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Demagogue v Ramensky

Federal Court of Australia (Full Court) [1992] FCA 557

Overview

Mr and Mrs Ramensky (respondents) entered into a contract with Demagogue Pty Ltd (appellant) to purchase land at Noosa Heads in Queensland "off the plan".

The only vehicular access was via public road and the appellants ahd been negotiating a Road Licence to allow them the right to construct a driveway and provide access.

The appellants did not advise the respondents of the need for a Road Licence. The draft plans showed a driveway and when inquiries were made the Ramensky's were advised the developer would build a driveway. The Ramensky's assumed this would be within the boundaries of the property on common land. The fact that it was not was 'unusual'.

When they became aware of the Road Licence issue the Ramensky's purported to rescind the contract. The appellant's threatened action for specific performance and damages and the respondents then sought orders that the contract was void and a declaration that there had been a contravention of s 52.

At trial Spender J held that the need for the road licence was unusual and in the circumstances was something that ought to have been disclosed; failure to do so was misleading.

The Full Federal Court agreed - both positive actions and withholding information in these unusual circumstances was misleading. In addition, it was appropriate to award a remedy under s 87 even if the value of the property was not impacted by the information about the road.

Road

Catchwords

Trade Practices - contract to purchase home unit "off the plan" - misleading or deceptive conduct - whether relevant factual matrix may include silence - application for relief under sub-s. 87(1A) of Trade Practices Act 1974 - order declaring contract void ab initio - meaning of "loss or damage" in sub-s. 87(1A).

 

Facts

Mr and Mrs Ramensky (respondents) entered into a contract with Demagogue Pty Ltd (appellant) to purchase land at Noosa Heads in Queensland. The vendor was intending to construct a multi-level residential home unit building to be called "Picture Point Terraces" and then subdivide the land into lots and common property; the Ramensky's contracted to purchase the proposed Lot No 5 for $405,000.

The contract did not make reference to the fact that the only vehicular access to the land would be from Edgar Bennet Avenue and that Demagogue had been negotiating with the Land Administration Commission for a grant to permit them to construct a driveway over public land to provide access. The draft contract shown to the Ramensky's showed a plan with a driveway; nothing was said or shown to them to indicate the driveway was not within the boundaries of the property or that there was anything unusual about the vehicular access to the property (ie, that it was not part of the common property of the development). Even Mr Miller (agent of Demagogue) agreed that:

". . . someone looking at that driveway, the gates, the word driveway and so on, would think it a private driveway, not a public road."

During negotiations the respondents visited the site with Mr Miller (Demagogue's agent) and asked about access (they had traversed a 'steeply sloping land covered in vegetation' to view the property). They were told there would be access - that the developer would build a driveway to the road. A plan of the development was shown to the Ramensky's showing a driveway from the road.

The primary judge accepted that the Ramensky's would not have entered into the contract if they had been aware about the issues relating to site access.

After becoming aware that the site was subject to a Road Licence the respondents wrote to appellant rescinding their contract. They complained that the appellant had contravened s 52 by failing to disclose the details of the road access. The appellants denied any contravention and threatened action for specific performance and damages. The respondents sought orders that the contract was void and a declaration that there had been a contravention of s 52. The appellant cross-claimed seeking specific performance.

Held

Failure to advise of the need for a road licence constituted misleading or deceptive conduct.

Federal Court (Spender J)

Held that the need for the road licence was unusual and in the circumstances was something that ought to have been disclosed; failure to do so was misleading and contravened ss 52 and 53A.

[51] I am quite satisfied that the need for a road licence, its conditions and annual fee is a factor which adversely affects the value of a unit at "Picture Point Terraces" in a non-trivial way.

[69] In the view I take of the matter, the need for a road licence for vehicular access was so unusual and unexpected in a development of this kind, that it was in all the circumstances incumbent on Demagogue to reveal the true position: ...

[70] Whether silence constitutes conduct which is misleading or deceptive of course depends upon the circumstances. Here the circumstances were special and out of the ordinary. Moreover, the express representations by Demagogue were such as to indicate that there was nothing unusual at all about this aspect of the development. In this case, there was both a positive misrepresentation, and a misrepresentation conveyed by a failure to say anything about a road licence. In the opinion I hold of the circumstances, Demagogue through Mr Miller and the draft contract created a clear but erroneous impression that there was nothing unusual concerning the access to this site and, in particular, there was no suggestion that a road licence from the Lands Administration Commission was necessary to provide such access. The vendor was silent as to conditions which might affect the continued existence of the licence and as to the fact that a small but not trivial financial contribution would be required.

Full Court of the Federal Court

Chief Justice Black

Agreed with Gummow J for the reasons he gave.

[2] No reason has been shown for departing from the findings of the primary judge that the appellant engaged in conduct that was misleading or deceptive, in contravention of s52 of the Trade Practices Act 1974. The failure of the appellant (the vendor) to disclose to the respondents (the purchasers) unusual features relating to access to the land they were buying was but one of the circumstances that led the primary judge to conclude that there had been misleading and deceptive conduct. The primary question was whether there had been conduct that was misleading or deceptive or likely to mislead or deceive. In this case, as in every case in which s52 is relied upon, this was a question of fact that could only be determined - as the judge did determine it - having regard to all the relevant circumstances.

[3] Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of "mere silence" or of a duty of disclosure can divert attention from that primary question. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

[emphasis added]

His Honour added some further observations about the requirement in s 87 to show loss or damage, noting that:

[11] In my view, the loss or damage for the purposes of both s87(1) and s87(1A) will include the detriment suffered by being bound to a contract induced by misleading or deceptive conduct in contravention of s52. Proof of loss or damage of the sort that would be an "amount of ... loss or damage" for the purpose of s82 is not a prerequisite for the grant of relief under either sub-section.

Gummow J

His Honour set out the facts and agreed that the need for a Road Licence was 'unusual and unexpected':

[4] The primary Judge (Spender J) held, and I agree, that the need for a Road Licence under the Land Act for vehicular access to the development was an unusual and unexpected circumstance and, to the respondents, unexpected.

[4] The primary Judge (Spender J) held, and I agree, that the need for a Road Licence under the Land Act for vehicular access to the development was an unusual and unexpected circumstance and, to the respondents, unexpected.

His Honour then turned to what he described as two issues of importance on appeal (para 19):

  • The 'circumstances in which misleading or deceptive conduct, for the purposes of s. 52 may be constituted by a factual matrix which includes silence as well as overt activity.'
  • The meaning of the phrase, in ss 87 (1A) and (2)(a) of the Act, "will prevent or reduce the loss or damage suffered, or likely to be suffered . . ." (the appellant had submitted that as the property was not worth less than the contract price there was no relevant loss or damage).

Silence

The appellants had argued that as this was not a latent defect in title there was no duty to disclose.

Justice Gummow noted that the general law and developed a distinction between obligations of vendors to disclose issues relating to defects in title and those involving defects as to quality, with only the former attracting a duty of disclosure (para 25). His Honour made clear that s 52 was not constrained by these developments in the common law:

[20] ... whilst contractual rights subsisted between the parties their relationship is not governed simply by the general law as to vendor and purchaser. The legislation regulates the existence and exercise of what would otherwise be the rights at general law and, in addition, itself creates new rights and remedies.

His Honour noted that conduct within the meaning of s 52 included refusing to do an act, including refraining (otherwise than inadvertently) from doing that Act:

[30] But in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct. The expanded meaning given by s. 4(2) to "conduct" should not distract attention from the fundamental issue in the case at hand.

In this case there were allegations of a positive misrepresentation as to vehicular access as well as misleading conduct from failing to say anything about the Road Licence and all of these circumstances created 'the clear but erroneous impression that there was nothing unusual concerning access to the site' (para 31).

In these circumstances, inquiring about whether there is a duty to disclose digresses from the terms in s 52 (para 32). The term 'duty' suggests a connection with the general law which is not required (para 33).

[34] ... the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive.

His Honour referred - with approval (at para 34) to the remarks of (then) Justice French in Kimberley NZI Finance Limited v Torero Pty Ltd [1989] FCA 280 (para's 70-71) where his Honour said:

[70] ... If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, s.52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure.

[71] The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist. 

His Honour concluded that the appellant had not shown any reason for departing from the primary judge's findings that there was a contravention of s 52 (para 36)

Loss or damage

His Honour then considered the issue of loss or damage. He noted that s 82 provides for the recovery of loss or damage and s 87(1A) is 'expressed in terms that are permissive rather than mandatory' (para 38). The appellant argued that the primary judge should not have exercised discretion in relation to s 87 because the conduct was not fraudulent.

The primary judge stated:

In all the circumstances, in my opinion, (the respondents) are entitled to relief pursuant to s. 87 of the Act. Demagogue deliberately chose to be silent about the question of the road licence in circumstances where its product was towards the top end of the range and where prospective purchasers were entitled to be told what in truth they were buying.

[reproduced at para 38 with emphasis added]

Although no fraud was shown (and that is a relevant factor in exercising discretion to award remedies under s 87), the evidence:

[39] ... provides ample ground for inferring (i) that both at the time the draft contract was shown to the respondents and at the time of their execution of the contract the appellant was well aware of the need for a Road Licence to enable construction of a driveway to provide a practicable vehicular access to the Picture Point Terraces development and (ii) that the silence in the contract on this matter was not the result of inadvertence to the problem on the part of the appellant. .... the use by the primary Judge of the term "deliberately chose to be silent" is not open to objection. It indicates that the disclosure to the respondents which the appellant refrained from making was otherwise than inadvertent ...

His Honour referred to s 4K of the Act which states that a reference to loss or damage 'includes a reference to injury'. Section 87 is, his Honour found, concerned with compensation for loss or damage, reduction of loss or damage and prevention of loss or damage. In this case continuation of a contract that the parties would not have entered into but for the misleading conduct could be loss or damage:

[48] The respondents complain that they entered into a contract as the result of reliance upon conduct which contravened s. 52. Why should they not be described as having suffered loss or damage, within the meaning of s. 87, by that very reliance and entry into legal relations from which they otherwise would have abstained? If that contract be declared void ab initio as provided for in sub-s. 87(2)(a), will that not reduce this loss or damage?

[49] It may well be that in a given case the contract is not financially disadvantageous to the complainant. But, at least in Australia, if a contract is rescinded in equity for some vitiating factor in its formation, it is not sufficient for the defendant to show that the transaction to which the complainant was improperly induced to assent, after all, contained terms which, viewed objectively, were not manifestly disadvantageous so that, the complainant should freely have accepted them. The complainant is entitled to say that but for the unconscientious conduct of the defendant he or she would not have entered into any transaction with the defendant; ...

[51] Further, even if some pecuniary detriment (further propounded as a "real chance" or as presently existing) is required in all s. 87 cases, that requirement is present here.

[52] If the respondents' claim to relief under s. 87 fails and the contract remains on foot, they have to answer, on this appeal, the claim against them for specific performance. If an order for specific performance were made against them it would require them to pay the contract price on what is now a fallen market. That would not provide a sufficient answer to the claim for specific performance. ...

[emphasis added]

His Honour concluded that relief under s 87 was properly ordered (para 55).

Justice Cooper

Agreed with Justice Gummow.

Expressed additional views in relation to the meaning of 'loss or damage' in section 87(1).

[7] The words "loss or damage" where they appear in section 87(1) are to be construed by the application of the ordinary canons of statutory construction. This requires giving the words their ordinary meaning in the context in which they appear.

[8] The ordinary meaning of loss is "detriment or disadvantage resulting from deprivation or change of conditions" (Shorter Oxford English Dictionary 3rd Ed. (Revised) 1990 at 1241). "Damage" is defined as "1. Loss or detriment caused by hurt or injury affecting estate, condition or circumstances (Arch.) 2. Injury, harm". (Shorter Oxford English Dictionary at 485).

[9] There are two matters within the context of section 87(1) which colour the meaning of the phrase in the section. The first is that the loss or damage has been or is likely to be caused by conduct in contravention of the Act. The second is that any order made is to compensate for the loss or damage. However, the compensation is not limited to the payment of a money sum or damages as an examination of section 87(2) discloses. Nor is there anything in section 87(2) which would limit the loss or damage suffered or likely to be suffered to pecuniary loss or damage. In particular, sub-sections 87(2)(a) (declaring a contract or collateral agreement to be void) and 87(2)(ba) (refusing to enforce any or all provisions of a contract) take as their point of focus the denial of the benefit of a contract to a person whose proscribed conduct has caused loss or damage to the other party. Such an order has the consequential effect of releasing the innocent party from the obligations imposed by the contract. In the context of providing compensation it is the obligations imposed by such a contract which is the loss or damage which the order seeks to redress.

[10] In my opinion "loss or damage" in section 87(1) means no more than the disadvantage which is suffered by a person as the result of the act or default of another ... in the circumstances provided for in the section.

[11] The phrase "loss or damage" in section 87(1) does not involve any concept of quantum or assessment of damages ... This is to be contrasted with the context of the phrase in section 82 where it is "the amount of the loss or damage" which is recoverable by action. For the purpose of section 82 it is the quantum or assessment of the loss or damage suffered in monetary terms which must be demonstrated. The rules as to the assessment of damages or the measure of damages in an action for deceit are relevant to the question of loss or damage under section 82. However those rules are not relevant to the meaning of the phrase in section 87(1).

...

[13] ... The Court is not restricted in granting a remedy under section 87 by the limitations under the general law of a party's right to rescind for breach of contract or misrepresentation ... Likewise the limitations under the general law as to the assessment of damages and the measure of damage ought not be imported into a definition of "loss or damage" in section 87 to limit the category of actionable loss or damage.

[14] To adopt a definition of "loss or damage" for the purpose of section 87(1) which includes the disadvantage of incurring contractual obligations that would not have been incurred but for the conduct complained of does not mean that the granting of a proper discretionary remedy necessarily leads to the setting aside of such a contract or to a refusal to enforce it according to its terms. That result will always depend upon the particular circumstances which exist when the occasion calls for an exercise of the powers under section 87 of the Act.