Webster v Havyn Pty Ltd

[2004] NSWSC 227

Reported Decision: (2004) Aust Contract Reports 90-197
(2004) ATPR (Digest) 46-249

Supreme Court

CITATION:	Webster v Havyn Pty Ltd [2004] NSWSC 227
HEARING DATE(S):	23 to 25 March, 2004
JUDGMENT DATE:	26 March 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Declaration that Plaintiff validly rescinded contract for sale; deposit to be repaid under s.55(2A) Conveyancing Act; Defendant's Cross Claim for damages for misrepresentation/misleading or deceptive conduct dismissed.
CATCHWORDS:	CONTRACT - SALE OF LAND - TIME OF ESSENCE - MISREPRESENTATION - contract for sale of land alleged to have been procured by vendor's misrepresentation as to floor area of building - purchaser affirmed contract after discovering alleged misrepresentation - purchaser unable to find purchase money in time for completion - whether vendor not entitled to rescind in reliance upon notice to complete by reason of original misrepresentation inducing contract. - HELD: Vendor validly rescinded - MISREPRESENTATION - Vendor's agent states in flyer approximate floor area of flats - qualifications at foot of both pages of flyer to the effect that measurements believed correct but could not be guaranteed and person should make own enquiries - whether statements as to area could be read in isolation from rest of document - whether representation made as to floor area or as to belief - CAUSATION - Defendant proposed costly redevelopment of building - relied on statement in flyer as to approximate floor area without paying attention to statements that measurements could not be guaranteed and that people should make own enquiries - Defendant made no enquiries - whether Defendant's loss caused by misrepresentation or by Defendant's failure to take sufficient care for its own interests - DEPOSIT - FORFEITURE - contract validly rescinded by vendor - forfeited deposit more than twice vendor's loss suffered on resale - hardship to purchaser - whether relief should be granted under s.55(2A) Conveyancing Act.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) - s.55(2A) Fair Trading Act 1987 (NSW) - s.42 Strata Schemes (Freehold Development) Act 1973 (NSW)
CASES CITED:	- Louis Dreyfus & Cie v Parnaso Cia Naviara SA (The Dominator) [1960] 2 QB 49 - Elders Trustee and Executor Co Ltd v E.G. Reeves Pty Ltd (1987) 78 ALR 193 - Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 - Hasanovic v Polistena [1982] NSW Conv R 55-078 - Lubidineuse v Bevanere Pty Ltd (1984) 3 FCR 1 - Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 - O'Brien v Smolonogov (1983) 53 ALR 107 - Redgrave v Hurd (1881) 20 Ch D1 - Stern v McArthur (1988) 165 CLR 489 -Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853 - Wilson v Kingsgate Mining Industries Pty Ltd [1973] 2 NSWLR 713
PARTIES :	Renata Marina Paola Webster - Plaintiff Havyn Pty Ltd - Defendant
FILE NUMBER(S):	SC 5941/02
COUNSEL:	R.W. Tregenza - Plaintiff J. Merkel - Defendant
SOLICITORS:	Biddulph & Salenger - Plaintiff Whittens - Defendant

Introduction

1 By a Summons filed on 16 December 2002 the Plaintiff seeks a declaration that she has validly rescinded a contract dated 19 September 2002 between herself as vendor and the Defendant as purchaser whereby she agreed to sell to the Defendant certain land in Bronte. By an amendment allowed during the hearing, the Plaintiff seeks an order for damages for breach of contract and that it be referred to the Master to enquire what, if any, are the damages suffered by the Plaintiff in addition to the loss on the Plaintiff’s re-sale of the land. 2 The parties were ordered to file Points of Claim and Points of Defence. The Defendant by its Amended Points of Defence, claims a declaration that the contract was validly rescinded. It emerged during the course of hearing that what the Defendant really seeks is a declaration that the contract, not having been validly rescinded by the Plaintiff, was abandoned by agreement between the parties on 14 March 2003. 3 The Defendant seeks an order under the general law for repayment of the deposit of $313,000 paid under the contract. Alternatively, the Defendant seeks an order under s.55(2A) Conveyancing Act 1919 (NSW). In addition, the Defendant claims damages for an alleged misrepresentation said to have induced it to enter into the contract. The claim for damages is laid in tort for deceit and under s.42 Fair Trading Act 1987 (NSW).


Facts

4    The facts are not very much in dispute although their legal consequences have been keenly debated. 5    The Plaintiff was the registered proprietor of a property in Pacific Street, Bronte, upon which was erected a block of six flats. The Plaintiff had inherited the property from her grandfather in 1988 and had since that time rented the flats to various tenants through a managing agent. The building had not been brought under the provisions of the Strata Schemes (Freehold Development) Act 1973 (NSW). 6 In August 2002, the Plaintiff decided to sell the property. She retained Mr T. Torpy, the real estate agent who had been managing the letting of the flats for many years, to act for her on the sale. Mr Torpy prepared a flyer for the purposes of advertising the property for sale at an auction to be held on 19 September 2002. 7 This case arises from the contents of that flyer, which were as follows:
“ Bronte
16 Pacific Street
Block of six x two bedroom flats with Panoramic Ocean Views.
100 metres to Bronte Beach, shops, cafes, park and city buses.
Each flat approximately 63 square metres.
Two lock-up garages.
Well maintained with scope for further improvement.
Unsurpassed opportunity for investor or developer.”

Then followed particulars of the auction and the inspection dates, and the logo and address of the agent. At the foot of the page appeared the following statement in small but perfectly legible type:
“E.&O.E. The information contained herein given has been supplied to us and we have no reason to doubt the accuracy, however we cannot guarantee it. Accordingly, all interested parties should make their own enquiries to verify the information.”

On the obverse of the flyer there appeared:
– the address of the property
– a sketch plan showing the layout of an unidentified flat.

The areas in the sketch plan are marked:
“BALCONY
LIVING 4.5 x 3.5
BEDROOM 4.0 x 3.5
MAIN ENTRY
BEDROOM 4.0 x 3.5
KITCHEN
BATHROOM
FIRE STAIRS”


The evidence is that there were two flats on each of the three floors of the building. However, the sketch plan does not show a typical floor plan of the building itself, any particulars of the dimensions of the land or the placement of the building on the land.

Below the sketch plan appear figures showing the income, outgoings and land value. Then appear the agent’s logo and address. At the foot of the page appears in small but perfectly legible type:
“All measurements are approximates only. While we trust them to be correct we cannot guarantee them.”
8    The Defendant’s sole director, Mr P. Meyerratken, lived next door to the property. He saw the “For Sale” sign and became very interested in purchasing the property for refurbishment and resale. He had recently sold his share in a business and had $750,000 to invest. He was not working at the time and was looking about for a real estate investment. He had had no previous experience in real estate development. 9    Mr Meyerratken went to inspect the property on 17 September 2002, two days before the auction. Only two of the flats were open for inspection and he thinks, but is not sure, that he inspected both of them. He was given the flyer by Mr Torpy. He asked to see a copy of the contract but Mr Torpy had none left. He had a quick look through a copy which another purchaser had. There was no survey for the block of flats attached to the contract nor was a survey otherwise available prior to the auction. 10    The property has excellent ocean views and it is undoubtedly in a prime position. Mr Meyerratken became excited about the prospect of buying it and refurbishing it. The next day he went to the property on his own and took some measurements with a tape measure of the stairwells in the building for the purposes of working out what additional area might be available for incorporation into the refurbished flats. He had in mind that the two flats on each floor could be amalgamated into one large luxury apartment, so that there would be three luxury apartments to the building which could be brought under the Strata Schemes (Freehold Development) Act and resold at a substantial profit. 11    Mr Meyerratken says that he had already made enquiries about properties for sale in the area from local real estate agents as a result of which he believed that the refurbished flats could be sold for about $14,000 per square metre. From the information contained on the flyer he took the internal area of each of the flats to be 63m2, excluding the balconies. He worked out from the measurements which he had taken by tape measure of the stairwell area that by repositioning the stairs he would be able to add another 20m for incorporation into the refurbished flats. Accordingly, he calculated that each of the refurbished flats would have an area of 146m2. 12    On the morning of the auction he met a friend of his, Mr B.W. Baudinet, who had substantial experience in real estate development. With his assistance, Mr Meyerratken worked out construction costs of the refurbishment, interest and other holding costs, totalling between $1M and $1.5M. Mr Meyerratken says:
“Using the figures stated on the flyer I worked either forwards or backwards adding or subtracting estimated construction, profit and other costs to try to assess a bid price. Taking all those matters into account I reached a decision immediately prior to auction that it would be reasonable to bid in excess of $3,000,000 to acquire the property. Had I been aware that the area of each flat was smaller than as represented and that in total there would be 42 square metres less available to be sold after refurbishment and conversion to strata title I would have reduced my profit projections by about $588,000. I would therefore determined that the amount that I should bid for the property would have been considerably less than $3,000,000.”

I accept that evidence. It was supported by Mr Baudinet’s evidence and was not seriously challenged.

13    It will be seen that Mr Meyerratken appreciated that the total costs of the project could be in excess of $4.5M. The information upon which Mr Meyerratken, in consultation with Mr Baudinet, based his decision to bid more than $3M at the auction may be summarised thus:


– as to the dimensions of the flats in the building, nothing more than what appeared in the flyer;

– as to the layout and dimensions of the building generally, Mr Meyerratken’s inspection of the building on 17 September and his tape measurements of the stairwell made on 18 September;

– as to the potential resale price of the refurbished flats, Mr Meyerratken’s enquiries from local real estate agents;

– as the feasibility and costs of the development, Mr Baudinet’s advice on the morning of the auction and some very brief oral opinions expressed by two architects who were friends of his; neither Mr Baudinet nor the architects had inspected the building internally.

14    Both Mr Meyerratken and Mr Baudinet were not sure whether they had read the statements at the foot of the front and back pages of the brochure. Mr Baudinet said that he had probably not read them. Both said that if they had read them they gave them no particular attention or importance. Mr Meyerratken said:

“ Q: [Brochure shown] I’m showing you’re the original brochure. Did you read the last two lines on that?
A: I don’t recall reading it but, you know …

Q: Well …
A: I don’t recall reading it.

Q: Would it be ordinarily your practice in reading a brochure of some sort to read the whole of the document?
A: Yes.

Q: And it would have been your ordinary practice to have read the whole document at the time?
A: Yes, but I must say it doesn’t, I may have cursorily looked at it, I may have looked at it and said oh, it’s a standard disclaimer.

Q: There is a reference in the last two lines but you don’t recall reading the words ‘accordingly all interested parties should make their own enquiries to verify the information’ ?
A: No.

Q: Assuming, as it is in accordance with your practice, you read it, you say that you just regarded that as a standard disclaimer, did you not consider it or would you not ordinarily in your usual practice consider it appropriate to follow the advice given?
A: In the situation I didn’t see it necessary to follow, to take specific measurements when I have been given a measurement which people are saying, here, no need to doubt the accuracy. I expected it to be, you know, backed up by something that somebody has taken some trouble to get measurements.”

…

Q: Could you just have a look at the brochure again, that is exhibit P2. Counsel for the plaintiff drew your attention to the print at the bottom of the page and you said you may have looked at that. I don’t think Mr Tregenza asked you about the print at the foot of the obverse where the diagram appears – ‘all measures are approximates only. We trust them to be correct and we cannot guarantee them’ . Can you remember looking at the brochures and seeing that statement prior to the auction?
A: No. I don’t. I expect a disclaimer and I expect quite normal – if you have got approximately 63 square metres you are going to have a disclaimer but my view is ‘approximately’ means approximately, just like this is a fairly accurate figure. We can’t – it is near – it should be within a metre, in my mind. ‘Approximately’ is not like 7 square metres less than 63, that is 63 thereabouts, that is – I would be surprised to see anyone expecting to put up 63 and there being a variation of 5 or 6, around that. So I – to be honest, I probably looked at it, fine, but I can bear a little bit of variation around that, not massive, you know. Question of what’s reasonable.”
15    Mr Baudinet said:

“ Q . Now did you think it important to read the entire brochure to see in what context the approximate measurement of the size of each flat was?
A. Yes, that's an important fundamental piece of information.

Q. If you had read the two lines at the bottom, what would ordinarily your reaction have been?
A. I probably would have assumed it's some sort of standard disclaimer not worth placing any reliance on that the agent would attached a brochure.

Q. Did you consider that it might be appropriate to advise Mr Meyerratken to make his own measurements prior to bidding at the auction?
A. I wouldn't suggest that would be important.

HIS HONOUR : Mr Baudinet, I want to clarify what you've said, Mr Tregenza, a moment ago said ‘had you read the statements at the foot of both pages of the brochure’; you said you would regard them as just a standard disclaimer, I think you said something like that?
A. Yes.

HIS HONOUR : Does that mean you would have regarded a standard disclaimer as not worth paying much attention to?
A. I would have regarded it as something that the agent, who prepared the brochure, would have written to protect himself.

HIS HONOUR : Against what?
A. Against actions by anyone for probably for printing the wrong information on the brochure.

HIS HONOUR : And therefore you took the view that you needn't pay any attention to them – what they said in the disclaimers that is?
A. Well normally I look – I don't normally read disclaimers in detail, some of them are much longer than this obviously. There is normally – I normally recognise it as a disclaimer and take that into account. That is something they're trying to protect their position.

…

Q. Having read that, it's just not a mere disclaimer of course, is it?
A. I'm not too sure what you mean by that.

Q. It's a direction to a person who might be looking at the brochure?
A. Mm hmm.

Q. As to what steps they ought take?
A. To make their own inquiries yes.

Q. Make their own inquiries. Would you ordinarily interpret that as if it's referring to the size of the unit to make your own measurements?
A. Well I think that would be a generic statement to make your own inquiries about everything. You'd want to make sure the property exists, where the building was, the views etc. etc. including the areas yeah.

Q. So it's fair to say that you agree with the proposition I put, that in relation to the areas of the units, it's a direction to take your own measurements?
A. No I wouldn't agree with that.

Q. Why not?
A. That would not be normal practice. Even if I were to buy the flat, I wouldn't go around with a tape measure measuring to check the size of the unit, against the measurements in the brochure.

Q. This is the basis upon which you assess the viability of a block of units for redevelopment?
A. We would typically accept the information provided. If we had any doubt, we would – I would instigate some form of measuring.”

At T82.33 Mr Baudinet’s attention was drawn to the statement at the foot of the reverse of the flyer, namely, “All measurements are approximates only. While we trust them to be correct we cannot guarantee them.” He gave this evidence:

“ Q . You read the note at the foot of the reverse side of the page?
A. Unlikely.

Q. Unlikely?
A. Mm.

Q. And had you read that, would it have changed your interpretation of the brochure at all?
A. Well it reiterates that they were approximate, that's the measurements. It says "while we trust them to be correct, we cannot guarantee them." That's actually a reasonably strong statement. It probably would have given me a heart attack if I had read that.”
16    There were a number of people interested in bidding at the auction. The property was knocked down to Mr Meyerratken for $3,130,000. The under-bidder was a Mr Anderson, who had bid $3,000,000. Contracts were signed and exchanged with Mr Meyerratken that day and he paid a deposit of $313,000. 17    By the time of the auction Mr Meyerratken had made no arrangements for the finance of the purchase and the development. He was able to pay the deposit from the resources which he had available for investment, $750,000, and he says that he was confident that he would be able to borrow the rest of the money needed from his relatives and from finance companies. 18    The contract provided that completion must be effected within six weeks after the contract date. As I have noted, Mr Meyerratken had signed the contract as purchaser in his own name but he had intended to acquire a company to carry on the project. He acquired the Defendant shortly afterwards and the Plaintiff agreed to enter into a new contract for sale with the Defendant upon the same terms as in the contract with Mr Meyerratken, the deposit under the contract with Mr Meyerratken being taken as the deposit under the contract with the Defendant and the time for completion of the contract with the Defendant being fixed for six weeks after the date on which Mr Meyerratken had signed the first contract, i.e. 31 October 2002. 19    Mr Meyerratken was unable to find the money to complete the purchase on 31 October. On 1 November 2002 the Plaintiff’s solicitors gave the Defendant a Notice to Complete the contract by 18 November 2002 and making time of the essence. The Defendant was still having difficulty in finding the purchase price and requested an extension of time for completion. 20    On 14 November 2002, the parties agreed in writing that the time for completion of the contract would be extended to 2 December 2002, time being of the essence, in consideration of which the Defendant agreed that the deposit would be released forthwith to the Plaintiff and that the Defendant would pay interest on the balance of the purchase price from 31 October to 18 November at $857.53 per day and interest at 20% from 19 November to the date of completion. 21    Mr Meyerratken says that on 21 November he found out that the area of the flats in the building was substantially less than 63m2. In accordance with his instructions, the Defendant’s solicitors wrote to the Plaintiff’s solicitors on 29 November 2002 in the following terms:

“We now act for Havyn Pty Limited and have been provided with a copy of Contract for Sale dated 19 September 2002 between your client and our client.

We enclose a copy of a flyer issued by your client’s agent. It appears to our client that there has been a significant and serious misrepresentation as to the size of each flat.

We refer to the plan on the flyer and advise that it appears that the dimensions are not correct.

Our client hereby requests immediate access to the property in order it may have a surveyor measure up the actual dimensions of the property.

Could you please contact us as a matter of urgency to permit our client’s surveyor to enter the property.

We presume that time will not run under the contract whilst this matter remains unresolved.

We further wish to advise that our client disputes the efficacy of the notice to complete previously issued by you. Accordingly our client disputes that it is bound by the purported variation of the notice to complete referred to in the agreement allegedly binding our client which appears to be undated.

We are lodging a Caveat to protect our client’s interests. Please advise whether you have instructions to accept service of process.

We await hearing from you.”
22    The Plaintiff’s solicitors replied by letter dated the same day as follows:

“I refer to your fax received at 3.49pm today.

You are not entitled to rely on the flyer, which in any event contains an express disclaimer and requires the purchaser to make their own enquiries.

Your client may arrange access through the agent but we do not concede that time is not running.

You have provided no grounds for disputing the efficacy of the notice to complete and the variation which are dated 1 November 2002 and 14 November 2002 respectively.

We have instructions to accept service.”
23    An appointment for settlement of the purchase was, nevertheless, made for 3.30pm on 2 December 2002, the last day under the Plaintiff’s Notice to Complete. The parties’ settlement clerks attended at the appointed time and place but the Defendant’s settlement clerk did not have all of the requisite cheques for settlement. She was informed by Mr Meyerratken by telephone during the settlement that the settlement would not proceed. 24    Mr Meyerratken concedes that as at 2 December he did not have the requisite money in order to settle the contract. 25    Mr Meyerratken had arranged with the Plaintiff’s solicitors for an architect to inspect one of the flats in the building on 2 December for the purpose of measuring its dimensions. At about 5.30pm on 2 December, after abandonment of the settlement, Mr Meyerratken was informed by the architect that his measurements showed that the area of the flat was substantially less than 63m2. 26    Nevertheless, after receiving that information, Mr Meyerratken endeavoured on 3 December to obtain a further extension of time for completion of the contract. The Plaintiff was agreeable, subject to obtaining releases from the Defendant of any claims founded upon alleged misrepresentation. The Defendant refused. 27    On 4 December 2002, the Plaintiff gave to the Defendant a Notice of Termination of the contract. Mr Meyerratken says that on the same day he received the balance of the money he needed to complete the purchase. 28    The Defendant had lodged a caveat against the land on 29 November, claiming an interest as purchaser under the contract for sale. The Plaintiff’s solicitor requested its removal by letter dated 10 December 2002. The Defendant refused. These proceedings were commenced by the Plaintiff on 16 December 2002. 29    On 14 March 2003, by consent, a motion for expedition of the proceedings was dismissed and the Court noted the following agreement between the parties:

“2. Court notes the agreement of the parties that the Plaintiff will proceed with the sale to Mr and Mrs Anderson pursuant to contract exchanged.

3. Upon settlement of the sale, the defendant must hand over a withdrawal of caveat in exchange for a bank cheque in the amount of $313,000 in the names of WHITTENS and BIDDULPH & SALENGER, such cheque to be invested on behalf of the parties with Westpac Private Bank or as otherwise agreed between the solicitors for the parties with the signatories to be Maryanne Ofner and Raymond Whitten.

4. Noted the plaintiff acknowledges that the agreement of the defendant in the preceding paragraph is made without prejudice to the rights he asserts in these proceedings other than the right to specific performance.”
30    The Plaintiff has entered into a contract for the sale of the land for $3M with the under-bidder at the auction. That contract was completed on 4 April 2003.

Whether contract validly rescinded by Plaintiff

31    I will deal first with the Plaintiff’s claim that the contract for sale was validly rescinded by her on 4 December 2003. 32    The Defendant submits that the Plaintiff was not entitled to give a Notice to Complete the contract on 1 November 2002 or at any time, not because the Plaintiff was then in breach of any term of the contract for sale but rather because its misrepresentation as to the area of the flats had induced the Defendant to enter into the contract in the first place. 33    Ms Merkel of Counsel, who appeared for the Defendant, cannot cite any authority directly in support of the proposition that one party to a contract who has induced the other party to enter into it by a misrepresentation which has nothing to do with the terms of the contract or how the contract would be performed is disentitled in equity from enforcing the contract according to its terms even when the innocent party elects not to rescind for the misrepresentation. However, she submits that this is the law and she relies on the following statement in the joint judgment in Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853, at 1856 [para 25]:
“To insist upon a contract obtained by a misrepresentation now known to be false is, as Sir George Jessel MR put it in Redgrave v Hurd [(1881) 20 Ch D 1 at 12-13] ‘a moral delinquency’ in a court of equity.”
34    In my opinion, Ms Merkel’s submission takes that passage out of context. In Redgrave v Hurd the plaintiff vendor sought specific performance of a contract for sale of a house. The defendant purchaser alleged that the contract had been procured by a misrepresentation as to the profitability of a solicitor’s practice conducted by the vendor which the purchaser desired to take over. The purchaser would not have bought the solicitor’s house had he not wished to acquire the solicitor’s practice. The purchaser sought an order for rescission of the contract. The misrepresentation and reliance were proved and the court ordered rescission of the contract on the purchaser’s cross claim. At pp.12-13, Sir George Jessel MR said:
“According to the decisions of Courts of Equity it was not necessary, in order to set aside a contract obtained by material false representation, to prove that the party who obtained it knew at the time when the representation was made that it was false. It was put in two ways, either of which was sufficient. One way of putting the case was, ‘A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to be allowed to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false; he ought to have found that out before he made it.’ The other way of putting it was this: ‘Even assuming that moral fraud must be shewn in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man ought to seek to take advantage of his own false statements.’ The rule in equity was settled, and it does not matter on which of the two grounds it was rested.”
35    It is quite clear from this passage that all that his Lordship is saying is that a party who has procured a contract by fraudulent misrepresentation cannot, once the misrepresentation is known to be false, retain the benefit of that contract if the other party insists on rescinding it. His Lordship is not saying that if the innocent party does not rescind but requires the contract to be performed according to its terms, the wrongdoer is disentitled from requiring the innocent party also to perform the contract according to its terms. 36    The facts in Tanwar must be appreciated in order to understand what the case decides. The purchasers entered into contracts to purchase land in the expectation that they would receive funds from overseas. Time for completion of the contracts was made of the essence and it was expressly provided that if completion did not occur within the stipulated time all monies paid to the vendors by the purchasers would be forfeited. Due to a delay beyond the control of the purchasers, the settlement monies arrived from overseas a day after the agreed completion date. The vendors terminated the contract even though the monies were available for settlement. The purchasers sought specific performance of the contracts, claiming that they were entitled in equity to relief against forfeiture because of the “unconscientious use” by the vendors of their contractual rights to terminate upon failure by the purchasers to completed in accordance with the time of the essence provisions. 37    The joint judgment of the High Court examined, at paras.[20]-[30] the various circumstances in which the terms “unconscientious” or “unconscionable” had been used across a broad range of the equity jurisdiction. It was in the context of that general review that their Honours referred, by way of example, to what Jessel MR had said in Redgrave . At the end of that review, their Honours referred with approval to what Mason CJ had said in Stern v McArthur (1988) 165 CLR 489. They said, at para [39]:
“In Stern , Mason CJ also stated that equity intervenes only where the vendor has, by the vendor’s conduct, caused or contributed to a circumstance rendering it unconscionable for the vendor to insist upon its legal rights. That helps explain why mere supervening events and changes in the relevant circumstances are insufficient.”
38    Their Honours summarised the position at para.[58] thus:
“What Lord Wilberforce in Shiloh Spinners [1973] AC 691 at 723) called ‘the special heads of fraud, accident, mistake or surprise’ identify in a broad sense the circumstances making it inequitable for the vendors to rely upon their termination of Tanwar’s contracts as an answer to its claim for specific performance. No doubt the decided cases in which the operation of these “special heads” is considered do not disclose exhaustively the circumstances which merit this equitable intervention. But, at least where accident and mistake are not involved, it will be necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation .” (Emphasis added.)
39    From this discussion of the authorities, the following principles emerge:


– where a contract has been procured by fraudulent misrepresentation, generally speaking the innocent party must elect whether to rescind the contract or affirm it and sue for damages for the misrepresentation;

– however, if the fraudulent misrepresentation has, in a significant respect, caused or contributed to a breach of the contract by an innocent party who wishes to retain the benefit of the contract rather than to rescind, equity may intervene to relieve the innocent party from the consequences of the breach;

– on the other hand, where a misrepresentation inducing a contract has not, in a significant respect, caused or contributed to the breach by the other party, then the party in breach cannot invoke any equity so as to retain the benefit of the contract without performing its own contractual obligations according to their terms; in short, it cannot have the benefit of the contract but not the burden.

40    In the present case, I assume for the moment that the representations in the flyer as to the area of the flats was a material misrepresentation which induced the Defendant to enter into the contract for sale. The Defendant did not seek to rescind the contract on 21 November, when it ascertained that the areas of the units had been misdescribed, nor on 29 November when its solicitors asserted to the Plaintiff’s solicitors that there had been a “significant and serious misrepresentation” , nor on 2 December when the Defendant’s architect confirmed the misdescription and that it was substantial. It is clear from the evidence that, if the misrepresentation indeed gave the Defendant a right of rescission, the Defendant nevertheless wished to affirm the contract. 41    In my opinion, the misrepresentation was not one which, in a significant respect, caused or contributed to the failure of the Defendant to complete the contract in accordance with its terms. The Defendant has not shown that the fact that the area of the flats was less than 63m2 played any part whatsoever in its inability to find the purchase money in time to complete the contract as at any material date. Indeed, as I have observed, the evidence is that after having found out about the misrepresentation of area in the flyer, the Defendant still wished to proceed with the purchase, desiring only to use the allegation of misrepresentation as a bargaining tool to reduce the purchase price. I think that this emerges clearly from Mr Meyerratken’s evidence at T39.40-T41.26. He said that he wished to arrive at the settlement table, money in hand, and say to the Plaintiff that he would not settle unless the purchase price was reduced to compensate for the misdescription in the area of the flats. He instructed his solicitors to make an appointment for settlement on 2 December and he would have carried out this strategy had it not been frustrated by his inability to obtain the final part of the purchase money in time. 42    In short, I am satisfied that the Defendant’s delay in settlement of the contract on 31 October and on 18 November, and its failure to complete on 2 December, had nothing to do with the description of the area of the flats in the flyer: the delays were due to the Defendant’s inability to find the requisite purchase money. 43    Accordingly, I consider that the Plaintiff was entitled to issue the Notice to Complete, that the Notice validly made time for completion of the essence of the contract, that time of the essence was validly extended by agreement to 2 December, and that the Defendant’s failure to complete on that date entitled the Plaintiff to rescind the contract.

Whether there was a misrepresentation

44 The six flats in the building have been surveyed by the Defendant’s surveyors to determine their floor areas. There is no dispute about the accuracy of the results. The surveyor made the calculations on two bases: that the relevant area was the total area contained within the inside faces of the external walls of the building, as would be done in the case of a strata plan; that the relevant floor area excluded the space occupied by the internal walls within each unit. The Defendant’s valuer, Mr P.I. Phippen, regarded the first basis of valuation, the strata plan, the more appropriate basis and I agree. Calculated on this basis, the areas of the flats, excluding balcony areas, were as follows: Flat 1: 55.5m2, Flat 2: 56.2m2, Flat 3: 56.4m2, Flat 4: 56.1m2, Flat 5: 56.5m2, and Flat 6: 58.2m2. 45 There is a dispute about whether the balcony areas should be included or excluded in the calculation of the areas of the flats. The Defendant’s valuer, Mr Phippen, says that the balconies would normally be excluded by surveyors when determining the floor area of buildings in accordance with the Building Code of Australia; he says that that measurement system has been accepted by the property industry as the standard of measurement for residential property. On the other hand, Mr Torpy, an experienced real estate agent, says that the balconies would normally be included when giving estimates of areas in advertisements for units. 46 In my opinion, whether the balconies should be included or excluded for the purpose of identifying the content of the representations in the flyer depends first and foremost upon what impression is given by the content of the flyer, not upon what surveyors or developers might understand as commonly accepted industry practice. This is because the flyer is a relatively informal document addressed, not to a particular audience with a common understanding of accepted practice but to the world at large. 47 When one looks at the sketch plan on the flyer one sees that the balcony is enclosed with the same heavy dark lines which identify the four external walls of the flat as well as the internal walls. No dimensions are shown for the balcony, but neither are dimensions shown for the kitchen and bathroom. Looking at the sketch plan one gets the impression that the flat is represented as a rectangle, including the balcony, rather than as a hexagon, which would be the case if the balcony were excluded. In my opinion, the sketch leads the reader to believe that the flat as described in the flyer and in the representations about its dimensions includes the balcony. 48 When one adds the areas of the balconies to the areas of the flats as calculated by the surveyor one arrives at the following: for Flat 1: 60.1m2, for Flat 2: 56.2 m2, for Flat 3: 60 m2, for Flat 4: 59.8 m2, for Flat 5: 60.1 m2, and for Flat 6: 59.8 m2. 49 An area of 60 m2 is 5% less than an area of 63 m2. Accordingly, in the case of Flats 1 and 5 the actual area was slightly less than 5% short of the area represented; for Flat 2, which had no balcony, it was more than 5% short; for Flat 3 it was 5% short, and for Flats 4 and 6 it was slightly more than 5% short. 50 Mr Phippen says “approximately” means within half a square metre either way of the specified figure; he founds this assertion on the practice of rounding up or down to the nearest whole number, which he says is common in the real estate industry. I do not accept this construction. 51    “Approximately” is a word which has no defined limits of tolerance; it means “more or less” but how much more or less is within the limits of tolerance is really a matter of impression which depends upon the particular circumstances of the case including the nature of the thing to be measured and the significance and consequences of degrees of departure from the stated approximate figure: see e.g. Louis Dreyfus & Cie v Parnaso Cia Naviara SA (The Dominator) [1960] 2 QB 49, at 55, 59. 52 I do not think that it is appropriate to judge the limits of tolerance in the present case by the use to which the Defendant itself wished to put the flats and by reference to the consequences to the Defendant of degrees of departure from the stated approximate figure. The statement as to approximate area was not made in a contract between the Plaintiff and the Defendant; it was made in a flyer addressed to all who might be interested in the property, for whatever purpose. The flyer expressly contemplated that investors or developers might be interested. Some investors might wish to let the flats out in their present condition, others might wish to renovate them in various ways; some developers might wish to alter the existing building substantially, others might wish to demolish it entirely – the possibilities are very many and varied. 53 I think that the most useful evidence directed to this issue is given by Mr Phippen who has done an exercise valuing the difference between the current market value of the land at the time of auction with a total floor space calculated on 63m2 per flat and the current market value calculated on an area per flat which excludes the balconies, an average of 56.32m2 per flat. The total discrepancy in area thus arrived at is 40.1m2. He values the discrepancy by reference to a value of $10,000 per square metre of floor space, based upon comparable sales, so that in money terms the value of the discrepancy is $401,000. 54 Even if one added in the balcony areas to the areas of the flats, the value of the discrepancy would be near enough to $220,000. I do not think that this discrepancy could be regarded as trivial or insignificant. Having regard to the consequences in terms of the market value of the discrepancy resulting from the misstatement in the approximate areas of the flat, I do not think that the errors fall within the limits of tolerance of the word “approximately 63 square metres” . 55    This conclusion does not, of course, determine this issue. The question is: did the Plaintiff represent that the area of each flat was “approximately 63 square metres” ? I should note at this point that Mr R.W. Tregenza of Counsel, who appears for the Plaintiff, concedes that the statements of the real estate agent made in the flyer are to be attributed to the Plaintiff for the purpose of determining liability. 56    Ms Merkel submits that the flyer plainly represented that the area of each flat was “approximately 63 square metres” and that that statement should be read in isolation from the rest of the document because the statement is not qualified in the same breath, as it were, and the eye is not naturally drawn to anything else in the document which qualifies the statement. 57    Mr Tregenza submits that one cannot read the statement as to area in isolation; one must read it in the context of the whole document, including the statements which appear at the foot of both pages. 58    I agree with Mr Tregenza’s submission. It is true that the document is a flyer and is fairly informal in character. However, its subject matter is not a suburban family home but a property clearly worth some $3M which was going to be of interest to investors and developers. Anyone contemplating a purchase of such a character and of such a magnitude, particularly with redevelopment or investment in mind, would reasonably wish to know as much as possible about the details of the proposition. In particular, anyone having in mind plans for the property which depended upon existing dimensions and floor areas would wish to have as much information as possible upon that subject. There was no survey available; the flyer was the only document which gave any such information. One would reasonably expect the document to be read closely. 59    In these circumstances, the “ordinary reader” interested in a purchase of this type of property at a price of such magnitude would see not only the statement about the area of the flats but also the statements at the foot of both sides of the flyer, especially the statement: “All measurements are approximates only. While we trust them to be correct we cannot guarantee them.” As Mr Baudinet said (see paragraph 15) “That’s actually a reasonably strong statement” . 60    In my opinion, one cannot simply wave away the words of warning and qualification which appeared in the flyer, particularly on the reverse beneath the sketch plan. The ordinary reader reading this flyer and reading the statement as to floor area in the light of the qualification that no guarantee could be given as to its accuracy would naturally understand that what was being represented was, not that the floor area was “approximately 63 square metres” , but that the Plaintiff, by her agent, believed that the area was “approximately 63 square metres” but could not guarantee the accuracy of that figure. 61    Was that representation false, misleading or deceptive? In order to show it to be so, the Defendant must prove either that the Plaintiff or her agent did not actually hold the belief that the figure was approximately accurate, or that there was no adequate foundation upon which that belief could be held: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 88. In my opinion, the Defendant has not proved either of these facts. 62 The Plaintiff said that she did not know what the area of the flats was; she relied entirely on Mr Torpy, who had been managing the flats for many years. That reliance was reasonable. Mr Torpy was a real estate agent of long experience and he was very familiar with the property. The Plaintiff was not recklessly indifferent to the truth or falsity of what was said about the approximate area of the flats in the flyer: she had reasonable grounds for believing that the approximation given by Mr Torpy was accurate. 63 Mr Torpy said that to work out the approximate area of the flats he paced out their dimensions rather than measuring them with a tape measure. While this is clearly not the most reliable form of measurement, it is one commonly used as a rough guide. Mr Torpy is, as I have said, a real estate agent of long experience. He said that he believed that pacing out the dimensions in the way in which he did would give him a figure which was “pretty close” . He was not shaken in this evidence and nothing was put to him or otherwise demonstrated which would make his evidence inherently improbable. 64    I accept that Mr Torpy actually and honestly held the belief that pacing out a flat to arrive at an approximate area had given him a figure which was “pretty close” to accurate. The fact that he was mistaken in that belief does not make the representation that he held the belief false, misleading or deceptive. 65 This finding as to the nature and quality of the representation in the flyer is sufficient to dispose of the Defendant’s claim based upon misrepresentation, whether founded in tort or upon s.42 FTA. However, for the sake of completeness I should deal with the other issues raised.

Whether representation “in trade or commerce”

66    Mr Tregenza says that even if a misrepresentation was made, it was not made “in trade or commerce” for the purposes of s.42 FTA. He says that the sale of the property was a sale of a capital asset which the Plaintiff had inherited and he relies upon O’Brien v Smolonogov (1983) 53 ALR 107. 67 In that case the appellants acquired land for the purpose of building on it. They decided to sell part of the land in order to finance the building and in negotiating the sale made misrepresentations to the purchaser. The Full Court of the Federal Court held that the misrepresentations were not made in trade or commerce because the sale was not part of a business activity. At p.113 the Court said:
“In the present case, it cannot be suggested that the lands acquired by the appellants became trading stock (see FC of T v St Hubert’s Island Pty Ltd (in liq) (1978) 19 ALR 1; 138 CLR 211). Nor is it a case where the taxpayer’s activities amounted to more than the mere realization of a capital asset and constituted the carrying on of land development (see FC of T v Whitfords Beach Pty Ltd (1982) 39 ALR 521). The land itself was not used for any business activity: it was not used for farming or grazing.”
68    Ms Merkel distinguishes O’Brien on the ground that here the property was used for a business activity, namely, the letting out of the flats for the purpose of deriving an income, and that the business activity was carried on in a systematic and businesslike way by the Plaintiff through managing agents. Mr Tregenza responds that deriving income from renting out property is not carrying on a business; it is merely an incident of owning property. 69    In my opinion, what the Plaintiff did in letting out the six flats in the building through managing agents in a businesslike way since 1988 did constitute the carrying on of a business on the property. The fact that the property had been acquired by inheritance rather than purchase did not change the character of what the Plaintiff did with the property. 70    In Lubidineuse v Bevanere Pty Ltd (1984) 3 FCR 1, Wilcox J said at 13:
“It is interesting to note that the Full Court (in O’Brien) specifically pointed out, in relation to the facts before it, that the land was not used for any business activity. This fact is only significant if a different answer might have been returned in the case of land which was used for a business activity. In the present case, the transaction was one involving the sale of a business, used and intended to be used, for commercial gain. The transaction was made between parties who were active in business and for the purpose of the realisation by the vendor of the capital value of the business which it had created. The parties to the transaction actively participated in the matter, the conduct complained of being conduct of a principal of the respondent company. It seems to me that the application of the American approach necessarily leads to the conclusion that this transaction was
‘in trade and commerce’.”
71    In the present case, the Plaintiff wished to realise the value of the capital asset represented by the property because it was not providing a sufficient return. She intended to invest the proceeds of sale in other, more profitable, rental properties. She had already acquired one other property for rental purposes prior to the sale, a unit in the city, although it was not yet showing a return on the investment due to the size of the mortgage repayments. 72    For these reasons, I conclude that the sale of the property was the sale of a business asset as part of the business activity carried on by the Plaintiff. If any misrepresentation had been made in the flyer, I would have held that it was made “in trade and commerce” .

Causation

73    Mr Meyerratken said, and I accept, that he relied implicitly on the statement in the flyer that the area of each flat was “approximately 63 square metres” . Mr Tregenza says that even if, contrary to my finding above, there was a representation to that effect in the brochure rather than a representation as to a belief, Mr Meyerratken’s reliance upon that representation was so unreasonable as not to be sufficiently causal of loss for the purposes of s.42 FTA. He relies on the following statement by Gummow J in Elders Trustee and Executor Co Ltd v E.G. Reeves Pty Ltd (1987) 78 ALR 193, at 241:
“… the complaint arises from particular negotiations and other conduct of identified individuals with reference to particular transactions. In such proceedings, primary attention will of necessity be focused upon the conduct of those individuals and the establishment of a sufficient causal link between the respondent’s conduct and the applicant’s loss or damage: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202. It is, of course, fundamental that s 52 is not designed for the benefit of persons who fail, in the circumstances of the case, to take reasonable care of their own interests and also that it would be wrong to select particular words or acts which, although misleading in isolation, do not have that character when viewed in context: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; 42 ALR 1 (CLR at 199; ALR at 6–7).”
74    In my opinion, Mr Tregenza’s submission should be accepted. Although the proposed purchase was of such magnitude and the proposed development by the Defendant was of such complexity, Mr Meyerratken did not pay any attention to the words in the flyer which told him that no guarantee could be given as to the measurements stated, and that he should make his own enquiries. He simply seized upon the figure of 63m2 as accurate although a reasonable reading of the document would have informed him that he could not do that. 75    Mr Baudinet said that it was unlikely that he had read the statement: “All measurements are approximates only. While we trust them to be correct we cannot guarantee them” . He said: “That’s actually a reasonably strong statement. It probably would have given me a heart attack if I had read that” . 76    That piece of evidence from Mr Baudinet highlights just how important it was for any person contemplating the purchase of the property to read all of the information on the flyer carefully and to appreciate its significance. However, both Mr Meyerratken and Mr Baudinet took the attitude that they did not need to read the “small print” at the foot of the pages because that was just a disclaimer to protect the agent. If Mr Meyerratken had read the “small print” carefully he would have realised that it was not just a disclaimer but was telling him that he could not justifiably base his calculations as to the profitability of his project on the accuracy of a floor area of 63m2. 77    In my opinion, it would be wrong to grant relief under the Fair Trading Act when it is clear that the Defendant has failed to take reasonable care for its own interests and has sought to rely on particular words of the flyer which, although misleading in isolation, do not have that character when viewed in the light of the document as a whole. 78    For these reasons, in addition to those which I have given, I would not grant relief to the Defendant under the Fair Trading Act .


Damages

79    The Defendant claims as damages from misrepresentation, either in tort or under the Fair Trading Act , legal fees and costs and expenses incurred by it in furthering its proposed development of the property. Included in these expenses is an amount of $65,000 in respect of “reasonable remuneration” to Mr Meyerratken for services provided to the Defendant. 80    If I had concluded that the Plaintiff was liable in damages for misrepresentation, I would have awarded these costs and expenses except for the amount of $65,000 for Mr Meyerratken’s services. Mr Meyerratken had no experience as a developer and he did not give up any remunerated work to investigate this opportunity to invest his capital. The Defendant had no money to pay him any remuneration except out of the profits of this venture and he said that he regarded his “remuneration” as part of the profits of the venture. 81    Ms Merkel conceded that the Defendant made no claim for damages for loss of profit or for the loss of a chance of profit. In those circumstances, I do not think that Mr Meyerratken’s “remuneration” would have been properly recoverable as damages.

Return of forfeited deposit

82 The Defendant seeks an order for return of the deposit under s.55(2A) Conveyancing Act . The Defendant’s principal argument was founded on unconscionable conduct on the part of the Plaintiff in misrepresenting the area of the flats in the flyer. The complaint, as I have found, is unjustified. In my opinion, the Plaintiff has done nothing unconscionable, unreasonable or unfair in the conduct of the conveyancing transaction or in the negotiations which preceded it. 83 The very broad discretion conferred on the Court by s.55(2A) is, of course, not moved in favour of ordering the return of the deposit only because of some impropriety on the part of the vendor. The boundaries of the discretion are indefinable and reference to authority only illustrates circumstances in which the Courts have exercised the discretion one way or another. 84 The statutory discretion under s.55(2A), however, derives it character from the conscience of equity, not the strictness of the common law. It would not matter to the common law that enforcement of a contractual right to forfeit a deposit would confer on the vendor a windfall far in excess of the loss actually occasioned by the purchaser’s breach of contract – but it would rankle in the conscience of equity: see e.g. Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268, at 272. 85 The conscience of equity, and the discretion under s.55(2A), may be stirred as well where forfeiture gives no unmerited gain to the vendor but causes undue hardship to the purchaser: Hasanovic v Polistena [1982] NSW ConvR 55-078. 86 In the present case, I take into account the following circumstances:


– the loss so far proved by the Plaintiff occasioned by termination of the contract is the difference between the sale price to the Defendant ($3,130,000) and the sale price to the subsequent purchaser ($3M), i.e. $130,000, while the deposit forfeited ($313,000) is considerably more than twice that amount;

– if the Plaintiff’s loss on the transaction is $130,000 or thereabouts, forfeiture of the deposit will result in the Plaintiff receiving a windfall of $183,000;

– on the other hand, if the Plaintiff’s loss is more than $130,000 it still has its right to claim damages against the Defendant and it can recover those damages after an enquiry before the Master;

– the Plaintiff has had the benefit of possession of the property and the rentals derived therefrom from the date of the contract until the date of completion of the contract for resale to the subsequent purchaser, i.e. 4 April 2003;

– the Plaintiff has had the benefit of the deposit from 14 November 2002 until 14 March 2003;

– the deposit represents a very substantial proportion of the assets which became available to Mr Meyerratken, through the Defendant, for investment after the sale of Mr Meyerratken’s interest in a business – forfeiture of the deposit, in addition to the expenses incurred in the preparation for the development, would represent a severe loss to Mr Meyerratken.

87 In these circumstances, I think forfeiture of the deposit to the Plaintiff would result in a substantial and unmerited windfall to the Plaintiff and a correspondingly large and unnecessary loss to the Defendant even though it was through the Defendant’s fault that the contract for sale was terminated. Section 55(2A) does not enable the Court to order refund of part only of a deposit, by way of a general adjustment of the parties’ rights and liabilities: either the whole of the deposit must be returned and the vendor left to a remedy in damages, or the whole of the deposit is left as forfeited: Lucas & Tait at 272; Wilson v Kingsgate Mining Industries Pty Ltd [1973] 2 NSWLR 713. 88 In the present case, I think that justice and equity are better served by ordering return of the deposit and referring to the Master an enquiry into any loss suffered by the Plaintiff in addition to the loss of $130,000. 89 I do not think that the deposit should be returned to the Defendant before the result of the Plaintiff’s damages enquiry is known. If the additional losses to the Plaintiff are proved to be substantial – Mr Tregenza has suggested damages may total some $230,000 – there is a risk that they will not be recovered from the Defendant. The evidence is that the Defendant was a “sole purpose company” and it suggests that if the deposit is returned to the Defendant and dissipated by it then the Defendant would not have the means of paying the Plaintiff’s damages. 90 By agreement between the parties, an amount equal to the deposit has been held in an interest bearing account since 14 March 2003, pending determination of these proceedings. The Defendant has been adjudged entitled to return of the deposit so that it seems to me that the interest on the deposit should be for the account of the Defendant. However, that consequence flows from the terms of the agreement between the parties and I need make no order about it.


Orders

91    The orders which I propose to make are as follows:


(1) declaration in terms of paragraph 1 of the Amended Summons;

(2) order that the Defendant pay to the Plaintiff damages for breach of contract in an amount of $130,000 together with such other amount, if any, as is found by the Master, upon enquiry, to have been lost by the Plaintiff as a result of the breach;

(3) order that the deposit of $313,000 paid by the Defendant to the Plaintiff be repaid to the Defendant pursuant to s.55(2A) Conveyancing Act ;

(4) stay order (3) until determination of the enquiry before the Master and the making of final orders herein consequent upon the Master’s findings;

(5) otherwise dismiss the Defendant’s Cross Claim.

92    I will stand the proceedings over for a short time to enable the parties to bring in Short Minutes of Order. The Short Minutes should incorporate the costs order as to an enquiry before the Master which I foreshadowed when granting the Plaintiff leave to amend her Summons at the commencement of the trial. I will then hear argument as to costs.
– oOo –

Last Modified: 03/30/2004