' nove 4Q BS CATCHWORDS PRACTICE AND PROCEDURE - Federal Court - Interest pursuant to s. 351A of the Federal Court of Australia Act 1978. TRADE PRACTICES - Section 52 of Trade Practices Act 1974 - "Misleading and deceptive conduct in connection with sale of restaurant business ~ ~~ Circumstances in which silence may constitute misleading conduct under s. 52 - Whether applicant had constructive notice of matters which solicitors acting for the applicant would have discovered if proper enquiries had been made - Construction of special conditions in contract for sale of business - Operation of exclusion clauses as a defence to an action under s. 52 - Circumstances in which order for restitution 1S appropriate - Exercise of Court's discretion under s. 87 of Trade Practices Act - adequacy of damages as remedy. . Federal Court of Australia Act, 1978: s. SIA Trade Practices Act, 1974: ss. 52, 75B and 87 HENJO INVESTMENTS PTY. LIMITED, HENRY SAADE, SAADE DEVELOPMENTS PTY. LIMITED v. COLLINS MARRICKVILLE PTY. LIMITED G 550 of 1987 COURT: LOCKHART, BURCHETT and FOSTER JJ. 26 FEBRUARY 1988 SYDNEY on IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G550 of 1987 ) GENERAL DIVISION ) BETWEEN: HENJO INVESTMENTS PTY. LIMITED First Appellant HENRY SAADE Second Appellant SAADE DEVELOPMENTS PTY. LIMITED Third Appellant AND: COLLINS MARRICKVILLE PTY. JUDGES MAKING ORDER: DATE ORDER MADE: WHERE ORDER MADE: MINUTE THE COURT ORDERS THAT: l. The appeal be allowed LIMITED Respondent LOCKHART, BURCHETT and FOSTER JJ. 26 FEBRUARY 1988 SYDNEY OF ORDERS in so far as it relates to the questions of relief and costs; 2. Orders 1 to 7 inclusive made by the trial Judge on 20 October 1987 be set aside; 4.{a) (b) (c) The matter be remitted to the trial Judge to determine the loss or damage suffered by the respondent by conduct of the first appellant or the second appellant that was done in contravention of s. 52 of the Trade Practices Act; Until the determination of the loss or damage mentioned in Order 3 above or further order of a single Judge of this Court each of the first appellant and the third appellant by itself, its servants and agents and the second appellant be restrained from taking any action to recover any payments due under, or otherwise to enforce the rights granted by, the mortgage dated 1 May 1985 from the respondent to the first appellant, a copy of which is annexure "A" to the affidavit of Ian Francis Dwyer sworn 16 April 1987 and filed herein; Liberty to apply to a single Judge of this Court be granted to any party in respect of this order on 48 hours' notice; This order be discharged unless within seven days from to-day the respondent gives to a single Judge of this Court the usual undertaking as to damage; Otherwise the appeal be dismissed; The cross-appeal be allowed in so far as the sum for which judgment was entered did not include any amount of interest pursuant to s. S51A of the Federal Court of Australia Act 1976; but otherwise the cross-appeal be dismissed; 7. The first appellant and the second appellant pay two-thirds of the costs of the respondent of the proceedings at first instance, and one-half of its costs of the appeal and cross-appeal and that otherwise there be no order as to costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. 1 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G550 of 1987 ) GENERAL DIVISION ) BETWEEN: HENJO INVESTMENTS PTY. LIMITED First Appellant HENRY SAADE Second Appellant SAADE DEVELOPMENTS PTY. LIMITED Third Appellant AND: COLLINS MARRICKVILLE PTY. LIMITED Respondent CORAM: LOCKHART, BURCHETT and FOSTER JJ. DATE: 26 FEBRUARY 1988 REASONS FOR JUDGMENT LOCKHART J. Facts This case, which arises under s. 52 of the Trade Practices Act 1974 ("the Act"), is concerned with whether certain conduct of the vendor of a restaurant in Double Bay, Sydney, known as "The New York Deli", was misleading or deceptive. Questions of damages and relief under s. 87 of the Act also arise. The restaurant business was formerly owned by the first appellant, Henjo Investments Pty. Limited ("Henjo"). The restaurant opened for business on 1 June, 1984 following receipt of the necessary 2. approvals from the Woollahra Municipal Council ("the Council"). Before the approvals were granted the Council considered a development application lodged by Mr. Henry Saade, the second appellant, who is one of the directors of and controls Henjo. On 5 April 1984 the Council resolved to limit the seating at the restaurant to 84 people and on 31 May 1984 it granted a Refreshment Room Licence to Mr. Saade, on behalf of Henjo for 84 people. All relevant applicaticns to the Council for approvals were made by Mr. Saade on hehalf of Henjo. Henjo was the lessee of the premises in which the restaurant was conducted. On 6 July 1984 Norman Peter George, who was originally a respondent to the proceedings in this Court, applied to the Licensing Court of New South Wales for the grant to him of an "On-Licence (Restaurant)" in respect of the premises. Mr. George was the manager of the restaurant. Mr. Saade authorised Mr. George to make the application. The application referred to a maximum seating capacity of 84 persons to be seated at 26 tables. Notice of the application was served upon the Council which offered no objection. On 17 August 1984 the Licensing Court granted the licence. The pian of the premises submitted to the Licensing Court shows a "Service Bar" in the restaurant open on two sides. On one side the plan bears a notation "Service area for waiters for alconolic and non-alcoholic beverages". The other open side depicts a passageway linking two of the dining areas in the restaurant, the passageway being endorsed on the plan "Garden walk passageway". The plan shows this passageway as being lined on each side with pots containing shrubs. The pots on the side of the passageway abutting 3. the bar are depicted as being placed so close together and near the bar as to inhibit or prevent access to the bar from the passageway. The plan shows the location of 84 chairs placed at 26 separate tables. It appears that the plan was submitted in this form because of the provisions of the Liquor Act 1982 (New South Wales) and the stipulations of the licensing authorities which together in effect require that liquor be served in restaurants only in the dining areas where there are tables and chairs and in what is called a "Reception Area", namely, a place where people are seated and may be served drinks whilst waiting to be shown to their tables and where food 1s not served. It 1s the policy of the licensing authorities that reception areas shall not be sited so as to be available to persons immediately upon entering the restaurant, the purpose being to discourage people from using the facilities of the reception area as merely a drinking place when they do not intend to eat food at the restaurant. The plan made no provision for bar stools in the service bar area; but in October or November 1984 eight bar stools were in fact installed there where they remained until June 1985. They were present during the period of negotiations for the sale of the restaurant to the respondent, Collins Marrickville Pty. Limited ("Collins Marrickville"). Liquor was sold to patrons seated on or standing near the stools and to other people present at the bar who had formed the habit of regularly spending the evening, particularly Friday evenings, drinking at the bar and not necessarily dining at the restaurant. This practice continued at least until the time of sale. Moreover, shrubs were never placed in the passageway notwithstanding the undication in the plan to the contrary. Soon after the restaurant opened, 120 chairs were placed in the restaurant arranged at 39 separate tables. This added about one-third of the numbers of chairs and tables permitted by the Woollahra Council and the Licensing Court. Indeed, at the conclusion of the hearing before the learned trial Judge (the present position is not known) the restaurant continued to carry on business with 120 seats and 39 tables. Early in 1985 Mr. Saade decided to sell the restaurant. On 21 February 1985 he telephoned Mr. H.P. Le May, a licensed business agent and the principal of H.P. Le May & Associates Pty. Limited. On the following morning Mr. Le May went to the restaurant and met Mr. Saade. Upon his arrival Mr. Le May noticed on the front window a sign "Pully Licensed". He had a conversation with Mr. Saade who showed him round the premises. Mr. Le May filled out a card headed "Instructions to Sell Business". On its face the card contains details of the retainer of Mr. Le May's company together with certain particulars of the restaurant's trading operations. The card is dated 22 February 1985 and was signed by Mr. Saade as a director of Henjo. On the reverse side further particulars appear including the words: "Seats 128 Licensed". Although the reverse side of the card is not signed by Mr. Saade his Honour accepted the evidence of Mr. Le May, and rejected Mr. Saade's evidence to the contrary, that those words and figures were written by Mr. Le May in Mr. Saade's presence before the card was signed and that Mr. Saade gave Mr. Le May the figure of 128 seats. Mr. Saade did not say to Mr. Le May that the restaurant was licensed but Mr. Le May ui assumed this to be so due to the sign on the front window of the restaurant saying that 1t was "Fully Licensed". Mr. Le May advertised the business for sale, including olacing an advertisement in the Sydney Morning Herald newspaper on 2 March 1985. Two days later Mr. Neil James, a chartered accountant, telephoned Mr. Le May and enquired about the restaurant. Mr. Le Vay told Mr. James that the business was "a licensed coffee lounge - restaurant with about 120 seats known as the New York Deli". On 6 March 1985 Mr. Le May took Mr. James to inspect the restaurant. In the meantime certain financial information about the restaurant which Mr. James had requested was supplied to him. Mr. John Collins, who is a director of Collins Marrickville, had instructed Mr. James to enquire about the business following the publication of the advertisement. Both Mr. James and Mr. Collins went to Mr. Le May's office where he showed them the instruction card with the reference to 128 seats. The three men then went to the restaurant where they met Mr. Saade. Mr. Le May said that the restaurant was licensed. Mr. James and Mr. Collins do not assert that Mr. Le May said anything further about the number of seats, but they did observe that the restaurant was set with 39 tables and 128 chairs and that there were eight stools at the bar. It is not suggested that Mr. Le May acted with any impropriety in the matter. Mr. Collins asked Mr. James to obtain certain further financial information about the restaurant and Collins Marrickville retained a solicitor, Mr. R.A. Tadd. Mr. Collins gave Mr. Tadd written instructions which included "confirm all council by-laws etc. are complied with" and "check and spell out clearly the type of liquor licence and make sure restaurant is complying and that our purposes (in future) will apply". Mr. Tadd made no enquiries of either the Council or the Licensing Court with the result that he did not discover either the limitation in seating capacity or the fact that the plans submitted toa the Licensing Court and to the Woollahra Council precluded customers having access to the bar. Collins Marrickville agreed to buy the restaurant business and on 2 April 1985 it entered into a written contract of purchase with Henjo. The primary Judge found that Mr. Tadd allowed Collins Marrickville to enter into the contract of purchase in ignorance of the fact that the restaurant was being operated in a manner substantially different from that permitted by law. The contract between Collins Marrickville and Henjo provided for the payment of a total purchase price of $500,000 apportioned between "goodwill", "plant, fittings and chattels" and "fixtures". "Stock-in-trade" was to be paid for at valuation. Two special conditions are relevant, namely, 6 and 7, and they read as follows: "6. The purchaser acknowledges that 1t accepts the premises in their present condition and state of repair, subject to any infestation = and dilapidation and as a result of its owm inspection of the premises. In entering into this Agreement the purchaser acknowledges that it has not relied on any statement, representation or warranty by or on behalf of the vendor whether express or implied as to: (a) the premises; (b) the neighbourhood in which the premises are situated and adjoining properties; (c) the suitability for any use or purpose of the premises or any improvements erected thereon; 7. (d) the rights and privileges (1f any) pertaining to the premises; (e) any matter having or which might have an effect beneficial or otherwise on the premises. The purchaser acknowledges that the only statements, representations and warranties on behalf of the vendor are such as are expressly set out in this agreement. 7. Notwithstanding and without limiting the provisions of any other clause or_ special condition of this agreement the parties hereto agree that the agreement constitutes the whole of any promises, representations, warranties and undertakings and also the whole of the conditions of the sale. The parties hereto further agree that no promise, representations, warranties, undertakings or conditions shall be deemed to be implied herein or to arise between the parties hereto by way of collateral or other agreement or by reason of any promise, representation, warranty or undertaking given or made by any party thereto to the other on or prior to the making of this agreement. The existance of any such implication or collateral or other agreement is hereby expressly negatived." Special Condition 1 of the contract gave to Collins Marrickville as purchaser a right to rescind the contract if, during the period from 4 April 1985 to 1 May 1985 inclusive, the average gross weekly takings of the business should be less than $21,000.00. During that four week period, with the consent of Henjo as vendor, Collins Marrickville stationed people in the restaurant to observe its method of operation and in particular to verify the takings. Four observers were engaged during this period and their evidence established to the satisfaction of the trial Judge that, during the period of observation, liquor was served at all 39 tables at which 120 or 121 chairs were provided and that patrons consumed liquor while seated at the bar stools. 8. During the four week trial period an application was prepared for transfer of the liquor licence from Mr. George to Mr. Michael Matthews, the manager whom Collins Marrickville proposed to employ after completion of the purchase. The application was signed by Mr. George on 15 April 1985 and filed at the Licensing Court by the solicitors for Henjo two days later. On the intervening day (16 April) Mr. George, on the instructions of Mr. Saade, filed at the Licensing Court another application which sought the approval of that Court to the use of the bar as a reception area including tne use of the bar stools. The trial Judge found that the purpose of this application was to legitimise what had been going on ever since the licence issued. Both that application and the transfer application were set down for hearing on 17 May 1985. They have since been adjourned on many occasions with no substantive orders having been made in respect of either application. The application to amend the licence to include the bar stools in the reception area was made without any notice being given to Collins Marrickville or anyone on its behalf and without its knowledge. [It is difficult to resist the conclusion that this surreptitious application was made on Mr. Saade's instructions because he knew that there had been no disclosure to the purchaser of the licence restrictions and the lack of conformity between the terms of the License and the existence of 39 tables and 128 chairs including the eight bar stools. In the meantime the purchase had been completed on 1 May 1985 and a stocktake had taken place. Collins Marrickville went into possession and Mr. Matthews was appointed manager of the restaurant; but to this day the licence remains in the name of Mr. George as Collins Marrickville has not yet actively pursued the application for 9. transfer. Mr. George continued to work at the restaurant for two weeks after completion and during this period he took Mr. Matthews to meet the licensing police at Waverley Police Station. The first return date for the application for the transfer of the Licence and for its amendment was 17 May. It appears from the evidence of Mr. Collins that he learnt the true position about the bar and bar stools only after the hearing of 17 May, being informed of that position by Mr. Matthews who had attended the hearing on behalf of Collins Marrickville. On 13 June 1985 Messrs. Laurence & Laurence, the solicitors then acting for Collins Marrickville, wrote to the solicitors for Henjo (Messrs. Swaab & Associates) notifying them of an inspection of the premises in the presence of a Magistrate from the Licensing Court which was to take place on 14 June 1985 and inviting a representative of Henjo to attend. On 14 June the bar stools were removed following a direction from the licensing police. Correspondence was exchanged between the solicitors for the parties culminating in the commencement of these proceedings on 5 August 1985. Directions were given from time to time. The matter came on for hearing in March 1986 before a single Judge of this Court; but was adjourned after the commencement of the hearing on the application of Collins Marrickville because 1t was thought that the matter might be resolved by persuading Woollahra Council and the Licensing Court to relax the relevant restrictions. Those attempts were unsuccessful and the matter was relisted before another Judge of this Court (Wilcox J.) for hearing. The trial proceeded on the issue of liability only at that stage. 10. Findings and Orders of the Trial Judge On 16 April 1987 his Honour found that Henjo had engaged in misleading conduct. For convenience, I shall deal later with the specific findings challenged on appeal. His Honour also found that Collins Marrickville was entitled to succeed against Mr. Saade on the ground that he was a person involved in Henjo's contravention of s. 52. His Honour found that Mr. Saade was in fact aware of the true position with respect to the restrictions imposed by the Council and the Licencing Court and that, notwithstanding this knowledge, Mr. Saade gave Mr. Le May the misleading information about' the restaurant's seating capacity. His Honour held that Mr. George, who was then the third respondent, had not been shown to be knowingly concerned in Henjo's breach of s. 52. Hence, his Honour dismissed the claim as against Mr. George. Mr. George therefore is not a party to this appeal. His Honour dealt with a cross claim by Henjo against Collins Marrickville in the sum of $5,960 for the value of certain drink coasters and boxes of matches taken over on settlement by Collins Marrickville. His Honour held that the value of those coasters and matches was recoverable on the basis that they represented stock-in-trade as distinct from plant, fittings or chattels. There was no challenge made on appeal to those findings. His Honour made no final orders at that stage, but gave directions to ensure an early trial of the outstanding question of relief. After giving judgment on 16 April 1987 and before embarking ll. on the further trial with respect to damages, on the application of Collins Marrickville, Saade Developments Pty. Limited ("Saade Developments") was added by his Honour as a fourth respondent to the case and 1s the third appellant. This course was taken because Henjo had assigned to Saade Developments a mortgage which it had taken from Collins Marrickville to secure payment of $200,000 being the balance of purchase price left outstanding on the purchase. A payment under the mortgage was about to fall due and Collins Marrickville was concerned that, unless restrained by the Court, Saade Developments would seek to enforce its rights under the mortgage. On 29 April 1987, upon Collins Marrickville giving to the Court the usual undertaking as to damages, the trial Judge ordered that, pending further order, Henjo, Saade Developments and Mr. Saade be restrained from taking any action to recover any payments due under, or otherwise to enforce the rights granted by, the mortgage. His Honour later resumed the trial on the issue of relief and gave judgment on 20 October 1987. He found that the material before him did not enable him to make any precise findings as to the effect of the removal of the bar stools. It was clear that under the management of Collins Marrickville the business had fared badly, out it was unduly simple to attribute the whole of its problems to the removal of the bar stools. Other changes occurred about that time, some of which His Honour thought were more significant than the removal of the stools. These changes included three key personnel leaving the restaurant immediately after the transfer of ownership on 1 May 1985, namely, the manager (Mr. George), the assistant manager and the chef, Some changes were made in the method of operation of the restaurant. In particular, waiter service from the food bars was 12. offered and the layout of some of the fixtures was altered. r14 September 1985 the chef who took over in May 1985 left the restaurant. Extra staff were employed by Collins Marrickville, thus increasing expenses. Also, 1t appears from the evidence before the trial Judge that the food presentation and displays were not as appealing as they had been prior to the sale of the business. His Honour found that the removal of the bar stools did have an adverse effect upon takings and profitability, but that the effect was relatively minor. He found that most of the losses of which Collins Marrickville complained were caused by factors which were not directly attributable to the misrepresentations as to seating capacity. Doing the best he could on the very sparse material before him, his Honour assessed the contribution of the loss of the har stools as being ten percent of the total losses of the business. His Honour said that the effect of the restrictions as to seating capacity at the bar stools on the value of the business depended first upon what assumptions were made as to the prospect of removing those restrictions. He rejected evidence from a solicitor with considerable experience in licensing matters that 1t would be possible to obtain the permission of the Licensing Court to use the garden passageway as a reception area containing eight bar stools and two lounge tables with chairs provided some physical barriers, such as planter boxes or ropes, were erected to separate the passageway from the dining areas. The solicitor said that if an application was lodged to vary the conditions of the licence so as to increase the permitted seating to 121 persons it was likely that the application would be granted and that the Council, upon learning of the Licensing 13. Court's approval, would alter the conditions of uts development approval so as to permit the seating of 121 persons in the restaurant. His Honour regarded this assessment of the position as too optimistic. His Honour found that 1f Collins Marrickville offered the business for sale it would have to do so upon the basis that the business was subject to the limitations imposed by the Council and by the Licensing Court and that those limitations would be likely to remain 19 place indefinitely. His Honour approached the question of calculating the value of the business by assuming negotiating parties who at the date of the contract were familiar with all aspects of its operation and with business values generally and who were willing, but not desirous, respectively to buy and to sell. His Honour then asked at what sum such parties would have concluded their bargain. His Honour relied on Spencer v. The Commonwealth of Australia (1907) 5 C.L.R. 419 as the basis of this approach. He said that the critical question was to determine the true value of the business, subject to the restrictions existing at the date of the contract, namely, 2 April 1985. It 1s plain that the absence of the necessary evidence placed his Honour at a serious disadvantage in calculating damages. He said it was a matter of dismay that, notwithstanding the retention by the parties of no less than four specialist valuers, not one of then offered an opinion upon the only question of valuation which arose in the case, namely, the true value of the business which Collins Marrickville purchased in 1985 under the influence of the misleading conduct of Henjo. His Honour said that, in the absence of some expert assistance upon the likely income and expenditure in April 1985 of an 14. 84 seat restaurant without bar stools, he could not make any firm finding as to whether such a restaurant would have been profitable at that time. His Honour approached the question of relief by invoking S. 87 of the Act, an approach which appears to have been influenced at least in part by the fact that the assessment of damages was doomed toa be very imprecise on the evidence. In the result his Honour ordered that:- 1. The contract for sale be declared void ab initio; 2. Subject to Collins Marrickville redelivering to Henjo on a specified date the use and possession of the restaurant business, Henjo and Mr. Saade, upon the date of redelivery, shall pay to Collins Marrickville $300,000 (being the price paid) together with the fair price of all trading stock; 3. The mortgage granted by Collins Marrickville to Henjo to secure the payment of $200,000, being the balance of the purchase price, be declared void ab initio; 4. Henjo and Saade Developments execute and deliver to Collins Marrickville the necessary documents to enable 1t to procure the registration of the discharge of the mortgage mentioned in 3.; 5. Henjo execute a deed varying the deed of assignment of lease executed in April 1985 between Jasemo Pty. Limited ("Jasemo") as lessor, Henjo as assignor, Collins Marrickville as assignee and Mr. Collins as guarantor so as to provide a covenant or covenants whereby 15. Henjo agrees to indemnify Collins Marrickville and Mr. Collins and each of them against their liabilities under the deed to Jasemo; 6. Judgment be entered in favour of Collins Marrickville against Hennjo and Mr. Saade for damages in the sum of $69,562.90; 7. Henjo and Mr. Saade pay Collins Marrickville's costs of the proceedings; 8. Collins Marrickville pay to Mr. George his costs of the proceedings; and 9. Henjo and Mr. Saade pay to Saade Development its costs of the proceedings. It was from these orders that this appeal was brought by Henjo and Mr. Saade. Collins Marrickville filed a notice of cross appeal from that part of the judgment of the trial Judge given on 20 October 1987 in which his Honour: - made the findings adverse to Collins Marrickville, to which I referred earlier, with respect to the effect of the removal of the bar stools; - found that in any event the restaurant would not have been profitable; - assessed the contributions of the loss of the bar stools as ten percent of the losses as a whole; 16. - found that most of the losses were caused by factors which had nothing to do with the misrepresentations as to seating capacity; - allowed by way of trading losses damages assessed at ten percent of the total trading losses to 30 June 1986 ($262,048), namely, $26,204.80 and failed to allow by way of damages trading losses for the period 1 July 1986 to 20 October 1987; - failed to order that there be included in the sum for which judgment was given interest for any period. Collins Marrickville also filed a notice of contention under Order 52 rule 22(3) contending that his Honour was in error in that he confined his observations as to the restrictions on seating requirements to the Council's development consent and should have referred to the restaurant licence issued by the Council which imposed a like restriction on seating and that he should have noted that any application to amend that licence was incapable of review upon appeal by the Land & Environment Court of New South Wales. Section 52 Section 52 has been considered by the High Court and this Court in many cases, and its interpretation and breadth have evolved in the light of the facts of each case. The section is expressed in 17. general terms and is designed to have "a broad reach": dornsby Building Information Centre Pty. Limited v. Sydney Burldirg Information Centre Limited (1978) 140 CLR 216 per Stephen J. at 225. It 1S a provision to protect the consuming public from unfair trading practices, namely, from being misled or deceived: The Hornsby Building Information Centre Case; World Series Cricket Pty. Limited v. Parish (1977) 16 A.L.R. 181 per Bowen C.J. at 186-187; Franki J. at 196 and Brennan J. at 199; Ex parte Pilkington A.C.I. (Operations) Pty. Limited (1978) 142 C.L.R. 113 per Mason J. at 128. It is now established that intent is not a necessary element in a contravention of the section: see, for example, The Hornsby Building Information Centre Case per Stephen J. at 228. However, as I observed in Bridge Stockbrokers Ltd. v. Bridges (1985) 57 A.L.R. 401 at 415, there are cases where there will be deceptive conduct only where the intention of the alleged contravenor is established. The Compact Edition of the Oxford English Dictionary 1987 defines the word "mislead" in its transitive sense as "to lead astray in action or conduct; to lead into error; to cause to err". "Deceive" is defined as "to ensnare; to take unawares by craft or guile; to overcome, overreach, get the better of by trickery; to beguile or betray into mischief or sins; to mislead". This approach to determining the meanings of the terms appearing in s. 52 1S consistent with the approach adopted by Franki J. in Weitmann v. Katies Ltd. (1977) 29 F.L.R. 336 at 343, The two words, "misleading" and "deceptive", are plainly not synonymous. That is not to say that each word may not catch some of 18. the same conduct and that there may not be some degree of overlap. "Mislead" does not necessarily involve an element of intent and 1t 1s a word of wider reach than "deceive". However, 1t is difficult, in My Opinion, to read the word "deceive" in s. 52 other than as involving some degree of moral turpitude as 1t does in ordinary English usage. Trickery, craft and guile, though not essential elements of liability, are typically at the heart of this second element of the statutory provision directed to the protection of the public from unfair trading practices. Misleading or deceptive conduct generally consists of representations, whether express or by silence; but it 1s erroneous to approach s. 52 on the assumption that its application is confined exclusively to circumstances which constitute some form of representation. The section is expressed briefly, indeed tersely, in plain and simple words which, if I may be forgiven for repeating them, say simply: "a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive". There 1s no need or warrant to search for other words to replace those used in the section itself. Dictionaries, one's own knowledge of the developing English language and ordinary experience are useful touchstones, but ultimately in each case 1t 1S necessary to examine the conduct, whether representational in character or not, and ask the question whether the impugned conduct of 1uts nature constitutes misleading or deceptive conduct. This will often, but not always, be the same question, as whether the conduct is likely to mislead or deceive. 19. Whether there was a representation that the restaurant was licensed to seat _ 128 people. The trial Judge accepted the evidence of Mr. Collins and Mr. James and found that Mr. Le May had told them that the restaurant had a capacity of 128 seats, showing them for that purpose tne instructions card. His Honour accepted Mr. Le May's evidence that he had obtained the information as to 128 seating capacity from Mr. Saade and that Mr. Le May wrote that information down on the instructions card. His Honour said that he had considerable reservations as to the basic honesty of Mr. Saade. His Honour said, amongst other things, that Mr. Saade's action of having Mr. George lodge the application on 16 April to regularise the position as to the structure of the bar after he had already contracted to sell the business and without informing anyone on behalf of Collins Marrickville or even his company's own solicitor was, to say the least, curious. His Honour said that this action strongly suggested a realisation by Mr. Saade that Collins Marrickville might complain about the position as to the bar and that Mr. Saade attempted to rectify the situation whilst he could. His Honour concluded that Mr. Saade did tell Mr. Le May at their first interview that there were 128 seats in the restaurant without any qualification as to the legality of the number of seats and that Mr. Le May passed on that information to Mr. Collins and to Mr. James upon the occasion of Mr. Collins' first inspection of the restaurant. His Honour rejected a submission on behalf of Henjo that, even if Mr. Le May had said that the restaurant seated 128 people, this was not untrue because in fact it did seat that number of people. 20. His Honour rejected a related submission that, for there to be misleading conduct, Mr. Le May would have had to say to Mr. Collins and Mr. James that the restaurant was licensed to serve 128 people. His Honour described that submission as unreal and said that, when Mr. Le May conveyed the information to Mr. Collins and Mr. James about the number of seats, they "were not concerned with the question of how many chairs they would be getting for their money or how many chairs would physically fit in the restaurant. They were concerned with the scale of the business, that 1s the maximum number of people they could hope to serve at any one time. The business was being sold as a licensed restaurant. The enquiry was concerned with the seating capacity of that business." His Honour found that it was a clear implication from the representation that the restaurant was licensed and that it had 128 seats at which it was licensed to serve 128 people. There was some challenge to his Honour's finding that Mr. Le May "told" Mr. Collins and Mr. James that the restaurant was licensed to seat 128 people. The evidence is not entirely clear as to whether any statement was made in terms by Mr. Le May to Mr. Collins and Mr. James that the restaurant had a capacity of 128 seats or was licensed to seat 128 people or whether all he did was to show them the instructions card. It would be strange if the showing of the card with this vital information was not accompanied by discussion about 1t; but I am content to determine this appeal on the basis that all Mr. Le May did, so far as this matter is concerned, was to show the card to Mr. Collins and Mr. James. The card contained on its back the statement "Seats 128" and immediately underneath the word "Licenced". 21. These statements were seen on the back of the card by both "tr. James and Mr. Collins. It must also be remembered that the words "Fully Licensed" appeared in bold print on the front window of the restaurant and were seen by both men. In my opinion the showing of the card to Mr. James and Mr. Collins was not conveying two discrete items of information; but was a clear statement in the circumstances that "the New York Deli" was a restaurant licensed to seat 128 people. fn that sense Mr. Le May communicated to Mr. James and Mr. Collins that the restaurant was licensed to seat 128 people. Representation by silence In my opinion the real complaint against the conduct of Henjo and Mr. Saade in this case arises from their silence in not informing Collins Marrickville of the true position with respect to the limitations on seating capacity and the use to which the bar area could be put. The trial Judge found that Henjo owed a duty to inform Collins Marrickville, before the sale was effected, as to the true position about the number of tables and seats permitted by the Council and the Licensing Court and about the Bar service area and that this duty was breached. It is common ground that the refreshment room licence and other approvals granted by the Council were restricted to the seating, and therefore serving, of 84 people at 26 tables with no bar stools or reception area being included, the bar area being solely a service bar accessible only to staff. The liquor licence was subject to the same 22. limitations. Mr. Saade and Henjo knew that since at or about the tine the restaurant opened for business the number of seats had been increased without authority by something in excess of one-third of the permitted maximum and that the bar service area was used as a bar available to patrons of the restaurant and to others who did aot even dine there. Mr. Saade and Henjo also knew that during the four week trial period, commencing on about 4 April 1985, the purchaser, Collins Marrickville had stationed people in the restaurant to verify, amongst other things, the takings of the business. The process of ver1lfication would necessarily involve the inclusion of takings from all 39 tables at which 120 chairs were provided and from the sales of liquor at the bar. Therefore, they knew that the takings must reflect the actual numbers of people attending the restaurant for purposes of eating or drinking or both. If the business had been conducted lawfully there would necessarily have been a drop in takings because about one-third of the numbers of people who attended the restaurant would not have been able to be there. Whether this would mean a reduction un takings by one-third or some smaller or greater proportion is not clear, but it would certainly have brought about a substantial erosion into the takings of the business, a matter which Henjo and Mr. Saade must have known. At common law, silence can give rise to an actionable misrepresentation where there is a duty upon the representor to reveal a matter if it exists, and where the other party is therefore entitled to ainfer that matter does not exist from the silence of the representor: W. Scott Fell & Co. Ltd. v. Lloyd (1906) 4 C.L.R. 572 per Griffith C.J. at 577; Halsbury's Laws of England, 4th ed, Vol. 31, par. 1052. The circumstances in which silence may constitute 23. misleading conduct under the Act were referred to in Rhone-Poulenc Agrochimie SA. v. UIM Chemical Services Pty. Limited (1986) 12 F.C.R. 477. That case established that silence may be relied on in order to show a breach of s. 52 when the circumstances give rise to an obligation to disclose relevant facts: see Bowen C.J. at 490, Lockhart J. at 504 and Jackson J. at 508. The duty to disclose 1s not confined to cases where there are particular relationships, such as trustee and beneficiary or solicitor and client, principal and agent and guardian and ward. There is no useful purpose in seeking to analyse the circumstances in which the duty to disclose will arise as this must depend on the facts of each case. In the present case the vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity, limitations imposed by both the licensing authorities and the local council which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law with a substantial element of overseating. The vendor's agent had given the purchaser to understand that the limitations upon the seating capacity and the limitations arising from the licensing of the restaurant were less restrictive than was in fact the case, while the manner in which the business was conducted at the time of sale supported this understanding. In my Opinion these circumstances gave rise to a duty on the part of Henjo as vendor to reveal the true position to Collins Marrickville, the potential purchaser, before any contract was signed. It 18 no answer to say that Collins Marrickville should have made 1ts own enquiries and that, if it had done so, it would have 24. found out the true position: see Redgrave v. Hurd (1881) 20 Ch.D. 1 per Jessel M.R. at 14 and 17; per Baggallay L.J. at 23, in the context of the equitable right to rescind for innocent misrepresentation. Tt 1s true that Mr. Collins recognised the importance of verifying the material given to him by Mr. Le May about the seating capacity of the restaurant and that, had his solicitor done what he should have done, the true position would have emerged and the sale probably would aot have proceeded. But these circumstances did not negate the duty to disclose which the circumstances otherwise imposed. Reliance upon the misleading conduct The trial Judge dealt with the defence of Henjo that no reliance was placed by Collins Marrickville upon the misleading conduct of Henjo and Mr. Saade. His Honour accepted that Mr. Collins thought it important to check that the facts in relation to approvals of statutory authorities were as he understood them to be, that he wanted a thorough check to be made and relied upon his solicitor to make that check. His Honour found that this state of mind was not inconsistent with Mr. Collins having also been influenced by the information originally conveyed to him by Mr. Le May on behalf of Henjo which had caused him to instruct Mr. James to do further work and retain Mr. Tadd. His Honour said it was true that this influence would have been negated if Mr. Tadd had carried out his instructions and reported the true facts; but, notwithstanding Mr. Tadd's omission, the original influence, supplemented by a report of Mr. James to Mr. Collins continued to operate. It is broadly true that an applicant in an action under s. 52 cannot recover damages unless he establishes that he acted on or was influenced by the conduct contravening the section: Mr. Figgins Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (1981) 36 A.L.R. 23 per Northrop J. at 48. The issue of the applicant's reliance upon such conduct is however more complex than such a formulation indicates. The trial Judge noted the similarity between conduct const:tuting deceit at common law and conduct contravening s. 52, and referred to the principles which determine whether there has been inducement in actions for deceit. These principles were reviewed by Wilson J. in Gould v. Vaggelas (1985) 157 C.L.R. 215 at 236. His Honour there observed that the inference that the applicant relied upon a material representation calculated to induce him to enter a contract might be rebutted by showing that "whether he knew the true facts or not he did not rely upon the representation". H1s Honour noted that the representation made "need not be the sole inducement. It us sufficient so long as it plays some part even if only a minor part un contributing to the formation of the contract". In Neilsen v. Hempston Holdings Pty. Ltd. (1986) 65 A.L.R. 302 at 313, a case which concerned an action for damages under s. 52 where misleading statements had been made to the applicant as to the occupancy rate of a motel, Pincus J. held that the causal chain allowing recovery of damages under s. 52 of the Trade Practices Act was not broken even where the applicant had failed to take reasonable care of 41S own interests by undertaking a proper investigation of the figures presented. These decisions support the view that recovery under s. 52 1s founded by the applicant's actual reliance upon the misleading or deceptive conduct of the respondent although that conduct was not the only factor in the applicant's decision to enter a particular 26. agreement, and although the applicant did not seek to verify tne representations or did so inadequately and so failed to discover their falsity. The circumstances of this case do not support the conclusion that Collins Marrickville did not in fact rely upon the misleading conduct of Mr. Saade and Henjo. Their conduct not only played some part in contributing to the purchase of the business but was in fact, the major inducement. It matters not that the solicitor's failure to carry out his client's instructions prevented what may or indeed would, more likely than not, have been a different result. The fact 1s that reliance was placed by the purchaser upon what 1t assumed to be the true position as a result of the conduct of the vendor and the absence of knowledge of the true facts. Constructive Notice His Honour rejected the further submission that Collins Marrickville had constructive notice of whatever information Mr. Tadd would have gleaned if he had made proper enquiries. Reference was made in argument to some evidence that Mr. Saade handed to Mr. James a file of documents which included the Council's refreshment room licence Limiting the number of people who may be served in the restaurant to 84 people. At best this evidence means that Mr. James had an opportunity, whilst in the restaurant with Mr. Saade, to check the files handed to him but did not do so thoroughly and that, if he had checked them, he may have found the licence. The occasion for the meeting in question was essentially to discuss matters relating to the finances of the restaurant rather than anything to do with the actual iss} ~ licensing position. The files contained a lot of documents; but the evidence is very general and not clear about their contents or subject matter. Even if the Council's restaurant room licence was contained in the files, that fact would not constitute, in my opinion, in all the circumstances, notice, whether actual or constructive, to Collins Marrickville of the facts in issue in this case relating to that licence. It was Mr. Saade who swore in an affidavit that the files contained the licence. This evidence was not challenged, but its acceptability must be considered in the light of his Honour's rejection of much of Mr. Saade's evidence and the fact that there was little evidence led at the trial about this matter and it was not treated below as an issue of any real significance. Doubtless Collins Marrickville could have ascertained the true position about the restaurant's licences 1f it had enquired about them; but it did not do so. Even if Mr. Tadd or Mr. Jones, as advisers to the plainfiff, were on inquiry as to the matter 1n issue, this should not itself be taken to exclude recovery under s. 52. [t 1s true that at common law, the principal has imputed knowledge of that which is or ought to be known by his agent. There 1s authority that a client who employs a solicitor in a conveyancing transaction has imputed to him knowledge of anything which 1s known to his solicitor or would have been known to his solicitor on the proper enquiries: Kadner v. Brune Holdings Pty. Limited [1973] 1 N.S.W.L.R. 498 per Mahoney J.A. at 501; Sargent v. A.S.L. Developments Limited (1974) 131 C.L.R. 634 per Stephen J. at 649, per Mason J. at 658-659. In an action under s. 52, however, the issue is whether the misleading and deceptive conduct alleged continues to be operative in fact, whatever the knowledge which might have been obtained had the 28. applicant's advisers conducted their investigations in a proper manner, and whatever the matters of which those advisers might have constructive notice: Qbaleco Pty. Limited v. Taveraft Pty. Limited (1986) A.T.P.R. 40-703 per Wilcox J. at 47,688. This reasoning is the stronger where a party who would otherwise be liable on account of conduct found to be misleading or deceptive seeks to rely upon knowledge notionally attributed to the innocent party so as to avoid liability. In my opinion the trial Judge correctly rejected the argument that Collins Marrickville had constructive notice of these matters. Special Conditions 6 and 7 I turn now to the two special conditions, 6 and 7. T h oe trial Judge considered the effect of special conditions 6 and 7 of the contract for sale and found that they did not operate to defeat a claim under s. 52, whatever effect they may have in the law of contract, because an exclusion clause of that kind cannot oust the effect of the Act or deprive an applicant of remedies under 1t. If in fact there was misleading conduct by Henjo which induced Collins Marrickville to enter into the contract, that inducement was not negated because in the agreement itself the parties may have said to the contrary. Special Condition 6 1S expressed simply as an acknowledgement by the purchaser. In my opinion the acknowledgement by the purchaser contained in the special condition, which has been recited earlier, 1s an acknowledgement essentially as to the physical state of the premises themselves together with rights and privileges, if any, which 29. pertain to the premises as a physical structure. The special condition 1s not concerned with the use to which the premises may be put. It 18 not directed to licences or other rights from statutory authorities to conduct business on the premises of a certain kind and 1t does not emcompass rights of the kind with which this case is concerned, namely, the rights from the Council and the Licensing Court as to the number of persons who may be seated and the number of tables at which they may be seated in the restaurant premises and served wit- liquor or whether certain parts of the premises may or may not be used for the service of liquor. Although these restrictions from the authorities are issued with respect to the premises themselves, they have relevance only to the use to which the premises may be put in carrying on business upon them. They do not fall within the ambit of special condition 6, having no substantial nexus with the condition or location or physical structure of the premises. Although special condition 7 1s couched in wide language, in my opinion 1t purports to exclude promises, representations, warrantles and undertakings or conditions of a contractual kind not embodied in the contract for sale itself and is not directed to representations by silence which have origin or effect outside the law of contract. It may be that special condition 7 would deny the plaintiff a right of contractual damages arising from the misrepresentation as to seating capacity, and would exclude an action based on common law misrepresentation in the absence of fraud preventing the defendant from relying upon the condition. It remains that, even if the intention of special condition 7 was to restrict the terms of the transaction to those embodied in the written agreement, On construction the condition addresses active representations rather 30. than the failure of one party to the agreement to make disclosure to the other where circumstances required it to do so. Irrespective of the construction of these two special conditions it does not matter ultimately whether the impugned conduct with which this case 1s concerned falls literally within them or not. Section 52 1S a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special conditions 6 and 7 are examples, cannot operate to defeat claims under s. 52. It may be, as the judgment of Sweeney J. 1n P.J, Berry Estates Pty. Ltd. v. Mangalone Homestead Pty. Ltd. (1984) 6 A.T.P.R. 40-459 at 45,638 suggests, that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of s. 52 and the making of the agreement in issue. Where the conduct of the defendant is alleged to be fraudulent in character, than an exclusion clause will be no more effective to defeat the action than it would be effective if the action were brought in the tort of dece1t in relation to conduct antecedent to the contract: Commercial Banking Co. of Sydney Ltd. v. R.H. Brown & Co. (1972) 126 C.L.R. 337 per Menzies J. at 344; Petera Pty. Ltd. v. E.A.J. Pty. Ltd. (1985) A.T.P.R. 40-605 per Wilcox J. at 46,887; see also Terry "Disclaimers and Deceptive Conduct" (1986) A.B.L.R. 473 at 486. There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to 31. stamp out unfair or improper conduct in trade or in commerce; 1t would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act. There are various judgments of Judges of this Court where this approach has been adopted and they are collected in the judgment of the trial Judge, so I need not repeat them. Mr. Saade ands. 75B Mr. Saade plainly was aware of the true position with respect to the licences and the limited numbers of tables and seats permitted by law and of the fact that the actual number of tables and seats substantially exceeded the legal limit. He was also aware of the facts relating to the bar service area and the limitations on the use to which it could be put. Mr. Saade concealed these matters from Collins Marrickville, he was in control of the premises, he was responsible for all relevant licences being obtained, he signed the instructions to Mr. Le May and he was responsible for the conduct of the restaurant business. He had knowledge of the relevant matters which constituted the contravention and therefore was correctly found by his Honour to have been involved in the contravention within the meaning of s. 75B of the Act. Relief I turn to the most difficult question in the case, namely, relief. I set out earlier the orders made by the trial Judge and his reasons for them. The primary issue is whether restitution or damages is the appropriate relief. It is not disputed that this Court has power to make orders of the kind made by his Honour in this case. The issue 1S whether in all the circumstances of the case it was appropriate that they be made. Five matters are central to the question of relief. First, the trial Judge found that the trading losses of the restaurant sustained by Collins Marrickville, except to the extent that they were increased by the loss of the bar stools, were occasioned by factors tna connection with which there was no misrepresentation and that most of the losses were caused by factors which had nothing to do with the misrepresentations as to seating capacity. His Honour found that they were not "directly attributable" to the misrepresentations and ought not to be allowed. Second, the trial Judge found that the removal of the bar stools had an adverse effect upon the restaurant's takings and consequently upon profitability but an effect that was relatively minor. His Honour assessed the contribution of the loss of the bar stools to the trading losses as being 10% of the whole. These two findings were challenged by Henjo in argument; but there 1s evidence to support them and no ground for disturbing them was established. Third, notwithstanding the restrictions in law upon the seating capacity of the restaurant, 1t has in fact been conducted, not only before, but since, the acquisition of the business by Collins Marrickville (1 May 1985), with about 128 seats. The losses which have in fact been sustained by Collins Marrickville since 1t took over 33. the business cannot, therefore, be attributed to the fact that the lawful seating capacity is substantially less than 128 seats. Fourth, substantial changes have occurred to the New York Deli restaurant, its staff and management and the manner in which the restaurant business has been conducted by Collins Marrickville since May 1985. The changes introduced by Collins Marrickville to ths conduct to the restuarant and its method of operation include the following:- a) the principle of self-serve from attractive display cabinets has been replaced by full waiter service; b) the number of staff has increased considerably, thus increasing wages; c) lavish displays of food have been replaced by table menu service; and d) food display cabinets have been removed to increase seating space. Henjo argues that these changes are irreversible but his Honour rejected a similar submission. He accepted that the changes had occurred but did not think they afforded in themselves sufficient reason for refusing an order for restitution. I see no warrant for interfering with these findings of the trial Judge; but they are matters which must be taken into account in deciding whether restitution 1S appropriate and must be viewed in the light of all 34. other relevant circumstances. The business of the New York Deli has run down since its ownership passed to Collins Marrickville and the business has changed from one that was making a substantial profit into one with losses between $14,000 to $15,000 per month. The number of customers has declined during the past two years and the goodwill of the business must have been adversely affected. Restitution involves the handing back to the former owner of a business whicn "as for some two years or so been in other hands and conducted in a different way, some of the differences being quite substantial. The restaurant trade 1s notoriously volatile. Fifth, Collins Marrickville did not actively prosecute this proceeding after its commencement in August 1985, and changed its course in midstream from claiming damages as its primary relief to seeking restitution. On 17 May 1985 Collins Marrickville became aware of problems associated with the "{lJocation of the bar, 1ts size and seating capacity and arrangements". The bar stools were removed on 14 June 1985 following demands by the licensing police. On 5 August 1985 Collins Marrickville commenced the proceedings in this Court alleging misleading conduct. Although it sought orders under s. 87 in the Original application, no specific order for rescission was claimed. The matter came on for hearing on 11 March 1986 before Sweeney J.. Counsel then appearing for Collins Marrickville informed his Honour that the relief sought was essentially damages, though later in argument he foreshadowed the possibility of seeking rescission of the contract ab initio. It was upon the application of counsel for Collins Marrickville that the matter was adjourned, counsel telling his Honour that his client believed that the matter could be adjusted with the Woollahra Council though it was not absolutely certain of 35. that. Counsel for Collins Marrickville told his Honour that an adjournment might permit resolution by the licencing authorities and, 1f necessary, the Council, of an application to amend the on-licence of the restaurant so as to permit the seating of 221 persons at 39 tables plus the seating of eight persons at bar stools in the reception area. The adjournment was granted, but his Honour ordered Collins Marrickville to pay the costs of Henjo of the day. A perusal of the transcript of the proceedings on 11 March 1986 shows tnat Sweeney J. took the view that Collins Marrickville had ample opportunity to search the files of the Council before 11 March. The transcript also makes plain that the basis of the application for adjournment by Collins Marrickville was that it intended to apply to the Woollahra Council and the licensing authorities before the hearing of the matter was resumed. On 24 April 1986 an amended application was filed which specifically sought an order for avoidance of the contract for sale as an alternative to the orders earlier sought. On 17 November 1986 the matter was mentioned before Neaves J.. His Honour enquired as to what had happened with respect to the application that was foreshadowed to the Council and to the Licensing Court before Sweeney J. and was informed by the solicitor for Collins Marrickville: "Nothing at all, your Honour". Mr. Justice Neaves then said: "So that all that has happened is that 1t has been a waste of time for six months", to which the solicitor for Collins Marrickville said, "Yes, your Honour". Later the solicitor told his Honour that it was still proposed to apply to the Council and the Licensing Court. 36. The matter came on for hearing before Wilcox J. on 16 April 1987, In the course of his observations on that day His Honour said that many months had passed since the application was firled and that the case could have been heard much earlier. In fact Collins Marrickville had not made an application to the Council for a variation of the seating capacity or with respect to tne bar stools or the reception area. Nor was any evidence adduced before the trial Judge as to why this was so. Collins Marrickville did not apply for expedition of the hearing of the matter. Tt successfully sought an adjournment of the hearing before Sweeney J. in March 1986 on the basis that 1t proposed to do something which in fact it did not do. Also, it is plain from a perusal of the transcript of the proceedings before Wilcox J. and his Honour's reasons for judgment that the reason for the trial being split into two stages, first a hearing on liability and later an assessment of damages, the former being heard in April 1987 and the latter in August of that year, was the failure of Collins Marrickville to adduce any evidence of damages when the proceedings first came on before Wilcox J.. In my opinion it is therefore plain that the delays which have attended this case have been due principally to Collins Marrickville. Had the proceedings been prosecuted with diligence it would have been easier for the Court to restore the parties to their position before the making of the contract if this had otherwise been appropriate. I am reluctant to interfere with the exercise of the trial Judge's discretion on this question and am mindful of the constraints 37. which are necessarily imposed upon an appellate court in these Circumstances. It is true that an appellate court will not generally interfere with the ruling of a trial Judge where that ruling is discretionary, even where the judges composing the appellate court consider that if they had been in the position of the primary Judge they would have reached a different result: Lovell v. Lovell (1950) 91 C.L.R. 513 per Latham C.J. at 519; Australian Coal and Shale Employees Federation v. Commonwealth (1953) 94 C.L.R. 621 per Kitto J. at 627. These factors are less substantial where what 1s in issue 1s the appropriate statutory remedy. I have carefully considered his Honour's reasons for ordering restitution, but I have come to the conclusion that those orders cannot stand and that Collins Marrickville should be left to pursue its claim for damages. Another matter relevant to this question of relief arises from Orders 2 and 5 made by the trial Judge. His Honour ordered (Order 5) that Collins Marrickville execute a deed varying the deed of assignment of lease between Jasemo Pty. Limited as lessor, Henio as assignor, Collins Marrickville as assignee and Mr. Collins as guarantor so as to provide a covenant whereby Henjo agrees to indemnify Collins Marrickville and Mr. Collins against their liabilities under the deed to Jasemo. In my opinion Order 5 cannot operate in the absence of the consent of Jasemo as lessor. In the course of argument we drew attention to this lastmentioned difficulty and material was put before us which suggests that Jasemo may be prepared to grant the necessary approvals to a deed of the kind envisaged by Order 5; but I would not be prepared to act on this material 1n the absence of unequivocal and clear evidence that Jasemo would in fact adopt this course. If I were of the view that 38. restitutlon was the appropriate remedy I would not at this stage regard this matter as a bar to relief but would allow fresh evidence to be given to determine the true attitude of Jasemo. In granting a remedy under s. 87, the Court is not restricted by the limitations under the general law of a party's right to rescind for breach of contract or misrepresentation. Nevertheless, in exercising 1ts discretion under s. 87, the Court will consider the conduct of the parties after they had knowledge of the misleading quality of the conduct: Mister Figgins Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (supra) per Northrop J. at 60. Such an approach 1S consistent with that adopted by the Privy Council in Senayake v. Cheng (1966) A.C. 63 at 83, observing that at general law the questions for the Court in determining whether to allow restitution are "whether restitution in integrum is substantially possible and whether rescission is timely and just and fair". On this approach the Court must consider all the circumstances before it in the exercise of its discretion. Equity, of course, allows rescission without requiring that the status quo ante can be exactly restored: Alati v. Kruger (1955) 94 C.L.R. 216 per Dixon C.J., Webb, Kitto and Taylor JJ. at 223-224. The Court will be more open to granting rescission at the suit of an Lanocent party where a contract has been induced by fraud, in order to deny the defendant the benefit of the fraud at the expense of the innocent party: Spence v. Crawford [1938] 3 All E.R. 271 per Lord Wright at 288-289. It remains that the longer the time elapsed since the agreement, and the more substantial any deterioration in the intervening period as a result of the purchaser's management of the 39. business, the more difficult it will be to secure restitution in a manner which does "practical justice" between the parties, in the phrase adopted by the majority in Alati v. Kruger (supra). Reliance was placed by counsel for Henjo upon Alati v. Kruger (supra) as authority supporting the making of the orders' for restitution in this case. In that case the High Court affirmed orders of the trial Judge allowing rescission although the respondent purchaser had closed down the business and left the leased premises after the hearing and before judgment. The Court required compensation by the purchaser as to benefits derived during the period of occupation, including compensation for stock in trade received by the purchaser, and for the use of the premises and other property subject to the contract. Orders for restitution are, of course, discretionary and that decision of the High Court must be read in the light of its own facts, which are very different from the facts of the present case. One notable difference 1s that the element of delay in prosecution by the innocent party of its cause was not present in Alati v. Kruger. Nor was there any change of front in pursuit of remedies. The trial Judge drew the attention of the parties more than once to the gact that the evidence presented in relation to damages was inadequate and misdirected, so his Honour set about assessirg damages and granting other relief doing the best he _ could notwithstanding the paucity of the evidence before him. It was argued on behalf of Collins Marrickville that damages would not be an adequate remedy for various reasons of which I shall 40. mention the principal ones. It was said that damages would not protect Collins Marrickville as the wronged purchaser in respect of 1ts continuing liability for rental outstanding under the lease and the continuing liability of Mr. Collins as the guarantor of that liability. The term of the lease 1s for six years from 20 May 1984 terminating on 20 May 1990. The lease provides for a base rental of $157,500 for the 18 month period commencing 20 May 1984 with provision for reviews of rent at intervals of 18 months to reflect changes in the "all groups consumer price index". For the financial year ended 30 June 1987 the rent payable by Collins Marrickville was $173,643. It is plain that the remaining obligations of Collins Marrickville and of Mr. Collins with respect to the remaining two years or so of the lease are substantial; but due to the time the matter has taken to reach the present position only a little over two years of the six year lease remains to run. This is a circumstance which, in my view, can adequately be taken into account in an assessment of damages. It was argued that, upon the making of restitution orders, inquiries could be directed or other steps taken to ensure that proper allowances are given by Collins Marrickville to Henjo for any changes which have taken place to the running of the business and which may have adversely affected its profitability or goodwill or altered its nature. Allowances of this kind would, to some extent, diminish the detriment that Henjo would otherwise suffer if it were to receive back the New York Deli; but so long has passed since Collins Marrickville took over the business and so many adverse changes have occurred to the business that I do not think allowance of the kind suggested would adequately protect Henjo. 41. In my opinion there is no inherent problem in the Court awarding damages in this case to adequately compensate Collins Marrickville for its losses. I have considered whether the award of damages made by his Honour should stand and this litigation thus be brought to an end. There is something to be said for this view, but on balance I tnink that the interests of justice require that the question of damages be remitted to the trial Judge or other single Judge of this Court for reassessment. His Honour himself drew attention to the difficulties under which he laboured 1n determining the appropriate relief including the assessment of damages. His Honour directed the attention of the parties to this difficulty at the commencement of the trial on the issue of liability so that they had ample opportunity to prepare properly for the determination of damages some months later. Notwithstanding this, much of the evidence directed to damages appears to have been fundamentally misdirected as his Honour pointed out in his reasons for judgment. The parties now have the benefit of his Honour's reasons for judgment and the reasons for judgment of this Court and I think fairness requires that a final opportunity be given to them to litigate the question of damages before this Court. It 1s a matter for the trial Judge as to how the further hearing will be conducted, though no doubt he will adopt as his starting point the present evidence, supplemented by such fresh evidence as he sees fit to allow. The assessment can also take place without the intrusion of other guestions of relief such as restitution; the whole attention of the parties can be directed to the question of damages. 42. In support of its cross-appeal Collins Marrickville argued that the trial Judge failed to allow by way of damages trading losses for the period 1 July 1986 to 20 October 1987 and failed to order that there be included in the sum for which judgment was given interest on any part of that sum, I discern no error in the approach adopted by his Honour in declining to allow the whole of the trading losses of Collins Marrickville. Whether on the new trial of the question of damages his Honour retains this view will, of course, be a matter for him to decide in the light of any further evidence that may then be admitted by him. All questions relating to damages should be regarded as again open. Indeed, counsel for the appellant expressly accepted in argument that, if his submission as to the inapplicability of rescission succeeded, the matter should be referred back to the trial Judge with the calling of fresh evidence on the issue of damages. It does appear that his Honour did not include in the amount for which judgment was entered any component by way of interest pursuant to s. 51A of the Federal Court of Australia Act 1978. The effect of that section, where (as here) the cause of action 1s one arising after the commencement of the section, is that interest shall be awarded unless good cause is shown to the contrary. As his Honour made no contrary findings an amount should have been awarded by way of interest. As damages are to be reassessed, any entitlement can he attended to then. In the result Collins Marrickville succeeds on the issues of liability, Henjo succeeds on the question of relief in so far as it should be confined to damages and not extended to orders for restitution; but Henjo fails in its argument that there should be no 43. retrial on the question of damages and that the damages should stand as presently assessed. Collins Marrickville fails in 1ts cross-appeal except on the question of interest. I mentioned earlier that the trial Judge restrained Henjo, Saade Developments and Mr. Saade from enforcing the rights granted by the mortgage of 1 May 1985 from Collins Marrickville to Henjo which Henjo had assigned to Saade Developments. As there is to be a retrial on damages, the amount of which 1s unknown at this stage but which could be substantial and perhaps exceed the amount due under the mortgage, I would propose that injunctions be granted against Henjo, Saade Developments and Mr. Saade in terms similar to the orders made by the trial Judge on 29 April 1987. Otherwise Saade Developments may exercise its powers under the mortgage, including the sale of the mortgaged premises being real estate at Darlinghurst, yet be found to owe substantial damages to Collins Marrickville. Justice requires that the status quo be preserved until damages have been determined. As to costs, Collins Marrickville has succeeded on liability and failed in substance on relief. Henjo has failed on liability and succeeded in part on damages. The appeal and cross-appeal should be considered together on the question of costs because they arise out of the same substratum of fact. It is impossible to assess with any precision costs relating to liability on the one hand and costs relating to relief on the other; but the fair order is that Henjo and Mr. Saade should pay one-half of the costs of Collins Marrickville of the appeal and the cross-appeal. There should be no order as to the costs of Saade Developments of the appeal. As to the costs of the proceedings at first instance, the appropriate order is that Henjo and 44, Saade pay two-thirds of the costs of Collins Marrickville. The orders for costs made by the trial Judge numbered 8 and 9 should remain undisturbed, that 1s, the order that Collins Marrickville pay to Mr. George his costs of the proceeding (Order 8) and that Henio and Mr. Saade pay the costs of Saade Developments of the proceeding (Order 9). No appeal was lodged by any party 1n relation to this lastmentioned order. The orders which I propose are that: 1. The appeal be allowed in so far as it relates to the questions of relief and costs; 2. Orders 1 to 7 inclusive made by the trial Judge on 20 October 1987 be set aside; 3. The matter be remitted to the trial Judge to determine the loss or damage suffered by Collins Marrickville by conduct of Henjo or Mr. Saade that was done in contravention of s. 52 of the Act; 4.(a) Until the determination of the loss or damage mentioned in Order 3 above or further order of a single Judge of this Court each of Henjo and Saade Developments by itself, its servants and agents and Mr. Saade be restrained from taking any action to recover any payments due under, or otherwise to enforce the rights granted by, the mortgage dated 1 May 1985 from Collins Marrickville to Henjo, a copy of which is annexure "A" to the affidavit of Ian Francis Dwyer sworn 16 April 1987 and filed herein; 45. (b) Liberty to apply to a single Judge of this Court be grated to any party in respect of this order on 48 hours' notice? (c) This order be discharged unless within seven days from to-day Collins Marrickville gives to a single Judge of this Court the usual undertaking as to damages; 5. Otherwise the appeal be dismissed; 6. The cross-appeal be allowed in so far as the sum for which judgment was entered did not include any amount of interest pursuant to s. 51A of the Federal Court of Australia Act 1976; but otherwise the cross-appeal be dismissed; 7. Henjo and Mr. Saade pay two-thirds of the costs of Collins Marrickville of the proceedings at first instance, and one-half of its costs of the appeal and cross-appeal and that otherwise there be no order as to costs. I certify that this and the preceding forty-four (44) pages are a true copy of the reasons for judgment of the Honourable Mr. Justice Lockhart Associate A.T Rothe Dated: 26 February 1988 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G.550 of 1987 ) GENERAL DIVISION ) BETWEEN: HENJO INVESTMENTS PTY LIMITED First Appellant HENRY SAADE Second Appellant SAADE DEVELOPMENTS PTY LIMITED Third Appellant AND: COLLINS MARRICKVILLE PTY. LIMITED Respondent : Lockhart, Burchett and Foster JJ. PLACE: Sydney DATE: 26 February 1988 REASONS FOR JUDGMENT BURCHETT J. I agree with the reasons of Lockhart J., and with the orders he proposes. It 18 not necessary, in this appeal, to explore the question whether or how far s.87 of the Trade Practices Act could permit the remedy of rescission to be applied in a case unsuitable for its application according to the principles of equity: cf. Myer v. Transpacific Pastoral Co. Pty. Ltd. (1986) 8 A.T.P.R. 47,421 at 47,424. Neither of those questions arises 2. because, for the reasons Lockhart J. has given, this 1s simply not a matter in which the remedy of rescission 1S appropriate on any footing. Too long had elapsed and too much had happened, attributable to the actions and neglect of the respondent purchaser, for 1t to be right to attempt a disentanglement so dilatorily asked, and fraught with so many possibilities of injustice to other parties. Section 52 should not be seen as a statutory charter of indulgence enabling a purchaser with a cause of action to keep delaying the crucial decision to affirm or disaffirm, nor does it confer a vague right to redress where an applicant does not prove in the normal way what damages are due. There is as much reason to require a vigilant response in respect of misleading conduct as there is under the general law in respect of a fraudulent misrepresentation. And damages have to be proved, as well as claimed, in the one case as in the other. The respondent relied on Alati v. Kruger (1955) 94 C.L.R. 216, but I can see no warrant in that case for an ambiguous or delayed stance towards the continuance of the contract. I should be sorry to be party to reducing the flexibility of the remedies available for breaches of s.52, but in my opinion this case is well outside any tolerance those remedies allow - at least, so far as rescission is concerned. As for damages, since it is conceded that further evidence may be called, no more need be said. I certify that this and the preceding page are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Burchett. ' aa Associate Dated) 26 February, 1988. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G550 of 1987 GENERAL DIVISION BETWEEN: HENJO INVESTMENTS PTY. LIMITED First Appellant HENRY SAADE Second Appellant SAADE DEVELOPMENTS PTY. LIMITED Third Appellant AND COLLINS MARRICKVILLE PTY. LIMITED Respondent CORAM: Lockhart, Burchett and Foster, JJ. DATE: Friday, 26 February, 1988. SYDNEY REASONS FOR JUDGMENT FOSTER, J. ~ I am satisfied that the appeal, so far as it relates to the issue of liability, should be dismissed. As to this aspect of the case, I am in total agreement with the reasons given by Lockhart, J., which I would respectfully adopt. I regret however, that I find myself in disagreement with my brethren on the question of the relief that should be granted. As the proceedings must, in the event, be remitted for a new trial on the issue of damages, I shall be brief in stating my reasons for dissenting from this course. In relation to relief, the essential matter for determination by the trial judge was whether the contract of sale should be declared void ab initio, with restitution and consequential orders, or whether the present respondent should be restricted to the remedy of damages. It is clear that by the time the proceedings came on for hearing before Wilcox, J. the present respondent's main claim was for avoidance of the contract of sale, restitution of the business to the vendor, and consequential damages to cover the losses to it during its period of conduct of the business. As the learned trial judge indicated, the evidence upon which an award of damages could have been made, if avoidance were denied, was extremely sparse. The expert valuers, who had been called, had not, apparently, had their attention directed to a critical question, namely, what would have been the value of the business at time of sale if it had been conducted in conformity with seating restrictions imposed by the local Council and without the existence of the bar area and its stools. His Honour, however, on the material available, was able to form some view of the value of the business at the time of sale, had its operations been so restricted. He indicated that he suspected that it would not have been profitable in that the loss of almost one third of the seats "Would have wiped out the profit claimed by Mr. Saade" (pages 1605 - 1606). His Honour went on to Say:- ' "Under these circumstances, there 1S attraction in the course suggested on behalf of the applicant; an order under s. 87 of the Trade Practices Act, thatthe contract of sale be void thus reverting the ownership of the business to the first respondent. The first respondent would take back the business, for whatever it was worth, with its restricted seating capacity, restoring to the purchaser its purchase price." I do not read this passage as being an indication that his Honour was, in effect, being over-indulgent in Providing a discretionary remedy to an applicant, who had failed to adduce satisfactory evidence upon which to quantify financial loss. His Honour goes on immediately to consider s. 87 of the Trade Practices Act, and the wide range of remedies that 1t provides. In my view, his Honour was clearly seeking a satisfactory answer to the difficult question as to what relief would best answer the case, having regard to its complexities. There were, if I might say so, obvious problems in restricting that relief to an award of damages such as might have been appropriate to a common law action for deceit. The present respondent had incurred obligations under the mortgage to the third appellant and also had ongoing and fairly onerous rental obligations under the lease of the premises from a company, not a party to the litigation. He was satisfied that there was a significant connection between the second appellant, Henry Saade and the third appellant, the mortgagee company, that they were not, in effect, parties at arms length, and that an order avoiding the mortgage would not result in the wrongful penalising of a person unconnected 3. with the litigation. Clearly, such an order would not attract the difficulties involved in determining an appropriate award of damages to compensate the present respondent for losses arising from 1ts mortgage obligations. The lease was another source of difficulty in computation of damages. The evidence undoubtedly indicated that the business was running at a loss, even if partly as a result of bad management practices on the part of the present respondent. In these circumstances, 1t was unlikely that the business would continue to be run. The lease included a rent escalation clause and was for a fixed term with a number of years to run. If the present respondent was forced to commit a breach of the lease, through failure to pay rent, or through a premature determination, 1t might or might not incur a substantial financial obligation to the lessor. Much would depend upon the attitude of the lessor and its ability to secure another tenant at the same rental. Clearly, a large element of conjecture would be involved in seeking to fix a proper figure for this aspect of damage. In the ultimate, his Honour made use of the much more flexible power to grant relief given by s. 87. It is true that, as argued in the case, a problem was exposed in relation to the relief granted, namely that a breach of the lease would occur if the present respondent remained lessee, as contemplated by his Honour's indemnity order, but parted with possession of the premises. I do not consider that this problem would be beyond resolution within the ambit of the orders made by his Honour. However, in the circumstances, [I do not think that it 1s necessary or proper for me to explore this question further. There 1s no dispute that the learned trial judge had power under s. 87 of the Trade Practices Act, to make the orders that he did. Equally, there 1s no dispute that the orders so made were discretionary in nature. As I see 1t, the question for this Court 1s whether ut is demonstrated that his Honour erred in the exercise of his discretion; in particular, whether he was required, in 1ts exercise, to refuse rescission and restitution, restricting the wronged applicant to a remedy equivalent to common law damages. Very properly, submissions were made to the trial judge of the kind that would be made to a court exercising traditional jurisdiction in Equity. These submissions have been repeated in the hearing before this Court. They were and are undoubtedly weighty. They went to delay in seeking the remedy of rescission; to the applicant's both approbating and reprobating; to the fact as found by his Honour that only some of the applicants' damage was the consequence of the breaches of s. 52; and to the business's having undergone such changes in organisation and profitability in the hands of the applicant, that restitutio in integrum, was no longer practicable. These submissions, if I might say so, are fully summarised in the Reasons of Lockhart, J. which I have been privileged to read. They are submissions which were, beyond doubt, capable of dissuading the trial judge from granting the discretionary remedies he gave. I am not, however, persuaded that they necessarily should have done so. It 1s clear that the learned trial judge carefully considered these matters. There 1s no doubt that the fairly lengthy delay between the commencement of the dispute and the final hearing of the application was largely due to indecision and procrastination on the part of the present respondent. The early stages of delay were, however, reasonably explicable on the basis that the true extent and effect o th tne misrepresentation was then unknown and, at that stage, it appeared that some rectification work in the premises to be paid for by an award of damages, would remedy the wrong done. Subsequent delay, no doubt, was disadvantageovs to the vendor in that the business underwent detrimental changes and deteriorated in profitability during that period. This serious impediment to the exercise of discretion was fully considered by his Honour. He said (at p. 1612):- "IT turn to the changes in the nature of the business pointed to on behalf of the respondents. I accept that these changes have occurred but I do not think that they afford sufficient reason for refusing the orders sought by the applicant. Each of the first four matters is readily reversible, 1f£ the first respondent so decides, upon resumption of control. Whether it will be possible to return to profitability = is more a@ifficult to say. But if, as the respondents contend, the main reason for the trading losses 1s the changes effected by the applicant, these losses may be eliminated. If, as the applicant suggests, the removal of the bar stools has been a major cause of the loss of profitability, it may not be possible to trade profitably; but there would be no injustice in burdening the first respondent with the restrictions which were concealed by it at the tame of the sale." 6. I find myself in complete agreement with this approach. More relevantly, I can certainly detect no error in it. His Honour also considered the equitable principles relating to restitutio as referred to in Alati v. Kruger, 94 C.L.R. 216. There are, of course, differences between the present case and that case, which were much relied upon in argument before this Court. Alati was a much clearer case for rescission and restitution than is the present. In particular, the applicant had acted promptly in seeking to avoid the contract. However, the case 1s clear authority for the Court's power, in Equity, to order restitution even where the parties cannot be wholly restored to their earlier positions. The differences are not, in my opinion, such as to have required that the trial judge deny the remedy to the present respondent if he were otherwise disposed to grant it. In any event, his Honour was acting under s. 87 and was not tied to the principles of equitable relief, however persuasive they might have been. He could "look at the matter more broadly" (per Pincus, J. Myers & Anor. v. Trans Pacific Pastoral Co. Pty. Ltd. [1986] A.T.P.R. 47,421 at 47,424). Although I would wish, perhaps, to make some alterations of detail in his Honour's consequential orders, I, for my part, am not satisfied that any appellable error has been demonstrated 1n his Honour's exercise of discretion in this case. In the event, I do not think it appropriate that I enter into those considerations of detail. I would dismiss the Appeal. In relation to the Cross-Appeal I agree that it should be allowed to the extent referred to in the reasons of Lockhart, J. I also agree with the order proposed. REKKKRKEKEKEEEREEEEKEKKEKKKE I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment herean of his Honour Mr. Justice M. L. Foster. (dig Dated 26 February, 1988. 46. Counsel for the Appellants: G. Masterman Q.C. and J.F. Lever Solicitors for the Appellants: Swaab & Associates Counsel for the Respondent: P.R. Graham Q.C. and G.A. Moore Solicitors for the Respondent: Sly & Russell Date of Hearing: 10, 11, 16 December 1987 Date of Judgment: 26 February 1988