Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : CAREY -v- COMMISSIONER FOR CONSUMER PROTECTION [2012] WASC 8

False or misleading representations - Director - Real estate agent - Whether director could have avoided commission of offence by exercise of reasonable diligence - Standard of 'reasonable diligence' under s 81 of the Fair Trading Act 1987 (WA)

Fair Trading Act 1987 (WA), s 12(2)(b), s 12, s 81, s 82

Trade Practices Act 1974 (Cth), s 85

Respondent : Mr W B Zichy-Woinarsky QC & Mr M G S Crowley

Appellant : Mony de Kerloy Barristers and Solicitors

Adams v ETA Foods Ltd (1987) 19 FCR 93

Baiada Poultry Pty Ltd v The Queen [2012] HCA 14; (2012) 246 CLR 92

Ballard v Sperry Rand Australia Ltd (1975) 6 ALR 696

Brown v Riverstone Meat Co Pty Ltd (1985) 60 ALR 595

Carey v Commissioner for Consumer Protection [2012] WASC 8

Gardam v George Wills & Co Ltd [1988] FCA 194; (1988) 82 ALR 415

Payne v Tiwest Pty Ltd [2005] WASC 141

Shafron v Australian Securities & Investments Commission [2012] HCA 18; (2012) 86 ALJR 584

State Pollution Control Commission v Kelly (1991) 5 ACSR 607

Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153

Universal Telecasters (Qld) Ltd v Guthrie (1978) 18 ALR 531

Woolworths Ltd v Liquor Licensing Board (1998) 144 FLR 409

1 Norman Phillip Carey appeals from a decision of a judge of this court (Carey v Commissioner for Consumer Protection [2012] WASC 8) to dismiss his appeal from his conviction by a magistrate on five counts of making a false or misleading representation concerning the use to which land was capable of being put contrary to s 12(2)(b) of the Fair Trading Act 1987 (WA) (the Act). At all material times Mr Carey was a director of Westpoint Realty Pty Ltd (Westpoint), a company engaged in the business of selling real estate and managing property, and which was convicted of the same five offences as a result of representations made by agents which it employed. Mr Carey was also convicted of those offences pursuant to s 81 of the Act, which provides that each person who was a director of a company convicted of an offence against the Act at the time of the commission of that offence, is also guilty of the offence unless he or she establishes a defence provided by the section.

2 There are two grounds of appeal. Each asserts, in effect, that the judge should have upheld Mr Carey's appeal against his conviction on the basis that the magistrate was wrong to conclude that Mr Carey had failed to make out the defence available under s 81 of the Act, and in particular, had failed to establish that he 'could not by the exercise of reasonable diligence have prevented the commission of the offence(s)'.

3 Neither ground of appeal challenges any of the findings of fact made by the magistrate. The appeal must therefore be determined on the basis that those findings stand. When detailed consideration is given to those findings, it is clear that the magistrate was correct to conclude that Mr Carey had failed to establish the defence provided by s 81 of the Act, and his appeal must be dismissed.

4 The respondent filed a Notice of Contention to the effect that the decision of the judge should be upheld for reasons other than those which he gave. However, the terms of that notice misconceive the operation and effect of s 81 of the Act. An application to amend the notice so as to remedy its defects was made during the course of the hearing, but dismissed for the reasons given below. The Notice of Contention should therefore be dismissed, because even if the proposition it embodies is accepted, it would make no material difference to the conclusions at which the judge arrived.

5 As I have noted, the facts in this case are not contentious, in the sense that there is no ground of appeal which challenges any finding of fact made by the magistrate. It will be necessary to analyse in detail the precise findings of fact made by the magistrate in due course. However, it is convenient to commence with a broad overview of those facts for the purpose of placing the legal issues raised by the grounds of appeal in context.

6 At all materials times Mr Carey was a director of Westpoint, a company engaged in the sale of real estate and the management of property. Mr Carey has never disputed that at all material times relevant to this case he was in effective control of Westpoint. Until 30 November 2005 Mr Carey was also a director of Lanepoint Enterprises Pty Ltd (Lanepoint), a subsidiary of Westpoint.

7 Lanepoint acquired a parcel of land in Rivervale, a suburb of Perth, with the intention of redeveloping that land into a number of residential units which would be subdivided and sold. The redevelopment was to be known as the 'Regents Apartments Project'. The land comprised five lots on separate certificates of title, and a building which had been used as a motel occupied part of the land.

8 The redevelopment was to be undertaken in three stages known as stages 1A, 1B and 2. Stage 1A involved converting the building which had been used as a motel into 40 residential units on two levels. Stage 1B originally involved the construction of a new two-storey building containing 12 residential apartments.

9 In the latter part of 2004, Lanepoint sought development approval for stages 1A and 1B of the project from the City of Belmont (the City), which is the municipality within which the land is situated. In February 2005, the City indicated that it would prefer the building which comprised stage 1B to be larger, and to have a higher level of architectural design, so that it might serve as a landmark building. Lanepoint sought, and obtained development approval for the 40 units which were to comprise stage 1A. Lanepoint also appealed to the State Administrative Tribunal from the City's deemed refusal of its application for development approval with respect to stage 1B. That appeal was resolved by agreement between Lanepoint and the City, and development approval was issued in respect of plans for stage 1B of the development which depicted a five-storey building containing 20 units, plus an underground carpark.

10 In the meantime, Westpoint had been engaged by Lanepoint to sell apartments in stage 1A 'off the plan'. Those units were sold, and contracts entered into with purchasers, between the latter part of 2004 and early 2005. Those contracts provided that purchasers would acquire strata title to the relevant apartment, together with a pro-rata interest in the common property upon which stages 1A and 1B were to be developed, based on those stages comprising 52 units in total. However, as a consequence of the alteration of the plans for stage 1B, and the consequential increase in the total number of units in those two stages, it would be necessary for Lanepoint, through Westpoint, to endeavour to reach agreement with the purchasers of stage 1A apartments in order to adjust their pro-rata interest in the common property to reflect the revised plans.

11 However, as will be discussed further below [40], during October 2005, Mr Carey decided that it would be preferable if the contracts with purchasers for units in stage 1A of the project were terminated, rather than varied, and for those units to be resold to other purchasers at significantly higher prices, as a consequence of the strengthening of the market for apartments of this kind. Mr Carey made that decision in his capacity as a director of Lanepoint, and in his capacity as a director of Westpoint he was aware that agents employed by Westpoint were to be instructed to give effect to that decision.

12 The charges brought against Westpoint and Mr Carey arose from representations made by three agents employed by Westpoint (Mr David Lewis, Mr Daniel Egan and Mr Thomas Haynes) to the purchasers of five apartments so as to secure their agreement to terminate the contracts for the purchase of units in stage 1A. In each case the representations were generally to the effect that the project was not going ahead, or might never be finished, and that the purchasers' only option was to agree to terminate their respective contracts and obtain a refund of all the moneys that they had paid. Those representations were untrue, and were known by the agents to be untrue at the time they were made, given that the agents had been instructed to resell the units off the plan at higher prices as quickly as possible. Each of the agents pleaded guilty to a charge or charges of making a false or misleading representation concerning the use to which land was capable of being put contrary to s 12(2)(b) of the Act; the relevant representation being as to the development of the land for use as residential apartments.

13 Identical charges were brought against Westpoint and a number of persons said to be officers of Westpoint, including Mr Carey. As the representations were made by the agents in their capacity as employees or agents of Westpoint, pursuant to s 82 of the Act, their conduct was deemed to be the conduct of Westpoint, and Westpoint was convicted of each count. As Mr Carey was a director of Westpoint at the time of the commission of each offence, and was found by the magistrate to have failed to establish the defence provided by s 81 of the Act, he was also convicted of each offence.

14 At the time the offences were allegedly committed, s 12(2)(b) of the Act prohibited the making of false or misleading representations concerning the use to which land is capable of being put, in trade or commerce, in connection with the disposal or the possible disposal of an interest in land. At that time, s 81(1) relevantly provided:

1. Offences by directors, employers, and vicarious liability

(1) Where a corporation within the meaning of the Corporations Act 2001 of the Commonwealth or any other body of persons, corporate or unincorporate, is convicted of an offence against this Act, each person who, at the time of the commission of that offence, was a director of the corporation or was the manager, secretary or other similar officer of that body, or who purported to act in any such capacity, is also guilty of an offence unless he proves -

(a) that the offence was committed without his knowledge, or that he did not authorise or permit the commission of the offence; and

(b) that he was not in a position to influence the conduct of that corporation or body or, being in such a position, could not by the exercise of reasonable diligence have prevented the commission of the offence,

and is liable to a penalty not exceeding the penalty prescribed for the offence of which the corporation or body was convicted.

15 As I have noted, Mr Carey has never disputed that he was in a position to influence the conduct of Westpoint. Accordingly, in order to make out a defence under s 81 in the circumstances of the charges brought against Westpoint, it was necessary for Mr Carey to prove either that the offences were committed without his knowledge, or that he did not authorise or permit the commission of the offences, and in either case, that he could not, by the exercise of reasonable diligence, have prevented the commission of the offences. It was and always has been common ground that Mr Carey carried the burden of proving those matters on the balance of probabilities - see Adams v ETA Foods Ltd (1987) 19 FCR 93, 98; Gardam v George Wills & Co Ltd [1988] FCA 194; (1988) 82 ALR 415, 429; Brown v Riverstone Meat Co Pty Ltd (1985) 60 ALR 595, 603; Ballard v Sperry Rand Australia Ltd (1975) 6 ALR 696. While these cases relate to the burden and standard of proof under s 85 of the Trade Practices Act 1974 (Cth) (Trade Practices Act), the same should apply to s 81 of the Act.

16 The propositions advanced in support of the grounds of appeal are said to draw support from a number of cases dealing with analogous statutory provisions. It is appropriate to consider those cases, with a view to identifying precisely what they establish.

Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153 (Tesco)

17 This case concerned a charge of contravening a statutory prohibition against bait advertising brought against Tesco, a company which operated a large number of supermarkets. It was found at trial that the offence occurred as a result of the failure of the manager of one of its stores to adequately supervise a staff member responsible for the stacking of shelves with product.

18 The opinions of their Lordships are significantly concerned with general principles of corporate responsibility, including the extent to which the actions of an employee of a company can be regarded as the actions of the company itself, and whether, in the circumstances of that case, the actions of the manager could be regarded as the actions of 'another person' so as to give rise to a statutory defence. Those issues are not pertinent to this case. However, the relevant statute provided that it was a defence to any charge of contravention of the act if the person charged proved 'that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence'.

19 The opinions of their Lordships recognise that the provision of such a statutory defence mitigates the possible harshness and injustice which can flow from the creation of an offence of strict liability. The same observation can be made with respect to the defence created by s 81 of the Act.

20 The opinions also recognise that the question of whether or not a defence has been established in any particular case is a question of fact to be determined by the tribunal of fact by reference to all the circumstances of the case (see for example, Viscount Dilhorne at 186, and Lord Diplock at 197). Again, the same observation can be made in relation to the defence created by s 81 of the Act.

21 The facts upon which Tesco relied in order to establish its defence focused upon the systems which it had implemented for the training and supervision of employees. On the basis of the evidence which had been adduced, their Lordships were of the view that in the context of the very large business which it conducted, Tesco had taken all steps that could be reasonably expected relating to the selection, training and supervision of its personnel, and that the offence came about as a consequence of the failure of the manager to adequately supervise the staff member working under him. It was therefore concluded that the defence had been made out on the facts of that case.

22 Tesco does not stand for the proposition that the adoption of reasonable systems for the selection, training and supervision of personnel will always and in all circumstances constitute the exercise of reasonable diligence so as to make good a defence under a provision such as s 81 of the Act. No doubt there will be some cases in which, as a matter of fact, the implementation of such systems will make good the relevant defence. However, there is no principle of law to the effect that, in all cases, general systems of management and supervision will be found to satisfy the obligation of reasonable diligence to prevent the commission of the relevant offence. Each case will turn on its own facts.

Universal Telecasters (Qld) Ltd v Guthrie (1978) 18 ALR 531 (Universal Telecasters)

23 In Universal Telecasters (Qld) Ltd v Guthrie, the appellant was convicted of publishing false or misleading advertising contrary to a provision of the Trade Practices Act. Section 85(1) of that Act provided that it was a defence to such a charge if the defendant established that the contravention was due to reliance on information supplied by another, and that the defendant 'took reasonable precautions and exercised due diligence to avoid the contravention'.

24 As in Tesco, much of the reasoning of the court is directed to questions of corporate responsibility and the distinction between conduct which becomes conduct of a corporate entity by reason of the position which the relevant person holds within that entity, and conduct which can be regarded as the actions of a person other than the corporate entity. Those issues are not relevant to this case. Further, as in Tesco, the defendant, which was a television broadcaster, sought to make good the defence by reference to its systems for the vetting and review of advertisements provided to it for publication. The court considered that while those systems were adequate, there was no adequate system for responding to complaints to the effect that advertisements were false or misleading, in circumstances in which those advertisements were to be rebroadcast, leading to the conclusion that the defendant had not made out the defence.

25 The decision in Universal Telecasters reinforces the propositions drawn from Tesco to the effect that whether or not the defence is made out in any case is a question of fact to be decided by reference to all the circumstances of the case, and that there is no general principle to the effect that the implementation of systems will generally provide a defence. (See also - State Pollution Control Commission v Kelly (1991) 5 ACSR 607, 608 (Hemmings J)).

Adams v ETA Foods Ltd (1987) 19 FCR 93

26 This case also concerned a prosecution under the Trade Practices Act, and the application of the statutory defence provided by s 85(1) where the contravention was due to the act or default of another person, and the defendant asserted that it had taken 'reasonable precautions and exercised due diligence to avoid the contravention'. The charge brought against the defendant in that case alleged misrepresentation with respect to the source of the minced meat in the defendant's pies. In considering the statutory defence, Gummow J observed:

ETA also would have to show it took reasonable precautions and exercised due diligence, not as a general matter in its business, but 'to avoid the contravention'. The precautions and diligence must be directed at a result, the avoidance of a state of affairs. The defendant need not have in specific prospect the terms of the [Trade Practices Act], but a party in the position of ETA could not be said to have taken precautions and exercised due diligence to avoid the perils of species substitution in raw mince supplied to it to fill orders for minced beef when it had no cognisance of any such peril. It had procedures to deal with fat and gristle content and excessive moisture levels. But, one cannot, in my view reason from that to decide that ETA took reasonable precautions and exercised due diligence to avoid the contraventions (108 - 109).

27 The language of s 81 of the Act supports the same principle. The section requires that a defendant establish that he or she could not, by exercising reasonable diligence, have prevented a specific result, namely the commission of the relevant offence. The section is not concerned with the general manner in which the business of the relevant company is conducted. For reasons which will appear, this proposition has a particular relevance to the present case.

Gardam v George Wills & Co Ltd [1988] FCA 194; (1988) 82 ALR 415

28 In this case, French J (as his Honour then was) cited with approval the observations made by Gummow J in Adams which I have set out (429), and emphasised that whether, in any case the defence of reasonable precautions and due diligence would be made out would depend upon the circumstances of the case (429).

Woolworths Ltd v Liquor Licensing Board (1998) 144 FLR 409

29 This case concerned the prosecution of a large retailer as a consequence of one of its employees having sold liquor to a person under the age of 18. The sale was made by an inexperienced operator who had been placed on the sales register at a busy time without adequate supervision, contrary to the defendant's standard operating procedures. So, as in Tesco, the contravention came about as a consequence of the failure of more senior management to adequately supervise more junior personnel. The court concluded that the Tribunal from which the appeal lay had erred by focusing unduly upon the circumstances which gave rise to the contravention, rather than addressing the question of whether the system put in place to ensure compliance with the Act was objectively reasonable. The case does not establish any general proposition of law, and serves to illustrate the way in which cases of this kind turn upon their individual facts and circumstances.

30 The submissions advanced on behalf of the appellant placed reliance upon other cases, including Baiada Poultry Pty Ltd v The Queen [2012] HCA 14; (2012) 246 CLR 92; Shafron v Australian Securities & Investments Commission [2012] HCA 18; (2012) 86 ALJR 584, and Payne v Tiwest Pty Ltd [2005] WASC 141. However, the facts and statutory provisions involved in those cases are so far removed from those relevant to the present case that those cases do not provide any assistance.

31 Before leaving the cases upon which the appellant relies, it is necessary to note a significant distinction between the statutory language at issue in those cases, and the language of s 81 of the Act. The statutory provisions at issue in Tesco, and in the Australian cases dealing with s 85 of the Trade Practices Act, (Universal Telecasters, Adams, Gardam) specify the relevant defence by reference to the actual actions of the accused. In each case the statute requires the court to consider whether the accused took reasonable precautions and exercised due diligence to avoid the commission of the offence or the contravention of the Act. By contrast, s 81 of the Act is directed to the capacity of the accused - namely, whether he or she has established that by the exercise of reasonable diligence the commission of the offence could have been prevented.

32 So, when a defendant relies upon the defence provided by s 81 of the Act, it is necessary for him or her to establish, on the balance of probabilities, that by the exercise of reasonable diligence he or she could not have prevented the commission of the offence. That is a question which is materially different to the question which arose in the cases relied upon by the appellant, which was whether the accused had in fact taken reasonable precautions and exercised due diligence to prevent the offence. Under s 81 of the Act, the focus of inquiry is upon the capacity of the accused, whereas in the cases upon which reliance was placed by the appellant, the focus of inquiry was upon the actions of the accused. Under s 81 of the Act, the question to be determined is whether the accused has established that there is nothing that could have been done, falling within the range of actions properly taken in the exercise of reasonable diligence, which would have prevented the commission of the offence.

33 This is not to say that the actions of the accused are irrelevant to the defence created by s 81 of the Act. If the offence was committed notwithstanding the exercise of reasonable diligence by the accused, it might be readily inferred that the accused could not have prevented the commission of the offence by the exercise of reasonable diligence. However, it is the capacity of the accused which is the focus of inquiry. So, an accused who has done nothing at all to prevent the commission of the offence might nevertheless establish a defence under the section if he or she establishes that there was nothing he or she could have done, in the exercise of reasonable diligence, which would have prevented the commission of the offence.

34 It seems clear that this distinction was not appreciated by either of the parties to the proceedings before the magistrate, nor was the distinction enunciated expressly by the magistrate. It is not a distinction which has been appreciated in the submissions of either party to the appeal proceedings. However, at a number of points in his reasons, the magistrate specifically and correctly posed the question he had to answer in the precise terms of s 81 of the Act. It is not open to infer, nor was it contended that the magistrate addressed the wrong question. Further, for the reasons which follow, the precise terms of the formulation of the statutory defence, and in particular the distinction between the provision at issue in the cases to which I and the parties have referred, and the language of s 81 of the Act, would not affect the outcome of this case.

35 Notwithstanding the differences between s 81 and the statutory provisions applicable in the cases to which I have referred, there are similarities between the various provisions which render those cases of assistance. In particular, each of the provisions, like s 81, poses the defence in terms of reasonable diligence and does not require or impose standards of perfection. Were it otherwise, the defence would do little to mitigate the possible harshness of the strict liability created by the section. Because the standard to be applied pursuant to s 81 is that of reasonable diligence, considerations such as the extent to which the offence was foreseeable, and the cost and burden of the measures which might be taken to reduce the risk of an offence will be as relevant to a defence under s 81 as they are to the defences created by the statutory provisions at issue in the cases to which I have referred.

The specific findings made by the magistrate

36 The magistrate made findings with respect to the corporate entities involved in the Regents Apartment Project, the nature of the project, and the applications for development approval which are sufficiently identified in the overview which I have set out above. After reviewing the evidence given by the purchasers of the five units the subject of the charges, he found that in three cases representations were made by the relevant agent to the purchasers to the effect that the project was not going ahead, in another case a representation was made to the effect that the project was indefinitely delayed, and in another case to the effect that the development might never be finished. In each case representations were made to the effect that the only option open to the purchasers was to withdraw from or terminate the contract.

37 The magistrate found that the representations were false. Development approval and a building licence had been obtained for stage 1A, and the building was between 60% and 70% finished at the time the representations were made. There was no evidence to the effect that stage 1A was not to be completed, and as I have noted, each agent had been instructed that in the event that purchasers terminated their contracts, the units were to be resold at significantly higher prices as quickly as possible.

38 The magistrate also found that the representations were made by the agents in connection with the disposal of an interest in land, being the equitable interest which the purchasers had acquired through their contracts. His Honour also found that the representations concerned the use to which the land was capable of being put, in the sense that the effect of the representations was that the land could not be used to serve the purchaser's purposes as investors in residential apartments, because those apartments were either not ever going to be completed, or would be so delayed as to be an untenable investment.

39 The magistrate therefore concluded that the representations constituted a breach of s 12(2)(b) of the Act, and that, as the representations were made by agents employed by Westpoint, Westpoint was also guilty of the offences by the operation of s 82 of the Act.

40 The magistrate devoted a significant portion of his reasons to the question of whether Mr Carey had established a defence pursuant to s 81 of the Act. In that portion of his reasons he reviewed the evidence relating to the circumstances in which the false representations came to be made. In that context he referred to the evidence of Mr Sean Niven, a senior officer of Westpoint who, like Mr Carey, was charged with each of the offences on the basis that he was a director of Westpoint, but who was ultimately acquitted on the basis that the evidence failed to establish that he was in fact a director. The magistrate accepted Mr Niven's evidence that in the middle of October 2005 he received a telephone call from Mr Carey during which they discussed the need to terminate the Regents Apartments contracts. Following that conversation, Mr Niven had conversations with a number of real estate agents in which he advised them that he had been told by Mr Carey that the contracts in relation to units in stage 1A had to be cancelled or rescinded, or words to that effect.

41 Mr Niven travelled to Perth and had a meeting with Mr Carey during which his instructions to arrange termination of the contracts were confirmed. It was about this time that he received a memorandum from Mr Carey dated 27 October 2005. This memorandum will be discussed further below [50] - [59]. As the magistrate found, according to Mr Niven, there was no question of Lanepoint not wanting to terminate the contracts, or attempting to persuade purchasers to sign variations to their existing agreements. His understanding from the first instruction he received from Mr Carey was that the contracts had to be rescinded.

42 Mr Bernard Worthington was another senior officer of Westpoint. His evidence, which the magistrate accepted, was to the effect that towards the end of 2005, the contracts relating to stage 1A were 'systematically terminated' by the agents who had sold the units in the first place, and that the process had been initiated by Mr Carey. He also received the memorandum dated 27 October 2005 from Mr Carey. He responded to that memorandum by a memorandum of 28 October 2005, in which he advised that the sales team 'are now working on implementing the proposed action'. As the magistrate noted, a little over two weeks later, by 14 November 2005, Mr Worthington was recorded as looking for 60 new buyers for stages 1A and 1B. The magistrate concluded:

The clear import of Mr Worthington's evidence was that the original contracts were to be terminated and the original purchasers offered an opportunity to purchase an alternative property.

43 Mr Lewis was one of the agents who made false representations to purchasers. The magistrate accepted his evidence to the effect that in early November 2005 there was a telephone conference involving the sales staff and Mr Niven, and that during the course of that conference, Mr Niven advised the agents that they needed to secure rescission of the contracts dealing with units in stage 1A at the Regents Apartments Project.

44 A few days later there was a meeting in Perth between Mr Niven and a number of Westpoint agents. Mr Niven reiterated that the contracts needed to be rescinded. According to Mr Lewis, he asked why. Mr Niven responded to the effect that the project had been undervalued and the units had been sold too cheaply.

45 Mr Egan was another one of the agents who made false representations to purchasers. He corroborated Mr Lewis' evidence with respect to the teleconference between Mr Niven and the agents, during which Mr Niven instructed the agents that the contracts in relation to stage 1A had to be rescinded or cancelled, and the clients put into other investment properties. According to Mr Egan, the direction to rescind the contracts was 'because of a stuff up with the pricing'. He understood that the apartments had been undervalued at the time of sales to the tune of $2,000,000. He attributed that estimate to Mr Niven. After the contracts had been sold, the market had risen quickly. The magistrate accepted this portion of Mr Egan's evidence.

46 Mr Hubbard was the sales manager at Westpoint at the relevant time. He was not convicted of making any false representations to purchasers. He confirmed the evidence of the other agents to the effect that Mr Niven had instructed them to secure termination of the contracts.

47 The magistrate referred also to a memorandum dated 17 October 2005, from Ms Halga James, a lawyer employed by Westpoint, to Mr Worthington, copied to Mr Carey and another. Under the heading 'Stage 1A' the memorandum records:

You have instructed me that Lanepoint Enterprises wishes to terminate every contract it has entered into for Stage 1A, and then resell at a higher price.

48 The memorandum from Ms James goes on to refer to a number of legal issues with respect to the terms of the existing contracts, which created a need for a number of variations to those contracts. In this context, the memorandum records:

There is no doubt that we have a number of [bases] for seeking a variation of the stage 1A contracts. I am not sure that we have a clear basis for terminating those contracts.

49 Reference is made to the possibility of relying upon cl 6.4 of the contracts to terminate, although Ms James concluded that 'there is, however, a very big danger in relying on this clause'.

50 Mr Carey's memorandum of 27 October 2005 has already been mentioned. It was directed to Mr Niven and Mr Worthington, and copied to the three agents who pleaded guilty to making false representations to purchasers. The thrust of the memorandum was to outline the situation which had been reached in relation to the Regents Apartments Project, and to direct the agents to meet with each purchaser of a unit in stage 1A and offer them the option of terminating their contracts, thereby receiving a full refund of their deposit with interest, including any fees and out of pocket expenses. The memorandum records that it was important to know how many purchasers would be proceeding with contracts to settlement as soon as possible. It also directs that purchasers who terminate their contracts should be offered an alternative property. The memorandum also records:

In the event that purchasers opt to terminate their contracts Lanepoint requires these apartments to be resold as soon as possible.

51 The magistrate gave detailed attention to this memorandum in his reasons. He found that many of the assertions made by Mr Carey in the memorandum were untrue. As I have noted, those findings have not been challenged. The statements in the memorandum to which the magistrate directed particular attention are as follows:

'During the planning process for the [sic] stage 1 the City of Belmont insisted that [the] stage 1B building be effectively seven storeys in height including undercroft carpark and high gables as from a town planning [perspective] they see the building as a gateway to the City of Belmont and want it to look like a landmark building.'

52 The magistrate found that this statement was untrue. He found that the City had indicated that a four-storey building would be adequate for stage 1B. The magistrate considered that the significant expansion in the number of units in stage 1B was also likely to be of greater benefit to the developer than the City, but in any event the proposal was embraced by Lanepoint.

'Given the height and bulk of this building it will impact negatively on the amenity of the stage 1A apartments, particularly blocking light, [and] views and [will] cast shadows over stage 1A apartments during the afternoon.'

53 The magistrate found that this statement was a creation of Mr Carey's own making and did not reflect concerns expressed by anyone else, including the City of Belmont. The magistrate also noted that, given stage 1A was only two storeys in height, and the original stage 1B proposed was also to be two storeys in height, it was difficult to see how the increase in height of stage 1B could have any impact on views from stage 1A.

'On the basis of the terms and conditions of the planning approval for stage 1B, Lanepoint can legally terminate all current purchase contracts by serving written notice under cl 6.3(a).'

54 Each contract contained a cl 6.3 which provided that the contract could be terminated by either the seller or the buyer if the relevant local authority did not grant the seller development approval for the land on terms satisfactory to the seller within 12 months of the date of contract. At a different point in his reasons, the magistrate concluded that this clause did not confer any right to terminate upon Lanepoint, because development approval for stages 1A and 1B had in fact been obtained, on terms to which Lanepoint agreed. The first approval, relating to stage 1A, was in accordance with Lanepoint's application, and the second approval, covering stage 1B, came about following a mediation in the State Administrative Tribunal, and resulted in the settlement of Lanepoint's appeal to that Tribunal.

'Further, I cannot advise you whether Lanepoint will proceed with stage 1B at this time as there are many issues relating to the feasibility and viability of this stage that have arisen as a consequence of the significant changes required by the City of Belmont. As a result I cannot tell you when this stage will proceed or whether it will ever proceed in the approved form. The best I can do is to keep you advised.'

55 The magistrate found this statement was untrue, as it was clear, from the evidence, that 'as part of the termination and reselling process, stage 1B was clearly being proceeded with'.

'[T]he current proposal [for stage 2 is] for 58 newly constructed residential apartments in an eight-storey building which is similar in height to the Great Eastern Motor Lodge building directly across the road with five star finishes. Given the height and bulk of this building it will impact negatively on the amenity of the stage 1A apartments particularly blocking light, [and] views and [will] cast shadows over stage 1A apartments during the morning. Further, I cannot advise you whether Lanepoint will proceed with stage 2 at this time as there are many issues relating to the feasibility and viability of this stage that have arisen as a consequence of the significant changes required by the City of Belmont. As a result I cannot tell you when this stage will proceed or whether it will ever proceed in this form. Lanepoint is currently considering its legal position in relation to the council's position. The best I can do is to keep you advised.'

56 The magistrate found that these assertions did not conform to the facts. As he noted, Lanepoint had instructed its town planning consultants to do everything necessary to progress the application for development approval relating to stage 2, and such an application was lodged on 22 November 2005, less than a month after Mr Carey's memorandum of 27 October 2005.

'An issue has now arisen which will substantially delay the issue of strata titles and settlement. Ordinarily the State Planning Office will allow the consolidation of existing titles and the registration of the strata plan and issue of strata titles contemporaneously. However, the State Planning Office has indicated that they will not agree to this process on Regents Apartments and therefore [we] will need to go through the process of consolidation and produce a consolidated title first and then lodge the strata plan for registration and the application for strata titles.'

57 The magistrate found that in fact as early as 4 April 2005, it was clear that the titles had to be amalgamated, and there had never been any contemplation otherwise. He also found that the evidence did not provide any support for the proposition that the State Planning Office were acting in an unusual way. The magistrate also noted that this issue posed no impediment to the sale of units, as the units in stage 1A were resold immediately terminations were received from purchasers.

'Consistent with Westpoint's core values and client for life philosophy, Lanepoint does not wish to terminate the purchase contracts even though it has a legal right to do so. In these circumstances and having discussed these issues with our solicitors ...'

58 The magistrate noted that the legal advice received by Mr Carey from Ms James was to the effect that Lanepoint did not have a right to terminate the contracts. Mr Carey suggested in his evidence that the advice to which he was referring must have been received from Irdi Legal. However, the magistrate rejected that evidence and found that it was not until some time after the memorandum had been written that Irdi Legal were asked to give advice in relation to these matters. As I have noted, the magistrate also found that Mr Carey, on behalf of Lanepoint, had decided that it would be preferable if all contracts for stage 1A were terminated. It follows that these assertions were untrue in a number of respects.

59 The magistrate summarised the conclusions he had drawn from this evidence. He concluded that well ahead of the memorandum Mr Carey had advised Mr Niven that the contracts were to be cancelled, and that the evidence of Mr Worthington was that he was also aware of the cancellation process ahead of the memorandum. The magistrate also concluded that:

Mr Carey was part of the process whereby the agents understood they were to obtain termination of all of the stage 1A contracts on the basis that each of the properties were then to be resold to others.

60 The magistrate also found that rescinding purchasers were unaware of, and Westpoint did not want to reveal, the fact that their properties were to be resold at higher prices.

61 The magistrate expressly rejected Mr Carey's evidence to the effect that he paid little attention to the memorandum he had received from Ms James, and was guided largely by the advice he had received from Irdi Legal.

62 In a portion of his reasons entitled 'Summation', the magistrate concluded:

[T]here is considerable doubt about the credibility of Mr Carey's evidence, explanations and the contents of his memo. At times what he said or stated was not true.

...

I recognise that, while on the [face] of it the instructions on the memo are clear, even on Mr Carey's evidence, what he proposed was not then to happen.

Purchasers were not to be asked to sign variation documents, but rather new contracts.

...

In my judgment Mr Carey misrepresented matters in his own memo to his employees and was not diligent concerning the management of the process whereby the agents spoke to purchasers about their contracts.

I conclude that the memo was clearly not relied upon as some exhaustive explanation and directive.

The evidence does point to its distribution and use but I am of the view that it only forms part of much wider discussions.

...

A new price list was in existence and the preselling of the units on both occasions pointed to the fact that at the time the real estate was something of a seller's market.

I conclude that despite the contents of the memo, Mr Carey has already made the only realistic commercial decision which was to obtain the termination of the contracts. He had told Mr Niven this and Mr Hubbard and the agents had been alerted to this prior to the memo.

...

The evidence showed that a process was implemented which clearly had the object of terminating every one of the stage 1A contracts.

...

In my judgment the terminations were clearly being obtained on the basis of the property then being resold to others.

Faced with this task the agents have, in my view acted wrongly, but consistent with their instructions to obtain terminations.

...

I conclude that Mr Carey has always known that justifying the unilateral termination of the contracts was going to be impossible to defend. He relied on the contents of his memo but that could not explain why the methodical termination of the contracts took place.

In my judgment Mr Carey adopted the untruthful position of saying that the legal advice changed after his memo had been circulated and that contracts had to be terminated and new ones entered into.

63 The magistrate's conclusions in relation to the defence advanced on behalf of Mr Carey pursuant to s 81 of the Act were expressed in the following terms:

• Mr Carey knew and intended that the agents would speak to the stage 1A purchasers named in the remaining complaints.
• Mr Carey knew and intended that the agents were to secure the terminations of each of the respective contracts so that each of those properties could be resold with new contract documentation.
• There is no evidence that Mr Carey actually told the agents to say that the stage 1A of the Regents project was not going ahead or was indefinitely delayed.
• There was evidence that Mr Carey raised grounds for the termination of the contract which were not true. Some of the aspects of these matters were reflected to some extent in what some of the agents said.
• Mr Carey was in a position to influence the conduct of Westpoint Realty.
• Mr Carey could have by the exercise of reasonable diligence prevented the commission of the offence. If Mr Carey wanted the existing stage 1A purchasers to resign new contracts for their units, those new contracts simply had to be prepared and the clients invited in to discuss the situation. If they were happy to sign on the basis of the new stage 1A proposal and the changed entitlements, they did so. If they were not they could have been told to get legal advice or accept the termination of their existing contract.
• It is clear from the correspondence that Westpoint looked to Mr Carey to make the decisions and then implemented them.

Ground 1

The learned appeal judge erred in law by applying a standard of diligence that was above the standard of reasonable diligence required of a director by s 81(1)(b) of the Fair Trading Act 1987.

Ground 2

The learned appeal judge erred in law in upholding the conviction of the appellant on the basis that the appellant could have, by the exercise of reasonable diligence, prevented deliberate criminal acts that he had no knowledge of, did not authorise and did not permit.

Particulars

(a) The deliberate criminal acts (telling purchasers that stage 1A units were never going to be completed) were committed by real estate agents who:

(i) were licensed experienced real estate agents under the Real Estate and Business Agents Act 1978;

(ii) had received additional training regarding ethics and the duty not to mislead;

(iii) had been warned, prior to committing the criminal acts, that they should not make any representations;

(iv) had been instructed by the appellant that stage 1A units were proceeding to completion;

(v) knew that what they said was false.

(b) The commission of these particular criminal acts was not reasonably foreseeable.

65 These grounds are couched in terms of errors of law by the judge from whom the appeal has been brought, rather than in terms of error by the magistrate. However, the submissions presented in support of the grounds implicitly assumed (correctly) that in the circumstances of this case, the appeal could not succeed unless the magistrate was shown to have made the same errors. Until we come to the Notice of Contention, which focuses upon the reasons given by the judge, it is preferable to assess the grounds of appeal on the basis that they attribute error to the magistrate.

66 In the circumstances of this case, ground 1 adds nothing to ground 2. That is because the magistrate did not identify or apply any particular standard of reasonable diligence in arriving at his conclusion that Mr Carey had failed to make out the defence under s 81 of the Act. It was not necessary for him to do so. That is because he found, in effect, that Mr Carey had done nothing to prevent the commission of the offences by Westpoint. As he observed:

In my judgment Mr Carey was certainly not diligent in dealing with this fundamental development.

In effect, the magistrate found that Mr Carey was the author of the scheme pursuant to which purchasers of units in stage 1A were to be encouraged to agree to terminate their contracts without being told that it was the developer's intention to resell the units at significantly higher prices, in circumstances in which the developer had no lawful grounds for termination of the contracts. The magistrate found that having instructed Mr Niven to procure termination of the sale contracts, Mr Carey then provided the agents with the memorandum dated 27 October 2005, which was replete with false and misleading statements. Given those findings, no question of any particular standard of reasonable diligence arose, nor was any particular standard applied by the magistrate.

67 In essence, both grounds of appeal raise the same single issue - namely, whether, on the findings of fact made by the magistrate, the only reasonable conclusion open was to the effect that Mr Carey 'could not by the exercise of reasonable diligence have prevented the commission of the offence'.

68 It is at this point that the distinction between the nature of the question posed by s 81 of the Act, and the nature of the question posed by the different statutory provisions of the kind in issue in the cases to which the parties referred is relevant.

69 It seems clear from the general structure of the magistrate's reasons that he found that at least one of the limbs of s 81(1)(a) had been established by Mr Carey, with the result that the critical question was whether Mr Carey had established that he 'could not by the exercise of reasonable diligence have prevented the commission of the offence' (it being conceded by Mr Carey that he was in a position to influence the conduct of Westpoint). On the findings of fact made by the magistrate, only one answer to that question was reasonably open, and that was to the effect that Mr Carey had failed to make out that aspect of his defence.

70 Applying the terms of s 81 of the Act, the question is what Mr Carey could have done to avoid the commission of the offences by the exercise of reasonable diligence. That question must be assessed in the context in which the offences were committed. Mr Carey was the directing mind of Westpoint, and at the relevant time, Lanepoint. He was the architect of a scheme pursuant to which purchasers of units in stage 1A of the development were to be persuaded to surrender their legal rights so that those rights could be resold to others at a significantly higher price as soon as possible, in a context in which the developer (Lanepoint) had no right to terminate the contracts. Put more bluntly, the magistrate in effect found that Mr Carey was the architect of a scheme pursuant to which investors were to be duped into surrendering their rights at below market value so that those rights could be resold at a higher price, thereby increasing the profits to be derived by Lanepoint from the development. There was no reason to suppose that rational purchasers cognisant of all the facts would agree to voluntarily forego a profit from their investment. It follows that the scheme designed by Mr Carey would only achieve its objective if the purchasers were not cognisant of all the facts. A situation fraught with the risk of misrepresentation was significantly worsened by Mr Carey's memorandum of 27 October 2005 to the sales agents, which was replete with false and misleading assertions.

71 Consistently with the observations in Adams and Gardam, the question posed by s 81 of the Act is whether Mr Carey could have prevented a specific result, namely, the commission of the relevant offences, by the exercise of reasonable diligence. The relevant offences were the making of false and misleading statements for the purpose of encouraging purchasers to surrender their contracts. In the circumstances which I have related, there is much that Mr Carey could have done to prevent false and misleading statements being made by the agents, and falling readily within the range of actions properly undertaken in the exercise of reasonable diligence.

72 First, and perhaps most obviously, Mr Carey should have corrected the false statements which he made to the agents in his memorandum of 27 October 2005, including perhaps most importantly, the false statement to the effect that he had received legal advice that Lanepoint had a right to terminate the contracts. It is reasonable to infer that this false assertion may well have encouraged the agents to advise purchasers that they had no option other than to accept the termination of their contract. Further, although it is true, as the appellant submits, that the memorandum did not expressly instruct the agents to make representations to the effect that stage 1A may never be completed, or was indefinitely delayed, as the magistrate found, some of the aspects of the matters raised in his memorandum were reflected in what was said by the agents to the purchasers. The thrust of the memorandum conveyed a false impression of delay and uncertainty in relation to the entire project, including stage 1A. For example, the memorandum asserted that stage 1, comprising both 1A and 1B was the subject of one strata scheme, and went on to identify the difficulties for that scheme as a result of the change in unit entitlement arising from the redesign of stage 1B in a context in which the development of stage 1B was falsely said to be uncertain.

73 Second, Mr Carey could, and in the circumstances in the exercise of reasonable diligence should, have instructed the agents precisely what purchasers were to be told when they were approached to surrender their contracts, preferably after obtaining independent legal advice. For the reasons I have already given, the strategy devised by Mr Carey was fraught with the risk of misrepresentation, exacerbated by Mr Carey's provision of false and misleading information to the agents concerned. The transactions which the agents were asked to negotiate were far removed from transactions routinely undertaken by real estate agents in the ordinary course of business. They were instructed to request purchasers to surrender profitable contracts in order that the profit could be harvested by the developer, when the developer had no right to terminate the contracts. In those circumstances identifying precisely what purchasers should be told by the relevant agents, preferably with the benefit of independent legal advice, and instructing the agents accordingly, could have, and indeed very likely would have, prevented the commission of the offences.

74 In the particular and unusual circumstances of this case, Mr Carey's reliance upon the general training and experience of the agents as the basis for his defence was misplaced. During argument, particular reliance was placed upon the following passage from the opinion of Lord Diplock in Tesco:

To treat the duty of an employer to exercise due diligence as unperformed unless due diligence was also exercised by all his servants to whom he had reasonably given all proper instructions and upon whom he could reasonably rely to carry them out, would be to render the defence of due diligence nugatory and so thwart the clear intention of providing it (203).

75 The obvious problem with Mr Carey's reliance upon this passage is that the magistrate expressly found that Mr Carey had not given all proper instructions to the agents. To the contrary, he had provided them with information which was riddled with untruth.

76 No different result ensues if the question is approached as if s 81 was cast in terms which specified the availability of the defence by reference to taking reasonable precautions and exercising due diligence to avoid the commission of the relevant offences. Plainly on the findings of fact made by the magistrate there is only one reasonable answer to that question. Mr Carey did not establish that he had taken reasonable precautions and exercised due diligence, given that he was the author and perpetrator of a scheme fraught with the risk of misrepresentation and did nothing to prevent the likely consequences of that scheme, but to the contrary, significantly increased the risk of misrepresentation being made by giving false information to the agents. Put another way, the provision of information to the agents which was false in a number of significant respects is a singularly inauspicious basis for an assertion that Mr Carey had taken reasonable precautions and exercised due diligence to prevent the agents making false representations to the purchasers.

77 The grounds of appeal can be dismissed at this level of generality. However, for the sake of completeness I will refer to the particulars provided in relation to ground 2. The first two particulars of that ground refer to the experience of the agents, the fact that they were licensed and had received general training regarding ethics and the duty not to mislead.

78 It is clear that whether such general measures are sufficient to constitute reasonable diligence is dependent on the circumstances in question - see Universal Telecasters; State Pollution Control v Kelly.

79 The situation engineered by Mr Carey, which was fraught with the risk of misrepresentation, required much more than mere reliance upon experience and training in order to avoid the commission of offences.

80 Ground 2 also asserts that the agents had been warned that they should not make any misrepresentations. However, no such warning was given by Mr Carey, who was, as I have noted, the controlling mind of Westpoint.

81 This aspect of ground 2 relies upon an email from Ms James to some (but not all) of the agents dated 3 November 2005, in which she refers to misleading conduct in the most generic of terms. Essentially all that is included in the memorandum on that topic is:

We cannot be misleading or deceptive in our attempt to convince people to rescind their contracts. If we do so we will be up for damages at a later date - especially when people see that we are reselling the properties for a higher price (feasibly they would have a claim against us for, at least, the price difference).

82 In the circumstances, observations cast at this level of generality were unlikely to have any impact upon the instructions given to the agents, and in fact did not apparently have any impact.

83 In any case, the relevant question is whether the delivery of that email supports the conclusion that Mr Carey could not, by the exercise of reasonable diligence, have prevented the commission of the offences. For the reasons I have given, the email does not support that conclusion.

84 The next particular to ground 2 asserts that the agents had been instructed by Mr Carey that stage 1A units were proceeding to completion. Linked to this particular in the course of submissions was the proposition that Mr Carey did not tell the agents that stage 1A would not be finished or that the completion of stage 1A would be unreasonably delayed.

85 There are three fundamental problems with this aspect of ground 2. First, the question arising under s 81 of the Act is not whether Mr Carey caused the agents to commit the offences, but rather whether he has established that he could have prevented the commission of the offences by the exercise of reasonable diligence. At a number of points the submissions advanced on behalf of Mr Carey seemed to elide this important distinction.

86 Second, the submissions inappropriately focus upon the particular representations made by the agents. The offences committed by the agents were the making of false representations. The question posed by s 81(1)(b) of the Act is whether those offences could have been prevented by the exercise of reasonable diligence - not whether Mr Carey caused a particular misrepresentation to be made, or was aware that it was likely to be made.

87 The third difficulty with this aspect of ground 2 is that Mr Carey did not in fact instruct the agents that the stage 1A units were proceeding to completion. To the contrary, as I have observed, the thrust of his memorandum to the agents was to the effect that the entire project was shrouded with uncertainty and delay, including stage 1A.

88 The next particular upon which reliance is placed in ground 2 is the fact that the agents made statements which they knew to be false at the time they were made. Implicit in this particular are propositions to the effect that Mr Carey could not have foreseen the possibility that these offences would be committed, and the further proposition that he lacked the capacity to divert agents who were minded to make false representations from taking that course. As foreseeability is the subject of the next particular, it will be considered immediately below. The proposition that there is nothing Mr Carey could have done by the exercise of reasonable diligence to prevent the agents making false statements must be rejected. For the reasons I have given, Mr Carey had every capacity to prevent the agents from making false statements in the exercise of reasonable diligence, but failed to exercise that capacity.

89 The last particular identified in ground 2 asserts that the commission of these particular criminal acts was not reasonably foreseeable. It is not necessary for the purposes of this case to dwell upon the precise extent to which a defence of the kind provided by s 81 of the Act raises issues of foreseeability. I have already observed that the foreseeability of an offence in general terms will very likely be relevant to the ambit of reasonable diligence. It is sufficient for present purposes to observe that the submissions advanced in support of this particular focus inappropriately upon the particular representations made by the agents. The question posed by s 81 of the Act was whether Mr Carey could have prevented the agents from making false and misleading statements by the exercise of reasonable diligence. His failure to withdraw the false information he had given to the agents, which contributed to the statements which they made, and to instruct the agents as to what the purchasers were to be told constituted a failure to exercise the capacity which he had to prevent the commission of those offences, irrespective of the precise terms of the particular misrepresentations made by the agents.

90 For these reasons both grounds of appeal should be dismissed.

91 The Notice of Contention is in the following terms:

1. The appellant failed to prove that he did not authorise or permit the commission of the offences.
2. The magistrate was not satisfied the appellant had proved that he did not authorise or permit the commission of the offences and Murray J was in error in finding to the contrary at [2012] WASC 8 [42] and [43].

92 The problem with a notice formulated in these terms is that Murray J also held that the magistrate found that the offences were committed by the agents without Mr Carey's knowledge. On that basis, because s 81(1)(a) is disjunctive, the requirements of that paragraph had been made out irrespective of whether or not the appeal judge was in error in holding that the magistrate had found that Mr Carey did not authorise or permit the commission of the offences. It follows that a challenge to the conclusion at which Murray J arrived on one limb (authorise or permit) of the disjunctive provisions of s 81(1)(a) would serve no point unless his conclusion on the other limb (knowledge) was also challenged.

93 When this was pointed out to senior counsel for the respondent during the course of argument, he acknowledged the difficulty and moved to amend the Notice of Contention to include a challenge to Murray J's conclusion that the magistrate had found that the agents made the misrepresentations without Mr Carey's knowledge. The application to amend the notice was opposed. After consideration, the court unanimously decided to refuse the application to amend for reasons to be published in due course. My reasons for refusing the amendment follow.

94 If allowed, the amendment would have raised not only the issue of whether Murray J was correct to conclude that the magistrate had found that the agents made the misrepresentations without Mr Carey's knowledge, but in order to serve any utility, would also necessarily raise the question of whether the magistrate should have found, on the evidence, that the misrepresentations were made without Mr Carey's knowledge. That issue would have required a careful review of the evidence on the topic, which could only have been properly undertaken by the court following detailed consideration of the issue by the parties and the presentation of written submissions. Further, if the appellant had known that the issue was live, different forensic decisions may well have been taken with respect to the prosecution of the appeal. For example, if the appellant had known that the evidence was to be traversed for the purposes of reviewing the findings of fact made by the magistrate with respect to the extent of Mr Carey's knowledge, the appellant may well have decided to put other findings of fact made by the magistrate in issue.

95 The application to amend the notice came at the latest possible stage in the appellate process - namely, during the course of the respondent's oral argument. If the amendment had been allowed, an adjournment of the hearing and a resumption of the hearing at a later date would have been necessary. Both parties would have incurred substantial costs and as I have indicated, it is quite conceivable that the appellant may have been forensically disadvantaged as a result of this issue being raised at such a late stage in the appellate process. For those reasons, in my view it was not in the interests of justice to allow the proposed amendment.

96 As a result of the disallowance of the amendment, consideration of the Notice of Contention in its present form is pointless. It should be dismissed.

97 For these reasons, the appeal and the Notice of Contention should each be dismissed.

98 PULLIN JA: Martin CJ's reasons refer to the facts and the magistrate's reasons. The magistrate concluded that the appellant had not discharged the onus cast on him to prove that, inter alia, he could not 'by the exercise of reasonable diligence have prevented the commission of the offence[s]' committed by the agents. The appellant submits that, on the facts found, Murray J erred in law by holding that the magistrate did not err in concluding that the appellant had not discharged the onus cast on him by s 81(1) of the Fair Trading Act 1987 (WA) (Act).

99 The appellant relied on several cases which the appellant submitted assisted in establishing that there was error by Murray J and the magistrate. Those cases do not determine the outcome because the statutory provisions in each case were different and, of course, the facts in each did not correspond with the facts in this case.

100 The facts reveal that the appellant wanted the contracts with the purchasers terminated. He was warned by a lawyer about there being doubt as to whether there was a clear basis for terminating the contracts. He then prepared a memorandum dated 27 October 2005, which was directed by the appellant to Mr Niven and Mr Worthington and copied to the agents. The memorandum contained various untrue statements, which in effect provided the agents with material to put to purchasers to persuade them to agree to the termination of the contracts and which, if repeated to the purchasers, would result in misrepresentations being made.

101 True it is, that Mr Carey did not expressly instruct the agents to make any misrepresentations, but the s 81(1) defence does not provide a defence merely because no instruction was given to the agents to commit the offence. Nor was a defence made out merely because the appellant did not know that the misrepresentations were made.

102 The appellant submitted that real estate agencies operated by establishing compliance systems relying upon the honesty of their employees, particularly those who have training and education in fiduciary and similar duties. The appellant further submitted that the standard of reasonable diligence necessary by a director of a real estate company to prevent his company from making misleading statements about the use to which land may be put is to have in place a reasonable system which ensures that written or other advertising material going to the public is checked for accuracy of content; that face-to-face communications with purchasers or vendors are conducted by duly licensed and qualified real estate agents or other appropriately trained personnel whose qualifications and records are checked and confirmed; that there be ongoing monitoring to ensure that appropriate staff are employed, that their professional standards are maintained, and, where warranted, ongoing education, warnings or reminders are provided; and that a system is in place for handling complaints or noting problems as an aid to the ongoing supervision of the system.

103 The appellant submitted that Westpoint and the appellant had in place a system whereby documents, manuals and codes of conduct sought to promote ethical behaviour amongst management and employees, and that the group of companies of which Westpoint was part had both internal and external compliance controls to provide ongoing monitoring and supervision of the compliance system. The appellant pointed out that Westpoint employed licensed and qualified agents who were obliged to observe Westpoint's codes of conduct, and that there was a training and induction program for those agents.

104 All of those matters would be probative of a defence under s 81(1)(a) of the Act in a case where misrepresentations made by agents were entirely unexpected and based, not in any respect, upon information or instructions provided by an officer of the company charged under s 12(2)(b) of the Act.

105 As to the 27 October 2005 memorandum, the appellant submitted:

The appellant provided to the agents a memorandum which confirmed to them that stage 1A units were proceeding to practical completion by

February 2006 with certificates of title becoming available in July/August 2006 and which annexed a construction program.

106 In fact, the memorandum stated that it outlined 'issues' that had arisen, the 'impact of the issues on the parties', and a 'proposed plan of action to resolve [those] issues'. It then stated that 'Lanepoint can legally terminate all current purchase contracts', and included the other misrepresentations referred to in the reasons of Martin CJ. The statement in the memorandum that 'consistent with Westpoint's core values and client for life philosophy, Lanepoint does not wish to terminate the purchase contracts' was hollow given that it went on to repeat 'even though it has the legal right to do so' and was made in circumstances where the appellant had given instructions to procure termination of the purchasers' contracts. The memorandum stated that 'Lanepoint wants to offer [the purchasers] the option to terminate their contracts if they are not happy to proceed to settlement'. Clearly, the false statements about the 'issues' were designed to encourage the agents to inform the purchasers of the 'issues' which had arisen and offer them as encouragement to the purchasers to agree to terminate the contracts.

107 This is not a case of agents going off the rails despite the exercise of reasonable diligence in the installation of systems and procedures to prevent that from happening. This was a case where the appellant, in effect, armed the agents with false information, some aspects of which allowed the agents to proceed to make false representations.

108 The appellant had the capacity to prepare a memorandum arming the agents with the facts, rather than arming them with false information. To demonstrate that reasonable diligence had been exercised, the appellant would have to have shown that he told the agents to tell the truth, rather than passing on the false information set out in the memorandum.

109 The magistrate did not err in concluding that the appellant had not discharged the onus imposed by s 81(1) of the Act, with the result that Murray J did not err in dismissing the appeal.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CAREY -v- COMMISSIONER FOR CONSUMER PROTECTION [2013] WASCA 195 (S)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : CAREY -v- COMMISSIONER FOR CONSUMER PROTECTION [2012] WASC 8

Costs - Appellant unsuccessful but successfully challenged notice of contention - Whether respondent's entitlement to costs should be reduced to take into account unsuccessful notice of contention - Whether issues raised by notice were discrete and severable - Turns on own facts

Fair Trading Act 1987 (WA), s 12, s 81(1)

Supreme Court (Court of Appeal) Rules 2005, r 33

Supreme Court Act 1935 (WA), s 37

Appellant to pay respondent's costs of the appeal save and except for the costs incurred in relation to the notice of contention

Appellant : Mony de Kerloy Barristers and Solicitors

Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158 (S)

Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S)

Carey v Commissioner for Consumer Protection [2012] WASC 8

Carey v Commissioner for Consumer Protection [2013] WASCA 195

Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85

1 REASONS OF THE COURT: This appeal was dismissed (Carey v Commissioner for Consumer Protection [2013] WASCA 195). However, the appellant resists the usual order that he pay the respondent's costs because the respondent filed a notice of contention which was also dismissed. The appellant contends that allowance should be made for his success in relation to the issues raised by the notice of contention by reducing the respondent's entitlement to costs to 75% of those to which he would otherwise be entitled.

2 The general principles applicable to issues of this kind are not in doubt. The court has a general discretion with respect to the award of costs (Supreme Court Act 1935 (WA), s 37). However, that discretion will generally be exercised by ordering that the successful party recover his or her costs from the unsuccessful party (Rules of the Supreme Court, O 66 r 1(1)). Where a successful party has increased costs by introducing an issue or issues on which he or she has failed, the court may order that party to pay the costs relating to that issue or issues (O 66 r 1(3)). Where a generally successful party has failed on an issue or issues in circumstances in which it would be appropriate that he or she bear the costs on those issues, rather than require the taxation of separate and discrete issues, the court may reduce the costs to which the successful party would otherwise be entitled by a percentage which reflects the likely contribution which the costs with respect to that issue or issues made to the overall costs of the proceedings (Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85 [28] (Owen J). However, the discretion to apportion costs in this way will generally only be exercised 'where there are discrete and severable issues upon which the generally successful party has failed, and which have added to the cost of the proceedings in a significant and readily discernible way': Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158 (S) [7]; Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) [8].

3 So, as this court put the matter in Bowen v Alsanto Nominees Pty Ltd (at [6] - [7]):

The court may, in the exercise of its discretion, order that a successful party recover only a portion of its costs where that party has been unsuccessful in respect of certain discrete issues. But that should not be done as a matter of course. To embark as a general practice upon an analysis of which party was successful on each issue, or necessarily to deprive a successful party of some portion of its costs if it has lost on a particular issue, would be likely to add further uncertainty and complexity to the outcome of litigation, derogate from the prospect of settlement, and oblige the court to hear lengthy and frequent arguments in relation to costs as an additional burden on its resources and the costs of the parties: see MacKinnon v Petersen (Unreported, NSWSC, 19 April 1989) (Cole J); Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [67] - [68] (McHugh J). Litigation is time-consuming, expensive and burdensome enough already.

In addition, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risks of costs from canvassing all issues which might be material to the decision in the case: Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 [24].

4 The appeal was brought from the decision of a judge dismissing an appeal from the decision of a magistrate convicting the appellant on five counts of making a false or misleading representation concerning the use to which land was capable of being put contrary to s 12(2)(b) of the Fair Trading Act 1987 (WA) (the Act). The appellant did not make the representations the subject of the charges. However, he was a director of a corporation which was found to have made the representations. He was found to be liable for the actions of the corporation by virtue of s 81(1) of the Act which, at the relevant time, provided:

1. Offences by directors, employers, and vicarious liability

(1) Where a corporation within the meaning of the Corporations Act 2001 of the Commonwealth or any other body of persons, corporate or unincorporate, is convicted of an offence against this Act, each person who, at the time of the commission of that offence, was a director of the corporation or was the manager, secretary or other similar officer of that body, or who purported to act in any such capacity, is also guilty of an offence unless he proves -

(a) that the offence was committed without his knowledge, or that he did not authorise or permit the commission of the offence; and

(b) that he was not in a position to influence the conduct of that corporation or body or, being in such a position, could not by the exercise of reasonable diligence have prevented the commission of the offence,

and is liable to a penalty not exceeding the penalty prescribed for the offence of which the corporation or body was convicted.

5 The grounds of appeal were restricted to issues which concerned the proper construction of s 81(1) of the Act, and its application to the facts found by the magistrate. As is apparent from the reasons of the court, those grounds required detailed consideration of the facts found by the magistrate with respect to the appellant's role in the company of which he was a director, and the events which preceded the making of the relevant representations, with particular reference to the appellant's role in those events. Although the grounds, and the argument advanced in support of those grounds, were directed only to what might be termed the second limb of the defence provided by s 81(1), concerning the capacity of the appellant to prevent the commission of the offence by the exercise of reasonable diligence, a proper appreciation of the particular role played by the appellant in the events which preceded the making of the representations was essential to a proper consideration of the grounds of appeal.

6 As was noted both on the appeal to the single judge of this court (Carey v Commissioner for Consumer Protection [2012] WASC 8 [42] - [43]), and in this court [69], the magistrate did not expressly enunciate a finding to the effect that Mr Carey had established what might be termed the first limb of the defence provided by s 81(1) of the Act by establishing either that the offence was committed without his knowledge or that he did not authorise or permit the commission of the offence. However, it seems relatively clear from the general structure of his reasons that he found one or other of those things had been established by the appellant (appeal reasons [69]). The judge at the first level of appeal considered that the magistrate's reasons should be construed as reflecting findings that the appellant had succeeded in establishing both alternatives within the first limb of the defence - namely, that the representations were made without his knowledge and that he did not authorise or permit the commission of the offences ([2012] WASC 8 [42] - [43]).

7 In this context the respondent filed and served a notice of contention in these terms:

Take notice that the Respondent will be contending at the hearing of the Appeal that:

(1) The Appellant failed to prove that he did not authorise or permit the commission of the offences.

(2) The Magistrate was not satisfied that the Appellant had proved that he did not authorise or permit the commission of the offences and Murray J was in error in finding to the contrary [.]

8 It should be noted that the notice of contention did not follow the conventional form, and contend that the decision from which the appeal was brought should be upheld for reasons which differ from those enunciated by the court at first instance (Supreme Court (Court of Appeal) Rules 2005, r 33(7)). If that form had been followed, it is possible that the fundamental flaw in the notice would have been identified. The fundamental flaw in the notice arises from the fact that the first limb of the defence provided by s 81(1) of the Act is satisfied if one or other of two matters is established - that is, either that the offence was committed without the appellant's knowledge, or that the appellant did not authorise or permit the commission of the offence. The judge at the first level of appeal considered that the magistrate had found that both alternatives had been established by the appellant. The notice of contention only challenges the finding in relation to the second alternative - namely, that the appellant did not authorise or permit the commission of the offence. Accordingly, even if the notice of contention was upheld, it would have no bearing upon the availability of the defence, as the first limb of the defence was established by the finding that the offence was committed without the knowledge of the appellant. So, as formulated, the notice of contention was misconceived.

9 When this was pointed out to senior counsel for the respondent in the course of oral argument in the appeal, the respondent moved to amend the notice of contention to also contend that the appellant had failed to prove that the offence was committed without his knowledge. That application was disallowed [93] - [95]. After the motion to amend was disallowed, no substantive oral argument was directed to the notice. Accordingly, as the appellant concedes in his written submissions, only a small amount of time was spent on the issues raised by the notice of contention during the hearing of the appeal.

10 The respondent had filed written submissions in support of the notice of contention. They occupied three pages of text. They were concerned with the appellant's role in the events which preceded the making of the representations, and to that extent, were essentially concerned with factual issues raised by the grounds of appeal in any event. The appellant filed written submissions in response, occupying approximately one page of text, which essentially asserted that the magistrate and the judge at first instance were correct, and that the notice of contention did not descend to sufficient detail to suggest any reason why an appellate court should interfere with the findings of fact made by the magistrate.

11 In the circumstances of this case, it cannot be said that the notice of contention raised discrete and severable issues, or that the notice of contention added to the cost of proceedings in a significant and readily discernible way. The notice of contention asserted that a conclusion should be drawn from facts found by the magistrate which necessarily had to be reviewed in any event in the course of a proper consideration of the grounds of appeal. It can properly be inferred that the costs incurred by the appellant with respect to the notice of contention were minimal, being essentially limited to the preparation of written submissions occupying approximately one page, cast at a level of generality, and the small amount of time directed to the notice of contention during the hearing of the appeal.

12 In this case there is no reason why the usual order as to costs should not be made, giving the respondent his costs of the appeal. However, those costs should not extend to any costs incurred by the respondent with respect to the notice of contention, or the application to amend the notice of contention which was disallowed.