Auyeung v Chan

[1999] NSWCA 417

CITATION:	AUYEUNG & ANOR v CHAN [1999] NSWCA 417
FILE NUMBER(S):	CA 40149/98
HEARING DATE(S):	29 October 1999
JUDGMENT DATE:	26 November 1999
PARTIES :	Sing Yuen Auyeung & Yuet Yuen Wong - Appellants Selina Ching Man Chan - Respondent
JUDGMENT OF:	Mason P at 1; Handley JA at 2; Sheller JA at 3

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S) :	1413/97
LOWER COURT JUDICIAL OFFICER:	Dent DCJ

COUNSEL:	M J Slattery QC/M A Ashurst - Appellants B A J Coles QC/N Potts - Respondent
SOLICITORS:	Kemp & Strang - Appellants McGrath Dicembre & Co - Respondent
CATCHWORDS:	FAIR TRADING ACT 1987 - misleading and deceptive conduct - lease of premises - restaurant - faulty air-conditioning - downturn in business - causation - damages
ACTS CITED:	Fair Trading Act 1987 Trade Practices Act 1974 (Cth)
CASES CITED:	Archer v Brown [1985] QB 401 Clarke v Urquhart; Stracey v Urquhart [1930] AC 28 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 East v Maurer (1991) 1 WLR 461 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Gould v Vaggelas (1984) 157 CLR 215 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12 Potts v Miller (1940) 64 CLR 282 Smith New Court Securities Limited v Citibank NA [1997] AC 254 Thompson v Ice Creameries of Australia Pty Ltd & Atchison (1998) ATPR 41-611 Toteff v Antonas (1952) 87 CLR 647 Twycross v Grant (1877) 2 CPD 469 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
DECISION:	1. Appeal allowed; 2. Set aside the verdict and judgment made by Judge Dent on 26 February 1998; 3. In lieu thereof order that there be a verdict for the plaintiff in the sum of $270,000 to take effect from 26 February 1998; 4. The defendants to pay the plaintiff’s costs of the hearing at first instance and one-half of the plaintiff’s costs of the appeal.

THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL

CA 40149/98
DC 1413/97

MASON P
HANDLEY JA
SHELLER JA

SING YUEN AUYEUNG & YUET YUEN WONG v SELINA CHING MAN CHAN

The respondent entered into a lease with the appellants over a commercial property for the purpose of setting up and operating an up-market Chinese restaurant. From the opening of the restaurant it was obvious that the air conditioning system was inadequate to cope with the temperatures generated in the restaurant. This was despite representations made by the appellants that the air conditioning system servicing the leased premises was suitable for the purpose of operating a restaurant and that there had never been any complaints about the air conditioning from previous tenants.

The respondent sued the appellants for breaches of s42 of the Fair Trading Act 1987. The trial Judge found that the air conditioning system was inadequate and that the representations about the adequacy of the air conditioning and the occurrence of prior complaints were objectively untrue and that there were no reasonable grounds for making them. The trial Judge held that the respondent believed the appellants’ representations and acted in reliance upon them. He awarded damages on the basis that the respondent should be put back financially in the position she would have been in but for the appellants’ tort. This did not include damages for loss of bargain.

The appellants appealed from the decision of the trial Judge on issues of causation and quantum. The appellants submitted that his Honour erred in holding that the state of the air conditioning system was principal cause of the failure of the restaurant. It was also argued that the decision to affirm the lease after a fire broke out on the premises broke any causal connection with losses suffered thereafter, and that ultimately the respondent threw the business away. The appellants further submitted that the trial Judge erred in the assessment of damages under s68 of the Fair Trading Act and that the respondent had failed to quantify her loss and that part of what she claimed was not personal to her.

Held:
By Sheller JA, Mason P and Handley JA agreeing:
(1) In measuring damages for deceit, the Court does not necessarily stop at the point of determining the difference between the amount expended in consequence of the inducement and the value of the advantage obtained as at the time it was obtained. Potts v Miller (1940) 64 CLR 282, Toteff v Antonas (1952) 87 CLR 647, Gould v Vaggelas (1984) 157 CLR 215 and Clarke v Urquhart; Stracey v Urquart [1930] AC 28 referred to.
(2) The proper measure of damages in an action for damages for deceit was the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. An action for deceit was closely analogous to an action for damages for breach of s52 of the Trade Practices Act 1974 (Cth). Kizbeau Pty Limited v WG & B Pty Limited (1995) 184 CLR 281 referred to.
(3) In an action for deceit the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer including consequential loss whether or not the loss was foreseeable. Smith New Court Securities Limited v Citibank NA [1997] AC 254 referred to.
(4) There was no basis, in light of the available evidence, for saying that the trial Judge was wrong in concluding that the state of the air conditioning was the cause of the ultimate collapse of the business.
(5) No discount beyond that which the trial Judge appeared to make from the amount alleged to have been expended should be made on the basis that the money used was not the respondent’s money but the money of other members of her family. It was quite likely that the respondent borrowed the money under some informal arrangement from her family members.
(6) The respondent was justified in not abandoning the restaurant after the fire as to do so would have resulted in loss of the prospect that the business would have continued to prosper and the risk of liability for attempting to repudiate the lease. This action was justified despite the fact that as a result the plaintiff lost the benefit of her expenditure.
(7) It was open to the trial Judge to conclude that the appellants orchestrated a campaign to avoid an honourable resolution of a genuine commercial dispute and were determined to do all in their power to frustrate the plaintiff’s attempts to secure a just resolution of her claims. The appellants were effectively responsible for the total loss of what the respondent obtained by her expenditure in reliance on the defendant’s representation.
(8) The trial Judge erred in awarding damages equal to expenditure incurred by the respondent without taking in to account other expenditures made and income received during the relevant period to determine whether and to what extent the respondent had suffered revenue losses as a result of the appellant’s contravention of s42.
Legislation:

Fair Trading Act 1987
Trade Practices Act 1974 (Cth)

Cases:

Archer v Brown [1985] QB 401
Clarke v Urquhart; Stracey v Urquhart [1930] AC 28
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
East v Maurer [1991] 1 WLR 461
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Gould v Vaggelas (1984) 157 CLR 215
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12
Potts v Miller (1940) 64 CLR 282
Smith New Court Securities Limited v Citibank NA [1997] AC 254
Thompson v Ice Creameries of Australia Pty Ltd & Atchison (1998) ATPR 41-611
Toteff v Antonas (1952) 87 CLR 647
Twycross v Grant (1877) 2 CPD 469
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

ORDERS

1. Appeal allowed;
2. Set aside the verdict and judgment made by Judge Dent on 26 February 1998;
3. In lieu thereof order that there be a verdict for the plaintiff in the sum of $270,000 to take effect from 26 February 1998;
4. The defendants to pay the plaintiff’s costs of the hearing at first instance and one-half of the plaintiff’s costs of the appeal.

******

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40149/98
DC 1413/97

MASON P
HANDLEY JA
SHELLER JA

Friday, 26 November 1999

SING YUEN AUYEUNG & YUET YUEN WONG v SELINA CHING MAN CHAN

JUDGMENT

1    MASON P: I agree with Sheller JA.

2    HANDLEY JA: I agree with Sheller JA.

3    SHELLER JA:

Introduction

The defendants, Sing Yuen Auyeung and Yuet Yuen Wong, appeal from a decision of his Honour Judge Dent QC of 26 February 1998. The plaintiff and respondent, Selina Ching Man Chan, sued the defendants, relevantly, for damages for breaches of s42 of the Fair Trading Act 1987 (the Act) (compare Part V s52 of the Trade Practices Act 1974 (Cth)). The trial was conducted on the basis that the plaintiff’s entitlement to damages was to be measured in accordance with the provisions of ss68 (1) and 72 (1) in Part 6 of the Act (compare ss 82 (1) and 87 (1) of the Trade Practices Act ).

4    The plaintiff alleged that the defendants engaged in conduct that was misleading or deceptive or likely to mislead or deceive in representing to the plaintiff that the air conditioning system servicing premises on the ground floor at 382 Pacific Highway, Crows Nest, was suitable for the purpose of operating a Chinese restaurant on the premises. The plaintiff further alleged that in reliance upon this representation she entered into a lease of the premises from the defendants for three years from 22 August 1994 with an option to renew for a period of a further three years. It was a condition of the lease that the lessee not use the premises for any purpose other than a Chinese restaurant.

Judgment in the District Court

5    Judge Dent found that the defendants, by their agent, Ms Ming Auyeung, the defendants’ sister who was referred to in the judgment as “Ming”, represented to the plaintiff’s attorney, Ms Jenna Chan, the plaintiff’s sister who was referred to in the judgment as “Jenna”, that the premises seated about 150 patrons, that there was no need to put in air conditioning as there was central air conditioning for the whole building which was good enough for the size of the premises, that there would be after-hours air conditioning controlled by the restaurant’s own switch, that the premises used to be a restaurant and there had never been any complaints about the air conditioning and that the previous tenant had left because he had a very bad manager for his restaurant who stole money and things from the restaurant.

6    Judge Dent found that the air conditioning to the premises was “hopelessly inadequate” and that the representations by Ms Ming Auyeung that the air conditioning was adequate and that they had never had any prior complaints about it were objectively untrue and no reasonable grounds for making them was demonstrated. The findings that the representations were made and were untrue were not challenged on the appeal.

7    Judge Dent was satisfied that Ms Jenna Chan believed what Ms Ming Auyeung had told her and that she and the plaintiff relied upon the representations made by Ms Ming Auyeung concerning the air conditioning in arriving at the plaintiff’s subsequent decision to enter into a lease of the subject premises and to establish an up-market Chinese and seafood restaurant at the premises known as the “Aroma”. The defendants did not challenge this conclusion in arguing the appeal.

8    Judge Dent found that having secured the appropriate tenancy and done her managerial home-work, Ms Jenna Chan committed the plaintiff and “perhaps her family” to an appropriately lavish and expensive fitting out of the premises as a restaurant. His Honour described the result, shown in photographs, as “attractive, elegant and very much up-market”. A liquor licence had been obtained.

9    On 2 November 1994 the restaurant opened for business. The opening was advertised in the Chinese community. The restaurant operated seven days a week “under the constant PR influence and overall supervision of the talented” Ms Jenna Chan. Judge Dent found that from the opening of the restaurant it was obvious to Ms Jenna Chan, to the manager, Mr Roy Chan, and the kitchen supervisor, Mr Chak Suen, and more unfortunately to the patrons “that the air conditioning system was quite inadequate to cope with the temperatures generated in the restaurant by its patronage”. Through their agents the defendants were put on notice of this from the word go. Judge Dent said:

“The plaintiff’s attorney ‘Jenna’ through personal complaint and through the activity of her solicitor Michael Doueihi maintained pressure on the landlord defendants agents and their solicitor Rita Wong to do something about the air conditioning system which was incapable of providing a comfortable atmosphere in the subject restaurant premises and the plaintiff’s agent ‘Jenna’ independently arranged an inspection and report of the 12th February 1995 to be sent to the agents which made it clear that the fundamentally inadequate system could not be upgraded and needed replacement. Throughout this period the response of the landlords was to commission Total Control Air Conditioning to provide service to the air conditioning system at the demand of the plaintiff’s attorney ‘Jenna’. These were only band-aid responses by the defendants and their agent leaving a situation in which I am satisfied on the evidence patrons experienced stifling conditions when the air conditioning was working and the restaurant was near capacity and breathless conditions during not infrequent failures of the plant. The plaintiff’s response to this inactivity by the defendant landlords was to try and activate North Sydney Council to exercise some powers to overcome the problem to withhold or tardily pay the rental in respect of the premises on legal advise [sic].”

10    Despite what his Honour described as the “obvious set back suffered by the plaintiff’s business arising from the overheated and stifling nature of the atmosphere within the restaurant when it was operated with its designed patronage” Judge Dent found that the restaurant prospered until 9 April 1995 when a fire occurred in the kitchen. During the period from opening (2 November 1994) until the fire the restaurant enjoyed sales of $239,805 which produced a gross profit from trading of $167,292 and a net profit of $43,197. Judge Dent found that the prosperity achieved to that point of time was a reflection of the talent and the overall management of Ms Jenna Chan and the sub-managers “in effective hour by hour control” of the restaurant. His Honour was equally satisfied that the patrons were complaining about the stifling conditions flowing from the inadequacy of the air conditioning and inferred as a matter of commonsense that this would deleteriously affect what was properly described as repeat or return business and the overall reputation of the restaurant.

11    After the fire, insurance money was used to restore the restaurant but the plaintiff also took the opportunity “to change the image of the restaurant”. Ms Jenna Chan said in evidence that more money was spent on the restaurant because, at the time of the fire, she regarded it “as a pretty successful little operation”. In particular, a cocktail bar or VIP room was added next to the main dining room. Further shading curtains were fitted to reduce heat penetration from outside and an automatic closing door to control the flow of air into and out of the premises as patrons came and went. While the premises were being restored Ms Jenna Chan placed a sign outside the building saying it was closed for renovations and to improve the air conditioning. On 26 May 1995 the restaurant re-opened.

12    Judge Dent found that from the time of re-opening the problem of the overall inadequacy of the air conditioning system continued to plague the potential success of the restaurant enterprise. His Honour also noted a game of tit for tat that continued between the plaintiff and the defendants with the plaintiff withholding and delaying rental payments on legal advice with a view to putting pressure on the defendants to install an air conditioning system which would meet acceptable standards of air circulation and cooling. Towards the end of 1996 the defendants, having commissioned their own experts to confirm what they already knew from the plaintiff’s expert in February 1995, accepted the inevitable fact and offered to install new air conditioning on the payment of rental arrears.

The Correspondence Between the Parties

13    The early complaints by the plaintiff to the defendants’ agents, Knight Frank Hooker, about the air conditioning came to a head on 1 March 1995 when the plaintiff’s solicitors wrote to the agents saying:

“We are left with no alternative but to issue legal proceedings to seek orders from the Federal Court for damaged [sic] for breach of the Trade Practises [sic] Act against your company and the lessor, which would be separate from any other action for remedy against the lessor. We have briefed council [sic] to prepare the appropriate application.”

14    On 8 March 1995 the plaintiff’s solicitors wrote to Knight Frank Hooker noting that the parties were in dispute regarding the sole issue of the lack of air conditioning and that as a direct consequence of the air conditioning problem “our client has suffered a down turn in trade”. On 15 March 1995 Knight Frank Hooker wrote again to the plaintiff’s solicitors confirming that the lessor insisted that a plan, set out in the letter, be adopted for payment of rent. On 20 June 1995 the plaintiff’s solicitors wrote to Knight Frank Hooker enclosing drawings of proposed renovations of the premises.

15    The restaurant’s accounts for the part of the year ended 30 June 1995, before allowing for recoveries (which must mean insurance recoveries) of $10,000, showed, on sales of $262,024 and a gross profit from trading of $149,648, a net loss of $25,451. Compared with the accounts for the period up to the date of the fire these accounts revealed a substantial fall in average monthly takings after the restaurant re-opened.

16    On 19 July 1995 Knight Frank Hooker wrote to the plaintiff’s solicitors stating that they had requested Total Control Air Conditioning to attend the premises and investigate your comment “that there is no heating”. The letter continued:

“Please be advised that we have been requested to refer the matter of non-payment of rental to our clients’ solicitors, if the June rental and July rental are not paid by 21 July 1995 at 5 pm. The landlord intends to resume occupation of the premises after this date and exercise its rights under the ‘Bank Guarantee’.”

17    On 31 July 1995, 22 August and 20 September 1995 Knight Frank Hooker again wrote to the plaintiff’s solicitors complaining about outstanding rent. Apart from notification about a rental review, the matter rested there, so far as the documentary evidence goes, until 13 June 1996 when the plaintiff’s solicitors wrote to North Sydney Council seeking its assistance in resolving the problems associated with lack of fresh air conditioning. The 1996 trading profit and loss statement showed, before allowing for insurance recoveries of $94,149, on sales of $316,212 and a gross trading profit of $142,510, a net loss of $142,065.

18    On 16 July 1996 Knight Frank (its changed name) wrote to the plaintiff’s solicitors referring to an earlier facsimile requesting payment of rental by 12 July 1996 and stating that as at 16 July they had not received a payment. The letter continued:

“Your client is persistently in breach of the lease by non-payment of rent and our client requests that you provide a payment plan which shows how the account can be brought into line.”

An attached schedule of arrears is not part of the evidence. The evidence disclosed no written response to this request but on 23 August 1996 the plaintiff’s solicitors wrote again to North Sydney Council.

19    On 2 September 1996 Knight Frank wrote to the plaintiff’s solicitors referring to previous correspondence to Ms Jenna Chan dated 20 August 1996 (not in evidence) and advising that they had not received the rental requested by 30 August 1996. The letter continued:

“Please be advised that unless a considerable payment towards the arrears is received no later that 9 September 1996 we will have no alternative …….but to claim on the Bank Guarantee and take the necessary action under the lease.”

Enclosed was the September invoice for rent of $24,296.63 which represented unpaid rent for the months of February, March, April, May and July 1996. The rent for June 1996 was not referred to in the invoice.

20    On 25 September 1996 the defendants’ solicitor, Rita Wong, sent a facsimile transmission to the plaintiff’s solicitors stating:

“The agent further advised that after receiving complaints from your client re: the air conditioning she has engaged the services of Jeff Smith from Total Control to look into the matter. On 7 March 1995, Jeff Smith reported ‘it would appear that the cooling effect being supplied to the ground floor is in fact adequate, with temperature being maintained within the accepted design band, ie 21-24 degrees’. However, the agent is willing to discuss the above matter with your client in order to come to an agreeable arrangement.
I have been advised by the agent that your client is $30,360.27 in arrears of rent payment to 30 September 1996 excluding interest for late payment of rent.”

21    If the calculation of arrears of rent is correct some amount on that account must have been paid by that date. The Jeff Smith referred to was not the plaintiff’s air conditioning consultant of the same name, but, as the letter stated, a person engaged by the defendants.

22    On 24 October 1996 the plaintiff’s solicitors wrote to Ms Wong as follows:

“Your client has been aware since our client first moved into the premises that there were problems with the air conditioning. We have previously served on the Managing Agent an expert report of Mr J Smith dated 12 February 1995. It indicated, inter alia, that:
1. the total rated supply to the restaurant is less than the minimum required fresh air estimated based on occupancy; and
2. the air conditioning equipment cannot even provide the minimum statutory required fresh air volume.
We are also aware that North Sydney Council recently forward [sic] a Notice to your client to rectify the air conditioning.
The problems with the air conditioning have adversely affected the business of our client to such an extent that they have been forced to attempt to sell the business. Your client’s action in deliberately ignoring the requests to rectify the defective air conditioning have also diminished the value of the goodwill of the business. Our client’s accountant is presently preparing a report to quantify such losses in respect of both the loss of profits and diminution in goodwill. This will be served shortly.
Further, because of your client’s neglect to repair the air conditioning, our client is entitled to set-off such damages flowing from this neglect against the rental (see Knockholt Pty Ltd v Graff [1975] QdR 88, British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 and Re Partnership Pacific Securities Ltd (1992) Q Conv. R 54-411, ([1994] 1 QdR 410)), which she is presently doing.
Our client would prefer to reach an amicable settlement in this matter rather than have recourse to litigation. Would you kindly contact the writer to propose a suitable time for a ‘round-table’ conference.
If this is unacceptable to your client, our client will have no option but to commence proceedings in the Supreme Court seeking damages for a failure to repair the air conditioning.”

The cases mentioned suggested a defence by way of equitable set-off; see Parkinson, The Principles of Equity , 1996 at 993-4 footnote 98. However this argument was never pursued in Court.

23    On 30 October 1996 Knight Frank wrote to the plaintiff’s solicitors asking them to advise their client that “the new air conditioning contractors have been appointed”. On 31 October Ms Wong sent a facsimile to the plaintiff’s solicitors as follows:

“I have been advised by my client and the Property Manager, Sara Pratt that although the air conditioner meets the required standards my client will however assist your client in ensuring that the air conditioner be modified to suit a capacity seating of about 150 customers.
The Property Manager has been advised that work on the upgrading of the air conditioner will commence sometime early December 1996 and completion hopefully prior to Christmas 1996.
The above is subject to the Property Manager receiving from your client, the sum of $35,810.99, being rent arrears to 31 October 1996. All future rent payments are to be made on the first day of each month. Unless the above sum is received by 7 November 1996 I have been instructed to commence legal proceedings and to impose interest on arrears of rent payments.
Would you please note that I require the Request signed by your client prior to Friday 1 November 1996.”

24    On 8 November 1996 the plaintiff’s solicitors responded to Ms Wong as follows:

“We refer to the above matter and to your facsimile transmission dated 31 October 1996 and comment as follows:
1. We do not believe that the air conditioning of the said property meets the ‘required standard’. Your client is in possession of the reports which specifically state that the air conditioning of the said property falls far short of the required standards.
2. It has been sometime now since we have asked your client to assist in ensuring that the air conditioning is in proper working order and that it meets that standard requirements and in particular to the fresh air circulation. We find it unusual that your client now as of the 31 October 1996, seeks to assist in this matter.
3. The premises which our client leases has been for sometime operating as a restaurant. Is your client suggesting that the air conditioning unit met the required standard when the said premises were operating as a restaurant (by previous tenants) with a seating capacity less than 150?
4. Please advise what work is to be undertaken on the upgrading of the air conditioner and what effect such work will have on the operation of our clients business.
5. We understand from our client that some work was undertaken on the 30 October 1996, regarding the air conditioning unit. It is our understanding that the property is about 50% vacant and that the air conditioning people closed off the ducting to the empty premises. As a result our client has noticed a slight difference in the air conditioning provided to the premises.
6. We note with interest that you make no mention of the damage caused by your client’s failure to attend to this matter when it first arose. It is now obvious and confirmed by yourself that the air conditioning unit was not adequate and failed to meet the required standards and in particular to the fresh air circulation. What form of compensation is your client prepared to consider?
7. In reference to the rental arrears our client is currently endeavouring to obtain a substantial amount of the rental arrears to be placed into our Trust Account. We shall hold this money in trust and we shall provide you with confirmation of same when it is received.
Please advise of your client’s instructions at your earliest opportunity.”

25    On 11 November 1996 the plaintiff’s solicitors wrote again as follows:

“We refer to the above matter and to previous correspondence. We note that we have not received a reply to our last letter to you dated 8 November 1996.
Furthermore we wish to advise that on Friday evening the air conditioning unit to the above mentioned premises broke down. We then made arrangements to contact Computer Air Services Pty Limited who attended upon the premises to attend to rectification.
Could you please advise in reference to the rectification work.”

26    The following correspondence then took place. On 12 November 1996 Ms Wong wrote to the plaintiff’s solicitors:

“I refer to your facsimile dated 11 November 1996.
As advised to Sara Pratt of Knight Frank on 8 November 1996, I have advised my locum, Herrald and Associates to prepare the Statement of Claim which will then be served on you forthwith.
I reiterate my facsimile to your 31 October 1996 advising you that the lessor will proceed to repair the air conditioner on receipt of the rent in arrears. Your client’s allegation about the defect in the air conditioner being an excuse not to pay the rent is unfounded.”

In reply the plaintiff’s solicitors wrote to Ms Wong on 13 November 1996:

“We refer to the above matter and acknowledge receipt of your facsimile dated 12 November 1996 and comment as follows:
1. At no stage have you acknowledged or replied to our letter to you dated 24 October 1996. We enclose a copy of the said letter for your further attention.
2. We note that you acknowledged receipt of our facsimile dated 11 November 1996 which also refers to our letter to you dated 8 November 1996. We note that we have received no reply to our questions.
3. Please be advised that at no time have we accepted your client’s undertaking to proceed to repair the air conditioning plant on receipt of the rent in arrears.
4. Our concerns regarding the air conditioning have been voiced as far back as 23 November 1994 and earlier.
We await your urgent reply.”
This was followed by a further letter on 10 December 1996 from the plaintiff’s solicitors to Ms Wong:

“We refer to the above matter and to previous correspondence.
We note that we have not received the courtesy of your reply to our correspondence dated 13th November 1996 and 24th October 1996.
We are now in December and we have not received from you your client’s intentions to proceed to repair the air conditioner, which on his own admission requires immediate repair. Please refer to our letter to you dated 8th November 1996.
Your urgent attention to this matter is appreciated.”

On 13 December 1996 Ms Wong replied:

“I refer to your fax of 10 December 1996 and suggest that you refer to my faxes to you dated 31 October 1996 and 12 November 1996.
My fax dated 12 November 1996 is an undertaking from my client that he will have the air conditioning repaired on receipt of the rent arrears.”

27    Meanwhile on 28 November 1996 solicitors Jack C Herrald of Queanbeyan on behalf of the defendants had issued a statement of liquidated claim in the District Court at Queanbeyan against the plaintiff for $49,847.68 in respect of unpaid rent and licence fees for the period from March to November both inclusive 1996. On 15 January 1997 the plaintiff’s solicitors wrote to Jack C Herrald as follows:

“We refer to the above matter and note that you act on behalf of Sing Leung Auyeng and Yuet Yuen Wong who are the plaintiffs in proceedings number 55 of 1996 issued in the District Court in Queanbeyan.
We wish to advise that we act on behalf of Selina Ching Man Chan the defendant noted therein.
We note that service has not been effected upon our client and we therefore dispute service.
Any attempt to apply for judgement will result in an application to have judgement set aside on the basis that service is defective.”

28    On 16 January 1997 Jack C Herrald responded:

“We note that on 6 January we spoke with Michael Doueihi of your firm and we read to him the affidavit of service. We enclose herewith a copy of the affidavit of service. You will note that service was effected by the Sheriff’s officer.
If your client has not filed a defence by Monday 20 January we will proceed to enter judgement.”

The affidavit referred to is not in evidence.

29    On 20 January 1997 the plaintiff’s solicitors wrote to Jack C Herrald:

“We refer to your letter dated 16 January 1997 and received at our office on 20 January 1997.
Firstly and foremost we would of [sic] assumed, due to the limited time provided by you in your letter, that your letter would be directed to our office by facsimile. This is a matter which you may wish to address.
Furthermore we acknowledge receipt of an affidavit of Service from a Sheriffs Officer and in reply we are instructed to advise that we have received a written and signed statement from one of the staff members of Aroma Seafood Restaurant stating as follows:
‘When I received a document for Celina [sic] Chan from an officer I did state out the point that Celina Chan was not presently resident in Australia. I did not know her personal activities therefore I asked him to come back some other time. Then the officer insisted in leaving a document at the counter to pass it on to Ms Celina Chan.’
If you wish to proceed with your intended application for judgement we will immediately issue an application to set judgement aside and claim costs.”

30    A further letter of 21 January 1997 from Jack C Herrald to the plaintiff’s solicitors indicated that they intended to proceed to enter judgment. On 28 January 1997 they advised that judgment had been entered in the sum of $51,139.85 and that if arrangements were not made for the judgment debt to be paid forthwith they would seek instructions about terminating the lease. On 6 February 1997 the defendants took possession of the premises and locked the plaintiff out.

The Defendants’ Conduct

31    Judge Dent inferred that locking the plaintiff out of the premises was part of an “orchestrated campaign to avoid an honourable resolution of a genuine commercial dispute which the defendants were clearly aware of by the plaintiff’s solicitor’s letter to Rita Wong, solicitor, of 24 October 1996 and a fax transmission from Rita Wong to managing agent Sara Pratt of 17 February 1997 which …… is clearest evidence that the defendants were behaving mala fides towards the plaintiff in this matter.” His Honour concluded that the defendants were determined to do all in their power to frustrate the plaintiff’s attempts to secure a just resolution of her claims.

Findings on Reliance and Causation

32    The trial Judge was satisfied on the entirety of the evidence that had the plaintiff been aware of the abysmal inadequacies of the air conditioning service to the demised premises she would not have entered into a lease of the demised premises and expended a considerable amount of her fortune on re-establishing a restaurant at the site. His Honour said:

“The conduct of the defendants in advertising the demised premises for leasing [on] the terms earlier referred to and through their agent Ming advising the plaintiff’s attorney ‘Jenna’ that the premises would seat 150 patrons and that there was no need to put in air conditioning and that the premises used to be a restaurant and that the air conditioning was good enough for the size of the demised premises and that they had never had any complaints about the air conditioning is in my judgment a clear breach of s52 of the Trade Practices Act and the corresponding provision in the Fair Trading Act in that the conduct of so advertising and so representing was engaged [sic] in trade or commerce and misleading and deceptive and likely to mislead and deceive a person such as the plaintiff or her attorney into believing that the premises advertised were in fact suitable for the establishment of a restaurant business catering for up to 120 patrons plus staff at any intended time of operation. In my judgment on the state of the evidence in the case the oral representations made by ‘Ming’ to ‘Jenna’ at the very least were made with complete indifference to their truth or falsehood.
I find that the plaintiff relied upon representation presented to her attorney in entering into the leasing commitment with the defendants and in expending a small fortune in bringing the demised premises up to the standard of a quality restaurant and attempting to conduct the same as such during the term of the demise.”

33    Later in his reasons for judgment Judge Dent said:

“…….I infer from the entirety of the evidence produced in the plaintiff’s case that the state of the air conditioning system prevented the restaurant from maintaining the success that it had achieved during its opening months between November and March of 1994-1995. It is submitted that the fortuity of fire damage and business interruption flowing therefrom and competition from other restaurants ought to be seen as the dominant reasons for the failure of the Aroma restaurant. I have considered the personality of the witness ‘Jenna’ and the staff members called in the plaintiff’s case and despite the defence submissions I am satisfied on the balance that the managerial and public relations and hospitality industry talents of the witness ‘Jenna’ would have ensured the success of the restaurant enterprise and that the real position is that it was doomed to failure from the day it opened its doors because the plaintiff was operating in premises where the air conditioning was woefully inadequate.”
Damages

34    The defendants submitted that the plaintiff had failed to quantify her loss and that part of what she claimed was not personal to her. Judge Dent acknowledged the plaintiff’s difficulty in establishing the precise costs of various establishment expenses which he said arose from the loss of records in the fire and exclusion from her of her remaining records by being locked out of the premises. He was satisfied that the starting point of a fair quantification of the loss was the adoption of the valuations and costings of Currie and Brown and Edward Rushton Australia Pty Limited obtained by the plaintiff in September and October 1996 in anticipation of litigation. Currie and Brown estimated the replacement cost for internal fitting out works at the restaurant at $157,000. Edward Rushton valued the plant, equipment and all other contents at the premises on the basis of re-instatement with new value at $184,300. Excluded as structures or components which Edward Rushton considered to be insurable as part of the building were:

Landlord’s fixtures and fittings
Stock and material in trade
New stores
Stock of fuel oils
Motor vehicles
Demolition and contents debris removal
Computer software

35    Judge Dent said that he assessed damages on the basis that the plaintiff should be put back financially in the position she would have been in but for the defendants’ tort and said that there should not be included damages for loss of bargain. Determining the actual costs of the establishment of the restaurant before trading was not an easy task. His Honour was satisfied that the plaintiff did not have records which would verify her estimates for the variety of reasons he had referred to. The trial Judge said:

“I am invited by the plaintiff to take the approach that the values provided by the experts above referred to reduced by CPI increases between the time of expenditure and the time of the valuation should be the measure adopted. Some merit can be seen in such an approach as it can be argued that the plaintiff has lost the value [of the] fitting out work, fixtures and fittings, furnishings and the like amounting to the valuations arrived at by the experts but on reflection this involves a departure from the notion of restitution. The plaintiff’s evidence on the subject from the mouth of her sister Jenna is somewhat all over the place. The depreciation schedule in the tax returns I am satisfied is not a fair measure of what was in fact expended in cash to prepare the restaurant for its opening and subsequently thereto. I note my concern but without deciding as a matter of principle that it would be a state of affairs contrary to public policy that a party who engages in payment practices that create assets in the parties [sic] hands at a price lower than their ordinary valuation should not be rewarded for the benefits so achieved as the practice quite foreseeably resulting in a loss of revenue to the Commonwealth. Allowing for the known significant discounts achieved by cash procuration and for a 8.3% increase in the CPI between the date of the expenditures and the dates of the valuations I think a proper sum to allow the plaintiff for restitution concerning her fit-out costs is $250,000.”

The depreciation schedules referred to showed the original cost for plant fittings and equipment acquired on 2 November 1994 to be $141,042.

36    To the amount of $250,000 the trial Judge added $20,000 for lost stock in trade as the result of the defendants’ peremptory locking out. His Honour referred to the net losses of the restaurant in the part year ended 30 June 1995 of $15,451 and in the year ended 30 June 1996 of $47,916 (both of which amounts were arrived at after including insurance recoveries) but said that each of these figures was “arrived at after depreciation allowances and includes deductions for the rent actually paid in those periods and reflecting those two considerations I do not award the plaintiff anything for those losses.” The trial Judge said that the other losses the plaintiff sustained as a consequence of having been lured into the disastrous business by the statutorily offensive conduct of the defendants were the rentals actually paid and liable to be paid pursuant to the default judgment the defendants obtained and the loss of a bank guarantee provided in favour of the defendants in the sum of $10,000. His Honour included in the damages awarded $55,048.35 for the default judgment for unpaid rent, $43,451.09 for rent actually paid and $10,000 on the bank guarantee given to the defendants by Westpac Banking Corporation at the plaintiff’s request, which apparently the defendants had called on, and on this basis assessed damages and awarded a verdict for the plaintiff of $378,499.44.

37    Finally Judge Dent said:

“I have already indicated my concern that in establishing the restaurant the plaintiff resorted to cost cutting practices which clearly, foreseeably would have resulted in a loss of revenue to the Commonwealth and this expenditure practice represents roughly 2/3 of the established claim herein. Given the above circumstances in the exercise of my discretion I decline to award interest on the damages established….”


The plaintiff has not cross-appealed.

Appeal

38    The defendants relied on the following grounds in the amended notice of appeal:

“4. His Honour erred in concluding that the defendants’ exclusion of the plaintiff from the restaurant premises was ‘part of ……an orchestrated campaign to avoid an honourable resolution of a genuine commercial dispute.’
14A. His Honour erred in inferring that the state of the air conditioning system prevented the respondent’s restaurant from maintaining the success that it had achieved during its opening months.
14B. His Honour erred in finding that the state of the air conditioning was the principal cause of the failure of the respondent’s restaurant business.
14C. His Honour erred in failing to find that there was insufficient evidence upon which he could determine the extent to which the air conditioning had affected the profitability of the respondent’s restaurant business.
15A. His Honour erred in failing to adopt a principled approach to the assessment of damages, relying upon Potts v Miller (1940) 64 CLR 282, 297-300 per Dixon J to the effect that:
(a) the respondent’s primary damage (if any) was the difference between the actual value of the lease and the rental payments made by the respondent;
(b) the respondent could only claim additional consequential losses if she could prove:
(i) that the consequential losses resulted directly from the representation and not from a supervening cause such as the folly, error or misfortune of the respondent; and
(ii) that but for the respondent’s reliance on these representations she would have acted in a manner which would have avoided such losses.
15B. His Honour erred in failing to find that:
(a) there was no evidence from which His Honour could determine the difference in what the respondent paid for the lease and its true value;
(b) the respondent had not established that any specific consequential loss was as a direct result of the misrepresentations;
(c) there was insufficient evidence from which he could infer what the respondent would have done if the representations had not been made; and
(d) the respondent had not proven any change in her financial position as a result of relying on the representations so as to justify awarding damages for consequential loss.
16. His Honour erred in concluding that the plaintiff had taken all necessary steps to mitigate her loss.
17A. His Honour erred in finding that the evidence of the 1996 valuation of the fittings and equipment installed by the respondent was a fair starting point for the quantification of the respondent’s loss.
17B. His Honour erred in failing to find that as the evidence of the 1996 value of the fittings and equipment installed by the respondent did not differentiate between those items installed before the restaurant opened and those items installed after the fire in April 1996 he could not determine which expenses had been incurred by the respondent before she knew the full extent of the deficiencies with the air conditioning and which expenses were incurred after the respondent was fully aware of any such deficiencies.
17C. His Honour erred in allowing the respondent $250,000 for restitution for the fit-out costs of the restaurant.
17D. His Honour erred in awarding the respondent damages of $20,000 for stock-in-trade as a result of the respondent being locked out of the premises.
18. His Honour erred in determining that rental not paid was part of the plaintiff’s loss.
18B. His Honour erred in awarding the respondent damages for:
(a) the default judgment awarded against the respondent in favour of the appellant in the District Court at Queanbeyan in the sum of $55,048;
(b) for the rent actually paid by the respondent in the sum of $43,451; and
(c) for the loss of a bank guarantee in the sum of $10,000.
19. His Honour erred in failing to determine that an occupancy fee was payable by the plaintiff prior to 7 February 1997.
20. His Honour erred in failing to determine that the occupancy fee payable by the plaintiff was best calculated by reference to the rent payable pursuant to the lease agreement.”

39 The defendants argued the appeal on four bases; first, that the trial Judge failed to adopt the correct approach in the circumstances of the case to the assessment of loss and damage under s68 of the Act; secondly, that the finding that the failure of the restaurant was the result of the defective air conditioning was glaringly improbable; thirdly, that the decision to affirm the lease after the fire broke any causal connection with losses suffered thereafter and that ultimately the plaintiff effectively threw the business away; no credit was given for the remaining value of the fit-out; and, fourthly, that the plaintiff failed properly to quantify her damages; in particular money used in the fit-out was provided not by her but by other members of her family.

Damages for breach of s42

40 Section 68 (1) of the Act provides that a person who suffers loss or damage by conduct of another person that is in contravention of s42 may recover “the amount of the loss or damage by action against the other person”. Section 72 (1) provides, so far as relevant, that if, in a proceeding instituted under Pt 6, the Supreme Court [the District Court’s jurisdiction derives from s135 of the District Court Act 1973] finds that a person has sustained, or is likely to sustain, loss or damage by conduct of another person that contravened s42, the Court may whether or not it makes an order under s68, make such order or orders as it thinks appropriate against the person who engaged in the conduct if the Court considers that the order will compensate the firstmentioned person wholly or in part for the loss or damage or will prevent or reduce the loss or damage. For present purposes the significant difference between s68 (1) and s72 (1) is that under the former a cause of action arises only when actual loss or damage has been suffered, whereas under the latter a cause of action will arise when loss or damage is likely to be suffered; see Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 543-4.

41    Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 concerned a plaintiff’s claim that, on the faith of false statements made to him by an agent of the defendant, the plaintiff had taken out a particular insurance cover. In their joint judgment at 11-12 Mason, Wilson and Dawson JJ said:

“The [ Trade Practices Act 1974] does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provision of Pts IV and V. Accordingly, it is for the courts to determine what is the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of the relevant provisions. Two established measures of damages, those applicable in contract and tort respectively, compete for acceptance. In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed - he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss).”

42    More recently the High Court has emphasised the significance of the kinds of loss for which damages may be recovered under the sections of the Trade Practices Act equivalent to ss68 and 72 of the Act rather than the method of measuring the loss.

43    In the joint judgment in Gates, their Honours referring to Potts v Miller (1940) 64 CLR 282 at 289 and 297, Toteff v Antonas (1952) 87 CLR 647 at 650-1 and 654 and Gould v Vaggelas (1984) 157 CLR 215 at 220, observed that in deceit the measure of damages is the difference at the time of purchase between the real value of the property and the price paid. At 14 their Honours said:

“The question then is whether it is appropriate to apply the contract measure of damages to the contraventions found to have taken place. The courts are not bound to make a definitive choice between the two measures of damage so that one applies to all contraventions to the exclusion of the other. However, there is much to be said for the view that the measure of damages in tort is appropriate in most, if not all, Pt V cases, especially those involving misleading or deceptive conduct and the making of false statements. Such conduct is similar both in character and effect to tortious conduct, particularly fraudulent misrepresentation and negligent misstatement.”

44    In the first of the passages in Potts v Miller referred to Starke J said at 289-90:

“The measure of damage in cases in which a person is induced by fraud to take up shares is the difference between the amount he subscribed or paid for the shares and the real value - not the market value - of the shares on allotment. ‘Although the value of the shares is not to be ascertained at the subsequent period so as to take into account for the benefit of the plaintiff events subsequent which depreciated their value, yet those events, if they show that the company was originally, with the capital which it had got, a company which was worthless, may ….. be taken into account as evidence of what was the value of the shares immediately after they were allotted to the plaintiff’: See Peek v Derry (1887) 37 ChD at 592.”

45    In the second passage in Potts v Miller referred to in the joint judgment in Gates, Dixon J, as his Honour then was, said at 297:

“The measure of damages in an action of deceit consists in the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or moneys worth obtained by him on the other side. Lord Campbell’s statement [in Davidson v Tulloch (1860) 3 Macq 783 at 790; (1860) 2 LT 97 at 98-99] means that where the corresponding advantage consists in shares their value should be ascertained as at the time of their acquisition. It might be thought that the application of this rule must depend upon the facts of the particular case; that the plaintiff is entitled to the full loss caused by his reliance upon the misrepresentation, and that, if, for instance, his reliance continued and he retained the shares and paid calls under the influence of the inducement, the value of the shares at the time of their acquisition should be of little or no importance. But it appears to be treated as an inflexible rule that wherever the purchase or allotment of shares is the consequence of the deceit, the defendant shall receive credit for the fair or real value of the shares estimated as at the time of allotment or purchase.”

46    In the present case Judge Dent found, and the defendants do not challenge, that the expenditure on re-fitting the restaurant was incurred in consequence of the defendants’ false representations about the air conditioning. But, the defendants submit, his Honour did not attempt, on the other side of the equation by which damages must be measured, to assess any corresponding advantage obtained by the plaintiff.

47    In Potts v Miller at 297-8 Dixon J referred to what he described as Lord Atkin’s dissatisfaction, expressed in Clarke v Urquhart; Stracey v Urquhart [1930] AC 28 at 67, with the rigid application the rule stated by Lord Campbell had received. Lord Atkin found it difficult to suppose that there was any difference in the measure of damages in an action of deceit depending upon the nature of the transaction into which the plaintiff was fraudulently induced to enter. “Whether he buys shares or buys sugar, whether he subscribes for shares, or agrees to enter into a partnership or in any other way alters his position to his detriment, in principle, the measure of damages should be the same, ….. I should have thought it would be based on the actual damage directly flowing from the fraudulent inducement.” As will be seen this means that, in measuring the damages for deceit, the Court does not necessarily stop at the point of determining the difference between the amount expended in consequence of the inducement and the value of the advantage obtained as at the time it was obtained.

48    In Potts v Miller at 298-9 Dixon J, after quoting a passage from the judgment of Cockburn CJ in Twycross v Grant (1877) 2 CPD 469 at 544 about non-recovery for further deterioration of that which has been acquired, said:

“This reasoning makes it necessary to distinguish between the kinds of cause occasioning the deterioration or diminution in value. If the cause is inherent in the thing itself, then its existence should be taken into account in arriving at the real value of the shares or other things at the time of the purchase. If the cause be ‘independent’, ‘extrinsic’, ‘supervening’, or ‘accidental’, then the additional loss is not the consequence of the inducement. ‘If a man buys a horse, as a racehorse, on the false representation that it has won some great race, while in reality it is a horse of very inferior speed, and he pays ten or 20 times as much as the horse is worth, and after the buyer has got the animal home it dies of some latent disease inherent in his system at the time he bought it, he may claim the entire price he gave; the horse was by reason of the latent mischief worthless when he bought; but if it catches some disease and dies, the buyer cannot claim the entire value of the horse, which he is no longer in a condition to restore, but only the difference between the price he gave and the real value at the time he bought.’ Per Cockburn CJ at 544-545.”

49    Toteff v Antonas concerned a contract for the purchase of a business which the purchaser was induced to enter into by the vendor’s fraudulent misrepresentations. The damages were calculated as the difference between the entire purchase price and the real market value of the business as a going concern. At 651 Dixon J said:

“[The plaintiff] is entitled to say that but for the fraud he would never have parted with his money ……..but he cannot recover the entire price he has paid unless the thing proved wholly worthless. If the thing has any appreciable value the damages must be reduced pro tanto .”

50    In Gould v Vaggelas, which concerned a fraudulent inducement to purchase property, at 220-222 Gibbs CJ reiterated by reference to Potts v Miller that events that happen after the time of the purchase may throw light on the real value of the property at that time and said:

“The usual rule is, however, only a special application of the general principle that ‘In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant’: Toteff v Antonas at 650. In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement ……..There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business.”

51    At 222 Gibbs CJ referred to the decision of the English Court of Appeal in Doyle v Olby(Ironmongers) Limited [1969] 2 QB 158. In that case the fraud of the defendant had induced the plaintiff to purchase a business and the Court of Appeal allowed damages which included the loss incurred in running the business. Gibbs CJ remarked at 222: “The Court apparently assumed that the losses in trading resulted directly from the fraud, and not from any supervening cause such as the action of the purchaser in carrying on the business for too long.” In the Court of Appeal at 167 Lord Denning MR said:

“The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement…..All such damages can be recovered; and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen.”

52    The question remained whether in fact only foreseeable damages were recoverable; compare Archer v Brown [1985] QB 401. In Gould v Vaggelas at 243 Wilson J said:

“In Doyle’s case the plaintiff was the purchaser of a business on the strength of representations as to the takings of the business which were afterwards shown to be fraudulent. He instituted proceedings four months after settlement but carried on the business for three years before selling it. The Court of Appeal awarded him roughly sufficient damages to restore him to his antecedent position, being satisfied that the losses flowed directly from the inducement.”

The unfortunate plaintiff in Doyle’s case was “locked into an increasingly desperate situation notwithstanding his having commenced an action just four months after his purchase”.

53    In Kizbeau Pty Limited v WG & B Pty Limited (1995) 184 CLR 281 at 291 the High Court reiterated that the proper measure for damages in an action for damages for deceit is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it and that such an action is closely analogous to an action for damages for breach of s52 of the Trade Practices Act. Their Honours continued:

“Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement ……..if it is established that the decline in takings has been caused by business ineptitude or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events. In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business. All of these principles are appropriate to the assessment of damages under s82 where a breach of s52 of the Act has induced a person to purchase a business.”

54    In Smith New Court Securities Limited v Citibank NA [1997] AC 254 the House of Lords held that in an action for deceit the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer including consequential loss whether or not the loss was foreseeable; see particularly at 266, where Lord Browne-Wilkinson spoke of giving adequate compensation for the wrong done to the plaintiff where the fraud continued to influence the conduct of the plaintiff after the transaction was complete or where the result induced by fraud was to lock the plaintiff into continuing to hold the asset acquired, and at 282 per Lord Steyn.

55    In the present case the plaintiff did not purchase a property or a business but entered into a lease. The purpose of doing so was to establish a Chinese restaurant. The price for the lease was the agreement over the period of the lease to pay a yearly rent by monthly instalments. The plaintiff paid the rent in part. The defendants exacted at least part of the balance by court proceedings and then locked the plaintiff out of the premises. The trial Judge made no attempt to compare the value of the plaintiff’s contractual right to occupy the premises pursuant to the lease when entered into with the price payable by way of periodic rent. Nor was any attempt made to compare the amount the plaintiff spent on refurbishing the premises with the value of the restaurant business which the plaintiff established, at the date she opened. Judge Dent seems to have treated the plaintiff as having invested $250,000 capital without any recovery or means of recovery of that amount or any of the assets acquired by the investment. The whole was lost when the defendants re-entered. To the extent that the fittings and equipment had value they were retained by the defendants.

56    Conceptually the present case presents problems similar to some of those encountered in Thompson v Ice Creameries of Australia Pty Ltd & Atchison (1998) ATPR 41-611 where the plaintiffs, in reliance upon the defendant’s misleading or deceptive conduct within the meaning of s52 of the Trade Practices Act, entered into an ice cream franchise agreement with the defendant and, on the defendant’s advice as to suitability, purchased a site on which to conduct the business. After a promising start to trading, sales declined and the relationship between the parties deteriorated. Attempts to sell the business were unsuccessful and eventually the plaintiffs shut it down. Lehane J awarded the plaintiffs damages comprising establishment costs and an amount in respect of losses and for lost earnings during the first year of trading; see Gates v City Mutual Life Assurance Society Limited at 13; East v Maurer (1991) 1 WLR 461 at 466 and 468 and Smith New Court Limited v Citibank NA at 282. There were particular reasons why losses for only one year were allowed concerned with the way that the business was run. At 40-706 - 707 Lehane J said:

“There is no doubt ( Gould v Vaggelas , Kizbeau Pty Limited v WG & B Pty Limited at 291) that where the acquisition of a business has been induced by misleading or deceptive conduct an applicant may recover, as part of its damages, losses arising over some period of unprofitable trading. A number of questions, however, arise on that aspect of this case.
First, there is the question of the purchase of the site: are the applicants entitled, as part of their damages, to the amount of losses incurred taking into account the fact that they purchased the site? Mr Thompson gave evidence that he would not have purchased the site but for the representation made by Mr Atchison, but that, of course, does not conclude the matter. The issue was discussed by counsel for the applicants largely in terms of foreseeability; counsel submitted that I should proceed on the footing that damages were recoverable even if not reasonably foreseeable [his Honour referred to a number of cases including Doyle v Olby (Ironmongers) ]. Probably, however, in the light of more recent authorities the latest in the series being perhaps Kizbeau , the question is rather one of causation: is the purchase to be regarded as caused by the misleading conduct?”

57    In Marks v GIO Australia Holdings Limited (1998) 73 ALJR 12 the High Court explained the decision in Gates. Marks concerned a situation in which the borrowers were induced by the lender to believe wrongly that a loan carried interest at a base rate with a fixed interest rate margin. The borrower’s proceedings against the lender failed because they were, so it was found, no worse off as a result of the contravention of the Trade Practices Act. At 16 Gaudron J said:

“ [15] Once it is appreciated that references to the ‘established measures of damages…..[for] contract and tort’, as in Gates, at 11, signify different kinds of loss and not different methods by which loss is measured, it is irrelevant to inquire as to the appropriate measure of damages for the purposes of ss 82 and 87 of the [ Trade Practices Act ]. Rather, the task is simply to identify the loss or damage suffered or likely to be suffered and, then, to make orders for recovery of that amount under s82 or to compensate for or prevent or reduce that loss or damage under s87 of the Act.
[16] Moreover, once it is appreciated that, for the purposes of the law of contract ‘expectation’ loss signifies the loss of a valuable right, namely, the contractual promise, it is irrelevant and quite misleading to ask whether, in the case of misleading and deceptive conduct under s52 of the Act, s82 and s87 allow for ‘expectation’ loss or ‘consequential’ loss. It is irrelevant, because, if the misrepresentation is not contractual, there can be no loss of a contractual promise. It is misleading because it tends to suggest that if ‘expectation’ loss is not recoverable, the claimant can never be compensated in an amount equivalent to that which would be payable if the representation were contractual.”

58    At 20 McHugh, Hayne and Callinan JJ, in their joint judgment, said:

“[38] It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s87, is likely to suffer) loss or damage ‘by conduct of another person’ that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s82 or s87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s82 (1), or that the orders that may be made under s87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit or with equity but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies.
[39] Gates did not hold to the contrary. …….”

59    Gummow J at 29 said:

“[90] In my view, Gates does not determine that the measure of compensation under s82, in Pt V cases or otherwise, is that in tort, in particular in the tort of deceit. I agree with the analysis of Gaudron J in her reasons for judgment on this appeal with respect to what was said in Gates as to the distinction between ‘expectation’ loss and ‘reliance’ loss, and to the confusion which would be encouraged by the transposition of that distinction into the construction of s82 and s87.”

60    Kirby J, who dissented in the result, said at 42-43:

“[152] At some future occasion it may be necessary for this Court to return to what was said in Gates , relevant to the provision of relief under s82 of the Trade Practices Act . It will be clear, I hope, that I consider that, even under that section, the analogy to common law damages in tort is a most imperfect one……The supposed veil, felt to be occasioned by Gates , should be lifted from judicial eyes.”

61 The decisions to which I have referred require us to take as our guide the language of s68 (1) of the Act and determine what loss or damage the plaintiff suffered by the defendants’ conduct in contravention of s42 and whether Judge Dent correctly assessed the amount of that loss and damage. No damages were separately awarded or sought under s72 (1) of the Act.

62    The defendants challenged the findings of causation and quantum. As to the former they argued that the decline of the business was caused by supervening events after the fire and the re-opening of the restaurant. It was submitted that the plaintiff had not demonstrated that the marked decline in business shown in the accounts was caused by the inadequate air conditioning. As to quantum the defendants argued that the amount of expenditure the plaintiff claimed was not made out and that the assessment of $250,000 was excessive. In particular, the defendants submitted that contrary to what Dixon J said in Potts v Miller at 297 the trial Judge had failed to bring into account the corresponding advantage in money or moneys worth obtained by the plaintiff as the result of her expenditure.

The decline in business

63    The trial Judge found that the air conditioning was quite inadequate to service the number of patrons for which the restaurant was represented to cater. The defendants accept that this was so. There is no doubt that patronage declined. For the five months from opening to the date of the fire sales averaged $47,960 per month. From the date of re-opening to 30 June 1995, a period of about 5 weeks, the sales were $22,219. For the 12 months up to 30 June 1996 the sales averaged $26,351 per month.

64    Unfortunately, there are no records in evidence to show what the takings were each month or for that matter during particular days or weeks. The averages which I have calculated take no account of the takings during hot summer months as compared with winter months. When the restaurant opened in November 1994 it opened into the holiday period which included the Chinese New Year in February 1995. Mr Roy Chan, who worked at the Aroma Seafood Restaurant from the time it opened in November 1994 until the date it closed, said that from day one he noticed that the air conditioning in the restaurant was not working, that it was especially noticeable in the summer when it became really hot and everyone was sweating and that on an evening when the restaurant had, say, 20 to 30 customers, it felt as if there was no air. Over the period that the restaurant was operating he received plenty of complaints about the air conditioning, too numerous to specify, every week and especially during the summer period. Some days were worse than others.

65    Mr Chak Suen, the kitchen supervisor, said that all the waiters were complaining about the heat and that when he passed through the restaurant area he felt the temperature was too high and not comfortable for dining customers. Mr Raice, who operated a restaurant on the premises between 1992 and 1994, said that after the restaurant opened it was noticeable almost immediately that whenever it was full of patrons the air conditioning could not cope and the temperature increased to a point where it was very uncomfortable. The air conditioning could not cope once the capacity of patrons exceeded 50%, that is approximately 70 - 75 persons. Mr Yong worked for Mr Raice in 1991-1992 and deposed to problems with the air conditioning system, especially in the summer when it was half full. Expert evidence was available that the air conditioning was inadequate. There is in my opinion, in light of the available evidence, no basis for saying that his Honour was wrong in concluding that the state of the air conditioning was a cause of the ultimate collapse of the business.

Plaintiff’s expenditure

66    Ms Jenna Chan gave evident that an amount of between $300,000 and $350,000 was spent on renovations during the period up to the time the restaurant opened in November 1994. This was based on no record of payments or receipts. None of the people who sold equipment or provided the labour gave evidence. When pressed for more particularity as to the source of the moneys, Ms Chan said that moneys had been advanced by other members of the family. On this basis the defendants submitted that these moneys should be treated not as a loan or possibly a gift to the plaintiff to invest in the business but rather as an investment by the member or members of the family concerned of their own money in the business. The plaintiff, it was argued, could not recover for the loss of such money which was not hers.

67    The trial Judge accepted Ms Chan as an honest witness. Currie and Brown and Edward Rushton estimated as at September and October 1996 the cost of the plant equipment and other contents and the internal fitting-out works at a total of over $341,000. The valuers were cross-examined. Nothing was brought to our attention which in any significant way undermined the acceptability of the valuations. In my opinion, these valuations generally support Ms Chan’s evidence of the amount the plaintiff expended on the premises. If, as it stated and seems likely, the depreciation schedule was confined to the cost of plant, fittings and equipment incurred up to 2 November 1994, the amount is not inconsistent with Edward Rushton’s valuation nearly two years later of a new value of $184,300. In my opinion, it was not unreasonable to reach the conclusion that the plaintiff spent $250,000 on fitting-out the restaurant to make it suitable to be opened as an up-market Chinese restaurant.

68    This was a substantial discount on what Ms Chan said the plaintiff had spent and on the valuations. The defendants’ submission that an unidentified part of the expenditure was not of the plaintiff’s money but of money invested by other members of the family, was based on Ms Chan’s evidence in re-examination. She was asked in regard to the money paid whether it came from the bank. She said: “Yes”. She was then asked whether some of it came from somewhere else and again answered: “Yes”. To the question: “Where did it come from?” she answered: “Family”. She said: “I have eleven brothers and sisters, they all put cash together.” Later she was asked: “Did your - some of the money that your sister used to buy the restaurant come from your mother in Hong Kong?” to which she answered: “Yes, yes”. Later Ms Chan spoke of “brothers and sister having to put more money in”. In further cross-examination she was asked: “Ms Chan of these moneys that were expended on the restaurant, how much of it was your sister’s money?” she answered: “Well, I don’t remember because brother and sister did all put the money in.”

“Q. How many brothers and sisters do you have, eleven? A. Yes, correct.
Q. How much money did each of your brothers and sisters put into this fighting? Fund? A. Well depend on how much they send over to Australia.
Q. How much? A. I can’t recall.
Q. How much did you put in? A. I don’t - I didn’t put any money in.
Q. How much did your mum put in? A. I don’t recall, the total amount we had in hand was about $350,000.
Q. So the money that went for setting up the restaurant came from - some came from your sister.. A. Mmm
Q. …..Selina, that right? A. Yep.
Q. Some came from your brothers and sister? A. Yes.
Q. Some came from your mum or your mother? A. Yes.
Q. You’ve got no idea how much was contributed by one or tother or any of them? A. No.
Q. None was contributed by you? A. No.”

There the matter was left.

69    The proceedings were brought by the plaintiff as the owner of the restaurant. There is no suggestion that the plaintiff was in partnership with any of her siblings or anyone else. The restaurant was run so far as the evidence shows on behalf of the plaintiff and the profits and losses are attributed in the annual accounts to her. It seems quite likely that the plaintiff would have borrowed under some informal arrangement from other members of her family. I am not persuaded on the material before the Court that any discount beyond that which his Honour appears to have made from the amount alleged to have been expended should now be made on the basis that the money used was not the plaintiff’s money but the money of other members of her family.

70 The more direct attack on the assessment of damages is that the whole $250,000 was included without any deduction to take account of the value of the business obtained at the time the expenditure was incurred or the residual value of that business when it was effectively closed in February 1997 on the plaintiff’s being locked out. Alternatively, the defendants submitted that once the plaintiff affirmed the lease after the fire any subsequent losses were not causally connected to the contravention of s42 of the Act.

71    The starting point in evaluating these arguments is the finding, not now disputed, that the premises leased were defective if they were used for the purpose for which the plaintiff was obliged to use them, that the defendants well knew of this defect and not only failed to disclose it to the plaintiff but went a step further and told the plaintiff that the air conditioning was adequate for the purpose. Furthermore, while professing a willingness to fix the problem the defendants failed to do so and only offered to do so late in 1996 on a condition which, in the circumstances, might well be regarded as unreasonable. Had the plaintiff ceased to operate the restaurant business after the fire she would have been left with a lease of the premises which could only be used for the purpose she had been forced to abandon.

72    During the period up to the fire the restaurant business at least for some of the time prospered, no doubt due to pre-Christmas, New Year and Chinese New Year activity. On the findings that his Honour made, had the air conditioning been put right by the defendants, there is no reason to suppose that the business would not have continued to prosper. Abandoning the restaurant would have meant losing this prospect and risking liability for attempting to repudiate the lease. In my opinion, the plaintiff was justified in doing what she did although as it happened this meant, because of the defendants’ refusal to repair the air conditioning, that the plaintiff lost the benefit of her expenditure.

73    The defendants appeal against the trial Judge’s finding that they orchestrated a campaign to avoid an honourable resolution of a genuine commercial dispute and were determined to do all in their power to frustrate the plaintiff’s attempts to secure a just resolution of her claims. In my opinion, it was open to the trial Judge to come to this conclusion and I agree with it. It should have been plainly apparent to the defendants that the state of the air conditioning was ruining the plaintiff’s restaurant business. If the defendants had had the slightest intention to remedy the consequence of their fraudulent misrepresentation and their delay for two years in putting the premises into the state they represented them to be, they would not have insisted on the payment of back rent as a condition of doing what they were bound to do, both legally and morally.

74    In the circumstances, and to adopt the language in Lord Denning in Doyle v Olby (Ironmongers) Limited, I do not think that it lies in the mouth of the defendants to complain that the plaintiff decided to adhere to the terms of the lease and try and keep the business going. Effectively the defendants are responsible for the total loss of what the plaintiff obtained by her expenditure in reliance on the defendants’ misrepresentation. I would not interfere with his Honour’s assessment of $250,000 as part of damages recoverable. Nor am I persuaded that the damages awarded for the $20,000 worth of stock in trade lost as a result of the defendants locking the plaintiff out of the premises should not have been allowed as a loss directly flowing from the transaction fraudulently induced by the defendants.

75    The trial Judge was not invited to nor did he attempt to assess the revenue loss suffered as a result of the defendants’ misleading conduct. The cases to which I have referred support the conclusion that the plaintiff would have been entitled to recover damages determined by reference to the losses she suffered as a result of continuing to operate the restaurant until early 1997. Judge Dent referred to the losses revealed in the accounts for 1995 and 1996 but awarded nothing on that account. His Honour simply allowed the rents paid or exacted as a result of the default judgment and the amount called up on the bank guarantee. The plaintiff has not cross-appealed.

76 With due respect I think the defendants are correct when they say that by doing so his Honour simply charged the defendants with expenditure made on revenue account without bringing into the equation other expenditure and the income received during the relevant period to determine whether and to what extent the plaintiff had suffered revenue losses as a result of the defendants’ contravention of s42. As a matter of principle this approach cannot be justified. It is not open to us, particularly in the absence of any cross-appeal, to say, as the plaintiff urged, that the rent or notional rent expended was but part of the loss suffered. In my opinion, to this extent the appeal must be upheld. The appeal as presented substantially failed. The defendants should pay one half of the plaintiff’s costs of the appeal.

Orders

77    I propose the following orders:

1. Appeal allowed;
2. Set aside the verdict and judgment made by Judge Dent on 26 February 1998;
3. In lieu thereof order that there be a verdict for the plaintiff in the sum of $270,000 to take effect from 26 February 1998;
4. The defendants to pay the plaintiff’s costs of the hearing at first instance and one-half of the plaintiff’s costs of the appeal.
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