Trade Practices Act - Martin Luitingh Barrister

Trade Practices Act

Misrepresentation, The Trade Practices Act and Contract: A Path to Understanding the Relationship and Implications

Introduction

Parties negotiating the terms of a contract will try to achieve certainty about the validity of the terms of the contract. Commercial contracts in large measure concern risk allocation between contracting parties. Parties with different abilities, skills and resources engage with one another to achieve a particular outcome which is commercially beneficial for the parties. In the knowledge that things go wrong each party negotiates the risk of possible future events.
Risk allocation may be significantly affected by the validity of clauses that shift risk; that validity may in turn be vulnerable to representations regarding the circumstances under which risk is accepted or transferred.
In the event that an actionable misrepresentation is made by a contracting party, a court is not limited to the termination and damages or performance and damages remedies under the common law or the TPA. Under the TPA a court may prevent a party from relying on a risk altering clause or any other clause thereby fundamentally re-writing the contract. See Humphries v Newport Quays Stage 2A Pty Ltd (No 2) [2009] FCA 1135 ( AT PARAGRAPH 17 ).
“The authorities establish that the court’s power to award relief under s 87(1) is not constrained by common law or equitable principles: Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 (Murphy v Overton Investments Pty Ltd) at 407 [44]. The provisions of s 87 enable a court to overcome some of the difficulties of the common law including those inherent in deciding whether to rescind or affirm a contract: Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 (Mister Figgins) at 60 per Northrop J. Doctrines such as affirmation or the non-availability of restitutio in integrum which bar rescission in equity are no more than discretionary considerations in the exercise of the power in s 87(1): JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 at 380. An order may be made under s 87(1) where, inter alia, a person is likely to suffer loss or damage and the order may be one that is appropriate to prevent or reduce that loss or damage. This gives the section a wide operation: Marks v GIO Australia Holdings Ltd (1998) 196(1998) 196 CLR 494 at 505 per McHugh, Hayne and Callinan JJ; Murphy v Overton Investments Pty Ltd at 407. Although quite a different case on the facts, the relief granted in Mister Figgins is illustrative of the broad power in s 87(1). Rescission was refused partly on the ground that the innocent party had affirmed the contracts, but nevertheless an order was made under s 87(1) varying the contracts.”
In a standard form contract a legal practitioner is likely to encounter a clause which excludes as a cause of action any representations made by one party to another prior to the execution of the contract.
The purpose of the clause is for the parties to acknowledge that they are to review the relationship and the negotiations as at the time of the execution of the contract and to accommodate the negotiated terms in the contract. In that process parties are encouraged to make independent inquiries about the reasons for entering into the contract.
In most complex contracts there are significant negotiations prior to the conclusion of the contract that will span a wide range of subject matters such as delivery dates of products, conditions of performance, quality of material and workmanship, suitability of material, utility of the product etc.
Contractual clauses that exclude misrepresentations seek to state that the contract will be the “whole deal “ or the entire agreement and that all representations are made in the contract and if they are not in the contract they have not been made and or cannot be relied on.
Legal practitioners would like to take comfort that in considering the ambit of a contractual dispute they can consider what has been agreed between the parties and deal with the dispute within the four corners of the document.
What then of all that has been said and done prior to the conclusion of the contract, can that be swept away by “agreement “? or an “entire agreement” clause ? Is caveat subscriptor, a good enough basis in which to confine an inquiry in a dispute to the contract itself and the conduct of the parties subsequent to the conclusion of the contract? Is the parole evidence rule an adequate guard against the exclusion of a misrepresentation ?
It is common practice within the commercial industry for parties to rely on information in documents provided by a contracting party prior to entering into contractual arrangements. These documents may be of a wide ranging nature they could be information memoranda, advertisements, letters of intent, tender documents, website information, brochures, newsletters and photographs See Humphries v Newport Quays Stage 2A Pty Ltd (No 2) [2009] FCA 1135. The list of documents is endless and representations are not limited to documents.
The importance of the observation by the court in Humphries lies therein that a contracting party ought to be mindful of the nature and accuracy of the information provided to another contracting party, furthermore this caution applies to information that is not provided to another party ( and should have been).
Attempts to draft clauses aimed at protecting a contracting party from representations made by that party, have been eroded by a number of decisions for different reasons.
This makes it imperative for a legal practitioner to understand in any contractual dispute, the precise facts leading to the conclusion of the contract, before providing advice about the potential liability arising out of pre-contractual representations, or misleading conduct or omissions.
The decisions in Woolworths and Abigroup highlight that misrepresentations during the negotiation or pre-contractual stage can lead to liability under s52 of TPA. Representations can lead to liability where the parties have failed to reach formal agreement and the representations have led to loss by a part relying on those representations.
The Trade Practices Act (s52, 51A, 51AA, 82, 87)
In this paper I will concentrate on what it means to engage in conduct which is misleading and deceptive , section 52 states:
“A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
Defining the prohibited Conduct under the TPA
“Conduct” and “engage in conduct” are defined widely in section 4(2) of the Act:
(2) In this Act:
(a) a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant;
(b) a reference to conduct, when that expression is used as a noun otherwise than as mentioned in paragraph (a), shall be read as a reference to the doing of or the refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant;
(c) a reference to refusing to do an act includes a reference to:
(i) refraining (otherwise than inadvertently) from doing that act; or
(ii) making it known that that act will not be done; and
(d) a reference to a person offering to do an act, or to do an act on a particular condition, includes a reference to the person making it known that the person will accept applications, offers or proposals for the person to do that act or to do that act on that condition, as the case may be.
The words engaging in conduct….. (shall include) refusing to do any act…(such as) giving effect to an understanding, arguably demonstrates the width of the definition. (my emphasis).
The provision is widened by subsection 2(c) which stipulates that refusing to do an act when you otherwise were obliged to (under the act) is a contravention of the section.
To state that plainly if during a negotiations a contracting party is aware or ought to be aware that the other party (with or without the participation of the contracting party) is under a wrong “understanding” the contracting party may be under a duty, under the Act, to rectify that erroneous understanding.
It is also important to understand that a contract does not have to result for the remedy to be available; it can be a contract, arrangement or understanding in the course of which a representation was made.
Section 51A (in the context of consumer transactions ) extends section 52 to apply to a representation or conduct and representations as to a future matter or conduct.
It may be important to determine who made the representations. In certain circumstances courts have limited liability where information has merely been passed on. This has been the case when real estate agents have promoted properties on the basis of information provided to them by their client. However, other cases have held misleading and deceptive conduct by marketing companies in producing promotional material could be misleading and deceptive conduct of the client. In this case the marketing companies were said to be acting as agents of the client.
The words of Mason ACJ, Wilson, Deane and Dawson JJ in Yorke v Lucas (1985) 158 CLR 661 at 666 ; 61 ALR 307 at 309 confirm that a corporation could contravenes 52 even though it acted honestly and reasonably, and provide guidance as to the avoidance of liability in circumstances where a party is acting as a conduit:
“If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”
Freedom of Contract.
The principles of freedom of contract are severely constrained by the TPA. Having said that freedom of contract is a concept that has been under siege since the principle was clearly enunciated in 1902 when a New York baker, Joseph Lochner was fined for violating a state law limiting the number of hours his employees could work. He sued the State on the grounds that he was denied his right to “due process”. Lochner claimed that he had the right to freely contract with his employees and that the State had unfairly interfered with that right.
In 1905 the Supreme Court used the “due process” clause in the 14th Amendment to declare unconstitutional the New York State statute imposing a limit on hours of work. Justice Peckham held that “ the right to purchase or to sell labor is part of the liberty protected by this amendment…”
Dissenting, Oliver Wendell Holmes did not accept that a contract could be concluded entirely free of other constraints that are subscribed to by a fair society and that economic progress ought not to be considered as a principle factor in determining the validity of contractual provisions. At the heart of this argument lay the US Constitution.
The doctrine holds that parties capable of entering into a contract and giving their consent to its terms ought not to be curbed by the state, save to protect the health, welfare, and morals of the community or to prevent criminal activities.
Eventually the freedom of contract principle suffered major setbacks when it was perceived to foster unfair labour practices. The issue that arises is when can and when ought a court interfere with a bargain between parties.
Economically a capitalist society cannot exist if their bargains are to be closely supervised by the State. It is understandable that in cases of strong moral objection, the provisions of a contract may be the subject of relief by a court, we have seen this in the provisions that relate to unconscionable conduct. But the threshold of that reasoning is amorphous, the boundary not at all clear as to when is a court interfering with a reasonable economic bargain (or even a bad bargain by a consenting party) and when is it protecting the community against unreasonable exploitation. LOCHNER v . PEOPLE OF STATE OF NEW YORK, 198 U.S. 45 (1905). 198 U.S. 45.
In the Abigroup cases (discussed below) despite strong risk allocation clauses and exclusionary clauses for pre-contractual representations in the contract, it was held that a party can still be liable for pre-contractual misrepresentations under the TPA.
Section 52 stipulates that the conduct complained of must be either misleading or deceptive, or likely to mislead or deceive. This becomes a factual question as to whether the conduct is misleading or deceptive if it induces or is capable of inducing error. This element requires a real or not remote chance or possibility of misleading or deceiving.
“ [T]he evident purpose and policy underlying Pt V, which includes s 52, recommends a broad construction of its constituent provisions, the legislation being of a remedial character so that it should be construed so as to give the fullest relief which the fair meaning of its language will allow.”
Abigroup (“Abi”) v The Sydney Catchment Authority (“SCA”)
Abigroup v The Sydney Catchment Authority is not a case, it is a series of cases demonstrating amongst others the frailty of referrals under the UCPR ( the old part 72). The cases commenced from a judicial reporting perspective in 2003 when the parties were represented by Chris Gee SC and Frank Corsaro QC acting for Abi and Donaldson SC acting for SWCA. A brief resume of facts
Abi was the successful tenderer in a bid to construct a spillway at the Warragamba dam about 65 kilometers from Sydney. Rainfall and flood event studies showed that the dam could experience floods much larger than originally estimated, the height of the dam wall was increased by five meters as the first step in a two-stage solution to make the dam meet international dam safety standards. Work took place between 1987 and 1989 as the dam wall was raised and strengthened using post-tensioned steel cables, tying the upper portion of the wall to its base. In late 1998, work began on stage two of the dam safety program, involving the construction of an auxiliary spillway located on the east bank of the dam. Construction of the auxiliary spillway was completed in June 2002. During rare and extreme floods, the auxiliary spillway would allow floodwaters to pass safely around the dam, reducing the pressure on the dam wall. This would protect the areas downstream of the dam from the devastating effects of a dambreak, and will safeguard Sydney’s water supply. The matter was of some urgency.
The dam was constructed between 1948 and 1960 and by the time a spillway was decided on there were hundreds of thousands of documents that had been collected since 1948 relating the dam construction and design. The SCA issued a tender invitation with specific terms they were;
(a) That the contract had to be priced as a lump sum contract;
(b) That the information issued may not be accurate;
(c) That they did not want contractors “swarming” over the site to establish site
conditions;
(d) That they did not have any further information in relation to the spillway
embankment;
(e) That the tenderer was required to respond in a very short period effectively
excluding opportunities for site tests and extensive due diligence.
Abi won the tender and built the spillway. In the process they were required to excavate much deeper than initially anticipated and to remove far more soil at a cost of $7m dollars more than the tender price.
It is common ground that contrary to a representation SCA did have in its planning a room a document which was a cross section (“cross section”) of the embankment built in 1951 which showed levels of the rock bed.
The salient issue was whether Defendant’s conduct in not disclosing the cross section was misleading and/or deceptive. The referee held that it was not misleading and held that Abi did not establish causation for damages because it did not prove that it would have conducted the matter differently had the cross section been made available. A notice of motion was brought by Abi not to adopt the referees report in those respects.
Summary of Judicial Decisions
Nicholas J adopted the report in part rejecting the referee’s finding that there had been no misleading and deceptive conduct and no reliance on that conduct by Abigroup. The matter went on appeal in 2004 for the first time and came before Beazley JA Ipp JA and Tobias JA. The Judges on appeal found that Nicholas J had erred in that he did not separately consider the referee’s erroneous interpretation of the representation in question and that constituted an appeal able error which, without more, required that the issue be remitted for re-determination.
In 2005 the matter came before Mc Dougal J. Now David Jackson QC appeared with Simon Kerr for Abi. Donaldson SC’s junior Dempsey SC had taken silk. The issue to be determined was essentially the same namely whether the SCA had misled Abi by failing to disclose certain information in its possession.
McDougal J held that failure to disclose the cross section was misleading and deceptive conduct and that the plaintiff had relied on that lack of proper disclosure and suffered loss.
In 2006 the matter was once again before the NSWCA. This time SCA was represented by Bathurst QC and Dempsey SC. The court of appeal fundamentally found that McDougal J was correct but adopted a different reasoning allowing the appeal.
The test for being misleading and deceptive was considered by Beazley JA :
(a) To apply the ‘but for’ test of causation would excise the contravening conduct from consideration in an impermissible way. Smith v Noss [2006] NSWCA 37; Smith v Moloney (2005) 92 SASR 498
(b) What had to be determined was what was necessary for the conduct of the respondent not to be misleading. That determination did not require a hypothetical analysis of the most probable representation that the representor would have made, and his Honour erred in undertaking this analysis.
(c) For the conduct of the respondent not to be misleading, the existence of the plan should have been disclosed.
In 2007 the matter was referred to Mc Dougal J in the NSWSC for the assessment of damages. Finally the matter had its last hurrah in an application for special leave to the High Court which was refused.
Abi was successful with their tender proposal and entered into a contract with SCA , under which it was agreed that Abi accepted the risk of any work that was required that was not included in the contract.
The false negative statement (that there was no plan in relation to the cross section of the embankment and outlet pipe) was misleading or deceptive in the context of section 52 and section 4 of the Act.
It was submitted by SCA that the correct test to apply in determining causation with respect to section 82 was to consider but for the false statement what would have Abi done. It was submitted by SCA that Abi would have proceeded, as they had done, on the basis of the information in the tender documents and not have conducted a further geological investigation of the site.
“As Gleeson CJ said in Tambree the question of causation is to be found in the “purpose of the statute” as “related to the circumstances of the particular of the case”… The purpose of the statute, inter alia, is to provide relief for persons who suffered loss by contravening conduct.”
The NSWCA number 3 Beazley JA found that the “but for” test did not apply rather that the inquiry should be what should have happened for the conduct not to be misleading, an entirely different test. The court further found SCA would have needed to reveal the plan to Abi and rejected as speculation the hypothetical approach taken at trial namely to ask what would the most probable consequence have been but for the pre-contractual misrepresentation.
The reasoning adopted by NSWCA ( Number 3) was as stated in Smith v Noss [2006] NSWCA 37. In that case Beazley JA rejected Gzell J’s view that there needed to be specific evidence of reliance on the misrepresentation or in the case of a failure to disclose, that the party to whom disclosure should have been made should have to prove that they would have acted differently. In Smith’s case it was held in accordance with a long line of authorities, commencing a decision of Jessel MR in Redgrove v Hurd in 1884, that where a pre-contractual misrepresentation or a misleading omission had been established a court may consider on a common sense basis that the omission was likely lead to the plaintiff acting differently may be sufficient to prove causation. The court relied on what Wilson J said in Gould v Vaggelas (1985) 157 CLR 215 at 238 –
“Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract.”
In Smith there was direct evidence that the plaintiff did rely on the pre-contractual misrepresentations. The NSWCA in number 3 correctly rejected Gzell J’s approach of requiring evidence of the plaintiff’s reasoning process as to why she entered into the partnership. However it was also held in Gould’s case that it is open to the defendant to obstruct the drawing of that inference of fact by showing that there were other relevant circumstances. Examples commonly given of such circumstances are that the plaintiff actually knew the true facts or that the plaintiff either by his words or conduct disavowed any reliance on the pre-contractual misrepresentations. It is permissible to speak of an onus resting on a defendant to draw attention to the presence of circumstances to show that the inference of the fact of inducement is for reasons other than the alleged misrepresentation. It is no more than an evidentiary onus — an obligation to point to the existence of circumstances which tend to rebut the inference which would ordinarily be drawn from the primary facts.
When all the facts have been adduced the fact-finding tribunal must determine whether or not it is satisfied on the balance of probabilities that the pre-contractual misrepresentations in question contributed to the plaintiff’s entry into the contract.
In my view one such circumstance may be that a plaintiff had accepted as a term of an invitation to tender that information to be provided was unreliable, including the statement that no further plans were available and that the tenderer should include in its price an appropriate risk amount.
If what has just been considered in the above paragraph is correct then perhaps to exclude the “but for” test in favour of the “what must be done for the conduct not to be misleading” test is to compare notions of liability with notions of causation. There is an onus on the plaintiff to show that the pre-contractual representation is misleading and deceptive. There is a separate onus to show that (in the case of a negative) the plaintiff would have acted differently albeit that the onus is assisted by an inference which could shift the evidentiary burden.
Within a construction context the inference that the plaintiff would have acted differently is perhaps not justified. It was open to the plaintiff at the tender stage to;
(a) decide not to tender under the conditions;
(b) price the risk based on lack of information;
(c) include a non conforming tender identifying the risk;
(d) consider building strategies that would not be dependant on the risk;
Further it was probable that Abi knew that they were bound by terms of the invitation to tender and that they at least ought to have known that information may not be true or may be misleading, which according to Gould’s case ( applying the “but for “ test) may have been a successful assault on Abi establishing causation.
SCA submitted further that because Abigroup had not shown damage under the contract as a whole it could not succeed with its claim under Section 82. Beazley JA (Number 3) disagreed and relied on the judgments in Murphy v Overton and Henville v Walker that emphasized the flexibility of relief under Section 82 and 87. McHugh J in Henville considered the most appropriate measure for assessment of damages was to identify what the claimant had “suffered by way of prejudice or disadvantage” The prejudice or disadvantage suffered by Abi as a result of the pre-contractual misrepresentation by SCA was the extra costs incurred in relation to the additional excavation that were not factored into their costing estimates.
The contract risk condition that required Abi to accept all additional costs in relation to the contract did not aid SCA to avoid liability. The Court effectively found that Abi had not agreed to bear all risks under the contract in the face of the lack of disclosure of the cross section.
Discussion
The invitation to tender was in itself an agreement with fixed terms upon which the invitees (all of them) agreed to tender on the same basis. There were good reasons for SWCA framing the tender in the manner that they did. The building of the spillway was an urgent matter. There were 50 years of documents and to permit all the tenderers an opportunity to inspect 50 years of documents would result in significant disruption and delay. Similarly to permit tenderers to conduct physical tests would have a disruptive effect.
There can be no doubt that in such circumstances the quality of the information provided becomes even more important. Any assistance in these circumstances will help the contractor tender an accurate price however it’s not the courts function to guard against a bad bargain.
Once Abi had accepted the conditions of tender it had effectively entered into an agreement with the principal that it would accept the conditions of tender and would be bound by them, it would then be breach of that agreement to later complain that it was misled. Potentially at least a breach that would sound in damages.
It was common ground that had Abi been aware of the document they would have estimated differently. That may not be the test. They could have and should have priced the risk or adopted the measures referred above. The loss was perhaps not incurred as a result of the omitted document but rather as a result of the failure to properly price the risk or consider alternative building strategies, an approach which all the respective judges might have adopted had they sought to protect the freedom of contract principle.
How does this restraint of freedom of contract principle affect contracting parties?
The consequence is that the court in this case has permitted Abi a special benefit and placed it in a position different to that of the other tenderers who were not given the “missing document” and who may have priced the risk thereby excluding themselves from the successful tender. At the same time the courts have destroyed the fair basis of the tender ie that all will tender under the same conditions.
At least notionally the approach suggests that there is no remedy for an inaccurate statement under the TPA, it invites the court to re-write the contract in the most fundamental way. Perhaps an appropriate remedy for a defendant might be to seek an indemnity under the contract. This would not be considered as “contracting out” of the TPA but merely shifting the economic consequences of a bargain.
For the legal practitioner shifting the risk in a clause which may be exposed to pre-contractual representations exposes the contracting party to risk not being shifted and an adjustment being made to the contract clauses by a court.
It is of particular moment however that in so doing a principal should diligently make available relevant information for the pricing exercise. It does not assist the principal to attempt to avoid this duty by simply stating that it cannot vouch for the information. The failure to disclose information which is relevant is different from disclosing information which is inaccurate and then saying that information should not be relied on because it is a product of an agent or an untested process. That onus is a major inroad to the manner in which people conduct business, it is not usual for a seller of a product to extol adverse or even neutral information about a product, products are purchased for what they can do, not what they can’t do, the same is true of services.
Providing information on property to be sold or representing the accuracy of an audit for the purposes of acquisition, determining in any format the scope of the work for pricing, are the kinds of factors that a contracting party is likely to take into account in making a decision to contract or determining the terms of the contract. It becomes an almost impossible task if every factor relevant to a contract, sale or engagement is potentially “omitted” information that can give rise to a claim under the TPA.
E K Nominees Pty Ltd v Woolworths Ltd
E K Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 (16 November 2006) concerned pre-contractual discussions between a property owner (E.K Nominees) and Woolworths regarding the prospective leasing of the property for the purposes of a Woolworths supermarket.
On 18 July 2001, following negotiations over a number of years, Woolworths wrote to E.K Nominees advising that the submission for the new supermarket in Auburn had been approved subject to the agreement to lease and lease (at 28). In September 2001, Woolworths became concerned as to the time being taken to gain planning approval for the development of the site. Nonetheless, Woolworths provided a further letter, on 13 November 2001 stating that they were committed to establishing a store in Auburn and would support the development application.
The letter went on to reiterate that Woolworths were concerned about the delay in approval process, and the matter was not resolved they would commence investigations into opportunities outside Auburn.
The development proposal was approved in December 2001, and Woolworths solicitors forwarded a draft agreement for lease and lease to E.K Nominees solicitors. Development planning and reporting on the site continued, as did negotiations with respect to the lease agreement. Excavation was scheduled to commence on 6 May 2002.
On 10 January 2002, Markham Corporation contacted Woolworths in relation to the potential lease of their site nearby. This led to discussions between the parties and an investigation into the potential profitability of the different Markham and E K Nominees sites. On 29 January 2002, Woolworths wrote to Markham Corporation formally expressing an interest in securing a lease at the Markham Corporation site. This led on 7 May 2002, to the Woolworth Property Committee resolving to approve establishing a supermarket at the Markham site.
On 6 May 2002, following a conversation with a subcontractor, E.K Nominees inadvertently became aware that Woolworths might be considering an alternate site. Woolworths then informed E.K Nominees that it was making a decision as to whether to proceed with one or two supermarkets in the Auburn area, and in the event that it decided to proceed with only one supermarket it would prefer the Markham site. On 4 June 2002, the Woolworth Property Committee resolved not to proceed with the development at the E.K Nominees site, however they did not inform E.K Nominees until shortly before 20 June 2002.
E.K Nominees sought to recover expenses incurred by it from 18 July 2001 on the basis that Woolworths made two representations that were misleading and deceptive. First, it was argued, the letter of 18 July 2001 represented that Woolworths intended to enter into a lease agreement and that this representation continued, despite Woolworths not having this intention from 10 January 2002. The second representation argued was that Woolworths through conduct and its silence impliedly represented that there had been no material change in the likelihood of Woolworths entering a lease agreement with E.K Nominees.
State of mind is not an element of Section 52, however the court considered the state of mind of Woolworths in this case to be relevant because there was a need to establish the “state of mind” to establish whether the alleged misrepresentation had occurred.
Representations made by Mr Hunt (Woolworths agent) were imputed to Woolworths through s84(1) of the Act, which states where state of mind is relevant to a proceeding it is sufficient to establish a director, servant or agent of body corporate by whom the conduct was engaged in within the scope of the person’s actual or apparent authority, had that state of mind. However, it was found that Mr Hunt did not have the authority or the intention, as distinct from an expectation, to enter into a lease agreement with E K Nominees. Disclosure of information v commercial strategy
In relation to the second representation Woolworths submitted that full disclosure was not required in commercial transactions, and that such an expectation was unreasonable. The court agreed with this principle provided negotiations are conducted at arms length, even if the information might cause the other party to alter its bargaining stance. It differentiated these facts from an arms length commercial negotiation because E.K Nominees was incurring significant expense at the knowledge and encouragement of Woolworths. Woolworths negotiations with the third party (Markham Corporation) were in confidence, however the court (at 155) found that Woolworths did not have to accede to the request for the communications to be confidential, and further that it could not keep its dealings with Markham Corporation confidential at the expense of misleading E.K Nominees.
The court considered through conduct and silence Woolworths impliedly represented that there had been no material change in the likelihood of Woolworths entering a lease agreement with E.K Nominees, and this was misleading or deceptive within the meaning of Section 52 of the Act. Causation – the “other factors”
Woolworths submitted that any damage sustained by E K Nominees was not causally linked to Woolworth’s conduct and that E K Nominees should have known that in proceeding with works, etc prior to any formal agreement that it was risking that the agreement would not eventuate. Following the analogous contractual principle in The Commonwealth v Amann Aviation Pty Lt [1991] HCA 54; (1991)174(1991)174 CLR 64 the onus was on Woolworths to demonstrate that the expenditure would not have been recouped despite the conduct. The court favoured the evidence of E K Nominees that had it been provided with communications between Woolworths and Markham Corporation on 29 January 2002 it would have stopped work.
Woolworths further submitted that E K Nominees derived benefit from certain expenses in relation to the development, again this was difficult for Woolworths to demonstrate. Woolworths was held liable for the expenses occurred by E K Nominees from 29 January 2002.
This case demonstrates that a contract is not essential to establish a cause of action under the TPA, an arrangement or understanding will under section 4 be sufficient on which to base the cause of action.
The question may well be asked if the state of mind is in some instances relevant to establish the existence of a misrepresentation could it perhaps not be relevant to establish reliance? And is this not what Gzell J had in mind in Smith and Noss ?
Reading these cases together it would seem that principally
(a) all the evidence on reliance should weighed up in deciding whether the misrepresentation or omission was relied on;- this does not necessarily exclude the “but for” test as suggested in Abi in the NSWCA( 2006) ( number3)
(b) A court can from the facts establish causation based on whether the party was likely to act differently had the misrepresentation not been made;
(c) A defendant can disprove reliance by proving factors that would indicate that the plaintiff was aware of the true situation, the misrepresentation was discounted or ought to have been discounted or some other relevant factor.