Victorian Civil and Administrative Tribunal|2004-10-21

A homebuyer sued a building inspection company (Archicentre) for providing a report that failed to detect serious defects in a property. The buyer claimed the cost of fixing the defects ($390,000). The Tribunal ruled that this was the wrong way to calculate damages. For claims involving misleading conduct or negligence in property inspections, damages are calculated as the difference between what you paid for the property and what it was actually worth (the 'diminution in value'), not the cost of repairs. The Tribunal allowed the buyer to amend her claim to use the correct calculation method, but warned that if she didn't, her case would be dismissed.

Beamish v Archicentre Ltd [2004] VCAT 2023 (21 October 2004)

1. By 12 November 2004, the Applicant may file and serve further Amended Points of Claim against the Second Respondent.

2. If no further Amended Points of Claim are filed and served pursuant to paragraph 1 hereof, the proceeding against the Second Respondent shall stand dismissed pursuant to s. 75 of the Victorian Civil and Administrative Tribunal Act 1998.

1. This is an application by the Second Respondent to strike out the proceeding brought against it by the Applicant. The application is made pursuant to s.75 of the Victorian Civil and Administrative Tribunal Act 1998. That section provides (where relevant):

"75. Summary dismissal of unjustified proceedings

(1) At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion--

(a) is frivolous, vexatious, misconceived or lacking in substance; or

(2) If the Tribunal makes an order under sub-section (1), it may order the applicant to pay any other party an amount to compensate that party for any costs, expenses, loss, inconvenience and embarrassment resulting from the proceeding.

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(5) For the purposes of this Act, the question whether or not an application is frivolous, vexatious, misconceived or lacking in substance or is otherwise an abuse of process is a question of law".

2. The manner in which the power conferred by this section should be applied was considered by the Tribunal in Norman v Australian Red Cross Society 1998 14 VAR 243 where, after considering the judgment of the Court of Appeal in Rabel v State Electricity Commission of Victoria [1998] 1 V.R. p.102, Deputy President McKenzie said as follows:

"(a)The application is for the summary termination of the proceedings. It is not the full hearing of the proceeding.

(b) The Tribunal may deal with the application on the pleadings or submissions alone, or by allowing the parties to put forward affidavit material or oral evidence. The Tribunal's procedure is in its discretion and will depend on the circumstances of the particular case.

(c) If the Complainant indicates to the Tribunal that the whole of his or her case is contained in the material placed before the Tribunal, the Tribunal is entitled to determine whether the complaint lacks substance by asking whether, on all the material placed before it, there is a question of real substance to go to a full hearing. However, if a Complainant indicates to the Tribunal that there is other evidence that he or she can call to support the claim and the Tribunal, on the application, does not permit that evidence to be called, then the Tribunal cannot determine the application on the basis that the Complainant's material contains the whole of his or her case.

(d) An application to strike out a complaint is similar to an application to the Supreme Court for summary dismissal of civil proceedings under RSC r23.01 (see also commentary on this rule Williams, Civil Procedure Victoria). Both applications are designed to prevent abuses of process. However, it is a serious matter for a Tribunal, in interlocutory proceedings which would generally not involve the hearing of oral evidence, to deprive a litigant of his or her chance to have a claim heard in the ordinary course.

(e) The Tribunal should exercise caution before summarily terminating a proceeding. It should only do so if the proceeding is obviously hopeless, obviously unsustainable in fact or in law, or on no reasonable view can justify relief, or is bound to fail. This will include, but is not limited to a case where a complainant can be said to disclose no reasonable cause of action, or where a Respondent can show a good defence sufficient to warrant the summary termination of the proceeding.

(f) On an application to terminate a complaint summarily, the Tribunal must clearly distinguish between the complaint itself and the evidence which is to be given in support of it. A complaint cannot be struck out as lacking in substance because it does not itself contain the evidence which supports the claims.

(g) The test for determining whether a complaint is frivolous, vexatious, misconceived or lacking in substance is different from that applied in other Australian Anti-Discrimination jurisdictions where the legislative context is different from Victoria. It is similar to that applied by the Supreme Court in civil proceedings for the purposes of RSC r23.01.

(h) The Tribunal should not apply technical, artificial or mechanical rules in construing a complaint or coming to a view about the case a Complainant wishes to advance."

3. The proceeding sought to be struck out relates to defective and incomplete building work to an extension to a house at 50 Bamfield Street, Sandringham which the Applicant Mrs Beamish purchased from the First Respondent Mr Rosvoll. The building work for the extension was carried out by Mr Rosvoll as an owner / builder. Before selling the house it was necessary for Mr Rosvoll to comply with s.137(B)(2) of the Building Act 1993. That section is in the following terms:

"(2) A person who constructs a building must not enter into a contract to sell the building under which the purchaser will become entitled to possess the building...within the prescribed period unless -

(a) In the case of a person other than a registered building practitioner -

(i) the person has obtained a report on the building from a prescribed building practitioner that contains the matters that are required by the Minister by notice published in the Government Gazette; and

(ii) the person obtained the report not more than six months before the person enters into the contract to sell the building; and

(iii) the person has giving a copy of the report to the intending purchaser; and

(b) The person is covered by the required insurance (if any); and

(c) The person has given the purchaser a certificate evidencing the existence of that insurance; and

(d) In the case of a contract for the sale of a home, the contract set out the warranties implied into the contract by section 137C."

4. The report required by sub-section (a)(i) was provided to Mr Rosvoll by the Second Respondent. It stated there were no defects or items of incomplete work in the building work that Mr Rosvoll had carried out. Indeed, it is expressed to be a "Blue Ribbon Authorization" with the added comment "No serious defects".

5. Mr Rosvoll used the report in order to obtain domestic building insurance. The relevant policy purports to indemnify the purchaser of the property against certain risks up to a limit of $200,000, subject to the following special exclusion:

"This insurance specifically does not provide any insurance coverage for any loss arising directly or indirectly from defects identified in the Inspection Report dated 17 September 2002 prepared by Derek Hunt on behalf of Archicentre Limited."

6. A copy of the insurance policy and a copy of the Second Respondent's report were annexed to the Vendor's Statement, which in turn was annexed to the Contract of Sale provided to the Applicant before the purchase. The Applicant proposes to give evidence that she read the report and was induced by it to purchase the property. She will say further that, if the report had alerted her to the true condition of the property she would not have purchased it. For the purpose of deciding this application, I must assume that her evidence in this regard will be accepted if the matter proceeds to a hearing.

6. Evidence will also be given on behalf of the Applicant that there are serious defects in the building work that Mr Rosvoll carried out and that the Applicant has spent over $390,000 in rectifying them. Extensive expert reports have been obtained in regard to these defects and the Applicant will lead evidence that the inspection report prepared by the Second Respondent that she relied upon was negligently prepared and the author of the report ought to have detected the defects and referred to them in the report. Again, I must assume for the purpose of this application that the Applicant's evidence in regard to these matters will be accepted.

7. The claim against the Second Respondent is articulated in Amended Points of Claim dated 21 June 2004. The claim is put on two bases. First, the inspection report is said to constitute a representation that the renovations did not contain any serious defects and were of a "Blue Ribbon" standard and that it was misleading and deceptive within the meaning of the Fair Trading Act 1999. An alternate claim is pleaded in negligence. For each claim, there is an allegation that the Applicant has suffered loss and damage, the particulars of which (identical in each case) and are as follows:

"As the owner would not have entered into the contract of sale at all had the representation not been made, the owner claims the full cost of rectifying the breaches from the inspector.

Particulars of the loss and damage caused by the breaches that is presently ascertainable are contained in Schedule 1 hereto.

The owner also claims reasonable costs and expenses associated with assessing the breach and taking action against the inspector.

Both heads of damage continue to accrue and updated particulars will be provided as appropriate."

The terms "owner" and "inspector" refer respectively to the Applicant and the Second Respondent.

8. The "Schedule 1" referred to is not attached to the document filed but would seem to be the expert's report which was annexed to the original application. In any event, it is clear that the loss and damage alleged to have been caused by the breaches is the cost of rectifying and completing the defective and incomplete work.

9. On 28 July 2004 the Tribunal gave directions for the filing and service of submissions in regard to the application pursuant to s.75 together with any supporting affidavit material. Both the Applicant and the Second Respondent filed and served an affidavit and submissions, which I have found very helpful. The First Respondent has taken no part in this application.

10. The matter was listed before me for oral submissions on 30 September 2004. Mr Laird of Counsel appeared on behalf of the Applicant and Mr Herskope appeared on behalf of the Second Respondent. Mr Herskope's submission was based on three arguments and I shall deal with each in turn.

11. The basis of the claim appears to be s.9(1) of the Fair Trading Act 1999 which provides:

"A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

"(1) A person who suffers loss, injury or damage because of a contravention of a provision of this Act may recover the amount of the loss or damage or damages in respect of the injury by proceeding against any person involved in the contravention

(2) A proceeding under this section may be brought before the Tribunal or in any court of competent jurisdiction".

13. Mr Herskope submitted that s.9 contemplates the effect of the conduct complained of on "reasonable members of the class to which the representation is directed". He referred to the cases of Parkdale Custom Built Furniture Pty Ltd -v- Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 199, Sutton -v- A J Thompson Pty Ltd (In Liq) 1987) 73 ALR 233 and Taco Co of Australia Inc -v- Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 at 202. I have not been greatly assisted by those cases. They concern situations where the Court had to consider what affect the conduct complained of might have upon members of the public and whether such persons might be misled. In the present case, the report was not intended to be disseminated to the public at large.

14. Mr Laird pointed out that the Applicant intends to call evidence that the Second Respondent advertises its service of providing such reports in (inter alia) the following terms, which appear on its website:

This report works as both certification and a valuable marketing tool. Owner builders wishing to sell within 6 ½ - 7 years are required by law to carry out an inspection. The Archicentre Blue Ribbon Report provides this requirement and if no serious defects are found, vendors receive a blue ribbon certificate to be displayed on all sales literature and signage. For owner builders keen on a sale edge.

A. By having an independent Archicentre Blue Ribbon Report you will be able to instil buyer confidence in your property, check the blue ribbon home section on the Archicentre site."

14. In the Applicant's Amended Points of Claim, the Applicant pleads in the particulars supplied to paragraph 22 (inter alia) as follows:

"(c) Prior to preparing the inspection report the inspector knew, or ought reasonably to have known, that:

(i) the inspection report would be provided to potential purchasers of the dwelling as both certification that requirements of the Act had been complied with and as a valuable marketing tool for the owner builder;

(ii) the owner builder would use the inspection report to instil buyer confidence in the dwelling and the renovation;

(iii) subsequent purchasers of the dwelling would rely upon the inspection report when deciding whether or not to purchaser the dwelling; and

(iv) if the inspection report was not prepared with appropriate care and skill subsequent purchasers of the dwelling may suffer loss and damage."

15. Mr Herskope pointed out that it did not appear and was not pleaded that the Applicant had seen the website or relied upon the representations referred to. Notwithstanding that, it is not beyond argument that the Applicant may be able to persuade the Tribunal at a hearing that the contents of the website indicate an awareness on the part of the Second Respondent that a report to be supplied by it would be used as a marketing tool and handed to prospective purchasers who might rely upon it and, if the report should be deficient, those persons might be misled as a result of the deficiencies. The Applicant ought to have the opportunity to call her evidence and argue these matters at a full hearing.

16. Mr Herskope next submitted that there had to be a relevant nexus between the conduct complained of and the loss and damage said to have been suffered as a consequence of that conduct. He referred to the case of Wardley Australia Limited -v- WA [1992] HCA 55; (1992) 175 CLR 514. The principal question determined in that case was that a cause of action under s.82 of the Trade Practices Act 1974 does not accrue until such time as actual loss has been suffered by the plaintiff. In that case the plaintiff was induced by the misleading conduct to execute a guarantee. The High Court held that the cause of action did not arise until such time as actual loss was suffered. It did not arise at the time the guarantee was executed. The leading judgement, Mason CJ and Dawson, Gaudron and McHugh JJ. contains the following useful passage (at p.526):

"In determining when a plaintiff first suffers economic loss or damage in an action under section 82(1) based on misleading conduct constituting a contravention of section 52, it is necessary to have regard to the applicable measure of damages. In this respect, 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 an action for negligent misrepresentation. The measure of damages recoverable under section 82(1) can only be fully ascertained after through analysis of those provisions in Parts (iv) and (v) of the Act for contravention of which the statutory cause of action may be maintained. But the common law measure of damages will in many cases be an appropriate guide, though it will always be necessary to look to the provisions of the Act with a view to ascertaining the existence of any relevant legislative intention. In a case such as the present, 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 following from" that conduct, to take up and adapt well known statements of the measure of damage applicable in an action of deceit."

17. As to the required nexus between the offending conduct and the loss and damage suffered, their Honours said (at p.525):

"In this situation, as at common law, acts done by the representee in reliance upon the misrepresentation constitute a sufficient connexion to satisfy the concept of causation. And if those acts result in economic loss, that is, loss other than physical injury to personal property that economic loss will ordinarily be recoverable under section 82(1).

18. Mr Herskope also relied upon the High Court decision in Gates -v- City Mutual Life Assurance Society Limited [1985-1986] 160 CLR 1 as to the manner in which damages should be assessed. In that case Gibbs CJ said (p.6):

"Actions based on ss.52 and 53 are analogous to actions in tort and the remedy in damages provided by section 82(1) appears to adopt the measure of damages applicable in an action in tort. That sub-section refers to loss or damage by the conduct of another that contravened a provision of Part 4 or Part 5; it therefore looks to the loss or damage flowing from the offending act of the other person. The acts referred to in sections 52 and 53 do not include the breach of a contract, and in awarding damages under section 82 for a breach of either of those sections, no question can arise of damages for loss of a bargain. The contractual measure of damages is therefore inappropriate in such a case."

19. In the majority judgement, Mason, Wilson and Dawson JJ. agreed that the measure of damages was tortious. They referred with approval to the proposition stated by Dixon J. in Toteff -v- Antonis (1952) 87 CLR p.650, where his Honour had said:

"In an action of deceit a plaintiff is entitled to recover his 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."

"Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation."

21. Gates case concerned a misrepresentation by an insurance agent that a disability policy would indemnify the plaintiff if he should become disabled from being able to pursue his usual occupation. In fact, the policy issued required him to be disabled from pursuing any occupation at all before a benefit was payable. The High Court held that, since there was no evidence that the policy issued to him was worth less then the premiums he had paid, he was not entitled to damages. However the Court went on to say that, if the plaintiff had been able to establish that, in the absence of the misleading statement he would have taken out a different policy to provide him with the indemnity that he sought, he would have been entitled to recover as damages the benefits that would have been payable under that replacement policy, less the premiums that he would have paid.

22. On the basis of these authorities, Mr Herskope submitted that the proper measure of damages for the Applicant in this case is the difference between the value of the property that she purchased and the amount she paid for it. He pointed out that this was not the way in which the claim was articulated in the Amended Points of Claim. There was no reference in the particulars of loss and damage to a loss of this nature. Instead the Applicant was seeking to recover the cost of rectifying and making good all the defective and incomplete work and this, according to the submission, was not the appropriate measure of damage.

23. Mr Herskope also referred to the case of Kizbeau Pty Ltd & Oths and W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281. In that case the plaintiff was induced by misleading and deceptive conduct to purchase a motel business and take a lease of the premises in which they were conducted. The representation relied upon concerned the use that could be made of part of the premises. By reasons of its falsity, the profitability of the motel was affected. In considering the question of damages, the five members of the High Court in a joint judgement said (at p.290):

"Actions based on section 52 are analogous to actions for torts. It follows that, in assessing damages under section 82 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.

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 section 52, 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. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at insofar as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category at admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose.

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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. All of these principals are appropriate to the assessment of damages under section 82 where a breach of section 52 of the Act has induced a person to purchase a business."

24. Mr Laird submitted that the law in regard to the award of damages for misleading and deceptive conduct is in a state of development and that it is at least arguable that the Applicant is entitled to claim by way of damages the cost of rectifying and completing the defective and incomplete work. He referred in particular to the recent case of Murphy -v- Overton Investments [2004] HCA 3; (2004) 204 ALR 26. In that case the plaintiffs were induced to purchase a 99 year lease of a retirement unit by a misleading statement as to amount of outgoing that would be payable under the lease with respect to the unit. The representation included a figure that took into account only some items that the defendant was entitled to charge by way of outgoings under the lease. For the first few years the defendant only charged outgoings in relation to these items but thereafter attempted to charge all of the items permitted by the lease. The case was complicated by the defendant disposing of the freehold during the course of litigation and the new purchaser not having been made a party to the action. In a joint judgement, all seven members of the High Court, in upholding the appeal by the Plaintiff, made some useful comments. As to the manner in which damages ought to be assessed, they said (at p.37):

"This Court has now said more than once that it is wrong to approach the operation of those provisions of Pt. VI of the Act which deal with remedies for contravention of the Act by beginning the enquiry with an attempt to draw some analogy with any particular form of claim under the general law. No doubt analogies may be helpful, but it would be wrong to argue from the content of the general law that is developed in connexion, for example, with the tort of deceit, to a conclusion about the construction or application of provisions of Pt. VI of the Act. To do so distracts attention from the primary task of construing the relevant provisions of the Act. In the present case, analogies with the tort of deceit appear to have lead to an assumption, at least at trial, that a person can suffer only one form of loss or damage as a result of the contravention of Pt. V of the Act.

The Acts references to "loss or damage" can be given no narrow meaning. Section 4K of the Act provides that the loss or damage includes a reference to injury. It follows that the loss or damage spoken of in ss. 82 and 87 is not confined to economic loss. What kinds of detriment constitute loss or damage, when a detriment is to be identified as occurring or likely to occur, and what remedies are to be awarded, may all raise further difficult questions. Especially is that so when it is recalled that remedies may be awarded to compensate, prevent or reduce loss or damage that has been or is likely to be suffered by conduct in contravention of the Act."

25. Their Honours went on to point out that there may be more than one loss and it may require more than one remedy under the Act. In the particular case before them, there was not only the possibility of the capital loss relating to the value of the lease but also an ongoing revenue loss by reason of the plaintiff having to pay more by way of outgoings then he had been lead to believe by the false and misleading conduct, and although ongoing losses of a revenue nature are often capitalized in awards made by a court, the appropriate remedy will not always be a lump sum, Their Honours said (at p.38):

"Whether damages are to be awarded in compensation may depend upon what other forms of relief are to be awarded. In particular it would be much affected by what orders to prevent or reduce the loss or damage are made under section 87."

26. Their Honours warned of the necessity to avoid double compensation by both taking into account the ongoing revenue loss in the calculation of damages and at the same time making some other award to compensate for that loss. As to the quantification of the appellants' loss, their Honours said (at p.42):

"The appellants had been induced by the respondent's conduct to undertake an obligation which may, but need not, have been more onerous than the respondent's representation lead them to believe. When the respondent started to charge all the outgoing it was entitled to charge, the appellant suffered a loss. The amount of that loss was not to be determined, as the majority of the Full Court held, only by comparing the financial position of the appellants according to whether they entered this lease or took some other accommodation. The appellants did not contend that they had suffered loss in that way. The appellants suffered loss because the continuing financial obligations they undertook when they took the lease proved to be larger than they had lead to believe. The question then became: How much larger was that burden?

Answering that question is not easy. It would be necessary to take account of a number of considerations. First, the appellants knew that outgoings might increase. When they took the lease they knew, or at least must be taken to have known, that unexpected outgoings could occur in the future: unexpected both as to the subject matter of the expense and the amount. It would be wrong to compensate them for their incurring outgoings of that kind, but how is proper account to be taken of that fact?"

27. Their Honours proceeded to consider various difficulties facing the assessment of damages and in the course of their conclusion, said (at p.44):

"The appellants did establish that they had undertaken an obligation which, in the events that happened, proved to be larger than the respondent's misleading conduct lead them to believe. Though at the end of the day the appellants may fail to prove any loss or damage, it is possible that they will demonstrate that they have suffered loss or damage. The matter should be remitted to the Trial Judge to assess the damages, if any, to be allowed to the appellants."

28. Mr Laird submitted that Murphy's case is supportive of the proposition that the proper measure of the Applicant's loss may well be the cost of rectifying the defects. I do not see that in Murphy's case at all. What the High Court stressed in Murphy's case is that a court or tribunal should bear in mind that it is dealing with a statutory remedy, and although analogies with the general law are helpful, the task is primarily one of interpreting the act, seeing what remedies it offers and deciding which of those are appropriate to the particular case. They also stressed that the term "loss and damage" should not be given a narrow interpretation. Their Honours did not however purport to overrule any of the earlier decisions of the High Court referred to nor did they suggest that the approach taken in those cases was wrong. It is still necessary to establish that the loss and damage sought to be recovered has been suffered "because of a contravention" of (in the context of the present case) a provision of the Fair Trading Act 1999. The causal connexion must be demonstrated.

29. Mr Laird submitted that there in no inflexible legal doctrine that says that damages in such a case involving economic loss must be assessed on the basis of diminution in value. That puts the proposition too simply. Section 159 entitles a person who suffers loss injury or damage because of a contravention of a provision of the Act to recover the amount of the loss or damage against any person involved in the contravention. The loss or damage that is recoverable is the loss or damage suffered because of the contravention. The word "because" requires a casual relationship to exist between the contravention and the loss and damage said to be suffered. It is that loss and damage that is recoverable, not any other loss and damage that the Applicant might suffer.

30. As the High Court pointed out in Murphy, one must not lose sight of the fact that one is dealing with a statutory remedy and not a remedy in deceit. However that is not to say that, when one is assessing damages, the approach may not be the same. In compensating a party who suffered loss and damage by reason of fraud, the enquiry is: "What loss and damage has the party suffered as a result of the fraud?" When awarding damages under the Fair Trading Act, the question must be: "What loss and damage has the party suffered because of the contravention that has been established?" The question is essentially the same when one is dealing only with the assessment of damages for a capital loss and not the application of some other remedy that the particular statutory scheme might offer.

31. In the present case I accept for the purpose of this application that the report prepared on behalf of the Second Respondent was misleading and deceptive, that the Applicant was deceived by it, and as a result of the deception she purchased the house. Had she been aware of the true condition of the house, she would not have purchased it. What loss has she suffered?

32. In preparing the report the Second Respondent was not providing to anyone to whom the report might be shown a guarantee, binding it in contract, that there was nothing wrong with the house. The report was an expression of an architect's opinion as to the condition of the house. The author of the report was required by the Fair Trading Act to ensure that it was not misleading or deceptive or likely to mislead or deceive. By preparing a misleading and deceptive report the Second Respondent has caused the Applicant to purchase a property that she would not have purchased had the report not misled her. Her evidence will be that if the report had not been misleading and deceptive but had stated the true condition of the property she would not have bought it. The conclusion to be drawn from that is that she would have either purchased some other property or she would still have the purchase price. It is not suggested in the application that she would have purchased any other particular property so the question is, how much worse off is she by reason of having purchased the property than she would have been if she hadn't purchased it? The only rational measure of that loss is to say that, instead of having the value of the property that she acquired, she would have had the purchase money. It must follow that if the property she purchased was the same value as what she paid for it, she has suffered no loss.

33. To accede to Mr Laird's submissions would effectively mean that the remedy against an architect for failing to detect defective and incomplete work is to require him to pay to bring the property to the standard and condition that he said it was in. That sort of measure of damages has a distinctly contractual flavour. It is the same measure of damages as if the Second Respondent had warranted to the Applicant in contract that the property was free of defects. There is no claim in contract in the present application and it is clearly contrary to the authorities to which reference has been made to allow damages of this nature in such a case.

34. Further, if the property was, at the date of acquisition, worth the same or more than the purchase price, the Applicant, as a result of having been misled into purchasing the property, would have either broken even or made a profit. To then award her the cost of rectification of defects as contemplated by Mr Laird would be giving the Applicant a profit or adding to a profit, not compensating her for a loss. Her disappointment that the property was not as good as she had been led to believe is not in my view "loss and damage" within the meaning of s.159 of the Fair Trading Act.

35. For these reasons I think that Mr Herskope is correct in saying that the damages as presently claimed in the application under this cause of action are not recoverable under the Act and his application must succeed at least to this extent.

36. Mr Herskope submitted that the Second Respondent did not owe any duty of care to the Applicant. He referred to the case of Shire of Sutherland -v- Heyman [1985] HCA 41; (1984-1985) 157 CLR 424. That case concerned a claim of negligence against a council for failing to detect defective foundations in a dwelling house. The members of the High Court unanimously determined that there was no claim in negligence although the reasons of each are not the same. Gibbs CJ referred with approval to the following passage from the House of Lord's decision in Governors of the Peabody Donation Fund -v- Sir Lindsay Parkinson & Co Ltd [1985] AC 210 (at p.240):

"The true question in each case is whether the particular defendant owed to the particular plaintiff a duty of care having the scope which is contended for, and whether he was in breach of that duty with consequent loss to the plaintiff. A relationship of proximity in Lord Atkin's sense must exist before any duty of care an arise, but the scope of the duty must depend on all the circumstances of the case."

The learned Chief Justice continued (at p.441 of the report):

"In deciding whether the necessary relationship exists, and the scope of the duty which it creates, it is necessary for the court to examine closely all the circumstances that throw light on the nature of the relationship between the parties."

"Reliance has always been an important element in establishing the existence of a duty of care. It has been suggested that liability in negligence is largely, if not exclusively, based on the plaintiff's reliance on the defendants taking care in circumstances where the defendants is aware or ought to be aware of that reliance...and it has certainly been an influential factor in setting limits to the far ranging effect of the foreseeability doctrine in confining the class of persons to whom a duty of care may be owed. It is natural, therefore, that the plaintiff's foreseeable and reasonable reliance on the defendant's statement has been a constant feature of the cases in which a defendant has been held liable for economic loss sustained as a result of negligent misstatement:"

37. Mr Herskope also made reference to Bryan -v- Malony (1994-1995) 182 CLR 609. In that well known case the High Court found that a professional builder constructing a dwelling house owed a duty of care to a subsequent owner of the house to take reasonable care in its construction. Mr Herskope referred me to page 618 of the report where Mason CJ and Deane and Goudron JJ said:

"One policy consideration which may militate against recognition of a relationship of proximity in a category of case involving mere economic loss is the laws concern to avoid the imposition of liability "in an indeterminate amount for an indeterminate time to an indeterminate class". Another consideration is exception that, in a competitive world where one persons economic gain is commonly another's loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury, to another person's personal property, may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage. The combined effect of those two distinctive policy considerations is that the categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two."

38. Notwithstanding these comments, the Court found, by a majority of four to one, that the builder owed a subsequent owner of the house a duty to take reasonable care in its construction. The damages were assessed on the basis of the decrease in the house's value resulting from the defects and consequential loss. In the majority judgement, proximity is dealt with in the following terms (at p.625):

"It is in the context of the above mentioned relationship of proximity that one must determine whether the relationship which exists between a professional builder of a house such as Mr Byrne, and a subsequent owner, such as Mrs Malony, possesses the requisite degree of proximity to give rise to a duty to take reasonable care on the part of the builder to award the kind of economic loss sustained by Mrs Malony in the present case. It is likely that the only connexion between such a builder and such a subsequent owner will be the house itself. Nonetheless, the relationship between them is marked by proximity in a number of important respects. The connecting link of the house is itself a substantial one. It is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime. It is obviously foreseeable by such a builder that the negligent construction of the house with inadequate footings is likely to cause economic loss, of the kinds sustained by Mrs Malony, to the owner of the house at the time when the inadequacy of the footings first becomes manifest. When such economic loss is eventually sustained and there is no intervening negligence or other causative event, the casual proximity between the loss and the builder's lack of reasonable care is unextinguished by either lapse of time or change of ownership."

39. Mr Herskope also referred to Esanda Finance Corporation Limited & Peat Marwick Hungerfords (1995-1997) 188 CLR 241, but I found that case to be of little assistance. It concerns the extent of the duty of an auditor of the accounts of a company to persons other than the company and its shareholders.

40. In the present case Mr Laird has outlined the evidence that he proposes to call in order to establish proximity between the Applicant and the Second Respondent that is, the actual reliance by his client upon the report and the evidence from the Second Respondent's website indicating an assumption by it that its reports would be relied upon by persons in the position of the Applicant. This is not a final hearing of the case and it is unnecessary for me to determine whether there is sufficient proximity to give rise to a duty of care but there is certainly a case on the issue to go to trial and it would not be proper to dismiss the claim on this basis.

41. Reference was also made to the Full Federal Court decision in Murphy's case, which speaks of "a more flexible approach to the assessment of damages." This was in the context of damages to be awarded for negligent advice. In particular, on page 175 of the report, Gyles J. said:

"The tort of negligent advice (or misstatement) is of a relatively recent origin and has a wide operation in many circumstances. The law relating to it, including aspects of damages, is not settled: Kenny & Good per Gummow J at [75]. The most recent examination by the High Court of damages in relation to negligent advice was in Kenny & Good, a case of negligent valuation of land leading to an imprudent mortgage insurance transaction. One of the arguments advanced by the appellant there was that Potts v Miller inflexibly required that in calculating the loss suffered where property is acquired as a result of deceit, the purchaser was required to give credit for the fair or real value of the property purchased at the time of its purchase. That argument did not command the assent of any justice Kirby and Callinan JJ (agreed with in this respect by Gummow J) said:

"Nothing said in Potts v Miller is determinative of this case. Indeed, as Dixon J's reasons in that case show, different situations may arise in practice in cases of deceit (of which Potts was one). There can be no rigid rules to govern all cases. If an example is required of the flexibility with which these questions need to be approached, Gould v Vaggelas provides it. There the Court allowed as damages trading losses incurred some time after the giving of a false inducement. It did so on the basis that it was reasonable, in the particular circumstances, that the purchasers continued to carry on business as they did."

There was common ground in that case that there was no difference in the measure of damages between section 52 and negligence, and it is made clear that this will very often be the case, absent special considerations."

42. I can see no special considerations in this case. The only loss complained of relates to the defective nature of the property acquired. There is no on-going income loss as there was in Murphy nor is any relief sought apart from damages. This being no, I cannot see that the assessment of damages in a negligence claim is any different from that for the claim under the Act. Accordingly, the alternate claim in negligence must also fail because the damages sought are simply not recoverable at law.

43. I was also referred to the decision of Harper J. in Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd (1993) Aust Torts Reports 81-228, a case very similar to the present. In that case, the Plaintiff, a prospective purchaser of a house, engaged the Defendant to inspect the house and report as to its condition. The inspection was conducted carelessly and failed to detect certain serious defects. In reliance on the report the Plaintiff purchased the house and was the faced with the cost of repairing the defects. The learned judge said (at p.62,354):

"The measure of damage is clear enough. The Plaintiff is not entitled to remedy the defects and charge the cost to the Defendant; Perry v Sydney Phillips & Son [1982] 1 WLR1, 257 at pages 1,301-1,302. These damages are to be assessed at the time of the Defendant's inspection and report ... and they are to equal the difference between on the one hand the price actually paid and on the other the price which a willing but not anxious purchaser would have paid to a willing but not anxious vendor , given that a careful architect had carefully recorder and reported upon the result of a careful inspection."

44. In that case, the court found that the value of the property was equivalent to its value at the time of purchase, less the cost of repairs. The end result was an award equivalent in amount to the cost of repairs. But damages were nonetheless assessed on the value of the property purchased, not the cost of repairs. It does not follow that in every case, that will be the result. The claim must be for the difference in value and that must be established at the hearing by evidence. The Applicant cannot simply claim the cost of repairs as she has done in this case. As presently pleaded, the damages sought are not recoverable and, since damages are an essential part of the cause of action under both heads, the proceeding itself is not maintainable.

45. I was urged by Mr Laird in submissions that, if I should be minded to strike out the claim or any part of it, I should only strike out those parts that I considered objectionable. I interpret this to mean that the Applicant would seek to amend her claim so as to avoid it being struck out altogether.

46. If I were to simply strike the proceeding out the Applicant would probably be subjected to far more expense than she would face by simply amending her claim to avoid the difficulty that Mr Herskope has demonstrated. Section 98(1)(d) of the Victorian Civil and Administrative Tribunal Act 1998 requires the Tribunal to conduct each proceeding with as little formality and technicality and as much speed as the circumstances permit. I think it would be consistent with this requirement and the evident purpose of the Act, as set out in the second reading speech kindly furnished to me by Mr Laird, that I should give the Applicant an opportunity to put her case in order by directing that she file and serve further Amended Points of Claim against the Second Respondent within 21 days. However, in default of such further Amended Points of Claim being filed and served her claim against the Second Respondent will be dismissed pursuant to s.75 of the Act. Costs will be reserved for further argument. Liberty to apply will also be reserved in case any further directions are required. In particular, the Second Respondent may wish to argue that any amended Points of Claim served pursuant to the leave granted do not overcome the difficulties discussed above. In such a case, it may renew this application.

Civil and Administrative Tribunal Act 1998

Outcomedefendant

Disposition:

Application to strike out granted in part; Applicant given leave to file further Amended Points of Claim within 21 days (by 12 November 2004); if no amendment filed, proceeding against Second Respondent to be dismissed; costs reserved; liberty to apply reserved

Beamish v Archicentre Ltd [2004] VCAT 2023

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Judgment (114 paragraphs)

Beamish v Archicentre Ltd [2004] VCAT 2023 (21 October 2004)

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