Bradley and Steindl t/a Steindl Bradley and Assoc v Stanek and Stanek
[1998] QCA 434
•18/12/1998
[1998] QCA 434
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 390 of 1998
Brisbane
[Bradley & Anor. v. Stanek & Anor.]
BETWEEN:
ANTHONY GEORGE BRADLEY and
LEIGH ANTHONY STEINDL trading asSTEINDL BRADLEY & ASSOCIATES
(Defendants) Appellants
AND:
GUNTER HORST STANEK and
LOIS MARGARET JOAN STANEK
(Plaintiffs) Respondents Pincus J.A.
McPherson J.A.
Mackenzie J.
Judgment delivered 18 December 1998
Separate reasons for judgment of each member of the Court, all concurring as to the orders made.
APPEAL ALLOWED WITH COSTS. JUDGMENT IMPOSED BELOW SET ASIDE AND IN LIEU THEREOF IT IS ORDERED THAT THE RESPONDENTS RECOVER AGAINST THE APPELLANTS THE SUM OF $21,239.40. PARTIES TO MAKE SUBMISSIONS IN WRITING WITHIN 30 DAYS WITH RESPECT TO THE COSTS BELOW.
assessed damages as loss of opportunity to sell the hotel during the currency of the lease which involved comparing two possible sales, one with and one without trading figures - where landlord did not in fact sell the hotel - trial judge not provided with comparison between results of hypothetical sale with trading figures and not selling - whether damages should have been assessed at the date of execution of the lease or date of trial, rather than at the date in 1990 when the landlord was considering selling - whether trial judge made insufficient allowance for contingencies - discussion of principles for awarding damages for contingent loss - whether there was actual loss at the date chosen for assessment of damages by the trial judge.
Malec v. J C Hutton Proprietary Limited (1990) 169 C.L.R. 638
Wardley Australia Limited v. Western Australia (1992) 175 C.L.R.
514
Sellars v. Adelaide Petroleum N.L. (1994) 179 C.L.R. 332
Marks v. GIO Australia Holdings Limited [1998] H.C.A. 69 at 44
Johnson v. Perez (1988) 166 C.L.R. 351
Papageorgiu v. Seyl (1990) 45 B.C.L.R. (2d) 319
Allied Maples Group Ltd v. Simmons & Simmons [1995] 1 W.L.R.1602
Counsel: Mr P D McMurdo Q.C. for the appellants.
Mr A J H Morris Q.C. with him Mr P D Lane for the respondents.Solicitors: Deacons Graham & James for the appellants.
Gadens for the respondents.Hearing Date: 20 August 1998. IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 390 of 1998
Brisbane
Before Pincus J.A.
McPherson J.A.
Mackenzie J.[Bradley & Anor. v. Stanek & Anor.]
BETWEEN:
ANTHONY GEORGE BRADLEY and
LEIGH ANTHONY STEINDL trading asSTEINDL BRADLEY & ASSOCIATES
(Defendants) Appellants
AND:
GUNTER HORST STANEK and
LOIS MARGARET JOAN STANEK
(Plaintiffs) Respondents
REASONS FOR JUDGMENT - PINCUS J.A.
Judgment delivered 18 December 1998
This is an appeal in which damages were awarded against solicitors because they prepared
a defective 5-year hotel lease, executed in 1987. The defect was that the tenant to whom the
respondents agreed to let the hotel, Sablevote Pty Ltd, did not promise to supply trading figures.
A question arises as to the proper way to ascertain the respondent’s loss, as landlords,
because of this defect. The way in which the judge approached the problem amounted to this: his
Honour assessed the value to the respondents of the opportunity, which he held they had probably
lost as a result of the solicitor’s negligence, to sell the hotel in 1990 during the currency of the lease with the advantage of being able to supply potential purchasers with its trading figures. In the
method which the judge used, this involved comparing the outcome of two sales: one with and one
without the trading figures. The two sales were according to the valuer’s evidence likely to have
realised $650,000 and $420,000 respectively.
In fact the respondents did not sell; they still owned the hotel at the date of trial. The course
they took, as an alternative to selling with the benefit of trading figures, was not to sell at all; their
evidence was to the effect that they were advised that the best course was not to sell without the
trading figures, but to let the lease expire. There was in my opinion no evidence on which the judge
could make any reasonable estimate of the ultimate financial consequences of doing so; that is, his
Honour was not provided with a basis of comparison between the results of the hypothetical sale
with the benefit of trading figures, and what the respondents in fact did. His Honour was, in a sense,
forced to take what appears to be the unusual course of assessing damages by comparing the results
of two sales (neither of which occurred) because no other course was open to him, on the evidence
presented.
Mr McMurdo Q.C., who appeared for the appellant solicitors, argued (as had been put
below) that it would have been a proper course to assess damages at the date of execution of the
lease, presumably by estimating the value the hotel had lost at that stage, because of the solicitors
having prepared a defective lease. Another possibility put forward by Mr McMurdo was to assess
the effect of the defective lease at the date of trial, last year; with respect to that Mr Morris Q.C.,
who led for the respondents, argued in effect that the evidence showed that the respondents’ position had worsened between the date at which damages were assessed, which was 1990, and
the date of trial. But it seems clear that there was no evidence upon which the court could have
made anything other than a complete guess as to what if anything the respondents lost by not selling
at all, instead of making the sale which on the evidence they could have made in 1990 with the
benefit of trading figures.
Mr McMurdo argued that the judge should not have held that there was any loss in 1990;
he also argued that if the judge was right in his basic method - that of comparing the two sales, each
taken to have been effected about the time when the respondents were thinking of selling - his
Honour made insufficient allowance for contingencies, in assessing the value of that chance.
There can be little doubt that when assessing the result of a lost business opportunity, a court
would ordinarily act rightly in comparing the plaintiffs’ position if they had been able to take
advantage of the lost opportunity, with the results which actually ensued because of the lack of the
opportunity. I have found no reported case in which damages have been assessed in such
circumstances, not by comparing what might have happened with what happened, but by comparing
two events which might have occurred but did not occur. Looking at the problem more broadly,
what might be said to be in question is, when a plaintiff complains of a loss in value of an asset of
fluctuating value, whether the court should assess the loss in value, not at the date of the wrong or
at the date of trial, but at a date selected by the plaintiff as being one at which the plaintiff had
proposed to sell. Again, I have found no authority in which such a method of assessing the loss in
value has been used. In fraud cases, the basic rule is that the plaintiff recovers the difference between the value of what was acquired and the price paid for it and in contract the rule is that the
comparison is between the value actually obtained and the value which would have been obtained
had the contract been fulfilled; in each case the comparison is with a situation which has actually
come about, not with one which merely might have occurred. I note that in Henderson v. Merrett
Syndicates Ltd [1994] 3 W.L.R. 761, it was held that in cases of overlapping liability in tort and
contract it is open to the plaintiff to frame its cause of action in whichever way seems the more
advantageous.
In the lucid reasons prepared by the learned primary judge, his Honour made reference to
the High Court’s decision in Malec v. J C Hutton Proprietary Limited (1990) 169 C.L.R. 638, in
support of the view that the proper course was to assess damages on the basis of a particular
hypothesis and then scale down the award according to the probability that the hypothesis is
correct, as stated in a monograph to which his Honour referred. Malec should in my view be
considered with two other decisions of the High Court dealing with a similar problem, namely the
award of damages for a contingent as opposed to an actual loss. The second and third cases in this
group are Wardley Australia Limited v. Western Australia (1992) 175 C.L.R. 514, and Sellars v.
Adelaide Petroleum N.L. (1994) 179 C.L.R. 332.
Malec is authority that damages may be recovered for contingent losses in personal injury
cases. More precisely, the principle of the case appears to be that damages for contingent loss are
allowable in respect of "an event which it is alleged would or would not have occurred, or might or
might not yet occur" (643). In the second case, Wardley, the action was one based on the Trade Practices Act 1974 (Cth), the plaintiff claiming damages for misleading conduct which caused it
to grant an indemnity to a bank, covering a loan made by the bank. Although the action was
brought under the statute, the High Court applied common law principles and authorities in reaching
the conclusion that the plaintiff had, at the time the indemnity was given, no cause of action, even
if it were virtually certain that the indemnity would ultimately be called up (524, 525, 533). The
court held that the plaintiff could ". . . only recover compensation for actual loss or damage incurred,
as distinct from potential or likely damage" (526), and that "[p]rospective loss is not enough" (527).
The former limitation was referred to, with apparent approval, in Marks v. GIO Australia Holdings
Limited (1998) H.C.A. 69 at 44. It is interesting that at the hearing of Wardley the Court was not
referred to Malec and that only one of the judges, Deane J., dealt with the problem of reconciling
what was being held in Wardley with the approach taken in Malec. Deane J. suggested in effect
that a "risk of future economic loss or damage" might not found a cause of action and distinguished
from such a risk the "loss of a mere chance of some future economic benefit" (544). This distinction
is, in short, between a chance of loss, and a loss of a chance.
If that distinction is good, then a person cheated out of the benefit of an indemnity would
have by that very fact a cause of action whereas (as Wardley shows) a person cheated into
undertaking the burden of an indemnity would not. It is not easy to see the reason for this
distinction; each of these losses is as contingent as the other.
The third case I have referred to, Sellars, followed The Commonwealth v. Amann Aviation
Pty Ltd (1991) 174 C.L.R. 64, in holding that damages may be recovered for a lost commercial opportunity even if it is one unlikely to have produced any benefit. In the principal judgment in
Sellars, Wardley was cited as authority for the view that -
". . . under the common law, an applicant can only recover compensation for actual
loss or damage incurred, as distinct from potential or likely damage". (348)
Their Honours saw no difficulty, it appears, in distinguishing Wardley, reaching the conclusion that
damages could be awarded for a lost opportunity although there was a less than even chance that
the opportunity would bear fruit (355).
A question arises whether the present case is governed by the principle in Sellars or that in
Wardley. When the solicitor had the defective lease executed that created a risk but not a certainty
of disadvantage to the respondents. To use the terms adopted by Deane J. in Wardley, was there
"only a risk of future economic loss or damage" or on the other hand "loss of a chance of an
economic benefit"? Whether the absence from the lease of a promise to produce figures would in
the result make a difference depended on a number of contingencies: whether the tenant operated
the hotel profitably, whether the respondents formed an intention to sell during the currency of the
lease, whether they decided to offer the reversion for sale to the tenant or offer it more widely,
whether the tenant decided voluntarily to supply its trading figures, and other contingencies. One
could hardly characterise the respondents’ position, at the commencement of the defective lease,
as being one in which there has been incurred "actual loss or damage . . . as distinct from potential
or likely damage". (Wardley at 526)
The better view is that there was no "actual loss" at the date when the lease was executed, but merely a risk that, depending on how matters turned out, a loss might subsequently be incurred. Therefore the submission made by Mr McMurdo, for the appellants, that damages fell to be
assessed at the date of the lease, must be rejected. It is necessary to consider, then, whether there
was shown to be an "actual loss" in the relevant sense at the date chosen as the proper date of
assessment by the primary judge. To use an expression which one finds in Johnson v. Perez (1988)
166 C.L.R. 351 and in other cases, did the loss "crystallise" at the date chosen by the judge? Mr
McMurdo submitted that there was no loss suffered at that date.
Johnson v. Perez involved a question of the proper date at which damages should be
assessed in a certain sort of action for negligence against a solicitor. The case is of no direct
assistance, but it illustrates that the date of crystallisation of loss is one at which the occurrence of
loss can be definitely predicated; that is of course consistent with Wardley. My conclusion which
is adverse to the respondents is based on a number of considerations arising from a study of the
evidence and set out in sections A to F below. But the core of the matter is that the basis of
comparison was a sale of the reversion without any information supplied to the purchaser as to the
profitability of the hotel business; there was no evidence that such a sale was ever a possibility.
One of the hypotheses on which the assessment was based could not reasonably be adopted.
I pass now to set out detailed reasons for concluding, as I have, that the occurrence of a
loss was entirely speculative at June 1990 and that the loss the judge assessed had not then
crystallised.
| 15 | A. | The valuer Mr Lacey’s figure compared two hypothetical sales of the reversion, one |
at $650,000 and the other at $420,000; but there was no explicit evidence that any sale under
which the purchaser would acquire only the reversion was ever contemplated. There was mention in the evidence of the respondents of efforts to sell and these were distinguished by absence of
detail. I take examples from the evidence of G H Stanek:
"As a result of finding out that you didn’t have any access to the figures in 1990, did you still try to sell the hotel;?-- We made inquiries with a lot of the agents and everybody sort of informed us not very successful without figures.
So what did you decide to do?-- Well, we took a lot of - we asked many people around, get opinions on things, and then someone said to us - the person who actually sold us the hotel in the first place, Mr Hall, Brian Hall, he said, "Look, you are better off to let the lease finish, go back in again, run it for a while to get some figures and then try to sell it. That is your best option at the moment. That is what I can recommend".
Similarly, L M J Stanek said:
"When you say you were told, did you have discussions with people?-- Yes, we rang up a few brokers and we also went to see the original person who was the broker who sold us the hotel who was by then a valuer, but we spoke to him and he said our best opportunity was to go back".
In such answers as these, no indication was given that instructions were ever actually given to sell
the hotel, nor was the price if any stipulated in evidence. As to what a sale of "the hotel" spoken
of in evidence meant, the only specific indication is to be found in a long answer, which I shall not
quote, given by G H Stanek, which seems to imply that he discussed with the tenant a sale to a
purchaser on the basis that the tenant’s interest would be bought out - i.e. a sale of the "freehold"
to use the term adopted by Mr Lacey, the valuer.
Further, I note that the valuer said that "there has been limited interest shown from the
marketplace for the sale of a lessor’s interest". Mr Lacey, it appears, was able to refer to only two
comparable sales of a reversion, which took place two years apart. He pointed out that generally
if the lessor’s interest is sold, it is bought by the tenant. The relevance of this evidence is that it makes it seem less likely that a sale of the reversion, which as I have pointed out was not actually
mentioned in the respondents’ evidence, was what they would have tried to achieve. This point is
by no means academic. According to Mr Lacey’s evidence, at the valuation date on which the
judge worked (June 1990) there was a difference of over half a million dollars between the value
of the reversion, sold with the benefit of trading figures, and the value of the freehold. Further, he
thought the value of the lessee’s interest then was only $250,000, so that there was, it appears, a
handsome profit to be made by one who could acquire the tenant’s interest and then sell the
freehold.
| 17 | B. | The next point, related to that just dealt with, is that there were on the evidence a |
number of options available to a person in the respondent’s position. One was to let the lease run
out, acquiring by this simple means whatever value there had been in the tenant’s interest, and
enabling a sale of the freehold. The evidence shows that the tenant, after a favourable reaction,
initially, to an approach to sell its interest, adopted the stance that it demanded an extension of its
lease. It does not appear that any attempt was made, at a later stage, to make (as the lease ran
out) an agreement with the tenant, under which its interest would be acquired, together with the
trading figures.
Of the courses which the respondents might have taken, in lieu of selling the reversion, the
one more relevant to damage was that which it took - letting the lease run out. There was no
evidence on which the judge could have assessed the financial consequences of doing so.
| 19 | C. | The simplest reason for being doubtful of the usefulness of an assessment based on |
a comparison of sales of the reversion with and without figures is that it was not shown that a sale of the reversion without trading figures was ever a possibility. Another reason is that on Mr Lacey’s
evidence such a sale would have seemed an improvident thing to do. He thought the value of the
freehold at the end of the relevant year - i.e. in June 1991 - was $775,000, which was $355,000
more than, according to his evidence, was obtainable by the hypothesised sale without figures. It
is true that Mr Lacey gave no evidence as to the value the hotel would have had at the end of the
lease, June 1992. But the value could only have increased above the June 1991 figure. On the
books, as well as on Mr Lacey’s re-analysis of them (to be discussed below) the nett result was
better in the later year. Further, the gross profit margin in the last year of the lease was at a high
level, that being, according to Mr Lacey, an important consideration in assessing the trading figures.
Mr Lacey would, I infer, have assessed the value of the freehold at the end of the lease at a figure
higher than either of the hypothesised sales. At that stage the tenant presumably would have had
no interest in attempting to use disclosure of the trading figures as a bargaining tool and, unless it
behaved irrationally, must have been prepared to disclose them, if for a modest consideration.
Mr Morris argued that we should find on the evidence - although it does not appear that
this was a point litigated below - that the appellant’s position could not have been assisted by an
examination of the hotel’s value at the date of trial. A solid point in favour of that contention is that
at the last valuation date (May 1995) Mr Lacey thought the freehold value had dropped
substantially, to $550,000. On the other hand, comparing like with like, one should consider the
value of the reversion, which, on Mr Lacey’s evidence, should be assessed by reference to the
rental received. That was the method Mr Lacey used in assessing the two hypothetical sales which
the judge compared. Mr Lacey said that the nett return from the lease in force at the date of the judge’s, June 1990, assessment was $58,485. Mr Lacey made allowance, in arriving at that figure,
for $3,700 expenses incurred by the respondents. At the date of trial, the hotel was subject to a
lease which began in April 1994. According to Mr Lacey the lease was one for 10 years at a
commencing rental of $78,000 per annum, rising to $88,400 in the second year, with rises linked
to the Consumer Price Index thereafter. However, it can be seen from the tenant’s monthly figures,
which were part of Exhibit 47, that rents were paid in 1994 at varying monthly rates, the lowest
being $6,000. The reason for this does not appear. But assuming in favour of the respondents that
the rent actually paid was never more than $6,000 per month and making an allowance for
landlord’s expenses like that made by Mr Lacey, the rental would equate to about a 16% return
on an investment of $420,000. The respondents were able to obtain in 1994 a tenant at a higher
rent than that paid in 1990 by Sablevote Pty Ltd - indeed, the agreed rent was substantially higher.
The comparison is incomplete, because Mr Lacey’s analysis of the 1994 lease does not disclose
what the tenants paid to come in; but it at least suggests that, even though the hotel’s profit was
lower after the Sablevote lease expired, the respondents would have been foolish to sell their
reversion for $420,000 in 1990.
| 21 | D. | The next difficulty is concerned with two related matters - uncertainty as to the date |
of the hypothesised sales and uncertainty as to what figures the tenant might have agreed to supply.
Of course, Sablevote never promised to supply any figures, but the judge thought it would probably
have made some promise about that; his Honour did not, however, say what the promise might
have been. There had been discussion between the respondents and the tenant, about a promise
to disclose books of account, but that was rejected; the judge found that Sablevote had rejected the disclosure clause proposed "in its original form and . . . progressively . . . rejected the remaining
tentative proposals". This aspect has particular significance, because the general effect of the
respondents’ evidence was that they were thinking of selling about June 1990 and it was that date
at which the judge made the comparison the appellant attacks.
But the trading figures fell substantially during the year beginning July 1990. According to
the books, the year’s result was a loss; the result was about $176,000 worse than that for the year
ended 30 June 1990, when a profit of $134,720 was achieved. Mr Lacey proposed some
adjustments to these figures and I discuss that below. For the moment, it is enough to note that one
might question whether a prospective buyer, being shown the tenant’s trading figures, would have
made the same assumptions as to their inaccuracy as Mr Lacey said industry standards require.
I have already pointed out that the evidence showed that sales of reversions are not very
common and there is no guarantee that one would have been achieved quickly, figures or no figures.
It is in my opinion a doubtful proposition that a purchaser buying in the 1990/1991 year, which as
I have pointed out produced a poor result, would have been content to assume that at all times
during the later year the position was much the same as it had been in the earlier, absent any current
figures. The evidence showed that the respondents had reason to think that the hotel was
performing badly in the 1990/1991 year and it would perhaps have been dishonest of them to have
sold then on the basis that trading figures for the preceding year (1989/90) were still representative
of the hotel’s trading position. In making these comments, I have in mind that accounts for trading
companies are often not finalised until well after the end of the financial year to which they relate.
In short, with respect to a sale in the 1990/1991 year, candid disclosure of the current
trading position might not have helped the respondents.
| 25 | E. | There are aspects of Mr Lacey’s evidence which in my opinion make the |
comparison on which the assessment was based less reliable than it would otherwise have been.
It is unfortunate that, for reasons which need not be discussed, the valuer’s evidence was not
properly tested below. Although defended with surprising vehemence by Mr Morris, the valuation
has some features which are, plainly, unusual. One is that Mr Lacey has worked out his freehold
values by applying a multiplier to the last year’s nett profit, instead of averaging profits over a period
of years, as one would expect. This is, however, a minor matter.
What is not so minor is that Mr Lacey does not provide any substantial basis for the
comparison which was central to the respondents’ case, as presented below. The way in which Mr
Lacey assessed the two hypothetical sales was by applying a multiplier - or, what amounts to the
same thing, a discount rate - to the return from the 1987 lease. It was the fixing of the discount rate
which was critical and, as one would expect, Mr Lacey based that on comparable sales. He quoted
two sales of reversions, one at 9.75% and the other at 14.7%. So far as the evidence showed, no
information was available as to what trading figures were disclosed by the vendor in either sale; Mr
Lacey simply said, as to the $650,000 valuation, "Based on sales evidence, we have adopted a
capitalisation rate of 9%" and as to the $420,000 valuation, "[b]ased on sales evidence previously
examined, we have adopted a 14% capitalisation rate".
The difficulty is that there is no indication as to why it should be thought that either of the
sales quoted provides any useful guide. The implicit assumption appears to be that the higher
capitalisation figure (14%) is appropriate for a sale of a reversion without figures and the lower (9%)
for a sale of reversion with figures. It is hardly conceivable that Mr Lacey forgot to mention the
critical point that he had ascertained that in one of the comparable sales the buyer had access to
certain trading figures and that in the other he had not. There is no rational basis disclosed in the
valuation for adoption of the two capitalisation rates.
Another aspect of the valuation which deserves mention is one briefly alluded to above: Mr
Lacey adjusted the trading figures shown in the tenant’s books to produce a better picture of the
nett profit which would be available to a purchaser of the freehold. Apart from the obvious
adjustment of deletion of the land rental, the two principal changes made were to leasing costs -
presumably, leasing of chattels - which were entirely deleted, and wages, which were substantially
reduced. I have pointed out that one must harbour doubts as to whether a prospective purchaser
would assume these adjustments to be right. One could understand some appropriate allowance
being made for the capital element of fees paid to lease chattels, but not an assumption that the
expense was wholly illusory. As to the wages, the valuer thought that the figures showed the tenant
to be a good operator and that seems inconsistent with the notion that it was paying improvident
amounts of wages; perhaps the inference Mr Lacey drew was that the amount was deliberately
overstated.
| 29 | The only additional comment I make about Mr Lacey’s valuation is that the point I have discussed above, that the profitability of the business dropped off sharply during the financial year |
in which, on the findings, the hypothetical sales would have been likely to be made, is underlined by
Mr Lacey’s view that the value of the freehold dropped by $325,000 during that year.
| 30 | F. | The learned primary judge said of the tenant’s attitude to a disclosure clause: |
"From the Laine’s side, it is clear that they rejected the clause in its original form
and that progressively they rejected the remaining tentative proposals".
Later, his Honour said:
"Further negotiations on the issue may have produced a satisfactory result for the
plaintiffs". (emphasis added)
Whether Mr Laine would have given in about the disclosure clause was quite uncertain. The judge
had the advantage of having seen Mr Laine give evidence and did not seem to regard him as
especially prone to make concessions in negotiations. Referring to the possibility that Mr Laine
might accept another clause which, on the respondents’ case, might properly have been included,
his Honour remarked:
"Having seen Mr Laine give evidence, I would think that the chances of imposing
such a condition on Mr Laine would have been near to nil".
His Honour also described Mr Laine as a "hard-nosed businessman".
In these circumstances, another observation his Honour made, that Mr Laine "would have
been very likely to concede the issue of trading figures if they had been insisted upon" must be
regarded as speculative. And for the reasons I have discussed, the precise form of any clause to
which the tenant assented would have been important. A clause requiring production of monthly
figures, for example, during the 1990/1991 year when, according to the books, a substantial loss
was being made, would not necessarily have helped rather than hindered attempts to sell.
Summary and Conclusion
To assess the damages which are challenged, the judge took the course of comparing the
results which could have been achieved by two sales of the reversion, at least one of which was
never, on the evidence, a possibility. On the authority of Wardley there was in my view no warrant
for assessing damages at the date of breach, nor was there evidence to show that any loss had
crystallised at the date of assessment, June 1990.
The result is that the relevant part of the judge’s assessment must be set aside. The
remaining part of the assessment, relating to another breach, was in a sum of $12,136.80; with
interest added that becomes $21,239.40.
I would allow the appeal by reducing the amount which it is adjudged the plaintiffs recover,
to $21,239.40. I would order that the respondents pay the costs of the appeal and invite the parties
to make submissions in writing, within 30 days, with respect to the costs below.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 390 of 1998
Brisbane
Before Pincus J.A.
McPherson J.A.
MacKenzie J.[Bradley & Anor. v. Stanek & Anor.]
BETWEEN:
ANTHONY GEORGE BRADLEY and
LEIGH ANTHONY STEINDL trading asSTEINDL BRADLEY & ASSOCIATES
(Defendants) Appellants
AND:
GUNTER HORST STANEK and
LOIS MARGARET JOAN STANEK
(Plaintiffs) Respondents
REASONS FOR JUDGMENT - McPHERSON J.A.
Judgment delivered 18 December 1998
The plaintiffs, Mr and Mrs Stanek, who are the respondents in this Court, bought the
Canberra Hotel in Toowoomba in about 1983. The hotel was extensively renovated by Mr Stanek,
who is a builder by occupation. Not being themselves experienced in the hotel trade, the plaintiff
decided to grant a lease of the hotel to Sablevote Pty. Ltd., of which a Mr Laine is or was the
principal. The agreement for lease is dated 29 May 1987 and the lease itself was executed on 23 June 1987 and duly registered. It was for a term of five years commencing on 1 June 1987 and
terminating on 31 May 1992.
For the purpose of preparing the lease, advising them and acting on their behalf in the
transaction, the plaintiffs engaged the defendants, who are a firm of solicitors. On the insistence
of Sablevote, the defendants agreed to omit from the draft lease a clause or covenant requiring the
lessee Sablevote to provide details of the hotel trading figures. According to the findings made by
his Honour, they did so without, and indeed contrary to, the instructions of their clients the plaintiffs.
When later called upon during the currency of the lease, Sablevote declined to provide information
about those figures. In consequence, or so the plaintiffs claim, they lost the opportunity in June
1990 to sell the fee simple reversion at a profit. Instead, they retained the hotel and conducted it
themselves from June 1992 until April 1994, when it was leased for 10 years to a Mr and Mrs
Dyer, who have since assigned the lease to someone else.
In this action the plaintiffs claimed damages for loss of the opportunity to sell the reversion
in 1990 with the advantage of their tenant’s trading figures. In their amended pleading the claim was
quantified in alternative ways at $232,250 in para.18L, and at $445,798 in para.18M. The figure
of $232,250 in para.18L represents the difference between the unencumbered freehold market
value in June 1990 of the hotel: (a) with, and (b) without, trading figures for the preceding three
years. The larger figure of $445,798 in para.18M represents the difference between the freehold
market value of the hotel at the same date with trading figures, less the value of the lessee’s interest
at that date, and the unencumbered freehold market value at that date without trading figures.
One would rationally expect the two methods to produce the same, or approximately the same, result. That they do not is one basis for suspecting that something may be wrong with the values adopted for the purpose of making the calculation. However the matter is approached, the
alleged loss is by the difference between the respective market values at 30 June 1990 of the
reversion expectant on the lease (which then had only two years to run before expiring) with and
without the trading figures. The basis of calculation of the damages claimed by the plaintiffs is, after
all, that, if in June 1990 they had possessed accurate information about their tenant’s trading figures
for the preceding three years, they would have been able to sell the reversion in June 1990 to a
willing buyer at a price that was higher than they would have been able to sell at that date without
those figures. Possession of the information provided by those figures would, it is claimed, have
made a difference to the price which such a buyer would have been prepared to pay at that date
in an amount ranging somewhere between $232,250 and $445,798.
In fact, the valuer Mr Lacey, who gave evidence on the subject at the trial, opted for the
first of the two methods (para. 18L), which on his view produced a loss of $230,000. Allowing
for various contingencies, the learned trial judge discounted this result by 20% to arrive at an amount
of $184,000, which disregarding other matters affecting it, formed the basis of the amount of
damages awarded under this head.
It is primarily against this assessment that the solicitors now appeal. For the reasons given
by Pincus J.A., which I have had the advantage of reading, I agree that the damages award cannot
stand. There are only a few comments of my own I wish to add to the criticisms (which seem to
me to be particularly compelling) made by his Honour in his reasons concerning Mr Lacey’s
valuation and its weaknesses. The method adopted of capitalising returns at particular percentage
rate is one that is sometimes used in valuations in the hotel trade, but the results produced depend
to a large extent on the capitalisation rates adopted for the purpose, and it is prone to wide margins of error. The only really reliable measure of the damages in this case would have been a
comparison with actual sales of similar hotel reversions with and without the benefit of trading figures
in the immediate past prior to 30 June 1990. For that purpose, the comparable sales figures used
by Mr Lacey to bolster his valuation are worthless. They do not disclose whether the sales in
question were made with or without trading figures, and so fail to provide a basis for a comparison
of the kind alleged in para.18L of the plaintiff’s pleading.
Without reliable evidence of comparable market values at the date in question, both the trial
court and this Court are forced into an area of complete conjecture in assessing the damages alleged
to have been sustained by the defendant solicitors’ default. In the absence of the best evidence, the
courts must no doubt do the best they can. But, in a case like this, the range of contingencies and
imponderables is immense, and far exceeds those considered in Chaplin v. Hicks [1911] 2 K.B.
786, which is the authoritative source for awarding compensation for the loss of a chance or
opportunity. In the United States, where that decision is accepted, it has been said to be explicable
only on the footing that “courts are simply unwilling to permit a breaching party to avoid liability
solely on the basis of the plaintiff’s difficulty of proving loss where it was clear at the time of
formation that such loss would be impossible to prove with reasonable certainty”. See Murray on
Contracts (3rd ed. 1990) §121, at 692. On that theory, reasons of policy are involved, which may
perhaps help to explain the apparent tension referred to by Pincus J.A. between Sellars v. Adelaide
Petroleum N.L. (1994) 179 C.L.R. 332, in which compensation was allowed in respect of a lost
commercial opportunity, and Wardley Australia Ltd. v. Western Australia (1992) 175 C.L.R.
514, where it was refused in respect of a risk of future economic loss or damage.
In actions against solicitors for failing, in conveyancing transactions, to discover defects in
title that diminish the value of property purchased, it now seems widely to be accepted that the
general measure of damages is ordinarily the difference between the price paid by the client for the
property acquired and its market value with the relevant defect; that is to say, the diminution in the
value of the property at the date of breach. See Perry v. Sidney Phillips & Son [1982] 1 W.L.R.
1297, 1301-1302, which appears to have been regarded as correctly stating the general rule in
Rentokil Pty. Ltd. v. Channon (1990) 19 N.S.W.L.R. 417, 427, 432. See also 7A C.J.S.
§273b, at 506-7; 1 Am. Jur. 2d §197, at 247. It is not possible to apply that general measure here.
There is simply no reliable evidence of prevailing market values of hotel reversions at the date (30
June 1990) at which the plaintiff decided to sell. Moreover, the present case is not one of purchase
of a property subject to a defect which diminishes its value (which is commonly held to be the cost
of removing the defect), but of failure to sell at a particular date a property which is subject to a
deficiency that is said here to have deterred the owners from selling them. Their “loss”, if it is
anything more than an entry or entries in their accounting records, can be properly arrived at only
by a comparison of market values at the date in question.
The only decision which come close to the facts of the present case that I have succeeded
in finding is Papageorgiu v. Seyl (1990) 45 B.C.L.R. (2d) 319, where the plaintiff had already
agreed to sell his restaurant business for $225,000 before discovering that the five year lease of the
premises on which it was being conducted had, through the negligence of his solicitor, never been
registered. As a result, the sale fell through. Having decided that there never was in law a binding
contract for the sale of the business at that price, the Court of Appeal of British Columbia reduced
the plaintiff’s damages from $193,338 to $15,000 “for lost opportunity” to sell the restaurant. In doing so, the Court concluded that the proposed sale, which was said to have been negotiated “in
a euphoric atmosphere”, did not represent the fair market value but something well above it. There
was, said MacDonald J.A., “great uncertainty as to what would have happened if the lease had
been properly registered”. So there is here too. In Papageorgiu v. Seyl, there was at least an
agreed price of a kind. Here even that element is lacking. To establish their claim to more than
nominal damages, the plaintiffs are faced with at least three contingencies that went seriously in
reduction of their damages. They are: (1) whether the tenant Sablevote Pty. Ltd. would, if pressed,
have agreed to the inclusion in the lease of a clause or covenant requiring it to disclose its trading
figures; or alternatively whether that some other prospective tenant would have agreed to do so on
taking a similar five year lease in 1987; (2) whether with the benefit of that clause or covenant they
would have been successful in attracting a purchaser of the reversion when they decided to sell in
1990; and (3) whether the price payable by that purchaser of the reversion would have been
measurably higher with the relevant clause or condition in the lease than without it.
There is, as has been explained, little or no reliable evidence capable of resolving the second
or the third of these contingencies. As regards the first, the Court of Appeal in Allied Maples
Group Ltd. v. Simmons & Simmons [1995] 1 W.L.R. 1602 were confronted with a similar
problem of assessing the prospects of reinstating a clause in a contract which had been negligently
omitted by solicitors in the course of negotiations. To that extent it bears some resemblance to the
present case. Stuart-Smith L.J. (at 1611) considered that the plaintiff could succeed on showing
“he had a substantial chance rather than a speculative one, the evaluation of the substantial chance
being a question of quantification of damages”. Hobhouse L.J. held ([1995] 1 W.L.R. 1602, 1621)
that the plaintiffs were:
“... not obliged to show more than that they have lost something of substance. This they have done by showing that they had a measurable chance of negotiating significantly better terms. They are entitled to an assessment of their damages”
Their Lordships agreed that the matter should be remitted to the trial judge for an appropriate
assessment to be made of the value of the chance. Millett L.J. (as Lord Millett then was) would
have allowed the appeal and dismissed the action. His Lordship considered ([1995] 1 W.L.R.
1602, 1622) that it was not open to the trial judge to find that the plaintiff had “a substantial or
measurable chance” of persuading the other party to the transaction to accept the reinstatement of
the relevant warranty or to offer any other protection against the relevant risk; and, said his
Lordship, “I have the gravest doubt whether the plaintiffs would ever be in a position to call such
evidence”. There were, he noticed (at 1624), “no objective criteria by which the chance can be
evaluated ... These are all subjective matters; none of them is known and none can be inferred”, with
the consequence that “it is still all speculation” (at 1626).
With respect, I do not consider this approach to be inconsistent with Sellars v. Adelaide
Petroleum N.L. (1994) 179 C.L.R. 332, 355, where it was said that the plaintiff “must prove on
the balance of probabilities that he or she has sustained some loss or damage”, and that this is
shown “by demonstrating that the contravening conduct caused the loss of a commercial opportunity
which had some value (not being a negligible value), the value being ascertained by reference to the
degree of probabilities or possibilities”. If what was required here was proof that the plaintiffs in
the present case had a commercial opportunity, which had some, rather than a negligible value (or
in short was more than merely “speculative”), of negotiating the insertion in the lease of a clause
requiring the prospective tenant to disclose trading figures, then I consider that they should be held not to have been proved at the trial of this action. In the court below, his Honour, whose reasons
are rightly commended by Pincus J.A. for their lucidity, made the following findings on the subject:
“It is common ground that the plaintiffs requested a clause providing that they have access to the lessee’s trading figures. Given their intention to sell during the lease, that was a logical requirement to make. In response to a question from Mr Morris Q.C. about the second paragraph of the letter of 8th May 1987 (Exhibit 5) Mr Bradley replied:
‘That was because that was the only specific clause he required to be put in the lease and otherwise it was standard so I mentioned it.’
The subsequent omission of such a clause from the final form of the lease is at the heart of this action. It is common ground that Mr Laine objected to it and that various fallback proposals were ventilated. From the plaintiffs’ side, it appears that they first indicated a willingness to accept the profit and loss accounts - rather than an actual examination of the books - and later gave some consideration to accepting the profit and loss account for one year only immediately prior to an attempt being made to sell the freehold of the hotel. From the Laine’s side, it is clear that they rejected the clause in its original form and that progressively they rejected the remaining tentative proposals. Such rejection was communicated to Mr Bradley by Mr Davidson, who was Mr Laine’s solicitor”
His Honour accepted that the clause was omitted from the lease without any indication to that effect
being given by Mr Bradley to the plaintiffs, and without their authority; and that they signed the lease
in the belief that the relevant clause (cl.54) was still in it.
Elsewhere in his reasons, the learned trial judge said:
“I am also prepared to find that the lease being offered to Mr Laine was an attractive one. Mr Laine himself certainly thought so. Further negotiations on the issue may have produced a satisfactory result for the plaintiffs. If they had not, I am satisfied that the plaintiffs would, on balance, have refused to deal further with Mr Laine and would have sought an alternative lessee. It was Mr Lacey’s evidence that the terms of the lease being negotiated by the plaintiffs were reasonable as to the rental being sought. I will come to consider later the provision of s.18B of the Liquor Act and the inclusion of a clause in the lease directed to that issue. For the present it seems more probable than not that a satisfactory lessee could have been found to take the lease in its final form with a further provision as to trading figures. Such a lessee may, of course, not have had the ability and experience of Mr Laine. This is an issue that I will have to consider when I come later to the question of damages.”
His Honour returned to consideration of the present issue elsewhere in his reasons. He described
Mr Laine as “a hard-nosed businessman who would not take kindly to other persons prying into
his affairs”, adding, however, that he took the view “that Mr Laine would have been very likely to
concede the issue of trading figures had they been insisted upon”. His Honour’s final conclusion was
that:
“Given the potential of the lease and the reasonable rental being sought, it would seem very likely that if Mr Laine had persisted in his refusal of trading figures, the plaintiffs would have succeeded in obtaining another lessee, although perhaps one with less experience. There was then, in my view, only a small prospect of the plaintiffs being put in a position of having to sell the hotel in 1987.”
In a case like this, which presented many difficulties in the assessment of damages, it is
uncharitable to be hypercritical; but, with respect, there is a steadily progressing element of
inconsistency in his Honour’s findings on this critical question, particularly when regard is had to the
evidence at the trial. There is no evidence that any other prospective tenant could have been found
who would have been prepared to agree to a clause in the lease requiring the provision of trading
figures. Mr Davidson, a solicitor of many years experience in the locality, said that he had done
“maybe half a dozen” hotel leases, and could not recall ever having in them that the trading figures
be supplied. When cross-examined on the matter, he agreed that it was to be expected that other
tenants would have been willing to pay a similar rent; asked whether they would also have been
prepared to provide trading figures, his answer was: “Maybe, it would be up to them”. Both the
question and the answer were plainly speculative, and not such as to be capable of affording
evidence on which to base a conclusion that other tenants would have done so.
That Mr Laine would eventually have agreed to the inclusion of such a clause seems to me,
with respect, not to be a tenable inference from the material available at the trial. There was, it is
true, uncontradicted evidence from the plaintiff Mr Stanek that at a meeting of the parties before the
lease was signed, Laine seemed “very determined to get the lease”; as well as from Mrs Stanek that
the Laines did not want their personal books to be open to inspection. The inference which, it is
suggested, is invited by her statement to that effect seems to be that he would have acceded to
something less, such as the provision of profit and loss statements. Even if correct, that would
however have raised a different question, and not one about which his Honour made any specific
finding in favour of the plaintiffs.
In any event, the evidence of witnesses acting for Mr Laine was to quite the opposite effect.
Mr Davidson, who was Laine’s or Sablevote’s solicitor in the matter of the lease, said his
instructions were that Mr Laine would not agree to the clause (cl.54) about trading figures remaining
in the lease. He relayed his instructions to Mr Bradley on two or possibly three successive
occasions. He said he made it “perfectly clear to Bradley that we wouldn’t agree to the lease with
the clause in it”. So far as Mr Laine was concerned, “he just wouldn’t agree to the inclusion of the
clause, and from his point of view that was the end of it”. Mr Davidson also received instructions
that Laine would not agree to provide figures for the final year of trading after the lease had expired.
His testimony on these matters was supported by that of Mr B.A. Mahoney, who was Laine’s
accountant. At the meeting attended by the parties before the lease was signed, he advised Laine
not to give the figures to the plaintiffs. He said that Laine “was quite adamant that he was sticking
to his guns re the particular clause”. At the end of the meeting Mr Mahoney said he was not left
with the impression that, from Laine’s point of view, the matter remained to be resolved. In relation to this issue, both Mr Davidson and Mr Mahoney can fairly be considered as completely
disinterested witnesses.
It was submitted on behalf of the respondents that Mr Davidson’s testimony about his
instructions did not, and could not, amount to evidence that Laine would never have agreed to
providing trading figures if it meant the difference between getting the lease and not getting the lease.
However, the evidence at the trial was that Mr Laine was being given advice by his solicitor and
accountant, and that he acted on it throughout in giving instructions to them that accorded with their
advice. If he retained any mental reservation that he might later change his mind, there was and is
simply no evidence of it. Laine was a witness at the trial and was cross-examined; but he was not
asked by anyone whether he planned to change his mind or had thought of doing so. The suggestion
that he might have done so is precisely the kind of speculation that in Allied Maples Group Ltd.
v. Simmons & Simmons Millett L.J. regarded as speculative. It is an entirely subjective matter
involving no objective criteria by which the chance could or can now be evaluated. As appears
from the judgment in Allied Maples Group Ltd. v. Simmons & Simmons [1995] 1 W.L.R. 1602,
1609-1610, 1620, the question is one of causation, as to which the onus of proof rests on the
plaintiff. The majority of the Court of Appeal there held that it was not incapable of being
discharged, and, for that reason, remitted the issue for hearing; but it must be borne in mind that,
as Hobhouse L.J. explained (at 1620) in that case:
“The judge has found that it was clearly the shared intention of the parties that Kingsbury should be acquired clean, and that all reasonable efforts would therefore be made to achieve that objective. This is not a case where the plaintiffs are having to submit that they would have been the recipient of some gratuitous favour or that the vendors would be persuaded to act contrary to their commercial interest. It is a case of the plaintiffs, supported by evidence, that effective negotiations would have taken place and there was a basis for believing that further negotiation would have led to a worthwhile amelioration of the plaintiffs’ position.”
I do not consider that the facts of the present case can be properly compared to those in
Allied Maples Group v. Simmons & Simmons. There was no basis here for saying that the parties
shared any intention that there would or should be a lease, or that it was simply a matter of arriving
at a formula capable of accommodating their competing commercial interests. The prospective
tenant Mr Laine or his company Sablevote, through his or its solicitor and accountant, as well as
in person, had made it quite clear what his attitude was, and he consistently rejected efforts to
persuade him to compromise or depart from that position. The issue is, in the end, not one of credit,
but of inference from uncontradicted testimony; and it is for that reason that I feel less hesitation in
differing from the learned trial judge on the matter than would otherwise have been the case. In my
opinion, the plaintiffs failed to prove that they had a measurable, as distinct from a speculative or
negligible, chance of persuading Laine to agree to a condition in the lease requiring Sablevote to
disclose its trading figures. In consequence, they failed to establish that a right, capable of being
valued, to compensation for loss of that chance was caused by the act or default of the defendant
solicitors.
It follows that the appeal should be allowed by reducing the amount for which judgment is
given to the extent specified in the order proposed by Pincus J.A. I agree that the matter of costs
should be dealt with as envisaged by that order.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Brisbane Appeal No.390 of 1998 Before Pincus J.A.
McPherson J.A.
Mackenzie J.[Bradley & Anor. v Stanek & Anor.]
BETWEEN:
ANTHONY GEORGE BRADLEY and
LEIGH ANTHONY STEINDL trading as STEINDL BRADLEY & ASSOCIATES
(Defendants) Appellants
AND:
GUNTHER HORST STANEK and
LOIS MARGARET JOAN STANEK
(Plaintiffs) Respondents
REASONS FOR JUDGMENT - MACKENZIE J.
Judgment delivered 18 December 1998
I have had the advantage of reading the reasons for judgment of Pincus J.A. and of
McPherson J.A. I agree that the orders proposed by Pincus J.A. are appropriate. I agree, as both
Pincus J.A. and McPherson J.A. have demonstrated in their analyses, that there were considerable
conceptual and evidentiary difficulties in the respondents’ case. I specifically agree with McPherson
J.A.’s additional reasons in this regard.
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