CATCHWORDS TRADE PRACTICES - Misleading or deceptive conduct - sale of shopping centre - alleged misrepresentations by vendor's real estate agent - findings of the trial judge concerning the existence of misrepresentations - whether there was reliance - whether damage proved. APPEAL - findings based on assessment of witnesses - whether open on the evidence - circumstances in which an appellate court might interfere. DAMAGES - Assessment - Valuation - finding that it was not shown that the shopping centre was not worth the price paid for it - exact valuation by primary judge not necessary. COSTS - "Calderbank " letter - Pre-trial settlement offer by respondents - offer was an attempt to settle all causes of action - offer rejected by the appellants - appellants successful at first instance in one cause of action only - offer greater than damages ultimately awarded - one cause of action was discontinued and may still be asserted - appellant not awarded costs after date offer closed - whether valid exercise of costs discretion. Paul Mitchell Systems (Australia) Pty Ltd v Paul Mitchell Systems Pty Ltd (an unreported decision of the Full Court (French, Lee & Cooper JJ) of 21 July 1995) Devries v Australian National Railways Commission (1993) 177 CLR 472 Pettitt v Dunkley [1971] 1 NSWLR 376 NRMA Insurance Ltd v Tatt (1990) 92 ALR 299 Spencer v The Commonwealth (1907) 5 CLR 418 Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 Calderbank v Calderbank [1976] Fam 93 Messiter v Hutchinson (1987) 10 NSWLR 525 Douglas v Minister for Aboriginal & Torres Strait Islander Affairs (an unreported decision of Carr J of 24 May 1995) Lewis v Cummings (an unreported judgment of Wilcox J of 29 May 1992) MAGENTA NOMINEES PTY LTD v RICHARD ELLIS (WESTERN AUSTRALIA) PTY LTD & ORS No. WAG 66 of 1994 Spender, French & Lee JJ Perth 29 August 1995 IN THE FEDERAL COURT OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY )No. WAG 66 of 1994 GENERAL DIVISION ) ON APPEAL FROM A DECISION OF A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN : MAGENTA NOMINEES PTY LTD Appellant/ Cross Respondent AND : RICHARD ELLIS (WESTERN AUSTRALIA) PTY LTD First Respondent/ Cross Appellant AND : ALEXANDER JOHN CORBETT Second Respondent AND : PAUL WINTON Third Respondent/ Cross Appellant CORAM: Spender, French & Lee JJ PLACE: Perth DATE: 29 August 1995 MINUTES OF ORDER THE COURT ORDERS THAT: (i) the appeal be dismissed with costs; (ii)the cross-appeal be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY )No. WAG 66 of 1994 GENERAL DIVISION ) ON APPEAL FROM A DEICISION OF A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN : MAGENTA NOMINEES PTY LTD Appellant/ Cross Respondent AND : RICHARD ELLIS (WESTERN AUSTRALIA) PTY LTD First Respondent/ Cross Appellant AND : ALEXANDER JOHN CORBETT Second Respondent AND : PAUL WINTON Third Respondent/ Cross Appellant CORAM: SPENDER, FRENCH & LEE JJ PLACE: PERTH DATE: 29 AUGUST 1995 REASONS FOR JUDGMENT THE COURT: This is an appeal and cross-appeal from the judgment of a single judge of this Court (Carr J) arising out of the purchase by the appellant at the end of 1988 of the land and buildings which comprise the Kelmscott Village Shopping Centre ('the shopping centre') at Kelmscott, a suburb of Perth. In the primary proceeding the appellant, Magenta Nominees Pty Ltd, ('Magenta'), sought damages from: the first respondent ('Richard Ellis'), which was the manager of the shopping centre, and which, in about July 1988, was retained by Collendina Nominees Pty Ltd ('Collendina') as agent to sell the shopping centre; the second respondent ('Mr Corbett'), a director of Richard Ellis; the third respondent (as fourth respondent in the proceeding), ('Mr Winton'), at relevant times an employee of Richard Ellis; and Ian Holmes, (as third respondent in the proceeding, ('Mr Holmes'), an employee of Richard Ellis. The shopping centre was owned by Collendina, which was controlled by a Mr David Stewart ('Mr Stewart'). Mr Stewart controlled other companies which owned shopping centres in the Perth metropolitan area and he also controlled a company called Caland Pty Ltd ('Caland'), which company traded as "Harvest Fresh" and operated five fruit and vegetable retail outlets, known as "Growers' Markets" in the suburbs of Perth, including one in the shopping centre. The claim by Magenta was in two parts. The first was a claim for damages for misleading or deceptive conduct contrary to s. 52 of the Trade Practices Act 1974 ('the Act') in relation to statements about the Growers' Market at the shopping centre. This claim was based upon alleged oral misrepresentations by Mr Corbett and by what was said to be written misrepresentations based upon the terms of a facsimile sent by Mr Corbett on 15 September 1988. Mr Corbett was said to be a person knowingly concerned in this conduct. The same conduct was relied upon for an alternative claim in negligence. The second part of Magenta's claim was a claim for damages for, inter alia, misleading or deceptive conduct quantified in the sum of $52,290.29, being the amount of municipal rates and charges, and a penalty for late payment, paid by Magenta to the City of Armadale ('the Council rates'). Mr Holmes and Mr Winton were said to be persons knowingly concerned in that conduct. Magenta failed after a ten day trial in its case based on the claimed oral and written misrepresentations, the oral misrepresentations not being made out and the primary judge concluding that the facsimile represented an opinion honestly held at the time, and until some time in December 1988, about the security of income offered by the shopping centre. The primary judge also concluded that Magenta failed on the issue of reliance, holding that Mr Chesson, who was a duly licensed real estate agent and business agent and the principal person acting for Magenta in the purchase of the shopping centre, did not rely on the facsimile of 15 September 1988, or upon anything that Mr Corbett said to Mr Chesson about the shopping centre. The primary judge further found that not only was there no misrepresentation and no reliance, but that on the question of damages, it had not been shown that the shopping centre was not worth what the appellant had paid for it at settlement. At the trial it was common ground that the balance of the purchase price payable by Magenta at settlement was calculated on the basis that the vendor of the shopping centre, Collendina, had paid the Council rates. Collendina had not paid the Council rates and subsequently went into liquidation without having paid them. It was asserted before the primary judge that Richard Ellis, by making certain representations about payment of the Council rates, contravened s. 52 when read with s. 51A of the Act, and was thus liable to Magenta for damages pursuant to s. 82 of the Act and that Mr Holmes and Mr Winton were persons knowingly concerned in that contravention. It was also asserted that the claim in respect of Council rates could be made out against Richard Ellis as a breach of contract, or on a third basis, for breach of statutory duty, namely, a duty said to arise under s. 65(1) of the Real Estate and Business Agents Act 1978 (WA). The primary judge concluded that Mr Chesson had received assurances from Richard Ellis through Mr Holmes and Mr Winton that Richard Ellis had received from the tenants the moneys required to pay virtually all of the Council rates and that Richard Ellis would pay the Council rates at or shortly after settlement. His Honour concluded that when Mr Winton and Mr Holmes made the representations to Mr Chesson, at that time Richard Ellis had reasonable grounds for making them; that position changed at some time on 22 November 1988 when Mrs Stewart, the wife of Mr Stewart, told Mr Winton that Messrs Mallesons Stephen Jaques, the solicitors for the vendors, would pay the Council rates. His Honour found that the effect of later communications to Richard Ellis falsified the earlier representations, that the uncorrected earlier representations misled Magenta, and that Richard Ellis's conduct in allowing those representations to continue constituted misleading and deceptive conduct within s. 52 of the Act. His Honour held that Mr Winton was knowingly concerned in that misleading and deceptive conduct of Richard Ellis but that the evidence was insufficient to show that Mr Holmes was knowingly concerned in that conduct. Having reached those conclusions, the primary judge did not consider it necessary to consider the basis of the claim in contract or whether there was a duty as alleged under s. 65(1) of the Real Estate and Business Agents Act 1978 (WA) to ensure that the Council rates were paid. The claim for damages based on misrepresentations was dismissed and the claim concerning the Council rates resulted in judgment for Magenta against Richard Ellis and Mr Winton for $52,290.29 plus interest, the quantum of which was agreed at $37,029.52. Subsequent to the trial there was further argument as to costs, during which it was common ground that about one-third of the time taken to trial was in respect of the Council rates claim and two-thirds in respect of the claims in which the applicant was unsuccessful. The primary judge ordered that Magenta pay the respondents' costs, to be taxed, in respect of its unsuccessful claims in respect of the acquisition of the shopping centre (and an unsuccessful claim, relating to a number of parking bays, which had been abandoned on the third day of the trial), but that the first respondent and the fourth respondent pay Magenta's costs, to be taxed, in respect of the claim for damages in respect of Council rates up until 2 February 1994 and that such costs not be reduced by one-third under O 62 r 36A(1), and there be no order as to costs in respect of the Council rates claims after 2 February 1994. The division of costs pre and post 2 February 1994 was as a consequence of his Honour's consideration of a 'Calderbank' type letter. In respect of costs which had been reserved or ordered to be costs in the cause, the primary judge ordered that the applicant pay one-third of the respondents' costs, to be taxed, and that there be no order as to costs in respect of the hearing concerning questions of interest and costs which had occurred on 11 May 1994. In its appeal, Magenta seeks that judgment be entered for it in respect of its claim based on misrepresent- ation or, alternatively, that the Full Court should decide on the value of the supermarket as at 6 December 1988 and direct a new trial on the issues of misleading and deceptive conduct and reliance. Magenta further sought that it should have the costs of the claim relating to the Council rates in full. There was an alternative claim that the first and second respondents should pay Magenta's costs in respect of the issue concerning the insolvency of Caland. Richard Ellis and Mr Winton cross-appealed against the finding concerning the Council rates plus interest and the costs order made concerning those matters. There was a notice of contention by Magenta concerning the judgment by the primary judge for the Council rates plus interest at an agreed quantum, it being asserted that that judgment could be supported on the proper construction of s. 65(1) of the Real Estate and Business Agents Act 1978 (WA) and on the claim that Richard Ellis breached its duty to the appellant under that section and is liable to Magenta for the loss Magenta suffered by reason of Richard Ellis's breach of duty or, alternatively, Richard Ellis agreed to pay the rates and is liable to Magenta in damages for breach of contract in failing to do so. Dealing with the appeal by Magenta, it should be said that Magenta faces a series of major consecutive hurdles, being the findings by the primary judge concerning the non-making of the claimed oral representations and the conclusion that the written representations expressed an opinion honestly held at the time concerning the security of income offered by the shopping centre, and the finding by the primary judge of non-reliance upon anything Mr Corbett said to Mr Chesson about the shopping centre and the finding that the claim for damages had not been made out. The findings of the primary judge concerning mis- representation and reliance are based in large measure on his Honour's assessment of Mr Chesson, and his assessment of Mr Corbett. In that context it is necessary to set out the facts a little more fully. Richard Ellis advertised the shopping centre in "The West Australian" newspaper on five occasions during the period 30 July 1988 to 24 August 1988. Mr Chesson responded to one of those advertisements, although there was a dispute as to when precisely that response occurred. Mr Chesson, prior to his dealings with the shopping centre, had previously organised small groups of investors interested in purchasing shopping centres as a going concern. Mr Chesson would usually form or obtain a corporate trustee to purchase the shopping centre and the group of investors or trustees of their family trusts would purchase units in the unit trust of which the company was trustee. Mr Chesson controlled a settlement agency, 'Master Settlements', which represented the applicant in respect of settlement of the shopping centre, and a real estate firm, 'Chesson & Co.', which after settlement of the shopping centre, took over the management of it from Richard Ellis. After some negotiations, a written contract of 19 September 1988 for the purchase of the shopping centre was entered into by Temco Pty Ltd ('Temco'), a company controlled by Mr Chesson and interests associated with him for $6.1 million payable as to $20,000.00 by way of deposit, which was paid on 19 September 1988, and the balance being expressed as payable on "Settlement Date" nominated as 1 December 1988. That contract was conditional upon Temco securing finance, and there was a special condition providing for novation to a nominated purchaser. There had been an earlier offer of $6 million by Temco, accompanied by a cheque for $20,000.00, which had been rejected and the vendor had counter offered to sell at a price of $6.2 million. Subsequent to that, the Temco contract at $6.1 million was executed. On 4 November 1988, Richard Ellis were advised that the nominee contemplated by the Temco contract was the appellant as trustee for the Kelmscott Village (1988) Unit Trust. The appellant had been incorporated as a shelf company and by the time of the advice to Richard Ellis, Mr Chesson and his wife were directors of the appellant. The balance of the deposit was paid on 7 November 1988 by bank cheque from an account styled "Magenta Nominees Pty Ltd. as T/ee for Kelmscott Village (1988) Unit Trust". On 29 November 1988 a new contract showing Collendina as the vendor and Magenta as the purchaser on the same price and essentially the same terms and conditions was executed. The deposits paid under the Temco contract were refunded and Magenta paid a deposit in the same amount to the solicitors for Collendina. The settlement of the transaction took place on 6 December 1988. The oral representations relied on before the primary judge related to the financial position of Caland and Mr Stewart. It was pleaded that the oral representations were made in October 1988, after the Temco contract was executed but before execution of the Magenta contract. In his evidence, Mr Chesson said that he, at the time of those representations, was aware from examining the shopping centre leases that Mr Stewart was a director of both Collendina and Caland and was a guarantor of Caland's obligations as lessee of Collendina. The representations relied on were the statements said to have been made by Mr Corbett to Mr Chesson that Harvest Fresh and Mr Stewart were financially sound, that Stewart was a very wealthy man and operated six growers' markets in the suburbs of Perth and the reason he was selling the shopping centre was that he was buying a much larger shopping centre. It was claimed that these statements about Mr Stewart were later repeated and there was a further representation that Harvest Fresh's business at the shopping centre was worth $500,000.00. It was asserted that the acceptance of the cheque from Magenta for $590,000.00 on 7 November 1988 with a failure to withdraw or qualify the representations concerning the financial soundness of Harvest Fresh or Mr Stewart was an implied repetition of them. The written representation is said to be contained in a facsimile transmission of 15 September 1988 from Richard Ellis to Mr Chesson, the first two paragraphs of which read as follows: "Further to our recent discussions regarding the above property, please find attached some brief comments regarding the potential investment viability of the property. We believe the Kelmscott Village Shopping Centre is an outstanding opportunity to purchase a property which has significant rental and capital growth in the short term. The property offers excellent security of income as it is leased to sound tenants including Woolworths who are one of the top 100 biggest companies in Australia, Red Rooster Fast Food who are owned by Myer/Coles, a Growers Market who has several stores in the metropolitan area and a range of specialty shops, many of whom have occupied the premises for many years. " Magenta claimed that the representations were false in that Harvest Fresh was not financially sound between 14 September 1988 and 6 December 1988 but, on the contrary, was insolvent; that on the date of settlement it was incapable of paying rent including variable rent for the Growers' Market in the shopping centre; and thereafter failed to pay such rent; Harvest Fresh was not a sound tenant; the shopping centre did not offer excellent security of income and there was no potential for significant increases in rents; between those same dates Mr Stewart was in financial difficulties and was unable to and failed to pay any rent to the applicant under his guarantee; and that the sale of the shopping centre was not in order to acquire a larger shopping centre but because Mr Stewart was in financial difficulties. The allegations on which Magenta relied were denied by the respondents. The essence of the respondents' case was that between 12 and 16 September 1988 Mr Corbett told Mr Chesson that Richard Ellis had managed the shopping centre on behalf of Collendina for some time and that the majority of traders there seemed to be trading "okay" and whenever Mr Corbett had been at the shopping centre the Growers' Market seemed to have a number of customers. The respondents' pleadings assert that Mr Stewart told Mr Corbett that the Growers' Market at Dog Swamp was one of his better trading stores which commanded a goodwill in the order of several hundred thousand to $500,000.00 and that the Kelmscott Growers' Market also commanded a goodwill value; that Mr Stewart owned several major shopping centres and a chain of growers' markets and had told Mr Corbett that the reason he was selling the Shopping Centre was because he was looking at buying and developing another centre, that Mr Stewart was a shopping centre developer who had expanded the Shopping Centre and was looking for another shopping centre to develop; that he was not aware of Mr Stewart's financial affairs but that he knew Mr Stewart owned a number of shopping centres, had an interest in the Growers' Market, lived in Jutland Parade, Dalkeith, used to be a director of Armstrong Jones and that he believed Mr Stewart to be a wealthy man but was not aware of his financial affairs. The reasons of the primary judge recite the evidence of Mr Chesson about the misrepresentations and the evidence of Mr Stinson, an employee of Chesson & Co., as well as the evidence of Mr Corbett. The primary judge said of Mr Stinson:- "...his memory of events was not such that I could place any reliance upon his evidence..." The primary judge substantially accepted the chronology of events deposed to by Mr Corbett. Mr Chesson was the organiser of syndicates which already owned three shopping centres, a factor treated by the primary judge as lending point to the enquiries concerning the financial standing of Mr Stewart made by Mr Chesson. His Honour noted:- "...it seems to me highly likely that Mr Chesson would regard any weakness in Mr Stewart's financial position as being a most important subject to be explored and if possible commercially exploited in terms of the offered price. " The primary judge's finding was: "In relation to the oral representations concerning the financial position of Mr Stewart and his chain of 'Harvest Fresh' stores, I believe Mr Corbett's evidence. I think he was a truthful witness and there is a critical difference between his evidence and that of Mr Chesson. " His Honour found that what Mr Corbett told Mr Chesson was not misleading or deceptive or likely to mislead or deceive. Concerning the claimed written misrepresentation, the primary judge acknowledged the importance of the Growers' Market, particularly as a draw for specialty tenants at the northern end of the shopping centre. He found that the representation that the shopping centre offered excellent security of income was not mere "puffery" but constituted a material representation. However, his Honour concluded that the context of the statement was that there was a primary statement, namely, that the property offered excellent security of income followed by reasoning to support that claim, including the reference to "sound tenants" which included in a list the Growers' Market, as it did every other tenant in the shopping centre. His Honour concluded that the statement was one of opinion as to security of income from the shopping centre and that Mr Corbett held that opinion as at 15 September until settlement. He also found that Mr Corbett held the opinion that Caland was a sound tenant as at 15 September 1988 until at least 6 December 1988. Nonetheless, his Honour addressed the question of whether the description was an accurate one as a matter of fact. His Honour concluded:- "With hindsight I do not think that it was factually accurate to describe Caland as a sound tenant as at 15 September 1988. I am also satisfied that nobody at Richard Ellis suspected what was the true situation, although in a s. 52 case of this type that absence of knowledge is no defence if a statement of fact is involved. " His Honour nonetheless concluded that the fact that one of the tenants (albeit a major one) was not a sound tenant did not make the statement complained of misleading or deceptive if the principal statement concerning excellent security of income was accurate, as the primary judge believed it was. Notwithstanding the problems associated with the Harvest Fresh Growers' Market, some eight months after settlement Mr Chesson had prepared a report to the unit holders in Magenta which referred to a return on investment at settlement of 11.62% and contained a schedule which showed that the current rate of return was just slightly above budget at 13.01%. The report stated:- "By applying the same basis for rate of return on investment at the time of purchase, that is 11.62%, the property is effectively valued at $6.8 million. " The rent from the Growers' Market represented 12.6% of the total rentals. It was common ground that the rent payable by Caland approximated the current fair market rent although towards the top end of the scale. It was in that context that the primary judge noted that:- "Security of income does not depend solely on the soundness of the tenant. The ease with which the premises may be relet and the level of rental obtainable are, in my view, very relevant factors. " His Honour expressed the view that the fact that Harvest Fresh was not a sound tenant as at September 1988 did not make the statement in the facsimile misleading or deceptive or likely to mislead or deceive. As to the alleged oral misrepresentations, Mr Pringle QC, senior counsel for Magenta, valiantly submitted that the primary judge's criticisms of Mr Chesson's evidence were unwarranted and that his evidence ought to have been preferred to Mr Corbett's, and further submitted that the finding that Mr Stinson's evidence was vague and could not be relied upon should not be accepted and should be reversed. The position is that the primary judge was confronted with differing versions of evidence; he had the opportunity of seeing the respective witnesses and hearing them cross-examined; and in respect of both the oral representations and the facsimile the finding of non-reliance by the primary judge involves an assessment of witnesses in respect of which he has a permanent advantage over an appeal court. His conclusions do not involve any error of principle or patent misuse of the advantage he undoubtedly enjoyed. The powers and obligations of appellate courts hearing appeals from findings of fact by a single judge is a field now well tilled. The authorities are recited in the judgment of Cooper J in Paul Mitchell Systems (Australia) Pty Ltd v Paul Mitchell Systems Pty Ltd (No. WAG 158 of 1993, an unreported decision of the Full Court, 21 July 1995), with whom on this aspect French and Lee JJ agreed. Where, as here, the primary judge's finding is based even in part on his assessment of the trustworthiness of witnesses who have given oral testimony, the observations by Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479 are apposite:- "More than once in recent years, this court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact... . If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' ( S.S. Hontestroom v S.S. Sagaporack [1927] AC 37, at p47.) or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable' (Brunskill (1985) 62 ALR 53, at p 57.)" As to the written facsimile, the conclusion expressed about security of income was ultimately demonstrated to be correct. Moreover, the factual finding that Mr Corbett honestly entertained that opinion at the time of making the statement was clearly open on the evidence to the primary judge. Even if it be accepted that the facsimile was a representation of fact as to the soundness of Caland as a tenant (and so constituted a misrepresentation of fact), there can be no basis for interfering with the primary judge's conclusion of non-reliance by Mr Chesson on it. The primary judge found that most of the problems encountered as a result of the Growers' Market were of Magenta's own making and stemmed from "the fairly aggressive manner in which it dealt with Caland and the re-letting of the premises". On 26 January 1989 Chesson & Co. wrote to Caland increasing Caland's rent by 20% as from 1 December 1988. The final paragraph of that letter stated: "Within the terms of your Lease rental is payable on or before the 1st of each month. Please ensure that this requirement is strictly adhered to. " That was the only written demand for payment of rent before Magenta effectively closed down the Harvest Fresh store by retaking possession of the premises unilaterally and changing the locks on the doors on 13 February 1989. Magenta purchased Caland's plant and equipment on 16 March 1989 and at about that time refused an offer to lease those premises, demanding a rental of $180.00 per square metre per annum compared with the rent payable by Caland prior to the Magenta review of $143.00 per square metre per annum. The primary judge noted: "Mr Chesson took a thoroughly professional approach to the question of the acquisition of shopping centres. As he told his bank manager in November 1988...he had '...been looking for a suitable centre for the past 6 months and actually carried out feasability (sic) studies on 14 other centres during that period before deciding on Kelmscott.'" The primary judge's findings on reliance cannot successfully be attacked. So too, the primary judge's con-clusion that Magenta did not demonstrate that its acquisition price of $6.1 million was at an over-value. It was common ground that if it became necessary to assess damages, the proper measure of damages was the difference between the price paid for the shopping centre and its true value as at 6 December 1988. It was also common ground that the correct method of assessing the value at that date was to apply an appropriate capitalisation rate or yield to the gross rental income. The primary judge correctly identified that the value of the shopping centre was to be determined by applying an appropriate capitalisation rate to the gross rentals. Magenta called a valuer, Mr Wilkinson, who applied to a gross rental income of $729,985.00 a capitalisation rate in the range 12.75% to 13% per annum. His gross rental income figure was obtained from the gross rental at the time of the sale, plus an electricity profit margin of approximately $25,000.00, a modified guaranteed rental for an empty shop, and an increase in the Harvest Fresh rent of $11,455.00. His evidence was that the absence of the Growers' Market as a tenant would require the yield to be increased by between 0.5% and 0.75%. Under cross-examination he conceded that equally competent valuers might differ about an appropriate capitalisation rate, but that in the present case "it would be difficult to argue that it would be below 12%". For the respondents, Mr Sanderson, a valuer, based his value on a gross rental income of $706,880.00 which included a rent of $75,000.00 p.a. for the Growers' Market. He thought an appropriate capitalisation rate was 11.5. The report by Mr Wilkinson indicated a value on his assumptions of between $5,725,372.00 or $5,615,269.00 depend-ing on whether a capitalisation rate of 12.75% or 13% were applied. Mr Sanderson's range was between $5,889,000.00 and $6,145,000.00, depending upon whether a capitalisation rate of 12% or 11.5% were applied. The primary judge relied primarily on the evidence of the two valuers, but also on other evidence to which some reference must be made shortly, to reach his conclusion that he was not persuaded that Magenta paid more than fair market value for the shopping centre, and accordingly it suffered no capital loss when it completed the purchase on 6 December 1988 for $6.1 million. It was submitted on behalf of the appellant that the primary judge erred in failing to determine which were in fact comparable sales, what was the appropriate capitalisation rate, and what was the value of the shopping centre, and further failing to give adequate reasons in those respects. It is true, as Asprey JA said in Pettitt v Dunkley [1971] 1 NSWLR 376 at 382: "...the judge's findings of fact and his reasons are essential for the purpose of enabling a proper understanding of the basis upon which the verdict entered has been reached, and the judge has a duty, as part of the exercise of his judicial office, to state the findings and the reasons for his decision adequately for that purpose. " NRMA Insurance Ltd v Tatt (1990) 92 ALR 299 is a case in which the majority of the court of appeal, Hope & Samuels JJA, with McHugh JA dissenting, found that that judicial obligation had not in the circumstances of that case been carried out. That is not the case here. It is not necessary for a judge in the course of reaching a view as to the value of a shopping centre at a particular time to identify which of the various sales referred to by the various witnesses were comparable to the subject, nor is it necessary for him to identify a precise appropriate capitalisation rate to apply in the determination of that value or to reach a dollar and cents figure as to the value of the shopping centre. If it is apparent from his reasoning that on the adoption of whatever be the appropriate capitalisation rate the purchase price is not shown to have been an over-value, then the issue falling for his determination has been adequately explained. Spencer v The Commonwealth (1907) 5 CLR 418 remains a leading authority on the correct approach to valuation. In that case, Isaacs J at 442-443 quoted with approval the advice of the Privy Council in Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co. [1901] AC 373 at 391: "It is quite true that in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at." As Hope JA indicated in Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 436, that passage from the Privy Council advice has been repeatedly relied on. Leichardt v Seatainer was one such instance. As Hope JA said at 437: "It was undoubtedly [the primary judge's] duty to determine the values himself. However, he had to do so in the light of the evidence before him, including the expert evidence of valuers. " It was further submitted that the primary judge failed to give sufficient attention to the insolvency of Caland in the determination of the value of the shopping centre at settlement and it was submitted on behalf of Magenta that the lack of any other available comparable operator justified the inflation of the capitalisation rate. However, valuers from both sides agreed that the rental of $75,000.00 payable by Caland was within the range of the market rental for that shop. If a valuer were then to take that figure as part of the gross rental income, it would be wrong to apply a higher than normal capitalisation rate to such gross rental. Valuation is not an exact science but it is appropriate in the circumstances of this case to seek to assess the achievable market rentals of the property at the time of valuation and apply to that gross rental figure what is an appropriate capitalisation rate for that type of property. If one were to accept Mr Wilkinson's gross rental figures but reduce the gross rental figure by the $11,455.00, being the increased rental on which he made his calculations, so that the Harvest Fresh rental is the $75,000.00 figure, the gross rental income is $718,530.00. That, on the purchase price of $6.1 million, represents a capitalisation rate of 11.78%. At a capitalisation rate of 12% on that gross rental income figure, the value derived would be $5,987,750.00 and at 11.5% it would have been $6,248,086.00. On the evidence it is therefore not possible to conclude that the primary judge's conclusion that he was not satisfied that the purchase price was an over-value was not open to him. There was further evidence supporting his Honour's conclusion. His Honour acknowledged his primary reliance on the evidence of the expert valuers, but it was evidence from a Mr Crowe, a licensed valuer employed by Richard Ellis, who on 22 April 1988 valued the shopping centre at $6,056,786.00, adopting a capitalisation rate of 11.5%. There are some bank memoranda from the Australia and New Zealand Banking Group Ltd Lending Centre which suggest a fair market value of $6 million on 7 November 1988, and a formal valuation of $6.1 million is referred to in a memorandum dated 21 November 1988. It is relevant that his Honour had regard to Mr Chesson's report to unit holders dated 16 August 1989, where, as outlined earlier, Mr Chesson said: "By applying the same basis for rate of return on investment at the time of purchase, that is 11.62%, the property is effectively valued at $6.8 million. " It was open to the primary judge to place reliance on Mr Chesson's derived capitalisation rate of 11.62% on the purchase price, "having regard to [his] previous experience in buying shopping centres and the investigations which he carried out over six months in 1988 into some fourteen shopping centres...". The rate of 11.62% was referred to by Mr Chesson in his information memorandum prepared for prospective unit trust holders on about 1 October 1988 and the reference to 11.62% in that memorandum is made without any suggestion that it is either higher or lower than the yield one might normally expect. The grounds of appeal directed to the proof of damages fail. It is convenient next to deal next with the cross-appeal. Magenta successfully contended below that between 18 to 30 November 1988 Mr Chesson received assurances from Richard Ellis through Mr Holmes and Mr Winton that Richard Ellis had received from the tenants the moneys required to pay virtually all of the Council rates and that Richard Ellis would pay the Council rates at or shortly after settlement. This finding is expressly made by the primary judge accepting Mr Chesson's evidence in respect of this issue, notwithstanding that in other respects he disbelieved Mr Chesson's account and notwithstanding that there were several other unsatisfactory aspects concerning the evidence. Amongst his reasons for so concluding, the primary judge said: "Mr Chesson is an experienced real estate agent and an astute businessman. I do not believe that, knowing the Council Rates had not been paid, he would have allowed settlement to take place without receiving what he would regard as ironclad assurances that the Council Rates would be paid. My assessment of Mr Chesson is that he would have considered assurances from Richard Ellis that they held the Council Rates in trust and would pay them at or shortly after settlement constituted such an ironclad undertaking. " A further reason for reaching that conclusion was the absolute acceptance by the primary judge of the evidence of a Mr Hindle, one of Mr Chesson's employees, who, amongst other things, said that in two meetings, one on 25 November 1988 and the second on 8 December 1988, Mr Holmes told him that the Council rates had not been paid but that Richard Ellis would pay them. The respondents denied the making of the representations and the undertakings which Magenta alleges were made by Mr Holmes and Mr Winton. It is admitted that Richard Ellis was in possession of sufficient funds to pay the Council rates in the sum of $47,536.63. It is accepted that it failed to pay that amount to the city of Armadale and it did in fact arrange to pay, and paid, the moneys to Collendina. Subsequent to settlement, Collendina was insolvent, did not pay the Council rates, Magenta subsequently paid the Council rates plus a penalty of $4,753.66 and no part of that sum has been recovered or is recoverable by Magenta from Collendina. It was submitted on behalf of the respondents that the acceptance of Mr Chesson's evidence in preference to the denials by Mr Holmes and Mr Winton was erroneous and that the appeal court should reach a conclusion contrary to that of the primary judge. As part of that submission, a similar claim was made concerning the assessment of the evidence of Mr Hindle. It was submitted that this was "the truly exceptional case" where an appeal court should interfere with findings, notwithstanding those findings are based on an assessment of witnesses who have given extensive oral evidence and been subjected to cross-examination at the trial. The proper approach by an appeal court in this context has earlier been set out. The criticisms that have been made of Mr Chesson's evidence were acknowledged by the primary judge and clearly taken into account by him prior to reaching his conclusion. It is impossible to accept the submission that the evidence of Mr Chesson was so generally unsatisfactory that the evidence from him on this issue, corroborated as it was in significant respects by the evidence of Mr Hindle, should not have been accepted by the primary judge. It was further submitted, alternatively, that even on the primary judge's findings, he should have found for the respondents on the question of the Council rates issue. The argument on this basis is complex, but on analysis is not made out. The primary judge found that on or about 18 November 1988, Mr Winton told Mr Chesson that Richard Ellis were going to pay the Council rates to the Council before or immediately after settlement, and there was a similar conversation on or about 22 November 1988 between Mr Chesson and Mr Winton, and at about the same time a conversation in similar terms between Mr Chesson and Mr Holmes. The primary judge found that at the time those representations were made, Richard Ellis had reasonable grounds for making them. On 21 November 1988 Richard Ellis sent a fax to Mrs Stewart, (who issued instructions to Richard Ellis in respect of these matters), asking:- "Would you please confirm that we should withdraw the necessary funds from the trust account to make payment of the 1988/89 Council Rates. " Mrs Stewart had a phone call with Mr Holmes on 21 November 1988 from which the primary judge inferred that Mrs Stewart asked Mr Holmes to obtain a further extension of time for payment of the rates, and that Mr Holmes instructed Mr Winton to contact the Council for that purpose. Mr Winton obtained an extension of the time to pay the rates until 9 December 1988 and faxed Mrs Stewart with that information and the information that the balance in the trust account after expenses but excluding Council rates was $26,719.34 and sought the owner's remittance instructions. On 22 November 1988, Mr Winton has recorded that Cheryl Stewart phoned him with an instruction to remit all funds, less those funds for expenses to be paid but excluding Council rates, to Collendina and Mr Winton was told that "Mallesons will pay Council Rates at settlement". On 29 November, Richard Ellis sent a proposed variable outgoing settlement statement to Chesson & Co which was predicated on the vendor paying the Council rates "on Settlement". That statement showed that Magenta would be entitled at settlement to a payment of $22,875.92. If the settlement statement had been calculated on the basis that Magenta would eventually pay the Council rates, the amount of payment to which Magenta would have been entitled on settlement would have been $70,412.55. This communication would have reinforced any belief in Magenta that the burden of paying the council rates did not fall to it. The primary judge held that the conduct of Richard Ellis in allowing the representations that Richard Ellis would pay the rates at settlement after Mrs Stewart had made plain that Mallesons would pay the Council rates, constituted misleading and deceptive conduct. The primary judge found that what Mr Winton and Mr Holmes had told Mr Chesson would take place was no longer true. The primary judge found that if Magenta had been informed that there was to be a new arrangement whereby Mallesons would pay the Council rates, Magenta would have insisted upon either proof of payment being produced at settlement or the appropriate credit of $70,412.55 being reflected in the settlement statement agreed with Mallesons. At settlement neither Collendina, Mallesons, or Richard Ellis had paid or made arrangements to pay the Council rates. On 6 December, 1988, the date of settlement, the balance in the Richard Ellis trust account for Collendina was sufficient to have enabled the council rates to have been paid. By facsimile on 9 December 1988, Richard Ellis, through Mr Holmes, confirmed instructions from Mrs Stewart to Mr Winton by telephone on that day that all funds in the trust account were to be remitted to Collendina that day and that Richard Ellis was not to pay the Council rates due on that day in the sum of $47,536.63 and that Collendina "will be arranging payment/extension of time to pay as necessary". This countermand in respect of the payment of the council rates is relied on by the cross-appellant. The notation on the facsimile indicates that on 10 January 1989, an officer of Richard Ellis contacted an officer of Collendina who advised that the Council rates would be paid within one week, and there is a further notation by Mr Winton dated 31 January 1989 recording advice by the City of Armadale that the Council rates were still outstanding. There is a finding by the primary judge which is crucial for this particular part of the argument. The primary judge said: "It is obvious that Richard Ellis then knew [being a reference to 9 December 1988] that the Council Rates had not been paid and I infer that until Mrs Stewart's instructions to Mr Winton on that date Richard Ellis were expecting an instruction to pay the Council Rates from moneys held by them particularly as the extended time for payment was about to expire on that date. " The primary judge concluded that the arrangement that Mallesons would be paying the Council rates at settlement had, sometime late in November 1988, been changed back to an "expectation" that Richard Ellis would pay the rates. The submission on this basis is that after the change back to Richard Ellis being responsible for the payment of the rates, the position was no different from that which originally existed between 18 and 21 November 1988, which the primary judge, found was a time when Richard Ellis had reasonable grounds for making those representations. However, the highest that can be said of the belief of Richard Ellis in respect of the responsibility for paying the Council rates either at or shortly after settlement that had reverted to it was that it expected that it would get instructions from Collendina to pay the Council rates. That position was quite different from the conduct that Richard Ellis had represented to Mr Chesson it would engage in in respect of the payment of the Council rates. Its failure to communicate that the position was not as it had earlier represented, namely that it would pay the Council rates at or shortly after settlement, was conduct on which it was properly open to the primary judge to conclude as he did, namely that Richard Ellis's conduct in allowing the original representations to continue uncorrected constituted misleading and deceptive conduct within s. 52 of the Act. As the primary judge rightly observed: "What Mr Winton and Mr Holmes had told Mr Chesson would take place was no longer true. " For the above reasons, the cross-appeal should be dismissed. In the light of that conclusion concerning the disposition of the cross-appeal, it is unnecessary to consider the notice of contention. The final question concerns the costs orders that the primary judge made in respect of the rates and taxes issue. The primary judge allowed Magenta its costs concerning that issue until 2 February 1994 and made no order concerning the costs of that issue subsequent to that date. Notwithstanding that the amount of judgment for Magenta on that issue was less than $100,000.00, the primary judge ordered that the costs to be paid pursuant to the claim for damages in respect of the Council rates not be reduced by one-third under O 62 r 36A(1). No appeal is brought from that aspect of the matter. Magenta submitted below, unsuccessfully, that the respondents should pay its costs in respect of the issue involving the insolvency or otherwise of Caland. It was accepted that a considerable volume of evidence, including expert evidence, was adduced in relation to that issue and reliance was placed on Cretazzo v Lombardi (1975) 13 SASR 4 at 11 and Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 207-209. The primary judge nonetheless did not feel that there was "sufficient about the insolvency issue to remove it from the context of the particular claim of which it was part and in respect of which the applicant was unsuccessful". Sufficient grounds have not been shown to justify interfering with the exercise of the primary judge's discretion in declining to make a separate order in respect of the Caland insolvency issue. As to the appeal from that part of the costs order which deprived Magenta of part of its costs in respect of the Council rates claim, the position was that on 24 December 1993, the respondents' solicitors wrote to the applicant's solicitors a 'without prejudice' letter offering on behalf of their clients to pay the applicant the sum of $90,000.00 plus costs to be taxed up to that date, in full and final settlement of the applicant's claims. The offer was conditional upon the Magenta withdrawing certain complaints made against the first respondent and others before the Real Estate and Business Agents Supervisory Board of Western Australia, which arose out of the facts bound up with the Council rates claim. The offer was further conditional upon the execution of a deed of release and a confidentiality requirement, and was open until 5 p.m. on Thursday, 30 December 1993. The offer letter expressly reserved the right to show the letter to the court on the question of costs. The offer was rejected by the applicant. The sum referred to in that letter, namely $90,000.00, is slightly in excess of the amount of the judgment, including interest, which the primary judge awarded to Magenta in respect of the Council rates claim. On 7 January 1994, the respondents filed a security in the sum of $90,000.00 in accordance with O 23, and, in particular, rr 2(2) and 15 of the Federal Court Rules. Magenta's solicitors took issue with the form of the notice given in relation to the security to pay into court, on the basis that the respondents had not allotted the money amongst the various causes of action. Those causes of action had three bases: the claim concerning the under-value of the shopping centre based on misrepresentations, a claim in respect of car-parking spaces which was discontinued on the third day of the trial, and the claim in respect of the Council rates. On 11 January 1994, the respondents' solicitors advised the applicant's solicitors that the $90,000.00 was in answer to all causes of action on which Magenta claimed. Magenta then applied on motion for orders that the respondents specifically allot the $90,000.00 among the various causes of action in the matter. This motion was opposed. After a hearing, French J ordered the respondents specifically allot the money brought into court amongst the various causes of action but gave the respondents the right, if an allotment was not made, to withdraw the security deposit, in the event that an amended Notice of Deposit was not filed on or before 31 January 1994. The respondents exercised their right to withdraw the security deposit. On 31 January 1994, a further letter was written to the applicant's solicitors offering to settle the application by payment of the sum of $90,000.00 plus costs to be taxed up to the date of the Notice of Deposit, being 11 January 1994, in full and final settlement of all the applicant's causes of action against the respondents. Similar conditions to the letter of 24 December 1993 were imposed and the time for acceptance of the offer contained in the letter was 5 p.m. on Wednesday, 2 February 1994. As the primary judge noted, the time available in which to consider the offer was just over two days, although the offer was in similar terms to that which had earlier been sent. The letter in the present case is different from that considered in Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, and bears some similarity to the letter in Calderbank v Calderbank [1976] Fam 93. It is somewhat similar to that considered by Rodgers J in Messiter v Hutchinson (1987) 10 NSWLR 525. Carr J, in Douglas v Minister for Aboriginal & Torres Strait Islander Affairs (an unreported decision of 24 May 1995), said: "In Hughes v Western Australian Cricket Association (Inc)(1986) 8 ATPR 40-748 at p. 48136 Toohey J conveniently set out three propositions as follows: ' l. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order... 2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that it bear the expense of litigating that portion upon which it has failed... 3. The successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, 'issue' does not mean a precise issue in technical pleading sense but any disputed question of fact or of law..." In a fairly recent decision of the Full Court of this Court, Dodds Family Investments Pty Ltd v Lane Industries Pty ltd (1993) 26 IPR 261 the Court observed (at pp. 271-272): ' The propositions enunciated in that case [Toohey J's decision in Hughes v Western Australian Cricket Association (Inc) are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case - [citing Cretazzo's case]. In Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 42 FLR 213, Fisher. J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J. and the other authorities mentioned above, the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs. " As Wilcox J observed in Lewis v Cummings, an unreported judgment of 29 May 1992 (the appeal of which is reported Cummings v Lewis (1993) 113 ALR 285): "It may be a mistake to dissect too much and one needs to make a broad judgment as to what is reasonable in the whole of the circumstances. " It was submitted on the appeal, as it was below, that the letter of 31 January 1994 should have been disregarded in view of the conditions sought to be imposed by it, and further that the respondents could have protected themselves in relation to costs had they allotted, pursuant to the order of French J under O 23 r 7, but the respondents withdrew the payment into court. It was also submitted that the claim by Magenta concerning the car parking spaces was discontinued and may still be asserted: see O 22 r 7. In those circumstances, it was submitted that the amount offered was not shown to be enough to cover all three claims. It was further then submitted that where an informal procedure, that is to say one which is not that which is provided by the Rules, is adopted, the risk that it will prove to be ineffective must be with the party declining to follow the prescribed procedure. The primary judge considered these objections, but also had regard to the consideration that the respondents wished to negotiate a global settlement - one, as matters turned out, which would have been more favourable to the applicant than the result which it achieved after a ten day trial. The primary judge considered that the offer had the very relevant and important purpose of promoting finality of litigation. He considered that had the offer been accepted, Magenta would have received the amount of $90,000.00 plus its taxed costs, avoiding ten days of hearing, and the costs of the final preparation for that hearing would have been saved. Having referred to the factors concerning the exercise of his discretion, he concluded that Magenta should have its costs in respect of the Council rates claim up until 2 February 1994, which was the date for acceptance of the offer in the letter of 31 January 1994, and that there should be no order as to costs in respect of that claim after that date. The reasons for judgment on the costs issue show that the primary judge was fully alive to the competing considerations. No error of principle has been shown in the exercise of his discretion and no basis demonstrated by which this Court should interfere with the exercise of that discretion. For all of the above reasons the appeal should be dismissed with costs and the cross-appeal should be dismissed with costs. I certify that this and the preceding thirty-seven (37) pages are a true copy of the Reasons for Judgment of the Court. Associate: Date: APPEARANCES Counsel for the Appellant/Cross Respondent: R.H.B. Pringle, Q.C. R.J. Hickey Solicitors for the Appellant/Cross Respondent: Hammond Worthington Prevost Counsel for the First, Second and Third Respondents/Cross Appellants: K.J. Martin C.L. Urquhart Solicitors for the First, Second and Third Respondents/Cross Appellants: Parker & Parker Date of Hearing : 25 and 26 July 1994 Date of Judgment : 29 August 1995