Khneiger v Cookson - [2009] SASC 203

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
KHNEIGER & ANOR v COOKSON
[2009] SASC 203
Judgment of The Full Court
(The Honourable Justice Anderson, The Honourable Justice Kelly and The Honourable Justice Kourakis)
10 July 2009
CONTRACTS - PARTICULAR PARTIES - VENDOR AND PURCHASER - DISCLOSURE OF MATERIAL FACTS
The appellants sold a Snack Bar to the respondent – before the sale the appellants provided the respondent with the disclosure statement required by s 8 of the Land and Business (Sale and Conveyancing) Act 1994 – in that statement the appellants represented that they were not aware of “any written notice served on the landlord or licensor, or any other circumstance that may positively have a significant adverse effect on the business” – six months after the sale construction work started near the Snack Bar – the turnover of the business fell significantly and the respondent eventually closed the business down – the respondent sought compensation from the appellants, claiming that they knew about the construction work – the trial Judge held that the appellants did know of the construction work and were obliged to disclose that fact – the appellants appealed that decision on the basis of errors of fact made by the trial Judge in reaching his conclusion.
Held: The trial Judge erred in finding that the construction received prominent front page coverage in the City Messenger newspaper and in finding that there were piles of the Advertiser and Messenger newspapers available in the Snack Bar for customers to read – those findings were not supported by the evidence – the factual errors of the trial Judge are material enough to affect the result and require this Court to review his conclusion – appeal allowed.

APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - POWERS OF COURT - NEW TRIAL
Whether this Court should give effect to its own view of the evidence, and either uphold or dismiss the respondent’s (plaintiff’s) claim in accordance with that view, or whether the matter should be remitted for re-trial.
Held: The nature of the factual dispute is such that it cannot be safely resolved on the papers – the matter must be remitted to the District Court for re-trial.

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR TORT - REMOTENESS AND CAUSATION
Whether the trial Judge erred in his assessment of damages.
Held: Appeal allowed - the trial Judge erred in assessing the damages to be awarded to the respondent - that question too must be remitted to the District Court to be reheard.
Land and Business (Sale and Conveyancing) Act 1994 (SA) s 8, s 15, referred to.
Fox v Percy (2003) 214 CLR 118; Mak v Police [2008] SASC 342, distinguished.
Cookson v Khneiger & Anor [2008] SADC 97; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 CLR 413; Henville v Walker (2001) 206 CLR 459; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, discussed.
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Registrar of Titles (WA) v Spencer (1909) 9 CLR 641, considered.

KHNEIGER & ANOR v COOKSON
[2009] SASC 203
Full Court: Anderson, Kelly and Kourakis JJ

ANDERSON J. On 1 May 2009 the Court made formal orders as follows:
1.Appeal allowed.
2.Action remitted to the District Court for a re-trial.
3.Question of costs reserved.
4.Reasons to be published.
5.That the appellant's undertakings regarding the mortgage over their home, including the undertaking given on 16 December 2008, be discharged.
6.Further consideration of the amount paid into the Suitor's Fund adjourned to a date to be fixed.
I have read the draft reasons of Kourakis J. I agree that the trial judge has erred in his analysis of the evidence relating to the newspaper articles. On reviewing the conclusions reached by the trial judge, I am also of the view that it is not possible to say whether the judge was wrong in his conclusion as to Mr Khneiger’s evidence regarding his knowledge of the proposed re-development. That is because it is impossible to know how much the newspaper articles influenced the judge’s reasoning.
The factual errors in my view are important and relate to a material matter in issue. This Court is not in a position to substitute its views based on the transcript of the evidence alone. For that reason I agree that the matter has to be remitted for further hearing. Whilst I initially considered that it may be appropriate to send the matter back to the same judge, having read Kourakis J’s reasons as to the other matters in doubt, I agree with His Honour that unfortunately there has to be a re-trial.
Bearing in mind that different evidence may be led on a re-trial, I do not express any views on the strengths or weaknesses of the evidence relating to Mr Khneiger’s knowledge of the proposed development.
On the question of damages, the parties may well approach the case quite differently on a re-trial. I do, however, agree with Kourakis J’s analysis of the law regarding the correct approach to damages. I would hope that on a re-trial the parties could at least agree the relevant calculations of loss based on a correct application of the law and restrict the arguments substantially if not entirely on this aspect. The issues at the very least should be able to be confined. This would save much of the time and expense which was devoted to arguing the question of loss.
KELLY J: I agree with the reasons of both Anderson J and Kourakis J for allowing this appeal.
KOURAKIS J: The appellants, who are husband and wife, were the defendants at trial. I will refer to them as such. While both Mr and Mrs Khneiger were named as defendants, at trial the parties and the trial Judge focussed upon the role of Mr Khneiger. For that reason, I will often refer to Mr Khneiger alone in these reasons.
Mr Khneiger has had extensive experience both in running snack bars and in the building industry. In 1995 he bought a snack bar, called Café Purple, which was located in an L-shaped arcade that runs north from Rundle Mall and then east towards Pulteney Street. Access to the arcade is gained from Rundle Mall, Pulteney Street and Austin Street. Austin Street runs south from North Terrace and joins the arcade at what might be described as the elbow of the L-shape.
By the year 2000 Café Purple was worked largely by Mrs Khneiger and her two eldest daughters. Mr Khneiger visited the shop from time to time. On 11 December 2002 he sold the business to the respondent, Ms Cookson. I will refer to her as the plaintiff. Before the sale the defendants provided the plaintiff with a statement (the disclosure statement) required by s 8 of the Land and Business (Sale and Conveyancing) Act 1994 (SA).[1] That document contained the following question for the vendor to answer: “Is the vendor aware of any written notice served on the landlord or licensor, or any other circumstance that may positively have a significant adverse effect on the business?” The defendants answered “no”.
[1] Section 8 of the Land and Business (Sale and Conveyancing) Act 1994 (SA) provides:
8.Particulars to be supplied to purchaser of small business before settlement
(1)A vendor of a small business must, at least five clear business days before the date of settlement, serve, or cause to be served, on the purchaser a statement in the form required by regulation (signed by the vendor) setting out—
(a)the rights of a purchaser under section 5; and
(b)the prescribed particulars in relation to the business; and
(c)where land is sold under the contract for sale of the business—the particulars that would be required in a vendor's statement under section 7 if the land were sold separately.
In June 2003, just six months after the plaintiff purchased Café Purple, barricades were erected on Austin Street restricting access to it and adversely affecting the amenity of the area. The barricades on Austin Street were erected to allow the construction of several levels of apartments above the John Martins car park building (the John Martins development).
Café Purple’s turnover fell significantly. In March 2005 the plaintiff shut the business down. Her landlord distrained on the plant and equipment. The warrant of distraint shows that the plaintiff then owed the landlord about $14,000 in unpaid rent.
The plaintiff’s pleaded case was that the defendants knew about the construction work by means of a letter sent to them by the Adelaide City Council on 11 July 2000. However, evidence was led at trial, without objection, from which it could be inferred that the defendants became aware of the building work from other sources.
One such source was the landlord’s managing agent, Mr Jones. He testified that he had spoken to Mr Khneiger and provided him with a copy of a letter sent to the landlord from the Adelaide City Council informing it that approval had been given for the John Martins development.
The plaintiff also relied on the fact that the proposed John Martins development was reported in both The Advertiser and City Messenger newspapers. The plaintiff’s case was that the defendants, and in particular Mr Khneiger, were likely to have read one or more of the articles. Alternatively, the plaintiff contended that, in the circumstances, the John Martins development was likely to have been discussed by customers of Café Purple and that their conversations were likely to have been overheard by Mr Khneiger.
The Judge was not satisfied that Mr Khneiger became aware of the John Martins development from the first two sources. However, the Judge was satisfied that Mr Khneiger became aware of the John Martins development as a result of articles in the newspapers. The defendants say that the latter conclusion was based on two erroneous findings of primary facts. First, the Judge found that the John Martins development received prominent front page coverage in the City Messenger. As will be seen the Judge was wrong to so find. Secondly, the Judge found that “piles” of The Advertiser and City Messenger newspaper were available for the customers of Café Purple to read. That finding too is not supported by the evidence. Both errors appear to be based on misstatements of the evidence appearing in written submissions provided to the Judge by counsel for the plaintiff.
For the reasons appearing below, I am satisfied that the defendants have shown that the Judge’s conclusion cannot stand given the errors of primary fact. The strength of the inference that can be drawn from the newspaper articles is, obviously enough, much affected by whether the John Martins development was given prominent front page coverage and by the availability of newspapers in Café Purple. In my view, the factual errors of the Judge are material enough to affect the result and require this Court to review his conclusion.
In those circumstances the issue of substance on this appeal is whether this Court should give effect to its own view of the evidence, and either uphold or dismiss the plaintiff’s claim in accordance with that view, or whether the matter should be remitted for retrial. A further trial of this matter is an unfortunate, if not terrible prospect, for the parties to face. Counsel were invited at the conclusion of the hearing of the appeal to attempt to settle this matter. Unfortunately they have not been able to. I have, with some reluctance, concluded that the nature of the factual dispute is such that it cannot be safely resolved on the papers. For the reasons that are given below I would allow the appeal but remit the matter to the District Court for retrial.
The defendants also complain that the Judge erred in his assessment of damages. For the reasons that follow I would also allow the appeal on that issue. On that issue too, for the reasons I give below, it is appropriate that the assessment of damages be remitted to be retried with the question of liability.
The Judge’s findings
The Judge explained why he was prepared to draw an inference that Mr Khneiger knew of the construction from the City Messenger articles in this way:
It seems inconceivable to me that not one of the Khneiger family saw that front page article during the week or so that the paper was in the café for customers to read. Although no one asked any questions on the topic, it is reasonable to assume that someone working in the café would have had to receive copies of the paper into the shop. It seems likely that a staff member would, from time to time, handle the paper in the week that it was there, removing it from tables or putting it back in the place reserved for papers, or tidying up the pile of papers, or removing the papers when they were out of date. There were of course staff who were not family members, but it seems extraordinary that in some way or other, the topic did not come to the defendants [sic] notice through staff handling of the paper. Likewise it seems remarkable that no customer ever mentioned the topic to the defendants. I find that the defendant was gregarious with his customers. Several witnesses spoke of that being so, but one impression I did form of the defendant in the witness box, is that he would be likely to be outgoing with his customers. In that way, I expect they would have felt free to chat to him. It seems inconceivable that not one customer mentioned the topic to him. The other impression I got from the defendant himself and from the evidence of others, is that he was a good businessman. I think he would have been alert to matters that affected his business.[2] (emphasis added)
[2] Cookson v Khneiger & Anor [2008] SADC 97 at [36].
The Judge accepted that Mr Khneiger may not have read articles about the John Martins development in The Advertiser.[3] However, the Judge described references to the John Martins development in the City Messenger newspaper in the following way:
The topic was most prominent and on the front pages of the Messenger editions of 2 May 2001 and 10 July 2002 but it was also prominent on the 12 July 2000 edition.[4]
[3] The John Martins development was referred to in two editions of The Advertiser. On Tuesday 24 October 2000 a reference to the construction of the apartment block appeared on page 7 under a headline that extended across the top of the entire page in the following terms: “Council backs ‘ugly’ city apartment block”. In the Saturday 28 October 2000 edition of The Advertiser the story in Tuesday’s edition attracted a number of Letters to the Editor, which were printed on page 21 as a separate block of letters on a single issue under the headline: “Bizarre decision on flats”.
[4] Cookson v Khneiger & Anor [2008] SASC 97 at [17].
The 2 May 2001 edition of the City Messenger had on its front page a reference to developments on North Terrace generally, but did not specifically refer to the John Martins development. It was referred to on page 5 of that edition. The photograph of the construction site on the front page of that edition is not of the John Martins development. The front page of the 10 July 2002 City Messenger is taken up almost entirely with a photograph of the director of the South Australian Art Gallery, Ron Radford, under a large headline reading “High Art”. At the end of the front page promotion of a page 5 article about Mr Radford, there is a reference to his dislike of the proposed John Martins apartment tower. The 12 July 2000 edition of the City Messenger contained a reference to the John Martins development on an inside page; it is not possible to discern which page from the photocopy received into evidence.
Mr Khneiger’s evidence in cross-examination was that he received a single copy of the City Messenger in the same way that a copy is delivered to all homes and businesses. He also testified that The Advertiser was sold but not made freely available to customers. That evidence was neither challenged nor disproved.
It follows that the Judge’s reasoning proceeded on the mistaken finding that the John Martins development had received prominent front page publicity on at least two editions of the City Messenger and that multiple copies of the City Messenger and The Advertiser were available and often handled by Mr Khneiger, his family or his staff. The error necessarily affects the Judge’s conclusion.
Disposition of the Appeal
Notwithstanding the factual errors to which I have referred it is my opinion that the ultimate conclusion reached by the Judge was open on the evidence. An inference that Mr Khneiger knew of the John Martins development could be drawn from the totality of the evidence. Nonetheless, Mr Khneiger denied on oath that he had any such knowledge. The Judge rejected Mr Khneiger’s testimony because he was persuaded otherwise by the inferences which he drew. He did not reject Mr Khneiger’s evidence on the basis of his demeanour or because he was shown to have given false evidence on some other issue. His credibility was not successfully impeached in that sense. The evidence before this Court therefore presents a choice between a conclusion which is supported, even though not as strongly as the Judge thought, by objective evidence, and the sworn denial of that conclusion by Mr Khneiger.
In a case where objective evidence exposes the testimony given at trial to be glaringly improbable, or even fanciful, there is no difficulty in an appeal court substituting its own view based on the objective evidence even though it has not heard the witnesses.[5] However, this is not such a case. If no oral testimony to the contrary had been given by Mr Khneiger, I may have acted on the inference, which can be drawn from the primary facts, that he knew of the John Martins development. However, I am not prepared to conclude, on the basis of that inference, that Mr Khneiger was aware of the John Martins development without having heard his sworn testimony.
[5] See Fox v Percy (2003) 214 CLR 118 at 132-3, [44]-[46]; Mak v Police [2008] SASC 342 at [55]-[58].
For the same reason, I am also not prepared to dismiss the plaintiff’s claim on the papers. If I had heard Mr Khneiger’s evidence I may have been unimpressed by it. I may have disbelieved him and acted on the strength of the inference that can be drawn from the proved facts. However I am unable to determine where the truth lies on the basis of the transcript alone.
There is a further reason which leads me to the conclusion that the proper order is that the matter be remitted. There is, in my view, other evidence apart from the articles in the newspapers which support the conclusion that Mr Khneiger was aware of the John Martins development and which the Judge does not appear to have given the weight it deserved.
The ultimate question at trial was whether the defendants knew of the construction at the time that they answered “no” to the relevant question on the disclosure statement. The evidence to which I am about to refer is capable of supporting a conclusion that Mr Khneiger heard of the John Martins development from one or more of the three possible sources, even if it is not possible to find, on the balance of probabilities, precisely how it was that he learnt of it.
A copy of a letter dated 11 July 2000 from the Adelaide City Council to Mr and Mrs Khneiger addressed to “C / Café Purple 46 Austin Street Adelaide” was received in evidence. It invited submissions on the application for planning approval of the John Martins development. A list of addressees for that letter, compiled by the Adelaide City Council, was received as an exhibit. Mr and Mrs Khneiger appear on that list as the occupiers of unit 6 on the ground floor at 46 Austin Street Adelaide SA 5000. There is a tick next to their names on the list. Mr Khneiger gave evidence that he never received the letter. So did two of his neighbours who were also named on the list and “ticked” off as persons to whom the letter had been sent. The two neighbours were called but testified that they had not received the letter. The Judge correctly found that the fact that the neighbours had not received the letter increased the possibility that Mr and Mrs Khneiger had also not received it. As a result, the Judge was ultimately not satisfied that the defendants received the notice sent by the Adelaide City Council.[6] The Judge then put that evidence to one side. However, in my view that evidence was an item of circumstantial evidence, which, both alone and in combination with the evidence of Mr Jones to which I will next refer, increased the probability that Mr Khneiger knew, from one source or another, about the John Martins development.
[6] Cookson v Khneiger & Anor [2008] SADC 97 at [36].

Mr Jones gave evidence that he personally delivered a copy of a letter from the Adelaide City Council notifying the landlords of the application for approval of the John Martins development. The letter was never identified or received into evidence. Mr Jones testified that he provided the letter sometime in the year 2000. Mr Jones gave the following evidence:
Essentially – it wasn’t even the originals, it was a photostat copy of the letter that was sent from the Council, and they had basically highlighted with fluorescent markers saying ‘this is the part that is going to be developed, this is where the hoarding is going to be’ and essentially I gave the exact copy to the tenants. I went down there and hand delivered it. There wasn’t time to post it, there was a lack of time so I went down there and hand delivered it. …
It would have been addressed personally to Jamal, Mr Khneiger, and I am pretty sure that I would have – if I hadn’t seen Mr Jamal at the time, I would have made it very clear to the person that I gave it to that they needed to read it.
In cross examination, Mr Jones maintained that he had discussed the John Martins development with Mr Khneiger even though he could not remember if he had given the letter to Mr Khneiger or someone else in Café Purple:
QYou are really unable to tell us whether the letter about the John Martins development was given to him or someone else.
AI cannot tell you whether it was given to him directly, you are correct there. But it was discussed.
QI put it to you that it was not discussed with him.
AI put it to you you are incorrect.
QCould you be mistaken about that.
AAnyone can be mistaken. I don’t think I am.
QIt is possible that you did not have a discussion with him specifically about that.
AAnything’s possible.
Mr Jones said that as a result of his communication with either Mr or Mrs Khneiger, or somebody from the shop, he wrote to the Council expressing the need for his tenants to have quiet enjoyment. That letter was received as an exhibit. The Judge’s conclusion about the evidence of Mr Jones was as follows:
While Mr Jones may well now believe that these events occurred (and he may be right) his evidence was not sufficiently clear for me to rely on it.[7]
That evidence is, in my view, insufficiently clear to rely on. As already mentioned, I am unwilling to rely on Mr Jones’s evidence on the topics of his having handed the letter to Mr Khneiger or to anyone on his behalf or to having discussions with Mr Khneiger about the letter. That is despite Mr Jones having written to the council on behalf of the tenants, including the defendants (Exhibit P4 page 161). I acknowledge that such a letter would suggest that it was done on specific instructions from the defendants but the evidence about Mr Jones’s contact with Mr Khneiger is so unclear that I am not willing to rely upon it.[8]
[7] Cookson v Khneiger & Anor [2008] SADC 97 at [15].
[8] Cookson v Khneiger & Anor [2008] SADC 97 at [17].
In my opinion the Judge did not give the letter that Mr Jones wrote to the Adelaide City Council the weight that it deserves. Mr Jones’ letter does much more than “suggest” that he had discussed the proposal with Mr Khneiger. It is strongly corroborative of his evidence. It expressly refers to “quiet enjoyment”. It is dated 18 July 2000. It appears therefore to have been sent within a week of the Adelaide City Council mail out. That temporal coincidence strongly corroborates Mr Jones’ evidence. The letter also expressly refers to units 4, 5, 6 and 9, although Mr Jones was the manager of many more than just those units. The very strong inference, which arises from that fact, is that Mr Jones wrote to the Adelaide City Council after speaking to, and at the request of, someone in authority from each of those units.
Finally, there is also the fact that Mr Khneiger sold Café Purple to the plaintiff shortly before work commenced on the John Martins development. Whatever other explanations there may be for that close temporal coincidence, it remained a circumstance to consider with the other evidence to which I have referred.
It will be for the Judge who presides over the retrial of the matter to determine whether the combined effect of the circumstantial evidence proves that the defendants knew about the John Martins development when they completed the disclosure statement, notwithstanding Mr Khneiger’s sworn denial to the contrary.
Damages - Introduction
The primary principle in accordance with which damages are awarded for loss in both tort and contract is that the wronged party should, as nearly as possible, be restored to the position he or she would have occupied if the wrong had never been committed. I will refer to this principle as the compensatory principle. The reason for the difference between awards of damages in contract and those in tort is that the “wrong” in each case is quite different. In contract the wrong is the failure to fulfil a promise; damages for breach of contract are therefore awarded to place the innocent party in the position he or she would have enjoyed if the contractual obligation had been faithfully fulfilled.[9] In tort, and commonly in the case of statutory duties, the wrong is conduct, which breaches a pre-existing duty; the innocent party must therefore be placed in the position that he or she would have occupied if the breach of duty had never been committed.[10]
[9] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80-82.
[10] Registrar of Titles (WA) v Spencer (1909) 9 CLR 641.
The damages to which the plaintiff was entitled on proof of breach of s 8 of the Land and Business (Sale and Conveyancing) Act 1994 (SA) are prescribed by s 15 of that Act.[11] Those damages are analogous to the damages awarded in tort.[12] The rule that where the sale of a business is induced by an actionable misrepresentation, damages are awarded on the basis of the difference between the amount paid and the value of the business, is a secondary rule, which is derived from the compensatory principle. Damages calculated in accordance with that secondary rule will often sufficiently compensate the innocent party, particularly where the innocent party is able to readily sell the business and in so doing realise its market price. However, that will not always be the case. For example, a purchaser might, in the case of a business that is not easily sold, reasonably decide that the best way to recoup his or her losses is to retain the business in an attempt to trade out of his or her difficulty and improve the value of the business. If a purchaser reasonably embarks upon that course only to find that the business situation deteriorates and the value of the business is further diminished, he or she may nonetheless be entitled to the whole of the resulting loss. On the other hand, in the case of a readily marketable commodity that will seldom be the case.[13]
[11] Section 15 of the Land and Business (Sale and Conveyancing) Act 1994 (SA) provides:
15Remedies
(1)Where a vendor's statement is not given or certified as required by this Part, or the statement given is defective, the purchaser may apply to a court of competent jurisdiction for an order under this section.
(2)On the hearing of an application under subsection (1) the Court may, if satisfied that the purchaser has been prejudiced by the failure to comply with this Part, exercise any one or more of the following powers:
(a)avoid the contract and make such other orders as the Court thinks necessary or desirable to restore the parties to the contract to their respective positions before entering into the contract;
(b)award such damages as may, in the opinion of the Court, be necessary to compensate loss arising from the non-compliance;
(c)make such other orders as may be just in the circumstances.
[12] In Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 the High Court held that proceedings based on s 52 of the Trade Practices Act 1974 (Cth) are analogous to actions for tort and that the rules for assessing damages are in most cases the same as the rules for the assessment of damages in tort and not contract.
[13] Jamal v Moolla Dawoo, Sons & Co [1916] 1 AC 175 at 179.
It is necessary to say something about those cases which can be described as “no transaction” cases, because the plaintiff sought damages on the basis that she has shown that she would not have purchased the business if the defendants had not made the misrepresentation of which she complains. A no transaction case is one where the innocent party would not have entered into the transaction at all but for the misrepresentation. In such a case the difference in the market value of the business and the price paid may not be sufficient to satisfy the compensatory principle where, for example, the innocent purchaser proves that he or she would have purchased another business or taken another opportunity. In such a case, it may be necessary to make an award that is sufficient to allow the plaintiff to purchase a business of the type that he or she would have purchased but for the misrepresentation in order to restore a plaintiff to his or her original position. It follows that it may be necessary to make awards, in addition to the difference in value, for the conveyancing costs thrown away in purchasing the unwanted business and for the costs of selling it. Where the capital appreciation of similar businesses has been greater than the increase in value of the purchased business it may also be necessary to include compensation for that difference in the award of damages.[14]
[14] Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93.
In view of the development of the principles governing the assessment of damages in statutory misrepresentation cases over the last decade, there is probably less difference in the assessment of damages between the no transaction cases and other cases than first appears.
The facts of this case are illustrative of the cases where the differences in value may not be sufficient. By the time the plaintiff became aware of the proposed development, the construction work was about to start. The business was not of a type that could be sold quickly; the defendants had taken about two years to find a buyer. Although the topic was not explored in the evidence, it is very unlikely that the plaintiff could have found a buyer for the business after she became aware of the misrepresentation. The defendants did not put a case that the plaintiff should have mitigated her loss by quickly selling the business. Nor did they mount a case that the closure of the business was inevitable because of the higher overhead costs which were related to the way the plaintiff ran the business. In those circumstances, the defendants may, subject to some other considerations to which I refer below, be responsible for the further loss of value sustained as the plaintiff tried to trade through her difficulties.
Damages – the authorities
In Kizbeau Pty Ltd v WG & B Pty Ltd[15] the High Court considered the measure of damages payable for breach of s 52 of the Trade Practices Act 1974 (Cth) in the case of the sale of a motel business. The High Court held that “the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it”.[16] In so doing it applied the rule established by a line of earlier authority.[17] The High Court went on to consider the extent to which a court can have regard to subsequent events to ascertain the market value of a business at the time of purchase. It distinguished “subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon, or extraneous to, the fraudulent inducement”.[18] Accordingly, the High Court held that the takings of the business subsequent to purchase can be considered in arriving at a proper valuation at the time of purchase, unless there was a decline in those takings which was attributable to the business ineptitude of the purchaser or to unexpected competition.
[15] (1995) 184 CLR 281.
[16] Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291.
[17] Holmes v Jones (1907) 4 CLR 1692 at 1702-3; Toteff v Antonas (1952) 87 CLR 647 at 650-61; Gould v Vaggelas (1984) 157 CLR 215 at 220, 255, 265.
[18] Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291 citing Potts v Miller (1940) 64 CLR 282 at 298 and Gould v Vaggelas (1984) 157 CLR 215 at 220.
It must be remembered that the issue in Kizbeau was the relevance of subsequent events to the ascertainment of the value of the business at the time of purchase. The Court was not addressing the limits on damages in such cases generally. Kizbeau had not claimed damages on the basis that if it had not purchased the motel business from WG & B Ltd it would have purchased another business. Moreover, the Court expressly acknowledged that in some cases it may be proper to compensate the injured party not only for the difference in value but also for losses induced by the wrong and directly incurred in conducting the business.[19]
[19] Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291.
In Kenny & Good Pty Ltd v MGICA (1992) Limited[20] the High Court considered the proper measure of damages in a case where money was lent, on the security of a mortgage, relying on a negligent valuation report. The appellants were engaged by Macquarie Bank Ltd to value a multimillion dollar residential development. The appellants seriously overvalued the development. Moreover the valuation report expressly stated that the property was “suitable security for investment of trust funds to the extent of 65 per cent of the valuation for a term of three to five years”. A financier lent the developer 65 per cent of the extravagant valuation. The developer defaulted. The property was sold for about one half of the appellants’ valuation. The financier suffered a loss of nearly $2 million which it, in turn, recovered from MGICA, a mortgage insurer with which it had insured its risk. MGICA sought to recover its loss from the valuer. Gaudron, Kirby and Callinan JJ held that because MGICA would not have provided mortgage insurance at all if the property valuation had been accurate, its loss was not limited to the difference between the valuation amount and the actual value of the property, but extended to the full amount paid under the insurance policy. Gaudron J said:
As the valuation was a decisive consideration in MGICA's decision to insure the loan from Permanent Custodians to Beca, it is simply common sense to treat that transaction as resulting from the valuation. And subject to a qualification shortly to be mentioned, once that is accepted, it is also common sense to hold a valuer responsible for the loss arising out of that transaction, save to the extent that it is attributable to some other cause.[21] …
As already indicated, the appellants came under a duty of care because of a foreseeable risk that, in the event of default, Permanent Custodians might not recoup the principal and interest then owing. A significant factor contributing to that risk -- if not the most significant factor -- was the foreseeable possibility of a decline in market value. In Chappel v Hart, I pointed out that “[i]t is contrary to common sense to treat part of the ... risk which called [a] duty [of care] into existence as a supervening event breaking the chain of causation beginning with the breach of that duty.” Subject to one qualification, it is also contrary to common sense to treat a factor contributing to the risk as a supervening cause of the loss suffered if that risk eventuates.
The qualification to the proposition that a factor contributing to a foreseeable risk of injury is not to be treated as a supervening cause if the risk eventuates is this: a person who negligently provides information or advice should not be held liable for loss that would have been suffered if the information or advice were correct. Thus, if some part of the loss suffered by Permanent Custodians would have been suffered even if the property were worth $5.5 million, the appellants cannot be held liable for it.[22] (footnotes omitted)
[20] (1999) 199 CLR 413.
[21] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 CLR 413 at 426, [21] per Gaudron J.
[22] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 CLR 413 at 427, [25]-[26] per Gaudron J.
Kirby and Callinan JJ came to the same result, but arguably on an even wider view of the extent of the valuer’s liability:
The facts of this case not only satisfy a ‘but for’ test but also the other tests referred to in Chappel v Hart. Here, the valuation (given negligently) caused the respondent to insure the loan, and to suffer the loss arising from that insurance. The negligence of the valuer was directly productive of the making of the insurance contract. The obligation to perform, and the performance of that contract by the respondent therefore caused the respondent to suffer the loss, by making the whole of the payment that it then made. Common sense confirms that conclusion. To use the language of Lord Nicholls of Birkenhead in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2], this was not a case in which the respondent sought to hold the appellant ‘liable for consequences which would have arisen even if the advice [valuation] had been correct’. In this case had the valuation been a correct one, there would have been no loss suffered by the respondent, for, as found by the primary judge, it would not then have provided the mortgage insurance at all. [23] (footnotes omitted)
[23] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 CLR 413 at 457, [119] per Kirby and Callinan JJ.
McHugh J took a different approach. He would have assessed damages on the basis of the contractual rule because the relationship of the valuers to MGICA was said to be “equivalent to a contractual arrangement”.[24] However, he also articulated an important limitation on damages awards in no transaction cases. He 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 issue is not one of causation but whether the loss caused by the breach is too remote to be recoverable. In principle, the valuer is only liable for losses of a kind that were sufficiently likely to result from the breach of duty to make it proper to hold that the loss flowed naturally from the breach or that are of a kind that should have been within his or her reasonable contemplation. The valuer is not liable for every loss that flows from his or her breach of duty. Although it is true in one sense that losses from general market declines are within the reasonable contemplation of the parties to a valuation contract or arrangement, I do not think that the notion of reasonable contemplation of loss extends to such generalisations concerning the course of future events. [25] (emphasis added, footnotes omitted)
[24] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 CLR 413 at 434, [44] per McHugh J.
[25] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 CLR 413 at 437-38, [54] per McHugh J.
It must be remembered that the particular nature of the wrongful conduct and the relationship between the wrongdoer and the injured party will affect the question of remoteness. If, for example, the very negligent advice was the assessment of the prospect of a market decline given by an expert engaged by an investor for that purpose, then the losses flowing from a general market decline cannot possibly be described as remote.

Gummow J also held that MGICA was entitled recover the whole of its loss. He relied on both the “equivalent to contract” approach taken by McHugh J and the proximity of the relationship of reliance between the valuers and MGICA, in that MGICA would not have entered into the mortgage insurance transaction but for the misrepresentation.
In Henville v Walker[26] the High Court considered yet another claim pursuant to the Trade Practices Act 1974 (Cth). In Henville an architect obtained advice from a real estate agent about the purchase of a property in Albany with the object of constructing home units on it. The agent falsely represented that there was a demand for quality units and that if three units were built on the site they would fetch between $250,000 and $280,000. The architect prepared a feasibility study but substantially underestimated the likely building costs. The combined effect of the mistaken projections of both the selling price and building costs was to predict a reasonable profit. If either the selling price or the building costs had been estimated accurately, the project would not have appeared profitable and the architect would not have proceeded. The architect did undertake and complete the project and the units were sold for a total of $545,000.
[26] (2001) 206 CLR 459.
The architect brought an action on s 52 of the Trade Practices Act 1974 (Cth) claiming the entire cost of the project, including the purchase price of the land, construction costs, interest and marketing expenses, less the net amount he received. His loss, calculated on that basis, was about $320,000. The Judge awarded $250,000, calculated on the basis of the difference between the agent’s estimate of $750,000 and the actual proceeds of the sale of the units. The agent appealed the award, which was set aside by the Full Federal Court on the grounds that the architect had not established that the agent’s conduct had caused his loss. On appeal to the High Court, the order of the Judge was reinstated. The High Court unanimously held that the underestimation of costs by the architect did not sever the causal connection between the agent’s conduct and the architect’s loss.
However the Court was divided on one aspect of the assessment of damages, which is of general importance, even though it did not ultimately affect the result in that case. Gleeson CJ and Gaudron J held that the architect was entitled only to the amount awarded by the Judge. McHugh, Gummow and Hayne JJ would have awarded the architect the sum of $320,000, which he had initially claimed, but reinstated the Judge’s award because the architect had not argued for more than that on appeal.
McHugh and Gummow JJ rejected the contention that damages under ss 52 and 82 of the Trade Practices Act 1974 (Cth) were subject to reduction if the loss or damage could have been avoided by the exercise of reasonable care. They also rejected the submission that doctrines analogous to contributory negligence and apportionment of damages were applicable. They accepted, however, that if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant it may be appropriate to assess damages under s 82 by applying notions of reasonableness.
McHugh J said:
In this case, the most appropriate approach is to identify what Mr Henville has suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the breach of the Act. … By entering upon the project, Mr Henville has lost $319,846.51. If Mr Walker had not made representations in breach of the Act, none of this loss would have occurred. The loss suffered is therefore directly attributable to a contravention of the Act even though other factors played their part in bringing about the loss. …[27]
Nothing in the common law, in s 52 or s 82 or in the policy of the Act supports the conclusion that a claimant's damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant's part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act.[28] (footnote omitted)
Mr Henville's loss was not confined to the difference between what was represented as the selling prices of the units and their sale prices. Mr Walker's contravention of the Act induced Mr Henville to enter upon a course of conduct that resulted in a greater loss than that difference. To fail to compensate him for that loss does not accord with the purposes of the Act. [29] (footnotes omitted)
[27] Henville v Walker (2001) 206 CLR 459 at 502, [132] per McHugh J.
[28] Henville v Walker (2001) 206 CLR 459 at 505, [140] per McHugh J.
[29] Henville v Walker (2001) 206 CLR 459 at 506, [145] per McHugh J.
Hayne J derived the following propositions from s 82 of the Trade Practices Act 1974 (Cth):
·The section requires comparison between the position in which the appellants found themselves after the project was finished, and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project.
·The Act directs attention to whether the contravening conduct was a cause. It does not require, or permit, the attribution of some qualification such as “solely” or “principally” to the word “by”.
·On its face, the section permits recovery of the whole of the loss sustained by a person who demonstrates that a contravention of Pt V of the Act was a cause of that loss.
·Nothing in the text of s 82(1), or the Act as a whole, suggests that the carelessness of the person who suffers loss or damage as the result of contravention of the Act should be taken into account in deciding what was the amount of loss or damage actually suffered. Section 82(1) appears to confine attention to the limited question of the historical relevance of the contravening conduct to the loss or damage sustained.
Hayne J then continued:
There may be cases where some of the loss suffered by a person following -- and I use the word ‘following’ in a neutral sense -- the conduct of another in contravention of the Act may not be loss suffered by that person by the contravening conduct. Had the appellants chosen, for wholly extraneous reasons, to change the design of the units, part way through their construction, in such a way as to waste some costs of construction already incurred, it might be said that the extra costs incurred were not caused by the respondents' contravention. Whether, as Gaudron J suggests, it would be for the contravener to demonstrate in such a case that part of the loss suffered was not attributable to the contravention is a point I need not decide. For the moment, it is enough to say that it seems to me that such questions must find their answers within the Act rather than in analogies with common law. Thus, if notions of remoteness of damage or reasonableness are to find reflection in s 82(1) it seems probable that they may do so only through consideration of the causation question which the subsection poses. As Professor Stapleton has pointed out, questions of remoteness of damage in tort can be seen in terms of causation. Likewise, asking what is ‘reasonable’ in assessing how much of the loss was caused by the contravention may invite attention to the nature and extent of the causal connection between the loss and contravening conduct. This case does not present such questions and it is not necessary to decide them.[30] (emphasis added, footnotes omitted)
[30] Henville v Walker (2001) 206 CLR 459 at 510, [166] per Hayne J.
In I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd[31] the High Court again considered a claim for damages pursuant to ss 52(1) and 82(1) of the Trade Practices Act 1974 (Cth) arising out of a negligent valuation. A valuer negligently overvalued a property, declaring the valuation to be suitable for mortgage security purposes and acknowledging the amount of the requested loan for which it had been obtained. The owner provided the valuation to a financier. The financier lent the amount sought relying on the valuation and without making any enquiries into the owner’s ability to repay the proposed loan. The owner defaulted. The financier sold the land as mortgagee and suffered a substantial loss. The High Court held that the financier’s loss was one indivisible loss caused by its entry into the loan transaction. It further held that the financier was entitled to damages for the loss of interest it would otherwise have received in respect of the amount lent for the period of the loan. The Court rejected a submission that the loss pursuant to the Trade Practices Act 1974 (Cth) should be assessed according to the proportional percentage by which the conduct contributed to the loss or damage. In particular, it was the contention of the valuer that damages should be assessed by reference to the financier’s own negligent conduct in doing business with the borrower and not assessing his creditworthiness. Gaudron, Gummow and Hayne JJ said:
As was recognised in Henville v Walker, there may be cases where it will be possible to say that some of the damage suffered by a person following contravention of the Act was not caused by the contravention. But because the relevant question is whether the contravention was a cause of (in the sense of materially contributed to) the loss, cases in which it will be necessary and appropriate to divide up the loss that has been suffered and attribute parts of the loss to particular causative events are likely to be rare. Further, it is only in a case where it is found that the alleged contravention did not materially contribute to some part of the loss claimed that it will be useful to speak of what caused that separate part of the loss as being ‘independent’ of the contravention.[32] (original emphasis)
[31] (2002) 210 CLR 109.
[32] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 130, [62] per Gaudron, Gummow and Hayne JJ.
In the following passage McHugh J recognised that the opportunity lost by an injured party of a misrepresentation was a proper head of damages in a misrepresentation case:
HTW also contended that its breach of the Act was not causally connected with the lost interest awarded by Williams J for the twelve month period of the loan. As a matter of common sense, so it contended, the cause of that part of the loss was the failure of I & L to assess the financial capacity of the borrower. However, no distinction can or should be drawn between I & L's loss of principal and its loss of income arising from the failure to pay interest on that principal. The lost interest was as much a part of I & L's loss or damage as the lost principal. The opportunity cost of lending the principal sum to Camworth was the interest that it was deprived of in not being able to lend that principal to another borrower.[33]
[33] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 147, [123] per McHugh J.
The authorities to which I have referred emphasise, I think, two important principles. The first is that the primary control mechanism limiting awards of damages for statutory causes of action, like the one before us, is causation. Principles of remoteness, contributory negligence and failure to mitigate, which operate as control mechanisms in common law tortious actions, cannot be applied directly to statutory causes of action in the absence of statutory language incorporating those concepts. Nonetheless, the same circumstances which would render damages too remote for the purposes of a tortious award, or which would establish that the plaintiff failed to mitigate his or her loss, may also serve to show that the plaintiff’s loss was not the result of the breach of statutory duty.
The second principle is that lost opportunity is a proper head of damage, which complements the traditional approach of awarding the difference between the value of the goods or business purchased and the price paid. Where the business purchased has not suffered other misfortunes and economic development is relatively uniform and stable, the lost opportunity may not significantly add to the damages calculated on the traditional basis. However, where there is a wide variation between profitability of the course induced by the misrepresentation and the “lost opportunity”, it may be significant.
It would seem to follow from these principles that losses resulting from a general and uniform economic downturn, which would have affected any business, are unlikely to be recoverable.
In contrast, if local circumstances adversely affect the purchased business and would not have affected another business that the plaintiff would have purchased, it would seem to follow that the plaintiff may be compensated for the lost opportunity to achieve higher profits and capital appreciation in that other business, subject to some discount for general adverse contingencies.
A plaintiff who does not prove that he or she would not have purchased the business if the truth had been disclosed, must be taken to have accepted the risk of the particular adverse circumstances that the business he or she purchased eventually encounters.
Although the carelessness of a plaintiff that contributes to the decision to act on the misrepresentation will seldom affect damages,[34] the same is not true of unreasonable conduct following the misrepresentation. Such conduct may amount to a supervening cause.[35]
[34] Henville v Walker (2001) 206 CLR 459; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109.
[35] Henville v Walker (2001) 206 CLR 459 at 510, [166] per Hayne J.
Finally, where a plaintiff’s own unreasonable conduct in running the business causes additional loss, a claim based on lost opportunity will seldom increase the award of damages because the value of that opportunity will be substantially discounted by reason of the plaintiff’s proven ineptitude in business.
Damages – Application to this case
It was accepted by the Judge that the plaintiff would not have entered into the transaction but for the defendants’ misrepresentation.
The defendants’ case at trial was largely that the fall in the turnover of Café Purple was attributable in whole, or at least in large part, to the way in which the plaintiff operated the business. The defendants called a handful of customers to say that the products on sale at Café Purple fell away after the plaintiff purchased it. However by and large in the period of which those customers spoke there had been no significant downturn in the turnover of the business. Accordingly the Judge rejected the evidence on which the defendants relied.
However there were other important issues affecting the assessment of damages which were not fully dealt with at trial.
I will deal first with the plaintiff’s claim for the capital loss flowing from the closure of Café Purple. The issue of the reasonableness of the plaintiff’s decision to stop trading was not really canvassed in the evidence and the Judge did not make any findings on the issue. The plaintiff was still making a small profit before she closed Café Purple. The decline in profit was obviously related to the fall in turnover, but it was also shown that the plaintiff’s overheads were greater than those with which the defendants had operated. It is not possible to determine whether the falsity of the disclosure statement or some other conduct, is the cause of all, or part, of the capital loss the plaintiff claimed unless the reasons for the closure of the business are ascertained.
Even if the falsity of the disclosure statement was the cause of the closure of the business, the defendants correctly point out that the plant and equipment, which remained in the plaintiff’s possession until it was distrained by the landlord, must have had some value. The Judge ought to have allowed for that value in his assessment of the plaintiff’s capital loss. On the other hand, it cannot be assumed that its value when Café Purple closed down would have approximated the book value it was given when the business was sold even though no other evidence of the value of the plant and equipment was led.
In assessing the plaintiff’s claim for loss of profit, the Judge based his award on the profit the plaintiff would have made if the disclosure statement were true. In doing so the Judge conflated the contractual measure of damages with the tortious measure. The plaintiff’s action was not in contract but was for misrepresentation and breach of statutory duty. The defendants had not warranted that their turnover would continue. Nonetheless, if the plaintiff had proved that, had she not bought Café Purple, she would have bought another business for a similar price that would have generated greater profit than the profit she in fact earnt at Café Purple, damages calculated by reference to that profit, but discounted to reflect adverse contingencies, may have been appropriate.
Alternatively, even if the plaintiff could not establish that she would have bought another business, she may still have been entitled to lost interest on money borrowed if it was not covered by the trading profit she achieved. The plaintiff may also have been entitled to compensation for income she would have earnt in salaried employment had she not bought the business. However the plaintiff did not formulate her claim for trading losses in any of these ways. Accordingly there was no basis in the evidence to support the award made by the Judge on this head of damages.
The Judge also erred in calculating the plaintiff’s loss on the basis that the plaintiff would have maintained the defendants’ profit to turnover ratio. The defendants operated Café Purple differently to the plaintiff. In particular, more family members were engaged in the business and less workers employed. For that reason, and perhaps for others, the defendants’ historical profit to turnover ratio was much better than the plaintiff’s ratio in the years she operated the business. The plaintiff did not attribute her poorer profit ratio to the reduced turnover or to some other factor for which the defendants were responsible. If the plaintiff had led evidence of the turnover and profit of another business that she would have purchased, but for the falsity of the disclosure statement, that evidence would have been a starting point for the assessment of this part of the damages she claimed. Some adjustments may still have been necessary for the different way in which the plaintiff would almost certainly have operated any business she purchased. However, once again the plaintiff did not claim an award calculated on that basis.
The award of damages must be set aside. In my view the justice of the case requires that the question of damages too, be reheard. The evidence does not in my view sufficiently address the matters that should properly be taken into account. An award made by this Court on the material before us may work an injustice to one or other of the parties because of the paucity of evidence. Because the issue of liability must be reheard I have concluded that the most justice will be best served by also remitting the damages issue to the District Court for rehearing.
Conclusion
I would allow the appeal against the finding of liability and the assessment of damages. I would set aside the orders of the trial Judge and would remit the matter to the District Court for a fresh trial.