Liao v LNG Properties Pty Ltd

Case •

[2019] NSWSC 1846

•

20 December 2019

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Liao v LNG Properties Pty Ltd [2019] NSWSC 1846
Hearing dates: 25-27 November 2019
Date of orders: 20 December 2019
Decision date: 20 December 2019
Jurisdiction: Equity - Real Property List
Before: Rein J
Decision:

See [61]-[62].

Catchwords:

CONTRACTS – Construction – Interpretation – Background – Where a clause in a contract for sale of a unit off the plan permitted the second plaintiff (Ms Li) as purchaser to rescind if the unit’s actual internal area as built was five per cent less than what had been contracted for – The contract did not expressly state the expected internal area of the unit (i.e. the comparator for purposes of the clause); Ms Li contended that the comparator was 75 m² (as contained in marketing material provided to the first plaintiff, Mr Liao) and the defendants (LNG) contended that the comparator was 71.4 m², as derived from a plan known as the Revision E plan – Held: comparator was 75 m² on the basis that it was a fact known to both parties at the time of entering into the contract (in contrast to the Revision E plan, which was not known to both parties and which the parties had never agreed to use as the basis for determining the comparator), with the consequence that Ms Li could validly rescind the contract and have her deposit returned.

 

CONTRACTS – Principal and agent – Where Ms Li relied on Mr Liao’s knowledge as her “agent to know” in respect of 75 m² being the comparator for purposes of the rescission clause – LNG asserted that Ms Li could not rely on Mr Liao’s knowledge because the internal area was immaterial to her decision to buy the property (her having done so solely for the reason that Mr Liao, her romantic partner, had asked her to) and because Mr Liao, as her agent, did not have a duty to disclose to her his knowledge about the internal area (and nor did he disclose it) – Held: Ms Li was able to rely on Mr Liao’s knowledge as her “agent to know”.

CONTRACTS – Misleading conduct under statute – Misleading or deceptive conduct – Silence – Claim pursuant to s 18 of the Australian Consumer Law, pleaded in the alternative – Mr Liao contended that LNG should have disclosed to him the internal area as constructed at the time that he negotiated with LNG to arrange a new contract with Ms Li as the purchaser using his deposit, because had he known the true area at that point he would simply have rescinded his contract with LNG rather than arrange the contract with Ms Li – Held: LNG did not engage in misleading or deceptive conduct by remaining silent about the internal area as constructed, because the circumstances did not give rise to a reasonable expectation that LNG would physically measure the unit when the contract did not require them to do so, and when Mr Liao had asked LNG to rescind his contract in favour of arranging a new contract with Ms Li.
Legislation Cited: Civil Procedure Act 2005 (NSW)
Competition and Consumer Act 2010 (Cth)
Conveyancing Act 1919 (NSW)
Trade Practices Act 1974 (Cth)
Cases Cited: Bacon v Purcell (1916) 22 CLR 307 (PC)
CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594
Coplin v Al Maha Pty Ltd [2016] NSWSC 1745
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608
Dismorr v George (1891) 17 VLR 626
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2007] FCA 1205
Hall v Busst [1960] HCA 84; (1960) 104 CLR 206
Hawthorn Football Club Ltd v Harding [1988] VR 49
Jessett Properties Ltd v UDC Finance Ltd [1992] 1 NZLR 138
Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137
Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5; [2016] Q ConvR 54-833
Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR 53,193
Macdonald v Longbottom (1859) 1 E&E 977; 120 ER 1177
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2002) 210 CLR 181
O’Brien v Smolonogov (1983) 53 ALR 107; 2 IPR 69
Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353
Permanent Trustee Australia Company Ltd v FAI General Insurance Company Ltd [2001] NSWCA 20; (2001) 50 NSWLR 679
Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514
Prenn v Simmonds [1971] 3 All ER 237; 1 WLR 1381
Razdan v Westpac Banking Corporation [2014] NSWCA 126
Reilly v Reilly [2017] NSWSC 1419
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45
Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74; [2004] NSW ConvR 56-076
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Williams v Pisano [2015] NSWCA 177; (2015) 90 NSWLR 342
Wyllie v Pollen (1863) 3 De GJ 596; 46 ER 767
Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530
Texts Cited: J. D. Heydon, Heydon on Contract (Thomson Reuters, 2019)
P. Watts and F. M. B. Reynolds, Bowstead and Reynolds On Agency (Sweet & Maxwell, 21st ed, 2018)
Russell V. Miller, Miller’s Australian Competition and Consumer Law Annotated (Thomson Reuters, 40th ed, 2018)
Category:Principal judgment
Parties: Mr Bin Liao (First Plaintiff)
Ms Biyao Li (Second Plaintiff)
LNG Properties Pty Ltd (First Defendant)
Australia Property Buyer Group Pty Ltd (Second Defendant)
Advance Investments & Financial Services Group Pty Ltd (Third Defendant)
Representation:

Counsel:
Mr A. Macauley (Plaintiffs)
Mr S. O’Brien (Defendants)

  Solicitors:
North Shore Lawyers & Associates (Plaintiffs)
Levitt Robinson Solicitors & Attorneys (Defendants)
File Number(s): 2018/372749
Publication restriction: Nil

Judgment

  1. These proceedings relate to a contract for sale of a residential apartment known as Unit 301, 2-6 Thomas Street, Ashfield, entered into on 28 August 2018 by the second named Plaintiff Ms Biyao Li (“Ms Li”) as purchaser and the three Defendants as vendors (to whom I shall refer, collectively, as “LNG” for convenience). I shall refer to this contract as the “Li Contract”. LNG was the developer of the block of apartments of which Unit 301 forms part. Unit 301 is also described in the Li Contract as “proposed Lot 26”: CB A4:1284.

  2. On 25 September 2018 Ms Li’s solicitors on her instructions sent a notice rescinding (or purporting to rescind) the Li Contract on three grounds, only two of which are now maintained, namely that which relies on cl 33.5 of the Li Contract, and that which relies on cl 34.1 of the Li Contract.

  3. Clause 33.5, headed Notice of Alteration, is in the following terms:

“a) The Vendor may notify the Purchaser of any proposed or expected alternations to the Draft Documents or the Property and of the Registration of Strata Plan and should there be any alterations to the Property which detrimentally affect the Property to a substantial extent, the Purchaser may rescind the contract only be serving a written notice on the Vendor within 5 business days of the earlier of the Vendor serving notice of the difference in the lot or the Vendor serving notice of the Registration of the Strata Plan. The purchaser acknowledges that if the Purchaser does not serve the notice in writing on the Vendor within this time frame, this right of rescission lapses immediately.”

b) The Vendor and the Purchaser acknowledges that a reduction of the internal area of the lot by greater than 5% shall constitute a difference that detrimentally affects the Property to a substantial extent.”

  1. There was a similar provision, cl 33.6, dealing with a potential increase in the internal area:

“The Purchaser and the Vendor acknowledge that if there is a change to the lot resulting in an increase of the internal area of the lot by 10% or more, then the Vendor at its sole and absolute discretion may rescind the Contract by serving a written notice on the Purchaser and the provisions of Clause 19 shall apply and the Purchaser shall not have any other action, right, or claim against the Vendor for any costs, damages, expenses or other arising out of such rescission.”

  1. Ms Li also relies on cl 34.1 of the Li Contract, headed “Construction of the Property”:

“The Vendor must cause the Property to be constructed in a proper and workmanlike manner and generally in accordance with:

(i) plans and specifications approved by each Relevant Authority; and

(ii) the Schedule of Finishes.

If there is any discrepancy between the Schedule of Finishes and any marketing, architectural or other material, the Schedule of Finishes prevails.”

  1. Unit 301, as constructed, has an internal area of 70.8 m² (as calculated by LNG’s surveyor, Mr Mitchell, and his team) or 70.9 m² (as calculated by Mr Ho, the Plaintiffs’ surveyor). It was agreed that the difference between the two figures has no impact on the outcome of the case, so I shall use 70.8 m² as the internal area of Unit 301 as actually constructed. The unit has a balcony and terrace of approximately 105.3 m², and a basement storage area of 1.8 m² (see CB A2:342), but these areas are not taken into account for the purposes of cl 33.5.

  2. Clause 33.5(b) uses the phrase “reduction of the internal area of the lot” and it is this phrase which has given rise to considerable dispute in these proceedings. It is agreed on the pleadings that “internal area of the lot” means that part of Lot 26 that was inside or indoors. “Reduction” clearly contemplated something to which the unit as constructed is to be compared. Ms Li contends that the figure to which the 70.8 m² is to be compared is 75 m² and LNG contends that the figure to which the 70.8 m² is to be compared is 71.4 m². There is no dispute that if 75 m² is the relevant comparator then cl 33.5 can be relied on by Ms Li and the rescission was valid. There is no dispute that if 71.4 m² is the relevant comparator cl 33.5 could not be relied on by Ms Li and the rescission was invalid. I will explain shortly from where these competing comparators are derived, but first it is necessary to set out the background to the Li Contract.

  3. In 2016 the first named Plaintiff Mr Bin Liao (“Mr Liao”), who was and is romantically attached to Ms Li, arranged for a company owned and controlled by him, ZHM Pty Ltd, to enter into a contract to purchase Unit 301, at a time when construction had not commenced. I shall refer to this contract as “the ZHM Contract”. The ZHM Contract is identical in terms to the Li Contract save in respect of the strata plan annexed to the contract. ZHM paid a deposit of $95,000, being ten per cent of the purchase price as required by the ZHM Contract.

  4. Mr Liao came to realise that ZHM would have difficulty in completing the ZHM Contract and he sought the agreement of LNG to rescind the ZHM Contract and apply the deposit of $95,000 paid by ZHM to a new contract with himself as the purchaser. LNG agreed to this and the ZHM Contract was rescinded and a new contract entered into by Mr Liao with LNG for the same price and on the same terms precisely as the ZHM Contract. The deposit previously paid by ZHM was credited to the new contract which I shall refer to as the “Liao Contract”.

  5. In mid-2018 Mr Liao became concerned that he might not obtain finance to complete the Liao Contract. He asked Mr Li if she would be willing to become the purchaser of Unit 301 in his place, and he asked LNG whether it would be willing to permit rescission of the Liao Contract, replacement of it by a new contract with Ms Li as the purchaser and transfer of the deposit originally paid by ZHM but credited to the Liao Contract, to the Li Contract, a course to which LNG agreed. The Deed of Rescission of the Liao Contract was signed on 15 August 2018 but was dated 29 June 2018 at the request of LNG, and was sent to LNG on 28 August 2018 together with the Li Contract signed by Ms Li.

  6. Ms Li agreed to enter into the Li Contract because Mr Liao asked her to do so. She had no knowledge of the details of the property generally and specifically no knowledge or understanding of the internal area of the unit: see T63.36 – T64.11. Ms Li had not been involved in any of the negotiations for the Li Contract or the ZHM and Liao Contracts: see paragraphs 4-7 of Ms Li’s Affidavit. She did receive advice in relation to the Li Contract (see CB 4:1286), but she appears to have signed the Li Contract for no other reason than that Mr Liao asked her to do so and told her that she would be able to obtain finance in her name, whereas he could not obtain such finance in his: see paragraph 7 of Ms Li’s Affidavit.

  7. Mr Liao, prior to entry into the ZHM Contract, had been provided with information as to the size of Unit 301 by Ms Shuzhen “Jenny” Ma, a real estate agent engaged in selling units on behalf of LNG (see paragraph 10 of Mr Kwok Ching Wu’s Affidavit of 13 May 2019 at CB A1:99). Ms Ma showed Mr Liao a price list of two-bedroom units to be built in the building and which had not yet been purchased by others: see CB A2:458. One of those units was Unit 301 with a stated price of $955,000 and a stated internal area of 75 m². That pricelist came off a list of all units, which Mr Liao was not shown: CB A2:459. Ms Ma also provided Mr Liao with an architectural plan of Unit 301 (see CB A2:664) which showed the configuration of the unit and a balcony of 105.3 m², basement storage area of 1.8 m² and the total area of 182.1 m² (see paragraph 20 of Mr Liao’s Affidavit and CB A2:498). That architectural plan, which I shall refer to as the “section 96 plan”, was part of a larger plan of Level Three of the building, which larger plan (together with plans of all floors of the block) had been lodged with Ashfield Council on 2 April 2016 (CB A2:438-440) and which plans were approved by the Council on 25 August 2016.

  8. The architectural plan was sent to Mr Liao by Ms Ma on 22 July 2016: CB A2:480. Ms Ma sent it again on 15 December 2016: CB A2:661-663.

  9. Mr Liao says that he believed at all times up until September 2018 when Mr Ho measured Unit 301 that the unit would have 75 m² of internal area.

  10. Ms Lina Ng, a director of LNG, gave evidence on behalf of LNG. She said that as a result of the section 96 plan she believed at all times up until 25 September 2018 (when Ms Li’s solicitors sent the notice of rescission) that Unit 301 had an internal area of 75 m²: see T79.10-49, T81.45, T82.38 and T87.1-10.

  11. Mr Liao contends that if Ms Li is unsuccessful in her bid to gain the return of the deposit that he ought to recover that amount from LNG as damages for misleading or deceptive conduct by LNG. His evidence is that, had he known of the true size of the unit in August 2018 (when negotiating rescission of his contract and replacement of it by the Li Contract), he would not have asked Ms Li to enter into the Li Contract and, rather, would have rescinded the Liao Contract on the basis that the unit as constructed had an internal area more than five per cent less than the contracted area.

  12. This, then, is the case brought by Mr Liao on the basis of s 18 of Australian Consumer Law (sch 2 of the Competition and Consumer Act 2010 (Cth)) (“ACL”). Mr Liao does not assert that the original statement as to the prospective size of Unit 301 was misleading or deceptive, rather his case is that, as at the time that the deed of rescission was executed and the Li Contract entered into, the original representation that Unit 301 would be 75 m² in internal area was not correct because the unit had been built and it had an internal area of 70.8 m².

  13. I have explained where the Plaintiff’s figure of 75 m² internal area came from. LNG’s 71.4 m² figure is derived from Mr Mitchell, after the dispute had arisen, using an architectural drawing (which became Annexure F to his report: CB A1:226, magnified at CB A1:227) which is described as an architectural construction certificate plan number 106 Revision E, to which I shall refer as the “Revision E plan”. Mr Mitchell did not himself calculate the area but, rather, had a member of his staff proficient in the architectural program AutoCAD use that program to carry out the calculations: see T128.25 – T130.45.

  14. Neither the section 96 plan nor the Revision E plan were annexed to the ZHM Contract, the Liao Contract or the Li Contract. The Revision E plan, it seems to be accepted, only came into existence in 2018, and it was available to Mr Mitchell when he prepared the draft strata plan attached to the Li Contract (although he had not, at that point in time, had any assessment done of what was the internal area of Unit 301 based on that plan).

  15. I have earlier referred to the fact that the only difference between the ZHM Contract and the Liao Contract on the one hand and the Li Contract on the other, apart from the identity of the purchaser, is that the strata plan annexed to the ZHM Contract and the Liao Contract differs from the strata plan annexed to the Li Contract. The difference between the two strata plans (for Level Three) is that:

  1. Lot 26 is shown as having an area of 216 m² (CB A2:582) and 230 m² is shown on the other plan (CB A4:1546). On the first plan no total is shown but on the second plan a total of 244 m² is shown.

  2. On the first plan it states:

  1. “Minor changes may occur during construction. Dimensions are approximate and subject to final survey. The plan is a draft only and is not checked or registered by the land titles office. Alterations may be required prior to its acceptance and registration”.

  2. “areas are approximate”.

  1. But in the second plan only (b) is found.

  1. Neither the strata plan annexed to the ZHM and Liao Contracts nor that attached to the Li Contract specify what the internal area of Lot 26/Unit 301 is proposed to be and, surprisingly, no mention of that area is found in any of the three contracts.

  2. Neither the Plaintiff nor LNG assert that cl 33.5 is void for uncertainty. In these circumstances, the Court must therefore determine what was intended to be the comparator from the facts and circumstances known to both parties at the time that the Li and Liao Contracts were entered into. The Liao Contract is relevant because, as I have explained, Mr Liao asserts that he could have rescinded that contract had he not asked Ms Li to enter into the Li Contract and had he not entered into the Deed of Rescission in respect of the Liao Contract.

  3. I propose to deal first with the question of whether, hypothetically, Mr Liao could have rescinded the Liao Contract had it remained on foot, and then consider whether Ms Li is in a different position.

  4. There was no dispute that the task of construction is an objective one: see Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]. Given that no internal area for Unit 301 is specified in the Liao Contract, the Court is required to examine the matrix of facts known to the parties at the time of entry into the contract and, here particularly, facts which both “the negotiating parties had in their mind”: see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347-352 and particularly 350 per Mason J (as his Honour then was) (Stephen and Wilson JJ concurring at 344 and 392 respectively), Macdonald v Longbottom (1859) 1 E&E 977; 120 ER 1177 (cited in Codelfa at 349), Prenn v Simmonds [1971] 3 All ER 237; 1 WLR 1381 at 1384, and DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429. In Codelfa, Mason J said at 352:

“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.”

  1. It has long been recognised that in the context of a commercial contract, the Court will, within the confines of the unambiguous text of the contractual document, strive to give the contract a commercially sensible and business-like construction and avoid a construction that makes commercial nonsense or works commercial inconvenience and which flouts common sense: Woodside at [35], Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55], Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2002) 210 CLR 181 at [43], and Zhu v Treasurer(NSW) [2004] HCA 56; (2004) 218 CLR 530 at [82].

  2. Mr Liao was told by LNG that the internal area of Unit 301 was 75 m². He was provided with the section 96 plan which showed the internal area of the unit as 75 m². That drawing had been submitted to Council as part of its section 96 application and had been approved by the Council. Ms Ng of LNG believed that the area of Unit 301 was 75 m². The document used to calculate the 71.4 m² that Mr O’Brien asserts should be taken as the comparator for the Li Contract was not in existence as at the date of the Liao Contract.

  3. The conclusion that the comparator is 75 m² is reinforced by the terms of cl 34.1 (indeed, cl 34.1 could be viewed as an alternative ground for holding that the comparator, contractually, should be taken to be 75 m²), which required LNG to construct Lot 26 in accordance with the plans lodged with and approved by Council.

  4. I do not agree with Mr O’Brien’s submission that evidence of surrounding circumstances mutually known to the parties is limited to identification of subject matter. Mason J’s statement of “the true rule” is not limited to identification of the subject matter and in that case the Court had regard to what was known to both parties concerning restrictions on working on Sundays and at night to reject the asserted implied term that additional costs arising from an injunction would be paid by the railway authority: see, also, Bacon v Purcell (1916) 22 CLR 307 (PC) and Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 at [9] and [10].

  5. It follows in my view that the parties must be taken, objectively, to have regarded as the proposed internal area of the unit what the pricelist and the section 96 plan said it was - 75 m². It follows that Mr Liao could have rescinded the Liao Contract had he remained the purchaser.

  6. Turning to Ms Li, there are differences in her position which need to be addressed. The first is that she herself did not have any understanding as to what the internal area of the unit was proposed to be. The second is that at the time of her entry the units had all been constructed and were being measured by Mr Mitchell’s team, i.e. commencing in July 2018 through to September 2018. The third is that the Revision E plan was in existence and could have been examined and the internal dimensions of the unit calculated by someone proficient in the use of AutoCAD or a similar program. The fourth is that the strata plan attached to the contract was in slightly different terms to that which was annexed to the Liao Contract and showed a larger total unit area compared to the strata plan attached to the earlier contracts, i.e. 230 m² compared to 216 m².

  7. Dealing first with the question of knowledge. Mr Macauley contends that Mr Liao’s knowledge of the proposed internal area should be imputed to Ms Li because he was an “agent to know”, a concept discussed in several cases: see Jessett Properties Ltd v UDC Finance Ltd [1992] 1 NZLR 138, 143-144, Permanent Trustee Australia Company Ltd v FAI General Insurance Company Ltd [2001] NSWCA 20; (2001) 50 NSWLR 679 at [95]-[96] per Handley JA with whom Meagher and Powell JJA agreed, and Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353 at [324] per Murphy J:

“Knowledge acquired by an agent antecedently to the existence of the relation of principal/agent will not be imputed “save in cases (of which many can be supposed …) in which the principal purchases the previously obtained knowledge of the agent in relation to a particular subject matter, or where the

agent is … ‘an agent to know’”: Taylor v Yorkshire Insurance (at 20-21); Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679 at [94]-[96] (reversed on grounds relating to the proper construction of the Insurance Contracts Act 1984 (Cth) and on the basis that a finding of fraud was not open to the Court of Appeal in that case: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (In liq) (2003) 214 CLR 514); Micarone v Perpetual Trustees (at [639]); Jessett Properties Ltd v UDC Finance Ltd [1992] 1 NZLR 138 at 143-144. The word “purchased” in this context is to be understood broadly: Jessett Properties v UDC Finance (at 144).”

This passage was part of a more general discussion of knowledge in relation to agents and I set out [321] because this was relied upon by Mr O’Brien:

“As against a third party, the law imputes to a principal knowledge gained by its agent in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal, under such circumstances that it is the duty of the agent to communicate it to the principal. Such knowledge is equivalent to the actual personal knowledge of the principal and is not an aspect of constructive notice. See Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 658-659; Ford Excavations Pty Ltd v Do Carmo [1981] 2 NSWLR 253 at 266 (reversed on other grounds Do Carmo v Ford Excavations Pty Ltd (1984) 154 CLR 234); Vane v Vane (1873) 8 Ch App 383 at 398-400.”

  1. Mr O’Brien also draws attention to Wyllie v Pollen (1863) 3 De GJ 596; 46 ER 767 and Reilly v Reilly [2017] NSWSC 1419 per Lindsay J.

  2. Mr O’Brien submitted that since Mr Liao did not inform Ms Li of the proposed internal area of Unit 301, and that the area was not material to her decision to enter into the transaction, Mr Liao had no duty to inform Ms Li of the internal area. It therefore followed, he submitted, that Ms Li was not invested with the knowledge of Mr Liao.

  3. In Wiley it was held that where a firm of solicitors (“X”), who were asked by another firm of solicitors (“Y”) acting for mortgagees to obtain execution of a deed from mortgagors in favour of the mortgagees in connection with an advance by the mortgagees, and who had knowledge that a judgment debt had been obtained against the mortgagors, X’s knowledge would not be attributed to the mortgagees because X were not the solicitors for the mortgagees for the purposes of constructive notice but that, in any event, if X had been, the doctrine would not apply because there was no obligation on X to divulge to the mortgagees the existence of the judgment debt.

  4. Mr Macauley contended that the cases relied on by Mr O’Brien are not on point. They are not cases of an “agent to know” and are cases in which it is asserted that an agent’s knowledge is to be attributed to a principal not cases where a principal asserts that the agent’s knowledge is to be attributed to her.

  5. I think the categories of imputation of knowledge of agents are quite different and this can be seen in the discussion in P. Watts and F. M. B. Reynolds, Bowstead and Reynolds On Agency (Sweet & Maxwell, 21st ed, 2018) Article 95 at 8-208, 8-210 and 8-212. In the latter paragraph the learned authors draw attention to Permanent Trustee (supra) at [76] onwards (reversed on other grounds in Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514), and they say of Permanent Trustee:

“the principal was in the end held liable on the basis of an exception where the agent was an “agent to know” or that his knowledge had been purchased. This however seems rather a vague formula and it may be that a better analysis of this category would base it more generally on the idea that the making of a contract is entrusted to an agent….. In such a case the agent’s entire knowledge would be relevant, whether required during the agency or not. It can also be said that in such situations it is simply the knowledge of the agent that is relevant to the transaction: there is no need to assume it communicated with the principal.”

The footnote then refers to [88]-[89] of Permanent per Handley JA, which paragraphs are in the following terms:

“[88] There is ordinarily no point in an agent to insure communicating information to the principal because the agent is the person who needs to act on that information and he already has it. The imputation of an agent's knowledge to his principal, based on his duty to communicate that knowledge, is irrelevant in such cases. A different principle must apply where the agent is authorised to commit the principal to a transaction and his state of mind is relevant to that transaction. In such cases for legal purposes the acts of the agent are the acts of the principal and the agent's state of mind must be the state of mind of the principal as well.

[89] Where the agent acts within his authority with the knowledge in question present to his mind, the principal should be bound by that knowledge, however acquired. I see no basis for ignoring any part of the agent's knowledge, present to his mind, when he is doing the authorised act. The source of the knowledge seems irrelevant. What must matter is the agent's state of mind when doing the authorised act.”

(Emphasis added)

  1. It is true that Ms Li executed the Li Contract herself and that she received advice from a solicitor before doing so, but it is clear that all negotiations leading to the execution were carried out on her behalf by Mr Liao and that she relied on his knowledge in entering into the transaction. In these circumstances, I think that Mr Liao’s knowledge should be imputed to her. I reject Mr O’Brien’s submission that the agency relationship between Ms Li and Mr Liao was somehow severed or diminished on account of Ms Li having received legal advice before executing the Li Contract. It should be recalled that the issue of Mr Liao’s knowledge is bidirectional. If the internal area turned out to be greater than 75 m² by more than five per cent then LNG were entitled to rescind pursuant to cl 33.6. If LNG had asserted that the internal area was more than five per cent greater than 75 m², Ms Li could not be heard to say that Mr Liao’s knowledge was not her knowledge for the purpose of determining the comparator, even if he had not communicated to her his knowledge that the comparator was 75 m².

  2. I turn to the fact that as at the date of the Li Contract the units had in fact been constructed and the strata plan annexed was different. It is Ms Ng’s evidence, on behalf of LNG, that she thought that the internal area of Unit 301 was 75 m² even at the time of entry into the Li Contract. Mr Liao remained of that belief and I have held that his knowledge is attributable to Ms Li. I do not think it matters that the area of Unit 301 could have been measured. It was not measured and, importantly, the contract was not changed at this point in time. Clause 33.5 remained in the contract and was not deleted. If the parties wanted to do so they could at that point in time have stated what in fact the area was or removed the clause altogether, the unit having been constructed.

  3. The Revision E plan was not examined or used by LNG to determine an internal size. The strata plan attached to the Li Contract was not registered as at the date of the Li Contract. I do not accept the proposition that seems to be asserted by Mr O’Brien that the Revision E plan was a mechanism for determining the proposed internal area. No mechanism for determining the area is mentioned in the Li Contract and no reference is made to the Revision E plan. I do not accept that the parties can be taken, objectively, to have agreed that a plan of which no mention was made (and the existence of which was not known to Ms Li, Mr Liao or Ms Ng) would determine what the comparator was. Cases in which the contract makes reference to some objective standard or identified source of determination (e.g. Hawthorn Football Club Ltd v Harding [1988] VR 49, 55 per Tadgell J, Dismorr v George (1891) 17 VLR 626, 632 per Webb J, and see J. D. Heydon, Heydon on Contract (Thomson Reuters, 2019) at [3.2.80] for a summary of principles in this area) do not support the Revision E plan being used as a mechanism for determining the proposed internal area. Hall v Busst [1960] HCA 84; (1960) 104 CLR 206, 216-217, in which it was held by the majority that the phrase “the value of all additions and improvements” rendered the price insufficiently certain, is not pertinent to this case. In any event, the Revision E plan was not available to Ms Li and the internal area of Unit 301 could not be discerned from an ordinary examination of the Revision E plan. The Li Contract gave Ms Li five days from notification of the registration of the strata plan to inspect the property and ascertain the internal area, as constructed. As Mr Macauley pointed out (see PCS 77), the construction advanced by LNG would require the purchaser to decide whether or not to rescind without knowing what the real comparator was.

  4. There is, however, an objectively discernible document of which both sides were aware, by virtue of the contracts, namely the plans and specifications lodged with Council, i.e. the section 96 plan. The section 96 plan was the only plan which, as at August 2018, had been approved by the Council. This is an alternative basis which supports the comparator being 75 m², and it does not depend on Ms Li’s knowledge (whether through Mr Liao or not).

  5. I should note that I do not regard the disclaimer statements in the strata plans about the strata plans’ measurements as in any way undermining the significance of the statements made to Mr Liao that Unit 301 would have an internal area of 75 m². The internal area of Unit 301 is not stated on the draft plan attached to the Li Contract. The fact that the contract clearly envisaged that what might be built would be different to what had been proposed does not take the matter any further than to show that both parties knew that the comparator might end up not being the correct figure for the internal area of the unit as constructed. It was that eventuality that cls 33.5 and 33.6 were designed to deal with.

  6. It follows, in my view, that Ms Li was entitled to rescind the Li Contract and is entitled to the return of the deposit.

  7. I do not need to address the claim based on s 55(2A) of the Conveyancing Act 1919 (NSW), but I will deal with the s 18 ACL case even though it is not strictly necessary to do so.

Misleading or Deceptive Conduct

  1. The case based on misleading or deceptive conduct (the “ACL claim”) only arises in the alternative if Ms Li fails on her claim for return of the deposit. The ACL claim is made only in relation to Mr Liao not Ms Li, so we are dealing here with the Liao Contract not the Li Contract. The gist of the ACL claim is that Mr Liao contends that he would not have rescinded the Liao Contract for the purposes of arranging the Li Contract had he known that Unit 301’s internal area was more than five per cent less than 75 m² – he would, instead, have rescinded the Liao Contract pursuant to cl 33.5 and sought return of the deposit to him personally: see PCS 47. Mr Macauley submitted that it was misleading for LNG to provide the draft strata plan (attached to the Li Contract), which showed an increase in the overall area of the unit, without disclosing that the internal area of the unit, as constructed, was only 70.8 m².

  2. At the time Mr Liao entered into the Liao Contract, Unit 301 was not yet constructed, and nor was the Revision E plan in existence. I have held that the comparator for the Liao Contract was 75 m². There was nothing misleading or deceptive per se in LNG’s prediction that Unit 301 would be 75 m² as, by cls 33.5 and 33.6 of the Liao Contract, the parties clearly contemplated that the internal area, as constructed, could be greater or less than the comparator. Rather, for Mr Liao to succeed on the ACL claim, he needs to establish that it was misleading or deceptive of LNG to remain silent about the internal area of Unit 301, as constructed, at the time that Mr Liao made arrangements to have Ms Li enter into the Li Contract and have his deposit applied accordingly - at this point in time, as a matter of fact, Unit 301 was complete enough for LNG to have ascertained its internal area, had it wished to do so.

  3. Given the factors I have just outlined above, the ACL claim raises the following issues. First, whether s 18 of the ACL applies at all, a point raised by Mr O’Brien in submissions. Second, whether it is possible, for purposes of the ACL claim, for LNG to have misled Mr Liao by silence. Third, whether LNG had an obligation to ascertain and disclose to Mr Liao Unit 301’s internal area, as constructed, at the time he made arrangements for Ms Li to enter into the Li Contract (as opposed to some later time) and, if so, whether LNG’s silence caused Mr Liao to proceed with rescission.

  4. I note here, as a preliminary matter, that there seemed to be some confusion in the submissions because reference was made by Mr O’Brien to a passage in Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2007] FCA 1205 dealing with s 51A of the Trade Practices Act 1974 (Cth) (“TPA”) on the issue of representations as to future matters, whereas Mr Macauley referred to s 4 of the ACL. Section 51A of the TPA is not replicated in identical terms in s 4 of the ACL, the latter of which is in the following terms:

“4. Misleading representations with respect to future matters

(1)  If:

(a)  a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)  the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

(2)  For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)  a party to the proceeding; or

(b)  any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

(3)  To avoid doubt, subsection (2) does not:

(a)  have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

(b)  have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

(4)  Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:

(a)  a misleading representation; or

(b)  a representation that is misleading in a material particular; or

(c)  conduct that is misleading or is likely or liable to mislead;

and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.”

Applicability of s 18 of the ACL

  1. Mr O’Brien contended that the ACL did not apply because the arrangements made between Mr Liao and Ms Li were not made in trade or commerce but, rather, were in the nature of a private arrangement. Mr Macauley submits that the dealing was clearly one made in trade or commerce, it not being a “private sale of a residential property from one private individual to another (neither being in the business of buying or selling residential property)” (see PCS 121). Mr Macauley submits (PCS 121) that the facts of the present matter are not dissimilar to those of other cases where property developers have been sued on account of misleading or deceptive conduct in relation to off the plan properties, e.g. Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74; [2004] NSW ConvR 56-076 and Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608.

  1. In my view, Mr O’Brien’s contention cannot be sustained – the context is the contract for sale off the plan by a developer with Mr Liao which Mr Liao sought to rescind. The question is whether or not LNG’s conduct was conduct in trade or commerce not whether Mr Liao’s arrangements with Ms Li were in trade or commerce.

  2. In Concrete Constructions(NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594, the High Court plurality said at 604:

“What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public.”

  1. Williams v Pisano [2015] NSWCA 177; (2015) 90 NSWLR 342, referred to by Mr O’Brien, is not a case of a developer selling off the plan, and nor is O’Brien v Smolonogov (1983) 53 ALR 107; 2 IPR 69. In my view, the sale of units by LNG was conduct in trade or commerce, even though the subject of that trade or commerce was the sale of residential units. In Coplin v Al Maha Pty Ltd [2016] NSWSC 1745, Lindsay J at [29] described dealings between a purchaser, on the one hand, and a property developer and the developer’s real estate agent on the other, as “quintessentially commercial in character.” Smolonogov supports this conclusion as well: see 111(25-30), 112(25-35) and 113(30-35).

Misleading or deceptive conduct by silence

  1. There have been a number of cases on misrepresentation by silence and Mr Macauley relies on Demagogue, which was itself a case dealing with purchase off a plan.

  2. It has been said that mere silence is not sufficient but according to Miller’s Australian Competition and Consumer Law Annotated (Russell V. Miller, Thomson Reuters, 40th ed, 2018) at [ACL 18.380]:

“The essential question is whether, in all of the circumstances constituted by acts, omissions, statements or silence, there has been conduct likely to mislead or deceive: Miller & Assocs Insurance Broking Pty Ltd v BMWAustralia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357...”

  1. As I have noted, Mr Liao does not attack the representation that Unit 301 would have an internal space of 75 m² made in 2016, but he contends that as at August 2018 when he was seeking LNG’s agreement to rescission of the Liao Contract and entry by Ms Li into the Li Contract using the deposit, LNG no longer had a proper basis for the prediction of 75 m² for the internal area of Unit 301. On one view, the previous representation of an internal space of 75 m² continued to have effect and it was no longer valid because the unit was in fact 70.8 m² or was from the Revision E plan, in the hands of its agent, calculable as 71.4 m², although this was not appreciated by LNG.

  2. The evidence from Mr Mitchell that the Revision E plan was in existence at the time that he prepared the draft strata plan which later was annexed to the Li Contract and from which he was able (at least through staff using the appropriate program) to determine that the proposed internal area of Unit 301 was 71.4 m² means, on one view, that LNG was no longer able to rely on the section 96 plan lodged with Council in 2016, and approved in August 2016. In Demagogue, Black CJ said:

“Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of ‘mere silence’ or of a duty of disclosure can divert attention from that primary question. Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.”

Gummow J considered the matter extensively at 37-41 and he expressed his agreement with what had been said by French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR 53,193 at 53,195:

“I agree also with the remarks by French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,195 where, after referring to various authorities, his Honour said:

“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 the fact does not exist.”

Cooper J expressed his agreement with Gummow J’s reasons at 46.

  1. I focus on the phrase “if the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed” found in the passage from Black CJ’s judgment and the judgment of French J, which Gummow J cited with approval, to which I have referred.

  2. I do not accept the proposition that LNG had to have positively known that its previous representation was no longer accurate – s 18 of the ACL does not require the Plaintiff to establish deliberate concealment or the like, and I note that the Victorian Court of Appeal in CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 per Nettle JA (as his Honour then was) at [34] (with whom Batt and Vincent JJA concurred) has rejected the contention that for silence to be actionable in relation to claims under the TPA it must be intentional.

Whether LNG had an obligation to ascertain and disclose the internal area

  1. Mr Liao contends that LNG ought to have told him about the reduction in internal area at the time he was acting as Ms Li’s agent in negotiating the Li Contract, because LNG attached an updated draft strata plan to the Li Contract which showed a different (albeit larger overall) area than that which appeared on the material that Mr Liao was given before he entered into the ZHM and Liao Contracts. Mr Liao’s case is that if LNG had informed him that the true internal area was more than five per cent less than 75 m² he would not have arranged for Ms Li to enter into the Li Contract applying his deposit, but instead rescinded the Liao Contract pursuant to cl 33.5 and sought return of his deposit. I accept that Mr Liao would have sought to rescind had he known that the true internal area was more than five per cent less than 75 m², as:

  1. He gave sworn evidence to this effect. It is clear that Mr Liao regarded the very extensive size of the terrace as the most important factor in his choice of unit, but he did not agree that the size of the internal area was unimportant to him: T49.

  2. He was not cross examined on his evidence of what he would have done had he known that the internal size of the unit was only 70.8 m². Mr O’Brien submitted that Mr Liao’s evidence of what his intentions would have been is of little probative value because it is “self-serving”, having been made after the fact: see Razdan v Westpac Banking Corporation [2014] NSWCA 126 per McColl JA at [15] and Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5; [2016] Q ConvR 54-833 at [75]-[76]. As Razdan highlights, Courts need to be cautious in accepting such evidence, but it does not mean that the evidence has no probative value at all. Mr O’Brien did not put to Mr Liao in cross examination that Mr Liao would not have rescinded the Liao Contract on account of the diminution of the internal area, even if he had known that it was more than five per cent less than 75 m².

  3. Mr Liao was active on behalf of Ms Li in complaining about the size of the unit once it was discovered to be 70.8 m² as constructed: see paragraphs 47-53 of Mr Liao’s Affidavit.

  1. The relevant circumstances that need to be considered include, of course, the fact that Mr Liao had been provided with material that indicated that the internal area of the unit was expected to be 75 m², but they also include the following circumstances:

  1. That Mr Liao had asked LNG if he could rescind the Liao Contract (for purposes of arranging the Li Contract) and LNG had agreed.

  2. The Liao Contract contemplated that the unit’s internal area might be up to five per cent less or larger than 75 m² without either party having the right to rescind.

  3. That the Liao Contract permitted Mr Liao to rescind if the unit’s internal area was more than five per cent smaller than 75 m².

  4. That there was no contractual requirement for LNG to measure the unit before registration of the strata plan (or after).

  5. Mr Liao, although aware as at August 2018 that the unit had been constructed (see paragraph 37 of Mr Liao’s Affidavit, CB A1:57), did not ask prior to rescission for access to the unit so that its internal area, as constructed, could be measured. Nor is there evidence of him enquiring whether LNG had measured the internal area, as constructed, or enquiring what the actual area was.

  1. There are several further aspects that need to be borne in mind:

  1. The draft strata plan did not reveal Unit 301’s internal area. If the Revision E plan had been examined using AutoCAD at that time it would have revealed an area of 71.4 m² – that area would not have permitted rescission and there is no evidence from Mr Liao as to what he would have done had he known about that figure.

  2. Mr Liao’s reasons for rescinding the Liao Contract were unconnected with the size of the unit.

  3. The only way in which rescission would have been available to Mr Liao under the Liao Contract would have been actual measurement of the internal area. In a sense, Mr Liao has to establish that LNG had an obligation to physically measure the unit as at August 2018, notwithstanding the fact that the Liao Contract did not require it but, rather, contemplated comparison to the 75 m² after the Council approved the strata plan.

  4. The focus here must be on the Liao Contract (since that is the contract he says he would not have rescinded) and on what obligation LNG owed him to tell him in his own right (not as agent for Ms Li) of a fact capable of being known only by physical measurement, and which LNG did not know. It is also not a question of what LNG should have told Ms Li.

  1. I am not persuaded that LNG had an obligation to inform Mr Liao of the actual internal area of Unit 301 when he had asked LNG, for reasons unconnected with the size of the unit, to rescind the Liao Contract and they had agreed. Accordingly, I am not persuaded that LNG’s initial prediction of 75 m² as the internal area of the unit gave rise to a reasonable expectation that LNG would physically measure Unit 301’s internal area, as constructed, prior to registration of the strata plan and then disclose those measurements to Mr Liao when he asked for the Liao Contract to be rescinded.

Conclusion

  1. For the reasons given, Ms Li validly rescinded the Li Contract pursuant to cl 33.5 and is entitled to the return of her deposit together with interest on the amount, calculated from the date by which the deposit should have been returned in accordance with s 100 of the Civil Procedure Act 2005 (NSW).

  2. I will hear the parties on the issue of costs.

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Decision last updated: 06 February 2020

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