Mercland Investment Group Pty Ltd v Duncalm Pty Ltd

The Pleadings 11 This proceeding commenced as a claim for damages for misleading or deceptive conduct and breach of contract flowing from Mercland's purchase of the Service Centre. 12 At the commencement of the hearing I was informed by counsel for Mercland that most of the claims it advanced were abandoned save for the misleading or deceptive conduct claim concerning the state of the pavement at the Service Centre. 13 During the course of the hearing Mercland filed, with leave, the SFASC and a third further amended statement of claim ("TFASC") confirming the abandonment of the contractual claims. Duncalm filed, with leave, a defence to the SFASC. Having regard to the minor nature of the change between the SFASC and the TFASC, it was unnecessary for Duncalm to file a further defence to the later pleading. 14 In the SFASC, Mercland alleges that the respondents engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") and s 42 of the Fair Trading Act 1987 (NSW) ("the FTA"), in relation to the suitability for use, and fitness for purpose, of the driveways, hard stand and car park for use by trucks, heavy vehicles and cars. 15 Paragraph 24 of the SFASC relevantly alleges that: "[E]ach of the respondents impliedly represented: (a) that the Service Centre and in particular the driveways, hard stand and car park were fit for the purpose of and had been designed and properly constructed so as to be suitable for use by trucks, heavy vehicles and cars; … (b) that there were no major capital requirements for a new owner of the Service Centre to render the driveways, hard stand and car park suitable for use by trucks, heavy vehicles and cars; … (c) that they were each of the opinion that the Service Centre and in particular the driveways, hard stand and car park were fit for the purpose of and had been designed and properly constructed as suitable for use by trucks, heavy vehicles and cars, and that opinion was honestly held on reasonable grounds; … (d) that they were each of the opinion that there were…no major capital requirements for a new owner of the Service Centre to render the driveways, hard stand and car park suitable for use by trucks, heavy vehicles and cars; and that opinion was honestly held on reasonable grounds; … (e) that they did not have any knowledge or information which suggested that the driveways, hard stand and car park were not fit for purpose; … (g) that the Service Centre including the driveways, hard stand and car park would continue to be fit for and suitable for use by trucks, heavy vehicles and cars (subject to ordinary wear and tear)." 16 For each alleged implied representation in (a) - (e) and (g) above, the same particulars were provided, namely: "A. The Service Centre was 'Brand New'. B. the Service Centre has been 'Completed August 2005'. C. The Service Centre was a 'Major regional truckstop facility'. D. The Service Centre had 'Four truck filling stations'. E. The Service Centre was being sold as a 'going concern'. F. Rampton stated expertise as a Licensed Builder with extensive experience in residential and commercial projects for over 30 years. G. Roberts stated expertise as a person who had owned and operated CPS Petroleum Services for over 15 years specialising in the construction and maintenance of service stations. H. The necessary intendment of the words used in A - G (above) and the circumstances in which they were used." 17 Paragraph 26 of the TFASC alleges that: "At all material times up to and including the time of entry of the contract for sale on 11 April 2006, it was the fact that: (a) the design prepared by the Respondents' civil and structural engineer (Jones Nicholson) in conjunction with their geotechnical engineer (Aitken Rowe) specified that the heavy vehicle areas at the Service Centre, that is, the driveways, the heavy vehicle fuelling area and the heavy vehicle parking area, were to be surfaced with heavy duty concrete pavement, but those areas, as constructed, were not surfaced with heavy duty concrete pavement; Particulars Jones Nicholson design drawings dated 4 August 2004. Aitken Rowe report dated 28 July 2004. (b) the pavements were not constructed in accordance with the design of engineers Jones Nicholson and the advice of geotechnical engineers Aitken Rowe in that: i. the flexible asphaltic concrete pavement was to include a sub-base layer of DGB20, but the flexible asphaltic concrete pavement areas as constructed did not include such a layer, which omission had not been approved by Jones Nicholson or Aitken Rowe; ii. the rigid concrete pavement did not consist of 100mm of lean-mix concrete or 150mm of stabilised select quality material, or 100mm of DGS20 or select quality material; (c) almost immediately upon the flexible asphaltic pavement in the heavy vehicle areas being used by trucks at the end of August 2005, it was found by the Respondents to be unsatisfactory and was breaking up under the force of the trucks and accordingly it was partially replaced with a rigid concrete pavement. Particulars Affidavit of Robert Leigh Rampton sworn 3 August 2009 at [84]." 18 Paragraph 26A of the SFASC alleges that: "The matters referred to in paragraph 26 are not disclosed in the Information Memorandum and were not communicated to the Applicant or the Promoters at any time before the Applicant and Duncalm entered into the contract on 11 April 2006." 19 Each of the second respondent ("Mr Jones"), the third respondent ("Mr Roberts") and the fourth respondent ("Mr Rampton") are directors of Duncalm. 20 Paragraph 37(b) of the SFASC alleges that each of Messrs Jones, Roberts and Rampton bears a direct liability under s 42 of the FTA for engaging, together with Duncalm, in the relevant misleading or deceptive conduct, because: "(i) the representations contained in the Information Memorandum, as pleaded in paragraph 24 above, were misleading without additional disclosure of the matters referred to in paragraph 26 above; (ii) further or alternatively, a party in the position of the applicant would have had, and the applicant did in fact have, a reasonable expectation that the matters referred to in paragraph 26 above would be disclosed before it entered into a contract to buy the Service Centre: Particulars A. The Information Memorandum does not state that it was made for and provided by and only by Duncalm Pty Ltd. B. The inclusion of the Director profiles on page 9 of the Information Memorandum. C. The fact that Duncalm acted and only acted by each of its Directors. D. Further particulars will be provided on request after the provision of discovery." 21 Paragraph 37(c) of the SFASC alleges that each of Messrs Jones, Roberts and Rampton bears, in the alternative to [37(b)], accessorial liability for procuring, or being directly or indirectly knowingly concerned in, Duncalm's contraventions of s 52 of the TPA. The following particulars were given: "A. The fact that Duncalm acted and only acted by each of its Directors. B. The particular expertise of each director, as published on page 9 of the Information Memorandum. C. The fact that Duncalm was responsible for the construction of the Service Centre. D. Further particulars will be provided on request after the provision of discovery." 22 In their defence to the SFASC, the respondents: (1) deny that they or any of them made the representations pleaded in para 24(a) - (e) and (g) or that such representations could be implied: [12]; (2) admit para 26(a), but deny that Aitken Rowe was their geotechnical engineer: [14]; (3) deny that para 26(b) is accurate in that the design prepared by Jones Nicholson specified the use of DGB20 or its equivalent. Further, they deny that they were required to construct the flexible asphaltic concrete pavement areas in accordance with the design of Jones Nicholson in conjunction with Aitken Rowe and deny that they were required to seek or obtain the approval of Jones Nicholson or Aitken Rowe in respect of any variation to that design: [14.2]; (4) admit para 26(c): [14.3]; and (5) deny para 37: [21].

The Witnesses 23 Mercland called lay evidence from John Nakoul, Anthony Nassif, Sid Nassif and Mr Edward Elias, the manager of a company called Sydney Mini Excavations Pty Ltd. Each swore one or more affidavits and were cross-examined. 24 Duncalm called lay evidence from Mr Rampton who swore two affidavits and was cross-examined. Neither Mr Jones nor Mr Roberts gave evidence. 25 Mercland called expert evidence from Mr Michael Leung, Dr Anthony Hashem and Mr Michael Dakhoul. Duncalm called expert evidence from Mr Ion Dumitru, Mr David Dash and Mr John Barker. 26 Mr Leung, Dr Hasham, Mr Dumitru and Mr Dash were "hot tubbed"; they were examined and cross-examined concurrently. Messrs Dakhoul and Barker prepared a joint report dated 8 March 2011 (amended by hand and dated 15 March 2011) in addition to anterior individual reports. Both were cross-examined.

Findings of Fact 27 In its written submissions, Mercland contended that the Court should make a number of findings of fact going to the design of the pavements at the Service Centre, their construction, problems encountered with the bitumen paving shortly after the opening of the Service Centre at the end of August 2005 and relevant events leading up to the sale of the Service Centre on 11 April 2006. Most, if not all, of the findings of primary fact contended for by Mercland in these areas are not in dispute and, to a significant extent, I have adopted those submissions. 28 On the other hand, not all of the findings of primary fact contended for by Mercland are complete. This is particularly so in relation to the relevant events leading up to the sale of the Service Centre on 11 April 2006. In this area, I have found the submissions of Duncalm to be more comprehensive and accurate and, in consequence, to be more helpful. Again, most, if not all, of the findings of primary fact contended for by Duncalm in this area are not in dispute and, to a significant extent, I have adopted those submissions. As with many cases, disputation arises at the next level, namely, the interaction of the primary facts as found and the consequences of that interaction, both factual, in the course of making findings of secondary fact, and legal, in the course of drawing conclusions as to the legal consequences of the findings of secondary fact.

Design of the Pavements 29 In May or June 2004 Duncalm engaged a firm of civil and structural engineers, Jones Nicholson, to prepare a design for vehicle parking and drainage works to be undertaken at the Service Centre. In early July, Jones Nicholson issued initial design drawings for approval. 30 Jones Nicholson engaged a firm of geotechnical engineers, Aitken Rowe, to provide geotechnical engineering input into the design. 31 For the flexible pavement areas (the car park and associated roadways), Aitken Rowe provided two design options, the second of which ("Design 2") was ultimately selected by Jones Nicholson. Design 2 nominated three layers, namely an asphalt surface, followed by 170 mm of DGB20 (a crushed form of road base material) or equivalent quality materials meeting certain criteria, followed by a subgrade. Aitken Rowe advised that a pavement constructed in accordance with Design 2 would have a design life of more than 30 years. 32 For the rigid pavement areas (the heavy vehicle parking area and access driveway), Aitken Rowe recommended a design with three layers, namely a concrete surface, followed by 100 mm of lean-mix concrete (5Mpa) or 150 mm of stabilised select quality material (3Mpa), followed by a subgrade. Aitken Rowe advised that, if constructed in accordance with this design, the rigid pavement would have a design life of 40 years. 33 The Jones Nicholson design stipulated that: (a) the entire heavy vehicle parking and fuelling area was to be paved with heavy duty concrete (rigid pavement). That area was to start at the access driveway from Sheehan Drive, extend along the western boundary of the main building up to the heavy vehicle refuelling area and then to the northern end of the site where the heavy vehicle parking area is located; and then all the way around to the eastern side for the egress driveway; (b) the heavy duty concrete pavement was to be constructed with three layers as follows: there was to be a 200 mm reinforced concrete slab, followed by a DGS20 sub-base or equivalent, followed by a sub-grade; (c) the car parking area, as distinct from the heavy vehicle parking area, and the aprons around the main building were to be surfaced with asphaltic concrete (flexible pavement); (d) the flexible asphalt pavement was to be constructed of four layers, as follows: at the top, a layer of 50 mm of dense graded asphalt; underneath that, a hot bituminous primer seal; underneath that, a 170 mm DGB20 compacted sub-base; and finally, underneath the DGB20, a layer of sub-grade.

Construction of the Pavements 34 Mr Rampton and Mr Roberts oversaw and managed the project, including the work of the contractors. They were on site for the duration of the work. 35 Mr Rampton engaged Mr Martin Hay of Martin Hay Plant Hire and Earthmoving Pty Limited as an earthmoving contractor. Mr Hay had no engineering, geotechnical or pavement design qualifications. Mr Rampton provided Mr Hay with a copy of the Jones Nicholson design drawings. 36 Mr Hay commenced the earthworks in September 2004 and completed them in about May 2005. 37 In the course of undertaking the earthworks, Mr Hay suggested to Mr Rampton and Mr Roberts that instead of using DGB20 as the sub-base for the flexible asphalt pavement, they could save $100,000 by using material said to be "decomposed granite" that he had found on the site. Mr Rampton's evidence was that: "Roberts and I talked about it and agreed that $100,000 was worth saving as we'd blown the budget in quite a few other areas. So we decided that's what we'd do. It was Martin's suggestion, but it was our decision." 38 The respondents made this decision based upon the oral recommendation of their excavator (Martin Hay), without consulting either the geotechnical engineers on whose advice the designs had been prepared (Aitken Rowe) or the civil and structural engineers who had prepared the specifications (Jones Nicholson). 39 The decision to omit the layer of DGB20 was taken notwithstanding that Duncalm was warned by a person said to be a structural and civil engineer (Mr Morgan) that if water penetrated the decomposed granite, it was "going to turn boggy" and "[b]asically if water gets into it it's going to go mushy". To the extent that Mr Morgan affirmed Mr Hay's recommendation, he did so without having been provided with the Aitken Rowe report, the Aitken Rowe compaction test results or the Jones Nicholson design drawings. 40 In early 2005, Mr Hay laid concrete in the areas of the access and egress driveways (referred to during the proceedings as Areas D and G, by reference to appendix C to the report of Mr Dakhoul (Ex 13)). When laying the concrete, Mr Hay did not include a layer of DGS20 as specified in the Jones Nicholson design. Mr Rampton knew this. There was no evidence that the respondents sought or obtained advice from Jones Nicholson, Aitken Rowe or any qualified person about this decision. There was no evidence of the respondents having done anything to establish whether the materials to be used instead of DGS20 satisfied the alternate criteria in Jones Nicholson drawing CO6, that is, California Bearing Ration ("CBR") of greater than 25% and a plasticity index of less than 12%. The joint experts agreed that the Aitken Rowe compaction tests carried out in October 2004 - January 2005 (annexure C to Mr Rampton's second affidavit (Ex K)) say nothing at all about those matters. 41 Sometime in early 2005 Mr Rampton spoke to Mr Noel Goodchild, the manager of Emoleum, a business that supplied hot mix asphalt. Mr Rampton and Mr Goodchild had a conversation to this effect: "Rampton: Noel, we want to put the hot mix down on the top of the decomposed granite at Gundagai. Do you think that will work? Goodchild: I think you should have it primed but it should work. We will use the RTA mix which is heavy duty blend." 42 Mr Goodchild was neither an engineer nor geotechnical analyst and had no qualifications in pavement design. He was not provided with the Aitken Rowe report, the Aitken Rowe compaction test results or the Jones Nicholson design drawings. Mr Rampton knew this. 43 In about May 2005 Duncalm engaged Emoleum to lay a flexible asphalt pavement over the whole site, with the exception of the driveways and under the fuel canopies, that had been concreted by Mr Hay. Mr Rampton chose to use a flexible asphalt pavement in the heavy vehicle areas instead of a rigid concrete pavement because it would save Duncalm money. 44 The laying of the flexible asphalt pavements departed from the Jones Nicholson design in at least two respects: (a) the flexible asphalt pavement was laid in heavy vehicle areas, instead of the rigid heavy duty concrete pavement specified in the design; (b) no DGB20 sub-base was included. 45 On or about 30 July 2005, Mr Rampton wrote to the Gundagai Council seeking an interim occupation certificate. In late August 2005, before the Service Centre opened, Mr Glen Moore from the Council attended the centre to conduct an inspection. Mr Rampton was cross-examined on what he disclosed to Mr Moore during his inspection. The transcript reads (T11/3/11 at p 101, ln 17 - 41): "You didn't draw to Mr Moore's attention, did you, that the Jones Nicholson design drawings specified a heavy duty rigid concrete pavement for the heavy vehicle parking area. However, you had decided without the authorisation of Jones Nicholson or Aitken Rowe, to put in a flexible asphalt pavement?---No, I didn't. You didn't tell Mr Moore, did you, that the flexible asphalt pavement that you had constructed did not use a DGB20 layer as specified in the Jones Nicholson design?---No. But what you did know was that when you were meeting with Mr Moore, what you had to do was satisfy him that the work had been done with the Jones Nicholson design. Will you agree with that?---Yes. So what you did by not drawing his attention to those matters was you tried to mislead him about that, didn't you?---No. Why didn't you tell him that the heavy vehicle parking area had been designed to be a heavy duty concrete pavement but you had decided without the authorisation of Jones Nicholson or Aitken Rowe, to use a different type of pavement?---As I said before, I always believed that was my decision. You knew, didn't you, that if you told Mr Moore that you had done this work contrary to the design of Jones Nicholson and without their knowledge or approval, that he would not have given you the occupation certificate?---Not at all." 46 In short, Mr Rampton did not reveal to Mr Moore that, contrary to the design and without the knowledge or approval of Jones Nicholson and Aitken Rowe: (a) a flexible asphalt pavement had been laid in the heavy vehicle areas, instead of a rigid heavy duty concrete; (b) no DGB20 sub-base had been included in the flexible asphalt pavements; (c) no DGS20 sub-base had been included in the concrete driveways. This is because Mr Rampton thought those were matters on which he had the call; it was his decision.

Problems after Opening 47 Shortly after the opening of the Service Centre at the end of August 2005, Mr Rampton noticed that where the trucks came through the site and turned around to drive out, the bitumen started to break up where the truck wheels were twisting. Mr Rampton discussed this problem with Mr Jones and Mr Roberts. 48 The asphalt pavement in the heavy vehicle areas sustained damage because it was not suitable for use by heavy vehicles. It was not suitable because it was a flexible asphalt pavement constructed without a proper sub-base. The engineering experts agreed that: (a) an asphaltic pavement, consisting of 50 mm of graded asphalt, a hot bituminous primer seal and decomposed granite (that is, no DGB20 sub-base), was inadequate to act as a pavement in a heavy vehicle parking area given the intended usage and locality of the site; (b) a pavement constructed in that manner would be inadequate to act as a pavement in a heavy vehicle parking area over a lifespan of 40 years; (c) a design for a flexible asphalt pavement to be used in a heavy vehicle parking area of the type under consideration in this case would need to have either or both of a thicker graded asphalt layer or a thicker sub-base layer than the asphaltic concrete pavement design specified by Jones Nicholson for the flexible pavement areas; (d) the rigid concrete pavement recommended by Jones Nicholson for the heavy vehicle areas would have been more durable than the asphaltic concrete pavement which they had designed for the car park area; (e) decomposed granite would not meet the characteristics of DGS20 or DGB20 or as set out in the RTA 3051 test method (Ex 7). The testing performed by Aitken Rowe in October to December 2004, and the testing performed by Duncalm's own expert (Mr Song) in April 2010, confirmed that the sub grade of decomposed granite did not meet the specifications of DGB20 required by Jones Nicholson, insofar as the CBR was less than 25% and the plasticity index was greater than 12%. 49 Mr Rampton knew in August 2005 that: (a) the cause of the problem with the flexible asphalt pavements was that they had been constructed without an essential component of the design, namely the DGB20 sub-base; (b) the reason why the flexible asphalt pavements in Areas E and F had been damaged was that they were unsuitable for use by heavy vehicles; (c) the flexible asphalt pavement in Area H had the same problem as the pavements in Areas E and F and would deteriorate at a rate faster than had been designed. 50 In August 2005 Mr Rampton decided to not repair Area H, that is, not replace the asphalt there with rigid concrete. This is because he believed that area would not be as heavily trafficked by trucks as Areas E and F. 51 Despite his denial, Mr Rampton knew in August 2005 that Mr Hay's earlier advice, that the decomposed granite could be used as a substitute for the DGB20 and DGS20 sub-base, was wrong. He must have known this because he admitted that he knew the matters referred to in [49] above. According to Mercland, Mr Rampton's evidence that he believed the problem was attributable to the temperature at which the bitumen was laid should be rejected. If it was true that he believed that Emoleum had failed to lay the bitumen at the correct temperature, he would have at least asked Mr Goodchild to repair it, bearing in mind that the repairs cost $466,000. The fact that Mr Hay removed the pavement for free strongly indicates that Mr Rampton believed that Mr Hay had wrongly advised to use decomposed granite instead of DGB20. 52 In August or September 2005 Mr Rampton arranged for the removal of the bitumen and its replacement with concrete, but only in Areas E and F. No change was made to the car park area (Areas I and J) or the northern half of the truck park area (Area H), which remained a flexible asphaltic pavement absent the essential DGB20 sub-base. 53 The concrete pavement laid in August and September 2005 in Areas E and F did not comply with the Jones Nicholson design because the DGS20 sub-base was omitted. Mr Rampton did not seek advice from anyone with a relevant qualification about whether or not the materials he intended to use in substitution for the DGS20 were suitable. He consulted only the excavator, Mr Hay, who had already proven himself to have given wrong advice in relation to the suitability of decomposed granite as a substitute for DGB20, which wrong advice had produced very expensive consequences. 54 According to Mr Leung, the absence of the DGS20 sub-base from the concrete pavement has and will compromise its performance and structural integrity now and in the future. 55 As Dr Hasham explained in oral evidence, a pavement is a function of two or three different layers: in this case, a sub-grade, a sub-base and the topping. Although the top concrete layer, viewed in isolation, is itself adequate, "the weakest part of a chain is the link that fails and the link that fails here is the sub base" - because there was not an appropriate sub-base. The inadequacy of the sub-base has minimised the durability and the lifespan of the pavement which has caused the observed defects, deterioration and cracking within a five-year span well beyond what would be expected of a normal pavement. 56 Mr Leung concurred with that analysis. 57 When asked whether the concrete pavement, as it was in fact constructed, would be likely to achieve a 40 year effective lifespan, Mr Dash conceded that: "[I]t is desirable to have heavily bound sub base, having an unbound sub base means it has to be maintained well". Mr Dash accepted that having an unbound sub-base, as this pavement does, makes the sub-base "more susceptible to subsurface water". He agreed that this pavement, as constructed without a bound sub-base, will require more maintenance than it would have had it been constructed with a bound sub-base, particularly in this location where (in Mr Dash's words) "you are in a swamp". 58 Each of Mr Dumitru, Dr Hasham and Mr Leung agreed with that analysis.

Events Leading up to the Sale of the Service Centre 59 In November 2005 Duncalm appointed Burgess Rawson to act as its agent for the potential sale of the Service Centre. The final decision to sell was made in late February or early March 2006. 60 On or about 25 March 2006, the respondents prepared and published or caused to be published advertisements for the sale of the Service Centre. Mercland alleged that the respondents and Burgess Rawson also published or caused to be published the Information Memorandum. So much is admitted on behalf of Duncalm but denied on the part of Messrs Jones, Roberts and Rampton. Simon Staddon of Burgess Rawson sent a copy of the Information Memorandum to Fred Nassif on 27 March 2006, who passed it on to John Nakhoul. His evidence was that he initially 'skimmed the contents of the Information Memorandum' but subsequently read it more carefully at home before the auction. 61 The Information Memorandum contained the following statements, in addition to those reproduced at [4] and [5] above: (1) On the front page: "BRAND NEW SERVICE CENTRE INVESTMENT … • Comprises BP Branded Service Station with convenience store, 24 hour Diner, McCafe, Subway and drive through KFC • FULLY LEASED Major Regional Truckstop Facility strategically located between Sydney & Melbourne • All 5 tenants subject to new long term leases incl. 10yr lease (+options) to Service Station • … • Completed August 2005 • … TOTAL NET INCOME: $508,000 pa (approx.) Auction: ... 10:30 am Tuesday 11th April 2006 … Every precaution has been taken to establish the accuracy of the above information but does not constitute any representation by the vendor or agent." (2) On page 2: "INVESTMENT FEATURES Brand new Service Centre investment completed in August 2005 Major regional truck stop facility well located on Hume Highway, strategically located between Sydney, Melbourne and Adelaide Fully leased investment anchored by a new 10 year lease (+3 x 10 yr options) to BP branded Service Station Great tenancy mix including McDonalds, Subway, KFC and [24] hr Diner..." (3) On page 3: "This report serves as an introduction to the subject properties only, and prospective purchasers are directed to source information available from the exclusive selling agent. We will be pleased to arrange inspections and supply further information as you may require. Inspections are strictly by appointment only and can be arranged by contacting Burgess Rawson (NSW) Pty Ltd. Intending purchasers should note: - The contents of this Information Memorandum are provided as a guide only. The lease details are, by their very nature, a summary of the lease document. - Potential purchasers are advised to review the contract and leases and rely solely on their own enquiries and investigations. - The details in the issued Contract may vary from that contained in this Information Memorandum." (4) On page 4: "LOCATION … The property is located on the corner of the Hume Highway and Sheahan Drive which also provides access to the 'Dog on the Tuckerbox' tourism landmark. Access to the Service Centre is easy and convenient for both north bound and south bound highway traffic. The Service Centre highway location attracts not only Melbourne - Sydney trucking routes but also the Adelaide - Sydney route via Wagga Wagga. Truck operators represent a substantial percentage of the overall business of the Service Centre." (5) On page 5: "BRIEF DESCRIPTION This brand new Service Centre development was completed around August 2005. It comprises a BP branded Service Station, Convenience Store, 24 hour Diner Restaurant, McCafe, Subway and KFC drive-through facility. Please note that KFC are currently fitting out their premises. The main structure is built on a reinforced concrete slab comprising a steel frame with brick veneer walls and rough render external finish and colourbond metal roofing. ... There are two Service Station canopies. Car Canopy Six (6 hose) filling stations (up to 12 cars at one time) with four underground double skinned fibreglass tanks... Truck Canopy Four truck filling stations with two underground double skinned fibreglass tanks..." (6) On page 9: "SERVICE STATION TENANCY PROFILE … Directors Stephen Jones, Robert Rampton, Frazer Roberts Net Personal Assets In excess of $30 million … Stephen Jones : Certified Practising Accountant with over 20 years experience in the tax and accountancy field including 15 years in his own practice. Robert Rampton : Licensed Builder with extensive experience in residential and commercial projects for over 30 years. Frazer Roberts : Owned and operated CPS Petroleum Station for over 15 years specialising in the construction and maintenance of service stations throughout NSW." 62 John Nakhoul only visited the Gundagai site on one, or "perhaps" two, occasions prior to the auction to carry out a physical inspection of the Service Centre. By his own admission, he said that his focus "was not on the building, it was on the income protection", by which he meant the Information Memorandum claim that the total net income of the Service Centre was $508,000 per annum. The one visit he can recall with certainty and clarity was made in the company of Sid Nassif. They drove and walked around the perimeter of the site, including the back of what has been described as the "heavy vehicle parking area", but did not walk across it. He did not observe anything untoward in the way of deterioration of the bitumen other than one or two pot holes at the front of the property. On the other hand he conceded, and I find, that having regard to the reference in the Valuation Report of Nelson Partners obtained by St George Bank following a site inspection on 10 May 2006 (Tab 19, p 23, of Ex JPN to Ex 3), namely - "Resealing is required to both the car and truck parking areas, where water ponding has occurred and has resulted in fracturing of the bitumen sealing", that such water ponding and fracturing of the bitumen sealing must have been present when he went to the site with Sid Nassif. 63 John Nakhoul conceded in cross-examination, and I find that, prior to the auction, he made no inquiries as to the quality of the construction of the Service Centre or whether the construction complied with Council requirements; nor did he arrange for any physical site inspection to be carried out by any external building engineer or other qualified person. Rather, he relied on the contents of the Information Memorandum and, in particular, the statement therein that the Service Centre was "brand-new"; the physical inspections by, and experience of, the Promoters (himself and "other shareholders"); and his observation that the Service Centre was open and trading. I make the same findings with respect to each of the other Promoters. 64 On 7 April 2006, Simon Staddon of Burgess Rawson wrote to Mr Stephen Jones of Duncalm (Ex 15) in the following terms: "Dear Stephen. UPDATE ON GUNDAGAI SERVICE CENTRE With the auction marketing campaign almost at a finish, I would like to update you with our progress. We have 5 investment properties going to auction next Tuesday and the very latest state of play is as follows: Enquiries Contracts Gundagai (Service Centre) 87 8 Cowra (Go-Lo) 69 15 Wagga (Woolies Service Station) 119 29 York Street (CafÉ) 78 20 Waterloo (TAB) 56 7

Overall the level of enquiries for all properties has been excellent and demonstrates that our style of marketing has worked extremely well. As you would know, achieving premium prices is all about maximising the level of enquiry (it is a numbers game). The more the enquiry, the more potential bidders to push the price up and the yield down. I am very pleased with 87 responses (87 investment reports sent to interested parties) for a property of this magnitude. It is staggering to think that we received 10 more enquiries on Gundagai then say the strata shop in York Street (valued under $2 million). What concerns me a little is we have not had more requests for contracts than 8. I think this low conversion rate (as opposed to Wagga with 119 enquiries and 29 contract requests) reflects a reasonably high drop off from private investors. A number of private investors have indicated after consideration that the Service Centre will require considerable management input with 5 different tenants. An additional factor is the structure of the gross leases and the possible blow out of outgoings affecting the bottom line net income. Wagga Woolies/Caltex is a single tenanted investment where Woolworths pay 100% of the outgoings. As I have also indicated, a number of interested parties have brought up the state of the hot mix on the perimeter of the concrete slab. Another indicator of where we stand is requests for minor changes to the contract via your Solicitor. I have checked with Stephen Lamond and surprisingly only one party, who have contracts, have contacted him. I have had one request for a delayed settlement which you agreed to 4 months. From experience I would have thought there would be minor requests for changes to the contract for a property of this dollar quantum. Some of the parties who have contracts on Gundagai also have an interest in Wagga. With 29 contracts out, Wagga should sell on a low yield in the auction room hopefully around 7% (or under). We will put Wagga up before Gundagai with the hope that people will flick over onto Gundagai. The parties who have contracts on Gundagai are (ranked in most likely order of contention): 1. Chris Nanitsos Investor from Sylvania, NSW. Verbally offered $6.3 million (approx. 8%) half way through campaign. Says he will be attending auction. Has brought up the bitumen issue. 2. Con Vithoulkas Investor from Mosman, NSW. Also has contracts on Wagga and York Street CafÉ but has indicated that Gundagai is his first preference and will be attending auction. 3. Fred and Sid Nassif Investor from Burwood North, NSW. Has requested delayed settlement, we agreed to 4 months. In process of selling retirement village and some residential properties. 4. Charles Feldman Investor from Bondi. Has contracts on Wagga and Gundagai, only requested them yesterday. 5. George Haridemos Investor from Canberra. Has been looking at this property when we first advertised it in our Newsletter some 2½ months ago. He has also indicated that he is looking at a number of other alternative properties. I do not believe that he is a very genuine party. 6. Ping Wu Investor from Melbourne. Requested contract only yesterday. 7. BP Australia Paul Van Drunen asked me to send their solicitor (Clayton UTZ) a copy of the contract. They are not giving much away but I would have thought if they were genuine purchasers that your solicitor would have had some requests for changes to the contract. 8. Doug Mackie Investor who has confirmed to me that he will not be attending auction. His concerns appear to relate to the fact that the tenants do not pay outgoings (i.e., not net leases) and he believes there are real problems with all the bitumen. The other party who will not be attending is the Ray White Service Centre Trust but like Macquarie, they would have to do considerable due diligence and there is no guarantee that they would proceed. They are however a back up purchaser if the auction falls flat. At the end of the day, we only need one purchaser. If we can demonstrate a low yield on Wagga, I feel we could get some positive spin onto Gundagai and perhaps get Chris Nanitsos or Con Vithoulkas to deliver in the auction room. Can you please consider a reserve price for the auction over the weekend. My recommendation would be around $6.3 million or 8% return, this is the figure that I originally recommended in my original submission to you. I always felt Macquarie's offer of $6.6 million was a premium price. My concern is that if we set the reserve price at too high a level, we could scare off the genuine parties who I believe will be attending. We could get some real positive spin following Wagga's result with the view to pressuring genuine parties to bid in the auction if the property is declared to be on the market at a reasonable level. If the property is passed in, we could lose this pressure and spin off as the underbidder will feel he has control of negotiations after the auction. If you do not take my recommendation, can I ask that you at least be flexible in the auction room and judge the bidding for yourself so that I can take instructions from you if the bidding does indeed falter around $6.3 million. I hope this brings you completely up to date and I will ring you later to discuss. Yours sincerely, [signed] SIMON STADDON Director" (Emphasis added.) 65 Having regard to the terms of this letter, I find that of the eight parties that had obtained contracts, two of them, being private investors (Chris Nanitsos and Doug Mackie), both raised the state of the bitumen. 66 Having regard to the findings in [62], [63] and [65] above, I find that prior to the auction the defects in the bitumen pavement were patent and, in that sense, obvious on physical inspection of the site even if the cause of the defects was not. 67 Prior to the Contract being entered into on the day of the auction, viz., 11 April 2006, no relationship existed between Mercland and the Promoters on the one hand and Duncalm and the other respondents on the other. 68 The only contact between the Promoters and Duncalm was telephone calls between Simon Staddon of Burgess Rawson (Duncalm's agent) and Sid Nassif and John Nakhoul a few times before the auction. During these discussions, neither of these gentlemen told Simon Staddon that they were serious about buying the property. John Nakhoul was chasing Simon Staddon for some further information in relation to outgoings but this did nothing other than establish that John Nakhoul was making enquiries about the property. John Nakhoul and Sid Nassif only decided to bid at the auction on the 10 April 2006, the evening before the auction. As for Sid Nassif, the only conversation he had with Simon Staddon concerned the expected sale price (T 11/03/11 at p 36-37). Sid Nassif was an experienced and sophisticated investor - he had purchased four or five properties worth over $6 million (T 11/03/09 at p 39 ln 35). 69 Exhibit 15 (see [64] above) did not elevate Mercland to any status other than a prospective purchaser who had taken out a contract. As opposed to the first two parties (Mr Nanitsos and Mr Vithoulkas) who indicated they were attending the auction, this much could not even be said for John Nakhoul and Sid Nassif because, as Sid Nassif testified, no decision had been made to even bid at the auction until the night before. The state of play at the date of the auction is that Duncalm knew that John Nakhoul and Sid Nassif had taken a contract and nothing more. 70 No questions were asked by John Nakhoul or Sid Nassif about the improvements, the plans, specification, occupation certificate or related matters. If this was important to them it certainly remained a secret to Duncalm. When such information was sought, it was done so through Mercland's solicitor, Mr Meyer Solomon of Meyer Solomon & Associates, three days before settlement (that is, five months after contractual exchange). 71 When John Nakhoul and Sid Nassif went down to the site they did so unannounced and anonymously. They spoke to no-one. 72 When Mr Solomon wrote to Duncalm's solicitor, Lamond Howard & Associates, on 7 April 2006, he did not reveal the identity of his clients. 73 When Sid Nassif and Mr Solomon attended the auction on 11 April 2006, they were unknown to Mercland's directors. 74 As at the date of the auction, the evidence established that Mr Rampton knew that the Jones Nicholson designs had not been followed for both the bitumen areas of the pavement and the concrete hard stand areas. On the other hand, as regards the concrete hard stand, there was no evidence that, after it was constructed and up to the date of the auction, any problem with the sub-grade was causing, or would cause, any problem in the future. Mr Rampton believed that the problem that continued to blight the bitumen in Area H, would not affect the concrete hard stand. Indeed, it was submitted, and I accept, that it would be quite irrational for Duncalm to have taken steps costing $466,000 to rectify Area F by the construction of a knowingly deficient hard stand. Mr Rampton believed that he had properly constructed the concrete hard stand in Area F and the convocation of experts agree with him as to its fitness for purpose. 75 As regards Area H, there was neither concealment of the obvious problem from anyone nor any attempt to conceal it. Duncalm did not try to 'tart up' Area H before the auction. 76 Duncalm submitted that, although Mr Rampton held a belief that the cause of the bitumen problems were due to the laying of the bitumen and the use of decomposed granite as sub-grade, he did not know this as a fact (as compared to a belief) until the experts in these proceedings advanced their various views. I accept that submission.

The Contract 77 The Contract was a contract for the sale by Duncalm and the purchase by Mercland of the Land including the Service Centre. Whilst the Information Memorandum referred to the property as being offered as a "going concern" for GST purposes, as indicated at [5] above, the Contract was silent in this regard. 78 The Contract did not: (1) incorporate any site plan which designated certain areas as concrete or asphalt; (2) make reference to any plans, specifications or Development Consents; (3) sell the Land on the basis that it would comply with any construction standard or fulfil any drawing or specification; (4) sell the Land on the basis that Areas F and H would be concrete hard stand. In this regard, the Information Memorandum expressly stated that (at p 5) "the site works incorporate plenty of on site car spaces and hard stand areas for truck manoeuvring and parking (on western part of site)" (emphasis added). The Information Memorandum limited the truck areas for manoeuvring and parking to the hard stand areas. This is what was being sold and nothing more. That limited area (Area F) was observable at a pre-auction inspection. 79 Accordingly: (1) the Contract sold the Land with the Service Centre as an improvement; (2) the Contract sold the Land subject to a provision whereby the purchaser acknowledged that it was buying the property 'warts and all'; (3) the Contract sold the Land absent any warranties as to quality of the improvement(s); (4) the Information Memorandum designated the area that was the truck hard stand; no more hard stand area was in the offing. 80 Mercland was buying the Land subject to leases that were to be, or were, registered on title. Mercland was not buying: (1) the Land plus improvements constructed in accordance with plans, specifications or Development Consents; (2) improvements other than those constructed on the Land; (3) any truck parking area in Area H (or indeed anywhere else on the property, noting, however, that the Information Memorandum directed interested purchasers to that part of the property that contained a concrete hard stand); (4) an improvement that came with a designated lifespan of 40 years (or any years) or that was engineered in any particular way. 81 Sid Nassif and John Nakhoul asserted that they visited the site before the auction and inspected it. From this inspection the following was, or ought to have been, apparent: (1) there was no concrete hardstand over Area H; (2) in the truck parking area, part was surfaced with concrete (white in colour) and the other part in bitumen. Sid Nassif noticed the truck area was half concrete and half bitumen and, although curious, never asked anyone (T 11/03/11 at p 50 ln 28). 82 Mercland was not paying for anything more than they observed or was stated in the Information Memorandum. The promise made by Duncalm in the Contract was to convey the Land and improvements "as is". A purchaser buying land is entitled to no more than that contracted to be conveyed. Mercland paid for what was conveyed. Relevantly, that did not include a fully concreted Area H. 83 Finally, lending support to my findings at [82] above and the limited nature of the Information Memorandum, the Contract contained the following Special Condition numbered 30: "30. The Purchaser acknowledges having inspected the property and that, in entering into this agreement, the Purchaser has not relied on any statement, representation or warranty by or on behalf of the Vendor whether expressed or implied as to the property, the neighbourhood in which the property is situated, the condition or state of repair of the property or any improvement erected on the property or any part or parts thereof, the suitability for any use or purpose of the property or any such improvement, the rights and privileges (if any) pertaining to the property, or any matter having or which might have an effect beneficial or otherwise on the property, other than such statements representations and warranties as are expressly set out in this agreement and the Purchaser acknowledges that the Vendor has not made and that no one on behalf of the Vendor has any authority to make any such statement representation or warranty and the Purchaser accepts the property and improvements (including fixtures, fittings and other items included in and forming part of the within sale) subject to all faults and defects both latent and patent and will make no objection requisition or claim for compensation in respect thereto."

Mercland's Claims and the Respondents' Responses 84 Mercland's claims are predicated on two alternative bases, both of which allege that Duncalm engaged in conduct which was misleading or deceptive. 85 The first basis was that the Information Memorandum contained, or conveyed, express or implied representations that were misleading or deceptive, in the absence of disclosure of three matters. 86 The second or alternative basis was that a party in the position of Mercland would have had, and Mercland did in fact have, a reasonable expectation that these three matters would be disclosed before it entered into a contract to buy the Service Centre. 87 The three non-disclosed matters are those pleaded at para 26 of the TFASC ("the para 26 matters") reproduced at [17] above and may be summarised, thus: (1) a flexible asphalt pavement had been laid in the driveways and the heavy vehicle fuelling and parking areas, instead of a rigid heavy duty concrete ("the para 26(a) matter"); (2) no DGB20 sub-base had been included in the flexible asphalt pavements and no DGS20 sub-base or proper alternative had been included in the concrete pavements ("the para 26(b) matters"); (3) almost immediately upon the flexible asphaltic pavement in the heavy vehicle areas being used by trucks at the end of August 2005, it was found by the respondents to be unsatisfactory and was breaking up under the force of the trucks and accordingly it was partially replaced with a rigid concrete pavement ("the para 26(c) matter"). 88 The respondents admitted the para 26 matters had not been disclosed, but denied that a "proper alternative" for DGS20 had not been included in the concrete pavements. They also denied the matters referred to in [22(2)] and [22(3)] above.

The Para 26(a) Matter 89 Mercland's contention that the failure to disclose the para 26(a) matter was misleading or deceptive has, in my view, no foundation whatsoever. At the time the Contract was entered into it was patently obvious to all, including Mercland and the Promoters, the extent to which the pavements and driveways were respectively paved with concrete and bitumen. What may have been designed, or planned, is totally irrelevant. Mercland bought what was there and it, through the Promoters, knew what was there. This was not a prospective purchaser bidding from afar, ignorant of what was on site and totally reliant on the promotional material that had been provided to it. On the contrary, the Promoters, or at least their representatives, by their own admission, had inspected the site and were aware of what was paved by concrete and what was paved by asphalt. Neither they, nor Mercland, were led into error by either the contents of the Information Memorandum absent disclosure of the para 26(a) matter, nor by any reasonable expectation that such matter would be, but was not, disclosed before it entered into a contract to purchase the Service Centre.

The Information Memorandum 90 Mercland first contended that there were express and implied representations contained in, or conveyed by, the Information Memorandum that were misleading or deceptive in the absence of disclosure of the para 26 matters. 91 Mercland did not contend that the Information Memorandum represented that the Service Centre was free from all defects. However, it contended that by repeatedly asserting that it was "brand new", in the absence of any qualifying or contrary information, the Memorandum impliedly represented that the improvements on the Land, in particular the driveways, hard stand and car park, were fit for the purpose of and had been designed and properly constructed so as to be suitable for use by trucks, heavy vehicles and cars and that there were no major capital requirements for a new owner of the Service Centre to render the driveways, hard stand and car park suitable for such use: see paras 24(a) - (d) of the SFASC. 92 Mercland further contended that the character of the representations in the Information Memorandum was affected by the makers of them. That is, a reader of the Information Memorandum would assume that the information contained in it was obtained wholly or substantially from the respondents. The directors of Duncalm were not persons distant from the construction and operation of the Service Centre (compare for example, a situation where a service centre is owned by the investment arm of a bank). In this case, the centre was built by the respondents, who held out their experience in the Information Memorandum (see [61(6)] above). 93 Mercland contended that this was not a case where the directors should be taken to have represented no more than their belief that competent engineers and builders were retained to carry out work. In this case, the respondents actually conducted the building work and, accordingly, they were in a position to know if they had constructed the improvements in a way that would require costly repair or replacement in order to be fit for their purpose. 94 In summary, Mercland contended that the representations in the Information Memorandum were misleading because the pavements had defects known to the respondents, which were known to require remediation in order to be fit for their purpose, the cost of which was known to be substantial.

The Respondents' Response 95 The respondents' response to this aspect of Mercland's case may be summarised as follows: (1) the published words in the Information Memorandum were not, and were not intended to be, complete, accurate or comprehensive. The document did not pretend to be something it was not. It imparted basic information in unadorned language. It qualified itself as an introductory publication about the property and ought to have been construed as such; (2) the Information Memorandum did not address the improvements in detail. To the extent it mentioned the car park and truck areas it said: "The site works incorporate plenty of on site car spaces and hard stand areas for truck manoeuvring and parking (on western part of site)"; (3) it described the centre as "brand new". That expression ought to have been interpreted contextually where it stated, at p 2 of the Information Memorandum: "Brand new Service Centre investment completed in August 2005". Dictionaries sometimes spell this as "brand-new". The prefix "brand" may add a little panache but it is a meaningless intensifier. "Brand new", in this context, meant nothing more than it was completed in August 2005; (4) an implied meaning ought sensibly and objectively spring from an express representation because no conduct can be misleading or deceptive unless the person to whom the representation is directed labours under some error: Taco Co of Australia Inc. v Taco Bell Pty Limited (1982) 42 ALR 177. To describe the Service Centre as "brand new … completed in August 2005" cannot be elevated into anything more ornate. It is a descriptive statement of age; it is not a warranty of quality. Its relevance pertains to taxation implications hence the inclusion, in the materials made available to Mercland, of depreciation advice. Many things are sold everyday under the banner "new" or brand-new" (which terms seem to be interchangeable). Whilst it may be accepted that there could be a correlation between a chattel's age and its performance characteristics, this is a non sequitur. Anything new can be defective as much as anything second-hand can be in perfect working order. The attraction of a new car is more likely to be the length of its warranty in recognition of the fact that, despite being new, it could break down and need repairs; (5) for the descriptor "brand new … completed in August 2005" to impliedly mean that the "driveways, hard stand and car park were fit for the purpose of and had been designed and properly constructed as to be suitable for use by trucks, heavy vehicles and cars" would unjustifiably contort and expand the ordinary meaning of this simple and common descriptor. Moreover, this alleged representation confronts these problems: (a) the common law regarding chattels itself does not provide that the sale of something new implies it is fit for purpose. The purpose of s 19 and s 72 of the Sale of Goods Act 1923 (NSW) is to imply by law such terms into contracts because they are otherwise not implied by the common law. Absent implication by statute, merely selling something as new does not import a warranty as to quality; (b) the common law does not imply any such term into contracts for the sale of land; (c) there is a vagueness of meaning in the expression "fit for the purpose of … and had been designed and properly constructed so as to be suitable for use by trucks, heavy vehicles and cars". This could mean a range of different things - that it would allow cars and trucks to pass, re-pass and park; that it was large enough to accommodate trucks and heavy vehicles; that it was purpose-built in accordance with a specific design or design standard. None of these matters arise by implication from the descriptor "brand new". (6) as regards para 24(b) of the SFASC, the words "brand new … completed August 2005" or the other matters particularised in A - H of para 24(a) cannot imply such a meaning. Just because something is new says nothing about future capital requirements.

Mercland's Reasonable Expectation of Disclosure: Deception by Silence 96 Alternatively, Mercland contended that as at April 2006, it had, and a prospective purchaser in its position would have had, a reasonable expectation that, if any of the para 26 matters were true, they would be disclosed. According to Mercland, that reasonable expectation arose in light of the express representations made in the Information Memorandum and for the following eight reasons. (1) As a matter of common sense, where an engineer has specified that an area was to be paved in a particular way, and that when a particular style of pavement is used it was to include a specified layer (DGB20), there would be a reasonable expectation on the part of a prospective purchaser that it would be told if the design had been departed from in such a fundamental respect that, soon after construction, the pavement was found to fail. (2) These are matters that a reasonable purchaser making reasonable inquiries could not know. A purchaser making reasonable inquiries could not know that the flexible pavement had been constructed without a DGB20 layer without conducting invasive testing by coring the surface and ascertaining what lay beneath. Mr Leung, under cross-examination, gave evidence that: (a) a purchaser would normally not request a geotechnical engineer to assess what's beneath the pavement unless there are observed defects within the pavement; (b) a geotechnical investigation to assess the pavement and sub-grade conditions would involve excavation of test pits, such as by a back-hoe operator, or drilling of bore holes to obtain core samples; (c) the cost of such an exercise would depend upon the number of test locations and the laboratory testing regime, but could be in the order of $20,000 and the procedure would take a couple of weeks. Of course, this says nothing of the cost of repairing the pavement after the test is carried out.

It could not sensibly be suggested that a reasonable purchaser would be expected to damage and excavate the pavement at substantial cost in order to determine whether or not it had been constructed properly and in accordance with the engineering design. It is deeply improbable that the respondents would have permitted this to occur. According to exhibit 15, there were eight interested purchasers. Could it seriously be suggested that the respondents would have allowed eight separate geotechnical investigations of the pavements? (3) There had been numerous express representations emphasising that the Service Station was brand new: (a) The brochure marketing the property stated that the investment opportunity was a "brand new service centre" that had been completed in August 2005; and it was a "Major Regional Truckstop Facility strategically located between Sydney & Melbourne". (b) These messages were reinforced by the Information Memorandum, which used similar words to describe the facility (p 2). The Information Memorandum also stated that "[a]ccess to the Service Centre is easy and convenient for both north bound and south bound highway traffic" (p 4); that "[t]ruck operators represent a substantial percentage of the overall business of the Service Centre" (p 4); and that "[t]he site works incorporate plenty of on site car spaces and hard stand areas for truck manoeuvring and parking" (p 5). (4) A reasonable reader of the brochure and Information Memorandum in the position of Mercland would have understood, from these words, that the Service Centre was specifically designed for frequent use by heavy trucks for refuelling and as a rest/dining stop and was suitable for accommodating a heavy volume of truck traffic. That is precisely how John Nakhoul understood these statements. Similarly, Sid Nassif`s evidence was that, when he learned that the Service Centre was only one year old and was described as "brand new", this led him to believe that everything would be fine in relation to the car park and truck parking areas. (5) The profiles of the directors in the Information Memorandum (p 9) emphasised their substantial experience in the construction industry and the construction and operation of service stations. One of the directors (Mr Rampton) was described as being a "Licensed Builder with extensive experience in residential and commercial projects for over 30 years"; another (Mr Roberts) was described as having "[o]wned and operated CPS Petroleum Services for over 15 years specialising in the construction and maintenance of service stations throughout NSW". This was information on which John Nakhoul placed specific reliance. The substantial experience of Mr Rampton and Mr Roberts in such matters contributed to a reasonable expectation in the mind of a purchaser that people with that level of experience would disclose the para 26 matters. (6) The directors of Duncalm had been personally involved in the decisions taken during the construction process. It was Mr Rampton, together with Mr Roberts, who had engaged, on behalf of Duncalm, Jones Nicholson to prepare the design for the pavement areas. Mr Rampton's evidence was that he was on site from day one and remained there until the end of construction, some 12 months later. (7) The Promoters had contacted the respondents' selling agent (Simon Staddon) and sought information in relation to the property, some 14 days before the auction. Simon Staddon provided to them, by email, not only the brochure and Information Memorandum (including building plans) but also the CD containing documents relevant to the property, including the proposed contract and the leases.) This is not a case in which there had been no prior communication or dealing between the parties (albeit through a selling agent). This is not a case in which a purchaser arrived at an auction unannounced and without making any prior enquiry. On the contrary, Mercland had sought, and obtained, detailed information from the respondents' selling agent in advance of the auction. As Ex 1 shows, the respondents were aware of the identity of Messrs Sid and Fred Nassif, and the other seven interested purchasers, well before the auction. An obvious opportunity for the respondents to disclose the para 26 matters was when their selling agent provided the CD containing documents relating to the property, on or around 27 March 2006. One practical method of ensuring that such disclosure had been made would have been for the respondents to require, as a condition of registering as a bidder at the auction, that each bidder on the day of the auction sign a brief acknowledgment that it had received, and read, whatever information had been included on the CD circulated to interested parties who had contacted the selling agent. (8) John Nakhoul and Sid Nassif had inspected the Service Centre prior to the auction. There was no visible break-up of the bitumen at the time of their inspection. 97 Mercland further contended that the misleading character of the respondents' conduct was not corrected by the fact that neither the Promoters nor Mercland asked any specific questions directed to the construction of the paved areas. There was nothing which could, or which in fact did, alert the Promoters or Mercland to the necessity to ask any questions on this topic. By their nature, the defects beneath the surface of the paved areas were concealed. Nothing was known by the Promoters or Mercland which provided the slightest hint that, during construction, the respondents may have departed from their own engineers' specifications in the way described by the para 26 matters. 98 According to Mercland, a conclusion that, in the circumstances of the present case, there was a reasonable expectation that the departures from the design and defects in the paved areas would be disclosed to a prospective purchaser falls well within the authorities in this field. Reference was made to Franich v Swannell (1993) 10 WAR 459, where the Full Court of the Supreme Court of Western Australia considered whether a vendor of land had engaged in misleading or deceptive conduct by failing to disclose to the purchasers that the house was undergoing a continual process of subsidence and was not structurally stable. Seaman J (with whom Ipp J at p 480 and Murray J at p 483 agreed) concluded that there was a reasonable expectation that matters relating to the continuing subsidence, the sub-soil conditions and the past remedial works should have been disclosed by the vendor to the purchasers; that the vendor's silence, if in trade or commerce, would amount to misleading or deceptive conduct; that, had the purchasers become aware of those matters, they would not have signed the contract for sale; and that the vendor's silence induced the purchasers to enter into the contract and, if such silence was in trade or commerce, they had suffered loss or damage thereby (at pp 475 - 477). 99 In conclusion, Mercland contended that, in all the circumstances, it was reasonable for a prospective purchaser in the position of Mercland to expect that a service centre of this size and strategic location, built six months earlier, would be constructed in accordance with the designs of the geotechnical and structural engineers, and that, if there was a departure from that design, this would have been done only with the approval of those engineers. In the absence of disclosure to the contrary, a prospective purchaser, acting reasonably, would understand that there had been no such departure. Accordingly, the respondents' failure to disclose the para 26 matters was conduct which led Mercland into error and was misleading or deceptive.

The Respondents' Response 100 The respondents contended that the first limb of this claim (that the Information Memorandum was misleading without making a public disclosure of the para 26 matters) ought to be rejected because the para 26 matters did not render false the representations that had been made in the Information Memorandum: per Gleeson CJ in Lam v Austintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 476. This principle has been repeated by French CJ and Kiefel J in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] 241 CLR 357 at [23]: "When a document contains a statement that is true, non-disclosure of an important qualifying fact will be misleading or deceptive if the recipient would be misled, absent such disclosure, into believing that the statement was complete." None of the para 26 matters rendered the statement [that the Service Centre was "brand new…completed in August 2005"] false. That fact remained true; it could have been dreadfully built even if it was "brand new". Had the Information Memorandum made statements about the quality of construction, or asserted that the improvements had been constructed in accordance with the design and specifications, the para 26 matters would have rendered the Information Memorandum false or only half true. This was not the case and, for this reason, this limb of the concealment claim cannot succeed. 101 As regards the second limb of the claim (that Duncalm engaged in concealment of the para 26 matters which it was required to disclose), the Respondents submitted as follows: (1) there was no silence or concealment of the matter in para 26(a) - the concrete truck hard stand was not hidden from view prior to the auction; (2) there was no duty to disclose the matters in paras 26(b) and (c); (3) Duncalm did not deliberately conceal the paras 26(a) and (b) matters. A finding that these matters were not disclosed does not equal a deliberate concealment; and (4) as Mercland's decision to purchase was based upon its own erroneous assumptions, no finding of deception ought be made.

Relevant Legal Principles 102 In relation to the second or alternative limb of Mercland's claims, namely, that because Mercland had a reasonable expectation that the para 26 matters would be disclosed before it entered into a contract to purchase the Service Centre and Duncalm, therefore, had a duty or was required to disclose those matters - the deception by silence claim - the High Court of Australia has recently set out some principles that assist the task one is required to undertake. 103 In Miller & Associates at [14], [15], French CJ and Kiefel J had this to say about misleading or deceptive non-disclosure: "[14] In determining whether there has been a contravention of s 52 of the Trade Practices Act, it is necessary to determine 'whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive' [Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41]. The term 'conduct' is to be understood according to its definition in s 4(2)(a) and (b) of the Trade Practices Act, which includes a reference to 'refusing to do any act'. That, in turn, includes a reference to 'refraining (otherwise than inadvertently) from doing that act' [Trade Practices Act, s 4(2)(c)(i)]. [15] For conduct to be misleading or deceptive it is not necessary that it convey express or implied representations [Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 603 [32], 624-625 [108], 646 [179]]. It suffices that it leads or is likely to lead into error [Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 589 [63]]." 104 A little later their Honours at [17] - [20] said: "[17] The 1992 decision of the Full Court of the Federal Court in Demagogue Pty Ltd v Ramensky [(1992) 39 FCR 31] represented what has been described accurately as 'an emphatic acknowledgment ... of the unique nature of the statutory prohibition' [Lockhart, The Law of Misleading or Deceptive Conduct, 2nd ed (2003) p 140]. The Full Court upheld the decision of the primary judge that a vendor of land had created a clear but erroneous impression in the purchasers that there was nothing unusual concerning access to the land and, in particular, had been silent as to the necessity of a grant of a licence by a statutory authority to enable such access. [18] Gummow J, who wrote the leading judgment and with whom Black CJ and Cooper J agreed, said [at 38]: 'it should be no inhibition to giving effect to what, on its proper construction, is provided for in the legislation, that the result may be to achieve consequences and administer remedies which differ from those otherwise obtaining under the general law.' Silence, as Black CJ said in his concurring judgment, was to be assessed as a circumstance like any other [at 32]: 'the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.' Gummow J referred to the limitation that 'unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist' [at 41, quoting Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) ¶46-054 at 53,195]. [19] The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations [Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at 84-85 [101], 85 [103]; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 319 [26]]. An example in the former category is non-disclosure of material facts in a prospectus [Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 467; see also Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 591-592 [67]. [20] In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered [Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 44]. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52.". 105 Relevantly, to the facts of this case, as well as to what their Honours described as "in practical effect, the character of the obligation said to have rested upon Miller" in the case before them, their Honours at [22] said: "However, as a general proposition, s 52 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. A fortiori it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence." 106 Finally, their Honours at [23] said: "Reasonable expectation analysis is unnecessary in the case of a false representation where the undisclosed fact is the falsity of the representation. A party to precontractual negotiations who provides to another party a document containing a false representation which is not disclaimed will, in all probability, have engaged in misleading or deceptive conduct. When a document contains a statement that is true, non-disclosure of an important qualifying fact will be misleading or deceptive if the recipient would be misled, absent such disclosure, into believing that the statement was complete. In some cases it might not be necessary to invoke non-disclosure at all where a statement which is literally true, but incomplete in some material respect, conveys a false representation that it is complete."

Relevant Circumstances in this Case 107 In the present case, the relevant circumstances to be considered fall within a relatively small context or compass. There was little, if anything, in the way of precontractual negotiations. Indeed, there were no discussions or actions inter se between the Promoters on the one hand and the directors of Duncalm on the other prior to the Contract being entered into that would qualify as conduct, save for the conduct of the respondents mentioned below. Further, whilst there were some discussions between representatives of the Promoters and Duncalm's agent at Burgess Rawson, Simon Staddon, they were so insignificant that they are not relied on. 108 The relevant circumstances that comprise the context for the objective determination as to whether the non-disclosure of the para 26 matters should be characterised as misleading or deceptive in the present case are limited to: (1) the admitted non-disclosure of the para 26 matters; (2) the truth of the para 26 matters subject to the denials previously noted; (3) the knowledge of the respondents, or at least some of them, as to the existence of the para 26 matters; (4) the failure of the Promoters, or at least two of them, to observe the problems with the bitumen pavements, if not the cause of those problems, on inspection of the site; (5) the content of the Information Memorandum; and (6) the terms of the Contract.

The Para 26(a) Matter 109 I have already rejected Mercland's contention in relation to on the non-disclosure of the para 26(a) matter (see [89] above), admitted by the respondents, save for the minor matter referred to in [22(2)] above. The Promoters, or at least some of them, by their own admission, had inspected the site and were aware of what was paved by concrete and what was paved by asphalt. Nothing was hidden from view prior to the auction and nothing was contained in the Information Memorandum to represent, either expressly or impliedly, that what was being sold was otherwise than what was on view. The Information Memorandum relevantly contained, at most, the statements reproduced in [4] above; nothing more. Moreover, in the circumstances that: it was a reasonable expectation, objectively discerned, that anyone interested in purchasing the Service Centre would inspect it or have it inspected by someone upon whose report they could rely; the pavements and driveways were all on view so that it was obvious to all as to what was constructed with concrete and what was constructed with asphalt; the deterioration of the asphalt at the time of the auction was not only manifest but obvious on careful inspection (as to which see, for example, Ex 15 reproduced in [64] above); and no enquiry was made, by Mercland or its Promoters, of Duncalm or its agent, Burgess Rawson, as to the history of, or reasons for, that deterioration, there could, in my view, be no reasonable expectation on the part of Mercland, or its Promoters, that the respondents, or any of them, should disclose prior to the auction, that the pavements and driveways were not constructed as designed, or were laid contrary to plan.

The Para 26(b) Matters 110 As noted in [22(3)] above, the respondents deny the accuracy of para 26(b) of the TFASC: first, they deny that the design prepared by Jones Nicholson specified only the use of DGB20; that design also specified its equivalent; second, they deny that they were required to construct the flexible asphaltic concrete pavement areas in accordance with the design of Jones Nicholson in conjunction with Aitken Rowe; and third, they deny that they were required to seek or obtain the approval of Jones Nicholson or Aitken Rowe in respect of any variation to that design. 111 Having regard to the evidence, I accept that Duncalm, under the design prepared by Jones Nicholson, could use an equivalent to DGB20; was not required to construct the asphaltic areas in accordance with the design of Jones Nicholson in conjunction with Arthur Rowe; and was not required to obtain their approval in respect of any variation to that design. 112 But even if any or all of those findings were not open on the evidence, I would still be of the view that: (1) there were no express or implied representations contained in, or conveyed by, the Information Memorandum that were misleading or deceptive absent the disclosure of the para 26(b) matters; or (2) Mercland would not have had, and did not in fact have, a reasonable expectation that the para 26(b) matters would be disclosed before it entered into a contract to buy the Service Centre. 113 The description of the Service Centre in the Information Memorandum as "Brand new…completed August 2005" has to be read and understood in context. It says much about the contemporaneity of the auction of the Service Centre with the completion of its construction, but nothing about the quality of workmanship in constructing the centre or about compliance in the construction with the specifications and design of those responsible for its planning and construction. Nor does it say anything about the condition or state of repair of the Service Centre at the time of, or immediately prior to, the auction. The words "brand new" do not, in the context, carry or convey any expression or implication of quality or workmanship, or fitness for purpose of the kind pleaded by Mercland. 114 The distinction is exemplified in the following extract from the Valuation Report of Nelson Partners referred to in [62] above: "Age and Condition The subject service centre was built during 2005 and reportedly commenced trading in August 2005. Our investigations indicate all fit out to the foodcourt, with the exception of KFC, was completed at the time of commencement of trading. Reportedly fit out to the KFC outlet, including drive-through facility, was reportedly completed in April 2006. Overall, the improvements are in 'as new' condition, with no significant maintenance or repair items noted during our inspection, apart from cosmetic repainting. Resealing is required to both the car and truck parking areas, where water ponding has occurred and has resulted in fracturing of the bitumen sealing. Overall, signage appears to be fair only, with illuminated pylon signage also provided on the residual land component. In our opinion, provision of additional signage along the highways would enhance trading at this highway service centre. We have not inspected woodwork or other parts of the structure which are covered, unexposed or inaccessible and we are, therefore, unable to report that any such part of the structure is free from defect. We have not been provided with any Engineering tests, structural survey or Qualified Building Report and to this extent this valuation is qualified. We recommend the following are provided: (a) A Building Certificate, issued under Section 149(d) of the Environmental Planning and Assessment Act 1979 or under Section 172 of the Local Government Act 1993. In addition, a satisfactory final inspection advice should be obtained from the Local Government Authority to ensure compliance with any development consent. (b) A survey showing that the improvements are contained within the subject allotments. (c) A pest certificate to confirm the property to be free from infestation (whether active or dormant). If any of the above reports/certificates disclose matters which may affect the value of the property our valuation may require revision." (Emphasis added.) 115 As noted in [62] above, John Nakhoul conceded that such water ponding and fracturing of the bitumen sealing must have been present when he went to the site with Sid Nassif. Nevertheless, this did not impede Nelson Partners' overall description of the improvements as being of "'as new' condition". Age is not synonymous with condition. 116 Nor do I think Mercland would have had, and did in fact have, a reasonable expectation that the matters referred to in para 26(b) would be disclosed before it entered into a contract to buy the Service Centre. First, the site inspections of John Nakhoul and Sid Nassif prior to the auction, if there was more than one, were so perfunctory that the deteriorating condition of the bitumen pavement was not even observed. It was not observed because, in my view and I so find, they were more concerned at the amount of traffic, both vehicular and people, using the Service Centre and its facilities. In other words, the focus of their inspection was the through put and volume of business generated by the Service Centre rather than the condition of the improvements and pavements. At least two of the eight parties who had expressed interest in the property raised the bitumen issue (see Ex 15) at [64] above). It may be that the condition of the improvements and pavements did not loom large in the minds of the Promoters in the face of their knowledge that completion of the construction of the Service Centre only occurred in August 2005. However, even if that is right, it does not give rise to a reasonable expectation that the matters pleaded in para 26(b) of the TFASC would be disclosed before a successful bidder entered into a contract to buy the Service Centre. 117 The deterioration of the bitumen was manifest and obvious on careful inspection. Had such inspection led the Promoters to raise questions of Duncalm, or its agent, on the history of the pavement and the problems that had been encountered, since completion in August 2005, including their knowledge of the causes for the fracturing of the bitumen seal, it would have been incumbent on the respondents to make disclosure of what they knew, even if such disclosure did not correctly identify the cause(s) of the problem. But that is not this case. As French CJ and Keifel J said at [22] of their reasons in Miller, s 52 does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence.

The Para 26(c) Matter 118 The fact that the Information Memorandum does not disclose that almost immediately upon the flexible asphaltic pavement in the planned heavy vehicle areas being used by trucks at the end of August 2005, it was found by the respondents to be unsatisfactory in that it was breaking up and was replaced in Areas E and F with a rigid concrete pavement, does not, in my view, render false the representation that the Service Centre is "brand new". Indeed, it can be said with some force that, with respect to Areas E and F, the representation is all the more true because the relaying of those areas with concrete took place after the Service Centre was completed. 119 Nor do I think Mercland would have had, and did in fact have, a reasonable expectation that the matter referred to in para 26(c) would be disclosed before it entered into a contract to buy the Service Centre: as to Area H, the area that was not repaved with concrete, for the reasons more fully set forth in [116] and [117] above; as to Areas E and F, for the reasons that the perceived problem with the bitumen pavement had been cured by its replacement with concrete pavement.

Conclusions 120 The facts of this case are a long way from those which came before the primary judge in Ramensky v Demagogue Pty Ltd (1992) Q Conv R ¶54-429 and the Full Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. The primary judge (Spender J) stated, which was later affirmed by Gummow J in the Full Court at [35], at 59,314: "Whether silence constitutes conduct which is misleading or deceptive of course depends upon the circumstances. Here the circumstances were special and out of the ordinary. Moreover, the express representations by Demagogue were such as to indicate that there was nothing unusual at all about this aspect of the development. In this case, there was both a positive misrepresentation, and a misrepresentation conveyed by a failure to say anything about a road licence. In the opinion I hold of the circumstances, Demagogue through Mr Miller and the draft contract created a clear but erroneous impression that there was nothing unusual concerning the access to this site and, in particular, there was no suggestion that a road licence from the Lands Administration Commission was necessary to provide such access. The vendor was silent as to conditions which might affect the continued existence of the licence and as to the fact that a small but not trivial financial contribution would be required." 121 On my findings in this case, the respondents have made no positive misrepresentation. None of the relevant circumstances identified in [108] above contain an express or implied representation which is false and certainly the pre-contractual document principally relied upon, the Information Memorandum, contains no such misrepresentation. No statement was made, either in writing or orally, that "created a clear but erroneous impression that there was nothing unusual" about the pavements, unlike the impression that was created in Ramensky by "Demagogue through Mr Miller [its real estate agent] and the draft contract…concerning the access to this site". We are thus left with non-disclosure or silence concerning the pavements as the sole basis for the alleged unlawful conduct. 122 In Ramensky, the primary judge (at 59,315) said: "It is always difficult to attempt to answer with conviction what would have happened had a state of affairs been different from the state of affairs in which the decision was taken. This is particularly so if, at a later time, circumstances have come about which bear on whether the original decision was a sound or wise one. That is acutely so in the circumstances of the present case. So much has been frankly acknowledged, in particular by Mr Ramensky. I am satisfied as a fact that, had the Ramenskys been aware of the existence of the road licence at any time prior to their entry into the contract dated 14 March 1989, it is likely that they would not have entered into that contract. While it is a possibility that further inquiry and assurances might have led to them nonetheless at some later time entering into the contract, I do not think that that would have been likely. I am satisfied that, if they were aware of the circumstances that then obtained concerning the road licence and access to the site, they would not have then entered into the contract of sale, and it is probable that they would not have entered into the contract at any time. It follows that the misrepresentations which I have held occurred did induce the applicants to enter into the contract of sale. I reach this conclusion notwithstanding the provisions of clause 14 of that contract. The clause cannot operate so as to absolve compliance with the Act. Moreover, the factual circumstances are such that the misrepresentation under which the Ramenskys were labouring was brought about by the reticence of Demagogue to disclose the true position and by its conduct representing as the state of affairs that applied to the site that which in truth did not so apply. I am satisfied the representations were made and they did affect the decision to enter into the contract of sale." 123 As to which Gummow J in the Full Court said (at 35): "His Honour also found that if, prior to their entry into the contract the respondents had been aware of the circumstances that then obtained concerning the Road Licence and access to the site they would not have entered into the contract, and that it was probable that they would not have entered into the contract at any time. It followed that the respondents had relevantly been induced to enter into the contract." 124 I am not satisfied that if the para 26 matters had been disclosed in either the Information Memorandum or the Contract that Mercland would not have bid as high as it did at the auction and, in consequence, been the successful bidder. The matter can be tested this way: Had the Information Memorandum or the Contract disclosed that: (1) the pavement areas were not covered with concrete/bitumen as originally planned (the para 26(a) matter); (2) the sub-bases used for the bitumen and concrete pavements differed from those as originally designed by the geotechnical engineers (the para 26(b) matters); and (3) the bitumen originally laid in Areas E and F (but not Area H) were replaced by rigid concrete pavement subsequent to completion of the centre (the para 26(c) matter), are those matters that would have caused Mercland to refrain from bidding for the Service Centre to the extent of being the successful bidder? I am far from convinced that they would have. The attraction of the Service Centre to the Promoters and Duncalm lay in the net income return profiled in the Information Memorandum, not in the condition or inherent integrity of the improvements and pavements. After all, the Service Centre was fully leased. 125 At the end of the day, in the absence of a finding that there was an express or implied representation by Duncalm or its agent that there was nothing unusual or untoward about the pavements, I conclude that Mercland could not, and did not, reasonably expect that Duncalm or the other respondents would disclose, directly or through Simon Staddon, the para 26 matters. 126 In the face of this conclusion, the application must be dismissed with costs. I certify that the preceding one hundred and twenty-six (126) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.