San Sebastian Proprietary Limited v Minister administering the Environmental Planning and Assessment Act 1979

Federal Court of Australia|1997-01-24|Before: Nicholson JJ

by the appellant company ("Como"), negotiated on the instructions of the individual appellant, a director of the company named Giacomo Bevacqua, through the second respondent Richard Ellis (Western Australia) Pty Ltd ("Richard Ellis"), a real estate agent, to the first respondent ("Yenald"), which was the applicant in the proceeding below. The building the subject of the sale was let under a lease for a term of years for the conduct of a restaurant to a company unrelated to any of the parties, Jentine Pty Ltd ("Jentine"). The situation, at the time of the negotiations which led to the purchase by Yenald, was extremely parlous so far as the future of the lease was concerned. Jentine was in serious financial difficulty, and had been in default in respect of the rent over a period of several months. Cheques had been dishonoured. Yet there is no disputing the support in the evidence for the finding made by the trial judge that the directors of Yenald were, in effect, told "the tenant was a good tenant". The transaction was represented by Como to Yenald as one offering it, an investor interested in securing a good return on its investment, a property the worth of which was to be ascertained by having regard to the rental payable under the lease. Furthermore, it was suggested that Yenald might have some assurance in respect of this rental because of the "excellence" of the lessee's covenants under the lease, which "protected" the investment. While these matters were not denied at the hearing of the appeal, the appellants contended that the trial judge was in error in accepting Yenald's case on the issue of its reliance upon the representations made to it. The appellants emphasized evidence of extensive and detailed enquiries made by Yenald and its solicitors. The suggestion was that Yenald looked to the information it obtained for itself, placing no trust in the information provided by Como. This, of course, is a two-edged argument, since the efforts devoted to investigations concerning the tenancy provided confirmation of its importance in the eyes of those responsible for these investigations. The fact is that the enquiries made did not elicit any information to alert the purchaser to the serious and continued defaults, extending over a period of a number of months, which were admitted to have occurred. Default in respect of one month's rent did, indeed, at a later date, become known to Yenald, or at least to its solicitors. The settlement statement sent by the solicitors for Como, as the vendor, revealed that rent for the month of the settlement had not been paid. Whatever concern might have been engendered by that revelation, it did not give the lie direct to the precontractual representations, since it related to a period after contract. However, the appellants made this matter the cornerstone of their argument, on the basis that Yenald's failure to assert an immediate entitlement to rescind demonstrated the falsity of its claim to have relied upon representations as to the strength of the tenant and the desirability of the lease. The appellants put it that Yenald made "a deliberate choice to proceed with the purchase notwithstanding knowledge of rent default".

But the circumstances relied on fall far short of what would be required to prevent a trial judge concluding that the misrepresentations induced Yenald to enter into a binding contract, and thus caused it loss. The making of independent enquiries, which did not reveal reason to doubt the truth of what had been represented, does not require the conclusion that the representation itself had ceased to have any effect. Even more clearly, the receipt of information after a binding contract had been signed could not contradict evidence that the contract was signed on the basis of the information then available. When the trial judge made his finding of reliance, he did so having accepted the making of representations likely in their nature to have had a persuasive effect, and having listened to evidence from Yenald's directors suggesting they had in fact relied on those representations. The law does not consider cause and effect in mathematical or in philosophical terms. The law looks at what influences the actions of the parties. Acknowledging that people are often swayed by several considerations, influencing them to varying extents, the law attributes causality to a single one of those considerations, provided it had some substantial rather than negligible effect. As Brennan J. said in San Sebastian Proprietary Limited v Minister administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 366:

"The representation must be a real inducement or one of the real inducements to engage in the conduct which occasions the loss." Where a representation is relevant to the decision in question, and in its nature persuasive to induce the making of that decision, it accords with legal notions of causation to hold that it has a causative effect. And where a respondent, who may be taken to know his own business, has thought it was in his interests to misrepresent the situation in a particular respect, the Court may infer that the misrepresentation was persuasive. These inferences arise from the making of the representation followed by the respondent doing the thing it was calculated to induce him to do. All this is a matter of common sense. It has also been stated in the authorities. In Gould v Vaggelas (1985) 157 CLR 215 at 236 Wilson J. said: "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." His Honour went on to say that the "inference may be rebutted", but this is to imply that in the absence of rebuttal the conclusion should stand. That it is appropriate to infer the effectiveness of a representation from its materiality is also supported by the joint majority judgment in Krakowski v Eurolynx Properties Limited (1995) 183 CLR 563 at 578, where Wilson J.'s statement in Gould v Vaggelas is cited in footnote 28. The same reasoning was adopted by the Full Court of this Court in Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 110 ALR 535 at 546-547. The point was strongly made by Stuart-Smith L.J. (with whom Farquharson and Evans L.JJ. agreed) in Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch. 259 at 282, where his Lordship said: "[W]here a false representation is made for the purpose of inducing the other party to adopt a certain course of conduct and the representation is such as to influence a person behaving reasonably to adopt that course of conduct, the court should infer, in the absence of evidence to the contrary, that the representation did have that effect." As evidence to the contrary, the appellants point to the particular circumstances we have mentioned. But, as we have indicated, they are quite inadequate to rebut the inference. Furthermore, Yenald's case did not depend on inference alone. The directors gave evidence, and were cross-examined at length. They were Dr. and Mrs Leong. Dr. Leong stated his understanding, at the time the contract was concluded, that it was "important to have a good tenant", and that he understood from Como's agent that "the tenant is a very secure one". He swore that if he had known of the arrears of rent he would not have entered into the contract (ie., by participating in the decision made on behalf of Yenald to do so, and by signing the contract as a director). This evidence was accepted. In many recent decisions at appellate level, courts have referred to the near invulnerability of a trial judge's decision based on oral evidence tested in cross-examination before him. The principles are stated in Devries v Australian National Railways Commission (1993) 177 CLR 472, and what is required to enable an appellant to surmount the difficulties they put in his way is indicated in Rennie v Commonwealth of Australia (1995) 61 FCR 351. There, as was stated in the judgment of Burchett J. with which Tamberlin J. agreed (at 358), the crucial finding "did not depend to any substantial degree on the credibility of the witness"; in any event, it was held the trial judge's advantage could not be sufficient to explain or justify his conclusion, and it was clear that the acceptability of the decision had been destroyed by the revelation of serious and demonstrable error. The present is simply not a case of that kind. The appellants sought to suggest it was, on the basis that the trial judge had erred by not referring in detail to certain evidence of Dr. Leong's awareness of the tenant's default in payment of rent for the month of the settlement. As has been pointed out, this was a later default, the existence of which did not imply the earlier defaults that had been concealed from Yenald. However, the contention was that the judge must have overlooked the force of the appellants' argument based on the later default. The judge, speaking of the time of Yenald's entry into the contract, said that Dr. Leong would not have "countenanced" any default in rent. But, said the appellants, at the later date of settlement he certainly countenanced default. We do not find this argument convincing. There is all the difference in the world between the situation of a would-be investor, who is free to make or not to make an offer, and the situation of a party bound by contract who discovers that, at the date of settlement although not (so far as he is aware) at the date of contract, a default exists. It is not easy to extricate oneself from a binding contract just prior to settlement. Extrication, even if possible, is unlikely to come without cost. Nor are we convinced by the assertion that the trial judge must have overlooked the argument. In Watt or Thomas v Thomas [1947] AC 484 at 492, Lord Simonds, having made it clear that he regarded the trial judge's decision as one depending on oral testimony, referred to an argument that certain relevant evidence had not been discussed in the judgment. He said (at 492): "Your Lordships were therefore invited to find that the learned judge had forgotten or ignored this evidence and to hold that his judgment was thereby vitiated. I believe this to be fundamentally unsound criticism. The trial judge has come to certain conclusions of fact; your Lordships are entitled and bound, unless there is compelling reason to the contrary, to assume that he has taken the whole of the evidence into his consideration. If his conclusion is inconsistent with the evidence of certain of the witnesses but he does not, in terms, stigmatize them as false witnesses, it is not the proper or necessary inference that he has forgotten or ignored them ... ."

In fact, the trial judge did advert to the default as at the date of settlement, making the correct observation that it "had no bearing upon causal connection between the misleading conduct and the loss sustained by reason of that conduct" - since, of course, it was an event occurring after the binding contract had been concluded. In the circumstances of this case, it would be impossible to interfere with the trial judge's conclusion that the directors, who both gave evidence and were cross-examined before him, were truly influenced by the misrepresentations that had been proved. The appellants also attacked the assessment of damages. This assessment was made in accordance with the principles recently laid down in Kizbeau Pty Limited v W G & B Pty Limited (1995) 184 CLR 281 at 291, principles which are consistent with those even more recently laid down by the House of Lords in Smith New Court Securities Ltd v Citibank N.A. [1996] 3 WLR 1051 at 1060-1061. So approaching the matter, it was necessary for the trial judge to ascertain "the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it". Both sides led valuation evidence. Having regard to this evidence, the judge put a value on the property by an application of the method of valuation commonly known as the capitalisation of profits method. But in doing so, he took into account the fact that the rental profits he capitalised were obtainable for the rent of the premises as a restaurant or function centre. He held as a fact that the premises could only be let in that way when fitted out appropriately. There was evidence that the tenant's fixtures in the premises were worth $175,000, and there was evidence that in fact the sum of $150,000 was paid to Jentine's liquidator by Yenald in order to purchase these fittings and fixtures. Notwithstanding this evidence, the judge reduced the sum which he allowed, as the cost of putting the premises in a condition fit for letting at the rental assumed by the valuation figure he accepted, to the sum of $100,000. This is the figure which the appellant now challenges. However, the challenge appears to be based upon a misunderstanding of what his Honour was doing. The appellants point out that Yenald had made an alternative or additional claim for misrepresentation in respect of the ownership of the fittings and fixtures. Taking this as a starting point, the submission was that the figure of $100,000 related to that claim, and that it should not have been allowed since the claim itself was not allowed. The claim was in fact not allowed as a separate claim, because the trial judge regarded it as fully subsumed in the claim which he did uphold. In our opinion, this aspect of the appeal is misconceived, and must fail. The sum of $100,000 found its way into the award against the appellants, not in the form of a discrete item of damages, but simply as part of the calculation of the true value of the premises for the purpose of the ascertainment of Yenald's loss. There was ample evidence to support his Honour's approach to the ascertainment of the amount of the loss, and indeed, the appellants may have been fortunate that his Honour reduced the figure to $100,000, instead of taking as the measure the sum of $150,000 which was actually spent. It should be noted that his Honour inaccurately referred to an amount spent of $175,000, but the higher figure was not reflected in his calculations; it was not in fact the sum spent, but it was the sum assessed by one of the valuers. As we have indicated, his Honour declined to adopt either the assessment of the valuer or the actual purchase price of the fittings and fixtures, but put his own figure of $100,000 upon their value. The appellants benefited from this approach. On the basis, which, as we have said, was erroneous, that the sum of $100,000 taken into account by the trial judge was related to the misrepresentation alleged in respect of the ownership of the fittings and fixtures, the appellants also appealed against the inclusion of this sum in the amount for which an indemnity was granted to Richard Ellis against them. However, once the sum of $100,000 is seen as simply a component in the calculation of the damages payable in respect of the loss sustained by reason of the misrepresentations that were held to have been made, this ground of appeal falls away. It is unnecessary to discuss it further.

For these reasons, the appeal must be dismissed both as against Yenald and as against Richard Ellis, and in each case with costs. I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Court. Associate: Date: 24 January 1997 Counsel for the Appellants: Mr I.R. Viner QC and Mr E.W. Nielsen Solicitors for the Appellants: Nielsen & Co. Counsel for the 1st Respondent: Mr M.J. McCusker QC and Mr P.A. Tottle Solicitors for the 1st Respondent: Paul Tottle & Assocs. Counsel for the 2nd Respondent: Mr P.C. Doherty Solicitors for the 2nd Respondent: Minter Ellison Northmore Hale Date of hearing: 25 July 1996

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