Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd
[1998] FCA 592
•29 MAY 1998
FEDERAL COURT OF AUSTRALIA
CONTRACT - land valuation - land valuers requested to provide valuation of adjoining lots of land including “worst case” valuation - whether breach of implied term of skill and care not to warn land buyers relying on valuation that Valuer-General may not value the land in accordance with Valuation of Land Act 1916 - correct method of valuation under Valuation of Land Act.
TRADE PRACTICES - misleading and deceptive conduct - whether misleading and deceptive for valuer not to warn land buyers of possible effects of incorrect valuation by the Valuer-General.
DAMAGES - whether loss suffered - correct method of calculation of loss.
Valuation of Land Act 1916 (NSW) ss 26, 27
Commissioner for Railways (NSW) v Wynyard Holdings Ltd (1973) 1 NSWR 1 referred to
Johnson v Perez (1988) 166 CLR 351cited
FLEMINGTON PROPERTIES PTY LIMITED v RAINE & HORNE COMMERCIAL PTY LIMITED AND RONALD C AITKEN
NG 715 of 1997
TAMBERLIN, KIEFEL AND MERKEL JJ
29 MAY 1998
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 715 of 1997
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
FLEMINGTON PROPERTIES PTY LIMITED
APPLICANTAND:
RAINE & HORNE COMMERCIAL PTY LIMITED
FIRST RESPONDENTRONALD C AITKEN
SECOND RESPONDENTJUDGES:
TAMBERLIN, KIEFEL AND MERKEL JJ
DATE OF ORDER:
29 MAY 1998
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The appeal and cross-appeal be dismissed.
The appellant pay the respondents’ costs of and incidental to the appeal.
The respondents pay the appellant’s costs of and incidental to the cross-appeal.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 715 of 1997
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
FLEMINGTON PROPERTIES PTY LIMITED
APPLICANTAND:
RAINE & HORNE COMMERCIAL PTY LIMITED
FIRST RESPONDENTRONALD C. AITKEN
SECOND RESPONDENT
JUDGES:
TAMBERLIN, KIEFEL & MERKEL JJ
DATE:
29 MAY 1998
PLACE:
SYDNEY
REASONS FOR JUDGMENT
TAMBERLIN J:
I agree with the reasons and orders proposed by Merkel J.
The terms of the retainer, as found by Lehane J, were that Mr Aitken was instructed to assess the unimproved value of the land on a conservative basis and to provide a “worst case” assessment.
The applicant submits that a “worst case” assessment required Mr Aitken to warn the applicant that it was possible the land could be valued on a one lot basis. A further submission is made by the applicant that this requirement applied irrespective of the correct legal basis of the valuation. In other words, it is said, a warning should have been given that the land might be valued otherwise than in accordance with the requirements of accepted valuation principles and the provisions of the Valuation of Land Act (NSW) 1916 (“the Act”). In my view, a valuation undertaken on such an alternative basis would not give rise to a breach of any contractual or tortious duty owed by the valuer to his client. The suggestion that Mr Aitken ought to have warned the applicant that an incorrect, one lot basis of valuation might be used, cannot be accepted. The retainer should not be construed to require a determination of a figure on a basis contrary to the provisions of the Act or to warn that such an approach might be followed. A “worst case” assessment calls for an assessment based on the application of proper valuation principles, having due regard to the correct interpretation of the Act. The possibility that a valuation might be arrived at, which is based on principles or provisions outside or foreign to the requirements of the Act, is contrary to the role of the valuer. If it were otherwise it would be extremely difficult, if not impossible, to give any satisfactory valuation advice. The task of the valuer, in this case, was to apply the correct principles as required by the Act.
In other words, a valuer cannot reasonably be under a duty to provide to a client a valuation figure by way or warning, which presupposes that the land will be valued on an erroneous basis. In the present case, of course, the position is that the valuation was made on what has been found to be a correct basis. The possibility that it might have been made on another basis which is erroneous is irrelevant. There is no breach of the retainer or negligence in carrying out a valuation on correct principles and warning a client as to the lower range valuations arrived at by the application of correct principles in accordance with the Act.
Accordingly, once it is determined that the Act called for a valuation on the basis of separate parcels, this aspect of the applicant’s case must fail in the absence of any other material error. In my view, Lehane J was not in error in concluding that the Act required the valuations on the basis of separate parcels of land. Nor, for reasons given by his Honour, is there any substance in the other matters raised by the applicant as to the earlier auction or the omission to check other local sales’ records.
Since the appeal is to be dismissed on grounds relating to liability, it is neither necessary nor appropriate to examine the submission advanced in relation to the assessment of damages.
I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin
Associate:
Dated: 29 May 1998
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 715 of 1997
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
FLEMINGTON PROPERTIES PTY LIMITED
APPLICANTAND:
RAINE & HORNE COMMERCIAL PTY LIMITED
FIRST RESPONDENTRONALD C AITKEN
SECOND RESPONDENT
JUDGES:
TAMBERLIN, KIEFEL AND MERKEL JJ
DATE:
29 MAY 1998
PLACE:
SYDNEY
REASONS FOR JUDGMENT
KIEFEL AND MERKEL JJ
INTRODUCTION
In May 1992 the applicant (“Flemington”) purchased a large parcel of industrial land at Flemington, (“the Flemington land”), a Sydney suburb, for $9.51 million. Flemington entered into the contract to purchase the Flemington land in reliance upon a letter dated 15 May 1992 expressing certain opinions as to the “unimproved” value of the land determined in accordance with the Valuation of Land Act 1916 (NSW) (“the Act”). The letter was provided to Flemington by the second respondent (“Aitken”) a registered valuer and associate director of the first respondent (“Raine & Horne”). Flemington’s claim that the respondents breached their tortious duty of care and s 52 of the Trade Practices Act 1974 (“the TPA”), was dismissed by the trial judge, Lehane J, on 14 August 1997. Although it was not necessary to do so his Honour also concluded that Flemington (which within five years of purchase had sold a substantial portion of the land for $13.75 million and retained the balance which had a value of $8 million) had not suffered any loss in any event.
Flemington has appealed against his Honour’s orders dismissing its claim with costs. Flemington contends that his Honour erred in his findings on both liability and damages.
THE FACTS
The Flemington land had previously been owned by the State Rail Authority which, by a lease dated 23 August 1967, had leased it to the Electricity Commission of New South Wales (later known as Pacific Power) for a term of ninety-nine years commencing 1 June 1966. By the time Flemington purchased the land it had been subdivided into five lots all of which had improvements built thereon. Lots 3, 4 and 5 were sub-leased to different tenants. Pacific Power occupied Lots 1 and 2.
Under the head lease the annual rent was fixed by reference to
“...the then current Unimproved Value (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution for the same) of the freehold of the demised premises...”
If at any time there was no determination of the Unimproved Value as provided in the lease then in default of agreement the “determination of the said Unimproved Value” was to be referred to arbitration. Amendments to the Act, made after the lease was entered into, redefined the “unimproved” value as the “land” value. Lehane J referred to each as the “unencumbered value” in his reasons for judgment.
The directors of Flemington were all legal practitioners; three were experienced solicitors and the fourth was a barrister. Flemington was the trustee of a unit trust the beneficiaries of which were trustees of trusts established for the benefit of the directors’ families.
Obviously, the value of the Flemington land to a purchaser was closely linked to the value of the rent that would be payable under the lease. Flemington engaged Aitken to provide his opinion as to the unimproved value of the land calculated in the manner required by the lease. He gave his opinion in the letter dated 15 May 1992. It read as follows:
“Dear Sir
RE: BARKER & WEEROONA ROADS, FLEMINGTON
LEASE TO ELECTRICITY COMMISSION
Further to our recent conversation in this matter it is proposed in this advice to assess the unimproved value of the subject property as at the present date.
It is stated in page 2 of the lease document that if the lessor and lessee cannot agree as to the unimproved value of the demised premises then the determination of the said unimproved value shall be referred to arbitration in accordance with the provisions of the Arbitration Act 1902 as amended.
It would appear that the lessor is the instigator of the review mechanism in the lease (clause 37) and frequency of review is not more than once every three (3) years. We do not see within the lease document any implication that the lessee can invoke the rent review mechanism. Consequently, if it appears that the value of the demised premises (unimproved value) has decreased then the logical reaction is not to invoke a review.
As you are aware the term “unimproved value” was repealed in the Valuation of Land Act in 1981. It would seem reasonable to assume that the term “unimproved value” be assessed on its ordinary meaning or expression. In this case it would be the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements, if any, thereon or appearing thereto, had not been made.
For all practical purposes this meaning is not materially different from the meaning of the term in the Valuation of Land Act before 1981. Under this definition each lot must be valued separately.
We have discussed this term “unimproved value” with an Arbitrator who has been involved in a recent arbitration over SRA land. He advised that for all practical purposes the approach was to calculate the value of the land vacant of all improvements and disregarding the effect of any existing leases over the land.
Therefore we have completed a scenario assuming the land could be sold in a freehold state, comprising 5 separate lots. Our calculation is as follows: -
LotArea$p.s.m.Value
1 5.326 ha 95 $ 5,059,700
2 2.488 ha 105 $ 2,612,400
3 2.863 ha 105 $ 3,006,150
4 1.883 ha 115 $ 2,165,450
5 98.75 s.m. $ 60,000
$12,903,700SAY $12,900,000
The above assessment is what we believe a realistic value of the site taking a conservative approach to value for the individual lots. In a “worst case” scenario it may be possible that a discount of up to 10% should be allowed which would show a value in the order of $11,500,000.”
The directors of Flemington were comfortable with the “worst case” scenario presented by Aitken for the purpose of calculating rental and, acting in reliance on the letter, proceeded to purchase the land.
His Honour made the following findings in relation to Raine & Horne’s retainer:
“Mr Aitken was to assess the unimproved value of the land and should go about doing so in the same way as the Valuer-General would. ... [T]he express basis on which the instructions were given was that the assessment would provide guidance to Flemington as to the likely result of an application of the rent review provisions in the lease.”
As there was no ratchet clause in the lease the directors:
“... wanted a very conservative valuation and to know the worst case.”
“Mr Aitken was instructed to assess unimproved value on a conservative basis and to provide a `worst case’ assessment and ... he agreed to do so. It follows that the contract of retainer included an express term to that effect.”
“... it was an implied term of the contract of retainer that Mr Aitken would exercise reasonable care and skill in carrying out his work or that, independently of contract, such a duty arose at common law.”
LIABILITY ISSUES
Ultimately, the appeal on liability came down to three issues.
(a) A single or multiple lot valuation
It was common ground that the “unimproved” or “land” value of the Flemington land would be significantly higher if the land was valued on a multiple lot basis rather than on the basis of being one single lot. The appellant contended that:
under s 26(2) of the Act the Flemington land was required to be valued as a single lot as it had one owner and was let to one tenant, Pacific Power;
since its subdivision the land had been valued by the Valuer-General as a single lot and there was a real likelihood or risk of that occurring again;
Aitken, in discharging his duty to advise as to a “worst case” scenario, was under a duty to advise as to any matter that might adversely affect a rent review;
at the very least Aitken, in the proper discharge of his duty, was required to warn the appellant that a single lot valuation, with a substantially lower result, was within the “worse case” scenario;
by failing to inform Flemington what the “worst case” scenario actually was, Aitken did not exercise reasonable care and skill and engaged in misleading conduct;
the difference in value (including in a “worst case” scenario) between a single and a multiple lot valuation was about $1 million;
as a consequence of relying on Aitken’s valuation Flemington purchased the land for a price which was significantly greater than what it was worth at the time;
had Flemington been properly advised as to the real “worst case” scenario it would not have purchased the land.
Lehane J, in rejecting the contentions, concluded that the land was required to be valued under the Act on a multiple, and not on a single, lot basis. His Honour stated his conclusions on the alleged breach of duty as follows:
“It is, I think, to take a long step to require Mr Aitken, in those circumstances, to warn that another approach might be taken simply because, (whether he actually realised it or not) if he had considered the material provided to him, he would have realised that in 1989 land value had been assessed on a single lot basis and the parties had accepted a determination of rent based on that value. Certainly Mr Aitken was aware of the reason why the directors required his valuation and, because I accept the evidence of the directors as to the substance of their conversations with him, I accept that Mr Aitken knew before 15 May 1992 that some at least of the directors felt considerable anxiety about what might happen on a determination of the rent in circumstances where, because there was no current unencumbered value, a determination was likely to be required soon. Nevertheless, what his retainer required him to do, and what he did, was to express a view, on a conservative basis, as to the unencumbered value of the land and as to what that value might be assessed at in the worst case. In the absence of elaboration of the terms of the retainer (and there was no relevant elaboration) in my view Mr Aitken was not required to warn that the Valuer-General, confronted with the terms of the lease and applying (as the lease required) the Valuation of Land Act 1916, might perform the valuation on what he believed (and what was) an incorrect basis: even though he knew (or had the means of knowledge) that, in circumstances which it did not occur to him to investigate, the Valuer-General had once previously valued the land, already subdivided, as a single lot. It is, in the end, a matter of the construction of the retainer, and in my view clear express words, or a clear basis for implication, would be required in order to extend a duty to state the “worst case” beyond a requirement to express, exercising due care and skill, an opinion as to the lowest value which the Valuer-General, acting reasonably and on proper principles, would assess as the unencumbered value of the land. In my view there are not to be found clear express words, or a clearly based implication, justifying such an extension.”
His Honour stated his conclusions on the alleged s 52 breach as follows:
“Mr Aitken took the view that unencumbered value was to be ascertained by valuing the subdivided lots separately and adding together the separate values. He made it plain, on the evidence, that that was his view and it is clear from his valuation that that is how he proceeded. He then took, and expressed, the view that in a worst case scenario unencumbered value might be assessed at about 10% less than his view of a realistic and conservative valuation. In doing so, he did not breach (as I have held) any common law duty he owed Flemington. In those circumstances, I do not think it should be regarded as misleading or deceptive to refrain from issuing, on the footing of some view or speculation as to the possible effect of such a valuation on the rights and obligations of the parties under the lease, a warning of what might happen if the land were valued on an incorrect basis. Such a possible effect, after all, was hardly within his field of expertise. And I do not think that the knowledge of the 1989 valuation, and the fixing of rent on the basis of that valuation, not in the circumstances converting what would otherwise not be a breach of a common law duty into such a breach, should be taken as making misleading or deceptive what otherwise would not be so.”
(b) Strathfield Land
It was also contended by Flemington that had Aitken made proper enquiries of his own office he would have ascertained that three valuations of comparable land in neighbouring Stratfield carried out in 1990 and 1991 produced land values which were lower than Aitken’s “worse case” scenario in 1992. It was then said that, as Aitken acknowledged that since 1990 there had been a substantial decline in industrial land of up to thirty per cent, he was negligent in failing to take the valuations into account in his “worst case” scenario notwithstanding that he said that had he done so the valuations would not have affected his opinion. Lehane J rejected the contention accepting, inter alia, Aitken’s evidence that the valuations would not have affected his opinion.
(c) Sales History of the Land
Aitken did not make enquiries as to the previous sales history of the land. Had he made enquiries they would have revealed to him that the property had been auctioned at a reserve of $10 million with a highest bid of only $8 million. It was contended that Aitken breached his duty in failing to take these factors into account. Lehane J rejected the contention, primarily on the basis that he was not satisfied that an offer for the improved land encumbered by the ninety-nine year lease was relevant to determining the value of the unimproved land unencumbered by the lease.
A SINGLE OR MULTIPLE LOT VALUATION
The trial judge’s reasoning on this issue was as follows:
The “Unimproved Value of the demised premises” was to be determined “pursuant to” - that is in the way the Valuer-General would be required to determine it under - the Act.
What was to be determined was the unimproved value of the fee simple or freehold interest in the land demised under the lease, that is the Flemington land, which since its subdivision, consisted of five lots.
Sections 26(1) and (2) of the Act provided:
“ 26. (1) Where several parcels of land adjoin, are owned by the same person, and where no part is leased, they shall be included in one valuation, unless the Valuer-General otherwise directs: Provided that any such parcels of land shall be valued separately if buildings are erected thereon which are obviously adapted to separate occupation.
(2) Where several parcels of land adjoin, are owned by the same person and are all let to one person, they shall be included in one valuation, unless the Valuer-General otherwise directs.”Subsection (3) was inapplicable. The relevant part of s 27 is subs (1) which provided:
“ 27. (1) Where several parcels of land, owned by the same person, are separately let to different persons, they shall be separately valued.”
“Let” is not defined in the Act but includes “lease”. Clearly, the lease to Pacific Power and the subleases granted by it are to be regarded as “lettings”.
The several parcels of land constituting the Flemington land are not “all let to one person” and are therefore not required to be valued as one lot under s 26(2). Rather, “they are separately let to different persons” and must be “separately valued” as required by s 27(1). His Honour, in explaining that his construction of s 27(1) (that a letting includes a sub-letting) must be correct, said:
“The other construction would produce strange consequences where land is held from the Crown not by way of grant in fee simple but by way of lease; the consequences, in my view, would be almost equally strange where a freeholder entered into a long lease with a head lessee who in turn subdivided and developed the land and entered into numerous subleases. The question which the statute asks, after all, is not whether the owner of the interest to be valued (in the case of an assessment of unimproved value or land value) has let the land to one person or separately to several: it is whether the several adjoining parcels comprising the land `are all let to one person’ or `are separately let to different persons’.”
Flemington’s argument that the land to be valued is “the demised premises” (that is, the Flemington land as one lot) was to be rejected. The lease provided for the rent from time to time to be based on the then current unimproved value of the land determined in accordance with the Act. His Honour said:
“What is to be valued under the Act is `land’. The particular land with which the case is concerned has been subdivided into several parcels three of which at least are (on the view I have taken) to be regarded as separately let. Accordingly the only valuation of that land for which the Act provides is one which results in separate valuations of the several parcels. ... Thus, in my view, the description in the lease of what is to be valued by reference to the phrase `the demised premises’ does no more than define or describe the land to be valued; it does not require the valuer to ignore the fact that the land, so described, has been subdivided into lots separately let.”
We have set out his Honour’s reasoning in some detail as in our view it is clearly correct. There are additional reasons which support his Honour’s conclusion. The statutory scheme in ss 26 and 27 for valuing adjoining parcels or parcels in common ownership provides for valuing such lots separately if they are “obviously adapted to separate occupation” (s 26(1)) or are “separately let to different persons” (s 27(1)) rather than all being “let to one person” (s 26(2)). The criteria chosen for a multiple lot valuation are based on a characteristic of the land (ie its capacity to be separately occupied or let) rather than a characteristic of the tenancy (ie whether it is a lease or sub-lease). Accordingly, it is not surprising that the statute is not concerned with the identity of the person who has effected the letting. The criteria chosen are consistent with the purpose of the valuation which is to determine the market value of the unimproved freehold or fee simple interest. The legislation has chosen the criteria of separate occupation or separate lettings for determining whether market value is to be determined on a single or a multiple lot basis. As it is the unimproved fee simple or freehold of the land that is being valued the only relevance of the land being leased is that if it is separately leased it will be separately occupied by different lessees and is therefore appropriate to be valued as a separate parcel. In that context there is no relevant difference between a lease or a sub-lease. In these circumstances it would defeat or frustrate, rather than promote, the legislative purpose to adopt the construction contended for by the appellants and to ignore the fact that the several parcels of land to be valued were separately occupied under leases and subleases: see s 33 of the Interpretation Act 1987 (NSW), Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 at 423 per McHugh JA and CIC Insurance Limited v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408.
His Honour correctly rejected the submission of the respondents that the valuer was required to take the description in the lease of the land (prior to its subdivision) as one lot as somehow influencing or determining how that land is to be valued under the Act from time to time. At the relevant time, for the purposes of a valuation under the Act, what had once been one lot had become five. A valuation of the five lots as one lot was not the valuation required by the lease, that is a valuation pursuant to the Act.
The appellant has not demonstrated that Lehane J erred in rejecting their submissions put at trial and repeated, in a modified form, on the appeal.
The failure, on the part of the appellant, to establish this ground carries significant consequences for its contention that Aitken breached his duty to the appellant in failing to warn it that on a “worst case” scenario the valuation might be carried out, as it previously had been, on a single lot basis with a substantially lower result than the “worst case” scenario presented in the letter of 15 May 1992. We have already set out his Honour’s conclusions in rejecting the appellant’s contention. In substance, his Honour concluded (correctly in our view) that Aitken’s retainer in so far as it required him to state the “worst case” did not go beyond
“a requirement to express, exercising due care and skill, an opinion as to the lowest value which the Valuer-General, acting reasonably and on proper principles, would assess as the unencumbered value of the land. In my view there are not to be found clear express words, or a clearly based implication, justifying such an extension.”
We also agree with the respondent’s submission that:
“Mr Aitken was asked what the lowest value the Valuer-General would arrive at if he acted on what was in Mr Aitken’s opinion a reasonable basis and on proper principles, not if he acted unreasonably and on wrong principles.”
Although it is unnecessary to do so we would go one step further. In our view a valuation of the Flemington land on a single lot basis would contravene the mandatory requirements of s 27(1) and would therefore not be the “unimproved” or “land” value determined pursuant to the Act. Accordingly, it formed no part of Aitken’s retainer to give an expert valuer’s opinion as to a determination of value whether on a “worst case” scenario or otherwise, which was contrary, rather than pursuant, to the Act. Although reference was made by Flemington to certain sections of the Act, such as ss 18, 29(1) and 36, those sections do not have the effect of converting a valuation that was not made pursuant to the Act into a valuation made pursuant to the Act. The valuer must comply with the requirements of ss 26 and 27(1): cf Commissioner for Railways (NSW) v Wynyard Holdings Ltd (1973) 1 NSWR 1 at 17. The retainer did not relate to the range of values at which, as a matter of fact, the Valuer-General might arrive. Rather, it related to the range of values at which the Valuer-General, determining the value of the land in accordance with the Act, might arrive.
Accordingly, in our view Aitken was not under a duty to alert the appellant to the possibility of a valuation on a one lot basis or of the effect it would have on the result. For the reasons given by his Honour it follows, on the facts of the present case, that if no breach of duty by the respondents is established then the claim for breach of s 52 of the TPA will also fail.
The Strathfield Land
His Honour’s findings in respect of the Strathfield land were as follows:
“... when Mr Aitken was seeking information for the purpose of his valuation he checked the indexing system within Raine & Horne’s office. He checked it, however, only in relation to Flemington, not in relation to Strathfield. He agreed, in cross examination, that that was an oversight. He agreed also that there was not a great deal of `comparable information in relation to this property’ and that it was `a role of the valuer to try and find as much information in the time they have’. If he had looked under `Strathfield’ he would have seen three assessments prepared in late 1990 and the first quarter of 1991 made for the purpose of determining the rental payable under the sublease of Lot 4 of the Flemington land; two were assessments made by valuers instructed by the sublessor and sublessee respectively and the third a determination (taking account of each of the other assessments) by Raine & Horne, appointed jointly by the parties. Each of the valuers separately appointed by the sublessor and the sublessee assessed the rent by a process which involved first forming an opinion of the land value of Lot 4. Mr Aitken’s 1992 assessment of land value was slightly lower than the mid-point between those two assessments and his `worst case’ somewhat higher than the lower of the two. Mr Aitken conceded that had he been aware of those assessments, he would have considered them. He said, however, that they would not have caused him to change his mind because of the existence of comparable sales (notably of Berry Street and Birnie Avenue) which had occurred since those assessments were made.”
His Honour, in concluding that there was no breach of duty, said:
“... both the expert valuers accepted that the correct method of valuing the land on a five lot basis was by reference to comparable sales; there was no suggestion in the expert evidence that it might be appropriate to adjust a result reached by reference to recent comparable sales (in this case Berry Street and Birnie Avenue) because of what might be seen, when adjusted to take account of general market conditions in the intervening period, as somewhat more pessimistic valuations conducted some time previously on the basis of different information.”
His Honour also accepted Aitken’s evidence that although he would have considered the earlier valuations they would not have caused him to change his mind because of the more recent comparable sales.
In our view the conclusions reached by his Honour were clearly open to him on the evidence and no error has been demonstrated by the appellant on this ground.
Sales History
As was pointed out by senior counsel for the respondent it was overstating the matter somewhat to say that there was an offer of $8 million for the Flemington land. The evidence was that there was a bid for that amount at the auction but whether it was a genuine and independent offer was a matter of speculation. Further, even if it was an offer it was for the improved land encumbered by the 99 year lease. Obviously, the relevance of the $10 million reserve and the $8 million bid to the value of the unimproved land unencumbered by the lease was problematic.
His Honour said:
“The other matter to which counsel referred was that had Mr Aitken made inquiries as to the previous sales history of the property (as he did not) he would have discovered that, within the fairly recent past, it had been auctioned at a reserve of $10 million attracting offers only of $8 million. Mr Aitken should, it was said, have sought out that information and taken it into account: it could no longer be said, at least in unqualified terms, that evidence of offers was irrelevant: Goold v Commonwealth of Australia (1993) 42 FCR 51 at 57-60 (but see particularly the concluding observations of Wilcox J at 60); Henderson v Amadio (1995) 140 ALR 391 at 501-503 (see particularly the question and answer recorded by Heerey J at 502 and his Honour’s comment immediately preceding them).”
and
“As for the offer, quite apart from expert evidence that offers for the sale or purchase of comparable freehold properties were at best `secondary’ information, in my view Mr Aitken’s answer should be accepted: what was offered for auction was the Flemington land encumbered by the lease.”
The conclusion reached by his Honour was clearly open to him on the evidence and no error has been demonstrated by the appellant on this ground.
In our view the appellant has not demonstrated any error by Lehane J in concluding that it had failed to establish its case on liability. Accordingly, the appeal must be dismissed.
Damages
Having regard to the conclusions at which we have arrived it is unnecessary to consider whether his Honour erred in concluding that because the appellant suffered no loss its damages claim must fail in any event. Obviously, the appellant’s case needed to confront the difficulty of contending that it suffered a loss by reason of the respondent’s breach of duty or misleading conduct in purchasing the land for $9.51 million when, in fact, within five years it had realized a profit, in excess of $4 million, on the sale of part of the land and still retained the balance of the land which had a value of $8 million. The respondents succinctly stated the problem which confronted the appellant’s case:
“The Appellant’s case is that had it been given what it now contends to be a correct land value, it would not have entered the contract to buy in 1992 (since it would not have bought at the contracted price and the [State Rail Authority] would not have offered a lower price). The Appellant is saying that if Mr Aitken had behaved as it now says he ought to have behaved, it would have foregone the profits it has now made; but because he behaved as he did, it has not only gained those profits, but wants more. The point is that, far from Mr Aitken having damaged the Appellant, he has been the cause of the Appellant becoming substantially enriched. In these circumstances, the Appellant’s claim for damages is artificial and contrived in character.”
The damages claim is also complicated by the fact that the one lot valuation “feared” by appellant was not really tested in fact as the appellant reached its own accommodation as to valuation with Pacific Power in order to achieve the certainty it desired in relation to future rental determinations under the lease. In the result, rather than pursuing a claim for any actual loss of rent and the consequential loss in the capital value of the property the appellant pursued a claim for its “notional” loss being the difference between what it paid and the worth of what it received in return.
The appellant contended that:
in reliance upon the representation contained in the valuation, it was induced to purchase the property at a price greater than it was worth;
had it known of the real “worst case” scenario it would not have proceeded with the purchase;
in such cases the general rule is that the measure of damages, to be calculated at the date of breach, is the difference between the price paid for the property and the value of the property at the date of purchase;
the general rule is not inflexible and may not be applied where there is some special circumstance such as that it was not practicable for the plaintiff to extricate itself from the situation created in consequence of the defendant’s wrong;
nothing in the circumstances of the present case has displaced the general rule and in particular, it was open to the appellant to extricate itself from the defendant’s wrong by selling the property after it was acquired;
accordingly as from the date of acquisition or shortly thereafter the appellant, rather than the respondents, carried the risk of the value of the property falling and was entitled to the benefit of the value rising.
The approach to damages contended for by the appellant did not lack authoritative support: see Johnson v Perez (1988) 166 CLR 351 at 357, Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 at 290-291, Hussey v Eels [1990] 2 QB 227 at 241 and Smith New Court Ltd v Scrimgeour Vickers [1997] AC 254 at 266-267.
Lehane J, after examining the various authorities, concluded that:
the overriding principle is that damages are assessed as compensation for loss actually suffered;
in determining whether any loss has been caused by an established breach of duty the court takes into account any receipts of which the plaintiff had the benefit which reduced the loss (see for example, Kizbeau at 296-297 and Toteff v Antonas (1952) 87 CLR 647 at 650-651);
when money and money’s worth, which Flemington had within five years of purchase received, is taken into account Flemington suffered no actual, and therefore no recoverable, loss.
Clearly, the competing contentions of the parties in relation to damages raise difficult questions of principle, causation and fact. In view of the conclusions we have reached on liability it is unnecessary to pursue further these aspects of the appeal.
CONCLUSION
For the above reasons the appeal is to be dismissed with costs. The respondents did not pursue their cross appeal in relation to costs. Accordingly the cross appeal is also to be dismissed with costs.
I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justices Kiefel and Merkel.
Associate:
Dated: 29 May 1998
Counsel for the Applicant: D M J Bennett QC with D J Russell Solicitor for the Applicant: Abbott Tout Counsel for the Respondent: J D Heydon QC with B McManus Solicitor for the Respondent: Phillips Fox Date of Hearing: 16 March 1998 Date of Judgment: 29 May 1998