Astonland Pty Ltd v HTW Valuers (Central Qld) Pty Ltd [2001] QSC 380

SUPREME COURT OF QUEENSLAND CITATION: Astonland Pty Ltd v HTW Valuers [2001] QSC 380 PARTIES: ASTONLAND PTY LTD (Plaintiff) v HTW VALUERS (CENTRAL QLD) PTY LTD (Defendants) FILE NO: S400/2000 DIVISION: Trial Division DELIVERED ON: 8 September 2001 DELIVERED AT: Rockhampton HEARING DATE: 27th and 28th June, 16th, 17th and 18th July 2001. JUDGE: Dutney J ORDERS: Judgment for the plaintiff against the defendant for the sum of $406,194.60. CATCHWORDS: NEGLIGENT MIS-STATEMENT – BREACH OF CONTRACT – MISLEADING CONDUCT – Whether unqualified advice appropriate – Whether competent valuer was or would have been aware of possible impact of new shopping center. DAMAGES - ASSESSMENT OF DAMAGES – date at which value of property ascertained – whether decline in value of shops causally related to the negligence, breach of contract or misleading or deceptive conduct of the defendant. Anstey v Austrust Limited (1999) 197 CLR 1 referred to. Bateman v Slatyer (1987) 71 ALR 553 referred to. Esanda Finance Corporation Ltd v Peat Marwick Hungerford (1996-1996) 188 CLR 241referred to. Haines v Bengal (1991) 172 CLR 60 referred to. Henville v Walker [2001] HCA 52 applied. I and L Securities v HTW Valuers (Brisbane) Pty Ltd [2000] QCA 383 considered. -- 1 of 22 -- 2 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 applied. Marks v GIO (1999) 196 CLR 494 referred to. Mooney v Williams (1905-1906) 3 CLR 1 followed. RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 112 ALR 511 referred to. San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 followed. Rogers v Whitaker (1992) 175 CLR 479 referred to. Voli v Inglewood Shire Council (1963) 110 CLR 74 referred to. Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 followed. Trade Practices Act 1974 ss53, 82, 87. COUNSEL: J Bell QC with him G O’Sullivan for the Plaintiff VG Gibson for the Defendant SOLICITORS: Russell Hanley & Johnson for the Plaintiff Thynne & Macartney for the Defendant [1] Dutney J: The plaintiff is the registered proprietor of land comprising a small shopping arcade in Central Street, Sarina known as “Central Street Plaza” (“the Plaza”). The property was acquired in July 1997 upon completion of a contract of purchase dated 28 April 1997 for a consideration of $485,000.00. [2] The Plaza has not been the success the plaintiff hoped for and expected. It is now worth considerably less than the amount paid and is alleged to have been worth considerably less both as at the date of settlement and as at the date of contract. The plaintiff’s case is that it was induced to purchase the Plaza by negligent or misleading advice given to it prior to contract by Mr Barry Deacon, a director of the defendant. [3] John Foster is an engineer. Since about 1996 he has conducted a building business through a company, John Foster Projects Pty Ltd. His wife is Lyn Foster. She is a chartered Accountant working part time as an employed tax agent. At one time the Fosters lived in Brisbane. They subsequently moved to Mackay but retained ownership of their home in Brisbane, which was rented. -- 2 of 22 -- 3 In early 1997 the Fosters decided to sell their Brisbane home and invest the money in other property. To this end they looked at Commercial property in the Mackay region. The immediate incentive to change investments in this way was the low return and low capital appreciation being received for the Brisbane house. The intention was to invest in commercial property with a higher rate of return. [4] In order to accommodate this proposed foray into commercial investment the Fosters reorganised their affairs by setting up a discretionary trust with John Foster Projects Pty Ltd as trustee. Mrs Foster resigned as a director of the trustee leaving John Foster as the sole director. A second company with Mrs Foster as the sole director was incorporated for the purpose of acquiring the new investment. Ultimately the new company became Astonland Pty Ltd, the plaintiff. This company was incorporated on 15 April, 1997. [5] The Fosters calculated that they were in a position to invest, with borrowings, a sum of around $500,000. [6] Mrs Foster contacted a number of Mackay real estate agents seeking information as to whether their proposed budget was realistic and what was available in that price range. Eventually she spoke to a Mr Woosley at Honeycombs Real Estate in Mackay. Mr Woosley provided Mrs Foster with a brochure giving details of a number of properties they had listed at that time. One in particular seemed to interest them. This was the Plaza which was said to be returning $63,619 net per annum. The principal attraction of the Sarina property initially was the fact that it had 8 tenants which theoretically provided breathing space to obtain new tenants as old tenants left. In other words, if a tenant left there would still be 7 tenants paying rent while a replacement was being found. The Fosters were also interested in possibly developing a warehouse and office at Paget in Mackay. [7] Neither of the Fosters was particularly familiar with Sarina despite its being only a short distance out of Mackay and despite Mr Foster’s company having constructed extensions to the Sarina Leagues Club in about 1995 or 1996. -- 3 of 22 -- 4 [8] In 1997 the Bruce Highway passed directly through Sarina from north to south. Some years earlier it had turned right at Central Street and run past the allotment on which the Plaza was constructed. This change in direction occurred in about 1980. The main thoroughfare in Sarina since that time has been Broad Street. [9] Having identified a property in which they had some interest Mr and Mrs Foster discussed their next move and resolved that Mr Foster would speak to Mr Deacon at HTW Valuers. Mr Deacon had either been recommended to Mr Foster by someone or had become known to Mr Foster through some building activity. [10] The Fosters gave evidence that they resolved to seek the advice of a valuer because he had no pecuniary interest in a sale of any particular property, unlike a real estate agent, and his advice was more likely to be objective. [11] Mr Foster telephoned Mr Deacon in early April 1997 and spoke to him briefly. Mr Foster said that he told Mr Deacon that he and his wife were interested in making a commercial property investment and inquired generally about Mackay and Sarina. Mr Foster said that Mr Deacon gave him a run down on aspects of the property market in Mackay and Sarina. In relation to Mackay, Mr Deacon said that commercial development was subdued in the office and retail sectors. In the retail sector there was some uncertainty with major shopping centres on both the north and south sides of the river and uncertainty over the effect of a proposed east/west connector road. Mr Deacon said $500,000 was a good entry-level investment. In relation to Sarina Mr Foster said that Mr Deacon told him that it was a good area with gradual growth and new farms. A capitalisation rate on a purchase of 13% was too high and 12% was more realistic. Mr Foster made some brief notes of some of the information Mr Deacon Provided. [12] Mr Deacon had a recollection of speaking to Mr Foster by telephone about the time suggested by Mr Foster. He did not recall the conversation but agreed -- 4 of 22 -- 5 that what was said by Mr Foster in evidence seemed to be the type of thing he would have said at that time. I accept that such a conversation occurred and that it was generally as recounted by Mr Foster. [13] Mr & Mrs Foster discussed the information Mr Foster had been given by Mr Deacon as a result of which they agreed that Mr Foster would have a face to face meeting with Mr Deacon. An appointment was made for Thursday, 17 April, 1997. Mr Foster attended a meeting with Mr Deacon on that day and took with him a tenancy schedule that had been provided by Honeycombs and the brochure showing the Paget and Sarina properties. [14] Mr Foster’s account of the meeting is as follows. Mr Foster showed Mr Deacon the brochure and the tenancy schedule and indicated to Mr Deacon that they were interested in the Sarina property. Mr Foster is adamant that he did not mention that he was there on behalf of John Foster Projects Pty Ltd. Mr Deacon appeared to have at least some knowledge of the property because he queried whether it was the “Trindorfer property”. This was a reference to the vendor. Mr Foster told Mr Deacon that they would like him to prepare a brief report on the sustainability of rents in Sarina. He also inquired as to what impact “titivation” of the property by his building company might have on it. There was also some discussion of the viability of industrial sheds at Paget and Mr Deacon was asked to collect information on previous developments where he had information relating to building costs and resales. [15] Mr Deacon’s recollection of the meeting is that Mr Foster provided him with a schedule of tenancies with rents and rates per square metre written down the side. Mr Foster indicated that he was unfamiliar with rents in Sarina and asked whether Mr Deacon could provide him with rental levels for retail shops in Sarina. According to Mr Deacon Mr Foster said he needed to know because he wanted to know whether the Plaza rentals were right and how they fitted in to the Sarina market generally. Mr Deacon also recalls being asked whether he could advise as to the demand in Sarina for retail tenancies and the availability of tenants. -- 5 of 22 -- 6 [16] In relation to this conversation as outlined above I prefer the evidence of Mr Deacon. I generally found Mr Foster to be a vague and unsatisfactory witness. In a matter which had such significance for him I would have expected a fairly clear recollection even after this lapse of time. Mr Deacon, on the other hand, had the benefit of contemporaneous notes. In relation to his instructions Mr Deacon’s note reads: “Indicative Market Rents – Sarina” “Supply & demand – Retail in town”. The notes also make reference to John Foster Projects Pty Ltd but the context in which it was raised is not indicated. I do not find that Mr Foster told Mr Deacon he was being engaged on behalf of that company. It seems to me to be just as likely that the company name was mentioned in the course of general discussion in which Mr Foster identified himself. I do not place any significance on the fact that Mr Foster made no notes either at the meeting or in subsequent conversations with Mr Deacon and Mr Woosley. I would have been more surprised if Mr Foster had claimed to have contemporaneous notes where he was giving instructions rather then being provided with information. [17] Mr & Mrs Foster said that following this meeting their interest in the Plaza waned. They gave as reasons for this their overall ignorance of Sarina and the limited growth potential in a small town. On Saturday, 19 April 1997 Mr Foster says that he received a phone call from Mr Woosley who is said to have told him that it looked likely that there would be an offer on the Plaza at $475,000. Mr Foster says he responded by saying they were no longer interested and would not be pursuing it. [18] Mr Woosley denies having any such conversation. He says that he had no such offer and he would not have tried to influence a potential purchaser by pretending he had one. Mr Woosley’s diary was tendered. It has no entries for Saturday 19 April 1997. I am not satisfied that the absence of a record of a phone call such as the one alleged is significant particularly if its purpose was to “urge” the potential purchasers. On this matter I accept the evidence of Mr Foster. I found Mrs Foster generally to be a reliable witness. She gave evidence that immediately following the alleged conversation with Mr -- 6 of 22 -- 7 Woosley Mr Foster recounted its contents to her. She was also present when the call was said to be made and heard Mr Foster say that they were no longer interested. [19] The next contact between Mr Foster and Mr Deacon was alleged to be on Monday morning 21 April 1997. Mr Foster says that he telephoned Mr Deacon on Monday morning and told him there looked like being an offer on the Plaza of $475,000 and not to worry about that aspect of the report. Mr Foster also says that Mr Deacon also said that the Plaza was “good buying” at $475,000. Mr Deacon is alleged to have said that the report was already finished and he would fax it anyway. [20] Mr Deacon denies ever expressing the view that the Plaza was “good buying”. Mr Deacon’s recollection is that the only mention of the sum of $475,000 was at the meeting on 17 April 1997. Mr Deacon gave evidence that at that meeting Mr Foster asked him whether the Plaza would be "good buying” at $475,000. Mr Deacon responded by saying he had not done a valuation of the property. He had not previously done any work in relation to the property and did not know what its value was. [21] I accept that Mr Deacon had the conversation about which he gave evidence and I also accept that at that point in time he could not have expressed any view as to the value of the Plaza. In relation to the conversation allegedly held on 21 April I am left with the evidence of Mr Deacon who I found generally to be credible and that of Mr Foster. Mr Foster’s evidence, however, is again corroborated by Mrs Foster. Mrs Foster was not present when this conversation was alleged to have taken place. Mrs Foster said that it had been arranged that Mr Foster would telephone Mr Deacon on the Monday morning and tell him they were no longer interested in Sarina. She said that when she saw her husband on the Monday evening he showed her the report from HTW and told her that Mr Deacon had said that the Plaza was “good buying” at $475,000. In the end it seems to me that if Mr Deacon thought he was in fact in a position to express a view on 21 April it is probable he would have done so. For reasons given below I find that the statement was made. I am not -- 7 of 22 -- 8 concerned that Mr Deacon does not remember this conversation. It had no significance to him but would have had some significance to the Fosters whether or not any opinion was offered. The statement that the property was “good buying” in the context seems to me to be a throwaway comment in response to being told someone else had offered that price. [22] Whether the property was “good buying” at $475,000 or any other price seems to me to be determined simply by applying a capitalisation rate to the maintainable earnings. In my view a full valuation of this property as an income producing investment is no more than the selection of the appropriate capitalisation rate based on comparable sales evidence and its application to future maintainable earnings. Future maintainable earnings are an expression of the valuer’s professional opinion based on an assessment of the factors likely to influence rent levels and the availability of tenants at those levels. Mr Deacon half heartedly suggested there was more to the exercise than this but the matters he raised really only went to the maintainability of the rent.1 In assessing the likelihood of whether Mr Deacon made a statement of the type attributed to him I am conscious that I have found that Mr Deacon had already expressed a view as to an applicable capitalisation rate of 12%. [23] The only work Mr Deacon had done on the property related to his retainer from the Fosters. If one takes the letter of advise at face value he was in a position to express an opinion as to future maintainable rents. Prima facie if the rents are maintainable the income must also be maintainable subject to a reasonable margin for vacancies. [24] In the end, it seems to me that the advice contained in the letter is the critical issue in this trial. If it in fact contains an opinion as to future maintainable rents as alleged by the plaintiff it probably does not matter what was said orally because Mrs Foster as an accountant was perfectly capable of assessing value based on earnings and capitalisation rates. In fact she did so on the basis of what she understood the effect of the written advice to be. If the written 1 Transcript pages 396-397. -- 8 of 22 -- 9 advice is as understood by the plaintiff the general statement that the property was “good buying” at a particular price, adds little. It is not the sort of statement Mrs Foster would be likely to act on. I thought her a careful person who would not have risked her capital unless she had satisfied herself that the investment was sound. It is thus necessary to look at the written advice. [25] The material parts of the letter of advice of 21 April 1997 are as follows: “We refer to our meeting of 17 April 1997 wherein you requested advice relating to: • Retail rental levels in Sarina • Industrial investment premises at Paget Our investigations indicate very limited rental evidence for commercial premises in Sarina. We believe this to be a result of: • A relatively high proportion of owner occupation • Historically business in Sarina has been fairly stable and little expansion of the retail precinct has happened • Where new tenancies have been established, they have been primarily the result of a developer providing space for specific tenants requirements Within the town at present there are only limited vacancies. Ten (10) specialty shops to be constructed in conjunction with a 1500 square metre new supermarket on Beach Road have attracted reasonably strong interest. Two lease commitments at rents of $220 per square metre have been signed and names have been put on the other shops. Only one of these prospective tenants are currently in business in rental premises in Sarina. The eight (8) interested tenants are awaiting finalisation of the supermarket lease before being prepared to commit to the centre. Other rental evidence includes: • Cnr Anzac Street & Broard Street This is a one year old, colonial style retail complex with a highway frontage divided into five (5) shops, which are occupied as two tenancies. Sarina Realty occupies 100.3 square metres at a rent of $18,200 per annum ($181/square metre) and the Leisure Time -- 9 of 22 -- 10 Centre occupies 224 square metres at a rent of $41,600 ($186/square metre). Both tenants pay some outgoings in addition to the rent. • Sarina Plaza (Subject) Shops 7 and 8 are new rentals established during 1996 which reflect $117 and $143 gross respectively. • We are aware of one vacant shop in Broard Street (Police Station side) with an area of approximately 60 square metres, which has a rent of $130 per week ($112/square metre). While the available information is only limited we believe it suggests that the current rental levels are maintainable, and some are at the lower end of the market range. However it may be difficult to increase rental levels to any significant degree without some titivation of the building.” [26] There was a debate over what Mr Deacon’s actual instructions were but I am satisfied that what they were is irrelevant in the sense that Mr Deacon tendered and the Fosters accepted the letter of 21 April as being in satisfaction of them. [27] Mrs Foster says that her interest in the Plaza revived when she read the letter of advice. It seems to me that this document had a much greater impact on Mrs Foster than the oral advice. I assess Mrs Foster as liking to work things out for herself rather than being told whether a property was “good buying” or not. It seems that it was Mrs Foster who persuaded Mr Foster to go along with the purchase after the advice was received. [28] Mrs Foster’s interest in the purchase was revived as a result of her calculation that a purchase of the property at $475,000 resulted in a net return on investment of 13.4% as against an interest payment of 7.8%. At the projected rate of return the investment would be entirely self-funding and there was sufficient margin to allow for periodic vacancies as tenants came and went. [29] Much debate in the evidence centred on the meaning of the expression “current rental levels are maintainable” and on the effect of the qualification that information was limited. -- 10 of 22 -- 11 [30] In his evidence in chief Mr Deacon said2 that he intended to convey by the reference to rents being maintainable that rents in the range of $91.00 to $143 per square metres would continue to be applicable and appropriate for each of the tenancies in the Plaza. In assessing those maintainable rents Mr Deacon says that he factored in the likely effect of the Beach Road shopping centre. In cross examination Mr Deacon said3: “… Why would a purchaser be interested in [maintainable rentals]? – So that he would continue to expect to receive those rents. Exactly. In the future; correct? – Yes Should one fall over, he can get another one? – Yes.” This corresponds almost exactly with Mrs Foster’s understanding of maintainable rents.4 [31] I accept that there is a difference between maintainable rentals and rental income. It seems to me to be obvious however that a reference to maintainable rentals includes an expression of opinion as to the availability of tenants at those rentals in the foreseeable future. Of course a valuer expressing that view is not warranting that such tenants would be immediately available or that intervening circumstances might not act to cause him to revise that view. Nonetheless if Mr Deacon’s researches had caused him to hold the view that the rentals were maintainable it must follow as a purely mathematical exercise that he regarded the Plaza as “good buying” at $475,000. This supports my finding that Mr Deacon did make a comment to that effect to Mr Foster on the telephone on 21 April 1997. [32] Whether the advice contained in the letter or the opinion voiced in the telephone conversation is actionable depends in the first instance on whether the opinion as expressed was reasonable from a person claiming the particular expertise of the defendant. This is essentially the same whether the cause of action is framed in negligence5, contract or breach of s52 of the Trade 2 Transcript p353 3 Transcript p371 4 Transcript p195 5 In Rogers v Whitaker (1992) 175 CLR 479 at 483 the High Court reiterated that the standard of care required is that of the ordinary skilled person professing the special skill of the defendant. This -- 11 of 22 -- 12 Practices Act 1974.6 The issue for me to determine is whether or not the opinion is one which on the facts as I find them to be a prudent valuer could legitimately express. [33] The principal complaint made by the plaintiff about the advice is that Mr Deacon did not qualify his advice by reference to the potentially negative impact on rental levels and thus income in the Plaza of the opening of the Beach Road shops. That Mr Deacon was aware of the likely opening of the Beach Road shops and that they were a potentially significant factor in relation to the future of the Plaza is apparent from the references to them in the letter of 21 April 1997. [34] Mr Deacon’s researches prior to giving the opinion of 21 April 1997 are described by him from page 444 of the transcript. He visited Sarina and drove down the main street and Central Street looking for "For Lease" signs in shop windows. This was apparently his way of identifying the level of demand. Mr Deacon also looked at the external features of the Plaza. Mr Deacon then visited Mr Wright a local real estate agent who was involved in commercial lettings including the proposed new Beach Road centre. The information in the letter of advice concerning potential tenants for Beach Road came from Mr Wright. Of the two committed tenants, one, the music shop, was an existing Sarina business. The hairdressing salon which was the second committed tenant was a new business. Of the balance Mr Wright conveyed only that most of those which had expressed interest would be new to Sarina if they later committed. It followed that some were existing Sarina businesses. Mr Wright provided some rental information on the vacancies Mr Deacon had imposed no different standard to that expressed earlier by Windeyer J in Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84. The same standard is applicable to both contractual and tortious claims. 6 An opinion of an expert generally conveys that it is honestly held upon rational grounds involving an application of relevant expertise: see RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 112 ALR 511 where the Full Court of the Federal Court approved the following statement of Burchett J from Bateman v Slatyer (1987) 71 ALR 553 at 559, “It is of course clear law that a statement of opinion cannot be regarded as false or misleading, or as misleading or deceptive, simply because it turns out to be incorrect: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd … But such an opinion may convey that there is a basis for it, that it is honestly held, and when it is expressed as the opinion of an expert, that it is honestly held upon rational grounds involving an application of the relevant expertise.” -- 12 of 22 -- 13 observed on his drive through Sarina. Mr Deacon looked at the site for the Beach Road shopping centre, which was, then only at the slab stage. He said that he formed the view that it either would not go ahead and thus have no impact on other Sarina shops or it would contain within Sarina some business that would otherwise have gone to Mackay and not adversely impact on existing Sarina shops. [35] Mr Dodds, a valuer from Mackay gave evidence concerning the impact of new shopping centres on traditional town centres in smaller communities such as Sarina. It was conceded by all parties that the impact of large sub-regional and regional shopping centres on traditional town centres in larger regional cities like Mackay and Rockhampton had been disastrous. The effect of smaller centres on smaller communities was not as clear cut. I found Mr Dodds an impressive witness. His experience in and knowledge of this topic was extensive. As at April 1997, Mr Dodds was aware of the proposed Beach Road shopping centre in Sarina and of the view that, despite previous setbacks, it would proceed7. As early as 1996, valuations issued by Mr Dodds office in relation to retail property in Sarina had carried qualifications relating to the possible negative impact on existing premises of the Beach Road centre.8 The Beach Road shopping centre was completed and occupied in mid 1998. Mr Dodds experience of neighbourhood shopping centres on traditional town centres in smaller communities had been largely negative although not uniformly so and depended on the distance between the new and existing shopping precincts. [36] In the case of the Plaza it is useful to look at its history following acquisition by the plaintiff in mid 1997. At the time of contract the Plaza was fully tenanted. It contained a video store in shop 1, a ladies fashion retailer in shop 2, a bookkeeping and stationery business in shop 3, A bearing retailer in shop 4, a delicatessen in shop 5, a laundremat in shop 6, a hobby and book business in shop 7 and a second hand baby wear business in shop 8. On 7 July 1997 the video shop vacated the premises although it continued to pay rent under the 7 Transcript page 222-223. 8 See exhibits 29 and 30. -- 13 of 22 -- 14 terms of the unexpired portion of the lease. This was the major tenant at the street front. As at April 19989, shops 1 and 2 were vacant although rent was being received under unexpired leases. Shop 8 was also vacant. The other tenants remained in place. By March 200010 shops 4, 5, 6 and 8 were vacant, the bearing shop had shifted to shop 2, a bakery was in shop 1, and a newsagent was in shop 3. The bakery was on a one year tenancy from 18 February, 2000 at about half the previous rental and the newsagent was also on a one year tenancy from January 2000 at about one third of the previous rental. [37] Marketing efforts to obtain tenants11 attracted no interest. This was despite some cosmetic improvement to the building by Mr Foster or his company. [38] Variously attempts were made during the course of the trial to attribute this depressing history to the poor management of the building, the Beach Road shopping centre and the downturn in the economy. No evidence was called which established any real link between the management of the Plaza and the decline in its fortunes after it was bought by the plaintiff. Chronologically it seems to me that the Plaza had some problems before the opening of the Beach Road centre although it was still a viable proposition. After the opening of the Beach Road centre the Plaza failed rapidly such that by March 2000 its net rental had reduced to just $15,069 per annum compared with nearly $60,000 at the time of the contract. Sarina is basically a sugar town and the beaches provide a weekend recreational area for miners in the hinterland. The drop in the price of sugar in 199912 would have been reflected in payments to growers in 2000. To some extent this drop would have been offset by boom prices for cattle.13 In any event the decline in the Plaza’s fortunes preceded the decline in sugar payments to growers. I am therefore left to conclude on the balance of probabilities that the early rapid decline was due in large measure to the opening of the new shops and movement of the shopping focus in Sarina even further away from Central Street. The big 9 See exhibit 6 page 9 10 see exhibit 7 page 11 11 see exhibit 13 12 see exhibit 38 13 Transcript page 327. -- 14 of 22 -- 15 decline in new house approvals also post dated the opening of Beach Road shopping centre although precisely how this would affect retailing was not revealed. [39] A useful insight into the situation with regard to the Plaza comes from the evidence of Mr Wright. Mr Wright is a local real estate agent in Sarina. He has operated in that capacity in Sarina either on his own account or as an employee of another agency since 1991. He operated the Sarina squash courts for 17 years before that. He impressed me as a reliable witness with a good knowledge of Sarina and the factors impacting on its local economy. Mr Wright was, of course, the person from whom Mr Deacon sought information in April 1997. [40] Even in 1997 Central Street was a fringe area of the commercial centre of Sarina. Its principal drawback appears to have been that it was cut off from the balance of the shopping precinct both by distance and by a level crossing where long delays were and are experienced. Mr Wright said at one point of his own office’s move from Central Street14: “… Well we were actually in there, and we were paying a hundred dollars a week in – when we left in about 1994, and we moved to Broad Street to pay three times the rent and – and to get closer to the shopping centre and, you know, Central Street’s an out of the way place and, yeah, I was very worried about Central Street.” [41] Mr Wright’s evidence was to the effect that the majority of the Sarina population was located between the shopping centre and the beaches. They would have to pass the Beach Road shops before arriving at the town centre or heading to Mackay. The Beach Road shops would therefor almost necessarily have an adverse impact on any comparable businesses existing in Sarina and a more severe impact generally the further the business was from Beach Road. Since Central Street was in effect at the opposite extremity of the shopping precinct from the Beach Road shops and already marginal as a shopping area the effect would be greatest there. The effect of any downturn in the economy 14 Transcript page 315 -- 15 of 22 -- 16 would also be greatest there. This analysis derives some support from the figures supplied by Mr Sheahan, the defendant’s valuer. Mr Sheahan’s analysis showed that since the opening of the Beach Road shops and even ignoring the Plaza, rents have dropped generally in Central Street, but remained static or risen in other parts of the town centre15. This suggests to me that it was always in fact a vulnerable area and more likely to be adversely affected by Beach Road than other parts of Sarina. When asked whether in his opinion the statement regarding rents in the letter of advice of 21 April 1997 should have been qualified by noting the uncertain effect of the new shops Mr Sheahan avoided the question by relying on the uncertainty as to whether or not the centre would in fact be completed.16 In this respect I found him a somewhat unsatisfactory witness. His response was not in my view helpful to the defendant because Mr Deacon despite his doubts in the witness box had clearly proceeded on the assumption that the centre would be completed as is evident from the letter of advice. [42] Whatever Mr Deacon’s personal view as to whether Beach Road was likely to affect the Plaza rentals adversely and I accept him when he says that he did not think it would have an adverse effect he could not as a competent expert have failed to appreciate the risk and ought, in my opinion to have qualified his advice by cautioning the reader that the effect was uncertain. The objective evidence suggests that a more careful researching of the issue would have identified Central Street as a fragile area and one where any impact was likely to be quite severe. Centres such as Beach Road had had mixed effects on traditional town centres and this fact was apparently well known in the industry17. The geographic relationship between Beach Road and Central Street satisfied all the criteria for negative impact identified by Mr Dodds. What effect the Beach Road Shops might be expected to have was something on which opinions might have differed but it was clear that it was sufficiently likely to be detrimental to require caution to that effect. I do not consider the position is in any way retrieved by saying that market information was limited. 15 see exhibit 25 pages 16 to 19 and transcript at page 488. 16 Transcript page 458. 17 See also exhibit 28 -- 16 of 22 -- 17 Mr Deacon knew that the Fosters were seeking his advice as a professional person for the purpose of deciding whether to buy the Plaza. In my view the failure to appropriately qualify the opinion he gave fell below the necessary standard of care or did not involve the application of the relevant expertise. [43] Whether a statement such as that contained in the letter of advice of 21 April 1997 or the oral statement as to the property being “good buying” is negligent depends on the circumstances in which it is made and the use to which it is put by the recipient. Three conditions must be satisfied. Firstly, the giver of the advice must know or ought to know that the recipient will rely on his advice; secondly, it must be reasonable for the recipient to rely on that advice; thirdly, it must be foreseeable that the recipient is likely to suffer loss if the advice turns out to be unsound.18 To these should be added that the recipient must in fact rely on the advice. [44] In this case there is no doubt that if either piece of advice were to be relied upon in relation to a decision to purchase the Plaza, loss is foreseeable. In relation to the phone advice, however, I am not satisfied that it was reasonable to rely on it. Neither am I satisfied that the plaintiff did in fact rely on it. I have already indicated that Mrs Foster was in my view the principal decision maker. I do not consider she would have acted in so important a decision on the basis of a throw away line by Mr Deacon that the property was “good buying” at a particular price. Nor do I consider it reasonable to rely on such a statement in the circumstances here. As I have already indicated, I consider Mrs Foster would have made her own decision as to whether the property was “good buying” and in my view she did so based upon her calculation of return and margin after being advised by Mr Deacon in the letter that the existing rents were maintainable. I consider on the other hand that the advice contained in the letter was given in circumstances where Mr Deacon knew that it was to be relied on in making a decision on the purchase and where it was in fact relied on, and reasonably so, for that purpose. 18 See San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 372. This passage was cited in Esanda Finance Corporation Ltd v Peat Marwick Hungerford (1996-1996) 188 CLR 241 by Brennan J at 250, Dawson J at 257 and by Toohey and Gaudron JJ at 262. -- 17 of 22 -- 18 [45] The defendant resists the claim in contract on the additional ground that the retainer was not with the plaintiff and there was thus no contractual relationship between the plaintiff and the defendant. I reject this argument. I accept the evidence of Mr Foster that he did not purport to retain Mr Deacon on behalf of John Foster Projects Pty Ltd. I suspect that Mr Deacon addressed his account to that company because he knew that Mr Foster traded through that entity and assumed that a company of some sort would be used to purchase the property. There is no evidence on the topic and it is unnecessary to make any finding. It cannot in my view be the case that HTW can deny liability simply because Mr Deacon did not know the name of the company which was to act on his advice. The plaintiff was incorporated on 14 April 1997 and Mrs Foster became a director on 15 April 1997. It was acquired solely for the purpose of this transaction.19 I find that the contract was in fact between the defendant and the company that became Astonland Pty Ltd.20 [46] In this case Mrs Foster gave evidence which I accept that she would not have gone ahead with the purchase without the written advice.21 [47] In my view the plaintiff has established the liability of the defendant for damages on all of the three bases alleged. In this case irrespective of which basis of liability is used the damages are the same. The case for the plaintiff is that the contract would never have been entered into if there had been any caution as to a possible negative outcome in the letter of advice22. The position the plaintiff would have been in had the advice not fallen below the required standard would thus have been that it would never have acquired the property and the corresponding liabilities or expenses. Since in each of contract, tort, and trade practices the measure of damages is the difference 19 Transcript page 105. 20 Mooney v Williams (1905-1906) 3 CLR 1 is authority for the proposition that where a person contracts on behalf of an undisclosed principal the principal is the real contracting party and can sue on the contract. The exceptions to this rule which are not relevant to this case are discussed in Laws of Australia, 8.1 Agency [52] – [53] 21 Transcript pages 96 – 99. 22 Transcript page 99 -- 18 of 22 -- 19 between the position that would have pertained had the offending conduct not occurred with what in fact occurred the amount is the same.23 [48] In a valuation case where property would not have been acquired without the intervention of the negligence the conventional measure of damages is to compare the amount paid for the property with its true value at the time. Consequential losses need to be considered separately. This case is different from such a case. In the first place it is not in fact a true valuation case since Mr Deacon did not relevantly value the property. Rather he gave a predictive opinion from which Mrs Foster formed her own opinion as to value. The negligence or breach of contract or misleading conduct was in failing to flag the possible negative impact of the Beach Road shopping centre. In such a case no loss is suffered until it is reasonably ascertainable that the purchaser is in fact worse off as a consequence of the negligence or other breach.24 The cause of action does not arise until that time. In this case it could not reasonably be ascertained what effect the Beach Road shops would have until they were constructed and opened. In this case the primary assessment for damages purposes is the difference between the amount paid for the property and its value once the anticipated market factors had operated upon it. In this case I am entitled to have regard to what in fact happened to the property up to the time a reasonable person in the defendant’s position would have sold it. [49] The new shops opened in mid 1998. I should therefor start by looking at a value for the premises at a time after that, say, for example the end of 1998 or early 1999. Exhibit 11 shows that gross rentals held up reasonably well to about March 1999 and then collapsed. This would correspond with the expiration of leases for shops previously vacated but for which the term of the lease had not expired. Since there was no inquiry for the vacant space it would be reasonable in assessing value to discount the maintainable rent to 23 See Haines v Bengal (1991) 172 CLR 60 at 63 in relation to contract and torts. Damages are generally assessed in a similar way under s82 of the Trade Practices Act: see Marks v GIO (1999) 196 CLR 494 and most recently Henville v Walker [2001] HCA 52. 24 This is apparent from Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 527 and was restated by each member of the court in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 by way of distinguishing the standard measure of damages in valuation cases from those -- 19 of 22 -- 20 substantially exclude the rent for those premises. Some attempts have been made to sell the property. It has been listed with various agents for some years. Mr Wright conducted an auction in 2000 where the property was passed in at $200,000. Mrs Foster gave him instructions to obtain a contract from the bidder but the bidder was not prepared to revive the offer. In December 2000 a prospective purchaser orally offered to swap two houses said to be valued at $180,000 for the Plaza but again the prospective purchaser was not prepared to commit himself to paper. At the time of trial an offer was open at $100,000. As early as 1998 there was a proposal prepared at a very superficial level by Mr Woosley of Honeycombs Real Estate in Mackay to strata title the shops and sell them that way. Mr Woosley’s letter containing the proposal25 is dated 7 October, 1998 and suggests that sold as separate titles the shops may have grossed $573,500. The letter does however warn that careful consideration should be given before proceeding further. In cross- examination26 Mr Woosley indicated that his figure was at the top of the anticipated range and assumed 100% occupancy for the centre, a matter which was looking over optimistic even then27. In the result I am not persuaded that this proposal was ever realistic and no indication of the cost of strata titling the units or the time it would take was given. In all probability the Plaza would have been virtually unsaleable by the time any such proposal had progressed to the selling stage. In my view the evidence shows that the plaintiff has attempted to sell the property without success despite genuine efforts since 1999. I find that even at that time the value Mr Dodds puts on it in 2000 of $130,000 was probably close to its realistic value. [50] In my view questions of contributory negligence do not arise. The plaintiff reasonably relied on advice from Mr Deacon. Having been provided with advice that was unqualified in any material way there did not seem to me to be any need to seek a formal valuation. Even if I took a different view the High Court has recently confirmed that contributory negligence is not available in where the purpose of the valuation was to achieve a particular result. While factually Kenny & Good differs from the present case the principle is the same. 25 Exhibit 18 26 Transcript page 434 - 435 27 Mrs Foster’s evidence at page 114 puts a more realistic slant on the proposal -- 20 of 22 -- 21 contract28 nor under s82 of the Trade Practices Act 197429. I do not consider that notions of fairness require me to manufacture a result using the Court’s power under s87 of the Trade Practices Act30. There is no basis on the evidence to conclude that any of the plaintiff’s loss is not causally connected with the negligence of the defendant. [51] In the result I assess the plaintiff’s primary loss before considering consequential losses at the sum of $355,000 being the purchase price less $130,000 which I consider to have been the value of the land more or less since it became apparent that tenants were largely unavailable except at minimal rentals. I consider the effect of any downturn in the Sarina economy would not have been apparent until early 2000 by which time the fate of the Plaza was established. [52] In relation to consequential loss the plaintiff claims trading losses netted to $83,409.51 after deducting profits in the sum of $3,629.29 in 1997/1998. The figures are derived from exhibit 9 and include $49,808 shown as an annual write off of construction costs of $12,452. I assume this is a depreciation amount relating to the building. It does not appear to be a cash expense and since the calculation of $130,000 as at 2000 is a valuation of the existing property in a depreciated state, to allow it as a trading loss is, in my view, to double count. I also do not accept the annual management fees of $8,000 for 1998, 1999 and 2000 as a legitimate expense. In my view these are not commercial rates and should be reduced to $4,000 being for the services provided in the main by Mrs Foster although entered in the books as payable to John Foster Projects Pty Ltd. I therefore allow trading losses at $21,601.51. In view of the fact that the property has not attracted a single firm offer between the auction in 2000 and the offer of $100,000 at the time of trial I consider that such losses should be ongoing to trial on the basis that whatever the value of the property a buyer was not available at that price. A party can only mitigate its loss by selling a property if there is in fact a buyer. History 28 See Anstey v Austrust Limited (1999) 197 CLR 1 29 See Henville v Walker [2001] HCA 52 30 cf I and L Securities v HTW Valuers (Brisbane) Pty Ltd [2000] QCA 383 -- 21 of 22 -- 22 shows there has not been one for this property. The additional purchase costs assessed at $11,600 between a purchase at $485,000 and $130,000 should also be allowed as should $8,590 spent on refurbishment. [53] Since the trading losses in this case include interest on the funding for the purchase of the Plaza it seems to me be to be inappropriate to award interest on any part of the primary loss. In the result I assess the plaintiff’s loss in the sum of $396,791.51. I award interest on $41,791.51 at 5% from 1 July 1999 being the date from which losses in my notionally adjusted accounts commenced to accrue. This total $9,403.09. [54] I give judgment for the plaintiff against the defendant in the sum of $406,194.60. -- 22 of 22 --