Stocks & Anor v Edwards & Ors

[2008] HCATrans 274

[2008] HCATrans 274

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Hobart  No H2 of 2008

B e t w e e n -

TERENCE IAN STOCKS AND GAIL MAREE STOCKS

Applicant

and

ANDREW HAROLD EDWARDS AND DAVID GEORGE ELLWOOD

First Respondent

RETIREMENT BENEFITS FUND BOARD

Second Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 1 AUGUST 2008, AT 10.23 AM

Copyright in the High Court of Australia

MR P.W. TREE, SC:   If the Court pleases, I appear with my learned friend, MR R.A. BROWNE, for the applicant.  (instructed by Fitzgerald & Browne)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR S.L. TATARKA, for the first respondents.

GLEESON CJ:   Yes, Mr Tree.

MR TREE:   Your Honour, this application presents an opportunity for this Court to continue the orderly development of the Wardley doctrine as it has done in recent years in the trilogy of cases of Murphy v Overton Investments, HTW Valuers v Astonland, and Commonwealth v Cornwell.  We say that this presents an opportunity for the further distillation of principle which builds upon the body of doctrine which the Court has developed in those four cases.

GLEESON CJ:   Mr Tree, I understand that you say the courts were wrong in saying that the cause of action accrued when the liability to the bank was undertaken or when a deposit of a month’s rent was paid, both outside the six years.

MR TREE:   Yes.

GLEESON CJ:   But when do you say the cause of action accrued, relating it to the facts?

MR TREE:   In terms of a date, certainly after the commencement of the business in the shopping centre, but in terms of a concept, when it became reasonably ascertainable that the plaintiffs would suffer an economic loss, whether it be by way of wasted expenditure, whether it be by way of diminished profit or whether it be by any means which inflicted economic harm upon them.

GLEESON CJ:   Now, when was that?

MR TREE:   In terms of this date?

GLEESON CJ:   Yes.

MR TREE:   After they commenced business in trading in the shopping centre.

GLEESON CJ:   Yes, but when?

MR TREE:   We say not before the end of the first week so that there was an opportunity to assess pedestrian flow within the shopping centre and it may indeed be that we have sold ourselves a little short by going for one week.  It may indeed be some months into the course of trading, so that the pedestrian flow within the shopping centre can level after its initial opening.  So it will be a factual matter for each case.  In our submissions we have said at the end of the first week.  It may be that in fact it is a later date, but certainly for the purposes of this appeal, all that matters is that so long as it is within the six‑year period, and certainly we say that it was after the relevant date in September.

HAYNE J:   And what is it about that date, be it a week or whatever period, that makes it legally significant?  What is it that someone knows or what is it that has occurred that makes it legally significant?

MR TREE:   They have suffered an economic harm, that they have suffered legally recognised ‑ ‑ ‑

GLEESON CJ:   You mean they made a bad deal?

MR TREE:   Well, they have been injured such that they have legally recognised loss and damage.  We say it is not sufficient simply to focus upon expenditure.  What needs to be established and what needs to be reasonably ascertainable is that that expenditure resulted in something worth less than the value of the expenditure.  We say that you cannot strike that balance, one cannot undertake that calculation unless and until the event which will generate that the contingency eventuates and in this case we say that it was not at the time of expenditure, it must necessarily be after the time at which the representations were directed to elapses and one can see whether the representations proved to be correct or not.

GLEESON CJ:   I thought that the falsity of some of these representations was either known or knowable before the six‑year period.

MR TREE:   Well, that is a point which my friend has raised, seemingly for the first time at this level.  It does not seem to have been a matter that entertained either the trial judge or the court below.  But we say that even if the falsity of the representation were known, that of itself is irrelevant from the point of view of crystallisation of a cause of action.  Can I illustrate that with a simple proposition?  If, notwithstanding the falsity of a representation, expenditure proves not to have been wasted, then there is not a cause of action.  The expenditure itself does not generate the cause of action.  It is the loss which generates the cause of action.

We say that it is only when the loss, the fact that the expenditure has not resulted in something of value equal to the cost of the expenditure, we say it is only at that time that the cause of action accrues and that we say my friends are directing their attentions to an irrelevancy by focusing upon reasonable ascertainability of the falsity of the representation.

HAYNE J:   But you said that at the end of week one it could be observed that, for example, pedestrian traffic was less than represented.

MR TREE:   Yes.  Or that there was not a Tattslotto outlet close by, or that there was not in fact a super component to one of the ‑ ‑ ‑

HAYNE J:   Those things can be observed.  How do you connect that with the proposition I thought you last made which was that you knew that a loss had come home?  Observing the facts simply observes the fact of falsity.  You want to add something more, “I know that because this is false, I am going to suffer loss”?

MR TREE:   Quite so.  One needs to have at one’s notice or command facts sufficient to identify either that expenditure is not likely to be recouped and has hence been wasted or, alternatively, that there is not going to be the income stream that was anticipated.  So that there needs to be not merely knowledge of the falsity of the representation, we say that that is not the point.  The point is whether one is then put on notice, whether it is then reasonably ascertainable that you have been harmed in an economic interest.

Now, we say that the court below has, by virtue of the way in which they have articulated their reasons, clearly differentiated between the two approaches and, hence, this creates a good opportunity for the distillation of principle in relation to the questions.  But we say that there are three issues that this case stands to give rise to which are of great utility in many sorts of litigation.  We say that firstly the issue that arises is, what is a contingent loss.  We then say that the second issue is, what is actual loss, because it is that which is the focus of the court’s below majority.  In effect, their Honours have said that actual expenditure equals actual loss, and I will take your Honours to the relevant passages in a second.  Thirdly, we say, and this is really the point which is crystallised in what we say is the special leave question, when does a contingent loss become actual, because at the heart of the plaintiffs’ case is the contention that actual expenditure does not represent an actual loss unless and until it is reasonably ascertainable that the expenditure is wasted either wholly or in part.

Can I illustrate the point by taking your Honours to the reasons for decision of Justice Crawford, as his Honour then was, at page 43 of the application book?  I wanted to direct your Honours’ attention initially to line 6 on page 43 where, having recited some authorities, his Honour continues:

In the present case, the respondents did not claim damages upon the basis that they suffered a loss when, and merely because, they entered into the equitable lease, and they called no evidence to establish that they suffered such a loss.  In the main, the damages they claimed were for the money they paid out as a consequence of the negligent misrepresentations.  As will be seen, that is an important distinction between this case and Wardley’s case.

Their Honours go on to cite a passage from Justice Dixon.  We say that that commences his Honour’s reasons down the wrong path because, of course, the focus upon expenditure, wasted expenditure, was but one means of assessing the quantum of the economic loss that the plaintiffs asserted that they had suffered.

HAYNE J:   Do you challenge what his Honour says in paragraph 31?

MR TREE:   In general terms, yes, your Honour.  We say that certainly the cause of action accrues when actual loss is suffered, but, with respect, what is missing in his Honour’s reasons is the connection between expenditure and loss.  We say that the aspect of the reasoning which is not exposed and which one assumes therefore means that his Honour has effectively said that expenditure equals loss, we say that there needs to be a discussion as to why it is that the expenditure was wholly or partly wasted in order to determine that the expenditure comprises an actual loss as distinct from a loss which may or may not eventuate at some later time.

Can I take the opportunity to remind your Honours of what the learned trial judge said in relation to the applicant’s quantification of their loss at page 19 of the application book, paragraph 101, which emphasises the nature of the exercise of assessment that the plaintiffs undertook at trial?  His Honour said:

Although the oral evidence was that the fit‑out cost about $80,000, many of the documents to support that evidence have disappeared with the passage of time.  In the end, the defendant agreed on a sum of $16,298.70 as the cost of the fit‑out thrown away.

So it was not the cost of the fit‑out, it was the cost of the fit‑out that was thrown away, the irrecoverable component of the expenditure.  Now, what we say is that that focuses attention upon the fact that the date of the expenditure is not determinative of whether the cause of action then accrues.  What is determinative is whether or not that expenditure transpires to have been wasted wholly or in part and it is that contingency, it is the later event which transpires which determines whether or not the expenditure is wholly or in part wasted, that is the time when the cause of action accrues.

Similar observations could be made in relation to other components of the plaintiffs’ claim which was in respect of wasted labour.  It was only the labour that was ultimately of no benefit which was sought to be recovered and awarded by the learned trial judge.  So if one compares that approach with the approach of Justice Blow, who was in the minority, of course, in the court below, and I wanted to take your Honours to page 69 of the papers.  At paragraph 137 his Honour commences:

An important question arising in this case is whether the respondents suffered damage on 31 May 1986 when they paid the deposit of $3,942.  If they did, the limitation defence must succeed.

I will not stay to read the balance of paragraphs 137, 138 or 139, but at paragraph 140 his Honour continues with what we contend is the critical question:

The deposit of $3,942 is something that the respondents brought into account for the purpose of quantifying their damages.  It does not follow that the suffering of damage was ascertainable when that payment was made.

His Honour continues in relation to that at page 70 at line 16.  At the end of line 16 his Honour continues:

On the facts as found, it was only at or about the time of the opening of Northgate that it became ascertainable that the facts did not accord with the appellants’ representations, and that the respondents’ shop was doomed to unprofitability.  Those facts were not ascertainable when the respondents entered into the equitable lease –

et cetera.  Now, we say that that is the critical ‑ ‑ ‑

GLEESON CJ:   That is a combination of two facts there; one, that the facts did not accord with the representations and that the respondents’ shop was doomed to unprofitability.

MR TREE:    Yes.

GLEESON CJ:   Then he says, “Those facts were not ascertainable”.  Was he referring to all of the facts referred to in the previous sentence?

MR TREE:   Yes.

GLEESON CJ:   Is the combination necessary?

MR TREE:   No.  It is whether or not the expenditure was likely to be wholly or partly wasted that is the critical fact.  That is what should be reasonably ascertainable.

GLEESON CJ:   What does that expression, “doomed to unprofitability” mean?

MR TREE:   I suppose it means that the circumstances in which the shop found itself meant it was never likely to trade profitably.

GLEESON CJ:   That was a condition of having a right to damages, was it?

MR TREE:   Well, it was a condition to showing that the plaintiffs suffered economic harm.  It may be that a lack of profitability was not the key because, of course, here the plaintiffs did not quantify their loss by reference to lost profits.  They quantified it by reference to wasted expenditure.  To the extent that his Honour has got profitability as the key that opens the door, we would not accept that.  But we would say that so long as there is economic loss that has been suffered in some form, that is, when the cause of action accrues, so long as it is reasonably ascertainable that that loss is the position.

Now, your Honours, the difficulty with this decision below is potentially of some great relevance in litigation.  If it be the case that a cause of action for damages for negligent misstatement asserting economic loss accrues at the time of expenditure rather than at the time that expenditure is proved to be of little or no value, then irrespective of how one quantifies a plaintiff’s case, even if it be a loss of profitability claim, then this case provides an incentive for defendants to isolate expenditure and to then say, irrespective of how the plaintiff seeks to quantify its claim, that the cause of action accrued at the date of expenditure and, hence, potentially, a plaintiff who is not seeking to recoup wasted expenditure is nonetheless statute barred.

It cannot be the case, with the greatest respect to the court below, that the basis upon which a plaintiff seeks to quantify its damage determines the inquiry which the court makes as to the accrual of a cause of action.  If the cause of action was statute barred because of expenditure, then that would also bar any claim in relation to, for instance, loss of profits.  Now, that is why we say that this case, whilst it may seem perhaps susceptible of slipping under the radar, is – I say that generally ‑ ‑ ‑

GLEESON CJ:   I got your point.  What you are seeking is damages for $71,000.

MR TREE:   Well, in fact, less than that, your Honour, and I accept that ‑ ‑ ‑

GLEESON CJ:   Well, do you want 46 or 71?

MR TREE:   Forty six, your Honour, we concede that aspect of the – and let me candidly embrace that, your Honour.  This is a relatively small quantum and it deals with what is a relatively – perhaps I can put a double negative – not uncommon situation where there have been misrepresentations which have induced people to enter into shopping centre leases, not an uncommon form of litigation, but what we say is that those two facts alone demonstrate the utility of the appeal in this case.  We say that hence this case is of broad application to the plethora of small claims that have on occasions clogged various courts around this country.  So we say that whilst it is a small quantum and whilst it is a situation which is not at all uncommon, that underscores the breadth of application which a decision of this Court on this would have, and it is perhaps a remarkable case that it has moneys to bubble this far up the jurisprudential chain.

GLEESON CJ:   Just remind me, if I noticed it, I have forgotten, what was it that brought the 71 down to 46?

MR TREE:   It was a ground of appeal that was successful below ‑ ‑ ‑

GLEESON CJ:   It is the interest?

MR TREE:   I think that is right, your Honour, yes.

GLEESON CJ:   The interest of the bankruptcy?

MR TREE:   Yes.  But we do not shy away from the fact that this is – it is not two multinational corporations having a crack at each other, but we do say that that in itself demonstrates that it is a case of great utility.  Your Honours, can I finally direct your Honours’ attention to my friend’s submissions, particularly paragraph 6 and paragraph 9?

Your Honours, perhaps this is echoing a point which I have made in the course of discussion with your Honours, but we say that my friends have misdirected their focus by looking at the date of ascertainability of loss – of falsity of the representation and we say that my friends have undertaken the very same error that the court below has, with respect, engaged in, namely, they have accepted that expenditure necessarily equals loss and, hence, my friends say, it is the knowledge of the falsity of the

representation which when combined with actual expenditure equals cause of action accrued.  We say that that is not correct and that it is quite misconceived.  What we say is that knowledge of falsity of itself is not relevant, it is when it is reasonably ascertainable that one’s economic interests have been intruded upon that this cause of action accrues.

Your Honours, there is one final matter that I wanted to address which is raised in the written submissions and your Honours would no doubt appreciate it and that is that certainly Justice Slicer below has determined or has held that Justice Brennan’s set of reasons in Wardley went beyond the ratio of Wardley.  That seems to be inconsistent with other court’s perceptions and certainly it seems as though the House of Lords in Sefton has in fact proceeded principally by reference to Justice Brennan.  We do not say that that of itself necessarily would justify the grant of special leave, but we do say that it is a further reason for this Court providing definitive guidance as to what the law is in relation to contingent losses and their ascertainability.  If it please the Court.

GLEESON CJ:   Thank you, Mr Tree.  Yes, Mr Walker.

MR WALKER:   Your Honours, to take the last point first, there still are, as recorded in the Commonwealth Law Reports, plurality reasons in Wardley.  There is no call for this Court, in our submission, and no encouragement in any of the comments in the Full Court in Tasmania to substitute, as it were, for the authority which would be accorded to the plurality reasons a preference for anything different, if there be anything different, in Justice Brennan’s.

Your Honours, we have been criticised for focusing, as it has been put, on the ascertainability of falsity.  It needs to be understood in what context those matters arise because it is clear that the case against us, as it is now presented, turns on the proposition that it was not until after the opening of the shopping centre and after an attempt at trading that the disappointment measured in one’s bank account week by week was palpable, sufficient to arouse a sense of grievance and that is suggested by the applicant as throwing up a special leave point so as to, as my friend puts it, further distil matters set out in a number of cases very familiar in this Court. 

In our submission, properly understood, in particular in accordance with the way the majority in the Full Court determined it, the case neither throws up any suitable factual vehicle to explore that matter, but neither does it in fact hold out any prospects of an alteration of the outcome of this case.  So that on the matter of general principle it is not an appropriate candidate for special leave, nor in terms of justice between the parties are there sufficient prospects to justify that. 

While on the matter of general importance, my learned friend calls in aid what is said to be practical or useful general consequences in fact displayed by the relatively humble sum of money involved, he says, as extending therefore to what might be regarded as a greater number of cases than highfalutin litigation between multinationals.  With respect, that is not an appropriate test in relation to what is thrown up by this case.  Events in 1986 lead to litigation commenced in 1992 in a jurisdiction with the familiar six‑year limit, which leads to a first instance judgment in 2007. 

In our submission, there is nothing usual or run of the mill so as to be put into some very numerous class of popular litigation in that prospect.  In our submission, it is only on the margins of ordinary litigious conduct that one has to make decisions, where a line needs to be drawn and facts have to be characterised, when somebody commences litigation more or less six years after the events.  That is not the usual case, the usual case is quite different.

Now, because it is a line drawing exercise, in our submission, neither is it anything useful in the level of abstraction that my learned friend offers as the central special leave question.  It is not a matter of when does contingent loss become actual?  That is an abstract question which invites a particularly straightforward abstract answer.  It becomes actual when the contingency is fulfilled.  Nothing would be advanced in jurisprudence by an answer to that effect.  That is just English.  Neither, with respect, is there any further distillation imaginable in relation to the statutory test, statutory test, for the limitation period, namely, that the time starts to tick from when the cause of action accrues.  Nor is there anything going to be distilled or, indeed, argued surely about the need for actual loss.  It is really only one of the mundane cases which is the usual way in which such things are determined where the application of those general rules, which will not be subject to any questioning in this Court were special leave to be granted, to the particular facts of this case.

Now, it may be doubted whether there was ever anything in the sense of a contingency, as discussed in Wardley, on the facts of this case.  This is, as the Full Court observes, more to be seen in the nature of Potts v Miller, but if one adopts from Wardley the principled approach of seeking to identify the plaintiffs’ interest infringed for the purposes of a number of consequential questions, including measure of damages and the identification of actual loss and when, if ever, it was incurred, then the facts of this case surely lend themselves to description as follows.

The interest infringed on the plaintiffs’ own case that they would not have outlaid money but for their reliance on these misrepresentations was in avoiding this wasted expenditure.  The interest infringed was not to put their hands in their pockets; worse still, when the bank had been asked to fill those pockets and interest rates to be charged for an entrepreneurial venture which was by definition uncertain as to its prosperity.  That is not the contingency of which Wardley speaks, nor is it the contingency for the purposes of ascertaining when actual loss was suffered. 

Whether one is buying a chattel or an interest in land or permission to use the premises, if the interest which you seek to vindicate in complaining against the defendant is expenditure upon the purchase or the maintenance or the operation, then if it can be said in accordance with your case that you have had misrepresentations told to you, that the moment you paid you were getting something different and worse, different from and worse than what was represented, then there in the ordinary case, in the ordinary case, will be the actual loss; Potts v Miller.

In our submission, the fact, as is probably universal and inherent, that when one purchases an interest in land or gets permission to use premises, by definition you are talking about future use either for a definite or indefinite period, with all the vicissitudes of trade that may affect whether you make an actual profit, that does not render any less actual the fact that you have parted with money, induced by representation, to get something there and then less than what you had been represented you would be getting.

In this case, in terms of ordinary market valuation of rental shop premises, the moment the equitable lease, that is, the engagement to pay rent, was entered into – and that is more than six years before suit was brought – and money was paid, expenditure on that equitable lease by way of the so‑called deposit was outlaid just as as soon as money was outlaid on the fit‑out, then it can be said by reason of the plaintiffs’ proof that the representations were wrong, they had already then and there got something that a valuer would see as worth less.

Now, the fact that the plaintiffs chose not to frame their case by reference to a valuation of the leasehold is neither here nor there.  The expenditures were on obtaining the rights to trade from those premises.  The expenditures were outlaid in order to make those premises physically fit to be traded from, and those expenditures were actual loss because at the time they were made, by reason of the plaintiffs very proof of the very infringement of the interests which they claimed had been infringed, it was worth less there and then.

In our submission, that is nothing other than a familiar, necessary application to particular facts of the principles which do not lend themselves to further distillation or to more specific let alone more detailed adumbration by this Court.  The analogy is with the very general expression

of a standard of care in a negligence case.  It does not lend itself to distillation, or so experience has suggested.  But there will, of course, be cases, including borderline cases, where facts may throw up differences of judicial opinion in courts below this Court.  That, with respect, could not possibly render a case an apt candidate for special leave without a lot more factors to be observed.

My learned friend said in relation to the expression, costs thrown away, the fit‑out costs thrown away, and also in relation to labour, that there was some discrimination being practised in the plaintiffs’ claim as eventually pressed in monetary terms between thrown away or wasted expenditure and other expenditure.  I am told by my learned junior at the trial that that is not how one should read the chief justice’s use of the familiar and old-fashioned expression, “thrown away”.  It merely refers to the fact that the costs, given the success of the plaintiff on the liability issue, that is, the breach of the misrepresentation issue, the costs had not realised the value for which they were intended.  They were thrown away in that sense.  It is not a partial or subset element of the costs, they were thrown away or wasted.

Whether it was a subset or the whole does not matter because the point in that expression by the chief justice captures entirely, in our submission, the way in which in this case familiarly in a fact rich way it so happens that the time of those expenditures was the actual loss for the purpose of the legal rule.  We, of course, accept that it would be a fallacy to say that all expenditure is by that character alone loss for the purpose of the accrual of cause of action, but our argument did not commit that fallacy and neither do the majority judgments in the Full Court.

I think it was Justice Hayne raised with my friend the possibility in relation to the facts that, as we have put in our written submission, in any event there is the question whether these facts as to falsity were not only ascertainable but ascertained at an early time.  Now, your Honours, that is so.  Were this case to be the subject of a grant of special leave, we will certainly be maintaining that matter.  The ascertainability of the falsity as a reason for postponing what would otherwise be the accrual of a cause of action is, one, we say, contrary to the principles which have not been challenged as a matter of authority and, two, in this case flies in the face of the way in which the uncontested facts, as we read the judgments, concerning the availability of a brochure disclosing the true state of affairs was made to the plaintiff before the six‑years period.  For those reasons, in our submission, this is not a case which is apt for a grant of special leave.

GLEESON CJ:   Thank you, Mr Walker.  Yes, Mr Tree.

MR TREE:   Thank you, your Honour.  There are three matters which I wish to raise by way of reply.  The first is to take up my friend’s statement that at the time that the expenditure was made it was worth less then and there.  With respect, that is the very issue at the heart of this application.  My friend says that the expenditure repayment of the deposit was at the time that it was paid worth either nothing or presumably perhaps some lesser part of that sum, but, with respect, one does not know that.  One only knows the extent to which the value of that payment has been wasted at some later time.

Let me take perhaps a fanciful example, but not too fanciful.  It is not inconceivable that, notwithstanding the falsity of the representation, the plaintiffs’ business could nonetheless have been conducted profitably.  If it were able to have been conducted profitably, then my friend would say that a cause of action had accrued at the time of the expenditure but later events subsequently proved that to be incorrect.  Now, this was a point which was in fact raised by Justice Blow in his reasons below at page 69 of the application book at paragraph 139 where his Honour quoted a passage from Wardley at page 533 where the majority said:

It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled.  If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred.

That is the very point that my friend is seeking to press the plaintiff to here, to say that the cause of action has accrued and we will then wait and see whether in fact the expenditure has been wholly or partly wasted, but we say that that is a point which was directly considered in Wardley and is directly contrary to the ratio of Wardley.

The second point which I wish to raise in reply is that my friend says that this raises a question of a position being worse than one had anticipated than the representations had induced you to believe.  With respect, that really does not answer the question.  The question which that necessarily poses is what is worse, what is the nature of the position that is worse such that legal loss or damage accrues, and we say that that is the point which this application seeks to have this Court’s guidance in relation to; not just that one has expended money, but that one has expended money which is either wholly or in part irrecoverable.

Your Honours, the third point is perhaps a mirror of the first, which is that my friend’s articulation of the point really raises squarely that this Court has never provided specific guidance as to what is a contingent loss.  My friend asserts that the expenditure and the incurring of liability to Westpac here was an actual loss, but, with respect, that begs the question

because it does not differentiate between the characteristics of that expenditure which would make it actual rather than contingent.  Those are the matters we raise by way of reply.

GLEESON CJ:   Thank you, Mr Tree.

This case in which a claim for damages for $46,000 was held to be statute barred turned upon the application of settled principles to the particular facts and circumstances.

The outcome in the Full Court turned largely on the Full Court’s appreciation, different from that of a primary judge, of the character of a certain payment and a certain liability.

The case is not a suitable vehicle to test any controversial issue of general principle.  We are not persuaded that the interests of justice require a grant of special leave. 

The application is dismissed with costs.

AT 11.00 AM THE MATTER WAS CONCLUDED