PPK Willoughby Pty Ltd v Baird

Court of Appeal (NSW)|2021-11-25|Before: Basten JA, Leeming JA, Harrison J

Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Citation: [2020] NSWSC 1757 Date of Decision: 8 December 2020 Before: Harrison J File Number(s): 2012/00163736

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

BASTEN JA: I agree with Leeming JA; the appeal should be dismissed with costs.
LEEMING JA: This appeal turns on the assessment of damages for pure economic loss where land is acquired subject to a condition that it be developed, and is developed, and the developer makes a profit on the resale. If the land is acquired by reason of a misrepresentation, and would not otherwise have been acquired, in what circumstances if at all can the developer recover damages?

Factual background

PPK Willoughby Pty Ltd (PPK) was incorporated for the purpose of acquiring and developing a 4.78ha site in Willoughby comprising 21 parcels of land known collectively as Willoughby Market Gardens. The owners (the State government and a State government authority) invited developers interested in acquiring the land to lodge tenders. PPK was the successful tenderer. The State government vendors accepted PPK's non-conforming bid of $25.5 million (PPK had also lodged a conforming bid for $23 million). The contract for the sale of land was exchanged on 21 December 2009 with settlement 30 days thereafter. As will be explained below, PPK was contractually obliged to carry out development in accordance with a "Refined Master Plan", which included 80 private dwellings and large areas of open space. Indeed PPK promised that it would not make any application to amend or modify that plan. The Refined Master Plan had been "endorsed" by the local Council, but it was still necessary to seek and obtain development consent. In due course, PPK obtained development consent, developed the land in accordance with the Refined Master Plan and sold all of the (subdivided) residential lots. PPK made a profit on the venture. What that profit was and how it was calculated seems not to have been disclosed; certainly, it was not disclosed in the parties' submissions in this Court.
Nonetheless, in 2012, PPK commenced proceedings against the State government vendors and the partners of the law firm HWL Ebsworth (HWLE) which had acted for PPK on the transaction. The claims against the vendors were dismissed by consent shortly before trial. Why the proceedings took some 7 years to get to trial is unclear. The trial took an unusual course, occupying some 11 days in June, October and November 2019, and then 2 days in May 2020 and a further 3 days in October 2020. Why that occurred is also unclear, although in part it was attributable to the changing way in which PPK's case was advanced.
PPK sued HWLE for damages for breach of retainer, negligence and misleading and deceptive conduct pursuant to the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) in the forms those statutes took prior to 1 January 2011. I confess I do not understand how it was said that the Trade Practices Act was engaged by misleading and deceptive conduct for which the unincorporated HWLE partnership was sought to be held liable, but the Fair Trading Act was in materially identical terms and did apply to the conduct of natural persons in trade or commerce, and for that reason nothing in this appeal turns on whether federal law was engaged. I shall simply refer to PPK's claim for statutory damages. (If the conduct occurred today, PPK's claim would be for damages under s 236 of the Australian Consumer Law for conduct contravening s 18 of that law.)
HWLE had prepared a due diligence report which stated that the land was unaffected by flood related development controls. That was not so. It seems that on 23 November 2009, shortly before the tender was lodged, the Council had altered its Development Control Plan and that this impacted the way in which the risk of flooding would be assessed as part of the development process. Further, PPK complained that HWLE had not obtained an updated s 149 certificate between exchange and settlement. There seems to have been a lively contest at trial as to whether its failure to do so was a breach of any duty.
In any event, some months after settlement a planning certificate issued under s 149(2) of the Environment Planning and Assessment Act 1979 (NSW) disclosed that the land was at least potentially "subject to flood related development controls". It seems to have been common ground that while that notation was in force, the practical consequence would be to delay or prevent Council from granting development consent.
PPK's principal Mr Webb said that this only came to his knowledge in June 2010, in the course of preparing an application for development consent to build a display suite. PPK said that it had been necessary to spend significant time and money thereafter to conduct flood modelling in order to persuade Council to delete the flood notation. This was said to have delayed PPK's lodging of its development application by 167 days.
Mr Webb said that had he been made aware that the site could have been affected by flood development controls, he would not have advised PPK to make an unqualified bid, and instead would have advised it to make a qualified offer of around $17 million allowing for a due diligence period. PPK contended that this meant that PPK's tender would not have been accepted. Alternatively, PPK said (in paragraph 108 of its closing submissions) that had a further s 149 certificate been obtained, it could and would have rescinded notwithstanding that contracts had been exchanged, relying on its rights under the Conveyancing (Sale of Land) Regulation 2010 (NSW).
HWLE denied that it had been negligent or had breached its retainer, maintaining that it had been specifically instructed not to obtain an updated s 149 certificate. However, HWLE admitted that its report was materially misleading.

The judgment is confined to damages

The primary judge did not resolve the dispute concerning breach of a contractual or tortious duty. Nor did his Honour resolve the threshold issues of reliance that led to PPK's "no transaction" case, or various factual issues concerning quantification of the damages claimed by PPK. Instead his Honour dismissed the proceedings in 21 short paragraphs on the basis that even if PPK's no transaction case were accepted, PPK could not establish and had not established that it had suffered any loss caused by any alleged breach of duty or misleading and deceptive conduct by HWLE: PPK Willoughby Pty Ltd v Baird [2020] NSWSC 1757.
PPK's claim for damages at trial included a claim of $12,750,002 reflecting the difference between the price paid for the land and its "real value". PPK also advanced a claim for "delay costs" for a 167 day delay period, quantified at $5,253,227. Its appeal is as of right.
The disposition of this appeal is a little different from many. This Court was provided with some 1400 pages of documents tendered at trial, but that was a small minority of the documentary tender (the joint court book was 22 volumes, and there were additional tenders of documents). There were many areas of disputed expert opinion and days of cross-examination. Illustrative of this is the fact that written closing submissions of the parties occupied 152 pages excluding annexures. Both sides accepted that this Court could not determine the judgment if any to which PPK was entitled if any of PPK's grounds were made out. Instead, it would be necessary to remit the matter to the Common Law Division.
The failure to make findings was not without risk. If an appeal were allowed, a retrial was inevitable, and given the protracted history of the litigation, that was especially undesirable. If there was a basis for seeking a special costs order based on the undetermined issues (for example, if a notice to admit had been disputed giving rise to the need for evidence on an issue), then the opportunity to make such application was in all likelihood lost. The successful party may well have been disappointed that judgment was not obtained in its favour on multiple bases. Indeed, in its closing submissions at trial HWLE invited the primary judge to resolve the entire proceeding on a different basis, namely, by a finding that nothing HWLE had done or failed to do had any causal effect upon PPK. One advantage of such a finding, which in all likelihood would have been based upon the judge's assessment of Mr Webb, would be the difficulties confronting any attack upon it on appeal.
In Gulic v Boral Transport Ltd [2016] NSWCA 269 at [7], Macfarlan JA said with the agreement of Gleeson JA and Garling J that "a judge should determine all issues before him or her to assist the appeal process and obviate recourse to a new trial. A statement to this effect appears in the Judicial Commission of New South Wales's Civil Trials Bench Book at [2-6330]". See also Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust v Deputy Commissioner of Taxation [2017] NSWCA 81 at [70] and Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34 at [3]-[4]. There are exceptions to the practice, and to be clear a litigant is not entitled to insist that a court determine non-dispositive issues and give reasons for such determination. The obligation of a court to give reasons is an obligation to explain the orders made, and that need not include resolving every issue presented by the parties. There may be good reason not to decide a non-dispositive point (for example, the point may not have been fully argued, or it might be thought undesirable to have necessarily obiter reasoning about a novel question of law). However, when a court chooses not to resolve major issues, on which both parties have joined and spent time and money, it is generally desirable to explain why that course is being taken.
As it turns out, the course adopted at first instance was sufficient to resolve the litigation, and the evil of a retrial avoided. I mention the foregoing to explain the unusual course taken on appeal. Mr Cheshire SC, who appeared for PPK in this Court but not at trial, emphasised that only if this Court were persuaded that no other outcome were possible could the appeal be dismissed. Mr Faulkner SC, who had appeared at trial as well as in this Court for HWLE, did not demur from this. However, he submitted that having regard to the way in which the case had been advanced at trial, no other outcome was possible.

The nature of PPK's claims for damages

PPK acknowledged that while its case at trial had extended to damages for breach of contractual and tortious duties, if it failed to establish that the primary judge had erred in rejecting its claim for statutory damages for misleading and deceptive conduct, then it had no claim based on common law damages (transcript 25 November 2021, p 30). That concession was properly made. It reflected what occurred in Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436 at [10], where it was similarly observed that damages under statute in a case such as this "cannot be less than the damages at common law". It also reflected what occurred in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [14]. I shall take the same course, and refer merely to PPK's statutory claim.
PPK's case at trial was a "no transaction" case. At an earlier time, PPK had said that it had incurred a loss on the development, but that case was expressly renounced by the time the proceeding came to trial. Instead, PPK submitted that had it been advised of the flood notation, the transaction would not have gone ahead. PPK said that the measure of its loss was the difference between the amount paid for the property, and its "real value" at the date of purchase. Although it had not been pleaded, HWLE accepted that the trial had been run on that basis.
Both at trial and on appeal, counsel who appeared for PPK referred to "Potts v Miller damages". The reference is to Potts v Miller (1940) 64 CLR 282; [1940] HCA 43. I shall return to what that case held and what the High Court has said of those principles more recently. I understood counsel merely to assert that an appropriate or at least an available method of assessing damages was by subtracting from the $25.5 million paid the "real value" of the land at that date, and that the primary judge had erred in concluding that PPK was precluded from that approach, at least in circumstances where all the other areas of contested fact had not been determined.
In addition, PPK advanced a claim for "delay damages". In PPK's closing submissions, this was expressed as turning on HWLE being found to have been negligent in failing to order replacement s 149 certificates. "Having discovered the flood controls in June 2010, and having lost its statutory right to rescind the contract before completion, [PPK] had the option of seeking to mitigate its loss by proceeding to develop the land, which it did" (PPK's closing written submissions, paragraph 145). This led to the claim of damages for 167 days (roughly speaking, just less than 5 months, plus an additional period occasioned by the need to push back a public meeting after the Christmas period).

The reasons of the primary judge

The primary judge stated at [9] that the acquisition of the property was a transaction which involved both burdens and benefits. The benefits included the proceeds of sale when the properties were subdivided and developed, while the burdens included the purchase price and the costs of the development to be incurred into the future. His Honour observed that: "9. In accordance with an hypothetical consideration of this approach, HWLE's conduct infringed PPK's interest consisting in its right and entitlement to know legal matters that were arguably relevant to the likely profitability of the project. Any loss sustained by PPK and claimed as damages allegedly recoverable from HWLE must be calculated as the overall loss from deciding to proceed and develop the property. The fact that PPK may choose to characterise its losses differently for internal or group accounting purposes does not alter that position."
After reproducing parts of Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 and Manwelland, his Honour said: "12. PPK is asserting a loss from a transaction that it contends it would not have entered into but for HWLE's breach of duty or misleading conduct. However, if the land were ever to be exploited by anyone at any time, that hypothetical purchaser would in the circumstances have been faced with the very obstacles with which PPK was confronted. The costs of development were always going to be the same whether or not PPK knew of the problems beforehand. The costs of removing the flood control restrictions would have been incurred by any developer. On this analysis, PPK would not have 'lost' anything. 13. Therefore, even if I accept that PPK would not have purchased the property if it had been told of the adverse affectation, the fact that it did purchase the property and made a profit means that it suffered no loss. It is in that sense actually better off than if it had not proceeded. The position would be different if it had unwillingly purchased the property and had been forced to proceed with the development to mitigate its loss but, contrary to what in fact occurred, did not even recoup its outlay. That was the position in Manwelland."
His Honour then returned to the claim by PPK that its damages should be assessed in accordance with what was said to flow from Potts v Miller. At [16] his Honour relied on two passages of Gleeson CJ's judgment in Henville v Walker of which PPK was critical: "[22] No one suggests that it is proper to regard the present as a case where the only relevant effect of the misleading conduct was to induce the purchase of an asset at an over-value, or that the damage is to be measured by comparing the price paid by the appellants for the real estate with the true value of the real estate at the time of purchase: cf Potts v Miller (1940) 64 CLR 282. The land was purchased for a specific purpose and, as the respondents understood, the development project involved not only the acquisition of the land but also the building and marketing of units, and the borrowing of most of the money required for that purpose. … [26] Since we are not here concerned with the simple purchase of an asset, the refinements sometimes involved in seeking to distinguish between subsequent loss or deterioration in an asset which occurs as a result of the 'normal nature and characteristics' (cf Potts v Miller (1940) 40 SR (NSW) 351 at 357 per Jordan CJ) of the thing bought, and loss resulting from other causes, are not directly relevant."
Those passages were cited in support of the proposition that "[t]he High Court has made it clear that the so-called Potts v Miller principles, which have always been applied flexibly, do not apply where the transaction is one involving the purchase of land for the purposes of development and resale".
His Honour thereafter reproduced a lengthy passage from McPherson JA's judgment in Manwelland, and continued: "18. I am unable to discern any relevant difference between that case and the present. In those circumstances, it does not matter whether PPK instructed HWLE not to obtain s 149(2) certificates, or whether I accept or reject Mr Webb's evidence about what he would have done if correctly advised, or whether PPK can or cannot establish that the actual value of the land was or was not different to the price it paid, or indeed several other contested factual matters. None of these matters ultimately achieves any significance because Potts v Miller does not in my opinion provide a fertile route to a conclusion that PPK sustained any loss for which the defendants are possibly liable."
In his conclusion his Honour said: "20. In my opinion, having regard to the way in which this case was eventually pleaded and conducted, PPK cannot establish and has not established that it has suffered any loss at all and certainly not a loss that was caused by any alleged breach of duty or misleading and deceptive conduct by HWLE: a reduced profit by reason of unexpected and unwanted costs of development does not equate to a loss for which the defendants are liable. In forming and expressing that view, I appreciate that the parties' detailed oral and written submissions have concentrated upon all manner of issues to which the evidence directed attention in the course of the hearing. I acknowledge that these issues were strongly contested and, but for the conclusion I have reached upon the correct method of assessing PPK's entitlement to damages, are issues that I would have been required to decide. I have determined that it is unnecessary to do so. However regrettable that circumstance may be or may become, I consider that PPK's case falls at the first hurdle: it entered into a transaction to purchase and develop land that was potentially adversely affected by the Willoughby Council's flood development control plans, but in the events that occurred, PPK developed the land and sold it for a profit. The fact that it did so in circumstances, on its case, that it would have avoided if it had been properly advised is, according to the authorities, beside the point. That is because, looking at the transaction as a whole, PPK did not sustain a loss in doing what it did."
On that basis the primary judge entered judgment for HWLE with costs.

PPK's submissions on appeal

Grounds 2 and 3 of PPK's appeal were based on its claim for Potts v Miller damages. Grounds 1 and 4 complained that the primary judge omitted to deal with the claim for "delay costs". Ground 5 was not elaborated orally, and was confined to a single paragraph in PPK's written submissions, to the effect that in basing his reasoning on the absence of an overall loss, his Honour took into account an irrelevant consideration in declining to order damages. This ground stands and falls with the others, and need not be addressed separately.
I shall follow the course adopted in oral addresses, which did not distinguish the individual grounds of appeal, but addressed the two bases of damages separately, with the primary focus placed on so-called "Potts v Miller" damages.
PPK's principal point was that it was correct, and even if not correct, it was at least potentially open, to assess damages for the loss caused by HWLE's misleading conduct on the basis of the difference between the purchase price and the "true value" of the land at that time. It followed that in the absence of findings of primary fact, the judgment could not be sustained.
In support of that proposition, PPK insisted that its cause of action under statute and in negligence accrued at the time the contract was entered into. PPK maintained that it had suffered loss, then and there, because it had bought property which was in fact worth less than the purchase price, and which it would not have bought at all but for the deficient advice of HWLE. It followed that a Potts v Miller quantification of its loss was the appropriate means of quantification, notwithstanding the profits ultimately derived by PPK on the development. By way of example, if a developer purchased land following a misrepresentation which it would not have purchased but for the misrepresentation, held the land for some years, and then through the developer's own ingenuity and resourcefulness managed to devise a profitable project which could be undertaken on the land, then the fact that ultimately the developer profited would not necessarily stand in the way of recovering damages. That would be a case where the subsequent profitable development might not feed back into the determination of the true value of the land at the time it was acquired.
PPK conceded that in determining the true value of the land a decade before the trial, the Court could not ignore the fact that the land had been developed and sold at a profit. Prima facie, those facts informed the calculation of the true value of the land. That is to say, one aspect of the land's value was its potential for profitable development which as it happened was shown in the present case to be real and not merely theoretical. But PPK said that the fact of later, profitable development did not inevitably preclude a case that the true value of the land when it was acquired was in fact less. Mr Cheshire grappled with this in terms: "LEEMING JA: But I think you concede that in assessing damages ten years after the event by reference to the loss you say arose at the time of acquisition, do you concede you must have regard to what's happened subsequently? CHESHIRE: In assessing the true value, yes. That's a very difficult concept, so I accept one puts subsequent events into it, but not all subsequent events. But in so far as it is unlocking the development potential, then that may well feed back into the real value, but for instance, if it so happened that the appellant was particularly good at what it was doing, then I say that's an extraneous matter that would not feed back into the true value."
Hence PPK's submission that the primary judge had erred in dismissing the proceedings without making findings as to what had happened.
PPK squarely confronted the reasoning of the Queensland Court of Appeal in Manwelland and said it was distinguishable or wrong. I shall turn to the details below.
PPK's delay claim was separate from its Potts v Miller claim based on paying more than the true value of the land. PPK accepted that any development on the site would have had to involve the time and cost of flood studies sufficient to persuade the council to remove the annotation from the s 149 certificate. PPK's case at trial was based on the time spent after June 2010 when it first appreciated the issue and the delay thereafter in lodging its application for development consent. PPK insisted that so long as there were no double counting, it could have damages for that delay in addition to its basic claim based on the true value of the land.
Both ways in which PPK advanced its submissions on appeal were said to be supported by Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 343; [2006] NSWCA 282.
PPK also invoked what was said to be a "just" construction of the statute. This was clarified in oral submissions. PPK disavowed some open-ended discretion, but instead invoked the principles stated in Johnson v Perez (1988) 166 CLR 351 at 355-356; [1988] HCA 64 that general rules as to the time at which damages are assessed "must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered", upon which Gleeson JA had placed reliance in Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389 at [52].
Mr Cheshire concluded: "When I've used the word justice, I am not looking at an overriding or overarching principle. I'm saying that ultimately, the approach to be adopted in any case has to have in mind or maybe as a check or a balance the question of, is that a just approach in fairly compensating the plaintiff? That's why I say the starting point is damages as at the date of the accrual of the cause of action, Potts v Miller, and then maybe at the end as it were, a check to see - and I think that is consistent with Astonland. Maybe a check to see, does that achieve a just result or is some other method of assessing damages more appropriate in the particular circumstances of this case?"
PPK made a number of precise criticisms of aspects of the reasoning of the primary judge. PPK said that Gleeson CJ was in dissent on the issue relied on by the primary judge in Henville v Walker. PPK also said that Henville v Walker was a case where the plaintiff sued on the basis that the damages turned on the profitability of the entire development, and was not authoritative for any proposition where the plaintiff chose to advance a case for damages on a different basis.
It will not be necessary to summarise HWLE's submissions in response, much of which is reflected in the reasons below.

Consideration

It is often convenient in law to use a slogan or label as a shorthand summary of a complex idea. That may be because for the purposes at hand, the details do not matter, and the use of the slogan or label enables one to get to the heart of the issue directly without distraction from presently irrelevant complications.
But such a mode of legal analysis comes at a price. Sometimes the details and complications matter. Sometimes the use of a slogan or a label may tend to conceal those aspects of the idea which are of greatest importance. And sometimes the slogan or label can distract from the applicable principle. It was in part with this in mind that Oliver Wendell Holmes once noted that ideas become encysted in phrases and thereafter cease to provoke further analysis: Hyde v United States 225 US 347 at 391 (1912). As Gummow J observed in Lipohar v The Queen (1999) 200 CLR 485; [1999] HCA 65 at [91], repetition of the maxim that "crime is local" did not assist analysi in those appeals.
In the present case, as Mr Faulkner submitted, no amount of repetition of an entitlement to "Potts v Miller damages" could sidestep the need to found any entitlement to damages for misleading and deceptive conduct in the language of the statute. It was necessary for PPK to establish that it had suffered "loss or damage by HWLE's misleading or deceptive conduct"; if so, statute entitled it to "recover the amount of the loss or damage", and if not, PPK's claim failed.
When at trial and on appeal PPK sought to recover "Potts v Miller damages", it was submitting that this was a case where the amount of PPK's loss or damage was appropriately measured by the difference between the $25,500,000 it had paid and the "real value" of the land at that time. That submission was inevitably controversial once PPK conceded that when the overall position was considered, PPK had made a profit on the development. It was controversial because PPK had to fail unless it established it had suffered loss or damage. The need to reconcile a claim for millions of dollars of damages with PPK emerging richer from the development makes this a case where the nuances in the reasoning of Potts v Miller, and the principles governing when it is appropriate to assess damages by reference to the difference between price and "real value", cannot be avoided.

The reasoning in Potts v Miller

The reasoning in Potts v Miller is illuminating. A clear statement of the facts may be found in Jordan CJ's judgment in Potts v Miller (1940) 40 SR (NSW) 351. The newly formed company in which the plaintiff underwriter had subscribed for 4,000 shares failed within a year, although he had been able to transfer 500 shares at par (£1). A jury awarded damages of £1,321 10s (representing 7s 6d for each of the 3,500 shares retained) on the basis of the first count of Mr Potts' declaration, which was that he had subscribed to the shares induced by the defendant's fraudulent misrepresentations. The second count was that the defendant had promised to pay all calls in excess of 7s 6d per share. The Full Court held that the plaintiff had failed to establish loss and set aside the verdict. A majority of the High Court dismissed an appeal.
All three members of the High Court were critical of the varying ways the allegations of misrepresentation were formulated and the evidence in support of them (something which had not troubled the Full Court), but this aspect need not be summarised. Starke J, dissenting, found that the jury had been misdirected, but that there was evidence of real damage, and would have ordered a retrial. Williams J concluded, inter alia, that there was no evidence of damage, so that the jury's verdict court not stand, because all of the capital subscribed was received by the company, and there was no evidence that the shares acquired were worth any less than the plaintiff had paid for them. Williams J also noted that the plaintiff was able to sell 500 of the shares soon after allotment at £1 each, thereby suffering no loss.
Dixon J wrote the leading judgment. He explained that the measure of damages in an action for deceit consisted in the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or money's worth obtained. However in a line of cases commencing with Davidson v Tulloch (1860) 3 Macq 783 involving the purchase of shares or bank stock, a supposedly "inflexible rule" had developed that the measure of the advantage to the plaintiff should be ascertained at the time of the acquisition. This approach was not without criticism. Dixon J quoted Lord Atkin in Clarke v Urquhart; Stracey v Urquhart [1930] AC 28 at 67 that "[whether a plaintiff] buys shares or buys sugar, whether he subscribes for shares, or agrees to enter into a partnership or in any other way alters his position to his detriment, in principle the measure of damages should be the same, and whether estimated by a jury or a judge". Dixon J explained that the reason given for the rule was that if "owing to accidental or extrinsic causes" the thing purchased lost value, that was not the reasonable consequence of the inducement. Dixon J explained that this led to the need to ascertain the cause of the subsequent diminution in value: "This reasoning makes it necessary to distinguish between the kinds of cause occasioning the deterioration or diminution in value. If the cause is inherent in the thing itself, then its existence should be taken into account in arriving at the real value of the shares or other things at the time of the purchase. If the cause be 'independent,' 'extrinsic,' 'supervening' or 'accidental,' then the additional loss is not the consequence of the inducement."
Dixon J then identified two qualifications to the rule which alleviated its rigidity. The first was that "in finding the fair or real value of shares at the time of purchase or allotment, the fact that it is then possible to sell the shares at a price that will go far to cover the outlay may be disregarded, if that price is delusive or fictitious, is the result of a fraudulent prospectus, manipulation of the market or some other improper practice". Thus the fact that Mr Potts had been able to on-sell 500 of his shares at par did not necessarily mean that he had suffered no loss.
The second was that "the real value of what the plaintiff got must be ascertained in the light of the events which afterwards happened, because those events may show, for instance, that what the shares might have sold for was not their true value or that it was a worthless company ... or looking back from subsequent events to the earlier state of the company it may appear that at the time the shares were taken the assets of the company did not correspond in value to the money paid". This qualification resonates with the present case. Subsequent events can be relevant to establish the real value at the time of acquisition. The land acquired by PPK was ultimately developed in accordance with the Refined Master Plan, yielding a profit. That does not necessarily entail the conclusion that the real value of the land when it was acquired was less than the purchase price, but it certainly bears upon that conclusion.
Often the "rule" in Potts v Miller is deployed by a defendant who seeks to confine the damages awarded to a plaintiff to a small loss, or to deny that there is any recoverable loss, based upon the market price immediately after the acquisition. The qualifications summarised by Dixon J to the effect that the market was distorted and a better measure of "real value" may be derived from looking at subsequent events are bases on which the market price immediately after acquisition may be disregarded for the purposes of assessing damages.
Dixon J explained that the burden lay upon the plaintiff to prove loss, beginning with the assumption that the shares were worth the price paid. He then concluded: "A special difficulty must often arise where there is a market value for contributing shares, which is real and not fictitious. In such a case, as capital is called up, the market price of the shares may consequentially increase but, at the same time, the disproportion of the market price and the paid-up value may grow even wider. How then is the damage to be estimated of an allottee who has retained his shares under the continuing influence of the original inducement and has paid calls? Indeed even in a case like the present, where the value of the shares at the time of allotment is to be sought, not in a market price, but in some estimate of their intrinsic worth, based upon the nature of the concern, it does not appear to be altogether easy to give effect to the conception of a value as at the date of allotment, when the greater part of the share capital was obtained by calls made at a later date and the plaintiff's actual loss results from the calling up of his liability on his shares. 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."
This passage identifies further obstacles confronting a plaintiff. The acquisition of shares which are only partly paid and liable to a call reflect the acquisition of an interest in a company the capital of which may later increase if and when calls are made. In order to determine the "fair", "real" or "intrinsic" value of the shares when allotted, it would be necessary to bear in mind that the member was liable to a call, and also that the value of the company at the time of the trial incorporated calls on capital which had been paid.
PPK was not merely in a position analogous to that of a shareholder who was liable to a call. PPK was positively obliged to develop the land in accordance with the Refined Master Plan. The contract for sale of land obliged PPK to sign a deed of covenant and return it to the vendors prior to completion. PPK did so. The deed of covenant required PPK to develop the site in accordance with the Refined Master Plan. That involved not merely subdividing the land and constructing high quality residential dwellings which could be sold. It also involved remediating parts of the land and creating large areas of open space which could never be sold. PPK's obligations under the deed remained even if it sold, transferred or ceased to occupy all or any part of the site (cl 4.2(a)). This truly was a case where the developer was "locked in" and was unable for any practical purpose to sell the land immediately after its purchase.
Three points emerge from the above.
First, the references to the "fair", "real" or "intrinsic" value of the thing acquired reflect the fact that the analysis in Potts v Miller was of shares for which there was a market. In fact, Mr Potts on-sold some of his shares on that market. It was essential for Mr Potts to displace the notion that he had suffered no loss because the shares for which he subscribed could be sold on that market. In particular, Dixon J's consideration commenced with the supposedly "inflexible rule" that where instruments such as shares or bank stock which traded on a market were acquired by reason of a fraudulent representation, then the damage was assessed at the time of acquisition. One theme in Dixon J's judgment is that this "rule" was far from "inflexible". But a premise of the whole of the discussion is that there was a market for the thing acquired.
The second point is related to the first. While reference to "Potts v Miller damages" may point merely to the difference between price and "real value", in a case such as the present, the label distracts attention from the complexities exposed in Dixon J's reasons summarised above. Thus in Berry v CCL Secure Pty Ltd [2020] HCA 27; 94 ALJR 715 at [31], Potts v Miller was said to stand as authority for the proposition that where a claimant is induced by deceit to enter into a transaction, the claimant is entitled to recover by way of damages the actual damage "directly" flowing from the fraudulent inducement - including losses flowing from causes "inherent" in the transaction - but is not entitled to recover losses of which the cause is "independent", "extrinsic", "supervening" or "accidental" such that those losses cannot rationally be regarded as caused by the deceit. PPK's submission was in substance the converse of this; PPK sought to exclude from the assessment of damages the fact that ultimately it had made a profit. But whether or not PPK's submission might be accepted turned upon the nuances analysed by Dixon J.
Thirdly, it is also clear that if there is a "rule" in Potts v Miller it is not one which is universal or available as of right. In HTW Valuers v Astonland Pty Ltd at [35] the joint judgment stated: "The approach of subtracting value from price is commonly employed where the acquisition of land, chattels, businesses or shares is induced by deceit. It has also been commonly employed under s 82 of the Act. It is sometimes described as the rule in Potts v Miller. Even in the areas in which that approach is often applied, and even apart from cases in which consequential losses have been recovered, the 'rule' is not universal or inflexible or rigid. This perception is not novel. It has existed at least since the judgment of Dixon J in Potts v Miller and has been quite plain since that of Gibbs CJ in Gould v Vaggelas. Even Jordan CJ, who called the rule 'well settled', acknowledged that it was only a 'rule of practice'. The flexibility of the rule can be seen by reference to a number of its characteristics." (citations omitted).
This last point disposes of PPK's contention that it was somehow entitled to damages based on the difference between price and "real value". The truth that there is not an "inflexible rule" was explained in Potts v Miller itself. But more needs to be said to resolve PPK's broader contention that in the absence of further findings of fact, one could not conclude that damages calculated by the difference between price and "real value" were not potentially open.

Henville v Walker

PPK was correct to say that Henville was a case where a plaintiff sued for the loss resulting from the overall transaction, and thus was not authority for any proposition about a plaintiff's ability to recover damages based on the difference between price and real value. Cases are only authority for what they decide: Coleman v Power (2004) 220 CLR 1; [2004] HCA 39 at [79]; CSR Ltd v Eddy (2005) 226 CLR 1; [2005] HCA 64 at [13]; English decisions to the same effect are collected in FSHC Group Holdings Ltd v Glas Trust Corporation Ltd [2020] Ch 365; [2019] EWCA Civ 1361 at [136]. It is true that the passages of Gleeson CJ's judgment which the primary judge reproduced are not to be regarded as generally applicable propositions of law, but rather described the position in those particular proceedings given the issues on which the parties chose to litigate. Thus the statement that "[n]o one suggests ... that the damage is to be measured by comparing the price paid by the appellants for the real estate with the true value of the real estate at the time of purchase" described Mr Henville's claim, and is not to be regarded as a generally applicable proposition of law. I agree with PPK that what Gleeson CJ said in Henville v Walker at [22] and [26] is not authority for the proposition that Potts v Miller principles do not apply to the purchase of land for development and resale. But nothing turns on that unless those principles were available to PPK's claim as formulated in the present case.
PPK did however place reliance on one aspect of Gleeson CJ's judgment in Henville v Walker, at [36]: "If the development project in question had involved the erection, not of a relatively small block of home units at Albany, but of a multi-storey office block in the central business district of Perth, the strong likelihood is that an assessment of the damage said to flow directly from the misrepresentation, if made by simply calculating the net financial outcome of the project, would be clearly inappropriate. That outcome would be likely to be affected by many factors unrelated to the misrepresentation in any sense except that, but for the representation, they would never have come into play. A claim for the total loss would invoke the 'but for' test of causation in its most indiscriminate form."
PPK said that the present case too was one where it would be inappropriate simply to calculate the net financial outcome of the project. I do not agree. It is one thing to deny that all losses, including those realised years into the future, represent damages recoverable for some misrepresentation. It is another thing entirely for a plaintiff who concededly made a profit on the overall development to succeed in establishing "loss or damage" without which the plaintiff's statutory cause of action must fail.

Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3)

PPK drew attention to this Court's decision in Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3). A principal represented in its tender documents that there were no plans for an outlet pipe. In fact there was such a plan. The tenderer learned of the plan and contended that if it had been aware of it, it would have entered into a different contract for a different sum, having regard to the additional work involved. Beazley JA concluded, with the agreement of Ipp and Tobias JJA, that the cost of carrying out the additional work was recoverable: "116 The authorities are clear in my opinion that in order to be able to recover damages for its loss, the appellant was not required to prove that it had suffered a loss on the whole contract. Provided it had otherwise proved its cause of action, it was entitled to recover damages on the basis of the discrete loss it sustained in undertaking the additional work at Folly Creek, subject, of course, to proper proof of such loss. 117 It is apparent from the way in which the appeal was conducted that the respondent accepted that if it did not succeed in establishing that loss on the whole contract had to be proved, then McDougall J erred in accepting the Referee's report on the damages issue. As I have sought to explain above, subject to questions of causation, with which I have already dealt, and proof of damage and remoteness, the damages recoverable are 'the actual losses they have suffered as a result of contraventions of the Act': Henville v Walker per McHugh J [133]-[135] set out at [106] above. Subject to the precise quantification of damages, this is not a case that involves speculation. The loss suffered by the appellant is known. It was the cost of carrying out the additional work."
It will be noted that that was not a "no transaction" case, but rather a case where the contractor contended that it would have entered into a different contract.

Manwelland Pty Ltd v Dames & Moore Pty Ltd

A much more closely comparable example was the decision of the Queensland Court of Appeal in Manwelland.
The plaintiff had acquired property for the purposes of a development on the basis of advice which was held to have been negligent at common law, in breach of a contractual obligation to use proper skill and care, and was misleading and deceptive in contravention of s 52 of the Trade Practices Act.
Manwelland was incorrectly advised that a full cleanup of the land, which was contaminated, could be achieved in the order of $300,000. As it turned out, substantially greater costs were required to remediate the land, and some of it was so badly contaminated that it could not be remediated. Nonetheless, a shopping complex was built on part of the land which was sold, prior to trial, for some $3.7 million. Manwelland sued for damages calculated as the difference (namely, $510,000) between the price paid and the market value of the land at the date it was acquired. In light of the sales of the shopping centre and the (small) value of the parcels of land retained, the trial judge awarded damages of some $10,000 excluding interest. The developer's appeal was dismissed.
McPherson JA, who gave the leading judgment, commenced with the proposition at [11] that a person induced by deceit was entitled to recover as damages the amount by which the price paid exceeded the true value of the thing bought. Jordan CJ described this as the "prima facie" rule in McCallister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 192. McPherson JA observed that the operation of that rule was dependent upon the existence of an available market. At [13], his Honour observed that that prima facie measure for assessing damages was "plainly not necessarily appropriate for ascertaining the loss or damage sustained by the plaintiff in consequence of its having acted on a misleading statement by a third party about the suitability for commercial use of contaminated land, which it was intended to clean up and use for development and resale". The reason was "there would not be a ready market for land in such a state or condition".
The absence of a market led his Honour, after referring to Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 and Henville v Walker (2001) 206 CLR 459; [2001] HCA 52, to compare the position in which the appellants found themselves after the project was finished and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project at all. On that approach, because of the overall profitability of the project, damages of only $10,259.43 plus interest had been entered. His Honour after considering Hussey v Eels [1990] 2 QB 227, concluded that "in Australia, the weight of authority now favours the view that the damages are to be determined by ascertaining the net loss sustained as a result of acting on the inducement".
PPK advanced a series of criticisms of the primary judge's reliance on Manwelland. First, it said that "there may well have been additional material differences that, in the absence of factual findings by the primary judge, are not yet apparent". Secondly, it said that Manwelland should not be approached as establishing a rule for cases based upon land acquired for development. Rather, PPK favoured "the general rule of assessing damages at the time of the purchase (being the date of first loss and the accrual of the cause of action) and the manner in which the plaintiff puts its case and then to consider whether the loss established under that approach works an injustice". Thirdly, PPK noted that special leave was refused on the basis that the decision turned on its own facts. This told against the case establishing some general rule. Fourthly, PPK made the following submission: "It would be surprising if a wrongdoer in a no-transaction case were entitled to the benefit of any gains accruing in the course of that transaction; but the victim were to be subject to considerable restrictions on its ability to claim losses incurred during that transaction. That suggests an imbalance between the parties that behoves injustice; and one in favour of the wrongdoer, which would be surprising."
Finally, PPK pointed to obiter criticisms of Manwelland in the reasons of Kourakis J in Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93; [2008] SASC 295 at [202]-[218], while acknowledging Layton J's acceptance at [138] of the approach in Manwelland with Doyle CJ not finding it necessary to express a view on the point: at [17].
I agree that it would be unsafe to treat Manwelland as mandating an invariable rule. That would be inconsistent with what was more recently said by the High Court in Berry v CCL Secure Pty Ltd at [35]. But I do not think that the decision of the Queensland Court of Appeal purported to do that.
Conversely, insofar as PPK proposes a new general rule, namely, that damages should be assessed on the basis of price less "real value", subject to a cross-check for injustice, that is contrary to what was said in HTW Valuers concerning the absence of universality of the "rule" in Potts v Miller.
I do not agree that anything flows from what was said on the refusal of special leave in Manwelland. I think that accords with the absence of precedential status of statements made when refusing special leave: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [52], [112] and [119].
Nor do I agree that anything is gained by labelling HWLE as a "wrongdoer". Doing so begs the question. Damage is of the gist of an action in deceit, and of any entitlement PPK has under statute. The question whether PPK has established a claim to compensable loss having been induced to enter into a development which turned out to be to PPK's profit is the issue in this appeal.

Conclusions on claim for "Potts v Miller damages"

As Mr Faulkner emphasised, this was a very unusual claim. PPK was contractually committed to developing the land, and not with any development, but with precisely the development described in the Refined Master Plan. This is the opposite of the case where land is acquired at an overvalue, but then the developer through its own creativity produces a result which enhances the value of the land. It is also the opposite of the sort of case analysed at length in Potts v Miller where there is a market.
Secondly, PPK's claim for Potts v Miller damages was a no transaction case. The reasoning in Abigroup permitting the recoverability of a discrete aspect of the contractors loss reflecting the different contract into which it would have entered is inapplicable.
Thirdly, PPK even if it sold the land remained contractually liable to ensure that that development occurred. This seems to me to be a clear case where the acquisition involved a benefit and a burden, and one where the subsequent profitable development bears directly upon whether a loss was suffered.
Fourthly, although PPK was the successful tenderer, it did not make the highest bid. Another tenderer lodged a conforming tender for $27 million. A third tenderer lodged a non-conforming tender at $26 million. A fourth lodged a non-conforming tender at $25 million. The materials made available to this Court did not disclose the bases on which those competitors' tenders were non-conforming. Nor do they fully disclose the basis on which the Evaluation Report ranked the competing tenders, although one consideration was an assessment of the financial capability of the tenderer (bearing in mind the desirability that the landowner would undertake the remediation of the land and the development of open space which it could not sell). But even subject to those limitations, the bids received by the vendors at the time are powerful evidence of the true value of the land. They do not suggest that PPK paid millions of dollars more for the land than a willing but not anxious purchaser would have paid.
In Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69 at [49], McHugh, Hayne and Callinan JJ said: "It is necessary, then, to determine whether the value of what was acquired is less than what was paid. How is the value to be assessed? It is to be assessed objectively, not according to what either or both the parties to the contract believe that it would obtain from the contract. That is, the value of what in fact was acquired is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it. It is only by comparison with the value assessed in this way that there can be an assessment of whether the party that is misled could have obtained some greater benefit or incurred less detriment."
The tenders lodged by PPK's competitors do not suggest that freely contracting, fully informed parties would only have offered and paid millions of dollars less than PPK's bid.
Further, this is not a case where PPK could contend that the price which other market participants might pay should be disregarded, because the market price "is delusive or fictitious, is the result of a fraudulent prospectus, manipulation of the market or some other improper practice", to use Dixon J's language. The premise upon which damages are to be assessed is that HWLE breached its duty in failing to disclose the flood notation. There is nothing to suggest that the other tenderers, including those which were prepared to pay more for the land than PPK, were affected by the same misapprehension concerning the flood notation.

Delay costs

I turn to PPK's submissions concerning its claim for delay costs.
A joint expert report prepared in July 2020 calculated the loss at some $5,253,277 plus pre-judgment interest, principally on the basis of some $1.4m additional building and construction costs and some $3.8m interest. The assumption underlying those calculations was "that PPK was impeded from proceeding with the Development during Delay Period 1 (delay period 26 July 2010 to 9 January 2011)".
These costs are not recoverable. As the primary judge stated, the costs incurred in persuading the Council to remove the flood notation were always going to be incurred.
Separately from the above, and in accordance with PPK's oral submissions when the appeal was heard, it was at least in theory open to PPK to say that its entitlement to an accurate opinion as to the flood susceptibility of the site affected the staging of the project, such that when around June 2010 it first discovered the flood notation, and thereupon retained experts to produce reports in order to persuade council to remove it, which it did, that work would have been staged earlier, with the result that it would have been open to lodge a development application earlier in time.
In order for that submission to be made good, it would be necessary for PPK to establish that the flood studies were entirely independent of the rest of the work. That seems implausible on the face of things. Until the flood studies had been done, PPK's architects or designers could not confidently finalise their plans. The onus rested on PPK to establish that it would have been possible for time to have been saved by performing several tasks at once. This was not done, so far as I can see from the materials made available to this Court.
As Mr Faulkner observed, PPK's case that it would have completed the development faster and more efficiently and should be compensated for the time wasted by reason of the delayed appreciation that flood studies were necessary is not a "no transaction" case. Any such case is one which turns on the proposition that the development would have proceeded more efficiently and more profitably.
True it is that PPK at trial identified the 167 days of delay consequent upon its belated realisation that flood analysis work was required. These were styled "delay costs" and, at one point, "mitigation costs". But it seems not to have been put that a value could be attributed to the delay in submitting a development consent. Mr Faulkner said that this emerged for the first time in oral submissions in this Court.
That is, it is one thing to say that there were delays after June 2010 caused by the recently discovered need to undertake flood studies. It is another thing entirely to say, as was put when the appeal was heard, that had PPK not received deficient advice, it could have undertaken those flood studies earlier, whilst the other aspects of the development application were being prepared, so that the application could have been lodged earlier.
As Mr Faulkner said, without opposition: "Why do I say it's inconsistent with the way they put the case? Very important to remember the counterfactual. Mr Webb, none of their witnesses say had I discovered on 8 December we would have bid anyway and been able to simultaneously remove the flood development controls and thereby carried out the development quicker, cheaper, more efficiently. No witness says that. On the contrary, their evidence is they would not have entered into the transaction. So the idea as suggested this morning that there could be a delay claim based on carrying out the work to remove the flood development controls earlier is actually - it's not a no transaction case. It's an alternative transaction case. It's a transaction case where it would've been a faster, cheaper and therefore more profitable case. So it's a very important distinction. Had it been put, we would've had something to say about it and we would've asked some questions [of] their witnesses but it's never been articulated or suggested."
PPK's response did not deny this. It was that: "And the fact that it is a no transaction case, subject to a double recovery argument, in my submission does not mean that one cannot claim distinct items of loss based upon the transaction that did go forward because, in effect, the wrongful act had two consequences, one of which is it that it caused us to go into a transaction that we otherwise would not have done but also, because it was not discovered until much later, that delay of itself, we say, caused us an additional loss, if you like a consequential loss, which, we say, consistently with Abigroup, we're entitled to recover."
That may be so. However, it remained necessary for PPK to propound a case based on rescheduling of the tasks to be undertaken prior to obtaining development consent, including that it was feasible to do so. That did not occur. There was no error in not dealing with a claim for damages on a case that PPK did not advance.

Conclusion and orders

The entitlement of PPK to statutory damages depended upon it establishing "loss or damage". As subsequent events proved, no loss or damage was sustained because PPK purchased land subject to obligations to develop and sell it which, as it turned out, were profitable notwithstanding the fact that expense (in terms of the flood assessment measures) and time were incurred to complete the development, which it had not anticipated.
PPK ran a "no transaction" case. But there is no suggestion in the evidence, and PPK did not run a case, that there was some other lucrative investment possibility to deploy its human and financial resources.
PPK maintained that it should be entitled to damages based on the difference between the price it paid for the land, and its "true value" at that time, and that while the subsequent profitability bore upon that true value, it did not dictate that there was no loss. It suffices to resolve the main issue in this appeal to hold that: 1. the land was not a fungible traded on a market; 2. insofar as there were other potential purchasers of the land at the time it was acquired by PPK who had lodged competing tenders, the evidence does not suggest that PPK paid more than its true value; 3. unusually, PPK upon completing the contract for sale of land and executing the deed of covenant was obliged to spend large amounts of money remediating the site, erecting buildings and infrastructure and establishing the open space, which obligation endured even if PPK sold the land.
It follows that the appeal should be dismissed. There is no reason for costs not to follow the event.
SIMPSON AJA: I agree with Leeming JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2021

Conveyancing (Sale of Land) Regulation 2010(NSW)

Trade Practices Act 1974(Cth)

Environment Planning and Assessment Act 1979(NSW)

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