Kitto v Lyric Nominees Pty. Ltd
[1998] QCA 370
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- Unreported Judgment
- Kitto v Lyric Nominees Pty. Ltd[1998] QCA 370
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Kitto v Lyric Nominees Pty. Ltd[1998] QCA 370
Kitto v Lyric Nominees Pty. Ltd[1998] QCA 370
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 9734 of 1997
Brisbane
[Kitto & Ors. v. Lyric Nominees P/L & Ors.]
BETWEEN:
BRUCE GRAHAM KITTO
EUNICE ANNE KITTO and
JOSEPHINE MICHELE GARNER
(Defendants)
Appellants
AND:
LYRIC NOMINEES PTY. LTD ACN 005 152 572
(First Plaintiff)
BARRY NOEL McMILLAN and
JULIE ANNE McMILLAN
(Second Plaintiffs)
Respondents
McMurdo P.
Thomas J.A.
Moynihan J.
Judgment delivered 17 November 1998
Judgment of the Court
APPEAL ALLOWED WITH COSTS. JUDGMENT BELOW SET ASIDE AND IN LIEU THEREOF JUDGMENT ENTERED FOR DEFENDANTS. JUDGMENT ENTERED FOR DEFENDANTS ON COUNTER-CLAIM AGAINST SECOND PLAINTIFFS FOR THE SUM OF $475,000 TOGETHER WITH INTEREST AT 10 PER CENT FROM 21 MARCH 1996 UNTIL 17 NOVEMBER 1998. JUDGMENT ON COUNTER-CLAIM AGAINST FIRST PLAINTIFF TO STAND. FIRST AND SECOND PLAINTIFFS TO PAY DEFENDANTS' COSTS OF THE ACTION TO BE TAXED.
| CATCHWORDS: | CONTRACT - Misrepresentation - fraudulent misrepresentation - finding of fraud not pleaded and litigated at trial - oral and written representations as to occupancy and financial returns - whether representation false - Krakowski v. Eurolynx Properties Limited (1995) 183 C.L.R. 563 followed - whether representation capable of being regarded as a continuing representation - objective test - continuity in effect of representation rebutted by facts brought to the attention of the respondents prior to contract - whether reliance on representations. Banque Commerciale S.A., En Liquidation v. Akhil Holdings Limited (1990) 169 C.L.R. 279 Krakowski v. Eurolynx Properties Limited (1995) 183 C.L.R. 563 With v. O'Flanagan [1936] 1 Ch. 575 Jones v. Dumbrell [1981] V.L.R. 199 |
| Counsel: | Mr. S. L. Doyle S.C., with him Mr. R. J. Oliver, for the appellants Mr. L. D. Bowden for the respondents |
| Solicitors: | Windsor Craig for the appellants Wockner Partners for the respondents |
| Hearing Date: | 2 October 1998 |
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 9734 of 1997
Brisbane
Before McMurdo P.
Thomas J.A.
Moynihan J.
[Kitto & Ors. v. Lyric Nominees P/L & Ors.]
BETWEEN:
BRUCE GRAHAM KITTO
EUNICE ANNE KITTO and
JOSEPHINE MICHELE GARNER
(Defendants)
Appellants
AND:
LYRIC NOMINEES PTY. LTD ACN 005 152 572
(First Plaintiff)
BARRY NOEL McMILLAN and
JULIE ANNE McMILLAN
(Second Plaintiffs)
Respondents
REASONS FOR JUDGMENT - THE COURT
Judgment delivered 17 November 1998
- This is an appeal against a decision in the Trial Division granting judgment in favour of the respondent Lyric Nominees for $1,107,974 damages for fraud.
- The appellants were the vendors and Lyric Nominees the purchaser under a contract for sale of a student hostel known as Downs View Lodge situated in Toowoomba. The sale included the freehold and the business for the price of $2.7M. The contract was entered into on 13 July 1995 and possession was given and taken a few days later. The purchaser did not have sufficient money to effect the purchase and vendor finance was necessary to the extent of $475,000. The second plaintiffs, Mr. and Mrs. McMillan, guaranteed the obligation of Lyric Nominees to repay that amount.
- In the event the business performed poorly. The respondents were unable to service their financial commitments and receivers were in due course appointed by a third party financier. After a period of receivership during which the business ran down still further, the property and business was sold for $550,000.
- The persons most directly involved in the relevant negotiations were Mr. McMillan on behalf of the respondents and Ms. Garner on behalf of the appellants. It was against Ms. Garner that the finding of fraud was made.
- In their statement of claim the respondents pleaded an extensive series of written and oral representations allegedly made on behalf of the appellants concerning the occupancy and returns of the lodge. The information available to the appellants was somewhat limited, in that they had only purchased the lodge from the previous owners (the Lunneys) in late November 1994, and the students had not long commenced their 1995 academic year when negotiations commenced between the parties. The appellants gave the respondents the information that had been provided to them by or on behalf of the Lunneys along with other information they had gained concerning the business during their own period of occupation. It was not shown that the written information supplied by the appellants was in any way distorted or suppressed, or that it was presented as anything other than what it purported to be.
- Negotiations proceeded over four months before the final contract resulted. The respondents alleged six separate instances of representations over that period. With respect to some of the pleaded representations the learned trial judge was not satisfied that they were made. He found some others to have been made but not to have been shown to be inaccurate; and the remaining representations were found not to have been relied on by the respondents.
- His Honour then went on to hold that an oral statement that had been made by Ms. Garner on 8 March 1995 "that the student hostel was fully occupied with little or no vacancies" was a "continuing representation that the lodge was virtually full". His Honour found that the lodge had not been virtually full for some time before 14 July 1995 (the date when the contract settled). The basis of the finding of fraud was that the appellants failed to correct the 8 March 1995 representation prior to 14 July 1995.
- Although the learned trial judge gave no general indication of acceptance or rejection of the evidence of particular witnesses, he plainly rejected the major part of Mr. McMillan's evidence and the allegations upon which the statement of claim was based. The reasons for judgment contain many references to the evidence of Mr. McMillan and on every occasion where a point was in contest, Mr. McMillan seems to have been rejected. The case which Mr. McMillan put forward, for example on the occasion of 8 March, was that "they [the appellants] guaranteed that students would be there for the whole period and that really there was only about one or two vacancies, otherwise it was full". His Honour's findings however were that an oral statement was made during the course of a "cursory tour" of the lodge by Mr. McMillan and two of his representatives during which some explanations were given about the running of the business including some representations as to rental income and occupancy. These included that the weekly return was $10,000 at that time. This was not shown to have been inaccurate.
- The critical finding on which the judgment was based was that in the course of that same occasion Ms. Garner said words to the effect that the student hostel was substantially or virtually full or full except for a couple of vacancies, and that Mr. McMillan was shown three vacant rooms which were the only rooms vacant at that time. His Honour however found that there was "no misrepresentation in this regard".
- The respondents' case in relation to what was called "the first representations" depended on the fact that an earlier valuation (called the Nilon valuation) had been supplied to the respondents along with a number of cashflow statements which on their face showed the income that could be generated on the assumption of 100 per cent occupancy. On this aspect of the case his Honour's findings included the following:
"In this case the defendants had only completed the contract, the acquisition of the lodge and entered into possession in late November 1994. They could not be expected by the plaintiffs to have personal knowledge of the accuracy of the financial material contained in the Nilon valuation or to be endorsing it as accurate, at least in the absence of some indication that the contents of that material had been adopted by the defendants. In my view the defendants, by providing the Nilon valuation, were doing no more than acquainting the plaintiffs with a valuation which, on its face, had been obtained by the entity from which the defendants had purchased the lodge.
...
Nor was there a representation that the hostel was worth $2,800,000 by virtue of the fact that that was the value placed on the property by the valuers. The representation by the defendants, if there was a representation, was that the opinion of the valuer was that the value of the property was $2,800,000."
With respect to the cashflow documents his Honour held:
"The prediction contained in the document is based on an underlying premise of 100% occupancy and full rental for the six months covered by the document. Mrs Garner did not believe that there would be 100% occupancy for the six months, particularly in the months of February and July, and nor did she believe that a full rental would be obtained for February and July regardless of whether the rooms were fully occupied."
and:
"In the circumstances it is difficult to accept that the plaintiffs relied on the document except in as much as it showed what income might be attainable in the unlikely event that full occupancy were to be achieved."
- In short, the 100 per cent written cashflow projections were hypothetical mathematical projections and were understood by the parties to be so.
- It is not necessary to set out the other groups of alleged misrepresentations alleged to have been made between March and July 1995 and the bases upon which they were rejected. Plainly the case pleaded and presented on behalf of the plaintiffs entirely failed.
- The basis upon which the learned trial judge found in favour of the respondents was not pleaded. The respondents submit however that it was litigated. It is of course possible for a judgment to proceed on a basis different from that in the pleadings when the trial reveals that the parties have extended the parameters of the dispute and have litigated or been given a fair opportunity to litigate additional matters.[1] But the function of pleadings remains an important one, namely "to state with sufficient clarity the case that must be met".[2] The need for pleadings to do so in fraud cases is acute, and reasonable particularity is demanded.[3] The general approach to judgments that depart from the pleadings has been stated by the High Court to be as follows:
"The circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities".[4]
- It therefore becomes necessary carefully to examine the way in which the action was conducted and to consider whether the basis upon which the learned trial judge granted judgment in favour of the respondents was reasonably open.
- During vacation periods occupancy rates fell. It would have been surprising had the position been otherwise. His Honour accepted the evidence of Mrs. Lucas (Mr. McMillan's accountant) which, contrary to Mr. McMillan's assertions, shows that Ms. Garner made it plain to Mr. McMillan that full occupancy could not be expected during the vacation periods in June/July and December/February. This was the basis of his Honour's findings against the respondents in relation to oral representations on 5 April 1995 which allegedly re-asserted the 100 per cent projections of occupancy rate throughout the year.
- The final representations relied on by the respondents in the statement of claim were said to have been made on or about 3 July 1995. Evidence was given of conversations that took place on 3 and 10 July respectively, and his Honour, rightly in our view, regarded the representations on both occasions to be within the pleading. No objection was taken to this. These depended upon various oral representations which Mr. McMillan claimed to have diarized. His Honour rejected Mr. McMillan's evidence, noting that the diary had not been discovered until approximately the commencement of trial and noting that it was curious that the alleged statements had not been raised on occasions soon after when one would have expected them to have been raised.
- The basis of his Honour's judgment for the respondents was foreshadowed by the following statement, presented in the form of a heading:
"The representations as to occupancy and turnover were continuing representations which, if true when made, became false prior to the date on which Lyric became obliged to settle under the contract as amended and were not corrected by the defendants".
His Honour noted that there had been no allegation of continuing representation pleaded by the plaintiffs, but adopted a submission of counsel for the plaintiffs, apparently made during final addresses, that although not pleaded, this argument relied on no facts which were not the subject of evidence already led in the proceedings and that, in essence, this would merely place an additional legal construction on the facts ventilated between the parties.
- His Honour referred to a number of texts and cases dealing with the subject of continuing representations.[5] These cases support the proposition that where a continuing representation is made and before it is acted on the representor discovers it is untrue, failure to communicate the true position may amount to fraud, at least where the representor has not forgotten the representation and it does not believe that the representee has become aware of the change of circumstances.[6] His Honour then stated:
"In my view the representation by Ms. Garner on 8 March 1995 that the lodge was full except for a couple of vacancies or virtually full was a continuing representation. It cannot be regarded as a representation which was directed only to the time at which it was made and thus became spent once that time passed."
This was based on the view that the point of the discussion of 8 March was to leave Mr. McMillan with the impression that the present state of virtually full occupancy could be expected to continue. His Honour expressed himself satisfied that Ms. Garner remained generally aware of her assertions to Mr. McMillan of close to full occupancy and that she did not believe that Mr. McMillan had become aware, prior to contract, of the true position in relation to occupancies. It may be noted that considerable speculation is involved in those findings, and no such suggestions had been put to the witnesses whose states of mind are the subject of such findings.
- His Honour found that there had been a decrease in numbers in March, April, May and June and that by 8 June 1995, 81 non-casual students remained in residence. At 15 July the occupancy level was 72 (not including casuals) but of course that was during the vacation. The evidence was such as to make it very difficult to ascertain precise occupancy levels at relevant times, but his Honour's acceptance of the accuracy of exhibit 63 gives a firm foundation for the finding that even prior to the commencement of the July vacation the occupancy level was materially less than the virtually full occupancy which had been observed and described on 8 March. His Honour then adverted to the question of standard of proof and found that the allegation of fraudulent misrepresentation had been made out, assessed damages at $1,107,974 and he gave judgment for the plaintiff company. His Honour went on to find that the defendants were entitled to judgment on their counter-claim for $475,000 in respect of the money advanced to enable the purchase to proceed, and that the personal respondents were not liable on their guarantees with respect to that sum.
- His Honour concluded his discussion of the finding of liability with the words "in my view the plaintiffs cannot be said to have suffered loss or damage by the conduct of the defendants other than as a result of reliance on actual representations as to occupancy coupled with a subsequent failure to advise of a change in occupancy levels".
- Mr. Doyle S.C. for the appellants challenged the above findings and conclusion in a number of ways. The first of these is that it was erroneous to treat the representation as a continuing representation.
- The statement of claim does not suggest anything other than a statement made on 8 March "that the student hostel was fully occupied with little or no vacancies". The allegation seems to be of a past or present situation rather than of the future. His Honour found the representation to be true "in this regard", presumably as to the past or present situation. Nothing in the evidence of Mr. McMillan gives the statement any different connotation. Indeed, the rejected evidence of Mr. McMillan provides a very insecure basis for finding either his understanding of its meaning or his reliance upon such a meaning.
- The representation of 8 March was true when made. It attracts the criticism of falsity only if it is interpreted as a statement that the position would remain at least as good as it then was for a certain period into the future. Whether that would be indefinitely, or more or less than a year might be a matter of some difficulty. Mr. Bowden, counsel for the respondents, conceded that it could not in any event have been taken to be more than a representation in relation to non-vacation periods. This interpretation itself illustrates the difficulty of construing a statement of this kind as an unqualified continuing representation.
- In deceit cases, for a time it was generally considered that regard must be had to the sense in which a representation is understood by the person making it.[7] In Krakowski[8] however the following conclusions were reached:
"The sense in which a representation would be understood by a reasonable person in the position of the representee is prima facie the sense relevant to the question whether the representation is false. The sense in which a representation is understood by the representee is relevant to the question whether the representation induced the representee to act upon it. And the sense in which the representor intended the representation to be understood is relevant to the question whether the representation was made fraudulently."[9]
For present purposes, which concern the meaning of the representation, which needs to be known before it can be decided whether it is true or false, the first proposition provides the appropriate test. In our view the learned trial judge fell into error in holding the present oral statement to be one that "cannot be regarded as a representation which was directed only to the time at which it was made and thus became spent once that time passed". Not only can it be regarded as such a representation: that would seem to have been its normal and reasonable interpretation in the circumstances. It was made during a casual inspection early in the course of extended dealings between a vendor and purchasers who had solicitors and other advisers including accountants acting for them and in which many written communications occurred. It was known to the respondent purchasers that the vendor had had experience of occupancy during term only for a few months at most. In this context it would be surprising if such a statement were taken as a serious future prediction, let alone as an anchor point or even a primary source of information on such a matter. In these circumstances it would be extraordinary if it were relied upon four months later by which time the purchasers and their advisers had been provided with a good deal of contrary information.
- The discussion of 8 March included a reference to the fact that leases were in place. Whilst that might generally support some optimism that occupancy would remain high, the reliability of students' adherence to their leases was not canvassed by the parties. It is difficult to think that this component of the conversation would change the ordinary interpretation of the words relied on on this occasion. The evidence shows that Ms. Garner had made a statement to Mrs. Lucas a few days before stating generally that occupancy levels were good "at that time". The fact that the statement was made after valuations and cashflow projections had been supplied to the purchasers cannot give a different aspect to the statement, particularly in view of his Honour's findings concerning the hypothetical basis upon which they had been supplied.
- Other circumstances include the fact that the appellants provided the respondents with all their records and the respondents had their accountant look through them. Mr. McMillan also seems to have been aware at material times that "students come in and they move out".
- Mr. Bowden submitted that a continuing representation is one which is made at the start of a transaction, is not withdrawn and is capable of being acted upon right up until the date when a contract was signed. He submitted that if circumstances change to the knowledge of the maker, that person comes under a duty to correct it. The first part of the submission is too wide. As Krakowski tells us, there is an objective component in answering the question whether the representation is false, and it is the sense in which the representor intended it to be understood that is relevant to the question of fraud.
- Of course statements of a present state of affairs may be capable of being taken as a representation that that situation will continue indefinitely and that the representee will be advised if there is a change. With v. O'Flanagan[10] may be regarded as a clear example of such a case. However this is a question of fact in every case, and in the circumstances of the present case, applying the Krakowski test, the only reasonable interpretation of the statement is that it described the situation then existing and the representor's limited experience up to that time. Mr. Bowden's eventual submission was that arguably the statement involved an implication that the stated level of turnover would or might continue. The arguable possibility of such an implication is a very weak foundation for a fraud case. That however is a separate issue.
- The duty to correct a misconception that the conduct of the representee is apt to have created may arise in a variety of ways, including by knowingly making an ambiguous statement with a propensity to mislead, or by the telling of a half-truth. Krakowski may be regarded as such a case. However the present statement does not fit into any of these categories. It was neither ambiguous nor prone to mislead. It was a statement of present fact. In the context of the parties' subsequent dealings there was nothing to correct, and, as will soon be shown, further information was supplied subsequently that contradicted the literal effect of the alleged continuing representation upon which the judgment was founded.
- In the circumstances detailed above we would uphold Mr. Doyle's submission that his Honour erred in holding that the statement amounted to a continuing representation.
- Any notion by the respondents that this was a constant or continuing state of affairs must in any event have been interrupted by knowledge to the contrary given to them and their advisers over the ensuing months. These circumstances are stated in the next section ("Reliance"). For present purposes it is enough to note that any continuity in the effect of the representation is rebutted by facts that came to the attention of the respondents in subsequent dealings before contract.
- As the conclusion that the representations of 8 March was a continuing one was the foundation of the judgment, the appeal must be allowed. It is desirable however to mention some additional bases upon which the appeal is brought.
Reliance
- It is necessary to assume for the purposes of discussion of this point that the "virtually full occupancy as at 8th March" representation was a continuing one.
- The question of reliance presents some difficulty in view of the way in which the case was run. The respondents' evidence, through Mr. McMillan, was to the effect that he relied on a great number of documents and statements that gave him the belief that occupancy was full or virtually full and that he could rely on this on a continuing basis. That case was rejected. In the course of rejecting the pleaded case of the respondents, the learned trial judge made the comment that:
"[in] the circumstances it is difficult to accept that the plaintiffs relied on the document except in as much as it showed what might be attainable in the unlikely event that full occupancy were to be achieved."
- The thrust of Mr. McMillan's evidence had been that earlier negotiations had failed but that the telephone conversations of 3 and 10 July 1995 had revived his interest and had induced him to complete the purchase. There may of course be a combination of representations, each of which may be held to have induced the contract. However the overall tenor of Mr. McMillan's evidence fails to suggest that the oral representation of 8 March was in his mind at all when he decided in July to enter into the contract. Further, in the context of Mr. McMillan's evidence, the oral statement seems less important than the written documents which Mr. McMillan claimed to have interpreted as guarantees of full occupancy into the future. As mentioned above that case was rejected. It is difficult to see how a satisfactory assessment could be made of the independent effect of this oral statement in the course of a cursory inspection, divorced from the effect of documents on which Mr. McMillan said he was relying, at least without aversion to it by counsel in examination and cross-examination. The extent to which the oral statement could separately be said to have induced the contract or to have been relied on by Mr. McMillan (and in turn by the other respondents) would seem to be sheer guesswork. Certainly these questions were never addressed by either counsel as a separate issue, and Mr. McMillan's attention was not directed to them in evidence. His Honour's reasons do not address such matters either.
- In dealing with this issue his Honour referred to a discussion between Ms. Garner and Mr. McMillan on 8 March on the role of leases in ensuring that students remain for the whole of the period for which they had booked accommodation. Although the evidence on this subject is inconclusive, his Honour considered that the point of that discussion was to leave Mr. McMillan with the impression that the then state of the virtually full occupancy could be expected to continue. On that footing his Honour concluded that "once Mrs. Garner had become aware that the representation as to occupancy was no longer accurate, she had a duty to advise Mr. McMillan of the changed circumstances". The question of reliance however was not further considered, and it receives mention only in the negatively expressed concluding remarks of his Honour on the question of liability -
"In my view, the plaintiffs cannot be said to have suffered loss or damage by the conduct of the defendants other than as a result of reliance on actual representations as to occupancy coupled with a subsequent failure to advise of a change in occupancy levels."
- This finding of reliance seems to be at odds with his Honour's earlier finding in relation to the first representations. In that context his Honour had made the following findings:
"... before entering into the contract Lyric (through Mr McMillan) was well aware that the lodge had not had full occupancy in the past and was unlikely to have full occupancy in the future. He knew that the major impediment to full occupancy was the fact that there was reduced demand for accommodation at a student hostel during university vacations. In the circumstances it is difficult to accept that the plaintiffs relied on the document except in as much as it showed what might be attainable in the unlikely event that full occupancy were to be achieved."
- Mr. Bowden submitted that those findings are consistent with the view that Mr. McMillan relied only on "virtually" full occupancy or 95 per cent occupancy and he referred the Court to some passages where representations of 95 per cent occupancy were made. However the finding is not so limited, and there is considerable other evidence strongly suggesting that both Mr. McMillan and Ms. Lucas were well aware of a lack of full occupancy to a much greater extent than Mr. Bowden submits. Inter alia there is evidence of a letter written to Mr. McMillan by his own accountants (Messrs. Window and de Stoop) in April 1995 referring to the occupancy rates adopted by the vendor. These were expressly stated to be based on 35 weeks at 95 per cent occupancy, eight weeks at 65 per cent and nine weeks at 45 per cent. Other evidence includes a valuation obtained by the appellants from R. S. Melloy Pty. Ltd. after 10 April 1995 opining that the land and business had a value of $3.14M, and stating projected occupancy at a level of 98 per cent for 36 weeks and 30 per cent for 16 weeks.
- When one looks at the reality of the situation it is difficult to resist the conclusion that the claims on behalf of the respondents of belief in or reliance on representations of full or virtually full occupancy were spurious and were rightly rejected by his Honour in the first part of his judgment. The later finding of inducement and reliance with respect to the isolated oral representation on 8 March as inducing the contract of 13 July seems, with respect, to be unrealistic, inconsistent with the view earlier taken, and not reasonably open.
- The finding of reliance on the allegedly continuing misrepresentation of 8 March cannot be sustained.
Was such fraud litigated by the parties?
- It is accepted by counsel for the respondents that the issue was not pleaded in this way. However his Honour considered that the submissions which he upheld were based entirely upon evidence already led in the proceedings, and that the only additional exercise involved was the legal construction of the facts that had been ventilated between the parties.
- Although trite, it should not be overlooked that for a representation to be actionable as a fraud, actual dishonesty must be shown,[11] at least in the sense of recklessness with the representor not caring whether the statement is true or false.
- During the trial neither counsel adverted to the capacity of this oral representation for future operation upon the mind of Mr. McMillan, of its actual effect upon Mr. McMillan, of Ms. Garner's awareness that it might continue to influence him, or of her knowledge of his subsequent awareness of occupancy levels. Nor was the basis of the fraud of which she has been found guilty actually put to her. Had these issues been identified, additional explanations might have emerged from the witnesses. The finding "I am satisfied that Mrs. Garner remained generally aware of her assertions to Mr. McMillan of close to full occupancy" was made in circumstances where no suggestion to that effect had been made to her. Mention has already been made in discussion under the heading "Reliance" of the failure to direct Mr. McMillan to issues touching those now under consideration.
- On the third day of the trial, during cross-examination of one of the defendants (Mr. Kitto) counsel for the respondents asked of the question "You [sic] didn't occur to you to ring Mr. McMillan up and to tell him that perhaps the occupancy levels weren't quite what he expected?" Objection was taken on the ground that the question went beyond the pleadings. Counsel for the respondents submitted that this did not have to be pleaded and that if a representation is made which by the time the transaction is concluded has become clearly wrong, the law implies a duty to correct it. His Honour permitted the question which produced the answer "No I didn't think it was relevant really". Subsequently evidence was given by other witnesses including Ms. Garner, but the elements of the case ultimately upheld by his Honour were not put to her. Similar failures are apparent with respect to every element of the case ultimately found, including the state of mind of Ms. Garner and to the question of whether she acted knowingly or recklessly.
- Having studied the evidence we are clearly of the view that the case ultimately upheld by his Honour was not litigated by the parties. Accordingly it was not open to his Honour to make this finding of fraud against Ms. Garner and give judgment against the appellants.
Other issues
- It is not necessary to do more than note some other issues raised by Mr. Doyle on behalf of the appellants. These include submissions that there was in any event insufficient basis for a finding of fraud, and that the assessment of damages was erroneous. On this question supplementary submissions were received from both parties but it is not necessary to deal with them. With respect to the question of damages, his Honour, in determining the actual value of the property, adopted a "quick sale" value rather than a going concern value. There would seem to be merit in the submission that this was inappropriate. His Honour gave no reasons for preferring the "quick sale" value, and prima facie the market value was the appropriate criterion. If this is so, the damages would need to be reduced by $270,000. However it is unnecessary to make an actual determination of this issue.
Orders
- The appeal should be allowed and the judgment below set aside. The question arises whether judgment should be entered for the defendants or whether a re-trial should be granted and if so on what terms.
- The case was fought over five days on the basis of the pleadings. It is not suggested that the respondents ought to have the opportunity of re-litigating those issues. It was submitted however that there should be a re-trial limited to the question of fraud based upon failure to correct any misconception arising out of the representation of 8 March. In our view such an order would not be appropriate. The tension between such a case and a case actually presented is all too obvious. The opportunity to litigate this alternative claim was fairly open if counsel had been prepared to prove the necessary amendments to expose such issues. However no amendment was sought. There may be cases when additional issues creep in without objection so that a tacit understanding that such a question is being litigated might be inferred. But this is not such a case. Counsel for the appellants objected on the only occasion when a matter relevant to such a case was raised. The parties have litigated the case that the respondents chose to bring and it is not in the interests of justice to subject the appellants to the further litigation of what could only be described as a belated and dubious alternative case to the substantial case that the respondents fought and lost. Furthermore, at the conclusion of oral argument on the appeal, the respondents were given the opportunity should they be so advised, to identify the issues sought to be determined in any retrial by means of an amended pleading. No such pleading has been forthcoming. The difficulty of formulating such a case consistently with the evidence already given on behalf of the respondents is all too apparent. We do not consider that in the circumstances there should be any retrial.
- The appeal should be allowed with costs. The judgment below should be set aside and judgment entered for the defendants. Judgment should also be entered for the defendants on the counter-claim against the second plaintiffs for the sum of $475,000 together with interest at 10 per cent from 21 March 1996 until 17 November 1998. The judgment on the counter-claim against Lyric should stand, and the plaintiffs should be ordered to pay the defendants' costs of the action to be taxed.
Footnotes
[1]Banque Commerciale S.A., En Liquidation v. Akhil Holdings Limited (1990) 169 C.L.R. 279, 286-287.
[2]Akhil above at 286.
[3]Wallingford v. Mutual Society (1880) 5 App.Cas. 685, 697, 701, 709; Davy v. Garrett (1878) 7 Ch.D. 473, 489; Akhil above at 285, 295; Krakowski v. Eurolynx Properties Limited (1995) 183 C.L.R. 563, 573; Brisbane Unit Development Corporation Pty. Ltd. v. Robertson [1983] 2 Qd.R. 105, 109.
[4]Akhil above at 286-287.
[5]Halsbury's Laws of England 4th ed., vol.31, para.1056; With v. O'Flanagan [1936] 1 Ch. 575; Jones v. Dumbrell [1981] V.L.R. 199, 202-3; Dalgety and Company Limited v. The Australian Mutual Providence Society [1908] V.L.R. 481, 506; and Briess v. Woolley [1954] A.C. 333, 358.
[6]Jones v. Dumbrell above at 203; Dalgety above at 506; Davies v. London and Provincial Homes Insurance Company (1878) 8 Ch.D. 469, 475.
[7]Derry v. Peek (1889) 14 App.Cas. 337.
[8]Krakowski v. Eurolynx Properties Limited (1995) 183 C.L.R. 563, 576, 577.
[9] Per Brennan, Deane, Gaudron and McHugh JJ.
[10] Referred to in note 5 above.
[11]Jones v. Dumbrell above; Derry v. Peek above.