Burke v LFOT Pty Limited [2002] HCA 17 18 April 2002 S130/2001
ORDER
1. Appeal allowed with costs.
2.Set aside the order of the Full Court of the Federal Court made on 18 August 2000 and in its place order that:
(a)the appeal to that Court is allowed with costs;
(b)set aside Order 2 of Moore J made on 11 November 1999 and in its place order that the cross‑claim is dismissed with costs.
On appeal from the Federal Court of Australia
Representation:
G J McVay for the appellants (instructed by Gilbert Mane Solicitors)
B W Walker SC with P T Taylor for the first and second respondents (instructed by Horowitz & Bilinsky)
No appearance for the third respondent
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Burke vLFOT Pty Limited
Trade and commerce – Damages – Equitable contribution – Liability to pay damages under ss 75B, 82, 87 of Trade Practices Act 1974 (Cth) for breach of s 52 of the Act – Whether solicitor who gave negligent advice should contribute to the loss suffered by his client as a consequence of another's misrepresentation which loss could have been avoided by careful advice by the solicitor – Whether equitable maxims prevent requirement of contribution.
Equity – Equitable contribution – Scope of – Requirement of co-ordinate liability – Whether solicitor who gave negligent advice should contribute to loss suffered by client as a consequence of another's representation where the loss could have been avoided by careful advice by the solicitor.
Contribution – Equitable contribution – Scope of and availability – Co-ordinate liability – Requirements of – Whether compatible with the obligations imposed by Trade Practices Act1974 (Cth) for breach of s 52 of the Act.
Words and phrases – "co-ordinate liability", "natural justice".
GAUDRON ACJ AND HAYNE J. The first-named appellant, William Robert Burke, was at relevant times the solicitor for and a director of the second appellant, Hanave Pty Limited ("Hanave"). Mr Burke had dealings with the first respondent LFOT Pty Limited ("LFOT"), then known as Jagar Projects Pty Limited. That company was the owner of land and premises in Leichhardt ("the premises") which had been advertised for sale. On behalf of Hanave, Mr Burke entered into negotiations for their purchase and, in due course, Hanave completed the purchase. Mr Burke was Hanave's solicitor on the purchase.
The premises consisted of retail outlets, including a shop known as Barbara's Storehouse. It is not now in issue that the first respondent represented to Hanave, through Mr Burke, that the tenant of that part of the premises which was occupied by Barbara's Storehouse was a "high quality tenant" notwithstanding that that tenant had been in arrears in payment of…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Burke v LFOT Pty Ltd [2002] HCA 17
Case
[2002] HCA 17
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal by Burke and Hanave against LFOT Pty Ltd (formerly Jagar Projects Pty Ltd). The dispute arose from LFOT's misleading and deceptive conduct in contravention of section 52 of the *Trade Practices Act 1974* (Cth) during a property sale. LFOT had misrepresented the income generated by the property, leading Hanave, the purchaser, to suffer a loss. LFOT was ordered to repay the sum obtained from Hanave, but a cross-claim sought contribution from Burke, who had acted as solicitor for Hanave and had allegedly provided negligent advice.
The central legal issues before the High Court were whether a solicitor who gave negligent advice should be required to contribute to a loss suffered by their client as a consequence of another party's misrepresentation, particularly when that loss could have been avoided by careful advice from the solicitor. The court also had to determine whether the principles of equitable contribution, which typically require co-ordinate liability, were compatible with the obligations imposed by the *Trade Practices Act* for breaches of section 52.
The High Court reasoned that awarding contribution in this case would be inconsistent with the policy of the *Trade Practices Act*, as it would allow a party in breach of section 52 to profit from its contravention. The court found that LFOT's conduct misled Burke and Hanave, causing Hanave to overpay for the property. While Hanave's loss was quantified as the difference between the property's value and the purchase price, which LFOT was ordered to repay, the court held that it would be inequitable for Burke, who gained nothing and was misled by LFOT, to be compelled to pay LFOT. The court emphasised that relief under section 82 of the Act is not restricted to astute individuals, and a plaintiff's failure to uncover misleading conduct does not absolve the contravening party.
Consequently, the High Court allowed the appeal, setting aside the orders of the Full Court of the Federal Court. The court ordered that the cross-claim for contribution against Burke be dismissed, meaning LFOT would not receive any contribution from Burke.
Orders
Orders of the court
1. Appeal allowed with costs.
2. Set aside the order of the Full Court of the Federal Court made on 18 August 2000 and in its place order that:
(a) the appeal to that Court is allowed with costs;
(b) set aside Order 2 of Moore J made on 11 November 1999 and in its place order that the cross‑claim is dismissed with costs.
Background
Background to the litigation
In my opinion, the contentions of Burke and Hanave are correct and their appeals should be allowed. It would be surprising if their contentions were wrong. As the result of its misconduct, LFOT obtained $750,000 from Hanave to which it was not entitled. The Federal Court order requires it to repay that sum to Hanave and puts LFOT back in the position that it would have been in if it had not engaged in misleading and deceptive conduct. Yet if the contribution order stands, LFOT will gain $375,000 by reason of its misconduct, and Burke – who received nothing from Hanave or LFOT – will be out of pocket by $375,000. Any principle of the common law or equity that would lead to such a result is so surprising that it would need to be re-examined. Fortunately, properly understood, the principles concerning contribution do not lead to the orders made by the Federal Court. The material facts LFOT, formerly Jagar Projects Pty Ltd, owned a property consisting of seven tenanted shops. In June 1994, Burke saw a newspaper advertisement for the forthcoming auction of the property. The advertisement mentioned some of the "established retailers" who were tenants, including Barbara's Storehouse Pty Ltd which occupied two of the shops on the property. The advertisement asserted that the total yearly income generated from the property was $312,644. Barbara's Storehouse contributed approximately one third of that amount. Hanave was the trustee of a trust whose beneficiaries included Burke. On behalf of Hanave, Burke contacted the selling agents of the property. On 28 June 1994, they forwarded him a "property report". The report gave details about the land and buildings and annexed a tenancy schedule, identifying each of the tenants and providing their rental figures. It described the property as a:"recently constructed, high exposure, single level, corner retail location, with 7 established high quality tenants including Barbara's Storehouse, Orrefors Kosta Boda and Just Jeans amongst others." (emphasis added) In July 1994, Burke received a copy of the draft contract for sale, together with copies of the leases. Clause 8 of the contract provided that the property was sold subject to the lease or leases particularised in Schedule 1. The Schedule named Barbara's Storehouse as the tenant of shops 1 and 2 for a term expiring on 18 May 2003, with an annual base rent of $108,150. It also recorded that Adelights Pty Ltd[27] had taken an assignment of the lease in May 1994.[27]Adelights had the same shareholders and directors as Barbara's Storehouse. Clause 8.3 contained a warranty on the part of the vendor "that all incentives for the benefit of the tenant under or in connection with the Lease" were either disclosed in the relevant lease or set out beneath that clause in the contract. No incentives were disclosed in the contract, nor was any incentive disclosed in the lease to Barbara's Storehouse. However, in April and May 1993, a company associated with two of LFOT's directors, Tressider and Glew, had made out two cheques to Barbara's Storehouse totalling $60,000. Correspondence between the relevant parties described the payment as a "fitout contribution", but the evidence did not show how Barbara's Storehouse spent the contribution. Adelights did not receive any of the $60,000 when it took an assignment of the lease.
Moreover, to award contribution in this case would be inconsistent with the policy considerations behind the enactment of Pts V and VI of the Trade Practices Act. It would enable a person in breach of s 52 of the Act to profit by its contravention of the Act. It would enable LFOT to obtain $375,000 from Burke even though its misleading and deceptive conduct misled Burke in his capacity as solicitor and in his capacity as agent for Hanave. Relief under s 82 for a breach of s 52 is not restricted to the astute and intelligent or to those who have taken appropriate steps to protect themselves against such conduct. Failure by a plaintiff to make inquiries that may have exposed the misleading and deceptive conduct does not absolve a defendant from the consequences of its breach of the Trade Practices Act[82]. Similarly, the policy of the Act is promoted by holding that those who are misled by breaches of s 52 should not have to assist the contravener of s 52 to pay the damages awarded under s 82 by reason of those breaches. Contrary to the view of Heerey J, it is against the policy of the Trade Practices Act that a party, having been found to have breached s 52, could bind the very person who was misled and deceived to contribute to the loss. [82]See, for example, Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112; Sharp v Ramage (1995) 12 WAR 325. Conclusion LFOT's conduct misled the parties with whom it dealt in trade and commerce. Its misleading and deceptive conduct caused Hanave to pay more than the property was worth. Hanave's loss was quantified as the difference between the value of the property at the time of purchase and what it paid for the property. That difference was gained by LFOT, and the order requiring it to pay damages to Hanave is no more than an order requiring it to reimburse Hanave for the loss that it suffered and LFOT gained. In accordance with the course of authority, it is not inequitable that LFOT be solely liable for repaying this sum even though Hanave might have discovered the misleading and deceptive nature of its representations but for the omissions of Burke[83]. It would be inequitable, however, if Burke, who gained nothing from the transaction and was misled by LFOT, should now have to pay LFOT the sum of $375,000. There is no equality in LFOT gaining $375,000 and Burke losing $375,000 as the result of LFOT's unlawful conduct.[83]Gould v Vaggelas (1985) 157 CLR 215. The appeal should be allowed because it would be contrary to equitable principle for Burke to be ordered to pay $375,000 to LFOT merely because LFOT, who wrongly obtained $750,000 from Hanave, has been ordered to repay that sum. This appeal, from a judgment of the Full Court of the Federal Court of Australia[84], concerns the principles of equitable contribution. Despite their origin and purposes those principles have become needlessly encrusted with artificial rules and restrictions resulting in disputation, confusion and uncertainty[85]. This is so despite the reminder of Gibbs CJ (with the concurrence of Murphy and Aickin JJ) in Mahoney v McManus[86] that:"the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defeated by too technical an approach".[84]Burke v LFOT Pty Ltd (formerly Jagar Projects Pty Ltd) (2000) 178 ALR 161.[85]See eg Cockburn v GIO Finance Ltd unreported, Court of Appeal (NSW), 2 February 1996 which, as in this case, required a second visit to an appellate court: Cockburn v GIO Finance Ltd unreported, Court of Appeal (NSW), 19 June 1997.[86](1981) 180 CLR 370 at 378.