FEDERAL COURT OF AUSTRALIA

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

(No 2) [2000] FCA 1271

TRADE PRACTICES – rescission – contract for sale of land – induced by misleading or deceptive conduct – orders under s 87 on appeal – adjustment for benefit derived by purchaser from tenancy and costs incurred by purchaser – whether vendor entitled to set off diminution in value of land – interest rates payable – whether director of vendor and agent as accessories in contravention liable for compensation orders in the event that vendor company unable to repay purchase price.

Trade Practices Act 1974 (Cth) s 87

Federal Court Rules O 39 r 2

Tenji v Henneberry & Associates Pty Ltd [2000] 172 ALR 679 referred to

Caboolture Park Shopping Centre Pty Ltd  v White Industries  (Qld) Pty Ltd (1993) 45 FCR 224 cited

Re Aquarius Platinum (Australia) Ltd; Ex parte Aquarius Platinum (Australia) Ltd (1999) 153 FLR 284 cited

FRANK TENJI AND MATTHEW TENJI v HENNEBERRY AND 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 AND ASSOCIATES PTY LTD (ACN 009 168 629)

HENNEBERRY AND 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

8 SEPTEMBER 2000

PERTH

THE COURT ORDERS THAT:

1.         The Appellants do within 7 days or such further time as is agreed or allowed deliver to the Second Respondent a duly executed transfer of land in registrable form of the land comprised in and duplicate certificates of title for Volume 1270 Folio 613 and Volume 1278 Folio 614.

2.         The Second Respondent upon delivery of such registrable transfer and duplicate do forthwith pay the Appellants the sum of $377,604 (comprising the purchase price of $370,000 and undisputed acquisition costs of $12,958 less net benefit of $5,354).

3.         The Respondents do pay interest on the sum of $377,604 at the rate of 8.5% per annum from 31 August 2000 until payment.

4.         The Second Respondent do pay all stamp duty, land title office registration fees and

            other fees associated with the reconveyance.

5.         In default of payment by the Second Respondent of any amount ordered to be paid herein, the First and Third Respondents do pay such amount.

6.         Each party do all things reasonably necessary for giving effect to these orders and the reconveyance of the land to the Second Respondent in respect of which there be liberty to apply.

7.         The Respondents pay the Appellants’ costs of the further proceedings in this appeal since 3 May 2000.

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

REASONS FOR JUDGMENT

THE COURT:

1                     In December 1996, Frank and Matthew Tenji (“Tenjis”) purchased land from Palermo Nominees Pty Ltd (“Palermo Nominees”) at Hamilton Hill.  A service station stands on the site.  The agent for the vendors was Henneberry and Associates (“Henneberrys”). The Tenjis subsequently sued Palermo Nominees, its director Gaetano Palermo, and Henneberrys for misleading or deceptive conduct arising out of the purchase of the property and for resulting loss.  The learned primary judge found that there had been misleading or deceptive conduct by way of representations made prior to the sale, that the Tenjis had relied upon those representations and had suffered loss as a result.  However he assessed the principal loss at only $10,000 and declined to set aside the contract.

2                     An appeal from his Honour’s decision was allowed by this Court on 3 May 2000 and the following orders made:

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.

The parties have been unable to agree upon the further orders contemplated in paragraph 4.  After the filing of written submissions the Court, at the request of one of the parties, has heard further oral argument on 31 August with a view to the final disposition of the matter. 

3                     The orders now proposed by the Tenjis are in the following terms:

1.         The appellants do within 7 days or such further time as is agreed or allowed deliver to the second respondent a duly executed transfer of land in registrable form of the land comprised in and duplicate certificates of title for Volume 1270 Folio 613 and Volume 1278 Folio 614.

2.         The second respondent upon delivery of such certificates of title do pay the appellants the sum of $382,958 (comprising the purchase price of $370,000 and undisputed acquisition costs of $12,958).

3.         The respondents do pay interest on the sum of $382,958 at the rate of 8.5% per annum from 31 August 2000 until payment.

4.         The second respondent do pay all stamp duty, land title office registration fees and other fees associated with the reconveyance.

5.         In default of payment by the second respondent of any amount ordered to be paid herein, the first and third respondents do pay such amount.

6.         Each party to do all things reasonably necessary for giving effect to these orders and the reconveyance of the land to the second respondent.

7.         There be liberty to apply.

4                     The Tenjis identified as the outstanding issues to be resolved:

(a)        The appropriate interest rate to be applied to compensation for the loss of use of $382,958.

(b)        Whether in determining the net benefits derived, from the use of the land, by the Tenjis they are entitled to deduct certain moneys paid or payable by them for rates, taxes and agents’ fees from the rent received by them.

(c)        Whether, having regard to the findings of the Court, an order ought to be made against the first and third respondents pursuant to s 87 of the Trade Practices Act 1974 (Cth) to compensate them in the event that the second respondent fails or refuses to repay the purchase price.

(d)        Whether the matter ought to be referred to a judge to determine a claim by Palermo Nominees for depreciation to the improvements on the property.

5                     On the question of the applicable interest rate, the learned trial judge had assessed primary damages at $10,445.  Damages for the loss of use of that sum was to be calculated by applying an appropriate interest rate from the date of settlement to the date of judgment.  His Honour observed, at par 79 of his judgment, that it was not in issue that the appropriate interest rate was 8.5%.  That rate, in our opinion, is appropriate in this case as both the pre and post judgment rate.  As was pointed out on behalf of the Tenjis the rates applying to judgment debts under O 35 r 8 were significantly in excess of that rate at all material times since 29 November 1996.  The prescribed rate was 12% to 25 September 1997 and 10.5% thereafter.

6                     Interest claimed prior to 31 August 2000 is subsumed in the calculations of the adjustments for the net benefit enjoyed by the Tenjis as a result of their use of the land.  That calculation, set out in an amended schedule to their submission, is as follows:

“NET BENEFIT DERIVED BY THE APPLICANTS FROM THEIR

OCCUPATION OF THE SERVICE STATION

(Based on interest @ 8.5% per annum)

Rental received from Niandra from 1 December 1996          $142,180.00

(Niandra vacated the premises at the expiration of the

lease 30 June 1999)

Contribution by Niandra for water rates                               $       207.95

Gross benefit                                                                          $142,387.95

Less:

Interest on $382,958 at 8.5% per annum

From 29 November 1996 to 2 June 2000      $111,875.94

Interest from 3 June 2000 to 31 August

2000 @ $89.15 per day x 89 days                       7,937.02

(Interest continues to accrue at $89.15

per day)                                                                   $0.00

Water rates and charges (paid)                        $4,116.10

Land tax for year ended 30 June 1999                $834.75

Barrington Real Estate                                     $1,084.60

Advertising premises for lease                             $320.00

City of Cockburn rates (payable)                     $5,566.92

[note that interest accrues on the arrears

at 11% pa]

Water consumption and charges (payable)

(see attached)                                                   $2,350.50      $134,085.83

NET BENEFIT                                                                          $8,302.12

Less  Proposed erection of security

Fence around the building                                                        $2,948 est.

Repair glass windows                                                            $8,833 quote

Repairs for which an Insurance claim

has been lodged                                                                      $7,634”

7                     In correspondence from the solicitors for Palermo Nominees and Mr Palermo dated 1 June 2000 to the solicitors for the Tenjis, the rental sum received by them was disputed only to the extent of $606, the total rental liability of the tenant being $142,786 according to Palermo Nominees.  The amounts for water rates and taxes and land tax are said to have been payable by Niandra under cl 6.2 of the lease.  Palermo Nominees contended that it was up to the Tenjis to recover these sums.  And in so far as the amounts paid included penalties for late payment, it was said that this should not be debited against Palermo Nominees.  As to water consumption and charges it was said for Palermo Nominees that there is a current balance of $994.80 owing, $284.20 relating to consumption for the 1998/1999 year for which Niandra is responsible and the remaining $710.60 referring to services after 1 July 1999.  Palermo Nominees and Palermo will accept liability for that portion of the account upon receiving proof of payment.

8                     The amount said to have been paid to Barrington Real Estate was incurred following the engagement of that firm to negotiate with Niandra and to attempt to obtain a substitute tenant.  A similar justification is advanced in respect of the advertising fees of $320.  The amounts of disbursements and quotes and estimates set out in the amended schedule are verified by documents exhibited to the affidavit of Angelina Tenji sworn 29 August 2000 which was received in evidence subject to objection.  In so far as it proves payment of accounts paid and the quantum of the quotes and estimates referred to, it is accepted.  At this stage, however, it seems no security fence has been erected and no repairs carried out so the sums referred to in the amended schedule for those amounts cannot be offset against the gross rental benefit to the Tenjis.  As to the sums which it is said they could have recovered from the tenant, those sums will no doubt be recoverable by Palermo Nominees upon retransfer of the land to it.  The penalty payments which are in effect amounts levied for late payment of rates and taxes and the like, are an incident of the situation in which the Tenjis found themselves as a result of the acquisition of the property which was induced by misleading or deceptive  conduct on the part of the respondents.  They are entitled to offset those amounts also against the gross benefit derived from the rental.  In the event we accept the Tenjis’ calculation of a net benefit of $8,302.12, leaving out of account the costs of the proposed erection of the security fence, the repair of glass windows and other repairs which can be pursued by Palermo Nominees if it wishes to do so.  On this basis the amount payable under order 3 will be $382,958 less $8,302, being a total of $374,656.

9                     Palermo Nominees and Palermo also contend that the Tenjis should account for any depreciation or diminution in the value of the land by reason of the Tenjis’ possession of it.  So it is submitted that since Palermo Nominees sold an investment property to the Tenjis upon which there was an operating service station in tenantable condition, the effect of the order for rescission must ensure that upon the retransfer of the property to the second respondent, the property remains consistent with its original condition.  This, it is said, flows from the nature of the order rendering the contract void ab initio.  The object is to place the parties to the contract in the same position as they would have been had the contract between them never been made.  It was submitted that there would be a substantial injustice to Palermo Nominees if the order made did not provide for the Tenjis to compensate it for damage to the property caused during their proprietorship. 

10                  It is submitted that what is required is an inquiry pursuant to O 39 r 2 of the Federal Court Rules to enable the parties to adduce evidence on that issue.  Affidavits of Dominic Di Latte, Vito Palermo and Karen Vernon all sworn on 2 June 2000 were relied upon to demonstrate that the condition of the property had deteriorated significantly since the expiration of the lease to Niandra on 30 June 1999.  Palermo Nominees asserts the cost of making good at $78,980 inclusive of $10,000 to test the tanks.  That evidence, it was said, is a sufficient basis for the Court to provide Palermo Nominees with an opportunity to present a case giving proper effect to the intent of the rescission.

11                  The affidavit of Karen Ann Vernon deposes to a discussion between Ms Vernon, representing Palermo Nominees and Palermo, and Mr Natale, a director of the former tenant, Niandra Pty Ltd.  Mr Natale was said to have told Ms Vernon that at the time he left the service station it was in a reasonable condition suitable for a tenant.  Certain repair work was required to be done pursuant to the lease.  The defects giving rise to the need for that repair work were as follows:

            (i)         roof sheets across the entire building were leaking and required repair or replacement;

            (ii)        electrical wiring was exposed in the interior of the building;

            (iii)        the woodwork on one side of the building had deteriorated due to weather or white ants and needed replacement;

            (iv)       due to deterioration in the woodwork some windows to the building were difficult to close and needed repair;

            (v)        the building required repainting;

(vi)       the concrete driveway to the service station was breaking up in places and required repair.

Natale was also said to have told Ms Vernon that he had repeatedly asked the Tenjis to carry out repairs during the time that they were landlord but that they had not made any repairs from 29 November 1996 until 30 June 1999.  Mrs Tenji’s general response to Mr Natale was that because the ownership of the service station was in dispute and they were going to court, she and her husband did not intend to carry out any repairs.  At the time that Niandra vacated the service station it was able to be secured.  Subsequently it had the appearance of being derelict and abandoned with windows broken and doors removed. 

12                  Mr Vito Palermo, in his affidavit, described the service station at the time of settlement in November 1996 as being in a reasonable condition, suitable for a tenant and satisfactorily maintained.  At an inspection which he carried out on 3 May 2000 he found the service station to be in a state of total dereliction and disrepair.  Windows had been smashed and doors removed.  The structure appeared to him to be unsafe with electrical wiring exposed and parts of the roof requiring replacing.  He found filler caps to the underground fuel tanks open, exposing them to weather and rubbish.  There was debris and sand around the edge of the filler taps.  The wiring from fuel pumps to underground tanks had been removed.  It would require an expert to use specific testing equipment to ascertain the condition of the interior of the tanks.  He believed that the cost of testing the tanks, cleaning them and fixing the wiring would be approximately $10,000.  He described the general condition of the service station as dilapidated.   He engaged Dominic Di Latte of Diploma Construction Pty Ltd to meet with him at the property and give him an estimate of the costs to repair the service station so that it would be capable of being leased to a tenant as a service station.

13                  The affidavit of Dominic Di Latte was also read. Mr Di Latte, who has been a registered builder for twenty four years and a member of the Housing Industry Association of WA and the Master Builders Association of Australia, estimated the cost of repairs to the service station in order to reopen it for service at $68,980.

14                  The Tenjis oppose any inquiry as this would result in further delay in resolution of the matter and leave them with continuing responsibilities in respect of the site.  They point out that less than four months after settlement, by a letter dated 27 March 1997, they gave notice of rescission and that Palermo Nominees did not take up that offer.  By refusing to accept rescission, it elected to carry the risk of diminution in the value of the property.  The claim of diminution in the value of the property was not raised as an issue either before the trial judge or on appeal or by the cross-appeal.  The condition that the service station is in today is said to be in large measure a direct result of the problems that were inherent in the property which were the subject of the misleading and deceptive conduct of the respondents found by the Court.  In our opinion the Tenjis were under no continuing obligation to expend money upon the site once the tenants had vacated, having regard to the offer of rescission made in March 1997.  They rightly point to the various deficiencies already present in the site referred to by his Honour in the judgment and referred to in the evidence before his Honour.  We are of the view that no useful purpose would be served by carrying out any inquiry.  There is no suggestion of wilful damage to the premises on the part of the Tenjis.  The cost of provision of a security fence and repairs has not been credited against the calculation of net benefit which they have made.  In the circumstances no inquiry will be ordered.

15                  This leaves then as the final issue for determination whether or not at this stage the Court should make an order in terms of paragraph 5 of the minute of proposed orders.  Paragraph 5 of the orders sought by the Tenjis reads as follows:

“5.       In default of payment by the second respondent of any amount ordered to be paid herein, the first and third respondents do pay such amount.”

The Tenjis thus seek an indemnity from Mr Palermo and Henneberrys for any default of Palermo Nominees in repaying to them, on the occasion of the re-transfer of the property, the purchase price and acquisition costs totalling about $383,000.

16                  In their written submissions, Palermo and Palermo Nominees object to the proposed order as not being within the scope of the relief granted by us on 3 May 2000 and in particular not being within the “parameters” of order 4 of the orders made on that date.  Henneberrys adopt the objections raised by Palermo Nominees and Palermo.  They say further that relief of this type was not sought at first instance nor in the appeal.  Additionally, they submit that if Palermo Nominees defaults then the Tenjis should have the same remedies against it as any other successful litigant.  The ability of Palermo Nominees to repay the purchase price is said to be entirely beyond the control of Henneberrys and not a matter for which it can be held responsible.  It would be, so Henneberrys submits, unjust in those circumstances for an order to be made which effectively guarantees Palermo Nominee’s performance of the judgment.

17                  In our view, paragraph 5 of the orders now sought by the Tenjis falls within the description  in the Court’s order of 3 May 2000 of “such other orders as are necessary to give effect to this judgment”.  Giving effect to the principal part of our judgment involves the re-transfer of the land by the Tenjis to Palermo Nominees and the repayment by Palermo Nominees to the Tenjis of the purchase price, subject to the adjustments contemplated by the above orders. 

18                  If Palermo Nominees is unable to make those payments then the essential purpose of the judgment will be thwarted.  It is necessary for some type of appropriate indemnity to be in place in order to give effect to our judgment.  It is also, in our view (for the reasons which we set out below) appropriate and just for such an indemnity order to be made as against Palermo and Henneberrys, given their involvement in the contravention of s 52 of the Trade Practices Act.  That involvement is described in our judgments which are now reported – Tenji v Henneberry & Associates Pty Ltd [2000] 172 ALR 679.  In terms of s 87 we consider that the proposed order 5 will compensate the Tenjis in whole or in part for the loss or damage suffered by them or will prevent or reduce that loss or damage suffered or likely to be suffered. 

19                  If, contrary to the view expressed above, the proposed order does not fall within the terms of the orders made by us on 3 May 2000, then it can be regarded as a supplemental order, as to which see the decision of a Full Court of this Court in Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 at 234-235 applied by Owen J in Re Aquarius Platinum (Australia) Ltd; Ex parte Aquarius Platinum (Australia) Ltd (1999) 153 FLR 284.

20                  We reject the submission, made on behalf of Henneberrys, that the Tenjis did not seek relief of this type in their originating application.  Paragraph 2 of that application specifies that the Tenjis’ claim (on the grounds appearing in their statement of claim):

“2.       As against the first, second and third respondents an order for payment of compensatory damages under s 87.”

A fair reading of the notice of appeal shows that the grounds of appeal focussed on the learned primary judge’s refusal to grant rescission despite the findings of misleading or deceptive conduct on the part of the respondents.  It is true that under the heading “Orders Sought” there is no mention of an order of the type now sought in terms of paragraph 5 above.  However, given that it is appropriate and just for such an indemnity order to be made, we do not consider that the fact that the order was not specifically sought in the notice of appeal precludes making that order.

Associate:

Dated:              8 September 2000