Park v Brothers

Supreme Court of NSW|2003-10-07|Before: Campbell J, Schedule J

CITATION : Park v Brothers [2003] NSWSC 865 HEARING DATE(S) : 11/8/03 - 14/8/03 JUDGMENT DATE : 7 October 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Damages awarded for two precontractual misrepresentations, and for breach of contract. Interest on amount of damages for precontractual misrepresentations allowed at 8.5% per annum. Interest on damages for loss of profits caused by breach of contract allowed by reference to when income would have been received.

CATCHWORDS : TRADE PRACTICES AND RELATED MATTERS - consumer protection - misleading and deceptive conduct by statements in advertising - relevance of target audience of advertising to whether statement is misleading and deceptive - factual decisions about whether representation relied on - factual decisions about whether representation continued to have causal effect - CONTRACTS - factual decision about consequences of breach of contract - INTEREST - rate of interest - interest under section 94 Supreme Court Act 1970 - on damages for misrepresentation inducing entry of contract for sale of land, where much of purchase price is secured by mortgage back - interest rates under Schedule J Supreme Court Act not appropriate - INTEREST - recoverability of interest - section 94 Supreme Court Act 1970 - from what date interest runs in action for loss of profits arising from breach of contract Fair Trading Act 1987 LEGISLATION CITED : Supreme Court Act 1970 Native Vegetation Conservation Act 1997 CASES CITED : Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 Park v Brothers [2001] NSWSC 88; (2001) 10 BPR 18,649 Lindsay Gordon Park - First Plaintiff PARTIES : Jill Park - Second Plaintiff Clive Roy Brothers - Defendant FILE NUMBER(S) : SC 1224/01 COUNSEL : D Murr SC; J Trebeck - Plaintiffs D Cantwell, solicitor - Defendant SOLICITORS : Holman Webb - Plaintiffs Don Cantwell - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

1224/01 LINDSAY GORDON PARK & ANOR v CLIVE ROY BROTHERS JUDGMENT HIS HONOUR: Nature of the Case 1 The Plaintiffs entered a contract to purchase from the Defendant a rural property. A term of the contract entitled the Plaintiffs to possession of the property pending completion. They entered possession and commenced farming activities there, but the Defendant purported to rescind the contract, and excluded them from the property for several months. The Court held that the purported rescission was wrongful. After the Court gave that decision, the contract was completed. The Plaintiffs claim damages for breach of contract arising from their wrongful exclusion from the property. 2 In addition, the Plaintiffs say that there were various pre-contractual misrepresentations, upon which they relied. They seek damages for breach of sections 42 and 45 of the Fair Trading Act 1987. Precontractual Representations 3 "Jellalabad" is a rural property of a little less than 25,000 acres, located about 40 kms west of Hay. It has recently been re-named "Newmarket". 4 The first Plaintiff, Mr Park, has been a farmer for more than 40 years, since he was aged 15. Over that time he has had extensive experience in the growing of both rice and wheat, both as a sharefarmer and on properties of his own. In August 2000 he was interested in purchasing a mixed farming property in the Hay area, fronting the Murrumbidgee River. He found that "Jellalabad" was for sale, and obtained an advertising brochure which a real estate agent acting for the vendor (Mr Brothers, the Defendant in these proceedings) had prepared and published for the purpose of a proposed auction of the property, to be held on 25 August 2000. The brochure contained a statement, in prominent print in its first page, "2,500 ha high river licence". This is a reference to a type of licence which enables the holder to pump water from the river at certain times when the level of the river is high. The second page of the brochure included the following statement: " Irrigation : Jellalabad has approx 1093 ha (2700 ac) laid out to irrigation. A key feature of the irrigation design is the ability to recycle, allowing reuse of irrigation water. The 500 megalitre storage is filled and released on a gravity basis. Rice : 2140 ac approved for rice production with a further 2000 ac bored." 5 The brochure also included a map which identified the various paddocks in the property, various areas described as "irrigation area", dams, and various other facilities on the property. The reference to "a further 2000 ac bored" is to a process where bore holes are put down at intervals of about 200 metres to ascertain whether the subsurface condition of the land is suitable for rice growing. 6 In mid-August 2000, Mr Park arranged with the real estate agent handling the matter to inspect the property. At the entrance to the property was a sign advertising the proposed auction, which included the items: "2,500 ha Murrumbidgee high river licence 2,700 ac irrigation 500 meg storage … recycle system" 7 Mr and Mrs Park were driven around the property with Mr Brothers. In that course of that drive Mr Park said to Mr Brothers that they needed more land to utilise the water available to the property. In the context, this meant that Mr Park needed to have more land put under irrigation than was currently under irrigation, to be able to use the water available to the property. Mr Brothers confirmed that it was possible to fill the dam with water obtained from the high river licence. 8 On that inspection tour, Mr Park noticed three large bays of land, totalling approximately 500 acres, which were near an irrigation stop in a channel. The land where these three bays were located had been marked, on the map of the property on the brochure, as being "high river special licence irrigation". Mr Brothers confirmed that those structures were to do with the high river water licence. He showed Mr Park the place where those paddocks were filled with water, and where the water came out when the paddocks were drained. Mr Park told Mr Brothers that he would be able to grow organic wheat in that area. 9 On the same inspection tour, they drove through a paddock called the West River Paddock. The brochure did not indicate any part of the West River Paddock as affected by the high river special licence, nor as being part of any irrigation area. However, Mr Brothers said that that country had also been flooded with water from the high river licence for grazing purposes. 10 The Native Vegetation Conservation Act 1997 introduced significant controls over the removal of native vegetation so as to make land more suitable for farming or grazing activities. In general, development consent is needed to remove native vegetation. A brochure issued by the New South Wales Department of Land and Water Conservation in June 1999 explains that one type of clearing which is exempt from the need to obtain development consent is: "The removal of native vegetation, whether seedlings or regrowth less than 10 years of age if the land has been previously cleared for cultivation, pastures, or forestry plantation purposes." 11 In general terms, the type of controls arising under that Act, and the exemption I have just quoted, were known to both Mr Park and Mr Brothers. On the first inspection tour, when they were driving near the Murrumbidgee River, Mr Brothers told Mr Park that that land was part of the area which had already been passed by the Department of Land and Water Conservation. He said it had been "pulled" within the last 10 years, and that he would obtain a letter from the Department saying that all of that land could be farmed. On a subsequent occasion, during negotiations to buy the farm but before Mr Park signed the contract, Mr Brothers told him that the area already passed by the Department of Land and Water Conservation was 11,000 acres. In his own mind Mr Park formed the view that of that 11,000 acres, approximately 7,500 acres would be suitable for rice farming, and the rest would be best left in its natural state. 12 On one inspection of the property Mr Park told Mr Brothers that he wanted to grow three blocks of rice each of 1,500 acres. Mr Brothers said words to the effect that, "There is plenty of land to do that - but there is no infrastructure - that is your job." 13 The auction scheduled for 15 August did not go ahead, but Mr Park maintained his interest in purchasing the property. The real estate agent told him that Mr Brothers had been very ill, that he had had a series of heart attacks and was unable properly to look after the farm, and that he required a purchaser to immediately take possession of the farm to look after it. On 12 September 2000 Mr and Mrs Park signed a contract to purchase the property, and paid a deposit of $250,000. That contract was not actually exchanged until 25 September 2000, but on 12 September 2000 Mr Park first took possession of the property. 14 At the time Mr Park took possession of the property, some of the irrigated paddocks were ploughed. Mr Park had the rest of the irrigated paddocks ploughed, and all the irrigated paddocks fertilised, rolled, and then flooded with water. He arranged for some minor damage to the banks around some of the rice paddocks to be fixed, for a rice crop to be sown, for the crop to be regularly inspected for bloodworm and weeds, and for regular measures to be taken to protect it from ducks. He spent about $225,000 on these activities, and a significant amount of his own time. The Contract 15 The contract exchanged on 25 September 2000 was for a sale at a price of $3,350,000. That amount was payable as to $250,000 on exchange of contracts, as to a further $250,000 on completion, and the remaining $2,850,000 was to be secured by a mortgage back. The principal of that mortgage was payable as to $500,000 on 7 July 2001, a further $350,000 on 7 September 2002, and $2,000,000 on 7 September 2005. It was to bear interest at 7% in the meantime. 16 The contract contained the following special conditions:

Early occupation by purchaser to do farming work - no reimbursement to purchaser The purchaser may enter the property and occupy the Manager's Cottage as licensee only at any time after the date of this Contract and payment of the deposit without payment of any occupation fee to work up ground for crops such work to be at his expense and risk and in locations first approved by the vendor. The purchaser agrees in doing such work to adopt the highest farming standards used in the local district and the purchaser's entry shall also be governed by the provisions of special condition 25 hereof. The purchaser acknowledges that 14 days notice given to the vendor will be required prior to occupancy of the cottage, which is presently occupied. 30. Land Clearing (i) Annexed hereto and marked "K" is a diagrammatic plan of the property etched in green indicating an area of approximately 11,000 acres in paddocks known as "Big River", "South Coonoon" and "North Coonoon" cleared in 1991/92 of vegetation of the types known as roly poly and lignum together with other areas on the property which have been cleared for cultivation and pastures. (ii) The Vendor must supply written proof to the satisfaction of the NSW Department of Land and Water Conservation of those matters referred to in 30(i) hereof. (iii) The Contract is subject to the purchasers obtaining confirmation from the Department of Land and Water Conservation that as at the date of settlement there is no impediment to the development of that area referred to in sub-clause (i) for intensive irrigation farming due to land clearing restrictions on roly poly and lignum. Precontractual Representation - Dam Size and Type 17 The Plaintiffs' claim for damages concerning the precontractual representations is based upon sections 42, 45 and 68 of the Fair Trading Act 1987. Section 42 of the Fair Trading Act 1987 says: "(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 18 Section 45 Fair Trading Act 1987 says: "(1) A person shall not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land: … (b) make a false or misleading representation concerning … the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land.

Each of section 42 and 45 is in Part 5 of the Fair Trading Act 1987 . 19 Section 68 Fair Trading Act 1987 says: "(1) A person who suffers loss or damage by conduct of another person that is in contravention of a provision of Part … 5 (section 43 excepted) … may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention." 20 I am satisfied that there was a precontractual representation that there was a 500 megalitre storage dam on the property, which was filled and released on a gravity basis - see paragraphs [4] and [6] above. While there was no specific evidence from Mr Park of reliance on this particular representation, the overall topic of water availability on the property, and the manner of making that water available for use in agricultural activities, was clearly of central importance to him. It appears from the evidence that it was Mr Park who was effectively making decisions, concerning the purchase of this property, on behalf of both himself and his wife. It is possible, in an appropriate case, for reliance on a representation to be inferred, even if a Plaintiff does not give express evidence of such reliance: Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242. I would make such an inference in the present case. 21 Mr Biki, an agricultural engineer engaged by the Plaintiffs, has investigated the dam located on the property. He has calculated its water holding capacity, at various "reduced levels". Reduced levels (RLs) are a level of land, water, or other points which are "reduced" or referred to a datum level. Mr Biki has adopted as his datum level a particular nail in a concrete head wall. He has calculated the water holding capacity at reduced levels ranging from 90 m, to 88.8 m, and with the calculations being made at 10 cm intervals of the reduced level. The water holding capacity of the dam, calculated in this way, ranges from 401 megalitres, at a reduced level of 90 m, to a water holding capacity of 6 megalitres, at a reduced level of 88.8 m. 22 At a reduced level of 90 m, the dam has no freeboard at all. "Freeboard" is the vertical distance between the full water storage level and the top of the lowest part on the embankment. For ring tank storages, such as the one in question, the freeboard must be sufficient to allow for three things. The first of these is the potential height of waves which arise on the water surface. The wave height is directly proportional to the wind speed, and the "fetch length" - that is, the longest exposed water surface of the storage. The second factor which must be allowed for in calculating the necessary freeboard is "wind set-up". This is a phenomenon where wind drag on the water surface results in the water depth increasing in the direction in which the wind is blowing. The third factor which must be allowed for in calculating freeboard is settling or unevenness in the embankment. 23 When a representation is made about the size of a dam on a farm, in a brochure aimed at potential purchasers, the measurement would need to be one of how much water the dam could hold, in actual conditions of operation, not in some theoretical and ideal state of affairs. Thus, I would accept that a measure of the dam's volume would need to take into account an appropriate freeboard, otherwise that statement of volume would be misleading and deceptive. 24 Mr Biki has calculated that a freeboard of 0.8 m is needed on this dam. When the dam is filled to the level which gives it a freeboard of 0.8 m, its water holding capacity is 61 megalitres. 25 Mr Biki has also examined the relationship between an existing water supply channel which feeds the dam, and the dam itself. He reports that water can flow into the dam under gravity up to a reduced level of no greater than 89.6 m. At a reduced level of 89.6 m, the dam has a holding capacity of 222 megalitres, but a freeboard of only 0.4 m - less than the 0.8 m which is necessary. 26 Mr Biki was unable to ascertain to what extent water could pass out of the dam under gravity. 27 Another expert engaged by the Plaintiffs, namely Mr Kelly, calculated the volume of the dam at 178 megalitres. Mr Kelly used an RL measure of 89.5, which gives a freeboard figure of .5 metres to 1.1 metres. (I would infer that this range exists because the banks are uneven in height, so the freeboard will be of different dimensions at different places on the banks. Mr Kelly's minimum freeboard figure is identical to the freeboard figure which Mr Biki used for an RL measure of 89.5.) While Mr Kelly's report is a less elaborate one than Mr Biki's, Mr Kelly apparently saw nothing wrong with calculating the capacity using an RL figure which would allow a minimum freeboard of only .5 metre. 28 Neither Mr Biki nor Mr Kelly was cross-examined. There is no way of resolving the difference between their opinions about the capacity of the dam, other than by using the onus of proof. Hence, I find that the Plaintiffs have not established that the actual capacity of the dam is anything less than 178 megalitres. 29 If the dam is treated as having a capacity of 178 megalitres, it can be filled by gravity. The Plaintiffs have not established that the representation that the dam could be released under gravity is incorrect. Thus the only precontractual misrepresentation which has been established concerning the dam, relates to its holding capacity. 30 Mr David Shuter, a valuer, has valued "Jellalabad" as at 25 September 2000, on five different hypotheses. His methodology arose from the fact that the Plaintiffs' case as originally pleaded alleged four misrepresentations, which were broadly: (1) that there was a high flow licence;

(2) that 2,700 acres of the property was developed for irrigation;

(3) that the irrigation water storage dam on the property had a capacity of 500 megalitres, and

(4) that an additional area of 11,000 acres of the property was approved and available for cultivation. 31 Mr Shuter's methodology involved conducting five different valuations. The first is the value which the property would have had if all four representations had been true. The second is the value which the property would have had if there was no high flow licence, but representations (2), (3) and (4) were true. The third valuation is the value which the property would have had if there were no high flow licence, if there were 1,700 acres of land developed for irrigation rather than 2,700, and if representations (3) and (4) were true. The fourth basis of valuation was that there was no high flow licence, there was only 1,700 acres developed for irrigation, and the storage dam had a capacity of 200 megalitres, but that representation (4) was true. The fifth basis of valuation was that there was no high flow licence, there were 1,700 acres of land developed for irrigation, that the water storage dam had a capacity of 200 megalitres, and that an additional 3,622 acres of land was approved and available for cultivation. 32 On those five bases, the values he came to were as follows: Basis Value Difference From Immediately Preceding Basis of Value Factor Deleted $ $ 1 3,150,000 - 2 2,950,000 200,000 High flow licence 3 2,800,000 150,000 Larger area under irrigation 4 2,660,000 140,000 Larger dam capacity 5 2,440,000 220,000 Larger area approved for cultivation

33 Mr Shuter was not cross-examined on this valuation evidence. There was no countervailing valuation evidence put on by the Defendant. I accept Mr Shuter's evidence. 34 The Plaintiffs also provided evidence of the cost of rectification work to the dam, to bring it up to a capacity of 500 megalitres. The cost of that work, inclusive of GST, is $368,500. 35 The Plaintiffs do not seek as damages the cost of modifying the dam so that it has a capacity of 500 megalitres - they only seek the reduction in the value of the property caused by the inaccuracy of the representation. 36 When Mr Shuter's valuation has been conducted on the assumption that the irrigation storage on the property is one which actually has a capacity of 200 megalitres, he is making an assumption which is more favourable to the Defendant than either Mr Biki's report or Mr Kelly's report would warrant. I am satisfied that the Plaintiffs have established that they have suffered a loss of $140,000 in consequence of the inaccuracy of the representation about the capacity of the water storage dam. Precontractual Representation - High River Licence 37 The Plaintiffs abandoned this claim at the commencement of the third hearing day, Thursday 14 August 2003. It therefore will not enter into any calculation of damages. Precontractual Representation - Area Laid Out to Irrigation 38 I am satisfied that a representation was made that approximately 2,700 acres of the property was laid out to irrigation - see paragraphs [4] and [6] above. Though no express evidence of reliance on this representation was given, I would infer that it was relied on. 39 There are two ways in which land can be made suitable for the growing of crops using irrigation. One way is to form contour banks, which follow the natural contours of the land. This is not a particularly desirable way of cropping, because the land in between the contour banks has natural undulations in it, and it is not possible to completely drain the paddock after it has been flooded - water lies in the low spots, creates difficulties for planting a follow-up crop like wheat, and can cause salination. The second way of preparing the land is to use a process known as landforming or lasering, which involves forming banks in a regular geometrical pattern around the area to be irrigated, and moving the soil inside those banks, using modern precision equipment, so that it is formed into a plane which has a slight, precisely calculated, fall from one end of the paddock to the other. 40 When Mr Park first took possession of the property, he caused all the areas which he regarded as being areas which were "laid out to irrigation" to be sown with rice crops, except for an area of about 350 acres, which he described as "an old irrigation formation which in my judgement could not be used for rice irrigation". That 350 acre area was an area of old contour banking. 41 The areas which were sown to rice at that time are identifiable from an aerial photograph obtained from the Department of Land and Water Conservation, which shows the irrigation layouts on the property as at January 2001. The areas which were sown to rice at that time have been calculated from the aerial photograph, and total a little over 550 hectares (or approximately 1,360 acres). That photograph identifies a further 85 hectares, or approximately 210 acres, as an irrigation layout which was not planted. On the basis of that photograph, the total area of irrigation layout would be around 1,570 acres. 42 Mr Shuter, the valuer, reports that: "… approximately 566 hectares (about 1,400 acres) of the subject property has been laser landformed and is laid out to rice layouts. In addition, an area of about 121 hectares (approximately 300 acres) was laid out to irrigation many years ago, and I inspected this area of layout during my inspection on 6th September 2001." 43 On the basis of this evidence, the Plaintiffs assert that only 1,700 acres of the property was laid out to irrigation. 44 There was an area of land which was shown on the map on the advertising brochure as being "high river special licence irrigation", which was not part of the 1700 acres which the Plaintiffs say were laid out to irrigation. Mr Park described this area as being, "… an area of approximately 500 acres near an irrigation stop in a channel adjacent to three large bays totalling approximately 500 acres (the bays are identified on the map in the brochure as high river special licence irrigation)". 45 Mr Park gives evidence that on an inspection tour of the property Mr Brothers said, concerning this area: "You fill the paddocks here [indicating the three large bays] and we'll go down a little bit further and I'll show you where it comes out when you drain it."

This area was in a paddock known as Big River. 46 On the inspection tour, Mr Brothers took Mr Park to another paddock, called West River. At a place in that paddock which had a high bank in it, Mr Brothers said that that country had also been flooded with water from the high river licence for grazing purposes. 47 In cross-examination Mr Park gave evidence, concerning an area which is not well identified, but which I would infer is not part of the area of 1700 acres which the Plaintiffs concede was laid out to irrigation. "… there was a lot of banks through the area. Mr Brothers, in one particular area we passed before there, was discussing what we could do with the high river licence. Then we drove through other paddocks and found other old banks. I was wondering what they were. Mr Brothers said these were also used to, sort of, dam off water or what they used to do with them for stock reasons. They used to dam off paddocks and fill them up and lignum would grow better because of the floodwater, from what I understand. Q. This was from the high river licence? A. Hm." 48 The evidence does not establish what area in the West River paddock had been flooded with water from the high river licence for grazing purposes. 49 Mr Park gave evidence that, in his view, before something counted as irrigation land, it had to be watered and drained. As well, he said it had to be either contoured or landformed to meet that description. He rejected the proposition that the area where the three bays existed counted as a type of irrigation layout, saying, "I call irrigation country that can be farmed, that has been ploughed and laid irrigation in it, or cropping, must be able to be ploughed." The land within those three bays, which had lignum growing on it, is land which could not be ploughed without permission from the Department of Land and Water Conservation, because of the controls over the native vegetation growing on it. 50 I accept that, in the eyes of people who were interested only in purchasing the property for the purpose of growing rice or other crops, only 1,700 acres of the property were laid out to irrigation in a way which would be of use to them in doing so. The relevant question is whether it is through the eyes of such a person that the representations concerning the area laid out to irrigation should be seen. 51 The representation was made in two places - in the advertising brochure, and in the sign advertising the auction, which was located at the property. The sign advertising the auction was available to be seen by anyone at all who visited the property - it could not be said it had any particular target audience. The brochure gives some indication of its target audience. On its front page is a banner reading: " rice beef lamb wool aggregation" 52 The brochure includes pictures not only of growing cereal crop, but also of sheep, and cattle. The list of services includes the statement: "Hay has regular store sheep sales and is regarded as the leading store sheep centre of NSW. Regular cattle sales are conducted at Finley, Deniliquin and Griffith. Grain facilities at Hay Moulamein and Swan Hill." 53 The list of improvements on the property makes reference to a five stand shearing shed, steel sheep yards with draft and classing race, and large timber cattle yards with loading ramp and steel crush. Under the heading "Carrying capacity" it says, "currently Jellalabad is running 250 breeding cows and calves, 6,000 ewes and 6,000 xbred lambs. In addition agistment cattle have been run."

The brochure refers to "… a rare opportunity to secure one of the best cattle and mixed farming properties in the Riverina. Equally the saltbush country with it abundant stock water is ideal sheep and wool country. The versatile soil types and substantial water licences offer excellent opportunity for any facit of farming." 54 If the brochure's statement of 2,700 acres being laid out to irrigation were true, it would still be less than 11% of the area of the property which was laid out to irrigation. From all this I conclude that the brochure was aimed not only at potential purchasers interested in growing crops under irrigation, but also at people interested in conducting mixed farming enterprises. 55 The brochure states, under the heading "Irrigation", "Jellalabad has approx 1,093 ha (2,700 ac) laid out to irrigation. A key feature of the irrigation design is the ability to recycle allowing re-use of irrigation water."

However it also contains another segment, under the heading "Cropping" , which states, "500 ac rice, 500 ac wheat and 400 ac oats" . Thus, the brochure on its face draws a distinction between "the area laid out to irrigation" (2,700 acres), and the area the subject of cropping (totalling 1,400 acres). 56 The ordinary English meaning of "irrigation" is captured by the definition in the Macquarie Dictionary: "The supplying of land with water from artificial channels to promote vegetation." If land is laid out in such a fashion as to enable it to be irrigated, it is, it seems to me, "laid out to irrigation". Even though the condition of the land in the area where the three bays were located in the Big River paddock, and the condition of the land in the West River paddock was such that it was not able to be used by Mr Park to grow crops under irrigation, that does not mean it was not "laid out to irrigation". In my view, it was "laid out to irrigation", in a sense of that expression which it would be reasonable for at least part of the target audience of the representations to understand. 57 The fact that the area in the West River Paddock which was flooded with water for grazing purposes has not been established means that the Plaintiffs have failed to show that there was less than 1,000 acres of the property which could be supplied with water for the purpose of promoting growth of vegetation which was intended as stock fodder. 58 In these circumstances, the statement about the area of land laid out to irrigation in the brochure, and the statement on the sign about "2,700 ac irrigation" are not misleading and deceptive. 59 Even though a cause of action under section 45 of the Fair Trading Act 1987 was pleaded, no submission was put to the effect that a claim under section 45 would succeed in circumstances where the claim under section 42 failed. Precontractual Representation - 11,000 Additional Acres Available for Farming 60 The Plaintiffs have failed to establish that Mr Brothers' statement that the land had been "pulled within the last 10 years" was inaccurate. However, it was inaccurate for Mr Brothers to say that 11,000 acres of land had already been passed by the Department. There was no reasonable basis for Mr Brothers to make the statement that he could obtain a letter from the Department saying that the land could be farmed. Thus, the Plaintiff has established that the making of those statements was misleading and deceptive. 61 It remains to consider what was the effect of Mr Brothers making those statements. I am satisfied that they were a cause of the Plaintiffs entering the contract to purchase the property. 62 With a view to satisfying Clause 30(3) of the contract (paragraph [16] above), the Plaintiffs' solicitors acting on the conveyance of the property wrote to the Department of Land and Water Conservation on 27 November 2000, saying: "We understand that the Vendor's solicitors have provided you with a certificate from Mark Vincent Schiller and Colin James Miller and a covering letter from Mr Clive Brothers as to the clearing of the abovementioned lands in late 1991 and early 1992. If that is the case, the only outstanding requirement is a letter from the Department confirming that there is no impediment to the development of those lands for intensive irrigation farming due to land clearing restrictions on roly poly and lignum."

A certificate from Mr Schiller and Mr Miller of the type referred to in this letter later came into possession of the Plaintiffs' solicitors. 63 The Department replied on 27 November 2000, saying: "I have been advised that it is not Department of Land and Water Conservation policy to confirm exemptions under the Native Vegetation Conservation Act, 1997 in writing. Rather, the onus is on the landowner to be aware of the exemptions, and to be able to furnish evidence of compliance with the legislation if required."

This refusal by the Department to provide the requested confirmation meant that Mr Brothers was in breach of Clause 30(ii) of the contract, and the condition precedent to completion contained in Clause 30(iii) was not satisfied. 64 The Plaintiffs' solicitors then turned their minds to making a fresh application for clearing to the Department. On 30 November 2000 the Department faxed the Plaintiffs' solicitors saying: "I understand that one of our administrative staff at this office forwarded you a copy of a clearing application form. Please be aware that a clearing application cannot be submitted on the form you have received. A clearing application cannot be submitted without a "pre-application" inspection by authorised Departmental staff. The information required to be submitted with a clearing application varies significantly with the scale of development and vegetation community under application. This can only be formally determined, and signed off at the pre-application inspection. Further, it is appropriate that the process for determination of the application is properly explained to the applicant. Should your client wish to submit a clearing application, the only option is to contact the Department (myself) and arrange a date to meet on site." 65 On 7 December 2000 the Plaintiffs' solicitors wrote to the Defendant's solicitor, saying that the Plaintiffs would refuse to complete the contract that day. One of the reasons was because the condition imposed by Special Condition 30(iii) had not been fulfilled. Some other reasons were relied on as well. 66 On 12 December 2000 the Defendant's solicitor sent a notice of recision of the contract. On 18 December 2000 the Plaintiffs' solicitors replied saying that the Plaintiffs would not accept that recision. The Plaintiffs commenced proceedings for a declaration that the recision was ineffective, and an order for specific performance. Young J decided that case on 27 February 2001, in favour of the Plaintiffs: Park v Brothers [2001] NSWSC 88; (2001) 10 BPR 18,649. The basis of that decision was that the breach upon which the Defendant had relied to rescind the contract was a breach of a provision concerning which time was not essential, and in any event the Defendant had waived any strictness of time limits under that clause. 67 Following that decision the contract was completed on 24 March 2001. In anticipation of the contract completing, the Parks made application to the Department, on 1 March 2001, for permission to sow 860 hectares of the property with rice during the 2001/2002 season. The area intended to be sown was country which had not previously been planted to rice. About 600 hectares of it was in the South Coonoon paddock, just north of the Murrumbidgee River. The remaining area was in the Dam Paddock, to the west of the dam. The part intended to be planted which lay in the South Coonoon paddock was part of the area of 11,000 acres which had been identified in the plan referred to in Clause 30 of the Contract for Sale. On 11 July 2001 an officer of the Department wrote to Mr Park, saying: "… the vegetation issue on those areas applied for rice in 01/02 will not impede your development program. As this land has been cleared in the last 10 years and as the lignum was part of an ongoing clearing program, you will not be penalised for the previous owner's actions." 68 The Department was not willing, however, to grant permission for the whole 11,000 acres to be used for cropping. Mr Park negotiated with Department officers, and eventually was able to obtain permission to have an area which he put as being between 3,500 and 4,000 acres approved. 69 I have given consideration to whether the misrepresentations which I have found occurred concerning the availability of the 11,000 acres ought be regarded as having continued to have a causal effect when the Plaintiffs, having a right to rescind the contract under Clause 30(iii) chose, instead, to complete it. I accept the submission made by Mr Murr SC for the Plaintiffs, that at the time the Plaintiffs made that decision they had already planted a large rice crop and spent something of the order of one quarter of a million dollars on it. If the Plaintiffs chose to end the contract because Clause 30(iii) had not been complied with, they would probably have needed to bring a lawsuit if they wished to recover the expenditure which they had by that stage made on the crop. In these circumstances, where their freedom of action was circumscribed, I would not regard the decision of the Plaintiffs to complete the contract rather than terminate it as an event which severed the causal connection between the initial misrepresentation, and their now having a property of less value than it would have had had the representation been correct. 70 The only evidence of that reduction in value comes from the valuation report of Mr Shuter. I have explained his methodology in paragraph [29] above. In the first four scenarios which he values, a factor which he assumes is "that an additional area of 4,452 hectares (approximately 11,000 acres) of the subject property is approved and available for cultivation". In his fifth scenario, the assumption he makes is "that 1,466 hectares (about 3,622 acres) of land is approved and available for cultivation." This last mentioned figure comes from a statement at page 6 of his report, that, "Department of Land and Water Conservation aerial photographs indicate that an area of approximately 1,466 hectares (about 3,622 acres) has been bored and found suitable for continuous rice growing." It is clear from the evidence of Mr Park that an area of approximately that size has been approved by the Department for rice growing. In my view a fair reading of Mr Shuter's report is that the area of 3,622 acres that he refers to is an additional area of land approved and available for cultivation, in addition to the area actually planted to rice in the 2000/2001 growing season. 71 The Plaintiffs' claim for $220,000 on this head is made out. Damages for Breach of Contract 72 Following the purported rescission of the sale contract, Mr Park was required to leave the property on 19 December 2000. Following the judgment of Young J the Plaintiffs were permitted to return to the property. In fact they returned to the property in the course of March 2001. The exclusion of the Plaintiffs from the property was a breach of Clause 24 of the Contract. 73 The Plaintiffs claim three separate types of damage as arising from that breach of contract. The first is loss of profits arising from the rice crop of the 2000/2001 season being less profitable than it would have been if they had remained in undisturbed possession of the property. The second is loss of opportunity to plant rice in the 2001/2002 season. The third is loss of a wheat crop in 2001.

2000/2001 Rice Crop 74 Mr Park first went into occupation of the property on 12 September 2000. I have set out his activities after going into possession in paragraph [14] above. 75 The process of growing rice involves ploughing and cultivating the soil in which the rice is to be planted in about September, fertilising and in other ways preparing the ground, flooding it, and then sowing seed in October or November. The rice grows until about the end of March, by which time the heads are filled. Around that time, further water is withheld. When the crop is ready for harvesting, the bays in which it has been growing are drained of water and the ground is allowed to dry out to permit machinery to go onto the crop. In about April or May the crop is stripped. 76 On 20 December 2000 an agronomist, Mr Barber, inspected the rice growing on the property. He gave a report, dated 8 February 2001, expressing the view that the crop had the potential to reach of yield of approximately 9 tonnes per hectare, and would be in the top half of the crops about the district. 77 The crop did not do well while Mr Park was away from the property. An agronomist, Mr Hutchins, inspected it on 9 February 2001. He reported that there were areas in all crops, except for the Oxley Road Paddocks, that were suffering or had suffered from moisture stress. He said that there were no paddocks where the water was deep enough. He said: "There is no doubt that the lack of water has had a deleterious effect on the yield of the crops. No doubt this has been exacerbated by the unusually hot season. This effect is marginal in some areas and disastrous in others." 78 Some photographs of the crop taken on 9 February 2001 - a time when the crop should have had between eight to nine inches of water on it - shows some cracked mud. Other photographs taken at that time show areas where the crop is pale and dry. In the result, the yield of the crop was somewhat less than 9 tonnes per hectare. 79 Mr Sharman is an agronomist who has prepared a report on the loss which the Plaintiffs have suffered in consequence of not being able to attend to the 2000/2001 rice crop during the period of their exclusion. He was not cross-examined. He expresses the view, "The primary cause of the comparatively low yield (for the very favourable season) obtained from the 566 hectares harvested on "Newmarket" for the 2000/2001 season, in my opinion, is the poor management the crop received in the period the Plaintiffs were denied access (ie 19 December 2000 to 27 February 2001 …). In my opinion, the 2000/01 rice season was so favourable, many crops grown on irrigation designs of similar efficiency, produced superior yields to "Newmarket". The irrigation design, while not ideal, was not the major factor in reducing rice production. It is believed the major factor in reducing the yield and quality of the harvested grain was the poor management of the irrigation water during the crucial reproductive phase of the rice crop's development." 80 There is no reason not to accept his evidence concerning the cause of the low yield of the 2000/2001 rice crop, concerning the quantum of loss which the Plaintiffs sustained in relation to the 2000/2001 rice crop, or indeed concerning any other matter on which Mr Sharman expresses an opinion. I find that the loss which the Plaintiffs sustained, through being deprived of the opportunity to care for the 2000/2001 rice crop during the period when they were excluded from the property, is $133,190.

2001/2002 Rice Crop 81 At the time of entering the contract Mr Park had formed plans for what would be done with the property, so far as cropping was concerned, after the 2000/2001 rice growing season. He intended to plant 860 hectares of rice in the 2001/2002 rice growing season. Of this, he planned that about 600 hectares was to be in the South Coonoon Paddock, and the remainder in the Dam paddock. The whole of the rice crop to be planted in 2001/2002 was to be planted on newly developed irrigation land. To be able to plant rice on that newly developed land, he would have needed first to obtain Departmental approval to plant the rice to the area in question. He would then have needed to engage a surveyor to survey the area, and mark out blocks and bays, and then to landform the area. It would also be necessary to install two river pumps to pump water from the Murrumbidgee River to the area in the South Coonoon paddock. There was already a water channel available to the area in the Dam Paddock. It would also be necessary to install irrigation stops, and various pipes, in both areas. Only after this preparatory work was done could he commence preparation of the seedbed. To fit in with the growing season for rice, the preparatory work would have to have been finished by, at the latest, September 2001. While the Defendant was not aware of all the details concerning Mr Park's plans for cropping on the property, he was aware before the contract was entered, that Mr Park intended to make a significant increase in the area of irrigated land under cultivation, and that effecting that increase in area of irrigated land under cultivation would require the provision of significant infrastructure. 82 Mr and Mrs Park, as well as carrying on farming activities, also have a landforming business, which owns sufficient machinery and employs sufficient staff and was available, around the time the Plaintiffs were excluded from the property, to have landformed the area intended to have been planted to rice. The landforming of that area would have taken approximately four or five months. 83 Landforming is a process which is weather dependent. Mr Park gives evidence, which I accept, that it is not possible to reliably plan to carry out landforming in the Hay area after about June, because winter rains usually arrive in that month, and landforming is not possible when the earth reaches a certain stage of dampness. When the earth is too wet, it is impossible to work because it sticks to the laser operated machine buckets. In winter, an inch of rain can make ground unsuitable for landforming for some weeks. As it happened, the rain which Jellalabad received in June and July 2001, would have prevented landforming in those months. 84 This is confirmed by Mr Sharman, who gives evidence that: "Land development operation is best conducted in the summer and early autumn, when soil conditions are generally dry and free flowing. To have attempted to perform this operation during late autumn or winter would have been a high-risk operation because of the incidence of winter rainfall in the [Hay district]" 85 Thus, the exclusion of the Plaintiffs from the property had the effect that they lost the window of opportunity to enable landforming to be carried out, to enable 860 hectares of rice to be planted in the 2001/2002 season. 86 No other obstacle to the planting of the 860 hectares has been shown to exist. Departmental authority to plant the rice was applied for on 1 March 2001. On 11 July 2001 the Department told Mr Park that "the vegetation issue on those areas applied for rice in 01/02 will not impede your development program … you must now have soils investigation carried out over the new areas." Mr Park had arrangements in hand for the necessary pumps. The drilling of the country has taken place. 87 If the landforming had taken place, it would have cost the Plaintiffs significant money to carry out the landforming. Mr Park said that the cost involved landforming 860 hectares was "… approximately $400,000 but because we do all our own it only costs the fuel and the labour and we would have done the whole piece for approximately $200,000, - $250,000." 88 Mr Sharman has given evidence of the likely loss of profit from the intended rice crop in the year 2001/2002 year. It is in the sum of $1,122,829.33. That profit is one arrived at after allowing as an expense, a cost for landforming of $70 per hectare. This figure was adopted by Mr Sharman as being an "annualised cost at 10%". As I understand this, it means that he took the cost of landforming as being $700 per hectare, and amortised that cost over ten years. $700 per hectare equates, for 860 hectares, to a total cost for landforming of $602,000. This significantly exceeds Mr Park's estimate of the cost. In my view it is more appropriate to adopt Mr Sharman's estimate. 89 I find that the loss of profit on the 860 hectares of rice which would have been planted in the 2001/2002 season, had the Plaintiffs not been wrongfully excluded from the property, is $1,122,829. 90 It is Mr Park's usual practice to grow a cereal crop, usually wheat, on the area of a previous year's rice crop, so as to take advantage of the moisture in the soil left over from the irrigated rice crop. Many farmers follow this practice. This practice has an added advantage that no ground preparation such as ploughing or cultivation is necessary - the seed is sown directly into the soil without the soil preparation usually associated with a cereal crop. Sowing of wheat and barley takes place in May and June. 91 If the Parks had been given access to the property in sufficient time to enable landforming of the intended 860 hectares of new country to take place prior to the 2001/2002 rice season, the whole of the area which was sown to rice in 2000/2001 would have been sown to wheat. When Mr Park found that he was unable to plant the 860 hectares of new ground to rice, he decided to re-sow the area which had been under rice in 2000/2001 partly with rice (approximately 250 hectares) and partly with wheat. While a total of approximately 250 hectares of wheat was planted, it was partly on areas which had not been previously planted with rice. 92 The 250 hectares planted to rice was the third rice crop in succession in that ground. Planting rice in the same ground for three years in succession is not good management practice. This particular crop of rice achieved a yield of 7.57 tonnes per hectare. This compares with the yield of 10 tonnes per hectare which Mr Sharman says would have been achievable, in the same season, if the new 860 hectares had been able to be planted. The actual profit which the Plaintiffs derived from the 2001/2002 rice crop should be given credit for. Mr Sharman puts that figure at $158,977.28.

2001 Wheat 93 Another consequence of the Plaintiffs having been denied access to the property is that the area of land which was actually planted to rice in 2001/2002 was not available to be planted to wheat in 2001. Mr Sharman has put this area at 243 hectares. The actual yield which the Parks achieved from the 2001 wheat crop was 3.23 tonnes per hectare. There is no reason to believe that the same yield would not have been achieved if the 243 hectares which were in fact planted to rice, had been planted to wheat. Mr Sharman calculates the loss sustained by not planting wheat on this 243 hectares as $83,559.54. Mr Brothers' Expenses Claim 94 A letter from Mr Brothers' solicitor had, on 7 June 2001, made a claim for $90,604.60 for expenses incurred in connection with the management of the property during the period that the Parks were excluded. That letter was written before these proceedings began. No evidence has been put on in these proceedings by the Defendant to verify the actual incurring of any such expenses, the reasonableness of the amounts incurred, or the causal connection which the expenses have with any income earned. However, Mr Sharman accepts that it is appropriate to give a credit for $28,549.25 of that claim. Mr Murr SC also accepts that credit should be given for that amount. I shall do likewise. Principal Amounts of Damages to be Awarded 95 In summary, the principal amounts for which the Defendant is liable to the Plaintiff in damages are: Dam Volume $140,000 11,000 additional acres available for farming $220,000 2000/2001 rice crop - gross profit lost $133,190 Less credit for Mr Brothers' expenses $28,549 $104,641 $104,641 2001/2002 rice crop - gross loss of profits from area not planted $1,122,829 Less credit for profit on rice actually grown in 2001/2002 $158,977 $963,852 $963,852 Loss of profit on 2001 wheat $83,559 $1,512,052

Interest 96 The Plaintiffs claim interest on the heads of damage established. They claim interest under section 94 Supreme Court Act 1970 on the damages found for precontractual representations at Schedule J rates, from the date when the conveyance settled, namely 24 March 2001. They claim interest on the loss on the 2000/2001 rice crop from 1 July 2001. They claim interest on the loss of profit for the 2001/2002 rice season, and for the 2001 wheat season, from 1 July 2002. 97 In my view it is correct in principle that the damages for the precontractual representations should have interest run on them from the date of settlement of the conveyance. However, I would not accept that it is appropriate for interest to run on those heads of damages at Schedule J rates. During the period since settlement of the conveyance, Schedule J has prescribed the following rates of interest: The beginning of 1 September 2000 to the end of 31 August 2001 11% The beginning of 1 September 2001 to the end of 28 February 2002 10% After 28 February 2002 9%

98 In the present case, the vast bulk of the purchase price was financed by mortgage back, at an interest rate of 7% - see paragraph [15] above. Allowing for the fact that the Plaintiffs would have had to pay a total of $500,000 of their own money towards the purchase price by the time of completion, and that by now a further $850,000 of the principal has fallen due, it seems to me more appropriate to allow interest on the damages component attributable to precontractual misrepresentations at the rate of 8.5%pa, from 24 March 2001 to the date of entry of judgment. 99 In principle, the damages for breach of contract ought bear interest at Schedule J rates, with such interest running from the date when the Plaintiffs would have received the amount of profits which they claim as damages, had the contract been performed. There is some evidentiary difficulty in fixing that date. A rice farmer receives his or her income by instalments. For the 2001 crop, four instalments had been paid by the end of April 2002, with other payments due to be paid in May and July 2002. The amount of the payments varied depending on the particular strain of rice which had been grown by a farmer, and the quality of the grain delivered. Of the order of 70% or 75% of the total eventual amount received by the Plaintiffs had been paid by the end of August 2001. 100 The evidence does not disclose the timing of the payments which had been made, in connection with the 2001 crop, by the end of April 2002. However, it appears that an initial payment of roughly half of the eventual payment received is made at the time of delivery of the grain, or soon thereafter - around May. 101 It is true that the expenses associated with the production of the 2000/2001 crop would inevitably have been incurred prior to harvest, but those expenses would have been incurred at that time, so far as the 2000/2001 crop goes, regardless of whether the Defendant had broken his contract or not. It is the timing of the income from the crop which should fix the time from which interest should run. 102 In all these circumstances, in my view it is appropriate that interest on the damages for loss of profits relating to the 2000/2001 rice crop should run, at Schedule J rates, from 1 January 2002. 103 For similar reasons, the interest attributable to loss of profit on the 2001/2002 rice crop should run at Schedule J rates from 1 January 2003. 104 The wheat which was actually grown on the property in the 2001 season, was delivered at the very end of December 2001. 105 In the absence of evidence about the timing of payments to wheat producers, I shall assume that the pattern of payment is roughly similar to that for rice farming. On that basis, interest on the loss of profits connected with the 2001 wheat crop should be interest at Schedule J rates from 1 August 2002. Orders

Direct the plaintiff to bring in Short Minutes of Order to give effect to this judgment on a date to be arranged, within 14 days after delivery of these reasons for judgment, with my Associate.

Direct that any argument concerning costs take place upon the date when those Short Minutes are brought in. **********

Last Modified: 10/09/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

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Judgment (23 paragraphs)

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