HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd

[2003] HCATrans 471

[2003] HCATrans 471

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B67 of 2002

B e t w e e n -

HTW VALUERS (CENTRAL QLD) PTY LTD

Applicant

and

ASTONLAND PTY LTD

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 14 NOVEMBER 2003, AT 9.31 AM

Copyright in the High Court of Australia

MR P.A. KEANE, QC:   If the Court please, I appear with my learned friend, MR L.F. KELLY, for the applicant.  (instructed by Thynne & Macartney)

MR J.D. McKENNA, SC:   May it please the Court, I appear for the respondent.  (instructed by Russell Hanley Johnson)

GUMMOW J:   Yes, Mr Keane.

MR KEANE:   Your Honours will have seen that it is put against us that the circumstances of this case are unusual in truth.  We submit that this is the classic case of an acquisition of an asset in reliance on erroneous advice where, but for the advice, the acquisition would not have been made.  In that regard may we remind your Honours briefly of the facts.  The case concerns a purchase by the respondent ‑ ‑ ‑

GUMMOW J:   Yes, in doing that, Mr Keane, are we right in understanding that the causes of action were what, negligence, section 52 of the Trade Practices Act?

MR KEANE:   Yes.

GUMMOW J:   And contract as well?

MR KEANE:   Yes.

GUMMOW J:   The three of them.

MR KEANE:   Yes, your Honour.  That is so.  Your Honours will understand that the courts below applied the same approach to the measure of damages on the footing that compensation was to be awarded for the loss suffered in reliance on the advice that was given to the effect that rents were likely to be maintainable but that the error in the advice was the failure to warn against the prospect that competing shopping centres would have an adverse effect on the maintainability of rents.

GUMMOW J:   Yes.

MR KEANE:   The contract was made on 28 April 1997.  The purchase price was $485,000.  The true value of the property on the evidence of the plaintiff’s valuer, who was accepted by the trial judge, was $400,000 and it was accepted by the Court of Appeal at paragraph [20] at page 32 of the application book that the valuation took into account the risk that the competing, or that a competing local shopping centre, at the Beach Road area, the area of the prospective competition would be constructed and operated.

These competing shops commenced to operate in mid 1998.  After that time the shopping centre that had been acquired by the plaintiff failed rapidly, and the trial judge found that the value of the shopping centre about two years after the contract, when the competitive effect of the Beach Road shops became manifest, that is about mid 1999, was $130,000.  The trial judge held that in awarding damages - the trial judge found that the plaintiff had relied upon the advice, that the current levels of rental were maintainable, or would be maintainable, and awarded damages including a primary amount of $355,000 representing the difference between the purchase price of $485,000 and the value two years later in March 1999 of $130,000.

His Honour explicitly rejected the contention that was advanced by our side that the general principle should apply, that is that damages should be assessed by reference to the difference between the purchase price of the property and its value at the date of contract.  For that statement of principle we rely upon the dicta of Justice McHugh, which whom your Honour Justice Gummow agreed, in Kenny & Good v MGICA 199 CLR, which your Honours will find - I think it should be the first case in the bundle we provided to your Honours.  The relevant passage is at page 431 in paragraph 35, commencing about nine lines from the top of the page, where his Honour said:

Speaking generally, the valuer is liable only for such losses as a reasonable person would regard as flowing naturally from the negligent valuation or which are of a kind that should have been within the valuer’s contemplation.  In the absence of a contrary undertaking or special circumstances, the aggrieved party cannot recover any part of the difference between the true value of the property and the price recovered at the time of the sale.

Here of course the relevant valuation is not at the time of sale, although the value of $130,000 was the value at the time of trial, and it was also said to be the value at a time somewhat earlier, but a time two years after the acquisition of the property.  The difference in result is about $270,000 in terms of the primary measure of damages.  We would ask the Court ‑ ‑ ‑

GUMMOW J:   Yes.  Mr Keane, in that respect there is the figure that appears at page 40 of the application book of $127,000.  Does that reflect what appears on page 59, paragraph 8?  In other words, if you go through what is invited at page 59, do you come up with the figure at page 40?

MR KEANE:   That is true.  That is because, your Honour, there are two possibilities as to the relevant date.  One is the date of contract, which is April, when the true value was found to be - or that the evidence of the valuer was that it was $400,000, and the later figure is in July when the contract settled when the figure was $375,000.  I think that accounts for the difference that your Honour is adverting to.

GUMMOW J:   Yes.

MR KEANE:   If we can ask your Honours then to go to paragraph [48] at page 19 of the application book.  Your Honours will see that in this paragraph the learned trial judge first states the general principle and then states why it does not apply in this case.  The reason he identified was that the valuer had not relevantly valued the property but had rather given a predictive opinion as to rental levels, from which the plaintiff could form an opinion of value.

The Court of Appeal, at page 31 of the application book at paragraphs [17] to [18], accepted and affirmed this distinction and went on at page 32, in paragraphs [19] to [24], to add a further reason not to apply what we contend is the general principle.  That further reason was that this case was characterised as a “no transaction case” and therefore compensation would only be calculated when the risk that the Beach Road shops would be completed and have an adverse effect on the property became apparent.

The first point, that is to say that this case is different from a “valuation case” is, in our submission, distinctly artificial.  The trial judge found that the decision maker of the plaintiff, a Mrs Foster, made the decision as to whether the property was good buying based upon her calculation of return and margin, which was in turn based upon the advice that the existing rents were maintainable, and the working out of the value was then a purely mathematical exercise, as Justice Dutney at first instance found.  If Mr Deacon, the valuer, had added a mathematical calculation at the end of his letter to turn it into a valuation as Mrs Foster did, his liability would apparently have been less by $270,000.  This type of distinction, we submit with respect, does little credit to the jurisprudence.

The second point, the serious implications for the development of the law in relation to the existence of principled limits on awards for damages for professional liability, in the law relating to professional liability no transaction cases are common.  If the Court of Appeal’s second point is correct then the general principle which constrains awards of damages will be supplanted by the so‑called exceptions and for no good reason, in our submission.  The proposition that a “no transaction case” is not outside the general principle, we rely once again on the observations of Justice McHugh in Kenny & Good, this time at page 437 in paragraph 54, at the bottom of the page, where his Honour said:

Furthermore, I do not think that the fact that the aggrieved party would not have entered into the loss‑making transaction but for the negligent valuation is a sufficient ground for holding the valuer liable for the difference between the true value and sale price.

The effect, in our submission, of paragraphs [22] and [23] of the reasons of the Court of Appeal is that from the date of the acquisition of the asset, that being the transaction made in reliance on the advice, the plaintiff was at no risk in relation to the operation of market forces in the future upon the value of that asset.

That, we submit, is quite inconsistent with principle.  The true value of the asset at the time of its acquisition takes into account the risk of the decline in market that is reasonably foreseeable, insofar as, on the other hand, it might be said that that risk is not foreseeable.  Any loss arising from it must be regarded as outside the contemplation of the parties.  In that regard we rely upon the observations of Justice McHugh in Kenny & Good at page 435, in paragraph 48, and going over the page to 436.  We invite your Honours to read that paragraph.

We make the submission that the approach of the courts below means that the wrongdoer is treated as if it had given a contractual warranty; that is to say the valuer is treated as if it had warranted that the rents were maintainable and would not go down.  Even a fraudster is not subject to that measure of responsibility.

Alternatively, we would say that the courts below have decided the case as if the wrong done was to induce the investor not only to buy but to subsequently decide to hold onto this form of investment in a declining market.  The plaintiffs did not, and indeed never set out to, prove that they were induced not only to buy but to hold on.  Once again we would refer to what Justice McHugh said in Kenny & Good, this time at page 438 at paragraph 56, where his Honour said:

Valuation cases differ from other cases in that the true value of the property takes account of all factors that were reasonably foreseeable at the time of breach of duty.  The risk of a market decline, so far as it was reasonably foreseeable, is already factored into the true value.

That is of course what Mr Dodds, the valuer called for the plaintiff, whose evidence was accepted, did when he valued the property at the date of contract at $400,000.

Your Honours, we submit the question is important.  The Court should, we submit, make it clear that the general principle does apply indeed to “no transaction cases”.  Kenny & Good itself of course was a special case in that the loss that was there suffered by the insurer in reliance on the misrepresentation was the extent of the insurer’s liability to the lender to the owner of the property under a policy of insurance, whereby the insurer underwrote the loan, the period of the loan, so that its loss was the acceptance of the liability for a shortfall in sale price at any time.

The present case concerns the acquisition of an asset.  It involved the exchange of an asset for money.  That which was exchanged for money had a value.  The difference between the two is the loss caused by a reliance on the representation, and once again, your Honour ‑ ‑ ‑

GUMMOW J:   Is there anything in Banque Bruxelles which would support your opponents?  I am not suggesting there is.

MR KEANE:   We would submit not, your Honour.  But in any event, we would also submit, with respect, that it is to Kenny & Good that one looks rather than Banque itself.

GUMMOW J:   Yes, I understand that.

MR KEANE:   Your Honours, the other thing we would say is that this is not a special case, as was Henville v Walker.  In Henville v Walker 206 CLR at page 471, at paragraph 22 in the Chief Justice’s judgment, your Honours, his Honour the Chief Justice made the point that that case, Henville v Walker, was a case about loss being suffered over the course of a project and was distinctly not the case of loss suffered as a result of the acquisition of an asset, such a case being Potts v Miller.  So that, in our respectful submission, both those cases were special.  This case is not. 

Your Honours, insofar as it is said against us that there is a general overriding principle of compensation that compensation is for loss suffered by reason of wrong done, we submit, with respect, it is to beg the question, at least in this case, because relevantly compensation must be for loss done by reason of the wrong, loss suffered by reason of the wrong done.  It is necessary to identify what that reliance loss is, and then to ask whether that loss is of a kind sufficiently likely to result from the breach to be compensable.

In our respectful submission in this case the loss suffered as a result of reliance was the acquisition of the asset and the asset when it was acquired had a value which was $400,000.  In our respectful submission, the case is one which is appropriate for the grant of special leave.

GUMMOW J:   Yes, thank you, Mr Keane.  Yes, Mr McKenna.

MR McKENNA:   Your Honour, there are three particular factual matters raised by my learned friend that I must take up at the outset.  The first point is that it was not accepted by the trial judge, in our respectful submission, that any finding was made as to the “true value” of the property as at the date of the transaction.

Your Honours will not find in the primary judgment any finding about value as at the date of the transaction.  What your Honours will see at page 32 of the application book in the judgment of the Court of Appeal at paragraph [21] at the bottom of the page, a finding that what Mr Dodds, who was the valuer, did was in fact assess the risk known at that time of the potential decline in future value, the potential for the opening of the Beach Road shops.

Now, that is not a finding, it is not even evidence, of true value in the Kizbeau sense because it is simply blind to any hindsight of what happened afterwards.  So your Honours must deal with this matter in the absence of any finding as to what the true value of the property was at the time of the transaction.

The second factual matter to raise, your Honours, is that there is nothing in this case about general market decline that is relevant.  It was run at trial that the decline in value of this property was caused by factors other than the particular risk that should have been warned about, and that argument was rejected by the trial judge.  The case proceeds on the basis that the only difference in value in this case was caused by the particular risk that should have been warned about.

The third factual matter to raise with your Honours concerns the suggestion that this is not a case of the misleading conduct causing the representee to buy and hold the property.  That is not really supported by the findings either, your Honours.  If your Honours go to page 30 of the application book, at paragraph [10], your Honours will see the easiest place to find the evidence, which is that the purchaser in this case relied upon the statement about the maintainability of rent, to work out that the property was “self‑funding”.

That word is used deliberately because the evidence at trial was that these people were particularly careful, the purchasers were particularly careful and did not want to know, did not want advice about valuation.  They wanted advice about the future, about the maintainability of the rent so that they could do a calculation about whether they could afford to repay their borrowings over time from the rent, given the risks of people departing.  The particular problem that caused the assessment of damage here was that a particular risk, which in fact came to pass, was not drawn to the purchaser’s attention and the finding was that if that particular risk had been drawn to the purchaser’s attention they would not have pursued the property.

Having made those three points, your Honours, may I go back to the general question of whether this is a case for special leave and there are really five main reasons why your Honours should not find this is an appropriate case for special leave.  The first point is the obvious one, that the general question of what “amount of” damages in section 82 of the Trade Practices Act entails as a matter of legal analysis has been dealt with by this Court on numerous occasions and is not challenged in this case.

The second point moves to a more particular question, which is in this case whether there is a claim for a total damage claim, that is for the damages from the whole transaction.  The claim for total damages arises from the valuation context.  In what circumstances is a total loss claimed recoverable?  Your Honours, the Courts have considered that twice in recent times, in Kenny & Good and also in Henville v Walker.  In both cases a total loss claimed was allowed.

So if there is a special leave question here, the question is what is different about this case from Henville and Kenny that would justify the High Court considering this matter again.  In my respectful submission, there is nothing because the critical feature of both Kenny and Henville was the temporal features, as your Honour Justice Gummow described it, in Kenny & Good.

In both Kenny and Henville the Court was careful to distinguish cases where the representation was only about the fact of valuation at a particular time that was relied upon at that time to purchase the property.  A distinguishable case is where the representation concerns not the present but the future, particular future risks about the property that are relied upon not simply by purchasing but by purchasing and holding or pursuing a transaction where that particular risk comes to pass.

GUMMOW J:   Now, Mr Keane fixes upon this “and holding” and says that was not the debate.

MR McKENNA:   That is why I took your Honours at the outset to the finding about self‑funding.  The evidence at trial was that these purchasers sold their family home with the view to buying a particular investment that they could borrow money to hold, and the female director of the company, who was an accountant, actually carried out her own calculation of how the property could be funded into the future, and that is where the significance of the representation comes in.

The judge expressly found that she did not rely upon expressions of valuation given by this particular valuer.  He was found to have said what he thought a good buying price would be, and it was found that she did not actually rely upon that.  She relied upon the statement about the maintainability of rents into the future, or her own calculation about the future investment of the property, and that is in fact what happened.

So the particular representation here was about a particular future risk, not about existing value.  It was relied upon not just by purchasing but by going into a self‑funding investment that was to go into the future, and the loss that was suffered was when the particular future contingency that should have been warned about in fact came to pass, and the measure of loss that was allowed to us was an amount that represents the difference in value caused by that particular future risk coming to pass.  It is not a case of simply purchasing a property at an over value where the appropriate measure of damages would be that.

The next point, your Honours, contrary to the submission put in our learned friend’s outline, there is no clash between these findings and the decision of Justice McHugh in Kenny & Good.  Whilst Justice McHugh stated the general principle that is set out in the judgment of the Court of Appeal, his Honour of course went on to find that in that case the valuer was advising a lender not just about present value but about a horizon of value - three to five years into the future - to assist the lender in deciding whether, if the mortgage had to be enforced three to five years in the future, whether it was likely to recoup their advance.  Really, that is the same.

On that basis his Honour allowed a total loss claim.  In our respectful submission, it is analogous here.  Just as a bank went into their lending transaction with a view to the future, obtained advice about the future and suffered loss in the future, the same can be said of this case.

The final point, your Honours, in relation to special leave is this, that there is controversy between us about fundamental matters of fact in relation to the case - I have already adverted to them, your Honours - in that our learned friends repeatedly assert that there is a finding by the judge that the true value of the property at the date of the transaction was a particular amount and that simply is not so.  Your Honours will see in the reply from our learned friends that in fact they take your Honours to the evidence in the case to mount an argument as to how one can work out the ‑ ‑ ‑

GUMMOW J:   Now, can you just take us to that.

MR McKENNA:   Yes of course, your Honours.  It is at the application book at page 59, at paragraph 8 and following.

GUMMOW J:   Yes.

MR McKENNA:   And the contrary accounts of the evidence appear at the application book at page 51, paragraph 17, and the application book at page 57, at paragraph 50.

HAYNE J:   Now, is there any decision of this Court which deals with the circumstances where a statement is made about the future, namely rents in the future will be maintainable, and events demonstrate that that statement does not come to pass, and evidence demonstrates that at the time it was made it should not.

MR McKENNA:   Your Honour, the closest case is Henville v Walker, where the representation was about the sale price that might be obtained for the units that were to be developed.  When that occurred the sale prices did not come to pass.  In that case the Court held that it was a total loss, the appropriate calculation of the loss was a total loss calculation.  May I say that was a purchase of property case; a case where a misleading conduct led the party to purchase property and pursue a development.  The only difference between that case and this is that the purchasers in this case did not pursue a development, they just held onto it as an investment.  In my respectful submission, there is no material distinction there.  Unless your Honours have anything further, they are the respondent’s submissions.

GUMMOW J:   Thank you.  Yes, Mr Keane.

MR KEANE:   Your Honours, as to the last point, of course Henville v Walker is a case, not of a decision to buy property but of a decision to develop it, and the claim was for the total loss on the development project.  As to the point that there is no finding as to the true value at the time of the acquisition, that is because his Honour adopted the approach that he did in point of principle, but as to the evidence, the evidence is clear that from the valuer whose evidence was accepted, the value was put at $400,000.

The second figure, the figure that our learned friends took your Honours to in our reply from paragraph 8 onwards is concerned with a contention that is put in the alternative by our learned friend at page 56 of the application book, paragraph 45 and following, which is put in the attempt to suggest that the “true value” of the property was $196,000 in April 1997.

As appears from the evidence that is collected in paragraph 10 of our reply at page 59, the valuer readily accepted that that exercise was “a

mathematical exercise” that he was asked to perform and was not put forward by him as a valuation for the no doubt good reason that it involved assumptions that were irregular to say the least, in that he was asked to treat the valuation of the property on the basis of applying a 12 per cent discount rate for risk in circumstances where there was no risk, because the risk had become reality.

In relation to the other point that our learned friends make, that this was an acquisition of a property that was to be self‑funding, that does not, in our submission, answer the point that the decision to hold the asset was not a matter of debate, was not a matter that was put as something upon which the other side had relied or on which - the other side relied on our valuation to make that decision.  It is not a point of distinction, in our respectful submission - your Honours, I will just conclude.

GUMMOW J:   Yes.

MR KEANE:   The plaintiff received an asset with a present value and what happened here is that the defendant was required to underwrite the future value of that asset.  Those are our submissions.

GUMMOW J:   Now, just a minute.  So this order sought in 3(b) of your draft notice of appeal, which refers to this amount of $127,000, are there findings on which that can be refuted?  Or was there some process that ‑ ‑ ‑

MR KEANE:   Your Honours, the only extra findings that would need to be made would be to do the maths on the footing that Mr Deacon, the plaintiff’s valuer, who his Honour accepted generally - Mr Dodds, I beg your Honours’ pardon ‑ Mr Dodds, the plaintiff’s valuer, who he accepted generally, should be accepted in respect of his valuation of the property as at April and July 1997.

GUMMOW J:   Thank you.

MR KEANE:   And in relation to that there is no competing evidence.

GUMMOW J:   Thank you.  We will take a short adjournment.

AT 10.02 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.04 AM:

GUMMOW J:   There will be a grant of special leave in this matter.  Mr Keane, how extensive was the record below?

MR KEANE:   Your Honour, I think it would be three volumes in terms of appeal record books.

GUMMOW J:   Yes, very well.

MR KEANE:   No doubt much of that evidence could be culled.

GUMMOW J:   Yes.

MR KEANE:   Because most of it went to the issue of liability, which is not of course in issue.

GUMMOW J:   Well, that is what I am wondering about.  Yes, very well.  Well, the record need not include that superfluous matter.  This will be a one‑day appeal, I would think?

MR KEANE:   Certainly, your Honour.

GUMMOW J:   Do you agree with that, Mr McKenna?

MR McKENNA:   Yes, your Honour.

GUMMOW J:   Yes, thank you gentlemen.

AT 10.05 AM THE MATTER WAS CONCLUDED