Mills v Walsh

Background

1. The following account is based on the factual findings of the primary judge, having regard to his Honour's preference for the evidence of Mr Walsh where there was a conflict, and adverse credibility findings in respect of Mr Mills, which were not challenged on appeal.

Negotiations for renovations - Mid-2016

1. Ms Zhang, who is a pharmacist, approached Mr Walsh as a result of a recommendation from a friend, initially with a view to renovating her pharmacy. They met at her pharmacy in mid-2016, and conversation turned to the possibility of renovating the Willoughby property. Ms Zhang asked Mr Walsh whether he could do some renovation works at her home, and Mr Walsh replied that he probably could. Ms Zhang explained that she wanted to convert part of the home into a self-contained area with a kitchenette.
2. Subsequently Mr Walsh attended the Willoughby property, and in the company of Ms Zhang and Mr Mills inspected the site. Mr Mills told Mr Walsh that they wished to undertake a renovation of the front section of the house, so that it would contain four bedrooms instead of three, with all bedrooms to have ensuites. He said that they also wanted a galley kitchen in the front section of the house. These proposed renovations were explained as enabling Ms Zhang and Mr Mills to take in four tenants, rather than three, and allowing the tenants to live in self-contained areas in the front of the house, without interfering with Ms Zhang and Mr Mills' lifestyle at the rear. Mr Mills said that he wished to keep the renovation simple, and that he did not want to spend more than $100,000.
3. There were quite a number of further meetings. At one of these, Mr Mills and Ms Zhang informed Mr Walsh that they now wished to renovate the rear section of the house, as well as the front section. One or other of Mr Mills and Ms Zhang said that they were thinking of a larger renovation, that they wished to get new finishes, and that they wished to change the whole interior design of the house, so that the front and rear sections appeared more unified. They said that they had some ideas about how to achieve this, but needed help with the design. Mr Walsh said that what was now being proposed was a bigger job than had originally been described, and that he would like to involve his friend Didier Bertini, who had a company called Wow Developments Pty Ltd ("Wow Developments"). He said that they had worked together on projects for many years, and that Bertini had experience in boutique home renovations, which he thought was what was now being proposed.
4. On 16 September 2016, Ms Zhang, Mr Mills, Mr Bertini, and Mr Walsh met at the property. One of Ms Zhang or Mr Mills told Mr Walsh that they wished to spend about $500,000 on the renovation. Later that day, Mr Mills sent an email to Mr Walsh forwarding some joinery and computer-aided design drawings which had been prepared by an architectural firm, Play Architects Pty Ltd.

Towards agreement - 20 September 2016

1. On 20 September 2016, Mr Mills, Ms Zhang, Mr Walsh, Mr Bertini, and Mr Tony Legge (of the architects Legge & Legge), met at a coffee shop known as Maisy's Café, in Neutral Bay ("the Maisy's Meeting"). Mr Legge was introduced as an architect, and both Mr Bertini and Mr Legge told Mr Mills and Ms Zhang that they could help them develop a suitable design for the renovations. Mr Bertini assured them that he could manage the project to a high standard, as did Mr Walsh. Mr Mills said that they wished to spend about $500,000 on the renovations, and that they would like to have the work completed by February 2017, to which Mr Walsh responded, "Ok, that can be done". Mr Legge drew some rough sketches and floorplans, and led a discussion about the design. Ms Zhang and Mr Mills described various items which they wished to have included, and Mr Legge sketched and made notes to reflect their instructions. This was at a fairly high level of generality and lacked detail; the instructions were about the rooms which were to be renovated, with some ideas as to style, but no discussion about finishes and materials, nor as to the cost of particular items. Mr Mills said words to the effect: "Please give me a quote for your work with an estimate, I want to get started as soon as possible after that."
2. Mr Walsh said that at this time he believed that it was possible to have the work then described by Ms Zhang and Mr Mills completed by February 2017, at a cost of around $500,000. He observed, however, that at that stage, the finishes, materials, appliances, and furniture to be used had not been selected, and they would necessarily influence the ultimate cost of the project. That said, Mr Walsh agreed that, in principle, he believed that it was possible to make selections of good quality products and undertake the works, to a high standard, for around $500,000.
3. In the course of the meeting, Mr Mills also said words to the effect: "I don't want to go through Council. I want to avoid doing anything which will require Council approval. I want you to invoice my company and say on the invoices that the work is for an office renovation. I'll send you the details." At some point after the Maisy's Meeting, Mr Mills provided Mr Walsh with the details of his company Mills International to which he wished invoices for the renovations to be addressed, and he also provided the address of Mills International, for use as the address where the building works were ostensibly to be performed.

A deposit is paid - 18 November 2016

1. Mr Mills requested an on-site meeting, at which he requested that an invoice be forwarded to Mills International seeking a deposit, and that demolition works commence as soon as possible, with a view to completing the project by February 2017. On 18 November 2016, Mr Walsh sent Mr Mills an email, to which were attached plans for the renovations prepared by Legge & Legge, and an invoice for a deposit of $100,000. The covering email contained the following: "Hi Dave, I've put together a rough scope of works, however we do need to wait until we get the final drawings to finalise the cost."
2. The invoice, which was on letterhead of "JSW Projects" and was headed "150 Sydney Road Willouby" [sic], contained a skeletal outline of the works to be undertaken. However, various aspects of the design, including fixtures, finishes, appliances and electrical works, remained unresolved. The narrative in the invoice concluded: "Final scope of works & price to be finalised once drawings are received from Tony Legge Architects. Budget of estimated works to be between $400,000 to $500,000."
3. On 21 November 2016, Mills International paid the deposit of $100,000 by direct deposit to JSW's bank account. No written contract was in place.

Works commence - November 2016 to March 2017

1. Two days later, on 23 November 2016, work commenced.
2. On 21 December 2016, following a request made by Mr Walsh at a site meeting, Mills International paid JSW a further $100,000 by way of a progress payment; at the time, no invoice was issued. On 8 January 2017, Mr Mills' personal assistant sent an email to Mr Walsh, asking him to call in relation to invoices for the first two payments. Mr Mills said words the effect: "Can you please send me invoices for the progress payments which I have already made to you? Remember to issue them to the company and use the company address for the project." As a result, on 17 January 2017, Mr Walsh prepared and sent to Mr Mills two invoices in respect of the two payments which had so far been made. These invoices, one of which was a replacement invoice for the 18 November 2016 invoice, were addressed to Mills International, and falsely described the work as being undertaken at the offices of Mills International.
3. Meanwhile, the project had continued to evolve and expand, almost daily, at the behest of Ms Zhang and Mr Mills, who requested more than 75 changes to the scope of works - including the addition of a pool, bar, and patio, and the reconfiguration of the electrical installation. There were daily, or almost daily, site meetings between Mr Mills and Mr Walsh. The changes were frequent, and the quality of the works requested high. Inevitably, these changes increased the cost of the project. In response to one such request, on 18 January 2017, Mr Walsh sent Mr Mills a message: "Awesome, Turning into a multi million dollar build"
4. On 20 January 2017, Mr Walsh requested a further progress payment of $100,000, which was paid by Mills International on 23 January. By this point, JSW had received payments totalling $300,000.
5. Still the project continued to evolve and expand, with the inevitable consequence that the cost would increase. Although there had been no overall estimate prepared, Mr Walsh or Mr Bertini advised Mills that special windows from Italy would cost around $150,000; that JSW's costs of building the deck and concrete area around the pool would add at least $50,000 to the cost of the project; that the electrical works required to install the heated floors, security system and surround sound system would add at least $100,000; that apart from the cost of constructing the pool, the landscaping requested by Ms Zhang and Mr Mills in the pool area would add at least $100,000; and that the general level of quality they were now requesting in terms of finishes, fixtures, and fittings would also increase the cost substantially.

Works cease and the building is demolished - April 2017 to December 2018

1. On 6 April 2017, Mr Walsh sent Mr Mills an invoice for a further progress payment, supported by a revised costs sheet which indicated a total estimate of $1,341,614 (plus $138,000 for a window and $45,000 for parquetry) of which $625,748.58 was completed. In response to further comments from Mr Mills, on 20 April Mr Walsh provided a still further revised costs sheet, with a total estimate of $1,313,354 (plus $138,000 for a window and $45,000 for parquetry) of which $600,533 was completed.
2. From this point, the relationship between JSW and its clients continued to deteriorate. Mr Mills asserted that he was being charged incorrectly. JSW and its subcontractors left the site in mid-April 2017.
3. Ms Zhang and Mr Mills obtained a quote from Redwood & Co to take the works to completion for a further $1,333,473, on a "costs plus" basis; that quote was not accepted. Ultimately, they retained Metricon to demolish the entire building and rebuild to a different design, pursuant to which, on 18 August 2018, the partially renovated premises were demolished, in preparation for the Metricon rebuild.

The judgment and the appeal

1. In respect of the HBA claim, the primary judge found that only JSW and not Mr Walsh was the party to the building contract, and so Mr Walsh could have no liability in respect of it. [3]
2. The restitutionary claim, for moneys paid under the allegedly mistaken belief that the recipient was legally entitled to the payments totalling $500,000 that had been made, also failed, as the recipient was JSW and not Mr Walsh, and neither Mr Mills nor Ms Zhang, but Mills International, was the payer. [4] This is not challenged on appeal.
3. In respect of the misleading and deceptive conduct claim, his Honour found that Mr Walsh made one of the pleaded misrepresentations, in a qualified way (that Walsh/JSW would be a licensed builder when works commenced, without having reasonable grounds for doing so), [5] but that Mr Mills did not rely on it, [6] and that although Ms Zhang did so she incurred no loss because she incurred no expenditure or liability; [7] and in any event, Ms Zhang and Mr Mills had failed to establish, and were unable to establish, that they had incurred any loss. [8]
4. In essence, the appeal challenges: 1. the conclusion that Ms Zhang suffered no loss or damage because she incurred no liability or expenditure (Ground 1); 2. the conclusion that Mr Mills did not suffer loss or damage, because he did not rely upon any misrepresentation that Mr Walsh and/or JSW were licensed builders (Ground 2); 3. the conclusion that Mr Walsh was not a party to the building contract (Ground 3); and 4. the failure to find that Ms Zhang and Mr Mills had incurred a loss of $500,000 or some other amount (Grounds 4, 5, 6 and 7).
5. In addition to submitting that the appeal should be dismissed for the reasons given by the primary judge, Mr Walsh by Notice of Contention contends that: 1. his Honour erred in finding an unpleaded misrepresentation as to a future matter, namely that Mr Walsh had misrepresented, by silence, that if given the work, the parties undertaking the work would be licensed, and thus legally able to undertake the works, by the commencement of the works (Contentions 1 and 2); 2. any damages should be reduced by $165,000 (the amount of the settlement with Legge & Legge) (Contention 3); 3. the misleading or deceptive conduct claim is an apportionable claim, and any damages against Mr Walsh should be apportioned with the concurrent liabilities of JSW and Legge & Legge (Contention 4); and 4. any damages should be reduced, by way of set-off, by any amount found to be owing to Mr Walsh on a quantum meruit basis for the works performed under the contract but not yet paid for (Contention 5).

The contract: was Mr Walsh a party (Ground 3)

1. His Honour concluded that Mr Walsh was not a party to the contract: "[121] Mills accepted in cross-examination that the reason why Mr Walsh was not referred to in this document [the 18 November 2016 Invoice] is because this offer was being made by the JSW (T37.1-11). Likewise, he accepted that the reason that he was being invoiced by JSW was because he and his wife had contracted with JSW (T38.39-41). And he accepted, on several occasions, that JSW was the party with whom he had contracted (T39.6-7; 140.7-8). [122] It seems to me that viewed in the light of evidence such as this, the proposition that Walsh was a party to the contract is a conclusion which a reasonable observer of the parties' communications would be unlikely to draw. As the Court of Appeal noted in Pethybridge: This is because the correct conclusion to draw from the objective evidence is that a reasonable observer of the communications that led to the entering of the contract, together with the background facts known to the parties, would conclude that the parties intended that the contract would be with whomever it was that was carrying on the business under the name of C & D Asphalt Service." Ground 3 challenges this conclusion.
2. The parties to a contract are identified according to the objective theory of contract, [9] which involves ascertaining the intention of the parties from their communications and the circumstances in their mutual knowledge, including their evident commercial aims and expectations; their subjective beliefs and intentions are irrelevant, save insofar as they are manifest and shared. [10] However, the post-contractual conduct of the parties may more readily be resorted to for this purpose than for the purpose of construing contractual terms. [11]
3. For the purposes of identifying the contracting parties, by far the most significant objective communication was the invoice of 18 November 2016, which unambiguously referred, and referred only, to JSW. The email which covered it was sent from "JSW Projects", with the email address info@jswprojects.com.au, and bears the "JSW Projects" logo twice in the email signature. The first attachment - the Legge & Legge drawings - refers neither to JSW nor to Mr Walsh, and is neutral. But the second attachment - the invoice designated Quote 1110 - bears the JSW Projects logo at the top of both pages; includes JSW's email address, ABN, and the name "JSW Property Projects Pty Ltd" in the letterhead on both pages; and makes no reference at all to Mr Walsh. It asked for payment of a deposit of $100,000, and included JSW's banking details. The deposit was duly paid on 21 November 2016, by direct deposit to the nominated bank account of JSW.

The misrepresentation (Contentions 1 and 2)

1. The respondent complains that the primary judge erred in finding that Mr Walsh had misrepresented, by silence, that if given the work, the parties undertaking the work would be licensed, and thus legally able to undertake the works, by the commencement of the works. That finding is challenged on two bases: first, that a future representation in that form was not pleaded (Contention 1); and secondly, that his Honour misapplied the deeming provision in ACL s 4(2) (Contention 2). The appellants respond that it is not clear that the trial judge found the future representation, as distinct from the pleaded representation to the effect that the builder was licensed (at the time the representation was made); they seek to uphold the judge's decision on the basis that the pleaded representation ought to have been found and was misleading; and in the alternative, they say that the future representation was made and rightly found to be misleading.
2. The only misrepresentation which his Honour found established was pleaded in the Further Amended Statement of Claim as follows: "13. During the course of the September 2016 Meeting, JSW, Mr Walsh and Mr Bertini informed Mrs Zhang and Mr Mills, either by implication (being subparagraphs i. - iii) or expressly (being subparagraphs iv. - vi.), that: i. They were licenced to carry out residential construction works in NSW; …"
3. At trial, Mr Walsh disputed that any such representation arose. The trial judge identified the issue thus: "[146] As to the First Representation, namely, that he, JSW, or Bertini were licenced to carry out the works, Walsh says that his silence did not represent that either he, JSW, or Bertini were necessarily licenced under the HBA at the time of the conversation, said to give use to the representation. Rather, he submitted that his silence was a representation that if JSW and Bertini were given the work, the parties undertaking the work would be licenced, and thus legally able to undertake the works, by the start of the works. As such, he asserted that his representation was a form of representation as to the future, albeit a representation as to the future by silence."
4. His Honour then reasoned: "[148] It seems to me that on such close analysis, the representation made by his silence for which Walsh contends is the correct one. I believe that finding can be tested by the hypothetical that JSW was ordinarily licenced under the HBA, but that its licence had temporarily lapsed for some reason. Notwithstanding this lapse, steps were being taken to reinstate the licence, which steps would have been expected to have been completed within, say, 48 hours. In those circumstances, a representation constituted by silence, which silence occurred in the period of the cessation of the licence, would be a representation as to the future of the type suggested by Walsh. [149] I am of the view that Walsh's silence at the Maisy's Meeting (which is where it is alleged that each of the representations were made) was, at best, a representation that if he, JSW, and Bertini got the job, they would be legally able to undertake the works by the time they commenced those works. Thus, it was representation as to the future."

Causation (Grounds 1 and 2)

1. The primary judge held that Mr Mills did not rely on the contravening conduct. In this respect, his Honour said (emphasis added): [25] "[186] I have formed that view as Mills was not a person who appeared to care for legalities or proprieties. He did not wish to apply to the local council for development approval for the project, which approval seemed obviously necessary. His cavalier approach to his company's income tax obligations were also plain to see. Indeed, on balance I believe that if he became aware of JSW's lack of a HBA licence he may well have concluded that it was better for him to engage a small builder, even if unlicenced, as such a builder would be more likely to be compliant with his requirements for false invoicing. [187] His attitude towards legalities, and formalities can also be discerned from the fact of his seeming indifference to the need for a written contract to be put in place before the works were commenced, or indeed at all. He was similarly unconcerned about the fact that he was requiring the works to be commenced before the plans were complete. In short, he was quite happy to be putting in place an entirely anarchic building program. [188] I find that Mills was simply after a builder who would do the work as cheaply as possible, and as quickly as possible. I find that he did not rely on any failure of Walsh to note that neither he nor JSW held the requisite building licence. [189] I find that Mills has not established reliance in relation to the First Representation."
2. Ground 2 complains that the trial judge erred in finding that Mr Mills did not rely upon the representation that JSW and Mr Walsh were licensed builders, and should have found that Ms Zhang and Mr Mills relied upon Mr Walsh and his company being licensed builders covered by home warranty insurance and would not have entered into any contract if they had known the true position, in circumstances where (a) the proposition that Mr Mills did not rely upon that representation was not put to him; (b) the fact that Mr Mills was not accepted as a witness of credit did not provide a basis for an inference that he did not rely upon Mr Walsh or JSW being licensed builders; (c) reliance should have been found in circumstances where the obligation to be licensed was a statutory obligation; and (d) Ms Zhang and Mr Mills were seeking and being offered a high-class boutique finish to their home.

Loss (Grounds 4, 5, 6 and 7)

1. Ms Zhang and Mr Mills had pleaded that the building works "were so defective and deficient that [they] had no value and made no improvement to the Property". Their case on loss and damage was then pleaded as follows: "53. In the premises and due to the conduct of JSW and Mr Walsh, each of the plaintiffs have suffered loss and damage. … 55. Mr Mills seeks an order that JSW, Mr Walsh and Legge & Legge are jointly and severally liable to repay the totality of the amounts paid in paragraphs 20 [and] 26 above in the total amount of $500,000 due to the above pleaded breaches of the ACL. … 57. Further, the plaintiffs seek damages against JSW and Mr Walsh for breaches of the HBA and ACL as pleaded. 58. Further, the plaintiffs seek orders that JSW, and Mr Walsh are jointly and severally liable to pay: i. Demolition costs of the defective work; and ii. Site preparation and related wasted costs incurred in rectifying the defective work; …"
2. His Honour rejected this approach, stating that it was necessary for them to prove the value of what they acquired, less what they paid for it. [29] His Honour said: [30] "[201] As I have earlier indicated, the Plaintiffs plead that but for the representations they would not have entered into the contract with JSW, and that as a consequence they would not have paid to it the sum of $500,000. They then go on to plead that the self-same $500,000 represents the quantum of that loss. This is so, they plead, as the building works undertaken by JWS were valueless. [202] I consider this approach to loss to be wrong at law. [203] As the High Court has on numerous occasions made clear, where there are both burdens and benefits arising out of misrepresentations, damages will only arise for such wrongful inducement if the burdens of reliance on the misrepresentations outweighs the benefits; put another way, it is necessary for the plaintiff to prove the value of what he or it has acquired, less what was paid (see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 536 per Brennan J; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514 - 5). [204] These authorities were both authorities concerning s 82(1) of the Trade Practices Act 1974, the section dealing with loss in the precursor to the ACL, as such they remain directly relevant to these proceedings."
3. His Honour remarked that Ms Zhang and Mr Mills "glibly plead that the works were valueless", [31] and continued: "[217] I am of the view that the Plaintiffs have not begun to approach the task of establishing the value of the property, at the date that JSW left it, with anything approaching the degree of precision commensurate with their capacity to do so. The task was a tolerably simple one, albeit requiring expert evidence. They eschewed that task, asserting that theirs was a "no transaction case", and as such not requiring proof of loss beyond the payment of $500,000. This, in my view, was a forensic decision which was based on a mistaken premise as to the appropriate measure of damages. [218] I am of the opinion that in the circumstances of this case, Plaintiffs have simply failed to establish their loss, and the court should not be left to "pluck a figure out of the air" to use the expression of Gleeson CJ in Troulis."

Damages under ACL s 236

1. The inquiry required by ACL s 236 is as to "the amount of the loss or damage" which the claimant has suffered "because of" the contravening conduct. The assessment of damages for that purpose is informed, though it is not controlled, by common law principles relating to the assessment of damages, particularly for misrepresentation. [33] As was said of the predecessor section - s 82(1) of the Trade Practices Act 1974 - in Wardley: [34] "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 in an action for negligent misrepresentation. The measure of damages recoverable under s 82(1) can only be ascertained after a thorough analysis of those provisions in Pts IV and V of the Act for contravention of which the statutory cause of action may be maintained."
2. The purpose of an award of damages under ACL s 236 for a contravention of the prohibition on misleading and deceptive conduct in s 18, as at common law for misrepresentation, is to compensate the plaintiff for the prejudice or disadvantage it has suffered in consequence of having altered its position under the inducement of the misrepresentation made by the defendant. [35] The aim is to put the plaintiff in the position in which it would have been had the misrepresentation not been made, so far as monetary compensation can do so. [36] Typically, this involves making good the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which it relied, offset by any corresponding advantage in money or money's worth obtained by the plaintiff from the transaction. [37]

The relevant counterfactual

1. This requires an inquiry into how the plaintiff changed its position because of the misrepresentation. Often, the answer is that the plaintiff entered into a transaction - to purchase property, or as in this case, to obtain services. Usually, the inquiry proceeds on the basis that had the misrepresentation not been made, the plaintiff would not have entered into the transaction. That is a so-called "no transaction" case. In such a case, at least prima facie, the applicable measure of damages is the difference between the price paid by the plaintiff, and the value it received in return. Unless the value it has received is less than the price it has paid, the plaintiff has suffered no loss.
2. A "no transaction" analysis may not always be appropriate. In the present case, it might be hypothesised that but for the misleading and deceptive conduct in question, Ms Zhang and Mr Mills, who plainly wanted to have renovations performed on their Willoughby property, would have entered into a contract at no less a price, albeit with a licensed builder, and as a result received insured as opposed to uninsured works. If that be the correct "counterfactual", and if it be assumed that they would have paid a licensed builder a similar amount for similar works, then the difference in their position would be that they received uninsured works, when under the counterfactual they would have received insured works. On that hypothesis, their damages might be the difference between the value of the works as performed by JSW, and the value they would have had if they were insured, or the cost of obtaining insurance for them.
3. However, this need not be resolved because, in this exercise, the hypothetical alternative transactions into which a plaintiff might have entered are generally regarded as irrelevant. [38] Thus the Privy Council said in United Motor Finance Co v Addison & Co Ltd: [39] "… their Lordships cannot … modify the resulting damages on the footing that though in the absence of misrepresentation the plaintiff firm would not have made the contract with the defendants or with the hirer which it did … nevertheless even if it had known the facts it would have entered into some other contract and thus lost money in any event."
4. And Hobhouse LJ, citing that passage, said in Downs v Chappell: [40] "In general it is irrelevant to inquire what the representee would have done if some different representation had been made to him or what other transaction he might have entered into if he had not entered into the transaction in question. Such matters are irrelevant speculations."

The prima facie measure: expenditure incurred less value received

1. In a "no transaction" case in which an asset is acquired, it is often said that the 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, [48] at least "if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired)". [49] However, the fundamental rule is that the plaintiff should be compensated; the rule which turns on an assessment of value is only a means of giving effect to that overriding compensatory rule; the valuation of assets as at the date of the transaction is "simply a second order rule applicable only where the valuation method is employed"; and whenever the overriding compensatory rule so requires, the Court is entitled to assess the loss flowing directly from the transaction, without any reference to the date of transaction or indeed any particular date. [50] Thus the deduction of true value at the date of the transaction (or for that matter as at any other date) from the price paid is only a guide to the assessment of damages under ACL s 236. [51]
2. It is nonetheless an important guide, because ordinarily it will reflect the prejudice or detriment that the representee has incurred. Thus Mason, Wilson and Dawson JJ said in Gates v City Mutual Life Assurance Society Limited: [52] "In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid: Potts v Miller; Toteff v Antonas; Gould v Vaggelas. But this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J in Toteff v Antonas [(1952) 87 CLR 647 at 650] in these terms: 'In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant'. As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation … at least if the loss is foreseeable".

The onus of proof

1. At trial, Ms Zhang and Mr Mills submitted that, having established that they had expended $500,000, it was for the defendant to prove the value of any offsetting benefit. As has been seen, his Honour rejected that submission.
2. In Potts v Miller, Dixon J said that the absence of proper evidence of a difference between the price paid and the value received was a reason why the jury's verdict could not be allowed to stand (emphasis added): [60] "The burden lies upon the plaintiff of proving that the shares acquired were, at the time when they were allotted or purchased, of less value than the amount paid or payable for them by the plaintiff. For the plaintiff must establish his damage and show that the shares for which he subscribed were not really worth what he paid for them (Stevens v Hoare, per Joyce J). … But as the authorities stand, the plaintiff in a case of the present description must establish that the "fair," "real" or "intrinsic" "value" of the shares he subscribed for was at the date of allotment less than the face value for which he made himself responsible, and the amount recoverable is the excess. If the difficulties of doing so are insurmountable, then apparently his action must fail. For here too the burden of proof remains upon the plaintiff. It is for him to show how low is the real value of the shares and he cannot sustain an assessment of damage in his favour based upon a greater reduction of value than might positively be inferred by a reasonable man from all the circumstances appearing in the evidence. In the present case all that the plaintiff succeeded in proving was the contents of the draft prospectus from which the purpose and nature of the company's enterprise appeared and the fact that after eleven months it failed to pay the rent or hire and J C Williamson Ltd resumed the portion of the business it had leased to the company. The present position of the company, the amount of its assets, the causes for its failure to keep up the payments of the rent, and the terms upon which the business was surrendered to J C Williamson Ltd do not appear. In my opinion the evidence as it stood was insufficient to show that on 1st or 6th June 1938 the fair value of the shares was less than their face value. We know nothing more about the affairs of the company than may be gathered from an examination of its memorandum and articles of association and an uncompleted and very crude draft prospectus and from its presumptive failure within a year. No investigation of the true nature and history of the company was made. So far as appears the venture was of a speculative character, involved the acquisition of no fixed or enduring assets and depended wholly upon the successful exercise of a right to operate a going concern so as to produce a margin over the amount payable to the proprietors. In these circumstances much more information was needed before any conclusion could be reached as to the original value of the shares. To my mind the whole question of damage was left to conjecture. This absence of proper evidence of actual loss is another reason why the jury's verdict could not be allowed to stand."

Did Ms Zhang and Mr Mills prove any loss?

1. It does not follow from the circumstance that Ms Zhang and Mr Mills have subsequently demolished the property and rebuilt that they did not receive value under the contract. As the passage cited above from ADC v White indicates, the benefit to a proprietor under a building contract is not any enhancement in the capital value of the land, but the value of the works. Unless defective, this will typically equate with the costs of the works. The benefit is to be seen in the performance of the service, rather than in the end product which the service may or may not produce. [75] Under a building contract, the proprietor receives labour and materials, and the value of what the proprietor receives is the value of that labour and those materials. Works under a building contract do not necessarily enhance capital value. The initial partial demolition works undertaken by JSW would not have enhanced capital value, but were nonetheless of value to Ms Zhang and Mr Mills as a step towards the end which they desired. So were the renovation works, because they were works that Ms Zhang and Mr Mills then wished to have done, even if they subsequently changed their minds and determined instead to demolish and rebuild completely to a different design. This is well-illustrated by the following passage from the judgment of Byrne J in Brenner v First Artists' Management Pty Ltd: [76] "If a landowner requests an architect to prepare a design for a building in circumstances where there is no enforceable contract and the architect undertakes the preparatory work but does not produce any design before the defendant abandons the project, it may be said that no benefit exists which is capable of acceptance. Planche v Colburn (1831) 8 Bing 14; 131 ER 305 is authority against such a conclusion. In my opinion, "benefit" in this context must be seen from the perspective of the recipient who is, after all, the person to be charged. It may be that for some idiosyncratic reason a defendant seeks the performance of work which another would see as without benefit or, indeed, as a positive dis-benefit. Examples of this are given by Goff J in BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, at 803. But where a person requests another to do something, it is not unreasonable for the law to conclude that the former sees some benefit in its performance, however wrong this view may be on an objective basis and for the law to act upon the perception of the recipient."

Conclusion

1. My conclusions may be summarised as follows:
2. The primary judge was right to conclude that the contract was with JSW, and not with Mr Walsh.
3. Mr Walsh engaged in misleading and deceptive conduct, in that he misrepresented that the entity that would perform the building works was licensed, and alternatively in that he represented that it would be licensed when building works commenced and did not have reasonable grounds for doing so.
4. The misrepresentation induced Ms Zhang to enter into the building contract with JSW. Had she not done so, Mr Mills would not have caused the $500,000 to be debited to his loan account with Mills International and paid to JSW. To the extent that Mr Mills incurred liability in respect of payments made under the building contract to JSW, he did so "because of" the misrepresentation.
5. Ms Zhang and Mr Mills' damages fall to be assessed on a no transaction basis. In the context of a contract for services, as in a contract to acquire an asset or business, the purpose of compensation is to remediate the prejudice or disadvantage the plaintiff has suffered in consequence of altering its position under the inducement of the fraudulent misrepresentations made by the defendant, which necessarily involves bringing to account value received against moneys expended. In a "no transaction" case, a plaintiff bears the onus of proving that it has suffered loss; that involves proving that what it has received is worth less than what it paid for it; and where there is no satisfactory evidence of value of the benefit received, a claim for the difference must fail. The primary judge did not err in holding that it was necessary for Ms Zhang and Mr Mills to prove that the benefits they received were worth less than what they paid.
6. In a contract for work and materials, the benefit to the proprietor is the value of the work and materials, not the end product. In this case, that value is unaffected by the decision of Ms Zhang and Mr Mills to demolish the renovations and rebuild. Ms Zhang and Mr Mills entirely failed to prove that the value of the labour and material that they received under the contract was less than the $500,000 they have paid JSW. The primary judge was right to hold that they had failed to discharge their onus of proving that they had incurred any loss or damage.

Endnotes

1. This reasoning was not different in substance from the reasoning of the plurality at 527-528, 530-534.
2. Zhang and Mills v JSW Property Projects Pty Ltd [2021] NSWDC 655 ("Primary judgment").
3. Primary judgment at [127].
4. Primary judgment at [136].
5. Primary judgment at [149]-[154].
6. Primary judgment at [189].
7. Primary judgment at [190]-[194].
8. Primary judgment at [218], [257].
9. Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [54]-[58] (Campbell JA; Beazley and Basten JJA agreeing); Harold R Finger & Co v Karellas Investments Pty Ltd [2015] NSWSC 354 at [79]-[86] (Robb J).
10. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1 at [1312]-[1321] (Drummond AJA); Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833 at [369]; (2001) 117 FCR 424 (Allsop J).
11. Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [59] (Campbell JA; Beazley and Basten JJA agreeing).
12. Tcpt, 31 August 2021, p 133(28).
13. Cf primary judgment at [121].
14. Cf primary judgment at [123].
15. Primary judgment at [154].
16. Primary judgment at [148].
17. Primary judgment at [152]-[153].
18. See ACL, s 4.
19. Amended Defence [24].
20. Tcpt, 2 September 2021, pp 277(45)-278(07).
21. McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Aust Natural Care Products Pty Ltd (2008) [2008] FCAFC 2; 165 FCR 230 at [192] (Allsop J; Emmett J agreeing); Allergan Australia Pty Ltd v Self Care IP Holdings Pty Ltd [2020] FCA 1530 at [436] (Stewart J); ACCC v Woolworths [2019] FCA 1039 at [113] (Mortimer J).
22. Primary judgment at [153].
23. Above at [89]; Tcpt, 2 September 2021, pp 277(45)-278(07).
24. Tcpt, 2 September 2021, pp 323-324.
25. Primary judgment at [186]-[189].
26. Affidavit, Crystal Lu Zhang, 31 October 2019 at [33]; Primary judgment at [180]-[182], [190].
27. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [143] (Gummow, Hayne, Heydon and Kiefel JJ).