ACTIC Pty Ltd v Cabool & UPRE

Supreme Court of NSW|2003-10-09|Before: Smart AJ

CITATION : ACTIC Pty Ltd v Cabool & UPRE [2004] NSWSC 302 HEARING DATE(S) : 9 October 2003; 28 & 29 October 2003 JUDGMENT DATE : 19 April 2004 JURISDICTION: Equity Division JUDGMENT OF : Smart AJ at 1 DECISION : See para 173

CATCHWORDS : Contract for sale of land - Effect of cl 10.1.5 - precludes claim for innocent misrepresentation based on a conversation - Trade Practices Act claims not sustainable - Deposit not refundable - Duties Act 1997 - Construction of s 50 and effect of endorsement by Chief Commissioner "No Duty Payable" - Contract bearing this endorsement admissible in evidence. Conveyancing Act 1919 LEGISLATION CITED : Duties Act 1997 Taxation Administration Act 1996 Trade Practices Act 1974 (or s 42 of the Fair Trading Act) Ash Street properties Pty Ltd v Pollnow (1987) 9 NSWLR 80. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 CASES CITED : Dent v Moore (1919) 26 CLR 316 Fineglow Pty Limited v Anastaopoulos [2002] NSWSC 1181 M & W Holdings Pty Ltd v Exbea Pty Ltd 89 ATC 4,335. Wilcox Mofflin v Commissioner of Stamp Duties (NSW) 78 ATC 4,191 PARTIES : The Australian Customer Target Information Company Pty Limited (ACTIC) v Cabool Holdings Pty Limited (CABOOL) and Ultimo-Pyrmont Real Estate Pty Limited (UPRE) FILE NUMBER(S) : SC 3416/00 (P) Mr Galitsky COUNSEL : (D1) Mr Epstein SC (D2) Mr Wood (P) Haylen McKenzie SOLICITORS : (D1) Frank Low Yeung & Co (D2) Piggott Stinson Ratner Thom

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

THE AUSTRALIAN CUSTOMER TARGET INFORMATION COMPANY PTY LIMITED (ACTIC) v CABOOL HOLDINGS PTY LIMITED (CABOOL) and ULTIMO-PYRMONT REAL ESTATE PTY LIMITED (UPRE) JUDGMENT

About 2 June 2000 Cabool entered into a contract with ACTIC for the sale and purchase respectively of office premises at 439 Harris Street, Ultimo, for $1,035,000. The contract, which was in the standard form recommended by the Law Society and the Real Estate Institute with some additional conditions, provided for a deposit of $51,750 which was paid. The completion date specified was 23 June 2000. If ACTIC did not complete the purchase by that date, and assuming no default by Cabool, ACTIC had to pay interest at the rate of 10 per cent on the balance of the purchase money, compiled at a daily rate from 24 June 2000 to the day of completion. UPRE was the vendor's selling agent and negotiated the sale through its employee, Paul Fernandes.

Completion did not take place on 23 June 2000 or subsequently. Disputes developed. About 19 July 2003 ACTIC purported to rescind the contract for breach by Cabool. About 9 August 2000 Cabool purported to terminate the contract because of ACTIC's "failure to complete the sale on or before 2.30pm on 7 August 2000 in accordance with the vendor's notice to complete dated 20 July 2000 being the breach of an essential term of the contract."

By its statement of claim ACTIC alleged UPRE acted as Cabool's selling agent of 439 Harris Street and that in about April 2000 and again about May 2000 UPRE by Mr Fernandes orally represented to the plaintiff that UPRE had been managing the premises for some time, that it was familiar with them and that there were no problems with the condition of the premises. It was further alleged that by words or conduct Mr Fernandes represented in both April 2000 and May 2000 that he was familiar with the premises and did not disavow personal knowledge when asked whether he was aware of anything wrong with the property. ACTIC further alleged that all the representations made by Mr Fernandes constituted representations made by UPRE in trade and commerce.

ACTIC alleged that the premises prior to and during the period April-June 2000 were affected by termite infestation and the representations that there were no problems with the condition of the property were false and that the representations as to management of the property for some time , familiarity with the property and no problems with the condition of the property were misleading and deceptive.

ACTIC alleged that the premises were let by Cabool in the course of trade and commerce and that by additional condition 33 of the contract of sale Cabool represented that there had been no addition or alterations to the property since 13 July 1992 whereas work had been done to strip the underside of the stairs. (I interpose that the work alleged was trifling). ACTIC alleged that additional condition 33 was misleading or deceptive.

ACTIC complained that in answering requisition 9, namely, "Is the vendor aware of any latent defects in the land detrimental to building thereon such as water or drainage pipes passing thereunder?"

Cabool responded "No". ACTIC alleged that this representation was misleading or deceptive.

ACTIC contended that the representations mentioned in the two preceding paragraphs were made in the course of trade and commerce and that it relied upon them in entering into the contract of sale and paying the deposit thereunder.

ACTIC sought an order for the refund of the deposit by UPRE or Cabool, and in the alternative, an order pursuant to s 55(2A) of the Conveyancing Act 1919 for the return of the deposit with interest. ACTIC also sought damages.

Cabool denied that UPRE by Mr Fernandes made the representations alleged and that the representations that there were no problems with the property were false. Cabool also denied that the representations alleging that UPRE had been managing the premises for Cabool for some time, that UPRE was familiar with the premises and that there were no problems with their condition were misleading and deceptive and made in the course of trade and commerce.

Cabool relied upon s.304 of the Duties Act 1997 and that the contract of sale had not been duly stamped, contending that hence the transaction which the contract embodies is deprived of any legal efficacy. Upon the assumption that the contract was treated as effective in these proceedings, Cabool relied upon sub-clause 10.1.5 of the contract, namely, that the purchaser cannot make a claim or rescind in respect of a promise, representation or statement about the contract, the property or the title not set out or referred to in the contract.

UPRE pleaded that in acting for Cabool it was not acting on its own behalf but as agent for Cabool. UPRE admitted that Mr Fernandes was its employee, but denied that the representations alleged were made. UPRE denied that the representations were misleading and deceptive and that it made the representations in the course of trade and commerce. UPRE opposed the relief sought.

Ordinarily, I would first consider Cabool's point under the Duties Act, 1997. However, that is a matter of some complexity as the contract of sale was produced to the Office of State Revenue and marked "Contract Rescinded. No Duty Payable." Cabool contended that this marking was erroneous in that the contract of sale had not been rescinded but terminated for breach and that the Office thus had wrongly determined that no duty was payable.

If ACTIC's contentions are correct then it did rescind the contract. There is also a question as to the correct construction of ss.50 and 304 of the Duties Act 1997; are the words "rescinded" or "annulled" in s.50 used in their technical sense or in some broader sense.

The history behind ACTIC's proposed purchase can be gathered from the evidence of Josephine Di Blasio. She has been a director of ACTIC since 1992 and was its managing director. She was also a director of two other companies. Her husband had several interests. In 1999 ACTIC occupied a terrace house in Quarry Street, Ultimo. It had three bedrooms used as offices. Ms Di Blasio and her co-director, Robert William Hannelly were considering obtaining larger premises to allow a number of businesses to operate from the one office.

In late 1999 she spoke to Mr Fernandes. She stated that she said words to this effect: "We are looking for another property to use as office premises. At the moment our company which is in marketing is operating in Quarry Street. However, there are other companies which are related to us which will move into bigger premises. My husband is operating a software company. Ultimately, we might have something between fifteen and twenty people who will need to be housed. The property in Quarry Street is simply too small."

and "We will need a property which does not require work to be done, particularly not structural work. We want to be able to occupy the premises without having to invest time, money and energy into alterations or additions. The companies do not want to be disrupted in their various activities because collectively they are quite large." 16. She said that following the meeting Mr Fernandes showed her through a number of properties and frequently visited her in Quarry Street and told her of properties which were on the market. They became quite friendly.

She stated that in early April 2000 Mr Fernandes visited the Quarry Street office and said, "There is a building at 439 Harris Street which is managed through our office. It seems to be the sort of place you are interested in."

Ms Di Blasio said that the first inspection of 439 Harris Street occurred in April 2000. She went with Messrs Hannelly and Fernandes. The property was occupied as office premises. She stated that Mr Fernandes said words to the effect "UPR Realty has been managing the property for the owner. The present tenant's lease has expired and they are shortly to move out."

Ms Di Blasio stated that she and Mr Hannelly inspected the property several times in late April and early May 2000 and that at two of the inspections conversations to the following effect occurred: "Hannelly: Paul, are you aware of anything at all that is wrong with the condition of this building at 439 Harris Street, Ultimo?

"Fernandes: Absolutely not, I assure you that there are no problems with it." 20. Ms Di Blasio stated that prior to the exchange of contracts she had personally been at 439 Harris Street at least five times.

Ms Di Blasio said that at one of the inspections in May 2000 conversations to the following effect occurred: "Di Blasio: Paul we need copies of documents relating to any alterations or additions to Harris Street since the present owners bought the property. Can you help us. Fernandes: Yes, no problem. I'll get them to you.
She said that no such documents were received prior to entering into the contract of sale. By letter of 12 May 2000 the solicitors for Cabool wrote "Our client advises us that there has been no alteration and addition to the property since the date of survey". The letter enclosed a survey dated 13 July 1993. It was at this stage that special condition 33 mentioned earlier (para 5) was added to the contract.

She deposed to an occasion in April or early May 2000 when she went to 439 Harris Street with her father, a builder, and his friend Mr Fred Schilt. Mr Fernandes was also there. The then tenant, Octopus Communications was preparing to move out. There were lots of packing cases and boxes piled high in several of the rooms. There were people working at their desks in the various rooms. She was not present at all the conversations between her father and Mr Fernandes. She was concentrating on and assessing the position of the off street parking.

Ms Di Blasio spoke of Mr Fernandes pressing them to decide whether they wished to proceed and purchase 439 Harris Street. After discussion amongst the directors and family members it was decided to exchange contracts even though finance had not been approved.

By letter of 8 May 2000 ACTIC's solicitors forwarded a copy of the contract submitted by Cabool's solicitors for the attention of Ms did Blasio and Mr Hannelly. After commenting on the main features of the contract ACTIC's solicitors wrote: "We confirm you have already had a licensed builder inspect the property and that you are satisfied with the condition of the buildings thereon.

It is usual for solicitors acting for purchasers to also recommend an inspection by a pest control firm to ascertain the presence of or damage caused by, white ants/borers/termites. We so recommend and look forward to any instructions you may have in this respect ….

We also confirm that you are borrowing money to complete this purchase. We recommend you do not proceed to exchange pf contracts until your finance application has been approved (in writing).

By letter of 7 June 2000 to ACTIC its solicitors repeated the first and second paragraphs quoted above from their earlier letter of 8 May 2000 and continued: "We also confirm that you may be borrowing money to complete this purchase. We confirm we recommended you did not proceed to exchange of contracts until any application for finance was in place but that you chose not to accept those instructions.

It is obviously of the utmost importance that you secure the necessary funds in order to complete the purchase prior to the end of the financial year" 27. Ms Di Blasio said that after exchange of contracts she asked her brother, Louie Di Blasio, a builder, to give ACTIC a quote for installing gyprock partitions in the premises. After examining a room (or large cupboard) under the stairs he said to her "I have found a hole here and I think you have a termite nest." The latter part of this statement was admitted as evidence of what her brother had said to her, but not as evidence of the fact. She stated that he then brought out a floor piece of wood and said "Look, this has got termites." This was admitted as evidence of what her brother had said to her, but not as evidence of the fact.

After their inspection and a further conversation with her brother, Mr Hannelly and her husband, Ms Di Blasio arranged for Sherlock Property Reports to conduct their inspection on 19 June 2000 and was present while they did so. Mr Fernandes arranged for the inspectors to have access to the premises. Thereafter she received the report dated 23 June 2000 of Sherlock Property Reports.

In June 2002 Mr Fernandes told Ms Di Blasio that he would be away for a couple of weeks and, in his absence to contact Ms Karen Lao of UPRE who knew all about the sale. She was a colleague in the commercial sales and leasing section of UPRE and had listed the property.

Ms Di Blasio said that after having received the Sherlock Pest Report she became very concerned. She spoke with Mr Hannelly. On 30 June 2000 she telephoned the office of UPRE and spoke to Karen Lao and asked her for the reports dealing with pest treatments at 439 Harris Street. Ms Lao's immediate response was, "I know exactly what the reports are you are asking for and I will get them and fax them through." Ms Lao did so that day.

Completion of the contract of sale did not take place on 23 June 2000. By letter of 30 June 2000 ACTIC solicitors wrote: "Our instructions are that our client has not been able to arrange finance in time to complete the transaction as yet, but anticipates being able to do so shortly."

Ms Di Blasio agreed with counsel for UPRE that when she received the Central Pest Control Reports from Ms Lao concerning termites she was outraged and let ACTIC's solicitors know. This was around 30 June 2000. Ms Di Blasio agreed that she had probably sent a copy of the report of Sherlock Pest Report by FAX to ACTIC's solicitors on 24 June 2000. In neither the general letter of 30 June 2000 nor that of 4 July 2000 (both to Cabool's solicitors) which dealt with GST and use of the "Margin Scheme" did ACTIC's solicitors mention the termite problem. Ms Di Blasio said that as at 4 July 2000 ACTIC's instructions to its solicitors were to continue with the purchase.

Prior to entering into the contract to purchase 439 Harris Street Ms Di Blasio had had prior experience in buying property. This involved inspecting the property with her partners and organising a building report and a pest report, if asked to do so by her husband or her business partner (Hannelly). She understood that it was normal for purchasers to obtain a building and pest report before committing themselves to the transaction.

She asserted that she could not really see the physical condition of inside the property because there was "furniture everywhere", boxes were piled against the walls, ceiling high in places, and there were the staff of the then lessee working in he premises. The staff did not want them in the premises. They were speaking on the telephone and working at desks. It was difficult to move through the premises. Conversations with Mr Fernandes were conducted outside the premises.

In cross-examination Ms Di Blasio reiterated that Mr Fernandes said that he was not aware of anything wrong with the property. She stated that she relied on Mr Fernandes. As his company had managed the building she expected that he would have been in a position to tell her of any problems. She believed she was receiving a formal assurance from Mr Fernandes as a representative of the seller. It was important. She did not think of having that assurance included in the contract. Ms Di Blasio said that she wanted her father to have a look at the old building, assess the structural aspects and give his opinion on that and the price.

Ms Di Blasio stated that if her father had told her that something was wrong with the property she would not have bought it. She said that she relied on both her father and what Mr Fernandes told her. At T56 this passage appears: "Q. It was by reason of the licensed builder having inspected the premises you were satisfied as to the condition? A. Yes."

Ms Di Blasio said that all financial matters relating to ACTIC and to its purchase of 439 Harris Street were handled by her husband. He believed that there was no financial impediment to completing the purchase.

As to ACTIC's claim of a structural alteration Ms Di Blasio agreed that she did not include in her affidavit of 4 September 2000 any reference to the conversation with Mr Fernandes alleged in her affidavit of 29 September 2003 to the effect "We will need a property that does not require work to be done, particularly not structural work." She had no explanation for his omission other than that she had elaborated on her earlier affidavit. That conversation allegedly took place at an early stage and about six months prior to inspecting 439 Harris Street when she was explaining the requirements for the new property.

Mr Hannelly in his affidavit of 17 October 2000 said that at no stage did Mr Fernandes ever refer to any damage to the property by termites or treatment by pest controllers, and that he and Ms Di Blasio inspected 439 Harris Street, several times in April and May 2000. He deposed to a conversation to this effect on two occasions: Hannelly: "Paul are you aware of anything at all that is wrong with the condition of this building at 439 Harris Street, Ultimo?

Fernandes: Absolutely not, I assure you there are no problems with it." And a conversation to this effect on one occasion:

Di Blasio: "Paul we need copies of documents relating to any alterations to Harris Street since the present owners bought the property. Can you help us?

Fernandes: Yes, no problem - I'll get them to you." Ms Di Blasio had also deposed to those conversations.

Mr Hannelly stated that after exchange of contracts he again inspected 439 Harris Street. The tenant had vacated the premises. Mr Hannelly noticed a chemical smell and the stripping away of the underside of the stairway consistent with the removal of gyprock. He observed that a hole about 40x50 cms had been hacked out of the underside of the stairway. He explained that there was a doorway leading to a storage area under the stairway. The hole was in the ceiling of the storage area under the stairway.

Mr Hannelly said that on his first inspection he tried to have a careful look but they were hampered by the hostile attitude of the tenant's staff and the amount of commercial activity. He said that they had a five minute walk through followed by a discussion out the back. Mr Hannelly thought that both externally and internally the state of repair of the building seemed fine. All the walls that they could see which were not covered up by boxes appeared fine. He believed that the contracts were exchanged after the tenants moved out. He did not inspect the property after the tenants moved out and prior to the exchange of contracts. He believed he was on leave and relied on Mr Fernandes' statement that there were no problems with the property. As his company managed the property Mr Hannelly assumed that Mr Fernandes would know of any problems. He regarded Mr Fernandes as "a very astute agent" and assumed that he had familiarised himself with the property, gone through the file and detected no problems. Mr Hannelly did not think that there might have been problems of which Mr Fernandes was not aware.

Mr Hannelly said that he did not ask for Mr Fernandes' assurance to be incorporated in the contract because he trusted Mr Fernandes. Mr Hannelly believed that Mr Di Blasio Snr, as a very experienced property developer, was basically looking at the property to determine if the price was fair. However, he assumed that Mr Di Blasio Snr might express some opinion about the condition of 439 Harris Street from a building point of view. Mr Hannelly was informed by Ms Di Blasio that her father considered that "the property was a good buy". Mr Hannelly and Ms Di Blasio probably placed considerable weight on the building knowledge and expertise of Mr Di Blasio Snr.

Mr Hannelly asserted that when he learnt of the terms of the Sherlock report he felt betrayed. He discussed the matter with Ms Di Blasio and her husband and they started to discuss the possibility of not proceeding with the contract. Later, they all agreed that they should not proceed, that is, shortly after the receipt of the Sherlock report. Mr Hannelly left it to Ms Di Blasio and her husband to instruct ACTIC's solicitors. They attended to such matters. He attended to client servicing. Their roles did not cross. Mr Hannelly also left the financial side of the purchase to Ms Di Blasio and her husband. He was aware that there had to be borrowings.

Mr Hannelly said that on his visits there were boxes "on nearly every wall." They were stacked at least a metre high. Each time he visited 439 Harris Street there were more boxes.

Mr Giuseppe Di Blasio has had a builder's licence since 1979 and was also a property developer. He inspected 439 Harris Street in about April or May 2000. They were occupied as office premises. There were a large number of boxes in the premises, some of which were piled high around the walls. Some of the boxes were in the course of being packed. With the boxes and the employees of the tenant who were working at the desks in all the rooms, he found it impossible to comprehensively inspect the interior of the premises. There was no light under the stairway and that area was full of storage boxes and equipment. Mr Di Blasio Snr said that he was not able to obtain access to that area and in the dim light, he was unable to see anything of note.

Mr Di Blasio Snr said that he was unable to inspect the flooring and skirting boards for termite activity which he could easily recognise. He did not see any signs of termite activity. It is usual to look for that So far as he could see the premises appeared to be structurally fine. Mr Di Blasio Snr deposed to a conversation with Mr Fernandes to this effect: Di Blasio Snr: "Paul with these tenants still here and stuff everywhere I can't do a proper inspection. Are you aware of anything at all wrong with the condition of this building.

Di Blasio Snr: It's a good buy provided there is nothing wrong with the building.

Fernandes: Don't worry, it's OK." 47. In cross-examination Mr Di Blasio Snr stated that he went to the premises to see "if the building was okay" and "if it is worth that sort of money". He had wanted to conduct a comprehensive inspection of the property but could not do so. He did not recommend that a pest report be obtained because he thought the building was "okay" and Mr Fernandes told him that there was nothing wrong with the premises. The property was suitable, close to the city and the price was satisfactory. Mr Di Blasio stressed the need for the property to be empty so he could make a thorough inspection.

Lorenzo Patrick Macolino, the husband of Josephine (Josie)) Di Blasio, inspected 439 Harris Street in April or May 2000 in the company of Paul Fernandes. Mr Macolino deposed to a conversation to this effect: Fernandes: "I think the vendor will accept $1,050,000. That is a good price and the property has not been marketed as yet. I think you will have to move quickly to secure it. Macolino: Josie tells me that you know the property well because your office has been managing the property on behalf of the vendor for some time. Do you know of any problems with the property or anything we should know about it?

Fernandes: No, it is a good buy for someone who needs office space.

Macolino: One of my businesses is operating out of my car boot at the moment and I have a need for an office so if the property is OK and we can get it quickly this will suit me.:" 49. Mr Macolino, in cross-examination said that he did not follow the practice of obtaining a building report and a pest report before purchase although he had heard of it. This was because Mr Fernandes had told him that the property was a good buy and there was absolutely nothing wrong with the building. Mr Macolino could not remember Mr Fernandes saying, "There are absolutely no problems with this property." Mr Macolino agreed that this would be an extraordinary thing for Mr Fernandes to say. He expected to be told by Mr Fernandes of any information he had as to the condition of the property. It did not come to Mr Macolino's mind to obtain a building report. He did not have Mr Fernandes' important assurance incorporated into the contract because he trusted Mr Fernandes.

This passage appears in Mr Macolino's cross-examination: "Q. Is my recollection correct, that you said to Mr Fernandes, 'Do you know of anything wrong with the property' and that he said 'No'? A. Correct.

Q. Is that as close as you could remember of a word for word recollection of the conversation? A. Yes." 51. As at 23 June 2000 Mr Macolino was actively seeking finance for the 439 Harris Street purchase even though he was at that stage aware of the termite problem (T101). It was Mr Macolino's evidence that the quest for finance was not pursued once they (his wife, Hannelly and himself and possibly Mr Di Blasio, Snr) had determined that the termite problem was such that ACTIC should rescind the contract.

In his affidavit of 22 September 2003 Paul Fernandes stated that he had been licensed as a real estate agent for ten years. For six years he had worked in Pyrmont and Ultimo. In his oral evidence he said that he had been doing real estate agency work for 15-16 years. He had been involved in the sale of over one hundred properties, both residential and commercial. In Mr Fernandes' experience it was usual for a purchaser to arrange building and pest inspections and obtain reports of those inspections prior to exchange of contracts. This occurred in at least 90 per cent of sales in which he had been involved and such reports were imperative in the case of a building that was relatively old or was in Ultimo. Termite activity and rising damp were common in Ultimo. There was evidence of rising damp in 439 Harris Street with the bubbling of paint on the walls and a musty damp smell.

Mr Fernandes became aware through Ms Lao that Florence Chan-Deakin of UPRE's property management section was the property manager of 439 Harris Street. Mr Fernandes neither sought nor received information from her about 439 Harris Street. It was not his practice to speak to people who are the managing agents for properties that are put on sale except where information is volunteered to him. Part of the reason for his practice in not seeking information about a property was his understanding that the purchasers have to generally rely on their own enquiries and that it was not for the agent of the vendor to inform prospective purchasers of matters concerning the condition of a property as agents are not qualified pest inspectors or building inspectors.

Mr Fernandes said that he first found out that there had been termite activity when Ms Di Blasio arranged a pest inspection and the pest inspector said to her in his presence "There was past termite activity under the stairs".

Mr Fernandes denied that he had the conversation alleged by Mr Di Blasio Snr and said that their conversation was limited to an exchange of greetings and farewells of no consequence.

Mr Fernandes recalled that Mr Macolino inspected 439 Harris Street two or three times and that on the first occasion Mr Macolino asked general questions, for example, "What is through here?", "What's this?" Mr Macolino enquired what the vendor wanted and when told the vendor was asking $1.15 million queried whether he could get the premises cheaper. Mr Fernandes suggested that an offer be made. Mr Fernandes said that nothing was said about the speed of completing a purchase, the role of UPRE in managing the property or the condition of the property. That could be seen. Mr Fernandes told Mr Macolino that he thought that the property was a good property and reasonably priced.

Mr Fernandes said that he thought that the next conversation he had with Mr Macolino was when he brought a gentleman whose name he could not remember. Messrs Hannelly and Di Blasio Snr were also present. Mr Macolino and the gentleman inspected the property and had a conversation between themselves. Mr Fernandes could not recall Mr Macolino asking him any questions but added that there may have been some general questions, for example, the size of a room or rooms, the height of the ceilings.

Mr Fernandes stated that Mr Macolino did not ask him any questions about the condition of the property and he expressed no opinion about its condition. The condition of the property was obvious. Mr Fernandes did express the opinion that the asking price was quite reasonable. Mr Fernandes recalled Mr Macolino asking if he could drive his car down the driveway to see if it would fit and doing so.

Mr Fernandes said that Mr Macolino never asked him whether there were any problems with the property. Mr Fernandes said that there were water stains, brown stains on the white wall and bubbling paint. These were indicators of rising damp or water damage. Mr Fernandes recalled these indicators as being on the back wall and on the boundary wall. There was evidence of water penetration around a small glass skylight in the ceiling in "the common area."

Mr Fernandes observed that the tenant conducted the business of an advertising agency and it seemed to be quite busy. It was not a neat office. On the first inspection he recalled desks, photocopiers and a boardroom table. He could not recall whether anything was stacked against the walls apart from obvious furniture. He could not remember seeing evidence that the tenants were moving out nor any cardboard boxes.

Mr Fernandes could not remember whether on later inspections the position differed and said: "I knew that they were moving out but whether there were boxes stacked in the corner or not or against the wall, I can't remember. The reception area was always neat … and out the back, I can't recall."
Mr Fernandes stated that in certain places there was water damage close to the floor while in other places there was water damage on the wall. He said: "I recall seeing furniture, tables up against walls. In terms of boxes they could have been there. I don't specifically - as a real estate agent you are almost conditioned to almost overlook these things."

Mr Fernandes accepted that UPRE's records showed that Ms K Lao listed the property on 14 April 2000 and that he issued sales advices on 17 April 2000. During that period there had been inspections of the property, Ms Di Blasio had made an offer and that offer had been accepted.

In cross-examination Mr Fernandes did not recall precisely what he said about the management of the property. While he might have said that he was the managing agent he believed that it was more likely that he said "We manage the property. Our property Management Department manages the property."

Mr Fernandes said that while he did not recall being asked by Mr Hannelly if he was aware of anything at all that was wrong with the property that question may have been asked. He did not deny that it was asked. He insisted that he would never say words to the effect "Absolutely not. I assure you there are no problems with it", especially about a 100 year old property. He added that no matter what you buy or lease there is always going to be something wrong with the particular property. He relied on his practice. Mr Fernandes could not recall Ms Di Blasio asking him any questions about the condition of the premises, but she may have.

Mr Fernandes said that the property was in the selected area and about the desired size and that he did not say much. Mr Fernandes said that he was not asked if there had been any problems of which the tenants had complained and that if he had been asked he would have replied, "Personally I do not know of any, but I can find out." He would then make the inquiry. Even after making the inquiry and relaying the results he would advise the prospective purchaser to have pest and building inspections. Mr Fernandes accepted that inspections and reports would entail delay. Mr Fernandes agreed that he encouraged Ms Di Blasio and Mr Hannelly to make an offer. He denied that he encouraged them to agree to the sale quickly. He said that he never hurried up the purchase. Probably this evidence of Mr Fernandes, that he did not hurry up the purchase, is incorrect.

Mr Fernandes denied that Mr Di Blasio Snr asked him whether there was anything at all wrong with the condition of the building or used words to similar effect. Mr Fernandes denied that he said, "No, don' worry. This is a good buy."

Mr Fernandes agreed that he would have had a conversation with Mr Macolino but did not recall "the line of the conversation" it could have been about price. Prospective purchasers often discuss price with the agent. Mr Fernandes did not recall saying to Mr Macolino, "This is a good price and the property has not been marketed as yet. I think you will have to move quickly to secure it." He stated that Mr Macolino may have asked, "Has the property been marketed as yet?" He (Fernandes) may have replied, "No, it has not." Mr Fernandes did not recall this happening.

Mr Fernandes did not recall Mr Macolino asking him "Do you know of any problems with the property or anything that we should know about?" Mr Fernandes did not deny that that question was asked. He said that if such a question were asked it would be memorable because it is unusual for people to ask questions like that. He said that with the way the property presented a prospective purchaser could see that there were issues with the property. He denied that he responded by saying, "No, it is a good buy for someone who needed office space." He asserted that he would have told the questioner that it was obvious how the property presented and that the questioner should arrange his own building and pest inspections.

Mr Fernandes said that he could not recall any requests to verify that there had been no alterations to the property.

Both Cabool and UPRE attacked the credibility of Ms Di Blasio, Mr Di Blasio Snr and Mr Macolino strongly, and to a lesser extent that of Mr Hannelly. ACTIC attacked the credibility of Mr Fernandes.

The credibility attacks of Cabool and UPRE had two principal bases. Firstly, that the witnesses for ACTIC had significantly overstated what had been said at the various inspections - the defendants did not put the matter so delicately. Secondly, the real reason for ACTIC not proceeding was that they were having difficulty raising the finance to complete and had overstretched themselves.

ACTIC contended that Mr Fernandes was anxious to obtain an early sale, sent out sales advices within three days of the premises being listed by UPRE and was not the demure agent he appeared in the witness box. His inability to recollect many matters was questionable. In some matters his initial evidence and recollection were incorrect.

All parties relied on further factual material. The defendants relied, amongst other things, on the failure of ACTIC to produce any finance applications for 439 Harris Street in response to Notices to Produce. This led to the conclusion that there were none. It was clear that ACTIC needed finance to complete.

In her affidavit of 3 October 2003, Ms Di Blasio sought $51,700, being the deposit and (a) legal costs and disbursements paid for conveyancing $1653.30, (b) its financing expenses of $4000 paid to Australian Discount Mortgages Pty Limited (ADM), (c) pest control inspection/report expenses of $560 paid to Sherlock Property Reports. Ms Di Blasio attached a photocopy of a cheque butt dated 26 July 2000 showing a payment of $4000 - to ADM. In cross-examination she was shown a Service Agreement and Irrevocable Authority (signed by her) whereby ACTIC and Tactics Micro-Marketing Pty Limited (another company used by the Di Blasio family) engaged ADM to obtain a loan of $1,490,000. A commitment fee of $4000 was payable upon the execution of the agreement. The security was 114 Quarry St Ultimo, Unit 21, 108 High Street Mascot and commercial property to be advised . Later in 2000 ACTIC entered into a contract for the purchase of a strata office unit being Level 2, 26 Ridge Street, North Sydney.

Although it was obvious from the dates of the purported notice of rescission (19 July) and the agreement (25 July) that the payment of $4000 had nothing to do with obtaining finance for the purchase of 439 Harris Street, Ms Di Blasio stated that she believed it had to do with the purchase. She indicated that her husband took care of all financial matters. She had relied on him. While this is probably so, she signed the agreement of 25 July 2000. She was an alert and capable lady. She thought, but did not know, that her husband had been in contact with ADM in late 2000 to obtain finance for the Ridge Street property.

Mr Macolino agreed in cross-examination that as at about 30 June 2000 finance had not been approved for the purchase of 439 Harris Street. However, he asserted that it could have been approved within 24 hours and that finance for the purchase of 439 Harris Street was never an issue. There was sufficient security and they could offer adequate collateral security.

After insisting that it was the termite infestation, not the lack of finance, which led to non-completion of the contract, this unhappy passage appears in his evidence (T89-90): Q. When did you get finance, if at all, for the Harris Street property, Mr Macolino? A. You can see there, like there's documentation in he files. I am sure they say there was approvals granted some time thereafter. I don't know when.

Q. Do you want to think carefully for a minute about that answer? A. For Harris Street.

Q. For Harris Street. A. There was never anything approved for Harris Street." 79. Amongst the documents found in the papers produced to the Court by ADM was a copy of a memo prepared by Mr Macolino and bearing date 23 June 2000. The memo left blank the name of the addressee. The memo recited the exchange of contracts on 439 Harris Street for a price of $1,035,000 and stated, "the amount required to borrow is $983,250 -."

The memo set out the history of Tactics Micro-Marketing Pty Limited and described the various companies who would be occupying 439 Harris Street and their activities and supplied their financial statements and other financial data including the personal balance sheets for Mr Hannelly, Ms Di Blasio and Mr Macolino. The financial arrangements envisaged were somewhat involved. This memo was apparently supplied by Mr Macolino to ADM for use in subsequent financial applications. Mr Macolino agreed that at the time of the memo he knew that there were potential termite problems with 439 Harris Street.

Mr Macolino identified the signatures of his wife and Mr Hannelly on the agreement with ADM. Mr Macolino agreed that the $4000 paid on 26 July 2000 was unlikely to relate to 439 Harris Street.

In September 2000 and October 2000 ADM was unable to procure finance on behalf of its client from two finance houses from whom it sought a loan.

In about October 2000 Bendmac Pty Limited, a company in the plaintiff's group became interested in purchasing Level 2, 26 Ridge Street, North Sydney. By letter of 1 December 2000 the solicitors for Bendmac (and also for ACTIC) advised ADM that Bendmac had that day exchanged contracts to purchase Level 2, 26 Ridge Street and associated car spaces for $735,000. In another document the price stated is $720,000. The letter confirmed that Bendmac had asked ADM to arrange finance and that ADM had assured Bendmac that finance "will not be a problem." Completion was not due until 19 January 2001, but Bendmac had to pay interest at 10 per cent on the balance of the purchase price after 19 December 2000.

By letter of 18 December 2000 addressed to Bendmac c/- ADM, Resicom Australia advised it had received indicative approval (subject to conditions) from one of its principal commercial loan underwriters for $1,200,000 which was not to exceed 75 per cent of the valuation of the security for the purpose of the "purchase North Sydney property for investment & rental and refinance CBA on two other properties" for 3 years at an interest rate "Fixed for three years, indicative quote at 9.45%." It specified the security and the guarantees required.

Mr Macolino thought that the conditions of Resicom were unfair to Bendmac and those associated with it so finance was sought elsewhere and obtained from the Commonwealth Bank in February 2001. Mr Macolino insisted that his evidence that ACTIC would have no difficulty in obtaining finance was correct. He added that it might have been tardy in obtaining finance but there was never any doubt that finance would be procured. Once the termite problem arose he was content to wait and find out the position as to the termite infestation before even trying to obtain finance on 439 Harris Street.

The property at 26 Ridge Street, North Sydney was of a kind markedly different from that at Ultimo. Both were, however, not far from the Central Business District. The Ridge Street property was some $280,000 cheaper than 439 Harris Street. Financing the Ridge Street purchase was likely to be much easier than financing the purchase of 439 Harris Street. Less security and collateral security was likely to be required for the Ridge Street purchase. Despite Mr Macolino's assertions, ACTIC, even assisted by associated companies and its directors, was probably not capable of raising the finance to purchase 439 Harris Street, except on onerous and unattractive terms. ACTIC had overreached itself with that proposed purchase. The termite infestation issue became a convenient vehicle for ACTIC to use to purport to rescind the contract.

Before returning to what was said between Mr Fernandes and the representatives of ACTIC and its advisers, it is desirable to refer to some matters ACTIC contended reflected on his credibility. Mr Fernandes said that he never ventured any opinion as to the rent which could be obtained for 439 Harris Street. He was then shown a letter dated 9 June 2000 headed "To Whom It May Concern" and "re 439 Harris Street, Ultimo" which relevantly stated: "We write to advise that our opinion for the above property based on to-day's rental prices is approximately $100,000 per annum."

Mr Fernandes acknowledged that he had signed that letter. He said that at that time he did not know what rent Octopus Communications (the previous tenant) had been paying. (It had been paying $70,000 per annum by way of rental). In a FAX dated 28 November 2000 Mr Fernandes on behalf of UPRE purported to offer a prospective tenant a lease of 439 Harris Street for a term of 12 months commencing on 6 December 2000 at a rental of $70,000 per annum plus GST with one month rent free if the tenant completed "internal repainting of all walls, ceilings; repairing carpets; repairing of electrical; repairing of skylights." Mr Fernandes said that when he gave his opinion of $100,000 per annum rental this was the rental on a refurbished basis. He understood that Ms Di Blasio intended to freshen up the premises. They needed it. Mr Fernandes said that in forming his opinion he had regard to rents payable in the area. He agreed that an annual rental of $100,000 was a gross return of about 10 per cent.

Mr Fernandes' evidence on this point was difficult to accept. The opinion he expressed as to the rental value of the premises was unduly high. The reference to expressing an opinion on the basis of freshening up the premises was a convenient and opportunistic afterthought in the witness box as he sought to extract himself from a difficult and potentially embarrassing situation. He seemed decidedly uncomfortable during this part of his evidence.

It is probable that Mr Fernandes did not say "I am the managing agent." He was not the managing agent and did not manage the property. He said words to the effect "We manage the property" and conveyed the meaning that UPRE managed the property. By that he conveyed, and intended to convey, that UPRE was familiar with the property. They were not idle words but words of reassurance and they were so understood by the Di Blasio family members and Mr Hannelly and intended to be so understood by Mr Fernandes. The context in which those words were used is important. Mr Fernandes was skilfully pressing for a quick sale before the property was advertised for sale and reassuring the Di Blasio family and Mr Hannelly that to his and UPRE's knowledge there were no non-readily apparent defects in circumstances where a thorough inspection of the premises was difficult. I accept the evidence of Mr Fernandes that the condition of the premises was obvious.

While I accept Mr Fernandes' evidence that his practice on inspections is not to say a great deal and to leave the purchaser to make its own assessment of the premises, I do not think that on the inspections by the members of the Di Blasio family and Mr Hannelly, Mr Fernandes was as demure as the picture he endeavoured to paint in the witness box. He made the points that the price was reasonable and the property was a good buy and that the purchaser should proceed promptly if it wanted the property. It had not been advertised.

I find that at the time of the inspections there were boxes in the premises and that they increased in number from about mid-April onwards. I also find that there were items of furniture and equipment pushed up against the walls and that the tenant was busily engaged in running its business as an advertising agency and that those inspecting it were not made welcome by the tenant and its staff.

As mentioned, it was difficult to make a thorough inspection of the premises but a measure of inspection was possible. Some of the bubbling paint and the stains on the walls could be seen and there were indications of rising damp. This would not be unexpected in buildings at Ultimo constructed at the beginning of the twentieth century. Over the ensuing years the use of damp courses became more prevalent. Even on the limited inspection afforded to purchasers the need for a damp course or some other measure was probably apparent to a careful observer. The premises needed repainting and the water penetration from the skylight had to be stopped.

Overall, I thought that the plaintiff's witnesses tended to overstate the difficulties of inspection and the quantity of boxes in the premises. On the other hand, I thought that Mr Fernandes had a better recollection of the difficulties of inspection and the presence of boxes in the premises than he was prepared to concede. I find it difficult to accept that people as able and experienced as Ms Di Blasio, her father, her husband and Mr Hannelly would have been prepared to proceed if the difficulties of inspection and assessment were as great as was suggested by their evidence. Ultimately I did not feel that any of these four witnesses or Mr Fernandes was wholly reliable. I doubt if the four witnesses just mentioned for the plaintiff relief on Mr Fernandes to the extent each suggested.

With the active conduct of the business of the advertising agency; the boxes; the furniture and equipment, an inspection of the enclosed area under the stairs was probably not practicable. Indeed, with the features mentioned it was difficult to detect signs of borer in the premises. Mr Di Blasio Snr, an experienced builder, having held a licence since 1979, did not detect signs of borer on his inspection. The borer problem was detected by Mr Louie Di Blasio, also a builder, when he made an inspection in the area under the stairs in June 2000 after the tenant had moved out and contracts had been exchanged. He told his sister.

On a number of occasions counsel for the defendants sought to emphasise the distinction between the knowledge of Mr Fernandes and that of UPRE. They pointed out that Mr Fernandes was not aware of the termite infestation problem even if the property management section of UPRE was. Weight was attached to the form of the question, "Are you aware?" addressed to Mr Fernandes. When such a question is addressed to a real estate salesman, the prospective purchaser is asking if the agency is aware. This is especially so when the salesman has stated that his agency (or "we") manage the property.

The next factual questions to be resolved are whether Mr Hannelly asked Mr Fernandes whether he was aware of anything at all that was wrong with the property, or of any problems, and Mr Fernandes replied "Absolutely not. I assure you there are no problems with it" or words to that effect. Mr Hannelly was adamant that Mr Fernandes assured him that there were no problems with the building apart from those which could readily be seen. I do not think that Mr Fernandes' assurances were as absolute as it might seem that Mr Hannelly was suggesting. Regard must be had to the context. I doubt if any agent would go so far as to say that there were "absolutely no problems with the building" especially when it was apparent that there were problems with rising damp and water penetration. Mr Fernandes did not go so far. I think that the assurance of Mr Fernandes was to the effect that he (and UPRE) were not aware of any hidden or concealed problems. Senior counsel for Cabool reminded me of the observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318 in dealing with a case of misleading or deceptive conduct or likely to mislead or deceive within s 52 of the Trade Practices Act 1974 (or s 42 of the Fair Trading Act) that "it was ordinarily necessary for the party alleging such conduct to prove to the reasonable satisfaction of the Court (1) what the alleged conduct was and (2) circumstances which rendered the conduct misleading."

McLelland CJ in Eq continued, "Where the conduct is the speaking of words in the course of a conversation it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perception or self interest as well as conscious consideration of what should have been said. All too often what is actually remembered is little more than an impression from which plausible details are then again often subconsciously constructed. All this is a matter of ordinary human experience."

Those observations are apt and helpful in the circumstances of the present case. They constitute a reminder of the need for caution when the misleading conduct alleged is based on conversations. This is especially so in this case where I have had to read down the apparently absolute words used with reference to the context in which they were used. Ms Di Blasio, her father, her husband and Mr Hannelly were all intelligent people of ability and with experience in purchasing property. Each was aware of features likely to exist in properties in Ultimo built about 100 years ago. Each was aware that it was prudent for a purchaser to arrange a building inspection and a pest inspection. The premises were situated in the desired area, were about the right size and were assessed as suitable; the purchase price, while substantial, was reasonable. As earlier stated, Mr Fernandes urged the prospective purchasers to act promptly if they wished to secure the property. A purchase price was agreed and Mr Fernandes issued sales advices within three days of the property being listed.

While the sales advices were issued promptly Cabool's solicitors did not submit a draft contract until 4 May 2000. Contracts were exchanged on 2 June 2000. While some alterations were sought, much of the intervening delay appears to have been due to attempts by ACTIC to arrange finance. The tenant moved out prior to exchange of contracts, but no inspection of the vacant premises was made prior to that exchange.

Mr Di Blasio Snr, made a limited inspection of the premises in April 2000 but he found no defects. Ms Di Blasio, her husband and Mr Hannelly probably relied on this. This provides one explanation for the failure of ACTIC (or those behind it) to obtain building and pest reports, but Mr Di Blasio Snr did emphasise that he could not make a thorough inspection. Another explanation is that, in response to Mr Hannelly's question, Mr Fernandes made the statements to the effect of those attributed to him, but modified in the way I have earlier indicated and that ACTIC (and those behind it) relied upon them. Mr Di Blasio Snr and Mr Macolino also claimed to rely on the statements of Mr Fernandes. Of course, the critical question is what was said. Discussion of possibilities and probabilities, while useful, is no substitute for answering the critical question.

Ms Di Blasio's credit and that of her husband were impaired by the incorrect claim of $4000. That had nothing to do with the raising of finance for 439 Harris Street. Her credit was not enhanced by the failure to include in her affidavit of 4 September 2000 that she told Mr Fernandes, "We will need a property that does not require work to be done, particularly not structural work." She had no explanation for this omission.

Mr Macolino in cross-examination insisted that the reason why he did not obtain a building report and a pest report was that Mr Fernandes convinced him that there was nothing wrong with the building, saying so and that the property was a good buy. Mr Macolino could not remember Mr Fernandes saying, "There are absolutely no problems with this property." Mr Macolino agreed that that would have been an extraordinary remark for Mr Fernandes to make. I also agree. It was a remark to this effect upon which Mr Hannelly and Ms Di Blasio claim to have relied but, as I have held it needs to be modified and seen in its context. Mr Macolino's evidence bore on the probabilities of what was said. He was an experienced business man and experienced in property purchases.

Counsel for the defendant attacked the credibility of Mr Hannelly. This followed a remark made by me in argument that while criticisms could be legitimately made of the evidence of Ms Di Blasio, her husband and her father, Mr Hannelly struck me as being a witness of some force and the main problem for the defendants. I invited counsel to convince me to the contrary. Mr Epstein placed reliance on the "concessions" made by Mr Hannelly in cross-examination. Those "concessions" included that he did not inspect the property after the tenant moved out, that Mr Fernandes would know of any problems (via his management of the property - that would include UPRE's management), that he asked Mr Fernandes if he was aware of anything at all that was wrong with the property and his reply, "absolutely not".

The defendants placed much weight on Mr Hannelly asking Mr Fernandes "if he was aware" as distinct from "if UPRE was aware." I thought that the weight attached to the distinction was misplaced. Mr Hannelly thought that by his statements (which were absolute) Mr Fernandes had gone through the management file and detected no problems. Mr Hannelly insisted that Mr Fernandes had offered him an assurance there were no problems and that in doing so Mr Fernandes was acting as a managing agent or building manager. I have not overlooked the remainder of the cross-examination of Mr Hannelly.

Counsel for UPRE submitted that Mr Hannelly's evidence was inherently implausible as he claimed to have asked the same question and received the same reply on two occasions. It was also pointed out that other witnesses gave similar evidence, e.g., Messrs Macolino and Di Blasio Snr., as to the questions asked and the answers. Each of the witnesses was recalling the effect of the conversations which had taken place and on that they were clear. It would be unrealistic to expect them to remember the exact words used. Counsel for UPRE submitted that during his cross-examination by Mr Epstein, Mr Hannelly stubbornly adhered to unreasonable propositions, e.g., expecting Mr Fernando to go through the management file to acquaint himself with all the problems affecting the property, that he thought Fernandes was on their side and that he did not at the time regard Mr Fernandes' responsibilities as being to the vendor.

Mr Hannelly did expect too much of Mr Fernandes but this was probably because of the "friendship" which had developed and attaching insufficient weight to Mr Fernandes duty to sell the property on behalf of the vendor for the best price which could be obtained.

Counsel for the defendants asked me to view all the evidence given on behalf of ACTIC through the prism of ACTIC wanting to get out of the contract because of finance difficulties. They were very real.

The submissions of the defendants as to the credibility of the witnesses called on behalf of ACTIC had considerable substance. Mr Hannelly gave evidence in a convincing fashion. He made it clear he was not concerned with organising finance and that in that area he left matters to Mr Macolino and signed the documents requested. Mr Hannelly stated what he expected of Mr Fernandes. He relied on what Mr Fernandes told him and was encouraged to do so by Mr Fernandes' statement as to managing the property.

I find that Mr Hannelly did ask Mr Fernandes whether he (that is UPRE) was aware of anything wrong with 439 Harris Street or words to that effect. In the context Mr Hannelly was understood to be referring to defects which were not visibly apparent. I find that Mr Fernandes replied in the negative. This response in part led to ACTIC (and those behind it) not obtaining a comprehensive building report and a pest report. A more important reason was that Mr Di Blasio Snr and the others behind ACTIC could see the visible defects such as the rising damp, the water penetration, the need to repaint and the age of the building and did not detect any other defects. I find that Mr Fernandes at no stage gave an absolute assurance that the were no problems (or nothing wrong) with 439 Harris Street. What he was asked was as to his (and UPRE's) knowledge of problems (or anything wrong) with that property that was not visible. That is important. The questions asked did not extend further and were not referring to the visible and obvious defects. Nor was a guarantee being sought as to the condition of the premises.

I next consider the evidence as to termite infestation. During the latter half of 1999 the tenant of 439 Harris Street obtained a Termite Inspection Report from Flick of an inspection carried out on 29 September 1999. The inspection found termites in the interior of the premises. Arsenic dusting was recommended. The total cost of the recommended colony control service was $1850. A copy of that report was delivered to UPRE.

By FAX of 1 October 1999 the tenant complained about the termite problem in these terms: "Please can you sort this out a.s.a.p. They're eating our samples.!!"

The tenant also spoke to Mrs Ling of Cabool about the problem.

UPRE arranged for Central Pest Control to inspect the premises and it did so on 12 October 1999. Its report of 15 October 1999 to UPRE stated: "… We found active termites (white ants) in several areas of this building coming up through the concrete slab and infesting internal timbers and stored cardboard goods.

There are 2 options to control this termite infestation. The first option would be to completely gut the premises, including taking up all the carpet and drill several hundred holes through the concrete slab to inject the termicide. This option would cost several thousand dollars and the tenants would have to move out for some time. The second option and probably the wisest given the above scenario, would be to directly treat all active termites with a biological control agent which would kill the termites in the building. After this we would have to monitor the situation periodically.:" 114. On 19 October 1999 Cabool per Margaret Ling authorised Central Pest Control to gain access to concealed areas and apply the requisite dusting using Nematerm biological control agent.

By letter dated 7 January 2000 Central Pest Control reported to UPRE that it had been carrying out a termite (white ant) eradication programme to 439 Harris Street over the last couple of months. The report continued: "Currently, the termites appear to be under control however, we will have to inspect the building regularly to ensure reinfestation does not take place. 3 monthly timber pest inspections … would be wise at this stage. In the meantime could you please have a competent builder replace the gyprock underneath the stairs. We had to remove this gyprock to gain access to a massive termite sub nest. The current tenants have informed us that they may be relocating in the not too distant future. This would be an ideal time to fully inspect the building with no furnishings in place to hide termite activity."

I should perhaps also record that by letter of 27 October 1999 the tenant complained of a delay in fixing defects and irritating ongoing problems and defects which would affect the enjoyment of the premises. As a result the tenant asked for a rent reduction. Having regard to the terms of this letter it was to be expected that the tenant would move out at the expiration of the lease. Nor is it surprising that Cabool decided to sell.

On the materials before UPRE as at April 2000 the view was reasonably open that the termite activity had been treated and brought under control and was no longer a problem of consequence. That was likely to be the view held by UPRE. ACTIC did not suggest that it was entitled to rescind at law.

Fraud was not alleged. ACTIC contended that the contract should be set aside under equitable principles governing innocent misrepresentations. Clause 10.1.5 of the contract provides: "10.1 The purchaser cannot make a claim or requisition or rescind or terminate in respect of: 10.1.5. a promise, representation or statement about this contract, the property or the title not set out or referred to in this contract"

ACTIC submitted that this was an over ambitious exclusion clause, that it would totally remove the operation of the equitable principle of rescission, that it would prevent reliance upon any oral statement and prevent bringing any proceedings for any kind of relief.

ACTIC submitted that where, as here, the contract was procured through conduct which is inequitable then equity will set aside the contract and, if it does so, it sets aside cl 10.1.5. ACTIC further submitted that clause 10.1.5 could not survive as it restricted or negated the general power of the Courts to intervene.

In his book The Standard Contract for Sale of Land in New South Wales, 2nd Ed, Peter Butt writes: "Essentially, [sub cl 10.1.5] is an exclusion clause designed to preclude claims or requisitions in respect of pre-contract statements and representations, unless they have been carried forward into the terms of the contract itself. Whether the subclause is effective depends upon the circumstances. (p564)"

and "The subclause will be effective at general law according to its terms, where the promise, representation or statement was made innocently in the sense of without intention to deceive. It will not be effective, however, where the promise, representation or statement was made with intent to deceive, for an exclusion clause is not effective to exclude liability for fraudulent conduct." (citations omitted) (p564).

Accordingly, I reject the submission that clause 10.1.5 is not effective to preclude a right to rescind for innocent misrepresentation.

I would further hold that the discovery of a termite nest or infestation was not the real reason but a pretext for the rescission of the contract. I am far from convinced that in the present instance this was a material defect in the premises. ACTIC submitted that while the cost of rectification may not be high, the elimination of such infestation would cause disruption to the transaction of its business and that of its associated companies. That was overstated. Despite the evidence of Mr Macolino, who was responsible for arranging finance, the difficulties in obtaining finance with reasonable promptitude and on satisfactory terms and the extent of the finance required led to the rescission of the contract.

ACTIC has not established the materiality of the representation of which it complains. The termite infestation complained of and its eradication amounted to a minor defect but no more. It was a solvable problem entailing no great expense. It could not be considered a substantial defect or disadvantage.

UPRE submitted, correctly, that the evidence did not establish that 439 Harris Street was the subject of a major disadvantage or defect. The evidence establishes that there was a termite infestation problem which needed to be kept under observation and control and that this could be done by dusting or using a biological control agent, which was not expensive. Even if a more radical program of prevention was adopted this was not unduly expensive. It is hard to accept that a suitable time and method to eradicate the infestation could not be found.

I turn now to ACTIC's claim under the Trade Practices Act, 1974. Section 52 provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive, or is likely to mislead or deceive. Sale of a residential property by an individual is not a transaction in trade or commerce. Cabool contended that the section did not apply because it was making a one-off sale of property with vacant possession and was not engaging in trade or commerce. It was selling a capital asset. Cabool accepted that different considerations may apply if a property was being sold with a tenant in occupation.

ACTIC contended that Cabool had the status of a company engaged in trade or commerce. It was incorporated in 1989 and its articles envisaged trading and commercial activities. It was not a specialist company, for example, handling superannuation. It had entered into a lease in October 1989 as tenant to rent a shop in the Lemon Grove Shopping Complex, Victoria Road, Chatswood. The permitted use of the premises was "Bread baking and retail sale of pies, cakes and all yeast products". It had let the premises at 439 Harris Street for a substantial rent.

Counsel told the Court that there was no case directly in point. Counsel referred to Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 and the discussion of the phrase "in trade and commerce". In their joint judgment Mason CJ, Deane, Dawson and Gaudron JJ held: (a) the general words of s 52 should not be confined to cases involving the protection of consumers alone (p 601)

(b) the words "trade and commerce" were terms of common knowledge of the widest import (p602)

(c) the phrase "in trade or commerce" in s 52 has a restrictive operation. It refers only to conduct which is itself an aspect or element of activities or transactions which of their nature bear a trading or commercial character. Such words refer to the central conception "of trade or commerce" and not to the immense field of activities in which corporations may engage in the course of, or for the purpose of, carrying on some overall trading or commercial business (pp602-603)

(d) Section 52 was not intended to extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of its overall trading or commercial business (pp603-604)

(e) "… the section is concerned with … the conduct of a corporation towards persons, be they consumers or not, with whom it … has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character." (p604) 129. Brennan J said at 606 that while he agreed that the phrase "in trade or commerce" qualified the operation of s 52 he was "unable to agree that the phrase restricts the operation of s 52 to conduct which is in itself of a trading or commercial character. The question whether conduct is engaged in 'in trade or commerce' cannot be answered by reference to the conduct divorced from the circumstances in which it is engaged in; it can be answered only by reference to the surrounding circumstances."

Toohey J at 613 thought that the Trade Practices Act was concerned with trade or commerce in general terms and that s 52(1) was aimed at conduct in which a corporation engages when that conduct takes place in a situation which fairly answers the description "in trade or commerce". Toohey J continued "The words 'trade or commerce' are of wide import … But their focus is on commercial activity, the providing of goods and services for reward."

McHugh J, in a minority opinion, at 623, held that s 52 was confined to conduct which affects or is apt to affect members of the public in their capacity as consumers. McHugh J said at 620, "The words 'in trade or commerce' in s 52, in my opinion cover the whole range of activities which are directed to the exchange of goods and services in Australia."

The various judgments illustrate how difficult it is to determine the meaning and ambit of the phrase "in trade or commerce." I must apply the approach of the majority judgment. There was no evidence that Cabool engaged in the business of buying and selling property. 439 Harris Street was an investment property let to one tenant so far as Cabool was concerned. The property was sold with vacant possession. If the ACTIC purchase had gone ahead the property would have been occupied by the owners and those businesses associated with them.

On the evidence what took place was an isolated sale of commercial premises with vacant possession, that is, the sale of a capital asset. In my opinion it cannot fairly be said that this sale was a sale in trade and commerce so far as ACTIC and Cabool are concerned.

UPRE is in a somewhat different position. As a real estate agent, selling property (or negotiating sales of property) is at the heart of its business.

It would normally be expected that ACTIC, as purchaser would have the premises thoroughly checked by means of a building inspection and report and a pest inspection and report. ACTIC was advised by its solicitor in firm terms as to these steps and the members of the Di Blasio family knew that these steps should be taken. Even allowing for the problems due to the tenant's operations and its preparations to move out, thorough inspections could and should, with ordinary prudence have been made on behalf of ACTIC. An appreciable period of time had elapsed between the sales advices of 17 April 2000, the submission of a draft contract on 4 May 2000, the tenant moving out and the exchange of parts of the contract on 2 June 2000. It is concluded that ACTIC was content principally to rely on the inspections of the members of the Di Blasio family, especially that of Mr Di Blasio Snr.

It was the failure of ACTIC to take normal prudent steps to have thorough inspections made of 439 Harris Street which caused any loss, rather than any breach of s 52 of the Trade Practices Act by either defendant. The inspection by Mr Louie Di Blasio fairly shortly after the exchange of parts of the contract and his alerting Ms J Di Blasio to a probable problem with termites indicates how useful the normal inspection would have been.

At no stage did the members of the Di Blasio family and Mr Hannelly think that ACTIC was purchasing premises in top condition. The signs of rising damp, water penetration and the age and condition of the building (including the need to repaint) precluded such a view.

Both Cabool and UPRE submitted that the Court should find that ACTIC elected to affirm the contract after they became aware of the termite infestation.

Ms Di Blasio was first alerted to the termite problem by her brother shortly after the exchange of parts of the contract. She became further aware of the problem on 19 June 2000 as a result of a conversation with the pest inspector that day, but she naturally wished to wait until she received the written report from the pest inspector, probably about 23/24 June 2000. She spoke to her solicitor. She next spoke with Ms Karen Lao and received copies of the pest control reports from Central Pest Control. She was outraged and spoke to her solicitor about the matter.

Nothing was said about the termite infestation in the letters of 30 June and 4 July 2000. While the letter of 30 June 2000 was a general letter, that of 4 July 20000 was not and dealt with GST and the margin scheme, I am surprised that neither reserved ACTIC's position. Ms Di Blasio said that as at 4 July 2000 ACTIC intended to proceed with the purchase.

ACTIC would have had to weigh up the extent of the termite infestation, whether it was sufficient to justify rescission of the contract and whether it wished to proceed. I would not have expected ACTIC to have made up its mind by 4 July 2000.

I do not think that ACTIC should be held to have elected to keep the contract on foot. Its decision to rescind and its service of the rescission notice about 18 July 2000 was sufficiently timely.

I now consider the claim for the return of the deposit pursuant to s 55(2A) of the Conveyancing Act 1919, which reads: "In every case where the court refuses to grant specific performance of a contract, or in any proceedings for the return of the deposit, the court may, if it thinks fit., order the repayment of any deposit with or without interest thereon."

This provision does not entitle the Court to award damages to a purchaser.

Counsel for ACTIC submitted that it was just and equitable to make an order under s 55(2A) for these reasons: (a) the materiality of the representation and the unwillingness of ACTIC to be bound by the contract in the light of the misrepresentation

(b) the vendor, after some time, was able to onsell 439 Harris Street and effectively obtain a slightly higher price and in the meantime was holding the deposit

(c) the vendor did not appear to have suffered any loss. In such circumstances retention of the deposit was a windfall and the vendor was "double dipping". This has to be weighed against the detriment to ACTIC. The balance favours an order being made for the return of the deposit.

In my opinion it is not just and equitable to order the return of the 5 per cent deposit. There was delay in entering into the contract after an agreement for the sale and purchase of 439 Harris Street had been reached in principle. ACTIC did not take the usual steps of obtaining a building report and a pest report. This could have been done promptly after the tenant moved out and prior to the exchange of parts of the contract. The termite infestation was not such as to justify the rescission of the contract. ACTIC had overstretched itself and did not have finance. ACTIC had been warned not to proceed until it had finance arranged and pest and building reports but notwithstanding the advice received exchanged parts of the contract.

It took some time for Cabool to find another purchaser and at one stage it contemplated leasing the premises. In this case it is just and equitable that the deposit should be forfeited. I decline to order the return of the deposit.

Although what I have written is sufficient to dispose of the proceedings I will indicate briefly why I do not accept the submission that the contract for the sale and purchase of 439 Harris Street should not be admitted into evidence.

Section 304(1) of the Duties Act 1997 provides: (1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless:

(b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner." 150. One question in the present case is whether the contract is stamped in a manner approved by the Chief Commissioner. By letter dated 26 September 2003 to the Chief Commissioner of Stamp Duty the solicitors for ACTIC provided a copy of their letter of 19 July 2000 purporting to rescind the contract, a copy of Cabool's letter of 9 August 2000 terminating the contract and a copy of the transfer of the property to the eventual purchaser for $1,050,000.

ACTIC's solicitors wrote, inter alia: "The parties are involved in Court proceedings over the return of the deposit and so that the Contract can be relied upon in the proceedings we need it stamped as "no duty payable" (or similar). We therefore enclose the original Contract for Sale for that purpose."

It was pursuant to this request that the contract was marked "Contract Rescinded. No duty payable." ACTIC contended that the critical words were "No duty payable". That involved making an assessment.

ACTIC's application was made on the basis that it had rescinded the contract of sale and it made reference to s 50 of the Duties Act. With their letter ACTIC's solicitors enclosed a completed Office of State Revenue Form which is headed: "Duties Act 1998 - Section 50(1) Application for Reassessment and Refund: Cancelled Agreements for the Sale or Transfer of Dutiable Property."

Section 50(1) of the Duties Act 1997 bears the heading "Cancelled Agreements" and provides, "an agreement for the sale or transfer of dutiable property that is rescinded or annulled is not liable to duty under this Chapter if the Chief Commissioner is satisfied" of, amongst other things, that the agreement was not rescinded or annulled to give effect to a subsale.

The Office of State Revenue Form states: "This application must be made by, or on behalf of, the purchaser(s)/transferee(s) under the cancelled agreement."

and refers to "Details of cancelled agreement." Under that heading it seeks "Date rescinded/annulled" The references in the Form to "cancelled agreement" are readily understandable given the heading to s 50 of "Cancelled Agreements."

Is the phrase "rescinded or annulled" in s 50 used in its correct and technical sense or is it used in a more general sense which would include termination and cancellation. The Chief Commissioner appears to take the latter view. The presence of the heading in s 50 "Cancelled Agreements" tends to suggest the latter.

Section 50A(1) provides that a transfer of dutiable property that is effected by a written instrument is not liable to duty if the Chief Commissioner is satisfied that the transfer instrument has been cancelled and the dutiable property has not been transferred to the transferee and the transfer was not cancelled to give effect to a subsale. Section 50A(4) provides that in s 50A cancelled includes abandoned. In other words, duty is not payable on a transfer if it does not go ahead. The Act's Dictionary provides that a transfer includes an assignment and an exchange.

Section 8(1)(a) provides that Chapter 2 charges duty on a transfer of dutiable property and, under s 8(1)(b) certain transactions including "(i) an agreement for the sale or transfer of dutiable property". Land is dutiable property. Section 9(1) provides that the duty charged by Chapter 2 on a dutiable transaction referred to in s 8(1)(b) is to be charged as if each such dutiable transaction were a transfer of dutiable property.

Section 293(1) provides that an instrument that fails in its intended operation and becomes useless is not chargeable with duty under the Duties Act. Section 293(4) provides that the section does not apply in respect of an instrument that effects a transfer of dutiable property. Section 50A sets out the circumstances in which duty may be refunded on a cancelled transfer of dutiable property.

Section 18 contains extensive provisions whereby no one has to pay what, in effect, would be double duty. For example, under s 18(2) the duty chargeable in respect of a transfer of dutiable property made in conformity with an agreement for the sale or transfer of dutiable property is $2 if the duty chargeable in respect of the agreement has been paid.

The Duties Act 1997 imposes duty on certain transactions. If the transaction genuinely does not go ahead and is cancelled or terminated, duty is not payable. Given the context and thrust of the Act I take the view that the phrase "rescinded or annulled" includes termination and that the phrase should be given a broad operation as is evidenced by the Commissioner's administration of the Act. Alternatively, s 293 can be called in aid. It would be anomalous if a cancelled transfer were not liable to duty but a contract which was terminated was liable.

There is a practical consideration which favours such a result. The Commissioner cannot be expected in respect of applications for a determination that no duty was payable and applications for re-assessment and refund to conduct a detailed inquiry into the circumstances of the rescission to determine whether the contract was validly rescinded. That may be highly contested but it may be clear that the contract is not going ahead. The parties fought that issue in the present case over three days. From the documents placed before the Commissioner in the present case it was clear that neither party intended to proceed with the contract and that each party to the contract regarded it as being at an end.

From a stamp duty point of view it would be anomalous for there to be no duty payable where the contract was correctly rescinded but for duty to be payable where a contract is terminated. In neither case does the transaction proceed and essentially the Act imposes duties on transactions.

The Duties Act (s 5) provides that that Act is to be read together with the Taxation Administration Act 1996. The latter Act deals with how assessments are made. Section 8 provides: "(1) The Chief Commissioner may make an assessment of the tax liability of a taxpayer

(2) An assessment of a tax liability may consist of a determination that there is not a particular tax liability." 165. An officer of the Office of State Revenue, acting on behalf of the Commissioner, has made an assessment of the tax liability of ACTIC and made a determination that there is not a particular tax liability, that is that no duty is payable on the contract and the contract has been stamped in a manner approved by the Chief Commissioner accordingly. There is much substance in the view that the assessment was that no duty was payable, even if the reason given was erroneous. The determination by the Chief Commissioner that no duty is payable suffices for the purposes of the admissibility of the contract into evidence.

I would reject the contention of the defendants that the contract should not be admitted into evidence on each of three grounds, namely: (a) the phrase "rescinded or annulled" is sufficient to cover what occurred here as it is used in a broad way covering cancellation and termination

(b) the Commissioner in his assessment of ACTIC's tax liability has determined that no duty is payable on the contract and that the contract has been stamped in a manner approved by the Chief Commissioner.

(c) The contract was an instrument which failed in its intended operation and became useless. It is true that its termination has led to a forfeiture of the deposit but that is a consequence of the contract not being carried into effect by a transfer upon payment of the purchase price. 167. The Commissioner's decision only bears upon whether the contract was admissible in evidence. The issue of whether the contract was validly rescinded remains for the Court to decide.

The defendants, and principally counsel for Cabool relied upon the following: (a) The vendor's termination of the contract does not constitute "rescission" or "annulment". That depends upon whether the phrase "rescinded or annulled" is used in a strict or technical sense or more expansively and colloquially as I have held.

(b) The contract has not been stamped, whether "duly" or otherwise, nor has the Commissioner issued any statement under the Tax Administration Act 1996 that no duty is payable. See Fineglow Pty Limited v Anastaopoulos [2002] NSWSC 1181, Wilcox Mofflin v Commissioner of Stamp Duties (NSW) 78 ATC 4,191 and M & W Holdings Pty Ltd v Exbea Pty Ltd 89 ATC 4,335.

What has happened in the present case is tantamount to an assessment and the result of that assessment has been endorsed on the contract. Assessments are often formally issued, but I see no objection to the result of the assessment being endorsed on the contract. Section 8(2) provides that an assessment of a tax liability may consist of a determination that there is not a particular liability. (c) The all embracing nature of the prohibition in s 304, that is, "not available for use in law or equity for any purpose", a clause which is not open to reasonable doubt. See Dent v Moore (1919) 26 CLR 316 at 324-5; Ash Street properties Pty Ltd v Pollnow (1987) 9 NSWLR 80. I am bound by these authorities but on the approach I have taken they do not come into play.

I hold that the contract as endorsed by the Office of State Revenue was admissible in evidence on the plaintiff's claim to rescind or set aside the contract under equitable principles and on its claim for a return of the deposit under s 55A of the Conveyancing Act. That suffices.

Cabool advanced the further argument that as ACTIC had no right to rescind the contract at law or in equity ACTIC's rights to have the contract rescinded (if any) arose under the Trade Practices Act 1974. In particular, a contravention of s 52 (as is alleged) gives rise to jurisdiction under s 87(1A) and(2) for the Court to declare the contract void. It was submitted by Cabool that the Court's power under s 87 of that Act would permit the granting of a remedy to the plaintiff, overriding the effect of Cabool's termination of the contract, an order for rescission of the contract ab initio and an order for the return of the deposit. However, Cabool contended that until the Court makes such an order the contract has not been rescinded. Cabool contended that ACTIC's claim must fail at the threshold by reason of the application of s 304 of the Duties Act 1997.

While the point being made has force an assessment was made and this contract has been stamped in a manner approved by the Chief Commissioner. That can be inferred from the submission lodged with the Chief Commissioner and his endorsement on the contract.

The claim under the Trade Practices Act fails against each defendant for the other reasons expressed earlier.

The plaintiff's action against both defendants is dismissed. Cabool is entitled to forfeit and retain the deposit. I would so declare. An order is made that UPRE pay such deposit to Cabool. I stand over the question of costs for future argument. This will involve the scale which is appropriate having regard to the small amount involved and whether the costs orders should reflect the outcomes on the various issues litigated.

Last Modified: 04/21/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

At a glance

Court

Decision date

Before

Source

Judgment (196 paragraphs)

Parties

Cases Cited (5)

Cited By (1)