Bullock v O'Sullivan & Ors [2003] QDC 155

DISTRICT COURT OF QUEENSLAND CITATION: Bullock v O’Sullivan & Ors [2003] QDC 155 PARTIES: KERRY GEORGE BULLOCK Plaintiff v WILLIAM JOSEPH O’SULLIVAN and OTHERS Defendants FILE NO/S: D1510/2001 DIVISION: PROCEEDING: Application ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 6 June 2003 DELIVERED AT: Brisbane HEARING DATE: 27 May 2003 JUDGE: McGill DCJ ORDER: Application dismissed with costs. CATCHWORDS: TRADE PRACTICES – Limitation Period – whether loss or damage suffered more than three years before action commenced – nature of transaction – when loss ascertainable – not determined summarily. Trade Practices Act 1974 (Cwth) s 82(2). Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 – followed. Murphy v Overton Investments Pty Ltd (2001) 112 FCR 182 – followed. Troulis v Vamvoukakis (New South Wales Court of Appeal, CA 40502/97, 27.02.98, unreported) – followed. Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 – considered. COUNSEL: S R Lumb for the plaintiff K A Barlow for the fourth, fifth and sixth defendants SOLICITORS: Quinn & Scattini for the plaintiff Carter Newell for the fourth, fifth and sixth defendants [1] This is an application by the fourth, fifth and sixth defendants for orders that the claim and statement of claim against them be struck out pursuant to r.171, or in the -- 1 of 9 -- 2 alternative that there be judgment for the fourth, fifth and sixth defendants against the plaintiff pursuant to r.293. The application is confined to those parts of the plaintiff’s claim that seek relief pursuant to s 99 of the Fair Trading Act and s 82 of the Trade Practices Act. The basis of the application is that the claims for relief under those provisions are statute barred, a situation which it was submitted was sufficiently clear to justify the summary termination of the proceeding against those three defendants. Background [2] The action was commenced on 30 March 2001 by filing the claim and statement of claim. Section 82(2) of the Trade Practices Act provided that an action under that section may be commenced at any time within three years after the date on which the cause of action accrued. 1 Section 99(2) of the Fair Trading Act contained a provision to the same effect. [3] The statement of claim alleges that on or about 9 February 1996 the plaintiff contracted in writing with the seventh defendant to purchase a unit in a proposed building lots plan known as All Seasons Village Resort for a price of $72,900. It was a requirement of that contract that the plaintiff enter into a lease of the unit once purchased to Firecroft Pty Ltd for a period of ten years on certain terms and conditions. The fourth defendant is alleged to have been an employee or agent of a real estate agency business, L J Hooker FNQ Project Marketing, carried on by the fifth or sixth defendants or both of them: para 38. It is alleged that she made representations regarding the units in the All Seasons Village Resort, and that the plaintiff then entered into the contract to purchase the unit in reliance on those representations. The representations alleged are as follows: “1. Investment in the unit would result in a 7.5% net return for the plaintiff in the first year of purchase, increasing over a ten year period by CPI each year, and that such return was guaranteed for ten years with three further ten year options. 2. The net rental return was a guaranteed return. 3. The unit was a safe, profitable and good investment. 4. The body corporate fees and other outgoing costs would not be payable by the plaintiff. 5. The unit was a low risk investment with good potential for the future. 6. The unit would increase in value. 1 The subsection was amended in June 2001 to increase the period from three to six years: Trade Practices Amendment Act No 1 2002, s 2, 3, Schedule 1, items 20, 21. It was common ground that this amendment was not relevant. -- 2 of 9 -- 3 7. The ten year lease with options for two further periods of ten years each was secure.” [4] It is alleged in paragraph 47 that as a result of the breach the plaintiff has sustained loss and damage. The particulars given include various costs incurred on or in connection with the acquisition of the unit, interest payable on money borrowed to purchase it, council rates said to be an ongoing loss, loss of rental commencing from 31 March 1998, and “diminution in the value of the unit of approximately $70,900.” [5] The defendants 2 interpreted the statement of claim as asserting an entitlement to recover the difference between the purchase price and the true value of the unit, a loss which they say was suffered at the time when the unit was purchased, that is when settlement of the contract occurred on 8 March 1996. This submission relies on particulars delivered on 30 April 2003 and filed that day, that “the plaintiff paid more than the true value of the unit at the date of purchase and the value of the unit has diminished since the date of purchase.” He alleged among other things that the situation at the present time is that units in the complex are practically unsaleable, and are practically worthless. The particulars also confirm that the claim for loss of rent is for a period commencing 1 April 1998, that the stamp duty and legal costs were paid on 21 February 1996, that a mortgage release fee was paid on or about 8 March 1996, that the council rates fell due on 1 January 2001 and subsequently, and that the claim for interest was in respect of interest first paid on or about 8 March 1996. [6] Accordingly the defendants submit that the cause of action accrued not later than the time when the contract to purchase the property was completed, because at that point the plaintiff had spent a significant sum to purchase a property which he alleged was worth less than what was paid for it. The payment of the purchase price and other expenditure constitutes the initial part at least of the loss claimed. Accordingly it follows that some of the losses claimed, and indeed a significant part of them, had clearly been suffered on or before 8 March 1996, and accordingly the action was out of time, having been commenced some five years later. It was submitted that it followed that causes of action based on these statutes were clearly statute barred, and that they should be struck out as vexatious or an abuse of process, or alternatively dismissed under r.293. Relevant tests [7] The tests under r.171 and 293 are somewhat different. The test under r.171 is whether the case of the plaintiff is so clearly untenable that it cannot possibly succeed, something which may in an appropriate case only become apparent after extensive argument: General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 130 per Barwick CJ. It is therefore not confined to cases which are actually unarguable, but it is confined to cases where, with the benefit of argument, it is apparent that the plaintiff’s claim cannot possibly succeed. That is a difficult test to satisfy. 2 I shall refer to the applicants, the fourth, fifth and sixth defendants, as the defendants. -- 3 of 9 -- 4 [8] On the other hand, the test under r.293 is whether the court is satisfied that the plaintiff has no real prospect of succeeding on all or part of the plaintiff’s claim, and that there is no need for a trial of the claim or part of the claim. This is still a fairly stiff test: it is not sufficient to show that the plaintiff’s claim looks unpromising, or is unlikely to succeed. But it does I think allow the more robust approach than the test under r.171. 3 It involves a conclusion by the judge hearing the application that, on the basis of what is already known, it is apparent that it is unnecessary for the proceeding to go further, and that the plaintiff’s claim or part thereof should be dismissed. In an appropriate case, a limitation defence can be the basis for dismissal under r.293: Pittaway v W H Tutt & Quinlan [2002] QCA 336 at [11]. [9] There is one other important difference: sometimes a pleading will be struck out under r.171 on the basis that it is defective as an exercise in pleading, but with leave to replead. 4 Rule 293 on the other hand is not concerned directly with the pleading of the plaintiff, but with the plaintiff’s case on its merits. Because r.293 is concerned with giving final judgment in respect of the claim or part of the claim, it is not appropriate to focus only on the plaintiff’s claim as pleaded, and it is necessary to focus on the underlying merits of the plaintiff’s position. That does not mean that the pleading is irrelevant; the pleading ought to reflect the plaintiff’s true claim, but ultimately what matters is not whether the plaintiff’s pleading is in order, but whether the plaintiff has no real prospect of succeeding, something that depends on the true merits of the plaintiff’s claim. Authorities [10] The leading case in this area is the decision of the High Court in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514. It is sufficient to consider the reasons of the majority, who at p.526 noted that, in determining when the plaintiff first suffered economic loss or damage in an action under s 82(1) based on misleading conduct, it is necessary to have regard to the applicable measure of damages. During argument I suggested that there may have been a distinction between the loss or damage relevant for the purposes of s 82 and the loss or damage identified by the measure of damages, bearing in mind that the appropriate measure of damages, as was recognised by their Honours on the same page, is not necessarily the same for all claims under s 82. However, clearly this distinction is not one drawn by the majority, and it poses a further difficulty for the defendants: if there is any doubt as to the appropriate measure of damages, that can really only be resolved on the trial, so in order to succeed at this stage it is necessary for the defendants to show that, on any measure of damages, some loss or damage had occurred more than three years before the action was commenced. [11] The majority went on at p.526 to note that a plaintiff can only recover compensation under s 82 for actual loss or damage, as distinct from potential or likely or prospective loss or damage, or the risk of loss. Hence in the particular situation the court was considering, where an indemnity had been given by the applicant in response to misleading or deceptive conduct, it was held that the indemnity was 3 See Bernstrom v National Australia Bank Ltd [2003] 1 Qd R 469; Queensland University of Technology v Project Constructions (Aust) Pty Ltd [2003] 1 Qd R 259, at [7]. 4 An order striking out without liberty to replead will not be made if any deficiency can be cured by amendment: Stone v ACE-IRM Insurance Broking Pty Ltd [2003] QCA 218. -- 4 of 9 -- 5 merely a contingent obligation and that no loss had been suffered for the purpose of s 82 until the contingency was fulfilled, so that until then time under s 82(2) did not begin to run. [12] The substantial debate in the High Court was whether it was appropriate to accept, as had apparently been accepted in England, that where a person entered into a disadvantageous contract as a result of misleading or deceptive conduct the plaintiff first suffered loss on entry into the contract. The High Court disapproved of a decision of the Full Court of the Federal Court in Jobbins v Capel Court Corporation Ltd (1989) 25 FCR 226, that loss had been suffered in circumstances where misrepresentation induced the applicant to invest in a film at the time when the agreement to invest was entered into, or when the investment was paid over, a few days later. Their Honours noted that the loss was alleged to have consisted of that payment, but went on to say (at p.529) that: “Although the investment lacked the represented qualities, it may have been worth no less than the consideration provided by the applicant.” [13] The majority had said previously on p.527, concerning a plaintiff who entered into a disadvantageous agreement: “In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events.” [14] In that case it was not necessary for the court to deal directly with either the situation where an actual but deferred loss would not be apparent and therefore would not be ascertainable until some time, or possibly some considerable time, after the contract had been entered into, or the case where what was done in reliance on the misleading or deceptive conduct was the purchase of an asset. The majority said, however, in relation to the latter point, at p.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.” [15] There are plenty of other cases where this approach has been applied to the acquisition of property in reliance on misleading or deceptive conduct, where the property was of no value or of less value than the amount paid: see for example Francis v Whatson [1994] 2 Qd R 584 at 590. Recently, however, in the context of the purchase of a business in reliance on misleading or deceptive conduct, appellate courts have said that the cause of action did not accrue until the loss, or more than a negligible part of the loss, was ascertained or reasonably ascertainable. In Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 the majority5 of the Full Federal Court said at p.40: “In a simple case where a plaintiff purchases an asset on the faith of a misrepresentation and that asset is shown by evidence to have been worth less than it was represented to be, the loss or damage has generally been held to 5 Two of the judges on the court in Jobbins (supra). -- 5 of 9 -- 6 have been suffered at the time the contract was entered into or perhaps at the time when the purchase money under the contract is paid. … However, the Court in Wardley made it clear that in other cases that disadvantageous character or effect of an agreement entered into on the faith of a misrepresentation might not be ascertained until a future date.” [16] Their Honours considered a further analysis in Wardley in some detail, and the facts of the case before them, and concluded at p.43: “The question for determination in a case such as the present, consistent with the views expressed by their Honours in the High Court in Wardley, would be when was it that the loss which the Antonious ultimately suffered (or a more than negligible part of it) was either ascertained by them or reasonably ascertainable? … This was a question of fact to be determined by reference to the trading figures of the café business. It is not a question which could be resolved by reference to an arbitrary period of 12 months. On the figures prepared by counsel for the Antoinous, it would seem likely that by some time before December it was reasonably manifest that the café business would never take anything like the represented weekly takings and that each week losses would continue to be incurred which were unlikely ever to be made up.” But the necessary finding had not been made by the trial judge, so the matter was remitted to enable that finding to be made. The third member of the court, Sackville J, stated at p.48: “Only when the course of events allowed the lessees the opportunity to ascertain that the business could not succeed was loss sustained in the relevant sense.” [17] A similar approach was adopted in the Court of Appeal in New South Wales in Troulis v Vamvoukakis (New South Wales Court of Appeal, CA 40502/97, 27.02.98, unreported). That case also involved the purchase of a business in leased premises; there was a purchase price for goodwill and plant and equipment, and a lease was entered into. Gleeson CJ (with whom the other two members of the court agreed) said in the course of his reasons that the decisions in Wardley and Karedis: “provide strong support for an argument that, in the present case, the cause of action sued upon did not accrue until it was reasonably ascertainable by Mr Vamvoukakis that the representations relied upon by him were false and, therefore, the business he acquired was worth less than he agreed to pay for it.” [18] In Blacker v National Australia Bank Ltd [2001] FCA 254 the Full Court considered a case where misleading and deceptive conduct had induced the purchase of a dairy farm on which a dairy business was conducted. The Full Court did not review the finding by the trial judge that the purchasers had suffered loss or damage no later than August 1994, on the basis that it was reasonably ascertainable by May 1994 that more than negligible losses had been suffered as a result of acquiring the business. The business was actually purchased (that is the price paid) on 23 September 1993. For present purposes what is significant is that the Full Court did not reject the later date for identifying loss under s 82(1) simply on the basis that the asset, the dairy farm, had been purchased and it was worth less than the applicants paid for it. [19] Then in Murphy v Overton Investments Pty Ltd (2001) 112 FCR 182 the Full Court of the Federal Court considered a case where the applicants had entered to a lease in a retirement village in reliance on representation about, inter alia, the levels of contribution. The lease was an unusual one, being for 99 years but terminating on -- 6 of 9 -- 7 the death of the lessee or surviving lessee, with powers to terminate earlier than that in certain circumstances. It was said by Gyles J at p.209 to be: “much more than a normal vendor and purchaser transaction. The property in question was a leasehold interest of a very particular kind in a retirement village.” The applicants alleged that they were induced to enter into the lease in reliance on misleading statements as to the extent of their liability to contribute to the operating expenses. Although they had paid substantial sums on entering into the lease, Gyles J at p.220 said that loss or damage was suffered at the time when there was a change in contributions due, contrary to representations. [20] The matter however was complicated because in that case the focus was on s 87 rather than on s 82, although a number of the earlier authorities dealing with s 82 were discussed. Ultimately the matter was remitted to the trial judge for consideration of relief under the New South Wales Contracts Review Act 1980. The High Court has subsequently given special leave to appeal against that decision. The fact that the issue is going to be considered by the High Court, albeit in a somewhat different context from one that directly arises under s 82, it is not something which encourages confidence in the proposition that any particular state of the law at the present time can be said to be clear or settled. Analysis [21] In my opinion it is significant that in the present case what was purchased was not simply an asset. It was a unit in a resort development, which was sold by the vendor only on the condition that it be leased back on a long term basis so that (in company with all the other units in the development) it could be operated as part of the whole development in a coherent way. The fact that the lease was for ten years, with options for renewal up to 30 years, shows that in substance what was being purchased was not so much an asset in the conventional sense but a stream of income. In these circumstances, even if there are misleading or deceptive statements about it, it is difficult to see how any actual loss is suffered unless and until the stream of income falls below what has been represented, indeed falls below it to the point where it can be seen that it was not worth what was paid for it. That is something which was not necessarily the case at the time when the contract was settled. Even if there were misleading statements made as to the terms of the transaction, it did not necessarily follow that any actual loss would be suffered. 6 In the same way, even if representations as to future matters were made without any reasonable basis, it did not necessarily follow that any loss would be suffered. That depended on what happened subsequently: the development might have been highly successful, and generated returns which satisfied the plaintiff, or at least justified the purchase price. The purchaser only suffered loss, or only suffered ascertainable loss, at a time when it became reasonably apparent that that was not going to happen. [22] The point was touched on in a recent decision of the Queensland Court of Appeal: Pace v Westpac Banking Corporation [2002] QCA 350. In this case the plaintiffs had purchased some land with a view to rezoning, subdivision and sale, in reliance on a representation that the defendant would be likely to advance funds sufficient to complete at least stage 1 of the proposed subdivision, which was found to have been 6 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514 [47]. -- 7 of 9 -- 8 made in breach of s 52. Ultimately the plaintiffs were unable to obtain finance for subdivision from the defendant, or anyone else, were unable to afford to subdivide, and subsequent attempts to sell the land were unsuccessful. Davies JA at para. [13] said that it was unclear when the plaintiffs first suffered loss in consequence of the contravention, but, assuming the land did not thereafter increase in value, “they would have suffered loss immediately upon the appellant’s refusal of finance in June 1999 if, at that time, the value of land was less than the total of their liability to the appellant and the amounts which they had expended.” That suggests the issue did not depend simply on whether at the time the land was purchased it was worth more than what was paid for it, but it must be said that in that case the relief granted and subject to appeal was accepted as being able to be supported under s 87 of the Act, so that it was not necessary to determine any limitation point. [23] No attempt was made by the defendants to show in the present case that ascertainable loss became apparent more than three years prior to the time when the proceedings commenced. The defendants’ position was that the loss had been suffered at the time when the plaintiff paid the purchase price, on the basis of the allegation that the purchase price had been paid for an asset which was worth less than what was paid for it. But it seems to me that that allegation may be explained as made with the benefit of hindsight, and if, as appears to be the position adopted in the various cases referred to earlier, the loss is not ascertainable at that time, the mere fact that with hindsight a loss can be seen to have been suffered at that time will not mean that the cause of action under s 82 was then complete. That will only occur at the time when the loss was ascertainable. I do not think it is an answer to say that this was a case of the purchase of an asset; it was plainly more than the mere purchase of an asset, and in any case the purchase of asset cases really depend on the proposition that the loss is ascertainable at that point. In some of the cases referred to above there was a substantial payment made for the acquisition of an asset, even if only goodwill and plant and equipment, yet those courts did not approach the matter on the basis that the loss was suffered at that point. [24] In these circumstances it is far from clear that the plaintiff cannot succeed with any claim based on s 82 of the Trade Practices Act, or s 99 of the Fair Trading Act.7 It seems to me that the plaintiff’s case is not merely arguable, but has the support of some significant appellate authority. I therefore do not think that the tests are satisfied in relation to either of the rules sought to be invoked by the defendants. There is also the consideration that, in Wardley, the majority said at p.533: “We regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question.” [25] The issue is not greatly clarified in the present case by the way in which the plaintiff has formulated and particularised his claim for damages. Some of the damages claimed appear to be based on the proposition that damages should be assessed by 7 There was no separate submissions directed to the equivalent provision in the Fair Trading Act, the argument proceeding on the basis that the approach was the same, and I am content to proceed on the same assumption. -- 8 of 9 -- 9 comparing the position of the plaintiff now with the position of the plaintiff had he never entered into the transaction, but some of the claims appear to assume that the relevant comparison is between the plaintiff’s position now and the position he would have been in if the representations had been true. There is also the consideration that the appropriate measure of damages may depend to some extent on which particulars of misleading or deceptive conduct are established. I do not think that, merely because a transaction is said to have been entered into in reliance on all of the misrepresentations, it follows that loss or damage was suffered at the time when the purchase price was paid. [26] There is the further consideration that there is no evidence that, at the time when the unit was purchased, its market value was less than what was paid for it plus the ancillary acquisition costs then incurred by the plaintiff. In National Mutual Life Association of Australasia Ltd v Reynolds [2000] FCA 267 Spender J said at para. [114]: “It is for the defendants to plead and establish that the cause of action is outside the relevant limitation period, and showing otherwise is not an ingredient of the applicant’s cause of action.” [Emphasis added]. Accordingly the mere fact that the plaintiff alleges in the particulars that the unit purchased was worth less than he paid for it is not conclusive on this point. [27] Bearing all these considerations in mind, I am not prepared to find that the defendants have shown that in this case it is appropriate to make an order in respect of the plaintiff’s claim and statement of claim against them, insofar as it relates to relief under the Trade Practices Act and the Fair Trading Act, under either r.171 or r.293. The application is dismissed with costs. -- 9 of 9 --