Avora v Maxwell

[2002] NSWCA 346

NEW SOUTH WALES COURT OF APPEAL

CITATION:     Avora v Maxwell [2002]  NSWCA 346 revised - 23/12/2002

FILE NUMBER(S):
40669/01

HEARING DATE(S):    13 September 2002

JUDGMENT DATE:      20/12/2002

PARTIES:
Avora Pty Limited and Tony Rahme
v
John William Maxwell t/as L J Hooker Richmond and
Super Jet Sprays Pty Limited t/as Ron Smith Planning Services and
Olivia Pearl Nydegger

JUDGMENT OF:        Meagher JA Handley JA Giles JA   

LOWER COURT JURISDICTION:       District Court

LOWER COURT FILE NUMBER(S):     DC 1371/99

LOWER COURT JUDICIAL OFFICER:   Certoma DCJ

COUNSEL:
Appellants/First Claimant - P Hallan/D Hogan-Doran
Respondent 1/Opponent - R Sheldon
Respondent 2/Opponent - R Bellamy
Respondent 3/Second Cross-Claimant - A McInness

SOLICITORS:
Appellants - Uther Webster & Evans
Respondent 1 - Murray Stewart & Fogarty Solicitors
Respondent 2 - Gordon Robilliard Plowman Merton
Respondent 3 - Kenneth Harrison

CATCHWORDS:
APPEAL AND NEW TRIAL - fresh evidence - due diligence - no question of principle
MISLEADING AND DECEPTIVE CONDUCT - s 42 Fair Trading Act -
no question of principle

LEGISLATION CITED:
Trade Practices Act (1974) Cth
Fair Trading Act (1987) NSW
Supreme Court Act (1970) NSW

DECISION:
Appeal dismissed.  Appellants must pay the costs of all respondents

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

40669/01
DC 1371/99

MEAGHER JA
HANDLEY JA
GILES JA

20 December 2002

AVORA PTY LIMITED & ANOR v JOHN WILLIAM MAXWELL
(t/as L J Hooker Richmond)  & ORS

APPEAL AND NEW TRIAL – fresh evidence – due diligence – no question of principle

MISLEADING AND DECEPTIVE CONDUCT – s 42 Fair Trading Act -
no question of principle

The estate agent for the vendor misrepresented the area of land he was proposing to sell by auction.  The area was stated to be 3,510m² when in fact it was 3,105m².  One of the appellants spoke to the agent and obtained copies of promotional material containing the misrepresentations prior to the auction.  The property was passed in but the appellants, the highest bidders, bought the property as a result of the private negotiations that followed.  The appellants claimed that they only realised the error after the auction when the land was surveyed.  The agent claimed that they knew the truth before the auction.  The appellants purported to rescind for innocent misrepresentation but the vendor served a notice to complete.  The appellants settled with a reduction in the sale price.

The appellants sued the agent for misleading and deceptive conduct and sought damages for contravention of s 42 of the Fair Trading Act. The trial Judge found that the agent’s misrepresentations were misleading but the appellants did not rely on them because they knew of the errors and the action failed. The purchasers appealed and submitted that the finding that they did not rely upon the agent’s misrepresentations was glaringly improbable. They also sought to adduce further evidence pursuant to s 75A(8) of the Supreme Court Act.

HELD:    The Judge’s credibility finding that the appellants did not rely on the errors and were not induced by them to enter into the contract could not be disturbed.  The application to adduce further evidence was rejected because the Court was not satisfied that the failure to call the new witness, who was known to the appellants and their legal advisers during the trial, was not due to a lack of due diligence.

ORDERS

(1)          Appeal dismissed.

(2)          Appellants must pay the costs of all respondents.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

40669/01
DC 1371/99

MEAGHER JA
HANDLEY JA
GILES JA

20 December 2002

AVORA PTY LIMITED & ANOR v JOHN WILLIAM MAXWELL
(t/as L J Hooker Richmond) & ORS

Judgment

1. MEAGHER JA:    I agree with Handley JA.

2. HANDLEY JA:  This appeal arises out of misrepresentations by the first respondent who was the estate agent for the vendor on the sale by auction on 25 September 1997 of 120-126 Pennant Hills Road, Oatlands.  The vendor auctioned a block which comprised lots 1, 2 and 3 in DP 16222 and lot A in file plan 341358 (the land).  The land was rhomboidal in shape with an area of 3,105 m².

3. The estate agent stated in advertisements and promotional material and on his auction sign that the land had an area of 3,510 m² or 3,510 m² “approx”.  He also represented that it would support 16 two bedroom or 12 three bedroom townhouses subject to council approval.  This was a realistic assessment if 3,510 m² had been available but the development potential for the true area was significantly less.  The agent also distributed to interested parties a report of July 1997 (the report) prepared by a town planner (the second respondent) on the development potential of the land.  This contained the same errors as to the area and its development potential (the errors). 

4. The second appellant, Mr Rahme, saw the advertisements and got in touch with the agent.  He was given the agent’s promotional material, and a copy of the report, and inspected the land.  He and the first appellant had carried out a number of housing developments on a joint venture basis and he attended the auction to bid for the first appellant and himself.  He was the highest bidder at $910,000 but the property was passed in.  Private negotiations followed and Mr Rahme agreed, on behalf of himself and the first appellant, to purchase the land for $1,220,000.   Contracts at this price were then signed and exchanged and a deposit was paid.

5. Mr Rahme arranged for the land to be surveyed and he instructed his architect, Mr Tony Sukkar, to draw up plans for the construction of 12 three bedroom townhouses on the land.  He claimed to have only learned of the errors during a meeting with his architect on 15 October.  The appellants purported to rescind for innocent misrepresentation but the vendor served a notice to complete.  The appellants elected to complete with a reduction of $100,000 in the price.

6. They sued the estate agent for misleading and deceptive conduct and claimed damages for a contravention of s 42 of the Fair Trading Act (NSW). The estate agent cross-claimed against the town planner for breach of s 52 of the Trade Practices Act or s 42 of the Fair Trading Act and for negligent misrepresentation, and sought indemnity from his vendor.  The vendor brought a cross-claim against the appellants, the estate agent, the town planner and her solicitor.

7. The appellants claimed damages of $120,000 as the difference between the value of the land as represented and its real value.  They also alleged that if they had known the truth they would not have purchased the land but would have purchased and developed another site and as a result they had suffered an opportunity loss of $392,983.

8. The proceedings were heard by Certoma ADCJ in October 2000 and February 2001.  He gave judgment on 1 August 2001 dismissing the action and the cross-claims and he ordered the appellants to pay the costs of all the other parties.  The Judge found, as was inevitable, that the agent’s misrepresentations were misleading, but that Mr Rahme knew of the errors and did not rely on them.

9. Mr Rahme claimed that he relied on the misrepresentations and denied any knowledge of the errors until after the exchange of contracts.  He was extensively cross-examined on these matters.  The draft contract might have alerted him to the error as to the area, but he denied receiving a copy before the auction.  There was no evidence that he had done so and he did not consult his solicitor, Mr George Shad, until after the auction.  Mr Shad confirmed this although there was an unexecuted copy of the contract in his conveyancing file and he could not explain how or when it got there.  

10. Evidence was given by Mrs Elizabeth Sapienza, the daughter of the estate agent, who he employed as a property manager, which led to the Judge’s finding that Mr Rahme had not relied on the misrepresentations.  Her evidence was given initially by an affidavit sworn 9 March 2000.

11. Mrs Sapienza said that she was seated at a desk outside the auction room on 25 September 1997 with Anika Eaton, who was on work experience.  They had copies of the report and the auction contract which they offered to persons entering the auction room.  She also had an attendance register which she asked them to sign.  Mr Rahme signed the register and she asked him whether he would like a copy of the report.  She said that he replied “no, because it’s wrong.  I have already received a copy of it”.  She saw Mr Rahme again, after the auction, when he was negotiating with her father and her brother.

12. Her affidavit was corroborated by the affidavit of Mrs Christine Roffe, sworn a few days later, who deposed to seeing Mrs Sapienza offer a brochure to Mr Rahme who said “I don’t want one of them.  The measurements [or his words may have been ‘the area’] is wrong anyhow”.  Mrs Roffe is the daughter of Mrs Nydegger, the vendor.  Her affidavit was admitted on 8 February 2001 over the objection of counsel for the appellants that the witness was not available for cross-examination.  The vendor’s solicitors had written to the solicitors for the appellants on two occasions, warning them that Mrs Roffe was going overseas and asking if she would be required for cross-examination.  The solicitors for the appellants replied without answering the question.

13. Mrs Sapienza was cross-examined to suggest that she was mistaken in her identification of Mr Rahme.   There were other men of Middle Eastern appearance at the auction but she denied that she was mistaken and said that she had seen the same person in negotiations with her father and brother.  Mr Rahme denied having any such conversation.

14. The Judge said that Mrs Sapienza appeared to be a truthful and credible witness and her evidence was not disturbed in cross-examination.  He would have accepted her evidence in preference to that of Mr Rahme irrespective of its corroboration by Mrs Roffe.  The accounts of those two ladies differed slightly, but he said there was no appearance of collusion and their affidavits were filed on behalf of different parties.  On the basis of these findings he held that Mr Rahme did not rely on the misrepresentations and was not induced by them to enter into the contract. 

15. The appellants’ claim for damages for contravention of s 42 of the Fair Trading Act required them to prove a causal link between the estate agent’s misleading and deceptive conduct and the damages suffered.  This required proof of reliance on the misleading and deceptive conduct.  See Western Australia v Wardley Australia Pty Ltd (1992) 175 CLR 514, 525. Thus the Judge’s acceptance of Mrs Sapienza’s evidence was fatal to the appellants’ claim.

16. Mr Hallen SC, who appeared for the appellants in this Court, but had not appeared below, submitted that the Judge’s finding that Mr Rahme did not rely on the misrepresentations was glaringly improbable. He submitted, as was the fact, that there was no evidence of how or when Mr Rahme became aware of the errors before the auction, and that he acted afterwards as if he was unaware of them until after his conversation with Mr Tony Sukkar on 15 October.

17. The most significant fact is that Mr Rahme did not rely on the errors during his negotiations after the auction.  It is hard to think of a good reason why he would not attempt to exploit these errors, if he was aware of them, to drive a better bargain.  Mr Hallen drew attention to the fact that neither of the ladies was an independent witness, but Mr Rahme wasn’t independent either. 

18. Mr Rahme was an experienced property developer who was obviously very keen to obtain the land.  It may be thought remarkable that he was prepared to pay $310,000 more in private negotiations than his highest bid at the auction, an increase of 34%.  The appellants were later prepared to settle with a reduction of only $100,000 in the price rather than lose the land and attempt to enforce their rescission, and they only ever sought a reduction of some $200,000.  But Mr Rahme’s willingness to pay $1,220,000 to obtain the land, and the appellants’ willingness to settle with a reduction in the price of only $100,000, were justified in the result because the appellants were able to earn their normal profit from this development.  Consistently with the Judge’s findings Mr Rahme may have thought that the land was a good buy at the price even if he was aware of the errors.  In my judgment this Court cannot interfere with the credibility findings of the trial Judge.         

19. Mr Hallen’s principal argument was that the Court should receive the affidavit of Eissa Tadros, sworn on 9 September 2002, as further evidence in the appeal, pursuant to s 75A(8) of the Supreme Court Act. According to the affidavit Mr Tadros, another property developer, was also interested in acquiring the land for development.  In the course of his investigations he became aware of the errors and told the estate agent about them.  He attended the auction with his partner and wrote their names in the attendance register.  He said that he had the following conversation with the lady who asked him to sign the register. She said words to the effect:

    “Would you like a copy of the Town Planner’s Report that has been carried out on the property?”

    He said:

    “No  thanks,  I have a copy and it is useless, it is all wrong”.

20. Mr Tadros came to this country from Egypt and is a completely independent witness who was not cross-examined.  About a year after the auction he met Mr Rahme near the land, they got into conversation, and he told Mr Rahme about his interest in the land, his discovery of the errors, and his conversation with the estate agent.  He does not state in his affidavit that he then told Mr Rahme about his conversation with the lady at the desk but it appears that he did so [par 26].  Mr Rahme obtained his contact details and he said he would help if he could.  At that stage Mrs Sapienza’s affidavit had not been served.

21. About two years later he was telephoned by a solicitor who said that he represented Mr Rahme and he repeated his story.  When he was asked whether he would be prepared to come to Court he said that he was very busy and didn’t really want to become involved.  He was not asked to give a written statement and was not served with a subpoena.

22. Some time later Mr Tadros was telephoned by a barrister who said he was acting for Mr Rahme and he repeated his story but heard nothing further until he was approached by the appellants’ solicitor shortly before the appeal came on for hearing.    

23. Mr Rahme also swore an affidavit in connection with the application to adduce further evidence.  According to the affidavit, after he met Mr Tadros near the site he promptly told his then solicitor and suggested that he get in touch with Mr Tadros, but does not know if the solicitor did so.  He changed his solicitors before the trial and told his new solicitor about Mr Tadros.  The new solicitor later told Mr Rahme that Mr Tadros was not needed because the appellants were not alleging fraud.

24. Mr Rahme said that shortly after 11 December 2000 he received a letter from his solicitors which informed him that a number of witnesses, including Mr Tadros, would be contacted before the hearing resumed.  Later his barrister said that he had spoken to Mr Tadros but was not going to call him.  The barrister thought he would be hostile and when asked why said “I’ve asked him a few questions.  He’s not all that helpful”. 

25. The appellants changed their solicitors after the trial and their new solicitor also swore an affidavit.  He first heard about Mr Tadros on 5 September 2002 during a conference with Mr Hallen.  Mr Rahme repeated what he had been told and added “He was the one that spoke to the woman at the auction”.  An affidavit was obtained from Mr Tadros without delay.

26. The solicitor telephoned Mr Grant Hackleton, the solicitor who had acted for the appellants in the trial.  Mr Hackleton had not spoken to Mr Tadros personally, but said that his barrister had done so while he was present.

27. The solicitor spoke to the barrister who appeared for the appellants at the trial.  According to the solicitor’s affidavit of 10 September the barrister said “I did not find him offering the particular evidence that we needed regarding the allegation of the two female witnesses … I got no joy from him in relation to that … from the sort of detail that he gave I did not believe that he would be helpful”.  The solicitor then obtained a copy of the handwritten notes made by the barrister during his telephone conversation with Mr Tadros.  These include the following:

    “Can’t recall at this stage if I spoke to anyone there on the day of the auction about this” 

    and

    “Went to auction.

    Girls handing [?] brochures.

    I think I talk about aerial photos.

    Too long to remember details”.

28. This suggests that Mr Tadros did not recall his conversation with the lady at the desk, however he confirmed that he was aware of the errors and presumably he was of Middle Eastern appearance.  His evidence, if accepted, would have established a case of fraud against the estate agent but this had not been alleged on the pleadings.

29. Section 75A(8) does not expressly incorporate the common law requirements for the reception of fresh evidence, but it has long been accepted that they are generally relevant. Some exceptions have been established. Where credibility is not an issue the Court can sometimes receive further evidence and consider it on the appeal so that a new trial is not necessary. A new trial can be ordered where the misconduct of the successful party prevented the unsuccessful party from producing the further evidence at the first trial. See Commonwealth Bank of Australia v Quade (1991) 178 CLR 134. Neither of these exceptions is relevant.

30. The common law requirements for the reception of fresh evidence on appeal are well established.  See McDonald v McDonald (1965) 113 CLR 529. The evidence has to be both material and credible and “of such significance that, taken with the evidence already given at the trial, it would in all probability be decisive of the issues between the parties in a sense opposite to that of the verdict”. See McDonald v McDonald above at 532 per Barwick CJ. The final requirement was that the appellants’ failure to produce the evidence at the trial must not have been due to any lack of reasonable diligence on his part.

31. The further evidence is prima facie credible and clearly material but there are difficulties with the other requirements.  If Mrs Sapienza had been confronted with Mr Tadros and his evidence she may have accepted that it was he, and not Mr Rahme, who refused to take a copy of the report because it was incorrect.  However she may have maintained her evidence that it was Mr Rahme or may have said that both men refused the report because it was wrong.  In either of the latter situations the outcome would have depended on the Judge’s view of the reliability of the witnesses and is a matter of speculation.  This difficulty, on its own, may not have induced the Court to reject the further evidence. 

32. The real difficulty for the appellants is the requirement of reasonable diligence.  Mr Rahme knew of Mr Tadros and the evidence he could give long before the trial.  There was certainly no lack of reasonable diligence on his part but this requirement also applies to a party’s legal advisers.  More often than not it will be the conduct of the legal advisers that is relevant on this issue, rather than that of the client.

33. The conflict between Mr Rahme on the one hand, and Mrs Sapienza and Mrs Roffe on the other, became clear when the affidavits of these witnesses were filed and served some 8 months before the trial commenced.  Mr Rahme appears to have remembered Mr Tadros telling him of his conversation with a lady at the desk [par 26], although Mr Tadros appears to have forgotten it when he spoke to the appellants’ barrister in February 2001. 

34. Mr Rahme’s knowledge of the errors was the principal if not the only defence to this action.  The evidence of Mr Tadros was clearly important because he was aware of the errors, whereas Mr Rahme said he was not.  The Court does not know whether Mr Tadros looks like Mr Rahme, but the appellants’ legal advisers at the trial had no idea either because they did not interview him.

1. When interviewed in September this year Mr Tadros remembered his conversation with the lady at the table and was prepared to swear to it.  If he had been seen in conference in February 2001 it is also likely that he would have remembered it and been willing to give evidence about it.

2. The Court, acting judicially, cannot find that the appellants’ legal advisers acted with reasonable diligence in relation to Mr Tadros and for these reasons the Court rejected the further evidence.    

3. The only other ground of appeal which it is necessary to deal with is a challenge to the order that the appellants pay the costs of all parties to the proceedings. The Judge had power under s 148B of the District Court Act to make that order, and the only question is whether his exercise of discretion miscarried.  He gave no specific reasons for making that order and we were not referred to any argument on costs before the Judge.  This Court can only interfere with the Judge’s exercise of his discretion if on the facts it appears to be unreasonable or plainly unjust.  A successful defendant is not automatically entitled to an order that the unsuccessful plaintiffs pay the costs of cross-claims which have proved to be unnecessary.  Nevertheless the unsuccessful plaintiffs provoked the cross-claims by bringing the proceedings and in a proper case that could be enough to justify the Judge’s order.  The appellants have failed to establish any ground for the interference of this Court.

4. The appeal should be dismissed, and the appellants must pay the costs of all respondents.

5. GILES JA:           I agree with Handley JA.

******

LAST UPDATED:               23/12/2002