Alison Jane Whittle and ROZILIE Patricia Munday v Filaria Pty Limited ACN 056 933 843 and Independent Group Pty Limited ACN 008 659 792 and David Shearer and Millie Phillips [2004] ACTSC 45 (11 June 2004)

[2004] ACTSC 45

ALISON JANE WHITTLE and ROZILIE PATRICIA MUNDAY v FILARIA PTY LIMITED ACN 056 933 843 and INDEPENDENT GROUP PTY LIMITED ACN 008 659 792 and DAVID SHEARER and MILLIE PHILLIPS [2004] ACTSC 45 (11 June 2004)

HENRY POSCH v FILARIA PTY LIMITED ACN 056 933 843 and INDEPENDENT GROUP PTY LIMITED ACN 008 659 792 and DAVID SHEARER and MILLIE PHILLIPS [2004] ACTSC 45 (11 June 2004)

IAN DONALDSON JOHNSTON v FILARIA PTY LIMITED ACN 056 933 843 and INDEPENDENT GROUP PTY LIMITED ACN 008 659 792 and GRAHAME O’BRIEN and MILLIE PHILLIPS [2004] ACTSC 45 (11 June 2004)

TRADE PRACTICES – representations re sale of units in hotel – actions under the Law Reform (Misrepresentation) Act 1977 (ACT), the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1992 (ACT) - whether representations false – whether reliance on any misrepresentation - whether failure to disclose risks of future difficulties in management of hotel business false and misleading conduct – whether right of rescission – principles re causation and assessment of damages.
TRADE AND COMMERCE - representations re sale of units in hotel – claim under Civil Law (Wrongs) Act2002 (ACT) - whether representations false – whether reliance on any misrepresentation – whether right of rescission – principles re causation and assessment of damages.

Unit Titles Act 1970 (ACT)
Law Reform (Misrepresentation) Act 1977 (ACT)
Trade Practices Act 1974 (Cth)
Fair Trading Act 1992 (ACT)
Civil Law (Wrongs) Act 2002 (ACT)
Legislation Act 2001 (ACT)

Cummings v Lewis (1993) 41 FCR 559
Brown v Jam Factory Pty Ltd (1981) 53 FLR 340
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Re Credit Tribunal; ex parte General Motors Acceptance Corporation, Australia (1977) 137 CLR 545
Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164
Schindler Lifts Australia Pty Ltd v Deblak (1987) ALR 275
Overlook v Foxtel [2002] NSWSC 17
RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164
Cummings v Lewis (1993) ATPR (Digest) 46-103
Ting v Blanche (1993) ATPR 41-282
Sykes v Reserve Bank of Australia [1999] FCA 746
Jacques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102
Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) ATPR 41-534
Bill Acceptance Corp Ltd v GWA Ltd (1983) 50 ALR 242
Concrete Constructions Pty Ltd v Lifevale Pty Ltd (2002) 170 FLR 290
Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901
State of Western Australia v Bond Corporation Holding Ltd (1991) ATPR 41-081
Edgar v Farrow Mortgage Services Pty Ltd (in liq) (1992) ATPR 46-096
Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276
Australian Competition & Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881
Australian Competition & Consumer Commission v Oceania Commercial Pty Ltd [2003] FCA 1516
Australian Competition & Consumer Commission v Global Prepaid Communications Pty Ltd [2003] FCA 1221
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Metalcorp Recyclers Pty Ltd v Metal Manufacturers Ltd [2003] NSWCA 213

Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054

W Scott, Fell & Co Ltd v Lloyd (1906) 4 CLR 572

Semrani v Manoun [2001] NSWCA 337
Johnson Tiles Pty Ltd v Esso Australia Ltd (2001) ATPR 41-794
Taco Co of Australia Inc v Taco BellPty Ltd (1982) 42 ALR 177
Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR 40-994
Yorke v Lucas (1985) 158 CLR 661
Argy v Blunts& Lane Cove Real Estate (1990) 26 FCR 112
John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR 41,249
Butcher v Lachlan Elder RealtyPty Ltd (2002) 55 NSWLR 558
Walplan Pty Ltd v Wallace (1986) 8 FCR 27
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Kabadanis v Panagiotou (1980) 30 ALR 374
Jones v Dunkel (1959) 101 CLR 298
Widera v Reid [2002] ACTCA 3
SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] I Lloyds Rep 289
Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121
O’Meara v Dominican Fathers [2003] ACTCA 24
Lopes v Taylor (1970) 44 ALJR 412
Nuhic v Rail & Road Excavations [1972] 1 NSWLR 204
O’Donnell v Reichard [1975] VR 916
Builders Warehouse Group Ltd v Multinail Australia Pty Ltd [1998] 314 FCA (2 April 1998)
Davie v Magistrates of Edinburgh [1953] SC 34
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Bowler v HildaPty Ltd (1998) 80 FCR 191
Chamberlain v Carlisle; Independent Group Pty Ltd & Carlisle [2003] ACTCA 10 (22 April 2003)
North Sydney Municipal Council v Sydney Serviced Apartments Pty Ltd (1990) 21 NSWLR 532
Cvetanoski v Filaria Pty Ltd (2002) 171 FLR 194
Potts v Miller (1940) 64 CLR 282
O’Sullivan v Management Agency & Music Ltd [1985] QB 428
Alati v Kruger (1955) 94 CLR 216
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102
Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Kenny & Good Pty Ltd v MGICA(1992) Ltd (1997) 77 FCR 307
Henville v Walker (2001) 206 CLR 459
Medlin v State Government Insurance Commission (1995) 182 CLR 1
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
Smith New Court Securities Ltd v Citibank [1997] AC 254

Miller’s Annotated Trade Practices Act, 1974, 24^th Ed, 1.52.25

No SC 853 of 1999
No SC 868 of 1999
No SC 980 of 1999

Judge:           Crispin J
Supreme Court of the ACT
Date:            11 June 2004

IN THE SUPREME COURT OF THE       )
  )          No. SC 853 of 1999
AUSTRALIAN CAPITAL TERRITORY    )

BETWEEN:ALISON JANE WHITTLE and

ROZILIE PATRICIA MUNDAY

Plaintiffs

AND:FILARIA PTY LIMITED

ACN 056 933 843

First Defendant

AND:INDEPENDENT GROUP PTY LIMITED

ACN 008 659 792

Second Defendant

AND:DAVID SHEARER

Third Defendant

AND:MILLIE PHILLIPS

Third Party

ORDER

Judge:  Crispin J
Date:  11 June 2004
Place:  Canberra

THE COURT ORDERS THAT:

1. there be judgment for each defendant;

2. that the counter claims be dismissed.

IN THE SUPREME COURT OF THE       )
  )          No. SC 868 of 1999
AUSTRALIAN CAPITAL TERRITORY    )

BETWEEN:HENRY POSCH

Plaintiff

AND:FILARIA PTY LIMITED

ACN 056 933 843

First Defendant

AND:INDEPENDENT GROUP PTY LIMITED

ACN 008 659 792

Second Defendant

AND:DAVID SHEARER

Third Defendant

AND:MILLIE PHILLIPS

Third Party

ORDER

Judge:  Crispin J
Date:  11 June 2004
Place:  Canberra

THE COURT ORDERS THAT:

1. there be judgment for each defendant;

2. that the counter claims be dismissed.

IN THE SUPREME COURT OF THE       )
  )          No. SC 980 of 1999
AUSTRALIAN CAPITAL TERRITORY    )

BETWEEN:IAN DONALDSON JOHNSTON

Plaintiff

AND:FILARIA PTY LIMITED

ACN 056 933 843

First Defendant

AND:INDEPENDENT GROUP PTY LIMITED

ACN 008 659 792

Second Defendant

AND:GRAHAME O’BRIEN

Third Defendant

AND:MILLIE PHILLIPS

Third Party

ORDER

Judge:  Crispin J
Date:  11 June 2004
Place:  Canberra

THE COURT ORDERS THAT:

1. there be judgment for each defendant;

2. that the counter claims be dismissed.

TABLE OF CONTENTS

Background

• The investment brochure

• The sale to Ms Whittle and Ms Munday

• The sales to Mr Posch

• The sale to Mr Johnston

• Newspaper advertisements

• Subsequent events

The nature of the claims

• The pleadings

• The claims under the Law Reform (Misrepresentation) Act 1977 (ACT)

• The claims under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1992 (ACT)

Evidentiary issues

• The answers to interrogatories

• The principle in Jones v Dunkel

The suggested fraud

The suggested falsity of the financial projections

The pleaded allegations of misrepresentations

1. The property could legally be used as a residential unit

2. The property could legally be used by each plaintiff for their own purposes

3. There was flexibility of use of the units

4. The acquisition of each property enabled each plaintiff to take advantage of the strongest market at the time

5. The acquisition of each property was a unique investment in one of Canberra’s most famous establishments, to the benefit of each plaintiff

6. The acquisition of each property enabled each plaintiff to participate in one of the strongest growth industries in Canberra

7. The arrangement between each plaintiff and their tenant Jaywood was of long term benefit to each plaintiff

8. Ongoing returns of over 11% per annum on the purchase price of the property or alternatively substantial ongoing returns were available to the plaintiff

   (viiiA)The terms of the contract included a term that the unit entitlements of all units were to be reasonable, having regard to the respective values of the units in the Units Plan

9. The acquisition of the property represented one of the most lucrative real estate opportunities on offer

10. There was an extraordinary performance of the property from an investment perspective

11. The terms of the contract included a term that the agreement contained the whole of the agreement between each plaintiff and Filaria, and that no other document existed that related to the use of the property, or the rights of each plaintiff as a purchaser

12. The property would earn an excellent return to each plaintiff

13. A substantial increase in value or alternatively an increase in value was available to each plaintiff on the purchase price of each property after the expiry of the lease back period to Jaywood

The pleaded allegations of omissions

(a)The terms of a prospectus that set out the conditions pursuant to which each plaintiffs was with others jointly to receive income and pay expenses in respect of the property

(b)The existence of the terms of a trust deed dated 16 August 1993 to which Filaria was a party

(c)The risk of problems concerning the management and operation of the Canberra International Hotel of which hotel the property formed part

(d)The risk of problems concerning the servicing of the property

(e)The fact that the property could only be used as an income earning property if it was serviced by the plaintiff or by third parties

(f)The provisions of the Corporations Law concerning the requirement to issue a prospectus had not been observed

(g)Filaria owned or claimed ownership of the fixtures, fittings and contents of the ROF Units (restaurant, reception area, office, functions rooms and shop) and the contents of the common property

(h)The terms of a joint venture deed dated 25 May 1993 including terms that Filaria expected the return from the rental of units in the Hotel (including the property) to be 2% per annum less than that to be paid by Jaywood for the lease back period, and that assistance in funding the shortfall was provided

(i)Filaria would block transfer of ownership of the ROF Units to purchasers of units for the $60,000 referred to in the contract.

The claimed relief

• Rescission

• Damages

The defences under the Limitation Act

The counter claims

Conclusion

1. These proceedings, which were heard together, were actions for rescission and/or damages based on allegations of misrepresentation and false and misleading conduct said to have induced the plaintiffs to purchase units in the Canberra International Hotel (“the Hotel”) and, as a consequence, to have suffered financial losses.

Background

1. The Hotel was offered for sale in early 1993 by the Australia and New Zealand Banking Group Ltd that was then a mortgagee in possession.  Several people submitted tenders for the purchase of the Hotel including Mr Richard Tindale, who was then the Chairman of Independent Group (“Independent”), and is the second defendant in each of the three proceedings.  However, the successful tenderer was Ms Millie Phillips, who subsequently arranged for the Hotel to be purchased by Filaria Pty Ltd (“Filaria”), the first defendant in each of the actions.  The contract for the sale of the Hotel was dated 25 May 1993.  On the same day Ms Phillips entered into a joint venture deed with Mr Gary Willemsen in relation to the purchase and development of the Hotel.  Filaria then proceeded to obtain separate titles under the Unit Titles Act 1970 (ACT) for the individual rooms and suites of the Hotel and offer them for sale as units with an ancillary offer of an arrangement to another company, Jaywood Pty Ltd (“Jaywood”), which would manage the hotel business.

1. There had been discussions between Mr Tindale and Ms Phillips during late April 1993 about Independent acting as marketing agents for the sale of the units.  On 28 April 1993 Mr Tindale had written to Ms Phillips concerning a discussion at the Hotel on the previous Sunday and adverting to what he then regarded as appropriate selling prices for the units.  In his evidence, before me, Mr Tindale explained that in suggesting appropriate sale prices he had relied upon his previous experience and, in particular, upon his experience the previous year when he had acted as the agent for sale of units in a similar development known as the Capital Executive Apartments located near the Hotel.  All of the units in that development had been sold within a very short time and a number had subsequently been resold for higher prices.  Independent was duly appointed to act as agents for sale of the individual units.

The investment brochure

1. A brochure entitled “Investment Report Canberra International Hotel” (“the brochure”) was prepared describing the Hotel and providing a number of photographs as well as plans of typical units.  The brochure was compiled by Mr Tindale who obtained the relevant information from various sources.  He explained in evidence that the financial projections were based upon figures, information and views provided to him by Mr Graham Hoare who was then the manager of the Canberra Rex Hotel which was apparently owned by another of Ms Phillip’s companies.  He said that the brochure was “signed off” by Ms Phillips, her son Mr Robert Phillips who was a solicitor, Mr Willemsen and Mr Richard Kemp of Malleson Stephen Jacques who were acting for Filaria.  It contained the following statements:

SALE DETAILS:

The strata titled serviced apartments will be offered for sale with an offer from Jaywood Pty Ltd to leaseback the units from the owner as follows:-

For a minimum of 3 years, at 9% per annum indexed to CPI (capped at 9.25% for the second year and 9.5% for the third year).  At the expiration of this period, Jaywood Pty Ltd proposes to offer to manage the apartments for a 10% management fee.

INTRODUCTION:

The Independent Group are pleased to be able to offer investors the opportunity to earn an excellent return from one of Canberra’s best known and certainly most distinctively designed hotels.  The Canberra International.

The International, however, is now no longer a hotel as such.  It is being upgraded by well known Canberra developer Gary Willemsen into exclusive serviced apartments.  The apartments are offered for sale with a management offer to lease the units back from the owners at a very attractive rental.  The management of The International is to be handled by Jaywood Pty Ltd, an affiliate of one of Australia’s largest privately owned specialist hotel management companies, The Castle Group.

As opposed to a unit title motel room as an investment, an owner of a unit title serviced apartment will have the distinct advantage of choice.  Apart from the leaseback offer, owners can use the unit for their own purposes, such as a normal tenancy arrangement or occupying the unit themselves.  This flexibility allows owners to take advantage of the strongest market at the time.

The 3 year lease to the management company will allow owners to take advantage of the strong growth of tourism in the A.C.T.  We have prepared a financial analysis of this option as well as an overview of tourism in the A.C.T., both of which are detailed later in the report.

The Independent Group sell the majority of all major residential developments in Canberra.  However, rarely do we have the opportunity to offer such a unique investment in one of Canberra’s most famous establishments and in one of the strongest growth industries both here and throughout Australia.

A.C.T. TOURIST INDUSTRY – “WHY INVEST?”

OVERVIEW:

Since the early 1980’s, tourism has grown to become a major part of the Nation’s economy.  The A.C.T. is no exception, with tourism now an important and integral part of our economic growth and development within the Territory.  This is evidenced by the information collected from the Canberra Visitors Survey which shows the industry generated in excess of $400 million to the economy during 1990/91, subsequently supporting an estimated 7000 jobs within tourism and related industries.  1990 – 1991 saw a consolidation in the A.C.T., with occupancy levels at 53.18% and 53.5% respectively.  Given the pilots strike of 1989 and large increases in the supply of hotel and motel rooms in that time, the A.C.T. has faired well in maintaining these levels.  This has been attributed primarily by the opening of the New Parliament House, the National Science and Technology Centre and the National Convention Centre.  1992 has seen strong growth, with occupancy climbing from an annual average of 53% in 1991 to 58.7% in 1992, representing an increase of 9.7%.  This growth continued in the December quarter with an occupancy rate of 62.3% being the highest in Australia for that quarter.

SUPPLY AND DEMAND:

Official figures confirm that not only is overall demand for accommodation increasing but there is a very definite swing to serviced apartments.  This trend is evident Australia wide.  Canberra figures show that overall motel occupancy has increased to 58.7% in 1992, while serviced apartments occupancy has increased to 65.9%.

Noel McCann of McCann and Associates, Valuers, says in a report on investment in Canberra, dated 21 May 1993.

“Our research indicates that the growth prospects for the A.C.T. Tourism market:

*is strong with very few new rooms proposed for development into the market which is assisting the trend of increasing occupancy levels;

*          Australia is coming out of the National recession;

*the growth in the number of international tourists into the A.C.T. and Australia (approximately 1.5 million international tourists visited Australia in 1992, this is expected to reach 6 million by the year 2000, excluding the impact of the Sydney 2000 Olympic Bid).”

In May 1993,[sic] the then Capital Motor Inn was converted to strata title serviced apartments.  They were released for sale at an average price of $123,000 for the studio apartments and up to $185,500 for a one bedroom apartment.  Noel McCann reports: -

“Sale Prices

All units were sold within one hour of initial release with prices ranging from $115,000 for a studio apartment to $185,500 for a large one bedroom suite apartment. Since the initial release, our research indicates that there have been six resales.  The most recent resale was for a studio apartment originally purchased fore $121,500 and resold in May, 1993 for $138,000. 

Current Occupancy Levels

Our research indicates that during the months of March and April, occupancy levels were at approximately 70%.  With the management pool currently having an excess of funds over and above that of the minimum guarantee”.

Given these already encouraging signs, our research also shows that many existing motel rooms are about to be removed from the market through redevelopment.  We have preliminary confirmation of some 600 rooms, all of which are expected to be out of the tourism market within the next few months.  In addition there are a further 300 rooms that are distinct possibilities to be redeveloped.

The effect of this anticipated fall in room supply has been plotted on the following graphs.  The result is quite startling and should ensure occupancy rates remain high.

Graph 1 shows a conservative net loss of 450 hotel/motel rooms and nil growth in Tourism, yet still demonstrates an increase in occupancy to 64.5%.  Graph 2 allows for a projected 4% growth, indicating an occupancy of 69.7%.  Graph 3 and 4 take the above two scenarios but with a net loss of 800 hotel/motel rooms, showing occupancy levels of 72.1% and 78.0% respectively.  Allowing for the fact that serviced apartments are showing a higher occupancy rate than hotel/motel rooms, the forecast occupancy levels shown in the Projected Financials could be seen as somewhat conservative.

SUMMARY:

Capital Executive Apartments are a good comparison to the Canberra International, although many investors will see significant marketing benefits for the International.

Capital offered a 9% return for 2 years, and are already trading above that figure.  It would be a reasonable assumption that the International will show capital gains to at least match Capital, and that the returns after the three year leaseback will have grown significantly, thus further enhancing the growth in value of the individual apartments.

1. Graphs were provided showing projections of the supply of and demand for hotel/motel accommodation in the ACT on the basis of various stated assumptions.  These further statements followed:

THE MANAGEMENT COMPANY:

Major hotels are not run by hotel owners but by management groups e.g., Hilton, Sheraton, Raddison, SPHC etc.  The management company is a specialist in hotel administration and marketing.  The Castle Group is such a company.  (Jaywood Pty Ltd is an affiliate of The Castle Group)

To date The Castle Group has concentrated on managing its own hotels and currently owns 8 hotels totalling some 750 rooms.  It is one of the largest privately owned hotel groups in Australia.  Castle hotels are located in Tasmania, Sydney, Brisbane and Canberra.  With the exception of the Great Northern in Launceston the freehold of all hotels are owned outright.  The group employs a staff of 500.

Its founder/owner Millie Phillips is one of Australia’s most successful businesswomen.  Her financial holdings cover a chain of retirement villages, nursing homes, residential and commercial real estate.  She is the driving force behind the business.  Her interests include mineral exploration and Chairmanship of two publicly listed companies.

Canberra Rex Hotel

Millie Phillips purchased the Rex some 3 years ago.  Despite the pilot strike and the recession her team under the leadership of Graham Hoare, Manager, has made the Rex into one of Canberra’s most successful hotels.

Canberra International

The International team will be headed by Graham Hoare.  It too will become an outstanding performer.  The International compliments (sic) the Canberra Rex.  As a sister hotel it will bring cost effectiveness of significant proportion with running expenses and marketing (sic).  Graham has a proven track record in Canberra, achieving a 75% occupancy rate for the Rex in 1992, way above the industry average.

Marketing Team

The secret of The Castle Group is not only in tight cost control and quality management but in the effectiveness of its marketing team.  The Castle Group are (sic) members of Flag International and uses Flag as its national and international reservations system.  The Castle Group employs 7 professional marketers to promote its hotels in 5 states.  Their professionalism is on level with the top hotel chains.  Castle’s Manager of Marketing is a Director of ITOA – Australia’s umbrella tourism marketing arm (sic).  Castle marketers are invited to participate in most of Australia’s overseas marketing drives and all mainstream trade shows to promote the industry.  

1. Tables of projected cash flows were provided purporting to show that purchasers who bought a unit for $127,000 with no deposit could expect to derive an average pre tax profit of $1,122 per annum whilst those who bought a similarly priced unit with a deposit of $32,000 could expect to derive an average pre tax profit of $4,012 per annum and a return on investment of “12.5% + Capital Gain”.  Explanatory notes stated that the figures were estimates only and that the tax saving shown would vary according to the owner’s individual tax position.

1. These were followed by a further table under the heading “Canberra International Hotel Projected Financials” purporting to show average occupancy rates and room rates for the 1992/93, 1993/94, 1994/95, 1995/96 and 1996/97 financial years and the projected income and expenditure of the Hotel for the last four of those financial years.  The table showed a “return to investor” of 9% during 1993/94, 9.25% during 1994/95 and 9.5% during 1995/96, which corresponded to the rental payable to purchasers who leased their units to Jaywood.  It also showed a return of 11.9% during 1996/97, which was plainly based upon the projected profitability of the hotel business.  The value of a unit as at 1996/97 was projected to be $168,000 on the basis of a 9% return, or $189,000 on the basis of an 8% return, assuming in each case the initial purchase price was $127,000.  The projections were said to have been made on the basis of certain stated assumptions.

1. The brochure concluded with a disclaimer stating, inter alia:

. . .

Information contained in this report has been prepared in good faith and with due care by the writers.  Potential investors should take note, however, that the calculations contained in the report are based on figures provided to the writers by outside sources and have not been independently verified by the writers.

Any projections contained in the report therefore, represent estimates only and may be based on assumptions which, although reasonable, may not be correct.

If a projection has been made in respect of any outcome, including net income, occupancy rate, room rate and outgoings, such a projection is an estimate and represents only one possible result, depending on the assumption made.  Potential investors should therefore satisfy themselves as to the current status of all projections, including income, occupancy rate, room rate and outgoings and use their own judgement as to the likely outcome.

Potential investors should not rely on any material contained in this brochure as a statement or representation of fact, but should satisfy themselves as to its correctness by such independent investigation as they or their legal or financial advisers see fit.

The sale to Ms Whittle and Ms Munday

1. In about July 1993 Mr David Shearer, who is the third defendant in proceedings numbered SC 853 of 1999 and 868 of 1999, had a conversation with Ms Alison Whittle about the units.  She said in evidence that he had told her that his agency was offering a “fantastic investment opportunity” and that he had given her a copy of the brochure.  She read the brochure and had subsequent discussions with Mr Shearer.  She believed both the statements contained in the brochure and the further statements which he made to her but said that the “Information in the brochure was the deciding factor in my mother and I purchasing the unit”.

1. Ms Whittle subsequently discussed the matter with her mother, Ms Rozilie Munday, and they decided that they would purchase a unit.

1. They attended a presentation at the Hotel on 11 July 1993 with the intention of purchasing a one bedroom unit but those units had all been sold by the time they reached the head of the queue.  They agreed to purchase a studio unit instead and paid a holding deposit of $1,000.

1. On 23 August Filaria’s solicitors advised them that the term of the proposed guarantee would be extended from three years to five years with rental in accordance with the formula previously proposed but increasing to amounts equal to 9.75% and 10.00% of the purchase price for the fourth and fifth years of the lease.

1. Mr Shearer agreed that he had been enthusiastic in presenting the Hotel as a potential investment.  He had taken the statements in the brochure at face value and had regarded the purchase of units in the Hotel as a good investment.  He had spoken to “dozens” of potential purchasers and clearly had only a limited recollection of the conversations with Ms Whittle, though he accepted that he would have told her that he thought the offer was a good opportunity and that he would have compared it with his own investment in a unit in the Capital Executive Apartments which had since increased in value. 

1. The contract of sale was dated 9 September 1993.  The date of settlement was 11 November 1993 and on the same day Ms Whittle and Ms Munday entered into a lease of the property to Jaywood on the proposed terms.

1. Ms Whittle impressed me as an intelligent and articulate person whose evidence was given in a candid and forthright manner.  I have no doubt that she described the events as accurately as she could, given the passage of time.  However, she was obviously not immune from the normal frailties of human memory and did not claim to provide a verbatim account of conversations that had occurred almost a decade earlier or even to have remembered how many such conversations occurred in relation to the sale of the units.  Whilst I accept that Mr Shearer explained to her the investment offer in positive terms and encouraged her to participate in it, I am unable to be satisfied that he used the term “fantastic” to describe it or that he made any more specific representations in relation to it.  Whilst it was submitted on her behalf that Mr Shearer had told her that there would be a capital gain at the end of the five year lease back period, she did not, in fact, claim that he had made such a representation and, since only a three year lease back arrangement was then on offer, it is highly unlikely that he would have done so.

1. Ms Whittle was at times obviously reliant upon reconstruction to answer questions about what she would have believed at the time.  For example, in her evidence in chief she said that upon reading the information on page 13 of the brochure she had formed the belief that “there would be normal capital gain plus a 12.5 per cent increase on the value of the property” but subsequently admitted that she did not know what the figure of 12.5 per cent represented and that the answer had been obviously silly.  In fact, she quite fairly agreed that she had understood that there was no guarantee of future capital gain and that the author of the brochure had been trying to extrapolate what might happen in the future based on past experience in a comparable development and figures from outside sources.  However, she said that she had carefully read the brochure and thought that the purchase of a unit would be a very good investment which would provide a good return and might increase in value over time. 

1. Ms Munday was also an obviously honest witness but she had clearly left the negotiations to her daughter and her understanding of the transaction seemed substantially dependent upon what Ms Whittle had told her.  I formed the impression that she had little independent recollection of any representations that may have been made to her prior to the purchase. 

The sales to Mr Posch

1. Mr Henry Posch first heard about the proposed sale of the units in mid 1993 through newspaper and television advertisements and a conversation with Ms Whittle.  He was subsequently contacted by Mr Shearer who came to see him, apparently in late July or early August 1993 and discussed the units with him.  He said that Mr Shearer spoke of a five year lease arrangement and gave him a copy of the brochure and other documents including one which stated -

CANBERRA INTERNATIONAL

Exclusive Serviced Apartments

THE BEST INVESTMENT

Why are the investment experts so excited?

1.          PRIME INNER NORTH LOCATION

2.          GUARANTEED MINIMUM 9% RETURN FOR FIVE YEARS

That means an apartment purchased for

$123,950

offers a nett rental of

$214/week

indexed to CPI for 5 years!

3.          NO BODY CORPORATE FEES

4.          UNDER MARKET VALUE – EXCELLENT CAPITAL GAIN PROSPECTS

Other residential property investments are performing strongly to show a nett return (before rates and land tax) of 5.5%.  There is no where else in Australia that prime real estate offers a 9% return with this level of security.

AND

If you have NO DEPOSIT you can afford to own one of these exceptional apartments and show an after tax profit before Capital Gain of

$2,500*

in the first year of ownership

*To Approved Purchasers based on a marginal tax rate of 43% . . .

1. The document invited prospective purchasers to contact Mr Shearer and was accompanied by two other documents, one providing an example of the returns that might be derived in the first two years of such an investment and the other setting out the expected purchase costs of the investment, required borrowings, annual expenses, tax deductions and tax savings calculated by reference to marginal rates of 38%, 43% and 48%.

1. There was some discussion concerning the contents of the brochure and the other documents.  Mr Posch said that Mr Shearer had been very enthusiastic about the development and that he had described it as an “excellent investment” which would produce “excellent capital gains”.  Mr Posch said that the figures suggested he would receive an excellent return on any investment in the units and that the potential capital gains “seemed very attractive”.  He accepted the statements contained in the brochure and further statements made by Mr Shearer. 

1. Mr Shearer’s recollection was that he had spoken to Mr Posch at the first meeting about a three year leasehold arrangement and, since it appears that the decision to offer five year rather than three year leases was not made until about 21 August 1993, it seems likely that Mr Shearer’s recollection is more accurate.  The document referring to a minimum return for five years must have been given to Mr Posch later.  He agreed that he would have discussed the brochure with Mr Posch and that it was very likely that he had told Mr Posch of his experience with his unit at the Capital Executive Apartments and the capital gain he had made.  He said that he would have spoken about the potential for capital gains on units at the Hotel and would have expressed the view that the guaranteed returns during the lease back period were supportable by the operations of the Hotel.

1. Mr Shearer later took Mr Posch to the Hotel to inspect a number of the units and he ultimately purchased units 24 and 33.  Contracts of sale were apparently exchanged on 15 October 1993 and settlement occurred on 12 November 1993.

1. There was a sustained attack on Mr Posch’s credit and at one point his answers in cross-examination appeared to involve clear admissions that he had attempted to create an impression that was quite false, though he subsequently explained that he had been confused.  I accept that he would have been likely to have evaluated the financial projections with some care since he already owned about ten investment properties and managed his own business.  However, he seemed to find it difficult to recall precisely what Mr Shearer told him.  That is entirely understandable given not only the diversity of his business and investment interests but, more importantly, the fact that the conversation had occurred almost a decade before he was called to give evidence.  At times he was clearly dependent upon reconstruction.  For example, he gave evidence that he had thought that the capital gains would be excellent “because there was no capital gains tax to be paid also at that time”.  In fact, of course, capital gains tax was introduced in 1985.  Whilst I accept the general thrust of his evidence I formed the distinct impression that Mr Shearer’s recollection of the relevant meetings and discussion was more accurate.

The sale to Mr Johnston

1. Mr Ian Johnston first heard about the sale of the units in about October or November 1993 during discussions with his sister and brother in law who had just paid a deposit on a unit.  Either he or his wife subsequently contacted Independent and Mr Grahame O’Brien, the third defendant in proceedings numbered 980 of 1999, came to their home, apparently on the evening of 3 November 1993.  During the course of the meeting Mr O’Brien gave him a copy of the brochure, there was some discussion and Mr Johnston did some calculations on a piece of paper.  He was told that the proposed lease arrangement had been changed to five years and it was suggested that the proposal was similar to the development of the Capital Executive Apartments, though he agreed that the Hotel was superior to that development.  In cross-examination, Mr Johnston conceded that he had looked at the disclaimer and understood that “the figures are estimates, they are projections”.  He said that he believed they had been prepared by people who knew the industry and that they were estimates and projections based on some value which he thought were achievable.

1. During his evidence Mr Johnston was again taken through the brochure and invited to recount any conversation that he could recall having with Mr O’Brien in regard to particular pages during that meeting. At one point he referred to page 4 and said “…in that it was described that the management would be by an experienced group that would carry on, and what would be expected is that that management by rights would perform very well and that they would naturally carry on for – after the five years”.  In fact, there are no statements to this effect on page 4 of the brochure.  He may have been intending to assert that Mr O’Brien had told him these things when they reached page 4, but even in that event, this statement would appear to have been incorrect because he later agreed that he had asked about how the management would carry on after the five years and that Mr O’Brien had not answered.  He did claim that on a subsequent occasion Mr O’Brien had told him that if a number of people were not happy with the management at the end of the initial five year period the majority would rule and a new management organisation could be put in place.  It was not suggested that anything turned on this assertion and the confusion seems to have merely provided another example of the difficulty that witnesses understandably had in attempting to recall conversations that had occurred so long ago.

1. Mr Johnston’s wife who had been present at the meeting was not called as a witness and Mr Foster, who also appeared on Mr O’Brien’s behalf, submitted that I should draw an inference, pursuant to the principle in Jones v Dunkel that her evidence would not have assisted his case.  The principle in Jones v Dunkel is discussed later in this judgment but, for present purposes, I need say only that having regard to the time that has passed since the evening in question I would not be prepared to assume that the failure to call her was attributable for fear of what she might say rather than her inability to recall exactly what was said.  In any event, the suggested inference would not have had any significant impact on the outcome of Mr Johnston’s claim.

1. On 5 November 1993 Mr O’Brien showed Mr and Mrs Johnston some units at the Hotel and they thereupon agreed to purchase two units and paid holding deposits on them.  They later changed their minds about the purchase of these units but did subsequently purchase a one bedroom unit for a price of $164,950 and entered into a five year lease to Jaywood from 4 February 1994. 

1. Mr O’Brien said that he had gone to Mr Johnston’s home on the evening of 3 November 1993 and that he had worked through the brochure with him, though he was unable to recall in how much detail.  He would have adverted to the important points and believed he would have mentioned the guaranteed returns and management options at the end of the lease back period.  He also owned a unit in the Capital Executive Apartments and believed he would have mentioned that. 

1. Mr O’Brien clearly had only a vague recollection of the conversations with Mr Johnston and the latter’s account of them was more detailed and precise.  However, whilst I have no doubt that Mr Johnston gave his evidence honestly, I was sometimes left in real doubt as to whether his answers reflected a clear memory of the relevant conversation or, perhaps, a subconscious reconstruction of what, in hindsight, he thought would have been said.  I accept that Mr O’Brien probably told him that Jaywood might be willing to continue managing the Hotel after the leases expired but I am not satisfied that he assured him that, in the event of some dissatisfaction, the majority would rule and a new management organisation could be put in place. 

Newspaper advertisements

1. A number of newspaper advertisements were tendered in evidence and, whilst none of the causes of action were based upon any representations contained in them, it was suggested that they revealed the representations likely to have been given prominence in subsequent discussions.  Since both Mr Shearer and Mr O’Brien seemed to have used the brochure as the basis for discussion, I ultimately found these clippings to be of limited assistance.

Subsequent events

1. It is common ground that at the time of purchase, the units were worth what the plaintiffs paid for them.  Indeed, counsel for the plaintiffs called a valuer, Mr Frank Brodrick, to prove this fact. 

1. Mr Brodrick gave evidence that values subsequently began to decline as occupancy rates fell due to the election of a Coalition government in 1996, downsizing of the public service, a slowdown in the local economy and an increased number of serviced apartment developments throughout Canberra.

1. Despite the decline in occupancy rates, Jaywood duly paid the agreed rentals for the whole of the five year period.

1. Each of the leases contained an “option” pursuant to which Jaywood agreed that if appointed manager of “such number of Units as hold not less than two-thirds of the voting entitlements in the Body Corporate” it would enter into a further management agreement for a fee equal to 10% of the gross receipts from the letting of the premises.  As the end of the period covered by the leases approached however, it became apparent that the plaintiffs and other unit owners wanted an extension of the existing leases or some other agreement that would provide guaranteed returns and that they were not prepared to exercise the option in the leases for Jaywood to manage the Hotel for a further period in return for a management fee. 

1. Jaywood did make another offer to continue managing the Hotel but it was again on the basis that the returns to individual unit holders would be dependent upon the profits derived from the provision of accommodation to hotel guests after deduction of management fees.

1. Some of the unit owners were clearly unwilling to accept this offer.  An association called the “Canberra International Hotel Unit Holders Association” (“CIHUHA”) was formed.  Ms Whittle, Mr Posch, Mr Johnston and other unit holders proceeded to join it.  Members of the association made enquiries about other potential managers and, ultimately began to negotiate with the Premier Hotel Group (“Premier”) to replace Jaywood.

1. On 1 February 1999 Ms Phillips wrote to the unit holders on behalf of Jaywood asserting that the company’s dedication to the performance of the Hotel was guaranteed by its continuing ownership of forty-two units and providing what should have been a sobering note of warning:

. . . However without certainty of tenure forward planning is impossible.  Without assurance that the Hotel will remain in Castle’s management puts forward planning on hold.  Such a situation is dangerous to any business.  For tourism which plans one two years ahead it is disastrous.  Whether the uncertainty of the hotel’s future is known to the market place and is causing the serious drop in business is unknown.  What is certain is that Canberra’s tourism is undergoing serious difficulties, and that insecurity of management must impinge on performance.

We have been advised a legal structure has been formed to represent unit owners, but that not all unit owners have entered into an arrangement with this Body Corprate. [sic]

We now advise that if an acceptable arrangement is not reached within the next 21 days, Castle will seriously reconsider its continuity in management.  Units under our ownership and under guaranteed rental will be transferred to Canberra Rex management; the reduced running costs will enable selling these rooms at highly competitive rates and will seriously dislocate the Canberra International’s business.

It is therefore imperative that the unsatisfactory state in the management agreement is quickly resolved . . .

1. Ms Whittle agreed that she had recognised that the letter contained a threat and accepted that it had evoked general animosity amongst her and other unit holders.

1. On 16 February 1999 Mr Vickers, the president of CIHUHA, wrote to unit holders stating that the committee was of the view that Ms Phillip’s letter had been intended to raise concern and perhaps cause them to rush into signing Jaywood’s proposed lease.  The author added that he thought the suggestion that Filaria’s units might be managed from the Canberra Rex Hotel was a “bluff”.  On the following day Jaywood gave one months notice of its intention to terminate its agreement with those unit holders whose leases had expired or were due to expire that day.

1. On 19 February 1999 the solicitors for CIHUHA wrote to Jaywood’s solicitors stating that CIHUHA was willing to consider new leases similar to the existing ones in that rents would be fixed and not dependent upon profit.

1. On 24 February 1999 CIHUHA resolved that the proposal put forward by Jaywood for the further management of the Hotel be rejected.  Ms Whittle agreed that at that time she was unaware of any offers or even expressions of interest from alternative managers.

1. Further correspondence between the solicitors for Jaywood and CIHUHA ensued.  On 3 and 4 March 1999 the former wrote to the latter complaining that no contact had been received from them or their clients with a view to furthering the negotiation process and requesting that the matter be dealt with urgently.   On 5 March the latter responded, indicating that CIHUHA was prepared to meet only if Jaywood was prepared to consider a fixed rent.  If not, CIHUHA would consider any written management proposal together with proposals from other potential managers. 

1. On 17 March 1999 Jaywood’s solicitors again wrote to CIHUHA’s solicitors conveying a further offer involving a lease for five years with two option periods, each of five years, and rental calculated on the basis of 3% of the gross revenue and 5% of the net operating profit.  Clarification of this offer was provided in a further letter written on 19 March 1999 stating that Jaywood intended funding any operating losses from its own resources subject to recovery from future profits.

1. On 20 March 1999 Mr Vickers wrote to unit holders referring to alternative proposals for management of the Hotel.  The letter stated that any new manager would presumably offer to manage Ms Phillip’s units in the same manner as the others and that “The suggestion of running her units out of the Rex seems legally feasible, but highly impracticable”.  The letter conveyed Mr Vickers’ impression that Jaywood would cease to manage the Hotel within several weeks and added, “Whether that separation is easy or difficult remains to be seen”.

1. On 26 March 1999 Jaywood issued a further notice of intention to terminate the lease agreements with effect from 26 April 1999.

1. In a letter dated 6 April 1999 Mr Vickers advised unit holders that the association had met on 16 and 30 March 1999 and that “the meeting” had been firmly of the view that Jaywood should be removed as manager of the Hotel.  The letter set out the steps that he considered necessary to achieve that objective and stated that “Premier have been asked to manage the Hotel from May 1, regardless of whether the fine details of their arrangement have been finalised by that time”.

1. In a further letter apparently sent on or before 26 April 1999, Ms Phillips again wrote to “ALL INTERNATIONAL HOTEL UNIT OWNERS” referring to the decision as an “unconsidered invitation for economic disaster”.  The letter again contained significant warnings:

. . . If the Castle Group is voted out, the Canberra Rex will be used to sell the 57 units we own and manage.  We will be able to undersell the International by servicing our units from the Rex.  We may be forced into rental strategies that could prove at odds with the promotion of the hotel.  To protect our reputation, we will be forced to notify clients we no longer are the managers.  This could result in long term cancellations, and affect the International’s ability to attract business. 

Business is adversely affected by instability in management.  Having two competing managers run the same hotel is disastrous.  Investors will shun such a property.  Travel agents will avoid it.  Staff morale will sink and impact on performance.  Five years work of turning an underperforming hotel into one of high repute will be lost.  Earning good-will is a long hard battle – losing it is fast.  Your investment, already under threat from the current and projected hotel over supply and Canberra’s subdued economy must suffer the consequences.  Its value could collapse.  Duplication of management will end the possibility of the hotel joining any chain hotel group . . .

1. The letter concluded with the cautionary plea:

. . . It is still possible to avoid disaster, save our hotel and secure the value of your investment.  Please take time to consider these implications.

1. A special general meeting of CIHUHA was apparently held on 29 April 1999.  In a note to CIHUHA members, presumably distributed immediately before or at the start of the meeting, Mr Vickers referred to the letter from Ms Phillips and stated, “I can assure you that her letter raises nothing new”.

1. The meeting resolved to:

·    revoke Jaywood’s special privilege to use the common property areas of the Hotel with effect from 1 May 1999;

·    direct Filaria to sell the units containing the restaurant, reception area, office, functions room and shop (“ROF units”) to CIHUHA or its nominee upon payment of $60,000; and

·    have all agreements for Jaywood to manage the Hotel terminated with effect from 1 May 1999.

1. Jaywood thereupon removed its property and the Hotel closed. 

1. The Hotel reopened for business on 24 May 1999 under the name “Pavilion on Northbourne”.  The majority of the units were managed by people associated with Premier though the precise arrangement with the unit holders is not clear.  On 25 August 1999, some three months later, CIHUHA informed its members that Premier had formed a subsidiary company called “Pavilion Pty Ltd” to promote a proposed scheme of management and indicated than an agreement was expected to “follow shortly”. 

1. It is now clear that Ms Phillips proceeded to have the units retained by Filaria separately managed as she had foreshadowed.  It is not clear whether she did so because she was not satisfied that the new arrangements were adequate to ensure the efficient management of her units, whether she acted out of spite, or whether she simply wished to withdraw from a continuing association with other unit holders after relations had apparently become somewhat acrimonious.  Whatever her motivation, she was obviously entitled to take a different course from that adopted by other unit holders and the pleadings do not raise any issue as to the propriety of her decision.

1. However, as a consequence of the different courses adopted, two separate hotel businesses have been carried on in competition with each other in the same building for some years.  This has obviously had a seriously detrimental impact upon profitability.  During the hearing in May 2003 evidence was given that units were then available at a rate of $60 per night.  This was, of course, significantly below the average room rate of $87.47 per night said to have been obtained in that portion of the 1992/1993 financial year prior to 28 February 1993.

1. The returns which the plaintiffs have derived from their units since the termination of the lease to Jaywood have been meagre and the values of units are now much lower than the prices paid for them in 1993.  In a report annexed to his statement of 21 March 2003, Mr Brodrick explained that the values of the units had fallen dramatically due to the competition between the two hotel businesses in the one building, the fact that no money had been spent on the development for five years, the fact that the ROF units had been sold “as a result of court action” and publicity arising from the pending proceedings.

1. It should be noted that the brochure had not contained any representation as to the continued profitability or value of the units under different management.  Nor did it represent that Filaria would undertake to have its residual units managed by a manager other than Jaywood, chosen by other unit holders.  On the contrary, the brochure stressed that all unit holders would be free to choose how to use their units.

1. The evidence does not establish that any net losses would have been sustained had the plaintiffs and other unit holders exercised the options to have Jaywood continue to manage the Hotel on the basis specified in the leases or on either of the other bases subsequently offered, though the earlier decline in occupancy rates referred to by Mr Brodrick may have adversely affected the return on their investments for some period.

The nature of the claims

1. The plaintiffs claim to be entitled to rescind the contracts for the purchase of their respective units and have sought consequential orders restoring them to the financial position they would have enjoyed had they not entered into that transaction.  In the alternative, they claim damages.

1. On the other hand, counsel for the defendants contend that the claims are essentially misconceived because the evidence does not show that the plaintiffs had been induced to purchase the units by any misleading or deceptive conduct and because, even if they had, it is common ground that the units had been worth what they paid for them at the time and they have not suffered any compensable loss.  The case put on behalf of the plaintiffs has involved trawling through the brochure in the hope of finding some opinion or projection, the basis for which could not now be established, and relying upon the perceived opportunity thereby presented to pass on to the defendants’ losses actually caused by poor business decisions and neglect on the part of the plaintiffs and other unit holders.  The development of a situation in which two hotel businesses were competing in the one building and the other factors responsible for the claimed losses were not caused in any real sense by any minor errors in the brochure or even by the purchase of the units.  Even if some prima facie chain of causation could be implied, it had been broken by supervening events several of which clearly constituted a novus actus interveniens.  Alternatively, the plaintiffs had failed to mitigate their own damage by accepting one of Jaywood’s offers to further manage their units or by selling them when the impasse developed.

The pleadings

1. The ambit of the case is, of course, defined by the pleadings and, as mentioned earlier, the plaintiffs’ claims are based upon allegations of misrepresentation and/or false and misleading conduct prior to the purchase of their respective units.  Despite successive amendments to the Statement of Claim, including one made after the commencement of the trial, some of the complaints made by and on behalf of the plaintiffs appeared to relate to claims that had not been pleaded or particularised.

1. As Mason CJ and Gaudron J stated in Banque Commerciale SA (liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287:

The function of pleadings is to state with sufficient clarity the case that must be met; Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq) (1916) 22 CLR 490 at p 517, per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirements of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, eg, Browne v Dunn (1893) 6 R at p 76; Mount Oxide Mines (1916) 22 CLR, at pp 517-518.

Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted.  It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.

1. This passage was quoted by Cooper J in Cummings v Lewis (1993) 41 FCR 559 at 578 in a portion of his judgment with which Sheppard and Neaves JJ expressed agreement.

1. In the present case there can be no suggestion that the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their rights and liabilities or that any of the defendants have acquiesced in any attempt by the plaintiff to raise issues outside the bounds of the pleadings.  Both Mr Walton SC, who appeared with Mr Mossop for Filaria and Ms Phillips, and Mr Foster SC, who appeared with Mr Pike for Independent and for Mr O’Brien and Mr Shearer, repeatedly made it clear that they had come to court to meet the case pleaded against their clients and would not consent to any enlargement of the issues.  Mr Gunst QC, who appeared with Mr Gillespie-Jones for the plaintiffs, ultimately conceded that his clients were bound by the pleadings.

1. This point must be stressed because the tenor of Ms Phillip’s letters and conduct in early 1999 clearly caused considerable resentment amongst many of the other unit holders and some of the submissions made on behalf of the plaintiffs were directed towards her conduct at that time.  Mr Gunst at one point described her conduct as “spiteful”.  In fact, I gained the impression that the plaintiffs and other unit holders may have had some antipathy towards Ms Phillips even before the confrontation that emerged following her letter in early 1999.  However, the origins of that antipathy were not revealed with any clarity by the evidence and may have been attributable to nothing more significant than disappointment at Jaywood’s refusal to offer further guaranteed returns and pique at the confrontational tone in the first letter quoted.  In any event, no cause of action based upon her conduct at that time has been pleaded and evidence of the events that then transpired is only relevant, if at all, to the extent to which it may cast light on the causes of action relating to alleged misrepresentations and misleading or deceptive conduct in 1993 and related issues such as the causation or mitigation of damages.  The proceedings do not provide any avenue of redress for grievances, however deeply felt, arising from subsequent conduct unrelated to the causes of action that have been pleaded.

1. The pleadings also define the issues that may properly be raised in relation to representations and conduct of the parties prior to the plaintiffs’ purchase of the unit in 1993.

1. Hence, whilst Mr Gunst sought to raise allegations of fraud, the absence of any pleading to that effect necessarily means that they are relevant, if at all, only insofar as they may cast light on the issues that properly arise for determination in relation t the causes of action that have been pleaded.

1. The pleaded causes of action rely upon various statutory provisions in the Law Reform (Misrepresentation) Act 1977 (ACT), (“the Misrepresentation Act”), the Trade Practices Act 1974 (Cth), (“the Trade Practices Act”) and the Fair Trading Act 1992 (ACT), (“the Fair Trading Act”).

The claims under the Law Reform (Misrepresentation) Act 1977 (ACT)

1. The Misrepresentation Act was repealed by the Civil Law (Wrongs) Act 2002 (ACT) and replaced by certain provisions in chapter 9 of the later Act.  Section 151 of the later Act initially provided that ch 9 does not apply to a misrepresentation or agreement made before 30 May 1977 but, subject to that proviso, its provisions were obviously intended to have retrospective effect. As a result of subsequent amendments, ch 9 became ch 13 and s 151 was transmuted into s 226 before expiring on 1 November 2003. However, the present proceedings were commenced prior to the enactment of the later Act and it was conceded that the plaintiffs had an accrued right to maintain them as if the earlier Act had not been repealed; see s 84 of the Legislation Act 2001 (ACT). In any event, ch 13 substantially reproduces the provisions of the earlier Act relied upon by the plaintiffs and even if they had been obliged to seek leave for the statement of claim to be further amended to reflect the current provisions, the causes of action would have remained essentially unchanged.

1. The claim for rescission was based upon the provisions of s 3 of the Misrepresentation Act which was in the following terms:

If a person has entered into a contract after a misrepresentation has been made to the person, the person shall, if otherwise the person would be entitled to rescind the contract without alleging fraud, be entitled, subject to this Act, to rescind the contract notwithstanding that—

(a)       the misrepresentation has become a term of the contract; or

(b)       the contract has been exercised; or

(c)a conveyance, transfer or other document has been registered under a law of a State or Territory as a result of the contract. 

1. It should be noted that, whilst this provision effectively removes certain bars to rescission, a claimant is obliged to demonstrate that he or she would otherwise have been be entitled to rescind the contract without alleging fraud. 

1. The right to damages for misrepresentation was provided by s 4 which was in the following terms:

(1)If a person enters into a contract after a misrepresentation has been made to the person by—

(a)       another party to the contract; or

(b)a person acting for, or on behalf of, another party to the contract; or

(c)a person who receives any direct or indirect material advantage as a result of the formation of the contract;

and as a result of so entering into the contract the person suffers loss, any person (whether or not he or she is the person by whom the misrepresentation is made) who would be liable for damages in tort in relation to the loss had the misrepresentation been made fraudulently, shall, subject to this section, be so liable, notwithstanding that the misrepresentation was not made fraudulently.

(2)       It is a defence to an action under subsection (1) that—

(a)if the representation was made by the defendant—the defendant had reasonable grounds for believing, and did believe up to the time the contract was made, that the representation was true; and

(b)if the representation was made by a person acting for or on behalf of the defendant—both the defendant and that person had reasonable grounds for believing, and did believe up to the time the contract was made, that the representation was true.

1. Section 5 provided a further power towards damages in lieu of a rescission.  That section was in the following terms:

(1)If in proceedings arising out of a contract it is proved that a person has rescinded, or is entitled to rescind, the contract on the ground of misrepresentation other than fraudulent misrepresentation, the court, after consideration of the consequences of the rescission, and the consequences of a declaration under this subsection, in the circumstances of the case, may, if it considers it just and equitable to do so, declare the contract to be subsisting and award the damages it considers fair and reasonable.

(2)Damages may be awarded against a person under subsection (1) whether or not the person is liable for damages under section 4 (1) but—

(a)a court shall, in assessing damages under a provision of section 4 or this section, take into account any award of damages under this section or section 4, as the case requires, or of damages or compensation under any other law; and

(b)in assessing damages or compensation in proceedings under any other law relating to a contract, the court shall take into account any award of damages under this Act.

The claims under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1992 (ACT)

1. The plaintiffs relied primarily upon s 52 of the Trade Practices Act which provides as follows:

(1)A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2)Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).

1. This section does not, of itself, create a cause of action. However, s 82 provides that:

(1)A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

(2)An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued..

1. The plaintiffs also rely upon ss 12 and 15 of the Fair Trading Act. Subsection 12(1) is in the following terms:

A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

1. Whilst this section substantially reproduces the terms of subs 52(1) of the Trade Practices Act, the ACT enactment applies to individuals as well as corporations. Furthermore, whilst the limitation period prevailing at the time of the alleged misrepresentations for actions based upon a breach of s 52 of the Commonwealth Act was three years, the limitation period for actions based upon breaches of the Fair Trading Act has always been six years.

1. The relevant portion of subs 15 provides that:

(1)A person shall not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land—

. . .

(b)       make a false or misleading representation about—

. . .

(v)the use to which the land is capable of being put or may lawfully be put;

. . .

1. Since the enactment of the Trade Practices Act in 1974 there have been numerous cases involving the interpretation of s 52. In Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 at 348 Fox J explained that:

Section 52(1) is a comprehensive provision of wide impact, which does not adopt the language of any common law cause of action.  It does not purport to create liability at all; rather does it establish a norm of conduct, failure to observe which has consequences provided for elsewhere in the same statute, or under general law. . . In my view effect should be given to the ordinary meaning of the words used.  They should not be qualified or (if it be possible) expanded, by reference to established common law principles of liability.  At the same time, known concepts, such as those concerning the torts of deceit and passing off and the analyses made of them over the years, may prove helpful in deciding a case under s 52(1).  It does not matter that a representation constituting “conduct” relates to a future event, or that what is said may not amount to a warranty.  The view has not been taken that “conduct” necessarily involves a continuing course of conduct, or of repeated events, or of conduct known to the public or a group of the public.

. . .  Intention is not a necessary ingredient . . . The tort is more objective, but it is not precisely correct to apply the concept of the hypothetical reasonable man.  One looks to the audience, or the relevant part of it, and, eccentricities and absurdities aside, asks whether the conduct complained of was to them misleading or deceptive; but the question is not simply whether they (or he) were (or was) misled.  Whether the conduct was misleading or deceptive is a matter for the court . . . .

1. In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Gibbs CJ said at 198:

The words of s 52 require the Court to consider the nature of the conduct of the corporation against which proceedings are brought and to decide whether that conduct was, within the meaning of that section, misleading or deceptive or likely to mislead or deceive.  Those words are on any view tautologous.  One meaning which the words “mislead” and “deceive” share in common is “to lead into error”.  If the word “deceptive” in s 52 stood alone, it would be a question whether it was used in a bad sense, with a connotation of craft or overreaching, but “misleading” carries no such flavour, and the use of that word appears to render “deceptive” redundant.

1. In Re Credit Tribunal; ex parte General Motors Acceptance Corporation, Australia (1977) 137 CLR 545 at 561 the Court said:

“Misleading” is a word which is capable of expressing various shades of meaning, sometimes signifying that which is subjectively misleading and at other times that which is objectively misleading.  Its meaning therefore is apt to be influenced, indeed decisively influenced, by the context in which it is found.  Here the setting in which s 52(1) appears is shown by the headings “Pt V – Consumer Protection” and “Division 1 – Unfair Practices”.  In this context the prohibition contained in the sub-section emerges as an important general prohibition against a corporation in the course of trade or commerce engaged in a form of conduct, a trade practice, which is unfair.  The unexpressed assumption which underlies the prohibition is that the conduct so enjoined is not conduct in which the corporation is required to engage by, or under the compulsion of, some other law enacted in the interests of consumers.

1. It has been suggested that there is nothing in s 52 that confines its operation to conduct engaged in as a result of failure to take reasonable care.  A corporation which has acted honestly and reasonably may nevertheless be liable for a breach of s 52 if its conduct has, in fact, misled or deceived or is likely to mislead or deceive:  see Miller’s Annotated Trade Practices Act, 1974, 24^th Ed, 1.52.25 at p 413.

1. In considering whether particular statements were deceptive or misleading, the court is not bound by common law authorities suggesting that laudatory statements, commonly referred to as “puffs” are not actionable.  In an action for breach of s 52 the statements and the circumstances in which they were made must be assessed by reference to the terms of the legislation:  Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44 at 53. Nonetheless, the section does not require any conclusion that all to whom statements of a commercial nature are made should be assumed to be so naïve and gullible that they would be deceived or misled by any lapse into hyperbole, however extravagant. As Davies and Einfeld JJ said in General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 178:

The particular facts of the case must be considered in the light of the ordinary incidents and character of commercial behaviour.

Thus, in the ordinary course of commercial dealings, a certain degree of “puffing” or exaggeration is to be expected.  Indeed, puffery is part of the ordinary stuff of commerce.  So also is a certain degree of “put-off”, evasion or obfuscation by commercial people seeking to resist disclosing information which is confidential.  Discussions in commerce are so understood.

See also Schindler Lifts Australia Pty Ltd v Deblak (1987) ALR 275 at 285 and Overlook v Foxtel [2002] NSWSC 17 at [121].

1. A statement of opinion may implicitly convey a representation that the opinion is grounded on a rational foundation by reason of superior knowledge and/or expertise:  see RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164.

1. In the present case, of course, the plaintiffs’ claims are based largely upon allegations of misrepresentation in relation to future events.  Claims of this kind must be considered in the context of s 51A of the Act which provides as follows:

(1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

(3)Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

1. A similar provision is contained in s 11 of the Fair Trading Act. 

1. The mere fact that a statement as to what is likely to occur reflects a present opinion or state of mind does not prevent the statement from being constituting a representation as to the future.  An accountants’ projections as to future earnings have been held to involve such representations:  see Cummings v Lewis (1993) ATPR (Digest) 46-103. Similarly, in Ting v Blanche (1993) ATPR 41-282 the Court held that a statement by an agent about the rental income likely to be achieved if the property were leased was a statement both as to the agent’s present state of mind and a representation as to the future. See also Sykes v Reserve Bank of Australia [1999] FCA 746; Jacques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102; and Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) ATPR 41-534.

1. However, the fact that such a statement can be so categorised does not justify treating it as a promise or warranty that the events in question will occur.  Hence, the fact that predicted events have not occurred does not, of itself, justify a conclusion that the representation was misleading or deceptive:  Bill Acceptance Corp Ltd v GWA Ltd (1983) 50 ALR 242 at 250; Concrete Constructions Pty Ltd v Lifevale Pty Ltd (2002) 170 FLR 290 at 343-344. In the absence of some undertaking to ensure things are done, the representation will normally be understood as conveying no more than an opinion as to what is likely to occur in the future though, as previously mentioned, it may well convey an implicit representation that the opinion is grounded on a rational foundation by reason of superior knowledge and expertise. Any consideration of whether such a representation is or is capable of being false or misleading must obviously be considered in all the circumstances of the case, including the nature of the representation, any qualifications expressed, any stated or implicit basis for the representor’s opinion and the extent, if any, to which it influenced or was likely to have influenced representees having regard to other prevailing beliefs or opinions concerning the same subject matter.

1. In a number of cases it has been suggested that s 51A provides that the burden of establishing the existence of reasonable grounds is on the party making the representation:  see Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901; State of Western Australia v Bond Corporation Holding Ltd (1991) ATPR 41-081; Edgar v Farrow Mortgage Services Pty Ltd (in liq) (1992) ATPR 46-096 and Ting v Blanche (1993) 118 ALR 543. This view has recently been challenged by Emmett J in Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 where his Honour said at [46]:

Another question concerning the effect of s 51A(2) is whether the provision does no more than require a corporation to go into evidence.  That is to say, it does not ultimately reverse the onus but simply provides that the deeming takes effect unless [emphasis added] the corporation adduces some evidence to the contrary.  Once such evidence is adduced, it is for the Court to make a judgment on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation.  If an applicant elects to adduce no evidence as to that question, then the only evidence before the Court would be that adduced by the corporation.  Whether that is adequate to establish that the corporation had reasonable grounds for making the representations is a matter for the Court.  However, once the corporation has adduced some evidence, there is no deeming arising from s 51A(2). 

1. Counsel for the defendants urged me to adopt this interpretation of the section which, as Dowsett J observed in Australian Competition & Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 at [173] appears to be inconsistent with the intention of the legislature as stated in the Explanatory Memorandum but to accurately reflect the wording of the section. See also Australian Competition & Consumer Commission v Oceania Commercial Pty Ltd [2003] FCA 1516 and Australian Competition & Consumer Commission v Global Prepaid Communications Pty Ltd [2003] FCA 1221. Whilst the interpretation suggested by Emmett J does seem to more accurately reflect the literal meaning of the words of the section, I would be inclined to follow the preponderance of authority on this issue. However, for reasons that will become clear, the adoption of this interpretation rather than that suggested in the earlier authorities to which I have referred would have no influence on the outcome of the proceedings.

1. An omission may be misleading in some circumstances:  see, for example, the observations of the Full Court of the Federal Court of Australia in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 per Lockhart J at 556-557. However, the omission must be one which, in the circumstances, is capable of misleading the offeree and that requirement is not satisfied merely by establishing that an offeree had not thought about a particular risk or risks inherent in the proposed venture. As Black CJ said in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32:

Silence is to be assessed as a circumstance like any other.  To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive  . . . To speak of “mere silence” or a duty of disclosure can divert attention from that primary question.  Although “mere silence” is a convenient way of describing some fact situations, there is in truth no such thing as “mere silence” because the significance of silence always falls to be considered in the context in which it occurs.  That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

This passage was quoted with approval by Handley JA in Metalcorp Recyclers Pty Ltd v Metal Manufacturers Ltd [2003] NSWCA 213 at [14].

1. In Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 at p 53, 195, French J said:

If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, sec 52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure.

The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined.  However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist.

1. This passage was cited by Gummow J, with whose reasons Black CJ and Cooper J expressed agreement, in Demogogue Pty Ltd v Ramensky at 41 where his Honour added that, as the passage suggests, one may give s 52 full effect without entirely doing away with what Barton J described as “superior smartness in dealing”:  see W Scott, Fell & Co Ltd v Lloyd (1906) 4 CLR 572 at 580.

1. In Semrani v Manoun [2001] NSWCA 337 Beazley JA, with whose reasons Mason P and Ipp AJA agreed, explained in a succinct passage at [62] that for silence to be actionable, the representor must have had actual knowledge of a matter which he intentionally refrained from telling the representee in circumstances in which there was either a duty to disclose or where the representee had a reasonable expectation that such information would be disclosed to him/her.

1. The principle in Potts v Miller upon which counsel for the defendants relied, has not been overruled though, it is clear from a number of cases including Gould v Vaggelas (1985) 157 CLR 215; Kenny & Good Pty Ltd v MGICA(1992) Ltd (1997) 77 FCR 307 and Henville v Walker (2001) 206 CLR 459 that the application of this principle may not always provide adequate compensation for loss sustained by contravention of s 52.

1. In Gould v Vaggelas, Gibbs CJ said at 221-222 –

There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable).  If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them.  Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchase himself . . .

1. The Full Court of the Federal Court said in Kenny & Good Pty Ltd & Anor v MGICA at 328 that this formulation recognises that a defrauded purchaser is not necessarily entitled to all losses flowing from the transaction into which he or she was induced to enter.  It is not sufficient to demonstrate that the losses would not have occurred but for the transaction into which he or she was induced to enter.

1. Nonetheless, counsel for the plaintiffs argued that the subsequent all subsequent losses were causally related to any misrepresentation or otherwise misleading or deceptive conduct on the part of the defendants because the plaintiffs would otherwise not have purchased the units and would never have been exposed to the losses.  The events of early 1999 were “irrelevant”.  The plaintiffs were entitled to damages based on the difference between the purchase prices and current values of their units and in addition, any losses sustained in the subsequent use and management of them. 

1. This argument really seems to depend upon an unstated assumption that the so called “but for” test of causation applied to claims under s 82 of the Trade Practices Act rather than the “common sense” test of causation accepted by the High Court of Australia in March v E & MH Stramere Pty Ltd (1991) 171 CLR 506. If questions of causation were to be determined solely by reference to the “but for” test one might be driven to conclude that there were almost unlimited causes for any event. In the present case, for example, the plaintiffs would not have purchased the units if the Hotel had not been built, the previous owners had retained ownership or approval for the units plan had been withheld, but that does not mean, as a matter of common sense, those losses should be regarded as having been caused by those events.

1. Counsel for the plaintiffs sought to support their argument by citing the following passage from the judgment of McHugh J in Henville v Walker at [106]:

If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage.

1. However, this passage did not reflect any attempt to overrule March v E & MH Stramere Pty Ltd and resuscitate the “but for” test of causation.  His Honour was addressing a different issue; namely, whether a party was liable for damages for loss attributable not only to the contravening conduct but other unrelated causes.  Henville v Walker concerned a claim for damages for misleading or deceptive conduct said to have induced the appellants to purchase land for the purpose of redevelopment by the construction of a small block of home units.  In considering whether to purchase the land for that purpose they had undertaken a feasibility study based upon their own expertise in estimating the cost of construction and the advice of the vendor’s agent as to selling prices and marketability.  The cost proved to have been underestimated, the selling prices overestimated and the state of the market for home units was misrepresented.  Hence the appellants’ decision to embark upon the project had been attributable both to their own errors and to the contravening conduct of the respondents.  The principle that may be extracted from the passage is that if, as a matter of common sense, contravening conduct has materially contributed to loss or damage, then that is normally sufficient causal connection, even though other factors may have played a more significant role in the causation of the loss or damage and that it would not otherwise have been sustained.

1. His Honour had already affirmed and explained the “common sense” test of causation in the following passages at [97] and [98]:

Some philosophers draw a distinction between a condition that is necessary only and a cause that is both necessary and sufficient to produce the event. The common law has avoided the technical controversies inherent in the logic of causation. Unlike science and philosophy, the common law is not concerned to discover universal connections between phenomena so as to enable predictions to be made. The common law concept of causation looks backward because its function is to determine whether a person should be held responsible for some past act or omission. Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage. As Lord Wright pointed out:

"The law cannot take account of everything that follows a wrongful act .... In the varied web of affairs, the law must abstract some consequences as relevant, not perhaps on grounds of pure logic but simply for practical reasons."

“More than once in recent years, judges have pointed out that the issue of causation cannot be divorced from the legal framework that gives rise to the cause of action. In Barnes v Hay, Mahoney JA said:

"[T]he determination of a causal question involves, in my opinion, a normative decision as to whether, for the purposes of the case, the precedent act for which the defendant is responsible should be seen as causal of the plaintiff's loss. And, in my opinion, that evaluation is made, not by a 'test' or 'guide' such as the 'but for' test, but by a functional evaluation of the relationship and the purposes and policy of the relevant part of the law."

1. Furthermore the passage upon which the plaintiffs’ counsel relied was immediately followed by a statement to the effect that even when contravening conduct has been shown to have materially contributed to the relevant loss or damage there may be exceptional cases in which an abnormal event has intervened between the breach and the damage and in which it may be right as a matter of common sense to hold that the breach was not a cause of the damage.

1. His Honour proceeded to cite an earlier decision of the High Court in Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6-7 where Deane, Dawson, Toohey and Gaudron JJ said –

The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant’s wrongful act or omission is, as between the plaintiff and the defendant and is a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage.  Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed.  An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision.

1. His Honour referred to the judgment of Win LJ in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 at 168 but said that his Lordship’s view that damage would be too remote if the person deceived had not himself behaved with “reasonable prudence” or “reasonable commonsense” confused remoteness with contributory negligence and causation. These concepts could not be imported into s 52 or s 82 of the Act.

1. In another passage relied upon by counsel for the plaintiffs, his Honour said at [148] that once a plaintiff demonstrates that a breach of duty has occurred “that is closely followed by damage, a prima facie causal connection will be established” and that it is the defendant who must disentangle, so far as possible, the various contributing factors.

1. Gleeson J said, at [13], that the legislation is not intended to protect only the careful or the astute and that negligence on the part of a victim will not provide a bar to an action for damages under s 82 unless the conduct is such as to destroy the causal connection between the contravention and the loss or damage. His Honour then turned to issues relating to the measure of damages, observing that the only express guidance given by the section is to be found in the concept of causation expressed in the word “by” and that the task is to select a measure of damages that confirms to the remedial purpose of the Act and to the justice and equity of the case. The principles of the common law relevant to the assessment of damages in tort were not “controlling” but represented an accumulation of valuable insight and experience that may well be useful in applying the Act. His Honour referred to the principle that if the defendant fraudulently induces a plaintiff to buy grazing land and undertake a pastoral business the defendant does not thereby become an underwriter of all losses incurred by the plaintiff’s business for so long as it continues to be carried on, whenever and however those losses may arise. His Honour said that, similarly, a plaintiff fraudulently induced to buy shares may be unable to recover for loss or depreciation occasioned by subsequent events. His Honour cited the passage from the judgment of Gibbs CJ in Gould v Vaggelas which I have already quoted and, unlike McHugh J, cited with evident approval a decision of the House of Lords in Smith New Court Securities Ltd v Citibank [1997] AC 254 adopting the view of Win LJ in Doyle v Olby (Ironmongers) Ltd that damage is too remote when the person deceived does not himself behave with reasonable prudence, reasonable commonsense, or can in any true sense be said to have been the author of his own misfortune.  The damage that he seeks to recover must have flowed directly from the fraud perpetrated upon him. 

1. Gaudron J took a somewhat different approach, stating at [61] that s 82 should be understood as taking up the commonsense approach referred to in March v E & MH Stramere Pty Ltd save as modified or supplemented by the provisions of the Act but explaining, as McHugh J had done, that this approach requires no more than that the tortious act should have materially attributed to the loss or injury suffered. Her Honour said at [70], where loss or damage results from two or more acts or events, it is for the person whose contravening conduct materially contributed to the loss or damage to establish what component of that loss or damage is referable to some act or event other than his or her contravening conduct.

1. Hayne J also took the view that it was sufficient that the respondent’s contravention of the Act had been one of the factors that had caused the appellants to purchase and develop the land and hence suffer loss.  His Honour said at [165] that the carelessness of the person who had suffered the loss or damage should not be taken into account in deciding what was the amount of loss or damage actually suffered.  However, his Honour acknowledged at [166] that there may be cases where some of the loss suffered by a person following the conduct of another in contravention of the Act may not be loss suffered “by” the contravening conduct and, as an example, suggested that, if the appellants had chosen for extraneous reasons to change the design of the units part way through their construction and thereby wasted some of the cost of construction already incurred, it might be said that the extra costs had not been caused by the respondent’s contravention. 

1. Gummow J expressed agreement with the reasons for judgment of both McHugh J and Hayne J. 

1. None of the judgments in Henville v Walker suggest either that the common sense test of causation should not apply to cases of this nature or that the passage from the joint judgment in Kizbeau Pty Ltd v WG & B Pty Ltd should no longer be accepted as a correct statement of principle.

1. The present case is more closely analogous to the situation that commonly arises in the purchase of pastoral land or a business than that involved in the purchase of land for redevelopment as in Henville v Walker.  In any event, as Deane, Dawson, Toohey and Gaudron JJ said in Medlin v State Government Insurance Commission in the passage cited by McHugh J in Henville and Walker at [108], the ultimate question must be whether, notwithstanding the intervention of the subsequent events, the defendant’s wrongful act or omission is, as between the plaintiffs and the defendants and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage.

1. Mr Foster relied heavily upon the approach taken by Finn J in Hilda v Bowler which was a somewhat similar case involving a claim for damages under s 82 in relation to loss suffered as a consequence of the purchase of a unit in reliance upon a representation that the plaintiffs would be entitled to live in it. In that case, his Honour held that the plaintiffs were entitled to recover the difference between the value of the unit at the time of the purchase and what the plaintiffs had paid for it but rejected a more substantial claim for the difference between subsequent outlays and receipts. In doing so, his Honour adverted to a number of principles including a proposition that the relevant factual question in each case was whether the loss claimed had resulted directly from the misleading and deceptive conduct. In the light of the subsequent decision in Henville v Walker it now appears that the earlier decisions of the Full Court of the Federal Court of Australia upon which his Honour relied for this proposition can no longer be accepted as correctly reflecting the effect of the section. 

1. Given the general nature of the debate between counsel including widely divergent submissions as to the effect of Henville v Walker, it may be appropriate for me to briefly state a number of principles which I think emerge with reasonable clarity from the authorities:

(a)in assessing damages under s 82 the courts must ask what loss or damage has been caused “by” the conduct committed in contravention of the Act and, in answering that question, the court is not constrained by common law principles or equitable doctrines, though it is likely to receive considerable guidance from the accumulated wisdom they reflect;

(b)the plaintiff bears the onus of proving that the contravening conduct was a cause of the relevant loss or damage;

(c)the necessary causal relationship will be established if it is shown that the contravening conduct materially contributed to the loss or damage even if there were other, perhaps more significant, cause of the factors;

(d)whilst loss is generally to be measured by comparing the position which the plaintiff would have enjoyed but for the contravening conduct with that resulting from the conduct, any issue as to whether the contravening conduct made a material contribution to relevant loss or damage is to be determined by reference to the commonsense test of causation referred to in March v E & MH Stramere Pty Ltd;

(e)the fact that contravening conduct is followed closely by the relevant loss will often be sufficient to establish a prima facie case as to the existence of a causal relationship;

(f)if there is a prima facie case that the contravening conduct was a cause of the whole of the loss or damage, it is nonetheless open to the defendant to show that, for some reason, part of the loss should not be regarded as having been caused by such conduct but, in that event, it is incumbent upon the defendant to disentangle that component of loss from any other loss that has been so caused;

(g)negligence on the part of a plaintiff will not disentitle him or her to the protection of the Act or, of itself, warrant a conclusion that the loss or damage is too remote, though it may be necessary to determine whether, notwithstanding the negligent acts of the defendant, the contravening conduct of the plaintiff can properly be regarded as having been a cause of the relevant loss or damage;

(h)in a case where the false and misleading conduct has induced the purchase of property, the usual starting point is to assess the difference between the purchase price and the true value at the time of the purchase, having regard to the approach suggested in Potts v Miller;

(i)however, the plaintiff is also entitled to damages for any subsequent loss for which the contravening conduct of the defendant may, by the application of the commonsense test of causation, properly be seen as a material cause;

(j)in considering issues of this kind, it is necessary to take into account the effect which the false or misleading conduct has had on the actions of the defendant and if, as in Henville v Walker, such conduct has induced not only the initial purchase but subsequent activity in relation to the property, losses caused by such activity will also be recoverable. 

1. In the present case, had I found that any of the defendants had been guilty of false or misleading conduct in making representations as to income and capital gains that could be expected after the initial five year leases and that the plaintiffs had thereby been induced to purchase the units and retain them for an extended period, I would unhesitatingly have held that they were entitled to damages for all of the losses incurred as a consequence of their reliance upon such representations.  However, I have been unable to make those findings.

1. The case for the plaintiffs was conducted on the basis that they had been induced by the alleged misrepresentations and/or misleading or deceptive conduct to purchase the units.  None of them suggested that they had been induced by such conduct to retain the units for a decade or more since purchase and the evidence does not suggest that any loss closely followed any allegedly contravening conduct.  There was no net loss that occurred as a direct result of the purchases and no net loss in the years immediately following the purchase was established.  Whilst there may have been some reduction in values as occupancy rates declined towards the end of the periods covered by the leases, that would have been offset by the high rentals and tax benefits derived by the plaintiffs and it was not alleged or proven that any net loss would have been sustained prior to the termination of Jaywood’s management of the Hotel, let alone that any net loss would have been sustained over the whole period between the time of purchase and the trial, had it not been for that fateful decision and the events thereby precipitated.  As Mr Brodrick said in the report annexed to his statement of 21 March 2003, the dramatic fall in the value of the units was caused by the expiration of the guarantees, the competition between the businesses in the Hotel, court actions and a failure by the unit holders to provide funds for the continued maintenance and upkeep of the Hotel.  The plaintiffs are obviously not entitled to complain about the expiration of “guarantees” that were honoured for the whole of the agreed period and it was not shown that any of the other matters were caused by any fault on the part of any of the defendants, let alone that they were attributable to the alleged conduct in 1993.

1. I am unable to accept that, applying the common sense test of causation, any contravening conduct in 1993 can properly be regarded as a cause of the losses sustained between 1999 and 2004.  No question of “disentangling” arises.  This is not a case like Henville v Walker in which loss or damage closely followed the purchase of the relevant property, thereby establishing a prima facie case in relation to the causal connection, and there is no other loss or damage from which the losses sustained in the later years needed to be disentangled.  It is rather a case in which, as a matter of common sense, the losses sustained by the plaintiffs could not be seen as having been caused by any conduct that may have induced the plaintiffs to purchase their units in 1993 but, rather, by ill-considered decisions made by the plaintiffs and others in 1999.  It has not been suggested that these decisions were themselves induced by any contravening conduct on the part of any of the defendants.  Furthermore, even if, for some reason, it had been incumbent upon the defendants to show that the subsequent losses were attributable not to any contravening conduct on their part but to a novus actus interveniens, the events of early 1999 clearly answered that description and the evidence of Mr Brodrick clearly shows that they were the real precipitating cause of the losses.

1. Ms Whittle and Ms Munday claimed damages for loss of the rental income and capital gain that they would have derived from another property that Ms Whittle said they would have bought had she and her mother not been persuaded that a unit in the Hotel was a better investment.  As a matter of principle, such a claim may be sustainable but, whilst I am sure that Ms Whittle gave her evidence honestly, she was clearly struggling to recall the sequence of events and I was not satisfied that she and her mother could or would have purchased the relevant property at that time.

1. I can see no basis for a conclusion that it would be just and equitable to require any of the defendants to compensate the plaintiffs for losses which appear to have been substantially attributable to management decisions taken some five years or more after the units were purchased and to the plaintiffs’ failure to provide funds for maintenance of the Hotel in the years prior to trial.

1. Consequently, I agree with the submissions of counsel for the defendants that, even if causes of action had otherwise been established, no compensable loss was demonstrated.

1. It is unnecessary to consider the alternative submissions that the plaintiffs failed to take reasonable steps to mitigate their own losses.

The defences under the Limitation Act

1. In each case, defences were filed alleging that the claims were effectively barred by the provisions of s 11(1) of the Limitation Act 1985 (ACT) and s 82 or 87 of the Trade Practices Act.

1. As I pointed out in Carlisle v Filaria Pty Ltd [2002] ACTSC 33 (2 May 2002), whilst a cause of action in contract accrues from the time of the relevant breach, a cause of action or tort is not complete until the plaintiff has suffered actual loss and the limitation period does not commence to run until that time. See also Independent Group Pty Ltd v Carlisle [2003] ACTCA 10. However counsel for the plaintiffs made it clear that it was not suggested that any loss had been sustained prior to the expiration of the leases in late 1998 or early 1999 and the case was essentially fought on that basis. Hence, no question arises as to whether any of the claims have been instituted outside relevant limitation periods.

The counter claims

1. In each case Independent made a claim for orders requiring Filaria to contribute to any damages that Independent might be ordered to pay the plaintiffs.

1. In support of these claims, it was submitted that, whilst Mr Tindale had assumed responsibility for the preparation of the brochure, he had relied substantially on the provision of information and advice by Mr Hoare who for that purpose should be taken to have been acting as Filaria’s agent.  The report had also been “signed off on” by other agents of Filaria including Ms Phillips.  Hence, it was argued, if I were to find that any misrepresentation had been made concerning the financial projections or the nature or history of the Castle Group, the principal responsibility should fall upon Filaria rather than Independent.

1. However, this contingency does not arise and the counter claims must be dismissed.

Conclusion

1. Counsel for the plaintiffs put every argument that could reasonably be advanced on their clients’ behalf but, despite their forensic diligence, I am not satisfied that any cause of action or even legitimate grounds for grievance against any of the defendants has been established.  It is understandable that the plaintiffs and, no doubt, other investors who purchased units in the Hotel are acutely disappointed at the poor returns on their investment, but their losses were not attributable to misrepresentation or false or misleading conduct in 1993.

1. The plaintiffs were not misled as to the nature of the property they purchased or as to their entitlements under the associated leases.  None of the factual statements made to them concerning matters such as increased occupancy rates in other hotels or rates of return on comparable investments have been shown to be false or reasonably capable of misleading investors such as the plaintiffs and, insofar as the opinions expressed to them may be regarded as representations with respect to future matters, those who made them had reasonable grounds for doing so.  In any event, such predictions seem to have had little, if any, influence on their decisions.  If what they were told about their entitlements to use the units as permanent residences was incorrect, then they were misled only because Mr Tindale made an honest mistake by acting on apparently reliable advice and it was not shown that the error had any effect on their decision to purchase them.  Allegations that rents were set at unsustainably high levels and that profit projections were unrealistic or vitiated by error were neither pleaded nor substantiated.  Furthermore, the units were worth what the plaintiffs paid for them and the lessee duly honoured its obligations under the leases.

1. The losses which the plaintiffs have sustained seem to have occurred substantially because of management decisions taken in 1999 and a failure to provide the necessary funds to adequately maintain the Hotel.  The events of 1999 seem to have left the plaintiffs with considerable resentment against Ms Phillips but no cause of action based upon those events was pleaded.  The plaintiffs have instead sought to disclaim responsibility both for their initial decisions to purchase the units and for subsequent decisions in relation to the management and maintenance of the Hotel and to attribute losses substantially caused by events in 1999 to some fault on the part of one or more of the defendants in 1993.  No adequate basis for these contentions has been demonstrated.

1. As previously mentioned, there was no evidence to suggest that any losses would have been sustained had the plaintiffs and other unit holders exercised the options to have Jaywood continue to manage the Hotel on the basis specified in the leases or on either of the other bases subsequently offered.  Furthermore, the brochure had contained no representation as to the continued profitability or value of the units under different management.  Nor did it represent that Filaria would undertake to have its residual units managed by a manager other than Jaywood chosen by other unit holders.  On the contrary, the brochure stressed that all unit holders would be free to choose how to use their units.

1. The claims against the defendants have not been established and no issue arises for determination on the counter claim.

1. I will hear counsel as to costs.

   I certify that the preceding two hundred and sixty one (261) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

   Associate:

   Date:     11 June 2004

Counsel for the plaintiffs:  Mr C Gunst QC with Mr S Gillespie Jones

Solicitor for the plaintiffs:  Gillespie-Jones & Co Solicitors

Counsel for the first defendant and third            
party:  Mr M Walton SC with Mr D Mossop

Solicitor for the first defendant and third           
party:  Meyer Clapham Lawyers

Counsel for the second and third
defendants:  Mr L Foster SC with Mr I Pike

Solicitor for the second and third
defendants:  Sparke Helmore Solicitors

Dates of hearing:  19, 20, 21, 22, 23, 26, 27, 28, 29 May 2003

9, 13, 14, 15, 16, 17, 20, 21, 22, 23, 24 October 2003, 18, 19 November 2003,
3, 4, 5, 6, 9, 10 February 2004

Date judgment reserved:  10 February 2004

Date of judgment:  11 June 2004