Ilich Motor Company Pty Ltd v Angor Pty Ltd (In Liq)

Re: ILICH MOTOR COMPANY PTY. LTD. and ROBERT ANTHONY ILICH
And: ANGOR PTY. LTD. (IN LIQUIDATION)
No. WA G59 of 1990
FED No. 155
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Morling(1), Burchett(1) and Lee(1) JJ.

CATCHWORDS

Trade Practices - misleading or deceptive conduct - reliance - nexus between conduct and loss - calculation of loss.

Federal Court of Australia Act 1976, s.51A

Trade Practices Act 1974, ss.52, 75B, 82, 87

Abalos v. Australian Postal Commission (1990) 65 ALJR 11

Hungerfords v. Walker (1989) 84 ALR 119

Jones v. Hyde (1989) 63 ALJR 349

Lam v. Ausintel Investments Australia Pty. Ltd. (1990) ATPR 40-990

Westpac Banking Corporation v. Spice (1990) ATPR 41-024

Zoneff v. Elcom Credit Union Ltd. (1990) 94 ALR 445

Zoneff v. Elcom Credit Union Ltd. (1990) ATPR 41-058

HEARING

PERTH

#DATE 9:4:1991

Counsel for the Appellants: C.J.L. Pullin QC, K.F. Smart

Solicitors for the Appellants: Taylor Smart

Counsel for the Respondent: C.L. Zelestis QC, E.L. Blewett

Solicitors for the Respondent: Sly and Weigall

ORDER

The appeal be allowed to the extent required by the next succeeding item.

The judgment be varied by reducing the amount thereof to $416,746.

The respondent to pay two-thirds of the appellants' costs of the appeal.

The cross-appeal be dismissed with no order as to costs.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from a judgment of a judge of this Court ordering the appellants to pay to the respondent a sum of $613,807 and dismissing the cross-claim of the appellant corporation ("Ilich Motor Co.").

The amount of the judgment is an assessment pursuant to s.82 of the Trade Practices Act 1974 ("the Act") of the loss or damage suffered by the respondent by conduct of Ilich Motor Co. done in contravention of s.52 of the Act. The liability of the second-named appellant ("Ilich") was an accessorial liability imposed by s.75B of the Act upon Ilich as a person knowingly concerned in the contravention of the Act by the corporation.
The finding that Ilich Motor Co. had engaged in conduct in contravention of s.52 of the Act was based upon evidence of negotiations between the appellants and respondent prior to the formation of a contract pursuant to which Ilich Motor Co. sold and the respondent purchased the former's leasehold interest in a pastoral lease and pastoral business known as "Twin Peaks Station" in the Murchison area of the State of Western Australia.
The statement of claim alleged that various representations were made by, or on behalf of, Ilich Motor Co. as to:

1. stock numbers on the station property;

2. the carrying capacity of the property; and

3. projected future income of the station business.

The respondent also pleaded that the appellants were liable to the respondent in negligence in respect of the same conduct.

His Honour found, as a principal finding, that Ilich Motor Co., in contravention of s.52 of the Act, engaged in conduct in trade or commerce that was misleading or deceptive in that it represented to the respondent that the pastoral property had a carrying capacity of 15,000 sheep. His Honour found that the statement was false and that the carrying capacity of the property was 12,500 sheep. His Honour further found that such conduct had a substantial impact upon the minds of the persons through whom the respondent acted, and in particular in the formation of the decision of the respondent to acquire the Twin Peaks station lease and business.
His Honour also found that Ilich Motor Co. had made representations as to the number and type of sheep and the number of lambs to be found on the property and that such statements were also false and involved contraventions of s.52 of the Act.
His Honour regarded the latter contraventions as lesser representations, but found them to be factors which induced the purchase of the station property.
No findings were considered to be necessary in respect of other alleged representations as to sheep numbers or income projections or the claims in negligence, and no issues arise on this appeal in respect of those matters.
A summary of the relevant facts is as follows.
In July 1988 Ilich Motor Co. appointed Elders IXL Limited ("Elders") as its agent to sell the Twin Peaks pastoral station and business, and delivered to Elders a set of handwritten notes prepared by Ilich in about June 1988 setting out relevant information in respect of the property and its management.
The notes contained proposals for terms for the sale of the property and calculations of price. The notes stated that the preferred terms of sale were for the purchaser to take the property on a "walk-in walk-out" basis including sheep "in the wool" and complete the sale by the end of August 1988. The suggested price for such a sale was $1.5m calculated as follows:

Plant and equipment as at 30 June 1988 $100,000 Value of sheep including value of unshorn wool at 30 June 1988 $332,532 Leasehold improvements $1,067,465 $1,500,000

The the value of sheep "in the wool" was calculated by ascribing a value of $27 per head to 12,316 sheep.

Another proposal was for a sale of the property after completion of shearing in November 1988. Such a sale was known as an "off shears" sale. A price of $1.1m was suggested for an "off shears" sale based upon the following components:

Plant and equipment $100,000 Sheep $ 95,320 Leasehold improvements $904,680 $1,100,000

The value of $95,320 allocated to sheep was obtained by ascribing a value of $6.30 per head to 15,000 sheep. The notes placed a query mark in front of the figure of 15,000 indicating that it was an approximate number of sheep "off shears". Whether the number included new born lambs to be dropped in the 1988 season was not stated. The normal lambing season was June to August.
A comparison of the "in the wool" and "off shears" proposals indicates that a value of $237,212 was placed on the wool to be shorn and that an additional value of approximately $163,000 was placed on leasehold improvements if the property was sold on a "walk-in walk-out" basis" in the wool". In the same notes another valuation was suggested by Ilich apparently based on a "walk-in walk-out" sale "in the wool". The page of notes was headed"? Value Twin Peaks Station" and placed equal values of $500,000 upon each of three items, firstly the 1988 woolclip, secondly 15,000-16,000 sheep producing that woolclip, and thirdly the station property including plant and equipment. The following notes appeared at the foot of the page:

"? Old method of working out station worth is three times the nett income.? Where can anyone buy a property at this price capable of carrying 15,000-16,000 sheep."

The notes set out the number of sheep mustered in the previous shearing during October and December 1987 and the number of sheep sold thereafter, and also provided an estimate of the stock on the property as at 30 June 1988. In October-December 1987 14,917 sheep were shorn. There were 1,214 seven to nine week old lambs that were not shorn and the total number of sheep carried on the property at the time of shearing 16,131. Of these, 3,850 were sold leaving a balance of stock on the property of 12,316 immediately after shearing in May-December 1987. To estimate the number of sheep on the property as at 30 June 1988, it was necessary to make reductions for natural losses and estimate the increase to be obtained from the 1988 lambing season.
In the notes, Ilich estimated that the number of sheep on hand at shearing in October 1988 would be 15,566 after having regard to approximately 350 sheep that may have missed the 1987 shearing muster, 4,000 lambs to be born in the 1988 season and the loss of approximately 1,100 sheep during the year.
Elders obtained from Ilich Motor Co. an authority to sell the property and attached to the authority a description of the property for sale prepared from information contained in the above notes. The description of the property for sale was on a standard printed form.
The form included the following item:

"SHEEP Normal carrying - 15,000".

In August 1988 one, Martin Mullins, was keen to be involved in the business of wool production. Mullins was experienced in matters of business but had no experience in the pastoral industry. A company controlled by Mullins, Mullins Investments Pty. Limited, employed a person with such experience, Patrick Davin, to obtain details of pastoral stations then on the market for sale and to advise thereon. Mullins entered into the project with some enthusiasm. He read publications of the Department of Agriculture, discussed the matter with a number of people and developed a computer program which established the average costs of maintenance per head of sheep in pastoral areas.
From the list of properties obtained by Davin, Mullins selected the Twin Peaks station and Minnie Creek station in the Gascoyne pastoral area as prospective purchases.
On about 18 August 1988, Mullins and his son, Davin and one Lockyer, travelled to Twin Peaks station to inspect the property. Lockyer was an experienced station manager recommended to Mullins by Davin. In the course of the journey to the station, an Elders representative allowed Mullins to peruse a copy of Ilich's notes. The notes were returned to Elders after the inspection. In the course of the inspection of the station property Ilich gave Mullins another copy of the notes for his use on that day and advised Mullins that he would instruct Elders to deliver a photocopy of the notes to Mullins after Mullins had returned to Perth.
It was Mullins' evidence that he had asked Ilich why only 12,316 sheep had been carried over from the previous shearing if the normal carrying capacity of the station was 15,000-16,000 sheep. Apparently Mullins based his enquiry on the text of Ilich's note referred to above. In the context in which the note was placed it may have been said that the note was referring to the stock on hand at shearing rather than the capacity of the station to carry stock through summer months after shearing.
After the inspection of the property, Lockyer provided a report to Mullins which recommended that if 15,500 sheep were shorn, approximately 2,000 or 2,500 should be sold and 13,000 or 13,500 be carried through the summer.
By letter dated 19 August 1988, Mullins Investments Pty. Limited informed Elders by letter that it wished to enter into negotiations for the purchase of the property.
As at 19 August 1988, the directors of Mullins Investments Pty. Limited did not have before them a copy of Ilich's notes. Elders provided a copy of the notes and a copy of its property description form on 22 August 1988.
The letter referred to Ilich's valuation of the property - described as follows:
"(a) Woolclip valuation $500,000

(b) Stock valuation $500,000

(c) Leasehold and improvements $500,000 $1,500,000" -

and suggested that the woolclip should be valued at $400,000 and the price of the station should be $1.4m subject to the vendor providing some form of assurance in respect of the estimated 15,566 sheep or, alternatively, a warranty that 380 bales of wool would be produced from the forthcoming woolclip.

The letter then suggested that negotiations for sale of the property proceed either on the basis that the purchase be "off-shears" for a price of $900,000 based upon 15,566 sheep with an "unders and overs" clause valuing the sheep at $25 per head or "in the wool" for $1.3m with no warranty or guarantee as to the number of sheep or as to the amount of wool to be produced at shearing.
On about 8 or 9 September 1988 Ilich and Mullins met in Perth to carry out further negotations. Ilich made it clear that the estimated number of sheep on the property would not be guaranteed, but Ilich Motor Co. was prepared to pay the respondents $7.50 for each kilogram by which the woolclip fell short of 70,000 kilograms.
On 9 September 1988, Ilich Motor Co. and the respondent proceeded to reach an accord on the terms for sale and purchase of the property. The agreement was recorded in a printed form of offer and acceptance with additional handwritten clauses and in a further typewritten agreement, described by the parties as a shearing agreement, completed the same day.
The respondent was a corporation of which Mullins acquired control shortly before 9 September 1988. Although it appeared that Mullins was secretary of that company and not a director, it was apparently accepted by the parties that he was the controller of the corporation.
The offer and acceptance form recorded that the vendor gave no warranty as to the number of sheep on the property and that the purchaser had satisfied itself in that regard. The clause stated that the sheep included in the sale were those on the property, believed to be 12,316 in number. The disclaimer clause in relation to the number of sheep on the property included an undertaking by the purchaser to take no action "legally or otherwise" against the vendor in the event of a shortfall in the estimated muster. The form of that clause had been included in the documents forwarded to Mullins Investments Pty. Limited on 22 August 1988. In the later negotiations the respondent had sought and obtained the inclusion of a further clause in which Ilich Motor Co. warranted that no sheep had been sold or removed from the property since December 1987 at which time the number of sheep on the property was said to be 12,316.
The offer and acceptance also contained a clause in which the purchaser acknowledged that it was aware that the property was to be inspected by the Pastoral Board and that such inspection may require the purchaser to carry out remedial work on "rangeland regeneration" or upon development and maintenance of permanent improvements.
The contract price was $1.5m of which $519,400 was allocated to chattels, being $150,000 for plant and equipment and $369,400 for 12,316 sheep. The value assigned to the sheep in wool was, therefore, $30 per head. The balance of the purchase price of $980,600 was allocated to leasehold and fixed improvements.
Ilich Motor Co. provided a warranty in the shearing agreement as to the size of the woolclip. Pursuant to that agreement the parties agreed that the Ilich Motor Co. would carry out the mustering and shearing operations and the respondent would pay Ilich Motor Co. for the cost of that work. The shearing agreement recorded that the respondent was entitled to all wool shorn and that in the event of the woolclip being less than 70,000 kilograms in weight, the vendor would pay the purchaser $7.50 per kilogram, such amount to be set off against the shearing costs to be paid on or before 31 January 1989. The respondent was obliged to carry out a "straggler" mustering and shearing "in accordance with the best methods available" and wool obtained from the "straggler" shearing was to be included in the weight of the woolclip. Ilich Motor Co. was released from the obligation to pay any sum in respect of a wool shortfall if the respondent had not completed the "straggler" muster by 31 January 1989.
Settlement of the purchase was to be completed on 1 November 1988.
Shearing was carried out by the vendor in October 1988. Including wool produced by the subsequent shearing of stragglers the total woolclip was 54,382 kilograms.
The respondent was unable to complete settlement of the purchase on 1 November 1988 and settlement did not take place until 2 December 1988. Pursuant to the terms of the offer and acceptance which incorporated a set of general conditions for the sale of land, the vendor was entitled to interest on the purchase price for that period of delay.
At settlement it was agreed that the amount of interest to which the vendor was entitled was $22,854.93. It was further agreed that payment of that sum would be deferred and set off against such sum as was found to be payable to the respondent under the shearing agreement in respect of the woolclip shortfall. It was also agreed that the shearing and mustering costs payable to Ilich Motor Co. under the shearing agreement which were in dispute were to be fixed by an arbitrator. The parties agreed prior to settlement that $50,000 would be withheld from the purchase price payable at settlement and held on trust in an interest bearing account in the names of the respective solicitors for the parties pending determination of the amount to which the purchaser was entitled under the shearing agreement. The pleadings indicated that the sum of $50,000 and interest thereon remained undisbursed at trial and counsel for the respondent, in his opening address conceded that that sum would have to be applied in reduction of any judgment in favour of the respondent. It is assumed that after the respondent obtained judgment in this matter the balance of purchase price and interest thereon were made available to the appellants to apply in reduction of the judgment.
After settlement and with the assistance of an arbitrator, the parties agreed that the amount of shearing costs to which Ilich Motor Co. was entitled under the shearing agreement was $55,550.
After entering the contract to purchase but before proceeding to settlement, the respondent, as forecast in the terms of the offer and acceptance, received a letter (effectively a report) from the Pastoral Board on about 24 October 1988. The letter advised that an inspection of the property had shown that there was a need for careful management of most paddocks on the station and although this was not to be taken as a stipulation of the numbers of stock capable of being carried on the lease, it was considered that in the vicinity of 10,000 grown sheep was a safe number given the present condition of the countryside. The respondent was invited to contact the local branch of the Department of Agriculture to receive assistance in developing "management options" for the station.
It may be considered that Mullins' failure to treat this advice as a warning of a possible limitation of the carrying capacity of the station indicated that Mullins had been swayed by information he had obtained as to the station's past performances and production rather than by any representation as to its present capacity. His response to - cross-examination on this matter was not illuminating.
Shortly after settlement and after the respondent became aware that the numbers and type of sheep mustered for shearing fell short of the size and description of the flock indicated in the second appellant's notes and in discussions prior to the formation of the contract, the respondent sought an order under s.87 of the Act setting aside the contract or, alternatively, the recovery of its loss. Later, the respondent elected to affirm its bargain and sought only the recovery of the loss incurred by reason of the conduct of Ilich Motor Co. in respect of its representations as to the numbers and type of stock on the station.
Only in late November 1989 immediately before the commencement of the trial of the application did the respondent amend its pleading to allege that part of the appellants' misleading conduct consisted of representations as to the carrying capacity of the station. The reason for such a late inclusion of the complaint which became the main thrust of the respondent's case was not explored at trial in any depth.
The trial commenced soon after the completion of the shearing in October-November 1989. 14,815 sheep had been shorn in the main muster in September 1989. 356 sheep which had missed the main and straggler musters in 1988 were shorn in August 1989. At the time Mullins gave his evidence, approximately 750 sheep, including lambs, had been mustered in the straggler muster after shearing of the stock in the main muster in 1989.

It appeared, therefore, that at the time of the 1989 muster, the respondent was carrying at least 15,920 sheep on the station property. Only 700 sheep were sold after shearing in the previous year. The respondent had purchased 1,047 sheep in the course of the year prior to shearing. After taking into account natural losses, the stock on the property had increased from 11,750 to 15,920. 4,073 lambs were shorn in the 1989 muster in contrast to 1,938 lambs shorn in the 1988 muster. It appears that a good lambing season was able to restore the sheep numbers to those that had been predicted a year earlier.
In their appeal, the appellants did not take issue with his Honour's findings that a representation had been made that the station had a carrying capacity of 15,000 sheep and that the appellants knew that the expression "carrying capacity" referred to the number of sheep that could be sustained on the property from year to year over the summer season. Furthermore, the appellants did not challenge his Honour's finding that the actual carrying capacity of the station at the time of sale was 12,500 sheep.
It appears to have been accepted that based upon a carrying capacity of 12,500 sheep, the property, with normal winter feed and lambing season, was capable of carrying 15,000 sheep up to the shearing muster in September or October of each year.
The appellants contended that Mullins, the directing mind of the respondent, did not understand the meaning of "carrying capacity" to be as his Honour found it but understood it to be the number of sheep that could be carried by the station at the time of the shearing muster.
The appellants further contended that, through Mullins, the respondent made its own enquiries and formed its own opinion as to the carrying capacity of the station and placed no reliance on the appellants' representation in that regard.
Certainly there are passages in Mullins' evidence capable of supporting the former of those contentions or at least of suggesting that there was some confusion in Mullins' mind as to what was the real significance of the property's carrying capacity.
Whether Mullins understood the carrying capacity to refer to the maximum stock capable of being carried in summer may have been open to doubt. In his evidence he explained his interest in the matter of carrying capacity by saying that it would have been "stupid to pay $1.5m for a station that was not carrying - capable of carrying 15,000 head of sheep in the wool". That statement appears to indicate an understanding that carrying capacity was assessed in the best seasonal months leading up to shearing in October rather than the capacity of the station to carry stock in the harsh months after shearing. However, the fact that Mullins asked Ilich why 3,850 sheep had been sold after shearing in 1987 indicates that Mullins was seeking a further assurance that the property was capable of carrying 15,000 stock over the summer months and Ilich's statement that he had taken advantage of market conditions to sell old stock may have gone some way to providing such an assurance.
There was evidence which suggested that Mullins was impressed by the information he had obtained relating to the history of the Twin Peaks station and by the fact that under previous owners it had carried higher numbers of stock and cut much larger woolclips, and his evidence did convey an impression that although he was aware that the property had been severely run-down at the time the appellants took it over in 1981, he placed great weight upon the results that had been obtained by the station proprietors in 1960-1977. Mullins had projected a carrying capacity for the station of 18,000 sheep in the season immediately following purchase. Mullins was aware that the property had not been carrying 15,000 stock "off shears" for many years, but it was his view that the carrying capacity of the station could be improved to 18,000. His correspondence with a proposed financier stated that Twin Peaks was understocked as "evidenced by the 1960/70's production of approximately 90,000 kilograms". In that correspondence Mullins went on to say that the former level of production would be achieved once more. That statement indicated that Mullins had in mind carrying up to 20,000 sheep on the property at shearing.
Although, as indicated above, there was evidence capable of supporting an inference that Mullins had formed an opinion of his own as to the present and future capacities of the station and that he had placed little reliance upon any statement of carrying capacity made by Ilich, there was also evidence to support an inference that Mullins understood the figure of 15,000 to be the minimum capacity of the property to carry stock throughout the year and that he had relied upon that figure to make projections for the property.
The question for his Honour was whether Mullins had accepted the representation that the carrying capacity of the station was not less than 15,000 sheep and whether it influenced the decision made on behalf of the respondent.
The matter of reliance was a matter of inference for his Honour after consideration of all the circumstances. His Honour did not explicitly ground his conclusion as to reliance upon his assessment of Mullins' credibility, but he made a clear finding that he preferred the evidence of Mullins to that of Ilich and, plainly, his Honour's estimate of Mullins must have influenced the ultimate conclusion. (cf. Jones v. Hyde (1989) 63 ALJR 349 at p 351; Abalos v. Australian Postal Commission (1990) 65 ALJR 11 at p 16; Zoneff v. Elcom Credit Union Ltd. (1990) ATPR 41-058 p 51,745; Westpac Banking Corporation v. Spice (1990) ATPR 41-024.)
His Honour was entitled to consider, in conjunction with all other material bearing on that issue, Mullins' assertion that the decision to purchase the property would not have been made had Mullins known that the carrying capacity of the station was 12,500 and not 15,000.
The late amendment to the respondent's statement of claim may have suggested that the issue was not at the forefront of Mullins' mind and that the representation was not relied upon to any great degree. However, the evidence on that aspect was sparse and equivocal.
Although an inference may have been available that the representation was not of great moment and that Mullins had looked at the property as a prospect to be redeveloped and returned to past stocking numbers being fully aware that 15,000 sheep had not been carried in summer months for many years, it was still open to his Honour to find that the appellants' statement had been relied upon as a statement of present carrying capacity in summer months and that it had induced the respondent in some degree to enter into the agreement to purchase.
Notwithstanding that it may not be possible to spell out the extent of inducement flowing from a representation, a sufficient causal link will be established for the purpose of s.82 of the Act if it may be concluded on the evidence that the conduct of the corporation would have contributed in some not negligible degree to the decision to enter the contract as a result of which loss was suffered. (See Lam v. Ausintel Investments Australia Pty. Ltd. (1990) ATPR 40-990 at pp 50,882-50,883 per Gleeson C.J.; Zoneff v. Elcom Credit Union Ltd. (1990) 94 ALR 445; and on appeal (1990) ATPR 41-058 p 51,745.)
It is implicit in his Honour's finding that the representation as to carrying capacity was a substantial inducing factor operating on the mind of Mullins as controller of the respondent's decision to acquire the station that his Honour was satisfied that Mullins had made his calculations and assessment of price having some real regard to the statement that the station was capable of carrying at least 15,000 sheep.
Having found that his Honour did not err in that regard, it is unnecessary to deal with his Honour's findings in respect of representations as to numbers of particular types of sheep, those matters being regarded by his Honour as subsidiary to the principal representation of the carrying capacity, and any loss flowing therefrom being entirely subsumed within the calculation of loss described above.
His Honour assessed the respondent's loss by calculating the extent to which the value of the property obtained in the bargain fell short of the price paid for it. He was presented with several valuations of the worth of the property as at the date of sale as a property sold on a "walk-in walk-out" basis with sheep in the wool. His Honour accepted the value of the station property provided by one valuer and the value of the wool provided by another.
The appellants do not challenge the principles applied by his Honour in assessing the loss but do challenge the method of calculation.
The value of the station in September 1988, accepted by his Honour, based on the carrying capacity of 12,500 sheep, was $875,000. The valuation made no reference to the value of chattels such as motor vehicles and moveable plant and equipment. No issue has been raised in that regard and it must be assumed that the valuation is intended to include whatever equipment of that type was on the property.
The valuer stated that the valuation of $875,000 was to be reduced by any shortfall between the carrying capacity of 12,500 and the actual numbers of stock on the property at the time of sale, the amount of reduction to be calculated by applying a value of $25 per sheep.
The valuer had assumed a shortfall of 1,300 sheep and reduced the value of the property by $32,500. His Honour accepted that reduced valuation, but in cross-examination the valuer had agreed, and on the appeal the parties agreed, that the shortfall in sheep was only 749 and that the valuation should have been reduced accordingly. The appropriate reduction is $18,725.
His Honour accepted a valuation of $207,000 for the wool. The valuation was made as at the time of shearing rather than at the earlier time of sale of the property. The appellants accept the manner of valuation but challenge the calculation. The valuation was based upon 47,718 kilograms of wool whereas it was agreed between the parties that the amount of wool on the property at sale was 54,382 kilograms. The valuer applied a value of $6.20 per kilogram which, on the hearing of the appeal, was accepted by the appellants as a proper value. The respondent acknowledged that the valuation of the wool had to be adjusted, but contended that that part of the wool attributable to the weight recovered from the shearing of stragglers should have been valued at $5.03 per kilogram according to the actual price received when the wool was sold in January 1989.
That submission is not accepted. Clearly the task for his Honour was to assess the value of the property including wool at the time of sale, and after ascertaining, according to the evidence, what wool was on the property at the time of sale, the value of that wool was to be calculated by applying the same value per kilogram to each kilogram of the clip.
His Honour was not satisfied that the "straggler" muster was duly completed by 31 January 1989 as required by the shearing agreement, but found that any contractual loss to which the respondent would have been entitled under the shearing agreement for the shortfall in wool production had such a muster been properly done was provided for, in any event, in the assessment of loss contained in the calculation of the difference between the worth of the property purchased and the price paid pursuant to the contract.
In assessing the value of the wool, his Honour deducted costs of shearing and sale costs, including a wool levy imposed under the relevant Wool Tax Act 1964. The appellants contended that shearing costs should not have been deducted or, alternatively, that the amount of shearing costs deducted should have been the actual costs agreed by the parties, namely $55,550 and not the notional calculation of $59,647 attributed to those costs by the valuer.
His Honour was clearly right in deducting shearing costs to arrive at a net worth of the wool. Although the actual cost of shearing after the main muster was $55,550, it was standard practice on such pastoral properties to carry out straggler musters and a secondary shearing to obtain the season's woolclip. Of the 11,751 sheep agreed to have been on the property at the time of sale, 10,845 were gathered in the main muster and 906 in straggler musterings. If the main shearing costs represented a rateable proportion of shearing costs, the secondary shearing costs would be $4,640. It may be seen that the shearing costs allowed by his Honour were less than the total of these amounts.
In the valuation of wool accepted by his Honour, the valuer reduced the value of the wool by attributing 10 per cent to selling costs, a sum of $29,585. The evidence before his Honour showed that such a percentage included a wool levy of $21,725.57. On the hearing of the appeal it was agreed between the parties that part of that levy was refundable over a number of years pursuant to the statutory provisions which imposed the levy and that at the date of sale the discounted value of the refundable portion of the levy was $7,000. The respondent did not concede that any adjustment should be made to the valuation of the wool to reflect the discounted refundable value of the levy.
We are of the opinion that the valuer erred in failing to take into account the refundable nature of the wool levy and that the valuation should be adjusted accordingly by this Court as part of the recalculation of the respondent's loss.
After assessing the amount of the respondent's loss, his Honour dealt with Ilich Motor Co.'s cross-claim for the amount of the agreed shearing costs which remained unpaid and the amount of interest payable by the respondent for delayed settlement pursuant to the terms of the contract of purchase.
His Honour disallowed the cross-claims, treating them as part of the transaction and as elements of the respondent's loss.
It was certainly appropriate to treat the matters of the cross-claim as elements to be taken into account in calculating the extent of the loss suffered by the respondent, but in respect of each item the amount should have been applied in reduction of the loss.
On the hearing of the appeal, the respondent conceded that having received the benefit of a valuation which took into account a net value of the wool after subtracting shearing costs from gross proceeds, it was obliged to pay the shearing costs it had incurred but not discharged, namely $55,550.
With respect to the respondent's liability to pay interest for late settlement of the purchase, the respondent contended that it had suffered a loss to the extent of that interest liability as a result of being induced to enter into the transaction. Such a submission may be appropriate where a purchaser has rescinded the bargain but is inappropriate where the purchaser has elected to affirm the contract and take its benefits while recovering the difference between the value of the property and the price paid for it. In such a circumstance the interest incurred by the purchaser under the contract by reason of tardy settlement is a matter of the purchaser's own making and his Honour should have allowed an appropriate set-off in the calculation of the respondent's loss.
As stated earlier, it was agreed prior to settlement that the amount due as interest for the late settlement was $22,854.93, the rate of interest being 18 per cent. However, in assessing the extent of the respondent's loss by providing an appropriate set-off in respect of interest due and unpaid at settlement, the amount of that interest should be calculated upon the sum that would have been due on settlement if the purchase price had been represented by the true worth of the property as now assessed. That sum is calculated as set out in the Schedule.
In assessing the amount of the respondent's loss, his Honour included a component which represented interest incurred on borrowings by Mullins Investments Pty. Limited applied to the benefit of the respondent to effect the settlement of the purchase. The respondent submitted a schedule of calculations showing interest accruing on monthly rests. (Exhibit 4) The interest was capitalized and incurred compound interest in succeeding months. His Honour's calculation of the sum on which the respondent was entitled to claim interest was less than the amount used by the respondent in its schedule of calculations and his Honour adjusted the interest calculation by deducting a sum calculated at a simple interest rate. Perhaps a reasonable award in the circumstances would have been limited to a calculation applying a simple rate of interest having regard to mitigation of the loss and the net worth of the pecuniary loss after consideration of the impact of taxation laws. However, his Honour appears to have accepted that liability for compound interest was incurred by the respondent and that recovery of a sum so calculated was appropriate. (See Hungerfords v. Walker (1989) 84 ALR 119 per Mason C.J. and Wilson J. at pp 129-133.) In the particular circumstances and having regard to the way the case was argued, there is no sufficient reason to disturb that finding.
The Court having reached a different conclusion as to the amount on which interest should be calculated, the interest has been recalculated as set out in the Schedule.
The appellants also challenged his Honour's calculation of the amount of interest payable to the respondent pursuant to s.51A of the Federal Court of Australia Act 1976 but not the rate of interest applied, 18 per cent. The respondent contended that his Honour meant to apply a rate of 21 per cent and submitted that the Court should recalculate the sum accordingly. We are satisfied that his Honour's conclusion as to an appropriate rate was as stated, namely 18 per cent and, furthermore, that such a rate is a reasonable rate in the circumstances having regard to the fact that the rate of interest incurred by the respondent varied each month from 17.95 per cent to 21.5 per cent prior to 1 December 1989. As a result of the variation of the amount of loss to be recovered by the respondent, this calculation of interest has been reassessed in the manner set out in the Schedule.
The appeal will be allowed in part and the judgment varied by reducing the amount of the judgment to $416,746. The respondent is to pay two-thirds of the appellants' costs of the appeal. The cross-appeal which was to be pursued only in the event that the judgment was discharged or reduced to an amount less than the sum claimed in the cross-appeal will be dismissed with no order as to costs.

[1991] FCA 155

09 APRIL 1991