Xu v Fortune Sydney Realty Pty Limited

Aliotta v Broadmeadows Bus Service Pty Ltd (1988) 65 LGRA 362; (1988) ATPR 40-873 Blomley v Ryan (1956) 99 CLR 362 Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Gates v City Mutual Life Assurance Society Ltd (1982) 43 ALR 313 CASES CITED: Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; [2005] NSWCA 182 Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 Martin v Osborne (1936) 42 ALR 261 Scott v Davis (2000) 204 CLR 333; [2000] HCA 52 Sweeney v Boylan Nominees Pty Ltd (2006) 227 ALR 46; [2006] HCA 19 Treloar v Ivory (1991) 4 WAR 318; (1991) ATPR 41-123

Fei Xu (Plaintiff) Fortune Sydney Realty Pty Limited (First Defendant/Cross-Defendant) PARTIES: Marcello Gabalone (Second Defendant/Cross-Defendant) Meriton Apartments Pty Ltd (Third Defendant/Cross-Claimant) Grace Huang (Cross-Defendant)

Mr R Tregenza (Plaintiff) COUNSEL: Mr D McBride (First and Second Defendants and Cross Defendant (Huang)) Mr R Glasson (Third Defendant)

1 On 30 January 2001 the plaintiff (for whom Mr R Tregenza of counsel appears) entered into a contract to purchase from the third defendant ("Meriton") (for whom Mr R Glasson of counsel appears) a two bedroom unit, 218/166 Day Street Sydney ("Unit 218"). The purchase price was $595,000.

2 The plaintiff, Fei Xu ("Xu") claims that he was induced to enter the contract by representations made to him by a director of the first defendant, Fortune Sydney Realty Pty Ltd ("Fortune"). He claims that the representations were misleading and deceptive and that he relied on them to enter into the contract. He asserts that the director Mr Marcello Gabalone ("Gabalone"), the second defendant, being the person who made the representations, is liable for the loss and damage suffered by him as a result of those misrepresentations and he claims that Meriton is liable for the representations made by its agent, Fortune. Meriton has cross-claimed against Fortune, Gabalone and Grace Huang ("Huang"). Mr D McBride of counsel appears for Fortune, Gabalone and Huang.

3 At the outset it was agreed that as between Xu on the one hand and Fortune, Gabalone and Meriton on the other, the following issues arise:

(2) Did the plaintiff rely on such of the representations as were made?

(4) As against Fortune and Gabalone, did the representations constitute unconscionable conduct having regard to the circumstances of the plaintiff (reliance was placed on s 51AA of the Trade Practices Act 1974 ("TPA")) and as against all three defendants, did they constitute misleading and deceptive conduct in breach of s 52 of the TPA?

(5) Was Gabalone knowingly involved in the representations?

(6) Is Meriton vicariously liable for any acts of Fortune?

4 I shall first set out those aspects of the history of the matter that are not in dispute.

5 In September 2000 the plaintiff decided to buy, and entered into a contract with Meriton to purchase, a unit at 325 Sussex Street Darling Harbour ("325 Sussex"). In that connection he applied for finance with Meriton Finance Pty Ltd ("Meriton Finance"). At that time he owned a house at 8 Harvey Place Toongabbie ("Harvey Place"), a house at 10 Ivy Place Toongabbie ("Ivy Place") and a unit at 5 Bruce Street Blacktown ("Bruce Street"). He was employed as an incoming goods inspector in a manufacturing business (AutoPak VetLab Group Pty Ltd) earning a gross income of $505.32 per week before overtime from that work (Exhibit "1D5" MG7). With overtime the amount of his earnings appears to have been $32,208.80 in the year ending 30 June 2006: see para 6 of Xu's first affidavit (part of Exhibit "A") and $35,599 in the year ending 30 June 2001: see Exhibit "A" p 92. He also had earned, or was earning, some money working for a cleaning contractor involved in the Sydney Olympics and also had some income from delivery work for a restaurant. In the financial year ending 30 June 2000 he had earned taxable income (net after allowable deductions) of $15,626 (see p 45 Exhibit "A") and received an amount of $150 as a low income rebate. In the year ending 30 June 2001 he had a taxable income of $25,940 (net after allowable deductions): see Exhibit "A" p 93. It appears that the plaintiff was living at Harvey Place in the second half of 2000 and early 2001, and was no longer earning rent (or as much rent) from Harvey Place.

6 The contract for 325 Sussex Street was eventually rescinded (after the contract for Unit 218 was entered into - see p 73 of Exhibit "A") but as part of the arrangements for finance with Meriton Finance Xu agreed to sell the Ivy Place and Bruce Street properties. He did sell Ivy St for $182,000 or $183,000 in late 2000. His application for finance from Meriton Finance for 325 Sussex Street is MG2 (pp 3-26 of Exhibit "1D5").

7 In late 2000 Xu decided that he would like to become a real estate agent. He asked Huang, the licensee of Fortune, whether he could work for Fortune to gain experience. Huang agreed and Xu commenced working in the business in December although initially in the role of part time receptionist. This changed in February 2001 when Xu commenced a part time course in real estate. Huang told Xu that she would pay him "part of the commission", but no rate of pay for the receptionist work was discussed. Gabalone was not happy with the arrangement, he says, but apparently Xu did work as a receptionist in the December holidays and he subsequently went with Huang and Gabalone on occasions on visits to properties on Fortune's books.

8 In the course of his work with Fortune, Xu in January 2001 became aware of Unit 218. There is a dispute as to the precise circumstances in which he saw the unit and what was said to him in connection with it but there is no dispute that on 21 January 2001 he saw it, liked it, being particularly impressed with its views of Darling Harbour, and decided on that day to buy it and apply for finance to that end. On 21 January 2000 he applied for finance (90% of the purchase price) from Meriton Finance and signed a contract order form: p 76 Exhibit "1D5". His application was approved: see Exhibit "3D1" p 285, 24 January 2000. The application is MG7 and it was forwarded by Gabalone to Meriton Finance. There is no dispute that Meriton's list price or asking price for Unit 218 was $610,000, but Meriton had told Fortune that it would be prepared to accept $595,000 as part of a general discounting arrangement.

9 Unit 218 had been bought off the plan from Meriton for $632,500 in 1998: see Exhibit "3D1" p 239. As at January 2001, Meriton was exercising, it was agreed by counsel, a power of sale as mortgagee. On the purchase Xu retained Webster, Halloran Solicitors.

10 Prior to the purchase by Xu, there had been another person seriously interested in purchasing Unit 218 - a Mr Younis Khan. He had not proceeded with the purchase but he had obtained a valuation of Unit 218 from a Mr Stuart Rowan of R V Dimond, a firm of valuers. That valuation valued Unit 218 as worth $620,000 (see pp 237-247 of Exhibit "A"). Xu, after he had purchased Unit 218, contacted Mr Khan, and purchased the Dimond valuation from Mr Khan for $175. Mr Gabalone's unchallenged evidence was that he had no knowledge of the valuation by Mr Rowan.

11 In September 2002 Xu sought a valuation from another registered valuer, a Mr Geoff Roper of Australian Pacific, who on 23 May 2003 provided Xu with a valuation of Unit 218 as at 30 January 2001 and 22 September 2002 (the latter date being the date of Mr Roper's inspection). Mr Roper valued Unit 218 at $470,000 as at 30 January 2001 and $515,000 as at 22 September 2002.

12 Xu continued paying the monthly mortgage repayments of $3123.75 per month to Meriton Finance until 3 March 2004 (the date of the last payment due): see Exhibit "3D3".

13 By letter of 1 April 2003 to Meriton, Xu stated that he had found the purchase price to be "way above the true market value", the rental to "have been significantly below what I was told and various other fees have been lot more than what was initially suggested". He stated that he had been paying $428.21, almost his whole weekly income, to subsidise the unit's costs. He had tried to refinance without success and he sought a "mutually acceptable solution": see Exhibit "3D1" p 311. The letter made no reference to his having been misled about the value or the price of the unit.

14 Xu having defaulted on a payment due under the finance contract in March 2004, Meriton Finance took action to sell Unit 218. It was sold for $480,000 (see Exhibit "3D2"). After sale and associated costs there was a shortfall and Meriton Finance obtained a judgment of $148,664.30 against Xu on 16 September 2004: see Exhibit "B". Meriton Finance has taken action to bankrupt Xu, but those proceedings have been adjourned pending the outcome of this case.

15 Xu himself took proceedings against Fortune in the Industrial Relations Commission in which he recovered the amount of $6832.25 as wages for his employment as a part time receptionist. He had, it was noted in the Commission's judgment, been paid commission in respect of units 218, 158 and 166, which he is described as having sold: see Exhibit "A" p 173 (Unit 218 is the subject of these proceedings).

16 There was an agreement between Meriton and Fortune (see Annexure A to the affidavit of Mr Tony Grant Paskell sworn 14 October 2005) by which Fortune was appointed as agent with selling rights of "all Meriton developments currently being marketed" with a commission of four percent of the sale price. Fortune was not authorised to enter into or sign a contract for sale on behalf of Meriton. By clause 18 of the Agreement, Fortune agreed that it: "indemnifies, and shall keep indemnified, the Principal for loss of damage including legal costs and court or statutory penalties, that may be suffered by [Meriton] for any breach by the Agent of the Trade Practices Act 1974."

17 Although a defence to the cross-claim was filed by Fortune, Gabalone and Huang, Mr McBride indicated that his clients would not be defending the cross-claim. Mr Glasson conceded that in view of the terms of the agency agreement the claim for indemnity under the contract could not be pressed against Gabalone and Huang personally. It follows that if Meriton is found liable for misrepresentations made by Fortune then Fortune is required to reimburse Meriton.

18 The representations said by the pleadings (para 5(a)-(d) of the Amended Statement of Claim, "ASTOCL") to have been made by Gabalone and relied on in entering into the Contract for Sale of Land for Unit 218 (para 18 of Amended Statement of Claim) are:

(1) that $595,000 for Unit 218 was a "cheap price";

(2) that the opinion that $595,000 was a cheap price was an opinion honestly held by them and supported by an adequate foundation;

(3) that Xu "could afford the cost of an investment in the unit including the cost of borrowing the whole of the purchase price";

(4) the investment would only cost Xu $36 per week.

19 Xu also claimed (para 6 of ASTOCL) that Huang had said to him on 26 January 2001 that Fortune was "a specialist in real estate investment". It was not pleaded that that representation was relied on in entering into the contract and that omission was consistent with Xu's admission in cross examination that he had made up his mind to buy the unit by no later than 25 January 2000.

20 Contracts for Unit 218 were exchanged on 30 January 2001. It appears that he had seen Unit 218 on 21 January, signed the application for finance on 21 January, been approved as a borrower on 24 January, obtained from his sister Shelly Xu ("Shelly") a cheque for $59,000 (the deposit) on 24 or 25 January, signed his copy of the contract on or before 25 January and given his solicitor instructions on 25 January in relation to conditions and exchange: see Exhibit "3D1" p 209.

21 On 26 January Shelly visited Unit 218 and she met with Gabalone in Fortune's offices and her brother Xu was present. Her evidence (no daily transcript was available and I am reliant on my notes) is that she had a conversation with Gabalone (not Huang) in the following terms: "SX: Are there any problems with the unit?

22 Xu's affidavit evidence of what was said (but by Gabalone) on 26 January 2000 is (para 80 of Xu's first affidavit p 15 Exhibit "A"): "The purchase by Fei of Unit 218 is a good deal. There are no problems with the property."

and "Property values in the city are always rising. The property is valued at $620,000. The charge for the depreciation schedule is the same as for all those who purchased properties directly from Meriton."

23 Gabalone denied saying the words attributed to him by Shelly and Xu. He says that he met Shelly and told her that a property with harbour views would have a better return in capital growth than those without "in the medium to long term": para 19 of his first affidavit.

24 As I have noted, the conversation on 26 January as pleaded was one with Huang. It was not asserted that it induced entry into the contract. Xu's evidence was that he had decided to buy by no later than 25 January based on what he had been told on 21 January. Mr Tregenza argued that the conversation on 26 January was relevant because it showed that Xu was not disabused of what had been represented to him on 21 January, so that those representations continued to have effect. The defendants do not assert that they did say anything to contradict the effect of representations made on 21 January - they deny that the representations were made.

25 Xu's evidence of what he says Gabalone said to him about Unit 218 on 21 January 2000 is found at para 53 of Xu's first affidavit. Gabalone denies having said these words. Gabalone says he did tell Xu that Meriton's price was $610,000 but that he could have the unit for $595,000 (para 24 of affidavit of 15 June 2005). Xu denies that he was told that Meriton's asking price was $610,000. It is highly unlikely that an agent would not make mention of the fact that the purchaser would be getting a discount off the price at which vendors had listed the unit for sale. He was not challenged in cross examination on this and his evidence was that he had told Mr Khan the same thing. I find that on the balance of probabilities, Gabalone did tell Xu of that fact.

26 Xu speaks English only moderately well but at all times he had the benefit of an interpreter whilst giving evidence whenever he required her service. Most of the questions and answers were not translated into Mandarin. Xu appeared to have no difficulty reading documents in English in the witness box and he swore a lengthy affidavit and several shorter affidavits without the need for any interpreter. He can also write in English: see Exhibits "1D1", "1D2", "1D3", "1D4" and Exhibit "3D1" p 311.

27 Although Xu's notices of assessment for 2000 and 2001 were tendered (see pp 45 and 93 of Exhibit "A") neither the tax returns for those years nor for any subsequent years were tendered. This had relevance not only to the quality of Xu's proof of what, in after tax terms, Unit 218 had actually cost him on a weekly basis, but left me in some doubt about his sources of income and his real income and expenditure.

28 I do not think the statements allegedly made on 26 January by Gabalone to Shelly in the presence of Xu are relevant to the case as pleaded. I think that the potential relevance of the conversation on 26 January is that it would, if Shelly's evidence is accepted in preference to Gabalone's, point to Gabalone being an unreliable witness. Mr Tregenza described this as "tendency" evidence and he relied on the decision of Ellicott J in Gates v City Mutual Life Assurance Society Ltd (1982) 43 ALR 313. In that case, the fact that a person had made representations on five other different occasions was held to be probative that he did make the same representation on the occasion that was the subject of claim.

29 Ellicott J said at 327: "Such evidence is admissible if its relation to the fact in issue (in this case, whether the representations alleged were made) consists in the probability or increased probability that it would not be found unless the fact to be proved also existed (see Martin v Osborne (1936) 42 ALR 261)."

30 Even were I to accept that what was said on 26 January could lend support to a claim by Xu that Gabalone said something to him on 21 January the following matters are relevant:

(2) the terms of the representation on Shelly's oral evidence as said by Gabalone were different to the terms of Xu's of what was said by Gabalone on that occasion;

(3) the representation asserted by Shelly is different to the representation relied on by Xu (ie alleged to have been made on 26 January);

(4) I have some doubt as to Shelly's reliability as a witness. She says that on 26 January she saw Xu hand over financial information to Gabalone and Gabalone appear to read it and tell Xu his loan was approved. As Mr McBride pointed out that could not have occurred on the evidence of both Gabalone and Xu. She said in cross examination that she had not been told anything about a unit or what the $60,000 was for when she had agreed to given Xu the money and yet the thrust of para 4 of her affidavit was that she and her mother were concerned about her brother's purchase of Unit 218. The visit to Fortune seemed on her oral evidence to be quite tangential as she was in town with her children and mother to see fireworks, and it was clearly after she had provided the cheque.

31 I do not think that proof that A said "X" on one day is obtained by proving he said "similar to but not 'X'" on another occasion. In so far as it might point to Gabalone being someone about whose evidence the Court need be cautious, I am already persuaded that is so.

32 Xu annexed to his affidavit as FX9 (p 43 of Exhibit "A") a sheet of calculations. The heading on that sheet (without reference to MG6, see below) is difficult to decipher. Xu claimed that Gabalone prepared that sheet for him and gave it to him on 21 January 2001.

33 Gabalone's evidence was that he had prepared MG6 (of which FX9 is effectively a copy) for Mr Khan (who he referred to as "Mr Unis", as in Younis Khan) and that the document had been obtained by Xu without Gabalone's knowledge (Gabalone thought Xu had obtained it when he was working at Fortune but conceded that Xu may have obtained it from Mr Khan). MG6 is p 33 of Exhibit "1D5".

34 Gabalone's evidence that MG6 was in fact prepared for Mr Khan gains significant support from the fact that the heading on MG6 state "Mr Unis", and when comparison is made with FX9 the bottom of the title can be made out on FX9. Xu's explanation is that Gabalone must have erroneously inserted the Unis name on MG6 before giving it to him.

(1) If it was prepared for Xu, why did it use $70,000 as his annual income?

(2) If it was prepared for Mr Khan how did Xu obtain a copy of it?

(3) Why did Huang write the figures she wrote on it? Xu's evidence that she did write figures "50K-38K $12K" and "$1000", "$13K", "$1300", and the words "costs" and "loss" and "$20pw", was not challenged (Huang gave no evidence), but Xu's evidence as to her having done so gave no context or explanation.

(4) How did FX10, a document with Xu's name on it and using a gross income of $65,000, come to be prepared? Xu does not assert that he relied on that document - he says he asked Gabalone to prepare something so he could show his sister Shelly (para 70 of his affidavit). Xu said in his oral evidence that he did not in fact give FX10 to Shelly.

36 So far as (1) is concerned, Xu said in cross examination that $70,000 was used because he was to earn income working for Fortune - but he said that no amount of income was discussed. As Mr McBride pointed out there is a significant inconsistency in the assertion that implicitly $70,000 was a realistic figure to use based on his understanding of what he would earn with Fortune, because it was Xu's affidavit evidence that he earned $619.40 per week before tax ($32,208.80 per annum) and $495.40 after tax ($25,760.80 per annum) (see para 6), he gave no further details of any regular earnings except what is found at para 40 of his first affidavit. Xu never sought in his affidavit to explain how the $70,000 had been used (see paras 39 and 40 of his first affidavit p 7 Exhibit "A"). It bears no relationship to the income shown on MG7 or MG2 whether net or gross.

37 In respect of (2) and (3), if the document was prepared for Mr Khan, then how Xu obtained it is not relevant unless Gabalone gave it to him and said "here's an example of the costing on the unit". Neither Xu nor Gabalone gave such evidence. The addition of figures by Huang might appear to be an alteration adjusted for Xu on the basis of information supplied by Xu to Huang but that is not the evidence. There must be an explanation which would solve the mystery of the document if it was not prepared for Mr Khan, or if prepared for Mr Khan was modified, but neither Xu nor Huang were willing to provide it. I am not persuaded on the balance of probabilities that MG6 (absent the handwriting of Huang) was prepared for Xu.

38 So far as (4) FX10 is concerned, on the balance of probabilities it was prepared for Xu, but if I accept his evidence, it was prepared for him to persuade his sister to lend $59,000. Although his sister did lend the $59,000 she did not do so on the basis of that document as Xu says he did not give it to her and no questions were asked of her on that topic.

39 So far as (5) is concerned, Mr Tregenza identified two "errors" in the document. One was the use of $70,000 as the income of Xu. That error is one of the matters which the defendants rely on to establish that the document was not in fact prepared for Xu. The second was that the document uses the prime cost method rather than the diminished value method. The use of the prime cost method allows more of a deduction in the first year and less in the later years: which is to be used is a matter that depends on the taxation position and preferences and intentions of the purchaser/taxpayer. There is no pleading that the use of the one method was wrong or misleading, but leaving aside that point, there is no case put forward that had the diminished value method been used it would have been demonstrated that Xu could not afford the loan, whereas on the prime cost method it appeared he could. Mr Tregenza also pointed out that the document used $600 for rent rather than $550 but Xu knew that the rent was estimated as in the range $550-600 and hence could see that the top of the range was being used, and the document used a higher interest rate than was actually applied in the contract with Meriton Finance. There was no suggestion that the rental range $550-600 per week was an incorrect range.

40 Gabalone denied that the $70,000 (or $65,000) was an estimate of Xu's earnings that took into account prospective earnings from sales commission. If it was based on a rough figure for sales commissions it was clearly not a reliable figure, and it was not Xu's case that Gabalone had misled him into thinking he would be earning a total of $70,000 per year because of prospective earnings as a real estate agent. There is no reference to any earnings from Fortune in "MG7".

41 There was mounted a significant attack on Xu's credit which focused on:

(1) the clearly incorrect details he had given to Meriton Finance about his income and liabilities, and the nature of his occupation;

(2) his attempts to explain those incorrect figures;

(3) his failure to ever complain to Gabalone about the alleged misrepresentations even when he knew on his case that the unit was not worth what he had paid for it, and when he knew that the expenditure was greater than that which he claimed he was told and even after he had prepared tax returns with the help of his accountant;

(4) his assertion that a document clearly headed "Mr Unis" (a mis-spelling of Mr Khan's first name) was prepared for him;

(5) his assertion that as at September 2000 he was not aware of the potential tax benefits of negative gearing - he already owned two investment properties;

(6) his attempt to portray himself as ignorant about real estate in contrast to his actual involvement and instructions to agents;

(7) his unconvincing explanations as to why he had gone to Fortune in the first place.

42 I have referred to the defendants' submissions on Xu's credit. Leaving aside the question of whether FX9/MG6 was prepared for Xu, which itself turns on the credit of Xu, I accept the defendants' submissions. In particular I am persuaded that Xu deliberately misrepresented his income to Meriton Finance, having regard to the following matters:

(1) The net income indicated by MG7 was $96,000 in comparison to $15,000 revealed by his notice of assessment is a very large differential.

(2) The only liability disclosed was a mortgage of $18,000 per annum; no rates levies or the like were indicated.

(3) The document described him as earning $1042 per month for Harvey Place. He admitted early in the cross examination that he was at the time living at Harvey Place. He later sought to explain that he derived rental income by letting out a room. The manner in which that evidence came out led me to doubt its veracity but even accepting it as true it amounted to a weekly income of $95 ie approximately $400 per month not $1042 per month.

(4) His explanation for not including expenses was weak.

(5) His explanation in his affidavit was that he could not calculate net income (see para 39 of his first affidavit p 7 Exhibit "A") so he used net and told Gabalone this. He did not change "net" to gross on the form.

(6) He included as income money that was in fact trust money and not available for himself.

(7) He included as monthly income an amount that was in fact the total earnings to date (for cleaning work).

(8) His explanation for errors in MG7 (pp 36-38 Exhibit "1D5") was that he relied on the figure used for the 325 Sussex Street application ie MG2 (pp 4-8 Exhibit "1D5") but he had completed that application as well and it was also erroneous - it like the later loan application also showed him earning far more than in fact he did (the same figure was used for salary/wages) and at a time when he had not discussed working for Fortune: see paras 44-45 of his first affidavit.

(9) Xu's explanation for describing himself as an industrial chemist was weak, although that is a relatively minor matter.

(10) He was very vague about his earnings from the restaurant delivery work - nothing was produced to show what that was.

(11) His affidavits gave no explanation for the details used by him in MG7 that were wrong other than the gross/net explanation.

(12) His assertion that he did not appreciate the concept of negative gearing until he met Huang was difficult to believe, given his ownership of two investment properties and his most limited taxable income as at 30 June 2000.

(13) His attempt to present himself as an unsophisticated person with no understanding of real estate was unconvincing. Xu had purchased a number of properties by the time that he had entered into this contract and three of those properties were investment properties, one off the plan. He had arranged finance with another lender (Wizard) for two properties. Notwithstanding his oral evidence, three letters that he wrote demonstrate that he understood the tactics of selling real estate (see Exhibits "1D1", "1D2", "1D3") and was quite able to give instructions about when and how his property should be sold. He himself had instructed the agent for his Ivy Street property to advertise it at a price higher than that which he believed it was worth (a not uncommon approach).

(14) The wide disparity between his earnings as stated and in fact was, I infer, designed to bolster his prospect of obtaining finance. It is true that he enclosed information from which the truth or some aspects of it might have been gleaned or at least might have led to enquiry but I do not think that it can be inferred that because close analysis of the documents might have raised doubts about the authenticity of his answers in the application that he had no intention to mislead.

43 I am not persuaded on the balance of probabilities that MG6 was prepared for Xu, but even if it had been prepared for Xu it was based on information that was known by Xu to be inaccurate and/or unreliable. I find that Xu knew that on the basis of earnings as declared to the Australian Taxation Office he could not afford to buy another unit. For example, using the net cost identified on MG6 of $15,278 after allowing for rent of $600 per week would have left him no income to live on or to use as an offset against the deductions. I reject his claim that any representation was made to him that he could afford to buy the unit or that it would cost him a net $36 per week.

44 Further, on the basis of his economic circumstances as stated in his application it has not been established that he could not afford to purchase Unit 218. Nor has the real after tax cost to him of Unit 218 been established by reliable evidence in his case. The representation that can be drawn from FX9 ie that on an income of $70,000 the unit would after deductions offset against income would on an assumed rental return of $600 per week involve a weekly net cost of $36 was not pleaded as a misrepresentation made and relied on as indicating that the $36 net effect would apply for more than one year and was not shown to have been incorrect.

45 So far as the "cheap price" representation (18) is concerned, I do not accept that Xu is a reliable witness and I am not satisfied on the balance of probabilities that it was in fact said, and this notwithstanding my doubts as to the reliability of Gabalone as a witness arising from matters adverted to by Mr Tregenza such as whether Gabalone had in fact calculated precisely what the tax would be on the salary of $70,000 (which I think it is clear he did), how FX10 came to be prepared, as to whether Gabalone did offer advice to prospective purchasers that went beyond real estate advice (which it appears clear from MG6 and FX10 he did), the timing of advice to Mr Khan (which appears to be inconsistent with Khan having obtained a valuation in November 2000). One matter in favour of Gabalone's credit (and it is of limited significance) is that Gabalone could easily have said that he was aware as at January 2001 of the November 2000 valuation figure obtained by Mr Khan (which would have justified an assertion that the property was valued at $620,000 and that at $595,000 it was "cheap") but he did not do so. The areas of attack and the impact upon Gabalone's credibility were less significant than those on Xu's credibility. It follows from my conclusion on the first alleged misrepresentation that the second alleged representation (see 18) need not be considered.

46 Xu relied in his case on the report of Mr Roper, and the defendants relied on the report of Mr Rowan to establish the value of Unit 218 as at 30 January 2001. Both reports were flawed.

(1) he had taken into account sales after the date of valuation;

(2) he had disregarded the original sale prices of Unit 218 off the plan because it was "extreme";

(3) he had disregarded other unit sales of Units 231 and 264 without any explanation for his having done so;

(4) he accepted in cross examination that the market at that time was a rising market but had made no reference to that fact in his report and had apparently not taken that into account;

(5) he agreed that the differential between Unit 218 as he valued it and Unit 231 which had sold for $600,000 (and which he had not mentioned) was an "exceptional difference" even allowing for unit 231 being 10 square metres larger and being on the corner of the block and one floor higher, but made no reference to that fact in his report and seems to have had no regard to that fact;

(6) he said that he could not pretend that excluding subsequent sales would not change his opinion.

48 I do not regard his report as reliably establishing what the value of Unit 218 was at 30 January 2001.

(1) he placed considerable weight on the fact that an offer had been made for a unit in the building that had not been accepted;

(2) he also thought the market was a rising market but gave no indication in his report as to what that view was based upon or what allowance he had made.

50 I do not regard Mr Rowan's report as providing a reliable guide as to what the value of Unit 218 was as at November 2000 and (hence by ready extrapolation) January 2001.

51 Mr Tregenza urged me, should I find that neither report could be relied on, to make my own assessment. I would have doubts as to whether that would be appropriate in any event but in the absence of information about the general trend of city apartments, or even general real estate market trends at that time, I do not think it is appropriate to do so.

52 It follows that Xu has failed to establish that the value of the unit to which the purchase price of $470,000 should be compared both in relation to the asserted misrepresentation of "cheap price" or in relation to the calculation of damages.

53 It follows that I do not need to embark on an analysis of whether "cheap price" if it had been said, and was shown to be wrong, should be viewed as "mere puffery".

54 I am inclined to think that to say of the price of a unit that it is "cheap" is, as Mr Tregenza submitted, that it is a price equal to or better than its market value, but context is all important because it could be taken as reflecting, for example, a comparison of what a similar unit at Circular Quay with harbour views would cost. It is not possible to form a firm view about whether the statement does contravene s 52 without having reliable evidence of the context in which it was used. In this connection, I should note that it could well be, if as I have found, Xu was told that Meriton's list price was $610,000 but a discount of $15,000 was available, that if what was said included "cheap price" that it was in the context that the discount made the price a good or "cheap price". It may be that Xu drew the inference from advice that Unit 218 could be bought for $595,000 that it was a cheap price.

55 Xu relies on s 51AA of the TPA as against Fortune and Gabalone, which is in the following terms: " 51AA Unconscionable conduct within the meaning of the unwritten law of the States and Territories

(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC."

56 It was agreed that s 51AA is to be read as importing notions of unconscionability developed under the general law. Xu relies on the passages from Blomley v Ryan (1956) 99 CLR 362, cited with approval in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. It was asserted that Xu was unsophisticated and financially illiterate and that advantage was taken of his unsophistication and financial ignorance.

57 I have already indicated that I am not satisfied the representations alleged were made but I will deal with this issue. The fundamental factual proposition that Xu was unsophisticated or financially illiterate is not made out in my view. Xu demonstrated considerable enthusiasm for real estate both before and after having come into contact with Fortune, and for example his willingness to buy two properties (Ivy Place and Bruce Street) when told by Wizard that he could thereby make a saving on finance fees, and the alacrity with which he decided to buy Unit 218 (even on his own evidence). His conduct in providing false information to Meriton Finance indicates a recognition that revealing his true position would almost certainly lead to rejection and does not demonstrate unsophistication in any relevant sense and in any event would, I think, disentitle him on equitable grounds to any relief of this kind: see Meagher, Gummow and Lehane, "Equity Doctrines and Remedies", 4th ed, [3-110]-[3-115]. I would add that it would be a very rare case in which unsophistication could be sufficient to bring a party buying a real estate investment within the principle enunciated in Blomley v Ryan.

58 Although the following matters do not strictly arise in the light of my earlier expressed opinions I will deal with the issues of loss/damages and Meriton's liability for Fortune's conduct.

59 Xu's claim for loss or damages pursuant to s 82 of the TPA is not framed as a claim that he would not have entered into the transaction but for the misleading and deceptive conduct and hence he should be compensated for all of the losses incurred by him. Rather the claim was framed as being based on the difference between $470,000 (what the unit was really worth on Xu's case) and $595,000, the amount paid including stamp duty or at least the differential in stamp duty on $595,000 and on $470,000.

60 There are some difficulties with this approach. Instead of asking what would have occurred if there had been no misrepresentation about price or affordability, the claim is based on the basis that if Xu had been told that it was worth $470,000 that is what he would have bought it for.

61 His evidence had been, in para 97 of his first affidavit, that he would not have purchased the unit if the defendant had not made "the representations" to me (with no distinction made between the representations alleged), and he was cross examined as to whether he would have bought the unit for $470,000 which he conceded he would. In submissions Mr Tregenza put his argument solely on the basis of the price differential. It is hardly surprising that Xu would not have bought the unit for $595,000 if he had been told it was only worth $470,000. It might not be surprising that a person who was prepared to pay $595,000 for a unit would have been prepared to pay $470,000 although this is a case in which price was not said to be the only misrepresentation. No evidence was led that Xu could have afforded Unit 218 on his income had he bought it for $470,000.

62 The second difficulty may be linked to the first, in that putting the claim as a "differential" claim rather than a "no contract" case, masks an important element in what occurred, namely Xu's own role in the genesis of this transaction.

63 Xu, on the findings I have made, provided false information about his income and liabilities to Meriton Finance. In my view, on the balance of probabilities it is unlikely that had Meriton Finance been provided with the true statement of Xu's financial affairs (see [5] above) it would have lent him $545,000 or indeed anything like that amount.

64 If it is correct that Meriton Finance would not have lent the $545,000 then on the balance of probabilities the purchase could not have proceeded, since on his evidence he could not afford the balance or even the deposit. I am conscious that the misleading and deceptive conduct on the part of the defendant does not have to be the sole cause of the entry into the contract (see I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 and Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; [2005] NSWCA 182 at [116]) and I am conscious too that it will be a rare case where the representee's own conduct breaks the causal connection between the misleading and deceptive conduct of the defendant and the transaction (see I & L Securities Pty Ltd above and Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 and Havyn above at [116]) but I think that this is such a case. If Xu had not misstated his income and liabilities he would not, on the balance of probabilities, have obtained the loan and the sale would not have proceeded.

65 Mr Tregenza, whilst appearing to accept that Meriton Finance would not have been likely to proceed with the loan, argued that it could be inferred that the misrepresentation by Fortune was such as to induce Mr Xu to want to overstate his net income (that submission is not consistent with Mr Tregenza's submission that Xu was not deliberately misstating his income), so that he could obtain the loan. It is difficult to accept that a person B can rely on a misrepresentation by A as justifying or causing a misrepresentation by B on a different topic to C which misrepresentation leads to the transaction with C being entered into.

Meriton's Liability for Fortune's Misrepresentations

66 There is no evidence or even suggestion that Meriton was knowingly involved or concerned in or a party to such misrepresentations as are alleged to have been made by Gabalone as agent of Fortune. Section 75B therefore has no application.

67 There remains the question of whether, if representations were made, Meriton is vicariously liable for the conduct of Fortune in breach of s 52 TPA (it is not contended that Meriton was involved in any unconscionable conduct in breach of s 51AA). The answer to this I think rests on whether or not Fortune was acting "within the scope of Meriton's actual or apparent authority". This is the formulation in s 84(2)(a) TPA and a similar question arises under the common law: see Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41; Sweeney v Boylan Nominees Pty Ltd (2006) 227 ALR 46; [2006] HCA 19 and Scott v Davis (2000) 204 CLR 333; [2000] HCA 52.

68 Xu relied on Aliotta v Broadmeadows Bus Service Pty Ltd (1988) 65 LGRA 362; (1988) ATPR 40-873 and Treloar v Ivory (1991) 4 WAR 318; (1991) ATPR 41-123, in which a principal was held liable for the misrepresentations of an agent as to the nature and quality of a property in Aliotta (that the stated purpose of a commercial lease in place was a purpose for which he vendors had approval for the council) and in the case of Treloar that the car had travelled 9000 km and was a car owned and used by a particular firm presumably of good repute in Perth.

69 Mr Glasson argued that a statement about price and the unit being "cheap" is not a statement about the nature or quality of the unit. I do not think that the principle of vicarious liability is constrained by whether the misrepresentation can be so described - the question is whether the agent was acting within his actual or apparent authority. The content of the misrepresentation will be relevant to answering that question. Representations about the property, its size, its suitability for a particular purpose, its receipt of planning approval whether it is strata or company title, and in my view, price and price relativity, are all part of what the real estate agent can be expected to deal with on enquiry from the prospective purchasers. Advice as to whether a prospective purchaser could afford the purchase would not fall within the role of the agent and hence scope of the agency and would appear to be advice in the nature of financial or investment advice which a real estate agent ought not give and it could be expected would decline to give. It would follow in my view that had it been established that Fortune made a false representation that Unit 218 had been valued at $595,000, and had it been established that Xu had relied on that to his detriment, then that would have been a breach of s 52 for which Meriton would be liable, but that a representation that Xu could "afford" the unit would not.

(1) Xu has failed to make out his claim that: (a) any of the misrepresentations alleged were in fact made; or

(b) there was any unconscionable conduct by Fortune and Gabalone within the meaning of s 51AA TPA ;

(2) if contrary to the conclusions in (1): (a) a representation was made about price, Xu has failed to establish that it was incorrect or what loss if any he did suffer as a consequence;

(b) a representation was made by Gabalone and Fortune about affordability or the net cost of Unit 218, it was based on information about Xu's earnings known by Xu to be incorrect.

(3) Meriton, having no liability to Xu, must fail in its cross claim;

and there should be a verdict and judgment for the defendants on Xu's claims.

71 So far as costs are concerned, it was agreed that the issue of costs should await the outcome of the judgment. I will hear the parties on the issue of costs.

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