Aldahr & Anor v Motor Accident Commission & Anor

[2007] NSWSC 1102

CITATION:	Aldahr & Anor v Motor Accident Commission & Anor [2007] NSWSC 1102
HEARING DATE(S):	26 to 28 September 2007
JUDGMENT DATE :	5 October 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Judgment for the First Defendant on Amended Statement of Claim; orders as sought in Amended Cross Claim.
CATCHWORDS:	TRADE PRACTICES – MISLEADING AND DECEPTIVE CONDUCT – Whether failure to disclose to purchaser of shopping centre that a tenant was seeking surrender of lease was misrepresentation by silence – whether reliance by purchaser – whether omission to disclose caused loss. - CONTRACT FOR SALE - DEPOSIT – FORFEITURE – whether deposit should be returned under s.55(2A) Conveyancing Act.
LEGISLATION CITED:	- Conveyancing Act 1919 (NSW) - s.55(2A) - Trade Practices Act 1974 (Cth) - s.51A, s.52, s.82, s.87
CASES CITED:	- Demagogue Pty Ltd v Ramenski (1992) 39 FCR 31 - Havyn Pty Ltd v Webster [2005] NSWCA 182 - Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83 - Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 - Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
PARTIES:	Tony Aldahr – First Plaintiff/First Cross Defendant Elham Aldahr – Second Plaintiff/Second Cross Defendant Motor Accident Commission – First Defendant/Cross Claimant Knight Frank (NSW) Pty Ltd – Second Defendant
FILE NUMBER(S):	SC 5869/05
COUNSEL:	G.A. Sirtes – Plaintiffs/Cross Defendants D.B. Studdy, D.S. Mackay – First Defendant/Cross Claimant Ms K. Morton (Sol) – Second Defendant
SOLICITORS:	Colin Biggers & Paisley – Plaintiffs/Cross Defendants Hunt & Hunt – First Defendant/Cross Claimant DLA Phillips Fox – Second Defendant

5869/05 Aldahr & Anor v Motor Accident Commission & Anor

JUDGMENT
5 October, 2007

Introduction

1    On 22 September 2004, the Plaintiffs entered into a contract to purchase from the First Defendant (“MAC”) a bulk goods retail centre at Villawood (“Centre”) for the price of $13M. The Second Defendant acted as agent on the sale. 2    The Plaintiffs were unable to obtain finance to complete the purchase. On 5 April 2005, MAC served a Notice to Complete. The Plaintiffs failed to comply with the Notice and on 6 May 2004 MAC terminated the contract and forfeited the Plaintiffs’ deposit of $650,000. 3    The Plaintiffs now claim the return of the deposit on two grounds:


– their entry into the contract was procured by misleading and deceptive conduct by MAC, in contravention of s.51A and s.52 Trade Practices Act 1974 (Cth) (“TPA”);

– under s.55(2A) Conveyancing Act 1919 (NSW).

4 The Second Defendant, which received the deposit payable under the contract, has filed a Submitting Appearance and has paid the deposit into Court. 5 The essential contention of the Plaintiffs is that MAC did not inform them prior to exchange of contracts that one of the tenants in the Centre, Unique Country Pine Pty Ltd (“Unique”) was proposing to surrender its lease and that MAC had agreed or was likely to agree to that proposal. 6 The Plaintiffs say that, prior to exchange of contracts, they had procured approval for finance for the acquisition on the strength of the existing tenancies, as disclosed by MAC, and on the basis of that approval they entered into the contract. The Plaintiffs say that had the true position as to Unique’s surrender proposal been disclosed to them prior to exchange of contracts, they would have realised that finance for the acquisition would not have been approved, they would not have entered into the contract, and would not have suffered forfeiture of their deposit. 7 Further, the Plaintiffs say that at a meeting between them and representatives of MAC, Mr Bates and Mr Cook, on 3 August 2004 MAC represented that it was negotiating with Unique concerning arrears of rental owing by Unique and anticipated that there would be no problem with Unique and that arrears of rent would be paid. The Plaintiffs say that MAC had no reasonable basis for making such a statement so that it is in contravention of s.51A TPA. 8 The Plaintiffs claim damages under s.82, or compensation under s.87 TPA, the measure of the damages or compensation being the amount of the deposit forfeited, i.e. $650,000. 9 In the alternative, upon the basis of the same facts, the Plaintiffs claim that the Court should, in its discretion, order the return of the deposit under s.55(2A) Conveyancing Act .


The issues

10    The parties have agreed on the issues as follows:


– did MAC have an obligation to disclose to the Plaintiffs, prior to exchange of contracts, the state of the proposal for surrender of Unique’s lease;

– by failing to make such disclosure, did MAC engage in misleading or deceptive conduct in contravention of s.52 TPA;

– did the Plaintiffs rely on any contravening conduct of MAC in entering into the contract for purchase of the Centre;

– was the loan approval from the Commonwealth Bank to the Plaintiffs dependent upon the lease to Unique remaining in existence at least until settlement of the purchase;

– was the surrender of Unique’s lease the reason that the Commonwealth Bank loan did not proceed;

– did MAC validly terminate the contract on 6 May 2005;

– should the deposit be returned to the Plaintiffs pursuant to s.55(2A) Conveyancing Act ;



The facts

11    Most of the facts are ascertainable from contemporaneous documents and are not in dispute. 12    Mr and Mrs Aldahr have invested in some fourteen commercial and residential properties since 1987. Mr Aldahr takes the active role in making investment decisions. He describes himself as experienced in property investment. To my observation, and from the answers which he gave in cross examination, I have formed the impression that Mr Aldahr is a very shrewd and capable businessman. 13    In March 2004, MAC decided to sell the Centre and appointed as joint agents for sale the Second Defendant (“Knight Frank”) and Mackenzie Hall Pty Ltd (“Mackenzie Hall”). Mackenzie Hall was also the Managing Agent of the Centre. In May 2004 Knight Frank prepared an Investment Report for use in the sale process. 14    There are fourteen shops in the Centre, comprising nine lettable areas. As at May 2004 there were seven tenants. Unique occupied Shop 1, Shops 2 and 3 were vacant. Shop 3A was let to one tenant, Shops 5, 6 and 7 were let to one tenant, Shops 8 and 9 were let to two tenants, Shops 10 and 11 were let to one tenant, Shop 12 was vacant, and Shops 13 and 14 were let to one tenant. 15    Unique had been trading unprofitably and had a history of substantial arrears in rent. 16    Mr Aldahr became interested in purchasing the Centre in June 2004. Clearly, he acted quickly to find out as much as possible about the Centre. He obtained the Knight Frank Investment Report and requested a meeting with Mr Kevin Gleeson, a senior officer of the Commonwealth Bank at Parramatta (“the Bank”). A meeting between Mr Aldahr, Mr Gleeson and his superior at the Bank, Mr Creighton, took place on 28 or 29 June 2004. Prior to the meeting Mr Aldahr had forwarded to Mr Gleeson the Investment Report and a document prepared by him entitled “Request for Finance”. 17    At the meeting, Mr Aldahr explained the Request for Finance. It showed that Mr and Mrs Aldahr owned five properties over which borrowings of $7,345,000 were secured. Three properties were in the process of sale and their proceeds would reduce secured borrowings to $2,155,000. The remaining properties were also to be sold leaving a surplus, after discharge of the remaining debt, of $2,100,000. Mr and Mrs Aldahr required a loan of $11,650,000 to enable the Centre to be purchased for the price of $13M. Under the heading “Serviceability” Mr Aldahr stated the current nett rent of the Centre as $1,149,347 per annum. He said that he anticipated making savings in outgoings payable in respect of the Centre of $92,800 per annum so that the total nett income for the Centre would be $1,242,147 per annum. He anticipated that when the Centre was fully leased – i.e. when tenants were found for Shops 2, 3 and 12, the nett rent for the Centre would be $1,487,952. 18    Mr Gleeson indicated that the Bank would probably be able to assist with a loan. 19    On 28 June 2004, Mr Aldahr made a formal written offer to purchase the Centre for $12M. As a term of the contract he required that MAC guarantee the rent of the vacant shops, i.e. Shops 2, 3 and 12, for twelve months from the date of contract. Mr Aldahr proposed an accelerated negotiation process so that contracts could be exchanged by 6 July 2004. 20    MAC was not prepared to give rental guarantees and considered the sale price too low. It declined Mr Aldahr’s offer. 21    On 15 July 2004, Mr Aldahr offered $12.5M for the Centre but required rental guarantees not only for vacant Shops 2, 3 and 12, but also for Shop 1, which was leased to Unique. It is a fair inference that Mr Aldahr required the guarantee for the Unique rental because he was, by then, aware that Unique’s rent was substantially in arrears. 22    On 16 July 2004, MAC decided to take the Centre off the market and Mr Aldahr was advised accordingly. Later that day, Mr Aldahr made a third offer for the Centre. The terms included a sale price of $13M, with no guarantee of rent required, and the exclusive right to conduct a “due diligence” for a period of twenty-eight days. 23    On 3 August 2004, Mr and Mrs Aldahr had a meeting with the Manager Investment Properties of MAC, Mr David Bates, and MAC’s Chief Executive Officer, Mr Geoffrey Vogt. A memorandum of the meeting prepared on 4 August 2004 and signed by Messrs Bates and Vogt records the following:

“ Purchasers Intentions
Roger Cook and David Bates met with Tony and Elhar Aldahr in Sydney on Tuesday 3 August 2004. The summary of the findings and outcome of the meeting are as set out below:

1. Tony and Elhar Aldahr (the Aldahrs) are professional investors with interests in residential and industrial property in Sydney and Brisbane.

2. The Aldahrs believe that they can turn the Villawood property around by making it their sole focus for the next six months. They intend the property to be a long term family investment. They also are focused on the continuing use of the property as a Bulky Goods Shopping Centre.

3. They understand that the tenants are not trading satisfactorily and they intend to spend substantial promotional money on gaining new tenants.

4. They will work on the property fulltime and intend managing the property themselves following settlement.

5. They indicated that if they continued with the sale after due diligence they would be committed to settling the property, hence the willingness to pay a $650,000 non-refundable deposit.”
24    Mr and Mrs Aldahr deny that they were informed that the tenants were not trading satisfactorily. On the contrary, they say that they were informed that the only tenant in any difficulty was Unique, that MAC was then negotiating with Unique concerning rental arrears, and that it anticipated there would be no problem with Unique in the future and that the rental arrears would be paid. 25    I do not accept this evidence. As I have said, I infer that Mr Aldahr knew, not only that three shops were vacant, but that Unique was substantially in arrears. He had undoubtedly made his own observations of the trading at the Centre. The responsible officer of Mackenzie Hall, Ms Tetske Johnston, says that there were always few cars in the Centre’s car park and it was obvious that the Centre was struggling. 26    Mr Aldahr himself says that he intended to “turn the Centre around” by spending money on an advertising campaign and on managing it himself. The memorandum of 4 August 2004 records Mr and Mrs Aldahr making this statement again, namely, that they could “turn the Villawood property around by making it their sole focus for the next six months” . The memorandum also records that Mr and Mrs Aldahr intended to spend “substantial promotional money on gaining new tenants” . 27    I prefer the evidence of Mr Bates as to what was said in this meeting. Not only does that evidence accord with the contemporaneous record but I prefer the evidence of Mr Bates generally to that of Mr Aldahr, for reasons which I will discuss shortly. Mrs Aldahr’s evidence concerning this meeting was very vague and unspecific. I do not find it reliable in the light of what is recorded in the memorandum of 4 August. 28    On or about 9 August 2004, MAC and Mr and Mrs Aldahr signed a document entitled “Heads of Agreement” (“Agreement”). The material terms are as follows:


– the sale price for the Centre was fixed at $13M;

– a due diligence fee of $32,500 was payable in consideration of MAC granting to Mr and Mrs Aldahr the rights to investigate stipulated in the Agreement for a period of twenty-eight days;

– clause 2 provided:

“ Due Diligence Period

A twenty-eight (28) day exclusive period is provided to the Purchaser to undertake detailed due diligence on the property. Due diligence includes all legal, financial and physical inspections of the property.

During this period, the Vendor is to provide access to all documents and information in the Vendor’s possession. The Purchaser is also allowed to make contact with the current tenants.

At the end of the due diligence period the Purchaser may elect to exchange contracts on the property and the Vendor must then enter into a contract for sale on the terms set out in this agreement providing always that should the Purchaser not exchange then the liability is limited to the forfeiture of the due diligence fee of $32,500.”

– Clause 3 provided:

“ Exchange of Contract for Sale

Subject to the Purchaser electing to proceed with the purchase, at the end of the due diligence period the parties will each sign a contract for sale and immediately thereafter contracts will be exchanged and a five percent (5%) deposit will be paid. The contract for sale will be limited to a total deposit amount of $650,000.

The balance of the deposit ($617,500) is to be in the form of an irrevocable bank guarantee and held by the Vendors solicitors pending settlement of the property.

This deposit is non-refundable unless the Vendor is unable to complete the sale. The deposit ($650,000) is also the maximum amount that the purchaser is liable for if unable to progress with the purchase of the property.”

– A tenancy schedule was attached. It showed that Unique’s total rent and outgoings was $72,312 per annum. Unique occupied the smallest shop and paid the lowest rent in the Centre.


29    After execution of the Agreement, Mr Aldahr spoke to various tenants in the Centre, including the manager of Unique. According to Mr Aldahr, the manager informed him that Unique was trading satisfactorily. The manager has not been called to give evidence. If the manager did, indeed, say something to this effect to Mr Aldahr, then he was not being truthful. In any event, Mr Aldahr must have appreciated that Unique was struggling: Mrs Johnston says, and I accept, that she told Mr Aldahr in about mid-August that many of the tenants in the Centre were having difficulty paying rent on time, “especially Unit 1” . 30    On 27 August 2004, Mr Aldahr went to MAC’s offices in Adelaide and met Mr Bates. He requested, as a new term of the sale of the Centre, that MAC provide a bank guarantee of $638,234 for two years’ gross rent for the vacant Shops 2, 3 and 12, also for Shop 1. The request was rejected by MAC by letter dated 31 August 2004. On that day Mr Aldahr rang Mr Bates and requested a one year guarantee for the rentals of the vacant shops and also for Shop 1. 31    On 2 September 2004, Mr Bates responded by facsimile, refusing the request. He discussed the possibility of reducing the purchase from $13M by the amount of one year’s rent from Unique, if Mr Aldahr agreed to proceed unconditionally with the contract. 32    On 4 September, Mr Gleeson telephoned Mr Aldahr and told him that the loan of $11,650,000 from the Bank had been approved. Mr Gleeson gave evidence in support of Mr Aldahr’s case that, had the Bank known about the surrender of Unique’s lease, it would not have approved finance. It is now accepted by Mr Aldahr that the surrender of the Unique lease did not occur until 2 November 2004. However, in the course of his affidavit evidence, Mr Gleeson described the circumstances in which the Bank approved the loan thus:

“Once the offer was made and Mr Aldahr discovered that one of the tenants of the property was moving out he had an obligation to disclose that information to the Bank. This would have changed the lending criteria by the Bank. This was a very tight deal and had just got over the line. I recall I had to push hard to get approval from the Credit department and a key issue was how much income the property generated.

Even when the approval was given in September 2004, I recall saying to Mr Aldahr: ‘You are sailing very close to the line and have just met the requirement for funding’.

I believe that Mr Aldahr understood his obligations to the CBA and had the CBA known about the surrender of the lease the CBA would have possibly withdrawn the application.

The Bank’s decision to offer loan funding to Mr Aldahr was dependent upon satisfaction of certain internal banking parameters. These parameters, being ratios, were themselves dependent upon a number of inter-related factors, namely:

(a) the total net income of the retail premises on an annualised basis;

(b) the amount of the proposed loan;

(c) the interest rates charged by the Bank.

One of the most significant ratios that dictated whether or not the Bank would offer loan finance was what is called the ‘Interest Cover Ratio’, referred to in Bank documents by the abbreviation ‘ICR’. The significance of the interest cover ratio is that it imposes a requirement that the total net income earned by the borrower from rental income exceeds, by a certain minimum ratio, the cost of money, that is, the interest payable by the borrower. By way of illustration, if a person wishes to borrow $100.00 from the Bank at an interest rate of 10% per annum, giving rise to an interest charge of $10.00 per annum, at an ICR of 1.4 the borrower needs to earn $14.00 in order to satisfy the Bank’s ICR lending criterion.

As at September 2004, at the time that Mr Aldahr was seeking the Bank’s finance, the minimum ICR that was being applied was a ratio of 1.3. In other words, the income generated from the rentals at the ‘Park n Shop’ retail centre would have to represent a multiple of 1.4 the interest expense. Accordingly, the total annual net income earned by the centre was fundamental to the establishment of the ICR and, in turn, fundamental to the Bank’s decision as to whether or not to loan Mr Aldahr the funds sought of $11.65M.”
33    Mr Aldahr does not dispute that he knew that the income being generated by the Centre was a highly significant, if not critical, factor in the Bank’s decision to approve the loan. By 4 September 2004, Mr Aldahr knew that the Bank was aware that Shops 2, 3 and 12 in the Centre were vacant but it was not aware – because he had not told it – that the rent from Shop 1 was substantially in arrears and that Unique was in financial difficulty. 34    That Mr Aldahr appreciated the critical importance of the reliability of income from Shop 1 to the Bank’s approval is evident from Mr Aldahr’s repeated efforts, prior to 4 September, to secure from MAC a bank guarantee for the rental of Shop 1, first for two years, and then for one year. 35    After Mr Gleeson told him of the Bank’s approval, Mr Aldahr made another attempt to obtain from MAC a guarantee of the income from Unique’s lease. On 6 September, Mr Aldahr telephoned Mr Bates and offered to increase the purchase price to $14M if a $1M bank guarantee of rent were provided. Mr Bates responded by facsimile, rejecting the proposal and rejecting the possibility of a reduction of the purchase price equal to one year’s rent from Unique. Mr Bates pointedly asked whether Mr and Mrs Aldahr wished to proceed at all. 36    The contract for sale of the Centre as presented to Mr and Mrs Aldahr for signature contained a schedule setting out the rental positions of each of the tenants of the Centre as at 15 September 2004. Unique was ten months in arrears with its rental and owed $63,678.57. 37    As I have mentioned, Mr Aldahr had not told the Bank that Unique was in arrears of rent. Mr Gleeson said in cross examination that if the Bank had been aware that, as at September 2004, Unique was ten months in arrears with its rent, the Bank would not have approved the loan to Mr and Mrs Aldahr. Mr Gleeson went so far as to say that there would have been no doubt at all of that outcome: T132.17-.33. 38    I am satisfied that, as Mr Gleeson himself said, Mr Aldahr understood that the Bank was relying on him to provide full and accurate information as to the factors which the Bank needed to take into account in deciding whether to approve the loan. Mr Aldahr understood that a major factor was the reliability of the rental income, including the income from Unique. Bearing in mind Mr Aldahr’s repeated endeavours to secure from MAC a bank guarantee for Unique’s rental, I have no doubt that Mr Aldahr appreciated, just as well as Mr Gleeson did, what the Bank’s position would have been if he had disclosed the state of Unique’s rental arrears. 39    As at 22 September 2004, Mr Aldahr had a difficult decision to make. He knew:

– Unique’s rental was ten months in arrears and Unique was in financial difficulty;

– the verbal loan approval from the Bank was “very tight” and the Bank regarded the income from the Centre as a highly important factor in its decision;

– if he had told the Bank that Unique was ten months in arrears, as he knew the Bank would expect him to do, the Bank’s approval would very probably be revoked;

– the Bank’s approval was subject to his being able to sell five properties for at least the amounts stated in his application to the Bank for finance;

– he had not yet sold any of the properties and there could be no guarantee that he would be able to sell them at the prices he required.

40    Knowing these facts and circumstances, Mr Aldahr decided to sign the contract and to pay the deposit of $650,000. Mrs Aldahr left the decision to him. She must accept the consequences. 41    Mr Aldahr placed two of his properties on the market for sale. Between 22 September 2004 and 21 October 2004 he received no offers. 42    The Bank prepared a formal Letter of Offer for the loan on 7 October 2004. It is probable that the letter was not sent to Mr Aldahr until 19 October. Mr Aldahr did not take up the Bank’s offer. 43    In mid-October 2004, Mr Bates told Mr Aldahr that MAC was considering surrendering Unique’s lease. Mr Aldahr said that he would not consent to the surrender. Under the contract for sale, MAC had the right to surrender leases in the Centre without Mr and Mrs Aldahr’s consent. 44    On 21 October 2004, Mr Aldahr informed Mr Gleeson that Unique would be surrendering its lease. He did not say that Unique had been in arrears of rent for ten months. Mr Gleeson said that Mr Aldahr could no longer rely on the Bank’s offer of finance. 45    Between October 2004 and April 2005, Mr and Mrs Aldahr attempted to sell the five properties whose sale was a necessary condition of the Bank’s finance. Mr Aldahr’s evidence in cross examination as to what he did during this time was confusing and contradictory. 46    Mr Aldahr admitted that the sale of the five properties was essential to his ability to complete the purchase of the Centre. He said that the surrender of Unique’s lease now meant that he had to get more for the properties than he had stipulated to the Bank, probably because he would now be able to borrow less from the Bank. It does not appear that Mr Aldahr discussed with Mr Gleeson at this time any particular reduced loan which he wished to obtain. 47    Mr Aldahr said that, after he discovered that Unique wished to surrender its lease, he put his five properties on the market at higher figures than previously, but received no offers. He immediately contradicted himself by saying that he had not put the properties on the market. Then he said that he had put them on the market and then taken them off the market “because I could not settle [the purchase of the Centre] with the asking price [for the five properties] we were asking” : T58.15. 48    On 2 November 2004, MAC accepted the surrender of Unique’s lease. 49    On 9 November 2004, Mr Aldahr sent a facsimile to Mr Bates confirming that “the loss of income from unit (1) has resulted in us not being compliant with our lender’s terms and conditions. To negate the situation, we have to divest of a residential property in Sydney, in order to reduce our borrowing requirements” . He requested an extension of time to complete the contract until 20 April 2005. 50    On 17 November, MAC’s agent, Mr Lerche, sent an e-mail to Mr Bates advising that Mr Aldahr had told him that if he were to continue with the purchase of the Centre, despite the surrender of Unique’s lease, his loan from the Bank would have to be reduced by approximately $1M:
“In order to do this, he would need to sell another property (possibly Lakemba Street, Wiley Park).”
51    What Mr Lerche and Mr Bates did not know, it seems, was that the Lakemba Street, Wiley Park property was one of the five properties whose sale was an essential condition of Mr Aldahr’s original loan application in June 2004 and of the Bank’s approval in September 2004. 52    It appears that Mr Aldahr was being less than frank with Mr Bates and Mr Lerche in his negotiations for an extension of time for completion of the contract. 53    On 18 November 2004, Mr Bates responded to Mr Lerche advising that MAC would agree to an extension of time under the contract if Mr Aldahr agreed to increase the deposit by $100,000 and to provide certain releases. On 22 November 2004, Mr Aldahr declined this proposal. 54    On 29 March 2005, Mr Aldahr wrote to Mr Bates in the following terms:

“As I have informed you, in order to complete the sale, we have to divest of a residential property in Sydney. We had a sale in progress but unfortunately the sale has now failed, further, we have had another sale for another building under contract for completion in Jan 2005, the buyer is experiencing difficulties and he most probably will not be able to complete. So the domino effect start here.

The prospect of us being able to secure a sale for a timely completion of our mutual transaction is remote and near impossible.

In the interest of saving time and further expense to either parties I would like us to come to a resolution of the matter as soon as possible so that both of us can proceed with our lives. To this effect I would like to offer 2 possible compromises for your consideration.

a. We propose that both parties agree to terminate the contract and share the deposit on a basis that would reflect your reasonable losses with the balance refunded to us.

or

b. We propose that we carry the transaction to completion on the basis that you agree to a delayed payment of $4.4 million for a period of no longer than 2 years, on the following basis …”
55    On 5 April 2005, MAC served a Notice to Complete. 56    In early April 2005, Mr Aldahr submitted a new application to the Bank for a loan of $12M to enable purchase of the Centre. On 2 May the Bank declined the application. The reasons were stated in an e-mail to Mr Gleeson as follows:

“As discussed late last week, the Bank would prefer not transact with the above borrower.

The previous approval of October 2004 has since lapsed and the application now presented is different. The Bank is being asked to accept a position whereby assets that were previously to have been sold will now be retained under a vendor finance arrangement. Borrowing requirement has increased.

The servicing parameters on the proposed advance render CQC F, before vendor finance is taken into account.

The Bank cannot ignore comments made by the Valuer (Landmark White 23/9/04).”
57    The reference to “CQC F” meant that the income from the Centre would not comply with the Bank’s Interest Cover Ratio requirements. The income from the Centre in the Bank’s calculations appears to include the rental from Unique’s lease, although by now Mr Gleeson was aware that Unique’s lease had been surrendered. The reference to “comments made by the valuer” is to a statement by the Bank’s valuer that Mr Aldahr had attempted to mislead him about the contract price for the Centre. 58    On 6 May 2005, MAC terminated the contract for sale and forfeited the deposit.


Whether MAC had a duty to disclose

59    Mr Sirtes of Counsel, who appears for Mr and Mrs Aldahr, concedes that MAC did not agree to a surrender of the Unique lease until 2 November 2004, some six weeks after Mr and Mrs Aldahr signed the contract for the purchase of the Centre. However, Mr Sirtes submits that MAC had a duty to disclose to Mr and Mrs Aldahr prior to 22 September that Unique had been seeking a surrender of the lease, that Unique was in a difficult financial position and would vacate Shop 1, and that it was likely that MAC would agree to a surrender. Mr Sirtes submits that if these circumstances had been disclosed to Mr Aldahr, he would have realised that his application to the Bank for finance would not be successful; he and Mrs Aldahr would not have signed the contract for sale and would not have found themselves unable to complete, thereby losing their deposit. 60    The first question is: was there a duty on the part of MAC to disclose to Mr and Mrs Aldahr at any time before 22 September 2004 whatever the position between MAC and Unique then was. This requires an examination of the dealings between MAC and Unique – in short, what was there to disclose? 61    As at 30 April 2004, Unique was in arrears of rent in an amount of $28,109.40. Mackenzie Hall took over as managing agent of the Centre at about this time. Mrs Johnston made strenuous efforts to collect outstanding rent from Unique as well as from other tenants. 62    On 18 June 2004, Unique wrote to Mrs Johnson saying that “due to financial problems” it would be unable to continue its business and would close the shop on 30 September 2004. It made a proposal to pay outstanding rent by instalments. Mrs Johnston sent a copy of the letter to Mr Bates. 63    On 30 June 2004, Mrs Johnston wrote to Unique setting out proposed terms for a surrender of the lease. The proposal was expressly and clearly made “subject to owner’s approval” . Unique altered one of the terms (for payment of arrears) and sent the proposal back signed and dated 16 August 2004. Mr Bates received a copy of the altered and signed proposal on 24 August 2004. 64 On 5 September 2004, Mrs Johnston sent a facsimile to Unique advising that MAC had not agreed to a surrender of the lease. 65 Unique continued to trade in Shop 1 after 30 September 2004, the date previously advised as the closing date. 66 In mid-October 2004, the manager of Unique informed Mrs Johnston that Unique was in financial difficulty and was unable to continue trading. Mrs Johnston discussed the position with Mr Bates. It is clear that Mr Bates then accepted that surrender of Unique’s lease was the best option for MAC. Mr Bates then informed Mr Aldahr of the intended surrender of the Unique lease and confirmed his verbal advice by facsimile on 21 October 2004. 67 On 2 November 2004 Mr Bates, on behalf of MAC, agreed to the terms of surrender of Unique’s lease, as negotiated by Mrs Johnson. 68 Mr Bates says, and I accept, that as at 22 September 2004, he and MAC had not accepted as necessarily correct the statements of Unique that it was unable to continue trading so that it should be permitted to surrender its lease upon favourable terms. As Mr Bates says, this could easily have been a negotiating stance taken by Unique, in order to escape the lease. A tenant’s failure to pay rent on time may be due to unwillingness rather than inability. Mr Bates says that he left negotiations with Unique to Mrs Johnston and ultimately relied on her to make a recommendation. Nothing of any consequence in the surrender discussions with Unique had happened between 30 June and 16 August, and then between 16 August and mid-October 2004. 69 Mr Bates’ credit was strongly attacked by Mr Sirtes, who suggested in effect that MAC, knowing that Unique’s departure as a tenant was imminent and inevitable, concealed that fact from Mr Aldahr until the contract was signed on 22 September, thereby securing for itself at least the deposit of $650,000. I do not accept this suggestion. 70 Mr Bates struck me as a careful witness who was endeavouring to give his evidence accurately. His evidence is supported by contemporaneous documents and by the evidence of Mrs Johnston. I accept Mrs Johnston also as a reliable witness. Their evidence is inherently plausible. I am satisfied that it was not until mid-October 2004 that Mr Bates accepted that it was probable that Unique was indeed about to cease trading. The shop had been vacated and a window was smashed. When he came to that realisation, he informed Mr Aldahr. Prior to mid-October, there was nothing more than a desultory negotiation between MAC and Unique for the surrender of the lease and sporadic payments of rent by Unique. Mr Bates was entitled to take the view at that stage that Unique’s stated inability to continue trading was not self-evidently correct. 71 Section 52 TPA does not impose on a vendor a duty to inform the purchaser of everything known to the vendor which could possibly be relevant to the transaction or which could possibly affect the purchaser’s mind. That would impose an unrealistic burden on parties to a commercial transaction. A defendant’s failure to disclose will only be misleading or deceptive for the purposes of s.52 TPA if, in all the circumstances, the Court finds that the information withheld was material to the plaintiff’s decision and that the plaintiff would have had a reasonable expectation that the information would be disclosed. 72 The requirement of “reasonable expectation” must, to a large extent, be ascertained according to objective considerations. It would be too easy for a plaintiff, disappointed in the outcome of a commercial transaction, to say: “If only I had been told of x, I would never have proceeded”. A defendant should not be held liable under s.52 TPA for failing to disclose information when the plaintiff did not indicate, directly or indirectly, to the defendant at any relevant time that information of that kind was material to the plaintiff’s decision and when the defendant could not otherwise reasonably have been aware in all the circumstances that information of that kind was likely to be material to a person in the position of the plaintiff. See generally: Demagogue Pty Ltd v Ramenski (1992) 39 FCR 31, at 32 per Black CJ; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83, at 95 per Lockhart J; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97, at 114 per Hill J. 73 In the present case, I find that, as at 22 September 2004, MAC was dealing with a request for surrender of the Unique lease about which it had made no decision. Mr Aldahr had never told MAC prior to signing the contract for sale that the continued existence of Unique’s lease was critical to the Bank’s approval of finance for the transaction. I am not, in any event, satisfied that it was the continuation of Unique’s lease, rather than the reliability of the income stream from that lease, which was critical to the Bank’s approval. Mr Gleeson’s evidence makes it plain that the Bank was essentially concerned with the serviceability of the loan to Mr and Mrs Aldahr: that depended not on whether they had a lease with a particular tenant in the Centre but, rather, upon whether that tenant reliably paid the rent. That is why Mr Gleeson was so certain that, had Mr Aldahr disclosed the arrears in Unique’s rental when applying for the loan, the Bank would have declined the application even though Unique’s lease was then still on foot. 74 MAC may well have appreciated from Mr Aldahr’s continued requests for bank guarantees of rental from Shop 1 and other vacant shops that the income stream from Unique’s lease was an important factor in a financier’s consideration of his application for a loan. But MAC had disclosed to Mr Aldahr full particulars of Unique’s arrears of rent. In my opinion, the position as to surrender of Unique’s lease was so uncertain, as far as MAC was concerned, and the effect of the possibility of surrender on any loan application by Mr Aldahr was so remote, as far as MAC knew, that MAC was under no duty to disclose to Mr Aldahr the state of negotiations with Unique as at 22 September 2004. It follows that MAC has not been guilty of conduct contravening s.52 TPA.


Whether MAC misrepresented state of tenancies

75 For the reasons which I have given in paragraphs 23 to 27, I am not satisfied that at the meeting of 3 August 2004 Mr Bates made the representations pleaded in paragraph 14(b) of the Amended Statement of Claim. 76 Accordingly, I cannot find that MAC has contravened s.51A TPA.


Reliance

77    In case I am wrong in my findings of fact so far, I will state my conclusions as to the other elements of Mr and Mrs Aldahr’s causes of action under the Trade Practices Act . 78    In paragraphs 11 and 18 of the Amended Statement of Claim it is pleaded that Mr and Mrs Aldahr relied on the alleged contravening conduct of MAC in deciding to enter into the contract for sale. Mr and Mrs Aldahr have the burden of proof of such reliance. 79    I am not satisfied that if MAC had disclosed to Mr Aldahr the nebulous state of negotiations with Unique as at 22 September 2002 Mr Aldahr would have decided against entering into the contract. In my opinion, Mr Aldahr was aware as at 22 September that it would not be the continued existence of the Unique lease, in itself, which would determine the Bank’s attitude to approval of his loan application but, rather, the reliability of the income stream under that lease. That is why he never disclosed to the Bank that Unique was ten months in arrears of rent. 80    I think that it is more probable than not that, in entering into the contract, Mr Aldahr decided to take the risk that the Bank might learn, before settlement of the purchase, that the income stream from Unique was very dubious and would withdraw its loan approval. In that event, Mr Aldahr would have to find the means of settling the purchase from other sources. Other sources were available to him. 81    When it was suggested to Mr Aldahr in cross examination that he could not have proceeded with the purchase because he had not sold the five properties referred to in his finance application to the Bank, he disagreed and gave this evidence:

“… because they had not been sold, you realised you were just not in a position to go forward with the acquisition of the Villawood property?
A. That was one of the reasons why I couldn't go forward.

Q. It was the only reason because you did not have the necessary funds yourself which would allow the bank to lend you 11.6 million dollars? You knew that; didn't you?
A. No sir I don't. These properties, if it wasn't for the failure of the tenant and the reduction of our borrowing capacity or our ability to service a certain figure, I could have sold those properties at a lower figure in order to get out of the situation that I was in.

Q. Mr Aldahr –
A.­­ I would like to clarify this point.

Q. All right then?
A. Okay, I needed to get 4.1 million dollars for those properties to complete. Due to the loss of the rent from Unique Country Pine, I then needed to get an additional probably about a million dollars in order to complete for those two properties and I couldn't. Now, if that situation was not imposed on me at the time, I could have sold the properties for somewhere around 3.8 million dollars and still completed the deal. Now, I can do that from a number of areas. One is at the time of the settlement rent will be paid in advance which will amount to about $100,000. That would be an amount of money that would go towards the settlement. Two is I have reasonably wealthy friends and relatives. I could lean upon them to lend me a small amount of money over a certain period of time so I can settle the property.

Now, how would I have paid my friends back? Because the rent that would have been collected from Park 'n' Shop would have been reasonably substantial for me to be able to pay my friends back if I was to get some money from them. We do it to each other. I have lent people money in the past 100,000 or 150,000 for them to get out of a jam and I could have done that. The thing is I needed to get another million dollars for those properties. I had Buckley's chance of being able to sell them.

Q. You have just made all of that up?
A. No, I didn't make any of that up.

Q. Mr Aldahr the reason why I suggest to you that you are making that up is because you could not sell the properties, particularly the ones we have spent so much time on, Lakemba Street and Nagle Street, for the amounts that you said to the bank you would sell them for?

A. I don't know whether I could have sold them for this amount or not.”
82    In paragraph 70 of his affidavit of 12 January 2007, Mr Aldahr said that he had reached an agreement with his brothers that they would lend him $600,000 to complete the purchase. He did not refer to this agreement in his oral evidence. 83    Mr Aldahr’s evidence as to his capacity to complete the purchase without having sold the five properties did, indeed, smack of recent invention. Nevertheless, it was revealing in that it provided some indication of the way in which Mr Aldahr analyses business opportunity and the risks involved, namely, there are always more ways than one to structure a deal and more sources than just the Commonwealth Bank for raising the necessary money. 84    In my opinion, it is more probable than not that Mr Aldahr appreciated as at 22 September that the Bank could withdraw its finance approval prior to settlement of the sale for a variety of reasons – e.g., its discovery of Unique’s arrears of rent, or the failure of Mr Aldahr to sell the five properties for the stipulated prices. I think that it is more probable than not that Mr Aldahr decided to take the chance that, if the Bank withdrew finance, his business ingenuity and his access to other financial resources would enable him to achieve a successful conclusion of the purchase, nonetheless. 85    In the event, it was Mr Aldahr’s inability or unwillingness to sell any of the five properties for the requisite amount which defeated his attempts to conclude the purchase. 86    As to the statements allegedly made by Mr Bates at the meeting of 3 August 2004, I cannot accept that, even if they were made, Mr Aldahr placed any reliance on them as at 22 September. By that time, he was fully aware of the arrears of rent owing by Unique and by other tenants. As I have said, I infer that he was also aware of the significance which the Bank would attach to arrears of rental from tenants in the Centre. 87    I should add, finally, that I would not be content to accept Mr Aldahr’s evidence generally as to what he relied upon in entering to the contract. Mr Aldahr appeared to me to be too anxious to improve his case. He prepared figures showing that, after the surrender of Unique’s lease, he could not possibly have satisfied the Bank’s Interest Cover Ratio requirements. He left out of the calculation, however, the saving of $92,800 which he had included in his first Request for Finance submitted to the Bank in June 2004. When confronted with the omission, he said that he knew that the Bank would not have paid any attention to the saving of $92,800, as being speculative. He gave no satisfactory explanation as to why he had included the figure in his first Request for Finance: see Exhibit D1, T104.9-.57, T114.21-115.9.


Causation

88    As will have emerged from the foregoing discussion, I am not satisfied that the non-disclosure to Mr Aldahr of the state of negotiations between Unique and MAC as at 22 September 2004 has caused any loss to Mr and Mrs Aldahr. I have concluded that Mr Aldahr determined to enter into the contract aware of the risk that the Bank could withdraw finance approval if it discovered the state of Unique’s rental arrears. Mr Aldahr decided to proceed with the contract notwithstanding that risk. 89    Mr Aldahr’s inability to complete the contract was due, first and foremost, to his inability or unwillingness to sell the five properties which had to be sold in order to meet the Bank’s essential conditions of the loan. 90    Further, I find conceptual difficulty in holding MAC liable for the failure of a commercial opportunity which depended upon the availability of a loan from the Bank when the loan approval had been procured by deliberate non-disclosure by Mr Aldahr to the Bank of information as to Unique’s arrears of rent – information which MAC had provided to Mr Aldahr and which Mr Aldahr knew the Bank would reasonably expect him to disclose. To give damages to Mr Aldahr in those circumstances would be to compensate him for a loss which he would have inevitably suffered had he made proper disclosure to the Bank. The law does not often reward duplicity. 91    This conceptual difficulty illustrates the unreality of Mr Aldahr’s case on causation.


Return of deposit

92    MAC has not committed any breach of the Trade Practices Act . There is no basis upon which the Court can order damages or compensation under the Act. 93 The contract was validly terminated by MAC upon the failure of Mr and Mrs Aldahr to comply with a Notice to Complete. 94 The facts upon which Mr and Mrs Aldahr rely for their claim to a return of the deposit under s.55(2A) Conveyancing Act are the same facts as are alleged in support of their Trade Practices Act claims. Those facts have not been found in favour of Mr and Mrs Aldahr. 95    No reason has been shown which would make it unjust and inequitable for MAC to rely on its contractual right to retain the deposit: Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268, at 272; Havyn Pty Ltd v Webster [2005] NSWCA 182, at [150]-[151]. As I have said, in entering into the contract, Mr Aldahr knowingly took a commercial risk. Unfortunately, but through no fault of MAC, the risk became reality. 96 To Mr and Mrs Aldahr, the loss of $650,000 is, doubtless, significant. That circumstance alone, however, is not sufficient to require MAC to forego its contractual rights.


Orders

97    The orders of the Court are:


i) judgment for the First Defendant on the Amended Statement of Claim;

ii) declaration in terms of paragraph 1 of the Amended Cross Claim;

iii) order that the monies paid into Court by the Second Defendant, together with any interest accrued, be paid to the First Defendant/Cross Claimant.

98    I will hear the parties as to costs.
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