Havyn Pty Ltd v Webster [2005] NSWCA 182 | Case summary

Havyn Pty Ltd v Webster [2005] NSWCA 182 | Case summary | Zoe

[6]

Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 Argy v Blunts & Lane Cove Real Estate Pty Ltd (t/as Blunts of Lane Cove) (1990) 94 ALR 719 Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 Bennett v Stuart (1927) 27 SR(NSW) 317 Butcher v Lachlan Elder Realty Pty Ltd (2004) 79 ALJR 308 Carpenter v McGrath (1996) 40 NSWLR 39 Como Investments Pty Ltd (In liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 41-550 Cowan v Stanhill Estates Pty Ltd (No 2) [1967] VR 641 Delgado v Walker Developments Pty Ltd (1989) NSW ConvR 55-497 Derry v Peek (1889) App Cas 337 Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd [No 2] (1987) 16 FCR 410 Export Credits Ltd v Universal Oil Products Co [1983] 1 WLR 399 Fraser v L O'Malley & Sons Pty Ltd [1975] 2 BPR 9133 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Gogard Pty Ltd v Satnaq Pty Ltd [1999] NSWSC 1283 Gould v Vaggelas (1985) 157 CLR 215 Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545 Harkins v Butcher; Butcher v Lachlan Elders Realty Pty Ltd (2002) 55 NSWLR 558 Harvey v PD (2004) 59 NSWLR 639 Hasanovic v Polistena [1982] NSW ConvR 55-078 Henville v Walker (2001) 206 CLR 459 Horne v Zebra Motor Inn Pty Ltd (Jacobs J, 12 September 1963, unreported) Howe v Smith (1884) 27 Ch D 89 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 James Macara Ltd v Barclay [1944] 2 All ER 31 Kyogle Shire Council v Francis (1988) 13 NSWLR 396 Lubidineuse v Bevanere Pty Ltd (1984) 3 FCR 1 Lucas & Tait Pty Ltd v Victoria Securities Ltd [1975] 2 NSWLR 268 CASES CITED: Mallett v Jones [1959] VR 122 March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Neilsen v Hempston (1986) 65 ALR 302 Nelson v McDonald (Mahoney JA, 27 November 1972, unreported): NLS Pty Ltd v Hughes (1966) 120 CLR 583 O'Brien v Smolonogov (1983) 53 ALR 107 Ockenden v Henly (1858) 120 ER 590 Omar v El-Wakil [2002] 2 P&CR 36 Poort v Development Underwriting (Victoria) Pty Ltd (No 2) [1976] VR 779; [1977] VR 454 (Full Court) Pearlow v Pearlow (1953) 90 CLR 70 Pledge v Roads and Traffic Authority (2004) 205 ALR 56 Potts v Miller (1940) 64 CLR 282 Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd [1935] VLR 114 Redgrave v Hurd (1881) 20 Ch D 1 Schindler v Pigault (1975) 30 P & CR 328 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Shuttleworth v Clews [1910] 1 Ch 176 Smyth v Jessep [1956] VLR 230 Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233 Tambree v Travel Compensation Fund [2004] NSWCA 24 Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359 Toteff v Antonas (1952) 87 CLR 647 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 Universal Corporation v Five Ways Properties Ltd [1978] 3 All ER 1131; [1979] 1 All ER 552 (CA) Wardley v Western Australia (1992) 175 CLR 514 Wilson v Kingsgate Mining Industries [1973] 2 NSWLR 713 Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 Zsadony v Pizer [1955] VLR 496

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C. The primary judge also erred in holding that even if misleading and deceptive conduct were shown, there was no sufficient causative link between the conduct and the purchaser's loss and damage by reason of the failure of the purchaser to take reasonable care for its own interests. (1) The term "by" in s42 invokes the common law practical or common-sense concept of causation (although it is not to be applied rigidly without reference to the terms of the Act). Henville v Walker 206 CLR 459 followed, Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 followed. (2) The law recognises that people can be swayed by several considerations to varying extents; therefore loss or damage is causally connected to a contravention of the Act if the conduct materially contributed to the loss or damage and it is not necessary that the conduct be the sole or dominant cause of the loss. I & L Securities v HTW Valuers (2002) 210 CLR 109 followed, Henville v Walker 206 CLR 459 followed, Como Investments Pty Ltd (In liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 41-550 referred to. (3) A plaintiff's right to relief for loss of which the contravening conduct was a cause does not depend upon him or her having taken reasonable care for his or her own interests; a failure so to take reasonable care is relevant only insofar as it is the operative cause of a severable part of the loss of which the contravention was not a material cause. I & L Securities v HTW Valuers (2002) 210 CLR 109 followed, Henville v Walker (2001) 206 CLR 459 followed. (4) It will be a rare case where the quality of the reliance by an innocent party on a misrepresentation can be treated as so dominant in the causal chain as to properly be regarded as the real and effective cause of the loss, negating the causative effect of the misrepresentation. I & L Securities v HTW Valuers (2002) 210 CLR 109 followed, Henville v Walker 206 CLR 459 followed, Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233 referred to, Neilsen v Hempston (1986) 65 ALR 302 referred to. (5) The onus of establishing that the quality of the reliance negates the causative effect of the conduct, lies on the party in contravention of the Act Henville v Walker 206 CLR 459 at 483 per Gaudron J followed.

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26 MAY 2005 HAVYN PTY LTD v Renata Marina Paola WEBSTER Judgment 1 SANTOW JA: OVERVIEW The appellant purchaser, Havyn Pty Ltd, seeks to recover its forfeited deposit and damages. It relies on what it contends was misleading and deceptive conduct by the vendor, the respondent Ms Webster, in overstating the floor area of a block of flats in a flyer. This was a two-sided selling brochure, issued by the vendor's agent. That alleged conduct preceded the purchaser acquiring the block of six flats at auction under a contract of sale. The vendor terminated that contract because of the purchaser's failure to complete. That failure was not attributable to the alleged misleading and deceptive conduct but was because of difficulties in securing finance. 2 The claimed misrepresentation was to overstate the size of the six flats by an average of around 5%. When the purchaser failed to complete, the vendor terminated the contract and forfeited the purchaser's deposit. The purchaser brought proceedings unsuccessfully for damages for misleading and deceptive conduct, and to recover its deposit. 3 The issues were these: (a) was the vendor entitled to give a Notice to Complete and then terminate for failure to complete; (b) was the representation (as to approximate size of the flats) an actionable misrepresentation either at common law for the tort of deceit or as misleading and deceptive conduct in trade or commerce, within s42 of the Fair Trading Act 1987 (NSW) ("the FTA"); (c) if it was such an actionable misrepresentation, did it occasion loss and damage to the appellant and if so, in what quantum; (d) should the discretion to order forfeiture of the appellant's deposit to be returned pursuant to s55(2A) of the Conveyancing Act 1919 (NSW) have been exercised by requiring it to be returned in full, and (e) how should the costs discretion have been exercised. 4 The decision of the trial judge, Palmer J, was, save as to the deposit and as to the representation being in trade or commerce, in favour of the respondent vendor. The appellant purchaser appeals against that decision insofar as it favours the respondent. The respondent vendor puts in issue those parts of the decision favouring the appellant. Thus the respondent cross-appeals against the trial judge's determination preventing forfeiture of the deposit. There is also a Notice of Contention annexed to the Notice of Cross-appeal dealing with damages and putting in issue the trial judge's finding that the representation was made in trade or commerce.

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· Block of six x two bedroom flats with Panoramic Ocean Views. · 100 metres to Bronte Beach, shops, cafes, park and city buses. · Each flat approximately 63 square metres. · Two lock-up garages. · Well maintained with scope for further improvement. · Unsurpassed opportunity for investor or developer." 9 It is that third representation, that each flat was "approximately 63 square metres", which lies at the heart of these proceedings. After those bullet points, the brochure sets out particulars of the auction and the inspection dates, as well as details of the agent. At the foot of the page was the following small-print statement which I set out in approximately the same reduced print size as in the brochure: "E.&.O.E. The information contained herein given has been supplied to us and we have no reason to doubt its accuracy, however we cannot guarantee it. Accordingly all interested parties should make their own enquiries to verify the information." 10 On the obverse side of the brochure there appeared a sketch-plan showing the layout of an unidentified flat, with certain dimensions marked. These dimensions were only given for the living room (4.5 x 3.5) and the two bedrooms (each, 4.0 x 3.5); no other dimensions were given for other parts of the flat. There was no floor plan of the building itself, or the land upon which it was situated. The dimensions were therefore incomplete so far as the rest of the depicted flat was concerned. 11 Below the sketch plan appeared figures showing the income, outgoings and land value and the agents' details. Then at the foot of the page was another small-print statement which I again set out in approximately the same print-size as the brochure: "All measurements are approximates only. While we trust them to be correct we cannot guarantee them." 12 The measurements contained on the sketch plan had been determined by Mr Torpy simply "pacing out" the bedrooms and living room, and using that method to calculate an approximate size for the units (Affidavit, J Torpy, sworn 13 February 2003, para [4]; Blue, 18). The measurements made by Mr Torpy were the only measurements made available by the vendor to potential purchasers. There was no extant survey plan of the building to be made available for inspection prior to the auction. Nor was it disclosed to the purchaser or its principal that pacing out was the method used. 13 Mr Peter Meyerratken was the principal of the purchaser. He lived in the adjoining property. He had a sum of some $750,000 from the sale of his share in a business, and was looking for a real estate investment. He became interested in purchasing the property for the purpose of refurbishment and resale. He intended to amalgamate the two flats on each floor, such that the property would contain three luxury strata apartments which could be resold at a substantial profit. On 17 September 2002, he inspected the interior of two units in the property when it was "open for inspection" and was given a copy of the brochure by Mr Torpy. Mr Meyerratken gave evidence that he had read the brochure, but he could not recall reading the two warnings at the foot of each page although it was his usual practice to read the whole document. He indicated that he may have cursorily looked at it and concluded that it was a "standard disclaimer" (T, 24.44-57). 14 On 18 September 2002, he returned to the property on his own and took some measurements of the stairwells, in order to calculate the total amount of floor-space on each floor. Mr Meyerratken gave evidence that he relied on the 63m2 in the brochure in order to calculate that amalgamating the stairwell area of each floor with each of the flats on that floor would yield an area of approximately 146m2 per refurbished flat. He did not seek independently to verify the figures given (T, 25.7-47): "Q. Assuming, as it is in accordance with your practice, you read it, you may say that you just regarded that as a standard disclaimer, did you not consider it or would you not ordinarily in your usual practice consider it appropriate to follow the advice given? A. In the situation I didn't see it necessary to follow, to take specific measurements when I have been given a measurement which people are saying, here, no need to doubt the accuracy. I expected it to be, you know, backed up by something that somebody has taken the trouble to get measurements.

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Q. Did you understand at the time the word "approximately" could encompass some significant variation? A. Not significant at all, actually. I would expect that to be within a metre. I don't expect it to be many metres out, but within a metre." 15 Mr Meyerratken then consulted with local real-estate agents as to area values per square metre, and with his friend Mr Bruce Baudinet, who had some experience in property development. He then calculated that the refurbished flats could be resold for approximately $14,000 per square metre, and that refurbishment, interest and other holding costs would be between $1 million and $1.5 million. This allowed him to decide upon, just prior to the auction, a bid price of about $3 million. 16 Ultimately at auction on 19 September 2002, the property was knocked down to Mr Meyerratken for $3,130,000 (the underbidder bid $3,125,000). Contracts were signed and exchanged between the vendor and Mr Meyerratken, with settlement to occur in six weeks on 31 October 2002. Mr Meyerratken paid over a deposit of $313,000. 17 Mr Meyerratken had acquired the appellant company, Havyn Pty Ltd ('Havyn'), incorporated on 17 September 2002, and became its sole director, in order to carry out his proposed redevelopment project. This contract was however signed by Mr Meyerratken with no mention of Havyn. Subsequently, on 8 October 2003, he procured the vendor to agree to enter a new contract for sale with Havyn upon the same terms as the earlier contract. By that second contract he also guaranteed Havyn's obligations. Mr Meyerratken's deposit under the first contract was to be taken to be Havyn's deposit and the date for completion remained the same. I should add that no argument was mounted that Havyn could not rely on the misrepresentation, if such it was, to Mr Meyerratken. Henceforth in this judgment, any reference to 'the purchaser' of the property is a reference to Havyn. 18 When the date for completion arrived on 31 October 2002, the purchaser had been unable to find the purchase price. Therefore, on 1 November 2002, the vendor's solicitors issued a Notice to Complete by 18 November 2002. On 14 November 2002, following a request by Havyn, the vendor agreed to extend the time for completion to 2 December 2002, time being of the essence. This was in consideration of the purchaser agreeing to the release of the deposit forthwith, and to covenant to pay interest on the balance of the purchase price at the rate of $857.54 per day from 31 October to 18 November 2002, and at 20% per annum from 19 November to 2 December 2002. 19 On 21 November 2002, Mr Meyerratken discovered that the area of the flats was substantially less than 63m2. On 29 November 2002, in accordance with his instructions, his solicitor wrote to the vendor's solicitors in the following terms: "We now act for Havyn Pty Limited and have been provided with a copy of Contract for Sale dated 19 September 2002 between your client and our client.

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We await hearing from you." 20 That same day, a caveat was lodged by the purchaser Havyn over the land, claiming an interest as purchaser under the contract for sale. By fax of the same date, the vendor's solicitors responded, refusing to concede that time would not run or the alleged inefficacy of the Notice to Complete. 21 Despite this, an appointment for settlement was made for 2 December 2002, that being the last day under the vendor's extended Notice to Complete. Settlement clerks attended at the appointed time and place, but the purchaser did not have all the requisite cheques. Those attending were then informed by Mr Meyerratken by telephone that settlement would not proceed. It is conceded that at that time Havyn still did not have sufficient funds to complete. 22 Later on 2 December 2002, Mr Meyerratken received a report from his architect, who had gained access to the property through the vendor's solicitors, that the size of every one of the flats was substantially less than 63m2. In fact, the area (including the balcony) for Units 1 to 6 was respectively 60.1m2, 56.2m2, 60m2, 59.8m2, 60.1m2, and 59.8m2. 23 Thus if one took the greatest shortfall, that for flat 2 at 56.2m2 as against 63m2, and which alone of the six flats lacked a balcony, the difference in percentage terms was 10.8% (appeal transcript 22 February 2005 at 58.16). The shortfall differential for the other five flats was marginally below and above 5%. The trial judge applied a valuation of $10,000 per square metre. By including the balconies one got an aggregate shortfall in dollar terms of $220,000 (while excluding balconies, the aggregate shortfall became $401,000). That shortfall may be compared to the successful bid price of Mr Meyerratken of $3,130,000. It represents an average shortfall of just over 5% taking all six flats, and including balconies. (In value terms the shortfall in value using the trial judge's $10,000 per square metre, is around 7%.) 24 Despite having received that information, on 3 December 2002 Mr Meyerratken endeavoured to obtain a further extension of time for completion of the contract, but would not agree to the vendor's condition that Havyn provide releases from any claims founded on alleged misrepresentation. 25 Ultimately, on 4 December 2002 the vendor issued a Notice of Termination of the contract, and on 10 December 2002 requested removal of the caveat. Havyn refused. 26 The vendor then commenced these proceedings on 16 December 2002, seeking: (1) a declaration that the contract had been validly terminated by her, (2) damages for breach of contract, and (3) an order that the caveat be removed. 27 On 23 December 2003, the purchaser filed a cross-claim by which it sought orders pursuant to s72(2) of the FTA varying the contract to allow completion within a reasonable time, together with an abatement of the purchase price by way of compensation for the misrepresentation. In the alternative, the purchaser claimed either (1) orders rescinding the contract and refunding the deposit of $313,000 with damages for expenditure, or (2) a declaration that the vendor was not entitled to terminate together with an order for specific performance. Failing all that, the purchaser alternatively claimed an order for return of the deposit pursuant to s55(2A) of the Conveyancing Act 1919. 28 In the meantime the vendor had entered into a conditional contract to sell the property to the underbidders at the auction for $3 million. On 14 March 2003, by consent of the parties, a motion for expedition was dismissed. The parties agreed for the caveat to be released to allow the vendor to sell the property to the underbidders in consideration of the monies representing the purchaser's deposit being invested on behalf of the parties pending determination of the proceedings. These consent orders were made without prejudice to the rights asserted by Havyn in its cross-claim. The property has since been sold to the underbidders, who have been entered on the folio as registered proprietors. 29 It is apparent that after the consent orders, the vendor's case was still that she had validly terminated the contract on 4 December 2002, and was entitled to damages for breach of contract. The purchaser's case was that since the vendor had no entitlement to terminate she was in continued repudiation up to the date when the consent orders were made effecting a mutual rescission of the contract. Accordingly, although Havyn must be taken to have abandoned any claim for specific relief, it still claimed damages and return of the deposit primarily on the basis that it had an entitlement to rescind. 30 In order to reflect the issues remaining after the consent orders were made, the purchaser filed on 30 March 2004 an Amended Points of Cross-Claim, in which it sought the following relief: (1) a declaration that the vendor had made false and misleading representations as to the size of the units, and in consequence was disentitled from relying on the Notice to Complete and/or the Notice of Termination; (2) return of the deposit of $313,000, because the contract was validly rescinded or alternatively pursuant to s55(2A) of the Conveyancing Act 1919, and (3) damages suffered by the purchaser in reliance on the misrepresentation by the vendor. These appear to have been claimed in tort and pursuant to s72(2) of the FTA. It would seem that damages were claimed under s72(2) rather than s68 because the deposit had not yet been ultimately lost, invested as it was pendent lite, so that there was no complete cause of action under s68. 31 The proceedings ultimately came before Palmer J on 23 March 2004, and occupied four days before his Honour delivered judgment on 26 March 2004. Further orders regarding costs were made on 1 April 2004. 32 In broad terms, the trial judge disposed of the claim and cross-claim by determining that: (a) The vendor had validly terminated the contract on 4 December 2002, and was entitled to damages of at least $130,000 (with further damages to be assessed by a Master); (b) The purchaser was not entitled to damages either in tort or for misleading and deceptive conduct pursuant to s42 of the FTA; (c) The forfeited deposit ought to be refunded pursuant to the discretion conferred by s55(2A) of the Conveyancing Act 1919 as otherwise the vendor would receive a substantial and unmerited windfall; but (d) that order should be stayed until the results of a damages enquiry before the Master was known, since Havyn, as a sole purpose company, might not otherwise have the means to pay any damages as assessed, and (e) Costs of the whole proceedings were to be apportioned, such that each party receive the costs of the issue/s on which it was successful, with the result that the purchaser was to pay 75% of the vendor's costs. 33 Each of these determinations is in some way challenged in the proceedings on appeal. The purchaser has appealed on (a), (b) and (e), which I shall refer to in summary form respectively as the contractual issue, the misleading and deceptive conduct issue and the costs issue. The vendor has cross-appealed with respect to (c) above, which I shall refer to as the deposit issue. The purchaser did not elaborate on its written submissions on (a) above and acknowledged that if it succeeded on (b) and (c), it did not need (a) (appeal transcript 11.33).

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The contractual issue 35 The trial judge determined the contractual issue adversely to the purchaser on the basis that, even if it had a right to rescind the contract for misrepresentation, that misrepresentation had nothing to do with the purchaser's subsequent breach of contract constituted by its inability and failure to complete. It was that breach, not the misrepresentation, which gave rise to the vendor's right to issue a Notice to Complete and ultimately a Notice of Termination. He cited Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359 and Redgrave v Hurd (1881) 20 Ch D 1, to support the conclusion that, where a misrepresentation inducing a contract has not, in a significant respect, caused or contributed to the breach by the other party, the party in breach has no equity enabling it to retain the benefit of the contract without performing its own contractual obligations according to their terms. The trial judge rejected, as unsupported by authority, the contrary proposition urged by the purchaser. This was that a party to a contract who has induced the other party to enter into it by a misrepresentation which has nothing to do with the terms of the contract or how it is to be performed, is disentitled in equity from enforcing the contract according to its terms. This was even when the innocent party elected not to rescind for misrepresentation. The trial judge considered it to be clear from the evidence that Havyn wanted to proceed with the purchase and had elected to affirm the contract, desiring only to use the allegation of misrepresentation to obtain more desirable terms: [40]-[43]. 36 Having found the vendor to be entitled to terminate the contract for breach by the purchaser the trial judge concluded that the loss occasioned to the vendor is so far proved to be "the difference between the sale price to the defendant ($3,130,000) and the sale price to the subsequent purchaser ($3M)." [86], and that the matter should be referred to the Master for an enquiry into "any loss suffered by the Plaintiff in addition to the loss of $130,000": [88]. 37 By Ground 1 of the Notice of Appeal, the purchaser submits that the trial judge erred in finding that the vendor was entitled to give a Notice to Complete the contract on 1 November 2002, or at any time. The purchaser submits that since the vendor induced the contract by misrepresentation, the vendor in equity should be restrained from the unconscientious use of contractual power thereby obtained. Essentially, it is contended that the vendor was not entitled to terminate the contract. It therefore is said to have remained on foot until there was mutual rescission under the consent orders of 14 March 2003. A further incidental consequence of this argument, if successful, would be that the vendor never became entitled to retain the deposit paid by the purchaser, thereby rendering it unnecessary to consider the s55(2A) discretion.

[55]

The misleading and deceptive conduct issue 39 This issue is of central importance on the appeal, and in fact occupied by far the bulk of the hearing time before the trial judge. There were a number of steps in the reasoning of the trial judge to the conclusion that the vendor was not liable for damages for any misleading and deceptive conduct. 40 First, the trial judge considered that it was necessary properly to construe what was the representation relied on as constituting misleading and deceptive conduct. In that regard, he accepted the vendor's submission that the statement "[E]ach flat approximately 63 square metres" could not be viewed in isolation. The real representation conveyed by the brochure had to be ascertained by reading that statement in the context of the whole document (including the disclaimer statements), taking into account the likely representees and the nature and value of the property. Thus, it was not determinative that the area discrepancy of each particular flat from 63m2 was as I have set out at [23] above. Such a discrepancy of that order could not be said to be within the tolerance of the words "approximately 63 square metres". The trial judge held that the ordinary reader of a document about such a property, which was worth some $3 million and would be of interest to investors and developers, would be reasonably expected to read the document closely given that it was the only document which gave any information as to the dimensions of the property. The trial judge, however, concluded (at [60]) that the ordinary reader, reading the whole of the brochure, would understand that "what was being represented was not that the floor area was approximately 63m2, but that that the [vendor] by her agent believed that the area was approximately 63m2 but could not guarantee the accuracy of that figure". 41 Second, the trial judge citing Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82, concluded that in order to show that this representation of belief was misleading or deceptive, the purchaser must demonstrate either that the vendor or her agent did not actually hold that belief or that there was no adequate foundation upon which it could be held. The trial judge held that the purchaser had failed to discharge this onus. In the case of the vendor herself, this was because she did not have personal knowledge of the area of the flats and had reasonable grounds to rely, as she did, upon the experience of her agent Mr Torpy and to believe that his approximation was accurate. In the case of Mr Torpy, this was because there was insufficient evidence to displace his repeated assertion that he honestly believed that the pacing-out method would yield a figure which was "pretty close", the fact that this honest belief was mistaken not being sufficient to render the representation that he held that belief misleading or deceptive. The evidentiary basis for this finding appears to be in the of cross-examination of Mr Torpy (T, 86.33-56), which I set out later in this judgment. 42 The trial judge held that the above conclusion was sufficient to dispose of the purchaser's claim for damages based on misrepresentation, whether founded in tort or on s42 of the FTA. For completeness, however, the trial judge dealt with a number of other issues which had been the subject of argument, and which would arise if he had not concluded that there was no misleading or deceptive conduct. He thus held that, contrary to the vendor's submission, the misrepresentation was made "in trade or commerce" for the purposes of s42. This was said to be because letting out six flats through a managing agent in a business like way since 1988 did constitute the carrying on of a business on the property: Lubidineuse v Bevanere Pty Ltd (1984) 3 FCR 1. 43 The trial judge then held that even if he had found there to be misleading and deceptive conduct (such as if he had held the representation to be one of fact rather than belief), he would have denied relief under the Act on the ground of causation. He accepted the vendor's submission that Mr Meyerratken's reliance upon any misrepresentation was so unreasonable (in not heeding the disclaiming words) as not to be sufficiently causal of loss, and stated: "It would be wrong to grant relief under the Fair Trading Act when it is clear that [the purchaser] has failed to take reasonable care for its own interests and has sought to rely on particular words in the flyer which, although misleading in isolation, do not have that character when viewed in the light of the document as a whole." 44 The trial judge then indicated (at [79]-[81]) the basis upon which damages should be calculated, if he would otherwise have awarded damages. He would have allowed "legal fees and costs and expenses incurred by [Havyn] in furthering the proposed development of the property". He would not have allowed the $65,000 claimed by Mr Meyerratken for services provided to Havyn. The trial judge noted that Havyn had conceded that it did not press its pleaded claim for loss of profit or loss of the chance of profit (T, 115.52-.58). 45 The trial judge's resolution of the misleading and deceptive conduct issue has given rise to a number of grounds of appeal. However, no appeal is brought against the trial judge's rejection of the claim for damages for the tort of deceit. Thus the only cause of action live on appeal is the statutory cause pursuant to the FTA. By Ground 2 of the Notice of Appeal, the purchaser claims the trial judge erred in finding that the representation was not false, misleading or deceptive within the terms of s42 of the FTA. The essence of this submission is that the trial judge was wrong to use the disclaimer to read down an incorrect, express representation so as to regard it as a representation of a belief rather than of fact. This was when there was no basis for the exception by which a representor may rely as belief upon information received from, and sourced to, a third party. 46 By Ground 3, the purchaser claims the trial judge also erred when considering what loss flowed from a misleading and deceptive representation in finding that the purchaser had an obligation at law to take reasonable care for its own interests. It relied on the decision of the High Court in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 in support of the proposition that a defendant who has failed to take care for his own interests is not thereby debarred from recovering compensation for loss or damage in statutory causes of action for misleading or deceptive conduct. 47 In its Notice of Contention, the vendor contends that the decision of the trial judge that the purchaser was not entitled to damages for misleading and deceptive conduct can be supported on a number of grounds which it had unsuccessfully pressed in the court below. First, it submits that the discrepancy in this case is within the permissible tolerance of the expression "approximately 63 square metres". Second, it seeks to reverse the trial judge's finding that the representations were made in trade and commerce. Third, it submits that there is no evidence that the purchaser suffered any loss as a result of the representation, when the brochure is considered as a whole. This was on the somewhat narrow basis that Mr Meyerratken only gave evidence that he would not have bought the property if the units had not been represented to be 63m2 (and gave no evidence of what he would have done if the units had not been represented to be approximately 63m2). Obviously the issues the subject of the Notice of Contention do not arise for determination unless the appeal on the misleading conduct issue is otherwise successful.

[56]

The deposit issue 48 This issue was determined by the trial judge in accordance with the statutory discretion conferred by s55(2A) of the Conveyancing Act, which is in the following terms: (2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon. 49 The trial judge held that although this discretion is very broad, it derives its character from the conscience of equity rather than the strictness of the common law. He then concluded that taking into account the circumstances set out below, forfeiture of the deposit would result in a substantial and unmerited windfall to the vendor and a correspondingly large and unnecessary loss to the purchaser. This was so, even though it was through its fault that the contract for sale was terminated. The circumstances relied on by the trial judge included that: (1) the loss so far proved by the vendor was $130,000 whereas the deposit was double that; (2) if her loss is confined to that sum, her windfall will be $183,000, but if it is more she still has a right to claim damages from the purchaser; (3) the vendor had had the benefit of possession of the property and rentals throughout the whole period up to completion with the underbidder; (4) the vendor had the benefit of the deposit from 14 November 2002 until 14 March 2003 (when the consent orders were made); and (5) the deposit represented a substantial proportion of Mr Meyerratken's assets, forfeiture of which in addition to his expenses would represent to him a severe loss. 50 The trial judge concluded that in these circumstances, the appropriate order was that the deposit be returned, but that the order be stayed until the result of the damages enquiry before the Master was known. This was because a sole-purpose company such as Havyn might not otherwise have the means to pay any additional damages. 51 The vendor challenges this ruling in the Notice of Cross-Appeal, basically on the ground that the trial judge failed to take into account relevant factors and that the factors relied on by him were insufficient to support the exercise of the s55(2A) discretion. In particular, the vendor submits that in considering what is just and equitable for the purposes of s55(2A), regard should have been had to the established and almost universal rule that a 10% deposit of itself cannot be considered to be extravagant or impose an unconscionable burden on the purchaser without some other factor. It was said that if the trial judge's reasoning were correct, almost every case where the damages assessed were less than the amount of the deposit, the forfeiture of the deposit must be categorised as a windfall gain to the vendor, and its return ordered.

[66]

The damages issue 70 It will of course be necessary, in order fully to dispose of the contractual issue, to consider the issues raised by Grounds 4-6 of the Notice of Appeal, which challenge the trial judge's quantification of ascertainable damages sustained by the vendor in consequence of the breach of contract at $130,000, with further damages to be assessed on inquiry by a Master. I observe that much of the difficulty surrounding this whole issue might have been avoided had the vendor properly pleaded her claim for damages for breach of contract in the court below. The claim for damages was only added to the relief sought in the Summons at the commencement of the hearing before the trial judge, who allowed an application to that effect by counsel for the vendor in an ex tempore judgment on 23 March 2004 (Red, 39-40). The basis for the amendment was that the vendor, who had originally only sought declarative relief, would suffer loss if the Court found that the contract was validly terminated but ordered the deposit to be returned pursuant to the discretion conferred by s55(2A) of the Conveyancing Act. The problem, of course, was that neither party was prepared to argue the issue of damages for breach of contract at the hearing before the trial judge. 71 Both the question of a vendor's damages for breach of contract by the purchaser, and the question of a purchaser's claim for return of a forfeited deposit under s55(2A) only arise once it is determined that the contract was validly terminated by the vendor. The questions are interrelated, since a vendor who sues for damages because of a purchaser's failure to complete must give credit for the benefit of a forfeited deposit: Ockenden v Henly (1858) 120 ER 590, at 593; Howe v Smith (1884) 27 Ch D 89, at 100,104-105; Shuttleworth v Clews [1910] 1 Ch 176; Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd [1935] VLR 114, at 124; Mallett v Jones [1959] VR 122, at 132; Cowan v Stanhill Estates Pty Ltd (No 2) [1967] VR 641, at 649; NLS Pty Ltd v Hughes (1966) 120 CLR 583, at 589; Carpenter v McGrath (1996) 40 NSWLR 39, at 45, 62-63. That proposition is also found in cl 9.3.1 of the standard Contract for the Sale of Land (2000 ed.), as used in this case. The deposit, therefore, is to be set off against the damages that flow from the purchaser's failure to complete (though not against amounts that the purchaser must pay independently of any breach). On the other hand, if the vendor does not sue for damages, he or she may effectively retain the benefits received from the contract and the deposit, unless the purchaser brings proceedings under s55(2A) to recover it. 72 That said, there is no rule that a vendor's claim for damages must be determined before a purchaser's s55(2A) application. As Street CJ in Eq (as he then was) stated in Lucas & Tait Pty Ltd v Victoria Securities Ltd [1975] 2 NSWLR 268 at 273: "It is clear that where the court in its discretion refuses specific performance, whether or not it also orders repayment of the deposit under s.55(2A), it will still remain open to the vendor to sue the defaulting purchaser and recover against him whatever damages may be due to the vendor at law in the event of the contract having gone off through the purchaser's breach. The ordinary principles of contract law and of damages stand untouched by this section except in so far as it operates to qualify the ordinary right of a vendor to forfeit and retain a deposit ." [emphasis added] 73 It may be desirable for the damages claim to be quantified first, given that in some cases that process would render the proceedings to recover the deposit otiose (as where the contractual damages assessed exceed the amount of the deposit) but such a course is certainly not mandated. I observe also that in most properly pleaded cases for contractual damages arising out of a purchaser's failure to complete, those damages would be determined as part of the substantive claim for breach of contract. 74 I must say that although it strikes me as unusual and not entirely satisfactory for a vendor faced with a s55(2A) application (even pleaded in the alternative as part of a cross-claim, as here), not to have sought contractual damages in the pleadings by way of early amendment and substantiated by evidence as to the damages actually suffered, that of itself does not answer the questions raised by Grounds 4-6. As I understand the proposition, the purchaser essentially contends that damages should have been left at large pending the inquiry before the Master, there having been insufficient evidence at the hearing for the trial judge to make the findings which he appears to have made. It is said that the trial judge merely assumed that the difference between contract price ($3,130,000) and ultimate sale price to the underbidders ($3,000,000) was the proper measure of a discrete part of the damage sustained by the vendor. It is further said that that assumption was made notwithstanding the purchaser's objection that there may have been material it wished to put to the Court suggesting a failure by the vendor to mitigate its damage, constituted by its conduct in selling the property to the underbidder in the manner it did. One implication in this submission is the issue of why, when the property was sold to the underbidder, it was not sold at the underbid, namely, $3,125,000. 75 The vendor for her part, in written submissions directed to these grounds, noted that the purchaser's own expert witness (Mr Phippen, accepted by Palmer J) assessed the true value of the property at $220,000 less than the price paid (i.e. $2,910,000) and that it was in fact sold for more than that sum. The vendor's submission then states: "There is little point in pursuing that aspect of the damages claim for the difference between the sale price and the true market value where the property was ultimately sold at arms length at a higher price that may be inferred from the valuation adduced in evidence from the Appellant's own expert witness." [Orange, 23 para 32] 76 The vendor in her oral submissions drew attention to affidavit evidence of the ultimate purchaser Mr Anderson (see Blue, 24) that he had bid $3,000,000 at the auction after which only he and Mr Meyerratken remained in the auction. The vendor submitted that it would be otiose to inquire why the property was not in fact sold for $3,125,000, that being the last bid made by Mr Anderson at the auction, since he was only forced up to that position by the presence of Mr Meyerratken. 77 While there is some force in this submission, it does not really address what I consider to be the principal complaint of the purchaser. As foreshadowed above, that complaint is found in Ground 4(b) of the Notice of Appeal, which contends that the trial judge "erred in proceeding to assess the respondent's loss and damage when … the issue should have been referred to a Master for assessment after each party had an opportunity to complete his or her evidence on that issue." By reason of the late application by the vendor to amend the Summons to include a claim for contractual damages, the purchaser had no real opportunity to canvass and adduce the evidence it might have wished to put to the Court on that issue. That it had some evidence bearing on the issue (such as Mr Phippen's report) is not to the point, given that it was effectively surprised by the vendor's claim to amend the Summons in the way described. 78 It seems to me to be tolerably clear, on considering the trial judge's ex tempore judgment on this issue, that counsel for the vendor in making this application was making it on the basis that the issue should be determined on reference to a Master, on terms that the vendor pay the costs of that reference whatever the outcome. The trial judge appeared to accept this: "While I sympathise very strongly with Ms Merkel's [the purchaser's] position, I am of the view that the amendment should be allowed, even so late in the day. That is essentially because if it ever becomes necessary to enquire into the damages which the Plaintiff has suffered by reason of the breach of contract by the Defendant, the evidence relating to that issue will need to be adduced before the Master; it will not need to be dealt with at all in these proceedings." [Red, 40]

[71]

The Misleading and Deceptive Conduct Issue 81 There are two related questions: (1) Was the representation by the vendor (through her agent) as to the size of the units an actionable misrepresentation within the meaning of s42 of the FTA because " misleading and deceptive "; and in particular: (a) was the representation within the tolerance of the word "approximately", such that it was not a misrepresentation; and (b) was the misrepresentation in "trade or commerce" such that a statutory cause of action was capable of arising? (2) If there was a misrepresentation, did it occasion loss and damage to Havyn, and, if so, in what amount? 82 Questions (1) and (2) above respectively correspond to Grounds 2 and 3 of the purchaser's Notice of Appeal. Sub-questions (1)(a) and (b) respectively arise from Grounds 2 and 3 of the vendor's Notice of Contention. It is convenient to deal with the sub-questions first, before turning to the purchaser's challenge to the trial judge's conclusion that the representation avoided being misleading and deceptive conduct on the basis that they were statements of the vendor's belief. Obviously, the issues raised by question (2) will only arise of it is correct that the statements did constitute misleading and deceptive conduct. 83 The contention that the representation was within the tolerance of the word "approximately" can be quickly dismissed. I have earlier set out the percentage shortfall for each of the six flats. At their greatest, flat 2 represented a shortfall in percentage terms of as much as 10.8%. Moreover, the average shortfall for the six flats was around 5%, and this on the measure most favourable to the vendor, namely by including the relevant balconies. The trial judge, applying a valuation of $10,000 per square metre, based on valuation evidence, derived an aggregate shortfall in dollar terms of $220,000 using the most favourable basis of including balconies and $401,000 if one excluded balconies. That compares to the bid price of Mr Meyerratken of $3,130,000. Taking the $220,000 difference, that represented a shortfall in value of around 7%. 84 This shortfall was the direct outcome of measuring area by pacing out the size of units rather than by a proper mode of measurement. Yet nowhere in the flyer, apart from such reliance as can be made on the word "approximately", is there any explanation or even hint that so unreliable a mode of measurement had been adopted. I mention that because it gives the lie to that part of the disclaimer on the front of the flyer, containing the words "we have no reason to doubt the accuracy". There was every reason to doubt the accuracy of the relevant measurements when so casually made. 85 I consider that conclusion holds even when one takes into account the latitude or tolerance implied by the word "approximately". A shortfall in both area and value terms of this order well exceeds any tolerance implied by the word "approximately". 86 Thus far what I have said has concentrated upon the actual representation "each flat approximately 63 square metres". However, the recent decision of the High Court in Butcher v Lachlan Elder Realty Pty Ltd (2004) 79 ALJR 308 emphasises that one cannot look at a representation forming part of a course of conduct in isolation from the character of the transaction and the overall conduct here of the agent. Thus the majority judgment of Gleeson CJ, Hayne and Heydon JJ made specific reference, in the context likewise of a sale of real property utilising a brochure, to the relevance of the disclaimers in relation to a transaction of the character there involved. That purchase, as here, was of an expensive property. Thus at [39] the majority say this: "[39] In applying those principles, it is important that the agent's conduct be viewed as a whole. It is not right to characterise the problem as one of analysing the effect of its "conduct" divorced from "disclaimers" about that "conduct" and divorced from other circumstances which might qualify its character. Everything relevant the agent did up to the time when the purchasers contracted to buy the Rednal land must be taken into account. …" 87 And again at [50] "[50] The Court of Appeal declined to "accord [the disclaimers] decisive significance", but they do have some significance. If the "conduct" of the agent is what a reasonable person in the position of the purchasers, taking into account what they knew, would make of the agent's behaviour, reasonable purchasers would have read the whole document, given its importance, its brevity, and their use of it as the source of instructions to professional advisers. …" 88 When the agent's conduct in Butcher (supra) was viewed as a whole, taking into account disclaimers very similar to those in the present case ("all information contained herein is gathered from sources we believe to be reliable. However, we cannot guarantee it's [sic] accuracy an interested persons should rely on their own inquiries"), there is one crucial difference between that case and this. While in both cases the purchasers were by no means inexperienced in real estate transactions, indeed in Butcher particularly so, in Butcher the representation alleged was a representation, not without some complexity, about title. It concerned the precise location of the boundary of waterfront land and clearly affected value. This was a matter calling for particular expertise, upon which the agent did not hold itself out as possessing research skills or means of independently verifying title details. As the court recognised, title questions, certainly of that kind, as a matter of common experience can be complex both legally and factually. They have to be dealt with by specialists whose skill is outside what suburban real estate agents profess; the survey on the brochure was plainly not made by the agent; and the purchasers must have been aware of that fact (at [41-43]). 89 In contrast, here the representation concerns not title but simply area. There common experience suggests that agents, as lay-people with a knowledge of property, are well able to make an approximate measurement of the area of a flat or flats, using at least a measuring tape. This was not some complex matter calling for a surveyor. 90 Turning to the effect of the disclaimers on the representation here made, so far as they throw any light on the tolerance implied by the word "approximately", I begin with the disclaimer in smaller print than the earlier representation. It was at the foot of the first page of the flyer. It appeared in approximately the size below and reads as follows: "E.&.O.E. The information contained herein given has been supplied to us and we have no reason to doubt its accuracy, however we cannot guarantee it. Accordingly all interested parties should make their own enquiries to verify the information." 91 What is immediately apparent is that the relevant information here had not been supplied to the agent but was the product of the agent's own casual pacing out of the area. How haphazard the measurement was is brought home at paragraph 4 of the agent Mr Torpy's affidavit of 13 February 2003 where he says: "I provided the measurement of 63 square metres by pacing out one of the front units. I believe that I reached an approximate size for the units by this method. I overlooked the fact that one of those units did not have a balcony. I then also drew a rough unit layout which was improved on by the printer". 92 In cross-examination that casualness becomes even more apparent: "Q. You've said that you worked out the figure of approximately 63 square metres, by pacing out one of the units, that's correct isn't it? A. Correct.

[80]

Q. Yes, and if you leave the balconies out, it's more like 56 square metres, isn't it? A. I believe so." (Black T, 86.17-87.3) 93 The passage of cross-examination above and the earlier statement from the affidavit not only negates the proposition that the information was supplied to the agent, but also renders that part of the disclaimer inapplicable by way of qualification to what is earlier stated; it also negates the proposition immediately following in the disclaimer that "we have no reason to doubt its accuracy". 94 There was of course every reason to doubt the accuracy of the earlier measurement. What follows in the disclaimer about not guaranteeing the information and that "all interested parties should make their own enquiries to verify the information" is therefore itself introduced on a misleading basis. This was in two respects. First, it was affirmed that those providing it had no reason to doubt the accuracy of the information, and second, it had been given to the agents, rather than represented the agents' own work. In those circumstances, on the principles in Butcher, looking at the totality of the conduct it could not be said that the remainder of that part of the disclaimer provided any justification for giving greater latitude or tolerance to the earlier representation that each flat was "approximately 63 square metres". 95 I should briefly refer to the disclaimer on the back of the flyer. This follows the measurements of the two bedrooms and the living room but omits any measurement of the bathroom, balcony and kitchen as well as the main entry. That disclaimer is "all measurements are approximate only. While we trust them to be correct we cannot guarantee them". 96 Again, given the way in which the agent made the measurements, any reasonable person in the agent's position should have appreciated that they could not be correct, so the agent could hardly "trust them to be correct". Therefore, the statement "we cannot guarantee them" could not assist the vendor either, on whose behalf the flyer was issued, in negating the earlier representation on the front of the flyer. 97 Before turning to whether the trial judge was in error in concluding that the statements would be understood as matters of belief rather than actuality, I need briefly to consider the sub-question under (b) above. This is whether the representation was in "trade or commerce" such that a statutory cause of action was capable of arising. 98 Essentially the contention made by the respondent is that sale of the property was a sale of a capital asset which the plaintiff had inherited. Relying upon O'Brien v Smolonogov (1983) 53 ALR 107 it is contended that the misrepresentations were therefore not made in trade or commerce because the sale was not part of a business activity. 99 The trial judge correctly rejected that submission for the reasons stated in his judgment at [68-71]: "[68] Ms Merkel distinguishes O'Brien on the ground that here the property was used for a business activity, namely, the letting out of the flats for the purpose of deriving an income, and that the business activity was carried on in a systematic and businesslike way by the Plaintiff through managing agents. Mr Tregenza responds that deriving income from renting out property is not carrying on a business; it is merely an incident of owning property.

[90]

[65] This finding as to the nature and quality of the representation in the flyer is sufficient to dispose of the Defendant's claim based upon misrepresentation, whether founded in tort or upon s 42 FTA." 102 With respect, the fundamental difficulty with this reasoning is that in fact there was no adequate foundation upon which Mr Torpy, knowing how he had so crudely estimated the dimensions of only part of one flat, could have had a rational belief that each flat was approximately 63 square metres in area. Nor was there any basis for the purchaser understanding that what the agent's conduct conveyed in making the representation he did, was merely his subjective belief as to the measurement being approximately correct. In the words of the majority judgment in Butcher at [50], the question remains "What a reasonable person in the position of the purchasers, taking into account what they knew, would make of the agents behaviour". Here, reasonable purchasers would have read the whole document and assumed the following: (a) the information came from the vendor and not the agent; (b) the method of measurement used would be such as was reliable enough to produce an approximate correspondence between the measurement made and the actual position, with a degree of tolerance no greater than implied by the word "approximately", so that (c) such purchasers, acting reasonably, would have had no appreciation that the method actually used was that here employed, namely by pacing out the approximate dimensions of only three rooms of one flat thereby producing an average error per flat in value terms of around 7% and in area terms of around 5%. 103 The trial judge correctly identified that the purchaser had to prove either that the vendor or her agent did not actually hold the belief that the figure of 63m2 was approximately accurate or that there was no adequate foundation upon which that belief could be held, in the latter case citing Global Sportsman Pty Ltd v Mirror Newspapers Ltd (supra) at 88: "A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind . If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s52(1) of the Act. Compare Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) 47 ALR 114.

[94]

Damages for misleading conduct 108 Having concluded that the representations in the brochure did amount to misleading and deceptive conduct for the purposes of s42 of the FTA, it is necessary to consider what flows from that in terms of the damages claim made by Havyn pursuant to s72(2) of that Act. This issue corresponds to Notice of Appeal Ground 3 and the Notice of Contention Ground 4. Havyn's Amended Points of Cross-Claim (Red, 24) particularised three heads of damage, which I paraphrase as follows: (1) If the notice of termination by the vendor was valid and effective (as I have found it was) loss of the forfeited deposit in the amount of $313,000; (2) Expenditure incurred for the purpose of effecting the development for which Havyn intended to purchase the property: (a) Legal fees including Trust Company set up, conveyancing fees, legal advice regarding Town Planning, Surveyor - $50,915.77; (b) Financing fees - $41,823.23; (c) Reasonable compensation to Mr Peter Meyerratken for services provided to Havyn. (3) Loss of the chance of profit of between $1,556,930 and $1,330,655 on re-sale of the refurbished units. 109 I have previously noted that Havyn expressly abandoned any claim for damages for loss of profits. Its damages claim therefore resolves into a claim essentially for wasted expenditure and a claim for return of the deposit. That damages claim was based both on the tort of deceit and under the FTA, although as I have previously said only the statutory cause of action remained live on appeal. 110 Although the purchaser seeks in its Notice of Appeal orders referring the matter to the Master for enquiry and assessment of the loss and damage suffered by it in consequence of its reliance upon the misrepresentation, such relief does not appear ever to have been sought in the proceedings in the Court below, either in its original or amended Points of Cross-Claim. Rather, what it sought was "damages suffered in consequence of the cross-claimant's reliance on the misrepresentation by the plaintiff/cross-defendant." Although it is a not unusual practice in the Equity Division for the assessment of damages to be performed by the Master, the trial judge does not seem to have contemplated taking that course. He made findings (at paras [79]-[81]) as to the damages which he would have awarded had he concluded that the vendor was liable for misrepresentation, and that the misrepresentation was causative of loss: "79 The Defendant claims as damages from misrepresentation, either in tort or under the Fair Trading Act, legal fees and costs and expenses incurred by it in furthering its proposed development of the property. Included in these expenses is an amount of $65,000 in respect of "reasonable remuneration" to Mr Meyerratken for services provided to the Defendant. 80 If I had concluded that the Plaintiff was liable in damages for misrepresentation, I would have awarded these costs and expenses except for the amount of $65,000 for Mr Meyerratken's services. Mr Meyerratken had no experience as a developer and he did not give up any remunerated work to investigate this opportunity to invest his capital. The Defendant had no money to pay him any remuneration except out of the profits of this venture and he said that he regarded his "remuneration" as part of the profits of the venture.

[99]

(a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Supreme Court thinks fit, to have been void from its beginning or at all times on and after such date before the date on which the order is made as is specified in the order, (b) an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified, (c) an order refusing to enforce any or all of the provisions of such a contract or arrangement, (d) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage, (e) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage, (f) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at the person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage, (g) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at the person's own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage, and (h) an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that: (i) varies, or has the effect of varying, the first-mentioned instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first-mentioned instrument." 115 It has been observed that this section provides a "remedial smorgasbord" (Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 366 per Mason P). This is for a judge to consider as a matter of judicial discretion in fashioning the best remedy to compensate the injured plaintiff according to the justice of the case. It is clear that to the extent that an order can be made under s72(2) FTA (s87 TPA) for the payment of compensation, this overlaps with s68 FTA (s82 TPA). The difference between the two sections is that under s68 FTA (s82 TPA) a cause of action only arises when actual loss or damage has been suffered, whereas under s72(2) FTA (s87 TPA) it also arises when loss or damage is likely to be suffered: Wardley v Western Australia (1992) 175 CLR 514. 116 Whether an action is brought under s68 FTA (s82 TPA) or s72 FTA (s87 TPA), it is still necessary to show that the loss or damage claimed was caused by the contravention of the statute. The relevant question is, therefore, whether the innocent person has suffered loss or damage "by" conduct of the contravening party. Before considering the resolution of this question on the facts of this case, it is useful to set out a number of propositions derived from recent High Court authority in this area (principally Henville v Walker (2001) 206 CLR 459 and I & L Securities v HTW Valuers (supra)) on the proper approach to this question: (a) The term "by" invokes the "common law practical or common-sense concept of causation" (cf March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506), except insofar as that is expressly or impliedly modified or supplemented by the provisions of the Act: Wardley Australia Ltd v Western Australia (supra) at 525 per Mason CJ, Dawson, Gaudron & McHugh JJ; Henville v Walker (supra) at 480 per Gaudron J, at 489 per McHugh J (Gummow J agreeing). (b) The common law concept of causation is not, however, to be applied rigidly without reference to the terms or objects of the Act. Nor is the measure of relief available under s82 to be confined by analogy with actions in contract or in tort: Marks v GIO Australia Holdings Ltd (supra) at 510 per McHugh, Hayne & Callinan JJ, at 528 per Gummow J (the width of the potential application of s82 points against a narrow inflexible construction); Henville v Walker at 470 per Gleeson CJ, at 482 per Gaudron J, at 489-90 per McHugh J; cf Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd [No 2] (1987) 16 FCR 410 at 419 per Gummow J. (c) Causation is a question of fact to be determined by reference to common sense and experience, and one upon which policy considerations and value judgments necessarily enter: March v Stramare (E & MH) Pty Ltd (supra). In that respect, certainly in cases of complexity which warrant this (Harvey v PD (2004) 59 NSWLR 639 at 671 per Spigelman CJ) and perhaps more generally, a two-stage test of causation is to be applied in which the Court considers (1) whether factually the conduct in question is a historical cause of the damage, and (2) if so, whether normatively the defendant ought to be held legally responsible for that damage: see in the fair trading context Tambree v Travel Compensation Fund [2004] NSWCA 24; in other contexts, Pledge v Roads and Traffic Authority (2004) 205 ALR 56 at 59 per Hayne J (Kirby J concurring). The law looks at what influences the actions of parties, acknowledging that people can be swayed by several considerations to varying extents, rather than considering cause and effect in mathematical or philosophical terms: Como Investments Pty Ltd (In liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 41-550 at 43,619; Henville v Walker at 494 per McHugh J. (d) Loss or damage is causally connected to a contravention of the Act if the conduct materially contributed to the loss or damage. It is not necessary that the conduct be the sole, principal or dominant cause (and, subject to (f) below, causation is satisfied even if, without more, the contravention would not have brought about the loss): I & L Securities v HTW Valuers (supra) at 121-2 per Gleeson CJ, at 128-9 per Gaudron, Gummow & Hayne JJ; Henville v Walker at 469 per Gleeson CJ, at 480 per Gaudron J, at 493-4 per McHugh J, at 508-9 per Hayne J; cf Gould v Vaggelas (1985) 157 CLR 215 at 236 per Wilson J, at 250-1 per Brennan J. (e) In the context of s52, in the form of misleading conduct constituted by misrepresentation, acts done by the representee in reliance upon the misrepresentation amount to a sufficient connexion to satisfy the concept of causation: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 348 per Mason CJ, Dawson, Toohey and Gaudron JJ. (f) It may be that, whilst the facts constituting the contravention are, with other causes, necessary preconditions of the "loss or damage", in the circumstances of the particular case it is those other causes which are properly to be treated as the real, essential, substantial, direct, or effective cause of the loss or damage: Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd [No 2] (supra) at 419 per Gummow J. Such a case may come to the point where the applicant's own conduct is so dominant in the causal chain as to be properly regarded as the real or effective cause (see Argy v Blunts & Lane Cove Real Estate Pty Ltd (t/as Blunts of Lane Cove) (1990) 94 ALR 719 at 744 per Hill J), though I observe that this seems to amount to a finding that there was no actual reliance on the conduct, such that it did not act as an inducement to the innocent party to take, or refrain from taking, steps giving rise to damage. (g) Causation does not have to be established by direct evidence of the part the relevant conduct played. The Court may by inference determine the effect which a representation is taken to have had: Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545 (Federal Court of Australia, Full Court) at 555-6 per Kiefel J. Such an inference may arise where a representation operated as an inducement in circumstances where it was materially likely to induce the representee to enter into a contract and the person actually enters the contract: Gould v Vaggelas (supra) at 236 per Wilson J. (h) For the purposes of s82, a person who has contravened the Act is liable for all of the indivisible loss of another that is attributable to the contravention. The Court cannot apportion the loss or damage suffered by the plaintiff in accordance with the parties' culpability. It is only where some severable portion of the whole loss is not causally connected with the contravention (in the sense that the contravention did not materially contribute to it) that that loss will not be recoverable under s82. Such cases are likely to be "exceptional" or "rare": Henville v Walker; I & L Securities v HTW Valuers at 117, 121-2 per Gleeson CJ, at 126 per Gaudron, Gummow & Hayne JJ, at 137-8, 141 per McHugh J, at 177-8 per Callinan J. (i) There is nothing in s82, in other provisions of the Act or in the policy of the Act to suggest that a plaintiff's right to relief for loss of which the contravening conduct was a cause depends in any way on him or her having taken reasonable care for his or her own interests. Such an unreasonable failure to take care for one's own interests is relevant only insofar as it is the operative cause of a severable part of the loss to which the contravention did not materially contribute: Henville v Walker at 468 per Gleeson CJ ("the purpose of the legislation is not restricted to the protection of the careful or the astute"); I & L Securities v HTW Valuers at 121 per Gleeson CJ, at 126-130 per Gaudron, Gummow and Hayne JJ, at 138 per McHugh J, at 178 per Callinan J; cf Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233 at 240-241 (Full Court, Federal Court of Australia); Neilsen v Hempston (1986) 65 ALR 302 at 309 (Pincus J). (j) It is for the person whose contravening conduct materially contributed to the loss or damage to prove that some component of that loss or damage is referable only to some act or event other than his or her contravention: Henville v Walker per Gaudron J at 483. 117 In terms of the scope of recovery of monetary compensation pursuant to ss68 or 72(2) FTA (ss82 or s87 TPA), the following propositions emerge from the authorities (significantly Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 and Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1): (a) Once causation is established, the measure of relief available under s82 is not to be confined by analogy to breach of contract, tort or equitable remedies (the width of the potential application of s82 points against a narrow inflexible construction): Murphy v Overton Investments Pty Ltd (supra) at 407 per curiam; Marks v GIO (supra) at 509 per McHugh, Hayne & Callinan JJ, at 528 per Gummow J; Gates v City Mutual Life Assurance Society Ltd at 14, per Mason, Wilson & Dawson JJ; Wardley Australia Ltd v Western Australia at 526; (b) Although often the amount of loss or damage caused by a contravention of s52 for misrepresentation will coincide with what would have been awarded in an action for deceit, the question is what damage flowed from (in the sense of being caused by) the contravention: Marks v GIO at 512 [41] per McHugh, Hayne & Callinan JJ. (c) It is necessary to identify the detriment which is said to be the loss or damage which has occurred (s82) or which is likely to occur (s87): Wardley at 526-532 per Mason CJ, Dawson, Gaudron & McHugh JJ; Murphy v Overton Investments (supra) at 407-8 [46] per curiam. The language of the statute does not support any assumption that loss in this context should be necessarily singular, or be incurred either on capital account or on revenue account: Murphy v Overton Investments at 408 per curiam. (d) Economic loss caused by a contravention of the Act may take a variety of forms: Wardley at 527 per Mason CJ, Dawson, Gaudron & McHugh JJ. But where it is caused by misleading or deceptive conduct, it is central that the plaintiff has sustained a prejudice or disadvantage as a result of altering his or her position under the inducement of the misleading conduct:; Marks v GIO at 513-4 per McHugh, Hayne & Callinan JJ. (e) Such loss is usually quantified by comparing the value of what was acquired (based on the price freely contracting fully informed parties would have offered and accepted for it) with what was paid, in order to assess whether the party misled could have acted in some other way (or refrained from acting) which would have resulted in him or her obtaining greater benefit or incurring less detriment: Marks v GIO at 514-5 per McHugh, Hayne & Callinan JJ. Detriment in this connexion refers to ascertainable detriment actually sustained, not merely the detriment of having entered into the contract, because risk of loss is not itself a category of loss unless and until that risk becomes ascertained or ascertainable; Wardley at 527-8 per Mason CJ, Dawson, Gaudron & McHugh JJ; Murphy v Overton Investments at 407-8 [46]. (f) Thus the loss can be described as akin to "reliance loss", and the measure of damages is that which applies in relation to torts (especially deceit and negligent misstatement), although it is the plain words of the statute which are ultimately determinative and it should not be assumed that the common law rules apply to all claims for relief under the Act: Gates at 13 per Mason, Wilson & Dawson JJ, Murphy v Overton Investments at 403, 407 per curiam. (For the common law principles on damages for misrepresentation, see Potts v Miller (1940) 64 CLR 282 and Toteff v Antonas (1952) 87 CLR 647 at 650-1 per Dixon J, and the cases therein cited.) (g) A measure of damages for reliance loss will generally not include damages for loss of an expectation or profits, unless it be shown, for example, that reliance has deprived the innocent party of the opportunity of entering into a different contract in respect of which he would have made a profit: Gates at 13 per Mason, Wilson & Dawson JJ; cf Kyogle Shire Council v Francis (1988) 13 NSWLR 396, at 413-14 per Mahoney JA, at 417-18 per Clarke JA; see also Sellars v Adelaide Petroleum NL (supra) (standard of proof for lost opportunity). (h) The measure of damages may vary depending upon whether the innocent party elects to affirm or rescind the contract, as it affects the terms of the comparison of what was acquired with what was paid for it: cf, eg Argy v Blunts & Lane Cove Real Estate Pty Ltd (t/as Blunts of Lane Cove) (supra) at 749-756. It is, however worth repeating that in all cases, it depends upon proper identification of the relevant loss or damage actually sustained and the application of the Act to compensate for that loss. 118 Once these principles are appreciated it is readily apparent how Havyn's claim for damages for misleading and deceptive conduct should be resolved. 119 It was clear from the evidence that the misrepresentation induced Mr Meyerratken and by extension Havyn to purchase the property. In his affidavit, sworn 6 June 2003, Mr Meyerratken deposed to the following: "Had I been aware that the area of each flat was smaller than as represented and that in total there would be 42 square metres less available to be sold after refurbishment and conversion to strata title I would have reduced my profit projections by about $588,000. I would therefore determined that the amount that I should bid for the property would be considerably less than $3,000,000." [sic] 120 Apart from that evidence, this would have been a fair inference objectively to derive from Havyn having entered into the contract where a material representation which was materially likely to have such an inducing effect had been made: Gould v Vaggelas. The representation was used by Mr Meyerratken as an essential input in calculating the amount he should bid for the property. Had it not been made, he would not have bid as much as he did. Had he not bid as much as he did, he would in all probability not have been successful at auction. Had he not been successful at auction, he would not have incurred the losses particularised above. 121 As I have previously stated, the trial judge held that if he had found there to be a misrepresentation he would not have found there to be a sufficient causal link between the conduct and Havyn's loss and damage on the basis that Havyn "has failed to take reasonable care for its own interests and has sought to rely on particular words of the flyer which, although misleading in isolation, do not have that character when viewed in the light of the document as a whole." Apart from this factor it seems the trial judge would have found the test of causation satisfied and would have awarded Havyn its wasted expenditure apart from the claim for reasonable remuneration to Mr Meyerratken for services rendered to Havyn. 122 With great respect to his Honour, I consider that the approach he took to the issue of causation disclosed an error of law which led him astray on this issue. That error lay in elevating the improvident conduct of Mr Meyerratken to a cause of Havyn's loss to the exclusion of any causative influence of the misrepresentation. That indeed was the error identified by the High Court in the I & L Securities case. Where a misrepresentation is in fact relied upon by an innocent party to induce him or her to enter a contract it is, with respect, difficult to see how that very reliance can be treated as cancelling out the causative effect of the misrepresentation because of some supposed carelessness by the party in so relying. The law recognises that multiple factors may have a causative influence in bringing about a person's decision to act in a particular way, and does not require the conduct of the defendant to be the sole or even the principal cause of the loss. Although a misrepresentation alone has no causative effect in the absence of some action being taken in reliance upon it, for that reliance (or the unreasonableness of it) to be taken as the cause of the loss requires a finding that it is so significant, essential, direct or effective a cause as to negate entirely the materiality of the causative influence of the misrepresentation. It will be a rare case indeed where the quality of the reliance is such that it can in that way be regarded as so dominant in the causal chain as to be properly regarded as the real or effective cause of the loss. The onus of establishing that it should be so regarded lies on the contravening party. The vendor did not discharge this onus in the present case. 123 The above conclusion disposes of the issue of causation and damages so far as relevant on the appeal, no challenge being mounted by the vendor by way of cross-appeal to the specification by the trial judge of what damages he would have awarded if he were wrong on causation. In Ground 4 of the Notice of Contention annexed to its Notice of Cross-appeal, the vendor merely seeks to affirm the decision of the trial judge on the basis that "the Appellant did not suffer loss as a result of the representations in the brochure when the brochure is considered as a whole". This can be taken to be a re-agitation of the argument mounted at trial that the purchaser was so reckless in accepting the representations that the vendor's conduct ought not be regarded as the real or effective cause of the loss (see also the transcript on appeal, T, 73-4). That is a proposition I would not accept. 124 In particular, the vendor did not put in issue whether the particular heads of damage claimed by the purchaser, being the lost expenditure and deposit, were occasioned "by" the conduct of the vendor, or whether they were properly to be regarded as caused by the purchaser's own breach of contract. The approach of the court has always been to decide the issues joined before it by the parties and not merely to entertain questions of academic interest which have not been litigated, either in the court below or on appeal. It is therefore unnecessary to consider the considerable intricacies that might have arisen if an analysis upon those lines had been suggested. It must remain for another day to consider whether an innocent representee who affirms a contract instead of rescinding it, and then itself breaches the contract, so that the misrepresenting party (who is in contravention of the TPA or FTA) validly terminates the contract, suffers loss "by" his own breach or whether in a normative sense, responsibility for that loss should still be laid at the door of the party who contravened the statute. This would be on the basis that, taking normative considerations into account including the fact that but for the misrepresentation the purchaser would not have acquired the property (at least for the price he paid), the expenses of doing so were still occasioned by the misrepresentation.

[101]

The Deposit Issue 126 The relevant question here is whether the trial judge erred in ordering the return of the deposit pursuant to s55(2A) of the Conveyancing Act 1919. This corresponds to Ground 1 of the Notice of Cross-Appeal. Section 55(2A) is in the following terms: "In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of the deposit with or without interest thereon." [emphasis added] 127 It is to be noted that there have been said to be two limbs to s55(2A), the first being in those cases where the court refuses to grant specific performance of a contract on the vendor's suit, and the second being "in any proceeding for the return of a deposit." 128 It is important to appreciate at the outset, that what is here challenged is a discretionary decision of a judge at first instance. It is not necessary to multiply authorities by citing the very many cases warning of the restraint which must be exercised by an appellate tribunal in such cases. An appellate court is not entitled to reverse a discretionary decision merely because it would have decided the matter differently, and may only substitute its own judgment for that of the court below if it is clearly satisfied that the judgment was erroneous: Lovell v Lovell (1950) 81 CLR 513 at 532; Pearlow v Pearlow (1953) 90 CLR 70 at 76 per Dixon CJ. It must be shown that the discretion has miscarried, whether because the trial judge acted on an incorrect principle of law, failed to take into account relevant considerations, took into account irrelevant considerations, made some relevant error of fact or reached a result that is plainly unreasonable or unjust. 129 Such indeed is charged by the remaining grounds in the Notice of Cross-Appeal. In the present case, the cross-appellant vendor primarily submits that the trial judge erred in the exercise of his discretion by taking into account the mere fact that forfeiture of the deposit would result in a substantial and unmerited windfall to the vendor, and thus failing to have regard to the contractual obligations freely undertaken by both parties. The gravamen of the submission is that it is not unjust and inequitable for a vendor who has terminated a contract and forfeited the deposit according to its contractual rights, to retain the deposit unless special or exceptional circumstances pertain. So understood, the submission seems to me to raise more issues than merely whether the trial judge considered appropriate factors in the exercise of his discretion; it also challenges the correctness of the principle of law applied by the trial judge in formulating the scope of that discretion. In addition, the vendor enumerated a number of other grounds of appeal to which I will later return, as necessary. 130 It is logical first to consider the scope of the discretion conferred by s55(2A) to return a deposit. Before doing so, it is instructive to recall the basic function of a deposit, and the basic principles at common law and in equity pertaining to its forfeiture. A deposit is primarily an earnest of performance. As Fry LJ explained in Howe v Smith (supra) at 101-102, the practice of giving something to signify the conclusion of the contract (to be repaid or redelivered on completion), was of great antiquity in the earliest legal systems. Moreover, the character of an earnest was not lost because the same thing might also constitute part-payment of the purchase price. The contract in Howe v Smith stated expressly that the money was paid as a deposit and in part payment of the purchase money, which Fry LJ interpreted as declaring that "in the event of the purchaser making default the money is to be forfeited, and that in the event of payment of the purchase being completed the sum is to be taken in part payment." (at 102). 131 The vendor's right to retain the deposit upon default is of ancient origin; so much so that by the time of Howe v Smith, it had been established that express provision to the contrary is required before the vendor's right to retain a deposit will not be implied into a contract. That right to retain the deposit is a right at law, and today is understood as resting upon the mutual intention of the parties to the contract. The common law would never have doubted the justice of the vendor retaining the deposit, even though it exceeded the measure of the vendor's true loss. 132 Equity took the view that since the intention of the parties was that the money be an earnest of due performance by the payer, if the contract was terminated for his default, there was no equity in the payer to recover the deposit thus properly forfeited at law, as long as it was not penal. Thus, although there is a well-established equitable jurisdiction to relieve against forfeiture of part-payments, that jurisdiction insofar as it applied to deposits only extended to relief against forfeiture of amounts in excess of a "reasonable deposit": see Meagher, Gummow & Lehane, Equity: Doctrines & Remedies (4th ed) at 18-130. This principle prompted the Privy Council (Jamaica) to declare that an attempt by the vendor to retain a sum in excess of the customary deposit of 10% of the purchase price as a forfeitable deposit will require special circumstances showing why it should not be considered "penal": Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573. 133 In taking this approach, equity effectively recognised that deposits, by virtue of their dual character, are in a sui generis category to which the general equitable doctrines of relief against penalties or forfeiture of part-payments do not precisely apply. 134 It would, for example, seem incongruous to apply principles pertaining to relief against penalties (whether the jurisdiction was based in common law or in equity) as the basis for recovery of a deposit since for a sum to be classed as a penalty, it must be payable on breach of contract (cf Export Credits Ltd v Universal Oil Products Co [1983] 1 WLR 399 at 402 per Lord Roskill). A deposit, by contrast, is payable in performance of a contractual obligation antecedent to any breach. It is difficult then to see how a provision for retention of a deposit can in any way be considered a penalty clause enlivening the jurisdiction of either the common law or equity to relieve against it. (I should add for completeness, that the distinction between penalties and genuine liquidated damages clauses may still have some relevance as to whether the deposit can in fact be considered a genuine 'earnest' of performance though that is not to say that the principle will be applied in the same way in the case of deposits). In any case, even were a deposit to be regarded as a penalty, as Lord Browne-Wilkinson pointed out in Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd (supra) at 578, "ancient law has established that the forfeiture of such a deposit (customarily 10 per cent of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract." 135 Similarly, equitable principles of relief against forfeiture have no precise application if the parties, by their contract, self-evidently intend the deposit to become the property of the vendor, as an earnest of performance. How can it be said in such cases that the purchaser has forfeited anything in respect of the payment of the deposit, as distinct from the forfeiture of an equitable estate or interest in property upon termination (being the distinction remarked on by Lord Hoffmann in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 at 520)? I note that in cases falling into the latter class where the purchaser seeks relief against the forfeiture of a proprietary interest (rather than of monies paid under the contract), the Court in exercising that jurisdiction may order the deposit to be returned (e.g., where it is inappropriate or impossible to order specific performance of the revived contract). But that exception notwithstanding, the jurisdiction of a court of equity to order the return of a forfeited deposit is not to be seen as precisely falling within the jurisdiction to relieve against forfeiture. 136 That is true unless it be correct to regard that jurisdiction as encompassing relief against a "penal" deposit which is in excess of a reasonable earnest of performance and in excess of a genuine pre-estimate of loss, as was allowed in Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd (supra). But if so, that kind of adaptation rather tends to reinforce the proposition that deposits are to be considered to be in a sui generis category. In Workers Trust, the forfeited deposit at issue was 25% of the purchase price, and the Privy Council ordered its return less a sum representing what the vendor Bank was entitled to deduct as its real loss. The Privy Council relieved against the forfeiture of the deposit on the basis that it was "penal" in nature, as evidenced by the fact that it was much larger than the customary 10%. Likewise in Smyth v Jessep [1956] VLR 230, Monahan J ordered the return of a deposit equivalent to 40% of the purchase price by holding the sum to be penal in nature, such that when the forfeiture provision in the contract was invoked there arose an equity of restitution operating in favour of the purchaser by reason of an element of unconscionable conduct of the vendor in both stipulating for an "extravagant" deposit at the time of contracting and seeking to retain it at the time of breach and termination. 137 The purpose of the foregoing discussion is to show that there is no jurisdiction in common law or in equity to relieve against the forfeiture of a reasonable deposit (such as the customary 10%). Such a remedy was created by s55(2A) of the Conveyancing Act which, insofar as it allows for the recovery of a properly forfeited 10% deposit, creates a statutory jurisdiction hitherto unknown to courts of equity. Section 55(2A) was introduced by the Conveyancing (Amendment) Act 1930 (No 44), apparently to bring the NSW statute into line with the Law of Property Act 1925 (UK), s49(1) which was in almost identical terms, and which had been incorporated into the Victorian statute in 1928. 138 Notwithstanding the apparent practice in New South Wales to treat s55(2A) as filling the gap in the general law's jurisdiction to relieve against penalties and forfeiture, there are in the terms of the section no limiting words which might confine the court's discretion to order the return of a deposit only on some ground as might otherwise have enlivened that jurisdiction. Under s55(2A), the court may order the deposit to be returned "if it thinks fit". In considering the boundaries of that statutory jurisdiction, courts should pay attention to the words of the section. They should avoid the temptation to confine the jurisdiction by analogy to the equitable jurisdictions of relief against penalties and forfeiture which, as appears from the foregoing discussion, cannot be regarded as precisely applicable to suits for the recovery of deposits (even "penal" deposits) in any case. In considering the ambit of the words of the statute, I would agree with the comments of Young J (as his Honour then was) in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 that "although the Court does not lay down any 'standard test', it is clear that the discretion to be exercised is that of a collegiate court and not at the whim of an individual judge" (at 15,202). To that extent, although the discretion must be exercised according to the facts of each individual case, the previous decisions of judges of the Court do provide guidance. 139 Prior to the inclusion of s55(2A), it was accepted that the purpose of s55 of the Conveyancing Act was to enable a purchaser to recover the deposit in a case where, although he or she had contracted to accept such title as the vendor had (or had precluded himself or herself from relying on defects in the vendor's title), equity would not by reason of such a defect have enforced specific performance against the purchaser: Bennett v Stuart (1927) 27 SR(NSW) 317 at 327 per Long Innes J. The ambit of the section was evidently expanded by the inclusion of s55(2A), but there has since been no unanimity upon the scope of that expansion. In Harkins v Butcher; Butcher v Lachlan Elders Realty Pty Ltd (2002) 55 NSWLR 558 at 572-5, Handley JA (with whom Beazley and Hodgson JJA agreed) described two differing views or approaches as to the extent of s55(2A). (I should add that this part of the Court of Appeal's decision was not the subject of any comment by the High Court in the appeal in Butcher v Lachlan Elders Realty (supra)). 140 As Handley JA observed in Harkins v Butcher (at 573), the early narrow view sought to confine the second limb of s55(2A) to cases where the vendor has not sued for specific performance so as to enliven the first limb. On this approach the purchaser would be able to gain relief when he or she can show that if the vendor had brought a suit for specific performance the purchaser would have been able to resist it, and so recovered the deposit under the first limb of s55(2A): James Macara Ltd v Barclay [1944] 2 All ER 31, Universal Corporation v Five Ways Properties Ltd [1978] 3 All ER 1131. 141 That view was rejected by the English Court of Appeal in Universal Corporation v Five Ways Properties Ltd [1979] 1 All ER 552, in which Buckley LJ uttered a dictum often taken as exemplifying the wider view of the discretion conferred by the equivalent s49(2) of the Law of Property Act 1925 (UK): "… the jurisdiction is one to be exercised where the justice of the case requires … In this connexion I take the word 'justice' to be used in a wide sense indicating that repayment must be ordered in any circumstance which make this the fairest course between the two parties." (at 555) 142 I do not find that particular observation necessarily helpful in considering the boundaries of the discretion conferred by the Act. Taken in its full context, in so remarking, Buckley LJ was expressing a preference for the obiter views of Megarry J in Schindler v Pigault (1975) 30 P & CR 328 over those of the trial judge. In Schindler, what Megarry J actually said was this: "…it appears, as one might expect, that the jurisdiction is discretionary, and that it is to be exercised where justice requires it, but that it will not be exercised so as to deprive a purchaser of a deposit which he is legally entitled to recover. The sub-section is essentially one that is available for use in mitigation of the vendor's right at law to forfeit the deposit: see Williams' Contract of Sale of Land (1930), pp. xv. 94.

[102]

… [The vendor] contended that the jurisdiction under section 49(2) should only be exercised in favour of one party if there was unconscionable conduct by the other, but I do not think that what is appropriate, in relation to any alleged equity of restitution provides any reliable touchstone for the exercise of the statutory jurisdiction conferred by section 49(2). That jurisdiction is, I think, exercisable on wider grounds than that, including a general consideration of the conduct of the parties (and especially the applicant), the gravity of the matters in question, and the amounts at stake: see Shiloh Spinners Ltd. v. Harding which, though on a quite different point, provides a helpful analogy. The jurisdiction is, of course, statutory and is not the product of equity, but its discretionary character in relation to deposits on the sale of land makes it at least akin to equitable relief against forfeiture." 143 The comment of Megarry J that the discretion will not be exercised so as to deprive a purchaser of a deposit which he is legally entitled to recover may be explained by reference to the facts before him, which was a case brought by a purchaser claiming rescission and orders under s49(2) in the alternative. Since Megarry J found the purchaser was entitled to rescind, he did not need to determine the s49(2) question. Moreover, as pointed out by Arden LJ in Omar v El-Wakil [2002] 2 P&CR 36 at 45, the observation of Buckley LJ in Universal Corporation was in the context of an interlocutory application also heard by Eveleigh LJ, who did not express a general view on the court's jurisdiction under section 49(2). 144 Regardless of whether the wider approach is quite as wide as thought by Buckley LJ, the basic approach is founded upon the unobjectionable proposition that the plain words of the section allow the court to order the deposit to be returned "if it thinks fit", and there are no limiting words which might confine the court's discretion. In Zsadony v Pizer [1955] VLR 496, Dean J held of the equivalent Victorian provision: "So far there are not any judicial limitations upon the exercise of this discretion, such as have overtaken other statutory enactments conferring a discretion. But, like any discretion, it must be exercised upon relevant considerations having regard to the purposes for which it was conferred … The sub-section is quite general in terms and should not be given a restricted operation." (at 503) 145 In the most frequently cited NSW authority, Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd (supra), Street CJ in Eq expressed his agreement with the "liberal approach to the jurisdiction conferred by the section" taken by Jacobs J in Horne v Zebra Motor Inn Pty Ltd (unreported, 12 September 1963), and applied also by Mahoney JA in Nelson v McDonald (unreported, 27 November 1972): "There are no words of limitation expressed in the section and it would, therefore, not be right in my view to impart a gloss which would have the effect of preventing a purchaser from recovering a deposit in any case where a vendor has rescinded because of a repudiation by a purchaser." 146 Accordingly, Street CJ in Eq refused to limit the application of the second limb of s55(2A) to cases where the purchaser would have a discretionary defence to a suit for specific performance brought by the vendor. His Honour ultimately declined, however, to state "where the boundaries of the discretion are to be drawn" (at 273), but commented earlier (at 272): "It is one thing to recognize that there is a wide discretion conferred upon the court under this section; it is another to determine the guidelines for the exercise of that discretion. The section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit. It is clear enough that at law a vendor's right to forfeit a deposit to himself in the event of a purchaser's default bears no necessary relation to the damages actually suffered by a vendor. At law a forfeited deposit could result in a vendor making a profit which in justice and equity he ought not to be permitted to enjoy at the purchaser's expense. In a complementary sense, an order for the return of the deposit does not necessarily affect the vendor's right to sue a defaulting purchaser at law and recover against him such damages as the vendor can prove. The jurisdiction under s55(2A) does not give to a court an overall discretionary supervision of monetary adjustments between parties to a contract under which a deposit was paid but which has been terminated. A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s55(2A) unless it is unjust and inequitable to permit him to retain it. 147 Another modern approach, as described by Handley JA, adopts the wider view but considers that where the deposit has been validly forfeited "exceptional circumstances" would be required to justify an order for its repayment: see e.g., Poort v Development Underwriting (Victoria) Pty Ltd (No 2) [1976] VR 779 at 786 per Gillard J, applying Mallett v Jones (supra) (at 135 per Dean & Smith JJ). The decision of Gillard J in Poort was affirmed without discussion by the Full Court: Poort v Development Underwriting (Victoria) Pty Ltd (No 2) [1977] VR 454. The premise of this view is that while the discretion is liberal, it is not unbounded and must be exercised so as not to undermine the basic function of a deposit as an earnest of performance. 148 In Harkins v Butcher, Handley JA wrote: "Any requirement for special circumstances to be shown where the deposit has been forfeited is out of step with the views of the Court of Appeal in Universal Corporation v Five Ways Properties Ltd [1978], the views of Dean J in Zsadony v Pizer and the settled approach in this State. 149 I have already indicated the doubts I have regarding the dictum of Buckley LJ in Universal. Moreover, this Court is not bound by a decision of the English Court of Appeal (particularly on an interlocutory appeal) or by a decision of a single judge of the Supreme Court of Victoria. Subject to those reservations I would not disagree with the comment of Handley JA, understanding him merely as emphasising that it is not a precondition to the jurisdiction of the court to make orders under s55(2A) for the applicant to establish special circumstances. Were it otherwise, that would obviously run counter to the settled approach in this State, exemplified by Street CJ in Eq in Lucas & Tait, which eschews placing a limiting gloss upon the plain words of the section. 150 However, I do not consider that the concept of exceptional or special circumstances is irrelevant to a proper understanding of the boundaries of the discretion. My earlier remarks will indicate that I do not understand Handley JA and the other members of the Court of Appeal in Harkins v Butcher to have been endorsing that proposition. To the contrary, a proper approach to the exercise of the discretion must appreciate the legal context of the established nature of a "deposit" as an earnest of performance. It is the relevance of that context to the exercise of the statutory discretion which is denoted by the concept of special or exceptional circumstances. The concept of the "justice of the case" cannot be allowed to expand into an arbitrary distributive remedialism, meted out by the Court according to its view of where the merits lie, divorced from context. As Street CJ in Eq emphasised in Lucas & Tait (at 272), "The jurisdiction under s55(2A) does not give to a court an overall discretionary supervision of monetary adjustments between parties to a contract under which a deposit was paid but which has been terminated. A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s55(2A) unless it is unjust and inequitable to permit him to retain it." 151 A helpful analysis of the scope of the corresponding s49(2) in the Law of Property Act 1925 (UK) was undertaken in Omar v El-Wakil (supra), by Arden LJ (with whom Lord Phillips of Worth Matravers MR agreed). Her Lordship stated, at 45-6: "[35] The starting point must be that although section 49(2) is expressed in open-textured terms leaving it to the courts to determine the organising principles, the court must bear in mind that the payment in question was a "deposit", that is an earnest for performance and that accordingly there should not be relief simply because the Corringham contract never took place. The meaning of "fairness" (see per Buckley L.J. above) in any given situation is context-specific, as Lord Hoffmann pointed out in O'Neill v Phillips [1999] 2 BCLC. 1 (a very different type of case): "Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. Conduct which is perfectly fair between competing businessmen may not be fair between members of a family. In some sports it may require, at best, observance of the rules, in others ('it's not cricket') it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important." The context here is of a conveyancing transaction. It is common knowledge that if a purchaser pays a deposit, he is likely to forfeit it if he does not fulfil the contract. Moreover, deposits are very usual features of conveyancing transactions and conveyancing transactions are common. It is important that there should be certainty attaching to the consequences of paying a deposit.

[103]

[36] … For the reasons given, I would start from the position that the deposit should not normally be ordered to be repaid." 152 After considering the facts at issue before the Court, Arden LJ continued (at 47): "[37] … Furthermore, in my judgment, in a situation where a purchaser could not himself perform, the circumstances which make it appropriate for the court to exercise its discretion under section 49(2) in his favour must be exceptional. Inability to complete is exactly the risk the deposit was intended to guard against." 153 In a previous decision, in which I had cause to consider the proper ambit of the discretion conferred by s55(2A), I reached a similar conclusion after reviewing the authorities in NSW: Gogard Pty Ltd v Satnaq Pty Ltd [1999] NSWSC 1283. There I formulated the relevant question as being "whether the court is satisfied that there are special or exceptional circumstances where it would be unjust or inequitable for the vendor to retain the deposit" (at [341]). Among the authorities I cited was Lucas & Tait in which Street CJ in Eq stated his view that no classification of the cases in which the discretion has been exercised in favour of the purchaser is possible, apart from observing that they have all come under the category of circumstances in which the court held it to be "just and equitable" to deny the vendor the enjoyment of a forfeited deposit, having previously stated that "a vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s55(2A) unless it is unjust and inequitable to permit him to retain it." 154 Such a formulation, framed in the negative, involves the notion of special circumstances, in the sense that the Court will not lightly be moved to order the return of a deposit which has been forfeited according to the parties' express agreement. That focuses attention upon the real issue, taking account of the context that "[t]he general policy of the law is that people should honour their contract. That policy forms part of our idea of what is just": Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9 per Gleeson CJ. It is recognised both at law (pacta sunt servanda) and in equity (equity mends no man's bargain). It is critical to appreciate however, that these principles contribute to context but provide no automatic answer. While justice does lie in enforcing people's bargains, as Bryson J (as his Honour then was) pointed out in Delgado v Walker Developments Pty Ltd (1989) NSW ConvR 55-497 (at 58,625), "that is indeed true but the mere existence of this legislation recognises that it is qualified." 155 For these reasons, I do not consider that there is anything controversial in the submission of the vendor that the grounds in support of an application to repay the deposit must be sufficient to warrant a departure from holding the purchaser to its obligations under the contract. Indeed, this goes to the "justice and equity" of the case, drawing on the observations of Street CJ in Eq in Lucas & Tait. That conclusion must be correct, if the notions of justice and equity conditioning the discretion are to have some meaning drawn from the purpose of a deposit and the circumstances in which it is forfeited. The purchaser must therefore do more than merely show that the deposit has been forfeited, and that it will thus result in a 'windfall' to the vendor as will usually be the case. The Court should not take an approach to ordering the return of deposits under s55(2A) which weakens the proper function of a deposit in providing a sanction so that purchasers treat the making and completing of contracts with due seriousness: Wilson v Kingsgate Mining Industries [1973] 2 NSWLR 713 at 735, Fraser v L O'Malley & Sons Pty Ltd [1975] 2 BPR 9133 at 9139-40. In so saying, I am not to be understood as putting a gloss upon the plain words of s55(2A), but merely highlighting the critical importance of a judge exercising the wide discretion according to its plainly beneficial purpose to consider 'justice' and 'fairness' in their proper context. 156 It is then necessary to apply these principles to the facts of the present case in order to determine whether the trial judge erred in the exercise of his discretion. The relevant part of the trial judge's reasoning, in which he formulated the parameters of his discretion, is as follows: "84 The statutory discretion under s.55(2A), however, derives its character from the conscience of equity, not the strictness of the common law. It would not matter to the common law that enforcement of a contractual right to forfeit a deposit would confer on the vendor a windfall far in excess of the loss actually occasioned by the purchaser's breach of contract - but it would rankle in the conscience of equity: see e.g. Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268, at 272.

[105]

With due respect, a number of remarks should be made about these passages in the light of what I have earlier stated. 157 First, although the s55(2A) discretion may be akin to various heads of equitable relief, the analogy cannot be taken too far since equity itself would not give relief where a deposit of 10% is forfeited in accordance with the terms of the contract. It is not the case (as I have earlier indicated) that equity's conscience would in absolute terms be rankled if the vendor enforces a contractual right to forfeit a deposit which exceeds his or her loss. There is no equity to recover a "reasonable deposit" given in earnest of performance. Whether a deposit is reasonable is to be judged according to whether it is a reasonable earnest of performance, and so is not to be described as "penal". 158 Second, the conscience of equity may very well be stirred by hardship (properly understood as an equitable defence), but even if that concept were applicable, there is no hardship in the mere fact that the vendor will reap the windfall of a forfeited deposit. Nor does the mere fact that the vendor will receive the windfall of the forfeited deposit constitute sufficient ground to order its return; that is what the parties contracted for. Hasanovic v Polistena [1982] NSW ConvR 55-078, relied on by the trial judge, provides little support for the proposition for which it was cited in the context of this case. Hasanovic was a case where the purchasers who had been willing to complete were unable to do so because their solicitors had failed to organise the finance on time. The purchasers had gone into possession of the land (a market garden) and had expended a significant sum of money in installing new water pipes and reticulation system, connecting electricity, and erecting new sheds, gates and fences. All of that work clearly had improved the value of the property. The purchasers brought a claim for specific performance. Needham J found that the purchaser was not entitled to specific performance, the contract having been validly terminated by the vendor, and awarded the vendor damages in the form of an occupation fee plus all the rates and taxes the purchasers were required by the contract to pay whilst in early possession. It was in that context, that Needham J held it to be unjust for the vendor also to retain the deposit: "It would, I think, be unjust in these circumstances to allow the defendant [vendor] not only to retain the benefits of the plaintiff's expenditure and labour and to obtain damages in the form of an occupation fee and payment of rates, but also to retain the deposit. In the circumstances, I think I should exercise my discretion to order the return of the deposit." (at 56,464)

[111]

the deposit represents a very substantial proportion of the assets which became available to Mr Meyerratken, through the Defendant, for investment after the sale of Mr Meyerratken's interest in a business - forfeiture of the deposit, in addition to the expenses incurred in the preparation for the development, would represent a severe loss to Mr Meyerratken." 160 The first three factors really say nothing more than that the vendor will not be disadvantaged by ordering the deposit to be returned, but will potentially receive a windfall if she retains it. As I have said, this analysis is problematic, insofar as it seeks to re-characterise the true contractual context in which the deposit was forfeited. With respect, it devalues the significance of the contractual obligations freely entered into so to characterise it. The fourth factor is no more than the normal incident of ownership of property, and the fifth factor is a result of the parties' own agreement on 14 November 2002, the deposit being released in consideration for the vendor agreeing to extend time for completion on the request of the purchaser. I do not see, with respect, precisely how these two feature should weigh in the discretionary balance. The sixth factor is obviously lessened in significance insofar as I have found that the trial judge erred in not awarding damages to the purchaser compensating it for its wasted expenditure consequent upon the vendor's misleading and deceptive conduct. No doubt the deposit still represents a very substantial proportion of Mr Meyerratken's assets from the sale of his business (this factor appearing to treat Mr Meyerratken and Havyn as indistinguishable for the purposes of the s55(2A) discretion), and this may still be a relevant consideration. 161 The trial judge made no reference to the terms of the contract or to what Bryson J reminded himself of in Delgado v Walker Developments Pty Ltd (supra) as "the importance in the public interest of the due enforcement of agreements and of the effective working of the mechanism under which it is customary to require purchasers of land to pay deposits" (at 58,625). 162 I have come to the view that the approach taken by the trial judge in the exercise of the discretion conferred by s55(2A) was in error, insofar as he did not consider the context out of which the application arose, including the terms of the contract, and the circumstances of its breach. That conclusion does not, however, necessarily mean that the conclusion reached by the trial judge should be set aside. That will depend upon the view of this Court as to how the discretion is to be exercised. It must be recalled that the trial judge was also exercising his discretion in the light of his view that the purchaser could not succeed in its claim for damages under the FTA. I have reached the contrary conclusion in that regard, finding that the vendor is liable for misleading and deceptive conduct. That may well be a telling factor not considered by the trial judge in the discretionary balance required by s55(2A). 163 Before myself considering whether the deposit should be returned in the exercise of the court's discretion pursuant to s55(2A), I should again briefly recount the circumstances giving rise to the forfeiture of the deposit in this case. 164 The successful purchaser at auction had not obtained sufficient finance to complete on the appointed day, but had procured an extension of time from the vendor. In the interim, however, the purchaser learned third-hand that the dimensions of the property were smaller than represented in the sales brochure and the precise extent of the variance. By the extended date for settlement, the purchaser for its part on the one hand still wanted the property (but with an abatement in the purchase price) and on the other hand still had not procured finance. The vendor for its part was willing further to extend the date for settlement but only if it was released from any claim for misrepresentation (i.e. without any abatement in purchase price). The vendor terminated the contract, relying on its contractual rights; its conduct was not in any way inequitable or unconscionable (to the extent to which that is relevant to s55(2A)). The purchaser at all times seems to have believed that the vendor was not entitled to rely on its Notice to Complete because of the misrepresentation; this belief forming the basis of both its claim before the trial judge and on appeal. It is reasonable to infer that the origin for this belief was advice given by the purchaser's solicitors, who wrote in those terms to the vendor's solicitors on 29 November 2002 (some 3 days before the extended date for settlement). That belief was wrong (as it now transpires) but it does perhaps provide some explanation for why the purchaser did not expedite its attempts to finalise finance prior to the extended settlement date. It is that kind of circumstance which, though irrelevant to the question of whether the purchaser has elected to affirm the contract thus foregoing any rights of rescission, may become relevant in the exercise of a judicial discretion such as that conferred by s55(2A). 165 I do not accept that the mere fact that the purchaser has affirmed the contract induced by the misrepresentation requires the court to deny discretionary relief. So to hold would unnecessarily be to confine the statutory words by analogy to the common law of contract. While the misrepresentation may be out of the picture, and the right to rescind at law lost, for the purposes of contractual doctrines of breach, repudiation and discharge by termination, I do not think that the misrepresentation thereby becomes irrelevant to the exercise of a statutory discretion under s55(2A). For the purposes of the discretion it is not the fact of the election but its quality which is relevant for the purposes of s55(2A). It is inherent in the law of contract that the contract so affirmed continues for the benefit of both parties and the deposit continues its function as an earnest for the performance of the purchaser. That is a fact which the court must of course consider as of particular significance, since it must guard against a situation whereby deposits are too readily returned, such that a purchaser does not need seriously to consider the election to which they are put. But that proposition does no more than restate the context which I have previously described. A court may, however, take account of the circumstances surrounding the election including the conduct of all parties as a factor relevant to an application under s55(2A). 166 The only Australian authority I have been able to find considering the case where a party who has been induced by a material misrepresentation to enter into a contract but has, on discovery of the misrepresentation, affirmed it, and then later following its own breach sought to recover the deposit, is Mallett v Jones (supra). In that case, the purchasers had been induced to enter the contract by a fraudulent misrepresentation on the part of the agent for the vendor, that the land was free from flooding. Notwithstanding becoming aware of that fraudulent misrepresentation after taking possession, the purchasers elected to affirm the contract and continued to pay instalments of the purchase price (although they later purported to rescind it). On a suit by the purchasers for rescission or return of the deposit, the trial judge held that a court of equity would have refused to order specific performance against the purchaser on the basis of unfairness or hardship given that as a young couple of limited means they were "virtually compelled" by their economic circumstances to remain on the property. 167 The Full Court of the Supreme Court of Victoria overruled the trial judge, Dean and Smith JJ stating (at 135): "Respondents with knowledge of the falsity of the representations elected to affirm the contract. Thereby they were bound to perform it. They subsequently made default in performance whereby the vendor rescinded in accordance with the terms of contract. The respective rights of the parties in such an event are governed by the express terms of their agreement and it would require some exceptional circumstances to justify a departure from the agreed terms. There are no special circumstances here sufficient for this purpose. This may appear a hard case as the respondents were induced by fraud to enter into the contract and in the result have lost a good deal of money. But this is because of their election to stand by the contract. We do not think the evidence supports the view that after affirming the contract they were "virtually compelled" to remain in the property. This is, anyhow, one of the risks they assumed by electing to affirm. Accordingly, so much of the judgment as orders the return of the deposit should be set aside." 168 The other member of the Court, Lowe J, generally agreed with the reasons of Dean and Smith JJ, but made some further comments of his own, including noting that the allegations in the statement of claim supporting the purchaser's claim for relief under the equivalent of s55(2A) were "merely the making of the contract and its inducement by false and fraudulent representations" (at 122). I do not think that this case goes any further than the general principle which I have earlier considered, namely, that the discretion must be approached bearing in mind the voluntarily entered contractual context. On the facts of this case, their Honours were evidently of the opinion that the hardship suffered by the purchasers was not sufficient to turn the discretionary balance away from enforcing the contract according to its terms. 169 This case stands in somewhat of a different category to Mallett v Jones, which, as the judgment of Lowe J demonstrates, turned on its individual facts and pleadings. Here, the vendor, it is true had a contractual right to terminate the contract for the purchaser's default in meeting an essential time stipulation which had already been extended. Yet the evidence discloses that the purchaser was generally willing to complete the transaction at all times. Although it did not as at 2 December 2002 have the total funds necessary to pay the balance of the purchase price, the evidence discloses that it was only $300,000 short of having sufficient to complete the purchase at the contract price of $3,130,000, and had reasonable prospects of obtaining the balance within a short period of time (Affidavit of P Meyerratken, sworn 6 June 2003 at para [23]). That fact was known to the vendor's legal representatives, the settlement clerk for the vendor giving evidence by affidavit that at the abortive settlement on 2 December, Mr Meyerratken instructed his settlement clerk by telephone that he needed another 24 hours to obtain the balance of his finance (Affidavit of S Klem, sworn 13 December 2002). 170 It must also be recalled that the contract price was by reason of the misrepresentation in excess of the true value of the property at the time by $220,000 (using the basis most favourable to the vendor) or some $400,000 (if the balconies were excluded as the purchaser thought they were). It must be remembered that the purchaser only found out the true extent of the misrepresentations on the extended settlement date of 2 December 2002. The purchaser had been endeavouring to obtain an extension of time and abatement of the purchase price prior to settlement (rather than settling for the contract price and suing for damages), a course which would have saved all parties a great deal of time and money. If it had succeeded in those negotiations, it would probably have had enough money to settle by the appointed time. The vendor refused to bargain, first denying (without any basis, as it transpires) any misrepresentation, and then demanding releases from any liability before it would extend time (although knowing that the purchaser needed only a short time to obtain the finance). The purchaser understandably did not want to release the vendor in that way. Furthermore, that context is coloured, as I have previously said, by the purchaser's apparent belief that the vendor would be disentitled from relying on the essential time stipulation because of the misrepresentation. 171 I have already disposed of the questions of legal principle arising from that state of affairs. The vendor was legally entitled to terminate as it did, and the purchaser was imprudent to rely on its apparent contrary belief. But I am of the view that in the light of the foregoing circumstances I should order the deposit to be returned, in the exercise of my discretion according to the justice of the case. The purchaser's conduct may have been tactically imprudent, but it was not unreasonable. The vendor's conduct was entirely legal and could not be said to be unconscionable or inequitable (so far as those concepts have relevance), but it was considerably less reasonable given the context of the misrepresentation having come to light and the evident willingness of Mr Meyerratken to perform. The sequence of events that I have set out at [19] to [24] demonstrates that. As I have described, he was only given the information as to the precise shortfall on 2 December 2002, being the day appointed for settlement, and that shortfall was contrary to what had been represented. That shortfall clearly affected the value of what he was buying. He was, not unreasonably, seeking a further extension of time to settle and it can be inferred, to line up any funding for a security whose area was less than represented. This he may well have done, though I do not go so far as to attribute his failure to have funds on the day to the misrepresentation. Why should he have been required to give a release for any claim founded on the misrepresentation when, as has been demonstrated, he was entitled to damages? I think that it would not be fair in these circumstances for the vendor to retain the deposit, notwithstanding the terms of the contract and the affirmation of it by the purchaser and the purpose of the deposit as an earnest of performance. It follows that the trial judge's decision on this issue should be affirmed, though for different reasons. 172 Since I would affirm the trial judge's order that the deposit be refunded pursuant to s55(2A) of the Conveyancing Act, it will be unnecessary to remit the matter to the Master to determine whether it in fact fell within the scope of the purchaser's loss and damage by reason of the misleading and deceptive conduct of the vendor. Like the trial judge, however, I do not think that the deposit should be returned to Havyn prior to the result of the vendor's damages enquiry, since Havyn was a "sole purpose company" I would therefore also affirm the stay appointed by the trial judge of the order releasing the deposit pending the result of that enquiry. I need say nothing about the question of interest on the deposit, since that flows from the terms of the agreement between the parties.

[112]

Summing Up 173 By way of summation, I would conclude as follows: (a) Section 55(2A) confers upon the Court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture. (b) Notwithstanding this, it is important for a Court in considering the scope of the discretion conferred by s55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a Court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur. (c) That context is significant when considering the justice and equity of the case, and whether the Court "sees fit" to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show "special circumstances" (or satisfy any like test) before a deposit will be returned. (d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited. (e) In considering an application under s55(2A), it will often be material for the Court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited. (f) Considering the circumstances of this case, the factors enumerated above and the relative unreasonableness of the conduct of the vendor compared to the purchaser following the former's misrepresentation, it is appropriate for the deposit to be returned, although for different reasons than those adopted by the trial judge.

[113]

The Costs Issue 174 The resolution of the costs issue as raised by Ground 9 of the Notice of Appeal is unnecessary, given my findings that there was relevant misleading and deceptive conduct on the part of the vendor. That finding removes the basis for the costs orders made by the trial judge in his separate judgment delivered on 1 April 2004. Given this, I must now consider the proper costs orders to be made. 175 Seen in terms of the issues between the parties, it is still the case that the purchaser has succeeded on some issues and the vendor has succeeded on other issues. Specifically, the purchaser has ultimately been successful on the issue of misleading and deceptive conduct, and the vendor has been successful on the contractual issue. I agree with the observation of the trial judge that "the issues as to misrepresentation occupied the vast majority of time and effort expended in the trial". The truth of that statement extended to the hearing of the appeal. The trial judge considered the issue of misrepresentation to have been fundamental both to the vendor's claim (by being raised in the purchaser's defence) and the purchaser's cross-claim. Looked at in that way both parties have partially failed and partially succeeded on that issue which occupied the greatest proportion of time. 176 Seen in terms of the parties respective claims at first instance, in the ultimate event the plaintiff vendor was successful both at first instance and on appeal with respect to the relief claimed in its Summons. The defendant purchaser was partially successful on its Cross-Claim in the court below, but has been ultimately successful on the appeal. The purchaser has been substantially successful on its Notice of Appeal, while the vendor has been wholly unsuccessful on both its Cross-Appeal and its Notice of Contention. 177 On one approach the foregoing considerations can be accommodated by an order that the costs should follow these events, which would require that they be apportioned by reference to the ultimate claims for relief. However, there would be significant difficulties in carrying out any such apportionment which would, in all probability, lead to more disputation with an accompanying increase in costs. In my opinion, therefore, the more practical, but just as fair, order is that each party should pay its or her own costs both at first instance and on the appeal.

[114]

CONCLUSIONS AND ORDERS 178 Before setting out the orders I propose, I shall provide a brief summary of my conclusions: (1) The sales brochure prepared by the vendor's agent contained misrepresentations as to the size of the units, which misrepresentations were relied on by the purchaser in entering into the contract; (2) The disclaimers contained in the brochure added to those misrepresentations, rather than serving to dispel them, and accordingly the brochure taken as a whole constituted misleading and deceptive conduct for the purposes of the FTA on the part of the vendor in consequence of which the purchaser sustained proven loss of $92,739; (3) Notwithstanding the misrepresentations, the purchaser affirmed the contract but was ultimately unable to complete it on the appointed date of 2 December 2002 by reason principally of an inability to obtain finance, unrelated to the misrepresentation; (4) The vendor was entitled to terminate the contract on 4 December 2002 following the purchaser's default in complying with an essential time stipulation. The vendor thereby became entitled to forfeit the deposit (but see (5) below) and to damages (which are yet to be determined); (5) Although the vendor was by the terms of the contract, entitled upon termination to forfeit the deposit paid by the purchaser, the deposit should be returned pursuant to the discretion conferred by s55(2A) Conveyancing Act 1919. 179 For the foregoing reasons, I would propose the following orders: (1) The appeal is allowed in part. (2) The cross-appeal is dismissed. (3) Set aside Orders 2 and 3 made by Palmer J on 3 August 2004, and in lieu thereof order that the Defendant pay to the Plaintiff damages for breach of the Contract for Sale of Land dated 19 September 2002, to be ascertained by the Master upon enquiry. (4) Vary Order 6 made by Palmer J on 3 August 2004 by deleting therefrom the reference to Order 2. (5) Set aside Order 7 made by Palmer J on 3 August 2004, and in lieu thereof order that judgment be entered for the Cross-Claimant in the sum of $92,739 together with interest pursuant to the Supreme Court Act. (6) Set aside Order 7A made by Palmer J on 3 August 2004. (7) Each party is to pay its or her own costs both on the appeal and in the court below. 180 TOBIAS JA: I agree with Santow JA. 181 BROWNIE AJA: I agree with Santow JA. **********

Havyn Pty Ltd v Webster

At a glance

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Judgment (115 paragraphs)

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Cases Cited (34)

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