Krakowski v Eurolynx Properties Ltd
183 CLR 563(1995) 130 ALR 1
(Decision by: Toohey J)
Krakowski
vEurolynx Properties Ltd
Judges:
Brennan J
Deane J
Toohey JGaudron J
McHugh J
Subject References:
Legislative References:
Sale of Land Act 1962 (Vic) - s 13(1); s 32
Trade Practices Act 1974 (Cth) - s 52; s 53A
Fair Trading Act 1985 (Vic) - s 11(1); s 13(1)
Fair Trading Act 1985 (Vic) - 11
Judgment date: 29 June 1995
Sydney
Decision by:
Toohey J
The judgment of Brennan, Deane, Gaudron and McHugh JJ details the facts giving rise to this appeal. Generally speaking I accept their Honours' recital of the facts. However, as will appear, I do not always draw the same inferences from those facts and in the end arrive at a different result from their Honours on the question of fraud. Because I accept the principles enunciated by their Honours in this regard and because I am in a minority, I shall state my reasons as briefly as possible.
It is convenient to adopt the same description of the parties as appears in the majority judgment. Thus I shall refer to the appellants Mr and Mrs Krakowski as "the purchasers", to the first respondent Eurolynx Properties Ltd as "Eurolynx" and to the second respondent Mallesons Stephen Jaques as "Mallesons".
While I shall avoid undue repetition of what appears in the majority judgment, it is necessary to set out briefly the course of this litigation because of the bearing it has on the outcome of this appeal. The purchasers' action against Eurolynx alleged deceit and, in the alternative, misleading or deceptive conduct in contravention of s 52 and/or s 53A of the Trade Practices Act 1974 (Cth) and s 11 and/or s 13(1) of the Fair Trading Act 1985 (Vic). Mallesons were brought into the action by a third party notice from Eurolynx which alleged breach of Mallesons' retainer and/or professional negligence in the work Mallesons did in relation to the lease and sale of the unit bought by the purchasers.
The trial judge O'Bryan J declined to draw an inference of fraud against Eurolynx, essentially because he did not think that there was a legal duty on Eurolynx to inform the purchasers of what his Honour described as the "collateral agreement", that is, the letter of understanding from Eurolynx to the lessee, Swaeder Sales Pty Ltd (Swaeder). The majority judgment refers to this document as the "separate agreement" and I shall adopt that description. O'Bryan J also held that the failure by Mallesons to include the separate agreement in the contract of sale or to mention its existence was not done dishonestly.
O'Bryan J dismissed the claim under the Trade Practices Act on two grounds and by implication dismissed the claim under the Fair Trading Act on those grounds. The first was that, in the absence of any duty on the part of the purchasers to disclose the separate agreement, their conduct was not misleading or deceptive. The second was that the purchasers were not induced to buy the unit by reason of the answer to requisition 8(c) which made no reference to the separate agreement in response to a request for inspection of all agreements relating to the tenancy of the property.
The Full Court allowed the purchasers' appeal in part. They upheld O'Bryan J's finding that there was no fraud. They did so on the footing that although the terms of the lease and the circumstances in which the contract of sale was concluded did amount to a material misrepresentation of fact which induced the contract, the allegation of fraud was not sustained. They identified the representation which was false as a representation that the lease contained the whole of the agreement between Eurolynx and Swaeder. They added: "In all the particular circumstances, that amounted to a representation to the effect that the rent reserved by the lease annexed to the contract of sale was a market rent." But that was not a representation which Eurolynx had to meet at the trial. That is clear from the judgment of O'Bryan J.
The Full Court then held that the misrepresentation by the purchasers, though not fraudulent, constituted misleading conduct in terms of s 52 of the Trade Practices Act. And furthermore, the Full Court held, that conduct induced the purchasers to enter into the contract of sale. However, the Full Court declined to set aside the contract, largely it seems because of their view that at law such a remedy is not available after conveyance in the absence of fraud and therefore that such a power should generally not be exercised under the Trade Practices Act where an award of damages would provide adequate compensation. For that reason the Full Court directed a new trial limited to damages suffered by the purchasers by reason of the misleading conduct of Eurolynx. Mediation was however to precede any new trial.
The Full Court originally refused any claim for third party relief. As to requisition 8(c), they said it was no more than an inquiry for information made after the contract of sale was executed and that no loss suffered by the purchasers was occasioned by the answer to the requisition. Later the Full Court ordered a new trial as to the liability of Mallesons to Eurolynx in the third party proceedings.
In the light of that account of the litigation I turn to the issues raised by this appeal. The purchasers appeal principally against the finding by the Full Court that the misrepresentation that the lease contained the entire agreement between Eurolynx and Swaeder was not fraudulent and also against the conclusion that they were not entitled to an order under s 87 of the Trade Practices Act for rescission or restitution. There is a cross-appeal by Eurolynx but it concerns the liability of Mallesons to Eurolynx in the event that the purchasers succeed in their appeal.
The starting point for this court is the finding of the Full Court that there was a material misrepresentation of fact which induced the contract, that is, that the lease contained the whole of the agreement between Eurolynx and Swaeder. And although Eurolynx puts materiality and inducement in issue, I would not interfere with the findings of the Full Court on these matters. The primary issue narrows to a question of whether the misrepresentation was fraudulent.
The finding of a misrepresentation by the Full Court should not be disturbed. The purchasers do not contest the terms of the misrepresentation as found by the Full Court. In its judgment the Full Court refers to cl 9.8 of the lease, the "Entire Agreement" provision, and concludes:
That term, when taken with the surrounding circumstances, including the manner in which the property was offered to the [purchasers] by [Eurolynx's] estate agent, amounted in our judgment to a positive representation that no collateral agreement had been made between [Eurolynx] and [Swaeder].
If there was a representation in those terms it was, when viewed objectively, false. In dealing with the question of fraud I shall not restate those principles which appear in the judgment of the majority. It was necessary for the purchasers to establish that Eurolynx had no honest belief in the truth of the representation in the sense in which Eurolynx intended it to be understood. I accept the strictures which their Honours place on the approach of the Full Court. To say that the purchasers failed to prove that Eurolynx or Mallesons set out deliberately to induce the purchasers to enter into the contract of sale by inducing in the purchasers a misapprehension that Swaeder had no collateral agreement with Eurolynx is, I agree with their Honours, too rigorous an approach. Rather, the justification for the conclusion that the purchasers failed to make good their allegation of fraud is to be found in the approach taken by O'Bryan J.
In essence his Honour said that the failure by Eurolynx to inform Mr Mermelstein, who represented the purchasers, of the separate agreement was because they did not advert to the possibility that it might be relevant to the sale of the property. Although described by his Honour as a shrewd businessman, Mr Mermelstein made no inquiry into the market value of the property nor did he investigate the fair market rental of the unit. In particular his Honour said:
Mr Mermelstein did not bargain with the selling agent but simply accepted the price at which the property was offered upon the basis that, if the property could produce an annual rent of $156,000, the value of the property must be $1.56 million.
The timing of events is of some importance in this regard. The lease from Eurolynx to Swaeder was executed on 8 September 1989; the separate agreement was made on 12 September. These events took place before the contract of sale between Eurolynx and the purchasers which was executed on 19 September. Thus Eurolynx had committed itself to an arrangement in the form of a lease for six years, with two options to renew, receiving an annual rent of $156,000 subject to biennial review and, of course, subject to the three months rent free period and the payment by Eurolynx of $156,000 for fitting out and stocking the premises.
The separate agreement was no doubt an inducement to Swaeder to take the lease though, strictly speaking, the parties were already committed to the lease executed four days earlier. The court can, I think, take judicial notice of the fact that such arrangements were by no means uncommon at the time. The separate agreement was no reflection on the viability of the lessee. Indeed, it might be thought that the stronger the position of a prospective lessee, the harder the bargain it could drive with a lessor. But it is unnecessary to speculate; O'Bryan J noted: "It is common ground that the selling agent made no representation as to the financial strength of the tenant." The separate agreement imposed financial obligations on Eurolynx; it imposed none on the purchasers who were entitled to receive rent at the agreed rate from the inception of the lease and who incurred no obligations in regard to the fitting out and stocking of the leased premises. Under ordinary circumstances, the fitting out might well be an inducement to the lessee to renew the lease.
It is the relationship between Eurolynx and the purchasers with which we are concerned, not directly with the relationship between Eurolynx and Swaeder. The point of mentioning the latter is to suggest that it was a not unusual commercial relationship. But was it fraudulent on the part of Eurolynx not to disclose to the purchasers the separate agreement?
O'Bryan J thought not, because there was no legal duty on Eurolynx to communicate the existence of the separate agreement to the purchasers and he considered that the failure by Mallesons to include the separate agreement in the contract of sale or to mention its existence was not done dishonestly. The majority judgment acquits the solicitor of fraud because there was no evidence that the solicitor knew of the basis on which the purchasers had agreed to buy. The basis on which the purchasers agreed to buy was that for the first two years of the lease the annual rent was $156,000. In the purchasers' eyes that justified the price of $1,560,000 asked by Eurolynx. Whether that assessment was realistic is not for this court to determine. But $156,000 was the annual rent which Swaeder agreed to pay, at least until a rent review was called for. Furthermore, I do not think it is appropriate to apportion the credit for three months' rent and the fit out costs of $156,000 over the period of the lease and to treat this as somehow inflating the purchase price by a sum in excess of $300,000. These payments did not necessarily say anything about the value of the unit.
In the light of the trial judge's findings, a finding of fraud is not warranted. O'Bryan J said:
I am not satisfied that the failure to inform Mermelstein about the "collateral agreement" resulted from a conscious or deliberate decision not to supply information about the "collateral agreement" or its terms. Rather, I consider that neither [Eurolynx] not [sic] its agents adverted to the possibility that the "collateral agreement" might be relevant to the sale of the property. At highest, the omission to inform Mermelstein resulted from inadvertence, which is the same thing as being unintentional. The evidence does not suggest that had Mermelstein inquired into whether the tenant had received an inducement or incentive payment before signing the lease the defendant or its agents would have misled or deceived him by not supplying information about the "collateral agreement" or would have supplied inaccurate or incomplete information.
There is much to be said for the view which O'Bryan J formed and which he expressed in these terms:
In judging the conduct of [Eurolynx] in the present case, it is very important not to do so with hindsight. When the current recession took its toll upon Swaeder early in 1990 the [purchasers] and Mermelstein immediately began an investigation to find a guilty party. If Swaeder had not defaulted, one may suppose that the "collateral agreement" would not have been of concern to the [purchasers].
One matter which was raised in passing in this court but not in the courts below was s 13(1) of the Sale of Land Act 1962 (Vic) which reads:
In any action commenced in respect of the sale of any land if it is proved that any representation made on such sale was false and that any party to such action was induced by such representation to enter into a contract to purchase such land the person making such representation shall be deemed to have made the same with knowledge of its falsity unless he proves:
- (a)
- that he had reasonable ground to believe and did believe that the representation was true or that he had no reason to suspect that the representation was false; and
- (b)
- that otherwise he had acted innocently.
The purchasers wish now to contend that, in light of the findings of the Full Court, s 13 deems Eurolynx to have made the representation with knowledge of its falsity, that is, fraudulently. The majority do not find it necessary to consider the operation of s 13. Whether or not the provision should have been pleaded by the purchasers, I would not allow them to rely on the section at this late stage when the trial and the appeal below were conducted as if the section had no application. To do so would deprive Eurolynx of the opportunity to meet the deeming provision by relevant evidence. It is no answer that questions of belief could have been canvassed during the trial of the action. As it happens, none of the persons directly concerned, that is, Mr Cini (the estate agent), Mr Ryan (apparently a former director of Eurolynx), and the solicitor, gave evidence. The section imposes a particular onus which a representor should understand he, she or it has to meet and be permitted to try to satisfy.
I would therefore dismiss the appeal in so far as the purchasers seek to establish fraud against Eurolynx.
Because of the view they take on the question of fraud, the majority have not found it necessary to deal with the challenge to the relief thought appropriate in relation to the claim under the Trade Practices Act. Because I am in a minority on the principal issue and the matter is to go back to the Full Court, there is nothing to be gained by canvassing the question of remedies under the Trade Practices Act or the position of the third party, Mallesons. On the view taken by the majority on the question of fraud, I would not dissent from the orders which their Honours propose.