if Mr Murphy had made such a representation, he did so without their actual or implied authority, and that it was mere puffery upon which no reasonable reliance could be placed.

90                  Both cross-appellants challenged his Honour’s finding that “the implied statement of this representation was that the rent being paid on the lease was a market rent on which the value of the property could be calculated”.  Henneberry & Associates submitted that such a finding was neither consistent with the evidence nor part of the pleaded case of the appellants.  Mr Palermo and Palermo Nominees made a similar submission.

91                  In my opinion, to say that a particular rental represented an excellent and reliable return on capital is synonymous with saying that the rent being paid under the lease was at least a market rent on which the value of the property could be calculated.  Something can be seen to be “excellent” when it is compared with a norm.  Where an excellent return on capital is concerned, the comparison must surely be derived from the market place.  A reliable return might include an inflated, above-market rent payable by a tenant with the means to afford it, but the more natural meaning is that it is a sustainable (i.e. market) rent.

92                  In my view there was no error on his Honour’s part in reaching that conclusion.  I respectfully agree also with his Honour’s conclusion that:

“If that circumstance [the arrangement whereby payments from Gull to Niandra enabled a higher rent to be paid to Palermo Nominees] was not to be disclosed, no statement should have been made to an intending purchaser which implied that the rent represented a return on investment set by the market.  The conduct of making the statement and failing to reveal how the rent had been constructed was misleading conduct by Palermo Nominees and Henneberry & Associates.”

93                  The cross-appellants argued that the representation was not misleading because the appellants wanted an investment property, not a business to operate.  That submission overlooks the reality that the value of such an investment depends substantially on both the viability of the business conducted upon it and the rent upon which that value is calculated being a genuine and sustainable market rental and not one which has been inflated by special or unusual circumstances.

94                  This is not an area in which fine linguistic distinction carries much weight.  The question for the trial judge was whether the relevant conduct of the respondents was, in all the circumstances, misleading or deceptive.  In my view, the trial judge reached the right answer. 

95                  Next the cross-appellants challenged his Honour’s conclusion that the, admitted, making of the statement (contained in the document given to the appellants) that:

“1.92 million litres of fuel per annum was supplied to the service station and sold by the lessee and operator of the service station.”

amounted to misleading or deceptive conduct.  They contended that any representation about the lessee’s fuel sales, in circumstances where the rental was fixed by the lease, could not have been a factor upon which the appellants relied in deciding to buy the property.  Furthermore, his Honour’s conclusion that it would be assumed that market rent would be tied to the volume of sales, was, so it was put, contrary to the evidence given by the valuers called on either side and in particular by Mr Zucal, whose evidence the trial judge preferred.

96                  I accept the appellants’ submission that the representation as to the volume of fuel sold was clearly made with the intention of inducing them to act on it.  They in fact entered the contract after such representation (and others, all calculated to portray the property as a good investment) had been made.  In those circumstances it may be inferred, fairly, that the appellants were so induced: Gould v Vaggelas (1985) 157 CLR 215 at 236; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 578.  Krakowski was a case with some similarities to the present matter.  More importantly, the trial judge found reliance as a fact.  His Honour had the advantage of seeing Mr Tenji (Snr) and Mrs Tenji give their evidence.  It was clearly open, on the evidence before him, to make such a finding.

97                  We were taken by the cross-appellants to some cross-examination of Mr Tenji (Snr) in which he admitted that he did not know anything about service stations.  However, on the other hand, the representation as to the sales of fuel was made in the context of Mr Murphy, being a very experienced dealer in service stations, presenting a very desirable property – see, for example, Mrs Tenji’s evidence at p 196 of the Appeal Book.  Furthermore, it can be seen from the evidence of both Mr Dunn and Mr Zucal (at pp 579 and 621 of the Appeal Book) that each of these witnesses related rental rates to fuel throughputs.  In fact, Mr Zucal calculated the fair market rental value by applying a rate of 2.4 cents per litre of actual sales.  His Honour’s conclusion about that link was well and truly justified on the evidence.

98                  In my opinion, this admittedly false representation formed part of a course of conduct which represented what a good purchase the property was.  His Honour was entitled to find that it was part of the conduct which induced the appellants to purchase the property.

Should the primary judge have found further misleading or deceptive conduct?

99                  Next, I turn to two grounds of appeal, advanced by the appellants, to the effect that his Honour, having found some additional duly pleaded misrepresentations, should have held that non-disclosure of two specific matters also constituted misleading conduct in breach of s 52 – see grounds 5 and 6 of the Notice of Appeal.

100               The appellants contended that his Honour having found that:

·       the various express representations had been made, including that the property had development potential, that it would be to Gull’s advantage to purchase the property, and that Palermo Nominees had contemplated developing the property as a “BP Plus” site;

·       the appellants were satisfied from the representations that the property offered opportunity for further development;

·       that Henneberry & Associates had not disclosed to the appellants the existence and nature of the SEC easements

he should have found that non-disclosure of those easements was itself misleading conduct in breach of s 52 of the Trade Practices Act.  Furthermore (ground 6) having found:

·          that express representations were made to the effect that the fuel tanks were of an adequate size; and

·          (implicitly) that the tanks were inadequate and that Gull intended to cease supplying the service station in consequence

the trial judge should have found, as pleaded, that the non-disclosure of the problems of supply inherent in inadequate tanks was itself misleading conduct in breach of s 52 of the Trade Practices Act, which caused the appellants to sustain loss.

101               Counsel for Palermo and Palermo Nominees submitted that the complaints of non-disclosure of the easements, made in the statement of claim, were made against Henneberry & Associates as settlement agent and that nothing was alleged against Palermo or Palermo Nominees. 

102               In my view, that is not a correct assessment of the situation.  It is sufficient to refer to paragraphs 12, 13 and 14 of the statement of claim which show that these claims were made against both Henneberry & Associates and Palermo Nominees.

103               Mr Murphy’s evidence was that he told Mr Tenji (Snr) and Mrs Tenji, at their first meeting, that there was an easement on the property for the overhead power lines and that he gave them a photocopy of the search of the certificates of title.  His Honour did not accept Mr Murphy’s evidence, but preferred Mr Tenji (Snr) and Mrs Tenji’s evidence to the effect that such information was not provided.  Furthermore, his Honour accepted Mr Tenji (Snr)’s evidence that when he received the duplicate certificates of title, he took them to Mr Murphy and asked what were the shaded portions depicted on the plans of the property shown in those documents.  Mr Murphy had said that the shading probably represented the service station building which straddled both titles.  His Honour found that, again, Mr Murphy did not say anything about an easement.

104               At para 34-39 of his reasons, his Honour summarised the relevant basic principles relating to s 52.  For example, at para 34 he said this:

“The question to be asked is whether conduct, which in totality may consist of acts, omissions, statements and silence, has created an impression which is, or is likely to be, misleading or deceptive.  It is the entire conduct that is relevant, not restricted to positive events such as acts or statements.”

105               At para 36 his Honour said that in the present case, the representations made were to be considered with other elements of conduct.  His Honour then referred to two of the leading cases relating to silence as conduct consisting of refraining from doing an act when circumstances provide the reasonable expectation that disclosure of relevant facts will be made.

106               The problem with this part of his Honour’s judgment, as I see it, is that he then proceeds to focus on the representations but, with one exception, does not deal with these two pleaded matters of non-disclosure.  Mr A Metaxas, counsel for Mr Palermo and Palermo Nominees conceded that his Honour had not dealt with the plea [in para 12(4) of the Statement of Claim] concerning non-disclosure of the easements as part of the misleading or deceptive conduct (see transcript p 52).  The exception is a reference, in para 50, to failure to reveal how the rent had been constructed, when stating that it represented an excellent and reliable return on capital.

107               I interpose at this stage, to note, in relation to the inadequate tanks, that his Honour also made an express finding in relation to that matter.  At para 15 of his reasons, his Honour stated that he was satisfied that the tenor of Mr Murphy’s remarks to Mr and Mrs Tenji was to the effect that a purchaser would not be required to consider whether the operation of the service station would be affected by inadequacy in the size of the fuel tanks.  This was a matter pleaded in para 12(1)(b) of the Statement of Claim as one which Palermo Nominees and Henneberry & Associates failed to disclose to the appellants.

108               It is quite clear from the evidence (see for example Gull’s letter of 17 March 1997, referred to in para 28 of the reasons) that the inadequately-sized tanks were a major problem.  Similarly, in my view, the existence of the easements was a very significant matter in the context of a property which was being recommended as having potential for further development.  The plans referred to in the grants of the easements (see pages 632 and 635 of the Appeal Book) show that they cover well over half the property.

109               In my view, failure to disclose the easements and failure to disclose the inadequacy of the petrol tanks amounted to two items of relevant conduct which individually constituted misleading or deceptive conduct and certainly formed part of the overall misleading or deceptive conduct of the respondents.  The appellants were entitled to findings to that effect.  I shall refer to those two items of conduct as “the additional misleading or deceptive conduct”.

110               In the light of the overall conduct of Palermo Nominees and its agent Henneberry & Associates and, in particular, in the light of the three misrepresentations which his Honour found, I think that he erred in not dealing with the issues raised by these further two non-disclosures.

Whether the primary judge erred in refusing to grant rescission under s 87 of the Trade Practices Act

111               I think that it will assist in understanding my reasoning if I set out (as I do below) the relevant paragraphs from his Honour’s reasons for judgment:

“Loss

77  As described above, the principal loss occasioned by the conduct was the expenditure of $10,000 more than the property was worth. That loss is calculated after taking into account as a capital sum the benefit received from the “super” rent payable under the lease and no offset is required for the revenue advantage received as a result of the purchase. Although Messrs Tenji purported to rescind the transaction in March 1997, the notice of rescission was qualified in that if Palermo Nominees did not “accept” rescission and retake possession of the property, Messrs Tenji would seek an order from the Court to rescind the bargain either under the general law, or pursuant to s 87 of the Act. Although the solicitor’s letter in March 1997 referred to Messrs Tenji having no alternative but to act as caretakers if the matter was not resolved promptly, it appeared that after March 1997 Messrs Tenji retained possession of the property on their own account and did not undertake an obligation to account to Palermo Nominees from day-to-day thereafter, a result that would have followed actual rescission, leaving it to the Court to adjudicate upon the validity of that act at law. (See: Alati v Kruger (1995) 94 CLR 216 at 223 – 224.) Accordingly, the relief sought by Messrs Tenji in these proceedings was expressed in the alternative, namely, as a claim for an order under s 87 of the Act declaring the agreement for the sale of the property “void ab initio” or an order for the payment of damages.

78  I am not satisfied that in all the circumstances of this case, an order under s 87 of the Act, having the effect of an order for rescission in equity, is appropriate. Although Messrs Tenji paid more for the property than it was worth, the overpayment was not a substantial sum, and that fact suggests that they may not have made a different decision had the misleading or deceptive conduct not occurred.

79  Calculation of the amount of loss suffered and an order that Messrs Tenji be recompensed in that sum is the appropriate remedy. The loss suffered on settlement of the purchase was, the sum of $10,000 paid in excess of the value of the property, and the overpayment of stamp duty in a sum of $455. Damages for loss of use of those sums is to be calculated by applying thereto an appropriate rate of interest from the date of settlement to the date of judgment. It was not in issue that the appropriate rate is 8.5 per cent. The amount of interest, compounded on annual rests, is $2,550.00.

80  ... As indicated above, had the misleading conduct not occurred and Messrs Tenji understood that the value of the property was $10,000 less than the asking price, it is likely in the circumstances that they would have offered that sum and it would have been accepted. That is, if the effect of the misleading conduct were removed, namely that the property represented good value at $370,000; that the annual volume of fuel sold was 1.92 million litres; and that the market rent for the service station was, as paid under the lease, $55,296 per annum; and Messrs Tenji had been informed that the annual volume of fuel sales was 1.612 million litres and the market rent $34,500 per annum, they would have been able to determine that no more than $360,000 should be offered for the property. It is to be remembered that any consideration of whether an offer should be made to purchase the property, made free of the impact of the conduct found to have been misleading, would not have included knowledge of Gull’s misgivings about continuing fuel supplies to the site due to inadequacy in the fuel tanks, or of restrictions on development of the property imposed by the easement.”

112               It should be noted, as his Honour pointed out, that the appellants did not seek equitable rescission; they sought that type of relief only under s 87 of the Trade Practices Act.

113               In my view, the notice of rescission was not qualified.  I have set out earlier the relevant paragraph in the letter dated 27 March 1997 from the appellants’ solicitors to the respondents.  But I think it is worth setting it out again.  It read:

“Our client hereby rescinds the agreement.  If the rescission of the agreement is not accepted and the purchase price and costs of sale not repaid we have firm instructions to commence proceedings against Palermo and Henneberry for rescission of the agreement, damages and costs.”

114               Even in terms of the requirements of equity, in my opinion, this was a very clear notice of rescission.  The authorities show that the operation of s 87 of the Trade Practices Act is not, in any event, to be constrained to the application, by analogy, of equitable principles.

115               Nor, in my view, would the fact that the appellants retained possession of the property and did not undertake an obligation to account to Palermo Nominees from day to day thereafter, provide any bar (even in equity) to the granting of rescission.  The respondents chose to ignore the notice of rescission.  The fact that equity might impose, as a condition of granting relief, an obligation to account, would not stand in the way of the grant of the principal relief on the basis that the appellants had not, in advance, undertaken an obligation to account on a daily basis.  The circumstances of this matter are simple and straightforward; even more straightforward than the ongoing conduct and subsequent abandonment of the fruit business in Alati v Kruger (1955) 94 CLR 216.  In essence, the appellants have received, presumably, some rent and have foregone some interest on the monies which they outlaid in purchasing the property.  There is not much to be untangled.  In my view, nothing in cases such as Alati v Kruger would have required the appellants to account to Palermo Nominees on a day to day basis during the period leading up to the trial.  There is no such equitable straightjacket and the application of s 87 should not be thus restricted.

116               Furthermore, I accept the submissions of Mr C Zelestis QC (senior counsel for the appellants), that in all the circumstances the appellants had little choice but to retain possession of the property until the matter came to Court and their application for statutory relief could be heard and determined.

117               To the extent that his Honour, in refusing relief under s 87, was influenced (as he appears to have been) by the matters referred to in para 77 of his reasons, I consider, with respect, that he fell into error.

118               There is, in my view, a more fundamental error disclosed by his Honour’s reasoning.  That is his Honour’s conclusion that if the misleading or deceptive conduct had not occurred, the appellants would still have purchased the property by making an offer of $360,000, which would have been accepted.

119               To start with, at no stage in the trial was that proposition put to the appellants.  On the contrary, we were taken to the transcript of cross-examination of each of the three members of the Tenji family involved which showed that the yield of about 14.5 per cent per annum was very attractive to them.

120               At paras 16 and 43 of his reasons, his Honour said this:

“16.  Mr Tenji (Snr) and Mrs Tenji were satisfied at that meeting that the property offered opportunity for further development.  The service station lease covered only two-thirds of the 2,600m² property and the remainder was undeveloped.  When the opportunity for further development was coupled with the represented return on investment provided by the service station lease, 14.75 per cent according to the leaflet, it suggested to them that the property at the selling price represented a good investment.  As a result, an “offer and acceptance” form was prepared in which Messrs Tenji, as purchasers, offered to purchase the property for $370,000.

         . . .

 43    The worth of the investment and, therefore, the opportunity to acquire it for the price of $370,000, depended upon the return that could be generated by the investment over the period the investment was held and the prospect of the value of the property being enhanced by further development on the land.”

121               I am simply unable to reconcile those findings with an inference that if Messrs Tenji had been told that the market rent for the property was $34,500 they would still have offered $360,000 for the property.  It assumes a willingness on their part to outlay that sum for an investment which would yield an income return of 9.6 per cent per annum plus a relatively short-term (two and a half years) inflated rent having a then capital value of $43,000, on the basis that the unleased portion was to be regarded as having a value of $67,000.  [This figure of $67,000 was Mr Zucal’s assessment of the worth of the vacant land having regard to its prospective use.]  All this on the further basis that the grossed up sum of these components was to be reduced by $5,000 for “incidentals and contingencies” in respect of using the vacant land in a manner compatible with an easement, the existence of which they were notionally deemed to know nothing about.  This was not the sort of transaction they were looking for.  There is no evidence, for example, to suggest that the Tenjis were interested in purchasing, for $43,000, a short-term income stream.  The package which results in a valuation of $360,000 was so significantly different to the investment which they were looking for that I do not think that it was open to infer that they would have proceeded with the purchase at all, let alone at a price reduction of only 2.7 per cent.

122               Further, as senior counsel for the appellants pointed out, the reference in para 80 of his Honour’s reasons, to removing the effect of the first of the misrepresentations (“that the property represented good value at $370,000”) is a short and incomplete statement of that part of the misleading conduct found by his Honour.  At para 15 of his reasons, his Honour found that Mr Murphy conveyed to Mr Tenji (Snr) and Mrs Tenji that at a price of $370,000 or $375,000, the property represented a good opportunity, but also indicated that the property was an appreciating asset capable of reaching a value of $500,000 in the short term.  His Honour may well have been using shorthand in para 80, but the omission is an important one in the context of assessing what the appellants would have done if none of the misleading or deceptive conduct had been engaged in.

123               It was not appropriate, in my view, having found that the misleading or deceptive conduct caused the appellants to enter into the Contract, to subdivide that causal effect into the effect upon the very decision to buy and the effect as to how much to pay.  I accept the appellants’ submission in that regard.  That was not how the case was fought.

124               Another minor matter is that in reconstructing what Messrs Tenji may have understood, it is not correct to say that they would have understood that the value of the property was $10,000 less than the asking price.  The asking price was $375,000.  His Honour found that the property was worth $360,000 i.e. $15,000 less than the asking price.

125               The primary judge concluded that if Messrs Tenji had been informed that the annual volume of fuel sales was 1.612 million litres and the market rent $34,500 per annum, they would have been able to determine that no more than $360,000 should be offered for the property.  With respect, I do not think that this was a realistic conclusion.  The fair value of the property was the subject of expert disagreement on either side, not as to the market rent, but mostly as to the appropriate capitalisation rate and the value of the vacant land.  Nevertheless, there was a disparity in the expert valuations of some $97,000 (Mr Zucal’s $368,000 and Mr Dunn’s $271,000).  The evidence shows that the property had peculiarities which made it difficult to value.  It was only after a full scale trial that, by judicial determination, the property was found to be worth $360,000.  To attribute to the appellants an ability, at the pre-contract stage, to work all this out is not, in my respectful opinion, a reasonable inference.  Would the appellants have retained a valuer if they had been informed that the annual volume of fuel sales was 1.612 million litres and the market rent $34,500 per annum?  If so, would that valuer have got it so right as to reach a figure on the basis, not of Mr Zucal’s capitalisation rate of 12.5 per cent or Mr Dunn’s capitalisation rate of 15 per cent, but his Honour’s capitalisation rate of 13.5 per cent?  Given the imprecision of the exercise, might not the appellants have chosen to offer a lower figure than one quite so high in the range?  Even if they had offered $360,000, would the vendors have accepted that offer?  None of these matters were put to the witnesses. 

126               At the very end of the reasoning set out above, his Honour excluded from the appellants’ hypothetical knowledge, misgivings about continuing fuel supplies to the site due to inadequacy in the fuel tanks, or of restrictions on development of the property imposed by the easements.  But Mr Zucal had to know about these matters for the purpose of reaching his valuation.  His Honour (at para 70 of his reasons) before choosing 13.5 per cent as the appropriate yield commented that:

“… a reasonable purchaser aware of the various matters likely to impact on the conduct of such a business and, therefore, upon the security of the return obtainable from an investment in land on which such a business was conducted, may have been satisfied by a yield of 12.5 per cent as a yield sufficient to take into account the depreciating effects of the easementon the property and the cost of overdue repairs, maintenance and improvements”.  (Emphasis added).

127               If a reasonable purchaser is to be equipped with this extent of information when selecting an appropriate yield for valuation purposes then a fair hypothesis would likewise equip Mr Tenji (Snr) and his wife or their valuer, had they retained one.

128               Furthermore, as the appellants contend in ground 2(6) of their Notice of Appeal, there was a risk, arising out of the imprecise nature of the valuation exercise, that the property could not be re-sold for $360,000.  The effect of his Honour’s decision was to require the appellants to bear that risk.  In the context of contravention by the respondents of a statute whose enforcement involves matters of both private and public interest, it seems to me to be appropriate (assuming no countervailing factors) that the wrongdoers be shouldered with any such risk.

129               I reach these conclusions without taking into account (otherwise than in the context of a valuation exercise) of the additional misleading or deceptive conduct to which I have referred above.  When those factors are added, the scale weighs even more heavily in favour of granting the appellants the relief which they sought from the outset, and for which they promptly brought proceedings.

130               In my view, the appeal should be allowed.  Orders should be made declaring the contract made between the appellants and Palermo Nominees to be void ab initio.  There should be consequential orders whereby the respondents compensate the appellants for their reasonable expenses relating to the purchase, including stamp duty, settlement agency fees, title registration fees and the like.  There should also be an order whereby, on the one hand, the respondents compensate the appellants for the loss of interest on the monies outlaid for the purchase and, on the other hand, the appellants account to the respondents for any net financial benefit which has accrued to them by reason of their possession of the property.  Other consequential orders may be appropriate to do justice between the parties.  I would hear argument from counsel in that regard, or take further written submissions.

The balance of the second and third respondents’ cross-appeal

131               The next item in this cross-appeal was a challenge to the primary judge’s refusal to order the first respondent (Henneberry & Associates) to indemnify the second and third respondents (Mr Palermo and Palermo Nominees).  His Honour’s decision in that regard was expressed as follows:

“There can be no doubt that in making the representations it did Henneberry & Associates, in the main, relied upon material supplied by its principal, and, in any event, at all times acted within the authority, ostensible and actual, provided by the instructions to act as agent for Palermo Nominees.  The cross-claim of Palermo Nominees against Henneberry & Associates cannot succeed.”

132               Mr A Metaxas, counsel for the second and third respondents, submitted that the primary judge erred in finding that whatever representations were made were within the actual or ostensible authority of Henneberry & Associates.  He contended that such authority did not extend to making representations which were totally untrue and “were never within anyone’s contemplation when the appointment was made”.  Mr Metaxas described as “the most glaring example of that” the representation concerning the likelihood that the property would appreciate in value to approximately $500,000.  He submitted that there was never any authority conferred on the first respondent to make such a representation and there was never any assertion of anything that could be the basis for such an authority to be conferred.  Mr Metaxas went so far as to say that no authority was ever conferred except to make the representations in the document which was referred to as “the flyer” (Document 13 of Exhibit 1).  That was a fax from Palermo Nominees to Henneberry & Associates giving some details about the property including a statement that the rent was $4,606 per calendar month ($55,296) per annum with no mention that this was a distorted rent, and the incorrect statement that the “literage” was 160,000 per month.

133               The cross-claim which Mr Palermo and Palermo Nominees made against Henneberry & Associates was in contract.  This appears from para 9 of that document which read as follows:

“9.  If as is alleged by the applicants representations made to them as pleaded in paragraph 8 and 9 of the statement of claim where (sic) false and misleading or deceptive then Palermo Nominees says: 

9.1  to the extent that that (sic) representations made by Henneberry to the applicants went to matters beyond the information in paragraph 7 above that Henneberry had no authority to make those representations and acted without the knowledge or consent of Palermo Nominees; 

9.2  Henneberry owed Palermo Nominees a contractual obligation not to make representations as to the property which were not true and correct.

134               It appears that no particulars of this contractual obligation were supplied.  In their defence to the second respondent’s cross-claim, Henneberry & Associates plead that any representations which they made were either made with the express authority of Palermo Nominees (the information having been provided by Palermo Nominees) or within the scope of the authority granted to them as agent for Palermo Nominees.

135               In terms of a written contract, we were not taken to any document.  Nor does there appear to have been any oral evidence in the cross-claim part of the hearing about the contract between these parties.  But there is in the Appeal Book (at p 424-425) a photocopy of a document described as “Exclusive Authority to Sell”.  Not surprisingly, that document contains no express condition to the effect in the cross-claim.

136               The first and second respondent’s written submissions, in summary, were as follows:

·          Henneberry & Associates’ mandate was only to sell the property subject to leasehold under an exclusive agency agreement, not to warrant the commercial viability of the leasehold business for the property as an investment;

·          the only information supplied by Palermo Nominees was that contained in the two specified facsimiles;

·          an agent for reward must act within his express or implied authority and exercise due care and skill such as would be expected in the business;

·          an estate agent may be liable to a principal for a misrepresentation with respect to the property which the real estate agent is selling for the principal if the agent acts outside the scope of his authority in matters of more than mere sales talk; and

·          to the extent that Mr Palermo and Palermo Nominees were held liable to the appellants, they are entitled to be indemnified by Henneberry & Associates.

137               I am prepared to assume, but without deciding, that a term could be implied into the agency agreement to the effect that Henneberry & Associates would not act outside the scope of their authority in the manner complained of.

138               I think that it is most significant that the (false) information concerning the fuel throughput at the service station and the figure for the inflated rent were supplied by Palermo Nominees to Henneberry & Associates.

139               At para 44 of his Honour’s reasons he found that but for the misrepresentation (by Mr Palermo on behalf of Palermo Nominees) as to the annual volume of fuel sold on the leased premises, Mr Murphy may have been expected to have been aware that the rent paid under the lease was well above the market rate and, therefore, that the return received by the vendor as lessee could not be relied upon as reflecting the underlying value of the property.  In my opinion, that finding supports his Honour’s conclusion of the extent to which the first and second respondents’ conduct contributed to the misrepresentations made in turn by Henneberry & Associates.

140               His Honour found as a fact that in making the representations it did, Henneberry & Associates, in the main, relied upon material supplied by Palermo Nominees.  His Honour also found that at all times Henneberry & Associates acted within the ostensible and actual authority provided by the instructions to act as agent for Palermo Nominees. 

141               In my view, it was open on the evidence for his Honour to reach that conclusion.  Accordingly, if there could be a term implied into the contract to the effect outlined above, Henneberry & Associates have not been shown to have breached that term.  Given his Honour’s findings on the facts not only did Henneberry & Associates act within the scope of their authority in extolling what were said to be the virtues of the property, but when they made misrepresentations the fault was largely not theirs, but that of their principal, Palermo Nominees.  I do not think that it has been demonstrated that his Honour erred in dismissing the cross-claim of Palermo Nominees against Henneberry & Associates.

The balance of the first respondent’s cross appeal

142               The remaining ground of the first respondent’s cross-appeal to be dealt with (ground 1.4) was expressed as follows:

“1.4  The Learned Trial Judge erred in law in finding that the Cross-Claim of the Cross Appellant against the Second and Third Cross Respondents could not succeed because having found that the Cross Appellant “at all times acted within the authority, ostensible and actual, provided by the instructions to act as agent for Palermo Nominees” he should then have found:

1.4.1  To the extent to which the Second and Third Cross Respondents were negligent in providing information to the Cross Appellant, the Cross Appellant was entitled to an order that the Second and Third Cross Respondents indemnify the Cross Appellant for any liability found for the First Cross Respondent against the Cross Appellant.”

143               His Honour dealt with this, and related matters, in the following paragraphs of his reasons for judgment.  I have omitted paragraph 87, which is set out earlier in these reasons.

“Cross-Claims

83  It is plain that Palermo Nominees acted negligently in instructing Henneberry & Associates that the volume of fuel sold at the service station was equivalent to 1.92 million litres per year. Repetition of those instructions by Henneberry & Associates to a prospective purchaser could attract liability under the Act to Henneberry & Associates and cause it to suffer loss. It does not follow, however, that Palermo, acting for, and on behalf of, Palermo Nominees, can be said to have made that act of Palermo Nominees his own with the result that he became separately liable in negligence for breach of a separate duty of care owed to Henneberry & Associates. Something more is needed for a director to be made personally liable when acting, at all material times, as the organ of a corporation. (See:  Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240.)

84  The same conduct contravened the Act, as conduct in trade or commerce likely to mislead, and, as discussed above, Palermo was a person knowingly concerned in that contravention and liable to Henneberry & Associates to the same extent as Palermo Nominees.

85  However, the loss sustained by Henneberry & Associates does not flow from the conduct of Palermo Nominees alone, whether that conduct brings liability in negligence or under the Act. The conduct in contravention of the Act, which involved representations that the property was undervalued at a price of $370,000 and that there was a prospect for substantial appreciation in value in the short term, was separate conduct by Henneberry & Associates which contributed to the decision of Messrs Tenji to enter a contract to purchase the property. Although the representations made were within the ambit of its authority as agent for Palermo Nominees, and liability for that conduct extended to Palermo Nominees under the Act, it was a liability attracted by the acts of Henneberry & Associates. It would be inappropriate for Henneberry & Associates to recover as loss it has suffered the whole of the sum it is required to pay to Messrs Tenji by reason of that conduct and by reason of its breach of duty of care as settlement agent.

86  In its cross-claim against Henneberry & Associates, Palermo Nominees claimed that in making representations about the property that were relied upon by Messrs Tenji, Henneberry & Associates acted beyond the authority conferred by Palermo Nominees and in breach of the contract of agency.

87  . . .

88  In so far as Palermo, Palermo Nominees and Henneberry & Associates are liable to Messrs Tenji for loss suffered by them by the conduct of Palermo Nominees and Henneberry & Associates that contravened the Act, there is no power in s 87 of the Act to order that there be contribution between them. However, at law or in equity, an obligation to contribute will arise where all parties share a common liability and in this case such a liability arises under the Act. (See:  Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 at 12.)

89  The appropriate result in the litigation is that there be an order that each respondent is liable for the judgment sum, with the effect that if the judgment is discharged by one respondent that respondent has a right to a rateable contribution from the remaining respondents.

144               No written submissions were filed by either the first respondent on the one hand or the second and third respondents on the other, in relation to this matter.  Nor were we addressed orally in relation to it at the appeal.  There was no formal abandonment of the ground, but in those circumstances I have assumed that it was abandoned.

Associate:

Dated: