Expectation Pty Ltd v PRD Realty Pty Ltd

REASONS FOR JUDGMENT 1 This is an application pursuant to s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act"). The original application and Statement of Claim were filed on 5 December 1996. Expectation Pty Ltd ("Expectation") was formed as Trustee of the Daisy Hill Family Trust. Though Expectation is the applicant in these proceedings, the central figure for the applicant is Mr Daniel Hill, the husband of Daisy Hill. Mr Hill is an investor of considerable wealth who rose from humble beginnings. His senior counsel described him as a "serious and well-heeled investor". 2 The conduct in issue in these proceedings relates to the entering into contracts to purchase two commercial shopping centres by the applicant. The transactions were arranged through Mr Gordon Douglas ("Mr Douglas") the second respondent, who was at all material times a director of PRD Realty Pty Ltd ("PRD Realty") the first respondent. The transaction that is the subject of the first part of these proceedings is the purchase of Benowa Gardens Shopping Centre ("Benowa Gardens"). A very real difficulty in this case is the conflict of interest and of duty that arises because PRD Realty was the vendor's agent in the sale of Benowa Gardens, and Mr Douglas also acted as buying agent and adviser to Mr Hill and Expectation concerning real estate acquisitions. Mr John Hammond ("Mr Hammond) the third respondent, was employed by the applicant as General Manager of Benowa Gardens . 3 The applicant claims damages against the first and second respondents pursuant to s 82 of the TP Act and s 99 of the Fair Trading Act 1989 (Qld) ("the FT Act"), and an order pursuant to s 87 of the TP Act and s 100 of the FT Act. Alternatively, damages for negligence and/or breach of fiduciary duty and/or breach of contract are sought. Interest on damages, pursuant to s 51 of the Federal Court of Australia Act 1974 (Cth) ("the FC Act") is also sought, in addition to costs. Mr Douglas is said to be knowingly concerned in the contraventions by Expectation. As against Mr Hammond, the applicant claims an indemnity against the loss of its right to claim against PRD Realty and Gordon Douglas in respect of Benowa Gardens if the agreement pleaded in par 9A of the further amended defence filed 7 February 2000, having the consequence that Expectation's right to sue PRD Realty was compromised, is made out. Alternatively, damages for breach of contract and breach of duty is claimed as against Mr Hammond, as well as interest on damages pursuant to s 51 of the FC Act, and costs. 4 Benowa Gardens is on the corner of Ashmore Road and Benowa Road at the Gold Coast. It opened for trading on 30 September 1992. PRD Realty acted as the leasing agent for the centre and acted as centre manager from the date of the opening. 5 On Friday 26 November 1993 Mr Hill inspected Benowa Gardens with Mr Douglas and Mr Ken Cooney, who was in charge of PRD Realty's shopping centre management activities. Mr Cooney was very experienced in retail shopping centres, having previously been the manager of the successful Pacific Fair Shopping Centre on the Gold Coast. The applicant claims that representations amounting to conduct which contravenes s 52 of the TP Act were made to Mr Hill about the centre during this inspection. 6 Subsequently, Expectation through Mr Hill provided instructions to a solicitor, Anthony Hickey ("Mr Hickey") to convey an expression of interest in Benowa Gardens at $14.1 million to Benoco Pty Ltd ("Benoco"), the vendor of Benowa Gardens. On 3 December 1993, Mr Hickey received a facsimile from Expectation authorising him to execute a contract to purchase Benowa Gardens for $15 million and pay $100,000 deposit. On execution of that contract, Mr Hickey forwarded it to the solicitors for the vendor. Expectation's offer to purchase Benowa Gardens was accepted by Benoco, who executed the contract of sale in the amount of $15 million on 8 December 1993. This was settled on 7 February 1994. 7 Earlier, on 15 December 1993 Expectation, through Mr Hickey, had applied for finance from the ANZ Bank in respect of the Benowa Gardens purchase. Also on that date, Mr Hickey retained Herrron Todd White, a valuation firm, to undertake a valuation of Benowa Waters. On 23 December 1993 Mr Lloyd Parsons, a valuer with Herron Todd White valued Benowa Gardens at $15 million. On 25 January 1994, Richard Ellis, a real estate firm, was instructed by the ANZ Bank to provide a valuation of Benowa Gardens, and on 27 Januaary 1995 Brian Cox, a valuer from that firm, provided a valuation in the amount of $12.5 million. On 28 January 1994 Herron Todd White, through Lloyd Parsons, reported to Mr Hickey concerning the Cox valuation. Prior to the settlement for the purchase of Benowa Gardens on 7 February 1994, there was a telephone conference between Mr Hill, Mr McLernon (a director of Expectation), officers of PRD Realty including Mr Cooney, Mr Douglas, Mr Colin Peet ("Mr Peet"), who was a PRD Realty agent in the Brisbane office who was involved in the second transaction involving the shopping centre Broadway on the Mall in Brisbane, Mr Langford an employee of PRD Realty, Brad Johnson, who was the agent of PRD Realty who had the conduct of the sale of the Benowa Centre, and Mr Parsons the valuer from Herron Todd White. That conference concerned the valuations and statements that had been made concerning the shopping centre. 8 After these proceedings commenced on 5 December 1996, Expectation entered into a contract for the sale of Benowa Gardens at $13.6 million on 13 November 1997, which settled on 19 December 1997. 9 Expectation's claim for damages pursuant to s 87 of the TP Act is for $2.5 million, a sum calculated as the difference between the purchase price of $15 million and the valuation of $12.5 million by Mr Cox, for the ANZ Bank. There is an alternative claim by Expectation for damages based on the assertion that had it not purchased Benowa Gardens, it would have engaged in another investment and has lost the benefit of that investment, that loss being claimed at $5,732,056. 10 The second transaction was the proposed purchase by the applicant of Broadway on the Mall ("Broadway"), a shopping centre in Queen Street Brisbane. Broadway was in receivership. It represented a "distressed sale" opportunity, if its trading profitability could be turned around. It was for sale at less than half of its cost of construction of more than $100 million. The Receiver of Broadway, Mr Richard Barber of Price Waterhouse, had forwarded to Mr Peet a tenancy schedule and cash flow summary for the centre. A covering letter from the Receiver contained a disclaimer as to the accuracy or reliability of the information contained in the tenancy schedule and cash flow summary. 11 Mr Peet of PRD Realty faxed that cash flow summary to Mr Langford, an employee of PRD Realty without the covering letter. On 7 January 1994 Mr Langford wrote to the Receiver advising that PRD Realty was retained by Mr Hill to seek suitable investments and referred to "transactions concluded on behalf of this purchaser include a neighbourhood shopping centre anchored by a supermarket with 34 specialty shops." On the same day, Mr Barber of Price Waterhouse sent a letter to Mr Peet enclosing a schedule of depreciable assets, with another covering letter disclaiming responsibility for the accuracy and reliability of the figures. Also on that day, Mr Langford forwarded to Mr Hickey the cash flow summary as well as the schedule of depreciable assets. No mention was made of any disclaimer as to accuracy, Mr Langford not having received either of the covering letters of Price Waterhouse from Mr Peet. 12 On 9 January 1994, Mr Hill inspected Broadway on the Mall in the company of Mr Douglas, Mr Cooney, Mr Langford and Mr Peet. Importantly, there were discussions between Mr Hill and Mr Dennis Lee ("Mr Lee"), the centre manager for Broadway, concerning the cash flow summary. 13 On 10 January 1994, Mr Hickey wrote a letter addressed to Mr Barber on behalf of Expectation offering to purchase Broadway for $30.5 million on certain terms, including a deposit of $100,000 and subject to due diligence, which letter was forwarded from Mr Peet to Mr Barber, with comments, on the same day. 14 On 11 January 1994, the Receiver, Mr Barber, wrote to Mr Douglas, a director of PRD Realty, rejecting the Expectation offer, but making a counter offer in the sum of $31.5 million subject to a due diligence period of 21 days and a non-refundable deposit of $100,000. Mr Langford, an employee of PRD Realty, forwarded a copy of that letter to Mr Hickey, the solicitor for Expectation, who wrote to the Receiver agreeing, on behalf of Expectation, to purchase Broadway on those terms. A contract was executed by Expectation on 18 January 1994 and, on the following day, Mr Hickey retained KPMG to carry out due diligence on Broadway. 15 On 1 February 1994, Mr Hickey had meetings Mr Peet, Mr Douglas and Mr Langford regarding the cash flow summary figures for Broadway. On 3 February, Mr Hickey wrote to the solicitors for the Receiver alleging misleading conduct by reason of the delivery of budget cash flows purporting to be the actual cash receipts, and identifying the actual income in the order of $1.7 million. On 7 February, Mr Cooney wrote to Mr Hickey advising that Broadway would achieve $2.4 million under professional management. On 8 February Mr Peet produced to Mr Hickey the covering letter from the Receiver containing the disclaimer as to the accuracy of the cash flow summary. 16 By letter of 11 February 1994, Mr Hickey on behalf of Expectation terminated the contract on the basis that due diligence enquiries demonstrated the acquisition of the property was not suitable. In respect of the transaction involving Broadway on the Mall, Expectation claims $100,000 being the amount of the non-refundable deposit. 17 The pleadings in these proceedings have been the subject of numerous amendments. The final version of the pleadings is as follows: · Second Further Amended Statement of Claim filed on 17 May 2001; · Amended Defence of the First and Second Respondents filed on 7 February 2000; · Further Amended Reply (to the Amended Defence of the First and Second Respondents) filed on 8 May 2001; · Amended Defence of the Third Respondent filed on 17 August 2000; · Reply (to the Amended Defence of the Third Respondent) filed on 30 April 2001. The Agreement between Mr Hill and Mr Douglas 18 The first area of dispute identified by the pleadings concerns the nature of the agreement between Mr Hill and MrDouglas concerning real estate investments. 19 Expectation contends that it, in about November 1992, by its agent Mr Hill, appointed PRD Realty to advise Expectation in relation to possible real estate investments and to act as the agent for Expectation "in relation to the investigation, negotiation and purchase thereof". It is said as a "particular" of that appointment that PRD Realty through Mr Douglas, would provide like services to Mr Hill. It was said that there was an implied term of that appointment that the respondents would exercise due care and skill and would act honestly and in the best interests of Expectation. 20 PRD Realty and Mr Douglas say that in late 1992 or early 1993, Mr Hill orally requested PRD Realty through Mr Douglas to introduce Mr Hill to possible real estate investments for his consideration, and PRD Realty agreed to do so. They say that the agreement was that the first respondent would act as purchasing agent for Mr Hill in relation to any properties which were introduced to him by PRD Realty and which he decided to purchase, but which were not listed for sale with PRD Realty by the vendor. The respondents deny that it was part of the agreement that PRD Realty through Mr Douglas would act as "exclusive purchasing agent" for Expectation. The first and second respondents acknowledge that theywere obliged to exercise reasonable care as real estate agents in their dealings with Mr Hill, and to act honestly in performing their duties. 21 The respondents agree that they introduced a number of properties to Mr Hill for his consideration. In particular broad acre land at Chancellor Park which the applicant purchased for approximately $9.5 million in May 1993, land at Canterbury Downs which the applicant purchased for $3.5 million in July 1993, and a residential property at Mermaid Beach which was purchased by Mr Hill in July 1993 for $1.03 million. In these instances, PRD Realty was paid commission by the vendors of those properties. 22 In my opinion the agreement between Mr Hill and Mr Douglas came about because each saw that an arrangement or understanding concerning real estate investments would be in their own interests. MrHill had arrived in Australia on 15 December 1993 and had subsequently toured the Gold Coast. At that time he was living in Monte Carlo and he had had business dealings with Mr Angus Douglas, the second respondent's brother. Mr Angus Douglas was a stockbroker and Mr Hill had had extensive dealings with him. Whilst on the Gold Coast Mr Hill was reacquainted with Mr Gordon Douglas, who took him on a tour of Gold Coast properties over a number of days. Mr Douglas told Mr Hill that real estate was "the way to go". I accept that Mr Hill became very interested in property development through Mr Gordon Douglas and PRD Realty as a result of his conversations with Mr Douglas and this tour of the Gold Coast property market. 23 I accept the evidence of Mr Douglas that there was never an agreement that PRD Realty would be the exclusive agent of Mr Hill or Expectation. Mr Douglas said that Mr Hill "had contacts with other agents", but there was an understanding between Mr Hill and Mr Douglas that Mr Hill "would go in and out with you and that if he bought a development property PRD would be involved in the design and marketing and managing and sale of it." PRD realty would be appointed managing agents and selling agents. Mr Douglas rejected the suggestion that in relation to PRD Realty he was the person that Mr Hill was looking to for advice and guidance. Mr Douglas said that in relation to the residential properties, he dealt directly with Mr Hill, but he said, "Mr Langford was brought in specifically to source commercial properties for Hill." 24 Mr Hill left Australia on 13 January 1993. 25 In my opinion the position at that time is accurately summarised in the applicant's written submissions at par 86: "… PRD through Douglas agreed to act for Expectation through Hill in locating investments, investigating and evaluating those investments, and then making recommendations as to purchase. If Expectation decided to accept any particular recommendation then PRD through Douglas would be involved in the negotiations for those purchases." [Emphasis added] 26 In March 1993 Mr Douglas recommended to Mr Hill that Expectation should purchase Chancellor Park. Chancellor Park was not a "distressed property". Mr Hill informed Mr Douglas that he wanted "Anderson to carry out the due diligence on the project" and for Mr Hickey to do "all the legal work" in relation to Chancellor Park. John Anderson was an accountant from KPMG in whom Mr Hill reposed confidence. Mr Douglas admitted that PRD Realty was "involved in spending a lot of time in the planning and development aspects of Chancellor Park", and that Mr Hill was "keen for … my input to ensure the changes and types of product being developed on Chancellor Park … were in line with other products." 27 The Board of Expectation, being Mr Hugh McLernon and a Mr Bernard Wrixon, resolved on 20 May 1993 to acquire a two-thirds interest in the project for $8.5 million and the provision of a $1 million performance bond. A joint venture agreement was executed on 24 May 1993. Mr Douglas and MrHickey were appointed by Expectation to represent it at Management Committee Meetings of the Joint Venturers. In respect of this project, PRD Realty was the vendor's agent. Mr Douglas advised Mr Hickey in a letter of 19 May 1993: "Further to your request for our opinion of value regarding this property, we advise in its current state of approval whereby a substantial portion of the land is as yet unzoned, the value to be between $9m and $9.5m." On 11 June 1993 the purchase of Chancellor Park settled. PRD Realty was paid commission of $100,450 by the vendor, and was then appointed as project manager and selling agent. 28 At about the same time as the Chancellor Park negotiation, Mr Douglas recommended to Mr Hill that he purchase Canterbury Downs. Mr Douglas said that he told Mr Hill in the initial recommendation: "The reason I liked Canterbury was because it was so well located to Robina, it was fully approved, it was performing, it was selling, a good steady proposition." Canterbury Downs was not, in any way, "a distressed property". 29 After Mr Douglas' recommendation of Canterbury Downs to Mr Hill, Mr Hill advised the Trustees of the Daisy Hill Family Trust on 18 April 1993 that he was happy for Expectation to proceed with the purchase of Canterbury Downs. On the following day the directors of Expectation resolved to buy Canterbury Downs subject to due diligence, and the contract of sale was entered into by Expectation on the following day. The vendor, Leda Developments Pty Ltd, appointed PRD Realty as its real estate agents for Canterbury Downs Stages 5 and 6, and agreed to pay commission at the standard REIQ scale of fees, being 5% of first $18,000 and 2˝% of the balance. 30 On 11 May 1993 Mr Hickey wrote to Mr Hill with copies being sent to John Anderson at KPMG Corporate and to Mr Wrixon, director of Expectation: "The only qualification that is expressed in the due diligence report provided by KPMG and Ray White is the possibility of competition with the sale of Canterbury Downs by the remaining lots held by the developer at Canterbury Downs." And later: "We have spoken to Gordon Douglas who does not see that there will be a problem of conflict between the remaining developer's stock, if any, and your project. Indeed, Ray White in their report state that by the time your project comes on line the remaining lots at Canterbury Downs should be sold out." On 12 May 1993, Mr Hill advised Mr Wrixon that he was content for the purchase to proceed. On 29 June 1993 Expectation resolved to purchase Canterbury Downs and to enter into a contract of sale for a purchase price of $3.5 million. That purchase settled on 1 July 1993. PRD Realty was paid commission by the vendor on the purchase, and subsequently were appointed by Expectation as the sole agent for the Canterbury Downs estate and was paid commissions from the subsequent sales of allotments. 31 In July 1993, Mr Douglas located a house block in Mermaid Beach and recommended it for purchase for approximately $1 million. Mr Douglas faxed Mr Hill on 28 September 1993, which said in part: "I sent you a fax regarding your house and apart from minor detail to be straightened out it should be bloody good … All your ventures are going Okay at this stage and we are in no hurry to purchase new ones until we see something at the right price …." And later in the same fax: "John Langford is chasing up commercial and retail investment opportunities but is away on a week's holiday." 32 After Mr Hill left Australia he kept in telephone contact with both Mr Douglas and Mr Langford. In one telephone conversation he told Mr Douglas: "Daisy has about $7 million which needs to be invested in a stable, well-yielding, commercial investment. She will lend the money to Expectation to enable the Trust to make the purchase and Expectation will want to borrow the remainder." 33 Mr Douglas alluded to the difficulty of serving two masters inherent in a situation where PRD Realty acted as adviser for Mr Hill and as vendor's agent in a facsimile of 16 July 1993 to Mr Hill: "In relation to commercial property I have discussed with my staff the role I would like to take in purchasing property for you. Under agency law in Queensland when we secure listings of property we legally act for the vendor which technically and practically causes complications in trying to secure the deals that I wish to secure for you. In discussions with the staff I recommend that we act as your purchasing agent so there is clearly no conflict in what we are about. It has the following advantages: (1) We can seek out properties that are not on the market but we consider good assets without the complication of being a seller's agent. (2) We can be up front in acting for your interest. (3) We can use the agency network to seek wider access to property. I believe a fair basis would be 2.5% commission paid as a success fee. We would need to employ solicitors and engineers to check out commercial properties which would require minimum expenditure but clearly to your benefit. Any expenses incurred would be cleared by you or your intermediaries. There are a few retail shopping centres that will be coming up in due course and we will contact you after we have fully considered the opportunity. By facsimile response on the same day, Mr Hill told Mr Douglas: "I sincerely appreciate the efforts which you make on my behalf. I am happy with the terms which you outlined in the abovementioned fax. … As you know, anything done by, or on behalf of, the trustees in Perth has to be negotiated with Hugh McLernon." 34 This arrangement clearly covered the situation where PRD Realty was not acting as vendor's agent in respect of a particular project. Mr Hill agreed, in cross-examination by Mr Patrick Keane QC, senior counsel for the first and second respondents, that: "You told Mr Douglas that any properties introduced by him would be subject to independent due diligence by either John Anderson, Bernard Wrixon, Hugh McLernon or Fred Woollard?" To which Mr Hill said: "I don't remember bringing Fred Woollard into the picture, no." Mr Woollard was an employee of Mr Hill, based in Monaco. 35 Mr Hill had acquired property in Sydney, including a ground lease at the Ritz Carlton Hotel, through agents other than PRD Realty. 36 Mr Hill was aware that PRD Realty was acting for the vendor in relation to Benowa Gardens, but he also claimed: "They were acting for me as well." It was put to Mr Hill that he understood that PRD Realty were getting commission from the vendor and "the higher the price the higher the commission.", to which Mr Hill said: "That is the normal circumstances". Mr Hill acknowledged that that was the situation that applied in respect of Benowa Gardens. 37 PRD Realty, through Langford, set about finding, investigating and evaluating property investments, including the Optus Centre in Sydney and an Australian Taxation Office building in Brisbane. On 27 July 1993, Mr Douglas wrote to Mr Langford: "I spoke to Danny Hill again last night and he is chasing me again for commercial property for his wife. He wants to spend $10m. to $13m. I have said retail will be the go and we are working on some shopping centres and other property." 38 In August 1993, Mr Douglas and his wife had travelled to Europe and stayed with Mr Hill on his boat. At this time Mr Douglas requested a letter of credit for use by him in demonstrating Expectation's bona fides. A letter from Credit Suisse Trustees (Guernsey) Limited of 16 August 1993 to Mr Douglas commences: "This letter confirms that you are to act on behalf of our client to find suitable opportunities for them to purchase retail and commercial property developments up to A$50 million subject to contract and due diligence. Our client is in a position to lodge a substantial deposit after a reasonable period of due diligence which proves to be satisfactory." 39 In my opinion, the nature of the arrangement in place between Mr Douglas and Mr Hill at the time of the acquisition of Benowa Gardens was that PRD Realty, through Mr Douglas (and Mr Longford in relation to commercial premises), would locate, investigate and evaluate investments, and make recommendations as to purchase. It would be expected that that recommendation would be subject to due diligence, and it was for Expectation to decide whether to accept any particular recommendation. This arrangement applied even if PRD Realty was in the position of vendor's agent. Benowa Gardens 40 I turn now to Benowa Gardens and to the issues between the parties raised on the pleadings concerning it. 41 Expectation pleads contraventions of s 52 of the TP Act (or the analogous Queensland provisions of the FT Act); negligent mis-statement; and breach of contract or delictual or fiduciary duty by PRD Realty as Expectation's agent. 42 The representations made by Douglas, or by Cooney in the presence of, and with the agreement of, Douglas, said to be misleading and deceptive or negligent are to be found in pars 9, 10, 10A, 11 and 24 of the Second Further Amended Statement of Claim, ("the SFASOC") may be summarised as follows: (a) Douglas' recommendation that Expectation make an unconditional offer to purchase the Centre of $15 million; (b) Douglas' statement that the vendor would not, in his view, accept anything less than an unconditional offer at the asking price of $15 million; (c) By which Douglas impliedly represented that: (i) the Centre had a value of at least $15 million; (ii) Douglas and PRD had reasonable grounds for holding and expressing the opinion that the value of the Centre was $15 million; (iii) Douglas and PRD had valid and honest grounds for holding the view that the vendor would not accept anything less than an unconditional offer at $15 million; (d) Douglas' statement that: (i) there was an urgent need to make an offer in view of the fact that there were other persons who were interested and in a position to make or had made an offer for the Centre; (ii) the vendor would not consider any form of conditional contract; (iii) Expectation would have to offer $15 million cash to secure the purchase of the Centre; (e) Cooney's statement on the inspection that: (i) the rentals from tenants of specialty shops had good growth prospects, such that 8% growth in net income per annum would be achieved for the Centre; (ii) the tenants of the specialty shops in the Centre were paying not more than an appropriate market rent; (iii) the value of the Centre was at least $15 million. 43 Expectation alleges in pars 12-14B of the SFASOC that these representations were misleading or deceptive or likely to mislead or deceive because: (a) the value of the Centre was no more than $12.5 million; (b) there were no reasonable grounds for the representation that the rentals from tenants of specialty shops in the Centre had good growth prospects and that an 8% growth in net income per annum would be achieved from the Centre; (c) there were no reasonable grounds for holding and expressing the opinion that the value of the Centre was $15 million or that the vendor would not accept anything less than an unconditional offer of $15 million; (d) rents payable by tenants of specialty shops in the Centre were significantly higher than the appropriate market rent, the opinions expressed by PRD and Douglas being not genuinely held or based on reasonable grounds; (e) PRD and Douglas knew that the vendor was prepared to consider a contract that was not unconditional and at less than $15 million; (f) PRD and Douglas knew that no other person was in a position to, or did, make an offer for the Centre capable of acceptance. 44 Insofar as Expectation's claims depend on breach of contract or delictual or fiduciary duty by PRD Realty as Expectation's agent, the allegations are in pars 4, 5, 5A, 6, 7, 7A, 7B, 7C, 7D, 14A, 14B, 18, 19, 20 and 25 of the SFASOC may be summarised as follows: (a) PRD acted as Expectation's purchasing agent, and PRD and Douglas were accordingly duty-bound not to allow their duty to any other person to come into conflict with the interests of Expectation; (b) PRD were duty bound to exercise due care in advising Expectation in relation to the purchase of the Centre. 45 In particular, in this regard, Expectation alleges in par 14A of the SFASOC that PRD and Douglas failed to disclose: (a) the arrangements for commission between the vendor and PRD; (b) that the vendor had instructed PRD to keep marketing information, and in particular information as to rent reviews, confidential from prospective purchasers; (c) that no other person had expressed an interest in the Centre at $15 million; (d) that PRD's opinion was that the Centre's sale price of $15 million was a disadvantage to its sale; (e) the matters referred to in par 3 above. 46 Expectation alleges in pars 15, 16, 16A, 29 and 29A of the SFASOC, that in reliance on the misconduct alleged, Expectation agreed to acquire the Centre for $15 million and settled that contract as a result of which it suffered loss in that: (a) Expectation purchased the Centre for $15 million when its true value was $12.5 million or thereabouts; (b) Alternatively, had it not purchased the Centre it would have acquired an alternative commercial retail investment having: (i) a yield of 11%; (ii) income of $1,650,000 per annum; (iii) rent reviews of 5% per annum; (iv) a sale price in December 1997 of $18 million; which would have produced (v) income of $1,332,056 greater than was derived from Benowa; (vi) capital value of $4,400,000 greater than that derived from Benowa. 47 On 25 October 1993 PRD Realty was formally appointed as sole agent for the purposes of the Expression of Interest campaign which had been agreed with the vendor Benoco, would be the preferred method of sale of Benowa Gardens. That sole agency agreement, amongst other things, provided: "(a) No information with respect to the property is to be sought from or supplied by any of your staff engaged in the management of the property. (b) All requests for information are to be arranged with or referred to us or our authorised representatives and no requests for information are to be directed to Centre Management. (c) You are to use your best endeavours to ensure that all requests for inspections are arranged with or referred to us by our authorised representative and no such requests are to be directed to the Centre Manager." 48 PRD Realty, through Mr Douglas and Mr Cooney, breached the terms of this agreement when Hill inspected the centre and Cooney purported to provide information to Hill about it. 49 Brad Johnson was the employee of PRD Realty who had the responsibility for the sale of Benowa Gardens. At no stage of the negotiations about Benowa Gardens did Johnson meet Mr Hill. His evidence indicated that a number of positive enquiries had been made about the Centre. On 18 November 1993 Geoffrey L. Irvine and Associates submitted an expression of interest on behalf of a Roger Simpson in the sum of $16.3 million. The offer was conditional on obtaining finance from the United States of America. A Keith George had expressed interest at a sum of $14 million, and a property report had been asked to be sent to the National Bank Head Office Brisbane for finance approval. A number of other avenues of interest in the sale had surfaced. 50 Mr Keith George had met with Mr Ralph Gehrman, an officer of the vendor Benoco on 29 November 1993. A figure of $14 million was mentioned, which Mr Allan Fraser (a director of Benoco, the vendor of Benowa Gardens) treated as being "completely out of the question and would not be accepted". 51 Benowa Gardens was a neighbourhood shopping centre of 5,800 square metres. I accept that it was too small for major institutional investors. As a centre it had some positive factors as well as some negative ones. It was a stable, modern local convenience centre with a secure primary catchment, that possessed the secure income-producing investment which Hill was seeking for Daisy Hill. It faced competition from Ashmore City, Ashmore Plaza and Southport Park. The anchor tenant, Bi-Lo, could not be regarded as comparable to either Coles or Woolworths, but the centre was designed to have a basic Bi-Lo supermarket with a wide range of specialty stores which, as its developer had planned, paid a much higher rate per square metre than the anchor tenant. The second largest tenant, the Fruit Barn, was a problem tenancy and there were difficulties with the level of specialty store rents, the level of vacancies, and arrears of rental collections. 52 The applicant's case in respect of misrepresentations depends solely on the evidence of Mr Hill. Mr Hill, I have to say, is shown by the evidence to be unscrupulous, opportunistic and not averse to dishonesty if that would advance his purposes. I am satisfied that he manufactured evidence in this case which he knew did not happen, for the purpose of advancing Expectation's prospects of success in this litigation. Further, he admitted that he was willing to lie as a "business tactic", as he did when he lied to the Receiver of the Broadway on the Mall centre that Expectation was embarrassed in its dealings with its financiers. 53 Mr Hill took no notes of any of the conversations that occurred during the inspection. 54 Mr Philip Morrison QC, Mr Hill's senior counsel, submitted in his closing written submissions that "Hill went from a state of complete ignorance in relation to Benowa to having decided to buy it immediately upon its inspection; that inspection was, on any view, brief and superficial." Expectation's case is based on what Mr Hill says he was told on the occasion of this "walk through". Mr Hill has embellished that "walk through" with a dramatic invention of a solemn swearing to the making of representations concerning the performance and future performance of the centre, and the correctness of those representations. 55 Mr Hill says that Mr Douglas told him prior to the inspection of the centre: "there were three or four chit-chats and he said the Centre is, as I repeated, a little beauty. It is - got an income of around 1.7 and it is an excellent neighbourhood centre. They managed it from the inception - not necessarily in this order. They managed it from inception and they were well aware of the performance of the centre. His staff was well aware of the performance of the centre; that it was under Expression of Interest which was about to close. And that he recommended it as an excellent investment; that there was a tender process with Expressions of Interest which was about to close and that there was a number of parties - the interest in it was hot or intense, I think was the word. There were a number of parties that were interested. He - at one of the meetings he said he'd conferred with his staff. I thought it was Brad Johnston, the name that he used, and he give me the indication of what - I'm sorry, he told me what the four Expressions of Interest were, one at $14 million clean, two between 14 and 15, the words were I believe were not clean, and one over $16. I think it was 16 Ľ and 16 and 3 or something which had bells and whistles on it. We discussed what price that I should pay for the Centre and he said - we discussed a range of centres, different types of centres, and 'if you could buy this on a yield of 11% it would be a very good buy' because it was, in my words, a gem in that type of centre." According to Mr Hill, Mr Douglas at a yield of 11%: "… reckoned that $15 million was the price." 56 It is significant that Mr Langford gave evidence that he had asked Johnson for a "bottom line", and was told that $15 million would be the minimum the vendors would accept. 57 I accept that Mr Douglas said that he thought the centre was worth around $15 million; that he had explained to Mr Hill that a tender process was in place and there had to be an Expression of Interest in the tender; that the Expressions of Interest were due on 25 November 1993; that a number of people had lodged Expressions of Interest; and that if Expectation wanted the shopping centre, Mr Douglas told Mr Hill what he thought the vendor would take. I accept that Mr Cooney told Mr Hill during the inspection that he thought the shopping centre would perform, and that in a general sense the tenants would perform, and that Mr Hill asked MrCooney whether the shops were at fair market rent and that Mr Cooney had replied that he believed they were well rented; and that when Mr Hill asked whether the Fruit Barn could be easily re-let, Mr Cooney advised that it could be "reasonably re-let over a reasonable period of time". 58 According to Mr Hill, Mr Hill asked Mr Douglas what sort of growth was in the centre and that Mr Douglas then went away to make enquiries and returned to tell Mr Hill that "the growth in the centre would be 8%". 59 I simply do not accept that Mr Hill asked Mr Douglas what sort of growth was in the centre and that after Mr Douglas had left and on his return said to Mr Hill: "The growth in the centre would be 8%". I do not believe that Mr Hill said to Mr Douglas: "I'm relying on you and I'm relying on your staff and your interpretation of their ability. I don't want something with hassles and secondly, it really has to - the income has to be secure income with no problems associated with it. The centre has to be very good value in this climate and we've got to be assured that the growth is there." 60 I do not accept that Mr Hill told Mr Douglas: "The rents had to be at market value. They has to be secure and naturally if it was a gem you had to have growth, an 8% growth. He indicated that his people had informed him and it was his opinion that the centre would have 8% growth and that the income of 1.69 was very secure." 61 I further reject the account by Mr Hill in his oral evidence that at the conclusion of the walk through he said to Ken Cooney in the presence of Mr Douglas: " 'I'm going to ask you some questions in front of Gordie, and I'm going to take these as if they come out of your mouth, Gordie, or on your head,' combination of both or whatever. And I said, 'Ken, the income of 1.69: is that the real income of this centre? What we are receiving in money, what it's receiving in real money?' He said, 'Yes.' I said, 'Are all the tenancies at fair market rent?' 'Yes.' I said, 'Are any of the tenants being supported?' 'No,' he said, and I said, 'One of the most important factors, Ken, is Gordon has informed me that he's told me that you told him that this centre will have 8 per cent growth in the rentals,' and he said, 'Yes.' His words I think were, 'Absolutely.' And he said, 'But there is trouble with the Fruit Barn.' I said … 'What's the possibilities of re-letting the Fruit Barn?' He said I believe it would be re-let in a few days because the centre has got [the demand] … but I'm - I went down the centre the other day and some bits came back a bit better." 62 In his affidavit of 14 January 1999 at par 106, Mr Hill says he stood Mr Cooney to one side and said to Mr Douglas words to the effect of: "Gordon, I am going to ask Ken a number of questions in front of you. Now remember what I have already told you. He is your man, and I will be relying on what he says as though it is coming from your mouth." According to the affidavit, Mr Hill proceeded to address Mr Cooney as follows: "I asked him what was the position with the net rental. Cooney answered it was secure and would go at 8% per annum. I asked him were all the shops rented at a fair market rent. Cooney answered 'Absolutely'. I asked him if the 8% growth per year was something he was totally confident of. Cooney said he was, and that it he had the money, he would personally guarantee it. I asked what was the net rent. Cooney said '$1.69 million'. I asked him whether the Fruit Barn's area could be easily re-let. Cooney said it could be re-let in a matter of days. I asked him if any of the tenants were getting any assistance. In reply Cooney said 'Absolutely not'." According to his affidavit, Mr Hill then spoke to Mr Douglas: "I then said to Gordon words to the effect that as Cooney worked for Gordon, it is on Gordon's head as to what Cooney had said; and that they were matters that were important to me. Gordon said words to the effect that Cooney had worked at Pacific Fair and he was the best in the business, and that Gordon stood by everything he had said." 63 I accept the evidence of Mr Cooney on this aspect as to what occurred on the occasion of the "walk through". Mr Cooney gave evidence as follows: "I met Gordon Douglas and Danny Hill in the car park of the centre. It was later in an afternoon. We walked towards the entrance of the mall and this was the newsagent entrance which is on the right-hand side. We entered the mall, the three of us, and proceeded to walk down it making - I made general overview about trading of various speciality shops, who was trading well, who was not trading so well. Comments like, 'This is a good performer,' or 'This retailer is not performing so well,' for various reasons. There were four retailers specifically that weren't trading well. They were the South American Food called La Casina, a hardware store, Cooneys Handbags, which is no relation to myself or my family, and also one of the Leyland Brothers had a fashion store and that wasn't trading too well. During this inspection, and it was a general overview, there was nothing asked of any depth in terms of lease conditions or terms. It was constantly interrupted by Hill referring to various female shoppers in the centre and walked over towards Bi-Lo and I made a comment about Bi-Lo trading well and it being a Coles-Myer covenant, just in general terms. We then proceeded to the other side of the mall and out through doors that - on the right-hand side was fruit and veg store. This store was a large tenancy of 500 square metres and it was a concern to me and I explained to Hill that this tenant was not going to survive. He had trading problems. It was a large tenancy. We would have to come up with a strategy of either finding another fruit and veg operator or subdividing the shop into smaller shops. … We then walked over towards the icecream shop, which was directly opposite. This shop was run by a husband and wife team, mainly by the wife. This tenancy also was going to fold and not - cease to exist much longer. I explained that to Hill that that tenancy wouldn't last. We then walked under the concourse towards the Bank of Queensland and Hill stopped us and he asked the question, 'Is this a good centre?' I said it was - 'It was a neighbourhood centre that dominated its trade area and it was performing well.' He then asked, would he get an 8 per cent return on his investment and I indicated that as the majority of speciality shops are on 8 per cent, notwithstanding the fruit and vegie shop's problems, I was confident he would get an 8 per cent return on his investment. He then asked the question about market rent - were the retailers paying market rent and I indicated that, yes, they were paying market rent and that approximately the net rent was 1.5 million. We then stepped off the pavement and walked up the hill to the carpark towards KFC and Gordon Douglas starting making comments about growth potential for this centre. He indicated to the vacant land towards KFC and beyond and around saying that there was a lot of potential - future potential, in terms of subdivisions, more housing and more customers. With that, the meeting finished, they said goodbye and Gordon and Mr Hill drove off." 64 I accept that Mr Douglas recommended to Mr Hill that Expectation make an unconditional offer to purchase the Benowa Gardens centre for $15 million, and that in his opinion the vendor would accept nothing less than an unconditional offer at $15 million. Mr Hill did not give evidence that Mr Cooney had represented to Expectation through Mr Hill that the value of the centre was at least $15 million, even though this is Expectation's allegation in par 11.3 of the Second Further Amended Statement of Claim. 65 I accept that Mr Douglas and the other representatives of PRD Realty believed in late November 1993 that the vendor Benoco would accept an offer of $15 million or thereabouts, and that Expectation would have to make an unconditional offer of around $15 million in order to buy the property; and, further, that this belief was based on reasonable grounds. Mr Fraser, a director of Benoco, gave evidence that so far as the vendor was concerned, Benowa Gardens was "worth all of $15 million". Mr Fraser gave further evidence that if the sales campaign had not produced an unconditional offer at $15 million or very close thereto, the vendor would have looked seriously at entering into the conditional contract at $16.3 million offered by Roger Simpson. 66 Mr Johnson, the PRD agent who was responsible for the sale of Benowa Gardens, expressed the opinion that an unconditional offer at $15 million would be necessary to secure the property. His contemporaneous documents support the conclusion that in November 1993, he genuinely and reasonably believed that Benowa Gardens would sell for between $14.5 and $15.6 million. An agenda document headed "Points for Discussion" dealing with Agency Appointment details the commission applicable at figures from $14.6 million to $15.618 million (item 26 in the Agreed Bundle of Documents, as well as Exhibit 95), the commission breakdown on an Expectation price of $15 million being described as Deal 1, as well as a breakdown of commission in respect of what is said to be Deal 2, the offer by Keith George, also at a price of $15 million. 67 I simply do not accept that Mr Cooney represented that there would be an 8% growth in net income from the centre per year. Mr Hill accepted in his evidence that Mr Cooney was asked by him about an 8% return on investment. In cross-examination Mr Hill conceded, concerning his conversation with Mr Cooney: "I don't remember exactly the words but he was very optimistic about the Centre. And you asked him would it show an 8% return?---Not at that time. Well, when do you say you asked him that?---When I came outside the Centre. …" He was later asked: "And I suggest to you, this was not done in an aggressive, standover manner, but it was done in quite an ordinary, normal, pleasant way?---That's not correct. And I suggest to you, his response was, the majority of the specialty shops are on 8 percent annual increases, I am confident we will achieve increases. We have a problem with the fruit and vegetable stall because he owes us rent and is not performing. Yes I think we should be able to achieve an 8 percent return on the investment?---I said to Ken - I know what I said to Ken, what Ken Cooney said and what I said to him. What do you say about what I just put to you, as what he said to you?---Didn't say those words." 68 I am satisfied that there were reasonable grounds for what are said to be the "implied representations" pleaded in the Second Amended Statement of Claim; that there was no "express representation" by Mr Cooney that "there would be an 8% growth in net income from the centre per year"; that Mr Cooney did not say that the value of the centre was at least $15 million, and the representation "the tenants of specialty shops in the centre were paying not more than an appropriate market rent" was an honest and reasonably based opinion of Mr Cooney and involved no misrepresentation. 69 It is significant that subsequent to the "walk through", in particular at the meetings concerning the various valuations by Herron Todd White and Richard Ellis, neither Mr Douglas nor Mr Cooney asserted that the centre would achieve 8% growth. Mr Hill at that time did not assert that they had previously made such a representation or point out, either to them or to the ANZ Bank or to Cox, that their view that the centre would achieve 8% growth was contrary to the Richard Ellis valuation. 70 After Expectation had purchased Benowa Gardens, roadworks along Ashmore Road commenced in early 1994 and had a significant impact on trade while the road widening activities continued. Also in May 1994, extended trading hours were introduced which had an adverse effect on smaller traders in specialty stores in centres such as Benowa, and advantaged major retail chains at their expense. 71 The first allegation of a representation that the centre could achieve 8% growth was made by Mr Hill in October 1994 when the centre had experienced difficult trading conditions. Mr Cooney responded to that suggestion in memoranda dated 11 November 1994 and 21 November 1994. His account of the discussion which occurred at the time of the original inspection in November 1993 was not disputed by Mr Hill. In the memorandum of 11 November 1994, in response to the allegation by Mr Hill that Mr Cooney said to him that "You would achieve an 8% growth rate", Mr Cooney wrote "I remember telling you that the majority of shops are on an 8% maximum rent increase therefore you would achieve around 8%". And later in that memorandum: "As it transpired, with the exception of four shops (which will be billed maximum increases from 1/1/95), all specialty shops have been billed maximum increases from the due date. (The majority are 8% some 6% some 4% The centre records show that: Rental billings at 10/2/94 were $1,614,964.00 And from 1/11/94 were $1,728,783.00 Which is an overall increase of 7%." 72 In Watson v Foxman and Others (2000) 49 NSWLR 315 at 318-319, McLellan CJ in Eq referred to considerations relevant where the conduct which is said to be misleading is the speaking of words in the course of a conversation. He said: …it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. … human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience." And later: