Margaris v Brahmbhatt

DECISION: 1. Verdict for the defendants in the plaintiff's claim. 2. Verdict for the cross claimants against the cross defendant.

CATCHWORDS: CONTRACTS - misrepresentation - rescission - Contracts Review Act - unfair contracts - Fair Trading Act - misleading and deceptive conduct

Contracts Review Act 1980 LEGISLATION CITED: Fair Trading Act 1987 Conveyancing Act 1919 Cheques Act 1986 (Cth)

Taylor v Johnson (1983) 151 CLR 422 Watson v Foxman (2000) 49 NSWLR 315 CASES CITED: Clancy v Prince [2001] NSWSC 85 Commercial Banking Co of Sydney Ltd v R H Brown & Co (1972) 126 CLR 337 Oraka Pty Ltd v Leda Holdings Ltd (1997) ATPR 41-558 Derek v Peek (1889) 14 App Cas 337

Zois Margaris (Plaintiff) PARTIES: Rajesh Muljibhai Brahmbhatt (First Defendant) Sheela Rajesh Brahmbhatt (Second Defendant) Santosheema Pty Limited (Third Defendant)

COUNSEL: S J Walsh (Plaintiff) B K Ralston (First, Second and Third Defendant)

SOLICITORS: Legal & Company Solicitors (Plaintiff) B Hayward & Co (First, Second and Third Defendant)

1 HIS HONOUR: These proceedings arise out of events leading to, including and following the auction sale of a property at 183 Queens Rd, Connells Point, ("the property") on 1 March 2008. On that date, the first defendant, Dr Rajesh Brahmbhatt ("Rajesh"), and the second defendant, his wife, Dr Sheela Brahmbhatt ("Sheela") signed a document purporting to be a contract for the sale of the property from the plaintiff, Mr Zois Margaris. The plaintiff sues the first and second defendant for the amount of the deposit payable under the contract, and the third defendant, a company controlled by Rajesh, for the amount of a cheque issued by it in favour of the plaintiff's agent for an identical sum. The defendants have cross-claimed, alleging that the plaintiff and his agents have engaged ion misleading or deceptive conduct. As I understand it, I should consider the cross-claim only in the event that I find for the plaintiff on the claim.

2 The issue for decision in this case is primarily whether the plaintiff is entitled to recover the amount claimed from any of the defendants. This, in turn, depends upon: - whether the document signed by the defendants was a contract binding on them; - if the contract was binding, are the defendants entitled to avoid it -- - for mistake, - for fraudulent misrepresentation by the plaintiff or his agents, - for innocent misrepresentation by the plaintiff or his agents; - whether the defendants are entitled to relief under the provisions of the Contracts Review Act 1980.

3 The plaintiff purchased the property in or about July 2004. At that time, erected on the property were a brick house, close to the waterfront on the Georges River, which was divided into three residential flats, and a timber building containing garages and another flat. At the time there were four tenants on the property.

4 On 19 December 2006 the plaintiff lodged a development application in respect of the property with the Kogarah Council. Attached to this application were a series of plans showing both the brick building and the proposed redevelopment of the timber building. On 30 January 2007, the Council advised the plaintiff that the proposed development constituted multi unit housing, which was prohibited. In March and April 2007, there was correspondence between agents of the plaintiff and the Council, suggesting that the multi unit housing development could be approved under an "existing use" provision. The Council also gave notice to the plaintiff that it required the use of the property "as multi unit residential units by more than one family or social group" to cease. Negotiations continued and of the plaintiff produced plans to convert the property back to one occupancy and one "detached extended family unit".

5 On 16 October 2007 the Council issued an order requiring the plaintiff to cease the use of the property as multi unit residential units.

6 During 2007, the plaintiff retained Terry Pfeiffer Real Estate Pty Ltd ("Pfeiffers") to act as his agent for the sale of the property by private treaty. On or before 12 October 2007, Pfeiffers had placed an advertisement on the Internet for the property, indicating that it was for sale as a multi unit residential property. The defendants did not see this advertisement and did not rely on it. However, the Council was apparently aware of it, and wrote to Pfeiffers in terms that Pfeiffers should "please advise prospective purchasers of the status of the dwelling/detached outbuilding and of Council' s interest in this matter."

7 At the end of 2007 or the beginning of 2008, the plaintiff, who is a carpenter by trade, after discussions with the Council, made some changes to the brick building on the property by demolishing some walls and converting it from three residential units to a single unit. The Council approved this work. The plaintiff's unchallenged evidence was that he then leased the whole of the property to a single tenant, who used both the brick building and the timber building. This tenant was still in occupation on 1 March 2008.

8 I infer that, at some time before October 2007, the plaintiff provided Pfeiffers with copies of the plans, which he had lodged with the Council to support his development application. There was no evidence as to the reason the plaintiff took this action, but I infer that it was because he conceded, either on his own initiative or on the advice of Pfeiffers, that the plans might be used to support the sale of the property.

9 In mid-2006, Rajesh, who is a cardiologist, commenced medical practice at Hurstville. He and Sheela were then living in Baulkham Hills, as they still do, but wished to move to a property closer to Hurstville. In November 2006, the defendants, who were interested in purchasing a property which they could use as a residence for themselves and their extended family (their son and their daughter, with their spouses when they married), so that they required a property with at least three bedrooms and three bathrooms. They had discussions with a person called Maurice Maroon, who was apparently employed by Pfeiffers, and discussed with him or another employee of Pfeiffers, the possibility of purchasing property with dual occupancy, as this might also be suitable for their extended family. I infer that the names of Sheela and Rajesh were placed on a list of potential purchasers in Pfeiffers' office.

10 On or about 30 January 2008, the plaintiff instructed Pfeiffers to attempt to sell the property by auction. It appears that the sales manager of Pfeiffers, Bianca Torres, was in charge of making the arrangements for the auction. Another real estate salesperson employed by Pfeiffers, Angela Zhang, was also involved in making arrangements for the auction. By e-mail dated 28 February 2008, Ms Zhang sent to a number of Pfeiffers' potential buyers (including Sheela and Rajesh) a copy of the advertisement for the auction, containing photographs of the property, the contract for the sale of the property, and a set of plans, which were apparently part or whole of the plans prepared on behalf of the plaintiff, and attached to the development application which he had lodged in December 2006, and subsequently withdrawn on 20 March 2007. In the e-mail there was no information at all about the plans, or why they were included. The plaintiff acknowledged that he had given copies of the plans to Pfeiffers. He was not asked about why this had been done.

11 Sheela and Rajesh opened the e-mail on the morning of Friday 29 February. This was the first information they had about the auction sale, which was to be held on the following day. The property appeared to meet their requirements, and they made some further enquiries. Sheela says that she telephoned the Kogarah Council and spoke to someone called Peter. She referred to the plans and asked if it would be possible to build on the land as shown in the plans. She was told they could apply, but not that the development application had been withdrawn, or that multi unit developments would not be approved on the property. Because of the shortness of time, Sheela and Rajesh did not seek legal advice. They did not print out the contract or read it.

12 However, on Saturday, 1 March 2008, they went to the property at Connell's Point with their daughter Sheema. There they met Ms Zhang, and had a conversation. The nature and content of this conversation is in dispute, and I shall consider that when I have examined the credibility of the various witnesses. It is not in dispute that Sheela and Rajesh inspected the property and attended the auction, which commenced at 3 p.m., or shortly thereafter. Nor is it in dispute that both Ms Torres and Ms Zhang encouraged them to bid. Sheela and Rajesh made the highest bid at the auction, a bid of $1.79 million. The auctioneer then announced that the reserve price had not been met and that the property was passed in.

13 There is a dispute about the circumstances leading to negotiation about the price, which I shall consider later after deciding issues of credibility, but there is no doubt that there were negotiations between the plaintiff and Sheela and Rajesh after the auction concluded. Nor is there any dispute that, for the first part of these negotiations, Sheela, Rajesh and their daughter sat at a table on the verandah of the property, and the plaintiff was not present. Ms Torres acted as an intermediary between Sheela and Rajesh, on the one hand, and the plaintiff on the other.

14 There is a dispute about the circumstances in which the document was signed, and what happened before and after it was signed. The negotiations took some time, and it seems to be common ground that the discussion started between 3.30 and 4 p.m., and continued until at least 5:30 p.m., and possibly until about 6 p.m. Sheela and Rajesh both gave evidence that Sheela is an insulin dependent diabetic, and was feeling unwell because of hypoglycaemia towards the end of the negotiations.

15 It is not disputed that when Sheela and Rajesh left the property, they did not have a copy of the contract with them, because Ms Torres retained the copy they had signed

16 Before Sheela and Rajesh left the property on Saturday evening, it is not in dispute that Ms Torres asked them to provide a cheque for 10% of the purchase price. Nor is it in dispute that Rajesh wrote a cheque drawn on the account of the third defendant in favour of Pfeiffers for $183,000.00.. His unchallenged evidence was that he did not have his personal cheque book with him, that the company account did not have sufficient credit to meet the cheque, and that he made arrangements to put the company in funds sufficient to meet the cheque. However, in circumstances that will become clear, the cheque was stopped.

17 The unchallenged evidence of both Sheela and Rajesh is that on the morning of Monday, 3 March 2008, Sheela went to the Kogarah Council with a printout of the plans which had been sent to her by Ms Zhang the previous Thursday. She showed these to a Council officer, who advised her that the plans had been attached to a development application that had been withdrawn about 12 months previously, and that, while an application could be made to develop the property, the development shown in the plans would not be approved. Thereupon, Rajesh sent a fax from his consulting rooms to Pfeiffers indicating that he and Sheela did not intend to proceed with the purchase, and that the cheque should not be presented. He then contacted his bank and stopped the cheque.

18 The outcome of these proceedings depends very much on the credibility of the witnesses. Much turns upon which version of events I accept.

19 The evidence for the plaintiff depends largely on whether I accept Ms Torres and Ms Zhang as reliable witnesses. The plaintiff himself gave evidence, and I regard him as, generally speaking, an honest and accurate witness. However, most of the matters about which he gave evidence are not significantly in dispute. I accept that he did provide to Pfeiffers the plans accompanying the development application, which he had later withdrawn, and did not give any explanation as to why this was done.

20 Ms Torres gave an account, which was at variance with that given by the defendants. She was unable to recall clearly some important matters. While she said she was able to recall some events clearly, I am not satisfied that much of her evidence was truthful. Some, especially that prepared in response to Sheela's first affidavit, was in my opinion, a total ex post facto fabrication to justify her position. The plaintiff submits that Ms Torres is not a party to this litigation, and does not stand to gain from its outcome. For her to have made the representations alleged would, it is submitted, amount to gross negligence on the part of a professional real estate agent, if not dishonesty. I do not accept this submission, and find that Ms Torres was either grossly negligent or, more probably, dishonest.

21 Ms Zhang's evidence, in my view, was entirely unsatisfactory and unacceptable. She claimed that either she could not recall many events, particularly where these events were inconsistent with the evidence given by the defendants, and that she had no idea about other matters, about which one might reasonably expect her to have some knowledge of memory.

22 It is significant that both Ms Torres and Ms Zhang were aware, from some time in 2007, that the council had written to Pfeiffers about the property, particularly indicating its concern about representations to potential purchasers as to restrictions on future developments, inconsistent with single occupancy. Ms Torres also admitted that she knew that the Council would not permit any redevelopment in that area which involved multi unit occupancy.

23 Ms Zhang denied that she had made any representation to the defendants about the property, other than in relation to jetties. Specifically, she denied that she had told Sheela that Council would not approve any development on the site of the brick building, and that any redevelopment near the waterfront would have to be set back a significant distance.

24 The way in which both Ms Torres and Ms Yang gave evidence leads me to the conclusion that they are not to be believed on any significant matter at issue in these proceedings, and in the case of Ms Zhang, at least, I have serious doubts about her honesty and fitness to hold a licence as a real estate agent or salesperson. She struck me as an evasive witness, who is not to be believed on her oath.

25 I am also extremely troubled by the fact that, although both Ms Torres and Ms Zhang were aware that the development application lodged by the plaintiff had been withdrawn, that Ms Zhang sent to persons who they regarded as potential purchasers of the property, copies of the plans submitted to Council with the development application. It was clear that they knew that that type of development proposed in that application would not have been approved. They both admitted this in cross examination. I do not accept the evidence that they gave that the plans were sent to potential purchasers to give some idea of what type of development was possible, and to enhance the potential of the property. The only possible reason why those plans were sent to potential purchasers must have been to create the impression that a development of that type was possible, and was likely to be acceptable to the Council. This conduct was, in any sense, quite apart from the statutory provisions, which I shall consider later, less than completely honest and far more than was reasonable in terms of promoting and marketing the property. It was, I find, misleading or deceptive within the meaning of s 42 of the Fair Trading Act 1987, and, in fact, misled the defendants. This conduct also causes me to doubt the suitability of either Ms Torres or Ms Zhang to hold a licence in relation to the sale of property.

26 Sheela and Rajesh gave accounts of what happened, which are largely consistent with each other, and are corroborated, to some extent, by the affidavit of their daughter Sheema. Although they also have an interest in ensuring that they did not forfeit the deposit and were not compelled to pay an equivalent sum, and although Rajesh, at least, was wrong in his recollection that he signed only one page of the contract, and although they were, at times, voluble and excitable, I accept them as honest and reliable witnesses. Where there is a conflict between the evidence of Sheela and Rajesh and that of the plaintiff's witnesses, I prefer the evidence of Sheela and Rajesh.

27 I shall consider in detail what the defendants allege to have been said by Ms Torres and Ms Zhang.

28 Sheela says that she arrived at the property at about 2:30 p.m. She says that she spoke to a woman who introduced herself as Angela. It is not in dispute that this was Ms Zhang. Angela noted her name and that of her husband. She says that Angela said that she remembered sending the contract with the photographs. She then alleges that Angela said, "Have you had a look at the plans for the construction of a new house?" Sheela says that she replied, "Yes. We are thinking that our son might be able to live in the new house after he is married. Rajesh and I would live in the existing house."

29 Sheela then says that Angela said to her: "Any building you do should be to replace the weatherboard building. You need to keep the old house 'as is'. You would never get permission to build that close to the water again. Any new house to replace the existing house would have to be set back about 30 m. But there's nothing to stop you living in the old house."

30 Sheela says that Angela also said to her words to the effect: "At the moment the property is rented out to four families. There are three in the old house and one in the weatherboard. The owner is getting $750-$800 per week. But one of the tenants is his girlfriend so she's getting it at a cheaper rate. So you might be able to rent it for more if you decide to rent it out."

31 Ms Zhang denies that she made any of the statements which Sheela alleges.

32 It is common ground that Angela and Sheela had a conversation about jetties. Ms Torres confirms that Angela Zhang asked her about this.

33 Once the auction commenced, Sheela and Rajesh decided to limit their bid to $1.7 million. Rajesh registered as the purchaser. When the bidding reached $1.7million, Sheela says Angela approached her and encouraged her to bid further. She placed further bids, ultimately reaching the final bid of $1.79 million. There were no further bids and the auctioneer announced that the property was passed in. Sheela says that Angela, Ms Torres and the auctioneer were all urging the Brahmbhatts to increase their bid. Sheela recalls one of them saying "Sanders recently sold a property for a higher price".

34 At this stage Sheela says that she needed to eat something because she felt that her blood sugar levels were falling, and she was beginning to feel the effects of hypoglycaemia. She and Rajesh went to leave the premises and, she says, that Bianca Torres came and grabbed her by the wrist and led her down the stairs. Sheema Brahmbhatt confirms this.

35 There is no doubt that the auctioneer left the property shortly after the conclusion of the auction. Nor is any dispute that Bianca Torres led them to the verandah where they sat down. Ms Torres advised that the reserve price was $1.9 million. She said, according to Sheela, "In order to get the vendor down we need to convince him that you are genuine".

36 It appears to be common ground that, at this stage, Bianca Torres then produced a blank copy of the contract. The space for the name of the purchaser was blank. No price had been entered on the form. Both Sheela and Rajesh said that Ms Torres asked them to sign the form to show that they were genuinely interested in the property. Both Sheela and Rajesh said that they were reluctant to sign the contract without the price being agreed. Both said that what was produced was only the front page of the contract, but in cross-examination, Rajesh conceded that he had signed several other pages of attachments forming part of the contract. Both Sheela and Rajesh did sign the front page of the form, and I find that the other pages of the contract were available, though possibly not attached to the front page.

37 Both Sheela and Rajesh said that Bianca Torres told them that signing the contract form was only to encourage the vendors. They said that she emphasised that there would be no binding contract, unless and until a price was agreed and the vendor had signed the form.

38 Initially, Sheela, Rajesh and Sheema were sitting at a table on the verandah. The plaintiff was not present. Bianca Torres acted as an intermediary. After negotiations had been in progress for a considerable time, the plaintiff came onto the verandah. At this time, the Brahmbhatts and Bianca Torres believed that the vendors had agreed to a price of $1.825 million. Bianca Torres wrote this sum on the contract form. She also wrote in the full names of Sheela and Rajesh as purchasers. Before the plaintiff signed the document, he got up, saying he needed to speak to his father, left the table, and appeared to make a telephone call. He returned to the table after some time and said something to Bianca Torres. She left the table and had a discussion with the plaintiff, and then returned, saying, "He won't sell for $1.825 million. Are you prepared to come up to $1.83 million?" Rajesh and Sheela had a discussion between them, and finally agreed to a price of $1.83 million. Bianca Torres then altered the price on the front page of the contract, and asked the Brahmbhatts to initial the alteration.

39 There was a discussion as to the time for settlement. The contract originally provided that settlement should take place five weeks from exchange of contracts. The Brahmbhatts said that they found this was not normal, and unacceptable, and there was an agreement that the settlement date should be changed, so that it was to be six weeks after exchange. Sheela and Rajesh both said that this alteration took place well before there was any agreement on the price. Bianca Torres said that it occurred at the same time.

40 After the agreement on price, and Sheela and Rajesh had signed the contract, Bianca Torres asked Rajesh for a cheque for a deposit of $183,000. Rajesh said that he did not have a personal cheque book with him, but that he did have a company cheque book in the car. He indicated that the company account did not have sufficient funds to meet the cheque. Bianca Torres says that she did not remember this having been said. There is no doubt that Rajesh did write a cheque in favour of Pfeiffers for $183,000 and gave it to Bianca Torres.

41 Ms Torres gave evidence that the plaintiff then signed the contract as vendor, and she then took the two signed documents, one in each hand, and crossed her arms saying words to the effect that contracts were now formally exchanged. The defendants say this did not happen, and that they saw neither the plaintiff signing a contract, nor any contract signed by him. Because of my view of the credibility of Ms Torres, I reject her account, and find that contracts were never formally exchanged as she described, if at all. Nor could I be satisfied, on the balance of probabilities, that the plaintiff signed a contract on the day, although undoubtedly he did so at some time.

42 The defendants were certainly under the impression that there had been no formal exchange of contracts, and believed that on the following Monday, they would need to attend Pfeiffers' office, sign a fresh document and then have the contracts exchanged. It is not necessary, in view of the view I take of other facts given in evidence, to decide whether or not there was a misrepresentation as to the nature of the document executed. I would, however, be inclined to find that the defendants signed a formal document, and initialled several of the pages, knowing that it was a formal contract, even if the contracts were not exchanged in the way described by Ms Torres. In the absence of misrepresentation or some statutory provision, under which the defendants could be relieved from their obligation, once they signed the contract and delivered it to Ms Torres, they were bound by the terms of the document, including the "auction conditions" which meant that there was no "cooling-off" period, as there would be in a sale by private treaty.

43 Bianca Torres says that she witnessed the signatures of the defendants on the contract, but Sheela says that she is not aware who witnessed her signature and that of her husband.

44 It is not disputed that Angela Zhang left the property before the negotiations had concluded. She says, and I accept, that she left before 5:30 p.m. Sheela says that when they were driving home, they received a telephone call from her to congratulate them on the purchase.

45 Sheela and Rajesh then returned home and transferred funds into the company account.

46 On the Monday morning, Sheela attended Kogarah Council Chambers and was told about the development application. Before that, she says that she received a telephone call from Bianca Torres asking when she would be coming to Pfeiffers' office to sign the fresh contract. She and Rajesh both said that Sheela told Ms Torres that Rajesh had to see patients during the day and that they would come after 5 p.m.

47 After the discussions with the Council, at about 11:30 a.m., Rajesh sent a fax advising that the defendants would not be proceeding with the contract. Sheela says that she also had a conversation with Bianca Torres (which Bianca Torres denies) advising her that they would not be signing the contract. She says that Ms Torres then told her that the contracts had already been exchanged because she had used photocopies.

48 I find that Sheela and Rajesh signed a document, which was a contract for the purchase of the property. Although I am not satisfied, on the balance of probabilities, that the contract was exchanged in the defendants' presence, the copy signed by the defendants was delivered to the vendor's agent, and therefore, in the absence of some vitiating factor, the defendants are bound by the contract. Among the provisions of the contract are auction conditions, including the statement prescribed by s 66X of the Conveyancing Act 1919, stating that there is no "cooling off" period if the contract is made on the same day as the property was offered for sale by public auction but passed in. Clause 30.1 expressly provides that the purchaser agrees that: [N]o reliance has been made upon any warranty or representation by the vendors or any person on behalf of the vendor or except as expressly provided in this contract, that in this contract constitutes the whole contract between the parties and that the purchaser has relied entirely on the purchaser's own enquiries relating to, and inspection of the property all improvements and ... in relation to the use to which the property may be put.

49 The contract also contained express terms permitting the vendor to terminate the contract and keep or recover the deposit in the event a cheque for the deposit was not honoured on presentation, or if the purchaser did not otherwise comply with the contract (clauses 2.5 and 9.1). Unless the defendants satisfy the court that the contract is not, for any reason, enforceable (see below), the plaintiff is entitled to recovery of the deposit in accordance with clause 9.1 of the contract, and to judgment in his favour.

50 The defendants did not seek legal advice before attending the auction, because Rajesh did not consider there was sufficient time. However, they did consult a conveyancer, at some stage after the auction, and formed the view that they were entitled to a cooling off period. This view was wrong in the circumstances of this case.

51 In Taylor v Johnson (1983) 151 CLR 422, Mason ACJ, Murphy and Deane JJ said, at 432:

"[A] party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that the circumstances exist which indicate that the first party is entering into the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or apprehension."

I am not satisfied, in this case, that any mistake made by the defendants was a mistake as to a substantial term of the contract. Mistake, therefore, is not a vitiating factor here, and the defendants cannot rely on it.

52 McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315 at 318-319, said: "Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously but perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."

He also said that the burden of proof is on the party who alleges the misrepresentation (at 318).

53 In this case, the misrepresentations relied upon by the defendants were not entirely oral. The misrepresentation commenced with the distribution via e-mail of the plans, which had been attached to the withdrawn development application. This misrepresentation was compounded and amplified by the words, which I find were spoken by Ms Zhang to the first and second defendant on the afternoon of the auction. What the Chief Judge in Equity said is, therefore, not directly applicable in this case.

54 The plaintiff submits that there was no express representation that development approval had been granted in accordance with the plans. This is not what the defendants allege. Rather, the allegation is that the misleading representations were that an application for redevelopment, of the same type as that depicted in the plans, could possibly obtain the approval of the Council, at a time when both Ms Torres and Ms Zhang knew that that was not the case. I have found that there was such a representation to the defendants. The plaintiff submits also that the plans themselves are quite clearly marked "DA Submission". Because of the misrepresentation, the defendants signed the contract. There is nothing on the face of the plans that would lead one to conclude that development approval had been granted. I certainly could not find that such approval had been granted, but that is not the defendants' case.

55 The principles applicable to misrepresentation are comprehensively set out in the judgment of Santow J in Clancy v Prince [2001] NSWSC 85. His Honour said: "[61] It is convenient that I first set out the principles applicable to fraudulent misrepresentation before turning to their potential application.

(1) To constitute a fraudulent misrepresentation, there must first be found all the elements of a misrepresentation. (2) The elements of misrepresentation are as follows:

(i) there must be a statement or conduct conveying a representation which is false in not according with the true facts, past or present; (ii) thus a promise or assurance for the future cannot be presently true or false, and does not of itself constitute a misrepresentation; see, for example, Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601; (iii) however statements of intention or opinion are capable of being a misrepresentation and indeed fraudulent, where the state of the maker's mind is not consistent with them, so that the person does not hold the opinion professed; Edgington v Fitzmaurice (1885) 29 ChD 459 where Bowen LJ said (at 483) 'a misrepresentation as to the state of a man's mind is, therefore, a misstatement of fact'; (iv) a statement of law is not a representation of fact and could not therefore constitute a misrepresentation unless in stating what is necessarily an opinion (as to law) a person does not genuinely hold that opinion; falsely stating something as if it were one's opinion when it is not, is to make a misrepresentation of present fact, namely that one presently holds that opinion; see Oudaille v Lawson [1972] NZLR 259; (v) while mere non-disclosure of facts, even facts material and important, is not itself a misrepresentation, a misrepresentation is capable of being found not only in some positive statement but also in conduct intended to convey a particular impression which is false or where a statement is literally true but, because it does not tell the whole truth, gives a false impression; see for example Jennings v Zilahi-Kiss (1972) 2 SASR 493 per Bray CJ at 507-8 who held that a fraudulent misrepresentation was found where units were described as flats without revealing that they were registered as a lodging house and governed by a requirement which precluded cooking on the premises for 'a flat in which one cannot lawfully cook is not, in my opinion, a flat at all'; (vi) the representor must have intended the representee to rely upon the representation, as for example in inducing the representee to enter into a contract, reliance being a question of fact with the burden of proof resting upon the person claiming the misrepresentation; and (vii) the representation must be of a material fact such that, in the case of fraud, the representation must be a real inducement to the party claiming reliance; see for example, Australian Steel & Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202.

(3) For a misrepresentation to be also fraudulent, it must be shown that, 'a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false'; Derry v Peek (1889) 14 App Cas 337 at 374 per Lord Herschell.

(4) So if a representor deliberately shuts his eyes to a fact or purposely abstains from its investigation, the representor is not honest and he is just as liable as if he had knowingly stated a falsehood; Derry v Peek (supra) at 376. (5) Fraud must be distinctly alleged and proved according to a civil standard of proof, with the standard of proof rising with the gravity of the imputation. (6) There are two principles applicable to a principal in relation to an agent:

(i) a principal who uses his or her agent, either with or without the agent's knowledge, to deceive is responsible for any damages that flow from the agent's conduct; see Commercial Banking Company of Sydney Limited v R H Brown & Co (1972) 126 CLR 337 at 343 where Menzies J stated:

'A person who makes a false and fraudulent misrepresentation is only liable to the persons to whom it is made, ie to the persons whom it is intended should act upon it … It is not necessary for liability that the misrepresentation should be made directly, it can be made to one, to be passed on to another; it is not necessary that it should be made to a particular person: it can be made to a group to which the plaintiff belongs so that the plaintiff is one of those intended to be deceived. The representation must however, in one way or another, be made to the plaintiff to induce him to act upon it.'

(ii) a principal is responsible in an action for damages for the fraud of his or her agent, acting within the scope of the agent's apparent authority and it makes no difference that the agent committed the fraud for the agent's own private advantage and not for the benefit of the principal, so long as the agent was acting within the scope of the agent's apparent authority; Lloyd v Grace, Smith & Co [1912] AC 716 particularly at 725, 731, 733-4 and 736."

56 This judgment also deals with the issue of principal and agent and is authority for the propositions that:

(1) a principal who uses his or her agent, either with or without the agent's knowledge, to deceive is responsible for any damages that flow from the agent's conduct ( Commercial Banking Co of Sydney Ltd v R H Brown & Co (1972) 126 CLR 337)

(2) a principal is responsible in an action for damages for the fraud of his or her agent, acting within the scope of the agent's apparent authority and it makes no difference that the agent committed the fraud for the agent's own private advantage and not for the benefit of the principal, so long as the agent was acting within the scope of the agent's apparent authority; ( Lloyd v Grace, Smith & Co [1912] AC 716) .

57 In this case, the plaintiff and both Ms Torres and Ms Zhang knew that the plans which had been provided to the defendants had not only not been approved by Council, but proposed a "prohibited development" for the site. The plaintiff armed the agents with those plans with no disclaimer. The agents sent them to the defendants with no disclaimer. The only explanation provided as to why the plans were provided to the defendants was given by Ms Zhang to the effect of "just trying to given them some idea of building in the future". Ms Torres gave evidence to the same effect. Such building was, of course, inconsistent with the known policy of the Council, and therefore not possible. In the present case there was conduct involving the distribution of the plans to potential purchasers, and express verbal representations by Ms Zhang to the defendants. Such conduct occurred in circumstances where both the plaintiff and the agents knew that the plans had been withdrawn with the DA.

58 The plaintiff is liable for the actions of the agents, who were acting within the apparent scope of their authority. The defendants relied upon the representations made, and signed a contract for the purchase of the property. Even if it had been asserted, on behalf of the plaintiff, that the representation as to development on the site constituted a representation as to law, the expression of opinion cannot be said to have been honestly held by either Ms Torres or Ms Zhang, in light of the contents of the letter to the agent from Council of 16 October, 2007, of which they were both aware.

59 The actions of the plaintiff and his agents accordingly constitute misrepresentation.

60 The provisions of Special Condition 30 of the contract do not protect the plaintiff because there has been misrepresentation by, or on behalf of the plaintiff. In Oraka Pty Ltd v Leda Holdings Ltd (1997) ATPR 41-558, Burchett J said:

"It cannot be thought that the very agreement that was obtained by misrepresentation can be made good by incorporating in it a further misrepresentation falsely asserting that it was not procured by the means which were in fact employed. The agreement that so speaks to sustain itself was obtained by a misrepresentation, and no verbal magic of an added clause can change that." 61 In this case, the misrepresentation was made "knowingly, or without belief in its truth, or recklessly, careless whether it be true or false": Derry v Peek (1889) 14 App Cas 337 at 374 per Lord Herschell. It is, therefore, properly described as fraudulent, rather than innocent, misrepresentation.

62 Where a party has been induced to enter into a contract by fraudulent misrepresentation, that party is entitled to rescind the contract ab initio: Clancy (above) at [75].

63 In the case of such a misrepresentation, a party may rescind the contract by doing an action which is inconsistent with performance of the contract. Here the defendants rescinded the contract by stopping payment on the cheque tendered as deposit.

64 I make the following findings in relation to misrepresentation:

a. Angela Zhang made the representations alleged by Sheela i. in relation to the potential development of the property; ii. that the property was rented and could command a rental of between $750-$850 per week.

b. Bianca Torres represented that, whether or not the document signed by the defendants was formally binding, they would need to sign a further document, and that there would be no formal exchange of contracts until Monday following the auction.

c. Angela Zhang, or someone else on behalf of Pfeiffers, and therefore of the plaintiff, by sending the plans that had been annexed to the withdrawn development application, represented that a development of the type shown in those plans on the property was possible.

d. The representations made by Ms Zhang in (a) and (c) above were false, misleading and deceptive.

e. Ms Torres and Ms Zhang acted, on the balance of probabilities, in the knowledge that the representations were false, misleading or deceptive, or, if they did not know, they or either or both of them acted recklessly, without any care as to whether or not the representations were true.

f. The representations were made with the intention of inducing prospective purchasers to purchase the property.

g. The defendants, in fact, acted on the basis of the representations.

65 The contract was properly and validly rescinded, and the plaintiff is not entitled to claim the amount of the deposit.

66 If I am not correct in my decision relating to misrepresentation, the defendants also rely on the provisions of the Contracts Review Act.

67 The Contracts Review Act, s 9, provides as follows:

(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract.

(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.

68 In this case, it cannot be said that there was any real inequality of bargaining power between the parties. The plaintiff is a carpenter, but was represented by experienced real estate agents. Both the defendants are highly educated and articulate people. They all have an excellent command of English. The matters which arise out of section 9, which particularly influenced my decision, are the unfair tactics used by the plaintiff and his agents, which I have already discussed in relation to the alleged misrepresentation, and the fact that the defendants did not have proper legal advice before entering into a transaction concerning the purchase of valuable real estate.

69 The defendants' evidence was that they received the contract only on the day before the auction. At that time they were not certain whether or not they would go to the auction. Rajesh gave evidence that he did not consider that there was time to get legal advice, although he did do so after the auction. Sheela gave evidence that she had only attended a real estate auction on one previous occasion. It may well be said that anyone who attends an auction of real estate ought, at least, to get legal advice on the contract, which, by law, must be available in advance. The defendants, in this case, would have been well advised to do so, and if the only unfair element was the absence of independent legal advice, I am very doubtful as to whether the defendants could call the Contracts Review Act in aid.

70 However, the unfair tactics employed by the plaintiff and his agents in sending to prospective purchasers copies of plans, prepared to support a development application which had been withdrawn, in the circumstances that I have discussed earlier, was grossly unfair, dishonest and misleading.

71 In the circumstances, if it were necessary for me to do so, under the provisions of the Contracts Review Act, I would either refuse to enforce the provisions of the contract relating to the payment of the deposit, or declare the whole contract void.

72 Accordingly, there will be a verdict for the defendants in the plaintiff's claim. The cross claim appears to arise only in the event that the contract for the sale of the property was found to be enforceable, in whole or in part.

The action against the third defendant: the Cheques Act

73 The plaintiff claims against the third defendant, as the holder in due course of the cheque in favour of Pfeiffers for $183,000. Rajesh admits that he signed the cheque. However, there are a number of problems with the plaintiff's claim. First, the cheque was payable to Pfeiffers, not to the plaintiff, and there is no evidence that, although Pfeiffers were the plaintiff's agents, he is entitled to the cheque.

74 The Cheques Act 1986 (Cth), s 72 provides that the employer of a cheque is estopped, as against a holder in due course of the cheque, from denying the validity of the cheque. By s 51 of that Act, the holder is presumed to be a holder in due course, so that this presumption would operate in the plaintiff's favour, if you could show that he was a holder. Section 50 provides as follows:

(1) The holder of a cheque is a holder in due course if: (a) the cheque was transferred by negotiation to the holder and, at the time when the holder took the cheque, the cheque: (i) was complete and regular on the face of it; (ii) was not a stale cheque; and (iii) did not bear a crossing of the kind referred to in paragraph 53(1)(b); and (b) the holder took the cheque: (i) in good faith; (ii) for value ; and (iii) without notice: (A) of any dishonour of the cheque; or (B) of any defect in the title of the person who transferred the cheque to the holder or that the person who transferred the cheque to the holder had no title to the cheque.

(2) Without limiting the generality of paragraph (1)(b), the holder of a cheque shall, for the purposes of that paragraph, be deemed to have taken the cheque with notice of a defect in the title of the person who transferred the cheque to the holder if the holder took the cheque with notice that the person transferred the cheque to the holder in breach of faith or under circumstances amounting to a fraud.

75 In the circumstances that I have found apply to this case, the plaintiff must be taken to have notice that Pfeiffers transferred the cheque to him in breach of faith, or under circumstances amounting to a fraud. In any event, section 51(2) provides: (2) Where, in an action or proceeding on a cheque, it is admitted or proved that the drawing or issue , or a transfer by negotiation, of the cheque is affected by fraud, duress or illegality, the holder shall not be presumed, by virtue of subsection (1), to be a holder in due course unless and until the holder proves that, after the alleged fraud, duress or illegality, value was, in good faith, given for the cheque.

76 I find that, in the circumstances, the plaintiff was not a holder in due course.

77 In this case, the defendants have proved that the cheque was properly stopped, and that the circumstances in which Pfeiffers obtained it, resulted from an illegal act. In the circumstances, the plaintiff's case under the Cheques Act must fail. There will be a verdict for the third defendant.

78 In the circumstances, there will be a verdict for the cross-claimants on the cross-claim. However, there is no evidence that they have suffered any loss. Because they have no liability to the plaintiff, there are no damages.

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