Derring Lane Pty Ltd v Fitzgibbon
[2006] VSC 46
•21 February 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5697 of 2005
| DERRING LANE PTY LTD (ACN 000 450 684) | Appellant |
| v | |
| JAMIE FITZGIBBON | Respondent |
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JUDGE: | Hargrave J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 October 2005 | |
DATE OF JUDGMENT: | 21 February 2006 | |
CASE MAY BE CITED AS: | Derring Lane Pty Ltd v Fitzgibbon | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 46 | |
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Negligence – negligent misstatement – need to establish reliance and inducement – not established on evidence.
Trade Practices – misrepresentations – need to establish reliance and inducement – not established on evidence.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr M Clarke | Stephen Peter Byrne |
| For the Respondent | Mr C Caleo | Phillips Fox |
HIS HONOUR:
The appellant, Derring Lane Pty Ltd, brought proceedings in the Victorian Civil and Administrative Tribunal (“the Tribunal”) against the respondent, Jamie Fitzgibbon. In the proceeding in the Tribunal, the appellant claimed damages from the respondent in respect of an allegedly negligent valuation prepared by the respondent. An alterative claim was made against the respondent based on a contravention of the Fair Trading Act 1999 (Victoria) (“Fair Trading Act”). The proceeding was heard by a Member of the Tribunal over four days in February 2005. On 30 March 2005, the Tribunal dismissed the proceeding brought by the appellant against the respondent.
On 6 May 2005 a Master of the Court granted leave to the appellant to appeal against the decision of the Tribunal. That leave was granted pursuant to s. 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 (Victoria). Section 148(1) of that Act provides that a party to a proceeding in the Tribunal may appeal on a question of law if this Court gives leave to appeal.
There was no challenge to any finding of fact made by the Tribunal. In the affidavit seeking leave to appeal, the solicitor for the appellant deposed that there was no challenge to any factual finding by the Tribunal and asserted that the error of law which gives rise to the appeal is apparent from the reasons for decision of the Tribunal, without reference to the transcript of the proceedings before the Tribunal. The appeal before me was conducted on this basis.
The Facts
In May 2002, the appellant purchased an area of vacant land from the Glen Eira City Council (“the vendor”). The purchase price was $2,250,000. The contract of sale provided that the appellant was also to pay the amount of any goods and services tax (“GST”) that was payable in respect of the transaction. In this regard, cl. 17.2.4 of the contract of sale provided:
“17.2.4The Purchaser shall elect whether the margin scheme is to apply to the sale of the Property under this Contract, provided that the Purchaser shall be responsible for payment of the Vendor’s valuation costs. The Purchaser shall be required to make its election at least 14 days prior to the Settlement Date.”
The settlement date specified in the contract of sale was 10 January 2003.
The “margin scheme” referred to in cl. 17.2.4 of the contract of sale was, in summary, to the effect that GST was not payable on the full sale price but only on the difference, or margin, between the sale price and the value of the land as at 1 July 2000.
On 20 December 2002, the directors of the appellant commenced annual holidays and did not return until late January 2003. It appears that, before departing, they directed the appellant’s solicitor, Mr Davidson, to give notice to the vendor that the appellant elected under cl. 17.2.4 of the contract of sale that the margin scheme was to apply to the sale. There was no evidence that anyone on behalf of the appellant had given any thought to the issue of whether the margin scheme should apply before this time. In particular, there was no evidence that the appellant had at this time sought or obtained its own valuation of the land for the purposes of the application of the margin scheme.
By letter dated 23 December 2002, Mr Davidson gave notice to the vendor that the appellant elected that the margin scheme was to apply to the sale. This letter was silent as to the question of valuation. It would appear that, based on the terms of cl. 17.2.4 which required the appellant to be responsible for payment of the vendor’s valuation costs, it was assumed by the appellant that the vendor would obtain the necessary valuation.
In fact, on 31 December 2002, the vendor requested the respondent to prepare a valuation of the land as at 1 July 2000. By written valuation dated 5 January 2003, the respondent valued the land at 1 July 2000 in the sum of $1,100,000 (“the valuation”).
On 7 January 2003, Mr Davidson received a facsimile copy of the valuation from the solicitors for the vendor. Mr Davidson gave evidence that he thought the valuation was low, that he provided a copy of it to a director of the appellant who said that she also thought it was low, and that he was not in a position to judge whether it was right or wrong.
Next, Mr Davidson sought the agreement of the vendor’s solicitor to a delay in settlement so that the appellant could obtain its own valuation. This request was refused.
Mr Davidson gave no consideration to the possibility of obtaining a second valuation in the few days remaining before settlement. He said that he thought the terms of the contract of sale required the appellant to accept the valuation and settle on the due date in accordance with the settlement adjustment statement, which included the sum of $115,000 for GST calculated in accordance with the valuation. In his witness statement, speaking of himself and the director whom he had consulted, Mr Davidson said:
“Although the valuation tendered by the Council seemed to us to be considerably lower than we would have anticipated, we were bound by the contract to proceed to settlement and appeared to have no choice other than to accept the figures provided and suffer the immediate consequences.”
In another paragraph of his witness statement, Mr Davidson said that he relied upon the valuation “when the settlement cheques were tendered”. In cross-examination, Mr Davidson said that, by this evidence, he meant that he relied upon the valuation to provide the means for calculation of the sum payable for GST at settlement.
Settlement of the contract of sale took place on 10 January 2003 as specified in the contract.
After settlement of the contract of sale, the appellant obtained its own valuation of the land as at 1 July 2000. That valuation was in the sum of $1,800,000. If such a valuation was correct, and had been adopted for the purposes of calculating the GST payable under the margin scheme, the appellant’s liability for GST would have been considerably less than that paid on the margin calculated by reference to the valuation.
As a result, the appellant commenced the proceedings in the Tribunal. As I have said, the Tribunal dismissed the claims made by the appellant.
In its points of claim before the Tribunal, the appellant alleged that the respondent owed it a duty of care in preparing the valuation, that such duty had been breached and, as a result, it had suffered loss and damage by paying GST calculated by reference to the valuation.
In its points of claim, the appellant specifically pleaded that it relied upon the valuation in paying the sum of $115,000 by way of GST at settlement on 10 January 2003.
The appellant made a further claim in its points of claim before the Tribunal. It alleged that, by the valuation, the respondent represented to it that the opinion of value contained in the valuation was based upon reasonable grounds, was the product of the exercise of due care and skill, was made after making due allowance for its nature as an opinion and was safe to be relied upon as not being outside the range of latitude properly to be allowed in the giving of such an opinion (“the representations”). It was alleged that the representations were false, misleading or likely to mislead in contravention of the Fair Trading Act and that, as a consequence, the appellant suffered loss and damage by paying an excessive amount for GST at settlement. No allegation was made of reliance upon the representations.
The Tribunal dismissed the claims made by the appellant. It did so because it found that the claim made in negligence was properly to be characterised as a claim for negligent misstatement and that the evidence did not support a finding that the appellant had relied upon the truth of the valuation in making the GST payment. Further, the Tribunal found that the claim under the Fair Trading Act required, as an essential element, that the appellant establish reliance by it, or by the vendor, upon the truth of the valuation. Again, the Tribunal found that the evidence did not support such a finding.
Claim for Negligent Misstatement
The claim by the appellant in negligence is properly to be characterised as a claim for economic loss suffered as a result of reliance upon a negligent misstatement.[1] The Tribunal proceeded on this basis and the appeal before me was conducted on the basis that this was the proper characterisation of the appellant’s negligence claim.
[1]Ta Ho Ma Pty Ltd v Allen (1999) 47 NSWLR 1 at [16] per Giles JA.
Mr Clarke, who appeared on behalf of the appellant, rightly conceded that, in order to establish the negligence claim, it was necessary for the appellant to demonstrate that it relied upon the valuation and that this was the cause of its loss. In summary, Mr Clarke submitted that reliance can be inferred from the fact that the payment of GST by the appellant was calculated by reference to the valuation and, as a matter of commonsense, the negligent valuation was the cause of the appellant’s loss constituted by overpayment of GST.
In my view, this submission ought not be accepted. It obscures the importance of establishing, as an essential ingredient of the cause of action for negligent misstatement, that the misstatement was in fact relied upon by the person claiming to have been induced to act in a particular way in reliance upon it. In San Sebastian Pty Ltd v The Minister Administering the Environmental Planning and Assessment Act 1979[2], the High Court considered the necessary causal relationship which must exist between a negligent misstatement and loss allegedly suffered as a result of reliance thereon. In the joint judgment of Gibbs CJ, Mason, Wilson and Dawson JJ reliance was described as “a cornerstone of liability for negligent misstatement”.[3]
[2](1986) 162 CLR 341.
[3](1986) 162 CLR 340 at 357.
Brennan J said in the same case[4]:
“A casual relationship between a representation (a term which I shall use to embrace any verbal statement made by one person to another) and economic loss does not exist because of the operation of the laws of nature. It exists because the representation induces the representee to do something which causes the loss or to refrain from doing something which would have avoided the loss.” It is the operation of the representation on the representee’s mind – the inducement – which links the representation with the conduct which more immediately causes the loss. A representation induces a representee to act or refrain from acting in a particular manner when he acts or refrains from acting in that manner because he believes that the representation is probably true; in other words he acts or refrains from acting in that manner in reliance on the truth of the representation. Therefore it is not enough to prove merely that a representee’s conduct which causes loss occurred after the representation was made or that the representation was one among many factors of which the representee was aware when he engaged in that conduct. The representation must be a real inducement or one of the real inducements to engage in the conduct which occasions the loss. That is the test in deceit (see Gould v Vaggelas) and there is no reason in principle why a different test should be applied in negligence to ascertain the causal relationship between the representation and the loss for which compensation is sought. If a representation which is untrue induces a representee to act in a manner which causes him loss, the loss is caused by the making of the representation.” (Citations omitted.) (Emphasis added.)
[4](1986) 162 CLR 366-7.
In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords[5], Dawson J said:
“Brennan J pointed out in San Sebastian that it is always necessary in cases of negligent misstatement to establish that the statement in question operated as an inducement to the person to whom it was made to act upon it. As I have said, that is just another way of saying that it is necessary to prove reliance in order to show that any loss was caused by reason of the negligence of the maker of the statement...” (Citation omitted.)
[5](1997) 188 CLR 241 at 257.
In its reasons for decision, the Tribunal considered two aspects of reliance. First, in connection with the existence of a duty of care. Secondly, the Tribunal considered reliance in the context of the necessity to establish inducement. The Tribunal Member expressed this requirement in the following way:
“29.... The second is inducement: the person bringing the action must actually have been induced, by the statement, to act upon it (Dawson J in the Esanda Finance case at 257) by doing something which that person might not otherwise have done.
30.In every case that was cited to me in which the person bringing the action for negligent mis-statement succeeded, there was what I would call active reliance: that person put faith in the correctness of the statement, believed it was correct, and acted accordingly by doing something which that person might not otherwise have done. In that way the fact of inducement became apparent.”
Mr Clarke, on behalf of the appellant, criticised this summary of the relevant principle by the Tribunal. He submitted that it was sufficient if the appellant could demonstrate, as a matter of commonsense, a direct link between the negligent valuation and the loss suffered. He submitted that such a direct link exists in this case and, as a result, reliance can be inferred from the fact that the amount of GST paid by the appellant to the vendor was calculated by reference to the valuation.
I do not accept this submission. In my view, no error of law on the part of the Tribunal has been established. Although brief, the Tribunal’s summary of the relevant legal principle is consistent with established authority. In order to succeed in an action for loss caused by a negligent misstatement, it is necessary to prove actual inducement in the sense described in the Tribunal’s reasons for decision. Of course, such inducement may be inferred from the circumstances of the case.
In my view, the Tribunal correctly applied the law to the facts of the case. The Tribunal Member expressed his conclusions by accepting the submissions put to him by Mr Caleo, who appeared on behalf of the respondent before the Tribunal and before me, as follows:
“38.Mr Caleo submitted that Derring Lane had not been induced by the valuation to do anything and so had not relied upon the valuation in the sense that the law requires before there can be liability for negligent mis-statement. He submitted that the evidence showed that by the time that Derring Lane became aware of the valuation it was already committed to a settlement due three days later and was committed to a use of the valuation, whatever the valuation said, for settlement purposes because it had exercised its election but had not obtained any valuation of its own. He referred to the last sentence of paragraph 7 of Mr Davidson’s witness statement:
‘A quick evaluation of the alternative GST payment of a full 10% on acquisition and therefore payment of the full take on sales appeared less favourable than utilising the margin scheme in this acquisition’.
That sentence, he submitted, showed that Derring Lane would have used the valuation, no matter what figure was specified in it, because it would always have been better than paying GST calculated on some other basis.
39.Mr Caleo also submitted that, on that evidence Derring Lane, far from acting on the faith on the valuation and being induced by it to pay a particular amount of GST at settlement, actually believed that the valuation was wrong but proceeded to settlement nevertheless. I do not accept that particular submission. The evidence was no more than that Mr Davidson was surprised by the valuation and had expected it to be higher, and that Ms Winch had expressed to him the same view.
40.Nevertheless I accept Mr Caleo’s principal submission, that Derring Lane has not proved that it relied, in the relevant sense, upon the valuation at the time of settlement. My findings are as follows. By having entered into the contract, Derring Lane was locked into an arrangement that meant that clause 17.2.4 would operate if it made the election referred to in that clause. By having made the election to use the margin scheme, but by not having commissioned any valuation of its own up to the date (three days before the date due for settlement) on which it became aware of Mr Fitzgibbon’s valuation, Derring Lane was locked into a further position of having to use the valuation as a basis for settlement or to pursue one of two unattractive alternatives: either to ignore the valuation and its own election and pay GST on the full contract price, or to delay settlement – which would have meant, at least temporarily, a default under the contract – and try to obtain a higher valuation. It decided to use the valuation and pay GST calculated accordingly, not because it believed that the calculations based upon the valuation would be correct but because, in Mr Davidson’s words, it ‘appeared to have no choice’, in practical terms.
41.I do not question the commercial wisdom of the decision. On the contrary, I think that Mr Davidson was wise not to have got into dispute with the vendor over the application of a vague and unclear clause. The decision was not one, however, that came from reliance upon the valuation. There was no active reliance, as I have termed it, in the way that successful claimants in other negligent mis-statement cases have been able to show. Derring Lane did not put faith in the correctness of the valuation. It did not, on the faith of the valuation, do something that it would not otherwise have done; it would have settled by paying GST in accordance with the margin scheme, rather than pursue an unpalatable alterative. Having become aware of the valuation, it used it in circumstances where there was no practical alternative to doing so.”
In my view, the above quoted passage from the Tribunal’s reasons for decision demonstrates a correct application of the law to the facts of the case. On the factual findings made by the Tribunal, the appellant did not pay GST calculated by reference to the valuation because it believed the valuation to be probably true. It paid this amount of GST because its believed, notwithstanding its doubts about the truth of the valuation, that it “had no choice” but to settle. This belief was held in circumstances where the appellant’s request to defer settlement, so that it could obtain its own valuation, was refused by the vendor.
Fair Trading Act Claim
The Tribunal dismissed the appellant’s Fair Trading Act claim on the same basis that it dismissed the negligent misstatement claim. The Tribunal found that the appellant had failed to establish the necessary reliance upon the representations contained in the valuation.
The relevant legal principles were correctly summarised by the Tribunal in its reasons for decision, as follows:
“45.Section 159 of the Fair Trading Act confers upon a person who suffers loss and damage ‘because of’ a contravention of a provision of the Act a right to recover the amount of the loss and damage against any person involved in the contravention. Like the word ‘by’ in section 87 of the Trade Practices Act, the Commonwealth analogue of section 159, ‘because of’ imports the notion of causation: the need to prove a causal connection between the contravening conduct and the suffering of the loss or damage. When the contravening conduct is a misrepresentation, amounting to misleading or deceptive conduct in trade or commerce in contravention of section 9 or of its Commonwealth analogue, the authorities hold that it is necessary to establish that there has been reliance upon it in order for the necessary causal connection to be proved. In Sutton v A J Thompson Pty Ltd (in liq) & others (1987) 73 ALR 233 or 240 the Full Court of the Federal Court stated that various principles of law, set out by Wilson J of the High Court in Gould v Vaggelas (1984) 56 ALR 31 at 46 in relation to the tort of deceit, were applicable to the statutory cause of action for contravention of section 52 of the Trade Practices Act. One of those was: ‘Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.’
The Tribunal was also referred to, and apparently relied upon, the more recent decision of the Full Court of the Federal Court in Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd[6]. In that case, the Full Court rejected an argument that causation can be established in a misrepresentation case without proof that the misrepresentations were relied upon.[7]
[6](2003) 134 FCR 522.
[7](2003) 134 FCR 522 at [123].
Based upon these accepted principles, the Tribunal found that the appellant did not rely upon the representations contained in the valuation. This conclusion was reached for the same reasons as I have quoted above in relation to the claim based on negligent misstatement. This was the correct approach. No error of law has been disclosed.
Finally, Mr Clarke submitted on behalf of the appellant that the Tribunal erred in failing to give proper consideration to an alternative argument under the Fair Trading Act.
Mr Clarke submitted to the Tribunal that causation may be established where, even though the appellant did not rely upon the representations, the vendor relied upon them. Reliance was placed upon Janssen-Gilag Pty Ltd v Pfizer Pty Ltd[8].
[8](1998) 37 FCR 526.
In paragraph 46 of the reasons for decision, the Tribunal dealt with this submission in the following way:
“46.Mr Clarke Challenged the need to establish reliance in order to make out the necessary causal line between misleading conduct and the loss or damage. He cited Janssen-Gilag Pty Ltd v Pfizer Pty Ltd (1998) 37 FCR 526, submitting that it was analogous to the present case. However, as another Full Court of the Federal Court pointed out in Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 or 538, the Janssen-Gilag case is authority only for the proposition that an applicant need not establish that it itself relied upon the respondent’s conduct, but can establish liability by proof that others did and that the applicant suffered loss as a result; it is not authority for the proposition that causation can be established without proof of reliance. To my mind, the decision in the Ford Motor Company case reaffirms that proof of reliance upon the misleading conduct is essential to making the necessary causal link between the contravention and the loss.”
Mr Clarke submitted that the Tribunal failed to understand the submission which he had put. I accept that this may be so. However, it is apparent from the quoted paragraph that the Tribunal Member understood the relevant principle, as explained in Janssen-Gilag v Pfizer and Ford v Arrowcrest. Furthermore, in its factual findings, the Tribunal gave consideration to the relevant factual issue arising on a consideration of these decisions and the submission in fact put by Mr Clarke. In dealing with the submission that the vendor relied on the representations contained in the valuation, the Tribunal stated:
“He (Mr Clarke) also submitted at one stage that the evidence of Mr Graffen was evidence of reliance, but I do no accept that that was so; Mr Graffen’s witness statement dealt only with his preparations for the auction sale and his commissioning of Mr Fitzgibbon’s valuation.”
In my view, based upon this factual finding, there is no substance in the challenge to the Tribunal’s decision on this aspect of the case. In this regard, I note that the witness statement of Mr Graffen as filed with the Tribunal included the following sentence:
“I did not think that the valuation provided by Jamie Fitzgibbon was unusual or particularly low.”
However, it was accepted by both counsel appearing before me that, at the hearing before the Tribunal, this sentence was struck out from Mr Graffen’s witness statement before it was admitted into evidence. Mr Graffen’s witness statement, as amended, was then admitted in to evidence and was not the subject of cross-examination.
The result of the quoted sentence being deleted from Mr Graffen’s evidence was that there was no evidence of reliance by the vendor upon the accuracy of the representations contained in the valuation. This is what the Tribunal found, as quoted above. This finding accords with commonsense and the objective probabilities. Given the obligation of the appellant to pay the GST, the amount of the valuation did not matter to the vendor.
Conclusion
The appellant has not demonstrated any appellable error by the Tribunal. It is accordingly unnecessary to consider the issues raised by the notice of contention filed on behalf of the respondent.
The appeal will be dismissed with costs.
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