FEDERAL COURT OF AUSTRALIA Expectation Pty Ltd v PRD Realty Pty Ltd [2003] FCA 175 TRADE AND COMMERCE – s 52 of the Trade Practices Act 1974 (Cth) – whether representations made – whether representations relied on Trade Practices Act 1974 (Cth) ss 52, 82, 87 Federal Court of Australia Act 1974 (Cth) s 51 Fair Trading Act 1989 (Qld) ss 99, 100 Watson & Foxman and Others (2000) 49 NSWLR 315 referred to Gates v City Mutual Life Assurance Society Ltd (1985-86) 160 CLR 1 followed Spencer v The Commonwealth (1907) 5 CLR 418 EXPECTATION PTY LTD (ACN 009 030 102) v PRD REALTY PTY LTD (ACN 009 954 956) and OTHERS No WG 181 of 1996 SPENDER J BRISBANE 11 MARCH 2003 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WG 181 OF 1996 BETWEEN: EXPECTATION PTY LTD (ACN 009 030 102) APPLICANT AND: PRD REALTY PTY LTD (ACN 009 954 956) FIRST RESPONDENT GORDON DOUGLAS SECOND RESPONDENT JOHN HAMMOND THIRD RESPONDENT JUDGE: SPENDER J DATE OF ORDER: 11 MARCH 2003 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The parties provide written submissions within 14 days as to orders the Court should make, including orders as to costs, so as to give effect to the judgment. 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 WG 181 OF 1996 BETWEEN: EXPECTATION PTY LTD (ACN 009 030 102) APPLICANT AND: PRD REALTY PTY LTD (ACN 009 954 956) FIRST RESPONDENT GORDON DOUGLAS SECOND RESPONDENT JOHN HAMMOND THIRD RESPONDENT JUDGE: SPENDER J DATE: 11 MARCH 2003 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an application pursuant to s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act"). The original application and Statement of Claim were filed on 5 December 1996. Expectation Pty Ltd ("Expectation") was formed as Trustee of the Daisy Hill Family Trust. Though Expectation is the applicant in these proceedings, the central figure for the applicant is Mr Daniel Hill, the husband of Daisy Hill. Mr Hill is an investor of considerable wealth who rose from humble beginnings. His senior counsel described him as a "serious and well-heeled investor". 2 The conduct in issue in these proceedings relates to the entering into contracts to purchase two commercial shopping centres by the applicant. The transactions were arranged through Mr Gordon Douglas ("Mr Douglas") the second respondent, who was at all material times a director of PRD Realty Pty Ltd ("PRD Realty") the first respondent. The transaction that is the subject of the first part of these proceedings is the purchase of Benowa Gardens Shopping Centre ("Benowa Gardens"). A very real difficulty in this case is the conflict of interest and of duty that arises because PRD Realty was the vendor's agent in the sale of Benowa Gardens, and Mr Douglas also acted as buying agent and adviser to Mr Hill and Expectation concerning real estate acquisitions. Mr John Hammond ("Mr Hammond) the third respondent, was employed by the applicant as General Manager of Benowa Gardens . 3 The applicant claims damages against the first and second respondents pursuant to s 82 of the TP Act and s 99 of the Fair Trading Act 1989 (Qld) ("the FT Act"), and an order pursuant to s 87 of the TP Act and s 100 of the FT Act. Alternatively, damages for negligence and/or breach of fiduciary duty and/or breach of contract are sought. Interest on damages, pursuant to s 51 of the Federal Court of Australia Act 1974 (Cth) ("the FC Act") is also sought, in addition to costs. Mr Douglas is said to be knowingly concerned in the contraventions by Expectation. As against Mr Hammond, the applicant claims an indemnity against the loss of its right to claim against PRD Realty and Gordon Douglas in respect of Benowa Gardens if the agreement pleaded in par 9A of the further amended defence filed 7 February 2000, having the consequence that Expectation's right to sue PRD Realty was compromised, is made out. Alternatively, damages for breach of contract and breach of duty is claimed as against Mr Hammond, as well as interest on damages pursuant to s 51 of the FC Act, and costs. 4 Benowa Gardens is on the corner of Ashmore Road and Benowa Road at the Gold Coast. It opened for trading on 30 September 1992. PRD Realty acted as the leasing agent for the centre and acted as centre manager from the date of the opening. 5 On Friday 26 November 1993 Mr Hill inspected Benowa Gardens with Mr Douglas and Mr Ken Cooney, who was in charge of PRD Realty's shopping centre management activities. Mr Cooney was very experienced in retail shopping centres, having previously been the manager of the successful Pacific Fair Shopping Centre on the Gold Coast. The applicant claims that representations amounting to conduct which contravenes s 52 of the TP Act were made to Mr Hill about the centre during this inspection. 6 Subsequently, Expectation through Mr Hill provided instructions to a solicitor, Anthony Hickey ("Mr Hickey") to convey an expression of interest in Benowa Gardens at $14.1 million to Benoco Pty Ltd ("Benoco"), the vendor of Benowa Gardens. On 3 December 1993, Mr Hickey received a facsimile from Expectation authorising him to execute a contract to purchase Benowa Gardens for $15 million and pay $100,000 deposit. On execution of that contract, Mr Hickey forwarded it to the solicitors for the vendor. Expectation's offer to purchase Benowa Gardens was accepted by Benoco, who executed the contract of sale in the amount of $15 million on 8 December 1993. This was settled on 7 February 1994. 7 Earlier, on 15 December 1993 Expectation, through Mr Hickey, had applied for finance from the ANZ Bank in respect of the Benowa Gardens purchase. Also on that date, Mr Hickey retained Herrron Todd White, a valuation firm, to undertake a valuation of Benowa Waters. On 23 December 1993 Mr Lloyd Parsons, a valuer with Herron Todd White valued Benowa Gardens at $15 million. On 25 January 1994, Richard Ellis, a real estate firm, was instructed by the ANZ Bank to provide a valuation of Benowa Gardens, and on 27 Januaary 1995 Brian Cox, a valuer from that firm, provided a valuation in the amount of $12.5 million. On 28 January 1994 Herron Todd White, through Lloyd Parsons, reported to Mr Hickey concerning the Cox valuation. Prior to the settlement for the purchase of Benowa Gardens on 7 February 1994, there was a telephone conference between Mr Hill, Mr McLernon (a director of Expectation), officers of PRD Realty including Mr Cooney, Mr Douglas, Mr Colin Peet ("Mr Peet"), who was a PRD Realty agent in the Brisbane office who was involved in the second transaction involving the shopping centre Broadway on the Mall in Brisbane, Mr Langford an employee of PRD Realty, Brad Johnson, who was the agent of PRD Realty who had the conduct of the sale of the Benowa Centre, and Mr Parsons the valuer from Herron Todd White. That conference concerned the valuations and statements that had been made concerning the shopping centre. 8 After these proceedings commenced on 5 December 1996, Expectation entered into a contract for the sale of Benowa Gardens at $13.6 million on 13 November 1997, which settled on 19 December 1997. 9 Expectation's claim for damages pursuant to s 87 of the TP Act is for $2.5 million, a sum calculated as the difference between the purchase price of $15 million and the valuation of $12.5 million by Mr Cox, for the ANZ Bank. There is an alternative claim by Expectation for damages based on the assertion that had it not purchased Benowa Gardens, it would have engaged in another investment and has lost the benefit of that investment, that loss being claimed at $5,732,056. 10 The second transaction was the proposed purchase by the applicant of Broadway on the Mall ("Broadway"), a shopping centre in Queen Street Brisbane. Broadway was in receivership. It represented a "distressed sale" opportunity, if its trading profitability could be turned around. It was for sale at less than half of its cost of construction of more than $100 million. The Receiver of Broadway, Mr Richard Barber of Price Waterhouse, had forwarded to Mr Peet a tenancy schedule and cash flow summary for the centre. A covering letter from the Receiver contained a disclaimer as to the accuracy or reliability of the information contained in the tenancy schedule and cash flow summary. 11 Mr Peet of PRD Realty faxed that cash flow summary to Mr Langford, an employee of PRD Realty without the covering letter. On 7 January 1994 Mr Langford wrote to the Receiver advising that PRD Realty was retained by Mr Hill to seek suitable investments and referred to "transactions concluded on behalf of this purchaser include a neighbourhood shopping centre anchored by a supermarket with 34 specialty shops." On the same day, Mr Barber of Price Waterhouse sent a letter to Mr Peet enclosing a schedule of depreciable assets, with another covering letter disclaiming responsibility for the accuracy and reliability of the figures. Also on that day, Mr Langford forwarded to Mr Hickey the cash flow summary as well as the schedule of depreciable assets. No mention was made of any disclaimer as to accuracy, Mr Langford not having received either of the covering letters of Price Waterhouse from Mr Peet. 12 On 9 January 1994, Mr Hill inspected Broadway on the Mall in the company of Mr Douglas, Mr Cooney, Mr Langford and Mr Peet. Importantly, there were discussions between Mr Hill and Mr Dennis Lee ("Mr Lee"), the centre manager for Broadway, concerning the cash flow summary. 13 On 10 January 1994, Mr Hickey wrote a letter addressed to Mr Barber on behalf of Expectation offering to purchase Broadway for $30.5 million on certain terms, including a deposit of $100,000 and subject to due diligence, which letter was forwarded from Mr Peet to Mr Barber, with comments, on the same day. 14 On 11 January 1994, the Receiver, Mr Barber, wrote to Mr Douglas, a director of PRD Realty, rejecting the Expectation offer, but making a counter offer in the sum of $31.5 million subject to a due diligence period of 21 days and a non-refundable deposit of $100,000. Mr Langford, an employee of PRD Realty, forwarded a copy of that letter to Mr Hickey, the solicitor for Expectation, who wrote to the Receiver agreeing, on behalf of Expectation, to purchase Broadway on those terms. A contract was executed by Expectation on 18 January 1994 and, on the following day, Mr Hickey retained KPMG to carry out due diligence on Broadway. 15 On 1 February 1994, Mr Hickey had meetings Mr Peet, Mr Douglas and Mr Langford regarding the cash flow summary figures for Broadway. On 3 February, Mr Hickey wrote to the solicitors for the Receiver alleging misleading conduct by reason of the delivery of budget cash flows purporting to be the actual cash receipts, and identifying the actual income in the order of $1.7 million. On 7 February, Mr Cooney wrote to Mr Hickey advising that Broadway would achieve $2.4 million under professional management. On 8 February Mr Peet produced to Mr Hickey the covering letter from the Receiver containing the disclaimer as to the accuracy of the cash flow summary. 16 By letter of 11 February 1994, Mr Hickey on behalf of Expectation terminated the contract on the basis that due diligence enquiries demonstrated the acquisition of the property was not suitable. In respect of the transaction involving Broadway on the Mall, Expectation claims $100,000 being the amount of the non-refundable deposit. 17 The pleadings in these proceedings have been the subject of numerous amendments. The final version of the pleadings is as follows: · Second Further Amended Statement of Claim filed on 17 May 2001; · Amended Defence of the First and Second Respondents filed on 7 February 2000; · Further Amended Reply (to the Amended Defence of the First and Second Respondents) filed on 8 May 2001; · Amended Defence of the Third Respondent filed on 17 August 2000; · Reply (to the Amended Defence of the Third Respondent) filed on 30 April 2001. The Agreement between Mr Hill and Mr Douglas 18 The first area of dispute identified by the pleadings concerns the nature of the agreement between Mr Hill and MrDouglas concerning real estate investments. 19 Expectation contends that it, in about November 1992, by its agent Mr Hill, appointed PRD Realty to advise Expectation in relation to possible real estate investments and to act as the agent for Expectation "in relation to the investigation, negotiation and purchase thereof". It is said as a "particular" of that appointment that PRD Realty through Mr Douglas, would provide like services to Mr Hill. It was said that there was an implied term of that appointment that the respondents would exercise due care and skill and would act honestly and in the best interests of Expectation. 20 PRD Realty and Mr Douglas say that in late 1992 or early 1993, Mr Hill orally requested PRD Realty through Mr Douglas to introduce Mr Hill to possible real estate investments for his consideration, and PRD Realty agreed to do so. They say that the agreement was that the first respondent would act as purchasing agent for Mr Hill in relation to any properties which were introduced to him by PRD Realty and which he decided to purchase, but which were not listed for sale with PRD Realty by the vendor. The respondents deny that it was part of the agreement that PRD Realty through Mr Douglas would act as "exclusive purchasing agent" for Expectation. The first and second respondents acknowledge that theywere obliged to exercise reasonable care as real estate agents in their dealings with Mr Hill, and to act honestly in performing their duties. 21 The respondents agree that they introduced a number of properties to Mr Hill for his consideration. In particular broad acre land at Chancellor Park which the applicant purchased for approximately $9.5 million in May 1993, land at Canterbury Downs which the applicant purchased for $3.5 million in July 1993, and a residential property at Mermaid Beach which was purchased by Mr Hill in July 1993 for $1.03 million. In these instances, PRD Realty was paid commission by the vendors of those properties. 22 In my opinion the agreement between Mr Hill and Mr Douglas came about because each saw that an arrangement or understanding concerning real estate investments would be in their own interests. MrHill had arrived in Australia on 15 December 1993 and had subsequently toured the Gold Coast. At that time he was living in Monte Carlo and he had had business dealings with Mr Angus Douglas, the second respondent's brother. Mr Angus Douglas was a stockbroker and Mr Hill had had extensive dealings with him. Whilst on the Gold Coast Mr Hill was reacquainted with Mr Gordon Douglas, who took him on a tour of Gold Coast properties over a number of days. Mr Douglas told Mr Hill that real estate was "the way to go". I accept that Mr Hill became very interested in property development through Mr Gordon Douglas and PRD Realty as a result of his conversations with Mr Douglas and this tour of the Gold Coast property market. 23 I accept the evidence of Mr Douglas that there was never an agreement that PRD Realty would be the exclusive agent of Mr Hill or Expectation. Mr Douglas said that Mr Hill "had contacts with other agents", but there was an understanding between Mr Hill and Mr Douglas that Mr Hill "would go in and out with you and that if he bought a development property PRD would be involved in the design and marketing and managing and sale of it." PRD realty would be appointed managing agents and selling agents. Mr Douglas rejected the suggestion that in relation to PRD Realty he was the person that Mr Hill was looking to for advice and guidance. Mr Douglas said that in relation to the residential properties, he dealt directly with Mr Hill, but he said, "Mr Langford was brought in specifically to source commercial properties for Hill." 24 Mr Hill left Australia on 13 January 1993. 25 In my opinion the position at that time is accurately summarised in the applicant's written submissions at par 86: "… PRD through Douglas agreed to act for Expectation through Hill in locating investments, investigating and evaluating those investments, and then making recommendations as to purchase. If Expectation decided to accept any particular recommendation then PRD through Douglas would be involved in the negotiations for those purchases." [Emphasis added] 26 In March 1993 Mr Douglas recommended to Mr Hill that Expectation should purchase Chancellor Park. Chancellor Park was not a "distressed property". Mr Hill informed Mr Douglas that he wanted "Anderson to carry out the due diligence on the project" and for Mr Hickey to do "all the legal work" in relation to Chancellor Park. John Anderson was an accountant from KPMG in whom Mr Hill reposed confidence. Mr Douglas admitted that PRD Realty was "involved in spending a lot of time in the planning and development aspects of Chancellor Park", and that Mr Hill was "keen for … my input to ensure the changes and types of product being developed on Chancellor Park … were in line with other products." 27 The Board of Expectation, being Mr Hugh McLernon and a Mr Bernard Wrixon, resolved on 20 May 1993 to acquire a two-thirds interest in the project for $8.5 million and the provision of a $1 million performance bond. A joint venture agreement was executed on 24 May 1993. Mr Douglas and MrHickey were appointed by Expectation to represent it at Management Committee Meetings of the Joint Venturers. In respect of this project, PRD Realty was the vendor's agent. Mr Douglas advised Mr Hickey in a letter of 19 May 1993: "Further to your request for our opinion of value regarding this property, we advise in its current state of approval whereby a substantial portion of the land is as yet unzoned, the value to be between $9m and $9.5m." On 11 June 1993 the purchase of Chancellor Park settled. PRD Realty was paid commission of $100,450 by the vendor, and was then appointed as project manager and selling agent. 28 At about the same time as the Chancellor Park negotiation, Mr Douglas recommended to Mr Hill that he purchase Canterbury Downs. Mr Douglas said that he told Mr Hill in the initial recommendation: "The reason I liked Canterbury was because it was so well located to Robina, it was fully approved, it was performing, it was selling, a good steady proposition." Canterbury Downs was not, in any way, "a distressed property". 29 After Mr Douglas' recommendation of Canterbury Downs to Mr Hill, Mr Hill advised the Trustees of the Daisy Hill Family Trust on 18 April 1993 that he was happy for Expectation to proceed with the purchase of Canterbury Downs. On the following day the directors of Expectation resolved to buy Canterbury Downs subject to due diligence, and the contract of sale was entered into by Expectation on the following day. The vendor, Leda Developments Pty Ltd, appointed PRD Realty as its real estate agents for Canterbury Downs Stages 5 and 6, and agreed to pay commission at the standard REIQ scale of fees, being 5% of first $18,000 and 2˝% of the balance. 30 On 11 May 1993 Mr Hickey wrote to Mr Hill with copies being sent to John Anderson at KPMG Corporate and to Mr Wrixon, director of Expectation: "The only qualification that is expressed in the due diligence report provided by KPMG and Ray White is the possibility of competition with the sale of Canterbury Downs by the remaining lots held by the developer at Canterbury Downs." And later: "We have spoken to Gordon Douglas who does not see that there will be a problem of conflict between the remaining developer's stock, if any, and your project. Indeed, Ray White in their report state that by the time your project comes on line the remaining lots at Canterbury Downs should be sold out." On 12 May 1993, Mr Hill advised Mr Wrixon that he was content for the purchase to proceed. On 29 June 1993 Expectation resolved to purchase Canterbury Downs and to enter into a contract of sale for a purchase price of $3.5 million. That purchase settled on 1 July 1993. PRD Realty was paid commission by the vendor on the purchase, and subsequently were appointed by Expectation as the sole agent for the Canterbury Downs estate and was paid commissions from the subsequent sales of allotments. 31 In July 1993, Mr Douglas located a house block in Mermaid Beach and recommended it for purchase for approximately $1 million. Mr Douglas faxed Mr Hill on 28 September 1993, which said in part: "I sent you a fax regarding your house and apart from minor detail to be straightened out it should be bloody good … All your ventures are going Okay at this stage and we are in no hurry to purchase new ones until we see something at the right price …." And later in the same fax: "John Langford is chasing up commercial and retail investment opportunities but is away on a week's holiday." 32 After Mr Hill left Australia he kept in telephone contact with both Mr Douglas and Mr Langford. In one telephone conversation he told Mr Douglas: "Daisy has about $7 million which needs to be invested in a stable, well-yielding, commercial investment. She will lend the money to Expectation to enable the Trust to make the purchase and Expectation will want to borrow the remainder." 33 Mr Douglas alluded to the difficulty of serving two masters inherent in a situation where PRD Realty acted as adviser for Mr Hill and as vendor's agent in a facsimile of 16 July 1993 to Mr Hill: "In relation to commercial property I have discussed with my staff the role I would like to take in purchasing property for you. Under agency law in Queensland when we secure listings of property we legally act for the vendor which technically and practically causes complications in trying to secure the deals that I wish to secure for you. In discussions with the staff I recommend that we act as your purchasing agent so there is clearly no conflict in what we are about. It has the following advantages: (1) We can seek out properties that are not on the market but we consider good assets without the complication of being a seller's agent. (2) We can be up front in acting for your interest. (3) We can use the agency network to seek wider access to property. I believe a fair basis would be 2.5% commission paid as a success fee. We would need to employ solicitors and engineers to check out commercial properties which would require minimum expenditure but clearly to your benefit. Any expenses incurred would be cleared by you or your intermediaries. There are a few retail shopping centres that will be coming up in due course and we will contact you after we have fully considered the opportunity. By facsimile response on the same day, Mr Hill told Mr Douglas: "I sincerely appreciate the efforts which you make on my behalf. I am happy with the terms which you outlined in the abovementioned fax. … As you know, anything done by, or on behalf of, the trustees in Perth has to be negotiated with Hugh McLernon." 34 This arrangement clearly covered the situation where PRD Realty was not acting as vendor's agent in respect of a particular project. Mr Hill agreed, in cross-examination by Mr Patrick Keane QC, senior counsel for the first and second respondents, that: "You told Mr Douglas that any properties introduced by him would be subject to independent due diligence by either John Anderson, Bernard Wrixon, Hugh McLernon or Fred Woollard?" To which Mr Hill said: "I don't remember bringing Fred Woollard into the picture, no." Mr Woollard was an employee of Mr Hill, based in Monaco. 35 Mr Hill had acquired property in Sydney, including a ground lease at the Ritz Carlton Hotel, through agents other than PRD Realty. 36 Mr Hill was aware that PRD Realty was acting for the vendor in relation to Benowa Gardens, but he also claimed: "They were acting for me as well." It was put to Mr Hill that he understood that PRD Realty were getting commission from the vendor and "the higher the price the higher the commission.", to which Mr Hill said: "That is the normal circumstances". Mr Hill acknowledged that that was the situation that applied in respect of Benowa Gardens. 37 PRD Realty, through Langford, set about finding, investigating and evaluating property investments, including the Optus Centre in Sydney and an Australian Taxation Office building in Brisbane. On 27 July 1993, Mr Douglas wrote to Mr Langford: "I spoke to Danny Hill again last night and he is chasing me again for commercial property for his wife. He wants to spend $10m. to $13m. I have said retail will be the go and we are working on some shopping centres and other property." 38 In August 1993, Mr Douglas and his wife had travelled to Europe and stayed with Mr Hill on his boat. At this time Mr Douglas requested a letter of credit for use by him in demonstrating Expectation's bona fides. A letter from Credit Suisse Trustees (Guernsey) Limited of 16 August 1993 to Mr Douglas commences: "This letter confirms that you are to act on behalf of our client to find suitable opportunities for them to purchase retail and commercial property developments up to A$50 million subject to contract and due diligence. Our client is in a position to lodge a substantial deposit after a reasonable period of due diligence which proves to be satisfactory." 39 In my opinion, the nature of the arrangement in place between Mr Douglas and Mr Hill at the time of the acquisition of Benowa Gardens was that PRD Realty, through Mr Douglas (and Mr Longford in relation to commercial premises), would locate, investigate and evaluate investments, and make recommendations as to purchase. It would be expected that that recommendation would be subject to due diligence, and it was for Expectation to decide whether to accept any particular recommendation. This arrangement applied even if PRD Realty was in the position of vendor's agent. Benowa Gardens 40 I turn now to Benowa Gardens and to the issues between the parties raised on the pleadings concerning it. 41 Expectation pleads contraventions of s 52 of the TP Act (or the analogous Queensland provisions of the FT Act); negligent mis-statement; and breach of contract or delictual or fiduciary duty by PRD Realty as Expectation's agent. 42 The representations made by Douglas, or by Cooney in the presence of, and with the agreement of, Douglas, said to be misleading and deceptive or negligent are to be found in pars 9, 10, 10A, 11 and 24 of the Second Further Amended Statement of Claim, ("the SFASOC") may be summarised as follows: (a) Douglas' recommendation that Expectation make an unconditional offer to purchase the Centre of $15 million; (b) Douglas' statement that the vendor would not, in his view, accept anything less than an unconditional offer at the asking price of $15 million; (c) By which Douglas impliedly represented that: (i) the Centre had a value of at least $15 million; (ii) Douglas and PRD had reasonable grounds for holding and expressing the opinion that the value of the Centre was $15 million; (iii) Douglas and PRD had valid and honest grounds for holding the view that the vendor would not accept anything less than an unconditional offer at $15 million; (d) Douglas' statement that: (i) there was an urgent need to make an offer in view of the fact that there were other persons who were interested and in a position to make or had made an offer for the Centre; (ii) the vendor would not consider any form of conditional contract; (iii) Expectation would have to offer $15 million cash to secure the purchase of the Centre; (e) Cooney's statement on the inspection that: (i) the rentals from tenants of specialty shops had good growth prospects, such that 8% growth in net income per annum would be achieved for the Centre; (ii) the tenants of the specialty shops in the Centre were paying not more than an appropriate market rent; (iii) the value of the Centre was at least $15 million. 43 Expectation alleges in pars 12-14B of the SFASOC that these representations were misleading or deceptive or likely to mislead or deceive because: (a) the value of the Centre was no more than $12.5 million; (b) there were no reasonable grounds for the representation that the rentals from tenants of specialty shops in the Centre had good growth prospects and that an 8% growth in net income per annum would be achieved from the Centre; (c) there were no reasonable grounds for holding and expressing the opinion that the value of the Centre was $15 million or that the vendor would not accept anything less than an unconditional offer of $15 million; (d) rents payable by tenants of specialty shops in the Centre were significantly higher than the appropriate market rent, the opinions expressed by PRD and Douglas being not genuinely held or based on reasonable grounds; (e) PRD and Douglas knew that the vendor was prepared to consider a contract that was not unconditional and at less than $15 million; (f) PRD and Douglas knew that no other person was in a position to, or did, make an offer for the Centre capable of acceptance. 44 Insofar as Expectation's claims depend on breach of contract or delictual or fiduciary duty by PRD Realty as Expectation's agent, the allegations are in pars 4, 5, 5A, 6, 7, 7A, 7B, 7C, 7D, 14A, 14B, 18, 19, 20 and 25 of the SFASOC may be summarised as follows: (a) PRD acted as Expectation's purchasing agent, and PRD and Douglas were accordingly duty-bound not to allow their duty to any other person to come into conflict with the interests of Expectation; (b) PRD were duty bound to exercise due care in advising Expectation in relation to the purchase of the Centre. 45 In particular, in this regard, Expectation alleges in par 14A of the SFASOC that PRD and Douglas failed to disclose: (a) the arrangements for commission between the vendor and PRD; (b) that the vendor had instructed PRD to keep marketing information, and in particular information as to rent reviews, confidential from prospective purchasers; (c) that no other person had expressed an interest in the Centre at $15 million; (d) that PRD's opinion was that the Centre's sale price of $15 million was a disadvantage to its sale; (e) the matters referred to in par 3 above. 46 Expectation alleges in pars 15, 16, 16A, 29 and 29A of the SFASOC, that in reliance on the misconduct alleged, Expectation agreed to acquire the Centre for $15 million and settled that contract as a result of which it suffered loss in that: (a) Expectation purchased the Centre for $15 million when its true value was $12.5 million or thereabouts; (b) Alternatively, had it not purchased the Centre it would have acquired an alternative commercial retail investment having: (i) a yield of 11%; (ii) income of $1,650,000 per annum; (iii) rent reviews of 5% per annum; (iv) a sale price in December 1997 of $18 million; which would have produced (v) income of $1,332,056 greater than was derived from Benowa; (vi) capital value of $4,400,000 greater than that derived from Benowa. 47 On 25 October 1993 PRD Realty was formally appointed as sole agent for the purposes of the Expression of Interest campaign which had been agreed with the vendor Benoco, would be the preferred method of sale of Benowa Gardens. That sole agency agreement, amongst other things, provided: "(a) No information with respect to the property is to be sought from or supplied by any of your staff engaged in the management of the property. (b) All requests for information are to be arranged with or referred to us or our authorised representatives and no requests for information are to be directed to Centre Management. (c) You are to use your best endeavours to ensure that all requests for inspections are arranged with or referred to us by our authorised representative and no such requests are to be directed to the Centre Manager." 48 PRD Realty, through Mr Douglas and Mr Cooney, breached the terms of this agreement when Hill inspected the centre and Cooney purported to provide information to Hill about it. 49 Brad Johnson was the employee of PRD Realty who had the responsibility for the sale of Benowa Gardens. At no stage of the negotiations about Benowa Gardens did Johnson meet Mr Hill. His evidence indicated that a number of positive enquiries had been made about the Centre. On 18 November 1993 Geoffrey L. Irvine and Associates submitted an expression of interest on behalf of a Roger Simpson in the sum of $16.3 million. The offer was conditional on obtaining finance from the United States of America. A Keith George had expressed interest at a sum of $14 million, and a property report had been asked to be sent to the National Bank Head Office Brisbane for finance approval. A number of other avenues of interest in the sale had surfaced. 50 Mr Keith George had met with Mr Ralph Gehrman, an officer of the vendor Benoco on 29 November 1993. A figure of $14 million was mentioned, which Mr Allan Fraser (a director of Benoco, the vendor of Benowa Gardens) treated as being "completely out of the question and would not be accepted". 51 Benowa Gardens was a neighbourhood shopping centre of 5,800 square metres. I accept that it was too small for major institutional investors. As a centre it had some positive factors as well as some negative ones. It was a stable, modern local convenience centre with a secure primary catchment, that possessed the secure income-producing investment which Hill was seeking for Daisy Hill. It faced competition from Ashmore City, Ashmore Plaza and Southport Park. The anchor tenant, Bi-Lo, could not be regarded as comparable to either Coles or Woolworths, but the centre was designed to have a basic Bi-Lo supermarket with a wide range of specialty stores which, as its developer had planned, paid a much higher rate per square metre than the anchor tenant. The second largest tenant, the Fruit Barn, was a problem tenancy and there were difficulties with the level of specialty store rents, the level of vacancies, and arrears of rental collections. 52 The applicant's case in respect of misrepresentations depends solely on the evidence of Mr Hill. Mr Hill, I have to say, is shown by the evidence to be unscrupulous, opportunistic and not averse to dishonesty if that would advance his purposes. I am satisfied that he manufactured evidence in this case which he knew did not happen, for the purpose of advancing Expectation's prospects of success in this litigation. Further, he admitted that he was willing to lie as a "business tactic", as he did when he lied to the Receiver of the Broadway on the Mall centre that Expectation was embarrassed in its dealings with its financiers. 53 Mr Hill took no notes of any of the conversations that occurred during the inspection. 54 Mr Philip Morrison QC, Mr Hill's senior counsel, submitted in his closing written submissions that "Hill went from a state of complete ignorance in relation to Benowa to having decided to buy it immediately upon its inspection; that inspection was, on any view, brief and superficial." Expectation's case is based on what Mr Hill says he was told on the occasion of this "walk through". Mr Hill has embellished that "walk through" with a dramatic invention of a solemn swearing to the making of representations concerning the performance and future performance of the centre, and the correctness of those representations. 55 Mr Hill says that Mr Douglas told him prior to the inspection of the centre: "there were three or four chit-chats and he said the Centre is, as I repeated, a little beauty. It is – got an income of around 1.7 and it is an excellent neighbourhood centre. They managed it from the inception – not necessarily in this order. They managed it from inception and they were well aware of the performance of the centre. His staff was well aware of the performance of the centre; that it was under Expression of Interest which was about to close. And that he recommended it as an excellent investment; that there was a tender process with Expressions of Interest which was about to close and that there was a number of parties – the interest in it was hot or intense, I think was the word. There were a number of parties that were interested. He – at one of the meetings he said he'd conferred with his staff. I thought it was Brad Johnston, the name that he used, and he give me the indication of what – I'm sorry, he told me what the four Expressions of Interest were, one at $14 million clean, two between 14 and 15, the words were I believe were not clean, and one over $16. I think it was 16 Ľ and 16 and 3 or something which had bells and whistles on it. We discussed what price that I should pay for the Centre and he said – we discussed a range of centres, different types of centres, and 'if you could buy this on a yield of 11% it would be a very good buy' because it was, in my words, a gem in that type of centre." According to Mr Hill, Mr Douglas at a yield of 11%: "… reckoned that $15 million was the price." 56 It is significant that Mr Langford gave evidence that he had asked Johnson for a "bottom line", and was told that $15 million would be the minimum the vendors would accept. 57 I accept that Mr Douglas said that he thought the centre was worth around $15 million; that he had explained to Mr Hill that a tender process was in place and there had to be an Expression of Interest in the tender; that the Expressions of Interest were due on 25 November 1993; that a number of people had lodged Expressions of Interest; and that if Expectation wanted the shopping centre, Mr Douglas told Mr Hill what he thought the vendor would take. I accept that Mr Cooney told Mr Hill during the inspection that he thought the shopping centre would perform, and that in a general sense the tenants would perform, and that Mr Hill asked MrCooney whether the shops were at fair market rent and that Mr Cooney had replied that he believed they were well rented; and that when Mr Hill asked whether the Fruit Barn could be easily re-let, Mr Cooney advised that it could be "reasonably re-let over a reasonable period of time". 58 According to Mr Hill, Mr Hill asked Mr Douglas what sort of growth was in the centre and that Mr Douglas then went away to make enquiries and returned to tell Mr Hill that "the growth in the centre would be 8%". 59 I simply do not accept that Mr Hill asked Mr Douglas what sort of growth was in the centre and that after Mr Douglas had left and on his return said to Mr Hill: "The growth in the centre would be 8%". I do not believe that Mr Hill said to Mr Douglas: "I'm relying on you and I'm relying on your staff and your interpretation of their ability. I don't want something with hassles and secondly, it really has to – the income has to be secure income with no problems associated with it. The centre has to be very good value in this climate and we've got to be assured that the growth is there." 60 I do not accept that Mr Hill told Mr Douglas: "The rents had to be at market value. They has to be secure and naturally if it was a gem you had to have growth, an 8% growth. He indicated that his people had informed him and it was his opinion that the centre would have 8% growth and that the income of 1.69 was very secure." 61 I further reject the account by Mr Hill in his oral evidence that at the conclusion of the walk through he said to Ken Cooney in the presence of Mr Douglas: " 'I'm going to ask you some questions in front of Gordie, and I'm going to take these as if they come out of your mouth, Gordie, or on your head,' combination of both or whatever. And I said, 'Ken, the income of 1.69: is that the real income of this centre? What we are receiving in money, what it's receiving in real money?' He said, 'Yes.' I said, 'Are all the tenancies at fair market rent?' 'Yes.' I said, 'Are any of the tenants being supported?' 'No,' he said, and I said, 'One of the most important factors, Ken, is Gordon has informed me that he's told me that you told him that this centre will have 8 per cent growth in the rentals,' and he said, 'Yes.' His words I think were, 'Absolutely.' And he said, 'But there is trouble with the Fruit Barn.' I said … 'What's the possibilities of re-letting the Fruit Barn?' He said I believe it would be re-let in a few days because the centre has got [the demand] … but I'm – I went down the centre the other day and some bits came back a bit better." 62 In his affidavit of 14 January 1999 at par 106, Mr Hill says he stood Mr Cooney to one side and said to Mr Douglas words to the effect of: "Gordon, I am going to ask Ken a number of questions in front of you. Now remember what I have already told you. He is your man, and I will be relying on what he says as though it is coming from your mouth." According to the affidavit, Mr Hill proceeded to address Mr Cooney as follows: "I asked him what was the position with the net rental. Cooney answered it was secure and would go at 8% per annum. I asked him were all the shops rented at a fair market rent. Cooney answered 'Absolutely'. I asked him if the 8% growth per year was something he was totally confident of. Cooney said he was, and that it he had the money, he would personally guarantee it. I asked what was the net rent. Cooney said '$1.69 million'. I asked him whether the Fruit Barn's area could be easily re-let. Cooney said it could be re-let in a matter of days. I asked him if any of the tenants were getting any assistance. In reply Cooney said 'Absolutely not'." According to his affidavit, Mr Hill then spoke to Mr Douglas: "I then said to Gordon words to the effect that as Cooney worked for Gordon, it is on Gordon's head as to what Cooney had said; and that they were matters that were important to me. Gordon said words to the effect that Cooney had worked at Pacific Fair and he was the best in the business, and that Gordon stood by everything he had said." 63 I accept the evidence of Mr Cooney on this aspect as to what occurred on the occasion of the "walk through". Mr Cooney gave evidence as follows: "I met Gordon Douglas and Danny Hill in the car park of the centre. It was later in an afternoon. We walked towards the entrance of the mall and this was the newsagent entrance which is on the right-hand side. We entered the mall, the three of us, and proceeded to walk down it making – I made general overview about trading of various speciality shops, who was trading well, who was not trading so well. Comments like, 'This is a good performer,' or 'This retailer is not performing so well,' for various reasons. There were four retailers specifically that weren't trading well. They were the South American Food called La Casina, a hardware store, Cooneys Handbags, which is no relation to myself or my family, and also one of the Leyland Brothers had a fashion store and that wasn't trading too well. During this inspection, and it was a general overview, there was nothing asked of any depth in terms of lease conditions or terms. It was constantly interrupted by Hill referring to various female shoppers in the centre and walked over towards Bi-Lo and I made a comment about Bi-Lo trading well and it being a Coles-Myer covenant, just in general terms. We then proceeded to the other side of the mall and out through doors that – on the right-hand side was fruit and veg store. This store was a large tenancy of 500 square metres and it was a concern to me and I explained to Hill that this tenant was not going to survive. He had trading problems. It was a large tenancy. We would have to come up with a strategy of either finding another fruit and veg operator or subdividing the shop into smaller shops. … We then walked over towards the icecream shop, which was directly opposite. This shop was run by a husband and wife team, mainly by the wife. This tenancy also was going to fold and not – cease to exist much longer. I explained that to Hill that that tenancy wouldn't last. We then walked under the concourse towards the Bank of Queensland and Hill stopped us and he asked the question, 'Is this a good centre?' I said it was – 'It was a neighbourhood centre that dominated its trade area and it was performing well.' He then asked, would he get an 8 per cent return on his investment and I indicated that as the majority of speciality shops are on 8 per cent, notwithstanding the fruit and vegie shop's problems, I was confident he would get an 8 per cent return on his investment. He then asked the question about market rent – were the retailers paying market rent and I indicated that, yes, they were paying market rent and that approximately the net rent was 1.5 million. We then stepped off the pavement and walked up the hill to the carpark towards KFC and Gordon Douglas starting making comments about growth potential for this centre. He indicated to the vacant land towards KFC and beyond and around saying that there was a lot of potential – future potential, in terms of subdivisions, more housing and more customers. With that, the meeting finished, they said goodbye and Gordon and Mr Hill drove off." 64 I accept that Mr Douglas recommended to Mr Hill that Expectation make an unconditional offer to purchase the Benowa Gardens centre for $15 million, and that in his opinion the vendor would accept nothing less than an unconditional offer at $15 million. Mr Hill did not give evidence that Mr Cooney had represented to Expectation through Mr Hill that the value of the centre was at least $15 million, even though this is Expectation's allegation in par 11.3 of the Second Further Amended Statement of Claim. 65 I accept that Mr Douglas and the other representatives of PRD Realty believed in late November 1993 that the vendor Benoco would accept an offer of $15 million or thereabouts, and that Expectation would have to make an unconditional offer of around $15 million in order to buy the property; and, further, that this belief was based on reasonable grounds. Mr Fraser, a director of Benoco, gave evidence that so far as the vendor was concerned, Benowa Gardens was "worth all of $15 million". Mr Fraser gave further evidence that if the sales campaign had not produced an unconditional offer at $15 million or very close thereto, the vendor would have looked seriously at entering into the conditional contract at $16.3 million offered by Roger Simpson. 66 Mr Johnson, the PRD agent who was responsible for the sale of Benowa Gardens, expressed the opinion that an unconditional offer at $15 million would be necessary to secure the property. His contemporaneous documents support the conclusion that in November 1993, he genuinely and reasonably believed that Benowa Gardens would sell for between $14.5 and $15.6 million. An agenda document headed "Points for Discussion" dealing with Agency Appointment details the commission applicable at figures from $14.6 million to $15.618 million (item 26 in the Agreed Bundle of Documents, as well as Exhibit 95), the commission breakdown on an Expectation price of $15 million being described as Deal 1, as well as a breakdown of commission in respect of what is said to be Deal 2, the offer by Keith George, also at a price of $15 million. 67 I simply do not accept that Mr Cooney represented that there would be an 8% growth in net income from the centre per year. Mr Hill accepted in his evidence that Mr Cooney was asked by him about an 8% return on investment. In cross-examination Mr Hill conceded, concerning his conversation with Mr Cooney: "I don't remember exactly the words but he was very optimistic about the Centre. And you asked him would it show an 8% return?---Not at that time. Well, when do you say you asked him that?---When I came outside the Centre. …" He was later asked: "And I suggest to you, this was not done in an aggressive, standover manner, but it was done in quite an ordinary, normal, pleasant way?---That's not correct. And I suggest to you, his response was, the majority of the specialty shops are on 8 percent annual increases, I am confident we will achieve increases. We have a problem with the fruit and vegetable stall because he owes us rent and is not performing. Yes I think we should be able to achieve an 8 percent return on the investment?---I said to Ken – I know what I said to Ken, what Ken Cooney said and what I said to him. What do you say about what I just put to you, as what he said to you?---Didn't say those words." 68 I am satisfied that there were reasonable grounds for what are said to be the "implied representations" pleaded in the Second Amended Statement of Claim; that there was no "express representation" by Mr Cooney that "there would be an 8% growth in net income from the centre per year"; that Mr Cooney did not say that the value of the centre was at least $15 million, and the representation "the tenants of specialty shops in the centre were paying not more than an appropriate market rent" was an honest and reasonably based opinion of Mr Cooney and involved no misrepresentation. 69 It is significant that subsequent to the "walk through", in particular at the meetings concerning the various valuations by Herron Todd White and Richard Ellis, neither Mr Douglas nor Mr Cooney asserted that the centre would achieve 8% growth. Mr Hill at that time did not assert that they had previously made such a representation or point out, either to them or to the ANZ Bank or to Cox, that their view that the centre would achieve 8% growth was contrary to the Richard Ellis valuation. 70 After Expectation had purchased Benowa Gardens, roadworks along Ashmore Road commenced in early 1994 and had a significant impact on trade while the road widening activities continued. Also in May 1994, extended trading hours were introduced which had an adverse effect on smaller traders in specialty stores in centres such as Benowa, and advantaged major retail chains at their expense. 71 The first allegation of a representation that the centre could achieve 8% growth was made by Mr Hill in October 1994 when the centre had experienced difficult trading conditions. Mr Cooney responded to that suggestion in memoranda dated 11 November 1994 and 21 November 1994. His account of the discussion which occurred at the time of the original inspection in November 1993 was not disputed by Mr Hill. In the memorandum of 11 November 1994, in response to the allegation by Mr Hill that Mr Cooney said to him that "You would achieve an 8% growth rate", Mr Cooney wrote "I remember telling you that the majority of shops are on an 8% maximum rent increase therefore you would achieve around 8%". And later in that memorandum: "As it transpired, with the exception of four shops (which will be billed maximum increases from 1/1/95), all specialty shops have been billed maximum increases from the due date. (The majority are 8% some 6% some 4% The centre records show that: Rental billings at 10/2/94 were $1,614,964.00 And from 1/11/94 were $1,728,783.00 Which is an overall increase of 7%." 72 In Watson v Foxman and Others (2000) 49 NSWLR 315 at 318-319, McLellan CJ in Eq referred to considerations relevant where the conduct which is said to be misleading is the speaking of words in the course of a conversation. He said: …it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. … human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience." And later: "Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration." I have had regard to these considerations. I reject Mr Hill's account as unreliable and dishonest. Such "reconstruction" as has occurred is not, in his case, subconscious, but deliberate, to give versimilitude to his allegations. 73 I have considered in this regard the diary notes of Mr Hickey as touching on questions of credibility in respect of the representations said to ground the cause of action of Expectation. The Hickey diary notes, Exhibit 46 AWH 1, AWH2 and AWH3 record nothing about the lodging of the expression of interest or its quantum, or about the vendor being persuaded to extend the time for making expressions of interest. There is no mention of an expression of interest at $14.1 million or any other figure, and the contents of AWH3 are concerned with the financing of the acquisition on the basis of a $15 million offer which Mr Hill was committed to make by the following Friday 3 December 1993. 74 In his oral evidence, Mr Hickey resiled from the first two sentences of par 38 of his statement, saying: "I don't believe in that conversation there was any mention made to me by Mr Hill of the per annum growth of 8%." Hickey's statement was prepared in 1999 by an employee of Expectation and contains this serious mis-statement: "Hill said to me in the presence of Langford and Douglas (words to the effect) that what was most important to him was that there was a per annum growth of 8%. [Emphasis added] Neither Douglas nor Langford demurred to this proposition." 75 If, contrary to my finding, there had been an assurance that there would be "8% growth per year", Expectation was not misled by any such misrepresentation. Mr Hill was given a brochure and investment report which detailed the position in relation to leases. The investment report contained a detailed tenancy schedule which represented the terms of the rent increases for each of those tenants. There is no suggestion in the evidence or any complaint that any matters represented in the brochure and investment report were misleading. Mr Hill claimed that he was not informed that the leases did not all contain provisions for 8% rent increases, but both Mr Hickey and Mr McLernon knew this, and the contract itself made this plain. If there had been a representation to Mr Hill of at least 8% growth in net income from the centre per year, it is remarkable that Mr Hill did not inform Mr Hickey of this point, and that Mr Hickey made no record of the matter when he commenced his due diligence of the leases on 30 November 1993. The decision of Expectation to purchase was made after the accurate and complete position contained in the brochure and investment report had been made known to Expectation's advisers and its directors. 76 Mr Hill's statement was prepared by Mr McLernon, a director of Expectation. I do not accept Mr McLernon as a reliable witness concerning the allegation of 8% growth. There was no mention by Mr McLernon prior to entering into the contract about this matter, yet the detailed report by Mr Hickey of his due diligence in relation to the leases was provided to Mr McLernon on 2 December 1993, and Mr Hickey's review indicated that the leases did not all provide for an 8% rental increase. Further, Mr McLernon said nothing in response to Cooney's report of 2 December 1993, and Mr Hickey's letter to Mr McLernon of 2 December 1993. 77 Two documents written by Mr Hill after the purchase of Benowa Gardens make no reference to the alleged representation, and in fact are quite inconsistent with the alleged representation having been made, or Mr Hill having acted upon a representation concerning "8% growth per year" or an "8% growth in net income". On 7 March 1995, Mr Hill wrote to John Hammond, which letter said in part: "On a number of occasions you have expressed your concern about Gordon Douglas and I believe you have a relatively negative approach to him. His score, if I may remind you is Canterbury Downs – an excellent project with substantial profit. Chancellor Park – one of the better real estate deals in Queensland – to which he has devoted tremendous personal time and effort in understanding the project and an enormous contribution to make it a success. Benowa – average, but on the whole a great success story." 78 I take this as being a reflection that Mr Hill regarded Canterbury Downs as an excellent project, Chancellor Park one of the better real estate deals, and Benowa as being average, with the consequence that on the whole, Gordon Douglas' "score" was a great success story. I do not agree with the suggestion by counsel for PRD Realty and Mr Douglas that Mr Hill was indicating Benowa Gardens was "on the whole a great success story". Secondly, in a draft letter to Mr Douglas of 17 April 1996 (Exhibit 22), Mr Hill complained that Cooney had "exaggerated the real income" of the centre. No such allegation has been pleaded or pursued, and Mr Hill did not allege that Mr Cooney or Mr Douglas had represented that there would be at least an 8% growth in the net income of the Centre each year. 79 I do not accept Expectation's case that it was induced by, and relied on, representations made by PRD Realty about Benowa Gardens. Mr Hill's incredible story that he was gong to ask questions of Cooney and rely on his answers as if they were from Douglas' mouth is a deliberate falsehood calculated to create a climate of reliance where there was none. Mr Hill's reasons for acquiring the centre by Expectation were not because of the representations he now seeks to make against Mr Cooney and Mr Douglas, nor were they based on any representation by Mr Douglas or Mr Cooney that the market value of Benowa Gardens was $15 million. This evidence, in my opinion, was clearly an afterthought, as Exhibit 22 illustrates. 80 In my opinion the value of Benowa Gardens as at December 1993 was approximately $15 million. I am satisfied at that time the centre had a net annual income of about $1,646,328 being the figure adopted by Mr Parsons. The figure adopted by Mr Cox in his January 1994 report for the ANZ Bank was $1,615,983. Applying a capitalisation rate of 11% which was, in my judgment, an appropriate rate in December 1993 produces a valuation of approximately $15 million. That valuation is consistent with the actual market responses to the marketing of the centre in late 1993, as is the evidence of Mr Fraser as to the minimum amount which an astute, informed and not anxious vendor was prepared to sell the centre for in December 1993: see Spencer v The Commonwealth (1907) 5 CLR 418 at 432. Mr Fraser's evidence in this regard was not affected by any interest in the outcome of the proceedings and was not the subject of cross-examination. 81 A capitalisation rate of 11% reflects, in my view, that the centre was only one year old, air conditioned, with part covered car parking, good access and exposure, and had recently negotiated leases with unexpired initial terms of approximately four years, and was located in a secure catchment area which enjoyed a relatively high socio-economic profile, the potential for further population growth and little prospect of a new centre being constructed in the vicinity. 82 Contemporary valuations support a rate of 11%. The Richard Ellis January 1994 valuation of Broadway (Exhibit 13) reported that the non-CBD retail property market in south-east Queensland had been "extremely strong" and that sales of shopping centres anchored by a supermarket tenant, such as Stafford City, Burleigh West and Sunnybank "all indicated yields between 10% and 11.5% and demonstrate that there had been a strong and active market for such properties." Notwithstanding that retailers in 1996 were facing a more difficult trading environment than December 1993, the Richard Ellis 1996 valuation of the Benowa Centre adopted an 11% capitalisation rate. 83 The valuation of Mr Cox was prepared for the ANZ Bank in connection with security for its part funding of the purchase price for the Benowa Centre. His valuation of $12.5 million is the consequence of the adoption of a 13% capitalisation rate figure in his valuation. Moreover, it seems to me that the valuations of Mr Cox and also of Mr McRae are quite inconsistent with the uncontradicted evidence of Mr Fraser that Benoco Pty Ltd, an astute, informed and not anxious vendor, was not prepared to sell the centre for less than $15 million in December 1993. I am satisfied that on the adoption of an appropriate capitalisation rate in the vicinity of 11%, the purchase price of $15 million is not shown to have been at an over-value. 84 I do not think that the subsequent sale by Expectation of Benowa Gardens at $13.6 million in 1997 is inconsistent with this conclusion. The impact of the roadworks on trading at the centre, the changes in competitive forces between the acquisition and disposal by Expectation of the centre, the impact of major supermarkets on trading by specialty stores, and the adverse change in the trading environment, all had an impact in respect of the disposal price by Expectation. 85 In my opinion, Expectation sustained no loss by reason of its purchase of Benowa Gardens. 86 In my opinion, and contrary to the submissions of the first and second respondents, damages for contravention of s 52 of the TP Act in circumstances similar to the present, are properly to be based on the difference between the price paid and the real value of the thing acquired as at the date of acquisition. I do not accept the contention on behalf of the first and second respondents that it is proper to have regard to the income derived during the period of ownership, and then analyse the disposition of the sale proceeds from the centre, leading to the conclusion that, since Expectation derived nearly $4 million in income after payment of interest during the period of ownership, and had the benefit of nearly $1 million from the proceeds of sale after paying the ANZ and Daisy Hill, Expectation therefore suffered no loss by reason of its acquisition of the Benowa Centre. 87 As to the alternative claim by Expectation, Expectation is not entitled to be put into the position it would have been in, on the basis that it is able to sue for breach of warranty. Expectation can recover the "expectation element" in the measure of damages only if it is able to show that the respondents' representations deprived it of the opportunity to enter into a different contract for the purchase of a shopping centre from which it would have enjoyed a profit. It is therefore necessary for Expectation to show that it could and would have made a different contract and that it lost the benefit of that contract by reason of the respondents' conduct. Here, as was the case in Gates v City Mutual Life Assurance Society Ltd (1985-86) 160 CLR 1 at 13-14, there was no evidence from Hill or McLernon or from any source that Expectation could and would have made a different contract, and there was no evidence about the price Expectation would have paid for any alternate property or that one was available, nor was there any evidence that such a purchase would have been successful. The alternative claim in damages fails for lack of evidence. Plea of agreement in bar 88 I turn to the question of compromise, and in particular the position of the third respondent. Paragraph 9A(b) of the Amended Defence of the first and second respondents to the further amended statement of claim alleges: "(b) By agreement made, partly orally and partly in writing, in April 1996, [PRD] agreed with [Expectation] that, in satisfaction of, inter alia, any claim which [Expectation] might otherwise have against [PRD and Douglas] in respect of the acquisition of [Benowa], [PRD] would agree to termination of the management agreement on 30 September 1996." 89 PRD Realty and Mr Douglas pleaded that any claim in respect of Benowa Gardens is barred by reason of an agreement made by Mr Hammond on behalf of the applicant and Mr Langford on behalf of PRD Realty and Mr Douglas in about March 1996. Expectation pleaded that: "If, which is denied, the Agreement in paragraph 9A of the Further Amended Defence was made and with the effect alleged, the applicant says as follows: (a) Hammond did not have authority from the Applicant to make such an agreement; (b) Such an agreement was contrary to any instructions given on behalf of the Applicant's Board; (c) Such an agreement was contrary to the intention of the Board of the Applicant, namely to remove PRD from its position as the Centre Manager of Benowa Shopping Centre in order that action could then be taken against it, …" and Expectation pleaded against Mr Hammond, that: "In the event that the agreement pleaded in paragraph 9A of the Further Amended Defence is held to exist, an indemnity against the loss of the Applicant's right to claim against PRD and Douglas in respect of the Benowa Shopping Centre; Alternatively, damages for breach of contract, and breach of duty;" 90 The third respondent pleads that the compromise was not made. PRD Realty's written proposal at the time of negotiation about the continuation of PRD Realty's management rights did not contain any reference to a release, nor did it make any reference to the satisfaction of claims. It was clear that Danny Hill "wanted PRD Realty out". 91 While my initial view was that the quid pro quo for PRD Realty ceasing its role at Benowa Gardens was the promise that Expectation would not sue in respect of its claims against PRD Realty and Mr Douglas, I am now satisfied that there was no agreement of compromise in this case. There had been a falling out between Mr Hill and Mr Douglas. The position which arose in relation to the Benowa management agreement had not arisen through poor performance by PRD Realty. Mr Langford agreed with the substance of the file note of Mr Hammond of 26 March 1996 meeting, including the fact that the threats to sue and to make no payment whatsoever had been expressed in the alternative to PRD Realty going on a month to month arrangement. 92 I accept that Mr Hammond said at the end of the meeting: "I can't guarantee that Danny won't sue you in the future, but if we can't agree on something I know that he will sue you immediately." Mr Biner says positively that this remark was not made, and Mr Langford could not recall it. 93 I prefer Mr Hammond's account. He was careful and took detailed diary and file notes, although it has to be said that he made no record of this remark. My conclusion derives great support from the fact that neither PRD Realty nor Mr Langford ever raised the now-alleged release during the first three years of the litigation. In my opinion, a release from liability was never negotiated, and the parties did not have a release in mind when the agreement as to a six-month termination period was formed. The question of compromise was never mentioned until the second firm of solicitors acting for PRD Realty instigated the question of a compromise. If there had been a deal that PRD Realty would forego its full term of management in exchange for not being sued over Benowa Gardens, it is impossible to accept that the parties to the deal would have kept quiet about it for all that time, and only have recalled it at the prompting of a new set of legal advisors. 94 In the result, the first and second respondents fail in their claim against the applicant that there was a compromise of whatever claims Expectation may have had against the first and second respondents. However, for the reasons given above, Expectation had no valid claim against either the first or second respondents. Broadway on the Mall 95 I turn finally to the question of the applicant's claims in respect of Broadway on the Mall. 96 Expectation alleges that on or about 9 January 1994 Mr Douglas, for and on behalf of PRD Realty, informed Mr Hill, for and on behalf of Expectation, that the net income of the Broadway centre was in the order of $2.45 million, that PRD Realty had received a document prepared by Price Waterhouse, the Receivers for the owner of the Broadway centre, which document contained a statement of net rentals recoverable from tenants at the Broadway centre, and the document stated that the net income of the Broadway centre was in the order of $2.45 million. 97 Expectation further alleged that PRD Realty had checked out the net income with the centre management and verified it as $2.45 million and gave a copy of the document to Expectation by Mr Hill. Expectation further alleged that Mr Douglas did not disclose to Mr Hill that there was a letter from Price Waterhouse which accompanied the statement of net rentals, which indicated that the contents of that statement were not audited, and that the Receivers took no responsibility for, nor warranted the accuracy or reliability of the document. 98 The evidence establishes that any representation as to the income of the centre was made by the centre manager, Mr Lee. 99 By letter dated 3 February 1994, Mr Hickey on behalf of Expectation, wrote to the solicitors for the Receiver, which letter said in part: "We refer to the Agreement dated 18th January, 1994. We advise that prior to our client entering into that Agreement our client was provided with certain documentation and certain representations were made to our client by your clients agents or employees." The letter referred to two documents: a "Cashflow Summary FY93/94", and a "Rent Collection Forecast FY 93/94". The letter continued: "These documents were forwarded to our clients agent Mr Colin Peet of PRD Realty Pty Ltd under cover of a letter from the Receiver and Manager dated the 6th January, 1994. Mr Peet met with your client Centre Manager, Mr Denise Lee, on the 9th of January, 1994 and tabled the enclosed documents. At that meeting a study was done of the tenancies and it was represented by Mr Lee to Mr Peet the actual net income which would be received in respect of the Centre for the financial year ending 30th June, 1994 would be in the order of $2,400,000.00., that is in accordance with the 'Cashflow Summary' provided to Mr Peet by the Receiver and Manager. On Sunday the 9th of January, 1994 our clients representative Mr Danny Hill and his agents Mr Gordon Douglas, Mr Colin Peet, Mr John Langford and Mr Ken Cooney met with the Centre Manager Mr Lee at the Centre and the enclosed documents were once again tabled and discussed. It has been confirmed that it was clearly represented again by Mr Lee that the actual cash net income which would be received in respect of the Centre for the year ending 30th June, 1994 would be the sum of $2,400,000.00. Mr Langford remained after that meeting and had a further detailed discussion with Mr Lee in which each tenancy was considered and again it was represented by Mr Lee that the actual cash net income which would be received for the period was the sum of $2,400,000.00. Our client relied on the enclosed documentation and on the representations that were made to our client and its agents that the actual net income which would be received in respect of the Centre for the financial year ending 30th June, 1994 would be the sum of $2,400,000.00. …" 100 I am satisfied that neither prior to, nor at the time of the inspection, did Mr Douglas tell Mr Hill that PRD Realty had checked out the net income with the centre management and verified it at $2.45 million. PRD Realty had not in fact checked the rental income prior to the inspection. Mr Douglas knew this. This is, in my opinion, no reason for Mr Douglas to represent that PRD Realty had done something which it had not. Given that due diligence was going to happen, it beggars belief that Mr Douglas would make the representation pleaded, since any discrepancy would be soon ascertained. 101 This conclusion is sufficient to dispose of the pleaded case in respect of Broadway, but in any event, in my opinion, Expectation did not enter into the contract in reliance on the pleaded representations. Expectation entered into the contract to purchase Broadway because of the potential for significant capital growth and the depreciation benefits available in respect of a property which was very much a distressed property. Expectation, knowing of the problems with arrears of rentals and other problems with tenancies, was prepared to enter into a contract, which included a clause acknowledging that "it did not rely upon any representations made by the vendor or its representatives". Even after the extent of the disparity between the actual income and the cash flow budget figures became apparent, Expectation and Hill were still interested in proceeding with the purchase. 102 A valuation prepared by Richard Ellis, and matters said by the valuer to Mr Hickey were reported by Mr Hickey to Mr Hill in a facsimile of 28 January 1994. That letter notes "verbal advice from the valuer that they will value at $28.000,000", and, "He believes that the property is an excellent acquisition. He advised that as a valuer he must take a case applicable to his valuation but he believes there is significant capital gain to be achieved in this property." 103 Mr Woollard was summoned from Monaco on 4 February 1994 by Mr Hill to assist in the evaluation of Broadway, and the due diligence process continued. This occurred after Mr Hill, and thereby Expectation, were aware of the actual income of Broadway. 104 Expectation terminated the contract on 11 February 1994 when it received Mr Woollard's memorandum concerning the risk involved in managing the property. The contemporaneous documents are inconsistent with the assertion in par 36 of the further amended statement of claim that Expectation declined to proceed further with the purchase of Broadway as a consequence of learning that the true net income was $1.8 million. Mr Woollard's memorandum (Exhibit 27) indicates that the then actual income generated by Broadway was an immaterial consideration. 105 The claim in respect of Broadway on the Mall fails, both on the question of the making of representations and on the question of reliance and causation. 106 For the above reasons, the applicant's claims against both the first and second respondents are dismissed, as is the applicant's claim for an indemnity against the third respondent. 107 I will hear the parties as to the orders that should be made to give effect to these reasons, and on costs. I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender . Associate: Dated: 11 March 2003 Counsel for the Applicant: Mr Philip Morrison QC, with Mr Martin Burns Solicitor for the Applicant: Gadens Lawyers Counsel for the 1st & 2nd Respondents: Mr Patrick Keane QC, with Mr Peter Applegarth SC Solicitor for the 1st & 2nd Respondents: Thynne & McCartney Counsel for the 3rd Respondent: Mr Declan Kelly Solicitor for the 3rd Respondent Courtice Neilsen Dates of Hearing: 8-11 May, 14-18 May, 21, 22, 24 May, 6-8 August, 15, 16 October 2001 Date of Judgment: 11 March 2003