Shalhoub v Buchanan

Neville John Shalhoub - 1st Plaintiff PARTIES : Lorna Rose Shalhoub - 2nd Plaintiff John Buchanan - Defendant JUDGMENT OF : Simpson J

COUNSEL : E. White - Plaintiff S. Wheelhouse - Defendant SOLICITORS : Ormsby Flower - Plaintiff Tress Cocks and Maddox - Defendant CATCHWORDS : defamation - causes of action - misfeasance in public office - negligence - Fair Trading Act 1987 - misleading and deceptive conduct Fair Trading Act 1987 LEGISLATION CITED : Environmental Planning and Assessment Act 1979 Local Government Act 1993 Trade Practices Act 1974 (Cth) Northern Territory of Australia v Mengel (1995) 185 CLR 307 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Perre v Apand Pty Ltd [1999] HCA 36; 198 CLR 180 Caparo Industries Plc v Dickman [1990] 2 AC 605 DECISION : Refer paragraph 38

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DEFAMATION list

20145/02 Neville John SHALHOUB & Anor v John BUCHANAN

JUDGMENT 1 HER HONOUR: By notice of motion filed on 10 May 2002 the defendant, John Buchanan, seeks orders effectively terminating proceedings commenced by the plaintiffs, Neville John Shalhoub and Lorna Rose Shalhoub, in a statement of claim filed on 12 April 2002. That statement of claim was filed pursuant to orders made by me on 2 November 2001 requiring the plaintiffs to plead the causes of action contained therein separately from a claim in defamation, contained in statement of claim number 19213 of 1993. The basis for the defendant's application is that the current pleading discloses no reasonable cause of action. He seeks, in the alternative, an order pursuant to SCR Part 15 Rule 26(1)(a) that the statement of claim be struck out, or an order pursuant to SCR Part 13 Rule 5(1)(a) that the proceedings be stayed or dismissed. 2 In the statement of claim the plaintiffs plead three causes of action, each said to arise essentially out of a single incident. The causes of action pleaded by the plaintiffs are misfeasance in public office, negligence, and misleading and deceptive conduct within the provisions of s41 of the Fair Trading Act 1987. 3 The statement of claim contains many assertions of fact, and, in order to convey the issues, it is convenient to set out something of the history which is encapsulated in the document. Although what follows will be in the form of statements of fact, it is to be borne in mind that I am doing no more than reproducing the allegations of fact contained in the statement of claim. There is nothing in these reasons which purports or should be interpreted as a finding of fact. For the purpose of the present application it is necessary to assume that the plaintiffs will be in a position to prove the facts they assert. 4 In paragraph 1 of the statement of claim the plaintiffs allege that the defendant held public office at all material times as an alderman of the Randwick City Council ("the Council"), and between 24 September 1991 and 28 September 1992, as Mayor of the Council. In paragraph 2 they assert that at all material times they were the proprietors of land and premises at 65-67 Coogee Bay Road, Coogee. 5 The plaintiffs' land is situated within the City of Randwick of which the Council is the consent authority for the purposes of the Environmental Planning and Assessment Act 1979. 6 In January 1990 the plaintiffs submitted a Development Application to the Council for the construction of a six-storey residential building on their land. Thereafter the application was considered at various meetings of Council or Council Committees. Certain resolutions favourable to the plaintiffs' application were passed by Council at meetings during 1990. As these resolutions were passed, rescission motions were put by the defendant and another alderman. The rescission motions were unsuccessful. 7 On 17 June 1991 the plaintiffs (via their architect) submitted a Development Application seeking consent to the demolition of an existing building on the land and the erection in its place of a six-storey residential building. (Why a second application was necessary does not appear from the pleadings). On 20 August 1991 the Council consented to the Development Application. The motion for rescission was moved and was supported by the defendant. It was unsuccessful. Subsequently the defendant gave notice of a further motion of rescission but was advised by the Council that it could not be dealt with. 8 Shortly after these events the plaintiffs decided to offer their land for sale by public auction. An auction took place on 21 September 1991. The defendant attended the auction, in possession of a camera, and took photographs, or pretended to take photographs, of people at the auction. 9 In paragraph 14(B) of the statement of claim the plaintiffs allege that, at the auction, and after the bidding had ceased, the defendant made two relevant representations in respect of their land. The first was that the development consent "was liable to be rescinded"; the second that the development consent "was going to be rescinded". In particulars subscribed to paragraph 14(B) the plaintiffs assert that the representations were made orally to "a female" (unnamed in the statement of claim) at the auction, after the conclusion of bidding, and in the hearing of a person identified as Jack Atallah, who had been one of the bidders. It may here be noted that, although it does not appear to be specified in the statement of claim, it was common ground that the bidding at the auction did not reach the reserve price and the property was passed in. It is part of the plaintiffs' case that, in the ordinary course, post auction negotiations between bidders and the plaintiffs would have taken place, but that, by reason of the representation said to have been made by the defendant, those who had previously been bidders withdrew and took no further part. It is implied in the statement of claim that bidding had reached $1.65 million but that, after the defendant's representations, the potential purchasers evaporated and, on 18 May 1992, the plaintiffs sold their land for $1.125 million. 10 The plaintiffs allege that, even after the auction, and two days after becoming Mayor, the defendant continued his efforts to have the development consent rescinded. 11 It is now necessary to consider the manner in which the plaintiffs plead each of the causes of action, and the bases on which the defendant submits that no reasonable cause of action is disclosed.

misfeasance in public office 12 In Northern Territory of Australia v Mengel (1995) 185 CLR 307, Deane J listed five ingredients of the tort of misfeasance in public office. These he stated as: "(i) an invalid or unauthorised act; (ii) done maliciously; (iii) by a public officer; (iv) in the purported discharge of his or her public duty; (v) which causes loss or harm to the plaintiff." 13 Brennan J wrote: "Any act or omission done or made by a public official in purported performance of the functions of the office can found an action for misfeasance in public office. … A number of elements must combine to make a purported exercise of administrative power wrongful. The first is that the purported exercise of power must be invalid, either because there is no power to be exercised or because a purported exercise of the power has miscarried by reason of some matter which warrants judicial review and a setting aside of the administrative action." 14 For present purposes, it may be observed that what are essential of the tort is the taking of action by a public officer in that capacity and in the purported exercise of the power conferred upon him or her in that capacity. This may be seen, inter alia, from the judgment of Brennan J, in Mengel who also wrote: "The tort of misfeasance in public office is well established. Less clearly established are the principles which define the liability imposed on a public officer who, by use of his position or power , causes loss to another." (emphasis added) 15 There is no doubt that, as an alderman, the defendant was a public officer. (On the allegations made in the statement of claim, the defendant was, at the time of the auction, an alderman. He did not become Mayor until three days after the auction.) 16 It is the words allegedly spoken by the defendant at the auction to the unidentified female, and in the presence of one of the bidders, that constitute the act(s) relied upon by the plaintiffs as the act(s) of misfeasance. 17 There is no explicit allegation contained in the statement of claim to the effect that the defendant, in so acting, was acting in his capacity as alderman. There is no allegation that he was exercising or purporting to exercise any power conferred upon him as alderman. In order to identify the role and functions of an alderman, I was provided with a copy of s232 of the Local Government Act 1993, which states what the role of "a councillor" is. This includes, as might be expected, such functions as directing and controlling the affairs of the Council in accordance with the Local Government Act, participating in the optimum allocation of the Council's resources to the benefit of the area, to be involved in creation and review of Council's policies and objectives, and review the performance of Council and its service delivery and other things. Since the acts alleged against the defendant are said to have been committed in 1991, the 1993 Act cannot be called in aid. However, common sense dictates that the role of an alderman was, in 1991, much as the role of a councillor is, by statute, since 1993. Certainly, it is not ordinarily within the role or function of an alderman to attend an auction of premises privately owned, there to exercise any of the powers of an alderman. 18 Counsel for the plaintiffs argued that the pleaded historical matters, both before and after the auction, alleging that the defendant had gone to considerable lengths to secure the rescission of the development approval would permit an inference that his attendance at the auction was also in the purported performance of his duties as an alderman, and that the statements he allegedly made were made in his capacity as alderman. As I have noted, there is no explicit allegation to this effect in the statement of claim. 19 If I thought that such an allegation could responsibly be made, I would be inclined to grant leave to the plaintiffs to replead in order to make that assertion. However, I am satisfied that there is no prospect that the plaintiffs could responsibly plead such a case, and that they could not, in any event, prove it. The proposition is simply untenable. 20 Accordingly, applying the tests stated in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, the defendant is entitled to the relief he seeks in respect of the misfeasance in public office claim. I propose to make an order striking out those paragraphs in the statement of claim that plead misfeasance in public office.

negligence 21 The plaintiffs plead their cause of action in negligence essentially in the following way: "32A Alternatively, in the premises pleaded in paragraphs 1 - 15 above, the defendant knew of the plaintiffs' interest in the plaintiffs' land and owed them a duty of care to refrain from damaging that interest. 33 The representations pleaded in paragraph 14B above were made negligently." 22 The "premises pleaded in paragraphs 1 - 15" are the account given of the history of the plaintiffs' Development Application, the attitude taken by the defendant, and his efforts to have the development approval rescinded, together with the events alleged to have taken place at the auction on 21 September 1991. 23 On behalf of the defendant, the cause of action pleaded in negligence was characterised as a claim of negligent misstatement. This assumption then founded the argument that, in the absence of any pleading that the plaintiffs reasonably relied upon the defendant's representations, the pleading is defective. The plaintiffs disclaimed that interpretation of their pleading. They argued that their claim is one of pure economic loss, in negligence (not negligent misstatement) and that determination of the claim (and therefore the pleading issue) are governed by the recent decision of the High Court in Perre v Apand Pty Ltd [1999] HCA 36; 198 CLR 180. Counsel for the defendant, in response, argued that the allegation in the statement of claim that the defendant owed the plaintiffs a duty of care to refrain from damaging their interest in their property is unsustainable. 24 Three different approaches to the question of the existence of a duty of care to prevent economic loss emerge from Perre v Apand. The first is that of Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ, reduced in the headnote to the report which appears in the Commonwealth Law Reports to the following: "The matters upon which the duty of care depended were the combination of foresight of the likelihood of harm, knowledge or means of knowledge of an ascertainable class of vulnerable persons who were unable to protect themselves from harm, the fact that implying a duty would not impair the legitimate pursuit by [the defendant] of its [or his or her] own commercial interests, and the fact that the damage flowed from the occurrence of activities within [the defendant's] control." 25 As encapsulated also in the headnote, Gaudron J took the view that the existence of a duty of care is determined in the following way: "Where a person is in a position to control the exercise or enjoyment by another of a legal right, that position of control and the other's dependence on the person with control are special factors or give rise to a special relationship of 'proximity' or 'neighbourhood' such that the person with control is liable for negligent acts or omissions causing the loss or impairment of the right and thereby producing economic loss." 26 Kirby J adopted a three stage test, first proposed in Caparo Industries Plc v Dickman [[1990] 2 AC 605] as follows: "(a) Was it reasonably foreseeable to the alleged wrongdoer that particular conduct or an omission on its part would be likely to cause harm to persons who have suffered damage or a person in the same position? (b) Does there exist between the alleged wrongdoer and such a person a relationship characterised by the law as one of 'proximity' or 'neighbourhood'? (c) If so, is it fair, just and reasonable that the law should impose a duty of a given scope on the alleged wrongdoer for the benefit of such a person." 27 McHugh J disagreed with the Kirby J approach, and considered that, on the facts of that case, whether or not the defendant owed a duty of care to the plaintiffs depended upon the answers to five questions which he formulated as follows: "(i) Was the loss suffered by the [plaintiffs] reasonably foreseeable? (ii) If yes to question (i), would the imposition of a duty of care impose indeterminate liability on [the defendant]? (iii) If no to question (ii), would the imposition of a duty of care impose an unreasonable burden upon the autonomy of [the defendant]? (iv) If no to question (iii), were the [plaintiffs] vulnerable to loss from the conduct of [the defendant]? (v) Did [the defendant] know that its conduct could cause harm to individuals such as the [plaintiffs]?" 28 Although his Honour expressly confined the applicability of those questions to the facts of the case that was then before the High Court, the questions are adaptable, and plainly of guidance in other cases where it is necessary to consider whether a plaintiff can establish that the defendant owes him, her or it a duty of care in relation to the causing of pure economic loss. It is to be borne in mind that the General Steel test requires that the plaintiff be permitted to pursue his, her or its claim unless it is so plainly bound to fail that it should not be permitted to continue. 29 I have come to the conclusion that, whichever of the formulations I have extracted is applied, the answer must be favourable to the plaintiffs. Taking firstly the series of tests proposed by the majority, it would be open for a fact finder to conclude that the representations attributed to the defendant could foreseeably cause harm, that the plaintiffs were vulnerable to harm caused by his statements, that he had knowledge or means of knowledge of that fact, that implying a duty would not impair the defendant's legitimate pursuit of his own commercial interests and that damage flowed from his statements. 30 Application of the test proposed by Gaudron J, that proposed by Kirby J, and the series of questions proposed by McHugh J all lead to the same result. 31 I will not, therefore, strike out the claim in negligence.

misleading and deceptive conduct 32 The third and final cause of action pleaded on behalf of the plaintiffs is said to be brought under s41 of the Fair Trading Act 1987 (NSW). S41 is an interpretation section. I take it that the plaintiffs intend to plead a cause of action under s42(1), which is in the following terms: "42(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 33 The issue that arises is whether the plaintiffs can establish, or have any prospects of establishing, that the statements attributed to the defendant were made "in trade or commerce". I was referred to the decision of the High Court dealing with the meaning of the phrase "in trade or commerce" as it is used in s52 of the Trade Practices Act 1974 (Cth). In that case the majority in the High Court, (Mason CJ, Deane, Dawson, and Gaudron JJ) discussed two alternative interpretations of the phrase and preferred an interpretation in which the phrase "in trade or commerce" can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. Such an interpretation excludes peripheral activities in which trading or commercial corporations may engage. 34 Although their Honours were construing a phrase in legislation which was itself derived from a section of the Constitution in which the same words are used, and the construction therefore was constrained by constitutional considerations not directly applicable to the Fair Trading Act, it seems to me quite clear that the Fair Trading Act was designed to be a state version of the Trade Practices Act, with necessary or desired adaptations. The fact that the same phrase was used in legislation which significantly postdates the Trade Practices Act suggests to me that it was used deliberately, and the provision was intended to parallel the Commonwealth provision, and to be interpreted in the same way. 35 In paragraph 16 of the statement of claim an allegation is made that "the representations were made in trade or commerce"; particulars subscribed to that paragraph asserted that the auction was a public sale of land which was to be developed for commercial gain. Paragraph 47 is in the following terms: "In the premises pleaded in paragraphs 43 - 46 above, the defendant has in trade and commerce engaged in conduct, which is and was misleading and deceptive or likely to mislead or deceive in contravention of s41 of the Fair Trading Act as amended." 36 It is necessary to reconsider the circumstances in which the plaintiffs allege the defendant uttered the words which now form the basis of their action. This was an auction sale of privately owned premises. There is no allegation that in offering the property for sale the plaintiffs were involved in any commercial activity, namely that there was a prospect of a deveopment that could give rise to a "commercial gain". There is, on the facts pleaded, no reason to conclude that in attending the auction sale the defendant was engaged in any commercial activity. 37 In my view, the claim made under the Fair Trading Act is untenable. It must meet the same fate as the claim of misfeasance in public office. 38 The orders I make are:

1. The statement of claim, filed on 12 April 2002, insofar as it pleads causes of action in misfeasance in public office and misleading or deceptive conduct under the Fair Trading Act, be struck out. The plaintiffs have liberty to file an amended statement of claim confined to a cause of action in negligence. **********

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