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WALKER & ANOR -v- HENVILLE & ANOR [1999] WASCA 117

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[1999] WASCA 117
Court:	THE FULL COURT (WA)
Case No:	FUL:197/1998	Heard:	3 JUNE 1999
Coram:	MALCOLM CJ IPP J STEYTLER J	Delivered:	9/08/99
No of pages:	30	Judgment Part:	1 of 1
Result:	Appeal upheld
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Parties:	GRAHAM GEOFFREY WALKER WALKER PADDON REAL ESTATE PTY LTD BRYAN SAMPSON HENVILLE BRYAN SAMPSON HENVILLE AS TRUSTEE FOR THE HENVILLE PROPERTY TRUST
Catchwords:	Trade practices Enforcement and remedies Action by property developer against estate agent Misleading conduct one of several causes of loss Quantification of damages Damages General principles Causation Whether plaintiff's conduct a novus causa interveniens March v E & M H Stramare Pty Ltd applied and explained
Legislation:	Trade Practices Act s 52
Case References:	Argy v Blunts (1990) 26 FCR 112 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Gould v Vaggelas (1985) 157 CLR 215 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12 Medlin v State Government Insurance Commission (1995) 182 CLR 1 M'Kew v Holland & Hannen & Cubitts [1970] SC (HL) 20 Sharp v Ramage (1995) 12 WAR 325 Sutton v A J Thompson Pty Ltd (In liq) (1987) 73 ALR 233 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842 Clemance v Hollis [1987] 2NZLR 471 Cummings v Lewis (1993) 41 FCR 559 Devries v Australian National Railways Commission (1993) 177 CLR 472 Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 Gardner Corporation Pty Ltd v Zed Bears Pty Ltd, unreported; FCt SCt of WA; Library No 990181; 13 April 1999 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Kenny and Good Pty Ltd v MGICA (1992) Ltd (1997) ATPR 41 McWilliams Wines Pty Ltd v L S Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 MGICA v Kenny & Good 140 ALR 313 Steiner v Magic Carpet Pty Ltd (1984) ATPR 40 Wilson v Peisley 50 ALJR 207 Zoneff v Levcom Credit Union Ltd (1990) ATPR 41

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : WALKER & ANOR -v- HENVILLE & ANOR [1999] WASCA 117 CORAM : MALCOLM CJ

IPP J

STEYTLER J

HEARD : 3 JUNE 1999 DELIVERED : 9 AUGUST 1999 FILE NO/S : FUL 197 of 1998 BETWEEN : GRAHAM GEOFFREY WALKER

First Appellant (First Defendant)

WALKER PADDON REAL ESTATE PTY LTD

Second Appellant (Second Defendant)

AND

BRYAN SAMPSON HENVILLE

BRYAN SAMPSON HENVILLE AS TRUSTEE FOR THE HENVILLE PROPERTY TRUST

Respondents (Plaintiffs)

Catchwords:

Trade practices - Enforcement and remedies - Action by property developer against estate agent - Misleading conduct one of several causes of loss - Quantification of damages

Damages - General principles - Causation - Whether plaintiff's conduct a novus causa interveniens - March v E & M H Stramare Pty Ltd applied and explained

(Page 2)

Legislation:

Trade Practices Act s 52

Result:

Appeal upheld

Representation:

Counsel:

First Appellant (First Defendant) : Mr P G McGowan

Second Appellant (Second Defendant) : Mr P G McGowan

Respondents (Plaintiffs) : Mr P Mendelow

Solicitors:

First Appellant (First Defendant) : Phillips Fox

Second Appellant (Second Defendant) : Phillips Fox

Respondents (Plaintiffs) : Bowen Buchbinder Vilensky

Case(s) referred to in judgment(s):

Argy v Blunts (1990) 26 FCR 112
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Gould v Vaggelas (1985) 157 CLR 215
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12
Medlin v State Government Insurance Commission (1995) 182 CLR 1
M'Kew v Holland & Hannen & Cubitts [1970] SC (HL) 20
Sharp v Ramage (1995) 12 WAR 325
Sutton v A J Thompson Pty Ltd (In liq) (1987) 73 ALR 233
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

Case(s) also cited:

Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842
Clemance v Hollis [1987] 2NZLR 471
Cummings v Lewis (1993) 41 FCR 559
Devries v Australian National Railways Commission (1993) 177 CLR 472

(Page 3)

Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd, unreported; FCt SCt of WA; Library No 990181; 13 April 1999
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Kenny and Good Pty Ltd v MGICA (1992) Ltd (1997) ATPR 41
McWilliams Wines Pty Ltd v L S Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723
MGICA v Kenny & Good 140 ALR 313
Steiner v Magic Carpet Pty Ltd (1984) ATPR 40
Wilson v Peisley 50 ALJR 207
Zoneff v Levcom Credit Union Ltd (1990) ATPR 41

(Page 4)

1 JUDGMENT OF THE COURT: This appeal concerns a claim for damages for misleading conduct, in breach of s 52 of the Trade Practices Act, concerning a property development in Albany. Essentially, it turns on questions of causation and proof of damage.

2 The two appellants (Mr G G Walker and a company controlled by him) have - throughout the proceedings - been treated as one entity and referred to, collectively, as Mr Walker. The respondents, too, have been referred to collectively as Mr Henville. We shall continue that practice.

The issues of causation and proof of damage

3 In 1995 Mr Walker was a real estate agent carrying on business in Albany. He represented to Mr Henville (an architect and property developer), in terms that we will set out in more detail, that the property market in Albany favoured the sale of quality home units, and that if certain units were to be built on certain property of which Mr Walker was the selling agent, each could be sold for $250,000 to $280,000. In reliance on these representations, Mr Henville purchased the property in question, namely, 36 View Street, Albany. He proceeded to construct three quality home units on the property. The units, however, were sold for prices that in the aggregate amounted to $545,000.00. The costs of the development amounted to $846,846.51. Mr Henville claimed, as damages, $319,846.51, being those costs less the net proceeds of the sale of the units.

4 The learned trial Judge found that Mr Walker's representations constituted misleading conduct that caused Mr Henville to sustain loss. But his Honour concluded that the misleading conduct was not the only cause of Mr Henville's loss. There were several other causes which contributed thereto. These included carelessness on the part of Mr Henville and his adviser (Mr Waldock) in calculating the costs of the development (prior to proceeding with it), and other factors which led to the costs of construction being significantly greater than Mr Henville expected. His Honour sought to accommodate these various causes in the manner in which he quantified the damage for which Mr Walker was held to be liable.

5 Mr Walker argued in this appeal that his misleading conduct was not, in law, the true cause of Mr Henville's loss. He argued, in the alternative, that, Mr Henville had failed, properly, to prove his loss. These arguments give rise to the main issues on the appeal. Mr Walker also raised the

(Page 5)

subsidiary argument that, on the evidence, certain predictive statements by him were not misleading.

Mr Walker's representations

6 The View Street property is 1,366 square metres in area and is situated approximately 1 km west of the Albany town centre. The trial Judge described it as follows:

"The frontage to View Street is about 30 metres and the block is of rectangular shape with a depth of a little more than 45 metres rising about 6 metres to the rear or northern boundary. This gives the site a sloping south facing aspect, with commanding views over Princess Royal Harbour to Frenchman's Bay and to the lower end of the Albany shopping and port areas. The block was zoned R30 which meant that a development of up to four residential units was permitted."

7 Mr Henville had worked in the Public Works Department as an architect for many years until 1985, when he left to establish his own practice. In 1994 he became interested in property development and set up practice as a consultant in that field. In December 1994 he decided to investigate property development opportunities in Albany and consulted Mr Walker in this respect. Mr Henville told Mr Walker that he was looking for properties suitable for unit development. Mr Walker showed Mr Henville some properties but nothing came of them.

8 Eventually, in June 1995 Mr Walker showed Mr Henville the View Street property. As they walked over the block, Mr Walker told Mr Henville that there was a "huge void" at the top end of the market in Albany, that he often received enquiries from people asking for "luxury top of the range units for investment and retirement", and that nothing of that kind was available. He said there was always a shortage of quality home units in prestige locations in Albany. He referred to "farmers coming down to Albany with million dollar wool cheques" who were "unable to spend them". Mr Walker pointed to the excellent views. He expressed the opinion that although as many as four units could be built on the property it would be better to build three larger high quality units allowing more space around them and maximising the views from each unit. He said, "if three such units were built they would fetch between $250,000 and $280,000 each".

(Page 6)

9 The next day, 20 June 1995, Mr Henville submitted an offer through Mr Walker's firm to purchase the View Street property for $190,000, subject to finance, settlement to be on 7 August 1995. The offer was accepted on 21 June. Mr Henville asked Mr Walker to give him a letter to assist him in obtaining the finance required for the purchase. On 22 June Mr Walker wrote Mr Henville a letter in the following terms:

"Dear Bryan,

I am pleased to enclose copies of your accepted offer for the purchase of 36 View Street, Albany.

Having studied the plans for the three unit development, I am very excited with this project and predict a very enthusiastic market reception.

A large void of the Albany real estate market has been the availability of quality home units in prestige locations. We are constantly frustrated with buyer demand for this product and being able to supply.

A marketing plan will be to have all units sold within six months of commencement at a price range of $250,000 to $280,000. I am delighted with the responsibility of selling this project and am very confident of complete success.

Yours sincerely,

Graham Walker

Principal"

10 The learned trial Judge held that by his conduct Mr Walker had made representations of fact and of future matters to Mr Henville. The representations of fact were that "there was always a shortage of quality home units in prestige locations in the Albany real estate market" and "there existed a void in the Albany real estate market relating to the availability of quality home units in prestige locations". The representations as to future matters were that "there would be a very enthusiastic reception for [the proposed] units priced at between $250,000 and $280,000 when they came on the market" and "[Mr Henville] could expect to sell them all at prices within that range within six months of the completion of the development".
(Page 7)

11 The learned trial Judge found that these representations caused Mr Henville to believe that:

"All that needed to be done to obtain prices within the price range nominated was to build three spacious well designed and finished strata titled units at this site each exploiting the sweeping views that have been described. There was no question of any time constraint or of the risk of competition from other complexes under construction or plans. There was no qualification to the effect that a particularly high market was there to be taken advantage of at that time, but might not last."

His Honour found that by these representations Mr Henville was induced to purchase the View Street property and to proceed with the development of the three units on the block.

12 The learned Judge held that, contrary to Mr Walker's representations, in June 1995 there was little or no unsatisfied demand in Albany for quality group residential units and no demand at all for units in the price range between $250,000 to $280,000. There was not a shortage of quality home units in prestige locations in the Albany real estate market, and a void did not exist in that market in regard to the availability of such units. Accordingly, his Honour found that the representations of fact were misleading.

13 His Honour also found that reasonable grounds did not exist for the representations as to future matters. He said:

"The evidence is that as at June 1995 there had been no sales of group housing units in Albany at prices anywhere near the range of prices represented by Mr Walker. No market research had been done … or was available to justify the statements made by Mr Walker."

No evidence was produced to substantiate Mr Walker's claim that the level of inquiries he had received in the months leading up to June 1995 from buyers or potential buyers warranted his belief in the truth of his representations as to the prices that higher quality units at locations such as the View Street property would fetch on completion. His Honour concluded:

"All in all, the valuation evidence does not support the submission that there were reasonable grounds to make the representations which Mr Walker made to the effect that the units in question would sell for between $250,000 and $280,000

(Page 8)

and neither does the valuation material show that the representations to the effect that there was a demand for quality residential units in that price range were accurate or substantially so. On the contrary the valuation evidence as a whole strongly supports the plaintiff's case that the representations and predictions were baseless and misleading."

14 On appeal, counsel for Mr Walker contended that the representations as to future matters were not false. He pointed to evidence by valuers called by him that tended to support the predictive statements he made and submitted that the learned Judge erred in not accepting their testimony. These submissions, however, cannot be upheld. The valuation evidence in question was closely examined by the learned trial Judge. His Honour was critical of that evidence. The methodology used by the valuers was not always apparent, their reasoning was suspect, they tended to rely on unsubstantiated sales or sales that were not truly comparable and there were particular criticisms made in regard to individual witnesses. The learned Judge did not find the witnesses relied on by Mr Walker to be convincing and did not accept their evidence. There is nothing to suggest that his Honour was not entitled to come to the conclusion that he did in this regard and in our view the grounds of appeal based on these arguments cannot be sustained.

The feasibility study

15 On the evening of 19 June 1995, that is, prior to Mr Henville submitting his offer to purchase the property, he and Mr Waldock prepared what was described in evidence as a feasibility study. At the same time they prepared sketch plans, to scale, for the intended development. The feasibility study is a significant document which we will set out in full:

" _________________________________

36 VIEW STREET ALBANY

__________________________________

Feasibility (Site area 1366m2)

Three Unit Group Housing

Development

(Page 9)

Land Purchase 190,000

Surveyor 1,400

Headworks 7,000

Stamp Duty 5,000

(Settlement

(Ingoings/Outgoings 5,000

Interest 12,000

Driveway landscape 15,000

Building 315,000

Insurance (Comprehensive) 1,500

_________

Total $551,900

__________

See attached Letter from

Roy Weston Albany

Selling Price range 250 - $280,000

Say bottom range return 3 x 250 = 750,000

Less R E Sales Commission 22,000

________

Less = 728,000

551,900

_________

Profit $176,000

Shows 32% return"

(Page 10)

16 There are a number of points to be made concerning the feasibility study. Construction costs were estimated at $315,000, being $105,000 per unit. $34,900 was allowed for additional construction costs such as the costs of the surveyor, head works, stamp duty, driveway landscape, and insurance. Interest charges were estimated at $12,000. The cost of the land was $190,000. The aforegoing made up the aggregate estimated costs of $551,900. The bottom of the price range represented by Mr Walker, namely $250,000 per unit, was used to estimate the gross return of $750,000 on the sale of the units. Sales commission of $22,000 was deducted from the $750,000, leaving $728,000 as the expected net proceeds from the sale. Deducting the overall costs of $551,900 from $728,000, an estimated profit of $176,000 was arrived at, described by the learned trial Judge as "attractive".

17 His Honour held that the feasibility study was "an ill-considered exercise". He said:

"Mr Henville could give no satisfactory explanation for why the sum of only $12,000 was inserted for "interest". On the basis that the whole of the funds for the development were to be borrowed, no hard headed estimate of interest could have produced a figure of only $12,000. It does not appear from the evidence how [Mr Henville] arrived at the figure of $315,000 for building costs. It was a figure which turned out to be far too low and in the light of the evidence of a quantity survey … it is inconceivable that it could have been derived from any careful assessment of likely building costs for the high quality multi-level units which they planned."

18 The costing was not a particularly difficult exercise for knowledgeable persons such as Mr Henville and his associate, Mr Waldock. When asked why he did not build the units within the budget of $315,000, Mr Henville said that he had run into "unforeseen situations" which were beyond his control. There were indeed many unforeseen difficulties experienced in the construction, but on the evidence, had the feasibility study been prepared with due care, Mr Henville would have appreciated, even before he made the offer for the View Street property, that he would not be able to make anything like the $80,000 which was the minimum expected profitability that justified, in his mind, the undertaking of the project. The interest charges proved to have been understated by more than $100,000 and the construction costs by about $130,000. Had the feasibility study been prepared with due care,
(Page 11)

Mr Henville should have appreciated that there was every prospect of him incurring an overall loss on the project.

The development proceeds and difficulties are experienced

19 Mr Henville presented the feasibility study and Mr Walker's letter of 22 June to a bank and applied for a loan of $542,000, which was granted. The purchase was settled on 7 August 1995, Mr Henville submitted a building development application to the Town of Albany, and the development of the View Street property commenced.

20 Planning and engineering problems occurred that added significantly to the construction costs. By April 1996 it became obvious that there would be cost overruns, and the $542,000 which the bank had agreed to lend would not be nearly enough to finish the project. There were difficulties in increasing the overdraft. Work had to be suspended when the existing overdraft limit was reached. Tradesmen left the site. Delays occurred that led to substantial expenses by way of interest on bank charges for facilities provided.

21 The learned Judge found that in the second half of 1995 and throughout 1996 comparatively few properties in Albany were being sold quickly for the asking price. He observed:

"Properties were standing unsold for longer than usual and vendors were accepting offers between 10 per cent and 15 per cent below the asking price in order to make sales."

22 In 1996 the property market was described as having "slowed dramatically" and being "flat" and "static". The units were completed in December 1996. A sales campaign was commenced by Mr Walker, who had been appointed the selling agent for the units. The market had not improved. His Honour described the sales campaign as "singularly unsuccessful". This was not the fault of the units themselves. The learned Judge found that there was nothing about their construction or finish which detracted from their general marketability. They were well designed, well constructed and well finished to what was described as a "high quality" standard.

23 The units were initially listed for sale at a price of $295,000 each. The learned Judge explained how this asking price was arrived at. He said:

(Page 12)

"Mr Henville was very proud of the View Street development. With some justification he judged them to be the best units yet built in Albany. I think it is probable that he determined to really test the top end of the market with them by starting them at $295,000 and that it was he who nominated the figure."

His Honour held that:

"Mr Walker also considered the development to be the best yet in Albany, [and] he was pleased to be associated with it professionally".

His Honour found that Mr Walker accepted the listing, "hoping and expecting to get buyers, perhaps not at $295,000, but, if not at $280,000, then at prices near that price." His Honour considered that the nomination of $295,000 as the initial asking price was a serious mistake and that it probably doomed the initial sales campaign to failure, or substantially contributed to that result. As indicated, both Mr Henville and Mr Walker were involved in this decision. It was not suggested, on appeal, that the high asking price played any part in breaking the chain of causation.

24 It is not necessary to detail the various steps that occurred in the attempt to sell the units. Suffice it to say that on 28 June 1997 the units were sold at and after an auction. One unit was knocked down for $175,000 and the other two were sold thereafter by negotiation for $185,000 each.

The damages claim

25 Mr Henville's claim for damages was particularised as being the cost of purchasing the View Street property, plus the cost of constructing the three units, less the aggregate sale price the units fetched at the auction. As regards the cost of construction, Mr Henville claimed "every item of cost which he laid out on the View Street project, including all bank charges, government duties and interest on borrowings, less only the net amount received on the sale of the units".

26 He quantified his claim at $319,846.51, which included interest to 1 February 1998. There was also a claim for special damages interest at $3500 per month thereafter. The sum of $319,846.51 was made up as follows:

"Capital costs (including the purchase price

of the land, stamp duty and settlement fee) $195,719.00

(Page 13)

Construction costs $461,170.00

Interest $161,982.00

Miscellaneous expenses $35,975.51

$864,846.51

less selling prices of the units (two units

at $185,000 and one at $175,000) $545,000

Net Total$319,846.51"

27 Mr Henville did not suggest that the View Street property was worth anything less than the amount paid for it by Mr Henville. Essentially, therefore, Mr Henville's loss resulted from him embarking on the development and expending money thereon.

The contributing causes of the loss and the damages award

28 At the trial Mr Walker denied that there was a causal connection between his misleading conduct and Mr Henville's loss resulting from the expenditure incurred in building the units. Mr Walker contended that the real cause of the loss was the carelessly prepared feasibility study, the costly design of the units, lack of adequate funding and inappropriate marketing of the units.

29 The learned trial Judge did not accept that the misleading conduct was not causative of loss. In this regard his Honour held that the misleading conduct was a "substantial inducement" to Mr Henville in deciding to develop the property. As the loss flowed from the development, the misleading conduct (his Honour found) was a cause of the loss. The learned Judge attached a qualification to this finding, however. He said:

"All the same I do not think all the expenditure and outgoings outlaid in respect of this development represent losses suffered by [Mr Walker's] impugned conduct. A representation that a development will be worth a certain amount when completed has no capacity to cause losses at large. It is no warrant to design units that will end up costing more and the amount for which it was represented that they could be sold. Losses which are really down to extravagant design, to the lack of a proper

(Page 14)

costing of the proposed design, to the lack of financial resources to complete the development embarked on and to the failure to get the project finished in a reasonable time are not losses suffered by a misrepresentation as to the market value which the development will have on completion. Therefore in a case like this I do not think the amount which the units actually cost to build is an appropriate basis from which to measure [Mr Henville's] recoverable loss."

30 Implicit in these remarks is the finding that, in addition to Mr Walker's misleading conduct and the feasibility study, there were other causes which contributed to the damages claimed, namely, "extravagant design", "the lack of financial resources", and "the failure to get the project finished in a reasonable time". By "extravagant design" we understand his Honour to mean a design that made it inevitable that the building costs would be far more than those expected by Mr Henville when preparing his feasibility study. The lack of financial resources contributed to Mr Henville being required to meet interest charges far higher than the $12,000 reflected in the feasibility study. The delay in completing the project caused higher interest charges and increased costs of construction.

31 The learned Judge was of the view that losses caused other than by misleading conduct were not recoverable. His Honour noted that Mr Henville proceeded with the development "because he had been told and believed that the three units would fetch at least $250,000 each", and concluded:

"That being so, the upper limit of his primary loss should be calculated not on what [Mr Henville] ended up spending to complete the units but on $250,000 per unit."

The learned Judge explained:

"It seems to me that this approach brings properly to account in [Mr Walker's] favour all matters which [Mr Walker says] should go against an award of damages to [Mr Henville], such as careless costings, inadequate planning, insufficient funding, inept project management, excessive delays and so on. In particular, it does, I think, place at [Mr Henville's] feet the losses occasioned by the weaknesses in [Mr Henville's] own feasibility study pursuant to which [Mr Henville] judged that the particular development which he designed could be

(Page 15)

undertaken profitably on a gross selling price of $250,000 per unit."

32 His Honour concluded that the capital loss suffered by Mr Henville was the difference between $750,000 (being three times $250,000) and the aggregate sale prices achieved at auction, that is, $545,000. Accordingly the learned Judge awarded judgment in favour of Mr Henville in the sum of $205,000 plus interest from 1 June 1997.

33 As regards interest, his Honour said:

"If all of the units had been sold for an aggregate of $750,000 within six months of completion of the development, there would be no basis for complaint."

His Honour was of the opinion that the period of "six months of completion of the development" expired on 31 May 1997. He therefore allowed interest from 1 June 1997.

The relevant principles of causation

34 We now turn to the principles of causation that govern the question whether the damages suffered by Mr Henville were caused "by" the misleading conduct of Mr Walker (within the meaning of the word "by" in s 82 of the Trade Practices Act) in contravention of s 52.

35 In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Mason CJ, Dawson, Gaudron and McHugh JJ said:

"The statutory cause of action arises when the plaintiff suffers loss or damage 'by' contravening conduct of another person. 'By' is a curious word to use. One might have expected 'by means of', 'by reason of', 'in consequence of' or 'as a result of'. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common sense concept of causation recently discussed by this Court in

March v E & M H Stramare Pty Ltd

(1991) 71 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provision of the Act. Had parliament intended to say something else, it would have been natural and easy to have said so."

(Page 16)

36 The question of causation in the present case is complicated because the causes (in law) contributing to Mr Henville's loss fall into two categories. The first category comprises the act or acts which are properly to be seen as having caused Mr Henville to develop the property. There are two acts which, arguably, fall into this category, namely, Mr Walker's misleading conduct and Mr Henville's preparation of and reliance on his defective feasibility study. Each of these, arguably, played a part in inducing Mr Henville to develop the property. Each was at least an essential condition of his loss in the "but for" sense. It is not possible to separate and calculate the loss resulting from the misleading conduct and the loss resulting from the defective feasibility study. Such loss is indivisible.

37 The second category of causes contributing to Mr Henville's loss comprises such matters as extravagant design, lack of financial resources, delays, and cost overruns in construction, which had nothing to do with Mr Walker. We shall refer to these matters, collectively, as "the cost overruns and delays". These matters fall into a different category as they did not induce the development and, importantly, it was feasible, in practice, to establish, by way of evidence, what amount of the overall loss is to be attributed to each. The separate losses so quantified would be independent heads of loss which do not form part of the indivisible loss caused by the first category of causes.

38 The issues that arise are not fundamentally dissimilar to those described by Gibbs CJ in Gould v Vaggelas (1985) 157 CLR 215 (at 221 – 222):

"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. 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 recurrence, has already been taken into account in determining the value of the business."

(Page 17)

To paraphrase Gibbs CJ, the question to be addressed when considering the first category of causes is: Did Mr Henville's loss result directly from the misleading conduct and not from a supervening cause being the folly, error or misfortune of Mr Henville himself in relying on the defective feasibility study? The questions to be addressed when considering the second category of causes are: did at least part of Mr Henville's loss result directly from the cost overruns and delays? If so, is Mr Walker responsible for that part of the loss? If not, can that part of Mr Henville's loss for which Mr Walker is responsible be quantified? If not, what is the consequence?

39 We shall first deal with the question whether Mr Henville's conduct in preparing and relying on the defective feasibility study is to be regarded as a supervening cause that broke the chain of causation linking the misleading conduct to the loss, or to employ what may nowadays be regarded as more appropriate terminology, whether Mr Walker's conduct, as between himself and Mr Henville, and as a matter of common sense and experience, is properly to be seen as having caused the relevant loss.

40 In March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, it was held that the issue of causation is essentially a question of fact to be answered by reference to common sense and experience. The "but for" test of causation still has an important role to play, but only as a negative criterion of causation (Mason CJ at 515). This means that an act may be "an essential condition" of a consequence but not a "cause" of the consequence (Mason CJ at 517, Deane J at 523). Consistently with this approach, the term "novus actus interveniens" is to be regarded as merely a label and not part of any principle (see McHugh J at 530-531, albeit his Honour was in dissent). Nevertheless, the traditional tests of assessing whether an act is a superseding cause are useful tools in attempting to determine whether, according to common sense and experience, an intervening action is to be regarded as breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. This can be seen, for example, in the approach of Mason CJ who said (at 518 to 519):

"As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or

novus actus interveniens

when the defendant's wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things. In such a situation the defendant's negligence satisfies the 'but for'

(Page 18)

test and is properly to be regarded as a cause of the consequence because there is no reason in common sense, logic or policy for refusing to so regard it."

41 The principles were, with respect, helpfully set out by Deane, Dawson, Gaudron and Toohey JJ in Medlin v State Government Insurance Commission (1995) 182 CLR 1 (at 6-7):

"For the purposes of the law of negligence, the question whether the requisite causal connexion exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of common sense and experience. And that remains so in a case such as the present where the question of the existence of the requisite causal connection is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, the 'but for' test, while retaining an important role as a negative criterion which will commonly (but not always) exclude causation if not satisfied, is inadequate as a comprehensive positive test. If, in such a case, it can be seen that the necessary causal connection would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of common sense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken the chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision …

Nor can the question of causation of damage in a negligence action be automatically answered by classification of operative causes as 'pre-eminent' or 'subsidiary'. Regardless of such

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classification, two or more distinct causes, without any one of which the particular damage would not have been sustained, can each satisfy the law of negligence's common sense test of causation."

42 It remains to apply these principles to the facts of the present case. In so doing it is necessary to bear in mind the rule that an act may be a cause of loss even if it is only a minor cause and there are other, more important, contributing causes. This is made clear in Gould v Vaggelas (see the remarks of Brennan J at 250 - 251 and Wilson J at 236). Thus, if a succeeding act occurs that – together with prior and independent misleading conduct - contributes to an indivisible loss, both will be regarded as concurring causes of the loss, unless the succeeding act (as a matter of common sense and experience) is properly to be seen as the sole cause of the loss. Where misleading conduct by the defendant and carelessness by the plaintiff are concurring causes of an indivisible loss, the defendant will be liable for the entire loss (even if the plaintiff's conduct contributes more significantly to the loss).

43 As we have pointed out, any loss caused by Mr Walker's misleading conduct and Mr Henville's reliance on the feasibility study is indivisible. Thus, if Mr Henville's reliance on the feasibility study, as a matter of common sense and experience, is not properly to be seen as having been the sole cause of such loss, he is entitled to recover all of it. We repeat, however, that losses caused by the cost overruns and delays are not necessarily part of the loss caused by the misleading conduct and the feasibility study (and that is a matter to be discussed later in these reasons).

Did the misleading conduct induce the development?

44 Although Mr Walker represented to Mr Henville that the units could be sold at a range between $250,000 and $280,000, Mr Henville made his calculations concerning the likely profit by adopting the price at the bottom of the range, namely $250,000. The learned trial Judge approached the matter by holding that Mr Walker's conduct had to be assessed on the basis that he had represented that the units would fetch $250,000. While counsel for Mr Henville submitted that the upper range of prices had significance, in our view that significance was only that $250,000 was the bottom of a range, and there was some prospect of higher prices being obtained. The fact is that had the units realised $250,000 each, Mr Henville could have had no complaint.

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45 As mentioned, the decision to proceed with the development was made by Mr Henville on the basis that it would produce a profit of $176,000. This assumed that the units could be sold for $250,000 each and the development as calculated according to overall costs of the project (including sales commission), would amount to $571,900.

46 Mr Henville testified that he only proceeded with the project because he believed that it was likely to realise a profit of between $80,000 to $100,000. Had he believed that the profit was likely to be less than $80,000, he would not have proceeded with the development.

47 In order to determine whether, but for Mr Walker's misleading conduct, Mr Henville would have proceeded with the development, it is necessary to have regard to what Mr Henville would have done had the true position in regard to the market for the units been conveyed to him in June 1995 by Mr Walker. There is some difficulty in determining this as the learned Judge made no finding as to what quality home units on the View Street site would have been likely to realise at the relevant time. The critical effect of such a finding is apparent from the arithmetical calculation that, assuming the overall costs (including sales commission) to be $571,900 as set out in the feasibility study, selling prices of $217,300 per unit would have resulted in a profit of $80,000 on the project. Mr Henville, on this basis, may well have proceeded with the development.

48 There was evidence that in February 1996 a unit had been sold in the Middleton Beach area for $219,000. In June 1996 a unit was sold for $240,000. Both these sales were "on the other side of Albany from the View Street development." His Honour observed, "it is difficult to know how the evidence of sales … actually does lend support to the opinion expressed as to the market value of the units in question." As at June 1997, no group residential units had been sold in Albany for more than $240,000, and only one unit had been sold at that price. The next highest price obtained was $215,000 and all other sales were less than that. There was evidence that there were 110 sales of duplexes and triplexes on strata titles in Albany from 1 January 1994 to 31 December 1997. Of these, seven units were sold for more than $200,000 and 103 were sold for less.

49 Mr Marshall, a valuer called by Mr Henville, gave the learned Judge the "impression that he never really believed the units in question were saleable, or readily saleable, for much more than $200,000." His Honour did not, however express an opinion as to whether he accepted the

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evidence of Mr Marshall. We have mentioned that his Honour found the evidence of various other valuers to be unreliable.

50 In making any attempt to arrive at a finding on the available evidence as to what would have been a reasonably accurate opinion in June 1995 concerning the market for quality units in Albany, regard must be had to the fact that Mr Henville's units were intended to be "the best units yet built in Albany" and, as the learned Judge observed, Mr Henville had "determined to really test the top end of the market". In other words, it was expected that the units would be of such a quality that they were likely to realise more than any other similar type of unit had previously fetched in Albany.

51 Doing the best we can on the evidence (taking into account his Honour's criticisms and doubts in regard thereto), we would infer that had Mr Walker given Mr Henville a reasonably accurate opinion, based on reasonable grounds, he would have told him that the units were likely to fetch between $210,000 to $230,000. On the basis of overall costs of $571,900, the profit range would then have been between about $58,000 to $118,000.

52 The question is whether Mr Henville would have proceeded with the development in such circumstances. In considering this issue, regard must also be had to the fact that, had Mr Walker informed Mr Henville accurately as to the market situation, he would have not told Mr Henville that "he was often getting enquiries from people asking for luxury top of the range units for investment and retirement", that "there was always a shortage of quality home units in prestige locations in Albany" and that there was a "huge void" at the top end of the market in Albany. An accurate report would have conveyed that, as his Honour found, "there was little or no unsatisfied demand in Albany for top quality group residential units and no demand at all for units in the price range in question, that is $250,000 to $280,000". Taking all these matters into account we would infer that but for Mr Walker's misleading conduct Mr Henville would not have proceeded with the development.

53 In the light of March v E & M H Stramare Pty Ltd it does not necessarily follow that Mr Walker's misleading conduct was a cause of the loss, but it was an essential condition of it.

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Did the feasibility study contribute to Mr Henville's decision to undertake the development?

54 Apart from the likely selling price, the cost of construction and related costs of developing the units were critical to the calculation of the expected profit. It is not surprising, therefore, that prior to offering to purchase the View Street property Mr Henville, with the assistance of Mr Waldock, prepared sketch plans and the feasibility study.

55 According to the evidence of a quantity surveyor, Mr O'Keefe, had the feasibility study been carefully undertaken it would have revealed that the cost of the building works (not taking interest into account) would have been about $469,500. The learned Judge said in regard to Mr O'Keefe:

"Whilst it may be accepted that there is room for error in any quantity survey undertaken retrospectively, I think Mr O'Keefe's calculations were thorough and were soundly based. What they show is that if a detailed quantity survey or estimate had been prepared in mid-1995 it would have indicated that this development as it was designed might only be marginally profitable on an end sale price of $250,000 for each unit. Incidentally, Mr O'Keefe's calculations seem to be borne out by what this development actually did cost. According to the agreed schedule the final building costs including external works came to about $461,000."

56 Taking into account expected expenses for the surveyor, stamp duty, interest and insurance, the overall building costs reflected in the feasibility study were less than $340,000. Thus as we have previously mentioned, the feasibility study understated the building costs by about $130,000.

57 Had the feasibility study not been carelessly prepared, and leaving aside for the moment the vastly inaccurate estimate for interest charges, it would have revealed that even on selling prices of $250,000 per unit, the profit would have been about $46,000. Had the interest charges been properly assessed as well, the feasibility study would have shown that the project could well result in a loss. Mr Henville would not then have proceeded with the development and would not have suffered any loss.

58 In regard to the submission that Mr Henville's wrong feasibility study was the real cause of him proceeding with the development (and not Mr Walker's misleading conduct), the learned Judge said:

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"I cannot accept this submission. The evidence does not show that this design was the only design that could have been used to develop the site. If a careful feasibility study had been done and had ruled out this particular design as too expensive, no doubt some different design could have been hit on to produce a development that would still meet the market which had been represented to exist."

59 There was no evidence, however, that a different design could have been prepared at a cost that would have enabled Mr Henville to make a profit of between $80,000 and $100,000, even if the units had been sold for $750,000. In any event, with respect to his Honour, it seems to us that the evidence establishes incontrovertibly that the defective feasibility study contributed significantly to Mr Henville's decision to proceed with the development. The estimated profit was the paramount factor that led Mr Henville to embark on the construction of the units. He relied on the feasibility study to establish the costs of the development. Without estimating the costs he could not estimate the expected profit. In assuming that the profits would be at least between $80,000 and $100,000, he relied on the feasibility study, as well as on Mr Walker's misleading conduct.

Was the feasibility study the sole cause of the loss?

60 The learned Judge stated:

"The dominant and real inducement to proceed with a development was the representation made by Mr Walker as to the market that existed for quality units. It was that representation that made the development worth doing and which gave the promise of a handsome profit."

61 With respect to his Honour we are unable to agree with these conclusions. Mr Walker did not represent that it was worthwhile proceeding with the development, nor that it promised a handsome profit. He did not comment on the viability of the development and said nothing about profit, handsome or otherwise. His representations related only to the likely selling price of the units once completed. The inference that Mr Henville could draw from the representations as to the selling price of the units was that if he could build within an acceptable cost, having regard to that expected price, he would make a profit of the kind that he desired. The inducing factor was always profit, and critical to that, in addition to price, was the element of costs.
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62 Indeed, the costs of the development were to a substantial extent the controlling element of its potential profitability. Once the market for quality units had been assessed, it was Mr Henville's task, alone, to design units of the requisite standard that could be constructed at an economic cost. It was also his task, alone, to ensure that the method and management of construction, and the financing of the development were such that the overall costs remained economic, having regard to the expected market price of the units.

63 In assessing, on a common sense basis, whether or not the defective feasibility study is properly to be regarded as the sole cause of the loss, it has to be borne in mind that Mr Walker's misleading conduct said nothing about the design of the units (save that they were to be "quality home units"), their method of construction, the project management, or the financing arrangements. All these factors were relevant to the ultimate result in which costs far exceeded the expected gross return of $750,000. Mr Walker would have been entitled to expect that his representations would not be acted upon without Mr Henville first satisfying himself that the likely costs of constructing the units would be such that the development would be profitable (taking into account the represented return).

64 Were it not for Mr Henville's error in grossly underestimating the building costs, he would have realised that there was no prospect of the development realising his minimum profit expectations, even if the units were sold for $750,000 and, indeed, there was a good prospect of a loss being incurred. He would then never have embarked on the project. On this basis, it seems to us, according to the criterion of common sense, Mr Henville was the author of his own misfortune and his conduct in preparing and relying on the erroneous feasibility study is to be regarded as the sole cause of his decision to proceed with the development.

65 This is not a case where the plaintiff did not look closely enough at false misrepresentations by the defendant. This distinguishes the case from those such as Argy v Blunts (1990) 26 FCR 112 and Sharp v Ramage (1995) 12 WAR 325, relied on by counsel for Mr Henville. In Argy v Blunts, Mr Argy, a solicitor, was induced to purchase property by misleading conduct on the part of a real estate agent, Mr Blunts. The misleading conduct involved representations that a purchaser could develop the property in such manner as he should desire, and that such development could take place anywhere on the land. Part of this misleading conduct involved the provision to Mr Argy of a copy of a facsimile copy of an incomplete certificate under s 149 of the

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Environmental Planning and Assessment Act 1979 (NSW)

. Mr Argy believed that the s 149 certificate was complete and did not notice that it was defective. It was submitted by Mr Blunts that Mr Argy thereby failed to take reasonable care of his own interests. Hill J (at 138) noted, however, that the applicant was induced by the respondent's misrepresentations and their effect was not lost by Mr Argy's cursory perusal of the contract. His Honour stated:

"The misrepresentations of Blunts were a, albeit not the sole, cause of the damage he suffered. Some part of that cause undoubtedly lay in Mr Argy's own failure to consider carefully the terms of the s 149 certificate. But, as the cases indicate, it is sufficient for the purposes of s 82(1) if the representation is but a cause of the loss."

The point, we think, that was determinative in

Argy v Blunts

was that Mr Argy acted imprudently in failing to discover that Mr Blunts' representations were false. On a common sense basis, Mr Argy's omission to discover the truth about the certificate could not be regarded as the sole cause of his decision to purchase the property. Mr Blunts' representations remained the factor that induced Mr Argy to proceed. In the present case, Mr Henville's carelessness in regard to the feasibility study did not prevent him from discovering that Mr Walker's representations were untrue. Rather, the defective feasibility study operated as a subsequent inducement to himself to undertake the development. This was an inducement entirely unrelated to Mr Walker's misrepresentations. That is to say, Mr Henville's "folly" or "error" (to use the words of Gibbs CJ in

Gould v Vaggelas

at 221 – 222) in regard to the feasibility study operated as a subsequent, separate, entirely independent inducing factor.

66 In Sharp v Ramage, the plaintiffs (like Mr Argy) failed to make appropriate enquiry concerning the subject matter of misrepresentations made to them. It was held that this omission on their part did not constitute a novus actus interveniens. A similar situation obtained in Sutton v A J Thompson Pty Ltd (In liq) (1987) 73 ALR 233. As has been noted, cases of this kind involve arguments by the defendant that "you should not have believed me when I misled you" (see Sutton v A J Thompson Pty Ltd (In Liq) at 240). Mr Henville's error, however, was not that he believed Mr Walker; rather, he was misled by the product of his own work.

67 We are conscious of the fact that Mr Walker's misleading conduct continued to play a part in inducing Mr Henville to proceed with the development even after the feasibility study had been completed. That is

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because Mr Henville continued to assume that the units would realise $750,000. Nevertheless, applying a common sense approach, we do not think that the misleading conduct caused Mr Henville to proceed with the development. In our view, the cause was the feasibility study.

68 In March v E & M H Stramare Pty Ltd (at 517) Mason CJ referred to M'Kew v Holland & Hannen & Cubitts [1970] SC (HL) 20 and described the case and the underlying ratio of the decision in the following way:

"The plaintiff would not have sustained his ultimate injury but for the defendant's negligence causing the earlier injury to his left leg. His subsequent action in attempting to descend a steep staircase without a handrail in the normal manner and without adult assistance resulted in a severe fracture of his ankle. This action was adjudged to be unreasonable and to sever the chain of causation. The decision may be explained by reference to a value judgment that it would be unjust to hold the defendant legally responsible for an injury which, though it could be traced back to the defendant's wrongful conduct, was the immediate result of unreasonable action on the part of the plaintiff. But in truth the decision proceeded from a conclusion that the plaintiff's injury was the consequence of his independent and unreasonable action."

In

M'Kew

the final injury resulted from the plaintiff descending the staircase while handicapped by the earlier injury to his leg. Both the defendant's negligence in causing the earlier injury and the plaintiff's subsequent negligence in descending were essential conditions of the final injury. The House of Lords, applying the conventional reasoning of the time, regarded both the defendant's negligence and the plaintiff's negligence as causes of the final injury. It was held that the plaintiff's negligence was a

novus causa interveniens

that broke the chain of causation. Applying the reasoning of the majority in

March v E & M H Stramare Pty Ltd

, the plaintiff's negligence was not a

novus causa interveniens

; it was – on a common sense basis – the sole cause of the final injury. As it was expressed by Mason CJ, "the plaintiff's injury was the consequence of his independent and unreasonable action.". In other words the defendant's negligence was not a cause at all. In our opinion, applying the same reasoning, both Mr Walker's misleading conduct and Mr Henville's error in regard to the feasibility study were essential conditions of Mr Henville's loss. But Mr Walker's misleading conduct

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was not a cause of Mr Henville's loss; that loss was the consequence of Mr Henville's independent and unreasonable action.

69 We come to the same conclusion when applying the traditional tests for determining whether a novus causa interveniens exists that interrupts the chain of causation.

70 We have observed that in March v E & M H Stramare Pty Ltd Mason CJ (at 518 to 519) said that the negligence of the plaintiff would not be regarded as a superseding cause or novus actus interveniens "when the defendant's wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff" and where "that injury occurs in the ordinary course of things". In our view, Mr Walker's misleading conduct did not generate "the very risk of injury resulting from the negligence of [Mr Henville]". We have drawn attention to the fact that the design of the units, their method of construction, the management of their construction, the time taken for their construction, the means by which they were to be financed, and the cost of their construction, were all for Mr Henville to determine or control. They had nothing to do with Mr Walker. Mr Walker's misleading conduct had no causal connection with the errors as to costs made by Mr Henville in the feasibility study. Further, Mr Henville's loss did not occur "in the ordinary course of things" as it was not in the ordinary course of things that Mr Henville prepared and relied on such a fundamentally erroneous document. Mr Henville's conduct in this respect was an error on his part (in the sense contemplated by Gibbs CJ in Gould v Vaggelas at 221 – 222) that could not have been foreseen.

71 In the circumstances, we would uphold the appeal on the ground that the misleading conduct was not a cause of the loss.

The quantification of damages: the second category of causes

72 The case presented by Mr Henville at trial was that the damages caused by Mr Walker's misleading conduct were constituted by the expenses he (i.e. Mr Henville) incurred in proceeding with the development (to the extent that those expenses were caused - if at all - by the misleading conduct) less the money recovered from the sale of the units. This basis was in accord with the general principles expressed, for example, in Wardley Australia Ltd v The State of Western Australia where Mason CJ, Dawson, Gaudron and McHugh JJ said, in regard to an action under s 82(1) based on misleading conduct constituting a contravention of s 52 of the Trade Practices Act:

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"It would not be right to conclude that the measure of damages recoverable under the sub-section necessarily coincides with the measure of damages applicable in an action for deceit or in an action for negligent misrepresentation … But the common law measure of damages will in many cases be an appropriate guide … In a case such as the present, [where, as a result of misleading or deceptive conduct, a party entered into an indemnity and was subsequently called upon] it may safely be assumed that the plaintiff is entitled to recover 'a sum representing the prejudice or disadvantage [the plaintiff] has suffered in consequence of his altering his position under the inducement' of the misleading conduct or 'the actual damage directly flowing from' that conduct."

Walker v Henville

[1999] WASCA 117

9 AUGUST 1999

WALKER & ANOR -v- HENVILLE & ANOR [1999] WASCA 117