Murphy & Anor v Overton Investments Pty Ltd

[2003] HCATrans 340

[2003] HCATrans 340

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S78 of 2003

B e t w e e n -

JOHN JAMES MURPHY and ANNE ELIZABETH GEDZ (as next friend of
DAPHNE MURPHY)

Appellants

and

OVERTON INVESTMENTS PTY LIMITED

Respondent

GLEESON CJ
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 9 SEPTEMBER 2003, AT 10.18 AM

Copyright in the High Court of Australia

MR R.J. ELLICOTT, QC:   If it please the Court, I appear with MR G.A. MOORE for the appellants.  (instructed by The Aged Care Rights Services Inc)

MR J.C. KELLY, SC:   May it please the Court, I appear with my learned friend, MR A.J. McINERNEY, for the respondent.  (instructed by Gadens Lawyers)

GLEESON CJ:   Yes, Mr Ellicott.

MR ELLICOTT:   Your Honours, it may be said at the outset that a large degree of disagreement has appeared in this matter between the four judges who have expressed a view in relation to it, and to some extent that may be why the matter is here, but it does indicate that different minds can approach this in a different way.  We of course have to convince your Honours that there is one way in particular that was adopted by Justice Gyles in the dissenting judgment in the Full Federal Court.

Your Honours, with a view to clarifying what our submissions are, I have prepared a two‑page document, which I would ask your Honours to look at, with a view to taking you through it and just explaining how we approach this issue.  I am assuming, as I would be told I am sure, that your Honours are familiar with the facts and have read the ‑ ‑ ‑

KIRBY J:   I have read the submissions and my head is swimming with facts. I have never seen so many facts.

MR ELLICOTT:   Your Honour, it is with that thought in mind that I thought it might be helpful ‑ ‑ ‑

KIRBY J:   We are a court of law, we normally deal with legal principle, and here I am back in a trial mode.

MR ELLICOTT:   Yes, I do not think you will be there for long, your Honour.

KIRBY J:   I hope not.

MR ELLICOTT:   It will clarify itself.  Can I take your Honours through this document and hopefully clarify the issue.  The representation in substance was that the known contribution levels took into account all relevant outgoings.  That is a statement of it and in short form it is made by Justice Gyles, I think.  I will take your Honours of course to other expressions, particularly by the trial judge.

HAYNE J:   Is that paragraph 191 of the trial judge’s judgment?

MR ELLICOTT:   Yes, your Honour.  This representation, so far as the Murphys were concerned, made the transaction affordable to them because their pensions rose with the CPI.  Your Honours will appreciate that the Murphys were full pensioners, that they were people of limited means and that they were seeking to find a place in a retirement village.  The evidence established that they entered into the transaction on the faith of that representation.

If the representation turned out to be significant or untrue, it would be likely to cause the Murphys serious loss or damage; it could subject them to much larger contribution levels and therefore expenditure and, of course, reduce the value of their leasehold interest.  The representation was in fact untrue, but its untruth would only be brought home to the Murphys if the outgoings not included were reflected in increased levies on them.  Now, that is a critical statement in the steps towards our submissions.  It was untrue, but it would only be revealed in effect when contributions were levied.

Now, this depended on the manager, Overton at the time, deciding under clause 5 of the lease to include all those omitted outgoings in a levy and then serving a notice of that levy on the residents, including the Murphys.  That in fact was not done until April 1997.  The loss or damage suffered by the contravening conduct was actually first suffered by the Murphys when Overton in fact included all the outgoings in its levy on residents and served notice on them of their proportion in April 1997.  We say that until that happened ‑ ‑ ‑

KIRBY J:   But there are a lot of hypotheses in all of these propositions.  For example, No 2, affordability, that has an implicit assumption that nothing happens in their own lives that change their ability to afford, no one gets sick, no one in the family has the crisis of costs of cars do not go up or of other facilities, No 6.  I mean, everybody who ever goes into any home unit knows that all sorts of unexpected things happen.  Storms occur, damage, the roof blows off; you cannot just go into anything and assume that everything is going to remain the same.

MR ELLICOTT:   No, your Honour.

KIRBY J:   So there are lots of assumptions here.  Do not assume that I accept them all as ‑ ‑ ‑

MR ELLICOTT:   My clients were people who were living very close to the breadline.  That was the evidence.  They are pensioners.  They have limited means.  The value of their house was marginally less than the unit that they were going into.  They were only able to afford it if they borrowed moneys from their daughter.  They are not people with cars and large houses or holiday mansions or whatever.  They are people very much on the breadline and affordability is vital to them.  I will come back to that later on, your Honour.

GLEESON CJ:   Mr Ellicott, there is one factual matter – you might prefer to deal with this at some later time rather than now if you are going through this document – but under what circumstances would a manager not include all known outgoings in a levy?  Presumably, the purpose of the levy is to reimburse the manager for all outgoings.

MR ELLICOTT:   Your Honour, if you have a retirement village and you are both the owner, or a lessor, as it turns out, and the manager, then you have a conflict of interest in a way.  You are building units in a retirement village and you are trying to sell them off to people who are either pensioners, or probably close to the pension situation; they are retirees.

The circumstances in which they would want to keep these costs down would be to make – and indeed the documents show this – it look as if it is affordable.  Now, there was no evidence – I am not suggesting fraud or anything like that in this case – but there is a conflict of interest between those people in those positions, that is the manager, who would want to include all the outgoings, as your Honour says, but also, on the other hand, the lessor who not only is the manager but is wanting to further develop the village and also attract people to come and buy, because no doubt it is out of those purchases that they make their substantial profits.  That is the conflict there and that is the interest and that was the position here.

As I emphasise, I am not suggesting fraud or anything of that description at the moment, but the natural inclination to say this is affordable – as the information booklet said in this case, “We make this village affordable” strikes a note with people like the Murphys because they are making marginal decisions for the rest of their lives. 

What we are saying is that they were in a position where one can say they were not going to suffer any loss or damage, actually, and that is, as we understand the decisions of this Court, clearly so.  It has to be actual damage.  They are not going to suffer that until the moment when they are asked to pay, according to a formula which includes all the outgoings.  That, in fact, did not happen until April 1997, which was five years after the lease was entered into in October 1992.

HAYNE J:   That is, the proposition, using the language of tax, is that the only loss was on revenue account and there was no loss on capital account, is that right?

MR ELLICOTT:   Yes.  Your Honour, following that through, if you go to 1997, it is hardly disputable that a lease at a certain level of contribution will be worth less than a lease at a higher level of contribution, so it will reflect itself in capital.  On the other hand, standing in the position they were in in, say, April 1997 when all these amounts were included, one can say that they were facing the prospect of increased expenditure that may be beyond their means and, therefore, on revenue account they are also suffering a loss.  There may be, in the context of assessing damages, two ways of expressing the same notion of loss, that is to say of compensating them for what has happened.  Be that as it may, it was not until, we say, 1997 that the loss came home.  It was until then a potential or contingent loss.

Now, the familiarity of this case with Wardley we then explore, and we say this:  although the facts were different, the principle lying behind the Wardley’s Case applies here as do the dicta of Justice Gummow in Marks’ Case.  It was not a representation about a term of the lease.  I emphasise that because in the judgments of those who found for the respondent we say that that is the error of their ways.  They tended to treat this as if it was like Marks’ Case and it was a representation about a term of the lease, which it was not.  It was a representation about what the lessor had done in determining the initial levy so as to reflect all expenditure to be incurred or likely to be incurred in operating the village.

Your Honours, we then compare it with Wardley’s Case and the facts in order to see that there is a substantial similarity in principle.  In substance it was not unlike the representation in Wardley, that is it represented the existence of a state of affairs which was untrue.  There it was as to Rothwells’ solvency.  Here it was as to what outgoings were reflected in the levy quoted which, because it was untrue, had the capacity to cause loss or damage to the representee.  In Wardley’s Case the calling on the State to pay up on the indemnity given; in this case the payment of much larger levies and the diminution in value of the Murphys’ lease. 

The loss or damage was potential or contingent and was only actually suffered when events occurred which brought it home to the representee.  In Wardley’s Case the events leading to and the calling on the State to pay up on the indemnity; in this case the decision of Overton to include all the omitted outgoings in a levy and actually levy the Murphys in respect of them.  So it was not actually suffered until April 1997. 

It is our submission that there is a direct comparison that can be made between this case and Wardley’s Case.  The facts are different obviously, but it really is a matter here, amongst this complexity of facts, of trying to find out and to put one’s finger on the principle.  The principle is that the representation was not about - or the basic proposition of fact is that the representation was not about the terms of the lease; it was about a state of affairs which in a sense was extrinsic to the lease.  It depended on somebody doing something, or something happening outside.

KIRBY J:   But that was contemplated by the lease and your clients knew of that provision.

MR ELLICOTT:   As contemplated by the lease, yes, and in the case of Wardley, the indemnity had to be called upon before they could suffer any loss or damage but that loss or damage flowed directly as a cause of the misrepresentation, as here the misrepresentation was the cause of our clients entering into the lease, a lease which caused them harm in due course, but only potential until April 1997.

GLEESON CJ:   The representation on which you rely is a representation as to existing fact, not a representation as to future events?

MR ELLICOTT:   That is right.

McHUGH J:   What does that say about your submissions?  This summary that you have handed up today seems to me to be a departure from your written submissions; you seem to have had second thoughts about your submissions.  The question of affordability of contribution which seems to have played such a significant part in your submissions seems to be abandoned in this new summary.

MR ELLICOTT:   No.  In order to appreciate why it was a misrepresentation to these people or to understand why there was a basic assumption for the purposes of estoppel or negligent advice, its affordability, it is not a background circumstance, it is a circumstance ‑ ‑ ‑

McHUGH J:   It seems to me it might be a back door attempt to get around the trial judge’s findings of fact in this case.

MR ELLICOTT:   No, it is not that, it is an explanation.  Affordability is an explanation of why these people relied upon the representation.

GLEESON CJ:   Affordability goes to reliance, is that the point?

MR ELLICOTT:   Yes, that is it.

GLEESON CJ:   If I appoint somebody my agent to go to an auction and bid for an item of personal property or real property and I say to my agent, “I can only afford X dollars”, and my agent gets a rush of blood to the head and bids 2X dollars and buys the property, whether or not I have suffered any harm as a result of that depends on other circumstances, I would have thought, even if I cannot afford 2X dollars.

MR ELLICOTT:   Yes.

McHUGH J:   What I am having some difficulty in coming to grips with is that the trial judge expressly found that it was not reasonable for your clients to rely on statements concerning affordability and that they did not rely on those statements as advice.  Given that finding, how does this submission here today live with those findings?

MR ELLICOTT:   There was an issue below as to whether there was a representation about affordability and he found against us on that, but he said there was definitely a representation in relation to – I will just use the short expression – the outgoings. But in the context of that he makes findings and affordability is the reason why our clients would have relied on the representation, because it was vital to them that they could enter this village and be able in the future to afford, within reason, the increases in outgoings.  And if all the outgoings had been included at that stage, then it was a risk they were prepared to take because the pension was CPI’d and it was therefore a risk that was, they thought, affordable.

McHUGH J:   Yes, but for the purpose of legal analysis, I do not know where it leads to; that is my trouble at the moment.  I can understand the representation and that your clients are induced by the representation found.  The question then is:  what damage flows from it?  You seem to want to inject this question of affordability into the case.

MR ELLICOTT:   It simply explains why our clients entered into the lease ‑ ‑ ‑

GLEESON CJ:   Or why they relied on the representation.

MR ELLICOTT:    ‑ ‑ ‑ and regarded on the faith of that representation.  That is why it was so important to them.  Had it not been important to them ‑ ‑ ‑

McHUGH J:   I appreciate that.  Obviously it was important to them but the question is what damage have they suffered, and at the moment I do not understand how affordability advances the solution or the answer to that question or problem.

MR ELLICOTT:   It does not advance the question, except the question of causation.  It indicates why they entered into the lease and the lease was an improvident lease from the beginning.  But the exposure of the improvidence would not take place until it was revealed that the fact was that all the items of expenditure had not been included in the original amount of $55-odd that was quoted, so it goes to causation.  But so far as loss is concerned, the loss is caused by entering into what I have loosely called perhaps an improvident lease, because ultimately it meant that they were faced with outgoings which were going to cause them considerable loss.

McHUGH J:   Maybe I have misunderstood something here, but is there any issue as to whether or not this representation induced them to enter into the lease?

MR ELLICOTT:   I am not aware of any.

McHUGH J:   That is why I do not know why you are spending time on this question of affordability.

MR ELLICOTT:   I am not actually spending much time on it except for the purposes of explaining causation, and I am happy to pass away from it.  But at the end of the day, what one has to assess is when is the loss suffered?  The loss is not suffered because ‑ ‑ ‑

McHUGH J:   That is right.  In this area, with these facts, it is important to keep your eye on the path ahead rather than to be distracted by the undergrowth by the side of the road.  It seems to me this question of affordability is an invitation to enter the undergrowth.

MR ELLICOTT:   No, your Honour, it is not something that I am going to dwell on, but somebody is going to ask themselves on the Bench. “Did this representation cause the loss and did it cause this loss”.

GLEESON CJ:   Or they might also ask themselves, “What is the loss?”

MR ELLICOTT:   And “What is the loss?”

GLEESON CJ:   Your paragraph 12, the introductory words seem to be very cautiously expressed.  You say “the loss or damage is reflected in”. 

MR ELLICOTT:   Yes.

GLEESON CJ:   Does that mean something different from saying “The loss or damage consisted of”?

MR ELLICOTT:   It is elliptical, your Honour, for this reason, that if you are identifying what the loss or damage is, the loss or damage is that at a certain point of time, namely April 1997, they are faced with markedly increased outgoings that almost double the contributions over what they were in 1992.  Therefore, one can say the loss or damage is that they have to go on paying those amounts into the future.

GLEESON CJ:   That seems to assume that unintended or unexpected expenditure is loss or damage and that, at least it seems to me, might depend on whether you are getting value for money.

MR ELLICOTT:   No, what is loss or damage is to them the increase in the levy induced by the fact that there is included in the outgoings items of expenditure contrary to the representation previously made which, I have to say, led them, because they were so concerned about affordability, to enter into that lease.

GLEESON CJ:   But the representation was about a state of fact that existed in 1992, not about what was going to happen in 1997.  I think you said that in your ‑ ‑ ‑

MR ELLICOTT:   Yes, but it was a state of fact which inexorably sort of was involved in the factual situation in the future because, once you know the truth ‑ ‑ ‑

HAYNE J:   Does not that bring us back to a careful identification of what is found to have been the misrepresentation?  Is that not the starting point?

MR ELLICOTT:   It is the most important starting point, yes, your Honour.

HAYNE J:   Can we go then to 2092 in volume 11 at paragraph 191, which seems to me to be the trial judge’s finding about the misrepresentation.  Am I right?

MR ELLICOTT:   It is one of the findings, your Honour.

HAYNE J:   Can I just focus on this for a moment.  Paragraph 191 at 2092 to 2093 says that it was misleading, in effect, to proffer the estimate:

of $55.91 without disclosing that the estimate was calculated on figures that did not adequately provide for all expenditure actually being incurred –

I read that as saying that the misleading was constituted by proffering a number calculated, putting it in shorthand, by reference to items (a) to (e), whereas, in truth, it should have been calculated by reference to items (a) to (z) or whatever.  Do I misread the finding?

MR ELLICOTT:   That finding is slightly different.  If your Honour goes to 189:

That evidence leads inexorably to an inference that the figures upon which the maintenance fee of $55.71 per week was calculated did not adequately provide for all of the expenditure actually incurred, or likely to be incurred, in the operation –

He adds the words “likely to be”.

HAYNE J:   What then do you say is the finding below of misrepresentation?  What exactly is the misrepresentation found?

MR ELLICOTT:   The misrepresentation is that – and I am happy to accept either 189 or 191, and that is ‑ ‑ ‑

HAYNE J:   You told me they were different, Mr Ellicott, so I do want to pin you.

MR ELLICOTT:   But it does not matter ultimately to the argument, because either way, whether you add the words “likely to” it does not matter.  So that the misrepresentation was that they did not disclose that the figure of $55.71 was not calculated by reference to all the expenditure that could have been relied on by the manager in the operation, I think are the words, of the Village.

GLEESON CJ:   Does that amount to the proposition that the figure of $55.71 was misleading and that to tell the whole truth they should have said, “You should also be aware that in calculating that figure of $55.71 we have not taken account of all outgoings that we are entitled to pass on to the occupants of the Village and we have a discretion at some future time, if we choose to exercise it, to pass additional items on to residents of the Village”?

MR ELLICOTT:   Exactly, your Honour.  What they were saying, also, was that the budget was accurate.  They produced a budget and they said it was accurate.  His Honour held that if you say the budget is accurate and you are presenting that to them, then the assumption is that, you being a person who knows everything and they being the persons who know nothing, you will reveal to them any material matter that they ought to know to decide whether or not the budget is a true budget, that is to say, represents all the costs of running the Village.

GLEESON CJ:   Was there any evidence from a valuer that if they had disclosed that additional information that I just mentioned, it would have affected the market value of what they were agreeing to acquire?

MR ELLICOTT:   The valuation evidence was really not related to 1992, it was related to dates in November 1996, and the date of the hearing, I think, February 2000.

KIRBY J:   That was because of your time limitation problem?

MR ELLICOTT:   Yes, because our case was that the time of the loss was in April 1997, although, on another basis, it could be said to be November 1996.

GLEESON CJ:   Let us suppose that the misrepresentation was as you have identified and the figure of $55.71 was misleading in the respect just explained, what is the nature of the loss or damage that flows from such a misrepresentation?

MR ELLICOTT:   The nature of the loss is that the Murphys, if an attempt is made to recover all the relevant outgoings, will be called upon to pay much larger contributions by way of levy to the operation of the buildings and much larger than they had anticipated and, I have to say, much larger than they thought they could afford.  This case was never put below on the basis of taking a value as at the date of the lease and to say, “Well, what would be the value with all the outgoings in, or what would be the value with these limited outgoings?” and that was never the case.  The case that was put was that there was loss or damage suffered by the inclusion at a later date of these additional outgoings or omitted outgoings.

McHUGH J:   What were the omitted outgoings in 1992?  Were they for the payment for the housekeeping, catering, transport services and the flexicare services, were they?

MR ELLICOTT:   Your Honour – and I am answering that – it might be helpful if I took your Honours to some of the facts rather than try and summarise them because there is a lot of detail in that particular document.

KIRBY J:   There certainly is.  Could I just ask, just before you do that, in 12 you say:

The loss or damage is reflected in:

·    a diminution in value of the Murphys’ leasehold interest –

Now, do you not determine that by finding out what the leasehold interest was when it was paid for in 1992?

MR ELLICOTT:   Your Honour, if one was doing it strictly, that would be correct, but something happened between 1992 – and I will come to this – and 1996 which did actually increase the outgoings, that is to say, they were increased by a figure of 18.37 per cent.  That increase - I will have to explain later – was put into the outgoings that had to be paid by the Murphys and the other residents.

KIRBY J:   I understand why you have to do this but it just seems artificial if you are saying, “Well, what is the diminution in the value of their lease?” not to ask, “Well, what did they pay for it?”

MR ELLICOTT:   No, it actually makes a concession to the respondent because it is reflected – if we take the value in November 1996, for instance, which includes as what they got a lease which was not $55.71 but some larger amount, it means that it is going to have a higher value and therefore that is going to be deducted – it is from that figure that the value is going to be deducted.  That is actually a concession to the respondent.

GLEESON CJ:   There is a problem in terms of legal theory that this case will be distorted by your limitation problem.  The tail is well and truly wagging the dog if the approach to the identification of the damage and the quantification of the damage is all being governed by the fact that these proceedings were commenced when they were commenced.

MR ELLICOTT:   Your Honour, the answer to that is really this.  The question is what loss or damage was suffered by the contravening conduct?  If the result is that the cause of action accrued at an earlier date, so be it.  We say that the loss or damage which was suffered was the requirement pursuant to the lease revealed at a later date that they had to pay a higher amount, that that was the loss or damage and that was caused by the contravening conduct.  Yes, the result is that there will be a cause of action which can be sued upon.

McHUGH J:   But, Mr Ellicott, the problem I have at the moment in even examining this case is that I am not sure it will not go off on an absolutely false premise.  I would have thought that it was arguable, perhaps strongly arguable, that if it was represented the outgoings were $55.71 per week and in fact they were, let us say, $75 a week, that what you were buying was worth less than what you were paying for; not necessarily, it may not be, but prima facie one would think that it would be, in which case you have suffered damage immediately.  You have paid over money for something that was worth less than you paid for it and therefore your damage accrued there and then.  But there is no evidence upon that issue.

MR ELLICOTT:   Your Honour, that proposition, with respect, misses the point that we are trying to make and I have not made it clear.  This is not the representation about the lease.  It is not a representation about the term of the lease.  This is a representation about what levy will be payable and how it is calculated.

McHUGH J:   But you say it is a no transaction case in your submissions.  You say, “We were induced to enter into this lease and we wouldn’t have entered into it at all”.  So why do you not suffer loss if you have paid more than the property was valued?

MR ELLICOTT:   Because it had not come home to us.

McHUGH J:   I know.  Well, you say that.  It had not come home to you in one sense because you were going to suffer damage down the track when you were asked to make these extra contributions, but it seems to me at the moment that you suffered damage immediately.  You bought a unit and it was worth less.  It was like somebody buying a home which has an easement over it and they do not know about the easement.  Now, it may not affect them for years but in terms of its value the value is down immediately.

MR ELLICOTT:   Your Honour, that would ignore, in our respectful submission, the notion of actually suffering loss or damage.  There may be a potential loss but there is not an actual loss, for the simple reason that, unlike Marks’ Case which was a representation about the loan arrangements themselves, that is the contract, this was not about the contract.  Mr Murphy always understood that Overton had a discretion as to outgoings.  Where it fell down was that he was led to believe that Overton had included in the $55.71 calculation all the outgoings it was entitled to include.  That was a matter of fact which could never have come home to him until there was revealed to him the untruth of it, and the untruth of it was not brought home until November 1996.

McHUGH J:   Supposing after they purchased this unit they got an opportunity to go to the John Paul Village and they decided to sell up and move into the John Paul Village, and a savvy purchaser investigated the matter perhaps more thoroughly and found out that the real outgoings were likely to be $80 a week.  Now, surely when you sold your property you would suffer a loss and that was because your property was never worth what you paid for it, or arguably it was not.

MR ELLICOTT:   We never sold it.

McHUGH J:   I know you did not.

MR ELLICOTT:   So we did not suffer a loss in that sense.  This is why when you take into account - and I do not want to read all the passages that have been quoted in dicta in this Court about section 52, but this is why the consumer is being protected and why section 82 and section 87 are there, to enable courts not to categorise loss or damage, not to tie it up with contract and tort and all the rest of it, but simply to ask the question:  what in these circumstances have these people suffered?  And that is exactly what these people have suffered; they have suffered an increased levy but they did not suffer it until April 1997.  It was always there as a potential but they were not aware of it even though Mr Murphy knew all the time that they had a discretion as to what outgoings they would include.  I think I should take your Honours to the facts.

HAYNE J:   Can I just detain you a moment more, Mr Ellicott, and see if I understand where we have got to.

MR ELLICOTT:   Yes, your Honour, I am sorry.

HAYNE J:   Step one is that there was a representation, a misrepresentation, about the method of calculation of outgoings in 1992, is that right?

MR ELLICOTT:   Yes.

HAYNE J:   Step two is that there is a later contractually lawful demand for outgoings at a higher rate, is that right?

MR ELLICOTT:   That is right.

HAYNE J:   Step three is that you do not identify the loss as the making of the initial transaction; you identify the incurring of an unexpected outgoing, unexpected in the sense of contrary to the representation, had it been true, as being the loss.  Is that where we have got to?

MR ELLICOTT:   Your Honour, the word “unexpected” just troubles me a little because ‑ ‑ ‑

HAYNE J:   That is why I amplified it by being “contrary to the representation”.

MR ELLICOTT:   Yes, and not only contrary to it, but bringing it home to the Murphys, actually bringing it home by requiring them to pay it.  It is only then that the loss is actually suffered and that is an important part of our submission.

The nature of the leasehold, if your Honours go to volume 11 at 2039, this is not just a simple – and I am sure your Honours will not have had to consider going into retirement villages yet and I hope your Honours ‑ ‑ ‑

HAYNE J:   Do not go there, Mr Ellicott, just do not go there.

MR ELLICOTT:   But at 2039, his Honour sets out all the provisions and the complexities of a retirement village.  He says at paragraph 27:

The net effect of those provisions of the Trust Deed and the Lease Memorandum is as follows:

·A Lessee pays a total consideration, being the Lease Price, for the grant of a lease.

·Total Rent is 25 per cent of the consideration paid for such lease.

·The Lease Deposit is 75 per cent of that consideration.

·Overton is entitled to appropriate 10 per cent of the Total Rent every six months until, after five years, the Total Rent has been fully appropriated.

·After five years, no further rent is payable by a Lessee.

·Perpetual advances to Overton, by way of interest free loan, 97.5 per cent of the Lease Deposit paid by each Lessee.

·In the event of surrender of a lease, the Lessee will receive one‑half of the excess, if any, of the Lease Price paid by any new Lessee for the grant of a new lease of the outgoing Lessee’s unit, over the Lease Price originally paid by the outgoing Lessee.

·If the original Lease Price does not exceed the Lease Price payable by the incoming lessee, the outgoing Lessee would receive a refund of the Lease Deposit plus any unappropriated amount of the Total Rent.

So it is a very complex transaction.  I am not asking your Honours to understand it completely; I simply indicate that there is an amount, namely the total rent, which, over a period of five years – in this case it would be 1995 – would have entirely have been appropriated by Overton.  So it is not just a simple lease.

GUMMOW J:   Is this trust deed with Perpetual required by State legislation?

MR ELLICOTT:   There is a code – not, I am told, your Honour.

GLEESON CJ:   I suppose the expression “Total Rent” has a marketing significance as meaning all the rent you are up for.

MR ELLICOTT:   Yes, and you do not lose all of it if you sell within the two years or the three years, as the case may be.

GLEESON CJ:   Yes, but the expression would be designed, from a marketing point of view, to inform people that there are no additional rent liabilities.

MR ELLICOTT:   That is right.

McHUGH J:   Mr Ellicott, your argument really is, I think, is it not, that section 82 must be given a purposive construction having regard to the purpose of this Act of protecting consumers and that one does not equate loss or damage in section 82 necessarily with what might be loss or damage for other purposes, such as the law of tort or the law of contract, but one is really looking at what hits the consumer in the pocket, so to speak, so you are looking really at the actual losses, and that gives effect to the purpose of the legislation rather than some theoretical loss or damage that might be relevant, if the case was one of contract or tort.

MR ELLICOTT:   Exactly, your Honour.

KIRBY J:   I am just concerned with the same problem the Chief Justice raised, that to solve your time problem we may then lay down a principle which disadvantages people who come along later, within time, and say, “I have lost the outgoings, but I have also lost the value of my lease and the value of my lease is the difference between what I paid for it in 1992, or its equivalent, and what it is worth today”.  I would not want to lay that principle down, because that is a person’s loss.  True it is it comes to fruit later, but it is the loss they suffer.

McHUGH J:   I suppose you would say you get around that problem by saying that they suffer the loss when they sell, for instance, and not theoretically at the moment of entering ‑ ‑ ‑

MR ELLICOTT:   Yes.  Your Honours, I do not have to go this far in my submissions, but really section 82 and 87 are designed with such flexibility that there may, in a given case, be different measures of the loss, and that may be an example.  But if a consumer comes to the court and says, “Well, look, in this very case this is really my loss”, it is a matter of convincing the court that, of course, that was the actual loss, but it may well be that it can be determined by another method, as your Honour the Chief Justice suggested, looking at it as at the date of the lease, but that does not mean that section 82 cannot be used to answer it differently.  That is to say, “Well, these people, having gone into this in these circumstances, with these problems, et cetera, were put in a position where they faced what to them were unaffordable contributions as a result of the misrepresentation.  That was their loss, and it reflects the circumstances of their position.  Whereas, if it were just a clinical exercise of determining what was the effect of representation on entering into a lease of a building, the answer may be quite different.

GLEESON CJ:   What difference in point of law would it make if these were wealthy people who were acquiring a unit in an extremely expensive retirement village?  Subject to the issue of reliance, which does not really seem to need the invocation of any concept of unaffordability, what difference would it make if they could well afford the unexpected ‑ ‑ ‑

MR ELLICOTT:   As a matter of law, it may make no difference applying section 82 because you are asking that question, what is the actual loss or damage?  The whole problem that has arisen in relation to section 82 and has bedevilled this Court, if I might put it that way, since Gates’ Case, where I apparently went wrong ‑ is the tendency to categorise and there is always a temptation to categorise.  But an analogy is a servant, not a master, as his Honour Justice Gummow said.  Yes, they are useful but concentrating on the words of the section, they bring home what we submit is the position in this case.

I just wanted to make the point that this is not a simple transaction.  It is complex and it has to be understood by people who are not necessarily well versed in complex leasehold interest.  But one thing they do understand is what they have to pay.  Now, the lease your Honours will find in volume 3 of the appeal book at 574.  It is a pro forma lease that was registered and is attached to an agreement for lease.  But “Outgoings” are defined at 575 in volume 3:

means the outgoings and expenses levied in respect of the Village in accordance with Clause 5 of this Lease.

Clause 5 you will find at 582:

(b)  The Lessor may levy on the Lessee contributions in respect of Outgoings and Outgoings of Apartments –

well, they are different.  Then:

(c)  Without in any way limiting the generality of the foregoing the Outgoings in respect of which the Lessor may levy contributions shall include provision for –

and there are a large number of items ‑ ‑ ‑

GLEESON CJ:   Now, can you give us just one example of something referred to in paragraph (c) that was not included in the $55.71.

MR ELLICOTT:   Would your Honours go to 708 and, in particular, 712.  Now, as I understand it, your Honours will see what is called a model and it is attached to a letter of 10 March 1994, but I will come to that a little later.  But your Honours will see on the left:

Profit & Loss Classification of Expenses
Maintenance

and they are items that apparently were included, but an accountant went through the expenditure for the year ended 30 June 1993, that is the year in which they actually acquired their lease and said, “Although you had a figure which totalled $490,107” – you will see that on 713 under the “Maintenance” column – this is talking to Overton – “you could have claimed an amount of $1,018,548”, which you will find at 714.

GLEESON CJ:   Is that because they did not claim for some items or they underclaimed?

MR ELLICOTT:   That is because they did not claim and underclaimed, and if I can just give your Honours some examples of that.  Take “Administration Costs”, nothing under “Maintenance”, but $2,200‑odd under “Operating” in that column and so on; “Miscellaneous Transfers”, “Cleaning”, nothing under “Maintenance” but $1,529, et cetera, et cetera.  Partly, “Electricity & Gas”, $36, 488 but the “Operating”, $39, 656.

So there are items that are included, some that are only partly included.  Take grocery purchases, $47,000‑odd under maintenance but $84,000 under “operating” which the accountant said they could have claimed.  These are very substantial.  It was in the interest of Overton at the initial stages to keep the levies down because obviously the cheaper it was the easier it would be - or it seemed - to sell these units.

Can I explain another situation.  If you go to page 709, the accountant was asking the question, “What was the expenditure and the operation of the village?”, and she said at about 25:

A literal interpretation of the “operation of the Village” can include all activities except Amberleigh ‑

Now, if your Honours look higher up, under (b):

The activities of Overton Investments Pty Limited in respect of the Heritage Retirement Village can be divided into:

(i)   Building and construction . . . 

(ii)   Holding of investment property for rent including marketing and procuration of tenancies.

(iii)  Management of the ongoing operation of the Village ‑

So there may be expenditures which go across the board that have to be in effect allotted to the various heads, so the accountant has to make an adjustment.  The accountant says at about 30:

This literal interpretation is not however feasible in terms of the overall context of the Heritage Trust Deed and Lease, and should reasonably be confined to items incurred for the mutual benefit, protection or enjoyment of residents in a day to day sense.

GLEESON CJ:   I am trying to relate this to the misrepresentation.  There seem to me to be two possibly different kinds of problem.  I entirely understand that in an ongoing operation like this somebody has to decide, for example, how much is going to be spent on refurbishment, and there could be considerable exercise of discretion in making a decision of that kind.  Such a decision might have to be made every five or seven years or maybe every year, but we are talking about a misrepresentation of the state of affairs at the time they entered into the lease.  I am interested to know in what respect or respects outgoings were actually being incurred that were not being charged to residents in circumstances where the manager had a discretion to charge them and where it constituted misleading conduct not to reveal that fact.

MR ELLICOTT:   Yes.  The best answer I can give to that, your Honour, on the evidence is this document, I am told.

McHUGH J:   Well, is it not covered by paragraph 108 of Justice Emmett’s judgment where he says that as at March 1994 the total cost was $1,018,000 but Overton was claiming only $570,000?

MR ELLICOTT:   Yes.

McHUGH J:   So they were almost underestimating it by about half.

MR ELLICOTT:   If your Honours look at 710 against 35:

Adopting the attitude of reasonability and eliminating building and letting activities and Amberleigh we suggest $1,018,548 could have been subject to contributions by residents providing all expenditure was necessary and reasonable and as a consequence of operating a first class village.

So in answer to your Honour the Chief Justice’s question, that is the disparity that we are talking about.

McHUGH J:   Well, they were only claiming $570,000, were they not?

MR ELLICOTT:   They were only claiming 570, maybe less, but the true position was that the accountant had advised them that they could claim up to a million.  That, of course, would have made the Village very expensive.

GLEESON CJ:   So the misleading and deceptive conduct consisted in not saying to your clients, “The current contribution to outgoings is $55.71 but you should understand that the manager has a discretion to pass all outgoings on and if the manager exercised that discretion this year the current contributions would be $100”.

MR ELLICOTT:   Yes, but the only point that I make, by way of difference, is that the situation was that Mr Murphy did know that they could do that.  He understood that they had a discretion and therefore what they should have been saying was, “Well, this $55.71 is the amount that we are quoting you but you realise that Overtons, as manager, have a discretion and in fact the situation is that they have not included a lot of items of expenditure and they may well include those in future years and those items of expenditure are substantially in excess of the items that have been taken into account to calculate the figure of $55.71” – something like that, your Honour.

GUMMOW J:   Discretion as to the future was one thing, disclosure of exercise of discretion as to the past and present is another, and that did not take place.  It seems to have been assumed that there had been no generous exercise, as it were, to keep it down in the past.  This was the real level.

MR ELLICOTT:   No, this was it.  That was the real level.

HAYNE J:   The key to paragraph 191 at 2092 lies at, firstly, line 46:

expenditure that Overton was entitled to take into account –

and, again, at line 54:

did not adequately provide for all expenditure actually being incurred –

They are the key elements of the finding, from your point of view, are they not?

MR ELLICOTT:   Yes, they are.  Are your Honours working from the Full Court Reports in the Murphys’ Case?

GLEESON CJ:   We have these media neutral citations, Mr Ellicott, with paragraph numbers, so it does not matter.

MR ELLICOTT:   All right.  If your Honours would go to paragraph 110 of Murphys’ Case in the Full Court.

GUMMOW J:   Perhaps before you do that, Mr Ellicott, could I ask you to go back to Justice Emmett.  Having made those findings at paragraph 191, what he then goes on to say in dealing with Wardley at paragraph 215 at 2099, what do you say about that?  In paragraph 216 he comes back to refer to clause 5, which you have taken us to, in particular, clause 5(b).

MR ELLICOTT:   Your Honour, he says that the – I think it is picked up in the sentence at the foot of 220:

I do not consider that their obligations under the Lease were contingent in the sense that was referred to in Wardley.

GUMMOW J:   Yes.

MR ELLICOTT:   That is not the point.  There is no doubt that the obligations were not contingent, but the actual obligation to pay an amount, an actual amount, was contingent on the exercise of their discretion that they had to include items of expenditure and, secondly, of serving a notice of levy under clause 5 on each of the Village residents.

GLEESON CJ:   Did the evidence indicate that the exercise from time to time of this discretion would depend upon the marketing circumstances relating to the operation of the Village?

MR ELLICOTT:   It would be an inference that it did, but I do not think there is any exact finding to that effect.  Apparently, if you look at the figures, you will find that during the selling period they were kept low, but once they were sold they went up.

GLEESON CJ:   But there is always a selling period, is there not?  Without putting too fine a point on it, there is a turnover in occupancy.  Operations like this always have marketing considerations to keep in mind, do they not?

MR ELLICOTT:   They do, but they become the considerations of the individual lessees, after the developer ‑ ‑ ‑

GLEESON CJ:   So a time is reached in the selling of the Village, assuming no further development is in contemplation, when the entrepreneur has no continuing interest in it?

MR ELLICOTT:   Except if the entrepreneur is also, as in this case, the manager.  That is where the conflict of interest comes in.  It is not an intensely material matter here, but it explains a lot that has happened.

CALLINAN J:   It is a little like incentives given to lessees, Mr Ellicott, how you characterise those when the building owner sells afterwards, whether the incentive which has been given to the lessee has really been taken into account in calculating the rent.  It is the same sort of thing, is it not?

MR ELLICOTT:   Economically, yes, it could be, but in terms of people like my clients, who perhaps do not think that way, they are only concerned about what they can pay, they do not approach it that way.  For instance – again I will have to develop this fact – in 1994 they asked for an increase of 18.37 per cent and the Murphys actually agreed to pay, and the reasons why they did are set out.  But at the same time they were saying, “Well, look, if you pay this increase, we will sell off all the units within two years and then the levies will actually fall”.  This is what they were saying to our clients.  In other words, that period was one where keeping the levies down was very much part of the thinking and giving the impression that they were affordable to people like the Murphys was very much part of Overton’s thinking.

I was taking your Honours to volume 3.  Would your Honours go to 678 of volume 3, and that is a “REFERENCE SCHEDULE”.  “TOTAL RENT”, it sets it out, “LEASE DEPOSIT”, “ESTIMATED INITIAL OUTGOINGS”, $55.71 for a pensioner and $60.79 for a non-pensioner.  I had pointed out to your Honours that not only did they have a discretion as to expenditures but also, because Overton was a developer, it had to make allocations of expenditure to various heads.  Some of the heads it obviously would not have been reasonable that they, that is the residents, should have to pay, so they had to make allocations of expenditure, so that there is, if you like, a double discretion.

His Honour, as has already been mentioned, did not find in our favour in relation to there being a representation as to affordability, but his Honour did make findings in relation to the matter based on the information booklet.  That is found in volume 3 at 617.  I understand this was a glossy brochure and therefore it was a promotional instrument but, to that extent, that would have to be taken into account.  At line 30, for instance, on 617:

THE HERITAGE RETIREMENT VILLAGE provides affordable, luxurious retirement accommodation not previously catered for on the south side of the harbour.

Then at 623 they say:

Present budget figures would indicate the following level of cost payable monthly by Independent Living Units:

A. = two bedrooms, B. = one bedroom plus study –

and that is the Murphys.  So, B, “Pensioner Weekly Cost” $55.71, “Non Pensioner Weekly Cost” $60.79.

These levies have been budged to cover items such as –

and they are all set out.

THE REPLACEMENT PROGRAM FOR SELFCARE, FLEXICARE AND SERVICED APARTMENTS PROVIDES FOR THE REPLACEMENT OR REPAIR OF THE FOLLOWING –

. . . 

In the case of Lodge residents the following service are available:

·Unit cleaning

·Laundry

·Meals

·Personal care assistance

There is a reference later to “user pays” and those are items that were actually omitted between 1994 and 1997 from the levies on the basis of user pays, that is to say that people would pay for them.  But I think they were finding later on that people were not paying sufficient to cover the costs so they decided to put them back in, but they were, at that time, left out, that is from 1994 through to 1996.  So the discretion goes the other way and they are keeping the levies down so far as people are concerned who are coming in.  At 624 there is just this statement:

WE DO IT ALL!  THAT IS WHAT THE HERITAGE IS ABOUT, TAKING THE WORRY OUT OF LIFE FOR THE RESIDENTS OF THE VILLAGE.

And 622 at line 25:

The replacement program supports our policy of removing the problems of home maintenance from the resident.  No more unexpected bills, they have all been budgeted for in the maintenance fee.

Clerical and personal‑care assistants –

et cetera.  It was based largely on that document that his Honour made the findings of misleading and deceptive conduct.  If your Honours go to paragraph 110, which is Justice Gyles’ judgment in Murphy, your Honours will see set out a number of passages relevant to this issue and the paragraph numbers.  I refer to this simply because they are conveniently collected:

Overton went further.  It furnished Mr and Mrs Murphy with a copy of the Information Booklet.  The Information Booklet was clearly a promotional tool.  Nevertheless, it bore the character of a document included as a source of information.  In referring to Overton’s policy of removing the problems of home maintenance from the resident and stating that all bills had been budgeted for in the maintenance fees, and in describing the items that the maintenance fees had been budgeted to cover, the Information Booklet was calculated to give rise to an expectation that, to the extent that those items and maintenance expenses had not been adequately budgeted for in the estimated maintenance fees, that fact would be disclosed to prospective lessees.

McHUGH J:   But you have really taken us to this.  This is what appears at 2091, 2092 at first instance to which Justice Hayne referred.

MR ELLICOTT:   Yes, this is only a convenient collection of statements that were made that are all relevant.

McHUGH J:   Yes.

MR ELLICOTT:   They are not confined to those that Justice Hayne referred me to.  Then the paragraph that starts, “That evidence leads inexorably”.  That and the next one are the ones that Justice Hayne has referred to.  Now, your Honours, the approach of Justice Emmett has already been referred to ‑ ‑ ‑

GLEESON CJ:   What is the error in what Justice Emmett said in paragraph 221, which is quoted at the bottom of 2100 and the top of 2101?

MR ELLICOTT:   Yes, your Honour.  I beg your pardon?

GLEESON CJ:   What is the error in Justice Emmett at paragraph 221, which is quoted at the bottom of 2288 and the top of 2289?

MR ELLICOTT:   I am lost, your Honour.  Was your Honour referring to Justice ‑ ‑ ‑

GLEESON CJ:   Justice Emmett.  Justice Emmett’s judgment is quoted on the bottom of 2288 and 2289.  In paragraph 221 he says:

If Mr and Mrs Murphy suffered any loss or damage as a consequence of the conduct of Overton . . .they did so when they entered into the Lease.  There is, however, no evidence of loss or damage at that time.  It follows that they have not established any loss or damage ‑ ‑ ‑

MR ELLICOTT:   I am still searching for that, your Honour.

McHUGH J:   It is paragraph 221 in Justice Emmett’s judgment.  It is in volume 3, 2101.

MR ELLICOTT:   That is correct insofar - I am sorry, your Honour for not immediately following.  It is true that there is no evidence of loss or damage at that time.  They have eschewed a case based on any proposition that they suffered loss or damage at that time ‑ ‑ ‑

GLEESON CJ:   It is really the first sentence of that that is important.  He said - and this must be the point of the debate ‑ ‑ ‑

MR ELLICOTT:   Well, it is.

GLEESON CJ:   He said:

If Mr and Mrs Murphy suffered any loss or damage . . . they did so when they entered into the Lease.

MR ELLICOTT:   Yes, that is right.  And he says in the previous paragraph, as Justice Gummow referred me to:

I do not consider that their obligations under the Lease were contingent ‑

They were completely at odds with Justice Emmett in relation to it.  The error is that he has not asked the question, “What is the loss or damage that’s actually suffered?” and he has also treated it as if it is the - that the representation is really about the leasehold interest itself, whereas there was never any debate about the lease and what its conditions were.

GLEESON CJ:   So it is the concluding sentence at paragraph 220 that encapsulates the error, is it?

MR ELLICOTT:   Yes, that is correct, your Honour.  Now, Justice Branson deals with it in paragraphs 37 to paragraph 45.  She says in paragraph 38:

It seems to me that, having regard to the above circumstances, the learned primary judge may have allowed his analysis of the question of whether Mr and Mrs Murphy suffered any loss or damage as a consequence of the conduct of Overton, and if they did when such loss or damage was suffered, to be confined by analogy with the tort of deceit to an inappropriate extent.  It may be that the approach adopted by his Honour is in large part explicable by the claims for relief made by Mr and Mrs Murphy and the way in which their cases were presented.  In any event, in my view, any error of approach made by his Honour in this regard is, for the reasons set out below, without significance to the outcome of the appeal.

What she then does is, having referred to Potts v Miller and the broader statement of Justice Dixon in Toteff v Antonas and referred to Gould v Vaggelas and Wardley, she says in paragraph 44:

I conclude that the “rule in Potts v Miller” will ordinarily establish the amount of the damage suffered by an applicant where the applicant, but for the fraudulent representation, would not have invested his or her funds otherwise but would have retained them.  It is not necessary for present purposes to give consideration to whether in the twenty‑first century a plaintiff who has retained his or her funds . . . might be required to bring to account interest earned or interest not paid.  The “rule in Potts v Miller”, in my view, has no application, even in an action of deceit, where the evidence establishes that the fraudulent representation did not induce the applicant to purchase property or make an investment but rather induced the applicant to purchase a particular property or make a particular investment in lieu of an identified property or investment that the applicant would otherwise have purchased or made.

She fixes on the fact that Mr Murphy had said in evidence that at the time they were also considering an alternative, that is the John Paul Retirement Village.

GUMMOW J:   Her Honour does that at paragraph 40.

MR ELLICOTT:   That is right.

McHUGH J:   Potts v Miller was not a case of comparing what you would have done if you had not entered into the contract.  Potts v Miller, if I remember rightly, was a case about the purchase of a hotel or a shop or something, was it not?

MR ELLICOTT:   Yes, it was an action for deceit.

McHUGH J:   Yes, it was an action for deceit, but your loss was what you had got and what you paid over, or something.

MR ELLICOTT:   Yes.  Her Honour was saying that is what his Honour Justice Emmett has done, he has applied Potts v Miller.  She takes another course that we did not invite the Court to take, but she says because they had in mind going to the John Paul Retirement Village then you could take that into account and therefore you would need some evidence, and there was none, as to what would have happened had they gone to the John Paul Retirement Village.  Of course, as Justice Gyles points out, that created all sorts of difficulties in making that comparison, that is, between what you got in the Heritage Village and what you would have got if you had gone to John Paul.

McHUGH J:   That is not what Potts v Miller was about at all.  I mean, Potts v Miller held that the measure of damage in which a person is induced by fraud to take out the shares in a company is the difference between the amount he paid for the shares and the real value of the shares at the time of the allotment.

MR ELLICOTT:   Yes, that is right.

GLEESON CJ:   Justice Branson pointed out that a valuer gave evidence that there were about nine factors that influenced the value of one of these units of which the level of outgoings was only one.  Presumably, one of the others was the general level of land value, the value of real estate in the locality, which could be affected favourably or unfavourably by any number of things.  What would happen in a case like this if in year 5, after the transaction is entered into, the outgoings increase as a result of a discretionary decision by the manager but as a result of a surge in market values of land in the area the real estate value of the entire property increases?  Is that something that is taken into account in working out the loss or damage that has been suffered by your clients?

MR ELLICOTT:   It would be if you used that as the method of awarding compensation, and section 87 provides for the court to make orders to compensate, then there would not be any compensation, but it would still leave it open in that case to claim an amount representing the present value of future contributions of the difference between the old contribution and the potential future contributions.  That would require an expert, of course, and actuarial considerations, but they are not matters that are foreign to valuers and to the Court.

GLEESON CJ:   Let it be supposed that some people enter into a transaction to take up a lease in a retirement village, there having been a misrepresentation about outgoings of the kind provided in this case, so they enter into a lease, and let us suppose that seven years later two things happen:  first of all, they are faced with an unexpectedly high level of outgoings; and, secondly, the local council forbids construction of any more retirement villages in the area.  The consequence of the first event is that it is more expensive to live in this village; the consequence of the second event is that units in the village become much more valuable because they are now scarce, or scarcer than they were before.  Do you take the second event into account in determining whether they have suffered loss or damage as a result of the misrepresentation?

MR ELLICOTT:   Your Honours, I think it may have been in Henville v Walker or I & L Securities - at the moment I am not clear - but the question of set-off and the question, of course, of contributory negligence, et cetera, those matters were discussed.  What the party is entitled to is the loss or damage suffered.  If the increase in the outgoings is the consequence of the misrepresentation, then they are entitled to that loss.  If, on the other hand, they get some benefit by way of an increase in value due to the favourable conditions, then that is to their account; that is just an extraneous circumstance that has operated.  They were entitled to that in any event.  If it was going to happen it was going to happen and be reflected in the value of their unit, and therefore it may be difficult for them to claim that there had been, as an alternative method of loss assessment, a diminution in the value of their unit due to the extra outgoings.  But if it is right to say that that is the loss that is suffered as a result of the misrepresentation, then that is it.  There is no set-off of one against the other.

GUMMOW J:   Mr Ellicott, could we look at paragraph 132 in Justice Gyles judgment, the first sentence in particular.

MR ELLICOTT:   Yes, your Honour.

GUMMOW J:   What would be the action contrary to the representation found by Justice Emmett which was contradicted by the later change in contributions?

MR ELLICOTT:   The inclusion within the calculation of all items of expenditure, some of those being items of expenditure which have not been included in the original calculation.

GUMMOW J:   I think you might need an affordability representation finding to get yourself within that first sentence.

McHUGH J:   That is the problem, your opponents criticise that passage in Justice Gyles’ judgment at paragraph 12 of their written submissions.  They say that his Honour, contrary to what was held in the court below, assumes that there was a representation about affordability.

MR ELLICOTT:   Your Honours, I did not read that as a necessary part of what Justice Gyles was saying.  It was only describing what had happened.

GUMMOW J:   Yes, but if he is saying the contrary, and if he is meaning in that first sentence to depend simply upon the representation found by Justice Emmett at paragraph 191 in his reasons, there may be trouble in connecting it to section 82.

MR ELLICOTT:   Yes, I do not read it as requiring affordability or unaffordability as being an essential to finding loss in those circumstances.

GLEESON CJ:   Does not the fourth sentence suggest that it is?

MR ELLICOTT:   Well, his Honour said:

the decision by the appellants to sell their home of many years and to buy a leasehold interest in this retirement village was probably one of the most momentous –

that is true, that is explaining it, but it is ‑ ‑ ‑

GLEESON CJ:   Yes, but it is the next sentence that is, as I understand it, the key to his reasoning.

MR ELLICOTT:   Yes:

Having made that momentous change, to find that, contrary to representations by the lessor/manager, contributions could not be afforded, left them open to termination of the lease for breach, with all of the disruption and cost –

But, again, the affordability is part of the circumstances within which the representation is made and, therefore, the fact that, if one accepts that affordability is part of it, and that is what Justice Gyles was referring to, it is not contrary to the finding of Justice Emmett, which we did not challenge, that there was no misrepresentation as to affordability.

GLEESON CJ:   But is not affordability the key to moving the date of the loss or damage from 1992 to 1996 in the reasoning of Justice Gyles?

MR ELLICOTT:   No, he says it was a contingent loss and it was not an actual loss, as in Wardley, until 1997 or 1996, depending on which dates you choose, but it does not matter for present purposes.

GLEESON CJ:   So you say it would not have made any difference to the reasoning of Justice Gyles if these had been wealthy people buying an expensive unit in a retirement village with no question of affordability involved but simply finding that they were facing unexpected expenditure contrary to an original representation?

MR ELLICOTT:   I could not say, having regard to that passage, that it would not have made a difference to Justice Gyles.

McHUGH J:   It certainly would if you look at paragraph 133 when he contrasts Marks.  At the last sentence he is talking about Marks.  He says:

Paying more interest, when there was no “affordability” problem asserted or found, is a vastly different proposition from the position in which the appellants find themselves, being confronted with payments that cannot be afforded –

So affordability is really at the heart of his Honour’s –

MR ELLICOTT:   Yes.  Well, I am submitting that if, as that would appear to be a fact, Justice Gyles regarded affordability as of great significance, then that is not – and this is the point, that the question is, is that contrary to the finding of Justice Emmett which we have not challenged that there was no misrepresentation as to affordability.

Affordability in the sense of the representation does not exclude as a circumstance in which the Murphys were negotiating to obtain their lease, does not exclude affordability as a circumstance which affected them and was the reason why, as we discussed before, they took the lease.  Later, when they found that these contributions were increased as a result of including additional expenditure, those contributions affected the affordability obviously and one which was right at the heart of the reason why they took it up.

HAYNE J:   But does it mean then that they would have had no claim if in this intervening period of years one of them had succeeded to a sibling’s estate, for example, leaving them in different financial circumstances from those that obtained when they first took it up?

MR ELLICOTT:   Your Honour, I would say no but I can see that the matter is arguable, but it is not this case.  That is why one has to come back every time to the facts of a particular case and measure them.  Affordability lay at the heart of this case and therefore was one circumstance which cannot be avoided and was present all the time.  It was never removed.  What immediately happened according to the evidence, once those items were included, there was an immediate diminution in value of the leasehold interest.  The evidence establishes that.  That is the evidence on both sides.  The figures are different but the evidence establishes that there was a significant difference in value as a result of the inclusion of all the items of expenditure.  That only indicates that something came home at that particular point of time to people ‑ ‑ ‑

GUMMOW J:   Was it caused by the misleading conduct found at 191 by the trial judge?

MR ELLICOTT:   Yes.  It was caused because ‑ ‑ ‑

GUMMOW J:   In other words, was it within the word “by” in section 82?

MR ELLICOTT:   Yes.  It is within the word “by” because as a result of the representation which was untrue, they in their circumstances, which circumstances were known to Overton, were led to take up the lease.  That lease was one which, as I have already put, was potentially improvident to them, being something that if all the items were included would lead to the contributions not being affordable.  That remained so right through, and in that sense it was “caused by”.  The nexus is the representation is made to people who are concerned about affordability.  The affordability is known to Overton.  They, on the basis of that, decide - and the judges so found - to enter into the lease.  The nexus is there.  The lease is potentially improvident.  It was potentially improvident from the time it was entered into once the decision was made by Overton to include these amounts.  It came home to them.  At that stage the loss or damage was suffered, but the potential loss was there from the moment the lease was entered into.

HAYNE J:   They subject themselves to a liability by entering the lease because of misrepresentation, but what is the loss that comes home?  An excess over outgoings calculated in a particular way?  Is it the whole of the liability to which they have subjected themselves?  What is the loss you say was caused by the misrepresentation?

MR ELLICOTT:   The loss is the inclusion in their levy of items of expenditure which had been represented, had been already included in their levy, and the loss is to have those included.  The consequence of that has to be compensated for, and one way of compensating for it is to give them the difference in value between the two.  That is how the matter was approached below.

McHUGH J:   Is not your case really that, given the representation, your clients were induced to enter into the lease on the assumption that their outgoings would be $55.71, roughly increased in accordance with the CPI, and, by reason of the misrepresentation, they were exposed to a much greater liability?  Now, assessing the damages might be quite difficult, but is that not the best way to put your case?

MR ELLICOTT:   Yes, that is how I would put it.  I hoped I had been putting it that way, but perhaps in ‑ ‑ ‑

McHUGH J:   Coming back to this question of affordability, I think you get into trouble if you try and put your case that way, having regard to the findings of the trial judge concerning the representation.  I do not know that you need to invoke this question of affordability.

MR ELLICOTT:   Your Honour, I do not reject that proposition, of course, but, supporting as I do the judgment of Justice Gyles, then if it has to be narrowed down to affordability, affordability is not inconsistent, in the sense in which he is using it in paragraph 132.  It is not inconsistent with the finding that there was no representation as to affordability.  They are two different things.  To represent something as affordable may be fraught with such uncertainty that it cannot be given meaning in full, but to say of a person, “Look, I am a pensioner and to me it is terribly important that I be able to afford to go into this village”, that is a different notion of affordability.  That is simply a circumstance of the person, who is very concerned about affordability, who is justly and reasonably concerned about affordability, and who enters into the lease with Overton knowing that they are concerned about affordability.  But they are two different concepts.

KIRBY J:   I think the point of difference that really arises out of Justice McHugh’s question is, affordability depends upon so many variable factors in life, of everybody’s life, whereas if you latch yourself onto the revelation of the true costs that may well fall due and that are known to another party, but not to the party complaining, then you are on much firmer ground. 

MR ELLICOTT:   I do not resile from that, and I accept that, but if I have to persuade other minds that affordability is part of the scene, then I am at pains to stress that it is one thing to say, “Has that person represented that this is affordable?” because that would be fraught with uncertainty.  We sought to say that below; it was rejected on the ground of uncertainty, because that is looking at the future – it will be affordable in the future.  It is another thing to say that a person who is very concerned about affordability, who is a pensioner, who has limited means, who has limited education, whose wife is very ill and who is seeking to go into a retirement village, and, therefore, as part of the consumer situation, here is a consumer to whom the capacity to pay – and that is all it is talking about – is of very great importance.  That is all affordability means in Justice Gyles’ judgment.

GLEESON CJ:   Let us assume everything else in your favour – you can overcome the time limitation problem, you can point to loss or damage – how do you distinguish between cases in which the applicant for relief is, in effect, entitled to expectation damages, that is, the difference between the outgoings on the basis represented and the outgoings on the basis incurred, and the applicant who only gets reliance damages and has to set off against the difference things such as increase in land value, that is, the applicant who has to bring to account the good as well as the bad?

MR ELLICOTT:   Your Honour, the distinction is simply made by asking the question, “What is the actual loss suffered by the contravening conduct?”  If one has not suffered by it, or none is suffered – it might have been but it was not, in the circumstances – that is the increase in value, but the other was, that is to say, the increase in the contributions, then they are to be compensated for that loss.  They have suffered that loss.

GLEESON CJ:   Take the case of the person who is not a pensioner, who has ample means but who is confronted by an unexpected increase in outgoings at a retirement village inconsistent with representations made at the time of entering into the transaction.  Is that person entitled to damages on the same basis as the person for whom this is a marginal financial transaction?

MR ELLICOTT:   Yes, I would submit they are, if the infamy of the representation is that they were led to enter into the transaction because of the representation that was made.  Once the question of causation is answered, then it is a question of saying, “What loss have they suffered?” and it does not matter, for that reason, whether they are rich or poor.

GLEESON CJ:   Assuming reliance?

MR ELLICOTT:   Yes, assuming reliance.  My attempt at explaining affordability in Justice Gyles’ judgment was simply to point out that it is a circumstance he certainly relies on and it is one that explains why these people ought to be entitled to be compensated, but it is not – and as I understand it, Justice McHugh has put this to me – an essential element in recovering damages in situations like this if the representation truly led to the entry into the particular transaction.

GLEESON CJ:   What do you say is the measure of compensation to which your clients are entitled?

MR ELLICOTT:   It is a bit like the chancellor’s foot, in other words ‑ ‑ ‑

KIRBY J:   That is Mr Kelly’s complaint.  He says here you have gone all this way, with all this litigation and you, even now, cannot really spell it out.

MR ELLICOTT:   No, I am hypothetically putting myself on the other side.  I am looking at it from the Court’s point of view.  The Court is going to mould its order under section 87.  If it considers that loss or damage has been suffered, it will make such order as it considers will compensate, I think are the words, of section 87(1A).  It will therefore find a measure of it.  Now, that measure will always be uncertain, as we know with damages.

In terms of this case, a clear measure, we say, is, according to the valuation evidence which is already in, the difference between the value with all the items in and the value without them in.  That difference is a reasonable way to compensate my clients ‑ ‑ ‑

KIRBY J:   And the value without the items in is the value your clients paid for it in 1992?

McHUGH J:   Are you not really asking ‑ ‑ ‑

MR ELLICOTT:   No, the way it has been assessed is the value with the - this is where I have not linked up, your Honour.  There is an 18.37 per cent increase.  There is also a CPI increase.  It is taking that forward to November 1996, and the valuers have taken it at that point before the items are introduced and after the items have been introduced.  That is fair because it was in the nature of things that they would increase by the CPI but they actually did increase by another 9 per cent, which is the subject of evidence and I would have to take your Honours to it.

McHUGH J:   Are you asking for Kizbeau type orders?  In Kizbeau we varied the orders that had been made, I think, by Justice Northrop at first instance and we - I think one part of the order provided for payment of a lump sum but another part varied in interest rate, I think from recollection, so we made a variation order of the terms of the contract.  We did not allow rescission in that case.

MR ELLICOTT:   No.  Your Honours, we are not asking the Court - although we have put in some addenda to our submissions in relation to damages and the valuer’s evidence, we are not asking this Court to fix the damages.  We would submit the appropriate course is to remit the matter to the trial judge to determine the damages.

GUMMOW J:   It is not just damages.  It might be some other order.  That is what Justice McHugh is suggesting, under 87.

MR ELLICOTT:   Yes.

HAYNE J:   And may not the difficulty of assessment be itself reason enough to warrant an 87 order, the misrepresentation being about the method of calculation, the 87 relief apt may be orders requiring perpetuation of the method of calculation first adopted.

MR ELLICOTT:   Yes.

HEYDON J:   The problem is that there has been a change.  Overton has sold.  Those orders would be unfair as against the new owners or other parties anyway.

MR ELLICOTT:   That is so, your Honour.  I was about to point out that Overton have sold and, therefore, there is a complication in there.  That is why I am not vociferously saying that they should pay something which is - they should not be able to increase the outgoings that are included but ‑ ‑ ‑

McHUGH J:   Well, did the new purchasers have notice of this litigation?

MR ELLICOTT:   They do, yes, and there are certain ‑ ‑ ‑

McHUGH J:   No, at the time of purchase did they have notice?

MR ELLICOTT:   Yes, and in the contract there are arrangements for Overton to be paid certain amounts that might flow from ‑ ‑ ‑

McHUGH J:   That is right, they are to collect, are they not, collect from ‑ ‑ ‑

MR ELLICOTT:   In 4.2 of our submissions, clause 50 of the contract required the new owner to assist Overton in the collection of those debts and to pay to Overton any amounts it received on account of those debts.

GLEESON CJ:   It is not self-evident that it is in the long‑term financial interests of the occupants of this retirement village that the village should be perpetually managed by somebody who is making a loss.

MR ELLICOTT:   No, that is the point.  That again is an important matter.  It depends on whether Overton, assuming they had stayed as the manager, should be required to bear it out of their own pocket.  There may be orders that are moulded in order to ensure that.  On the other hand, there may be certain limitations to the pocket of Overton which, nevertheless, require the Village to be run.

McHUGH J:   The accountant, Ms Hough, told the meeting, did she not, on 31 March 1994 that if Overton continued their previous policies they would go broke, so they just could not continue.

MR ELLICOTT:   That is right, yes.

GLEESON CJ:   It is presumably in the financial interests of the residents of this village that it be well maintained.

MR ELLICOTT:   It is, yes.

GUMMOW J:   An order under 87(2) can vary contractual terms within a past period without necessarily continuing the variation as against another party for a future period.  I would have thought that could be done.

MR ELLICOTT:   It would be wide enough to do that.  It says:

an order directing the person who engaged in the conduct –

to pay -

to the person who suffered . . . the loss or damage –

the amount of the loss or damage.  That would be wide enough, we would submit, for a court to say, “What is the present value of the increased contributions?”  That would represent what is an alternative way of perpetuating the contributions, if I may put it that way, but ordering Overton to pay them.  Those orders of course, as your Honours know, are not the only orders the court can make - “if the Court considers that the order or orders concerned will compensate the person who made the application” are the words of 87(1A).

KIRBY J:   Essentially, you want to be able to argue all this before the primary judge.

MR ELLICOTT:   Yes.

KIRBY J:   Can I understand this.  Do you contend that Justice Gyles got it all right?  Is there any aspect of his Honour’s reasons that you differ with or do we have here pitched before us a choice between the different approaches taken by the primary judge and the majority in the Full Court and Justice Gyles?  Is that essentially the choice we have to make?

MR ELLICOTT:   It is, but ‑ ‑ ‑

GUMMOW J:   You add something to it though, do you not?  You add to the element of choice, do you not, by the response to Justice McHugh’s question?

MR ELLICOTT:   Yes, I certainly do, and what your Honour put to me, agreeing with Justice McHugh, that it does not depend on his Honour’s embracing the notion of affordability in that passage we discussed earlier, but apart from that, we ‑ ‑ ‑

KIRBY J:   Yes.  Save for a footnote or major textual amendment in relation to affordability, you embrace Justice Gyles’ approach to the Act?

MR ELLICOTT:   Yes, your Honour.  His Honour recognises the difficulties of making an assessment based on the evidence before the Full Court and he sees the proper relief to be to send it back to the trial judge and it would be relief on the basis of enabling the issue to be completely looked at; that is to say, fresh evidence.

GLEESON CJ:   In litigation of this kind, who represents the interests of the other residents of the retirement village?

MR ELLICOTT:   Well, it has been said that this is a test case.  It started off as a representative case under the sections introduced into the Federal Court Act.

GLEESON CJ:   Yes, but they are surely not representing everybody in the retirement village.

MR ELLICOTT:   Well, it started off that way and then it was held that because their interests might be different then it could not continue as a representative matter.

GLEESON CJ:   I would have thought there is a clear potential for conflict of interest between, for example, your clients, on the one hand, and some residents of this Village who would be interested in having it maintained at the highest reasonably possible level, with all the consequential effects that would have on the value of units in the Village.

MR ELLICOTT:   Your Honour, that would be so if the remedy was being sought against the manager, that is one that bound the manager, whoever it might be, but that is not what we are seeking.  We are seeking an order against Overton, who now stand outside the picture.  We say they caused the loss, they should compensate and, indeed, they are the ones who have, first of all, the benefit of selling the units and no doubt of some sale of the management rights, et cetera, to the new manager, therefore, they should be the ones to bear the loss or damage that we have suffered.  That will not prevent the proper administration by the new manager of this Village.

The expenditure will be expenditure which, as I understand it, according to a code of practice, will be arrived at after consultation with the residents, and they all have a voice in that.  As I understand it, however, they cannot hold up the budget.  The manager has the right, ultimately, to say, “These will be the expenditures”, but has to take into account what the residents say.  The maintenance of the Village, at a certain level, in which they are all interested, is something which is not affected by anything that will happen here.

The difficulty that we might confront would be, if Overton was still the manager and we were asking that Overton keep the levies at the pre‑existing level, that might create a real problem for the other residents, but that is not the case.  That might, indeed, be a reason why, in a case where Overton was still there, a court might say, “I hear that, but that is not fair to others and therefore the proper measure of damage cannot be that.  It is either making Overton pay a crystallised amount out of their own pocket or, alternatively, paying some amount which represents the diminution in value”.

McHUGH J:   Could you just answer this for me, Mr Ellicott.  Is it the fact that Overton has continuing obligations and rights in respect of this place for a very long period of time?  I am thinking of the surrender clauses, because, under the scheme, if one of the lessees wants to get out they have to surrender their lease and they get half of the excess of the lease price if it exceeds what they paid.  On the other hand, if they sell and the lease price payable by the incoming lessee is less than what was paid for by, say, your client, then your clients have to receive a refund of the lease deposit plus a percentage of the unappropriated rent.  Well, that is long gone, I suppose, but who has those obligations?  Are they solely Overton’s obligations, or what has happened?

MR ELLICOTT:   Yes, the manager gets it, not the trustee.  I was thinking it might go to a trust fund, but it does not.  It is a profit to them if there is a profit, or it is a loss to them if a contribution has to be made.

McHUGH J:   What about the obligation to repay the lease deposit and, where it is relevant, the unappropriated amount of the total rent?  Who has that obligation, is it Overton?  Does it continue to be a responsibility of Overton, or is it the incoming manager?

MR ELLICOTT:   That carries over to the incoming manager.

GUMMOW J:   How does it do that?  Is there no legislation that provides for all of this?

MR ELLICOTT:   No, it transfers its rights ‑ ‑ ‑

McHUGH J:   It may transfer its rights but ‑ ‑ ‑

MR ELLICOTT:    ‑ ‑ ‑ under the leasing arrangements and there is a trust ‑ ‑ ‑

HAYNE J:   Federal legislation does not bite, Mr Ellicott, in some way?

MR ELLICOTT:   Apparently not, your Honour, not as far as my instructions go.  I cannot say I have searched every book to find out, but I have relied on instructions in relation to that; I am instructed by the Aged Care Rights Service and I think they would know.

I could take your Honours – and if you do not mind me asking a question – through Wardley’s Case and Marks’ Case, but in relation to Wardley’s Case the Court is very familiar with it.  It does really get down to this question of contingent loss and the situation ‑ ‑ ‑

GUMMOW J:   I think there is another question, Mr Ellicott, and it is this.  It is assumed in some of the cases maybe and in some of the arguments from time to time that that phrase “who suffers loss or damage” in 82 is limited in a way and does not cope with the situation where there may be a number of prejudices which answer the description of loss or damage which are caused in one way or another by the conduct.  The fact that one species is not recoverable because it is too late does not mean that that is necessarily the only statutory species of loss or damage.

MR ELLICOTT:   Your Honour, I would submit ‑ ‑ ‑

GUMMOW J:   That seems to underlie some of the reasoning in the majority of the Full Court, that if you knock them out on this way of looking at it, there can be no other way.

MR ELLICOTT:   Yes.  I would submit section 82 itself is flexible, but I do not need to succeed on that.  Section 87 is clearly flexible enough to cover different forms of losses and for the Court to decide what is the appropriate measure of damages for the particular loss and what is the loss that has been actually suffered in the given case, even though there might be arguments about whether or not you could have sold the property and it would have incurred a loss but you did not, you hung onto it and you hung onto it reasonably, and then the contributions were increased, it is appropriate to say that the measure of the loss is not what would have happened had you sold it back in 1992 but what you actually suffered when the items of expenditure were included in 1997.

HAYNE J:   You spoke of that as being a matter for choice by the Court.

MR ELLICOTT:   Yes.

HAYNE J:   Is it perhaps more accurately a matter for election by the plaintiff?

MR ELLICOTT:   I think in a sense it is, but the plaintiff has to obviously satisfy the court.  If a plaintiff comes and says, “Well, I don’t want that loss, I want this loss” I submit that a plaintiff is entitled to do that.  He may say, “Well, I suffered $1,000 on that, but look over here, I have suffered $5,000 and can claim it”.

Sections like section 87 are capable of that construction and they should not be confined, particularly where the object of the Act is to protect consumers from losses suffered by contravening conduct.  It gets back to that and, really, the judgments against us are judgments that are confining in that sense, they are categorising loss again. 

Now, it is true to say that Justice Nicholson saw a diversion of view in Marks’ Case, which I should go to, between the views of your Honours Justices McHugh, Hayne and Callinan and those of Justice Gummow.  Now, we say that the resolution - if there is a difference - and on the face of the words there might appear to be, but one wonders whether there is - the Court does not have to determine it in this case because Marks’ Case is different; it is distinguishable on the facts.  It was a representation about the contract, whether it confined the interest rate, the 1.25 per cent or whether it could be increased and they represented that it was confined to 1.25 per cent over the bank rate or whatever the basic was, whereas apparently if they had read it, they would have seen that there was indeed a clause which enabled it to be increased.

Now, if I can take your Honours to that. At 196 CLR 494 at 510, paragraph 38 in the joint judgment:

It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s 87, is likely to suffer) loss or damage “by conduct of another person” that was engaged in the contravention of one of the identified provisions of the Act.

Just stopping there, looking at the position in this case, it could be said that although the loss or damage was initially first suffered in 1997, it was likely to be suffered into the future as well.

GUMMOW J:   Well, you use that expression “loss or damage”.  It suggests that is the only sort of loss or damage one can think about.

MR ELLICOTT:   Yes.

McHUGH J:   Section 82 does not have the definite article.

MR ELLICOTT:   I understand the point, yes, your Honour.  I withdraw the definite article, and I understand the point.  It was really the point I am making, that it is not limited.

That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct ‑

maybe the definite article has intruded there ‑

But once that causal connection is established, there is nothing . . . which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies.  Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit or with equity but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies.

Then from 514 to 516, paragraphs 47 through to 58, particularly at paragraph 47, your Honours say:

The bare fact that a contract has been made which confers rights or imposes obligations that are different from what one party represented to be the case does not demonstrate that the party that was misled has suffered loss or damage.

Now, those words “the bare fact” is a matter - I cannot construe what your Honours have said, but your Honours have used the words “the bare fact” and if there is nothing else, that could well be an acceptable proposition to all who consider it.  But at 48:

A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way . . . which would have been of greater benefit or less detriment to it than the course in fact adopted.  Thus, the party that is misled will have suffered loss if a chose in action which was acquired was worth less than the amount paid for it.

Now, just that sentence, that is capable, we say, of application here, if one just says, “When does that happen?”  That is to say, “When does it become ‘worth less than the amount paid for it’?”  If it is brought home at a later date, the question of contingency or potential loss, that is, the loss in value, is encapsulated in those or is implied in that statement.  It depends how far that is taken.  We would say that if it is literally read, then it may have error in it, with very great respect, but I wonder whether it was intended that way.

There may well be other ways in which it might suffer loss of damage.

That is interesting.

For example, consequential loss may be suffered.  But no loss of that kind was alleged in this case and, putting that kind of loss to one side, we focus only on loss said to be suffered by the making of the contract.

That again indicates the multiplicity of losses that can be taken into account.  What I am at pains to do, if I am able to, but it is very much a matter for your Honours, Justice Nicholson saw a conflict between the two judgments of principle and I would submit there is not really a conflict if these words are read in their context, because if there is a contingent or potential loss involved in the situation, then obviously the Justices who wrote this judgment were not ignorant of Wardley’s Case – that would be a stupid thing to suggest – and therefore this has to be read in the sense that it can encompass contingent loss.  Then in 54:

This is not to be taken as confining the operation . . . It is not confined in that way . . . But the inquiry remains an inquiry about whether it is likely that as a result of the contravention the party concerned will suffer some prejudice or disadvantage.  If, as we consider to be the case, the bare fact that making a contract different from what was represented is not loss or damage, something more must be shown to be likely to occur in the future before it can be said that it is likely that loss or damage will be suffered.

And those words “something more must be shown to be likely to occur in the future”, that again is apposite to this case.

There really is not, I would submit – and I suggest Justice Nicholson took the words too literally – properly read, those observations do not militate against the judgment of Justice Gyles, for instance, or the submissions that we are making here.

Justice Gummow, the passages are at paragraph 77 where your Honour indicates the facts of the case, which are really distinguishable from this, 80, 83, which indicates why the causal connection did not occur there, but the relevant passages that I wanted to refer to are under paragraph 104 at page 529 at the foot:

There was obvious difficulty in classifying entry into the contracts themselves as “loss or damage” sustained at that stage by the borrowers and in providing monetary compensation for that injury as if there had been loss of a bargain.  At the times when the contracts were made, there was no cheaper financing on the market.  None of the borrowers suggested that he or she would not have been borrowed at all if the AAA facility had been other than as represented.  None said that, had the truth of the matter been told, he or she would have entered into alternative financial arrangements.  At this factual level, the present case thus is to be distinguished from . . . Demagogue.  In those cases (where relief was obtained s 87, not s 82), there had been a finding that, if prior to their entry into the transactions in question the applicants had been aware of the true situation, they would not have entered into the transactions.

It is true that your Honours in the joint judgment did throw some doubt on Demagogue.  We would submit that that doubt, with respect, is not justified, that Demagogue is really embracing the flexibility of these sections, particularly section 87.

Further, in the present litigation, it was conceded that, even with the increase in the margin the AAA facility was more beneficial . . . Nevertheless, the focus of the borrowers’ complaints with respect to the contractual terms of the AAA facility was the presence of 11.1.  This did not immediately subject them to any contractual liability to pay more than a margin of 1.25 per cent.  Such a liability would arise, and did in fact arise, only upon the expiration of ninety days after a notice . . . No doubt the contravention of s 52 occurred before entry by the borrowers into their respective contracts.  But any injury which would found their actions under s 82, and for which it would provide a measure of compensation, was contingent or prospective until GIO acted to increase the margin rate and that increase became legally binding upon the borrowers to expand what previously had been their contractual liability to GIO.  It follows that, on any footing, the expanded liabilities would not have crystallised until 1 August 1992 when the increased 2.25 per cent became effective.

We would, with respect, apply those comments and dicta to the facts of this case in exactly the same way.  Clause 5 does not bite in this case until April 1997.  I emphasise again that there is a basic distinction between Marks and this case in that in Marks there was a representation about the agreement.  The representation is not that.

McHUGH J:   But there is a more basic distinction between the two cases, is there not?  In Marks, what one was searching for was loss or damage and the Court held that there was no loss or damage, except Justice Kirby dissented, but the majority all held that there was no loss or damage.  But here one view of the case is that it must be decided whether or not you did suffer loss or damage immediately upon entering the contract.  I am not sure that Marks is decisive on that, although the dictum at 515 in Marks is that “It will be rare” that there will not be “some difference in value” indicates that loss is usually suffered by entering into a contract different from what was represented.

MR ELLICOTT:   Yes.  Well, an important point in the judgments of Justice Gummow and Justice Gaudron, as I read Justice Gaudron, was that the causation link had been cut, but that had that causation been there, then, nevertheless, there would have been loss or damage once the decision was made to exercise a discretion to increase the interest rate.  Now, on the other hand, you can say, as in this case, that when the lease was entered into the potential for loss was there but it did not come home until a later time, the potential being that all the amounts had not been included.

What I read at 515 in 55:

will not be reflected in some difference in value or other manifestation of actual loss to the party that was misled either now or in the future.

It shows that your Honours did have in contemplation the type of loss that could occur here.

GUMMOW J:   Paragraph 54 may be important too, on page 515.

MR ELLICOTT:   That is right.  That is the one I did read, yes, your Honour.  Now, your Honours, I am conscious of the time.  Justice Gyles - first of all, apart from section 52, there was a claim based on negligent advice and his Honour found, for similar reasons really, that damages were payable because of negligent advice.  Justice Emmett had held - and the gravamen, as Justice Gyles says, is set out in paragraph 138 in relation to negligent advice.  That is paragraphs 200 and 201 of the judgment in volume 11, if your Honours want to read from that:

On the other hand, the statement concerning the accuracy of the budget must also be considered in the light of the fact that the budget under provided for expenditure being incurred and likely to be incurred by Overton in operating the Heritage Village.  In so far as Overton continued the policy of bearing itself part of the expenditure incurred in operating the Village, the budget was accurate.  However, in so far as the budget failed to take account of expenditures being incurred and likely to be incurred, it was quite inaccurate.  Mrs Taylor must be taken to have known that Mr and Mrs Murphy would rely on a response concerning Mr Murphy’s enquiry as to the accuracy of the budget.  I consider, therefore, that Overton was under a duty to care in giving a response to his enquiry.

I consider that in the circumstances, Overton was under a duty, through Mrs Taylor, to take care, if a response was given to the enquiry, to ensure that the response was accurate to the extent of information available to Overton at the time.  For the reasons I have indicated, the response was not accurate because the budget failed to take account of all of the relevant expenditure.  There was, therefore, a breach of duty in the circumstances.

Now, on the other hand, his Honour went on to find that there was not a case for damages.

Justice Gyles, for similar reasons to those that are expressed in relation to section 52, said this in paragraph 143 ‑ and he had referred to Kenny & Good, upon which of course we rely and he sets out the relevant passages:

In the present case the negligent misstatement was related to the ability of the appellants to afford the contributions to be levied, which depended upon a contingency, namely, the basis upon which the lessor chose to levy contributions.  In my opinion, in the circumstances of this case, the same result follows whether damages flow from negligent misstatement or a breach of s 52.

And he comes to a similar conclusion.  I do not really want to add anything in terms of argument to what flows from Justice Gyles’ judgment.

McHUGH J:   But, Mr Ellicott, is not paragraph 213 of Justice Emmett’s judgment the critical paragraph that you have to deal with to succeed, no matter what view you take of this case?  His Honour said:

There is no evidence that Mr and Mrs Murphy are not receiving value for the maintenance fees that they are paying.

And he goes on to say on that basis there has been no loss, that they are liable to pay.  So you have to grapple with that, have you not, no matter you approach this question of loss?

MR ELLICOTT:   We grapple with it in the same way as we do in relation to section 52.  We say that the negligent advice that was given, in their circumstances, led them to enter into the lease transaction.  The effect of entering into it, the negligent advice being about the very same issue as section 52, led them into a potentially improvident transaction which, as I put in relation to section 52 ‑ ‑ ‑

McHUGH J:   I know, but once you start talking about entering into the lease transaction as being the critical thing, it conjures up notions of what you have at the time and what was represented to you, but 213 is really what you have to deal with, I think.  The case put against you is there is no evidence that you did not get value for your ‑ ‑ ‑

MR ELLICOTT:   We certainly got a lease and we certainly got a unit ‑ ‑ ‑

KIRBY J:   You do not want to leave the unit?

MR ELLICOTT:   What we did not get was the sense of assurance that what had been charged to the budget represented all the expenditure, and that is the sense of assurance that we got from them included all the expenditure that could be included.  Our submission is exactly the same, and that is that it did not come home until it was included, that loss ‑ ‑ ‑

McHUGH J:   You seem to be wanting to turn the representation into a warranty and claiming expectation damages.

MR ELLICOTT:   They are the ones that gave the advice that the budget was accurate.  That is the advice that contained the statement, in effect, that it included all relevant expenditure.  That led to the lease being entered into.  It is a clear case of causation.  The lease was potentially improvident.  It became clearly actually improvident when those items were included.

GLEESON CJ:   Is that a convenient time, Mr Ellicott?

MR ELLICOTT:   It is, your Honour.

GLEESON CJ:   We will adjourn until 2.15.

AT 12.50 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.18 PM:

GLEESON CJ:   Yes, Mr Ellicott.

MR ELLICOTT:   Could I give your Honours a reference to Akron Securities (1997) 41 NSWLR 353 on the width of section 87, and the judgment of President Mason, 365 to 368. I think your Honours referred to that in I & L Securities, but it, to some extent, cut down its effect, but not significantly, in relation to the width of 87.

Your Honours, could I pass to the question of estoppel.  The significance of estoppel is that if it is permanent no question of limitation really arises and therefore it has a significance apart from section 52 ‑ ‑ ‑

GLEESON CJ:   From what would Overton be estopped?  Estopped from doing what?

MR ELLICOTT:   Estopped from including in the outgoings items of expenditure beyond those which were included in the budget of 1992.

GLEESON CJ:   Do you mean by that estopped from asserting that these were items of expenditure?

MR ELLICOTT:   Yes, that is another way of saying it, your Honour.

CALLINAN J:   Or from asserting that they were payable by the applicants.

MR ELLICOTT:   In terms of what was found - and perhaps one has to look at that - could I before answering that finally take your Honours to three passages.  One is paragraph 85 at 2056 in volume 11:

I am satisfied that he believed and understood that his and Mrs Murphy’s obligations and liabilities were as specified in the legal documentation.  On the other hand, he had a belief or expectation . . . that in the ordinary course of things, the maintenance fees that he or Mrs Murphy would be called on to pay would not increase disproportionately to increases in the age pension.  Mrs Murphy’s state of mind was not relevantly different.  Their belief and expectation was a factor that they took into account in deciding to enter into the Lease.

Now, that is not in the estoppel part of the judgment but I refer to it.  Then at page 2103, paragraph 231 at the bottom:

There was, of course, implicit in what Mrs Taylor was saying an assumption that the maintenance fees that were currently applicable in 1992 would be sufficient to reimburse Overton in full for all expenditure then being incurred by it in the operation of the Heritage Village.  That assumption, of course, was misplaced.

Paragraph 233:

It is a fair conclusion from the evidence, however, that the conduct of Overton during 1992 induced an assumption on the part of Mr and Mrs Murphy that, in arriving at the estimate of $55.71 per week, Overton had taken into account all expenditure being incurred or likely to be incurred in operating the Heritage Village.  In so far as it would be unconscionable for Overton to depart from that assumption, Overton would be estopped from doing so.

So that the assumption was that all expenditure that was incurred or likely to be incurred was included and that any departure would give rise to an estoppel.  That is the way in which – in other words, we accept his Honour’s formulation of it.

At paragraph 148 of Murphy’s judgment in the judgment of Justice Gyles:

The foundation representation was that the known contribution level took into account all relevant outgoings.  That did relate to that period.  However, from this, it could be assumed that changes to contributions in the future would be adjusted by reference to rising costs brought about by inflation.  As pensions are also adjusted in relation to inflation, it could therefore be reasonably assumed that if the then level of contributions could be afforded by reference to the pension it was likely to be affordable in the future.  This was the critical thing so far as these purchasers were concerned.  It was found that the transaction was entered into on the faith of these assumptions which were brought about by the representations of the respondent.

In my opinion, his Honour was correct in holding that it might be unconscionable to depart from those assumptions.  His error was in holding that the representor should be permitted to resile from the assumptions it created on giving notice after the transaction had been entered into.

So that the debate between Justice Gyles and Justice Emmett was as to whether or not, as Justice Emmett went on to find, it was sufficient for Overton to give notice.  He said in paragraphs 234 at page 2104:

It is clear that from March 1994 onwards, Overton was maintaining the position that, while up to that time there had been an under recovery of expenditure, Overton intended thereafter to seek to recover full reimbursement of all expenditure . . . Mr and Mrs Murphy accept that they were able to manage the increase of 18.37 per cent with effect from 1 July 1994.  They were not called upon to bear any further increase until 27 November 1996.  They effectively had more than two years within which to rearrange their affairs, including selling their interest under the Lease or surrendering it if need be, so as not to be in a position where the maintenance fees would be beyond their means.  If any estoppel arose, it was one that would have prevented Overton from requiring an increase in maintenance fees without giving reasonable notice of its intention to do so.  It effectively gave in excess of two years’ notice –

Based on The Commonwealth v Verwayen and Giumelli v Giumelli and other cases that are referred to in paragraph 149 of Justice Gyles’ judgment, he took a different view.  He took the view that this was in the nature of a permanent estoppel.

GLEESON CJ:   Yes, but the point he came to is expressed in 153 and that brings us back to a question I asked you this morning.  He concluded that:

The respondent should not be permitted to include items or heads of expenditure which were not taken into account in calculating the represented estimate in expenses –

This morning when you were asked to take us to any particular item of expenditure that was not taken into account, I understood you to take us to a list of items and really to demonstrate that they were taken into account but not to the extent to which they could be taken into account.  Can you give an example of just one item or head of expenditure that would be ruled out on the basis stated by Justice Gyles in paragraph 153? 

MR ELLICOTT:   If your Honour goes to volume 3, page 712.  I think I instanced “Cleaning” this morning – 0 had been included.

GLEESON CJ:   No, 0 under “Maintenance”.

MR ELLICOTT:   Yes, nothing had been included.  That is an item, none of which had been included but was included later.

GLEESON CJ:   What is the difference between “GENERAL” and “MAINTENANCE”?

MR ELLICOTT:   It apparently represented those other areas of their business activity, that is to say the building developments and the holding of units for sale and promotion.

GLEESON CJ:   So that anything that was included under “GENERAL” did not form part of an expense for levying contributions.

MR ELLICOTT:   That is right

GLEESON CJ:   Does it follow, then, that what is ruled out by the conclusion of Justice Gyles is everything where the number zero appears on page 712 and 713?

MR ELLICOTT:   Yes.  If it appears in the column under “OPERATING” which makes up the 1,018,000, so that if you go through you can see where there are a number of items where the nought appears and there are figures in the corresponding column.  Then there are large items such as “Salaries”, for instance, where 257,000 is included but 554,000 is said to be recoverable.  This is in the 1993 accounts.

GLEESON CJ:   Is it just a coincidence that the sum of 554,000 is also the total of “GENERAL” and “MAINTENANCE” on page 713?

MR ELLICOTT:   What particular figure was your Honour referring to?

GLEESON CJ:   I am looking at page 713 against “Salaries” and I see a figure of $297,066 under the heading “GENERAL”.  Now, you have just told us that was not included in expenses for the purpose of living contributions.

MR ELLICOTT:   That is right.

GLEESON CJ:   Then I see the figure that was included, 257,145, and a total of 554,211.

MR ELLICOTT:   The total is then treated by the accountant as referable to the operation of the Village.

GLEESON CJ:   That is referable to maintenance.

MR ELLICOTT:   That is referable to maintenance.

GLEESON CJ:   How do you relate that to paragraph 153 of Justice Gyles?  Are not “Salaries” ‑ ‑ ‑

MR ELLICOTT:   He uses – and it is perhaps imprecise – items or heads of expenditure.  Items of expenditure were not included.

GLEESON CJ:   Salaries were included.

MR ELLICOTT:   They were, but not all salaries.

GLEESON CJ:   That is what I am trying to work out.

MR ELLICOTT:   Not all items of salaries.  In other words, there is no doubt that this would require some dissection, but there is no difficulty when one is confronted with the document at 712 in volume 3 in arriving at a conclusion, first of all, as to those that were not included but, secondly, as to the makeup of those that were only partly included if one has the figures.

GLEESON CJ:   How do you relate what he said in paragraph 153 to telephone expenses?

MR ELLICOTT:   What he has done is to take out of the “GENERAL” items of $10,000 for building and letting on some basis and he has put the balance into “OPERATING” $4,996, the difference in other words.  In other words, $3,057 is added to $1,939.  Your Honour asked me – and I understand what your Honour is asking me – how do you relate ‑ ‑ ‑

GLEESON CJ:   But are “Telephone Expenses” not an item or head of expenditure that was taken into account in calculating the represented estimate?

MR ELLICOTT:   It was a head of expenditure.  So far as “items” is concerned, I do not know whether his Honour had meant to relate that to particular items within a heading.  But if he does not mean a distinction, if your Honour treats them as meaning the same thing, then I would submit there is still no difficulty because one can see from the dissection that so much is taken by the accountant to be put in, there is no doubt some allocation reason for that, and no doubt that is a matter that could be subjected to discovery, et cetera, but it is not a matter of chance.

GLEESON CJ:   Do you read that sentence in his Honour’s judgment as though the word “fully” were included after the word “taken”?

MR ELLICOTT:   That would be an appropriate wording, yes, your Honour.

GLEESON CJ:   And coming back to page 713 of the appeal book, should we understand that at the time the original representations were made no amount for maintenance of lawns and gardens was taken into account in calculating estimated expenses for the purpose of contributions?

MR ELLICOTT:   Yes, that is right.

GLEESON CJ:   So, you would say they are estopped from taking any amount on account of maintenance of lawns and gardens into account in calculating the expenses for the purpose of levying contributions?

MR ELLICOTT:   Yes, but that is a result of their conduct.

GLEESON CJ:   Yes.  Does it follow from that that for the future then the residents of the units who are parties to this litigation do not have to pay for the maintenance of lawns and gardens but the residents of the units who are not parties to this litigation do have to pay for the maintenance of the lawns and gardens?

MR ELLICOTT:   No, it does not mean that because the Court, in dealing with estoppel and the remedies for estoppel, will do what is just.  That may express itself in a monetary sum payable, in this case, by Overton.  In Verwayen 170 CLR at 442 there is just a passage in the judgment of Justice Deane, in the middle of the page:

There is clear support in the cases and learned writings for the view that, in this as in other fields, equitable relief must be moulded to do justice between the parties and to prevent a doctrine based on good conscience from being made an instrument of injustice or oppression.  That being so, it should be accepted that the prima facie entitlement to relief based on the assumed state of affairs must, under a doctrine which is of general application in a system where equity prevails, be qualified if it appears that that relief would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party.  In some such cases, an appropriate qualification may be a requirement that the party relying upon the estoppel do equity.  In other cases, the relief to which the party relying upon the estoppel would be entitled upon the assumed state of affairs will merely represent the outer limits within which the jurisdiction of a modern court to mould its relief to suit the circumstances of a particular case should be exercised in a manner which will do true justice between the parties.  In some such cases the appropriate order may be one which places the party entitled to the benefit of the estopped “in the same position as [he or she was] before”.  In others, the appropriate order may be an order for compensatory damages.

Now, that is a passage which I say does encompass the problem which your Honour has and ‑ ‑ ‑

GLEESON CJ:   What do you say is the practical consequence then of the estoppel for which you contend upon the liability of Mr and Mrs Murphy to bear any part of the cost of maintaining the lawns and gardens?

MR ELLICOTT:   In my submission, a court considering relief for this estoppel would form a view as to what was an appropriate sum in present value terms to compensate them for not having to pay those items of expenditure which had not been included in the original budget.  In other words, that it would be expressed in a monetary sum, and that is how they get the benefit.  But that does not mean that the proper administration of the Village does not proceed and if there are lawns and gardens and if they are only there for the benefit of the existing residents and not for the benefit of an Overton who is developing part of the Village or owns part of the Village, that means that those items would continue to be included but the Murphys, and it might be others, would be compensated because of the estoppel.

KIRBY J:   Can I just on a related point take you to 2099 at paragraph 214 of Justice Emmett’s reasons.  He says that your clients:

did not alter their position after the date in reliance upon anything said on or before that date.  They did not, for example, refrain from selling Unit 53.  They did not wish to leave.  They did not pay any maintenance fees that they were not obliged to pay.  They are legally liable, by reason of having entered into the Lease on 20 October 1992, to pay their full share of the expenditure –

Now, what is your theory of how that is going to be sorted out on your view of the case in the final wash-up of any damages they get?  Is it that they are liable to pay the maintenance fees that have been levied but that they get from Overton the difference between what was represented to them and what they are liable for and then they have to pay that over to the Village or the present agents for the Village?  Is that how it would work out or not?

MR ELLICOTT:   Yes, your Honour.  The present manager has to operate the Village properly and, therefore, expenditure has to be incurred that is appropriate.  If there are lawns and gardens, they have to be kept and they have to be maintained.  But Overton not being there any longer, so far as both section 52 and estoppel is concerned, an appropriate order for a court to make is a capital amount which would compensate them.  That is probably – and we ask for nothing more – the justice which would be appropriate in the case, having regard to the fact that there are third parties involved and there are also impracticalities involved from the point of view of being able to maintain a village which has to be maintained and not having enough money to maintain it if you somehow take away from the manager the right to claim the moneys.

KIRBY J:   I can understand that theory of the case.  I am still in difficulty as to how you have an additional or alternative claim in respect of the devalued value of the lease which dates back to 1992.  But putting that to one side, essentially, on that theory of the case that you have just propounded, your case and the one, as I understand it, Justice Gyles embraced is a very simple one:  the purpose of the Act is to stop companies misrepresenting business deals to consumers.  If they do, they have to bear the costs of doing so themselves.  In this case they did; they have to bear the marginal extra cost that your client has incurred.  As they are no longer in the Village, they have moved off, they have to provide a kitty or a fund that will indemnify your clients over the years for the additional costs which they were not told of and which fell to be paid after 1996 for the rest of their lives and that that fund is a capital fund which will make sure that they are not out of pocket for the misrepresentations that were made to them.  That is essentially it, is it not?

MR ELLICOTT:   That is it, yes, your Honour.  So far as your Honour raised the value of the unit as a reflection of damages ‑ ‑ ‑

KIRBY J:   I did not think you would let that one slip through.

MR ELLICOTT:   No, your Honour.  That is there and it can be seen ‑ ‑ ‑

KIRBY J:   You say it is there, but it ‑ ‑ ‑

MR ELLICOTT:   Yes, but it can be seen as reflecting the same notion.  That is to say, a unit in respect of which X amount of contributions has to be made would be worth less at a given date than a unit in respect of which X plus Y will be payable, and therefore the difference represents compensation.

KIRBY J:   But you could not get both, could you? 

MR ELLICOTT:   There is an issue as to whether you can have both, but the better view may be that you cannot have both; it is one of the other.  I can understand that, your Honour.  It is not something I am submitting is ‑ ‑ ‑

KIRBY J:   But you are just not giving it away.

MR ELLICOTT:   We are not getting both of them.  I am not suggesting that that is necessarily the just conclusion.

McHUGH J:   But, Mr Ellicott, is not your real difficulty to define the estoppel with sufficient precision to constitute an estoppel?  In this area of estoppel what you have to show is, is it not, that Overton induced your clients to adopt an assumption as to the future conduct of Overton.  Now, what was the future conduct of Overton that your clients were induced to make an assumption about?

MR ELLICOTT:   That they would not bring into account, for the purposes of determining contributions, items of expenditure or heads of expenditure, but I mean by that what I have been discussing with his Honour the Chief Justice, that they would not bring into account such items or heads of expenditure which had not been included in the budget in respect of which the representations were made.  Now, at 150, if I can use Justice Gyles’ statement of it:

The essence of the unconscionability alleged here lies in the fact that it was the representor which, after the transaction had been entered into by the representee, unilaterally departed from the assumptions it had created by taking into account, for the purpose of contributions, items which had not been brought to account at the time the representation was made.  On any view, this departure took place long after the transaction –

That, we say, encapsulates both the matter about which the estoppel arises and also the unconscionability of acting contrary to that assumption.

Your Honours, there is a heading of unconscionability; it did not seem to us that there was any point in pursuing that because it was not dealt with below, that is in the Full Court, as a separate matter, except views were expressed in relation to it, but it seems to us that any question of unconscionability is absorbed into estoppel, therefore we do not press any argument in respect of it.  Your Honours, I have handed up a document which sets out the orders sought.  It is a little complex.  Basically what we are asking, of course, is that the appeal be allowed, that other orders be vacated and that the costs be paid before the trial judge in the Full Court.

GUMMOW J:   Now, order 4, does that encompass the possibility of additional evidence?

MR ELLICOTT:   It does not, your Honour, but I have said in the course of my submissions, and, quite frankly, I am not sure I did not add it at a time the Court may not have been considering other matters, now that your Honour mentions it.  We do submit, particularly in relation to estoppel, for instance, the question of relief in relation to an estoppel would require additional evidence and we would ask the Court if it agrees with our submissions generally to indicate that it is a case where additional evidence can be called.  The purpose of this appeal is really to determine what are the limits of loss and what is the measure of damages as a matter of principle, and we would ask that those orders be made in terms of that document, your Honours.  Those are our submissions.

GLEESON CJ:   Thank you, Mr Ellicott.  Yes, Mr Kelly.

MR KELLY:   May I first direct your Honours’ attention to an important finding in paragraph 209 of Justice Emmett’s judgment, that is at page 2097.  Your Honours will there see that after stating the rationale for the appellants’ claim that loss was suffered on 27 November, his Honour goes on to make a very important finding of fact in the last line in that paragraph on that page, where his Honour finds that:

there was no causal connection between any diminution in value in 1996 and the conduct of Overton in 1992.

KIRBY J:   Is that really a finding of fact?  That is a conclusion on all of the evidence – that is his deduction, it is his inference.  It is an inference, not a finding of fact.

MR KELLY:   Your Honour, we would respectfully submit that it goes further than that for in making that finding ‑ ‑ ‑

KIRBY J:   I am not saying that great respect should not be paid to it, because his Honour went through 12 volumes of appeal papers, that I tell you frankly I do not have the time to read, cover to cover.

MR KELLY:   And, your Honour, there was a contest between the evidence of the appellants’ valuer, a Mr Edmonds, and the respondent’s valuer, Mr Robertson, and his Honour preferred the evidence of Mr Robertson.  There was an appeal to the Full Court in relation to this question of causal connection.  In the appeal, his Honour’s finding was not disturbed and there is no ground of appeal in this Court which raises that question.  Indeed, the only challenge to that finding is the oblique challenge to be found in page 19 of the appellants’ submissions at paragraph 5.66:

It is further submitted that the valuation evidence of Mr Edmonds should be preferred to that of Mr Robertson because as Gyles J observed:

“It is not at all clear to me that the nature and significance of the evidence as to discounted cash flow values was sufficiently brought home to his Honour by the parties.”

That submission comes as part of section H of the appellants’ submissions under the heading of “Valuation Evidence”, although there is no ground in the notice of appeal which raises that or any related question.  The result is that your Honours now have an unchallenged finding.  In the context of this case, it is my submission that that is a fatal blow to any claim based upon a suggested diminution in value in 1996 as a result of the contravening conduct.

KIRBY J:   Well, you may be able to make that good, but as far as I am concerned I just do not think it is a finding of fact.  It is not “so‑and‑so was there on a particular day”; it is a conclusion.  It is an inference from all the evidence.

MR KELLY:   Yes, your Honour.

KIRBY J:   That is what we are to examine:  did he get his inferences right?

MR KELLY:   Critically, it is founded upon the evidence of Mr Robertson, which is recited at paragraph 283 at page 2118.

KIRBY J:   That is a conclusion at 209 as supported by what is at 283.

MR KELLY:   At 283, yes, your Honour.

KIRBY J:   It does not sound like a usual structure.  Normally you have the premises before the conclusion.

MR KELLY:   Yes, your Honour, although your Honour will see here that Justice Emmett refers to:

Mr Robertson considered that the value of type “B” units such as Unit 53 did not appear to have suffered a substantial decrease in value after November 1996 as a result of the increase in outgoings.

And there is further discussion about the expert evidence dealing, in particular, with the primary factors to be taken into account, where “level of outgoings” is but one of nine factors, but overwhelmingly one sees other commercial factors.  Of course the question here is whether increase per se may be said to have any causal connection with any diminution in value.  So in the context of this case that is an important finding of fact, in my respectful submission, based upon expert evidence.

McHUGH J:   Yes.  I can understand why you seized on that finding and the appellants’ submissions, but the submissions dated August 22 on the part of the appellants seem to have undergone a dramatic sea change.  The argument as in the summary handed up today seems to eschew any question of diminution in value in 1996 and what happened in 1992.  The case is rather put on the question of the outgoings and the larger contribution levels as being the loss.

MR KELLY:   Yes, your Honour.

KIRBY J:   That may be a tribute to the power of your submissions concerning the time limit.

MR KELLY:   I doubt that, your Honour.  Perhaps it is an indicator of the appellants’ return to something closer to the real question in this case, which is whether they did in fact suffer any loss or damage at all.  What this piece of evidence does justify, in my respectful submission, is that there is at least no basis for connecting any diminution in value to the contravening conduct because one needs to read that in the context of the next important finding over the page that your Honour Justice McHugh drew attention to just before the luncheon adjournment, namely, the proposition that:

There is no evidence that Mr and Mrs Murphy are not receiving value for maintenance fees that they are paying.  No attempt has been made to establish that the facilities and services to which Mr and Mrs Murphy are entitled . . . have a value less than the liability that Mr and Mrs Murphy have to contribute –

The critical proposition is this, your Honour, that those two matters taken together create a situation where the appellants are unable to point to a single dollar of actual pecuniary loss.  This is a unique case.  The value of their unit cannot be said to have diminished by reason of the contravening conduct.  What they are getting is value for what they are obliged to pay, therefore, the net result produced is one which tosses up for consideration the question of pure economic loss in the sense of is unexpected expense loss and damage or, if it is to be characterised in a different way, is pure lack of affordability a category of financial harm which meets the description of loss and damage, uncluttered, as it were, by any actual monetary consequence?

This is a situation in which, if one receives one’s monthly account from Butterworths and one is temporarily embarrassed, be it in terms of the unexpected nature of the expense or one’s inability to afford it on that particular occasion, can it be said that one is in a position of loss in any sense of the word?

McHUGH J:   Why is it an answer to the claim made by Mr Ellicott that:

There is no evidence that Mr and Mrs Murphy are not receiving value for the maintenance fees that they are paying.

That is not their claim.  Their claim is, whether or not they are receiving value for the maintenance fees they are paying, they are paying more maintenance fees than it was represented they would pay.  That is their loss or damage.

MR KELLY:   It is the proper characterisation of that event that I am endeavouring to draw attention to.  It is a pure lack of ability to pay, so the question for your Honours is whether unexpected expense or unaffordable expense is a category of actionable loss and damage for the purposes of the general law, or is it a category of loss or damage for the purposes of section 82, uncluttered by any actual pecuniary loss or loss of value in any asset or any failure to receive value for what one has either paid or is liable to pay.

McHUGH J:   Let us assess it this way.  Supposing there had been a straight‑out representation and you would only have to pay $55 for whatever period it was for the rest of the lease and then exercising powers under the lease they increase the maintenance fees to $100 a week.  Surely they would suffer damage, and is that not this case?

MR KELLY:   No, it is not, for this reason.  The proper characterisation of the one and only representation upon which the appellants were successful is that it relates only to a then present state of affairs, that it is not capable of being read or understood as relating to any future state of affairs.  The representations in this case were pleaded in two categories.  One, the category relating to present day events as at October 1992 and the other category relating to future matters, and his Honour found in favour of the appellants in relation to the former and the latter were defeated on the facts.  It is erroneous, in the respondent’s respectful submission, to convert a representation about a present state of affairs into a representation about a future state of affairs.  Thus, one is not in a case which is on all fours, for example, with Marks, where there was.

McHUGH J:   But that is not what he is doing, is he?  He is not seeking to convert a representation about the past into the future.  What he is saying is, “There was a representation as to the present which induced me to a course of conduct which has ultimately led to me incurring expense that I would not have incurred unless you had made the false representation that you did”.

MR KELLY:   The way we would approach it, your Honour, is to invite particular attention to the words of the representation.

GUMMOW J:   I know, but what is the answer to what Justice McHugh puts to you?  Speaking for myself, you need to answer it.

MR KELLY:   The answer is, your Honour, that there is no causal connection available between a representation about a present day state of affairs and a subsequent state of affairs.

GUMMOW J:   I know you say not, but why not?

MR KELLY:   Why not?  Let it be assumed that these events in the year 2050 instead of 1996.  One has to have regard to the conduct and its causal relationship with any resulting position when that resulting position can properly be characterised as loss.  Merely incurring an expense ‑ ‑ ‑

GUMMOW J:   You use words like “properly” and “characterise” ‑ ‑ ‑

MR KELLY:   As loss.

GUMMOW J:   I know, but there is some evaluation cloaked in all of this, and what is it?

MR KELLY:   The proper starting point is to identify some actual loss.

GLEESON CJ:   There may be a recent decision of this Court that is against you on this point but I will ask a question that I have asked in the past.  What are the circumstances in which the incurring of unintended or unexpected expenditure constitutes legal damage?  Sometimes it does and sometimes it does not.

MR KELLY:   In our submission, where one is dealing with what I have endeavoured to characterise as a pure unexpected expense.

GLEESON CJ:   Well, you never just incur expense; you always incur expense for something.

MR KELLY:   Yes, your Honour.

GLEESON CJ:   Unless you actually take bank notes and set fire to them, when you incur expense you are doing it for a consideration.

MR KELLY:   Yes, your Honour.

GLEESON CJ:   In what circumstances does the incurring of unexpected or unintended expenditure for a consideration constitute harm?

MR KELLY:   Where one does not receive commensurate value for it.

GLEESON CJ:   Economic value?

MR KELLY:   Yes.

GLEESON CJ:   Where the expenses you incur are for mowing the lawns and maintaining the gardens of the premises in which you live, how do you decide whether incurring those expenses constitutes harm?

MR KELLY:   The question is whether you received value for your portion of the expense.

KIRBY J:   Is that the question?  Is not the position that, contract apart and perhaps statute apart, the answer in tort was if you had an injury then you could get the economic loss, but if you did not have an injury that, as it were, made concrete the harm, you could not?  That was a point on which the Court differed in Cattanach, that the majority took the view that there was a sufficient concretisation by the unexpected undesired pregnancy that led on to the damage whereas others did not take that view, but the common law has fastened consequences upon whether there was an injury, because that concretises the calculation, but pure economic loss is not recoverable.

MR KELLY:   And, of course, one needs to ensure that in giving credit for value received that one is dealing with the same interest.  In this case the interest is overheads.

GLEESON CJ:   Take a case of negligent misrepresentation.  Suppose you own Blackacre, vacant block of land, and you want to build a house on it, and you engage the services of an engineer to make an estimate of the cost of whatever you want to build on Blackacre and the engineer negligently fails to advise you that there is rock underneath the ground that is going to make blasting and construction operations more expensive and the engineer says to you, “It will cost you X dollars to build what you want to build”, that is a negligent misrepresentation, but because of the rock that is present, it costs you X plus Y dollars to build what you want to build and you go ahead and you build a building that ends up having a market value of X plus Y plus Z dollars.  What is the measure of the harm that you have suffered as a result of the negligent misrepresentation?

MR KELLY:   The measure of the harm is the cost of extracting the rock.

GLEESON CJ:   Y dollars.

MR KELLY:   In that example, yes.

GLEESON CJ:   And what if you sell the building for X plus Y plus Z dollars after you have built it?

MR KELLY:   Then that credit received is taken into account, such that you have not any longer suffered Y, because you have recovered value for Y.

GLEESON CJ:   What difference does it make if you have not sold the building at all, you just have a building worth X plus Y plus Z dollars on your hands?  Why, on your theory, have you not got value for money?  After all, you have value for the cost of blasting the rock.

MR KELLY:   The difference is that you have paid something that you would not otherwise have had to pay, whereas, in the present case, that is not so, for there is no impediment to be found anywhere in the contravening conduct or the negligent advice which intrudes upon the free exercise of the discretion in the manager to manage the retirement village.

KIRBY J:   Could I just get a factual matter clear in my mind.  You remember I read Mr Ellicott the passage which said they have not paid any expenses that they were not obliged to pay.

MR KELLY:   Yes.

KIRBY J:   Now, what is the position factually?  Did they pay the marginal increase that they are objecting to under protest, as it were, or have they just refused to pay it, so they are not out of pocket for it?

MR KELLY:   They have refused to pay, so they are not out of pocket.

KIRBY J:   They have paid, as it were, the base amounts, have they?

MR KELLY:   Yes, but not wishing to ‑ ‑ ‑

KIRBY J:   But not what they complain of as the increase that occurred.

MR KELLY:   Yes, although as a condition for the grant of relief in the Equity proceedings Justice Simos ordered that they pay an additional 10 per cent for - it cannot be properly assumed that all of these figures, indeed any of these figures, remain constant, for, with every year of the operation of the Village, one sees expenses coming and going, as in a moving feast, as you would expect, in the management of an operation such as this.

KIRBY J:   One would think people would expect that, but Mr Ellicott says these are people who are old.  They sold their main asset in life and they are on the breadline, as he put it.

MR KELLY:   Yes, your Honour, but the evidence is also very clear that Mr Murphy, a very intelligent man, read and gave careful attention to the detail of the lease instrument and understood its workings very clearly, and Justice Emmett made findings to that effect

KIRBY J:   It is a little hard to think that people would go into a retirement village or a home unit nowadays and think that everything is going to remain absolutely the same for year after year.  “Don’t worry about the concrete cancer that appears unexpectedly in the building.  Don’t worry about the roof blowing off.  Don’t worry about the child that drowns in the swimming pool and they’ve got to put barriers around it.”  Life is full of unexpected expenses.

MR KELLY:   Certainly, your Honour.  In this case the evidence is quite clearly to the effect that Mr Murphy understood all of that.  Justice Emmett made various findings to the effect that he did not think that the contribution to outgoings would remain at the original figure.  He understood that budgets would vary in accordance with actuals ‑ ‑ ‑

KIRBY J:   But he did make it very clear that he was sailing close to the wind financially, and he did make it clear to Mrs Taylor that the affordability, if I can use that word, was a very important factor to whether he went in, and she did make representations, “Well, there are people here living on one pension.”

MR KELLY:   But his Honour made clear‑cut findings to the effect that Mr and Mrs Murphy did not rely upon any of those.  They were so uncertain that they could not reasonably be relied upon and they were not relied upon.

GLEESON CJ:   But the case against you can be reduced to very simple terms, right or wrong, can it not?  Nobody told Mr and Mrs Murphy that the $55.71 did not include any amount on account of maintaining the lawns and gardens.

MR KELLY:   Correct.

GLEESON CJ:   And that is the essence of it.

HAYNE J:   And it was because the respondent misrepresented the way in which the estimated levy had been calculated that the Murphys subjected themselves to what turned out to be a larger liability than they understood that liability would likely be.

MR KELLY:   Yes.

HAYNE J:   That is the case against you.  Now, where does that case against you fail?

MR KELLY:   It fails because merely being subjected to a larger liability, where one receives value for such expenditure, does not produce loss.

McHUGH J:   But why not?  Let us take a syndication of a racehorse. 

HAYNE J:   Let us not.

McHUGH J:   It is represented to me that for a down‑payment of $X, I get an interest in a racehorse and I have no future obligations.  As it turns out, under the syndication agreement, I have to incur expense in relation to the training of the horse.  Now, it is surely no answer to my claim to say to me, “Well, you are getting value for money from the trainer”.

MR KELLY:   That is an example which would fall foul of the principle that one has to have regard to and give credit only when one is dealing with the same interest.  In this case, the contravening ‑ ‑ ‑

McHUGH J:   But in that illustration, would I be able to recover the training fees from the representor?

MR KELLY:   In your Honour’s example, your Honour had built in a representation that there would be no future obligation.  So that the contravening conduct would go squarely to that matter.

GLEESON CJ:   The other way of putting that question is, would I be entitled to have the horse trained for nothing?

MR KELLY:   That is the same proposition from our point of view.  If you are not obliged to pay for it, then you are getting it trained for nothing and, whatever that situation is, it would properly be characterised as a windfall because you are getting something for nothing.

GLEESON CJ:   Would it not all depend on the circumstances of the representation?

MR KELLY:   Certainly, and here we rely heavily upon the defeat of the affordability case because it was the case which dealt with the future.  The only contravening conduct found in favour of the appellants dealt only with the 1992/93 budget year and whatever might have been ‑ ‑ ‑

HAYNE J:   But it was found against you that that induced conduct by the Murphys.

MR KELLY:   Yes.

HAYNE J:   The conduct it induced was undertaking obligations.

MR KELLY:   Correct.

HAYNE J:   One of those obligations was the obligation to pay levies as fixed by the manager.

MR KELLY:   We would characterise the obligation as an obligation to pay levies in consideration for the benefit received, namely the management of the Village.  It is not to pay a penalty or to pay an increased price for the same product.  All one is talking about here is a contribution to outgoings.  There is no profit component in it or anything of the like.  It is a sharing of an expense which delivers a shared benefit.  That is the circumstance which shows that there is no pecuniary loss of any variety.  At the highest, one is receiving something that one may not care to receive.

CALLINAN J:   But, Mr Kelly, I may have missed something, but is not the representation really this, “Yes, surely, there will be maintenance and other expenses, but the cost to you will be $55”?

MR KELLY:   No, your Honour, “The cost to you will be $55 in relation to the 1992/93 period”, which it was.  It said nothing about what the budget for the next year and the year after that and the year after that might be.

McHUGH J:   Yes, but in a commercial setting it tells you a lot, does it not?  In this particular setting it tells you a lot.  It fixes a base mark in which people make assumptions, they have expectations.  That is the whole point.  That was why your client was pushing the fact that it was $55.71 a week.

CALLINAN J:   $55.71 a week and of course the CPI will be involved or prices will go up but not that the basic formula will change.

MR KELLY:   The basic formula did not change, your Honour.

GUMMOW J:   I know ‑ ‑ ‑

CALLINAN J:   I am treating $55 as the result of the basic formula and that is the way in which it was put to the appellants.

GUMMOW J:   And that was false.

MR KELLY:   What your Honours are introducing are elements from the affordability case into the inaccuracy case.

McHUGH J:   No, it would not matter if Aristotle Onassis was involved, the same principle would be involved.  It has nothing to do with affordability.

MR KELLY:   But the reference to CPI, for example, as a touchstone or measure or limit to future change is a component of the failed affordability case.  It was one of the express ‑ ‑ ‑

CALLINAN J:   All right, do not even use CPI, but it is $55 in 1992.  That will go up but it will go up having regard to changes in cost, not having regard to actual cost to be charged to the appellants plus changes in actual cost.  It was changes to the $55 having regard to changes in cost.  It has nothing to do with the affordability case.

MR KELLY:   That was never part of the case which was brought against the respondent and sought to be proved by reference to evidence about the actual state of mind of Mr Murphy.  Your Honour has proceeded to a more sophisticated analysis which simply does not find support in the facts.  The only evidence when it comes to this class of subject matter, it was introduced by the language of affordability where you have the now deceased Mrs Taylor saying “Welcome to the Village” and other affectionate language of affordability.

GLEESON CJ:   Suppose ‑ ‑ ‑

MR KELLY:   But there is no basis for an assumption is my point, I am sorry, your Honour, or to read into it any more than was sought to be proved.

GLEESON CJ:   I am sorry to keep harping on the lawns and gardens, but one would have thought that would be the most obvious and simple item of expenditure that you would expect to be included in outgoings reflected in contributions.

MR KELLY:   Not necessarily, your Honour.  There is one other important factor and that is this.  The site was a building site at the time.  There was construction work going ahead dealing with building on extra units.  So, it is in that context that one can pause before drawing an inference that an item such as that would be ‑ ‑ ‑

GLEESON CJ:   Let us get away from this case, the facts of this particular case.  Suppose you have a retirement village with extensive lawns and gardens and a system of a manager levying contributions to cover outgoings.  In the ordinary case you would think that one of the most obvious items of expenditure that would be reflected in the contributions would be the maintenance of the lawns and gardens.

MR KELLY:   Yes.

GLEESON CJ:   Let it be supposed that by a misrepresentation when a person is buying a unit the manager does not disclose that current outgoings reflected in contributions do not include doing the lawns and gardens and then some years down the track they begin to include the cost of maintaining the lawns and gardens so that the purchasers of the unit, rich or poor, find themselves confronted with unexpected increases in their contributions over and above what they would have been entitled to expect on the basis of what was represented to them.

MR KELLY:   Yes.

GLEESON CJ:   They are then faced with increased expenditure but for which, according to you, they are getting value.

MR KELLY:   Yes.

GLEESON CJ:   What is the nature of the interest they have that has been injured by the misrepresentation?

MR KELLY:   In those circumstances, none at all, because they are aware that the manager has a discretion.  They are aware that the manager has a managerial function to take care of the place, including mowing the lawns.  If he exercises the discretion to bring in an item of expense such as that, an ordinarily totally predictable item, then they have suffered no loss at all because all that has happened is that there has been an unimpeachable exercise of a discretion, not for any improper purpose but to bring properly to account an item of outgoings to be shared by those who benefit from it.

GLEESON CJ:   Does that mean that the manager has made the misrepresentation with impunity?

MR KELLY:   It means that the manager has not made a misrepresentation which has produced loss or damage.

McHUGH J:   There is a question even of opportunity cost in terms of the extra money that you have to pay.  Take the case of the professional investor.  He wants to buy, or she wants to buy, a unit in some block and asks, “What are the maintenance?” and told “It’s $100 a week”.  On that assumption the investor does his or her sums and decides to buy and then you find out that something similar to this has happened in that particular case.  Is it any answer to the investor’s claim for loss that, “Well, you’re getting full value for this extra money you have to pay because there is this maintenance being done”?  Why can the investor not say, “Well, I didn’t want to have to pay that extra money.  I could have put it in the stock market or done something else with the money”?

MR KELLY:   The question is whether the interests to be protected are the same.

KIRBY J:   Well, in Justice McHugh’s case there may well be statutory obligations for home units, for example.  I think any investor who went into a home unit and thought it was going to stay $100 forever is an idiot.  That is just not how these things work in Australia.  I do not know about retirement villages yet, but one would assume that it is much the same.  When you go into a community, you live by the rules of the community.  If it is a home unit or if it is a village and if the community decides they want to have a nice garden or if they want to have a swimming pool or if they want to do this or that, if they have the power to do it, well, that is it, you just have to go along with it.

McHUGH J:   One can accept what Justice Kirby says, that everybody expects costs will go up, but in doing your sums you have to make a lot of assumptions.  If you are buying a business, the profits that are being represented to you, one of the assumptions you make is that those profits will continue in much the same way.  It is the same with maintenance fees.  You are given a figure.  You know it is going to increase but you expect, or you assume, it will not increase disproportionately to the CPI, speaking generally.  Now, that does not mean that there will not be unexpected increases, but there is a general assumption about it.

MR KELLY:   But in this case the precise representations and the precise assumptions upon which the case was brought were pleaded and it failed on the facts.

McHUGH J:   What about at page 85 of Justice Emmett’s judgment?  Did he not make some findings there about Mr and Mrs Murphy’s state of mind?

MR KELLY:   Yes, his Honour is talking only about the 1992/93 financial year.

McHUGH J:   I know, but that was the belief or expectation they had at that stage and that is what induced them to enter this lease with its obligations and then they find out that they have been misled and now they have to pay a lot more than they expected that they would have, and you say to them, “Sorry, you haven’t suffered any loss at all, because you’re getting value”.

HAYNE J:   But does not this reveal that to attempt to identify loss without first understanding what the alternative available to the Murphys was may lead us into difficulty?  This is said to be a no transaction case, is it not?

MR KELLY:   No, your Honour.

HAYNE J:   No?

MR KELLY:   The appellants put it forward as a no transaction case but the evidence ‑ ‑ ‑

HAYNE J:   Let me explore that a moment before we come to whether that assumption is right.  If it is a no transaction case, of what significance is subsequent dealings years after the event on revenue account in determining whether there is a loss in a case where it is said there would have been no transaction had the position been properly explained?

MR KELLY:   None, your Honour.

HAYNE J:   If it is a case in which the transaction would have occurred in any event had the position been fairly described, what do you say would have been the loss?

MR KELLY:   It would be no different, because it is all to a revenue account where there is a value given for benefit received.

HAYNE J:   And is that not what is implicit in many of the answers that you are giving, namely an assumption, perhaps a contestable assumption, that the Murphys would have been there anyway or, alternatively, chose to remain there anyway, once the true position was revealed to them?  Is that not what is underlying your contention about “They got value”?

MR KELLY:   If I can take that step by step, your Honour.  As to the first component, we most certainly do contend that Mr and Mrs Murphy were put on full notice of the intention of Overton to collect shortfalls as early as March 1994 and that they did make a choice to remain in unit 53, as distinct from sell it, as a number of their fellows chose to sell, and in that sense the case is on all fours with Marks at the point of causation.

Taking the next step, however, whether that view of the case undermines the larger proposition that no actual loss or damage was suffered, we contend it does not because, as a matter of commonsense loss and damage, we would say that the proper approach is to look in every case at value received and the price paid, or prejudice and benefit, otherwise one could end up with a situation in which results obtain which, whatever else might be the case, they do not properly amount to loss or damage in any ordinary sense of those words.

GLEESON CJ:   Mr Kelly, come back to the example that Justice McHugh gave about a purchase of a unit and relate it to section 52, in other words, eliminate fraud for the moment.  Suppose I am considering buying a unit in a large building and I ask the present owner what the annual maintenance expenses of the building are and innocently, but in contravention of section 52, the owner gives me information which leaves out of account the high cost of maintaining the lifts in the building.  I buy the unit, go into occupation and then next year I find out that the maintenance costs have been misrepresented to me because they have left out of account the cost of maintaining the lifts.  Now, I am getting full value for money when I pay the cost of maintaining the lifts in my maintenance contributions from then on, but have I suffered loss and, if so, how is it calculated?

MR KELLY:   That is a slightly different case because in that case you suffer your loss when you buy the unit.  You are effectively paying too much for it because the thing itself comes with a present day debt in the nature of an outgoing, namely feeding the lift maintenance agreement.  In that case loss occurs when you pay too much for what it is you are getting.  The day for conducting the analysis of benefits received and price to be paid in that example is at the date of acquisition, which is also this case.  If there was a loss referable to the 1992 budget position, that is the date upon which it would apply.  Whereas, if you have already got your Rolls Royce and you are driving around in it for a number of years and it turns out that further down the track that the price of petrol goes up and you find you can no longer afford it, merely not being able to afford it but carrying on driving it around does not put you in a situation of loss.

McHUGH J:   But does not the Chief Justice’s example point up the difference between the contingent loss or damage and the actual loss?  Just to push the example a bit further, let it be assumed that no account had been taken of past maintenance in relation to lifts.  Now, as at the date of exchange of contract there is a contingent liability that some time in the future you will have to pay something and a valuer may be able to value that, but four years down the track the purchaser may find he has to make very substantial payment in terms of lift maintenance.  It may be a sum very different from that that the valuer would have placed on it as at the date of change.  Now, why, in accordance with our earlier decisions, do you not see that as a contingent loss which becomes an actual loss when you make the payment?

MR KELLY:   Care needs to be taken to identify the contingency.  In the present case, where we have a representation in 1992 about a then current state of affairs with the then current budget, the relevant contingency would be and one which would trigger your Honour’s analysis would be if the discretion was exercised so as to increase that $55.71 for that year.

But with each year that comes and goes, as history passes along, there is a new budget, a new occasion for planning the next year’s management of the Village and a new and different contingency, namely, what will next year’s expenditure be.  The contingency to which one is relevantly exposed in your Honour’s example would be apposite and give rise to an entitlement had that $55.71 been increased during that 1992/93 budget year, but it is absolutely disconnected from any exercise of a discretion in the year 2020. 

KIRBY J:   Yes, connection is important and I agree with you that you have to identify the contingency.  Your rather tantalising example of buying a Rolls Royce and then finding the prices go up is not analogous to this case because the prices of petrol are in the hands of an international cartel and they are out of anybody’s control and everybody knows that.  But here the complaint is that the costs that went up were known to your client, were in the power of your client to make the variations and that this was not drawn to the notice of the appellants.  They were misled about it.

MR KELLY:   The appellants were only misled about the state of affairs in 1992/93 but they were not misled about ‑ ‑ ‑

KIRBY J:   Yes, I will just give you Justice McHugh’s answer to that.  That is what led them to take their step.

MR KELLY:   But they were not misled in any way with the demise of the affordability case about what might or might not happen in years to come.

GLEESON CJ:   I am not sure that is right, Mr Kelly.  They were misled about what your client was doing in 1992 and the practical significance of that related to what would happen in the future.

GUMMOW J:   It was the base from which the future would depart.

MR KELLY:   Only if one makes that extra assumption that the budget next year will be the same as the budget last year, which is not in conformity with the evidence.  If there is no basis for an assumption as to future conduct, future exercise of discretions merely based on past events, the assumption induced or the representation made has to be one which relates to the future and that you cannot assume your way from the past into the future where a discretion is involved, nor is there any evidence to that effect.  That is the big difference between the two positions, in my respectful submission. 

An illustration can be found in Justice Gyles’ approach to the estoppel case.  I will just turn to that if I may, for it provides a useful illustration of what one should not do, in my respectful submission, certainly in the context of estoppels and most assuredly not in the context of a section 52 statutory contravention.  If I can take your Honours to page 2304, paragraph 148 of Justice Gyles, your Honours see the sentence:

The foundation representation was that the known contribution level took into account all relevant outgoings.

That is correct, that is the starting point.  His Honour says, correctly:

That did relate to that period.

the 1992/93 year.  But it is the next step which is impermissible.  His Honour says:

However, from this, it could be assumed that changes to contributions in the future would be adjusted by reference to rising costs brought about by inflation.

That is a totally unjustifiable assumption and it certainly does not ‑ ‑ ‑

KIRBY J:   Well, is it unjustifiable or insufficient?

MR KELLY:   It is unjustifiable.  All one need do is look at clause 5(c) and see the full range of subject matter for ‑ ‑ ‑

KIRBY J:   That is why I say it is a relevant factor, but it is not all the factors.

MR KELLY:   Yes, your Honour.  For example, in clause 5(c) of the lease there is provision for meeting the cost of structural alterations, renovations and things of that ilk.  Mr Murphy read and considered the lease carefully.  He was aware of that.  There is no basis for any assumption that changes in the future – the future one recalls, of course, goes on until the year 2091, a 99‑year lease – there is no rational basis for making that assumption and it was not made.

CALLINAN J:   Well, what about the finding in paragraph 202 in the trial judge’s reasons at page 2096:

If Overton had disclosed the extent of the under provision for expenditure, I am satisfied that Mr and Mrs Murphy would have given further serious consideration –

and so on.  Why could not Justice Gyles draw the inference that he did from that finding?  It is a fairly powerful finding against your client, is it not?

MR KELLY:   Yes, your Honour, but in an estoppel case one needs to examine the particular state of mind of the witness.  There is other evidence to the effect that he was aware of the terms of clause 5(c).

CALLINAN J:   But not of the under provision for expenditure, that is the point.

MR KELLY:   Certainly, your Honour, but what I am attacking is not the foundation representation – I am conceding the foundation representation and I am agreeing that it related to a limited period, the then present period – what I am attacking is an assumption that one can attribute to Mr Murphy, without his giving any evidence to that effect, that changes to contributions in the future would be adjusted by reference to rising costs brought about by inflation.  In fact I think there is a precise finding to the contrary – this is in connection with the CPI case – at page 2055.  May I just take your Honours back to Justice Emmett’s judgment.

CALLINAN J:   Paragraph 83.

MR KELLY:   Paragraph 83.

HEYDON J:   Is that a finding or a summary of his evidence?  It seems to build up the findings on 84 and 85.

MR KELLY:   I think it might be both, your Honour.  His actual state of mind:

he asserted that his belief was, when he signed the lease, a contribution to outgoings would stay within the capability of the pension, “which is governed by the CPI”.  Nevertheless, he acknowledged that the CPI concept, as he understood it, was only ever applicable to the situation that would apply after the whole of the Heritage Village was finished.  He also accepted that the Heritage Village has not been completed as at the present time.

His understanding did not, in fact, include, at the relevant time or at any time, an assumption that changes to contributions in the future would be adjusted by reference to rising costs brought about by inflation.  I mean, inflation is but one form of increased cost and to attribute an assumption such as that has no justification at all.

McHUGH J:   What about paragraph 82?

MR KELLY:   Yes, “vary whether it be up or down”.

McHUGH J:   Yes, but:

it would only be by $2 or a maximum of $3 a week and that in two years the Heritage Village would be completed and then the fees would come down “possibly even below the $55.71”.

MR KELLY:   Yes, when it is finished and there are other people contributing, that is a possibility.  At that stage, a full range of events was within his clear understanding.

CALLINAN J:   But Mr Kelly, you say that there is an adverse finding in relation to CPI, but is not the finding – and it does seem to be a finding – in paragraph 85 tantamount to that, that: 

the maintenance fees that he or Mrs Murphy would be called on to pay would not increase disproportionately to increases in the age pension. 

That really encapsulates the same sort of concept as the CPI, does it not?  Do not worry about CPI, but it is probably even stronger than relating it to the CPI.

MR KELLY:   We now have three concepts.  One, CPI ‑ ‑ ‑

CALLINAN J:   But this is the finding.  Just focus on it.  Do not worry about CPI, just worry about proportionality.

MR KELLY:   Yes, your Honour.  That is in the ordinary course of things.

CALLINAN J:   Nothing extraordinary happened, did it?

MR KELLY:   Yes, the parties locked into litigation and the Village was at war with its manager from 1994 through until 1997.

CALLINAN J:   That was not the reason for the increase.

MR KELLY:   No, your Honour, but it shows that the ordinary course of things have changed.

CALLINAN J:   Well, I do not think it does, I am sorry, Mr Kelly.  It is just an entirely irrelevant matter to cost and charges for cost, whether the parties were litigating or not.

MR KELLY:   There is a item called abnormal legals and accounting, your Honour, which ‑ ‑ ‑

CALLINAN J:   Well, exclude it. 

MR KELLY:   Yes, your Honour.

CALLINAN J:   You still have disproportionality, do you not?  Disproportionality with the aged pension.

MR KELLY:   Whatever that means.

McHUGH J:   And you cannot overlook the fact that the trial judge specifically found that it was more probably than not that the Murphys would not have entered into the lease had they been told that the estimate of maintenance fees did not accurately reflect the expenditure that Overton was incurring.

MR KELLY:   Yes, your Honour, we cannot say anything against that finding, except that its effect came to an end.  It is a piece of irrelevant ancient history.  The events of 1996/1997 concerned later budgets, the budget for the 1997 year, in the same way that, next year, there will be another budget for the year to come.  There is a disconnection between the two.  The life of the misrepresentation as to a present day event died.

GUMMOW J:   What do you mean by “life”?  How do you adapt that metaphor to section 82?

MR KELLY:   It is causal, potent, your Honour, because his Honour went on to find that they did not do anything further, relying upon anything.  If the appellants’ logic is correct, that, having once been induced to enter the Village and having lived for 15 or 20 years, if the then manager – it could be somebody other than Overton – exercises the discretion to build a swimming pool, one could end up with exactly the same result as this case, because the relevant discretion there being exercised is later, and different, and completely unaffected by the contravening conduct.

McHUGH J:   Yes, but I have to say that in the context of a statute intended to protect consumers, your submissions seem to lead to some odd results.  Take the case of somebody who buys a car, the condition of which is misrepresented to the person.  Is it any answer to him to say, “Look, sure the car was a bomb but what you paid for it was its fair value”?  The purchaser says, “That may be so, but here I am week after week paying money out on maintenance and repairs on it.”  Is it any answer to say, “Well, you only paid what it was worth anyway”?

MR KELLY:   In that class of case that is the question. Did you suffer a loss when you were induced to purchase it or did you not?  That is to be measured in ordinary commonsense terms by reference to the value of what you paid and what you got.  If, for example, you paid $10,000 for a car that was worth $100,000 but it kept breaking down and you had to spend 10,000 or $15,000 repairing it, we would contend that the logic of commonsense loss and damage would suggest that you have not suffered a loss; you have in fact entered into a profitable transaction.  One has to pick a point and measure the benefits and the burdens.  Picking the point is important.  In a case such as the present, the point is further advanced in time and comes at a point where the accuracy or inaccuracy of historical budgets is irrelevant.  It would be different if one was not getting value for the work done by the manager, or if you were paying too much in the sense that you were not getting anything, but there is no analogy to be drawn with repairing defects because there is no defect here.  This is just a contribution to outgoings, where the outgoings are enjoyed.

In Justice Gyles’ analysis of estoppel in the next sentence he proceeds to draw a further assumption, where his Honour says:

However, from this, it could be assumed that changes to contributions in the future would be adjusted by reference to rising costs brought about by inflation.  As pensions are also adjusted in relation to inflation, it could therefore be reasonably assumed that if the then level of contributions could be afforded by reference to the pension it was likely to be affordable in the future.

That is another impermissible assumption, for it simply does not follow at all in a context where one has a discretion known to be in terms of clause 5(c) and which covers all manner of things including renovations and natural disasters and so forth and so on.

HAYNE J:   May I take you back to Justice McHugh’s second-hand car example.  If a year into ownership you discover that it is likely that the car will continue to require extensive maintenance into the future but choose at that point to stick to it, can you recover the loss incurred after the decision?

MR KELLY:   No, that was your choice to remain in.

CALLINAN J:   Subject to special circumstances of the kind referred to in Gould v Vaggelas, there may be some situations in which a representee can persist in holding and using the property.  Is that not right?

MR KELLY:   Yes, your Honour, one can picture exceptional circumstances, but in the ‑ ‑ ‑

CALLINAN J:   For example, if there were absolutely no other means of conveyance and you had to go somewhere, then it might be perfectly legitimate to hold on to it.

MR KELLY:   Yes, but that is not this case.

GUMMOW J:   Wait a minute, is it not?

MR KELLY:   There was two years notice, as his Honour found.

HAYNE J:   You have people who have moved into retirement arrangements.

MR KELLY:   Yes, your Honour.

HAYNE J:   Is that significant?  Is it significant that they have made what one level of the Federal Court described as the most “momentous” decision any of them would confront?  Do we take any account of that?

MR KELLY:   Ordinarily, the occasions when one buys or sells a house represent the largest transaction that a person will engage in in his life.

McHUGH J:   But there is another factor in terms of retirement village.  There is a psychological factor.  I think we can take notice of the fact that people moving from their ordinary homes into a retirement village and, worse still, a nursing home, places an enormous psychological burden on them that often takes them a long time to get over and they have to readjust.

CALLINAN J:   They are really, effectively, burning their bridges.  It is very difficult to go back into an ordinary residence.  Indeed, as you get older, to shift into even another retirement home.  There was evidence here that was accepted that they were interested in the position if and when Mrs Murphy became more disabled.

MR KELLY:   Yes, your Honour, but for the purpose of – and what I am dealing with here is this, with great respect, impermissible process of adding a series of assumptions to a foundation representation so as to create a non‑existent – that is to say an assumption attributed to a person without evidence in support.  That process is the process I am here addressing.  What needs to be considered is the actual state of mind of the party concerned.  In this instance the evidence is that, having an opportunity to sell if they wished, they did not wish to.  They wanted to stay where they were in full knowledge of the intention of the manager to recover shortfalls.  In that context, be one a pensioner or not, the equity ‑ ‑ ‑

HAYNE J:   It is not the money, Mr Kelly.  It is the fact that these people have chosen to leave their home to move into a facility where there is available to them 24 hour care.  Most of them no doubt moved in thinking, “I won’t need that but I have the comfort of it being there”.  It is not money.

MR KELLY:   Part of the costs to which we are referring are costs which provide those very facilities, that very care and the environment.  If the budget is reduced and determined by the lowest common denominator, that is destructive of the interests of the persons in the Village generally.  It cuts both ways, in my submission.  Of course, one moves on in this analysis of the estoppel and returns to the schedule in the accounts.

In our submission, just because the figure “nil” appears in the account does not mean to say that it is not a head taken into account in calculating represented estimates and expenses.  It is given a nil value.  It is still taken into account as a nil value, but the difficulty in fashioning any form of order which in fact reflected the equities is not overcome by an approach such as that because the topic of heads of expenditure was not raised in any way, shape or form in any part of the communications.

Heads of expenditure do not give one a reliable guide to any form of expectation and would only give rise to the inequitable consequence of the production of a windfall.

GLEESON CJ:   Mr Kelly, can I ask you a question of fact.  I may not have understood sufficiently what you and Mr Ellicott have both been telling us, but there was a finding of fact that there was a representation on which reliance was placed that all items or heads of expenditure were included?

MR KELLY:   No, I do not think so, your Honour.

GLEESON CJ:   It is in paragraph 191 of the judgment of Justice Emmett.

MR KELLY:   I do not think “heads” appears, your Honour.

GLEESON CJ:   I am having a touch of difficulty reconciling the finding of fact made in paragraph 191 of the judgment of Justice Emmett with what I understand to be the fact that Mr Murphy was aware that there was a discretion in the manager as to the expenses that would or would not be included for purposes of levying contributions.  Have I missed something?

MR KELLY:   I do not think so.

GLEESON CJ:   Is it the case that there was a finding that Mr Murphy was aware that there was a discretion in the manager?

MR KELLY:   Yes, and ‑ ‑ ‑

GLEESON CJ:   How do you relate a discretion in the manager as to the outgoings that will be included for purpose of contributions and a representation that all outgoings are included for purposes of contributions?

MR KELLY:   I think his Honour’s finding is that conduct:

was misleading or likely to mislead for Overton to furnish the information contained in the Information Booklet, the Lease and the statements attributed to Mrs Taylor about the maintenance fee of $55.71 without disclosing that the estimate was calculated on figures that did not adequately provide for all expenditure actually being incurred ‑

I do not think there was any necessary relationship between discretions and heads of recovery at all, your Honour.  Indeed, the ‑ ‑ ‑

GLEESON CJ:   What did Mr Murphy think the manager had a discretion about?

MR KELLY:   I think the evidence - I will see if I can find the precise finding.  It is under the heading of “State of Mind”.

HEYDON J:   He thought that under the lease there was a discretion but that it would not be exercised outside the parameters of the representation.

MR KELLY:   Yes, your Honour.  I think there is a precise finding to the effect that Overton would do whatever it was entitled to do lawfully and not otherwise.

HAYNE J:   Well, other than what is said in 85, where do I find a finding about Mr Murphy’s understanding?

MR KELLY:   I think at page 2092, paragraph 190, your Honour, the last several sentences:

Mr Murphy read clause 5 and understood it.  He understood that, notwithstanding the estimate, there was no limit on the extent to which, at least in theory, the maintenance fee could be increased to cover the expenditures referred to in clause 5 of the Lease Memorandum.

And earlier, clause 5(l) of the Lease Memorandum made it unequivocally clear that the figure of $55.71 was no more than:

an estimate and is subject to determination and variation from time to time in accordance with -

the Lease Memorandum.

HAYNE J:   Thank you.  That perhaps has to be read together with paragraphs 80 at lines 42 to 46 and 85 at lines 15 to 25 on pages 2054 and 2056 respectively.

MR KELLY:   Yes, your Honour.  But what is clear is that there was no basis in the evidence to find, nor was it found, that there was a representation upon which Mr and Mrs Murphy relied which imposed any limit on the expenditure at the Village, for none of the representations in relation to future matters were successful.

May I next take your Honours to Annexure “B” to the appellants’ submissions, turning, as it were, to the topic of the calculation of the damages to which they say they are entitled, or the calculation of the sum to which they say they are entitled, to either balance the equities in terms of the estoppel or represent damages.

The difficulty in this area is that there is no substance or certainty to the subject matter.  What proportion of future increases can one find to be proven in the evidence as referable to any actual damage, if there is a proportion which is so referable?  That number, whatever it is, in our respectful submission, is incapable of being identified for it has not been proved in any sense.  It does not relate to any diminution in the value of the property.  Whatever it is, it is a number which somehow needs to be struck, we would say, in a vacuum.  In that further respect, the appellants simply have not proved the measure of any loss and damage, if indeed it has any positive measure at all.

HEYDON J:   Mr Kelly, the trial judge said that it was misleading to provide the information without disclosing that the estimate was calculated on figures that did not adequately provide for all expenditure, so he found, as it were, representation and a fact that made it a misrepresentation.

MR KELLY:   Yes.

HEYDON J:   There must have been evidence to underlie the finding of fact.  Would not that evidence afford a means by which you could calculate the amount of money in each year in the future that the Murphys would have to pay and by a process of capitalising that money you could arrive at a present figure for compensation?

MR KELLY:   The problem is, your Honour, let us take the current year.

HEYDON J:   1992/93?

MR KELLY:   No, I am sorry, the current year, 2003.

HEYDON J:   2003, right.

MR KELLY:   We look into the accounts of the present manager of the Village, where all manner of events are occurring in the ordinary day‑to‑day management of the Village.  What proportion of anything can one point to and discern as damage?  One is dealing with an incommensurable.

HEYDON J:   But will you not find some items there that were not taken into account in 1992/93?

MR KELLY:   Not necessarily, your Honour, because if you look at the list of items, if you go back to lawns and gardens at page 713, for example, we see $3,503, and that is all to the general account and none to the maintenance account.  This is during the course of building operations when they were adding extra units to the Village and inferentially the manager is…..he is probably making a mess of the place with his building operations and bears the cost of the lawns and gardens.  What flows from that into the future?

HEYDON J:   If you find in the year 2003 the figure for lawns and gardens, it is a figure that Mr Murphy should not have to pay because, if he had been told about this in 1992, he would not have entered the lease, and so on.

MR KELLY:   It is a different case to assume that he had been told or not told about particular items.  For example, if he had been told in 1992 that the $3,053 for gardening was not being added to the maintenance account because the Village was in a state of disrepair with tractors and what have

you around the place, would that have made any difference?  It would be a large inference to draw.

HEYDON J:   Yes, but I think that is a rather de minimis approach.  The fact is he was not told about lots and lots of items.

MR KELLY:   Yes, but the Village was still in a state of construction.

HEYDON J:   Yes, but you have to, have you not, accept that there was a representation, a misrepresentation and so on?

MR KELLY:   I do.

HEYDON J:   You are now attacking the difficulty of quantification.

MR KELLY:   I am.

HEYDON J:   Can everything not be presumed against a wrongdoer?

MR KELLY:   Not to the point where it produces a result which is harshly inequitable.  A mathematical calculation, based on a budget inaccuracy in 1992, could not rationally and fairly be extended into an indefinite period into the future.

HEYDON J:   At this stage of the argument you are assuming loss, I think.  You are just saying it is not capable of being converted into damages.

MR KELLY:   Yes, what I am saying is ‑ ‑ ‑

HEYDON J:   That is a task that is not supposed to deter courts.

MR KELLY:   Yes, your Honour, but at the same time it is a task, the net effect of which is not to proceed to a point of a pure mathematical exercise which produces a disproportionate result.  Proportionality cuts both ways.  That is all I would submit in that connection, your Honour.  They are my submissions.

GLEESON CJ:   Thank you, Mr Kelly.  Yes, Mr Ellicott.

MR ELLICOTT:   Your Honours, there are just a couple of passages, one at paragraph 113 of the judgment, which is 2067, of Justice Emmett’s judgment ‑ ‑ ‑

GUMMOW J:   I am sorry, what page, Mr Ellicott?

MR ELLICOTT:   Page 2067.  This is in 1994.  This is when the 18.37 is coming up:

Mr James also said that the next stage of 36 units would be commencing in a fortnight and that, when they were completed in approximately two years, the income from those 36 units, together with the present units on the site, with the 18.37 per cent increase, would be sufficient income for the Heritage Village to be self supporting.  He said that the concept was that the Heritage Village was supposed to be self supporting.

At 129, the same thought:

Mr James said that the next 36 units would be starting in a fortnight . . . He said that the Heritage Village would then be viable and there would be no need to have “savage” increases in fees.  He said that the levies would only be going up by the CPI in the future and that everything would balance quite happily.  Mr James also said that the expenses relating to user pay services would no longer be expenses of the Maintenance Fund at all.

So these are statement that are being made in 1994, and, in the context of some defence that says you can give reasonable notice to these people, what would the Murphys have thought, hearing that, in relation to staying on in the Village or going off and seeing if they could go to the John Paul Retirement Village?  I would suggest the question answers itself.

Your Honours, anything else that my friend has put, I do not mean not to give it credence, but I think your Honours have made comments which would contain the comments that I would want to make in relation to them.  Those are my submissions, your Honours.

GLEESON CJ:   Thank you, Mr Ellicott.  We will reserve our decision in this matter.  We will adjourn until 10.15 tomorrow morning.

AT 4.16 PM THE MATTER WAS ADJOURNED