New South Wales Supreme Court CITATION : Waldor Development v Riverquay Developments [2005] NSWSC 8 HEARING DATE(S) : 8-11 June, 2 July 2004 JUDGMENT DATE : 21 March 2005 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : Judgment for defendants; cross-claim dismissed CATCHWORDS : TRADE & COMMERCE - contract for sale of land - whether misleading representations as to purchaser's financial position and intentions were made Waldor Development Pty Ltd (P, XD2) Riverquay Developments Pty Ltd (D1, XC1) Christopher Peter Rose (D2, XC2) David Andrew Atkin (D3, XC3) PARTIES : Joe Nakat (D4, XC4) Michael John Francis Fox (XD1) Robert Henry Walsman (XD3) George Joseph Antice (XD4) David Ronald Lewarne (XD5) FILE NUMBER(S) : SC 4348/03 J S van Aalst with A Tibbey, R Wilson (P, XD4) B W Rayment QC with J R McKenzie (D1-D4) COUNSEL : M Macrossan (XD1) L Byrne (XD5) Hardings (P, XD4) KalantzisLawyers (D1-D4) SOLICITORS : Makinson & d'Apice (XD1) Lewarne & Goldsmith (XD5) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J MONDAY 21 MARCH 2005 4348/03 WALDOR DEVELOPMENT PTY LTD V RIVERQUAY DEVELOMENTS PTY LTD & ORS JUDGMENT (Revised for typographical errors 21 March 2005) 1 HIS HONOUR: The plaintiff ("Waldor") was at all relevant times a company controlled by Robert Walsman and George Antice, who were its directors. The first defendant ("Riverquay") was at all relevant times a company that had four directors, three of whom are defendants, namely the second defendant, Christopher Rose, the third defendant, David Atkin, and the fourth defendant, Joe Nakat. Michael Fox, the first cross-defendant, was the fourth director, holding the position from 1 July 1999 until 10 January 2000. 2 The issued shares of Riverquay were held by David A Atkin Pty Ltd (controlled by Mr Atkin), Quadrant Properties Pty Ltd (controlled by Mr Rose), Monitor Constructions Pty Ltd (controlled by Mr Nakat) and Bronridge Pty Ltd (controlled by Mr Fox). 3 In 1999 Waldor contracted to sell its property at 44-56 Phillip Street Parramatta ("the Subject Property") to Riverquay, but the contract was not completed and Waldor terminated it. The present proceeding has arisen out of that unsuccessful transaction. I shall endeavour, in the course of this judgment, to set out the facts fully, and make findings on disputed questions of fact where appropriate, although (as will appear) my decision is that Waldor has failed to establish its case of misleading and deceptive conduct against the defendants, and therefore some of the disputed matters do not strictly arise. The pleadings 4 By a Statement of Claim filed in the District Court on 12 July 2002, and later transferred to the Supreme Court, Waldor sued Riverquay, Mr Rose, Mr Atkin and Mr Nakat, alleging that Riverquay had engaged in misleading or deceptive conduct for the purposes of s 52 of the Trade Practices Act 1974 (Cth), and that Riverquay, Mr Rose, Mr Atkin and Mr Nakat had engaged in misleading or deceptive conduct for the purposes of s 42 of the Fair Trading Act 1987 (NSW), by making certain representations about the financial strength of Riverquay. The Statement of Claim also alleged that Mr Rose, Mr Atkin and Mr Nakat had aided, abetted, counselled and procured Riverquay to engage in its misleading or deceptive conduct, for the purposes of s 75B of the Trade Practices Act and s 61(a) of the Fair Trading Act. 5 The allegations of misleading or deceptive conduct related to what was said at a meeting on 13 July 1999, convened to negotiate the sale of the Subject Property by Waldor to Riverquay. According to paragraph 2 of the statement of claim, Mr Rose and Mr Atkin as agents for Mr Nakat made express or implied representations to Waldor that: (a) Mr Rose and Mr Atkin had recently successfully completed a large real estate property development; (b) by reason of having done so, Riverquay would be "cashed up"; (c) Riverquay would redevelop the Subject Property with the adjoining sites owned by Parramatta City Council and Integral Energy; (d) the proposed contract with Waldor would be exchanged simultaneously with the Parramatta City Council and Integral Energy contracts; (e) there were no liabilities of Riverquay that were fixed or capable of being ascertained, nor any prospective liabilities of which a charge or charges on Riverquay's Property would be granted for the benefit of Mr Rose, Mr Atkin and Mr Nakat either jointly or severally or to a company in which they had any interest, to the detriment of Waldor as proposed vendor; (f) Riverquay would or ought to be in a position to meet such financial obligations as may arise by reason of any failure by it to perform its obligations under the proposed contract; (g) directors' guarantees (which were requested) would therefore not be provided but in lieu of them Waldor could rely upon the above representations (in (a) to (f) above) as an accurate and reliable statement of the financial standing of Riverquay if the proposed contract was entered into with Waldor; and (h) nothing would be done, or would be caused to be done, by the defendants or any of them upon or after the exchange of the proposed contract to create or cause to be registered any charges over the property of Riverquay to confer priority in favour of Mr Rose, Mr Atkin or Mr Nakat over any claim or prospective claim that Waldor may have under the proposed contract. 6 Damages were sought against all four defendants under s 82 of the Trade Practices Act and s 68 of the Fair Trading Act, under various headings, particularised for a total amount of $805,367.81. Subsequently a Schedule of Damages was filed, revising the claim to $678, 918.11. 7 The defendants filed a Defence denying that they engaged in misleading or deceptive conduct. They also filed a Cross-claim, amended on 14 October 2003. The defendants to the cross-claim are Mr Fox as first cross-defendant, Waldor as second cross-defendant, Mr Walsman as third cross-defendant, Mr Antice as fourth cross-defendant, and David Lewarne (Waldor's solicitor) as fifth cross-defendant. 8 The Cross-claim sought an indemnity or contribution from the cross-defendants, in the event that the cross-claimants/defendants were found to be liable to Waldor in the proceeding. It contended that Mr Fox participated in any representations that might be found to constitute misleading or deceptive conduct. It said that Waldor, Mr Walsman, Mr Antice and Mr Lewarne failed to warn the cross-claimants that they were relying on representations about Riverquay's financial strength, and that those cross-defendants made representations to the effect of some "whole of contract" clauses which were contained in the contract for the sale of the Subject Property. According to the Cross-claim, this conduct on the part of Waldor, Mr Walsman, Mr Antice and Mr Lewarne was misleading conduct for the purposes of s 52 of the Trade Practices Act and s 42 of the Fair Trading Act (calling in aid the provisions about making representations with respect to future matters without reasonable grounds: s 51A and s 41 respectively), and was also unconscionable conduct. Additionally, the Cross-claim sought return of the 5% deposit that Riverquay had paid to Waldor under the contract of sale, which Waldor had purported to forfeit upon termination of the contract, or in the alternative relief against forfeiture of the deposit under s 55(2A) of the Conveyancing Act 1919 (NSW). 9 Mr Fox as first cross-defendant, and the other four cross-defendants together, filed separate Defences to the Cross-claim, denying the cross-claimants' allegations. Early negotiations for sale 10 Waldor was the registered proprietor of the Subject Property at all relevant times until 2001. The Subject Property was a row of terraces, used in 1999 by retail and commercial tenants, with a restaurant business on the top floor. 11 On 29 April 1996 Waldor entered into an exclusive agency agreement with John F Surian Pty Ltd trading as Raine & Horne, Parramatta, for the sale of the Subject Property. Mr Surian himself handled the sale. He proceeded to advertise the Subject Property for sale by tender. When tenders closed, the highest bidder was Bronridge Pty Ltd, a company associated with Mr Fox, who is an architect. One of Bronridge's offer conditions, set out in a letter from Mr Fox to Raine & Horne Parramatta dated 27 June 1996, was that it would obtain vacant possession on settlement. At the time there were tenancies of various parts of the Subject Property, including two longer-term leases. 12 There were then direct negotiations between Mr Fox and Mr Walsman, Mr Antice and Mr Lewarne. On 8 May 1997 Waldor granted Bronridge an option to purchase the Subject Property. The option agreement and the annexed draft contract identified the two longer-term tenancies, namely a lease of 54-56 Phillip Street to Whattel Pty Ltd expiring on 31 August 2000 and a lease of 52 Phillip Street to Hearing Care Services Pty Ltd expiring on 19 March 1998 but with an option to renew the lease for three years. The agreement between Waldor and Bronridge required Bronridge to notify Waldor not less than 30 days before exercising the option to purchase, of its intention to do so. Waldor was then to notify Bronridge whether the sale would be with vacant possession or subject to the two tenancies. The option agreement said that if the sale was with vacant possession the purchase price would be $3.4 million but if it was subject to one or both existing tenancies then the purchase price would be $2.95 million. There are some handwritten annotations to the option agreement, not appearing to be formal amendments, which purport to alter the purchase prices to $3.5 million and $3.2 million respectively. 13 The option agreement was extended a number of times, but it was never exercised. Development of the project 14 Prior to July 1999, Mr Fox introduced Mr Atkin and Mr Rose to the possibility of acquiring and developing the Subject Property. He had known Mr Atkin for many years, and Mr Rose for a shorter time. They discussed forming a business relationship, which was also to include Mr Nakat, who was introduced to Mr Fox, to erect about 100 residential home units with incidental parking and ancillary and other works on the northwestern corner of Smith Street and Phillip Street Parramatta. For that purpose, they were interested in acquiring the Subject Property, and also the adjoining properties, a car park owned by Parramatta City Council and an electricity substation owned by Integral Energy. According to Mr Nakat's evidence (T 131), the Subject Property was not essential for the development project they had in mind, but its acquisition would make the project larger. Mr Rose gave evidence to the same effect (T 240-241). 15 Mr Fox was to introduce the others to the development, and bring to the business relationship his architectural services through his architectural company, in exchange for 17.5% of the net profit. Mr Atkin was to provide management services for which he would receive 17.5% of the net profit and a fee. He was not obliged to provide any equity or finance towards the project. 16 Mr Rose and Mr Nakat were to obtain finance for the development of the project, each receiving 32.5% of the net profit plus commercial financiers' fees. Mr Nakat gave oral evidence (T 109), which I accept, that at a meeting attended by Mr Atkin, Mr Rose and Mr Nakat in June 1999, it was arranged that Mr Nakat and Mr Rose would make capital contributions totalling $2 million, not necessarily as subscriptions for equity in the legal sense, and at that stage they did not apply their minds to the shareholding structure of the corporate vehicle that would be formed for the purpose of the development project. Indeed, Mr Nakat gave evidence that he would never have contributed capital in the form of equity or share capital, and his intention was to contribute capital in the form of loans to Riverquay (T 157). "Capital" was the "balancing item" (T 148), and if they could raise all the capital from pre-selling the apartments without personal contributions they would do so. In his evidence Mr Lewarne confirmed that "equity" might be used, in a commercial sense, to encompass shareholders' loans as well as share capital (T 210). 17 Mr Nakat's evidence that he always intended to supply loan capital is supported by a note he prepared early in July 1999, making calculations in anticipation of the exchange of contracts to purchase the Parramatta City Council and Integral Energy sites, before the negotiations for purchase of the Waldor site had occurred. He calculated amounts to be paid by himself and Mr Rose and described them as "Subd Loans", that is subordinated loans. 18 Riverquay was incorporated on about 1 July 1999 as the vehicle for the development project. 19 In July 1999 Mr Rose and Mr Nakat expected the total development costs of the proposed development to be around $30 million. Mr Atkin, Mr Rose and Mr Nakat gave evidence, which I accept, that it was always their intention that land acquisition and development costs be provided by a mixture of debt and equity, but predominantly by debt. The meeting of 13 July is arranged 20 In June 1999 Mr Surian became aware that Bronridge would not proceed with the purchase. He gave evidence that, some time after late June 1999, he was contacted by Mr Atkin, who said: "I am interested in the St George Terrace property in Phillip Street. Michael Fox is out of it and you'll now deal with me. He has got nothing to do with it. We can proceed with it but nowhere near the price that Fox was paying." Mr Atkin denied ever contacting Mr Surian before the meeting of 13 July, and said that in fact Mr Fox was very much part of the proposed venture. It seems to me that I should prefer Mr Atkin's evidence. It is clear that Mr Fox had a significant role to play in the business relationship that led to the establishment of Riverquay, and unlikely that Mr Atkin would have told Mr Surian that Mr Fox had nothing to do with the proposal. But it is likely that Mr Surian was told, at the meeting if not before, that the negotiations were to be conducted in the context of a new project that had nothing to do with the proposals previously negotiated by Mr Fox and Bronridge. 21 Mr Surian then contacted Mr Walsman, saying Mr Fox introduced him to Mr Atkin, who was interested in an unconditional purchase of the property and was prepared to offer $2 million. Mr Walsman contacted Mr Antice, and arrangements were made for a meeting to negotiate a sale of the Subject Property to interests associated with Mr Atkin and others. Mr Fox telephoned Mr Lewarne on 6 July 1999 and proposed that the parties should sign a confidentiality agreement before the meeting began. Mr Lewarne agreed. Mr Fox arranged for a confidentiality agreement to be prepared and sent it to Mr Lewarne by facsimile for signature by Mr Walsman and Mr Antice. The document was signed when the parties met. 22 It was at the meeting of 13 July 1999 that, according to Waldor's case, the representations were made that constituted misleading conduct. It is therefore of critical importance to decide precisely what occurred. Everyone present at the meeting gave evidence about what was said at the meeting. To a considerable degree there was concurrence (although the witnesses gave different accounts on matters of detail), but there is disagreement on some matters. Mr Surian's evidence was supported by handwritten notes that he made during the course of the meeting. The meeting of 13 July - first phase 23 The meeting was held at Raine & Horne's offices. In attendance were Mr Walsman, Mr Antice, Mr Lewarne, Mr Fox, Mr Rose, Mr Atkin and Mr Surian. Mr Nakat did not attend. Mr Atkin and Mr Rose gave evidence that they did not recall Mr Lewarne being present, but it seems to me probable, on the evidence, that he was. Mr Surian, Mr Antice, Mr Walsman, Mr Fox and Mr Lewarne gave evidence that Mr Lewarne was present, and Mr Surian's handwritten notes record "David L" as a person in attendance. Mr Fox also made some notes of the meeting, about which he was cross-examined, but I found them ambiguous and unhelpful. 24 In effect, the meeting was in three phases. Initially the parties met in a boardroom, where Mr Surian introduced them to one another and Mr Atkin said that Riverquay would be the purchaser. Mr Walsman, Mr Antice and Mr Lewarne already knew Mr Fox, because of their prior negotiations. 25 I accept Mr Fox's evidence, corroborated by Mr Atkin and Mr Rose, that he did not say anything substantive at the meeting (with one exception concerning Mr Robertson, noted below), and merely introduced the various parties to one another. Specifically, he did not make any representations during the course of the discussion about personal guarantees and Riverquay's financial capacity. But he was present throughout the meeting and I have no basis for doubting that he heard what Mr Atkin and Mr Rose said. 26 I accept Mr Atkin's evidence that at an early stage in the meeting either he or Mr Rose said that they were "experienced in property development". It appears from Mr Surian's notes that at an early stage in the meeting, Mr Nakat was identified as involved in Riverquay, and that he was an investment bank director of BT soon to be Deutschebank. That is partly corroborated by Mr Rose's evidence that he described Mr Nakat as a director of Bankers Trust. Mr Antice agreed in cross examination (T 59) that early in the meeting, he was told that Mr Atkin and Mr Rose had "completed a number of developments". 27 It appears that there was some discussion about the development project and the purchaser's interest in acquiring the adjoining properties from Parramatta City Council and Integral Energy. Mr Walsman or Mr Antice asked whether Wayne Robertson (mentioned below) was involved and Mr Fox said he was not. 28 Mr Atkin and Mr Rose both said there was some general inquiry about Riverquay's financial capacity to embark upon an ambitious development project. Mr Atkin's evidence was that either Mr Walsman or Mr Antice said, "If the deal was made how would it be funded?" He said Mr Rose replied: "Riverquay is a start-up company formed for this particular development, a special purpose vehicle. Finance for the project will be provided by way of a mixture of debt and equity." 29 Mr Rose gave similar evidence, saying that in answer to a question about the financial standing of Riverquay and its funding for the project, he said: "Debt and equity funding will be arranged in order to facilitate the purchase. No development company undertakes projects of this size with equity funds solely." 30 There is some corroboration of this in Mr Surian's oral evidence. He was asked about his notes, which said "to check finance to come through". It was put to him (T 188) that Mr Rose said the project would be funded by mixture of debt and equity. He replied: "I cannot swear that those two terms were used but pretty sure that there was discussion about the fact that the project needed to be financed. Now I cannot swear that they used those two specific terms at that stage of the meeting or at a later stage of the meeting." 31 Additionally, Mr Lewarne agreed in cross-examination that Mr Atkin or Mr Rose or Mr Fox said that the project would be funded by a mixture of debt and equity (T 208). 32 It seems to me plausible that since, as this evidence says, the question raised was about Riverquay's financial capacity to fund the development project (that is, not simply the purchase of the Subject Property), which was a $30 million project, that Mr Rose would have given some such answer as deposed to by him and Mr Atkin. The answer, that Riverquay would use a blend of debt and equity with the emphasis on debt, would hardly have been surprising. As commercial men, Mr Walsman and Mr Antice must have realised that a start-up vehicle like Riverquay would be most unlikely to fund the entire project with equity. I accept the evidence of Mr Atkin and Mr Rose on this matter. 33 Something happened that caused the initial phase of the meeting to break up. The plaintiff's witnesses gave evidence that Mr Atkin said words to the effect: "Whilst it would be good to have your property, it is not essential to our project. We really do not need your site." 34 He may also have proposed a purchase price of $2 million. Mr Walsman's evidence confirmed the quoted sentence but not the offer, at that stage, of $2 million; Mr Antice confirmed the sentence and the offer of $2 million. According to the plaintiff's evidence, Mr Walsman and Mr Antice already knew that the defendants had in mind the figure of $2 million so the making of an offer at that figure would not have been new information for Mr Walsman. 35 Mr Atkin and Mr Rose gave evidence that Mr Walsman and Mr Antice initially sought $3 million, and that they responded by proposing $2.5 million, which either Mr Walsman or Mr Antice rejected. At that stage Mr Surian proposed that the parties separate from one another for further negotiations. 36 It does not much matter whether there was a discussion during which figures were mentioned. The weight of evidence is that after Mr Atkin made a statement, Mr Walsman became annoyed and said words to the effect, "Well, what are we doing here?", and suggested that the meeting be called off, and Mr Surian responded by proposing that the parties go into separate rooms. The position of Mr Nakat 37 According to the evidence of Mr Lewarne, Mr Walsman and Mr Antice, Mr Atkin said something to the following effect during the first phase of the meeting: "Mr Rose and I are directors of Riverquay Development. Joe Nakat is also a director, but he is not able to attend today. He has asked Christopher and I to negotiate with you to see if an agreement can be made to purchase your property." 38 The defendants deny making any representation that they had Mr Nakat's authority to negotiate on his behalf. Mr Nakat said in cross-examination that, though he was aware that the meeting of 13 July would take place, he expected it to be a preliminary meeting, and when he was told after the meeting that a price of $2.75 million had been negotiated, he considered the matter for some time before deciding to accept (T 126-7). 39 He also said that when he discussed the project generally with Mr Atkin and Mr Rose, in June 1999, they reached an understanding that personal guarantees from directors would not be provided under any circumstances (T 146). But it appears that this intention subsequently changed, for by 27 January 2000 it appears that Mr Nakat and Mr Rose were contemplating that they might give guarantees in favour of a bank lender (T 182-3). 40 Mr Atkin and Mr Rose gave evidence that they did not, prior to or during the meeting, have any discussion with Mr Nakat relating to whether the directors of Riverquay would guarantee performance of the contract with Waldor, whether any statement would be made that might expose Mr Nakat to personal liability in the event that Riverquay did not perform the contract or had insufficient funds to do so, or whether any statement would be made in the nature of the representations to the effect of paragraph 2 of the statement of claim. Mr Rose said in cross-examination that he had a discussion with Mr Nakat before the meeting of 13 July in which they talked about "a potential sum of money that would be feasible" (T 244), but Mr Nakat did not authorise him to do anything at the meeting on Mr Nakat's behalf. Mr Rose said he acted independently as a director of the company at the meeting (T 245), and he apologised for Mr Nakat not being present due to his work commitments at Bankers Trust, and that was all he said about Mr Nakat (T 256). 41 Mr Nakat gave evidence that he was aware that the meeting had been arranged for 13 July 1999 but said that he did not participate in the meeting by telephone or otherwise. He denied that he authorised Riverquay or any of those who attended the meeting on its behalf to promise to guarantee Riverquay's performance of any contract, to make any representations that would expose him to personal liability in the event that Riverquay did not perform its contract or had insufficient funds to do so, or to make any of the representations set out in paragraph 2 of the statement of claim. 42 Mr Fox gave evidence that Mr Nakat did not authorise him to make any promises or representations at the meeting, and that he did not do so. 43 Since I have reached the conclusion, for reasons I shall give, that Waldor has not made out its case against the defendants based on allegations of misleading or deceptive conduct, it is strictly not necessary for me to make any finding as to whether Mr Nakat authorised the others to make representations on his behalf. In my opinion, however, the evidence of Mr Nakat should be accepted on this point. The meeting of 13 July - second phase 44 Mr Surian took Mr Walsman, Mr Antice and Mr Lewarne into an office and left Mr Rose, Mr Atkin and Mr Fox in the boardroom. Then a series of separate discussions took place and Mr Surian went from room to room relaying messages. This was the second phase of the meeting. The discussion seems to have been mainly about price. When Mr Surian thought that progress had been made, he brought the parties together again. The meeting of 13 July - third phase 45 Mr Walsman, Mr Antice and Mr Lewarne, together with Mr Surian, went back into the boardroom and continued discussions directly with Mr Rose, Mr Atkin and Mr Fox. Mr Surian left the room from time to time. 46 After they had re-assembled in the same room and some further discussion had taken place, Mr Surian said to everyone present: "Is this correct?: We agree on price 2.75 million. 5% deposit to be released to Waldor. The price originally agreed has been increased from 2.7 million to 2.75 million for the extra 3 month settlement. Exchange to take place one week from receipt of the contract. A company will be the purchaser. Vacant possession. Six months to settlement." 47 Mr Atkin said that the exchange of contracts would be simultaneous with the contemplated purchase from Parramatta City Council of the car park and, if possible, the purchase from Integral Energy of their substation. 48 The parties are in agreement that, during the meeting, someone on behalf of Waldor said that personal guarantees by the directors would be required, and Mr Atkin and Mr Rose refused to provide them (Mr Antice's evidence was that the refusal was given by Mr Atkin, but he was speaking on behalf of all the directors: T 54). Mr Rose said the question of personal guarantees was raised in the first phase, but Mr Lewarne and Mr Atkin located it in the third phase, and I accept the latter evidence on the ground of its general plausibility. It is a sort of matter one would expect to be raised only after agreement on the basics of price, deposit and completion. There is disagreement as to what else was said. 49 According to Mr Atkin, Mr Walsman and Mr Antice accepted the refusal of Mr Atkin and Mr Rose to give personal guarantees, and the parties shook hands at the end of the meeting. Mr Rose, who located the discussion about guarantees in the first phase, with some emphasis (T 252), gave evidence to the effect that nothing more was said when the proposal for guarantees was refused. 50 According to the plaintiff's witnesses, Mr Atkin and Mr Rose supported their refusal to give personal guarantees by making representations that: · Mr Nakat had a background in investment banking; · Mr Atkin was experienced in property development and project management and was involved in significant projects in Sydney such as the Quay Apartments in Circular Quay; and · Mr Rose had "high net worth", $10 million in net assets and had been involved in projects including Pulpit Point which was funded by NatWest and also a project at Manly. 51 Mr Atkin and Mr Rose denied that any such specific representations were made, but the evidence that these representations were made is supported by Mr Surian's contemporaneous notes, and I therefore find that the representations were made. 52 It is not clear from Mr Surian's notes that the representations were a response to the request for personal guarantees. Indeed, his notes do not record any discussion about personal guarantees. But he records information about these matters towards the end of his notes, suggesting that the representations were made at the time at which, I have found, the question of personal guarantees was raised. I find that Mr Atkin or Mr Rose made the representations about the defendants' credentials, as set out above, to support their refusal to give personal guarantees. 53 Did Mr Rose or Mr Atkin say anything else, to support their refusal to give personal guarantees, about Riverquay's financial capacity to complete the contract? There are several versions of the conversations on this matter, which I shall set out. As this is, in my opinion, the crucial issue in the case, I shall make findings of fact about it under a separate heading, below. 54 Mr Surian's evidence was that he heard either Mr Walsman or Mr Lewarne ask, "How do we know your company will perform this contract?" He said that either Mr Atkin or Mr Rose gave an account of the defendants' credentials on the lines set out above, and also said there would be no borrowings for the purchase. This latter statement is supported by Mr Surian's notes, which say "no borrowings for the land". 55 Mr Lewarne's version was that he told the defendants there would have to be personal guarantees from the directors of Riverquay, and Mr Atkin responded by saying that personal guarantees would not be given, and then gave the defendants' credentials on the lines set out above. Mr Lewarne gave evidence that Mr Atkin also said: "Riverquay will not be borrowing any of the purchase price and there [sic] it will not need to borrow any funds to complete the purchase of your client's property." 56 Mr Walsman's evidence was that, after referring to his past experience, Mr Atkin supported his refusal to give personal guarantees by saying that "Riverquay will not be borrowing any monies to complete the purchase of your property". In cross-examination, he said "the only thing that was discussed is that they were buying our property unconditionally and they were paying cash" (T 226). 57 The evidence of Mr Antice was that Mr Atkin said "we are well cashed up", and "we are all people of substance, we are in possession of sufficient funds so that Riverquay will not have to borrow to complete the purchase". In cross examination, however, Mr Antice was uncertain as to whether it was Mr Atkin or Mr Rose who said "we are well cashed up" (T 52-53). 58 Mr Atkin and Mr Rose denied saying that there would be no borrowings on the land, and said it had always been their intention that the land acquisition and development costs would be provided by a mixture of debt and equity, but predominantly by debt at favourable rates. 59 Mr Fox gave evidence as far as he was aware, there was never any assurance or suggestion made at the meeting on 13 July by anyone on behalf of Riverquay to the effect that there were no charges on the assets of Riverquay, that no charges would be created, that Riverquay had sufficient funds of its own to complete the purchase and would not have to borrow, or that Riverquay would be able to meet out of its own funds any financial obligations that might arise in the event of failure to complete the purchase. 60 Mr Lewarne said that as a result of the discussion, his understanding was that Riverquay would have sufficient funds to purchase the Subject Property without having the need to borrow, and that therefore it would be a company with financial substance, and that it would on completion have the title unencumbered. He said he accepted what Mr Atkin said about the directors' financial position, and he took into account the substantial size of the proposed development. He said he relied on what Mr Atkin told him in the presence of Mr Rose as being truthful, and that was the reason why he did not pursue any further the question of personal guarantees by the directors. 61 Mr Walsman said that upon being given that information he was prepared to proceed without his solicitor insisting upon personal guarantees from the directors, because he was satisfied that Riverquay would have funds without borrowings to enable completion of the contract. 62 Mr Atkin, Mr Rose and Mr Nakat denied being aware, in the period from 13 to 29 July 1999, that Mr Walsman or Mr Antice believed that they had made any of the representations alleged in paragraph 2 of the statement of claim or that Waldor would not have anything to the contract in the absence of such representations, without personal guarantees. They said that if Waldor had insisted on personal guarantees by the directors, they would not have agreed that Riverquay enter into the contract. 63 Mr Antice gave evidence that he had been a real estate agent for about 40 years and had been involved in property development of the subdivision of land and design of factories, although his practice was to sell the land before construction took place (T 55). He agreed that in some cases, a developer would contribute about 25% of the development costs and the remaining 75% would be borrowed from the primary lender. He agreed that sometimes the developer might make use of mezzanine finance to supply his contribution to the project. He agreed that where several developers come together for a project and form a company for that purpose, their respective contributions might be recorded in loan accounts of the company, and it was possible that those contributions might be secured by way charge granted to them by the company, subordinate to the rights of the primary lender (T 57). He agreed with counsel for the defendants that he understood that the project in the present case, involving the development of a large residential unit building on the Subject Property and the two adjoining sites, would be funded by a mixture of debt and equity which might include loan accounts (T 57), although "this was not really discussed" (T 62). He agreed that what was said to him about the experience of Mr Atkin, Mr Rose and Mr Nakat indicated that they were serious about the proposed development and they had a track record of such developments, and that gave him confidence to think that they would be able to get the project off the ground (T 62). 64 Mr Surian gave evidence that in a typical development deal the developer would provide perhaps 25% or 35% of the total cost of the project and a primary lender would provide 75% or perhaps 65% (T 190). He agreed that he understood, at the meeting of 13 July, that finance was still to come through, but he said he had the impression from the meeting that there was a "fairly well drawn conclusion that it would come through" (T 190). He said that a developer would not exchange contracts before finance had been secured (T 192) but he accepted that his note, "finance to come through", indicated that the arrangements for finance had not been finalised as at 13 July (T 195). Exchange of contracts 65 On 13 July 1999 Mr Atkin sent a facsimile to Mr Lewarne confirming the terms and conditions proposed by Riverquay for the acquisition of the property, "as agreed between the respective companies". The letter set out Riverquay's name and address and identified Henry Davis York as its solicitor, and stated the "terms and conditions" of the sale: purchase price of $2.75 million, deposit of 5% to be released to the vendor; settlement in six months; vacant possession to be obtained by the vendor and exchange to be effected as soon as possible. No mention was made of directors' guarantees or the financial condition of Riverquay. 66 The letter referred to the possibility that Riverquay might acquire Waldor rather than the land, with consequent stamp duty savings, and said that if advice was received that this would not be an appropriate method of acquisition, Riverquay would require a reduction in the purchase price. This reflected some discussion at the meeting earlier in the day, when Mr Atkin said there might be some advantage to the purchaser in acquiring shares rather than land but the matter would have to be discussed with Mr Nakat. 67 The transaction proceeded as a sale of land rather than shares, and contracts were exchanged on 29 July 1999. The contract provided for completion in six months after the date of the contract, that is 29 January 2000. Clause 14 of the special conditions provided for a deposit of 5% ($137,500), with an additional 5% payable only if the purchaser defaulted and the vendor made a demand. The 5% deposit was paid on exchange of contracts and released to Waldor. The "whole of contract" clause 68 Special condition 2 of the contract was as follows: "2.1 This contract constitutes the entire agreement between the vendor and the purchaser relating to the sale of the property. 2.2 The parties have not entered into and are not bound by any collateral or other agreement apart from this contract. 2.3 The parties are not bound by any warranty, representation, collateral agreement or implied term under the general law or imposed by legislation unless: (a) such warranty, representation, agreement or term is contained in the express terms of this contract; or (b) it is an implied term or warranty imposed by statute which is mandatory and cannot be excluded by the parties' agreement. 2.4 The purchaser acknowledges that the purchaser, when entering into this contract, relied exclusively on the following matters independently of any statements, inducements or representations made by or on behalf of the vendor (including by any estate agent acting on behalf of the vendor): (a) the inspection of and investigations relating to the land made by or on behalf of the purchaser; (b) the warranties and representations expressly contained in the contract; (c) the skill and judgment of the purchaser, its consultants and representatives; (d) opinions or advice obtained by the purchaser independently of the vendor or of the vendor's agent or employees. 2.5 The purchaser acknowledges that no representations, inducements or warranties have been made by the vendor or its agents or representatives relating to the present state or condition of the property, its suitability for the purposes of the purchaser, the improvements erected on the property, any contamination relating to, caused by, or affecting the property or any proposed work to be done to the property. The purchaser purchases the property in its existing condition and state of repair." 69 Mr Antice gave evidence that Mr Lewarne explained the terms of the contract and in particular, the special conditions (T 36). Mr Hall and Mr Antice signed the contract on behalf of Waldor, as secretary and director. Mr Antice agreed in evidence that he intended that the written contract would record all the arrangements by which Waldor was bound in relation to the Subject Property and that all warranties, representations, agreements and terms were to be embodied in the contract (T 38). 70 Mr Lewarne agreed in cross-examination that a solicitor who drafted a contract containing a whole of contract clause and failed to include a representation of which he or she was aware, that had induced the contract, would be remiss (T 200). 71 I was taken to a number of authorities about the effect of a "whole of contract" clause, including Russo v Resource Developments International Pty Ltd [2003] NSWSC 239, Henjo Investments Pty Ltd v Collins-Marrickville Pty Ltd (No 1) (1988) 39 FCR 546; NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481 and Mulvay v Henry Berry & Co Pty Ltd (1938) 38 SR (NSW) 389. Since I have concluded, for reasons set out below, that the defendants did not engage in misleading or deceptive conduct as alleged in the Statement of Claim, it is unnecessary for me to determine whether the whole of contract clause in this case had the effect of preventing Waldor from relying on non-contractual representations by the defendants. Negotiations with tenants after exchange 72 Evidence on this subject would be principally relevant to the question of damages, if Waldor had made out its case against the defendants, but it also has some general relevance to other matters. 73 Mr Antice gave evidence that after exchange of contracts, Mr Walsman left it to him to deal with the real estate agents who handled the leasing of the Subject Property, Antice and Wall, to ensure that the property would be vacant by 29 January 2000. Mr Antice said that at the time of exchange of contracts, the property at 54 and 56 and the first floor of 44-52 Phillip Street (where the tenant conducted a restaurant business) was leased to Whattel Pty Ltd at a rental of $15,375.05 per calendar month, under a lease due to expire on 31 August 2000. Mr Antice said he believed that Waldor might have to pay Whattel compensation for the balance of the lease term if vacant possession was given to Riverquay on 29 January 2000. 74 According to the evidence of Mr Antice, at the time of exchange of contracts Whattel was in arrears of rent by about three months. But his experience with the tenant was that it would from time to time fall into arrears in payment of rent and it would usually come up with an arrangement to catch up. He said that Whattel was a good tenant and the leased property was kept in good condition, so Waldor had in the past agreed to such arrangements. But on this occasion, having regard to the exchange of contracts, Mr Antice said he instructed Mr Lewarne to use the default in payment of rent as a breach permitting termination of the lease. Subsequently Mr Lewarne told him that a termination notice had been served on Whattel and that Whattel would cease trading. Waldor took possession of the lessee's equipment and sold it by auction. Mr Antice said that if it were not for Waldor's contract with Riverquay, he would have taken up a proposal by the manager of the restaurant business conducted by Whattel to negotiate payment of the arrears and a new lease. 75 The evidence I have recounted was set out in Mr Antice's affidavit. But in cross-examination (T 43-44) he changed the evidence when confronted with documents, and agreed that Whattel vacated the premises on 28 June 1999, a month before the exchange of contracts and two weeks before the meeting of 13 July. The Whattel premises were never subsequently rented during Waldor's ownership of the Subject Property, and the arrears of rental unpaid after 1 April 1999 were never recovered. 76 The other tenants of the Subject Property, at the time of exchange of contracts, were as follows. The tenant of 48-50 Phillip Street was Kelly Services (Australia) Pty Ltd, in occupation as a monthly tenant under an expired lease, at a rental of $1000 per calendar month. Kelly Services was also the tenant of 52 Phillip Street at a rental of $1200 per calendar month. Kelly Services had vacated both premises by September 1999. The premises at 44 Phillip Street had previously been leased to Kerry Mullen at a rental of $1600 per month. Those premises had been vacated on 22 October 1998. The premises at 46 Phillip Street had previously been leased to Balloons Florist at a rental of $1600 per calendar month. The premises were vacated on 26 July 1999. 77 Mr Antice said he gave instructions to the real estate agents to find short-term tenants because of the obligation of Waldor to give vacant possession on completion of the contract. But no short-term tenants were found. Mr Walsman had a conversation with Mr Surian in which Mr Surian advised that the circumstances, it would be best for the property to remain vacant so that it could readily be sold with vacant possession. Mr Antice confirmed in cross-examination that by 1 September 1999 all of the premises had become vacant, and it suited Waldor to leave them vacant even after termination of the contract with Riverquay so that the Subject Property would be readily saleable (T 49-50). Charges over Riverquay's property 78 On 28 January 2000 documents were executed having the effect that Riverquay granted a fixed equitable charge over its property and undertaking to Mr Nakat and Mr Rose as trustees for the Riverquay Investment Trust, and loan agreements were entered into between Riverquay as borrower and Monitor Constructions and Quadrant Properties (each as trustees of trusts for the families of Mr Nakat and Mr Rose respectively) as lenders. The Riverquay Investment Trust was established as the vehicle through which the advances to Riverquay would be made (T 150). Notices of charge were lodged with ASIC on 31 January 2000 and entered on Riverquay's register of charges. 79 Mr Nakat said in cross examination that from July 1999 the project had commenced, presumably upon exchange of contracts for the purchase of the three sites, so it had become necessary to begin advancing money to facilitate the project, for example for payment of stamp duties, consultants' fees, planners' fees and the like (T 150). He said he always envisaged that whoever lent money into the project would have security over the assets of Riverquay (T 150). He said he discussed security documentation with Mr Rose in July or August 1999, but after the meeting of 13 July, although prior to that time he knew Mr Rose's view on how the deal should be structured, because any lender who provides finance to a project is entitled to security over the assets (T 157). He went to Mallesons Stephen Jaques, solicitors, in November 1999 to give instructions to implement those security arrangements. He denied that the purpose of instructing Mallesons to prepare security documents was to protect himself and Mr Rose in the event that Waldor made a claim by reason of termination of its contract with Riverquay. 80 An account was established with the ANZ Bank in the name of Riverquay on 5 July 1999 and various deposits and withdrawals were made amounting to several hundred thousand dollars, prior to 28 January 2000 when the security documents were executed. Mr Nakat said he should have arranged for preparation of the security documents earlier than November 1999, because by the time he saw Mallesons substantial advances had already been made. He explained (T 156) that he did not get around to it earlier because he and his colleagues were busy trying to make sure the development got off the ground. 81 Mr Nakat made notes of "meeting discussion points" for a meeting on 17 November 1999. He explained orally (T 164) that Mr Rose had previously had a meeting with a bank and was told the bank required "real equity of up to $2.5 million", and was asking for a proportionate contributions from the shareholders, as well as directors' guarantees in favour of the lender. Mr Nakat explained that "real equity" did not necessarily mean share capital and could be loan capital as long as it ranked behind the bank's funding. The note also recorded that Mr Fox and Mr Atkin were to reduce their shareholdings from 17.5% to "profit share of 5%" each if they did not put up equity and did not provide guarantees. "Equity" appears to be intended to include contributions of subordinated loan capital, and the reference to reduction of shareholdings seems to relate, in commercial substance, to profit shares rather than capital contributions. 82 Mr Nakat made some notes for himself, identifying issues, dated 13 and 14 December 1999. The 13 December note refers to "Documenting our loans and registering charge", and refers to a number of other things. One of the notes says "Defer settlement of Waldor plus Integral - strong leverage with Waldor -> unsecured creditor". Another note says "Confirm from [Mallesons] we have no personal liability arising from our director roles at Riverquay". Mr Nakat denied in cross-examination that his notes about leverage with Waldor and potential personal liability for the directors of Riverquay were connected with the establishment of charges in January 2000. I see no reason to reject that evidence. The notes appear to identify a miscellaneous range of "issues", not necessarily connected. 83 Mr Nakat also made notes of conversations he had with Julie Ward and Tom Lennox of Mallesons on 14 December 1999. The notes of his conversation with Ms Ward appear to relate to Mr Robertson's claimed easement. There is a note about "personal liability as directors" which says "if he can establish that we have knowingly assisted in breach of fiduciary duty - but we didn't know". But in cross-examination Mr Nakat could not identify who "he" referred to, and the note is too ambiguous to give it any significance now. 84 Under the heading "Tom Lennox", there appears to be an exploration of the voidability of a charge not registered within 45 days of its creation. Perhaps this reflected advice from Mr Lennox as to difficulties arising from the fact that a substantial amount of money (perhaps in the order of $800,000) had already been advanced by interests associated with Mr Nakat and Mr Rose to Riverquay without the security of a registered charge. The note refers to other possibilities, presumably as to the provision of security, such as a real property mortgage or assignment of rights, and rejects them. Reference is then made to s 553C of the Corporations Act, regarding set-off of mutual debts in an insolvency. There is a diagram that seems to envisage a new loan being made through a trust related to Mr Nakat and Mr Rose ("Joe/Chris") to Riverquay for $800,000, secured by a charge that would be registered immediately, and the note says this would not "be subject to voidable preference (since it is market-based)". The note refers to Riverquay making a loan to "Joe and Chris" equal on all terms to the loans made by "Joe/Chris" to Riverquay, and says that if Riverquay were put into liquidation, s 553C should operate to enforce mutual debts set-off. 85 Mr Nakat made some notes dated 20 December 1999 saying "Speak to Tom Lennox re charge structure - … if Trust lends to Riverquay, will this suffice i.e. (defeat sham argument)". He confirmed in cross-examination (T 181) that he wished to make sure that a new loan by a trust to Riverquay would not be open to challenge as a sham. 86 Mr Antice agreed in cross-examination (T 63) that at the meeting of 13 July, he was not told anything about whether a charge would or would not be created. In a letter dated 12 April 2001 to the then solicitors for Riverquay, Phillips Fox, Mr Lewarne on behalf of Waldor demanded an undertaking by Riverquay, Mr Atkin and Mr Rose that $600,000 would be retained from the proceeds of any settlement with Parramatta City Council pending determination of Waldor's claim for damages. In that letter Mr Lewarne noted that a search of the ASIC company extract for Riverquay had disclosed that two charges were created on about 3 July 1999 and registered on 31 January 2000, in favour respectively of Quadrant Properties and Monitor Constructions, and he said that, had Waldor been informed prior to entering its contract with Riverquay, that these charges had been created, its directors would not have contemplated entering into the contract. But Mr Lewarne did not claim that any representations were made before exchange contracts with respect to the presence or absence of charges, or that representations about Riverquay being "cashed up" implied that no charges existed or would be created (T 205-6). 87 On 14 July 1999 Mr Lewarne obtained an abstract of company information from the Australian Securities and Investments Commission's records with respect to Riverquay, which did not disclose the existence of any registered charges. 88 Mr Fox gave evidence, which I accept, that at the time of the meeting on 13 July he was not aware of the existence of any charges over the assets and Riverquay, nor of any intention to create charges. He said he did not become aware of the creation and registration of charges until after he was served with court documents in the present proceeding, in about February 2003. That was contradicted by the evidence of Mr Rose (T 285) to the effect that Mr Fox participated in discussions as to how the project would be financed, in which it was said that there would be charges over the Subject Property, but he could not identify a specific date or time for those conversations. But he said it was after he began to discover that Mr Fox had had an extensive relationship with Mr Robertson, and that was "later in 1999, early 2000" (T 286). Riverquay's difficulties with completion 89 Although it is not necessary, on the view I take of the case, to decide whether the defendants' conduct induced Waldor to act to its detriment and caused its losses, I shall set out the evidence as to what happened after the exchange of contracts. 90 On 29 July 1999 Riverquay also exchanged contracts with Parramatta City Council for the purchase of the car park, and on 13 August 1999 it exchanged contracts with Integral Energy for purchase of the electric substation. Neither contract was expressed to be conditional upon completion of the other or of the Waldor contract. 91 Shortly afterwards Henry Davis York lodged a caveat on Riverquay's behalf to protect its interests as purchaser of the Subject Property. On 13 August 1999 Mr Lewarne received a letter from Wight & Strickland saying they had received instructions from Riverquay and that further correspondence should be forwarded to them. When Mr Lewarne acknowledged that letter on 16 August, he told Wight & Strickland that Waldor had negotiated the surrender of an existing lease to one of the tenants, Whattel Pty Ltd. 92 On 13 September 1999 Mr Atkin wrote to Mr Surian seeking the permission of the owners to carry out some minor work on the property, including erection of signage and general cleaning up. Mr Walsman and Mr Antice later agreed to that work. 93 Mr Surian gave evidence that Wayne Robertson, the owner of an adjoining site, had a Development Consent that required a right of way over Parramatta Council's property, to give him access to the rear of his property. The existence of Mr Robertson's claim to a right of way proved to be an obstacle to completion of the purchase of the Council's property. There is some evidence to the general effect that over a period of time from late 1999 to mid-2000, Waldor was pushing Riverquay for settlement and Riverquay responded by briefing Waldor about its attempts to persuade the Council to deal with Mr Robertson's caveat. 94 Thus, Mr Surian gave evidence that early in January 2000, he had a number of conversations with Mr Atkin about the problems posed by Mr Robertson, in which Mr Atkin explained that he was endeavouring to arrange conferences of the affected parties and to obtain legal advice from senior counsel. Mr Surian said Mr Atkin told him that Mr Robertson was being totally unrealistic in terms of price. Mr Robertson placed a caveat on the Council's property. On 14 February 2002 Mr Atkin telephoned Mr Surian and told him he had written to the Council suggesting that the Council take action to remove the caveat. On 21 February 2000 Mr Atkin told Mr Surian by telephone that he had received an opinion from senior counsel which indicated that Riverquay should sue the Council. On 20 March 2000 Mr Atkin told Mr Surian that letters were being sent to the Council to force them to complete their contract with Riverquay and to have Mr Robertson's caveat removed. 95 Mr Lewarne sought to give evidence about a meeting he attended with Mr Walsman, Mr Antice, Mr Rose and Mr Atkin in February 2000 and another meeting of the same persons, and also Mr Surian, on 31 May 2000. He also sought to give evidence about some telephone conversations he had with Mr Atkin, on 17 March, 21 or 27 April, 2 May, 9 May, 15 May, 17 May and late in May 2000. This evidence was objected to on the grounds that it was "without prejudice" privileged, or alternatively, that I should exercise my discretion against it under s 135 of the Evidence Act 1995 (NSW). For the reasons set out in the next section of this judgment, I have decided that this evidence should be excluded. 96 On 11 February 2000 Mr Lewarne wrote to Wight & Strickland referring to the February meeting and his subsequent telephone conversations with Mr Surian, and referring to meetings held by representatives of Riverquay with Integral Energy, the Parramatta Council and Wayne Robertson. Mr Lewarne asked to be advised about Riverquay's intentions concerning the contract. On 3 April 2000 he wrote again to Wight & Strickland saying he understood that Riverquay had been unable to reach a satisfactory agreement with Parramatta Council, and that his instructions were that unless Riverquay gave some assurance that settlement was imminent, Waldor would have no alternative than to review its position in relation to the contract. 97 On 2 June 2000 Mr Lewarne wrote to Wight & Strickland enclosing a notice to complete directed to Riverquay and issued on behalf of Waldor. On 6 July 2000 Phillips Fox wrote to Mr Lewarne advising that they were now acting for Riverquay. On 14 August 2000 Mr Lewarne sent a notice to complete, directed to Riverquay, to Phillips Fox, appointing a settlement time on 1 September 2000. On 4 September 2000 Mr Lewarne wrote to Phillips Fox again, enclosing, by way of service on Riverquay, a notice of termination of the contract. 98 There was a meeting at the end of May 2000, attended by Mr Walsman, Mr Antice, Mr Lewarne, Mr Surian and Mr Atkin. Although this is controversial, I have decided that its contents were without prejudice, for the reasons given below. Mr Walsman and Mr Antice gave evidence that until that meeting, there understanding was, based on what they had been told at the meeting on 13 July, that Riverquay would not be borrowing any money to complete its purchase, and that it would be a company of substance. They said that if they had been told that after the exchange of contracts, the directors of Riverquay were to be granted charges over the assets of that company, they would have insisted on personal guarantees by the directors and would not otherwise have been prepared to authorise Waldor to enter into contract of sale. Mr Walsman said that after the meeting of May 2000 he gave instructions to the issue of a notice to complete and the termination of the contract. Mr Walsman and Mr Antice said Mr Surian advised them not to try to lease any of the Subject Property because the property would be easier to sell with vacant possession. 99 In July 2000 The Parramatta Advertiser, a newspaper, published an article entitled "The $750,000 Council Bungle", which reported that the Council was offering $720,000 plus legal costs of $30,000 to Riverquay in compensation for failure to complete the contract of sale to Riverquay of the Council's land. About the same time Mr Surian had a conversation with Mr Lewarne who indicated that the contract between Waldor and Riverquay would be terminated and that another buyer would need to be found. 100 Waldor issued a notice to complete to Riverquay on 2 June 2000, and after Riverquay changed its solicitors, Waldor issued another notice to complete on 14 August 2000, and the contract was terminated on 4 September 2000. Mr Antice agreed in cross-examination that in his opinion, the Council and Mr Robertson were the persons who caused the problem that brought the development project to a halt (T 63). 101 Mr Lewarne conducted another ASIC search of Riverquay on 5 October 2000, which disclosed the existence of the registered charges. 102 Mr Antice gave evidence that after exchange of contracts Waldor continued to pay council rates, water rates, insurance, repairs and other expenses. He annexed a schedule to his affidavit of 13 November 2002 showing total expenses of $83,363.87. Mr Antice also said that after termination of the contract with Riverquay, Waldor was required to pay advertising costs for the re-sale of the Subject Property in the sum of $4000. Evidence of "without prejudice" conversations 103 In his affidavit made on 8 November 2002, Mr Lewarne seeks to give evidence about meetings attended by Mr Rose, Mr Atkin, Mr Walsman, Mr Antice and himself, in early February 2000 and on 31 May 2000 (affidavit, paragraphs 31 and 40-44). He also seeks to give evidence about telephone conversations he had with Mr Atkin on 7 March 2000, 3 and 21 (or 27) April 2000, 2, 9, 15, 17 May, and late May 2000. Evidence about the two meetings is also given in the affidavits of Mr Surian, Mr Antice and Mr Walsman. All this evidence is objected to on the basis that the conversations in question were without prejudice conversations. 104 Determination of the objection depends in part upon my making a finding on a disputed question of fact, namely whether anyone said during the conversations that they were without prejudice. I decided, with the assent of counsel for the parties, to admit Mr Lewarne's evidence conditionally upon my finding, after the conclusion of the hearing, that the conversations were not without prejudice discussions. I shall proceed to make determinations as to the admissibility of this evidence, although I should make it clear that in view of my finding that the defendants did not engage in the misleading or deceptive conduct alleged in the Statement of Claim, the presence or absence of this other evidence would not, in my opinion, affect the outcome of the case. 105 At the hearing it became clear that, during the whole period from February to May 2000, Riverquay was represented by solicitors in its dealings with Waldor. Nevertheless Mr Lewarne, acting for the plaintiffs as vendors, attended the February and May 2000 meetings with Mr Rose and Mr Atkin, and had the telephone conversations with Mr Atkin, in the absence of Riverquay's solicitors and without their consent. I indicated to counsel that I was considering rejection of the evidence of the two meetings and the telephone conversations on discretionary grounds, even if I were to conclude that the conversations were not conducted on a without prejudice basis. I did so in order to make sure that in the course of the hearing, counsel placed before the court the evidence relevant to the exercise of my discretion. Subsequently counsel addressed questions to the witnesses on that subject and, indeed, Mr Lewarne was called and gave further evidence in chief and in cross-examination on a limited voir dire directed specifically to the discretionary issue. 106 In my opinion it is more likely than not that, at some time towards the beginning of each of the meetings in February and May 2000, Mr Rose said that the discussions were to be without prejudice. Mr Lewarne, Mr Antice and Mr Walsman each denied that any such thing was said, but Mr Atkin corroborated Mr Rose's evidence that he made such a statement on each occasion. 107 I base my conclusion on the fact that Mr Rose is a property developer who has, according to his own evidence, considerable experience in dealing with lawyers. It is likely, in my view, that he would have realised that it would be necessary to take some precaution before having a discussion with the vendors of property to his company in circumstances where difficulties were emerging as to completion of the purchase. That makes plausible his evidence that, before the February meeting he telephoned Julie Ward, a partner of Mallesons, who were advising him with respect to problems that had emerged with Parramatta City Council. His evidence was that he asked Ms Ward whether he could have discussions with the vendor and she told him that it would be acceptable to do so, provided he made the discussions without prejudice. I accept that evidence, and I think it likely, observing his demeanour in the witness box, that Mr Rose would have made sure that he followed this advice. 108 On the other hand, the evidence given on behalf of the plaintiff, denying that anyone stipulated that the meetings would be without prejudice, is less persuasive, because there was nothing more to it than the simple denial. True it is that Mr Lewarne is a solicitor, whom one would have expected to pay particular attention to any such stipulation, but I found Mr Lewarne's evidence to be vague, and, in view of his attitude to Rule 31 to which I shall refer, I would not be confident that he would give careful attention to an assertion that a conversation would be without prejudice. 109 My finding of fact means that the evidence of what was said at the meetings in February and May 2000, to which objection has been taken, is inadmissible evidence under s 131 of the Evidence Act 1995 (NSW). The privilege is not absolute (Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1991) 27 FCR 86), but in my opinion it is available on the present facts. There is, additionally, a second ground for rejecting that evidence, which extends as well to Mr Lewarne's evidence of his telephone conversations with Mr Atkin. I should say that the telephone conversations were not conducted on a without prejudice basis, according to Mr Atkin's own evidence. 110 The second ground is the discretionary ground for excluding evidence conferred on the court by s 135(a) of the Evidence Act. This provision enables the court to refuse to admit evidence if its probative value is substantially outweighed by the danger that it might be unfairly prejudicial to a party. In my opinion it would be unfairly prejudicial to the defendants to admit any of the evidence upon which the plaintiff wishes to rely concerning the February and May 2000 meetings, or the telephone conversations during that period between Mr Lewarne and Mr Atkin. 111 This is because Mr Lewarne participated in the meetings and the telephone conversations in clear breach of his ethical obligations as a solicitor instructed by a party in the transaction to which the meetings related, and contrary to Rule 31 of the Revised Professional Conduct and Practice Rules 1995. That rule is as follows: "31.1 A practitioner who is acting on behalf of a party in any proceedings or transaction must not communicate directly with any other party for whom, to the practitioner's knowledge, another practitioner is currently acting, unless: 31.1.1 notice of the practitioner's intention to communicate with the other party, in default of a reply from the other practitioner, has been given to that practitioner, who has failed, after a reasonable time, to reply; 31.1.2 the communication is made for the sole purpose of informing the other party that the practitioner has been unable to obtain a reply from that party's practitioner, and requests that party to contact the practitioner; and 31.1.3 the practitioner, thereafter, notifies the other practitioner of the communication." 112 Here, Mr Lewarne was retained as the solicitor for Waldor, the vendor in the sale of property to Riverquay as purchaser. It is clear from the evidence, including Mr Lewarne's own evidence, that at all times during the period from the beginning of February until the end of May 2000, Riverquay was represented in the transaction by solicitors, and that Mr Lewarne was aware of that fact. The rule prohibited Mr Lewarne from communicating directly with the directors of Riverquay, including Mr Rose and Mr Atkin, unless he followed the procedure set out in the rule. He did not do so. 113 The fact that there was a change of solicitors from Wight and Strickland to Phillips Fox, in about 6 July 2000, is immaterial. It is also immaterial that Mr Rose and Mr Nakat, and there respective trusts and companies, and apparently also Riverquay, were represented by a different firm, Mallesons, in respect of the granting of security by Riverquay for the benefit of the interests of Mr Rose and Mr Nakat. 114 Mr Lewarne wrote a letter to Wight and Strickland on 11 February 2000, after the February meeting, but in that letter he did not say that he had attended the meeting between the respective clients, and in any event the rule requires communication to the other solicitor before communication with the client takes place. 115 It does not matter that Mr Lewarne did not convene either of the meetings. The rule prohibits direct communication with the other solicitor's client, regardless of the identity of the person who arranged the occasion upon which the communication takes place. 116 Mr Lewarne gave evidence that at the beginning of each of the meetings, he referred to the fact that Riverquay's solicitor was not present, and he said that Mr Atkin or Mr Rose indicated that they wished to proceed nevertheless. That is also immaterial, in terms of Rule 31. The only exoneration that the solicitor can obtain arises through following the procedure in the rule, which prescribes advance communication to the other solicitor, and limits the communication with the other solicitor's client in the manner stipulated in subrule 31.1.2. The rule does not permit general discussion about any aspect of the transaction with the other solicitor's client, in any circumstances, and requires advance notification to the other solicitor. 117 Mr Lewarne gave evidence agreeing that he had contravened the rule. He said he had not read the rule before the hearing, but that he was aware of the ethical restriction on solicitors talking to the clients of other solicitors. He said that his contravention of the rule was "technical", presumably because Mr Rose and Mr Atkin wished to proceed with each of the meetings in the absence of Riverquay's solicitors. 118 I can see nothing merely "technical" about Mr Lewarne's contravention of Rule 31. It is a basic ethical requirement for legal practitioners in New South Wales. It is clear that under the rule, it is not enough to obtain the consent of the other solicitor's client to the conversation taking place. The point of the rule is to protect the other solicitor's client from the disadvantage that naturally arises when one side is legally represented and the other is not. The nature of the disadvantage is itself a subject upon which the other solicitor's client should have access to legal advice. 119 Mr Lewarne's contravention of Rule 31 was compounded by the fact that he purported to give evidence at the hearing of what transpired at the meetings, for the benefit of his client and against the other solicitor's client. It seems to me plain that if his evidence were received, the defendants would be unfairly prejudiced, and that it should be rejected under s 135. I regard the evidence of Mr Lewarne's telephone conversations with Mr Atkin as in the same category as his evidence of what transpired at the two meetings. In my opinion Mr Lewarne's contravention of Rule 31 contaminated not only his own evidence about the meetings, but the evidence of Mr Antice and Mr Walsman on that subject as well. 120 Therefore, I reject all the evidence to which objection has been taken on the "without prejudice" basis, in the exercise of my discretion under s 135, in addition to my rejection of the evidence of the two meetings on the ground that they were occasions of "without prejudice" privilege. Enforcement of charges over Riverquay's property 121 On 3 May 2001 Mr Nakat and Mr Rose, as trustees of the Riverquay Investment Trust, demanded that Riverquay repay $805,928 under the loan agreements between Riverquay and, respectively, Monitor Constructions and Quadrant Properties. Re-sale of the Subject Property 122 After 18 November 2000 Mr Surian arranged for the sale of the Subject Property to be advertised. Offers were received, including one from Mr Robertson in the sum of $2.5 million, with completion deferred to 27 September 2001 and access to the purchaser for renovation works immediately on exchange. Mr Surian communicated this offer to Mr Walsman and Mr Antice but, according to his evidence, they were not prepared to enter into any more unconditional offers including delayed settlement because the problems they had encountered with Riverquay. Mr Robertson repeated his $2.5 million offer by letter of 22 February 2001, but the offer was rejected. After Mr Antice and Mr Walsman had a conversation to agree upon their approach, Mr Walsman told Mr Surian they were prepared to sell for $2.5 million but not to Mr Robertson, who had already caused enough "havoc and grief". 123 Mr Surian said that after Mr Robertson's offer was rejected, he thought of the idea of putting together a syndicate to purchase the property from Waldor. He arranged a syndicate involving himself, Christine Sharp, Andrew Brooks, David Lewarne and Red Lee Imports Pty Ltd, and the syndicate purchased the property from Waldor by contract dated 17 April 2001, settled on 29 June 2001, for a purchase price of $2.5 million. The contract contained "whole of contract" provisions like the contract between Waldor and Riverquay. Findings as to the defendants' representations 124 Central to the resolution of this case is the question whether any of the defendants in fact made the representations at the meeting of 13 July that are alleged in the Statement of Claim. Waldor would not succeed if all that happened was (as I have found) that Mr Atkin or Mr Rose refused the request for personal guarantees and supported of their refusal by making representations about their prior experience and (in the case of Mr Rose) high net worth. Such representations do not imply, of themselves, any representation that Riverquay would complete the purchase without borrowings. They are consistent with the proposition that the company would obtain external funds, relying on the reputation and net worth of the directors to give it credibility with an external financier. The important question is whether anything more was said to the effect that the company would not borrow. 125 Evidence was given on behalf of the defendants that the word "equity" is used in a commercial context to refer to the capital contributions of the participants in the business enterprise, as opposed to external financing. In this sense "equity" identifies contributions by way of loan capital as well as contributions by subscription for shares. I expressed some doubt about this matter during submissions (T 384) but I have decided on reflection that Mr Nakat's evidence should be accepted, especially having regard to Mr Antice's evidence on the subject. I accept the defendants' evidence that Mr Rose or Mr Atkin said at the meeting that Riverquay was a start-up company and a special purpose vehicle. It seems to me reasonably plain from the evidence (noting, especially, Mr Surian's evidence) that Mr Rose or Mr Atkin said at the meeting that the project would be funded by a mixture of equity and debt, meaning that project funds would be partly sourced in capital contributions for shares or on loan account, and partly by external funds. 126 Although the defendants denied that they made any representations as to borrowings for the acquisition of the Subject Property, as opposed to borrowings for the development project, it seems to me likely on balance that they did so. I reach this conclusion, in circumstances of conflicting evidence, principally in reliance on the only written evidence of the meeting, Mr Surian's note, which said "no borrowings for the land". Something must have been said, in my view, to cause him to make that note. It was a note about the intended financing of the land acquisition, not about whether the defendants were in a position to finance the acquisition without external borrowings. It is also plausible that, having been told that the project would be funded by a mixture of equity and debt, Mr Antice or Mr Walsman would have been concerned to know whether that funding process would affect and potentially delay completion of the purchase of the Subject Property. 127 It seems to me unlikely, however, that statements about funding for the acquisition of the Subject Property would have been made as part of the response by Mr Atkin and Mr Rose to the request for personal guarantees. They gave clear evidence, supported by Mr Lewarne, that they rejected that request in absolute terms. As Mr Rose said in cross-examination, it would be unusual for personal guarantees to be given for land acquisition as opposed to external funding for the project. A vendor of land, in contrast with a counterparty to a commercial contract which requires a company to pay a sum of money, has the protection that completion does not occur unless the purchaser tenders payment at settlement, and if settlement does not occur, the vendor has a contractual entitlement to forfeit the deposit. Nothing in the evidence suggests that the concern of Mr Walsman and Mr Antice was as to the capacity of Riverquay to pay damages, in addition to forfeiture of the deposit, in the event of breach of contract, as opposed to Riverquay's financial ability to pay the purchase price. Rather, the statement leading to the note, "no borrowings for the land", was in all probability made in response to a question by Mr Walsman or Mr Antice about how Riverquay would perform the contract, independently from the guarantee question. 128 In these circumstances, my view is that the statement by Mr Atkin or Mr Rose which led Mr Surian to note "no borrowings for the land" was a statement to the effect that no external borrowings were intended. It is common practice, according to the evidence, that capital contributions are often made to a proprietary company formed as a special purpose vehicle by way of loan capital, secured over the assets of the company. Mr Rose and Mr Atkin were both aware that this was so. So was Mr Antice, and although Mr Walsman's evidence on the question was ambiguous (T 226), it seems to me likely, having regard to his experience, that he understood that contributions on loan account were a common method of supplying capital. It is implausible, in my view, that Mr Rose or Mr Atkin would have represented that the capital contributions for acquisition of the Subject Property would be contributions by subscription for shares rather than on loan account. 129 It follows that I accept the evidence of Mr Surian, Mr Walsman and Mr Lewarne that Mr Atkin or Mr Rose said that there would be no borrowings for the purchase of the Subject Property, but in my opinion that statement was a statement about external borrowings and did not contain or imply any representation that the funds necessary to complete the purchase would be supplied by share subscription rather than through directors' loan accounts with Riverquay. 130 While I have found that representations were made as to the experience of Mr Atkin, Mr Rose and Mr Nakat and as to Mr Rose's high net worth, I am not able to find, on the evidence as a whole, that Mr Atkin or Mr Rose said "we are well cashed up", if the statement was intended to assert that Riverquay was "cashed up" or would be "cashed up" by the time of settlement. The assertion in paragraph 2 of the Statement of Claim that Riverquay would be "cashed up" by virtue of Mr Rose and Mr Atkin having recently successfully completed a large real estate property development is not supported by the evidence. But even if such a statement were made and was intended to refer to the financial position of Riverquay, it would be consistent with the proposition that the "cashing up" of the company would be by loans rather than subscription for shares. 131 There is no evidence that any representation was made at the meeting on 13 July to the effect that Riverquay would not grant charges prior to settlement. My finding that Mr Atkin or Mr Rose said there would be no external borrowings for the acquisition of the Subject Property cannot be the foundation for any implied representation to that effect, because it leaves open the possibility that capital would be supplied for the acquisition of the land on loan accounts, and that those loans would be secured by charges subordinated to the claims of the (eventual) external financier for the project. 132 My conclusions on these matters receive some support from the contents of Mr Atkin's letter of 13 July 1999, which purports to summarise the commercial terms of the arrangement and does not advert to any representations about the finances of Riverquay. My conclusions are also supported by the fact that the contract for sale prepared by Mr Lewarne, who was present at the meeting, does not advert to any representations of the kind alleged by Waldor in the Statement of Claim, even apart from the effect of the "whole of contract" clause. These matters reinforce my conclusion that it is more likely than not that there was no representation about Riverview's financing intentions of a kind that would be legally binding on it or its directors. 133 It follows, in my view, that there were no express or implied representations made by Mr Rose or Mr Atkin to the effect of subparagraphs (a), (b), (e), (f), (g) or (h) of paragraph 2 of the Statement of Claim. The representations alleged in subparagraphs (c) and (d) were in substance made but were not misleading. Conclusions 134 My finding that, for the most part, the representations alleged in paragraph 2 of the Statement of Claim were not made, leads to the following consequences: (i) the defendants did not engage in the misleading or deceptive conduct alleged in the Statement of Claim; (ii) Riverquay therefore did not contravene s 52 of the Trade Practices Act or s 42 of the Fair Trading Act; (iii) Mr Rose, Mr Atkin and Mr Nakat did not contravene s 42, and did not aid, abet, counsel or procure Riverquay to contravene s 52 or s 42; (iv) Waldor is not entitled to any of the relief sought against the defendants (including damages) in the Statement of Claim. 135 To the extent that the Cross-claim seeks indemnity or contribution in the event that the cross-claimants/defendants are liable to Waldor in the proceeding, the foundation for the Cross-claim has not been established and the Cross-claim should be dismissed. To the extent that the Cross-claim seeks relief against Mr Fox, it should also be dismissed because it is based on the assertion that Mr Fox participated in any misleading representations made by or on behalf of the defendants, and must fail once it appears that no such representations were made. In view of my findings of fact, it is unnecessary to deal with the careful submissions on legal matters that were placed before the court by counsel for Mr Fox. 136 I shall therefore enter judgment for the defendants with respect to the Statement of Claim in the proceeding, and dismiss the Cross-claim so far as it relates to the above matters. I shall fix a time to hear submissions on the question of costs. 137 As to the claim for return of the 5% deposit or relief against forfeiture of the deposit under s 55(2A) of the Conveyancing Act, no hearing time was separately allocated to the issue and it was not pursued on behalf of the defendants in final oral submissions. As far as I can see, it was mentioned only once, briefly, at T 401. I do not at present see any basis for granting the relief sought, but in case something might have been overlooked I shall give the parties the opportunity to make supplementary addresses at the further brief hearing that I have foreshadowed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.