Ramsey v Vogler

[1999] NSWSC 690

Reported Decision: (1999) 44 IPR 153

New South Wales

Supreme Court

CITATION:	Ramsey v Vogler [1999] NSWSC 690
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	1747/96
HEARING DATE(S):	6 July 1999
JUDGMENT DATE:	6 July 1999
PARTIES :	Leicester Denis Ramsey (P1) Kim Sue-Ellen Ramsey (P2) Welcome Waggon of Australia (NSW) Limited (P3) Juanita Kay Vogler (D1) John Davies (D2) Juanita Kay Vogler (Cr-cl 1) John Davies (Cr-cl 2) Leceister Denis Ramsey (Cr-d 1) Kim Sue-Ellen Ramsey (Cr-d 2) Welcome Waggon of Australia (NSW) Pty Limited (Cr-d 3)
JUDGMENT OF:	Master McLaughlin

COUNSEL :	Mr. P. King (P) Mr. P. Newton (D)
SOLICITORS:	Woodward Wickes & Co (P) Philip J. Beazley (D)
CATCHWORDS:
DECISION:

SUPREME COURT OF
NEW SOUTH WALES
EQUITY DIVISION

MASTER McLAUGHLIN

Tuesday, 6 July 1999

1747/96 LEICESTER DENIS RAMSEY & ORS -v- JUANITA KAY VOGLER & ANOR

JUDGMENT

1    MASTER: On 26 February 1999 Bryson J delivered his reserved judgment. The orders of his Honour included the following:

1. Give judgment for the first plaintiff, Leicester Denis Ramsey, against the second defendant, John Davies, for damages and interest to be assessed;
2. Order that an enquiry be held before a Master to ascertain and further assess the amount of damages and interest for which judgment be entered and direct that judgment be entered in accordance with the Master's certificate.

2    The matter has come before me consequent upon order 2 made by his Honour. The proceedings in which his Honour made those orders were proceedings in which his Honour found for the first plaintiff against the second defendant in an action in deceit. 3    His Honour expressly held that the charge of fraud asserted against the second defendant, in particular, paragraph 12(b) in the statement of claim, had been established. The action arose out of the first plaintiff being induced by the fraudulent assertions of the second defendant to acquire a business. The business was worthless. The first plaintiff not merely made no profit from it, but suffered a very considerable loss as a result of the transaction. 4    The measure of damages for an action in deceit arising out of fraudulent misrepresentation is referred to in McGregor on Damages (15 ed., 1998), chapter 39. That chapter clearly distinguishes between the measure of damages in the tort of deceit and the measure of damages based on principles of contract where there has been some form of fraudulent conduct on the part of the party held to be liable. 5    In the instant case there is no issue between the parties that the cause of action upon which his Honour found that the second defendant was liable to the first plaintiff was grounded upon the tort of deceit. The measure of damages in respect of such tort has been the subject of several decisions of the High Court of Australia. In Holmes v Jones (1907) 4 CLR 1692 the Chief Justice Sir Samuel Griffith referred to the submission which had been made before the court at the hearing of that case in reliance upon two American authorities in support of the submission that in an action for fraudulent misrepresentation the plaintiff was entitled to recover damages upon the same measure as in an action for breach of warranty. His Honour expressed the view that that was not the law and referred to the authorities of Broome v Speak [1903] 1 Ch 586 at 605 (which decision was affirmed by the House of Lords under the name Shepheard v Broome [1904] AC 342) and Waddell v Blockey 4 QBD 678. 6 The locus classicus of the law in Australia has been the judgment of Dixon J (as he then was) in Toteff v Antonas (1952) 87 CLR 647. His Honour said at 650:

In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant. When what he has been induced to do is to make a purchase from the defendant and part with his money to him in payment of the price, then, if the transaction stands and is not disaffirmed or rescinded, what is recoverable is “the difference between the real value of the property, and the sum which the plaintiff was induced to give for it” per Abbott LCJ Pearson v Wheeler (1825) 171 ER 1028 at 1029. As Sir James Hammond P in Peek v Derry (1887) 37 Ch D 541 at 594 pointed out, the question is how much worse off is the plaintiff than if he had not entered into the transaction. If he had not done so he would have had the purchase money in his pocket. To ascertain his loss you must deduct from the amount he paid the real value of the thing he got.

7    In the same case, Williams J said at 553:

The contract was a contract for the sale of the business as a going concern. The representations related to takings and profits the plaintiff might reasonably expect to make out of the business if he purchased it on this basis.

8    The damages that the plaintiff would suffer if the representations were untrue was the difference between the real market value of the business as a going concern and the price the plaintiff paid for the business. 9    I have also been taken to the decision of the High Court of Australia in Gould v Vaggelas (1985) 157 CLR 215. Gibbs CJ said at 220:

It is well established that in an action of deceit where the plaintiff has been induced by the fraudulent misrepresentation of the defendant to enter into a contract of purchase, the measure of damages usually applicable is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it.

10    His Honour referred to the decisions in Holmes v Jones and Toteff v Antonas from which I have already quoted. 11    The decision of the High Court of Australia in Gates v City Mutual Life Assurance Pty Ltd (1986) 160 CLR 1 related to the measure of damages and the Trade Practices Act, in particular section 52(1) of that Act. 12    In a joint judgment Mason, Wilson and Dawson JJ adverted to the fact that the Act does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provisions of Parts 4 and 5. 13    Their Honours then contrasted the measure of damages in an action in deceit and the measure of damages for breach of warranty. At 12 their Honours said:

The differences and the similarities between the two approaches are best illustrated by contrasting the damages recoverable for breach of contractual warranty on a purchase of goods with those recoverable for a fraudulent misrepresentation inducing entry into a contract for the purchase of goods on the assumption that the contracts are identical except that in one case the representation amounts to a warranty and in the other it is merely a non-contractual representation. For breach of warranty the plaintiff is prima facie entitled to recover the difference between the real value of the goods, and the value of the goods as warranted. In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid.

14    Their Honours referred to Potts v Miller (1940) 64 CLR 282 at 289-297 and to the decisions from which I have already quoted, Toteff v Antonas and Gould v Vaggelas.

But this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J in Toteff v Antonas in these terms:

and their Honours then quoted the passage I have already quoted within that case.

15    At p 13 their Honours said:

Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed cfEsso Petroleum Co Limited v Mardon (1976) QB 801 at 820-821, 828-829; Doyle v Olby (Ironmongers) Ltd (1969) 2 QB at 167. The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract.

16    It is clear from the foregoing cases that the usual rule as to the measure of damages in an action of deceit such as the present is the difference between the real value of the property at the time of representation and the value at the time of purchase. That is recognised by Gibbs CJ in Gould v Vaggelas (1985) 157 CLR 215 at 220. That however is only a special application of the general principle enunciated in Toteff v Antonas by Dixon J at p 650 that:

In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant.

17    In the instant case the plaintiff at the time when he first had contact with the second defendant had recently taken voluntary redundancy from his employment as an executive with a subsidiary of the AMP Society. With the moneys which he received from that voluntary redundancy he decided to look for a business which could be conducted by himself and his wife together. They spent from July 1994, when the first plaintiff ceased his employment, until January 1995 looking for a suitable business for that purpose. It was in the latter part of January 1995 that the first plaintiff had his first contact with the second defendant. 18    The plaintiff has placed before the Court a document headed "Schedule of Losses" which is annexure A to the affidavit of Romas Polaitis sworn 29 March 1999. Mr Polaitis is a registered public accountant. He has sworn three affidavits in this matter. Both he and Mr Ramsey were cross-examined at the instance of the second defendant. 19    No evidence was placed before the Court by or on behalf of the second defendant upon the present enquiry as to damages. 20    The schedule of losses annexed to the affidavit of Mr Polaitis consists of four separate items. It was at the outset recognised by Mr King of Counsel, for the plaintiff, that item 1, headed "Loss of Expected Profits" must be treated as an alternative to items 2, 3 and 4, in that the plaintiff would not be entitled to obtain an award consisting of the losses of expected profits and also the various other items, since those other items were necessarily incurred in achieving the expected profits. 21    During the course of the hearing the plaintiff sought to amend the schedule of losses by adding an alternative item to item 1, being described as item 1A as follows,

Alternatively, the sum of $423,000 being the difference in value between the business as represented and the business as sold.

22    The basis of the calculation of $423,000, which is a very substantial component in the $447,165 appearing in item 1, is that the figure of $141,000 as an expected operating profit has been adopted by Mr Polaitis and since that figure could be regarded as a factor, indeed the only factor, in calculating the goodwill of the business and since, according to Mr Polaitis, goodwill is usually calculated for a period of between one and six years, he adopted a period of three years. Therefore the amount of $423,000 is calculated as the multiple of three for the projected annual profit of $141,000. 23    That projected annual profit of $141,000 was the substantial fraudulent matter upon which the second defendant induced the plaintiff to enter into the transaction. 24    It has been submitted on behalf of the plaintiff that in the instant case the measure of damages of the plaintiff is the prejudice or disadvantage suffered by him in consequence of that fraudulent inducement by the second defendant; that that prejudice or disadvantage is the difference between the value of the business as represented and what was actually transferred. The value of what was actually transferred was nothing; the value of the business as represented was, so it was submitted, the three years of the projected profit of $141,000 a year, that is, $423,000. 25    It was submitted that this is a case where there was a precise representation as to the nature of the business and of the benefit which would be received by Mr Ramsey and his family as a result of the transaction; but that in this case it should be recognised that Mr Ramsey had been looking for a business in which to invest, and that in consequence of the fraudulent conduct of the second defendant the plaintiff was deprived of the opportunity of investing his redundancy money in some other business. The plaintiff then expended his time and energy full time on this worthless business and eventually, in order to support his wife and children, had to go into some other kind of work and leave it to his wife to attempt to carry on the totally profitless business. 26    I recognise that in certain circumstances it is open to a plaintiff to include in a claim for damages in the tort of deceit damages in respect to a lost opportunity of the nature of that asserted on behalf of the plaintiff. However, as was recognised by the High Court of Australia in Gates v City Mutual Life Assurance at 13, it is for the plaintiff to establish that there was such another opportunity available and the profit which he would have obtained from that opportunity. There is no evidence in the instant case of the nature of any other investment or business in which the plaintiff would have put the money which he put into the transaction with the second defendant and there is no evidence of the profit which he might have made from such another investment. 27    Accordingly, I am not satisfied that this is a case where in the calculation of damages it is appropriate to adopt any formula other than that which was described by Dixon J in Toteff v Antonas and which I have already quoted. 28    The components of the claim for damages upon that formula are set forth in items 2, 3 and 4 of the schedule of losses. Item 2 is the costs of setting up a company. The plaintiff acquired a shelf company, Welcome Waggon of Australia (New South Wales) Pty Ltd. The cost is shown as $890. 29    Item 3 is loans to the company. Originally not only did the plaintiff spend his redundancy payment on this purchase, but it was also necessary for him to obtain a loan secured over his residence in the sum of $70,000. He lent this money to the company, which was used as his vehicle for conducting the business. Subsequently the plaintiff was required to refinance his loan and did so with a loan from the Bank of Adelaide in the amount of $78,000. The outstanding amount of that loan was $78,021.45. 30    It was submitted on behalf of the second defendant that there should be only one half of that amount included as a component in the damages to be awarded to the plaintiff since, so it was submitted, the loan was a loan made jointly to the plaintiff and to his wife. Bryson J dismissed the claim of the plaintiff's wife, Kim Suellen Ramsey, the second plaintiff. 31    The mortgage to Westpac Banking Corporation has been admitted into evidence at the hearing before me as Exhibit C. That mortgage shows that the liability of the first plaintiff and his wife was a joint and several liability. That being so, there is no reason why the component of $78,021.45 should not be included in its totality in the damages to be awarded to the first plaintiff, since he could have been held solely liable by the bank under the joint and several liability. 32    Item 4 is headed "Losses Incurred as a Result of the Failure of the Company". It consists of two items, firstly (as item 4(a)) the accumulated losses of the company which were paid personally by Mr Ramsey, including interest payments on the foregoing loan from Westpac Banking Corporation. Annexed to the affidavit of Mr Polaitis of 29 March 1999 as annexure 4 is a profit and loss statement. That document discloses accumulated losses of $26,513. 33    An attempt was made on the part of the second defendant to suggest that because the company in carrying on the business had generated some income, the Court should disregard the operating costs incurred in generating that income. The mere statement of that submission is sufficient to dispose of it. The plaintiff will be entitled to the component of $26,513. 34    Item 4(b) is the legal costs on refinancing the loan from the Westpac Banking Corporation to the Bank of Adelaide. I have already referred to the fact that the loan was increased when it was refinanced from the one bank to the other. There is some evidence that parts of the loan were used for purposes of a personal nature relating to the first plaintiff's house and other areas of personal indebtedness. It was submitted on behalf of the second defendant that the first plaintiff should be deprived of the component of $885.30, being the legal costs of refinancing. It seems to me a quite legitimate inference which I am entitled to draw that the legal costs on refinancing a loan of $78,000 would hardly have exceeded the legal costs of refinancing a loan of $70,000. In those circumstances I am satisfied that the full amount of $885.30 should be included in the damages to which the first plaintiff is entitled from the second defendant. 35    On my calculations, therefore, the amount of the damages will consist of the three components, being $78,021.45, $26,513 and $885.30, which I calculate as totalling $106,309.75. 36    Counsel for the plaintiff has prepared a schedule of interest upon the component, being item 3. That schedule of interest totals $31,429. Counsel for the second defendant has not had an opportunity of fully considering that schedule of interest calculations, which I am informed is based on the Supreme Court rates of interest applicable at the appropriate time. Accordingly, I propose to reserve to the parties liberty to approach my Associate concerning any arithmetical calculations in the amount of my certification and in particular concerning the calculation of interest, within a specified period: I would suggest no more than seven days from today. 37    I note that the judgment of his Honour Bryson J reserved further consideration of all questions of costs. For the assistance of his Honour when he comes to consider the costs of the hearing before me, I propose to record that I am of the view that it is appropriate that the costs of the first plaintiff of the enquiry before me be paid by the second defendant. 38    I propose to formulate my certificate. I make the following orders:

1. I certify the amount of damages as $106,309.75 and the amount of interest as $31,429.
2. I reserve to the parties liberty within seven days of the date hereof to make written submissions to correct any errors of arithmetical calculations in the foregoing amounts of damages and interest.
3. I express the view that it is appropriate that the costs of the first plaintiff of the enquiry before me should be paid by the second defendant.

39    EXHIBIT #E SCHEDULE OF INTEREST TENDERED, ADMITTED WITHOUT OBJECTION

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