Voss Real Estate P/L v Schreiner & Ors No. Scgrg-97-1456 Judgment No. S6625

[1998] SASC 6625

VOSS  v  SCHREINER and ORS

Perry J

This is an appeal from a judgment given by a Magistrate sitting in the civil jurisdiction of the Magistrates Court at Elizabeth.

The appellants were the defendants in the proceedings in the court below.  They were sued by the respondents for damages arising out of the purchase by the respondents of a block of six home units situated at 2 Leeds Street, Salisbury East.

At all material times, the appellants were engaged in the conduct of a real estate business, namely, Voss Real Estate Pty Ltd trading as “L.J. Hooker Salisbury”.

In late 1995, as a joint venture, the respondents purchased a property consisting of five units at an address in Salisbury.  Thereafter they continued to look for investment opportunities in real estate in the same area.

At the trial, the respondent John White was described in evidence as the “number cruncher”, by which I assume that the other respondents looked to him to advise them on the financial aspects of any proposed investment.

The Leeds Street property was brought to the attention of the respondents in December 1995 when the appellant Roger Felton, who was an acquaintance of the respondent Mrs Schreiner, spoke to her about it.  She expressed interest in the property, and informed her husband and the other respondents of its availability.  Voss Real Estate Pty Ltd was the vendor’s agents.

During the course of the appellants’ dealings with the respondents, and after the two male respondents had inspected the property on 22 December 1995, they were given a single page flyer, or hand-out, which read in part:

“SALISBURY EAST

2 LEED STREET

$150,000

CLOSE TO SALISBURY UNIVERSITY

*....... 6 UNITS

*ALL WITH TWO BEDROOMS

*....... GREAT INVESTMENT OPPORTUNITY

*PLENTY OF PARKING SPACE

COUNCILSALISBURY

......... COUNCIL RATES              $1200.00 PA APPROX

......... APPROX AGE  20 YEARS

ZONINGR2 .....

DETAILS

ROGER FELTON 015 602 196”

It will be seen that the flyer indicates that council rates are “$1200.00 PA APPROX”.

The respondents made an initial offer of $120,000 which was rejected by the vendor.  In early January 1996 they made an increased offer of $130,000 which was also rejected, as was an offer of $135,000.

Finally, they made an offer of $140,000 which was accepted by the vendors through the agency of the appellants.  A contract in the standard Real Estate Institute form was signed by the respondents on 11 January 1996 and by the vendor on 12 January 1996.  The respondent John White signed on behalf of the respondents.

His evidence was that on 11 January 1996, he met with the appellant Mr Voss and discussed the transaction.  In the course of doing so (T13 and T23) he raised with Mr Voss a number of questions.  His evidence was (T13):

“There was mention during that time of a list of the tenants within the units; how many there were; what rent they were paying; how long they were going for, of which Mr Voss gave me a copy of the current tenants at that time, and also a mention of - I was just going through different costs and I mentioned the fact of council rates being $1,200 and Mr Voss then proceeded to obtain another document and said, ‘This is what the vendors have stated as being the council rates at $1,200’.”

Mr White’s evidence was that at the time the latter statement was made, Mr Voss referred to a document which he had in his hand.  It seems likely that the document was a document known as a “Sales Agency Agreement” pursuant to which the vendor appointed L.J. Hooker as agents for sale.  In the schedule to the Sales Agency Agreement under the heading “Property Details and Information”, an amount of $1,200 was written against the words “Council Rates”.

In fact, as it turns out, the council rates were at the time $2,604, not $1,200.

In cross examination, Mr White denied that anything more was said other than, “This is what the vendors have stated - $1,200”.

But in his evidence, Mr Voss, while not denying that he had referred to the figure of $1,200 on the occasion when the contract was signed, said (T94):

“... I showed him the agency agreement where the vendor had stated it was $1,200.  I then said to him that I can’t be sure of those facts but however I would make a phone call to the Salisbury Council and check to see what the rates are.

Q...... What was his response to that.

A...... He said that he would make his own inquiries to the Salisbury Council as to how much the rates are but as far as he was aware they were rated individually.

Q...... Did you make the inquiry you had offered to make.

A...... Actually I didn’t say to him in the discussion.  It went on from him and I said to him, ‘The land broker on behalf of the vendor will do the actual searches and forward the exact council to his land broker - to the purchaser’s land broker.

Q...... Did he ask you to go ahead with the phone call to the council.

A...... No, he said, no, not to worry about it.”

The learned trial Magistrate preferred the evidence of Mr White to that of Mr Voss as to the conversation which occurred at the time of the signing of the contract.  The learned trial Magistrate had the benefit of seeing and hearing the witnesses, and no ground has been made out upon which it would be proper for this Court to substitute another view as to that.

A settlement statement was prepared by brokers.  This was dated 29 February 1996 and showed the correct figure for the rates.  The settlement statement was posted to the home address of the Schreiners, being the address nominated by the respondents for that purpose, namely, 11 Lowe Street, Adelaide.

Evidence was led at the trial and accepted by the learned trial Magistrate that delivery of mail to that address was interrupted at the relevant time due to extensive road works in the area.  The settlement statement did not come to the attention of any of the respondents before settlement, which took place on 7 March 1996.

In a letter dated 10 April 1996 addressed to Mr T. Walter, whom I assume to be an employee of L.J. Hooker, the respondent Mr White said, inter alia:

“The fact sheet (which I have enclosed copy) was given to us by Mr Felton.  Also I picked one up from the Salisbury office on 2.4.96.  States the council rates approx $1,200.  However, on receiving my settlement statement from the broker, it stated that the annual rates to be $2,604.  That is $1,400 over the approx cost which we had been quoted verbally and in written form.  Our decision to purchase the property was based on the information given to us and the extra $1,400 per annum was not budgeted for in calculating whether or not to purchase the property.  As we purchase these types of properties as our superannuation over a 25 year period, the difference in rates over this duration adds up to a lot of money.  On querying the amount with council I was informed that all units in Salisbury, strata title or not, have to pay the minimum rates and this was changed by council over four years ago.  Why were we instructed of a figure of approximately $1,200 when your research information would have had to show the previous year’s rates of $2,604.”

There was no response to the letter, although a letter of claim from the solicitors subsequently instructed on behalf of the respondents was met with a denial of liability by Mr Voss who wrote on behalf of L.J. Hooker.

Mr White’s evidence at the trial was that the respondents would not have offered $140,000 if they had been aware of the true position as to the level of the council rates.  Furthermore, his evidence was that, having regard to his calculations upon which the respondents made their offers for the property, they would not have offered beyond $130,000 if they had been aware of the true position as to the council rates.

The calculations to support that approach were not put in evidence.  But Mr White summarised the position in this way (T15):

“We wanted to be fully funded by the income of the units so any of the four parties would not have to put any of their own money in, and based on the borrowing power at the time, we could have borrowed $10,000 extra with the extra $1,400 per annum.”

Against the background of that evidence, and in particular her preference for the respondents’ evidence, given primarily through Mr White, to the evidence led by the appellants, the learned trial Magistrate held (reasons for judgment, 19):

“... I find that in contracting to purchase the units at a price of $140,000, the plaintiffs, primarily through Mr White, relied on the sum of $1,200 for the rates given to them by Mr Felton at the time of the inspection and confirmed by Mr Voss on 11 January 1996. I find that the representation was as to a present matter of fact and hence actionable, that it was conduct in trade or commerce which was misleading. I find further that because of agency principles, Ross Real Estate Pty Ltd is liable for the misrepresentation of its employees and that the misrepresentation was relied on by the plaintiffs - as a result the plaintiffs suffered damage. Accordingly, the plaintiffs are entitled to damages for a breach of s52 of the Trade Practices Act and s56 of the Fair Trading Act and that those damages are in tort.”

With one exception, the learned trial Magistrate’s essential findings of fact were not disputed on the hearing of the appeal.  But the appellants challenged the Magistrate’s assertion that the defendants had provided no evidence in support of its submission that the plaintiffs had failed to prove any loss.

As to that, the appellants point to a certified extract from the valuation roll for the subject property, which they tendered at the trial.  This indicates that for the year 1996/1997 the Valuer-General valued the subject property at $200,000.

Although the appellants challenged the finding that the representations were misleading and deceptive, in my opinion, that ground of appeal is not made out.  It seems to me that the combination of the assertion in the advertising flyer and the statements made by Mr Voss on the occasion when the contract was signed, together amount to a representation that the rates were in fact $1,200 per year.

The appellants submitted that they merely passed on information about the council rates and disclosed its source as being the vendors of the property, whilst impliedly disclaiming any belief in the accuracy of the information.  They submitted that in those circumstances they did not engage in misleading or deceptive conduct or conduct likely to mislead or deceive, referring to York v Lucas,[1] The Saints Gallery Pty Ltd v Plummer,[2] and Logie Brae Pty Ltd v Seven Hill Holdings Pty Ltd.[3]

[1] (1985) 61 ALR 307 at 309.

[2] (1988) 80 ALR 525.

[3]    Full Federal Court, 27 October 1992, unreported.

If the matter rested with the evidence as to the conversation which took place on the occasion of the signing of the contract, there might be some force in that submission.  However, it seems to me that the unqualified assertion in the flyer “council rates $1,200 pa approx” did amount to a representation which was misleading or deceptive or likely to mislead or deceive.

The remaining ground of appeal is as to the quantification of damages.

In the particulars of the claim as filed in the Magistrates Court, the plaintiffs’ claim is formulated in this way:

“23... The plaintiffs intend to keep the said property for approximately 20 to 25 years and will suffer an ongoing loss of $1,400 per annum approximately in additional council rates subject to any annual increases in such rate.

......... And the plaintiffs claim:

(a).... The sum of $28,000 representing the plaintiffs’ annual loss over a period of 20 years on current rates; ...”

That method of calculation was, of course, untenable.  If an ongoing loss at $1,400 per annum was to be projected over a twenty year period and compensated for by a lump sum to be paid now, the sum would have to be discounted for present value.  No actuarial calculations were offered to the court upon which a calculation made in that way could properly have been worked out.

As to the assessment of damages, the learned trial Magistrate had this to say:

“(Judgment page 20)  Whilst it would have been much easier for the court to determine the quantum had further evidence been led by the plaintiffs, I have to resolve the matter on whatever there is before me and make the most of what the plaintiffs told me about the matter.

Firstly, there is the evidence of Mr White, “spokesperson” for the plaintiffs, that had he known the true situation he would not have paid more than $130,000 for the units.  .......  This, together with Mr Schreiner’s evidence on the subject, “..... if (the correct rates) may well have stopped us from proceeding.  Mrs Schreiner ... was asked, ‘If you had known that the council rates were not $1,200 but $2,604 per annum, would you have proceeded with the transaction?’; Mrs Schreiner responded, ‘No, not at that price, no’.  Mrs Heidi White’s evidence was that she relied on her husband totally.

In the absence of any other evidence, it seems to me that the plaintiffs’ loss can fairly be assessed at $10,000....”

The learned trial Magistrate proceeded to enter judgment in favour of the respondents against the appellants in that sum.

The learned trial Magistrate did not reveal in her reasons for judgment precisely how she came to the figure of $10,000.  It may be that it represented the difference between what the respondents suggested would have been their highest offer for the property if they had known of the true level of the rates, namely, $130,000, and the amount actually paid, that is, $140,000.

Be that as it may, it appears to me that the award of damages cannot be justified.

It is common ground that the assessment of damages under the relevant provisions of both the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (SA) fall to be assessed on the same basis as that which applies in tort. Proof of actual loss or damage is “the gist of the action”. Absent proof of loss or damage, the cause of action under the statutory provisions is not made out: Sellers v Adelaide Petroleum NL and Ors.[4]

[4] (1994) 120 ALR 16 at 24 and 31.

In Kizbeau Pty Ltd and Ors v W.G. and B. Pty Ltd and Anor ,[5] Brennan, Deane, Dawson, Gaudron and McHugh JJ in their joint judgment observed:

[5] (1995) 131 ALR 363 at 369.

“Actions based on s52 are analogous to actions for torts. It follows that, in assessing damages under s82 of the Act, the rules for assessing damages in tort, and not the rules for assessing damages in contract, are the appropriate guide in most, if not all, cases.[6]

[6]    Referring to Brown v Jam Factory Pty Ltd (1981) 35 ALR 79 at 88; Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 at 59; Brown v Southport Motors Pty Ltd (1982) 43 ALR 183 at 186; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 6-7, 14; 62 ALR 600.

In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it.[7]  Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date.”[8]  (emphasis added)

[7]    Referring to Holmes v Jones (1907) 4 CLR 1692 at 1702-3; Toteff v Antonas (1952) 87 CLR 647 at 650-1; Gould v Vaggelas (1985) 157 CLR 215 at 220, 255, 265; 56 ALR 31.

[8] Ibid at 220.

Kizbeau concerned alleged false representations associated with the sale of a motel business.  Later in their joint judgment, their Honours observed:

“In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business.”

In support of the latter observation, their Honours referred to certain passages which appear in the judgment in Gould v Vaggelas.[9]  In that case Gibbs CJ observed:[10]

[9]    Supra.

[10]   Ibid 220-221.

“The usual rule is, however, only a special application of the general principle that ‘In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant’: Toteff v Antonas.[11]  In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement: Holmes v Jones;[12] see also Canavan v Wright;[13] Doyle v Olby (Ironmongers) Ltd;[14] and South Australia v Johnson.[15]  In McAllister v Richmond Brewing Co (NSW) Pty Ltd,[16] Jordan CJ suggested that this general principle is subject to a rule (which he called a rule of practice) which requires the usual measure of damages to which I have already referred to be applied in all but exceptional circumstances,  He said:[17]

[11]   Ibid at 650.

[12]   Ibid at 1709.

[13] [1957] NZLR 790 at 802.

[14] [1969] 2 QB 158 at 167.

[15] (1982) 42 ALR 161 at 169-170.

[16] (1942) 42 SR (NSW) 187 at 192.

[17] Ibid at 192.

‘A rule of practice is, however, now well established that where a person complains that he has been induced by deceit to buy something and pay more for it than it was worth, the amount of damages which he is entitled to recover is restricted, prima facie at any rate, to the amount by which the price which he has paid exceeds the true value of the thing bought at the time when he bought it: Potts v Miller.  The rule is well settled, and exceptional circumstances are necessary to justify an award of anything more by reference to the general principle, but such circumstances may occur.’

He went on to suggest that a defrauded purchaser of a business could not recover compensation for losses incurred in carrying on the business as well as damages assessed according to the usual measure, unless, perhaps, as a result of the deceit, the purchaser had been led to have dealings with a third party which made rescission impossible.[18]  The reasons given for this conclusion were that the possibility of trading losses must have been taken into account in assessing the value of the business at the date of the contract (see also Selman v Minogue[19]) and if the business had no value the purchaser should have rescinded the contract and thrown the loss back onto the vendor.  This rule, is, with all respect, not quite as inflexible as Potts v Miller might suggest.  There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business.  There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable).  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.”

[18] Ibid at 193.

[19] (1937) 37 SR (NSW) 280 at 285.

In his judgment, Dawson J observed:[20]

[20]   Gould v Vaggelas supra at 265-266.

“Thus, in deceit it is not sufficient for the plaintiff merely to show that the thing bought is not worth as much as it would have been if the representations had been true; he must show that it was worth less than he actually paid for it:”[21]

[21]   Citing Holmes v Jones (1907) 4 CLR 1692 and Toteff v Antonas (1952) 87 CLR 647.

The observance of a distinction between the tortious from contractual measure of damages led to the scope of damages for deceit being so narrowly stated, at least in cases involving the sale or allotment of shares, as to exclude consequential loss from being added to the difference between the price paid and the actual value.”

After going on to refer to the rigidity with which the rule was applied in the case of acquisition of shares, His Honour continues:

“Certainly in cases of deceit not involving the sale or allotment of shares it had been recognised that direct consequential loss was recoverable.[22]  And now the decision n Doyle v Olby (Ironmongers) Ltd[23] establishes that in the case of the sale of a business, although the measure of damages is prima facie the difference between the amount paid and the value of the property acquired, the damages will include the whole loss directly flowing from the fraudulent inducement and, because of the element of fraud, it appears that this may be so, whether or not the loss was reasonably foreseeable: see South Australia v Johnson.[24]  However, in cases of this kind there may be difficulty in ascertaining what losses are direct and what loses are consequential if the prima facie measure of damages, which the cases require, is first applied.”

[22]   Citing Mullet v Mason (1866) LR 1 CP 559, Milne v Marwood (1855) 15 CB 778 [139 ER 632], Denton v Great Northern Railway Co (1856) 5 El & Bl 860 [119 ER 701], Hornal v Neuberger Products Ltd [1957] 1 QB 247 and Canavan v Wright [1957] NZLR 790.

[23] [1969] 2 QB 158.

[24] (1982) 42 ALR 161 at 169-170.

In this case, it is clear from the evidence and the course of the negotiations which preceded the entry into the contract, that the vendor was unwilling to sell for $130,000.  It must follow from that that there was no lost opportunity to purchase the property at a lower price.

Furthermore, this is one of those cases where there was no real opportunity to rescind as the contract had been perfected by conveyance effected by a third party before the misrepresentation was ascertained.

On the other hand, the property was, after all, being purchased as an investment and does not, in those circumstances, differ much from the cases to do with the sale and purchase of shares.  If it was thought that the outgoings on the investment would be too high if those outgoings included annual council rates of $2,604, the court was entitled to assume that the property could be resold at least at the price the respondents paid for it.  At least, there is no reason why such an assumption should not be made, absent any evidence that in fact the property was worth less.  A sale would realise the capital value which would become available for investment in other properties.  The case, therefore, is more akin to the share cases, where there is usually a ready market for resale, rather than cases where the purchaser of a business has no real choice but to go on trading, at least for a time, at a loss.

However the matter is approached, it seems to me that the starting point in the assessment of damages should have been a consideration of the question whether or not the property was in fact worth what was paid for it, allowing for the fact that the council rates were higher than was represented.

The respondents did not go about proving their case in that way.  They made no attempt whatever to prove the value of the property except by reference to whatever inferences might properly be drawn from their recent purchase of it at $140,000.

However, the appellants put forward evidence of value in the form in which I have indicated, namely, a certified extract from an entry in the valuation roll which indicated that the Valuer-General placed a “capital value”: on the property for “96/97” of $200,000.  The tender by the appellants of the extract was by consent.  That item of evidence was admissible only with respect to value.  There was no other issue in the case with respect to which it could have been adduced.

The only inference to be drawn from that sequence of events is that the respondents were eschewing as part of their case in damages, any reliance upon or reference to the value of the property.  Given the principles to which I have referred in the authorities, their omission to lead evidence as part of their case of the value of the property seems to me to be both unfortunate and significant.

I suppose that if they had led other evidence from which the court might properly have found that, notwithstanding the Valuer-General’s valuation, the value of the property at the relevant time was no more than the respondents paid for it, it might well be that the capitalisation of the present value of outgoings represented by the additional rates over and above the rates which were represented, could possibly have been allowable as a consequential loss.  But as I have pointed out, there are some difficulties in following that course in this case.

Be that as it may, as I have indicated, the respondents did not go about the process of proving their loss in that way.  They did not take the first step forward which is normally taken in cases of this kind, that is, to produce evidence from which the court might properly find that the property was not worth the price paid for it.

When the only evidence of value, which was apparently not contested by the respondents, could only have led to a finding that the property was in fact worth much more than was paid for it, it seems to me that the claimed loss was not made out.

The case is unfortunate, in that, in my opinion, because the respondents failed to go about the process of proving their loss on a proper basis, at the end of the day there was no material before the court upon which it could properly find that they had suffered a recoverable loss.

While it is not for me to speculate, it may be that it would be proper to draw the inference that, absent any evidence called by the respondents to demonstrate that the property was worth no more than was paid for it, or less than the purchase price, such evidence was not available to the respondents, or putting it another way, it may be that the appropriate inference to draw from the course of the trial is that, given the tender of the Valuer-General’s valuation, by consent, the respondents had no countervailing evidence available to them on that aspect of the matter.

In my opinion, the claims should have been dismissed.

I would allow the appeal and substitute a judgment and order dismissing the respondents’ claim.