Federal Court of Australia|1990-03-01|Before: Hill J

Re Philip Nathan Argy and Jane Elizabeth Argy v Blunts and Lane Cove Real Estate Pty Limited (Trading As Blunts of Lane Cove); PM Bowen and Ors (Trading As Gadens Ridgeway) and Raymond Gordon Crooks [1990] FCA 51 (1 March 1990)

And: BLUNTS AND LANE COVE REAL ESTATE PTY LIMITED (trading as BLUNTS OF LANE

COVE); P.M. BOWEN AND ORS (trading as GADENS RIDGEWAY) and RAYMOND GORDON

Trade Practices - Rescission - doctrine of election - whether or not applicants elected to affirm contract and lost right to rescind - conduct necessary to amount to election as between two inconsistent rights of affirmation and rescission - discussion of principles.

Conveyancing - Vendor under contract for sale of land deemed under s.52A(2)(b) Conveyancing Act (NSW) to have included prescribed warranties in contract - breach by respondent vendor of statutory warranty - failure to make full disclosure of matters affecting zoning - rights of parties to contract to rescind.

Trade Practices - Measure of damages under Trade Practices Act: where right to rescind contract exists - where contract affirmed and rescission unavailable - calculation of damages where payment under contract of sale not made immediately but payable over period of time without interest - principles discussed.

Trade Practices Act 1975: ss.52, 53A(1)(b), 84(4), 82.

Fair Trading Act 1987 (NSW): ss.42, 45(1)(b), 70(4), 68.

for Applicants: R Webb instructed by Messrs

Mallesons Stephen Jaques

Counsel and Solicitors Mr N C Hutley instructed by

for First Respondent: Messrs Murray Stewart and Fogarty

Counsel and Solicitors Mr L G Foster instructed by

for Second Respondents: Messrs Ebsworth and Ebsworth

Counsel and Solicitors Mr R Anderson of Messrs Lane

for Third Respondent: and Lane

The applicants by notice in writing elect whether or not to affirm the contract, such notice to be filed on or before Thursday 8 March 1990 with a copy to be served on or before that date on the Respondents.

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

The first applicant, Philip Nathan Argy is a partner in one of the largest law firms in Sydney practising in the areas of trade practices, technology and associated litigation work. By his own admission he is not expert in conveyancing. He considers himself highly experienced in statutory interpretation of both legislation and delegated legislation. His wife, the second applicant, works it would seem part-time with disabled children, teaching them to swim.

2. The first respondent, Blunts and Lane Cove Real Estate Pty Limited ("Blunts"), a New South Wales corporation, operates a real estate agency trading as Blunts of Lane Cove. The second respondents are the partners of Gadens, another large firm of solicitors practising in Sydney with an extensive conveyancing practice. The third respondent, Mr Raymond Gordon Crooks was, prior to the events which led to the present unfortunate litigation and still is, the owner and registered proprietor of a property known as 54 Arabella Street Longueville, a property having an area of two roods and three quarters of a perch (approximately half an acre) adjoining Woodford Bay in Sydney. The property is situated in the municipality of Lane Cove. The total depth of the property at any given point varies according to the high water mark but one side is 430 feet long and the property is 50 feet wide. On one side it adjoins, what is shown on the Certificate of Title as a 20 feet lane (Notts Lane), which is however not a made up lane-way.

3. At the end of 1988 the applicants were living in premises at Willoughby in which they still reside. They first started looking to purchase an alternative home around Christmas of 1988 or the new year of 1989. They did not initially have a fixed determination to acquire a waterfront property. In the course of their searches they inspected three properties in the vicinity of Woodford Bay and the Lane Cove River. The first of the properties, 78A Arabella Street was visited by them on 11 February 1989. It appeared to be a waterfront property. Mr Argy while inspecting the premises, in the presence of agents employed by Blunts perused the contract of sale on display there because he was interested in ensuring that the property was truly a waterfront property. It became apparent to him from the deposited plan, a copy of which was annexed to the contract, that the title to the land in 78A Arabella Street did not run to the waterfront but rather that the property abutted an area of land designated as a public reserve which forms part of a wooded area stretching around the Bay as far as 54 Arabella Street and beyond. Indeed Woodford Bay is wooded for a substantial portion of the shoreline at least as to most of the western side of the Bay.

4. Having ascertained that the property, which had been advertised as a waterfront property was not as advertised, Mr Argy spoke to a Miss Murray employed by Blunts and after some checking she confirmed that there had been a mistake. Mr Argy arranged for a copy of the contract for sale of that property to be sent to him. He took it home and read it and it was subsequently thrown away. Of the other two properties which Mr Argy inspected, one was on Woodford Bay directly and the other was on the Lane Cove River.

5. Mr Argy first became aware of the property at 54 Arabella Street (hereafter referred to as "the property") as a result of seeing an advertisement published in the newspaper. The advertisement appeared on or about 11 March 1989. The sale was in the hands of Blunts as agent. Mr Argy did not keep a copy of the original advertisement. The next day he inspected the property with his wife and they were handed by an employee of Blunts a brochure giving particulars of the property. The brochure contained an attractive coloured photograph of a view of Woodford Bay, presumably taken from the upper part of the property from which could be seen a number of yachts and boats moored in the Bay and on the opposite side of the Bay a wooded area with trees with the city skyline prominently visible. The brochure, as well as containing details of the property, title references and the like, contained a heading "A Rare Opportunity" and opposite a side-heading "Property Description" said:

"WHAT MORE CAN WE SAY - AN UNDERDEVELOPED WATERFRONT

IN A PRIME LOCATION WITH UNLIMITED POTENTIAL.

FRONTING ONTO THE BEAUTIFUL SYDNEY HARBOUR WITH

GLORIOUS VIEWS OF THE BEST CITY IN THE WORLD, THIS

IS A RARE OPPORTUNITY."

Opposite the side-heading "Auctioneer's Comments" were the words:

"WATERFRONT PROPERTY IS THE BEST INVESTMENT IN

AUSTRALIA BECAUSE THEY DON'T MAKE THEM ANY MORE.

WELL WORTH CONSIDERING."

Opposite the side-heading "Zoning" were the words: "Residential 2A".

6. Mr Argy and his wife inspected the property on more than one occasion. They asked for a copy of the contract to be supplied to them and received on or about 29 March a draft contract from Blunts.

7. It is necessary now to digress to the circumstances in which that draft contract came to be prepared.

8. Mr Crooks had originally proposed the sale of the property by private treaty. On or about 22 November 1988 he had instructed Mrs Lloyd, a conveyancing clerk employed by Gadens to act for him. On 2 December 1988 he signed an agreement appointing Blunts a nonexclusive agent for the sale of the property. On 5 December 1988 Mrs Lloyd had a conversation with Mr Ansell, an employee of Blunts, during which it was agreed that Blunts would obtain a certificate under s.149 of the Environmental Planning and Assessment Act (1979) concerning the manner in which the property in question was affected by the Lane Cove Local Environment Plan 1987, as to whether or not any development control plan applied to the land and other like matters. There is a dispute between Mrs Lloyd and Mr Ansell as to what else was said. Both witnesses, I am satisfied, were seeking to tell the truth as best they could remember. Both witnesses were no doubt busy people and indeed Mrs Lloyd accepted that at any one time she might have had up to 100 conveyancing matters under her control. For both of them the question of obtaining certificates under s.149 of the Environmental Planning and Assessment Act was but a routine matter. Mrs Lloyd made a contemporaneous note of the conversation which reads as follows:

"- from Blunts will get 149 have already ordered

will fax a copy".

She said it was a short conversation and had anything more been said about the original s.149 certificate she would have noted it. On 7 December Mrs Lloyd had a further telephone conversation with Mr Ansell. Her note of that conversation reads as follows: "Has 149 will fax". Again she has no real recollection of anything else in the conversation; there could have been other things said although she believes that that would be unlikely because the note made it clear that the conversation was very brief.

9. Mr Ansell deposed that he sent a facsimile copy of the s.149 certificate to Gadens on 7 December 1988 and the original on 8 December 1988. Gadens deny ever receiving the original. It seems probable that Mr Ansell arranged for the certificate to be picked up from the council on 6 December 1988, because the certificate was dated that day and Mr Ansell's office was literally just across the road from the council building and I so find. He it was who filled out the fax sheet although it is certainly not clear who it was that actually put the document through the facsimile machine. Mr Ansell could not remember whether he told Mrs Lloyd that he would send the original s.149 certificate to her through the document exchange. The question whether Mr Ansell did in fact send the original s.149 certificate to Mrs Lloyd is a question of some difficulty. Mrs Lloyd denies ever having received it. I will return to that matter later insofar as it has a significance to the claims for contribution that arise as between Gadens and Blunts.

10. The original s.149 certificate contained a front page printed on green paper from which it appeared that the land in question was zoned as to part residential "A2" and part "Regional Open Space Reservation C". It stated that the land was not affected by any draft local environmental plan but indicated in response to a question "state whether or not any development control plan applies to the land", the answer "yes - residential zones DCP". The certificate advises the reader to see "Attachment A" for explanation of zone. Attached to the certificate are four sheets of paper. Two of those pages are printed only on one side of the paper and the remaining two pages are printed on both sides. That is to say in total there were six pages attached to the certificate. The first page, irrelevant to the present dispute dealt with State environmental planning policies. The remaining pages were photocopies from the New South Wales Government Gazette No 162. The next two pages reproduce front and back on one piece of paper pages 5833 and 5834 of the New South Wales Government Gazette No 162; the next of these pages shows no number of the page from the Government Gazette, the number being obscured in the photocopying process. In fact the page is page 5836. The next page, which is copied on both sides of the paper contains pages 5835 and 5836 from the Government Gazette. The pages from 5833 to 5836 are the relevant pages which explain the significance of residential "A2" and "Zone No 9(c) (Regional Open Space Reservation Zone)". As useful introductory material the Gazette sets out at p 5833 an explanation of "Zone objectives and development control table" which is in the following terms:

"9(1) The objectives of a zone are set out in the

Table to this clause under the heading

'Objectives of zone' appearing in the

matter relating to the zone."

There follows a heading, "Table" and detailed information concerning the zoning of residential "A1" zone, residential "A2" zone, residential "B" zone, residential "C" zone, Zone No 3(a), Zone No 3(b), Zone No 3(c), Zone No 4(a) (Industrial General Zone), Zone No 4(b) (Industrial Waterfront Zone), Zone No 4(c) (Industrial Special Zone), Zone No 5(a) (Special Uses "A" Zone), Zone No 5(b) (Special Uses - Railways Zone), Zone No 6(a) (Open Space (Recreation) Zone), Zone No 6(b) (Open Space (Bushland) Zone), Zone No 9(a) (Local Open Space Reservation Zone), ZoneNo 9(b) (Arterial Road Reservation Zone) and Zone No 9(c) (Regional Open Space Reservation Zone). In the original the material is presented in each category of zoning under the headings "1. Objectives of zone, 2. Without development consent, 3. Only with development consent, 4. Prohibited". For example, the material concerning Residential "A2" Zone is presented as follows:

"1. Objectives of zone

The objective is to retain the existing

residential amenity of detached single family

dwelling areas. New dwelling houses or

extensions of existing dwelling houses will be

permitted only where they would not be highly

visible when viewed from the Lane Cove River or

Parramatta River.

2. Without development consent

Nil.

3. Only with development consent

Bushland regeneration; bush track

construction; drainage; earthworks;

recreation areas; roads; utility

installations (other than gas holders or

generating works); works for the purpose of

bushfire hazard reduction.

4. Prohibited

Any purpose other than a purpose included in

item 3 of the matter relating to this zone."

11. The material presented under the heading "Zone No 9(c) (Regional Open Space Reservation Zone)" reads as follows, on p 5835 of the Government Gazette:

"1. Objectives of zone

The objective is to identify, preserve and plan

future development of privately owned land of

Regional Open Space significance which should

eventually be acquired by the State.

2. Without development consent

Nil.

3. Only with development consent

Bushland regeneration; bush track

construction; drainage; earthworks;

recreation areas; roads; utility

installations (other than gas holders or

generating works); works for the purpose of

bushfire hazard reduction.

4. Prohibited

Any purpose other than a purpose included in

item 3 of the matter relating (sic) to this zone."

12. On the next page, 5836 appears the following further relevant information:

"Part 3 - Special Provisions

Acquisition of land

10. (i) The owner of any land within -

(a) Zone No. 9(a);

(b) Zone No. 9(b); or

(c) Zone No. 9(c),

may, by notice in writing, require -

(d) the Council;

(e) the Commissioner for Main Roads; or

(f) the Minister administering the Act,

respectively, to acquire the land.

(2) On receipt of a notice referred to in

sub-clause (1), the public authority concerned

shall, subject to sub-clause (3), acquire the

land to which the notice relates.

(3) The Commissioner for Main Roads is not required

to acquire land the subject of a notice

referred to in sub-clause (1) unless -

(a) a development application has been made

in respect of the land;

(b) the development the subject of the

development application consists of

development for a purpose for which

development could have been carried out

on the land (whether or not with

development consent) immediately before

that land was zoned Zone No 9(b); and

(c) the council has refused its consent to

the development application only on the

basis that the Commissioner for Main

Roads has not concurred in the development.

(4) Land which is within a zone referred to in

sub-clause (1) may be developed for any

purpose, with the consent of the council, until

the land is acquired by the public authority

concerned.

(5) The council shall not grant consent as referred

to in sub-clause (4) to the development of land

to be acquired by a public authority other than

itself unless it obtains the concurrence of the

public authority which is to acquire the land.

(6) In considering whether to grant concurrence

under sub-clause (5), the public authority

which is to acquire the land shall take into

consideration -

(a) the effect of the proposed development

on the costs of acquisition;

(b) the imminence of acquisition; and

(c) the costs associated with the

reinstatement of the land for the

purposes, if any, specified in relation

to the zone relating to the land in

items 2 and 3 of the Table to Clause 9."

13. There is further material on the page which is not reproduced because it is irrelevant to the present facts.

14. The first human error that occurred in the present case arose from the Lane Cove Council photocopying as part of the annexure to the certificate two copies of page 5836, in both copies of which the page number was obscured.

15. As will have been anticipated by those familiar with the operation of facsimile transmission, errors human or electronic are likely to occur. In the present case the second error, again human, arose when Blunts sent by facsimile transmission to Gadens, a copy of the s.149 certificate. Six pages were transmitted and received together with an introductory page. As is common with transmissions sent in this way the machine numbers each page at the top indicating the name of the owner of the facsimile machine. Thus the introductory page indicates that seven pages in total were transmitted including the introductory page numbered 1 and the remaining pages 2 to 7 inclusive. What was transmitted was the front page of the certificate, the page concerning State policies and pages 5833, 5834 and two copies of page 5836. The numbering on page 5836 was, as I have already indicated, wholly obscured. The material on page 5835 was not transmitted.

16. Upon receipt of the facsimile copy of the certificate Mrs Lloyd arranged for it to be photocopied, obviously did not remark upon the fact that the certificate was incomplete and attached it to a contract which she had prepared for the purposes of the private sale.

17. Subsequently Mrs Lloyd was instructed to prepare a contract for the sale of the property by auction rather than by private treaty. The copy of the contract so prepared contained, because it was for use by auction, no description of the purchasers. Instead in the space where the name of the purchaser would ordinarily appear were the words:

"The within Contract is subject to amendment by the

Vendor at any time prior to the auction. You should

accordingly, immediately prior to the auction, check

closely the form of Contract held by the Auctioneer."

18. The name of Mrs Lloyd appeared as the reference applicable to the solicitors for the vendor. Mr Crooks had appointed Blunts, the agent for the sale of the property by auction and the name of that company appears on the contract under the heading "Vendor's Agent". Gadens appears as the name of the vendor's solicitor under that heading. The contract is in the usual form and contains in the printed form the following clause 12:

"Rescission for Non-Disclosure

(a) The Purchaser acknowledges that before this

agreement was signed by or on behalf of the

Purchaser, the Vendor attached to it pursuant

to s.52A(2)(a) of the Conveyancing Act, 1919

the documents or copies of the documents

referred to in the Fourth Schedule.

(b) Pursuant to s.52A(2)(b) of the Conveyancing

Act, 1919, and the Conveyancing (Vendor

Disclosure and Warranty) Regulation 1986, the

Vendor warrants that except as specifically

disclosed in or pursuant to the Fifth Schedule,

or otherwise in this agreement, the land is not

affected at the date of making of this

agreement by any of the following matters:

(i) any matter prescribed by Schedule 2 of

the Environmental Planning and

Assessment Regulation 1980 except, if

the land is residential property within

the meaning of Division 8 of Part IV of

the Conveyancing Act 1919, any matter

relating to a State environmental

planning policy, a regional

environmental plan, a draft State

environmental planning policy or a draft

regional environmental plan applying to

the land.

. . .

(c) The Purchaser shall not be entitled to any

claim or remedy against the vendor for breach

of any warranty set out in clause 12(b) except

the right of rescission as provided in the

Conveyancing (Vendor Disclosure and Warranty)

Regulation 1986.

(d) (i) If the Vendor is in breach of any

warranty set out in clause 12(b), the

Vendor may, prior to completion, serve

on the Purchaser a notice in writing

specifying the substance of the Vendor's

breach and requesting the Purchaser to

give notice to the Vendor in writing

within 21 days of such service that the

Purchaser proposes to complete this

agreement notwithstanding such breach.

(ii) If the Purchaser does not serve such a

notice on the Vendor within such 21

days, the Vendor shall thereafter be

entitled at any time prior to the

service of such notice (whenever served)

to rescind this agreement by notice in

writing served on the Purchaser.

(iii) If the Purchaser does serve such a

notice on the Vendor prior to rescission

by the Vendor under clause 12(d)(ii),

the Vendor shall not thereafter be

entitled to rescind this agreement in

consequence of such specified breach."

19. To comply with the obligation referred to in clause 12(a) which arises out of s.52A(2)(a) of the Conveyancing Act 1919, the substance of which is set out later later in this judgment, the contract annexed what purported to be a certificate under s.149 given by the Lane Cove Municipal Council. What was inserted in the contract however was a further photocopy of the erroneous facsimile copy that had been forwarded originally by Blunts. In other words there were two copies of page 5836 and no copy of page 5835. The facsimile imprint bearing the name Blunts Lane Cove and numbered in sequence from 2 to 7 appears clearly at the top of the document. Also included in the contract was a photocopy of the Certificate of Title which shows the title running right down to Woodford Bay, a photocopy of deposited plan 3957 which refers to a number of blocks fronting Arabella Street and running to Woodford Bay and on the Woodford Bay side appears in heavy print the word "reservation". At the time Mr Argy circled the word "reservation" and wrote the word "check". On another page where the word "reservation" appeared it is also circled and the word "wrong" written by Mr Argy. After the certificate appeared a photocopy of a plan designed to show where the 9(c) Reservation extended. That plan, which is far from precise shows a line running through the block and other adjoining blocks in what is intended to be a 30 metre irregular line roughly following the contours of Woodford Bay.

20. The vendor had a lease from the Maritime Services Board of an area extending from the boundary of the land beyond the high water mark, a copy of which is annexed to the contract. However, nothing turns upon this.

21. The contract in the form which I have described was inspected by Mr Argy on 26 March 1989 when he visited the property. At his request a copy of it was forwarded to him by Blunts and received on or about 29 March 1989.

22. The auction took place on 1 April 1989. It was advertised in the newspaper of that day under a banner containing the logo of Blunts in the following form:

"Longueville Auction

AUCTION TODAY

WATERFRONT AUCTION

UNDERDEVELOPED W/FRONT

We proudly offer this fantastic property. A four

bedroom brick home, set on 2,150 sq m of beautiful

bushland and water frontage. There are superb views

of the City, North Sydney, the Harbour Bridge and of

course the water. The waterfrontage comprises an

MSB lease and a boatshed. This property craves

development - a court, a pool or an imaginative

home. Please come and see it today prior to

auction. Open prior to auction 3.30 -

54 ARABELLA STREET

Auction on site today 4 pm

Enq. Malcolm or Andrew."

There followed the name of Blunts, its address and telephone numbers.

23. By the time of the auction, Mr and Mrs Argy had decided to bid for the property. They were of the view that it was an ideal property because of its waterfront location, with boat shed and jetty. They were attracted by the enormous potential which the property had for improvement and development. The house on the property was in need of extensive modernisation and they envisaged ultimately building a new house.

24. They said, that they wished in the medium term to add to the property a pool and tennis court and had an immediate plan to install an inclinator from the house to the boatshed, having regard to the steepness of the block, which made access to the boatshed difficult, particularly when items were carried to it. The boatshed is apparently some four hundred feet from the kitchen of the house.

25. Mr Argy said, that he read carefully the form of contract which had been sent to him and paid particular attention to those parts dealing with planning and development restrictions. I shall return to that matter later. He said and I accept that his knowledge of conveyancing and planning law was confined to what he had learned at the law school in the mid 1970's and what he had happened to come across subsequently. He said, and I accept his evidence, that he did not know the effect of land being zoned "Reservation 9(c)" and did not know what was signified by the description "Regional Open Space Reservation C", other than from what he gleaned from the s. 149 Certificate in its incomplete form, attached to the contract.

26. Prior to the auction, Mr Argy had a conversation with Mr Crooks during which he discussed the building of a swimming pool and the siting of it in the upper part of the property. He conceded that he had not reached a determined view as to where the swimming pool or tennis court would be situated. As I have already indicated, the property is very steep, but it is naturally terraced to four or five levels.

27. On another occasion on which Mr Argy visited the property with his wife, he had a conversation with Mr Horne, an employee of Blunts at which Mr Horne asked Mr Argy what he had in mind if he were to buy the property, particularly whether he would be subdividing or renovating. Mr Argy replied:

"We won't be able to do anything for a while because

it will cost us everything that we have got. We'll

have to live in it as it is, but eventually I'll

knock it down and build a new place. I'll probably

put in a tennis court and still have plenty of room left."

28. While Mr Horne was well aware of the effect of the Reservation 9(c) zoning in respect of the one hundred foot strip at the waterfront and had discussed it with other proposed purchasers of the property, he unfortunately did not do so in conversations with Mr and Mrs Argy.

29. Mr and Mrs Argy attended the auction on 1 April 1989. Prior to the auction, he perused the copy of the contract, which was available for inspection at the site and noted that it appeared to be the same as the draft copy forwarded to him. He had at that time a discussion with Mr Crooks, in which it was agreed that in the event that he was the highest bidder, the balance of purchase price in excess of one million dollars would be on a deferred payment basis at 12 per cent interest.

30. Mr Argy made the highest bid for the property at the auction, but the property failed to make the reserve. That bid was $2,501,000. Negotiations then took place after the auction had been completed. Mr and Mrs Argy were in the living room, Mr. Crooks and some of his family were in the lounge room and the underbidder, Mr Tomasetti waited in the kitchen while three employees of Blunts, Messrs Horne, Ansell and Wood, moved between Mr and Mrs Argy on the one hand and Mr and Mrs Crooks on the other, and also, presumably spoke to Mr Tomasetti from time to time, with offers and counter-offers in relation to the purchase price of the property and related terms.

31. There is a conflict in the evidence between Mr and Mrs Argy, on the one hand and various employees of Blunts on the other as to what happened in this period. No doubt, the events of the afternoon were somewhat confusing. Mr and Mrs Argy are adamant that Mr Argy compared the draft copy of contract which he had in his possession with the copy of the contract that became the purchaser's counterpart, as signed by him and his wife, page by page and observed that they were identical. The purchaser's counterpart copy contained yet another photocopy of the fax with its missing page 5835 and its duplicated page 5836. Each of the employees of Blunts gave evidence that they observed Mr Argy comparing the vendor's original copy of the contract with the purchaser's copy of the contract. At this point it has to be mentioned that the copy of the contract ultimately signed by the vendor contained the original s. 149 Certificate, that is to say, it contained the missing page 5835.

32. There was considerable time spent at the trial in cross-examination of the employees of Blunts. The effect of the cross-examination was to make it clear that none of the witnesses were present all of the time with Mr and Mrs Argy. Indeed that is self evident. From the cross-examination it also appeared that the checking which Mr Argy was said to have undertaken between the purchasers' copy and the vendor's copy of the contract was somewhat perfunctory and involved merely a "flick through" of the pages. Such a cursory glance of the two copies would have been unlikely to have revealed that there was a difference between the vendor's and the purchaser's copies. While Mr and Mrs Argy were adamant that they did not compare the vendor's and the purchasers' counterparts of the contract, I think that it is more probable than not that Mr Argy did perfunctorily "flick through" the vendor's and purchasers' copies and I so find.

33. However, I also find that Mr Argy carefully checked the purchasers' copy of the contract which he ultimately signed, with the draft which he had received and I accept his evidence of so doing.

34. Ultimately, the negotiations produced agreement. The agreement was for a purchase price of $3,012,000, with a deposit of $300,000 to be placed on deposit with a building society by the agent, with interest to be paid to the vendor, except in the event of rescission or termination, when interest was to belong to the party entitled to the deposit. Completion was to take place six months from the date of the agreement, i.e. 1 October 1989 and on completion deferred terms were given, which were set out in the contract in a handwritten page, which was written out for each copy of the contract by employees of Blunts and which read as follows:

"Completion shall take place within 26 weeks of the

date of this agreement. On completion the balance

of $1,250,000 (One million, two hundred and fifty

thousand dollars) to be paid, this amount being

$950,000 (Nine hundred and fifty thousand dollars)

and on the first anniversary $1,000,000 (One million

dollars) to be paid to the vendor and on the second

anniversary of completion $300,000 (Three hundred

thousand dollars) to be paid to the vendor and on

the third anniversary of completion $350,000 (Three

hundred and fifty thousand dollars) to be paid to

the vendor, and on the fourth anniversary of

completion $112,000 (One hundred and twelve thousand

dollars) to be paid to the vendor.

Notwithstanding all outstanding monies on this

agreement are to be secured by a registered first

mortgage by the vendor, and no interest shall be

payable on these outstanding monies, prior to the

fourth anniversary of completion of this agreement."

35. As can be seen the drafting of the terms of payment was far from elegant, but the effect of these terms was that the balance not payable on completion was payable over four years interest free, with interest becoming thereafter payable if the terms were not complied with.

37. On 4 April 1989, Mr Argy received the original contract signed by the vendor. It is not quite clear when it was that Mr Argy realised the significance of the missing page 5835. On 16 May 1989 the firm of which Mr Argy is a partner wrote to Gadens requesting a copy of the s.149 certificate attached to the counterpart signed by Mr Argy. One can presume that by this time Mr Argy was aware of the problem. Two days later, that copy was forwarded to Mr Argy by Gadens. By 11 July 1989, the applicants' solicitors had written to Gadens a letter in the following terms:

"It is difficult for our clients to assess the

impact of this zoning on their future development

plans at this stage and indeed the practical affect

(sic) of the restriction may not be known until our

clients lodge a development application. The

Council's attitude to the zoning may prevent the

installation of an inclinator device from the house

to the boatshed; the inclinator may have to stop at

the boundary between the 2(a) and 9(c) zones. Also

it may seriously limit the waterfront facilities

that our client had proposed to install, which would

probably extend beyond high water mark onto part of

the land affected by the 9C zoning.

It seems clear that our clients are legally entitled

to rescind the agreement for sale by reason of the

non disclosure of the restrictions noted on the

omitted page. However, our clients are still most

anxious to acquire the property and have instructed

us to enquire whether your client would accept an

arrangement whereby the amount of compensation

attributable to the undisclosed restriction was

agreed at $400,000 but its deduction from the

purchase price not be effected unless a development

application for the abovementioned inclinator,

waterfront facilities and/or subdivision lodged by

our client is rejected . . ."

38. Notwithstanding this letter, Mr Argy on 23 August 1989 made application to Chase AMP Bank Limited for a loan to cover the funds needed under the deferred purchase. He asserted in his application that the property was worth $3,000,000 and pursued that application through to obtaining the consent of Chase AMP Bank Limited to provide finance. On 15 September 1989, he commenced proceedings in this Court against the respondents.

39. By their application, the applicants sought the following relief:

* Orders pursuant to s.87(1A) of the Trade Practices Act

1974 ("the Trade Practices Act") and/or s.72(2) of the

Fair Trading Act 1987 (NSW) ("the Fair Trading Act")

that the contracts between the applicants and the third

respondent be varied by reducing the purchase price to

an amount appropriate to compensate the applicants for

loss or damage alleged to have been suffered by them or

likely to be suffered by them.

* Alternatively an order pursuant to s.87(1A) of the

Trade Practices Act and/or s.72(2) of the Fair Trading

Act declaring the contract to be void ab initio or from

such date as the Court may determine.

* Alternatively a declaration that the applicants were

entitled to rescind the contract.

* For consequential relief being refund of the deposit

and interest, interest lost on the stamp duty paid by

the applicants on the contract and application fee paid

to Chase AMP Bank Limited for finance.

* Damages pursuant to s.82 and s.87 of the Trade

Practices Act and/or s.68 and s.72 of the Fair Trading

Act and/or damages at common law.

* A declaration that the registered first mortgage

referred to in Annexure "A" to the first schedule to

the contract be in the form of Mortgage Form RP25 as

issued by the New South Wales Registrar General's Office.

40. By the final version of their statement of claim the applicants alleged against Blunts that they had engaged in misleading and deceptive conduct or conduct likely to mislead or deceive pursuant to s.52 of the Trade Practices Act and alternatively had contravened s.53A(1)(b) of the Trade Practices Act and s.42 and s.45(1)(b) of the Fair Trading Act. The conduct relied upon to establish the applicants' claim was said to be:

* Representations by Blunts to the applicants that -

(i) the property was zoned Residential 2A;

(ii) the property was "an undeveloped waterfront in a

prime location with unlimited potential"; and

(iii) the property was capable of being put to uses

which included the addition of a swimming pool

and a tennis court. Further that Blunts had

represented to the applicants through the

contract that that part of the property which

was zoned 9C was capable of being developed "for

any purpose, with the consent of the Council

until the land is acquired by the public

authority concerned".

* By virtue of the contract being made available to the

purchasers, representations by Blunts and Gadens -

(a) that the property was only affected by

environmental planning and assessment

regulations and instruments in the manner set

out in the s.149 certificate attached to the

contract; and

(b) that the only restrictions upon the development

of the land included within the property zoned

9C were those restrictions appearing on the face

of the s.149 certificate as included in the contract.

41. It was alleged in respect of each of these representations that they were false and that the applicants had relied upon them and had suffered loss or damage in the result.

42. An alternative claim based on the same facts alleged that Blunts owed a duty of care to the applicants which it had breached by failing to ensure that the copy of the s.149 certificate furnished by it for inclusion in the contract included the missing page 5835, by failing to ensure that the copy of the draft contract originally supplied to the applicants included that page and by failing to ensure that the counterpart copy of the contract delivered to the applicant for signature included that page.

43. The claim against Gadens alleged in respect of the same facts breaches of the Trade Practices Act and the Fair Trading Act, that Gadens owed to the applicants a duty of care which had been breached and in consequence of reliance upon the misrepresentations, damages and other relief as specified in the application.

44. It was alleged against Mr Crooks that he had made representations per medium of the contract:-

(a) That the property was only affected by

environmental planning and assessment

regulations and instruments in the manner set

out in the s.149 certificate.

(b) That the only restrictions upon the development

of the land included within the property zoned

9C were those restrictions appearing on the face

of the s.149 certificate as included in the

contract and that this constituted a

contravention of s.42 and s.45(1)(b) of the Fair

Trading Act. Alternatively it was alleged that

by virtue of s.84(iv) of the Trade Practices Act

and s.70(iv) of the Fair Trading Act, Mr Crooks

was vicariously liable for the acts of Blunts

and Gadens and thereby responsible for the loss

and damage alleged to have been suffered by the

applicants.

45. Reliance was also placed on clause 12(b) of the contract as giving the applicants a contractual right to rescind the contract pursuant to that clause in the circumstances of the case.

46. Section 52 of the Trade Practices Act and s.42 of the Fair Trading Act are in terms identical, save that the Trade Practices Act is concerned with conduct engaged in by a corporation as defined in that Act whereas the Fair Trading Act extends to persons who are not corporations. Under each section it is necessary for conduct to be proscribed, that it be engaged in "in trade or commerce" and that the conduct in question be misleading or deceptive or capable of misleading or deceiving someone. Section 53A(1)(b) of the Trade Practices Act and s.45(1)(b) of the Fair Trading Act are also in identical terms save that the former relates to corporations and the latter to persons. Section 53A(1)(b) provides:

"A corporation shall not, in trade or commerce, in

connection with the sale or grant, or the possible

sale or grant, of an interest in land or in

connection with the promotion by any means of the

sale or grant of an interest in land -

(a) . . .

(b) make a false or misleading representation

concerning the nature of the interest in the

land, the price payable for the land, the

location of the land, the characteristics of

the land, the use to which the land is

capable of being put or may lawfully be put

or the existence or availability of

facilities associated with the land;"

47. It is necessary under both the Trade Practices Act and the Fair Trading Act that the conduct complained of, under whichever section be "in trade or commerce".

48. The expression "in trade or commerce" is not defined, save that in the Trade Practices Act it means "trade or commerce within Australia or between Australia and places outside Australia". There is little doubt that the words must be given a broad meaning. Thus in Re Ku-Ring-Gai Co-operative Building Society (No 12) Ltd [1978] FCA 50; (1978) 36 FLR 134 Bowen C.J. in discussing the activities of a co-operative building society in supplying loans upon the condition that its members insure with a specified insurer said at 139:

"The terms 'trade' and 'commerce' are ordinary terms

which describe all the mutual communings, the

negotiations verbal and by correspondence, the

bargain, the transport and the delivery which

comprise commercial arrangements (W and A McArthur Ltd

v. State of Queensland [1920] HCA 77; (1920) 28 CLR 530, at

p 547). The word 'trade' is used with its accepted

English meaning: traffic by way of sale of exchange

or commercial dealing (Commissioners of Taxation v.

Kirk (1900) AC 588 at p 592 per Lord Davey; W and A

McArthur Ltd v. State of Queensland (1920) 28 CLR

530). The commercial character of trade was

mentioned more recently by Lord Reid in Ransom v.

Higgs (1974) UKHL 5; (1974) 1 WLR 1594. His Lordship there said:

'As an ordinary word in the English language 'trade'

has or has had a variety of meanings or shades of

meaning. Leaving aside obsolete or rare usage it is

sometimes used to denote any mercantile operation

but is commonly used to denote operations of a

commercial character by which the trader provides to

customers for reward some kind of goods or

services.' ((1974) 1 WLR at p 1600) Moreover, the

word covers intangibles, such as banking

transactions, as well as the movement of goods and

persons, for historically its use has been founded

upon the elements of use, regularity and course of

conduct (Bank of New South Wales v. Commonwealth

[1948] HCA 7; (1948) 76 CLR 1 at p 381)."

49. In the same case Deane J., with whose reasons in this context, it would seem, Brennan J. agreed, said at 167:

"The terms 'trade' and 'commerce' are not terms of

art. They are expressions of fact and terms of

common knowledge. While the particular instances

that may fall within them will depend upon the

varying phrases of development of trade, commerce

and commercial communication, the terms are clearly

of the widest import . . . They are not restricted to

dealings or communications which can properly be

described as being at arm's length in the sense that

they are within open markets or between strangers or

have a dominant objective of profit-making. They

are apt to include commercial or business dealings

in finance between a company and its members which

are not within the mainstream or ordinary commercial

activities and which, while being commercial in

character, are marked by a degree of altruism which

is not compatible with a dominant objective of

profit-making."

50. It is conceded on behalf of Blunts and Gadens that each of those respondents was in the relevant circumstances of the present case engaging in trade or commerce in what each did. Mr Crooks, however, is in quite a different position.

51. Mr Crooks relies upon the decision of the Full Court of this Court in O'Brien v. Smolonogov (1983) 53 ALR 107. The appellants in that case sold vacant land on which they proposed to build and sell off the remaining part. They sold a particular portion of the land by private treaty. In the course of the sale they made certain representations which were found to have been false or misleading. Public advertisements were inserted in the newspapers inviting the conduct of negotiations over the telephone. It was held that the conduct in question was not conduct in trade or commerce. After setting out a number of United States authorities the Full Court (Fox, Sheppard and Beaumont JJ.) pointed out that on the facts of O'Brien v. Smolonogov the land had not become trading stock nor was there more than the mere realisation of an asset by land development such as occurred in Federal Commissioner of Taxation v. Whitfords Beach Pty Ltd [1982] HCA 8; (1982) 39 ALR 521. The land was not used for any business activity. Their Honours then continued:

"It follows in our opinion, that the only possible

feature of the case which could conceivably be

relied upon to suggest that the impugned conduct

occurred in trade or commerce was the resort by the

appellants to a newspaper as a medium of public

advertisement for land and the use made by the

parties of the telephone for the purpose of

conducting negotiations. . . . But, in our view, the

mere use, by a person not acting in the course of

carrying on a business, of facilities commonly

employed in commercial transactions, cannot

transform a dealing which lacks any business

character into something done in trade or commerce.

. . . The conduct complained of was not something done

by the appellants in the course of carrying on a

business and it lacked trading or commercial

character as a transaction. It does fall outside

the scope of s.53A."

52. The United States cases to which the Full Court referred make it clear that for the purposes of statutes which proscribe "unfair or deceptive acts or practices in the conduct of any trade or commerce", those statutes have no operation where the transaction "is strictly private and is no way undertaken in the ordinary course of a trade or business": Lantner v. Carson 373 NE 2d 973 (1978) at 975. The relevant acts or practices have to have been "perpetrated in a business context" at p 87. In Rosenthal v. Dorothy Perkins 42 NC AP 449 (1979), a case to which the Full Court also referred, the defendants had sold their home, again by private treaty but through a real estate agent. The question arose whether the defendants were engaged in "unfair or deceptive acts or practices in the conduct of any trade or commerce". The Court said:

"The defendants Goldberg were not engaged in trade

or commerce. They did not by the sale of their

residence on this one occasion become realtors. It

is clear from the cases involving violation of the

Unfair Trade Practices Act that the alleged

violators must be engaged in a business, a

commercial or industrial establishment or enterprise."

By contrast the agent in that case, who was in the business of buying and selling real estate, was engaged in trade or commerce.

53. The applicants seek to distinguish the facts of O'Brien v. Smolonogov. It is argued that the sale here occurred by auction, that there was an expenditure of some $6,000 in advertising, and that the public were openly invited by advertisement and brochure to inspect the property. It is said, that the engaging of an estate agent who clearly takes businesslike steps in the course of his own business on behalf of an owner of land subjects the property to a business operation so that the agent's principal carries on acts in trade or commerce. It was further submitted that s.53A(1)(b) would be virtually otiose if it did not cover a sale through agents in auction or by private treaty of land. Finally, reference was made to s.84(4) of the Trade Practices Act and the corresponding s.70(4) of the Fair Trading Act in support of the applicants' submissions. Each of those sections is materially identical. Section 84(4) of the Trade Practices Act provides:

"Conduct engaged in on behalf of a person other than

a body corporate -

(a) by a servant or agent of the person within

the scope of the actual or apparent authority

of the servant or agent; . . .

shall be deemed, for the purposes of this Act, to

have been engaged in also by the first mentioned

person."

54. Putting to one side s.84(4) I am unable to accept that the present facts are relevantly distinguishable from those in O'Brien. The question to be determined is whether the owner of a house by selling it does so in trade or commerce. It could scarcely be said that a person who sells his home, whether by private treaty or by auction and whether he conducts the negotiations personally or through a real estate agent, is undertaking what he does in the course of a trade or business or in a business context. The conclusion in O'Brien v. Smolonogov was reached because the land there had never been used at all for the purposes of any business. It was not a case where land held as a capital asset was thereafter subdivided and sold as in Whitfords Beach so that the circumstances of sale arose in a business context.

55. The present is purely a case of a person selling his house and, accepting that O'Brien v. Smolonogov is correct, it necessarily follows that whether or not an estate agent is used, and whether or not that agent advertises the property by preparing brochures or other advertisements and whether or not the agent sells by auction or merely negotiates a private treaty, the sale still remains a sale by the vendor of his house and not an act done in a business context.

56. Reference was made to Lubidineuse v. Bevanere Pty Ltd [1984] FCA 252; (1984) 3 FCR 1 where Wilcox J. held that a sale of a business used and intended to be used for commercial gain was a transaction in trade and commerce notwithstanding that the business represented a capital asset. In so holding, his Honour followed O'Brien v. Smolonogov. Counsel for the applicant pointed to some language used by Wilcox J. as supporting the view that the vendor was acting in trade or commerce in selling his house through an agent. What his Honour however said has to be read in the context of the judgment. After quoting extensively from the Full Court's judgment in O'Brien v. Smolonogov his Honour at p 12 in a paragraph with which, with respect I would agree, said:

"As the quoted passage demonstrates, the American

cases have drawn a distinction between the sale of a

non business asset, such as a home, and the sale of

a business asset. The American test does not

require repetitive activity; an isolated

transaction, such as the sale of a capital item used

for business activities, may meet the test of taking

place in a 'business context' so as to attract

liability. In determining whether, in a particular

case, that test is met it is relevant to consider

inter alia the character of the parties involved -

which I assume to include whether they are people

who have engaged, or are about to engage, in

commercial activities - whether the transaction is

motivated by business, as distinct from personal,

reasons and whether the person whose conduct is

under attack played an active part in the transaction."

57. After reaching the view that on the facts of the case before him the transaction was one "in trade and commerce" his Honour continued at p 13:

"I apply the distinction made in O'Brien's case

gladly, because the opposite conclusion appears to

lead to undesirable results in at least three

respects. First, it would introduce into this area

of the law some of the difficulties already found in

taxation law in determining whether a sale is by way

of disposal of a capital asset as distinct from the

carrying on of a business: cf. Commissioner of

Taxation v. Whitfords Beach Pty Ltd (1982) 56 ALJR

240. . . . Secondly, on the respondents concession -

properly made I think - there would be conduct 'in

trade or commerce' if this conduct was part of the

regular business of the corporation, even if it was

associated with the disposal of a capital asset. So

a real estate agent may be guilty of misleading

conduct 'in trade or commerce', leading to the

possibility of vicarious liability being visited

upon a principal for actions which, if done by

itself, it could not be made liable. Finally, if

recurrent behaviour will attract the label 'in trade

or commerce', the result is that given conduct by a

corporation in its second or later experience of

disposing of a major capital asset will be

actionable by a damaged purchaser yet that same

conduct would not be actionable in the first ever

disposal, and this whether or not an individual

associated with the corporation has had prior

experience of such disposals or has been concerned

in such conduct."

58. The passage seized upon is that which relates to the possibility of vicarious liability being visited upon a principal. It seems to me that in the passage in question his Honour was setting out three results which would flow if, but only if, the proper test was not one which went to the nature of the asset itself but went to the question of whether the particular activity of sale, in that case the sale of a clinic, itself occurred "in trade or commerce". That had been the test offered by the unsuccessful applicant. His Honour foresaw as a quite undesirable consequence of the argument being accepted that an estate agent selling a home in the course of his business would visit, if the argument were accepted, vicarious liability upon his principal. I do not see in the passage quoted that his Honour intended to suggest that the mere use of an estate agent brought about the result that the sale of a capital asset by a householder was a transaction that occurred in trade or commerce.

59. Nor in my mind does s.84(4) of the Trade Practices Act assist the applicants' case against Mr Crooks. The consequence of the application of s.84(4), as a perusal of its terms makes clear, is to impute the acts of the agent, provided that the agent is acting within the scope of actual or apparent authority, to the principal. It does not impute the business of the agent to the principal. In the present context it would require me to assume that Mr Crooks had himself arranged for the printing of brochures, the advertising in the newspaper and had himself held an auction. But none of those facts, if done by Mr Crooks, would bring about the result that he was engaged in conduct in trade and commerce when all he was doing was selling his home.

60. Accordingly I am of the view that the claims under both the Trade Practices Act and under the Fair Trading Act, so far as they are directed against Mr Crooks are not tenable.

61. The applicants point to the brochure, the advertisement, the draft contract (or the purchasers' counterpart of the contract) alone or in combination as constituting misleading or deceptive conduct of either or both of Gadens and Blunts.

62. There is no doubt that the brochure, which was the sole work of Blunts, was misleading. While the words "unlimited potential" might be seen as involving a mere "puff" on the part of a real estate salesman and would be unlikely to deceive or mislead anyone if used on their own, these words when coupled with the representation that the property was zoned Residential A2 leave the reader with the clear impression that subject to normal council requirements and those implicit in Residential A2 zoning, a purchaser could develop the land in such manner as he should desire and that such development could, subject to the same constraints, take place anywhere on the land, including that part of the land 100 feet from the high watermark.

63. The advertisement on the day of the auction, again the work of Blunts, while not repeating the zoning description reinforced the misleading effect of the brochure.

64. The draft contract and the identical copy used as the purchasers' counterpart stand in a different position. They did disclose that in addition to the property being zoned Residential A2, that part of it being 100 feet from the water was zoned "Regional Open Space Reservation C". They also disclosed that a residential zones development control plan, the effect of which is discussed later, applied to the land. From the time the applicants received the draft contract, therefore, they were clearly aware, or should have been aware, that the property was not just zoned Residential A2.

65. It is clear law that in a case such as the present, conduct cannot be misleading or deceptive or likely to mislead or deceive unless it conveys a misrepresentation: Taco Company of Australia Inc v. Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 at 202; see also Global Sportsman Pty Ltd v. Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82 at 88. No doubt it is correct to say that the material contained in the certificate under s.149 as annexed to the contract is to be seen as a representation by the vendor to the purchaser that the zoning of the property in question is as set out in that certificate. But where proceedings are brought, as here, against the solicitor who prepared the contract or the agent who disseminated it, it is less clear that the solicitor or agent as the case may be are to be taken as making the same representation by virtue of the mere annexation of the s.149 certificate to the contract. It was argued by the applicants however that the effect of the contract was that it amounted to a representation by both Gadens and Blunts that that part of the property zoned "Regional Open Space Reservation C" was capable of being developed for any purpose with the consent of the council until the land was acquired by the public authority concerned. Even if it be assumed that it is possible, rationally, to construe the incomplete s.149 certificate in the way suggested, I have difficulty with the submission that the inclusion of a s.149 certificate in a contract constitutes or can be open to the construction that it constitutes a representation by the person who prepares the contract that the zoning is in accordance with the terms of the certificate. Rather, in my opinion, it merely constitutes a representation by that person that the certificate annexed is the certificate of the relevant statutory authority.

66. Let it be supposed that a contract of sale discloses a zoning as set out in a complete s.149 certificate provided by a local council but the zoning is, through no fault at all of the person who prepares the contract, wrongly described in the certificate. It would be an affront to common sense for a purchaser to say, that the person preparing the contract had represented by the inclusion of the s.149 certificate in the contract that the zoning was as stated in that certificate and had thereby engaged in conduct that was misleading or deceptive or capable of being misleading or deceptive giving rise to a right in damages under the Fair Trading Act or the Trade Practices Act as the case may be, against the person responsible for preparing the contract. Such an example merely reinforces the view that the only representation that can be attributed to the person preparing the contract is that the certificate is a certificate issued by the local council.

67. I am however of the view that the annexation of a certificate to a contract by the person preparing it can be seen to be a representation by that person not only that the certificate is the certificate issued by the council but that it is the whole of that certificate so that where, as here, the certificate is incomplete in that it omits to contain a full description of the significance of the Regional Open Space Reservation, there is a misrepresentation made by the person preparing the contract carrying with it the capacity to deceive.

68. The applicants' case against Blunts, so far as it depends upon the contract to constitute misleading and deceptive conduct, is even more difficult. It is hard to see why a contract prepared by a solicitor constitutes a representation by an estate agent going to matters contained in the contract because the name of the agent is shown in the contract or because the agent distributes the contract or a draft of it to prospective purchasers. In making the contract available to prospective purchasers the agent can be taken, at least in the ordinary case, to have represented that the contract so distributed by him is as prepared by the solicitor whose name appears in the contract but not that each matter disclosed in the contract is correct. But if such a representation be taken to have been made by Blunts in the present case, it was clearly a correct representation and did not constitute misleading or deceptive conduct. The fact that the photocopy of the facsimile 149 certificate contains the name of Blunts does not in my view alter the situation. In my view the fact that the name of Blunts appears on the facsimile copy of the s.149 certificate cannot properly be taken to be a representation that the property described in the certificate (whether the certificate is complete or not) was zoned in accordance with what appears on the face of the certificate.

69. It can be said that Blunts, by transmitting the certificate in the first place by a facsimile to Gadens, represented to Gadens (falsely as it turned out) that the facsimile copy was a complete copy of the certificate furnished by the council but that is not a misrepresentation of which the applicants complain.

70. It follows in my view that Blunts were engaged in misleading and deceptive conduct only by virtue of the combined effect of the brochure and the advertisement and that Gadens were similarly engaged in misleading and deceptive conduct but only in the sense that the contract prepared by Gadens can be seen to be a statement or representation made by them as the persons responsible for the preparation of the contract that the s.149 certificate annexed thereto was, so far as relevant to the land the subject of it, a copy of the complete certificate as issued by the council.

WERE THE APPLICANTS INDUCED BY THE MISLEADING CONDUCT TO ENTER THE CONTRACT?

71. Mrs Argy conceded that she relied upon her husband as to the interpretation of the s.149 certificate so that it seems appropriate to consider the question whether Mr Argy was induced, by some or all of the conduct found to be misleading or deceptive, to enter the contract. The answer to that question will resolve the issue in respect of both applicants. No party sought to argue that a different result should follow as between Mr and Mrs Argy.

72. It was Mr Argy's case that he approached the question of the effect of the incomplete s.149 certificate against the background of the brochure and the advertisement and his conversations with the agent and the vendor in which no mention was made of the Reservation 9(c) zoning. By the time he received the draft contract it was clear to him that a part of the property was not zoned Residential A2. For Blunts it was argued that the effect of the misleading conduct constituted by the combined effect of the brochure and the advertisement was dissipated by the receipt by Mr Argy of the draft contract notwithstanding the difficulty of interpretation said to have been occasioned by the incomplete s.149 certificate. For both Blunts and Gadens it was submitted that the certificate was manifestly incomplete, that the Court should find that Mr Argy, contrary to his evidence, did not undertake an analysis of the s.149 certificate at least in any detail and that no reasonable person, let alone a man with Mr Argy's legal qualifications and experience, could, upon perusing the certificate, conclude that the Reservation 9(c) zoning permitted the owner to develop the land with the consent of the council for any purpose at all until, at the request of the owner, the land was acquired by some public authority.

73. In short, it was submitted that I should either not accept Mr Argy's evidence that he carefully read the s.149 certificate or that he drew the conclusion that Reservation 9(c) was if anything more favourable than Residential A2 zoning, or that I should find that he was incompetent in reaching the conclusion as to zoning that he said he did.

74. I had the advantage of observing Mr Argy in the witness box over a quite extended period of cross-examination. I formed the view that he was a most competent legal practitioner; he is clearly very astute and was able to perceive where a particular line of questioning was proceeding well before that was made explicit. While legal competency may not necessarily be a matter easily tested in the witness box, I would be slow indeed to conclude that he lacked the legal competency to come to a conclusion as to the meaning of the certificate attached to the contract, notwithstanding his self-confessed lack of familiarity with conveyancing.

75. I have read and reread the incomplete certificate and find it inconceivable that a man of Mr Argy's obvious legal experience and skills could have reached the conclusion which he deposed to on oath as having reached.

76. A perusal, even a cursory perusal, of page 5833 of the relevant gazette page forming part of the certificate reveals:

* There were a number of zones which extended by number

through to zone number 9(c), zone number 9(c) being

described by reference to its being a "Regional Open

Space Reservation Zone". The words "Open Space" and

"Reservation" would, I should think have caused Mr Argy

some, even if slight, concern, implying as they

reasonably do that building is prohibited.

* From clause 9 it is clear that the table which follows

that clause will set out in respect of each zone:

(a) the objectives of the zone;

(b) the purposes if any for which development may be

carried out without development consent;

(c) the purposes for which development may be

carried out only with development consent;

(d) the purposes for which development is

prohibited;

and that the last three matters will appear under the

respective headings "Without Development Consent",

"Only With Development Consent" and "Prohibited".

* That the format prescribed in clause 9 is followed in

the table for zone 2(a1); zone 2(a2); and zone 2(b).

77. From the next page (5834) it is clear that the same format is followed for zones 3(a), 3(b), 3(c), 4(a) and 4(b) as was followed for zones 2(a1); 2(a2); and 2(b).

78. From the next page (5836) it is clear that that page does not follow on from the preceding page but that it is concerned with "special provisions" and indeed that those special provisions relate only to zones 9(a), 9(b) and 9(c). It is clear that no material is provided that relates to zones 5, 6, 7 or 8.

79. However, the substantial obstacle in the way of Mr Argy's interpretation being a reasonable one which he would have arrived at had he studied the document as earnestly as he said he did, is paragraph 10(6) which refers back to "the purposes, if any, specified in relation to the zone relating to the land in items 2 and 3 of the table to clause 9". This on any reasonable reading clearly indicates that "Part 3 - Special Provisions" is not itself part of the table which sets out the development restrictions relating inter alia to zone 9(c) land but that there is some other relevant part of the table to be found elsewhere in the document which delineates what development may be carried out on Reservation 9(c) land without development consent (item 2) or what may be carried out with development consent (item 3). Once this is appreciated, it is difficult to conclude from paragraph 4 in "Part 3 - Special Provisions" (with or without paragraph 5) that any development whatsoever is permitted in respect of land within zone 9(c).

80. It follows in my view that a reasonably competent solicitor, even one lacking in conveyancing experience, but armed with the skill of interpreting documents and statutory instruments would be forced to conclude, at least if he had carefully read the document, that the certificate did not set out the whole of the restrictions relevant to Reservation 9(c). Mr Argy was cross-examined as to the mental processes said to have been undertaken by him in coming to the conclusion which he said he did. He agreed there was not set out in the document the objectives of zone 9(c) and that it would be expected that a paragraph dealing with the objectives should be found but said that this would be so only "if it were relevant to this property". He saw, he said, clause 10 as a kind of put option with the result, having regard to clause 10(4) that "the only relevant criteria, that delimit what you can do is what is in 2A, and the 9(c) actually gives you a put option but does not have anything to do with what you can actually do there". He said, later, that he thought the table only went to the end of zoning 4(b) but I do not accept this evidence. He said that it never crossed his mind that there had been an error in the certificate.

81. It is clear to me from observing Mr Argy's demeanour in the witness box and from the answers which he gave that Mr Argy sought to give his evidence in a way consistent with what he well knew, as a person practising in the general area of trade practices, he had to prove to succeed in the proceedings. I think that the mental processes to which Mr Argy deposed were little more than a reconstruction designed to support his case and that they disguised what I believe to be the more rational explanation; viz that contrary to his evidence he gave scant intention indeed to the s.149 certificate.

82. This does not mean however that Mr Argy did appreciate the real meaning of the Residential 9(c) zoning or that he did not rely upon the misrepresentations as to zoning made in the brochure coupled with the advertisement in entering into the contract to purchase the property.

83. For misleading conduct to give rise to the statutory cause of action under either the Trade Practices Act or the Fair Trading Act it is necessary that the loss or damage suffered arise from or out of the misleading or deceptive conduct. This causative requirement flows from the preposition "by" which is present in both s.82 of the Trade Practices Act and its equivalent section s.68 of the Fair Trading Act (cf Kabwand Pty Ltd v. National Australia Bank Ltd, 21 April 1989 Full Federal Court (unreported) at p 30).

"No doubt, by way of analogy the general law of

deceit readily suggests the necessity that the

misleading or deceptive conduct induce the situation

which gives rise to damages, albeit that the conduct

complained of need not be the sole inducement: cf

Gould and Anor v. Vaggelas and Ors (1985) 157 CLR 215 at

236 per Wilson J.; but the connection to be found in

the section and expressed in the word 'by' is not

necessarily limited by the common law concept of

inducement."

85. In Gould v. Vaggelas (supra) Wilson J. at 236 in a passage concerned with the law of deceit but by analogy equally applicable to a cause of action under the Trade Practices Act or the Fair Trading Act restated four principles which in his Honour's view were correctly enunciated by the trial judge in that case:

"1. Notwithstanding that a representation is both

false and fraudulent, if the representee does

not rely upon it he has no case.

2. If a material representation is made which is

calculated to induce the representee to enter

into a contract and that person in fact

enters into the contract there arises a fair

inference of fact that he was induced to do

so by the representation.

3. The inference may be rebutted, for example,

by showing that the representee, before he

entered into the contract, either was

possessed of actual knowledge of the true

facts and knew them to be true or

alternatively made it plain that whether he

knew the true facts or not he did not rely on

the representation.

4. The representation need not be the sole

inducement. It is sufficient so long as it

plays some part even if only a minor part in

contributing to the formation of the contract."

86. Brennan J. in the same case at 250-1 described the relevant question for the tribunal of fact as being "whether the misrepresentation alone, or with or notwithstanding other things that accompanied it, was a real inducement, or one of the real inducements to the plaintiff to do whatever caused his loss".

87. For the respondents, however, it was argued that the necessary causal connection required was not present where as in the present case the applicants had acted unreasonably. The argument was put in a variety of ways. For example, it was said that s.52 or s.82 was not designed to assist those who failed to take reasonable care of their interests; that the class of persons protected by the sections excluded those who were extraordinarily stupid or foolish, the implication being that Mr Argy by failing to notice the incomplete nature of the certificate or failing (not being a conveyancer) when making a financial investment of the magnitude involved to instruct a solicitor competent in conveyancing was extraordinarily stupid or foolish. This itself was said to negate entirely any misleading conduct on the part of the respondents.

88. The respondents' argument was founded upon what was said by Gibbs C.J. in Parkdale Custom Built Furniture Pty Ltd v. Puxa Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 198-9 where his Honour said:

". . . the court must decide objectively whether the

conduct is misleading or deceptive or likely to

mislead or deceive . . .

Section 52 does not expressly state what persons or

class of persons should be considered as the

possible victims for the purpose of deciding whether

conduct is misleading or deceptive or likely to

mislead or deceive. It seems clear enough that

consideration must be given to the class of

consumers likely to be affected by the conduct.

Although it is true, as has often been said, that

ordinarily a class of consumers may include the

inexperienced as well as the experienced, and the

gullible as well as the astute, the section must, in

my opinion, be regarded as contemplating the effect

of the conduct on reasonable members of the class.

The heavy burdens which the section creates cannot

have been intended to be imposed for the benefit of

persons who fail to take reasonable care of their

own interests. What is reasonable will or (sic)

course depend on all the circumstances."

To similar effect are comments made by Gummow J. in Elders Trustee and Executor Co Ltd v. E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193 at 241, where his Honour described it as "fundamental" that s.52 is not designed for the benefit of persons "who fail in the circumstances of the case, to take reasonable care of their own interests". So too in Taco Company of Australia Inc v. Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 at 181, Franki J. referred to the "extraordinarily stupid person" as being outside the protection of s.52. In Finucane v. New South Wales Egg Corporation (1988) 80 ALR 486 Lockhart J. spoke of what his Honour referred to as a difference in emphasis between what was said by Franki J. in Taco on the one hand and by Gibbs C.J. in Parkdale on the other. His Honour said at 515:

"In my view, the decision in Parkdale Custom Built

Furniture Pty Ltd v. Puxu Pty Ltd, does not overrule

the reasoning of Franki J. in Taco Company of

Australia v. Taco Bell Pty Ltd, as to the definition

of the class of persons likely to be affected by

conduct in contravention of s.52. I prefer that

reasoning and adopt it in this case. The definition

of the class of persons likely to be affected cannot

be stated in absolute terms. It is really a

question of identification of the relevant class of

persons according to the facts of a particular

case. There may, for example, be a case of a

corporation seeking to sell its products to more

ingenuous members of society. The definition of the

class of persons likely to be affected in that case

would reflect the characteristics of those persons."

89. The Full Court of this Court in Sutton v. A J Thompson Pty Ltd (1987) 73 ALR 233 in response to a submission that the applicants in that case had failed to take reasonable care in their own interests by not investigating more closely the affairs of the business which they had purchased described as a "bold submission" the proposition: "You should not have believed me when I misled you" and after referring to the four propositions enunciated by Wilson J. in Gould v. Vaggelas set out earlier, continued at 240:

" . . . the possibility that a foolish person might be

misled by some misrepresentation which no normal

person would take seriously, is covered by the

exclusion of representations which are not

'calculated to induce' entry into the contract - the

test is objective, but must take into account the

respective positions of the parties, including such

matters as their knowledge of each other through

previous dealings and their respective familiarity

with the subject-matter of the contract.

Similarly, if a person is so determined to enter

into a contract that he is not in truth influenced

by some false representation made to him, he clearly

has no case. But there is nothing in the principles

cited, or in any other authority which has been

brought to our attention, to suggest that a person

who has been misled into entering a contract, by

false representations of a type which were likely to

produce that result, and in fact did so, can be

deprived of his remedy because of his failure to

check the accuracy of those representations: see,

to the contrary, Neilsen v. Hempston (1986) 65 ALR

302 at 309, and Collins Marrickville Pty Ltd v.

Henjo Investments Pty Ltd (1987) 72 ALR 601."

90. In Henjo on appeal [1988] FCA 40; (1987-8) 79 ALR 83 at 96, Lockhart J. with whose reasons Burchett J agreed, referred to what was said by Wilson J. in Gould v. Vaggelas (supra) and to the decision of Pincus J. in Neilsen where it had been held that the causal chain required for recovery of damages under s.82 of the Trade Practices Act had not been broken where the applicant failed to take reasonable care of his own interests by undertaking a proper investigation of the figures presented to it and commented:

"These decisions support the view that recovery

under s.52 is founded by the applicant's actual

reliance upon the misleading or deceptive conduct of

the respondent although that conduct was not the

only factor in the applicant's decision to enter a

particular agreement, and although the applicant did

not seek to verify the representations or did so

inadequately and so failed to discover their

falsity."

91. A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant. However, in my view, the present cannot be said to be that case.

92. A somewhat similar view was recently expressed by French J. in Kewside Pty Ltd v. Warman International Ltd (unreported 18 January 1990) at 53:

"The damages recoverable under s.82 of the Trade

Practices Act for a contravention of s.52 are

measured by the loss or damage suffered by reason of

the contravention. The causal connection is not

that of the strict logician, but is to be understood

according to common sense concepts - Yorkshire Dale

Steam Ship Co Ltd v. Minister of War Transport

(1942) AC 691, 706. Selection principles influenced

by policy and not merely logic operate. Concepts

such as contributory negligence and mitigation have

no role as such in this process but analogous

notions may apply to decide whether or not a claimed

loss was truly caused by the contravention in

question - Munchies Management Pty Ltd v. Belperio

[1988] FCA 413; (1988) 84 ALR 700, 712; Elna Australia Pty Ltd v.

International Computers (Australia) Pty Ltd (1987)

[1987] FCA 230; 16 FCR 410, 418-9; Pavich v. Bobra Nominees Pty Ltd

(1988) ATPR (Digest) 46-039."

93. It is true that, with the benefit of hindsight, a close perusal by Mr Argy of the contract would have been at the very least prudent. Given his lack of familiarity with conveyancing and the amount of the purchase price to which he and his wife were to be committed, he would have been wise to employ one of his partners to act for him. The old adage that a solicitor who acts for himself has a fool for a client is not inappropriate. But Mr Argy had been led to believe that the property was zoned in such a way that unlimited development of it, consistent with its residential zoning, was possible, including development of the waterfront land. The mere fact that there was a part of the property zoned Reservation 9(c), inadequately described because of the missing page in the s.149 certificate did not, as I find, disabuse him of this. Accordingly I find that the applicants were induced by the misrepresentations of Blunts to enter the contract and that the effect of these misrepresentations was not lost by Mr Argy's cursory perusal of the contract. The misrepresentations of Blunts were a, albeit not the sole, cause of the damage he suffered. Some part of that cause undoubtedly lay in Mr Argy's own failure to consider carefully the terms of the s.149 certificate. But, as the cases indicate, it is sufficient for the purposes of s.82(1) if the representation is but a cause of the loss.

94. With greater hesitation I also find that the applicants were induced by the misrepresentation of Gadens that the certificate annexed to the contract was the complete certificate as issued by the council, to enter the contract notwithstanding that had Mr Argy diligently attended to his own interests the falsity of the representation would have been discovered by him.

95. Before dealing with the question of damages under s.82(1) of the Trade Practices Act or s.68 of the Fair Trading Act it is convenient to consider the claim by the applicants that they are entitled to rescind the contract. Hereafter unless anything in the context otherwise requires, reference to sections in the Trade Practices Act can be taken so far as the claim against Gadens is concerned as reference to the corresponding sections in the Fair Trading Act.

96. The claim for rescission was put in the alternative as arising as one of the remedies which the Court should order under s.87 of the Trade Practices Act or by force of the applicants' rights under the contract of sale (clause 12) or for breach of the warranty arising under the Conveyancing (Vendor) Disclosure and Warranty (Regulations) 1986. It should perhaps be remarked that the written submissions of the applicants confined the claim for rescission to the statutory remedy under s.87 of the Trade Practices Act although the statement of claim clearly raised the right to rescind at common law and counsel for the applicants, when pressed, agreed that his clients did seek a declaration of their right to rescind the contract at common law but only if the damages which might otherwise flow to the applicants under s.82(1) of the Trade Practices Act were not at least $300,000.

97. The third respondent in his written submissions relied initially upon the applicants having elected to affirm the contract and so thereby having lost their rights to rescind (cf Sargent v. A S L Developments Ltd [1974] HCA 40; (1974) 131 CLR 634), but as the hearing proceeded sought to resile from that submission indicating that if the incomplete s.149 certificate did amount to an incorrect representation as to the zoning of the property he accepted the position that the applicants were entitled to rescind the contract and that the right to rescind had not been lost by election.

98. These concessions do not however relieve me of the responsibility of determining whether the doctrine of election precludes the applicants in the present case from obtaining a declaration of their right to rescind the contract having regard to their conduct of the proceedings.

99. It is clear enough that a right of election arises where events occur which give rise to the possibility of exercise of alternative and inconsistent rights. The person with those rights is not bound to exercise them at once subject to the delay not operating to prejudice the other party. Once the election is made it is final and the person is precluded from taking the other course: see e.g. Newbon v. City Mutual Life Assurance Society Ltd [1935] HCA 33; (1935) 52 CLR 723.

100. For the doctrine of election to operate there must be conduct sufficient to amount to the making of an election as between the two inconsistent rights which are possessed: Sargent v. A S L Developments Ltd (supra) at 642 per Stephen J. There must also be an element of knowledge on the part of the elector although, as the judgments of both Stephen and Mason JJ. indicate in that case there has been a degree of disagreement as to the nature of the knowledge which an elector must possess. That question and the apparent disagreement of views in that case as to whether an election to affirm has to be "communicated" need not be explored in the present case.

101. The conduct necessary to constitute election must be such "that it would be justifiable only if an election had been made one way or the other" (per Mason J (as he then was) in Sargent at 656). Whether an election has been made is a question of fact. For example, a lessor who in the event of breach of covenant by the lessee is entitled to treat the lease as void or to re-enter, who with knowledge of the breach accepts rent in respect of a period subsequent to the breach loses his right of avoidance for "to hold the contrary might be productive of great injustice for the effect would be this; it would enable a landlord at any period to eject a tenant after he had given him reason to suppose that the forfeiture was waived, and after the latter had, upon that supposition, expended his money in improving the premises": O'Connor v. S P Bray Ltd [1936] NSWStRp 14; (1936) 36 SR(NSW) 248 at 259 per Jordan C.J. quoting Arnsby v. Woodward (6 B and C. 519 at 523-4). On the other hand, words or conduct which do not constitute the exercise of a right conferred by or under a contract but merely involve a recognition of the contract may not amount to an election to affirm the contract: per Mason J in Sargent at 656.

102. As Jordan C.J. points out in O'Connor v. S P Bray Ltd (supra) in a case where a lessor merely takes some step towards avoiding the lease, "the test of whether this takes away his alternative right to treat it as being on foot has been said to be whether the act done amounts to an 'unequivocal act of election', and this seems to turn on whether, after such an act, it would be unjust that both alternatives should still remain available." His Honour continues at 260:

"In the realm of contract, a breach of contract by

one party always gives the other party a right to

recover damages for the breach. It may be so

serious as to give him the right, if he chooses, to

treat himself as discharged from further performance

of the contract and to treat the contract as at an

end: Wallis v. Pratt (1910) 2 KB 1003 at 1013). He

need not do so; he may recover damages for the

breach, and insist that the contract be otherwise

performed; but if he chooses to avoid the contract,

and communicates that choice to the other party, the

contract is effectually avoided, and he can no

longer treat it as a source of continuing

obligations, although he may recover damages for

past breaches."

103. As Jordan C.J. notes it has been held that an ambiguous claim, both to avoid a contract and to have the benefit of its performance, does not amount to an election. In support of this proposition reference is made to the case of Dansk etc v. Snell (1908) 2 Ch 127. In that case the plaintiffs in their pleadings alleged an entitlement to treat an agreement as at an end and to sue in damages and claimed nevertheless performance of the contract. They were held entitled to succeed on the claim for performance of the contract and not to have inconsistently elected to terminate it.

104. Lord Atkin in United Australia Ltd v. Barclays Bank Ltd (1941) AC 1 at 30 spoke of election in terms of the doing of "an unequivocal act showing that he has chosen". It seems difficult to characterise the bringing of proceedings in the alternative for rescission or damages as constituting an unequivocal act. Such conduct is hardly an unequivocal election to either rescind or affirm for it discloses quite unequivocally that the person bringing the proceedings has not yet determined which of the two remedies he wishes to pursue. This is not to say that he cannot be called upon to elect prior to judgment.

105. The late Mr J S Ewart in his publication "Waiver Distributed - Among the Departments - Election, Estoppel, Contract, Release" (Harvard University Press, 1917) discusses the making of "contradictory elections" and suggests that as there has been no unequivocal election to terminate no election at all has been made (at 98). As an example of such a case the learned author refers, at 99, to Evans v. Davis (1878) 10 Ch D 747 in which Fry J. distinguished Toleman v. Portbury 1871 Law Rep 6 QB 245 in which it had been held that a writ of ejectment constituted a final and conclusive election to put an end to a tenancy, saying at 763:

"The writ in the present case was indorsed, first,

for an injunction; secondly, for damages for breach

of the agreement; thirdly, to recover possession

from the Defendants of such parts of the messuage as

were occupied by them pursuant to the agreement.

That writ was, in my opinion, not unequivocal; on

the contrary it asked, as I think, for relief which

could only be had in the alternative, and, as the

plaintiff did not disclose by the writ which of the

two alternatives he desired to pursue, he left the

matter open and ambiguous. Therefore the authority

cited does not appear to me to apply."

106. It follows, although the matter was not argued at all before me, that I am of the view that the present is not a case where the applicants have yet made an election to affirm the contract precluding them from obtaining rescission.

107. In Zucker v. Straightlace Pty Ltd (1987) 11 NSWLR 87 it was submitted that the stamping of a contract of sale constituted the making of an election affirming a contract. On the facts of that case it was held that the activies of the purchaser as a whole did amount to an election to affirm the contract and it was unnecessary to determine whether the mere stamping of the contract could constitute an election. I refer to that case only because in the present case the applicants had submitted the contract for stamping and paid the stamp duty upon it. However, merely paying stamp duty in accordance with the law could never in my view in New South Wales constitute an election for the simple reason that the Stamp Duties Act 1920 (NSW) in s.25(1) makes it an offence not to stamp a contract within six months of first execution and it matters not that in the meantime the contract has been rescinded. If the contract be rescinded the purchaser may obtain under s.41(7) of that Act, subject to due compliance with the terms of that section, a refund of the duty but nothing in s.41(7) or any other section of the Stamp Duties Act absolves the person primarily liable for the duty from submitting a contract to the Commissioner for stamping and paying the duty upon it.

108. It follows in my view, the applicants having studiously strived to maintain a position where rights both to damages and to rescind remain available to them, that they have not taken an unequivocal step with the consequence that the concession ultimately made by the third respondent that there has been no election was rightly made.

109. By virtue of s.52A(2)(b) of the Conveyancing Act 1919 (NSW) it is provided that a vendor under a contract for the sale of land is deemed to have included in that contract such warranties as may be prescribed. Clause 5(1)(a) of the Conveyancing (Vendor Disclosure and Warranty) Regulations 1986 sets out the relevant prescribed warranty to be that:

"The vendor warrants that, except as specifically

disclosed in the contract, the land contained in the

contract for sale is not affected at the date of

making of the contract by any of the following:

(a) any matter prescribed by Schedule 2 to the

Environmental Planning and Assessment

Regulation 1980 except, if the land is

residential property within the meaning of

Division 8 of Part 4 of the Act, any matter

relating to a State environmental planning

policy, a regional environmental plan, a

draft State environmental planning policy or

a draft regional environmental plan applying

to the land."

110. Schedule 2 to the Environmental Planning and Assessment Regulations 1980 sets out the prescribed matters to be included in a certificate under s.149 and requires inter alia, where there has been a local environmental plan in force pertaining to development on the land, that there be disclosed:

(i) the name of the instrument;

(ii) the purposes for which development may be

carried out in accordance with that instrument

without development consent and with development

consent; and

(iii) the purposes for which the carrying out of

development is prohibited under that instrument.

111. Clearly in the present case the land is affected other than as set out in the incomplete certificate (although of course it was rightly described as Reservation 9(c)). Subject to that matter there would seem to be a breach of the statutory warranty which then brings into play clause 7 of the Conveyancing (Vendor Disclosure and Warranty) Regulations which is to the following effect:

"In the event of a breach of the warranty prescribed

by clause 5, the purchaser may rescind the contract

by notice in writing served on the vendor at any

time prior to completion of the contract."

In the event of such a rescission being effected the

rescission is to operate as a rescission ab initio,

the deposit is to be refunded but no damages are

payable by the one side to the other.

112. Clause 12 of the contract, it will be observed, contains the same warranty and is expressed to be made pursuant to s.52A(2)(b) of the Conveyancing Act 1919 and the Conveyancing (Vendor Disclosure and Warranty) Regulations and having regard to the reference in clause 19 to rescission pursuant to those regulations clearly does not purport, if that be possible, to exclude the statutory right of rescission conferred by those regulations: cf Zucker v. Straightlace Pty Ltd (supra) and Molotu Pty Ltd v. Solar Power Ltd (1989) (NSW) CONVR 55-490 where it was held that the statutory right to rescind could be waived by the purchaser.

113. In the course of argument, reference was made to the decision of the High Court in Beverly Manufacturing Co Pty Ltd v. ANS Nominees Ltd (1978) 52 ALJR 760 where on the law as it then stood and by reference to the contract of sale there under consideration it was held that the attachment of a s.342AS certificate which disclosed the relevant zoning of a property but did not particularise fully the precise way in which the planning scheme affected the property was an adequate compliance with the then clause 17 of the standard form contract in use in New South Wales. In the well known passage from the judgment of Barwick C.J. at 762 his Honour said:

"To nominate its zoning under an identified planning

scheme is, in my opinion, an adequate disclosure of

that planning status or planning situation. The

planning scheme is within public knowledge and

available to the purchaser. To know the zone and

the identity of the planning scheme is to be in a

position to be fully informed of all the

consequences of that zoning."

114. It might perhaps have been argued that the present case was in no different position in that the certificate did correctly state the zoning (Reservation 9(c)) while inadequately describing the effect of it. The present case is however in my opinion quite distinguishable from that considered by the High Court in the Beverly Manufacturing case even if the current form of the contract requires the same result when all that the certificate does is stipulate the correct zoning but does not spell out how the land is affected: cf Molotu Pty Ltd v. Solar Power Ltd (1989) NSW CONVR 55-490. The present certificate omits the relevant affectation of the land in accordance with Reservation 9(c) and thereby misdescribes the manner of the affectation of the land. Further, it seems to me, that s.52A of the Conveyancing Act, read together with the Environmental Planning and Assessment Regulations promulgated at the same time as s.52A was introduced, shows a clear intention to require a vendor to make a greater disclosure of the matters affecting zoning than that contemplated by the provisions of clause 17 of the earlier form of contract of sale considered in the Beverly Manufacturing case. The obligation now imposed cannot be contractually abrogated: s.52A(4). Young J in Molotu did not purport to decide to the contrary and his Honour's comment at 58-563 that "It may be that in 1989 it is no longer sufficient merely to say that land is zoned 'Residential 3a' as it might have been in 1979", makes that clear.

115. I am of the view, consistent with what each party now effectively concedes, that in the circumstances of the present case the applicants are entitled to rescind the contract and to recover against the vendor the deposit paid. Since the terms of the contract provide that interest accruing upon the deposit is also to be paid to the purchasers in the event of such a rescission it follows that the applicants would, in the event of such a rescission, suffer no loss by virtue of being out of pocket in respect of the moneys paid by way of deposit. No other damages would be payable by the vendor to the purchasers under s.52A of the Conveyancing Act 1919 or as a result of a rescission pursuant to clause 12 of the contract.

116. While, as I have held, the applicants have not as yet elected either to affirm the contract or rescind it, it is clear that, albeit in the alternative, the applicants' claim involves two inconsistent remedies. The claim against Blunts and Gadens for damages suffered in entering into the contract requires, at least in a case where the property the subject of the contract has some value the assumption that the contract is to proceed.

117. The normal measure of damages in a case brought under s.82(1) of the Trade Practices Act as a result of misleading and deceptive conduct constituted by a misrepresentation is, by analogy with the measure of damages applicable in deceit, determined by considering what the prejudice and disadvantage is that has been suffered by the applicant in consequence of his altering his position under the inducement of the misrepresentation: cf Toteff v. Antonas [1952] HCA 16; (1952) 87 CLR 647. In mathematical terms it is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it: Gould v. Vaggelas (supra).

118. As the High Court said in South Australia v. Johnson (1981) 42 ALR 161 at 169-70:

"The principle which underlines the award of damages

in tort is, generally speaking, that of restitutio

in integrum. The object is to restore the plaintiff

to the position in which he would have been placed

if the wrongful act had not been committed. . . . In

deceit, the plaintiff recovers the difference

between the amount paid and the value of the

property acquired, the object being to place him in

a position equivalent to that which he would have

occupied had the transaction not taken place."

119. A similar exposition of the rationale of the award of damages in tort can be seen from the judgment of Dixon J. in Toteff v. Antonas (supra) at 650 where his Honour said:

"In an action of deceit a plaintiff is entitled to

recover as damages a sum representing the prejudice

or disadvantage he has suffered in consequence of

his altering his position under the inducement of

the fraudulent misrepresentations made by the

defendant. When what he has been induced to do is

to make a purchase from the defendant and part with

his money to him in payment of the price, then, if

the transaction stands and is not disaffirmed or

rescinded, what is recoverable is 'the difference

between the real value of the property, and the sum

which the plaintiff was induced to give for it' per

Abbott L.C.J.. Pearson v. Wheeler (1825) Ry and Mood

303, at p 304 (171 ER 1028 at p 1029). As Sir

James Hannen P. in Peek v. Derry (1887) 37 Ch D 541

at p 594; cf [1889] UKHL 1; 1889 14 App Cas 337 pointed out, the

question is how much worse off is the plaintiff than

if he had not entered into the transaction. If he

had not done so he would have had the purchase money

in his pocket. To ascertain his loss you must

deduct from the amount he paid the real value of the

thing he got." (emphasis added)

120. It follows that where proceedings are instituted and proceed to judgment between the time of contract and completion it will be impossible to determine the damages which an applicant has suffered unless before judgment is entered it is known whether "the transaction stands and is not disaffirmed or rescinded".

121. The present case is further complicated by the fact that pursuant to clause 12 of the contract the third respondent has the right himself to rescind the contract upon giving of the appropriate notice under that clause and that that right could be exercised at any time even after judgment is entered (assuming the applicants elected to affirm the contract) and the judgment in the present case would not constitute a res judicata precluding that course.

122. Accordingly in computing damages even if the applicants elect to proceed with the contract regard must of necessity be had to the possibility of the third respondent exercising his right to rescind. The principle in the Mihalis v. Angelos [1970] EWCA Civ 4; (1971) 1 QB 164 provides a useful analogy. In that case the owners of a vessel claimed damages in respect of an anticipatory breach by a charterer in circumstances where if the anticipatory breach had not occurred the charterers would have been entitled and on the facts would have exercised an option to cancel the charter party. The owner's damages were treated as nominal because the charterers would on the facts have been entitled to cancel the contract and would have done so.

123. The principle in the Mihalis Angelos was considered in some detail in the judgment of Hope J.A. in TCN Channel Nine Pty Ltd v. Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 and was applied by Beaumont J. in Amann Aviation Pty Ltd v. Commonwealth of Australia (Federal Court of Australia, 21 December 1988, unreported).

124. There are of course distinguishing features in the present case. First, the present case arises not in contract but as a result of a statutory cause of action. That of itself does not in my view preclude the taking into account in assessing damages of the possibility of rescission. Second, it is to be noted that what is here under consideration are proceedings against the agent and the solicitor in circumstances where the right of rescission is in the hands of a third party. Nevertheless these distinctions do not seem to me to make it improper to take into account in determining the measure of damages in a case arising between contract and completion the possibility that the vendor may elect to rescind the contract.

125. Where the vendor would be liable to substantial damages if the contract proceeded it would be likely that the vendor would exercise a right to rescind. As will shortly be seen, however, there will not be a great difference in the damages whether or not the third respondent elects to rescind the contract. What the right of the third respondent does however is ultimately put a ceiling on the damages which the applicants may recover being those damages which would be recoverable in the event that the contract is in fact rescinded. I shall deal with the quantification of those damages under the heading "Additional Damages".

DAMAGES IN THE EVENT THAT RESCISSION IS NOT TAKEN INTO ACCOUNT

126. I propose now to consider the question of damages upon the assumption that the right to rescind both of the vendor and purchaser is excluded from consideration.

127. As I have already said, in a case such as the present the damages to be assessed under s.82(1) of the Trade Practices Act will generally be determined as the difference between the real value of the property at the time of its purchase and what the plaintiff paid for it. That is not to say that an applicant may not, in an appropriate case, be entitled to consequential loss directly flowing from his reliance on the representation: Potts v. Miller [1940] HCA 43; (1940) 64 CLR 282 at 297 and the cases cited by Gibbs C.J. in Gould v. Vaggelas at 222. Nor does the general principle preclude in an appropriate case damages for emotional suffering, nervous shock and the like: Steiner v. Magic Carpet Tours Pty Ltd (1984) ATPR 40-490 at 45-642.

128. Valuation evidence was adduced on behalf of the applicants from Mr Foley-Jennings a registered valuer who said he assessed the market value of the property with the restrictions on use described in the missing page 5835 of the s.149 certificate at $2,500,000. He dealt in his evidence also with his view of the value of the property without such restrictions, a matter to which I shall return shortly.

129. On 31 August 1989 a Mr Rendell, a qualified valuer was instructed on behalf of proposed mortgagees to prepare a valuation in connection with the applicants' attempts to obtain finance to fund the purchase. That valuation was made as at 1 September 1989, i.e. six months after the date of contract and was tendered in evidence subject to objection as to relevance. It showed the property as being valued as at that date at $3,000,000.

130. In his evidence in chief Mr Rendell said that there would have been no appreciable difference in the value of the property from April to September 1989 notwithstanding a demand for properties that existed in at least the early months of 1989. In cross-examination, however, he conceded that there would have been some increase in value of the property between April and September which would affect the valuation but he was unable to quantify that increase. In these circumstances I find Mr Rendell's evidence on the question of valuation as at the date of contract to be of little assistance.

131. Mr Foley-Jennings' valuation was also the subject of some criticism. However at the end of the day Mr Foley-Jennings' evidence as to the value of the property as at the date of contract remained unscathed and accordingly I find that the value of the property as at 1 April 1989 was $2,500,000.

132. The normal formulation of the measure of damages refers to the amount paid by the applicants for the property. In the case of an ordinary contract of sale where completion is to take place within a reasonable time and does so take place there is no difficulty with that formulation. Where however the sale has not been completed and the major part of the purchase price remains to be paid on advantageous terms over a period of years it is not so readily apparent that the face value of the amount payable necessarily provides the real measure of the value of the consideration. The respondents argued that in such a case it was necessary to value the consideration given by the applicants as at the date of contract, that being the value of the applicants' promise to pay. The applicants submitted that this was not so because if the applicants at any time wished to sell the property prior to payment of the whole purchase price (which was to be secured by mortgage back from the vendor to be given on completion) the whole purchase price of $3,012,000 would become payable.

133. Evidence was adduced by the respondents and in reply by the applicants seeking to show the present value of the obligation to pay the purchase price over the period provided in the contract. On the assumption that it was, contrary to the applicants' submissions appropriate so to do, two questions of principle arose out of the evidence which ultimately explain the differences between the figures submitted by the respondents and those submitted by the applicants. The first of these matters was whether it was appropriate to make the present value calculation as at 1 April 1989, the date of contract, as the respondents submitted or as at the date provided in the contract for completion, i.e. 1 October 1989 as the applicants submitted. The second question of principle was whether in making the calculation regard should be had to the consequences of income tax.

134. The evidence of the value of the obligation to pay the purchase price was objected to by the applicants as being wholly irrelevant. It was a submission of the applicants that the purchase price was $3,012,000 and that the deferred terms, no matter how favourable they might be for the applicants were a separate finance arrangement between the applicants and the vendor and fell accordingly out of consideration. I do not agree. Where the purchase price payable under a contract negotiated between the parties is payable on terms over a number of years without interest, it is clear that to take the purchase price as the total payable without regard to the fact that the purchaser potentially has the use of the funds in the meantime is to inflate the loss which the purchaser in a case such as the present may have suffered. A purchaser will clearly be prepared to pay more in three years time if no interest is required to be paid in the meantime than he would be prepared to pay today if the whole of the purchase money were payable now, for the simple reason that to pay today would mean, in a case such as is before the Court, that the purchaser would have to borrow the funds necessary to effect the purchase. In fact the applicants had made arrangements with Chase AMP Bank Limited for finance at a rate of interest of 19.25 per cent although that rate was subject to negotiation. A purchaser, unlike the applicants, with ready funds available to purchase the property could put his money out at interest and earn some amount, presumably less than 19.25 per cent if invested with Chase AMP Bank Limited and thus reduce the amount which the property would ultimately cost him.

135. If one looks at the matter as a matter of principle, the formulation of the measure of damages assumes that the amount paid which is to be compared with the value of the property represents the true consideration payable by the purchaser to the vendor. Where however the amount has not been paid but is payable over an extended period of time without interest, and therefore on advantageous terms, what has to be determined is the real value of the consideration payable rather than what amount has in fact been paid.

136. As to the first matter of principle in issue between the parties, it seems to me inappropriate to make the calculation as at the date of contract. Between contract and completion under the present contract the vendor remains in possession of the property and is entitled to the rents and profits thereon. Hence I am of the view that it is not appropriate to determine the value of the promise to pay as at the date of contract but to look at the matter as at the date of completion.

137. The second matter of principle concerns the question of income tax. In support of the submission that income tax should be taken into account in the present value calculation reference was made to the position of the vendor who would, if paid in cash rather than on deferred terms presumably invest the proceeds and receive income which would be taxable. But the issue before me is not the question of the value to the vendor of the consideration received by him. It is probable that in the mind of the vendor he was happy to accept the sum of $3,012,000 as the purchase price payable over three years without interest because thereby he received a larger capital sum as the purchase price and was not required to bring to account interest that would have been assessable income if he had accepted a lower purchase price and required a commercial interest rate to have been paid to him over the three year term. That is not however, in my opinion, relevant to the calculation of the damages suffered by the applicants.

138. It is, as the evidence of Mr Farrell made clear, unusual in the least, when valuing securities carrying interest or dividends to take the tax position of the vendor or purchaser into account because otherwise the same security would have a different value depending on the various tax rates of vendors and purchasers. But be that as it may, what has to be determined here is the valuation of the consideration given by the applicant to obtain the property, that consideration being the deposit and the amount payable on completion plus the value of the promise to pay the balance of the purchase price on extended terms without interest. So stated the issue bears some similarity to that discussed by the High Court in McGain v. The Commissioner of Taxation [1966] HCA 34; (1966) 116 CLR 172 where the issue was the valuation of a promise to pay money being the consideration for a disposition of property where the difference between the value of the property and the value of the consideration gave rise to a taxable gift under the provisions of the then Gift Duty Assessment Act 1941 (Cth). It was held by the court that the promise to pay money in the future without interest was not equivalent to the value of the property transferred.

139. In valuing the promise, Taylor J., whose judgment is reported in [1965] HCA 41; (1965) 112 CLR 523 accepted that the proper calculation was to be obtained by the application of an appropriate discount rate, in that case on the evidence 7 per cent per annum. No regard was had to the effect of income tax, although it may well be that no argument was put to his Honour that income tax should be taken into account. It is however inconceivable that his Honour should have accepted the mere application of a discount rate as the proper method of calculation if it were appropriate to take matters such as income tax into account.

140. The same conclusion could be reached once it is appreciated that the purpose of the assessment of damages in a case such as the present is to determine the actual loss suffered by the applicant rather than the loss suffered by some hypothetical person. Here the evidence establishes that the applicants would have needed to borrow the moneys necessary to fund a cash purchase price and accordingly would have been required to pay interest which would not have been deductible for income tax purposes (cf. Federal Commissioner of Taxation v. Forsyth [1981] HCA 15; (1981) 148 CLR 203). The deferred terms saved the applicant from incurring such an interest expense. Why then should the tax rates of the applicants (there was no evidence in any event as to what they were) be used to calculate the value of the consideration passing from the applicants?

141. It follows that in my view it is not permissible to take income tax into account in making the present value calculation.

Re Philip Nathan Argy and Jane Elizabeth Argy v Blunts and Lane Cove Real Estate Pty Limited

At a glance

Court

Decision date

Before

Source

Judgment (271 paragraphs)

Re Philip Nathan Argy and Jane Elizabeth Argy v Blunts and Lane Cove Real Estate Pty Limited (Trading As Blunts of Lane Cove); PM Bowen and Ors (Trading As Gadens Ridgeway) and Raymond Gordon Crooks [1990] FCA 51 (1 March 1990)

Parties

Legislation Cited (40)

Cases Cited (27)