Quiet Achiever Investments Pty Ltd v MDM Properties Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 2049 of 2005

QUIET ACHIEVER INVESTMENTS PTY LTD (ACN 098 571 727)	Plaintiff
v
MDM PROPERTIES PTY LTD (ACN 097 981 256) and MARTEN JOHN HILBERTS	Defendants
and
ACN 060 700 067 PTY LTD and DEITMAR HERMANN GEIGER and ROBERT JAMES PELLEY and HIGH PLAINS MANAGEMENT PTY LTD (ACN 102 813 954)	Third Parties

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JUDGE:	Whelan J
WHERE HELD:	Melbourne
DATE OF HEARING:	14, 15, 16, 17, 21, 22, 23, 24 August and 15 September 2006
DATE OF REASONS:	10 October 2006
CASE MAY BE CITED AS:	Quiet Achiever Investments Pty Ltd v MDM Properties Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2006] VSC 365

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MISLEADING AND DECEPTIVE CONDUCT – Trade Practices Act 1974 (Cth) ss.51A and 52 and Fair Trading Act 1999 (Vic) s.9 – misleading representations – sale of accommodation suites in ski lodge – written “estimate” of income, expenses and return – whether representations as to past or future – whether estimates bear reasonable relationship to actual historic performance.

Butcher and Anor v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Nella v Kingia Pty Ltd Unreported, Federal Court of Australia, French J, 2 December 1988; BC8803060

MISLEADING AND DECEPTIVE CONDUCT – Trade Practices Act 1974 (Cth) s.75B(1)(c) – misleading representations – personal liability – whether representor “knowingly concerned” in contravention.

Yorke v Lucas (1985) 158 CLR 661

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C. Northrop	Harwood Andrews
For the Defendant	Mr H.J. Langmead SC with Mr L. Armstrong	Nevin Lenne & Gross

TABLE OF CONTENTS

Introduction......................................................................................................................................... 2

Sequence of events............................................................................................................................ 4

Acquisition by MDM.................................................................................................................... 4
MDM valuation, analysis, and preparation of marketing materials..................................... 9
First dealings with Quiet Achiever.......................................................................................... 12
Income and expenditure estimates document....................................................................... 13
MDM’s calculation of gross letting income............................................................................ 16
Consideration by Quiet Achiever............................................................................................. 17
Acquisition by Quiet Achiever................................................................................................. 17
Events after acquisition.............................................................................................................. 18

Representations alleged and representations made.................................................................. 19

Were any and which of the representations made misleading?.............................................. 21

Relevant legal principles........................................................................................................... 21
Relevant pleadings..................................................................................................................... 23
Relevant evidence – occupancy rates...................................................................................... 24
Relevant evidence – the gross letting income estimate........................................................ 27
Issues of source and disclaimer................................................................................................ 31
Assessment of the conduct........................................................................................................ 33

Section 51A........................................................................................................................................ 37

Section 53A........................................................................................................................................ 37

Liability of Mr Hilberts personally............................................................................................... 38

Negligence by MDM....................................................................................................................... 39

Reliance and causation.................................................................................................................... 39

The third party claims..................................................................................................................... 39

Conclusions....................................................................................................................................... 41

HIS HONOUR:

Introduction

The plaintiff (“Quiet Achiever”) is the trustee of a unit trust associated with three businessmen and property investors named Mark Harrod, Peter Ryan and Neville Brice. The first defendant (“MDM”) is a property investment company associated with two Queensland businessmen, Marten Hilberts and Mark Adams. Mr Hilberts is the second defendant.

In 2003 Quiet Achiever purchased from MDM six strata title suites forming part of a property known as the High Plains Lodge at Dinner Plain in Victoria. MDM had purchased High Plains Lodge from the first third party (“ACN”) in December 2002.

High Plains Lodge has 18 accommodation suites and a commercial area which includes a restaurant and bar.

ACN had conducted a business at the lodge providing both accommodation and restaurant and bar facilities. ACN was a company associated with Deitmar Geiger, the second third party, and Robert Pelley, the third third party. Mr Geiger had managed the lodge. Mr Pelley had kept the books of accounts and prepared the financial statements. After buying the lodge from ACN, MDM undertook a process of subdivision whereby the commercial area was separated from the accommodation area, and the accommodation area was in turn subdivided into 18 separate suites. Quiet Achiever bought six of these suites from MDM.

The fourth third party (“High Plains Management”) is a company associated with Mr Geiger which took a lease of the commercial area from MDM and which managed the lodge.

Before Quiet Achiever bought the six suites, MDM’s agent forwarded to it a document entitled “Income and Expenditure Estimates”. It was referred to in the trial as the “estimates document”. Quiet Achiever alleges that representations contained in this document, and in a phone conversation with MDM’s agent, were misleading and deceptive and that MDM is liable to it pursuant to the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1999 (Vic). Quiet Achiever alleges Mr Hilberts is liable on the basis that he aided and abetted contraventions of the Trade Practices Act and on the basis that he contravened the Fair Trading Act. It was alleged that MDM and Mr Hilberts made the representations fraudulently. That allegation was abandoned during the trial. It is also alleged the representations were made negligently.

MDM and Mr Hilberts maintain against the first three third parties that if they misled Quiet Achiever, then ACN made misrepresentations to them, for which Mr Geiger and Mr Pelley are liable as aiders and abetters, and which are the cause of any loss. MDM and Mr Hilberts also maintain that any loss Quiet Achiever has suffered is a result of actionable wrongs committed by the manager of the lodge, the fourth third party, High Plains Management.

The trial before me proceeded on limited issues. By consent of all the parties the third party claim against High Plains Management was deferred. Otherwise, all the allegations made in the third party proceedings were in issue before me. The matters to be determined between the plaintiff, Quiet Achiever, and the defendants, MDM and Mr Hilberts, were set out by reference to the pleadings in an agreed document entitled “Pleadings Relevant to ‘Liability’ Trial”. Pursuant to that document, and leaving aside matters which were admitted or substantially admitted, the matters in issue in the trial before me were:

What representations were made? (amended statement of claim para 5).
Did Quiet Achiever purchase in reliance on the representations made? (para 6)
Were the representations false? (para 7)
Were the representations misleading or deceptive and, in so far as they were as to future matters, has MDM established reasonable grounds? (paras 8 and 9)
Is Mr Hilberts liable as an accessory? (para 10)
Is Mr Hilberts liable personally for misleading and deceptive conduct? (paras 10 and 11)
Did MDM and Mr Hilberts make the representations negligently? (paras 13 and 14).
On the basis of the agreed document, the issue of causation between Quiet Achiever on the one hand and MDM and Mr Hilberts on the other is not one of the matters for me to determine. This is because the causation issue is bound up in the issue of loss and damage pleaded in para 15 of the amended statement of claim, which is not on the agreed list. After the trial had concluded I sought further clarification from counsel for Quiet Achiever and counsel for MDM and Mr Hilberts on the issues to be determined between those parties. Counsel for MDM and Mr Hilberts and counsel for Quiet Achiever confirmed that issues of causation, other than that raised in paragraph 6 of the amended statement of claim (the allegation of reliance), should not be determined at this stage.
Sequence of events
Acquisition by MDM

In the middle of 2002 Mr Hilberts and Mr Adams were investigating property development opportunities in the Victorian alpine region. The High Plains Lodge was on the market. On 26 June 2002 an estate agent acting on behalf of ACN forwarded to an agent acting on behalf of MDM information concerning the lodge and its business which information was then forwarded on to Mr Adams and Mr Hilberts. Amongst the information so provided was a copy of a profit and loss statement for the year 1 July 1999 to 30 June 2000, a copy of a profit and loss statement for the year 1 July 2000 to 30 June 2001, and a copy of a profit and loss statement for the period 1 July 2001 to 31 December 2001. Thus, Mr Hilberts and Mr Adams had profit and loss statements for two full years, and only figures for half a year for 2001/2002.

There was an issue raised in the evidence about what was said between Mr Geiger and Mr Pelley on the one hand and Mr Adams and Mr Hilberts on the other concerning the availability of profit and loss figures for the full year ended 30 June 2002. It emerged from Mr Pelley’s evidence that the profit and loss statement for that full year was completed by 7 October 2002 and a copy of the profit and loss statement bearing that date as the date upon which it was printed forms part of the evidence. Mr Hilberts in his witness statement maintained that in “about” October or early November 2002 he asked Mr Geiger and Mr Pelley why the information “for one year was only for a half-year” and that either Mr Pelley or Mr Geiger said that that was all they had because records had been lost in a computer crash and that it would be fair to double the half year income to get an estimate of the full year. Mr Adams gave evidence that this information was passed on to him.

Mr Pelley’s evidence was that there had been a computer crash which had resulted in the loss of occupancy records but that no computer crash had ever affected the financial records. He said that if he had been asked for the full year 2002 figures he would have been able to provide them and he would have done so. Mr Pelley said that he would not have told Mr Hilberts after 7 October 2002 that full year figures were not available or that any issue of availability of full year figures was a result of a computer problem. Mr Pelley said that he was of the view that doubling the half year figures to approximate the full year was “roughly correct” and that if he had been asked if that was so it is likely he would have said yes.

Other than when expressly referred to his witness statement, Mr Hilberts in his oral evidence was not as specific, either as to the content of these conversations or as to their timing, as he was in his witness statement. In his cross-examination the following exchange occurred:

“By November 2002 you would have expected the January to June 2002 figures to be available, would you not? - - - That would be fair to assume, yes.
And do you have any recollection of ever asking for it? - - - I don’t.
Specifically, did you ask for a full year profit and loss for the year ending 30 June 2002? - - - Without looking at the once [sic] ones I was supplied, I don’t recall.”

The suggestion in his witness statement that he had been told there was a connection between the unavailability of the full year figures and a computer crash was expressed equivocally in his oral evidence. There is no written record of the discussion or discussions about the availability of the full 2002 year figures. In that respect the following interchange took place during later cross-examination, when Mr Hilberts was recalled consequent upon the late introduction of additional particulars:
“I suggest to you the reason for that is you simply did not ask for that information? - - - No, we asked from our real estate representative, Ted Weekes, to obtain the financial information that was available at the time so we could make an assessment of the potential development of the site and that information was sent.
That was in June 2002, was it not? - - - That is correct.
Was that the full extent of your enquiries about financial information? - - - That was the full extent of the profit and loss, that’s correct.”

Counsel for Quiet Achiever then put to Mr Hilberts the evidence he had previously given on his cross-examination, which I have quoted above, where he had said he did not recall asking for the full year profit and loss. Mr Hilberts confirmed that that evidence was accurate. In further examination in chief earlier that day Mr Hilberts had said that “we spoke to either Mr Pelley or Mr Geiger” about the balance of the figures for that year and that he recalled being told they did not have the information and that “possibly” that had been linked with a computer crash. I told Mr Hilberts that as a result of the evidence he had given I thought he was telling me that he could not recall specifically asking for full figures for the year ending 30 June 2002 but that he had been given the impression that they were not available and he had also been left with an impression that that may have had something to do with a computer crash. Mr Hilberts agreed that that was correct.

It is most unlikely Mr Geiger had any relevant discussion in this context about the availability of financial statements. Any such discussion would have been with Mr Pelley. The evidence of Mr Hilberts and Mr Pelley as to the content of the discussions about the 2002 full year figures is not necessarily entirely inconsistent. The significant inconsistency arises on the issue of timing. My conclusion is that Mr Hilberts’s witness statement, and his oral evidence at times, in so far as he asserted that a relevant discussion took place in October or November 2002, when the full year figures were available, is not correct. I accept Mr Pelley’s evidence that if he had been asked for the full year figures, he would have provided them if they were then available. My conclusion is that on the balance of probabilities Mr Hilberts’s recollections in this regard are recollections of discussions earlier in the year when the full year figures for 2002 were not in fact available. I conclude that he was told then that full year figures were not available. I accept Mr Hilberts’s evidence that he was also told that doubling the half year figures would give an approximation of the full year. I do not accept that Mr Hilberts was told the reason for unavailability was a computer crash, but he may have gained that impression because that was the reason he was given for unavailability of occupancy figures.

Throughout November of 2002 the officers of MDM and their solicitors, Nevin Lenne and Gross, on the one hand, and the officers of ACN and its solicitors, Rigby Cooke, on the other, dealt with each other extensively on the issue of expenses referable to the operation of the lodge. Principally this issue was being addressed so as to negotiate and agree upon the terms of a management agreement for the future management of the lodge. In that context, Mr Hilberts raised the issue of information about occupancy.

By an e-mail of 7 November 2002 Mr Hilberts asked his solicitor, Mr Gross at Nevin Lenne and Gross, to request information about a list of matters from Mr Geiger and Mr Pelley. Amongst the matters on the list was the following:

“Occupancy history relative to figures supplied e.g. the occupancy trend for that same year (room nights if possible)”

By a letter of 11 November 2002 Mr Gross wrote to Mr Pelley requesting information on the various listed matters Mr Hilberts had raised with him including:
“occupancy history relative to figures supplied i.e. occupancy trend for that same year (room nights if possible).”

Mr Gross’s letter suggested that Mr Pelley might communicate directly with Mr Hilberts.

Mr Pelley then prepared a document entitled “High Plains Lodge Information for Management Agreement considerations” (referred to in the hearing as the “management agreement considerations document”). The document was set out in point form. The final point read as follows:

“Some of our occupancy history was lost in a computer crash in May 2001 which wiped out both data and software. However from our recollections and notes of the figures that we looked at each month we estimate that average occupancy in 99/00 was about 55% (3600 room nights) – the winter was not too bad and the summer was strong as the Airport was being built and we had constant demand from consultants, managers and others. 00/01 dropped back to 37.5% (2500 room nights) despite a good winter except for September which died during the Olympics, and a very average summer. July 01 to December 01 had an average rate of 39% (1300 room nights) with a poor ski season.”

The documents to which I have referred suggest that Mr Pelley attempted to give information in relation to occupancy history in precisely the terms of the request made to him. He set out the history “relative to figures supplied” and attempted to give information addressing “occupancy trend for that same year”.

The information so provided as to occupancy history, particularly that concerning the airport in the 1999/2000 year, was an important part of Quiet Achiever’s case. I will return to this issue.

The terms of Mr Pelley’s response in the management agreement considerations document indicates that as at 11 November 2002 the figures which he believed had been “supplied” were the figures for 1999/2000, 2000/2001, and July 2001 to December 2001. Mr Pelley did suggest in his oral evidence that he had sent the full year figures for 2001/2002 to ACN’s estate agent, John Castran, to be passed on to potential purchasers but he did not know if Mr Castran had done so. He agreed in cross-examination that, if that was correct, the provision of the information as to occupancy in the management agreement considerations document (by reference only to the half year) was “inexplicable”.

In my view it must be concluded that Mr Pelley’s belief at the time as to the figures which had been supplied was that reflected in the management agreement considerations document, namely, that figures for 2½ years only had been supplied.

Throughout the balance of November and early December 2002, the parties continued negotiating expenses for the purposes of the new management arrangement, and negotiated the terms of the proposed contract of sale, the lease, and other documents. Under the proposed new management arrangement, expenses were to be shared between the accommodation area and the commercial area. By 6 December 2002 MDM had compiled a spreadsheet of shared expenses which its solicitors forwarded to the solicitors for ACN. The final item of shared expenses, which concerned cleaning charges, was agreed on about 10 December 2002. Contracts were signed on 11 December 2002.

MDM valuation, analysis, and preparation of marketing materials

MDM arranged a valuation of the High Plains Lodge by Michael Quealy of the firm Cosgraves. The valuation was of the 18 individual accommodation units on an individual basis, and of the commercial area on the basis it was subject to the lease which had been signed. The individual suites were valued at $85,000 each. This valuation was reached by determining upon a value per square metre of property of this kind. The suites were not valued on the basis of their commercial return. The Cosgrave valuation figures were incorporated into what Mr Hilberts described as a draft funding submission prepared in relation to the lodge which was addressed to Suncorp Metway but which was not ever submitted to it, according to Mr Hilberts. The submission contained a calculation of commercial return on the suites calculated upon the basis of occupancy rates from 50% to 70%. Based upon a purchase price of $103,000 each, the projected return was from 6.32% to 9.83%.

A further calculation prepared by Mr Adams and Mr Hilberts and entitled “New structure returns for suites based on projected occupancy” is also in evidence. This document also set out calculated returns by reference to percentage occupancy rates. The occupancy rates used in this document were between 30% and 60%. The returns were calculated on a purchase price of $105,722. The expenses set out in this calculation broadly replicated those set out in the spreadsheet which had previously passed between the solicitors for MDM and ACN, with the addition of figures for cleaning costs and for accommodation commission. One of the columns in this document is a calculation based upon an occupancy rate of 37.5%. According to the management agreement considerations document, this was the rate of occupancy in the 2000/2001 year. Above this column are the typed words “From period used as base”.

Mr Adams and Mr Hilberts prepared a glossy brochure seeking to attract purchasers for the individual suites. One page of that brochure is headed “Income and Expenditure Estimates”. On the left hand side of the page a calculation is set out of income and expense estimates resulting in a net return of 9%. This is the same calculation as was set out on the estimates document which Quiet Achiever was sent. On the right hand side of the page, a table setting out occupancy rates and returns appears with a graph plotting return to occupancy rate. The returns are portrayed as being proportional to occupancy rates. The occupancy rates range from 30% to 60% and are portrayed as yielding returns of 5% to 13.4%. Quiet Achiever was not given the information on the right hand side of the page in the glossy brochure.

Both Mr Hilberts and Mr Adams in their oral evidence referred to the importance of the table and the graph on the right hand side of the page in the glossy brochure. In Mr Hilberts’s cross-examination the following exchange occurred:

“Was there any reason why you did not include a note saying that one of the years was abnormal? - - - Is there any reason?
Yes? - - - We thought the graph that we provided in the brochure clearly outlined an occupancy rate of 30 per cent to 60 per cent which covered the three occupancy rates that we were supplied by the vendors.
Are you saying then that the graph was the way in which you explained that there was room for differences? - - - Certainly room for difference in occupancy rates, yes.
For people who did not receive that graph, they wouldn’t have that indication, would they? - - - People who did not receive the graph, they would not have that information.”

In Mr Adams’s cross-examination the following interchange occurred:-

“You didn’t think to mention in the document itself that there was one year that was higher than the others? - - - We certainly thought to handle the range which is why we prepared the graph. The graph is lower than the lowest year and higher than the highest year.
So the graph is intended to be read in conjunction with this document, is that what you say? - - - What I said about this document was the only document we prepared for sales was this entire brochure.
The graph you spoke of, are you saying that is something that needs to be read in conjunction with this estimates document? - - - By the nature that it’s on the same page, I guess the answer to that is yes.
If you look at the estimates document though there’s no graph there, is there? - - - This one?
Yes? - - - No.
Are you saying if there was no graph in the sales brochure then you would have included a note saying, “This includes the figure of 55 whilst an airport was being built” or something to that effect? - - - No, that’s not what I’m saying. What I’m saying is this is the document that we produced and that the range in regards to occupancy was specifically decided to be lower than the lowest year and higher than the highest year in that graph.”

In Mr Hilberts’s supplementary witness statement he referred to the calculation which appeared on the left hand side of the page in the glossy brochure and which constituted the entirety of the estimates document forwarded to Quiet Achiever as an “example”. In paragraph 4(e) the witness statement reads:-

“As the occupancy average over the period for which records were provided was 43.8% (on a 3-year basis not 2.5 years), we rounded off to the nearest multiple of 5% for the purpose of the example set out in the sales brochure.” (Emphasis is mine.)

Until amended during the trial, consequent upon the provision of additional particulars, the defence expressly referred to and relied upon the graph. That allegation was no doubt deleted as it had become clear that the evidence did not establish that Quiet Achiever had ever received the glossy brochure. Quiet Achiever received and assessed the project by reference to the estimates document which set out the information on the left hand side of the relevant page in the glossy brochure and without the table or the graph depicting occupancy rates from 30% to 60% and returns from 5% to 13.4% on the right hand side of the page.
First dealings with Quiet Achiever

Quiet Achiever’s officers became aware of the opportunity to purchase suites in the High Plains Lodge as a result of e-mails and advertisements, some of which referred to a return of 9%. As a result Mr Harrod phoned an agent of MDM referred to in that material, Mr Robert Moore at Falls Creek Real Estate Pty Ltd. Mr Harrod’s notes of his conversation with Mr Moore are in evidence. Amongst other things, Mr Harrod was told that the return was “7 – 9% (45% occupancy)”. He was told that the previous owner was “Didi”, a reference to Mr Geiger, and that the lodge had been sold because of a “bust up” between two partners, a reference to Mr Geiger and Mr Pelley. He was told that the lodge had then been bought by “investors from Townsville”, a reference to MDM. He was told about the “Didi” lease back.

Mr Harrod discussed the investment with Mr Ryan and Mr Brice. In early June 2003 he telephoned National Property Investors, who were also marketing the suites, and spoke to Mr John Murray. He requested that he be provided with information concerning the lodge. On Tuesday 3 June 2003 Mr Murray forwarded to Mr Harrod an e-mail concerning the lodge with five attachments. The first attachment was the estimates document, entitled “Income and Expenditure Estimates”. This document set out the same calculation of a 9% return which appears on the left hand side of the similarly entitled page in the glossy brochure. The table and chart which appear on the right hand side of the page in the brochure was not sent. Mr Murray also attached other documents which set out some of the other information contained in the brochure although in a different format. The estimates document entitled “Income and Expenditure Estimates” is the foundation of Quiet Achiever’s case against MDM and Mr Hilberts, although reliance is also placed on the conversation with Mr Robert Moore.

Income and expenditure estimates document

The estimates document reads as follows:

“Income and Expenditure Estimates
Suite
Purchase Price (average)  91,177.00
Furniture Package (included)   0
Gross letting income   (a)       18,553.96
Less expenses
Commission to manage company
(deducted after external agents comm.)  10%
Commission  10%     1,855.00
Share of fixed and variable expenses
(60% divided among all suite holders)  1/18^th of 60%
Body Corporate administration fee   167.00
Management fee   300.00
Advertising   150.00
Cleaning   3,750.00
Insurance   890.00
Power/gas   2,095.25
Rates/waste removal/water  791.00
Sinking fund  300.00
Postage/internet  17.00
Total Annual Expenses  (b)      $10,315.25
Net Return on Purchase Price (a – b)  $ 8,238.71
9%

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NB Occupancy is based on 12 month operation
3 year actual historic occupancy approx average 45%
Return does not include depreciation benefits
Whilst care has been taken in preparing these figures, these estimates are intended
To be used as a guide only and as such do not constitute an offer of guarantee.
Please note: purchase price is based on listed price in information booklet.”

It is noteworthy that the grammatical and typographical errors appearing in the last three lines of the estimates document are not reproduced in the equivalent section of the glossy brochure. This may suggest that the estimates document is an earlier uncorrected version of what was included in the glossy brochure.

I will separately deal with the specific representations which are alleged to be misleading and deceptive in this document, but some general observations on the document are appropriate at this stage.

First, the document purports to set out “estimates”. It necessarily follows that the reader is being told there is some element of judgment and opinion involved in the information conveyed. [1]
[1]See: The Macquarie Dictionary, Fourth Edition (2005), meanings 4 and 5.

Secondly, it states: “3 year actual historic occupancy approx average 45%”. On any view, the document was not based upon three years of actual historic occupancy figures. Mr Adams and Mr Hilberts did not have three years’ occupancy figures. They had 2½ years. The average of the 2½ years of figures which they did have (treating the half year figure the same as the two full year figures) is 43.8%.

Thirdly, in the end no complaint was made by Quiet Achiever’s counsel in relation to the expense estimate. The expense estimate comprised some historic figures (advertising, power/gas, rates/waste removal/water, and postage/internet), some new expenses based upon the lease and management arrangements entered into at the time of MDM’s acquisition of the lodge (commission, body corporate administration fee, management fee, and sinking fund), and estimates of expenses which were based upon historical data updated in the course of, or as a consequence of, the new management arrangements (cleaning and insurance).

The focus of complaint in the hearing before me was on the gross letting income and, as a consequence, the return.

MDM’s calculation of gross letting income

The initial witness statements filed by Mr Hilberts and Mr Adams described the method by which they said they had calculated the income estimate. This version of the methodology was that they had doubled the half year result which they had for the year ending 30 June 2002 and added that to the full year results for 1999/2000 and 2000/2001. Upon the assumption that that average accommodation income had been produced by average occupancy of 43.8%, they then calculated income for 40% and 45%. They also did calculations for the range of different occupancy levels which were later set out in the table and the graph in the glossy brochure. The calculation on the estimates document which was forwarded to Quiet Achiever was the 45% calculation.

Before giving evidence, a supplementary witness statement of Mr Hilberts was filed, with which Mr Adams in turn agreed. According to this supplementary statement, Mr Hilberts had reconsidered the calculation after he had recalled the significance of the note: “From period used as base”, appearing above the 37.5% column of the document entitled “New structure returns for suites based on projected occupancy” to which I previously referred. His supplementary witness statement relevantly reads as follows:

“I now recall the meaning of the box above the column for 37.5% occupancy rates, which states ”from period used as base”. The ”period” is the year 1 July 2000 to 30 June 2001. This was the year with the lowest annual occupancy rate recorded for any of the periods covered by the P & L statements provided to us by Geiger and Pelley. We used this year as the base period to calculate income estimates…
The calculation process was as follows:-
(a) The income for the 2000/2001 year was $278,297.78;
(b)We divided the income by 18 to get the income for an individual suite. The result was $15461.00. . . ;
(c)We divided $15,461 by 37.5 to get the income per percentage point of occupancy. The result was that 1% occupancy equalled $412.29;
(d)The $412.29 was multiplied for different occupancy rates, at multiples of 5%, to produce the other income totals shown in the first row of each column . . . At 45% the total income was $18,553.00;
(e)As the occupancy average over the period for which records were provided was 43.8% (on a 3-year basis not 2.5 years), we rounded off to the nearest multiple of 5% for the purpose of the example set out in the sales brochure. As 45% was not the exact average occupancy rate we noted in the example ”3 year actual historic occupancy approx average 45%.””

Consideration by Quiet Achiever

According to Quiet Achiever’s officers, the estimates document was considered and analysed by Mr Brice. Mr Harrod and Mr Ryan particularly relied upon Mr Brice in this respect as he is an accountant. Mr Brice’s evidence in his witness statement was as follows:

“I noted that the estimates document said care had been taken in its preparation and the figures were said to be actual historic figures over a 3 year period of time. As an accountant I place much more reliance on actual figures rather than projections, particularly where the same management would continue. I was also confident that on the figures we would be able to get finance for the purchase of suites. Based on the information provided to me I recommended the investment would be suitable for us.”

Both Mr Brice and Mr Harrod said they interpreted the document as setting out “historic” or “actual” figures. All three of Quiet Achiever’s officers agreed that there was imprecision expressed in the document in relation to the occupancy rate (“approx average”) and that that had to import imprecision in relation to the gross letting income figure. This leads me to conclude that they did interpret the income figure as an “estimate” (as the document itself says), but one based on actual historic performance.
Acquisition by Quiet Achiever

Mr Harrod made offers to purchase three of the suites by documents he executed on behalf of “M Harrod Investments P/L” and/or nominee on Thursday 5 June 2003.

On 6 June 2003 Mr Brice’s firm, The Accountant Group, made an application on behalf of Quiet Achiever to the National Australia Bank for finance. The application enclosed what was described as a “Projected Profit and Loss Account for the year ended 30^th June 2004”. The figures on that projection were the figures in the estimates document multiplied by three and with the addition of provision for accounting fees and for interest. Thus, Mr Brice used what he says he interpreted as actual historic figures for the purpose of preparing a projection. This is what was to be expected. A prospective purchaser is interested in the past because it may be a guide to the future.

In July 2003 Quiet Achiever offered to purchase two further suites and prior to 10 September 2003 it agreed to acquire a sixth suite. Mr Brice prepared an updated projection for the six suites in the same manner as his earlier projection.

The prices paid for the six suites were $90,900 (2), $89,900 (1), $96,900 (1) and $96,400 (2).

Events after acquisition

The return on the suites has been far below what Quiet Achiever had anticipated.

In response to requests made by persons who had acquired suites from MDM, in June 2004 Mr Hilberts explained the material upon which the estimates had been based in an email in the following terms:-

“I have attached the P/L statements (showing accommodation income) as provided by the Geiger’s [sic] prior to purchasing High Plains Lodge.
As they may be a little difficult to read, the accommodation on the 99/00 P/L is $380,703.00 (55% Occupancy) and the accommodation on the 00/01 P/L is $278,297.00 (37.5% Occupancy) (numbers rounded to nearest $).
I have attached the occupancy rates as provided by the Geiger’s [sic] prior to purchasing High Plains Lodge (please see last ‘bullett’ [sic] point on attachment).
I have also attached the “Income and expenditure estimates from the sale brochure” as supplied to prospective purchasers.”

Representations alleged and representations made

The representations alleged are set out in paragraph 5 of the amended statement of claim. It is necessary to set out and separately address each of the alleged representations in order to determine which, if any, of the alleged representations were in fact made.

“MDM Properties had taken care to make an assessment of income and expenses relating to the apartments”:5(a).

This representation was made. The estimates document expressly stated that care had been taken. Its express reference to the taking of care “in preparing these figures” was another indication, in addition to the title, that the document was not a transcription of data from historic records but involved judgment and opinion.

The estimates document “presented a fair assessment of income and expenses relating to the apartments”:5(b).

This representation was made in the sense that the document necessarily conveys a representation that the estimates set out represent the author’s genuine estimates and that there exists a reasonable factual basis for those estimates.

Quiet Achiever “could rely on information and estimates contained in the estimates document when deciding whether to purchase the apartments”:5(c)

Quiet Achiever was invited to rely on the representations in the estimates document. That is why it was sent to it. Otherwise this purported representation adds nothing to what the document itself represents. The information set out was said to be only a guide, and was said to be not guaranteed.

“The apartments had an historic occupancy rate average of 45% and that rate would continue”:5(d)

The particulars in relation to this representation rely on both the estimates document and the conversation between Mr Harrod and Mr Moore, the notes of which are in evidence and to which I have referred. The representation made in the estimates documents was that the “3 year actual historic occupancy approx average” was 45%. The reader was thus told that the 45% was an average and that that figure was imprecise (“approx”). There is in this representation as to the past also an implicit representation that the author is not aware of any circumstance which would render the use of 45% as a “guide only” to be misconceived. The conversation with Mr Moore neither detracts from nor adds to any of this.

“Annual gross letting income for each apartment was and would be approximately $18,553.96”:5(e)

No representation in these terms was made. The estimates document set out an “estimate” of income. The representations which were made in this respect were those alleged in para 5(a) and 5(b), namely, that $18,553.96 was the author’s true estimate of gross letting income after exercising care and that the estimate had a reasonable factual basis.

“Annual expenses for each apartment were and would be approximately $10,315.25”: 5(f)

The analysis here is the same as that which applies to the prior alleged representation concerning the income estimate.

“The apartments did and would provide a return of 9% on the purchase price”: 5(g)

Again, the analysis is the same as that which applies to the two prior alleged representations. In this context the conversation with Mr Moore is also relied upon. Mr Moore said the return was 7% - 9%.

“MDM Properties had reasonable grounds for providing the information and making the estimates contained in the estimates document” : 5(h)

This representation is implicit in the estimates document, as I have indicated above.
Were any and which of the representations made misleading?
Relevant legal principles

There was no controversy before me as to the principles to be applied. Stated briefly, the relevant principles are:

1.When considering whether conduct is misleading or deceptive it is important to consider the relevant conduct in its entirety, including the effect of qualifying or “disclaiming” language, so as to determine whether the conduct as a whole is misleading or deceptive or likely to be so.[2]
2.Where particular conduct amounts to no more than communicating or passing on representations made, or information provided, by another, without endorsing or adopting it, it is not misleading conduct by the person acting for these purposes as the conduit because the information is incorrect or the representation is untrue.[3]
3.Conduct is only misleading if it is capable of inducing error in that it conveys a misrepresentation. If the particular circumstances are such as to prevent misrepresentation then it does not matter that in other circumstances the result may have been different.[4]

[2]Butcher and Anor v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 (“Butcher”).

[3]Butcher, majority at 605, McHugh J at 627 and 629-630 and Kirby J at 647.

[4]Steutel v Kimple Pty Ltd [2005] VSCA 312 at [43].

Counsel for the respective parties seemed to me to equivocate somewhat in their characterisation of the representations made in the estimates document in relation to whether they are properly to be seen as representations as to the past or as to the future, or whether they are properly characterised in some other manner.

Similar uncertainty existed in Nella v Kingia Pty Ltd.[5] In that case French J was considering a claim for misleading and deceptive conduct, and various related claims, in relation to an “estimated trading results” document prepared by a hotel broker based upon material provided to him by a vendor and which was relied upon by a purchaser. As is also the situation here, the estimate in that case was based upon incomplete historic information obtained from the person who ran the business but was prepared by a person who had never run the business. As was also contended to be the case here, in that case it was contended that the current year accounts (which were also said not to have been available) would have alerted the person preparing the estimate to problems with the estimate.
[5]Unreported, Federal Court of Australia, French J, 2 December 1988; BC8803060 (“Nella”).

In relation to the issue of whether the representations were properly characterised as being as to the past or the future, French J made the following observation in that case, which seems to me to be pertinent also to this one:[6]

“There was some debate as to whether the document embodied an estimate of past or future trading performance. In my view, it presents as a statement about the performance capacity of the business based on historical Swan Brewery purchases and other estimates of revenue and expenditure related to recent actual performance. While there may be people who would read the document as a purely historical statement, that is not justified by its content. Nor could it reasonably be seen as a purely predictive statement, divorced from operational realities.”

French J went on to assess the document in that context addressing himself to the issue of whether the estimate bore a “reasonable relationship even as an estimate” to actual historic performance.

[6]Nella at [60].

Each case is of course to be determined on its own facts. The facts in Nella have similarities to the facts here but there are also significant differences. Nevertheless, French J’s approach to a similar problem seems to me to be of assistance.

The representations made here were as to both the past and the future. In this context the effect of s.51A, in so far as it is applicable, is substantially confined to the burden of proof. This is because in so far as the representations are as to the past, because they are estimates, they are to be assessed by reference to whether they are genuine estimates and whether there were reasonable grounds for them, in a manner substantially similar to that applicable to representations as to the future.

Relevant pleadings

The respects in which it is said by Quiet Achiever that the estimates document was misleading are set out in particulars under paragraph 7 of the amended statement of claim (“ASC”), in further particulars of that paragraph set out in further and better particulars dated 22 September 2005 (“FBP”), and in additional particulars delivered by leave late in the trial (“AP”).

Some of the matters so relied upon were revealed to be unfounded in the course of evidence in the trial and were not pursued in final submissions. These were:

●Allegations concerning the expenses estimate (ASC particulars and FBP para 4 (j)).
●An allegation there had been a failure to separate the figures for the accommodation from the figures for the other commercial aspects of the business conducted at the lodge (FBP para 4(c)).
●Allegations the percentage occupancy rates had been erroneously calculated on the data supplied and erroneously averaged (FBP paras 4 (e), (f), (g), (h), (i)).
●An allegation that breakfast revenue had been erroneously included in the calculation of accommodation income (FBP para 4(k) in part).

The matters which were relied upon were the following:

●The failure to disclose that the stated occupancy and income figures were based upon what are said to be incomplete and imprecise records (ASC particulars and FBP paras 4(a) and (b)).
●The inclusion in the average occupancy rate calculation of the 1999/2000 occupancy figure of 55%, which was a result of what is said to be extraordinary or abnormal demand due to construction of the airport over that summer, which is said to have “distorted” the average, and which, if used at all, it is said should have been disclosed (ASC particulars, FBP para 4(d) and AP para 5).
●The alleged adoption of an assumption that there was a direct proportional relationship between occupancy rates and gross income, which assumption it is said would or should have been revealed to be erroneous or unreliable had the defendants obtained the full 2002 year figures which were available to them (AP paras 5 – 12).
●The failure to deduct from the historic occupancy income amounts variously referred to as “payments to others” or “payments for others” (FBP para 4 (k) in part, and AP para 4).
●The asserted fact that the occupancy rates, income and returns “were and are” less than stated and that the suites have since operated at a loss (ASC particulars).
●The asserted undisclosed fact that gross income was declining over the prior three year period (AP para 13).

Relevant evidence – occupancy rates

The estimates document represented that the 45% occupancy rate was the “approx average” of “3 year actual historic occupancy.” In fact the calculation had been made on the basis of 2½ years’ figures. Treating the half year as if it were a full year, the average occupancy rate based upon the figures which Mr Hilberts and Mr Adams did have was 43.8%.

Additional material concerning occupancy produced in the course of the proceeding by Mr Geiger and Mr Pelley, and eventually tendered as Exhibit D10, together with the material upon which Mr Hilberts and Mr Adams had relied, indicates that the average occupancy rate for the three prior years, including the full year ended 30 June 2002, was 45.43%.

As matters transpired, no submission was made that the figures produced as to occupancy rates by Mr Pelley and Mr Geiger, in the management agreement considerations document of November 2002 and in the more detailed figures set out in Exhibit D10, were incorrect. In fact, Quiet Achiever relied upon the figures set out in those documents in asserting what it says was the “actual occupancy rate” for the three financial years ended 30 June 2000, 2001 and 2002 in its Additional Particulars (para 6).

Thus, the average occupancy rate specified in the estimates document for the three year period was approximately accurate.

The issue in relation to the inclusion of the 1999/2000 year in the calculation, without adjusting for, or disclosing, occupancy referable to construction of the airport, gives rise to the question whether that additional occupancy ought properly to have been considered abnormal or extraordinary.

The management agreement considerations document referred to the airport construction, and the summer demand for accommodation which occurred as a result, as constituting the explanation, or part of the explanation, for the drop in occupancy between the 1999/2000 year and the 2000/2001 year. In his witness statement Mr Geiger said that the strong summer that year was also referable to the absence of competition from a lodge named Crystal Creek which did compete the following year. He said he had also told Mr Hilberts or Mr Adams about that. The management agreement considerations document itself does not state that the demand as a result of construction of the airport was abnormal or extraordinary. It is also noteworthy that that document refers to other circumstances affecting occupancy in each particular year.

Exhibit D10 reveals there were high summer monthly occupancy rates in the 2001/2002 year compared to the winter occupancy rates for that year. This results in a position where the average monthly occupancy rate for the first half of that financial year (July 2001 to December 2001) is 39.2%, whereas for the second half of that year (January 2002 to June 2002) it is 48.5%.

One thing the material in evidence as to occupancy rates does reveal is that occupancy rates are widely variable.

Evidence was given before me by a chartered accountant engaged on behalf of the defendants, Mr David James Ferrier. Mr Ferrier is a director, Forensic and Valuations Group, at the accounting firm Pitcher Partners. He has been a chartered accountant since 1991. He produced a written report dated 9 August 2006, which was tendered as Exhibit D7, and gave extensive further oral evidence in which, amongst other things, he produced, and undertook in the witness box, various calculations referable to the gross income estimate and the occupancy rates.

Mr Ferrier was frank in expressing the view that given the significant fluctuations during the period under review it would have been “prudent” to provide to prospective purchasers additional information in relation to the occupancy rates for individual years. He also agreed that if he had been undertaking the exercise he would have attempted to explore the issue of the effect of circumstances such as the construction of the airport on the occupancy rates. He expressed the view, however, that one could not simply exclude the 1999/2000 year from the calculation or, if adjustments to the figures were to be made, make an adjustment only for the circumstance of the airport construction. He referred to the other circumstances affecting occupancy as referred to in the management agreement considerations document and to the unusual pattern in the 2001/2002 year as also requiring exploration and/or adjustment if one embarked on that course.

The witness before me with most experience of occupancy patterns at the High Plains Lodge was the secondnamed third party, Mr Geiger. The effect of his evidence was that circumstances which can lead to escalated demand for accommodation over summer are not abnormal or extraordinary. In that connection he referred to demand created by the High Country Festivals, building construction projects, and tourism promotions.

One further aspect of the evidence given by Mr Ferrier and Mr Geiger as to occupancy rates is important. Mr Ferrier said that occupancy rates appeared to be proportional to revenue when comparing seasons, but he agreed with a proposition put to him that the results showed they were not so related when comparing full years. Mr Geiger made the same point saying “occupancy rate is not naturally linked to income”. He observed that reductions in price can increase the occupancy rates without increasing income. The actual result for the full 2002 year well illustrates the point. Occupancy rates increased to 43.8% from 37.5% the year before but accommodation revenue declined from $278,297 to $274,890.

The suggestion in Mr Ferrier’s evidence was that this outcome in the 2002 year was referable to high occupancy rates in the low tariff summer period. This may well be correct, but the conclusion that, as Mr Geiger put it, occupancy is not “naturally linked” to income remains.

Relevant evidence – the gross letting income estimate

Mr Ferrier recalculated the gross income calculation as initially described in the first witness statement filed by Mr Hilberts and reached a lower, but not significantly different, figure ($18,511 compared to $18,553).

As to the revised calculation methodology described by Mr Hilberts in his supplementary witness statement, the matters which emerged from Mr Ferrier’s evidence were the following:

●The calculation is “highly dependent” on the figures for the 2000/2001 financial year.
●If it is assumed that full figures for the 2001/2002 year were not available then in Mr Ferrier’s opinion the “methodology applied is reasonable and has been applied consistently with the description provided”.
●The calculation does not make a deduction which should have been made in the income calculation for “payments to others”. “Payments to others” was an expense item for “packages” provided to guests and for the accommodation of guests in other lodges. It was not included as an expense item in the estimate because under the new management arrangement that practice would not continue. However, whereas Mr Hilberts and Mr Adams removed it as an expense item, they did not adjust the revenue to remove the amount referable to it which would have been paid by the guests to High Plains Lodge. The relevant facts had been set out for MDM in the management agreement considerations document which had been received by MDM in November 2002. This is a mistake which MDM’s officers, Mr Adams and Mr Hilberts, made. There was no real explanation given for it other than that it was a mistake made honestly. I have no reason not to accept that. Mr Ferrier calculated the effect of this mistake. If the proper allowance had been made, MDM’s calculation of revenue per 1% occupancy based on the 2000/2001 year would have been $388.28 not $412.29 and the gross letting income on the estimates document would have been $17,472 not $18,553.
●In Mr Ferrier’s view, allowance ought to have been made for CPI adjustments in relation to both certain of the expenses and the gross letting income. In this respect Mr Ferrier made an allowance based upon a 2.8% CPI increase between the year ended 30 June 2002 and the year ended 30 June 2003. The CPI adjustment which Mr Ferrier considers should have been made reduces the effect of the error as a result of the failure to exclude “payments to others” and increases the gross letting income calculation (assuming the calculation methodology in fact employed by MDM as set out in the supplementary witness statement of Mr Hilberts) to $17,962.03. On this basis the return estimated would have been 8.2% rather than 9%. Mr Ferrier also recalculated the return excluding his CPI adjustment, but still including allowance for removal of “payments to others”, at 7.8%.
●The methodology which Mr Ferrier said he would have employed had three full years of figures been available to him was that he would have averaged the three years’ income rather than simply relying on the 2000/2001 year. Mr Ferrier also produced a calculation of the outcome on this basis, which results in a return estimate of 7.3%. Mr Hilberts in his evidence said that if he had had the full three years of figures he would also have adopted this approach. Mr Ferrier said that if it were assumed that only 2½ years of figures was available, then he would have used the 2000/2001 year as a base, as MDM did.
●The calculation resulting in the estimated return of 7.3% still employed the methodology of dividing income by the occupancy rate so as to arrive at a figure for income per 1% occupancy and then multiplying by 45 (the average occupancy rate). In the witness box, Mr Ferrier undertook a calculation whereby the average figures for the three years were used without any scaling by reference to occupancy rates which resulted in an estimated return of 6.9% if no CPI adjustment was made and 7.2% if a CPI adjustment was made.

Quiet Achiever’s counsel produced a series of alternative calculations which were tendered as Exhibits P7 and P8. Mr Ferrier accepted the accuracy of the calculations, without accepting the validity of the assumptions which lay beneath them. These calculations reveal that:

●Using the MDM methodology, whereby the year’s gross income is divided by the occupancy rate so as to identify a rate per 1%, and deducting Mr Ferrier’s allowance for “payments to others”, the income per 1% occupancy for the three financial years was: 1999/2000 $362.28, 2000/2001 $388.28, 2001/2002 $305.93. In other words, the year MDM used as the base year produces the highest income per 1% occupancy.
●As to estimated returns, using expenses calculated in accordance with the estimates document, and income estimated in the manner employed by MDM for each of the three years (scaling to 1% and multiply by 45), the results are: 1999/2000 6.81%, 2000/2001 7.97%, 2001/2002 4.31% and the 3 year average is 6.36%. If expenses are calculated in accordance with the estimates document and the actual income for each year is employed, the results are: 1999/2000 10.39%, 2000/2001 5.09%, 2001/2002 3.95%, and the 3 year average is 6.48%. Mr Ferrier indicated that in his view these return calculations were not analysing “like with like” in that the income figures are separately referable to each year whilst the expense figure is a reconstructed figure based on one year.

Mr Ferrier rejected the suggestion that a review of the three years’ actual figures leads to a conclusion that revenue was declining. His view was that the figures were not adequate to support a conclusion as to any discernable trend.

As indicated earlier, Mr Ferrier expressed the view that the circumstance that higher average occupancy for the 2001/2002 year had not resulted in higher gross revenue appeared to be referable to the fact that occupancy was high in the summer months when tariffs were lower. He said he had calculated that this consideration could lead to a difference of between $40 and $50 per 1% occupancy. I observe that such an allowance in the 2001/2002 year would result in income per 1% occupancy not far below that for the 1999/2000 year.

Finally, Mr Ferrier made calculations based upon doubling the half year 2001/2002 figures which Mr Hilberts and Mr Adams did have. For the 2001/2002 extrapolated year on that basis, and making allowance for “payments to others”, Mr Ferrier calculated a return using MDM’s methodology of 7.4%. If the extrapolated year was averaged with the actual results for the two prior years using MDM’s methodology the outcome was 7.7% if no allowance was made for CPI, and 8.1% if allowance was made for CPI.

Some evidence was led as to the returns which have in fact been achieved on the suites. That evidence was that the returns are well below the 9% in the estimates document, and below any of the other estimates, including the most pessimistic. Consideration of the reasons for actual performance after Quiet Achiever’s acquisition will involve issues not addressed in the evidence before me.

The above may be tabulated as follows:

Comparison of Return Calculations

SOURCE METHOD RESULT

Estimates document
Income for 2000/2001 year divided by occupancy rate of 37.5% = income per 1% x average 3 year occupancy rate (45)
9%

Ferrier preferred method if 2½ years financial statements available
Estimates document calculation, adjusted for “payments to others”:
With CPI adjustment =
Without CPI adjustment =

8.2%
7.8%

Adjustment for “payments to others” is made in all calculations below

Ferrier Average of 2 years and extrapolated 2001/2002 (without scaling to 1% and multiplying by average occupancy):
With CPI adjustment =
Without CPI adjustment =
8.1%
7.7%

Ferrier preferred method if 3 years financial statements available
Income averaged over 3 years, otherwise as per estimates document with CPI adjustment
7.3%

Ferrier
Average over 3 years, (without scaling to 1% and multiplying by average occupancy):
With CPI adjustment =
Without CPI adjustment =

7.2%
6.9%

Quiet Achiever
Income calculated as per estimates document but for each of the 3 years, with expenses as per the estimates document, then returns averaged
6.36%
Issues of source and disclaimer

The defendants cross-examined the officers of Quiet Achiever so as to have them acknowledge that they knew that as MDM had only just acquired the lodge any actual historic data passed to them must have been sourced from the prior owner, ACN. Reference was also made in the defendants’ final submissions to the fact that Quiet Achiever “knew that the ACN company, Geiger and Pelley must be the source of any historical data underpinning used in creating the estimates”.

In so far as it was submitted that this is a case of the kind dealt with in Butcher, that submission is untenable for two reasons. First, it cannot be maintained in relation to the estimates document that MDM merely passed on information without endorsement. MDM adopted and endorsed the information, in so far as it was sourced from ACN. Secondly, and more fundamentally, as matters have transpired there is no issue as to the correctness of the information provided by ACN (although in one respect there is an issue as to its completeness). The issue is the way MDM presented that information and the way it analysed it. These aspects of the matter concern MDM alone.

The defendants also rely on the narration at the bottom of the estimates document as being part of the conduct which must be assessed when considering whether what occurred was misleading and deceptive. I accept that that narration relevantly informs the reader of these matters:

●the occupancy rate is important to the estimate of income (and Quiet Achiever’s officers all interpreted it that way);

●         the occupancy rate of 45% is based upon 3 years of actual historic figures;
●         the occupancy rate is an average;
●         the occupancy rate is approximate;
●         care has been taken in preparing the estimates;
●         the estimates are intended as a guide;
●         the estimates are only a guide;
●         there is no guarantee the estimates will be realised.

I have already taken these matters into account when determining what representations were made. They also need to be considered when deciding whether the conduct was misleading and deceptive.

Assessment of the conduct

The factors relevant to the assessment of whether the conduct in this case was misleading or deceptive appear to me to be the following:

1.The representation as to income and consequently return was a representation of an estimate which the reader was told was only a guide and not guaranteed.
2.The estimates document stated, or clearly implied, that the 45% average was based on three years’ actual historic occupancy figures. This was not true. Two and a half years’ figures had been used. The figure specified, being an approximate average of 45%, was an accurate approximate average of the three years, however.
3.The income estimate was too high because of an error by MDM. It omitted to make allowance for “payments to others”. This was careless.
4.An important aspect of the recent actual historic performance of the lodge was the wide variability in occupancy rates. Mr Hilberts and Mr Adams were aware of this issue. They attempted to address it in the glossy brochure by the table and the graph purporting to show the effect of occupancy rates ranging from 30% to 60%. As they each observed in their oral evidence, this gave people who read the glossy brochure information referable to occupancy rates below the lowest year of actual figures in their possession and above the highest year. Quiet Achiever was not given this information. Quiet Achiever was only given the calculation based upon a 45% occupancy rate, which Mr Hilberts in his evidence described as an “example”. Mr Ferrier indicated that the occupancy history meant that in his view it would have been “prudent” to set out information as to the occupancy rates in particular years. The estimates document did not reflect the wide variability in historic occupancy rates.
5.There was an assumption made by Mr Hilberts and Mr Adams, in both the estimates document and in the glossy brochure, that there was a direct correlation between occupancy rates and accommodation income. The full 2002 financial statement, which they did not have, would have revealed to them that that assumption was not well founded. I accept their evidence that they believed that the full year financial statements for the year ended 30 June 2002 were not available. Nevertheless, they knew that the estimates document given to Quiet Achiever in June 2003 was based upon full year financial statements which were at least two years old. The estimates document, particularly in its reference to three years’ “actual historic” data for occupancy rates, gave no indication of what was, by June 2003, a potentially significant deficiency in the completeness of the financial statements which MDM and Messrs Hilberts and Adams were relying upon. Leaving aside the issue of what might have been revealed by the financial statements for the full 2001/2002 year, the manager of the lodge, Mr Geiger, was of the view that there is no direct, or to use his word “natural”, relationship between occupancy rates and accommodation income. There is no indication in the evidence that Mr Geiger told Mr Hilberts or Mr Adams of his view on this issue, nor is there any indication they checked this fundamental assumption with Mr Geiger.
6.The calculation undertaken of income in the estimates document placed a very high reliance on figures for the 2000/2001 year. Reliance on that financial statement may have been reasonable given the information provided to Mr Hilberts and Mr Adams, but it had the consequence that their calculation produced the highest possible outcome for income per 1% of occupancy using the data which they then held. The estimates document does not reveal the high reliance which had been placed on the financial statement for the 2000/2001 year.
7.I accept that MDM’s methodology was reasonable upon the assumption that only 2½ years’ financial statements were available, as Mr Ferrier indicated. The fact that their approach and methodology was reasonable in their particular circumstances does not mean that the way they presented the outcome of their approach and methodology, without revealing those particular circumstances or the process by which it had been arrived at, was not misleading.
8.The inclusion of the 1999/2000 year in the average occupancy rate calculation was not misleading in my view because of the circumstance that the airport was constructed over that summer. The construction of the airport was a unique event in itself, but Mr Geiger’s evidence is that circumstances which might have a significant impact on occupancy rates are not uncommon in this environment. There is no evidence to the contrary. I also accept Mr Ferrier’s evidence that one could not properly adjust for this one factor without similarly adjusting for the other factors affecting occupancy rates of which MDM had also been informed. The matter which did need to be addressed, and which MDM and Messrs Hilberts and Adams did seek to address in the glossy brochure, was the widely variable range of annual occupancy rates.
9.The estimates document had not been prepared with care in some respects. The reference to three years’ actual historic occupancy, suggesting as it did that three years of actual figures were held, was untrue. The failure to make allowance for “payments to others” was careless. The assumption of a direct correlation between occupancy rates and accommodation income, when only 2½ years of financial statements were held, and when the current manager of the lodge considered that assumption to be ill founded, was also careless in the circumstances in my view.
10.The oral representation made to Mr Harrod by Mr Moore that the return was 7-9% is not to be ignored. It may have particular significance in the causation enquiry when coupled with the evidence given by Quiet Achiever’s officers as to the range of acceptable or “agreeable” returns. In my view it does not significantly alter the analysis of the content or nature of the representations made in the much more detailed, and apparently more considered, estimates document.
11.An estimate analysis which eliminated the error as to “payments to others” would have produced an outcome in the range of 6.36% to 8.2% depending upon the methodology and assumptions adopted. On the evidence before me, the best estimate on all of the available material would have been around 7%. I base this latter conclusion on Mr Ferrier’s calculations resulting in returns of 6.9%, 7.2% and 7.3% set out in the comparison table.
12.The issue of whether the additional information in the glossy brochure sufficiently addressed all or any of the shortcomings I have referred to is not one I need to determine, and was not the subject of any submissions or evidence directed to that question.

In the end, it seems to me that the critical considerations are these:

1.The document was not prepared with care in respects which were important.
2.The document failed to reveal the assumption made as to a direct correlation between annual occupancy rates and gross accommodation income. This assumption should have been revealed particularly given that complete and up to date figures were not held.
3.The document failed to reveal the heavy reliance placed on an old financial statement, and the fact that that reliance, combined with the method of income calculation adopted, produced the highest income estimate justifiable on the data held.
4.The document failed to give any indication of the widely variable annual occupancy rate history.
5.The document arrived at an outcome, 9% return, which was outside the range that a careful analysis would have produced, 6.36% - 8.2%.

My conclusion is that the income and return estimates given to Quiet Achiever were misleading and deceptive. The income estimate and the return estimate as represented did not bear a reasonable relationship as estimates to actual historic performance. The particular representations pleaded, and which I have found were made, which were misleading were the representation that the figures had been prepared with care (ASC 5(a)), the representation the estimates document presented a fair assessment of income (ASC 5(b)), and the representation that MDM had reasonable grounds for the income and return estimates (ASC 5(h)).

Section 51A

The estimates document made representations as to both the past and the future. However, as French J observed in Nella, whilst the content of the document indicates it is not a purely historic statement, it is possible that people might read it that way. The evidence given on this matter by the officers of Quiet Achiever was that they did read it that way.

In the circumstances, accepting the evidence of the officers of Quiet Achiever on this point, s.51A is not applicable.

My analysis of the position would not alter if s.51A was applicable. For the reasons previously given MDM has failed to establish that it had reasonable grounds for making the representations as to estimated gross letting income and estimated return.

Section 53A

In final submissions counsel for Quiet Achiever submitted that the claim under s.53A of the Trade Practices Act “adds nothing” to the s.52 claim, and that if the s.52 were to fail nothing in s.53A could improve Quiet Achiever’s position. In those circumstances I will not consider s.53A further.

Liability of Mr Hilberts personally

Brief written submissions were made by Quiet Achiever’s counsel on the claims made against Mr Hilberts personally. They were referred to but not amplified in final oral submissions.

A claim was made against Mr Hilberts that he had acted fraudulently. This allegation was abandoned during the trial. In view of the nature of that allegation it is important that I make it clear that there is no justification for it in the evidence and if it had not been abandoned I would have rejected it without hesitation.

A claim was made against Mr Hilberts that he was knowingly concerned in contraventions of the Trade Practices Act by MDM. Reliance was placed on s.75B(1)(c). The evidence does not establish the kind of personal knowledge of the facts giving rise to the contravention as is necessary to establish liability under this provision.[7] Mr Hilberts knew only 2½ years’ occupancy figures were held, but otherwise he did not have the requisite kind of personal knowledge of the facts by virtue of which I have concluded that the estimates were misleading.
[7]Yorke v Lucas (1985) 158 CLR 661 at 666-669.

As to Quiet Achiever’s claim that Mr Hilberts’s own conduct contravened the Fair Trading Act, the evidence fails to establish that claim. Mr Hilberts was not the only person involved in the relevant conduct by MDM. Mr Adams also had a role in preparing the estimates. MDM’s estate agent forwarded the estimates document (without the graph and the table) to Quiet Achiever. Everything Mr Hilberts did was done in his capacity as an officer of MDM. The evidence does not establish discrete conduct by him personally which was itself misleading or deceptive or likely to mislead or deceive in contravention of the relevant provisions of the Fair Trading Act.

Finally, it was alleged that Mr Hilberts was personally liable for negligent misstatement. The issue of whether the circumstances give rise to a duty of care owed by a director as an individual addressed in Williams v Natural Life Health Foods Limited,[8] and referred to in Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd & Ors[9] and Interchase Corporation Limited (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No. 3)[10] was not addressed before me. In my view the evidence does not establish circumstances by virtue of which Mr Hilberts personally owed a duty of care to Quiet Achiever.
[8][1998] 1 WLR 830 at 837-839; [1998] 2 All ER 577 at 585-586.
[9](2003) 9 VR 171 at 215-219.
[10][2003] 1 QdR 26 at [9] and [77].

Negligence by MDM

The claim in negligence against MDM is probably superfluous, given my findings in relation to the misleading and deceptive conduct claims. In case that is not so, I find that MDM did owe a duty of care to Quiet Achiever and that it was negligent in making the representations contained in the estimates document for the reasons I have set out in some detail in relation to the misleading and deceptive conduct claims. Thus, I find that a duty has been established and that the duty was breached. The issue of whether any loss was caused is a matter which is deferred.

Reliance and causation

The allegation in paragraph 6 of the amended statement of claim that Quiet Achiever purchased the six suites acting in reliance on the representations alleged is established by the evidence in the sense that the estimates document was relied upon by Quiet Achiever’s officers in the decision they made to proceed. Otherwise, issues of causation have been deferred.

The case put to some extent, or foreshadowed, by MDM on the hearing before me was that if accurate estimates had been provided Quiet Achiever would have gone ahead anyway. That issue is to be addressed in a further hearing.

The third party claims

The claims against the first to third third parties are, with one exception, based on the proposition that representations were made to MDM by these third parties which replicate the representations MDM in turn made to Quiet Achiever. The claims made on this basis fail because the representations as so alleged were simply not made by the third parties. As it emerged in the evidence, the information which the third parties gave to MDM was accurate. The misleading aspects of the representations in turn made by MDM to Quiet Achiever concerned the manner in which that information was analysed and presented.

The aspect of the claim against the third parties which does not fall within the above analysis concerns amendments made as a consequence of additional particulars provided by Quiet Achiever late in the trial. In this respect MDM alleges that ACN represented to MDM and Mr Hilberts that “no occupancy data or profit and loss statement covering the full year ended 30 June 2002 was available”. The particulars of this representation are very broad, referring to “numerous discussions” between June 2002 and June 2003. The conduct of the third parties in failing to provide the full year profit and loss statement for the year ended 30 June 2002 is also relied upon. It is then alleged that if Quiet Achiever establishes misleading conduct by MDM or Mr Hilberts, then ACN had engaged in misleading or deceptive conduct by virtue of, amongst other things, its failure to provide the full year profit and loss statement after 7 October 2002 when it was in its possession and by stating in about October or November 2002 that financial statements other than those earlier provided for 2½ years were not available. It is then alleged that Mr Geiger and Mr Pelley are liable as accessories. It is also alleged that the three third parties are liable for negligent misstatement.

I have already found that the evidence does not establish that Mr Pelley, or Mr Geiger, told Mr Hilberts or anyone else from MDM in October or November 2002 after the full year financial statements for the year ended 30 June 2002 had become available that those statements were not available. The aspect of the claim founded upon what is alleged to be Mr Pelley or Mr Geiger’s express statements accordingly fails.

As to ACN’s conduct concerning the full year 30 June 2002 financial statement, it has been established that Mr Pelley had the full year financial statement on 7 October 2002. It has also been established that that full year financial statement was not passed on to MDM. I have found that Mr Pelley was not specifically asked for it after the time when it was available to him. I have found that if he had been specifically asked for it, he would have provided it. What Mr Pelley did do, however, was to provide occupancy figures specifically referable to 2½ years’ financial statements in November 2002, thereby indicating that he knew then that that was all MDM had been given. Why he did not pass on the full year financial statement is, he agreed, “inexplicable”. He might be criticised for being obtuse or unco-operative or even secretive, but is it misleading and deceptive conduct? I do not think so. According to the evidence before me everything Mr Pelley told MDM was accurate. The fact that he could have done more, and that perhaps if he had done more the circumstances which led to MDM misleading Quiet Achiever might not have occurred, does not mean that ACN is guilty of misleading and deceptive conduct.

The claims made against the third parties fail as no relevant misleading and deceptive conduct, or negligent misstatement, by them has been established.

Conclusions

My conclusions accordingly are:

1. MDM engaged in conduct which was misleading and deceptive in contravention of s.52 of the Trade Practices Act.

2. MDM breached a duty of care it owed Quiet Achiever.

3. The claims against Mr Hilberts fail.

4. The claims against the first to third third parties fail.

I will hear the parties on the orders to be made at this stage consequent upon these conclusions.

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SOURCE	METHOD	RESULT
Estimates document	Income for 2000/2001 year divided by occupancy rate of 37.5% = income per 1% x average 3 year occupancy rate (45)	9%
Ferrier preferred method if 2½ years financial statements available	Estimates document calculation, adjusted for “payments to others”: With CPI adjustment = Without CPI adjustment =	8.2% 7.8%
Adjustment for “payments to others” is made in all calculations below
Ferrier	Average of 2 years and extrapolated 2001/2002 (without scaling to 1% and multiplying by average occupancy): With CPI adjustment = Without CPI adjustment =	8.1% 7.7%
Ferrier preferred method if 3 years financial statements available	Income averaged over 3 years, otherwise as per estimates document with CPI adjustment	7.3%
Ferrier	Average over 3 years, (without scaling to 1% and multiplying by average occupancy): With CPI adjustment = Without CPI adjustment =	7.2% 6.9%
Quiet Achiever	Income calculated as per estimates document but for each of the 3 years, with expenses as per the estimates document, then returns averaged	6.36%

[2006] VSC 365

10 October 2006