FEDERAL COURT OF AUSTRALIA

CONTRACT - whether, in circumstances where the respondents were asked to provide a “worst case” valuation of adjoining parcels of land, the respondents breached an implied term of the contract that they would use reasonable care and skill in carrying out the valuation by failing to at least warn the applicants that the Valuer-General might not value the parcels of land separately - correct method of valuation under the Valuation of Land Act 1916 - whether “let” in the Act refers to the way in which the land is actually occupied - whether the respondents had a duty to consider not merely the legally correct method of valuing the land.

TORT - whether, in circumstances where the respondents were asked to provide a “worst case” valuation of adjoining parcels of land, the respondents committed a tortious breach of their duty of care to the applicant by failing to at least warn the applicants that the Valuer-General might not value the parcels of land separately - correct method of valuation under the Valuation of Land Act 1916 - whether “let” in the Act refers to the way in which the land is actually occupied - whether the respondents had a duty to consider not merely the legally correct method of valuing the land - whether respondents otherwise carried out the valuation negligently - whether the applicant suffered loss - principles applicable to determining whether loss suffered.

TRADE PRACTICES - misleading and deceptive conduct - whether it was misleading or deceptive for the respondent to fail to warn the applicant of the possible effects of an incorrect valuation by the Valuer-General - whether the applicant suffered loss - principles applicable to determining whether loss suffered.

Valuation of Land Act 1916

Valuation of Land (Rating and Valuation) Amendment Act 1981 - s 6A

Trade Practices Act 1974 - s 52, s 82

Kelmea Pty Limited v State Rail Authority of New South Wales (CA, 29 June 1988, unreported)

Council of the City of Sydney v Burns Philp Trustee Co Ltd 1991 (Giles J, 12 August 1991, unreported)

Council of the City of Sydney v Burns Philp Trustee Co Ltd 28 (Giles J, 28 November 1991, unreported)

Motrix Supplies Pty Limited v Bonds & Kirby (Victoria Avenue) Pty Limited (Giles J,

12 September 1990, unreported)

Smith v Bush [1990] 1 AC 831

MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313

Commissioner for Railways (NSW) v Wynyard Holdings Ltd [1973] 1 NSWLR 1

Frank Warr & Co Ltd v London County Council [1904] 1 KB 713

Mount Banking Corporation v Bryan Cooper & Co [1992] 2 EGLR 142

Trade Credits Ltd v Baillieu Knight Frank (NSW) Pty Ltd (1985) Aust Torts Rep 69,525

Baxter v F W Gapp Co Ltd (1939) 2 All ER 752

Rogers v Whitaker (1992) 175 CLR 479

Goold v Commonwealth of Australia (1993) 42 FCR 51

Fraser v NRMA Holdings Ltd (1995) 15 ASCR 590

Demagogue Pty Ltd v Ramensky (1972) 39 FCR 31

Smith New Court Securities Ltd v Citibank NA [1997] AC 254

Potts v Miller (1940) 64 CLR 282

Toteff v Antonas (1952) 87 CLR 647

Gould v Vaggelas (1985) 157 CLR 215

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514

Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281

Morgan Corporate Ltd v G W G Leviny Pty Ltd (1995) ATPR 41-414

Munchies Management Pty Ltd v Belperio Pty Ltd (1988) 84 ALR 700

Netaf Pty Ltd v Bikane Pty Ltd (1990) 26 FCR 305

South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191

Henderson v Amadio Pty Ltd (1995) 140 ALR 391

FLEMINGTON PROPERTIES PTY LIMITED v RAINE & HORNE COMMERCIAL

PTY LIMITED and RONALD C AITKEN

NG 903of 1993

CORAM: LEHANE J

PLACE: SYDNEY

DATE: 14 AUGUST 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application is dismissed.

REASONS FOR JUDGMENT

The applicant (Flemington) purchased, in May 1992, a large parcel of industrial land at Flemington, a Sydney suburb. The second respondent (Mr Aitken) is a registered valuer and is an associate director - a senior employee - of the first respondent (Raine & Horne). Shortly before Flemington entered into a contract to purchase the land, Mr Aitken, acting as an employee of Raine & Horne, provided to Flemington a letter in which opinions were expressed concerning the value of the land. Flemington claims that in expressing those opinions Raine & Horne breached its contract of retainer with Flemington; Flemington claims also that both Raine & Horne and Mr Aitken committed a tortious breach of a duty of care owed to Flemington; it also alleges particular representations made by both respondents to, and relied on by Flemington and says that those representations were untrue and misleading and deceptive, or likely to mislead and deceive Flemington. Flemington claims to have suffered loss as a result of the alleged breaches of contract and duties of care and as a result of its reliance on the representations. In this proceeding it claims damages against both Raine & Horne and Mr Aitken.

Facts

(a) The Land

The land with which this case is concerned has a total area of about 12.57 hectares. It has a frontage to Weeroona Road, Flemington, opposite Rookwood Cemetery. In May 1992 it was owned by the State Rail Authority which, by a lease dated 23 August 1967, had leased the land to the Electricity Commission of New South Wales (now known as Pacific Power). The term of the lease was 99 years, commencing on 1 June 1966. When the lease was entered into, the land was unsubdivided. Before May 1992 it was subdivided twice, so that by that date it comprised five lots: they were Lots 1 and 2 in deposited plan 803688 (5.326 hectares and 2.488 hectares respectively) and Lots 3, 4 and 5 in deposited plan 786128 (respectively 2.863 hectares, 1.883 hectares and 98.75 square metres). Lots 3, 4 and 5 were all subleased: Lot 3 to the Sydney County Council for a term of 45 years expiring on 31 December 2013; Lot 4 to Bestang Pty Limited for a term of 25 years expiring on 30 November 2013 which, in turn, had subleased the lot to Canon Australia Pty Limited (Canon) for a term of 10 years expiring on 8 December 1999; and Lot 5, to R W & H A Messiter for a term of 20 years expiring on 1 December 2005. Lots 1 and 2 were used by Pacific Power as what was described as a switch yard; there were a number of large transmission towers and some small buildings on Lot 1. Lot 3 was used as a pole storage depot; on Lot 4 there was a building comprising a warehouse and offices used by Canon, the sub-lessee; and on Lot 5 there was a flower stall.

(b) Head Lease: Rental Provisions

The head lease contained provisions, which are of considerable significance in this case, for ascertaining the annual rental to be paid by Pacific Power. Their broad effect was to fix an annual rental of $24,850 for the first 10 years of the term; the annual rental payable in later years was to be fixed by reference to the unimproved value of the land as determined under the Valuation of Land Act 1916. The lease provided:

...that the Lessor doth hereby DEMISE unto the Lessee ALL THAT land at Flemington containing thirty-one acres and ten perches (31a.10p.) or thereabouts and being Lot 1 in Deposited Plan No. 521365... (hereinafter referred to as the demised premises...) ...for a term... YIELDING AND PAYING THEREFOR during the term the yearly rent of TWENTY-FOUR THOUSAND EIGHT HUNDRED AND FIFTY DOLLARS ($24,850-00) PROVIDED THAT after the effluction of the first ten (10) years of the said term if on the first day of June during the continuance of the Lease a sum calculated at the rate of Eight per centum (8%) of the then current Unimproved Value (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution for the same) of the freehold of the demised premises shall be greater than TWENTY-FOUR THOUSAND EIGHT HUNDRED AND FIFTY DOLLARS ($24,850-00) then in the year commencing on such first day of June the rent shall be such greater sum calculated as aforesaid in lieu of TWENTY-FOUR THOUSAND EIGHT HUNDRED AND FIFTY DOLLARS ($24,850-00) PROVIDED if at any time there shall be no unimproved value of the freehold of the demised premises (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution for the same) and the Lessee shall not within one month after being requested in writing by the Lessor agree upon an amount as the Unimproved Value of the freehold of the demised premises then the determination of the said Unimproved Value shall be referred to Arbitration in accordance with the provisions of the Arbitration Act 1902 as amended.

PAYABLE quarterly in advance at the Office of the Lessor’s [sic] by equal quarterly payments on the first day of the months of June September December and March in every year...

The omissions indicated in that quotation are not such as to disturb the somewhat ungainly syntax.

A number of matters should be noticed about that provision. First, the “demised premises” are described as a single lot in a particular deposited plan: in other words, the whole parcel, unsubdivided. Secondly, if at the beginning of any year after the tenth there is a current unimproved value of the demised premises, then the rent is fixed by reference to that unimproved value. Thirdly, “if at any time” (presumably to be taken as meaning if at the commencement of any relevant year) there is no unimproved value determined under the Valuation of Land Act 1916, the rent is determined by reference to an “unimproved value” fixed by agreement between the parties or, failing agreement, by arbitration. Fourthly, it is clear enough that the unimproved value contemplated by the provision is that fixed as a result of the ordinary process of statutory valuation undertaken by the Valuer-General. Additionally, however, clause 37 of the lease provided as follows:

The Lessor for the purpose of determining the rental hereinbefore reserved may at any time but not more frequently than once in every three (3) years require a new valuation of the freehold of the demised premises to be made pursuant to the Valuation of Land Act 1916 as amended or any Act amending or in substitution for the same and the cost of such new valuation shall without limiting in any way any other provision hereof be paid by the Lessee to the Lessor upon demand.

The process for which that clause provides might be initiated only by the lessor, not by the lessee. In summary, the rental for (and throughout) any year after the first ten was to be calculated by reference to the unimproved value of the demised premises most recently determined as a result of the Valuer-General’s regular process, by agreement or arbitration or under clause 37. A “year” for these purposes is a period of 12 months commencing on 1 June.

The Valuation of Land (Rating and Valuation) Amendment Act 1981 amended to the Valuation of Land Act 1916 by removing the definition of unimproved value; the statutory work previously performed by the concept of “unimproved value” was thereafter performed by the concept of “land value” as defined by a new s 6A. As at 9 May 1989, acting on the instructions of the State Rail Authority, the Valuer-General assessed the land value of “Lot 1 in Deposited Plan No 521365 having an area of approximately 12.57 ha” at $12,500,000.00. Although the assessment was of land value not unimproved value, the parties appear to have treated it as a determination under clause 37 of the lease and, commencing on 1 June 1989, Pacific Power paid rent at the rate of $1,000,000.00 (i.e. 8% of $12,500,000.00) annually. In May 1992 it was still paying rent at that rate.

(c) Flemington: Events leading to Purchase

Flemington was (I use that tense to describe the situation at all times that matter for the purpose of the proceedings) the trustee of a unit trust the beneficiaries of which were, in equal shares, the trustees of trusts established for the benefit of the families of four people, each of whom was a director of Flemington: Messrs Bryan Weir, David Libling, Richard Pearson and Bruce Lane. Mr Libling was a barrister; Messrs Weir and Pearson were partners of a large city firm of solicitors; Mr Lane, also a solicitor, was a sole practitioner in Sydney.

Mr Libling saw an advertisement in the Australian Financial Review of 23 April 1992. The advertisement indicated that the State Rail Authority had for sale a property of 12.5 hectares leased to the Electricity Commission for a remaining term of 73 years providing a net annual income of $1,000,000.00 with regular rent reviews, and offering “initial yield 11% plus”. Mr Libling telephoned the agent named in the advertisement, from whom he obtained some further information about the land. He then spoke to each of Messrs Weir, Pearson and Lane to ascertain whether they were interested in investing in the land. Each responded more or less positively.

There followed a series of events which I shall proceed to describe in outline: it will be necessary to return to some aspects of them in greater detail later in these reasons. First the unchallenged evidence, particularly of Mr Weir, was that what was described as the Flemington syndicate (represented, in corporate form, by Flemington itself) operated on a basis described as “one out all out”, meaning that any commitment on behalf of Flemington required the affirmative vote of each of the four directors, Messrs Weir, Libling, Pearson and Lane (I shall describe them for convenience as the directors, though it appears that they may not have been the only directors of Flemington). Particular responsibilities were assigned to Mr Libling and Mr Lane. Mr Libling was to arrange finance for the acquisition and proceeded to do so with Westpac Private Bank; Mr Lane was to oversee the conveyancing aspects of the transaction and to be the principal spokesman of the syndicate in its dealings with the State Rail Authority’s agents and solicitors and in instructing (as will appear) Mr Aitken.

Mr Lane obtained from the vendor’s agent a draft contract for sale. He noticed that the folio identifiers and zoning certificates were more than 18 months old and also that the contract contained no reference to the sub-lease to Canon. On 4 May Mr Libling heard from the agent that there was to be a “tender” for the property, closing at 4.00 pm that day. Flemington and one other party were invited to submit unconditional tenders on the basis that, if either tender were accepted, the successful tenderer would enter into a contract on the terms of the draft provided by the agent. The directors discussed whether a tender should be submitted; they discussed what Mr Lane had noticed in the contract and whether, if their tender were successful, Flemington would be legally bound. They agreed to go ahead, and Flemington submitted a tender to purchase the property for:

The sum being the greater of $9,000,000 and the lesser of:

(a) $9,260,000; and

(b) Any sum offered to you for the property by any other person plus $10,000.

That tender was rejected: the rejection was conveyed by a letter to Mr Lane from Lane & Lane, the solicitors for the State Rail Authority. The letter also extended an invitation to lodge a further unconditional offer, containing a “single fixed purchase price, by 4.00 pm on the following day, 6 May 1992”. Again, such an offer was to be made on the basis of the terms and conditions of the draft contract, with two changes of no present importance. The solicitors’ statement of the basis on which further offers were invited also included the following:

(d) The successful tenderer, if any, shall be afforded the opportunity to exchange the Agreements for Sale within 24 hours of delivery to it, or its solicitors, of an agreement for sale containing the terms and conditions as aforesaid;

The directors decided to submit a further tender. They did so, offering unconditionally to purchase the property, on the terms of Lane & Lane’s letter, for $9,510,000. A fax dated 6 May the State Rail Authority informed Flemington that it was the successful tenderer and that “formal confirmation” would follow. On 7 May, however, Lane & Lane wrote to Mr Lane, on behalf of Flemington. Their letter expressed a concern that information concerning the way in which the rental payable under the lease was determined, provided by the agent to prospective purchasers, was in some respects inaccurate. The letter then said that the State Rail Authority was not prepared to enter into a contract for sale in circumstances where there was any risk that a purchaser might be entering into the agreement in reliance upon the agent’s statements. In the circumstances, it was said, the Authority did not require the exchange of agreements within 24 hours but would allow Flemington a reasonable opportunity to consider the position and take advice. It concluded that, if Flemington wished to proceed, the Authority would exchange contracts only if Flemington acknowledged in writing that, first, it did not rely on the agent’s representations and, secondly, that it relied on its own enquiries and consideration of the provisions of the Lease and the circumstances of most recent rental determination. By letter dated 8 May 1992, written apparently after discussion with Mr Libling, Mr Lane on behalf of Flemington agreed to enter into the acknowledgments requested, disagreed with a suggested amendment to a special condition and said:

We are anxious to receive today a contract which does not differ from the contract incorporated in the tender documents.

Meantime on 7 May, following discussions between the directors, Mr Lane telephoned Mr Aitken. I need not at this stage describe in detail the conversation or the discussions between the directors which preceded it. For the present, it is sufficient to say that Mr Lane gave Mr Aitken a general description of the way in which the rent was calculated under the Lease and asked him to provide an assessment of the unimproved value of the land; Mr Aitken agreed to do that; Mr Lane also mentioned that a separate valuation would be required, in due course, for Westpac as mortgagee.

At about the time of his conversation with Mr Aitken, Mr Lane spoke also to the agent. The agent informed him that Flemington’s tender had been accepted because, though a rival tenderer had offered a slightly higher price, his offer had been conditional. Mr Lane gained the impression that the condition was one which would have required a “guarantee” that the rent payable under the Lease would not fall below its present level. He discussed that conversation with the other directors. Mr Pearson was concerned to hear of the suggested condition and proceeded to read four unreported decisions of the Supreme Court of New South Wales dealing with rental provisions similar to those of the lease: Kelmea Pty Limited v State Rail Authority of New South Wales 29 June 1988 CA, Council of the City of Sydney v Burns Philp Trustee Co Ltd 12 August 1991 and 28 November 1991, Giles J and Motrix Supplies Pty Limited v Bonds & Kirby (Victoria Avenue) Pty Limited 12 September 1990 Giles J. Having done so, he requested an urgent meeting of the directors, which took place (in the absence of Mr Lane, who was away from Sydney) over the weekend of 9 and 10 May. At the meeting Mr Pearson expressed fears, resulting from his consideration of the lease and the authorities, which may be summarised as follows: because the valuation on which the annual rental of $1,000,000 was based was made after the repeal of the definition of “unimproved value”, it might not be a determination of the unencumbered value pursuant to the Valuation of Land Act 1916; there might be no such current value; if that were so, the present rental contractually payable under the lease might be only $24,850 per annum; the only way to ensure that some other rental was payable was to initiate the procedure for agreement or arbitration; and it could be a considerable time before a binding determination emerged from that process.

During the meeting Mr Weir telephoned Mr Lane and asked that he return to Sydney to attend a further meeting of the directors to be held the following day, Monday 11 May. On 11 May Mr Lane had a further conversation with Mr Aitken during which Mr Lane agreed to send to Mr Aitken some further material and there was discussion about the likely outcome of his valuation. Mr Lane’s evidence, which Mr Aitken did not dispute, was that Mr Aitken expressed the view that “you will never get land in that area at less than $100.00 a square metre”. On the same day the directors engaged in further discussions about the perceived problems to which the rental provisions of the lease gave rise. There was agreement that two things should be done: one was to obtain the valuation, so that a view might be formed of the result which might ensue from an application of the rent adjustment provisions; the other was to ascertain the attitude of the lessee, Pacific Power.

During the ensuing few days there were a meeting between Mr Aitken and Messrs Lane and Pearson, a telephone conversation between Mr Aitken and Mr Libling and (on Mr Weir’s unchallenged evidence, though Mr Aitken could not recall it) a telephone conversation between Mr Aitken and Mr Weir. Additionally, on 13 May, Mr Weir telephoned Mr Peter Boxwell of Pacific Power. The call was made on a conference telephone, and Mr Libling and Mr Pearson were present. Mr Boxwell said that Pacific Power had requested a valuation for the purpose of recalculating the rent and expressed the view that a revaluation would produce a lower value than that determined in 1989. Mr Weir explained the concerns of the directors about the operation of the rent review provisions and their wish to ensure that Pacific Power would continue paying the current rent until a new valuation was obtained. Mr Boxwell confirmed that Pacific Power would do so (that arrangement was subsequently confirmed in correspondence).

Meantime, there was further correspondence between Mr Lane for Flemington and Lane & Lane for the State Rail Authority. Its precise detail does not greatly matter. First in the series was a letter from Mr Lane dated 11 May withdrawing the acknowledgments given in his letter of the preceding Friday, 8 May. Following a letter from Lane & Lane also dated 11 May, Mr Lane wrote a further letter in which, among other things, the acknowledgments were, in substance, once again given and the statement was made that:

Subject to some small matters, the directors are still commercially minded to proceed with the transaction....

By the following day the correspondence had become, in Mr Lane’s word, brusque. In a letter of 14 May, Lane & Lane asked Mr Lane to:

Please let us know by 5:00 pm Friday 15 May next whether or not your company intends to proceed.

Mr Lane countered by a letter of 15 May that he was concerned that he had not yet had a response to certain faxes, nor had he received a contract. His letter concluded:

I should be grateful for your confirmation today that, even if you are unable to get a contract to us today, there is no impediment to the issue and exchange of contracts.

On 15 May also, Mr Lane received from Mr Aitken a draft valuation. Mr Lane suggested some alterations which Mr Aitken incorporated in a final version which he sent to Mr Lane on the same day. That document is, of course, of great importance to the case: it is dated 15 May 1992, addressed to Mr Lane’s firm; it reads as follows:

Dear Sir

RE: BARKER & WEEROONA ROADS, FLEMINGTON

LEASE TO ELECTRICITY COMMISSION

Further to our recent conversation in this matter it is proposed in this advice to assess the unimproved value of the subject property as at the present date.

It is stated in page 2 of the lease document that if the lessor and lessee cannot agree as to the unimproved value of the demised premises then the determination of the said unimproved value shall be referred to arbitration in accordance with the provisions of the Arbitration Act 1902 as amended.

It would appear that the lessor is the instigator of the review mechanism in the lease (clause 37) and frequency of review is not more than once every three (3) years. We do not see within the lease document any implication that the lessee can invoke the rent review mechanism. Consequently, if it appears that the value of the demised premises (unimproved value) has decreased then the logical reaction is not to invoke a review.

As you are aware the term “unimproved value” was repealed in the Valuation of Land Act in 1981. It would seem reasonable to assume that the term “unimproved value” be assessed on its ordinary meaning or expression. In this case it would be the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements, if any, thereon or appearing thereto, had not been made.

For all practical purposes this meaning is not materially different from the meaning of the term in the Valuation of Land Act before 1981. Under this definition each lot must be valued separately.

We have discussed this term “unimproved value” with an Arbitrator who has been involved in a recent arbitration over SRA land. He advised that for all practical purposes the approach was to calculate the value of the land vacant of all improvements and disregarding the effect of any existing leases over the land.

Therefore we have completed a scenario assuming the land could be sold in a freehold state, comprising 5 separate lots. Our calculation is as follows: -

Lot Area $p.s.m. Value

1 5.326 ha 95 $ 5,059,700

2 2.488 ha 105 $ 2,612,400

3 2.863 ha 105 $ 3,006,150

4 1.883 ha 115 $ 2,165,450

5 98.75 s.m. $ 60,000

$12,903,700

SAY $12,900,000

The above assessment is what we believe a realistic value of the site taking a conservative approach to value for the individual lots. In a “worst case” scenario it may be possible that a discount of up to 10% should be allowed which would show a value in the order of $11,500,000.

We trust that the above advice is suitable for your immediate requirements and if you should have any further queries, please do not hesitate to contact the writer.

Yours faithfully

RAINE & HORNE COMMERCIAL PTY LTD

R C AITKEN FVLE (VAL & ECON)

ASSOCIATE DIRECTOR

PROFESSIONAL SERVICES & VALUATION DIVISION

REGISTERED VALUER NO. 1742

The changes which had been inserted following the discussion of Mr Lane’s comments and suggestions were as follows:

·      The insertion of the paragraph beginning “for all practical purposes”.

·      The inclusion of a particular value for Lot 5 (no value was attributed to it in the draft).

·      The omission of a discount of 5% “to allow for “bulk” nature of purchase” which appeared in the draft immediately below the table of values attributed to the individual lots.

·      Alterations to the second sentence of the paragraph under the table, beginning “the above assessment”. In the draft, the sentence had read:

In a “worst case” scenario it may be likely that the discount should be 10% which would show a value in the order of $11,500,000.

Mr Libling and Mr Pearson saw the valuation shortly after it was received by Mr Lane. Mr Libling, who had prepared cash flow projections when the purchase was first contemplated, revised his projections to take account of the interest rate margin proposed by Westpac and a possible reduction in rent on the footing that it would be payable at an annual rate of 8% of $11,500,000. Then on 18 May a meeting of the directors was held. A contract for sale was produced and Mr Lane expressed the view that it was in order. Mr Libling produced a loan approval from Westpac. The directors resolved to execute the agreement for sale. The minutes of the meeting recite a number of matters to which the directors had regard. Those matters do not include either the valuation or the assurances received from Pacific Power. All four directors, however, gave evidence that the valuation was referred to at the meeting, specifically the “worst case scenario of $11.5 million” and that each of them expressed himself “comfortable” with it.

Some days later, contracts were exchanged. Completion occurred on 15 July 1992.

(d) Post Contract Events

On 10 June 1992, Mr Aitken provided (in accordance with his initial instructions) a further valuation, of the current market value of the property subject to the lease to Pacific Power: he estimated that value at $9,510,000. The valuation was expressed to have been made under instructions from Flemington “and on behalf of an intending mortgagee”.

On 31 July 1992 the directors lunched with representatives of Pacific Power. Agreement was reached (confirmed by letter from Flemington to Pacific Power dated 4 August 1992) that Pacific Power might obtain a new valuation of the property which would “form the basis of rent calculation from 1 September 1992”. Additionally, the lease was to be amended so as to substitute land value for unimproved value and to make the provision for rent review both somewhat more flexible and rather more certain. In due course those agreed amendments were made. Meantime, there was correspondence between Flemington and Pacific Power as to the form of the instructions to be given by Pacific Power to the Valuer-General. Flemington’s starting point appears clearly enough from the heading and first paragraph of a draft letter prepared by Mr Weir:

Request for Valuation of Property at Weeroona Road, Flemington

Lots 1 & 2 DP 903688 and Lots 3, 4 & 5 DP 786128

We are the lessee of the above property under a lease which fixes annual rent by reference to a Valuer-General’s valuation. The property comprises five contiguous Lots. Whilst there are separate sub-leases in relation to some of the Lots, the five Lots are leased as a single parcel under one head lease.

Pacific Power took a somewhat different position, as indicated by its counter-draft, headed “LOT 1, DP 521365 WEEROONA ROAD CHULLORA” and incorporating, in its fourth paragraph, the following request:

Please advise me if as a matter of urgency, you will carry out a valuation in accordance with your normal procedures, of the single parcel of land which extends to 12.57 hectares...

The final form of the instruction, agreed between the parties, retained Pacific Power’s heading, informed the Valuer-General that Pacific Power was “the lessee of Lot 1 DP 521365, being a single parcel of 12.57 hectares”, mentioned the registered subdivisions, pointed out that Lessor and Lessee had agreed that rental should be assessed by reference to land value as at 1 September 1992 and concluded:

As a Statutory Authority and lessee of the property I am seeking your assistance in undertaking the valuation in accordance with your normal procedures. Could you please arrange to undertake the valuation as a matter of urgency and advise me should this present any difficulties...

On 2 November 1992 the Valuer-General assessed the land value of the property, at
1 September 1992, at $10,000,000 with the result, in accordance with the agreement between Flemington and Pacific Power, that the annual rental payable from 1 September 1992 was $800,000. Flemington took advice on the question whether it was possible to object to the valuation or appeal against it and were advised that because it was a private, rather than a statutory, valuation no appeal was possible. Some months later, the Valuer-General undertook a statutory valuation of the property (or, more accurately, the five sub-divided lots). The statutory valuation amounted in total to $10,420,000; from 1 September 1993 rent was paid at the annual rate of 8% of that sum.

Before Flemington committed itself in writing to the proposition that the State Rail Authority might give instructions for a valuation of the land, by reference to which the rental payable from 1 September 1992 would be determined, Mr Lane had two conversations with
Mr Aitken. One took place on 25 June 1992 and involved some discussion of the range of results which might emerge on a revaluation. The second took place apparently following the lunch with representatives of Pacific Power but before Flemington wrote to Pacific Power confirming the agreements reached during the luncheon meeting, and included a statement by Mr Aitken, in answer to a question from Mr Lane, to the effect that there had been not much change in the market. Those conversations received a good deal of attention in evidence and argument; but, for reasons which will appear, it is unnecessary to describe or discuss them in detail.

Finally, it should be noted that during the course of these proceedings Flemington entered into contracts to sell four of the five lots making out the land. One of the contracts was for the sale of Lots 2 and 3 for a price of $9,750,000; the other was for the sale of Lots 4 and 5 for a price of $4,000,000. Thus, Flemington has sold those four lots for a total price of $13,750,000, retaining Lot 1, the largest of the four lots, and Mr Craig Miller who gave expert valuation evidence for Flemington in these proceedings, for other purposes assessed the market value of Lot 1 at 6 September 1996 at $8,000,000.

The facts as I have recounted them to this point are common ground or are supported by unchallenged evidence, particularly of the directors, which I accept. They may thus be taken as findings of fact.

Flemington’s Claims

It is convenient to begin with Flemington’s case as put by senior counsel in closing submissions, both written and oral. To start there will enable me to contain discussion of the pleadings within reasonable bounds. The elements of Flemington’s case, as put by senior counsel, were these:

·      Mr Aitken, and through him Raine & Horne, were asked, and agreed, to provide an assessment of the current unimproved value (within the meaning of the Valuation of Land Act) of the demised premises the subject of the lease.

·      It was an express term of the contract of retainer thus arising that the unimproved value was to be assessed on a very conservative basis and the valuation was to state the “worst case”: that is, the lowest valuation which the Valuer-General might arrive at in assessing the value on the basis of which the rent payable under the lease would be determined.

·      It was an implied term of the contract of retainer that Mr Aitken would use reasonable care and skill in carrying out his valuation and doing the work necessary for the purpose of carrying it out. Independently of the contract of retainer, Mr Aitken and Raine & Horne owed Flemington, in the circumstances, a corresponding duty of care.

·      Those duties included a duty at least to warn Flemington that the Valuer-General might assess land value on a “one lot” basis and that such an assessment was likely to result in a lower valuation than would be produced if the assessment were made on a “five lot” basis.

·      That warning was not given; the valuation provided on 15 May 1992 was one prepared on a “five lot” basis and assessed the “worst case” at $11,500,000.

·      The failure to warn in the circumstances that a “one lot” valuation was likely to result in a lesser amount than the stated “worst case scenario” was a misrepresentation; it constituted a breach of the duty of care and of the contractual duty to carry out the valuation with reasonable care and skill; it constituted also misleading and deceptive conduct for the purpose of s 52 of the Trade Practices Act 1974 and s 42 of the Fair Trading Act 1987 (NSW).

·      Even if it were correct to value the land on a “five lot” basis (senior counsel contended that it was incorrect), there were deficiencies in the work done by Mr Aitken amounting to breaches of duty and resulting in a failure to estimate correctly the “worst case”: particularly, Mr Aitken was said to have failed to make adequate inquiries concerning information available within his own office and as to the previous sales history of the property and to have failed to take sufficient account of the peculiar difficulties inherent in valuing, at the relevant time, the particular land.

·      Flemington entered into the contract to purchase the land relying on the assessment that the “worst case” was $11,500,000. If the assessment had produced a substantially lower valuation, Flemington would not have made the purchase.

·      The land, at the time Flemington purchased it, was worth less than the price Flemington paid for it. Accordingly Flemington suffered loss as a result of breach of the duties owed by Raine & Horne and Mr Aitken and by the misleading and deceptive conduct identified. The principal amount of the damages to which Flemington was entitled was the difference between the price paid and the market value of the land at the date on which Flemington contracted to purchase it.

Flemington’s second further amended statement of claim includes a claim that, relying on representations made both before and after Flemington entered into the contract to purchase the land, Flemington agreed that Pacific Power might give instructions for a revaluation in order that the rent payable under the lease might be redetermined and as a result suffered loss. It includes also an alternative claim for damages calculated by reference to the difference between the rental received by Flemington under the lease and its minimum expected return based on an annual rent of 8% of $11,500,000. Although it may not be correct to say that those claims were formally abandoned, no submissions were made in support of them and the only basis on which senior counsel for Flemington submitted that I should reach a conclusion favourable to Flemington was that which I have described. The second matter concerning the pleadings is this: given the importance assumed by the distinction between a “one lot” and a “five lot” valuation, that issue was not explicitly referred to in the statement of claim until it was twice amended, after the hearing had already proceeded some distance, first on 14 November and secondly on 19 November 1996. Generally, the statement of claim is cryptic at least as to breach of the contract of retainer. Indeed, unless what appears to be an allegation of a non-contractual duty of care and skill is to be taken to allege a contractual duty as well, the implied term relied on is not pleaded. The case proceeded, however, on the implicit footing that the implied term and its breach were sufficiently raised.

The representations pleaded are set out in paragraph 8 of the second further amended statement of claim, a paragraph which has been incorporated in the statement of claim from the outset and has not been amended. It is as follows:

8. The First and Second Respondents each represented to the Applicant that the Respondent’s Valuation:

(a) had been prepared in circumstances where the Respondents had sufficient information upon which to predict the Minimum Value;

(b) took into account all sales of comparable real estate;

(c) took into account all available information concerning the availability, asking price and negotiations concerning comparable real estate;

(d) took into account and made allowance for the state of the market for comparable real estate including in particular, the lack of recent activity within that market;

(e) had been prepared following thorough and exhaustive enquiry;

(f) had been prepared using information on properties on offer from the Research Department of the Raine & Horne companies (“the Research Representations”).

Particulars

The Research Representations were partly express and partly implied.

To the extent that they were express they were made:

(a) during conversations between the Second Respondent and variously Lane, Libling, Weir and Pearson throughout May 1992 and subsequently; and

(b) by a valuation dated 10 June, 1992.

To the extent that they were implied, the implication arose from:

(c) the Agreement;

(d) a letter from the First Respondent to Bruce Lane & Co. dated 15 May, 1992; and

(e) the Second Respondent’s knowledge that it was crucial to the Applicant to establish with certainty the Minimum Value.

It must be taken, I think, that the definition “the Research Representations” is meant to encompass all the representations pleaded in paragraph 8 not merely the representation set out in subparagraph (f).

Paragraph 9 of the second further amended statement of claims deals with the alleged untrue, misleading and deceptive character of the representations. It is as follows:

9. The Research Representations were untrue and were misleading or deceptive and/or likely to mislead or deceive the Applicant.

Particulars

(a) The First and Second Respondents failed to make allowance for the fact that they did not have sufficient information upon which to predict the Minimum Value.

(b) The First and Second Respondents failed to acquaint themselves with the availability and sale of at least one comparable parcel of real estate at Madeline Street, Fairfield (sic).

(c) The First and Second Respondents failed to take account of the state of the market for comparable real estate.

(d) The First and Second Respondents failed to make thorough and exhaustive enquiry.

(e) The First and Second Respondents failed to have regard to information which they understood to have been available to them from the Research Department of the Raine & Horne companies.

(f) The First and Second Respondents failed to disclose to the Applicant at any time prior to exchange of contracts on 28 May 1992 the fact that it was the Second Respondent’s view that if the Property was valued on a one lot basis the figure produced could be as low at $10,685 million.

(g) The First and Second Respondents failed to give any or any adequate consideration as to whether the land should be valued on a one lot basis or as five separate lots;[.]

(h) The First and Second Respondents knowing of the terms of the lease and that notwithstanding the prior subdivision of the property it had been valued by the Valuer General on a one lot basis in May 1989 and that such valuation had formed the basis for payment of rent since that date, failed to give any or any adequate consideration to the possibility that on the “worst case scenario” referred to in paragraph 5 herein the land could be valued on a one lot basis; [.]

(i) The First and Second Respondents failed to advise the Applicant of the matters referred to above and of the fact that if the possibility referred to in (g) and (h) above eventuated the “worst case scenario” would lead to a lower valuation than on a five lot basis.

Subparagraph (f) was inserted by the amendment made on 14 November; subparagraphs (g), (h) and (i) were inserted by the amendments of 19 November. The amended pleading can, no doubt, be read as alleging misleading or deceptive conduct, for the purposes of the Trade Practices Act and the Fair Trading Act 1987 (NSW), constituted by the alleged failures to disclose or advise in circumstances where the “Research Representations” were made. The allegation of tortious breach of duty of care, pleaded in paragraph 16 of the second further amended statement of claim, repeats, among other things, the particulars in paragraph 9 and can therefore be taken as sufficiently pleading a breach of duty constituted by a failure to advise Flemington of the matters in the four inserted subparagraphs.

I granted Flemington leave to make the amendments of 19 November on the basis that the respondents would be entitled to submit, for the purpose of any limitation defence under the Trade Practices Act or Fair Trading Act that the amendments should be taken as effective only from 19 November 1996.

I also gave the respondent leave to file a further amended defence, which they did on
20 November 1996. It is sufficient for present purposes to say that the defence denies the alleged breaches of duty; claims that in entering into the contract to purchase the property (and in agreeing to a revaluation) Flemington relied on matters other than the valuation; claims that any reliance on the statement made by Mr Aitken upon speaking to Mr Lane in July was unreasonable (as the relevant claim is not pressed, this defence need not be further considered); alleges a failure by Flemington to mitigate its loss, and contributory negligence; and, in relation to the allegations of misleading or deceptive conduct, relies on the limitation defences under s 82(2) of the Trade Practices Act and s 68(2) of the Fair Trading Act.

Terms of the Retainer

Some matters are common ground. The parties are in agreement that Mr Aitken was to assess the unimproved value of the land and should go about doing so in the same way as the Valuer-General would. It was common ground also that the express basis on which the instructions were given was that the assessment would provide guidance to Flemington as to the likely result of an application of the rent review provisions in the lease. There was evidence about a number of conversations between Mr Aitken and the various directors. Mr Aitken’s instructions were originally given, as I have mentioned, in a conversation with Mr Lane on 7 May 1992. Mr Lane’s evidence was that he told Mr Aitken that, because there was no “ratchet” clause in the lease, it was very important for the directors to know that the rent would not decrease. The directors accordingly wanted a very conservative valuation and to know the worst case. Mr Aitken’s evidence was that he could not remember the expressions “very conservative” or “worst case” being used during the conversation. He agreed, however, that he understood at that time that it was important to know whether the rent might go up or down and that, accordingly, a cautious, conservative approach to valuation was appropriate.

Mr Pearson gave evidence of a conversation which he and Mr Lane had with Mr Aitken between 12 and 15 May 1992. His evidence was that the conversation included the following exchange:

Pearson: What is our worst case scenario?

Aitken: The worst case scenario would be $100.00 per square metre.

Pearson: This is a critical issue for us in determining whether we would proceed with the purchase as the rent return is calculated by reference to unimproved value as determined by the Valuer General.

Aitken: I am aware of your concerns and my valuation is very conservative.

In cross examination, Mr Aitken said that he did not recall using the expression “very conservative”, but he conceded that “I think conservative came up in our conversation”. He could remember the expression “worst case” coming up in the conversation but was not sure whether he or Mr Lane or Mr Pearson “brought up that phrase”. He did, however, agree that he understood from conversations with each of the directors that it was their wish to know the “worst case scenario”.

Both Mr Libling and Mr Aitken gave evidence of a conservation between them at some time before 13 May. Mr Libling gave evidence that he said “we really want a conservative valuation” and “I want you to tell us what the worst case could be”. Mr Aitken’s evidence was that he could not recall those words being used in that conversation. Mr Weir gave evidence of a conversation with Mr Aitken, also on about 13 May. Mr Weir’s evidence was that he said both “Ron, can you make sure you give us a good conservative valuation?” and “...we really need you to give us a worst case view”. Mr Aitken’s evidence was that he had no recollection of the conversation of which Mr Weir had spoken. Mr Aitken did not deny that he had conversations in the terms deposed to by Messrs Pearson, Libling and Weir: he said, merely, that he could not recall them.

Though Mr Lane’s credit was attacked in the written submissions of counsel for the respondents, no attack was made on the credit of any of the other directors nor were their accounts of the conversations with Mr Aitken challenged in cross examination. Significantly, the draft valuation faxed by Mr Aitken to Mr Lane on 15 May included, unprompted, two statements: one, that Mr Aitken’s assessment “is what we believe a realistic value of the site taking a conservative approach to value for the individual lots”; the other, “in a “worst case scenario” it may be likely that the discount should be 10%...”. It would, I think, be surprising to find Mr Aitken using that combination of terminology unless he understood that it reflected his instructions. In my view the probabilities clearly favour the finding, which I make, that Mr Aitken was instructed to assess unimproved value on a conservative basis and to provide a “worst case” assessment and that he agreed to do so. It follows that the contract of retainer included an express term to that effect.

I have mentioned that it is common ground that Mr Aitken knew from the time of his first conversation with Mr Lane that an assessment of the unimproved value was required so that the directors would be informed of what might happen on a revaluation for the purpose of determining the annual rent. It was clear, at least from the time when the subject of Kelmea arose between Mr Lane and Mr Aitken, on 11 May, that the matter was one of serious concern. There can be no doubt in the circumstances that it was an implied term of the contract of retainer that Mr Aitken would exercise reasonable care and skill in carrying out his work or that, independently of contract, such a duty arose at common law: Smith v Bush [1990] 1 AC 831 at 844-847; MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 316, 335.

Questions of breach of duty, and of the precise content of the duty itself, tend to intermingle. I think it is convenient to consider under the head of “breach” the question whether the duty to exercise reasonable care and skill incorporated the particular duty to advise as to the possible consequences of a “one lot” as opposed to a “five lot” valuation.

8%

Breach of Duty?

(a) One lot or five?

There is no doubt on Mr Aitken’s evidence - indeed, there could be little doubt having regard to the way in which the valuation of 15 May 1992 was expressed - that Mr Aitken’s method was to value each of the five lots separately and, in order to arrive at the unencumbered value of the whole, to add together the values of the five lots. Mr Keith Norris, a valuer who gave expert evidence for the respondents, agreed that the five lot method adopted by Mr Aitken was correct. Mr Craig Miller, who gave expert evidence for Flemington, expressed the view that the definition of “demised premises” in the lease required that, for the purposes of the lease, the land be valued as a single parcel. Mr Mark Everitt, a senior valuer employed by the Valuer-General who undertook the 1992 valuation on the instructions of Pacific Power and the later statutory valuation, carried out his instructions from Pacific Power by valuing the land as one parcel because, his evidence was, that was what he considered the terms of his instructions to require. Later, for statutory purposes, he valued the five lots separately. The 1989 valuation, prepared for the State Rail Authority by the Valuer-General, was carried out regarding the property as a single parcel.

It is in my view inescapable that an inquiry about the correctness of Mr Aitken’s approach must begin with the question, how - as a matter of law - is a valuation of the kind contemplated by the lease required to be undertaken?

The proviso under which, under the lease, rent for each year after the first ten is fixed has the effect that the rent payable in a year is 8% “of the then current Unimproved Value (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution for the same) of the freehold of the demised premises”, if that sum exceeds $24,850. Clause 37 of the lease enables the lessor, not more frequently than every three years, to require “a new valuation of the freehold of the demised premises to be made pursuant to the Valuation of Land Act 1916 as amended or any Act amending or in substitution for the same”; such a valuation clearly would become the “current Unimproved Value” for the purposes of the proviso. Kelmea and the cases which followed establish clearly enough that no valuation of the kind called for by the proviso or clause 37 could be made following the repeal of s 6 of the Valuation of Land Act 1916; and, no doubt, though probably it does not matter, once land value had been assessed under the amended Act it could not be said that there was, any longer, a “then current” unimproved value. Kelmea and the following cases make it clear also, however, that the second proviso, for determining unimproved value by agreement or by arbitration, would apply in that situation and that in fixing “the said Unimproved Value” an arbitrator should proceed as, before the Act was amended, the Valuer-General would have proceeded applying s 6. Certainly it is clear that the “Unimproved Value of the demised premises” was to be determined “pursuant to” - that is in the way the Valuer-General would be required to determine it under - the Act.

In submitting that the Valuer-General, in assessing the unimproved value of the demised premises under the Valuation of Land Act 1916 should have valued the land as a single parcel, senior counsel for Flemington relied strongly on Commissioner for Railways (NSW) v Wynyard Holdings Ltd [1973] 1 NSWLR 1. The question in that case was whether the Valuer-General, in valuing a large city block leased as a whole, had applied correct principles: he had valued separately a number of strata included in, but not together making up the entirety of, the demised premises. The Privy Council held (at 17) that the Valuer-General had adopted an incorrect approach:

The fact that the subject matter may contain within it one or more strata, is not a reason against applying s.6. It is a wrong process to excise the strata, and value them, leaving a valuable or non-valuable residue to be dealt with as best it may be. The definition of a stratum applies to a stratum ratable or taxable under any Act, and before a stratum can be separately valued from the rest of a larger building or site, the conditions must exist for a separate valuation of it as such. No such conditions exist in the present case: the whole site, with its improvements, qualifies as land; it contains in it a number of strata, but there is no warrant for fragmenting the whole - a whole geographically, functionally and structurally - into strata and a residue of land.

Senior counsel relied also on a slightly earlier passage, at 17:

However, it is not correct... to say that the first task of the Valuer-General is to select the unit of valuation. This is not his task; it is to value the datum in accordance with the relevant statutory code. When presented or faced with a subject for valuation, he must first decide whether this consists of one or more parcels: in so doing he must have regard to the geographical, functional and structural unity or otherwise of the subject matter: he must apply, if relevant, ss.26-27A of the Valuation of Land Act.

Here, it was submitted, the datum was the demised premises: that is to say, as in Wynyard Holdings, the entire parcel regarded as a single unit. Accordingly, the approach taken by Mr Aitken was wrong.

It is to be noticed that their Lordships recognised the necessity of applying ss 26-27A, if relevant. There appears to have been no suggestion in that case that any of those sections was relevant; the possibility of their application was not considered. During oral argument, senior counsel suggested that because, applying Wynyard Holdings, the valuation was required for the purpose of determining rent of the whole of the land as one block, that was the datum, irrespective of s 26 or s 27. To go so far is not, however, in my view consistent with the passage I have quoted: undoubtedly the valuer is to value the land which comprises the demised premises, but the valuer must carry out the task in accordance with the statutory code including s 26 or s 27, if either applies. It is necessary, therefore, to consider those two provisions.

Subsections (1) and (2) of s 26 are as follows:

26. (1) Where several parcels of land adjoin, are owned by the same person, and where no part is leased, they shall be included in one valuation, unless the Valuer-General otherwise directs: Provided that any such parcels of land shall be valued separately if buildings are erected thereon which are obviously adapted to separate occupation.

(2) Where several parcels of land adjoin, are owned by the same person and are all let to one person, they shall be included in one valuation, unless the Valuer-General otherwise directs.

Subsection (3) is inapplicable and need not be set out. The only potentially relevant part of s 27 is subs (1). It provides:

Where several parcels of land, owned by the same person, are separately let to different persons, they shall be separately valued.

Section 26(1) clearly does not apply: the whole of the land is leased. The difficult question, on which there appears to be no guiding authority, is whether s 26(2) or 27(1) applies. The answer is, in my view, to be reached largely by considering the use, in the statutory context, of the three words “land”, “owned” and “let”.

The Valuation of Land Act 1916does not define “land”. In Wynyard Holdings, however, it was accepted (at 12, 13) that the partial definition in the Interpretation Act 1897 provided “a general indication that “land” is to be given a widely inclusive meaning”. In the present context, it is unnecessary to pursue that question further: as the lease recognises, what was to be valued in assessing unimproved value (and what is to be valued in assessing land value) is the fee simple or freehold interest in particular land. So much was made clear by s 6(1) and is now provided in s 6A(1). “Owner” has at all relevant times (ignoring a curious change in spelling which seems to have occurred) been defined in s 4(1) of the Valuation of Land Act 1916 as meaning:

The person who, whether jointly or severally, is seized or possessed of or entitled to any estate or interest in land or stratum.

Thus, for example, a leaseholder may be an “owner”, so that it might be possible to read
s 26(2) in either of two ways, one regarding Flemington as the owner, all of the land being let to one person, Pacific Power, the other regarding Pacific Power as the owner, two lots not being leased and the other three being separately let to different persons: and different results would follow depending upon the approach adopted.

“Let” is not defined. There is, however, no doubt I think that it includes “lease” and may include the grant of rights of occupation not conferring an interest in land: Frank Warr & Co Ltd v London County Council [1904] 1 KB 713 at 719, 720. Clearly, I think, both the lease to Pacific Power and the subleases granted by it are to regarded as “lettings”. The question to be answered, then, is whether the expressions “are all let to one person” and “are separately let to different persons” are to be taken as referring to letting by the owner of the interest to be valued, namely the fee simple (or, in the terms of the lease, the freehold of the demised premises) or to refer instead to the way in which the land is actually occupied, whether the occupier is a head lessee or a subtenant.

The latter alternative must, it seems to me, be correct. The other construction would produce strange consequences where land is held from the Crown not by way of grant in fee simple but by way of lease; the consequences, in my view, would be almost equally strange where a freeholder entered into a long lease with a head lessee who in turn subdivided and developed the land and entered into numerous subleases. The question which the statute asks, after all, is not whether the owner of the interest to be valued (in the case of an assessment of unimproved value or land value) has let the land to one person or separately to several: it is whether the several adjoining parcels comprising the land “are all let to one person” or “are separately let to different persons”.

Accordingly, in my opinion the Valuer-General, in assessing the unimproved value of the land under the Valuation of Land Act 1916 before it was amended, was required by s 27(1) to prepare separate valuations. Section 27 now applies in exactly the same way in relation to land value; and in making his statutory assessment of land value in 1992 the Valuer-General in fact prepared separate valuations. Mr Norris agreed with that approach; Mr Miller also agreed that that was the correct approach for a statutory valuation. There may be a question whether it was appropriate to value Lots 1 and 2 separately, but nothing was put to me about that possibility and I need not pursue it further.

To deal with the question of statutory construction at that point is, perhaps, to anticipate. As senior counsel for Flemington submitted, the prior and primary question is one of construction of the lease. The submission was that, whatever might be required for the purposes of the statutory valuation, what the lease required was a determination of the unimproved value (as determined pursuant to the Valuation of Land Act 1916) of the freehold of the demised premises; and the demised premises were “ALL THAT land at Flemington containing 31 acres and 10 perches (31a.10p.) or thereabouts and being Lot 1 in Deposited Plan No. 521365”: they were thus defined as a single lot and it was therefore that single lot which was required to be valued for the purpose of determining the rent under the lease. Accordingly the lessor, in proceedings to which the lessee was not a party, supported the construction of the rental provisions more favourable to the lessee.

The difficulty with that construction, however, is that the first proviso, dealing with the ascertainment of the annual rental after the first ten years, sets it by reference to the “then current” unimproved value as determined pursuant to the Valuation of Land Act 1916. The proviso, in my opinion, contemplates the Valuer-General’s periodical statutory valuations. Those valuations, of course, had to be made as the statute, including s 27, required. Senior counsel contended, however, that if that were so a valuation under clause 37 (or, presumably, determined by arbitration) should be performed differently. Indeed, it might perhaps be argued that a valuation of separate lots, aggregated, could never be a “current” valuation of the demised premises so that the only effective valuation for rental purposes was one made under clause 37 or the provision for arbitration (senior counsel’s argument, I think, did not quite take that step). Current unimproved value, however, pursuant to the Valuation of Land Act 1916 must be determined in accordance with that Act. What is to be valued under the Act is “land”. The particular land with which the case is concerned has been subdivided into several parcels three of which at least are (on the view I have taken) to be regarded as separately let. Accordingly the only valuation of that land for which the Act provides is one which results in separate valuations of the several parcels. It is not easy to see why it would be appropriate to treat the words in clause 37 (“ a new valuation of the freehold of the demised premises to be made pursuant to the Valuation of Land Act 1916...”) as having a meaning different from the almost identical words in the first proviso; nor, particularly in the light of Kelmea, can I see a justification for treating the words describing what an arbitrator is to do, in the second proviso, as having a different effect. Thus, in my view, the description in the lease of what is to be valued by reference to the phrase “the demised premises” does no more than define or describe the land to be valued; it does not require the valuer to ignore the fact that the land, so described, has been subdivided into lots separately let.

(b) Was there nevertheless a breach of duty?

That conclusion, however, does not dispose of the matter in favour of the respondents. It was argued on behalf of Flemington that, knowing that in 1989 the Valuer-General had valued the land as a single lot, and that the parties to the lease had accepted that valuation as determining the amount of rent payable, Mr Aitken should have warned Flemington that a valuation for the purpose of the lease might be performed on a one lot basis and that, if it were, a value lower than his “worst case” might result. It was argued also that there were in other respects deficiencies in the method adopted by Mr Aitken resulting in his assessment of the unimproved value, and his assessment of the worst case, being not merely incorrect but negligently so.

Part of the context of those submissions was the following series of valuations. Mr Aitken, assessing unimproved value on a five lot basis, arrived at a “realistic, conservative” valuation of $12,900,000 and a worst case of $11,500,000. Mr Aitken did not know of a sale, by several interdependent contracts exchanged on 22 June 1992, of a property in Madeline Street, Enfield. That sale was a subject of a good deal of evidence. For the present it is sufficient to say that, because it took place after Mr Aitken’s valuation was made, he of course did not take it into account. Mr Norris prepared two “backdated” valuations of the Flemington land as at 15 May 1992, both on a five lot basis: one was on the footing that he knew of the Madeline Street sale, the other on the footing that he did not. On the former footing he assessed the unimproved value at $11,543,550 and deducted 10% to arrive at a “worst case” of $10,400,000. On the latter, he assessed the unimproved value at $12,265,700 and, deducting 10%, arrived at a worst case of $11,000,000. Mr Everitt, of course, was aware of the Madeline Street sale and took it into account. His one lot assessment of land value, on the instruction of Pacific Power, was $10,000,000; his five lot statutory valuation amounted to $10,420,000. Mr Miller’s one lot assessment of unimproved value, on a one lot basis, was $6,290,000; his “very conservative” assessment on the same basis was $5,650,000 and his “worst case” $5,000,000. Mr Miller prepared a separate five lot valuation, in which he assessed the unencumbered value at $9,900,000. Three things are obvious: first, Mr Aitken’s valuation is the highest and it is substantially higher than most of the other valuations. Mr Norris’ valuation, however, prepared on the basis that he did not know about the Madeline Street sale, was reasonably close to Mr Aitken’s, and his valuation assuming knowledge of Madeline Street was about 10% below Mr Aitken’s.

To put the matter more baldly, Mr Aitken, instructed to advise Flemington of the worst case, selected an amount which was greater than the “worst case” assessed, on any basis, by any of the valuers who gave evidence and substantially greater than the assessment (on any basis) of unencumbered value or land value made by Mr Everitt or Mr Miller. It is true, of course, that if several valuers valuing the same property on the same basis at the same date produce different assessments, it does not follow that one only of them is right, that any of them is wrong or that any of the valuers was negligent. The cases speak of an “acceptable range of figures that a competent valuer using due skill and care would reach” (Mount Banking Corporation v Bryan Cooper & Co [1992] 2 EGLR 142 at 149) and an “acceptable margin of error” (Trade Credits Ltd v Baillieu Knight Frank (NSW) Pty Ltd (1985) Aust Torts Rep 69,525 at 69,529). That range may vary, depending particularly on the difficulty of a particular valuation task at a particular time: Mr Norris, for example, gave evidence that while ordinarily valuers might be expected to reach values about 10% above or below an approximate median value a larger variation might be expected in the case of the property with which this case is concerned at the time Flemington bought it. The factors which led Mr Norris to that conclusion were the size of the land, its zoning and use and the fact that the market was “flat” and there was “limited sales evidence”. It was not in dispute that the valuation task which confronted Mr Aitken was not a particularly easy one: as will appear, there were not many comparable sales on which reliance could be placed and in each case there were factors requiring significant adjustments having regard to differences between the property sold and the land Mr Aitken was valuing; it is also clear that there had been a significant decline in the market and that it was, at best, flat.

On the other hand, the principle is equally well established that a valuation significantly outside the acceptable range is itself evidence of breach of duty:

Gross over valuation, unless explained, may be strong evidence either of negligence or of incompetence.

Baxter v F W Gapp Co Ltd (1939) 2 All ER 752 at 758; see also MGICA at 335-337.

If the question were simply, was Mr Aitken negligent in assessing the unimproved value at $12,900,000, in my view the answer would be “no”. All the valuers who gave evidence accepted that the correct method to apply, if the land were to be valued on a five lost basis, was the comparable sales method. Mr Miller alone was of the view that, if the land were to be valued as a single lot, the use of the comparable sales method was inappropriate, but that was because of his view that, for a valuation on that basis, none of the available sale transactions was truly comparable principally because the area of land sold in each case was substantially smaller than 12.57 hectares. In the end, no submissions were made to me that the particular sales considered by Mr Aitken were not appropriate for consideration or that the particular adjustments he made to the sale prices, in arriving at his valuations of the various lots, demonstrated negligence (though he was cross examined on both topics). I can therefore deal reasonably briefly with the way in which Mr Aitken took comparable sales into account and with the evidence on comparable sales give by the two expert valuers, Mr Miller and Mr Norris, and also by Mr Everitt.

Mr Aitken’s evidence was that he had information about a number of sales. Of those, he relied principally on three. The first of these was a property at 26-52 Hume Highway, Chullora, bought by News Ltd from the State Rail Authority in January 1990. The area of the property was about 9.8 hectares and the price was $15,500,000: that is about $157 per square metre. An obvious difficulty with regarding that sale as comparable was that it occurred nearly two and a half years before the date of Mr Aitken’s valuation; Mr Aitken’s evidence was that, for the purpose of his valuation, he adjusted the price of $157 per square metre downwards by about 30% to take account of the decline in the market, as he perceived it, during that period; he then deducted 20% to take account of the perceived superiority of the Chullora site; and he then made adjustments upwards on the basis that all the lots he was valuing were significantly smaller in area than the land sold. The second comparable sale was a property in Berry Street, Granville, with a frontage to Parramatta Road. The total area of the land was about 7.9 hectares and the price about $139 per square metre. The Berry Street land was sold only five months before the date of the valuation and its area approximated more closely than the Chullora land the areas of the lots valued by Mr Aitken, particularly Lot 1. Again, Mr Aitken (in common with the other valuers who gave evidence) regarded the Berry Street location as substantially superior to that of the Flemington land; he made a “timing” adjustment of 10% and a further 20% adjustment for location and, once again, some adjustment for size. The third property was a parcel of land of about 1.8 hectares in Birnie Avenue, Lidcombe. It was purchased on 6 November 1991, before auction, by a company which, following the purchase, owned all the land on each side of a cul-de-sac. Mr Aitken’s evidence was that he did not take particular account of the fact that it was an “adjoining owner sale”; he adjusted the price of $129.90 per square metre downwards by about 10% for both location and timing and, in relation to Lot 4 of the Flemington land, made no further adjustment, the areas being directly comparable. He adopted what he described as a “grading” for the purposes of comparison with the larger Lots 1, 2 and 3.

Mr Norris relied on 26-62 Hume Highway, Chullora for “secondary or general support only”. He took the view that the size of the adjustments required for differences in area (9.89 hectares compared with Lot 1 of the Flemington property, the largest lot, 5.26 hectares) and particularly for timing (nearly two and a half years) made the Chullora sale less reliable for the purpose of comparison than the other sites on which Mr Norris placed primary reliance. Those other sites were the properties at Berry Street, Granville and Birnie Avenue, Lidcombe. Mr Norris concluded that the Berry Street property was about 25% superior to the Flemington land and adjusted the price accordingly (that adjustment compares with Mr Aitken’s adjustment of 20% for location). Mr Norris then (for the purposes of comparison with Lot 4 at Flemington) adjusted the price back by 20%. He then applied what he regarded as a “generous” adjustment of 10% for timing (the same adjustment was made by Mr Aitken). Mr Norris regarded Birnie Avenue as “highly comparable” to the Flemington land. The two sites were about 2.5 kilometres apart and the Birnie Avenue property was of a similar size to Lot 4 at Flemington. Though he regarded the two locations as “generally comparable” he considered that the Birnie Avenue site was “slightly superior” as it was situated in a more established industrial area. He made an adjustment of 10% for location and then a further adjustment of 10% for timing (Mr Aitken made a single adjustment of 10% which, he recalled, was intended to cover both location and timing).

Mr Everitt’s evidence was that for the purposes both of his single lot valuation made on the instructions of Pacific Power and his statutory five lot valuation he took account of the sales of the properties at Hume Highway, Chullora, Berry Street and Burnie Avenue; he also took into account a property at Gould and Braidwood Streets, Enfield (referred to in evidence as the Lion Tile Property) relied on by Mr Miller for the purpose of his five lot valuation. Mr Everitt’s evidence was that in considering each sale in relation to the land he was valuing he took into account factors such as location, area and timing; it was not his practice, however, to make precise mathematical adjustments. The following exchanges with Mr Bathurst QC, for Flemington, are representative of his evidence on the point:

But when you say that is the expertise of the valuer, the valuer has to make some adjustments in relation to those sales, does he not? - Certainly.

You would expect in the normal course those adjustments to take account of all those matters, difference in size, different in location, difference in date of sale and perhaps difference in physical characteristics? -If the valuer deems that relevant, yes.

If relevant, one would normally expect to find that in the valuer’s working papers? - Not necessarily. I’m one of those valuers who makes judgments based on experience and other things but when I look at the sales I don’t write 10 pages of analysis on one sale, that seems hardly relevant to the task at times.

Then, in relation to the Lion Tile Property:

Do you remember what adjustments that you made? - Do I remember what adjustments?

Yes? - I made...

In percentage terms? - Well, if you can tell a valuer to do a 10% reduction for location, 1% for topography, I think he’s having himself on, it’s not done in percentage terms like that. It’s too mathematical and valuation isn’t a mathematical game as such, it’s an inexact science.

Finally, on Berry Street:

How did you take that site into account? - I considered its location, its size, you know, just as general relevance to the subject property deduced the - analysed the sale down to a rate per square meter, considering the timing of the site, and it became part of my basis for valuing the subject property.

But, again, there was no discounting process undertaken? - Well, yes, you’re talking mathematics, I’m not, I’m saying that I’ve taken these factors into account but I haven’t applied little percentages, if you like, to come to a conclusion. I’ve said $140 a square meter is the deduced sale price on that property, the conclusion is obvious. I’ve deduced the sale because I’ve used $80 a square meter in arriving at the value on the subject property. What I can’t tell you, and it’s not just through memory, but I can’t tell you that I allowed 3% because it was on the Parramatta Road, I can’t allow 5% because it’s slightly smaller for size, I can’t allow 1.2% because it’s a different date, that is an impossible mathematical equation if that’s what you’re suggesting.

Three particular matters must be borne in mind in considering Mr Everitt’s evidence. First, his evidence was that the practice of the Valuer-General is to value towards the lower end of the range, though not at the bottom of it. As he put it, particularly in the case of statutory valuations, objections are not commonly made on the basis that a valuation is too low. Secondly, his valuation took into account the Madeline Street sale (to which I shall return) and his evidence was that, had information about that sale not been available to him, his valuation would have been higher. Thirdly, the difference between his one lot and five lot valuations is curiously small. Each of the other valuers, including Mr Aitken, expressed the view that the difference between a five lot and a one lot valuation would be much greater. Mr Norris commented on the discrepancy in his first report, by pointing out that Mr Everitt valued Lot 1, an area of 5.26 hectares at $76.05 per square metre, whereas he had valued the entire property of 12.57 hectares at $79.55 per square metre, and that the amounts allowed for the significantly smaller Lots 2 and 3 were only $5 and $8 respectively greater than the rate per square metre allowed for the whole. That matter was not explored in oral evidence - perhaps not surprisingly, as both Mr Norris and Mr Everitt were called by the respondent. There is, however, obvious logic in what Mr Norris says and I prefer his explanation to that proposed by Mr Miller, whose evidence I must now consider.

Mr Miller prepared a number of reports which were in evidence and on which he was cross examined at length and in detail. His evidence was heavily criticised in submissions of counsel for the respondents: counsel submitted that his evidence provides no support for a proposition that Mr Aitken’s valuation was incorrect. Particular criticisms were made of the way in which Mr Miller gave evidence. I do not accept those particular criticisms: while it might be said that Mr Miller was at times (as senior counsel for Flemington put it) defensive - hardly surprisingly, perhaps, in the circumstances - when pressed with particular difficulties arising from his reports he readily (and perhaps not always necessarily) accepted in several respects that he had been mistaken. Nor do I accept the criticism that Mr Miller inappropriately took the role of advocate.

Mr Miller took the view that, in valuing the land for the purposes of the lease, the valuer should assess unencumbered value or land value of the land regarded as a single lot. That is, of course, a question of the construction of the lease, and, because valuation for the purposes of the lease is required to be one made pursuant to the Valuation of Land Act 1916, also a question of construction of that Act. I have already expressed my views about those questions, and concluded that the approach taken by Mr Aitken, rather than that favoured by Mr Miller, is that required by the lease. Because that is so, the question of the appropriateness of the valuation approach adopted by Mr Miller, on the basis that valuation of the land as a single lot was appropriate, does not directly arise. It received, however, a great deal of attention during the trial; and, without to some extent forming a view about it, it is difficult to assess adequately the weight be given to Mr Miller’s five lot valuation and his explanation of the apparent discrepancy between Mr Everitt’s two valuations, that the single lot valuation was too low. Accordingly, it is necessary to consider Mr Miller’s approach and the criticisms of it, if only briefly.

Mr Miller accepted that there were four recognised methods of valuation and that that ordinarily most appropriate to land such as the Flemington land was the comparable sales method. To that extent there is no controversy. Mr Miller then considered a number of suggested comparable sales, including all those (other than Madeline Street) which I have so far mentioned. He concluded that none of them was in fact sufficiently comparable to afford any reliable guide to the value of the Flemington land regarded as a single lot. He gave various specific reasons applicable to particular suggested comparable sales (for example, in relation to Birnie Avenue, he expressed the view, supported by certain inquiries which he had made, that it was inappropriate to have regard to that sale since, as it was a sale to an adjoining owner completing the acquisition of all the land on each side of the cul-de-sac, the price paid might have been higher than it would otherwise have been); a common thread, however, applicable particularly to the sales which might otherwise have seen most promising (particularly Berry Street, Birnie Avenue and the Lion Tile Property), was that the much greater area of the Flemington land made comparison in each case so unreliable as to be inappropriate. Having concluded that there were no available sales which might be regarded as truly comparable, and that none of the other accepted methods of valuation was applicable to the particular valuation task (and again, it may be interpolated, there seems to be no dispute about that), Mr Miller proceeded to assess the value by taking as his starting point, and without further investigation, the valuation prepared in 1989 by the Valuer-General for the State Rail Authority (a course which he justified at least in part on the ground that that valuation had been accepted by the parties for the purpose of determining the rent payable under the lease); he then adjusted that value by reference to his view of the decline since 1989 of values of industrial land, particularly secondary industrial land, in the Sydney metropolitan area, supported by a number of press reports of the decline, and declines in values of industrial properties in various parts of metropolitan Sydney as reported in the Valuer-General’s annual “blue books” covering the relevant period.

A general criticism of Mr Miller’s approach, supported by the evidence of both Mr Norris and Mr Everitt, was that it was simply not a recognised method of valuation: the appropriate method was comparable sales; there were comparable sales; though admittedly, given particularly the discrepancies in areas, comparison was perhaps unusually difficult, it could and should have been made. A number of particular criticisms were made also. For example, it was said (again relying on the evidence of the other valuers) that it was inappropriate without investigation of its soundness or of the precise basis on which it was made simply to accept an earlier valuation as the starting point; it was said also (and I think, as Mr Miller conceded, correctly) that it was inappropriate simply to add together Mr Miller’s view of the percentage decline in value of relevant industrial property in each year since 1989 and apply the total thus arrived at to the 1989 valuation: rather, one should perform the task on an annual basis applying the percentage, applicable to each year after the first, to the already reduced value. Thirdly, it was said (and again with the support of Mr Norris and Mr Everitt) that the “blue book” was not appropriately used as a valuation tool and particularly that the tables in it could not properly be applied to the particular parcel of land in question.

The question of the general approach is not in my view entirely straightforward or clear. There can be no doubt of Mr Miller’s qualifications or experience. I do not doubt the genuineness of his view that none of the suggested sales was really comparable. If one turns to the evidence of the other valuers, while Mr Norris was firm in his view that the comparable sales method was appropriate for a one lot valuation, he did not himself attempt one (doubtless he was not asked to do so), nor did he explain in detail how in his view a valuer should go about the task; and Mr Everitt, while insisting that a competent valuer could (as he did) value the land as a single lot taking into account sales of much smaller properties, some of them substantially differently located, did not explain in detail how it was done and accepted that a valuer’s knowledge of general market conditions was important.

In the end, however, I accept that the approach adopted by Mr Miller resulted in a valuation which was unduly pessimistic. I think there is force in the criticism of the adoption of the 1989 starting point, without further investigation; though it is a matter of relatively minor significance, I have already indicated that I accept that the totalling of annual percentage falls and then applying the total to the starting valuation was incorrect and exaggerated the decline; more importantly, the newspaper evidence was of a very general character and the blue books demonstrated that the annual rates of decline in values of industrial property varied greatly from suburb to suburb. Particular examples chosen by Mr Miller from the blue books illustrate the difficulty: for example, he placed reliance on falls in value attributed to a particular “typical” property in Alexandria; but I did not find it at all clear why Alexandria was thought particularly comparable to Flemington or why the decline in value of the typical property (having an area very much less than that of the Flemington land) should have been regarded as a better guide than the recent sales of (relatively) neighbouring properties suggested as comparable. In short, and perhaps taking a risk of oversimplifying, though there were obvious difficulties, recognised by all the valuers, in applying the comparable sales method, that is the accepted method and I am unconvinced that Mr Miller’s method, related more to general market conditions, should be thought to produce a more reliable result in relation to particular land. Of course, an experienced valuer’s understanding of general market conditions is very important; but if the blue book material demonstrates anything, it is that, whatever one’s a priori impression might be, market conditions affect similar properties in different locations quite variously; and the method adopted seems to me unlikely to be convincing unless it provides a clear link to what is happening to values of property of the particular kind which is to be valued in the particular locality where that property is.

Those considerations lead in my view to the conclusion that Mr Everitt’s single lot valuation should be preferred to Mr Miller’s, as one prepared in accordance with an accepted valuation method applied in a way of which (assuming acceptance of the method) no criticism was made in submissions. It follows equally that Mr Norris’ explanation of the discrepancy between Mr Everitt’s one and five lot valuations is to be accepted, rather than Mr Miller’s.

Mr Miller’s five lot valuation was prepared in accordance with the comparable sales method, but the single comparable sale taken into account was that of the Lion Tile Property. The property has an area of approximately 1.9 hectares and is thus directly comparable with Lot 4 of the Flemington land. The sale took place in April 1991 for a price equal to $114.79 per square metre. Mr Miller made adjustments of 20% for timing and a further 10% on the footing of the Lion Tile Property was superior to the Flemington land. He made the actual adjustments by adding together the 20% and the 10% and making a total adjustment of 30% to the Lion Tile Property purchase price. That was criticised by Mr Norris as a matter of arithmetic, the suggestion being that the 10% adjustment ought to be made first, to produce comparability between the parcels of land, the further adjustment of 20% for timing then being made to the reduced price. That, so far as it goes, seems to be correct. Mr Norris made other particular criticisms of the adjustments made by Mr Miller about which it is, I think, not necessary to form a view. More significantly, Mr Miller did not take into account either the Birnie Avenue or the Berry Street sale. The reason he gave in relation to Birnie Avenue was that the price might be above market, the sale having been made before auction to an adjoining owner. Mr Norris’ inquiries and view of the market, however, supported (after the event) by the evidence of the estate agent who had been appointed to sell the Birnie Avenue property suggested that the price was consistent with, perhaps if anything slightly below, the market. As for Berry Street, Mr Miller’s evidence in cross examination was that he had simply not considered it. Mr Miller checked his valuation by applying a method known as the reverse hypothetical development method. Again, there was disagreement between Mr Miller and Mr Norris as to some of the assumptions on which Mr Miller proceeded. However that may be, what does seem clear is that Mr Miller did not take into account, whereas Mr Norris, Mr Everitt and Mr Aitken all took primarily into account, the two sales most comparable with individual lots of the Flemington land and relied instead on a single sale made somewhat over a year before the date of the valuation. My conclusion is that, in assessing whether Mr Aitken was negligent in assessing unimproved value at $12.9 million, I should regard Mr Norris’ work, rather than Mr Miller’s, as an appropriate benchmark. I am somewhat fortified in that view (it should be put no higher than that) by the great difference between Mr Miller’s assessment of the market value of the Flemington land (encumbered by the lease) as at May 1992 ($6,300,000) and the 1996 sale prices of Lots 2, 3, 4 and 5 (accepted by Mr Miller as representing market value) and his valuation, in 1996, of Lot 1: the sum of the prices and valuation is $21,750,000.

There remains the Madeline Street sale, which substantially affected Mr Norris’ view of land value and without which land value as assessed by Mr Everitt would have been greater. The Madeline Street property comprised about 2.6 hectares in Enfield (or Belfield: some evidence places it in one suburb, some in the other and it does not matter which is right). It was sold by the owner, the Australian Gas Light Company, by four interdependent contracts entered into on 22 June 1994. The price was $89.26 per square metre. The contracts were conditional on registration of a plan of subdivision occurring within six months of the date of exchange. Those contracts were later rescinded and replaced by other contracts, but that fact is of no importance for present purposes. The property was situated about two kilometres from the Flemington land; its size was directly comparable with Lots 2 and 3. The sale took place just over a month after the date of Mr Aitken’s valuation. The significance of the Madeline Street sale is not that it assists in establishing that Mr Aitken was negligent in assessing land value at $12.9 million. For the reasons already given, I am unable to reach that conclusion. Its significance is in part that it demonstrates the truth of Mr Everitt’s evidence that valuation is an inexact science and the extent to which chance plays a part in an exercise such as that undertaken by Mr Aitken. Plainly enough, if either his valuation had been performed six weeks later than it was, or the Madeline Street property had been sold six weeks earlier than it was, Mr Aitken’s conclusions might well have been significantly different. That provides, I think, useful introduction to a consideration of the next issue, whether having regard to the particular terms of his retainer and to his knowledge of what the directors were seeking, and the reasons they sought it, the respondents breached duties which they owed to Flemington.

The directors requested, and the terms of the retainer required, a conservative valuation and a statement of the worst case. Mr Aitken knew that the information was required for the purpose of assessing the likely consequences of a valuation for the purpose of redetermining the rent payable under the lease and that, because of the effect of Kelmea, it might be necessary that such a valuation take place reasonably soon. Mr Aitken assessed unimproved value at $12,900,000 as “what we believe a realistic value of the site taking a conservative approach to value for the individual lots” and expressed the opinion that “in a “worst case” scenario it may be possible that a discount of up to 10% should be allowed which would show a value in the order of $11,500,000”. Senior counsel for Flemington submitted that, assuming that Mr Aitken was right to value the land on a five lot basis, nevertheless in expressing the opinion that in a worst case scenario the unimproved value might be $11,500,000, he breached his duty. The submission rested principally on the proposition that because Mr Aitken knew that in 1989, when (to his knowledge) the land had already been subdivided, the Valuer-General had assessed the unimproved value of the land, for the purposes of the lease, on a single lot basis and the parties to the lease had accepted the resulting valuation, Mr Aitken should have known, and should have warned Flemington, that a valuer instructed to assess unimproved value for the purposes of the lease might as a matter of fact do so on a single lot basis; Mr Aitken knew, the evidence was, that a single lot valuation might produce a result substantially lower than his “worst case” assessed on a five lot basis. Senior counsel for Flemington relied both on authority and on some concessions made in cross examination by both Mr Aitken and Mr Norris. Mr Aitken gave the following answers in cross examination:

...Does it follow from that that you were aware, were you not, at the time that the property had been subdivided prior to the 1989 May valuation? - Upon reflection that would be right.

Now, that meant, did it not, that on the information available to you at the time you were adopting a different approach, as you understood it, to the approach adopted by the Valuer General in May of 1989? - That is correct.

Do you agree with me in those circumstances that you should have taken some steps to ascertain, firstly, why it was that the Valuer General did it on a one lot basis in 1989? - In hindsight I think you’re correct.

Secondly, give further consideration to whether or not the approach you were taking or the approach of the Valuer-General - could I say that again, secondly, give consideration to whether or not your approach or the May 1989 approach for the Valuer-General was the correct approach? - I think you have to take consideration of that, yes.

Would you agree with me that if, as best as you recall, you did not raise this issue with anyone from the Valuer-General’s office prior to 15 May? - No, I cannot recall talking to anyone prior to the 15th...

...you were aware were you not at the time you did your valuation that if a one lot basis of valuation was applied, the worst case figure would be less than the worst case figure reached on a five lot valuation? - Yes, whilst I didn’t do that exercise during that time, on principle I would be aware.

You would have been aware, would you not agree - sorry, you would have reached the conclusion, would you not agree, had you come to consider that issue, that the difference could be as much as $1 million or thereabouts? - That could be, yes.

That would follow from that as you understood the position that if that valuation approach or methodology was adopted, it would lead on a rent review to a reduction in rent? - You mean on a one lot basis?

On a one lot basis, quite? - Yes, that’s correct...

On the figures you had available to you at that time, namely the purchase price of $9.5 million, it could lead to a yield below what you would have regarded as appropriate to expect from a rental property of this nature at that particular point of time; would you agree with that? - Yes, that would be correct....

Did you at any time inform anyone from Flemington Properties prior to 15 May that the approach adopted by the Valuer General in 1989 would, if carried out in 1992, lead to a different result than the result in the valuation which you were giving them? - I’m not sure but I don’t think I did...

...Do you agree with me that as a matter of valuation practice, you should have advised one or more of Flemington’s directors, that if the property was to be valued on a one-lot basis, the worst-case result may be worse than the $11.5 million which you put in your valuation of 15 May? - If I thought it would have been valued on a one-lot basis, then I think I should have advised them.

Mr Aitken also accepted, with hindsight, that as a matter of valuation practice he should have given consideration to the reason the Valuer-General took a different approach in 1989 to the approach which he proposed to take in 1992 and that he should also have had regard to the fact that the 1989 valuation was apparently accepted by each of the lessor and the lessee. Then:

MR BATHURST: Do you not agree with me that it was incumbent on you knowing of the manner in which the Valuer General had carried out his 1989 valuation to take steps to ascertain the reason that he took a different approach to the approach which you, in your valuation, were proposing to take? - I believed at the time I had applied the right steps in what I was doing. I’m not too sure about whether I should be going any further than what I did.

When you say not take it any further than what you did, I thought you told his Honour earlier that, as you recall it, you did not give consideration to why the Valuer General had adopted an approach different to you. Is that correct? - That’s correct, yes.

So it follows then that you took no steps whatsoever to see why the Valuer General did what he did in 1989? - No, not during that period of time.

And, I suggest to you, that that was something which you should have done. Do you agree with that? - In hindsight I would say yes.

The question arose at several points in Mr Norris’ cross examination. First, Mr Bathurst asked Mr Norris to make a number of assumptions as to the instructions and information given to a valuer engaged to value the Flemington land. The final assumption was that the valuer was informed by each of the directors that they wanted to know the worst possible result which could occur if the rent review provisions were activated. The cross examination proceeded:

And if one was looking at a worst case scenario in the sense I have asked you to assume it in paragraph 6 of these assumption [sic] it would be impossible in those circumstances to discount what occurred in 1989 in giving consideration to the worst case? - I suppose hindsight is a wonderful thing but I think my view would have been five lots was correct, that is my worst case scenario on five lots, I just don’t know if I would have advised Flemington properties on a one lot basis, maybe would have said, look, they did it in a different way last time, get some legal advice.

Mr Norris, on the assumptions I have asked you to make you were, were you not, confronted with this. Firstly, a lease admittedly executed prior to the subdivision? - Yes.

Which describes the property as one lot? - Yes.

Secondly: a lease - and look at it if you want to answer this - which certainly makes no express provision as to what was to occur on subdivision? - No, it didn’t...

Thirdly: a valuation done in 1989 on a different basis to the basis which you or the hypothetical valuer about whom we are talking was proposing to carry it out? - Yes.

And fourthly: having to regard to assumption 6 which I have put to you an instruction that the directors of Flemington wanted to know the worst possible result? - Yes.

And fifthly: the fact that - I ask you to assume this - the valuer had the view that one lot valuation would produce a lower valuation than five lots? - Yes.

And that assumption would have been, may we take it, consistent with your opinion? - Yes.

Now in those circumstances what I want to suggest to you is this. That a valuer acting prudently would at the very least inform the client of the anomaly and indicate to the client that if his view as to the construction of the lease was incorrect a worse result would flow than would flow from the five lot construction which the valuer believed to be right; do you agree with that? - Perhaps he would. My view very strongly was that the five lot basis was correct and indeed I think the 1989 one lot basis was different from the rating valuation which had been done on a five lot basis; there had been a five lot valuation under the Valuation of Land Act.

Then, somewhat later:

Do you not agree with me that if the valuer was asked for a worse-case scenario, as I have asked you to assume, it would be impossible for him having regard to the terms of the lease and the May 1989 valuation to provide a worse-case scenario without at least informing the client of the possibility that a rent review could be done on the alternative basis, namely, one lot and that such a result may produce a worse result? - I guess it gets to the degree that the warning would have been given. I think I would have proffered the advice that this was strongly my view, the correct basis i.e. five-lot basis, and perhaps I would have said, look, it was done on a one-lot basis. I think that was wrong, get some advice.

And would you agree with me that whatever ultimately your approach to the client came to be you would have sought to investigate the circumstances firstly that the 1989 valuation came to be done on a one-lot basis? - Perhaps.

And secondly related to the first proposition the basis on which it was, in fact, accepted by the lessor and the lessee as provided [sic] a basis for the formula on which rental was to be paid? - Yes, I do not think I would have honestly rung either the SRA or the Electricity Commission.

I accept that, but you may well have rung the Valuer General? - I may have.

It is to be noted that Mr Norris gave evidence not only as to what, as a matter of valuation practice, a valuer in the position of Mr Aitken would do. His evidence was also that, in the course of preparing his own report, he asked Mr Everitt why he had prepared his first valuation on a single lot basis.

That evidence both of Mr Aitken and of Mr Norris was of course given on the basis that each believed (as I have held, correctly) that it was correct to value the land on a five lot basis but knew that in 1989 the Valuer-General took a different approach. The submissions of Mr Bathurst QC for Flemington may be summarised as follows. First, in the context of the retainer “worst case”, though obviously not a term of art, should be taken to mean the lowest valuation which the Valuer-General might be expected to reach, in valuing the land so as to provide a basis for fixing the rent under the lease; and an element in the context was that Mr Aitken knew it was likely, so it was submitted, that such a valuation would occur in the near future. Secondly, the requirement to provide an opinion of the “worst case” in that sense necessarily meant that the valuer must consider not merely the legally correct method of valuing the land under the Valuation of Land Act 1916 and the lease but other ways in which there was reason to think that the Valuer-General might proceed. That was so, particularly, because of the practical consequences which might flow from a valuation performed even on an incorrect basis. Provisions for objection and appeal do not apply to a “private” valuation by the Valuer-General, and whatever legal rights Flemington might have against Pacific Power if a valuation were prepared in a way other than that which the lease required, as a purely practical matter (as Mr Aitken knew or should have known) Pacific Power might, relying on Kelmea, have insisted in such circumstances on paying rent at the initial rate of $24,850 until a valuation was prepared in compliance with the lease. Thus the contractual duty, and the duty arising under the law of negligence, required at least a warning that if a one-lot approach were adopted a substantially lower valuation than $11,500,000 might result. Because of the possibility that the Valuer-General might, as in 1989, value the land on a one lot basis, it was therefore also misleading or deceptive conduct to state, as Mr Aitken’s opinion, that $11,500,000 represented the “worst case scenario” without mentioning that a one-lot approach might be adopted and, if it were, would be likely to result in a substantially lower valuation.

Senior counsel for the respondents, on the other hand, submitted that “worst case” did not mean a distressed sale basis, “rock bottom” (a term attributed to Mr Aitken by Mr Lane, the use of which Mr Aitken, that he said he did not recall it, was not prepared confidently to deny) or the worst figure that the Valuer-General could come to; particularly, it could not be a figure that the Valuer-General would arrive at on a wrong basis, such as a one lot basis. Senior counsel pointed out that the valuation of 15 May 1992 refers to a value in the order of $11,500,000. Two further submissions were made. One was that, on the footing that Mr Miller’s approach was not accepted, there was no evidence on which a conclusion could be based that Mr Aitken was wrong, let alone negligent. If, for instance, one took Mr Everitt’s valuation, particularly his five lot valuation (his evidence being that the only reason for valuing on a one lot basis was his explicit instructions, both written and oral, from Pacific Power), and adjusted it upwards to take account of the fact that he took the Madeline Street sale into account, then Mr Aitken’s “in the order of” worst case would be well within the permissible range. Secondly, it was submitted that there could be no duty to warn against the possibility that a valuation might be conducted on a wrong basis.

Mr Bathurst relied strongly on Rogers v Whitaker (1992) 175 CLR 479. That case held (at 487) that:

...it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill... . But, that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade... . Even in the sphere of diagnosis and treatment, the heartland of the skilled medical practitioner, the Bolam principle has not always been applied... Further, and more importantly, particularly in the field of non-disclosure of risk and the provision of advice and information, the Bolam principle has been discarded and, instead, the courts have adopted.... the principle that, while evidence of acceptable medical practice is a useful guide for the courts, it is for the courts to adjudicate on what is the appropriate standard of care after giving weight to “the paramount consideration that a person is entitled to make his own decisions about his life”...

In Rogers the Court held that an ophthalmic surgeon had breached his duty of care, in advising as to the desirability of an operation on the plaintiff’s eye, by failing to inform the patient of a known but statistically very unlikely possibility that the operation might lead to a condition causing blindness in the other eye. The circumstances were that the plaintiff made clear her anxiety to retain her sight in the other eye and, because she was already nearly blind in the eye to be operated upon, the consequences of blindness in the other eye would, of course, be catastrophic for her. There was evidence of a practice among reputable ophthalmic surgeons not, in similar circumstances, to mention the risk. The High Court held, however, that that practice was not determinative and that the risk ought to have been disclosed.

Thus, Rogers was a case where the matter of which, it was held, warning should be given was not merely one of great potential significance if it became reality (though highly unlikely to become reality) but was also a matter peculiarly within the expertise of a practitioner such as the defendant, and was in fact known to the defendant. This is a rather different case. Mr Aitken had before him a lease which spoke of ascertainment of unencumbered value pursuant to the Valuation of Land Act 1916. Mr Aitken had worked in the Valuer-General’s department; he gave evidence that he was aware of the way in which that department would approach the assessment of land value of such a property; it would be done on a five lot basis. It is difficult to see why he should not have been confident about that, as he evidently was; both Mr Norris (who also had previously worked in the Department) and Mr Everitt took the same view. That is what, in performing his statutory valuation, Mr Everitt did; his evidence was that he performed his earlier valuation on the other basis only because that was what his “client” specifically instructed him to do. It is, I think, to take a long step to require Mr Aitken, in those circumstances, to warn that another approach might be taken simply because, (whether he actually realised it or not) if he had considered the material provided to him, he would have realised that in 1989 land value had been assessed on a single lot basis and the parties had accepted a determination of rent based on that value. Certainly Mr Aitken was aware of the reason why the directors required his valuation and, because I accept the evidence of the directors as to the substance of their conversations with him, I accept that Mr Aitken knew before 15 May 1992 that some at least of the directors felt considerable anxiety about what might happen on a determination of the rent in circumstances where, because there was no current unencumbered value, a determination was likely to be required soon. Nevertheless, what his retainer required him to do, and what he did, was to express a view, on a conservative basis, as to the unencumbered value of the land and as to what that value might be assessed at in the worst case. In the absence of elaboration of the terms of the retainer (and there was no relevant elaboration) in my view Mr Aitken was not required to warn that the Valuer-General, confronted with the terms of the lease and applying (as the lease required) the Valuation of Land Act 1916`, might perform the valuation on what he believed (and what was) an incorrect basis: even though he knew (or had the means of knowledge) that, in circumstances which it did not occur to him to investigate, the Valuer-General had once previously valued the land, already subdivided, as a single lot. It is, in the end, a matter of the construction of the retainer, and in my view clear express words, or a clear basis for implication, would be required in order to extend a duty to the state the “worst case” beyond a requirement to express, exercising due care and skill, an opinion as to the lowest value which the Valuer-General, acting reasonably and on proper principles, would assess as the unencumbered value of the land. In my view there are not to be found clear express words, or a clearly based implication, justifying such an extension.

Senior counsel for Flemington referred me also to Cash Resources Australia Pty Ltd v Ken Gaetjens Real Estate Pty Ltd (1994) Aust Torts Rep 61 350. That case, however, is in my opinion of little assistance. It had to do with what was found to be a gross over valuation based on errors for which there was no exculpatory explanation. It has, I think, nothing to say about the particular circumstances of this case or the particular duty said to arise.

That does not conclude the question of breach of duty. Flemington relied on two other matters as establishing deficiency amounting to negligence in Mr Aitken’s valuation. First, when Mr Aitken was seeking information for the purpose of his valuation he checked the indexing system within Raine & Horne’s office. He checked it, however, only in relation to Flemington, not in relation to Strathfield. He agreed, in cross examination, that that was an oversight. He agreed also that there was not a great deal of “comparable information in relation to this property” and that it was “a role of the valuer to try and find as much information in the time they have”. If he had looked under “Strathfield” he would have seen three assessments prepared in late 1990 and the first quarter of 1991 made for the purpose of determining the rental payable under the sublease of Lot 4 of the Flemington land; two were assessments made by valuers instructed by the sublessor and sublessee respectively and the third a determination (taking account of each of the other assessments) by Raine & Horne, appointed jointly by the parties. Each of the valuers separately appointed by the sublessor and the sublessee assessed the rent by a process which involved first forming an opinion of the land value of Lot 4. Mr Aitken’s 1992 assessment of land value was slightly lower than the mid-point between those two assessments and his “worst case” somewhat higher than the lower of the two. Mr Aitken conceded that had he been aware of those assessments, he would have considered them. He said, however, that they would not have caused him to change his mind because of the existence of comparable sales (notably of Berry Street and Birnie Avenue) which had occurred since those assessments were made.

The other matter to which counsel referred was that had Mr Aitken made inquiries as to the previous sales history of the property (as he did not) he would have discovered that, within the fairly recent past, it had been auctioned at a reserve of $10 million attracting offers only of $8 million. Mr Aitken should, it was said, have sought out that information and taken it into account: it could no longer be said, at least in unqualified terms, that evidence of offers was irrelevant: Goold v Commonwealth of Australia (1993) 42 FCR 51 at 57-60 (but see particularly the concluding observations of Wilcox J at 60); Henderson v Amadio (1995) 140 ALR 391 at 501-503 (see particularly the question and answer recorded by Heerey J at 502 and his Honour’s comment immediately preceding them).

But I do not think that either of these matters establishes breach of duty on the part of Mr Aitken. After all, both the expert valuers accepted that the correct method of valuing the land on a five lot basis was by reference to comparable sales; there was no suggestion in the expert evidence that it might be appropriate to adjust a result reached by reference to recent comparable sales (in this case Berry Street and Birnie Avenue) because of what might be seen, when adjusted to take account of general market conditions in the intervening period, as somewhat more pessimistic valuations conducted some time previously on the basis of different information. As for the offer, quite apart from expert evidence that offers for the sale or purchase of comparable freehold properties were at best “secondary” information, in my view Mr Aitken’s answer should be accepted: what was offered for auction was the Flemington land encumbered by the lease.

It follows, in my view, that Flemington has failed to establish breach of retainer or negligence on any of the bases on which it sought to do so.

(c) Misleading or deceptive conduct?

So far as the claims under the Trade Practices Act and the Fair Trading Act are concerned, in my opinion the same result follows. The conduct relied on by Flemington (the only conduct about which, in this context, its counsel made submissions) was Mr Aitken’s failure to disclose his view of the likely outcome of a single lot valuation in circumstances where the valuation was critical to the decision to purchase and Flemington had expressly made known to Mr Aitken the importance to it of knowing what would occur on a rent review. Counsel referred to what was said by the Full Court about information promulgated to members of a corporation concerning a motion to be put to a general meeting (Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590 at 602):

Whilst s 52 does not by its terms impose an independent duty of disclosure which would require a corporation or its directors to give any particular information to members asked to consider a motion in general meeting, where information for that purpose is promulgated, unless the information given constitutes a full and fair disclosure of all facts which are material to enable the members to make a properly informed decision, the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership.

Counsel also relied on the discussion, in Demagogue Pty Ltd v Ramensky (1972) 39 FCR 31, of silence as (or as part of) misleading or deceptive conduct. That case establishes that it is inappropriate to speak, for the purposes of s 52, of a duty to disclose or to ask whether in a particular case silence is to be regarded as refraining (otherwise than inadvertently) from doing an act (Trade Practices Act (s 4(2)). The principle, as Gummow J expressed it at 40, is that:

...in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct. The expanded meaning given by s 4(2) to “conduct” should not distract attention from the fundamental issue in the case at hand.

Black CJ expressed the same principle as follows, at 32:

Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of “mere silence” or of a duty of disclosure can divert attention from that primary question. Although “mere silence” is a convenient way of describing some fact situations, there is in truth no such thing as “mere silence” because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

In a case, however, where it is alleged that both contract and the law of tortious negligence required disclosure of a particular matter, the existence or otherwise of the duty is at least an important element in the circumstances surrounding “silence” where it is said that failure to disclose amounted also to a breach of s 52. Certainly a contractual duty may be circumscribed by contractual terms and a duty otherwise arising under the law of negligence may be circumscribed, for example, by a disclaimer; and, depending on the circumstances, silence which does not breach a common law duty may nevertheless, in combination with things that are said and done, amount to or be part of conduct which is misleading or deceptive or likely to mislead or deceive. But where, as here, the duty is defined and circumscribed only by the terms of the retainer and by what was made known to Mr Aitken, it would be surprising to find that conduct in the performance of the retainer which was misleading or deceptive was not also a breach of the duty to exercise reasonable care and skill; or, conversely, that conduct in the performance of the retainer which complied with common law duties, both contractual and under the law of negligence, was nevertheless (in circumstances such as the present) misleading or deceptive, or likely to mislead or deceive.

Mr Aitken took the view that unencumbered value was to be ascertained by valuing the subdivided lots separately and adding together the separate values. He made it plain, on the evidence, that that was his view and it is clear from his valuation that that is how he proceeded. He then took, and expressed, the view that in a worst case scenario unencumbered value might be assessed at about 10% less than his view of a realistic and conservative valuation. In doing so, he did not breach (as I have held) any common law duty he owed Flemington. In those circumstances, I do not think it should be regarded as misleading or deceptive to refrain from issuing, on the footing of some view or speculation as to the possible effect of such a valuation on the rights and obligations of the parties under the lease, a warning of what might happen if the land were valued on an incorrect basis. Such a possible effect, after all, was hardly within his field of expertise. And I do not think that the knowledge of the 1989 valuation, and the fixing of rent on the basis of that valuation, not in the circumstances converting what would otherwise not be a breach of a common law duty into such a breach, should be taken as making misleading or deceptive what otherwise would not be so.

(d) Some concluding observations

This is in many ways an unusual case. At first sight, the circumstances might be thought to support Flemington’s claims. A valuer, instructed to value conservatively and to advise as to the worst case, and knowing that his opinion is of great significance to a commercial decision facing his client, produces a valuation which exceeds that arrived at by any other valuer giving evidence and is approximately double that of an expert witness caused by the opposing party. It exceeds by a substantial amount the later valuation (by the Valuer-General) which his opinion was intended to anticipate; and in circumstances where, although the valuation task was a difficult one and comparable sales were few, the valuer allowed only a 10% difference between his “conservative” valuation and his “worst case”. Furthermore, the valuer readily conceded that there were things left undone which he might more appropriately have done.

Counsel remarked during argument that a submission about the onus of proof is a last resort. But an applicant must establish its case. For the reasons I have given, the evidence of Flemington’s expert (and the stark contrast which it presents) must substantially be eliminated from the equation for present purposes. The valuation made on instructions by the Valuer-General was not made, as I have held, in the manner required by the lease and in any event took account of information not available to Mr Aitken. The statutory valuation has difficulties to which I have referred. The remaining valuation evidence with which Mr Aitken’s work is to be compared (that of Mr Norris, leaving Madeline Street out of account) produces a result close to Mr Aitken’s (well within established tolerances) and, both as to legal matters and as to matters of valuation practice, Mr Aitken applied correct methods. His apparent concessions go primarily to legal matters. Finally, if it could be suggested that a 10% margin was insufficient in this case - and the matter was explored in cross examination - no submissions were made to that effect.

The conclusions I have reached have the consequence that the respondents are entitled to judgment in their favour. Because, however, the matter may go further I think it is appropriate that I state my views on other matters relevant to liability.

Reliance; Causation

Flemington’s case was straightforward. The unchallenged evidence was that the purchase would not have proceeded if any one of the directors voted against it. Each of the directors gave evidence that the valuation was crucial to his decision to proceed. They did so in varying terms and with varying degrees of emphasis, but a common thread was that they would not have proceeded had a real possibility appeared that the annual rent would diminish substantially below $1 million. In later statements, each director, again in slightly varying terms, said that if he had been told by Mr Aitken that, if the property were valued on a one lot basis, the figure produced could be as low as $10,685,000, he would not have proceeded. Flemington’s entry into the contract of purchase was relevantly caused by the valuation; accordingly, on the footing that loss resulted from the purchase, that loss was caused by (what was said to be) the respondents’ breach of duty and misleading or deceptive conduct. Counsel referred to the observations of Wilson J in Gould v Vaggelas (1985) 157 CLR 215 at 236, adopted by the Full Court in Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233 at 240, that:

The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract.

Counsel submitted that in this case the valuation played a very important part in the “contributing to the formation of the contract”.

In response, the respondents pointed to a number of matters which, they said, taken together indicated that Flemington in entering into the contract did not rely on the valuation at all. First, the respondent referred to correspondence dated 29 April 1972 between Mr Libling on the one hand and, on the other, both Chestertons (the State Rail Authority’s agent) and Westpac. The letter to Chestertons was expressly written on behalf of all the directors. As a prelude to their first offer to purchase the land, it recorded “three major concerns”, of which one was that “the rent review clause does not prevent the rent from decreasing on review” and another that Mr Libling, having spoken to the Valuer-General’s Department, had been told that the value of the land was likely to have fallen since 1989 and that (it is not clear whether this is something Mr Libling had been told or a conclusion he reached himself) there was no prospect of rental growth in the short to medium term. To Westpac Mr Libling wrote that no rent review would be triggered unless he and the other directors were “absolutely confident that it will result in a significant increase in rent; there is no practical risk of a downward movement in rent”. This was said to show that the applicant was, without any information from Mr Aitken, fully informed of the position and had decided to proceed to purchase the land.

Then the respondents relied on statements in correspondence with the State Rail Authority and its solicitors. Among those was the statement in the letter of 5 May 1992 to the State Rail Authority, in which it was said that:

Our company is prepared to execute a contract and deliver it together with the deposit cheque for $900,000.00 today.

Then there was the unconditional offer of 6 May in response to the invitation of 5 May; and statements in subsequent correspondence indicating that the applicant regarded itself as being already a “purchaser” of the land. Counsel referred also to the statement in the letter of 12 May 1992 to Lane & Lane to the effect that “subject to some small matters” (not including valuation) the directors were still commercially minded to proceed with the transaction; and to the discussions and correspondence with Pacific Power, with a view to creating an estoppel in relation to the current rent; and, finally, to the letter of 15 May to the State Rail Authority’s solicitors requesting a contract and stating that “there is no impediment to the issue and exchange of contracts”.

The oral submissions of senior counsel for the respondents expanded somewhat on those matters. The substance of the submission was that the directors were extremely keen to purchase the land. They had settled upon a price, regardless of Mr Aitken’s valuation. They had committed themselves to unconditional offers. Their correspondence throughout demonstrated a keenness to proceed and did not suggest that any concern with the rent review might be an obstacle.

On that aspect of the matter, I think the submissions of Flemington are to be preferred. Even before the weekend of 9 and 10 May, the evidence was that at least certain of the directors (particularly Mr Pearson) were prepared to “commit” only on the footing that there was no binding legal commitment. But, quite apart from that, it was only during the weekend of 9 and 10 May that Kelmea emerged as a real problem. It is plain from the course of correspondence to which I have referred that at that time Flemington was not obliged to enter into a contract to purchase the land. I see no reason why I should not accept the evidence of the directors that they were not prepared to proceed unless both they received a satisfactory valuation and they dealt with the immediate potential problem by creating an estoppel binding Pacific Power, at least for the time being. I do not think too much should be made of the post 10 May correspondence: plainly enough, the directors were keen to proceed provided that their requirements were met; and their conversations over the ensuing few days with Mr Boxwell and Mr Aitken gave them grounds to be confident that those requirements would be satisfied. In short, I accept that the valuation played a part, and a significant one, in contributing to the formation of the contract.

There is one other matter which should be mentioned in this context. The submissions on behalf of the respondents focused on evidence as to knowledge, on the part of Mr Weir and Mr Lane, that a one lot valuation would be likely to be lower than a five lot valuation. There can, I think, be no doubt that Mr Lane by 11 May was aware, at least in general terms, that that was so: his memorandum of that date, addressed to his fellow directors, makes that clear enough. Mr Weir’s evidence, however, was that he did not read the memorandum and his evidence that he was aware that there would be some difference between valuations on the two bases refers to a time after contracts were exchanged. The position of Mr Lane is somewhat more difficult. He gave evidence, in cross examination, that by 11 May he had understood both from Chestertons and from Mr Aitken that the valuation of a subdivided property might vary depending on whether it was valued as one lot or by valuing the individual lots separately. As Mr Bathurst QC pointed out, however, his memorandum does not support a suggestion that Mr Lane understood that the land might be valued at less than $11,500,000 if the valuation were performed on a single lot basis: if anything, it suggests the contrary. The respondents relied also, however, on evidence of Mr Lane concerning his conversations with Mr Aitken in which they discussed Mr Lane’s suggested alterations of the draft valuation of 15 May. Among criticisms made of Mr Lane’s evidence, a particular basis on which it was suggested that I should hold his evidence to be unreliable was his insistence that he regarded the valuation of 15 May as incorporating (to paraphrase) a single lot valuation. The passage in cross examination principally relevant is as follows:

It was perfectly clear to you, was it not, that whatever Mr Aitken might have been saying about his views about the practical meaning of land value or unimproved value, these figures were unquestionably put forward on the basis of valuation on a five lot basis and not on a one lot basis?---Those figures - they were certainly put forward as a valuation on a five lot basis. I would not be prepared to say they were not put forward as a valuation on a one lot basis.

Mr Lane, you have only got to look at the fact that he took different values for each of the lots or if not for every single lot, you have only got to look at the fact that different values were assigned per square metre to each lot in his tabulation to see that he was undoubtedly valuing individual lots and aggregating the result, was he not?---Correct.

In the next paragraph, he said that the above assessment was what he believed a realistic value of the site taking a conservative approach to value for the individual lots and that is clear from the document is it not?---What is clear?

That he was first of all making that statement that it was a realistic value of the site on the basis that he just mentioned?---Yes.

That was obvious, was it not but it was also apparent and perfectly plain that he was valuing on a five lot basis by aggregating the value of five separately assessed lots?---Yes, but not precluding a one lot basis.

But it did not include any statement of a one lot basis, did it?---The earlier draft did.

Just take me to that, Mr Lane?---The words that were omitted on page 174, discount to allow for bulk nature of purchase say five percent, I understood that to record Mr Aitken’s preferred approach which was to value the five lots and then discount for bulk to arrive at the value for the single lot.

Mr Lane, what was clear to you at the time that that discount that was originally proposed was upon the basis that after valuing on the basis of five lots, you would then apply some discount for sale in one line as opposed to separately, would you not agree?---I am not sure whether the question is asking a distinction that I was not previously focussing on.

You were well aware by now that there was a difference in outcome if you were to value this property on the basis of taking it as one gross lot or whether you valued it as five lots and aggregated the result?---Potentially.

Nowhere in the draft did Mr Aitken put forward the proposition that the aggregation of his values for the individual lots should then be somehow transformed into a one valuation, did he?---That is what I understood him to be doing when he applied the discount but the letter does not in terms refer to valuation as one lot.

Granting for the purposes of the question for a moment because that was your state of mind, you then suggested that it be excised?---I am not sure whether I suggested that or Mr Aitken did.

So that the outcome was that you received a document by way of final advice from Mr Aitken which was understood by you to give you a value on the basis of valuing five separate lots and aggregating the result?---Yes, but not precluding the valuation on a single lot basis.

You say not precluding it but it does not appear in the document as delivered, does it. No such valuation appears in the document as delivered, does it?---Correct.

What did appear was a modification of the aggregation by applying a discount up to 10 percent?---In fact a discount of 10 percent, I think.

Mr Lane, it was you who had changed the words?---The words may say, up to but I think in fact that 11.5 represents a discount of 10 percent. I can just check that.

But in any event, when you received the valuation in this form after the exchange of drafts with Mr Aitken, you knew did you not that what you had in your hand was a document which expressed an opinion about the value of this land aggregating the individual values of 5 different lots?---Yes.

The suggestion was, of course, that Mr Lane knew that the final valuation by Mr Aitken was a five lot valuation; and he knew that a single lot valuation would produce a lower value. Therefore, he was warned that if the Valuer-General were to value on a one lot basis the result might be lower than Mr Aitken’s “worst case scenario”.

The particular criticism of Mr Lane’s evidence was reinforced by criticisms of other parts of his evidence, principally relating to events after contracts were exchanged. It is unnecessary to go to those matters in detail. The later events, as Flemington’s case was finally put, are of no direct relevance and I do not think any view I might form of the evidence about them is, in the end, of any great assistance in assessing Mr Lane’s evidence on the present point. A number of matters seem to me to be important. One is that the draft valuation referred to a “discount for bulk”, which could only mean a discount intended to reflect a purchase of the land, lots in which were valued separately, as a whole. On that footing Mr Aitken suggested a worst case scenario of $11,500,000. Whatever precisely was said, it is clear at least that after Mr Lane pointed out some apparent mathematical discrepancies in the draft, the concept of “discount for bulk” was eliminated and the amount in the worst case scenario was retained, arrived at by an aggregate discount. Secondly, Mr Lane was cross examined about his understanding of the 1989 valuation. The following exchange occurred:

Was it not your evidence that if the land was valued on a one lot basis there was the potential depending on the market for the land to come in at a lower value than this method of aggregating five lots?---That is correct.

You did not know one way or the other whether the 1989 valuation had been performed on a one lot valuation or a 5 lot valuation did you?---That is not correct, I knew that it had been carried out on a one lot valuation but I did not know whether it had been carried out by assessing separately the value of each of the five lots and aggregating them.

You simply did not know one way or the other?---That is correct.

So that the 1989 valuation for all you knew may well have simply been a general one lot valuation basis without regard for individual sub-values of specific lots?---Yes.

There the matter was dropped. Thirdly, in my view it is important to keep in mind what seem to me the inherent probabilities. The suggestion seems to be that Mr Lane was particularly keen, among the directors, to proceed with the purchase and, in a sense, “talked up” the valuation knowing that something worse than the “worst case” might occur. That, I must say, seems to me entirely fanciful. Flemington was borrowing a very substantial amount to finance the purchase and the evidence was that most, at least, of the directors were borrowing their own “equity” contributions. Clearly the future level of rent was a matter of considerable concern in that context. I accept the evidence of the directors that they were not prepared to contemplate a substantial reduction in the annual rent below the then current level of $1 million. Even if Mr Lane was more sanguine than some of the others, I can see no reason to suppose that he would knowingly have exposed himself and them to a likelihood that the income from their investment would, after a brief period, fall well short of $1 million. I accept Mr Lane’s evidence on these matters.

My conclusion, therefore, is that, on the footing that breach of duty or misleading or deceptive conduct were established, the breach or conduct relevantly caused Flemington to enter into the contract to purchase the land; and, on the further assumption that loss resulted, the breach or conduct caused the loss.

Did loss result?

Senior counsel for the respondents opened his submissions on the question of loss by putting the following proposition: damages in tort, or under the Trade Practices Act, are intended in a case such as the present to make good the loss suffered by an applicant in consequence of its altering its position under the inducement of a misrepresentation; here, the action induced by the claimed misrepresentation was the purchase of the land for $9,510,000; within five years after the purchase the applicant had sold a substantial portion of the land for $13,750,000 and it retained a large parcel representing present money’s worth of $8,000,000. On no view consistent with reality or common sense could it be said that any conduct of the respondents had caused Flemington to suffer loss. On the contrary, the investment was a highly profitable one.

Senior counsel for Flemington, on the other hand, contended that the Court was bound by an inflexible rule, applicable in all cases where an applicant establishes that it purchased property induced by a fraudulent or negligent misrepresentation or by misleading or deceptive conduct: the rule is that damages in all such cases are measured by the difference between the price paid for the property purchased and its true or real value at the date of purchase. The measure is not affected, except in limited circumstances (not to be found here), by later fluctuations of the value of the property and subsequent events or circumstances are to be taken into account only so far as they throw light upon the value at the date of purchase. In some cases what have been described as “consequential losses” are recoverable in addition; but that is not a question that arises here. That being the measure of loss, the submission proceeded, the logically anterior question, has the applicant suffered loss, must equally be decided, consequential loss aside, by comparing the price paid with the value, at the date of purchase, of the property acquired. That that is so in the statutory context appears from the terms of s 82(1) of the Trade Practices Act:

A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person...

Where loss is suffered in those circumstances (the argument proceeds), what is recoverable is the amount of “the loss”: the loss which must be proved in order to establish liability, and loss the amount of which is recoverable, are one and the same. Equally in tort, whether deceit or negligence, it is the loss completing the cause of action which it is the object of damages to make good.

In England, it is now clear that, at least where fraud is established, the rule is by no means inflexible: Smith New Court Securities Ltd v Citibank NA [1997] AC 254. Flemington relied, however, upon a formidable series of authorities in the High Court, the Full Court of this Court and the New South Wales Court of Appeal. It is necessary to consider them in some detail.

Potts v Miller (1940) 64 CLR 282 was an action for deceit: the claim was that the plaintiff had suffered loss by subscribing for shares under the inducement of fraudulent misrepresentations as to others who had either subscribed or agreed to subscribe for shares in the same company. The plaintiff, ultimately, was unsuccessful. Both Starke J and Dixon J, however, considered the measure of damages in an action for deceit. Dixon J, at 297, said this:

The measure of damages in an action of deceit consists 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 by him on the other side. ....It might be thought that the application of this rule must depend upon the facts of the particular case; that the plaintiff is entitled to the full loss caused by his reliance upon the misrepresentation, and that, if, for instance, his reliance continued and he retained the shares and paid calls under the influence of the inducement, the value of the shares at the time of their acquisition should be of little or no importance. But it appears to be treated as an inflexible rule that wherever the purchase or allotment of shares is the consequence of the deceit, the defendant shall receive credit for the fair or real value of the shares estimated at the time of allotment or purchase...

His Honour proceeded, with apparent sympathy, to refer to Lord Atkin’s “dissatisfaction” with the rigid application of that rule, expressed in Clarke v Urquhart; Stracey v Urquhart [1930] AC 28 at 67 and qualifications suggested by Kelly CB in Twycross v Grant (1877) 2 CPD at 514 and Lopes LJ in Peek v Derry (1887) 37 Ch D at 594. His Honour continued, at 298:

The reason given for the rule is that, if, after the date of purchase, the thing which the plaintiff was induced to buy loses in value owing to accidental or extrinsic causes, that loss is not the reasonable consequence of the inducement...

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, at 299, stated two qualifications to the rule:

The rigidity of the rule is to some extent alleviated by two qualifications. For, in the first place, 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 on the part of the defendant or those associated with him:...

The second qualification is 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...

Finally, his Honour made it clear that the “real” value of the property, which the plaintiff is required to establish, and its market value are in principle distinct, and continued at 300:

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 of 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.

The less extensive observations of Starke J at 289, 290 are consistent with the judgment of Dixon J.

The next of the cases relied on was Toteff v Antonas (1952) 87 CLR 647. There the plaintiff was induced to buy the business of a “fish cafe and restaurant” by fraudulent misrepresentations of the defendant as to the profits and takings of the business. The agreement for purchase was made on 12 November 1949 and the plaintiff apparently went into possession on 18 November of that year. The purchase price was £2,200. An accountant, whose evidence the trial judge accepted, valued the business, on 9 March 1950, at £886. On 7 January 1951, the plaintiff sold the business for £900. The High Court held that the plaintiff was entitled to damages, the measure of which was £2,200 less £900. The applicable principle was stated in similar terms by Dixon and Williams JJ: to quote Dixon J, again, at 650:

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. When what he has been induced to do is to make a purchase from the defendant and part with his money to him in payment of the price, then, if the transaction stands and is not disaffirmed or rescinded, what is recoverable is “the difference between the real value of the property, and the sum which the plaintiff was induced to give for it”...

The Court was prepared to accept that the price received in January 1951, supported by the valuation as at 9 March 1950, represented the “real” (or, as Williams J expressed it at 654, the “real market”) value of the property acquired in November 1949.

Next in the series is Gould v Vaggelas. There, the plaintiffs were the shareholders of a company which bought property under the inducement of fraudulent misrepresentations made to them. Their damages were at issue, not the company’s. In order to ascertain the plaintiffs’ damages, however, it was necessary to consider the damages which might have been recoverable by the company. Once again, it is desirable to quote some of what was said by members of the Court on that topic. Gibbs CJ, at 220, 221, said this:

It is well established that in an action of deceit where the plaintiff has been induced by the fraudulent misrepresentation of the defendant to enter into a contract of purchase, the measure of damages usually applicable is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it. ...Events that happen after the time of the purchase may throw light on the real value of the property at that time.... . Where the property has depreciated in value after the purchase, and the depreciation was due to some cause inherent in the property itself, the depreciation must be considered in determining the real value of the property at the relevant time, but where the cause of the depreciation was “independent”, “extrinsic”, “supervening” or “accidental”, the additional loss is not the consequence of the inducement and it should not be taken into account in arriving at the value of the property at the time of the purchase... .

The usual rule is, however, only a special application of the general principle that “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”... . In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement...

In relation to a suggestion by Jordan CJ in McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 192 that a departure from the “rule of practice” requiring damages to be measured by the difference, at the date of purchase, between purchase price and true value, exceptional circumstances were necessary, Gibbs CJ, at 221, said:

This rule, is, with all respect, not quite as inflexible as Potts v Miller might suggest. There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the Court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business.

Similar, though less extended, statements of the principle are to be found in the judgements of Wilson J at 242, 243 and Brennan J at 255.

The next two High Court authorities relied on, in chronological order, were Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 and Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514. In Gates the applicant, in consideration of a premium, arranged for the addition to an existing superannuation policy and the inclusion in a new life policy of a clause providing disability cover. He was induced to do so by a misrepresentation by an agent of the respondent as to the effect of the provision. He failed in his claim for damages under the Trade Practices Act: there was no evidence that the cover which he thus acquired was less valuable than the price paid for it. The Court stated the applicable principles substantially as they had been stated in the cases to which I have already referred. The judgment of Mason, Wilson and Dawson JJ explains, at 12, that the difference between price paid and true value is a prima facie measure only, the true measure being a sum representing the prejudice or disadvantage suffered by the applicant in consequence of his altering his position under the inducement of the misrepresentation. But those observations were made particularly in the context of the well established entitlement to recover consequential losses, at least if foreseeable. The joint judgment refers also, at 13, to a possibility that damages might be claimed on a somewhat different basis:

Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed.

In Gates, however, there was no evidence of any alternative contract which the applicant might have entered into. Nor is there any evidence of that kind here: indeed, here Flemington submitted that the only proper measure of damages here was the difference between price and value at the date of purchase. The only immediate relevance of the observations which I have just quoted (and to an extent they were relied on by the respondents for this purpose) is that they may perhaps be taken to indicate a degree of flexibility, beyond that suggested by the earlier authorities, as to the measure of damages where property is purchased under the inducement of a fraudulent or negligent misrepresentation or of conduct infringing s 52 of the Trade Practices Act.

Wardley was concerned principally with the question, when is loss, claimed to have been suffered under the inducement of misleading or deceptive conduct, taken to have been sustained? In the course of their discussion of that question, Mason CJ and Dawson, Gaudron and McHugh JJ said at 530:

In the case of a fraudulent or negligent misrepresentation which induces the plaintiff to enter into a contract to purchase property, the plaintiff’s loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the contract and the value of the property at the date of the contract... . It will be noticed that, even in such a case, Dixon J. spoke in Potts v. Miller ... (an action in deceit) of the measure of damages consisting 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 by him on the other side”. It is that amount that, in such a case, represents “the prejudice or disadvantage” the plaintiff “has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant”..., subject to any consequential damage. Putting aside the incurring of expenditure, these statements might be thought to indicate that a plaintiff does not suffer loss until that loss is ascertained or, at least, is capable of ascertainment.

Brennan J spoke to similar effect at 534, 535 and at 536, 537.

That brings me to Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281, the last of the series of High Court authorities on which Flemington relied and, perhaps, the mainstay of its argument. Kizbeau bought a motel business, including the benefit of the lease of the motel property. The vendor (W G & B) was the lessor. The purchase was induced by representations that a portion of the motel known as the boardroom and the boardroom annex might lawfully be used for such functions as conferences and seminars. In fact, that use was prohibited by condition (p) of the town planning permit which regulated the use of the motel. The representation was held to constitute conduct in breach of s 52 of the Trade Practices Act. The purchase was made on 28 October 1988. Kizbeau was unaware of the existence of condition (p) and until 8 May 1991 conducted the motel business as if condition (p) did not exist. On 27 March 1991 condition (p) was amended to allow the use of the boardroom and boardroom annex for seminars, conferences and similar functions, subject to two conditions: one of them - condition (s) - provided that at any one time no more than 50 persons might attend a seminar in the boardroom and boardroom annex. Those areas had a greater capacity, and seminars and conferences frequently attracted more than 50 participants. The Court stated the principle to be applied as it follows, at 291:

In an action for damages for deceit for inducing a person to enter into a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s 52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it... . Nevertheless, although the value is assessed as the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date... . A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement... . Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false... but also to prove the true value of the business as at the date of purchase... . Even when some difference exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, “subject to due allowance being made for any differences in relevant conditions”... . But if it is established that the decline in takings has been caused by business ineptitude... or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events. In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business... . All of these principles are appropriate to the assessment of damages under s 82 where a breach of s 52 of the Act has induced a person to purchase a business.

Applying that principle, the Court held that in valuing the business at the date of acquisition the likelihood of a change in condition (p) ought to have been taken into account, and because condition (p) had in fact been altered and condition (s) inserted the Court did not have to speculate about possibilities or probabilities but could assess damages having regard to facts. In addition, the Court held (at 296, 297) that the fact that the business had been conducted for two and a half years in disregard of condition (p) had to be taken into account in assessing damages:

Ordinarily when a court assesses damages, it acts on the basis that the law will be or ought to have been obeyed. But it would be quite unjust to the owner in this case to award damages to Kizbeau on the basis that the boardroom and the annex could not lawfully be used during the period 28 October 1988 to 8 May 1991. Damages are assessed as compensation for loss actually suffered and, as condition (p) caused no loss of revenue to Kizbeau during this period, it caused no diminution in the value of the business acquired by Kizbeau so far as that value is to be assessed by reference to the revenue earned.

Flemington relied strongly also on the decision of the Court of Appeal in Morgan Corporate Ltd v G W G Leviny Pty Ltd (1995) ATPR 41-414. The defendant advised the plaintiffs in relation to a transaction by which the corporate plaintiff invested in units in a property trust with money borrowed from a bank secured by personal guarantees of its directors, also plaintiffs. The directors did not know that the documents they signed were personal guarantees. It was admitted that that lack of knowledge was due to the act or omission of the defendant, that the directors would not have signed the personal guarantees had they known that that was what they were and that, if the personal guarantees had not been given, the loan and therefore the investment would not have been made. At the time the units were acquired their market price was 82c per unit, the amount the plaintiff paid for them; some months later that price dropped to 3c and then to 1c. The majority of the Court of Appeal held in those circumstances that no loss had been established and therefore no damages could be recovered on the footing of a breach of s 52. Meagher JA held that the “rule” to be applied was that the measure of damages, apart from any question of consequential damage, was the difference between the price paid and the value of the units at the date of the contract. There being no difference, no damages were recoverable. His Honour regarded it as relevant that the representation was “collateral”: it had to do with the existence of guarantees, not with the inherent value of the units; there was no allegation that the defendant had given negligent advice, that it had represented that the units were “safe” or that it had been fraudulent. He added this, at 40,592:

Again, one is conscious that the rule summarized in the quotation from Wardley’s Case has as its fundamental postulate that a purchaser of property can always resell it. One knows that this may not always be so. In the present case, for example, it may have been that if the Company sought to resell the units once the price of the units began to slide it would have found itself in the position where it could not have sold without redeeming the mortgage, yet been unable to redeem the mortgage without recourse to the proceeds of the resale, which might have been insufficient of (sic ) that purpose. Suffice it to say that no such case was pleaded or proved.

Handley JA, who together with Meagher JA constituted the majority of the Court, expounded the rule and its qualifications in substantially the same way.

The two decisions of the Full Court of this Court on which Flemington relied were Munchies Management Pty Ltd v Belperio Pty Ltd (1988) 84 ALR 700 and Netaf Pty Ltd v Bikane Pty Ltd (1990) 26 FCR 305. Each involved the purchase of a business induced by conduct infringing s 52. In each case the Full Court applied the principles stated by the High Court in the decisions to which I have referred.

A number of things emerge, in my opinion, from that survey of the authorities. The first is that it is clear that a rule and certain exceptions to it, applicable to a case where property is acquired under the inducement of a fraudulent or negligent misrepresentation or one made in breach of s 52, have been stated, restated and consistently applied in a series of decisions of the highest authority. Secondly, the measure of damages in such a case results from a particular application of more general principles relating to the object of an award of damages for tort. Thirdly, the judgments abound with expressions suggesting that the “rule” is not absolute but is a “prima facie” rule, or the rule usually applicable: it must be added, however, that such descriptions are usually followed by a statement of the well established exceptions, and no others. Fourthly, and with great respect to Meagher JA (Morgan Corporate at 40,592) the “fundamental postulate” of the rule seems not to be the ability of the defrauded purchaser to sell the property purchased. That is so for two reasons. One is that the authorities consistently hold that what is to be compared with the purchase price is the “real” value of the property purchased, which is not necessarily the same as its market value: what one might expect to obtain upon sale is, of course, market rather than “real” value. More fundamentally, the rule seems really to be based upon considerations of causation and, possibly, forseeability and to be a rule at least the usual effect of which is to limit the damages recoverable to so much as may reasonably be supposed to have been caused by the inducing conduct: that, of course, explains not only the rule itself but also the exceptions. Fifthly, there are particular matters to be noticed arising from two of the decisions to which I have referred. In Toteff, the Court was content to proceed on the basis that the sale price actually realised by the defrauded purchaser, over a year after the purchase, represented the amount of money or money’s worth to be taken into account “on the other side”; in Kizbeau, damages were measured taking account of the result of the trading in disregard of condition (p).

There is a sixth matter, which arises perhaps less directly from those decisions. None of the cases to which I have referred deal with the purchase of land: they are concerned with, or discuss, acquisitions of businesses, securities or goods. Despite that, the principle which they state is expressed in general terms and, of course, it is not easy to see anything peculiar to a contract to purchase land which would require a different rule to operate where land, rather than other property, is purchased. There may, however, be a greater difficulty in establishing with any degree of certainty, in the case of a parcel of land such as that with which this case is concerned, its “real” value at the date of purchase than there is in making such an assessment in the case of property of kinds with which the case has principally been concerned. But additionally, it is notable that the rule applicable to a purchase appears not to apply to a loan on mortgage: see the discussion by Lindgren J in MGICA, and the authorities to which his Honour refers; see also the rather different discussion in South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191. If it were the case that the principle depended for its justification on the ability of a purchaser to resell immediately after purchase, then there would be an obvious basis on which to distinguish between the rules applicable to the purchase and mortgage cases. But, as I have attempted to show, that appears not to be the basis of the rule. More fundamentally, however, the suggested distinction does not in my view withstand serious examination. A mortgage debt (the debt and the security for it) is just as much an item of property as is, for example, an interest in a publicly offered property trust. There is no obvious distinction in principle between the subscription for such a unit and the lending of money and taking of a mortgage. Additionally, of course, a mortgage may be acquired otherwise than by lending and having a mortgage executed in one’s favour: a mortgage (together with a mortgage debt) may be bought. The principle referred to in the cases which I have quoted at some length clearly applies equally, as one might expect, to a subscription for a security as to the purchase of a security already issued. It would be odd indeed if different rules applied to a case where a mortgage is bought from those to which courts refer where a mortgage loan is first made.

That sixth matter does not arise in this matter and, of course, the apparent anomaly to which I have referred could not justify failure to apply a rule established by binding authority. It does, however, in my view, in combination with some of the matters previously referred to, suggest two things. One is that the Court should not be over zealous in applying the particular rule, at the expense of more general principle, to matters additional to those to which authority holds it to be applicable. The other is that the mortgage cases, as much as the purchase cases, consider the question how, where loss has been suffered, that loss is to be measured.

They do not deal with the prior question, has (any) loss been caused by an established breach of duty. They have to do rather with the question, how much of an established loss is to be attributed to the breach, and is accordingly recoverable. It is not, I think, an oversimplification to suggest that the difference between the view taken by Lindgren J in MGICA and the approach of the House of Lords in South Australian Asset Management Corporation is, in large part, one relating to the extent to which loss which has been suffered is properly to be treated as caused by the breach of duty. If, after all, a mortgagee, following default by the mortgagor, sells mortgaged property and recovers the mortgage debt in full, the mortgagee suffers no loss; and that is obviously enough so even if the mortgagee was induced to lend by a negligent overvaluation of the mortgaged property and even if, additionally, at the time the loan was made and the mortgage taken reputable and experienced valuers were unanimous in assessing the value of the mortgaged property at an amount substantially less than that of the mortgaged debt (no doubt, if there is a personal covenant, its value should theoretically be taken into account as well, but the example may, for simplicity, assume no personal covenant: its existence or otherwise can hardly affect the principle). Kizbeau in my opinion supports, to an extent, that analysis as applicable to a case where property has been purchased. Although the trading in breach of condition (p) was taken into account for the purpose of assessing value, at the date of purchase, based on takings after purchase, clearly enough the additional takings were brought to account not because on any objective basis they reflected the value of the motel business at the date of purchase but because the additional receipts, of which the purchaser had had the benefit reduced the amount of the loss which, under the rule, would otherwise have been recoverable. And the crediting of the defendant, in Toteff, with the actual resale price may, I think, be taken as pointing in the same direction. Finally, that view is, I think, consistent with the approach taken by Heerey J in Henderson v Amadio Pty Ltd (1995) 140 ALR 391 at 572-576.

There was no suggestion that, if the money and money’s worth which Flemington had within five years of the purchase were to be taken into account “on the other side”, Flemington nevertheless suffered loss. In my view, for the reasons I have given, they are to be taken into account and it follows that, even if contrary to my view the respondents breached a duty they owed to Flemington, Flemington has suffered no recoverable loss.

That being so, it is unnecessary to deal in detail with other matters, going to the claimed loss, canvassed in argument. I should perhaps indicate, however, that Mr Miller, alone of the valuers who gave evidence, provided an assessment of the market value of the land (whether “real” and “market” here coincide is a matter I need not consider). The valuation, however, had as its starting point, and no doubt properly so, Mr Miller’s assessment of land value. But because, for the reasons I have given, his assessment of land value proceeded on an incorrect basis, it follows equally that Mr Miller’s assessment of market value could not be accepted as an appropriate guide for any assessment of damages. Senior counsel for Flemington suggested that, if I were not prepared to accept Mr Miller’s assessment of market value, I could nevertheless arrive at that value on the basis of one of the Valuer-General’s valuations or on the basis of Mr Norris’ assessment of land value taking into account (it was suggested) the Madeline Street sale. Because of considerations affecting both of the Valuer-General’s valuations to which I have already referred, I doubt that it would have been appropriate to take either as a guide. I am inclined to think that, if I were wrong as to breach of duty and on the question of whether loss was established, it would have been appropriate to arrive at “real” value having regard to Mr Norris’ valuation taking account of Madeline Street: not to take account of Madeline Street for this purpose, the sale having occurred so shortly after the purchase of the Flemington land, would I think introduce an element of artificiality which the cases do not encourage.

Conclusion

The reasons I have given lead to the conclusion that there should be judgment for the respondents and that the application should be dismissed with costs.

Associate:

Dated: 14 August 1997