Grantwell Pty Ltd and Cosmochem Pty Ltd (Respondents 1) v David Arthur Franks, Christine Anne Franks, John Philip Reddin (Appellants), Andrew Kephala and Edcom Real Estate Pty Ltd (Respondents 2) No. 4211 Judgment..
[1993] SASC 4211
•28 October 1993
COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ(1), BOLLEN(2) AND MOHR(3) JJ
CWDS
Contracts - failure of purchasers to complete - action for damages for breach of contract - fiduciary relationship between vendors and purchasers - failure of vendors to act in interests of purchasers - defence to vendors' action - provision of valuation having no foundation - misleading and deceptive conduct. Trade Practices Act 1974 (Cth) s.52. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at pp.96-97; Lloyds Bank Ltd v Bundy 1975 1 QB 326 at p.341 and Daly v Sydney Stock Exchange Ltd
(1986) 160 CLR 371 at p.385, applied.
HRNG ADELAIDE, 13 August 1993 #DATE 28:10:1993
Counsel for appellant: Mr D M Quick QC
Solicitors for appellant: Mason Westover
and Rowe
Counsel for respondents Grantwell: Mr H C Williams QC
with Mr S M Adams
Solicitors for respondents Grantwell: Adams Kandelaars
Counsel for respondents Kephala : Mr S D G Apps
Solicitors for respondents Kephala : Adams Kandelaars
ORDER
Appeal allowed.
JUDGE1 KING CJ This is an appeal against a judgment for the plaintiffs in an action for damages for breach of a contract for the sale of a commercial property. 2. The contract was signed on 7th January 1989 by Mr Andrew Kephala on behalf of the vendors and the appellant Mr David Franks on behalf of the purchasers. The vendors agreed to sell to the purchasers who agreed to purchase a property, which had been a post office, situate at 895 South Road, Clarence Gardens, for the price of $355,000. Settlement was to take place on 7th February 1989. The purchasers did not complete the contract, but purported to rescind it. The vendors also purported to rescind the contract. They resold the property on 31st May 1989 for $247,500. They instituted these proceedings against the purchasers claiming damages. The purchasers instituted third party proceedings against the respondent Edcom Real Estate Pty Ltd which had been responsible for the preparation of the contract, claiming damages. The purchasers also counterclaimed against the vendors seeking a declaration that they had lawfully rescinded the contract and damages. 3. The learned trial judge gave judgment for the vendors for damages assessed as the difference between the contract price and the amount which was realised on resale, together with expenses and interest. He dismissed the counterclaim and third party claim. The purchasers have appealed. The vendors and Edcom Real Estate Pty Ltd are the respondents. A number of issues were canvassed at trial and determined by the learned trial judge. Only two now concern us. The first is a contention that the respondents were in a fiduciary relationship with the appellants and were in breach of their fiduciary duties in their conduct in relation to the sale. The second is that the respondents engaged in deceptive conduct in contravention of s.52 of the Trade Practices Act 1974 (Cth). 4. The submission that there existed a fiduciary relationship between the parties to the sale is based upon the history and general tenor of their relationship. Mr Andrew Kephala, a licensed land agent, was the managing director of the respondent vendors, Grantwell Pty Ltd and Cosmochem Pty Ltd, which were family companies controlled by Kephala and his wife. He was also a director and the principal shareholder of Edcom Real Estate Pty Ltd. The appellants David Franks and Reddin were partners in a veterinary practice. The appellant Christine Franks is David Franks' wife. Kephala and David Franks had been friendly business acquaintances since about 1980. Their association arose out of Kephala's connection with a stud at which Franks was veterinary and Kephala's ownership of thoroughbred horses. In about 1984 Kephala told Franks that he would look after him if he was ever interested in real estate. Shortly afterwards Franks did contact Kephala and he and his wife purchased a house as an investment. Kephala managed the property for them. He collected rents, arranged tenants and advised Mr and Mrs Franks concerning the property. That relationship was in existence at all relevant times, the management functions being conducted through Edcom from some time in 1988. 5. On 17th November 1988 David Franks rang Kephala. Franks and Reddin had decided to investigate the possibility of investing some superannuation monies due to them in real estate in order to take advantage of "negative gearing" provisions of the income tax laws. At trial there were conflicts between Kephala on the one hand and Franks and Reddin on the other as to the course of events which followed and the discussions between them. The learned judge preferred the evidence of Kephala as to these matters and based his findings on that evidence. The findings as to primary facts were not challenged on the appeal and I adopt them for the purpose of my narrative. 6. In the telephone conversation on 17th November Franks told Kephala of his interest and that of Reddin in purchasing a commercial property for "negative gearing" purposes. He asked whether Kephala could suggest any properties to him. The intention was to borrow the whole amount of the purchase price. Franks said that he and Reddin could service from their professional incomes borrowings to the extent of $60,000 but the rest would have to be serviced out of rental from the property. Kephala indicated that he would make calculations and suggest something. 7. Kephala telephoned Franks on 23rd November 1988 and suggested a property to him. Kephala told Franks that the property belonged to two companies of which he was a director. He put forward a scheme for financing the deal which he had prepared as a result of his calculations. On 30th November Reddin rang Kephala and asked him to forward the details of the scheme. On the same day Kephala sent to Franks the following letter:
"Mr David Franks 140 Swanport Road MURRAY BRIDGE SA 5253
RE: 895 SOUTH ROAD, CLARENCE GARDENS Dear David, Further to our
telephone conversations with yourself and your partner, we
enclose herewith a copy of the title of the property, together
with a photograph sketch of the property and a copy of internal
floor plan. The following is submitted for your consideration.
PRICE: $355,000.00 as per valuation. The first mortgage, i.e.
$300,000.00 to be serviced as follows ... Interest on the first
$60,000.00 at 15 per cent p.a. to be met by yourselves amounting
to $9,000.00 p.a. The commitment on the balance of $250,000.00
at 15 per cent p.a. to be met by the vendor guaranteeing the
rental at $36,000.00 pa for the first 12 months, or upon the
leasing of the property to a suitable tenant. The rental to be
$36,000.00 pa or more. This will immediately release the vendor
from the guarantee if this occurs before the end of the first 12
months. We propose the following in relation to the 2nd
mortgage, i.e. the $55,000.00 at a rate of 10 per cent p.a. to
be carried by the vendor and interest to accumulate and be added
on to the principal. e.g. 2nd mortgage $55,000.00 add interest
for 1st year $5,500.00 $60,500.00 add interest for 2nd year
$ 6,050.00 $66,550.00 add interest for 3rd year $ 6,655.00
$73,205.00 This example shows my willingness to carry this 2nd
mortgage for a period of up to 3 years if required. I trust this
is sufficient information to enable you to discuss this with your
partner, and await to hear from you regarding inspection of the
property. Yours sincerely, Andrew Kephala EDCOM REAL ESTATE PTY.
LTD." Enclosed with that letter was a document entitled "Property Valuation Report" dated 4th November 1988 on notepaper bearing the letterhead of Edcom Real Estate Pty Ltd signed by "F L Milne AAIV Licensed Valuer" and purporting to be a valuation of a property at 895 South Road, Clarence Gardens in the amount of $355,000. 8. Mr and Mrs Franks and Reddin were shown over the property by Kephala on 3rd December 1988. Kephala said just before the inspection, "I have to tell you that I am a director of the company that owns the property." He had previously said much the same thing on the phone to Franks. Reference was made to interest rates being asked by the National Bank and Kephala said, "We can do better than that." 9. Early in January 1989 the appellants decided to go ahead with the transaction. David Franks attended at Kephala's home. Kephala had prepared the contract note and the statutory statements. The negotiating agent was shown as Edcom Real Estate Pty Ltd "acting for Grantwell Pty Ltd and Cosmochem Pty Ltd". Franks signed for the purchasers and Kephala for the vendors. 10. Kephala advised Franks to finance the transaction by applying for a personal loan of $75,000 to a credit union Satisfac with which Kephala was connected and for a mortgage loan to Co-operative Building Society ("Co-op") with which he had dealings. He contacted both those institutions on behalf of the appellants and made certain arrangements. He advised Franks as to the options available through the Co-operative Building Society. Kephala suggested that the documents be prepared and the settlement carried out by a firm of solicitors with which he did business and which had handled the sale of the property in 1984. It was assumed by all parties throughout that Kephala or Edcom would manage the property for the appellants. Kephala arranged for the insurance of the property for the appellants from the date of the contract. 11. There was delay in obtaining finance. On the day of the signing of the contract, Kephala pointed out to Franks that the stamp duty would be $15,000 and other expenses about $2,000. This had not been taken into account in the letter of 30th November and seems to have come as something of a jolt to the appellants as it affected the financial viability of the plan. The Co-op indicated that it would only be interested if all borrowings came from it. The appellants thereupon applied to the Co-op for a loan of $317,000. There were delays in the valuation of the appellants' homes which were to be collateral security for the loan. At length, on 20th February, the Co-op wrote making its proposal. By then there had been a general rise in interest rates and the rate quoted was 16 per centum per annum. 12. The combined effect of the additional $17,000 beyond what they had budgeted for and the additional percentage point of interest beyond the 15 per cent upon which Kephala's calculation was based, caused the appellants to reconsider their position. They considered that they were out of their depth financially and that they could not proceed with the transaction. Franks rang Kephala on 23rd February and again on 27th February and informed him that they could not proceed. This was confirmed by letter dated 11th March, written after receipt of the vendors' Notice to Complete which was dated 8th March. 13. Before turning to the grounds which were argued on the appeal, it is convenient to summarise Mr Kephala's association with the subject property. Kephala's companies, Grantwell and Cosmochem, purchased the property on 17th December 1987 for $225,000. Kephala procured from Edcom's employee, Milne, a valuation of the property for $355,000. That valuation was dated 8th May 1988. From that time on persistent efforts were made to sell the property for the price of $355,000. It was repeatedly and regularly advertised without success. Similar efforts were made to find a tenant, also without success. A new version of the Milne valuation was prepared and dated 4th November. The negotiations with the appellants then ensued. After the breakdown of the transaction with the appellants, the property was sold on 31st May 1989 for $247,500. 14. The first question for consideration is whether Mr Kephala, and through him the vendor companies, was under a fiduciary duty to the appellants in connection with the transaction. The history of the relationship between Kephala and Franks is of significance. It was one of friendship through business contact and association. Kephala offered to look after Franks if he were to become interested in real estate. Mr and Mrs Franks had placed their trust in Mr Kephala in 1984 to find a suitable investment and their trust had been rewarded. Kephala, and subsequently Edcom, managed that property for Franks and there was certainly a fiduciary relationship in respect of that property. When Kephala discontinued his own real estate business to engage in a business association with another person by means of the company Edcom, he sent a letter addressed to Mr and Mrs Franks as "Dear Client", advising them of the change and stating that he would "continue to service your needs in the real estate field through EDCOM REAL ESTATE PTY LTD, in the same manner as before." 15. It was against that background that Franks approached Kephala on behalf of the appellants in November 1988 to find them a suitable property as an investment. He explained their financial position and aims. I think that it is clear that Franks was not approaching Kephala as a potential vendor or agent for a vendor but as somebody upon whose advice and assistance he could rely to devise a scheme which would meet the appellants' needs. That Kephala understood that is apparent from the fact that he indicated that he would make some calculations for that purpose. 16. It is convenient at this point to consider what constitutes a fiduciary relationship as understood by the law. There are certain accepted categories of fiduciary relationships, but relationships which do not fall within those categories may nevertheless give rise to fiduciary duties. The principles are stated by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at pp.96-97:
"The accepted fiduciary relationships are sometimes referred
to as relationships of trust and confidence or confidential
relations (cf. Phipps v Boardman (1967) 2 AC 46, at p.127, viz.,
trustee and beneficiary, agent and principal, solicitor and
client, employee and employer, director and company, and
partners. The critical feature of these relationships is that
the fiduciary undertakes or agrees to act for or on behalf of or
in the interests of another person in the exercise of a power or
discretion which will affect the interests of that other person
in a legal or practical sense. The relationship between the
parties is therefore one which gives the fiduciary a special
opportunity to exercise the power or discretion to the detriment
of that other person who is accordingly vulnerable to abuse by
the fiduciary of his position. The expressions 'for', 'on behalf
of', and 'in the interests of' signify that the fiduciary acts in
a 'representative' character in the exercise of his
responsibility, to adopt an expression used by the Court of
Appeal." 17. I refer also to the passage in the judgment of Sir Eric Sachs in Lloyds Bank Ltd v Bundy (1975) 1 QB 326 at p 341, cited with approval by Brennan J in Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at p.385, in which, referring to the cases in which a fiduciary relationship has been held to exist, he said:
"Such cases tend to arise where someone relies on the
guidance or advice of another, where the other is aware of that
reliance and where the person upon whom reliance is placed
obtains, or may well obtain, a benefit from the transaction or
has some other interest in it being concluded. In addition,
there must, of course, be shown to exist a vital element which in
this judgment will for convenience be referred to as
confidentiality. It is this element which is so impossible to
define and which is a matter for the judgment of the court on the
facts of any particular case." 18. It must have been obvious to Kephala, if he had thought about it, that the appellants were relying upon him for guidance and advice as to a suitable investment and as to a scheme by which the investment could be financed within their means. They were plainly relying upon him to look after their interests. To my mind that gave rise to a situation of confidence. Kephala provided a scheme whereby, according to his advice, they could attain their objectives. It involved the purchase of a property in which he was interested, but he indicated in the letter of 30th November 1988 that it would be sold to them at valuation and he enclosed the valuation. There was nothing in that to disabuse the appellants of the belief that Kephala was acting in their interests. Thereafter he recommended the solicitors to act in the transaction, arranged the insurance, advised them as to available finance and rates of interest and made arrangements with financiers with respect to their loan applications. These matters would only have confirmed in the minds of the appellants that he was looking after their interests. To my mind all the circumstances, with sole exception of the disclosure of interest, to which I shall refer shortly, indicated that Kephala was purporting to act in the interests of the appellants and that they could rely upon him for guidance and advice. 19. The learned trial judge considered that Kephala's disclosure of his interest in the property was inconsistent with the existence, or continued existence, of a fiduciary relationship. He said:
"It is my view that in the present case Kephala gave notice
of an interest which was quite incompatible with the expectation
that he and the other third party would be required to advise on
matters such as the price, value and suitability of the property,
the incidence of stamp duty and the insertion in the contract of
sale of various terms favourable to, or protective of, the
defendants. There may well have been an element of trust by the
defendants in Kephala's honesty, but when considered against the
background of the evidence which I accept including the nature of
the disclosure, I find on the balance of probabilities that they
were engaged in an ordinary commercial transaction with each
other and were dealing at arm's length (Keith Henry and Company
Pty Ltd v Stuart Walker and Company Pty Ltd 100 CLR 342 at
p.351). And I am firmly of the view that at the time the
defendants appreciated the common-sense reasons as to why this
should be so. I do not accept that the discussions which took
place between Kephala and Franks as to financing, insurance and
assistance to obtain tenants, pointed to a fiduciary
relationship. Such discussions might well take place between
parties dealing at arms length where one party is simply
facilitating the agreement between the two." 20. I do not see the effect of the disclosure in that light. The appellants relied upon Kephala for guidance and advice as to the proposed investment and Kephala ought to have realised that. That gave rise to the relationship of confidence and the duties of a fiduciary. Mere disclosure that the recommended investment involved a property in which Kephala had an interest, did not relieve Kephala of his fiduciary obligations. A passage in the judgment of Brennan J in Daly v Sydney Stock Exchange (supra) at p.385 applies directly to the present case:
"The duty of an investment adviser who is approached by a
client for advice and undertakes to give it, and who proposes to
offer the client an investment in which the adviser has a
financial interest, is a heavy one. His duty is to furnish the
client with all the relevant knowledge which the adviser
possesses, concealing nothing that might reasonably be regarded
as relevant to the making of the investment decision including
the identity of the buyer or seller of the investment when that
identity is relevant, to give the best advice which the adviser
could give if he did not have but a third party did have a
financial interest in the investment to be offered, to reveal
fully the adviser's financial interest, and to obtain for the
client the best terms which the client would obtain from a third
party if the adviser were to exercise due diligence on behalf of
his client in such a transaction." 21. The disclosure of Kephala's interest was not made in terms or in a context which would suggest that he would no longer be looking after the appellants' interests. The character of the disclosure was rather that of a fiduciary who was purporting to discharge his duty to disclose an interest. Kephala did not purport to be negotiating in his own interests as opposed to those of the appellants or to be acting at arm's length from the appellants. On the contrary, his proposal purported to be a sale at valuation, that is to say a sale on a basis which would be fair to the appellants as well as to the vendors. 22. The learned judge considered that the absence of provision for remuneration for acting in the appellant's interests persuasive. I do not think that is of much significance in the circumstances. The question might have arisen if the matter had developed differently. Kephala's immediate response to the appellants' approach, however, was to put the proposition for the sale at valuation of the property in which he had an interest. That was calculated to convey to the appellants that it was Kephala's wish to dispose of the property. Moreover it was assumed on all sides that Kephala's company, Edcom, would manage the property for remuneration. The question of remuneration for Kephala's efforts on the appellants' behalf did not arise. 23. The learned trial judge made the following finding: "I find that the significance of Kephala's disclosure was apparent to Franks and Reddin in the sense that they realised they were dealing with a man who had his own interests to serve in the transaction." 24. An appellate court must be cautious about overturning a finding of that kind which may be based in part on the learned judge's assessment of the parties as witnesses. I have reached the conclusion, however, that if it means that the appellants realised that Kephala was no longer looking after their interests, it is inconsistent with the objective facts established by the evidence, and cannot stand. The basis of the proposed sale, namely at valuation, did not suggest a man who was looking to his own interests to the exclusion of those of the appellants, and Kephala's subsequent conduct could only have encouraged the belief that he was still looking after the interests of the appellants. The inference from the objective facts that the appellants continued to rely on Kephala, is, to my mind, overwhelming. Their actions are eloquent testimony of their reliance on Kephala. They acted on his calculations and financial plan, and on his advice as to the property and its value, without seeking further advice. They signed, through David Franks, the contract which Kephala produced. Although the financial viability of the scheme which Kephala devised, depended upon being able to borrow at interest of not more than 15 per centum per annum, they accepted his assumption that finance would be available at that rate and did not propose that the contract be conditional upon such availability. They acquiesced in his choosing and instructing the solicitors and they acted on his advice and arrangements in approaching the financial institutions. Clearly they placed complete reliance upon and trust in Kephala. If Kephala had thought about it, he ought to have realised that the appellants were relying upon him to protect their interests. 25. I have reached the conclusion, for the above reasons, that Kephala owed the duties of a fiduciary to the appellants in relation to the transaction. As Kephala was acting as servant of the respondent companies in relation to the transaction they also owed the duties of a fiduciary to the appellants. 26. I think that Kephala was in breach of his fiduciary obligations. By engaging in a sale of property in which he had an interest through his companies, he had undertaken a duty described by Brennan J in Daly v Sydney Stock Exchange (supra) as "a heavy one". It was certainly not discharged by mere disclosure of his interest in the property. His obligation as to disclosure, as Brennan J described it, was "to furnish the client with all the relevant knowledge which the adviser processes, concealing nothing that might reasonably be regarded as relevant to the making of the investment decision ..." That obligation required, in my opinion, disclosure that the price asked was greatly in excess of the price paid by the vendors a year before. It was not sufficient to expect Franks to appreciate that fact and its significance from reading the statutory statements at the time of the signing of the contract. It required, in my opinion, specific disclosure that the valuation put forward as the basis of the sale, was not borne out by the vendors' experience in attempting to sell. There should have been specific disclosure that persistent attempts to sell at the price of $355,000 had been unsuccessful and that, moreover, all attempts to secure a lessee had proved unsuccessful. 27. Kephala's obligations as fiduciary went further than disclosure. They extended to obtaining "for the client the best terms which the client would obtain from a third party if the adviser were to exercise due diligence on behalf of his client in such a transaction." On the facts of the present case, that required that Kephala refrain from selling the property to the appellants at a price which was plainly over-value and which he had been unable to obtain on the market. At the very least he should have declined to proceed unless and until the appellants had independent advice. Kephala's fiduciary position also required that he insert a "subject to finance" clause in the contract. He knew that the appellants were proceeding with the transaction on the faith of the financial plan which he had prepared and that the financial viability of the plan depended upon their ability to borrow $317,000 at a rate of interest of about 15 per centum per annum. It was plainly prudent, indeed necessary, to insert a clause protecting the appellants against the possibility of the failure of the plan due to inability to secure finance at a rate of interest which would ensure the plan's viability. 28. I consider that Kephala having failed to discharge his fiduciary duties, the respondents were in breach of their duties to the appellants. They therefore cannot recover from the appellants damages for breach of the contract entered into in consequence of the breaches of fiduciary duty. 29. That conclusion is sufficient to dispose of this appeal. I think, however, that I should deal with the other ground that was argued. It was contended that the placing of an unfounded valuation before the appellants amounted to deceptive conduct under s.52 of the Trade Practices Act 1974 (Cth) and entitled the appellants to resist this action quite apart from the existence of a fiduciary relationship. 30. The relevant law may be sufficiently stated as follows. Conduct may be deceptive or misleading although there is no intention to deceive or mislead. If the consequence is deception, that suffices to make the conduct deceptive; Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1977-78) 140 CLR 216 per Stephen J at p.228, per Jacobs J at p.232 and per Murphy J at p.234. A statement of opinion, such as a valuation, is not misleading or deceptive simply because it is erroneous; Elders Trustee and Executor Co v E G Reeves Pty Ltd (1988) 78 ALR 193 per Gummow J at p.242; Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25. It does convey, however, that the opinion is held and that there is a basis for the opinion; Global Sportsman Pty Ltd v Mirror Newspapers Ltd (supra) at p.31; James v ANZ Banking Group Ltd (1985-86) 64 ALR 347 at p.372. A statement of opinion may be misleading or deceptive, however, if the opinion was not held or if it lacked any, or any adequate, foundation; Elders Trustee and Executor Co v E G Reeves Pty Ltd (supra) at p.242. Where the opinion is expressed as that of an expert, it conveys not only that it is honestly held but that it is held on rational grounds involving an application of the relevant expertise; Bateman v Slatyr (1987) 71 ALR 553 at p.559. 31. The conduct in question is that of Kephala in forwarding to the appellants a valuation of an employee of Edcom, Mr Milne, as the basis of a sale at valuation. The valuation of Mr Milne stated a value of $355,000. This has to be considered against the fact that the present vendors, having purchased the property in December 1987 for $225,000 had been endeavouring at least since May 1988 to sell it for $355,000 without success and had been unable to let it. It was subsequently sold in May 1989 for $247,500. Those facts alone must raise a serious question as to what basis Mr Milne could have had for his valuation. 32. The appellants called as a witness an experienced valuer, Mr Brooke. His evidence was devastating. He was closely cross-examined but was unshaken in his opinions. He valued the property as at 7th January 1989 at $252,000, somewhat above the Valuer-General's valuation for rating purposes of $215,000 as at May 1988 and $236,000 as at May 1989. Mr Brooke allowed a 10 per cent margin either way as a maximum tolerance to accommodate differences of opinion as to value, but could find no justification at all for a value of the order of Mr Milne's valuation. He examined various factors which could be said to possibly account for Mr Milne's figure but refuted all of them. I think that the clear conclusion from the evidence of Mr Brooke is that there was no adequate or rational foundation for the valuation of Mr Milne. No evidence was called to contradict the evidence of Mr Brooke. The respondents called no evidence as to values. Mr Milne was not called as a witness and there was no suggestion that he was not available. 33. The learned trial judge in dealing with the allegation of deceptive and misleading conduct, correctly held that "There is no evidence to suggest, nor was it pleaded, that the opinion as to the value was not honestly held by the valuer." He also said: "I accept Kephala's evidence that he acted in good faith in sending it to the defendants and, once again, the pleadings do not suggest otherwise." 34. His Honour was correct about the state of the pleadings and there could be no challenge to his finding as to Kephala's bona fides. That, however, does not dispose of the point. Bona fides on the part of Kephala in forwarding the valuation would not be an answer if the valuation which he forwarded lacked any, or any adequate, foundation. As to that His Honour said:
"There was no evidence which showed 'that the opinion was
not held or that it lacked any, or any adequate, foundation';
(Elders Trustee and Executor Co Ltd v E.G. Reeves Pty Ltd 78 ALR
193 at p.242). The mere discrepancy between the valuation
proffered by Mr Brooke and that of Mr Milne does not establish
any of these matters; nor does that aspect, taken along with the
rest of the evidence, establish false or misleading conduct
within s.52 of the Trade Practices Act." 35. I am unable to agree with the last mentioned conclusion of the learned judge. To my mind the uncontradicted evidence of Mr Brooke, together with the history to which I have referred, establishes that Milne's valuation lacked any foundation. It is inconceivable that there could be any rational basis for a valuation which is some 40 per cent in excess of the true value as established by the evidence of Mr Brooke and in excess of what the property was bought for and subsequently sold for, and of the Valuer-General's valuation, to an even greater degree. This conclusion is the more easily drawn in the absence of evidence from Mr Milne or evidence explaining his absence. This was no mere discrepancy between the opinions of valuers. Mr Milne's valuation was shown to be so far in excess of any reasonable assessment that it can properly be described as an opinion without basis or any adequate foundation. 36. His Honour also held that the necessary element of reliance upon the valuation had not been established. I do not think that that finding can be sustained. It was undoubtedly for the appellants to prove reliance upon the valuation as supplying a sufficient causal connection between the conduct and the entry into the contract; Elders Trustee and Executor Co v E G Reeves Pty Ltd (supra) at p.242. If, however, conduct is of such a nature as to be likely to induce a representer to act upon it, the inference may be drawn; Gould v Vaggelas (1984-85) 157 CLR 215 at p.236; Elders Trustee and Executor Co v E G Reeves Pty Ltd (supra) at p.242. 37. It is often difficult for witnesses to recall and analyse their states of mind at relevant times and to determine precisely what operated upon their minds. These appellants were clear that they relied upon Kephala and were mainly concerned about whether they could finance the transaction. It seems to me, however, that the inference is strong that they were mainly concerned about finance because there was no question in their minds about the price. There was a valuation to support the price and they trusted Kephala to protect their interests. It would defy common sense to suppose that they were uninfluenced by the valuation. It must have lulled them into a false sense of security as to the price which they were to pay. It is impossible to accept that if they had known that the Milne valuation was 40 per cent higher than the true value, they would have agreed to buy at the price. 38. Mr Williams QC argued that the point that the forwarding of Milne's valuation amounted to deceptive and misleading conduct, was not open to the appellants having regard to the state of the pleadings and the course of the trial. The Statement of Claim is not as clear as it might be as to what is alleged to constitute the misleading and deceptive conduct complained of. The same matters are relied upon as are alleged to constitute the breach of fiduciary duty. Those matters include the following particulars:
"13.6.6 Failed to ascertain by all reasonable enquiry that
the proposed terms of the said agreement would effect a sale of
the subject property at a significant over-value; 13.6.7 Failed
to disclose to the defendants that neither he nor they had made
any such enquiry;
13.6.8 Failed to disclose to the defendants that the proposed
terms of the said agreement would effect a sale of the subject
property at a significant over-value;
13.6.9 Advised and recommended to the defendants that they bind
themselves to the terms of the said agreement, when each knew or
ought to have known that the sale thereby to be effected would be
at a significant over-value;
13.6.10 Failed to advise the defendants to seek independent
advice, including legal advice, as to the value of the subject
property, before binding themselves to the terms of the said
agreement;" 39. The language of those particulars is more apt for particulars of breach of fiduciary duty than for misleading and deceptive conduct. They are, however, adopted as particulars of the latter in paragraph 14. The respondents allowed the case to go to trial without further particularisation so it is reasonable to subject those particulars to a process of interpretation to enable them to serve as particulars of misleading and deceptive conduct. The allegations of failure to make reasonable inquiry as to value and of failure to disclose such lack of inquiry, together with the allegations of failure to disclose that it was a sale at over-value and to advise the seeking of independent advice and also of recommending a purchase at over-value, are sufficient, when interpreted as particulars of misleading and deceptive conduct, to have put the respondents on notice that it was alleged that the valuation put forward by the respondents was without foundation. If there were a reasonable foundation for it, none of those allegations could be sustained. 40. The focus on the lack of foundation for the valuation became sharper during the trial. Kephala was closely cross-examined as to the history of the property in the hands of his companies in a manner which could not have failed to indicate to the respondents' advisers that Milne's valuation was challenged as being wholly inconsistent with the known facts. The opening of defence counsel was brief and did not touch on this aspect. Mr Brooke's examination in chief, however, could have left no doubt in the minds of the respondents' advisers. His evidence generally was a full frontal attack on the Milne valuation as being without foundation. Questions in examination in chief were plainly directed to showing that there was no conceivable basis for the Milne figure. That was their obvious purpose. His answers both in examination in chief and in cross-examination amounted to stating that. Mr Williams was invited by the judge to consider whether he wished to call evidence of valuation in rebuttal but did not do so. 41. I feel no doubt that the respondents' advisers were put on adequate notice of the need to substantiate the foundations of Mr Milne's valuation, if that could be done. They were evidently unable to do so. In my opinion the allegation of misleading and deceptive conduct is also made out. Any loss otherwise recoverable by the vendor respondents for breach of contract would be loss sustained in consequence of conduct in breach of s.52 of the Trade Practices Act and recoverable under s.52. It could be set off so as to defeat the claim. In my opinion this appeal should be allowed, the judgment appealed from should be set aside and there should be judgment for the defendants dismissing the action.
JUDGE2 BOLLEN J I agree with the Chief Justice that the appeal should be allowed on the ground that the respondents were in breach (through Kephala) of fiduciary duty owed to the appellants. 2. I prefer to rest my decision on the ground of breach of duty. I am not convinced that the giving of the impugned valuation to the appellants amounted to misleading or deceptive conduct under s.52 of the Trade Practices Act.
JUDGE3 MOHR J The appellants were defendants in the court below when the respondents claimed that they had failed to complete a contract for the purchase of a commercial property. The respondents were successful in that action and damages were awarded against the appellants. In their defence the appellants claimed that they had lawfully rescinded the contract and counterclaimed damages. In their defence and counterclaim they alleged breach of fiduciary duty, breach of contract of agency, fraud, misrepresentation and false and misleading conduct contrary to the Trade Practices Act 1974 (Commonwealth). 2. The background to the matter was that the male appellants were veterinary surgeons in practice in partnership at Murray Bridge. Mrs Franks was married to Mr Franks but was not a partner in the practice. She was however a partner in the real estate transaction which gave rise to these proceedings. 3. Mr Kephala is and was at all material times a licensed land agent. He was a director of Edcom Real Estate Pty Ltd (Edcom). He and the company are the third parties in the proceedings. Kephala was also a director of and shareholder in the companies (the respondents). They were family companies controlled by Kephala and his wife. 4. Kephala and Franks met in 1980 at a time when Kephala sent some of his horses to a stud at which Franks was employed as a veterinary surgeon. They were not close associates but kept in touch over the years. In about 1981 they first discussed real estate and Kephala told Franks that if he were interested then he would "look after him". 5. Later that year Franks spoke to Kephala and told him he and his wife were interested in purchasing a small property as an investment. Kephala showed them a house at St Marys which they purchased. They leased it and Kephala managed it for them by collecting the rent. He also gave advice about erecting a shed to make the property more attractive for a small business. 6. The relationship was amicable and business-like. On 17th November 1988 Franks again approached Kephala about purchasing real estate as an investment. He told him that he and his wife and his partner Redden were looking for a commercial property. This conversation apparently came about as a result of Kephala telephoning Franks to discuss the future of the St Marys property. 7. At that time the respondent companies owned a property at 895 South Road Clarence Gardens. It was a former Post Office. This had been purchased in December 1987 for $225,000.00. It was untenanted. 8. According to the evidence of Kephala, which the learned trial Judge accepted, Franks said they were anxious to purchase a property for "negative gearing purposes". Kephala was told that Franks and his partners could service borrowings of $60,000 from their own resources but that the balance would have to be serviced by rental income from the property. At that stage Kephala did not mention any property but undertook to do some calculations and contact Franks at a later stage. 9. Kephala telephoned Franks on 23rd November 1988 and told him of a property - the old Post Office - which was owned by two companies (the respondents) of which he was a director and shareholder. During the course of that telephone call he gave details of a proposal for Franks and his partners to peruse and finance the purchase of the property. Franks told Kephala that he wanted and needed time to consider the matter. On 30th November Reddin rang Kephala and asked that the details discussed with Franks be forwarded to them (ie. Franks, Reddin and Mrs Franks). 10. In response to this call Kephala wrote the letter of 30th November which became "P4". This letter was written on the letterhead of Edcom Real Estate Pty Ltd and as it was important in the court below and became important in considering the appeal I set it out hereunder:-
" 30th November, 1988
Mr David Franks 140 Swanport Road MURRAY BRIDGE SA 5253 RE: 895
SOUTH ROAD, CLARENCE GARDENS Dear David, Further to our telephone
conversation with yourself and your partner, we enclose herewith
a copy of the title of the property, together with a photograph
sketch of the property and a copy of internal floor plan. The
following is submitted for your consideration. PRICE:
$355,000.00 as per valuation. The first mortgage, i.e.
$300,00.00 to be serviced as follows ... Interest on the first
$60,000.00 at 15 per cent p.a. to be met by yourselves amounting
to $9,000.00 p.a. The commitment on the balance of $240,000.00
at 15 per cent p.a. to be met by the vendor guaranteeing the
rental at $36,000.00 p.a. for the first 12 months, or upon the
leasing of the property to a suitable tenant. The rental to be
$36,000.00 p.a. or more. This will immediately release the
vendor from the guarantee if this occurs before the end of the
first 12 months. We propose the following in relation to the 2nd
mortgage, i.e. the $55,000.00 at a rate of 10 per cent p.a. to
be carried by the vendor and interest to accumulate and be added
on to the principal. e.g. 2nd mortgage $55,000.00 add interest
for 1st year $ 5,000.00 $60,500.00 add interest for 2nd year
$ 6,050.00 $66,550.00 add interest for 3rd year $ 6,655.00
$73,205.00 This example shows my willingness to carry this 2nd
mortgage for a period of up to 3 years if required. I trust this
is sufficient information to enable you to discuss this with your
partner, and await to hear from you regarding inspection of the
property. Yours sincerely, Andrew Kephala EDCOM REAL ESTATE PTY.
LTD." 11. Enclosed with this letter as well as a copy of the title, a floor plan and a sketch of the property and a valuation stated to be as at 4th November 1988. This valuation is on the letterhead paper of Edcom Real Estate Pty Ltd and signed by a Mr Milne a licensed valuer. It placed a value of $355,000.00 on the property. 12. There was a further telephone call from Reddin to Kephala on Saturday 3rd December asking if they could inspect the property. 13. The learned trial Judge after recounting the complaints in the evidence found that prior to the inspection of the property Kephala had made known to Franks that he was a director and shareholder in the vendor companies. Further both Franks and Reddin said in evidence that Kephala disclosed his interest in the car on the way to the inspection. 14. The parties entered into an agreement for the sale and purchase of the property on the 7th January 1989. The purchase price was $355,000.00. At the same time as the contract was signed the vendors gave to the purchasers a Form 18 setting out the information required by s.88 and 90 of the Land Agents Brokers and Valuers Act 1973. Included in that information was the fact that the vendors had purchased the property on the 17th December 1987 for $225,000.00. 15. From the findings at the trial it is clear that Kephala made full disclosure of his interest in the property and the proposed sale and further the history of the property so far as it related to the purchase of it by the respondents was also clearly communicated to the appellants. 16. The pleadings in the matter became a matter of great dispute at the hearing of the appeal especially in relation to s.52 of the Trade PracticesAct 1974. The relevant paragraphs of the defence as finally pleaded are paragraphs 12, 13 and 14 which read:-
"The defendants have lawfully rescinded the said agreement
and further claim a set-off:
12.1 The said Andrew Kephala ('Kephala') is, and was at all
material times, a director and principal shareholder of each of
the plaintiff companies;
12.2 The business of each of the plaintiff companies included
the purchase of real property for the purpose of investment, and
sale of the same for profit;
12.3 Edcom Real Estate Pty. Ltd. ('Edcom') is, and was at all
material times, a company incorporated in South Australia and
carrying on business in South Australia as a licensed land agent,
and real estate consultant;
12.4 Kephala is, and was at all material times, a director and
principal shareholder of Edcom, which employed him as its
licensed manager;
12.5 The defendants are, and were at all material times,
in the said State;
12.6 In about November 1988, the defendants employed Edcom, by
its Manager, Kephala, to locate a suitable property within their
financial capacity to purchase out of borrowings of $60,000.00 to
be serviced out of their superannuation funds and further
borrowed funds to be serviced out of income from the property,
and to negotiate on their behalf terms of purchase accordingly;
12.7 Acting as well on behalf of the plaintiff companies as the
owners of the property referred to in paragraph 2 of the
Statement of Claim ('the subject property'), Edcom by its
Manager, Kephala, offered to treat with the defendants for the
sale and purchase of the subject property;
12.8 By agreement in writing dated 7th January, 1989 the
defendants agreed to purchase, and the plaintiff companies, by
their agent Edcom and its Manager, Kephala, agreed to sell the
subject property for $355,000.00, upon the terms and conditions
provided in the said agreement, to which the defendants will
refer at trial for its full terms and effect;
12.9 In order to induce the defendants to enter into the said
agreement, the plaintiff companies by their agent Edcom and its
Manager, Kephala, represented to the defendants that Kephala was
able to, and would, arrange and procure loans to the defendants
totalling $300,000.00 at the rate of 15 per cent per annum, and
further represented that Kephala had reasonable grounds for
believing that he could arrange and procure the loans at that
rate;
12.10 The defendants were neither willing nor able to complete
the said agreement unless the loans at that rate could be, and
were, procured;
12.11 Acting on the faith of those representations, and induced
thereby, the defendants entered into the said agreement;
12.12 Further, or in the alternative, in consideration of the
defendants entering into the said agreement, the plaintiff
companies by their agent Edcom and its Manager, Kephala,
undertook and agreed to arrange and procure the loans at that
rate;
12.13 The defendants have since discovered, and the facts are,
that the said representations are untrue, further or
alternatively, the plaintiff companies are, and have been, in
breach of the said collateral agreement, in that Kephala was not
able to, and did not, arrange or procure any loans at the rate of
15 per cent per annum, and had no reasonable grounds for
believing that he could;
12.14 Further, the plaintiff companies by their agent Edcom and
its Manager, Kephala, made the representations fraudulently,
either well knowing that they were false or recklessly not caring
whether they were true or false;
12.15 As soon as the defendants discovered that the
representations were untrue, and the plaintiff companies in
breach of the said collateral agreement, the defendants, by
letter dated 20th March, 1989 from their solicitors addressed to
the Manager, Edcom, as agents for the plaintiff companies,
rescinded and repudiated the agreement as they were entitled to
do.
13 The defendants are Entitled to an Indemnity and set off for
Breach of Fiduciary Duty: Further, or alternatively, the
plaintiffs are liable to indemnify the defendants for losses
caused by the plaintiffs' breaches of fiduciary duty; and for
which the defendants claim a set off.
13.1 The plaintiff companies, and Kephala on their behalf,
stood in a fiduciary relation to the defendants, and owed them a
duty not to allow the interests of the plaintiff companies in
securing the best possible terms of sale as vendors, to conflict
with Kephala's duty to protect and act in the best interests of
the defendants in the purchase of a property suitable to their
needs.
13.2 The relationship and the duties pleaded in paragraph 13.1
herein, arose by reason of the facts and matters pleaded in
paragraphs 12.1 to 12.8 herein, and in particular by reason of
the fact that: 13.2.1 Kephala was, at all material times, acting
on behalf of both the plaintiff companies and Edcom; 13.2.2
Kephala, on behalf of Edcom was, at all material times, acting on
behalf of the defendants.
13.3 The defendants entered into the written agreement referred
to in paragraph 12.8 herein upon the advice and recommendation of
both Edcom and Kephala.
13.4 The sale thereby effected was at a significant over-value.
the value of the subject property was then about $247,500.
13.5 Kephala, on his own behalf, and on behalf of both Edcom
and the plaintiff companies, acted in breach of his and their
respective fiduciary duties owed to the defendants in negotiating
and preparing the terms of the said agreement, and in advising
and recommending to the defendants that they bind themselves to
those terms, in that he, and each of them:
As to its being an Unconditional Contract:
13.6.1 Failed to include in the said agreement a condition that
its completion be subject to the defendants obtaining finance on
terms to be specified therein;
13.6.2 Failed to advise the defendants to require the inclusion
in the said agreement of such a condition;
13.6.3 Advised and recommended to the defendants that they bind
themselves to the unconditional terms of the said agreement, when
each knew or ought to have known that the defendants were thereby
exposing themselves to the risk of being unable to complete the
said agreement for lack of finance;
13.6.4 Failed to warn the defendants that if they bound
themselves to the unconditional terms of the said agreement, they
would expose themselves to the risk of being unable to complete
for lack of finance;
13.6.5 Failed to advise the defendants to seek independent
advice, including legal advice, as to the proposed terms fo the
said agreement, and as to the risk of being unable to complete
for lack of finance;
As to Its Being a Sale at Over-Value:
13.6.6 Failed to ascertain by all reasonable enquiry that the
proposed terms of the said agreement would effect a sale of the
subject property at a significant over-value;
13.6.7 Failed to disclose to the defendants that neither he nor
they had made any such enquiry;
13.6.8 Failed to disclose to the defendants that the proposed
terms of the said agreement would effect a sale of the subject
property at a significant over-value.
13.6.9 Advised and recommended to the defendants that they bind
themselves to the terms fo the said agreement, when each knew or
ought to have known that the sale thereby to be effected would be
at a significant over-value;
13.6.10 Failed to advise the defendants to seek independent
advice, including legal advice, as to the value of the subject
property, before binding themselves to the terms of the said
agreement;
As to the Impact of Stamp Duty:
13.6.11 Failed to advise the defendants that under the proposed
terms of the said agreement they would be liable to pay a further
sum of $15,000 for additional costs, including stamp duty;
13.6.12 Failed to advise the defendants to take into account a
further sum of $15,000 for additional costs, including stamp
duty, when assessing their capacity to complete under the
proposed terms of the said agreement;
13.6.13 Advised and recommended to the defendants that they
bind themselves to the terms of the said agreement, when each
knew or ought to have known that the defendants had not taken
into account the further sum of $15,000 for additional costs,
including stamp duty when assessing their capacity to complete;
13.6.14 Failed to advise the defendants to seek independent
advice, including legal advice, as to their capacity to complete,
in view of the additional costs, including stamp duty, of
$15,000.
14 The Defendants are Entitled to an Indemnity and Set Off for
Misleading and deceptive Conduct: Further, or in the alternative,
the plaintiffs engaged in misleading and deceptive conduct in
contravention of Section 52Trade Practices Act 1974 (Cwlth) and
are liable to indemnify the defendants for losses caused thereby;
for which the defendants claim a set off: 14.1 By reason of the
facts and matters pleaded in paragraphs 12 and 13 herein, the
plaintiff companies engaged in misleading and deceptive conduct
in contravention of Section 52Trade Practices Act 1974 (Cwlth).
14.2 In the further premises the plaintiff companies are liable
to indemnify the defendants for the loss and damage suffered by
them in consequence of the contraventions; and the defendants
claim to set off the same accordingly." 17. Paragraph 12 can be quickly disposed of. The allegations made therein were not made out at the trial and no point arises on it at this stage. 18. Paragraph 13 it will be noted relies at the outset on an alleged breach of fiduciary duty and it was the alleged breach of fiduciary duty that was said by the pleadings, to be the basis for the claim pursuant to s.52 of the Trade Practices Act. Paragraphs 13.4, 13.6.6, 13.6.7, 13.6.8, 13.6.9, 13.6.10 raise the allegation that the sale was at an overvalue but within the context of there being a breach of fiduciary duty. 19. As the course of the trial and the basis for the allegations made in paragraph 13 as set out above, loomed so large in the matter, reference must be made to another matter of dispute. 20. At the hearing of the appeal an affidavit of Mr Heywood-Smith who was counsel for the appellants at the trial was tendered. He stated in paragraph 3 thereof:-
"I opened the case on Wednesday 15th April 1992. I opened,
upon the evidence of a valuer by the name of Brooke. I intimated
to the effect of Brooke's evidence was that there was no
foundation for the value placed upon the subject property in a
valuation prepared by one Milne which valuation was attached to
the letter of offer given to the defendants by the plaintiffs." 21. There was a dispute or more properly a non agreement as to what Mr Heywood-Smith had said in opening. Accordingly the trial Judge was asked to furnish a report. He has done so and provided a copy of Mr Heywood-Smith's opening which read:-
"I don't intend to open greatly because I think that your
Honour is probably reasonably aware of the defendants' case, but
I should tell your Honour that I propose to call the following
witnesses: Mr David Franks will be called first. His partner Mr
Jack Reddin will be called. Mrs Anne Franks, the third
defendant, will be called as will a Mr Stoumbas who will tell
your Honour that he runs a fish business in the vicinity and he,
apart from attending the initial auction back in December 1987
when the property was purchased by Mr Kephala, he will give
evidence as to his purchase of the property in May 1989 when it
was sold by Colliers. He will give some evidence as to the
renovations that were required in order for him to secure a lease
of the premises and some general matters of that nature. The
defendants propose to call a Mr Brooke who is an independent
valuer who will give your Honour some evidence as to the value of
this property at particular times and considerations going to the
value of the property. It's also proposed to call Mr Jolly who
your Honour is aware is somebody from the Co-operative Building
Society." 22. It will be seen that the record does not accord with Mr Heywood-Smith's recollection and no mention was made of Mr Milnes' valuation being without foundation. 23. In the Court below the evidence of Mr Brookes valuation was lead by the appellants. He valued the property at the time of sale to the appellants at $252,000.00. He was extensively cross examined and did not retract his opinion that his was the correct valuation and that of Mr Milne was an overvaluation. In my opinion what is an important consideration is that throughout, the main contention by the appellant was that a fiduciary relationship existed throughout between themselves and Kephala (in effect the respondents). If that could be established then the allegations detailed in paragraph 13 of the Defence fell for consideration, if not then they did not. His Honour considered this question at length and in doing so the credit of the appellants and Kephala loomed larger. He found Kephala to be more credible and accepted his version of various conversations. In some cases there were quite large discrepancies between the respective versions which if resolved in favour of the appellants may well have told in the favour on the main question of whether or not a fiduciary relationship existed. 24. I find it unnecessary to set out the river of the evidence which lead to the findings made of the question of whether or not a fiduciary relationship had been made out. I agree with the finding that no such relationship could have been found to be in existence between the parties. His Honour expressed himself thus:-
"In the view that I take of the matter it is important to
have regard not only to Franks' approach to Kephala in
mid-November, 1988 but also to Kephala's response. When Franks
first rang Kephala about purchasing a commercial property he told
Kephala that he and his partner were interested in an investment
and gave him particulars of the extent to which the property
could be financed. It is difficult to conceive of this approach
as being anything more than an enquiry as to whether Kephala knew
of any commercial properties which might be of interest to Franks
and Reddin. It was not until Kephala rang back on 23rd November,
that the true nature of what was to be the relationship between
the parties in respect of this transaction crystallised. It was
then that Kephala identified the property and disclosed his
interest. At that point it was clear that the relationship was
to be that of vendor and purchaser. What followed in the course
of the negotiations served to confirm this position. If this
assessment of the evidence is correct then neither Kephala nor
Edcom could be viewed as a fiduciary of the defendants." and later:-
"It is my view that in the present case Kephala gave notice
of an interest which was quite incompatible with the expectation
that he and the other third party would be required to advise on
matters such as the price, value and suitability of the property,
the incidence of stamp duty and the insertion in the contract of
sale of various terms favourable to, or protective of, the
defendants. There may well have been an element of trust by the
defendants in Kephala's honesty, but when considered against the
background of the evidence which I accept including the nature of
the disclosure, I find on the balance of probabilities that they
were engaged in an ordinary commercial transaction with each
other and were dealing at arm's length (Keith Henry and Company
Pty Ltd v Stuart Walker and Company Pty Ltd 100 CLR 342 at
p.351). And I am firmly of the view that at the time the
defendants appreciated the common-sense reasons as to why this
should be so. I do not accept that the discussions which took
place between Kephala and Franks as to financing, insurance and
assistance to obtain tenants, pointed to a fiduciary
relationship. Such discussions might well take place between
parties dealing at arms length where one party is simply
facilitating the agreement between the two. A similar process of
reasoning leads me to the view that neither Kephala nor Edcom
were the defendants' agents in the transaction. Apart from the
clear indications that the parties were cast in the roles of
vendor and purchaser, there was no suggestion of employment for
remuneration and I reject the suggestion that Kephala agreed that
he or Edcom would act as a gratuitous agent. I am confident that
neither Franks nor Reddin regarded Kephala as their agent and it
is very clear on the evidence that Kephala did not so regard
himself." 25. Later the question of Mr Brookes' valuation was dealt with. It was pointed out that he had the advantage of knowing that on 31st May 1989 the property was sold at auction by the respondents for $247,500.00. He also reminded himself that the respondents in the letter exhibit "P4" had made the offer to provide the first years rent by way of a guarantee and had offered a second mortgage of $55,000.00 at a favourable rate of interest with payments deferred for three years. Although not directly affecting the value of the property they were terms offered by a vendor which were favourable to a purchaser. The complaints in paragraph 13 of the defence were, shortly put, that the respondents had sold the property to the appellants for a price which was higher than its true value. There were no allegations made that there was any fraud or false pretence on the respondents part nor in turn that Mr Milne's valuation was not made bona fide nor indeed if it was not made bona fide that the respondents knew that to be the case. 26. I turn now to consider the main argument addressed to us by Mr Quick QC who appeared for the appellants. This was that s.52 of the Trade Practices Act required only a representation of a fact which if shown to be false would lead to a finding of misleading and deceptive conduct being made against the party making such a representation. This arose in the course of the trial at a very late stage. Mr Heywood-Smith, who appeared as counsel for the appellants at the trial raised the issue and submitted that it maybe that an amendment of the pleadings may be necessary. 27. The amendment proposed was never disclosed to his Honour but in my opinion it would have required a radical recasting of the defence. So far as pleadings go the plaintiff was in court to meet a case for the defendants, of an allegation of a fiduciary relationship existing and the particulars given in paragraph 13 of the defence rested on that basic premise. What was put by Mr Heywood-Smith in the court below and what Mr Quick argued in this court was not dependent on a fiduciary relationship being established. That is to say as his Honour put it:-
"If it is a technicality, then that is one thing. At the
moment I am just not convinced that it is a technicality. You
say it is a technicality because of one little fact, so to speak,
which wasn't pleaded and which has been accepted any way, but
facts by themselves are not so important. It is the way in which
the other party wants to rely on them which is of significance
and a certain set of facts can give rise to all sorts of causes
of action. That doesn't mean to say at the end of the case a
party can throw in a few causes of action which happened to
coincide with the facts." 28. In my opinion the appellant having chosen by their pleadings the ground on which they contested the respondents case could not at the end of the day say, in effect, "Well if we lose on all the matters raised in our defence then here is a new defence about which the plaintiffs have had no notice and have not met but which should decide the matter in our favour". 29. What his Honour had in mind when speaking of amendments to the pleadings was, I gather, amendments which would raise the bona fides of Kephala in regard to the valuation made by Mr Milne and his use of it. Although not raised on the pleadings his Honour dealt with this aspect of the valuation in his judgment and consequently felt no need to raise again the question of amending the pleadings. He said:-
"In the present case the evidence established that Kephala
supplied the defendants with the valuation which I have
summarised above. As I have pointed out there is no misstatement
of fact evidence on the face of the material presented in the
document itself. There is no evidence to suggest, nor was it
pleaded, that the opinion as to the value was not honestly held
by the valuer. I accept Kephala's evidence that he acted in good
faith in sending it to the defendants and, once again, the
pleadings do not suggest otherwise. There was no evidence which
showed 'that the opinion was not held or that it lacked any, or
any adequate, foundation'. (Elders Trustee and Executor Co. Ltd
v E.G. Reeves Pty Ltd 78 ALR 193 at p 242.) The mere discrepancy
between the valuation proffered by Mr Brooke and that of Mr Milne
does not establish any of these matters; nor does that aspect,
taken along with the rest of the evidence, establish false or
misleading conduct within s.52 of the Trade Practices Act. In
making this finding I have taken into account the defendants'
submission that the proffering of the valuation, taken in
conjunction with Mr Kephala's silence as to the history of the
property and his failure to discuss with the defendants that Mr
Milne was an employee of Edcom, supported their assertion that
there was a breach of the section." 30. I would dismiss the appeal.
0