2.17 AUSTCORP'S CONDUCT
179 Austcorp argued that it was wrong to view the brochure in isolation as being the conduct for which it was to be held responsible. Rather, it said that the brochure was distributed to prospective purchasers in a context where they could be expected to receive a detailed contract and get legal advice from their solicitors. Moreover, in the case of the Luciani applicants and Mr Owers there was evidence that each had been sent a disclosure statement further explaining the nature of the transaction into which they were proposing to enter.
180 Austcorp argued that whatever the brochure may have communicated, each of the applicants would have understood that it could not possibly have contained the full nature and extent of the contractual relationship which they were to effect. It said that each of them would have understood that the guaranteed return was the rent payable under the lease. They would not have understood, so it contended, that Austcorp was providing any guarantee of the commercial success of the hotelier, Pacific International Hotels, or the operator of the hotel. Austcorp argued that no-one would think that it, as a developer, had commissioned some independent feasibility study of the long-term viability or success of the resort.
181 It argued that the applicants' case was built on an illusion created with the benefit of hindsight and self-serving assertions. The fact that the brochure conveyed confidence in the prospects of the development, Austcorp argued, did not mean that there was a high level of assurance that the project and the resort would succeed. I reject that argument. The words of the brochure were calculated to convey assurance. The admissions by Austcorp that that was the purpose of using the words of the brochure, of a 7% net guaranteed return for 10 years, namely that it was the "sure thing" referred to in Coudert Bros' letter to the Commission in August 1999 make it clear beyond doubt that the power of this message was realised and deliberate. Of course, liability under s 52 does not depend on the intention of the corporation which engages in the conduct: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197.
182 Mr Chappell gave this evidence:
"And you knew at the time that the company Mustara Holdings was not offering any guarantee. Correct? --- It was through the lease they were proposing to enter into with the investor for a 10 year period. […] Which was the whole basis of the offer.
Mr Chappell, do you own any rental property? --- Not at the moment.
You have in the past? --- I have, yes.
And you've rented it out to people? --- I have.
And if they enter into a lease that doesn't guarantee you payment of the rent, does it? --- It doesn't. There are certain obligations under the lease which they enter into, the lessee and the lessor, which you can rely on depending on the person.
That doesn't guarantee you payment of the rent under the lease, does it? --- Well, no, it's not guaranteed.
No, and the promise to pay under the lease, well, as I think you would accept, depends on the lessee's ability to pay from time to time? --- Correct.
And the lessee might fall on hard times? --- Yes, it could.
The lessee might encounter unforeseen circumstances? --- It may.
And that might affect its ability to pay? --- Correct.
And the lessee may simply walk away and choose not to pay? --- It's possible, yes.
And if it does whether or not you get your payments depends on the financial position of the lessee? --- That's true.
....
You're not suggesting seriously to his Honour, are you, that the mere fact of entry into a lease with a tenant involves a guarantee of payment of rent under the lease? --- No.
Thank you, and you knew therefore that Mustara as the lessee under the proposed leases wasn't guaranteeing payment of the rent under the lease? --- It wasn't guaranteeing it, no.
.....
Pacific International Hotels Pty Limited was not guaranteeing payment of the rent at seven per cent net return per annum for 10 years? --- No.
HIS HONOUR: When you say 'No' you are agreeing with Dr Bell? --- I'm agreeing that it didn't."
183 I am satisfied that the brochure achieved, objectively and in the subjective minds of each of the applicants who gave evidence before me, the purpose of instilling in them the belief that the rent would be paid as a "sure thing" [See 3. below]. However, I am also satisfied that the applicants' were worldly enough to realise that no-one would be able to give them a guarantee against the vicissitudes of the marketplace. No-one for example could have predicted the shocking events of 11 September 2001, or other economic events which might affect the Australian or international economies generally. It would be quite unreasonable for anyone to believe that a promoter of a resort hotel project in the Central Coast of New South Wales would be able to predict the outcome of the world economy over the succeeding 10 years and given assurance that nothing could happen which might so impact on the operations of the hotel that rent would not in any circumstances cease to be paid at the guaranteed rate.
184 As Gibbs CJ said in Puxu 149 CLR at 199 (see also Campomar (2000) 202 CLR at 85 [102]-[103] per Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ):
"The heavy burdens which [s 52] create cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. What is reasonable will of course depend on all the circumstances."
185 So, the confidence which the brochure exuded could not reasonably have been understood as boundless or applicable in all circumstances. The applicants relied on the analysis by Keane JA in Downey [2005] QCA 199 at [107]-[108] where he found that a representation that an established hotel operator, Radisson, considered the project was a guaranteed success would have been easily seen as of importance to an investor. The role which a representation can play in the formation of a state of mind is critical.
186 In Butcher 218 CLR at 606 [43] Gleeson CJ, Hayne and Heydon JJ observed that it was a matter of common experience that questions of title to land could be complex, both legally and factually. Dealing with legal complexity was the role of solicitors, acting, where appropriate, on the advice of other specialists, such as surveyors. The question in that case was whether purchasers were entitled to rely upon a diagrammatic plan of the land being sold in a brochure prepared by a real estate agent. The brochure contained an express disclaimer by the agent of any belief in, or guarantee of, the accuracy of the information in it. Their Honours held that the brochure, read as a whole, in effect told the purchasers to rely upon their own enquiries and that it would then be plain to a reasonable purchaser that the agent was not the source of the information alleged to be misleading. They said that the agent there did not purport to do anything more than pass on information supplied by another or others and expressly, as well as implicitly, disclaim any belief in the truth or falsity of that information: Butcher 218 CLR at 608-609 [50]-[51].
187 Their Honours also observed that in a situation where a purchaser was intending to make use of statements or representations made in a brochure before entering into an important transaction, it was not inappropriate to look closely at the contents of the brochure before deciding whether a particular representation was made and by whom: Butcher 218 CLR at 616 [76]. In his dissenting judgment, McHugh J also said that in determining whether a contravention of s 52 has occurred, the task of the Court is to examine the relevant course of conduct as a whole, by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. He observed that the Court was not confined to examining a document, relied on as being the conduct or conveying a representation amounting to the conduct alleged to have contravened s 52, in isolation, saying that the Court "… must have regard to all of the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document": Butcher 218 CLR at 625 [109].
188 Austcorp submitted that the effect of Butcher 218 CLR 592 was that whatever had been pleaded as the cause of action by an applicant or plaintiff, the Court nonetheless had to look outside that, at all of the conduct of the respondent or defendant corporation to determine whether or not a contravention of s 52 had occurred. However, here, this issue does not arise because Austcorp had pleaded expressly the need to do so. It pleaded, in its defence, that the consideration of what was represented or not disclosed to the applicants by the brochure needed to be considered in the context of the applicants' actual knowledge and the knowledge of those acting on their behalf as to the nature and character and investments proposed, including in the particular apartment in the resort, the nature and character of the brochure and the entire course of dealings between the applicants, and their advisors in relation to the nature and characteristics of an investment in an apartment in the resort including the contract of sale and, where relevant, a disclosure statement.
189 Austcorp asserted that when viewed as a whole, assuming that it had been involved in the making of the representations alleged, its conduct could not be described as misleading or deceptive. This was because the applicants could be expected to have a solicitor act for them and advise them as to the terms of the contract for sale, including the lease and the disclosure statement, thus disabusing them of any misconception which may have been generated by reading the brochure by itself.
190 I am of opinion that on the evidence here the mere fact that the contract may have set out the full terms and conditions of the relationship which was to exist between the purchaser and the various parties with whom it was proposed the purchaser would enter into a relationship (the vendor (Landillo), the lessee (Mustara) and guarantor (Pacific International Hotels)) cannot, of itself, be enough to break a chain of causation from representations or impressions made by the brochure. Obviously, context is critical. But where the method for inducing persons to enter into consideration of a business proposition is to make assertions and valuations of the proposition in the form in which the brochure was expressed, a person who promotes the sale through the brochure cannot complain if a purchaser takes the promoter at his word. The whole point of having the brochure was to make people interested in the commercial proposition of the purchase of an apartment in the resort. What was the commercial proposition if not a promise or assurance that that the investment would return 7%p.a. net for 10 years to the purchaser? And, lest the intending purchaser might think otherwise, he or she was assured by the statement that "its hard to imagine a real estate investment offering so much. From day one your return will be a guaranteed 7%p.a.".
191 The purpose of telling a prospective purchaser that the return was hard to imagine was to assure him or her that they were not imagining it, that it would be assured to them by means of a lease that would be granted providing that return. And, they were assured that a reputable hotel operator, Pacific International Hotels, would be the organisation providing the lease.
192 I am of opinion that there is a material difference between the unqualified assertion in the brochure that the operator of the resort and lessee of the apartments was Pacific International Hotels and the actual position where Mustara was to be the operator and its performance was guaranteed to the limited extent provided by cl 20.9. It would have made no material difference to a person proposing to enter into the transaction had the guarantee been unlimited and cl 20.9 not been present. But, the presence of the limitation in cl 20.9 changed the nature of the investment. That limitation conveyed a lack of complete confidence and commitment to the long term success of the resort on the part of Pacific International Hotels. No longer was there an unconditional guarantee or promise of Pacific International Hotels' continuing support of the payment of the rent. Rather, cl 20.9 conveyed the clear understanding that Pacific International Hotels did not stand fully behind the investment which it was promoting with Austcorp. In other words, cl 20.9 conveyed that Pacific International Hotels did not have the confidence portrayed in the brochure of the "security of a 10 year lease to Pacific International Hotels". There was no such lease at all. Instead there was a 10 year lease to a $2 company, Mustara, which Pacific International Hotels had guaranteed to the limited extent of cl 20.9.
193 The brochure was designed by Austcorp, with the considerable expertise of Mr Chappell and Mr Hung with a view to attracting investors. Indeed, it was critical for Austcorp's purposes to obtain sales of the remaining 30% of the units referred to in the brochure to make their project a commercial success. The brochure was not a mere puff intended to be treated by purchasers or potential purchasers as something which could be put to one side when the contract for sale arrived. The brochure, rather, was expressed in unqualified, optimistic and prospective terms. It was intended to lead investors to make a decision to purchase based on the belief that the investment was a sound one. I agree with the observations of Keane JA in Downey [2005] QCA 199 at [92]:
"In the ordinary course of commercial behaviour some results are guaranteed and some are not. The concept of "guaranteeing a result" is not something that is usually associated with puffery but with the making of a firm commitment for which responsibility will be taken. The phrase 'guaranteed success' cannot be construed as a puff."
194 After all, the intended market for this investment were people holidaying at The Entrance who were attracted to walk into PRD's office at the site, as each of the applicants here did. These applicants were ordinary members of the public, not professional landlords or real estate investors or developers. They were the very class of persons who were intended to be attracted by the brochure viz: namely the kind of investor who would be looking for a return in something which it was hard to imagine could be offered at that level. In another context, to do with the law of defamation, Lord Devlin once observed tellingly in Lewis v Daily Telegraph Limited [1964] AC 234 at 285 (and see also Mirror Newspapers Limited v Harrison (1982) 149 CLR 293 at 304 per Brennan J):
"A man who wants to talk at large about smoke may have to pick his words very carefully if he wants to exclude the suggestion that there is also fire; but it can be done. One always gets back to the fundamental question: what is the meaning that the words convey to the ordinary man: you cannot make a rule about that." (emphasis added)
195 The issue for consideration is whether any contravention of s 52 has arisen by the conduct of the promoters in putting forward the brochure and leaflet and authorising Mr Walker to speak as he did consistently with them, when the contract appears to contain different provisions, materially as to the identity of the lessee and the nature of Pacific International Hotels' financial and commercial confidence in the venture promoted. In Campomar 202 CLR at 83 [98], Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ emphasised the need to enquire why any misconception had arisen in the mind of the person claiming have been misled or deceived. A sufficient nexus must exist between the conduct complained of and the misconception or deception.
196 Austcorp argued that the nexus was, in effect, broken because the contract was a legal document which set out with considerable precision and at length the actual relationship that would exist if a person entered into the contract and the lease. For example, it argued that it was not reasonable for a person in the position of Ms Tan-Bounkeua not to have had a solicitor advising her and that, had she done so, the solicitor would have broken the chain of causation, even if he or she negligently failed to advise the purchaser of the provisions of cl 20.9 or the existence of Mustara. I discuss this specific issue below [See 2.18]. Gibbs CJ observed in Puxu 149 CLR 191 at 199 that the Act did not impose burdens which operated for the benefit of persons who failed to take reasonable care of their own interests: see too Campomar 202 CLR at 85 [102].
197 Of course here, I must consider the impression that the words of the brochure made upon each of the applicants, in light of the context, including the fact that there would be a contract sent to them or their solicitor. And, in the ordinary course it could be expected that a solicitor would act, although in Ms Tan-Bounkeua's case that did not eventuate. But a solicitor is not a commercial advisor. Having set out to assure people that the guaranteed return would be earned, it ill lies in the mouth of Austcorp to say that they should not have believed that when they entered into the contract because their solicitors should have disabused them of those impressions. I reject that submission. It is reminiscent of Lord Macnaghten's characterisation of a similar argument in Gluckstein v Barnes [1900] AC 240 at 251-252 where he said:
"But then," says Mr. Gluckstein, "there is something in the prospectus about 'interim investments,' and if you had only distrusted us properly and read the prospectus with the caution with which all prospectuses ought to be read, and sifted the matter to the bottom, you might have found a clue to our meaning. You might have discovered that what we call 'interim investments' was really the abatement in price effected by purchasing charges on the property at a discount." My Lords, I decline altogether to take any notice of such an argument. I think the statement in the prospectus as to the price of the property was deliberately intended to mislead the shareholders and to conceal the truth from them."
198 The norm of conduct provided by s 52 is intended to require corporations to adhere to an appropriate level of behaviour in trade or commerce. Austcorp was prohibited from engaging in conduct which was misleading or deceptive or likely to mislead in this trade or commerce, namely the sale of apartments in the resort. The brochure was not a mere puff. The statements about the resort, the quality of the investment and the prospective earnings to be achieved from it were advanced as serious business propositions. Moreover, it is difficult to see how the brochure could have been read in any other way. If, on examination, the nature of the project or the returns promised in the brochure were overstated or not supported, the investor would not proceed. He or she would then mistrust the promoters.
199 Had Austcorp wished to disclaim liability for what was said in the brochure or to have advised investors or members of the public who read it that they could not rely on it, it would have been easy to put a disclaimer on the document. But, there is not a word of caution in the brochure. It is full of optimistic predictions and assurances of a long term and significant return. And, of course, a disclaimer might undermine the message of a "sure thing". Austcorp or the other promoters did not exhort the applicants to make their own inquiries about the "guaranteed" return or the certainty of its receipt unlike in Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 at 232 [104] per Branson, Nicholson and Jacobson JJ.
200 While I am satisfied that it would be unreasonable to read the brochure as offering an assurance against anything that might happen in the market, the use of an apparently reputable hotel operator's name, Pacific International Hotels, in connection with the promise of a 7% p.a. return for 10 years from the investment was calculated to induce confidence that the promoters of the venture had a foundation for the confidence expressed concerning future matters. Those who were named in the brochure as organisations, rather than particular identified corporate identities, included the hotel operator, as "Pacific International", and a developer, "Austcorp". Ordinarily, a statement which involves the state of mind of the maker will convey the meaning expressly, or by implication, that the maker of the statement had a particular state of mind when it was made and, commonly, that there was a basis for that state of mind: Global Sportsman Pty Limited v Mirror Newspapers Limited (1984) 2 FCR 82 at 88 per Bowen CJ, Lockhart and Fitzgerald JJ; RAIA Insurance Brokers Limited v FAI General Insurance Co Limited (1993) 41 FCR 164 at 172-175 per Beaumont and Spender JJ, with whom Davies J generally agreed at 165-166.
201 Significantly, the brochure did not contain any reference to cl 20.9 of the lease. There was no hint of a qualification that those backing or promoting the investment, the subject of the brochure, had any reservations about it. I am of opinion that the limitation in cl 20.9 was an important one. It indicated that Pacific International Hotels, as the parent company of Mustara, was not prepared to commit itself to supporting the resort and the "guaranteed return" in the sense of an assured return secured by the lease, beyond a maximum of the total of the first year's rent (unadjusted for CPI or market increases).
202 In one sense, as Austcorp urged, the giving of that guarantee was a valuable promise, and overall committed Pacific International Hotels to an expenditure somewhere in the order of 7% of the total price which, in itself, was a substantial sum of money. But the existence of the qualification, that Pacific International Hotels was not prepared to go beyond such a guarantee, qualified the confidence with which the promotion was being made. As a matter of commonsense a reference to that qualification in the brochure would have substantially diluted its marketing impact. It was a qualification which the promoters of the venture, and in particular Austcorp, did not put into the brochure.