Neville Hank Real Estate P/L v Knope No. Scgrg-98-799 Judgment No. S6980

[1998] SASC 6980

NEVILLE HANK REAL ESTATE PTY LTD v KNOPE

[1998] SASC 6980

Magistrates Appeal

1 WICKS J                  This is an appeal from a judgment given by a magistrate sitting in the civil jurisdiction of the Magistrates Court at Kadina in favour of the respondent.  In the court below, the appellant was the first defendant and the respondent was the plaintiff.  Proceedings against the second defendant and a third party did not proceed and are not the subject of this appeal.
2 The claim arose out of certain misrepresentations which were found by the learned magistrate to have been made in relation to the purchase by the respondent of commercial premises at Minlaton.  As the findings of fact made by the learned magistrate are not in dispute on this appeal, the following summary is based on his judgment.
Magistrate’s findings of fact

3 In or about April 1995, Mr and Mrs Knope were looking for an investment property when they saw a property occupied by the ANZ Bank at Minlaton advertised for sale.  They wanted a property which would give them a good return for the next five years as they were committed to repaying a mortgage on real estate which they had purchased in the United Kingdom.  They therefore contacted Mr Peter Tonkin who was an employee of the appellant and arranged to inspect the property.
4 Around this time, there was further discussion in relation to the undertaking of a "survey".  Mr Tonkin was made aware that a "survey" was a detailed building report.  During the discussion, Mr Tonkin indicated that Mr Jordan of Jordan Builders was an appropriate person to undertake such a survey and that it would be likely to cost in the order of $200. 
5 Having had that discussion with Mr Tonkin, Mr Knope formed the opinion that he and Mr Tonkin were talking about the same thing when they were discussing a "survey".  Mr Knope anticipated that a building inspector would carry out an inspection over some hours and provide a detailed written report.  Mr Tonkin also contemplated much more than a very cursory inspection of the property, given the figure that he quoted.
6 For a while things moved slowly until Mr and Mrs Knope had travelled to the United Kingdom.
7 On 14 June 1995 Mr Knope sent a facsimile to the appellant which read, in part:
"If this property is still available I wish to make an offer of A$136,000 (one hundred and thirtysix thousand dollars) subject to ... and also to nothing untoward being discovered following the survey."

8 The facsimile continued:
"If my offer is not a complete non-starter could you please instruct suitable surveyor (probably Jordan Builders if they are available) to carry out a detailed examination) of the property with particular reference to those parts (i.e. the cellar and the roof, etc.) which we could not examine.  May I ask you to obtain a written report but at this stage you only need to Fax me with any parts which might influence the amount I should offer for the property."

9 The facsimile in question provided that if in the event that the offer of $136000 was not a "complete non-starter", Mr Tonkin was to instruct a suitable surveyor, (probably Jordan Builders if they were available).  The learned magistrate found that this required Mr Tonkin, not just to assume that it was to be Jordan Builders to undertake "the survey" but required him to assess the suitability of Jordan Builders as the person to undertake the task.  He found that Mr Tonkin quite clearly failed to exercise any judgment in that regard at all.  The facsimile required the surveyor to carry out a detailed examination of the whole property and not just those portions such as the roof and cellar which had not been the subject of the inspection referred to earlier in these reasons.
10 Mr Tonkin was to fax those parts of the report to Mr Knope which influenced the amount to be offered for the property.  This indicated quite clearly that Mr Knope required as part of the report a list of any maintenance items required to be undertaken.
11 The learned magistrate found that Mr Tonkin had quite clearly failed to carry out the request that Mr Knope had conveyed to him even though he made it appear to Mr Knope that he was carrying it out to the letter.  What Mr Tonkin asked of Mr Jordan was to carry out an inspection of the property to see whether it was structurally sound or not.  That was nothing like what he had been asked to have carried out, nor was it anything like what he had represented to Mr Knope would be carried out.  Mr Tonkin must have known when Mr Jordan spoke to him that an inspection, sufficient to provide what had been requested by Mr Knope had not been carried out.
12 The learned magistrate found that Mr Tonkin had undertaken to act on behalf of Mr Knope as a gratuitous agent to obtain a detailed building report and to advise him of items discovered during the inspection leading to that report which might influence the price paid.
13 By 5 July 1995, Mr Tonkin knew from his own visual inspection that at least the roof of the premises required painting.  He had spoken in addition to Mr Jordan and was aware that the latter had carried out what can only be described as a cursory inspection of the property.  He knew that it had been done apparently during Mr Jordan’s lunch hour and could not possibly have been to the extent that or Mr Knope had anticipated.  During the course of discussion with Mr Jordan, Mr Tonkin had advised him of the matters to be covered in his report which had yet to be prepared.  With that information in mind, Mr Tonkin conveyed the following information to Mr Knope by letter sent as a facsimile on 5 July 1995:
"                 Allan Jordan has inspected the building, he has not furnished a full report to me, this I should have by the middle of next week.  The building report to date is that he does not see that the property requires any repairs at present, he does suggest that the roof may need replacing in the next ten-twenty years and the fret on the northern wall to re-plaster would be a minor cost, so on this basis it appears as first thought the building is in a very sound condition."

This does not represent accurately what Mr Jordan told Mr Tonkin.  Mr Jordan did not at any stage tell Mr Tonkin "that he does not see that this property requires any repairs at present".
14 The learned magistrate found on the evidence that at no time did Mr Tonkin ask Mr Jordan to do other than undertake a structural inspection.  A report in relation to repairs and maintenance was not sought.  Any doubt that Mr Tonkin may have had as to the immediate concerns of Mr Knope should have been allayed by correspondence between them in relation to the roof.  Mr Knope was very concerned about the prospect of having to replace the roof in the near future.  He was also concerned that he may have to spend more than $1000 on minor repairs in the near future.  Mr Tonkin took upon himself to answer those queries.  There was no suggestion at any stage that he referred them back to Mr Jordan.
15 The learned magistrate found that Mr Tonkin was grossly neglectful in the exercise of his duties as a gratuitous agent.  At no time did he act in the interests of Mr Knope.  The learned magistrate found that he acted in his own interests and in the interests of the vendor.  It was the learned magistrate’s view of the evidence that Mr Tonkin misrepresented to Mr Knope what was required by way of inspection in order that the property not be inspected too fully which may have had the effect of discouraging the purchaser. 
16 Mrs Knope was the actual purchaser of the property concerned although Mr Knope was the person responsible for the negotiations.  It appears that no points were taken on this aspect of the matter at trial.  Mr Knope appears to have been treated as Mrs Knope’s agent.
Magistrate’s assessment of damages

17 The learned magistrate then turned to the question of damages. He said that the assessment of damages under the Trade Practices Act 1974 and in tort was approached on the same basis. He referred generally to a decision of Perry J in this Court in Voss Real Estate Pty Ltd v Schreiner (1998) 8 ATPR 41-627.
18 The learned magistrate said there was very little evidence as to the appropriate value of the property.  He described it as an unusual property in that it was currently returning an exceptionally good yield on capital invested but there was a substantial doubt over whether the current tenancy would be renewed and whether it would be possible to find a suitable tenant at the expiration of the existing lease.  If the property is not let after the expiration of the current lease, it may suffer a substantial decline in value.  The learned magistrate proceeded:
"The property was not purchased merely as an asset but more in the nature of a business.  The plaintiff, through Mr Knope, made it abundantly clear that that was their wish to obtain income unfettered by significant expenditure over the first five years.  It is therefore my view that in assessing damages, one should look at the costs that have been and will be incurred, or are likely to be incurred during the first five years that fall into the category of items that should have been disclosed to the plaintiff.  By compensating the plaintiff in this manner it is my view that one is placing her in as near as possible the same situation to that which she thought she was entering into, which is after all a stated object of damages in these cases."

19 The learned magistrate then identified certain expenses which had been incurred and in addition, certain future expenses in order to carry out repairs and maintenance in respect of the property.  The total of these expenses amounted to almost $10000 and judgment was given to the plaintiff in respect of the total amount for maintenance and repairs identified.
20 The learned magistrate did not make any finding in relation to a contract between the appellant and Mr Knope. Nor was there any express finding of deceit or of misleading or deceptive conduct under either the Trade Practices Act 1974 or the Fair Trading Act 1987. There was a specific finding of negligent misrepresentation.
21 In my view, the learned magistrate assessed damages in this matter on the wrong basis.
Assessment of damages

22 This appeal is limited to the question of damages. The Notice of Appeal alleges that no loss was suffered as a result of the defendant’s conduct, that the learned magistrate applied the wrong test to determine the plaintiff’s loss and that the correct test required the ascertainment of the difference between the value of the property at the time of purchase and the price paid.
23 In the context of the purchase of a property or business, the measure of damages will generally be the same irrespective of whether the cause of action is for statutory misleading or deceptive conduct, deceit or negligent misrepresentation. In Kizbeau Pty Ltd v W G and B Pty Ltd (1995) 184 CLR 281 at p290, the court, in a unanimous judgment observed:
"Actions based on s52 are analogous to actions for torts. It follows that, in assessing damages under s82 of the Act, the rules for assessing damages in tort, and not the rules for assessing damages in contract, are the appropriate guide in most, if not all, cases.

In an action for damages for deceit for inducing a person to enter into a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it."

24 See also Ellul v Oakes (1972) 3 SASR 377 at 379 and Voss Real Estate v Schreiner (1988) ATPR 41-627 at 40885-40887.
25 There is no evidence or satisfactory evidence of the value of the property at the time of purchase and without proper evidence of that fact it is impossible in this case to properly assess damages.
26 Moneys spent on repairs and maintenance, as a general rule, can never be a measure of damage for losses incurred under s52 and s82 of the Trade Practices Act 1974 or for losses incurred in respect of a negligent misstatement. As a general rule, repairs and maintenance have nothing to do with a misstatement or a misrepresentation. It must be borne in mind that s82 of the Trade Practices Act 1974 speaks of the suffering of loss or damage by the conduct of another person.
27 In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, Mason J said at p525:
"The statutory cause of action arises when the plaintiff suffers loss or damage ‘by’ contravening conduct of another person. ‘By’ is a curious word to use. One might have expected ‘by means of’, ‘by reason of’, ‘in consequence of’ or ‘as a result of’. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this court in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so."

28 It would generally be appropriate in the trial of an action of this kind to award nominal damages to the plaintiff. However, nominal damages cannot be recovered under s82 of the Trade Practices Act because an essential element of the application of the section is the suffering of actual loss or damage: JLW (Vic) Pty Ltd v Tsiloglou (1994) 1 VR 237.
29 The Court does not have before it the necessary evidence from which it can make an assessment of damages due to the respondent. A plaintiff cannot recover substantial damages unless he proves both the fact and the amount of damages: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 per Mason CJ and Dawson J at p99.
30 In my opinion, the respondent’s claim should be dismissed. 
31 I would allow the appeal.  I would set aside the judgment in the court below (including any orders as to interest and costs) and substitute a judgment dismissing the respondent’s claim.
32 I will hear the parties as to costs.