Henjo Investments Pty Ltd & Ors v Collins Marrickville Pty Ltd [1988] FCA 42

Federal Court of Australia|1988-02-26|Before: Foster JJ, Lockhart J

PRACTICE AND PROCEDURE - Federal Court - Interest pursuant to s. 351A

TRADE PRACTICES - Section 52 of Trade Practices Act 1974 - "Misleading

and deceptive conduct in connection with sale of restaurant business ~ ~~ Circumstances in which silence may constitute misleading conduct under s. 52 - Whether applicant had constructive notice of matters which solicitors acting for the applicant would have discovered if proper enquiries had been made - Construction of special conditions in contract for sale of business - Operation of exclusion clauses as a defence to an action under s. 52 - Circumstances in which order for restitution 1S appropriate - Exercise of Court's discretion under s.

87 of Trade Practices Act - adequacy of damages as remedy.

HENJO INVESTMENTS PTY. LIMITED, HENRY SAADE, SAADE DEVELOPMENTS PTY. LIMITED v. COLLINS MARRICKVILLE PTY. LIMITED

COURT: LOCKHART, BURCHETT and FOSTER JJ. 26 FEBRUARY 1988 SYDNEY

NEW SOUTH WALES DISTRICT REGISTRY ) No. G550 of 1987 ) GENERAL DIVISION ) BETWEEN: HENJO INVESTMENTS PTY. LIMITED

MINUTE THE COURT ORDERS THAT: l. The appeal be allowed

Orders 1 to 7 inclusive made by the trial Judge on 20 October

The matter be remitted to the trial Judge to determine the loss or damage suffered by the respondent by conduct of the first appellant or the second appellant that was done in

Until the determination of the loss or damage mentioned in Order 3 above or further order of a single Judge of this Court each of the first appellant and the third appellant by itself, its servants and agents and the second appellant be restrained from taking any action to recover any payments due under, or otherwise to enforce the rights granted by, the mortgage dated 1 May 1985 from the respondent to the first appellant, a copy of which is annexure "A" to the affidavit

of Ian Francis Dwyer sworn 16 April 1987 and filed herein;

Liberty to apply to a single Judge of this Court be granted

to any party in respect of this order on 48 hours' notice;

This order be discharged unless within seven days from to-day the respondent gives to a single Judge of this Court the

usual undertaking as to damage; Otherwise the appeal be dismissed;

The cross-appeal be allowed in so far as the sum for which judgment was entered did not include any amount of interest

pursuant to s. S51A of the Federal Court of Australia Act

The first appellant and the second appellant pay two-thirds of the costs of the respondent of the proceedings at first instance, and one-half of its costs of the appeal and

cross-appeal and that otherwise there be no order as to

NOTE: Settlement and entry of orders is dealt with in Order 36 of

NEW SOUTH WALES DISTRICT REGISTRY ) No. G550 of 1987 ) GENERAL DIVISION ) BETWEEN: HENJO INVESTMENTS PTY. LIMITED

HENRY SAADE Second Appellant SAADE DEVELOPMENTS PTY. LIMITED

AND: COLLINS MARRICKVILLE PTY. LIMITED Respondent CORAM: LOCKHART, BURCHETT and FOSTER JJ.

This case, which arises under s. 52 of the Trade Practices Act 1974 ("the Act"), is concerned with whether certain conduct of the vendor of a restaurant in Double Bay, Sydney, known as "The New York Deli", was misleading or deceptive. Questions of damages and relief

The restaurant business was formerly owned by the first appellant, Henjo Investments Pty. Limited ("Henjo"). The restaurant

opened for business on 1 June, 1984 following receipt of the necessary

approvals from the Woollahra Municipal Council ("the Council"). Before the approvals were granted the Council considered a development application lodged by Mr. Henry Saade, the second appellant, who is one of the directors of and controls Henjo. On 5 April 1984 the Council resolved to limit the seating at the restaurant to 84 people and on 31 May 1984 it granted a Refreshment Room Licence to Mr. Saade, on behalf of Henjo for 84 people. All relevant applicaticns to the Council for approvals were made by Mr. Saade on hehalf of Henjo. Henjo was the lessee of the premises in which the restaurant was

On 6 July 1984 Norman Peter George, who was originally a respondent to the proceedings in this Court, applied to the Licensing Court of New South Wales for the grant to him of an "On-Licence (Restaurant)" in respect of the premises. Mr. George was the manager of the restaurant. Mr. Saade authorised Mr. George to make the application. The application referred to a maximum seating capacity of 84 persons to be seated at 26 tables. Notice of the application was served upon the Council which offered no objection. On 17 August

The pian of the premises submitted to the Licensing Court shows a "Service Bar" in the restaurant open on two sides. On one side the plan bears a notation "Service area for waiters for alconolic and non-alcoholic beverages". The other open side depicts a passageway linking two of the dining areas in the restaurant, the passageway being endorsed on the plan "Garden walk passageway". The plan shows this passageway as being lined on each side with pots

containing shrubs. The pots on the side of the passageway abutting

the bar are depicted as being placed so close together and near the bar as to inhibit or prevent access to the bar from the passageway. The plan shows the location of 84 chairs placed at 26 separate tables. It appears that the plan was submitted in this form because of the provisions of the Liquor Act 1982 (New South Wales) and the stipulations of the licensing authorities which together in effect require that liquor be served in restaurants only in the dining areas where there are tables and chairs and in what is called a "Reception Area", namely, a place where people are seated and may be served drinks whilst waiting to be shown to their tables and where food 1s not served. It 1s the policy of the licensing authorities that reception areas shall not be sited so as to be available to persons immediately upon entering the restaurant, the purpose being to discourage people from using the facilities of the reception area as merely a drinking place when they do not intend to eat food at the restaurant. The plan made no provision for bar stools in the service bar area; but in October or November 1984 eight bar stools were in fact installed there where they remained until June 1985. They were present during the period of negotiations for the sale of the restaurant to the respondent, Collins Marrickville Pty. Limited ("Collins Marrickville"). Liquor was sold to patrons seated on or standing near the stools and to other people present at the bar who had formed the habit of regularly spending the evening, particularly Friday evenings, drinking at the bar and not necessarily dining at the restaurant. This practice continued at least until the time of sale.

Moreover, shrubs were never placed in the passageway notwithstanding

Soon after the restaurant opened, 120 chairs were placed in the restaurant arranged at 39 separate tables. This added about one-third of the numbers of chairs and tables permitted by the Woollahra Council and the Licensing Court. Indeed, at the conclusion of the hearing before the learned trial Judge (the present position is not known) the restaurant continued to carry on business with 120

Early in 1985 Mr. Saade decided to sell the restaurant. On 21 February 1985 he telephoned Mr. H.P. Le May, a licensed business agent and the principal of H.P. Le May & Associates Pty. Limited. On the following morning Mr. Le May went to the restaurant and met Mr. Saade. Upon his arrival Mr. Le May noticed on the front window a sign "Pully Licensed". He had a conversation with Mr. Saade who showed him round the premises. Mr. Le May filled out a card headed "Instructions to Sell Business". On its face the card contains details of the retainer of Mr. Le May's company together with certain particulars of the restaurant's trading operations. The card is dated 22 February 1985 and was signed by Mr. Saade as a director of Henjo. On the

reverse side further particulars appear including the words:

Although the reverse side of the card is not signed by Mr. Saade his Honour accepted the evidence of Mr. Le May, and rejected Mr. Saade's evidence to the contrary, that those words and figures were written by Mr. Le May in Mr. Saade's presence before the card was signed and that Mr. Saade gave Mr. Le May the figure of 128 seats. Mr. Saade did not

say to Mr. Le May that the restaurant was licensed but Mr. Le May

assumed this to be so due to the sign on the front window of the

Mr. Le May advertised the business for sale, including olacing an advertisement in the Sydney Morning Herald newspaper on 2 March 1985. Two days later Mr. Neil James, a chartered accountant, telephoned Mr. Le May and enquired about the restaurant. Mr. Le Vay told Mr. James that the business was "a licensed coffee lounge - restaurant with about 120 seats known as the New York Deli". On 6 March 1985 Mr. Le May took Mr. James to inspect the restaurant. In the meantime certain financial information about the restaurant which Mr. James had requested was supplied to him. Mr. John Collins, who is a director of Collins Marrickville, had instructed Mr. James to enquire about the business following the publication of the advertisement. Both Mr. James and Mr. Collins went to Mr. Le May's office where he showed them the instruction card with the reference to 128 seats. The three men then went to the restaurant where they met Mr. Saade. Mr. Le May said that the restaurant was licensed. Mr. James and Mr. Collins do not assert that Mr. Le May said anything further about the number of seats, but they did observe that the restaurant was set with 39 tables and 128 chairs and that there were eight stools at the bar. It is not suggested that Mr. Le May acted with any impropriety in the matter. Mr. Collins asked Mr. James to obtain certain further financial information about the restaurant and Collins Marrickville retained a solicitor, Mr. R.A. Tadd. Mr. Collins gave Mr. Tadd written instructions which included "confirm all council by-laws etc. are complied with" and "check and spell out clearly the

type of liquor licence and make sure restaurant is complying and that

Mr. Tadd made no enquiries of either the Council or the Licensing Court with the result that he did not discover either the limitation in seating capacity or the fact that the plans submitted toa the Licensing Court and to the Woollahra Council precluded customers

Collins Marrickville agreed to buy the restaurant business and on 2 April 1985 it entered into a written contract of purchase with Henjo. The primary Judge found that Mr. Tadd allowed Collins Marrickville to enter into the contract of purchase in ignorance of the fact that the restaurant was being operated in a manner

substantially different from that permitted by law.

The contract between Collins Marrickville and Henjo provided for the payment of a total purchase price of $500,000 apportioned between "goodwill", "plant, fittings and chattels" and "fixtures". "Stock-in-trade" was to be paid for at valuation. Two special

conditions are relevant, namely, 6 and 7, and they read as follows:

"6. The purchaser acknowledges that 1t accepts the premises in their present condition and state of repair, subject to any infestation = and dilapidation and as a result of its owm inspection of the premises. In entering into this Agreement the purchaser acknowledges that it has not relied on any statement, representation or warranty by or on behalf of the vendor whether express or implied as to:

(b) the neighbourhood in which the premises are situated and adjoining properties;

(d) the rights and privileges (1f any) pertaining to the premises;

(e) any matter having or which might have an effect beneficial or otherwise on the premises.

The purchaser acknowledges that the only statements, representations and warranties on behalf of the vendor are such as are expressly set out in this agreement.

Notwithstanding and without limiting the provisions of any other clause or_ special condition of this agreement the parties hereto agree that the agreement constitutes the whole of any promises, representations, warranties and undertakings and also the whole of the conditions of the sale. The parties hereto further agree that no promise, representations, warranties, undertakings or conditions shall be deemed to be implied herein or to arise between the parties hereto by way of collateral or other agreement or by reason of any promise, representation, warranty or undertaking given or made by any party thereto to the other on or prior to the making of this agreement. The existance of any such implication or collateral or other agreement is hereby expressly negatived."

Special Condition 1 of the contract gave to Collins Marrickville as purchaser a right to rescind the contract if, during the period from 4 April 1985 to 1 May 1985 inclusive, the average gross weekly takings of the business should be less than $21,000.00. During that four week period, with the consent of Henjo as vendor, Collins Marrickville stationed people in the restaurant to observe its method of operation and in particular to verify the takings. Four observers were engaged during this period and their evidence established to the satisfaction of the trial Judge that, during the period of observation, liquor was served at all 39 tables at which 120 or 121 chairs were provided and that patrons consumed liquor while

During the four week trial period an application was prepared for transfer of the liquor licence from Mr. George to Mr. Michael Matthews, the manager whom Collins Marrickville proposed to employ after completion of the purchase. The application was signed by Mr. George on 15 April 1985 and filed at the Licensing Court by the solicitors for Henjo two days later. On the intervening day (16 April) Mr. George, on the instructions of Mr. Saade, filed at the Licensing Court another application which sought the approval of that Court to the use of the bar as a reception area including tne use of the bar stools. The trial Judge found that the purpose of this application was to legitimise what had been going on ever since the licence issued. Both that application and the transfer application were set down for hearing on 17 May 1985. They have since been adjourned on many occasions with no substantive orders having been made in respect of either application. The application to amend the licence to include the bar stools in the reception area was made without any notice being given to Collins Marrickville or anyone on its behalf and without its knowledge. [It is difficult to resist the conclusion that this surreptitious application was made on Mr. Saade's instructions because he knew that there had been no disclosure to the purchaser of the licence restrictions and the lack of conformity between the terms of the License and the existence of 39 tables and

In the meantime the purchase had been completed on 1 May 1985 and a stocktake had taken place. Collins Marrickville went into possession and Mr. Matthews was appointed manager of the restaurant; but to this day the licence remains in the name of Mr. George as

Collins Marrickville has not yet actively pursued the application for

transfer. Mr. George continued to work at the restaurant for two weeks after completion and during this period he took Mr. Matthews to meet the licensing police at Waverley Police Station. The first return date for the application for the transfer of the Licence and for its amendment was 17 May. It appears from the evidence of Mr. Collins that he learnt the true position about the bar and bar stools only after the hearing of 17 May, being informed of that position by Mr. Matthews who had attended the hearing on behalf of Collins

On 13 June 1985 Messrs. Laurence & Laurence, the solicitors then acting for Collins Marrickville, wrote to the solicitors for Henjo (Messrs. Swaab & Associates) notifying them of an inspection of the premises in the presence of a Magistrate from the Licensing Court which was to take place on 14 June 1985 and inviting a representative of Henjo to attend. On 14 June the bar stools were removed following

Correspondence was exchanged between the solicitors for the parties culminating in the commencement of these proceedings on 5 August 1985. Directions were given from time to time. The matter came on for hearing in March 1986 before a single Judge of this Court; but was adjourned after the commencement of the hearing on the application of Collins Marrickville because 1t was thought that the matter might be resolved by persuading Woollahra Council and the Licensing Court to relax the relevant restrictions. Those attempts were unsuccessful and the matter was relisted before another Judge of this Court (Wilcox J.) for hearing. The trial proceeded on the issue

On 16 April 1987 his Honour found that Henjo had engaged in misleading conduct. For convenience, I shall deal later with the specific findings challenged on appeal. His Honour also found that Collins Marrickville was entitled to succeed against Mr. Saade on the ground that he was a person involved in Henjo's contravention of s. 52. His Honour found that Mr. Saade was in fact aware of the true position with respect to the restrictions imposed by the Council and the Licencing Court and that, notwithstanding this knowledge, Mr. Saade gave Mr. Le May the misleading information about' the restaurant's seating capacity. His Honour held that Mr. George, who was then the third respondent, had not been shown to be knowingly concerned in Henjo's breach of s. 52. Hence, his Honour dismissed the claim as against Mr. George. Mr. George therefore is not a party to

His Honour dealt with a cross claim by Henjo against Collins Marrickville in the sum of $5,960 for the value of certain drink coasters and boxes of matches taken over on settlement by Collins Marrickville. His Honour held that the value of those coasters and

matches was recoverable on the basis that they represented

stock-in-trade as distinct from plant, fittings or chattels. There

His Honour made no final orders at that stage, but gave directions to ensure an early trial of the outstanding question of

relief. After giving judgment on 16 April 1987 and before embarking

on the further trial with respect to damages, on the application of Collins Marrickville, Saade Developments Pty. Limited ("Saade Developments") was added by his Honour as a fourth respondent to the case and 1s the third appellant. This course was taken because Henjo had assigned to Saade Developments a mortgage which it had taken from Collins Marrickville to secure payment of $200,000 being the balance of purchase price left outstanding on the purchase. A payment under the mortgage was about to fall due and Collins Marrickville was concerned that, unless restrained by the Court, Saade Developments would seek to enforce its rights under the mortgage. On 29 April 1987, upon Collins Marrickville giving to the Court the usual undertaking as to damages, the trial Judge ordered that, pending further order, Henjo, Saade Developments and Mr. Saade be restrained from taking any action to recover any payments due under, or otherwise

His Honour later resumed the trial on the issue of relief and gave judgment on 20 October 1987. He found that the material before him did not enable him to make any precise findings as to the effect of the removal of the bar stools. It was clear that under the management of Collins Marrickville the business had fared badly, out it was unduly simple to attribute the whole of its problems to the removal of the bar stools. Other changes occurred about that time, some of which His Honour thought were more significant than the removal of the stools. These changes included three key personnel leaving the restaurant immediately after the transfer of ownership on 1 May 1985, namely, the manager (Mr. George), the assistant manager

and the chef, Some changes were made in the method of operation of

the restaurant. In particular, waiter service from the food bars was

offered and the layout of some of the fixtures was altered. r14 September 1985 the chef who took over in May 1985 left the restaurant. Extra staff were employed by Collins Marrickville, thus increasing expenses. Also, 1t appears from the evidence before the trial Judge that the food presentation and displays were not as appealing as they

His Honour found that the removal of the bar stools did have an adverse effect upon takings and profitability, but that the effect was relatively minor. He found that most of the losses of which Collins Marrickville complained were caused by factors which were not directly attributable to the misrepresentations as to seating capacity. Doing the best he could on the very sparse material before him, his Honour assessed the contribution of the loss of the har

stools as being ten percent of the total losses of the business.

His Honour said that the effect of the restrictions as to seating capacity at the bar stools on the value of the business depended first upon what assumptions were made as to the prospect of removing those restrictions. He rejected evidence from a solicitor with considerable experience in licensing matters that 1t would be possible to obtain the permission of the Licensing Court to use the garden passageway as a reception area containing eight bar stools and two lounge tables with chairs provided some physical barriers, such as planter boxes or ropes, were erected to separate the passageway from the dining areas. The solicitor said that if an application was lodged to vary the conditions of the licence so as to increase the permitted seating to 121 persons it was likely that the application

would be granted and that the Council, upon learning of the Licensing

Court's approval, would alter the conditions of uts development approval so as to permit the seating of 121 persons in the restaurant. His Honour regarded this assessment of the position as too optimistic. His Honour found that 1f Collins Marrickville offered the business for sale it would have to do so upon the basis that the business was subject to the limitations imposed by the Council and by the Licensing

Court and that those limitations would be likely to remain 19 place

His Honour approached the question of calculating the value of the business by assuming negotiating parties who at the date of the contract were familiar with all aspects of its operation and with business values generally and who were willing, but not desirous, respectively to buy and to sell. His Honour then asked at what sum such parties would have concluded their bargain. His Honour relied on Spencer v. The Commonwealth of Australia (1907) 5 C.L.R. 419 as the basis of this approach. He said that the critical question was to determine the true value of the business, subject to the restrictions

existing at the date of the contract, namely, 2 April 1985.

It 1s plain that the absence of the necessary evidence placed his Honour at a serious disadvantage in calculating damages. He said it was a matter of dismay that, notwithstanding the retention by the parties of no less than four specialist valuers, not one of then offered an opinion upon the only question of valuation which arose in the case, namely, the true value of the business which Collins Marrickville purchased in 1985 under the influence of the misleading

conduct of Henjo. His Honour said that, in the absence of some expert

assistance upon the likely income and expenditure in April 1985 of an

84 seat restaurant without bar stools, he could not make any firm finding as to whether such a restaurant would have been profitable at that time. His Honour approached the question of relief by invoking S. 87 of the Act, an approach which appears to have been influenced at least in part by the fact that the assessment of damages was doomed toa

The contract for sale be declared void ab initio;
Subject to Collins Marrickville redelivering to Henjo on a

specified date the use and possession of the restaurant business, Henjo and Mr. Saade, upon the date of redelivery, shall pay to Collins Marrickville $300,000 (being the price paid) together with the fair

The mortgage granted by Collins Marrickville to Henjo to secure the payment of $200,000, being the balance of the purchase

Henjo and Saade Developments execute and deliver to Collins

Marrickville the necessary documents to enable 1t to procure the

registration of the discharge of the mortgage mentioned in 3.;

Henjo execute a deed varying the deed of assignment of lease executed in April 1985 between Jasemo Pty. Limited ("Jasemo") as lessor, Henjo as assignor, Collins Marrickville as assignee and Mr.

Collins as guarantor so as to provide a covenant or covenants whereby

Henjo agrees to indemnify Collins Marrickville and Mr. Collins and

each of them against their liabilities under the deed to Jasemo;

Judgment be entered in favour of Collins Marrickville against

Hennjo and Mr. Saade for damages in the sum of $69,562.90;

Henjo and Mr. Saade pay Collins Marrickville's costs of the proceedings;
Collins Marrickville pay to Mr. George his costs of the

Henjo and Mr. Saade pay to Saade Development its costs of the

It was from these orders that this appeal was brought by Henjo and Mr. Saade. Collins Marrickville filed a notice of cross appeal from that part of the judgment of the trial Judge given on 20

made the findings adverse to Collins Marrickville, to which I referred earlier, with respect to the effect of the removal

found that in any event the restaurant would not have been

assessed the contributions of the loss of the bar stools as

found that most of the losses were caused by factors which had nothing to do with the misrepresentations as to seating

allowed by way of trading losses damages assessed at ten percent of the total trading losses to 30 June 1986 ($262,048), namely, $26,204.80 and failed to allow by way of damages trading losses for the period 1 July 1986 to 20

failed to order that there be included in the sum for which

Collins Marrickville also filed a notice of contention under Order 52 rule 22(3) contending that his Honour was in error in that he confined his observations as to the restrictions on seating requirements to the Council's development consent and should have referred to the restaurant licence issued by the Council which imposed a like restriction on seating and that he should have noted that any application to amend that licence was incapable of review upon appeal

by the Land & Environment Court of New South Wales.

Section 52 has been considered by the High Court and this Court in many cases, and its interpretation and breadth have evolved

in the light of the facts of each case. The section is expressed in

general terms and is designed to have "a broad reach": dornsby

Building Information Centre Pty. Limited v. Sydney Burldirg Information Centre Limited (1978) 140 CLR 216 per Stephen J. at 225. It 1S a provision to protect the consuming public from unfair trading practices, namely, from being misled or deceived: The Hornsby

Building Information Centre Case; World Series Cricket Pty. Limited v. Parish (1977) 16 A.L.R. 181 per Bowen C.J. at 186-187; Franki J. at

196 and Brennan J. at 199; Ex parte Pilkington A.C.I. (Operations) Pty. Limited (1978) 142 C.L.R. 113 per Mason J. at 128.

It is now established that intent is not a necessary element

in a contravention of the section: see, for example, The Hornsby

Building Information Centre Case per Stephen J. at 228. However, as I observed in Bridge Stockbrokers Ltd. v. Bridges (1985) 57 A.L.R. 401

at 415, there are cases where there will be deceptive conduct only

where the intention of the alleged contravenor is established.

The Compact Edition of the Oxford English Dictionary 1987 defines the word "mislead" in its transitive sense as "to lead astray in action or conduct; to lead into error; to cause to err". "Deceive" is defined as "to ensnare; to take unawares by craft or guile; to overcome, overreach, get the better of by trickery; to beguile or betray into mischief or sins; to mislead". This approach to determining the meanings of the terms appearing in s. 52 1S consistent with the approach adopted by Franki J. in Weitmann v. Katies Ltd.

The two words, "misleading" and "deceptive", are plainly not

synonymous. That is not to say that each word may not catch some of

the same conduct and that there may not be some degree of overlap. "Mislead" does not necessarily involve an element of intent and 1t 1s a word of wider reach than "deceive". However, 1t is difficult, in My Opinion, to read the word "deceive" in s. 52 other than as involving some degree of moral turpitude as 1t does in ordinary English usage. Trickery, craft and guile, though not essential elements of liability, are typically at the heart of this second element of the statutory provision directed to the protection of the

Misleading or deceptive conduct generally consists of representations, whether express or by silence; but it 1s erroneous to approach s. 52 on the assumption that its application is confined exclusively to circumstances which constitute some form of representation. The section is expressed briefly, indeed tersely, in plain and simple words which, if I may be forgiven for repeating them, say simply: "a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive". There 1s no need or warrant to search for other words to replace those used in the section itself. Dictionaries, one's own knowledge of the developing English language and ordinary experience are useful touchstones, but ultimately in each case 1t 1S necessary to examine the conduct, whether representational in character or not, and ask the question whether the impugned conduct of 1uts nature constitutes misleading or deceptive conduct. This will often, but not always, be the same question, as whether the conduct is likely to

Whether there was a representation that the restaurant was licensed to seat _ 128 people.

The trial Judge accepted the evidence of Mr. Collins and Mr. James and found that Mr. Le May had told them that the restaurant had a capacity of 128 seats, showing them for that purpose tne instructions card. His Honour accepted Mr. Le May's evidence that he had obtained the information as to 128 seating capacity from Mr. Saade and that Mr. Le May wrote that information down on the instructions card. His Honour said that he had considerable reservations as to the basic honesty of Mr. Saade. His Honour said, amongst other things, that Mr. Saade's action of having Mr. George lodge the application on 16 April to regularise the position as to the structure of the bar after he had already contracted to sell the business and without informing anyone on behalf of Collins Marrickville or even his company's own solicitor was, to say the least, curious. His Honour said that this action strongly suggested a realisation by Mr. Saade that Collins Marrickville might complain about the position as to the bar and that Mr. Saade attempted to rectify the situation whilst he could. His Honour concluded that Mr. Saade did tell Mr. Le May at their first interview that there were 128 seats in the restaurant without any qualification as to the legality of the number of seats and that Mr. Le May passed on that information to Mr. Collins and to Mr. James upon the occasion of Mr. Collins' first inspection of the

His Honour rejected a submission on behalf of Henjo that, even if Mr. Le May had said that the restaurant seated 128 people,

this was not untrue because in fact it did seat that number of people.

His Honour rejected a related submission that, for there to be misleading conduct, Mr. Le May would have had to say to Mr. Collins and Mr. James that the restaurant was licensed to serve 128 people. His Honour described that submission as unreal and said that, when Mr.

Le May conveyed the information to Mr. Collins and Mr. James about the

"were not concerned with the question of how many chairs they would be getting for their money or how many chairs would physically fit in the restaurant. They were concerned with the scale of the business, that 1s the maximum number of people they could hope to serve at any one time.

The business was being sold as a licensed restaurant. The enquiry was concerned with the seating capacity of that business."

His Honour found that it was a clear implication from the representation that the restaurant was licensed and that it had 128

seats at which it was licensed to serve 128 people.

There was some challenge to his Honour's finding that Mr. Le May "told" Mr. Collins and Mr. James that the restaurant was licensed to seat 128 people. The evidence is not entirely clear as to whether any statement was made in terms by Mr. Le May to Mr. Collins and Mr. James that the restaurant had a capacity of 128 seats or was licensed to seat 128 people or whether all he did was to show them the instructions card. It would be strange if the showing of the card with this vital information was not accompanied by discussion about 1t; but I am content to determine this appeal on the basis that all Mr. Le May did, so far as this matter is concerned, was to show the card to Mr. Collins and Mr. James. The card contained on its back the

statement "Seats 128" and immediately underneath the word "Licenced".

These statements were seen on the back of the card by both "tr. James and Mr. Collins. It must also be remembered that the words "Fully Licensed" appeared in bold print on the front window of the restaurant and were seen by both men. In my opinion the showing of the card to Mr. James and Mr. Collins was not conveying two discrete items of information; but was a clear statement in the circumstances that "the New York Deli" was a restaurant licensed to seat 128 people. fn that sense Mr. Le May communicated to Mr. James and Mr. Collins that the

In my opinion the real complaint against the conduct of Henjo and Mr. Saade in this case arises from their silence in not informing Collins Marrickville of the true position with respect to the limitations on seating capacity and the use to which the bar area

The trial Judge found that Henjo owed a duty to inform Collins Marrickville, before the sale was effected, as to the true position about the number of tables and seats permitted by the Council

and the Licensing Court and about the Bar service area and that this

It is common ground that the refreshment room licence and other approvals granted by the Council were restricted to the seating, and therefore serving, of 84 people at 26 tables with no bar stools or reception area being included, the bar area being solely a service bar

accessible only to staff. The liquor licence was subject to the same

limitations. Mr. Saade and Henjo knew that since at or about the tine the restaurant opened for business the number of seats had been increased without authority by something in excess of one-third of the permitted maximum and that the bar service area was used as a bar available to patrons of the restaurant and to others who did aot even dine there. Mr. Saade and Henjo also knew that during the four week trial period, commencing on about 4 April 1985, the purchaser, Collins Marrickville had stationed people in the restaurant to verify, amongst other things, the takings of the business. The process of ver1lfication would necessarily involve the inclusion of takings from all 39 tables at which 120 chairs were provided and from the sales of liquor at the bar. Therefore, they knew that the takings must reflect the actual numbers of people attending the restaurant for purposes of eating or drinking or both. If the business had been conducted lawfully there would necessarily have been a drop in takings because about one-third of the numbers of people who attended the restaurant would not have been able to be there. Whether this would mean a reduction un takings by one-third or some smaller or greater proportion is not clear, but it would certainly have brought about a substantial erosion into the takings of the business, a matter which Henjo and Mr. Saade must have known.

At common law, silence can give rise to an actionable misrepresentation where there is a duty upon the representor to reveal a matter if it exists, and where the other party is therefore entitled to ainfer that matter does not exist from the silence of the representor: W. Scott Fell & Co. Ltd. v. Lloyd (1906) 4 C.L.R. 572 per Griffith C.J. at 577; Halsbury's Laws of England, 4th ed, Vol. 31,

par. 1052. The circumstances in which silence may constitute

misleading conduct under the Act were referred to in Rhone-Poulenc

Agrochimie SA. v. UIM Chemical Services Pty. Limited (1986) 12 F.C.R.

That case established that silence may be relied on in order to show a breach of s. 52 when the circumstances give rise to an obligation to disclose relevant facts: see Bowen C.J. at 490, Lockhart J. at 504 and Jackson J. at 508. The duty to disclose 1s not confined to cases where there are particular relationships, such as trustee and beneficiary or solicitor and client, principal and agent and guardian and ward. There is no useful purpose in seeking to analyse the circumstances in which the duty to disclose will arise as

In the present case the vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity, limitations imposed by both the licensing authorities and the local council which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law with a substantial element of overseating. The vendor's agent had given the purchaser to understand that the limitations upon the seating capacity and the limitations arising from the licensing of the restaurant were less restrictive than was in fact the case, while the manner in which the business was conducted at the time of sale supported this understanding. In my Opinion these circumstances gave rise to a duty on the part of Henjo

as vendor to reveal the true position to Collins Marrickville, the

potential purchaser, before any contract was signed.

It 18 no answer to say that Collins Marrickville should have

made 1ts own enquiries and that, if it had done so, it would have

found out the true position: see Redgrave v. Hurd (1881) 20 Ch.D. 1

per Jessel M.R. at 14 and 17; per Baggallay L.J. at 23, in the context of the equitable right to rescind for innocent misrepresentation. Tt 1s true that Mr. Collins recognised the importance of verifying the material given to him by Mr. Le May about the seating capacity of the restaurant and that, had his solicitor done what he should have done, the true position would have emerged and the sale probably would aot have proceeded. But these circumstances did not negate the duty to

disclose which the circumstances otherwise imposed.

The trial Judge dealt with the defence of Henjo that no reliance was placed by Collins Marrickville upon the misleading conduct of Henjo and Mr. Saade. His Honour accepted that Mr. Collins thought it important to check that the facts in relation to approvals of statutory authorities were as he understood them to be, that he wanted a thorough check to be made and relied upon his solicitor to make that check. His Honour found that this state of mind was not inconsistent with Mr. Collins having also been influenced by the information originally conveyed to him by Mr. Le May on behalf of Henjo which had caused him to instruct Mr. James to do further work and retain Mr. Tadd. His Honour said it was true that this influence would have been negated if Mr. Tadd had carried out his instructions and reported the true facts; but, notwithstanding Mr. Tadd's omission, the original influence, supplemented by a report of Mr. James to Mr.

It is broadly true that an applicant in an action under s. 52 cannot recover damages unless he establishes that he acted on or was

influenced by the conduct contravening the section: Mr. Figgins Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (1981) 36 A.L.R. 23 per

Northrop J. at 48. The issue of the applicant's reliance upon such

conduct is however more complex than such a formulation indicates. The trial Judge noted the similarity between conduct const:tuting deceit at common law and conduct contravening s. 52, and referred to the principles which determine whether there has been inducement in actions for deceit. These principles were reviewed by Wilson J. in

Gould v. Vaggelas (1985) 157 C.L.R. 215 at 236. His Honour there

observed that the inference that the applicant relied upon a material representation calculated to induce him to enter a contract might be rebutted by showing that "whether he knew the true facts or not he did not rely upon the representation". H1s Honour noted that the representation made "need not be the sole inducement. It us sufficient so long as it plays some part even if only a minor part un contributing to the formation of the contract". In Neilsen v. Hempston Holdings Pty. Ltd. (1986) 65 A.L.R. 302 at 313, a case which concerned an action for damages under s. 52 where misleading statements had been made to the applicant as to the occupancy rate of a motel, Pincus J. held that the causal chain allowing recovery of damages under s. 52 of the Trade Practices Act was not broken even where the applicant had failed to take reasonable care of 41S own interests by undertaking a proper investigation of the figures presented. These decisions support the view that recovery under s. 52 1s founded by the applicant's actual reliance upon the misleading or deceptive conduct of the respondent although that conduct was not the

only factor in the applicant's decision to enter a particular

agreement, and although the applicant did not seek to verify tne

representations or did so inadequately and so failed to discover their

The circumstances of this case do not support the conclusion that Collins Marrickville did not in fact rely upon the misleading conduct of Mr. Saade and Henjo. Their conduct not only played some part in contributing to the purchase of the business but was in fact, the major inducement. It matters not that the solicitor's failure to carry out his client's instructions prevented what may or indeed would, more likely than not, have been a different result. The fact 1s that reliance was placed by the purchaser upon what 1t assumed to be the true position as a result of the conduct of the vendor and the

absence of knowledge of the true facts. Constructive Notice

His Honour rejected the further submission that Collins Marrickville had constructive notice of whatever information Mr. Tadd would have gleaned if he had made proper enquiries. Reference was made in argument to some evidence that Mr. Saade handed to Mr. James a file of documents which included the Council's refreshment room licence Limiting the number of people who may be served in the restaurant to 84 people. At best this evidence means that Mr. James had an opportunity, whilst in the restaurant with Mr. Saade, to check the files handed to him but did not do so thoroughly and that, if he had checked them, he may have found the licence. The occasion for the meeting in question was essentially to discuss matters relating to the

finances of the restaurant rather than anything to do with the actual

licensing position. The files contained a lot of documents; but the evidence is very general and not clear about their contents or subject matter. Even if the Council's restaurant room licence was contained in the files, that fact would not constitute, in my opinion, in all the circumstances, notice, whether actual or constructive, to Collins Marrickville of the facts in issue in this case relating to that licence. It was Mr. Saade who swore in an affidavit that the files contained the licence. This evidence was not challenged, but its acceptability must be considered in the light of his Honour's rejection of much of Mr. Saade's evidence and the fact that there was little evidence led at the trial about this matter and it was not

treated below as an issue of any real significance.

Doubtless Collins Marrickville could have ascertained the true position about the restaurant's licences 1f it had enquired about them; but it did not do so. Even if Mr. Tadd or Mr. Jones, as advisers to the plainfiff, were on inquiry as to the matter 1n issue, this should not itself be taken to exclude recovery under s. 52. [t 1s true that at common law, the principal has imputed knowledge of that which is or ought to be known by his agent. There 1s authority that a client who employs a solicitor in a conveyancing transaction has imputed to him knowledge of anything which 1s known to his

solicitor or would have been known to his solicitor on the proper enquiries: Kadner v. Brune Holdings Pty. Limited [1973] 1 N.S.W.L.R.

498 per Mahoney J.A. at 501; Sargent v. A.S.L. Developments Limited (1974) 131 C.L.R. 634 per Stephen J. at 649, per Mason J. at 658-659.

In an action under s. 52, however, the issue is whether the misleading and deceptive conduct alleged continues to be operative in fact,

whatever the knowledge which might have been obtained had the

applicant's advisers conducted their investigations in a proper

manner, and whatever the matters of which those advisers might have

constructive notice: Qbaleco Pty. Limited v. Taveraft Pty. Limited (1986) A.T.P.R. 40-703 per Wilcox J. at 47,688. This reasoning is the

stronger where a party who would otherwise be liable on account of conduct found to be misleading or deceptive seeks to rely upon knowledge notionally attributed to the innocent party so as to avoid

liability. In my opinion the trial Judge correctly rejected the

argument that Collins Marrickville had constructive notice of these

I turn now to the two special conditions, 6 and 7. T h oe trial Judge considered the effect of special conditions 6 and 7 of the contract for sale and found that they did not operate to defeat a claim under s. 52, whatever effect they may have in the law of contract, because an exclusion clause of that kind cannot oust the effect of the Act or deprive an applicant of remedies under 1t. If in fact there was misleading conduct by Henjo which induced Collins Marrickville to enter into the contract, that inducement was not

negated because in the agreement itself the parties may have said to

Special Condition 6 1S expressed simply as an acknowledgement by the purchaser. In my opinion the acknowledgement by the purchaser contained in the special condition, which has been recited earlier, 1s an acknowledgement essentially as to the physical state of the

premises themselves together with rights and privileges, if any, which

pertain to the premises as a physical structure. The special condition 1s not concerned with the use to which the premises may be put. It 18 not directed to licences or other rights from statutory authorities to conduct business on the premises of a certain kind and 1t does not emcompass rights of the kind with which this case is concerned, namely, the rights from the Council and the Licensing Court as to the number of persons who may be seated and the number of tables at which they may be seated in the restaurant premises and served wit- liquor or whether certain parts of the premises may or may not be used for the service of liquor. Although these restrictions from the authorities are issued with respect to the premises themselves, they have relevance only to the use to which the premises may be put in carrying on business upon them. They do not fall within the ambit of special condition 6, having no substantial nexus with the condition or

Although special condition 7 1s couched in wide language, in my opinion 1t purports to exclude promises, representations, warrantles and undertakings or conditions of a contractual kind not embodied in the contract for sale itself and is not directed to representations by silence which have origin or effect outside the law of contract. It may be that special condition 7 would deny the plaintiff a right of contractual damages arising from the misrepresentation as to seating capacity, and would exclude an action based on common law misrepresentation in the absence of fraud preventing the defendant from relying upon the condition. It remains that, even if the intention of special condition 7 was to restrict the

terms of the transaction to those embodied in the written agreement,

On construction the condition addresses active representations rather

than the failure of one party to the agreement to make disclosure to

the other where circumstances required it to do so.

Irrespective of the construction of these two special conditions it does not matter ultimately whether the impugned conduct with which this case 1s concerned falls literally within them or not. Section 52 1S a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special

conditions 6 and 7 are examples, cannot operate to defeat claims under s. 52. It may be, as the judgment of Sweeney J. 1n P.J, Berry Estates Pty. Ltd. v. Mangalone Homestead Pty. Ltd. (1984) 6 A.T.P.R. 40-459 at

45,638 suggests, that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of s. 52 and the making of the agreement in issue. Where the conduct of the defendant is alleged to be fraudulent in character, than an exclusion clause will be no more effective to defeat the action than it would be effective if the action were brought in the tort of dece1t in relation to conduct antecedent to the contract: Commercial Banking Co. of Sydney Ltd. v. R.H. Brown & Co. (1972) 126 C.L.R. 337 per Menzies J. at 344; Petera Pty. Ltd. v. E.A.J. Pty. Ltd. (1985) A.T.P.R. 40-605 per Wilcox J. at 46,887; see also Terry "Disclaimers and Deceptive Conduct" (1986) A.B.L.R. 473 at

There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute,

could be ousted by private agreement. Parliament passed the Act to

stamp out unfair or improper conduct in trade or in commerce; 1t would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act. There are various judgments of Judges of this Court where this approach has been adopted and they are collected in the judgment of the trial Judge, so I need

Mr. Saade plainly was aware of the true position with respect to the licences and the limited numbers of tables and seats permitted by law and of the fact that the actual number of tables and seats substantially exceeded the legal limit. He was also aware of the facts relating to the bar service area and the limitations on the use to which it could be put. Mr. Saade concealed these matters from Collins Marrickville, he was in control of the premises, he was responsible for all relevant licences being obtained, he signed the instructions to Mr. Le May and he was responsible for the conduct of the restaurant business. He had knowledge of the relevant matters which constituted the contravention and therefore was correctly found by his Honour to have been involved in the contravention within the

I turn to the most difficult question in the case, namely, relief. I set out earlier the orders made by the trial Judge and his reasons for them. The primary issue is whether restitution or damages

It is not disputed that this Court has power to make orders of the kind made by his Honour in this case. The issue 1S whether in all the circumstances of the case it was appropriate that they be made. Five matters are central to the question of relief. First, the trial Judge found that the trading losses of the restaurant sustained by Collins Marrickville, except to the extent that they were increased by the loss of the bar stools, were occasioned by factors tna connection with which there was no misrepresentation and that most of the losses were caused by factors which had nothing to do with the misrepresentations as to seating capacity. His Honour found that they were not "directly attributable" to the misrepresentations and ought

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (350 paragraphs)

Cases Cited (1)

Cited By (4)