Case: Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60 ; (2004) 218 CLR 592
Outcome: applied
was the guiding hand and ultimately benefited from what its subsidiaries did. It argued that its conduct vis a vis its subsidiaries should be viewed as akin to a real estate agent who passes on the vendor's instructions. I reject that argument. Austcorp did not confine itself to communicating what its subsidiary said, did or represented, without adopting or endorsing it: cf: Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60 ; (2004) 218 CLR 592 at 605 [38] - [40] per Gleeson CJ, Hayne and Heydon JJ. To the contrary, the reality was that the subsidiaries were Austcorp's vehicle for realising its investment in the project. The subsidiaries acted as Austcorp caused them to act. While each of Austcorp and its subsidiaries was a separate legal person, acting through the individuals who were employees of Austcorp, all acted in dual capacities: cf: Hamilton v Whitehead [1988] HCA 65 ; (1988) 166 CLR 121 at 128 per Mason CJ, Wilson and Toohey JJ. The activities of each member of the Austcorp group involved in the development and marketing of the resort were interlocking and Austcorp controlled each of them: cf: NSW Mutual Real Estate Fund Ltd v Brookhouse [1979] FCA 7 ; (1978) 38 FLR 257 at 263 per Franki J, 264 per St John J, 266 per Deane J. The brochure was a document prepared for distribution to the public, but in circumstances where particular members of the public would read it and, as a consequence, be interested in pursuing the "prime investment opportunity" which it promoted. In Butcher 218 CLR at 604-605 [36]-[40], Gleeson CJ, Hayne and Heydon JJ discussed the principles to be applied where an alleged misrepresentation is made to a particular individual, even though the individual is one of a class of other persons to whom the same representation may have been made. They held that even though a representation may have been made to a class of persons, in a case like the present it is the individuals who claim to have been mislead and the person by whom they claim they were mislead whose relationship must be examined. The applicant for relief must establish a causal link between the impugned conduct and the loss that is claimed. They said that this depended on analysing the conduct of the alleged wrongdoer in relation to the applicant alone and continued ( Butcher 218 CLR at 604-605 [37]): "So here, it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known. Indeed, counsel for the purchasers conceded that the mere fact that a person had engaged in the conduct of supplying a document containing misleading information did not mean that that person had engaged in misleading conduct: it was crucial to examine the role of the person in question." And, Gleeson CJ, Hayne and Heydon JJ observed that it was relevant to consider the circumstances of the representor: Butcher 218 CLR at 604 [42]. Here, the claim against Austcorp was not alleged simply to be that it passed on to PRD and Mr Walker or through him to the applicants information from a vendor. Rather, the applicants alleged that Austcorp itself engaged in the conduct of making the representations to them through the promotional material (including what Mr Walker told them). In June 1999, Mr Walker had written to Mr Chappell saying that "the guaranteed return on investment is a prime consideration to prospective purchasers". And, Mr Chappell agreed with that assessment based on his then experience in selling property over nearly three decades. Mr Chappell considered a guaranteed return on an investment was obviously attractive to potential purchasers and sent a message to them that their investment was secure. He said that, based on his experience, he held the view in 1999 that marketing an investment as having a guaranteed return was a very powerful and forceful means of marketing. He acknowledged that one reason why it was attractive to investors to have a guaranteed return was because it told the investor that whatever happened in the market they would get the guaranteed return, even if there were some unforeseen circumstance. I accept that evidence. Before the brochure's wording was settled, Austcorp had used Coudert Bros, solicitors, to discuss with ASIC the use of the word "guarantee" and "net return 7%p.a. guaranteed ten years minimum lease" in an earlier form of marketing of the resort. With Mr Hung's approval, Coudert Bros had told the Commission, in August 1999 that the word "guarantee" was often used colloquially simply to mean '"assured" "a sure thing"'. They told the Commission that, in a strict sense, the return was guaranteed. That was because the lease which was accepted from each purchaser would provide the agreed percentage return in the amount of the rent identified by the contract (being 7% of the purchase price, payable each year). The Commission was told that "the rent (as with all lessee obligations) is guaranteed by Pacific International Hotels Pty Limited", although Coudert Bros did not mention that guarantee was limited to a maximum of 12 months of the initial rent. Coudert Bros addressed a concern of the Commission about a sticker that asserted a net guaranteed return with a 10 year minimum lease saying: "Further the return is guaranteed (assured) in the colloquial sense. The rent payable is a predetermined amount in no way dependant on the serviced apartment business of others. We suggest there is no sense in which the 'sticker' can be seen as making a claim which is not backed up on sale." In Butcher 218 CLR at 606 [43] Gleeson CJ, Hayne and Heydon JJ observed that it was a matter of common experience that questions of title to land could be complex, both legally and factually. Dealing with legal complexity was the role of solicitors, acting, where appropriate, on the advice of other specialists, such as surveyors. The question in that case was whether purchasers were entitled to rely upon a diagrammatic plan of the land being sold in a brochure prepared by a real estate agent. The brochure contained an express disclaimer by the agent of any belief in, or guarantee of, the accuracy of the information in it. Their Honours held that the brochure, read as a whole, in effect told the purchasers to rely upon their own enquiries and that it would then be plain to a reasonable purchaser that the agent was not the source of the information alleged to be misleading. They said that the agent there did not purport to do anything more than pass on information supplied by another or others and expressly, as well as implicitly, disclaim any belief in the truth or falsity of that information: Butcher 218 CLR at 608-609 [50]-[51]. Their Honours also observed that in a situation where a purchaser was intending to make use of statements or representations made in a brochure before entering into an important transaction, it was not inappropriate to look closely at the contents of the brochure before deciding whether a particular representation was made and by whom: Butcher 218 CLR at 616 [76]. In his dissenting judgment, McHugh J also said that in determining whether a contravention of s 52 has occurred, the task of the Court is to examine the relevant course of conduct as a whole, by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. He observed that the Court was not confined to examining a document, relied on as being the conduct or conveying a representation amounting to the conduct alleged to have contravened s 52 , in isolation, saying that the Court "... must have regard to all of the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document": Butcher 218 CLR at 625 [109]. Austcorp submitted that the effect of Butcher [2004] HCA 60 ; 218 CLR 592 was that whatever had been pleaded as the cause of action by an applicant or plaintiff, the Court nonetheless had to look outside that, at all of the conduct of the respondent or defendant corporation to determine whether or not a contravention of s 52 had occurred. However, here, this issue does not arise because Austcorp had pleaded expressly the need to do so. It pleaded, in its defence, that the consideration of what was represented or not disclosed to the applicants by the brochure needed to be considered in the context of the applicants' actual knowledge and the knowledge of those acting on their behalf as to the nature and character and investments proposed, including in the particular apartment in the resort, the nature and character of the brochure and the entire course of dealings between the applicants, and their advisors in relation to the nature and characteristics of an investment in an apartment in the resort including the contract of sale and, where relevant, a disclosure statement. Austcorp asserted that when viewed as a whole, assuming that it had been involved in the making of the representations alleged, its conduct could not be described as misleading or deceptive. This was because the applicants could be expected to have a solicitor act for them and advise them as to the terms of the contract for sale, including the lease and the disclosure statement, thus disabusing them of any misconception which may have been generated by reading the brochure by itself. I am of opinion that on the evidence here the mere fact that the contract may have set out the full terms and conditions of the relationship which was to exist between the purchaser and the various parties with whom it was proposed the purchaser would enter into a relationship (the vendor (Landillo), the lessee (Mustara) and guarantor (Pacific International Hotels)) cannot, of itself, be enough to break a chain of causation from representations or impressions made by the brochure. Obviously, context is critical. But where the method for inducing persons to enter into consideration of a business proposition is to make assertions and valuations of the proposition in the form in which the brochure was expressed, a person who promotes the sale through the brochure cannot complain if a purchaser takes the promoter at his word. The whole point of having the brochure was to make people interested in the commercial proposition of the purchase of an apartment in the resort. What was the commercial proposition if not a promise or assurance that that the investment would return 7%p.a. net for 10 years to the purchaser? And, lest the intending purchaser might think otherwise, he or she was assured by the statement that "its hard to imagine a real estate investment offering so much. From day one your return will be a guaranteed 7%p.a.". It is a question of fact whether a disclaimer or a contractual provision modified the antecedent or other conduct as Gleeson CJ, Hayne and Heydon JJ illustrated in Butcher 218 CLR at 613-614 [70]-[72] in discussing what Burchett J had said in Benlist Pty Ltd v Olivetti Australia Pty Limited [1990] ATPR p41-043 at 51,590. In both those cases there were disclaimers in marketing material. Burchett J said: "It has been held on many occasions that the perpetrator of misleading conduct cannot, by resorting to such a clause, evade the operation of [the Act]. Of course, if the clause actually has the effect [of] erasing whatever is misleading in the conduct, the clause will be effective , not by any independent force of its own, but by actually modifying the conduct . However, I should think it would only be in rare cases that a formal disclaimer would have that effect. ... In the present case, the suggestion of the suitability of the building for strata title conversion might continue to influence the mind of a prospective purchaser notwithstanding his awareness of the existence of a disclaimer clause, which did not single out the particular representation, but purported to apply generally to every detail stated in the investment report. If it were permissible to avoid the operation of [the Act] by such a clause, it would be all too easy to make representations in the confidence that they would be acted upon, and then withdraw them in the confidence (equally important for the securing of the desired business) that the withdrawal would not be acted upon ." (emphasis in bold added) As explained above, it is necessary to consider whether Austcorp's conduct in making each representation to each of Mr Owers and Ms Tan-Bounkeua was misleading or deceptive: Butcher 218 CLR at 604-605 [36]-[37]; Campomar 202 CLR at 85 [103]. It is not necessary to consider the position of Mr and Mrs Di Giulio and Mr Luciani because I have not accepted their evidence that they relied on any of the representations. 5. WERE THE REPRESENTATIONS RELIED ON AND WERE THEY MISLEADING OR DECEPTIVE Representations (a) and (h): each applicant would be assured of a 7% p.a. net rental return of the purchase price for 10 years