Big Country Developments Pty Limited and Anor v Chadlace Pty Limited and Ors S293/2000

[2001] HCATrans 582

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S293 of 2000

B e t w e e n -

BIG COUNTRY DEVELOPMENTS PTY LIMITED and PETER HESKY

Applicants

and

CHADLACE PTY LIMITED, GLEN JOHNSTON and KAREN SCHMITZ

Respondents

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 20 NOVEMBER 2001, AT 12.21 PM

Copyright in the High Court of Australia

MR B.A.J. COLES, QC:   May it please the Court, I appear with my learned friend, MR P.P. STRASSER, for the appellant.  (instructed by Denes Ebner)

MR C.M. HARRIS:   If your Honour pleases, I appear for Chadlace Pty Limited, Johnston and Schmitz.  (instructed by Matthews Dooley & Gibson)

GUMMOW J:   Yes, Mr Coles.

MR COLES:   If your Honours have volume 1, that is to say, Justice Bainton’s judgment to hand, and could I ask your Honours to have it open at page 149, where his Honour commences the discussion of the issues that this application raises.  May I just point out by way of background that his Honour there sets out the relevant pleading of misrepresentation, the whole of the telephone conversation that happened three months ‑ ‑ ‑

GUMMOW J:   This is a case, if anything, of the visitation jurisdiction, is it not?  There is no ground of general public importance really.

MR COLES:   The grounds of public importance are these – sorry, there are two we would seek to identify.

GUMMOW J:   Well, visitations do occur.

MR COLES:   Visitations do occur and we would lay stress, for a reason I will mention in a moment, about the serious injustice which this result produces overall, and I will come to that in a minute.  Before I do, may I identify what we say are two matters of some importance that would agitate the concern of this Court.  The first is, of course, the by no means trite importance of appellate courts adhering to this Court’s instructions, repeated time and time again, most recently, I think, in ‑ ‑ ‑

GUMMOW J:   It has to be repeated about once a year really, in my experience since I have been here.

MR COLES:   Yes, well it does.  There was a certain post-Earthline kind of liberation that may have infected certain intermediate appellate courts.

GUMMOW J:   Only by people who had not read it or understood it, at any rate.

MR COLES:   That is right.  There is here the most grievous departure from the instruction of this Court repeated most recently, although we have not given your Honours a reference, in Rosenberg v Percival, where much the same error seemed to have infected the Western Australia Supreme Court.  That is important itself, in our submission, but it is a fortiori important in cases of misrepresentation grounding statutory liability under the Trade Practices Act.

HAYNE J:   Well, is the nub of the point at 153 lines 22 and following:

I do not think that Chadlace was induced to purchase by anything –

et cetera?

MR COLES:   That is right – no, and the next sentence.

HAYNE J:   Yes.

MR COLES:   There were two findings.

HAYNE J:  

It was induced by what Karacominakis told him.

MR COLES:  

It was induced by what Karacominakis told him.

The criticisms of the Court of Appeal shortly ‑ ‑ ‑

HAYNE J:   The Court of Appeal upend that finding and you say they should not.

MR COLES:   They inverted it by misuse of the trial judge’s language, a misuse depending on the next sentence.  It is possible his statements may have assisted Johnston, but if it did, his Honour made no finding that that possibility had become a probability, even on the balance of probabilities, and he made no conclusion that it did make any impact on the decision.  He, in fact, found that the purchase was induced by what Karacominakis had told him and there was an abundance of evidence that made that conclusion irrefutable.  He then went on to say, on the same page 153:

The onus of establishing that Chadlace (and Johnston and Schmitz) were induced by what Hesky said to him about rental payments, and that it was a misrepresentation, is on Chadlace, that is to say effectively on Johnston:  he has not discharged it to my satisfaction.

HAYNE J:   Now, where do I find in the Court of Appeal the upending of those findings?

MR COLES:   If your Honours would go to 297 in volume 2, commencing at paragraph 261, where the Court of Appeal assert that Justice – well, they correctly address themselves, only to depart from the proposition later, that a finding of misleading and deceptive conduct would not avail unless there was reliance.  In 261 they say that:

Bainton J’s finding as to this . . . is, with respect, somewhat equivocal, and in part founded on a mistake of fact.

And I will have to come back to that.  Then commences, in our respectful submission, the first error or the first plain departure from the accurate application of what the trial judge had found.  That is at 262:

His Honour’s statement that he did not think that Chadlace was induced . . . but was induced by what Mr Karacominakis –

in effect, must be read, they say, in the light of or indeed, as their Honours seem to have said, subject to an -

earlier acceptance that Mr Johnston may have relied to some extent on Mr Hesky.  It must also be read with the qualifying sentence, “It is possible that Hesky’s statement may have assisted Johnston –

Now, what their Honours then do is elevate that possibility to at least a co‑ordinate finding of fact which it was not and then use it to overtop the explicit findings of fact.  In our respectful submission, it is not an obscure or arcane error into which they fell.  It is plain and obvious.  They compound it at page 298 – and this really is the essence of it – the Court of Appeal says at the top of the page:

I do not read his Honour’s reasons as excluding contribution to the decision to purchase the business ‑ ‑ ‑

GUMMOW J:   That seems to turn things the other way around.

MR COLES:   Now, that just turns things on its head.

GUMMOW J:   Yes.

MR COLES:   And that, in our respectful submission, is insupportable, on the trial judge’s language.  Then, to compound that error, their Honours go on to elevate or to invigorate the contribution which they had identified as to co‑ordinate with the trial judge’s finding, in effect, as capable of overtaking that finding.  The next two paragraphs, 263 and 264, address the question of the extent to which the contribution, which the Court of Appeal

has discovered for themselves happened, being limited and they describe what they think about that limitation and, in effect, they say the limitation was not really a limitation at all.  Then the apogee of it is at page 299 paragraph 265:

I do not think that, so far as Bainton J found that the Chadlace parties did not rely on what Mr Hesky said in purchasing the business, his finding was soundly based.

And I pause there to say, of course, that does not address the other finding, namely, that Mr Johnston relied on what Mr Karacominakis said, which is not, on any view, open to any contrary analysis.  Then they say:

What finding, if a finding can be made, should be made on appeal?

And this brings us really to the second, what I would seek to describe as a, special leave point.  Their Honours having, in effect, washed out the trial judge’s conclusion, state a proposition in paragraph 266 on page 299, which is as good so far as it goes.  That is to say:

If a material representation is made which is calculated to induce . . . and that person in fact enters into the contract, there arises a fair inference of fact that he was induced to do so by the representation:

GUMMOW J:   Then they go ahead and make their own inferences.

MR COLES:   And then they just go ahead and draw their own inferences.

GUMMOW J:   Yes.

MR COLES:   Our criticisms of that are really this:  what was there found in the judgment of the trial judge ‑ ‑ ‑

GUMMOW J:   I think we will hear from your opponent now.  Yes, Mr Harris.

MR HARRIS:   Your Honour, if one looks at the passage in the trial judge’s reasons at pages 152 and 153 of the first volume of the application book, one can see that his Honour, in concluding that there was no reliance, made four errors in relation to the evidence that had been before him.  Can I perhaps commence by saying that as the Court of Appeal said, his finding was, in any event, somewhat equivalent.  He starts off at the last paragraph at page 152 saying that he is:

more inclined to the view that Johnston, who did the negotiations, relied on Karacominakis –

but he then allows the possibility, in the next line that there was some reliance on Hesky and says that if there were, the representations that were made:

were not shown to be untrue.

Again, on line 25 at page 153, the trial judge said:

It is possible that Hesky’s statement may have assisted Johnston in accepting what Karacomninakis told him –

Now those passages are not a red-blooded rejection of reliance nor do they indicate or state that Mr Johnston’s evidence on that issue was rejected, but the passage between those two statements contains four errors:  the first is that his Honour said that what Hesky told Johnston was not shown to be untrue.  Now commencing on page 293 of the application book, volume 2, the Court of Appeal in paragraph 254 analyses the evidence that was before the trial judge, most of which was documentary on this issue ‑ ‑ ‑

GUMMOW J:   Yes, just on that point, Mr Harris.  I see that the trial is said to have taken eight days.

MR HARRIS:   Yes.

GUMMOW J:   Was there a great deal of oral evidence?

MR HARRIS:   There was a great deal and, in fact, Mr Johnston was cross‑examined over, I think it was, 148 pages of the transcript and his Honour the trial judge, in a passage that I can probably find, makes a statement to the effect that that gave him a sense of confidence in what Mr Johnston had said.  Commencing in paragraph 254 of the Court of Appeal judgment, their Honours analysed the evidence that was before the trial judge which showed firstly repeated late payments of rent; it showed agreements where rent could not be paid and therefore was agreed to be paid by instalments and their Honours also referred to the correspondence from the Hollingsworths which repeatedly were saying, “The rent is too high; we cannot pay the rent from the income of the business.”

In addition to that, Mr Karacominakis had been given what his Honour found was a 20 per cent rent reduction for a period of six months, so that the statement that the rent was always paid on time was literally untrue, as far as the Hollingsworths were concerned – their rent was continuously paid late – and the statement that Mr Karacominakis’ rent was always paid on time was not true, because he was not paying the rent; he was only paying 80 per cent of the rent.  So that the first error that his Honour made, in that passage in the judgment, was on that point.

The second error that he made commences at the top of page 153 of the application book where he seems to assume that the nature of the representation that was made was that the income was sufficient to pay the rent.  In fact, the evidence was - and it had been pleaded, that the representation was that the income was sufficient to pay the rent and other expenses of the business.  Whilst it may have been true to say the income exceeded the rent, the evidence was that the income did not exceed the rent and the other expenses of the business.  So that the second error that his Honour made, when considering this issue of reliance, was to misstate the nature of the representation that had been contended for and for which the evidence had been furnished.

GUMMOW J:   What page was the second of those, Mr Harris?

MR HARRIS:   He says at the bottom of page 153, the end of the second‑last line:

There is no evidence to establish that in any monthly period, let alone annual period, the rent exceeded the income ‑ ‑ ‑

GUMMOW J:   I see.

MR HARRIS:  

“Income” is different from profit.

Et cetera.  It can be seen, when looking at that passage, that his Honour was only considering the income and the rent; not the income as against the rent and other expenses of the business.  That is a point that the Court of Appeal made at page 294 of the application book in paragraph 255, where, at about line 26, the court refers to:

the rent and other expenses.

And says that:

The distinction between income and profit made by his Honour was in this context unjustified, because the income had to meet the expenses other than rent.

So that their Honours there pick up the second error in this part of the trial judge’s reasoning and they go on to conclude at line 38:

This was misleading, both as to the Hollingsworths and as to Mr Karacominakis.

The third and fourth errors are similar.  The contract to purchase the business was not signed until three months after the conversation between Hesky and Johnston and his Honour inferred from that that there was no reliance.  There had been uncontroverted evidence from Johnston to explain that there had been difficulties in obtaining finance and that was the reason for the delay.  It was never put to him in cross-examination that the delay indicated that there was no reliance and, indeed, the trial judge, even though he drew this inference, did not put that to Mr Johnston either.

HAYNE J:   But is it fair or right to say that this was a matter of inference by the trial judge or is his Honour the trial judge at 153 simply expressing a conclusion based upon, indeed largely based upon, his assessment of the oral evidence given to him by the witnesses?  The earlier errors that you allege, and to which you have pointed, concern whether there was misleading or deceptive conduct.  The finding against you is, no reliance.  Now is the finding about reliance open to appellate review in the fashion which the Court of Appeal undertook?

MR HARRIS:   Yes, it is, your Honour, because it was not a finding based on the credibility of witnesses, it was a finding based on, firstly, mistakes that his Honour made in stating the evidence and inferences that he drew in circumstances where it was inappropriate for him to have done so and where, in drawing those inferences, he ignored or forgot uncontroverted evidence which explained the delays which were the basis of the inferences he drew. 

So this is not a case where his Honour’s decision is based on an assessment of the competing credibility of witnesses and therefore it is a case where his Honour’s decision is based on inferences that he drew from facts which the Court of Appeal was entitled and, indeed, under the principle in Warren v Coombes, ought to have reconsidered if concluding that the inferences that were drawn were wrong.          If, however, it is a finding based on the credibility ‑ ‑ ‑

GUMMOW J:   Was there a challenge to credibility?  There must have been if it went for all this time?

MR HARRIS:   There was by Mr Karacominakis and it was 148 pages of cross‑examination by his counsel.

GUMMOW J:   Yes.

MR HARRIS:   As far as this conversation was concerned between Mr Hesky and Mr Johnston, Mr Hesky could not remember it, but did not deny that it had taken place.  Your Honours, the third and fourth errors in that passage are the errors that his Honour made in drawing inferences in relation to matters which were explained very clearly in the evidence and which he either forgot or ignored.  We say that, even if your Honours characterise the findings of the trial judge as being findings based on credibility, they are nevertheless vitiated because there were facts incontrovertibly established by the evidence, which are inconsistent with the findings that his Honour made and those facts are the ones that are covered by the four errors that are identified in the reasoning of his Honour in concluding that there was no reliance.

So in those circumstances, either because the findings were not based on credibility or, alternatively, because although they were, they were vitiated by four errors, the Court of Appeal was entitled to and, indeed, bound to re-examine the position for itself, which it did, and drew appropriate inferences in the light of the correct evidence and in the light of an accurate understanding of the facts that were before the court.

GUMMOW J:   Yes, thank you, Mr Harris.  Yes, Mr Coles.  What do you say about this?

MR COLES:   Thank you, your Honours.  The first thing, in our submission, the proposition for which Abolos, Devries and most recently Rosenberg v Percival are authority does not depend, in our submission, on there being word against word in the collision of, for example, disputed conversations.  It is sufficient, in our respectful submission, if one goes back to the earlier authorities, that the estimation of the witnesses which the judge sees is capable of playing any role as a component in the assessment process.

HAYNE J:   Capable of or did play?

MR COLES:   Did, one would ‑ ‑ ‑

HAYNE J:   Did play.

MR COLES:   And here it must have, because the judge must have taken a whole view or should fairly be attributed as having taken into account both the nature and content, which is fairly limited, of the phone conversation.  The fact that it was but a phone conversation; the fact that it did occur some three months before the contract was actually entered into; the fact that there was overwhelming evidence about the extent of the representations made by Karacominakis; the fact that nothing was ever confirmed and put in writing; and the fact that Johnston himself, of course, at no stage in his case in-chief, swore that he relied on the representations and that sort of trickled out later on in the piece in the course of a lengthy cross‑examination by counsel for another party, all of those matters, but the point that would agitate your Honours, and has concerned us, is this, that it may be that his Honour may have misapprehended the whole thrust of evidence about the falsity of representations, but, in our respectful submission, the question is, and the question for the Court of Appeal was, whether the conclusions that his Honour on reliance were glaringly improbable and, in our respectful submission, it just does not follow from a misapprehension, tangentially, of conclusions one way of the other about the falsity or otherwise of the representation.  It does not follow that that renders the finding about reliance ‑ ‑ ‑

GUMMOW J:   This idea of perception of error of fact reopens the matters in the High Court?

MR COLES:   It must be confined to the issue that ‑ ‑ ‑

GUMMOW J:   You say it is issue by issue.

MR COLES:   It is issue by issue.

GUMMOW J:   Has that been clearly said?

MR COLES:   The clearest is in this Court’s decision in Gould v Vaggelas.  Firstly there is emphasised that no amount – as indeed the Court of Appeal in passing recognised – of falsity of a representation will help unless you can show reliance.  So from that it rather follows that one looks especially to the topic of reliance and does not try to inject something into it based on truth or falsity.  In this case, conversely, of course, his Honour was of the view that the – well, he put it ambiguously in a sense himself.  He said at the bottom of page 152, what Hesky said was either:

literally true, or at least not shown to be untrue.

Now it may be that that is open to criticism, because there was some suggestion that the part at least that related to the Hollingworths as tenants suggested that they were a little bit more late with their rent, perhaps only in the order of days or weeks, that justified with the passing observation attributed to Mr Hesky at page 150:

Q.  What about the previous tenants, have they ever been late with rent?
A.  No.  All payments of rent have either been on  time or early.

We would submit, your Honour, that one must address the issue of any errors of fact that can be identified in terms of whether they were glaringly improbable the trial judge’s conclusion on the issue in question, which is issue of reliance and there, in our respectful submission, they do not.  His Honour took a sterner view of the pleaded representations on page 149 and, in our respectful submission, he committed no error in doing that.  The Court of Appeal took a more generous and ample view and, indeed, if it became necessary to say so, injected inferences into the circumstances and to the conversation, which were capable of, in effect, inflating the effect of the pleaded representations beyond the content there, but that really does not matter, because the true question is whether the Court of Appeal was justified at all in parting from a conclusion that must have been based on, in large measure, what the judge saw and heard of the witnesses and must carry with it the rejection of Mr Johnston’s oral evidence albeit belated in the context of things, that he said he would rely on some things the landlord said. 

Now, if the trial judge rejected, as sub‑silento he did, that evidence, then, in our submission, that really is the end of the matter and the Court of Appeal should not have reconstructed the facts ‑ ‑ ‑

GUMMOW J:   Yes, thank you, Mr Cole.  One matter that is agitating me‑ it may turn out to be irrelevant – how big was the appeal book in the Court of Appeal?  Your solicitor will have an idea; was it a multi-volume enterprise?

MR COLES:   It was a multi-volume enterprise, but your Honours need not be intimidated by….in this Court, because plainly the issues have contracted.  For example, you can tell by looking at the trial judge’s judgment.

HAYNE J:   The challenge is to findings of fact do not ordinarily lead to contraction of the appeal book.

MR COLES:   No.  A large reason for the bulk of the trial judge’s judgment, which occupies most of volume 1, is accounted for by two considerations:  one, by his Honour’s extensive historical analysis of the Pigof Case principle, which is just the law; and another by a very extensive analysis involving Karacominakis, mainly about the assessment of damages.  Now no issues of quantum or assessment are involved and there is no issue about that in this case.

Can I summarise then, your Honours, less that I have omitted to put the points clearly:  we, of course, complain about the interference with the factual conclusion of the judge based on the witnesses; we draw attention to the disconformity between the Court of Appeal’s decision and the law as

laid down by Justice Wilson in Gould v Vaggelas and by the Western Australian Full Court in the Yogesh Case, which is shortly to the effect that if you have an explanation for an inducement, then you do not go around ‑ ‑ ‑

GUMMOW J:   It is becoming a very long reply, Mr Coles.

MR COLES:   I am sorry, your Honour.  There is one final circumstance I should impress upon your Honours and it is this, that in view of the orders the trial judge made, resulting in indemnities, going backwards and forwards, the possibility of Big Country recovering under any of the judgments that it recovers under is virtually sterilised, inasmuch as each of the persons against whom it could recover judgment would, in turn, be entitled to an indemnity from Chadlace, which would, in turn, be entitled to add the quantum of that indemnity on its cross-claim against Big Country.  So that the conclusions so reached by the Court of Appeal sterilised the verdicts which Big Country obtained.

GUMMOW J:   Thank you.  We will adjourn until 2 pm.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.00 PM:

GUMMOW J:   In application No 7 the Court is not satisfied that there are sufficient prospects of success to warrant a grant of special leave.  Accordingly, special leave is refused with costs.

AT 2.01 PM THE MATTER WAS CONCLUDED