Kimberley NZI Finance Ltd v Torero Pty Ltd

Re: KIMBERLEY NZI FINANCE LIMITED and TORERO PTY. LTD
And: TORERO PTY LTD; STEVEN ALICK MASEL; FRANK LEONNE AGNELLO and
TRAYDA PTY LTD
No. WAG 99 of 1985
FED No. 400
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - fraud - negligence - financier advancing funds for unit development - advance on basis that developer had pre-sold units - purchaser of 4 units in dispute with developer over plans and specifications - whether purchaser misrepresented position to financier - whether purchaser's silence on contractual differences with developer constituted misleading or deceptive conduct - circumstances in which silence may constitute misleading or deceptive conduct - cross claim - contract between developer and purchaser discharged.

Trade Practices Act 1974 s.52, s.82

Thomson v Riley McKay Pty Ltd (1980) 29 ALR 267

Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477

Henjo Investments Pty Ltd v Colin Marrickville Pty Ltd (1988) 79 ALR 83

Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950

HEARING

PERTH

#DATE 27:7:1989

Counsel for the Applicant: Mr C.J. Pullin QC with Mr B. Wheatley

Solicitors for the Applicant: Corser & Corser

Counsel for the Respondents: Mr M.J. McCusker QC and Mr M.S.

McDonald

Solicitors for the Respondents: MacDonald Rudder & Co.

ORDER

As to the Application:

The application is dismissed.

The applicant is to pay the respondent's costs of the application.

As to the cross-claim:

It is hereby declared that the contracts between the cross-claimant and the cross-respondent dated 18 July 1984 for the purchase of Units 1, 2, 9 and 10, Lot 105 Kirkham Hill Terrace, Maylands are discharged. The cross-respondent is to pay the cross-claimant's costs of the cross claim.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Introduction

To persuade a financier to lend $800,000 is no light undertaking. When the borrowing is sought to fully fund the purchase and development of land, it is positively onerous. Add the factor that the borrower is a $2 company, whose controller has made an arrangement with his creditors under Part X of the Banruptcy Act 1966 and the burden of persuasion seems insurmountable.

But on 27 April 1984, Kimberley NZI Finance Limited ("Kimberley") did not see it that way. For on that day the Manager, Corporate Finance of that company, with the approval of its Managing Director, sent to Robert Auguste, the insolvent secretary of a $2 company called Ermay Pty Ltd, a conditional approval for an advance of $800,000 to fully fund the purchase and development of land at Lot 105 Kirkham Hill Terrace, Maylands.
The inducement to enter this apparently high risk transaction, arose from representations to Kimberley that all 10 units of a proposed multi-residential development on the site had been pre-sold at prices well in excess of their likely market value. The money having been advanced, the land acquired and the building erected, the purchasers did not complete. The loan therefore could not be repaid and Kimberley had to exercise its power of sale under a mortgage over the land. It suffered a loss as a result. It does not now sue the developer, which, is it seems, an empty corporate shell standing before a man of straw. Rather, it sues the former vendor of the land and prospective purchaser of four of the units, Torero Pty Ltd ("Torero") and two of its directors, Messrs. Masel and Agnello.
Kimberley complains that they represented falsely that their purchase contracts were valid and enforceable and that they would duly perform in accordance with their terms. In truth, it is said by Kimberley, they did not believe the contracts were valid and enforceable and did not intend to perform them. They are said thereby to have contravened s.52 of the Trade Practices Act 1974 and also to have been guilty of fraud and/or negligent mis-statement in making the representations attributed to them. Kimberley claims against Torero and its directors damages under s.82 of the Trade Practices Act and at common law. Torero denies these allegations and says that under the terms of its agreement, the developer was to construct units including those to be purchased by Torero, in accordance with plans supplied to the developer as part of the contract of sale. Torero claims a declaration that its contracts with the developer have been discharged by reason of its repudiation of them
History of Events
In January 1982 Torero Pty Ltd purchased a block of vacant land at Lot 105 Kirkham Hill Terrace, Maylands for about $160,000. The company was trustee of a unit trust and was the vehicle for a proposed strata title home unit development on the land to be constructed according to plans prepared by one of its directors, Anthony Joseph Casella, an architectural draftsman. The other two directors were Stephen Alick Masel and Frank Leonne Agnello. The development, which envisaged the construction of 10 two storey brick and tile townhouse units, was approved by the City of Stirling in mid 1982. The company called for tenders to construct the units, but according to Casella the prices were too high to make the project feasible. In any event, differences had emerged between Casella on the one hand and Masel and Agnello on the other, such that it was no longer possible for them to maintain a working relationship. It was decided therefore to sell the land and the plans. The land was initially advertised at $350,000, then at $300,000. By November 1983, Torero had not received any offers for it and Masel contacted Roderick Crofts of R. & Y. Crofts and Staff, Real Estate Agents. Crofts said he had two or three possible purchasers of the land in mind who would be prepared to pay $250,000 for it, together with the plans but on the basis that Torero would purchase back four of the units when constructed for a total price of $340,000.
On 4 November 1983 therefore, Torero signed a form of offer and acceptance purporting to accept in blank an offer to purchase the land for $250,000. No purchaser was specified and the "offer" thus accepted was expressed to be subject to the following conditions:

"(4) This offer is subject to the Vendor entering into a contract to purchase Units 1, 2, 9 and 10 at Lot 105 Kirkham Hill Tce Maylands WA for the sum of $340,000 by way of separate offer and acceptances of the same date and settling on issue of strata title.

(5) The Vendor agrees to supply all plans and working drawings to construct 10-3 bedroom Town Houses and gain all approvals for construction from the necessary authorities before settlement."

And then rather curiously:

"(7) Acceptance of this offer is subject to ratification by the Vendor at a meeting of its directors within 10 days of acceptance."

Masel was satisfied that the proposed buy-back price for the 4 units was acceptable having regard to their standard as depicted on Casella's plans. The "acceptance" was dated 4 November 1983. Crofts asked Masel to get an extension of the approval to commence development from the City of Stirling. This was done and an extension granted for a period of 12 months from 22 November 1983. In addition to the offer and acceptance form for the sale of the land, Torero also signed in blank, 4 offer and acceptance forms for the 4 units it was to purchase and paid deposits on those units into the R. & Y. Crofts and Staff Trust Account.

Crofts then informed a meeting of his firm's sales staff of Torero's desire to sell its site in Maylands for unit development and that it would as part of the transaction buy back some of the units. One of his employed salesman was Robert Auguste. He had been for some years a property developer, achieving some measure of success but, following a drop in real estate markets, had found himself in financial difficulties and had taken advantage of the provisions of Part X of the Bankruptcy Act. Auguste expressed interest in undertaking the acquisition and development. Crofts provided him with a set of Casella's plans, some coloured perspective drawings and the 5 offer and acceptance forms executed in blank by Torero. Auguste told Crofts that the other 6 units would have to be pre-sold if he were to obtain finance for the project. Crofts said he had a South Australian investor, a Mr Aaron Barr, in mind as a possible purchaser. Auguste made inquiries about the cost of constructing 10 units according to the Casella plans. He formed the view that this would be prohibitively expensive and asked an architectural draftswoman, Belinda Beahan, to prepare new plans leaving out some of the more expensive elements of Casella's.
In the meantime, early in January 1984, Auguste telephoned Russell Hawkins, the then Managing Director of Kimberley. He asked Hawkins if his company would be interested in funding the home unit project for him. Hawkins, knowing of Auguste's parlous financial situation, initially told him that in view of his personal circumstances it would not be wise for Kimberley to advance money to him. Auguste however, went on to say that he could pre-sell the units. On this basis Hawkins invited him into his office to discuss the matter further, which they did on 5 January 1984.
At that initial interview Auguste had a typewritten submission. He either showed it or conveyed its substance to Hawkins at the time. It sought an advance of $616,000. In the submission he said, inter alia:

"The land is to be purchased from Torero Pty Ltd (Steve Masel of Reliance Finance Co and Frank Angelo) (sic) on a buy-back basis of 4 units which will be retained.

The balance of the units are to be purhcased (sic) by another Investor who wishes to retain most of them for investment purposes. (he has, amongst other assets, $150,000 cash).

The plans have been supplied and are approved by the City of Stirling. They are to be modified but retaining the architectural character shown in the perspectives."

Hawkins agreed to further consider the proposal if certain conditions could be met and sent to Auguste a letter on the same day confirming their discussions. He noted that the total estimated cost, including land acquisition, construction costs, fees, stamp duties and other outgoings amounting to $616,000 and continued:

"Under normal circumstances we would not consider this to be a satisfactory proposal, however, you have advised that Torero Pty. Ltd will buy back 4 of the units and Mr A. Barr buy the remaining 6 units.

This, of course, means that it is more or less a contract for building and you suggest this in your submission, and that you would take a fee out of the project, after payment of all costs and interest."

On that basis Hawkins indicated that subject to certain terms and conditions, he would be prepared to further discuss the matter with Auguste. The conditions were:

"A. You advise that Torero Pty Ltd and Barr will deposit approximately $70,000 by way of deposits with R. & Y. Crofts and Staff, approximately $30,000 of this will be commissions due to that firm and settlement fees. The balance of no less than $40,000 to be deposited with Kimberley N.Z.I. Finance Ltd to cover monthly interest payments. B. The building cost is to be verified as being $350,000 and the remaining fees and costs as set out in your feasibility study are also to be satisfactorily evidenced. It is obviously not going to be a viable project for you or a financier if the building and other costs exceed what you have estimated. C. The builder must be of repute and in our opinion able to complete the project for the quoted price and the contract in relation to the units must be in order. D. Unconditional contracts must be held for the sale of the 10 (ten) units from Torero Pty Ltd and Barr and/or his nominee. The personal covenants must be given from the parties behind the companies or trusts used. E. The financial position of the purchasers of the 10 (ten) units are to be made available to us and they must be satisfactory. F. End finance for the purchasers of units must be approved or be evidenced to us as being likely to be approved."

Hawkins asked that he be provided with a copy of the contract for the purchase of the land and details of fees to be charged by the various engineers, draftsmen, architects and so on:

"The main thing we require is, either a Quantity Surveyor's report on the cost of the construction or quotes from several builders in relation to the project. We presume you will be going to tender for the building or, alternatively doing some negotiations with individual builders at which time we can get an estimate of the pricing."

The letter concluded by noting that the final decision would be made by the Board of Kimberley.

According to Hawkins' evidence the proposed on-sales to Torero and Barr were "completely, absolutely and utterly vital to the transaction...". His company, he said, would not have entertained the application in any way if it were not satisfied that those transactions were going to proceed. As he pointed out, Auguste was not a person of any financial substance. Kimberley was being asked to fund him on almost 100% of the development and any value in the development would come from the value of the units upon completion.
Having written his letter to Auguste, Hawkins informed Kimberley's Manager, Corporate Finance, Mr T. O'Neill, of the application and of his response to it. He asked O'Neill to follow up and see what, if anything, could be made of the proposal. O'Neill, in his previous capacity as Assistant State Manager of Lensworth Finance, had had some dealings with Auguste in 1980. Hawkins gave O'Neill his note of the discussion with Auguste and a copy of his letter of 5 January. According to O'Neill, Hawkins was "particularly emphatic" in his instructions to him that Kimberley had to be "most assured that the proposed on sales were real and that they would eventuate otherwise we were at risk..." Sometime after receiving these instructions O'Neill phoned Auguste seeking information on his ability to meet Hawkins' conditions.
Auguste could not recall when he first met Masel and Agnello before April 1984. According to Masel, however, they met him during a meeting with Crofts on 29 February 1984. At that meeting Crofts told them that the cost of construction of the units was now such that the purchase price for four would be in the vicinity of $375,000 and not $340,000 as first thought. Masel and Agnello said that on that basis they could only take three units. Crofts assured them that he would be able to on-sell one of the units before settlement. Masel said that if he felt so confident he could commit himself to the fourth unit. Crofts was not prepared to do that. At this point he called Auguste into the meeting and introduced him as the party behind Ermay Pty Ltd, the prospective purchaser of the land. Discussion ensued about the fourth unit and Auguste said he would guarantee to sell it or purchase it himself if Crofts had not sold it when settlement was due on the other units. There was no discussion at that time about what was to be built. Auguste then left the room and further conversation followed with Crofts who said there would be some minor alterations to the units to save on costs. These would not affect their quality or appearance. Torero's directors were given copies of the five offer and acceptance forms relating to Lot 105 and the purchase of the four units. Each of them had been executed by Ermay Pty Ltd.
In the meantime Beahan gave Auguste a set of revised plans for the development. These were dated 19 February 1984. It is not clear whether Auguste had received them prior to the meeting of 29 February, but he passed them on to Crofts. On 15 March, Crofts called Masel and Agnello to his office and showed them the plans. They regarded the departure from the Casella plans as major. The buildings were set at an angle which did not make best use of the views available from the land and were otherwise generally inferior to the original proposal. Masel and Agnello told Crofts the plans were completely unacceptable. Crofts suggested they take them home and let him know what the problems were. He promised to speak to Auguste and make sure that what they wanted was done. There was some further discussion with Crofts about the fourth unit, the sale of which Auguste had said he would guarantee. Masel and Agnello did not want to take the unit. But Crofts told them that the finance company was expecting contracts for 10 units and they did not want to go back to it with only 9. On the same day Auguste signed an offer and acceptance form whereby Ermay offered to purchase Unit 2 of the proposed development from Torero for $90,000. This was also signed by Masel and Agnello on behalf of Torero. Crofts, it seems, did not honour his promise to speak to Auguste about Masel and Agnello's dissatisfaction with the Beahan plans.
On 16 March, Masel, Agnello and Casella held a meeting of the Torero board at which reference was made to the execution of the contracts under which Torero was to purchase 4 units in the development for the new price of $375,000. The minute made no express mention of the re-purchase of Unit 2 by Ermay. There was reference however to a caveat over Lot 105 lodged by Casella's company, Casella Nominees Pty Ltd. It was noted in the minute, somewhat optimistically as it turned out, that the caveat would be removed "unconditionally" by the solicitor acting for Casella Nominees when required for settlement.
On 21 March 1984 Auguste wrote to O'Neill at Kimberley giving information said to have been requested on 19 March. Ermay Pty Ltd was identified as the proposed borrower and copy plans and specifications were enclosed "subject to minor variations as required by the City of Stirling". Reference was made to various tenders obtained for the building work, the lowest of which was said to be by Murray McKeon, at $442,713. Costs over and above the building costs were said to amount to $26,000. The letter referred to copies of offer and acceptance forms and it appears from O'Neill's evidence that they, being the four signed by Torero and the six signed by Barr, may have been delivered to him some time prior to the letter of 21 March. Financial statements of what were described as the "End Purchasers" namely Masel, Agnello and Barr were also enclosed. Various calculations followed showing a net profit of $87,000. The letter concluded by requesting that Kimberley proceed to final approval of finance as soon as possible. On 29 March Auguste submitted the revised development plans to the City of Stirling for approval. The plot ratio exceeded that then allowable under existing planning codes, but it seems that new R. Codes were pending under which the plot ratio would have been permitted.
O'Neill had in the meantime been making enquiries with real estate agents operating in the Maylands area and concluded that the sale price of the land to Ermay was in excess of its market value as were the prices for the units. He met Masel in the first week of April at Masel's office in West Perth. The object of the meeting, he said, was to establish Masel's credibility, viability and intention to proceed with the purchase of the four units. He remembered Masel showing him his bank books and current balances and a set of financial statements for the family company. There was discussion about the fact that Masel was going to occupy the most expensive of the units, but O'Neill could not recall discussing what would happen to the other three. He was assuming they would be sold. Masel also recalled the meeting which he said occurred on 5 April. O'Neill was only at his office for about 10 minutes and his stated object was to confirm that Masel and Agnello were involved with Torero and to verify their financial standing. There was, according to Masel, no discussion at all of the units. He did not recall discussing with O'Neill the unit he was to occupy. In my opinion it is more probable than not that there was some discussion of that unit. There was further discussion about the need for guarantees of Torero's performance of the purchase contracts. According to O'Neill, he explained that Kimberley relied upon the offers being honoured and would want to see them backed by personal guarantees. Masel said that he and Agnello would have no hesitation in doing that. O'Neill carried out credit checks on Masel and Agnello and was satisfied with the results.

There was a meeting of the Torero board on 11 April 1984 at which Masel and Agnello were present. Casella came late and left shortly after he arrived following a dispute over minuting procedures. The other two directors reaffirmed the four offer and acceptance contracts, ratifying the alteration in purchase prices to a total of $375,000. They also, however, noted that the strength of Ermay Pty Ltd to buy back one of the units was questionable and therefore four units might have to be dealt with and not three as hoped. Masel in his evidence said that he thought that this entry in the minutes reflected the directors' awareness that Ermay was being fully financed and had no money of its own in the project.
On 16 or 17 April, Masel and Agnello met with Auguste at Masel's office. Auguste had a small baby with him when he arrived and because the child started crying had to leave a little early. Masel and Agnello referred him to the Beahan plans which Crofts had given them and pointed out they were nothing like the Casella plans for which they had contracted. Crofts had told them the plans would be substantially changed and they were expecting to see new ones. Auguste said he knew nothing of this. He said that finance had been approved and site works commenced. They could not go back to the Casella plans as those were too expensive. The builder was working off the Beahan plans. Masel and Agnello then specified various changes they wanted to bring the units up closer to the standard of those shown in the Casella plans. These were indicated by red markings on a photocopy of the Beahan plans (Exhibit 29). Auguste said that the changes would be expensive and he wanted to know who was going to pay for them. Masel and Agnello said that was his problem. Auguste then offered to compromise on the basis that he would pay for some of the items and Torero for the others. But Masel and Agnello were adamant. They had contracted, they said, on the Casella plans and would not pay for the steps necessary to bring the units up to that standard. And according to them Auguste agreed that he would make the changes at his expense. He expressed anger at Crofts' role in agreeing to changes without referring to him first. Auguste denies giving any such undertaking, but I am satisfied that it was given.
The following day Masel rang Crofts and told him that Auguste knew nothing about the new plans which Crofts had promised. Crofts told Masel not to worry about Auguste. He had control of him and would have a word with him. Auguste, he said, would do what he was told.
On 19 April Masel drafted a letter from Ermay to Torero, which was signed by Auguste and which read as follows:

"In relation to the offer and acceptance for the purchase of Unit 2 we are repurchasing from you the subject of offer and acceptance dated 15th March, 1984, we hereby agree to alter clause 4, and in lieu of settlement on the issuing of Strata Titles, settlement will now take place on the issuing of a Dealing Number.

In effect, the repurchase of this unit completely cancels out your commitment to purchase the same unit from our Company in the first instance as written up in your Offer to purchase the unit dated the 4th November, 1983.

Unit 2 will therefore remain with our company on completion of the development."

Masel explained the letter in his evidence as a device to avoid double stamp duty arising from a transfer from Ermay to Torero and a re-transfer from Torero to Ermay. In relation to the purchase Auguste told Masel that he had discussed the proposal with a solicitor. Masel and Agnello were a little uncomfortable about the arrangement as Auguste had said the finance company was expecting the sale of ten units. It is apparent however from the minute of 11 April 1984 and from Masel's evidence, that they regarded Torero as bound to purchase the four units in the event that Ermay was unable to honour its undertaking to buy back one of them.

A further letter to Torero dated 19 April 1984, drafted by Masel and signed by Auguste said:

"We wish to advise that we have spoken to our solicitors, McLeod & Del Piano regarding advice with propriety of the contra contracts for our company to repurchase Unit 2 of the above development from you, on the basis that you are purchasing that same unit from us as per the contracts submitted to our financier, Kimberley Finance.

We confirm that the solicitors have advised there is no problem whatsoever with such action and there is no question of this arrangement being improper."

Auguste said in evidence that he consulted with solicitors, but could not recall who. The letter was, he said, correct. He claimed however not to know why Masel wanted it.

On 27 April and with Hawkins concurrence, O'Neill wrote to Ermay confirming approval of an advance in the amount of $800,000, including $250,000 for the land and $443,000 for cost of construction, inclusive of landscaping. The approval was expressed to be subject to various terms and conditions including under the heading "SECURITY" the following:

"(b) The proposed development will yield 10 units, all of which have been on-sold with deposit moneys, constituting 10% of the purchase price, totalling $91,500 being released to the developer - Ermay Pty Ltd. We require that Ermay Pty Ltd deposit the full amount of $91,500 with Kimberley N.Z.I. Finance Ltd and Ermay Pty Ltd is to charge the deposit moneys to us as part of our security."

The letter required the provision of personal guarantees by Masel, Agnello and Barr in support of the offers to purchase by Torero and A.R. Barr Investments Pty Ltd. And under the heading "GENERAL" the letter also provided:

"(e) We emphasise that in the event either of the purchasers of the completed development, Torero Pty Ltd and A.R. Barr Investments Pty Ltd, fail to settle in terms of their Offers then Kimberley, with the full and unequivocal co-operation of Ermay Pty Ltd, is to proceed to sell any balance of unsold units for the best price possible in as short a time as possible."

At or shortly prior to this time, O'Neill had consulted with Dennis Franks, a director of Kimberley, who was also employed as its General Manager, Operations and whose responsibilities required that he be consulted on loan proposals. Franks made notes of the details of the proposal as explained to him by O'Neill, which included the following:

"Must completely satisfy ourselves as to the substance of the purchasers to settle. Perhaps we could grant vendors terms if necessary and if the purchasers scrub up."

He noted that the units were overpriced and observed:

"We should talk direct with the purchasers to determine their attitude towards end finance and settlement. I can't understand the prices that they are paying with regard to the area agent's comments."

He also observed with insight:

"A combination of Auguste and Crofts is a little daunting."

He instructed O'Neill to obtain additional information to substantiate the proposed construction cost and also to get an indication of value upon completion, either by way of direct valuation from a professional valuer or agents' comments on the likely sale price. O'Neill obtained a report dated 26 April from R.J. Bracewell & Co., Real Estate Valuers and Property Consultants, which assessed the market value of Unit 1 of the development at $70,000, units 2 to 8 at $65,000 each and Units 9 and 10 at about $80,000. A further report dated 9 May was obtained from Hodge & Willcox Pty Ltd, Architects, commenting on the tender price offered by the builder, McKeon. They suggested that the project could not be constructed for less than $600,000 as against the quotation of $442,713. Plans and specifications were said to be inadequate and to leave room for the builder to claim a considerable amount for variations to contract during the construction period. The report recommended that before Kimberley became involved in the project, it should obtain an accurate breakdown of the quotation into the various trade sections. After consulting McKeon, Auguste told O'Neill that the builder would be doing a substantial part of the carpentry work himself, that he had expertise in the kind of development proposed and that architects tended to over price building costs. After checking McKeon's reputation with other builders and speaking to him personally, O'Neill was satisfied that the tender price was achievable.

Auguste executed a building agreement with McKeon dated 23 May 1984. Subsequently and acting on legal advice, he arranged with Kimberley and with Torero that a company called Trayda Pty Ltd, effectively controlled by him, should replace Ermay as purchaser of the land and vendor of the units. To this end 6 fresh contracts were executed in the standard form of offer and acceptance used for the earlier agreements. One was a contract for the purchase of Lot 105 by Trayda from Torero. Four were for the purchase of Units 1, 2, 9 and 10 by Torero from Trayda. The sixth contract was for the re-purchase of Unit 2 by Trayda from Torero. All appear to have been executed by Trayda on 20 June and by Torero on 18 July. On the same day, Auguste signed letters from Trayda to Torero in substantially the same terms as those drafted by Masel on 19 April. Copies of the Trayda/Torero contracts were provided to O'Neill on or about this date.
On 18 July, O'Neill wrote to Auguste confirming the approval of the advance subject to various stated amendments, including the substitution of Trayda for Ermay. By this time the total advance was $820,000 to be repaid on or before 28 February 1985. The approval expressed satisfaction that McKeon was able to construct the development and at least implicitly accepted his assurance as to the cost of construction. O'Neill asked that Auguste provide Kimberley's solicitors with stamped copies of the amended offer and acceptance forms. He was also asked to liaise with the solicitors over personal guarantees to be provided by the Torero directors and a charge over the sum of $50,000 to be deposited by A.R. Barr Investments Pty Ltd.
After the approval went out, the proposed loan was submitted to Kimberley's credit committee for consideration. The credit committee was an administrative structure recently established by Hawkins to lighten the burden on him of personally considering loan applications. The reference of the Trayda proposal to the committee in this case was, as Hawkins said in his evidence, a kind of "dry run". The effective decision to approve the loan had already been taken. Nevertheless O'Neill prepared a comprehensive submission to the members of the committee, setting out the essential elements of the proposed transaction. He also outlined what he called "a possible worst case situation" on the assumption that Torero settled on its purchase of four units but Barr did not. The even worse case, where neither Torero nor Barr settled, was apparently not considered. The submission concluded that:

"This is a most unusual deal, where the borrower stands to make a good profit on a development in which he has no downside risk. Be that as it may, I believe we have covered all of the angles sufficient for us to be satisfied that our risk is absolutely minimal and our return satisfactory."

On 20 July the directors of Torero met. On Masel and Agnello's votes the board resolved to ratify their decision to enter into the new contracts with Trayda. The debate on this and other matters took the form of a running question/answer session and argument between Masel and Agnello on the one hand and Casella on the other. It was pointed out to Casella that Trayda had signed to buy back Unit 2 but that given Auguste's dubious financial standing, that commitment was of limited strength. The contingency of non-performance by Trayda seems to have been accepted by Masel and Agnello however, on the basis that they were selling the land to Trayda at about $100,000 over its market value, which they put at $150,000. I am not satisfied on the evidence, that Masel and Agnello did not intend, by reason only of Trayda's failure or inability to perform that agreement, that Torero should decline to acquire the unit.
The second topic of discussion at the meeting was the Casella caveat. Masel and Agnello pressed him to withdraw it to enable settlement to proceed but Casella said that he was not prepared to discuss the matter. Much debate ensued, the upshot of which was that Casella said that the matter would go to Court in due course.
According to the minutes, Masel indicated that although a copy of the Kimberley approval had not been received by the company, he had spoken to Kimberley on many occasions and knew that finance had been approved. As to the substitution of the Beahan for Casella plans, it appeared that Masel and Agnello at that stage believed that the changes to the plans had been agreed with Trayda.
It emerged from Masel's evidence that in the course of the meeting, Casella asked about the financial strength of Kimberley and its ability to finance the development. Masel and Agnello told him that Kimberley's position had no effect on the proposed dealing. Casella, however, said he would contact Kimberley to "check on them and have a talk to them". Masel and Agnello decided that in the circumstances they should contact Kimberley themselves. Masel said that he rang O'Neill and told him that Auguste was repurchasing Unit 2 from Torero as he wished to live in it himself. O'Neill said he was not concerned about that and according to Masel, gave as his reason the fact that "we have got your contracts". Agnello pointed out that he and Masel had been concerned about the non-disclosure of the Unit 2 buy back contract previously, but that Auguste had assured them on the strength of advice from his solicitors that there was no need to inform Kimberley of its existence. O'Neill denied having any memory of the conversation with Masel. It would, he said, have rung a few alarm bells because Auguste did not have the ability to pay the price of a unit from the projected profits on the development. He did recall a conversation with Auguste in which he made mention of the fact that he would like to live in one of the units as he was getting married. There was however, according to O'Neill, no mention from Auguste of any contract to that end.
In my view, Masel's account of his discussion with O'Neill is likely to be correct. Casella's obduracy and the difficulties he placed in the way of the transaction were such that Masel was quite justified in taking the view that if Casella were to make good his stated intention to contact Kimberley he might do so in such a way as to jeopardise the entire transaction. The background leading up to that contact is supported by Agnello's evidence and I accept as probable that O'Neill was unconcerned because of his view that the contracts between Torero and Trayda remained in place and were enforceable.
On 26 July, O'Neill met with Masel and Auguste at the offices of Kimberley's solicitor, Mr Hyland. There was some discussion concerning Casella's caveat and how best to effect its removal. In the event, it seems to have been agreed that settlement could proceed upon the basis of Kimberley undertaking to pay $250,000 to Torero within 7 days of removal of the caveat. The removal was to be achieved by lodgement of the transfer and mortgage of the land. The consequent issue of a 14 day notice would require Casella to do something to justify the caveat.
The question of stamp duty payable on the offer and acceptance agreements was also debated. Masel asked that Torero not be required to submit the contracts for payment of stamp duty until just before settlement in order to avoid straining its working capital. Hyland advised against this course, but O'Neill said he was prepared to take a commercial risk. Hyland recalled in his evidence, being asked by O'Neill to advise him on the enforceability of the Torero contracts to purchase the four units from Trayda. His advice was that he thought the contracts enforceable. He did not discuss the importance of the building plans as a means of identifying what it was that the purchaser had agreed to purchase. On the other hand, he said that at no time had Masel or Agnello suggested that there was any problem concerning the plans. Hawkins of course, had been told at the outset by Auguste that the plans would have to be modified but there was no follow up by Kimberley to ensure that the process of negotiation which must necessarily accompany any such modification was satisfactorily concluded.
On 27 July O'Neill sent a letter to Torero to the effect that Kimberley would pay the sum of $250,000 within seven days of removal of Casella's caveat subject to all conditions of the loan to Trayda being satisfied. On the same day Kimberley made its first advance, being a payment of $6,775 apparently for stamp duty on the transfer of Lot 105. In the meantime there had been no resolution of Masel and Agnello's dissatisfaction with the Beahan plans which they had last discussed with Auguste in mid April. Masel therefore sent a letter to Trayda dated 31 July 1984 setting out certain changes to which he and Auguste had agreed and which, it was said, would be at the expense of the developer. The letter noted that in addition to this change Torero had been assured of co-operation in further changes which it might require. Various alterations to Units 1, 9 and 10 were then set out. The letter concluded with a request that Trayda sign a duplicate enclosed with the letter, together with attached plans in acknowledgement of the agreement. There was no reference to Unit 2. Masel and Agnello were not so concerned with that unit as Trayda was to buy it back from Torero. The alterations were, according to the letter, to be at the developer's expense. The plans enclosed were marked in red to show the changes (Exhibit 29).
That day Auguste sent a letter to Torero advising that the builder McKeon, who had commenced construction in May, had made a progress claim for $77,000 which was overdue by 14 days. In the letter he threatened to claim interest and damages from Torero because of its inability to settle the property purchase when called upon to do so. In fact, the builder's first progress claim was only lodged on 29 July and sought an amount of $85,588. Cross-examined about this, Auguste acknowledged that his letter was not truthful but was designed to give Masel and Agnello "a real hurry up". He had in fact been asking the builder to stall his first progress claim.
On 3 August, Auguste, Masel and Agnello met in Masel's office. He declined to sign Torero's duplicate letter of 31 July but said that a set of revised plans was about to become available and that most of the requested items would be incorporated into it. There were other ways of doing some of the work which would be as acceptable as those proposed but would cost less. Masel and Agnello were prepared to look at anything he put forward as long as it did not detract from the quality and appearance of the development which they had asked for. In his evidence, Auguste denied that he had agreed to bear the expense of the requested changes. As far as he was concerned as developer, he said, he and Torero had signed on fixed plans and specifications and he was not required to do anything further at his own expense. As to the promise of a revised set of plans incorporating most of the requested changes, his evidence was that he may have said he would make amendments to plans if required, but could not recall that there was any change substantial enough to call for a revision.

I reject his evidence on these points. Other than the Casella plans, there were no plans or specifications on which Ermay, Trayda, Torero or any of their principals had "signed up" to use Auguste's language. Nor was he able to identify any such document when pressed. Indeed, on 3 August he signed on behalf of Trayda a letter prepared by Masel and addressed to Torero to the following effect:

"With regard to the purchase of Units 1, 2, 9 and 10 by TORERO PTY LTD as per existing contracts, TRAYDA PTY LTD acknowledges that final plans and specifications have not yet been agreed upon by both parties, but meanwhile settlement documents will be lodged by TORERO PTY LTD at the Land Titles Office as a matter of expediency, with TORERO PTY LTD still to be satisfied on a number of items that were expected to be included and TRAYDA also unsatisfied with those items."

It is relevant to note that the pressure on Auguste to achieve settlement at this time was considerable. The construction of the units was well underway, the builder was entitled or shortly to become entitled to a substantial first payment.

On 6 August a transfer of Lot 105 to Trayda was lodged with the Titles Office so that a 14 day notice might issue in respect of Casella's caveat. Trayda was to hold the land in trust for Torero until settlement when the purchase price was paid. Masel and Agnello were aware at the time of the continuing construction of the units. There was nothing about the progress of the works however which suggested to them that the modifications they had sought would not be implemented.
On 13 August, Auguste came unannounced to Masel's office with another set of the Beahan plans and asked Masel and Agnello to sign them. They noted that the plans remained unchanged. Auguste said he just wanted them to sign the plans as "a receipt copy". Masel and Agnello formed the view that Auguste might be trying to get them to sign the plans so that he could later say they had agreed to them. They refused to do so upon which Auguste said he would sign them and left saying "you sign them to show that you have got these ones". In cross-examination he could give no intelligible explanation of this conduct. I have little doubt that it was, as Masel and Agnello suspected, an attempt to get them to initial the Beahan plans so that it could later be argued that they had agreed upon them as the basis for the development.
On the same day the directors of Torero met. The minutes record that Masel advised that he expected only three of the four units would need to be settled by the company and it was unlikely Torero could be forced to settle the fourth. Also Trayda "had to perform various changes to the plans as verbally advised otherwise the company would not have to proceed at all with purchasing Units 1, 9 and 10". Casella said he wished to have the three units purchased in the individual names of the three directors. Masel replied that the problem would still be the fourth unit in case the company were forced to settle on it. Agnello also noted that Trayda had been asked to give a list of extra items provided in Unit 2 so that if Torero were required to settle on that unit the extra items so listed would provide some value in the unit to cover the purchase price.
Again I conclude that the directors of Torero were of the view that, subject to required changes being made, the company would be obliged to settle on three and possibly four of the units. When Casella requested a copy of the final plan he was advised that Masel and Agnello had not yet received theirs, but had not pressed the point as until final acceptance the existing contracts were not firm and might be avoided if the company's expectations were not met. In explanation of this note, Masel said in his evidence that he had been pointing out to Casella that although the company had not yet received final plans showing agreed changes, it was not a matter of great importance as the purchase of the units could not go ahead until the plans came.
On 21 August there was a further meeting between Auguste, Masel and Agnello. Settlement of the sale of Lot 105 was to take place the following day. Masel and Agnello were anxious to ensure that their participation in that settlement did not imply any acceptance of the Beahan plans. To avoid any such suggestion they had their solicitor prepare a deed which was executed by Trayda, Torero, Masel and Agnello respectively. The deed recited the parties and the contracts for the sale of Lot 105 (contract 1) and the four units (contracts 2 to 5). It then went on to recite:

"AND: Trayda sought and obtained possession of the said land and commenced construction of the Units prior to settlement of Contract 1. AND Trayda cannot now obtain finance to settle Contract 1 unless the Guarantors guarantee the obligations of Torero to complete Contracts 2, 3, 4 and 5, such guarantees would satisfy Trayda's finance company being Kimberley NZI Finance Limited

(Kimberley) whose finance approval would otherwise be withdrawn if the said guarantees were not made available."

The only operative clause in the agreement commenced as follows:

"In consideration of Masel and Agnello agreeing to guarantee the obligations of Torero to Trayda in Contracts 2, 3, 4 and 5 in form that may reasonably be required by Kimberley, Trayda hereby agrees to the following variations to the plans and specifications, with all costs of such variations to be borne by Trayda."

There followed a list of changes to Unit 2 which was the unit the subject of the buy-back contract with Trayda. Of this agreement, Auguste said it was never intended to go through because he intended that Trayda should buy Unit 2 for itself. Masel said in his evidence that the object of the agreement was to ensure that if Torero were left with Unit 2 it would be brought up to the standard of the Casella plans in the same way as the changes required by the letter of 31 July in relation to Units 1, 9 and 10. I accept his evidence in this regard as consistent with his view that Torero might have to settle on Unit 2.

Also on 21 August a further letter was prepared in Torero's office addressed to Torero and signed by Auguste on behalf of Trayda. It was amended by Auguste and read as follows (underlining indicates Auguste's amendments):

"We hereby acknowledge that Trayda Pty Ltd and Torero Pty Ltd have not yet agreed on plans and specifications for Units 1, 2, 9 and 10 as evidenced in previous discussions and correspondence, with such plans and specifications to be discussed and agreed upon, following the settlement of our purchase of Lot 105 Kirkham Terrace, Maylands."

Masel explained in his evidence which I accept, that the object of the letter as with the agreement was to ensure that Torero's participation in the settlement of Lot 105 could not be taken as an acceptance of the Beahan plans.

In the event, settlement on the contract to purchase Lot 105 took place on 22 August. On 27 August, Masel and Agnello had a look at the site and noted that plumbing pipes to the bathroom of Unit 1 were not in accordance with their requested changes. Agnello rang Auguste on their return to Masel's office. That evening a further meeting took place between Auguste, Masel and Agnello. Masel and Agnello pointed out that it was essential that Auguste catch the builder before the concrete were poured. He said "no problem".
Auguste traced out a sketch layout of the bathroom in Unit 1 to show to the builder. He also noted on the plan a requirement to widen the garage by 900 to 1000 mm. On 31 August he wrote to Torero saying that he had attempted to contact the builder without success. When they finally made contact, the first floor slab on Unit 1 had been poured. He apologised for being unable to comply with their requests but went on to ask that if they required any design changes to Units 9 and 10 they should submit those within 7 days from the date of the letter as their construction would commence at short notice when soil settlement had finished. He asked that they have their changes drawn by a qualified person and that they be technically possible.
Masel and Agnello saw Auguste's letter as a departure from his previous agreement to embody their requested changes in new plans. They complained by telephone to Crofts that Auguste had not provided them with new plans. Crofts response was that if they did not like the units they did not have to take them. Masel said they did not regard that as a serious comment on his part.
On 5 September Masel wrote to Trayda and to Crofts. He referred to Crofts' comment in his letter to Trayda and said that they did not see that as a proper solution to the problem. He suggested a meeting and that Auguste should tell the builder not to commence work on Units 9 and 10 until that meeting had taken place.
In the letter to Crofts he stated that the plans and specifications as they then stood and the construction as currently underway were totally unacceptable to Torero. The letter went on:

"On conveying this to you on numerous occasions and particularly again only last week, your advice was that our company should not proceed with the contracts because of the huge discrepencies (sic) between what is being built, and what we had contracted for and what had been promised in the first instance in entering the contracts. Those differences are in fact so great that it appears that your advice to not proceed with our purchases to be the only solution unless major changes to the plans and specifications are immediately agreed upon.

We would like to meet with you and Robert Auguste together to discuss this matter urgently."

A meeting took place on 13 September, but only Crofts turned up. At the meeting they again went over with Crofts the problems they had had with Auguste and asked Crofts what he was going to do to ensure they got the changes that they wanted to the plans. Crofts asked them to put in writing that they required a set of final plans so that he could put pressure on Auguste to supply them. Masel's recollection was that Crofts said there was a further set and he would arrange to have it delivered to Torero. The following day Masel sent a letter to Crofts requesting a copy of the latest plans and specifications.
Nothing happened for a month and on 15 October Masel wrote to Crofts noting that they had not received the final plans and specifications requested nor otherwise heard from him since that time. The letter noted that it seemed Trayda intended to continue work based on the Beahan plans which were not acceptable. The letter concluded:

"You have suggested that if we are not satisfied with the current plans and species (sic) we should not proceed any further with the contracts. It has been our intention to achieve an agreement with TRAYDA as to plans and specifications, as we believed it to be unfair to Trayda in not giving them the opportunity to build the units as per original contracts.

But it appears that your continued advice not to proceed with the contracts is the only possible solution to the matter."

On 2 November 1984 Crofts sent to Masel a letter enclosing copies of plans "as requested". However these were simply the Beahan plans with some very minor changes but none of those which had been specified by Torero.
On 7 January 1985, Masel wrote to Trayda referring to his earlier letter of 5 September and enclosing a copy of the letter of 15 October. The letter noted that construction had at that point proceeded on Units 9 and 10 on the basis of the Beahan plans and went on to say:

"We therefore wish to know what you intend to do about this, as you are not complying in any way with our contractual arrangements. Unless we hear from you within the next 10 days we will seek legal advice as to our position."

Masel and Agnello then consulted solicitors and were advised that the contracts to purchase the units were unenforceable because of their uncertainty. Up to that time, according to Masel, they believed that they had enforceable contracts. That statement, it must be said, is not entirely consistent with a minute in which Masel indicated that until the plans were settled the contracts could not be enforced. The history of the matter however is consistent with a continuing intention on the part of the principals of Torero to purchase the units and a continuing assumption that some agreement would be able to be reached on the question of suitable modifications to the Beahan plans to bring them back to a quality and standard approaching that of the Casella plans.

Auguste said in evidence that he was of the view that Torero had signed the contracts and were bound by them. He said that he had made some "oblique" reference in conversation with O'Neill to the fact that Masel had asked for some changes to the plans and that he was only prepared to accede to such requests if Torero agreed to pay for the changes.
On 30 January 1985 he wrote an answer to Masel's letter of 1 January, asserting that copies of the plans for the development had been provided on or about 2 November 1984. These, he said, were essentially the same plans approved by council and "provided to you at settlement in July, 1984, as requested by you and your fellow director, Mr Casella. There are few, if any, changes of any significant nature and most are simply "on site" changes required for construction". He denied that the plans in relation to Units 9 and 10 were totally unacceptable to Torero and stated his belief that Trayda was adhering to its contractual arrangements.
On 4 February 1985, the solicitors for Torero sent a letter to Trayda stating that they had advised Torero that there was not and never had been any enforceable agreement for the sale and purchase of the units as none of the documents contained any references to plans or specifications of any description. The letter asserted that the contracts were void. It also contended in the alternative in relation to Unit 2, that Trayda was in breach of its agreement by constructing the units without any real reference to the document dated 21 August 1983. The breach was said to amount to a repudiation which it was said Torero accepted.
In the meantime Kimberley had since July 1984, been making payments to the builder and meeting other costs associated with the development. The advances by Kimberley were to have been repaid by Trayda on or before 28 February 1985. On that date the balance owing was $656,049.87. The term of the loan was, however, extended to expire on 30 April 1985. O'Neill knew that the contracts for the sale of units to Torero were due for completion in December 1984. He discussed with Auguste in or about November the possibility of approaching Torero for an extension of time but Auguste told him he did not wish to do that because the purchasers wanted changes to the plans. O'Neill did not however appreciate that at the time there was a serious dispute going to the very subject matter of the contracts. He did not become aware of the letter of 4 February 1985 from Torero's solicitors to Trayda until Auguste showed it to him in April or May. And at about the same time he became aware of problems with the Barr contracts which, although showing a purchase price of $90,000 for each of the six units, were to be read subject to discount letters, previously unknown to Kimberley, which indicated a true purchase price of $75,000. After O'Neill had met with Auguste, Crofts and Barr on 24 June to discuss the situation whereby neither of the purchasers would settle, the matter was taken out of his hands by Hawkins. It was then that Hawkins, who had had no continuing involvement with the Ermay/Trayda transactions, became aware that the Torero contracts were "looking a little bit shaky" because of a dispute about the standard of the units. He also then became aware that Barr was only prepared to settle for $75,000 per unit. He contacted Masel and Agnello who told him of their differences with Auguste. He was not however aware of the buy-back arrangement in relation to Unit 2 and said in evidence that he did not become aware of it until after the commencement of the present litigation. Had there been previously any suggestion that the settlement of one of the units depended upon Auguste performing, then Kimberley would not have proceeded with the transaction. Some correspondence ensued with Torero which maintained its position that the contracts were unenforceable and the deposits repayable.
As neither Barr nor Torero would settle, Kimberley took possession of the land under its mortgage and on 6 August 1985 obtained a valuation by Brendon Hubble Pty Ltd. The units were all sold off by Kimberley over a period, yielding an ultimate loss of $505,436.33. Of this Kimberley has claimed $202,174.53 from Torero representing 40% of the total damages.
The Pleadings
By its amended statement of claim, Kimberley alleges that in early April 1984 O'Neill met with Masel who represented to him that the financial position of Torero was such that it would be able to perform the Ermay contracts (para.14). Further, it is said, that at all material times Masel and Agnello were or ought to have been aware that Kimberley would not have agreed to provide finance for the development unless each of the 10 units had in fact been pre-sold pursuant to binding and enforceable contracts. It alleges that the respondents failed to disclose to Kimberley on 22 August 1984, that Trayda proposed building the 10 units in accordance with plans drawn by Beahan which Torero was not prepared to accept (para.15A). This failure, it is said, constituted misleading or deceptive conduct. As to that, the respondents by their amended defence deny that as at 22 August Trayda proposed building in accordance with the Beahan plans. At that date, the respondents say, Trayda intended to build according to the Beahan plans with agreed variations. Alternatively, they plead that they believed that to be Trayda's intention. The non-disclosures of the matters pleaded in para.15A is said not to have constituted misleading or deceptive conduct.
By para. 21 of the amended statement of claim, Kimberley alleges that Auguste presented the Trayda contracts to O'Neill and that Kimberley relied upon the truth of the representations therein that Torero would pay a total of $375,000 for the four units and would perform each of the Trayda contracts in accordance with their terms and conditions (para.21). At all material times, it is said, that Masel and Agnello on behalf of Torero represented to Kimberley that the Trayda contracts were valid and enforceable and that Torero would duly perform them (para.24). In reliance upon this representation, Kimberley says it proceeded with the provision of the loan finance to Trayda (para.25). The representations pleaded in paras.21 and 24 are said to have been false in that Masel and Agnello did not believe the Trayda contracts were valid and enforceable. Further, it is said, Torero did not intend to perform them (para.29). Alternatively, it is alleged, that Torero did not have any reasonable grounds for representing that it would perform the contracts and knew that it did not intend to perform the contracts relating to Unit 2 because Trayda and Torero had agreed that Trayda should repurchase that unit from Torero.

Torero's refusal to complete the purchase of units from Trayda is then pleaded as is Trayda's purported rescission and Kimberley's exercise of its powers under the mortgage (paras. 30-35). By para. 36 it is said that the false representations made by Torero, Masel and Agnello formed part of a "scheme, arrangement or understanding" on the part of Torero which was intended to and did in fact mislead and deceive Kimberley (para.36). The sense of this plea is obscure and it has no evident role in the proceedings. Particulars set out in support of it are subsequently relied upon as material facts. They include allegations that prior to settlement, Masel and Agnello, on behalf of Torero, represented to Kimberley by their conduct that it was Torero's intention to perform the Trayda contracts when they held no such intention "or alternatively ought not to have held such intention" (para.36(iv)). The last limb of that plea makes no sense at all. Further, it is said, that by their conduct they impliedly and falsely represented on behalf of Torero that they knew of no facts relating to the Trayda contracts which could have affected their validity or Torero's intention to perform them (para.36(v)). And even if they did hold the requisite beliefs and intentions these subsequently altered and by reason of their failure to inform Kimberley of that change, Torereo misrepresented "its actual belief and/or intention" (para.36(vi)). The making of the representations pleaded in paras. 21, 24 and 36 is said to have constituted conduct by Torero which was misleading or deceptive or likely to mislead or deceive in contravention of s.52 of the Trade Practices Act. So too are promissory statements referred to in those paragraphs and said to have been made when the respondents did not have any intention to perform their promises (para. 38). The representations are also said to have been fraudulent on the part of Torero, Masel and Agnello (paras. 39 and 40). Alternatively, they are characterised as negligent mis-statements by the respondents (paras. 41 and 42).
The claimed damages are broken up into the following components:

1. Advance to Trayda $822,951.54

2. Maintenance of property and resale expenses 31,471.22

3. Interest 263,781.70

After deducting $617,768.13, being proceeds of the sale of the units, the net loss is said to have been $505,436.33. Of this, Kimberley claims $202,174.53 representing 40% of its loss. This apportionment is evidently based on the fact that Torero was to take 4 out of the total of 10 units.

The respondents say that at all material times prior to about 15 October 1984 they intended to perform the Ermay contracts and the substituted Trayda contracts, although they admit that from on or about that date they did not intend to do so. It is also admitted that from 25 January 1985 Masel and Agnello believed, in reliance upon legal advice, that the Trayda contracts might not be valid and enforceable.
By its cross-claim Torero pleads the contracts to purchase the 4 units from Trayda and alleges that Trayda repudiated them by failing and refusing to construct the units in accordance with plans and working drawings supplied by Torero. To the extent that Torero agreed with Trayda to vary the development, Trayda, it is said, failed to construct the units in accordance with the variations. Torero claims that it elected to discharge the contracts and seeks a declaration to the effect that they are discharged.
Principal Findings of Fact
It is convenient, before proceeding to consider the various courses of action, to set out a chronology of the salient facts as found so far.

1. In November 1983 Torero owned Lot 105 Kirkham Hill Terrace, Maylands. The directors of Torero, Messrs. Masel, Agnello and Casella desired to sell the land.

2. Torero was prepared to sell the land for a home unit development in accordance with plans prepared by Casella and to enter into agreements to buy back four of the units constructed in accordance with those plans which it would supply. On 4 November 1983 it executed 5 agreements in blank to that effect.

3. In January 1984 Robert Auguste a salesman employed by R. & Y. Crofts and Staff who had been asked to find purchasers for the land, approached Russell Hawkins of Kimberley to raise finance to purchase the land and carry out the development himself. He told Hawkins that Torero was prepared to buy four of the units and a man called Barr, the other six. He told Hawkins that the plans then in existence required modification.

4. Hawkins indicated that subject to certain conditions he would be prepared to further consider Auguste's application. Among those conditions were:

(i) unconditional contracts must be held for the sale of the proposed ten units to Torero and Barr;

(ii) the financial position of the proposed purchasers was to be made available to Kimberley and must be satisfactory;

(iii) finance for the purchasers must be approved or shown to be likely to be approved.

5. The proposed sales of the units to Torero and Barr were critical to Kimberley's consideration of whether to finance the development.

6. In February 1984 Crofts proposed a purchase price of $375,000 to Torero for the four units. Masel and Agnello said they could take three on that basis. Auguste was introduced to them and said he would guarantee to sell the fourth unit or would purchase it himself.

7. On or about 29 February, Ermay executed the five contracts which had been executed in blank by Torero.

8. On 15 March 1984 Crofts showed Masel and Agnello the Beahan plans and they told him that they were completely unacceptable. Crofts promised to speak to Auguste about it and make sure that the changes they wanted were implemented. He did not do this.

9. On 16 March Auguste signed a contract for Ermay to buy one unit from Torero for $90,000.

10. On or before 21 March, Auguste delivered to O'Neill the contracts for the purchase of all 10 units in the development. Four of these were executed by Torero and six by Barr.

11. After making enquiries of real estate agents in the Maylands area, O'Neill concluded that the contracted price for the sale of all the units was above market value.

12. O'Neill met Masel and Agnello in the first week of April 1984. Some discussion ensued about Masel wanting to occupy Unit 2. The principal topic of conversation concerned the financial capacity of the directors to ensure that Torero performed its part in purchasing the four units.

13. On 16 or 17 April, under pressure from Masel and Agnello, Auguste agreed to effect changes to the Beahan plans to bring the development up to the standard envisaged by the Casella plans and to bear the expense of implementing those changes. He expressed anger that Crofts had agreed to changes without consulting him. Masel and Agnello adopted the position that they had contracted to purchase units constructed according to the Casella plans and were entitled to a development of equivalent standard. They were reassured by Crofts on the following day that they should not worry about Auguste. He would do what he was told by Crofts.

14. As at 19 April 1984, Masel and Agnello regarded the contracts between Torero and Ermay for the purchase of the four units in the development as binding.

15. On 27 April, Kimberley confirmed to Ermay its approval of an advance of $800,000.

16. Auguste executed a building agreement for the construction of the units with one McKeon on 23 May

1984. This agreement was based on a construction according to the Beahan plans. Site works and construction commenced in the same month.

17. In July 1984 the various contracts for the sale and purchase of the land and units as between Ermay and Torero were replaced by contracts in the same terms between Torero and a company called Trayda Pty Ltd, controlled by Auguste. Auguste provided copies of these contracts to O'Neill.

18. On 18 July, O'Neill for Kimberley wrote to Auguste confirming approval of the advance of $820,000 to Trayda repayable by 28 February 1985.

19. The first advance was made by Kimberley on 27 July 1984, being the sum of $6,775 for stamp duty on the transfer of Lot 105.

20. On 31 July 1984, Masel sent a letter to Trayda setting out various changes to the Beahan plans which had been agreed to by Auguste and requesting that Trayda sign a duplicate of the letter. On the same day Auguste made a demand that Torero settle - falsely representing that the builder had a progress claim for $77,000 which was overdue by 14 days.

21. Auguste told Masel and Agnello on 3 August that a set of revised plans would become available and that most of the requested alterations would be incorporated in them. Notwithstanding this promise, he attempted, on 13 August, to persuade them to sign an unaltered copy of the Beahan plans.

22. On the same day the directors of Torero had come to the view that they could not be compelled to purchase any units unless acceptable changes were made to the Beahan plans and that it would probably be unnecessary to proceed to a settlement in respect of the fourth unit.

23. On 21 August, Auguste, on behalf of Trayda, executed a written agreement with Torero, Masel and Agnello. By that agreement Masel and Agnello "guaranteed" the obligation of Torero to Trayda to purchase four units and Trayda agreed to implement and bear the costs of certain variations to the plans and specifications. He also signed a letter acknowledging that plans and specifications had not been agreed.

24. Settlement of the sale of Lot 105 from Torero to Trayda was effected on 22 August 1984 at which time Kimberley provided the funds necessary to pay Torero, secured by a first mortgage over the land.

25. As at 27 August, the construction of Unit 1 was not proceeding in accordance with the changes sought by Torero. Auguste promised to contact the builder before concrete was poured. He did not however honour that promise and asked that any proposed design changes to Units 9 and 10 should be submitted within 7 days.

26. Masel and Agnello met with Crofts on 13 September. He asked them for a written request for a final set of plans so that he might put pressure on Auguste. A letter was written to that effect but produced no result.

27. On 15 October, Masel wrote to Crofts saying that the only possible solution now appeared to be not to proceed with the contracts. Plans subsequently sent by Crofts contained only minor departures from the Beahan plans and none of the changes sought by Torero.

28. Masel wrote to Trayda on 7 January 1985 noting that construction on Units 9 and 10 had proceeded according to the Beahan plans, alleging that Trayda was not complying with its contractual obligation and indicating that unless there was a response within 10 days he and Agnello would take legal advice.

29. From the outset there was a continuing intention on the part of the principals of Torero to purchase the units, although settlement on the fourth unit would be unnecessary if Trayda honoured its obligation to acquire that unit for itself. There was also a continuing assumption that agreement could be reached on mutually acceptable variations to the Beahan plans.

30. On 4 February 1985, the solicitors for Torero wrote to Trayda asserting that the contracts were void for uncertainty and in the alternative, in relation to Unit 2, that Trayda was in breach of its agreement, which breach, was a repudiation accepted by Torero and in respect of which demand was made for repayment of the deposit of $37,500 paid by Torero.

31. Kimberley, in the meantime, had been making payments to the builder and meeting other costs associated with the development. The time for repayment of the advances which was originally 28 February 1985 was extended to 30 April 1985.

32. Kimberley took possession of the land under its mortgage and after obtaining a valuation from Brendan Hubble Pty Ltd, sold the units off over a period suffering an ultimate loss of $505,436.33.

The Case Against Torero

Although allegations of fraud and negligent mis-statement are made against Torero the causes of action in misleading or deceptive conduct are at the forefront of the applicant's case. The first limb of that case arises out of the execution of the Trayda/Torero contracts and their presentation to O'Neill on or about 18 July 1984. The contracts, it is said, embodied representations that Torero would pay a total consideration of $375,000 for the four units and would perform each of them in accordance with its terms and conditions (para.21). Further, it is alleged that at all material times Masel and Agnello represented to Kimberley that the contracts were valid and enforceable and that Torero would perform them (para.24). The representations were said to be false in that Masel and Agnello did not believe that the contracts were valid and enforceable and Torero did not intend to perform them (para.29). By amendment to para.29 at trial it was alleged in the alternative that Torero had no reasonable grounds for representing that it would perform and did not intend to perform the contract in relation to Unit 2 because of the repurchase agreement between Trayda and Torero.
The "representations" pleaded in para.21 arising out of the execution of the contracts were of a promissory character necessarily addressed to Trayda. The applicant does not however, base its allegations of "falsity" on the non-performance of those promises. Rather it asserts that there was a lack of any underlying belief on Torero's part on the validity of the contracts and the absence of any intention to perform them and in the alternative, to perform the contract relating to Unit 2. The pleading thus drawn is not appropriate to falsify the promissory statements referred to in para.21 but rather representations to be implied from them as to Torero's belief that the contracts were enforceable and its intention to perform them. No point was taken on the pleading issue and it is fair to say that the case for the applicant was conducted on the basis that there were representations of existing fact as to Torero's belief and intention which were implicit in its execution of the contract and that these representations were false.
The statement of claim does not expressly allege that the representations relied upon in para.21 were made to Kimberley. Where the making of a representation is said to constitute misleading or deceptive conduct in contravention of s.52, it is not a requirement that it be made to any specific person. Even within the narrower rubric of "falsely represent" in para.53(a) of the Act, it is not necessary to establish that the representation relied upon is communicated to or received by any specific person - Thomson v Riley McKay Pty Ltd (1980) 29 ALR 267, 273 (Franki J.), 276 (Deane J.), 286 (Fisher J.). But in an action for damages under s.82 for contravention of s.52 it is an element of the cause of action that the loss or damage claimed is caused by the conduct said to be misleading or deceptive. The applicant says it relied upon the representations in question when it proceeded with the provision of loan funds to Trayda and that it subsequently suffered loss and damage being the deficiency after its sale of the units.
In my opinion, this limb of the case fails at the threshold. I am satisfied that Masel and Agnello were at all material times prepared to proceed with the purchase of the units constructed on the basis of the Casella plans or some negotiated alternative of equivalent standard. The evidence does not suggest that they turned their minds to the question of the enforceability of the contracts until 13 August when Masel expressed the view to the other directors that unless Trayda affected desired changes to the Beahan plans, Torero would not have to proceed at all with purchasing Units 1, 9 and 10. This view was quite consistent with the attitude that the contracts bound Torero to purchase units constructed according to the Casella plans and that it was Trayda, through Auguste, which was endeavouring to negotiate a departure from them. As to the re-purchase of Unit 2, it is true that in the letter of 19 April drafted by Masel and signed by Auguste for Ermay, the latter said:

"In effect, the repurchase of this unit completely cancels out your commitment to purchase the same unit from our Company in the first instance as written up in your Offer to purchase the unit dated 4th November, 1983."

But it is obvious enough that if the "repurchase" were to proceed the parties would so structure their arrangements as to avoid the payment of stamp duty on a transfer and re-transfer. As I have already found, this proposal was not inconsistent with Masel's belief that Torero was bound to purchase all four units in the event that Ermay was unable to honour its undertaking to acquire or retain Unit 2. In any event Kimberley's first advance pursuant to its approval of 18 July 1984 was not made until 27 July when a sum of $6,775 for stamp duty on the purchase of Lot 105 was paid. On 20 July Masel, concerned that Casella might prejudice the transaction by contacting Kimberley, telephoned O'Neill and advised him of the "repurchase" arrangement with respect to Unit 2. Although O'Neill denied any memory of this conversation, he did not deny that it took place and I have already accepted as probably correct, Masel's evidence on that point.

Assuming therefore that representations as to Torero's beliefs and intentions were implied in its execution of the contracts, I am not satisfied that it did not, by its directors, Masel and Agnello, hold the beliefs or have the intentions in question at the date upon which the contracts were delivered to Kimberley. As at that date therefore, there was no misleading or deceptive conduct on the part of Torero.
By an amendment at trial adding paras. 15A and 15B to the statement of claim it is alleged that the respondents failed to disclose to Kimberley on 22 August that Trayda proposed building the 10 units in accordance with the Beahan plans which were unacceptable to them and that the failure to make such disclosure constituted misleading or deceptive conduct. Auguste, it should be remembered, had told Masel and Agnello on 3 August, that although he would not sign the duplicate of their letter of 31 July embodying requested changes to Units 1, 9 and 10, revised plans were about to become available which incorporated most of the items requested. And although he had made a transparent attempt on 13 August to get them to initial a set of unrevised Beahan plans, Masel and Agnello were still in what might be described as a negotiating posture and in what they regarded as a position of strength by virtue of the terms of the contracts which, taken together, contemplated construction according to the Casella plans. So far as Unit 2 was concerned, they had executed an agreement with Trayda on 21 August which provided for alterations to that unit to bring it to the standard of the Casella plans. That was done with a view, as Masel said, to the possibility that Torero would be compelled to acquire that unit as well as the other three. So although the requested revisions to the plans had not been drawn up as at 22 August, there was sufficient to justify a belief on the part of Masel and Agnello that the matter could be resolved and that the purchase of the units would proceed. I am not satisfied therefore that as at 22 August the respondents were aware that Trayda proposed building 10 units in accordance with the Beahan plans. In the absence of such an awareness no question of any failure to make disclosure arises. It is true, of course, that they were not at any time prepared to accept the Beahan plans and that they did not inform Kimberley of that fact. The question is whether their silence in that regard could constitute misleading or deceptive conduct.
The decisions of the Full Court in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 and Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 lend authoritative support to the proposition that according to the circumstances of the case silence may constitute misleading or deceptive conduct. As was more recently pointed out by the Full Court in Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at 50,376, the question of what circumstances give rise to that result cannot be said to have been definitively settled. Their Honours accepted that silence may be misleading or deceptive conduct where there is a duty to make disclosure. As Bowen CJ observed in Rhone-Poulenc (supra), such duties may arise in the case of a contract uberrimae fidei or fudiciary relationships between trustee and beneficiary, solicitor and client, principal and agent or guardian and ward. Nothing said in any of those cases however, would support the proposition that silence can only constitute misleading or deceptive conduct where there is a duty of disclosure imposed independently of s.52. If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, s.52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure.
The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist. Unless Kimberley could reasonably have expected that Torero and its directors would have disclosed that they were still negotiating on the question of the final form of the plans, the failure to disclose that fact could not amount to conduct in contravention of s.52. Although it is true that Torero had a real interest in seeing Kimberley provide the promised advance to Trayda, there was no relevant contractual or fiduciary relationship between them. Nor did Torero stand in any relationship of proximity that might give rise to a duty of care to inform Kimberley of the state of the contractual relationship with Trayda. The negotiations with Auguste were in a state of flux and Torero and its directors, in my opinion, believed that the transaction would go ahead albeit Auguste begrudged any change to the Beahan plans. Kimberley had known from the outset that Auguste contemplated modification of the original plans and ought to have known that this would involve some negotiation process. In my view there is no other basis emerging from the circumstances of the case upon which Kimberley could reasonably have expected Torero to inform it at settlement of the state of its negotiations with Trayda. Whether on the basis pleaded or on the narrower basis which I have just discussed, there is no case of misleading or deceptive conduct on the part of Torero as at 22 August 1984.
Paragraph 36 of the statement of claim alleges that the "said false representations" made by Torero, Masel and Agnello to Kimberley and referred to in paras.21 and 24 "formed part of a scheme arrangement or understanding on the part of the First Respondent which was intended to mislead and deceive the Applicant which did in fact mislead or deceive the applicant". This plea plays no part in the definition of any cause of action and was not addressed in closing by counsel for the applicant. The particulars of the representations set out in and forming part of para.36 however, appear to be relied upon as material facts in paras.37 and 38 which allege their falsity and the falsity of implied statements of intention accompanying such of them as constituted promises or "statements of future intention" (sic). All of the representations alleged relate to the period prior to the settlement date as appears from the opening words of para.36.
Sub-paragraphs (i) and (ii) of the particulars allege that by letters dated 3 August and 21 August 1984 each signed by Auguste at the request of Masel and Agnello on behalf of Torero, Masel and Agnello purported to document a failure by the parties to agree on the terms of the contracts with Trayda. These letters,it is said, were not disclosed to Kimberley which, if it had been aware of them, would not have proceeded with the provision of loan funds. The letters are quite consistent with the belief on the part of the principals of Torero that the purchase of the units would proceed. I have already concluded that Kimberley could not reasonably expect Torero, with whom it was not dealing directly, to keep it informed of the progress of the contracts. On the other hand, it could well have expected that Auguste would inform it of any difficulties that arose and which might be material to the decision to finance the development. But no relevant relationship or circumstance existed which entitled it to expect such communication from Torero and no misleading or deceptive conduct arises by virtue of the fact that that company did not so communicate.
Sub-paragraph (iii) of the particulars to para.36 seems to be directed to an allegation that Masel and Agnello by their conduct represented that the terms and conditions of the contracts with Trayda were agreed when such was not the case. The contracts, copies of which had been presented to Kimberley, made it, in my opinion, sufficiently clear that they contemplated the purchase of the units constructed according to the plans provided by Torero i.e. the Casella plans. They were, it seems to me, in that respect valid and enforceable. The true position was that Auguste was endeavouring by what could fairly be described as bulldozing tactics to force acceptance of a less expensive construction. Torero was in a position of strength on the contracts and was not bound to accept any change that Auguste profferred. It did, as I have found, anticipate that some resolution of the issue would be negotiated. It intended to proceed to settlement on the contracts subject to the special arrangements with respect to Unit 2 and in my opinion its conduct in so far as Kimberley was concerned was quite consistent with that intention.
Sub-paragraph (iv) of para.36 alleges that Masel and Agnello had no intention, prior to settlement on Lot 105, of performing its contracts with Trayda. As I have already found, subject to the question of the plans, they did intend to proceed.
Sub-paragraph (v) alleges that by their conduct, Masel and Agnello on behalf of Torero impliedly represented to Kimberley that they knew of no facts which might or could have affected the validity of the contracts or Torero's intention or capacity to perform them. In my opinion the contracts were valid and Torero maintained up to settlement and beyond, an intention to perform them. There was nothing to suggest that it lacked the capacity to do so.
Sub-paragraph (vi) alleges that if Masel and Agnello on behalf of Torero did believe, when they executed the Trayda contracts, that the terms and conditions had been agreed and intended to perform them the belief and intention changed and their failure to so inform Kimberley constituted a misrepresentation on their part. That plea must also fail for the reasons I have already outlined in relation to Torero's intentions and the effect of its non-communication with Kimberley.
In the event, I am satisfied that no case of misleading or deceptive conduct has been made out against Torero. It follows from the reasons which have led to that conclusion that there can be no case of fraud or negligent mis-statement.
The Case Against Masel and Agnello
There being no case of misleading or deceptive conduct against Torero, there is no basis for any accessorial liability on the part of Masel and Agnello. And for the reasons set out above there can be no case of fraud or negligent mis-statement. The application as against all the respondents must be dismissed.
Cross-Claim
No defence was filed to the cross-claim and Trayda Pty Ltd was not represented at the hearing. In my opinion, the contracts to purchase Units 1, 2, 9 and 10 were valid and enforceable and contemplated their construction according to the Casella plans. Torero, by its solicitor's letter of 4 February 1985, treated Trayda's conduct as a repudiation of its contract for the sale and purchase of Unit 2. It accepted that repudiation. As to the other three units, the letter asserted that the contracts were void and of no effect as they contained no reference to plans and specifications. That is a position which was not maintained in these proceedings. There was no formal allegation by letter or notice on the part of Torero of Trayda's repudiation of the three contracts or any acceptance thereof by Torero. Nevertheless having regard to their non-performance by Trayda and the view expressed in February 1985 by Torero that they were unenforceable they can, in my opinion, be regarded as discharged by their effective abandonment on the part of both parties. I will make a declaration accordingly.

[1989] FCA 400

27 JULY 1989