Trade Practices - "gazumping" - oral agreement between vendor and purchaser to exchange contracts without delay - whether misleading and deceptive for vendor to negotiate with another party in circumstances where purchaser had caused the exchange of contracts to be delayed - whether the vendor had an obligation to disclose to the original purchaser negotiations with the new purchaser.

Trade Practices Act 1974 (Cth) - s52

Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477

Counsel for the appellants: J.P. Hamilton QC and J.W. Duncan

Solicitors for the appellants: Gye Perkes and Stone

2. The appellants pay the respondents' costs of the appeal.

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

DAVIES, EINFELD and MOORE JJ This is an appeal from a judgment of a judge of the Court, Foster J, in which his Honour dismissed a claim for breach of contract and for breach of s.52 of the Trade Practices Act 1974 (Cth).

2. The issues between the parties arose from negotiations between Mr J.H. Hughes on behalf of the Walker Group of Companies and Mr Takeshi Nakamaru and Mr Geoffrey Smith on behalf of Australia NID Pty Limited ("NID").

3. On 2 April 1993, an understanding was reached between Mr Hughes and Messrs Nakamaru and Smith, the substance of which was set out in a letter of the same day to Mr Hughes from Vandeness and Scott, the solicitors for NID. The letter read:-

"AUSTRALIA NID PTY LIMITED SALE - 11-15 YOUNG STREET PADDINGTON

We act for Australia NID Pty Limited.

We are instructed that it has today been agreed that our client shall

sell the above property to Walker Corporation Pty Limited for the sum of

$760,000.00.

Exchange is to take place without delay and settlement shall be due on

or before 30 June 1993. Our client will accept a 5% deposit upon

exchange.

We confirm that our client shall now remove the property

from the market for sale. We have been asked to have it

noted that the terms of the agreement shall be and remain

confidential.

Would you please confirm your agreement with the above by

return fax and would you let us have the name and address of

your solicitor so that we may issue the proposed contract."

4. The learned trial Judge found that the parties had agreed that the exchange of contracts would take place without delay, a matter which was important to NID as the company was being pressed by creditors to repay certain loans. The trial Judge found that the parties had agreed that, pending exchange, the property would be withdrawn from the market and that the terms of their understanding would be kept confidential. The trial Judge rejected evidence given by Mr Hughes that an understanding had been reached that NID was prepared to delay the exchange of contracts until some time after Easter when Mr Hughes, who was to be married on 3 April 1993, would be available to deal with the matter. His Honour held that it was proposed that the exchange would be effected promptly, a finding which was supported by the reference in the letter of 2 April to "Exchange ... without delay" and to a handwritten note of NID's solicitor which included the point "Exch - ASAP". The trial Judge found that the property was taken off the market after the meeting on 2 April, in that Mr Nakamaru spoke to the agency, Nakata Real Estate, and told them that the property was no longer for sale.

5. On 2 April, Mr Hughes responded to Vandeness and Scott as follows:-

"RE: WALKER NOMINEES PTY LIMITED PROPOSED PURCHASE FROM

AUSTRALIA NID PTY LIMITED PTY: 11-15 YOUNG STREET, PADDINGTON

Thank you for your letter of 2nd April 1993. We look

forward to the receipt of a satisfactory contract in due

course.

The writer will be on leave until the first day after Easter

and in the interim can you please send the contract to our

solicitor Mr Ian Grist C/- 1st Floor, 42-44 Oxford Street,

Paddington, NSW, 2021."

It may be noted that Mr Hughes did not, as he had been invited to in the earlier letter from Vandeness and Scott, confirm that agreement had been reached to sell the property nor did he confirm the terms of the agreement as set out in that earlier letter. Mr Hughes did not include with his letter a cheque by way of deposit. Mr Hughes' letter was expressed in cautious non-binding terms.

6. On 6 April 1993, Vandeness and Scott forwarded to Mr Ian Grist, the solicitor for the Walker Group, the proposed contract. Their covering letter said:-

"We enclose proposed agreement for sale for your client's

approval.

We look forward to hearing from you shortly regarding exchange."

7. Easter intervened from Friday, 9 April to Monday, 12 April. On Wednesday, 14 April, another offer for the purchase of the property came to the attention of Mr Nakamaru and Mr Smith. The price offered, $825,000, was substantially higher than the price of $760,000 which Mr Hughes had agreed to pay. On Friday, 16 April, contracts were exchanged between NID and the new purchaser.

8. No evidence was adduced in chief as to when Mr Hughes returned to work from his honeymoon. In cross-examination, he said that he was away for 6 or 7 working days, which was a vague statement as he ought to have known the date of his return to work. In any event, after Mr Hughes' letter of 2 April, there was no communication by anyone on behalf of the Walker Group with NID or its solicitors until after the contract had been exchanged with the new purchaser on 16 April.

9. The trial Judge found that there was no concluded contract between the Walker Group and NID for the purchase and sale of the property. The objective facts fully support his Honour's finding. It is clear that the parties were agreed that the agreement between them would be an agreement in writing and that, until that occurred, the parties would not be bound. It was for this reason that the parties stipulated for confidentiality, for the prompt exchange of contracts and for the withdrawal of the property from the market until that occurred. Moreover, no money exchanged hands. The Walker Group neither offered nor paid a deposit. It is not even clear that the identity of the purchaser had been agreed. The letter from Vandeness and Scott of 2 April was written to Mr Hughes of Walker Corporation Pty Limited. The response from Mr Hughes referred to the purchaser as Walker Nominees Pty Limited. The proposed contract as drawn showed Walker Corporation Pty Limited as the purchaser. The copy of the contract attached to Mr Hughes' affidavit shows the name of the purchaser altered in handwriting to Walker Nominees Pty Limited. This is no doubt a small matter in the overall context. However, it supports the conclusion which flows from the other facts we have mentioned that, on 2 April, the Walker Group and NID came to an understanding but that understanding did not amount to a final agreement for the sale and purchase of the Paddington property.

10. Counsel for the appellants challenged the finding on this point and submitted that the trial Judge based his findings upon subjective, not objective, facts. This was not so, however. His Honour analysed a number of subjective issues but it was necessary for him to do so to put the actions of Mr Hughes, Mr Nakamaru and Mr Smith into context, to deal with points of credit and to deal with the issues arising under s.52, including the issue as to whether Mr Nakamaru and Mr Smith were liable as persons involved in the alleged contravention. In our opinion, his Honour clearly distinguished between objective and subjective facts and determined the contractual issue upon the principle which his Honour stated, namely, that "The test of contractual intention is objective."

11. On the s.52 issue, the trial Judge said, inter alia:-

"I have come to the conclusion, not without some hesitation,

that on the state of the evidence, and on balance, I should

accept the version of events given by Messrs Nakamaru and

Smith, namely that they were awaiting an exchange of

contracts after the delivery of the contract on 6 April,

that they had no understanding or agreement that they would

wait for exchange until Mr Hughes' convenience sometime

after Easter, that they were becoming increasingly anxious

as to whether the applicants were going to exchange and that

when no appointment for exchange had been made by 14 April,

they felt justified in dealing with the new purchaser."

This finding was made in the context of his Honour's finding that settlement by 30 June 1993 was of great importance to NID because of the financial pressures it was encountering. The trial Judge found that, on 2 April, NID through its officers, Mr Nakamaru and Mr Smith, intended to withdraw the property from sale pending the prompt exchange of contracts. The trial Judge also found that the offer and sale to the new purchaser which occurred thereafter was a development which arose when the Walker Group had not taken the opportunity to exchange promptly. Indeed, the Walker Group made no approach after 2 April through its directors, officers or solicitors to assure NID that it was proceeding with the purchase. The trial Judge said:-

"... in all the circumstances as found, there was delay in

exchange sufficient to warrant the respondents' forming the

view that they could deal with the new purchaser."

12. We see no error in his Honour's findings. Counsel for the appellants submitted that the respondents were guilty of misleading and deceptive conduct by silence when they failed to inform the Walker Group that, from Wednesday 14 onwards, NID was considering an offer from and negotiating with another party. Counsel submitted that NID should have informed the Walker Group that NID no longer considered itself bound to keep the property off the market, that it considered the delay in the exchange to be undue, and that it had received another offer.

13. Although s.52 must be applied according to the words which it uses and ought not to be read down by reference to principles of common law or equity, a judgment as to what is and what is not deceptive conduct ought not to be made without regard to relevant relationships established by principles of law applying in commercial transactions. Bowen CJ pointed out in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 490, that, under the general law, it is important to consider whether there is a legal obligation to divulge. His Honour went on to say:-

"The notion of relationships giving rise to an obligation to

make disclosure is one which may well prove useful in

determining some of the cases which may arise under s 52 of

the Trade Practices Act 1974."

14. Notwithstanding that many persons may regard the practice of "gazumping" as deceitful, the mere act of a vendor in agreeing to sell real estate to one person when the vendor has already orally agreed to sell the property to another for a lesser sum would not ordinarily be a breach of s.52. Section 52 does not make an oral "deal" with respect to real estate the equivalent of a written instrument or of part performance. A vendor who is not bound to sell to one person may sell to another.

15. The relationship between NID and the Walker Group, that of negotiators for the sale and purchase of real estate, was not one which gave rise to a duty to disclose any of the matters which counsel for the Walker Group relied upon. The negotiations which occurred between NID and the new purchaser were confidential as between themselves. The Walker Group had no reason to expect that it would be informed of them. Nor was NID made aware that the Walker Group was significantly changing its position to its detriment or incurring significant unnecessary expenditure in reliance upon the understanding of 2 April. Indeed, the evidence suggests that, from 2 April onwards, the Walker Group did nothing.

16. On the findings of the trial Judge, there was no circumstance which made it misleading and deceptive for NID to do that which, as a vendor which had an understanding but no binding contract with the Walker Group, it was entitled to do, namely to sell its property to another purchaser at a higher price. NID came to an understanding as to the sale of the Paddington property and agreed to take the property off the market, but on the understanding that exchange would take place without delay. That understanding was set down in writing by its solicitors on 2 April 1993. NID performed its part of the understanding by having its solicitors promptly forward a contract to the solicitors for the Walker Group. There was no response to that action. For its part, except for the less than fulsome letter from Mr Hughes of 2 April, the Walker Group made no move. It had the opportunity to obtain a binding contract but failed to take advantage of it. In the circumstances, the vendor's silence in the matter toward the appellants did not constitute misleading or deceptive conduct.

17. It is unnecessary to deal with all the specific submissions put by counsel for the appellants. Many of these proceeded either on a misunderstanding of or a misstatement of the reasons for judgment of the trial Judge. Those reasons gave a full and fair treatment to the issues which were raised at the trial and his Honour's findings accorded with the probabilities of the matter. His Honour had the advantage of seeing and hearing the witnesses. His Honour's findings recorded such written evidence as there was. In the circumstances, there is no ground for intervention by an appellate court.

18. For these reasons, the appeal should, in our opinion, be dismissed. The appellants should pay the respondents' costs.