Banks v Copas Newnham P/L - [2001] QDC 261

DISTRICT COURT OF QUEENSLAND

CITATION: Banks & Ors v Copas Newnham P/L & Ors [2001] QDC 261

PARTIES: RODNEY ROY BANKS AND
JEANETTE ELLEN BANKS  Plaintiffs
v
COPAS NEWNHAM PTY LTD
ACN 009 893 172  First Defendant
and
GRAHAM NEWNHAM  Second Defendant
and
WONDERLEY AND HALL (A FIRM)     Third Defendant

FILE NO/S: 3792 of 2000

DIVISION: Civil

PROCEEDING: Claim

ORIGINATING COURT: Brisbane

DELIVERED ON: 26 September 2001

DELIVERED AT: Brisbane

HEARING DATES: 29-31August, 3 September 2001

JUDGE: Judge Robin QC

ORDER: Plaintiff awarded $50,356 damages against all defendants Defendants adjudged liable to contribute equally

CATCHWORDS:
(Cth) Trade Practices Act 1974 s.51A, s.52, s.75B, s.82 – real estate agent liable in damages to purchaser of a home unit “off the plan” – references to guaranteed net rental return misleading and deceptive – no reasonable grounds to make them – there was no third party guarantee and the lessee appeared to be a company without resources - lessee only paid single instalment of rent – meaning of ‘guarantee’ considered – principal of real estate company held under accessorial liability – neither exonerated by purchaser’s seeking legal advice before signing contract – liability not avoided by agent’s disclaimer - contribution proceedings against purchaser’s solicitor.

Solicitor and client – solicitor retained with a view to attending to conveyancing under a contract yet to be signed but produced to the solicitor – duty of solicitor to advise that as subject property was to be encumbered by a long term lease, that the lessee’s capacity to pay rent should be investigated – contribution proceedings against vendor’s real estate agent.

(Cth) Trade Practices Act 1974
Fair Trading Act 1989

Butcher v Harkins (2001) NSWSC 15 (2 May 2001)
Heiseler v Anglo-Dal Ltd [1954] 2 All ER 770
B.W. Bowler & Anor v Hilda Pty Ltd [1996] 928 FAC 1, (1998) 210 FCA, (1998) 80 FCR 191, (2000) FCA 899, (2001) FCA 342
H W Thompson Building Pty Ltd v Allen Properties Services Pty Ltd (1983) 48 ALR 667
Fox v Everingham (1983) 50 ALR 337
Twiddle v Bradley (1990) 2 Qd R 464
Hanflex Pty Ltd v. NS Hope & Associates (1990) 2 Qd R 218
Gardam v George Wills & Co Ltd (1988) 82 ALR 415
Burg Design Pty Ltd v Wolki [1999] FCA 388
Landel Pty Ltd v Redland Shire Council and Lipoma Pty Ltd (2001) QCA 120
Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719
Menmel Pty Ltd v The Great Australian Bite Pty Ltd (1997) ATPR 41-553
Re La Rosa; ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 104 ALR 237
Trade Practices Commission v Manfel Pty Ltd(In Liquidation) (1991) 105 ALR 520
Burke v LFOT Pty Ltd (2000) ATPR 41-781

COUNSEL: Mr A. Maher for the plaintiff
Mr Hassett for the first and second defendants
Mr D.G. Clothier for the third defendant

SOLICITORS:
Quinn & Scattini for the plaintiff
David Prince & Associates for the first and second defendants
Brian Bartley & Associates for the third defendant

The plaintiffs are disappointed investors who agreed to purchase Lot 147 in a proposed Building Lots Plan for a development of land close to the William Jolly Bridge tentatively called South Bank Suites; the contract defines “Name” alternatively as Metro Inn Southbank. The first defendant company was the vendor’s selling agent, the second defendant being a principal of it, and the individual who had dealings with the plaintiffs, represented by Mr Banks; they are sued for damages under s.82 of the (Cth) Trade Practices Act 1974 and s.100 of the Fair Trading Act 1989, alternatively for negligence. The third defendants, a firm of solicitors, are sued for damages for breach of the contract of retainer, alternatively in negligence and under s. 100. The plaintiffs claim they would not have entered into their contract of purchase had they been properly advised by the solicitors. Their expectations of receiving a net rental return equivalent to 7% per annum of the purchase price of $140,000 have not been fulfilled.

A brief chronology of events is as follows:

September 95 - first defendant promotes Metro Inn Southbank;
Toowoomba Chronicle advertisement attracts plaintiffs’ interest

October 95 - first defendant’s letter to plaintiff lists benefits of
investment in Metro Inn Southbank and encloses brochure

January 96- Following receipt of first defendant’s cash flow/tax effect
projections (Ex 44) plaintiffs sign expression of interest in Lot 147 and pay part deposit

February 96 - Mr Banks seeks legal assistance regarding the contract
documents from the third defendant’s Mr Browning

May 96- Plaintiffs sign contract and third defendant forwards it to
vendor for signature

March 98- Plaintiffs sign registrable lease of Lot 147 to Ballville Pty
Ltd on 19 March (10 years and 2 x 5 year options,
commencing rent $9800 per annum)
Settlement occurs 25 March (Ex 21)

June 98 - Plaintiffs receive $2577 rent from Ballville Pty Ltd (Ex 57)
– no further payments received

98-99              -          gross rent received from other tenants by plaintiff was
financial year             $4042
September 2000 -       claim filed

The main protagonists in the case were at all material times well known to each other through membership of a Rotary Club. Mr Banks is a civil engineer and successful businessman, being one of three “partners” in a successful enterprise which designs and constructs steel framed buildings; he has had experience over the years in purchasing and holding properties (mostly residences) which have been rented out. Mr Newnham is an experienced real estate agent. Mr Browning, whose legal advice (or lack thereof) is the subject of complaint, was a partner in (and is now a consultant with) the third defendant firm; he dealt mainly with personal injuries work and common law claims.

The South Bank Suites development came to be promoted as Metro Inn or Metro Inn Southbank. It appears to have been devised by one Mr John Hallett as “two buildings and a total of 154 brand new, strata titled hotel developments – fully leased and managed by a respected national hotel operator”, to quote exhibit 58, being Building A of 62 strata titled three star motel-apartments and Building B of 92 one bedroom strata titled four star hotel apartments, all “offering a 7% nett return”. Mr Newnham appears to have become interested in marketing the apartments on the basis of exhibit 58, which proceeded to refer to “a good night’s sleep, guaranteed”:

“The development is leased for a minimum of five years (with three further five year options), and guarantees you a secure return on 7% nett per annum on your purchase price.”

Other benefits, such as discounts throughout the Metro Inn chain were promised. It was asserted that “The location and value will guarantee the success of the Metro Inn Southbank”; in large type, by way of summary the golden opportunities offered were said to include “to secure a guaranteed nett return on an appreciating development.”

Mr Newnham’s approach to Mr Hallett led to the latter’s appointing the first defendant to market his project in Toowoomba and to his providing financial assistance in its promotion. After a promotional evening, apparently associated with the Carnival of Flowers, Mr Newnham caused advertisements to be published in the Toowoomba Chronicle newspaper, whose ultimate form he accepted as within his control. Exhibit 2 is a copy of one such advertisement which appeared on Saturday, 23 September 1995. The project was identified as Metro Inn Southbank, and said to offer, among other things, security in retirement. Considerable prominence was given to “7% nett guaranteed”, accompanied by the note: “fully leased, and to be managed by an established national hotel operator – a guaranteed income under a 5 year lease with 3 further 5 year options.”

The First Defendant’s written representations and its “disclaimer”

This advertising attracted Mr Banks’ attention and he made inquiry of Mr Newnham who wrote to him a letter of 3 October 1995 (exhibit 3) including a “brief outline” of the project and recording the first defendant’s enthusiasm for it. The letter indicated that if Mr Banks was interested, he would have to provide an initial deposit of $2,000 and a total 10% deposit (or bank guarantee) at contract signing, the balance of purchase moneys not being required until project completion (estimated December 1996). It went on:

“The investment’s main appeal lies in the following benefits:-
(1) Five year lease plus 3 x five year options
(2) Guaranteed 7% nett return
(3) High tax benefits

(4) Automatic annual rent reviews to CPI and market
reviews at the end of each three years.

It is interesting to note that even if the total purchase price is borrowed, the after tax position is that of positive cash flow which means you do not have to put any additional support cash into this investment.”

The “outline” consisted of documents suggestive of the positive cash flow and a coloured brochure produced by the first defendant with “Metro Inn” at the foot, the first defendant’s name and details of telephone contacts for its (named) principals at the bottom. The two selling points, each of which was highlighted in a kind of “blaze” were “priced from $64,950” and “yield 7% nett guaranteed five years.” In tiny print at the foot of the brochure (apparently Arial font size 5) is the following, on which the first and second defendants placed reliance at the trial:

“Every precaution has been taken to establish accuracy of the above information but does not constitute any representation by the vendor or agent.”

There was no such disclaimer in the newspaper advertising, or the letter exhibit 3.

The disclaimer mentioned was said by Mr Hassett to relieve his clients, the first and second defendants, of liability in reliance on Austin J.’s decision in Butcher v Harkins (2001) NSWSC 15 (2 May 2001). The purchasers of a residence failed to establish a liability against the vendor’s agent in respect of incorrect information bearing on the security of title to a swimming pool. Factually, the agent was passing on information from the vendor in its brochure, which had “in small print” at the bottom of each page the following:

“All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee it’s (sic) accuracy and interested persons should rely on their own inquiries.”

Austin J.’s reasoning in relation to the agent was as follows:

“168. I have found that when Lachlan Elder Realty distributed the colour brochure with his authority, Mr Harkins made a representation that the mean high water mark was located beyond the swimming pool. In my opinion, however, no equivalent misrepresentation was made by Lachlan Elder Realty. Both sides of the brochure contained two propositions to the following effect:
. the information contained in the brochure had been gathered by Lachlan Elder Realty from sources which they deemed or believed to be reliable; and
. Lachlan Elder Realty could not guarantee the accuracy of the information and interested persons should rely on their own inquiries.
169. Those propositions went to the position of Lachlan Elder Realty, but did not purport to affect the position of their principal, Mr Harkins, who therefore cannot take advantage of them. The two propositions were part of the representations made by Lachlan Elder Realty when staff of the company distributed the brochure. Their effect, as regards the location of the mean high water mark in relation to the swimming pool, was to say to prospective purchasers:
‘Here is a diagram showing that the mean high water mark is located beyond the swimming pool. It is a diagram provided to us from a source that we believe to be reliable. However, we cannot vouch for the accuracy of what is shown in the diagram, and if the matter interests you, you should rely on your own inquiries.’
170. The plaintiffs gave evidence that they were confused as a result of reading the brochure, and Mr Butcher said that he did not read the propositions to which I have referred. The question whether the distribution of the brochure amounted to misleading conduct by Lachlan Elder Realty is to be assessed, as I have said, by reference to the effect that the conduct would be likely to have had on the identified class of persons to whom it was directed. In my opinion, the class of potential purchasers of waterfront homes in a price bracket above $1 million, independently advised by their own solicitors, would be unlikely to be misled by the brochure read as a whole, including the two propositions set out above: McDonald’s System of Australia Pty Ltd v McWilliams Wines Pty Ltd (1979) ATPR 40-140.
171. Here the diagram included in the brochure was supplied by the vendor, in circumstances where the company had no reason to doubt is accuracy. The company did not contribute to the inaccuracy of the diagram by its own conduct. That important fact distinguishes this case from Argy v Blunts & Lane Cove Real Estate Pty Ltd 26 FCR 112, where the purchaser was misled when, through the fault of a real estate agent, a document was not transmitted correctly by facsimile. Similarly, the present case is distinguishable for that reason from MacCormick v Nowland (1988) ATPR 40-852, where the misleading information supplied by the real estate agent was based on his own guesses (and cf Thompson v Mastertouch TV Service Pty Ltd (No 1) (1977) 29 FLR 270, where it was found that the misleading statement had been made recklessly).

For a number of reasons, the present situation is distinguishable. At the heart of this case is the repeated representation regarding a guaranteed 7% return, which is the kind of feature of an investment one would expect the agent to have knowledge of, when compared with details such as that relating to Mr Harkins’ swimming pool. The disclaimer effective in his agent’s case was limited to protecting the agent, whereas the present defendants’ may be seen as too wide in purporting to preclude recourse against the vendor. (I reject Mr Hassett’s submission that reference to the vendor may be severed.) There is some absurdity in the whole idea of keeping the vendor out of the firing line. One must ask, rhetorically, where the agent obtained the information (whose accuracy precautions had supposedly been taken to establish) if not from the vendor. More tellingly, there is no basis on which the protective language can be invoked to save the first and second defendants from the consequences of publishing exhibit 2 and exhibit 3.

Meaning of “guarantee”

The trial was the occasion of considerable discussion regarding the meaning of “guarantee”. I think it and its variants, whenever used, are calculated to engender confidence that whatever is guaranteed will be forthcoming, or, if it is not, some appropriate recompense. Exhibit 58 bespeaks an attitude along those lines being taken by its author, likewise Copas Newnham’s various publications.

I have not found helpful in the special context of this case the notion of an exercise of identifying any class of persons to whom those publications were directed, as referred to in paragraph 170 of Austin J.’s reasons. This is not a passing off case or anything of the kind. There is no reason to avoid focus on Mr Banks as the person to whom statements were directed. Exhibit 3 was personally addressed to him. He was in some difficulty explaining what he took to be the meaning of references to a 7% guaranteed return, particularly when pressed to explain it in terms of the tripartite arrangement which a guarantee represents to those with legal training. In evidence-in-chief in relation to exhibit 2 Mr Banks said at pages 11-12 of the transcript:

“What did that mean to you at the time?-- For a unit, investment that there was going to be a guaranteed 7 per cent nett return on the – for an investment in a unit.
And the asterisk beside it which says, “Fully leased, and to be managed by an established national hotel operator – a guaranteed income under a five year lease with three further five year options.” Did you read that at the time?-- Yes.
What did that mean to you at the time?-- It meant to me that this development was going to be leased by a hotel operator and I gathered that with Metro Inn there and I recognised the name of Metro Inn and they were going to lease it with a guaranteed rental for whatever the particular time was which was listed as a five year lease.
Was the name “Metro Inn” there? Did that mean anything to you at the time?-- Metro Inn, yes, I recognised the name of Metro Inn.
Had you heard of Metro Inn at this time, had you?-- Yes I have travelled a bit around Australia, so I have seen Metro Inn as a recognised hotel operator.”

At 15-16 he said in relation to other documents he received from Mr Newnham:
“Did you have a discussion with Mr Newnham when you received this document?-- Yes
Can you tell the Court, please what was discussed?-- Yes, that would have led for me to trying to choose, because it was a good investment, guaranteed rent, that we would look at a unit on the top floor and in this document here it listed the different levels in the building and what was available.
Mr Banks, - who – when you’ve told his Honour about guarantee, who did you understand was guaranteeing the investment?-- The motel operator, the Metro Inn, the motel operator.”

Mr Hassett’s cross-examination contains the following at page 46:
“So would you agree with me in order to have a guarantee, you need an existing obligation on foot: correct?-- Existing guarantee, yes.
What was the existing obligation on foot that you thought was to be in existence at this time to be guaranteed by Metro?-- I thought that the guarantee was from Metro to the developer to be passed on to the people who bought the units.
Well, that’s precisely correct, is it not? The guarantee by Metro was of the developer’s obligations to pay rent?-- The obligation was to pay rent, yes.
So you would have needed at least three parties to have a guarantee at all, wouldn’t you? You would need the buyer, yourself. You would need someone who is responsible or the primary obligation and someone who is responsible for the secondary obligation: correct?-- What’s the secondary obligation?
The guarantee. The guarantor has to guarantee something, doesn’t he?-- Okay, yes.
He has to guarantee something?-- Yes.”

I indicate preparedness to take judicial notice that in any commercial matters the word “guarantee” is used again and again when there are not three parties. Mr Hassett returned to the theme, for example at page 65:

“This whole proceedings are about the word ‘guaranteeing’, are they not?-- Yes, rental guarantee is an important thing.
You went back to a firm of solicitors to explain that very concept to you nine months after Ballville had gone into liquidation, didn’t you?-- Yes.
Indeed, you have some considerable knowledge of the way guarantees work, don’t you?-- I know that if I put my name to a guarantee I’m next on the block.
As indeed you believed that Metro Inns were putting their name on the block?-- Exactly.
You believed they were going to guarantee somebody’s obligation or Ballville, somebody else’s: correct?-- They were going to guarantee the payment of rent for their operation of the unit block, yes.
Yet you didn’t ask when you went to see Mr Browning, you didn’t say, “Well, I understand Metro Inns are guaranteeing this rental return. Where is my guarantee?” You didn’t say that?-- The thing was that thick. I ----
Speaking of thick, you deal with thick documents all the time. What about your lease with the steel company?-- Mmm.
I show you that. We talked about this before. This is the $100,000 lease?-- Mmm
Seen that document before?-- Yes.

In consultation with yourself?-- We would have given him the agreed rent figure and term of lease.”

(The second question above refers to advice Mr Banks was compelled to show he had taken to satisfy the cautious approach of a lender to his business – in the event, it was a partner of Mr Browning’s Mr Tait, who gave advice, which Mr Banks seemed to regard as unnecessary.)

At page 71 Mr Hassett returned to the “thick” document, the contract, exhibit 1, demonstrating Mr Banks’ capacity to understand it generally:

“.. Whilst it is a big contract, they are the contents, are they not?-- Yes.
They are the subject headings for this document?-- Yes.
And there is no guarantee from Transmetro or from Metro Inns present to you. Why didn’t you ask anybody about that?-- There isn’t one.
There isn’t one?-- No.
You know that now, don’t you?-- I know that now, yes.
If it was important to you, why weren’t you looking for it, a man of your commercial experience?-- Because I understood that the rent was being guaranteed by Metro and it would be in the contract documents which I had a solicitor acting for me.”

Mr Banks acknowledged Mr Newnham may have mentioned the name John Hallett to him (page 76) and went on:

“ -- He was a developer.
And a company of his would be the vendor that you would be purchasing from?-- Yes. Well, that’s the normal arrangement.
And you would be getting a return by way of lease?-- I’d be getting a return – there would be a guaranteed return somewhere in the -----
Let’s just start with the lease. You understood there was going to be a lease, didn’t you?-- Yes. It was initially there was a five year lease.
You understood that the lessee pursuant to that lease of the unit that you were purchasing was going to be Ballville, I put to you?-- Not in the beginning of the transaction.
Let’s just assume for the moment that he did say words to that effect. It would be true, would it not, that if you had a lease with Ballville that was guaranteed by Transmetro, then Mr Newnham’s advertisement would be precisely correct, would it not, because you do have a guaranteed lease? Are you having difficulty-----
HIS HONOUR: Who guaranteed whose obligations in that question?
MR HASSETT: I am putting to the witness that assume the following facts: he’s buying a unit, he’s leasing it to Ballville, Transmetro is guaranteeing the performance of this lease, does that not make this advertisement true?
HIS HONOUR: Are you putting to him that that was the fact, that there was a guarantee of Ballville’s obligations by Metro?
MR HASSETT: I am putting to him that was the proposal.
HIS HONOUR: It sounds to me that you were putting to him that it was actually the fact.
MR HASSETT: If it were the fact, then I am putting to him the advertisement would be true and if it were the proposed fact the advertisement would still be true, I suggest to you?-- If it were the fact. As I said, the 7 per cent guarantee, as long as I got it, I was – I felt that was part of the contract.”

It is a matter of common experience that references to “guarantee”, rightly or wrongly, tend to instill a state of mind of increased confidence or assurance. The clear implication is that something is added to an ordinary obligation. In my opinion, anyone using the term, or a variant of it in a serious commercial context, ought to be aware of the likely impact on readers or listeners. There seem to have been few cases in which litigation has arisen because there was something misleading about a reference to a guarantee. The reason may be that commercial people have been careful about employing that expression.

There is authority showing lawyers acknowledging that a “guarantee” may not always signify a tripartite arrangement, but rather one of the guarantor being “next on the block” to quote Mr Banks. Heiseler v Anglo-Dal Ltd [1954] 2 All ER 770 concerned an undertaking in a contract for sale and purchase of 300 tonnes of aluminium ingots “to furnish ... a 10% guarantee that we will deliver the goods ... as soon as we receive confirmation”. Somervell LJ. said at 772:

“The word ‘guarantee’ is often used in other than its legal sense. An example of the word meaning simply an undertaking by the contracting party can be found in Barker v M’Andrew (1865) 18 CBNS 759; 144 ER 643. The learned judge says this:
‘Again I think one has to bear in mind that commercial men do not look at these things quite from the lawyer’s point of view. To a lawyer to say: ‘I guarantee that I will perform my contract’ is quite worthless, but a commercial man would regard the guarantee, perhaps furnished in a proper form of letter, as having some value as underlining, as it were, the promise that had been undertaken. He does not think in terms of damages, liquidated damages, penalty clauses and the rest of it; he says to himself ‘I have got it in writing and if for any reason these goods do not come forward I will get ten per cent of their price’, and he may well think that is a valuable thing.’”

Romer LJ. said at 744:

“The most important question of construction which arises on the contract is whether the guarantee which the plaintiff undertook to furnish to the defendants meant, or at all events included, the guarantee of the plaintiff himself or whether the undertaking could only be effectually discharged by the production of a guarantee by some third party. The defendants have urged various reasons in support of the latter alternative. First they say that the ordinary, prima facie, meaning of ‘guarantee’ in relation to the performance of a contract is the assumption of liability for its non-performance by someone other than the performer. Secondly, it is contended that the undertaking in this agreement to ‘furnish’ a guarantee tends to attract this prima facie view. Thirdly, the defendants argue that if all that was intended was the plaintiff’s own personal undertaking it could very well have been given in the contract itself and that this element, coupled with the production of a separate document which the agreement apparently envisaged, affords further proof that the suretyship of a third party was intended. Fourthly, it is suggested that the plaintiff’s own unsupported guarantee would add nothing to the obligation which was imposed on him by the contract itself and would, therefore, give the defendants nothing in the way of an additional security for the performances of that obligation. And, finally, they say that the guarantee involved the exercise of a power which is; possessed by banks but which the plaintiff did not himself possess, namely, a power to acquire and dispose of dollars; and that this consideration is relevant to the construction of the document.
I doubt whether the first of the above reasons is of any considerable significance. Although among lawyers the word ‘guarantee’ would normally (although not always) imply the promise of some third person, the parties to this contract were not lawyers but were commercial men, as Devlin J in the course of his judgment pointed out. But, further than this, the expression ‘guarantee’ is used in the last paragraph of the contract in the sense of a personal undertaking, for the defendants ‘guaranteed’ that they would extend their letter of credit should there be any delay in Antwerp.”

The Oxford English Dictionary offers meanings such as: to engage to do something; to warrant or ensure that something will happen or has happened.

I do not think the present plaintiff’s case suffers in any way from Mr Banks’ inability to articulate more precisely what he expected by way of guarantee of the 7% return. I would not apply here the criticism which Finn J. expressed in B.W. Bowler & Anor v Hilda Pty Ltd [1996] 928 FAC 1 (25 October 1996) – a case which might have been, but turned out not to be in the end rather close to the present - when his Honour said at page 17 (of 32) of the reasons:

“The applicants’ submission in address was that they understood the 10 per cent rental guarantee representation to mean, not necessarily that some third party was to hold itself answerable to the Bowlers for the performance of the management company’s obligation (as sub-lessee) to pay 10 per cent, but that an assurance was being given that the management company would be of such standing or would be so circumstanced as to be able to perform its obligations. It was then alleged that Leader had no reasonable grounds for making the representation.
This submission, which was made by leading counsel for the applicant (whose participation in the hearing only began after the Bowlers had given their evidence) was, I would have to say, not readily suggested by the tenor of the evidence that I heard the Bowlers give. Be this as it may, the submission itself cannot be sustained.”

In Bowler, marketers of a development proposal similar to the present one placed advertisements in the Canberra Times which his Honour said:

“in varying ways drew attention to the possible management arrangement and that a 10% ‘rental return’ or ‘guaranteed rental return’ was being offered.”

A brochure made available to the plaintiffs indicated that apartments on offer “may be lived in, rented out privately, or rented to management company which will sublet them as serviced apartments. The management company will let at 10% p.a. of the purchase price”. The brochure referred to rent review arrangements:
“It is the intention that the management company will renew their lease indefinitely.
After three years, buyers may take up the option for another six years. Rental will be determined by negotiation, based on previous performance and prevailing market conditions. However, the rental is guaranteed never to fall below the initial rental.”

His Honour noted that in taking the Bowlers through the brochure “Mr Singh said on a number of occasions that the “10 per cent return is guaranteed” or used language to similar effect .... He indicated that if management did not carry out its duties then “the bottom line” was that the Bowlers could rent out the unit or live in it themselves.” His Honour said, following his rejection of the submission outlined above:
“... It is not clear on the evidence before me whether the language used by Mr Singh in elaboration or explanation of the brochure was itself capable of creating in the Bowlers’ minds some misconception about the signification of the statement contained in the brochure concerning rental return. What I am prepared to accept is that the Bowlers took away from the meeting the understanding that the rental return was being guaranteed in some way. As I will indicate in a moment, when they later consulted their solicitor, the ‘guarantee’ was one of the first matters raised with her. Likewise, Mr Bowler’s evidence was that he was ‘a little bit surprised’ to learn from the solicitor that no personal guarantee was being given.
I further find that the conception the Bowlers appeared to have of the guarantee being offered – and this is most apparent in the explanations given particularly by Mrs Bowler in cross-examination – was that some third party must have been guaranteeing the rent. She suggested at one stage, for example, that Leader Real Estate or else its directors were providing the guarantee.
That conception is, of course, inconsistent with what actually is said in the brochure and Mrs Bowler conceded that she read the brochure carefully. I am nonetheless prepared to infer that whatever the words of the brochure might properly signify in isolation, Mr Singh’s repeated reference to the 10 per cent return being guaranteed may well have created the misunderstanding under which the Bowlers laboured when they first consulted their solicitor, Ms Harris.
Before turning to subsequent events I should also indicate my view that the brochure standing alone is incapable of conveying to any reader the reasonable impression that a third party is guaranteeing a ten per cent return. Moreover, when one looks to the final sentence of the extract from the brochure quoted above, the term ‘guarantee’ is used merely to set a floor below which the rental will not fall. I can find nothing in the brochure alone which is misleading and deceptive on this matter. What I do find is that in his explication of it Mr Singh probably created some misunderstanding in the Bowlers as to what in fact was being offered by way of rental return.”

The Bowlers’ claim based on a theory of guaranteed rental failed because they admitted receiving from their solicitor before they signed any contract “unequivocal advice that no personal guarantee was being given by anyone.” And, his Honour said, “both Mr and Mrs Bowler accepted in cross-examination that they were prepared to take the risk that the management company might be unsatisfactory.”

The Bowler litigation had a chequered history. At (1998) 210 FCA (25 February 1998) the Full Court of the Federal Court allowed an appeal against the rejection of the Bowlers’ claims in other aspects. See also (1998) 80 FCR 191. Finn J. determined in (2000) FCA 899 (7 July 2000) that $37,000 damages was to be awarded to the Bowlers based on the falsity of representations that the apartment they purchased would be available for residential use by themselves. There was an unsuccessful appeal at (2001) FCA 342 (2 April 2001).

Did the Contract or access to solicitors override earlier representations?

The first and second defendants argued that any misrepresentations or misleading statements they became associated with were “overridden” by the contract, relying in particular on H W Thompson Building Pty Ltd v Allen Properties Services Pty Ltd (1983) 48 ALR 667, in which companies whose directors were experienced speculators in off-the-plan purchases failed in a s.52 claim. The complaint was that only the first of “three magnificent towers of ‘Tweed Gardens’” was constructed and that other benefits such as 6.4 hectares of landscaped gardens incorporating recreational facilities, as foreshadowed in the agent’s brochures, did not eventuate. St John J said at 673:

“From an early stage, it was clearly in the contemplation of the parties that the applicants would have the services of a solicitor, and it must be assumed that that solicitor was of reasonable competence. It is common ground that the contract and the letter accompanying the contract reached the solicitor and that the conditions in the contract, or at least some of them, were the subject of his advice to the applicants’ two directors, Mr Thompson Jnr and Mr Thompson Snr, who spent approximately one and a half hours with him discussing the matter. It is the solicitor’s function, in a conveyancing transaction, to protect the interests of the parties to the contract who instruct him. Reasonably competent advice must include what the respondent’s obligations to the applicants were in each of the contracts. There was not included in those obligations an obligation to proceed with the other two tower buildings. There is no obligation in the contract for all the recreational facilities mentioned in the brochure to be completed. In the accompanying letter there is a suggestion that the contract be discussed with the proposed purchasers’ solicitor. The letter refers to “our intentions for the final form of the total ‘Tweed Gardens’ development and the program which we will be following to achieve that form”. The next sentence is “The conditions of sale in the contract are designed to enable us to achieve the program”. One of the conditions in the contract, namely cl 45, gives the respondent the right to rescind the contract if sufficient pre-sales of units in the building “Pinehurst” are not achieved by a certain date. In my view, this is a sufficient indication that the development of the second and third buildings is dependent upon pre-sales. The letter then goes on “This letter is not intended in any way to override the provisions of the contract and must at all times be read with those provisions in mind”.
It must be taken into account that Mr Thompson Jnr had experience in speculating in home units and had previously bought units off-the-plan, although whether for himself or the companies of which he was a joint director, was not revealed. The contemplation of the parties to this action that a solicitor would be advising the applicants, the subject-matter of the contract and the price of one hundred and eighty-one thousand dollars ($181,000) for each unit leads me to the conclusion that the respondent’s conduct, in the circumstances, was not misleading.”

(The present plaintiffs have not been shown to have experience at all comparable with the Thompsons’.)

More broadly, reference was made to other authorities tending to exonerate those who resort to “puffery”, Mr Hassett suggested with particular relevance if any ensuing contract is signed only after access to legal advice. His written submissions included the following:

“Turning to consider what representation is made by use of the words “7% nett guaranteed”, it is necessary to have regard to the context in which it was made and the whole of the circumstances. This has been held many times in a multitude of different circumstances. Relevantly for present purposes is Eighth SRJ Pty Ltd v Merity, unreported, 25 March 1997, Supreme Court of New South Wales, Young J. His Honour said:
“When looking at the conduct of the alleged infringer of s 52, one must look at the whole of the conduct not the particular matter on which the plaintiff has focused attention in isolation: Parkdale Custom Built Furniture Pty Ltd v. Puxu Pty Ltd (1982) 149 CLR 191, 199 and Pappas v. Soulac Pty Ltd (1983) 50 ALR 231. In that last mentioned case at 234, Fisher, J said, in the context of an agent making statements about the ‘commercial’ viability of a shopping centre which the agent as selling, `… Many of the statements … were also essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations, for the purpose of attracting the interest of a possible ‘purchaser’. As such they became irrelevant or of little, if any, significance when detailed information is subsequently given a fortiori, to a potential ‘purchaser with commercial’ experience. To the extent that they are essentially puffery, it is proper to be reluctant to elevate them to the status of potentially misleading conduct.
With these thoughts I mind, one must examine the various matters pleaded as false or misleading conduct under the statute. The first matter is the newspaper advertisement. It seems to me very difficult to allege that a newspaper advertisement which is designed primarily to tell people that a ‘house is open for inspection’ should be construed as giving information other than preliminary information upon which a person should rely in order to enter into a contract. If one expects puffery anywhere it would be in such a newspaper advertisement. Although Lee, J in Paper Sales (Australia) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142 at 43,051, left open the possibility that an ordinary member of the class of persons to whom the conduct is directed may fail to discern that representations about the advertised product are to be disregarded. I think ordinarily an advertisement which merely directs someone to enquire about the product is not expected in trade or commerce to be relied upon as a quasi representation.”
These comments were more recently quoted with approval by Moore J in Hanave v LFOT Pty Ltd [1998] 1051 FCA (31 August 1998).
Other relevant law as to context and representations being seen “in the circumstances in which it occurs” can be found in General Newspapeers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at177- 178 per Davies & Einfeld JJ) and Hadid v Lenfest Communications Ltd (1999) FCA 1798 where it was said by his Honour, Lehane J, that:
“1007 “More recently, in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, Black CJ, Gummow and Cooper JJ emphasised that s 52 provides its own test, meaning that if conduct is not misleading and deceptive or likely to mislead or deceive in the circumstances in which it occurs, it will not breach s 52. That section does not require arm’s length negotiations to be completely open or require full disclosure at all times. 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.””

In the present context, I am not prepared to regard reference to the 7% return as guaranteed as mere puffery not to be taken seriously. It is particularly misleading to use such expressions in a context where there is neither a third party guarantor nor any substance in the principal debtor, in a context where references to Metro Inns abounded, carrying the clear suggestion that its efforts could be relied on to produce the 7% return.

Cases are mentioned elsewhere in which advice actually given by a solicitor precluded reliance by a purchaser on a Trade Practices Act-type claim against an agent, and where even access to a solicitor who might have given advice that features of an investment emphasised in advertising were in no way secured by contractual documents has counted against success of such a claim. As always, the context is most important. Those behind the purchasers in the Thompson Building case were described as experienced “speculators” in such investments, the applications as “a desperate attempt to avoid completion of the contracts because the market had fallen” (48 ALR 675). It will be remembered that there the contractual documents and covering material drew attention to the possibility that there might be no second and third towers, indeed that the very tower including the subject apartment might not be constructed. In my opinion there is considerable conceptual difficulty about any assumption that a solicitor brought in to advise a purchaser will disabuse the purchaser of expectations engendered by a selling agent. The solicitor may not have known what representations were made. I think it unrealistic to expect a solicitor to quiz a client regarding the client’s expectations of an investment – even if that occurred, the client may fail to call to mind some crucial expectation at the relevant time. Of course, this is not to suggest that the solicitor is excused where there is a failure to draw the client’s attention to salient features, specifically the more obvious risks, in the contractual documents presented for signature.

Some comments about the Evidence

I regret to say that, generally speaking, I have little confidence in the recollections of Messrs Banks, Newnham and Browning of the content (much less the detail) of conversations they participated in. Each was an honest witness, in my estimation, not attempting in any way to mislead the court or suggest anything happened which did not. Each resorted to surmise and reconstruction. This occurred most remarkably in Mr Browning’s evidence when he insisted (contrary to the firm’s pleading) that his firm had no retainer from the plaintiffs at the time of his single consultation with Mr Banks regarding the contract exhibit 1 on or about 27 February 1996. None of the three had any particular reason to attempt to recall conversations that occurred five and a half or six years ago until shortly before the proceeding was commenced, about a year ago. The plaintiffs apparently had not contemplated issuing proceedings until they were approached by their present solicitors who (to my own knowledge, acquired this and in another matter) were acting for other disaffected purchasers.

No evidence was given by the plaintiff, Jeanette Ellen Banks, who is the wife of Mr Banks. I accept his evidence that all contacts with the other defendants involved him alone and that her role was limited to discussions with him, the outcome of which was that she went along with his decisions, and to signing documents.

After Mr Banks’ initial showing of interest, there were sporadic contacts with Mr Newnham, who prepared cashflow-type documents (some for Mr Banks’ mother who was also to purchase a unit) which eventually led Mr Banks to conclude he should purchase a top floor unit at some time, perhaps early January 1996 (see page 94 of the transcript and exhibit 70, suggestive of a date soon after 9 January 1996). He and his wife signed “an expression of interest form” (exhibit 45) in respect of lot 147, the purchase price being $140,000, a cheque for $2,000 part deposit being tendered and a bank guarantee being foreshadowed in respect of the balance deposit of $12,000. A letter of 1 March 1995 from Metway Bank shows steps were in train at that date for provision of the bank guarantee. Exhibit 45 says the identity of Banks’ solicitor is “to be advised”.

Accounts of the consultation with the solicitor

There is no clear evidence as to when and how the contract documents became available to Mr Banks. Mr Newnham had suggested to him when he “asked about a solicitor to do the conveyancing” that Mr Browning was acting for other purchasers in the development and had given “an indicative price of around $500 to do the conveyancing.” He said (page 25):

“I spoke to Mr Browning and he agreed that he would act and when the contracts came through from the vendor’s solicitor, we would then get together and take it from there.”

According to Mr Banks’ evidence at page 25, when he took the contract in to Mr Browning:
“…I asked him had he been through it before or had he been through it and he said – indicated to me that he was actually – he was purchasing a unit himself, I think a fact that maybe I think Mr Newnham had indicated to me as well.
Mr Newnham had told you that and Mr Browning said that. Did he say anything else then in relation to the contract?-- With the contract I said, “Well, you’ve obviously been through it.”
Did you say that to him or did he say that to you? I just didn’t hear you?-- No, I would have said to him, “You’ve obviously been through it.”, which he agreed, and I said, “Is there anything that needs to be changed or altered?”, and he indicated that it wasn’t, and he had the places in the contract where my wife and I had to sign.
What do you mean he had the places?-- They were indicated by little markers in the document because it was about two or three inches thick or was terribly thick. I recall that he had actually said – I asked him whether he thought it was a good investment and he said, “Yes.”, and he was buying one to put in his superannuation fund, so I gathered he was buying it with his superannuation money.
Was there any further conversation about the contract?-- No, he gave it to me and I took it away and got it signed and witnessed and returned it to him or to his office.
Did Mr Browning at any time take you through any of the relevant sections or any of the sections in the contract and explain what they meant?-- No, he didn’t go through any particular pages at all.”

Mr Browning’s evidence-in-chief was as follows (page 315 ff):

“You, yourself, invested in that complex?-- Yes, I did.
That is common ground. Did you at some stage have some contact with Mr Banks in relation to a possible investment by Mr Banks in that complex?-- I did. There was general discussion in our rotary club about these type of units being sold. At that stage I think I had already signed a contract of sale, and before Mr Banks came to see me on 27 February 1996, there was just general talk in the rotary club, there were other members who were interested in this complex. I think Rod told me he was interested in the units at one stage – amongst other conversation, mind you. It might have been a social gathering or it might have been a rotary project we were on, but I knew he was interested in the units at Southbank, and prior to his coming in February, I think he told me that he had a contract that he would like to come in and see me about some time, but no date was set. That was prior to 27 February.
And did Mr Banks eventually come to see you?-- Yes, he came in and saw me on 27 February ’96, and he had a contract with him.
Can you tell me, as best as you recall, what was discussed at that meeting?-- Rod came in and he said that Graham, Graham Newnham, had told him that I was purchasing a unit at Southbank and that it was a good deal. I immediately told Rod that I had entered into a contract to purchase a unit through my superannuation fund, and I quickly added that just because I had bought, or was buying a unit in that complex, that he shouldn’t infer or imply that I was endorsing that project, or that was a good deal.
…
… I said to Rod, “I’d be very disappointed and quite concerned if what he told me about Graham telling him that I was buying a unit and that I said it was a good deal, that I’d be quite concerned about that”, that he should make up his own mind and not just follow me. I went on to tell him that Peter Newnham had also come to my office.
Sorry, who is Peter Newnham?-- He is Graham’s brother, had come to my office some time before with a similar story, that is because Mike Browning was buying a unit and was a solicitor, that it must be a good deal. I told Rod that after Peter had told that to me I, as I said, took offence at it because it sounded like I was endorsing this project, or that because Mike Browning was buying a unit that ipso facto everything was right and there’d be no problems. So, this is what I’m telling Rod, and I said to him, “Look, Rod, you’ve got to make up your own mind on this. When I entered a contract, it was a commercial decision.”, and with that went into things such as, “Anything can happen, nothing is certain.”, and, “The project could fail.” I said that I told Peter Newnham that there were risks attached to the project, that anything could happen to a company, and it could fail. I went on to tell Rod that Peter had gone back to Graham and Graham had subsequently seen me and said, What the hell did you tell my brother?” He came back and told me, “You were full of doom and gloom and that he may not still be interested in the project” and I’ve got to talk to him about that. So I said, "“Rod that’s – you know, get it out of your head that just because I’m buying a unit means that everything’s okay.”
…
Can you tell me what you said during that conversation?-- Well, it was Graham who approached me and it was only a few days after I’d seen his brother. It could have been at a rotary meeting. Graham, as I said Graham said to me a few days later, ‘What the hell did you tell my brother?’ , and I told Graham that I said there was risk attached to any project and anything could fail, companies fail, and that sort of thing, and Graham said, ‘Well, you know, he’s come back to me saying that you were speaking doom and gloom and he doesn’t know whether he wants to go ahead with the contract.’ So that really was the gist of the conversation.
...
I want to go back now to the meeting in February with Mr Banks?-- Yes.
What else did you tell him, or discuss with him?-- I also told Rod that I was unaware of his financial or tax position and that he should consult his accountant or financial advisor in that regard before he made any decision.
Do you recall whether there was any reaction from Mr Banks to that suggestion?-- No, no. The only reaction after I had made him aware of those things was that he said, ‘But, look, you’ve gone through the contract and you’ve signed yours.’ Like, inviting me to, say, well, yes, besides all of what I have said I have signed the contract. I said, ‘Well, look, Rod, yes, I have signed it. It’s my superannuation fund, but you’ve got to make up your own mind on this. It’s not something you should just follow me on.’, and I again said that because of what I told him before, I was a bit concerned that he and his brother had been sent to my office.
...
... after I had signed my contract, Graham contacted me to say that there were a number of prospective purchasers who did not have any legal representatives or solicitors acting for them and would he – would I mind if he sent them up to me for some advice, and I said, ‘Well, yes, I can’t see anything wrong with that.’
At the meeting, going back to the meeting with Mr Banks in February?-- Yes.
He had the contract with him, I think you already said?-- Yes, he did.
Did you go through the contract?-- No. He had it on the table in front of him. It wasn’t even opened, and basically I think how it transpired, I said, ‘Rod, with a contract, you know, you don't expect me to go through it this afternoon chapter and verse.’, and I said, ‘You know how big it is.’ I said, ‘Have you read it?’ He said, yes, he had read it and I said, ‘Well, is there anything in there, any questions you might want to ask, or anything that you’re not sure of that I might be able to look at now?’ and he said, ‘Oh, no, I think it’s right.’ When he did – just going back a bit, when he did say, ‘Well, you’ve gone through the contract and you’ve signed it, I said, ‘Yes’, I had and then I think he may have asked me whether I made any amendments and I said I hadn’t made any alterations to it. I recall that, and when I asked him about the question whether he had any queries about the contract he said, ‘No, I think I’m happy with that.’
Did he ask you to go through the contract and explain any part of it to him?-- No, it wasn’t even opened.
Did he tell you that he had been told anything by Copas Newnham that representations had been made to him for example by Copas Newnham?-- No.
And he wished to discuss those with you?-- No.
Did you have further contact after this meeting – I should say, was that all that you can recall about this meeting, or was there something about the contract?-- No, not at all. Mr Banks obviously signed the contract and had dropped it into Wonderley and Hall, I think it was about three months later. That came to my notice because one of the clerks that was under Mr Tait told me that the contract had come in, but from then on, I had nothing to do with the conveyance at all.”

Mr Clothier had earlier put the third defendant’s version to Mr Banks (page 97 ff). It was common ground the meeting took 15 minutes or so. Mr Banks said he did not believe Mr Browning had said that “just because he was buying a unit didn’t mean it was a good investment”, and, asked whether Mr Browning had possibly said that responded:

“Well, if he would have, I would have asked him why he wouldn’t have thought it was a good investment.”

Mr Clothier went on:
“He pointed out to you that he made his own decision to purchase the unit, but there was always a risk with any investment that things could go wrong?-- He could have said something along those lines about the risk, but that’s a risk with every purchase you make.
Quite. Even with this investment you knew that necessarily there was a risk inherent as there is with any investment?-- It was a complex sort of investment and that was the reason why I was taking advice from people who were – I considered experts in the field.”

Mr Banks said he had been convinced “that it was an excellent investment with a guaranteed rent.” Cross-examination by Mr Clothier continued:
“You had been convinced of that fact by Copas Newnham?-- I had been convinced of that by Copas Newnham, yes.
In fact, when you went to see Mr Browning, you didn’t tell him that you had been given glossy brochures by Copas Newnham or that representations had been made to you which you believed to be true and relied upon in entering into the contract?-- I didn’t tell Mr Browning that, although if I had been given the information I would expect ----
You’ve answered my question, thank you very much. In fact, at the meeting about or by the time of the meeting you hadn’t finally decided whether you were going to proceed with the contract?-- The – I virtually been – was committed to – unless someone was going to tell me something to the contrary why I shouldn’t go ahead with it, I was convinced it was a good investment I was going ahead with it.
At this stage, though, you had not actually signed the contract, it was sometime later that you had done that?-- I think the contracts were signed back in March ’96 was it?
Can I suggest May ’96?-- Okay.
This meeting was in February. It was some months after the meeting you signed the contract and got it through?-- Yes.”

While it may be likely that Mr Browning received the same promotional material Mr Banks did, there never was positive evidence of either knowing what the other had had. I note two further parts of this part of Mr Banks’ cross-examination by Mr Clothier:
“Can I suggest, Mr Banks, that at this initial meeting with Mr Browning, you were really sounding him out about the contract, not really sounding him out about the contract, not really seeking his in-depth advice as to its terms or the nature of it?-- I was – I had met with him to discuss the contract or to if there were any implications that needed to be brought to my attention, if he had any comments to me to say, “Look, this shouldn’t be in there or that shouldn’t be in there or that should be added.”, or whatever.
…
During the course of this meeting, you were aware that Mr Browning had not read the contract in your presence. You were aware that he didn’t point any particular provisions out to you in relation to the terms of the contract?-- Yes, I was aware of that. Prior to my getting there I understood that he was purchasing the unit and if he hadn’t perused the contract under my behalf, he would have perused it under his behalf. That was in the – in our conversation.
You, in fact, went on to say something to the effect that he, Mr Browning, must have been happy with the contract or he wouldn’t have signed it and he confirmed to you that he had read the contract or read a contract and had not made any alterations to it?-- Yes, he read his contract and I asked him whether there was any alterations or amendments to be made to mine and he suggested no.
He asked you, in fact, whether you had read the contract and you replied in the affirmative?-- I would have said yes, I had read where the vendor page was or the – I certainly hadn’t read all through the contract.
When you say you would have, again you have no clear recollection of what occurred; you are just reconstructing really what you think was likely to have occurred?-- No, sorry, if I said would – with the contract I did not read it all through.
I suggest that you told Mr Browning in response to a question from him as to whether you had read it that you had read it?-- No, I wouldn’t have said that. The only thing I would have said is that I would have read some very small parts of it.
And that he asked you whether there was anything particular you wanted explained to you, and you said, “No”, and words to the effect that you were happy with it?-- I said if he didn’t suggest any amendments or changes to the contract, I was going by his advice.
He didn’t, I suggest, at any stage during the course of that meeting or otherwise tell you that in his opinion it was a good investment?-- No, I don’t recall him saying specifically he thought it was a good investment, no.”

The solicitor’s breach of duty

I find it unnecessary to resolve the conflicts between Mr Banks and Mr Browning. From the point of view of the court assessing their liability, the third defendant can hardly complain if the court goes on what I might call “the Browning version”. If it matters, I am doubtful that Mr Banks was subjected to the full lecture on the propensity of companies to fail. Mr Browning may have been recollecting things he had said to the Newnham brothers. In the end this does not really matter. So far as risks of company failure were concerned, the pertinent one (which eventuated) was of Ballville Pty Ltd failing, which would mean an investor who had paid over the full purchase price, in the expectation of obtaining a 7% nett return under a lease of the subject property as mentioned in the contract, received no income unless and until some alternative income stream was arranged, which, even if it were possible, might take some time; Ballville’s registered lease would have to be got out of the way, for example. In my view there ought to have been specific reference to this risk; any general warning was insufficient. Such warning as might have been given was more apt to suggest failure of the vendor, failure of the development to arrive at completion; a purchaser’s loss in that case might well be limited to loss of deposit.

The plaintiffs adduced evidence including a report of an experienced solicitor, Mr Gregory (exhibit 54) to the effect that the advice given by Mr Browning fell short of what should have been provided to the plaintiffs by “a reasonably competent, diligent and prudent solicitor” acting for them in relation to the contract Exhibit 1. Exhibit 54 contains criticisms of the third defendant’s performance between the plaintiffs’ signing of the contract and their completion of it, when Mr Browning was no longer involved. The plaintiffs pleaded no case based on this later stage. Exhibit 54 contains the following, which, in my opinion, represents views the court could and should embrace even without the assistance of an expert witness (cf Fox v Everingham (1983) 50 ALR 337, 345; Twiddle v Bradley (1990) 2 Qd R 464, 482):

“Prospective lot owners were really buying an “income stream” rather than traditional real estate (with a right of occupation and use) and hence should consider the ability of the proposed lessee, Ballville Pty Ltd, to provide and sustain that income stream. The fact that the proposed lessee was, or was likely, to be a corporate entity without real substance was a critical fact.
A reasonably competent, diligent and prudent solicitor advising persons in the position of the plaintiffs would also have pointed out that there was no guarantee from any third party that Ballville Pty Ltd as lessee would be able to perform its obligations over the term of the lease and its extensions and that the absence of personal guarantees from the directors and principal shareholders of that company contrasted with the obligation for the directors and principal shareholders of companies purchasing lots in the scheme to guarantee the obligation of those purchasers, even though, the obligations of a purchaser were likely to be satisfied within a reasonably short time whilst the obligations of the lessor would continue over a time of up to 20 years.
On the basis of these facts, in my opinion, a reasonably competent, diligent and prudent solicitor would have advised persons in the position of the plaintiffs that the proposed contract was very risky for them that the return ‘promised’ was totally dependant on the ability of Ballville Pty Ltd to meet its obligations to them as lessors to it and that they should seek further advice from an independent accountant or other such person as to the prudence of the investment if they were to proceed with it.”

Other features Mr Gregory’s opinion pointed out as calling for advice were the purchaser’s weak negotiating position on expiry of the lease term which, within the first 20 years, was effectively at a time chosen by Ballville Pty Ltd. This brought in some Town Planning features, the subject of evidence of Mr Kumskov, which, at the relevant time, precluded purchasers from using their units for long-term accommodation and might have presented other difficulties for management of (even access to) lots not committed to a letting pool.

Mr Gregory further opined that “unwelcome advice” ought to be given in writing, both to protect the solicitor and to emphasise to the client its importance.

In my opinion, it is self-evident that a solicitor acting for a client about to lease valuable property for a period of up to 20 years ought to canvass with the client issues to do with the capacity of the lessee to meet its obligations. This was a glaring feature of the contract which by clause 35(b) obliges the purchaser to sign and deliver back to the vendor seven days prior to completion a duly completed lease of the subject lot in a form set forth in Schedule 8. The rent is expressed to be “annually an amount equal to 7% of the purchase price.”

At the end of his evidence-in-chief Mr Banks gave in a rather formal way evidence calculated to complete the plaintiffs’ causes of action:

“Mr Banks, prior to entering into this contract, if you had been told that the lessee of the complex was not Transmetro or Metro Inns, would you have entered into the contract? -- No
If you had been told that Ballville was a company associated with the developer, would you have entered into the contract? -- No.
If you had been told that Famawila was a company that was associated with the developer, would you have entered into the contract?-- No.
If you were told that there was no rental guarantee, would you have entered into the contract?-- Definitely not.
If you had been told that the foyer to the building was not common property, would you have entered into the contract?-- No.
Were you at any stage by either of the defendants told to seek further advice in respect of any aspect of this investment?-- No.”

Recognizing that the answer regarding Ballville requires some qualification, in light of other things Mr Banks said, I accept that evidence, and in particular because it was bolstered by other evidence by him, for example in cross-examination by Mr Clothier at page 90:
“You would have appreciated that Ballville is not Transmetro?-- Well, I suppose it isn’t, but –well, again, with Ballville at this stage it was one of those entities. I mean, I am not surprised there was some entity mentioned. Whether Ballville was part of Metro or was part of the developer, I would have thought it would have been one or the other.
It didn’t matter to you particularly which?-- Well, at the end of the contract, as long as I had purchased a unit with a guaranteed rent and that was in the contract, then that’s what I was looking for.”

Mr Maher cited the following cases in support of his contention that Mr Browning breached his duty to the plaintiffs:

(i) Burke v LFOT Pty Ltd (2000) ATPR 41-781 at 41-246;
(ii)Amadio v Henderson (1998) 81 FCR 149 at 206, 207, 215
and 216;

(iii)Montague Mining Pty Ltd v Gore [1998] 1334 FCA at 15,
16 and 17;

(iv)Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 1568 at 9;
(v)Solicitors Liability Committee v Gray (1997) 77 FCR 1 at 14 G.

These show the importance of some specific advice being given in relation to contracts a client proposes to sign. Hanflex Pty Ltd v. NS Hope & Associates (1990) 2 Qd R 218 establishes that the cause of action against a retained solicitor who advises inadequately is established even without proof of damage.

It is unnecessary to determine the plaintiffs’ pleaded claim based on alleged misleading or deceptive conduct of Mr Browning within s. 38(1) of the Fair Trading Act 1989, which reflects s. 52 of the Trade Practices Act. The claim, as I understand it, was that Mr Browning allowed Mr Banks to believe he had been through a document corresponding with exhibit 1 on his own account (and that nothing in it called for advice). I would have great difficulty in concluding that there was actionable misleading or deceptive conduct here.

Liability of the First Defendant real estate agent

The plaintiffs do not and could not complain of being subjected to pressure to enter into the contract. They had as much time as they wished to read exhibit 1, reflect on it and seek advice on it. At the time of signing, they were without the benefit of advice that they should have had, along the lines of that described by Mr Gregory. If such advice had been given, on the balance of probabilities, exhibit 1 would not have been entered into. Remarkably, no one seems to have appreciated the risks about the receipt of rent. Exhibit 20 is a letter of 10 March 1998 sent to the plaintiffs by the third defendant close to settlement enclosing a copy of a letter from the vendor’s solicitors and asks in one of nine paragraphs, “would you please contact the vendor direct following settlement if you wish to take out a Policy to cover yourself against Loss of Rent.” No suggestion was made that this should be considered seriously. With hindsight one wonders whether the explanation for the writing of the letter enclosed was not appreciation in the vendor’s camp that such insurance might have been highly desirable.

In my opinion the interposition of the third defendant is not effective to exculpate the first and second defendants from liability. Although Mr Newnham may have recommended Mr Browning, he was not entitled to assume that Mr Banks would go to see him, or any solicitor. The first and second defendants had done much to lead Mr Banks (and perhaps other purchasers) to believe that the investment being made involved receipt of rent (equivalent to a 7% nett return on the purchase price) for which some entity connected with the well known and successful Metro Inns operation was assuming responsibility either as lessee or as guarantor. It is true that close consideration of exhibit 1 reveals there is nothing in it to produce that happy effect, but the omission is hardly highlighted. The name of Ballville Pty Ltd appears only as lessee in schedule 8, which otherwise appears as a standard form left completely blank. The name Metro Inn Southbank appears in the contract proper in the interpretation clause under “Name”. Otherwise the contract refers to the “lessee” (clause 40) and the “operator” (clause 11(b)) without saying who they are or that they are different entities.

Mr Hassett argued that Mr Banks knew about Ballville Pty Ltd from exhibit 6, an “investment report” which he said he got early in 1996 before he signed the contract; it refers to Ballville as lessee in a section entitled Summary of Lease. The Introduction and Corporate Profile of Metro Inns at the beginning would suggest to any reader that it is their worth and prospects that matter rather than Ballville’s. The difficulty about exhibit 6 is that it is replete with documents from June, July, September and October of 1996, post-dating exhibit 1 and so cannot have been available to Mr Banks before the contract. I am not prepared to adopt Mr Hassett’s approach of assuming that Mr Banks had an earlier version referring to Ballville. When the contract became available, Mr Newnham’s sales pitch was still to the fore in Mr Banks’ thinking. Nothing about the contract (either before or after the conversation with Mr Browning about it) was likely to or did change Mr Banks’ thinking. Whether or not there is sometimes room for an approach that a person such as Mr Banks must disregard pre-contractual representations once he has the contract, so as to exculpate the makers of those representations, I think there is no basis for applying that approach here. There is no basis for Mr Newnham to have entertained any expectations along such lines, either.

“Accessorial liability” of second defendant

I consider that the first defendant engaged in conduct that was misleading and deceptive for purposes of s.52 of the Trade Practices Act or any equivalent provision. Whether an officer of a corporation comes under “accessorial liability” under s.75B may on occasions be difficult to establish, as in Bowler v Hilda Pty Ltd (2000) FCA 899 (7 July 2000). Here, there is no difficulty of any kind, the first defendant having acted throughout by Mr Newnham, who was its principal.

Trade Practices Act, s. 51A

Mr Hassett’s submissions focussed on the futurity aspect, any guarantee of rental being (he said) something for the future, so that representations as to guaranteed return were not misleading, having regard s.51A. I am at a loss to see why such “guarantee” as there was going to be could not have been in place at all material times. However, with an eye to s.51A, evidence was presented.

Exhibit 63 was a letter of the vendor’s solicitors, Gray & Maloney to Mr Phillip Sorensen, a solicitor apparently acting for some other purchaser(s), who perhaps ought to be commended for making the enquiries that prompted the following communication of 17 October 1995:

“We confirm that each unit sold in the building, and in fact all operating units to be created and held in the building, are to be leased to Ballville Pty Ltd.
Balville Pty Ltd is a company associated with the developer, Real Investments Pty Ltd and/or its managing director, Mr John Hallett.
This is a special purpose company, and will not be used for any other purpose.
This arrangement has been structured as preferable to any other arrangement, given what at the time were the impending changes to strata title legislation. That legislation in effect required developers of strata title hotels to ensure that all units were leased to the one party.
You may have your own views of the legislation and nothing we say should be taken to sway or bind you.
Our client has arranged for a national hotel operator, Metro Inns, to operate the property as a hotel. Because of the potential legislation Ballville Pty Ltd will sublease all units to Metro Motor Inns Hotels and Motels Pty Ltd ACN 010 770 751 (“Metro”).
The sublease to Metro will be guaranteed by Transmetro Corporation Limited, a publicly listed company. This company has control of, or its subsidiaries have control of, substantial numbers of hotels and/or motels throughout Australia.
Metro will operate the building and pay a fixed rent sufficient for Ballville to pay rent to investors. The income stream will thus go through Ballville to purchasers.
Our client says that it is difficult to conceive of methodology which is simpler in practice to ensure a substantial operator running the building, and the leaseback arrangements complying with impending legislation.
Any purchasers who are particularly interested in the business side of things should liaise with the relevant agents and/or our clients.
Development approval has issued from the Brisbane City Council and our client is now awaiting building approval.
When that issues our client will be in a position to commence construction – either very late this year or early next year is the timetable our client hopes for.
At that time, when working drawings and all relevant details are finalised, we would hope to finalise the final leasing documentation with Metro Inns.
We do not intend to make representations upon which your clients should rely but confirm the above are our instructions, and that heads of agreement are in place, duly signed, between our client and Metro; we are in fact instructed to finalise the final lease documentation (which according to the heads of agreement should reflect the lease provided in the contract). This is a summary of the present position. Please note however that the contract itself is the only document which applies between our client and investors.”

I think this is a document which would set warning bells ringing for any reader. The disclaimer at the end is troubling. The obvious question is: why is no one guaranteeing the leases to Ballville, whose insertion in the chain is hardly justified convincingly. Mr Newnham said he had this document at an early stage, but, given its date, he could not have had it at the time of exhibit 2, 3 or 4. He also said he had “heads of agreement” (exhibit 65) presumably corresponding with those mentioned in the disclaimer. Exhibit 65 is no more than a draft, signed by no one – to which Transmetro Corporation Limited is not a party, although it includes the words “the sublease will be guaranteed by Transmetro Corporation Limited.” I am not satisfied the heads of agreement were ever signed. While they refer to an initial fixed rent for the hotel and motel units of $1,072,000 per annum payable quarterly in arrears, it is a simple matter of calculation to show that this was insufficient to provide Ballville (otherwise without any resources) to pay a 7% nett return on the aggregate purchase price. This would almost be possible on the aggregate purchase prices for the “sold and settled residential stock” of $15,334,500 as reported by Mr Smith in his valuation report exhibit 51 para. 7.3, but leave nothing to cover rental on “unsold residential stock” which Mr Smith thought accounted for another $3,494,000. This topic was briefly canvassed by me with Mr Crawford (pages 279-80). The apparent insufficiency of the gross rental that it was possibly contemplated Metro Inns might pay appears attributable to a “blowout” in selling prices in what was called a Two-tier selling structure. Mr Crawford’s schedule of original sale prices (at exhibit 72 annexure E) demonstrates that Two-tier phenomenon: of six “campus aspect” lots sold on the same level, the Banks’ and one other sold for $140,000 the other four for $158,000. Throughout the building discrepancies of that order were encountered. The explanation was that the higher Tier-one prices were obtained by “marketers” using different selling methods and earning higher fees or commission. There is nothing to suggest that the first and second defendants were involved in Tier-one marketing.

Another document pointed to by Mr Newnham was exhibit 66, apparently a copy of an executed Management Agreement and Sub-lease – Metro Inn Southbank dated 26 February 1997. This refers to obligations of Transmetro Corporation Limited to take subleases from Ballville. Transmetro undertakes no obligations as guarantor or otherwise to investors like Mr and Mrs Banks. As things turned out, this agreement brought no significant benefits to them. In any event, it seems to me to come too late to affect this proceeding, which is concerned with events culminating in the execution of exhibit 1.

For purposes of s.51A nothing about the documents just discussed, or anything else shown to have emanated from the vendor, which Mr Newnham may have taken at face value, constitutes the “reasonable grounds” referred to for making the representations complained of. I accept (and it was not challenged) that Mr Newnham acted honestly throughout. In substantial measure, he was simply passing on material from the vendor which he took at face value. This was not indicated to Mr Banks. On the documentary evidence in this case the first and second defendants have adopted the representation as to a guaranteed return, as referred to in Gardam v George Wills & Co Ltd (1988) 82 ALR 415, 427. If it matters, I do not think precautions as referred to in exhibit 4 can be claimed to have been taken. There is no necessity here to determine whether or not the first and second defendants were guilty of negligence, this being a factor irrelevant to Trade Practices Act liability, which is clearly established.

Mr Hassett scarcely argued the “entire contract” defence, dependent upon contractual conditions denying reliance on representations. There is a wealth of authority that "contracting out” is ineffective to override the Act. Mr Maher cited Burg Design Pty Ltd v Wolki [1999] FCA 388 at 10 and 11.

Damages

What damages have the plaintiffs shown? They became committed to the purchase of (and ultimately became owners of) a property which I am satisfied has at every stage been worth considerably less than they had to pay. The damages they are entitled to are not simply the difference between the price and the value. The court’s task is to compare their position, having made the relevant contract, with their position had they not made it. The court is satisfied that but for Mr Newnham’s conduct, acting for Copas Newnham and Mr Browning’s inadequate advice, they would not have entered into the contract.

If the plaintiffs had not purchased lot 147 the funds they expended would have been available for other purposes and they would have been spared certain expenses. These are dealt with in Mr Thompson’s report, exhibit 49, which supports the following figures:

Incidental costs of acquisition   $4,820
Nett income losses incurred      $5,689
Loss of investment returns       $6,813
Future costs  $2,934

There was some exploration of details of Mr Thompson’s workings and the facts underlying them, for example as to travelling costs between Toowoomba and Brisbane claimed by the plaintiffs, and as to estimates of accounting charges that could be related to the investment. I had concerns myself as to the appropriateness of an assumption that the plaintiffs would have earned 10% per annum on the amounts they put up themselves (as opposed to borrowing). In the end, I accept Mr Thompson’s evidence; it was not seriously challenged. An exception must be made in respect of capital loss, where Mr Thompson adopts a valuer’s estimate of the value of lot 147 of $81,340.

The Valuation Evidence

There was evidence from three valuers. Mr Thompson’s figure depends on Mr Smith who provided a valuation of the whole project as at 12 February 1999 for another purpose (Exhibit 51). In May this year he performed an exercise specific to lot 147 (Exhibit 52). Applying discounting factors previously used by him to assess the project as a whole, he now says:

“On the basis of our calculation factor of 58.1% we assess the market value of the subject Lot 134 (sic) in building units plan 106759 at $85,000 … rounded up.”

An earlier reference suggests the opinion relates to lot 147. Mr Smith is saying the lot is worth 58.1% of the original purchase price of $140,000. I accept the validity of the stringent criticisms made of his valuation approach by Mr Crawford. It is unnecessary to go into the details; one, which appears to me compelling, is that Mr Smith’s approach would value adjoining (presumably identical) lots in Tier-one sales more highly.

Part of the justification for this unusual valuation approach was the absence of re-sales of units as at the date of exhibit 52. There have been some since. On 10 July 2001 Mr Lewes sold lot 123, purchased in 1995 for $135,000 (a low Tier-two price) for $117,500. On 17 August 2001 Mr Routley signed a contract for sale of lot 50 for $89,000. He purchased this lot in 1998 “some time after the unit was first marketed” for $133,000. This unit was in a different building in the project, and had no dedicated car park associated with it; allegedly it had an unfavourable outlook across the William Jolly bridge. Mr Crawford based his valuation on a “recent sale of lot 94 for ‘$126,000’ (furnished) with settlement in June 2001.” By reference to features of comparison which favoured lot 147 he attached a premium to it and suggested its value is $133,000. Mr Crawford said he treated this sale with a degree of caution as the purchaser was a chef who works in a restaurant within the complex. Mr Crawford says he interviewed him, also the agent who sold to him, reaching the conclusion that the chef was an informed purchaser who investigated other units available nearby and was amenable to purchasing elsewhere. Mr Crawford’s conclusion was “that this sale conforms with the tests identified in Spencer’s case.” The evidence showed the chef purchaser was previously renting a unit in the complex; he therefore may be taken as having a favourable view of it; he may have placed a premium on the convenience of a dwelling where his work was. The court is in a rather difficult position as regards this sale, if it is compelled to rely on Mr Crawford’s assessment of the purchaser’s approach and acumen. In the Routley and Lewes sales, the court had evidence from the vendors, at least.

The last sale the court heard about was of lot 108 for $105,000, it originally having sold for $130,000, a low Tier-two price. Mr Smith gave evidence about it at page 143. It emerged he had written a letter about it on 22 August 2001, which Mr Hassett tendered as exhibit 53. Mr Smith regarded this sale as a more reliable basis for comparison than the $117,500 and $126,000 sales, because there was a “local purchaser”. His approach was that a “Sydney purchaser” who lacked knowledge of the local market very likely paid too much (149-50). The evidence in the case, particularly that regarding the Two-tier market, established that there are real problems in valuing in accordance with what purchasers pay for identical properties at about the same time.

I have already rejected Mr Smith’s valuation approach, except in so far as he may have adopted the sale of lot 108 as comparable as a fall-back position. For the reasons that were given or suggested during the evidence, I do not accept sales in other buildings which were mentioned as helpful. Those in a nearby project were in a new building; the evidence shows this would enhance the prices achieved. Other buildings referred to were remote in location, for example in West End or Kangaroo Point or the City and/or were said to be markedly different in standard. I think the court must look at the four recent sales in the complex itself.

Although it was not the subject of any questioning, the coincidence of Mr Crawford’s and Mr Willington’s valuations intrigued me. It is odd that the same figure should be produced by extrapolation from a single sale to a purchaser with most unusual characteristics, which I would expect might produce some willingness to pay more than a stranger to the complex might. The other sales achieved far lower prices. I don’t think they can be disregarded. Mr Routley’s sale, if enhanced to include a car space, may be adjusted to $103,000 or so.

Where Mr Willington and Mr Crawford did differ, so as to make their conforming valuations more surprising to me, was that the former accepted, while the latter denied the complex suffered under a “stigma”. I think Mr Willington is correct here. It is not only the failure of the proposed hotel operation. Mr Kumskov gave evidence as an expert town planner which, to say the least, casts doubt on the lawfulness of the unusual combination of approvals which the complex enjoys at present. Uses as “motel” and “tenement” are permitted; there is a question whether each one excludes, in the sense of precludes, the other. Whether this is so, is, of course, a matter for a court’s opinion, rather than Mr Kumskov’s. The court ought to avoid, in a proceeding like the present in which persons whose interests are vitally affected are not before it, pronouncing the invalidity of, or even putting under a cloud approvals on which reliance is placed. Cf Landel Pty Ltd v Redland Shire Council and Lipoma Pty Ltd (2001) QCA 120. There was no evidence to suggest that a challenge to the present town planning approvals is likely or threatened, except collaterally in proceedings like the present, which Mr Routley, for example, has on foot.

The court can see the problem Mr Kumskov identifies. Part of the “stigma” is to do with the difficulties purchasers in the complex who were receiving no rent from Ballville had in turning their lots to useful account. Until the additional “tenement” use was permitted by the Brisbane City Council, relatively recently, only short term occupation of the lots was lawful; owners thus found it difficult to find tenants and could not reside in their units personally. Another problem (apparently rectified now) was the inclusion of a foyer area, which one would expect to be common property, within the boundaries of a commercial unit, so that even access to lots was problematical. I think Mr Gregory was preaching a counsel of perfection in expecting a solicitor to pick up matters such as these, which have featured in a minor way in this case, and featured in an earlier action tried before me over several days, before the parties settled. In practical terms, such issues have gone away, except that I find they contribute to a continuing, hopefully reducing stigma tending to debase values.

Taking into account distinctions commented on by the valuers in their assessments of the significance of each of the four sales recently achieved when comparison is made with Lot 147 (such as height in the building, aspect and outlook, some of which favour Lot 147), and what is known of the purchasers, I assess the present value of Lot 147 as $110,000. I regard that as a figure which is (and has over recent months) been increasing, as it becomes established for the first time since 1998 that there is a market for units in the complex sold individually. Until this development, an exercise along the lines of Mr Smith’s may have had to be attempted.

(I note that one of the defendants’ valuers relied on a check valuation based on the rent return the plaintiffs are now achieving, which has recently increased from $195 per week to $230 per week. The valuers were far apart in their view of the appropriate percentage to apply to arrive at a value. My inclination would be to prefer Mr Smith here. It is not shown the $230 is secure in the long term. In the circumstances, it seems to me more appropriate to use the sales we now have.)

The plaintiffs ought to have judgment for a capital loss of $30,000 and otherwise for the sums sworn to by Mr Thompson, the aggregate being $50,356. The statement of claim seeks interest at 6 per cent. Given that the exercises engaged in by Mr Thompson and the court have brought matters relatively up to date there is a question as to what, if any, interest ought to be awarded. I am willing to receive submissions from the parties.

Contribution

So far as recovery by the plaintiffs is concerned, in my opinion, neither the first and second defendants (treating them as one for present purposes) on the one side, nor the third defendant on the other, may avoid liability to the plaintiffs by reason of the role played by the other. There may well be other cases in which the actual or contemplated involvement of a solicitor for a purchaser saves a vendor or agent from ultimate liability (see the unusual case of Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719), or in which the solicitor is able to show the plaintiff’s loss was caused by the vendor/agent’s misconduct, not his own. In this matter, I find all defendants liable.

The first and second defendants on one hand and the third defendant on the other have exchanged notices claiming indemnity or contribution. The Full Court of the Federal Court was asked to apportion responsibility in similar circumstances in Menmel Pty Ltd v The Great Australian Bite Pty Ltd (1997) ATPR 41-553, but declined to do so (at 43-465) on the basis that the trial judge had not been asked to do so. Those held liable by the plaintiff for its damages (reduced on appeal) were the vendor, its director, Mr Griff (who was found knowingly concerned in the relevant contravention of the Trade Practices Act) and the purchaser’s solicitor, Mr Pozniak.

It has been held that nothing in the Trade Practices Act authorizes a court to make orders about contribution; Re La Rosa; ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 104 ALR 237, 242-43; Trade Practices Commission v Manfel Pty Ltd(In Liquidation) (1991) 105 ALR 520, 523. Here, the first and second defendants are held liable under the Act, the third defendant in contract. While “ultimate responsibility” was held to rest with the solicitors in Argy (760) it does not rest with any particular defendant here. As I understand it, the parties were agreed that equitable contribution might be available, in the resolution of the plaintiffs’ claim that has occurred. There is a useful discussion in La Rosa at 243. Availability of equitable contribution depends upon the defendants being under “co-ordinate liabilities”, a concept that has proved somewhat elusive. At 244, French J said:

“In Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 2^nd ed, at para 1001, a number of relationships cognisable at law and equity which involve coordinate liabilities are identified including co-sureties, co-insurers under contracts of indemnity insurance, co-contractors, parties liable to the holder of a bill of exchange, joint tenants and tenants in common. Joint tortfeasors, as is pointed out, were long in a different position Merryweather v Nixan (1799) 8 Term Rep 186; 101 ER 1337) until the introduction of statutory rights of contribution. At para 1006 the learned authors observe that there is a dearth of discussion as to the meaning of the phrase ‘coordinate liabilities’. In particular, it is noted that there are lacking judicial pronouncements as to whether liabilities are not coordinate unless they are of the same nature and attract the same remedy for enforcement. The learned authors suggest that:
‘... the proper view appears to be that contribution may be recovered where the liabilities of the co-obligors to the principal claimant are such that enforcement by him against either co-obligor would diminish that obligor in his material substance to the value of the liability. Any alternative or additional requirement in the doctrine of contribution of similarity or consubstantial nature between the liabilities to which the co-obligors are exposed would produce intolerable uncertainty and obscure the true objects of the doctrine.’ [para 1006]

The learned authors of Goff and Jones, The Law of Restitution, 3^rd ed, p 272, propose that any obligor who owes with another a duty to a third party and is liable with that other to a common demand should be able to claim contribution. The basis of a right to contribution in such cases is said to be unjust enrichment. It is because there could be no contribution if there was no liability to a common demand that there was no contribution if tortfeasors independently caused damage to a third party or if the liability of contractors to a third persona rose from separate and independent contracts.
More recently the Privy Council held that the drawer of a dishonoured bill of exchange had no right to contribution from a third party who gave security to the bank discounting the bill: Scholefeld Goodman and Sons Ltd v Zyngier [1986] AC 562. The generality of the equitable principles underlying the right of one or two or more co-sureties to contribution whether or not they were bound by the same instruments and with knowledge of each other, was affirmed with a reference at 571 to the words of Lord Eldon LC in Craythorne v Swinburne (1807) 14 Ves Jun 160 at 165:
‘The principle of equity operates ... upon the maxim, that equality is equity: the creditor, who can call upon all, shall not be at liberty to fix one with payment of the whole debt; and upon the principle, requiring him to do justice, if he will not, the court will do it for him.
The fundamental question in the Scholefeld Goodman case was seen to be whether upon the true construction of the bargain between the bank and the giver of security (Mrs Zyngier) she had placed herself in the position of a co-surety alongside the drawer or endorser or whether, upon the true construction of the bargain, her liability to the bank upon a bill was intended to be limited to a case of default by the parties liable upon the bill. It was held that she had not placed herself in the position of a co-surety. Although the decision turns upon its own facts, it does not evidence any trend to a broadening of the concept of 'coordinate liabilities' which would attract rights of contribution to obligations merely because they are owed to the same party and related to the same transaction or otherwise connected in time or circumstance.’

On the other hand where a common loss flows from two distinct injuries covered by different insurers, a right of contribution may arise: Borg Warner (Aust) Ltd v Switzerland General Insurance Co Ltd (1989) 16 NSWLR 421. There Cole J said (at 432) after quoting at length from the judgment of Kitto J in Albion Insurance:
‘In my view it accords with doctrines of equity in the sense of ‘reason, justice and law’ that two insurers should equally contribute to indemnity an employer where the employer has attracted a liability flowing equally from an event occurring within the period insured by each insurer, coupled with a common act of the employer crystallising liability in a given quantum under each insurance policy.’

Whilst it is true to say that if there be double insurance, principles of contribution between the insurers may apply, it does not follow in, in my view, that it is only if there be double insurance that principles of contribution may apply. In my view, so much appears from the analysis of Kitto J in Albion Insurance. In circumstances of several partial continuing incapacities arising from separate injuries deemed total incapacity ... with each injury being insured by a separate insurer, under similar policies, and there being one award in consequence based upon the deemed total incapacity flowing from each partial incapacity and each injury, the principles of equity, in the sense used by Kitto J, may require the application of contribution principles. A fortiori if common loss, as distinct from risk, is sufficient to constitute double insurance.”

In my opinion there ought to be recourse to equitable contribution here. Mr Clothier, for the third defendant, was in the happy position of being able to contend that, since equity favours equality, there being three defendants liable to the plaintiffs for the full amount of their judgment, his client should pay only a third. There is plainly room for a counter-argument that the first and second defendants ought to be regarded as a single player, collectively responsible for one half ultimately, leaving the third defendant responsible for the other half (cf Burke v LFOT Pty Ltd (2000) 178 ALR 161 which Mr Clothier referred to). Having reflected on this aspect anxiously, I have concluded there is no injustice in Mr Clothier’s approach here, because, on traditional contribution principles, the solicitors’ responsibility, which was really limited to instilling or confirming in Mr Banks the inappropriate belief that there were no adverse features in the contract he ought to consider before signing it, is the lesser one. It was Mr Newnham who repeatedly provided Mr Banks with materials and advice consistent with his own belief that the investment under consideration had important positive features which it did not have at all.

After preparing the foregoing, I had the opportunity to consider Burke v LFOT more fully. The judgments of Heerey J (182-83) and Lehane J (189-91) are important in confirming that contribution under the general law is available between a defendant vendor liable under s.52 and a plaintiff purchaser’s advising solicitor (notionally) liable in contract to the purchaser. Lee J dissented in this respect, but was of the view (which I would share) that assuming contribution in equity were available, the solicitor could not be made responsible for more than one third of the plaintiff’s damages, where one of the vendor’s directors was held under an accessorial liability along with it. Heerey J (185) and Lehane J (191) noted there had been no argument made that the primary judge was wrong in holding the solicitor liable to a one half share; the former expressed no concluded view as to the proper fate of any such argument, and in the circumstances left the apportionment as it had been ordered at first instance.

If apportionment under s.6(c) of the Law Reform Act 1995 were available (which has not been established, as none of the defendants has expressly been found liable in tort), or if contribution were completely “at large”, the court was faced with Mr Hassett’s claim the third defendant was 95% to blame while Mr Clothier submitted the first and second defendants’ blame was “in the order of 80%”. If given a free hand, as indicated already, I would regard an outcome in terms of three defendants liable in equal shares as the just one.

In the contribution proceedings it ought to be ordered that each of the three defendants is entitled to contribution from the others so as to equalize the ultimate liability, once it, he or they shall have paid more than one-third.

Costs

It appears the plaintiffs ought to have the costs of the proceeding to be assessed against the defendants. My inclination would be against making an order for costs in relation to the contribution-indemnity proceedings. The parties are invited to make submissions regarding costs.

CITATION:	Banks & Ors v Copas Newnham P/L & Ors [2001] QDC 261
PARTIES:	RODNEY ROY BANKS AND JEANETTE ELLEN BANKS Plaintiffs v COPAS NEWNHAM PTY LTD ACN 009 893 172 First Defendant and GRAHAM NEWNHAM Second Defendant and WONDERLEY AND HALL (A FIRM) Third Defendant
FILE NO/S:	3792 of 2000
DIVISION:	Civil
PROCEEDING:	Claim
ORIGINATING COURT:	Brisbane
DELIVERED ON:	26 September 2001
DELIVERED AT:	Brisbane
HEARING DATES:	29-31August, 3 September 2001
JUDGE:	Judge Robin QC
ORDER:	Plaintiff awarded $50,356 damages against all defendants Defendants adjudged liable to contribute equally
CATCHWORDS:	(Cth) Trade Practices Act 1974 s.51A, s.52, s.75B, s.82 – real estate agent liable in damages to purchaser of a home unit “off the plan” – references to guaranteed net rental return misleading and deceptive – no reasonable grounds to make them – there was no third party guarantee and the lessee appeared to be a company without resources - lessee only paid single instalment of rent – meaning of ‘guarantee’ considered – principal of real estate company held under accessorial liability – neither exonerated by purchaser’s seeking legal advice before signing contract – liability not avoided by agent’s disclaimer - contribution proceedings against purchaser’s solicitor. Solicitor and client – solicitor retained with a view to attending to conveyancing under a contract yet to be signed but produced to the solicitor – duty of solicitor to advise that as subject property was to be encumbered by a long term lease, that the lessee’s capacity to pay rent should be investigated – contribution proceedings against vendor’s real estate agent. (Cth) Trade Practices Act 1974 Fair Trading Act 1989 Butcher v Harkins (2001) NSWSC 15 (2 May 2001) Heiseler v Anglo-Dal Ltd [1954] 2 All ER 770 B.W. Bowler & Anor v Hilda Pty Ltd [1996] 928 FAC 1, (1998) 210 FCA, (1998) 80 FCR 191, (2000) FCA 899, (2001) FCA 342 H W Thompson Building Pty Ltd v Allen Properties Services Pty Ltd (1983) 48 ALR 667 Fox v Everingham (1983) 50 ALR 337 Twiddle v Bradley (1990) 2 Qd R 464 Hanflex Pty Ltd v. NS Hope & Associates (1990) 2 Qd R 218 Gardam v George Wills & Co Ltd (1988) 82 ALR 415 Burg Design Pty Ltd v Wolki [1999] FCA 388 Landel Pty Ltd v Redland Shire Council and Lipoma Pty Ltd (2001) QCA 120 Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719 Menmel Pty Ltd v The Great Australian Bite Pty Ltd (1997) ATPR 41-553 Re La Rosa; ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 104 ALR 237 Trade Practices Commission v Manfel Pty Ltd(In Liquidation) (1991) 105 ALR 520 Burke v LFOT Pty Ltd (2000) ATPR 41-781
COUNSEL:	Mr A. Maher for the plaintiff Mr Hassett for the first and second defendants Mr D.G. Clothier for the third defendant
SOLICITORS:	Quinn & Scattini for the plaintiff David Prince & Associates for the first and second defendants Brian Bartley & Associates for the third defendant