Barbara's Storehouse
26 The statement made by Jagar to Hanave concerning the quality of the tenant Barbara's Storehouse did have the potential to mislead. Whether a cause of action accrued to Hanave depended upon whether it was connected with Hanave's entry into the contract which, the evidence disclosed, was for a price in excess of its true market value, although there was some dispute about the extent of this.
27 In the view of the primary Judge, nothing turned on the tenancy schedule to the property report, viewed by itself. It simply contained a description of the terms of the existing leases and, it will be recalled, Mr Burke checked this himself. However the information it conveyed, more particularly that as to the rental payable under the lease, was in his Honour's view "coloured" by the description of Barbara's Storehouse as an "established high quality tenant". His Honour went on:
". . . .Even though the rent identified in the property report can be treated as a description of the rent payable under the lease, reference to "high quality" involves, in my opinion, a representation about the experience of the vendor in relation to the historical operation of the lease. That is, the tenant has been, in relation to its obligations under the lease, an extremely satisfactory tenant."
28 To this his Honour added reference to Smith v Land & House Property Corporation(1884) 28 ChD 7 where, in circumstances involving a sale of property, a tenant had been described as "a most desirable tenant". At the time of the statement, however, the tenant was in fact in arrears. Bowen LJ observed that where the facts are not equally well known, a statement of opinion by the person who does know them often involves a statement of material fact, that that person impliedly knows the facts that justify the opinion. Bowen LJ went on (15):
"…Now a landlord knows the relationship between himself and his tenant, other persons either do not know them at all or do not know them equally well, and if the landlord says that he considers that the relations between himself and his tenant are satisfactory, he really affirms that the facts peculiarly within his knowledge are such as to render that opinion reasonable. Now, are the statements here statements which involve such a representation of material facts? They are statements in a subject to which prima facie the vendors know everything and the purchasers nothing. The vendor stated that the property is let to a most desirable tenant, what does that mean? I agree that it is not a guarantee that the tenant will go on paying his rent, but, it is to my mind a guarantee of a different sort, and amounts at least to an assertion that nothing has occurred in the relations between the landlord and the tenant which can be considered to make the tenant an unsatisfactory one. That is an assertion of a specific fact. Was it a true assertion?"
That passage was referred to with approval by the Full Court of this Court in RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164. Here, the primary judge concluded that, in the circumstances affecting Barbara's Storehouse, the representation in the property statement was false. In his Honour's view, a tenant with its history of rental payment could not reasonably be described as a high quality tenant with the connotations, earlier referred to, namely that it was an extremely satisfactory tenant. It was a false representation. I respectfully agree.
29 As earlier observed, the critical issue in this case was causation. The question which needed to be addressed was whether the misrepresentation as to the history of Barbara's Storehouse as a tenant operated as an inducement to Hanave when it entered into the contract in question at the price it later paid, or whether it can be taken to have had some such effect. The respondents' submissions were that such a conclusion could not be reached upon the evidence of Mr Burke.
30 His Honour did not consider that Jagar was contractually obliged to disclose the earlier incentive payment of $60,000 to Barbara's Storehouse. It followed that Hanave's case, founded upon there having been a positive representation that no incentive payment had been made, could not be made out. The primary judge's view of cl 8 was that Adelights was the tenant for the purposes of cl 8.3, although his Honour at a later point conceded that this might be a narrow view.
31 Clause 8 commences with the statement that the land is sold subject to the leases identified (cl 8.1) and goes on to state that all incentives are either disclosed in the lease document itself, or are set out (cl 8.3). The lease current with respect to shops 1 and 2 at the time of sale was that which had been transferred to Adelights and no incentive had been paid to that company "under or in connection with the lease". Nevertheless, Barbara's Storehouse was listed in Schedule One. The impression clearly conveyed, in my view, was that no incentive payment had been made with respect to that lease. It was not necessary for Hanave to show that obligations of disclosure under the clause had not been met, where what was conveyed was misleading. The TPA creates rights and remedies between parties in addition to those arising from a relationship of vendor and purchaser: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, 37. I would add that, in any event, it would seem to me that on a proper construction of cl 8.1 and cl 8.3, disclosure was required. The property was in fact sold subject to the lease in terms which had been granted to Barbara's Storehouse. Clause 8.1 required that it be particularised in Schedule 1, as it was. Clause 8.3 then required that incentives paid with respect to it be disclosed. The fact of a transfer of obligations under it to Adelights did not obviate the obligation to provide that information. If there be doubt about what was intended by the reference to the lease or leases connected with the sale of the land, the purpose of the clause, in a background of recent first tenancies would in my view have given rise to a wider, not narrower, requirement of disclosure.
32 As I have said, however, Hanave did not need to establish this. Jagar had misrepresented the true position by referring to Barbara's Storehouse and its associated company and failing to disclose the payment of any incentive. The clause and schedule conveyed, positively, that there were no incentives paid.
33 His Honour the primary Judge did go on to consider the situation which may have arisen had the non-disclosure of the incentive operated as a misrepresentation. The difficulty here for the applicant is that his Honour did not accept the evidence of Mr Burke, which was that knowledge of the incentive payment of $60,000 would itself have raised doubts in his mind about the capacity of Barbara's Storehouse to pay rent in accordance with the lease and that he may have sought advice about rescinding the agreement. His Honour rejected this evidence, principally by having regard to the time at which this matter was first raised.
34 Mr Burke had first said that he did not become aware of the payment of $60,000 until 28 March 1997. His Honour found that to be an untruth and that he had earlier known of it from a discussion with Mr Slatyer in February 1995, as he had effectively conceded in cross-examination. All that was missing, until that later time, was the documentary evidence concerning it. His Honour then reasoned that if the non-disclosure had been an issue of substance, such that it was likely to have affected Mr Burke's decision to purchase, it would have been relatively prominent in his mind and formed part of Hanave's case as originally pleaded and filed in September 1995. It was not raised as an issue until the first day of the trial, eighteen months later. At other points, it needs be observed, his Honour made findings against Mr Burke's credit and observed that on some occasions Mr Burke appeared to tailor his evidence to suit Hanave's case. A reference to the evidence bears out this latter observation. As to the question of the importance of the incentive payment to Mr Burke, his Honour concluded that had the information been known to Mr Burke it would not have had a bearing on Hanave's decision to purchase the Leichhardt property. His Honour was of the view that it was merely identified by him as a gloss to the case as originally set up.
35 Different views might be reached about the importance to be attached to a failure to raise a matter which is said would have been important to a party entering into a contract, had it been known. Much will depend upon the nature of the information withheld. Taken by itself, the fact that there had been an incentive payment to the principal tenant would not have conveyed anything adverse about that tenant to an intending purchaser. In those circumstances, it was incumbent upon Hanave to show that it would have viewed the matter more seriously. The fact that it was not even raised as an issue until the action was well advanced, weighs heavily against the acceptance of Hanave's assertion. The conclusion reached by his Honour was clearly open.
36 That leaves unanswered, however, the question whether this non-disclosure took on a different complexion in the background of the misrepresentation found to have been made, whereby Jagar put forward Barbara's Storehouse as a good and reliable tenant (or "extremely satisfactory", as his Honour held) contrary to the true position. The fact of an incentive payment to the principal tenant might well alert a purchaser to a potential problem if there were other facts to which it was relevant. Here, Barbara's Storehouse had a poor history in the payment of rental at an early step in its tenancy despite having received a payment of $60,000 when the annual lease rent was some $108,000.
37 The misrepresentations, combined, were to the effect that the principal tenant had been wholly reliable in meeting its lease obligations, which obviously included that to pay rent; and that no incentive payment had been received. If either the former alone, or the combination, is to be considered as material and likely to induce an intending purchaser, it may fall to Jagar to show that that was not the result: see Gould v Vaggelas (1985) 157 CLR 215, 237-8. There are some difficulties in reaching such a conclusion, at least with respect to the two representations taken together, since it would be difficult to accept that a prospective purchaser would not be quite concerned about what is conveyed in respect of the tenant which was to produce about one-third of the anticipated rental. Nevertheless, the respondent submits that such a conclusion must be reached on the evidence in this case.
38 Before returning to this question, it is necessary to consider how his Honour dealt with the misrepresentation which flowed from the reference to the quality of Barbara's Storehouse as a tenant under the lease. Again, taken alone, his Honour considered that it had no material influence on Hanave's decision to purchase.
39 His Honour referred to that part of Mr Burke's evidence which was to the effect that the description of Barbara's Storehouse in the tenancy schedule was attractive, as it combined a long lease with a substantial, well-known tenant and accounted for about one-third of the total income. In that sense, it provided an anchor and stood as a tenant which had a long term commitment to the centre. He went on to say that he would not have purchased the centre if there was a likelihood that Barbara's Storehouse would not be able to continue to pay the level of rental that its lease showed and for the balance of the term of the lease. He further said that had he known that Barbara's Storehouse had not been complying with its rental obligations, he would have asked Mr Slatyer why this was the case.
40 His Honour however concluded that Mr Burke did not rely on the property report. His Honour went over the lengthy cross-examination of Mr Burke, which touched upon the reasons why Hanave had purchased the property and the steps, if any, he had taken to assess whether it was likely whether the rental income he was seeking to secure would be generated by the property. At this point, it may be observed, as the primary Judge accepted, that the motivation for the purchase was the level of rental reflected by the leases, and the rate of return which could then be achieved.
41 Mr Burke accepted that he did not rely upon what was contained in the property report, in that he verified the information contained in it by reference to the contract document and the leases. In relation to the tenants, he attended and viewed the shops, but did little else. He did not undertake further enquiries, although he accepted also that there had been nothing to prevent him talking to tenants or asking for files relating to the various tenancies.
42 Mr Burke said that he read the property report, where it dealt with the income received. The following exchange then took place in cross-examination in connexion with the words the subject of the misrepresentation:
"… when you read the advertisement and in the property report and you saw discussion about established retailers and high quality tenants, that was in relation to the Leichhardt outlet? Put it this way, when you read the advertisements where it said established retailer at the Leichhardt outlet, you did understand that as being at that outlet?… No that's not what I understood by established retailer.
What did you understand that to be?… Someone with a reputation.
Everywhere? … Everywhere
When you get the property report and it talked about seven high quality tenants at the particular outlet, did that tell you that they were talking about those people at that outlet?….Those people at the outlet with their broader reputation."
43 This passage was set out in his Honour's reasons, no doubt because it was the only direct evidence as to what meaning Mr Burke attributed to the contentious words. His Honour held that Mr Burke did not rely upon the reference to the "high quality tenants" in the property report as a statement about Barbara's Storehouse payment of rental. His Honour added that Mr Burke "proceeded with the sale unaware of the true position in relation to the circumstances of Barbara's Storehouse because of a combination of complacency and careless disregard for matters of detail and his reliance on his own knowledge and perfunctory enquiries".
44 I shall return to the issue concerning Mr Burke's failure to enquire later. At this point it may be observed that his Honour's reasons may encompass the finding that Mr Burke was unaware of or unconcerned with any misleading statement in the property report and that this is borne out by his only interest being in the reputation of the retailers, and he had formed his own opinion about that.
45 The question of causation can sometimes be resolved not by direct evidence as to what part a misrepresentation played in the process of entry into contract, but by a Court determining what effect must be taken to have resulted. Indeed this course may sometimes be preferable to one which rested solely on evidence later given on the point. In Gould v Vaggelas (236) Wilson J held that if a material representation is calculated (which is to say, objectively likely: Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993) 41 FCR 229; Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1, 166) to induce the representee to enter into a contract and the person in fact enters into a contract, a fair inference arises that the representation operated as an inducement, adding that it need not be the only cause. The latter point is now uncontroversial. It suffices for liability if a misrepresentation played some part in inducing entry into contract for the price agreed. That part of Wilson J's judgment was not stated to be an exhaustive rule, but is to be seen as a guide to a question of fact which may arise. A conclusion of inducement may then be reached where a combination of factors, including the quality of the representation itself, goes unanswered. In relation to the representation itself it would need to be of a kind likely to provide that inducement and such that
"…commonsense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract."
(Wilson J, 238), a statement regarded by the Full Court in Ricochet as providing a practical guide to the drawing of inferences in such cases.
46 In Gould v Vaggelas the representations were of that kind and the inference, that the purchasers were thereby influenced, arose. Evidence to the contrary was considered not to negative the inference of reliance (see 236-7). In Sibley v Grosvenor (1916) 21 CLR 469 a conclusion that a representation had materially affected purchasers in the price they considered paying for land was reached because it was such as to "naturally operate" on their minds (473 and see 481). The Full Court in Ricochet pointed out that the fact the relevant misrepresentation might have had some such effect will not suffice. There would not be the level of certainty necessary to enable an inference to be drawn.
47 In the present case, his Honour was invited to draw the inference that the contravening conduct of Jagar "caused Hanave loss and damage" but considered that the "…direct evidence Burke gave makes the drawing of any such inference inappropriate" and that there was no relevant connexion between the damage Hanave may have suffered and the conduct in question.
48 A statement to the effect that a principal and long-term tenant has been very satisfactory in meeting its lease obligations, which include the payment of rental, cannot in my view be regarded as uninfluential on the mind of a purchaser considering making an offer, even if a purchaser already has an understanding or opinion about their reputation as well established retailers. The statement of fact made not only supports a positive opinion otherwise reached, it adds to it something on a topic known to the landlord. Indeed, it seems likely that his Honour thought that to be the case, since it was only the direct evidence of Mr Burke, referred to above, which was pointed to as rendering a conclusion of inducement impossible. That is to say, it was seen as negativing that inference.
49 It is, in my respectful opinion, difficult to take Mr Burke's evidence as foreclosing the prospect that the statement he had read was only understood to refer to reputation and conveyed nothing in the nature of the landlord's opinion. It is, with respect, to draw too much from a partly unresponsive answer to a question which contains a reference to the words "high quality tenants" without enquiring as to their meaning. The passage of evidence commences, it seems to me, with an attempt to limit Mr Burke's understanding of the words "established retailer" as meaning established at the Leichhardt premises. Mr Burke countered that he understood those words to have a wider meaning and to extend to the general reputation of the retailer, which I take to be the public, including potential customers. The question then put to him, or its purpose, is not entirely clear but seems to amount to no more than an enquiry as to whether he understood the reference to the tenants in the property report likewise to be concerned with their outlet at Leichhardt. The reference in the question to the property report talking about "7 high quality tenants" identified the phrase in question in the property report, but the enquiry which followed was not as to its meaning or his understanding of it. To the answer, that he understood the property report to be talking about the tenants as tenants at Leichhardt, Mr Burke obviously felt the need to add the words "with their broader reputation". In light of his earlier answer it was likely to have been an attempt to reinforce what he had earlier said about an "established retailer" carrying the connotation of public reputation. In my view it cannot be concluded, with any degree of confidence, that Mr Burke was then addressing his understanding of "high quality tenants" and neither the question which followed, nor any other question in cross-examination touched upon that topic. Nor, in my respectful view, is one able to conclude from that passage that Mr Burke attributed no meaning to the words.
50 It was submitted for Jagar that Hanave was itself obliged to present evidence of knowledge and reliance and failed to do so. The submission however overlooks the kind of misrepresentation involved and that a Court would, in the first place, draw such an inference. In any event it would seem to me that Courts ought to be, and no doubt are, cautious in accepting mere assertions of reliance as essentially self-serving: see Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471, 483 and will usually attempt to assess that prospect by reference to objective criteria. This will be so particularly where the misrepresentation is not necessarily likely to be recalled as having had a strong impact. Its message may be more subtle. Here Mr Burke read the report. Even allowing for views as to the creditworthiness of his evidence given at trial, there seems no reason to doubt that it would have conveyed to him what any reasonable reader would apprehend, namely that Barbara's Storehouse was an excellent tenant and that he ought then have no concerns about the figures put forward as rental payments to be made by it.
51 The likelihood that Hanave felt assured about Barbara's Storehouse when it made its offer is strengthened by the further misrepresentation that no incentive payment had been paid to it. The combination of this misstatement of fact and Jagar's assurance about it as a tenant must be taken to have been of significance to any rational prospective purchaser and to operate as influential when considering an investment in the centre, or the price paid for it. His Honour's findings did not require or permit consideration as to whether they together operated as a factor in the purchaser making an offer for the property. Mr Burke had stated in evidence that the actions of Hanave would have been otherwise. In my view, that conclusion is inescapable, regardless of the view taken of his credit. There was no other evidence which would weigh against this conclusion.
52 That leaves for consideration the question of Mr Burke's carelessness, a matter referred to generally by his Honour in connexion with causation. However, once it is accepted that the misrepresentations were effective as a cause of Hanave's entry into the contract, it is no answer that it may have discovered the untruths had Mr Burke undertaken more extensive enquiries (see Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302, 309). Loss suffered by Hanave was caused "by" the conduct of Jagar within the meaning of s 82(1) TPA.