Australian Equity Investors, An Arizona Limited Partnership v Colliers International

Division: GENERAL DIVISION

Counsel for the Applicants: Mr M. B. J. Lee and Ms J. McDonald

Solicitor for the Applicants: Harris Freidman Solicitors

Counsel for the First Respondent: Mr A. J. McInerney

Solicitor for the First Respondent: TressCox Lawyers

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1344 of 2009

BETWEEN: AUSTRALIAN EQUITY INVESTORS, AN ARIZONA LIMITED PARTNERSHIP

JUDGE: COWDROY J DATE OF ORDER: 5 MAY 2011 WHERE MADE: SYDNEY

1. The First Respondent, by making the representation as to the achievable gross realisation from the property at 258 Pacific Highway Crows Nest, New South Wales, has engaged in conduct which was likely to mislead or deceive the Applicants contrary to s 52 of the Trade Practices Act 1974 (Cth). 2. The First Respondent, by providing the Applicants with the achievable gross realisation from the property at 258 Pacific Highway Crows Nest, New South Wales, made a false or misleading representation concerning the price payable for such property, contrary to the provisions of s 53A of the Trade Practices Act 1974 (Cth).

1. The First Respondent pay the costs of the Applicants with respect to the hearing on the separate questions from 2 March 2011 on an indemnity basis, and otherwise on a party/party basis. 2. The security for costs in the amount of $100,000 paid by the Applicants to the First Respondent pursuant to the order made on 15 February 2011 be returned to the Applicants within 7 days of the date of this order. 3. The First Respondent be granted leave to file a notice of motion seeking a further security for costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1344 of 2009

BETWEEN: AUSTRALIAN EQUITY INVESTORS, AN ARIZONA LIMITED PARTNERSHIP

JUDGE: COWDROY J DATE: 5 MAY 2011 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 In these proceedings the applicants (collectively hereafter referred to as 'Arizona') claim that the first respondent ('Colliers') breached s 52 and/or s 53A of the Trade Practices Act 1974 (Cth) ('the TPA') in connection with a market appraisal ('the appraisal') prepared by Colliers for Arizona in respect of a proposed development at 258 Pacific Highway, Crows Nest, New South Wales ('the property'). Mr Markopoulos, the second respondent, was an employee of Colliers at the time he prepared the appraisal. All proceedings against Mr Markopoulos have been withdrawn and accordingly, Colliers is now the only respondent. 2 On 15 February 2011 the Court ordered that certain questions of law arising in these proceedings be determined in priority to all other questions: Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd (No 3) [2011] FCA 100. 3 Arizona submits that the appraisal was misleading and deceptive with respect to the quoted 'gross realisation' amount of $6,250,000 said to be achievable upon the sale of the property if the project was completed as proposed. The appraisal was submitted to Arizona on 8 July 2004. The proposed building on the property comprised a commercial retail strata unit on the ground floor, and four strata titled home units constructed above. 4 The separate questions for determination at this stage of the proceedings are as follows: 1. Whether as alleged in paragraph 16 of the statement of claim a facsimile letter headed "Proposed Residential Development 258 Pacific Highway, Crows Nest" was sent by the first respondent to the first applicant by facsimile on 8 July 2004? 2. Whether as alleged in paragraphs 18 and 19 of the statement of claim any or all of: a. the Express Representation; and/or b. the First Implied Representation; and/or c. the Second Implied Representation; and/or d. the Third Implied Representation, was conveyed by the first respondent? 3. Whether by making any of the Express Representation or the First, Second or Third Implied Representations, the first respondent engaged in conduct that was contrary to section 52 and/or section 53A of the Trade Practices Act 1974 (Cth)? 5 The relevant portion of the appraisal is set out hereunder: Proposed Retail & Residential Development 258 Pacific Highway, Crows Nest Thank you for the opportunity to discuss your property and submit our Market Appraisal. After careful evaluation and plans submitted by Perry Fung Architects, and taking all affectations including aspect, potential views, design merits, comparability to new apartments in the vicinity) into consideration, we report as follows: Assumptions i. Completion about late 2006. ii. That a high level of finishes will be used, including granite benchtops, parquetry or quality flooring, air conditioning, & quality appliances including dishwasher (eg Smeg or equal). iii. Allowance for an appropriate advertising budget will be made. iv. Suitable marketing material (eg finishes boards etc) will be provided. v. District views from level 2 & up (western side). vi. All units will have parking. vii. Gross Realisation for Residential is inclusive of GST. viii. Gross Realisation for Retail & Commercial is exclusive of GST. Market Appraisal Based on comparable sales and current market conditions, we believe a Gross Realisation achievable in range of $6,250,000 'as completed' apartments (see schedule below). Gross realisation for 4 residential apartments will equate to an average $1,300,000 per apartment. Unit Aspect Internal m² External m² Total m² Price $/m² Comments Retail E 150 150 $1,050,000 $7,000 GST exclusive 1 E 160 42 202 $1,250,000 $7,813 Views 2 W 160 20 170 $1,150,000 $7,667 Views 3 E 150 20 170 $1,200,000 $8,000 Views 4 W 150 153 303 $1,600,000 $10,667 Views

Feel free to contact me should you require any further details. 6 Subsequent to the appraisal, the property was redesigned and was not developed as originally proposed. Nevertheless, Arizona submits that the gross realisation which Colliers claimed was achievable if the property had been completed in accordance with the original design was grossly over-estimated by the amount of approximately $2 million. 7 Colliers now acknowledges that the appraisal was forwarded to Arizona by facsimile on 8 July 2004. Accordingly, the remaining issues for determination at this hearing were questions 2 and 3, set out in [4] above. Mr Greg Preston, certified practising valuer, provided evidence on behalf of Colliers and Mr Wayne Keith Wotton, also a certified practising valuer, was to provide evidence on behalf of Arizona. As events transpired, Mr Wotton was not called as a witness.

Evidence of Gregory Preston 8 Mr Preston analysed comparable sales of residential home units and retail units in and around the location of the property for the purpose of valuation. In his report, Mr Preston stated that the amount of $6,250,000 may have been at the upper end of an acceptable range. Mr Preston stated that residential units in the property could have been marketed at between $6,500 to $8,500 per square metre which, when added to the value of the retail unit, provided a valuation of approximately 86% of the appraisal estimate. 9 Mr Preston was cross-examined concerning his valuation. He conceded that, if a valuer submits an appraisal containing a 'range', the appraisal would usually represent the mid point of such range and not the upper end of the range. 10 Mr Preston also considered that there was a material difference between a valuation and a market appraisal. He stated relevantly at paragraphs 162 and 163 of his report: 162. A valuation is a single point figure relied upon for many reasons and purposes in the economy such as assessing values for financial reporting purposes, assessing values for advancement of mortgage funds, assessing valuations for rent determination, compulsory acquisition and the like. A valuation is undertaken in far greater detail than a market appraisal. A valuer's research in preparing a valuation is usually significantly greater than an agent preparing a market appraisal. 163. A market appraisal is usually prepared by an agent at the time that they are seeking to list properties for sale. I am aware of the requirements of Real Estate Agents under the Property, Stock and Business Agents Act 2002, apropos making false representations with respect to the agent's true estimate of selling price.

Subsequent Developments 11 It was put to Mr Preston during cross-examination that a draft report he had prepared on 2 March 2011 contained a passage which was deleted from his final report. The passage read as follows: It could be construed that the figure of $6,250,000 in the letter of 8 July 2004 in the minds of Colliers International represented the upper end of an acceptable range as they would have been competing to list the property for sale. Applying this logic, and given the range indicated by the diversity of opinion of a number of other Real Estate Agents, if that same diversity of opinion (range) is applied to $5,200,000 (residential only) being the upper end of the range, the lower end of the range could be construed to be $4,248,140 in the extreme (adjusted by half of 36.61% being the midpoint). However, based on my estimate as at July 2004 and my estimates of growth until December 2005 this figure would not have been achievable as I have arrived at a valuation figure of $5,400,000. 12 Following Mr Preston's cross-examination, Colliers made the following concessions ('the concessions statement') with regard to the separate questions (see [4] above) which the Court was required to consider at this hearing. As to questions 1 and 2, the answer conceded by Colliers was 'Yes'. 13 As to question 3, the following concession was made: With respect to question 3 in relation to s 52 of the TPA, the first respondent concedes that by making the Express Representation or the First, Second or Third Implied Representations, the first respondent engaged in conduct which was "likely to mislead or deceive" contrary to s 52 of the TPA. The first respondent denies that the applicants were in fact misled or deceived, and the first respondent makes no concession that the applicants were in fact misled or deceived, and the first respondent respectfully asks the Court to note that the Court will determine the issue of causation (including whether the applicants were in fact misled or deceived) at the hearing of the balance of the trial. 14 As to s 53A of the TPA, the following was stated by Colliers: With respect to question 3 in relation to s 53A of the TPA: (a) the first respondent does not admit the first respondent's conduct was "in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land"; (b) the first respondent concedes that the first respondent made a "misleading representation" by making the Express Representation or the First, Second or Third Implied Representations; (c) the first respondent denies that the "misleading representation" was "concerning the nature of the interest in land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land"; (d) the first respondent denies that the applicants were in fact misled or deceived, and the first respondent makes no concession that the applicants were in fact misled or deceived, and the first respondent respectfully asks the Court to note that the Court will determine the issue of causation (including whether the applicants were in fact misled or deceived) at the hearing of the balance of the trial. 15 As to the question of costs of the hearing on the separate questions, Colliers made the following statement: The first respondent does not oppose an order that the first respondent pay the applicant's costs of the separate questions on a party-party basis. 16 However, Colliers subsequently sought to resile from such concession, stating: The first respondent does not oppose an order that the first respondent pay the applicants' costs of the separate questions with respect to the matters set out in paragraphs 1, 2, 3, and sub-paragraph 4(b) above on a party/party basis.

SECTION 53A OF THE TPA 17 Due to the concessions made by Colliers (as outlined in [13]-[16] above) the only issue remaining from the separate questions is the applicability of s 53A of the TPA to the proceedings. 18 Section 53A of the TPA provides: 53A False representations and other misleading or offensive conduct in relation to land (1) [Sale or grant of interest in land] A corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land: (a) represent that the corporation has a sponsorship, approval or affiliation it does not have; (b) make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land; or (c) offer gifts, prizes or other free items with the intention of not providing them or of not providing them as offered. (2) [Harassment etc prohibited] A corporation shall not use physical force or undue harassment or coercion in connection with the sale or grant, or the possible sale or grant, of an interest in land or the payment for an interest in land. (2A) [Other provisions in Division apply] Nothing in this section shall be taken as implying that other provisions of this Division do not apply in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land. (3) [Definition: interest] In this section, interest, in relation to land, means: (a) a legal or equitable estate or interest in the land; (b) a right of occupancy of the land, or of a building or part of a building erected on the land, arising by virtue of the holding of shares, or by virtue of a contract to purchase shares, in an incorporated company that owns the land or building; or (c) a right, power or privilege over, or in connexion with, the land.

Colliers' Submissions 19 Colliers rely upon two principal submissions, namely, that the provisions of s 53A(1)(b) of the TPA do not operate upon a pre-retainer representation, and that a gross realisation estimate does not constitute a 'price payable' within the definition as referred to in s 53A(1)(b) of the TPA. 20 Colliers submits that a misrepresentation to which s 53A of the TPA applies is one which is made for the purpose of a sale, or possible sale, of an interest in land and that until an agency agreement existed between the parties, the relationship was merely pre-retainer with the consequence that there was no basis upon which s 53A could operate. Accordingly, Colliers submits that the appraisal was nothing more than a document intended to solicit business and could not comprise a representation 'in connexion with the sale or grant, or the possible sale or grant, of an interest in land' to which the provisions of s 53A apply.

Arizona's Submissions 21 Arizona submits that the express representation relating to the gross realisation estimate contained in the appraisal constituted conduct contrary to s 53A of the TPA and that by Colliers' concession statement, Colliers also admitted that the representation was made in connexion with the sale or possible sale of the property. 22 Arizona further submits that the appraisal has a 'direct relationship or association with a possible sale'. Arizona argues that Mr Preston's evidence supports this contention. At 142 of his report, Mr Preston stated that Colliers 'would have been competing to list the property … for sale'. 23 Arizona maintains that as demonstrated by the appraisal, Colliers were attempting to be involved in a sale of the property in respect of which the appraisal was made. Arizona submits that the fact that the development and sale did not proceed as originally planned is of no consequence.

Consideration 24 Colliers relies upon the decision of Drummond J in Central Equity Ltd v Central Corporation Pty Ltd (1995) 32 IPR 481. In those proceedings, the applicant carried on business of developing and selling residential dwellings in and around the Melbourne CBD. The respondent was predominantly involved in the leasing of commercial and industrial properties. The applicant sought injunctive relief against the respondent alleging infringement of s 52 and of s 53A of the TPA and alleged passing off of its business. 25 Drummond J stated that 'There is no warrant for giving to the words of the section anything other than their ordinary meaning'. His Honour found (at 491-492): Having said this, I consider that the words of the section show that it only applies if the proscribed representation is made in connection involving the sale of some other disposition of interest in particular parcels of land. Misrepresentations of affiliation made in relation to a corporation's general business activities will not be sufficient to infringe the section, even if the corporation's business concerns the selling of land. For the section to be infringed, the misrepresentation must be made in circumstances which involve the sale or possible sale of some identifiable parcel or parcels of land: the particular parcel must be identified precisely, eg by title description or address… 26 The conduct of the respondent was held sufficient for the Court at 492 to grant injunctive relief, inter alia, due to contravention of s 53A of the TPA because of its attempts to procure sales or leases of particular properties. However, Drummond J also considered (at 492) that if the misrepresentation were made 'in the course of advertising its business in a general way or in the course of soliciting listings' then s 53A of the TPA would not be infringed. 27 In Warren Halloran v Henry F Halloran & Co Pty Ltd & Ors (1984) 5 FCR 571 the applicant sought to restrain the respondent from passing off the applicant's father's reputation as a longstanding real estate agent. In granting relief, Sheppard J found at 580, inter alia, that s 53A(1)(a) of the TPA applied because the respondent's conduct falsely represented that it and its companies had a sponsorship or affiliation with those of the applicant's father. Such representations were being made generally to the public and were not confined to the sale of any specific interest in land. Nor was the application of s 53A(1)(a) of the TPA confined only to those circumstances in which there existed a current agency agreement between the respondent and a purchaser. 28 Colliers also relies upon the decision of Wilcox J in Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd [2004] FCA 403 in which his Honour considered, inter alia, whether there had been misleading conduct arising from the provision of a remediation audit certificate of land. Wilcox J found at [190] that the representations contained in the remediation certificate did not attract the provisions of s 53A(1) of the TPA since it was not made in 'connection with the sale or grant of land' within the meaning of s 53A. 29 Colliers then relies upon two decisions, in each of which a real estate agent was found to have infringed the provisions of s 53A of the TPA after the agent had been retained as an agent for sale and representations were made in connexion with the sale or grant or possible sale or grant of an interest in land. Those authorities are Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043 and Bowler and Anor v Hilda Pty Ltd and Ors (1998) 80 FCR 191. 30 In Benlist a brochure had been issued by the vendor's agent promoting a sale by auction. The brochure suggested future uses for the property including strata development. However the brochure did not disclose that such a development could not be achieved because of legal constraints relating to such land. 31 In Bowler, the agent who made the representations knew that the unit in question could not be lawfully used for the promoted purpose without significant changes to a lease document, and that there was no reasonable ground for believing that the necessary changes could be achieved. 32 Colliers has also referred the Court to Australian Competition and Consumer Commission v Gary Peer & Associates Pty Ltd (2005) 142 FCR 506 in which the respondent, who was retained to act as the vendor's agent, had provided a misleading price guide in the advertisements for the auction of the premises. Such statements were found to have contravened s 53A of the TPA.

Findings 33 For the reasons referred to hereunder, the Court does not consider that any of the above authorities are germane to the specific issues arising in these proceedings. Such authorities assist in understanding the jurisprudence surrounding the application of s 53A of the TPA, but otherwise do not assist Colliers' submissions. 34 In Henville & Anor v Walker & Anor (2001) 206 CLR 459 at [96] McHugh J eschewed a narrow approach to the statutory construction to s 82 of the TPA, observing: Moreover, the objects of the Act indicate that a court should strive to apply s 82 in a way that promotes competition and fair trading and protects consumers. The width of the potential application of s 82 and the objects of the TPA tell against a narrow, inflexible construction of the section. [Footnotes omitted] 35 By analogy, McHugh J's broad approach in Henville should be adopted when interpreting s 53A of the TPA. There is no basis for asserting that its provisions have application only where an agency agreement exists between the parties concerned. Such a limitation is simply absent from the provisions of the TPA, and such interpretation could operate to severely inhibit its intended application. 36 The approach adopted by Drummond J in Central Equity is wholly consistent with the Court's interpretation, and the Court is satisfied that a narrow interpretation of the text of s 53A(1) would be erroneous. The Court has considered the other authorities relied upon by Colliers, but concludes that not one of them is supportive of its contention that the provisions of s 53A operate only where an agency agreement exists between the parties. 37 The representations by Colliers in the appraisal constituted its estimate of the prices which would be payable for each strata unit upon the completion of the project. Accordingly, the Court finds that such statements made in connection 'with the sale or possible sale of an interest in land'. 38 As to the price payable for the land, as referred to in s 53A(1)(b) of the TPA, Sundberg J in Gary Peer observed at [100] the extrinsic material concerning such provision does not eliminate the interpretation of the word 'payable'. However, at [101] Sundberg J said: A corporation is precluded from making a false or misleading representation about the matters listed in para (b) "in connexion with the sale or grant, or the possible sale or grant, of an interest in land". The prohibition thus clearly includes pre-sale activities. This is made even more clear by the ensuing words "or in connexion with the promotion by any means of the sale or grant". The promotion of a sale will unquestionably include the advertising of land for sale. It is difficult in these circumstances to attribute to the legislature an intention to restrict the ambit of the provision (so far it deals with price) to binding contracts under which the price agreed to be paid for the land is either currently payable or due at some time in the future, or to what the respondent called "future contracts" or contracts that are "to be entered into". The precise point at which an inchoate understanding that a property will be purchased becomes an anticipated contractual obligation is unclear. [Emphasis added] 39 Further, at [102] his Honour observed: Apart from the "price payable", para (b) includes other instances of false or misleading representations in relation to land, none of which suggests that an obligation to purchase need be in existence or anticipated at the time of the impugned conduct. 40 His Honour then referred to the decision of the Full Court in Trade Practices Commission v Penfolds Wines Pty Ltd (1991) 104 ALR 601, as quoted by his Honour at [103] as follows: In Penfolds Wines at 612, the Full Court approved "the proposition that the fact that a price is stated to be within a range of a particular figure or that otherwise an element of approximation is introduced, does not detract from the true character of the price as a specified price". If that is the case in relation to a "specified price" appearing in the provisions of the TPA dealing with resale price maintenance (the provisions that were at issue in Penfolds Wines), it must also be the case in relation to the concept of a "price" in s 53A(1)(b). 41 At [104] his Honour concluded that the misleading statements relating to the estimated sale price constituted false and misleading representations concerning the 'price payable' for the property and contravened s 53A of the TPA. 42 The Court respectfully adopts his Honour's reasoning and applies it to the appraisal. Mr Markopoulos, on behalf of Colliers, was clearly stating in the appraisal the price which he believed would be payable, for each individual unit. Although Colliers submits that the words 'price payable' does not include an opinion as to the gross realisation achievable, the Court rejects such submission in view of the above analysis. The very purpose of Colliers' appraisal was to provide an assessment of the future value of the retail unit as well as the residential units at the expiration of 18 months provided certain criteria were established. 43 Accordingly, the Court finds that Colliers engaged in conduct contrary to the provisions of s 53A(1)(b) of the TPA by making a representation in connection with the possible sale of an interest in land which was misleading and deceptive.

COSTS 44 Arizona submits that the costs of the hearing on the separate questions of law should be awarded in its favour on an indemnity basis and made payable within 21 days. Arizona also seeks that the amount of $100,000 paid by way of additional security for costs pursuant to the Court's order made on 15 February 2011 be refunded. 45 Arizona submits that as demonstrated by the concession document, Colliers had no sound basis upon which to defend the preliminary proceedings on the separate questions of law; that Colliers' claim that its conduct did not fall within s 53A of the Act was clearly untenable and that the whole of the proceedings on the separate questions of law could have been avoided. 46 As previously referred to, Colliers does not oppose an order that it pay the Arizona's costs in respect of paragraphs 1, 2, 3 and sub-paragraph 4(b) of its concession on a party/party basis. Arizona submits that the original formulation of the concession statement (issued on 16 March 2011) contained a concession as to costs, and that Colliers' concession should not be allowed to be withdrawn or amended. As will become apparent, this issue is of no practical consequence. 47 Colliers opposes an order that such costs be paid on an indemnity basis and within 21 days, upon the ground that the Court has yet to determine issues of causation, loss and damage, contributory negligence and apportioned liability. 48 Colliers further submits that if it succeeds on such issues, costs are likely to be made in its favour and that with respect to those issues Colliers would be entitled to have a set off for any costs order if it succeeds in whole or in part. 49 Colliers also submits that it acted quickly upon the conclusion of Mr Preston's evidence to make its concessions to facilitate the resolution of the preliminary questions of law as quickly, inexpensively and efficiently as possible. Further, Colliers submits that the Court should not draw the inference that it defended the separate questions for determination when it knew or should have known that it had no chance of success, nor that its defence of the separate questions was continued for an ulterior motive or purpose in wilful disregard of the known facts (see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J). 50 Colliers submits there has been debate in the Court concerning the effect of s 51A of the Act and upon the question whether the onus of showing that there were reasonable grounds for representation concerning future matters remains with the representor or whether, if evidence is produced to the contrary, the deeming provision in s 51A of the TPA does not operate: see Skiwing Pty Ltd t/as Cafe Tiffany's v Trust Co of Australia Ltd (Stockland Property Management Ltd) (2009) 255 ALR 339; McGrath and Another v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 at [162]-[194]. With regard to the latter authority, Colliers submits that the observations of Allsop J (at [192]) suggest that s 51A of the TPA raised only an initial onus requiring the provision of some evidence that there were reasonable grounds for making a representation and that Emmett J at [44] expressed a similar opinion. 51 Colliers submits that reasonable grounds can be established by evidence other than that of the person who was alleged to have made the particular representation concerning the future matter: see Cummings v Lewis & Ors (1993) 41 FCR 559 at 566 per Sheppard and Neaves JJ.

Repayment of Security for Costs 52 In its reasons for judgment dated 5 November 2010 (Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Limited (No. 2) [2010] FCA 1209) the Court found that a further sum of $250,000 should be awarded by way of security for the future conduct of the proceedings. However, in its reasons dated 15 February 2011 (Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd (No 3) [2011] FCA 100) the Court ordered that the $100,000 security be paid in lieu of its order dated 5 November 2010 and that a preliminary hearing on separate questions of law take place in view of the impecuniosities of Arizona. Colliers submits that the final order for security was not made solely for the hearing on the separate questions of law but rather with regard to the general continuation of the proceedings. 53 Colliers has foreshadowed the filing of a notice of motion seeking additional security for costs with regard to the second stage of the hearing and submits that its costs to trial will be approximately $341,000. Colliers submits that it would be unjust if the Court ordered the repayment of the security of $100,000 leaving it at risk for the amount of $241,000. Colliers reiterates that the applicants are not resident in the jurisdiction and have no assets within the jurisdiction.

Findings 54 In the course of Mr Preston's cross-examination, his draft report dated 2 March 2011 was called for and tendered by Arizona. Mr Preston's draft report contained a statement which he had prepared and provided to Colliers which was omitted from the final report. Such statement is set out at paragraph [11] above. It is clear from such statement that Mr Preston did not consider that the amount of $6,250,000 referred to in the appraisal was achievable. 55 In the absence of any evidence from Colliers, the removal of such portion from Mr Preston's final report is explicable only upon the basis that it was considered by Colliers to be highly damaging to its case, and that Mr Preston was specifically asked by Colliers to remove it. 56 Mr Preston, in cross-examination, acknowledged that Colliers' appraisal as at July 2004 was incorrect. Mr Preston's expert opinion provided to the Court in his cross-examination on 15 and 16 March 2011 was consistent with the expert opinion he provided to Colliers on 2 March 2011. 57 At a directions hearing held on 25 February 2011 Colliers informed the Court that Mr Markopoulos, who made the appraisal, would give evidence with Mr Preston. Mr Markopoulos was not called as a witness during the hearing on the separate questions. In pre-trial procedures, documents were called for relating to Mr Markopoulos' working papers and records used by him in the preparation of the appraisal. No such records were produced, leading to the inference that they did not exist. Accordingly, only Mr Preston was available to provide evidence but without any records or information available which might have supported the appraisal. Further, Mr Preston's draft revealed that he could not support the appraisal. 58 The Court is satisfied that the final report of Mr Preston was prepared in an attempt to justify the appraisal in circumstances where Mr Preston had already provided, in his draft report, his expert opinion that the appraisal was unjustifiable. The absence of any records of Mr Markopoulos, and his failure to testify, confirms the Court's findings. The Court is satisfied that Colliers knew, at least from 2 March 2011, that its defence to the allegations set out in the separate questions was unsustainable. 59 Arizona has been successful with regard to the hearing on the separate questions of law. This was a discrete issue and the Court is satisfied that Arizona is entitled to its costs of such hearing, consistent with the principle referred to in Floruit Holdings Pty Ltd v Sebastian - Builders & Developers Pty Ltd [2009] NSWCA 411 per Bergin CJ at [7]. 60 The next issue is the basis upon which such award should be made.

Indemnity Costs 61 Arizona's claim for indemnity costs is predicated upon the basis that s 37N(4) of the Federal Court of Australia Act 1976 (Cth) ('the Court Act') requires the Court to take into account any failure to comply with the overarching purpose of the manner in which the proceedings are to be conducted. It is submitted that Colliers' failure to comply with the requirements of the overarching purpose is demonstrated by a failure to call Mr Markopoulos and it can be inferred that Mr Markopoulos could not have assisted Colliers' case: see Jones v Dunkel (1959) 101 CLR 298. Arizona submits that Colliers should not have contested the separate questions since such conduct was repugnant to the overarching purpose. 62 Further, Arizona submits that from 23 February 2010, being the date of Colliers' List of Documents, Colliers was aware that there were no documents in its possession supporting the facts and circumstances upon which Mr Markopoulos relied in making the representations. Accordingly Colliers had no witness who could testify of any steps undertaken by Mr Markopoulos for the preparation of his report and no records upon which to base any justification. 63 The only evidence adduced in rebuttal of the claim of misrepresentation was that of Mr Preston; but Colliers knew, at least from 2 March 2011, that Mr Preston did not support the appraisal. The Court is satisfied that s 51A(2) of the TPA has application. Accordingly, the Court is satisfied that Colliers must be deemed not to have reasonable grounds for making the representation. The burden cast upon Colliers by s 51A(2) of the TPA is an evidentiary burden (see North East Equity Pty Ltd v Proud Nominees Pty Ltd & Anor (2010) 269 ALR 262 at [29]-[33]). Based upon the evidence before the Court, the Court agrees with Arizona's submission that Mr Preston's affidavit was insufficient for Colliers to discharge the evidentiary burden imposed upon it by s 51A(2) of the TPA. 64 For these reasons it is submitted by Arizona that Colliers' defence to the separate questions was hopeless and warrants a special order for costs as found in Fountain Selected Meats. 65 In AWA Ltd v George Richard Daniels, t/as Deloitte Haskins and Sells (unreported, No 50271 of 1991, NSWSC Comm D, 8 October 1992, BC9201567) Rogers CJ Comm D set out the basis upon which the claim for indemnity costs may be made. One such ground included: Misconduct, or inappropriate conduct, by a party in the course of the litigation. This could include deliberately delaying the proceedings by putting a knowingly false defence, or bringing proceedings for an ulterior motive (cf Degman v Wright (No 2) [1983] 2 NSWLR 354; Packer v Meagher [1984] 3 NSWLR 486). His Honour then referred to the observations of Woodward J in Fountain Selected Meats at 410 in which Woodward J said: I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs whenever it appears that an action had been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion. 66 The Court rejects the submissions of Colliers that the Court could not be satisfied that sufficient cause exists to warrant Colliers being excused from such an order. From 2 March 2011, Colliers knew that its defence to the separate questions was unsupportable. 67 For these reasons the Court considers that an order for indemnity costs against Colliers is justified from 2 March 2011, and that otherwise the costs of the separate question should be borne on a party/party basis by Colliers. There is no reason why the indemnity costs should not be paid within 21 days and the Court will so order.

Security for Costs 68 As to the claim by Arizona that the refund of $100,000 by way of security is justified, the Court has noted the submissions of Colliers. However, it is implicit in the Court's orders made on 15 February 2011 that the additional sum of $100,000 was to protect Colliers in respect of the separate hearing questions posed for determination by the Court. Arizona has been successful in that hearing. 69 As the litigation progresses, Colliers may be justified in making a further application for security in respect of the hearing relating to damages, at which hearing the issue of contributory negligence and apportioned liability will arise. However, it is not expected that such hearing will take place for at least a further six months. The Court considers that there is no justification to withhold the amount of $100,000 from Arizona. The Court will accordingly order that the amount of $100,000 be refunded within seven days to Arizona. 70 The Court will also order that Colliers be at liberty to file its foreshadowed notice of motion for security for costs. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.