FEDERAL COURT OF AUSTRALIA

Crystal Auburn Pty Ltd v I L Wollerman Pty Ltd [2001] FCA 735

TRADE PRACTICES ‑ Misleading and deceptive conduct ‑ Sale of business agreement ‑ Whether agreement to be declared void ‑ Nature of order under s 87(2)(a) of Trade Practices Act 1974 ‑ Relevance of affirmation of agreement ‑ Relevance of inability of wronged party to make restitution.

Trade Practices Act 1974 (Cth) s 87

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

Creative’s Landscape Design Centre Pty Ltd v Platz (1989) ATPR 40,980 applied

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

Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 cited

Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 cited

JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 cited

White v Garden (1851) 10 CB 919 cited

Stevenson v Newnham (1853) 13 CB 285 cited

Babcock v Lawson (1880) 5 QBD 284 cited

Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 cited

Tiplady v Gold Coast Carlton Pty Ltd (1984) 8 FCR 438 applied

Sargent v ASL Developments Ltd (1974) 131 CLR 634 applied

Re Hoffman (1989) 85 ALR 145 cited

CRYSTAL AUBURN PTY LTD, MARK CHARLES SIBERAS and KINGSLEY WILLIAM DAVIES v I L WOLLERMAN PTY LTD (t/as Wollerman & Associates), VALESPRING INVESTMENTS PTY LTD, MACLEAY PTY LTD, ROBIN BRUCE LAURIE and BARBARA JOAN LAURIE

VG 267 OF 1998

SUNDBERG J

18 JUNE 2001

MELBOURNE

THE COURT ORDERS THAT:

1.                  The declaration sought in paragraph 1 of the Application be refused.

2.                  The matter be remitted to a Registrar for the assessment of damages.

3.                  The applicants pay the respondents’ costs of and incidental to the determination of the issue the subject of the order in paragraph 1.

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

REASONS FOR JUDGMENT

Background

1                     On 6 July 2000 the Court declared that the first, second and third respondents had engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) in connection with the sale by the second respondent to the first applicant of the theme park business known as “Wobbies World”, and the lease by the third respondent to the first applicant of the land on which the business was conducted.  The fourth respondent (Mr Laurie) and the fifth respondent were found to have been involved in the contravention.  The Court ordered that the loss or damage suffered by the applicants as a result of the contravention be assessed by a Registrar.  When the matter came before the Registrar it became apparent that the process of assessment would depend upon the determination of a question that had not been canvassed at the hearing, though it was raised by the pleadings.  This was the applicants’ claim to a declaration that they had validly rescinded the agreement and the lease on or about 17 June 1998.  Whether the applicants are entitled to that declaration is the matter now before me.

Nature of Order under s 87(2)(a)

2                     The orders a court may make under s 87 of the Act when it finds that a party has suffered loss as a result of the conduct of another in contravention of, amongst other provisions, s 52, include (s 87(2)(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 … 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 ….”

While an order under this provision has an affinity to the equitable remedy of rescission, it is a new remedy, and the principles regulating the administration of the remedy of rescission afford guidance for, but do not dictate, the exercise of the discretion conferred by s 87: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 535 per Gummow J.  In Creative’s Landscape Design Centre Pty Ltd v Platz (1989) ATPR 40,980 at 50,697 the Full Court said that the general law bars of affirmation, lapse of time and the impossibility of effecting restitutio in integrum were not fetters on the exercise of the powers under s 87, but were matters to be taken  into account in the exercise of the court’s discretion.  See also Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 564, Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 at 288, Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 at 330‑331 and JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 at 380.  The parties were agreed that the foregoing is a correct statement of the law.

Restitutio in integrum

3                     The sale of Wobbies World was structured in a way that passed title to the plant and equipment to Bendigo Finance Pty Ltd which hired them to the first applicant.  The plant and equipment consisted of the passive and mechanical attractions that formed the very essence of the theme park.  They included the miniature tram ride, helicopter ride, bulldozer, farm tractor, vintage car, fire truck, Melbourne transport tram and miniature fire brigade ride.

4                     At what time is the practicability of restitution to be assessed?  Meagher, Gummow and Lehane, Equity: Doctrines and Remedies 3^rd ed (1992) at par 2416 observe:

“In the auxiliary and exclusive jurisdictions it is not clear whether rescission was in equity effective 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.”

The authors then refer to some analogous situations, and continue:

“It follows that the practicability of restitution in these cases is to be decided at the time the Court makes its orders.  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.”

In Tenji v Henneberry & Associates Pty Ltd at 332‑333 French J quoted these passages with approval.  His Honour regarded s 87(2)(a) as having “an operational rather than declaratory role”.  With this I agree.  Accordingly, the practicability of restitution (as a discretionary consideration) must be considered at the time the order is made.  Cf Meagher, Gummow and Lehane, op cit, par 1324.

5                     The applicants cannot make substantial restitution.  The features that gave the theme park its very being were never owned by them, and indeed were sold by Bendigo Finance on 8 July 1999.  If, contrary to my view, the practicability of restitution is, as the applicants contend, to be assessed at the date of the 17 June 1998 letter of rescission or at the date of their Application (24 June 1998), the position is the same.  Bendigo Finance owned the plant and equipment. If a third party acquires an interest in the subject matter of a contract before the contract has been avoided, a claim for rescission will not lie, provided the third party acted in good faith and gave consideration, as was the case here.  See White v Garden (1851) 10 CB 919, Stevenson v Newnham (1853) 13 CB 285, Babcock v Lawson (1880) 5 QBD 284, Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 at 11‑12 and Treitel, Law of Contract 10^th ed (1999) 344, 355.

Affirmation

6                     By the end of January 1998 the second applicant (Mr Siberas) had formed the view that the applicants had been misled by the business attendance representations.  In late March he sought his solicitors’ advice and provided them with a document he had prepared showing the represented attendances from January 1994 to January 1997 compared with actual attendances for January 1998.  At about the same time he asked Mr Laurie if he would take the business back.  Mr Laurie refused.  On 24 March Mr Siberas instructed Mr Marlow of the first respondent to place the business on the market for $650,000.  On 28 April the applicants’ solicitors advised that, on the basis of their instructions, the applicants had “little option but to seek to set aside the contract and the lease” on the basis that the attendance figures contained in the business profile had been fraudulently or negligently misrepresented.  The solicitors advised that this would require establishing that the figures had declined well beyond what might have been expected given the ongoing decline from the 1994 financial year.  They said they proposed to brief counsel to advise as to the likely prospects of success in proceedings to set aside the contract and the lease.  On 17 June 1998 the applicants’ solicitors purported to rescind the sale agreement and lease.  The business remained on the market until 18 June 1998.

7                     Thus the applicants believed by the end of January 1998 that they had been misled.  They were unable to convince Mr Laurie to take the business back.  They then put it on the market.  By late April they knew they could take action to have the contract and the lease set aside.  Putting the business on the market when the applicants were unable to persuade Mr Laurie to take it back, and leaving it on the market for some months after receiving the solicitors’ advice that the contract and lease could be set aside, constitutes conduct consistent only with a decision to treat the contract and lease as remaining on foot.  It was a declaration of ownership of the business and a desire to pass that ownership to a buyer.  As the Full Court said in Tiplady v Gold Coast Carlton Pty Ltd (1984) 8 FCR 438 at 447, the applicants were attempting to resell the business “to which they had no claim except under the contract”.  In those circumstances, the applicants should be taken to have affirmed the contract.  Cf Tiplady at 447, 451.

8                     In what I have said in the preceding paragraph I have assumed that while an elector must know of the facts that give rise to the right to rescind, he need not know of the right of election as between two inconsistent legal rights ‑ the right to treat the contract as remaining on foot and the right to rescind.  That accords with the view of the Full Court in Tiplady at 451 and of Mason J in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 658.  See also Re Hoffman (1989) 85 ALR 145 at 151‑152.  If the applicants did have to have that additional information, their solicitors’ advice provided it.

Conclusion

9                     Had I been adjudicating a case in the equitable jurisdiction, I would have declined to order rescission on the grounds that restitutio in integrum was not possible and the applicants had affirmed the contract.  As appears from the cases noted in par 2, that does not mean that an order should not be made under s 87(2)(a) declaring the contract and lease to be void.  However, conformably with these decisions, I am at liberty to take into account, in the exercise of my discretion, the fact that restitution is not possible and that the applicants have affirmed the contract.  Having done so in the exercise of my discretion I do not propose to make an order under s 87(2)(a) avoiding the contract and lease.  Because of what is said in par 4, I would in any event not have been prepared to grant the declaration sought in the Application, namely that the applicants had validly rescinded the agreement and the lease on or about 17 June 1998.

Associate:

Dated:              18 June 2001