Vitek v Estate Homes Pty Ltd - [2010] NSWSC 237

No judgment structure available for this case.

CITATION: Vitek v Estate Homes Pty Ltd [2010] NSWSC 237

HEARING DATE(S): 27/04/09, 28/04/09, 29/04/09, 30/04/09, 01/05/09, 14/9/09, 15/9/09, 16/02/10, 17/02/10, 18/02/10, 19/02/10
Written submissions: 26/02/10, 02/3/10, 05/03/10

JUDGMENT DATE :
31 March 2010

JURISDICTION: Equity Division

JUDGMENT OF: Barrett J

DECISION: 1 As between the plaintiffs on the one hand and the first defendant and Siamac Taheri on the other, there will be:
(a) a declaration that the service by the first defendant upon the plaintiffs on 21 October 2004 of a document entitled “Notice of Rescission of Contract for Sale of Land” and bearing date 21 October 2004 constituted a repudiation by the first defendant of the contract for sale entered into between the plaintiffs and the first defendant bearing date 15 September 2003 in respect of the property known as 591 Elizabeth Street, Redfern;
(b) a declaration that, by notice dated 22 October 2004, the plaintiffs accepted the notice dated 21 October 2004 as a repudiation of that contract for sale;
(c) a declaration that that contract for sale is at an end;
(d) a declaration that the plaintiffs are entitled to forfeit the deposit paid under that contract for sale;
(e) judgment for the plaintiffs against the first defendant and Siamac Taheri in the sum of $570,710 together with interest on that sum at the rate of 10% per annum from 22 October 2004 to the date of judgment; and
(f) an order that the cross-claim be dismissed.
2 As between the first defendant and Siamac Taheri on the one hand and Bernard O’Donnell on the other, there will be an order that the cross-claim be dismissed.
3 There will be an order that the first defendant and Siamac Taheri pay the costs of the plaintiffs and Bernard O’Donnell.
4 I direct that the plaintiffs and Bernard O’Donnell together prepare the draft of the orders necessary to give effect to these reasons, that they submit that draft to the solicitors for the first defendant and Siamac Taheri not later than 15 April 2010 and that the draft, together with any comments thereon received within seven days after submission of it to the solicitors for the first defendant and Siamac Taheri, be promptly forwarded by the plaintiffs and Bernard O’Donnell to my Associate with a view to the making of orders in chambers to dispose of the proceedings.

CATCHWORDS: CONVEYANCING - breach of contract for sale and remedies - purported rescission by purchaser for conduct of vendor within Fair Trading Act 1987 - whether such rescission effective - whether such rescission repudiation - TRADE AND COMMERCE - Fair Trading Act - consumer protection - where vendor aware that land formerly used as a petrol station and may be contaminated - whether vendor guilty of misleading or deceptive conduct by not imparting this knowledge to purchaser - whether purchaser aware of former petrol station use and contamination potential - assessment of purchaser's reasonable expectations in light of surrounding circumstances - CONVEYANCING - breach of contract for sale and remedies - assessment of damages - where no resale by vendor within one year - vendor relies on valuation report as at date later than date of breach - report quantifies decline in value over previous year - report provides sound basis for estimating value at date of breach

LEGISLATION CITED: Civil Procedure Act 2005, s 100
Contaminated Land Management Act 1997, Parts 2, 3
Conveyancing Act 1919, s 52A
Conveyancing (Sale of Land) Regulation 2000, cls 2(a) and 2(b) of Part 1 of Schedule 3, cl 5, item 10 Schedule 4,
Environmental Planning and Assessment Act 1979, s 149
Environmental Planning and Assessment Regulation 1994, Schedule 4
Fair Trading Act 1987, ss 42, 45(1)(b)
Trade Practices Act 1974 (Cth), s 52

CATEGORY: Principal judgment

CASES CITED: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Donne Place Pty Ltd v Conan Pty Ltd [2005] QCA 481
Eastern Gardens Pty Ltd v Stone [2005] SASC 157; (2005) 239 LSJS 344
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145
Laird v Pim (1841) 7 M & W 474; 171 ER 852
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
Mallick v Parish (1916) 16 SR (NSW) 305
Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213; (2004) Aust Contract R 90-186
Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd [2005] NSWSC 20; (2005) 215 ALR 625
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768
P Lorrilard Co v Federal Trade Commission 186 F 2d 52 (1950)
Slinger v Southern White Pty Ltd [2005] SASC 267; (2005) 92 SASR 303
Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288

PARTIES: Peter Vitek - First Plaintiff/First Cross-Defendant
Shoshana Vitek - Second Plaintiff/Second Cross Defendant
Estate Homes Pty Limited - First Defendant/First Cross-Claimant
Siamac Taheri - Second Defendant/Second Cross-Claimant
Veeda Taheri - Third Defendant - Third Cross-Claimant
Bernard O'Donnell - Third Cross-Defendant

FILE NUMBER(S): SC 2005/00258339

COUNSEL: Mr S D Robb QC - Plaintiffs
Mr J S Van Aalst - Defendants
Mr G P Craddock SC - Third Cross-Defendant

SOLICITORS: Charles G Roth - Plaintiffs
John Hertz & Associates - Defendants
HWL Ebsworth Lawyers - Third Cross-Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

WEDNESDAY 31 MARCH 2010

2005/00258339 PETER VITEK & ANOR v ESTATE HOMES PTY LTD & 2 ORS

JUDGMENT

Background

1 This is a vendor and purchaser case in which there is also a claim for breach of retainer and negligence against the purchaser’s solicitor.

2 On 15 September 2003, Mr Peter Vitek and Mrs Shoshanna Vitek as vendors and Estate Homes Pty Ltd as purchaser entered into a contract for the sale and purchase of a commercial property at 591 Elizabeth Street, Redfern. Named in the contract as guarantors of the purchaser’s obligations were Mr Siamac (“Mac”) Taheri and Mrs Veeda Taheri. Mr Taheri was the sole director and shareholder of the purchaser company which was formed on 15 August 2003, shortly before contracts were exchanged. Mr Bernard O’Donnell, solicitor, provided certain professional services in connection with the contract and arranged the incorporation of the company.

3 In the narrative that follows, it will be convenient to refer to the natural person parties by name and to the corporate party as “Estate Homes”. Mr Vitek and Mrs Vitek will sometimes be referred to as “the Viteks”; and Mr Taheri and Mrs Taheri as “the Taheris”.

4 The contract provided for an extended settlement with a view to Estate Homes obtaining development consent for the carrying out of certain works on the property.

5 Under cover of a letter dated 28 September 2004, Mr Roth, solicitor for the Viteks as vendors, served on Estate Homes a notice to complete requiring completion at 3pm on 21 October 2004 and making time of the essence in that respect.

6 By notice dated 21 October 2004, Estate Homes purported to rescind the contract. The stated grounds were:

(a) breach of warranties implied in the contract by s 52A of the Conveyancing Act 1919, in that the certificate under s 149 of the Environmental Planning and Assessment Act 1979 annexed to the contract failed to specify the true status of the land in relation to matters set out in Schedule 4 (item 3 excepted) to the Environmental Planning and Assessment Regulation 1994;

(b) that the vendors, knowing that the land was affected by a policy within section 7 of the s 149 certificate and was contaminated land, annexed to the contract a certificate stating that it was not and represented that the land was not so affected and was not contaminated land and thereby caused and induced the purchaser to enter into the contract; and

Fair Trading Act

7 The following day, 22 October 2004, Mr Roth wrote to Estate Homes’ then solicitors (Beazley Singleton) stating that the purported rescission was not valid and that Estate Homes’ notice of rescission dated 21 October 2004 was treated as a repudiation of the contract. Mr Roth said that proceedings would be taken against Estate Homes and “the guarantors who guaranteed your client’s obligations under the contract”, thereby accepting any repudiation on behalf of the Viteks.

These proceedings

8 The Viteks commenced these proceedings by summons filed on 9 March 2005. They claim a declaration that the purported rescission of 21 October 2004 was a repudiation, a declaration that they, through Mr Roth’s letter of 22 October 2004, accepted the repudiation, a declaration that the contract is at an end and a declaration that the vendors are entitled to forfeit the deposit. They also claim damages. The Taheris were named as defendants in addition to Estate Homes.

9 Estate Homes and Mr Taheri filed cross-claims against Mr Vitek, Mrs Vitek and Mr O’Donnell. The relief sought against the Viteks is a declaration that Estate Homes validly rescinded the contract and declarations of breach by the Viteks of provisions of the Fair Trading Act, plus damages and consequential relief under that Act (a pleaded claim based on s 52A of the Conveyancing Act was not pursued).

10 The claim of Estate Homes and Mr Taheri against Mr O’Donnell is a claim for damages for breach of retainer and negligence, his retainer being (as stated in paragraph 21 of the defence and cross-claim) “to advise and act in respect of the purchase of the Subject Property, and for the Second and Third Cross Claimants [ie, The Taheris] as proposed guarantors”.

11 Mrs Taheri pursued separate cross-claims against both the Viteks and Mr O’Donnell in which she maintained that she was not liable on the guarantee and that Mr O’Donnell had failed to advise her.

12 The proceedings were settled, as between Mrs Taheri and the other parties, on 30 April 2009. The claims of the Viteks thereafter proceeded against Estate Homes and Mr Taheri only; and Estate Homes and Mr Taheri were the remaining cross-claimants.

13 In the light of the pleadings, the central issue as between the remaining parties is whether Estate Homes’ purported rescission of 21 October 2004 was valid and effective. If it was, Estate Homes is entitled to the relief it seeks. If the purported rescission of 21 October 2004 was not valid and effective, it was, as the Viteks allege, a repudiation of the contract which repudiation was accepted and gave rise to an entitlement to relief on the part of the Viteks. Only if the Viteks are found to be entitled to relief against Estate Homes and Mr Taheri does the question of Mr O’Donnell’s liability arise.

The case against the Viteks

14 The case sought to be made by Estate Homes (and Mr Taheri) against the Viteks is as follows:

Environmental Planning and Assessment Act

(i) that the property was within a Mixed Uses Zone which required development consent for inter alia dwelling houses, commercial premises and shops;

(ii) that there was no policy adopted by the council because of the likelihood of hazards or risks (referred to in clause 7 of the s 149 certificate) which would restrict the development of the property;

Contaminated Land Management Act

Conveyancing (Sale of Land) Regulation

Contaminated Land Management Act

(vi) having regard to the proposed change of use of the property by Estate Homes, the Viteks were not aware of any matters, facts or circumstances which may have indicated that the property was actually or possibly contaminated land;

(b) from about 4 August 2003, the Viteks were aware that Estate Homes and the Taheris intended to redevelop the site and to seek development consent for the construction of a minimum of thirteen residential units;

(c) by reason of their own earlier activities (to be described presently), the Viteks were aware or ought reasonably to have been aware that the property was contaminated land or within a contaminated land investigation area;

(d) Estate Homes and the Taheris were induced to enter into the contract by the representations referred to in (a) above, which representations were relied on by Estate Homes and the Taheris accordingly;

Fair Trading Act

15 When Estate Homes and Mr Taheri thus refer to “representations” by the Viteks, they do not point to things actually spoken, written or otherwise actively conveyed by the Viteks. Rather, the reference is to “representations” by silence.

Events during the Viteks’ ownership

16 At the time the contract was entered into on 15 September 2003 and for some period beforehand, the premises were used as a showroom and workshop for the sale and installation of burglar alarms for motor vehicles. The Viteks purchased the property in 1989. It had not been used for some time before that. It was, as they well knew, the site of a former petrol station for the retailing of fuel to motorists. It was they who established the vehicle alarm business there.

17 The particular activities of the Viteks in relation to the land upon which Estate Homes and the Taheris rely involved attempts by the Viteks to obtain council approval for building work on and development of the property. In 1992, they obtained development consent to extend the single storey workshop building. In 2000 and 2001, they lodged applications with South Sydney Council with a view to adding a second storey to the building.

18 In connection with their development proposals, the Viteks, through their contractor, obtained from Douglas & Partners a report dated July 2001 and entitled “Report on Preliminary Contamination Assessment, 591 Elizabeth Street, Redfern”. It is pertinent to quote the whole of the “executive summary” in that report:

“A preliminary contamination investigation was conducted by Douglas Partners Pty Ltd 591 Elizabeth Street, Redfern. This project was commissioned by Mike Rosch of Rosch Constructions Pty Ltd, for submission to Council. The assessment comprised a review of the available site history information and a detailed site walkover inspection.

The subject site covers a broadly rectangular area of approximately 1200m ² and is currently occupied by a single-storey concrete brick/brick, commercial/industrial-type building with frontage to Elizabeth Street in the east and Great Buckingham Street in the west. It is understood that the client wishes to construct an additional room on top of the existing building to provide onsite accommodation for security personnel. It is also understood that the commercial/industrial status of the site will remain unchanged.

It is understood that the alteration is to be aboveground and will not entail excavation works or disturbance of the concrete slab which seals the entire site. The scope of the current assessment is therefore limited to assessing the potential impacts of the subject site on the proposed extension and did not involve intrusive subsoil sampling. Thus, the current assessment does not include a detailed assessment of subsoil contamination and the potential for offsite migration of contamination those contaminants [sic].

A review of available historical information and aerial photographs indicates that the site was occupied by a service station prior to approximately 1976 and has since been utilised for commercial/light industrial activities since. The site is currently occupied by a car alarm retail and installation business.

With respect to the site’s former use as a service station, it is considered that contamination issues arising from fuel spillages across the site would be minimal as the site is completely sealed by concrete slabs. These slabs were observed to be in a generally good condition, without any major surficial staining, thus greatly minimising the potential for contaminant ingress into the subsurface. Similarly, the concrete pavement functions effectively as a seal across the entire surface of the site and will hence minimise the potential for onsite health impacts related to fill material used to raise site levels due to the absence of exposure pathways.

It could not be verified whether the underground storage tanks (UST) associated with the former petrol station are still present on-site. Nevertheless, as the proposed extension will not entail excavation or disturbance of the concrete slab covering the site, the health impacts due to the presence (or otherwise) of USTs will not adversely affect the proposed alteration. It should be noted that assessing the potential for subsurface contamination from UST leakage was beyond the scope specified by the client for this assessment. However, given the disused nature of the USTs, it is envisaged that their contents would have been removed and that any hydrocarbon contamination remaining in the soil would be residual in nature.

On the basis of site observations and information available on the subject site, it is considered unlikely that the proposed minor aboveground extension/alteration to the current building will render the site unsuitable for continued commercial/industrial use or result in unacceptable exposure to contamination which may be present in the subsoils.”

19 This report was submitted to the council in connection with an application to amend the development consent that had been granted in 1992 for workshop changes and the construction of a caretaker’s flat on the roof of the premises. The amendment involved an enlarged flat on the upper level. The amendment application was not approved by the council. By letter dated 22 July 2002 to Mr Vitek, the council referred to the Douglas & Partners report of July 2001 which, it said, was “inadequate as it does not establish the suitability of the site for a residential use and does not establish whether the fuel storage tanks have been decommissioned in accordance with NSW WorkCover requirements”. The council’s letter went on to outline the need for “a hazard risk assessment that clearly identifies potential site hazards to human health and safety”, with special reference to particular matters.

20 As the council’s file shows, a proposal for construction on the roof was still under consideration in 2003. On 20 November 2003, an application was rejected by the council for reasons which included “the lack of an investigation into the potential contamination of the site addressing the suitability of the land for the intended residential use”. This followed a conditional approval of 2 February 2003. One condition required investigation, assessment and remediation of any contamination discovered. Mr Vitek accepted in cross-examination that the council had informed him that “due to the nature of the site an assessment should include a hazard assessment that clearly identifies the potential site hazard to human health and safety”.

Aspects of the contract for sale

21 It is necessary to say more about the contract for sale. I have referred already to the fact that the contract provided for an extended settlement with a view to Estate Homes obtaining development consent. The completion date was specified as 15 September 2004, that is, “12 months from the date hereof”. The contract did not envisage, however, that the development consent should necessarily be obtained before the deadline for completion. Rather, the development consent to be obtained by the purchaser played a part in the determination of the price; and there was provision for post-completion adjustment of the price if the consent had not been obtained by the due date for completion.

22 The structure of the contract was thus such that failure to obtain development consent or difficulties in obtaining it did not give rise to a right to terminate. Estate Homes was bound to complete on the specified date whatever the outcome of its application for development consent.

23 The effect of special condition 55 of the contract was that the price was to be $2.6 million or, in certain events, a greater sum (up to a maximum of $2.9 million). The price ultimately applicable was to depend on the “floor space ratio” (that is “the ratio of the gross floor area of the building to the area of the site on which the building is or is to be erected”) referable to a building the subject of a strata plan registered after (and with the benefit of) the development consent about which provision was made in special condition 53. That special condition required the purchaser to prepare and lodge a development application for the erection of a building on the property with the highest floor space ratio reasonably feasible. If the ratio ultimately applicable exceeded 1.25 to 1.0, the price would be higher than $2.6 million (up to, as I have said $2.9 million), otherwise it would be $2.6 million.

24 The contract provided for a deposit of $50,000. In the events that happened, that deposit was, by agreement of the parties, accounted for to the vendors even though completion was not due and had not occurred.

25 The special conditions about the application for development consent and the price adjustment dependent on the result of the application did not specify the nature of the contemplated building. The contract did, however, recognise that the building would be of more than one storey (special condition 53.1(b) refers to “each floor” in two places). In addition, I do not understand the Viteks to deny that they were aware that a residential building was in contemplation by the purchaser. Indeed, Mr Vitek accepted in cross-examination that he was aware from at least 4 August 2003 that Mr Taheri’s proposal for the property involved a minimum of thirteen units, the majority of which were to be residential.

26 Four other aspects of the special conditions should also be mentioned:

1. Special condition 31 is a warranty that the purchaser acknowledges having inspected the property, and that the purchaser has not relied on any statement, representation or warranty other than those implied by law including the suitability for any use or purpose of the property or any matter having or which might have an effect beneficial or otherwise on the property.

2. Special condition 32 is an acknowledgement by the purchaser that it shall take the property as inspected with all defects latent or patent and that no warranty has been given by the vendor in relation to the condition of the property or in relation to its suitability for any particular purpose.

3. Special conditions 34 and 47 limit the purchaser’s right to make any objection, requisition or claim for compensation.

27 Among the attachments to the contract was a certificate under s 149 of the Environmental Planning and Assessment Act. The certificate is dated 14 March 2003. It is this certificate that is referred to in the claims summarised at paragraph [14] above.

Misrepresentation by silence

28 Having referred to the contractual context and the prior activities of the Viteks, so far as they involved attempts to obtain development consents, I should say more about the claims that the Viteks were guilty of misleading or deceptive conduct by silence. The case advanced by Estate Homes and Mr Taheri is that the Viteks, by their silence, did not supplement what was actually conveyed by the contract and its attachment so as to negative or dispel the propositions in the “representations” at item (a) of paragraph [14] above and were thereby guilty of conduct that was misleading or deceptive for the purposes of the Fair Trading Act.

29 The thesis Estate Homes and Mr Taheri propound is that statutory misconduct occurred in two ways: first, because the Viteks did not disclose that they were aware that the land was actually or potentially contaminated land for the purposes of the council’s development control plan; and second, because the Viteks did not disclose that they were aware of things that may have indicated that the land was actually or potentially contaminated land.

30 While characterised as one of misconduct by silence, the complaint is, in substance, a complaint of misconduct by half-truth. The half-truth concept is illustrated by the decision of the United States Court of Appeals in P Lorrilard Co v Federal Trade Commission 186 F 2d 52 (1950), a tobacco advertising case in which a cigarette manufacturer had claimed that its “Old Gold” product would not harm the throat, quoting a Reader’s Digest article comparing various brands of cigarette. The court said:

“The fault with this advertising was not that it did not print all that the Reader's Digest article said, but that it printed a small part thereof in such a way as to create an entirely false and misleading impression, not only as to what was said in the article, but also as to the quality of the company's cigarettes. Almost anyone reading the advertisements or listening to the radio broadcasts would have gained the very definite impression that Old Gold cigarettes were less irritating to the throat and less harmful than other leading brands of cigarettes because they contained substantially less nicotine, tars and resins, and that the Reader's Digest had established this fact in impartial laboratory tests; and few would have troubled to look up the Reader's Digest to see what it really had said. The truth was exactly the opposite. There was no substantial difference in Old Gold cigarettes and the other leading brands with respect to their content of nicotine, tars and resins and this was what the Reader's Digest article plainly said.”

31 The same thinking caused the Full Federal Court to observe in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 that, where information is provided, it must constitute a “full and fair disclosure of all relevant facts.” In other words, it is not enough that what is said, considered in isolation, is literally true if there is another part of the overall story that should be disclosed and, if disclosed, would cause the total message to be different.

32 In the present case, Estate Homes and Mr Taheri must show that what was represented in the s 149 certificate (and therefore represented by the Viteks) with respect to the question of land contamination was part only of what the Viteks knew about the subject; and that their failure to communicate the balance of their knowledge was misleading or deceptive.

33 The first matter must be taken to be established. The Viteks had knowledge of the matters communicated to them by the council over a period of years in connection with their attempts to obtain development consent for an upper story addition. That was knowledge that Estate Homes and the Taheris did not have.

34 In a situation of arm’s length commercial negotiations, however, there is no generally prevailing legal requirement that one party not take advantage of superior knowledge; much less is there a requirement to surrender the advantages that superior knowledge entail. In Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458, Gleeson CJ said 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.”

35 Case law about s 52 of the Trade Practices Act 1974 (Cth) and its State equivalents such as s 42 of the Fair Trading Act makes it clear that the factor that may give rise to a requirement to break silence – in the sense that failure to do so will be misleading or deceptive – will be found in the whole of the circumstances in which silence is maintained. The most often quoted statement of the relevant principles is probably that of the Full Federal Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. The matter was summarised thus by Handley JA (with whom Hodgson JA and Gzell J agreed) in Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213; (2004) Aust Contract R 90-186:

Wardley Australia Ltd v Western Australia

Demagogue Pty Limited v Ramensky

The misleading and deceptive conduct relied upon was that of Mr Cook during the critical conversation. As Black CJ said, silence that is capable of being misleading or deceptive never stands alone. In the absence of some positive duty to speak, silence can only be misleading or deceptive against a background of other facts known to both parties which make what is actually said so incomplete that it conveys a misrepresentation.”

36 Referring to the particular case before him, Handley JA said:

“The Court can now consider whether Mr Cook’s conduct was misleading or deceptive. It is said to have this character because of what was not said in the context of what was said.”

37 This is the key. One must judge the quality of what was not said in the context of what was said. Only if what was said and the context in which it was said gave rise to a reasonable expectation of disclosure of what was not said will silence be misleading or deceptive. What was said will, of course, include what was asked.

38 Importantly, inequality of information, while one of the relevant circumstances, will not of itself be sufficient. In Eastern Gardens Pty Ltd v Stone [2005] SASC 157; (2005) 239 LSJS 344, White J said at [34], with the concurrence of Doyle CJ and Besanko J:

“In considering whether a party engaged in commercial dealing may have a reasonable expectation that a fact, if it exists, will be disclosed, one needs to keep in mind that it will often be the case in such dealings that one party has more knowledge about a relevant matter than the other and yet will not, in accordance with ordinary commercial expectations, be guilty of misleading or deceptive conduct in failing to make that knowledge known to the other.”

39 The court must decide whether, on an objective assessment, “a person in the plaintiff’s position would be entitled to expect or infer (has a reasonable expectation) that the defendant would disclose”. These are the words of Besanko J (with whom Duggan J and Layton J agreed) in Slinger v Southern White Pty Ltd [2005] SASC 267; (2005) 92 SASR 303 at [52] approving what was said by Doyle CJ in Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288 (see also Donne Place Pty Ltd v Conan Pty Ltd [2005] QCA 481 at [42]).

40 The test is one of reasonable expectation. An entitlement to expect or infer that the other party will disclose, if it exists, will be found in the whole of the circumstances in which the parties dealt with one another.

41 It is to those circumstances that I now turn.

Surrounding circumstances – the vendor disclosure regime

42 The first aspect of the circumstances in which the parties dealt with one another is the vendor disclosure regime that applies to sales and purchases of land. That regime, imposed by law, must be taken to indicate norms of conduct that parties to a conveyancing transaction have in contemplation regarding the provision of information and assurances by a vendor to a purchaser. A purchaser expects to receive the disclosure for which the law provides, to have the benefits of that disclosure and to be fixed with the knowledge it produces.

43 Section 52A of the Conveyancing Act, as in force when the contract was made, required a vendor to attach to the contract, before signing by the purchaser, documents as prescribed. By virtue of clause 5 of the Conveyancing (Sale of Land) Regulation 2000, the prescribed documents included, at the time, a certificate under s 149 of the Environmental Planning and Assessment Act in respect of the subject land.

44 Section 52A also caused certain terms to be included in the contract. These were prescribed by the Conveyancing (Sale of Land) Regulation. They were:

(a) an implied term preventing displacement of the purchaser’s right to make an objection, requisition or claim concerning certain kinds of encroachment;

(b) an implied warranty that, as at the date of contract and except as disclosed in the contract, the land was not subject to any “adverse affectation”;

(c) an implied warranty that, as at the date of contract and except as disclosed in the contract, the attached s 149 certificate specified the true status of the land in relation to the matters set out in Schedule 4 (item 3 excepted) to the Environmental Planning and Assessment Regulation 2000.

45 In relation to (b) above, the definition of “adverse affectation” in the regulation at the relevant time was:

“1 A proposal for re-alignment, widening or siting, or alteration of the level, of a road or railway by the Roads and Traffic Authority, Rail Corporation New South Wales, Transport Infrastructure Development Corporation or Rail Infrastructure Corporation.

2 A proposal by or on behalf of the Minister for Education and Training to acquire the whole or any part of the land.

3 A proposal of TransGrid or an energy distributor (within the meaning of the Energy Services Corporations Act 1995) to acquire any right or interest in the whole or any part of the land.

4 An interim heritage order, listing on the State Heritage Register or other order or notice under the Heritage Act 1977.

5 A proposal to acquire any right or interest in the whole or any part of the land by reason of the Pipelines Act 1967.

7 A declaration under section 5 of the Unhealthy Building Land Act 1990 in respect of the whole or any part of the land.

Access to Neighbouring Land Act 2000

9 A order under section 124 of the Local Government Act 1993 to demolish, repair or make structural alterations to a building which has not been fully complied with.

10 A notice to or claim on the vendor by any person, evidenced in writing, in relation to a failure or alleged failure to comply with a positive covenant imposed on the land under Division 4 of Part 6 of the Conveyancing Act 1919.

11 If the contract relates to land that comprises or includes a lease of a lot as defined in the Strata Schemes (Leasehold Development) Act 1986 -a notice to or claim on the vendor by the lessor, evidenced in writing, in relation to a breach or alleged breach of a term or condition of the lease of the lot concerned.

12 A right of way under section 164 or 211 of the Mining Act 1992.

13 A licence under section 13A of the Water Act 1912.

Stock Diseases Act

Stock (Chemical Residues) Act

Soil Conservation Act

Native Vegetation Conservation Act 1997

Native Vegetation Act

46 In relation to the vendors’ implied warranty (c) at paragraph [14] above concerning the s 149 certificate, it is relevant to note that item 10 in Schedule 4 to the Environmental Planning and Assessment Regulation 2000, as in force at the relevant time, was as follows:

Matters arising under the Contaminated Land Management Act 1997

Contaminated Land Management Act

investigation area

remediation site

investigation order

remediation order

(c) that the land to which the certificate relates is the subject of a voluntary investigation proposal (or voluntary remediation proposal) the subject of the Environment Protection Authority’s agreement under section 19 or 26 of that Act (if it is the subject of such a proposal, and the proposal has not been fully carried out, at the date when the certificate is issued),

(d) that the land to which the certificate relates is the subject of a site audit statement within the meaning of Part 4 of that Act (if a copy of such a statement has been provided at any time to the local authority issuing the certificate).”

47 In the present case and as already noted, a s 149 certificate was duly attached to the contract before execution by the purchaser. Section 10 of the certificate was headed “Matters arising under the Contaminated Land Management Act 1997”. There followed, in full, the wording of each of items (a) to (d) in the extract from the Environmental Planning and Assessment Regulation just quoted. Against each such item appeared “No”.

48 Section 10 of the certificate concluded with a note as follows:

“Note: Council has adopted by resolution a Development Control Plan (DCP) on contaminated land (adoption date 17/7/00)1which may restrict the development of the land. The DCP is implemented when zoning or land use changes are proposed on land which has previously been used for certain purposes or land which has been remediated for specific use. Consideration of Council’s adopted DCP and the implications of provisions under relevant State Legislation is warranted.”

49 Having regard to, first, the s 52A requirement that a s 149 certificate be attached to the contract by the vendor, second, the statutorily implied warranty described in (c) at paragraph [44] above, third, the fact that the Viteks did attach a s 149 certificate to the contract and, fourth, the content of Section 10 of the certificate as just described, it must be accepted that the Viteks

(a) discharged the statutory obligation of disclosure as it related to the content of a s 149 certificate in respect of the land;

Contaminated Land Management Act

(c) disclosed to Estate Homes and the Taheris the representation by the council that the development control plan on contaminated land adopted by the council on 17 July 2000 might restrict the development of the land and that consideration of this development control plan and the implications of provisions under relevant State legislation was warranted.

50 In these ways, the Viteks fulfilled to the letter – indeed, because of their repetition of the council’s representation about the development control plan and related matters, went beyond - the requirements that Parliament had seen fit to impose upon a vendor of land with respect to disclosure and warranting of matters concerning land contamination.

51 It is not now suggested by Estate Homes that there has been a breach of warranty by the Viteks. Nor is it suggested that the Viteks, as vendors, failed in any way to do what they were required by the sale of land legislation to do. The allegation is, rather, that inclusion of the s 149 certificate in the contract entailed representations by the Viteks in the pleaded terms summarised in (a) at paragraph [14] above, in particular, that to the knowledge of the Viteks the land was not actually or possibly contaminated land for the purposes of the council’s development control plan concerning contaminated land in Part 2 of the Contaminated Land Management Act; and that the Viteks were not aware of any matters, facts or circumstances which may have indicated that the property was actually or potentially contaminated land.

Surrounding circumstances – knowledge of the Viteks

52 At this point, I must expand upon what has already been said about the relevant knowledge of the Viteks. They knew that the property had been used in the past as a petrol station. They also had knowledge of the findings stated in the July 2001 report of Douglas & Partners (see paragraph [18] above). Douglas & Partners:

(a) confirmed the former petrol station use;

(b) did not know and could not discover whether underground petrol storage tanks were still in place;

(c) expressed the view that contamination issues arising from fuel spillages across the site would be minimal because the surface was completely sealed by concrete slabs;

(d) observed that the slabs were in good condition and would minimise the potential for health impacts related to fill material;

(e) noted that assessing the potential for subsurface contamination from leakage from tanks was beyond the scope specified by the client for the assignment;

(f) said that it was “envisaged” that the content of underground tanks would have been removed and that any contamination remaining in the soil “would be residual in nature”; and

(g) expressed the opinion that the minor above ground work proposed would result in unacceptable exposure to any remaining contamination.

53 Douglas & Partners thus did not make anything even approaching a full assessment of contamination effects. They were concerned only with a proposal to add a new storey to the existing building – something that would not involve any excavation, so that the soil would remain undisturbed beneath the sealing concrete pavement. Their general observations about possibilities were really no more than might be imagined or predicted by any thinking person aware of the former petrol station use.

54 Mr Vitek gave evidence of his awareness that the site had been used as a petrol station and that storage tanks remained underground, although he said that they were cemented in and had not been used “for thirty years”. When asked in cross-examination, he did not know whether his solicitor had investigated possible contamination at the time of the 1989 purchase and did not remember the matter having arisen at that time.

55 In relation to the Douglas & Partners report, cross-examination of Mr Vitek included the following:

“Q. Was it your understanding that there could be a problem in relation to what is disclosed in this report and what you knew about the site if the concrete seal which has been provided was to be disturbed?
A. No I never thought about it, I never thought it would be a problem, it was not a concern.

HIS HONOUR

Q. You didn't have to think about that--
A. No.

56 Mr Vitek likewise gave evidence that when he received the council’s letter of 22 July 2002, following on from the Douglas & Partners report, he was aware of a potential for the land to be contaminated but did not consider that there was any need for him to pursue the possibility.

57 The concerns about possible contamination expressed by the council in correspondence could not but have made the Viteks aware that any residential development would very likely entail an assessment of possible soil contamination (including from and in relation to any remaining underground tanks) and elimination (or reduction to acceptable levels) of any hazards found to exist. It cannot be concluded, however, that the Viteks were aware that the land was contaminated; nor, indeed, can it be concluded that, at that stage, it had been established that the land was contaminated. The most of which the Viteks can be taken to have been aware is that there were questions about contamination and that those questions would most likely have to be addressed and dealt with if any application for consent for residential development or use were pursued.

58 Bearing in mind that awareness and the Viteks’ awareness of the Taheris’ plan to develop by the construction of units or apartments, it must be accepted that the Viteks knew that the development application contemplated by the contract would, with virtual certainty, prompt from the council responses regarding possible contamination of the kind they had themselves encountered when they attempted to obtain consent to the addition of residential premises on an upper storey.

Surrounding circumstances – the Taheris’ background

59 It is relevant to refer next to factors concerning Mr Taheri and Mrs Taheri (Estate Homes, as I have said, was formed by Mr Taheri specifically for the purpose of undertaking this transaction).

60 At the time in question, Mrs Taheri owned and operated a business of importing and retailing women’s clothing. Mr Taheri had business interests separate from those of his wife. He was not directly involved in her business. Nor was she directly involved, in any day to day sense, in his business activities about to be described.

61 Mr Taheri was experienced in building and property development. From 1991 to 1998, he worked for Bowrain No 43 Pty Ltd, a company involved in residential construction in suburban Sydney, mainly in the Hills District (he explained in cross-examination that that company was owned by his wife and himself). He then worked as a self-employed project manager for a home building company for about six months. He later worked for the Omarco Group as a project manager on a development at Chatswood that was completed about early 2001. He was, at the same time, involved with a company that undertook a dual occupancy construction at Killara.

62 From about April 2001, Mr Taheri was a director of a company that was project managing additions and renovations to a house at Mosman. These were completed at the end of 2001. After a break during which he did other things, Mr Taheri undertook a course with the Master Builders Association and, in November 2004, was awarded a certificate for a contractors’ management program. On the basis of that, he hoped to obtain a builder’s licence but was unable to do so because a company of which he had been a director had been placed in voluntary administration.

63 Mr Taheri on his own account also undertook a small multiple dwelling development at Cherrybrook near the family home. Mr Taheri accepted in cross-examination that liaison with local government councils was something that he was involved in during the activities just mentioned.

Surrounding circumstances – Mr Taheri’s investigations

64 Before contracts were exchanged on 15 September 2003, Mr Taheri made certain inquiries and investigations. In particular, he made an approach to the council. In the course of his cross-examination by counsel for Mr O’Donnell and after confirming that he had a reasonable grasp of the sort of policies the council might apply affecting floor space ratio or affecting ability to build residential units, Mr Taheri confirmed that he had been to the council to make inquiries. His evidence is that he was told:

“A. That was right after the dealing about what ratio we were going to get, so I went back to them and I said, ‘Do we get that?’ They said, ‘This is a zoning mix’. That's what I asked, what zoning it is. That's what they said, and they said, ‘Yes, you can actually develop it as residential too’. That was always interest, and the ratio when I asked them what ratio they got, I get 1 to 1 but you may do that as if you continue. Some council you may get .2 per cent above that. That's why I went back to Mr Vitek and asked him and I said, 'That's not true 2 to 1".

65 The cross-examination continued:

“Q. Do you say that you went to council to talk to council?
A. Yes I did.

Q. About the land before you entered into the contract?
A. Absolutely.

Q. And who was it you spoke to?
A. One of the duty officers of the day, which is very hard to remember any name because that wasn't, every day you go there they've got different duty officers.

Q. But it was one of the council planning officers?
A. Planning officers, duty planning officers.

Q. And you identified the specific piece of land?
A. Yes, of course I did tell them exactly what it is and went right through the map of the area to show it to him.

Q. And you had a reasonably detailed discussion with the council there and then about the nature of the land and what you could do with it?
A. What I ask them is what zoning this land has. He said that is correct. ‘Has a zoning as commercial, residential or mixed?’ They said yes.

Q. And you went on to discuss the floor space ratio--
A. Absolutely.

Q. So you were entering into the contract on behalf of Estate Homes on the basis--
A. Yep.

66 Mr Taheri met with Mr Vitek on two occasions before contracts were exchanged. Mr Taheri outlined his plans for the property in very general terms. Mr Vitek expressed an understanding about the floor space ratio that the council might be prepared to entertain. He also said that he knew people who used to work for the council and might be able to help (this is Mr Taheri’s version; Mr Vitek’s evidence is that he spoke of using “the right people”). Mr Vitek offered Mr Taheri information about the development consent the Viteks had obtained. The discussion of Mr Taheri’s plans was general and there is nothing to suggest that Mr Taheri sought in any way to obtain information from Mr Vitek about the property or his proposals or to enlist Mr Vitek’s assistance or support. Nor is there any suggestion that Mr Vitek sought to assist Mr Taheri to obtain an understanding of the property. They dealt at arm’s length, with each attentive to his own interests.

Mr Taheri’s post-contract activities

67 I digress from the examination of circumstances prevailing at (and before) the exchange of contracts on 15 September 2003 to consider steps taken by Mr Taheri after exchange. I do so because it is material to an appreciation of the last of the pre-contract circumstances (to be addressed presently), that is, the state of Mr Taheri’s knowledge of the prior use of the property as a petrol station and potential contamination.

68 Mr Taheri lodged an application with the council on 13 November 2003. This, of course, was almost two months after contracts had been exchanged. Mr Taheri was obviously setting in train the development application process envisaged by the contract.

69 The application of 13 November 2003 was later withdrawn. Mr Taheri says that it was withdrawn because his architect had been told by the council that the application would be rejected since a statement of environmental effects needed to be lodged as well. Mr Taheri instructed the architect to retain Hayes Environmental Consulting to prepare such a statement. The report of Hayes dated 24 December 2003 was seen by Mr Taheri in January 2004.

70 The Hayes report contains a summary of objectives as follows:

Environmental Guidelines

71 Hayes’ conclusions were:

(a) that the site had been used for commercial purposes since at least 1890, including as a printery, boot factory and petrol station (1959 to 1973) and, of course, car alarm installation centre;

(b) the site was free of statutory notices issued by New South Wales government authorities;

(c) at least three abandoned underground storage tanks were “expected on site”;

(d) that a number of soil samples from six bore holes were analysed as meeting Environmental protection Authority standards, except for elevated lead concentration in one sample and elevated benzo(a)pyrene concentration in one sample; and

(e) that concrete paving will ultimately cover more than 90% of the final redeveloped surface and will minimise access to soils and restrict leachate formation and volatisation.

72 Hayes added that soil contamination was not considered to be widespread but recommended that further investigation be undertaken.

73 Mr Taheri gave evidence that his architect was not worried about the minor soil contamination suggested by the Hayes report. This was because there would be excavation for underground parking and the only adverse implication would be the need to dispose of the soil at a special place and under special procedures.

74 Soon afterwards, on 13 February 2004, Mr Taheri (and perhaps his architect) attended a “preliminary development application meeting” with three council officers. In July 2004, the council received a pre-development application (Mrs Taheri apparently paid a fee for this on 2 July 2004). On 20 July 2004, two council officers in the environmental section sent a memorandum to the town planner stating that the development proposal was considered satisfactory subject to certain matters “being given consideration”. One of these was:

“Contamination – Attention should be paid to the requirements of SEPP55 and Council’s Contaminated Land DCP 2004. In this regard, a Stage 2 Environmental Site Contamination Report stating that the site can be made suitable for its intended use and a Remedial Action Plan verified in writing by an accredited NSW EPA site auditor should be submitted to Council for approval. Consequent upon remediation and validation of the site, a Site Audit Statement from a NSW EPA accredited site auditor stating that the site is suitable for its intended use is to be submitted to Council prior to the issue of a Construction Certificate for any above ground works. (This Section has no objection to demolition of the existing building being effected to enable the Stage 2 Assessment to be carried out subject to compliance with condition numbered 2. No new building work is to be carried out at this stage.)”

75 This recommendation was taken up in a letter of 5 August 2004 from the council to Mr Taheri. The letter detailed several “issues” with the proposed development. One was described in terms virtually identical with those set out above. Other “issues” to which the council referred were:

(a) the need go give attention to the built form of the apartments, the apartment mix and the size of the apartments for the proposed number of rooms;

(b) a recommendation that consideration be given to providing opportunities for live/work apartment layouts on the ground floor;

(c) a recommendation that the height and form of buildings be carefully considered in the context of the overall urban form;

(d) a statement that improvements to the public domain would be required as a condition of consent and a recommendation that consideration therefore be given to that matter at the concept stage;

(e) a statement that the floor area exceeding the maximum floor space ratio of 0.25 to 1.0 would be counted as bonus floor space which, if exceeding 100 square metres would require a bonus floor space contribution (a money payment);

(f) a statement, under a heading relating to social planning design criteria, that the proposed unit mix was not considered to reflect the ABS census data as required and could not be supported by the council;

(g) observations that the proposed building may cause unsatisfactory loss of amenity to neighbouring properties to the south and west which may make necessary or desirable a reconsideration of the type of building;

(h) a preference to minimise vehicular crossings in the lane and to provide only one vehicle access point;

(i) a perceived need to reconfigure car spaces and the number of car parks;

(j) the observation that more than one pedestrian access from Elizabeth Street would improve presentation;

(k) the need to redesign the building to provide open space for each unit off its living room;

(l) the observation that the proposal exceeded the floor space ratio which was not considered justified for the purposes of the bonus floor space policy mentioned above;

(m) the comment that further set backs may be needed;

(n) a recommendation that, having regard to heritage considerations and the adjoining and nearby properties, the form of the roof be altered;

(o) a statement that the visual separation for the project design was unsatisfactory, with insufficient daylight access and visual privacy to rooms.

76 The council’s letter went on to point to a particular need to submit with any development application:

“1. Design verification from a qualified designer (A registered architect must design the building)

2. An Environmental Site Contamination Report stating that the site can be made suitable for the intended use and a Remedial Action Plan verified in writing by an accredited NSW EPA site auditor

3. The required information in the Statement of Environmental Effects (Shadow diagrams, Plans showing adjacent buildings, overshadowing and overlooking etc)

4. Graphic illustrations

5. An Environmental Management Plan.”

77 As I have said, this letter was dated 5 August 2004. The date fixed for completion by the contract was 15 September 2004.

78 Mr Taheri accepted in cross-examination that, as a result of the letter of 5 August 2004 and discussion with his architect, he was aware that the council officers would not support his application and that the reasons for this were as summarised in the several points in the letter. Cross-examination then continued:

“Q. None of those bullet points suggested that the Council officers would not support the application because the land was contaminated?
A. Not on this letter, no.

Q. What the Council officers had said to you was that there was a process that you had to go through in order to satisfy the Council ultimately that there was either no contamination or the contamination that is there had been remediated properly?
A. Absolutely right, correct.

Q. When you knew that, you understood that contamination did not provide any absolute bar to your proceeding with your development?
A. Correct.

79 I turn now to Mr Taheri’s attempts to raise finance for the purchase. He accepted in cross-examination that he first sought finance in June 2004, being five months after he became aware of the Hayes report. His efforts continued until September 2004. Several finance intermediaries were approached. Because completion was due on 15 September 2004 and Mr Taheri had not then succeeded in arranging finance, he approached Mr Vitek for an extension of time to complete. Mr Vitek insisted that the question be addressed through solicitors. Mr Taheri went back to Mr O’Donnell. No extension was negotiated. The Viteks’ notice to complete was served on 28 September 2004.

80 I quote from Mr Taheri’s cross-examination:

“Q. You entered into the contract and you hoped to be able to borrow the money before you had to complete?
A. Correct.

Q. It was 12 months after the contract?
A. No, before that. If I had my plans ready by six or seven months time, I should be able to because the financier would look at it positive so long as there's enough profits for the building.

Q. In fact, you did not have any Development Application approved by the Council by the date in September when the Notice of Complete was served?
A. That's correct.

Q. The fact is that contamination was not a reason why you didn't have the Development Consent by that stage, was it?
A. No, that's correct.

Q. Sorry?
A. That's correct. You are right.

Mr Taheri’s knowledge of the former petrol station use

81 I now enter a controversial area. It concerns the question whether, in the course of discussions and negotiations leading to the exchange of contracts on 13 September 2003, Mr Taheri became aware that the property had once been a petrol station.

82 Mr Vitek refers in his evidence to a pre-contract discussion of about 45 minutes (at which the estate agent, Mr Constantine, was also present) during which he told Mr Taheri about an approval he had to add another storey and offered to show him the plans. Mr Vitek also deposes to having said:

“This is a former service station site.”

“I want to make it clear that I am not prepared to enter into any option or a contract that is conditional on a development application or anything like that.”

83 Mr Taheri’s evidence is that Mr Vitek did not at any time before exchange of contracts tell him that the property had once been used as a petrol station. However, Mr O’Donnell, who acted as solicitor on the purchase, testified that at a meeting on 19 August 2003 at his office attended by both the Taheris, Mr Taheri said that he had done a lot of research on the property “and I know the property was once a petrol station”; also, “We don’t care much about what is there now, we’re intending to demolish it to construct new units”; and Mr O’Donnell was not to make any requisitions.

84 Mr O’Donnell’s evidence in this respect is contradicted by both Mr Taheri and Mrs Taheri. The conflict is one to which it will be necessary to refer in some detail presently.

85 Both Mr Vitek and Mr Taheri gave evidence of a meeting at Mr Vitek’s office probably in September or early October 2004, that is, around the time fixed for completion. The selling agent, Mr Constantine, was also present, as was Mr Vitek’s son. The son also gave evidence about this meeting. All three accounts are consistent to the extent that the purpose of the meeting was to discuss the question of an extension of time for settlement; and that Mr Taheri said words to the effect, “I did not know that it was an ex petrol station site”. According to Mr Vitek and his son, Mr Constantine said, “Mac, don’t make a fool of yourself”; or “Oh, come on, Mac”. The son said in oral evidence that Mr Constantine’s physical reaction to Mr Taheri’s words was, “You know, when you hear something that someone says that you don’t believe”. Mr Taheri denies that Mr Constantine said, “Mac, don’t make a fool of yourself” or “Oh, come on, Mac.”

86 Mr Taheri accepted that he had visited the site on two occasions before exchange of contracts. He also visited after exchange of contracts and specifically in January 2004 after he was aware of the Hayes report. He readily accepted in cross-examination that, on looking at the property after becoming aware from the report of the former petrol station use, he could see merely from the appearance of structures that they had once been a petrol station.

87 Photographs in evidence show a single storey building somewhat more than half of the front of which consists of large roller-shutter doors. The building is set back quite a distance from the street, with a large paved area in front of it. Attached to the building’s facade is a canopy supported by two columns standing roughly three or four metres out from the facade. The bases of the columns are set into a narrow rectangular raised concrete pedestal about 15 centimetres above the surface of the surrounding concrete pavement. The pavement covers the whole of the area between the building and the street. On the pedestal and between the columns supporting the canopy are two rectangular areas of differently coloured concrete consistent with something having been removed at some time and new cement having been used to patch holes.

88 Anyone familiar with typical Sydney petrol stations of the 1960s and 1970s would readily recognise the site and its improvements as once having been a petrol station, with petrol pumps on the raised pedestal at the location of the concrete patching – or, at least, have a very strong suspicion indeed that that was the case. Mr Vitek gave evidence that motorists “quite often” turned into the property looking to buy petrol and realised there was none to be had only after they had entered.

89 The fact that the property had been a petrol station did not become obvious to him, Mr Taheri says, until after exchange of contracts when he had become aware of the Hayes report. He maintains that, during his two pre-contract visits, he was not interested in the existing improvements and had taken absolutely no notice of them. He had merely looked at the site, apparently without registering anything about the structures. This is because his intention was to demolish all the structures. They were of no interest or consequence to him.

90 If, disregarding findings recorded later as to Mr Taheri’s actual knowledge, the true position had been that, at the time of exchange of contracts on 15 September 2003, he did not know that the property had once been used as a petrol station (and, for the moment, I proceed on that assumption), the fact remains that Mr Taheri had entirely at his disposal the means of coming to that conclusion or, at least, forming a very strong objectively based suspicion that would have prompted further inquiry. He only had to look – and Estate Homes, the only eyes of which were his, warranted in special condition 31 that it had looked. No close scrutiny or analysis was required. If Mr Taheri had stood on the street and looked at the improvements, very strong grounds for suspicion would have been established by inspection alone. He says that he did not look. That is of itself most surprising. The important point, for present purposes, is that just as one can, purely from the outline, design and general appearance, recognise a traditionally built house as a former house when it is being used as a doctor’s surgery or a traditionally built church as a former church when it is being used as a community centre or a traditionally built corner shop as a corner shop when the display windows are curtained and it being used as a residence, so too can one recognise a traditionally built petrol station as a former petrol station when it houses a vehicle alarm showroom and workshop.

91 I nevertheless digress substantially to deal with the issue of the alleged meeting on 19 August 2003 at which, according to Mr O’Donnell, Mr Taheri said that he was aware that the property had been used as a petrol station.

The 19 August 2003 meeting - issues

92 Important questions arise in relation to the meeting Mr O’Donnell says he had at his office on 19 August 2003 with both Mr Taheri and Mrs Taheri. The meeting is significant since, as I have said, it is Mr O’Donnell’s contention that it was on that occasion that Mr Taheri instructed him, first, that Mr Taheri was aware that the property had been used as a petrol station, second, that Mr Taheri had done his own research on the property and, third, that Mr O’Donnell was not required to make any requisitions. Mr O’Donnell refers to Mr Taheri’s explanation that he intended to demolish the building.

93 Mr O’Donnell’s account is challenged in two fundamental ways. First, both Mr Taheri and Mrs Taheri say that Mrs Taheri was not present at Mr O’Donnell’s office on the day in question. Second, Mr Taheri, although he eventually accepted that he visited Mr O’Donnell on that day, denies that he gave the particular instruction and made the particular statements.

94 Mr O’Donnell’s account is corroborated as to certain aspects by Ms Lisa O’Donnell, then a law clerk (now a solicitor). She is Mr O’Donnell’s daughter and worked in his practice at the time (as she still does).

95 It was eventually not in contest that Mr Taheri, at least, went to Mr O’Donnell’s office on 19 August 2003. The purpose of the visit was to deliver a cheque for the deposit. Nor is it disputed that Ms Lisa O’Donnell received the cheque, mentioned that the contract had arrived and arranged for Mr Taheri (and, on her account and that of Mr O’Donnell, Mrs Taheri) to see Mr O’Donnell with whom there was then some discussion.

96 It is necessary to address issues of credibility.

Credibility – Mrs Taheri

97 Mrs Taheri denied that she went to Mr O’Donnell’s office on 19 August 2003. She says she could not have been there on that day as she was in Melbourne.

98 Mrs Taheri initially said in an affidavit that she was in Melbourne on 18 and 19 August 2003 to arrange the appointment of some agents to her fashion label and that, to the best of her recollection, she stayed with her cousin. In cross-examination, she said that she was looking for a showroom in Melbourne and that the agents she spoke to were estate agents whose signs she saw on premises she thought might be interesting; also that she did not remember how long she stayed in Melbourne but it may have been two or three weeks. Later in cross-examination, she said that she had gone to Melbourne because she had an argument with her husband and “I drive to Melbourne just to run away from Sydney for a short time” and that he “had no idea where I was going, where I was at the time”.

99 It was thus made clear eventually that Mrs Taheri had gone to Melbourne on the spur of the moment after an argument and that her purpose was simply to get away from her husband for a while. There was no advance plan to arrange the appointment of agents for her business, even though she may have approached some estate agents about premises after she arrived. Her affidavit sought to create a false impression of advance planning.

100 Mrs Taheri was cross-examined about the timing of her sudden decision to drive to Melbourne. It was pointed out to her that nothing had been produced by her in response to a notice to produce requiring production of various kinds of documents one would associate with travel. She explained that she had no such documents. She had driven to Melbourne and back, so there were no airline or train booking records. She stayed with her cousin, so there were no accommodation records. She does not use credit cards, preferring always to pay cash, so there were no credit card records for items such as petrol. Perhaps she took a large amount of cash with her sufficient to pay for petrol to Melbourne and return plus incidental expenses in Melbourne without the need to make a withdrawal from a teller machine (assuming that she uses such machines).

101 It is curious, to say the least, that, in an affidavit of April 2007 and in the witness box in February 2010, Mrs Taheri could be certain that the days she was in Melbourne several years earlier (almost three years in one case and more than six years in the other) included 19 August 2003. On her own evidence, she had no written records that established the dates of her Melbourne visit; nor does she refer to any landmark event by reference to which she might identify the relevant dates. Mrs Taheri also said in evidence that she has children in both Brisbane and Melbourne and often travels by car to visit them. What was, it then, one asks rhetorically, that caused 19 August 2003 to stick in her mind as a day she was in Melbourne.

102 It is now necessary to consider another matter having a very significant bearing on Mrs Taheri’s credibility. She was, at the outset, a party to these proceedings. She, like Mr Taheri, was sued by the Viteks upon the guarantee contained in the contract for sale. Mrs Taheri, in turn, cross-claimed against Mr O’Donnell. As I have mentioned already, the proceedings were compromised as regards Mrs Taheri on 30 April 2009. By consent, there was judgment for her on the Viteks’ summons and judgment for Mr O’Donnell on Mrs Taheri’s cross-claim.

103 At the time of the compromise and for a long time beforehand, the centrepiece of Mrs Taheri’s case, as against the Viteks, was the contention that she did not sign the guarantee. In an affidavit of 15 December 2006, Mrs Taheri deposed:

“My signature as guarantor is not my signature. I have sought to file an amended defence in the proceedings that [sic] pleading that the signature of the guarantor is not my signature.”

104 Annexed to that affidavit of Mrs Taheri is her proposed amended defence. That document says in relation to special condition 51 of the contract:

“… the signature endorsed thereon purporting to be hers [i.e, Mrs Taheri’s] is a forgery.”

105 In her further amended cross-claim filed on 9 April 2009, Mrs Taheri said that she:

“did not sign the Guarantee nor did she authorise the signature that purportedly was hers.”

106 In an affidavit of 4 April 2007 to which reference has already been made, Mrs Taheri referred to having granted a power of attorney to her husband in 2001 at a time when she was regularly travelling overseas. She then deposed:

“I am not aware of my husband ever having used the power of attorney either prior to or subsequent to September 2003.”

107 And later:

“I did not authorise my husband to give a guarantee on my behalf or place my signature on the contract as guarantor.”

108 Mrs Taheri further deposed:

“I was not aware at any time prior to the contract being entered into or after that date until this dispute arose that Estate Homes Pty Limited or my husband had entered into a contract, or that I was a guarantor of the purchase.”

109 The very clear and unambiguous position taken by Mrs Taheri – and the position to which other parties obviously had regard when assessing the question of settling with her – was that the signature on the guarantee purporting to be hers was not placed there by her and was placed there without her consent.

110 Mrs Taheri completely abandoned that position in an affidavit of 9 February 2010 – some nine months after the compromise of the proceedings as they affected her. In that affidavit, she referred to having been “stressed, emotional and crying” when she went to her solicitor’s office on 4 April 2007 to sign her affidavit. The solicitor took her through the form of affidavit and she read it. She believed that it accurately set out relevant facts and circumstances. Her affidavit of 9 February 2010 continues:

“5. In the period between July and August 2003 I was aware that my husband was interested in purchasing a property suitable for redevelopment and in so far as I recall it was sometime during that period when we drove past the property in Elizabeth Street, Redfern and he told me he was in the process of negotiating to purchase that property.

6. I was aware during that period my husband would require finance for a development and it was my intention to assist him by providing security over properties which I owned to enable him to obtain finance.

7. I refer to paragraph 10 in my affidavit and say that it was not correct for me to say I was not aware until this dispute arose that the contract was entered with the plaintiffs or that I was a guarantor.

8. It is my recollection that my husband said to me sometime shortly after 15 September 2003 in effect ‘the contract to purchase the Elizabeth Street property has been exchanged. The vendors wanted both of us to sign a guarantee for Estate Homes. I signed your name using the power of attorney’ I said ‘why did you do that?’ he said ‘they would not proceed with only my signature, I had to do it’. I was very angry with my husband when he told me that.”

A. I got the original of the file, which is the purple file, and I instructed that be, simply be put into an envelope to be forwarded to Mr Hertz. I can't really be certain whether I arranged a courier or he did. I think he arranged for a courier who picked it up by hand. My recall is I spoke to Mr Hertz some time that morning when he received the facsimile at 231, the exhibit, and my recall is that we had a short conversation about the facsimile, and I told him that I was quite happy to assist his client as much as I could and provide him with the complete file which included all the handwritten notes, Post-It notes and every other little item like records of billing on the front of it etc.

HIS HONOUR

134 Mr O’Donnell’s evidence is that the notes of 19 August 2003 were in the original file thus sent to Mr Hertz.

135 Mr Hertz’s request of 28 July 2005 for the file referred to “the Equity Court matter” (that is, these proceedings) being “next before the Court on 29 July 2005”. That was somewhat more than four months after the filing of the Viteks’ summons on 9 March 2005. Mr O’Donnell was not a party to the proceedings at that point. The cross-claim was filed on 4 August 2005. It was probably at an advanced stage of preparation on 28 July 2005. Mr O’Donnell says (and there is nothing to indicate the contrary) that, when he promptly complied with a request to hand over his file, he had no reason to think that proceedings against him were in contemplation. He knew that there were proceedings between the Viteks, Estate Homes and the Taheris. But that was all. He thought that he was merely helping his former client by sending the file to Mr Hertz.

136 There is, of course, no objective reason why Mr O’Donnell should have been aware that proceedings against him were planned. And Mr Hertz who, by then, obviously had instructions to sue Mr O’Donnell or, at least, to do so subject to anything that might emerge from his file, was not going to flag the possibility to Mr O’Donnell at a time when Mr O’Donnell still had the ability to control the content of his file. Mr O’Donnell described his frame of mind as follows:

137 Three factors militate very strongly against the proposition that Mr O’Donnell manufactured the notes of the 19 August 2003 meeting in a dishonest attempt to help defend the case brought against him. The first is that the notes were in the original file sent to Mr Hertz on 28 July 2005, at which time Mr O’Donnell thought he was merely helping a former client and no one had given him the slightest cause to think that he would become the target of proceedings brought by that former client. Second, it would have taken a quite extraordinary effort of mental agility and cunning to sit a long time after 19 August 2003 and dream up what one would have written in preparation for a non-existent meeting on that day and then to add notations of non-existent instructions given at such a non-existent meeting. Third, Ms Lisa O’Donnell testified that she saw the notes on or soon after 19 August 2003 as she was responsible for filing them.

138 I now deal briefly with a second basis for the attack on Mr O’Donnell’s credibility, namely, the suggestion that Mrs Taheri was not present at the 19 August 2003 meeting which Mr Taheri eventually conceded took place, despite his initial denial. Counsel for Estate Homes and Mr Taheri made much of the point that Mrs Taheri was not the purchaser and that her name did not appear as a guarantor in a first draft contract received by Mr O’Donnell from Mr Roth’s office. It should be pointed out, however, that no guarantor’s name appeared in that draft, and that the only versions in which guarantors’ names appear refer to both Mr Taheri and Mrs Taheri. The point was also made that Mrs Taheri was not a director or shareholder of Estate Homes – but why that should be regarded as an indication that she was not to be a guarantor or was not present on 19 August 2003, I do not know.

139 According to the sales advice initially received by Mr O’Donnell from the agent, Mr Constantine, the purchasers were to be Mr Taheri and Mrs Taheri. The correspondence sent by Mr O’Donnell was, from the start, addressed to both Mr Taheri and Mrs Taheri. The idea that the purchaser should be a company developed later. Furthermore, Ms Lisa O’Donnell deposed to a conversation with Mr Ian Tremback of Mr Roth’s firm on or about 18 August 2003 as follows:

“IT: ‘I need to know the full names of the parties for the purchase and if the Taheri’s wish to purchase as a going concern.’

LO: ‘Yes we have received your fax last week and the Solicitor is seeking instructions from Mr and Mrs Taheri. I can tell you that they wish to purchase with the company Estate Homes Pty Limited, I can give you ACN if you would like?’

IT: ‘Well nobody has mentioned that to me previously, all our searches indicate that Mrs Taheri owns the property, the contract would have to include a personal guarantee from Mrs Taheri.’

LO: ‘Oh, I see, I will ask the solicitor to seek instructions from the Taheri’s and we will get back to you.’”

140 It is not disputed that Mrs Taheri was an owner of substantial property. She herself accepted that that gave her a role to play in the transaction (see the concluding part of the cross-examination at paragraph [112] above). It is logical, therefore, that the vendors would require her to be a guarantor. Mrs Taheri was, of course, at pains to say how much she disapproved of her husband having entered into the purchase. But that, of course, was after it had turned into a disaster.

Credibility – Ms Lisa O’Donnell

141 It was submitted on behalf of Estate Homes and Mr Taheri that Ms Lisa O’Donnell’s evidence of the conversation just mentioned should not be accepted.

142 Counsel for Estate Homes and Mr Taheri pointed out that the contract submitted by Mr Roth’s firm the very next day, 19 August 2003, did not name Estate Homes as purchaser or Mr Taheri and Mrs Taheri as guarantors. All relevant spaces were blank. That shows, it is said, that Mr Tremback did not receive the information about parties that Ms Lisa O’Donnell says she gave him on the telephone.

143 This submission is not supported by what happened. Ms Lisa O’Donnell, on her account, did not convey any final position to Mr Tremback. On two occasions, she said that instructions would be sought by “the solicitor”, that is, Mr O’Donnell. While Ms Lisa O’Donnell conveyed the message that “they wish to purchase with the company Estate Homes Pty Limited”, she was in no position to make any response to Mr Tremback’s comment that a guarantee would have to be given by Mrs Taheri. It is perfectly understandable that, at that point and in view of the uncertain position conveyed by Ms Lisa O’Donnell, Mr Tremback left blank not only the names of the guarantors but also the name of the purchaser. Had Mrs Taheri, an owner of property of value, not been a guarantor, the proposal that a company be the purchaser may not have been acceptable to the vendors. It is very easy indeed to infer that Mr Tremback left all spaces blank because matters were quite up in the air.

Credibility - conclusions

144 Mr O’Donnell and Ms Lisa O’Donnell are witnesses of truth. Each gave evidence in a thoughtful and forthright way. Attempts to undermine their credibility in the ways I have described were entirely unsuccessful. I accept their evidence without hesitation or qualification.

145 Mrs Taheri’s credibility is fatally compromised. She eventually accepted that she persisted for years with the falsehood that her husband signed the guarantee without her consent. She gave fluctuating and quite unsatisfactory evidence about a trip to Melbourne which does not justify any finding that she was in Melbourne on 18 and 19 August 2003.

146 Mr Taheri’s credibility is very severely compromised. He gave a false account on affidavit about the absence of advice and explanation of the contract which he sought to replace with another version when he became aware that his initial attempt would inevitably come undone. The revised version was based on two falsehoods: first, that Mrs Taheri was not present; and, second, that Mr O’Donnell’s explanation dealt with various matters but omitted those at the centre of the case to which the Taheris had committed themselves.

147 In every instance of conflict between the evidence of Mr Taheri or Mrs Taheri or both and the evidence of Mr O’Donnell or Ms Lisa O’Donnell or both, I accept the O’Donnell evidence and reject the Taheri evidence.

The 19 August 2003 meeting - conclusions

148 The credibility findings I have recorded cause me to conclude that the meeting took place on 19 August 2003 as deposed to by Mr O’Donnell and confirmed by Ms Lisa O’Donnell. It is necessary, however, to refer to some additional matters.

149 As to whether Mrs Taheri attended, Ms Lisa O’Donnell had a particular reason to remember that she first met Mrs Taheri at about that time. She had met Mr Taheri before when he came to the office. Ms Lisa O’Donnell deposes that, on one such occasion, a woman with Mr Taheri was introduced by him as his “girlfriend”. Ms Lisa O’Donnell says that, in those circumstances, she was embarrassed to be introduced later to his wife and for that reason recalled the occasion of the meeting.

150 In addition, statements that, according to Mr O’Donnell, were made by Mr Taheri in the course of the 19 August 2003 meeting can be seen to be consistent with his attitude expressed elsewhere. Mr O’Donnell refers to Mr Taheri having said that there was no need to make requisitions because he intended to demolish the buildings. That is precisely the reason Mr Taheri gave in his evidence for having taken absolutely no notice of the appearance of the buildings before exchange of contracts. In addition, Mr Taheri, according to Mr O’Donnell, said that he had done his own research. That too is something about which Mr Taheri gave evidence (see paragraphs [64] to [66] above). Mr O’Donnell’s evidence about what Mr Taheri said on 19 August 2003 is consistent with statements made in Mr Taheri’s own evidence.

151 My findings are that the 19 August 2003 meeting occurred as Mr O’Donnell says it did, with both Mr Taheri and Mrs Taheri present; that Mr O’Donnell made the handwritten notes in advance of the meeting and used them in the course of the meeting to explain relevant matters to Mr Taheri and Mrs Taheri and to record instructions then given; and that Mr Taheri told Mr O’Donnell on that occasion that he was aware that the property had been used as a petrol station, that he had done his own research and that Mr O’Donnell was not required to make any requisitions.

152 I should record, in conclusion on this aspect, that I see as entirely irrelevant the fact that, in the course of correspondence and in file, Mr O’Donnell referred to “client” in the singular. That is not an indication that Mrs Taheri was not involved. Indeed, she verified the cross-claim in which it is pleaded that both Mr Taheri and Mrs Taheri retained Mr O’Donnell. References to “client” in the singular merely indicate that Mr O’Donnell dealt principally with Mr Taheri and considered him the source of instructions. Likewise, I place no weight on the fact that time records and billings do not record all events. A perusal of the file suggests that Ms Lisa O’Donnell was diligent in making file notes of attendances but Mr O’Donnell was not, except for more time consuming items. He said in cross-examination this was his practice. Thus, the fact that Ms Lisa O’Donnell recorded on 19 August 2003 receiving the deposit cheque from Mr Taheri without mentioning Mrs Taheri does not mean that Mrs Taheri was not present. It indicates, rather, that Ms Lisa O’Donnell’s substantive involvement on that occasion was confined to the cheque and that it was from Mr Taheri that she received it. She did not record the tripartite meeting on the same occasion because it was not something in which she participated. Mr Taheri, it may be noted, acknowledges that he gave Ms Lisa O’Donnell the cheque on that day.

153 This is, however, one of the occasions on which Mr O’Donnell made an entry, at least in a bill of 28 August 2003 which refers to “client conference to review contract” of 90 minutes on 19 August 2003.

154 My conclusions in relation to the 19 August 2003 meeting mean that I accept the truth of the following:

(a) that Mr Taheri informed Mr O’Donnell on that day that he was aware that the property had been used as a petrol station;

(b) that Mr Taheri informed Mr O’Donnell on that day that he had, as at 19 August 2003, done a lot of research on the property;

(c) that Mr Taheri told Mr O’Donnell on that day that he did not care much about what was on the site as he intended demolishing the building and constructing new units;

(d) that Mr Taheri instructed Mr O’Donnell that he was not required to make any requisitions; and

(e) that Mr O’Donnell raised and discussed with Mr Taheri and Mrs Taheri the several matters recorded in his handwritten note and endorsed thereon certain instructions then given to him.

155 The finding at (a) causes me to conclude that Mr Vitek had, as he said, told Mr Taheri that the property had been a petrol station – something borne out, in any event, by the evidence about the meeting with Mr Taheri attended by Mr Vitek, Mr Constantine and Mr Vitek’s son (see paragraph [85] above).

156 The finding at (e) is important in two respects. One of Mr O’Donnell’s notes reads:

“Title Search – Note covenant and mortgage.”

157 This obviously refers to a restrictive covenant disclosed in and annexed to the contract prohibiting the use of the property “for the purpose of a garage and service station or for the storage or sale of petroleum products”. The covenant was created by a transfer in which the transferor was The Shell Company of Australia Limited. Mr O’Donnell’s evidence is that he pointed the covenant out and said that the property could not be used as a petrol station, to which Mr Taheri replied that that did not matter because he was going to build.

158 Another of Mr O’Donnell’s notes refers to the s 149 certificate included in the contract. His evidence is that he took Mr Taheri and Mrs Taheri through the s 149 certificate and drew attention to the section concerning the Contaminated Land Management Act, commenting that he was surprised at one of the “No” answers if the property was formerly a petrol station.

Assessment of surrounding circumstances

159 I return now to the case of misleading and deceptive conduct by silence advanced by Estate Homes and Mr Taheri against the Viteks.

160 Bearing in mind that the quality of silence as misleading or deceptive is to be judged according to whether, in the circumstances, there was a reasonable expectation that disclosure would be made and the silence broken, I proceed to an assessment of the circumstance in the period leading up to exchange of contracts as I have described them.

161 Mr Taheri was, for all relevant purposes, the human embodiment of Estate Homes. He had experience in building and property development. He had worked in the field since 1991. Having identified the Redfern site, he made an assessment of his own as to its suitability for development by the construction of apartments. In doing so, he made direct inquiries of the council, specifically with reference to the permitted floor space ratio.

162 Estate Homes received from the Viteks all the disclosures and warranties required by the sale of land legislation. In particular, it received, via the annexing of the s 149 certificate to the contract, warranties that the property was not within a declared investigation area or remediation site under Part 3 of the Contaminated Land Management Act, that the land was not subject to an investigation order or remediation order within the meaning of the Act, that the property was not subject to a voluntary investigation proposal under the Act and that it was not subject to a site audit statement under Part 4 of the Act. There is no allegation of breach of any of those warranties.

163 In addition – and beyond the statutory disclosure requirement – Estate Homes received from the Viteks, again via the attached s 149 certificate, the council’s advice or recommendation that consideration of the council’s development control plan on contaminated land was warranted and that that plan was implemented when land use changes were proposed. Land use change was precisely what Estate Homes proposed.

164 The parties were represented by solicitors. A contract was prepared. It contained extensive special conditions, particularly with respect to the price adjustment based on floor space ratio ultimately achieved. The terms were negotiated between the solicitors. The implied warranties to which I have just referred were included and the further disclosures were made by the vendor through the attachment to the contract. In addition and importantly, the contract contained the special conditions set out at paragraph [26] above by which Estate Homes warranted that it had inspected the property and acknowledged that it took it with all defects, latent and patent. The contractual framework was in that way one that put Estate Homes on notice that it had a responsibility to look out for its own interests.

165 Someone such as Mr Taheri who had moved in building and property development circles for some twelve years before September 2003 and had undertaken formal study through the Master Builders Association must be presumed to have had a general awareness, first, that land contamination and regulatory schemes for its control and remediation had been for some time a significant issue confronting property developers and, second, that sites exposed to petroleum products over a long period in a less vigilant era were among the most vulnerable to contamination.

166 The physical characteristics of the property were such as to inform any intelligent observer that it had once been a petrol station or, at the least, to raise in the mind of such an observer a very strong suspicion that this was the case.

167 In any event, my findings that Mr Taheri told Mr O’Donnell on 19 August 2003 that he was aware of the former petrol station use and that Mr Vitek had informed Mr Taheri of this at an earlier time mean that the situation was one of actual knowledge, not strong suspicion.

168 I refer at this point to the decision of Hoeben J in Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd [2005] NSWSC 20; (2005) 215 ALR 625. That case concerned a lease of former airport premises to a company that proposed to establish a school. It later emerged that the land was contaminated and that the lessor had had in its possession when the lease was granted an expert’s report making it clear that the site was contaminated. The lessor did not disclose this to the prospective lessee. The lessor was held to have engaged in misleading or deceptive conduct within s 52 of the Trade Practices Act. Hoeben J said (at [182] – [183]):

“In the circumstances of this case where the plaintiffs had made it known to [the lessor] that they intended to use the leased site for a sensitive purpose, that is conducting a school, the plaintiffs would have had a reasonable expectation that had there been a risk of contamination they would have been told. Quite clearly some employees of [the lessor] were aware of the contents of the 1994 Envirosciences report and yet the plaintiffs were not told about it.

169 His Honour also said (at [191] – [192]:

“I am satisfied that the plaintiffs have established that in the context of the conversations between Ms Williams and Mr Knox, on behalf of [the lessor], and the second plaintiff and Mr Adada, on behalf of the college [lessee], the failure to refer to the risk of contamination involved [the lessor] engaging in conduct which was misleading or deceptive or was likely to mislead or deceive so as to constitute a breach of the norm of conduct required by s 52 of the TPA.

170 In this case, by contrast, the potential vendor did not engage in extensive discussions with the potential purchaser in an endeavour to point out comprehensively the advantages of the site for the purchaser’s purposes. Mr Vitek and Mr Taheri had some brief discussions about Mr Taheri’s plans for the site. Mr Vitek made some comment about the floor space ratio that might be achievable and people who might help with approaches to the council. He also offered Mr Taheri details of the development consent he had himself obtained. But Mr Vitek did not set out in any way to assist or enable Mr Taheri to make an informed decision as to whether or not it was feasible to achieve the kind of development Mr Taheri had in mind. The discussions, such as they were, were entirely arm’s length discussions in which Mr Vitek was no more than a vendor willing to negotiate wholly in his own interests.

171 Mr Vitek told Mr Taheri of the former petrol station use. The circumstances were not such as to justify the holding by the purchaser of any expectation that the vendors would volunteer the limited additional information they had about the contamination potential, obtained from their own dealings with the council. This was particularly so in light of the content (express and implied) of the contract and the further disclosure through attachment of the s 149 certificate. This case warrants the following observation made by Keane JA (with whom McMurdo P and Atkinson J agreed) in Donne Place Pty Ltd v Conan Pty Ltd (above) at [46], a case concerning the sale and purchase of a restaurant business:

“In this case there were considerable negotiations between the parties. They resulted in an elaborate charter concerning the parties' expectations. Any ‘expectation’ held by the appellant about what it was to be told about the various permits required for the operation of the Business can be placed no higher than the content of the contractual warranties extended by the respondent pursuant to cl 8.1 and 19.1 of the contract because the respondent did nothing that might have led the appellant to expect anything else.”

172 Here too, the vendors did nothing to justify the holding by the purchaser of any expectation higher than the content of the contractual warranties, including those implied by the sale of land legislation.

Conclusions on the s 42 claim

173 The claim advanced by Estate Homes and Mr Taheri under s 42 of the Fair Trading Act is based on the six “representations” set out at (i) to (vi) of (a) at paragraph [14] above, each being a “representation” by silence. The case, as presented, concentrated on the “representations” (v) and (vi) and I record, for completeness, my conclusion that there is no conceivable basis on which silence with respect to any of (i) to (iv) could be actionable under s 42. I say this because, as to each of those, there was no suggestion at the hearing that anything should have been volunteered or disclosed in response to some reasonable expectation of the purchaser and the guarantors.

174 As regard items (v) and (vi) at paragraph [14] above, the silence of the Viteks towards Estate Homes and the Taheris with respect to the possibility of site contamination was not conduct prohibited by s 42 of the Fair Trading Act. Nothing in the circumstances leading up to the exchange of contracts on 15 September 2003 was such as to engender in the purchaser any reasonable expectation that the Viteks would volunteer such information as they in fact possessed relevant to the existence of that possibility. The transaction was negotiated at arm’s length between commercial men with the benefit of solicitors’ assistance. There was nothing to displace, in relation to the relevant matter, the general expectation caveat emptor, qui ignorare non debuit quod ius alienum emit.

Outcome between the Viteks, Estate Homes and Mr Taheri

175 Estate Homes and Mr Taheri have failed to make out the case pleaded against the Viteks in the cross-claim.

176 The Viteks are entitled to relief against Estate Homes by way of forfeiture of the deposit and damages. The Viteks, as vendors, terminated the contract pursuant to standard condition 9:

9 Purchaser’s default

terminate

serving

termination

within

9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination to recover -
the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and
the reasonable costs and expenses arising out of the purchaser’s non-compliance with this contract or the notice and of resale and any attempted resale; or
9.3.2 to recover damages for breach of contract .”

177 The Viteks did not re-sell within the period mentioned in standard condition 9.3.1 (the resale they in fact made at a later time is irrelevant). The entitlement, as against Estate Homes, is therefore, under clause 9.3.2, an entitlement “to recover damages for breach of contract”.

178 The entitlement of a vendor to recover damages from a defaulting purchaser must be approached according to the ordinary principles for the assessment of breach of contract damages. The starting point is that the purchaser’s breach and the vendor’s termination of the contract on account of that breach leave the vendor with the property, free from any obligation to convey to the purchaser. It follows that the unpaid purchase moneys do not represent the vendor’s loss. The central question is whether the vendor’s position of continuing ownership of the property is more or less advantageous than the position that would have pertained if the vendor had conveyed the property to the purchaser and received the price in its place. In Laird v Pim (1841) 7 M & W 474; 171 ER 852, Parke B said at ER 854:

“The question is, how much worse is the plaintiff by the diminution in the value of the land, or the loss of the purchase money, in consequence of the non-performance of the contract? It is clear he cannot have the land and its value too.”

179 In a case such as the present, where there was no re-sale by the vendor in the ensuing year, this question is usually addressed by comparing the contract price with the value of the property at the time of the purchaser’s breach. If the value is greater than the price, no damage has been suffered, the assumption inherent in the valuation being that the vendor may, by re-selling to a willing but not anxious buyer on the open market, realise the value disclosed by the valuation. But if the value is less than the price, it may be inferred that the discrepancy is an element of the vendor’s loss, under the first limb of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145, along with any expenses incurred in preparing to complete the sale (and after allowing for anything received under the contract): see, for example, Mallick v Parish (1916) 16 SR (NSW) 305.

180 In the present case, the principal factor in assessing damages is the value of the property at the date of breach, that is, 22 October 2004. The Viteks have led valuation evidence through the affidavit of Mr Foley-Jennings, an experienced property valuer. He expressly refers in his report to the fact of former petrol station use and “the potential aspect of site contamination (generally from leaking underground fuel tanks)”. He also refers to and, in part quotes, the Hayes report of 23 December 2003.

181 Mr Foley-Jennings has assessed the current market value, as at 20 July 2005, at $1,750,000.

182 Counsel for Estate Homes submitted that the report was of no use because it did not state the value at 22 October 2004. Counsel for the Viteks recognised this but pointed out that the report does refer to “the fall in the level of property values, over the last 12 months, by 10 – 15%”. This, it is submitted, gives the court a proper basis for arriving at an appropriate value at 22 October 2004.

183 I accept that submission. There is evidence of the amount of the loss, albeit not as precise as one would ideally prefer. Estimation is therefore not only permitted but expected: Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768 at [37] per Hayne J. A ready means of estimation is provided by the valuation report, although the appropriate course is to adopt the deterioration factor least favourable to the plaintiffs who have not provided a precise valuation as at the relevant date.

184 It was submitted on behalf of Estate Homes and Mr Taheri that Mr Foley-Jennings’ valuation should not be relied on because he has taken into account the potentially contaminated state of the land. On my findings, Mr Taheri (and therefore Estate Homes) was aware of the former petrol station use and therefore potentially contaminated state of the land before exchange of contracts; and there is no doubt that the Viteks were likewise aware. The premise on which the valuation proceeded is therefore consistent with the basis on which the parties contracted. The criticism of the valuation is not well-founded.

185 On the basis of Mr Foley-Jennings’ report, it may be concluded that the value on 20 July 2004 was $2,058,823 which is the figure 85% of which is $1,750,000. That value is greater by $308,823 than the value at 20 July 2005. Assuming (as I consider to be reasonable) that the deterioration of $308,823 over the year to 20 July 2005 was at a constant rate, the deterioration from 20 July 2004 to 22 October 2004 (a period of 94 days) should therefore be taken to have been $97,532, being $308,823 divided by 365 and multiplied by 94. The value at 22 October 2004 should then be assessed as $2,058.823 less $79,532, that is, $1,979,290.

186 Had completion taken place, as required, the special condition providing for price adjustment geared to floor space ratio would not have operated. The price would have been the base figure of $2.6 million. The difference between that and the value of $1,979,290 at 22 October 2004 is $620,710. The forfeited deposit of $50,000 must be brought to account in determining the Viteks’ loss. Damages are therefore assessed at $570,710.

187 The Viteks claim interest. Interest clearly should be awarded from the date of breach to the date of judgment. The court has a discretion under s 100 of the Civil Procedure Act 2005 as to the rate of interest to be applied. The parties, in special condition 40.1(a) of their contract, provided for interest at the rate of 10% per annum on overdue moneys. That, in the circumstances, is the appropriate rate.

188 There is no suggestion that Mr Taheri is not liable on his guarantee to the full extent of Estate Homes’ liability.

189 There will therefore be, as between the Viteks on the one hand and Estate Homes and Mr Taheri on the other:

(a) a declaration that the service by the first defendant upon the plaintiffs on 21 October 2004 of a document entitled “Notice of Rescission of Contract for Sale of Land” and bearing date 21 October 2004 constituted a repudiation by the first defendant of the contract for sale entered into between the plaintiffs and the first defendant bearing date 15 September 2003 in respect of the property known as 591 Elizabeth Street, Redfern;

(b) a declaration that, by notice dated 22 October 2004, the plaintiffs accepted the notice dated 21 October 2004 as a repudiation of that contract for sale;

(c) a declaration that that contract for sale is at an end;

(d) a declaration that the plaintiffs are entitled to forfeit the deposit paid under that contract for sale;

(e) judgment for the plaintiffs against the first defendant and Siamac Taheri in the sum of $570,710 together with interest on that sum at the rate of 10% per annum from 22 October 2004 to the date of judgment; and

The cross-claim against Mr O’Donnell

190 Mr O’Donnell admits that he was retained to act for Estate Homes, Mr Taheri and Mrs Taheri in relation to the purchase. Various breaches of the particular retainer are alleged against him.

191 Counsel for Estate Homes and Mr Taheri submitted that the court should make a number of findings as a basis for a conclusion that the pleaded breach of retainer (and a corresponding breach of a duty of care in negligence) was committed by Mr O’Donnell. The findings concerned Mrs Taheri’s absence from the 19 August 2003 meeting, oversight or other default by Mr O’Donnell in not sending the usual requisitions, failure of Mr O’Donnell to draw attention to the restrictive covenant and the s 149 certificate, absence of any communication to Mr O’Donnell by Mr Taheri before exchange of contracts of the latter’s awareness that the property had been used as a petrol station and fabrication by Mr O’Donnell of the handwritten notes of 19 August 2003.

192 All these matters have been determined adversely to Estate Homes and Mr Taheri in the findings on credibility. In summary, I am satisfied that Mr O’Donnell gave advice as he says he did, particularly at the meeting of 19 August 2003, that he thereby performed his retainer fully and diligently and that he was not guilty of any breach of a duty of care in negligence.

193 As between Estate Homes and Mr Taheri on the one hand and Mr O’Donnell on the other, there will be an order that the cross-claim be dismissed.

Costs

194 There is no apparent reason why Estate Homes and Mr Taheri should not be ordered to pay the costs of the Viteks and the costs of Mr O’Donnell.

Disposition

195 I will direct that the Viteks and Mr O’Donnell together prepare the draft of the orders necessary to give effect to these reasons, that they submit that draft to the solicitors for Estate Homes and Mr Taheri not later than 15 April 2010 and that the draft, together with any comments thereon received within seven days after submission of it to the solicitors for Estate Homes and Mr Taheri, be promptly forwarded by the Viteks and Mr O’Donnell to my Associate. I will then make orders in chambers to dispose of the proceedings.

Postscript

196 In written submissions filed by leave after the hearing, counsel for Estate Homes and Mr Taheri sought leave to re-open to tender two documents from Mr O’Donnell’s file. The grant of leave was opposed by counsel for Mr O’Donnell. On this, I merely say that the whole of Mr O’Donnell’s file was tendered and admitted in its original form during the hearing and that I had regard to its content.

**********

Citations

Vitek v Estate Homes Pty Ltd [2010] NSWSC 237

Most Recent Citation

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Taheri v Vitek [2014] NSWCA 209

Taheri v Vitek [2013] NSWCA 438

Cases Cited

13

Statutory Material Cited

8

Fraser v NRMA Holdings Ltd [1995] FCA 9

Gould v Vaggelas [1985] HCA 75

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CITATION:	Vitek v Estate Homes Pty Ltd [2010] NSWSC 237
HEARING DATE(S):	27/04/09, 28/04/09, 29/04/09, 30/04/09, 01/05/09, 14/9/09, 15/9/09, 16/02/10, 17/02/10, 18/02/10, 19/02/10 Written submissions: 26/02/10, 02/3/10, 05/03/10
JUDGMENT DATE :	31 March 2010
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	1 As between the plaintiffs on the one hand and the first defendant and Siamac Taheri on the other, there will be: (a) a declaration that the service by the first defendant upon the plaintiffs on 21 October 2004 of a document entitled “Notice of Rescission of Contract for Sale of Land” and bearing date 21 October 2004 constituted a repudiation by the first defendant of the contract for sale entered into between the plaintiffs and the first defendant bearing date 15 September 2003 in respect of the property known as 591 Elizabeth Street, Redfern; (b) a declaration that, by notice dated 22 October 2004, the plaintiffs accepted the notice dated 21 October 2004 as a repudiation of that contract for sale; (c) a declaration that that contract for sale is at an end; (d) a declaration that the plaintiffs are entitled to forfeit the deposit paid under that contract for sale; (e) judgment for the plaintiffs against the first defendant and Siamac Taheri in the sum of $570,710 together with interest on that sum at the rate of 10% per annum from 22 October 2004 to the date of judgment; and (f) an order that the cross-claim be dismissed. 2 As between the first defendant and Siamac Taheri on the one hand and Bernard O’Donnell on the other, there will be an order that the cross-claim be dismissed. 3 There will be an order that the first defendant and Siamac Taheri pay the costs of the plaintiffs and Bernard O’Donnell. 4 I direct that the plaintiffs and Bernard O’Donnell together prepare the draft of the orders necessary to give effect to these reasons, that they submit that draft to the solicitors for the first defendant and Siamac Taheri not later than 15 April 2010 and that the draft, together with any comments thereon received within seven days after submission of it to the solicitors for the first defendant and Siamac Taheri, be promptly forwarded by the plaintiffs and Bernard O’Donnell to my Associate with a view to the making of orders in chambers to dispose of the proceedings.
CATCHWORDS:	CONVEYANCING - breach of contract for sale and remedies - purported rescission by purchaser for conduct of vendor within Fair Trading Act 1987 - whether such rescission effective - whether such rescission repudiation - TRADE AND COMMERCE - Fair Trading Act - consumer protection - where vendor aware that land formerly used as a petrol station and may be contaminated - whether vendor guilty of misleading or deceptive conduct by not imparting this knowledge to purchaser - whether purchaser aware of former petrol station use and contamination potential - assessment of purchaser's reasonable expectations in light of surrounding circumstances - CONVEYANCING - breach of contract for sale and remedies - assessment of damages - where no resale by vendor within one year - vendor relies on valuation report as at date later than date of breach - report quantifies decline in value over previous year - report provides sound basis for estimating value at date of breach
LEGISLATION CITED:	Civil Procedure Act 2005, s 100 Contaminated Land Management Act 1997, Parts 2, 3 Conveyancing Act 1919, s 52A Conveyancing (Sale of Land) Regulation 2000, cls 2(a) and 2(b) of Part 1 of Schedule 3, cl 5, item 10 Schedule 4, Environmental Planning and Assessment Act 1979, s 149 Environmental Planning and Assessment Regulation 1994, Schedule 4 Fair Trading Act 1987, ss 42, 45(1)(b) Trade Practices Act 1974 (Cth), s 52
CATEGORY:	Principal judgment
CASES CITED:	Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Donne Place Pty Ltd v Conan Pty Ltd [2005] QCA 481 Eastern Gardens Pty Ltd v Stone [2005] SASC 157; (2005) 239 LSJS 344 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 Laird v Pim (1841) 7 M & W 474; 171 ER 852 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Mallick v Parish (1916) 16 SR (NSW) 305 Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213; (2004) Aust Contract R 90-186 Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd [2005] NSWSC 20; (2005) 215 ALR 625 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768 P Lorrilard Co v Federal Trade Commission 186 F 2d 52 (1950) Slinger v Southern White Pty Ltd [2005] SASC 267; (2005) 92 SASR 303 Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288
PARTIES:	Peter Vitek - First Plaintiff/First Cross-Defendant Shoshana Vitek - Second Plaintiff/Second Cross Defendant Estate Homes Pty Limited - First Defendant/First Cross-Claimant Siamac Taheri - Second Defendant/Second Cross-Claimant Veeda Taheri - Third Defendant - Third Cross-Claimant Bernard O'Donnell - Third Cross-Defendant
FILE NUMBER(S):	SC 2005/00258339
COUNSEL:	Mr S D Robb QC - Plaintiffs Mr J S Van Aalst - Defendants Mr G P Craddock SC - Third Cross-Defendant
SOLICITORS:	Charles G Roth - Plaintiffs John Hertz & Associates - Defendants HWL Ebsworth Lawyers - Third Cross-Defendant