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Quality Corporation (Aust) Pty Ltd v Millford Builders (Vic) Pty Ltd

 

[2003] QSC 95

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Claim

DELIVERED ON:

9 April 2003

DELIVERED AT:

Brisbane

HEARING DATE:

17 through 26 March 2003

JUDGE:

McMurdo J

ORDER:

1.Judgment for the first plaintiff against each defendant for $314,900;

2.The second and third plaintiffs’ claims against each defendant shall be dismissed.

CATCHWORDS:

TRADE PRACTICES AND RELATED MATTERS – CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - where misstatements made as to expenses and actual and likely takings of motel business – where effect of misstatement was to misrepresent the past and future profits of the motel business – where plaintiffs relied on misrepresentations – where first plaintiff purchased motel business - whether misrepresentations conduct in contravention of Trade Practices Act

TRADE PRACTICES AND RELATED MATTERS – CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - whether defendants also liable pursuant to sub s 6(3) of the Trade Practices Act for misleading and deceptive conduct

NEGLIGENCE – GENERAL MATTERS - where duty of care owed by first, second and third defendants  to plaintiffs – whether first, second and third defendants liable in negligence for misstatements

NEGLIGENCE – GENERAL MATTERS - where some material communicated by fourth and fifth defendants contained a disclaimer – whether disclaimer precluded the existence of a duty of care – whether fourth and fifth defendants liable in negligence for misstatements

DAMAGES – MEASURE AND REMOTENESS OF DAMAGES – where losses claimed by the second and third plaintiffs satisfied the “but for” test – whether damages recoverable under s 82 Trade Practices Act or for negligence

CONTRACTS – DISCHARGE BREACH AND DEFENCES TO ACTION FOR BREACH – CONDITIONS – WARANTIES - where purchase contract contained warranties concerning accuracy of financial records given to purchaser – whether first defendant liable for breach of warranties

Fair Trading Act 1989 (Qld), s 99(3), s 100(6)

Trade Practices Act 1974 (Cth), sub s 6(3), s 51A, s 52, s 53A, s 75B, s 82

Haydon v Jackson (1988) ATPR 40-845, considered

Henville v Walker (2001) 206 CLR 459, referred to

Smith v Commonwealth Bank (unreported; SG 46 of 1990; 11 March 1991), considered

I & L Securities Pty Ltd v H T W Valuers (2002) HCA 41, referred to

John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR (Digest) 41-249, considered

Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281, distinguished

MacCormick v Nowland (1988) ASC 55-653, referred to

March v Stramare (E & M H) Pty Ltd (1990-1991) 171 CLR 506, considered

Miba v Nescor Industries Group Ltd (1996) 141 ALR 525, referred to

Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556, referred to

Nescor Industries Group Ltd v Miba Pty Ltd (1997) 150 ALR 633, considered

Rawlinson and Brown Pty Ltd v Withan (unreported New South Wales Court of Appeal CA 40004 of 1993; 12 April 1995), referred to

Roots v Oentory Pty Ltd [1983] 2 Qd R 74, applied

Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332, referred to

Sweet v Mercantile Credits Ltd (unreported: Queensland Court of Appeal No 1911 of 1998, 22 December 1998), referred to

Snyman v Cooper (1989) 24 FCR 433, referred to

Tepko Pty Ltd v Waterboard (2001) 206 CLR 1, considered

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, considered

Yorke v Lucas (1985) 158 CLR 661, referred to

COUNSEL:

R J Douglas SC, with A M Musgrave, for the plaintiffs

J A Logan SC for the defendants

SOLICITORS:

Siemons Lawyers for the plaintiffs

McLaughlins Solicitors for the defendants

[1] McMURDO J:  The first plaintiff (“Quality Corporation”) operates the Noosa Village Motel, in Hastings Street, Noosa Heads.  The second and third plaintiffs, Mr and Mrs Skelton, are its shareholders.  In December 1995, Quality Corporation acquired the motel business from the first defendant (“Millford”), under a contract by which Millford granted a lease of the motel premises to Quality Corporation for a five year term, with three options each with a further term of five years, and by which the chattels then used in the business were sold.  Millford held any relevant assets as a trustee.  The second and third defendants, Mr Strawford and Ms Thomas, were its directors.  They owned an apartment in a building next door to the motel, called the “Jacaranda”.  Simultaneously with its acquisition of the motel business, Quality Corporation took a lease of this apartment, to the end of using it as two further rooms for the motel.  The fifth defendant (“Resort Brokers”) was the agent for the Millford side of the transaction, and it was represented by the fourth defendant, Mr Askew.

[2] The plaintiffs claim that these transactions were induced by representations as to the profits and profitability of the motel business, which they allege constituted conduct in contravention of sections 52 and 53A of the Trade Practices Act 1974 (Cth) (“the Act”) and corresponding provisions of the Fair Trading Act 1989 (Qld) (“Fair Trading Act”).  Each of the defendants is said to have engaged in conduct in contravention of those Acts, and also to have breached a duty of care owed to each plaintiff.  Each plaintiff claims damages or other relief under the Acts, together with damages for negligence.  In addition, Quality Corporation claims against Millford damages for breach of certain warranties in their contract, relating to the financial performance of the motel.  The defendants deny any contravention of the Act or the Fair Trading Act, any negligence or breach of warranty.  They deny that any of the matters complained of was causative of loss to any plaintiff.  In particular, they deny that Quality Corporation paid or agreed to pay too much for the business and its lease.

[3] I make the following findings of fact.  In 1995 Mr and Mrs Skelton lived in the house they owned in Sydney.  Mrs Skelton was then employed in a managerial position with an advertising agency, Saatchi & Saatchi, where she was responsible for the implementation of quality assurance processes.  Her work required some skills in the analysis of financial data.  She had held similar positions for the last 17 years.  Her salary package was worth about $107,000 per year.  She was then 47 years of age.  Mr Skelton was employed in management in the printing industry.  His work involved the supervision and checking of estimates for substantial printing orders.  Mr Skelton’s salary package was worth about $83,000 per year.  He turned 57 in 1995. 

[4] For some years, the Skeltons had been considering going into their own business.  In January 1995 they started to look for information on motels for sale.  Mrs Skelton had worked as a part time receptionist in a motel in the 1960s.  One of her brothers, Mr Philip Harding, then had a motel business at Noosa.  In February 1995, they took advice in relation to the purchase and operation of motels from a Mr John Sinclair.  They then became minded to acquire what Mrs Skelton described as a “good highway 3-3½ star” motel.  They were in contact with a number of agents from whom they received information on various motels.  They inspected motels for sale in Dubbo, Parkes, Coonabarabran, Taree and Tamworth.  They had Mr Harding inspect for them a motel in Gladstone.  One of the agents with whom they were in contact was Resort Brokers.  On 24 October 1995, they received from Resort Brokers a letter which promoted the sale of the Noosa Village Motel.

[5] The motel was then operated by Millford, which also owned the freehold of the land upon which both the motel and a café were situated.  The café was leased to an unrelated party.  Millford had acquired the freehold in 1991, from a mortgagee in possession.  The motel was then in poor condition and it underwent a refurbishment by Millford which was completed at some time in the year ended 30 June 1995.  Mr Strawford had extensive experience as a builder and personally undertook much of the refurbishment work.  The day to day tasks in the operation of the motel were performed by Mr Stawford and Ms Thomas, with assistance from part time and casual staff. 

[6] Under Millford’s operation, the motel was profitable, and its gross takings increased year by year.  For most of this period, the motel comprised nine units, but through Mr Strawford’s work, Millford progressively converted some parts of the building into further units.  There were ten units from July to mid September 1994, 11 units to Christmas 1994, and thereafter 12 units.  Apparently, the motel enjoyed local authority approval for only nine units, but no party says this has any consequences for the outcome of the case.  The motel building also included a three bedroom manager’s residence in which Mr Strawford and Ms Thomas lived.  In October 1995, Mr Strawford and Ms Thomas took steps to cause the motel business to be disposed of, whilst Millford retained the freehold.  They had just purchased the Jacaranda apartment, which they purchased in their own names as joint tenants, and which they had begun to rent out as two further units as if part of the motel.  In early October, Mr Stawford contacted Mr Askew, and discussed a proposed lease of the motel premises and consequent disposal of the business.  At a meeting on or about 10 October, Mr Strawford told Mr Askew of the gross takings and costs of the motel for the year ended 30 June 1995.  On 19 October, Mr Askew wrote to Mr Strawford and Ms Thomas, as “the proprietors” of the motel, referring to a “not unreasonably projected” net profit from the motel of $260,000 “after all operating costs”, and saying that upon that figure “the following lease scenario would be applicable:

a. Nett Profit: $260,000
b. Rental Year One: $130,000
c. Balance to Operator: $130,000
d. Purchase Price to show 33% Return to Operator: $400,000 ..”

[7] On 23 October, Mr      Askew sent Mr Strawford a form of listing authority, with some  details of the proposed transaction inserted by Resort Brokers.  Against “Owner’s Name” were inserted the names of Mr Strawford and Ms Thomas.  The figure “11” was inserted as the number of units in the motel, and the amounts of expected and historical turnover were written in as follows:

 

“1995/96:$310,000

    1994/95:$255,000

  1993/94:  $210,000”.

The turnover for the year to 30 June 1995 was indeed $255,000, and the plaintiffs do not suggest that the stated figure of $210,000 for the previous year was inaccurate.  In the space next to “Nett”, Resort Brokers had inserted “1995/96: $255,000”.  Against “Comments”, Resort Brokers had written, amongst other things, “Tariff increase 10% annually”.  The “Lease Price” was shown as “$405,000”, and “$135,000” was written against “Annual Rent”.  Mr Strawford signed the listing authority as “Owner”, but only after he crossed through “11” and inserted “9” against the number of units.  He then faxed the signed authority to Mr Askew.

[8] On 24 October, Mr Askew posted to Mr and Mrs Skelton a letter enclosing a three page document written by him and entitled “Investment Summary”, describing the motel as “quite easily operated by a couple”.  His investment summary described the motel as consisting of 11 standard motel units and it referred to the figures of $210,000 and $255,000 as the respective amounts of turnover for the 1994 and 1995 years.  He also said that:

 

“The owners are currently on target to gross $310,00 (sic) for the year ending June 1996”.

 

Against “Nett Profit” it specified:

 

“Year ending June 1995 $120,000 after rent and all operating costs.”

It showed the rental for “Year One” as $135,000 and a sale price of $405,000. The projected turnover of $310,000 for the 1996 year corresponded with the same estimate in the listing authority.  Rather than representing a projected net profit (before rent) of $255,000 for the 1996 year (as the listing authority had done) the summary represented a profit of $120,000 after rent and all operating costs.  Mr Askew wrongly described this as a net profit for the year ending June 1995, instead of a projected profit for the 1996 year.

[9] On about 9 or 10 November, Mrs Skelton telephoned Mr Askew.  He told her that there was now the Jacaranda apartment available for rental to the motel lessee, effectively adding two rooms to the motel.  In the course of discussion as to occupancy levels and room rates, Mr Askew said that the motel would return a “40% profit” to a purchaser.  She asked him to fax his 24 October letter and its enclosed Investment Summary, together with the last three years’ profit and loss statements, and expected returns from the Jacaranda units, to her brother Mr Harding, and also to her accountant, Mr Ian Hooper, who practised in Bathurst.  On about 13 November, Mr Askew faxed to Mr Hooper a letter of that date together with another four documents.  At the same time he faxed some documents to Mr Harding who has only a broad recollection of their content.  Attached to the fax to Mr Hooper was the three page “Investment Summary”.  A further attachment was a document entitled “Three Years Profit and Loss”.  This represented, for each of the three years to 30 June 1995, the number of rooms then used, their average price, the occupancy levels, the turnover, the “cost” and the “profit” of the motel.  For the 1995 year, the occupancy and turnover were shown for each month.  It also represented the projected turnover, cost and profit for the year to 30 June 1996.  This was on the basis of 12 rooms, at an average price of $65 (compared with $60 for the previous year).  The projected 1996 income was shown as $306,906, derived by adding two amounts to the 1995 turnover.  The first was an amount of $23,300 attributed to “one extra room”.  The second was $28,000 attributed to a “10% price increase”.  A further attachment sent to Mr Hooper was entitled “running cost 94/95”.  This represented that costs were of certain kinds in certain amounts, totalling $52,637.  The reference to “94/95” was in error; these were intended as projections for the 1996 year.  The other document sent to Mr Hooper was in the form of profit and loss statements for the 1995 and 1996 years.  The amounts corresponded with the content of the “Three Years Profit and Loss” so far as those two years were concerned.  The amounts for the ‘running costs 94/95’ were shown as the (projected) expenses for the 1996 year.  The same amounts were shown as the actual expenses for the 1995 year, save that $5,207 was put against wages instead of $10,400.  This document contained a note to the effect that the 1995 year figures were achieved “on an 11 room basis” whereas those for the following year were based on a “12 room basis”.

[10] The first of those attachments, the three page “Investment Summary”, was written by Mr Askew.  The second, being the “Three Years Profit and Loss” was prepared by Mr Strawford, save that the costs, including those shown in the attachment “running cost 94/95” were compiled by Ms Thomas.  Mr Strawford faxed these two documents to Mr Askew.  The other attachment, the profit and loss statement for the 1995 and 1996 years, was prepared by Mr Askew.  Apart from the break up of expenses for the 1995 year, that document was simply a representation in another form of much of the content of the two documents faxed by Mr Strawford.  This last attachment prepared by Mr Askew carried a form of disclaimer which I shall discuss below.

[11] On 14 November, Ms Thomas or Mr Strawford faxed Mr Askew a document in the form of a profit and loss statement for the 1995 year, which Ms Thomas had amended to include an amount attributed to takings in cash, so as to result in gross receipts of $256,796 and a net profit of $203,334.  In substance the expenses shown in this document corresponded with those contained in the documents sent by Mr Strawford.  The second and third defendants readily admitted cash receipts which were not fully recorded, and they made this known to the Skeltons at the time of the transaction.  The Skeltons followed the same practice, Mrs Skelton said, until the introduction of GST.  Mr Strawford believes he faxed this document, but Ms Thomas acknowledged her handwriting on the document, including that marking it for Mr Askew’s attention.  Should it matter, I find that it was more probable that she faxed it.

[12] On 17 November, Mr Strawford faxed another document which he had prepared to represent takings and profit for the 1995 and 1996 years.  This projected the 1996 takings at $323,259, by reference to amounts for each month.  The figures for July through October correctly represented the actual takings in those months.  The figures from November onwards were expressed to be projections derived by increasing the takings for the corresponding months in the previous year by 15%.  There was an additional component of $26,911, not referrable to any month, represented as the further takings to be expected from the addition of a 12th unit.  This represented a mistake by Mr Strawford which affected all of his 1996 projections, and in turn those which were sent to the Skeltons.  In truth, the motel had been operating with 12 rooms from Christmas 1994.  The difference between the takings for July through October 1995 and those in the previous year was largely due to use of 12 rooms compared with 10 or 11 in those months in 1994.  Accordingly, Mr Strawford was wrong to project an increase for the remainder of the 1996 year on the basis of the proportion for which the takings to October 1995 had increased over those of the corresponding months of the previous year.  This was compounded by a further error by Mr Strawford then adding a distinct component representing the projected income for the 12th unit.  I accept that these were innocent mistakes by Mr Strawford.  But their consequence was to make for an excessive and unreasonable projection of income, and thereby profit, for the 1996 year.  This document used an amount for projected outgoings of $52,737, and an assumed annual rent of $140,000 (that is as if paid to Millford), to arrive at a projected net profit of $130,622. 

[13] Also on about 17 November, Mr Askew prepared a document to represent the takings of the motel from July 1994 through October 1995, and projecting the gross takings for the year to 30 June 1996 at $310,971.  This was affected by the same error of the addition of a distinct component for the 12th unit.  Plainly enough this was prepared from information faxed to Mr Askew by Mr Strawford on an earlier date.  This document, which carried the Resort Brokers’ disclaimer, was ultimately included within the agreement for sale and lease.

[14] On about 21 November, Mrs Skelton telephoned Mr Askew.  He told her that the projected takings had increased to $323,000.  This amount was no doubt derived from Mr Strawford’s revised forecast.  He also said that the expected income from the Jacaranda units was $62,000 gross, less the proposed rent of $27,000 and that the asking price was increased to $405,000, and the proposed rent for the motel increased from $135,000 to $140,000, which he said were the consequences in each of the increase in the projected income.  The next day, Mr Askew either faxed or posted to the Skeltons three documents.  The first was his document discussed at [13] above.  The second was Mr Strawford’s document, revising the projected income to $323,259, discussed at [12] above.  The third was a document projecting the income from the Jacaranda units.  The plaintiffs do not complain of any representation as to the income from those units.

[15] On 26 November the Skeltons went to Noosa to inspect the motel.  By this stage, Mr Hooper had prepared a document showing the motel’s expected return, which was faxed to them in Noosa via Mr Harding.  The Skeltons had received documents in a similar form from Mr Hooper in relation to some other motels.  Mr Hooper prepared this document from the material sent to him by Mr Askew, and with two exceptions, Mr Hooper adopted that 1996 projection.  Mr Hooper saw fit to substitute an estimate of $50,000 for the projected wages of $10,400.  His document put this estimate of $50,000 against the description “fair wages for directors (gross)”.  In his evidence, Mr Hooper explained that this was an estimate of the cost of the required labour for the business, so that even if the work was to be performed by the Skeltons, this estimate should be used to meaningfully calculate the return from their proposed investment.  The other adjustment he made was to add a cost described as a depreciation charge, estimated at $10,000 per year.  The results were a projected operating profit of $69,669, and a stated return on an investment of $405,000 of 16.44%.  After receiving this document, Mrs Skelton rang Mr Hooper, who told her that this represented a reasonable return from the proposed investment.  Mr Hooper had not seen the amended projections which forecast takings of $323,259, nor had he learnt of the increase in the rental to $140,000.  To Mrs Skelton’s mind, it seemed to be appropriate to adjust Mr Hooper’s projections for these two matters, and also by adding his “fair wages for directors” (of $50,000) and the projected net profit for the Jacaranda units (approximately $30,000) thereby indicating a profit of $161,022.  Mrs Skelton may have justified the transaction upon this basis, but at the same time the Skeltons must have known that the actual return was likely to be less, because there would be some cost for wages.

[16] After speaking to Mr Hooper, the Skeltons inspected the motel that morning.  Mr Harding accompanied them.  They there met Mr Strawford, Ms Thomas and Mr Askew.  They inspected the motel and the Jacaranda apartment.  Mr Strawford said that there had been a 15% increase in gross takings achieved in the current financial year over the previous year.  The Skeltons were told that rooms 10, 11 and 12 had been added during Millford’s ownership without saying precisely when.  A form of agreement had been prepared and was considered by the Skeltons and Mr Harding.  It did not deal with the Jacaranda apartment. There were negotiations at this meeting which concluded in an agreement for the rental of the Jacaranda apartment at $27,000 per year, together with the grant to the Skeltons of a first right of refusal of the freehold.  The term of the lease of the Jacaranda apartment was three years.  The agreement as to the apartment was recorded in a special condition added to the motel purchase agreement.  There were some books and records of the motel in the room where this meeting occurred.  One of those was the so called “green book” which was an accurate record, maintained by Ms Thomas on a daily basis, of the takings from each unit within the motel.  Some time in the course of the oral evidence was spent by each side, exploring the extent to which this book was offered or at least available for inspection by the Skeltons at the meeting.  Plainly, it was not withheld from them.  To the extent that the actual takings had been represented in the various documents sent to the Skeltons, or their accountant, the amounts had been truthfully reproduced from this book.  A close reading of the book would have revealed the errors in what the Skeltons had been told, for the book clearly records the respective dates upon which units 10, 11 and 12 came to be used.  The Skeltons did not ask to see the book.  Should it matter, I think it is probable that they were invited to peruse this and some other records.  However, they were not told that the material prepared by the defendants was unreliable, and that they should inspect those records.  During the course of the meeting Mr Strawford said the purchase price had increased from $405,000 to $415,000, which he justified by the revised projected takings of $323,000.  This had already been the stated justification for increasing the asking rent from $135,000 to $140,000, as Mr Askew had told Mrs Skelton on 21 November.  The meeting concluded by the Skeltons as purchasers and lessees signing the so called Motel Purchase Agreement, at a price of  $410,000.

[17] On 1 December 1995, Mrs Skelton tendered her resignation from her employment and Mr Skelton resigned his position later that month.  The sale of the business was settled on 18 December.  By this date, the Skeltons had decided that Quality Corporation should purchase and conduct the business, and take the lease.  A new agreement in the name of Quality Corporation was signed by all parties at settlement, as was the lease of the motel premises from Millford to Quality Corporation.  Its term commenced on 18 December 1995.  The initial rent was $140,000, subject to yearly increases according to the CPI but of at least 5%.  The lessee was made responsible for 77.875% of the rates and charges for the land of which the motel formed part.  Mr Strawford and Ms Thomas granted a lease to Quality Corporation of the Jacaranda apartment, for a term of three years commencing 21 December 1995, with no option of renewal.  That lease granted Quality Corporation a right of first refusal of the freehold.  The motel purchase agreement contained a special condition making that contract subject to “the purchasers” having a first right of refusal for both the Jacaranda apartment and the freehold of the motel premises, and providing that in the event that those properties were not purchased, then the lease of the Jacaranda apartment would be “deemed to terminate on completion of the contract with the alternative purchaser”.  To the Skeltons’ mind, the continued income from the Jacaranda apartment, whilst material, could not have seemed assured. 

[18] After settlement, Mrs Skelton commenced to live and work at the motel and she was joined by her husband at the end of February 1996.  For at least some months she continued to do work for her former employer on a consultative basis, paid on an hourly rate.  This required her on some occasions to go to Sydney for a few days, but also often required some hours of work in the evenings at Noosa.  So to some extent she was diverted from the management of the motel.  Mr Skelton was able to work full time at the motel.  The Skeltons were overseas for about six weeks in about September and October 1996, when the motel was managed by Ms Thomas’ sister, who had worked part time in the motel both before and after this sale.  Overall, I have the impression that the Skeltons did less work in the business than that performed by Mr Strawford and Ms Thomas, especially in the day to day routine of cleaning rooms.  That had an inevitable impact upon expenses, but there is nothing in the way that the Skeltons ran the business which would have adversely affected its turnover.  The business remained profitable in the hands of the plaintiffs.  The plaintiffs’ records show they stopped using the Jacaranda apartment when its lease expired in December 1998.  Quality Corporation exercised its option to renew the motel lease for a further five years from 18 December 2000 and it continues to conduct the business.  Millford sold the freehold of the motel to an unrelated party in April 1999.

[19] After about a year at the motel the Skeltons were becoming concerned about the level of profits.  Towards the end of the year to 30 June 1997, Mrs Skelton studied the contents of the “green book”, when she then discovered that room 12 had been in use since Christmas 1994.  She also analysed the plaintiffs’ trading, which had enjoyed the same high occupancy rate and the benefit of a further increase in room rates.  The Skeltons came to believe that some matters going to the actual and likely profits of the motel had been misrepresented to them, and they raised this with Mr Strawford and Ms Thomas in about August 1997.  Until this point, the parties had been on very good terms.  Mr Skelton put to Mr Strawford at a meeting in August 1997 that the actual and projected turnover had been overstated, having regard to the contents of the green book.  With the benefit of seeing again that book, Mr Strawford did not and does not dispute the substance of that allegation.  When this complaint was first made by the Skeltons, it is unclear whether they also complained that the expenses had been understated, as they do now.

[20] The material provided to the Skeltons prior to the purchase contained misrepresentations both as to the takings of the motel to that point and as to the likely future takings.  The actual or past takings were misstated not by use of a wrong dollar figure, but by their being represented as earned from the wrong number of rooms.  The takings for the year ended 30 June 1995 were represented as derived from an 11 room motel, whereas for a little over a half of that year, 12 rooms had been used.  The projected takings involved the misrepresentation that effectively 1/11th of the takings for the year to 30 June 1995 could be added in projecting the next year’s takings, as if the twelfth room had only been added in the 1996 year.  Some projections were expressly made on the basis of the performance of the motel for the months of July through October 1995, compared with corresponding months for the previous year.  This involved a misrepresentation to the effect that the same resources were used in each of those periods.  There was no reasonable basis for predicting that the takings would be of the order of $306,000 or $310,000, let alone $323,000, and the defendants’ evidence and submissions did not suggest that there was one.  These misrepresentations resulted at least from mistakes made by Mr Strawford in compiling the figures for actual takings and in preparing projections, and presenting that material as he did by the documents discussed above.  Ms Thomas left it to Mr Strawford to prepare such documents, save in the respects which I have mentioned, being that she made some calculations of expenses and she sent to Mr Askew a profit and loss statement for the 1995 year.  That statement did not misrepresent the takings for that year, and in itself, it made no reference to the number of rooms.  But she was aware of the content of the documents prepared by him, at least because his poor handwriting required her to transcribe them to have them typed before they were sent to Mr Askew.

[21]  The expenses for the 1995 year were represented at $47,344, and the projected expenses for the following year at $52,637.  Ms Thomas said that, with exception of wages, she quantified the expenses for 1995 by reference to invoices, as Mr Strawford had asked her to do.  The defendants no longer have these invoices and have not disclosed them.  However, I accept her evidence that she compiled the list of expenses in this way.  There are then two questions as to the represented expenses.  The first is whether expenses of the kind which were represented were correctly quantified.  The second is whether there were expenses of other kinds which ought to have been included in what was put forward as a list of expenses from which the profit of the motel could be calculated.  The plaintiffs called Mr Calabro, an accountant, who without objection gave evidence as to the profitability and value of the business.  He gave evidence of the levels of expenditure to be expected in such a business, but he also made use of accounting records of Millford, and in particular of its general ledger for the year to 30 June 1995 and its trial balance as at that date.  In assessing the true expenses of the motel these records considered alone, are of limited value, at least because Millford had other real property.  But with the benefit of the oral evidence of Mr Strawford and Ms Thomas, the general ledger and trial balance indicate the accuracy or otherwise of most of the represented expenses.

[22] Advertising was represented at $970.  Before he had seen the general ledger and trial balance, Mr Calabro was not critical of this item.  The general ledger shows $2,305 spent for the year, but at least some of this does not appear to be an expense of this motel.  I find that there was no misrepresentation in relation to this expense.  Merchant Bank fees were shown at $5,230.  Again, Mr Calabro at first was not critical of this amount before seeing the general ledger, which shows “bank fees” of $1,864.27 and credit card charges of $11,547.55.  I accept Mr Strawford’s explanation that this latter figure includes Ms Thomas’ personal credit card payments, as designated by the term “Amex” in the entries in the general ledger.  Once these items are removed, the general ledger does not indicate any significant misstatement of credit card charges for the conduct of the motel.  Ms Thomas stated the telephone expense at $2,190.  Again, at first this seemed to Mr Calabro to be reasonable but the general ledger shows $4,390.  Because the ledger does not relate only to the motel, I am not prepared to find that the telephone expenses were misstated.  The rates were represented as $13,100.  The land on which rates were paid included both the motel premises and the café.  The lease required Quality Corporation to pay 77.875% of the rates.  The general ledger shows $20,159 for the year although only $15,352.92 is shown as paid to the Noosa Council.  Of that amount, Mr Strawford said, and I accept, that $2,337 is referable to another property.  The rates were not misrepresented. 

[23] An amount of $5,107 was represented as the wages for the 1995 year.  The general ledger shows $14,328 for wages incurred by Millford.  Of this, a total of $10,266 is recorded as paid to people called Till.  They managed the motel during prolonged leave taken by Mr Strawford and Ms Thomas during that year.  Nevertheless to exclude these payments was to misrepresent the wages expense for the 1995 year.  Mr Calabro said that a wages expense of the order of $24,000 would be expected.  As mentioned above, Mr Hooper had advised the Skeltons to allow $50,000 for wages and salaries, whether paid to themselves or otherwise, and therefore it is unlikely that any representation as to wages was relied upon.

[24] Mr Calabro was critical of the figure given for “replacement & maintenance” for $1,543.  This amount precisely corresponds with that in the general ledger for “equipment”.  The general ledger also shows a distinct item of “replacements”, involving $18,831.  At least for the most part, these are expenses referable to the motel, but Mr Strawford said that they were not recurrent expenses but were the result of refurbishing the premises prior to their sale.  It appears that repairs of equipment were shown in the general ledger as “equipment” and it is these items which were represented as “replacement & maintenance”.  This understated the replacement and maintenance expenses for the 1995 year, because it omitted any expenses by way of replacement as distinct from repair.  I accept the extent of replacements within the 1995 year would be greater than would be expected year by year in the motel’s operation.  Nevertheless, replacements to some extent must be expected.  The tax return of Millford for the 1994 year shows replacements of $7,252.  By the omission of any of the expenses by way of replacements for the 1995 year, the amount of $1,543 seriously understated the true expense.  In relation to this item, it is also relevant to consider expenses by way of repairs to buildings, shown in the general ledger as totalling $9,899 for the 1995 year.  It is likely that most of that expenditure relates to the construction of the 11th and 12th units.

[25] The general ledger also shows expenses of kinds which were not referred to in the documents passed on to the Skeltons.  Items described in the general ledger as “purchases”, totalling $5,184, were not disclosed.  Mr Strawford agreed that those were goods required in the running of the motel on a day to day basis.  The general ledger shows an amount for a “sub-contract” of $13,327 which Mr Strawford was unable to explain.  It shows accounting fees of $2,718, much of which must have been due to the motel business, but there was no disclosure to the Skeltons of such an expense.  Depreciation, according to the general ledger, was $3,794, but no amount was represented to the Skeltons, although Mr Hooper advised them to allow $10,000.

[26] There is no suggestion that any of the defendants deliberately understated expenses.  For several items, the represented amount corresponds precisely with the general ledger.  Nevertheless some substantial items of expenditure for the 1995 year were left out of what the Skeltons were given.  The amount represented for “replacement & maintenance” was but a small fraction of the true expense, even having regard to amounts which might be fairly described as representative for any year of trading.  The amounts for purchases of $5,184 were excluded, as were accounting fees and depreciation.  At least some of the expenses recorded in the general ledger as “building” should have been included.  Even ignoring the wages figure for the amount, the result was that the expenses of the motel, relevant to calculating its profit for the 1995 year, were understated by at least some $20,000.  In turn, the projected expenses of $52,637 for the 1996 year were understated, and involved a prediction without a reasonable basis.

[27] Taken together with the misstatement of actual and likely takings, the effect was to misrepresent the past and likely future profits of the motel.  As to the projected profit, I accept that there was a reasonable basis for predicting an increase in turnover commensurate with a proposed increase in tariffs of nearly 10%.  The tariffs had been increased year by year whilst the motel was operated by Millford.  The motel had been substantially refurbished by the end of the 1995 year, and it enjoyed high occupancy levels in a precinct where its room rates were comparatively very low.  So it was reasonable to forecast a turnover of about $280,000.  That is also supported by the evidence of many of the expert witnesses, such as Mr Calabro, Mr Rabbitt and Mr Crawford.  But the prediction of gross takings of about $323,000, taken together with the projected expenses of approximately $52,000, overstated the amount which could have been reasonably forecast as the motel’s profit by at least $60,000.  The misrepresentations as to the 1995 expenses and number of rooms in 1995 were, in turn elements of the misrepresentation of the likely profit in 1996.

[28] I find that the Skeltons, and in turn their company, relied upon the information they were given as to the motel’s profits for the 1995 year and its likely profits for the 1996 year to acquire the motor business and to lease the motel premises and the Jacaranda apartment.  The defendants went so far as to contend that their representations as to these matters were , in substance, immaterial to the plaintiffs.  They placed some particular reliance upon the Skeltons’ failure to inspect any of the accounting recordings whilst they were at the motel on 26 November 1995.  But these representations were made to the Skeltons, and to other potential purchasers, because they would be highly relevant to any decision to acquire the business.  It is inherently likely that the Skeltons relied upon them and I see no particular reason to reject their evidence that they did so.  They did have advice from Mr Hooper that they should act upon the basis that the expenses were some $50,000 more than had been represented.  However, apart from the expense of depreciation, the expenses were misrepresented by the omission of items to which Mr Hooper’s advice did not alert them.  Notwithstanding Mr Hooper’s advice, they remained mistaken as to the extent of the expenses of running this motel.  They were not aware of the flaw in the calculation of projected turnover.  They knew that Mr Hooper had not seen the books of account, let alone audited them.

[29]  The Skeltons say that they were looking for a motel which would provide a net profit before tax f between $150,000 to $200,000.  I am not persuaded that they would have declined to proceed with this transaction had they expected a profit before tax which was less than $150,000.  They must have had some doubt as to the sustainability of the income expected from the Jacaranda apartment, without which their profit, as they were then anticipating matters, would have been less than $130,000.  Nevertheless, I find that the plaintiffs would not have proceeded with the acquisition of this business had the profits from the 12 room motel for the 1996 year been projected at no more than a reasonably based amount, which, as I have said, was at least some $60,000 or so less than what was represented to them.

[30] In the light of these findings, I turn to the specific causes of action pleaded against the various defendants, and I shall discuss first the claims under the Act.

[31] The defendants’ outline of submissions rightly concedes that all information provided by Resort Brokers was provided on behalf of Millford.  That is so whether or not it was also provided on behalf of Mr Strawford and Ms Thomas.  The conduct of Resort Brokers is relevantly the conduct of Millford.  Undoubtedly that conduct occurred in trade or commerce.  Millford’s conduct included the misrepresentation of the 1995 profits.  Its conduct in representing the 1996 profits involved both representations as to facts and future matters.  By representing the actual takings for July through October 1995, and by comparing those takings with corresponding months of the previous year without disclosing the use of 12 rooms rather than 10 or 11, Millford misrepresented matters of existing fact.  In effect, it represented that the same resources had been used in each period and that the comparison thereby provided a reasonable basis for an expected increase of the order of 15% for the whole of the 1996 year over the previous year.  It also involved representations as to future matters, being what would be the takings, expenses and profit for the 1996 year.  Some of the documents sent to the Skeltons carried a form of disclaimer by Resort Brokers.  I understood this to be relied upon by all defendants to submit that there was no misleading or deceptive conduct.  In effect, the submission is that the disclaimer made what would otherwise be reasonably reliable information into something which the plaintiffs should have seen as unreliable.  The terms of the disclaimer, discussed below at [34] could not have had that effect.  The disclaimer purported to qualify the responsibility of Resort Brokers, but upon any view, it did not suggest that the vendors were qualifying their own information as unreliable.  Accordingly, in relation at least to the first, second and third defendants, the disclaimer did not have the effect of avoiding a contravention of s 52.  I find that the misrepresentation on behalf of Millford of matters of existing fact contravened that section, and as did the predictions of the 1996 profits.  As I have found that there were no reasonable grounds for making those predictions, those representations as to future matters are taken to have been misleading and deceptive, according to s 51A.  It is unnecessary to consider the plaintiffs’ further allegation that s 53A of the Act was contravened.

[32] It is convenient to consider next the liability of Resort Brokers under the Act.  It is said that it was not the source of the relevant information, and but that it was simply passing on information received from its client or clients.  In Yorke v Lucas (1985) 158 CLR 661, Mason ACJ, Wilson, Deane and Dawson JJ said at p 666:

 

“It is, of course, established that contravention of (s 52) does not require an intent to mislead or deceive and even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive … That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false.  If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”

This passage was considered by the Full Court of the Federal Court in John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR (Digest) 41-249.  In that case an estate agent was held to have contravened s 52 by its representation of the net lettable area of a building under construction.  The agent’s submission that it was acting as a mere conduit and had represented no more than that this information had come from its principal, the vendor of the building, was rejected because the agent had held itself out as having some relevant expertise in the assessment of such information.  At p 41,359, the court (Davies, Heerey and Whitlam JJ) said:

 

“In our opinion an estate agent which holds itself out as, among other things, “consultants to institutional investors and to developers of major properties” would not be regarded by potential purchasers of properties as merely passing on information about the property “for what it is worth and without any belief in its truth or falsity”.

 

Information of the kind in question, the net lettable area of a building, stands on a different footing from the puffery which often accompanies the sale of real property.  The figure is one of hard physical fact.  As the appellant’s own calculations indicate, it is an essential factor in determining the likely profitability of a commercial building and hence its value.  We think a purchaser like Karawi would ordinarily expect, to quote the terms of the appellant’s own disclaimer, that the agent had no reason to doubt the completeness or accuracy of the information provided.

 

In the present case the appellant adopted the information in question and incorporated it as a central and prominent feature of their selling effort on behalf of the vendor.  There was certainly no express disclaimer of the appellant’s belief in the truth of the information in the brochure – indeed there was an express assertion of such belief.  As part of its ordinary business the agent was providing information in a persuasive form with a view to achieving a sale of its principal’s property and of course earning commission.  It was this conduct which the learned trial judge, correctly in our opinion, held to be misleading and deceptive.  Once the falsity of the figure was demonstrated, it seems to us that no other conclusion could follow.”

That passage was applied by Merkel J in Miba v Nescor Industries Group (1996) 141 ALR 525 at pp 539-541, and by the Full Court in affirming that judgment in Nescor Industries Group Ltd v Miba Pty Ltd (1997) 150 ALR 633 at pp 637-642 where Davies J (with whom Tamberlin and R D Nicholson JJ agreed) said:

 

“Agents may be held to be in breach of the statutory provision if because they are directly responsible for the misleading information or because the fact that the information has come from them has added something to its weight and authority.”

[33] As Mr Askew said in his evidence, Resort Brokers held itself out as a specialist in the sale of freehold and leasehold motels and Mr Crooks, effectively the principal of Resort Brokers, was a person regarded as having “some considerable expertise in the motel industry”.  In Mr Askew’s words: “we were sales consultants to the industry”.  Mr and Mrs Skelton certainly regarded Resort Brokers as having some particular expertise in relation to motels.  The three page “Investment Summary” would indicate to a prospective purchaser that much of the information contained within it had been provided by the vendor/lessor.  But it was also in terms which might give some weight to the information from the apparent fact that it had received some assessment by an agent claiming a particular and relevant experience and expertise.  Within the Investment Summary, or its covering letter, there was no express disclaimer of the truth of the information.  The agent was not saying that it was merely passing on information, “for what it is worth and without any belief in its truth or falsity”.

[34] Some of the material carried a disclaimer in these terms:

 

“Resort Brokers Pty Ltd have in preparing this document used our best endeavours to ensure that the information contained in this document is true and accurate, but accept no responsibility and disclaim all liability in respect to any errors, omissions, inaccuracies or misstatements contained in this document.”

The disclaimer represents that Resort Brokers had prepared the relevant document and had used its best endeavours to ensure the truth and accuracy of its information.  The terms of the disclaimer, in my view, make it even more difficult for Resort Brokers to contend that it was merely passing on information upon the clear basis that it had no belief in its truth or falsity.  In this case, as in John Glass or Miba, there was an express assertion of the belief in the truth of information contained within documents upon which the disclaimer appeared.  The terms of this disclaimer, like those in John Glass, would indicate that the agent had seen no reason for a specialist broker to doubt the completeness or accuracy of the information provided.

[35] I am satisfied that the communication by Resort Brokers to the Skeltons, in relation to the 1995 and 1996 profits, involved conduct by Resort Brokers in contravention of s 52.  In particular, by representing the likely 1996 takings, expenses and profits, Resort Brokers represented that there was a reasonable basis for those predictions.  In truth there was no reasonable basis for them, as Resort Brokers should have known.  The predictions that takings would increase by 15% over the 1995 year, and again by a further component representing the addition of a 12th unit, should have been recognised by Resort Brokers as unreasonable.  To a genuine specialist consultant in the sale or lease of motels, there was no reasonable basis for predicting expenses as low as $52,000.  In particular, had Resort Brokers asked to see the most recent accounts of  Millford, they would have had the trial balance and general ledger, discussed at [21] to [25], which was in fact printed in August 1995.  It is unnecessary to consider whether Resort Brokers contravened s 53A.

[36] The case under the Act against each of Mr Strawford, Ms Thomas and Mr Askew relies upon s 6(3), in that the misrepresentations were communicated by the use of the post, a telephone or fax machine.  The plaintiffs disavow any reliance upon s 75B.  They allege that each of these defendants, himself or herself, engaged in conduct which was misleading or deceptive, or likely to mislead or deceive.

[37] In Mr Strawford’s case, it is said that he engaged in conduct by his faxing or posting documents to Resort Brokers, and also by Resort Brokers’ conduct involving the use of the post, telephone or fax.  The plaintiffs’ case is put in the same way against Ms Thomas, although she personally sent but one document to Mr Askew, being that discussed at [11] above.

[38] In Snyman v Cooper (1989) 24 FCR 433, von Doussa J said at p 441 that “Parliament intended the legislation to have the widest application consistent with the limits of constitutional power, and s 6(3) should be given a broad construction”.  Nevertheless, it is necessary to identify and characterise the “conduct” involved in the operation of s 6(3) and to assess whose conduct it was.  A corporation’s conduct by a misrepresentation by words spoken on a telephone could, but need not always, involve a simultaneous representation by the speaker.  The corporation’s servant or agent may or may not be engaging in conduct equivalent to that of the corporation.  The servant or agent might communicate the corporation’s representation whilst it is clear that he or she is a mere conduit, whilst in other circumstances, he or she will be a representor as will the corporation on behalf of which the words are spoken.  In each case, there is a factual question as to the proper characterisation of the natural person’s conduct.  The defendants’ submissions ultimately amounted to a contention that the liability of a corporation’s servant or agent in such a context could be only as a party to the corporation’s contravention by its conduct, through s 75B, rather than for his or her own conduct.  That proposition must be rejected.  It is inconsistent with the terms of the Act, including s 6(3), and with authority.  For example, in Haydon v Jackson (1988) ATPR 40-845 the Full Court of the Federal Court dismissed an appeal by a real estate company and the individual (Haydon) who transacted the business on its behalf.  Haydon had been held liable for the corporation’s conduct, pursuant to s 75B.  At p 49, 103, Pincus J expressed the view that there was no need for the respondents to rely upon s 75B to uphold the orders against Haydon, because the misleading statements were made on the telephone, and by s 6(3), Haydon was liable.  Fisher J expressed the same view at p 49, 097.  It fairly appears from the judgments in Haydon that the individual was engaging in conduct which, was properly characterised as involving the making of representations by him, as well as for his employer.

[39] Turning then to Mr Stawford’s position, he was involved in the then proposed transactions in two capacities.  First, he was a director of Millford and as such he was compiling and presenting information, and in turn sending it to Resort Brokers and causing it to be sent on Millford’s behalf to prospective purchasers.  But he was not a mere conduit in acting in that capacity, and it is proper to characterise his conduct as involving the making of the relevant representations by him, as well as on behalf of Millford.  Secondly, he was involved as a party to the proposed  lease of the Jacaranda apartment.  This in itself was a substantial transaction, involving the payment of rental of $27,000 per year.  Accepting that the initial retainer of Resort Brokers was by Millford alone, notwithstanding the terms of the Listing Authority, it seems to me that as matters developed, Resort Brokers was also acting for Mr Strawford and Ms Thomas as the Jacaranda apartment became part of the proposed dealings.  In these circumstances I conclude that by faxing or posting documents containing the subject representations as to profits for 1995 and 1996, Mr Strawford was himself engaging in conduct constituted by those representations, and that by s 6(3), that conduct contravened s 52.  Each of the relevant documents sent to Resort Brokers, with the exception of that discussed in [11], was posted or faxed by Mr Strawford.  Further, I conclude that the representations made by Resort Brokers constituted conduct on behalf of not only Millford but also at least Mr Strawford, because he was a party to the proposed transactions through the lease of his Jacaranda apartment. The proposal to rent that apartment to the motel proprietor may have arisen after some material was sent to Mr Askew and that and other material was sent to the Skeltons.  However, the proposal for the apartment had arisen at least by the time it was discussed between Mr Askew and Mrs Skelton on about 9 or 10 November.  Material relevant to the motel was obviously relevant also to a decision in relation to the Jacaranda apartment.  The proposed letting of the apartment to the Skeltons or their company depended upon their being persuaded to acquire the motel.

[40] Ms Thomas had a more limited involvement in the preparation and communication of the presently relevant information.  She did fax a profit and loss statement to Mr Askew on 14 November which, taken alone, was not misleading or deceptive.  She was also involved in assisting Mr Strawford in the preparation of the other documents sent to Mr Askew.  She prepared the document which is the list of expenses.  She also transcribed documents written by Mr Strawford in relation to takings and profits, for the purpose of then having those typed and sent to Mr Askew.  She innocently overlooked the errors in these documents, but these were matters of fact which were also known or should have known by her.  Like Mr Strawford, she was personally a party to the ultimate dealings through her ownership of the Jacaranda apartment.  In these circumstances, I am of the view that the representations by Resort Brokers, at least from about 10 November, were also made on behalf of Ms Thomas and constituted conduct of hers which was in contravention of s 52, because Resort Brokers had made the relevant representations by use of the post, phone or fax.  Further, I am of the view that at least from 10 November, when Mr Strawford posted or faxed material to Resort Brokers, he did so also on behalf of Ms Thomas.  I conclude that Ms Thomas thereby contravened s 52.

[41] That leaves the position of Mr Askew to be considered, which appears to be relevantly the same as the individual the real estate salesman in Haydon.  He was not simply acting as a messenger for Resort Brokers, but he was putting himself forward as a person with some individual knowledge and expertise which was being used in this transaction.  He is fairly characterised as a representor and the representations which he communicated by post, phone and fax, constituted conduct by him as well as by Resort Brokers.  I conclude that Mr Askew thereby contravened s 52.

[42] The plaintiffs also claim that each of the defendants is liable in negligence.  In Tepko Pty Ltd v Waterboard (2001) 206 CLR 1, Gleeson CJ, Gummow and Hayne JJ endorsed the statement of principle by Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 569-572, and in particular where Barwick CJ said at 571:

 

“… the speaker must realise all the circumstances be such that he ought to have realised that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence …

 

The circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker.  The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker.”

In Tepko, Gaudron J also cited this passage, noting its acceptance as correct by Mason J in L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 at 250-251.

[43] I do not understand Mr Logan SC to submit that no duty of care was owed by Millford, at least as a duty owed to Quality Corporation.  In my view, Millford owed a duty of care to a limited class, being persons having some financial interest as potential investors of the motel, so that a duty was owed to the Skeltons and ultimately to Quality Corporation.  That duty was to take reasonable care in the compilation and presentation of information relating to the profitability of the motel.  It was submitted that neither Mr Strawford nor Ms Thomas was liable in negligence because neither “furnished any advice to any of the plaintiffs”.  However, each was actively involved in the compilation and presentation of the relevant information, and in circumstances where each must have realised that recipients of the information might act upon it.  In my view the circumstances are such as to fulfil the requirements for importing a duty of care owed by each of them, having the same content as that owed by Millford.  The facts and circumstances relating to whether each was in breach of that duty differ between Mr Strawford and Ms Thomas.  Arguably, Ms Thomas acted reasonably in relying upon the exercise of reasonable care by Mr Strawford in his work upon the takings of the business.  However, it seems to me that her duty also obliged her to exercise sufficient care to avoid error in the information being compiled by Mr Strawford, and that she ought to have realised that his predictions of income for 1996 were contrary to the fact that 12 units had been used from late 1994.  In any case, having regard to my findings above, she was negligent in her preparation of a list of the 1995 expenses.

[44] The disclaimer is relevant to whether either of Resort Brokers and Mr Askew owed a duty of care.  An appropriately worded disclaimer might put paid to a reasonable reliance by a plaintiff upon a relevant statement, and thereby preclude the existence of a duty of care by the party disclaiming liability, see Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 492-3, 486-7.  The present question does not involve some narrow question of the proper interpretation of the disclaimer itself divorced from all the circumstances.  The disclaimer must be considered in the context of  those circumstances to see whether the plaintiffs’ claimed reliance upon Resort Brokers in relation to relevant statements was a reasonable reliance.  The terms of the disclaimer deny responsibility and liability in respect of errors etc “contained in this document”.  Although there is much overlap between the information contained in documents bearing the disclaimer and other documents sent to the Skeltons, it is more difficult to conclude that the plaintiffs’ reliance upon at least those other documents was not reasonable.  Further, it is one thing to say that Resort Brokers should not have been understood to be vouching for the accuracy of every piece of information, but it is another to say that they should not have been relied upon to exercise reasonable care in the preparation of the document.  I conclude that the presence of the disclaimer upon some of the documents was not sufficient to make any reliance upon the exercise of reasonable care by Resort Brokers an unreasonable reliance, at least in relation to other material which did not bear the disclaimer.  Resort Brokers was a self proclaimed specialist in the sale and leasing of motels, and even within its disclaimer, it was assuring the reader that it had used its best endeavours to ensure the truth and accuracy of the information contained in the document.  The reader could reasonably have relied upon care having being taken, whilst accepting that Resort Brokers was not warranting the accuracy of each and every fact represented by the document.  Accordingly, the disclaimer does not preclude the existence of a duty of care owed by Resort Brokers to the plaintiffs.

[45] In Roots v Oentory Pty Ltd [1983] 2 Qd R 745, Thomas J considered the liability in negligence of a vendor’s agent to a purchaser.  After extensive examination of the then authorities, his Honour concluded that in the facts of that case, a duty of care was owed.  Although the present question must be answered by reference to the facts and circumstances of this case, his Honour’s reasoning strongly indicates that the agent here owed the alleged duty of care.  In MacCormick v Nowland (1988) ASC 55-653, Pincus J, sitting in the Federal Court, observed that since Roots v Oentory, “the duty of care found to exist in some of the cases (Thomas J) mentions may have been narrowed” but that nevertheless it seemed right to follow his conclusion.  The potential for real estate agents to owe duties of care to purchasers was confirmed by the Court of Appeal in Sweet v Mercantile Credits Ltd (unreported: Appeal No 1911 of 1998, 22 December 1998) and by the New South Wales Court of Appeal in Rawlinson and Brown Pty Ltd v Withan (unreported CA 40004 of 1993; 12 April 1995).  The professed experience and expertise of Resort Brokers, and the terms of the documents which they sent to the Skeltons, made it known to the Skeltons and their company that Resort Brokers had employed some professional judgment in the collection, assessment and distribution of the information.  They knew, or ought to have known, that the Skeltons and their company might rely upon them to have taken reasonable care in that work.  In the circumstances, in my view Resort Brokers owed a duty of care to the plaintiffs.  I find that that duty was breached.  The exercise of reasonable care by Resort Brokers would have revealed that the expenses were greater than represented, and that the forecast of takings, expenses and profits were awry.  To a person familiar with motel business, the list of expenses would have seemed incomplete and too low a total, having regard to the evidence of, for example, Mr Rabbitt.  A careful reading of Mr Strawford’s projections, at least by a motel specialist, would have revealed the mistakes in relation to the tenth room.  For similar reasons I am of the opinion that Mr Askew owed a like duty, and that he was negligent.

[46] The plaintiffs also claim pursuant to the Fair Trading Act.  However, this was not pursued by the plaintiffs in submissions apparently because of the terms of s 99(3) and s 100(6) of that Act.

[47] Quality Corporation also sues Millford for damages for breach of contract. Before considering that claim, I move to the questions of causation and the assessment of damages for the defendants’ s 52 contraventions and negligence.  Having regard to my findings at [28] and [29] I conclude that Quality Corporation would not have acquired the business and taken this lease but for the conduct which I have found to have been misleading and negligent.  Quality Corporation says that by proceeding with this purchase and lease, it has suffered loss in two ways.  First, it says that the acquisition caused it loss, because the price paid for that acquisition ($410,000) was more than the value of what was acquired.  Secondly, it says that by taking a lease at a rental of $140,000 a year, it suffered a loss because the leasehold interest was worth less than that, measured by an appropriate annual rent.  But these losses are not mutually exclusive, for what was acquired included the leasehold, and the value of what was acquired should be ascertained by some capitalisation of maintainable profits, which are directly affected by the amount of the rent.  So the value of what was acquired was less than would have been the case had the lease required the payment of what the plaintiffs say was an appropriate rent.  Recognising this, Quality Corporation seeks damages in which the component which is intended to represent an amount by which too much was paid for the acquisition is calculated not by the difference between the price paid and the value of what was acquired, but instead by a difference between the price paid and what would have been the value of the property acquired had the rent been what is said to have been an appropriate rent.  There is then a claim for a further component, being the difference between the agreed rent and that lower “fair market rental”, totalled over the initial term of five years.  On the plaintiffs’ case, the assessment of damages by this two stage process would make for a higher award, because its evidence is to the effect that maintainable profits should be capitalised at a rate of at least 30%, so that a higher award results from totalling this so called “rental differential” over five years than by dividing it by 0.3% or something higher.  This two staged approach is said to be supported by the judgments in Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281.  In that case, a purchaser of a motel business, who took a lease from the vendor, sued the vendor and its director claiming damages pursuant to s 82 of the Act and rescission, or alternatively to the rescission, relief under s 87 to vary the lease to reduce the rent.  The trial judge refused rescission, but awarded damages for the difference between the price and the value acquired and also varied the lease, reducing its rent and removing a certain provision for rental increases.  Upon appeal to the Full Court, a majority upheld the award of damages but set aside the orders varying the lease.  Unlike the present case, the vendor had remained the lessor.  In the High Court, the principal point was the extent to which subsequent events affecting the use of the motel could be considered in valuing the motel upon its acquisition.  The resolution of that question led to some reduction in the damages awarded.  The expert evidence used to assess those damages involved a calculation on the premise of a lower commencement rent.  Accordingly, to fairly compensate the appellant, it was necessary also to vary the rent provisions of the lease.  The High Court made an order under s 87 to vary the lease.  Kizbeau provides some support then for an assessment of damages in the manner sought by the first plaintiff.  However, it by no means suggests that damages must be assessed in that way.  In Kizbeau, the present point was not considered, and the High Court was limited by the evidence in that case.  Ultimately, so far as s 82 is concerned, the question is: what is the first plaintiff’s loss by the defendants’ conduct?  I prefer to assess the first plaintiff’s loss by what could be considered a more usual approach, which is to compare its actual position with that which it would have enjoyed had it not been misled into this transaction.  Prima facie, that is measured by the difference between the price paid and the value of what was obtained.  If the rent was higher than would be expected for a motel with this turnover, then that will be reflected in a lower value and a higher award.  To adopt the first plaintiff’s approach requires an assessment of the amount of an appropriate rent for this motel.  As the evidence here shows, that is a matter upon which different experts will have different views, and it is thereby a further variable which could affect a fair assessment.

[48] The parties agree that apart from the matter just discussed, it is appropriate to value the first plaintiff’s position by capitalising the maintainable earnings of the motel.  There was substantial agreement between the expert witnesses that the reasonable estimate of gross income or takings for this purpose was about $280,000.  But there was substantial debate as to the expenses to be deducted in reaching the amount to be capitalised, and as to the method and rate of capitalisation.

[49] The relevant amount of expenses for this purpose is not necessarily the amount of Millford’s expenses, or the amount which could have been reasonably predicted.  Clearly some expenses relevant for those purposes might not be appropriate for use in the calculation of a figure for earnings or profit which is to be capitalised to produce a value.  On any view however, the expenses relevant here would well exceed the $52,000 represented to the plaintiffs.  Mr Rabbitt calculated expenses of the order of $77,000 for this purpose, and I found his evidence on this point, and generally, to be persuasive.  Mr Calabro’s estimate of about $84,000 is not much different.  The defendants called Mr Crawford, who was critical of Mr Rabbitt’s approach in relation to expenses and other issues.  First, he was critical of Mr Rabbitt for relying upon expenses after the relevant date and disregarding trading prior to the relevant date.  Yet Mr Crawford himself failed to sight the accounting records of  Millford, the party which retained him.  His only information as to what had been the expenses incurred by Millford was from what Millford had represented to the Skeltons were those expenses.  In the context of litigation in which there was a substantial complaint as to the accuracy of that information, it is somewhat surprising that Mr Crawford was prepared to value the business on the basis of that information.  He explained this by saying that he had not been able to obtain access to Millford’s accounting records, such as the general ledger discussed above.  That seems puzzling, for I do not regard Mr Strawford or Ms Thomas as dishonest, and likely to deliberately withhold information from the expert retained to assist them.  It may be the fault of the defendants that Mr Crawford was not provided with these accounts, but I find this criticism of Mr Rabbitt, who did not have access to the documents because he was retained by the plaintiffs to whom these accounts had not been disclosed, to be unpersuasive.  Earlier in this judgment, I have found that the amount estimated for expenses understated a reasonable prediction by at least $20,000, and that is broadly consistent with Mr Rabbitt’s estimate of $77,000 as the amount which would be used in the market to value this motel.  Mr Rabbitt’s approach relies upon assumed proportions of certain expenses to gross income, but I accept that those in the market place valuing motels would do so.  Accordingly, I am prepared to accept that the amount to be capitalised should be the earnings calculated by subtracting from the maintainable gross income of $280,000 an amount of expenses of $77,000, that is a net amount of $203,000.

[50] The other substantial issues concerned the method and rate of capitalisation.  Mr Rabbitt refers the application of what the experts describe as the passing yield, method, which is the ratio which the future maintainable profit bears to the price, expressed as a percentage.  Mr Rabbitt says that this is the rate used in the market place, and Mr Crawford does not disagree.  But Mr Crawford says that a more accurate and logical approach is to use what are described as dual rate techniques.  These involve an assumption that the net income of the subject property would be reinvested in a sinking fund, at an assumed rate of compound interest.  Given the known life of the investment, in this case 20 years being the lease term and the available further terms, an “investment yield” could be calculated as one required to involve the recoupment of the initial investment over that period, through investment in the assumed fund.  With the adoption of a constant assumed rate of return in the sinking fund, and knowledge of the life or “term” of the investment, and the price earnings of properties identified as comparable sales can be analysed to show the investment yield of each.  I accept the logic in this approach, but it seems to me to be more reliable to use the technique commonly used to assess the market value of these properties, which is the passing yield rate.  Mr Crawford agreed that the dual rates method is rarely used for properties or businesses such as motels.  It is of some relevance that it was the passing yield rate which was used by Mr Crooks and Mr Askew for Resort Brokers in advising Millford when the property was listed.  Mr Rabbitt knows of no use of the dual rate approach in the motel market.  It is preferable to assess the market rate by a method which is commonly used by the market.  Mr Rabbitt’s comparable sales indicate a range of rates on this basis of between 30% and 40%, and he considers that the rate for this motel should be at the lower end of this range.  Mr Crawford’s report of 25 March 2001 showed a range of 32.5% to 37.5%.  His report of 17 October 2002 indicates a range of 34% to 40%.  Mr Crawford says that the motel warrants a lower figure than this range (thereby producing a greater value) because of the location of the motel, the special strength of the accommodation market in Hastings Street and the resultant lower risk of investing in this motel.  The defendants point to the continued high occupancy rates achieved by the motel after 1995, as indicating its likely risk profile at the time of this transaction.  The occupancy rates had been built up to high levels by Millford, but Mr Calabro thought this was indicative of a relatively higher capitalisation rate, because the market would fear that there was more likely to be a decrease than an increase in occupancy rates.  Mr Crawford had a contrary view as to the relevance of occupancy rates as at the date of the transaction.  In each case, the opinion as to occupancy rates involves some speculation.  It seems to me that to make an assessment as to the sustainability of the occupancy rates as at 1995 would require a more detailed examination of the market in which this motel traded, which neither witness had undertaken and which would no doubt involve an expense hardly warranted in this case.  I am prepared to accept, however, that the location of the motel was relevant to an investor’s perception of risk, and that it would be appropriate to use a rate at the lowest point in Mr Rabbitt’s range.  Accordingly, I intend to assess the value of what was acquired by using a capitalisation rate of 30%.

[51] The defendants also contend that an investor would pay relatively more for this business because of the attraction of living in Hastings Street.  In principle, this could be so although the investment is by a corporation.  The comparable sales would appear to have involved premises in which there was also accommodation for the owner or manager.  But the special feature here is said to be the amenity of Hastings Street.  Whilst this might be attractive for some purchasers, I am not persuaded that it is of such general attraction that it would have a specific impact upon the value of this business, including the leasehold.  Mr Crawford says that this feature adds $20,000 to the amount to be capitalised.  He has reached this figure by a purported assessment of a market rental for the manager’s residence “in isolation”.  But this seems artificial, and in any event the supposed comparables used to assess such a “market rental” are irrelevant.  In one case no rental was paid and the other case is the Jacaranda apartment, the subject of this transaction, which was not rented by the lessee for residential purposes.  It seems to me that there is no reliable evidence as to the market rental of such a unit in Hastings Street.  I am not prepared to find that the location of this motel had some impact upon its value through the use of the manager’s accommodation.

[52]  There was also some time taken by the experts in discussing the relevance or otherwise of what is described as a “marriage value” of such a property.  It was suggested that the Skeltons were motivated by an opportunity to profit from a potential developer’s need of vacant possession of this site.  This prospect may have been considered by the Skeltons as they went into this transaction, and may have had some broader appeal, but that is not to deny the causative effect of the defendants’ conduct, or to say there was some relatively higher value than would be reached by a capitalisation of the earnings.  Ultimately, I do not understand Mr Crawford to suggest that in the circumstances as they were known in 1995, the market would add a component for “marriage value”.

[53] So far I have discussed the value of the motel business, including its lease, but without the inclusion of the Jacaranda Apartment.  The experts agreed that its value should be assessed separately, at least because it was leased for but a three year term, with no option to renew.  Mr Crawford assessed its value at $30,000, thereby implying that Mr Strawford and Mrs Skelton gave that away when they leased  this apartment with no premium.  He reached that figure by capitalizing what he assessed to be the maintainable earnings from the apartment, using his dual rate of capitalization and using the same investment yield (24.1%) as employed for the motel itself.  There seemed to me to be at least two problems with this valuation.  The first is in his calculation of the maintainable earnings, because he has proceeded from a premise that the expenses for a 12 room motel were as represented: $52,637.  From this false premise he has estimated expenses of $61,410 for the motel including the Jacaranda Apartments.  This is to understate the expenses, overstate the maintainable income and the value of this lease.  Secondly, he has used the same rate of capitalization, although the units had begun to be used only shortly prior to the sale.  Mr Crawford saw the units as enjoying a likely premium of 25% over the room rate for the main motel, but as the sustainability of this had not been tested by December 1995, it would appear that the Jacaranda Units were affected by more risk than the motel itself which had an established trading history with high occupancy levels.  This requires a higher capitalization rate than whatever is appropriate for the main motel, upon the dual rate approach.  In any case, if the passing yield method were employed, a much higher capitalization rate would be required by the circumstance that the lease was for three years only, and also the prospect of an earlier termination of the Jacaranda lease in the event of a sale of the freehold to a third party.  In these circumstances, I reject Mr Crawford’s evidence that the lease of the Jacaranda apartment had a capital value of the order of $30,000 as at December 1995.  Mr Rabbitt expressed the view in his report of 28 February 2003 that the lease had some “added value say of one year’s nett income,” which he calculated at $7,904, with the consequence that he would “adopt $10,000” as its added value.  I am prepared to accept that evidence with the consequence that the sum of $10,000 should be added to arrive at the overall value of the business including its leaseholds when acquired in 1995.  The result is that I assess that value at $220,000, calculated as follows:

1. Likely gross income $280,000  
2. Less Rent $140,000  
3. Less other expenses $ 77,000  
4. Maintainable earnings $ 63,000  
5. Capitalised at 30%   $210,000
6. Plus value of Jacaranda lease   $ 10,000
7. Value   $220,000

[54] When Quality Corporation acquired this business, and its leasehold, it thereby paid $190,000 too much, and I assess the damages, recoverable under s 82, in that amount against each defendant.

[55] In this case, it seems to me that there should be a like assessment of damages for the negligence of each defendant.  I therefore assess the damages for negligent misstatement, as against each defendant, in the same sum of $190,000.

[56] I now consider the first plaintiff’s contractual claim against the first defendant.  By cl 8.4 of the Motel Purchase Agreement, Millford warranted that:

 

“(g)the Financial Records are true and correct in every particular;

  (h)the Financial Records given to the Purchaser prior to the date of this Agreement give a true and fair view of the financial position of the Business as at the date and for the period to which they relate;

  (i)the Income Warranty for the Warranty Period represents the gross income for the Business that this income is solely derived from the operation of the Business and is not from any other source and that it is otherwise true and correct in every particular;”

 

The term “Financial Records” was defined by cl 1.1 as follows:

 

“Financial Records means the trading figures and other financial data relating to the Business, particulars of which were given to the Purchaser prior to the date of this Agreement and/or are set out in any schedule, annexure or appendix to the Agreement.”

Two documents were annexed to the Agreement.  The first was the document described at [13] above.  The other was the “running cost 94/95” document described at [9] above.  Millford submits that these constitute the only “Financial Records” within the warranties.  The plaintiff says that, having regard to the expression “and/or” within the definition, the term includes the many other documents given to the Skeltons which contained information as to trading figures or other financial data.  Should it matter, I think the plaintiff’s submission is correct.  However the term “Financial Records” would not seem apt to refer to projections.  Accordingly, the term should be read as referring to the attachments or other material relating to the business, which were given to the Skeltons prior to the agreement, insofar as they recorded the trading or financial position of the business at any time to them.  Those records, including the record of “running cost”, were not true and correct in every particular and did not give a true and fair view of the financial position of the business.  Accordingly, there were breaches of the warranties within cl 8.4(g) and (h).  As to the third warranty, the term “Income Warranty” was defined to mean “$255,000 gross income.  As per attached income statement.” (The statement being the first of the attachments.)  The sum of $255,000 was in truth the gross income of the business and, should it matter, I would not be prepared to find that there was a breach of the warranty contained in cl 8.4(i).

[57] Clause 8.7 provided:

 

“8.7If there is any:

 

(a)immaterial mistake or error in the statements contained in clause 8.4, the Purchaser will not be entitled to terminate this Agreement but shall be entitled to such compensation (if demanded in writing on or before the Completion Date) as the case may require.  Subject to the provisions of clause 11, the Purchaser will not be entitled to delay completion or to withhold any part of the Purchase Price by reason of any such claim for compensation;

(b)material mistake or error in the statements contained in clause 8.4, and the Purchaser does not exercise any right which the Purchaser has at law to terminate this Agreement, the Purchaser shall be entitled to such compensation (if demanded in writing on or before the Completion Date) as the case may require.  Subject to the provisions of clause 11, the Purchaser will not be entitled to delay completion or to withhold any part of the Purchase Price by reason of any such claim for compensation.”

 

Millford submits that this clause had the consequence of requiring any claim for breach of a warranty within cl 8.4 to be made before the Completion Date, so that the plaintiff’s contractual claim must fail.  The plaintiff points to the “non merger” provision which is cl 39, in these terms:

 

“39.  Despite completion of this Agreement and the registration of any transfer or assignment in favour of the Purchaser, any general or special condition to which effect is not given by the completion or registration and which is capable of taking effect after completion or registration shall remain in full force and effect.”

The plaintiff then submits that having regard to cl 39, cl 8.7 should not be interpreted as excluding the common law right to damages for breach of warranty where that is not the subject of a demand prior to the Completion Date.  In my view, however, cl 8.7 should be interpreted as precluding a claim such as this if not made by the Completion Date. 

[58] Ultimately however, if Quality Corporation is entitled to damages against Millford under the Act or for negligence, the point is of no consequence, because it concedes that damages for breach of warranty in this case would not exceed those recoverable under the Act or for negligence, and that it cannot recover an amount for its contractual claim beyond the amount of any judgment it obtains upon either of those other claims.  The damages for breach of warranty would be assessed by comparing the value of what was acquired with what would have been its value had it been as warranted.  The plaintiff concedes that the value of the business and leasehold, if as warranted, would be no more than the price paid, $410,000.

[59] I therefore assess the first plaintiff’s damages at $190,000.  I award interest on that sum at 9% per annum calculated from 18 December 1995 to 7 April 2003, a sum for interest which I round to $124,900.  There will be judgment for the first plaintiff against each defendant in the sum of $314,900.

[60] Each of the Skeltons claims damages for the difference between what he or she earned in Noosa and what he or she would have earned if still employed in Sydney.  The statement of claim claimed this difference measured over a period of five years from the acquisition of the business, but ultimately the Skeltons, by their submissions, reduced that to a period of 18 months.  It was submitted on their behalf that I could discount this to 70% of that difference for the contingency (amongst others) that the Skeltons would have found a suitable motel within 18 months so that I should award them damages measured by the difference between what would have been their Sydney incomes and what were their Noosa incomes, over that 18 month period,  multiplied by 0.7.

[61] I have found that the Skeltons would not have acquired, or caused to be acquired, this business but for the s 52 misconduct and negligence of the defendants, and I find that but for those matters, the Skeltons would not have left their respective jobs in Sydney precisely when they did.  It is also clear enough that their Sydney incomes were greater than those they derived through Quality Corporation in this business, at least during the first 18 months at Noosa.  Their claims were put on the basis that their loss or damage should be characterised as loss of a commercial advantage or opportunity of a kind for which damages can be recovered according to Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332.  It is said that the relevant opportunity was to continue in their work in Sydney, and that they were denied that opportunity by the defendants’ conduct.  The value of that opportunity is said to be assessable by determining the length of time for which they would have availed themselves of that opportunity.

[62] The claim has an unusual feature, because the opportunity lost is one which the Skeltons had already decided to forego, once a suitable business was found.  They had decided to leave their employment although it was very likely, if not inevitable, that their incomes through whatever business they acquired would be less than in Sydney.  That was a decision affected by personal as well as financial considerations.  Mrs Skelton said in her written evidence that they were looking for a motel showing a net profit (before tax) of between $150,000 and $200,000.  Their combined before tax income in Sydney was about $190,000.  They had long decided to pursue a course likely to decrease their income, yet they now seek damages for the incomes they were prepared to lose.

[63] Their claims treat the income of Quality Corporation as their own incomes, for the purposes of calculating their losses.  Its income will remain unaffected by the award of damages in its favour.  The effect of that award will be that, through their company, they will have paid no more for the business than its true worth.  That award will compensate for the acquisition of the wrong business, or the acquisition of this business at the wrong price.  It will put the purchaser in the position it would enjoy had it paid an appropriate price for a business with these earnings.  The damages sought by the Skeltons seem to have two effects.  The first is to compensate not for acquisition of the wrong business, or at the wrong price, but to compensate them for going into a motel business.  The likely loss of going into such a business, whether through misrepresentation or otherwise, was one which they had decided to bear.  Secondly, despite an award of damages to their company to the effect of making the price conform to the actual earnings, their claim, in part, would seek a result which would effectively increase the earnings to conform with the original price.  This gives the impression that in part they are seeking to be compensated twice.

[64] These are claims which satisfy a “but for” test of causation.  But that test “applied as an exclusive test of causation, yields unacceptable results and … the results which it yields must be tempered by the making of value judgments and the infusion of policy considerations.”: March v Stramare (E & M H) Pty Ltd (1990-1991) 171 CLR 506 (“March v Stramare”) at 516 per Mason CJ.  In relation to the statutory cause of action under s 82, the relevant inquiry is whether the plaintiff has suffered loss or damage “by” the contravening conduct of another person, but s 82 “should be understood as taking up the common law practical or common-sense concept of causation” discussed in March v Stramare: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 per Mason CJ, Dawson, Gaudron and McHugh JJ; see also Henville v Walker (2001) 206 CLR 459 at 474, 480, 489; I& L Securities Pty Ltd v H T W Valuers (2002) HCA 41 at [144], [210].  In a passage cited with approval by McHugh J in Henville v Walker (at p 491), Mahoney JA said in Barnes v Hay (1982) 12 NSW LR 337 at 353:

 

“[T]he determination of a causal question involves, in my opinion, a normative decision as to whether, for the purposes of the case, the precedent act for which the defendant is responsible should be seen as causal of the plaintiff’s loss.  And, in my opinion, that evaluation is made, not by a “test” or “guide” such as the “but for” test, but by a functional evaluation of the relationship and the purposes and policy of the relevant part of the law.”

[65] The purposes and policy of the laws with which proscribe misleading conduct, and permit the recovery of damages for losses caused by it are clearly served by enabling a purchaser who has paid too much for a business it was misled to buy to recover the amount by which too much was paid.  But it is far from clear that they are served by compensating a plaintiff for the loss of an opportunity which the plaintiff had decided to forego before the occurrence of the defendant’s wrong doing.  The “opportunity” was lost not because of the defendants’ wrong doing, but because the plaintiffs had decided to take another course in their lives.  The defendants’ conduct did not deprive the Skeltons of that opportunity: it simply resulted in their anticipated cessation of their employment occurring when it did.  These claims give the impression that the plaintiffs are looking to recover amounts which would put them in a better position than had they bought a business unaffected by any misrepresentation.  In my view, the purposes and policy of neither the Act or the law of negligent misstatement would be furthered by the award of damages as Mr and Mrs Skelton seek.

[66] There are other difficulties in their claims.  Although imprecision is not a bar to the assessment of damages of this kind, I am unable to see any evidentiary basis for fixing a period of time for which their Sydney incomes were lost.  They had been inspecting motels for the best part of 1995, but that does not provide much indication of the time at which they would have left Sydney had they not acquired this motel.  It seems to me to be a matter of pure speculation as to when they would have left Sydney, just as von Doussa J said of a similar claim in Smith v Commonwealth Bank (unreported; SG 46 of 1990; 11 March 1991).  In that case Mr and Mrs Smith sought relief for loss and damage they suffered by purchasing a leasehold hotel business, which they had purchased for an excessive price in reliance upon the bank’s representation as to the merits of the transaction.  The bank and its representative were held liable in negligence, under the Act and also for breaches of fiduciary duty.  They were awarded damages calculated by the difference between the true value of the hotel business at the time of sale and what they had paid for it, together with interest.  But they also claimed for the difference between the actual net profit of the hotel business as conducted by them, and their earnings had they remained in their existing employment.  In rejecting that claim von Doussa said (at pp 38-39):

 

“(This claim) cannot be sustained for another reason besides the fact that the nett profits of the business were due to factors unrelated to error in statements made by Mr Dungan.  It is quite clear that the applicants had by 1988 decided to purchase a business which they would operate together, and to give up their employment and to sell their house property as soon as they did so.  It is pure speculation what their position may have been had they not purchased the Weerwoona  Hotel.

 

The only matter that emerges as a probability is that they would not have continued indefinitely in their employment. …

 

In my opinion if the appropriate analogy for guidance in this case is the measure of damages in deceit, the applicants’ damages under s 82 of the Trade Practices Act would be the difference between the true value of the hotel business in April 1988 and what the applicants paid for it, together with interest to compensate them for the cost of borrowing that sum at commercial rates from the bank.”

[67] In the present case, it is highly probable that the Skeltons would have acquired another motel or other business, but it is difficult to see any logical basis from the evidence for a fair assessment of when that would have occurred.  Further, their claims would be quantified by the actual earnings of the motel under the operation of their company.  Accepting for the moment that its profits can be treated as their profits, it is clear that the profits which they derived were the result, in part, of the way in which they operated the motel.  I do not mean to suggest that they did so poorly or unsuccessfully, but they did so somewhat differently from their predecessors.  Mrs Skelton was working as a consultant for her former employer for at least six months after she left Sydney, and the evidence shows that this often required her to work extensive hours in Noosa and sometimes travel to Sydney for some days.  This work might explain the evidence of Ms Maguire that Mrs Skelton often arose only towards midday.  The Skeltons chose to have more of the routine work in the motel performed by staff, than had been the case with Millford.  In 1996, the Skeltons travelled to France for the wedding of Mr Skelton’s daughter, where they remained for about six weeks.  These were all things which the Skeltons were quite entitled to do, but they indicate the potential unfairness in awarding them damages measured in this way.

[68] For these reasons, I conclude that the losses claimed by Mr and Mrs Skelton were not caused by the defendants’ conduct in the sense required by s 82 and the common law, and that their claims should be dismissed.

[69] Accordingly:

 

1. there will be judgment for the first plaintiff against each defendant for $314,900;

2. the claims of the second and third plaintiffs against each defendant shall be dismissed.

I shall hear the parties as to costs.

Close

Editorial Notes

  • Published Case Name:

    Quality Corporation (Aust) Pty Limited & Ors v Millford Builders (Vic) Pty Ltd & Ors

  • Shortened Case Name:

    Quality Corporation (Aust) Pty Ltd v Millford Builders (Vic) Pty Ltd

  • MNC:

    [2003] QSC 95

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    09 Apr 2003

Litigation History

No Litigation History

Appeal Status

No Status