Case: Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74
Outcome: followed
her own carelessness in not engaging a solicitor was a cause of Ms Tan-Bounkeua's loss, I am not satisfied that it was the only cause. As I have found, a solicitor might, but would not necessarily, have advised her about the existence and effect of cl 20.9. Although the representations were made in order to interest investors in purchasing apartments in the development, their message would be undone only if a solicitor in fact advised his or her client of the effect of cl 20.9. And the risk to Austcorp, if that happened, was that it might lose the benefit of the sale: Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 at [43] , [57] per Mason P (with whom Giles and Heydon JJA agreed on this point at [92] and [93]). Moreover, had Ms Tan-Bounkeua been informed before completion that Mustara had ceased to be a subsidiary of Pacific International Hotels since she had entered into the contract, she would not have proceeded because that would have exposed her to risk of loss. The correctness of these representations depended on the nature of the "assurance" of the net rental return of 7% of the purchase price for 10 years. (Mr Owers did not receive the leaflet so only representation (a) is relevant to his position.) At the time of entering into the contracts each of the applicants understood that the way in which they would be paid the return was through their lease of their apartment to Mustara on terms that it pay the rent at the rate of 7% of the purchase price net of deductions for 10 years. The "assurance" came from this understanding and, in Mr Owers' and Ms Tan-Bounkeua's cases, the connection that Mustara was a subsidiary of Pacific International Hotels which guaranteed the performance of Mustara. In other contexts the word "guarantee" can have a range of connotations, but as Mason P observed in Coluzzi [2002] NSWCA 74 at [46] (Giles and Heydon JJA agreeing on this issue at [92]-[93]) it can certainly include a firm assurance as to a state of affairs. Thus, since I have found that, when entering the contract and signing the lease, Mr Owers and Ms Tan-Bounkeua were not aware of the nature and effect of cl 20.9 of the lease, limiting the guarantee, it was false to represent to them that payment of the rent for the entire term was "assured" in the sense that they understood the representations. That is, it made no difference to either of them that Pacific International Hotels was not the lessee if Mustara were its subsidiary and, in substance, Pacific International Hotels would stand completely behind Mustara. If that were the case then, as a matter of substance, the statements in the promotional material of the "security of a lease to Pacific International Hotels" would have been true, even though the technical legal mechanism of a lease to Mustara with a guarantee by its parent was utilised. They saw themselves dealing with, and receiving assurance from, the involvement of Pacific International Hotels for the lease of their apartments and the operation of the resort. But, that was not the true position. Mustara had ceased to be a subsidiary on 23 December 1999. And, as they understood the position, if Mustara failed they could still look to Pacific International Hotels to honour the promise for the full 10 years. Because cl 20.9 of the lease qualified their entitlement to look to Pacific International Hotels for payment, one means by which Mr Owers and Ms Tan-Bounkeua understood that the return would be assured, namely that Pacific International Hotels would be liable to pay it in full for the whole 10 year term, was falsified. Additionally, Austcorp's failure to correct the position in relation to Mustara not being a subsidiary of Pacific International also falsified the basis of the assurance. Representation (b): net rental return would be achieved through the lease of apartments to Pacific International Hotels for a term of 10 years with two 10 year options That was a key selling point. It worked on Mr Owers and Ms Tan-Bounkeua. They understood that from day one for 10 years they would receive that return. The promise of a guaranteed return was a prime consideration for them, as Austcorp understood it used this as its marketing strategy based on the experts assessment of each of Mr Walker (in his letter of 3 June 1999), Mr Chappell and Mr Hung. In Coluzzi [2002] NSWCA 74 at [57] Mason P observed of a similar representation, that it may be reasonable to make a qualified estimate or prediction but quite unreasonable to make "... an unqualified and firm prediction such as is conveyed by the word 'guaranteed' in the present context". That context was a guaranteed net 7% p.a. return on capital invested in a serviced apartment bought off the plan. The assurance, here, was no doubt reinforced by the understanding (unrealised because of cl 20.9) that the legal structure of the lease to the entity referred to as "Pacific International Hotels" and "Pacific International" in the promotional material would reflect these representations. Last, representation (e) was also predictive of the outcome of the investment. Its verification was dependent on what would transpire after the representation was made. The assessment of how the investment would turn out could only be made after the making of that representation.