Jainran Pty Ltd v Boyana

[2008] NSWSC 468

CITATION:	JAINRAN PTY LTD v BOYANA [2008] NSWSC 468
HEARING DATE(S):	5, 6, 7, 12, 13, 14, 17 March and 11 April 2008
JUDGMENT DATE :	15 May 2008
JURISDICTION:	EQUITY
JUDGMENT OF:	Bryson AJ
DECISION:	On the plaintiff’s claim: (1) Give judgment for the plaintiff against the defendants for $150,000 with interest at the rates allowed on judgments from 23 September 2004 to the date of this order. (2) Order that the defendants pay the plaintiff’s costs. On the First Cross-claim: (3) Dismiss the Cross-claim with costs. On the Second Cross-claim: (4) Give judgment for the Second Cross-claimant against Boyana Pty Ltd for an indemnity against all damages, costs and interest payable by the second cross-claimant to the plaintiff. (5) Give judgment for the Second Cross-claimant against Boyana Pty Ltd for $53,350 for debt together with interest at the rates allowed on judgments from 23 September 2004 to the date of this order. (6) Give judgment for the Second Cross-claimant against Joseph Sgro for damages to be assessed. (7) Reserve liberty to apply with respect to the assessment of damages. (8) Order that the Cross-defendants pay the Cross-claimant’s costs of the Second Cross-claim.
CATCHWORDS:	VENDOR and PURCHASER – contract for sale of land subject to lease to Service Station – operation of misrepresentation stated in terms of contract and warranties implied under Conveyancing Act s 52A and Regulations to ground rescission – consideration whether contract disclosed adverse affectation (road widening proposal) – consideration of statement in contract that vendor not aware of “legal proceedings which might or will affect the property” when there was pending litigation by tenant claiming damages – held rescission effective, deposit recoverable. TRADE PRACTICES – Brochure given by Agent to Purchaser described property as outstanding investment, referred to rent and positive characteristics of tenant, did not disclose disputes and pending litigation with tenant who claimed he agreed to the rent under the influence of misrepresentations – earlier forms of Draft Contract contained notification of extended rent holiday granted to tenant in addition to rent holiday in lease – this generated inquiries from prospective purchasers and was withdrawn from Draft Contract given to Purchaser – numerous factual issues – held misleading conduct, damages being deposit paid to vendor and not recoverable awarded against principal of vendor and against Agent. Consideration of – nondisclosure as misrepresentation – Agent as mere conduit – puffery – operation of Proportional Liability in CLERP legislation which took effect after deposit was paid – numerous incidental issues.
LEGISLATION CITED:	Conveyancing Act 1919 Corporate Law Economic Reform Programme (Audit Reform and Corporate Disclosure) Act 2004 (Cth) Property, Stock and Business Agents Act 2002 s 55(1) Real Property Act 1900 Roads Act 1993 State Roads Act 1986 Trade Practices Act 1974 (Cth) s 52 s 87
CASES CITED:	APF Properties Pty Ltd v Kestrel Holdings (No. 2) Pty Ltd [2007] FCA 1561 Allen v Tobias (1958) 98 CLR 367 Burke v LFOT Pty Ltd (2002) 209 CLR 282 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60, 218 CLR 592 Chandra v Perpetual Trustees Australia Ltd [2007] NSWSC 694 Fraser v NRMA Holdings Ltd (1995) ATPR 41-374 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors [No.6] 2007 NSWSC 125 Karawi Constructions Pty Ltd v Bonfind Pty Ltd (1993) 8 TPR 41265 Pappas v Soulac (1983) 50 ALR 231 Yorke v Lucas (1985) 158 CLR 661
PARTIES:	Jainran Pty Limited - Plaintiff Boyana Pty Limited - First Defendant CH Real Estate Pty Limited t/as Raine & Horne Commercial Penrith - Second Defendant Joseph Sgro - Third Defendant
FILE NUMBER(S):	SC 3205 of 2005
COUNSEL:	S Climpson and T Richard - Plaintiff A Fernon - First and Third Defendants J Drummond - Second Defendant
SOLICITORS:	Ellison Tillyard Callanan - Plaintiff Lamrocks - First and Third Defendants Bateman Battersby - Second Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Bryson AJ

15 May 2008

3205/05 JAINRAN PTY LTD v BOYANA

JUDGMENT

1 HIS HONOUR: These proceedings arise out of a contract exchanged on 28 May 2004 for the sale by Boyana Pty Ltd the first defendant to Jainran Pty Ltd the plaintiff of freehold land in Mulgoa Road Wallacia, Folio 934/1030731, Lot 934 DP 1030731. The contract provided for a price of $2,495,000 and a deposit of $150,000, paid to the vendor forthwith on exchange of contracts. Mr Jeffrey d’Albora was and is the sole director of Jainran, conducted its affairs and made all relevant decisions. The land was and is used as an Ampol Service Station, and was redeveloped in 2001 and 2002 with modern buildings and equipment, and a convenience store. Boyana granted a lease registered 8939347 to Jo-Al Pty Ltd for 20 years from 3 April 2002, and Jo-Al conducted the Ampol Service Station and Spar Express Supermarket there. Jainran purchased the property subject to the lease to Jo-Al and a copy of the lease was annexed to the contract. The principals of Jo-Al were Mr and Mrs John Deevey.

2 Jainran rescinded the contract, effectively as it claims, by a notice dated and delivered on 23 September 2004, sent to Boyana's solicitors Messrs Lamrocks (who were acting on the sale) by Mr Callanan solicitor of Messrs Tillyard Callanan, acting for Jainran. Jainran claims against Boyana return of the deposit under contractual entitlement on rescission, and alternatively claims the loss of the deposit as damages under the Trade Practices Act 1974 (Cth) for misleading or deceptive conduct in breach of s 52; in a further alternative, an order for return of the deposit under s 55(2A) of the Conveyancing Act 1919. The principal subject matter of this judgment is indicated by the terms of s 52(1) of TPA - conduct which is misleading or deceptive or has a tendency to mislead or deceive. I will usually speak of misleading conduct or use some abbreviated form, but it should be understood that I am referring throughout to the whole of the statutory formula.

3 Amendments have added other defendants. Jainran also claims damages for misleading or deceptive conduct against the third defendant Mr Joseph Sgro, who was the principal and practically the only person in the affairs of Boyana; he was its only director and its only shareholder, and he was the only source of instructions on its behalf to real estate agents and solicitors. Mr Grassi of Messrs Lamrocks conducted conveyancing business for Boyana and Mr Sgro. The second defendant is C.H. Real Estate Pty Ltd, usually referred to by its business name Raine & Horne Commercial Penrith (R&H). Mr Gavin Shatford, one of the directors of R&H, and Mr Keiran McGarity a sales consultant employed by R&H conducted all relevant business on its behalf.

4 There are cross-claims. The first cross-claim by Boyana against Jainran claims $92,5000 as balance of deposit. In view of the express terms of the contract no balance of deposit is payable and the cross-claim was not pressed at the hearing. The second cross-claim was brought by R&H against Boyana and Mr Sgro and claims indemnity for any amount for which R&H may be held liable to Jainran, including costs; further claims $53,350 commission; and consequential orders.

5 As will appear from my findings, Jainran was entitled to rescind the contract and recover its deposit from Boyana. Jainran was induced to enter into the contract by material misrepresentations, and was entitled to rescind under the general law on the ground of misrepresentation, whether or not the misrepresentations were made innocently. However judgment against Boyana for recovery of the deposit with interest is of no value having regard to evidence which clearly shows that Boyana has no resources and will not satisfy any judgment. There were further bases for the claim for return of the deposit under s 87 of the Trade Practices Act operating with s 52, and under s 55(2A) of the Conveyancing Act 1919. If the contractual remedy had not been available I would have awarded damages against Boyana under s 87, and if no other remedy had been available I would have granted relief under s 55(2A). Entitlement against Boyana may be significant for consequential remedies against Mr Sgro.

6 There were misrepresentations in the very terms of the draft contract for sale. An important respect in which there was misrepresentation relates to a proposal by the Roads & Traffic Authority (RTA) to acquire part of the land for road widening. The existence of these proposals was well known to Mr Sgro (and hence to Boyana); his evidence shows that he took them into account in the redevelopment in 2001 and 2002. The RTA proposal first became known to Jainran or anyone on its behalf on 7 September 2004 when Mr Callanan received a reply dated 3 September 2004 from RTA to a routine inquiry which Mr Callanan had sent. RTA said “The subject property is affected by the Roads and Traffic Authority’s (RTA’s) proposals in the manner shown by red colour on the attached copy of Deposited Plan 791852” and the plan showed a strip of land at the frontage to Mulgoa Road. The plan was prepared in 1988 and registered in 1989, and had not been acted on by resuming or otherwise acquiring land; but continued to be a planned acquisition.

7 Conveyancing Act 1919 s 52A(2)(b) provides for the deemed inclusion in contracts of prescribed terms, conditions and warranties: these cannot be excluded: see subs (4). By subs (9) the Regulations may require attachment of notices and documents to contracts for the sale of land; this requirement falls within subs (4). On 28 May 2004 the Conveyancing (Sale of Land) Regulation 2000 was in force and included prescriptions under s 52A. Clause 7 provided for the inclusion of the prescribed warranty in Schd 3 Pt I and that warranty included:

1. The vendor warrants that, as at the date of the contract and except as disclosed in the contract:

(a) the land is not subject to any adverse affectation, …

With the aid of cl 2(a) of Sched 3 Pt I and reference to Sched 3 Pt II cl (1), land is subject to an adverse affectation if there is:

1. A proposal for re-alignment, widening or siting, or alteration of the level, of a road or railway by the Roads and Traffic Authority, State Rail Authority or Rail Access Corporation.

There was in fact an adverse affectation, the RTA proposal for widening Mulgoa Road shown in DP 791852.

8 Deposited Plan 791852 was prepared by Mr Surveyor McKellar of Roads and Traffic Authority, certified by him on 14 November 1988 and registered on 11 September 1989. It provided for a re-subdivision of land in earlier plans including DP 22669, a predecessor of DP 1030731; Lot 934 DP 1030731 is a consolidation of Lots 9, 11 and 12 DP 22669. DP 791852 provides for re-subdivision of Lots 11, 12, 13 and 14 of DP 22669 (and also of other adjacent land to the north, Lot 12 of DP 563279) so that Lot 11 would become Lot 4 DP 791852 containing 613.2 square metres and Lot 9 containing 36.5 square metres, while Lot 12 would become Lot 3 DP 791852 containing 577.5 square metres and Lot 8 containing 57.2 square metres. Lots 8 and 9 and other lots form the narrow strip suitable for widening Mulgoa Road. A panel in DP 791852 says “Lots 6-9 incl are required for road and after acquisition and the removal of improvements will ultimately be declared public road.” The acquisition has never taken place and the intended road widening has never occurred. There have never been any Transfers or other dealings which have transferred title in Lots 3, 4, 8 and 9 DP 791852.

9 DP 791852 appears to have been prepared and lodged as part of an uncompleted realignment under State Roads Act 1986 (since repealed) section 19; or possibly in contemplation of an acquisition under s 52 (as then in force). No realignment was completed while the State Roads Act 1986 was in force, as the land subject of realignment would have passed into the ownership of the Council and the Torrens Register would show that. Notices under section 19(2) were continued in effect after the repeal of the State Roads Act 1986 by Roads Act 1993 Sch. 2 cl 23. It does not appear whether there ever was a notice under s 19 (2), which refers in para (b) to notice of the realignment served on the owner under s 19(2)(b); probably there was not. That being so, Sch. 3 cl 13 of the Roads Act 1993 would preserve the existing alignments. The Conveyancing Act s 52A(2) requires prescribed documents to be attached and an instrument creating restrictions on the use of land is such a document. See Regulations Schedule 3 Pt.1 cl 1(a). DP 791852, and the notification which refers to it, do not in my opinion create a restriction on use within the meaning of clause 4 (c). It is probable that there is no continuing statutory mechanism in process which might produce an effective realignment, but that does not mean that RTA has abandoned the plan; their answer to the routine enquiry shows that they have not.

10 The area of Lot 934 Deposited Plan 1030731 is shown as 1912 square metres; the two parts of the strip to be acquired are shown on DP 791852 as lots 8 and 9, with areas totalling 93.7 square metres, that is 4.9% of 1912 square metres. This is not a slight or negligible part of the land sold, particularly as it forms part of the land used for access and forecourt, between the service station and store building and Mulgoa Road, where activity is most intense. A known proposed acquisition by a public authority or part of the land sold is something which all vendors can reasonably be expected to disclose as a matter of general prudence and common honesty. Whether or not an intending purchaser is prepared to accept the known possibility of resumption of part of the land ought to be left to decision by that purchaser on an informed basis; the considerations go well beyond consideration of the proportion of the land which might potentially be resumed, and include the relative utility of what remains, the impact on further redevelopment, readiness to accept disruption involved in road widening works, and readiness to accept the need for dealing with the public authority over compensation for resumption. Disruption would be particularly significant in relation to a service station, even though the period of disruption might not extend for very long. Buying into a resumption claim is a problem similar to buying into a law-suit.

11 Printed warnings which form part of the contract include a warning that proposals involving RTA may affect the rights of the party to the contract. In the context of cl 7 of the Conveyancing (Sale of Land) Regulation relating to the implied warranty, the absence of express disclosure of the road widening proposal was itself misleading.

12 The contract provides in Printed Clause 20.2 "Anything attached to this contract is part of this contract." One of the documents attached was a Planning Certificate under the Environmental Planning and Assessment Act 1979 s 149 issued by Penrith City Council on 11 September 2003 which among many other things said:

6. Road widening and road realignment.
The land is not affected by any road widening or road realignment under:
(a) Division 2, Part 3 of the Roads Act 1993, or
(b) An environmental planning instrument, or
(c) A resolution of Council.

13 In the Planning Certificate the contract makes a plain statement to the effect there was no road widening proposal such as the one which actually existed. Of course the Roads Act 1993 is not mentioned in DP 791852, which is earlier in date and refers to the State Roads 1986 Act, but this reference is continued by the Roads Act 1993. The State Roads Act 1986 was repealed by the Roads Act 1993 s 265. The general saving provision in cl 16 of Schd. (2) continued proposals under the earlier legislation in effect. Earlier proposals are continued in effect in more specific terms by Pt 2 Div. 3 of the Roads Act 1993, which preserves a road widening proposal under s 19(2) of the State Roads Act 1986.

14 Also attached to the contract and part of it under Printed Clause 20.2 is a set of requisitions on title and answers, and these include in requisition 22 and its answer plain statements to the effect that there was no proposal to realign the road.

15 Counsel for Boyana and Mr Sgro maintained that the requisitions and answers did not have the force I have attributed to them. I deal with this in an excursus.

16 A search paper with a copy of Folio 934/1030731 was attached to the contract. No copy of DP 791852 was attached. Ordinarily a title search paper would include a copy of any deposited plan referred to in it (Grassi at t.409-410) but the one annexed to the contract did not: Mr Grassi was unable to explain this. Mr Grassi gave evidence that a copy should have been attached and that he was unable to explain its absence. An earlier contract for the sale of the same land had had a copy of DP 791852 attached. A copy of DP 1030731 is attached to the Contract of Sale. DP 1030731 appears to be a compilation based on the deposited plans referred to in it, DP 791852, DP 22669 and DP 563279, and Lot 934 is a consolidation of lots 9, 11 and 12 DP 22669, a much older deposited plan. Lot 934 is the only lot on DP 1030731. On DP 1030731 two parcels of land adjacent to Lot 934 are indicated as Lot 2 and Lot 5 DP 791852. There is no indication that DP 791852 has any reference to Lot 934 except as the plan on which adjacent lots appear. There is no indication on DP 1030731 that there was any plan for road widening affecting Lot 934, on DP 791852 or anywhere else. The references to DP 791852 in DP 1030731 do not show that Lot 934 was adversely affected by anything in DP 791852: they show impacts of DP 791852 on other land adjoining Lot 934.

17 Also annexed to the contract was a search paper relating to a search made on 27 May 2004 of Folio 934/1030731. As well as the entries in the first schedule and the second schedule the search paper shows that the Register Folio bore this notation:

DP 791852 Note: Plan of acquisition.

18 I asked counsel to refer me to any provision of the Real Property Act 1900 which authorises the Registrar General to place this notation on the register. Counsel referred me to various provisions; in my view it is most likely that the Registrar General acted under s 32(1)(c)(ii). The notation was in fact there available to be seen; that is the relevant matter. The notation does not refer to RTA, roads or road widening, and contains no indication whether the planned acquisition had taken place or was still to take place. It does not constitute a disclosure of an adverse affectation as referred to in the Regulation. If it otherwise had any force as such a disclosure that force would be contradicted by the answer to requisition 22 and by the s 149 Certificate.

19 The reference to DP 791852 in the search paper did not in fact make the plaintiff or Mr d’Albora aware of the existence of the RTA's road widening proposals. The search paper contained so little information that it would probably be correct to say that the search paper was inherently incapable of creating such awareness; but whether or not that is right, it did not create such awareness in fact in the minds of either Mr d’Albora or Mr Callinan. In view of what the contract said elsewhere, it would be truly remarkable if it had created such awareness; but their evidence makes it clear that it did not.

20 Also attached to the Contract (Exhibit 2 p147) is a diagram showing “… availability of a sewer and any sewerage service shown as existing in Sydney Water’s records.” This diagram is difficult to follow. It contains among other things a notation “Position of structures, boundaries, sewers and sewerage services shown hereon are approximately only”. It shows parts of Mulgoa Road and Alwyn Avenue and Lot 934 DP 971676 or 9741676 and a number of parcels of land nearby. There is no other reference in the evidence to 971676 and it may be an error. The diagram contains some lines and marks which are difficult to follow but probably refer to water or sewerage services, and a faint line which is not explained by the diagram but which may correspond with the proposed acquisition in DP 791852. The diagram does not say anything or indicate anything about road widening.

21 Counsel for Boyana and Mr Sgro maintained to the effect that the contents of DP 791852 were disclosed in the contract by the reference in the copy search paper to DP 791852 as a plan of acquisition. The proposition that the contract disclosed something while the contract contained clear statements that that thing did not exist has inherent difficulties which counsel's submissions did not acknowledge. Counsel’s contention was based on propositions to the effect that, acting reasonably, the purchaser should have made searches and ascertained the contents of DP 791852 and what it says about plans for acquisition of parts of what later became Lot 934; and further, that the purchaser should have made the searches before exchanging contracts. In my judgment there is no substance in the proposition that the vendor disclosed the existence of the road widening proposal by including the search paper in the contract. A purchaser and its solicitor cannot reasonably be expected to make searches before entering into a contract; searches are prudently made after entering into a contract for the purpose of ascertaining whether the vendor is then in a position to transfer title in accordance with the contract, and while searches may sometimes be made before exchange, there is no substance in the proposition that anything which careful searches would disclose to a purchaser if title searches were made before exchange is in effect disclosed by the vendor. A purchaser who knew what was said in the contract about road widening proposals, reinforced by the implied warranty, could not reasonably be expected to make searches and ascertain that the express disclosures were not correct and that a different story underlay the reference to a plan of acquisition in the search paper. The position might be different if other attached documents did not say there was no road widening proposal; but that is not this case.

22 I conclude that there were misrepresentations about the road widening proposal and there was a breach of the implied warranty.

23 Entitlements to rescind for breach of that warranty depended at the relevant time on cl 19 in Pt 5 of the Conveyancing (Sale of Land) Regulation 2000 which included:

(3) A contract or option may not be rescinded on the grounds referred to in subclause (1)(b) or (2) unless:
(a) the breach constitutes a failure to disclose to the purchaser the existence of a matter affecting the land, and
(b) the purchaser was unaware of the existence of the matter when the contract or option was entered into, and
(c) the matter is such that the purchaser would not have entered into the contract or option had he or she been aware of its existence.

24 In my opinion cl 19(3)(b) relates to matters of which the purchaser was in fact aware or unaware and does not relate to matters of which the purchaser might for some other purpose be treated as having constructive or imputed notice in property dealings. The law relating to constructive notice and imputed notice may fix a purchaser with notice of facts of which he was unaware; this is not what cl 19(3)(b) deals with. Section 164 of the Conveyancing Act 1919, which may relieve the purchaser of the operation of constructive or imputed notice, has no relevant operation.

25 Subclauses (a) and (b) are satisfied. With respect to subclause (c) Mr d'Albora’s affidavit evidence made it clear that he would not have entered into the contract if he had known of the road widening proposals. In oral evidence he was asked about what he would have done in a hypothetical situation where the road widening proposal had in fact been disclosed to him. This was much explored in cross-examination, and a significant passage is at t 75: after referring to para 27 of Mr d’Albora’s affidavit:

Q. In the second last line you say, “if I had been told there was a proposal by the RTA to widen the road immediately in front of the property I would not have entered into a contract to purchase it, and would not have proceeded further until I had received an expert report satisfying me that there was no impact on the property as a service station and convenience store site, or the business being operated from the site”, correct?
A. Yes.
Q. And I suggest, sir, that in that aspect of your affidavit you were intending to say to the Court that you would have in effect obtained a report to determine what the impact would have been on the property as a service station site?
A. I would have.
Q. And if that report had disclosed that there was no impact, or no detrimental impact on the property then I suggest, sir, you would still have proceeded to acquire the site?
OBJECTION: UNFAIR TO THE WITNESS
QUESTION ALLOWED
A. If I received a report that says there was no impact on the site I probably would get a second report because I would have trouble believing that with what I know now.
Q. Even so on obtaining that if you had obtained such a second report, and it still disclosed there was no impact on site, then would you still have proceeded to purchase the property, correct?
A. If it satisfied me that there was no, no impact on the site.
Q. The answer is yes?
A. Yes.
Q. Because the site was still an attractive site for you, wasn’t it, given the long term lease that was in place?
A. Yes.

26 That is to say, Mr d'Albora would have set off on a chain of inquiries and considerations which never happened; the outcome of that chain of inquiries cannot be known and is available only by speculation, but is altogether clear that a course he would not have taken if he had been aware of the existence of the failure to disclose the road widening proposal is entering into the contract by exchanging contracts on 28 May 2004. Mr d'Albora stated in evidence (t 89) matters he would have wished to know about the effect of the road widening. There is no reason to think Mr d’Albora would have received satisfactory information on these subjects if he had obtained a report, and indeed no reason to think that planning by RTA had reached the point where satisfactory information could be available. In my finding the prospects that he would have received a report, however much time he gave to the exercise, which he would have regarded as satisfactory are at the most extremely slight, if there are any such prospects.

27 Mr Sgro sought to maintain in evidence the position that the road widening proposal lacked significance or contained advantages; his endeavours were hollow and served only to make it clear that it is significant. An illustration of its significance is found in cl 13.1 of the Lease which contains a break clause on resumption. People who own or lease service stations do not want slices taken off their frontages for road widening. They do not want to lose one-twentieth of their land at the busiest part, and they do not want to deal with a resuming authority. In my opinion there can be no doubt of the materiality and importance of the road widening proposal. If it had been known, the probabilities are that no contract would have been made all or that it would have been made on renegotiated terms with the assistance of an expert's report on its commercial implications.

28 The contract contained another misleading statement in Requisition 5. I will set it out later: it said that the vendor was not aware of any contemplated or current legal proceedings which might or will affect the property. In fact proceedings 6525 of 2003 in the Equity Division were pending between Jo-Al the tenant and Boyana and Mr Sgro as defendants. The proceedings were commenced on 30 December 2003. Jo-Al claimed damages for an alleged breach of an agreement under which the lease had been granted; the agreement was said to contain terms relating to a payment to Jo-Al of $100,000 to assist with the start-up or establishment cost of Jo-Al’s business and a term warranting the results of investigations and surveys of traffic flows and customer base and the amount of gross sales. Damages were claimed for breaches of these terms. It was also alleged that there had been misrepresentations by Boyana in which Mr Sgro had participated in the course of negotiations for the lease; and there were claims for damages under the common law and s 82 of the Trade Practices Act. The damages claimed included claims under many heads including:

(xii) rent and other outgoings under Lease of the land including the service station and convenience store.

29 Boyana and Mr Sgro filed their Defence on 24 March 2004 disputing the claim and denying many allegations of fact. The proceedings were pending in May 2004.

30 Counsel's submissions were to the effect that the litigation was not litigation "which might or will affect the property" because Jo-Al made no allegation in relation to the lease in its Statement of Claim and sought no relief in respect of the lease, and did not seek to set aside the lease or to vary its terms; the relief sought was damages from Boyana and Mr Sgro. Counsel contended to the effect that the Jo-Al litigation did not and could not affect the property as defined in the requisitions because "it neither challenges the physical properties of the land nor the legal and equitable interest in it." This argument assumes a restricted meaning of the requisition and its answer which does not accord with the ordinary and natural use of language.

31 In Mr Sgro's view the proceedings were without merit; counsel asked me to evaluate the ground for Mr Sgro's view. Counsel contended to the effect that this was relevant to whether the answer was false, misleading or deceptive. In my opinion his view has no bearing on the meaning of the answers to requisitions, or on whether they were false, misleading or deceptive.

32 The answer given to requisition 5 was plainly untrue; Jo-Al claimed that the lease was entered into as a result of misrepresentation, there were claims for damages of which the rent and outgoings were part and the proceedings were plainly current legal proceedings which might affect the property. Counsel for these defendants put forward a narrow reading in which the requisition related only to land title, but this contention was not related to the meaning of the requisition and answer in the ordinary use of language, according to which litigation by the tenant impeaching the basis on which the lease of a service station was granted for misrepresentation might affect the property, even though the only remedy claimed was damages. On any fair use of language, the requisition did not call for an answer governed solely by the terms of the claims made in the litigation: a lawsuit by the tenant of a 20-year lease which he claims was entered into on the basis of misrepresentations might affect the property and the acquisition could not be honestly answered without disclosing the lawsuit.

33 I conclude that Jainran’s rescission had a further basis in breaches of warranties implied under the Regulations.

34 Mr Sgro's evidence did serve to show that nondisclosure of the road widening proposal was in accordance with Mr Sgro's intentions. On this ground alone it is in my opinion clear that the rescission was effective but further that Jainran is entitled to damages for misleading conduct against Boyana and Mr Sgro in respect of the loss of the deposit. R&H was not knowingly involved in this nondisclosure.

35 R & H was not responsible for the misleading answer to Requisition 5, but the misleading character of the answer is enhanced by the terms and nature of representations made to Mr d'Albora by R & H.

36 I turn to consider the conduct in which R & H engaged. Jainran and Mr d’Albora are responsible for investment of large resources. This led him to be interested, in May 2004, in well located commercial properties involving a capital outlay between $2,000,000 to $4,000,000, a yield of at least 9% per annum, with secure long-term rental income provided by quality tenants, suitable for leaving day-to-day management of the property in the hands of a real estate agent. He was seeking passive investment in commercial properties with long-term rental income that he could leave alone for an indefinite period of time and which would take care of themselves. He saw an advertisement by R & H in the Sydney Morning Herald of Saturday 8 May 2004 which gave brief particulars of the property, consistent with later communications; there were no adverse disclosures. About 11 May he contacted R & H, spoke to Mr McGarity and explained his interest. Mr McGarity gave him some information about the property.

37 Mr d'Albora gave this account on affidavit of the opening conversation.

6. On or about 11 May 2004 I contacted the Agent by telephone and spoke to Keiran McGarity (“KM”) who was the sales consultant involved. I had a conversation to the following effect:
JD “I am interested in the property at Mulgoa Road, Wallacia. I am looking for a good passive investment property with a guaranteed long term rental income, little input from me, that will basically take care of itself. I don’t want any problems. What can you tell me about the property and will it suit my needs?


KM This is, of course, a good property, and it would suit your requirements. It has come on to the market because the Vendor needs to sell because he is building another service station on the North Coast. The Vendor is very anxious to exchange and settle as quickly as possible. The Vendor wants to exchange prior to 30 May 2004 and settle soon after. He will consider a reasonable offer on the Property if that condition could be met.

JD Is this the same property that was on the market about a year ago?

KM Yes, I think so, although we weren’t the agent at the time. I understand that there were some problems with the paper side of the deal in terms of getting all the necessary information and detail together and, as it hadn’t been adequately done, the Property was withdrawn from market. The Raine & Horne negotiated with the vendor, as a new agent, to list it and put it back to the market in early March this year.

JD And what about the tenant?

KM He’s been there a couple of years and has had lots of experience running service stations. I can send you his CV if you like.

JD Yes please. Would you mind sending me a property report, then I’ll take a look at that and get back to you.

38 Mr d’Albora and Mr McGarity gave evidence, on affidavit and orally, about this conversation. Mr McGarity attributed the exchanges to two conversations, one on 11 May and one on 13 May; Mr d’Albora said there were not two conversations.

39 Mr McGarity gave an account of the opening conversation with some similarities, in which Mr d’Albora asked Mr McGarity to send him some more details, Mr McGarity spoke briefly about the characteristics of the property including that it was the only petrol station in the suburb and included a mini supermarket, had a long lease and a highly experienced operator.

40 The difference which I regard as significant relates to Mr d’Albora’s evidence that he said he was looking for a good passive investment property with a guaranteed long-term rental and little input from him that would basically take care of itself. This was a standard type of enquiry for Mr d’Albora to make; he had considerable experience in looking for investment properties, and buying them. In my finding Mr d’Albora’s evidence is probably correct, but this opening reference was in very general terms and was responded to by Mr McGarity in the same general way; this can have had relatively little influence overall, and what is clear, undisputed and significant is the absence of any indication of possibly adverse considerations. Mr McGarity’s evidence that he said that he told Mr d’Albora that the property would suit Mr d’Albora's requirements supports the finding that Mr d’Albora told him what his requirements were. I accept that Mr McGarity was told what Mr d’Albora claims was said about the characteristics of the investment he was looking for, and that further communications proceeded in that knowledge. What Mr d’Albora said he was looking for and the picture presented in the brochure do not differ greatly.

41 Mr d’Albora’s evidence was to the effect that he asked whether the property was the same as the property on the market about a year earlier, and Mr McGarity said to the effect that he thought it was, that R & H were not then the agents and

… I understand that there were some problems with the paper side of the deal in terms of getting all the necessary information and detail together and as it had not been adequately done, the property was withdrawn from the market.

42 Mr McGarity denied telling Mr d’Albora that Mr McGarity understood there had been any problems with the paper side of the earlier deal, and did not recall saying some other things which Mr d’Albora attributed to him, including that the property had been withdrawn from the market.

43 A great deal underlay this. The property had been sold by other agents in 2003 to some purchasers named Petracca, who did not complete the sale. This led to litigation between the Petraccas and Boyana which was pending in May 2004; after several more years that litigation went to hearing and was compromised. In May 2004 Mr McGarity had very little information about this. I do not feel that I can make a clear finding about what Mr McGarity said on the subject. The dispute between Boyana and the Petraccas was of little importance then and now, and the claim that Mr McGarity said, incorrectly, that there was a problem with the paper side of the deal, and incorrectly that the property had been withdrawn from the market (whereas it had been sold) is not of much importance.

44 There was some discussion about Mr McGarity sending a property report and further information and about arranging an inspection. The differences in the evidence on these are not significant.

45 I find that Mr McGarity referred to the tenant as a highly experienced operator, and presented the lease and the business in an unqualifiedly favourable light without going to great detail, and while indicating that there would be written material.

46 The information pack which Mr McGarity sent to Mr d’Albora about 14 May 2004 consisted of the brochure, the Reference Schedule from the lease, a copy of the tenant’s curriculum vitae, which had been edited by R & H from a curriculum vitae for Mr Deevey of Jo-Al which Mr Deevey had given to Mr Sgro several years earlier, a copy of Jo-Al’s Petroleum Products Supply Agreement with its supplier (perhaps incomplete) showing a monthly estimate of petrol 250,000 litres and distillate 30,000 litres, a plan prepared by A Blefari Design & Construction Pty Ltd at some earlier stage showing what was then a proposed new service station and its layout, and a Xerox copy of a survey dated 17 July 2001, showing part of the property as it was before the modern service station and store were erected. Its terms show that the object of the survey was to define the position of the proposed store on the land. The Reference Schedule in the lease stated several significant matters including the original rent before any rent review, the rent review intervals, the term of 20 years and two options of five years, and said there were guarantees by Mr and Mrs Deevey and some other significant matters.

47 The Blefari plan and the survey plan show, among other information, lines which may represent the proposed RTA acquisition, but do not say so and do not refer to acquisition. There were some references to these drawings during the hearing but in substance there was no attempt to establish that they made Jainran aware of the road widening proposal and in my opinion they could not have done so.

48 Mr d’Albora was also sent a draft contract, not entirely in the same form as a contract which was later exchanged; a complete copy of the lease was attached. The requisitions and answers were not attached. What the lease provided for rent, options to renew and other matters was available to read. Clause 14.2 of the lease provided that the provisions of the lease comprised the whole agreement between the parties. Clause 19 stated that the lessee was not obliged to pay rent for the first five months of the term. A Section 149 certificate attached to the draft contract said that there were no road widening proposals.

49 The text of the brochure was:

FOR SALE
OUTSTANDING INVESTMENT
20-YEAR LEASE
NET INCOME $257,200 pa

PROPERTY 181-183 Mulgoa Road, Wallacia
LOCATION The site is situated on a prominent location on Mulgoa Road, Wallacia. Directly opposite the Wallacia Hotel and Park Road intersection.
Area adjoins catchment of Wallacia, Luddenham, Mulgoa Village & Silverdale. Close vicinity to Warragamba Dam Tourist Area.
TITLE Lot 934 in Deposited Plan 1030731
DIMENSIONS FRONTAGE 30.86 metres to Mulgoa Road
64.05 metres to Alwyn Avenue
LAND AREA 1,896.28 sqm
DESCRIPTION Near new service station/supermarket development. Large typical retail outlet targeting high catchment, tourist trade and adjoining caravan park.
Convenience store 393.75 sqm
Lease term – 20 years + 5+5 years
Commencing Date 3 April 2002
Expiry Date – 2 April 2022
Tenant fully responsible for full and comprehensive outgoings and operating expenses.
Final agreement with Caltex T/As Spar Express Supermarket.
COMMENTS Solid investment leased to highly experienced operator. Excellent Depreciation Benefits. Great opportunity for long term security and income.

True net lease – all costs paid by tenant.
Net income $257,200.00 pa. NB> CPI Annual Review falls due April 2004

SALE PRICE Raine & Horne
$2,600,000 Commercial Penrith
(exclusive of GST) Phone: [phone]
Fax: [phone]
Email: [email protected]
Website: raineandhorne.com.au/commercialpenrith

50 The dimensions given for the frontage to Mulgoa Road, the frontage to Alwyn Avenue and the land area are all wrong, according to DP 1030731; but this does not lead to any adverse result.

51 The brochure was prepared by Mr Shatford in September 2003 with the aid of various documents which Mr Sgro had sent him, some of them perhaps already several years old. Mr Sgro approved of the use of the brochure by R & H. Mr Sgro supplied the curriculum vitae which Mr Deevey had given to him; R & H removed some references which identified Mr Deevey and his referees. It dealt only with his activities up to 1999 and contained no information about business at Wallacia.

52 Mr d’Albora was of the view that the contents of these documents met the criteria he was looking for. On Saturday 22 May 2004 he observed the property on his own from his car parked at the side of Mulgoa Road. Soon afterwards he rang Mr McGarity and arranged an inspection, which took place on Monday 24 May 2004 and was a thorough inspection of the site lasting about one hour during which Mr McGarity made some oral representations.

53 Mr d’Albora's affidavit evidence was that he had a conversation with Mr McGarity during the inspection. The inspection on site took up to one hour and Mr d’Albora’s evidence did not purport to deal with everything that was said. Mr d’Albora said:

13. During my inspection with KM which lasted about 1 hour, we had a conversation to the following effect:

JD Are there any issues outstanding with the council or the EPA or any other authority?

KM No, it’s all OK

JD And what about the tenant – are there any problems?

KM Not to my knowledge. You have seen the CV I sent you.

JD What sort of turnover is he doing?

KM That’s not available as there is no requirement in the lease for him to tell the landlord that sort of stuff.

JD Is the vendor open to offers?

KM As I said before, he’s building another service station somewhere on the North Coast and he needs the cash. He wants $2.6m but an offer from you would be welcome provided there is an exchange by the end of the month.

JD I will consider making an offer later today of $2.425 million with a $150,000 deposit.

KM I’m sure that will be well received.

54 Mr McGarity denied that Mr McGarity replied "No it’s all okay” when Mr d’Albora asked him whether there were any issues outstanding with the Council, the RTA or any other authority. It was Mr McGarity's evidence that he told Mr d’Albora to the effect that the business was very busy, was run by a highly experienced operator, that the tenant and the landlord did not particularly like each other as the tenant had originally wanted to buy the property himself. His evidence differed from Mr d’Albora’s evidence that Mr d’Albora asked whether there were any problems with the tenant and Mr McGarity said "Not to my knowledge. You have seen the CV I sent you."

55 Mr McGarity denied evidence of Mr d’Albora to the effect that Mr d’Albora asked what sort of turnover the tenant was doing and Mr McGarity said that it was not available as there were no requirements in the lease for the tenant to tell the landlord his turnover. Although Mr McGarity did not give a clear explanation of the source of his knowledge, it was correct to say that there was no requirement in the lease for the lessee to provide turnover figures. Cross-examination showed that Mr McGarity actually knew that some turnover figures had been obtained in the past. I do not regard this as important; those turnover figures were not current and the lease contained no entitlement to current figures.

56 There was also some conversation about Mr d’Albora’s intention to make an offer.

57 In my finding Mr McGarity probably did say "It's all okay" when asked whether there were any issues outstanding. The subject was raised and Mr McGarity probably dealt with it this way. This oral exchange is relatively unimportant in view of the contents of the draft contract, both the draft sent on 14 May and the contract as exchanged. Mr McGarity did not know of the proposed road widening, and the s 149 Certificate with the draft contract indicated that there was none.

58 What Mr McGarity says he told Mr d’Albora about the tenant and the landlord not particularly liking each other was an understatement of the truth. However this was completely inadequate and misleading; to say that the tenant and the landlord did not particularly like each other as the tenant had originally wanted to buy the property himself concealed an important fact which Mr McGarity knew, that there was litigation pending over obligations under the lease. This was a seriously misleading statement, and reinforced the misleading tendency of statements in the brochure. Mr McGarity was actually aware that the litigation was pending. He did not accept that the answer he claimed to have given was misleading and said "I was told it would have no bearing on the sale." The statement does not explain away the known misleading character of what he says he told Mr d’Albora. I regard this as adverse to Mr McGarity's credit.

59 In general I found Mr d’Albora’s evidence more impressive than that of Mr McGarity. Mr d’Albora exhibited confidence and was prepared to make concessions when appropriate, sometimes in very ample terms, which I took to be an indication of frankness. Mr McGarity tended to be defensive in manner and to give answers which were the briefest he could contrive, sometimes monosyllabic. Although a great deal of attention was given during the hearing to their evidence and to divergences in it, I do see the oral exchanges as of less prominent importance; more significant exchanges of information were in writing, and I have no doubt that the oral exchanges were free of caveats, qualifications and warnings and did nothing to dispel the wholly favourable impression communicated by the brochure.

60 There were also conflicts between evidence of Mr d’Albora and of Mr McGarity about the terms of a further conversation in September 2004 before rescission. While I generally regard Mr d’Albora’s evidence about this conversation as the more reliable, I do not regard the conversation as of much importance.

61 Mr d’Albora considered there were no apparent drawbacks to the property as an investment from his point of view and expected everything to be in order. He made an offer to purchase the property for $2,425,000 with $150,000 deposit on 24 May. In a conversation with Mr McGarity on 25 May Mr d’Albora agreed that the deposit could be released on exchange and that there would be a four-month settlement period. Soon afterwards he executed the contract for sale at his solicitors’ office and contracts were exchanged on 28 May. The deposit was then paid and released to Boyana. The date appointed for settlement was 27 September 2004.

62 I turn to consider the facts and circumstances of which were put forward as establishing that the information furnished to Mr d’Albora was misleading and deceptive.

63 The Jo-Al proceedings were commenced on 30 December 2003 in the Equity Division. Jo-Al alleged a number of breaches of the agreement to lease pursuant to which the lease was granted, and a number of misrepresentations made before the agreement to lease. There were also claims relating to repayment of a loan of $300,000 by Jo-Al to Boyana to enable Boyana to complete construction of the service station, and to misrepresentations about investigations and surveys of traffic flows and customer base of the proposed business and its projected gross sales. It was alleged that the agreement for lease had been induced by misrepresentations. The Defence filed on 24 March 2004 alleged that there had been an agreement to set-off the $100,000 against rent for September, October, November and December 2002 and part of January 2003. The claims in the Statement of Claim and proposals to resolve them had been dealt with in a lengthy correspondence before action between solicitors which began on 11 December 2001, in the course of which Jo-Al by its solicitors argued for an extra rent-free period based on hardship, said that the business was unable to sustain the rental payments and sought a negotiated reduction of the rent.

64 The correspondence before the Jo-Al litigation began included many indications that Jo-Al and Mr Deevey did not regard the leasehold relationship, the arrangements for rent and other aspects as satisfactory. Mr Deevey had other complaints, and one was that he objected to his curriculum vitae being used in connection with attempts to sell the property. There were assertions that the business was unable to meet its rental obligation under the lease and that rent adjustments would bankrupt the business, and that Mr Deevey wished to meet any new owner to discuss rent commitments. Jo-Al’s solicitor communicated with the Petraccas’ solicitor with concerns about the rent. There were many months of correspondence, some of it quite forceful in its terms, expressing grievances about the leasehold relationship, principally about the rent, and seeking relief, culminating in the litigation. The existence of these long-standing and continuing expressions of grievance made the serene depiction in the brochure misleading and deceptive.

65 R & H knew something but not much of this history. Mr Shatford’s evidence shows that Mr Sgro told him by telephone on 20 January 2004 that Mr Grassi had received a letter from Mr Deevey which could present a problem which he would discuss with Mr Grassi. On 4 February 2004 Mr Sgro telephoned Mr Shatford and told him that Mr Deevey had asked for rent relief and there was a court case pending.

Mr Shatford said: We need to talk about this further. Let's meet as soon as possible and we can consider this in more detail.

66 There was then an arrangement made for a meeting at the Heritage Terrace Cafe at Penrith on 6 February, which was attended by Mr Sgro, Mr Shatford and Mr McGarity. Mr Shatford gave an account, which I find was substantially correct, of the conversation, in which Mr Shatford told Mr Sgro that R & H needed to find out more about what was happening about rent relief and the court case. Mr Sgro said:

I'm not prepared to give my tenant any rent relief as his trading figures are strong. The court case isn't a problem as far as I can tell. There is nothing arising from the issue of the rent relief and the pending court case that will adversely affect the sale of the property.
Mr Sgro also said "Mr Deevey is simply trying to impede the sale. He wants to buy the property himself. He is just trying to protect his own interests by making negative comments on the business to prospective purchasers.

When Mr Shatford asked him about the rent Mr Sgro said:
Mr Deevey is a good operator and has a good business. He has had no trouble paying the rent. I will personally meet with any prospective purchaser to satisfy them in that regard.

Mr Shatford asked what the court case was about. Mr Sgro said:
The court case relates to the payment of moneys by Mr Deevey towards the construction of the property which he intended to form part of the deposit for a proposed purchase of the property by him.

Mr Shatford said:
So far as you are concerned it poses no problem to the sale.

Mr Sgro said:
None whatsoever.

Mr Shatford said:
Do we continue with the advertising campaign?

Mr Sgro said yes.

67 At a later meeting on 11 February 2004 attended by Mr Shatford, Mr McGarity, Mr Sgro and Mr Grassi, Mr Grassi said that he would draw up a new contract and delete "some of the clauses which are no longer relevant to the sale." When Mr Shatford asked "Joe, what’s been happening with your tenant's request for rent relief?" Mr Sgro said "Nothing has changed. I won't agree to any rent relief because his trading figures are strong." Mr McGarity said "What's the latest regarding the court case that is pending? Is it going to be a problem?" Mr Sgro said "No." Mr Grassi said "No".

68 Mr Shatford accepted Mr Sgro’s statement that the trading figures were strong, and did not seek any further information or any detail. Mr Sgro denied making the statement to Mr Shatford relating to trading figures but I am satisfied that Mr Shatford's evidence on this subject, and generally, is far more reliable than Mr Sgro's.

69 This history of correspondence, dispute and litigation of itself shows, in my finding, that the serene depiction of the leasehold relationship made in the brochure was misleading and deceptive. It also shows that the answer to requisition 5 in the contract of sale was false. It also shows that Mr McGarity was not frank, but was untruthful, in his conversation with Mr d’Albora on 24 May.

70 Jainran’s counsel pointed to the fact that the Jo-Al proceedings might be amended so as to claim some remedy under the Trade Practices Act which did affect the continuance or the terms of the lease. I see it as no more than a speculative possibility that an amendment might have introduced a wider claim. What actually was in issue in the Jo-Al proceedings required disclosure when the assertions made in the brochure were made. It is rather a remote possibility that there might have been an amendment seeking to avoid the lease; it is not on that possibility that the Jo-Al proceedings were relevant.

71 There was considerable debate and much attention in evidence on whether the conduct of R & H and its officers should be impeached for deliberate deception or dishonesty. I do not regard this as a primary concern; the issue is whether the conduct in which they were engaged was misleading or deceptive, not whether they knew it was or intended it to be. Although they were told little about the long history of claims and correspondence and about the litigation, they knew that there were claims for rent relief and a court case. Mr Sgro gave them little information, dealt with the subjects shortly and made it known that he did not regard the court case as a problem for himself or for the sale; and Mr Grassi endorsed this. It remains the case, in so far as it is significant, that R & H knew about the claims for rent relief, knew about the pending litigation at least in outline, and continued to use the brochure which had been prepared in September 2003 before they had that knowledge, without telling Mr d’Albora anything which in any way disturbed the picture of serene security of income and favourable circumstances which it presented. They pressed no enquiries and accepted and acted on very little information from Mr Sgro, who in effect fobbed off such enquiries as they did make.

72 Conversations with Mr Sgro made R & H aware, at least, of the litigation in the tendentious account of the litigation which Mr Sgro gave. The existence of the litigation, even if it had prospects as poor as Mr Sgro said it had, was a fact relevant to the serene indication of assured income from an experienced operator which was given by the terms of the brochure, which Mr Shatford had composed in September 2003 when there had been no Jo-Al litigation. The account of the litigation given by Mr Sgro to R & H did not, in reality, dispel the significance which the litigation had in the context of what the brochure indicated. That the experienced operator who was responsible for the rent had brought litigation in which he was in some way challenging the rent was relevant to, and seriously qualified the serene depiction in the brochure. It qualified the depiction in a different way to the qualification which would have been made by litigation of which Mr Sgro said (as he did not) that it had serious prospects of success; but qualified it nonetheless. A tenant who is an experienced operator and is prepared to bring litigation challenging the rent although the litigation has no prospects of success seriously qualifies the state of affairs depicted in the brochure. I do not think that the evidence given on behalf of R & H of what Mr Sgro said in the February conversation dispels R & H’s responsibility for any misleading or deceptive tendency in what the brochure said, or shows that their conduct in giving Mr d’Albora the brochure was in some way not misleading or deceptive. I do not think that the position can be stated in terms of a duty to disclose to intending purchasers the existence of and claims in the Jo-Al litigation; rather, the existence of the Jo-Al litigation made the statements that were made misleading.

73 If it were established that it was correct that the Jo-Al proceedings were baseless, or that Mr Sgro truly believed that they were, the existence of the proceedings would still be adverse to the defendants' case. If the tenant is a person who brings baseless proceedings against his landlord, that fact would disturb the serene picture projected by the brochure. If the tenant had a long history of claiming rent relief on bases which were unjustified so as to try his luck, that too was significant. A tenant who is a continuing source of baseless trouble could not be reconciled with the brochure.

74 After unproductive efforts since September 2003 and after contacting many prospective purchasers Mr Shatford initiated a fresh approach to attempts to sell the property. He referred to this in a letter to Mr Sgro of 29 March 2004 when he suggested "it would be best to review the contract form in order to remove any queries being made to rent free and the loan that took place between yourself and the tenant and we will discuss this with Joe Grassi.” This referred to removing Additional Condition 51 and the disclosures in it, and appears to continue the suggestion about revising the draft which Mr Grassi had made earlier. There had in fact been instances where prospective purchasers had made queries about the subjects dealt with in Additional Condition 51.

75 Mr Sgro then instructed Mr Grassi to prepare a fresh draft contract, replacing one he had prepared in September 2003. Mr Grassi had included Additional Condition 51 in the earlier draft and it was then prudent to do so having regard to difficulties experienced with the Petraccas. The subjects dealt with in Additional Condition 51 had repeatedly been enquired into on behalf of prospective purchasers. R & H well knew of this, and had prepared answers dealing with the subject which had been given to Messrs Colquhoun representing one prospective purchaser in February 2004.

76 It is remarkable that Mr Sgro was not able, under subpoena or like process, to produce a complete copy of this condition; in all probability there were copies of Additional Condition 51 in various places from which its production was within his control; if not from his own possession. He gave no evidence which satisfactorily explained its absence. I am sure that if the actual terms of Additional Condition 51 could be proved in a way in which reflected better on the case of Boyana and Mr Sgro than the secondary evidence which was produced, it would have been produced.

125 Additional Clause 44 provides:

REQUISITIONS ON TITLE
44.1 The Purchaser agrees that the only form of general requisitions on title the Purchaser may make pursuant to clause 5 shall be in the form of the requisitions on title annexed hereto.
44.2 Nothing in this clause shall prevent the Purchaser from making any requisitions on title not dealt with in the requisitions on title annexed hereto.

126 The issue of requisitions by Mr Callinan's firm of 25 August 2004 has no bearing on the meaning of the contract.

127 According to a contention made by counsel for the first and third defendants the annexed document “requisitions on title” is a standard form of requisitions and replies; counsel contended that this appears from requisition 1(b) which offers an opportunity to furnish a different reply in column 2 to the printed replies which appear in column 1 and begins “Any reply in column 1 should be altered when it is inappropriate or inaccurate in respect of the property …” Counsel contended that the significance of the document is that the purchaser could make the requisitions in exercise of its right to make requisitions under Printed Clause 5, but that as the purchaser did not make requisitions within 21 days as provided by Printed Clause 5.1, by adopting the requisitions annexed to the contract or in any other way, the requisitions and the answers to them have no significance. Counsel contended that the printed answers to requisitions would be significant only if the requisitions were made, and if the vendor replied to the requisitions and adopted the replies; but on the other hand it was open to the vendor, if requisitions were made, to cross out an answer and give a different answer in column 2.

128 In my opinion this is a wrong reading of the contract; indeed altogether impossible. No-one reading or signing the form of contract would think otherwise than that the vendor gave the information in the answers to requisitions, and did so when proffering the document for the purchasers to sign, and when exchanging contracts. Printed Clause 10.1.9 makes this the ordinary and natural meaning of finding the requisitions and answers annexed to the contract. This is reinforced by Printed Clause 20.2. The same is stated in another way in Additional Clause 30.4(a). If a purchaser made requisitions in the terms of the requisitions annexed to the contract, the only general form he could use (AC 44), the vendor would not be obliged to reply because Printed Clause 10.1 prevents the purchaser from making any requisition in respect of anything the substance of which is disclosed in the contract. The answers to the requisitions have already been disclosed.

129 The significance of the requisitions and answers is that the vendor, and Mr Sgro as its principal stated clearly to the purchaser before and at the time of making the contract that (requisition and answer 5) the vendor was not aware of any contemplated or current legal proceedings which might or would affect the property and (requisition and answer 22) that the vendor was not aware of any proposal such as is referred to in Deposited Plan 791852. Both these replies were clearly false: they were misleading and deceptive. The suggestion that the reference to DP 791852 in a notation on the title search meant that the purchaser should be taken to have knowledge of everything that could be known from making searches and seeing what could be known from the plan is completely answered by the fact that the contract states elsewhere that the vendor is not aware of anything of the kind which the plan discloses. Only in disregard of information furnished in the contract would it occur to the purchaser or its legal advisers that it should investigate what was on DP 791852. This is my view of the Requisitions on Title.

130 In the Amended Second Cross-claim R & H makes cross claims against Boyana and Mr Sgro. The cross claim is based on an alleged written agreement - Sales Inspection Report and Selling Agency Agreement - entered into on or about 19 January 2004. Mr Shatford of R & H gave the document to Mr Sgro with a request that he sign and return a copy. The request for signature was important because of the provisions of s 55 of the Property, Stock and Business Agents Act 2002 s 55(1):

55 No entitlement to commission or expenses without agency agreement
(1) A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless:
(a) the services were performed pursuant to an agreement in writing (an "agency agreement" ) signed by or on behalf of:
(i) the person, and
(ii) the licensee, and
(b) the agency agreement complies with any applicable requirements of the regulations, and
(c) a copy of the agency agreement signed by or on behalf of the licensee was served by the licensee on that person within 48 hours after the agreement was signed by or on behalf of the person.

131 Mr Sgro did not return a signed copy to R & H, and Boyana has relied on s 55 when resisting R & H’s claim for commission for its services. Apart from disentitlement to commission or expenses s 55 does not produce any other effect on the enforceability of provisions in the agreement: there is no illegality. There is in my opinion no doubt that an agreement in accordance with the terms of the document came into effect because Mr Sgro's evidence shows that he received it, had an opportunity to read and understand it, and continued to retain R & H as his agent, to treat them as his agent, to give them information and instructions, and generally to act on the basis that they were in a contractual relationship with Boyana, while knowing the terms of the contractual relationship into which R & H was prepared to enter.

132 Mr Sgro's evidence about whether the document was signed, and where the document was, was markedly unsatisfactory. When he first dealt with the subject in his affidavit he said he might have signed it. In his oral evidence, which is not distinct or clear, he seemed to withdraw from this position; to my observation he showed himself to be markedly evasive. My conclusion is based not only on the terms of what he said but also on his demeanour while giving evidence. He gave no explanation which I regard as satisfactory for his not producing the document, last known to be in his custody. At one point he said to the effect that he would not have signed it without consulting Mr Grassi; and other evidence shows that Mr Grassi was not consulted about it at all. If Mr Sgro had not retained R & H as Boyana’s his agent, it was dishonest of him to go on using their services and to treat them as if they were. He could not explain in evidence how it was that he continued to use R & H services, and to treat them as Boyana’s agent, if he had not made a contract with them as they asked. I attempted to pursue this by asking a few questions, but got no meaningful answers. This was not the only document of clear importance adverse to his position which Mr Sgro claimed to be unable to produce. In my view it is highly probable that if the document which R & H sent to him was unsigned he would have found himself able to produce it. Whatever the legal burden of proof is, Mr Sgro came under a strong forensic burden to show that the document was unsigned, as the circumstances including his own behaviour strongly support the existence of a fully effective retainer. The probabilities are that he did sign the document and could produce it, or acknowledge that he signed it, if he wanted to, and I act on that basis. Section 55 does not prevent recovery of commission.

133 By reasoning similar to that employed in Allen v Tobias (1958) 98 CLR 367 at 375 a presumption arises that if the agreement had been produced it would have told against Boyana and Mr Sgro by showing on its face that it had been signed. Unlike Allen v Tobias, there was no confession that Mr Sgro threw the letter out; his claim was that it could not find the document, but it is overwhelmingly probable that if it supported his case he would have found it and produced it.

134 The agreement contains cl 2 giving selling rights, and cl 3 conferring an entitlement to a fee "If during the agency period they effectively introduce a purchaser of the property who subsequently entered into a binding contract". Condition 8 provides:

The sale of the property is to be advertised and/or otherwise promoted as follows: as discussed between agent/vendor”

It is alleged that there was an implied term under which Boyana was obliged to exercise reasonable care, skill and diligence in giving instructions and providing information to R & H relating to advertising and promoting the property. It is alleged that Boyana and Mr Sgro incurred a duty of care with respect to economic loss suffered by R & H as a result of provision of instruction and information.

135 There are provisions (cl 9) about entitlement to reimbursement for expenses. Clause 11 provides "The fee to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to default of the Principal after the parties have entered into a binding contract.”

136 On the findings that I have made elsewhere relating to the entitlement of Jainran to rescind it is in my opinion plain that the contract was not completed owing to default of the principal. Counsel disputed that there had been a default, but I regard the position as altogether clear. Counsel's submissions also put the position that on a correct reading of cl 11 the default must be a default which occurred after the parties entered into a binding contract. In my opinion this contention was not based on a correct reading of cl 11, as the reference to the parties entering into a binding contract is a statement of one of the conditions upon which entitlement to a fee depends, not a limitation of the defaults of the principal which are relevant to entitlement to the fee. I am unable to see any reason for which the parties might have decided to limit defaults of the principal to defaults occurring at a relatively late stage. On the fair and correct reading of cl 11, the temporal reference is to the times of completion or of demand after non-completion, not to the time of the default of the principal. I conclude that R & H became entitled to payment of the fee referred to.

137 The terms of the agreement do not expressly refer to the agent's entitlement under the general law to indemnity while acting within the agency, or to the responsibility of the principal for conduct which might lead to the agent incurring liability.

138 As the relationship between Boyana and R & H was contractual and created a right to indemnity I do not see any room for imputing to Boyana a duty of care with respect to economic loss under the general law of negligence. As to whether Mr Sgro incurred a duty of care there was no real debate before me. In my judgment Mr Sgro incurred a duty of care to prevent economic loss to R & H caused by the information and instructions which Mr Sgro gave to R & H, on behalf of Boyana. There was plainly foreseeability of economic loss to R & H if R & H should incur liability under TPA or in some other way in respect of information passed on to prospective purchasers substantially based on what Mr Sgro told them and the instructions he gave to them, and the vulnerability of R & H, in relation to Mr Sgro, is also plain, as he was in possession of the relevant material and, in their commercial relationship, likely to be the only source of commercial information on which they would act.

139 Although the cross-claim is stated in terms of duty of care, negligence law, the facts alleged show a high and clear duty under the common law owed by Boyana as principal to R & H as its agent; Boyana’s duty was to indemnify. This being the case, I see no difficulty in concluding that the law imposes a duty of care with respect to economic loss on Mr Sgro as he, as the personification of Boyana gave instructions to R & H under which R & H was to act in the obvious risk of incurring liability if they engaged in misleading or deceptive conduct by conforming with the instructions. This does not significantly disturb the fabric of otherwise existing relationships.

140 With very minor exceptions, anything that R & H did was done in accordance with instructions given to them and approvals given to them by Mr Sgro in the exercise of his control over Boyana's affairs; and everything they did was within the general limits of their agency. Mr Sgro was in a far better position than R & H, or than anyone else to know and to say any facts about Boyana's affairs and its relationship with Jo-Al and its lease and its proposed sale; Mr Sgro decided what to tell them, the terms in which they would be told, and what not to tell them. He approved the terms of the brochure, and did not give any new instructions for the brochure as it continued to be used through changing events. Mr Sgro let R & H proceed with conduct which incurred liability, as from his point of view was plainly likely; in doing so he acted in breach of his duty of care to R & H and he is himself liable to them in damages. R & H were for all practical purposes entirely in Mr Sgro's hands as to what they were to do, if they were to act at all; in this way they were in the relevant sense vulnerable. I reviewed the considerations which the court addresses where it is contended that there is a duty of care with respect to economic loss in Chandra v Perpetual Trustees Australia Ltd [2007] NSWSC 694 at [74-99, 114-129] and will not now repeat the full review. I see a close parallel between the responsibility of Boyana to R & H, responsibility to indemnify, and the position of Mr Sgro, completely controlling Boyana, as strongly supporting the imposition on him of a duty of care with respect to economic loss.

141 Counsel contended that any damages recoverable by Jainran should be apportioned in accordance with s 82(1B) of the Trade Practices Act, which applies where a claimant suffers loss or damage as a result partly of a claimant's failure to take reasonable care. This is not an issue which was pleaded, or relied on during the adduction of evidence, and was first raised in submissions after the evidence was closed. In my opinion this reliance should have been pleaded, to avoid surprise: see UCPR 14.14 and compare 14.16. However that may be, the matters put forward as failure to take reasonable care were failure to enquire further, before exchange, in relation to the notation on the certificate of title concerning DP 791852 and failure to make any enquiries concerning the viability of the tenant's business. The first matter is a complaint that Jainran failed to take reasonable care in that it acted in accordance with two statements in the contract which it was asked to exchange, each of which indicated that there was no reason to enquire further. The second matter was again a complaint that Jainran did not act reasonably in acting under the influence of representations made by or on behalf of Boyana, Mr Sgro and by R & H. The statements in the brochure from beginning to end had meaning only if the tenant's business was viable. Referring to the rent according to the contractual entitlement conveyed a clear representation that the purchaser could expect the rent to be paid. In seeking to rely on s 82(1B) (which in my opinion they are not entitled to do for procedural reasons) these defendants have sought to impeach the plaintiff’s conduct in relying the defendants themselves, a posture more bold than discreet. In this they should not in my judgment succeed.

142 These provisions were introduced to the Trade Practices Act 1974 by amendments effected by the Corporate Law Economic Reform Programme (Audit Reform and Corporate Disclosure) Act 2004 (Cth), Sch 3 - Proportionate Liability cll 5 and 6. Before these amendments there was no apportionment in claims under the Trade Practices Act; see Burke v LFOT Pty Ltd (2002) 209 CLR 282 at 308 [66] McHugh J and 319 [99] (Kirby J). Schedule 3 commenced on 26 July 2004, between Jainran’s entry into the contract and paying the deposit on 28 May 2004 and rescission on 23 September 2004. Jainran's economic loss occurred and its cause of action under the Trade Practices Act was complete on 28 May 2004 when it paid the deposit. The view taken by the Federal Court of Australia of s 82(1B) is that that provision only applies to causes of action that arose on or after 26 July 2004; see APF Properties Pty Ltd v Kestrel Holdings (No. 2) Pty Ltd [2007] FCA 1561 at [366-367]. Heerey J took the same view of Pt VIA – see para [371]. I take the view that apportionment among concurrent wrongdoers where there is a claim for damages made under section 82 is available only where the cause of action was complete on or after 26 July 2004; hence that Pt VIA is not applicable in the present case.

143 There are no prospects of recovery of the deposit from Boyana. Notwithstanding Jainran's contractual entitlement to repayment the judgment which I will give against Boyana is of no value. Jainran claimed an equitable lien against Boyana for repayment of its deposit, and took some steps towards enforcing that lien by lodging a caveat; but those steps were ineffective against other creditors with higher priority. Mr Sgro's engagement in the conduct both by his own act and by the conduct of R & H which he set in motion plainly involved him in misleading and deceptive conduct causing Jainran to lose its deposit and he too incurred liability for damages in respect thereof. It was further contended that he was liable as a person involved in Boyana's contravention of the Trade Practices Act; disposition of this claim is not required. I assess Jainran's damages against R & H and Mr Sgro at $150,000, and will award interest at the usual rates allowed on judgments from 28 May 2004 until the date on which judgment is given.

144 To approach whether I should make discretionary order for return of the deposit under s 55(2A) I would first have to suppose that the purchaser under a contract which stated, clearly in two places, to the effect that there were no road widening proposals did not have a right to rescind and recover his deposit when he later found that almost 5% of the land was subject to a road widening proposal. I cannot see how this could be, but if it was the case the purchaser would have a compelling case for a favourable discretionary decision under s 55(2A). That decision would not be enforceable, given the state of Boyana's affairs.

145 Orders

On the plaintiff’s claim:

(1) Give judgment for the plaintiff against the defendants for $150,000 with interest at the rates allowed on judgments from 23 September 2004 to the date of this order.

(2) Order that the defendants pay the plaintiff’s costs.

On the First Cross-claim:
(3) Dismiss the Cross-claim with costs.

On the Second Cross-claim:
(4) Give judgment for the Second Cross-claimant against Boyana Pty Ltd for an indemnity against all damages, costs and interest payable by the second cross-claimant to the plaintiff.

(5) Give judgment for the Second Cross-claimant against Boyana Pty Ltd for $53,350 for debt together with interest at the rates allowed on judgments from 23 September 2004 to the date of this order.

(6) Give judgment for the Second Cross-claimant against Joseph Sgro for damages to be assessed.

(7) Reserve liberty to apply with respect to the assessment of damages.

(8) Order that the Cross-defendants pay the Cross-claimant’s costs of the Second Cross-claim.
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