O'Brien v. Smolonogov

53 ALR 107

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(Judgment by: Fox J, Sheppard J)

Re: Raymond Lawrence O'Brien and Barbara Annette O'Brien
And: Paul Smolonogov and Adrian Lapardin

Court:

Judges:
Fox J
Sheppard J

Subject References:
Trade Practices

Judgment date: 17 November 1983

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Judgment by:
Fox J
Sheppard J

This is an appeal from a single Judge of the Court in proceedings brought by the respondents against the appellants claiming that the appellants made false or misleading statements concerning certain land near Jindabyne contrary to the provisions of para. 53A(1)(b) of the Trade Practices Act, 1974 ("the Act") and seeking (inter alia) to recover the loss or damage which they might have suffered by that conduct pursuant to s.82 of the Act.

Paragraph 53A(1)(b) provides:

"(1)

A corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land-

...

(b)

make a false or misleading statement concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land."

Since the appellants are individuals, s.53A cannot apply here unless the extended operation of Division I of Part V of the Act provided by sub-s.6(3) is applcable. It is common ground that the extended operation provided for by para.6(3)(a), in its reference to the use of telephonic services, is available here since the respondents say that the offending conduct took place in the course of a telephone conversation (see The Queen v. Australian Industrial Court; Ex parte C.L.M. Holdings Pty. Limited (1977) 136 C.L.R. 235 ). The telephone conversation in question related to land owned by the appellants which they had advertised for sale and the alleged false or misleading statements concerned the location and characteristics of the land and the use to which it was capable of being put or might lawfully be put.

There is no challenge to the primary findings of fact made by the Judge and they may be summarised as follows. The appellants acquired five adjoining portions of land of a total area of approximately 875 acres known as portions 81, 101, 106, 112 and 122 in the Parish of Wilson, Snowy River Shire, in August, 1980. The land was conditional leasehold under the Crown Lands Consolidation Act, 1913 (N.S.W.). This case concerns portions 81 and 101 only. In order to apply for permission to build on that land it would have been necessary to convert it to freehold by paying the appropriate fees and obtaining consent and then amalgamating both portions into one. It was likely that the Shire Council would then grant permission to build on it. No building permit existed in relation to it.

After acquiring the land, the appellants decided that they would like to build on portion 106 (287 acres) and, for the purposes of financing the building, to sell other parts of their holding. Early in August, 1981, they advertised portion 122 and as a result entered into a contract dated 6 August, 1981 to sell that portion and an adjoining portion 112 to another party.

On 9 August, 1981 they advertised portions 81 and 101 in the "Sunday Telegraph". The advertisement was inserted under the classification "Farms, Stock, Stations" and read as follows:

"JINDABYNE 282 acres, building permit O.K. magnificent views $45,000 542-1845 (SX)."

It was seen by the first respondent who brought it to the attention of the second respondent and asked him to telephone the number advertised. The second respondent did so and spoke to the first appellant.

In the course of this telephone conversation, the first appellant made a number of statements about the property which the respondents claimed and the learned Judge found, were false or misleading and which he summarised as follows ((1982) 44 A.L.R. 347 at p.358):

•

"That the subject land was 13 miles from Jindabyne, was practically on the main road and only one or two gates from it;

•

That there was no problem to get onto the land;

•

That it is very good land;

•

That he had a building permit to build on it and that there was no problem to build a house on it and to bring in materials;

•

That there was a permanent creek running through the property."

His Honour was also satisfied that during this conversation the first appellant said words to the effect that if the second respondent was interested he should hurry because a potential buyer from Cooma was coming to Sydney and wanted to buy it, that there had been a tremendous response to the advertisement and that he had sold the adjoining block to a solicitor or barrister.

Following this conversation, the respondents visited the first appellant at his home. Further discussion between them occurred, in the course of which the respondents offered and the first appellant accepted, a further sum of $5,000 for the property. The parties, on 10 August, 1981, entered into a written contract for sale. The contract was prepared by Mr. Henke, the solicitor acting for the appellants.

Prior to their execution of the contract, the respondents received a letter from Mr. Henke saying, in part:

"Our client believes that the planning instrument to which the land is subject prohibits the erection of a dwelling house on any parcel of land having an area of less than 100 hectares. Accordingly, it would seem that before a dwelling house may be erected on the subject land, the title must first be converted from leasehold to freehold and portions 101 and 81 amalgamated into one lot."

Before the respondents executed the contract, Mr. Hodgson, the Clerk of Petty Sessions at the Courthouse at Glebe explained the effect of the contract to them and they executed it in his presence. He then signed a certificate under s.1C(5)(c) of the Land Sales Act, (N.S.W.) 1964 which is an annexure to the contract of sale. The contract provided for a purchase price of $50,000 and a deposit of $5,000 which was paid by the applicants. Completion was to take place within eight weeks of the date and in that respect time was made of the essence. The contract contained the following special conditions:

"1.

The purchaser hereby acknowledges that this contract represents the entire agreement between the parties and they do not rely upon any representations either written or oral made in respect of the sale of the within property by any person other than as set out herein.

. . .

4.

The purchasers acknowledge that the vendors make no representation that it will be lawful to erect a dwelling upon the land and the purchaser expressly agrees to make no objection requisition or claim for compensation should it be established that a dwelling cannot lawfully be erected upon the property."

By notice dated 2 October, 1981, the respondents purported to rescind the contract and demanded a return of the deposit with interest and costs on the grounds that they were induced to enter into the contract by a number of false representations.

The learned Judge held that he was satisfied, within the meaning of para.53A(1)(b) of the Act, that the false or misleading statements found by him, supra, were made in connection with the possible sale of an interest in land and that they concerned either the location of the land, the characteristics of the land or the use to which the land was capable of being put or might lawfully be put.

His Honour declared that the contract of sale was and had been void since 2 October, 1981; ordered the refund of the deposit and ordered that the appellants were liable to pay to the respondents by way of damages the legal and other costs reasonably incurred by the respondents in connection with the contract and the purported rescission thereof.

It is submitted on behalf of the appellants that no contravention of s.53A occurred because the conduct impugned was not something done in trade or commerce. The statements relied on, the argument runs, were private in character and lacked the trade or commercial context required by the terms of s.53A.

In Re Ku-Ring-Gai Co-Operative Building Society No. 12 Ltd. (1978) 36 F.L.R. 134 , a question arose as to whether certain conduct was "in trade or commerce" for the purposes of s.47 of the Act. Bowen, C.J. said (at p.139):

"The terms 'trade' and 'commerce' are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements (W. & A. McArthur Ltd. v. State of Queensland). The word 'trade' is used with its accepted English meaning: traffic by way of sale or exchange or commercial dealing (Commissioners of Taxation v. Kirk per Lord Davey; W. & A. McArthur Ltd. v. State of Queensland). The commercial character of trade was mentioned more recently by Lord Reid in Ransom v. Higgs. His Lordship there said:

'As an ordinary word in the English language "trade" has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services.'"

Deane, J. said (at p.167):

"The terms 'trade' and 'commerce' are not terms of art. They are expressions of fact and terms of common knowledge. While the particular instances that may fall within them will depend upon the varying phrases of development of trade, commerce and commercial communication, the terms are clearly of the widest import (see, generally, W. & A. McArthur Ltd. v. State of Queensland and Bank of New South Wales v. The Commonwealth). They are not restricted to dealings or communications which can properly be described as being at arm's length in the sense that they are within open markets or between strangers or have a dominant objective of profit-making."

The learned Judge accepted that the sale of land by private contract, without more, may not be in trade or commerce but his Honour pointed to the fact that the conduct here complained of involved an invitation by the appellants to the public at large to treat with them. This was done by public advertisements inviting the conduct of negotiations over the telephone. In this way, the learned Judge held, the ordinary means of trade or commerce were utilised for the purpose of selling their land and it follows that the conduct of the appellants was something done in trade or commerce for the purposes of the Act (cf. Bank of New South Wales v. Commonwealth (1978) 76 C.L.R. 1 at p.381).

Although the explanatory memorandum explaining the operation of the Trade Practices Bill, 1974 describes Part V of the Bill as prohibiting "a number of commercial practices that are unfair to consumers," (emphasis added), there does not appear to be any Australian authority squarely in point for present purposes (cf. Videon v. Barry Burroughs Pty. Ltd. (1981) 53 F.L.R. 425 at p.447; Glorie v. W.A. Chip & Pulp Co. Pty. Ltd. (1981) 39 A.L.R. 67 at pp.73-5). However, some guidance is given by the approach to this question taken in the United States. In a series of decisions under consumer protection legislation, the view has been consistently taken that a private sale of property by an individual is not conduct in trade or commerce for the purposes of that legislation except if done in the course of a business activity or otherwise arising in a "business context".

Thus, in Young v. Joyce 351 A.2d. 857 (1975), the purchaser of a house brought action against the vendor charging statutory fraud arising out of certain misrepresentations. McNeilly J. said (at p.860):

"Finally, we hold that defendant, Ellen R. Joyce, is not covered by the Consumer Fraud Act, cannot be held liable under 6 Del.C s.2513, and that judgment as to her must be reversed. Although s.2513 applies to 'any person', which includes an 'individual' under s.2511, that statute must be read in light of the stated purpose of the Consumer Fraud Act: ' . . . to protect consumers and legitimate business enterprises from unfair or deceptive merchandising practices in the conduct of any trade or commerce . . . '. While the underscored terms are not statutorily defined, we do not believe that the isolated sale of real estate by its owner, in this case, constitutes the conduct of trade or commerce. Plaintiff essentially concedes this point by admitting that Joyce was not engaged in a 'business, vocation or occupation' (for purposes of relieving her from treble damage liability under 6 Del.C. s.2531 et seq)."

In Lantner v. Carson 373 N.E.2d 973 (1978), purchasers of a residence brought an action against their private vendors under the Consumer Protection Act of Massachusetts. The statute proscribed "unfair or deceptive acts or practices in the conduct of any trade or commerce". It was held that the Act was not available where the transaction "is strictly private and is no way undertaken in the ordinary course of a trade or business" (at p.975). Thus, the statutory proscription was read to apply to those acts or practices "which are perpetrated in a business context" (at p.977). Hennessey, C.J. explained the underlying policy considerations (at p.977):

"Finally, we note that our conclusions with respect to the scope of G.L. c. 93A are not inconsistent with the statute's broadly protective legislative purpose. In Dodd v. Commercial Union Ins. Co., -- Mass. -- 365 N.E.2d 802 (1977), we stated that the basic policy of G.L. c. 93A was 'to regulate business activities with the view to providing . . . a more equitable balance in the relationship of consumers to persons conducting business activities.' . . . An individual homeowner who decides to sell his residence stands in no better bargaining position than the individual consumer. Both parties have rights and liabilities established under common law principles of contract, tort, and property law. Thus, arming the 'consumer' in this circumstance does not serve to equalize the positions of buyer and seller. Rather, it serves to give superior rights to only one of the parties, even though as nonprofessionals both stand on an equal footing."

In Rosenthal v. Perkins 257 S.E.2d 63 (1979), purchasers brought an action under the Unfair Trade Practices Act against the vendors of a house and the vendors' agent. The Act (G.S.75-1.1.) made it unlawful to engage in " . . . unfair or deceptive acts or practices in the conduct of any trade or commerce . . . " Clark, J. said (at p.67):

"The defendants Goldberg were not engaged in trade or commerce. They did not by the sale of their residence on this one occasion become realtors. It is clear from the cases involving violation of the Unfair Trade Practices Act that the alleged violators must be engaged in a business, a commercial or industrial establishment or enterprise. . . .

The defendant Finley, Inc. and its agent Perkins were engaged in the business of buying and selling real estate and acting as a real estate broker or agent. Clearly, it was engaged in 'trade or commerce' within the meaning of G.S. 75-1.1."

On the other hand, in Begelfer v. Najarian 409 N.E.2d 167 (1980), it was held that a statute providing a remedy for persons suffering loss as a result of use by another person, who engages in any trade or commerce, of an unfair or deceptive act or practice, does not require that a commercial transaction must have taken place only in the ordinary course of a person's business or occupation before its participants may be subject to liability. After referring to the "business context" test employed in Lantner, supra, Abrams, J. said (at p.176):

"The question of whether a private individual's participation in an isolated transaction takes place in a 'business context' must be determined from the circumstances of each case. To establish a private person's liability under s.11 we assess the nature of the transaction, the character of the parties involved, and the activities engaged in by the parties. See Lantner v. Carson, supra. Other relevant factors are whether similar transactions have been undertaken in the past, whether the transaction is motivated by business or personal reasons (as in the sale of a home), and whether the participant played an active part in the transaction. We do not read s.11 as requiring that a commercial transaction must take place only in the ordinary course of a person's business or occupation before its participants may be subject to liability under G.L. c. 93A, s.11."

Finally, in Lynn v. Nashawaty 423 N.E.2d 1052 (1981), the Appeals Court of Massachusetts refused to set aside a finding of fact that the sale of a stationery store, and, in particular, representations as to the worth of stock-in-trade, took place in a business context so as to bring into play a statutory proscription against unfair or deceptive acts or practices in trade or commerce. Having analysed the reasoning in Lantner and Begelfer, supra, Armstrong, J. said (at p.1054):

"The sale of a business or business assets by a businessman is not the same as the sale of a home by an individual homeowner (as in Lantner), and the defendants in the present case were fully involved in every aspect of the transaction (unlike the defendants in Begelfer), including the false representation which is the core of the alleged c. 93A violation. (It is arguable that they fit well within another of the indicia, having participated, as a family, in two prior sales of stationery stores, although not as sellers, but as buyers.) In view of the position taken in the Begelfer case that an isolated transaction, one that does not take place in the ordinary course of business, may constitute a violation of s.11, so long as it takes place in a business context, it is difficult to avoid the conclusion reached by the finder of fact that the transaction at bar violated that section. We cannot say that the judge was required as matter of law to reach the conclusion that the sale of the stationery store did not take place 'in a business context. 'The question in a close case is doubtless largely one of fact, and the judge's finding here was not clearly erroneous."

In the present case, it cannot be suggested that the lands acquired by the appellants became trading stock (see Federal Commissioner of Taxation v. St. Hubert's Island Pty. Limited (In Liquidation) (1978) 138 C.L.R. 211 ). Nor is it a case where the taxpayer's activities amounted to more than the mere realisation of a capital asset and constituted the carrying on of land development (see Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. (1982) 39 A.L.R. 521 ). The land itself was not used for any business activity: it was not used for farming or grazing.

It follows, in our opinion, that the only possible feature of the case which could conceivably be relied upon to suggest that the impugned conduct occurred in trade or commerce was the resort by the appellants to a newspaper as a medium of public advertisement of the land and the use made by the parties of the telephone for the purpose of conducting negotiations. It is true, as the learned Judge observed, that the use of such facilities is common practice in the conduct of trade or commerce. It is also true, as Mason, J. observed in Whitfords Beach, supra, (at p.537) that there is ambiguity in the adjectives "business", "commercial" and "trading" which "have about them a chameleon-like hue, readily adapting themselves to their surroundings". As his Honour said, in some contexts, phrases such as "business deal" and "operation of business" may signify a transaction entered into by a person in the course of carrying on a business; in other contexts they "denote a transaction which is business or commercial in character" (at p.537). The same may be said of "commercial" or "trading". But, in our view, the mere use, by a person not acting in the course of carrying on a business, of facilities commonly employed in commercial transactions, cannot transform a dealing which lacks any business character into something done in trade or commerce. Of course, the facilties mentioned have applications which are not commercial in any sense: advertisements in newspapers and the telephone are used by persons for purposes which are not commercial at all. With all respect to the learned Judge, we are not persuaded that resort to them can create the business context required by the reference to "trade or commerce" in s.53A. The conduct complained of was not something done by the appellants in the course of carrying on a business and it lacked trading or commercial character as a transaction. It thus fell outside the scope of s.53A.

An alternative submission was put on behalf of the appellants that no contravention of s.53A occurred because the statements made were not false or misleading or, alternatively, were not relied on by the respondents, having regard to the context in which they were made; the class of persons to whom they were addressed; the requirement that such persons should take reasonable care of their own interest; the terms of the contract concluded between the parties; and the circumstances of the execution of the contract. Particular reliance was placed upon the decision of St. John, J. in Westham Dredging Co. Pty. Ltd. v. Woodside Petroleum Development Pty. Ltd. (1983) 46 A.L.R. 287 (cf. the observations made by Northrop, J. in Jet Corporation of Australia Pty. Ltd. v. Petres Pty. Ltd. - unreported 4 October, 1983 at pp.15-16). In the light of the conclusion we have reached on the other submission put on behalf of the appellants, it is not necessary to deal with this submission.

The appeal should be allowed with costs. The orders of the learned Judge should be set aside and, in lieu thereof, it should be ordered that the application be dismissed with costs.