I & L Securities P/L v HTW Valuers

TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - CHARACTER AND ATTRIBUTES OF CONDUCT - CAUSAL CONNECTION BETWEEN CONDUCT AND LOSS - respondent valuer gave wrong valuation to appellant money lender - appellant relied on valuation in lending money to borrower - appellant required statement of borrower's assets and liabilities as condition of loan, but failed to obtain it - two independent causes of loss incurred when borrower defaulted

TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - ENFORCEMENT AND REMEDIES - ACTIONS FOR DAMAGES - CAUSATION - respondent not wholly responsible for loss incurred - appellant's conduct also causative - whether award of part of loss permitted under s 87(1) Trade Practices Act 1974 (Cth)

Trade Practices Act 1974 (Cth), s 52, s 82, s 87(1), s 87(2)(d)

Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353, approved

Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; (1990) 26 FCR 112, mentioned

Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) ATPR 40-822, considered

Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193, mentioned

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1983) 68 FLR 101, mentioned

Goldsbro v Walker [1993] 1 NZLR 394, followed

Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, considered

Marks v GIO Australia Holdings Limited [1998] HCA 69; (1998) 196 CLR 494, mentioned

Pavich v Bobra Nominees Pty Ltd (unreported) No WAG 91 of 1986, 4 August 1988 (Federal Court), mentioned

S & U Constructions Pty Ltd v Westworld Property Holdings Pty Ltd (1988) ATPR 40-854, followed

Sent v Jet Corporation of Australia Pty Ltd [1986] HCA 35; (1986) 160 CLR 540, mentioned

Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233, mentioned

Walker v Henville [1999] WASCA 117, considered

Wenpac Pty Ltd v Allied Westralian Finance Ltd (1992) 67 ALJR 165, mentioned

D F Jackson QC with P D T Applegarth for the respondent

[1] THE COURT: This appeal relates to a claim under s 52 of the Trade Practices Act 1974 (Cth) ("the Act") against a valuer who gave a wrong valuation of real property, relied on by a company which lent money on that valuation. The appellant is the money lender, which obtained an award of damages against the respondent valuer. It is not in issue that the valuation was wrong and that it was a cause of the making of a loan by the money lender on which it lost a substantial amount. More generally, none of the judge's factual findings are disputed. The appellant has argued only one question, the legal issue discussed below.

[2] The complication of the case is that the judge (Williams J) found that another cause of the loss was bad work on the part of the money lender, the appellant. The borrower was a company called Camworth Pty Ltd, trustee for the Didar Mohammed Family Trust. Mr Didar Mohammed obtained the valuation complained of and the respondent valuer agreed to its being used for the appellant's purposes - that is, to assess the value of the security which Camworth Pty Ltd proposed to give the appellant. At relevant times the appellant had in its possession an accountants' letter saying that, to the best of their knowledge, Camworth Pty Ltd and the Didar Mohammed Family Trust "are dormant and have not traded since the Trust was established on 20 December 1989". The loan was made in July 1995.

[3] The appellant also had a statement of the assets and liabilities of Didar Mohammed which were said in the statement to consist substantially in shares worth $1.576M, in Camworth Pty Ltd. The appellant made no inquiries to find out whether Didar Mohammed had any source of income or any employment, but it required as a condition of the loan that there be a statement of Camworth's assets and liabilities. No statement of Camworth's assets and liabilities was ever obtained.

[4] The prima facie rate of interest chargeable under the loan, one for $950,000, was 19.5 per cent payable monthly in arrears, with a reduction to 13.5 per cent if all the payments were made as agreed. Camworth, on the judge's findings, never had any realistic opportunity of meeting the interest payments; if reasonable inquiries had been made that would have been obvious to the appellant. No such inquiries were made and Camworth made default five weeks after the loan was made, in the very first payment of interest due; it was, and remained, unpaid. The whole of the loan made by the appellant was to be expended in paying out the borrower's existing liabilities, with nothing left over. The judge found that, for reasons his Honour explained, reasonable inquiries would have "alerted the plaintiff to the precarious financial position of the borrower".

[5] So the judge found that there were two independent causes of the loss. His Honour concluded that the respondent valuer's responsibility should be regarded as twice that of the appellant money lender and assessed damages accordingly; that is, his Honour awarded the appellant two-thirds, not the whole, of the loss on the loan. No argument is advanced that this was an apportionment which was unfair or that led to an unjust result. It was submitted to his Honour that he had no power under the Act to do other than award the whole of the loss. His Honour rejected that argument; hence this appeal.

[6] Although it was long ago pointed out that there is "scope for debate as to the inter-relation between ss 82 and 87 of the Act" (Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1983) 68 FLR 101 at 104), there appears to be no appellate decision which explains in what circumstances the power to order a compensatory payment in money, given by s 87(1), can be used and how that power is to be reconciled with s 82 of the Act. The present appears to be the first case in which it is necessary to decide a basic point about that relationship and we have sat as a Court of five for that purpose.

[7] It is we think substantially common ground that, so far as the express terms of s 87(1) are concerned, the order Williams J made was within power; the appellant's contention is in effect that it must be read down so as to be subject to certain limitations not expressed in it. All the conditions of application of s 87(1) which the subsection itself prescribes have been fulfilled. The subsection reads as follows:

"Without limiting the generality of section 80, where, in a proceeding instituted under, or for an offence against, this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IV, IVA or V, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 80A or 82, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage".

Section 87(2)(d) reads as follows:

"an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage".

[8] Section 87(1) came into the Act, in a form rather close to that it presently has, as part of the amendments consequential upon the Report of what is commonly called the Swanson Committee. The new s 87(1) was included in the Trade Practices Amendment Act 1977; significant changes made to s 87(1) were:

i. The power to make an order under the subsection, which had been exercisable only in addition to relief under s 80 or s 82, became exercisable whether or not relief was granted under either of those provisions;

ii. The provision referred to 'such order or orders as it thinks appropriate' ... if the Court considers that the order or orders will compensate ... in whole or in part for the loss or damage' ... The initial subsection had referred simply to 'such other orders as it thinks fit to redress injury'.

An indication of the purpose of the changes made to s 87 is to be found in par 9.158 of the Swanson Committee's report. It expressed the view that s 87 orders should be available, without requiring that relief be also given under s 80 or s 82. It remarked:

"In most instances the remedies under section 87 would be the more appropriate remedy".

This suggests that a merely ancillary role for s 87 was not contemplated.

[9] It does not appear that the High Court of Australia has ever had to consider the contention that the power given in 1977, to make orders compensating in whole or in part for loss or damage, must be subject to any implicit limitation. The Court has however made general statements which do not necessarily encourage a reading down process. In Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 298, five members of the Court said:

"Section 87 of the Act confers a wide discretionary power on courts to make remedial orders in appropriate cases to ensure a fair result".

This observation was repeated in Marks v GIO Australia Holdings Limited [1998] HCA 69, (1998) 196 CLR 494 at par 45, and a similar statement is to be found in Wenpac Pty Ltd v Allied Westralian Finance Ltd (1992) 67 ALJR 165.

[10] The provision, as is evidenced by its earlier history, was not always given so warm a reception. Section 87(1) has been relied on to make an order for a pecuniary payment in only two cases, the present and S & U Constructions Pty Ltd v Westworld Property Holdings Pty Ltd (1988) ATPR 40-854. The appellant says both these decisions are incorrect; if that is right, then one still awaits, after 23 years, the case in which it will be appropriate to make such an order under s 87(1).

[11] We respectfully agree with the statement of Mason P, with which Priestly JA agreed, in Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 that:

"Early case law took a narrow approach to s 87 ... But it is now clearly established that s 87 is to be given no restrictive interpretation". (at 364)

His Honour referred to D Skapinker's article "'Other Remedies' Under the Trade Practices Act - The Rise and Rise of Section 87" (1995) 21 Mon L Rev 188. It seems clear that, when s 87(1) was enacted in 1977, it empowered the making of pecuniary orders for compensation; that this is so appears from the parenthetical reference to s 87(2) and is, in any event, not in dispute here. But in what circumstances might such a pecuniary order be made?

[12] The appellant says that it cannot be done where there are two independent causes of the loss of which a plaintiff complains, one cause being the responsibility of the plaintiff. But the most obvious case for reduction of what might otherwise have been an award of the amount lost is that in which the loss has been partly the plaintiff's fault. Another approach to the problem made by the appellant's argument is that, it is said, under s 82(1) a plaintiff proving that one of the causes of the loss was a breach of s 52 is entitled by virtue of that section to an award of the whole loss and s 87(1) cannot cut that down. If that is so, then s 87(1) is a dead letter insofar as it gives power to order a compensatory payment in respect of part of the loss.

[13] Another answer to the appellant's argument is suggested by Mr D F Jackson QC, who led Mr Applegarth for the respondent. Mr Jackson showed no enthusiasm for the task of supporting the reasons of Williams J and argued that, bypassing s 87(1) altogether, one might achieve an award of part only of the loss under s 82(1). That is, Mr Jackson did not accept that s 82(1) embodies an "all or nothing" rule. It is not clear to us why one would trouble to consider whether s 82(1), properly construed, means that part of the loss may be awarded, when there is another section in the Act which (although not well drawn) explicitly provides for an order of that kind.

[14] Mr Jackson appeared to suggest that a dictum in Sent v Jet Corporation of Australia Pty Ltd [1986] HCA 35; (1986) 160 CLR 540 at 544 is inconsistent with the primary judge's view of s 87. The Court said:

"Where conduct in contravention of Pt V causes loss it would be curious to confer on a person or a number of persons both a right to compensation under s 82 and, quite independently, a right to the discretionary grant of compensation under s 87(1A)".

We do not, with respect, care to say anything about the validity of the observation so far as it relates to s 87(1A), but note that the ultimate conclusion in Sent, that compensation may be ordered under s 87(1A) only if proceedings have been instituted under a provision other than s 87, was promptly reversed by statute; we refer to Schedule 1 to the Statute Law (Miscellaneous Provisions) Act (No 2) 1986 (Cth).

[15] Sent may exemplify the narrower approach to s 87 which is pointed out in Akron Securities. We are inclined to apply s 87 in accordance with its apparent intention, which is as we have pointed out to confer "a wide discretionary power ... to make remedial orders in appropriate cases ... to ensure a fair result"; we also rely upon the observations as to the proper approach to s 87 made by Kirby J in Marks, particularly at pars 142 to 147 of his Honour's reasons.

[16] We suggest that if s 87 does not allow a judge to order payment of only part of the loss in such a case as the present, it is difficult to think of any instance in which that power could be given operation. That outcome would be an unusual one, treating the relevant part of an amendment to the Act as having no practical effect, on the ground that an earlier provision of the Act, s 82(1), had been read as establishing an "all or nothing" rule. If such an absolute rule has been established, and we think it has not, then it must cause injustice, the present case being an example.

[17] Here, no-one has contended that the distribution of responsibility the judge fixed was other than fair, but if the appellant is right the choice his Honour faced was to award the appellant too much, viz. the whole of the loss, or too little, viz. none of it. An example of the difficulty an "all or nothing" approach creates is the recent decision of the Court of Appeal of the Supreme Court of Western Australia in Walker v Henville [1999] WASCA 117. There, according to the Court's findings, there were two causes of the loss, but it regarded itself as confined to deciding which one was "the" cause - see par 67. Where there is, for example, a finding that the plaintiff and defendant are equally responsible for the loss, an "all or nothing" rule leaves the trial judge with a choice between two unfair results - one unfair to the plaintiff, the other unfair to the defendant.

[18] We were reminded at the hearing that a purpose of the Act is consumer protection, but everyday experience shows that the Act has important functions beyond helping those whose circumstances cry out for legal protection. The s 52 plaintiff may be a substantial corporate body and the defendant may be a person of less substance than the plaintiff. One cannot assume that reading s 87 down so as to produce results favourable to plaintiffs will conduce to justice. Further, the party held to have contravened s 52 of the Act is not necessarily guilty even of negligence, let alone fraud; a party, although innocent of any moral fault, may be held liable for making an incorrect statement, the making of which advantaged that party not at all. Because s 87 confers a power that is discretionary, it can be exercised in a way that takes account of a wide range of factors of this kind.

[19] The reason for saying, as we have, that an absolute "all or nothing" rule has not in fact been adopted is that there is an important group of cases in which no such rule is applied. Those are where the loss is said to be "divisible". Where trading losses which continued over a period of time are held to be due in part to misleading conduct and in part to the plaintiff's own fault, responsibility is able to be split by selecting a point of time beyond which the losses will not be allowed. Nothing in particular need have happened at that point of time, the selection of which is necessarily somewhat arbitrary: Pavich v Bobra Nominees Pty Ltd (unreported) No WAG 91 of 1986, 4 August 1988 (Federal Court), per French J, at 24. Heydon JA, as his Honour now is, remarked in his work on Trade Practices Law, Vol 2, par 18.1740:

"In some cases contributory negligence, though it does not bar the victim from all relief, has the effect of limiting the damages recovered. The Court, in determining the actual loss caused to the victim, does not grant damages for those parts of the loss caused by the victim's want of care. This is but an illustration of a much wider principle discussed at length in Collins Marrickville Pty Ltd v. Henjo Investments Pty Ltd (1987) ATPR 40-822 at 48,903-48,904, by Wilcox J".

The facts of that case, summarised by Heydon JA, illustrate the process of dividing a loss into periods or categories or category of losses, so as to avoid the unfair outcome which can ensue, if one combines the "all or nothing" rule with the notion that it is enough, as is the appellant's contention here, that the "contravention is one of a number of conditions which contributed to that damage".

[20] The process of sorting out a variety of losses connected with the contravention, into those which should fairly be allowed and those which should not, is a means of preventing the recovery of an excessive amount by allowing all losses which can be causally connected with the misleading statement to be recovered; it is a means of allowing for contributory negligence. When the court cuts off trading losses at a particular date - say, the end of a financial year, as in Collins Marrickville - it does not do so because the losses beyond that date are absolutely unconnected with the misleading statement; the later losses have occurred in part because the trading business was bought, a purchase caused by the misleading statement. The dissection of loss in this way cannot be done where there is (as there is here) one single loss which cannot plausibly be divided into categories of recoverable and irrecoverable loss. The distinction between those losses which are subject to the "all or nothing" rule and those which are not is based on fortuitous circumstances, having nothing to do with the substantial merits of the case; for example, if the claim is for the difference between price and value of the property purchased, then the "all or nothing" rule would apply to it, but if it is only for trading losses they could be allowed in part.

[21] The divisibility or indivisibility of the loss should not be the criterion; nothing in the language of s 87(1) requires that the power to compensate for part of the loss be confined to losses which are divisible in the sense just discussed.

[22] No appellate court has ever, having considered the interrelationship between s 82 and s 87 with respect to pecuniary orders, decided that s 87 must be read down so as to have, in this respect, no practical effect. We do not so decide, but think rather that s 87(1) should be given the effect which its terms appear to require, namely that an order may be made requiring that the defendant compensate the plaintiff for part only of a loss which is causally connected with the contravention complained of.

[23] Considerations which have encouraged us to adopt this view are, firstly, that no sufficient reason appears to do such violence to the language as appears to be necessary, in order to achieve the result for which the appellant contends; secondly, to hold that s 87(1) means, if we may so express it, what it says may contribute to the resolution of a problem which is now lamentably old; thirdly, the solution we propose is in accordance with the position which has been reached by the New Zealand Court of Appeal in Goldsbro v Walker (1993) 1 NZLR 394; we refer especially to the reasons of Cooke P (as his Lordship then was) at 399, of Richardson J at 404 line 6 and to Hardie Boys J at 406; fourthly, the liberal approach we favour accords with that recommended in recent years by the High Court of Australia and with that suggested by the Swanson Committee; lastly, it appears to be difficult to construct any plausible limitation to be read into s 87(1), so far as it deals with a part-loss order, in order to achieve the neutering of that provision which the appellant advocates.

[24] Further discussion of the last point is, perhaps, warranted. Mr Keane QC, who led Mr McKenna for the appellant, suggested that s 87(1) should be confined to supplementary relief - relief ancillary to some other kind of relief. There is nothing, in our view, in s 87(1) to justify that construction. In particular, there can be no doubt that a s 87(1) order compensating for part of the loss may be made when no order is obtained under s 82. A submission which was, we thought, pressed more strongly was that the power to order payment of part only of the loss could only be exercised at the plaintiff's election; that seems to involve requiring the Court to apply the "all or nothing" rule to indivisible losses unless the plaintiff could be advantaged by its not doing so.

[25] We would think that adoption of this limitation would lead to some manoeuvring on a plaintiff's part; if during the course of the trial it emerged that there was solid ground for holding that the plaintiff, perhaps by positive wrong-doing, contributed to the happening of an indivisible loss, then the plaintiff would be wise to press a s 87 claim. If the evidence appeared to tend in the opposite direction, the s 87 claim would be dropped, in the hope of recovering all of the loss on the basis that the defendant's misleading conduct was a cause or a substantial cause of it.

[26] We incline to the view that once a proceeding of a kind mentioned in s 87(1) is before the Court, it has vested in it all the powers which s 87 encompasses, whether or not the plaintiff presses for a s 87 order (to avoid being a victim rather than a beneficiary of the "all or nothing" rule). The Court is not confined to giving such relief as is contended for by counsel. Subject to giving the parties the opportunity to comment upon what the Court has in mind, the Court may properly mould the relief granted in such a way as to achieve a fair result for both sides.

[27] We agree with the view of Williams J that under s 87(1) the Court may award only part of the loss causally connected with the contravention found; we think it may do so in the circumstances of the present kind, where the plaintiff's conduct of which the defendant complains is quite independent of the defendant's breach. We are aware that views of varying degrees of strength have been expressed, in the cases, in support of the proposition that the "gullible plaintiff" defence is never open - that the defendant can never defeat the plaintiff by asserting that "you should not have believed me when I misled you": Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233 at 239; but see Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193 at 241 per Gummow J, and the other authorities discussed in Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; (1990) 26 FCR 112 at 136. We do not think it necessary to venture into this field which, although important, has no direct relevance to the point we have to consider.