misleading conduct - section 52
110 The finding of misleading conduct can be gleaned from the following extracts from the judgment:
"181.However, Overton went further. It furnished Mr and Mrs Murphy with a copy of the Information Booklet. The Information Booklet was clearly a promotional tool. Nevertheless, it bore the character of a document included as a source of information. In referring to Overton's policy of removing the problems of home maintenance from the resident and stating that all bills had been budgeted for in the maintenance fees, and in describing the items that the maintenance fees had been budgeted to cover, the Information Booklet was calculated to give rise to an expectation that, to the extent that those items and maintenance expenses had not been adequately budgeted for in the estimated maintenance fees, that fact would be disclosed to prospective lessees.
182. In stating that "present budget figures would indicate a level of cost payable" in respect of a "B" type unit of $55.71 per week, the Information Booklet was calculated to give rise to an expectation that any information that was material or relevant to the reliability of such an estimate would be disclosed. The fact that expenditure incurred by Overton in order to provide the amenities and facilities referred to in the Information Booklet had not been taken into account in calculating the estimate of maintenance fees payable was material and relevant information. The failure to disclose that information would be misleading or deceptive to a prospective lessee or would be likely to mislead or deceive a prospective lessee.
189. That evidence leads inexorably to an inference that the figures upon which the maintenance fee of $55.71 per week was calculated did not adequately provide for all of the expenditure actually incurred or likely to be incurred in the operation of the Heritage Village. Under the terms of the Lease Memorandum, Overton was entitled to recover the whole of that expenditure from Lessees by way of maintenance fees.
191. Nevertheless, the statement of an estimate of the outgoings in both the Lease and Information Booklet would fairly give rise to an expectation on the part of a recipient of those documents, who was an intending lessee, that Overton would disclose the fact that expenditure that Overton was entitled to take into account in arriving at that estimate had not in fact been taken into account. That expectation was clearly not fulfilled. I consider that, in all of the circumstances, it was misleading or likely to mislead for Overton to furnish the information contained in the Information Booklet, the Lease and the statements attributed to Mrs Taylor about the maintenance fee of $55.71 without disclosing that the estimate was calculated on figures that did not adequately provide for all expenditure actually being incurred in the operation of the Heritage Village. It was conduct engaged in by Overton in trade or commerce and contravened section 52 of the Trade Practices Act."
111 The consequence, as found, was as follows:
"203.I consider that it is more likely than not, therefore, that Mr and Mrs Murphy would not have entered into the Lease had they been told that the estimate of maintenance fees did not accurately reflect the expenditure that Overton was incurring in operating the Heritage Village. Further, had Mr and Mrs Murphy been told that the budget was not accurate because it did not take account of all expenditure, it is more likely than not that they would not have entered into the Lease. Indeed, I do not understand Overton to suggest that they would have done so in such circumstances."
112 The first point raised by the appellants is whether his Honour was correct in finding that any loss or damage suffered by the appellants in consequence of the conduct of Overton in 1992 was suffered when they entered into the Lease, and that there was no evidence of any loss at that time. The appellants claim that the loss or damage they suffered was, at the earliest, when, as his Honour held, by letter of 27 November 1996 the respondent unequivocally communicated to the appellants a decision to bring all expenditure incurred by it in the operation of the village to the account of the Maintenance Fund for the purpose of levying contributions, or, alternatively, that the loss or damage was sustained when the levy on that basis was actually made in 1997. The respondent argues that, even if this is a proper approach, the position should have been clear to the appellants in 1994.
113 The essence of his Honour's reasoning on this point was as follows, which I set out verbatim because of the importance of it to the case:
"215. When a claimant is induced by a misrepresentation to enter into an agreement that proves to be to his or her disadvantage, the claimant sustains a detriment, in a general sense, on entry into the agreement. That is because the agreement subjects the claimant to obligations and liabilities that exceed the value or worth of the rights and benefits that it confers upon the claimant. However, detriment in that general sense is not universally equated with the legal concept of "loss or damage" - Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 527 ("Wardley"). Where a misrepresentation induces a claimant to enter into an agreement to purchase property, the claimant's loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the agreement and the value of the property at the date of the agreement - Potts v Miller (1940) 64 CLR 282 at 297-299. Thus, it would be necessary to compare the value of the benefits that are conferred on Mr and Mrs Murphy by the Lease and the Trust Deed with the value of the obligations imposed upon them. There is, however, no evidence of any disparity between the two.
216. Where, as a result of a wrongdoer's conduct, a claimant enters into an agreement that exposes him or her to a contingent loss or liability, the claimant sustains no actual damage until the contingency is fulfilled and the loss becomes actual. Until that happens, the loss is prospective and may never be incurred - Wardley at 532. However, there is no contingent loss or liability, in that sense, in the present case. The obligation of Mr and Mrs Murphy to contribute to expenditure incurred in operating the Heritage Village arises under clause 5 of the Lease Memorandum. That obligation was created upon entry into the Lease. The fact that Overton was not insisting on full performance of the liability does not affect the existence of the obligation. It may be that no debt becomes payable by a Lessee until there is notification by Overton as contemplated by clause 5(b). Nevertheless, the obligation to contribute is incurred once a Lessee enters into a lease.
217. Clause 5(a) created an obligation for Mr and Mrs Murphy to "contribute to the outgoings in respect of the premises and the Village and facilities thereof in accordance with this clause". Under clause 5(b) Overton was entitled to notify Mr and Mrs Murphy of Overton's current estimate of their contribution to the outgoings in relation to any particular period. Mr and Mrs Murphy were thereupon obliged to make payment of the amount of such estimated contribution either monthly or at such other intervals and on such dates and in such amounts as Overton should determine.
218. However, clause 5(b) also provided that, as soon as practicable after the end of each period, an adjustment was to be made between Overton on the one hand and Mr and Mrs Murphy on the other "by the payment of any deficiency in the amount of such contribution actually paid by [Mr and Mrs Murphy] to [Overton]." Under clause 5(h) any contribution in respect of outgoings "levied by" Overton under the clause was to become "due and payable" within seven days of receipt of "notice of the levy".
219. Thus, the scheme of clause 5 of the Lease Memorandum is to impose an obligation to contribute to expenditure incurred from time to time. The quantification of that obligation cannot be made until expenditure is actually incurred. No debt becomes payable until such time as a levy or a calculation of actual expenditure is made and notified to Mr and Mrs Murphy. While the actual liability to pay a sum of money cannot arise until some act of notifying on the part of Overton, any entitlement of Overton to reimbursement arises out of the Lease. It is only because of the Lease that Mr and Mrs Murphy become liable to Overton in debt at some future time.
220. Mr and Mrs Murphy undertook an obligation to pay maintenance fees in accordance with clause 5 of the Lease Memorandum on 20 October 1992 by reason of their having entered into the Lease. It was possible that Overton might never have sought to recover full reimbursement of the expenditure incurred by it, as it was entitled under the terms of the Lease. Nevertheless, the entitlement to recover from Mr and Mrs Murphy existed from the time when the Lease became binding on them. I do not consider that their obligations under the Lease were contingent in the sense that was referred to in Wardley.
221.If Mr and Mrs Murphy suffered any loss or damage as a consequence of the conduct of Overton in 1992, they did so when they entered into the Lease. There is, however, no evidence of loss or damage at that time. Indeed, they have eschewed a case based on any proposition that they suffered loss or damage at that time. It follows that they have not established any loss or damage as a consequence of the conduct of Overton in 1992 that was in contravention of the Trade Practices Act or in breach of a duty of care owed in furnishing information."
114 The appellants' counsel argued that the loss here was a contingent loss or liability as explained in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 527-533, 537-8, 543-5, 554-8 ("Wardley"). It is contended that the effect of cl 5 of the Lease is that there is no liability until the lessor determines that a levy is to be made taking all expenses into account, and that it was only when the representation or advice was falsified by the making of a levy taking all expenses into account that the cause of action accrued and loss and damage was sustained for the purposes of ss 52, 82 and 87 of the Trade Practices Act 1974 (Cth).
115 The respondent rejects this, substantially for the reasons expressed by his Honour in the passages set out above. It is submitted that if the value of the Lease is affected because of the right of the respondent to recover full reimbursement of expenditure incurred in operating the village, that was an inherent characteristic of the Lease when it was granted.
116 It is worth recalling the short facts of Wardley and how the point arose, taken from the headnote to the report (at 515):
"The State of Western Australia sued Wardley Australia Ltd, Wardley Australia Securities Ltd and others ("Wardley") in the Federal Court claiming damages for loss alleged to have been suffered by it as a result of misleading and deceptive conduct on the part of Wardley which led it to grant an indemnity to National Australia Bank Ltd against a facility granted by the Bank to Rothwells Ltd. The statement of claim alleged that at a meeting on Saturday 24 October 1987 representations were made on behalf of Wardley to the effect that Rothwells had very substantial net assets, that it did not suffer a capital deficiency but simply a liquidity problem, and that there were no substantial amounts owed to Rothwells by one Connell or interests associated with him. In reliance on the representations, which were not true, on 26 October 1987 the State executed the indemnity by which it agreed to indemnify the Bank against any net loss which might arise if Rothwells did not satisfy in full its liability under a bill facility to be granted by the Bank. In due course the Bank called on the indemnity, and the State disputed its liability. The dispute was later settled by the State paying the Bank $10.5 million. On 14 January 1991 the State amended its statement of claim so as to rely on an additional representation made by Wardley at a meeting on Sunday 25 October 1987, to the effect that Rothwells was a sound financial institution which had substantial net assets. It was pleaded that this was not the case, and that the State had been induced to give the indemnity under the influence of the misleading representations made by Wardley on the Sunday as well as of those made on the Saturday. French J struck out the amendment on the ground that it pleaded a cause of action which was outside the time limit prescribed by s 82(2)(1). A Full Court of the Federal Court (Spender, Gummow and Lee JJ) allowed an appeal by the State. Wardley appealed to the High Court from the judgment of the Federal Court, by special leave."
117 In Wardley, Mason CJ, Dawson, Gaudron and McHugh JJ said, at 532 (omitting citations):
"If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred. A deferred liability may stand in a different position but there is no occasion here to discuss that matter.
In the result, we agree with the decision of von Doussa J in SWF Hoists & Industrial Equipment Pty Ltd v State Government Insurance Commission. There the insured sued the insurer for loss suffered as a result of a misrepresentation as to the extent of the indemnity or liability coverage provided by a proposed contract of insurance. His Honour held that actionable actual loss (as opposed to a mere potential for loss) occurred only when the insured was called on by a third party to make payments against which it would have been entitled to be indemnified by the insurer under the contract as represented. When the events entitling the third party to make the demand for payment occurred and when the insurer indicated, prior to the making of that demand, that it would not indemnify the insured against any such demand, there was no more than a potential for loss."
and, at 533:
"The conclusion which we have reached is reinforced by the general considerations to which we referred earlier. It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such cases, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled."
118 Brennan J said, at 537:
"…But when the actual loss that a plaintiff suffers depends not only on the making of an agreement but also on circumstances extrinsic thereto, the loss is not suffered until those circumstances have transpired and, in benefit and burden cases, not until the loss is ascertainable. … In claims arising out of misleading or deceptive conduct, as in claims in tort, liability is for loss suffered or damage done, not for loss or damage merely foreseeable, threatened or imminent. In a case where the relevant loss consists of a pecuniary liability, the liability must be absolute though it is not necessary that the amount be immediately payable."
119 Deane J said (at 540):
"…in some of the cases where an action lies in negligence for pure economic loss, no relevant loss is actually sustained or suffered and no cause of action for damages accrues unless and until some actual adverse consequence of the negligence is known or becomes manifest. …
It is not possible to derive from the authorities or from settled principle a simple negative or affirmative answer to the abstract question whether, for the purposes of a limitation provision, the mere incurring of a contingent liability to make a monetary payment in the future suffices to give rise to a cause of action of which loss or damage is a necessary ingredient."
and (at 542-3):
"…On balance, it seems to me that the mere assumption of such an isolated and truly contingent liability did not give rise to a factual situation within the prima facie meaning of the words "suffers loss or damage" until the stage was reached where subsequent events gave rise to actual or certain liability or other actual or certain financial detriment (eg a payment made to escape from the contingent liability)."
120 Toohey J said (at 554), after referring to Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 14 and a passage from Dixon J in Toteff v Antonas (1952) 87 CLR 647 at 556:
"…That loss was not and could not have been incurred at the time the indemnity was given and, in my view, it does not avail the appellants to say that on the very day the indemnity was given the State stood to suffer some loss because Rothwells was "hopelessly insolvent". The loss or damage for which the State seeks recovery is the loss or damage which it suffered once events had crystallized following the giving of the indemnity. No doubt Rothwells' insolvency at the time carried with it the potential for loss as soon as the indemnity was given. But, of itself, Rothwells' financial position was not loss or damage actually incurred by the State at that moment; nor is it the loss or damage for which the State seeks recovery."
121 The appellants called in aid the decisions of the New South Wales Court of Appeal in Christopoulos v Angelos (1996) 41 NSWLR 700 and Registrar General v Cleaver (1996) 41 NSWLR 713. These decisions do not substantially advance resolution of the present issue because of the different factual settings, although they do provide some support to the appellants. The same may be said of the decision of Lindgren J in NMFM Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558 at pars 1279 to 1281.
122 The appellants relied upon the decision of the Full Court in Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35. The short facts are summarised in the headnote as follows:
"In October 1988 the respondents (the lessees) leased from the appellants (the lessors) premises on which they intended to conduct a café. They traded from December 1988 until February 1991. In a proceeding commenced by the lessees in November 1992, including a claim under s 82(1) of the Trade Practices Act 1974 (Cth) (the Act), the trial judge found the lessors had contravened s 52 of the Act and awarded damages. The contravention included misrepresentations made before the lease relating to what the café takings would be. The damages included trading losses suffered to December 1990. The judge held the lessees were obliged to wait at least 12 months to see if the takings forecasts were realised before they could show misrepresentations on which to found their action, and their cause of action under s 82(1) of the Act did not accrue until December 1989 at the earliest. On appeal, the lessors contended, among other things, the judge should have found the claim under s 82(1) was barred by s 82(2) of the Act prior to the commencement of the proceedings."
123 It was held that there was no loss or damage from the breach of s 52 until it could be said that it was reasonably ascertainable that the purchaser would suffer loss (43D, 45F, 48E). In my opinion, the decision appealed from here is plainly inconsistent with the decision in Karedis. Indeed, the present case is a much stronger one than Karedis. In Karedis the deficiency of the takings which affected value existed at the time of the contract. It was a contract to purchase a business induced by fraudulent representations, a situation to which Potts v Miller has traditionally been applied. The problem in Karedis was not one of some later event at the hands of the lessor (such as doubling the rent contrary to assurances), which is the present situation. There is a question as to whether the decision in Wardley (relied upon by their Honours) justifies the result in Karedis. However, Karedis was referred to with apparent approval by another Full Court in Blacker v National Bank Ltd [2001] FCA 254 (pars 66-70).
124 The decision in Blacker itself requires some consideration. In that case, the applicant borrowers were induced to purchase a dairy farm and business by misrepresentations made by the respondent bank. The misrepresentations were in over-optimistic budgets as to the conduct of the dairy farm and business. It was no part of the applicants' case that the value of the dairy farm was less than was paid at the date of acquisition. The basis of their claim was that they had suffered loss by being induced to borrow monies from the bank which they were ultimately unable to repay because the business proved not to be financially viable. It will be seen that there are some parallels with the present case. It was pointed out on appeal in that case that the pleaded case rested on an allegation that the dairy business had been unprofitable from the outset. Notwithstanding this, the Full Court approved the trial judge's approach of finding loss when it was reasonably ascertainable by the applicants that they had suffered more than negligible losses as a result of acquiring the business, rather than applying a Potts v Miller approach. Perhaps not a great deal can be taken from this, as, for the limitation issue on appeal, there was no difference in result as between the two approaches. The trial judge in that case had directed himself by reference to Karedis (Blacker v National Australia Bank Ltd [2000] FCA 681 at pars 188-197).
125 Before turning to a recent High Court authority, reference should be made to the decision of the House of Lords in Smith New Court Ltd v Citibank NA [1997] AC 254 which is relied upon by the appellants. That case dealt with damages in deceit. Lord Browne-Wilkinson expressly left aside the measure of damages for innocent misrepresentation under the Misrepresentation Act 1967 (UK) (267F) and Lord Steyn expressly considered the basis for distinguishing deceit from negligence (279F-281A). It is not directly in point in relation to the causes of action at issue here. In any event, review of basic questions as to the measure of damages in the traditional torts is best left to the High Court. Nonetheless, the decision is a pointer towards a more flexible approach to the assessment of damages.