State Bank of NSW v Fanny's Properties Pty Ltd (now known as Cessnock 6 Day Enduro Pty Ltd) and Anor.Hawkins v State Bank of New South Wales

[1999] NSWSC 1001

CITATION:	State Bank of NSW v Fanny's Properties Pty Ltd (now known as Cessnock 6 Day Enduro Pty Ltd) & Anor.Hawkins v State Bank of New South Wales [1999] NSWSC 1001
CURRENT JURISDICTION:	Common Law Division
FILE NUMBER(S):	014198/91; 011261/93
HEARING DATE(S):	23/8/99, 24/8/99, 25/8/99, 26/8/99, 27/8/99, 30/8/99
JUDGMENT DATE:	6 October 1999
PARTIES :	014198/91 - State Bank of NSW (Plaintiff) Fanny's Properties Pty Ltd (now known as Cessnock 6 Day Enduro Pty Ltd) (First Defendant) Fanny's Trading Pty Ltd (Second Defendant) Fanny's Properties Pty Ltd (now known as Cessnock 6 Day Enduro Pty Ltd) (First Cross Claimant) Fanny's Trading Pty Ltd (Second Cross Claimant) Russell John Hawkins (Third Cross Claimant) State Bank of NSW (Cross Defendant) 011261/93 - Russell John Hawkins (Plaintiff) State Bank of NSW (Defendant)
JUDGMENT OF:	Bell J at 1

COUNSEL :	Mr A S Bell (State Bank of NSW) Mr N Francey (1st and 2nd defendants and 1st, 2nd and 3rd cross claimants)
SOLICITORS:	Abbott Tout (State Bank of South Wales) Emery Partners (1st and 2nd defendants and 1st, 2nd and 3rd cross claimants)
CATCHWORDS:	TRADE PRACTICES; Misleading and deceptive conduct (Fair Trading Act 1987 (NSW) s 42) ; Contract for purchase of nightclub land and equipment; Claim by liquidator over hotelier's licence; Knowledge on part of vendor of liquidator's claim; Failure to impart knowledge to purchaser; Whether representation with respect to a future matter; Whether representation by silence; Whether reasonable grounds for making representation; Whether loss suffered as a result of contravention of Act (reliance); ESTOPPEL; Issue estoppel; Application of principles in Port of Melbourne Authority v Anshun Pty Ltd (No 2)
ACTS CITED:	Fair Trading Act 1987 (NSW) Federal Court of Australia Act 1976 (Cth) Supreme Court Act 1970 (NSW) Liquor Act 1982 (NSW)
CASES CITED:	Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589 Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Park v Allied Mortgage Corp Ltd (1993) ATPR (Digest) 46-105 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 Leda Holdings Pty Ltd v Oraka Pty Ltd (1997) ATPR 41-601 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 Finucane v NSW Egg Corp (1988) ATPR 40-863 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 W Scott, Fell & Co Ltd v Lloyd (1906) 4 CLR 572 Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445 Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) ATPR (Digest) 46-030 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Jones v Dumbrell [1981] VR 199 Bikane Pty Ltd v Netaf Pty Ltd (1988) ATPR (Digest) 46-041 Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 Netaf Pty Ltd v Bikane Pty Ltd (1990) 92 ALR 490
DECISION:	See paragraph 183

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

BELL J

Wednesday, 6 October 1999

014198/91 - STATE BANK OF NEW SOUTH WALES LTD (ACN 003 963 228) v FANNY’S PROPERTIES PTY LTD now known as CESSNOCK 6 DAY ENDURO PTY LTD & ANOR.

011261/93 - RUSSELL JOHN HAWKINS v STATE BANK OF NEW SOUTH WALES LTD (ACN 003 963 228)

JUDGMENT

HER HONOUR

Introduction

1    These proceedings arise out of the sale by the State Bank of New South Wales Ltd (“the Bank”) as mortgagee in possession of a night club known as “Fanny’s Tavern” in Newcastle. Russell Hawkins acquired two companies, Fanny’s Properties Pty Ltd (“Fanny’s Properties”) to purchase the land on which the club was situated and Fanny’s Trading Pty Ltd (“Fanny’s Trading”) to purchase the business and equipment. The two companies entered into contracts with the Bank; “the land contract” and the “equipment contract” respectively. The companies did not complete the purchases.

2    The Bank brought proceedings against Fanny’s Properties and Fanny’s Trading for breach of the land and equipment contracts. It was a condition of each contract that, in the event of default in the performance of any obligation which had become essential, the Bank was entitled by notice in writing served on the purchaser to forfeit the deposit and to terminate the contract. Following termination the Bank had the right to resell the property as owner and to recoup the deficiency (if any) arising on resale together with the expenses of and incidental to resale from the purchaser. The Bank claimed a total of $843,893.71 in damages for breach.

3    Fanny’s Properties and Fanny’s Trading (“the companies”) admitted the terms of the contracts as pleaded but said by way of defence that they had been induced to enter them on the faith of the Bank’s misleading and deceptive conduct. In this regard the companies pointed to the Bank’s failure to disclose that the liquidator of a company, which had previously operated the business of the nightclub, claimed the hotelier’s licence associated with the premises as an asset of that company.

4 The deposits paid in respect of the land and equipment contracts were provided to the companies by Mr Hawkins. Subsequently, Mr Hawkins commenced separate proceedings against the Bank. Those proceedings were ordered to be consolidated with the proceedings brought by the Bank against the companies. An amended cross-claim was filed following the order for consolidation. By the cross-claim Mr Hawkins and the two companies charge that the Bank engaged in conduct that was misleading or deceptive (or likely to mislead or deceive) in contravention of s 42 of the Fair Trading Act 1987.

5    The cross-claimants’ claim was pleaded in the alternative upon the basis that the Bank owed them a duty to act in good faith in the negotiations between them and that it was in breach of that duty. This was not pressed on the hearing of the matter.

6    In the way the matter proceeded there was no issue as to the terms of the contracts or the service of the Notices to Complete and the failure so to do. The central issue agitated on the hearing involved a consideration of the claim that the Bank engaged in misleading or deceptive conduct.

The Facts

7    In early 1989 Russell Hawkins was the proprietor of Cessnock Cellars. He was familiar with Fanny’s Tavern as a popular night spot in the Newcastle area. He was interested in acquiring the night club. He made inquiries and learned that the night club had a hotel licence. Mr Hawkins considered that Fanny’s Tavern had excellent investment potential.

8    In May 1989 Fanny’s Tavern ceased trading. Mr Hawkins was aware that Entertainment Incorporated Pty Ltd (“Entertainment Incorporated”) had been the operator of the business of Fanny’s Tavern and that it was in liquidation. At that time Mr Hawkins made an offer of $1.7 million to acquire Fanny’s Tavern. This offer was addressed to a person associated with Entertainment Incorporated. Mr Hawkins was advised that the matter was now in the hands of the Bank as mortgagee in possession but that his offer would be passed on. Around August 1989 Mr Hawkins was advised that the Bank did not consider the offer an acceptable one.

9    Mr Hawkins’ interest in acquiring Fanny’s Tavern was as a licensed nightclub. In early August 1989 he wrote to the Liquor Administration Board seeking information concerning the licence. He was advised by the Secretary of the Board that hotelier’s licence 117108 had been granted and that the licensee of the premises known as Fanny’s Tavern, Newcastle was Desmond John Keyes. The licence was transferred to Mr Keyes on 5 May 1988. Details of the manner in which licence fees were payable in respect of the premises were set out and Mr Hawkins was advised that there were no outstanding orders/notices against the premises. Mr Hawkins had been introduced to Mr Keyes early in 1989. He knew him to be an employee of Entertainment Incorporated.

10    Mr Hawkins’ view that Fanny’s Tavern had excellent investment potential was based on the circumstance that it was the only licensed premises in the newly created Honeysuckle development area and he understood that it had a profitable trading record. Prior to making the offer of $1.7 million to acquire the premises Mr Hawkins had not been given access to any trade figures relating to Fanny’s Tavern. He relied on industry sources for his opinion that the enterprise had a profitable record. Mr Hawkins also spoke with the previous management of the premises and, arising out of those discussions, he made an estimate of the weekly turnover of the Tavern.

11    Mr Hawkins subsequently submitted an offer in writing for the purchase of Fanny’s Tavern to Mr Geoffrey Ellison of Stapleton Denning, the Bank’s agent in possession. That offer was rejected. Mr Ellison informed Mr Hawkins that the Bank would be calling for tenders in the near future.

12    On 20 October 1989 the hotelier’s licence No 117018 (“the licence”) was provisionally transferred from Desmond Keyes to Geoffrey Ellison.

13    Sometime not later than 12th October 1989 the Bank, through its agent, appears to have been put on notice that Mr Hamilton, the liquidator of Entertainment Incorporated, claimed the licence as an asset of that company. On or about 9 November 1989 there was a meeting between Mr Ellison and Mr Hamilton. During that meeting Mr Hamilton referred to legal advice received from Bartier, Perry and Purcell supporting his claim to property in the licence. Mr Ellison in a letter dated 20 November 1989 but apparently not received by the liquidator until 22 November (thus crossing with the liquidator’s letter) denied the liquidator’s right to any interest in the hotelier’s licence.

14    On 28 November 1989 Mr Ellison again wrote to Mr Hamilton. He again referred to the liquidator’s claim in respect of the licence now held in his name. He said:

“We do not agree with your claim to the said licence but assure you that we would not distribute funds associated with the said licence if sold before this matter is resolved.”

15    By letter dated 4 December 1989, Colin Chapman Commercial, the Real Estate Agents retained by the bank wrote to Mr Hawkins enclosing a copy of the Fanny’s Tavern tender document. That document contained the following statement:

“ Hotel licence
The hotel licence has been transferred to the Agent for the Mortgagee in Possession as a provisional transfer and accordingly the successful tenderer would be entitled to expect a transfer from the provisional holder subject to the approval of the Licence Administration Board”.

Tenderers were required to state a money value on the hotel licence as part of their tender.

16    The tender document stated that Entertainment Incorporated had operated the business of Fanny’s Tavern and that certain equipment may be the property of that company. Tenderers were required to show a value for items so indicated on the inventory to enable an acceptance of the offer and an accounting by the Bank to Entertainment Incorporated.

17    There was no reference in the tender document to the liquidator’s claim to an interest in the licence.

18    Mr Hawkins responded to the call for tenders by letter, dated 14 December 1989, addressed to Mr Ellison making an offer to purchase (1) Fanny’s night club and tavern in the sum of $1,200,000 (2) the licence in the sum of $140,000 and (3) items listed in the inventory in the sum of $260,000. That offer was not accepted by the Bank.

19    Although Mr Hawkins offer of 14th December 1989 had not been accepted, he remained in the market as a potential purchaser of Fanny’s Tavern. He sought to obtain finance for the venture from the bank’s Business Banking Centre at Maitland (“the Maitland BBC”). On 23 February 1990 the Maitland BBC supplied Mr Hawkins with an “indicative offer” in respect of a financial facility in the amount of $1,950,000. The Bank reserved the right to reconsider the offer and to vary its terms. The offer was expressed to be subject to final approval. It was provided that no part of the loan would be made available until all security documents had been executed in accordance with the Bank's requirements. The Bank required first mortgage security over certain land and improvements owned by Mr Hawkins identified in a Schedule attached to the offer.

20    Mr Hawkins’ solicitors, Walsh James, wrote to the Bank on 2 March 1990 setting out the details of a fresh offer for the purchase of Fanny’s Tavern. The price offered was $1.85 million. It was noted that the freehold land and buildings would be purchased by a named company and the business, furniture, fittings and equipment would be acquired by another company. Attached to that letter was a copy of the Bank’s indicative offer of finance. Mr Hawkins’ offer was expressed to be “subject to that finance being available”. Further, the offer was said to be subject to a number of “additional conditions”. Those included:

(1) Transfer of liquor licence at premises;

(2) All licence fees paid up to date currently and will remain so to settlement;

(4) No outstanding orders etc (including orders from such bodies as the
Health Department or Fire Board) that may interfere in the operation of the premises as a licensed night club.

21    The Bank advised Walsh James of its “in principle’ acceptance of the $1.85 million offer by letter dated 21 March 1990. That acceptance was said to be “subject to satisfactory resolution of several of the conditions imposed”. It was noted in that letter that Stapleton Denning were currently finalising negotiations with the liquidator in regard to the list of equipment which was to be included on settlement. Once those matters, namely, the satisfactory resolution of several of the conditions imposed by Walsh James on behalf of Mr Hawkins together with the finalisation of negotiations with the liquidator were resolved to the Bank’s satisfaction, it was asserted that the Bank would issue the contracts.

22    On 20 March 1990 Mr Ellison wrote to the liquidator again disputing any claim that the liquidator may have in relation to the hotelier’s licence. In that letter Mr Ellison made an offer in an amount of $30,000 on behalf of the Bank in respect of all assets (including business names) claimed to be the property of Entertainment Incorporated including assets claimed by the liquidator which claims were denied by the Bank.

23    On the same day Mr Hawkins wrote to Mr Ellison asking if the latter would make representations to the Bank to allow him into possession of the night club under a licence prior to settlement. In that letter Mr Hawkins said:

“It is essential that I have prior notice to operate as a night club with regard to booking entertainers (some of whom can be booked six weeks or more ahead).”

Mr Hawkins proposed entering into possession on 9 April 1990.

24    On 26 March 1990 the liquidator wrote to Stapleton Denning noting receipt of their letter of 20 March and advising that he was endeavouring to obtain a valuation as to both the business name and the liquor licence. He advised that the valuation was not expected for the period of another one to two weeks. He stated that he would be in contact with Stapleton Denning in relation to the offer made on behalf of the Bank as soon as the information was available. Stapleton Denning appear to have received that communication on 28 March 1990.

25    On or about 29 March 1990 the Bank’s solicitors wrote to Walsh James advising that in accordance with instructions received from their client they enclosed a counterpart of an agreement “for sale of the property, business names, liquor licence and chattels”.

26    The agreement for sale annexed to the letter of 29 March 1990 was not the final agreement as exchanged between the bank and Fanny’s Properties.

27    On 9 April 1990 Mr Ellison applied to the Licensing Court for the transfer of the licence to Stephen Hickson (the nominee of Mr Hawkins).

28    Also on 9 April 1990 the Maitland BBC advised Mr Hawkins of its approval of a loan facility in an amount of $110,000. The purpose of the facility was the payment of the deposit for the purchase of the property known as Fanny’s Tavern.

29 On 11 April 1990 the Licensing Court at Newcastle granted the application for the provisional transfer of the Fanny’s night club licence from Geoffrey Ellison to Stephen Hickson (Mr Hawkins’ nominee) pursuant to s 61(3) of the Liquor Act. The court listed the matter for confirmation hearing on 14 June 1990.

30    On 11 April 1990 the Bank’s solicitors wrote to Walsh James enclosing the equipment contract together with revised special conditions to form part of the land contract. It was proposed that exchange might take place on 12 April 1990.

31    On 11th April 1990 Mr Hawkins entered into possession of Fanny’s Tavern and commenced trading. Mr Hawkins had been anxious to take possession not later than this date in order to trade over the Easter period.

32    The land and equipment contracts were both exchanged on 12 April 1990. The sum of $50,000 was paid by way of deposit in respect of the equipment contract and a bank guarantee in the sum of $50,000 was provided by way of deposit on the land contract.

33    The land contract contained the following special condition relating to the transfer of the licence and business name:

“20. Transfer of licence and business name
The vendor shall diligently and expeditiously do all such things as shall be reasonably required of it to effect the transfer of hotelier’s licence number 117108 (‘the licence’) (copies annexed hereto) and the business names of ‘Fanny’s Tavern’ and ‘Smoky Joe’s Café’ to the purchaser, Fanny’s Trading Pty Ltd or its nominee. The purchaser acknowledges that all costs and expenses associated with the documentation and finalisation of the transfers will be to the account of the purchaser and that the purchaser will tender all necessary documents to effect such transfers to the vendor for execution prior to completion. The purchaser further acknowledges that the Licence and the business names do not form part of this Agreement and agrees not to raise any claim for compensation, objection nor requisition in respect of the Licence, business names of ‘Fanny’s Tavern’ and ‘Smoky Joe’s Café’ and the transfer of same.”

34    It is to be observed that the contract submitted to Walsh James on 11 April 1990 specifically provided that the purchaser acknowledged that the licence did not form part of the agreement. This is in contrast to the form of special condition submitted to Walsh James on an earlier occasion (Ex 11):

“21. Transfer of licence and business name
The vendor shall diligently and expeditiously do all such things as shall be reasonably required of it to effect the transfer of hotelier’s licence number 117108 (copies annexed hereto) and the business names of ‘Fanny’s Tavern’ and ‘Smoky Joe’s Café’ to the purchaser, Paulandic Pty Ltd or its nominee. The purchaser acknowledges that all costs and expenses associated with the documentation and finalisation of the transfers will be to the account of the purchaser and the purchaser will tender all necessary documents to effect such transfers to the vendor for execution prior to completion. The purchaser agrees not to raise any claim for compensation, objection nor requisition in respect of the Licence, business names of ‘Fanny’s Tavern’ and ‘Smoky Joe’s Café’ and the transfer of same.”

35    As at 12th April 1990 the liquidator was still maintaining his claim with respect to the licence for Fanny’s Tavern.

36    The land and equipment contracts both provided for completion within four weeks of exchange. Provision was made thereafter for the vendor to serve Notices to Complete within fourteen days of the date of the notice.

37    On the Wednesday or Thursday of the week following the exchange of contracts Mr Hawkins was informed by Sergeant Sutton of the Newcastle Licensing Police that an objection to the transfer of the liquor licence to Stephen Hickson was going to be lodged. Mr Hawkins stated (para 21, statement, 1 May 1998) that he had telephoned Ray Louis of Stapleton Denning following his discussions with Sergeant Sutton. He recalled Mr Louis saying words to the effect:

“Don’t worry about it, I have spoken with the Licensing Sergeant, you will still be allowed to trade. Hamilton, the liquidator who is lodging the objection, is extremely difficult to deal with, he just wants money from the bank. I don’t think the bank will pay him anything. He will stop when he runs out of money.”

38    It was Mr Hawkins’ account that his first notice of the liquidator’s claim came in the conversation with Sergeant Sutton. Mr Bell, who appeared for the Bank, submitted that I would not accept Mr Hawkins’ evidence in this regard. Among other things, Mr Bell pointed to the fact that no objection was made by the liquidator until 8 May 1990. How might it be suggested that the licensing police were aware of the objection on or about 19 April? Mr Bell submitted that I would find Mr Hawkins was on notice of the liquidator’s claim prior to 19 April. In this regard he placed emphasis on a passage in the cross-examination of Mr Hawkins at (T.110.50-11.15; cf. 59-60). This concerned when Mr Hawkins was first given a copy of the liquidator’s report to the creditors. When first questioned on this topic Mr Hawkins said he had been given a copy of the report by Mario Secanti in late April or early May 1990 (T.60.4). This was after the date of exchange. When he was further cross examined on this area Mr Hawkins reiterated that the report had first come into his possession after the contracts were signed. He went on to say “so you would be talking March, April something like that” (T.110.51). He corrected himself shortly thereafter and said he would have received the report in “May/June of that year” (T.110.57). I considered that Mr Hawkins answer at T.110.51 was a simple mistake. When he corrected himself it seemed to me he was correcting a genuine mistake and not seeking to recover from an inadvertent concession.

39    I consider that had Mr Hawkins been aware of the Liquidator’s claim prior to 12th April it is highly likely that he would have made inquiries either of the Bank or Stapleton Denning about the matter. There is no indication that he did so. I do not consider the account Mr Hawkins gave as to being told of the claim by Sgt Sutton improbable. It receives support from the evidence of Ray Louis, an employee of Stapleton Denning. Mr Louis recalled that he had received a telephone call from Mr Hawkins shortly after the latter commenced trading at Fanny’s Tavern. He recalled Mr Hawkins saying words to the effect, “I have heard that there will be an objection to the transfer of the liquor licence”. I note that Mr Louis was not aware prior to the exchange of contracts of any unresolved claim by the liquidator. Had Mr Louis been aware of such a claim it was his account that he expected he would have told Mr Hawkins. I accept Mr Hawkins’ account that he had no notice of the liquidator’s claim prior to the date of exchange.

40    On 8 May 1990 Bartier, Perry and Purcell wrote to the Liquor Licensing Court, Newcastle, advising that the liquidator wished to object to the transfer application which was listed for hearing on 14 June 1990. On the same day Bartier, Perry and Purcell wrote to Mr Ellison formally making a demand on behalf of the liquidator that he acknowledge that he held the liquor licence in trust for Entertainment Incorporated.

41    On 16 May 1990 the Clerk of the Newcastle Court wrote to Walsh James informing them of the objection and advising that the matter had been now listed for 25 June 1990. As things turned out this was an error and the confirmation hearing remained fixed for 14 June.

42    On 17 May 1990 the Bank’s solicitors wrote to Walsh James drawing attention to the terms of the land contract as to settlement within four weeks of exchange. By that letter the Bank nominated 28 May 1990 as the date for settlement.

43    On 17 and 18 May 1990 Walsh James wrote letters to Bartier, Perry and Purcell and to Sergeant Sutton generally asserting that their client was a bona fide purchaser for value without notice in relation to the licence. Bartier, Perry and Purcell were asked to obtain an undertaking from their client not to lodge an objection or take any other action which might interfere with the confirmation of the provisional licence granted to Mr Hickson. In the letter to Sergeant Sutton, Walsh James made reference to advice received from Mr Grieve QC, the tenor of which was that the liquidator’s objection was defective both as to form and content.

44    On 18 May 1990 Walsh James wrote to the Bank’s solicitors enclosing copies of their correspondence with Bartier, Perry and Purcell. That letter included the following assertion:

“We trust that this matter will be amicably resolved. However, we wish to formally place you on notice that pursuant to our client’s contract for the purchase of the land and asserts, our client of course requires the valid transfer of the relevant liquor licence as being germanic to the sale.
We also refer to your recent purported Notice to Complete. First, we take the view that it is not a valid notice. Secondly, because of this dispute with the liquidator, it appears to us that the bank is not now in a position to complete, and is therefore not entitled to issue any Notice to Complete.”

45    On 21 May 1990 Bartier, Perry and Purcell wrote to Walsh James declining to give the undertakings that had been sought.

46    Walsh James responded to the letter from Bartier, Perry and Purcell setting out in a detailed way why it was suggested that the liquidator’s claim to an interest in the licence was misconceived. The demand for undertakings that the liquidator would take no action to in any way prejudice their client’s continued conduct of the business was renewed.

47    An instalment of the Fanny’s Tavern licence fee in an amount of $33,250 was payable to the Liquor Administration Board on or before 15 May 1990. Mr Hawkins, through his solicitors, was in the weeks leading up to 15 May seeking to have the Bank pay the licence fee upon the basis of an adjustment on settlement. In the event the Bank did not pay the fee and on 22 May 1990 the Board suspended the licence. It became an offence to trade thereafter. The Board advised Stapleton Denning (in a letter which was sent by that firm to Walsh James) that if the instalment was not received by 16th July 1990 the licence would be cancelled.

48    On 28 May 1990 the Bank’s solicitor wrote to Walsh James stating that the Bank had not negotiated the sale of the premises conditional upon the transfer of the liquor licence. The Bank drew attention to special condition 4 in the land contract (the Bank had given no warranty as to the use of the premises). The Bank advised that unless the purchaser settled on or before 30 May 1990 steps would be taken to proceed with the issue of a Notice to Complete in accordance with special condition 10 of the agreement.

49    Walsh James replied to the Bank’s solicitor, by letter dated 30 May 1990, complaining that the purchaser had been given no notice that the liquor licence was the subject of any dispute with another party. It was noted that the application for confirmation of the licence was listed for hearing on 14 June 1990. The writer expressed optimism about the licence being approved on that occasion and asserted that thereafter the purchaser would be in a position to effect settlement. It was suggested that that was an appropriate time for settlement given what was described as the “unexpected turn in the progress of this matter”. In that letter the writer stated that it was impossible to contemplate settlement on 30 May 1990 even if the Bank were entitled to require it.

50    On or about 7 June 1990 the liquidator lodged his Notice of Objection to the transfer of the licence with the Licensing Court. Bartier, Perry and Purcell served a copy of the notice and supporting affidavit by letter dated 7 June which appears to have been received by Walsh James on 8 June.

51    On 13 June 1990 Bartier, Perry and Purcell wrote to the Licensing Court referring to their Notice of Objection and enclosing a copy of a Summons issued in the Equity Division of this Court. In these proceedings Entertainment Incorporated sought a declaration that it was the beneficial owner of the hotelier’s licence. The defendants to the proceedings were Geoffrey Ellison, the Bank, Stephen Hickson (Mr Hawkins’ nominee) and Fanny’s Night Club Pty Ltd. An affidavit in support sworn by Mr Hamilton, the liquidator, was also attached. A copy of the letter and enclosures was sent to Walsh James.

52    On or about 2 July 1990 it appears that Kerry Murphy of Walsh James had a telephone discussion with Gary Heath of the Bank about the payment of the outstanding licence fee. Mr Heath is recorded (in a file note prepared by Murphy) expressing concern about the possibility that the Bank might lose its money should it ultimately appear that the licence belonged to Entertainment Incorporated. The matter was left on the basis that Mr Heath would consider the position and get back to Mr Walsh. There was a further telephone attendance between Mr Murphy and Mr Heath on 6 July 1990. Mr Heath indicated the Bank was waiting on Walsh James’ response concerning settlement dates. On that day Walsh James wrote to the Bank asserting that to the best of the writer’s knowledge his client still intended to finance the transaction with the Bank. The letter went on to state:

“The major concern for our client at this stage is the liquor licence. Our instructions are to arrange settlement once the issue of the licence has been determined and pending the final approval of our client’s application for finance to the State Bank in Maitland.”

53    On 9 July 1990 the Bank’s solicitors wrote to Walsh James. In that letter the Bank reaffirmed its position that the transfer of the licence was not part of the land contract. However, it was noted that the Bank had sought external legal advice from Mr Palmer of Abbott Tout Russell Kennedy concerning the liquor licence. It was stated that the Bank had been advised that there was a method by which “the complications surrounding the issue and perfection of the liquor licence might be erased and the licence transferred to a reputable nominee”. The Bank indicated a willingness to facilitate the transfer of the licence and to proceed to completion of the sale of the property upon the purchaser agreeing to a number of conditions as set out in that letter. Those conditions were:

(i) provision to the Bank of an unconditional and approved loan offer from a Bank or Building Society;

(ii) adjustment of the liquor licence fee on settlement of the sale of the
property;

(iii) payment of the Bank’s legal and administration costs in perfecting the
liquor licence situation.

54    In their response of the same date Walsh James stated that their client proposed attending on the Bank the following day to seek confirmation of the loan approval. However, in the light of the uncertainty about the licence, the writer expressed concern as to whether an approval would be obtained, particularly whilst the licence fee remained unpaid and the purchaser was suspended from trading. Their client was said to be seeking to reopen the premises on 12 July 1990 (subject to the payment of the licence fee). It was suggested that the client would be in a better position to obtain the loan once trading was resumed.

55    An internal memorandum prepared by Mr Basili and Mr Walker of the Maitland BBC, dated 10 July 1990, records:

“At this point in time we are unable to state whether any further financial assistance will be extended to Hawkins to assist with the purchase of Fanny’s Tavern.”

The memorandum went on to recite that information from the corporate section suggested that Mr Hawkins was to be served with a Notice to Complete. It was noted that the question of the ownership of the liquor licence had been in contention and “obviously without this licence Hawkins is unable to trade and operate Fanny’s as licensed premises”.

56    Mr Basili had a telephone discussion with Mr Hawkins on 10 July 1990. In the course of that discussion it appears that Mr Basili reaffirmed that the Maitland BBC had not issued an approval of the loan facility nor would such an approval be forthcoming until satisfactory valuations were obtained in respect of all the proposed security properties and financial results to 30 June 1990 in respect of Fanny’s Tavern and Cessnock Cellars were available. In the course of this discussion Mr Basili advised that the Bank would like “lead time” of at least three weeks to enable the valuations to be undertaken and reports obtained and analysed. Mr Hawkins advised Mr Basili not to request valuations at that stage.

57    On 11 July 1990 the Bank’s solicitors wrote to Walsh James advising that Fanny’s Properties’ licence to occupy the premises was at an end. Fanny’s Properties was required to vacate by 11 am on that date. On the same day the Bank served Fanny’s Properties and Fanny’s Trading with Notices to Complete the land and equipment contracts respectively on or before 26 July 1990.

58    On 17 July 1990 the Bank was served with the Summons issued by Entertainment Incorporated in the Equity Division. The return date was 23 July 1990.

59    As at 26 July 1990 it appears that neither Fanny’s Properties nor Fanny’s Trading were in a position to complete the purchase of the premises and equipment. Walsh James requested an extension of time. The Bank declined to agree to the same.

60    On 1 August 1990 the Bank purported to terminate both the land contract and the equipment contract by letter to Walsh James.

61    On 21 September 1990 Mr Justice Bryson dismissed the Summons brought by Entertainment Incorporated.

62    On 24 September 1990 Walsh James wrote to Abbott Tout Russell Kennedy, the Bank’s solicitors, asserting that at the time of the issue of the Notice to Complete and as at the date nominated for completion the Bank had not been in a position to fulfil its obligations under the contract. In those circumstances it was contended that the Notice to Complete was invalid. The Bank’s subsequent purported termination of the contract was said to have been without cause and to amount to a repudiation of it entitling the purchaser to a refund of the deposit monies.

63    On 11 October 1990 Mr Hawkins attended the Licensing Court at Newcastle and asked that the transfer of the licence to his nominee be confirmed. It does not appear that either the Bank or the liquidator was present on that occasion. Mr Hawkins informed the court that Mr Justice Bryson had dismissed the liquidator’s Summons. Mr Hawkins was unrepresented on this occasion. He gave evidence. In the course of so doing the Magistrate asked Mr Hawkins this question and received the following reply:

“Q. In what capacity do you have an interest in the premises that are known as Fanny’s Night Club or Fanny’s Tavern?
A. I am the owner of the company Fanny’s Trading Pty Ltd.”

64    The transfer of the licence to Mr Hickson as Mr Hawkins’ nominee was confirmed by the Licensing Court on that day.

65    On 30 November 1990 the Bank commenced proceedings in the Equity Division of this Court against Stephen Hickson, Mr Hawkins, Fanny’s Properties and Fanny’s Trading seeking a declaration that Mr Hickson held the licence on trust for the Bank together with consequential orders. The proceedings were disposed of by Hodgson J (as he then was) on Tuesday, 4 December 1990. On that day it appears that Mr Hickson, Mr Hawkins, Fanny’s Properties and Fanny’s Trading sought to interplead. His Honour made orders in terms of those sought in the Bank’s Summons.

66    On 12 December 1990 the Bank sold both the land and equipment to Vantona Pty Ltd (“Vantona”). The land was sold for the sum of $974,000 and the equipment for $71,780. In all the Bank’s shortfall, including expenses relating to the resale, amounted to $843,893.71.

The Bank’s Claim for Breach of Contract

67    The Bank claims as against Fanny’s Properties and Fanny’s Trading damages for breach of contract; namely, the failure to complete the contracts. The Bank seeks to recover the difference between the purchase price agreed under the contracts and the price realised upon the ultimate sale to Vantona together with the expenses associated with the resale.

68    The land contract was in the standard form approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales. Standard condition 9 provided that in the event of default by the purchaser in the observance or performance of any obligation which had become essential the vendor was entitled by notice in writing to forfeit the deposit paid and to terminate the agreement and thereafter, inter alia, to resell the property and to recover the deficiency arising on such resale together with all expenses of and incidental to such resale from the purchaser as liquidated damages. The contract was signed and exchanged on 12 April 1990. Completion was due on or before 11 May 1990. Special condition 10 provided that in the event that either the vendor or the purchaser was unwilling or unable to complete in accordance with the first schedule the other party would be entitled at any time on or after the date nominated for completion to serve a Notice to Complete making time essential and in that regard a period of fourteen days’ notice should be viewed as reasonable and sufficient.

69    A Notice was issued on 11 July 1990 whereby the Bank required completion of the land contract on or before 26 July 1990.

70    The equipment contract was also signed and exchanged as between Fanny’s Trading and the Bank on 12 April 1990. That agreement was by paragraph 9 expressed to be conditional upon and subject to the completion of the land contract and the provisions of the land contract were deemed (where applicable) to be incorporated into the equipment contract. By paragraph 14 provision was made, in the event of default by the purchaser, for the vendor by notice in writing to forfeit the deposit, terminate the contract and sue the purchaser for breach of contract. A Notice to Complete the equipment contract was also served by the Bank on Fanny’s Trading on 11 July 1990 nominating 26 July 1990 as the date for completion.

71    It is common ground that Fanny’s Properties and Fanny’s Trading failed to complete on or before the date fixed for the same.

72    The defendants, Fanny’s Properties and Fanny’s Trading, plead by way of defence that the Notices to Complete issued on 11 July 1990 were not of any force or effect by reason that the plaintiff was in breach of the land and equipment contracts at the time of the service of the Notices. The particulars of breach are as pleaded in the Amended Cross-Claim:

(a) the Bank had not done diligently, expeditiously or at all such things as
were reasonably required of it to effect the transfer of the licence to
Fanny’s Properties or its nominee;

(b) in particular, it took no appropriate steps in relation to proceedings
S3085 of 1990 as alleged in paragraph 32 of the Cross-Claim;

(c) it denied that it was under any obligation under the land contract to do
any such things or otherwise in relation to the licence.

73    The defendants, Fanny’s Properties and Fanny’s Trading, further plead that neither of them was under an obligation to complete the contract nor was the Bank entitled to terminate the same by reason of the Bank’s breaches of contract as alleged in the Cross-Claim and in addition, or in the alternative, by reason of the fact that the Bank was not in any event ready, willing and able to complete the land contract or the equipment contract.

74    The references to the Bank’s breaches of contract alleged in the Cross-Claim refer to the particulars of breach outlined in paragraph 72 above.

75    The breach relied upon by the defendants is of special condition 20 relating to the transfer of the licence and business name. That condition required the vendor to “diligently and expeditiously do all such things as shall be reasonably required of it to effect the transfer of hotelier’s licence No 117108 … to the purchaser”. The final sentence of that condition contained an acknowledgment by the purchaser that the licence did not form part of the agreement.

76    The bank had consented to the transfer of the hotelier’s licence from its agent in possession, Geoffrey Ellison, to Mr Hawkins’ nominee, Stephen Hickson. That provisional transfer was approved by the court on 11 April 1990. On that date the confirmation hearing was listed for 14 June 1990. All that remained was for the court to pass on the question of whether the licence should be confirmed in the name of Mr Hawkins’ nominee.

77    The Bank was bound to diligently and expeditiously do all such things as shall be reasonably required of it to effect the transfer of the licence. The Bank had done all that it could do to effect the transfer by procuring the provisional transfer in favour of Stephen Hickson on 11 April 1990. The only persons or bodies able to reasonably require of the Bank anything in this respect were the court and the purchaser. It was not in the Bank’s power to ensure confirmation of the provisional transfer in favour of the purchaser’s nominee. This was a matter for the Court. It was not open to Walsh James to require the final transfer of the licence prior to settlement. Indeed, when regard is had to the time frame contemplated by the contract, namely, settlement within four weeks of the date of exchange, it is clear that the confirmation of the licence in the name of the purchaser’s nominee was to take place after completion.

78    As to the second particular of breach of special condition 20, that the Bank took no appropriate steps in relation to the proceedings S3085 of 1990 in the Equity Division of this Court, this was only faintly pressed by Mr Francey in the course of submissions. The facts are that the Bank was not served with the Summons in the Equity proceedings until 17 July 1990. On receipt of the Summons the Bank acted promptly. It wrote to Bartier, Perry and Purcell the following day advising that the Bank proposed instructing external solicitors in relation to the matter and expressing concern that a Summons issued on 13 June had not been served in a more timely fashion. It is clear that the Bank liaised with Walsh James and, as at 19 July 1990, had conveyed that it proposed opposing the proceedings in the Supreme Court. Walsh James, on behalf of the defendants, did not seek that the Bank do anything further in this regard. In due course the Bank put on a motion for expedition and, as noted above, the proceedings were disposed of before Mr Justice Bryson on 21 September 1990.

79    The third particular as to the Bank’s alleged breach of special condition 20 was that “it denied that it was under any obligation under the land contract to do any such things or otherwise in relation to the licence”. There is no evidence that the Bank denied it was obliged to diligently and expeditiously do all such things as were reasonably required of it to effect the transfer of the licence to the purchaser or its nominee. It consistently maintained that it was under no obligation pursuant to the land contract to effect the transfer of the licence. This is a different matter. I do not consider that the Bank’s insistence on its view of the contractual obligation in these terms establishes a breach of special condition 20.

80    The final sentence of special condition 20 was in these terms:

“The purchaser further acknowledges that the licence and the business names do not form part of this agreement and agrees not to raise any claim for compensation, objection nor requisition in respect of the licence …. and the transfer of same.”

81 The land contract was neither expressly nor impliedly conditioned upon the transfer of the licence nor the confirmation of the same by the Licensing Court. The licence was not suggested to form part of the contract. Fanny’s Properties agreed that it would raise no objection in respect of the licence or its transfer. Putting to one side a consideration of the claim advanced pursuant to the Fair Trading Act 1987, I do not consider that the Bank was in breach of its obligations under the land contract pursuant to special condition 20.

82 The defendants’ further defence to the Bank’s claim in breach of contract (apart from the Fair Trading Act claim) is that they were not under an obligation to complete the contracts, nor was the Bank entitled to terminate the same, by reason of the fact that the Bank was not ready, willing and able to complete the contracts. This, in turn, depends upon an acceptance that the Bank was in breach in connection with the transfer of the hotelier’s licence. For the reasons already set out above, I do not consider there is substance to this defence.

Sale At An Undervalue

83    The defendants further submitted, in answer to the Bank’s claim in breach of contract, that the resale of the land and equipment was at an undervalue and that the Bank failed to take all reasonable steps to mitigate its loss. The only evidence in support of this contention to which Mr Francey pointed related to the terms of the contract for sale of the land between the Bank and Vantona. Special condition 22 of that contract bore some handwritten alterations. In its original typewritten form that special condition had provided for completion on the later of the dates set out in the first schedule or the date upon which the provisional transfer of the licence to the purchaser or the purchaser’s nominee should take place and, further, that completion should not be conditional upon the transfer of the licence to the purchaser or the purchaser’s nominee. The handwritten alterations to special condition 22 had the effect of making completion subject to the full and final transfer of the licence to the purchaser or the purchaser’s nominee. The agreement was, by the terms of the special condition as amended, conditional upon the transfer of the licence.

84    From the appearance of special condition 22 in the contract with Vantona Mr Francey invited me to infer that the Bank had persisted up to the date of the auction in seeking to sell the land with no guarantee as to the licence. This, it was submitted, particularly in light of the unhappy history, would be likely to have deterred potential purchasers from bidding for Fanny’s Tavern. This matter was not taken up with Mr Heath who gave evidence on behalf of the Bank. There was no evidence as to the circumstances in which the condition came to be altered. I do not consider there is evidence upon which I might conclude in the defendants’ favour that the Bank did not take all reasonable steps to mitigate its loss.

The Fair Trading Act Claim and the Anshun Estoppel

85 Central to a resolution of the issues raised by these proceedings is a consideration of the defendants’ claim that the Bank engaged in misleading and deceptive conduct contrary to s 42 of the Fair Trading Act 1987. Before turning to this matter it is necessary to deal with the Bank’s submission that the defendants are estopped from reliance on such a claim. The Bank pleads the estoppel by reference to the following history.

· By facsimile dated 27 November 1990 the Bank’s solicitors advised the then solicitors for Mr Hawkins, Emery Sheriff and Watson, that the Bank claimed an interest in and entitlement to the licence. The Bank sought undertakings from Mr Hickson, Fanny’s Properties and Fanny’s Trading to the effect that they would provide for a retransfer of the licence to the Bank’s nominees.

· By facsimile dated 28 November 1990 Emery Sheriff and Watson on Mr Hawkins’ behalf refused to provide the undertakings and claimed that Fanny’s Trading, Fanny’s Properties and/or Mr Hickson were seized of all legal and equitable interest in the licence to the exclusion of the Bank and others and asserted that the licence formed no part of the land contract.

· On 30 November 1990 the Bank commenced proceedings in the Equity Division of the court, being proceedings No S5681 of 1990, against Mr Hawkins, Mr Hickson, Fanny’s Properties, Fanny’s Trading and the Licensing Court of New South Wales seeking various orders and declarations concerning the transfer of the licence to Mr Hickson on 11 October 1990.

· The licence recovery proceedings were heard and determined by Hodgson J who delivered reasons for judgment on 4 December 1990 and made the following declarations and orders:

“1. The first defendant, Stephen Hickson, holds the hotelier’s licence serial number 117108 (‘the licence’) being a licence in respect of licensed premises at corner of Argyle Street, Canterbury and Wharf Road, Newcastle (‘the premises’) on trust for the first plaintiff.


2. The decision of the fifth defendant (the Licensing Court of New South Wales) in confirming the transfer of the licence from Geoffrey McNeil Clarke Ellison to the first defendant on 11 October 1990 is void and of no effect.
3. The first defendant transfer the licence to the first plaintiff’s nominee, Stephen Gower Baker, or such other person as the plaintiff may direct in writing.
4. Each of the first, second, third and fourth defendants by themselves or their servants and agents, be restrained from selling, disposing, mortgaging, encumbrancing or otherwise dealing with the licence pending the determination of these proceedings.
5. The first defendant by himself or his servants or agents be permanently restrained from lodging or prosecuting any application to remove the licence from the premises.
6. The plaintiff have liberty to apply on one day’s notice for any consequential relief.”

86    The Bank contends that Fanny’s Properties, Fanny’s Trading and Mr Hawkins are estopped from raising claims in these proceedings which could have been raised in the licence recovery proceedings and, accordingly, that the cross-claim ought be dismissed.

87    It is the Bank’s submission that the claims advanced in the cross-claim might all have been agitated in the proceedings before Hodgson J. Emphasis is laid on the letter from Emery & Partners dated 28 November 1990 and in particular the concluding statements contained therein:

“The application for removal of hotelier’s licence is to be pursued and any proceedings that your client may commence will be defended. We give notice that at that time our client will be cross-claiming, seeking damages for wrongful repudiation of the agreement for sale of land and for such other matters as it may be advised are available to them together with interest and costs.”

88    In the event, in the proceedings before Hodgson J the cross-claimants did not raise by way of equitable defence the matters now relied upon as amounting to misleading and deceptive conduct by the Bank.

89 Reliance is placed on the observations of the court in Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589 at 602-603:

“There will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding.”

90 Mr Bell submits that the failure to bring a cross-claim in the proceedings before Hodgson J was unreasonable. The cross-claim pleaded in the present proceedings, it is submitted, was intimately connected with the Bank’s claim in the earlier proceedings in the sense that each arose substantially out of the same matters of fact. Reliance was also placed on the decision of the Full Court of the Federal Court in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 at 298. The Court there emphasised the desirability of claims intimately connected with each other being litigated at the one time, thereby minimising costs and avoiding the possibility of inconsistent judgments, by reference to s 22 of the Federal Court of Australia Act 1976 (Cth) which, it is noted, has its counterpart in s 63 of the Supreme Court Act 1970 (NSW).

91    Mr Bell submitted that where a claim made in later proceedings arises substantially out of the same matters of fact as appears in earlier proceedings, the Anshun principle precludes the party not just from raising a defence which could have been raised in the earlier proceedings but also from bringing a positive claim in the later proceedings unless that party can point to the existence of “special circumstances”. The reference to special circumstances takes up the observations of the Full Federal Court in Bryant at 298. Mr Bell submitted that special circumstances were not made out in this case. In particular, he pointed to the fact that the cross-claimants’ solicitors contemplated bringing a cross-claim (embracing the matters the subject of the present cross-claim) in the proceedings before Hodgson J. It is urged that a conscious decision must have been taken at the time not to pursue these claims.

92    Mr Francey submitted that the Emery, Sheriff and Watson letter of 28 November 1990 must be viewed in the light of the fact that, as at that date, the Summons had not been served. The assertion made in that letter was that, “any proceedings that your client may commence will be defended”. In general terms the solicitors gave notice of the claims made by their clients against the Bank and that such may be advanced in any proceedings “as may be advised”.

93    Mr Francey submits that once the proceedings were commenced in the form in which they were it would have been clear to the defendants that it was impossible to support the confirmation of the licence in favour of Mr Hickson and, accordingly, that any defence should be abandoned. As noted earlier, the defendants sought to interplead on the date set for hearing.

94    Mr Francey also referred to the speed with which the proceedings were dealt with and submitted that this reflected the then pending resale of the nightclub. Fanny’s Tavern was sold at auction on 12 December 1990. Mr Francey submits that the inference might readily be drawn that the auction had been advertised some time in advance of that date. The proceedings before Hodgson J were commenced on 30 November. That was a Friday. Leave was granted to abridge the time for service of the Summons to 5 pm on that day. The matter was heard the following Tuesday, 4 December.

95 As at 8th May 1990 when Entertainment Incorporated lodged its Objection to the transfer of the hotelier’s licence to Stephen Hickson the provisional transfer ceased to have effect by virtue of s 61(4) of the Liquor Act 1982 (NSW). The Licensing Court’s attention did not appear to have been drawn to this circumstance when on 11th April1990 that Court purported to confirm the provisional grant of the transfer. The argument in favour of the contention that the confirmation was void was, to say the least, strong.

96    I accept that the urgency with which the proceedings were brought on for hearing might be thought to arise from the pending sale at auction of the premises the subject of the licence. It is unlikely that the parties would have been ready, or the that the court would have been in a position to deal with the matters raised by the cross-claim, at the hearing fixed for 4 December. The issues raised by the proceedings before Hodgson J were discrete. I do not consider that the failure of the defendants to raise by way of cross-claim the matters the subject of the present cross-claim in the proceedings before Hodgson J was in all the circumstances unreasonable.

The Misleading and Deceptive Conduct Claim

97 The cross-claimants, Fanny’s Properties, Fanny’s Trading and Mr Hawkins, plead that the Bank engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, contrary to s 42 of the Fair Trading Act 1987 in that it represented to the cross-claimants:

(a) that it was and would be on completion of the land contract and the
equipment contract entitled to transfer or procure a transfer of the licence (subject to the approval of the Licensing Court) to a purchaser of the property;

(b) that it would use its best endeavours to co-operate with the cross-
claimants and do all things reasonably required of it to procure such a
transfer;

(c) that it knew of no impediment to such transfer;

(d) that it had had made against it and knew of no claim or circumstances
adverse to its right or ability to make or procure such a transfer

whereas the said representations were not true or not based on reasonable grounds and the cross-claimants rely on s 41 of the Fair Trading Act 1987.

98    The cross-claimants point to the statement in the tender document:

“The hotel licence has been transferred to the agent for the mortgagee in possession as a provisional transfer and, accordingly, the successful tenderer would be entitled to expect a transfer from the provisional holder subject to the approval of the Licence Administration Board.”
Mr Francey submitted that this statement amounted to a representation as to a future matter and that the Bank did not (in the light of the liquidator’s claim) have reasonable grounds for making it.

99    Mr Bell submits that the Bank had reasonable grounds for making the representation contained in the tender document. Its agent had received a transfer of the licence on 20 October 1989 and no objection was taken to that transfer by any person. The Bank intended to transfer the licence to the purchaser. So much is confirmed by its conduct on 9 April 1990 in making the application to the Licensing Court for the provisional transfer of the licence to Mr Hawkins’ nominee.

100    As to the second particular of misleading and deceptive conduct pleaded by the cross-claimants, namely, that the Bank would “use its best endeavours to co-operate with the cross-claimants and do all things reasonably required of it to procure such a transfer” Mr Bell submits that this allegation adds little, if anything, to the claim based upon an alleged breach of special condition 20 of the land contract.

101    The third particular as to misleading and deceptive conduct pleads that the Bank represented that it “knew of no impediment to such transfer”. To this Mr Bell submits that if there was a representation it was one made by silence. Even if such might be established from conduct it was not misleading. There was no impediment to the transfer of the licence. All the Bank knew of was an unjustified claim by the liquidator which it had continuously rejected.

102 The final particular of misleading and deceptive conduct alleged by the cross-claimants is that the Bank falsely represented to Mr Hawkins “that it had had made against it and knew of no claim or circumstances adverse to its right or ability to make or procure such a transfer”. Mr Bell submits that there is no evidence of such a representation having been made expressly. To the extent that such a representation might be inferred or implied it is a representation by silence. In this respect Mr Bell placed reliance on the observations of Gleeson CJ in Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475:

“Where parties are dealing at arms’ length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not in itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. It would normally only be if there were an obligation of full disclosure that a different result would follow. That could occur, for example, by reason of some feature of the relationship between the parties, or because previous communications between them gave rise to a duty to add to or correct earlier information.”

103 Mr Bell also referred me to the observations of Davies J in Park v Allied Mortgage Corp Ltd (1993) ATPR (Digest) 46-105 at 53,471:

“Parties dealing at arms length are not expected to disclose all their knowledge or to be too nice or precise in their discussions. Conduct which merely causes doubt or uncertainty is not, without more, conduct in breach of s 52.”

104 It was Mr Bell’s submission that where the conduct relied upon as establishing a contravention of s 42 of the Fair Trading Act depends upon a failure to speak it is incumbent on the claimant to demonstrate that the failure was advertent or deliberate. This, he submitted, flowed from the definition of “refusing to do an act” in s 4(4)(b) of the Act. In this respect he drew my attention to the observations of per Bowen CJ in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489.

105 Generally Mr Bell submitted that the Bank was under no duty to make a statement to Mr Hawkins concerning the liquidator’s claim. The relationship of vendors and purchasers is not one, it was submitted, which would ordinarily be expected to give rise to a duty of disclosure: Rhone-Poulenc at 490 per Bowen CJ; see too Leda Holdings Pty Ltd v Oraka Pty Ltd (1997) ATPR 41-601 at 40,514.

106    The Bank relies on the circumstance that this was a substantial commercial transaction in which Mr Hawkins’ interests were represented by experienced solicitors. The solicitors were aware that the Bank’s title to the land derived from the mortgage between it and Tasmal Pty Ltd. Armed with this information together with such inquiries as the solicitors might care to make the purchaser was in a position to correctly rebut the liquidator’s claims.

107    Considerable emphasis was placed by Mr Bell on the circumstance that at a creditors’ meeting on 18 December 1989 a proposal to fund the liquidator to bring proceedings asserting his claim in respect of the licence was defeated. As at that date, it is submitted, the Bank was entitled to take the view that the liquidator, lacking funds, would not pursue his claim. Further, reliance is placed on the continuous rejection by the Bank of the validity of any claim made by the liquidator. Mr Bell put it this way:

“It is plain that from November 1989, the Bank had resolutely rejected the liquidator’s claim. In response to those clear rejections, the liquidator did nothing even though he was on notice that the Bank’s agent, Ellison, had become licensee in October 1989. The Bank, moreover, knew from the December 1989 meeting of creditors that the liquidator had no funding to raise any objection."

108    In the light of the above, taking into account the fact that the liquidator’s claim ultimately proved fruitless, and having regard to the observations in both Lam and Park, the Bank submits that it cannot be said that it engaged in misleading and deceptive conduct in not disclosing the liquidator’s misconceived claim to Mr Hawkins.

109    I consider that the statement contained in the tender document set out in paragraph 98 above does amount to a representation with respect to a future matter, namely, that the successful tenderer would be entitled to expect, in the ordinary course, a transfer of the licence from the provisional holder (subject to the approval of the Licence Administration Board).

110 I turn now to a consideration of whether there were reasonable grounds for making the representation. As noted above, in the absence of such the representation is taken to be misleading by virtue of s 41(1) of the Fair Trading Act. The fact that the liquidator had not objected to the transfer of the provisional licence to Mr Ellison, the Bank’s agent in possession, on 20 October 1989, does not to my mind provide reasonable grounds for the assertion that the successful tenderer would be entitled to expect a transfer from the provisional holder.

111    Mr Ellison, as the agent in possession, obtained the provisional transfer of the licence upon a limited basis, namely, that he would not trade. The approval of Mr Ellison as licensee upon this basis may not have been seen by the liquidator as prejudicing his claim. More importantly, whatever the liquidator’s position may have been as at 20 October 1989, the Bank was on notice as at 4th December 1989 (date the tender document was supplied to Mr Hawkins) that the liquidator had obtained legal advice from a reputable firm of solicitors which was said to support his claim as to property in the licence. Further, the liquidator was asserting that Mr Ellison accepted that he held the licence on trust for Entertainment Incorporated. As at 4th December 1989 the liquidator had not been denied funds to pursue any such claim at a meeting of the creditors of Entertainment Incorporated. No question thus arises of whether it was reasonable or not for the Bank to assume that the liquidator would not in the end pursue any claim.

112 Apart from the operation of s 41(1) of the Fair Trading Act, in the light of the representation contained in the tender document, I would, in any event, hold that the Bank’s conduct arising out of the failure to disclose the liquidator’s claim was relevantly misleading within the meaning of s 42 of the Act. Contrary to Mr Bell’s submission, I do not consider this to be a “silence” case in a real sense. The Bank was not purporting to be selling the land without reference to the licence. The tender document specifically addressed the issue of the licence and invited tenderers to tender upon the basis of a nominated value for the licence. The representation in the tender document as to the licence did not, having regard to the liquidator’s claim, fairly represent the true position.

113 This is not a case of the purchaser being left to make his own inquiries. Rather, the assertion in the tender document was, without more, apt to lead a tenderer to consider that, in the ordinary course, the licence might be transferred subject to the transferee being a fit and proper person. A partial disclosure of information may be misleading or deceptive unless full disclosure of all relevant information is given: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83; Finucane v NSW Egg Corp (1988) ATPR 40-863 at 49,342.

114 In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, Gummow J (as he then was) in a judgment with which Black CJ agreed, said (at 40):

“’Conduct’ within the meaning of s 52 includes refusing to do an act and refusal to do an act includes a reference to ‘refraining (otherwise than inadvertently) from doing that act’: s 4(2). But in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct. The expanded meaning given by s 4(2) to ‘conduct’ should not distract attention from the fundamental issue in the case at hand.
Spender J indicated in the passage I have set out earlier in these reasons, that the present case concerns both a positive misrepresentation, as to the provision of vehicular access, and misleading conduct from the failure to say anything about the Road Licence, with the whole of the circumstances creating in the respondents the clear but erroneous impression that there was nothing unusual concerning access to the site.
In my view, to inquire in such a case whether an independent ‘duty to disclose’ has arisen is to digress from the application of the terms of s 52. Thus, in Rhone-Poulenc (supra) the basic proposition for which the appellants unsuccessfully contended was that a manufacturer who sells a product it knows is bought by consumers for the purpose for which it was made, contravenes s 52 if the sale and use of the product is unlawful and the product is liable to forfeiture and the manufacturer has not made this known to consumers: see Rhone-Poulenc at 505-506, per Lockhart J. Again in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83, the positive statement on behalf of the restaurant vendor that the restaurant seated 128 people was, in the circumstances of the case, misleading when unqualified by words which distinguished the actual capacity from the licensed capacity, that being a matter of vital importance given the nature of the business sold. In my view it is unhelpful to describe that result, involving as it does a contravention of s 52, as the product of the breach of any ‘duty’ imposed upon the vendor by that section.”

115    In Demagogue, Gummow J went on to state this principle (at 41):

“But, consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive.”

116 I note that in Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 at 582, Brownie J found that for the bank in that case to remain silent in circumstances where its instructions from its customer had changed, thereby allowing the customer to successfully engage in a sharp practice against the plaintiff builder, amounted to misleading conduct within the meaning of s 52 of the Trade Practices Act 1974.

117 In Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 at 53,195, French J observed:

“If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, s 52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure.
The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.”

118 The above is cited by Gummow J in Demagogue at 41 as suggesting that s 52 may be given full effect without entirely doing away with what Barton J described as “superior smartness in dealing”: W Scott, Fell & Co. Ltd v Lloyd (1906) 4 CLR 572 at 580.

119    In my view the representation concerning the hotel licence contained in the tender document was such as to give rise to the reasonable expectation that if some relevant fact bearing on the probability of the transfer in due course to the successful tenderer of the licence existed it would be disclosed.

120 As noted above, Mr Bell relied on the observations of Gleeson CJ (as he then was) in Lam at 475. The passage extracted at paragraph 102 above concludes with his Honour’s observation that previous communications between the parties may give rise to a duty to add to or correct earlier information. Again, in the light of the representation contained in the tender document, this seems to me apt in the circumstances of the present case. I do not see Lam as standing in the way of a view that in the circumstances of this case, having regard to the tender document, the Bank’s conduct was misleading within the meaning of s 42 of the Fair Trading Act.

Reliance

121 Section 42(1) proscribes a person, in trade or commerce, engaging in conduct that is misleading or deceptive or is likely to mislead or deceive. It is not necessary to show that the claimant was misled or deceived or that he or she was induced to enter a contract by virtue of that conduct. However, in order to obtain damages it is necessary for a claimant to show that loss was suffered as a result of the defendant’s contravention of the Act: Henjo. The orders available upon a finding that misleading and/or deceptive conduct has been established, pursuant to s 72 of the Fair Trading Act, are discretionary. In this case the cross-claimants claim damages pursuant to s 68 of the Fair Trading Act together with an order under s 72 of that Act that the provisions of the land contract and the equipment contract not be enforced against Fanny’s Properties or Fanny’s Trading.

122    It is necessary to turn next to the consideration of what, if any, reliance was placed by Mr Hawkins and/or the companies on the misleading conduct.

123 On the Bank’s behalf it was put that there was no evidence from Mr Hawkins in terms that, had the Bank told him of the liquidator’s claim, he would not have caused the companies to enter into the contracts. It was submitted that the court would not be prepared to draw an inference in favour of the cross-claimants in a case such as this where the matter was susceptible of express proof: Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445 at 460-461.

124 Mr Bell drew attention to special conditions 3, 4 and 20 of the land contract which, it was submitted, militate strongly against the drawing of any inference as to reliance. In this regard, my attention was drawn to the decision of the Full Federal Court in Leda Holdings at 40,516. That case concerned the lease of a shop premises in a shopping centre. The lessee in conversations with a representative of Jones Lang Wootton, the lessor’s agent, was encouraged to think that the shopping centre would be a success. It was not suggested that any representation made in the course of those discussions was not reasonable in the circumstances. Following those conversations the lessee signed a document titled “Letter of Intention to Lease” addressed to Jones Lang Wootton. That document contained a clause in which the intended lessee acknowledged that he would not rely, inter alia, upon any representation as to the suitability of the centre or the profitability of any business conducted from the centre. Thereafter, at a meeting held in order to settle the proposed agreement, the lessee asked a director of the lessor about the progress of letting other shops in the centre. He was informed that the lessor was finding tenants slowly but “they will be there on the day, there is nothing to worry about”. The trial Judge held that the lessor had engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act by failing to correct their director’s assumption that the centre would be fully occupied prior to its opening.

125    On appeal the majority (Branson and Emmett JJ) allowed the appeal and remitted the cross-claim to the trial Judge for consideration. Their Honours noted that the alleged failure to make the disclosure (as to occupancy rates) was to be considered against a background that included the circumstance that the lessee was experienced in business and had negotiated some seventy shopping centre leases in the past. Those past dealings included contact with Jones Lang Wootton to whom he had looked in this instance for detailed information concerning the progress being made in attracting tenants to the shopping centre. There was evidence that the lessee was aware that Jones Lang Wootton would not agree to include in any agreement for lease a provision that a certain occupancy level had to be achieved prior to the tenant incurring an obligation to pay rent or to open for business. The lessee was aware that he could at any time obtain information from Jones Lang Wootton as to the status of negotiations with prospective tenants in the shopping centre.

126 On the question of reliance and inducement the majority in Leda Holdings noted the observations of Gummow J in Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) ATPR (Digest) 46-030 at 53,086:

“… s 52 is not designed for the benefit of persons who fail, in the circumstances of the case, to take reasonable care of their own interests … it would be wrong to select particular words or acts which, although misleading in isolation, do not have that character when viewed in context …”.
Their Honours noted that this view was in a real sense little different from that taken by the High Court in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 515 per Mason CJ (with whom in this respect Toohey and Gaudron JJ agreed), namely, “the common law tradition is that what was the cause of a particular occurrence is a question of fact which ‘must be determined by applying common sense to the facts of each particular case’.”
They concluded in the circumstances of that case that if the lessor had been intending to rely on the statement made by the director “it would be nothing less than extraordinary for him to execute the agreement for lease knowing it contained a provision such as clause 9 (the disclaimer)”. The lessee had available to him ample means for obtaining specific information relating to the progress of leasing the other shops in the centre.

127    Mr Bell submitted that in considering the issue of whether or not reliance may be inferred it was significant to consider that there was no complaint in any of the extensive written correspondence passing between Walsh James and the Bank between the date when Mr Hawkins first discovered the liquidator’s claim and mid-September 1990 in terms that the Bank had misled or deceived Mr Hawkins. Mr Bell notes that the first time Walsh James raised such a complaint was in the letter of 24 September 1990 addressed to Abbott Tout Russell Kennedy following the dismissal of the liquidator’s Summons. Had Mr Hawkins truly been aggrieved by the conduct of the Bank it is submitted that one would expect to have seen an earlier complaint.

128    Mr Bell submitted that if I accepted Mr Hawkins was not aware of the liquidator’s claim until after exchange (as I do) I should still not infer that, had he known of it, he would not have proceeded with exchange. The evidence, Mr Bell submits, is quite to the contrary and supports the competing inference. It is noted that Mr Hawkins wanted to acquire Fanny’s Tavern as early as May 1989 and that his interest remained unabated throughout that year. Mr Hawkins was prepared to sign the land contract and the equipment contract without finance being in place and without the protection of a “subject to finance” clause. He showed an eagerness to move into possession of the premises and commence trading prior to exchange. It must be taken, so Mr Bell submits, that Mr Hawkins accepted the risk that his nominee as licensee would not be confirmed since the confirmation hearing was to occur after the date for completion. When Mr Hawkins became aware of the liquidator’s claim he took advice from his solicitor and Mr Grieve QC. The advice was characterised by Mr Bell as “strong, unqualified and entirely correct”. Mr Hawkins did not seek to set aside the contract with the Bank. Rather, he sought more time for settlement, conduct which was consistent with his desire to acquire the premises.

129    Taking into account the matters referred to in paragraph 128 above, Mr Bell submits that, had the liquidator’s claim been disclosed prior to exchange, I would infer that Mr Hawkins would have taken the same advice and reached the same conclusion, namely, that the liquidator’s claim was without foundation. Given Mr Hawkins’ desire to acquire the property and the suggestion that there were other interested buyers, he would have proceeded taking his chances, just as he took his chance with respect to approval of finance.

130    Mr Bell submitted that I would not accept Mr Hawkins as a reliable witness. He supplied me with a Schedule setting out in point form references to passages in the evidence of Mr Hawkins which were said to be illustrative of unreliability.

131    In a case such as this where the events occurred almost ten years ago the contemporary documents provide the most satisfactory basis for making factual determinations. However, in the light of the detailed submissions advanced concerning Mr Hawkins’ credit, and having regard to the significance of my assessment of him both as to the issue of when he first became aware of the liquidator’s claim and as to matters going to reliance, it is appropriate that I make the following observations. However, I do not propose going through the Schedule point by point. Suffice it to say that I did not consider a number of the entries evidenced unreliability. By way of example; one of the criticisms made of Mr Hawkins’ evidence related to the topic of whether or not he had given instructions to Walsh James to brief Mr Grieve QC to prepare an advice in relation to the liquidator’s objection. Generally, it was Mr Hawkins’ evidence that he had no recall of instructing his solicitors to brief senior counsel. This, it is submitted by Mr Bell, is unworthy of belief. The experience of ordinary affairs suggests that a firm of solicitors would not retain senior counsel to provide an advice without express instructions. Unlikely as that may be, I accepted Mr Hawkins recollection in this regard. It was, in a sense, a matter of no moment. Of significance was the circumstance that Mr Grieve’s advice had been drawn to Mr Hawkins’ attention at the time it was given. Mr Hawkins at all times admitted this. I accept he has no recall of giving specific instructions that Mr Grieve be retained.

132    On a number of occasions Mr Hawkins made concessions to the cross examiner. Given that he struck me as an astute man, I had no doubt that when he made concessions he understood his answers were not advancing his case.

133    The one matter going to Mr Hawkins’ credit that I found troubling involved his evidence concerning the Newcastle Licensing Court hearing in October 1990. I have already extracted the relevant question and answer in paragraph 63 above. When this topic arose in the course of his cross-examination, Mr Hawkins volunteered that he sincerely regretted lying by omission to the Magistrate. That answer came late in the day and shortly thereafter the court adjourned. The following day Mr Bell returned to the topic and Mr Hawkins’ answers impressed me as somewhat less forthright. He was asked what he had in mind when he said that he had lied by omission and said:

“It was pointed out to me in the proceedings in the Supreme Court where the licence was - the licence transfer from - sorry, the licence confirmation to Hickson was squashed. My barrister pointed out to me that I had been in his words ‘a naughty boy’ at the court. His interpretation of my answer to that question was that I had not lied as such, none - nothing that I spoke was untrue, it simply was confused and I was confused by the Magistrate’s question.”

134    I have difficulty accepting that Mr Hawkins was, as he put it, confused by the Magistrate’s question. I considered his earlier statement that he had lied by omission to the Magistrate to be a truthful one fairly reflecting the way matters had unfolded before the Licensing Court. Overall, notwithstanding the caution that his admission to having misled the Magistrate must engender, I was inclined to accept Mr Hawkins.

135    I return to the question of the evidence touching on the issue of whether Mr Hawkins would have caused the companies to enter into the contracts had he known of the liquidator’s claim. In his Statement, Exhibit 1, made on 1 May 1998, Mr Hawkins said:

“I refer to the paragraph entitled Hotel Licence of the document entitled Form of Tender being exhibit ‘RJH1’. The first paragraph under that heading was crucial to my decision to submit an offer for the purchase of the property. Without the hotel licence I would not have been interested in purchasing Fanny’s.”

136    Mr Hawkins was not cross-examined on this paragraph of his Statement.

137    The evidence is clear that Mr Hawkins was interested in obtaining Fanny’s Tavern with a view to re-opening the night club business. It is common ground that Mr Hawkins was anxious to enter into possession of the premises prior to the Easter break in order to take advantage of holiday trading. He entered into possession on the day the provisional licence was issued in favour of his nominee. The land and equipment contracts together represented an investment of $1.85 million in the business known as Fanny’s Tavern. Without the hotelier’s licence plainly the proposition was less attractive. I accept that the representation concerning the transfer of the hotelier’s licence was critical in Mr Hawkins’ decision to arrange for the purchase of Fanny’s Tavern.

138    The above finding does not meet the Bank’s submission that, having regard to Mr Hawkins’ overall desire to obtain the property, and in the light of what is said to be the liquidator’s meritless claim, he would have entered the contract notwithstanding notice of the claim.

139    I do not accept that at the time these events were unfolding the liquidator’s claim was viewed by either the Bank or Mr Hawkins as entirely lacking in substance. The liquidator had sought and obtained legal advice from a reputable firm of solicitors and he continued to press his claim thereafter. Proceedings in the Equity Division of this Court were commenced to vindicate that claim. The circumstance that both the Bank and Mr Hawkins, through his solicitors, maintained that the liquidator’s claim was without merit does not determine the issue.

140    As at May of 1990 Mr Heath, the Bank’s Business Relationship Manager, appears to have been concerned that the liquidator’s claim may succeed . A Walsh James file note around the same time records Mr Hawkins expressing similar concerns. As at May 1990 it appears neither the Bank nor Mr Hawkins were of the view the liquidator’s claim was one that might for practical purposes be discounted. Mr Grieve QC was subsequently to advise that the liquidator’s claim was without merit. However reassuring that may have been Mr Hawkins was aware that the liquidator’s advice was likely in differing terms since he had lodged a formal objection with the Licensing Court and foreshadowed the commencement of the proceedings in the Equity Division.

141    The proceedings before Bryson J were dismissed without prejudice to the plaintiff’s right to recommence proceedings. It appears that following the dismissal of these proceedings the liquidator sought counsel’s advice in this regard. An advice prepared by Mr. Kildea of 8 October 1990 was in evidence before me. That sets out something of the background to the liquidator’s claim and helps to understand the basis upon which it was advanced. It does not seem to me that I should approach this matter upon the basis that the liquidator’s claim was so wholly lacking in substance that, had Mr Hawkins been aware of it prior to 12th April 1990, he would have dismissed it. I consider that had Mr Hawkins been aware of the liquidator’s claim he would not have arranged for the companies to enter contracts for the purchase of Fanny’s Tavern upon the terms which they did.

142    Mr Bell submitted that any representation contained in the tender document was no longer operative as at 12 April 1990 when the companies entered the contracts. Mr Hawkins’ offer of 14 December 1989 (made in response to the tender document) was not accepted by the Bank. Subsequently Mr Hawkins made a fresh offer in relation to the purchase of Fanny’s Tavern, by letter dated 2 March 1990. This offer was expressed to be conditional on a number of matters. Relevantly, it was a “subject to finance” offer and was dependent upon the transfer of the liquor licence. The Bank, in responding to that offer by its letter of 21 March 1990, indicated that its in principal acceptance of the offer was subject to satisfactory resolution of several of the conditions imposed by Mr Hawkins. The parties were negotiating afresh, so it is submitted.

143    On 29 March 1990 the Bank enclosed the agreement for sale with the earlier form of special conditions. In the covering letter the agreement was said to be for the sale of the property, business names, liquor licence and chattels. A memorandum prepared by Kerry Murphy of Walsh James dated 30 March 1990 makes plain that careful consideration was given by Mr Hawkins’ solicitors to the terms and conditions of the land contract. Subsequently, by letter dated 11 April 1990, a set of revised special conditions was submitted by the Bank in relation to the land contract. Special condition 20 differed from special condition 21 attached to the contract as earlier submitted. Special condition 20 made clear that the licence was not to form part of the agreement.

144    Relying on the observations of the majority in Leda Holdings, Mr Bell submits that it is inconceivable that Mr Hawkins was relying on any representation contained in the tender document at the time he procured Fanny’s Properties to enter into the land contract containing as it did the revised form of special condition 20. Mr Bell points to the circumstance that in the Bank’s letter of 29 March 1990 it was noted that the Bank had received “further substantial offers for the property”. Mr Hawkins was an experienced businessman. He had been warned by Mr Basili of the dangers of entering into an agreement to purchase without a guarantee as to finance. His offer of 2 March 1990 had been expressed as being subject to finance and yet in his enthusiasm to acquire Fanny’s Tavern, and in the knowledge that there were other purchasers in the market, he was prepared to enter a contract without such a provision.

145    I do not accept that the representation contained in the tender document had ceased to have effect. Following the rejection of his offer made in response to the call for tenders Mr Hawkins remained in the market as a potential buyer of Fanny’s. He was in contact with the Maitland BBC in relation to financing the purchase of the nightclub. The Bank facilitated the transfer of the provisional licence to Mr Hawkins’ nominee. That took place on 11 April 1990. As far as the licence was concerned matters had unfolded consistent with the representation contained in the tender document. The provisional licence had in fact been transferred to his nominee at the date Fanny’s Properties executed the land contract.

146    The significance of the revised form of special condition 20 given the fact that the provisional licence had been transferred to Mr Hawkins’ nominee was not likely to impress itself on Mr Hawkins or those who advised him.

147 At common law representations once made continue with the consequence that a representation true when originally made becomes a misrepresentation if it ceases to be correct and the changed position is not communicated to the representee: Jones v Dumbrell [1981] VR 199. This principle applies in relation to claims pursuant to the Trade Practices Act 1974 (Cth) and its Fair Trading Act equivalents: Bikane Pty Ltd v Netaf Pty Ltd (1988) ATPR (Digest) 46-041. Given the history of dealings between the Bank and Mr Hawkins in connection with the purchase of Fanny’s Tavern I consider that the representation contained in the tender document was still operative as at the date of exchange.

The Cross-Claimants’ Loss

148    The cross-claimants plead that they have suffered loss in two respects (i) the loss of the deposits being a sum of $100,000 and (ii) trading losses sustained in the period 12 April to 11 July 1990. With respect to the loss of deposits the Bank submits that the cause of this loss was the failure to complete the contracts and not any misleading or deceptive conduct.

149    In support of the above submission Mr Bell points to the fact that the contracts were exchanged at a time when finance was not in place. The Bank’s indicative offer was subject to satisfactory valuations on the properties offered as security yet Mr Hawkins had taken no steps to authorise the same. It is submitted that an examination of Mr Hawkins’ position as at May/June 1990 suggests financial difficulties was the real and substantial reason for the companies’ failure to complete. Further, there is evidence that the trading figures were down on Mr Hawkins’ expectations. It is submitted that as at July 1990 Mr Hawkins was of the view that he had contracted to acquire the Fanny’s Tavern at an overvalue. Mr Hawkins was conscious that he was not personally liable to the Bank. The failure to complete was submitted to evidence a conscious decision to forfeit the deposits and enter into fresh negotiations with the Bank at a substantially lower figure. The Bank relied on the contents of a memorandum sent by Mr Hawkins to Kerry Murphy of Walsh James on 19 October 1990, Exhibit L.

150    Mr Hawkins was cross-examined to establish that he had not furnished his solicitor in a timely fashion with a cheque to cover the payment of stamp duty in respect of the two contracts. In total this was a sum of approximately $77,000. Further, emphasis was laid on Mr Hawkins’ failure to attend to the payment of the second instalment of the licence fee. The properties which he had offered as security for the loan facility which he sought from the Bank were already mortgaged to other financial institutions. A condition of the approval of the loan was that the Bank obtain first mortgages in respect of those properties.

151    This submission needs to be evaluated in the light of the negotiations between Mr Hawkins and the Maitland BBC. On 9 April 1990 the latter office agreed to provide Mr Hawkins with the deposit comprising a cash advance of $50,000 and a bank guarantee for $50,000. In total Mr Hawkins was advanced a sum of $110,000 on that occasion being an overdraft in the amount of $60,000 together with a bank guarantee in favour of the Bank in the sum of $50,000. That facility was to be repaid by 30 June 1990 or earlier on re-finance of the proposed purchase of the property known as Fanny’s Tavern. The precis of the loan approval document records:

“Customer requires funds as deposit on property known as Fanny’s night club located in Newcastle. Financial position considered sound. CRA satisfactory. Personal factor good.”

152    On 10 July 1990 Mr Basili and Mr Walker of the Maitland BBC prepared a memorandum concerning Mr Hawkins’ application. That memorandum recorded that information received from the Bank’s corporate area suggested that Mr Hawkins was to be served with a Notice to Complete for settlement within fourteen days. It continued:

“The matter of liquor licence ‘ownership’ has apparently been an area of contention with the State Bank liquidators acting on behalf of failed Muir company. Obviously without this licence Hawkins is unable to trade and operate Fanny’s as licensed premises.”
The memorandum went on to recommend that the overdraft and bank guarantee facilities be extended for a period of a further three months pending the outcome of the Fanny’s deal. An office minute prepared by Mr Basili records telephone discussions between him and Mr Hawkins on 10 July 1990. Mr Basili noted that Mr Hawkins had confirmed that there had been a “problem” with the Bank’s corporate area and liquidators concerning the liquor licence over Fanny’s. In the course of this discussion Mr Basili confirmed with Mr Hawkins that the Bank would like “lead time” of at least three weeks to enable all valuations to be undertaken and reports obtained and analysed. Mr Hawkins advised Mr Basili not to request valuations at that stage and to await the receipt of the requirements from the corporate section.

153    It is apparent that the proposal under consideration by the Maitland branch was a re-financing package in an amount in excess of $2.5M. This proposal contemplated that existing creditors holding first mortgage facilities over Mr Hawkins’ properties would be paid out. As at 10 July 1990 the evidence suggests that the Maitland BBC remained willing to re-finance Mr Hawkins subject to the valuations on the various properties disclosed in the schedule to the initial application being satisfactory. I do not infer from Mr Hawkins’ evidence on this topic that the failure to authorise the obtaining of valuations (with the payment of the fees associated with the same) arose from a concern that the properties might not be valued within the range of the estimates he had provided to the Maitland BBC in the course of discussions.

154    As at 10 July 1990 the liquor licence in respect of Fanny’s Tavern had been suspended. The liquidator was claiming an interest in the licence. Negotiations as between Mr Hawkins’ solicitors and the Bank concerning the payment of the licence fee pending settlement had foundered with a bank officer expressing concerns that, should the liquidator’s claim succeed, the Bank could not recover the licence fee from Entertainment Incorporated.

155    On 9 July 1990 a file note prepared by a solicitor at Walsh James recorded a telephone attendance with Mr Hawkins. That relevantly recorded that he had “not organised finance yet”. The notation also records: “How get unequivocal finance on this when suspended” and “not prepared to wear their legal costs”. The latter appears to be a reference to the contents of the letter addressed to Walsh James by the Bank’s solicitor of 9 July 1990, referred to in paragraph 53 above, in which it was suggested that Mr Hawkins might pay Abbot Tout Russell Kennedy’s costs in “perfecting” the transfer of the licence.

156    As at 10 July 1990 there was nothing in Mr Hawkins’ dealings with the Maitland BBC to suggest that finance might not be available in accordance with the tenor of earlier discussions. The uncertainty concerning the licence was plainly a matter of significance. So much is clear from Mr Basili’s memorandum of 10 July 1990. Before finance might be approved finally it would be necessary to supply trading figures. This could not be done whilst the licence was suspended. The Bank was refusing to pay the licence fees not, it would seem, because payment of the fees by the bank had not been contemplated by the parties (subject to adjustment on settlement) but, in part at least, because of the difficulties created by the liquidator’s claim. The Bank was suggesting that Mr Hawkins might pay additional legal costs associated with overcoming the liquidator’s objection. It appears Mr Hawkins considered that an unreasonable request. That is where matters stood when the Bank terminated Mr Hawkins’ licence and required him to vacate Fanny’s Tavern by 11 am on 11 July 1990.

157    There are indications in the contemporary documentation that Mr Hawkins was not satisfied with the trading figures. In particular, telephone attendance notes prepared by a solicitor with Walsh James on 2 July 1990 include the following:

“T/A Russell Hawkins.
Prepared to settle. Want the licence Q sorted out along with finance which is dependent as finance - problems with tdg (trading) figures - Q about lab (Liquor Administration Board).”

158    Mr Bell placed particular reliance on a further telephone attendance note prepared by a solicitor at Walsh James dated 11 June 1990. Again it recorded a telephone attendance with Mr Hawkins. Amongst other things that note asserted:

“Happy to keep it open for SB. Not worth 1.85 on tdg to date.”
Mr Bell invites me to draw the inference that the import of that note is that as at 11 June 1990 Mr Hawkins’ attitude was that the trading results revealed the business was not worth the $1.85 million which his companies had contracted to pay for it and that Mr Hawkins’ attitude was that he was happy to renegotiate with the Bank to acquire the business at a lower price.

159    Mr Hawkins was cross-examined concerning the trading results for the period during which he operated the night club. He acknowledged that they were lower than his expectations. It was his account that he attributed this to the uncertainty concerning the licence. He denied that he considered he had otherwise made a bad bargain. He explained that the takings were affected by the booking of successful entertainment acts. To attract quality performers it was necessary to book well in advance.

160    After the contracts were terminated by the Bank and following the dismissal of the liquidator’s proceedings in the Equity Division, as noted in paragraph 63 above, Mr Hawkins attended the Licensing Court and obtained an order confirming the transfer of the provisional licence in favour of his nominee. Thereafter on 19th October 1990 he sent a memorandum to his solicitor (Ex L) in which he sought advice concerning a proposal to re-open negotiations with the bank upon the basis of an offer of $900,000 associated with the threat to ‘remove’ the licence from the premises at 317 Wharf Road occupied by Fanny’s Tavern. I do not consider that Mr Hawkins’ proposal of 19th October 1990 provides a proper basis for drawing an inference that as at May - July 1990 his intention was to avoid the contractual obligations to which his companies were subject. Although he sought to delay settlement pending the resolution of the licence issue the evidence does not suggest that at that time he was seeking to walk away from the contracts.

161    The fact is that it was the Bank who moved to cancel Mr Hawkins’ licence. From there on Mr Hawkins’ position in terms of ability to complete the contract was bleak. He was not in a position to show trading figures for the business since he was no longer trading. He was aware of the Supreme Court proceedings, a copy of the summons and affidavit having been furnished to his solicitors on or about 13 June 1990. The first return date of those proceedings in the Equity Division was some three days prior to the expiration of the Notice to Complete.

162 I reject the submission that the loss of the deposits flowed from Mr Hawkins’ and his companies’ inability to obtain finance or from Mr Hawkins’ desire to avoid his contractual obligations because of unsatisfactory trading figures. I consider that Mr Hawkins was induced to procure his companies to enter into the contracts in consequence of the misleading conduct of the Bank and that the companies’ loss, in terms of the deposits, flowed from that: Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410.

163 The claim in respect of trading losses invites different considerations. Mr Bell referred me to Netaf Pty Ltd v Bikane Pty Ltd (1990) 92 ALR 490 at 494. The majority in that case, after observing that the authorities illustrate that allowance for trading losses is by no means automatic, particularly in businesses of a kind where trade is prone to fluctuation such as the restaurant business, went on to state:

“We reiterate that, where a purchase has been induced by misleading conduct, it is not enough, in order to recover losses subsequent to the purchase, to prove that but for the misleading conduct or as a partial consequence of it, the agreement to purchase would not have been made; that is so in every successful application of that kind. It is not the law that in every such case the party held to have been engaged in misleading conduct (who may have acted quite innocently) becomes the insurer of the other’s success and prima facie liable to indemnify him against the consequences of the purchase.”

164    It is for the cross-claimants to point to evidence that trading losses were caused by the misleading conduct of the Bank.

165    A report prepared by David Gibbs of Crosbie Warren Sinclair, certified practising accountants, was tendered by the cross claimants. This set out the accumulated losses incurred by Fanny’s Trading for the years ended 30 June 1990 to 1998. Those figures showed accumulated losses of $362,698.00. It appears that Fanny’s Trading has not traded since 11th July 1990. The accumulated losses derive in part from the company’s debt to Mr Hawkins in respect of the $50,000 deposit together with interest owed to RJ and AM Hawkins apparently in relation to a loan contract. In the course of the hearing Fanny’s Trading abandoned the better part of the its claim in respect of accumulated losses. The claim as pressed is for $10,274 in respect of the year ended 30 June 1990 and $29,707 in the year ended 30 June 1991.

166    A challenge was advanced by the Bank to the reliability of the material contained in the Gibbs’ Report. It is noted that the report is a qualified one. It was prepared on the basis of material supplied by Mr Hawkins and did not involve the use of verification or validation procedures.

167 Mr Brian Silvia, chartered accountant with Ferrier Hodgson, prepared a report on behalf of the Bank commenting on the Gibbs’ Report. Mr Silvia reviewed such primary financial materials as were produced on discovery by the cross claimants. He concluded that the discovered documents did not substantiate Fanny’s Trading’s financial position nor did they constitute proper books and records (having regard to the company’s obligations under the Corporations Law and the Income Tax Assessment Act 1936). Mr Silvia pointed, in particular, to the absence of cashbooks, general ledgers and journals for the relevant period, supplier’s invoices to support transactions, cheque butts and deposit books, wage books, cash register tapes, a creditor’s ledger and a purchases journal.

168    Mr Silvia conceded that not all businesses keep books such as cash receipts and payments ledgers. However, he would expect accountants preparing the financial statements for a business to have other procedures available to them to validate the information. The bank statements sighted by Mr Silvia showed a pattern of deposit of sums in round figures. This did not suggest the banking of the whole of the takings. If the takings were rounded off prior to banking Mr Silvia would expect some record to be maintained of the gross takings less the till pay out together with the sum banked and the balance held over.
169    In Mr Silvia’s opinion the financial records of Fanny’s Trading did not provide adequate verification of the alleged losses incurred.

170    The Fanny’s Trading profit and loss account to 30 June 1990 shows an operating loss of $10,520.00. This loss is also reported in the Company’s Income Tax Return for the year ended 30 June 1990 and the 1990 Annual Return. Mr Silvia observes that the general ledger for Fanny’s Trading for the period to 30 June 1990 should form the basis upon which the financial accounts are prepared. He states that the general ledger for the period to 30 June 1990 shows a profit of $6,221.00. Annexure “G” to Mr Silvia’s report is a comparison between the general ledger and the profit and loss account for the period ended 30 June 1990. It should be noted that Mr Silvia’s reference to the general ledger appears to be a reference to a computer generated document produced by Crosbie Warren Sinclair in the course of preparing the financial statements for Fanny’s trading. It was described in the course of evidence as being the first draft.

171    Mr Silvia also commented on a number of trial balances prepared between 13 March and 24 April 1991 in respect of Fanny’s Trading. These reported retained profits between $6,085.00 (trial balance of 13 March) to $27,720 and the alleged loss of $10,520.00. No further general ledgers were produced which supported any other trial balances. The profit of $6,085.00 is recorded in the only general ledger supplied to Mr Silvia. That profit is based upon the income and expenditure set out therein. These items appear to have formed the basis of the trial balance of 13 March 1991. The trial balances were produced in the course of preparing the financial statements. With each review of the figures undertaken by staff at Crosbie Warren & Sinclair a trial balance would be produced. As the adjustments were made so the trial balances varied.

172    Robert Warren, a partner with Crosbie Warren and Sinclair, gave evidence that he prepared the financial statements for Fanny’s Trading in the years ending 30 June 1990 and 1991. The statements were prepared by reference primarily to cheque butts and bank statements. The figure Mr Warren placed upon sales was arrived at by reference to the bank statements. There were no cash register tapes nor any cash takings book. Mr Warren would not expect cash register tapes to be kept. They usually fade over a short period of time. In his experience it is sufficient for the proprietor to maintain a takings book or some other contemporary record of that kind. It is not suggested that any such book or other record was maintained.

173    Mr Warren considered the cash sales described in the financial statements were unlikely to be underestimated. The gross profit percentage revealed by the financial statements was 80%. This he regarded as an exceptionally high figure. In 1990 an hotel would achieve a 67% gross profit percentage. Having regard to the nature of the business, a night club, the price of drinks was higher than normal and this explained the high gross profit percentage.

174    Mr Warren had arranged for an employee of his firm to prepare a reconciliation of the profit and loss statement prepared by him (on the strength of the cheque butts and bank statements among other things) with the invoices and other primary financial materials which were discovered in the course of the present proceedings. That document became Ex 8. In relation to the 1990 profit and loss statement Ex 8 revealed that expenditures in total amounting to $15,368.34 were not supported by the primary documentation and in respect of the 1991 profit and loss statement expenditures in an amount of $28,452.64 were not supported by the primary documentation.

175    Mr Warren agreed that if one were to substitute the 1990 trading figures based on the primary materials (the Ex 8 reconciliation) the operating loss for the year ended 30 June 1990 would be transformed into a profit of approximately $5,000.00.

176    One matter to which Mr Silvia pointed was that the profit and loss statements for Fanny’s Trading did not show any value for closing stock when the company ceased trading. This was an unusual omission. Mr Hawkins gave evidence about this aspect. He explained that on 11 July 1990 the Bank had moved to lock him out. This led to some spoilage of perishable stock. Ultimately he gained access and retrieved a quantity of alcohol. He estimated the value of this closing stock to be in the vicinity of $10,000. This stock was returned to the supplier who credited the account accordingly. This explained the absence of a figure in the financial statements representing closing stock. Mr Silvia was asked to comment on this assumption. He noted that the 1991 profit and loss statement did not suggest on its face that a credit had been included for closing stock. He pointed out that the 1990 figures showed the cost of sales as 25% of turnover whereas in the 11 days of trading in July 1991 the cost of sales was about 45% of turnover. This did not sit readily with a $10,000 credit for closing stock returned to the supplier.

177    The reconciliation prepared by Crosbie Warren Sinclair (Ex 8) shows a substantial variance between invoices and the totals recorded in the profit and loss statement with respect to the items “bands”. The profit and loss statement recorded an expenditure of $37,327.00 on this item. Invoices were produced in respect of $6,547.50 in relation to the engagement of bands. There was no evidence led to explain the discrepancy. In a number of respects the reconciliation showed that expenses for which invoices/receipts had been retained exceeded the figure cited for that item in the profit and loss statement; insurance, cleaning & laundry, petty cash, R & M, rental of plant, replacements, security, telephone and wages. The primary documentation in relation to the 1991 trading figures was less extensive. However, where it existed it on occasions supported expenditures greater than those set out in the profit and loss statement for that year; telephone, purchases, bands and advertising.

178    I do not infer that cash sales were understated. I accept Mr Warren’s evidence that the sales figures supplied to him were credible. Mr Silvia was critical that 60% of the expenses of the business were paid out in cash from the till in the form of wages. He did not see documentation to support this substantial expenditure. Group certificates were retained and examined by the accountant at Crosbie Warren Sinclair who prepared Ex 8. They not only supported the expenditure on wages set out in the profit and loss statements for the two relevant years but in each instance showed wage payments slightly in excess of the amount stated in the financial statements.

179    I am left with the fact that the financial records of Fanny’s Trading for the relevant period are inadequate. $15, 368.34 of expenditure in the year ended 30 June 1990 is not supported by documentation. In that year the initial general ledger prepared by the company’s accountants showed an profit of a little over $6,000.00. I accept the latter was a working document subject to adjustment. However, there is nothing to show the basis upon which the accounts were subsequently varied so as to produce the loss. With respect to the loss claimed in the year ended 30 June 1991 the same difficulty in terms of lack of consistent and reliable records stands in the cross-claimant’s way. In particular, there is the outstanding query about how the closing stock was taken into account.

180    Even without giving consideration to the issues raised in Netaf as to whether any losses flowed from the claimant’s inexperience in operating the business of a night club, I am not satisfied that either of Fanny’s Trading or Mr Hawkins has proved that trading losses were sustained.

181 The cross claimants sought an order pursuant to s.72 of the Fair Trading Act 1987 that the provisions of the Land Contract and the Equipment Contract in so far as they are in force be not enforced against the First Cross Claimant or the Second Cross Claimant. In the light of my finding that the Bank engaged in misleading conduct contrary to s 42 of the Fair Trading Act and thereby induced Mr Hawkins to procure the companies to enter the two contracts I propose to order pursuant to s 72(5)(c) of the Fair Trading Act that none of the provisions of the land contract or the equipment contract be enforced against the First Cross Claimant or the Second Cross Claimant. It flows from this that the Bank’s claim fails.

182 Pursuant to s 68 of the Fair Trading Act I propose awarding damages in an amount of $50,000 each to Fanny’s Properties and Fanny’s Trading representing the payment of the deposits together with interest thereon from 12th April 1990 calculated in accord with Schedule J of the SCR. As noted above I do not consider that the cross claimants have otherwise made out loss within the meaning of s 68 of the Act.

183    For the foregoing reasons my orders are:

(1) Pursuant to s 72 of the Fair Trading Act 1987, none of the provisions of the contract between the Plaintiff and the First Defendant entered on 12th April 1990 be enforced against the First Defendant and, accordingly, Judgment for the First Defendant.

(2) Pursuant to s 72 of the Fair Trading Act 1987, none of the provisions of the contract between the Plaintiff and the Second Defendant entered on 12th April 1990 be enforced against the Second Defendant and accordingly Judgment for the Second Defendant.

(3) Judgment on the amended cross claim for the First Cross Claimant in the amount of $50,000.00 together with interest in the sum of $58,412.61.

(4) Judgment on the amended cross claim for the Second Cross Claimant in the amount of $50,000 together with interest in the sum of $58,412.61.

(5) The Plaintiff/Cross Defendant to pay the costs of the First and Second Defendants/Cross Claimants.

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Last Modified: 10/06/1999