Harvard Nominees Pty Ltd v Tiller (No 4)
[2022] FCA 105
•16 February 2022
FEDERAL COURT OF AUSTRALIA
Harvard Nominees Pty Ltd v Tiller (No 4) [2022] FCA 105
File number: WAD 250 of 2019 Judgment of: JACKSON J Date of judgment: 16 February 2022 Catchwords: PRACTICE AND PROCEDURE - hearing on remitter from appeal - principles to be applied on remitter - interpretation of remitting judgment - extent to which an order setting aside dismissal of a claim allows that claim - issue estoppel - Anshun estoppel - whether issue should have been raised at appeal level
CONSUMER LAW - misleading or deceptive conduct - remedies - statutory rescission relief sought under s 237 and s 243 of Australian Consumer Law - date of statutory rescission - relevance of date of statutory rescission to damages - date of statutory rescission to fulfil compensatory purpose - conditions on statutory rescission - unwinding of only part of a suite of transactions
CONSUMER LAW - misleading or deceptive conduct - remedies - damages sought under s 236 of Australian Consumer Law - valuation of lost opportunity - discount for contingency - deductions bringing benefits received to account - onus of proof in relation to deductions
PRACTICE AND PROCEDURE - pre-judgment interest on damages - interest rate applicable
Legislation: Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law) ss 2, 18, 236, 237, 243
Federal Court of Australia Act 1976 (Cth) ss 28, 51A
Judiciary Act 1903 (Cth) s 37
Trade Practices Act1974 (Cth) ss 52, 87
Federal Court Rules 2011 (Cth) r 39.05
Fair Trading Act 2010 (WA) ss 19, 24
Cases cited: Alati v Kruger (1955) 94 CLR 216
Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200
Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440
Barnes v Forty Two International Pty Ltd [2014] FCAFC 152
Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211; (2012) 202 FCR 72
Champtaloup v Thomas [1976] 2 NSWLR 264
Clone Pty Ltd v Players Pty Ltd (in liq) (rec & man apptd) [2018] HCA 12; (2018) 264 CLR 165
Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd [2005] FCA 1247
Community and Public Sector Union v Telstra Corporation Ltd (No 2) [2001] FCA 479; (2001) 112 FCR 324
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
E K Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172
Fernando v Commonwealth of Australia [2014] FCAFC 181; (2014) 231 FCR 251
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688
Harvard Nominees Pty Ltd v Tiller (No 2) [2020] FCA 604
Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109
Investments (WA) Pty Ltd v City of Swan [2012] WASC 278
JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd [2011] FCAFC 4; (2011) 190 FCR 299
Management 3 Group Pty Ltd (in liq) v Lenny's Commercial Kitchens Pty Ltd (No 2) [2012] FCAFC 92; (2012) 203 FCR 283
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657
McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR NSW 187
McCarthy v McIntyre [2000] FCA 1250
Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981
Minister for Immigration and Multicultural Affairs v Wang [2003] HCA 11; (2003) 215 CLR 518
Minter v Geraghty (1981) 38 ALR 68
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274
Murdock v Bettcher [2008] SASC 79
Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388
R v Carroll [2010] NSWCCA 55; (2010) 77 NSWLR 45
Re The Spanish Club Ltd [2015] NSWSC 661
Re The Spanish Club Ltd [2015] NSWSC 1858
Roberts v Bass [2002] HCA 57; (2002) 212 CLR 1
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Tenji v Henneberry & Associates Pty Ltd [2000] FCA 550; (2000) 98 FCR 324
Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507
Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333
United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 257
Western Australia v Russell [2009] WASCA 154
Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 258 Date of hearing: 27-28 April 2021 Counsel for the Applicant: Mr MC Hotchkin with Mr AW Buchan Solicitor for the Applicant: Hotchkin Hanly Lawyers Counsel for the Respondents: Mr M Cuerden SC with Mr A Freund Solicitor for the Respondents: Lawton Gillon ORDERS
WAD 250 of 2019 BETWEEN: HARVARD NOMINEES PTY LTD (ACN 008 761 037)
Applicant
AND: SIMON CLIFFORD TILLER
First Respondent
DIMENSION AGRICULTURE PTY LTD
Second Respondent
GIOVANNI BASILIO NICOLETTI
Third Respondent
DAMIAN GLEN BRYCE
Fourth RespondentFELICITY HELEN TILLER
Fifth Respondent
ORDER MADE BY:
JACKSON J
DATE OF ORDER:
16 FEBRUARY 2022
THE COURT ORDERS THAT:
1.Pursuant to s 237 and s 243(a) of the Australian Consumer Law, the following instruments made on 8 February 2019 are declared to have been void ab initio:
(a)Lease - Warriup between Harvard Nominees Pty Ltd, and Dimension Agriculture Pty Ltd and Simon Clifford Tiller; and
(b)Lease - Howick between Harvard Nominees Pty Ltd, and Dimension Agriculture Pty Ltd and Simon Clifford Tiller.
2.The first and second respondents jointly and severally must pay damages and pre‑judgment interest to the applicant in amounts to be determined in accordance with paragraph 3 of these orders.
3.By 4.00 pm AWST on 2 March 2022 the parties must file an agreed minute of calculation of damages and pre-judgment interest in accordance with the reasons for judgment or, failing agreement between them, separate minutes.
4.By 4.00 pm AWST 2 March 2022, the applicant must file and serve an outline of written submissions, no longer than five pages, in relation to the costs of the original proceeding and the costs of the remitter.
5.By 4.00 pm AWST on 16 March 2022, the respondents must file and serve an outline of written submissions, no longer than five pages, in relation to the costs of the original proceeding and the costs of the remitter, and indicating whether any oral hearing is sought.
6.By 4.00 pm AWST on 23 March 2022, the applicant must file and serve an outline of written submissions, no longer than three pages, in reply, indicating whether any oral hearing is sought.
7.The amended originating application dated 4 December 2019 is otherwise dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Table of Contents
Introduction
[1]
Background
[4]
The issues on remitter
[5]
The appeal
[15]
The grounds of appeal
[16]
The Appeal Judgment
[20]
Principles on remitter
[40]
First issue - the operative date of the order that the New Leases are void
[52]
The parties' positions
[53]
Rescission at common law or equity?
[71]
Principles in relation to statutory rescission
[73]
Consideration
[92]
Second issue - should Harvard repay to Dimension certain amounts?
[104]
Third issue - should damages be awarded against Mr Nicoletti?
[119]
Harvard's submissions
[119]
The respondents' submissions
[138]
Consideration
[145]
The Full Court did not say that Mr Nicoletti is liable
[145]
The Full Court did not uphold ground 1(b)
[147]
Setting aside the dismissal of the damages claim does not mean Mr Nicoletti is liable
[162]
Harvard did not advance ground 1(b) as originally framed
[172]
Issue estoppel and Anshun estoppel
[176]
The administration of justice
[184]
Conclusion
[190]
Fourth issue - damages
[191]
The parties' positions
[194]
Principles
[206]
Consideration
[210]
Valuing the lost opportunity of the 2019 Fowler Lease
[212]
Deduction of rent actually paid
[227]
Deduction for Mr Vaughan's leasing fee
[228]
Deductions for rental arrears and council rates
[232]
Deduction for landlord's improvements
[242]
Conclusion
[246]
Fifth issue - interest on damages
[247]
Costs
[258]
REASONS FOR JUDGMENT
JACKSON J:
Introduction
In Harvard Nominees Pty Ltd v Tiller (No 2) [2020] FCA 604 (Primary Judgment or PJ) I found that the first respondent, Simon Tiller, and the second respondent, Dimension Agriculture Pty Ltd, had made representations to the applicant, Harvard Nominees Pty Ltd, that were misleading or deceptive in breach of s 18 of the Australian Consumer Law (ACL), given force both as Schedule 2 to the Competition and Consumer Act 2010 (Cth) and by s 19 and s 24 of the Fair Trading Act 2010 (WA). I also found that Mr Tiller, Dimension and the third respondent, Giovanni Nicoletti, engaged in misleading or deceptive conduct which involved the concealment of certain deeds into which Mr Tiller and Dimension had entered. But I dismissed Harvard's claim, because I found that none of the conduct caused Harvard to suffer loss or damage.
In Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530 (Appeal Judgment or AJ), the Full Court set aside the orders dismissing the application, and remitted the matter to me on the question of what, if any, relief should be granted under s 236 and s 237 of the ACL, and for resolution of any issues as to costs.
There was a two day hearing on that remitter, during which the parties adduced further affidavit and oral evidence, including by cross-examination, although in the end almost all of the issues to which that cross‑examination went fell away. The respondents ended up adducing affidavit evidence from Mr Nicoletti on one point only, and he was not cross‑examined. Ultimately, the scope of evidentiary dispute was limited and for the most part the resolution of the issues turned on legal arguments. It is not possible to summarise conveniently at this point the conclusions I have reached in the reasons below.
Background
The following summary at [1] of the Appeal Judgment sets out the background and main findings as to misleading or deceptive conduct in the Primary Judgment (all definitions adopted in this judgment):
(1)The appellant [applicant] (Harvard) is a company controlled by Mr John Caratti.
(2)Harvard was the registered proprietor of a farm in Western Australia known as 'Warriup Farm' and Mr John Caratti and his brother Mr Allen Caratti were the registered proprietors of another farm known as 'Howick Farm'.
(3)Prior to January 2019, Harvard had leased Warriup Farm to Mammoth Investments Pty Ltd (Mammoth), a company of which Mr John Caratti was a director, which then subleased it to the first respondent, Mr Tiller and the fifth respondent, Mrs Tiller; Mr John Caratti and Mr Allen Caratti had also leased Howick Farm to Mammoth which also had subleased that property to Mr and Mrs Tiller.
(4)A series of transactions then took place which included the surrender by Mr and Mrs Tiller of their subleases (Tiller Subleases) over Warriup Farm and Howick Farm (together, the Farms), the surrender by Mammoth of its lease over Warriup Farm and the assignment of Mammoth's head lease of Howick Farm to Harvard. These transactions were entered into to allow two new leases to be entered into (New Leases) being: (a) a lease of Warriup Farm by Harvard to Mr Tiller and to the second respondent, Dimension Agriculture Pty Ltd (Dimension); and (b) a sublease of Howick Farm by Harvard to Mr Tiller and Dimension.
(5)Prior to entry into this series of transactions, in late January 2019, Mr Tiller and Dimension engaged in misleading and deceptive conduct. This conduct arose because although Dimension had one shareholder, the fourth respondent, Mr Bryce, and its directors were Mr Bryce and Mr Tiller, Dimension in fact was a vehicle of the third respondent, Mr Nicoletti, and had been structured in such a way as to prevent Mr John Caratti being aware of Mr Nicoletti's involvement. This was of significance because Mr John Caratti did not want to enter into a lease arrangement involving Mr Nicoletti. Mr John Caratti perceived Mr Nicoletti as 'bonded' to Mr Allen Caratti, a person against whom he bore a great deal of animosity, and Mr Nicoletti had the capacity to pay a significantly higher rent than the rent proposed under the New Leases (such that Mr Nicoletti's involvement would have 'put a very different complexion on a proposed lease for what was believed to be below market rent': PJ [364]).
(6)The entry into the New Leases by Harvard took place in reliance upon a misleading and deceptive representation made by Mr Tiller and Dimension as to the involvement of Mr Nicoletti in Dimension.
(7)When this ruse was discovered, by a letter from its solicitors dated 2 April 2019, Harvard asserted misleading or deceptive conduct and 'fraudulent misrepresentation' and notified Mr Tiller and Dimension that Harvard 'elected to rescind' the New Leases.
(8)The Tiller Subleases having been surrendered and having given notice of rescission of the New Leases, on 17 April 2019, Harvard executed a lease of the Farms to companies associated with the Fowler family ([2019] Fowler Lease); this was to commence on 1 May 2019 but was subject to Harvard obtaining vacant possession of the Farms by 30 April 2019.
(9)Unbeknownst to Harvard, subsequent to the entry into the New Leases, by deed (15 February Deeds) Mr Tiller assigned his interests in the New Leases to Dimension and agreed to have no involvement in pastoral activities on the Farms. The primary judge also found that the failure to disclose the 15 February Deeds amounted to misleading and deceptive conduct from 15 April 2019 onwards because, on that date, a letter had been sent by solicitors on behalf of Mr Tiller and Dimension which did not reveal the true position.
The issues on remitter
Several issues proved contentious on remitter. In order to understand the main ones, it is necessary to understand the basis on which I found in the Primary Judgment that no relevant loss or damage had been caused by any of the misleading conduct. The appeal was allowed because the Full Court reached a different conclusion. It is also necessary to understand the basis on which the Full Court allowed the appeal, as that was itself an area of contention on remitter.
Staying with the Primary Judgment for the moment, it identified two instances or courses of misleading or deceptive conduct. The first was the misleading or deceptive conduct of Mr Tiller and Dimension in January 2019 which is described at sub-paragraphs (5) and (6) of the Full Court's summary above (January Conduct). The Primary Judgment characterised Harvard's claim in relation to that conduct as a claim for economic loss that was suffered because of the lost opportunity to proceed with the 2019 Fowler Lease. It concluded that Harvard had not suffered loss in this way, because before the New Leases and related instruments were entered into, Harvard was not in a position to lease the Farms to the Fowlers anyway. The relevant lessor of each Farm before the New Leases and the transactions surrounding them was Mammoth, which was committed to the Tiller Subleases. Harvard ran no counterfactual case that the Tiller Subleases would have been terminated, permitting it (or Mammoth) to lease the Farms to the Fowlers.
The second instance (or course) of misleading or deceptive conduct identified in the Primary Judgment was the non-disclosure of the 15 February Deeds by Mr Tiller, Mr Nicoletti and Dimension, as mentioned in sub-paragraph (9) of the Full Court's summary (Non-Disclosure Conduct). The Primary Judgment characterised Harvard's claim for loss or damage arising out of that conduct as a claim that, had the existence and terms of the 15 February Deeds been disclosed to Harvard sooner than they were, Harvard would have relied on the entry into those deeds as a repudiation or fundamental breach of the New Leases. The claim was that Harvard would have elected to accept that repudiation with the result that the New Leases would have been terminated from the date of that election, and Harvard would have been free to lease the Farms to the Fowlers. This claim was dismissed in the Primary Judgment because I found that the entry into the 15 February Deeds was not a repudiation or fundamental breach of the New Leases.
A point which assumes some importance in this judgment is that Harvard's claim that the 15 February Deeds did amount to repudiation of the New Leases was necessarily premised on the New Leases having had continuing legal effect until any election to accept that repudiation. As will be seen, this led the Full Court to characterise the claim as a true alternative to the claim that was based on the January Conduct.
Contrary to the Primary Judgment, the Full Court found that Harvard had suffered loss and damage as a result of misleading or deceptive conduct. To say much more than that is to enter contentious territory, because the meaning and effect of the Appeal Judgment were in issue on the remitter. But the Appeal Judgment was, at least, to the effect that the January Conduct did cause Harvard to suffer loss and damage of two different kinds, so that Harvard had established the precondition for both a declaration under s 237 and s 243(a) of the ACL that the New Leases were void on the basis of one kind of loss and damage, and for damages under s 236 on the basis of the other.
Against this background, the issues that arise out of the parties' submissions on the remitter are as follows:
(1)Should the New Leases be declared void from the date of their formation (8 February 2019), or from the date on which Harvard notified Mr Tiller and Dimension that it elected to rescind (2 April 2019), or, as the respondents contend, only from 10 January 2021? The significance of this last date is that on or shortly after it, Dimension ceded possession of the Farms to Harvard. The parties agree that the New Leases should be declared void. The controversy is over the date from which this will be ordered to have effect. The reason this matters, according to both parties, is that the further remedy of damages can only be ordered if the New Leases are declared to be void ab initio or from 2 April 2019. As explained below, that is because of the parties' understanding of certain passages in the Appeal Judgment. So this issue bears on the question of whether Harvard should receive any award of damages at all.
(2)Should the New Leases be declared void on condition that Harvard repay to Dimension certain amounts that Dimension has paid in relation to the Farms, totalling $388,611.12?
(3)If damages are to be awarded, are they to be awarded against Mr Nicoletti, or only against Dimension and Mr Tiller?
(4)If Harvard is to receive an award of damages, what should the amount be?
(5)What interest should be awarded on any damages?
The third issue about Mr Nicoletti's liability for damages informs much of the following section, which considers the effect of the Appeal Judgment. So it is worth explaining at the outset how the issue arises. It is because Harvard submits, in effect, that the Appeal Judgment disturbed two further conclusions that do not appear from the Full Court's summary of the Primary Judgment as set out above.
The first of those conclusions concerned Mr Nicoletti's involvement in the January Conduct, or rather his lack of relevant involvement. The conclusion in the Primary Judgment was that Harvard had failed to establish that Mr Nicoletti was 'a person involved' under s 2(1) of the ACL in Mr Tiller's and Dimension's contravening conduct for the purposes of s 236 or s 237. Harvard had not established that Mr Nicoletti had a sufficient degree of knowledge of the January Conduct. So he was not liable in respect of that conduct.
The second conclusion that gave rise to dispute on remitter concerned the Non-Disclosure Conduct. In the Primary Judgment I found that, along with Mr Tiller and Dimension, Mr Nicoletti engaged in that conduct, so there was no issue as to his involvement. But as already described, I dismissed the claim based on the Non-Disclosure Conduct because I found that it did not cause Harvard's claimed loss.
Harvard now submits that the effect of the Appeal Judgment is that both of these conclusions fall away, so that Mr Nicoletti is liable in respect of the January Conduct and the Non‑Disclosure Conduct. The basis of the submission will be described in detail below but, in essence, it is that the Full Court implicitly upheld a ground of appeal that was based on a different case as to causation of loss from those described above.
The appeal
Chiefly because of the issue about Mr Nicoletti's liability, there was much dispute about the proper understanding of the Appeal Judgment and about what follows from it. As indicated, this extended to submissions based on the grounds of appeal, and also to the contextual relevance of submissions that were made in the appeal. It is therefore necessary to examine the appeal in some detail.
The grounds of appeal
The grounds of appeal were as follows:
1.The Court erred in finding that the Appellant did not suffer loss or damage because of the conduct of:
a.the First and Second Respondents in making the Second Bryce Representation, the First Nicoletti Representation, and the Second Nicoletti Representation ('the 31 January Conduct') (para [569] of the Judgment);
Particulars
(i)The Court erred in failing to find that, by becoming contractually bound to perform obligations under the New Leases (such as the obligation to ensure the First and Second Respondents had quiet enjoyment of the Farms), in circumstances where it did not wish to have any involvement with the Third Respondent in relation to the subject matter of the New Leases, and would not have entered into the New Leases had it known of the Third Respondent's involvement, the Appellant suffered loss and damage.
(ii)The Court erred in failing to find that the Appellant suffered loss or damage because it was unable to secure vacant possession in time to satisfy the condition precedent to the right to compel performance by Fowler of its obligations under the Fowler Lease, by reason of the Respondents' reliance upon their rights under the New Leases.
(iii)The Court erred in holding that the existence of any such loss or damage could not be established by reference to the circumstance that the Tiller Lease had been, and remained at trial, surrendered (which meant that, absent the New Leases, the Appellant would have been able to enter into the Fowler Lease and deliver vacant possession in time); and
b.the Respondents, in failing to disclose the 15 February Deeds at any material time prior to the institution of proceedings in the Federal Court of Australia ('the 15 February Deeds Conduct') (paras [629] and [672] of the Judgment).
Particulars
The Court erred in failing to find that the Appellant suffered because it lost the opportunity to rescind the New Leases on the ground that the 15 February Deeds falsified the assertion by the Respondents at all material times that the 31 January Conduct was true in fact, and thereby precluded the Appellant from obtaining immediate vacant possession of the Farms from on or about 15 February 2019;
in each case, in contravention of s 18 of the Australian Consumer Law.
2.The Court erred in finding (at paragraphs [629] and [634]) that the 15 February Deeds Conduct did not repudiate the New Leases, entitling the Appellant to terminate the New Leases and procure immediate vacant possession of the Farms from on or about 15 February 2019.
Particulars
(a)Having found (at paragraph [627]) that a fundamental breach is one which goes to the root of the contract between the parties, the Court did not consider whether the identity of the Lessee under the New Leases went to the root of the New Leases, but rather considered whether assignment clauses by their nature went to the root of leases generally.
(b)On a proper construction of the New Leases, having regard to both their text and the factual context in which the identity of the Lessee as being the First Respondent and his company was agreed, the contracting parties objectively intended a breach of the absolute prohibition against the First Respondent parting with possession of the Farms without the prior written consent of the Appellant, whether by assignment or otherwise, was a fundamental breach of the New Leases, such that the 15 February Deeds Conduct was a repudiation of the New Leases, entitling the Appellant to terminate the New Leases as it did on 5 April 2019, and obtain vacant possession immediately thereafter.
Some immediate observations about these grounds can usefully be made. First, ground 1(a) concerned only the January Conduct, which the ground correctly identified to be the conduct of Mr Tiller and Dimension. It attacked the finding that was the reason for the dismissal of the claim based on that conduct, namely that the conduct had not caused Harvard to lose the opportunity to lease the Farms to the Fowlers. One aspect of the attack was a case based on a different kind of loss, namely being contractually bound under the New Leases in circumstances where Harvard did not wish to have any involvement with Mr Nicoletti: particular (i) to ground 1(a). But if ground 1(a) were to be upheld, only Mr Tiller and Dimension would be liable. There was no attack in the grounds of appeal on the conclusion in the Primary Judgment that it had not been established that Mr Nicoletti's knowledge of the January Conduct was sufficient to make him a person involved in that conduct for the purposes of s 236 and s 237 of the ACL.
Second, ground 1(b) advanced a case that was not considered in the Primary Judgment. It relied on a combination of the January Conduct and the Non-Disclosure Conduct. It appeared to be based on the proposition that the content of the 15 February Deeds confirmed the misleading nature of the January Conduct, because they showed that Mr Tiller relinquished all interest in and control over the Farms. So ground 1(b) is to the effect that if Harvard had known about the 15 February Deeds at or after the time they were made, it would have known that the January Conduct involved actionable misrepresentation. It would then have exercised its common law or equitable rights to elect to rescind the New Leases on the basis of that misrepresentation. The argument goes that since the availability of that course of action was concealed by the Non-Disclosure Conduct, there was a causal connection between the Non-Disclosure Conduct and the lack of the ability to lease the Farms to the Fowlers. Mr Nicoletti would thus be liable, as he was found to have engaged in the Non-Disclosure Conduct.
Third, ground 2 attacked the conclusion that was the basis, in the Primary Judgment, of Harvard's case based on the Non-Disclosure Conduct. It advanced the argument that, contrary to the conclusions in the Primary Judgment, Mr Tiller's and Dimension's entry into the 15 February Deeds was a repudiation or fundamental breach of the New Leases. If this had been upheld, Mr Nicoletti would have been liable, because he engaged in the Non‑Disclosure Conduct.
The Appeal Judgment
It is now necessary to consider the Appeal Judgment in some detail. After summarising the background as set out above, the Appeal Judgment said (at [2]):
Despite the findings of the primary judge that Mr Tiller and Dimension had engaged in contravening conduct, Harvard was unsuccessful in obtaining relief. This result followed his Honour concluding that Harvard had failed to establish that it suffered or was likely to suffer any loss or damage. In broad terms, this appeal turns upon whether this conclusion as to a failure of Harvard to establish any loss or likely loss was correct.
It will be observed that what the Full Court considered was in issue before it was the conclusion that Harvard had failed to establish that it suffered or was likely to suffer any loss or damage. And the Appeal Judgment connects this conclusion to the findings that Mr Tiller and Dimension had engaged in contravening conduct. There is no mention of Mr Nicoletti at this point.
The Appeal Judgment then turned to consider the case Harvard advanced at first instance. The nature of that case was in issue. The Full Court commenced with the orders sought in the amended originating summons which relevantly included (AJ [5]):
A.Pursuant to section 237 of the Australian Consumer Law, an order under section 243 of the Australian Consumer Law declaring the Lease made on 8 February 2019 between [Harvard] and [Mr Tiller and Dimension] to be void, alternatively an order requiring [Mr Tiller and Dimension] to execute a deed terminating the Lease.
[and]
E. As against each of [Mr Tiller, Dimension, Mr Nicoletti and Mr Bryce]:
(a)damages pursuant to section 236 of the Australian Consumer Law;
(b)interest on such damages as may be awarded to [Harvard] at the rate of 6% per annum calculated from 8 February 2019, alternatively 20 April 2019, to payment.
That is the final relief Harvard now seeks, save that it no longer pursues Mr Bryce - he was not a respondent to the appeal. Also, as will be described, Harvard seeks a declaration that it rescinded the New Leases on 2 April 2019, apparently with effect at common law or in equity, and seeks a higher interest rate than 6% or the interest rate contemplated in the Federal Court's practice note on the subject.
The Appeal Judgment went on to make the following observations (among others):
(1)The relief Harvard sought at trial was all sought under the ACL: AJ [7].
(2)Harvard's position as to whether it had validly rescinded the New Leases in its letter of 2 April 2019 was opaque, and Harvard sought no declaratory relief to the effect that the New Leases had been validly rescinded at common law as at that date, or for equitable relief: AJ [11].
(3)The claim for statutory compensation was for the loss of the benefit of the 2019 Fowler Lease. For the first year, the amount claimed was $1,150,000 (plus GST), being the annual rent under that lease of $1,950,000 (plus GST) less the rent of $800,000 (plus GST) which Mr Tiller and Dimension paid under the first year of the New Leases: AJ [14]-[15].
The Appeal Judgment found that a relevant part of the Primary Judgment proceeded on the basis that this loss and damage, the lost benefit of the 2019 Fowler Lease, was the same loss and damage as founded the claim for a declaration under s 237 and s 243(a) of the ACL that the New Leases were void (which the Appeal Judgment called statutory rescission): AJ [15]‑[16]. It summarised the finding in the Primary Judgment that this loss and damage had not been established as having been suffered on the basis that the Tiller Subleases, which were in existence before the contravening conduct, prevented vacant possession being obtained in order that the Fowler Lease could proceed: AJ [17].
The Appeal Judgment set out the relevant provisions of the ACL at AJ [18]‑[20], and it is convenient to set them out again here:
236 Actions for damages
(1) If:
(a)a person (the claimant) suffers loss or damage because of the conduct of another person; and
(b)the conduct contravened a provision of Chapter 2 …;
the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.
237 Compensation orders etc. on application by an injured person or the regulator
(1) A court may:
(a)on application of a person (the injured person) who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that:
(i)was engaged in a contravention of a provision of Chapter 2, …
…
make such order or orders as the court thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct.
Note 1: …
Note 2: The orders that the court may make include all or any of the orders set out in section 243.
(2) The order must be an order that the court considers will:
(a)compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or
(b)prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons.
…
243 Kinds of orders that may be made
Without limiting section 237(1), …, the orders that a court may make under any of those sections against a person (the respondent) include all or any of the following:
(a)an order declaring the whole or any part of a contract made between the respondent and a person (the injured person) who suffered, or is likely to suffer, the loss or damage referred to in that section, or of a collateral arrangement relating to such a contract:
(i)to be void; and
(ii)if the court thinks fit - to have been void ab initio or void at all times on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);
…
(e)except if the order is to be made under section 239(1) - an order directing the respondent to pay the injured person the amount of the loss or damage;
…
The focus of the appeal was the finding in the Primary Judgment that Harvard had not established one of the necessary 'gateways' to relief under s 237, namely that it suffered loss or damage because of the contravening conduct: AJ [21]-[22]. While the Full Court was not explicit at this point as to what contravening conduct it was referring to, the context of the discussion is the findings as to loss or damage (or lack thereof) caused by the January Conduct: see AJ [15]-[22].
At AJ [23]-[31], the Appeal Judgment then surveyed a number of aspects of Harvard's submissions at first instance which were relevant to whether it had advanced a case for loss beyond the economic loss represented by loss of the ability to grant the 2019 Fowler Lease. The Full Court set out in full each of the extracts from those submissions that Harvard said were relevant. Some of those extracts dealt with loss or damage said to have been caused by both the January Conduct and the Non-Disclosure Conduct: AJ [25], [29]‑[30]. One concerned the loss said to arise from the Non-Disclosure Conduct alone: AJ [27].
At AJ [32], the Full Court set out the consideration in the Primary Judgment of Harvard's argument, based on Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, that it had suffered loss in the form of the detriment suffered by being bound to a contract induced by contravening conduct. After doing so, the Appeal Judgment concluded that Harvard had sufficiently raised an argument that the loss or likely loss that permitted statutory rescission and further orders to be sought was not the same as the alleged damage resulting from the lost benefit of the 2019 Fowler Lease, and that it had been dealt with in that way in the Primary Judgment: AJ [33]. It is relevant to note that the aspect of the Primary Judgment thus considered pertained to the January Conduct, and not to the Non-Disclosure Conduct.
Under a main heading ('Was the pre-condition of loss or likely loss established?'), the Appeal Judgment then turned to deal with what it called 'Harvard's primary argument on appeal that the failure of the primary judge to find loss or likely loss by reason of the contravening conduct amounted to error': AJ [34]. Again, the Full Court was not explicit as to whether this referred to both the January Conduct and the Non-Disclosure Conduct, but the context of the preceding discussion suggests it was only the former.
The Appeal Judgment summarised the findings in the Primary Judgment that Harvard had suffered no loss and damage because there was no evidence that it was worse off after the contravening conduct and it could not have leased the Farms to the Fowlers before the contravening conduct because no one could give vacant possession (because of the existence of the Tiller Subleases): AJ [36]. It also referred to the rejection in the Primary Judgment of 'Harvard's submission that entering into the New Leases was a loss in the relevant sense because it had committed itself to contractual obligations it would not otherwise have had': AJ [37]. Once again, this was about the claim for loss caused by the January Conduct. It did not concern the claim that loss was caused by the Non-Disclosure Conduct because Harvard was unaware of its right to retake vacant possession as a result of Mr Tiller's and Dimension's alleged repudiation of the New Leases. Nor did it concern the argument raised in ground 1(b), and not addressed in the Primary Judgment, that the failure to disclose the 15 February Deeds deprived Harvard of the ability to rely on rescission at common law or equity for actionable misrepresentation.
The Appeal Judgment then turned to explaining why the Full Court had formed a different view to that expressed in the Primary Judgment: AJ [38]. It described Harvard's submission to it as being that in the particular circumstances, it suffered loss because of 'entry into the contractual relations of the New Leases, involving the creation of an ongoing relationship involving reciprocal rights and obligations with, and the conferral of significant benefits upon, a corporate entity that is the vehicle for a person with whom Harvard had a strong desire to avoid having any dealings with whatsoever' and at an 'advantageous rent the benefit of which would not have been conferred': AJ [41]-[45].
The Appeal Judgment then conducted a review of the authorities (AJ [48]-[76]) from which it concluded (AJ [77]) that the finding:
that Harvard would not have entered into the Tiller Leases [sic New Leases] but for the offending conduct is sufficient to establish that Harvard 'suffered, or is likely to suffer, loss or damage' within the meaning of s 237(1)(a) of the ACL which in turn provides a foundation for relief under s 243.
But the Appeal Judgment went on to say that it was 'not necessary to decide the case on that narrow basis', because entry into contractual relations with a vehicle for Mr Nicoletti, at a low rent from which John Caratti would not have wanted to see Mr Nicoletti benefit, was prejudice or disadvantage resulting in non-economic loss: AJ [78]-[79], [82]. The Appeal Judgment found that Harvard's loss and damage was 'relevantly, being bound to a contract with someone it strenuously wishes not to be contracted to on terms it would not have agreed' (AJ [82]).
At AJ [84]-[85] the Full Court considered and rejected a submission by the respondents that the suite of transactions which resulted in the New Leases was indivisible, so that it was impermissible to focus only on the loss or damage said to arise from the New Leases alone. Then at [86], the Appeal Judgment said that appreciation that Harvard could base its loss or damage on the New Leases:
focusses on the particular loss or damage that Harvard identifies as having been caused by the contravening conduct such as to justify the relief that it seeks. That loss or damage is being bound to extended contractual performance under the New Leases as we have explained and that constitutes loss or damage regardless of the effect of the other transactions. Any economic benefit that Harvard might hypothetically have enjoyed as a consequence of the suite of transactions as a whole would not offset that particular form of loss or damage on which it relies for the rescission relief that it seeks. Rescission (or termination), as opposed to statutory damages, is the only relief that can cure that loss or damage. By analogy, see Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [[2011] FCA 981;] (2011) 216 IR 116 (at [873] per Barker J).
The Appeal Judgment characterised 'trying to assess whether Harvard's ultimate financial position under the New Leases was worse than what its position would have been if none of the suite of transactions had occurred' as 'a highly speculative exercise': AJ [87].
The Appeal Judgment then turned to consider the claim for damages under s 236 of the ACL, as distinct from the claim to statutory rescission. It said (at [88]-[89]):
Insofar as the claim for statutory damages is concerned, the process of reasoning is that Harvard was entitled to rescind or terminate the New Leases on learning about the involvement of Mr Nicoletti and, consequently, the contravening conduct. It sought to do that by the letter on 2 April 2019 but Mr Tiller and Dimension Agriculture, through their solicitors, rejected that rescission by letter dated 5 April 2019.
Harvard submitted that once it is recognised that Harvard was entitled to have the New Leases rescinded with effect from 2 April 2019, the question is then: what position would Harvard have been in had that occurred? It submitted that it could have leased the farms to the Fowlers and that the only reason why it could not do so was because the respondents denied and failed to give effect to its legal rights.
There is no reference in AJ [88]-[89] to the Non-Disclosure Conduct or Mr Nicoletti's role in it.
At [90], the Full Court cited Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 as authority for the proposition that the loss or damage which a person suffers as a result of contravening conduct is not necessarily singular. Then, at [91]-[93], a passage on which Harvard placed particular reliance, the Appeal Judgment said:
It is thus apparent that a single act of misleading and deceptive conduct, or a course of misleading and deceptive conduct, is capable of producing different remedial responses including statutory damages under s 236 and rescission or termination under ss 237 and 243.
The primary judge found (PJ [507]) that the contravening conduct materially contributed to Harvard's inability to obtain vacant possession after 2 April 2019 and therefore its inability to take the benefit of the Fowler leases. Under the broad common-sense notion of causation under the ACL, that is sufficient to have concluded that the loss represented by the lost opportunity of the Fowler leases is 'loss or damage because of the conduct of another person' (s 236(1)(a)), being the contravening conduct of the respondents.
Of course, any quantification of that loss will depend at least in part on any statutory rescission relief. Thus, any inquiry as to both forms of relief will need to be undertaken by the primary judge on remittal.
This was followed by a main heading 'Second ground of appeal'. The Appeal Judgment described 'Harvard's other ground of appeal' (AJ [94]), thus confirming that up to that point it had been dealing with Harvard's first ground of appeal. That first ground is not expressly referred to, paraphrased or otherwise described in the Appeal Judgment. Its subdivision into ground 1(a) and ground 1(b) is not mentioned. But ground 2 is described as being that there was error 'in finding that the 15 February Deeds conduct did not repudiate the New Leases entitling Harvard to terminate the New Leases and procure immediate vacant possession of the farms from on or about 15 February 2019'. At [95] the Appeal Judgment said:
Since we have found that Harvard had an entitlement to rescind the leases as at 2 April 2019, and that statutory rescission relief should follow from that, any finding in Harvard's favour on the alternative ground would be inconsistent. It is in that sense a pure alternative. Because of that, and because the matter has to be remitted to the primary judge for the question of relief, we do not consider that it is necessary or efficient to deal with the second ground. The notice of contention is advanced as an answer to the second ground and can accordingly be put to one side.
Then, under the heading 'Disposition', the Appeal Judgment provided direction on the scope and determination of the remitter as follows (at [96]‑[98]):
Because of the different view the primary judge came to with regard to loss or damage under s 237, his Honour did not come to consider the relief that should be ordered under s 243. As we have explained, the principal relief sought by Harvard is rescission (or termination) of the New Leases. Questions arise about whether this remedy should be granted and, if so, the terms of any order. It is unnecessary to go into detail, but as a matter of context, it should be recalled that at common law, rescission occurs by election; in equity rescission occurs by court order and, like all equitable remedies, is subject to equitable defences and the discretion of the court. Relevant to the exercise of discretion is the fact, as explained by Lord Blackburn in Erlanger v New Sombrero Phosphate Company (1878) 3 App Cas 1218 (at 1279), that the court may order rescission on terms that seek to 'do what is practically just' between the parties. Although equity ameliorated the harshness of the position at common law (in that it did not insist on precise restitutio in integrum) it has been argued that a central tenet of rescission remains the restoration of the parties to their original positions as the criterion of practical justice: see, for example, O'Sullivan D, Elliott S and Zakrzewski R, The Law of Rescission (Oxford University Press, 2008) at p 312. The principles developed in equity are at least relevant to the exercise of (what Harvard will no doubt argue is the flexible and broad nature of) the statutory discretion to make orders in the nature of rescission under s 243. We have not heard argument in relation to this issue, nor do we have before us the evidence the parties have indicated they propose to rely upon in addressing such matters. Nor have we heard argument, given we are dealing with a statutory remedy, as to the appropriate operative date for such an order of statutory rescission. Such questions may assume some importance given that Mr Nicoletti or companies associated with him put significant investment into the farms (said by him to have been $3 million and found by the primary judge to have been 'in the order of millions of dollars' - PJ [328]), and also from the nature of the growing season. In any event, all parties accepted that further evidence relevant to the question of relief may be necessary.
It will also be necessary for his Honour to consider the secondary relief sought, being statutory damages; an issue that Harvard asserts can only be dealt with subsequent to determining whether statutory rescission ought to be ordered and the relevant terms of any such order.
For the reasons explained above, the appeal should be allowed, the orders of the primary judge dismissing the amended originating application and associated costs orders should be set aside, and the matter should be remitted to his Honour on the question of what, if any, relief should be granted under ss 236 and 243 of the ACL.
The orders the Full Court made were:
1.The appeal is allowed.
2.Order 1 of the orders made on 19 March 2020, order 5 of the orders made on 11 May 2020 and order 1 of the orders made on 22 July 2020 be set aside.
3.The matter be remitted to the primary judge on the question of what, if any, relief should be granted under ss 236 and 237 of the Australian Consumer Law and any issues as to costs of the proceedings below.
4.The respondents pay the appellant's costs of and incidental to this appeal.
Order 1 of the orders made on 19 March 2020 was the order dismissing the claim for statutory rescission, that is, prayer for relief A set out at [21] above, and consequential remedies. Order 5 of the orders made on 11 May 2020 was the order dismissing the balance of the application. Order 1 of the orders made on 22 July 2020 was the order made as to the costs of the proceeding at first instance.
Principles on remitter
Before turning to a fuller description, and to resolution, of the issues, it is convenient to set out the principles that must guide me as a judge determining a matter remitted in the judgment of an appellant court.
The orders in the Appeal Judgment were made pursuant to s 28(1) of the Federal Court of Australia Act 1976 (Cth). Section 28(1) and s 28(2) are as follows (former paragraph (e) in s 28(1) has been repealed):
(1)Subject to any other Act, the Court may, in the exercise of its appellate jurisdiction:
(a)affirm, reverse or vary the judgment appealed from;
(b)give such judgment, or make such order, as, in all the circumstances, it thinks fit, or refuse to make an order;
(c)set aside the judgment appealed from, in whole or in part, and remit the proceeding to the court from which the appeal was brought for further hearing and determination, subject to such directions as the Court thinks fit;
(d)set aside a verdict or finding of a jury, and enter judgment notwithstanding any such verdict or finding;
(f)grant a new trial in any case in which there has been a trial, either with or without a jury, on any ground upon which it is appropriate to grant a new trial; or
(g)award execution from the Court or, in the case of an appeal from another court, award execution from the Court or remit the cause to that other court, or to a court from which a previous appeal was brought, for the execution of the judgment of the Court.
(2)It is the duty of a court to which a cause is remitted in accordance with paragraph (g) of subsection (1) to execute the judgment of the Court in the same manner as if it were its own judgment.
While the Appeal Judgment is not explicit as to which powers the Full Court exercised in making its orders, paragraph 3 of the orders would appear to have been made pursuant to s 28(1)(c) of the Federal Court Act. It is expressed to be a remitter, not an order for a new trial, and it is a remitter that is limited to two specific areas of the entire controversy between the parties: what, if any, relief should be granted under s 236 and s 237 of the ACL, and any issues as to costs of the proceedings below.
The present remitter is therefore a more limited form of hearing than a new trial. The 'further hearing and determination' referred to in s 28(1)(c) is, in the words of Finkelstein J in Community and Public Sector Union v Telstra Corporation Ltd (No 2) [2001] FCA 479; (2001) 112 FCR 324 at [15], 'just that, namely a continuation of a trial that has already begun, though interrupted by a final order which has been set aside'. In that case, when the matter was remitted to Finkelstein J after an appeal, the successful appellants wished to cross‑examine a witness whom they had agreed not to cross‑examine at the original trial. After a review of the history of orders for new trial, modern authorities, and the construction of s 28(1), his Honour held (at [17]) that the better view was that 'the "further hearing" will be conducted on the basis that it is a continuation of the first trial, where the parties can only mend their hand or change course in accordance with well known rules'. His Honour thus went on to determine the application to cross‑examine on the basis that the appellants were seeking to reopen their case for that purpose. A Full Court approved that approach in Fernando v Commonwealth of Australia [2014] FCAFC 181; (2014) 231 FCR 251 at [52]‑[53] (Besanko and Robertson JJ, Barker J agreeing).
That being so, then, subject to an obvious and important qualification, the present remitter is to be approached as a continuation of the original trial. It may have been necessary to approach it differently had it been a more comprehensive remitter of the entire controversy between the parties: see R v Carroll [2010] NSWCCA 55; (2010) 77 NSWLR 45 at [28]‑[29]; Minister for Immigration and Multicultural Affairs v Wang [2003] HCA 11; (2003) 215 CLR 518 at [7], [16] (Gleeson CJ), [45] (McHugh J), [67] (Gummow & Hayne JJ).
The obvious and important qualification is that the remitter is to be conducted in light of the decision of the Full Court in which the remitter is ordered. That has at least three implications. The first is that the court on remitter must act consistently with the Appeal Judgment. That includes not only the ultimate orders made, which may give express direction to the court on remitter, but also the reasons for decision. The authorities for this basal proposition tend to be in the context of s 37 of the Judiciary Act 1903 (Cth), which imposes on courts to which the High Court remits a cause an express obligation to execute the judgment of the High Court in the same manner as if it were their own judgment: see the authorities collected by Pritchard J in Investments (WA) Pty Ltd v City of Swan [2012] WASC 278 at [35]. The power to remit under s 28(1)(c) of the Federal Court Act is not accompanied by any similar express requirement, although the different power under s 28(1)(g) is: see s 28(2). But none of the parties here suggested that this made any difference; where an appellate court, higher in the hierarchy that a primary court, determines a matter in a certain way, it must follow that the primary court cannot depart from that determination on remitter.
The second implication is that where the appellate court has disturbed findings of the primary court, and therefore potentially reopened issues that the primary court had resolved, it will be open to the primary court to determine those issues afresh, once again provided that it does so in accordance with the judgment of the appellate court. This will of course include issues that are expressly within the scope of the order of remittal. No application to reopen for the purpose of determining those issues will be necessary. In relation to those issues, the court on remitter may reach a conclusion different to the one it reached the first time. It may of course be required to do so because of the findings of the appellate court.
The third implication is in part a corollary of the second, and arises from the character of the remitter hearing as a continuation of the previous trial. It is that the primary court, on remitter, cannot go outside the scope of what is remitted, or reconsider any of its previous findings that have not been disturbed by the appellate court, unless it determines in accordance with ordinary principles that it is in the interests of the administration of justice to give leave to reopen.
Once again, the authority for the confining effect of the scope of the remitter is mostly based on s 37 of the Judiciary Act, in the context of High Court appeals: see Carroll at [27]. But there is no reason to think that remitters under s 28(1)(c) of the Federal Court Act are any different. It is elementary that if the Full Court has remitted the matter to the primary court to determine specified matters, it is those matters and those matters alone that the primary court has authority to determine. And it follows from the fact that the remitter is a continuation of the previous trial that, subject to the effect of the appellate court's judgment, and to any application to reopen in the interests of justice, the court will not depart from the findings it has already made.
Consistent with this, in Re The Spanish Club Ltd [2015] NSWSC 661 at [53]‑[54] (Spanish Club 1), Black J reached the following conclusions:
The effect of the authorities seems to me to be that, unless an application to reopen my judgment is successful, when made more than two years after that judgment was given and after an appeal from it has been determined, it is not open to me, having reached factual and legal findings in a final judgment in the proceeding, to the extent those findings have not been upheld on appeal, now to reach different or contrary factual and legal findings as to the same issues in the same proceeding. Still less as it is open to me, as a trial judge, to reach findings contrary to those which the Court of Appeal has reached in the same matter, albeit the matter had a different proceeding number in the Court of Appeal. Mr Walker accepted as much in oral submissions.
Mr Walker fairly accepted in oral submissions that, subject to appeal, the determination of a matter in a proceeding is binding for the purposes of that proceeding. …
It is true that his Honour reached these conclusions after considering arguments based on res judicata and issue estoppel, but it seems to me, with respect, that the same conclusion can be reached by the different route I have outlined. Harvard has also made arguments based on issue estoppel and Anshun estoppel, which it will be necessary to address below.
The above three implications of the appellate court's judgment make it important for this Court on remitter to understand the precise scope of what has been remitted, as well as to understand the meaning and effect of the appellate court's judgment more generally. It is within the authority of this Court on remitter to determine the controversy between the parties as to what was and was not decided by the Full Court: see Re The Spanish Club Ltd [2015] NSWSC 1858 at [6]. And the parties here accept the elementary proposition that it is to be determined as a matter of objective construction of the orders made and the reasons expressed in the Appeal Judgment, in all the relevant context. The parties also accept that relevant context includes at least the grounds of appeal, the submissions on appeal, and the primary judgment.
A question may arise as to the extent to which new evidence may be adduced on the remitter. It would seem to follow from the approach in Community and Public Sector Union as endorsed in Fernando that such evidence can only be adduced if leave is given to do so in accordance with the principles governing applications to reopen: see also McCarthy v McIntyre [2000] FCA 1250 at [21]‑[33]; Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd [2005] FCA 1247 at [8] (Kenny J). Where, as here, the application to reopen is made after judgment has already been delivered (albeit then subsequently set aside), the circumstances in which an appellate court will receive further evidence provide a useful guide: McCarthy v McIntyre at [30]. As will be seen, new evidence was adduced in the present case, but it was largely admitted by consent. There was, however, an objection raised to cross-examination of witnesses called by Harvard, namely Andrew Fowler and John Caratti, which went beyond the matters raised in the new affidavits sworn by them or any events that had occurred after the time of the original trial. In the end most issues of fact fell away in the course of the remitter hearing, so most of the evidence objected to ended up being irrelevant. It will only be necessary to consider the objection in relation to one issue, namely the likelihood that the Fowlers would not have taken possession in the first year under the 2019 Fowler Lease. Subject to that, in this case there was no need to determine whether leave to reopen to adduce the new evidence was necessary, since it was adduced by agreement.
First issue - the operative date of the order that the New Leases are void
On about 10 January 2021, with the consent of the respondents, Harvard obtained vacant possession of the Farms. It has leased the Farms to companies associated with the Fowler family. There is now no issue between the parties that the New Leases must be ordered to be void. As has been said, the issue is the date from which that statutory rescission should be stated to have effect.
The parties' positions
Harvard seeks an order declaring the New Leases to be void from the time they were entered into, namely 8 February 2019. The respondents seek an order declaring them to have been void only from 10 January 2021, the date on which Harvard gained vacant possession of the Farms.
The respondents accept that the Appeal Judgment has established that the discretion to make an order under s 237 of the ACL declaring the New Leases to be void has been enlivened. They also accept that it has been enlivened because of the existence of the non-pecuniary loss identified in the Appeal Judgment, namely being bound to extended contractual obligations with a corporate vehicle for Mr Nicoletti, that is, Dimension: see [32]-[33] above.
The respondents submit, however, that the only remedial outcome directed to preventing or reducing that loss is an order declaring the New Leases to be void with effect from 10 January 2021 and no earlier. To declare the New Leases void as at an earlier date would, the respondents submit, be outside the scope of the discretion. According to the respondents, that is because ordering the New Leases to be void from some earlier date cannot alter the historical fact that until 10 January 2021, Dimension was in occupation of the Farms pursuant to the New Leases. The New Leases were not a one-off transaction that can simply be unwound. They gave rise to an ongoing relationship. An order under s 237 cannot alter the fact that until 10 January 2021, Harvard was required to deal with Dimension as its tenant, and did so. So, the respondents submit, ordering the New Leases to be void as at an earlier date cannot do anything to prevent or reduce the loss or damage. The order can only address future loss of that kind by terminating the relationship from now on.
The respondents submit that these matters are also reasons why the discretion should not be exercised to give the statutory rescission order effect from an earlier date if, contrary to their primary submission, the discretion to do so exists. In addition, they advance other discretionary reasons.
One such reason concerns three amounts of money that Dimension paid to Harvard in 2019. The amounts were paid as a result of agreements that were documented in the suite of instruments that included the New Leases. The relevant arrangements are described in the Primary Judgment at [120], [224] and [253]. It is convenient to recap here as they are also germane to the second issue on the remitter, which is whether rescission should be ordered on condition that Harvard repay these amounts to Dimension, and to the calculation of damages.
The first amount was a sum of $70,000 that Dimension paid on 27 February 2019. This was half of a liability of $140,000 that was attributable to alleged arrears from previous leases of the Farms. That $140,000 had previously been due to be paid on 15 November 2019, under the Tiller Subleases, to Mammoth. As part of the suite of transactions that resulted in the New Leases, payment of half of that sum, that is payment of $70,000, had been accelerated to a date seven days after the surrender of the Tiller Subleases, that is, by 14 February 2019. That new obligation was in the deed of surrender of the Tiller Subleases, and so was an obligation owed by Mr and Mrs Tiller to Mammoth. But the commencement of the New Leases (between Harvard, Dimension and Mr Tiller) was conditional on the payment having occurred.
The second amount that Dimension paid was $141,213.86 in arrears of rates due to the Shire of Esperance in respect of the Farms. Dimension paid this on 27 February 2019: PJ [253]. This too was an amount that Mr and Mrs Tiller were obliged to pay under the deed of surrender of the Tiller Subleases entered into between them and Mammoth. Its effect was to remedy default in Mr and Mrs Tiller's obligations under the Tiller Subleases to pay council rates.
The third amount that Dimension paid was the remaining $70,000 of the $140,000 in alleged arrears owing to Mammoth. This had effectively been converted to an amount payable on 15 November 2019 by Mr Tiller and Dimension to Harvard, under the New Lease of Howick Farm. Dimension in fact paid it to Harvard on 17 November 2019.
The respondents also refer to Harvard's acceptance of rent under the New Leases from Dimension. They say that this and the acceptance of the three amounts referred to above show that Harvard was prepared to act consistently with the validity of the New Leases when it was in its financial interests to do so. They also say that Harvard's alternative case about the Non‑Disclosure Conduct is premised on the validity of the New Leases. All this, the respondents say, show that Harvard has been prepared to rely on the validity of the New Leases when it suits it, so that it should not be permitted to depart from that in respect of the period leading up to 10 January 2021.
The reason the respondents consider that the date of statutory rescission matters is, as I have said, because they submit that damages under s 236 of the ACL can only be ordered for any loss suffered from that date. If that is correct, then the outcome of rescission from 10 January 2021 would be no award of damages for the lost opportunity to lease the Farms to the Fowlers, because Harvard had that opportunity from that date (or at most, it was only deprived of it for a short period representing the necessary lag between the delivery up of vacant possession and the date on which the Fowlers were able to take possession).
In that regard, the respondents focus on AJ [92]-[93] and [97] which, they say, indicate that the financial loss of opportunity to enter into the 2019 Fowler Lease 'might only exist consequent upon an order declaring the New Leases to be void'. The respondents submit that the effect of the Appeal Judgment is that 'an order declaring the New Leases to be void is a necessary but not sufficient condition for the conclusion that Harvard suffered financial loss through loss of opportunity to enter into the [2019] Fowler [L]ease capable of supporting an award of damages under s236'. They say that if one tries to assess damages for loss of opportunity to enter into the 2019 Fowler Lease independently of any order for statutory rescission of the New Leases, one runs into the problem of the existence of the Tiller Subleases before the transactions of February 2019, and the fact that they too prevented Harvard from giving vacant possession of the Farms to the Fowlers.
Harvard seems to accept that an order declaring the New Leases void from 10 January 2021 would preclude a claim for damages before that date. It is apparently on that basis that it submits that a declaration that the New Leases are void ab initio (that is from 8 February 2019) has utility as an integral element in the measure of damages.
Harvard submits in any event that it suffered non-financial loss from 8 February 2019, when the New Leases were executed. When it found out that it had been deceived, it gave notice by letter from its solicitors on 2 April 2019 of an election to rescind the New Leases. Harvard submits that the 'gateway' loss for the purposes of s 237 and s 243 is the entry into the New Leases. That justifies setting them aside ab initio. Harvard says that even though it has regained possession of the Farms, it remains important to sanction the validity of its position that it should not have been bound to contractual performance with the respondents at all, and to recognise that the purported performance of contractual obligations on both sides was solely by reason of an agreement procured by misleading or deceptive conduct.
Harvard advances several other reasons why it takes issue with the respondents' primary submission that ordering statutory rescission from a date before 10 January 2021 is beyond the discretion that arises under s 237. It points out that all declarations made judicially concern historical conduct. Since I have decided that rescission will be ordered as from 8 February 2021, it is not necessary to describe every one of Harvard's reasons.
Harvard also addresses the respondents' submission that the occupation of the Farms and acceptance of rent for some two years is a discretionary reason not to grant rescission before the end of that two years. Harvard referred to Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981, a case in which a purchaser who had been misled into buying a business sought to rescind but, after the vendor refused to accept that rescission had occurred, the purchaser continued to operate the business, including during the course of the litigation. Harvard seeks to draw an analogy with the present case, submitting that its decision to permit Dimension and Mr Tiller to remain in possession of the farms over the course of the litigation should not count against an order for statutory rescission as at the date of the formation of the New Leases.
As for the respondents' other discretionary arguments based on the payment of certain sums by Dimension, Harvard submits that by analogy with equitable principles, a wrongdoer should not be protected from the consequences of its actions, citing United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 257 at 242-243. It also cites Champtaloup v Thomas [1976] 2 NSWLR 264, a case in which an act by purchasers of land in reliance on a contract of sale did not constitute an election to affirm the contract, where the purchasers had expressly reserved their rights: see at 268‑269 (Glass JA, Street CJ agreeing, Mahoney JA agreeing on different reasoning), and Minter v Geraghty (1981) 38 ALR 68.
In relation to the payments attributable to alleged rental arrears and rates arrears that were made in February 2019, Harvard points out that those were accepted at a time when Harvard did not know that it had been deceived. In any event, it says, those payments rectified antecedent breaches of the Tiller Subleases.
In relation to subsequent payments that Harvard received from Dimension, Harvard submits that it expressly received them on the basis that they would not constitute rent under the New Leases, but only a reduction in damages. Harvard relies on the principle that applies at common law when a lessor elects to terminate a lease, that acceptance of rent after proceedings to recover possession have been commenced does not constitute a waiver of the forfeiture of the lease: Murdock v Bettcher [2008] SASC 79 at [25]. It submits by apparent analogy that acceptance of payment after proceedings have been commenced for rescission of a lease is not inconsistent with the relief sought.
Rescission at common law or equity?
It is necessary to refer to another point Harvard appeared to be making about rescission, as it is relevant to the final orders Harvard seeks. While it is not entirely clear, at certain points Harvard appeared to be submitting that the election to rescind the New Leases that it expressed in the letter of 2 April 2019 had effect under the common law principles of rescission of contracts for misrepresentation, or that the rescission would be recognised by a court of equity (see remitter submissions 20 April 2021 paras 4-5, 8). In its minute of proposed final orders, Harvard seeks a declaration that it was entitled to exercise a right of rescission as it purported to do in its solicitor's letter of 2 April 2019. That is separate from another order sought, for a declaration that the New Leases were void from 8 February 2019, which appears to be the order for statutory rescission.
A declaration recognising rescission at common law or in equity would go beyond the case that Harvard advanced at the main trial. At trial, Harvard did not seek any declaration that its purported rescission on 2 April 2019 was legally effective: see AJ [11]. Nor did it seek any order for equitable rescission: AJ [11]-[12], [99]. And its counsel expressly stated in closing oral submissions at trial that its case did not depend on a finding that the letter of 2 April 2019 had effect at common law. Although he went on to say that Harvard 'would have just rescinded in equity', the Full Court held that equitable rescission occurs by court order, an order that Harvard did not seek. Harvard did not seek leave to reopen to run this case or leave to amend its pleadings. Indeed, at the remitter hearing Harvard's counsel seemed to acknowledge that it only seeks statutory relief (ts 138). Also, the making of a declaration that the purported rescission of 2 April 2019 had effect in equity (or at common law) is not within the scope of the remitter. Under paragraph 3 of the Full Court's orders, the remitter concerns what, if any, relief should be granted under s 236 and s 237 of the ACL. I will not make any declaration that there was an effective rescission separate to any order for statutory rescission.
Principles in relation to statutory rescission
The Appeal Judgment provides some broad guidance on the applicable principles, at AJ [96] which is quoted above at [38]. That paragraph acknowledges that the appropriate operative date for an order of statutory rescission may be in issue, but does not give any specific direction as to what that date should be here. I have also quoted above (at [33]) from AJ [86], which says that rescission or termination of the New Leases is the only relief that can cure the loss or damage that engages s 237 and s 243 of the ACL, namely being bound to extended contractual performance under the New Leases.
The fact that s 237 is engaged gives the court a discretion as to what orders, if any, it may make. Those may include orders of the kind set out in s 243. But it is axiomatic that the court may only make orders under those provisions in so far as the orders will compensate for, or prevent or reduce, the loss or damage that has been identified: s 237(2); Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [43] (McHugh, Hayne and Callinan JJ); see also AJ [21].
The court's powers under s 237 and s 243 are wide discretionary powers to make remedial orders in appropriate cases to ensure a fair result: Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 298. In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 at 564, Lockhart J (Burchett J agreeing) said of s 87 of the Trade Practices Act 1974 (Cth) (TPA), which was the statutory antecedent to s 237 and s 243 of the ACL:
In granting a remedy under s 87, the court is not restricted by the limitations under the general law of a party's right to rescind for breach of contract or misrepresentation. Nevertheless, in exercising its discretion under s 87, the court will consider the conduct of the parties after they had knowledge of the misleading quality of the conduct: Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd [(1981) 36 ALR 23] per Northrop J at 60. Such an approach is consistent with that adopted by the Privy Council in Senanayake v Cheng [1966] AC 63 at 83, observing that at general law the questions for the court in determining whether to allow restitution are 'whether restitutio in integrum is substantially possible and whether rescission is timely and just and fair'. On this approach the court must consider all the circumstances before it in the exercise of its discretion.
The principles regulating the analogous equitable remedy of rescission afford guidance for the exercise of the statutory discretion under s 237 and s 243, but they do not dictate it: Marks at [116] (Gummow J), see also [24] (Gaudron J), [38] (McHugh, Hayne and Callinan JJ); see also Henjo at 564. In Alati v Kruger (1955) 94 CLR 216 at 223-224, after drawing a contrast with the common law, it was said that:
equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo …
In such cases equity will make adjustments to restore the parties to their previous positions which will include repayment or accounting for losses directly occasioned to the innocent party by the fraud: McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR NSW 187 at 191-192. As the Full Court noted in the Appeal Judgment (at [96]) the court may order rescission on terms that seek to 'do what is practically just' between the parties. But as another Full Court said in JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 at 380:
The power of the Court to grant relief under the statutory provision is wider than the power of the equity court to grant rescission: the bars to rescission in equity, such as affirmation and the non-availability of restitutio in integrum, are no more than discretionary matters that the Court will take into account in deciding whether in a given case to grant relief under the statutory provision …
So, in Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 at [43] Allsop P (as he then was, Macfarlan JA and Sackville AJA agreeing) said (citations omitted):
Relief under the [TPA], s 87, should be viewed not by reference to general law analogues but by reference to the rule of responsibility in the statute that is directed against misleading and deceptive conduct. Involved in that rule of responsibility is the public policy of protection of people in trade and commerce from being misled, and the width of the powers given by the TPA that are apt to be employed in a manner conformable with the just compensation or protection of the representee. Whether or not to grant a form of rescission under s 87, or to limit a plaintiff to damages under s 82, is a question in the nature of a discretion to be approached by reference to the facts of the particular case, the policy and underpinning of the TPA and the evaluative assessment of what is the appropriate relief to compensate for, or to prevent the likely suffering of, loss or damage 'by' the conduct. An approach that is limited mechanically around a but for causation enquiry will be likely not to involve a full evaluative assessment of the appropriate relief.
Neither party was able to cite a case directly on point as to whether rescission ab initio of an ongoing contract went beyond the purpose of the discretion conferred by s 237 and s 243 of the ACL, and my own researches have not revealed any. Three cases cited by Harvard were helpful, however, namely: Tenji v Henneberry & Associates Pty Ltd [2000] FCA 550; (2000) 98 FCR 324; Metz; and Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274.
In Tenji the sale of land on which there was a service station had been induced by misleading and deceptive conduct by the vendors, in breach of s 52 of the TPA, the statutory predecessor to s 18 of the ACL. When the purchasers discovered the misrepresentations, their solicitors wrote to the vendors complaining about the misrepresentations and stating that the purchasers rescinded the agreement. The vendors did not respond to the letter. The purchasers retained possession of the property, which continued to be operated as a service station by a lessee.
The trial judge declined to make an order under s 87 of the TPA that the purchase contract was void ab initio, because his Honour found that the financial loss suffered was modest and also apparently because he considered that the notice of rescission had been qualified. The Full Court (Carr J, French and Whitlam JJ agreeing) allowed the appeal and declared that the contract was void ab initio.
The reasons of French J in Tenji, with respect, were particularly instructive. His Honour made a number of observations about the power under s 87 of the TPA to order that a contract induced by misleading or deceptive conduct is void. At [19]‑[20] his Honour said:
Loss or potential loss causally linked to contravention conditions the exercise of the remedial powers under s 87 and their exercise must be directed to compensate for that loss. The same may be said, limited to actual loss, for the award of damages under s 82. The conditions for the exercise of power under s 87 having been satisfied and the compensatory outcome identified, the grant of such relief is discretionary as is the particular kind of order under s 87(2) that may be made. The exercise of that discretion and the choice of order may then be affected by other considerations. The making of an order under s 87(2)(a) declaring a contract to be void may be based upon a number of factors including those which would affect the grant of analogous relief in equity. But, while relevant, they are not determinative. The question whether there has been a disaffirmation or a commitment to the performance of the contract by the party suffering loss will generally be relevant. The question whether the party would have decided to continue with the purchase, even if aware of the true position, may also be relevant although, as has been pointed out, that does not determine the availability of equitable rescission.
Rescission in equity transcends compensation. Avoidance under s 87 must serve a compensatory purpose but may serve other purposes in doing justice between the parties. There are cases in which a party who enters a contract as a result of misleading or deceptive conduct may be compensated in a pecuniary sense by an award of monetary damages but is left nonetheless with a continuing burden of unforeseen risk, a transaction soured by the events that surrounded it and a property, once the repository of hope for the future that is now an albatross around its neck. Absent misleading or deceptive conduct, an informed commitment to the acquisition and all its difficulties and shortcomings is easier to bear than one into which a party has been misled as was found to be the case here.
I do not accept the respondents' submission that there should be no award of damages in respect of the loss of rent for the second year of the 2019 Fowler Lease because that second year was not included in Harvard's particulars of damage. Those particulars were provided at a time when it was contemplated that if Harvard succeeded in the action, it would have regained vacant possession of the Farms after the 2019 season. They were current at the time of trial and at the time of the Primary Judgment. Subsequent to the Primary Judgment, vacant possession was not obtained, and Dimension and Mr Tiller remained in occupation for the 2020 season. It was clear to the respondents by the time of the remitter hearing that a claim in respect of that season would be made. They can hardly claim to be taken by surprise by Harvard's claim in respect of that additional season, and pointed to no prejudice they have suffered. For that reason, the expanded claim will be allowed.
Deduction of rent actually paid
What deductions, if any, should be made from that base sum? Obviously, the rent that Dimension and Mr Tiller actually paid needs to be deducted. That must be done in the manner in which the Applicant's Damages Schedule does so. However a number of other deductions proposed by the respondents were controversial.
Deduction for Mr Vaughan's leasing fee
An issue emerged at the remitter hearing about Mr Vaughan's leasing fee. It ended up being largely resolved at the hearing. On 21 March 2019, his company, Vaucoa Nominees Pty Ltd trading as Ray White Rural WA, and Harvard, entered into a written leasing authority in respect of the Farms. This provided that Vaucoa Nominees was entitled to a leasing fee in the event that it introduced a suitable tenant. The respondents say that this fee, which would have been payable if the 2019 Fowler Lease went ahead, should be deducted from any damages awarded to Harvard.
Harvard says it should not, because an equivalent fee has been charged in relation to the 2020 Fowler Lease, so the effect of deducting it from the award of damages is that Harvard will pay the fee twice. The respondents say that this argument can only be accepted if the leasing fee was payable in respect of the first year of the tenancy only. They submit that under the 2019 leasing authority, the fee was payable in respect of the rent for the entire term of the 2019 Fowler Lease, not just the first year.
There thus arose an issue about the proper construction of the 2019 leasing authority, and issues of fact as to what Vaucoa Nominees would have charged in 2019 had the Fowlers taken possession then, and what it did charge in 2021. The emergence of those issues during the course of the remitter hearing resulted in leave to reopen being given to Harvard to call John Caratti on that subject, on condition that Mr Vaughan would also be available for cross‑examination on the subject. Mr Vaughan made himself available to give oral evidence at short notice. He confirmed that in 2019 he would only have charged the fee based on the first year's rent. He also confirmed that this is the basis on which he charged the fee in 2021 (spread over four invoices throughout the year corresponding to the quarterly rent payments made by the Fowlers).
As a result, this issue essentially fell away. Without withdrawing the submission about the proper construction of the leasing authority, senior counsel for the respondent conceded that as a matter of fact, Mr Vaughan's company would only ever have charged a fee based on one year's rent. That concession was properly made; I said in the Primary Judgment that I accepted Mr Vaughan as a witness of truth and there was nothing in his presentation or evidence on the remitter requiring any change in that assessment. The concession may be put together with the respondents' effective acceptance that if the leasing fee was charged in respect of one year only, it must not be deducted from any damages calculation. In the result, there will be no deduction in respect of the leasing fee.
Deductions for rental arrears and council rates
As I have said the respondents also return, in this context, to the subject of the payments that Dimension made in respect of previous rental arrears, that is, the payments referred to at [58]‑[60] above. They submit that even if those amounts are not required to be repaid as a condition of rescission, they should still be deducted from any award of damages, because they are amounts that Harvard received as a matter of fact as a result of entering into the New Leases. I accept that an inquiry at that conceptual level needs to be made. The award of statutory damages stems from the parties' entry into the New Leases, as they were what permitted Mr Tiller and Dimension to refuse vacant possession when Harvard's solicitors demanded it in early April 2019: see PJ [507], AJ [92]. So if the entry into the New Leases caused Harvard to receive benefits, they may need to be taken into account in calculating its net loss: E K Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 at [195] and the authorities cited there.
That is a different inquiry to the one conducted above in relation to possible conditions on the order for statutory rescission. As a matter of calculation of the amount required to compensate Harvard for the loss caused by the misleading or deceptive conduct, it does not engage the same discretionary considerations as were engaged in that previous inquiry: see I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at [50]. As such the Court must have regard to the different legal entities involved.
In that respect, the first payment of $70,000 in respect of the alleged rental arrears was paid to Mammoth, not Harvard. It was paid in satisfaction of the pre-existing requirement under the Tiller Subleases. Whether or not it was paid as a result of the New Leases, there is no basis to take it into account as a deduction from the award of damages. As I have said in connection with the second issue above, senior counsel for the respondents accepted the force of the point that this amount was paid to Mammoth, and the respondents appeared to have abandoned the claim for a deduction by the time they filed their schedule of calculation of damages (after the remitter hearing) as no deduction for this amount appears in that schedule.
The payment of rates at around the same time was paid to the Shire of Esperance. The registered proprietor of Warriup Farm was Harvard. Demand notices in evidence show that as at 8 February 2019, it was liable to the council for $59,752.26 in rates. So the payment of rates for Warriup benefitted Harvard by that amount. John and Allen Caratti were liable for $80,648.20 as the registered proprietors of Howick Farm. The payment of rates thereby benefitted them.
But it is important to pay attention to where the onus of proof on this issue lies. Since the respondents are relying on these payments as deductions from the damages awarded, the onus lies on them: E K Nominees at [195]; Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211; (2012) 202 FCR 72 at [265]. They need to prove that the payment of the rates by Dimension benefitted Harvard because the rates would not have been paid had the New Leases not been entered into.
Payment of the rates was a condition of the New Leases coming into effect: PJ [208], [224]. It may be inferred that it was the desire to satisfy that condition that led Dimension to pay the rates on 27 February 2019. So if the New Leases had not been entered into, Dimension would not have paid the rates. It may also be inferred from Mr Tiller's delay in paying the rates that were due under the Tiller Subleases, and the evidence about his dire financial straits that is canvassed in the Primary Judgment, that he would not have paid them had the New Leases not been entered into.
However it is not possible to say where the liability to pay the rates in that latter event would ultimately have fallen. Harvard was liable to the Shire of Esperance in respect of Warriup Farm, but it had leased that farm to Mammoth. John and Allen Caratti as the registered proprietors of Howick Farm had also leased that farm to Mammoth. If those leases were ever reduced to writing, they were not in evidence. So it is unknown whether Mammoth was obliged to pay the rates or to reimburse the respective landlords for them. And while it may be accepted that Mammoth was a company controlled by John Caratti, he gave no evidence about where the burden would ultimately have fallen in that situation, and there was no evidence of any agreement, arrangement or understanding within the Caratti family about that subject.
As a result, in my view, the respondents have not discharged their onus of proving that Harvard would have had to pay the rates if Dimension had not. There is every chance that the burden would have fallen on Mammoth. While it too was a company controlled by John Caratti, for the purposes of assessment of damages it must be treated as a different legal entity which may well have been liable to pay the rates. The respondents have not proven on the balance of probabilities that Harvard would have been out of pocket for the rates if Dimension had not, in fact, paid them. I will make no deduction for the rates in respect of Warriup Farm.
In relation to Howick Farm, there is the additional point that until the New Leases were entered into, on no view did Harvard have any exposure to the rates for that property. It was neither registered proprietor of Howick Farm nor, until the New Leases and the transactions surrounding them, lessee of that Farm. There will be no deduction for those rates.
The third payment, of $70,000 for the alleged rental arrears, is in a different category. It was paid to Harvard under the New Lease of Howick Farm. On any view, Harvard would not have received that payment if that particular New Lease had not been entered into. While Mammoth, in effect, gave value for that payment, by releasing the Tillers from their obligation to pay it, as I have explained that does not engage the same considerations when damages are calculated. The court must give effect to the different legal entities involved. That second payment of $70,000 was a benefit to Harvard (albeit ultimately at the expense of Mammoth) and does need to be taken into account in reduction of the award of damages.
Deduction for landlord's improvements
Additionally, the respondents submit that there should be a deduction for another benefit, or more particularly a detriment avoided because Harvard was not required to perform the 2019 Fowler Lease. They say that that would have arisen from a term of the 2019 Fowler Lease under which Harvard would have been liable to pay $100,000 for landlord's improvements had the 2019 Fowler Lease proceeded. This relies on a special condition found at item 8.4 of the Schedule to the lease, which provides:
Annually by the anniversary of the Commencement Date, the Tenant will submit a program of fencing and water improvements or replacement to the Landlord and the Landlord agrees to replace at the Landlord's cost (materials and erection) the agreed replacement program annually in accordance with the agreed replacement program to a value of no more than $100,000.00 per annum. Invoices for these costs will be submitted to the Landlord upon completion of each project.
The same principles about deductions for benefits apply to this amount as for the payments discussed above, allowing for the fact that it concerns a past hypothetical event, namely the event of the tenant submitting a program of improvement. That program of improvement would, on the terms of the clause, have required implementation, and so cost to Harvard, in the second year of the 2019 Fowler Lease.
The difficulty for the respondents in their reliance on this special condition, however, is that there is no evidence whatsoever to permit the Court to make an informed estimation of the likelihood that the Fowlers would have submitted a program, and how much implementing it would have cost. That is in contrast to the evidence I evaluated above as to whether and when the Fowlers would have taken possession under the 2019 Fowler Lease, and at what rent. There is no evidence about the state of fences on the Farms or of the need for water improvements. And unlike in the case of a plaintiff, a defendant who is seeking to have its damages reduced because of a chance that the plaintiff derived a benefit from the wrong has no right to require the court to do the best it can in the face of difficulties of estimation, even if the result 'will really be a matter of guesswork': Tyco Australia at [197]. Here the benefit Harvard is said to have received is the benefit of avoiding a liability to pay the costs of improvements, but there is no evidence as to whether the Fowlers intended to invoke the similar special condition in the 2020 Fowler Lease. The question was not put to Andrew Fowler or John Caratti.
In my view, the complete lack of evidence on the matter does not permit the Court to make any informed estimate of the likelihood that an amount would have been paid under this special condition in the second year of the 2019 Fowler Lease, or what that amount would have been. There will be no deduction for that contingency.
Conclusion
The parties will be directed to confer to seek to agree a calculation of damages consistent with the conclusions reached above.
Fifth issue - interest on damages
Section 51A(1) of the Federal Court Act requires the court on a party's application, unless good cause is shown to the contrary, to order interest at such rate as the court thinks fit on the whole or part of any money judgment, or to give a lump sum in lieu without calculating such interest.
No party contends for the latter option. The dispute was about the rate that the Court should select. Section 51A(2)(a) makes it clear that the award must be of simple, not compound interest. Harvard relies on an affidavit of Michael Caratti sworn 15 February 2021, and an affidavit sworn on 5 May 2021 which corrected certain figures in the other affidavit. Michael Caratti is John Caratti's son. He is a legal practitioner and described himself as being engaged by Harvard as its in house lawyer, with a comprehensive knowledge of its business.
Michael Caratti described how, under the 2019 Fowler Lease, rent would have been payable in quarterly instalments with the first instalment payable on 1 June 2019. But since the Fowlers would have taken possession on 1 May 2019, they would have paid rent for a 'broken period' of 1 May to 31 May 2019, in the sum of $195,000 plus GST. That compares with the rent actually paid under the New Leases of $389,090.91 plus GST on 1 March 2019 and $10,909.09 plus GST on 4 March 2019, that is, together, the first biannual rent payment of $400,000 plus GST. Michael Caratti said that means that Harvard did not experience a 'cash shortfall' until 1 June 2019, when the first instalment of full quarterly rent under the 2019 Fowler Lease in the sum of $585,000 plus GST would have been due. Accordingly, Michael Caratti only calculated interest from 1 June 2019. He calculated it as simple interest.
The rate Michael Caratti applied was the 'Small Business; Variable; Overdraft' indicator lending rate published by the Reserve Bank of Australia (SBVO rate). This fluctuated between 8.21% per annum at the start of the relevant period (1 June 2019) down to 6.51% as at the date of Michael Caratti's second affidavit containing the calculation (5 May 2021). According to him, this 'represents an average indicator of interest rates offered by major banks on loans to small businesses'. He said that such facilities are 'typically used by businesses to cover cash shortfalls' and that the 'lost opportunity of the Fowler Lease caused the applicant a cash shortfall': Michael Caratti affidavit 15 February 2021, para 13. In cross‑examination, however, Michael Caratti made it clear that he was not saying that Harvard actually did borrow money from its bank (National Australia Bank), whether because of the 'cash shortfall' flowing from Dimension's occupation of the Farms under the New Leases, or at all.
Harvard says that the standard rate of pre-judgment interest applied in the Supreme Court of Western Australia, namely 6%, should be applied for the period between Mr Caratti's calculation and the giving of judgment consequent on the remitter.
It appears that Harvard asserts that the SBVO rate and Supreme Court of WA rate are relevant in reliance on the following passage from the judgment of Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688 at [7] (citations omitted):
No rate of interest is fixed or prescribed by the section [i.e. s 51A(1)] and the Court has not, by Practice Direction or otherwise, sought to provide guidance on what might be considered an appropriate rate to be applied. Though the matter is, and remains, one of judicial discretion, the usual practice that has been followed in applying s 51A has been to adopt the rates of interest applied by the Supreme Court of the State or Territory in which this Court is dealing with the matter unless there is evidence that those rates are penal or not commercial. The practice itself is one from which there has been occasional departure.
However the Court has since then (on 18 September 2017) issued the Interest on Judgments Practice Note (GPN-INT) which tells parties and their lawyers to expect that when awarding pre-judgment interest, the Court will have regard to the rates agreed upon by the Discount and Interest Rate Harmonisation Committee established following a referral by the Council of Chief Justices of Australia and New Zealand, which is 4% above the cash rate last published by the Reserve Bank of Australia before each six month period 1 January to 30 June and 1 July to 31 December (DIRC rate).
Harvard has not established any good reason to apply the SBVO rate or to depart from the DIRC rate. An award of pre-judgment interest on damages under s 51A compensates the successful party for the loss of the use of the money during the relevant period: MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 at 663; Management 3 Group Pty Ltd (in liq) v Lenny's Commercial Kitchens Pty Ltd (No 2) [2012] FCAFC 92; (2012) 203 FCR 283 at [25]. Here, the financial loss for which damages will compensate Harvard has not caused it to borrow money from any lender at the SBVO rate, or at any rate. Nor is there evidence of what return Harvard would have achieved on the additional cash it would have received under the 2019 Fowler Lease.
Pursuant to directions made by the Court, Harvard submitted an interest calculation after the remitter hearing in the Applicant's Damages Schedule. It was based on the SBVO rate, alternatively the DIRC Rate. The respondents submitted a competing calculation based on the DIRC rate but taking account of the various adjustments for which they contended, such as the Shire of Esperance rates and the $70,000 paid on 17 November 2019.
Interest will be awarded on the DIRC rate for the entire period between 1 June 2019 and judgment on this remitter. As I have already indicated, it will be awarded on the basis that the rent under the 2019 Fowler Lease would have been payable at the times set out in Harvard's calculation of interest, save that the first rental payment of $195,000 on 1 May 2019 will be eliminated and the rental payment taken to have been made on 1 June 2019 will be reduced to $390,000. The $70,000 paid by Dimension on 17 November 2019 will be deducted, as at that date, from the cumulative 'shortfall' on which interest is calculated.
The parties will be directed to confer on an interest calculation based on the DIRC rate or, if they cannot agree, to submit separate calculations.
Costs
The scope of the remitter included any issues as to the costs of the main trial and, of course, the costs of the remitter itself. The parties submitted at the remitter hearing and I agreed that those were issues that were best addressed after the outcome of the substantive questions on the remitter were known. I will make orders for the question of costs to be dealt with on the papers, with liberty for the parties to seek an oral hearing if any issues of particular difficulty emerge.
I certify that the preceding two hundred and fifty-eight (258) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson. Associate:
Dated: 16 February 2022
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