There be liberty to apply within 14 days for further orders in relation to moneys paid by the applicant into the Supreme Court of Western Australia in action number 1814 of 1986.

There be liberty to apply within 14 days to correct any arithmetical error in this judgment and on the question of costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On 27 April 1984 Kimberley NZI Finance Limited ("Kimberley") sent to Robert Auguste, the secretary of a $2 company called Ermay Pty Ltd ("Ermay"), a conditional approval for an advance of $800,000. The advance was to fully fund the purchase of land at Lot 105 Kirkham Hill Terrace, Maylands and the construction of 10 strata titled home units on that land. Advances were subsequently made to Trayda Pty Ltd ("Trayda"), another company controlled by Auguste, which was substituted for Ermay as borrower and developer. In making the advance Kimberley says it acted upon representations by Auguste that the proposed home units had been pre-sold at prices well in excess of their likely market value.

2. The purchasers did not complete, the loan could not be repaid and Kimberley exercised its power of sale under a mortgage over the land. It suffered a loss as a result. It does not now sue Trayda or Auguste. The former is an empty corporate shell, the latter was at all material times under an arrangement with his creditors under Part X of the Bankruptcy Act 1966. Instead, Kimberley sues the prospective purchaser of six of the units, A.R. Barr Investments Pty Ltd ("ARBI") and its principal, Mr Aaron Barr. It also sues a firm of real estate agents, R. & Y. Crofts & Staff, which comprises a partnership between Roderick John Crofts and his wife, Yvonne. Mr Crofts is joined separately as a respondent. He and his firm acted in relation to the sale of Lot 105 and the proposed units. At the time of the hearing however, Mr Crofts and his wife were both undischarged bankrupts and had been since 14 January 1988. Kimberley complains that the contracts for the purchase of the six units executed by ARBI showed a purchase price of $90,000 in each case. It was in that form that the contracts, initially between ARBI and Ermay and later replaced by like contracts between ARBI and Trayda, were shown to Kimberley by Auguste. Kimberley contends the contracts as presented to it embodied the representations that the consideration for the purchase of each unit was $90,000. The true position was that when the agreements were executed by Barr on behalf of ARBI, letters were also signed by both parties agreeing a $15,000 discount on the purchase price of each unit. The effective price was therefore $75,000. The making of the representations contained in the two sets of contracts and their presentation by Auguste to Kimberley are characterised as conduct by ARBI which was misleading or deceptive in contravention of s.52 of the Trade Practices Act 1974. It allegedly induced Kimberley to enter into the contracts of loan with Trayda, to pay a sum of $820,000 to that company, and caused it to suffer loss and damage. And Barr, R. & Y. Crofts & Staff and Crofts are said to be liable as persons involved in the contravention. Kimberley also claims that ARBI, through Barr, R. & Y. Crofts & Staff and Crofts, made the representations fraudulently and, in the alternative, negligently and seeks damages at common law.

3. It is further asserted that it was a condition of the loan communicated to Auguste that Barr should:

(i) personally guarantee the performance by ARBI of the

Trayda contracts;

(ii) lodge with Kimberley a deposit by way of security

in the sum of $50,000.

Prior to the settlement of the sale of the land, which took place on 22 August 1984, it is said that Crofts represented to Auguste that Barr had been advised of the terms and conditions of the advance to Trayda and was prepared and had agreed to execute a personal guarantee as a condition of the loan approval by Kimberley. This representation which was conveyed by Auguste to Kimberley, was said to be false as Crofts had never communicated this condition of Kimberley's advance to Barr and in this respect Kimberley alleges fraud and/or negligent mis-statement on the part of Crofts.

4. Kimberley alleges that it sustained a loss totalling $505,436.33. The loss claimed is made up of the following components:

1. Monies advanced to Trayda less proceeds of sale of

units.

2. Maintenance costs and resale expenses incurred.

3. Loss of Interest.

It claims by way of damages the full amount of the loss and in the alternative, $303,261.79 being 60% of that sum and representing a pro-rata allocation of loss to the units which were to be purchased by ARBI. ARBI and Barr deny that Crofts was ARBI's agent in relation to the sale and purchase of the units or the obtaining of finance for the development. His firm was, they say, acting only as agent for the vendor of the units.

5. They contend that Crofts represented on 29 February 1984 that he was Ermay's agent, that Ermay was financially secure and that the proposed development could and would be completed by 12 December. The asking price for each unit was said to have been represented as $90,000 with a discount of $15,000 per unit if ARBI were to submit offers to purchase not less than six units simultaneously. ARBI allegedly entered contracts to purchase the units on the strength of those representations and received a discount letter executed by Ermay for each contract. The Croft representations as they were called, were said to have been reaffirmed upon the execution of six fresh contracts for the same units substituting Trayda for Ermay. The discount letters given in respect of the Trayda contracts were said to reflect collateral contracts entered into in accordance with their terms. ARBI paid $54,000 to R. & Y. Crofts & Staff by way of deposit on the contracts. The Trayda contracts were claimed ultimately to be void for illegality by reason of the absence of relevant Town Planning approval for the subdivision of the land into strata title lots and the Croft representations are said to have been fraudulent or negligent. Supporting the latter claims is the plea that neither Ermay nor Trayda was registered or entitled to be registered as proprietors of Lot 105 or was in a position to finance and complete the development. ARBI was thereby entitled to and did "set the Trayda contracts aside". Trayda was said to have been in breach of the contracts for failure to apply for and obtain Town Planning Board approval within the time required by them, failure to obtain a strata plan and failure to settle or complete the contracts. ARBI says it was entitled to and did rescind.

6. Cross-claiming against R. & Y. Crofts & Staff and Crofts himself, ARBI asserts its entitlement to repayment of the deposit and damages for fraud and negligent mis-statement arising out of the Croft representations. It is also said that Crofts and his firm "aided, abetted and counselled or procured a contravention of the Trade Practices Act by Trayda". The contravention appears to be that referred to in the cross-claim against Trayda where it is said that the making of the representations was misleading or deceptive conduct on Trayda's part. And if R. & Y. Crofts & Staff did not hold the deposit of $54,000 as stakeholder, then ARBI claims to be entitled to recover that amount and interest from Trayda. It also claims against Trayda damages under the Trade Practices Act, orders under s.87 and declaratory relief.

7. Early in 1983 Aaron Barr, a South Australian real estate agent, had carried out a successful land subdivision in Adelaide. Profits from the subdivision became available to him in July or August 1983. In October of that year he flew to Perth to consider real estate investment opportunities in Western Australia. At the time he worked with a firm in South Australia called Elders Real Estate. On the way from the airport to his hotel he stopped at an Elders Real Estate office to inquire about land prices generally. The office was closed so he walked to the office of R. & Y. Crofts & Staff three or four doors further along. There he spoke to a man called Gordon Jones, who subsequently drove him around showing him a number of properties for sale. Jones suggested that he return on the following morning and meet with Mr Rod Crofts who knew of other properties that might be of interest to him. Barr met Crofts the following morning and as a result of that meeting and inspection of various properties he purchased some units on Canning Highway in Como.

8. In November or December 1983 Barr came back to Perth to inspect the Como units. Crofts took the opportunity to show him a number of sites, including Lot 105 Kirkham Hill Terrace, Maylands. His firm had been engaged by the owner of the land, Torero Pty Ltd ("Torero"), to sell it on the basis, inter alia, that Torero would purchase four units of a ten unit strata titled development in the land, plans for which had been drawn up by Torero. He told Barr there would be a development undertaken on the land in the near future and asked whether he might be interested in it. Barr wanted to see the plans. He recalls being shown a perspective drawing, but did not receive any plans until January 1984 when a set was forwarded to him by Crofts.

Auguste Approaches Kimberley to Finance Development

9. In October or November 1983 Robert Auguste, a property developer who had experienced financial difficulties and entered into an arrangement with his creditors under Part X of the Bankruptcy Act 1966, joined R. & Y. Crofts & Staff as a salesman. In December 1983 Crofts told him about the land at Lot 105 Kirkham Hill Terrace. He told Auguste that plans had been prepared by the owner, Torero Pty Ltd, for a 10 unit development and that the company would buy back four of the units from any developer who purchased the land. He also told Auguste that the remaining six units might be taken up by someone from South Australia. It was not until some time later that Crofts disclosed that the person he had in mind was Barr. Auguste examined the plans but would not commit himself to the project until he had assessed its feasibility. It was obvious that he would have to borrow a substantial sum of money for the project. He wanted to know Barr's financial standing and to equip himself with a statement of his assets and liabilities showing his strength as a prospective purchaser of the six units. Gordon Jones, the person with whom Barr had first dealt in R. & Y. Crofts & Staff, telephoned and told him that the firm would like a statement of assets and liabilities to assess his ability to participate in future deals with them. No reference was made to the Maylands land. On 19 December Barr sent a short handwritten note which showed in outline assets totalling $228,000 against liabilities of $14,000. No other particulars of his financial position were sought from him.

10. By early January, Auguste had determined that he would undertake the acquisition and development of Lot 105 through a company called Ermay Pty Ltd and would approach Kimberley for the finance. On 5 January he saw the managing director of Kimberley, Mr R.J. Hawkins. He brought with him a brochure which set out the principal features of his proposal. In spite of his insolvency, Auguste was known to Hawkins as a good developer. He told Hawkins that the cost of the land was $250,000 and that of the development was about $350,000. The vendor, Torero, would purchase 4 of the units to be constructed. Auguste said he believed that the remaining 6 units would be sold to Aaron Barr of South Australia. The four units to be purchased by Torero would yield an average price of $85,000 for a total of $330,000. Barr would pay $65,000 for each of the six units he was to purchase for a total figure of $390,000. The sale of the assets would therefore realise $750,000 against land and development costs of about $600,000. These figures were set out in the written proposal which he gave to Hawkins at the meeting. Barr, it should be noted, had made no decision to purchase the units. As he explained in his evidence, he had only been shown vacant land where a development was to take place. He wanted to look at the plans before involving himself further.

11. Auguste was seeking one hundred per cent finance from Kimberley. Hawkins, who made notes of their conversation, told Auguste that Kimberley might be prepared to finance the proposal on certain conditions which were set out in a letter dated 5 January. Those conditions were:

"A. You advise that Torero Pty Ltd and Barr will

deposit approximately $70,000 by way of deposits

with R. & Y. Crofts and Staff, approximately

$30,000 of this will be commissions due to that

firm and settlement fees. The balance of no less

than $40,000 to be deposited with Kimberley NZI

Finance Limited to cover monthly interest payments.

B. The building cost is to be verified as being

$350,000 and the remaining fees and costs as set

out in your feasibility study are also to be

satisfactorily evidenced. It is obviously not

going to be a viable project for you or a financier

if the building and other costs exceed what you

have estimated.

C. The builder must be of repute and in our opinion

able to complete the project for the quoted price

and the contract in relation to the units must be

in order.

D. Unconditional contracts must be held for the sale

of the 10 (ten) units from Torero Pty Ltd and Barr

and/or his nominee. The personal covenants must be

given from the parties behind the companies or

trusts used.

E. The financial position of the purchasers of the 10

(ten) units are to be made available to us and they

must be satisfactory.

F. End finance for the purchasers of units must be

approved or evidenced to us as being likely to be

approved."

The letter ended with the observation that due to the size of the advance and the lack of equity the final decision would rest with the Board of Kimberley. Hawkins passed the file over to Kimberley's Manager Commercial Lending, Mr T.J. O'Neill, instructing him to deal with Auguste and report back when a satisfactory deal was in place. So far as any connection between Auguste and Barr was concerned, Hawkins agreed in cross-examination that Auguste did not say anything at the meeting to indicate that he was speaking on behalf of Barr and I accept that he was not.

12. Barr knew nothing of these discussions. Late in February 1984 however, he travelled to Perth. While he was there on 28 February, Crofts drove him to Kirkham Hill Terrace, showed him Lot 105 again and told him that some ten units were to be built there of which four were already sold and six remained. Crofts told him that the units would be worth $90,000 each on completion, but if he were interested in buying all six, he could have them at a price discounted by $15,000 per unit. Barr indicated that he would be interested in the units at $75,000 each. On the following morning, 29 February, Barr went to Crofts' office. Crofts had already prepared six contracts for the sale of units 3 to 8 inclusive. The purchaser in each case was shown as A.R. Barr Investments Pty Ltd and the price as $90,000 with a requirement for a deposit of $9,000, $4,500 of which was to be paid immediately and $4,500 on 16 April 1984. Settlement was to be on or before 12 December 1984. The contracts were on a standard form approved by the Real Estate Institute of Western Australian Inc. Stapled to each of the contracts was a discount letter from Ermay addressed to ARBI. According to Barr, neither the letter nor the contracts had been executed by anybody when he first saw them. Auguste, on the other hand, said he had signed the contracts and the letters in advance in Crofts' office and that they were then not stapled together. The discount letters were drafted by Crofts and typed in his office. Auguste denied having had any involvement in their preparation. He had some recollection that Crofts had a file for each contract and its associated letter and that after each pair of documents was signed by him, Crofts returned it to the relevant file. He agreed it was unusual to have a vendor sign a contract first, but said it was a technique that Crofts used to induce a prospective purchaser to sign, the purchaser being confident that the contract in question was acceptable to the vendor.

13. The text of the discount letter in relation to Unit 3, which was in common form with the letters in relation to the other units, provided:

"Dear Sir,

Re: UNIT 3, LOT 105 KIRKHAM HILL TERRACE, MAYLANDS

I hereby irrovacably (sic) agree to a discount at

settlement of $15,000 on the above property."

14. Barr asked Crofts why he was proceeding in this fashion. Crofts told him it was in his best interests. Barr asked him how it could be in his best interests to pay stamp duty on $90,000 instead of $75,000. Crofts replied:

"Take my word for it, we need to establish a selling

price and it may assist us in the on-sale and that

is what the units will be worth upon completion."

The stated rationale thus related to the price at which ARBI could resell the units. Although Barr said he regarded the procedure as "a bit strange" he proceeded to sign the contracts and the discount letters attached. He did not see Crofts take any steps to detach the letters from their respective contracts. After signing the contracts, Barr flew back to Adelaide. On the same day Mrs Crofts sent him a letter saying that the vendor had accepted the offer and requesting payment of the initial deposit of $4,500 per unit.

15. Two days later on 2 March 1984, Auguste phoned Hawkins who made notes of their conversation. He told Hawkins that the proposed development had attracted tenders the lowest of which showed a construction cost of $450,000 and not $350,000 as previously estimated. Therefore, he said, the contract for the six units with Barr had been "re-negotiated" so that the purchase price was now $90,000. Hawkins said that at the time he was "totally aware" that the figures were being "inflated artificially simply to make equations add up" (T.31). He agreed that the market value of the land was certainly less than the price which it was said Barr would be paying and that Kimberley was "commercially aware of the situation" (T.34). He had had no contact with Barr. But O'Neill told him that the price was acceptable to Barr, who, he understood, felt that there would be a better market for the units upon completion (T.13). He had the impression that the arrangements were all being done through Crofts, and that the parties were "really in it together in that it was not totally arms length in its nature" (T.30). Nevertheless he believed that Crofts was acting as the selling agent for Ermay (T.30-31).

16. On or about 6 May 1984 Bryan Spurge of Soobry Settlements received a letter from Mrs Crofts indicating that his firm had been nominated to act on behalf of Ermay and ARBI at settlement and enclosing the contracts for the sale of the six units between those parties. The letter of instruction was dated 29 March 1984 but was date stamped in Soobry's office on 6 March. That was also the date upon which the Soobry files were opened as appears from file sheets in four of them. The letter enclosing the contracts was probably typed on 29 February and misdated. According to Spurge's evidence, the entire bundle of documents when received was held together with one staple and further staples attached each discount letter to its contact. He separated the pairs of documents and placed each on its own file. Asked in cross-examination how he remembered the way in which the documents were attached, he said it was unusual to receive six separate contracts at once. I accept, that although he was speaking of events which had occurred some four or five years previously, his recollection on the point was reliable. The transaction had more than one unusual feature about it, not least of which was its culmination in the present litigation.

17. Barr, through his company, ARBI, paid $600 of the initial deposit on 7 March 1984 and $26,400 on or about 20 March. The payments were acknowledged by letter from R. & Y. Crofts & Staff enclosing trust account receipts. On 19 April 1984 he paid a further $27,000, being the balance of the deposits required. It was put to him in cross-examination that he would be paying extra stamp duty of $3,655 by signing contracts showing a purchase price of $90,000 rather than $75,000 each. However he considered that the additional liability was not significant in the context of the profit that he could derive by paying $75,000 and on-selling for $90,000. He did not at the time advert to the fact that the higher nominal purchase price would entitle Crofts' firm to claim additional commission on the transaction. It did occur to him that he was being asked to pay deposits some $9,000 higher than he would pay if they were calculated at 10% of the real purchase price. He raised this with Crofts. Crofts said that the contracts were at $90,000 so $9,000 was the deposit. And although Barr said at one point in his evidence that Crofts had replied "come on play the game", he denied later that the word "game" was used.

18. Barr said, and I accept, that he was not involved in the raising of finance for the project. He was not aware that anyone was endeavouring to obtain finance and nothing was conveyed to him about Kimberley. Nor did he have any contact with Auguste until about May 1985.

19. In the meantime, O'Neill having been given responsibility for the conduct of the transaction by Hawkins, had met with Auguste early in March 1984. On 21 March, Auguste sent him a letter responding to his request for further information. Under the heading "STATEMENT OF POSITION OF END PURCHASERS" he referred to statements enclosed with the letter relating to the financial positions of Stephen Masel and Frank Agnello, the principals of Torero. Also enclosed was a copy of the statement which Barr had sent to Jones on 19 December 1983. The letter also disclosed that deposits for units 3 to 8 were $54,000. Sometime in March, O'Neill was unsure precisely when, copies of the six contracts between Ermay and ARBI were sent or given to him. It was Auguste's evidence that it was he who brought the contracts to Kimberley. He did not include copies of the letters. Asked why he did not disclose the existence of the discount letters to O'Neill, Auguste at first said "he could not see any need for it" and a little later that Crofts had told him not to. He was not sure whether he was concerned at the time that the disclosure of the discount letters would prejudice his ability to get the loan funds he was seeking from Kimberley. He maintained nevertheless, that at a purchase price of $75,000 for each of the six Barr units, the transaction was a profitable one for him. He denied any suggestion that he thought O'Neill and Hawkins knew the purchase price of the Barr units to be inflated. That inflated figure, he contended, was to assist Barr in on-selling the units. O'Neill did not ask him why Barr was prepared to pay this obviously excessive price. In that regard it should be remembered that in his initial submission to Hawkins, Auguste had shown an assessment of the feasibility of the development based in part upon the assumption that the six units would each sell for $65,000.

20. O'Neill did however ask Auguste whether he could meet with Barr. Auguste told him that Barr was Crofts' client and that all dealings had to be through Crofts. Auguste did say however that Barr had carried out a previous property development in South Australia funded by Finance Corporation of Australia Limited ("FCA"). O'Neill enquired about Barr with Mr John Orr, formerly Loan Manager with FCA and, at the time of the enquiry, Senior Property Manager for Esanda Finance Limited. Orr told him that Barr was a developer in a small way, but that he had previously bought and sold properties with FCA and maintained his commitments well. O'Neill also made enquiries with the Barr's Bank, the ANZ at Mt. Barker in South Australia and carried out a check with Dunn & Bradstreet. The outcomes of these investigations were satisfactory.

21. O'Neill arranged for a valuation of the proposed development to be carried out by R.J. Bracewell and Co., who reported to him on 26 April 1984. That firm inspected plans and specifications of the units, presumably supplied by Auguste, and advised that Unit 1 would have a market value of $70,000, while Units 2 to 8 would be worth $65,000 and Units 9 and 10 about $80,000.

22. O'Neill accepted that the price being offered for the units by ARBI was well in excess of market value. He said:

"I was informed by Auguste that Barr was offering to

purchase those units at $90,000 so that those

contracts could later be shown to prospective

purchasers to demonstrate....or to people in a

trade situation...to demonstrate that there was a

price paid and that would substantially establish

the value of the units and enable either a greater

price to be obtained which would then flow through

to Barr or alternatively the units en masse would

be traded."

The over-pricing of the units was also noted by Mr Denis Franks, an Executive Director in charge of operations for Kimberley who, at O'Neill's request, reviewed the proposed transaction in April 1984. His handwritten notes made at the time, include the observation that:

"We should talk direct with the purchasers to

determine their attitude towards end finance and

settlement. I can't understand the prices that

they are paying with regard to the area agent's

comments."

According to Franks, had he been aware at the time that ARBI was really only

paying $75,000 for each of the six units then the advance would not have been made because at those prices there was no profit margin in the transaction.

23. In cross-examination O'Neill went further. It was put to him that he knew from the "very outset of this transaction" that Auguste was "up to some funny business and was fiddling the figures". He replied:

"I would not like to describe it as funny business.

... He had informed me that that price was intended

to be paid by a - probably another purchaser down

along the line. It was the intention not to have

Mr Barr have to take it up at that level but we

must be assured that he could." (T.94)

And in further answer in cross-examination, he conceded that Kimberley's officers knew the purchase price offered by ARBI to be "an inflated figure". Later it was put to O'Neill that the figure of $90,000 was really a balancing item, there for the purpose of the equation, and that Kimberley's concern was to underpin that figure with appropriate securities. Counsel for Barr and ARBI went on:

"It was not so much the figure itself, it was not

the $90,000 which was the point attracting you,

because that figure was a little suspect, for some

of the reasons we have been discussing, the main

thing was to underpin it with appropriate security

so that if things fell out, you would have

something to resort to?"

"I will accept that." (101)

He denied however that he knew the purchase price was a fiction. Kimberley

was aware, he said, that the price being paid for the units was "over the top". That is why they went to a great deal of trouble to satisfy themselves that Barr had the means to complete the purchase if he could not arrange an on-sale. When he queried Auguste on why ARBI was paying so much for the units in the hope that real estate values went up, the gist of the reply he received was - "if we cannot on-sell then, having established that price, we will trade them on to lessen Barr's risk whether it all goes through or whether only part of it goes through only time will tell". He agreed that Kimberley viewed the figure in the Barr contract with a considerable degree of caution and that the company was taking a fair risk in lending money against a project showing such a fine margin of profit.

24. In the light of O'Neill's answers and the significant disparity (some 38%) between the market value and the ostensible purchase price of the proposed units, it is unlikely, in my opinion, that he at least, if not the other relevant officers of Kimberley, did not suspect that ARBI had some side transaction which would not require it to pay the full purchase price. Without some such arrangement there could be no profit in an on-sale unless the market were to rise quite spectacularly. Notwithstanding that suspicion it also seems likely that they were of the view, albeit mistaken, that Barr could be compelled to perform on the written contracts at the price specified.

25. On 27 April, Hawkins authorised the sending of a letter over O'Neill's name giving approval to the proposed advance which was now $800,000 because of increased construction costs. About that time a decision had been taken to require that Barr and the principals of Torero execute guarantees of the performance of the purchase contracts by their respective companies. And knowing that the units were over-priced Kimberley, apparently at O'Neill's instigation, sought a deposit from Barr of a further $50,000 over and above the deposits paid under the contracts. Under the heading "SECURITY" the letter set out Kimberley's requirements that Ermay grant it a first registered mortgage over Lot 105 and lodge with it the full amount of $91,500 paid by way of deposit by the purchasers under the contracts. The directors of Torero and ARBI were to offer "their personal guarantees in support of their Offers to Purchase" and in para.(d) under this heading it was provided:

"(d) A.R. Barr Investments Pty Ltd have offered to

purchase units 3 - 8 inclusive in the proposed

development and we require that company, as further

evidence of its intention to complete the purchase

of the proposed units, allow Ermay Pty Ltd to

Charge monies held on deposit by A.R. Barr

Investments Pty Ltd to a limit of $50,000. In

turn, Ermay Pty Ltd is to Assign the subject Charge

to Kimberley as further security."

Under the heading "GENERAL" it was emphasised that in the event that either

Torero or ARBI failed to settle in terms of their offers, Kimberley would proceed to sell any balance of unsold units for the best price possible in as short a time as possible. No copy of this letter was sent to Barr and he did not see it until 12 months later. Nor was he told anything of the financing of the project.

26. Not long after this and before the payment of any funds by Kimberley, construction work commenced on site. Although Kimberley had not approved it, O'Neill regarded the builder's activities as a matter for Auguste and Torero and the liability to him as their risk. Although he made some preliminary enquiries with the builder about this time, he did not speak with him again until at least July.

27. On or about 20 June 1984, Auguste had decided to use a company other than Ermay as his vehicle for the development. For reasons which are not apparent from the evidence, he signed on that date a series of fresh contracts and discount letters in respect of the six units to be purchased by ARBI. These were sent by mail or airfreight to Barr who saw them on 22 or 23 June. The terms of the contracts and the letters were the same as those previously executed between Ermay and ARBI. Barr telephoned Crofts' office to find out what was going on as there was no explanatory letter accompanying the documents. He spoke to Mrs Crofts who said it was "purely a name change" and that the new contracts and letters were to replace those with Ermay as vendor. Crofts had already signed in the space provided for a witness to Barr's signature. Mrs Crofts asked Barr to sign the documents and send them straight back. Although he thought it a little strange, he complied with the request. Subsequently, photocopies of the contracts and discount letters were returned under cover of a letter dated 29 June from Mrs Crofts. Mrs Crofts recommended that to protect his interests Barr should have one of the contracts stamped so that a caveat might be lodged on the land. To that end, she asked that he forward a cheque for $1,602. To that date, no one had told Barr of Kimberley's requirements for the provision of personal guarantees and an extra $50,000 cash deposit.

28. The original of the Trayda contracts and their associated discount letters were sent to Soobry Settlements on 29 June and, as appears from the date stamp on the covering letter, received on about 3 July. Again, according to Spurge, the six contracts each had a discount letter attached by way of staple. And again I accept the correctness of his testimony in that regard. In the meantime on 27 June, Spurge had written to ARBI a letter enclosing settlement statements and recommending that to protect his interests Barr should allow Soobry to lodge a caveat over the title to Lot 105. He also asked for a remittance of stamp duty of $17,712, calculated on a purchase price per unit of $90,000 less chattels. A caveat was eventually lodged on 24 August 1984. Funds for stamp duty were received in respect of unit 3 and Spurge personally attended at the State Taxation Office to endeavour to persuade the relevant assessor that the contract should be stamped on the basis that the purchase price was calculated at $75,000 less chattels of $3,000. The assessor refused to recognise the discount letter and assessed duty on the basis of a consideration of $87,000.

Kimberley's Requirement for Guarantee and Additional Deposit

29. O'Neill said in evidence that he was told by Auguste that he would pass on to Crofts Kimberley's requirements for the execution of the guarantee and payment of the additional $50,000. On 18 July, O'Neill sent to Auguste a further letter of approval of the proposed advance, this time expressed to be in favour of Trayda for a total amount of $820,000 repayable on or before 28 February 1984. That letter asked Auguste to contact Kimberley's solicitor, Mr Hyland, in relation to the provision of a personal guarantee from the directors of the purchasing companies and the further $50,000 required from Barr. The issue of this approval had been authorized by Hawkins on 17 July after O'Neill told him that he was satisfied that most of Kimberley's conditions had been or would be settled. Hawkins also asked O'Neill to put a submission on the advance to an internal credit committee which had recently been established within the company. In this case, the deliberations of the committee would have no impact on the decision which had been taken. The adoption of this procedure seems to have been suggested by Hawkins as a way of giving the committee a trial run.

30. O'Neill prepared a typed submission for the committee which noted, inter alia, that the purchasers of the proposed units were to support their offers with personal guarantees of certain nominated directors, Masel and Agnello, in relation to Torero and Barr in relation to ARBI. The submission also noted that ARBI, as a further sign of its good faith, was to place $50,000 on deposit with Kimberley. The deposit was to be charged by Trayda as security for the purchase of the units and the charge was to be assigned to Kimberley as further collateral security. The mortgage to be provided over the land was to contain a clause that should either Torero or ARBI fail to settle in terms of their offers this would be considered a default and Kimberley could sell the units at its discretion.

31. A "worst case" scenario was outlined on the assumption that Torero settled on its four units, but Barr did not. The truly "worst case" and that which ultimately came to pass, when neither Torero nor Barr settled, was not contemplated. On the assumption that Barr did not settle, O'Neill's submission argued that Kimberley could recover his $54,000 deposit, the $50,000 additional monies charged to Trayda and realize the remaining six units which he said "are estimated at this time to be worth $65,000 each". There was no comment on the extraordinary discrepancy between the market value of the units and the price which ARBI had evidently agreed to pay. According to the submission, however, Auguste had informed O'Neill that two of Barr's units had been on-sold for $186,000.

32. Hawkins participated in the meeting of the Credit Committee on 19 July and reaffirmed his approval of the advance by signing the front of the submission. Handwritten notes on the coversheet made by O'Neill at the meeting were said by Hawkins to reflect the reliance placed by the Committee on the matters noted. They included:

1. Requirement for guarantees by Masel,

Agnello and Barr.

2. Deposits totalling $91,500.

3. Deposit from Barr and charging deed.

It was then left to O'Neill to administer the file. Hawkins said in

evidence that he regarded the ten contracts with Torero and ARBI as absolutely vital. If they had not been unconditional and the purchasers persons of substance, Kimberley would not have proceeded with the funding in the first place.

33. O'Neill instructed Kimberley's solicitor to prepare the required documentation including a personal guarantee to be executed by Barr and an acknowledgement of a charge over the proposed security deposit of $50,000. He received the documents from the solicitors on 22 or 26 July. Those to be executed by Barr were given to Auguste to forward for that purpose. Auguste passed the documents on to Crofts. According to Auguste, Crofts said that Barr would never sign the guarantee document as it stood and that he wanted a simpler deed. This conversation, I am satisfied, took place before any communication with Barr. Auguste gave the guarantee back to O'Neill who subsequently provided a revised version which was again passed on to Crofts. Crofts said he would forward it to Barr for signing and Auguste so advised O'Neill. According to Auguste, Crofts gave him to understand that Barr would definitely sign the revised form of guarantee. Auguste also said that he told Crofts of the $50,000 additional deposit required by Kimberley. Crofts said he would ask Barr, but did not think that he would pay. Auguste claimed to have passed the letters of approval from Kimberley over to Crofts on the understanding that he was to show copies to the unit purchasers. Whatever the truth of that assertion, I am satisfied that Barr was never sent or shown these letters.

34. It was in August 1984 that Barr received from Yvonne Crofts a letter enclosing a deed of guarantee which he was asked to execute. The deed, expressed to be between Barr and Trayda, recited that it was a condition of Trayda entering into the six-unit contracts that Barr guarantee the obligations of ARBI thereunder. The recital was false. No such condition was to be found in either the Ermay/ARBI or the Trayda/ARBI contracts. Barr rang Crofts who told him "the finance company not only want an arm and a leg they want a guarantee as well". Barr said he would not be signing any guarantee and Crofts told him not to worry about it. Barr testified that in the same conversation Crofts might have made some passing reference to the "silly clowns" looking for another $50,000. Barr took Crofts' advice and put the deed of guarantee away in a drawer. No further requests were made of him to execute the guarantee or to pay any further money.

35. On 14 August O'Neill met in his office with Crofts and Auguste. Crofts was resisting Kimberley's requirement that he pay over to it the deposits already received from Torero and ARBI. Crofts persuaded O'Neill that he should retain in his trust account so much of the deposit as represented his commission. As to the balance of $37,100, Kimberley's solicitor, Hyland, recommended that it be used on the funding of the project "to engender a greater responsibility on the part of the purchasers". This was eventually done as appears from a letter to Crofts from Kimberley on 16 January 1985. By that letter, O'Neill confirmed that deposit moneys of $37,100 had been received by Trayda and injected into the construction of the units.

36. At the meeting of 14 August there was no mention of the discount letter and, according to O'Neill, whose evidence I accept on this point, the discussion was consistently in terms of purchase prices of $90,000 as that was the figure on which Crofts calculated his claim for commission.

37. Settlement on the sale of Lot 105 to Trayda by Torero was fixed for 22 August. This, of course, involved a major outlay by Kimberley, being $250,000 representing the purchase price of the land. O'Neill asked Auguste for the executed guarantees and the documentation in relation to the $50,000 deposit. Auguste assured him that they were coming, but asked if settlement could proceed anyway. In an error of judgment which later caused him to resign from Kimberley, O'Neill acceded to Auguste's request. Settlement on the sale of Lot 105 proceeded and thereafter Kimberley continued to make advances by way of progress payments to the builder. The matter of the guarantee and the $50,000 deposit seems to have been overlooked by O'Neill until January 1985. On 16 January he wrote to Auguste expressing concern at the non-production of documentation previously forwarded to Barr. He asked him to attend to these matters as soon as possible and to liaise with Kimberley's solicitors. He advised that he would be on leave until 29 January, but would contact Auguste soon thereafter. According to Auguste he spoke to Crofts after receiving the letter and said that the guarantee document and lease should be obtained. There was, however, no action on Crofts' part in response to that approach.

38. In September 1984 Barr came to Perth and visited the site. He told Crofts that he wanted some changes to the layout of the units for which he was prepared to pay. In October he rang from Adelaide to check whether these changes had been effected. Crofts indicated that he had not spoken to the builder. Barr said he wanted the matters attended to. Again, there appears to have been no mention of the guarantee and deposit requirements.

39. Although the contracts for the purchase of the units provided for settlement on 1 December 1984, work on the construction was still far from completion in the early part of 1985. Because of these continuing delays it was necessary for Auguste to seek an extension of the time originally scheduled for repayment of the Kimberley advance and which expired on 21 February 1985. By a letter dated 8 March, O'Neill approved an extension to 30 April 1985 noting that "all other terms and conditions of our loan agreement remain unchanged". It does not appear that O'Neill took any further steps in relation to the guarantee and the $50,000 at that time.

40. On 4 September 1984, ARBI executed, as vendor, standard offer and acceptance forms for the sale of the six units at $90,000 each. On 7 September a company called Lawhar Pty Ltd executed each of the contacts. Settlement was to be on or before 10 December 1984. In relation to these contracts Barr accepted that Crofts was his agent and that he would pay commission on them. Upon the return of the contracts to Crofts they were passed on to Mr Spurge of Soobry Settlements with instructions to act on the settlement. There was no evidence about the circumstances in which Lawhar Pty Ltd came to offer $90,000. That would no doubt be a matter known to Crofts, but he was neither represented nor gave evidence at the trial of the action. According to Auguste however, Crofts told him and O'Neill of the on-sales.

41. Late in 1984 or early in 1985 Barr asked Crofts for a progress report on the units. By way of reply he received a letter dated 5 February enclosing another letter from Auguste to Crofts expressing the hope that settlement on the units could be effected by the end of March 1985. There were some broadly expressed complaints about trade unions and the local authority as contributing to construction delays. There was also a reference to "vastly increased construction costs" and the fact that Auguste had been taken away from "remunerative work".

42. In May 1985 or thereabouts Barr visited Crofts' office to check on real estate generally. Auguste was passing by and asked whether he could see Barr that afternoon at the Maylands site and specified unit 2. Barr had not previously met him but agreed to do so that day. At the site Auguste told him of cost overruns on the project. For the first time, Barr became aware that Kimberley was financing the project. He already knew that some financier was involved because of his conversation with Crofts in August 1984 concerning the guarantee. Auguste then told him that Kimberley did not know that the effective price for the six units was only $75,000. They believed, said Auguste, that ARBI would be paying $90,000 for each. Barr asked him how they came to that view. Auguste, he said, told him that he had taken the discount letters off the contracts. Barr said he was upset to learn this and told Auguste that he was to go and tell Kimberley immediately. Auguste, he said, promised to see Kimberley shortly and to make the true position known to them.

43. Auguste in his evidence in chief, said he had told Barr of cost overruns on the project and asked him to contribute more than the proposed $75,000 in order that they might be covered. He said Barr was non-committal and that apart from amendments to the dates on one of the discount letters there was no other major topic of discussion. In cross-examination it was put to him by counsel for Barr that it was during this discussion that it emerged that Kimberley had only just discovered the true price ARBI would be paying for the units. He agreed with that proposition. As appears from the evidence of O'Neill however, Kimberley did not discover the true position until 19 June when he was told over the telephone by Spurge of Soobry Settlements. And that evidence is consistent with the actual account given by Barr, which I accept. I reject Auguste's denial that Barr told him that he, being responsible for the state of affairs that had arisen, had better sort it out promptly.

44. After the meeting, Barr went to Crofts' home and confronted him asking why he had not told Kimberley the truth. Crofts blamed Auguste, suggesting that it was to keep the truth from Kimberley that Auguste would not let him go to meetings with the company. Barr then returned to Adelaide.

45. The strata plan for the development was in order for dealing from 10 June 1985 having been approved by the Town Planning Board on 4 June. Auguste's solicitors wrote to ARBI so advising on 12 June and noting that settlement was due within 7 days. The letter was not however received until 17 June.

46. In the meantime, Barr became increasingly concerned that he had not heard from Crofts in connection with the discount letters and Kimberley. He telephoned Spurge at Soobry Settlements and told him that he was unhappy with the state of affairs in relation to the project. It does not appear from his evidence or that of Spurge that he made any reference in that phone call to the non-disclosure of the discount letters to Kimberley. As a result of the conversation Spurge prepared a letter of instruction to himself from Barr dated 14 June 1985. He sent the letter to Barr and on 17 June received it back duly signed. Spurge wanted to protect his own position by ensuring that his instructions from Barr and ARBI were in writing. The letter began:

"Further to recent discussions concerning my

purchase of above units & because of the

disquieting reports I have received on progress of

the development, I enclose herewith letter

cancelling my offer to purchase. Please hold this

letter pending receipt of further instructions

concerning the matter."

The letter went on to instruct that ARBI was prepared to proceed to

settlement in terms of the contract i.e. allowing for a discount of $15,000 in each case. Shortly afterwards, it may have been 17 or 18 June, Spurge telephoned O'Neill, told him of the discount letters and said that ARBI did not wish to complete because of the delay. O'Neill immediately rang Auguste.

47. O'Neill met with Auguste and Crofts on 19 June. They confirmed to him that they had both been aware of the discount letters and that neither of them had intended that Kimberley should be informed of their existence. Both said, however, that they had been confident they would be able to on-sell the units or trade them for Barr. O'Neill said he would have to consider Kimberley's position and discuss the matter with Barr. Crofts telephoned Barr in Adelaide asking him to come over to Perth. There was, he told Barr, a problem with the financing and the whole thing was "a bit of a mess". In the meantime, on 21 June, Trayda's solicitors sent ARBI notice of default in respect of the purchases of the units. ARBI responded with a notice to complete in respect of all six units. The notice dated 28 June 1985 specified 15 July as the settlement date. On 24 June, O'Neill had two meetings, one with Auguste and the other with Crofts and Barr. Barr said that he was prepared to purchase the units for $75,000 if some concessions were made by Kimberley with respect to chattels, a reference to the installation of floor coverings and curtains. In Crofts' absence, O'Neill asked Barr if he had received the discount letters after signing the contracts. Barr told him that the discount letters were attached to the contracts when he signed. He also said that he signed the offers for $90,000 knowing that Crofts would use them to establish a price or a value for the units with a view to selling them for a greater amount or so that they could be traded at that price into some better property (T.84). He told O'Neill that he had not become aware of Kimberley's requirement for a guarantee and $50,000 deposit until August or September 1984 and that he had rejected those proposals.

48. On the same day O'Neill met with Auguste and told him that he had trusted him and that because of what had happened he would lose his job. Auguste, he said, admitted misleading him and said that he and Crofts all along had kept certain things from O'Neill thinking that they could "finesse their way through the dealing". In cross-examination Auguste said:

"I did not admit misleading as such. I admitted

that I did not give him the documents - the

discount letters."

It is clear enough on the evidence, that Auguste did conceal from Kimberley

the existence of the discount letters and did so in the belief that their disclosure might prejudice his ability to obtain the advance he was seeking.

49. On or about 25 June Barr again met with O'Neill and had further inconclusive discussions. On that day also it appears he spoke with Hawkins for the first time. Initially their discussion was tense with Hawkins firing questions at Barr asking, among other things, what was the motive for signing the contracts and the discount letters. Barr replied that he thought the contracts could be shown to purchasers with the discount letters attached on the basis that the price per unit was $90,000 but that ARBI was receiving a discount because it had bought six units. He attempted to get his explanation across to Hawkins without much success. Hawkins denied that any such explanation had been proffered. He said Barr told him that the arrangement was made between he and Crofts to induce other purchasers to believe that he paid $90,000 for the units because he was intending to on-sell them and that anybody purchasing them would be induced to pay a higher price. In this he was supported by the testimony of Franks who was present for part of the meeting. His evidence was that Barr had said he was just an investor and that the discount arrangement was designed to create evidence that the units must be worth $90,000 or more because someone else had already paid that price. He denied in cross-examination the suggestion that Barr had said that he had earned a discount for buying six units at the one time. Given the time that had elapsed between the conversations in question and the evidence of the witnesses on this point and his understandable desire to justify himself, I am prepared to accept that Barr probably did suggest that he thought the contracts might be shown to purchasers with the discount letters attached and explained on the basis of a bulk purchase. I do not believe, however, that at the time of signing the contracts he gave any thought to precisely how Crofts would use the contracts. In particular, I am not satisfied that he intended or arranged that the contracts would be detached from the discount letters and used to persuade prospective purchasers that he was about to or had paid $90,000 for each unit. In so finding, I have regard to his evidence that the letters were stapled to the agreements when he signed them, supported to a degree by the evidence of Spurge that they were in that condition when he received them at Soobry Settlements. I also bear in mind the seriousness of the contrary view which would involve a determination of knowing complicity in criminal conduct. This does not alter the standard of proof, which is satisfaction on the balance of probabilities. But in deciding whether that standard is reached it is necessary to have regard to the gravity of a finding adverse to the party whose conduct is in issue - Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 343 (Latham CJ), 350 (Rich J.), 362 (Dixon J.); Trade Practices Commission v Nicholas Enterprises Pty Ltd [1979] FCA 51; (1979) 26 ALR 609, 642-643 (Fisher J.); Peter Williamson Pty Ltd v Capitol Motors Limited (1982) 41 ALR 613, 619-620 (Franki J.).

50. At the meeting with Hawkins on 25 June, Barr repeated what he had told O'Neill, namely that he would be prepared to settle for $75,000 subject to the units being fitted out with carpeting and curtains to the value of $3,000 each. No agreement was concluded between them at that stage as Hawkins wanted to further consider his position. After inspecting the units he decided that Barr's offer was the best he was going to get. On 7 July he wrote to Barr saying that Kimberley was prepared to arrange for Trayda to cancel the existing contracts and for new contracts at $75,000 to be entered into between ARBI and Kimberley, presumably in the exercise of its powers under the mortgage. The payment of $9,000 deposit in each case would be credited, but the agent Crofts, was to receive no commission. Hawkins spoke to Barr sometime after the letter was sent but Barr told him that he did not want to proceed and that he had referred the matter to his solicitors.

51. The expressed desire not to proceed is best regarded as a desire not to compromise. For Barr, acting in accordance with the notice to complete issued to Trayda on 28 June, instructed Spurge to attend at settlement and provided him with a bank cheque for $396,000 for that purpose. The settlement was to take place at the office of ARBI's solicitors, Ilbery Barblett & O'Dea, but no one representing Trayda turned up. Spurge attended with the bank cheque, sufficient funds to cover stamp duty on the contracts other than for unit 3 which had been paid, and a signed withdrawal of caveat. He waited for half an hour then left.

52. The following day Messrs. Ilbery Barblett & O'Dea issued a notice of default. Auguste took no action on any of the notices but simply referred them to Kimberley. The time limited by the notice of default expired on 30 July and on the following day, ARBI's solicitors wrote to R. & Y. Crofts & Staff advising that the contracts were at an end and demanding a refund of the deposit which had been paid. Mrs Crofts then sought instructions from Trayda. Crofts consulted his solicitors, McLeod & Del Piano, who wrote to Trayda on 7 August asking whether it agreed that the contracts were at an end and for confirmation that Crofts could release the deposit. Trayda's solicitors, acting on Auguste's instructions, wrote back on 9 August advising that their client denied the contracts were at an end and directing Crofts to retain the deposit as stakeholder. This did not reflect any desire on Auguste's part to compel a settlement. It was simply designed to protect his own position with respect to Kimberley.

53. In August 1985 Kimberley, acting under sub-cl.7(7) of its mortgage, appointed a receiver over the land at Lot 105 Kirkham Hill Terrace. On 6 August a valuation provided by the firm Brendon Hubble indicated a gross realisation of $658,000 for all units. The report was prepared by Mr P.W. Goodchild. He noted that the market in the Maylands area had traditionally served the lower income range with many developments selling for less than $60,000 per unit. There was a high demand from retired persons which made multi-levelled units difficult to sell. There was little evidence of support for higher priced units in the area. The site had a poor current aesthetic outlook and there were, it was said, inherent design problems with some of the floor plans including very small kitchen, laundry and bathroom facilities. As the development had only recently been completed, the gardens were not landscaped and sections of the poorly erected asbestos fencing required re-instatement. There were no carpets or curtains in the units, save for unit 2 which had been intended for occupation by Auguste. The report recommended that landscaping be completed, fencing reinstated and carpets and curtains installed. The valuation of $658,000 was based upon the assumption that these things would be done.

54. Acting on that report, Kimberley took steps to effect the necessary landscaping and fencing. Nothing was done however in relation to the provision of carpets and curtains. There was some delay before the landscaping and fencing repairs were carried out. In part this seems to have been attributable to a merger between Kimberley and Broadlands Finance in early 1986. Mr Julian Sanderson, an employee of Kimberley was given the responsibility under Hawkins of selling the units for the best prices that could be obtained and for completing the project to that end. After quotes had been obtained, landscaping work was carried out in February, March and April 1986. Sanderson was unable to account for the delay that had occurred between the appointment of the receiver by Kimberley under the mortgage and the completion of the development works. He himself had not become involved in the file until February or March 1986.

55. This work having been done, an update of the Brendon Hubble valuation was obtained from Goodchild in March 1986. He noted that boundary fencing had been reinstated and realigned and the grounds completely landscaped. He reiterated his earlier comments that despite its quality of construction, the development was an over-capitalisation of the site and that some apartments suffered from a poor internal floor plan. He believed that the best price would be realised by sale of the units on an individual basis and that it would take longer to sell than he had previously estimated. There had been, he said, a decline in market conditions since his previous report which would affect the gross realisations as well as the decision not to include carpets and window treatments. His estimate for the gross realisation was $633,000 as at 15 March 1986.

56. In that same month or near the end of February, Kimberley instructed Townsend Clarke and Linney, Real Estate Agents, to sell the units. They commenced selling in March. The contract for unit 1 was signed on 14 March and the last contract, which was for unit 6, was signed on 19 December. Sale proceeds were $612,768.63. The split up of the agreed consideration and actual proceeds of sale is set out in the following table contained in the applicant's particulars of damage and verified by Hawkins (see Item B of the particulars of damage):

Consideration Settlement Proceeds

Date

A. Unit 1 $65,000 29/ 8/86 $61,050

B. Unit 2 $57,000 4/12/86 $54,250

C. Unit 3 $57,000 10/11/86 $54,662.93

D. Unit 4 $59,000 22/12/86 $55,321.87

E. Unit 5 $61,000 5/11/86 $58,209.80

F. Unit 6 $63,500 5/ 2/87 $61,214.34

G. Unit 7 $63,000 11/ 9/86 $57,632.74

H. Unit 8 $74,500 11/ 9/86 $65,463.70

I. Unit 9 $80,000 15/10/86 $74,386.51

J. Unit 10 $79,000 11/ 9/86 $70,576.24

57. O'Neill gave evidence of payments made by Kimberley in relation to the acquisition of the land by Trayda and the construction of the units. Payments totalling $213,562.87 were made at settlement to discharge mortgages, pay agent's commission and pay out the balance of the purchase price to the vendor (Item A(i) under the heading "Original Advance by Applicant" in the particulars of damage). Stamp duties and fees paid in relation to the settlement amounted to $8,829 (Item A(ii)). Legal costs for work including preparation of documentation and advice came to $1,756.50 (Item A(iii)). Rates and taxes paid in February and Mach 1985 as part of the advance to Trayda amounted to $1,854.77 (Item A(iv)). Payments for work done on foundations and sub-soil drainage made in August and October 1984 and March 1985 came to $4,290 (Item A(vi)).

58. Kimberley also paid for the construction of the units. The procedure leading to payment began with the submission of an itemised account by the builder. After receipt of such an account O'Neill and Auguste would agree to meet on site and inspect progress. O'Neill would then check the account and authorise a payment direct to the builder. He was able to verify 15 payments made in this way between 21 August 1984 and 10 May 1985 totalling $451,053 (Items (a) to (o) inclusive in A(vi) of the particulars of damage).

59. Evidence of other payments was given by Margaret Collingwood who was, in 1985, the Administrator of the Lending Department of Kimberley. She was able to confirm that a payment of $13,016 had been made to the builder on 4 June 1985 (Item (p) of A(vi)). Mr Sanderson gave evidence of four payments to the firm Chris Scott Landscaping between 3 February 1986 and 23 April 1986 being $8,500 (Items (q) to (t) of A(vi)). O'Neill confirmed a payment of $1,989.90 made to M. Beehan on 24 August 1984 for alterations to the original plans of the development (Item A(vii)). A payment of $200 was made to Soobry Settlements on O'Neill's authority (Item A(ix)) and he also confirmed that he had authorised payments under the heading "Contingency Costs" to R.J. Bracewell, Hodge Wilcox & Dart Kelly being $866 in total (Item A(x)).

60. Interest accruing on the advance was debited to the Trayda account from time to time and on Collingwood's evidence these debits between 31 August 1984 and 31 July 1985 came to $105,033.50 (Item A(xi)). A loan application fee of $10,000 which was a condition of the approval was also debited to the account on 5 May 1985 and this was verified by O'Neill (Item A(xii).

61. Kimberley made payments and incurred expenses relating to the maintenance of the property and the sale of the units. Sanderson gave evidence of having authorised some 24 payments between June 1985 and May 1986. These included payments for insurance, valuation reports, cleaning, electricity and for a caretaker. Costs of lawnmowing after landscaping had been completed, maintenance of the swimming pool, advertising and public liability insurance were also met by Kimberley on his evidence. The payments to which he referred came to a total of $19,421.22 (Items (a) to (f) and (j) to (aa) under the heading "Maintenance of Property and Resale Expenses" in the particulars of damage). Sanderson's evidence on the various payments authorised by him was not challenged in cross-examination. Of the items claimed under the heading "Maintenance of Property and Resale Expenses", Margaret Collingwood gave evidence of vouchers supporting some but not all of those payments. These totalled $9,475.42 (Items (g) to (i), (bb), (dd), (ee), (ii), (kk), (ll), (nn), (oo), (ss), (uu), (vv), (ww), of the particulars of maintenance and resale expenses).

62. In cross-examination, Miss Collingwood conceded that she was not in a position to say that the work or material which were the subject of the various accounts she mentioned had in fact been done or provided in relation to the project. The payments she made were made on the instructions of O'Neill or Downey.

63. In addition to the interest which had been debited to the Trayda account at the agreed rate of 19% up to 31 July 1985, Kimberley claimed by way of damages, interest on the total loan advance of $823,601.00 from completion on 31 July 1985 to the first unit sale on 31 August 1986 at 21%, a figure of $187,369.34. It claimed further interest loss at 21% on the balance of the advance after deducting sale proceeds from the time of the last sale on 1 January 1987 to the date of filing of the particulars of damage i.e. 29 July 1988, a figure of $66,412.36. Interest loss of $10,000 was claimed in respect of the maintenance and resale expenses of $31,471.22 from 1987 to 29 July 1988. The total interest loss claimed at 21% came to $263,781.70.

64. The interest claimed for the period up to 31 July 1985 was not of course able to be claimed as a contract debt against anyone other than Trayda. It could only be recovered if shown to represent a loss flowing from the alleged contravention of s.52 or otherwise as an element of tortious loss or pursuant to a statutory provision for the payment of interest on damages. It must therefore be taken to represent Kimberley's view of what it could have earned with its money if invested other than in the Trayda development. In this connection, Hawkins said in evidence that 19% was a concessional rate charged on the basis that repayments were on time. Otherwise the agreed rate applicable to the Trayda advance was 21%. Kimberley was at the time charging between 17.5% and 21% for transactions of this character depending on the level of risk involved. The general range being charged by other finance companies for bridging finance at the time was 17 to 20%. Hawkins' evidence in this regard was not challenged.

65. As previously noted, Mr Spurge lodged a caveat over Lot 105 on 24 August 1984 to protect ARBI's interests under the Trayda contract in relation to Unit 3. It is common ground that on 16 April 1986 a dummy mortgage was lodged by Kimberley at the Titles Office to activate the statutory processes under the Transfer of Land Act whereby a notice would issue to ARBI requiring some steps to be taken within fourteen days to justify the continuance of the caveat. On 22 May 1986 a fourteen day notice issued accordingly and on 5 June ARBI applied to the Supreme Court for an order restraining the Registrar of Titles from removing the caveat. On 6 June, Olney J. stayed the registration of the dummy mortgage until the matter could be fully argued. The case later came on on 25 June before Rowland J. and on 8 July his Honour discharged the caveat. In the meantime, on 2 July 1986, ARBI had lodged a fresh caveat over the strata titles to units 3 to 8 inclusive protecting an interest described in the caveat as "...purchaser's lien for the portion of the land being units 3-8 on Strata Plan 12893...". On 11 July 1986 Kimberley took out an originating summons seeking an order for the removal of the new caveat. On 27 August 1986 Franklyn J. ordered the removal of the caveat as against units 7 and 8 and payment into court of $9,000 in respect of each. A similar order was made by Rowland J. on 22 October 1986 in respect of units 3 and 5, by Master Seaman QC on 18 December 1986 in respect of unit 4 and by Master Staples on 20 January 1987 in respect of unit 6. All in all, Kimberley paid the sum of $54,000 into the Supreme Court.

66. In addition the sum of $24,802.01 held by R. & Y. Crofts & Staff, being that part of the deposit said to represent that firm's commission was paid into this Court on the 20 November 1986 pursuant to an order made by Toohey J. on 7 November. That order required R. & Y. Crofts & Staff to "pay the balance of the deposits paid by the First Respondent in relation to the contracts of sale for units 3 to 8 between the Third Cross-Respondent as Vendor and the First Respondent as Purchaser dated 20 June 1984 into this Court".

67. The primary allegation against ARBI is of conduct in contravention of s.52 of the Trade Practices Act 1974 which was misleading or deceptive or likely to mislead or deceive. It is said to be constituted by the making of representations pleaded in paras.19, 29 and 37 of the statement of claim and the conduct pleaded in para.42. The representations relied upon were that ARBI had agreed to pay the sum of $90,000 for each of the units. They were said to have been contained in the Ermay and Trayda contracts given to O'Neill by Auguste in March and July 1984 respectively (paras.19 and 29) and to have been repeated by Crofts and Auguste at the meeting with O'Neill prior to the advance by Kimberley. Paragraph 42 asserts that the representations pleaded in paras.19, 29 and 37 were false. It also alleges participation by the respondent in a "scheme, arrangement or understanding which was fraudulent, misleading and deceptive in that the real consideration which the First Respondent had agreed to pay in respect of each of the said units was $75,000.00 per unit only and the said conduct did in fact mislead and deceive the Applicant and members of the public into believing that the First Respondent had in fact agreed to pay the sum of $90,000.00 per unit". The terms of the "scheme, arrangement or understanding" are not disclosed on the pleading although particulars apparently directed to the falsity of the alleged representations and conduct pursuant to the scheme are provided. By these particulars the preparation and signature of the discount letters is alleged "to the effect that the real consideration for each unit was $75,000...". Crofts is said to have procured Auguste to present the Ermay contracts and later the Trayda contracts to Kimberley without disclosing the existence of the discount letters and in order to induce Kimberley to provide development funds on the basis that the units had sold for a real consideration of $90,000 each (sub-para.(vi)). At all material times the respondents and each of them by their conduct led Kimberley "and members of the public" to believe that ARBI had agreed to purchase the units at the price of $90,000 (sub-para.(vii)).

68. According to para. 6 of the statement of claim, R. & Y. Crofts & Staff was at all material times employed by ARBI at Barr's request to act with ARBI's authority and on its behalf in relation to:

(i) the purchase of the six units in the Lot 105

development;

(ii) representing it in relation to all negotiations

involving the obtaining of finance for the purposes

of the development;

(iii) receiving all relevant communications both oral and

written pertaining to the development and the

obtaining of finance in respect thereof;

(iv) communicating all such oral or written

communications to ARBI and/or Barr;

(v) keeping ARBI advised, through Barr, of the state of

negotiations relating to the development and also

to the obtaining of finance;

(vi) the carrying on of negotiations for the on-sale of

the six units for and on behalf of ARBI.

Crofts, it is said, was acting from time to time in relation to all the

above matters. And Auguste is alleged to have been acting at all material times with the "knowledge, consent and authority" of Crofts.

69. The pleadings do not express with the precision for which one might hope, what acts or omissions on the part of ARBI constituted engaging in misleading or deceptive conduct. Nevertheless the threshold question is whether ARBI's conduct in executing the Ermay and Trayda contracts with discount letters attached was misleading or deceptive. The execution of a written agreement will, in the ordinary course, support an inference by its reader that the parties have exchanged promises which they intend to perform. The intention of a party to an agreement is a matter of fact which can be falsely stated. If so, the inference ordinarily drawn from the document may be erroneous and the conduct in executing it misleading or deceptive. It is, strictly speaking, not necessary for that characterisation to search for a representation embedded in the conduct. It is enough that the impugned conduct is capable of leading people into error - Keehn v Medical Benefits Fund of Australia Ltd (1977) 14 ALR 77; Weitmann v Katies Limited (1977) 29 FLR 336; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 198; Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477. But on any analysis the execution of a contract containing a purchase price which it is not intended the purchaser will pay may mislead or deceive its reader. It has been said that imaginary contracts to buy or sell at fictitious prices as a device for "making a market" convey an implied representation and a fraudulent one - Spencer Bower and Turner - Actionable Misrepresentation 3rd Ed. p 73 citing Scott v Brown, Doering, McNab and Co. (1892) 2 QB 724; Lindsay Petroleum Co. v Hurd (1874) LR 5 P.C. 221.

70. In the present case the contracts each stated a price which ARBI had no intention of paying. Taken by themselves they were misleading insofar as they would support in the mind of the ordinary reader erroneous inferences as to ARBI's intention. But read together with the discount letters attached, the contracts disclosed the true purchase price. Counsel for Kimberley conceded as much in his closing address:

"...there is nothing wrong with signing up a

contract with a discount letter - odd way of doing

it; costs money and all of those things, but there

is nothing wrong with it on its own."

That is not to say that there could be no misleading element in the use of

the contracts with the discount letters attached. For even with disclosure of the true price to be paid, the documents imply a consensus between vendor and purchaser, which did not exist, that $90,000 was the real value of the units taken individually. But if there was misleading or deceptive conduct in that regard, it was not an issue in this case.

71. Counsel for Kimberley went on however to identify two

aspects of ARBI's conduct upon which his case was based. The first was the execution of the document pursuant to the pleaded scheme, arrangement or understanding and the authorising of Crofts to use the offer and acceptances without discount letters to represent in trade or commerce that ARBI had paid $90,000. The second, put as an alternative, arose from Auguste's presentation of the contracts to Kimberley, an act said to have been done on behalf of ARBI and to have been misleading or deceptive.

72. As to the first limb of the argument, I am not satisfied

that Barr arranged with Crofts that he would use the contracts without discount letters attached to persuade third parties that he was actually going to or had paid $90,000. I cannot conclude on the evidence that he ever expressly addressed his mind to the way in which the documents would be used. And even if he had intended and arranged with Crofts that he show the contracts without the letters to prospective purchasers, that would not involve a finding that he intended or arranged that Crofts should use the contracts to persuade Kimberley that the true purchase price for each of the units was $90,000. In so finding, I accept that misleading or deceptive conduct may have unintended consequences. It may cause loss to a person or persons other than those to whom it is directed and in that event it is no defence to a claim for damages under s.82 of the Trade Practices Act 1974 to show that the victim was not its target. For the loss or damage recoverable is that suffered "by conduct...in contravention of a provision of Part IV or V". The test is one of causal connection. In this case however, whatever other inferences it may bear, the evidence does not support a finding that Barr or ARBI authorised Crofts to use the contracts in dealings with Kimberley or that he was given an authority sufficiently wide to encompass such a use.

73. The scheme, arrangement or understanding broadly alleged in the pleadings, but without any clear specification of its content, was said by counsel for Kimberley to contemplate the use of the offer and acceptances without the discount letters to represent "in trade or commerce" that ARBI had paid $90,000. On any view of the evidence if there was, contrary to my primary finding, a scheme, arrangement or understanding it did not encompass any use in trade or commerce but was limited to prospective purchasers. On this basis no question arises whether Kimberley was the unintended victim of misleading or deceptive conduct. For on the hypothesis that there was a scheme within the limits indicated, any misleading or deceptive conduct on the part of ARBI was defined by reference to the contemplated target group. Conduct on the part of Crofts outside the framework of the scheme or any direction or authorisation given by ARBI could not in this context be the conduct of ARBI unless otherwise attributable by operation of law. The effect of the general law of agency and the operation of s.84 of the Trade Practices Act in this regard are considered below.

74. As to the second limb of the argument advanced by

counsel for Kimberley, I am quite satisfied that Barr at no time gave either Crofts or Auguste any authority to use the contracts to persuade Kimberley that he was paying $90,000 for each of the units. I believe his evidence that he did not find out until May 1985 from Auguste that the contracts had been presented to Kimberley without the discount letters or any advice of their existence.

75. The alleged "scheme" apart, the applicant's case that R. & Y. Crofts & Staff had authority to act on behalf of ARBI in certain matters is set out in para.6 of the statement of claim to which reference has already been made. That paragraph is denied in the defence. In respect of the sale of Lot 105 and of the six units to ARBI, the firm was acting for Torero and Ermay respectively. Later it also acted for Trayda on the substituted contracts for the sales to ARBI. The position in respect of the Ermay contracts is made clear by the exclusive agency agreement dated 29 February whereby Auguste on behalf of Ermay, appointed R. & Y. Crofts & Staff to sell all ten units. As to the proposed on-sale of the six units from ARBI to Lawhar Pty Ltd ("Lawhar"), Barr accepted that R. & Y. Crofts & Staff was the company's agent. That agency did not extend to an authority to bind ARBI contractually or to make promises on its behalf. At no time was the firm given such authority by Barr or ARBI. In a broad sense Barr had been using Crofts to introduce him to prospective real estate investments in cases where Crofts was endeavouring to arrange a sale on behalf of a vendor. He clearly accepted that Crofts would try to find a purchaser for the six units from ARBI and that in connection with any such purchase he would be ARBI's selling agent and receive a commission on the sale.

76. The evidence does not however support the allegations in para.6 of the statement of claim that the firm had authority to act for ARBI on the purchase of the six units or the negotiations relating to the financing of the development and matters incidental thereto (sub-para.6(i) to (v) of the statement of claim).

77. Sub-section 84(2) of the Trade Practices Act 1974 as it stood prior to its amendment in 1986 provided in the relevant parts:

"(2) Any conduct engaged in on behalf of a body

corporate by a director, agent or servant of the

body corporate or by any other person at the

direction or with the consent or agreement (whether

express or implied) of a director, agent or servant

of the body corporate shall be deemed, for the

purposes of this Act, to have been engaged in also

by the body corporate."

78. The most recent reported decision on the operation of the sub-section as it formerly stood is Walplan Pty Ltd v Wallace [1985] FCA 479; (1985) 63 ALR 453. Lockhart J. (Sweeney and Neaves JJ. agreeing) rejected a submission that the sub-section only applied where a person had the corporation's actual (whether express or implied) authority to engage in the conduct in question. With so limited an operation it would fail to achieve a useful purpose and be merely a re-statement of the general law. His Honour characterised the sub-section as "a statutory provision designed to facilitate proof of the responsibility of a corporation for the acts of its directors, servants, agents and others" and "...designed to attribute to a corporation conduct of others for which the corporation would not necessarily be otherwise responsible". The limiting phrase requiring that, to be caught by the sub-section, conduct be engaged in "on behalf of" a corporation does not bear a strict legal meaning or a definitive sense capable of general application. It does suggest, in context, "some involvement by the person concerned in the affairs of the company" and conveys a meaning similar to the phrase "in the course of the body corporate's affairs or activities". It extends well beyond the conduct of servants in the course of their employment, but does not exclude the common law governing the liability of a corporation for the acts of agents or servants - Trade Practices Commission v Queensland Aggregates Pty Ltd (No. 3) (1982) 61 FLR 52, 65 (Morling J.).

79. Accepting that the sub-section represents a significant extension of the common law, it requires not only that the conduct be engaged in on behalf of the body corporate but also that it be at the direction or with the consent or agreement or a director, servant or agent. The delivery of the Ermay/ARBI contracts to Kimberley absent the discount letters was effected by Auguste. He said he did so at Crofts' suggestion and both he and Crofts later admitted to O'Neill that neither of them had intended that Kimberley be informed of the existence of the letters. There is no basis for the characterisation of that conduct as being in the course of ARBI's affairs. Nor did it have the consent or agreement (express or implied) of Barr. Sub-section 84(2) is, in the event, of no assistance to Kimberley.

80. For these reasons, the claim against ARBI that it engaged in misleading or deceptive conduct must fail. That failure also means the failure of the associated claim based on s.53(1)(b) of the Trade Practices Act and the cause of action based upon the accessorial involvement of Barr, Crofts and R. & Y. Crofts & Staff in the contravention by ARBI. On the findings of fact that I have made, it is also apparent that the claims based upon deceit by ARBI and by Barr cannot succeed.

81. In the alternative, Kimberley sought to characterise the representations complained of as negligent mis-statements "made by or on behalf of" ARBI, in that Barr, R. & Y. Crofts & Staff and Crofts, on behalf of ARBI, made or were parties to the making of the mis-statements at a time when they had special knowledge concerning them or were otherwise in a special relationship with Kimberley and failed to use reasonable care to ensure the accuracy of the representations. That plea does not turn upon any suggestion that ARBI was careless in providing an opportunity for Crofts to deceive Kimberley. That is not to say that a cause of action so formulated would have succeeded. What Kimberley must prove to establish its negligence claim is that the representations made by the presentation of the Ermay and Trayda contracts without the discount letters were made by or on behalf of ARBI. For the reasons already outlined, I have found this not to be the case. Similar considerations apply to the claim in negligence against Barr personally. The application so far as it relates to ARBI and Barr must therefore be dismissed.

82. Neither Crofts nor his firm are sued as principals under the Trade Practices Act 1974. The cause of action based upon their accessorial involvement in a contravention by ARBI fails with the failure of the action against that company.

83. Kimberley, however, has raised claims directly against Crofts and his firm in deceit (paras.47 and 50) and negligence (paras. 49 and 51). Paragraphs 47 and 49 of the statement of claim relate to the representations involved in the delivery of the Ermay and Trayda contracts to Kimberley. Paragraphs 50 and 51 arise out of separate allegations that Crofts falsely represented to Auguste prior to 22 August 1984, that Barr had been advised of the conditions imposed by Kimberley on the loan offers to Ermay and Trayda and had agreed to execute a personal guarantee in accordance with those conditions. As to the first aspect of the claim, there is evidence from Auguste that he did not disclose the existence of the discount letters to O'Neill because Crofts had told him not to. Having regard to Auguste's role in these transactions generally and my impression of him as a witness, I would not accept his uncorroborated evidence on this point. O'Neill, however, gave evidence, which I accept, that both Auguste and Crofts admitted to him on 19 June 1985 that they had been aware of the discount letters and that neither had intended that Kimberley should be informed of their existence.

84. On the evidence, I am quite satisfied that both Auguste and Crofts set out to deceive Kimberley as to the true purchase price to be paid by ARBI, that Auguste delivered the contracts without the discount letters attached and that he did so on Crofts' advice or instruction.

85. As to the other representations relied upon in the case against Crofts, I am not satisfied that he did anything more than promise to send copies of Kimberley's letters of approval to Barr and predict that Barr would sign the revised deed of guarantee. The promise was not kept and the prediction was unfulfilled. Having said that, the case of fraud as pleaded against Crofts in relation to these representations is not made out. And the negligence claim in this connection fails for the same reason - that is that the pleaded representations were not made.

86. The primary case of deceit against Crofts is proven. The question that follows is whether Kimberley was induced by the fraud to make the various advances that it did to Trayda. I have already expressed the view that O'Neill probably suspected that ARBI had some side transaction whereby it would not have to pay the full purchase price on the contracts. Such a suspicion cannot, however, be elevated into awareness that ARBI's legal obligation on each of the contracts was limited to the payment of a purchase price of $75,000. What Kimberley was shown was 6 contracts, apparently enforceable under each of which ARBI could be obliged to pay $90,000. The false representation so made was a material factor in Kimberley's decision to advance moneys to Trayda. The loss which it suffered as a result was the direct, and if it be necessary to say so, forseeable result of the fraud practiced upon it. Crofts' conduct I find to have been in the ordinary course of the business of the firm and the firm is therefore liable pursuant to s.17 of the Partnership Act 1895 (W.A.).

87. On the question of damages, I am satisfied that Kimberley has adopted the appropriate measure. The steps it took to exercise its power of sale under the mortgage, while extended in time, were calculated to realise the best price for the various units and so minimise loss. Proven damages were as follows:

Advances Made Amount

At settlement on 22 August 1984 $213,562.87

Stamp Duty on fees $ 8,829.00

Legal Costs $ 1,756.50

Rates and Taxes $ 1,854.77

Foundation and sub-soil drainage $ 4,290.00

Payments to builder 21 August

1984 to 10 May 1985 $451,053.00

Payment to builder 4 June 1985 $ 13,016.00

Landscaping 3 February 1986 to

23 April 1986 $ 8,500.00

M. Beehan for plans 24 August

1984 $ 1,989.00

Soobry Settlements $ 200.00

Bracewell, Hodge Wilcox,

and Dart Kelly $ 866.00

Total Advances Made $705,917.14

This figure does not include the sum of $105,033.50 debited to the Trayda loan account as interest payable at 19% under the contract. That sum is instead treated as interest foregone on the moneys advanced and therefore as an item of damages.

Maintenance Expenses

24 payments between June 1985

and May 1986 (Sanderson's

evidence) $ 19,421.00

Other maintenance and resale

expenses (Collingwood's

evidence) $ 9,475.42

Total proved maintenance and

resale expenses $ 28,896.42

The proceeds of sale of the units were $612,768.63 and the balance of the proved advance after receipt of these proceeds was $93,148.51.

88. Kimberley has also claimed as an element of its loss, the interest it could have earned had it been able to put the capital advanced to Trayda and the money expended on the development and the sale of the units to other uses. Such interest is recoverable as an element of consequential loss in an action for deceit. In Gates v The City Mutual Life Assurance Society (1986) 160 CLR 1, Mason, Wilson and Dawson JJ. said at p 13:

"Because the object of damages in tort is to place

the plaintiff in the same position in which he

would have been but for the commission of the tort,

it is necessary to determine what the plaintiff

would have done had he not relied on the

representation. If that reliance has deprived him

of the opportunity of entering into a different

contract for the purchase of goods on which he

would have made a profit then he may recover that

profit on the footing that it is part of the loss

which he has suffered in consequence of altering

his position under the inducement of the

representation. This may well be so if the

plaintiff can establish that he could and would

have entered into the different contract and that

it would have yielded the benefit claimed. cf. Esso

Petroleum Co. Pty Ltd v Mardon [1976] EWCA Civ 4; (1976) QB 801 at

pp 820-821, 828-829; Doyle v Olby (Ironmongers) Ltd

[1969] EWCA Civ 2; (1969) 2 QB 158 at p 167. The lost benefit is

referable to opportunites foregone by reason of

reliance on the misrepresentation."

The Court there held that it was the measure of damages in tort that was

appropriate to cases involving misleading or deceptive conduct in contravention of Pt.V of the Trade Practices Act 1974. And in the application of that measure, this Court has from time to time accepted that damages may be awarded under s.82 for loss of interest that would otherwise have been earned by money expended in reliance upon misleading or deceptive conduct - Frith v Gold Coast Mineral Springs Pty Ltd [1983] FCA 28; (1983) 47 ALR 547, Sandrod Pty Ltd v Dainford Ltd [1984] FCA 154; (1984) 54 ALR 179, 191; Geale v Glenhoun Holdings Pty Ltd (in liq) (1985) ATPR 40-615; Fenech v Sterling (1985) 61 ALR 465; Milner v Delita Pty Ltd (1985) 9 FCR 299, 309; Corporate Venture Pty Ltd v Ian Turner & Partners Pty Ltd (14.5.87, unrep. Gummow J.); Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285.

89. Interest is only recoverable by way of damages up to 29 October 1985, the date upon which these proceedings were instituted. Thereafter however, it can be awarded up to the date of judgment under the provisions of s.32 of the Supreme Court Act 1935 (WA) which, by virtue of s.79 of the Judiciary Act 1903 applies in this Court in respect of damages assessed on a common law cause of action - Nella v Kingia Pty Ltd (1985) 11 FCR 281, 284; Centrepoint Freeholds Pty Ltd v T.N. Lucas Pty Ltd [1985] FCA 131; (1985) 6 FCR 133.

90. I am satisfied that it is appropriate to award interest under s.32 of the Supreme Court Act at the rate of 21% from the date of issue of the application until judgment and to allow interest foregone as an element of the loss suffered prior to that date. I differ from the applicant's calculations in excluding from the "total advance" the sum of $105,033.50 being concessional interest payable under the loan contract with Trayda. That will be treated as a measure of the interest foregone over the period that it was charged, namely 31 August 1984 to 31 July 1985. Interest thereafter on the total advance will be on the figure of $705,917.14 which represents moneys advanced on Trayda's account, but does not include the interest debited nor the loan application fee of $10,000. In calculating the interest loss overall, including that to be awarded by virtue of s.32, I consider that some discount should be made for the risk attached to any other lending ventured by Kimberley had it not been induced to advance money to Trayda. Accepting that there is a degree of arbitrariness about such an exercise, I consider a discount of 10% should be made. The interest foregone and that awarded under s.32 are calculated together. In doing so, I apply the conservative periods adopted by the applicant by reference to the completion of the development and the dates of the first and last unit sales.

Interest Foregone

Interest at 19% from 31 August

1984 to 31 July 1985 (treated

as interest foregone on capital

advance) $105,033.50

Interest on total advance of

$705,917.14 from 31 July 1985 to

31 August 1986 at 21% $160,833.05

Interest on balance of advance

after sale proceeds, $93,148.51,

at 21% from the time of last sale

on 1 January 1987 to judgment on

1 September 1989 $ 52,252.47

Interest on maintenance and

resale expenses of $28,896.42

at 21% from 1 January 1987 to

1 September 1989 $ 16,209.70

Total Interest $334,328.72

Less discount of 10% $ 33,432.87

$300,895.85

91. The interest awarded will be rounded off to $300,000.

92. On this basis there will be judgment in favour of Kimberley against Crofts and R. & Y. Crofts & Staff in the sum of $422,044.00. There will be liberty to apply to correct any error in arithmetical calculation.

Against R. & Y. Crofts & Staff, Crofts and Trayda Pty Ltd

93. ARBI alleges in its defence that the Trayda contracts were unenforceable for non-compliance with the Town Planning and Development Act 1928 (WA), and void for uncertainty. Further, it is said, that ARBI was induced to enter into them by various representations on the part of Crofts which were fraudulent or negligent and by reason of which the company was entitled to and did set the contracts aside. Trayda was also said to have breached the contracts by failing to apply for and obtain Town Planning Board approval for the strata title subdivision within the time prescribed in the contracts, by failing to obtain a strata plan and by failing to settle when called upon to do so by ARBI by its notice of 28 June 1985. By reason of these breaches, ARBI says it was entitled to and did rescind the contracts. The role of these allegations in the defence is not clear and is, in any event, immaterial having regard to my findings. They are however, incorporated by reference into the cross-claim against Crofts and his firm. By that cross-claim ARBI says that it is entitled to recover the deposit of $54,000 paid to R. & Y. Crofts & Staff either as moneys had and received or alternatively, as the return of a deposit paid to a stakeholder. Allegations of deceit and negligent misstatement are repeated, along with a claim of accessorial involvement in a contravention of the Trade Practices Act on the part of Trayda. Declarations are sought that the Trayda contracts were void for illegality or uncertainty or alternatively properly rescinded. In the further alternative, a declaration is sought that ARBI is entitled to maintain a purchaser's lien in respect of the deposit. There is also a claim for repayment to ARBI of the sum of $54,000 and interest and a claim for damages, the quantum of which, I am informed by counsel for ARBI, is limited to the amount of the deposits. There was in any event no evidence led as to any other loss sustained by ARBI.

94. In its cross-claim against Trayda, ARBI says that the representations made by Crofts and referred to in the defence were representations made on behalf of Trayda which were misleading or deceptive in contravention of s.52 and that ARBI thereby suffered loss and damage. And in the event that Crofts did not hold the deposit of $54,000 under the Trayda contracts as stakeholder, or if it be held that the Trayda contracts were void for illegality or uncertainty, then ARBI claims an entitlement to recover the deposit together with interest. There is also a claim for indemnity in the event that ARBI or Barr are found liable to Kimberley in damages. Again, the amount of damages sought is limited to the monies paid over by way of deposit. The real question arising out of the cross-claim is whether ARBI has any entitlement to all or any part of the sums paid into the Supreme Court by Kimberley and the commission paid into this Court by R. & Y. Crofts & Staff.

95. ARBI paid to R. & Y. Crofts & Staff as a deposit on the Ermay contracts the sum of $54,000, comprising $600 on 7 March 1984, $26,400 on or about 20 March and $27,000 on 19 April 1984. It was a term of each of the Ermay and Trayda contracts that:

"The Vendor and the Purchaser agree that the deposit

monies be released to the Vendor less the agent's

fee once deposit moneys have been received."

Of the total sum of $54,000 paid by ARBI, $37,100 was released to Trayda and

used to make progress payments to the builder. The balance, representing the agent's commission, was retained by R. & Y. Crofts & Staff. That sum was, in my opinion, held by that firm as a stakeholder pursuant to cl.2 of The Real Estate Institute of Western Australia (Inc.) General Conditions for the Sale of Land (1982 Revision) which provides:

"The deposit payable pursuant to the Contract shall

be paid by the Purchaser in accordance with the

Contract to the Vendor's agent as stakeholder who

shall forthwith pay the same into his trust account

and such deposit shall not be withdrawn except for

the purpose of completing the purchase or otherwise

in accordance with these conditions and if

withdrawn for the purpose of completing the

purchase shall be applied in payment of expenses,

selling fee and other authorised charges of and

incidental to the sale. If the deposit is placed

in an interest bearing account, any interest earned

thereon shall be credited to the Purchaser...."

The duties of the agent in his capacity as stakeholder are as outlined by

Lord Denning M.R. in Burt v Claude Cousins Ltd (1971) 2 QB 426 at 435:

"If an estate agent or a solicitor, being duly

authorised in that behalf, receives a deposit "as

stakeholder", he is under a duty to hold it in

medio pending the outcome of a future event. He

does not hold it as agent for the vendor, nor as

agent for the purchaser. He holds it as trustee

for both to await the event; see Skinner v Trustee

of Property of Reed (a Bankrupt) (1967) Ch.1194 at

1200...per Cross J. Until the event is known, it is

his duty to keep it in his own hands; or to put it

on deposit at a Bank; in which case he is entitled

to keep for himself any interest that accrues to

it; see Harington v Hoggart (1830) 1 B and Ad 577.

If the purchaser should become entitled to the

return of his deposit, he must sue the estate agent

or solicitor for it; see Elthan v Kingsman (1818) 1

B and Ad 683 and Hampden v Walsh (1876) 1 QBD 189.

He cannot sue the vendor, because the vendor has

never received it or become entitled to receive

it."

96. In this case there can be no doubt that ARBI is entitled to the return of that part of the deposit and interest thereon paid into Court pursuant to the order of Toohey J. on 7 November 1986.

97. So far as Trayda is concerned, the contract being rescinded by reason of its failure to complete, ARBI is entitled, pursuant to cl.13.2(ii) of the General Conditions, to the return of the balance of the deposit, that is to say the sum of $37,100. A judgment to that effect is unlikely to bring forth fruit. The real question that remains is whether or not ARBI is entitled to recover the balance of its deposit out of the moneys paid into the Supreme Court by Kimberley as a condition of the removal of the ARBI caveat to allow the sale of various units at Lot 105 Kirkham Hill Terrace. The first of the Supreme Court orders in that regard was made by Franklyn J. on 27 August 1986 and in the following terms:

"1. Caveat number D277454 lodged against Portion

of Swan Location 2039 and being Lots 7 and 8

on Strata Plan 12893 and being the whole of

the land comprised in Certificate of Title

Volume 1725 Folio 928 and 929 respectively

("Units 7 and 8") be removed forthwith by the

Second Defendant (the Registrar of Titles)

upon service of this Order upon him.

2. The Plaintiff pay the sum of $9,000.00 in

respect of each of Lots 7 and 8 into the

Supreme Court of Western Australia in this

action to remain there until further order

with liberty to apply for release of the fund

to an interest-bearing account to abide an

order under paragraph 5 hereof.

3. The extraction of this Order be conditional

upon the Plaintiff paying the said sum of

$18,000.00 into Court.

4. The First Defendant do file an application

within 48 hours to amend its Statement of

Defence and Cross Claim in Federal Court

action WAG 94 of 1985 in the terms of or

substantially in accordance with the terms of

the Minute of Proposed Amendment in the

Schedule hereto.

5. Unless otherwise ordered that the sum of

$18,000.00 be paid into Court by the Plaintiff

whether held in Court or in an interest

bearing account pursuant to paragraph 2 hereof

and the interest moneys if any produced

thereby (subject to the rights of appeal) be

paid out as the Federal Court in such action

shall direct following its decisions in the

aforesaid action, or as the parties shall

otherwise agree.

6. There be general liberty to apply.

7. The costs of these proceedings abide and

follow the result of the issue in Federal

Court proceedings no. WAG 94 of 1985 as to the

First Defendant's right to repayment of the

said sum of $18,000.00."

Paragraphs 1, 2, 3, 5, 6 and 7 were replicated in later orders relating to

98. The amendment to ARBI's cross-claim directed by para.4 of the order of Franklyn J. was by way of an additional claim for relief as follows:

"...A declaration that the First Respondent is

entitled to maintain a Purchaser's lien against the

said land in respect of the sum of $54,000.00 or

Purchaser's lien in the sum of $9,000.00 each in

respect of each of the contracts of sale entered

into by it with Trayda paid to Trayda by way of

deposit pursuant to the Trayda contracts such lien

being an interest in the said land sufficient to

support caveat D277454."

That relief however, suffers from the fundamental problem that the land in

question has been sold. No lien now exists in respect of it. Counsel for ARBI contended however, that the moneys paid into Court by Kimberley in each case created a fund standing in lieu of the land. The basis of ARBI's claim to the money was not, however, developed in argument. Counsel indicated however that he would wish to address the Court on the question of the disposition of the funds in the Supreme Court in the light of the outcome of this action and I propose to afford him and the other parties that opportunity.

99. For the preceding reasons, I propose to make orders in the following terms:

100. The application be dismissed as against the first and second respondents.

101. There be judgment for the applicant against the third and fourth respondents in the sum of $422,044.00 inclusive of pre-judgment interest from 28 October 1985 to 1 September 1989.

102. It is hereby declared that on 31 July 1985 the firs respondent rescinded the contracts dated 20 June 1984 between 20 itself and Trayda Pty Ltd for the purchase of Lots 3 to 8 inclusive on the land known as Lot 105 Kirkham Hill Terrace, Maylands.

103. The sum of $24,802.01 paid into this Court on 20 November 1986 be paid out to the First Respondent.

104. There be liberty to apply within 14 days for further orders in relation to moneys paid by the applicant into the Supreme Court of Western Australia in action number 1814 of 1986.

105. There be liberty to apply within 14 days to correct any arithmetical error in this judgment and on the question of costs.