Manwelland PL v Dames & Moore

[2002] HCATrans 262

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B89 of 2001

B e t w e e n -

MANWELLAND PTY LTD

Applicant

and

DAMES & MOORE PTY LTD

Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 26 JUNE 2002, AT 11.38 AM

Copyright in the High Court of Australia

MR P.A. KEANE, QC:   If the Court pleases, I appear for the applicant.  (instructed by S.R. Wallace & Wallace)

MR B.D. O’DONNELL, QC:   May it please the Court, I appear for the respondent.  (instructed by McCullough Robertson)

GLEESON CJ:   Yes, Mr Keane.

MR KEANE:   Your Honours will have seen that the courts below did not apply the rule for which Potts v Miller is usually cited as authority, namely that a person induced by misrepresentation to buy something is entitled to damages measured by the difference between the price paid and the true value at the time of the purchase.  Your Honours will see a statement of that rule at the top of page 34 of the application book.

We wish to take your Honours now to the reasons why the Court of Appeal treated that rule as inapplicable, but in doing so can we ask your Honours to note three points.  Firstly, at page 12 paragraph [43] in the judgment of the learned trial judge, where the finding is made the applicant would not have bought the land in question had the misstatement about the mode and cost of remediation not been made.  Secondly, if your Honours would go to page 33 in the judgment of Justice McPherson to paragraph [8], where it appears that the applicant proceeded with the development with knowledge of the truth about the problems with remediation and the falsity of the statement that had been made and with an altered and reduced development.  Thirdly, at page 34 paragraph [12], where in the last three lines his Honour acknowledges that the valuation of $300,000, which was accepted by his Honour as the value of the land at the time of purchase, was established on unchallenged evidence.

With those three things in mind, can we take your Honours to the reasons why their Honours did not apply the Potts v Miller rule.  The first is at page 34 paragraph [13], where his Honour refers to the prima facie measure of damages.

HAYNE J:   Prima facie in what sense and for what purpose?

MR KEANE:   Your Honour, absent some other consideration which might make it inappropriate.

HAYNE J:   To be applied under section 82, et cetera?

MR KEANE:   Well, we proceed on the footing that absent something quite peculiar, section 82 involves this measure.

HAYNE J:   In light of what is said in Henville v Walker, why?

MR KEANE:   Your Honour, in relation to Henville v Walker, that is the second ground we wanted to take your Honours to.  Can we just say this point about [13].  At [13] your Honours will see that his Honour says it is not appropriate here because there is not much of a market.  As to that, that just means the land is not of much value and the value was unchallenged.  To come to your Honour Justice Hayne’s point, this is actually dealt with in paragraphs [14] and [15] at page 35.  Justice McPherson, with whom Justice Douglas agreed, treats Henville v Walker as warrant for treating gains accruing from the realisation of the project as set‑offs against the loss suffered on acquisition.

As to that, in our submission, to say that is to not appreciate that Henville v Walker was explicitly concerned not with the acquisition of an asset.  It was concerned explicitly with inducements held to be misrepresentations to engage in the total project, a project which involved overtime, incomes and outgoes.  So that one could not identify the loss from the transaction in respect of which the action was brought unless one weighed up incomes and outgoes.  That that is clear and that it was not concerned with the case of the acquisition of an asset appears from the judgment in Henville v Walker, 75 ALJR.  We have given your Honours the case.  At paragraph [22] in the judgment of your Honour the Chief Justice, it is said:

No one suggests that it is proper to regard the present as a case where the only relevant effect of the misleading conduct was to induce the purchase of an asset at an over‑value, or that the damage is to be measured by comparing the price paid by the appellants for the real estate with the true value of the real estate at the time of purchase.  The land was purchased for a specific purpose and, as the respondents understood, the development project involved not only the acquisition of the land but also the building and marketing of units, and the borrowing –

et cetera.  Your Honour cites Potts v Miller as being the authority relevant to the case of acquisition.

Your Honour Justice Hayne at 1437 at paragraph [160] says:

it is necessary to identify the loss sustained by the appellants.  The loss . . . is a single sum.  It is the amount by which their expenditures exceeded their receipts.

Your Honour goes on to explain that that is because they proceeded in reliance on the misrepresentation with the whole project:

a decision which was, as I say, made in reliance upon the wrong estimates of both costs and likely receipts.

The point we wish to make about using Henville v Walker as an indicator that Potts v Miller is dead ‑ ‑ ‑

HAYNE J:   No, Henville v Walker and Marks v GIO say the proper place to begin is in the words of the section.  The search is “for loss caused by”.

MR KEANE:   Quite, your Honour.  In that regard here, in our respectful submission, the point is that where one actually finds out that one has been misled and then one proceeds, notwithstanding that, to a development, and indeed a different development – and let us not worry about how different it is – it cannot then be said, in our respectful submission, that it is all part of one continuous transaction.  If, for example, in this case my clients proceeded with the development and suffered further losses, it could not be supposed that we could put them at the door of the other side where we had a choice to go on or not.  In our respectful submission, one does start, as your Honour says, with the question of what is the loss on the relevant transaction.  If one looks at what the Court of Appeal did to identify the relevant transaction, one sees, in our respectful submission, something quite unsatisfactory in the reasons.  If your Honours look at ‑ ‑ ‑

HAYNE J:   But why is it important to even identify the relevant transaction?  You are concerned to identify the contravention and what follows from the contravention.

MR KEANE:   That is right, your Honour, what is the loss caused by the contravention.

HAYNE J:   Just so.  Why is the absence, if I can use that as a neutral term, of profit otherwise expected a “loss caused by”?

MR KEANE:   Your Honour, that actually is our point, with great respect.  Our point is that the loss that we suffered was that we bought a piece of land for $810,000 that was worth 300,000.  The Court of Appeal has held that we do not recover that loss because we went on and did a development in the course of which we recouped an amount of money which, if you add it to what we paid, is line ball.  Our point is ‑ ‑ ‑

HAYNE J:   At the end of the day you are about line ball.

MR KEANE:   Quite, but in relation to what we were induced to do by the misrepresentation to buy the land, we suffered a loss.  We bought land that was worth $300,000 and not 810 and ‑ ‑ ‑

HAYNE J:   And you made something of it.

MR KEANE:   And made something of it but not in a situation where it could be said that the misconduct that caused the loss also caused the receipts.  That, your Honour, is the respect in which this decision is acknowledged to be in Justice McPherson’s reasons on page 37 paragraphs [19] to [21] somewhat at odds with the decision of the Court of Appeal in England in Hussey v Eels and the Western Australian Full Court of the Supreme Court in Tay v Koh.  At paragraph [21], his Honour says:

If, however, my reservations about the correctness of the decision in Hussey v Eels are misplaced, the question to be determined here is whether the subdivision of Lot 1 of the subject land and its development and sale is to be regarded as not being “part of a continuous transaction of which the purchase of land . . . was the inception”.  Transaction is a rather indefinite term; but, adopting that test as the criterion for deciding whether the plaintiff’s receipts from Lot 1 are to be taken into account in assessing the loss or damage sustained by the plaintiff, there can, in my opinion, be only one answer to the question posed.  The plaintiff’s principal activity was real estate development . . . In the end –

it engaged in real estate development.

Its ability to fulfil its plans for the whole site were frustrated . . . but, as to the one third of it . . . it carried out its original intention in full, the only difference being that the contaminated soil was retained on Lot 3 –

which apparently is not useable at all –

In all other respects, the plaintiff’s original purpose was achieved –

So the transaction is the development.

If one goes back to page 36 and sees the transaction there identified as being the transaction which we were induced to enter into, in paragraph [17] one sees his Honour saying:

In my respectful opinion this misconceives the basis on which the damages or compensation are measured or assessed for conduct of this kind.  The plaintiff is entitled to recover compensation for its loss, which means it is to receive the amount needed to restore it to the position it would have occupied had it not been induced to enter into the transaction, meaning by that the purchase and acquisition of the subject land.

With the greatest respect, those two propositions do not sit well together.  We agree, with respect, with the way it is put in paragraph [17].  The transaction which we were induced to engage was the acquisition of the land.  It is, with respect, entirely impossible to suggest that we were induced to proceed and do the development which we did by the misrepresentation because we knew the truth when we did it and were no doubt entirely at our risk as to how we went about that.  It may be – it is not necessarily our respectful submission to make it out – but in supporting the rule which we urge and in putting the case that the departure from it is not supported in principle, it is at odds with decisions in Hussey v Eels and in Tay v Koh and it is ‑ ‑ ‑

HAYNE J:   Hussey v Eels was an action of what kind?

MR KEANE:   I think for deceit.

HAYNE J:   Not an action under a statutory provision equivalent to 52?

MR KEANE:   No, your Honour, but in that regard, in our respectful submission, there is no difference in this context really.  Gates and Wardley are sufficient warrant, in our respectful submission, for us – indeed, Henville v Walker itself in the passage which we have mentioned, which seems to acknowledge that Potts v Miller lives and lives side by side with the statutory remedies like section 82.  Your Honours, if Potts v Miller is dead because it has been frittered away on the basis that if there is not much of a market you do not apply it – and in that regard, while we have Henville v Walker out, we should draw attention to the citation at page 1414 at paragraph [20] where your Honour the Chief Justice cited a passage from Clark v Urquhart which, in our respectful submission, is a distinct affirmation of the proposition that the rule applies whatever kind of property one is concerned with and one cannot fritter it away by saying that we are here dealing with contaminated land and there is not much of a market for it.  If Potts v Miller is dead or has no application in relation to section 82, then, in our respectful submission, it deserves a decent burial.  Especially is that so since it was assumed in Henville v Walker that it was alive and that it has not been given its quietus, nor has it been excluded from application in relation to proceedings under section 82.

The other thing we wanted to say to your Honours is that the rule in Potts v Miller is a good rule, it is a wholesome rule.  It is means that people are responsible for what they do and its consequences, not for the fortuitous operation of markets.  It does not involve any double dipping on our part because application of the rule is merely due recognition that the decision to proceed with the development was made knowing the truth.  We could not remediate this land in the way we had been told we could.

HAYNE J:   Is your client back to the position it was in before it bought the land now?

MR KEANE:   Your Honour, the answer to that is:  just about.  The response is:  that is not the point.  The reason that it is back to where it was when it bought the land is that it has done things which in cases like Hussey v Eels would be described as collateral because, knowing the truth, it has actually gone ahead and done something a bit different but certainly not in a situation where it has done what it has done in reliance on the representations that are made.  That, in our respectful submission, is what distinguishes this case from Henville v Walker, which is why it puts it in, in our respectful submission, the line of authorities which ask, “What’s the loss that you suffered as a result of that inducement?”  What did we do as a result of the inducement?  We bought the land.  We did not do the development.  That really is, in our respectful submission, the problem with this.  It cannot be said that there is any problem with the facts because there cannot be any doubt that we did the development knowing the truth.

Your Honours, we wanted to say simply this.  It is not a case of double dipping.  Any profit we made is likely to be less – we cannot demonstrate it from the evidence – than it would have been otherwise.  We start from being behind the eight ball in that we have something which we cannot remediate and which we paid a price for on the footing that we could.  So, in our respectful submission, we are not talking about double dipping and injustice in that respect.  In our respectful submission, the justice of the case is to ask:  what did we do on the faith of the representation?  The answer is that we bought the land on the faith of the representation.  What loss did we suffer?  $510,000 is the answer.

In our respectful submission, the case is an important one.  We put on your Honours’ list a reference to Flemington Properties 155 ALR.  The reason we did that is because it is a decision of the Full Court of the Federal Court where the argument that we urge is usefully set out in the judgment of the Full Court of the Federal Court at page 355.  Your Honours will see there the appellant’s contention summarised in the dot points.  In our respectful submission, those propositions, supported as they are by authority, support our position.  In that case their Honours did not need on the facts to go on and decide whether they were correct or not.  They did recognise that the contentions were well supported by authority and certainly arguable and raised important and “difficult questions of principle”, as their Honours say over the page.

In our respectful submission, the time is right to determine those questions of principle and if Potts v Miller is dead, for it to be given a decent quietus.  Our submission of course is that it is not and that that should be affirmed, else it will be frittered away for reasons which do not command any intellectual assent such as, for example, that there is not much of a market for the piece of property.  Those are our submissions, if the Court please.

GLEESON CJ:   Thank you.  Yes, Mr O’Donnell.

MR O’DONNELL:   Your Honours, we say Potts v Miller was never determinative of this case.  We rely on what was said in the joint judgment of Justices Kirby and Callinan in Kenny and Good which is in the bundle handed up to your Honours at page 459, paragraph 123, where the appellant was relying on Potts v Miller to say that the subsequent depreciation in the value of the property was irrelevant to the question of damages because you should look at the value of the land at the time the loan was made.  Their Honours say at paragraph 123:

Nothing said in Potts v Miller is determinative of this case.  Indeed, as Dixon J’s reasons in that case show, different situations may arise in practice in cases of deceit (of which Potts was one).

HAYNE J:   Was Kenny and Good a case in negligence?

MR O’DONNELL:   I believe it was.

HAYNE J:   Why are we starting in the cases in negligence when we are concerned with a claim under section 82 for contravention of section 52?

MR O’DONNELL:   But the assessment of damages was also carried out in Kenny and Good under section 82, your Honour, is my point.

HAYNE J:   Yes, so much appears at 110.  I stand corrected.

MR O’DONNELL:   Their Honours go on to say:

There can be no rigid rules to govern all cases.

Justice Gummow expressly agreed with that at paragraph 93 of his Honour’s reasons. 

We say in light of that there is no starting point that there is a general principle derived from Potts v Miller where you have to find reasons to depart from that.  In our submission, Justice McPherson’s reasons at pages 34 to 35, commencing at paragraph [13] and going down to

paragraph [15], reflect a correct statement of the general principles to be applied to the facts.  That is, his Honour identifies – the question is:  what is the net prejudice or disadvantage to the applicant by relying on the misleading conduct?  In paragraph [14] his Honour sets out the test from Potts v Miller and then goes on to consider its subsequent consideration in Kenny and Good, Marks v GIO and Henville v Walker.  His Honour then in paragraph [15] applies those general principles to the facts of the case in asking whether the gain from the subsequent development is sufficiently connected in a causal sense with entering into the transaction, that it is right to take it into account in assessing the loss.

In our submission, the application here involves nothing more than perfectly acceptable general principles applied to the facts of this particular case.  Our learned friend’s argument where he said the conduct which caused the loss here did not cause the receipt really involves a challenge to a finding of fact; that is, was the gain from the subsequent development sufficiently related in a causal sense that it ought to be taken into account in assessing the loss.

As to that, there are concurrent findings of fact in Justice McPherson’s reasons that his Honour’s decision that there is a sufficient causal nexus was in paragraph [15] and Justice Thomas’ reasons are at page 45 paragraph [39] where his Honour also finds that there was a sufficient causal connection.  So, in our submission, there is nothing of particular importance in this case to justify the grant of special leave.

The other point our learned friend argues is that here the applicant became aware of the misleading conduct before embarking upon the development and that is a reason for distinguishing departure from the Potts v Miller test.  That entails the consequence, or the inherent proposition, that becoming aware of the misleading nature of the representation automatically breaks the chain of causation.  We submit that it is well established that is not so.

Here, the applicant had entered into the transaction.  It was stuck with the land.  It had to do something with it and, therefore, the question is, whether it is aware of the misleading conduct or not, is what it does with the land sufficiently related to the misleading conduct which induced the transaction that it ought to be taken into account in assessing the loss.  They are our submissions, your Honour.

GLEESON CJ:   Thank you.  Yes, Mr Keane.

MR KEANE:   Your Honours, as to the point that the concurrent findings of fact are fatal to us, the concurrent findings of fact are that – they are stated in paragraph 2 of our learned friend’s outline – they are:

that the acquisition of the land was a material cause of the advantages resulting to the applicant from the successful development and sale.

With respect, those findings are beside the point.  They are only material, they are only determinative if the Court of Appeal is right in point of principle.  We say they are beside the point because the true question, in point of principle, is what loss was caused because of the conduct complained of.  If it is right to say that it is always just a question of, “Is the profit you make resulting in some way from the ownership of the land?”, then, of course, Potts v Miller is no longer the law because the ownership of the land will always be a material cause of the advantages flowing from its successful realisation.

That is why, in our respectful submission, the approach taken in point of principle is off centre.  It is erroneous in point of principle and, because it is erroneous in point of principle, the concurrent findings of fact are beside the point.

GLEESON CJ:   The outcome of this case turned on the application of established general principles to the particular facts and circumstances, and in the view of the Court the case does not raise an issue appropriate to a grant of special leave to appeal.  The application is refused with costs.

AT 12.03 PM THE MATTER WAS CONCLUDED