Valherie v Mitchell - [2004] SADC 195

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
VALHERIE v MITCHELL & ANOR
Judgment of His Honour Judge Lee
23 December 2004
FRAUD, MISREPRESENTATION AND UNDUE INFLUENCE
Claim for damages with respect to sale by defendants to plaintiff of house property in 1999 – defendants’ agent made representations about condition of house including representation in brochure that there was “Nothing to Spend” – subsequent inspections disclosed that, at time of sale, inadequate foundations on reactive soil had caused structural damage requiring extensive repair – held that plaintiff was induced by misrepresentation to enter into contract.
Misrepresentation Act 1972, s7(1) & (2), referred to.
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158; Gould v Vaggelas (1985) 157 CLR 215, considered.

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - REMOTENESS - OTHER CASES
Damages assessed at difference between price paid and real value of house at the time, together with sum for loss of opportunity to enjoy a capital gain – whether other costs and expenses were consequential losses in any relevant sense – damages also awarded for mental distress - claim for exemplary and/or aggravated damages disallowed – total award $53,407.70.
Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251; Gray v Motor Accident Commission (1998) 196 CLR 1; Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1, considered.

VALHERIE v MITCHELL & ANOR
[2004] SADC 195

This is a claim for damages for misrepresentation with respect to the sale by the defendants to the plaintiff of a house property at 4 Lothian Avenue Windsor Gardens in 1999.
The contract was signed on 24 February 1999, and settlement took place on 9 April 1999. The plaintiff's claim in a nutshell is that she purchased the house in reliance upon representations that it was well-maintained and that there was nothing to spend, whereas inadequate foundations on reactive soil had caused structural damage requiring extensive repair.
The plaintiff's evidence was that she read that the house was for sale in an advertisement of Ray White Glynde in the Advertiser of Saturday 20 February 1999. The advertisement (exh P2) was in the following terms:
“WINDSOR GDNS
4 Lothian Avenue
l Open SUN 3.30-4.30 l
Cosy - Immaculate Style
Lovely gardens & outside ent., solid brick, 3 lge BRs, open plan lounge/dine, nice views, modern kitchen & bathroom, heating/cooling, plenty of parking. Reduced to sell $99,950. Joan Mansergh 0414 378 334 Glynde.”
The plaintiff attended an open inspection of the house on Sunday 21 February 1999. Ms Mansergh was there. She handed a single page brochure (exh P14) to the plaintiff. On the front of the brochure, and below the address and a sketch of the house, were the following words:
“Nothing to Spend – Perfect Presentation
3 bedrooms with built in robes
Large Lounge
Combustion Heater
Upgraded Kitchen
Modern Bathroom
Cooling
Large Private rear gardens”.
The plaintiff told me she was attracted to the words “Nothing to Spend”. She had just arrived in Adelaide after living in Paris for 15 years, and did not have employment. She could not afford to pay more than the purchase price, and she did not have the time to redecorate or renovate a house. She said that the house looked really very nice. It was immaculate, indeed impeccable, and exactly like the advertisement was saying. It had nice wallpaper, was nicely furnished, and very well presented. Ms Mansergh told her that the house had been redecorated inside two years before and repainted outside one year before, that it was a very good quality property, that the two ladies had owned it for 17 years, that they loved the property and had maintained it very well, and that they were only selling because the garden had become too much for their age. Ms Mansergh told her that the vendors had refused an offer of $95,000, and that they would not come down below $99,950. The plaintiff wanted to make an offer, but Ms Mansergh said she could not write a contract until she had sighted proof that the plaintiff had the money.
The plaintiff contacted her bank, the Midland Bank in London, and received a document by fax on Wednesday 24 February. She took it to Ms Mansergh's office the same day and signed a contract for $99,000. The defendants accepted the offer and signed a contract in the evening or the morning of the next day (exh P4).
On 25 February 1999, Ms Mansergh called on the plaintiff at her then home at Hazelwood Park, produced a Form 1 (exh P10), and explained the cooling off period. The plaintiff told Ms Mansergh she had set her mind on the house, and there was no need to cool off. The plaintiff told me that, at that time, she had never heard of subsidence, or building inspections, or the like. She had no idea that usually people use a cooling off period to organise an inspection of the property. For her it was natural to buy an older style property, because they are normally better built. She did not suspect that anything was amiss with the house.
During her discussions with Ms Mansergh, the plaintiff said she was looking for a home business. Ms Mansergh suggested real estate. So the plaintiff contacted Ray White Adelaide, and started an apprenticeship with that firm.
As I have said, settlement of the contract took place on 9 April 1999. The plaintiff did not attend. She later met Ms Mansergh at the house to collect the keys. She struggled to open the door into the house. When she went into the main bedroom, she could not open the sliding doors to the built-in wardrobe. Eventually she succeeded in opening one of them, and saw inside the cupboard a gap in the cornice between the wall and the ceiling. She could not open the sliding door from the third bedroom to the veranda.
The plaintiff did not move into the house for about 2½ weeks after the settlement. However, when she moved some of her belongings during the first weekend, she noticed a number of matters that were of concern to her. She listed those matters in a fax to the conveyancer on 11 April 1999, and to Ms Mansergh on 12 April 1999 (exh P6). Eventually she was able to open the sliding door to the veranda, and at that time noticed that there was a gap of about 1 inch at the bottom between the door and the frame. That gap and the gap in the cornice in the built-in wardrobe prompted her to ask Archicentre to conduct an inspection of the house. Archicentre Limited is a company of The Royal Australian Institute of Architects, and has a panel of architects to provide architectural advice to the public. Mr Rositano, a registered architect, was a member of the panel. He made an inspection of the house on 17 April 1999, and provided a report about three weeks later (exh P46). The plaintiff then wrote letters of complaint to the Real Estate Institute and Commissioner for Consumer Affairs, and consulted a solicitor. She told me that the responses that she received were not very satisfactory, and perhaps that was because she had no money and could not borrow any. She said that the house had started to crack again from the end of May. She terminated her apprenticeship in early July. Then, on 2 August, the first cornice fell down. That cornice was in the passage by the cupboard, and is shown in a photograph which the plaintiff took on 29 July 1999 (exh P12). The plaintiff took another photograph on the same day, and that shows a crack in the archway between the dining area and the kitchen (exh P13).
The plaintiff told me that, by mid-October, the house looked really bad. She contacted Mr Van Der Horst at the end of October, and he inspected the house and took photographs on 4 November 1999.
The plaintiff consulted a general practitioner, Dr Rosemary Brennan, on 9 December 1999. She told me she was feeling very depressed with suicidal thoughts, and was sleeping very badly. The doctor prescribed medication. The medication calmed her down and allowed her to concentrate and work, but it took her many months to get some decent sleep.
After receipt of Mr Van Der Horst's report (exh P28), the plaintiff sought a revaluation of the property by the Valuer General. After an inspection on 22 December 1999, the Valuer General reduced the value from $95,000 to $60,000. The plaintiff sent flyers to a number of builders in the neighbourhood offering to sell the property for development as two units. In December 1999, she placed an advertisement in the land for sale section of the newspaper.
Having had no success to that point, the plaintiff advertised the property again in February 2000. The price was “$60,000 +”, then “$70,000 +” (exh P18). To persons who inspected the property, she handed out a blue brochure (exh P17) which she had produced from the original. The words in the brochure, which were a repetition of the words in the advertisements, were:
“For the home renovator, or bulldoze and build 2 courtyard homes”.
The price was “$60,000 +”. Somebody offered her $50,000, but she did not want to sell at that price for fear that the court would tell her that she had sold at too cheap a price, thinking that she was going to get the rest in court.
After consulting a solicitor, the plaintiff wrote to the defendants on 4 July 2000 giving notice of rescission of the contract (exh P8). She then commenced proceedings in this court on 16 August 2000 against the defendants, Ray White Glynde, Ms Mansergh, and eight other persons.
After allowing others to occupy the house for a period from early July, the plaintiff returned to the house in early September. She said the first thing she did was to try to vacuum the place because it was absolutely filthy. As soon as she switched the vacuum cleaner on, it blew up. Then she found that, apart from the fridge, hardly anything was still running. She said that the house was in such a state she could not live in it anymore. She moved out in early October 2000, and rented a flat in Camden Park. She said it was a disaster for her, because she still did not have an income. The reason why she moved to Camden Park is that she answered an advertisement for a home secretary, but received no further contact. She said that, without work, she could not survive financially in Adelaide, and so she returned to France after selling her belongings in a garage sale. She later prepared an inventory of those belongings (exh P21).
In February 2001, the owners of neighbouring units sued the plaintiff in the Magistrates Court in nuisance for damage to the units caused by a lemon scented gum at the rear of the plaintiff's property. An award of damages against the plaintiff was eventually reduced on appeal.
Whilst the plaintiff was in France, her proceedings in this Court were struck out by a Master for non-compliance with earlier orders and for failure to file an address for service. Most of the successful parties applied for and were awarded their costs. Eventually, after further orders and an appeal, the plaintiff commenced the current action against the defendants, and filed a new statement of claim.
In April 2002, the house was sold at auction by the Sheriff under a warrant issued at the instigation of the parties who were seeking to recover their costs. The sale price was $99,500. The settlement statement (exh D43) shows that settlement was effected on 13 May 2002, and that the balance paid to the Sheriff was $91,322. Part of the balance was eventually paid to the plaintiff.
The plaintiff called as witnesses the two persons who inspected the house at her request.
Mr Rositano's report of 17 April 1999 contains the following summary of the results of his inspection:
“This house appears at first sight in very good order but for its age is in worse than average condition due primarily to the lack of ‘level’ paving throughout caused by uneven soil settlement. The most serious matters which will not involve great cost include 1) floor levelling, 2) retiling repairs, 3) painting/patching of ceilings/cornices, 4) HWS remedial work. The future roof replacement will not incur great cost but the new paving will and is justified as it will help to control the brick cracking evident along with improving the property value. The excellent north facing rear provides many opportunities to renovate/re-plan this home.”
The balance of Mr Rositano's report asserts that serious faults were found at a number of locations. A serious fault is defined in the report as:
“A fault which seriously affects the structural integrity of the property or requires the substantial replacement of plumbing or electrical services. In the case of cracking, a serious fault denotes severe cracking as defined by Category 4, Appendix A - Australian Standard AS 2870.1–1988.”
The following extracts from the report all relate to serious faults:
Each of the exterior walls.
Note 13 states with respect to the structures of those walls:
“Past brick cracking over openings patched with some control joints installed. (Internal cracking within built in robe not patched). With removal of several trees close to the building and installation of garden watering system, it appears measures have been taken to prevent further damage. See brochures on maintaining constant soil moisture balance year round and pave unpaved SW corner.”
Exterior of north wall.
Note 14 states with respect to the doors:
“Aluminium sliding door not closing. Adjust guides.”
Exterior of west wall.
Note 16 states with respect to the eaves:
“Bowed fascia due to footing settlement at south west corner. Appears to have settled.”
Living room.
Note 22 states with respect to the floor structure of that room:
“Uneven/dropped floor level. Have stumping contractor re-level floor joists.”
Note 25 states with respect to the ceiling:
“Patched cornice to ceiling joint requires re-painting and butt joints in ceiling require filling with a flexible sealant prior to applying a finishing coat of paint.”
Kitchen.
Note 30 states with respect to the floor:
“Cracked quarry tiles. Suspect poor sub-base construction. Recommend replacing with a sheet vinyl/cork tiles for more comfort under foot.”
Note 38 states with respect to the walls:
“Re caulk benchtop to wall tile joint.”
Southwest bedroom.
Note 25 states with respect to the ceiling:
“Patched cornice to ceiling joint requires re-painting and butt joints in ceiling require filling with a flexible sealant prior to applying a finishing coat of paint.”
Northwest bedroom.
Note 22 states with respect to the floor structure:
“Uneven/dropped floor level. Have stumping contractor re-level floor joists.”
Main bedroom.
Note 22 states with respect to the floor structure (see above).
Note 37 states with respect to the door:
“Door frame has dropped. Remove architraves to level head and replace architraves.”
Note 14 also states with respect to the door:
“Aluminium sliding door not closing. Adjust guides.”
The walls of the passage are shown as containing no visible fault, but note 24 with respect to those walls reads:
“Past cracks patched and visible under shining a torch across wall surface. Expect ongoing maintenance with filling of cracks and re painting.”
Mr Rositano's attention was drawn during his oral evidence to the fact that his inspection occurred a little less than two months after the open inspection, and he said that there could have been significant deterioration over that period, given that it was at the end of the summer. When asked why that could be so, Mr Rositano said:
“The lack of watering in the garden and the fact that, as soils dry, it’s – I’m not an engineer but, as explained to me, as I understand it, it is that layer of soil three metres below the surface that, after an extended period of drying, shrinks. That causes most of our cracking problems. So two months, February – if someone was watering the garden and stopped, very quickly things could change as the sun is causing evaporation and there are lawns, trees, grabbing any moisture, if somebody stops watering or hadn’t been watering two months before February, these things can cause huge problems.”
When asked why the doorframe in the main bedroom would have dropped, Mr Rositano said that there could be other causes, but the most likely would have been related to movement of footings and brick cracking.
When asked why ‘Stumps/Piers’ were rated as a serious fault, Mr Rositano said that the brick or timber posts supporting the floors needed to be investigated as a way of rectifying unevenness of the floor.
Mr Rositano said in his report that there was no visible fault in the ceiling of the main bedroom, but his note 36 for that ceiling reads:
“Fine cracks in ceiling require filling and painting and signs of fixings to timber support structure ‘popping’. Expect ongoing maintenance.”
In his oral evidence, Mr Rositano said that the fine cracks were more than likely to do with settlement of the footings. Mr Rositano concluded his evidence in chief by saying that the house looked okay as you approached it from the driveway, but it was apparent on inspection that the house needed cost and surveillance, and that its condition was worse than average.
Finally of interest is the following exchange between me and Mr Rositano:
"QAre you able to go through your report and just tell me which of the faults that you have marked as ‘serious faults’ would have been present at the time of the open inspection on 21 February.
AThe problem I have got is to what degree. They could have been present to a much lesser degree. Could have been worse. But I would say the cracking, the floor levelling and the framing as per the fault summary, those items are not likely to be sudden, but the brick cracking could be due to something unrelated to soil movement as a result of seasonal conditions. It could have been a burst sewer main or a water pipe that was locally flooding an area, the neighbours suddenly directing water to a position that it hadn’t been directed, removal of trees, things like that.
QThese are all things that may have occurred, you can’t say, but may have occurred in that two month period.
AYes.
QBut are there faults that would have been present in any event, irrespective of seasonal and other conditions occurring in that two month period, would have been present on 21 February at the time of the open inspection.
AI would think that the brick cracking and framing, floor levelling could have been present there and could also be present due to poor workmanship at the time of construction, they could have been present there from day one.”
Mr Van Der Horst is a building surveying technician. His accreditation allows him to inspect domestic dwellings up to two stories in height. His work consists mainly of pre-purchase inspections. As already mentioned, he inspected the house on 4 November 1999. He told me that the footings were likely to be shallow strip footings, and that, even though footings of that kind do not perform well on reactive soils, the cracking was greater than he would have expected. Indeed, he said that the structural performance of the house was one of the worst he had come across.
In his report (exh P28), Mr Van Der Horst wrote the following passages with respect to the walls:
“Major cracking was observed in many walls throughout the house, more so in the upper portion of the walls, in masonry and timber-framed walls.
The deformations noted were evident in the internal and external walls. These appear to be the result of upheaval due to settling and heaving of the footings as a consequence of extreme soil movement.
The junction of the walls at the cornice/ceilings showed considerable lateral movements in some cases, which has led to considerable damage and some of the cornices dropping down.
Examination of the walls showed several areas with more or less extensive repairs, quite likely in response to previous incidences of cracking. Several instances of drumminess in plaster and wall tiles.”
…..
“There appeared to be generally no indications of moisture readings or decay along the base of the walls. However, it was also noted that much of the surface of the base walls appeared to have been renovated comparatively recently.”
…..
“Some of the ceilings showed tearing across a room (lounge etc), and deformation and distortion at some wall junctions as mentioned under walls.
Hence the cornices and some surrounding surfaces appeared to suffer considerable damage due to what appeared to be the differential movement between the wall tops and ceilings. The 90mm cornices appeared to be part of some recent renovation work.”

In his oral evidence, Mr Van Der Horst summarised the result of his inspection in this way:
“There was a cracking which seemed to be above average both in magnitude and extent which also included distortions which are generally less common than cracking and it was just generally widespread. As the cause are concerned, well the most likely cause is like the reactive soils which are very widespread in Adelaide but because it is so much worse than we normally come across, we suspect that there might possibly be plumbing problems involved because leaking plumbing either from the drains or the pipes can really magnify the effect of the reactivity and cause really a great deal of upheaval, so we had a suspicion that that could possibly be one of the reasons it was worse than average. A lot of the older dwellings are not in an ideal situation where you have trees and shrubs close by, you have pavement which is not always perfect, so there is a lot of effects which are common without seeing something like this which tends to be worse.”
At the plaintiff’s request, Mr Van Der Horst later made an assessment of the possible cost of restorations as at 4 November 1999. The document that he prepared shows a range between $33,800 and $77,900 (exh P29).
The plaintiff called Dr Brennan, and tendered the doctor’s written report (exh P39), with respect to a claim for damages for mental distress. Dr Brennan told me that, at the first consultation on 9 December 1999, the plaintiff complained of feeling stressed and distressed about the problems surrounding the house. The plaintiff was having difficulty sleeping, was crying a lot, had no appetite, and was having suicidal thoughts. Dr Brennan thought she was clinically depressed, and prescribed an antidepressant to be taken for about six months. The doctor saw the plaintiff again on 16 December 1999 and 21 February 2000. The plaintiff did not see Dr Brennan on any later occasion for depression. Dr Brennan said that the plaintiff’s last visit to the clinic on 16 December 2002 was for an unrelated purpose, and that she made no note of any depression at that time.
Both defendants gave evidence. They had owned and lived in the house since 1980. They told me that they had made substantial renovations and improvements to the house over the years. They were aware that, due to Bay of Biscay soil, cracking was fairly common in the area, but they never had any major problems. They never had any reason to do a building inspection, and knew nothing about the structure of the house. About a year before the sale, but with no intention of selling, they had the entire outside repainted. Minor cracks in the walls were filled up. They only ever had minor cracking inside the house. They made no attempt to hide anything. They signed a sales agency agreement on 30 December 1998 (exh P1), and Ms Mansergh commenced the sales campaign on 9 January 1999. Open inspections were held on every weekend. Ms Mitchell said she probably saw the brochure after the first weekend of inspections. Before the sale to the plaintiff, they received an offer of $95,000 from another person, made a counter offer to that person of $98,000, but then heard nothing more. Ms Mitchell said that the condition of the house at the time of the sale to the plaintiff was very nice, and exactly as they had lived in it over the years. There were cracks in the paving around the house and in the kitchen floor, but otherwise it was a very nice home. As for the crack in the cornice in the built-in cupboard in the main bedroom, Ms Mitchell said she remembers seeing a crack when the wardrobe was installed in the early eighties, but did not think about it again until she saw it on the day that they moved.
The defendants told me that they moved from the house to a new house at Campbelltown on Easter Friday, which was the Friday prior to the settlement date of 9 April 1999. Ms Mitchell said that she observed no damage at that time, save for the crack in the tiling in the floor of the kitchen and some cracking in the outside paving. Ms Mitchell said that their reason for moving was not their age, but because the garden had become too much for them to manage. Both defendants said that Ms Mansergh’s statements that the house had been redecorated inside two years before and repainted outside one year before were true. When I drew Ms Mitchell's attention to the cracks observed by Mr Van Der Horst in November 1999 (at that point I had not heard the evidence of Mr Rositano), her response was:
“I don’t intend to even try and explain how those cracks came about, except to say that the garden didn’t look as if it was being maintained, and if there was any lack of maintenance, that maybe, just maybe lack of moisture could have caused it because it was a very, very hot summer. But that’s only just my sort of way of putting it, that I can’t say it any other way.”
The defendants called Ms Mansergh to give evidence. She told me that she did an appraisal of the house on 13 December 1998. She thought that it was beautifully presented, and had a really nice ambience. Apart from the cracks in the kitchen tiling and the outside paving, the only other crack that she noticed was a hairline crack in the dining room close to the cornice. She said that the house warranted the descriptions “cosy” and “immaculate” in the advertisement of 20 February 1999 (exh P2), and “Nothing to Spend -- Perfect Presentation” in the brochure (exh P14).
As for her conversations with the plaintiff at the open inspection, Ms Mansergh agreed with the plaintiff's version, save that she would never use the expression “quality property” to describe a house, and she did not say that the defendants' age was the reason why the garden had become too much for them.
Ms Mansergh said that the weather had been very hot during the two months of the sales campaign. To the time of the settlement on 9 April 1999, she did not see any cracks, save for the cracks already mentioned. Nor did she ever have trouble with the sliding door to the veranda.
Qualified valuers were called on both sides to express opinions on the value of the house as at the date of settlement. Mr Christopher Dreyer's valuation was $50,000, and Mr Geoffrey Cooney's valuation was $95,000. Mr Dreyer was asked by the plaintiff to assume that, and here I quote from his report (exh P35), “the dwelling was not structurally sound and restoration was not economically viable”. I should here interpolate my own observation that the second part of that assumption is not supported by the evidence, and that I accept the opinion of Mr Cooney in his letter of 9 April 2003 that the house was not so structurally unsound that it was unfit for habitation. As for Mr Cooney’s valuation, although it was based upon fair market value, he did not take Mr Van Der Horst's report and costings into account. Earlier in his evidence, Mr Cooney said that the report and costings would have influenced his valuation. Later, and somewhat inconsistently as it seemed to me, he said that, even in the condition that Mr Van Der Horst found the house in November 1999, it would have fetched $95,000.
So much for the evidence. I turn now to consider whether, in terms of s.7(1) of the Misrepresentation Act 1972, the plaintiff was induced to enter into a contract by a misrepresentation made by a person acting for, or on behalf of, the defendants.
As far as the words spoken at the open inspection by Ms Mansergh are concerned, I am not satisfied that she said that the house was of good quality, nor that she made any reference to age when explaining to the plaintiff why the defendants were selling. In all other respects, however, the plaintiff’s version is not in dispute. Although the most important of the representations were the words “Nothing to Spend” in the brochure, those words were reinforced by the words “Immaculate Style” in the advertisement and “Perfect Presentation” in the brochure, and by Ms Mansergh’s words at the open inspection to the effect that the house had been very well maintained.
It is most unlikely that the serious faults observed by Mr Rositano developed after the open inspection. As already mentioned, the open inspection was on 21 February 1999 and Mr Rositano’s inspection was on 17 April 1999. I am satisfied on the evidence that there was no change of any significance in the condition of the house between the open inspection and the defendants’ departure from the house on Good Friday. Good Friday in 1999 fell on 2 April. The plaintiff did not move into the house until after Mr Rositano’s inspection. This means that the house had been unoccupied for only 15 days as at the date of Mr Rositano’s inspection. There is no evidence of a water leak or of anything else untoward happening in that period. A further point is that, had the plaintiff noticed any significant cracking by 12 April 1999, I would have expected her to say so in her fax to Ms Mansergh of that date (exh P6).
The representation in the brochure was quite inconsistent with the many serious faults that were observed by Mr Rositano. Clearly it was a misrepresentation of the condition of the house for the defendants to say through their agent that there was nothing to spend. Upon the basis of Mr Rositano’s evidence and report, I am satisfied that those words were untrue at the date of the open inspection. Upon the basis of the plaintiff’s evidence, I am satisfied that she was induced by those words, reinforced as they were by the other words that I have mentioned, to enter into the contract.
Subsection (1) of s.7 of the Misrepresentation Act provides, in effect, that where a misrepresentation induces a party to enter into a contract, then the party at fault is liable for damages in tort as if the misrepresentation had been made fraudulently.
Subsection (2) of the Act provides:
“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.”
With respect to the first link of the defence, I do not consider that Ms Mansergh, the person by whom the representation was made, had reasonable grounds to believe that it was true. It is one thing to say that the house was cosy and that its style was immaculate, as she did in the advertisement, quite another to assert that there was nothing to spend, as she did in the brochure. The issue here is not whether she believed that the assertion was true, but whether she had reasonable grounds to believe that the assertion was true. A mere visual appraisal of the house, in the absence of qualified advice, was not enough in my view.
The second link of the defence also requires consideration, because the defendants were not the person by whom the representations were made. Nevertheless, the defendants knew of the representations, or at least of those in the advertisement and the brochure. As I have said, they made substantial renovations and improvements to the house over the years, and were aware that cracking was fairly common in the area due to Bay of Biscay soil. The reports of Messrs Rositano and Van Der Horst show that extensive cracking in the walls had been patched and repaired. If the defendants did not know that the representations were untrue, they were careless about whether the representations were true or not. I am unpersuaded that the defendants could not reasonably be expected to have known that the representations were untrue.
I turn to the issue of damages.
The plaintiff is entitled to damages in all respects as if the misrepresentations had been made fraudulently and were actionable in tort. I take the relevant principles from the joint judgment of Mason, Wilson and Dawson JJ in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12 (footnotes omitted):
“In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid: Potts v Miller; Toteff v Antonas; Gould v Vaggelas. But this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J in Toteff v Antonas in these terms:
“In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant.”
As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation (Potts v Miller; Doyle v Olby (Ironmongers) Ltd.), at least if the loss is foreseeable: see Gould v Vaggelas.”
The consequential loss must not be rendered too remote by the plaintiff’s conduct. In Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 at 168 Winn LJ said:
“It appears to me that in a case where there has been a breach of warranty of authority, and still more clearly where there has been a tortious wrong consisting of a fraudulent inducement, the proper starting point for any court called on to consider what damages are recoverable by the defrauded person is to compare his position before the representation was made to him with his position after it, brought about by that representation, always bearing in mind that no element in the consequential position can be regarded as attributable loss and damage if it be too remote a consequence: it will be too remote not necessarily because it was not contemplated by the representor but in any case where the person deceived has not himself behaved with reasonable prudence, reasonable common sense or can in any true sense be said to have been the author of his own misfortune. The damage that he seeks to recover must have flowed directly from the fraud perpetrated on him.”
In Gould v Vaggelas (1985) 157 CLR 215 at 221 and 222, Gibbs CJ said this of consequential losses that flowed from an inducement to buy a business:
“If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business.”
In the result, the plaintiff is entitled to damages for losses which are the immediate result of the defendants’ misrepresentation, and any consequential losses which are not rendered too remote by the plaintiff’s conduct. So I begin my assessment of her damages with the difference between the price which she paid for the house and its real value at the time. As for the real value, I do not accept, for reasons already mentioned, the figure proffered by either valuer. I consider that the real value was somewhere in between. Mr Van Der Horst’s costings are of limited assistance, because they were designed to restore the house to an as-new condition. Other factors to be taken into account are the revaluation of the Valuer General at $60,000 in December 1999, and the forced sale price of $99,500 which was achieved, doubtless with the benefit of appreciation, in April 2002. In the final analysis, I assess the real value at the time of the sale at $75,000, which means that the plaintiff’s loss at that time was $24,000.
The plaintiff’s economic loss does not end there. She has lost the opportunity to enjoy a capital gain on $24,000. Mr Dreyer’s evidence was that after 1999 there was a tremendous increase in demand for residential property and allotments in the metropolitan area. He looked specifically at the Windsor Gardens area, and found that median house prices had virtually doubled between 1999 and the time of his report in April 2003. He has not looked at the Windsor Gardens area since then, but would anticipate that the subject house in today’s prices would be worth somewhere in the low $200,000s. He also said, however, that that would have to be subject to confirmation from a sales analysis and a field inspection. He was not asked about the chance of appreciation in the future.
I assess the loss of the opportunity to enjoy a capital gain at $26,000.
The plaintiff is not entitled to recover the costs of purchase and rates and taxes, because she would have incurred those costs in whatever house she had chosen to buy, and irrespective of the misrepresentation. I categorise her decisions to leave the house in October 2000, to sue persons in addition to the defendants, and to return to France, as intervening conduct for which the defendants should not be held responsible. In other words, the losses which arose from those decisions, including the costs associated with the sale of the house in April 2002, were not consequential losses in any relevant sense.
One of the plaintiff’s heads of claim is rent from the time of her departure from the house in October 2000 to the present. I do not know what rent she paid before her return to France, nor whether she stayed rent free with relatives or friends once she arrived there. In any event, and consistently with my approach to other costs, I do not regard expenditure on rent as a consequential loss in any relevant sense.
Although the house was eventually sold for more than the plaintiff paid for it, notwithstanding its condition and the forced nature of the sale, I treat that sale as returning to the plaintiff, less costs and charges, the proceeds of an asset which was worth only $75,000 in April 1999. She must still be compensated for paying, as a consequence of the misrepresentation, more than the house was worth. On my findings, she lost $24,000 at the time of the sale, and $26,000 thereafter as a capital gain foregone.
An alternative approach would be to estimate what would have happened to the plaintiff had she not purchased the house in reliance upon the misrepresentation, and to contrast that with what would have happened as a result of the sale, but for her intervening conduct. It is likely that she would have used the money to buy another house. Had she done so, her asset would have appreciated to, say, $200,000 in today’s prices. However, as a result of the sale, she acquired an asset worth $75,000. But for her intervening conduct, that asset or its proceeds would have appreciated to $150,000 in today’s prices. So her loss on this alternative approach is also $50,000.
The depression for which the plaintiff received treatment from Dr Brennan between December 1999 and February 2000 was a foreseeable consequence of the misrepresentation, and she is entitled to damages for that. The plaintiff is also entitled to a modest allowance for the distress that she suffered over a longer period, although I need to distinguish between the distress that is directly attributable to the misrepresentation and the distress which arose from intervening conduct and other unrelated factors: Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 at 37 to 39. I allow $3,000 overall.
The plaintiff seeks exemplary and/or aggravated damages as well. Exemplary damages, in deceit as in other torts, are damages of a punitive, rather than compensatory, character, and are intended to punish a defendant for conduct showing a conscious and contumelious disregard for a plaintiff’s rights and to deter him from committing like conduct again: Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251 at 262. Aggravated damages may also be awarded where a defendant has acted with contumelious disregard of the plaintiff’s rights, but an additional factor is that the conduct must have increased the plaintiff’s suffering: Gray v Motor Accident Commission (1998) 196 CLR 1 at 35 (para 101). I am not satisfied on the evidence that the conduct of the defendants in this case, whether at the time of the misrepresentation or at any time thereafter, was high-handed or malicious or vindictive. There was no contumelious disregard of the plaintiff’s rights. I decline to award damages under this head.

The plaintiff attempted to sell the property between December 1999 and February 2000, and incurred advertising and search costs of $409.70. I allow this as a consequential loss.
The plaintiff seeks an award for “Loss of earning capacity caused by her depressive state and the traumatic disruptions of her life to be estimated by this Honourable Court”. There is no evidence before me to show when and to what extent the plaintiff was incapacitated and, if so, whether the loss was consequential and, if so, how it should be quantified. I decline to make an award under this head.
The plaintiff seeks to be compensated by way of compound interest for the loss of use of the money which she paid over in consequence of the misrepresentation. I make no separate award in that regard, because I have already reflected that loss in my assessment of her lost opportunity to enjoy a capital gain on the amount which she overpaid for the house.
In the result, the losses which the plaintiff is entitled to recover from the defendants are:
difference between price paid and real value  $24,000.00
loss of capital gain  $26,000.00
mental distress  $3,000.00
costs of attempted sale  $409.70
$53,409.70
The formal order of the Court is that there be judgment for the plaintiff against the defendants in the sum of $53,409.70.