Rohesa Nominees Pty Ltd v Rossett Pty Ltd

[2004] FMCA 565

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ROHESA NOMINEES PTY LTD & ORS v ROSSETT PTY LTD & ORS [2004] FMCA 565

TRADE PRACTICES – Misleading and deceptive conduct in relation to the sale of land – agency – whether contract for sale of land duly executed by authorised officer of vendor company – whether agent acting within authority – whether agent liable for representations – silence as to financial circumstances of tenant – whether silence constitutes misleading and deceptive conduct – rescission notices – whether valid – liability of directors.

Sale of Land Act 1963 (Vic), s.32,
Trade Practices Act 1974, ss.51AA, 52, 53A, 75B
Transfer of Land Act 1958 (Vic)
Wrongs Act 1958 (Vic)
Corporations Act 2001, ss.126, 126(1), 128, 129
Instruments Act 1958, s.126

Holme v Brunskill (1877) 3 QBD 495
Dunlop New Zealand v Dumbleton (1968) NZLR 1092
Central Pacific (Campus) Pty Ltd & Anor v Staged Developments Australia Pty Ltd (1998) V ConvR 54-575 (28 November 1997)
Walters v Cooper (1967) VR 583
Bot v Ristevski (1981) VR 120
Demagogue v Ramensky (1992) 110 ALR 608
Leda Holdings Pty Ltd v O'Raka Pty Ltd (1997) 1385 FCA (9 December 1997)
Rhone-Poulenc Agrochimie SA & Anor v UIM Chemical Services Pty Ltd & Anor (1986) 68 ALR 77
Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd & Anor (1998) 155 ALR 714
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480
Entwells Pty Ltd v National and General Insurance Co Ltd 5 ACSR 424
Smith v Henniker‑Major & Co (2001) EWCA Civ 762
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146
Hughes v NM Superannuation Fund Pty Ltd (1993) 11 ACLC 923
Re Alcoota Land Claim No 146 (1998) 82 FCR 391
Mullens v Miller (1882) 22 ChD 194
Lombok v Supetina (1987) 71 ALR 332
McRae & Another v Bolaro Pty Ltd (2000) VSCA 72 (5 May 2000)

Applicants: ROHESA NOMINEES PTY LTD
(ACN 004 950 341), BRATSLAV PTY LTD (ACN 005 369 451) and R.G.P. NOMINEES PTY LTD (ACN 005 164 269)

Respondents: ROSSETT PTY LTD (ACN 005 624 288), ANDREW RONALD COOK, GREGORY DAVID COOK, ELIZABETH LESLEY FUREY, JEANETTE ANN COOK, DOROTHY EVA COOK and RONALD GEORGE COOK

Cross-claimant: ROSSETT PTY LTD (ACN 005 624 288)

Eighth Respondent and Cross-respondent: CVA PROPERTY CONSULTANTS LTD (ACN 064 086 960)

File No: MLG 466 of 2002

Delivered on: 6 September 2004

Delivered at: Melbourne

Hearing Dates: 17, 18, 19, 20 and 21 March 2003

Date of last submission: 9 April 2003

Judgment of: McInnis FM

REPRESENTATION

Counsel for the Applicants: Mr Tatarka

Solicitors for the Applicants: Rockman & Rockman

Counsel for the Respondents and Cross-claimant: Mr Moore

Solicitors for the Respondents and Cross-claimant: McNab McNab & Starke

Counsel for the Eighth Respondent and Cross-Respondent: Mr Dixon

Solicitors for the Eighth Respondent and Cross-Respondent: Connery & Partners

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 466 of 2002

ROHESA NOMINEES PTY LTD (ACN 004 950 341), BRATSLAV PTY LTD (ACN 005 369 451) and R.G.P. NOMINEES PTY LTD (ACN 005 164 269)

Applicants

and

ROSSETT PTY LTD (ACN 005 624 288), ANDREW RONALD COOK, GREGORY DAVID COOK, ELIZABETH LESLEY FUREY, JEANETTE ANN COOK, DOROTHY EVA COOK and RONALD GEORGE COOK

Respondents

and

ROSSETT PTY LTD (ACN 005 624 288)

Cross-claimant

and

CVA PROPERTY CONSULTANTS PTY LTD (ACN 064 086 960)

Eighth Respondent and Cross-respondent

REASONS FOR JUDGMENT

1. In this application Rohesa Nominees Pty Ltd, Bratslav Pty Ltd and RGP Nominees Pty Ltd (the Purchasers) by an application filed 15 May 2002 seek damages against the respondents for alleged contravention of s.52 of the Trade Practices Act and other remedies arising out of a contract for the purchase of a property.

2. Joseph Heimlich (Heimlich) had signed a contract note on 19 October 2001 purportedly for and on behalf of the Purchasers as tenants in common of a property known as 81-91 High Street, Preston ("the property").  The vendor of the property was Rossett Pty Ltd (the Vendor).  The purchase price was $1,225,000 and a deposit of $100,000 was paid by the Purchasers.

3. At all material times the second, third, fourth, fifth, sixth and seventh respondents were directors of the first respondent (the directors).

4. It is the Purchasers' claim that the property had been offered for sale subject to a lease to Fairmark Pty Ltd (the tenant).

5. It is claimed that at all times the Vendor knew that the property was being acquired by the Purchasers as a property investment and that the Purchasers would have close regard to the rental yield and value and security of the lease covenant in resolving to enter into the contract to purchase the property.

6. The Purchasers made a number of amendments to the statement of claim.  Indeed, the original application filed 15 May 2002 referred to seven respondents.  Ultimately, reliance was placed upon a "further amended statement of claim" which was filed pursuant to leave granted by the court on the first day of the hearing of this matter, namely, 17 March 2003.  It is noted, however, that in the response filed for and on behalf of the first seven respondents a cross-claim was raised by the Vendor against CVA Property Consultants Pty Ltd (the agent).  The Vendor in its cross-claim alleged that the agent had acted pursuant to a retainer as agent for the Vendor in the sale of the property.  The Vendor sought against the agent indemnity against any judgment which may be obtained by the Purchasers and/or a declaration for an entitlement to contribution from the agent to the Vendor.

7. The Purchasers by leave granted on 21 November 2002 joined the agent as an eighth respondent to the proceedings.

8. As indicated, the Purchasers ultimately relied upon the "further amended statement of claim" filed in court on the first day of the hearing.  In that statement of claim after reciting the details concerning the parties and that the agent had a duty to ensure that advice given to the other respondents was true and accurate and in breach of that duty failed to do so by reason of which it was alleged that the agent was liable to pay the loss and damage suffered by the Purchasers.  It is appropriate to set out the separate claims against the respondents as pleaded by the Purchasers.

The Claim against the Vendor

1. Reliance is placed upon the contract and, as indicated earlier, the Purchasers allege that at all material times the property was subject to the lease to Fairmark.  Further, the claim against the Vendor is based upon the Vendor knowing that the property was being acquired as a property investment and that rental yield was a matter of importance to the Purchasers in resolving to enter into the contract to purchase the property.  The representations alleged against the Vendor are stated to be the following:

   1.The tenant was a secure tenant. 

   2.The tenant had a good business which had a 'niche' market.

   3.The tenant was a long-established clothing manufacturer.

   4.The tenant's obligations under the lease were guaranteed by three directors of the tenant.

2. Representations numbered 1 and 2 are claimed to be oral and made by Vincenzo Lozupone (Lozupone) of the Agent to Heimlich.  Representation 3 was claimed to be in writing contained in a brochure forwarded by Lozupone to Heimlich.  Representation 4 was claimed to be in writing contained in guarantees incorporated in the lease and an unsigned variation of the lease annexed to the vendor's statement provided pursuant to s.32 of the Sale of Land Act 1963 (Vic).

3. It was claimed that at the time of making the representations the Vendor intended or knew or ought to have known that the Purchasers would rely upon the truth and accuracy of the representations and would be induced to enter into the contract.  The Purchasers claim the Vendor owed them a duty of care in making the representations, and, acting on the faith on the representations, Heimlich, on behalf of the Purchasers, was induced to enter into the contract on behalf of the Purchasers. 

4. The Purchasers claim that the Vendor was negligent and breached the duty in that the representations were false and untrue.  In brief terms, the claim is that the tenant was not a secure tenant and did not operate a good business.  Further, it is claimed that the tenant was not established but rather was then suffering from severe cash flow problems and was described to be in "dire financial circumstances".  Those circumstances of the tenant, it was claimed, were known to the Vendor. 

5. Specifically, it was alleged that the tenant had entered into an external administration on or about 21 December 2001. Further, one of the guarantors of the tenant, namely, Reginald Simons, had failed, refused or neglected to execute a variation of the lease and that failure rendered or was susceptible to rendering the guarantee unenforceable against any of the guarantors, thereby severely and detrimentally compromising the security of the property as a secure investment. The representations were otherwise relied upon as a breach of ss.52 and/or 53A of the Trade Practices Act. Section 52 relates to misleading and deceptive conduct generally and reliance was placed upon s.53A which relates to false representations and other misleading or offensive conduct in relation to land.

6. The Purchasers then claim an entitlement to recover a deposit of $100,000 paid by them to the Vendor.  They further claim that on or about 4 February 2002 they were lawfully entitled to avoid and/or discharge the contract and demand return of the said deposit.

7. It is not in dispute that the contract was signed by the seventh respondent purportedly for and on behalf of the Vendor.  Arising out of that signature the Purchasers further claimed that the seventh respondent signed the contract without any authority to bind the Vendor.  That claim was based upon an alleged absence of any authority of the co-directors of the Vendor, there being no meeting or resolution of the board of directors or shareholders of the Vendor to appoint the seventh respondent as agent for the Vendor for the purpose of entering into the contract, or resolution of the board of directors or shareholders allowing the Vendor to enter into the contract.  Further, no discussion, meeting, consideration or resolution by the board of directors or shareholders of the Vendor to ratify or adopt the seventh respondent's act in signing the contract.  It was claimed that the contract was never of any lawful effect and was insufficient to bind the Purchasers to purchase the property.

8. The claimed lack of authority of the seventh respondent to bind the Vendor was further relied upon by the Purchasers as a basis for alleging that the $100,000 deposit was paid under a mistake of fact.

9. The Purchasers note that two rescission notices were purportedly given by the Vendor.

10. It was claimed that by written notice given to each of the Purchasers and to Heimlich on or about 13 February 2002 the Vendor purported to give notice of its intention to rescind the contract ("the first rescission notice").  The Purchasers refer to a written notice given on or about 16 April 2002 whereby the Vendor purported to give notice of its intention to rescind the contract unless the Purchasers paid the balance of the purchase price due thereunder ("the second rescission notice").

11. It was claimed that the first rescission notice was void and of no effect and did not comply with the provisions of Condition 5 of Table A of the Seventh Schedule of the Transfer of Land Act 1958 (Vic) on the basis that it failed to specify any default on the part of the Purchasers and wrongly stated the due date for settlement as 19 December 2001 when the parties had agreed to an extension of time for completion of the contract to 9 January 2002.

12. It was claimed therefore that the Vendor wrongfully treated the contract as having been effectively rescinded by the expiration of a 14‑day period from the date of service of the first rescission notice and wrongfully treated the deposit as forfeited. It was alleged that the contract was rescinded by agreement of the parties at a date no later than 21 March 2002 and that the Purchasers' deposit was not forfeited by operation of the provisions of Table A of the Seventh Schedule of the Transfer of Land Act. Particulars relied upon in support of that allegation were that there was an agreement to be inferred by the conduct of the parties, and reference was made to correspondence from the Purchasers' solicitors to the Vendor's solicitors dated 4 February 2002.

13. It was further alleged the Vendor treated the contract as being at an end by no later than 21 March 2002 by reason of the purported first rescission notice and by reason of the Vendor's decision to sell the property to a third party, namely Properties Corp of the Churches of Christ, by a contract in writing dated 2 April 2002.

14. The Purchasers claim the second rescission notice was void and of no effect on the basis that at the time the second rescission notice was given, which itself was backdated to 13 February 2002, the contract had been discharged by agreement.  In relation to the second rescission notice, the Purchasers claim that the Vendor had represented that the contract was then valid and subsisting. 

15. That representation was claimed to be false and untrue on the basis that the contract could not have then been valid and subsisting because the Vendor had already on 2 April 2002 sold the property to a third party.  By selling the property to a third party it was claimed the Vendor acknowledged or accepted that the Purchasers' invalidly voided the contract and/or that the contract was thereby discharged by agreement.  Again, it was argued the Vendor was obliged to restore the deposit to the Purchasers as moneys had and received to the Purchasers' use.

16. It was further claimed by the Purchasers in the alternative that the Vendor had purported to rescind the contract and forfeit the deposit under General Condition 6(2) of the Seventh Schedule of the Transfer of Land Act. It was claimed that if the contract was valid and subsisting immediately prior to the Vendor's purported rescission and forfeiture of the deposit, then the general condition is void as a penalty (it not being a genuine pre-estimate of the Vendor's loss and damage and the Vendor, in any event, having resold the property at a profit of $100,000). It was claimed that by selling the property to the third party the Vendor evinced an intention that it was no longer bound by the contract and thereby repudiated the contract.

17. The Purchasers asserted that they did not know of the said sale to the third party prior to discovery in the proceedings, but otherwise accepted the repudiation which, it was argued, means the contract stands discharged as a result of the Vendor's breach. Accordingly, it was pleaded that the Vendor was not at any material time entitled to forfeit the deposit under General Condition 6(2) of the Seventh Schedule of the Transfer of Land Act and is not obliged to restore the same to the Purchasers.

18. As an alternative, if it was to be held that the seventh respondent but not the Vendor was party to the contract, then the seventh respondent was obliged to restore the deposit money to the Purchasers as moneys had and received by the Vendor to the Purchasers' use, with such sum having been paid at the seventh respondent's direction.

Claims against First to Seventh Respondents

1. Against all the respondents it was claimed that they all knew that the tenant was experiencing cash flow difficulties of such a severity as to threaten its survival.  In the particulars subjoined to that pleading the following material was relied upon by the Purchasers:

   27.1   In a conversation on or about 25 September 2001 Mr Tuan on behalf of the tenant requested of the seventh respondent on behalf of the first respondent a decrease in rent citing the decimation of the clothing trade, that the tenant was then going through the most dangerous period of its 33 years of existence and that the reduction of the tenant's outgoing commitments was necessary to ensure its survival.

   27.2   Tuan on behalf of the tenant wrote a letter to similar effect to the first respondent dated 25 September 2001 which was delivered to the seventh respondent.

   27.3   The first to seventh respondents considered the request made in both the conversation and in the letter in deciding whether a reduction in rental should be granted to the tenant.

   27.4   The reduction was duly granted and a deed of variation of lease was entered into between the first respondent and the tenant (the sixth and seventh respondents attesting to the affixation of the first respondent’s seal).

   27.5   The first to seventh respondents had regard to the said request for a reduction in rental and to the tenant's dire financial circumstances in considering whether to sell the property.

   27.6   A decision to sell the property was duly made and the property was subsequently sold.

2. It was further pleaded by the Purchasers that the first to seventh respondents had concealed from the agent the tenant's financial circumstances.  It was claimed that the first to seventh respondents knew that the tenant was experiencing cash flow difficulties of such severity as to threaten its survival.  Knowing that the agent in offering a property for sale with a sitting tenant and without vacant possession would receive inquiries as to the applicable rental yield and nature and security of the tenant, it was claimed by the Purchasers that by permitting the agent to make representations concerning the tenant without reference to the dire financial circumstances of the tenant, that the first to seventh respondents were recklessly indifferent or not caring as to whether or not such representations were true and accurate.

3. On the basis of that material it is claimed the first to seventh respondents had engaged in unconscionable conduct towards the Purchasers within the meaning of s.51AA of the Trade Practices Act or had otherwise engaged in conduct in contravention of ss.52 and 53A of the Trade Practices Act.

4. As against the second, third, fourth, fifth, sixth and seventh respondents, reliance was placed upon s.75B of the Trade Practices Act as it was alleged that each of those respondents had aided, abetted, counselled or procured contraventions or were directly or indirectly knowingly concerned in or party to the contraventions.

Claim against the Agent

1. The claim against the Agent was based upon a duty alleged to be owed to the Purchasers to give true and accurate advice as selling agent for the vendor of the property.  Otherwise, reliance was placed upon the circumstances of the tenant and the matters referred to earlier in this judgment.

The Purchasers loss and damage

1. The Purchasers claimed loss and damage including loss inherent in acquiring an investment property on the strength of an expected rental yield which could not eventuate due to dire financial circumstances of the sitting tenant, the loss of the deposit of $100,000, together with legal costs incurred in avoiding the contract and maintaining the proceedings for recovery of the deposit. The loss and damage included further a sum equivalent to rental which would have been paid by the tenant for the duration of the lease. Declarations were sought consistent with the claims against the respondents, and further, declarations that the first rescission notice and second rescission notice were both void and of no effect. A further declaration was sought that the contract was not valid and subsisting at the time the Vendor purported to rescind it by the second rescission notice. The Purchasers sought a declaration that General Condition 6(2) of the Seventh Schedule of the Transfer of Land Act was void as a penalty.

The Response

1. The first to seventh respondents, whilst admitting entering into the contract with Heimlich as described and that the property was offered for sale subject to a lease annexed to the vendor's statement, further asserted that the sale was subject to a "deed of variation of lease".  Those representations were denied.  In the alternative it was pleaded that if representations were made, then they were not made for and on behalf of the respondents or relied upon by the Purchasers, or in the alternative, were true.  The respondents denied the representations were false and untrue in relation to the tenant and specifically asserted that the lease as varied by the deed of variation was not guaranteed by three directors of the tenant but two directors of the tenant.

1. The respondents claimed contributory negligence against the Purchasers and gave various particulars relating to failure to make proper inquiries and/or investigations or to properly assess the market return achievable on the property.  In relation to the seventh respondent's authority, it was claimed that at a meeting of directors of the Vendor on 24 April 2001 the seventh respondent was appointed managing director of the Vendor and entrusted with all the powers of a director with no restrictions.  The respondents claimed the contract was lawful and binding.  Although admitting the first rescission notice dated 13 February 2002 was served, allegations arising from that first notice were otherwise denied. 

2. It was admitted that the first rescission notice failed to specify the default, and in the alternative argued that if that notice was found to be invalid, then that does not constitute an agreement by the Vendor to discharge the contract.  The respondents, in the alternative, pleaded that the Purchasers repudiated their contract and the Vendor accepted the repudiation and forfeited the deposit.  Reliance was placed on the Purchasers' failure to settle with the Vendor, thereby evincing an intention to be no longer bound by the contract and the Vendor accepted the repudiation by settling its contract with the third party.

3. The respondents, in the alternative, claimed a breach of contract by the applicant and claimed loss and damage to have been suffered by the Vendor. 

4. Significantly, the respondents denied knowing the tenant was experiencing cash flow difficulties of such a severity as to threaten its survival. 

5. The retainer of the Agent was admitted, although the other allegations made against the Agent denied.

6. In the event that a finding were to be made that any one of the respondents had concealed facts concerning the tenant's financial circumstances, then it was pleaded that any concealment was inadvertent and not a breach of the provisions of the Trade Practices Act referred to earlier.

The cross-claim of the Agent against the Vendor

1. In its cross-claim dated 12 February 2003 the Agent relies upon the retainer and claimed that at all material times he was acting as agent for the Vendor in discharge of the retainer and acted within the scope of its authority and instructions.  It was claimed that if the Agent is liable to the Purchasers as alleged, then that liability arose in the course of and within the scope of the Agent retainer with the Vendor.  The Agent claimed an indemnity therefore from the Vendor and/or contribution under the Wrongs Act 1958 (Vic).

2. The Vendor by way of defence to the Agent’s cross-claim asserted that the terms of the retainer included that the Agent would act honestly in the exercise of its authority, exercise a reasonable degree of skill, care and attention, act in the interests of the Vendor, act within the scope of its authority and not make representations to potential purchasers which were untrue and/or misleading.  It was pleaded that if any of the representations of the Purchasers were found to be made by Lozupone on behalf of the Agent as agent for the Vendor and if found to have been negligently made or false or misleading, then the Agent had made those representations without the knowledge or authority of the Vendor, without exercising a reasonable degree of skill, care and attention, without acting in the interests of the Vendor and outside the scope of the authority in the retainer.  Liability is thereby denied by the Vendor in relation to the claim by the Agent.

Cross-claim of the Vendor against the Agent

1. The Vendor by a cross-claim filed 13 June 2002 sought indemnity from the Agent essentially in terms consistent with its defence to the cross-claim by the Agent against the Vendor and based upon alleged breach of retainer. 

2. The Agent in defence of the cross-claim against it by the Vendor denied liability, and, save for admitting that a flyer to the Purchasers stated "correctly" that the property was 'leased to a long-established clothing manufacturer', otherwise denied liability as claimed by the Vendor.

Evidence and Findings

1. A great deal of the background evidence in this application is not in dispute.  It is useful to set out in brief terms the chronology of events and where necessary refer to relevant documents and/or evidence given by various witnesses.  However, more detailed reference will be made to relevant parts of the transcript relied upon by counsel in submissions.

2. It is noted that the first respondent became incorporated in 1980.  Its Memorandum and Articles of Association relevantly provide in the present application the following:-

   Article 70 – The office of a Director shall ipso facto be vacated:-

   (a)…

   (b)if he becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health; or

   …

   Article 89 – The Directors may from time to time appoint one or more of their body to the officer of Managing Director for such period and on such terms as they think fit, and subject to the terms of any agreement entered into in any particular case, may revoke any such appointment.  The appointment of any person to the office of Managing Director shall be automatically determined if he ceases from any cause to be a director.

   Article 91 – The Directors may entrust to and confer upon the Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit, and either collaterally with or to the exclusion of their own powers, and may from time to time revoke, withdraw, alter or vary all or any of those powers.

3. There is no issue in the present case that the sixthnamed respondent Dorothy Eva Cook for a period of some three years has suffered from vascular dementia and requires 24 hour psychiatric care.  I have no difficulty in finding that at all material times as a result of her mental health she was not capable of being a director of the first respondent.  The significance of that finding will become evident.

4. Apart from Mr. R.G. Cook it is clear that the other directors did not have any or any active role in the affairs of the Vendor.

5. The Vendor purchased the property at auction on 9 June 2000 for $1,125,000.  Settlement occurred in September 2000.  The tenant was then in occupation pursuant to a lease commencing 1 July 2000 at a rental of $137,500 per year for a term of five years.  Since the Vendor obtained possession of the property until it was sold to a third party on 2 April 2002 the tenant had paid rental without default.

6. It is not in dispute that the tenant by letter dated 9 August 2001 addressed to the Vendor sought a meeting with the Vendor.  The letter states:-

   “We would like to arrange a meeting with you to discuss the following

   1.   Our business at Fairmark P/L is in the process of restructure.  Some of the options open to us include amalgamation of the Donald Plant with that of Preston.  This may require some alteration or upgrade of the High Street premises.

   2.   We are considering subletting parts of the property to business associates and would appreciate your views on this prior to making commitments to them.”

7. As a result of Mr R.G. Cook then as a result primarily of his wife’s illness not being in a position to arrange a meeting it was not until September that a meeting ultimately took place between the tenant and Mr R.G. Cook of the Vendor.

8. The tenant had arranged for a valuation report on the property and indeed a report was prepared dated 16 August 2001 which referred to the current rental of $137,499 per annum and after an assessment of the fair market rental suggested a total potential rent of $102,290.

9. By letter dated 25 September 2001 the tenant stated the following to the Vendor:-

   “The Australian manufacturing and especially the clothing trade, has been decimated in this country, Fairmark is at the moment going through the most dangerous period of its 33 years of existence. 

   We as the Directors are trying to do the best to ensure the survival of the Company and safeguarding of its employees entitlement.  In order to do this we have to restructure our business.

   1)We believe the business needs to be restructured to be in line with the new level of achievable turnover estimated at $3.2 m per annum.  Reduce our staff levels to at most 35 (closure of Donald Plant).

   2)Reduction of stock levels from $1,406,944 at 30 June 2001 down to $600,000 in order to release cash into the business.

   3)Application for the Strategic Investment Program which it would give us the funds to payout all employees entitlement at the Donald plant.

   4)Negotiate a new leasing agreement to a current market value.

   We have asked the Melbourne Property Investment Real Estate Pty Ltd to evaluate the property to the current market value (see attached report), as you can see the present arrangement is grossly exaggerated.

   To ensure our survival and I stress survival we need to reduce our outgoing commitments.

   We are summitting (sic) this to you for your consideration.”

10. In simple terms it was clear from that letter and I so find that as at 25 September 2001 and probably as early as August 2001 the tenant was then suffering significant financial circumstances which it described as being “the most dangerous period of its 33 years of existence”. 

    
    

    I accept and find that at that time it had assessed its financial circumstances as being one of “survival”.  It had asserted that it was paying approximately $30,000 over and above what would be regarded as a fair rental for the property.  It was clearly involved in significant restructure and at the very least had identified potential debts to employees at its Donald Plant and was embarked in a major program of reducing its stock levels, reducing turnover and a consequent reduction of staff level.

11. Against the backdrop of the financial difficulties of the tenant I accept and find that Mr R.G. Cook on behalf of the Vendor participated in negotiations with the tenant and suggested a reduction of rental to $11,000 per calendar month which amounts to only approximately $5,000 reduction per annum.  A variation of lease between the Vendor and tenant was duly executed on 9 November 2001 reflecting the reduction of rent accordingly.

12. I accept that Mr R.G. Cook contacted the Agent following negotiations with the tenant and asked for an assessment of the property.  A copy of the then lease was sent by Mr R.G. Cook to Mr Carbone of the Agent.  The Agent then mentioned to Mr R.G. Cook that he had parties interested in investment properties in the area and the Vendor expressed interest in selling the property.

13. Although Mr R.G. Cook suggested in evidence that he was interested in selling the property on the basis that he preferred newer buildings with lower maintenance with good returns of 10% plus, I find that in part his desire to sell within such a short period of acquiring property arose directly from his concerns about the tenant and the financial circumstances of the tenant at that time. 

14. Ultimately instructions were given by the Vendor to the Agent to sell the property and a flyer was produced which it is noted Mr. R.G. Cook claims not to have seen prior to the commencement of proceedings.  However I find that the contents of the flyer are consistent with the information then made available by Mr R.G. Cook to the Agent as at no stage is it suggested that he gave the Agent any or any sufficient detail of either the conversations with the tenant or the correspondence received from the tenant on 25 September 2001.

15. Relevantly the flyer states the following:-

    “SUBSTANTIAL OFFICE/WAREHOUSE COMPLEX WITH THREE STREET FRONTAGE LEASED TO LONG ESTABLISHED CLOTHING MANUFACTURER”.

16. The flyer otherwise refers to rental of $132,000 pa plus all outgoings and refers to a yield of 10.2% and a sale price of $1,300,000.

17. As indicated earlier a contract note was signed by Heimlich for and on behalf of the Purchasers and Mr R.G. Cook purportedly for and on behalf of the Vendor.  The contract note was accepted by the Vendor on 22 October 2001 and next to the signature of Mr R.G. Cook were the handwritten words, “Director, Rossett Pty Ltd.”

18. It is not in dispute that prior to the sale the agents had inspected the property and conversed with the Agent.  Further it is not in dispute that the Purchasers through Heimlich and Pollak together with the Agent also inspected the premises on or about 15 October 2001.  It is common ground that the Agent had known Heimlich for some time as the Purchasers had previously bought properties through the agency. 

    
    

    I find and accept that the Agent at all material times was aware of the Purchasers desire to purchase a secure property and was aware that when purchasing property the Purchasers borrowed heavily against the investment property and required a tenant to meet the interest payments.

19. During the inspection of the property by the then prospective Purchasers and Agent I find that discussions occurred primarily between the Agent and the Purchasers.  I am satisfied that during those conversations representations were made of the kind alleged by the Purchasers namely:-

    ·That the tenant was a secure tenant

    ·The tenant had a good business which had a niche market

    ·The tenant was a long established clothing manufacturer

    ·The tenant’s obligations under the lease were guaranteed by three directors of the tenant.

20. Those representations were made by a combination of the conversations between the Agent and the prospective Purchasers upon inspection in relation to the first two representations with the flyer containing the third representation whilst representation four is clearly set out in the unsigned variation of lease which was annexed to the Vendor’s Statement provided pursuant to s.32 of the Sale of Land Act 1963 on 18 October 2001.

21. There is no doubt and I find that the scheduled settlement date of 19 December 2001 was extended due initially to difficulties the Purchasers had in obtaining finance.

22. In January 2002 I find that the tenant informed the Purchasers that the tenant was in voluntary administration.

23. On balance I accept and prefer to the extent that there may be any dispute the evidence of Mr Heimlich and Mr Pollak and certainly the representation about the tenant being a long established clothing manufacturer was consistent with the flyer forwarded by the Agent on behalf of the Vendor.  I find that the Agent in forwarding the flyer was acting within the terms of authority of the agency and otherwise conducting itself in a manner to be expected of an agent acting for and on behalf of a Vendor in relation to a commercial property.

24. As indicated earlier on 13 February 2002 the first rescission notice was forwarded.  On 7 March 2002 the Vendor instructed other agents to resell the property.  On 2 April 2002 as indicated earlier the property was sold to a third party for $1.32 m. 

25. The second rescission notice was purportedly given on or about 16 April 2002.

26. I do not propose dealing in any further detail with the rescission notices which have been the subject of detailed submissions referred to further in this judgment.  It is clear however and I find that the first rescission notice did not have any particulars of default.  The second rescission notice did at least state, “Failure to pay balance of purchase price of $1,125,000 on 9 January 2002 being the agreed extended date of settlement” as the particulars of default.

27. On 15 May 2002 the proceedings were commenced in this Court.

The Agent’s submissions

1. A general attack was made upon the claim made by the Purchasers against the agent, although it was conceded it appears to be a claim for damages for negligent misrepresentation.  Essentially, the representations concerning the tenant being a secured tenant and having a good business which had a "niche market" were conceded, although the third representation concerning the tenant being a long‑established clothing manufacturer is claimed to have originated from the flyer handed to the Purchasers rather than being the subject of an oral representation.

2. The agent denied the representations were false or untrue.

Vendor’s Submissions

Representations

1. Counsel for the vendor submitted that any representation concerning the tenant being a secure tenant did no more than to advise the Purchasers that the tenant had been paying its rent.  Reference was made to the evidence of Heimlich, and in particular, cross‑examination where the following extract appears:

   “When Mr Lozupone - in this case when use the word 'secure', that's what you took it to mean:  that Mr Lozupone was telling you that the tenant had been paying his rent?---Correct.”

2. It was submitted that use of the word "secure" meant nothing more than the tenant was paying rent on time under a lease and that the lease was secure.

3. Further reference was made to the transcript in cross‑examination of the witness and in particular the following exchange with Heimlich:

   “No agent, including the agent, has ever guaranteed to you that a tenant would not become insolvent after you purchased the property.  There's no guarantee, is there?---No guarantee, no.

   You wouldn't expect, would you, Mr Heimlich, that a vendor's agent would make any warranty or guarantee to that effect, would you?---How can he?”

   (transcript page 316, lines 20 to 26)

4. At page 132 of the transcript the following exchange in cross‑examination occurred during the evidence of Mr Pollak:

   “In your experience, has any agent given you any guarantee or assurance that those risks wouldn't eventuate in the future?---Not to my recollection.”

5. It was submitted against the background of that evidence that it is difficult to accept that the Purchasers would understand the words "secure tenant" as being some assurance by the agent that the tenant would continue to pay its rent for the duration of the term.

6. Counsel for the vendor submitted that the representations, in any event, could only be interpreted as representations for the past rather than future representations.  Hence, if it is found that the agent used the word "secure" it should be regarded as nothing more than the applicant's understanding that the tenant was paying its rent, had been paying its rent and that it was under a secure lease. 

7. An attack was made on whether or not the agent had told Heimlich that the tenant had a good business which had a niche market.  Specific reference was made to the following transcript of cross‑examination of Heimlich:

   “Inside the factory Mr Lozupone did not tell you that the tenant was conducting a good business, did he?---He said a niche market.  I don't know.

   No, just answer the question.  He didn't say that the tenant was conducting a good business while you were inside the factory?---I don't remember.”

   (transcript page 50, lines 3 to 8)

8. It was again submitted that reference to "good tenant" meant no more than that the tenant had been paying its rent.  It was submitted this was conceded by both Heimlich and Mr Pollak during their evidence.

9. Essentially, it was submitted by counsel for the vendor that the reference to the tenant was simply gratuitous opinion of an estate agent based on those things that he observed on the day of an inspection in the company of Heimlich and Mr Pollak who similarly could make observations at the time.

10. It should be noted that it was conceded that it is not a misrepresentation to refer to the tenant as operating in a niche market and no issue was taken with that aspect of the claim by the Purchasers.  It was asserted, however, by counsel for the vendor that the representation that the tenant was a long-established clothing manufacturer was a truthful representation given that the tenant had been in business since 1965 as a clothing manufacturer.

11. Counsel was specifically referred by the Court to the issue concerning information in a letter from Fairmark to the vendor referred to earlier in this judgment dated 25 September 2001 which had referred to the survival of the tenant and the need to reduce outgoing commitments by restructuring the business, including negotiating a new leasing agreement to current market values.  It was submitted that any misrepresentations made may become of significance in considering an allegation of misrepresentation by silence.  Counsel submitted that the fundamental truth of the positive representations were established, including the enforcement of the guarantors of the corporate tenant.

1. Counsel in concluding submissions concerning the quantitative representations submitted that the representations were truthful.  Specifically, it was submitted that the guarantee of the tenant's obligations under the lease by three directors of the tenant was truthful and the fact that Mr Reginald Simons did not sign the variation of lease did not render the guarantees unenforceable against the guarantors.  It was submitted that variation of a lease decreased the obligations of the guarantors.  The guarantor, however, it was submitted will remain liable whether there has been a variation of the principal contract for which it is guaranteeing where the alteration in the principal contract is clearly for the benefit of the guarantor (see Holme v Brunskill (1877)

   
   

   3 QBD 495 at 505 and Dunlop New Zealand v Dumbleton (1968) NZLR 1092 at 1096). It was further submitted, in any event, that the terms of the lease provided for a variation. Otherwise, representations pleaded it was submitted to be all related to past fact and not representation as to future matters. Properly understood, the representations were true.

2. It was submitted that on 15 October 2001 the grounds for any relief by the agent about the tenant and the rent were, in addition to the current lease, that the tenant had always paid rent on time and was currently up to date.  It was submitted the Purchasers did not rely upon the agent's representations concerning the security of the tenant, but rather arranged for a section 32 statement containing the lease and deed of variation to be forwarded to their solicitors upon whose advice they acted.  In October there was no indication to the agent the business of the tenant was other than a good business.  Details produced on 25 September 2001, if known to the agent, may have provided grounds for doubting the future performance of the tenant.  But it was submitted there was no evidence of the actual financial state of the tenant, either on 22 October 2001 or 21 December 2001.  The position of the tenant and causes of any decline were not revealed to the agent.

3. The court was invited to conclude that the inference to be drawn was that the financial position of the tenant in October did not raise concern about its future capacity to pay rent.  Hence, even if the representations could possibly be construed as a future representation, they should not be regarded as false representations on the evidence rather at the time to the agent.

4. Counsel for the Vendor dealt in detail with the issue of loss or damage caused by any negligence or breach of duty and submitted that entry into the contract by the Purchasers did not occur in reliance upon any representations.  It was specifically submitted that an issue arises as to whether loss and damage claimed by the Purchasers was caused by the circumstance of entering into the contract or the circumstances of the rescission of it.  It was submitted that for the purpose of the law of negligence when two or more events combine to bring about the result in question, the issue of causation is resolved on the basis that the Act is legally causative if it materially contributes to the result (see March v Stramare (1991) 171 CLR 506 at 512-514, Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6-7).

5. It was submitted the result is a loss of deposit and that result was not caused by the entering into of the contract.  It was submitted the Purchasers suffered no loss at that point since the usual base for determining a quantum of loss where a misrepresentation induces the purchase of an asset is the difference between the price paid and the value of the asset received (see Gould v Maggelas (1985) 157 CLR 215 at 220). There was no loss in the present case as the Purchasers agreed to pay a price at least equal to or less than the proper value of the property.

Authority

1. In relation to the issue of "want of authority", it was submitted that the company's power to make a contract may be exercised by an individual acting with the company's implied authority (ss.126(1) and 129 Corporations Act).

2. The vendor submitted that Ronald George Cook (Mr R.G. Cook) had an implied authority from the Vendor to enter into the contract of sale.  That implication arose it was submitted from the fact that Mr R.G. Cook was the person who always conducted the business on behalf of the Vendor and it held him out as having authority to enter into contracts at all times.  It was submitted that the vendors could not void the contract on the same basis alleged because of the 'indoor management rule'.

3. It was submitted the contract note binds the Purchasers. Reference was made to s.126 of the Instruments Act 1958, that only the party to be charged need sign for the contract to be enforceable.  In this case, the Purchasers or their nominees have signed.  The contract note did not have to be executed under seal.  The fact that it was mistakenly sealed does not render it unenforceable.

The rescission notices

1. In relation to the first rescission notice, counsel submitted that that notice was valid despite the omission of the particulars of default.  It was submitted that a rescission notice would be valid so long as a reasonable person who had considered the notice as a whole and given it fair and proper consideration would be left in no doubt as to its meaning.  Reference was made to the decision of Central Pacific (Campus) Pty Ltd & Anor v Staged Developments Australia Pty Ltd (1998) V ConvR 54-575 (28 November 1997). In particular,

   
   

   I was referred to the decision of Callaway JA who stated when endeavouring to decide what meaning a rescission notice conveys states the following:

   “That is done by asking whether a reasonable person who had considered the notice as a whole and given it fair and proper consideration would be left in any doubt as to its meaning.”

2. It was submitted in the present case that under cross‑examination both Heimlich and Mr Pollak knew that they had defaulted the settling on 19 December 2001 and 9 January 2002.  Accordingly, it was submitted the Purchasers knew that in consequence of not settling on the due date that they would be in default.  The following extract from the transcript was relied upon:

   “Mr Heimlich, yesterday you agreed with me that, as at 19 December 2001, you couldn't settle on the property?---Correct.

   You also agree that as at 9 January you couldn't settle on the property?---Correct.

   I take it that you were aware, certainly as of 9 January, that you were in default under the contract of sale?---Correct.

   Correct?---Correct.”

   (transcript page 93, lines 31-39)

3. Heimlich was taken to the rescission notice.  He had agreed in evidence that he knew what a rescission notice means having been told and explained that he knew that if you do not settle on time you get a rescission notice.  Again reliance was placed upon the transcript and it is appropriate to set out the following extract:

   “There is no reason to suggest, on receipt of this notice, that you didn't understand what it meant?---Well, yes, if I would have got the notice and I would have seen it I wouldn't know what it means - I wouldn't know what it means, yes.

   And there's no confusion about that is there?---The rescission notice, yes, but there was - I believe there was some problems with it but I don't know - with the rescission notice.

   But you - you certainly knew what it meant?---I know what a rescission notice is, yes.

   You were aware that at 13 February you were in default in payment of the purchase price?---Well, I didn't settle, yes, I know.

   That's what the default was, wasn't it, that you ‑ ‑ ‑?---Yes.

   - - - hadn't paid the purchase price on the due date?---Correct.”

4. In any event, reliance was placed upon correspondence dated 13 February 2002 from the vendor solicitors to the purchasers solicitors where it is claimed that the authors clearly specify it as a default and consequences.  It was submitted that there is no evidence from the Purchasers that they were confused or did not understand that they were in default or that they did not understand the nature of the default.  Accordingly, it was submitted that even if the first rescission notice was found to incorrectly refer to 19 December 2001 and not 9 January 2002, that that error is trivial and that the Purchasers had 14 days from the date of service of the first rescission notice and that nothing turns on the "due date".

5. In the alternative, if it was found that the first rescission notice is invalid, then it was submitted the contract of sale between the Vendor and the Purchasers is still on foot.  Reliance was placed upon the decision of the Court of Appeal of the Supreme Court of Victoria in McRae & Another v Bolaro Pty Ltd (2000) VSCA 72 (5 May 2000). It is useful to set out the following relevant passage from the decision in that case by Ormiston J with whom Charles and Callaway JJA agreed where he states:

   “Further, the purchasers have argued that the service of an invalid notice of rescission amounted in the present circumstances to a repudiation of the contract by the vendor. This remarkable proposition is said to flow from decisions such as Lund v McWaters and Amman Aviation Pty Ltd v The Commonwealth. No such broad proposition can be distilled from those cases, although in particular circumstances an act by which a party might seek to rescind a contract may be inconsistent with its intending that the contract remain on foot. No such intention can here be inferred, the vendor's notice seeking in fact to exercise its rights under the contract, albeit by taking advantage of a right to rescind but only if the relevant condition were not satisfied.”

6. It was submitted that in the circumstances all of the Vendor's remedies were still available, including service of a second rescission notice.  It was submitted, therefore, that the Purchasers' claim that the first rescission notice was void and of no effect could not be sustained according to the submissions for the vendor. 

7. It was further submitted that any claim by the Purchasers that the contract had been rescinded by agreement of the parties at a date no later than 21 March 2002 had no substance.  Reference was made to correspondence from the Purchasers' solicitors to the Vendor's solicitors dated 4 February 2002 seeking to avoid the contract between the parties on the basis of the misrepresentations.  It was conceded that if the alleged misrepresentations are found to have been made, then the contract from that date may have been avoided.  If, on the other hand, the alleged misrepresentations are not found to have been made, then the letter of 4 February 2002 is either a mistake in the view of the Purchasers' legal position which can be corrected or a repudiation of the Purchasers' obligations under the contract of sale. 

8. For the contract to be rescinded by agreement after 4 February 2002 it was submitted there must have been an acceptance by the Vendor of the Purchasers' repudiation.  There was no acceptance, purported avoidance by the Purchasers or its possible repudiation as demonstrated by other correspondence.  As a consequence, the contract was still on foot.  The contract therefore having not settled by 12 February 2002 the first rescission notice was served.  That notice by the Vendor recognised that the contract was still on foot.  Any mistaken belief by the Vendor that the first rescission notice was valid would not provide any basis that the parties agreed that the contract was rescinded.  The Vendor can only treat the contract at an end if the first rescission notice was valid. 

9. A letter from the vendors to the agent of 21 March 2002 relying upon the first rescission notice and recording default, albeit referring to the contract being "now at an end", could not constitute acceptance of any repudiation by the purchasers as that was never communicated to the purchasers.

10. It was further submitted that entry into a contract of sale by the vendor to the third party on 2 April 2002 does not operate to bring the contract with the purchasers to an end.  Rather, it exposes the purchasers to a claim in damages by the third party if the purchasers have tendered the purchase price and settled. 

11. It was submitted on behalf of the vendor that his entry into the contract with a third party is acceptance of the Purchasers' repudiation and the vendor was entitled to claim the deposit (see Walters v Cooper (1967) VR 583 and Bot v Ristevski (1981) VR 120). It was submitted that both cases held that when the purchaser evinces an intention to no longer be bound by the whole of the contract, no rescission notice has to be served because all of the terms of the contract have been avoided by the purchaser. The vendor in accepting the repudiation can claim forfeiture of the deposit in those circumstances.

12. It was further submitted that, in any event, if the first rescission notice was invalid the vendor can rely upon the second rescission notice.  It was submitted that any claimed false representation in the second rescission notice is misconceived.  Specifically, reference was made to the assertion that that notice was forwarded under cover of letter dated 16 April 2002 and by that date the vendor had already sold the property to a third party and did so on 2 April 2002.  It was submitted that that sale did not discharge the contract between the vendor and the purchaser.

Misleading and deceptive conduct

1. In relation to the claim of misleading and deceptive conduct constituted by silence, it was submitted that this claim must be assessed in circumstances like any other claim.  The court was encouraged to consider the context which 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.  Particular reference was made to the decision of Black CJ in Demagogue v Ramensky (1992) 110 ALR 608 at 609-10 where the court states the following:

   “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 it is likely to mislead or deceive.  To speak of "mere silence" or of a duty to 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.”

2. In the present case counsel for the vendor submitted that when claiming a contravention of s.52 of the Trade Practices Act the applicant bears the onus of establishing how or in what manner that which was left unsaid had the potential to mislead or deceive (see Leda Holdings Pty Ltd v O'Raka Pty Ltd (1997) 1385 FCA (9 December 1997).  It was submitted that when parties are dealing at arm's length in a commercial situation it may well be that one party will be aware of information which, if known to the other, would cause the other to take a different negotiating stance.  It was submitted, however, that that does not require disclosure of that information.  It is perhaps useful to set out the following extracts from the joint decision of Branson and Emmett JJ in Leda where their Honours state:

   “The Full Court of this Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 466, made it clear that section 52 of the Trade Practices Act "gives rise to no duty to provide information". In the same case, at 467, the Full Court pointed out that:

   "Where the contravention of s 52 alleged involves a failure to make a full and fair disclosure of information, the applicant carries the onus of establishing how or in what manner that which was said involved error or how that which was left unsaid had the potential to mislead or deceive."

   The onus of establishing how, or in what manner, that which was left unsaid had the potential to mislead or deceive will involve the identification of circumstances "such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed" (per French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054 at 53,195. See also Demagogue Pty Ltd v Ramensky per Black CJ at 32).”

3. It was submitted that where the allegation arising under s.52(1) of the Trade Practices Act involved a refusal or a refraining from doing an act, then before that conduct is actionable it must be established that it was deliberate (see Rhone-Poulenc Agrochimie SA & Anor v UIM Chemical Services Pty Ltd & Anor (1986) 68 ALR 77 at 84 and Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd & Anor (1998) 155 ALR 714 at 722). Accordingly, it was submitted that relying upon those authorities two questions arise for consideration: namely, whether the failure of the vendor to inform the Purchasers of the letter dated 25 September 2001 from the tenant and the details of conversation that Mr R.G. Cook had with the tenant on the same day was misleading and deceptive conduct, and secondly, whether that conduct was deliberate.

4. A challenge was directed to the evidence relating to the tenant's financial circumstances.  Whilst the Purchasers referred to conversations whereby it is claimed the tenant told the vendors that it was experiencing the most dangerous period of its 33 years of existence and that a reduction in rent was necessary to ensure survival, it was submitted on behalf of the vendor that all that occurred was a cash-flow problem and that the tenant was hopeful that this would be fixed by a government special investment program and that the tenant was otherwise positive about its future. 

5. Evidence was referred to the tenant who expressed a positive sentiment about the future of the company and that Mr R.G. Cook should have had no reason to believe that the tenant would not pay its rent in the future.  The letter of 25 September it was submitted should be viewed by the court in the context of what was discussed at the meeting.  Mr R.G. Cook on leaving that meeting would not have had any reason to believe the rent would not be paid in the future or that the company would remain in existence.  In that context it was submitted there was no reason to find that Mr R.G. Cook deliberately withheld the letter or the information he received from the tenant on 25 September 2001 from the Purchasers.  Further, it was claimed that at no stage was it put to Mr R.G. Cook that he deliberately concealed the letter or the information conveyed to him.  The primary submission of the vendor, however, was that there had not been any misrepresentation by silence which induced the Purchasers to purchase the property.

6. The claim based upon unconscionable conduct pursuant to s.51AA of the Trade Practices Act was attacked in submissions put on behalf of the vendor on the basis that no evidence had been led of any special disadvantage suffered by the Purchasers and nor could it be claimed in the present case that there was an inequality of bargaining power between the purchaser and the vendor.

7. After the hearing the parties were permitted to file further submissions.  On behalf of the vendor submissions were made concerning the authority of Mr R.G. Cook to enter into the contract.  Reliance was placed upon the decision in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480 and Entwells Pty Ltd v National and General Insurance Co Ltd 5 ACSR 424 as authorities for the proposition that a director can have implied authority through assuming the position of managing director with company's approval and/or acquiescence. It was submitted that in the present case the facts clearly demonstrate that Mr R.G. Cook had assumed the position of managing director with the acquiescence of the other directors.

1. Like Entwells Pty Ltd, the Vendor it was claimed is a small family company holding no formal meeting of directors.  The day‑to‑day management and control of its affairs were in the hands of Mr R.G. Cook, his children being the other directors.  Save for his incapacitated wife, no challenge was made to the evidence of Mr R.G. Cook's children in relation to the issue that their father acted in a manner with the company's acquiescence.  It was therefore submitted that no other conclusion of Mr R.G. Cook's authority could reasonably be drawn. 

2. The reference by the Purchasers to the decision of Smith v Henniker‑Major & Co (2001) EWCA Civ 762 was misconceived as Mr R.G. Cook does not seek to rely upon the indoor management rule principles, but rather, relies on s.126 of the Corporations Act referred to earlier in the submissions.

3. In general terms it was submitted on behalf of the Vendors that Mr R.G Cook should be found to have been effectively acting as managing director with the authority of the Vendor to enter into all business transactions that the Vendor could enter into including sale and purchase of property.

Purchasers’ submissions

Vendor’s capacity

1. In relation to the capacity of the Vendor to enter into the contract of sale of the property, it was submitted that Mr R.G. Cook was not appointed as managing director and he had not been authorised to sign a contract note or affix a seal on behalf of the Vendor, nor did the Vendor adopt or ratify the contract of sale.  In the circumstances it is not to the point that the purchasers might have been in a position to assert ostensive authority and action a specific performance even if ostensive authority on the part of the director not being the managing director was open on the law.  Reference was made to Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 where Dawson J at page 205 states the following:

   “Nor does an ordinary, individual director of a company have any ostensible authority to bind the company.  A managing director may have wide powers, actual or ostensible.  In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd it was held that a person who had assumed the powers of a managing director of a property company with the company's approval had apparent authority to engage architects on the company's behalf, this being within the ordinary ambit of the authority of a managing director of a company of that kind.  And even ordinary directors may have quite significant functions entrusted to them by the company, although usually these are of a more or less formal nature, such as affixing the company seal to documents which the company requires to be executed ... But the position of director does not carry with it any ostensible authority to act on behalf of the company.  Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board.  In the absence of some representation made by the company, a director has no ostensible authority to bind it.”

2. It was submitted that the real issue in the present case is whether the Vendor can assert its validity under the contract in order to retain the deposit or for any other purpose when it knows that it was invalidly entered into by Mr R.G. Cook without any proper authority. The indoor management rule enshrined in ss.128 and 129 of the Corporations Act it was submitted intended to protect third parties from an assertion by the company that its internal processes were not properly followed.  It is not intended to protect the company enabling it to assert that it had done something in accordance with its constitution when that is not the case.  Reference was made to the decision of Hughes v NM Superannuation Fund Pty Ltd (1993) 11 ACLC 923. Reference was made to the decision of Sheller JA at page 931 where His Honour states the following:

   “ … In the language of Lord Simonds in Morris v Kanssen (1946) AC 459 at 474-5 the rule in Turquand's case "is a rule designed for the protection of those who are entitled to assume, just because they cannot know, that the person with whom they deal has the authority which he claims".  The company could not rely upon the rule to compel the Trustee to accept the notice of termination as valid.  The rule would have operated only if the Trustee, having assumed that notice had been validly given, in the interests of the fund as a whole and for its protection, needed to invoke it.  In the present case, there was no need to for the Trustee to invoke it and to have done so would have discriminated unfairly against some members of the Fund.  The question before the court was whether the notice was validly given, not whether, even though invalidly given, the company could be compelled at the suit of the Trustee to abide by it.”

3. It was submitted in the present case that the indoor management rule is a presumption or a fact and not a rule properly so called.  In support of that submission the court was referred to Re Alcoota Land Claim No 146 (1998) 82 FCR 391 where at page 406 the court states:

   “… The indoor management rule, or the rule in Royal British Bank v Turquand (1856) 6 El & Bl 327; 119 ER 886 is not a rule properly so called but is a presumption of regularity.  It is no more than a presumption of fact: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 176.  However, the presumption will not operate or will be displaced where the circumstances are such as to put a party dealing with a corporation on inquiry and where no inquiry is made or if made, is not satisfied ...”

4. In supplementary submissions filed after the conclusion of the hearing it was submitted on behalf of the Purchasers that the issue between the parties on the question of want of authority has been clearly raised.  The Purchasers rejected the submission by counsel for the vendor that Mr R.G. Cook could have been appointed as managing director of the Vendor by informal means and otherwise rejected the ability of the vendor to rely upon the authority of Entwells Pty Ltd v National and General Insurance Co Ltd. 

5. It was submitted that in the present case the question is not whether Mr R.G. Cook acted as a directing will of a company, which was the question in Entwells as it was concerned with fixing the company with a guilty mind of its acting managing director set fire to the company's supermarket, but rather the question is whether he is acting in circumstances where he was duly authorised by the company.  It was noted that the uncontradicted evidence is that the Vendor was always conducted by Mr R.G. Cook and his wife and the children played no part in its operations.  They were what could be described as directors of an estate planning device. 

6. When Mrs Cook became unwell and was unable to participate in the operation of the company's affairs it was noted that Mr R.G. Cook sought and received advice that he should be appointed a managing director and a minute giving effect to that advice was drawn up by an accountant.  According to the evidence, it was submitted the minute was brought to his home in summary and purported to recognise that Mr and Mrs Cook meant and determined that Mr R.G. Cook should be appointed.  The minute, however, does not accurately record what occurred as the fact is that Mrs Cook by that time was incapable of participating in a decision about Mr R.G. Cook and by signing the minute he in effect appointed himself as managing director of the company (see transcript 183, line 40 - transcript 184, line 10 and in re-examination transcript 236 at line 10).  It was submitted that Mr R.G. Cook did not describe himself as managing director and in cross‑examination described his role in the company as the director or perhaps chairman (transcript 182, lines 35-45).

7. Hence, it was submitted that the evidence established that a formal appointment was attempted and that by reason of Mrs Cook's proved incapacity it failed.  An attempt was made to induce evidence from Mr R.G. Cook in-chief or in re-examination that his children had informally conferred powers of managing director upon him.  It was submitted that even if allowance was made for the respondents to raise the issue by way of defence, there is simply insufficient evidence to support a submission made relying upon the authority of Entwells that there was some type of "informal" process of appointment of Mr R.G. Cook as managing director.

Agency

1. In relation to the issue of agency, counsel for the purchaser agreed that the authority in relation to agency referred to by the vendor's counsel of Mullens v Miller (1882) 22 ChD 194 is still good law. It is useful to set out the following relevant passage from the decision of Bacon VC at page 199:

   “ … A man employs an agent to let a house for him; that authority, in my opinion, contains also an authority to describe the property truly, to represent its actual situation, and, if he thinks fit, to represent its value.  That is within the scope of the agent's authority; and when the authority is changed, and instead of being an authority to let it becomes an authority to find a purchaser, I think the authority is just the same.  I think the principal does thereby authorise his agent to describe, and binds him to describe truly, the property which is to be the subject disposed of; he authorises the agent to state any fact or circumstance which may relate to the value of the property.

2. It was submitted that in the present case that as the evidence has unfolded Mr R.G. Cook's evidence seems to be properly characterised as never authorising the agent to do anything other than sell the property and that he had no part in the representations made by the agent or if representations were made which become or are found to be misrepresentations, then that occurred without the authority of the vendor.  It was noted that, in any event, Mr R.G. Cook agreed that what the agent did was within what he would consider to have been acceptable because nothing was said which was outside what he may have said to the purchaser.  It was noted that Mr R.G. Cook conceded that in considering the value of the property he had accepted that as being directly related to the yield and the security of the tenant.

3. It was further noted that Mr R.G. Cook conceded during the course of evidence that he may well have told the agent about the tenant including the tenant being a long-established tenant.  Had the vendor told the agent, however, that the tenant was in desperate financial straits and the agent had then told the purchaser that the tenant was a good tenant, then it was submitted that may well go beyond the authority.  It was noteworthy that on the evidence of the agent had it been aware of the tenant's circumstances as set out in the letter of 25 September 2001 a different approach may have been taken to the marketing of the property including steps taken to deal with tenancy issues before the property was placed on the market.

4. It was submitted clearly that on the evidence at no stage could it be said that Mr R.G. Cook held himself out to be a managing director of the Vendor. If in the circumstances there was no capacity to enter into the contract, then the court it was submitted does not need to consider questions of misrepresentation and other issues raised. Ultimately, it was submitted that Mr R.G. Cook did not have the capacity or authority to retain the agent, to offer the property for sale and did not have the capacity or authority of the company to enter into the contract. Accordingly, it was of no moment as to whether or not there is a document or memorandum in writing signed by the party to make the contract enforceable pursuant to s.126 of the Instruments Act (Vic) 1958.  In those circumstances no question arises as to rescission notices, the validity of misrepresentations or other issues as there was no contract.  In those circumstances it was submitted the deposit should be returned.

The Rescission Notices

1. In the alternative counsel submitted that in relation to the first rescission notice served under cover of letter dated 13 February 2002 that it was invalid as it did not specify a default at all. 

2. It was submitted that the rescission notice must strictly comply with the provisions of Table A of the Seventh Schedule of the Transfer of Land Act 1958 and in particular clause 5 which provides as follows:

   “Time shall be of the essence of this contract.  However, if either party defaults under this contract, the offended party shall not be entitled to exercise any of his rights arising out of the default other than his right to sue for money then owing until he has served the offender with a written notice specifying the default and his intention to exercise his rights unless his default is remedied and the proper legal costs occasioned by the default and any interest demanded are all paid within 14 days of service of the notice and the offender fails to comply with the notice.”

3. It was submitted that it is fundamental that the rescission notice specify the default in order to comply with the requirement in clause 5.  Counsel for the purchaser submitted that reliance cannot be placed upon the Central Pacific case referred to by the vendor's counsel as the error in the first rescission notice went beyond a mere technical defect.  Compliance with clause 5 is still required and reference was made to the decision of the court in the Central Pacific case where Callaway JA states the following:

   I accept that a vendor must strictly comply with the requirements of conditions 5 and 6 and we preserve for another day the question whether, and if so in relation to what kinds of notice, we should follow the majority decision of the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (1997) 2 WLR 945 to which the learned presiding judge has kindly drawn my attention.  A golden rule in drafting a notice such as this is to stick as closely as possible to the language of the conditions pursuant to which the notice is given.  Any disconformity in wording is apt to suggest a disconformity in substance that spells invalidity.

4. In the present case it was submitted it is not sufficient to simply rely upon the knowledge of a purchaser that the parties have not settled.

5. What follows from the invalidity of the first rescission notice, according to submissions made on behalf of the purchaser, was that correspondence asserting misrepresentation and repudiation by the purchasers meant that the vendors had to elect whether to accept or reject the repudiation.  Assuming the company had a capacity to give the relevant instructions, it was submitted that one option was to simply accept the repudiation.  In the alternative, if the repudiation is not accepted or if it is argued that the purchasers have wrongly repudiated the contract, then what can occur is what it was submitted in the present case did occur; namely, the contract was affirmed.  Hence, it was argued that as at the expiry of 14 days from 13 February 2002, from the vendor's point of view, or at least from the point of service of the notice, the contract was on foot.

6. It was argued that, in any event, for whatever reason it would appear that the parties had brought the contract to an end some time in March 2002 (see Lombok v Supetina (1987) 71 ALR 332 at 345 where the court states the following:

   The trial judge held that the conduct of the parties showed that by the time the matter came to trial neither party intended that the contract should be performed.  He held that the position fell to be resolved in accordance with Summers v Commonwealth, supra, where the parties were found to have mutually abandoned or abrogated the contract and the consequence of the abandonment and abrogation was that the deposit was returnable.  A similar view was taken by the High Court in DTR Nominees.  The trial judge held that in respect of the instalments of interest which were paid by Supetina the same principles applied and he ordered the return of those moneys as sought by Supetina, but made no other order for interest thereon.

7. A further point made by counsel for the purchasers in relation to the second rescission notice was that it was sent, according to the evidence of Mr R.G Cook without his knowledge and the first time he found out about its existence was in Court (transcript page 225 line 30).  It was further submitted that in any event the second rescission notice was not served on the purchasers.  In any event it was reiterated that whatever view the Court may take of the rescission notices that by March 2002 the parties had each asserted that they had a right to bring the contract to an end because of the other party’s default and that it was therefore at an end.  Because it came to an end by what was described as mutual abandonment or abrogation of the contract then on that basis the deposit was returnable by the Vendor to the Purchasers.

Misrepresentations – misleading and deceptive conduct.

1. In relation to this issue it was noted that the basic information communicated by the Agent on behalf of the Vendors as argued by respective counsel may have been conveyed namely that the premises were subject to a tenancy, that the tenancy was subject to a lease and that the tenant was a clothing manufacturer who had been in business for some 30 odd years at the time when the flyer was sent asserting that the tenant was a “long established clothing manufacturer”. It was submitted however that the Trade Practices Act was never intended to operate to defeat its own purpose by taking an unduly restrictive view of the representations but more importantly what was intended to be conveyed. It was submitted that by saying that a tenant was a “long established tenant” intends to convey that the tenant is long established and that is a matter a prospective purchaser can take comfort from rather than the suggestion that the tenant is what might be colloquially described as a, “fly-by night operator”. A great deal of reliance was placed upon the information set out in the letter of 25 September 2001 and the evidence of the agent that had the agent been in possession of that information then they would not have introduced the Purchasers to the property at all.

2. Specific reliance was placed upon the Lozupone affidavit at paragraph 19 where he states:

   “Throughout my dealings with Mr Heimlich and Mr Pollak I had no knowledge that the tenant was in any financial difficulty or there were questions about insolvency or his capacity to pay the rent”.

3. Further reference was made to paragraph 7 of the Lozupone affidavit where he states:

   When marketing the property to Mr Heimlich and at the time of signing the contract of sale I had no idea that there was any problem with the tenant or its business.  Had I known that there was any question as to the security of the tenant, I would not have even put the property to Mr Heimlich because I know – because I have sold a few to him in the past – these primary investment requirements are security coupled with a yield with at least 9-10%.

4. It was submitted that the suggestion that a security means a lease with guarantees is far too narrow and that the extracts of the Lozupone affidavits convey the broader and clear meaning of what was required by the Purchasers then known to Lozupone in relation to this particular property.

5. It was submitted that the essential issue in the present application is that when representing that the tenant is a long established clothing manufacturer that statement is misleading and deceptive or capable of being misleading and deceptive in circumstances where it is known to the Vendor that the tenant is in financial difficulties.  The Court was invited to conclude that Mr R.G. Cook knew and appreciated the reality of the tenants financial circumstances upon receiving the letter of 25 September 2001 and in discussions.

6. It was particularly noted that in the flyer the reference to “long established clothing manufacturer” had been the subject of cross-examination of the Agent who when asked if he had been aware of the financial difficulties of the tenant and whether he would have done anything differently in the brochure stated the following:-

   “I would not have mentioned it in the terms that I did mention it, No.”

   (transcript p.267 line 30)

1. Counsel for the Purchasers did not submit that the tenant at any stage had claimed that it was then insolvent but further submitted that it was not necessary for that to be the state of the tenants financial circumstances for the misrepresentation to be actionable.

Reasoning

1. At the time when the contract note was signed namely 19 October 2001 I am satisfied that Mr R.G. Cook was not then properly appointed to act as managing director of the Vendor.

2. I am satisfied and find that as an ordinary individual director of the company he did not then have ostensible authority to bind the company in the sale of land.

3. Whilst I accept that some latitude may be given to directors of family companies and note the reliance upon the authority of Entwells Pty Ltd. Whilst on a day to day basis it may be argued there is implied authority, I do not accept that the authority extends to the execution of a contract note for the purpose of the sale of land. I further do not accept that the Articles of Association of the company have been complied with in a manner which would provide the appropriate authority to either appoint Mr R.G. Cook as managing director and/or to provide him with the relevant authority. Simply because the company is a family company does not then provide a different class of corporations or corporate identity. Families which have the benefit of using a corporate vehicle for investment purposes in the commercial market as in the present case do not under the Corporations Act in my view have any additional benefits including non compliance with Articles of Association and/or the vesting of powers in ordinary directors of a kind normally found in a managing director. I accept and apply the decision of Dawson J in Northside Developments Pty Ltd.  In the present case there is no evidence that Mr R.G. Cook has been vested with the appropriate authority to act as managing director nor has he been given specific authority to enter into a contract for the sale of land.  Further there has not been any evidence provided which would suggest that his conduct has subsequently been ratified appropriately by other directors.  As stated by Dawson J in Northside Developments Pty Ltd, “A director has no ostensible authority” to bind the company.

4. I accept the submissions made for and on behalf of the Purchasers that the indoor management rule does not apply in these circumstances as it is not intended to protect a company enabling it to assert that it had done something in accordance with its constitution in circumstances as in the present case where that is not the true situation.

5. In truth it seems to me that Mr R.G. Cook has effectively appointed himself as managing director as at the time any minute was signed by Mrs Cook she was clearly in my view incapacitated in a way which would deprive her of the benefit of acting as a director under the Articles of Association.

6. In the event that the Vendor had executed a contract for the sale of land through Mr R.G. Cook who had no authority, it is clear therefore that the deposit paid under that contract should be returned to the Purchasers and I so find.

7. In the event that I am in error concerning the authority of the Vendor to enter into the contract of sale then on the assumption that Mr R.G. Cook did have relevant authority, it is necessary to further consider the issue of misleading and deceptive conduct and the misrepresentation as alleged.

8. In dealing with the misrepresentations I accept and find as indicated earlier in this judgment that representations were made of the kind alleged.  The significant issue in the present case however in my view is the extent to which the Vendor was obliged to disclose to its agent and in turn to the prospective purchasers the details concerning the tenant known to the Vendor at least as at 25 September 2001. 

9. It is clear to me on a proper reading of the material and having regard to both conversations and correspondence with the tenant that the Vendor knew that the tenant was in financial difficulties.  Concerns were first raised by correspondence dated 9 August 2001 to which reference has already been made though of more significance is the letter dated 25 September 2001 which in my view has not been particularly ameliorated by the evidence concerning the conversation held between the tenant and Mr R.G. Cook.  The conversation may have sought to assist negotiations but it must be seen and considered against the letter of 25 September 2001 which stated in the clearest of terms that the tenant was “going through the most dangerous period of is 33 years of existence”.   In the circumstances where the Vendor instructs an agent to sell the property and is in possession of information of that kind, specific instructions and/or information should have been given to the Agent.  In selling a commercial property it would be reasonably expected of a vendor that prospective purchasers would be concerned about the security of a commercial tenant.  Inspection of the tenants premises even of a more extensive nature than in the present case would not necessarily reveal the true extent and nature of the financial difficulties then experienced by the tenant.  The minor reduction in rental by way of a deed of variation likewise would not provide in my view any or any sufficient warning to prospective purchasers of the significant financial difficulties of the tenant which were so clearly expressed in the correspondence of 25 September 2001.

10. I accept in the circumstances that the Agent had it been given the details then known to the Vendor would not have marketed the property to the Purchasers and/or would have made some alteration to the marketing strategy including a change to the reference to the tenant in the flyer as being “long established clothing manufacturer”.  At the very least one would expect an agent if it had been in possession of the information then known to the vendor that it would not have allowed that statement to be made in the flyer and would otherwise have ensured that arrangements for the tenant had been secured prior to the marketing of the property.

11. It is appropriate when considering the issue of silence as constituting misleading and deceptive conduct to apply the reasoning of Black CJ in Demagogue to which reference was made earlier.  I am satisfied in the present case that on a proper assessment of the circumstances there is conduct in the present case which could properly be found to be misleading or deceptive or conduct which likely to mislead or deceive.  Whilst accepting that “mere silence” as Chief Justice Black states can divert attention from the primary question of whether there has been conduct that is misleading or deceptive or is likely to mislead or deceive, I am satisfied in the context of the present case and having regard to the chronology which is set out earlier in this judgment that the Purchasers have discharged the onus of establishing that the failure to reveal the true circumstance of the tenant was conduct which could properly be regarded as misleading or deceptive or which was likely to mislead to deceive.  I further find that the Purchasers relied upon the representations which I have found to be misleading and deceptive and were thereby induced to enter into the contract of sale.

12. In my view it is also relevant to note that the Purchasers were known to the Agent and as a result of past business dealings the Agent would be well aware of the Purchasers desire to obtain a secure property in circumstances described earlier in this judgment.

13. To leave unsaid the circumstances leading to negotiations for rental reduction namely the letter of 25 September 2001 in my view clearly establishes the manner in which it could be concluded by this Court that the Vendor has engaged in misleading and deceptive conduct of a kind which would constitute a breach of s.52 of the Trade Practices Act or to the extent that it applies in the present contract, s.53A as this contract relates to the sale of an interest in land. Accordingly I find that the Purchasers have an entitlement to recover the deposit of $100,000 paid to them by way of damages for contravention of the relevant provisions of the Trade Practices Act.

14. In the circumstances having found that there was no authority and in the alternative that the misrepresentations as alleged have been proved, it is not necessary to consider in detail the issues which arose in relation to the two rescission notices. In passing, however, it is clear to me that the first rescission notice was defective as it provided no details of default and I am satisfied that the authorities referred to do not in the circumstances enable a Court to conclude that mere knowledge of due process in settlement of property is sufficient to remedy that defect. I am further satisfied that by the time of the second notice of rescission the parties had clearly evinced an intention not to proceed with the contract in any event. However, neither of those conclusions are necessary in the present application given my earlier findings in relation to the lack of authority and/or breach of the relevant provisions of the Trade Practices Act.

15. Likewise it is not necessary for me to consider in further detail the claim based upon unconscionable conduct.

16. It remains to consider the cross-claim of the Vendor against the Agent.  In my view the Agent has acted within authority and has not made representations of a kind which could properly be regarded as outside that authority.  The representations were made both orally as found and in the flyer and I am satisfied that at no stage did the Vendor advise the agent of the true circumstances of the tenant.  I am further satisfied applying the authority of Mullins v Miller that in this case the Agent at all material times acted within the scope of his authority.  Part of that authority was to represent the value of the property which in a commercial property must include issues relating to the security of the tenant.  The security of the tenant is not to be narrowly defined simply on the basis of whether or not rent has been paid but rather the long term security and that issue clearly has been dealt with in terms of reference to the tenant’s longevity and having raised that issue it is logical and appropriate that the Agent should have been given clear instructions and/or information by the Vendor as to the current circumstances of the tenant set out in the correspondence of 25 September 2001.

17. I can see nothing in the conduct of the Agent which would attract liability by the Agent to the Vendor.

18. It follows therefore that the cross-claim of the Vendor against the Agent filed 13 June 2002 should be dismissed.  It further follows that the cross-claim of the Agent dated 12 February 2003 against the Vendor should be upheld to the extent that there is any liability which arises as against the Agent on behalf of the Vendor.

19. In my view the claim by the Purchasers against the Agent should also fail on the basis that at all material times whilst the Agent was making representations of a kind which I have found actionable, the clear finding of this Court is that it was the silence of the Vendor in relation to the financial circumstances of the tenant which has provided the substantial basis for the claim of misleading and deceptive conduct.  That information regarding the tenant’s circumstances not known or conveyed to the Agent or conveyed to it by the Vendor led the Agent to make the representations of a kind in the flyer and otherwise which the Agent then believed to be correct.  It would not be appropriate to find the Agent liable in those circumstances though I find that it was reasonable for the Purchasers to join the Agent as a respondent.

Conclusion

1. It follows therefore that there should be judgment for the Purchasers against the Vendor on the basis that it did not validly enter into the contract note and that contract note should be declared to be void with the consequence that the deposit paid should be refunded to the Purchasers. In the alternative I am further satisfied there should be judgment by way of damages in the sum of $100,000 in favour of the Purchasers against the Vendor arising out of the breach of the relevant provisions of the Trade Practices Act and against the Seventh Respondent Ronald George Cook as I am satisfied that pursuant to s.75B of the Trade Practices Act he aided, abetted, counselled or procured the contraventions or was directly or indirectly knowingly concerned in or party to the contraventions having regard to my findings in relation to the issue of silence as to the financial circumstances of the tenant. Though it was reasonable for the Purchasers to join the other directors I am otherwise satisfied that it would not be appropriate for judgment to the entered against the Second to Sixth Respondents inclusive.

2. In my view in analysing the context of this case it is relevant to consider that knowledge was acquired by the Vendor as a consequence of correspondence and conversations with the tenant which at the very least may have lead the Vendor to conclude that the tenant amongst other things may ultimately have been subjected to administration whether voluntary or involuntary.  Ultimately that occurred and whilst it is not appropriate to conclude that that result would necessarily have been the conclusion reached by the Vendor, it would certainly be the case in my view that having regard to the contents of the letter of 25 September 2001 that it at least was a possibility which again simply underlines the significance of the information in the possession of the Vendor.  I should also add that in the circumstances it is unlikely that the tenant would disclose private financial information to prospective purchasers at a time when the tenant was seeking to survive.  Perhaps one indication of the somewhat flippant approach Mr R.G. Cook had in relation to the tenant’s plight and providing some further basis upon which the Court concludes as it does that he knowingly and deliberately withheld the information about the tenant is the following evidence which occurred during cross-examination of Mr R.G. Cook,

   “If I suggested to you, sir, that your concern was this:  it had nothing to do with Mr Tuan because your deal had been done with him.  Your concern was that if the rent was in fact that which Mr Tuan was telling you it was, it would substantially impact on the value the property, wouldn't it?---Well, Mickey Mouse would know that.”

   (transcript p.197 lines 24-29)

3. I shall hear submissions in relation to the precise form of orders.

I certify that the preceding one hundred and sixty (160) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date:  6 September 2004