Ackers v Austcorp International Ltd

[2009] FCA 432

FEDERAL COURT OF AUSTRALIA

Ackers v Austcorp International Ltd
[2009] FCA 432

CORRIGENDUM

GRANT ANTHONY ACKERS v AUSTCORP INTERNATIONAL LTD

NSD 1460 of 2006

RARES J
1 MAY 2009 (CORRIGENDUM 20 APRIL 2010)
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1460 of 2006

BETWEEN:

GRANT ANTHONY ACKERS
First Applicant

PAUL JOSEPH BERGER
Fifth Applicant

MARIE ESTEBAN
Fifteenth Applicant

STEVE GOUGANOVSKI
Twenty First Applicant

KARY PTY LTD
Twenty Fourth Applicant

JESS PATRICK LUSTRI
Twenty Seventy Applicant

BRIAN STEPHEN OWERS
Thirty First Applicant

ANTHONY PAPACOSTANTINOU
Thirty Second Applicant

SHIRLEY SHEPHERD
Thirty Eighth Applicant

JOHN STARTARI
Fortieth Applicant

ANGELA STARTARI
Forty First Applicant

SEAR TAN-BOUNKEUA
Forty Second Applicant

ARGYRO THIMIOPOULOS
Forth Third Applicant

SHARON JOY ACKERS
Forty Ninth Applicant

SIMONE MAREE BERGER
Fiftieth Applicant

ANTONIA NICOLAU
Fifty Fifth Applicant

NICHOLAS PARIS
Fifty Sixth Applicant

RITA GOUGANOVSKI
Sixtieth Applicant

TALDARMAR HOLDINGS PTY LTD
Sixty Third Applicant

RAFFAELA LUSTRI
Sixty Fourth Applicant

VICKI VAMVALELLIS
Sixty Fifth Applicant

STAN VAMVALELLIS
Sixty Sixth Applicant

DESPINA VAMVELELLIS
Sixty Seventh Applicant

APHRODITE THIMIOPOULOS
Seventy First Applicant

AND:

AUSTCORP INTERNATIONAL LTD
Fifth Respondent

JUDGE:	RARES J
DATE OF ORDER:	1 MAY 2009
WHERE MADE:	SYDNEY

CORRIGENDUM

1.On page 66, par 183, second last line, change the word “given” to read “give an”.

2.On page 120, par 367, fourth line, change the word “experts” to read “expert”.

I certify that the preceding two (2) numbered paragraphs is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Rares.

Associate:

Dated:        20 April 2010

FEDERAL COURT OF AUSTRALIA

Ackers v Austcorp International Ltd

[2009] FCA 432

TRADE AND COMMERCE –– CAUSATION –– s 52 Trade Practices Act 1974 (Cth) –– misleading or deceptive conduct –– misleading conduct in relation to purchase of investment property –– unequivocal representations by promoter of real property investment contained in glossy promotional brochure and leaflet –– promoter not the vendor of land –– fine print of contract for sale of land conflicted materially with representations made in promotional material –– contract contained entire agreement clause and clause acknowledging no reliance by applicant on any representations –– whether contractual clauses corrected, or relieved promoter from liability for, misleading representations –– whether promoter can rely on terms of contract to which it not party – whether promoter can rely on possibility or likelihood that a representee’s solicitor will explain contract so as to correct fully the misleading representations –– where promotional material calculated to interest prospective investors to enter contract to purchase by omitting material matter contained in fine print in contract –– whether misleading conduct caused applicant to enter the contract

TRADE AND COMMERCE –– CORPORATIONS –– corporate groups –– where holding company and subsidiary involved in the same conduct or transaction –– where only group’s logo used in promotional material to identify promoter –– where holding company officers employed by it but also act as agents of subsidiary –– where holding company publicly states that it is the project promoter, writes correspondence on its letterhead, issues promotional and advertising material in its name as promoter, and instructs third parties to act in relation to pursuing venture –– where group affairs conducted on basis that holding company often paid invoices addressed to it, and not its subsidiary, in relation to the venture and recorded such payments in internal group accounting as loans to subsidiary by holding company –– importance of corporate identity in determining liability

TRADE AND COMMERCE –– CAUSATION –– s 52 Trade Practices Act 1974 –– significance of legal advice –– whether applicant acted unreasonably in relying on promotional material for sale of apartments “off the plan” promising a guaranteed return –– vendor using standard form contract –– applicant deciding not to obtain legal advice on contractual documents but to rely on promotional material and fact of large number of earlier presales and vetting of contract by other purchaser’s solicitors –– whether legal advice could have prevented representations being misleading –– where evidence that some lawyers had and others had not found or advised other purchasers or investors of important difference between promotional material and the actual rights under the contract –– whether misleading representation a cause of loss

TRADE AND COMMERCE –– s 51A Trade Practices Act 1974 –– whether corporation had reasonable grounds for making representation with respect to future matter –– whether corporation can rely on information provided to it by another promoter without actively analysing it –– importance of carrying out due diligence

TRADE AND COMMERCE –– s 84(2)(b) Trade Practices Act 1974 –– conduct by directors, servants or agents –– whether conduct performed in the course of corporation’s business affairs or activities

TRADE AND COMMERCE –– s 82(1) Trade Practices Act 1974 –– damages –– quantum –– where loss claimed is overpayment for purchase of investment property caused by misleading representations –– principles of valuation –– where market value inflated because of misleading representations –– comparable sale or capitalisation of income valuation approaches

TRADE AND COMMERCE –– s 82(1) Trade Practices Act 1974  –– damages –– quantum –– whether tax benefit obtained by applicant as a result of reliance on misleading conduct should be taken into account in determining quantum of damages

TRADE AND COMMERCE –– s 82(2) Trade Practices Act 1974 –– limitation period –– contingent loss –– when cause of action accrues –– when loss occasioned in the context of a contractual contingency –– contract providing right of recession for both parties if event not occur by a particular time –– contract entered into by applicant more than 6 years before proceedings –– applicant brings proceedings within 6 years of occurrence of contractual contingency

Held:  Judgment for the thirty first and forty second applicants

(1)Representations to applicants and other potential purchasers/investors made in promotional material misleading –– small print of the contract did not correct or displace earlier misleading representations –– promoter’s contemplation that applicants would obtain legal advice not sufficient to prevent the misleading effect of the representations –– corporation not excused from adhering to the norm of conduct in s 52 because of an expectation that a representee will obtain legal advice that will correct misleading representations –– applicants relied on representations –– representations a cause of loss or damage suffered

(2)Fifth respondent liable for making misleading representations notwithstanding that it had no direct contractual involvement with the applicants –– fifth respondent promoted as part of its business, as holding company, and held itself out publicly as being directly involved in the development ––  responsible for misleading promotional material –– the fact that its subsidiary was also contractually involved in the development did not shield fifth respondent from liability

(3)Fifth respondent had no reasonable grounds upon which to make representations as to future matters including a guaranteed net 7% return for 10 years in a resort development –– uncritical acceptance of limited information given to it by a co-promoter and failure to carry out appropriate due diligence attracted the operation of s 51A which deemed representations to have been misleading

(4)Applicants’ claims were not barred by s 82(2) –– applicants only suffered loss from the time that they could no longer rescind contract to purchase land –– contract provided that either party could rescind if the strata plan was not registered by a certain date –– no loss was suffered until the contractual contingency was satisfied

WORDS AND PHRASES –– “misleading or deceptive” “reasonable grounds” “on behalf of” “guaranteed return”

Trade Practices Act 1974 (Cth), 51A, 52, 82, 84

Abigail v Lapin (1934) 51 CLR 58 followed

Allianz Australia Insurance Limited v GSF Australian Pty Limited (2005) 221 CLR 568 applied

Australian Breeders Co-Operative Society Ltd v Jones (1997) 150 ALR 488 cited

Banco de Portugal v Waterlow & Sons Limited [1932] AC 452 discussed
Barton v Croner Trading Pty Ltd (1984) 3 FCR 95 applied
Benlist Pty Ltd v Olivetti Australia Pty Limited [1990] ATPR ¶41-043 discussed

Blatch v Archer (1774) 1 Cowp 63 discussed/applied

Braverus Maritime Inc v Port Kembla Coal Terminal Ltd (2005) 148 FCR 68 cited

Briess v Woolley [1954] AC 333 cited

Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 applied/discussed
Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45 applied

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 referred to

Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472 applied

Cassidy v Saatchi & Saatchi Australia Pty Ltd (2004) 134 FCR 585 followed

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 cited
Cooke v Wilson (1856) 1 CB (NS) 153 applied
Cummings v Lewis (1993) 41 FCR 559 followed
Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 cited

Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 applied/followed

Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 discussed
Gardam v George Wills & Co (1988) 82 ALR 415 cited
General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164 discussed

Global Sportsman Pty Limited v Mirror Newspapers Limited (1984) 2 FCR 82 cited

Gluckstein v Barnes [1900] AC 240 discussed
Gould v Vaggelas (1984) 157 CLR 215 applied/discussed
H O Brandt & Co v H N Morris & Co [1917] 2 KB 784 cited
Hamilton v Whitehead (1988) 166 CLR 121 cited/distinguished
Henderson v Amadio Pty Limited (No 1) (1995) 62 FCR 1 cited
Henville v Walker (2001) 206 CLR 459 cited
House v The King (1936) 55 CLR 499 cited
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 applied

Jones v Dunkel (1959) 101 CLR 298 cited

Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 discussed/followed
Lewis v Daily Telegraph Limited [1964] AC 234 referred to
Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 cited
McGrath v Australian Naturalcare Products Pty Limited (2008) 165 FCR 230 cited

Milner v Delita Pty Limited (1985) 9 FCR 299 followed/applied

Minister for Youth and Community Services v Health and Research Employees’ Association of Australia, NSW Branch (1987) 10 NSWLR 543 cited
Mirror Newspapers Limited v Harrison (1982) 149 CLR 293 cited
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 cited
National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 61 IPR 420 cited

NMFM Property Pty Ltd v Citibank Ltd (2000) 107 FCR 270 followed/applied

NSW Mutual Real Estate Fund Ltd v Brookhouse (1978) 38 FLR 257 cited/distinguished
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 followed
Pavich v Borba Nominees Pty Ltd [1988] ANZ Conv R 556 cited
Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 distinguished
RAIA Insurance Brokers Limited v FAI General Insurance Co Limited (1993) 41 FCR 164 cited
Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1992) 41 FCR 229 cited
S. Pearson & Son, Ltd v Dublin Corp [1907] AC 351 cited/applied
Scarcella v Lettice (2000) 51 NSWLR 302 followed/applied
Simpson Ltd v Hubbards Pty Limited (1982) 44 ALR 695 followed/applied
Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 cited
Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 followed/applied
Sykes v Reserve Bank of Australia (1998) 88 FCR 511 followed/applied
Toll (FGCT) Pty Ltd v Alphapharm (2004) 219 CLR 165 applied
Travel Compensation Fund v Tambree (2006) 224 CLR 627 cited
Trig v Blanche (1993) 118 ALR 543 cited
Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259 applied/followed
Walplan Pty Ltd v Wallace (1985) 8 FCR 27 cited
Wardley Australia v Western Australia (1992) 175 CLR 514 followed
Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd (2005) 224 ALR 134 followed
Watson v Foxman (1995) 49 NSWLR 315 followed
Webb v Bloch (1928) 41 CLR 331 followed
Yorke v Lucas (1985) 158 CLR 661 applied

GRANT ANTHONY ACKERS v AUSTCORP INTERNATIONAL LTD

NSD 1460 of 2006

RARES J
1 MAY 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1460 of 2006

BETWEEN:

GRANT ANTHONY ACKERS
First Applicant

PAUL JOSEPH BERGER
Fifth Applicant

MARIE ESTEBAN
Fifteenth Applicant

STEVE GOUGANOVSKI
Twenty First Applicant

KARY PTY LTD
Twenty Fourth Applicant

JESS PATRICK LUSTRI
Twenty Seventy Applicant

BRIAN STEPHEN OWERS
Thirty First Applicant

ANTHONY PAPACOSTANTINOU
Thirty Second Applicant

SHIRLEY SHEPHERD
Thirty Eighth Applicant

JOHN STARTARI
Fortieth Applicant

ANGELA STARTARI
Forty First Applicant

SEAR TAN-BOUNKEUA
Forty Second Applicant

ARGYRO THIMIOPOULOS
Forth Third Applicant

SHARON JOY ACKERS
Forty Ninth Applicant

SIMONE MAREE BERGER
Fiftieth Applicant

ANTONIA NICOLAU
Fifty Fifth Applicant

NICHOLAS PARIS
Fifty Sixth Applicant

RITA GOUGANOVSKI
Sixtieth Applicant

TALDARMAR HOLDINGS PTY LTD
Sixty Third Applicant

RAFFAELA LUSTRI
Sixty Fourth Applicant

VICKI VAMVALELLIS
Sixty Fifth Applicant

STAN VAMVALELLIS
Sixty Sixth Applicant

DESPINA VAMVELELLIS
Sixty Seventh Applicant

APHRODITE THIMIOPOULOS
Seventy First Applicant

AND:

AUSTCORP INTERNATIONAL LTD
Fifth Respondent

JUDGE:	RARES J
DATE OF ORDER:	1 MAY 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.On or before 8 May 2009 the parties file agreed short draft minutes of the orders which they propose be made to give effect to these reasons and, in default of agreement, draft short minutes of the orders which each party proposes for that purpose.

2.The proceedings stand over to 8 May 2009 at 9:30am.

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

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1460 of 2006

BETWEEN:

GRANT ANTHONY ACKERS
First Applicant

PAUL JOSEPH BERGER
Fifth Applicant

MARIE ESTEBAN
Fifteenth Applicant

STEVE GOUGANOVSKI
Twenty First Applicant

KARY PTY LTD
Twenty Fourth Applicant

JESS PATRICK LUSTRI
Twenty Seventy Applicant

BRIAN STEPHEN OWERS
Thirty First Applicant

ANTHONY PAPACOSTANTINOU
Thirty Second Applicant

SHIRLEY SHEPHERD
Thirty Eighth Applicant

JOHN STARTARI
Fortieth Applicant

ANGELA STARTARI
Forty First Applicant

SEAR TAN-BOUNKEUA
Forty Second Applicant

ARGYRO THIMIOPOULOS
Forth Third Applicant

SHARON JOY ACKERS
Forty Ninth Applicant

SIMONE MAREE BERGER
Fiftieth Applicant

ANTONIA NICOLAU
Fifty Fifth Applicant

NICHOLAS PARIS
Fifty Sixth Applicant

RITA GOUGANOVSKI
Sixtieth Applicant

TALDARMAR HOLDINGS PTY LTD
Sixty Third Applicant

RAFFAELA LUSTRI
Sixty Fourth Applicant

VICKI VAMVALELLIS
Sixty Fifth Applicant

STAN VAMVALELLIS
Sixty Sixth Applicant

DESPINA VAMVELELLIS
Sixty Seventh Applicant

APHRODITE THIMIOPOULOS
Seventy First Applicant

AND:

AUSTCORP INTERNATIONAL LTD
Fifth Respondent

JUDGE:	RARES J
DATE:	1 MAY 2009
PLACE:	SYDNEY

TABLE OF CONTENTS

THE PARTIES AND STRUCTURE OF THESE PROCEEDINGS........ ........ ........ ...	[3]
PRINCIPAL ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[4]
(1)  Misleading or deceptive representation........ ........ ........ ........ ........ ........ ........ ....	[4]
(2)  Disclosure statement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[5]
(3)  Valuation and Damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[6]
(4)  Limitation Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[7]
STRUCTURE OF THESE REASONS........ ........ ........ ........ ........ ........ ........ ........ ........ .	[8]
1.  HOW THE MARKETING WAS DONE IN 1999-2000........ ........ ........ ........ ........ .	[10]
1.1  THE BROCHURE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[14]
1.2  THE LEAFLET........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[20]
1.3  APPROACH TO REPRESENTATIONS AND CONDUCT........ ........ ........ ........	[22]
2.  THE EVOLUTION OF THE PROJECT........ ........ ........ ........ ........ ........ ........ ........ .	[31]
2.1  THE INITIAL PHASE – THE DEVELOPMENT STALLS........ ........ ........ ........ .	[31]
2.2  AUSTCORP IS INVITED TO BECOME A PROMOTER........ ........ ........ ........ .	[39]
2.3  AUSTCORP’S GENERAL INVOLVEMENT IN ITS GROUP’S AFFAIRS.....	[55]
2.4  AUSTCORP ENGAGES PRD AND MR WALKER........ ........ ........ ........ ........ ...	[57]
2.5  AUSTCORP BECOMES A PROMOTER........ ........ ........ ........ ........ ........ ........ ....	[62]
2.6  AUSTCORP BEGINS WORK........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[67]
2.7  THE USE OF AUSTCORP’S LOGO AND BRAND........ ........ ........ ........ ........ ....	[73]
2.8  THE CONTRACT OF SALE TO THE APPLICANTS........ ........ ........ ........ ........ .	[84]
2.9  THE LEASE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[89]
2.10  THE PENRHYN PARKER CONTRACT SUMMARY........ ........ ........ ........ .....	[91]
2.11  THE DEVELOPMENT PROGRESSES........ ........ ........ ........ ........ ........ ........ ......	[94]
2.12  THE DISCLOSURE STATEMENT........ ........ ........ ........ ........ ........ ........ ........ ....	[105]
2.13  WAS MUSTARA A SUBSIDIARY OF PACIFIC INTERNATIONAL HOTELS?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[116]
2.14  COMPLETION AND MUSTARA’S LATER COLLAPSE........ ........ ........ .......	[129]
2.15  OTHER ASPECTS OF AUSTCORP’S GENERAL CONDUCT........ ........ .......	[143]
2.16  THE IMPACT OF THE MARKETING MATERIAL........ ........ ........ ........ .......	[157]
2.17  AUSTCORP’S CONDUCT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[179]
2.18  AUSTCORP’S ARGUMENT THAT IT COULD EXPECT AN INVESTOR’S SOLICITOR TO EXPLAIN THE CONTRACTUAL DOCUMENTS........ ....	[203]
2.19  EXCLUSIONS AND THE DISCLOSURE STATMENT........ ........ ........ ........ ...	[207]
2.20  A LATE CHANGE IN THE PROMOTIONAL ADVERTISING........ ........ .....	[211]
2.21 THE EFFECT OF S 84(2)(B) OF THE TRADE PRACTICES ACT........ ........ ..	[215]
3.  THE EFFECT OF THE REPRESENTATIONS ON THE APPLICANTS........ ....	[218]
3.1  THE APPLICANTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[230]
3.1.1  BRIAN OWERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[230]
3.1.2  MR OWERS SIGNS THE CONTRACT........ ........ ........ ........ ........ ........ ........ ...	[237]
3.2  SEAR TAN-BOUNKEUA........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[251]
3.2.1  MR BOUNKEUA PASSES HIMSELF OFF AS A SOLICITOR........ ........ .....	[256]
3.2.2  MS TAN-BOUNKEUA DECIDES TO PROCEED........ ........ ........ ........ ........ ...	[271]
3.3  LUCIANI/TALDARMAR........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[288]
3.3.1  LUCIANI/TALDARMAR ENGAGE SHEPHARD & SHEPHARD AS THEIR SOLICITOR........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[296]
3.3.2  THE CONFERENCE WITH MR FULLERTON ON 17 MARCH 2000........ .	[307]
3.3.3  DID LUCIANI/TALDARMAR RELY ON THE REPRESENTATIONS?......	[314]
3.3.4  ASSESSMENT OF MR AND MRS DI GIULIO’S AND MR LUCIANI’S EVIDENCE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[319]
4.  WERE THE REPRESENTATIONS MADE IN TRADE OR COMMERCE CORRECT?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[337]
5.  WERE THE REPRESENTATIONS RELIED ON AND WERE THEY MISLEADING OR DECEPTIVE........ ........ ........ ........ ........ ........ ........ ........ .....	[339]
Representations (a) and (h): each applicant would be assured of a 7% p.a. net rental return of the purchase price for 10 years........ ........ ........ ........ ........ .	[339]
Representation (b): net rental return would be achieved through the lease of apartments to Pacific International Hotels for a term of 10 years with two 10 year options........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[345]
Representation (c): the entity that would lease the apartments in the resort was a well known and/or well respected, successful, profitable, financially worthy provider of hotel management services........ ........ ........ ........ ........ ........ .	[346]
Representation (d): the entity that would lease the apartments in the resort was a leading manager of resort and apartment........ ........ ........ ........ ........ .......	[347]
Representation (e): the purchase of an apartment in the resort would be an outstanding investment with no hidden risks........ ........ ........ ........ ........ ........ .....	[349]
Representations (f) and (i): those responsible for the marketing of the resort were so confident of the success that they could and were prepared to say, without qualification, that investment in the complex would lead to a guaranteed 7% p.a. return for at least 10 years........ ........ ........ ........ ........ .......	[351]
Representation (g): “Pacific International” was so confident in the development success that it was prepared to guarantee for a 10 year period a 7% p.a. net return on the investment together with annual CPI reviews and 5 year market adjustments........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[352]
6. SECTION 51A – REASONABLE GROUNDS FOR THE REPRESENTATIONS WITH RESPECT TO A FUTURE MATTER........ ...	[353]
6.1  WERE ANY OF THE REPRESENTATIONS WITH RESPECT TO A FUTURE MATTER?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[358]
6.2  DID AUSTCORP HAVE REASONABLE GROUNDS?........ ........ ........ ........ .....	[374]
7.  SALES ATTEMPTS BY THE APPLICANTS........ ........ ........ ........ ........ ........ ........ .	[406]
7.1  Mr Owers’ attempts to sell his apartment........ ........ ........ ........ ........ ........ ..	[406]
7.2  Ms Tan-Bounkeua’s position........ ........ ........ ........ ........ ........ ........ ........ ......	[415]
7.3  Luciani/Taldarmar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[421]
8.  VALUATION OVERVIEW........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[428]
8.1  PROJECTIONS FOR THE OPERATING PERFORMANCE OF THE RESORT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[432]
8.2  VALUATION – PRINCIPLES........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[444]
8.3  SALES HISTORY IN THE RESORT........ ........ ........ ........ ........ ........ ........ ........ ...	[450]
8.4  VALUATION – THE EXPERT VALUATION METHODOLOGIES........ ........ .	[457]
8.5  THE EXPERTS’ JOINT REPORTS........ ........ ........ ........ ........ ........ ........ ........ ......	[463]
8.6  MR TEW CHANGES HIS OPINION........ ........ ........ ........ ........ ........ ........ ........ ...	[469]
8.7  FLAWS IN MR TEW’S COMPARABLE SALES ANALYSIS........ ........ ........ ...	[475]
8.8  MR DUPONT’S “KNOWN FACTORS” APPROACH........ ........ ........ ........ .......	[482]
8.9  VALUATION APPROACH........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[484]
8.10  CONCLUSION ON VALUE........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[493]
9.  ARE THE APPLICANTS’ CLAIMS STATUTE BARRED?........ ........ ........ ........ .	[501]
10.  DAMAGES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[516]
(a)      Tax benefits........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[517]
(b)      Mr Owers $33,000 cash deposit........ ........ ........ ........ ........ ........ ........ .....	[522]
11.      CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[526]

REASONS FOR JUDGMENT

1. The applicants each bought apartments off the plan in a resort development on the waterfront at The Entrance, a town on the Central Coast of New South Wales.  The Entrance and other locations were, and are, popular holiday destinations within a relatively short driving distance from Sydney.  The promotional material which got them interested in purchasing promised them a guaranteed 7% p.a. net return “with the security of strata title and a ten year lease to Pacific International Hotels’.  They were told this was a “five star investment”.  They borrowed most, if not all, of the purchase price.  But, less than 2 years after completing their purchases, the lessee, Mustara Holdings Pty Limited a subsidiary of Pacific International Hotels Pty Limited, went into administration. Subsequent operators of the resort paid the applicants a return of far less than 7% p.a. before expenses.

2. One or more companies in the group of companies controlled by the fifth respondent, Austcorp International Limited (Austcorp), was or were involved in developing the resort and promoting the sale of apartments in it.  Senior Austcorp group executives wrote or approved the promotional material.  A critical issue of causation involve the assessment of responsibility of Austcorp, as opposed to one of subsidiaries, in, and the impact of, the marketing of apartments in the resort to potential investors and the decision making process of each investor.  The applicants claimed that Austcorp itself engaged in conduct that was misleading or deceptive and caused them to purchase their apartments and thus incur loss.  Austcorp both denied that it, rather than a subsidiary, was liable and that the applicants were misled or deceived.  It said that if the applicants were misled or deceived they should have sued one or more of its subsidiaries that actually carried out the development rather than Austcorp itself.  The parties also are in dispute as to how any loss should be quantified.

   THE PARTIES AND STRUCTURE OF THESE PROCEEDINGS

3. A considerable number of investors began these proceedings.  These reasons deal with three test cases.  Originally I had made orders for a separate hearing of five claims which the parties had selected as raising questions representative of most issues common in a variety of situations involving the various other applicants and respondents.  During the early part of the hearing those investors who had dealt with Landillo Pty Ltd, the first respondent, in its initial marketing and its real estate agent, D & B Project Marketing Pty Ltd, the second respondent, and those with claims against a real estate agent at The Entrance, Lamont Bros PRD Realty, resolved their disputes. PRD was operated by Xepa Pty Limited, the fourth respondent.  I will refer to this agent as PRD.  Warren Walker worked as a real estate agent at PRD.  (In 2002 Pacific International Hotels, changed its name to Frisbo Holdings Pty Ltd.  It was named in the application as the third respondent but was then in liquidation and the applicants never sought leave to proceed against it.)  This left as active parties in the overall proceedings only those investors who had claims against Austcorp.  The three test cases are claims by:

   ·Brian Owers in respect of his purchase of a one bedroom loft style apartment for $330,000;

   ·Sear Tan-Bounkeua in respect of her purchase of a one bedroom studio apartment for $190,000;

   ·Joseph Luciani and Taldarmar Holdings Pty Ltd (the family company of his sister Marie Di Giulio and her husband, Dino) in respect of their purchase of a one bedroom loft style apartment for $340,000.   For simplicity I will refer to these investors as “Luciani/Taldarmar”.

   PRINCIPAL ISSUES

   (1)  Misleading or deceptive representation

4. Each of the three claims requires individual consideration of the circumstances leading to the investors’ entry into and completion of their contracts for purchase.  In addition to the issue of whether Austcorp itself, as opposed to one or more of its subsidiaries, engaged in the conduct complained of, this also involves assessing whether each investor was misled by that conduct into making the purchase.  Both Mr Owers and Luciani/Taldarmar engaged solicitors to act for them on their purchases, while Ms Tan-Bounkeua did not.  There is a dispute as to whether the solicitors explained, or could reasonably have been expected (by Austcorp) to have explained to their clients the true nature of the proposed investment, as disclosed by the contract for sale, so as to dispel any claimed deficiencies and alleged misrepresentations in the marketing material (including Mr Walker’s and PRD’s statements to like effect).  And, in Ms Tan-Bounkeua’s case, there is an issue as to whether her failure to retain a solicitor to advise her resulted in her not being able to claim that she was misled or deceived by the conduct complained of when she entered into the contract for sale.

   (2)  Disclosure statement

5. There is also a dispute as to whether a disclosure statement by Landillo provided to Luciani/Taldarmar had a dispelling effect.  In addition, Austcorp claimed that it is likely that a disclosure statement was provided to Mr Owers, although there is no direct evidence that this occurred.

   (3)  Valuation and Damages

6. There were also significant questions as to whether the apartments were worth less than what each investor paid under the contract.  The expert witnesses dealing with valuation and related issues had substantively different methodologies.  Finally, there are questions whether Mr Owers is entitled to damages in respect of some cash savings he invested in his purchase and his net gain after taking into account the effect of the tax benefits he received.

   (4)  Limitation Issue

7. Austcorp alleged that the investors’ claims were statute barred, being commenced only on 1 August 2006, more than six years after they had entered into their contracts to purchase.  It also argued that in early 2000 Mr Owers and Luciani/Taldarmar had incurred liability for their respective solicitors’ legal fees and that this was damage incurred more than six years before the expiry of the limitation period.

   STRUCTURE OF THESE REASONS

8. In order to understand the context in which most of the issues arise, at the outset I will briefly describe the general nature of how the apartments were marketed and the principal representations which the applicants claimed were made to them.  I will outline first, the marketing activities (consisting of the promotional brochure, a similar leaflet and the confirmatory statements by the real estate agent, Mr Walker) and the representations complained of.  Secondly, I will deal with the evolution of the project, Austcorp’s involvement and the other circumstances leading up to when the applicants entered into their contracts to purchase their apartments and the related documentation.  This will involve ascertaining whether Austcorp itself was a party to any conduct complained of.  Thirdly, I will examine whether each applicant established that any of the representations was misleading or deceptive and if any relevant representation was in fact a cause of the applicant’s decision to purchase.

9. Fourthly, I will consider whether Austcorp had reasonable grounds for making any representations as to future matters.  Fifthly, I will deal with Austcorp’s limitation defence.  Sixthly, I will examine each applicant’s conduct after Mustara collapsed in respect of his, her or its failure to sell in 2002 or 2003 when sales of apartments in the resort were realising prices in excess of the earlier purchase price.  Then I will consider the valuation issues to determine whether the apartments were worth less than the purchase price at the time of completion of the contracts.  Last I will deal with damages.

   1.  HOW THE MARKETING WAS DONE IN 1999-2000

10. The Austcorp group’s business was founded at the beginning of 1992.  Trevor Chappell was and remains the managing director of Austcorp.  He was a certified practising accountant and an experienced company director.  During the period between 1999 and 2001 the group’s business was property development.  As Mr Chappell described, by early 1999 the group had extensive experience in that field.  Moreover, Mr Chappell, himself, by that time had over 25 years experience in property development and the investment industry.  Mr Chappell worked closely with Edgar Hung, who was an executive director of Austcorp.  He was an experienced and qualified engineer.  Mr Hung had been involved in the property development and investment industry for about seven years.

11. By late 1999, construction of the resort was underway.  Signs were displayed on the building site, including a large and prominent one with “Austcorp” in black block letters against a white background with a small Austcorp logo at the top right and the words, in smaller block letters, “development by” at the top left.  The logo had Austcorp’s name in white against a dark brown background with a light golden kangaroo below the name.  Each applicant (except Mrs Di Giulio) described how in late 1999 or early 2000 he or she was at The Entrance, noticed the development and then went to the PRD sales office adjacent to the building site.  There he or she met with Mr Walker.  He gave them a brochure and, in some cases, a leaflet, which I will describe shortly.  He also gave them a price list with the apartments then on offer, their prices, size, entitlement to carspaces and, under the heading “Rent Guarantee”, the amount of the yearly rent.

12. Additionally, Mr Walker gave Ms Tan-Bounkeua two indicative depreciation schedules for a two bedroom apartment, one with and one without furniture and a pro forma negative gearing worksheet.  These showed that if a large part of the purchase price were borrowed on an interest only loan, the tax deductions for interest and depreciation would result in a not insubstantial positive flow after tax.

13. Generally, most applicants had two meetings with Mr Walker in which he, in substance, repeated what was in the written promotional material he had given them.  While these discussions emphasised or reinforced that material, the applicants did not suggest that he added anything new of substance to the representations that they alleged were conveyed in writing.  Usually after the second meeting the applicant paid a holding deposit of $1,000 for their chosen apartment and gave Mr Walker details of their solicitor, or person to whom the contract should be sent.

    1.1  THE BROCHURE

14. Mr Chappell and Mr Hung participated in preparing the brochure which was used to attract, and interest, potential purchasers in the resort.  The brochure was printed on glossy paper folded in three so that it appeared as the size of an A4 page turned on its side.  On the front cover of the brochure there is a theme of star fish, with four displayed towards the bottom right and a fifth in the hands of a snorkeller who is surfacing in the water.  To the left of the snorkeller are the words:

    “A 4-star
    waterfront
    serviced
    apartment
    returning
    7% net?”

15. Below this “The Entrance” is written in the sand.  When the reader opens the brochure, two pages initially appear.  On the left page, forming the underside of the front cover, are pictures of The Entrance area, and some text.  On the right page is an artist’s impression of the resort building.  Across the bottom of the two pages, written in sand, are the words “That’s a 5 star investment” and next to that are five star fishes.  Above the star fishes and the word “investment” is an artist’s impression of the hotel showing it facing the waters at The Entrance with its well-known bridge in the background and some pelicans in the foreground.  On the left hand page there is a logo of Pacific International Waterfront Resort (which uses the first two words and the logo of Pacific International Hotels).  On the right  hand side of the left hand page the following text appears:

    “Position, potential and performance

    The Central Coast is booming.  And right in the heart of the area at The Entrance, where several lakes meet the ocean, a new waterfront resort is being built in a prime position.

    The Pacific International Waterfront Resort investment apartments will capitalise on the Coast’s growing reputation as a tourism and conference destination.  Each comes with the security of strata title and a ten year lease to Pacific International Hotels, with options for renewal for two further ten year periods.”

16. When the right hand page is opened two more pages appear.  In the centre there are four columns with a total of five star fish.  Above or beside the entries are various photographs of activities associated with The Entrance and the following text:

    “An investment package without equal

    It’s hard to imagine a real estate investment offering so much.  From day one your return will be a guaranteed 7% p.a.  Rents are subject to annual CPI linked reviews, with provision for market adjustments every five years.

    Also, above average depreciation allowances are part of the picture.

    Choose from studios, one or two bedroom apartments

    All apartments are completely furnished and feature a large balcony or terrace.  Many will feature a dual-key format providing many options for travellers.

    No outgoings, levies or maintenance

    Outgoings and levies will all be paid by the operator (except for land tax and capital items if they occur).  The operator, Pacific International Hotels, will fully maintain the apartments and the resort to a 4-star standard including redecorating and replacement of furnishings.

    No managing agent

    When you invest in Pacific International Waterfront Resort, you won’t pay between 7% and 10% to a managing agent, because Pacific International Hotels takes care of it all for you.  They have advanced accounting and reporting systems in place enabling direct rental payment and owner reporting.

    Spoil yourself with a free week, every year

    Feel like a break?  Each year of the lease period, you or your friends can enjoy a FREE 7 day off-peak stay at the Pacific International Waterfront Resort.

    You’ll also qualify for

    *Free membership to Pacific’s International Club, with accommodation discounts up to 50% off published rates at other Pacific properties, discounts at retail establishments, cinemas and on Hertz rental cars.

    *Free membership to Flag’s Inn Club, with benefits including discounts at any of Flag’s 450 properties Australia-wide.”

17. On the far right hand page, on the right hand side are more pictures of The Entrance with another five starfish and the word “investment” written in sand.  Thus, when the whole brochure is folded out, the words “That’s a 5 star” and “investment” appear respectively on the left hand and right hand pages.  Again, there are two pages with five star fish on each of them in this form of the brochure.  On the right hand page on the right hand side there are more pictures of scenes from The Entrance.  The text on that page is set out as follows:

An experienced and successful operator				Invest now – 70% already sold
Pacific International Hotels are leaders in resort apartment management.  They are supported by a substantial international bookings network as well as being members of Flag Choice.  Pacific International has been awarded “Best Property” and “Best Hotel” Australia-wide within the Flag Group. The Central Coast’s premier resort The Pacific International Waterfront Resort will make the most of its sensational waterfront position.  It has been designed from the outset to provide guests with the ultimate getaway and to become the Central Coast’s premier conference destination.  It offers guests the chance to do as little or as much as they like, enjoy facilities including:				Pacific International Waterfront Resort is currently under construction and due for completion mid 2000. However, with 70% of the apartments already sold, your prompt action is recommended if you wish to take advantage of this prime investment opportunity.
*	heated swimming pools & spas	*	child care facilities, kids’ club & children’s aquatic recreation area
*	pool bar	*	restaurant and coffee shop
*	fully equipped conference centre	*	Resort shops and tour desk
*	Gymnasium	*

1. On the back of the brochure, a second but smaller reproduction of the artist’s impression of the hotel appears with an arrow locating it on a map of The Entrance, showing it as proximate to the channel, the pelican feeding area and The Entrance Bridge.  To the right of that is another map showing the F3 freeway as being 45 minutes drive from Hornsby, a northern suburb of Sydney.  There are five starfish below that map.  On the left underneath the artist’s impression are the following words:

   “A unique investment in
   tourism and waterfront
   property available now at
   Pacific International
   Waterfront Resort …
   and remember, the views last forever.”

2. Below the drawings and maps there is a white band with printing.  On the left of the band are the display’s office hours of 9am to 5pm seven days a week and PRD Realty’s address.  To the right of that is the PRD Realty logo with its telephone number and the mobile telephone number of Warren Walker.  To the right of this is a logo of Pacific International which has the words “Hotels-Inns-Resorts-Apartments” as part of it.  To the right of that are the words “DEVELOPMENT BY” and underneath that Austcorp’s logo.  To the right of that is the logo of Great Pacific.

   1.2  THE LEAFLET

3. Mr Walker gave to Ms Tan-Bounkeua and Messrs Luciani and Di Giulio a leaflet printed on glossy A4 paper.  On the top third of the page in white print on a blue background there was printed in large letters:

   “A RELAXING WAY TO EARN 7% NET … FROM WATERFRONT PROPERTY”

4. Underneath that, on the left hand side of the page was the following wording which appeared adjacent to an artist’s representation of the resort, under which were pictures of a snorkeller with a starfish in his hand, an angler fishing at The Entrance with the bridge visible in the background and some golfers:

   “The Pacific International Waterfront Resort investment apartments will capitalise on the Central Coast’s growing reputation as a tourism and conference destination.

   It’s a combination of factors.  Like its prime waterfront position at The Entrance, on the booming Central Coast, the security of a 10-year lease +2x10 year option, and a guaranteed 7% net return.  Other advantages of investing in Pacific International Waterfront Resort include:

   Individual Strata Title for each apartment

   Above average depreciation allowance

   Choose from 145 studios, one bedroom
             apartments and two bedroom apartments

   Annual 7 day free off-peak stay for owners

   Priced from $145,000”

   At the foot of the leaflet were contact details for Mr Walker and the logos of PRD, Pacific International, Austcorp and Great Pacific.

   1.3  APPROACH TO REPRESENTATIONS AND CONDUCT

5. The applicants pleaded that Austcorp engaged in misleading or deceptive conduct in three ways, based on the contents of the brochure, the leaflet and Mr Walker’s repetition or reinforcement of some of the representations in those two documents.

6. First, the applicants pleaded that by providing the brochure which Mr Walker gave them at PRD, and causing it to be published to them, Austcorp engaged in conduct in contravention of s 52 of the Act. They alleged that Austcorp represented to him or her, as a potential purchaser of real property in relation to apartments in the resort, that:

   (a)they would be assured of a net rental return of 7%p.a. of the purchase price for 10 years;

   (b)this net rental return would be achieved through the lease of apartments in the resort to Pacific International Hotels for a term of 10 years with two further 10 year options;

   (c)the entity that would lease the apartments in the resort from purchasers was a well known and/or well respected and/or experienced and/or successful and/or profitable and/or financially worthy provider of hotel management services;

   (d)the entity that would lease the apartments in the resort was a leading manager of resorts and apartments;

   (e)the purchase of an apartment in the resort would be an outstanding investment with no hidden risks;

   (f)those responsible for its marketing were so confident of its success that they could and were prepared to say, without qualification, that investment in the complex would lead to a guaranteed 7% p.a. return for at least 10 years;

   (g)“Pacific International” was so confident in the development’s prospects that it was prepared to guarantee for a 10 year period a 7% p.a. net return on the investment together with annual CPI reviews and five year market adjustments.

1. Each representation in the brochure was alleged to be misleading or deceptive or likely to mislead or deceive because of the following factors:

   1.Mustara was not a leader in resort apartment management and had no involvement in hotel or apartment management, had not received any awards for hotels or properties that it managed and had no significant assets other than its proposed interest as manager of the resort and lessee of the apartments in it.

   2.There was a real risk that purchasers would not receive the promised rental return from their leases if Mustara did not make a sufficient net profit from its operation of the resort to meet the obligations under the leases.

   3.The receipt of the 7% net return would depend on occupancy levels being sufficient to generate enough profit for Mustara to meet its rental obligations and that there was a real risk that Mustara might not be able to meet all of the outgoings under the lease if it did not make a sufficient net profit.

   4.There was also a real risk that Mustara might not be able to maintain the apartments to a four star standard, replace carpets, furniture and the like if it did not make a sufficient net profit and that depended, again, on occupancy levels.

   5.There was a real risk that Pacific International might transfer its shares in Mustara to a company with little or no reputation, experience or success in the management of hotels or serviced apartments.

   6.Mustara was a company with $2 paid up capital first incorporated in May 1997 and Pacific’s obligations to the applicants, as purchasers, were limited to those in cl 20.9 of the lease.

2. Secondly, Ms Tan-Bounkeua and Luciani/Taldarmar also pleaded that by providing the leaflet which Mr Walker gave them at PRD and causing it to be published to them, Austcorp engaged in conduct in contravention of s 52 of the Act by representing to him, her or it as a potential purchaser of apartments in the resort that:

   (h)they would be assured of a net rental return of 7% p.a.of the purchase price for 10 years;

   (i)those responsible for the marketing of the resort were so confident of its success that they could and were prepared to say, without qualification, that investment in the complex would lead to a guaranteed 7% p.a. return for at least 10 years.

3. Each representation in the leaflet was alleged to be misleading or deceptive because of factors 2 and 3 complained of in respect of the brochure and a (truncation of factor 1, namely) that Mustara had no significant assets other than its interest as manager of the resort and as lessee of the apartments in the resort.

4. In addition, the applicants also pleaded that PRD, through Mr Walker, informed each of them that a return of 7% p.a. was guaranteed for 10 years.  The evidence satisfies me that Mr Walker made such a statement to each applicant [see 3. below].  That statement is no different in substance to representations (a) and (h) and I will not deal separately with it for that reason.

5. Each of the applicants gave evidence to the effect that he or she understood that the 7% net guaranteed return was “guaranteed” because the lease provided for a fixed return, rather than a return ascertained from or dependent upon occupancy rates of the resort [see 3. below].  In other words, the lease itself guaranteed the return.  Each also said that, taken in isolation, if Mustara were known to them to be a $2 company with no substantive assets, but was a subsidiary of Pacific International Hotels, that would not have troubled them.  However, if it were not known to have been a subsidiary of Pacific International Hotels, they would not have gone ahead.

6. Likewise, each of the applicants said that they would not have gone ahead if he or she had realised that Pacific International Hotels’ guarantee was limited to a maximum of 12 months’ rent under cl 20.9 of the lease to Mustara.  That was, in effect, because they were intending to borrow 90% or 100% of the purchase price and then obtain the benefit of negative gearing under the income tax legislation using the “guaranteed” rent to finance most of their expenses it being (in the sense of it being fixed at 7% of their purchase price).  There were also other taxation benefits such as depreciation and a small amount of amortisation.

7. Austcorp argued, however, that each applicant received all contractual documents which, if properly read and understood, revealed the true position in respect of the limitation of Pacific International Hotel’s preparedness to guarantee the venture.  There are issues between the parties concerning the ongoing effect of the representations juxtaposed against the receipt of the whole of the contract, the use, by some of the applicants, of solicitors to give them legal advice, the provision to some of the applicants of disclosure statements and the capacity of the representations to continue to influence the applicants at the time they entered into the contract or completed it.

   2.  THE EVOLUTION OF THE PROJECT

   2.1  THE INITIAL PHASE – THE DEVELOPMENT STALLS

8. By early 1997, Landillo was seeking to develop its land at The Entrance as a resort style serviced apartment hotel.  It prepared a strata plan for the development and in May 1997 obtained development consent from Wyong Shire Council for a building with over a hundred and forty apartments, a restaurant, hotel lobby and conference facilities.  The effect of the development would nearly double the supply of rooms in The Entrance area: room supply would increase by about 10% in the Central Coast area generally.

9. Importantly, the council imposed a condition on the consent that required the apartments to be used solely as serviced apartments, providing short term stay accommodation.  Thus, a person considering the purchase of an apartment would be likely to consider it as an investment property with which to earn a return, rather than as a holiday home, except perhaps for intermittent short term breaks.  Each apartment would be a separate strata title unit registered in the investor’s name.

10. On 9 June 1998 Landillo entered into a management agreement with Mustara Holdings and Nigel Corne, personally, for the operation of the resort.  Mustara was to be the operator of the resort.  It was then a wholly owned subsidiary of Pacific International Hotels.  Mr Corne guaranteed Mustara’s obligations under the management agreement.  He was then the sole director of Mustara.  He was also the chief executive and, at least, 50% beneficial owner of Pacific International Hotels.

11. In broad terms, the management agreement contemplated that Mustara would enter into a number of leases in order to operate the resort.  First, it would lease all the apartments from Landillo’s purchasers.  Secondly, Mustara would lease from Landillo, or the registered proprietor of each strata title unit, two areas on the ground floor of the building, known respectively as the manager’s lot, and the restaurant lot.  The manager’s lot comprised the hotel reception desk and some office space.  (Later in September 1999 it also came to include most of the common area on the ground floor).  The restaurant lot included the restaurant and kitchen (which would enable the resort to provide room service food and beverages).

12. The important features of these arrangements for present purposes are that first, Landillo could sell either or both of the management lot and restaurant lot to one or two, different purchasers, and, secondly, Mustara might not be in a position in the future to transfer or assign its interest as lessee in all its leases (i.e. of the apartments, management and restaurant lots) to any incoming operator, e.g. if Mustara were insolvent and its leases were terminated.  In that latter case, any new operator would have to negotiate new leases with all the landlords in order to operate the resort, without any assurance that it could obtain similar or commercially acceptable terms from all or any of those landlords.

13. Landillo engaged D & B to devise and conduct the initial marketing campaign for the sale of the apartments to investors.  But Landillo never obtained finance.  By April 1999 construction of the resort had not started, while Landillo had entered into many conditional contracts to sell apartments off the strata plan.  Each purchaser had paid a deposit.  Their contracts initially provided that the purchaser had a right of rescission if the strata plan was not registered in the Land Titles Office of New South Wales before 31 December 1999.  And the contracts provided that once the strata plan was registered, completion had to occur within 14 days after that event.

14. For a period preceding May 1999 Mr Corne had been dealing with Alfred Wong and the Great Pacific Finance group (which Mr Wong appears to have controlled) in pursuing the development of other hotel projects to be operated by Pacific International Hotels.  They and their companies had been involved in developing a serviced apartment project in Kent Street, Sydney, for Pacific International Hotels to operate.  The two had also continued to work on developing an apartment hotel in Parramatta which would also be operated by Pacific International Hotels.  Neither Mr Corne nor Mr Wong gave evidence.  I infer that they discussed the difficulties Landillo was experiencing but were unwilling to take on the burden of financing the development themselves.  They decided to approach Austcorp.

15. Sometime in 1998 Mr Wong had raised with Mr Hung the possibility of Austcorp being involved in the Parramatta project his group was developing for Pacific International Hotels.  But that proposed co-operation did not go ahead.  By then Mr Hung had known Mr Wong for over four years and considered Mr Wong to be a very capable businessman.  Mr Wong’s companies had assisted the Austcorp group with finance for its developments and Mr Hung and Mr Wong had met regularly since 1995 to discuss potential projects that one or the other had come across. 

    2.2  AUSTCORP IS INVITED TO BECOME A PROMOTER

16. In about late April 1999 Mr Wong approached Mr Hung with a proposal for Austcorp to become involved in the development of the resort.  Mr Wong told Mr Hung that Mr Corne had described the resort as being a project at a fantastic site that he really liked.  He said that he had worked with Mr Corne for the previous two or three years. Mr Wong described the project to Mr Hung, telling him that Pacific International Hotels had been signed up to manage and operate the hotel.  Mr Wong told him that the operator would lease the apartments from investors with the restaurant, office areas and conference areas on the ground floor.  Mr Wong explained that originally it had been planned to open the resort before the Sydney Olympics in August 2000, but the current developer was unable to finish the project.  He told Mr Hung that he wanted the resort to happen and sought Austcorp’s help.  Mr Wong outlined that Mr Corne had gained his experience in the hotel industry initially through working in his family’s business, operating the Cosmopolitan Hotel in Double Bay, close to Sydney.  He said that Mr Corne held a high position on the Australian Hotels Association and that he trusted Mr Corne’s judgment because he was a very good and very conservative operator.

17. Next, Mr Hung related to Mr Chappell his conversation with Mr Wong.  Mr Chappell had met Mr Corne previously in connection with the Parramatta project.  He was impressed by Mr Corne and considered him to be an experienced operator with a long track record of experience in the industry.  Mr Chappell understood that Pacific International Hotels were then operating six or more hotels and proposed to operate up to twelve.

18. In about late April or early May 1999 Mr Chappell and Mr Hung met with Mr Wong.  Mr Wong told them that he was keen for Mr Corne to proceed with the venture at The Entrance.  He encouraged Mr Chappell and Mr Hung to get Austcorp to enter into a joint venture with his group to develop the building so that Pacific International Hotels would be able to operate the completed resort as part of its hotel chain.  Mr Wong told them that he had conducted his own investigations and was satisfied that the project was sound and viable.  He provided then with a pamphlet which summarised various hotels that Pacific International Hotels then operated and those it was proposing to operate in Victoria and New South Wales.

19. That pamphlet was a double side printed A 4 page headed “Flash Facts”, with Pacific International Hotel’s logo at the top.  It described 12 hotel, apartment and resort projects.  Only six of those projects were actually operating businesses.  As the pamphlet described, the others were proposed to be opened, the first from about March 1999.  Three of the operating businesses were in Sydney and Bankstown.  Two more were proposed to be in Sydney, one in George Street, another in Kent Street and a third in Parramatta.  Two properties were on the Central Coast, one being the resort which was described as being proposed to be opened in April 2000, the other was a resort at Toukley.  The two other properties were operating in Central Melbourne with a further two proposed to open in Melbourne later.  Thus, the pamphlet demonstrated that in mid 1999 Pacific International Hotels was engaged in a very considerable expansion of its business and operations.

20. Mr Chappell said that the pamphlet was the only information concerning Pacific International Hotels which he received other than what he learnt at the meeting that he attended with Mr Hung and Mr Corne shortly afterwards.  At this time the Austcorp Group, Mr Chappell and Mr Hung had no experience in the operation of hotels.

21. An experienced businessperson in the position of Mr Chappell and Mr Hung would have appreciated immediately that Pacific International Hotel’s financial position was critical for the purposes of it being able to undertake the development and operation of six new properties over the period of about one and a half years as described in the pamphlet.  It would be obvious to such a person that the establishment costs of each business would be substantial and that each of the hotels, apartments or resorts would take some time to develop a goodwill or reputation from which any reliable return and occupancy rate would be achieved.  New businesses need time and access to substantial working capital while they develop a reliable income stream.  Experienced businesspersons like Mr Chappell and Mr Hung must have appreciated this, and I find they did.  However, this issue was of no concern to them because Austcorp was examining the proposal as a developer that would earn its profit by selling all the units in the development.

22. In early May 1999, probably at their meeting with Mr Corne, Mr Chappell and Mr Hung received a five year forecast for the operation of the resort prepared by Pacific International Hotels.  In giving evidence, they identified a copy of a contemporaneous forecast as either the one, or similar to the one, they saw then.  This forecast projected profits of about $1.4 million before interest, rent and taxes commencing in the year ending April 2000 and rising to about $3.9 million in 2004. 

23. Mr Chappell said that he understood that the first year’s operations in the projected figures showed that the project was “marginal at best”.  The projection allowed $1,223,000 to be contributed to the operator by Landillo for half of the first year’s rent together with a further sum of $500,000 for pre-opening expenses as provided in cl 22 of the management agreement, at cll 22.3 and 22.6.  After the rent the operator paid to the owners of the apartments (the investors) to generate their returns, its net profit in the first year was $4,000.  By the year 2004 in the projections, the hotel profit, after payment of rent to investors, was projected at being $877,000.  The key aspects of the projections are in the following table:

OLYMPICS	($ 000)
YEAR ENDING APRIL	2000	2001	2002	2003	2004
NO. ROOMS	143	143	143	143	143
OCCUPANCY	40.0%	57.0%	65.0%	65.0%	65.0%
AVERAGE TARIFF	$145.00	$166.80	$166.80	$175.10	$183.90
…..	….	….	….	….	….
NET PROFIT B4 [BEFORE] INTEREST, RENT & TAXES	1410	3053	3494	3679	3891
BASE RENT	1223	2447	2447	2557	2557
HOTEL PROFIT	4	247	637	801	877

1. That projection evidently had been prepared some time before because it proceeded on the basis that by April 2000 the resort would have been operating for a year which was impossible since Mr Chappell and Mr Hung received it in May 1999 in connection with a discussion as to whether the construction of the resort would proceed at all.  Mr Chappell said that one of Pacific Hotel International’s senior managers attended the meeting and they all spent about half an hour going through the projections.  However, Austcorp did not make or obtain any independent analysis of Pacific International Hotels’ overall financial position, or market analysis of the area in which the resort was to operate.  Austcorp made no attempt then or later to obtain any updated projections for its own use.  And, it was a five year, and not a ten year, projection. 

2. Mr Corne told them that the Crown Plaza Hotel at Terrigal (a beach resort not far from The Entrance) had been achieving better occupancy levels than were forecast in the projection for the resort.  He also gave them an Australian Hotels Association set of confidential statistics showing that the Terrigal hotel’s 196 rooms achieved an average occupancy of 71.45% with a gross revenue per room of $204.55 and a net revenue of $146.14. 

3. Austcorp argued that it could not be expected to examine projections of this kind with any particular expertise or knowledge of the hotel industry because it had no experience in that industry.  I reject that argument and deal with it in more detail below [see 6. below].  Broadly, Austcorp simply accepted the projections at face value for the purposes of making representations relating to a projected return over a ten year period for an investment in a resort to be operated by Pacific International Hotels.  Both Mr Chappell and Mr Hung knew that Pacific International Hotels was then undergoing the very considerable proposed expansion of its activities.  While each said that he considered that the projections he had seen in May 1999 seemed to be reasonable or conservative, I do not accept that either of them gave any detailed attention to them.  They took the view that Austcorp could rely on the projections as a sufficient analysis of the likely financial operation of the resort once the development had been built, and as a basis on which to proceed because of Mr Wong’s and Mr Corne’s assertions of comfort with them.  This was despite them being aware that the projections were out of date, for the shorter period of five years,  lacked independence and were put forward by Mr Wong and Mr Corne who were seeking to involve Austcorp in the project after others had failed to raise sufficient capital to enable it to proceed.

4. In late May 1999, Mr Hung received legal advice from one of Austcorp’s solicitors, Tzovaras Yandell, concerning the application of the Managed Investments Act 1998 (Cth) (which inserted Ch 5C into the Corporations Law).  Tzovaras Yandell discussed issues which are not of any present relevance but observed emphatically in their advice of 31 May 1999 that the guarantor (i.e. Pacific International Hotels) “… is not a public company of substance”.

5. The reason for Austcorp’s casual approach to the accuracy and reliability of the projections was explained by each of Mr Chappell and Mr Hung in his evidence.  Each said that Austcorp’s involvement was to be relatively short-term.  It would develop the building and then take its share of revenue from sales.  After that point, he said that Austcorp would not be involved in the ongoing operation of the resort or derive any further revenue from it.  Thus, the projections had no apparent bearing on Austcorp’s decision to invest, because it would not be involved with the operation and financial performance of the completed development.

1. Austcorp relied on the payment by each of Mr Owers and Ms Tan-Bounkeua of the $1,000 holding deposit and their later payments of the balances of their respective deposits prior to 1 August 2000 as damage suffered by them.  However, those moneys would have been refunded if the contracts had been rescinded.  In that event they would not have suffered any loss.  Therefore, those deposits were in the category of contingent loss or damage.

2. Austcorp also argued that Luciani/Taldarmar suffered loss or damage on 14 March 2000 when they paid St George Bank $352 for a deposit bond of $34,000.  Leaving aside that this too was outside Austcorp’s pleaded defence, I am of opinion that the outlay of $352 on the deposit bond was not loss or damage suffered by Luciani/Taldarmar more than six years before 1 August 2006.  This is because the economic interest they claimed was infringed was the overpayment of the purchase price representing the difference between that price and the true value of the apartment which they paid to Landillo.

3. The applicants’ claim was for damage caused by their entry into contracts which they became obliged to complete only on 1 August 2000.  That was the first occasion of any relevant infringement of the applicants’ economic interests, for they were then legally obliged to pay the price which the wrongdoer (misrepresentor) had misled them to agree to pay:  Wardley 175 CLR at 533.

4. In Wardley 175 CLR at 527 Mason CJ, Dawson, Gaudron and McHugh JJ explained the distinction between detriment, in a general sense, and damage suffered on entry into an agreement induced by a misrepresentation which is, or proves to be, to an applicant’s disadvantage. The applicant will sustain a detriment in a general sense because the agreement subjects him, her or it to obligations and liabilities which exceed the value or worth of the benefits which it conferred on that person. But such a detriment will not necessarily amount to more than a contingency of future loss. In general, it is only when the contingency is fulfilled that an applicant will be found to have suffered loss or damage sufficient to infringe his, her or its economic interests for the purposes of an action under s 82(1): Wardley 175 CLR at 533. It is self-evident that the applicants would not have been able to sue for damages in respect of the losses they claim here before they completed or were legally bound to complete their contracts. Risk of loss is not actual loss. The mere entry into the contract did not, of itself, require each applicant to complete it since that obligation would only arise, or be able to be enforced by or against the applicant, once the strata plan was registered: Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 at 407-409 [46]-[54]. In Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 at 43C-D Burchett and Hill JJ (Sackville J agreed at 45C; see too at 48E) held that where a lessee had been induced by the lessor’s misrepresentations as to takings into entering into a lease, the question for limitation purposes was “… when was it that the loss which the [applicants] ultimately suffered (or a more than negligible part of it) was either ascertained by them or reasonably ascertainable?”

5. Here, the small amounts paid for the deposit bond and other disbursements were negligible in comparison to the price payable to Landillo.  Moreover, no issue was raised on the pleadings that some other matter, such as legal costs and disbursements or the cost of a deposit bond created a time bar.  I reject Austcorp’s reliance on these matters as being outside its pleadings.

6. But, in any event, the relevant loss or damage that the applicants claimed under s 82 of the Act was that “by” Austcorp’s contravention of s 52 they paid Landillo more for their apartments than they were worth: Wardley 175 CLR at 527, 532-533. I am of opinion that Mr Owers and Ms Tan-Bounkeau are not prevented by s 82(2) from recovering that loss

   10.  DAMAGES

7. The parties agreed (by the end of final address) the quantum of damages (before interest) that would be recoverable as expenditures incurred (other than the loss of value on the purchase price which I dealt with under the heading “Valuation”) if the applicants succeeded except in two respects concerning Mr Owers.  These were:

   (a)whether he made a recoverable loss since, after paying $48,837 more than he earned in returns from the apartment, Mr Owers obtained taxation deductions which left him a net $2,335 better off;

   (b)whether Mr Owers should recover damages on the $33,000 deposit that he paid from his bank account and did not borrow.

   (a)       Tax benefits

8. In final address Austcorp accepted that up to 31 March 2008 Ms Tan-Bounkeua and Luciani/Taldarmar had incurred agreed amounts that they would not have spent or become liable to pay as a result of their financing the acquisition of their apartments.   Those amounts were agreed by the parties’ expert accountant witnesses in a joint report. On this basis, Ms Tan-Bounkeua had incurred a loss of $52,473 and Luciani/Taldarmar had incurred a loss of $116,868.  This recognised that those applicants had incurred these losses before taking account of income tax deductions or benefits which they obtained in consequence of their expenditures included in the total sums.  The parties accepted that any taxation consequences for those applicants were not relevant to the amount of damages to which they were entitled.  The individual applicants will have to deal with the taxation consequences of any award in due course.

9. However, Austcorp claimed that after taking into account taxation, Mr Owers was $2,335 better off for having made his investment even though it conceded that he incurred $48,837 (before tax) in expenses of the same nature as it accepted were recoverable by Ms Tan-Bounkeua and Luciani/Taldarmar were they to succeed.  Austcorp gave no satisfactory explanation as to why Mr Owers’ damages should be assessed differently in respect of the money which he had had to expend in holding his property which he would not otherwise have spent.  In my opinion, the fact that Mr Owers achieved a position, after tax, in which he was $2,335 better off ignores his having to expend the $48,837 which he would not otherwise have spent.  No doubt if he receives damages in the latter sum he will need to account for that for his current taxation purposes. 

10. Tax savings, if any, made by an applicant should not be taken into account in reduction of a claim made under s 82 of the Act:  Milner v Delita Pty Limited (1985) 9 FCR 299 at 304, per Lockhart J. Lockhart J held that money contributed by an applicant who was induced by conduct that contravened s 52 to enter into a partnership for the processing and growing of guavas had been applied for the purposes of the partnership. He said that it had been envisaged in the misleading promotional brochures that the expenditures would give rise to tax losses that could be claimed as deductions against their income by the investor tax payers. But Lockhart J held that that was an irrelevant consideration for the purposes of an assessment of damages under s 82. He found that there was no relevant nexus between the contravention of the Act by the respondent and any benefit gained by the applicant by reason of the allowability of the claimed losses. Lockhart J applied Simpson Ltd v Hubbards Pty Limited (1982) 44 ALR 695 at 702-703. There Bowen CJ, Franki and McGregor JJ held that since damages were compensatory, the question of deducting probable taxation did not arise. They said that an applicant could not be required to set off past tax losses against an award of damages so as to reduce the total sum of damages ordered by the Court. They regarded the tax losses as being, in one sense, an asset of the applicant who should not be required to dissipate that asset for the benefit of the person who contravened s 52 of the Act: Simpson 44 ALR at 703.

11. In Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 at 543-545 Wilcox and Lindgren JJ (with whom Lee J agreed on this point (at 560)) noted that the trial judge (Davies J) found that taxation benefits, which applicant investors in a horse breeding syndicate had obtained, should be taken into account in reduction of damages for their losses up to the time at which they terminated the breeding partnership. However, in that case, Davies J had refused to make an allowance for those taxation benefits in relation to the years of income after termination and awarded compensation on the basis that those damages not be taxable in the hands of the applicants. There was no issue in the appeal as to the question of taking into account taxation benefits.

12. Mr Owers had continued to incur the expenses in order to hold the asset that he acquired “by” the misleading conduct for which Austcorp is liable. He expended money because of the position in which he had been placed by Austcorp’s contravention of s 52 of the Act. Although Mr Owers has achieved a small net taxation saving over a number of years that has come at the expense of his being involved in an investment which he would not otherwise have pursued. I am of opinion that it is not appropriate to require Mr Owers to use his own money to pay the cost of financing a venture he would not have undertaken had he not been misled by Austcorp’s contraventions of the Act: see also Henderson v Amadio Pty Limited (No 1) (1995) 62 FCR 1 at 200A-D per Heerey J. He has lost the opportunity of using the $48,837 paid by him for which he claimed tax deductions and received a net benefit, in other ways. He is entitled to damages in the whole sum claimed, without making allowance for taxation benefits.

    (b)       Mr Owers $33,000 cash deposit

13. Mr Owers said that he would have invested in another long term income producing property had he not been induced to purchase the apartment.  I accept that evidence.  Instead of borrowing the whole of the purchase price, he used initially $33,000 of his cash savings to pay the deposit.  Ultimately, he borrowed $31,000 from his bank and paid about $10,000 of that to pay back into his other bank account.  Thus, he borrowed about $31,000 of the $330,000 price, and claimed damages for the loss of opportunity to invest the balance of either $20,000 or $30,000 in a better investment.

14. Originally, Mr Owers sought damages for loss of a chance to obtain a better investment outcome from a possible purchase of investment property in Lithgow for this sum.  But in the applicants’ written submissions in reply, Mr Owers abandoned that argument and sought compensation such as simple interest on that sum.  He does not now claim any substantive damages for the loss of the opportunity to invest beyond the amount which Austcorp agreed he should be allowed as interest on the net capital sum he invested from his own savings.  Austcorp conceded in final address that if he were entitled to recover damages, some sum in the nature of interest should be awarded on the $20,000 to $30,000 figure.

15. In my opinion Mr Owers should recover damages in the nature of interest on $20,000 (being the difference between the purchase price and what he borrowed).   I am not satisfied that he has established that the appropriate figure is the larger sum of $30,000 originally used for the deposit.  In reality, he used the $10,000 difference for other purposes ultimately unrelated to the purchase of the apartment.  In light of Austcorp’s concession that Mr Owers is at least entitled to interest on the $20,000 he should receive interest on that sum at the rate payable on a judgment from 14 June 2000.  This takes some account of the vicissitudes of investment and recognises that Mr Owers still retains the apartment and will recover other damages including for the loss of value suffered.

16. The applicants raised a suggestion in a footnote to their submissions that they were entitled to compound interest on a basis and in a sum that was not made clear.  The argument was not explored orally.  It is not clear to me whether, and if so how, it is pressed.  I will leave the parties to address issues about interest and the form of final relief after they have considered these reasons.

    11.  CONCLUSION

17. In my opinion Mr Owers and Ms Tan-Bounkeua have established that they are entitled to relief, while Mr Luciani and Taldarmar have not.  The appropriate way to compensate the successful applicants for their loss is as follows:

    (1)Calculate the difference between the purchase price and the true value of the apartment.

    (2)Add the agreed net loss before tax (and in Mr Owers’ case the interest on $20,000).

    (3)Calculate interest from the relevant dates of the loss on the totals of each of (1) and (2).

18. I will direct the parties to bring in short minutes of the appropriate orders necessary to give effect to these reasons.  Some provision will need to be made to deal with the still unresolved outstanding claims of other applicants with whose claims I have not yet dealt.

I certify that the preceding five hundred and twenty-seven (527) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate:

Dated:        1 May 2009

Counsel for the Applicants:	Mr A S Bell SC and Ms N Bearup
Solicitor for the Applicants:	Maurice Blackburn
Solicitor appearing for the Second Respondent:	Mr M Corbin of Corbin Legal Services (2–4, 7–11, 14 July 2008)
Counsel for the Fourth Respondent:	Mr S Donaldson SC and Ms A Horvath (30 June, 1–4, 7–11 July 2008)
Solicitor for the Fourth Respondent	DLA Phillips Fox
Counsel for the Fifth Respondent:	Mr S D Robb QC and Mr J Steele
Solicitor for the Fifth Respondent:	Tzovaras Legal
Dates of Hearing:	30 (June), 1–4, 7–11, 14–18 (July), 5, 16–18, 23–26, 29–30 (September), 1 (October) 2008
Date of Last Written Submissions:	7 October 2008
Date of Judgment:	1 May 2009