Slinger v Southern White Pty Ltd

[2005] SASC 267

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

SLINGER & ANOR v SOUTHERN WHITE PTY LTD

Judgment of The Full Court

(The Honourable Justice Duggan, The Honourable Justice Besanko and The Honourable Justice Layton)

19 July 2005

TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - STATUTES RELATING TO MISLEADING OR DECEPTIVE CONDUCT IN TRADE - SOUTH AUSTRALIA

Appeal from orders made by a District Court Judge – sale of a business – misleading and deceptive conduct by omission or silence – duty to disclose or reasonable expectation of disclosure – whether conduct capable of misleading and deceiving – nature of audience to be considered – reliance – appeal dismissed.

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR TORT

Appeal on question of damages – damages claimed under two heads – valuation of business and loss of profit – measure of damages in contract and tort – reliance – loss or damage caused by misleading or deceptive conduct – double compensation – appeal dismissed as to first head of damages – appeal upheld as to second head of damages.

Land and Business (Sale and Conveyancing) Act 1994 ss 2, 8, 10, 15; Fair Trading Act 1987 ss 54, 56, 84; Trade Practices Act 1974 (Cth) ss 51A, 52, 82, 87; Misrepresentation Act 1972 s 7; J W Carter and D J Hartland, Contract Law in Australia (4th ed, 2002); McGregor on Damages (16th ed, 1997), referred to.
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288; Annand and Thompson Pty Ltd v Trade Practices Commission (1979) 40 FLR 165; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; Finucane v New South Wales Egg Corporation (1998) 80 ALR 486; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; Henville v Walker (2001) 206 CLR 459; Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302; Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Stankovic v Aufderheide [2003] SASC 378; Todorovic v Moussa [2001] NSWCA 419; Marks v GIO Australia Holdings (1988) 196 CLR 494; Gould v Vaggelas (1985) 157 CLR 215; Sellars v Petroleum Adelaide (1994) 179 CLR 332; Cullinane v British 'Rema' Manufacturing Co Ltd [1954] 1 QB 292; TC Industrial Plant Pty Ltd and Anor v Robert's Queensland Pty Ltd (1963) 180 CLR 130, considered.

SLINGER & ANOR v SOUTHERN WHITE PTY LTD
[2005] SASC 267

Full Court:  Duggan, Besanko and Layton JJ

1. DUGGAN J.         I agree with the orders proposed by Besanko J and the reasons prepared by him.

2. BESANKO J:        This is an appeal from orders made by a District Court Judge.  The plaintiff is Southern White Pty Ltd and it bought land and a business from the defendants, Peter and Sharon Slinger, who are husband and wife.  The plaintiff alleged that in relation to the business it had been induced to enter into the contract of sale and purchase by misleading and deceptive conduct and misrepresentations by the defendants.  The plaintiff also alleged that the defendants had not complied with the provisions of the Land and Business (Sale and Conveyancing) Act 1994 in relation to the sale of the business.  The plaintiff brought a claim for damages against the defendants.  The defendants provided vendor finance of $65,000 to the plaintiff and, in addition to defending the action, the defendants brought a counterclaim claiming that amount from the plaintiff.

3. The action was tried before a District Court Judge over a period of about seven days.  The Judge found for the plaintiff and awarded it damages in the sum of $145,000 which sum included interest of $15,000.  The Judge found for the defendants on the counterclaim and awarded them the sum of $65,000 with no further award of interest.  Although it is not entirely clear on the material before this Court, it seems that the Judge made an allowance for interest on the counterclaim when calculating the interest payable on the claim.  The Judge ordered that a mortgage over the land in favour of the defendants be discharged and removed from the title, and he made an order for costs in favour of the plaintiff on the claim and an order for costs in favour of the defendants on the counterclaim.

4. The defendants appeal to this Court.  They challenge the Judge’s findings in relation to liability and they challenge the quantum of the damages he awarded.  They submit that the Judge erred in finding that they had been guilty of misleading and deceptive conduct and that they had failed to comply with the provisions of the Land and Business (Sale and Conveyancing) Act 1994 and that he erred in awarding damages to the plaintiff.  In the alternative, they submit that, if it was a proper case for an award of damages, the Judge erred in his calculation of the award of damages for the difference between the price paid for the business and the value received, and he erred in allowing in addition to those damages, damages for loss of profit for a period of 15 months from the date of the purchase of the land and business.

5. I will continue to refer to the parties by reference to their status in the Court below.

6. There is a preliminary issue as to whether the time for the institution of the appeal should be extended.  An appeal to this Court from the orders of a District Court Judge must be instituted within 14 days.  Under the relevant rule of Court, to institute an appeal the notice of appeal must be both filed and served within 14 days.  In this case the notice of appeal was filed within the prescribed time but it was not served on the plaintiff until some 10 or so days beyond the prescribed time.  That came about because of the fault of the defendants’ solicitors, not the defendants.  The delay in serving the notice of appeal is not significant and there is no evidence of prejudice to the plaintiff.  I would grant an extension of time for the institution of the appeal.

   The facts

7. The statement of the facts as it appears below is based on the findings of fact made by the Judge.  Some findings of fact are challenged by the defendants and I will identify and deal with those challenges in due course.

8. The plaintiff is a company which conducted business as a real estate agent in Reynella in the State of South Australia.  Mr Colin Ehmann was its sole director and shareholder.

9. The defendants were the owners of land at 1 Aldam Road, Port Noarlunga, and they conducted on that land a childcare business called the Pied Piper Childcare Centre (“the business”).  They also conducted a childcare centre at Christies Beach called the Christies Beach Childcare Centre.

10. The defendants wished to sell the land and the business and they engaged the plaintiff as the agent to sell.  On 13^th March 1997 the defendants and the plaintiff entered into a Business Sale and Agency Agreement whereby until 1^st July 1997 the plaintiff was appointed the sole agent for the sale of the land and the business.  There was attached to that agreement a Business Schedule which contained certain details of the business.  At or shortly after that time the defendants provided three documents to the plaintiff.  The Judge referred to the three documents and other documents given to the plaintiff by the defendants by their heading or by some other words written on the documents.  I will do the same. The first document is an undated five-page document referred to by the Judge as “Childcare Centre Purchase”.  It refers to an attached Statutory Form 2.  It contains the following statement as to expected gross income:

    At its current weekly trading income, it is expected that the business will generate a gross income of approx of (sic) $240,000 for the current financial year, which is consistent with the last 4 years trading, since its expansion to 30 licensed places.

11. The Childcare Centre Purchase document also contains the following statement as to the method whereby childcare assistance is provided by the Commonwealth government.

    Childcare Assistance, which is fully funded by government, is paid in advance to each Centre, based on their previous level of need.

    Each quarter the Childcare Assistance advance is detailed for the quarter and 40% is paid on the 1^st of month 1, 30% is paid on 1^st of month 2 and 30% is paid on the 1^st of month 3.

    Current quarterly levels of childcare assistance at Pied Piper is approx $48,000.  This means that on a take over date of 1^st July 1997, a cash payment of $19,200 would be paid into the business account by the government, and month 2 and 3 would have a further $14,400 paid on the 1^st of each month.

    With parent gap payments of over $1,100 per week, cashflow is not an issue for the running of this Childcare Centre.

12. There was attached to the Childcare Centre Purchase document a document referred to by the Judge as “1997/98 Budget” and dated 21^st March 1997. It shows a projected income for the financial year 1997/1998 of $240,000 and a projected profit of $48,860. The third document is a Form 2 under s 8 of the Land and Business (Sale and Conveyancing) Act 1994.  In the Form 2 the asking price for the business was said to be $180,000 and as required, the Form 2 contains details of the trading of the business in the financial periods from 1^st July 1994 to 30^th June 1995 and from 1^st July 1995 to 30^th June 1996 and for the period from 1^st July 1996 to 31^st December 1996.

13. On 16^th June 1997 the defendants sent to Mr Ehmann by facsimile transmission a document referred to by the Judge as “Pied Piper History” that contained details of the trading of the centre for the financial years 1991/1992 to 1995/1996 inclusive and estimates for three quarters of and then for the full financial year 1996/1997.

14. The defendants’ appointment as agent expired on 1^st July 1997.   The Judge found that some time after that date the plaintiff decided that it wished to purchase the land and business and that it entered into negotiations with the defendants to that end.

15. In July 1997 the centre’s licence for 30 places for children over the age of two years was changed to 34 places, consisting of 28 places for children two years and over and six places for children under two years.  The defendants elected to fill only five of the places for children under two years.  The plaintiff through Mr Ehmann made handwritten alterations to his copy of the Childcare Centre Purchase document.

16. On 7^th August 1997 the defendants gave Mr Ehmann a document referred to by the Judge as the “Quarterly Financial Statement” showing projected income and expenditure for the year 1^st July 1997 to 30^th June 1998.

17. On 8^th August 1997 a Business Contract Note was executed by Mr Ehmann and/or nominee, as purchaser, and the defendants as vendors (“the contract”).  The business of the Pied Piper Childcare Centre and the land were sold for a total consideration of $350,000, apportioned as to $180,000 to the business and as to $170,000 to the land.  A deposit of $50,000 was agreed and the purchaser was to take possession on 29^th September 1997.  The contract contained a clause relating to the gross weekly takings of the business and by that clause the vendor declared that the gross weekly takings of the business averaged over a period of six weeks immediately preceding the contract were $3,830 per week (clause 19).  Under the contract the defendants provided vendor finance of $65,000 to the plaintiffs secured by a second registered mortgage over the land and business.

18. Shortly prior to the execution of the contract, the defendants gave to the plaintiff a document referred to by the Judge as “Worse Case Scenario”.  The document showed a projected income for the financial year 1997/1998 of $182,000 and a projected profit of $18,673.97.  The Judge found that the purpose of the Worse Case Scenario was to assist the plaintiff to obtain finance for the purchase.  The plaintiff eventually obtained a loan of $277,000 and the loan was secured over three properties.  Settlement of contract took place on the nominated date, that is, 29^th September 1997.  The plaintiff was the purchaser.

19. In his reasons for judgment the Judge set out in tabular form a summary of the information contained in the various documents provided to the plaintiff by the defendants before the acquisition of the land and business (Part 1) and the documents which had been produced on various occasions since that time (Part 2).  It will be helpful if I set out the table.

Description of document and periods Covered	Date	Exhibit no.	Childcare assistance from Cwlth Government	Fees from parents	Total receipts	Expenses	Profit
	(*excludes loan interest)
Part1
Form 2 94/95 year 95/96 year 7/96 – 12/96 6 months	executed by (1) male defendant on 3/4/97 (2) Mr Ehmann on 8/8/97	P2	$269,382 $247,977 $114,054	$156,972* $153,081* $78,966*	$112,410* $94,896* $35,088*
Childcare Centre Purchase 96/97 year (est.)	delivered by defendants to plaintiff in April 1997	P1	$48,000 x 4 = $192,000	$1,100 x 52  = $57,200	$240,000 $249,200
1997/98 Budget 9/97 quarter 12/97 quarter 3/98 quarter 6/98 quarter 97/98 year	dated 21/3/97	P3	$48,000 $48,000 $48,000 $48,000 $192,000	$12,000 $12,000 $12,000 $12,000 $48,000	$60,000 $60,000 $60,000 $60,000 $240,000	$48,295 $47,545 $48,505 $46,795 $191,140	$11,705 $12,455 $11,495 $13,205 $48,860
Pied Piper History 94/95 year 95/96 year 96/97 year (est.)	faxed on 16/6/97	P6	$269,382 $247,977 $245,000	$156,972* $153,081* $157,000*	$112,410* $94,896* $88,000*
Quarterly Financial Statement 9/97 quarter (est.) 97/98 year (est.)	dated 7/8/97	P10	$42,000 $170,000	$18,000 $70,000	$60,000 $240,000	$46,320 $181,910	$13,680 $58,090
Description of document and periods covered	Date	Exhibit no.	Childcare assistance from Cwlth Government	Fees from parents	Total receipts	Expenses	Profit
Worse case scenario 9/97 quarter (est.) 12/97 quarter (est.) 3/98 quarter (est.) 6/98 quarter (est.) 97/98 year (est.)	dated 7/8/97	P9	$32,000 $34,000 $32,000 $34,000 $132,000	$12,000 $13,000 $12,000 $13,000 $50,000	$44,000 $47,000 $44,000 $47,000 $182,000	$41,133 $40,140 $40,967 $41,086 $163,326	$2,867 $6,860 $3,033 $5,914 $18,674
Part 2
Defendants’ tax returns 94/95 year 95/96 year 96/97 year 9/97 quarter	P33 P34 D31 P32	$269,382 $247,370 $241,333 $22,743	$180,109 $189,961 $178,453 $62,997	$89,273 $57,409 $62,880 ($40,254)
Document headed ‘Transactions’ 9/96 quarter 12/96 quarter 3/97 quarter 6/97 quarter 96/97 year	3/6/98	P14	$34,470 $49,347 $63,419 $34,202 $181,438	$14,964 $14,423 $13,864 $17,494 $60,745	$49,434 $63,770 $77,283 $51,696 $242,183

1. The Judge made various findings about the payments made by the Commonwealth government by way of assistance and the manner in which those payments were made. Those findings are not the subject of challenge.

2. The assistance provided by the Commonwealth government was calculated in accordance with a formula.  The formula changed on 1^st April 1997.  The maximum number of hours for which assistance could be claimed was reduced from 60 hours per week to 50 hours per week and the percentage which could be claimed was reduced.  The defendants responded by reducing fees in one area and increasing them in another.

3. Assistance was paid by reference to the amount of childcare services provided and this is called assistance “acquitted” in the Judge’s reasons.  However, assistance was paid in advance and because the amount of childcare assistance to be provided could not be predicted with certainty, there was a need to reconcile the assistance advanced and the assistance acquitted.

4. To illustrate this point the Judge took as an example the September 1997 quarter.  He said that towards the end of the June quarter the Commonwealth Department of Health and Family Services would send a letter to the defendants.  The letter would have been based upon a claim made by the defendants earlier in the June quarter for work actually performed or acquitted in the March quarter.  The letter would have detailed the payment to be made in the September quarter, with an adjustment for over or under payments in the March quarter.  The Judge referred to this as a “six monthly rolling reconciliation and adjustment process”, and he set out the following table in his reasons to illustrate the operation and effect of this process.

Quarter	Assistance advanced subject to adjustment	Assistance claimed	Surplus (shortfall)	Adjustment	Net payment
September 1995	$46,803	$52,884	$6,081	n/a	n/a
December 1995	$48,157	$46,429	($1,728)	n/a	n/a
March 1996	$52,884	$43,677	($9,207)	$6,081	$58,965
June 1996	$46,429	$47,888	$1,459	($1,728)	$44,701
September 1996	$43,677	$53,548	$9,871	($9,207)	$34,470
December 1996	$47,888	$41,045	($6,843)	$1,459	$49,347
March 1997	$53,548	$35,148	($18,400)	$9,871	$63,419
June 1997	$41,045	$33,174	($7,871)	($6,843)	$34,202
September 1997	$35,148	$31,334	($3,814)	($18,400)	$16,748
December 1997	$33,174	n/a	n/a	($7,871)	n/a

1. The Department wrote to the defendant on 10^th November 1997 claiming the sum of $12,163.  This was the shortfall incurred before the plaintiff took over the business on 29^th September 1997, namely, $7,871 for the June 1997 quarter, $3,814 for the September 1997 quarter and a variation to the assistance claimed in the September 1997 quarter of $478.

2. The Judge found that the figures supplied to the plaintiff by the defendants prior to the contract were, within a few dollars, consistent with the defendants’ tax returns for the financial years 1994/1995 to 1996/1997 inclusive.  In broad terms the figures showed a business consistently achieving a turnover of no less than $240,000 per year.  However, the figures were prepared on a cash receipts basis, rather than on an accrual basis.  In the childcare industry the figures were subject to what the Judge called a rolling reconciliation six months later.

3. With respect to the assistance being provided by the Commonwealth government, it is clear from the figures that in the second, third and fourth quarters, there was an appreciable difference between the assistance paid and the assistance claimed and that the assistance was trending downwards (December 1996 ($6,843), March 1997 ($18,400) and June 1997 ($7,871)).  The defendants did not contend to the contrary.

4. To this point I do not think that there was any challenge to the Judge’s findings of fact.

5. The Judge found that the defendants had been guilty of misleading and deceptive conduct by omission. That conduct constituted a contravention of ss 54 and 56 of the Fair Trading Act 1987 (SA) (“FTA”) and meant that the plaintiff was entitled to an award of damages under s 84 of that Act. Those sections are in similar terms to ss 51A, 52 and 82 of the Trade Practices Act 1974 (Cth) respectively. He also found that they had acted “in breach” of s 7 of the Misrepresentation Act 1972 (SA) (“MA”) and were liable in damages to the plaintiff.  That section provides:

   7. (1) Where a contracting party is induced to enter into a contract by a misrepresentation made-

   (a)     by another party to the contract; or

   (b)     by a person acting for, or on behalf of, another party to the contract; or

   (c)by a person who receives any direct or indirect consideration or material advantage as a result of the formation of the contract,

   and any person (whether or not he or she is the person by whom the misrepresentation was made) would, if the misrepresentation had been made fraudulently, be liable for damages in tort to the contracting party subjected to the misrepresentation in respect of loss suffered by him or her as a result of the formation of the contract, that person is, subject to subsection (2), so liable to that contracting party, in all respects as if the misrepresentation had been made fraudulently and were actionable in tort.

   (2)  It is a defence to an action under subsection (1)—

   (a)     that the person by whom the representation was made had reasonable grounds to believe, and did believe, that the representation was true, or

   (b)     that the defendant was not the person by whom the representation was made and did not know, and could not reasonably be expected to have known, that the representation had been made, or that it was untrue.

   (3) Where in any proceedings before a court, it is proved that a party to a contract has rescinded, or is entitled to rescind, the contract on the ground of misrepresentation, the court after consideration of the consequences of rescission, and the consequences of a declaration under this section, in the circumstances of the case, may, if it considers it just and equitable to do so, declare the contract to be subsisting and award such damages as it considers fair and reasonable in view of the misrepresentation.

   (4)  A declaration under subsection (3) has effect according to its terms and is a bar to rescission.

   (5) Where a contract has been rescinded but is subsequently declared to be subsisting under subsection (3), the respective rights and liabilities of the contracting parties will be determined in all respects as if the contract had never been rescinded.

   (6) In assessing any damages under this section, a court must take into consideration any award of damages under any other provision of this section, or of damages or compensation under any other law, and in assessing damages or compensation in any proceedings under any other law relating to a contract, a court must take into consideration any award of damages under this section.

1. The Judge also found that the defendants had failed to comply with ss 8 and 10 of the Land and Business (Sale and Conveyancing) Act 1994 and that pursuant to s 15 of that Act the plaintiff was entitled to an award of damages. Those sections provide as follows:

   8.    (1) A vendor of a small business must, at least five clear business days before the date of settlement, serve, or cause to be served, on the purchaser a statement in the form required by regulation (signed by or on behalf of the vendor) setting out—

   (a)     the rights of a purchaser under section 5; and

   (b)     the prescribed particulars in relation to the business; and

   (c) where land is sold under the contract for sale of the business—the particulars that would be required in a vendor's statement under section 7 if the land were sold separately.

   (2) The statement must have endorsed on, or attached to, it a certificate in the form required by regulation (signed by or on behalf of a qualified accountant, not being the vendor) certifying—

   (a)     that the accountant or a person acting on behalf of the accountant has examined the accounts of the business; and

   (b)     that the financial particulars disclosed under subsection (1)(b) appear to be in conformity with the accounts

   …

   10.   (1) A vendor's statement must be accurate as at the date of service on the purchaser.

   (2) If after the service of a vendor's statement but before the purchaser signs the contract circumstances change so that if a fresh statement were to be prepared there would have to be some change in the particulars contained in the statement, then the vendor's statement will be regarded as defective until a notice of amendment is served and when such a notice is served it will be presumed that the vendor's statement was served, as amended by the notice, on the date of service of the notice.

   …

   15.     (1) Where a vendor's statement is not given or certified as required by this Part, or the statement given is defective, the purchaser may apply to a court of competent jurisdiction for an order under this section.

   (2) On the hearing of an application under subsection (1) the Court may, if satisfied that the purchaser has been prejudiced by the failure to comply with this Part, exercise any one or more of the following powers:

   (a)     avoid the contract and make such other orders as the Court thinks necessary or desirable to restore the parties to the contract to their respective positions before entering into the contract;

   (b)     such damages as may, in the opinion of the Court, be necessary to compensate loss arising from the non‑compliance;

   (c)     make such other orders as may be just in the circumstances.

   (3) Damages may be awarded under subsection (2)(b) against—

   (a)     the vendor;

   (b)    if it appears that the purchaser has been prejudiced by a failure on the part of an agent to carry out duties imposed by this Part—the agent,

   or both.

2. In relation to the cause of action under the FTA, the Judge found that by reason of the information provided by the defendants to the plaintiff, the plaintiff was led to believe that the business was capable of maintaining, perhaps even improving upon, a turnover of $240,000 per annum or $60,000 per quarter.  At the time the information was provided to the plaintiff it was correct, or at least could not be said to be incorrect, but the facts and projections were inaccurate by the time of the contract.  The Judge found that the defendants should have corrected the impression and that their failure to do so constituted misleading and deceptive conduct.  It was a case, said the Judge, of misleading and deceptive conduct by omission.  I pause at this point to note that on the findings made by the Judge the case did not involve oral statements or representations.  The Judge found that the misleading impression as to the actual and projected trading position of the business was contained in the documents which the defendants provided to the plaintiff.

3. As I have said, the Judge found that the documents provided to the plaintiff before the contract insofar as they contained actual figures were accurate to within a few dollars.  Those actual figures showed that the business was consistently achieving a turnover of no less than $240,000 per year.  The Judge said the figures were supplied for a purpose which went beyond the mere expression of historical fact.  They were supplied to demonstrate to a potential buyer the extent of the future profitability of the business and they indicated to a potential buyer that the business was capable of maintaining, perhaps even improving upon, a turnover of $240,000 per annum or $60,000 per quarter.  The Judge found that as the figures were prepared on a cash receipts basis rather than an accrual basis, and as there was no reconciliation between the two until some six months later, not only may the figures not disclose the true financial viability of the business but they had the potential to mislead.

4. The Judge found that not only did the figures have the potential to mislead but they were in fact misleading because for the second, third and fourth quarters of the 1996/1997 financial year, assistance advanced exceeded assistance claimed by a significant margin.  The Judge said:

   So the assistance being provided or acquitted was trending down in that year, but the cash receipts nature of the accounts coupled with the rolling reconciliation and adjustment process had the effect of masking the trend for some months.

5. The Judge found that by the end of the June 1997 and September 1997 quarters the defendants must have known that adjustments for earlier shortfalls would be made in the September 1997 and December 1997 quarters of $18,400 (March 1997 quarter) and $7,871 (June 1997 quarter).

6. The Judge found that the defendants made cash advances to the bank account of the business of $40,300 between July 1997 and February 1998 including advances on 7^th July 1997 ($10,000), 5^th August 1997 ($9,000), 10^th September 1997 ($5,000) and further advances after the contract in February 1998 in part to facilitate payment of their debt to the Department of $12,163.

7. The Judge found that the misleading and deceptive conduct was the failure to update to the time of the contract the figures disclosed to the plaintiff before the contract.  He referred to two documents which contained actual trading figures and noted that the Form 2 did not go beyond 31^st December 1996 and the Pied Piper History did not go beyond 31^st March 1997.

8. The Judge concluded that in fact the business was in decline in the ensuing months and that the defendants were aware of this fact.  The Judge found that if the accounts of the business for the 1996/1997 financial year were prepared to show the actual performance of the business, rather than merely the cash which it received, then the following would be the result:

Quarter	Assistance acquitted	Fees from parents	Total
September 1996 December 1996 March 1997 June 1997	$53,548 $41,045 $35,148 $33,174	$14,964 $14,423 $13,864 $17,494	$68,512 $55,468 $49,012 $50,668
$162,915	$60,745	$223,660

1. The decline of the business can be seen by comparing the assistance acquitted in the September 1996 quarter with the assistance acquitted in the June 1997 quarter.  The decline is also shown by the fall in the net payment in the June 1997 quarter of $34,202 and the net payment in the September 1997 quarter of $16,748 (see the table in [23] above).   The Judge found that the defendants would have known in late June 1997 of the proposed payment for the September 1997 quarter.  That was well before the preparation and provision to the plaintiff of the Quarterly Financial Statement on 7^th August 1997.  The Judge found that the projection in that statement of childcare assistance of $42,000 for the September 1997 quarter was “clearly misleading”.  Furthermore, the defendants’ tax return shows that total receipts of $22,743 in the September 1997 quarter led to a loss of $40,254 in that quarter.

2. The Judge found that all the plaintiff knew was that the projection in the defendants’ documents was that quarterly turnover would be in the order of $60,000 and annual turnover would be in the order of $240,000.  By the time the contract was signed there was no reasonable prospect that these projections would be achieved, at least in the short term.  On the other hand, the downward trend in the figures was known only to the defendants.

3. The Judge found that Mr Ehmann did not rely on the Worse Case Scenario document and that he was right not to do so.  The purpose of the document was to assist the plaintiff to obtain finance for the purchase.  As far as the viability of the business was concerned, the only meaningful document at that time (ie., early August 1997) was the Quarterly Financial Statement.  The Judge said that in any event the figure for the September 1997 quarter in the Worse Case Scenario was $32,000 which was almost twice the amount actually received of $16,748.

4. As I have said, in clause 19 of the contract there is a declaration by the defendants that the gross weekly takings of the business averaged over the period of six weeks immediately preceding the date thereof were not less than $3,830 per week.  The Judge found that Mr Ehmann did not attach any weight to this figure, he did not convert it to an annual figure, and, in any event, by the time he was given the figure to include in the contract he had already made up his mind to buy the business.  The Judge accepted Mr Ehmann’s evidence on reliance and he found that the plaintiff purchased the business in reliance upon the defendants’ misleading and deceptive conduct and that he would not have purchased the business if the actual trading position had been made known to him.

5. In relation to the cause of action under the MA, as I understand it, the Judge found that the same conduct that constituted the misleading and deceptive conduct under the FTA also constituted a misrepresentation under the MA.  The relevant section in the MA (ie., s 7) expands the remedies available at common law and in equity for misrepresentation. It does not alter the common law meaning of a misrepresentation. It was not put to this Court that the defendants’ conduct as found by the Judge could not constitute a misrepresentation at common law. The defendants’ attack was on the finding that they had been guilty of misleading and deceptive conduct by omission and the parties before this Court proceeded on the basis that the challenge to the Judges’ findings under the MA would suffer the same fate as that challenge.  I will also proceed on that assumption.

6. In relation to the cause of action under the Land and Business (Sale and Conveyancing) Act, the conduct found to constitute a breach of ss 8 and 10 of the Act is similar to, but not identical with, the conduct found by the Judge to be misleading and deceptive under the FTA.  The Judge found that there had been a significant change in circumstances between April and August 1997 and that the Form 2 should have been, but was not, amended to reflect the change.

7. I turn now to the Judge’s findings in relation to damages.  The plaintiff claimed damages under two heads.  Under the first head it claimed the difference between the price paid for, and the market value of, the business at the time of acquisition.  Under the second head the plaintiff claimed the loss of profit sustained thereafter in the conduct of the business.

8. On the question of damages, the plaintiff called an accountant, Mr D Crase.  The defendants called Mr P Southwick, who specialises in the valuation of commercial and industrial property including childcare centres.  The Judge was unable to accept many of the opinions expressed by Mr Crase and Mr Southwick.  I do not need to set out the reasons the Judge rejected many aspects of the respective opinions because the Judge’s approach to the evidence of the two experts was not the subject of challenge on the appeal.

9. As to the first head of damages, the Judge accepted that the value of the net tangible assets of the business was $10,321.00.  He valued the goodwill of the business by capitalising a figure he selected as appropriate for future maintainable profits.  He selected a figure of $40,000 per annum and he deducted 20 per cent for tax to reach a figure of $32,000 per annum.  He selected a capitalisation rate of 30 per cent.  From the resulting figure of $106,667 he deducted the value of net tangible assets and then “rounded up” the resulting figure to $100,000.  In terms of the price paid for the business, he noted the figure nominated in the contract of $180,000.  He deducted a figure of $10,000 from that sum and arrived at a figure of $170,000 as the price paid for the goodwill.  He deducted the figure for value received ($100,000) and concluded that the damages under the first  head was the amount of $70,000.

10. As to the second head of damages, the Judge, for reasons I do not need to detail, considered that a 15 month period was appropriate in terms of the claim for loss of profit.  He assessed the plaintiff’s profit over that period at $12,149.  He then considered what the profit would have been, and in that regard he took the projected profit for the 1997/1998 financial year in the Quarterly Financial Statement of $58,000.  That figure converted to a figure for 15 months is $72,500.  After a certain amount of rounding, the Judge determined that the loss of profit for the 15 month period was $60,000.  He awarded that amount under the second head of damages.

11. I turn now to consider the issues on the appeal and I start with the issues in relation to liability.

    Issues on appeal on the question of liability

12. I start with the cause of action under the FTA.

13. The Judge found that the defendants were responsible for misleading and deceptive conduct in the form of omission rather than commission, and the defendants did not challenge the proposition that a defendant may be guilty of misleading or deceptive conduct by omission or silence if there is, in all the circumstances, a duty to disclose or a reasonable expectation of disclosure.  That is clearly the law as has been stated in a number of cases.  I need only mention two cases. 

14. In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Gummow J considered the circumstances in which silence may amount to a contravention of s 52 of the TPA.  He said (at 41):

    But consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all the relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive. Conduct answering that description may not always involve misrepresentation.

15. Black CJ and Cooper J agreed with Gummow J and in expressing his agreement the Chief Justice said (at 32):

    Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of “mere silence” or a duty of disclosure can divert attention from the primary question. Although “mere silence” is a convenient way of describing some fact situations, there is in truth no such thing as “mere silence” because the significance of silence falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

16. In Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288, the Chief Justice of this Court analysed the relevant authorities (at 295 – 298) and formulated the relevant test as one involving an assessment of whether the defendant’s conduct considered as a whole was misleading and deceptive, and in answering this question the defendant’s silence will be misleading and deceptive if, objectively assessed, a person in the plaintiff’s position would be entitled to expect or infer (has a reasonable expectation) that the defendant would disclose (to adapt the proposition to the facts of this case) that the childcare assistance provided or acquitted was trending down and that the business was in decline.

17. The Judge said that the projection in the Quarterly Financial Statement of childcare assistance of $42,000 for the September quarter was “clearly misleading” and there was a suggestion by the plaintiff on the appeal that the Judge had found a positive misrepresentation, or in the alternative, it was open to this Court to so find.  In other words, the plaintiff suggested that this was not wholly a case of misleading and deceptive conduct in the form of omission.  I reject this suggestion.  The Judge clearly stated that the case was one of misleading and deceptive conduct in the form of omission rather than commission, and I think that in referring to the projection in the Quarterly Financial Statement which was provided to the plaintiff on 7^th August 1997, the Judge was doing no more than making the point that far from correcting the misleading and deceptive impression created by the earlier documents, the defendants provided misleading information.  It is not appropriate for this Court to go beyond the Judge’s approach particularly as to do so would require the Court to make some assessment of the evidence to determine the extent to which the plaintiff relied on the projection in the Quarterly Financial Statement.

18. As I have said, the defendants did not challenge the general proposition that a party may be liable for misleading and deceptive conduct by omission.  However, they submitted that the Judge erred in finding that, considered as a whole, the defendants’ conduct was misleading and deceptive and he erred in finding that the plaintiff relied on the defendants’ conduct (assuming it was misleading and deceptive) in deciding to enter into the contract.  To understand the defendants’ submissions, it is necessary to consider the nature of the plaintiff’s case.  The plaintiff bought land and a business in August 1997.  Before entering into the contract Mr Ehmann was given a number of documents which contained statements by the defendants as to the performance of the business. The Judge found that certain statements in the documents gave rise to a belief by the plaintiff that the turnover of the business was $240,000 per annum or $60,000 per quarter and that the business was capable of maintaining such a turnover.  The Judge found that in fact by August 1997 the assistance acquitted was trending down and the business was in decline.  However, the adjustment process with the Commonwealth government assistance had the effect of masking that trend.  The defendants submitted that the documents relied on by the Judge did not contain representations of the current trading position.  I reject that submission because, in all the circumstances, it seems to me to be clear that the purpose of providing the documents was to give information as to the trading position of the business up to the date of the contract.  An ordinary person could and would infer that absent updated information the documents showed the current trading position.  I did not understand the defendants to challenge the proposition that certain statements in some of the documents suggested that the turnover of the business was $240,000 per annum or $60,000 per quarter and that the business was capable of maintaining such a turnover.  There was a challenge to the Judge’s finding that by the time the contract was signed there was no reasonable prospect that the projection of a quarterly turnover in the order of $60,000 and an annual turnover in the order of $240,000 would be achieved, at least in the short term.  This submission was not developed on appeal and I would reject it because there was clear evidence upon which the Judge could make the finding which he did.

1. The defendants submitted that the Judge did not give proper weight to the statements in all the documents and that when that is done it can be seen that their conduct was not misleading and deceptive because the plaintiff was informed of the trending down in the business and the decline in the business.  They referred in particular to three pieces of information. 

2. First, in the Form 2 there is a document headed “Trading Statement for the Last 3 Financial Years” and it contains the following details in relation to gross takings (sales).

1.7.94 to	1.7.95 to	1.7.96 to
30.6.95	30.6.96	31.12.97
$269,382.00	$247,370.00	$113,204.00

If the figure for the last period of six months is converted to an annual figure, the figure is $226,408.  The defendants submitted that this information shows that over three years there has been a reduction in the figure for gross takings.

1. Secondly, in the Form 2 there is a figure for average weekly sales for the period 1^st January 1997 and the date in the statement (ie., 3^rd April 1997) and it is $4,318.00 which, when converted to an annual figure, produces a figure of $224,536.  The defendants submitted that this is less than an annual turnover in the order of $240,000.

2. Thirdly, in the contract the defendants declared that the gross weekly takings of the business averaged over the period of six weeks immediately preceding the date of the contract were not less than $3,830 per week.  This figure when converted to an annual figure, produces a figure of $199,160.  Again this figure is clearly less than an annual turnover in the order of $240,000.

3. The defendants’ submission raises three issues for consideration.  First, what is the test for determining in a case of this nature whether conduct is misleading and deceptive?  Secondly, did the Judge err in finding reliance in this case?  Thirdly, should the Judge have found that a reasonably prudent plaintiff would not have been misled or deceived, and if yes, what is the significance of that fact, if any?

4. As to the first issue, there is a qualifying requirement in the sense that the Court must be satisfied that the relevant conduct is capable of misleading and deceiving another person.  This requirement is quite distinct from the requirement of reliance in fact.  There has been debate in the authorities as to the nature of the audience which must be postulated for the purpose of considering whether the requirement has been satisfied.  A good deal of this debate has occurred in cases where statements have been made to the public or a section of the public rather than simply to one person.  In Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 40 FLR 165 Franki J said (at 176):

   The test is whether, in an objective sense, the conduct of the appellant was such as to be misleading or deceptive when viewed in the light of the type of person who is likely to be exposed to that conduct.  Broadly speaking it is fair to say that the question is to be tested by the effect on a person, not particularly intelligent or well informed, but perhaps of somewhat less than average intelligence and background knowledge, although the test is not the effect on a person who is, for example, quite unusually stupid.  The question is not whether the purchaser was deceived but whether the conduct was misleading or deceptive.

   I refer also to Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 per Deane and Fitzgerald JJ at 202 and Finucane v New South Wales Egg Corporation (1998) 80 ALR 486 per Lockhart J.

5. In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Gibbs CJ said (at 199):

   Section 52 does not expressly state what persons or class of persons should be considered as the possible victims for the purpose of deciding whether conduct is misleading or deceptive or likely to mislead or deceive. It seems clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion by regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. What is reasonable will or course depend on all the circumstances.

   (See Mason J (as he then was) at 210 – 211).

6. Murphy J said (at 214 – 215) that s 52 was to protect the imprudent as well as the prudent and the trusting as well as the suspicious.

7. In Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 the High Court said (at [98] – [106]) that in cases of representations made to the public one has regard to “ordinary” or “reasonable” members of the class of prospective purchasers addressed. Logically it seems to me that there must also be an objective standard when one comes to consider misleading and deceptive conduct in one-to-one negotiations although I accept that the issue is less likely to be significant (Contract Law in Australia 4^th ed 2002 Carter and Harland at [1105]).  It seems to me there is a link between the first issue and the third issue because I think one thing is clear and that is that conduct may be misleading and deceptive and therefore actionable even though a reasonable person acting diligently to protect his or her own interests would not be misled or deceived by the conduct.  It is well established that a lack of reasonable care by the plaintiff is not a defence to an action for misleading and deceptive conduct, nor is it a reason to reduce the damages which might be otherwise awarded (Henville v Walker (2001) 206 CLR 459 (“Henville”) per Gleeson CJ at [13], McHugh J (with whom Gummow J agreed) at [140]; Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 per Pincus J at 309; Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 per Forster, Woodward and Wilcox JJ at 240 – 241; Henjo Investment Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 per Lockhart J (with whom Burchett J agreed) at 559 – 560). The only qualification to this principle is that a plaintiff’s conduct may be so unreasonable as to destroy the causal connection between contravention and loss or damage (Henville per Gleeson CJ at [13]).

8. The first question then is whether the defendants’ conduct between March and August 1997 was capable of being misleading and deceptive.  The context in this case is one-to-one negotiations involving the sale of land and a business, and the standard is the ordinary man of average or perhaps below average intelligence (but not exceptionally stupid) who may be trusting and gullible.  Adopting that standard, the defendants’ submission that the Judge erred in finding that the defendants’ conduct was capable of being considered misleading and deceptive must fail.  A careful and vigilant person may have deduced from the three pieces of information identified by the defendants that the assistance acquitted was trending down and that the business was in decline, but I do not think it can be said that the conduct was not capable of misleading and deceiving the ordinary man.  The first and second pieces of information identified by the defendants were provided at the time other information was provided capable of giving rise to a belief that the turnover of the business was in the order of $240,000 per annum and that the business was capable of maintaining such a turnover.  Neither piece of information specifically related to a one year period.  As to the third piece of information, that was provided in the contract.  It did not specifically relate to a period of one year and might be explained as a short term downturn.  Furthermore, the figure was a “not less than figure”.

9. The defendants also challenged the Judge’s findings on reliance.  The Judge expressed his findings on reliance briefly and I will need to return to the defendants’ challenge to reliance based on the Judge’s failure to consider or give reasons for rejecting the male defendant’s evidence.  Leaving that to one side for the moment, the Judge has made a finding of fact of reliance.  In relation to the figure of $3,830 in the contract he accepted Mr Ehmann’s evidence that he did not annualise the figure and, in any event, by the time he was given the figure to include in the contract he had already made up his mind to buy the business.  There was a basis in the evidence to make such a finding and no ground upon which to interfere with the finding has been identified.  As to the other two pieces of information, while the Judge did not expressly address them, his general finding that the plaintiff purchased the business in reliance on the defendants’ misleading and deceptive conduct means he must be taken to have rejected the suggestion that they disproved reliance.  Reliance is a question of fact and no doubt the three pieces of information were relevant in terms of the cross examination of the plaintiff.  Ultimately however, the Judge had to decide whether he accepted the evidence of Mr Ehmann.  He decided that he did accept Mr Ehmann’s evidence.  The restrictions on an appeal court interfering with such a conclusion are well known.  The three pieces of information identified by the defendants are not sufficient to persuade me that the Judge’s conclusion in relation to reliance should be overturned.

10. In addition to these submissions, the defendants submitted that the two documents which formed the basis of the Judge’s finding of misleading and deceptive conduct, namely, the Form 2 and the Pied Piper History were provided to the plaintiff when he was the defendants’ agent and not a proposed purchaser. It was suggested that they were therefore not provided in “trade or commerce” within s 56 of the FTA. I reject this submission. The defendants gave the two documents to the plaintiff as their agent and with a view to the information being provided to prospective purchasers of the business. After a time the plaintiff, who had the information, became a prospective purchaser. In fact the plaintiff signed the Form 2 on the day he signed the contract. As I understand it, the obligation to update the figures arose at about the time the plaintiff’s agency came to an end and continued to the time the contract was signed. Those facts are sufficient to enliven the provisions of s 56 of the FTA.

11. It is not necessary to deal separately with the cause of action under the Misrepresentation Act.  No submissions were addressed to that cause of action and it was not suggested by the plaintiff that it could recover a head of damages under the MA which it could not recover under the FTA.

12. In view of my conclusion that the Judge was right to find that the cause of action under the FTA was made out, it is unnecessary for me to consider the Land and Business (Sale and Conveyancing) Act in the context of liability.  However, I think the Judge’s conclusions that liability under that Act was established are supported by the evidence.  The Judge said:

    The Form 2 did not comply with that section. There was a significant change of circumstances between the service of the document in April and the execution of the contract in August. The Form 2 should have been amended to reflect that change, but it was not. It is no answer for the defendants to say that they did not see the document after April. The plaintiff is entitled, pursuant to s.15(1) and (2)(b) of the Act, to an award of damages for the loss which arose from the defendants’ non-compliance.

13. In the context of liability, that leaves for consideration the complaint that the Judge did not take into account evidence of the male defendant or, alternatively, failed to give sufficient reasons for rejecting evidence of the male defendant.  The evidence identified was evidence from the male defendant to the following effect:

    1In late July early August 1997 he told Mr Ehmann that there had been a downturn in the business because of rumours they were selling it, and that the average weekly sales figure inserted in the contract of $3,830 was a good reflection of the actual turnover.

    2There was a third document given to Mr Ehmann at the same time as the Yearly Financial Statement and the Quarterly Financial Statement which showed a projection of income of $210,000.  The intent of these documents being to illustrate a range of outcomes to show to the bank.

    3In July 2000 he told Mr Ehmann that there would be an adjustment for the September quarter.

    4In August 1997 Mr Ehmann said that he did not need any further financial information.

14. The Judge did not refer to this evidence.  In fact, he did not refer at all to the evidence of Mr Slinger.

15. The obligation on a trial Judge to give adequate reasons has been considered in a number of cases.  In Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 Kirby P (as he then was) said (at 259):

    This decision does not require of trial judges a tedious examination of detailed evidence or a minute explanation of every step in the reasoning process that leads to the judge’s conclusion.  But the judicial obligation to give reasons, and not to frustrate the legislative facility of appeal on questions of law, at least obliges a judge to state generally and briefly the grounds which have led him or her to the conclusions reached concerning disputed factual questions and to list the findings on the principal contested issues.  Only if this is done can this Court discharge its functions, if an appeal is brought to it.  Where nothing exists but an assertion of satisfaction on undifferentiated evidence the judicial obligation has not been discharged.  Justice has not been done and it has not been seen to be done.

    (See Stankovic v Aufderheide [2003] SASC 378; Todorovic v Moussa [2001] NSWCA 419).

16. I have given this submission anxious consideration.  I do not think the evidence identified in paragraph 4 is of particular significance.  As I understand it, it is largely an inference from the fact that he did not ask for any further information.  As far as the evidence in the other paragraphs is concerned, whilst it is true that the evidence was quite general and the matters were not put to Mr Ehmann in cross examination and that the Judge was entitled to reject the evidence, it would have been preferable if he had dealt with the evidence in his reasons even if only in a general way.  However, I am satisfied the Judge did reject the evidence and, as I have said, he was entitled to do that.  The Judge said that he accepted Mr Ehmann’s evidence on reliance and that is what the three matters relate to.

17. I reject the defendants’ challenge to the Judge’s findings as to liability.

    Issues on appeal on the question of damages

18. I start with the defendants’ challenge to the Judge’s valuation of the business acquired by the plaintiff in September 1997.  As I have said, the Judge valued the business by applying a capitalisation rate to a figure for future maintainable profits, and he faced a difficult task because he rejected a number of the opinions of the plaintiff’s expert and of the defendants’ expert.  Neither party challenged the Judge’s approach to this issue or the figures which he adopted.  Of necessity, there was a lack of precision in the figures as the Judge himself recognised.  The figure the Judge reached was $106,667 which he calculated by adopting a figure of $32,000 for future maintainable profit and applying a capitalisation rate of 30%.  The market value of the business included the value of the net tangible assets which was $10,321.  The net tangible assets were used in the business to generate the future maintainable profit.

19. The Judge deducted the value of the net tangible assets from the market value of the business to reach a figure of $96,346.  The defendants submitted that this was an error because the net tangible assets were transferred to the plaintiff as part of the business.  I reject the defendants’ submission for two reasons.

20. First, what the Judge took as the asset for the purpose of determining the difference between price paid and value received was the goodwill of the business.  In determining price paid the Judge looked at the figure nominated in the contract for the business of $180,000.  However, the figure he took was the figure he described as goodwill of $170,000.  It may be assumed that he took the figure in the contract and deducted from it the value of net tangible assets.  There is no error in the result reached by the Judge.  Even if he should have adopted the figure of $106,667 for value received, it would have been in accordance with principle to then take the figure of $180,000 as the price paid for the business and the result would be the same as that reached by the Judge.

21. Secondly, even if the first point is wrong, I am not satisfied the figure of $70,000 as the difference between price paid and value received is wrong.  As I have said, the Judge faced a difficult task and the figure for value received lacked a certain amount of precision.  In addition, the figure reached after deducting the value of net tangible assets was rounded up by the Judge from $96,346 to $100,000.  The Judge was required to make his own assessment and I am not satisfied he was wrong in the conclusion he reached.

22. I reject the defendants’ challenge to the first head of damages awarded by the Judge.

23. The defendants challenged the Judge’s award under the second head of damages of $60,000.  The Judge described this figure as damages for loss of profit sustained in the conduct of the business after acquisition.  The defendants submitted that no award should have been made.  As I have said the Judge fixed a 15 month period from 29^th September 1997 to 31^st December 1998 as the relevant period for his calculations.  He calculated the profits actually made in the business of $12,149.  He then calculated a figure for projected profit by reference to the Quarterly Financial Statement.  The Quarterly Financial Statement contained a projected profit of $58,000 per annum.  The Judge rounded the figure reached by deducting $12,149 from $72,500 down to $60,000.  The defendants submitted that the plaintiff, having received compensation for the difference between price paid and value received, was not entitled to also receive damages for loss of profit in the conduct of the business.

24. As I have said, the three causes of action upon which the Judge found the plaintiff was entitled to succeed were a cause of action for misleading and deceptive conduct under s 56 of the FTA, a cause of action under s 7 of the MA and a cause of action under the Land and Business (Sale and Conveyancing) Act 1994.

25. The damages which may be awarded under the FTA are those which fall within the terms of s 84(1) FTA which provides:

    A person who suffers loss or damage by conduct of another in contravention of a provision of Part 10 (other than section 57) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

26. As I have said, the section is in the same terms as s 82 of the TPA and the cases which have considered the scope of that section are relevant.

27. The damages which may be awarded under the MA are those which may be recovered in the case of an action in deceit (s 7(1) MA).  There are of course many cases which have considered the damages which may be recovered in an action in deceit.

28. The damages which may be awarded under the Land and Business (Sale and Conveyancing) Act 1994 are those which fall within s 15(2) of that Act. They are the damages which are “necessary to compensate loss arising from the non-compliance”.

29. The fundamental difference between damages awarded for a breach of contract and the commission of a tort is well known.  Ordinarily, the damages awarded for a breach of contract are awarded on the basis of the loss of a bargain or as if the contract had been performed.  Ordinarily, the damages awarded for the commission of a tort are awarded on the basis as if the tort had not occurred, or because of the failure of the plaintiff to leave the defendant alone (McGregor on Damages 16^th ed, 1997 [19-001] – [19-003]).  This different “measure of damages” results from the loss resulting from a breach of contract being of a different kind from that involved in and occasioned by the commission of a tort. In Marks v GIO Australia Holdings (1998) 196 CLR 494 (“Marks”) Gaudron J put the matter in the following way (at [14] – [15]):

    [14] When regard is had to the different nature of contractual and tortious liability it is apparent that the so-called different "measure of damages" in contract and tort is no more than a convenient way of indicating that the wrong involved and, thus, the loss occasioned by a breach of contract is of a different kind from that involved in and occasioned by the commission of a tort.

    …

    [15] Once it is appreciated that references to the "established measures of damages ... [for] contract and tort", as in Gates [44], signify different kinds of loss and not different methods by which loss is measured, it is irrelevant to inquire as to the appropriate measure of damages for the purposes of ss 82 and 87 of the Act. Rather, the task is simply to identify the loss or damage suffered or likely to be suffered and, then, to make orders for recovery of that amount under s 82 or to compensate for or prevent or reduce that loss or damage under s 87 of the Act.

1. It seems clear that the Judge awarded damages under the second head as if the figure of $58,000 in the Quarterly Financial Statement was a contractual warranty to the effect that the profit which would be made by the business would be that figure.  The Judge did not find that there was a cause of action in contract in this case.  I think, with respect, that as far as the tortious measure of damages is concerned (ie., the cause of action under the MA) the Judge erred in awarding damages as if the figure in the Quarterly Financial Statement of $58,000 was a contractual warranty.  As I have said, the plaintiff submitted that the Judge found or should have found that the figure of $58,000 in the Quarterly Financial Statement was a representation and not just part of a course of conduct constituting misleading and deceptive conduct by omission.  I have already dealt with this argument, but even if it is correct, it does not avail the plaintiff to prove a misrepresentation which does not constitute a contractual warranty.  None of this means that consequential losses may not be recovered in an action for the tort of deceit.  Although the measure of damages usually applicable is the difference between the real value of the property at the time of purchase and the price paid for it, the incurring of expenses or the sustaining of losses may be recovered in addition to the difference between price paid and value received (Gould v Vaggelas (1985) 157 CLR 215). However, in this case the Judge did not award damages for losses incurred in the running of the business. Furthermore, although the loss of valuable alternative opportunity may be the subject of an award (Sellars v Petroleum Adelaide (1994) 179 CLR 332) that was not the plaintiff’s case at trial or on appeal.

2. The plaintiff submitted that the measure of damages under the FTA and the Land and Business (Sale and Conveyancing) Act is not the same, or not necessarily the same, as the measure of damages for the tort of deceit.  I start with the cause of action under the FTA.  The plaintiff was entitled to recover such loss and damage as it sustained by the defendants’ misleading and deceptive conduct. In Marks the Court said that the damages which might be recovered under s 82 of the TPA are not to be confined by analogy with actions under a contract or in tort (Gaudron J at [17]; McHugh, Hayne and Callinan JJ at [38]; Gummow J at [103]; Kirby J at [152]).  McHugh, Hayne and Callinan JJ identified the relevant test in the following terms (at [38]):

   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. 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. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) 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 (eg, s 52) or with equity (eg, s 51AA) 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.

3. Even though the damages to be awarded under the FTA are not to be confined by analogy with actions under a contract or in tort, I do not think the damages under the second head were properly awarded in this case.  I take that view for three reasons, any one of which is sufficient to justify the conclusion which I have reached.  First, leaving aside the problems of legal principle and double compensation which I will discuss in a moment, to recover damages under the second head it seems to me that at the very least the plaintiff would need to show that he relied on the statement of a projected profit of $58,000 per annum in the sense that he had an expectation that it would be achieved.  There is no finding of the Judge to that effect and, as I read the evidence, Mr Ehmann did not give evidence to that effect.  I note that the 1997/1998 Budget contains a forecast of a different profit of about $49,000 per annum.

4. Secondly, as a matter of legal principle I do not think a failure to achieve a certain level of profits can be described in the circumstances of this case as loss or damage caused by the misleading and deceptive conduct of the defendants.  It is not a form of loss consequent upon the purchase of the business such as the incurring of expenses or the incurring of liabilities to third parties.  It is not a loss of opportunity to make profits in another business of which the plaintiff was deprived by reason of the fact that he entered into the transaction.  It is not the loss of the value of a promised benefit because the statement of projected profits was not a warranty.

5. Thirdly, the awarding of the difference between price paid and value received or capital loss (ie., the first head of damages) and interest puts the plaintiff in the position in which it has in effect paid the right price for the business.  I do not think that over and above that figure he can, in the absence of a warranty or promise, recover the profits that might have been made had the business been worth the figure he initially paid for the business.

6. To allow the second head of damages may see the plaintiff doubly compensated for the same loss.  In Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 QB 292 a plaintiff made a claim in contract both for the original capital loss associated with the purchase of a pulverizing and drying plant and a claim for loss of profits. The Court of Appeal said that he could not claim in full in relation to both heads. Evershed MR said (at 302):

   It seems to me, as a matter of principle, that the full claim of damages in the form in which it is pleaded was not sustainable, in so far as the plaintiff sought to recover both the whole of his original capital loss and also the whole of the profit which he would have made.  I think that that is really a self-evident proposition, because a claim for loss of profits could only be founded upon the footing that the capital expenditure had been incurred.

   Jenkins LJ said (at 308):

   The general principle applicable to the case is, I apprehend, this: the plant having been supplied in contemplation by both parties that it should be used by the plaintiff in the commercial production of pulverized clay, the case is one in which the plaintiff can claim as damages for the breach of warranty the loss of the profit he can show that he would have made if the plant had been as warranted.  Where damages are awarded on that basis the object in view, as indeed in any other assessment of damages, is to put the plaintiff in the same position, so far as money can put him in the same position, as if the contract had been duly complied with or the subject-matter of the contract had conformed to any warranty given.  It follows that in such a case, while no doubt the plaintiff can at his option claim damages based on the difference between the value to him of the article as actually supplied and the contract price of the article, he cannot claim both that amount, representing his capital expenditure thrown away by reason of the breach, and also the full amount of the profit which he can show that he would have made in the event of the article answering the warranty.  In considering loss of profit he must be placed in the same position as if the article had been warranted.  On that hypothesis, the full contract price would have to be paid, and all other expenditure necessary to use the article for the contemplated purpose would have to be incurred before any profit could be earned at all.  Therefore, where the claim is based on loss of profit it must be calculated either by estimating the difference between the contract price of the article and the value of the article as supplied, allowing the amount claimed for loss of profit only in so far as it is in excess of that amount, or, more simply, by letting the capital expenditure lie where it falls and computing the amount of loss of profit.

   (See TC Industrial Plant Pty Ltd and Anor v Robert’s Queensland Pty Ltd (1963) 180 CLR 130).

7. In the absence of clear evidence to the contrary, I think the proper inference is that awarding damages under the first and second heads results in double compensation to the plaintiff.

8. A comparison of the words used in s 15 of the Land and Business (Sale and Conveyancing) Act and in particular the words “arising from” with the word “by” in s 84 of the FTA does not suggest to me that a different approach to damages should be taken in considering the cause of action under the Land and Business (Sale and Conveyancing) Act.

9. The plaintiff sought to overcome these difficulties by submitting that the damages award of $130,000 should only be set aside if the Court is clearly satisfied it is wrong and that the Judge had in mind the second head of damages when he calculated the first head of damages.  As I understand it, the plaintiff submitted that the award for the first head would have been more but for the fact that the Judge awarded damages under the second head.  The plaintiff fastened upon the following statement of the Judge:

   I need to emphasise the point that my earlier assessment of future maintainable profit per year represents an attempt to weigh considerations beyond the actual trading result of the business in the period which immediately followed the sale.

10. I reject this submission.  In calculating the damages under the first head, the Judge adopted a long term view that discounted any short term irregularities in profitability in selecting his figure for future maintainable profits.  The plaintiff did not challenge that approach, but submitted that in selecting future maintainable profits of $40,000 per annum and a capitalisation rate of 30 per cent, the Judge had in mind the award he would go on to make for loss of profit for 15 months after acquisition.  Whilst it is true that the Judge did not explain why he selected a figure of $40,000 for future maintainable profits, I cannot find anything in the Judge’s reasons to indicate that he took such an approach.  Such an approach would be an error and there is nothing to suggest that the Judge did not perform the task he set out to perform, namely, to value the business at the date of acquisition.  In other words, there is nothing to suggest that the Judge would have selected a figure less than $40,000 or a capitalisation rate less favourable to the defendants had he decided not to award damages under the second head.

11. For the reasons I have given, I think the Judge erred in awarding damages under the second head.

    Conclusion

12. I would grant an extension of time within which to institute the appeal.

13. I would reject the defendants’ challenge to the Judge’s findings as to liability and to the first head of damages awarded to the plaintiff.  I would uphold the defendants’ challenge to the Judge’s award of damages as to the second head of damages.  That award should not have been made.  It may be that interest will need to be recalculated and I would hear the parties as to the appropriate orders and costs.

14. A single Judge referred a number of matters to this Court in relation to the defendants’ application for an extension of time within which to institute the appeal and it will be necessary to make orders in relation to those matters.

15. LAYTON J:          I have had the benefit of reading the orders proposed by Besanko J and the reasons which support them.  I agree with both the orders and the reasons.