Armstrong v Rokich
[2008] WADC 182
•23 DECEMBER 2008
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: ARMSTRONG & ANOR -v- ROKICH & ANOR [2008] WADC 182
CORAM: COMMISSIONER STAUDE
HEARD: 15-18 & 29 SEPTEMBER 2008
DELIVERED : 23 DECEMBER 2008
FILE NO/S: CIV 167 of 2008
BETWEEN: ASHLEY JOHN ARMSTRONG
NIGEL FRANCIS ARMSTRONG
PlaintiffsAND
ANTHONY JOHN ROKICH
VIOLET ROKICH
DefendantsTABANI NOMINEES PTY LTD
First third partyLYNTON THOMAS SAUNDERS
Second third party
Catchwords:
Misleading and deceptive conduct - Fair Trading Act 1987 - Sale of farm - Misrepresentation of cleared area - Meaning of "arable" - Causation of loss - Assessment of damages
Legislation:
Fair Trading Act 1987
Result:
Plaintiffs entitled to damages of $350,000.00
Third party claim dismissed
Representation:
Counsel:
Plaintiffs: Mr J A Thomson
Defendants: Mr J G Hanly
First third party : Mr M I Handcock
Second third party : Mr M I Handcock
Solicitors:
Plaintiffs: Maxim Litigation Consultants
Defendants: Hotchkin Hanly
First third party : Downings Legal
Second third party : Downings Legal
Case(s) referred to in judgment(s):
Brothers v Park & Anor [2004] NSWCA 241
Henjo Investments Pty Ltd v Collins Marrickville (No 2) (1989) 40 FCR 76
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
State of Tasmania v Shaw [2001] TASSC 119
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Warwick Entertainment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174; (2005) 224 ALR 134
COMMISSIONER STAUDE:
Introduction
This is an action for damages arising from the sale of a farming property, Cooladdi Farm, located 20 km west of Carnamah, by the defendants, Tony John and Violet Rokich, to the plaintiffs, Ashley and Nigel Armstrong, in 2002.
The Rokichs had owned and operated the farm for 36 years. The Armstrongs, who are brothers, were their neighbours for most of that time.
The Armstrongs claim damages for breach of s 10 of the Fair Trading Act 1987, i.e. misleading and deceptive conduct; alternatively, for negligent misstatement. The claim is made on the basis that the Rokichs allegedly misrepresented the area of cleared land on the property. The Armstrongs contend that this misrepresentation caused them to agree to pay more for the property than it was worth, and to thereby suffer loss.
The Rokichs deny that they misrepresented the area of cleared land and say that, in any event, the Armstrongs proceeded to complete the purchase in full knowledge of the true position when they could have rescinded the agreement and thereby avoided the claimed loss.
The Rokichs have joined the third parties, Tabani Nominees Pty Ltd, which trades as Elders Real Estate Geraldton ("Elders"), the appointed agent for the sale of the property, and its employee Mr Lynton Saunders, on the basis that their alleged breaches of certain contractual, statutory and common law obligations caused the Rokichs to be exposed to the Armstrongs' claim. I will set out the pleaded issues in more detail later in these reasons.
In these reasons I will generally use the imperial measure of area, acre, as this unit of measurement was more frequently used in the evidence than the metric unit, hectare.
Relevant events
Cooladdi was purchased by Mr and Mrs Rokich in or about 1965 and farmed by them until it was sold to the Armstrongs in 2002. It was originally comprised of a number of lots described in five certificates of title. Prior to the sale of the property steps had been taken to amalgamate the lots and to subdivide the property into two lots: Lot 1, being an area of about 1,800 acres, mostly uncleared, which the Rokichs intended to retain, and the other, Lot 2, being the farm itself which was found to cover 4,163 acres.
A market appraisal was carried out by Mr Max Correy of Elders in March 1999. Exhibit 1.3 is a copy of the market appraisal dated 30 March 1999 which describes a total area of nine lots of 2,395 Ha (5,918 acres), with a cleared area of 1,416 Ha (3,500 acres). The market appraisal describes the property as being subdivided into 16 paddocks. It notes various improvements, including a homestead, a shearing shed with sheep yards, and a number of other sheds. In the appraisal Mr Correy stated:
"There is potential to clear further land subject to clearing permits being obtained (little value is represented in this appraisal for the bushland).
MARKET APPRAISAL
I believe that in today's cautious marketplace Cooladdi has a realistic value of between $875,000-$900,000."
The property was put up for auction by IAMA Real Estate on 3 November 2000 but was passed in. The reserve was $1,140,000.
Sometime later the Rokichs decided to appoint Elders to act as their agent to market the property for $1,253,000. The Rokichs' son Jamie prepared a letter dated 19 February 2001 (Exhibit 1.6) setting out details of the property and terms of sale. In that letter the property was said to consist of "4,163 acres total, of which 3,800 acres are arable and croppable".
Mr Saunders attended the Rokichs on 23 February 2001 and completed (in handwriting) a listing form (Exhibit 1.7) which described the land as being "4,250 acres (3,800 acres arable)". The area of 4,250 acres was stated to be "subject to survey" for the purpose of the proposed amalgamation and subdivision. A note on the form indicates that the asking price reflected a value of $330 per arable acre. The listing form was completed by Mr Saunders on instructions from the Rokichs and contained the following information:
"CROPPING: Normal hectares per annum - wheat, 1,500 acres; lupins, 500 acres; canola 500 acres; barley, 250 acres.
LIVESTOCK: 1,000 sheep, 100 cattle."
Above the Rokichs' signatures on the second page of the listing form was the following clause:
"The vendor/s hereby convenant with the agent appointed that the information contained herein is to the best of the vendor's knowledge, true and correct and the agent is authorised to communicate the contents contained herein to any potential purchaser on behalf of the vendor."
Mr Saunders arranged for the information in the listing form to be transposed to a typed standard form document (Exhibit 1.92) which set out all the relevant property details. On this form next to "Total area" was inserted "4,250 acres subject to survey", and next to "Cleared" the figures and words "3,800 acres approx".
On the same date Mr Saunders was provided with a document prepared by Jamie Rokich which set out a summary of average cropping yields for a five year period prior to 1997 when the Rokichs adopted a no tillage cropping method and for three years after 1997. That document (Exhibit 1.8) did not set out any cropping areas.
Jamie Rokich grew up on the farm and worked with his father from time to time during school holidays and temporarily on other occasions prior to 1996 when he commenced working full-time on the property. Tony Rokich described Jamie as the farm manager. It was clear from the evidence of both Tony and Jamie Rokich that most of the agricultural management of the farm from 1996 was undertaken by Jamie.
The Rokichs signed an appointment of agent (Exhibit 10), appointing Elders as the non-exclusive selling agent for a period of 120 days. Cooladdi did not sell in this period and was then effectively taken off the market. In late August or early September 2001 Mr Saunders visited Cooladdi and was instructed by Mr Tony Rokich to relist the property for $1.3 million. At that meeting Mr Saunders amended the number of cleared acres on the typed listing form to 3,819. A copy of the form was made for the Rokichs using their fax machine. At that time Mr Jamie Rokich gave Mr Saunders a copy of a document "Cooladdi Farm – Paddock Descriptions" (Exhibit 1.98).
On 3 December 2001, having inspected the property with Mr Saunders on 30 November, the Armstrongs offered to purchase the property for the asking price. Mr Saunders had given the Armstrongs a copy of the listing form (Exhibit 1.92) and, using a calculator, had demonstrated that the asking price reflected a value of $340 per cleared acre. A standard form offer and acceptance (Exhibit 1.20) was prepared by Mr Saunders proposing a settlement date of 20 March 2002, and making the offer subject to finance from Challenge Bank and approval by the Department of Land Administration of the amalgamation and subdivision of the various lots which comprised the farm. There were a number of other special conditions which are not relevant for present purposes.
The offer and acceptance was executed by the Rokichs on 8 January 2002. The Armstrongs then made an application for finance to Challenge Bank which was approved (Exhibit 1.22).
On 28 February 2002 the Armstrongs met with the Rokichs and were provided, at their request, with a copy of a hand drawn map of Cooladdi which showed the area of each cropped paddock (Exhibit 1.86). From this map Ashley Armstrong subsequently calculated that the area of cleared land was much less than the 3,819 acres communicated by Mr Saunders. Mr Armstrong calculated that there were 3,064 cleared acres.
Mr Armstrong notified Mr Saunders who informed Mr Correy of Elders. He arranged for an aerial photograph to be obtained which confirmed the discrepancy. Mr Correy sent Mr Saunders a document headed "Cooladdi Analysis" dated 9 March 2002 (Exhibit 1.25) which stated that the subdivision plan showed a total of 4,079 acres, and an aerial photograph grid 2,957 acres cleared.
Mr Saunders put the fact of the discrepancy to Tony and Jamie Rokich at a meeting at their farm on 11 March 2002. He gave them Mr Correy's analysis. He returned to see them the following day. Jamie Rokich handed him a handwritten document setting out a list of acreages. At the top of the table were the following words:
"These figures are generated of (sic) an aerial photograph and indicate areas sown by equipment only – not total arable area only. These figures do not include sowing out corners & headlands – add 10 to 15% to get normal sown amounts."
According to this document (Exhibit 1.93) the total number of arable acres sown was 3,257. Mr Saunders communicated that figure to the Armstrongs.
The Armstrongs then submitted, through Mr Saunders, a fresh offer to purchase the property for $1,108,000 which represented $340 per acre for 3,257 acres as calculated by Jamie Rokich. The Rokichs did not respond.
Consequently, the Armstrongs instructed their solicitors Michael Whyte & Co to send a letter to the Rokichs' settlement agent Bridge Settlements on 20 March 2002, the date specified for settlement. In part the letter stated:
"Our client will not agree to settle on this contract and considers that the contract is void. This position has been arrived at with regard to the misrepresentation by your client as to the property description and in particular that there is 3,800 arable acres.
Evidence indicates that the actual number of arable acres on the property is significantly less than the represented figure. Accordingly, our client is entitled to treat the contract at an end due to:
(1)breach of section 10 of the Fair Trading Act 1987.
(2)contractual misrepresentation.
Our understanding is that a second contract has been submitted for your clients consideration based on the figure of there being 3,257 arable acres. This translates to a purchase price of $1,108,000. Our client is prepared to enter into this contract and settle on this basis [sic]."
In response the Rokichs' solicitors Hodgkin Hanly wrote to Michael Whyte & Co on 22 March 2002 stating that their clients denied that there had been any misrepresentation in the property description in the manner alleged and enclosing by way of service a default notice issued pursuant to condition 18 of the 1998 Joint Form of General Conditions for the Sale of Land by which they contended that by not settling the purchase of the property on the due date, the Armstrongs were in default of the contract. The notice went on to require completion forthwith and, if the default was not remedied within 14 days, to reserve the Rokichs' rights to terminate the contract, claim forfeiture of the deposit, sue for damages, and re‑sell the property.
Michael Whyte & Co subsequently wrote to the Rokichs' solicitors on indicating that the Armstrongs would settle but would reserve their rights to sue for the alleged misrepresentation. Settlement duly occurred on 28 March 2002.
Since that time both parties have commissioned surveys of the property. The Rokichs' surveyor, Land Logic Pty Ltd (Exhibit 1.110), arrived at a measurement of 1,110 Ha (3,036 cleared acres) and the Armstrongs' surveyor, F R Rodda & Co (Exhibit 1.107), 1,107 Ha (2,992 acres). For the purposes of the trial the parties agreed that Cooladdi comprised 3,014 cleared acres.
Issues
This claim is not based on the law of contract, but on s 10 of the Fair Trading Act which provides that "a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive".
Section 79 of the Act provides:
"(1)A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of [s 10] may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."
There is an alternative claim in negligence but for reasons which I will set out elsewhere, this cause of action is not appropriate as a means of redress in the circumstances of this case.
It is beyond reasonable dispute that the number of cleared acres on Cooladdi represented by Mr Saunders, acting on behalf of Elders as agent for the Rokichs, was incorrect. Accordingly, the action is essentially about the circumstances and consequences of that misrepresentation and whether they give rise to the sought remedy.
The plaintiffs' contend that:
(a)for all relevant purposes "arable" has the same meaning as "cleared" and "croppable";
(b)the Rokichs misrepresented the number of cleared acres to Mr Saunders who in turn misrepresented the area of cleared land to the Armstrongs; and
(c)the Armstrongs relied on the information given in deciding to offer to purchase the land and to obtain the finance approval by which the contract became unconditional.
The Armstrongs contend that the Rokichs had no reasonable basis for making the representation complained of, and that they knew and intended that it would be relied upon by them. By holding them to their contractual obligation to purchase the property the Armstrongs contend that the Rokichs caused them to suffer loss, measured by the difference between the price paid and the actual value of the farm plus the interest paid to Challenge Bank on the increased borrowing.
In their defence the Rokichs admit that Mr Saunders was their agent, do not admit the making of any misrepresentations to the Armstrongs, and say that if Mr Saunders made any misrepresentation he did so in breach of his authority as the Rokichs' agent. Furthermore, the Rokichs deny that the Armstrongs relied on the representation and say that:
(a)the Armstrongs were experienced farmers and could see for themselves that there were fewer than 3,819 acres cleared;
(b)having completed the contract knowing of the misrepresentation and having a right to rescind, the Armstrongs elected to affirm the contract and are thereby not entitled to damages; and
(c)the Armstrongs were aware that the Rokichs' asking price was non-negotiable so they could not expect to pay less, irrespective of the number of cleared acres.
The principal issues as between the Armstrongs and the Rokichs may be summarised as follows:
(1)Did the Rokichs' representations to Mr Saunders in February 2001 that Cooladdi consisted of 3,800 arable and croppable acres, and in August/September 2001 that it consisted of 3,819 arable acres amount to misleading and deceptive conduct?
(2)If so, did that conduct cause Mr Saunders to misrepresent to the Armstrongs that Cooladdi consisted of 3,819 cleared acres?
(3)If so, did the Armstrongs rely on the misrepresentation by Mr Saunders in deciding to purchase Cooladdi and obtain bank finance to do so?
(4)If so, did the Armstrongs, by completing the purchase after they had discovered the misrepresentation, cease to rely on it such that the causal nexus sought for was broken? In any event, was it unreasonable for them to settle?
(5)If not, did the Armstrongs suffer loss, and if so, what is the measure of such loss?
To determine these central issues numerous other issues of fact and law must be resolved, including, at the outset, the question of whether, in the context of the sale of the property, the words "arable", "cleared" and "croppable" mean the same thing and can be used interchangeably, whether the Rokichs had a reasonable basis for telling Mr Saunders as the employee of their real estate agent that Cooladdi comprised 3,800 arable and croppable acres and whether their conduct in doing so was deceptive and misleading, or negligent.
As far as the third party proceedings are concerned the Rokichs allege that Elders and Mr Saunders breached the contractual and general duties they owed as agents by various acts and omissions which may be reduced to three central allegations, namely, that:
(1)Mr Saunders and Elders should have verified the accuracy of the property description provided by the Rokichs;
(2)Mr Saunders should have made sure that he understood what the Rokichs meant by "arable" and "croppable" as opposed to "cleared", and should have ensured that the property details provided to the Armstrongs referred to arable, not cleared acres; and
(3)Mr Saunders should otherwise have ensured that the Rokichs knew that the Armstrongs understood Cooladdi to comprise 3,819 cleared acres.
The Rokichs further allege that Elders and Mr Saunders engaged in conduct that was misleading and deceptive contrary to s 10 of the Fair Trading Act.
In their defence Elders and Mr Saunders contend that the representation to the Armstrongs made on behalf of the Rokichs was based on their express written instructions, that the Rokichs were aware that the property had been described as having 3,819 cleared acres, that they were entitled to rely upon the Rokichs' instructions without making further inquiries as to the actual cleared area and that in any event there is no meaningful distinction between cleared acres and arable and croppable acres.
Evidence
Ashley John Armstrong
Mr Armstrong had farmed in partnership with his brother Nigel since 1978. Each has a son who is now also involved in the farming business. Mr Armstrong and his brother own a number of farming properties in the vicinity of Cooladdi. They grow mixed crops and sheep. Mr Armstrong saw Cooladdi Farm advertised in October 2001 and subsequently contacted Mr Saunders who came to see him on 30 November 2001. At that time he produced the Elders listing form. Using a calculator Mr Saunders worked out a price of $340 per acre. Mr Armstrong had always valued farming land that way. He thought that $340 was a bit above market price, but he and his brother were prepared to pay because they wanted more land and Cooladdi adjoined one of their farms.
In his evidence Mr Armstrong used the words "arable" and "croppable" interchangeably. At T 58:
"You've used the words 'arable' and 'croppable'. Are those terms that are commonly used in the farming industry? – Yes. That's how you purchase property. It's on the arable, croppable acres."
Mr Armstrong said "arable" described country which was cleared and croppable. Uncleared land was not croppable. Salt-affected land, though cleared, was not arable. In relation to the listing form Mr Armstrong acknowledged that the details of the cropping programme indicated 2,750 acres were cropped but pointed out that not all croppable land is cropped every year.
Mr Armstrong said that after he and his brother submitted the offer to purchase, he prepared a budget (Exhibit 1.18) to support an application for bank finance. To finance the purchase of Cooladdi he and his brother obtained two loans of $500,000 plus a harvest loan of $223,000. They also sold their AWB (Australian Wheat Board Ltd) shares. The borrowings have since been repaid.
Mr Armstrong gave evidence of a meeting which he attended with his brother at the Rokichs' farm in late February or early March 2002 at which Jamie Rokich was present, and during which they were given a hand drawn map of Cooladdi Farm (Exhibit 1.89). After the meeting he added up the areas of the paddocks depicted on the map and found that they totalled 3,064 acres. He met with Mr Saunders who showed him the original signed listing form which indicated 3,800 arable acres. Mr Saunders said he would try to get a DOLA map in order to work out where the discrepancy was.
A few days later Mr Saunders contacted him and told him that according to the Rokichs the maps did not depict all of the cleared acres of which there were in fact 3,257. On the basis of that information Mr Armstrong and his brother asked Mr Saunders to put a further offer based on a croppable acre of 3,257 acres. He was subsequently advised by Mr Saunders that the offer had been declined.
Mr Armstrong said that he and his brother decided to complete the purchase because they wanted the land and they had been given a default notice which indicated that they could be sued if they withdrew from the contract. It was by then the start of the cropping season and arrangements needed to be made in terms of fertiliser and seed.
Mr Armstrong also gave evidence that in February 2006 he applied for permission to clear more land on Cooladdi. The application was refused. In this respect I note that it is common cause that State legislation which restricts the clearing of remnant bushland effectively precludes any substantial further clearing of bush areas on Cooladdi.
In cross-examination Mr Armstrong accepted that the acquisition of Cooladdi would make his family farming operation more viable and that there were advantages in acquiring an adjoining property. He knew from observation that Cooladdi was a good producer. During the course of his inspection of the property on 30 November 2001 he did not make any calculation or form any view at all of the extent to which the property was cleared or uncleared. It was put to him that it would have been obvious that the proportion of cleared land was less than 90 per cent as indicated by the ratio of 3,800 acres to 4,250, but Mr Armstrong insisted, and I accept, that he did not turn his mind to that issue. At T 91:
"What I'm suggesting to you though is that as an experienced farmer, you – it should have been apparent to you as you drove around that farm that there couldn't possibly have been 3,800 cleared acres out of a total of 4,163 acres? – We never even considered it, and we just off the listing from an experienced farmer to an experienced farmer. The acres were written down as a – on the listing, and we just took that as gospel."
He said that had been the case with all other farms he had bought previously. He said on prior occasions the listing information had always been reasonably accurate. In his experience farmers were "pretty honest about it". He expected that an owner would obtain reasonably accurate area measurements from farm machinery.
Mr Armstrong also accepted that although he had valued farming land according to a price per croppable acre, he did take into account bushland which had some value in terms of cold weather protection and grazing for sheep and protection from erosion, and improvements such as farm buildings, and that these aspects were reflected, in his opinion, in the rate of $340 which he thought was above market. He said he paid the asking price because he was told by Mr Saunders that it was not negotiable. At T 105 he said:
"We always do pay a premium when there's a next-door neighbouring property. If it's adjoining, it's always worth a lot more to you."
He said that although he and his brother wanted the property, they would not have paid $1.3 million if they had known there were only 3,200 croppable acres because the price per acre would have been too much.
Mr Armstrong said that although he had calculated the cleared area to be 3,064 acres from the farm map, he accepted for the purpose of his second offer the figure of 3,257 acres which Mr Saunders obtained from the Rokichs after they had been notified of the discrepancy. He was prepared to accept the Rokichs' revised figure, notwithstanding that the map indicated a smaller area.
In relation to his decision not to rescind, Mr Armstrong admitted that he had been advised that the contract formed by the initial offer and acceptance was void and said it was because he and his brother wanted the land to increase their production that they presented a further offer. At T 15:
"What I'm putting to you is that you were told that you could pull out or go ahead, so you knew you could put it into a contract if you wanted; correct? – Well, yes. Yes.
Yes. You decided to go ahead not because the number of acres you were told were croppable, but because you wanted the farm? – Yes, we wanted to increase. At that stage we did, yes.
So what I'm putting to you is the fact that there was a genuine mistake or that you were dudded or there were different numbers of acres had nothing to do with it in the end, but you proceeded with the contract. That's right, isn't it? – Yes, we were committed then, yes. In our own minds, you know, we wanted to go ahead with it, yes.
For example, you wanted to go ahead because you had to make a decision to get the crops in? – Well, that's –
Otherwise it was going to be too late, wasn't it? – Of course it was, yes.
It had nothing to do with the number of croppable acres you were told, did it? – Yes, originally it did.
But when you went ahead, it didn't have anything to do with the number of croppable acres, did it? – Yes, yes. On the reduced acres, we decided – that's when we actually reduced the price because there was less acres there, so we went ahead with it. We thought, well, if it's not 3,800, 3,257, at a reduced price, for 340 bucks an acre, we were happy with that."
Mr Armstrong accepted that he did not tell the Challenge Bank about the discrepancy in the number of acres as he thought it was irrelevant as far as the bank was concerned, having regard to the manner in which the purchase was financed.
In cross-examination by counsel for the third parties Mr Armstrong acknowledged that the proportion of cleared land on Cooladdi represented by the figure of 3,819 acres was quite consistent with the percentage of cleared land on his other properties and therefore not remarkable. He said that he had known Mr Tony Rokich for many years and considered him to be honest. He accepted the explanation given to him by Mr Saunders of the revised figure of 3,257 acres given to him by Jamie Rokich. Exhibit 1.93 had been shown to him by Mr Saunders prior to the making of the second offer.
Asked about the measurement of area by farm machinery Mr Armstrong said that he worked on a 5 per cent margin for error. In his opinion the croppable area of one's farm would be something a farmer would be expected to know.
Mr Armstrong was patently honest and I have no reason to doubt his evidence in any material respect. He was impressively frank in acknowledging that his desire to acquire Cooladdi was a significant factor in his decision to proceed to settlement, notwithstanding the legal advice he received to the effect that the contract was void for misrepresentation. As a matter of law, I consider the misrepresentation rendered the contract voidable at his election, not void, but for present purposes the accuracy of the Armstrongs’ legal advice in that respect is not material.
Nigel Francis Armstrong
Mr Nigel Armstrong's evidence was consistent with that of his brother. He too gave frank and honest testimony which I accept. He thought $340 per cleared acre was above market value, but acceptable because Cooladdi was an adjoining farm. He said that he and his brother wanted the land which is why they put in the second offer. After he was served with the default notice he obtained legal advice from Michael Whyte & Co to settle and pursue the vendors later. He summarised the effect of the legal advice at T 156 as follows:
"The choice was if we refused the contract and the farm was sold at a lesser price, we would have to pay the difference. So he advised us to go through with the deal."
He also said, however, that he did not consider pulling out of the contract altogether because "we wanted more land to expand". Whilst Mr Armstrong was seemingly inconsistent in his evidence as to his reason for completing the purchase, having considered his evidence carefully, I have come to the view that although he and his brother wanted to acquire the land for the expansion of their farming business, it was a matter of concern to them that the number of cleared acres had been misrepresented to a significant extent. They attempted to deal with this by putting a second offer to the Rokichs, initially through Mr Saunders, and subsequently through their solicitors, only to be refused and served with a default notice. I accept Mr Nigel Armstrong's evidence that he was guided by legal advice in terms of his response to the default notice.
Russell Coupe
Mr Coupe is a licensed valuer and farmer. He has extensive experience in farm management and has been licensed as a valuer since 1976. He provided a report dated 20 August 2003 to the Armstrongs' solicitors (Exhibit 1.108).
Mr Coupe carried out his valuation on the basis of comparable sales and found no change in value between March 2002 and June 2003 when his valuation was carried out. He inspected Cooladdi which he found to be well located with a good mix of soils in an area of reliable rainfall. He described the property as having 2,991 cleared acres. This measurement was taken from the survey of F R Rodda & Co to which I have referred and is slightly less than the compromise figure which the parties have agreed for the purpose of the trial.
In Mr Coupe's opinion the approximate market value of cleared land in the Carnamah area in 2002-2003 was $300 per cleared acre, excluding buildings. He valued Cooladdi on the basis of a cleared area of 2,991 acres at $1,040,000 and on the basis of 3,819 acres cleared at $1,270,000.
Attachment 7 to his report sets out the detail of his valuations. He assigned different values per acre for different classes of land described by their original vegetation cover. Land described as "York gum, some mallee, clay/gravel" (890 acres) he valued at $326 per acre, total $288,000. Land described as "Tamman Tussack" (1,951 acres) at $292 was valued at $568,800 and land described as "Black butt, pear, light pale sand" (150 acres), at $244, $36,600, giving a total value of cleared land of $893,400. He then allowed $40 per acre for uncleared land (1,146 acres) total $46,400, to give a total land value of $939,800. He valued the improvements which included a house, shearing shed, other sheds and silos at $101,500 giving a total valuation of $1,041,300, say, $1,040,000.
Using the same methodology he valued the land based on 3,819 cleared acres using an average of $299 per acre, at $1,141,000. He added 319 uncleared acres at $80 (on the basis that a lower proportion of bush area affords it greater relative value), $25,800, to arrive at a total of $1,166,800 which, when added with the valued improvements, gave a total valuation of $1,268,300, say, $1,270,000.
Mr Coupe provided a further report in May 2006 which set out a valuation of the land as at 12 May 2006 he arrived at the figures of $1,430,000 and $1,760,000 respectively. For the purpose of these valuations improvements were allowed at $116,500.
In cross-examination Mr Coupe said that "arable" meant cleared land suitable for cropping. "Croppable" meant the same.
He was also asked about whether there was any premium for the purchase of an adjoining property. Although he did not consider it was appropriate to apply a premium for the purposes of the valuation, he thought that a 5-10 per cent premium would be reasonable, but he was not prepared to apply that to the Armstrongs without further knowledge of their farming operation. However, in response to questions from the Court Mr Coupe acknowledged by reference to attachment 9 to his report of 20 August 2003 (Exhibit 1.108) that the values which he had assigned per acre for various soil types on Cooladdi took into account the added value of the land to the Armstrongs by reason of their owning adjoining farming land. To reflect a fair market price his valuations would need to be reduced by 5 per cent representing the particular value which the land held for the Armstrongs.
He said he gave bushland nominal value because it was virtually impossible to obtain a clearing permit but he admitted that it had some value for sheep. It was also put to him that farm buildings and other improvements added to the value of the property. At T 177:
"So it wouldn't be reasonable to value a farm simply by reference to the number of croppable acres, would it? – No, you've got to allow for the – the croppable acres, usually – the value usually includes fences, the water supplies, and the standard of fertility and that. Then the buildings – the uncleared land and the buildings are added on as separate items.
Yes? – To give the total value of the farm."
In cross-examination by counsel for the third parties Mr Coupe said that in his opinion the uncleared land on Cooladdi was not worth clearing because of its poor quality. It was not viable.
Mr Coupe also acknowledged in cross-examination that in March 2002 demand for land was strong due to good grain and stock prices and plentiful credit. Nevertheless, he thought the Armstrongs were experienced, cautious farmers who would not purchase a property without considerable thought.
In terms of checking the cleared area of a property he said that in 2002 farm machinery records were fairly reasonable. Aerial photographs were available from the Department of Land Administration in March 2002 and would take up to three weeks to obtain. He did not agree with the proposition that a prospective purchaser could tell from inspection the proportion of the cleared area of Cooladdi to the total area because the land was undulating and the bush areas were patchy.
I accept Mr Coupe's evidence in all respects.
Kimberley John Hunter
Mr Hunter, the Armstrongs' accountant, has been in practice for over 28 years mostly in the area of farming businesses. He explained that the Armstrongs operated a family partnership which, in 2002, comprised Ashley Armstrong (50 per cent), Nigel Armstrong (20 per cent), Joan Armstrong (20 per cent) and John Armstrong (10 per cent).
The financial statements of the partnership (the composition of which changed in 2003) indicated that interest on borrowings for the purchase of Cooladdi was paid by the partners in their respective proportions even though the land for which the borrowings were raised was owned by Ashley and Nigel Armstrong only. Although the funds were borrowed by the partnership, the equal contributions of Ashley and Nigel Armstrong to the purchase price of Cooladdi were reflected in their respective partnership equity accounts.
Mr Hunter's evidence was not controversial.
Nicholas Marshal Short
Mr Short is a bank manager employed by Westpac of which Challenge Bank is a subsidiary. He dealt with the Armstrongs' application for finance with respect to the purchase of Cooladdi. He explained that the bank had existing security over the Armstrongs' farms sufficient to cover three facilities which were created for the purpose of purchasing Cooladdi, namely, a business development loan, a commercial bill line and a harvest loan all of which had been fully repaid.
Mr Short prepared a table of interest calculations (Exhibit 3) which set out the difference in the interest that would have been paid if the total borrowings were $260,000 less. This evidence is relevant to the issue of damages for interest paid on the loan facilities.
Mr Short stated that the number of cleared acres on Cooladdi was not material in terms of the financing because of the strength of the bank's existing securities. He acknowledged that the cash flow budget prepared by Mr Ashley Armstrong for the purposes of the finance application indicated an intention to crop 2, 500 acres. He recalled being informed of the discrepancy in the number of cleared acres, but was unable to say whether this occurred before settlement or not. There was no recalculation of the cash flow budget.
In cross-examination by counsel for the third parties Mr Short agreed that in his experience "arable" and "croppable" meant the same thing and that to be either, land had to be cleared.
I accept Mr Short's evidence in all respects.
Lesley George Crane
Mr Crane is also a rural land valuer and carries on a family farming business. His report (Exhibit 1.111) was prepared in August 2008 at which time he valued Cooladdi at $1.8 million allowing $1,628,700 for 3,014.7 cleared acres at $540.25 per acre, a nominal allowance of $40,000 for 1,124 acres of uncleared land and $128,000 for buildings. On the assumption that there were 3,819 acres of cleared land Mr Crane would have valued the land at $2.2 million.
In cross-examination Mr Crane said that in his experience "arable" had the same meaning as "cleared". At T 235:
"But you'd agree that some people may have a different understanding of the meaning of the terms than you have, for example? – They may well have. But in the industry, that's the rural industry, when people talk about arable or cleared, they're generally talking about the same concept."
Whilst he accepted that bush areas had some use, he said that the emphasis in farming over the last 10-15 years was on cropping and bush areas were accordingly given only nominal value. He did not accept that one could necessarily obtain a sense of the number of cleared acres on a property by simply inspecting it. He generally used an aerial photograph or a farm map to check areas.
I have no reason not to accept any of Mr Crane's evidence.
Lynton Thomas Saunders
Mr Saunders gave evidence on behalf of himself and Elders. Cooladdi was his first listing as a rural real estate agent. Previously he had worked as a stock agent for Wesfarmers. He had been raised on a farm and had three brothers who were farmers. As a stock agent he had dealt with farmers regularly. Before the listing of Cooladdi he had dealt with the Rokichs in relation to livestock.
On 23 February 2001 he met with the Rokichs at the farm and completed a listing form and appointment of agent. At that time he was provided with Exhibit 1.6 being the details of the property, and Exhibit 1.8 being a cropping summary, both prepared by Jamie Rokich. He later faxed the listing form he had completed to the Geraldton office of Elders where the information was typed on to a standard listing form which was returned to him (Exhibit 1.92). He received no offers or expression of interest in the property which was then taken off the market for a number of months.
He visited the Rokichs again in late August or early September. He met with Tony Rokich (whom he called John) and Jamie Rokich. He said they instructed him that they wanted $1.3 million for the property and that the number of arable acres should be changed to 3,819. He amended the standard listing form by hand accordingly. A copy of the document was made on the Rokichs' fax machine.
He was later approached by the Armstrongs. He took them on a tour of the property. A few days later they instructed him to propose an offer to pay the asking price which the Rokichs accepted in early January 2002.
Mr Saunders was contacted by Ashley Armstrong on 28 February 2002 and informed that there was a discrepancy in the number of arable acres which he had discovered by looking at the farm map provided by Jamie Rokich. This led him to ring Mr Correy in Geraldton who said that he would obtain a satellite grid to work out the area. Sometime later he was sent Mr Correy's analysis (Exhibit 1.25) which indicated a discrepancy of approximately 800 acres.
Mr Saunders recognised no difference between the meaning of "cleared" and "arable". He said "To be arable, it's got to be cleared".
He went to see the Rokichs on 11 March 2002 and showed them Mr Correy's analysis. He said at T 474:
"And I produced the document and showed it to them. And the immediate thing I do remember was silence. Probably the length of silence which sort of perturbed me a little bit, you know, at the time, which was a fair degree. And I said, 'There appears to be a problem. I've marketed your farm on the information you'd given me and it appears to be incorrect'.
What was their response? – After a bit more silence, they said, 'Look, we need time to think'. And I said, 'Well, it is a problem and it's got to be sorted out'. I left the property …"
Mr Saunders returned to Cooladdi the following day and was given a document by Jamie Rokich (Exhibit 1.93). Jamie Rokich explained that there was more acreage than was shown on the satellite grid, referring to corners and headlands. He subsequently showed the document to the Armstrongs who asked him to put a further offer based on Jamie Rokich's figure.
In cross-examination by counsel for the plaintiffs Mr Saunders admitted that when he first discussed the property with the Armstrongs he used a calculator to work out the price per cleared acre and that the Armstrongs' second offer was based on that rate.
When cross-examined by counsel for the defendants Mr Saunders admitted that the Rokichs had always used the expression "arable" in relation to the land, but he understood by that expression that the relevant land was cleared. He admitted that the Rokichs had never signed a document which specified 3,819 cleared acres. Mr Saunders said he had never asked the Rokichs whether they understood "cleared" to have a different meaning from "arable". He assumed that when they referred to "arable" they meant "cleared". Mr Saunders did not recall whether he had used the expression "cleared acres" or "arable acres" when speaking with Jamie Rokich about the discrepancy raised by Ashley Armstrong.
It was put to him that his recollection of making a copy of the amended listing form on the Rokichs' fax machine was incorrect. He confirmed that he had done so and denied that he was merely informed by Jamie Rokich on the telephone that he had found another 19 arable acres.
He recalled that Jamie Rokich had operated the fax machine to copy the amended typed listing form and that he had retained the copy and given him back the original.
Mr Saunders accepted that the Rokichs, when instructing him as to the sale price of $1.3 million, did not indicate that that sum was based on a cost per arable acre. When dealing with the Armstrongs, however, he worked out the cost per acre as he understood that they would value the land on that basis.
Mr Saunders was asked about his professional obligations as a real estate agent. He accepted that he was under a duty to act in the interests of his client, that he should not offer a property for sale on terms different from those authorised, that he should not knowingly mislead or deceive any parties to a transaction, that he should exercise skill, care and diligence and that he should make reasonable effort to ascertain or verify the facts which are material to the transaction.
In this respect it was put to him that he had not taken any steps to verify the number of arable acres indicated by the Rokichs. Mr Saunders said he had no reason to suspect that the information given to him was not correct. He had done a title search. He assumed the information given to him by the Rokichs was correct and did not accept that he ought to have obtained and measured an aerial photograph of the property. He said he had told the Armstrongs that the Rokichs' price was not negotiable. He did not accept that it was normal for a prospective purchaser to put in a lower offer than the asking price and agreed with the suggestion that the Armstrongs wanted to make sure they obtained the farm by offering the full price. He understood that they were keen to get the property because it adjoined theirs.
Mr Saunders was cross-examined on a statement made by him on 13 November 2002 (Exhibit 8) in which he stated that Tony (John) Rokich told him to amend the listing form by adding another 19 arable acres which was different from his evidence that he was told by Jamie Rokich. He said it was now his recollection that Jamie Rokich told him to make the change. He was also asked about his failure to mention in his statement that he had given a copy of the amended listing form to the Rokichs at that time. He accepted that that fact was not included in his statement but he was not pressed on either point of alleged inconsistency.
I accept Mr Saunders' evidence. He had a good recollection of the events in question. His testimony was cogent and credible. The points made with respect to his prior statement were answered and do not cause me to doubt any of his sworn evidence.
Tony John Rokich
Mr Rokich is the first named defendant. He is the husband of Mrs Violet Rokich, the second named defendant. He and his wife acquired Cooladdi in 1965 and farmed it until it was sold in 2002. Of the land they originally purchased they retained about 1,800 acres of bushland which they still own. Mr Rokich's son Jamie worked on the farm continuously from 1996 until 2002.
In 1999 he obtained an appraisal of the value of the farm from Mr Correy of Elders. He identified Mr Correy's appraisal (Exhibit 1.3) which described a total area of 5,918 acres and a cleared area of 3,500 acres, both of which he said were correct. The cleared area included about 200 acres which had been cleared many years before on the 1,800 acres which were to be excised from the farm prior to sale.
Mr Rokich said the property was offered for sale at auction in November 2000, but was passed in. He subsequently contacted Mr Saunders of Elders at Carnamah and listed the property for sale through him in February 2001 at which time he signed a handwritten listing form (Exhibit 1.7). He told Mr Saunders that the total area was 4,250 acres "subject to survey" because the amalgamation and subdivision had not been finalised and "we did not know exactly the amount of acres that would be on that portion of farm that we were listing for sale".
When he described the farm to Mr Saunders he used the word "arable". The cropping programme set out in the listing form was the normal programme at the time of the listing. He also said at that time there were 1,000 sheep and 100 cattle as stated on the form, but numbers increased or decreased according to the season and the number of acres planted in a particular year. Mr Rokich could not remember whether he or Mr Saunders had specified the price per arable acre that appears on p 2 of the form. His son Jamie had provided the letter dated 19 February 2001 setting out the property details (Exhibit 1.6).
The property was subsequently taken off the market. Some months later Mr Rokich instructed Mr Saunders to relist the property for $1.3 million. When shown Exhibit 1.92, the typed listing form, Mr Rokich denied being given the document, or a copy of it, by Mr Saunders. He also denied ever telling Mr Saunders that there were 3,800 or 3,819 cleared acres on Cooladdi. He said:
"We were very – very particular on that wording. Our instructions were that they were arable."
Mr Rokich said he made it abundantly clear to Mr Saunders that unless he and his wife received $1.3 million for the farm they were not interested in selling. He said it was a fixed price, not negotiable. Mr Rokich said that after the Armstrongs' offer to purchase the farm was accepted Nigel and Ashley Armstrong came to the farm and requested a farm map so that they could plan a cropping season. The original map was on a wall of the Rokichs' house. It was copied by Jamie Rokich on to a number of smaller pieces of paper. The map indicated the area of each paddock. Mr Rokich said that the areas were taken from acreage metres on farm equipment and were the only means he had of knowing how many acres were seeded. The map had been traced off an aerial photograph. The map did not depict the 1,800 acres that were to be excised.
Mr Rokich was later informed by Mr Saunders that the Armstrongs had made a calculation of the areas shown on the map which did not correspond with the information on the listing form. At T 265:
"Did you say anything to Mr Saunders about that? – We told, we – I told Mr Saunders that – that I had described the farm as arable, that we had sold the farm as a total package. We did not sell the farm on any particular number of acres irrespective of whether they were cleared or whether they were whatever, whether it was bush, whether it was arable land, non‑arable, whether it was salt. There was, there was never any, any agreement or discussion with anybody like except between the members of my family regarding the sale of this property. It was sold as a package. One – whatever was on that title, this was a package."
Mr Rokich said he was upset when Mr Saunders told him that the Armstrongs had calculated a figure close to 3,000 acres. Mr Rokich said that from "our workings on the farm … we had 3,200 or somewhere in that vicinity acres that we actually cropped, seeded".
The Armstrongs' second offer was rejected. Later he instructed his solicitors Hodgkin Hanly to issue a default notice. In relation to the Elders' listing form which he signed, Mr Rokich said that he used the term "arable" in a particular sense. At T 267:
"What did you mean by the word, the term 'arable'? – We had – sorry. I had – had wanted information on – on this word, so I had looked into a dictionary and I had formed the opinion that arable meant land that was capable of some form of production. To have that form of production the land required to have a suitable soil type, a suitable rainfall and a suitable climate and they were basis on which I understood the word arable and it was, as I said, capable of some form of production.
What form of production are you referring to, or are there? – Well, after the necessary preparation which was required if he wanted to put a crop in – now the required preparation – now many events have to take place before you can establish a crop, so preparation to establish that crop. There's also the natural – natural values of arable land.
What are the natural values of arable land? – Well, arable land upon which plant life survives, irrespective of what type of plant life. If it is not arable land you do not have plant life. Therefore, whether there's trees growing on that arable land, trees have – whether it's grazing value for stock.
What did you say, trees have value? – Yes, trees have value, trees are a crop. Now whether they're native to that area, or whether you can plant – you can put a forest on a crop, or a forest – sorry, a forest on land. See, much land is forestry plantations, now they are a crop. Now with necessary preparation arable land then has the ability to grow a crop, irrespective of whatever crop that is.
How many arable acres did you believe you had on Cooladdi Farm at the time you listed it for sale? – I believed there were 3,800 – 3,800. This was in conjunction with my son Jamie. He did the bookwork, he came up with the numbers and – but also, from the knowledge that I had from being on that farm for 30 – I know it was 30 years, possibly 35 …"
Asked what the remaining area consisted of, Mr Rokich said it was non‑arable. It contained salt lakes, lighter country, creeks and rocky areas. The non‑arable land was very poor and would not support growing plants.
Mr Rokich said he could not recall being told by Mr Saunders how the Armstrongs had arrived at the figure of $1,108,000 being their second offer. He said he seemed to recall something about a calculator being used but said that "I didn't want to know anything about this".
At T 270 Mr Rokich gave evidence in relation to Mr Saunders as follows:
"Did he ever ask you what you meant by the term arable? – No, I told him that the area we cropped was arable, and that's where the discussion was.
All right. Did he ever ask you whether the words 'cleared' and 'arable' meant the same thing? – I can't remember. But if he did, I described our cropped land as arable."
Mr Rokich was extensively cross-examined. In answer to questions by counsel for the third parties he said that in 1999 he told Mr Correy there were 3,500 cleared acres. He included in that number an area of 200 acres on the 1,800 acres which did not form part of the farm to be sold. This area had been cleared in the 1970s and had been cropped unsuccessfully. It had not been used for many years and the bush had re‑grown. I infer from Mr Rokich's responses that of the 3,500 acres he told Mr Correy were cleared, 3,300 were on the land to be sold.
Mr Rokich was asked about Exhibit 1.4, a document setting out the details of the property for the purposes of the auction by IAMA Real Estate in November 2000. This document described Cooladdi as having 4,250 acres subject to final survey. He identified notations on the document as being in his son Jamie's handwriting. One of the notations indicates a final acreage of 4,163. Mr Rokich accepted that this was the surveyed area. He disputed that the survey had been carried out at the time of the auction and suggested that the figure had been noted on the document at a later time.
He could not remember what the reserve price was and said that his memory was not jogged by the annotation of $1,140,000 which he identified as being in his son's handwriting. Nor could he remember the amount at which the property was passed in. His son's annotation "bid to $910,000" did not assist him to remember. He could not remember by how much the highest bid fell short of what he wanted at auction. He was asked about annotations which indicated a per arable acre price and said that he did not discuss this with his son before or at the auction.
In relation to the listing form prepared by Mr Saunders which he and his wife signed in February 2001 Mr Rokich said that at that time he did not know that the farm had been surveyed at 4,163 acres. He said there was no way that he would have known that figure in February 2001. He was challenged on this evidence. He was shown Exhibit 1.19, the stamped offer and acceptance which annexed a Department of Land Administration plan of the proposed subdivision of the amalgamated lots endorsed with a surveyor's certificate dated 24 November 2000 showing the land to be sold to be 4,163 acres. He could not recall whether he was aware of the survey when he saw Mr Saunders. He confirmed, however, that he told Mr Saunders that there were 3,800 arable acres and that his son had prepared and given to Mr Saunders a document which described the 3,800 arable and croppable acres (Exhibit 1.6). He agreed that that was an accurate statement. He also agreed that that document indicated a total of 4,163 acres. He gave evidence to the effect that he would not have objected to Mr Saunders describing the 3,800 acres as arable and croppable.
In relation to the original asking price of $1,253,000 Mr Rokich accepted that it was a very specific, as opposed to rounded off, sum. He agreed that it represented approximately $330 for each of the 3,800 acres said to be arable and croppable. He said the family had determined the price by itself. It was not based on any external advice. At T 287:
"You did so by starting with a total amount of land you had for sale and working it out on a per acre basis and a per arable acre basis, that led you to that number? – Yes."
Mr Rokich said that he received no written offers to purchase the property but then remembered that Christine and Tim Hyam, the daughter and son‑in‑law of his neighbours Joan and David Heinrich, had made a written offer to purchase Cooladdi in early 2001 for which they had obtained bank approval. He thought that the offer was for $1,090,000 which fell short of but was close to the sum he wanted. He then agreed that the reserve price at the auction in November 2000 was in fact $1.14 million, a sum which represented $300 per arable acre. He said this would have been worked out by his son.
In relation to the amendment of the typed listing form Mr Rokich said that his son, not he, instructed Mr Saunders to amend the number of arable acres to 3,819. He did not know and could not otherwise explain where the extra 19 acres were found. Later, however, he said that these areas were around buildings and stockyards. As to how the information was conveyed to Mr Saunders he said he would rather rely on his son's recollection as his was very vague.
In relation to the cropping programme set out in the listing form Mr Rokich was asked whether 2,750 acres had ever been cropped in one year. He said that had occurred, but could not say when. He said his son would know. He admitted that prior to 1996 he had only cropped a maximum of 1,000 acres, but planned from 1997 onwards to gradually increase the cropping programme. He also rejected the proposition that the property could not have carried 1,000 sheep if 2,750 acres were cropped, a position I did not find at all convincing.
Mr Rokich was taken to the farm map (Exhibit 2) and asked to show where the non-arable areas were. He marked the map with a series of crosses to indicate salt affected areas, creek beds and light sand areas, as well as rocky areas and bush. He maintained the view that there were 3,800 arable acres. He included bush areas which he thought were arable. It was put to Mr Rokich that the paddock areas set out in Exhibit 1.93 purported to show a total arable area by reference to cropped areas and that the various areas totalled 3,257 acres. He understood this to be the case from what his son had told him.
As far as the contract was concerned Mr Rokich said that he definitely wished to proceed to settlement notwithstanding that he knew that the Armstrongs felt that they had been misled as to the number of cleared acres. Mr Rokich insisted that he and his wife were selling the farm as a package not according to any number of acres. At T 322:
"Right, and you can see, can't you, that that had no bearing on the Armstrongs. You can see that they were concerned with arable and croppable? – Well, I can understand their – their point of view.
Yes. And that was the same point of view that you had. It's all about arable and croppable? – Yes."
In relation to Mr Saunders' role, Mr Rokich admitted that he would not have been able to tell from an aerial photograph what land was arable and croppable because, according to Mr Rokich, vegetated land could be arable. He accepted that from his point of view the figure of 3,800 was an estimate based on his years of occupying the land. He also said that if Mr Saunders had disputed the number of arable acres represented to him he would have referred him to his son Jamie. He would not have dropped his price even if he had been told that there were in fact only 3,000 arable acres on the farm.
In cross-examination by counsel for the plaintiffs Mr Rokich said that Jamie worked for the partnership on an informal basis and was paid an occasional salary. Upon the sale of the farm he was paid $150,000 as "an extra bonus" for the work he had done. He agreed that it was in Jamie's interests as well as his to obtain the highest price for the farm. He agreed that because crops were rotated, the amount of land available for cropping was relevant to productivity. He maintained, however, that Cooladdi had sufficient cleared land for its mixed farm operation and that it was essential to retain bush areas for the welfare of livestock.
I have been referred to three recent cases, including a decision by the Court of Appeal, in which applications for indemnity costs orders have been unsuccessful: Tranchita v Danehill Nominees Pty Ltd [No 2] [2007] WASC 248, Commissioner of State Revenue v Artistic Pty Ltd [2008] WASCA 24(S) and Stewart v Biodiesel Producers Ltd [2009] WASC 145(S). I have also had regard to Gove v Black & Ors [2006] WASC 298(S) and Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115. These turn on their own circumstances, but usefully illustrate, in my view, that the courts are generally reluctant of the courts to impose costs sanctions unless the justice of the case demands otherwise and that a party litigating in good faith can expect the ordinary costs rules to be applied.
In relation to the availability of an indemnity costs order following the rejection of an offer to compromise pursuant to O 24A of the Rules of the Supreme Court 1971 or a Calderbank offer (Calderbank v Calderbank [1976] Fam 93), I observe that:
(a)Order 24A r 10, since its amendment in March 2007, no longer creates a presumptive entitlement on the part of a plaintiff to indemnity costs where the results at trial was less favourable to the defendant than the terms of an offer to compromise made under that rule; and
(b)"the critical question in deciding whether to avoid indemnity costs against a party who has rejected a Calderbank offer is whether the rejection was unreasonable in the circumstances": Ford Motor Company of Australia Ltd (supra) at [23].
The making of indemnity costs orders in appropriate circumstances has the effect of preserving "in the minds of litigants the conscious consideration that their behaviour may place them at risk as to costs if they refuse reasonable offers of settlement before trial": Dobb v Hacket (1993) 10 WAR 532 per Murray J at 540.
The defendants submit that it cannot be said that their case was so bad that they should have known that they had no chance of success and that the court's rejection of their defence does not put this case in any different category from others where the defendant is unsuccessful. It is also submitted that the O 24A offer made by the defendants serves no purpose in terms of costs by reason of the provisions of r 10 in its current form.
As to the Calderbank offer made on 28 March 2008, the defendants submit that the plaintiffs have not shown that the defendants' failure to accept the offer was unreasonable. It is also submitted that the offer of the plaintiffs did not necessarily represent a more favourable result than the eventual award.
Finally, it is submitted that the plaintiffs have not shown that the usual order for costs would not be sufficient to compensate the plaintiffs for costs reasonably incurred in relation to the items set out in par 1(b) of the chamber summons.
The discretion to make other than the usual order for costs is unfettered, but must be exercised judicially. In this regard, I am satisfied that I may take into account whether there has been improper or unreasonable conduct on the part of the defendants in the conduct of the defence, but I do not believe it is appropriate to sanction by means of a special costs order the defendants' conduct giving rise to the action as the plaintiffs have been duly compensated in damages in this respect.
I consider that the relevant considerations bearing on the exercise of my discretion are:
(a)whether the defence was untenable such that the defendants, properly advised, should have known that it had no chance of success;
(b)whether it was unreasonable for the defendants to reject the plaintiffs' O 24A offer of 10 May 2004, or alternatively their Calderbank offer of 28 March 2008; and
(c)whether there were any matters of fact which the defendants unreasonably failed to concede and which put the plaintiffs to unnecessary expense.
In considering the determination of the application on this basis, it is not necessary to be satisfied that the plaintiffs did in fact incur greater costs than would be allowed on a party - party basis. In any event, however, I have evidence that the plaintiffs' solicitors' costs agreements would have resulted in their incurring greater costs than those allowed by the relevant scale.
In my reasons for decision I found in effect that the defendants contrived with their son to misrepresent the cleared and croppable area of Cooladdi Farm by using the word "arable" to mean land that could be cleared and cropped. Once the actual area of cleared and croppable land was established it was in my opinion unreasonable and improper for the defendants to maintain that there had been no misrepresentation. Furthermore, it was idle to contend that the plaintiffs should have known from a cursory visual inspection of the property that what the defendants told them was untrue and unreasonable not to admit that no more land could be cleared. In my opinion, the defence had no reasonable prospect of success.
In light of this conclusion, I turn to the attempts made by the plaintiffs to compromise the action. The O 24A offer of $280,000 plus costs made on 10 May 2004 does not have the effect, despite the verdict being less favourable to the defendants, of entitling the plaintiff automatically to indemnity costs. However, O 24A r 10(4) contains the proviso "unless the court otherwise orders" which clearly preserves the general discretion as to costs.
In respect of this offer, which in all relevant respects is analogous to a Calderbank offer, the question is whether it was unreasonably refused. As my findings demonstrate, there was a direct relation between the market rate for cleared land and the purchase price. The plaintiffs' offer to compromise, which clearly represented the measurable difference in value due to the misrepresentation, accorded with the defendants' method of calculation of the purchase price: Armstrong & Anor v Rokich & Anor (supra) at [137] ‑ [138].
I do not consider that the defendants' offer to compromise dated 17 May 2004 for $100,000 with no order for costs can be relied upon as indicating any reasonableness on their part. The defendants' offer has no meaning in the context of an untenable defence and a clear‑cut means of assessing the reduced value of the property.
I do not consider it necessary to draw any conclusions in relation to the defendants' rejection of the plaintiffs' Calderbank offer of 28 March 2008 given what I have found in relation to the rejection of the O 24A offer.
I am satisfied, therefore, that the maintenance of the defence and the rejection of the plaintiffs' O 24A offer in the circumstances of this case constitute conduct which would warrant the imposition of an indemnity costs order. I also take into account, although it is of less significance, that the defendants did not concede until shortly before trial that the plaintiffs were not allowed to clear more land, and required the plaintiffs to call other evidence which was, or should have been, non-contentious.
I accept the defendants' submission that in every action which proceeds to trial the losing party is liable to be criticised and may well be shown to have acted unreasonably. In this case, however, I consider that the defendants' conduct in resisting the claim of the plaintiffs was exceptional and does warrant an order which reflects the Court's disapproval.
The interests of justice will be served, in my opinion, by orders as follows:
1.The defendants do pay the plaintiffs' costs of the action to be taxed.
2.The plaintiffs' costs be taxed on a party – party basis to 10 May 2004; thereafter on an indemnity basis, ie, as between solicitor and own client.
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