[Home] [Databases] [WorldLII] [Search] [Feedback] High Court of Australia

Gould v Vaggelas [1985] HCA 85; (1984) 157 CLR 215; (1984) 56 ALR 31 (3 December 1985)

CATCHWORDS

HEARING

DECISION

The second question, whether the Goulds have established
statements made by Vaggelas and, if so, what is the measure of their damage, is a more difficult one. The difficulty lies not in stating the legal principles which should be applied, but in applying those principles to the facts of the case. It is clear that it was not right to identify the Goulds with the company, Gould Holdings Pty. Ltd. ("Gould Holdings"), which the Goulds formed to make the purchase, notwithstanding that they were the sole shareholders. It is of course elementary to say, as was said in Prudential Assurance v. Newman Industries (1982) Ch. 204, at p.210, "that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested." Any loss suffered by Gould Holdings as a consequence of the fraud can be recovered only by the company itself. Even if the company had not commenced an action within the limitation period, its failure to enforce its own rights would not have enhanced the rights of the Goulds (see Prudential Assurance v. Newman Industries, at p.223). However, although the Goulds cannot recover damages merely because Gould Holdings has suffered damage, and cannot recover damages which are merely a reflection of a loss suffered by the company, they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company. That this is so is clear in principle, but if authority is needed, the judgment in Prudential Assurance v. Newman Industries, at pp.222-223, provides it.

It is well established that in an action of deceit where

The usual rule is, however, only a special application

"A rule of practice is, however, now well
established that where a person complains that he
has been induced by deceit to buy something and pay
more for it than it was worth, the amount of
damages which he is entitled to recover is
restricted, prima facie at any rate, to the amount
by which the price which he has paid exceeds the
true value of the thing bought at the time when he
bought it: Potts v. Miller. The rule is well
settled, and exceptional circumstances are
necessary to justify an award of anything more by
reference to the general principle, but such
circumstances may occur."

In accordance with the general principle, consequential

In Doyle v. Olby Ltd., where the fraud of the defendant

When the victim of the deceit is not the purchaser under

There is a passage in the judgment of Lord Denning M.R.

I now turn to the circumstances of the present case.

I shall now consider the first of those heads of damage.

However it would be quite unreal to determine the extent

The learned trial judge concluded that the Goulds, as

It was urged on behalf of the respondents that the

For these reasons the loss which the Goulds have in fact

Once it is held that the carrying on of the business was

I see no reason to doubt the correctness of the award of

I therefore consider that the award of $1,427,500 in

I should add that if Gould Holdings were to proceed with

The third question for decision is whether the Full

The ground on which a Bullock order may be made is, in

The decision whether or not to make a Bullock order lay

It was pointed out on behalf of the respondents that the

For these reasons I would allow the appeal and restore

MURPHY J. I accept the findings by the trial judge, Mr Justice Connolly, that the Goulds were induced to enter into the contract by the false representations of Mr Vaggelas. These representations were "that the business was very profitable; that it would make at least $500,000 ... net profit; that the occupancy rate of beds was 85 percent for eight months and 50 percent for four months; and that for the period 1st January 1975 to 3rd September 1975 accommodation receipts were $442,260 and takings in the bar and gift shop $392,120". Although the agreement was expressed to be on behalf of a company yet to be formed (Gould Holdings Pty Ltd - "Gould Holdings"), it was clearly entered into by the Goulds, who suffered damage as a result.

2. The Goulds' action is separate and distinct from any action open to Gould Holdings and the Court is confined now to dealing with the Goulds' action. The trial judge did not confuse the Goulds' action with any right of action in Gould Holdings. I reject the notion that the Goulds have not suffered damage themselves. The trial judge concluded that the correct approach was to determine a figure which would restore the Goulds to their former position. This involved giving them "the value of the property they put up as security (after making allowance for their receipt of $19,002) and the value of the property which they exchanged (adjusted for its inflated value)" and freeing them of their liabilities to the creditors of Gould Holdings. With interest, he assessed the Goulds' damages as $1,427,500. I agree with that approach and assessment.

3. Even if Gould Holdings' right of action against these defendants did affect recovery by the Goulds, by increasing the value of their shares in Gould Holdings, it does not follow that the value of any such right is the difference between the value of the business and the price paid for it by Gould Holdings. As the history of this case shows, the value of a right of action depends on many factors, not the least of which is the cost of protracted litigation (beyond those costs which can be recovered as party and party costs). The value of any right of action should not be assessed as the measure of damages if the action were successful. Such a proposition might hold in a system of perfect justice where righteous plaintiffs inevitably succeed without any cost to themselves. In real life Gould Holdings may not have the funds to pursue a right of action or may not obtain judgment or may not recover anything. At the trial, the evidence was that because of lack of funds, the liquidator for Gould Holdings would not pursue any right of action. However a writ was issued by Gould Holdings on 21 October 1981, about a month after Mr Justice Connolly's judgment in the action.

4. The value of the company's right of action is uncertain and the evidence does not persuade me that it is worth anything. The reluctance to bring action indicates this.

5. If in the result, the Goulds are restored, as far as can be determined on the evidence, to the position they would have been in if they had not entered the contract, it is immaterial that because of this or other proceedings the fraudulent parties (the Vaggelas interests) may end up much worse than if they had not induced the making of the contract.

Bullock Order

6. I agree with Mr Justice Wilson about the granting of the Bullock order but, because I would restore the judgment for damages of Mr Justice Connolly, I would also restore the order.

7. The appeal should be allowed and the cross-appeal dismissed.

WILSON J. This is an appeal and cross appeal from a decision of the Full Court of the Supreme Court of Queensland (Douglas and Matthews JJ., Macrossan J. dissenting). It forms part of a long and complex dispute involving many parties and many allegations. Fortunately it is unnecessary to trace the history of the case in great detail.

The Facts.

1. A number of companies, including South Molle Pty.

2. In July 1975 the appellants ("the Goulds") became

3. Negotiations then ensued between the Goulds and

4. On 29 October 1975 several contracts were executed.

Deposit .. .. .. .. .. $5,000
Cash on completion .. .. .. $957,500
Mortgage back to vendors .. $1,352,500

It was agreed that the obligation to pay $957,500 cash

5. Settlement occurred on 16 December 1975. Gould

6. By February 1977 Gould Holdings was in default in

1. By writ issued 3 February 1978 South Molle Pty.

2. On 21 April 1978 the Goulds delivered a defence and

3. Shortly before the case was due to be heard the

4. After a trial extending over thirty-five days, the

(a) the claim of South Molle Pty. Ltd. against the
Goulds in the original action was dismissed;

(b) on their counterclaim, the Goulds were awarded
damages for deceit in the sum of $1,427,500
with costs;

(c) the Goulds' counterclaim against their
accountants was dismissed with costs;

(d) a "Bullock order" was made requiring the vendor
companies and Mr. and Mrs. Vaggelas to pay the
costs awarded to the accountants.

5. The vendor companies and Mr. and Mrs. Vaggelas

6. Both sets of parties who were involved in the

2. It is now possible to address the issues which require resolution in the present proceedings. The first of those issues focusses on the question of inducement. It is whether the false representations that were made to the Goulds were shown to have caused them to act to their detriment, whereby they suffered loss. The second is concerned with the measure of damage in a case such as this and in particular the quantum, if any, of those damages. The third is the question of the Bullock order.

(a) Inducement.

3. The starting-point for a consideration of the evidence relating to inducement and the trial judge's handling of that evidence must be the findings he made with respect to the misrepresentations. It was a difficult trial. Much of the evidence which bore on this question was in conflict and the learned judge is to be commended for the careful way in which he analysed and evaluated the competing considerations. He had to make decisions based on the view he took of the credibility of the principal witnesses, namely, Mr. Vaggelas, Mrs. Gould and Mr. Ingles. He found that each of them was, in one respect or another, an unsatisfactory witness. The range of the conflict which his Honour encountered in evaluating the evidence and the extent to which his assessment of the credibility of the witnesses played a part in that evaluation renders the clear findings of fact to which he eventually came highly persuasive to an appellate court. It is understandable that in these circumstances Mr. Pincus for the cross appellants offers no real challenge to the findings of Connolly J. as to the making of fraudulent misrepresentations by Mr. Vaggelas. His Honour summarized his findings "as to the representations made by Mr. Vaggelas and fraudulently made" as follows:

"They are that the business was very profitable;
that it would make at least $500,000, which, being
a comment on the figure of net profit in Exhibit 20
is clearly to be taken as a representation as to
net profit; that the occupancy rate of beds was 85
percent for eight months and 50 percent for four
months; and that for the period 1st January 1975 to
3rd September 1975 accommodation receipts were
$442,260 and takings in the bar and gift shop
$392,120."

fraudulent, if the representee does not rely upon it he
has no case.

to induce the representee to enter into a contract and
that person in fact enters into the contract there
arises a fair inference of fact that he was induced to
do so by the representation.

that the representee, before he entered into the
contract, either was possessed of actual knowledge of
the true facts and knew them to be true or alternatively
made it plain that whether he knew the true facts or not
he did not rely on the representation.

is sufficient so long as it plays some part even if only
a minor part in contributing to the formation of the
contract.

4. The main thrust of Mr. Pincus' submission in this Court is not that the learned trial judge wrongly evaluated the evidence in his examination of the submission that in truth Mrs. Gould did not rely upon the representations of Mr. Vaggelas. It was that, the evidence as to inducement being evenly balanced, his Honour wrongly placed the onus of proof on the defendants and so found in favour of the Goulds. Connolly J. frankly acknowledged the presence of powerful considerations which would go to negative any reliance by the Goulds on the representations. In particular, he referred to the absence of any complaint by Mrs. Gould prior to 2 November 1977 and her oft-expressed suspicion of Mr. Vaggelas. On the other hand, his Honour found those considerations to be opposed by other matters. Mrs. Gould never had any knowledge of the true financial position of the resort, not even knowledge that was partial or fragmentary. She could not have relied on Mr. Ingles because she was well aware that he had no facts on which to base a judgment other than the representations of Mr. Vaggelas. There was no opportunity for independent investigation or judgment. His Honour then concluded his consideration of this issue with the following statement:

"Finally I come back to the failure of Mrs. Gould
to complain. This consideration goes in part to
credit and in part to the likelihood of reliance.
In the end I am faced with the fact that the Goulds
entered into a highly onerous contract after
detailed representations had been made in July,
reinforced by representations of much the same
character in September; that they showed throughout
a lively concern about the financial position of
the resort; and that they did their best by
retaining an accountant and taking him to the
island to obtain a professional assessment of that
financial position. Having regard to their real
and of course natural concern about the financial
side and to the material character of the
representations, which were not only calculated but
obviously intended to influence their judgment I
am not persuaded that the inference that they were
so influenced is displaced by the considerations so
vigorously argued on behalf of the Vaggelas
interests."

5. Mr. Pincus argues that in expressing his conclusion in the way he did in the last sentence quoted, Connolly J. is placing the ultimate burden of proof on the defendants and that therein lies a serious error of law. The first question is, where does the ultimate burden lie? It may be that some of the cases dealing with the necessity to prove inducement do not distinguish expressly between an evidentiary onus and an ultimate onus and thus use language which can give rise to ambiguity. For example, in Arnison v. Smith, at p 369, Lord Halsbury L.C., referring with approval to what Sir George Jessel M.R. had said in Smith v. Chadwick, said that

"if the Court sees on the face of the statement
that it is of such a nature as would induce a
person to enter into the contract, ... the
inference is, if he entered into the contract, that
he acted on the inducement so held out, unless it
is shewn that he knew the facts, or that he
avowedly did not rely on the statement whether he
knew the facts or not." (my emphasis).

"The plaintiffs have the onus of proving that the
representations they complain of were material, and
that they were induced to act upon them."

6. There is no reason to doubt the correctness of these statements. They accord with sound principle, namely, that a plaintiff carries the burden of establishing every element of his cause of action. At the same time, one can readily understand why it is in cases of deceit that a tribunal whose duty it is to find the facts may require a defendant to make some answer to the case that is put against him. Such cases are of a kind where in the general experience of mankind the facts speak for themselves. Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances. Examples commonly given of such circumstances are that the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the fraudulent representations. It is entirely accurate to speak of an onus resting on a defendant to draw attention to the presence of circumstances such as those I have described in order to show that the inference of the fact of inducement which would ordinarily be drawn from the fraudulent making of a false statement calculated to induce a person to enter into a contract followed by entry into that contract should not in all the circumstances be drawn. But it is no more than an evidentiary onus - an obligation to point to the existence of circumstances which tend to rebut the inference which would ordinarily be drawn from the primary facts. When all the facts are in, the fact-finding tribunal must determine whether or not it is satisfied on the balance of probabilities that the misrepresentations in question contributed to the plaintiff's entry into the contract. The onus to show that they did is a condition precedent to relief and rests at all times on the plaintiff.

7. Mr. Pincus is correct, then, in affirming that the Goulds bore the onus of proving that they were induced to buy the resort by the fraudulent misrepresentations of Mr. Vaggelas, but he fails on the next limb of his submission. He fails to show that Connolly J. erred by placing that onus on the defendants. On the contrary, in the course of that section of the reasons which concludes with the passage I have quoted, the learned trial judge after referring to the inference of fact of inducement which would ordinarily be drawn from the conjunction of what I have called the primary facts, proceeds to say:

"... but that being an inference of fact only, it
is liable in a proper case to be displaced by other
evidence.
In this connection it would appear that the
evidentiary burden shifts to the representor."

(b) Damages.

8. The issue of damages is complicated by a number of considerations including the fact that Gould Holdings is not a party and the further fact that the company continued to operate the business from the date of purchase in December 1975 until the mortgagee entered into possession in July 1977. To enable the issues as they are presented by the parties in the present appeals to be examined, it is desirable to sketch briefly the various approaches taken by Connolly J. and the members of the Full Court.

9. The trial judge sought to determine a figure which would in practical terms restore the Goulds to the position they would have occupied if there had been no fraudulent misrepresentations and no acquisition of the resort. He awarded them a total of $1,427,500, made up as follows:

(i) the actual value assessed as at the date of
settlement of the property which the Goulds
transferred to the vendors in part payment of
the purchase price and which was to represent
the amount payable by Gould Holdings on
completion (the Goulds were actually credited
in a loan account in the books of Gould
Holdings with the higher figure of $957,500,
the traded value of the property agreed for
the purposes of the contract): $733,212.12

(ii) losses actually suffered by the Goulds under
personal guarantees required by the banks in
return for their provision to Gould Holdings
of advances of capital for repairs and
improvements to the resort and of working
capital and also under personal guarantees
given by them in connection with various
leasing agreements and to the Shell Company
and Telecom: $266,273

(iii) residual obligations still outstanding under
their personal guarantees: $227,983

(iv) interest, assessed broadly in a global way
(grossed up to make a rounded total figure):
$200,000.

10. In the Full Court, Matthews J. (with whom Douglas J. agreed) adopted an entirely different approach, one which is attacked from all sides. His Honour began by determining the real value of the resort at the date of purchase to be $1,500,000. In doing so, he relied heavily, if not wholly, on evidence of an offer that a Mr. Kennedy had made for the resort in 1975 at the time when the Goulds were negotiating the purchase. He then subtracted this figure from the adjusted purchase price of $2,150,000, arriving at the figure of $650,000 as the measure of damages to which Gould Holdings, the purchaser company, would have been prima facie entitled if it had sued (leaving aside the question of trading losses). Matthews J. then said:

"... realistically one has two alternative
approaches, either to accept that the company's
right to recover damages is and, in view of the
course of events and particularly the relationship
between the respondents and the company was,
illusory, or to identify the respondents with the
company and give to them the benefit of what the
company could have recovered provided always that
the company's right to bring an action be barred."

11. Macrossan J. also considered that Connolly J. had erred in failing to have regard to the prima facie measure of damages in an action for deceit brought by a purchaser, namely, the price paid less the actual value of the property acquired. He conceded that the Goulds gained a personal right of action because they had been personally deceived by Mr. Vaggelas but observed that the amount of their damage up to the time of completion of the purchase could only be the difference, if any, between the amount of their first advances and the asset backing of Gould Holdings. The assets of the company included its right to sue the vendors for damages since Mr. Vaggelas had deceived those acting as its agents. It followed, so the learned judge reasoned, that

"(t)he purchaser company's right of action would
have been worth the difference between the actual
value of the business and the price paid, so that
the amount of the Goulds' advance would have been
covered by the value of assets in the company if
one allows for the value of the company's right of
action."

"the attribution, without limit, of all the Goulds'
subsequent losses to the effect of the original
deception is not reasonably sustainable."

12. With all respect I find the view of Macrossan J. most useful in identifying the relevant issues relating to the damages, if any, to which the Goulds are entitled. The first of those issues is the precise formulation of the Goulds' claim having regard to the right of action in the purchaser company, Gould Holdings. The second is the proper measure of damages in the particular circumstances of the case, with particular reference to losses sustained after entry into possession.

13. Connolly J. identified the Goulds' claim as falling into three parts. The first was the value of their advances in property to Gould Holdings to enable it to complete the purchase, namely, $733,212.12. The second was their losses in relation to the properties put up as security for advances to Gould Holdings, namely, $266,273. The third was their residual liabilities under personal guarantees to the creditors of Gould Holdings, namely, $227,983. He acknowledged that had there been a purchaser's action by Gould Holdings for damages for deceit immediately following entry into possession in December 1975, the Goulds would probably have lost nothing. It therefore becomes of critical importance to determine the propriety in principle of a claim for consequential losses in the circumstances of the present case. In South Australia v. Johnson (1982) 42 ALR 161, it was said in the judgment of the Court (at pp 169-170):

"The principle which underlines the award of
damages in tort is, generally speaking, that of
restitutio in integrum. The object is to restore
the plaintiff to the position in which he would
have been placed if the wrongful act had not been
committed. The measure will vary as between deceit
and negligence. In deceit, the plaintiff recovers
the difference between the amount paid and the
value of the property acquired, the object being to
place him in a position equivalent to that which he
would have occupied had the transaction not taken
place. The defendant being guilty of a deliberate
wrong, the damages will include the whole loss
directly flowing from the fraudulent inducement
because, as Lord Denning MR declared in Doyle v.
Olby (Ironmongers) Ltd. ... 'it does not lie in the
mouth of the fraudulent person to say that they
could not reasonably have been foreseen'.
It is otherwise in cases of negligent
misrepresentation."

"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."

14. In Doyle's Case the plaintiff was the purchaser of a business on the strength of representations as to the takings of the business which were afterwards shown to be fraudulent. He instituted proceedings four months after settlement but carried on the business for three years before selling it. The Court of Appeal awarded him roughly sufficient damages to restore him to his antecedent position, being satisfied that the losses flowed directly from the inducement. Macrossan J. referred to the "strong contrast" between the behaviour of the Goulds in the present case following the purchase and the position of the unfortunate plaintiff in Doyle's Case "who was locked into an increasingly desperate situation notwithstanding his having commenced an action just four months after his purchase". However, Connolly J. rightly deduced from Doyle's Case that the vital question for him to ask in relation to the Goulds' conduct was whether they had hung on too long. He answered it as follows:

"In the circumstances of this case I do not think
it can be said that the Goulds, in their position
as the controlling shareholders and directors of
Gould Holdings brought their misfortunes upon
themselves. The guarantees in relation to leasings
were given soon after Gould Holdings entered into
possession and the lease agreements were obviously
essential if the business was to be carried on.
The additional obligations under guarantee were
incurred to enable Gould Holdings to obtain
necessary capital to carry on the business."

15. On the other hand, the conclusion of Macrossan J. that the Goulds must have been aware of the fraud at least very soon after the time when the purchase was completed is unwarranted by the evidence. With respect, it is too harsh on the Goulds. The disparity between representation and reality could only be demonstrated by experience and as I have indicated the Goulds cannot reasonably be fixed with knowledge of the fraud until they were well into the busy season. But prompt action was then called for.

16. Before considering the implications of such an approach to the facts, it is necessary to examine the position of the Goulds vis-a-vis Gould Holdings. It is clear, as was recognized both by Connolly J. and Macrossan J., that in return for the properties which the Goulds made available to enable Gould Holdings to complete the purchase - of an adjusted value of $733,212.12 - the Goulds obtained an interest, as a creditor, of an equivalent value in the assets of the company. Those assets included a cause of action in deceit for damages, the proceeds of which, had it been pursued promptly and successfully, would have so diminished the encumbrances on the property comprised in the resort as to secure an equity adequate to meet any claim from the Goulds. Similarly, while most of the personal guarantees were given and properties pledged by the Goulds as security for advances of capital to Gould Holdings at a time before they could reasonably be expected to have become aware of the fraud, the subsequent prompt recovery action by the company may have rendered it unlikely that the guarantees and securities would ever be called upon.

17. Mr. Pincus submits that in reality the Goulds are suing for the loss suffered by the company and this they cannot do. In this regard he relies on the recent decision of the Court of Appeal in Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No. 2) (1982) 1 Ch 204. That case was concerned inter alia, with the application of the rule in Foss v. Harbottle [1843] EngR 478; (1843) 2 Hare 461 (67 ER 189) which is grounded in the elementary principle that

"A cannot, as a general rule, bring an action
against B to recover damages or secure other relief
on behalf of C for an injury done by B to C. C is
the proper plaintiff because C is the party
injured, and, therefore, the person in whom the
cause of action is vested.": Prudential Assurance,
at p. 210.

"In our judgment the personal claim is
misconceived. ... what he (that is, a shareholder)
cannot do is to recover damages merely because the
company in which he is interested has suffered
damage. He cannot recover a sum equal to the
diminution in the market value of his shares, or
equal to the likely diminution in dividend, because
such a 'loss' is merely a reflection of the loss
suffered by the company. The shareholder does not
suffer any personal loss. His only 'loss' is
through the company, in the diminution in the value
of the net assets of the company, in which he has
(say) a 3 per cent shareholding. The plaintiff's
shares are merely a right of participation in the
company on the terms of the articles of
association. The shares themselves, his right of
participation, are not directly affected by the
wrongdoing. The plaintiff still holds all the
shares as his own absolutely unencumbered property.
The deceit practised upon the plaintiff does not
affect the shares; it merely enables the defendant
to rob the company."

18. If the view taken by Connolly J. with respect to the reasonableness of Gould Holdings carrying on the business until loss of possession in July 1977 were to be upheld, there would be something to be said in favour of the award which his Honour made. On that premise, any claims which the Goulds may have against Gould Holdings would probably have been of no value. The company was in liquidation, no action had been instituted against Mr. Vaggelas or the vendor companies and there was evidence from the liquidator, Mr. Allpass, to the effect that there were no funds with which to institute an action against the vendors of the resort. He also indicated that there were claims from other unsecured creditors amounting to approximately $500,000.

19. That position has now changed. A writ has been issued by Gould Holdings against Mr. Vaggelas and the vendor companies. It was issued on 21 October 1981 and served nearly twelve months later on Mr. and Mrs. Vaggelas shortly before the delivery by the Full Court of judgment in the appeal. Application was made to the Full Court to receive evidence of the institution of the proceedings but the application was refused. If the action proceeds and results in an award of damages to Gould Holdings the claims of the Goulds may or may not be affected thereby. One thing would seem to be clear. The Goulds are not entitled to claim the total amount of their losses without setting off the value of any claim they may have against Gould Holdings. In that regard, the value of any such claim is to be assessed without regard to the deterioration in the company's financial position by reason of it continuing to trade unprofitably beyond that point of time in 1976 when it ought to have become aware of the fraud and taken appropriate action.

(c) The Bullock Order.

20. A Bullock order is a term - derived from the decision of the Court of Appeal in Bullock v. London General Omnibus Company (1907) 1 KB 264 - used to describe an order requiring an unsuccessful defendant to pay the costs which have been awarded in favour of a successful defendant. Such an order may be made where the costs in question have been reasonably and properly incurred by the plaintiff as between him and the unsuccessful defendant: Bullock, at p. 269; Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation [1948] HCA 46; (1948) 77 CLR 544, at p 269; Altamura v. Victorian Railways Commissioners [1974] VicRp 4; (1974) VR 33. The making of such an order is a matter for the discretion of the trial judge.

21. The trial judge, having dismissed the Goulds' action against their accountants Messrs. Ingles and Tiffin, ordered the Vaggelas interests to pay their costs. His reasons for making such an order were that Mr. Vaggelas denied on the pleadings the making of any representations and that at trial his case was that he had made his books and records available and that if Mrs. Gould had relied on anyone she had relied on Mr. Ingles. He found that both the pleadings and the course of the trial warranted a Bullock order. The Goulds had not joined the accountants as defendants to their counterclaim until shortly before trial. On appeal, Matthews J. (with whom Douglas J. agreed) took a different view. He said that the Goulds had asserted a separate and distinct cause of action against the accountants and was "unable to see that the respondents found it necessary to join these defendants in the alternative". With all respect to their Honours in the Full Court, I do not think that they were justified in interfering with the trial judge's exercise of discretion in the matter. If I had not been disposed to set aside the award of damages to the Goulds, I would have restored the Bullock order.

22. I would allow the appeal and dismiss the cross-appeal. The matter should be remitted to the Supreme Court for a new trial limited to the question of damages. Whether that trial should await the outcome of the action instituted by Gould Holdings is a matter upon which no doubt the parties will act as they may be advised.

BRENNAN J. South Molle Island lies in the Whitsunday Passage off the Queensland coast. There is a tourist resort on the island. In 1975, the respondent companies owned the resort assets and conducted the resort business (I shall call them the vendor companies). The appellants, Mr and Mrs Gould, became interested in the resort. Mrs Gould very much wanted to buy it. She negotiated with Mr Vaggelas on behalf of the vendor companies. He made some representations about the profitability of the resort business. Mrs Gould told her accountant, Mr Ingles of the firm of Ingles and Tiffin, that she did not believe Mr Vaggelas. Nevertheless, after some months of desultory negotiations, a price of $2,315,000 was agreed upon. A contract dated 29 October 1975 for the purchase of the Crown leaseholds, plant, equipment, fixtures and business goodwill from the vendor companies was signed by Mr and Mrs Gould "on behalf of Gould Holdings Pty.Ltd., a Company yet to be Incorporated or their Nominee". A deposit of $5,000 was paid, $957,500 was to be paid on completion and the balance of $1,352,500 was to be paid by instalments. The payment of the balance was to be secured by a bill of mortgage and bill of sale in favour of South Molle Pty Ltd. Completion took place on 16 December 1975.

2. Gould Holdings Pty Ltd ("the company") was incorporated prior to that date and it became the purchaser. The company's issued capital is two $1 shares. It had no funds of its own to pay the purchase price. The Goulds had provided the $5,000 deposit. By contracts dated 29 October 1975, they agreed to sell to South Molle Pty Ltd the shares in a company which owned a shopping centre and Mrs Gould agreed to sell another shopping centre to Mrs Vaggelas. The total price of the shares and the shopping centre was $957,500 - the sum payable and paid on completion to the vendor companies. The Goulds were credited with that amount as a loan to the company, although the actual value of those assets was somewhat less, namely, $733,212.12. The company carried on the business of the resort and made some improvements to it. It borrowed the funds needed for those purposes from banks and other external lenders and the Goulds guaranteed the borrowings, mortgaging other property to support the bank guarantees.

3. The venture failed. South Molle Pty Ltd, as mortgagee, entered into possession and later sold the resort but the amount realized did not satisfy the mortgage debt. The company went into liquidation. Apart from its liability to the Goulds, it has liabilities of $500,000 or thereabouts. There are few assets, worth little. The Goulds were called on to honour their guarantees. A bank sold some of the properties mortgaged to it and forced the sale of another. The properties were worth $285,275 but they realized only $217,999. The Goulds received $19,002 out of the proceeds of the sales. Deducting that amount from the value of the properties, the Goulds' loss was of a net value of $266,273. A further $227,983 is owing under the guarantees. The Goulds lodged a proof of debt with the company's liquidator but, subject to a qualification presently to be mentioned, no dividend is likely to be paid.

4. In the Supreme Court of Queensland, Connolly J. found but, subject to a qualification presently to be mentioned, no dividend is likely to be paid.

5. In the Supreme Court of Queensland, Connolly J. found that the Goulds had lost the value of the assets they had transferred to South Molle Pty Ltd and to Mrs Vaggelas ($733,212.12), the net value of the properties sold to pay part of the Goulds' liabilities under the guarantees ($266,273) and the amount they are liable to pay under the guarantees ($277,983) the total of which his Honour rounded out to $1,227,500. In an action for damages for deceit brought by the Goulds against Mr Vaggelas, Mrs Vaggelas and the vendor companies, his Honour gave judgment for the Goulds in the sum of $1,227,500 together with $200,000 interest, making a total of $1,427,500. He found that Mr Vaggelas acting on behalf of all the respondents had fraudulently made four misrepresentations to Mrs Gould, namely,

" that the business was very profitable; that it
would make at least $500,000, which ... is
clearly to be taken as a representation as to net
profit; that the occupancy rate of beds was 85
percent for eight months and 50 percent for four
months; and that for the period 1st January 1975
to 3rd September 1975 accommodation receipts were
$442,260 and takings in the bar and gift shop
$392,120."

6. In this Court, the respondents have not challenged the findings that those misrepresentations were made, that they were made fraudulently and that they were material, but they challenge his Honour's finding that the Goulds or, more precisely, Mrs Gould (who was chiefly concerned in the negotiations and the decision to buy) was induced to act by those misrepresentations. The respondents point to her suspicion of Mr Vaggelas and of the figures which he had stated in July 1975, to her assertion that the representation that the business would make at least $500,000 per annum was not made to her (though a representation of the making of a larger profit had been made), to her declared disbelief in the correctness of the figures for 1 January to 3 September 1975 which Mr Vaggelas had furnished to Mr Ingles, and to the advice given to her (as his Honour found) that Mr Vaggelas' figures were unsupported by documents and were unreliable. The Goulds also sought damages for negligence against Messrs Ingles and Tiffin, alleging that Mrs Gould had relied on Mr Ingles' investigations and advice and that Mr Ingles had negligently advised her to buy. Though Connolly J. rejected her allegations against Mr Ingles, he nevertheless found as a fact what was submitted to be inconsistent with her evidence and her case against Messrs Ingles and Tiffin - that her decision to buy had been induced by Mr Vaggelas' misrepresentations. If Mrs Gould was not so induced, the Goulds' case against the respondents fails.

7. His Honour's finding of inducement was said to be vitiated by his placing on the respondents the onus of disproving that the representations made had induced the Goulds to act, and by holding that the onus could be discharged only upon proof that the Goulds knew the true facts. These submissions are founded on what his Honour said at the conclusion of an extensive review of the evidence:

" It is quite true that she did her best to obtain
accurate information through these sources but
as, to the knowledge of all concerned neither of
these gentlemen was ever able to obtain any
information about the financial position of South
Molle save that which derived from the verbal
assurances of Mr. Vaggelas it cannot be said that
this is one of the cases in which the plaintiffs'
judgment was not affected by the
misrepresentation because they chose to rely on
their own investigations and their own judgment.
There was simply no basis on which, in the
critical area, an independent judgment could be
formed. Finally I come back to the failure of
Mrs. Gould to complain. This consideration goes
in part to credit and in part to the likelihood
of reliance. In the end I am faced with the fact
that the Goulds entered into a highly onerous
contract after detailed representations had been
made in July, reinforced by representations of
much the same character in September; that they
showed throughout a lively concern about the
financial position of the resort; and that they
did their best by retaining an accountant and
taking him to the island to obtain a professional
assessment of that financial position. Having
regard to their real and of course natural
concern about the financial side and to the
material character of the representations, which
were not only calculated but obviously intended
to influence their judgment I am not persuaded
that the inference that they were so influenced
is displaced by the considerations so vigorously
argued on behalf of the Vaggelas interests."

8. An inference of inducement may be drawn when a party enters into a contract after a material representation has been made to him, but it is no more than an inference of fact and it is settled law that such an inference may be rebutted by the facts of the case: Holmes v. Jones [1907] HCA 35; (1907) 4 CLR 1692, at pp 1707,1711; Smith v. Chadwick (1884) 9 App Cas 187, at p 196. The tribunal of fact may infer that such a material misrepresentation induced the representee to enter into the contract and the fact that there were other inducements to him to do so does not necessarily preclude the drawing of that inference. The relevant question for the tribunal of fact to answer on all the evidence is whether the misrepresentation alone, or with or notwithstanding other things that accompanied it, was a real inducement, or one of the real inducements to the plaintiff to do whatever caused his loss (Nicholas v. Thompson (1924) VR 554, per Cussen A-C.J., at p 566; Edgington v. Fitzmaurice (1885) 29 ChD 459, per Bowen L.J. at p 483; Arnison v. Smith (1889) 41 ChD 348, per Lord Halsbury L.C. at p 369). Connolly J. referred to these principles in the earlier parts of his judgment and there is nothing to suggest that he placed the ultimate onus on the respondents or regarded the inference of inducement to be more than a rebuttable inference of fact.

9. A more difficult question is whether the inference of inducement should have been drawn in the light of the independent advice given to Mrs Gould and her opinions about Mr Vaggelas and the correctness of the information he had given. The basic facts are that the misrepresentations were calculated to induce the Goulds to agree to buy the resort, and that they agreed to buy on behalf of the then unincorporated company for $2,315,000. It is inconceivable that the Goulds would have entered into that contract without making some assessment of the profitability of the business. They had, as his Honour found, "a lively concern about the financial position of the resort". His Honour rejected the allegation that the Goulds had been given an assessment by Mr Ingles and other advisers which induced the Goulds to agree to buy, though he accepted that Mr Ingles had passed on to Mrs Gould information given to him by Mr Vaggelas. Why, then, would the Goulds have "entered into a highly onerous contract" if they had had nothing on which to make an assessment? The only suggestion made on behalf of the Vaggelas interests is a too-willing desire on the part of Mrs Gould to own the resort, aided by a misplaced confidence that it could be built up into profitability. Those matters had to be taken into consideration, but they cut both ways. On the one hand, those matters may be relied on to suggest that Mr Vaggelas' representations as to profitability of the business were irrelevant to the decision to buy; on the other, they suggest that Mrs Gould was predisposed to buy, and therefore readier to give some credence to and to act on a representation even if there were grounds to suspect its truth. If the desire for ownership be sufficiently intense, a prospective purchaser is wont to discount the doubts and suspicions that might otherwise hold him back from acting on anything contained in a vendor's representation and, by giving credence to at least part of what he has been told, to tip the scales in favour of buying. If the representor leads the representee to believe any part of the representation which is, and is known by the representor, to be untrue and the representee acts on that belief and suffers damage, the representor does not escape liability because the representee did not believe the representation in full. If the representee's desire to own what was for sale leads to the giving of some credence to the representation which would not otherwise have been given, the representee's self-induced gullibility is no defence to the representor. A knave does not escape liability because he is dealing with a fool. The fact that Mrs Gould wanted to buy South Molle Island resort and the fact that she did not believe everything she or Mr Ingles was told by Mr Vaggelas does not mean that his representations did not induce the Goulds' decision to buy.

10. His Honour's finding that Mr Ingles had not given Mrs Gould the advice she alleged he gave leaves only Mr Vaggelas' representations, whether made directly to her or through Mr Ingles, as the foundation of any belief she held as to the profitability of the resort business. She thought the representations did not truly state occupancy rates or receipts, but assertions that the business was very profitable were inherent in the four representations found to have been made by Mr Vaggelas, and it was open to his Honour to find that the general representation of profitability was one of the factors which induced the Goulds to decide to buy. On a reading of the whole of his Honour's judgment, I think that is what he found. He quoted from the judgment of Lord Halsbury L.C. in Arnison v. Smith to show the fallacy of attempting to analyze the mental impression created by each of a number of representations. He said that the effect of a series of verbal representations could be ascertained as one might ascertain the effect of a series of written representations, referring to Aaron's Reefs v. Twiss (1896) AC 273, where Lord Halsbury "observed of a prospectus that it contained statements calculated to show that the commercial adventure in question was a very good thing which was likely to produce very large profits". I understand his Honour to have found that the four misrepresentations falsely conveyed a statement that the business was very profitable and that the Goulds, unable to form "an independent judgment" in "the critical area" but having "a lively concern about the financial position" were thereby induced to buy. That finding was open and no error of law vitiates it (cf. Cutts v. Buckley [1933] HCA 21; (1933) 49 CLR 189). His Honour did not hold that the respondents had to prove that the Goulds knew the true facts as to profitability before the inference of inducement could be repelled. The cross-appeal must be dismissed.

11. The question raised by the appeal is the measure of the Goulds' damages. They did not purchase the resort. Can they recover damages except through the company which suffered loss as the purchaser? The Goulds cannot sue in their own names for the company's loss (Prudential Assurance v. Newman Industries (No.2) (1982) Ch 204, at p 210); they can recover only the loss suffered by them in acting upon the fraudulent misrepresentations which Mr Vaggelas made. They did not act upon those representations by becoming the purchasers of the resort but by forming the company, by providing it with funds to complete the contract to purchase the resort and by guaranteeing the company's borrowings needed to improve the resort and provide working capital. No doubt it was a matter of indifference to the Vaggelas interests whether the Goulds chose to buy the resort personally or by forming a company to be the purchaser, but the terms of the contract show that the formation of the company to complete the purchase and conduct the resort was contemplated by the parties. The representations were calculated to induce the Goulds either themselves to buy or to form a company to do so and, in the latter case, to provide to or procure for the company the funds it would need to complete the purchase of the resort and to conduct the resort. It is the loss, if any, suffered by the Goulds in acting in this way which is recoverable in this action. The Goulds' loss is the loss suffered by a creditor of the company which, apart from its cause of action in deceit, is worthless.

12. If a defendant, D, by fraudulent misrepresentations made to a plaintiff, P, induces P to lend money to a worthless company, C, whereby the money lent is lost, D is liable for damages in deceit to P. That is clear enough where C is under D's control, and there is no difference in principle when C is not under D's control. If D's fraudulent misrepresentations induce C to part with its assets to purchase a worthless property and induce P to lend money to C in order that C may purchase the property, D is liable for damages in deceit to each of P and C. To C, whom he has induced to part with its assets in exchange for the worthless property; to P, whom he has induced to part with the money lent in exchange for a debt owed by C which C is unable to pay. The causes of action vested in P and C are distinct. D's liability arises, in one case, from his inducing C to purchase property, in the other from his inducing P to lend money to C. In one case, it is the purchase of the worthless property that causes the loss, in the other it is the lending of money to a worthless company. The distinction between the causes of action and the measure of damages is clearer if the property in the one case and the debt in the other are not worthless. Then the difference between the purchase price and the value of the property is, prima facie, the measure of C's damages, while the difference between the money lent and the value of the debt is, prima facie, the measure of P's damages.

13. Where a plaintiff who has been fraudulently induced to part with money in exchange for something sues in deceit, he must prove that the thing is worth less than what he gave in exchange for it (Potts v. Miller [1940] HCA 43; (1940) 64 CLR 282, at p 299). And so, when P has been fraudulently induced by D to lend money to C, P bears the onus of proving that the value of the debt owed by C is worth less than the amount of money lent. Similarly, if P's loss has been incurred not because he was induced to lend money to C but because he was induced to guarantee C's borrowings, P bears the onus of proving that he has paid or is liable to pay more under the guarantee than the value of anything that he acquired by giving the guarantee and by meeting his liability under it. In ascertaining P's net liability, account must be taken of the value of the guarantor's rights against the principal debtor. P's actual net liability under the guarantee provides evidence of the detriment which P suffered in the giving of the guarantee, for later events are admissible to show what was the extent of the contingent liability incurred when the guarantee was given and the value of the principal debtor's liability to indemnify the surety (cf. Potts v. Miller, per Starke J. at pp 289-290, per Dixon J. at p 299). Lending money and giving a guarantee are two ways in which a plaintiff may suffer prejudice or disadvantage in consequence of a representee altering his position under the inducement of a defendant's fraudulent misrepresentations. A sum representing his net prejudice or disadvantage is recoverable as damages in deceit (Toteff v. Antonas [1952] HCA 16; (1952) 87 CLR 647, per Dixon J. at p 650). In Potts v. Miller, Dixon J. stated the general rule (at p 297):

" 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."

14. Where the plaintiff has been induced to enter into a contract to buy property and on discovering the fraud affirms it, the measure of his damages may be confined to the difference between what he paid for the property and what it was truly worth, as in Toteff v. Antonas, but it will not be so confined if there are subsequent losses which come within the rule as stated and which flow directly from the fraudulent inducement. In the present case, however, the Goulds' loss was not incurred as the loss of a purchaser of property. In the present case, the Goulds lost the property which they parted with on completion of the contract that was worth $733,712.12, the net value of the mortgaged properties ($266,273) and the amount which they remain liable to pay under the guarantees ($227,983). What the Goulds received in exchange is the company's unsecured liability to repay the amounts credited as moneys lent to the company ($957,500) and to indemnify them for the moneys paid under the guarantees (there were no valuable securities held by the company's creditors which were available to the Goulds when they discharged their liabilities under the guarantees). What is the value of the company's liabilities to the Goulds (which I shall call the company debt)? The company has, or is alleged to have, a cause of action in deceit against the respondents for the amount of its losses but, apart from that cause of action, the liquidator's evidence shows that the company has no assets out of which to satisfy the company debt in whole or in part. That appears to have been the position since the company ceased trading in July 1977.

15. From that time, the Goulds were likely to lose $1,227,500 - I leave interest aside at this point - and the question for the trial judge to determine was whether that loss had flowed directly from the fraudulent inducements. They had been induced to contribute their property and to give the guarantees which occasioned the outgoings and liabilities amounting to $1,227,500, but their loss of that sum was caused by the company's failure and its consequent inability to pay the company debt. Was the company's failure caused by the fraudulent inducements or by some independent cause? His Honour said:

" The decision" - he was referring to Doyle v.
Olby (Ironmongers) Ltd. (1969) 2 Q.B.158 - "does
however call for consideration of the
reasonableness of the conduct of the representee
and in particular whether he can be shown to have
hung on too long or to have behaved otherwise
than as a sensible businessman or to have brought
his misfortunes upon himself. In the
circumstances of this case I do not think it can
be said that the Goulds, in their position as the
controlling shareholders and directors of Gould
Holdings brought their misfortunes upon
themselves. The guarantees in relation to
leasings were given soon after Gould Holdings
entered into possession and the lease agreements
were obviously essential if the business was to
be carried on. The additional obligations under
guarantee were incurred to enable Gould Holdings
to obtain necessary capital to carry on the
business."

16. In the Full Court, Macrossan J. rejected that finding. He said:

" Applying the words of Winn L.J. from Doyle's
Case ... at p.168 it appears that the Goulds were
in a true sense the author of their own
misfortunes as they continued to trade,
disastrously as it happened, throughout 1976 and
the first half of 1977. Alternatively
considering the matter from the point of view
advanced by Sachs L.J. in the same case at p.171
the indications here are that the plaintiffs kept
the business going by choice after the time when
it could probably have been disposed of."

17. In the Full Court, Matthews J., in whose judgment Douglas J. agreed, approached the assessment of damages on a different basis. Matthews J. identified the Goulds with the company, assuming that the damages which the company could have recovered would have flowed on to the Goulds. His Honour assessed the company's damages at $650,000 - a figure which left out of account trading losses except as evidence relevant to the value of the resort at the time of purchase - and the Court reduced the award of damages to $700,000, consisting of the $650,000 plus $50,000 interest. In some respects, the approach of Macrossan J. was similar, but his Honour regarded the value of the company's cause of action in December 1975 as sufficient to eliminate any deficiency in the company's assets. His Honour said:

" ... it cannot, in my opinion, be overlooked that
no basis has been established by the Goulds for a
claim that the total assets of their company,
including its cause of action, have been reduced
in value as a result of the deceit practised by
Vaggelas. This is largely because, in
formulating their individual claims against
Vaggelas, they ignored the value of their
company's claim. Any attempt to assert now that
there existed a deficiency in the assets of Gould
Holdings at the end of 1975 could only be
supported by making some arbitrary and, in terms
of proof, unjustified discounting of the value of
the company's damages claim against the Vaggelas
interests. The difficulty in which the Goulds
find themselves over their claim against Vaggelas
really results from their not having arranged
that Gould Holdings should take proceedings or,
to put it another way, from their not insisting
that Gould Holdings should take that course or
through their not forcing it to do so by calling
in the debt owed to them by that company.
In bringing their own action directly against
the vendors, they have, in substance, endeavoured
to appropriate to themselves what is their
company's right of action and in their claim as
formulated they have departed as well from the
constraints of the true measure of damages
applicable to any claim made by them as
individuals."

18. In my respectful opinion, these approaches fail to take account of the distinct causes of action vested in the company and the Goulds respectively (the Goulds choosing to assert their claims as though they were jointly entitled to the same damages). Once it is recognized that the Goulds' cause of action is distinct from the company's there can be no question of the Goulds appropriating the company's cause of action or of measuring the Goulds' damages by what the company could have recovered at some earlier time. In assessing the Goulds' loss, the value of the company's cause of action is relevant to the value of the company debt so far as it might show what the company was likely to pay the Goulds; but the value of the company debt is a matter of fact, not to be ascertained by reference to the measure of damages which might have been recovered by the company if it had sued. The relevant question in determining the Goulds' damages was whether the company would more probably than not be able to pay some or all of what it owed the Goulds. In fact, the company has never been likely to pay the Goulds anything. Before the effect of the fraudulent inducement was spent - that is, while it was carrying on the resort business - it was endeavouring to meet the demands of its external creditors and the extent of its failure to do so is reflected largely in the Goulds' losses. After it ceased trading, it has had no assets which have been available to make payment to the Goulds. The company debt had no value, and it would not have been right to diminish the assessment of the Goulds' damages by an amount representing a notional payment which the Goulds might have received if the company had brought an action against the respondents and recovered a judgment.

19. There was no obligation on the Goulds to mitigate their losses by causing the company to sue or by providing funds to the liquidator to allow him to prosecute an action. The Goulds were entitled to sue upon their own cause of action, relying on the fact that the company's inability to pay the company debt was the result of its being induced to purchase the resort and conduct the business. When it went into liquidation, the liquidator had no funds to prosecute an action. At the trial there was nothing to suggest that the company's cause of action against the respondents would yield funds that might flow on to the Goulds in diminution of their loss. The company had not then issued a writ against the respondents or any of them. After judgment, a writ was issued by the company against the respondents. If that action were successfully prosecuted against the respondents, and damages were assessed in an amount representing the loss suffered by the company in purchasing and conducting the resort, would the Goulds be entitled to receive and retain a dividend on the company debt while retaining the damages awarded by Connolly J. in this action? The Goulds' action is founded on their loss as lenders and guarantors, and their damages are measured by what the company has failed to pay them, that is, by the unpaid company debt. Although the Goulds sue the respondents in tort, they recover an amount equal to what is due from the company in debt or in equity. If the respondents satisfy the judgment, the Goulds cannot retain beneficially their rights of action against the company. To recover against the company what they have been paid under the judgment would be a double recovery. Should they receive payment under their judgment, they would hold their rights of action against the company in trust for the respondents.

20. The respondents are liable in damages only on the hypothesis that the company has failed to discharge its liabilities to the Goulds. The respondents' liability, being secondary to the liability of the company, is analogous to the liability of a surety. If the respondents, being compelled to pay the Goulds what the company is primarily liable to pay, satisfy the judgment, the respondents will be subrogated to the Goulds' rights against the company in respect of the company debt. The liability of the company to the Goulds remains on foot as between them, but the Goulds cannot retain the benefit of the company debt after the respondents satisfy their judgment. Although the respondents are subrogated to the Goulds' rights against the company, that gives the respondents no defence to or set-off against the company's claim in deceit. Satisfaction of the Goulds' judgment against the respondents does not discharge the company from liability for the company's debt, so the case is not one where a party, having discharged another's liability under compulsion of law, is entitled at common law to recoupment from the other who is primarily liable (see Moule v. Garrett (1872) LR 7 Ex 101).

21. Therefore if the company were to prosecute successfully its action against the respondents, the respondents would be liable for whatever damages the company is shown to have suffered, and those damages would not be diminished by any amount paid to the Goulds in satisfaction of their judgment; but if the company were put in funds by the proceeds of a judgment against the respondents, the liquidator would be bound to pay to the respondents the dividend payable on the Goulds' proof of debt. It follows, of course, that the other unsecured creditors of the company are not prejudiced by the recovery of judgment by the Goulds, and that the Goulds would not obtain a double recovery if the respondents were found liable in both actions. There is no reason in principle why the Goulds and the company should not sue on their respective causes of action and why the respondents should not be liable in damages for the losses which each of them is proved to have suffered. It follows that neither the unadmitted and unenforced cause of action vested in the company prior to trial, nor the possibility of the company's recovering a judgment on that cause of action after the Goulds recovered judgment, warrants diminution of the loss of $1,227,500 suffered by the Goulds.

22. The final element in the learned trial judge's assessment was $200,000 allowed as interest upon the respective amounts of $733,212.12 (the value of the property which the Goulds contributed to complete the contract) and $266,273 (the value of the property which was sold to satisfy in part their liability under the bank guarantees). Each of these amounts was lost and, pursuant to s.72 of the Common Law Practice Act 1867-1978 (Q.), his Honour was entitled to include an element of interest upon them in the damages assessed. No error of principle is shown in his assessment of this item.

23. It follows that, in my opinion, the learned trial judge's assessment of the Goulds' damages was correct.

24. The Full Court also set aside a limited Bullock order made by the trial judge in respect of the costs of Messrs Ingles and Tiffin. Although the making of a Bullock order is in the discretion of a trial judge, the mere joinder of two causes of action against separate defendants in the one action is insufficient to support the making of an order against an unsuccessful defendant when the other defendant is exonerated. A judicial discretion can be exercised to make a Bullock order against an unsuccessful defendant in an action brought against two or more defendants for substantially the same damages only if the conduct of the unsuccessful defendant in relation to the plaintiffs' claim against him showed that the joinder of the successful defendant was reasonable and proper to ensure recovery of the damages sought (cf. Johnsons Tyne Foundry Pty.Ltd. v. Maffra Corporation [1948] HCA 46; (1948) 77 CLR 544, at p 566). In the present case the respondents, by denying inducement and placing reliance upon the independent advice tendered to Mrs Gould by Mr Ingles, showed that it was reasonable and proper to join the claim in negligence against the accountants with the claim in deceit against the respondents. The Bullock order ought not to have been disturbed.

25. I would allow the appeal and restore the judgment of Connolly J. and I would dismiss the cross-appeal.

DAWSON J. Late in 1975 Gould Holdings Pty Ltd ("Gould Holdings") purchased a tourist resort for the sum of $2,315,000 from a group of companies of which the respondent, South Molle Pty Ltd ("South Molle"), was one. The property purchased included a leasehold interest in the land, improvements, plant and equipment and the goodwill of the business which was known as South Molle Tourist Resort. The purchase was made pursuant to an agreement concluded earlier between the same group of companies as vendors and the appellants, Mr and Mrs Gould, on behalf of a company then to be incorporated as purchaser. Subsequently Gould Holdings was incorporated with an issued capital of $2.00, comprising two ordinary shares of $1.00 each held by the Goulds. The agreement between the company and the vendors appears to have been by an implied novation, but no point is made about that and it is common ground that any representations made to the Goulds were made to them as agents of the company as well as personally and were continuing when the agreement between the company and the vendors was concluded.

2. The purchase price comprised a deposit of $5,000 and "cash on completion" of $957,500, the balance of $1,352,500 being payable by instalments together with interest over a period of years. The cash on completion actually consisted of the consideration in two further transactions. The first was an agreement by Mrs Gould to sell for $300,000 to the second respondent, Mrs Vaggelas, a shopping centre which she, Mrs Gould, owned. Mrs Vaggelas was the wife of the first respondent, Peter Vaggelas, who stood behind the vendor companies. The second transaction was the sale to South Molle for a net amount of $657,500 of the issued capital in a company called Table Downs Pty Ltd which was owned by the Goulds together with certain other property which I need not refer to in any detail. The sums of $300,000 and $657,500 add up to $957,500 and were credited against the purchase price of South Molle Tourist Resort so as to represent the cash passing on completion.

3. The sum of $957,500 was regarded as having been loaned by the Goulds to Gould Holdings and was credited to their loan account with that company. Ultimately the trial judge, Connolly J., found that the property sold to Mrs Vaggelas and South Molle was overvalued but for present purposes that does not have any relevance.

4. Payment of the balance of the purchase price was secured by a bill of sale and a mortgage back given by Gould Holdings to South Molle. Payment of the balance by Gould Holdings was guaranteed by the Goulds.

5. Gould Holdings defaulted in the payment of the balance of the purchase price and, on 23 July 1977, South Molle entered into possession pursuant to the terms of its securities and called up the whole of Gould Holdings' indebtedness. On 31 August 1978, South Molle sold the tourist resort for the net sum of $1,227,728.28 and, after making certain adjustments, claimed from the Goulds as guarantors the deficiency between that sum and the amount owing by Gould Holdings. It is that claim which is the subject of the action.

6. In addition to disputing the plaintiffs' claim, the Goulds sought damages for deceit by way of counterclaim against the vendor companies and the Vaggelases. It was alleged that Mr Vaggelas acted as agent for his wife and the vendor companies. The Goulds claimed damages for negligence and breach of contract by way of counterclaim against Messrs Ingles and Tiffen, a firm of accountants engaged by them to advise them in the purchase of the tourist resort.

7. The claim against the accountants failed completely, notwithstanding that it appears that the Goulds may have placed greater reliance upon that claim than the claim in deceit, since the reason advanced by Mrs Gould for the purchase was that Ingles advised that it was a good financial proposition and that the resort would make at least $500,000 per year. But Mrs Gould's evidence upon these matters was rejected by the trial judge in favour of the evidence of Ingles who, as a result, was held not to be in breach of any professional duty to the Goulds.

8. Not only was Ingles's evidence accepted by the trial judge in relation to the claim against his firm, but it was also accepted when he said that Mrs Gould, who was the principal actor on her side in the events leading up to the purchase, did not believe Mr Vaggelas, who was the principal actor on the other side, with respect to the figures which he, Vaggelas, gave in an effort to demonstrate the profitability of the resort. Notwithstanding this, the trial judge found that the Goulds' distrust of Vaggelas amounted to no more than a suspicion that the information which he gave them was inaccurate and did not amount to knowledge of the falsity of the facts. He concluded that:

"Having regard to their real and of course natural
concern about the financial side and to the
material character of the representations, which
were not only calculated but obviously intended to
influence their judgment I am not persuaded that
the inference that they (the Goulds) were so
influenced is displaced by considerations so
vigorously argued on behalf of the Vaggelas
interests."

9. Having found the Vaggelases and their associated companies guilty of deceit, the trial judge went on to assess damages against them. This he did upon the basis that it was not unreasonable for Gould Holdings to carry on the resort business until it was repossessed because the true financial situation did not emerge until after the action had been commenced. This meant that the trial judge allowed substantial losses occurring for a lengthy period after the date on which the business was purchased. It also meant that the value of the business at the date of the purchase was not relevant. It was only the net value of the business at the date of its realization under the terms of the securities given by Gould Holdings which was relevant in the view of the trial judge and this amount was insufficient to meet the liabilities of Gould Holdings to the vendors at that time. In effect, what his Honour did was to calculate the net losses of the Goulds as a result of their participation in the venture which had failed and to assess that as the amount of damages due to them together with an allowance for interest. The figure, excluding interest, was, according to the trial judge's calculations, $1,227,468.12 which comprised three separate sums. First, there was the sum of $733,212.12 which was the value of the properties provided by the Goulds and credited to their loan account with Gould Holdings. An adjustment was made to the amount credited because of the inflated value which the trial judge found the properties had been given. Secondly, there was an amount of $227,983.00 which was the total amount remaining owing under certain guarantees given by the Goulds for the repayment of moneys used by Gould Holdings for working capital, repairs and the like and for payment for goods and services provided to Gould Holdings. Thirdly, there was an amount of $266,273.00 which was lost by the Goulds as the result of the realization of properties mortgaged to support guarantees for similar purposes or, in one case, the realization of a property under the threat of a mortgagee's sale. The sum of $1,227,468.12 for damages was rounded to $1,227,500 and $200,000 was added by way of interest so that the Goulds were awarded on their counterclaim against the Vagellases and the vendor companies the total sum of $1,427,500.

10. Connolly J. entered judgment for the Goulds in the claim against them by South Molle which was the claim in the action. This was the claim upon the guarantee by the Goulds of the amount due from Gould Holdings to South Molle for the purchase price of the tourist resort. In entering judgment against South Molle, the trial judge recognized that "neither Gould Holdings nor the Goulds themselves elected to rescind". Presumably his Honour was referring to the purchase agreement. But his Honour went on to observe that there seemed to be little point in entering judgment for South Molle against the Goulds on the claim and augmenting the damages further by the amount of that judgment. He pointed out that in any event upon his findings it would seem likely that the guarantee was "invalidated by the fraud". Other than to note the fate of the claim in the action it is unnecessary to pursue it any further since it has not been the subject of any appeal.

11. There was an appeal to the Full Court of the Supreme Court of Queensland, comprising Douglas, Mathews and Macrossan JJ., which upheld the judgment in favour of the Goulds, Macrossan J. dissenting. However, the Court reduced the amount of the damages. The majority took the view that the correct approach was to identify the Goulds with Gould Holdings and to assess the Goulds' damages by reference to the amount which the company might have claimed against the vendor companies and the Vaggelases. The majority was of the opinion that had the company sought relief it would have recovered no more than the difference between the value of the resort at the time of the purchase (which on the evidence they found was at least $1,500,000) and the purchase price of $2,315,000. They assessed the difference at $650,000 to which they added a further $50,000 for loss of interest. To have allowed a higher figure would, so the majority thought, have been to allow the recovery of the company's trading losses which ought not to be recoverable in an action for damages for deceit. Macrossan J. also took the view that it was not open to assess damages other than upon the basis of the difference between the value of the business at the time of the purchase and the price paid to purchase it - a basis which, as he pointed out, is the usual measure of damages in deceit. He, however, concluded that the Goulds were not entitled to recover anything. In reaching this conclusion, he drew a distinction between any entitlement to damages which the company on the one hand, and the Goulds on the other, might have. He pointed out that, upon the trial judge's findings, Gould Holdings must have had a right of action in deceit which at the time of purchase of the business would have been worth the difference between the actual value of the business and the price paid for it so that the assets of the company, which was wholly owned by the Goulds, would have covered the Goulds' investment at the time they invested in the company.

12. In my view, the approach adopted by Macrossan J. is correct but, before explaining why that is so, I should refer to something which took place immediately before the Full Court delivered judgment.

13. Both at the trial of the action and before the Full Court both parties appear to have proceeded upon the basis that Gould Holdings, which was in liquidation, had taken no action to recover damages for deceit and did not intend to commence proceedings notwithstanding that the findings of the trial judge clearly indicated that it had a good cause of action. However, on 21 October 1981, Gould Holdings commenced an action in the Supreme Court of Queensland against the Vaggelases and the vendor companies claiming damages for fraudulent misrepresentation by Vaggelas acting on his own behalf and as agent for the other defendants. The fraudulent misrepresentations were alleged to have been made to the Goulds and to have induced them to enter into a contract on behalf of Gould Holdings for the purchase of the South Molle Island tourist resort. The Full Court received evidence of the commencement of the company's action in deceit shortly before delivering judgment, but it proceeded to deliver the judgment to which I have referred. Before doing so, the presiding judge, Douglas J., indicated that the Goulds would be successful in retaining their right to damages, albeit in a reduced amount, and that "as a necessary incident to our opinion, the company had lost its right to or should not be allowed to proceed with a claim for damages. In these circumstances ... a stay of the company's proceedings would necessarily follow an application in that behalf ... " I should say at once that I do not agree with the last remark made by his Honour and my reasons are contained in what I am about to say.

14. It is important, I think, in considering the circumstances of this case to bear in mind the nature of an action for deceit. Deceit is, of course, a tort derived from an action on the case. Damage is, therefore, the gist of the action. The measure of damages is different from the measure of damages for breach of contract. The object of an award of damages in tort is to place the plaintiff in the position he would have been in if the tort had not been committed. Thus where damages are claimed as the result of a purchase induced by a fraudulent misrepresentation, the amount recoverable is prima facie to be measured by the difference between the price paid and the actual value of the thing purchased at the time of the purchase. The measure of damages would be different if the representations were also a contractual term. In that event the object of an award of damages for breach of the term would be to place the plaintiff in the same position as if the representations were true; it would be to compensate the plaintiff for the loss of his bargain. Damages for deceit are not calculated to compensate the plaintiff for the loss of his bargain. Thus in deceit it is not sufficient for the plaintiff merely to show that the thing bought is not worth as much as it would have been if the representations had been true; he must show that it was worth less than he actually paid for it: Holmes v. Jones [1907] HCA 35[1907] HCA 35; ; (1907) 4 CLR 1692; Toteff v. Antonas [1952] HCA 16; (1952) 87 CLR 647.

15. The observance of the distinction between the tortious and contractual measure of damages led to the scope of damages for deceit being so narrowly stated, at least in cases involving the sale or allotment of shares, as to exclude consequential loss from being added to the difference between the price paid and the actual value. In Potts v. Miller [1940] HCA 43; (1940) 64 CLR 282, at pp 297-300, Dixon J. referred to cases such as McConnel v. Wright (1903) 1 Ch 546 and to the dissatisfaction expressed by Lord Atkin in Clarke v. Urquhart and Stracey v. Urquhart (1930) AC 28, at p 67, at the rigid terms in which the rule was expressed. In the cases involving the acquisition of shares this seems to have been largely, if not entirely, the result of requiring the difference between the price paid and their real value to be ascertained at the time of their acquisition. Certainly in cases of deceit not involving the sale or allotment of shares it had been recognized that direct consequential loss was recoverable: Mullett v. Mason (1866) LR 1 CP 559; Milne v. Marwood [1855] EngR 181; (1855) 15 CB 778 (139 ER 632); Denton v. Great Northern Railway Co. [1856] EngR 129; ; (1856) 5 El & Bl 860 (119 ER 701); Hornal v. Neuberger Products Ltd. (1957) 1 QB 247; Canavan v. Wright (1957) NZLR 790. And now the decision in Doyle v. Olby (Ironmongers) Ltd. (1969) 2 QB 158 establishes that in the case of the sale of a business, although the measure of damages is prima facie the difference between the amount paid and the value of the property acquired, the damages will include the whole loss directly flowing from the fraudulent inducement and, because of the element of fraud, it appears that this may be so, whether or not the loss was reasonably foreseeable. See State of South Australia v. Johnson (1982) 42 ALR 161, at pp 169-170. However, in cases of this kind there may be difficulty in ascertaining what losses are direct and what losses are consequential if the prima facie measure of damages, which the cases require, is first applied. These difficulties have been referred to from time to time. See McAllister v. Richmond Brewing Co. (N.S.W.) Pty. Ltd. (1942) 42 SR (N.S.W.) 187, at pp 192-193 per Jordan C.J.; Potts v. Miller, per Dixon J. at pp 298-299; Canavan v. Wright, per Adams J. at p 805. The difference between the price paid and the actual value at the time of purchase should reflect the future of profitability or unprofitability of the business because the actual value of the business at the time of purchase must depend upon its potential as well as its present returns. Moreover, it is possible to have regard to the events which occur after the purchase in order to assess the profitability of the business at the time of purchase: Potts v. Miller, at p 299. If, as prima facie it is, the subsequent profitability or unprofitability of the business is to be taken into account in the calculation of its actual value at the time of purchase, then care must be exercised in the calculation of consequential losses to ensure that the same ground is not covered twice. Moreover, for a loss to be recoverable it must be clear that it is suffered as a direct consequence of the deceit and is not referable to something else such as the purchaser's ineptitude in the conduct of the business. Subsequent cases suggest that Jordan C.J. may have been unduly restrictive in McAllister v. Richmond Brewing Co. (N.S.W.) Pty. Ltd., at p 193, when he said:

"Where the thing bought is a business, and the
buyer claims to recover also the amount of losses
sustained in carrying it on before discovery of the
fraud, it may not unfairly be said, if he elects to
keep a business which he could have rejected by
rescission, that if it had some value at the date
of purchase, the probability of such losses must be
taken to be allowed for in that value: ... whilst
if it then had no value there is no reason why he
should be compensated for losses which he could
have thrown upon the seller by rescission and which
were incidental to the carrying on and retention by
him of a business which he has preferred to
retain."

16. Doyle v. Olby (Ironmongers) Ltd. was a case of the purchase of a business which was induced by fraudulent misrepresentation. The purchaser carried on the business unprofitably for three years before he disposed of it. The Court of Appeal awarded the plaintiff his overall loss up to the final disposal of the business and did so by reference to the sale price which he received for the business then. This represents a departure from the normal method, which is to assess the real value of the business at the time of its purchase. Perhaps an explanation for the departure is, as is suggested by the author of a note in 32 Mod. L.R. 556, to be found in the fact that one of the defendants, who was the landlord of the business premises, refused for some time to assign the lease so that it could not be said that the plaintiff acquired a realizable asset at the time of purchase. If that is not the explanation, the approach to damages in Doyle v. Olby (Ironmongers) Ltd. finds limited support in the authorities and carries with it the danger that consequential losses not directly attributable to the deceit might be included in the damages held to be recoverable.

17. I have already described the method adopted by the trial judge in assessing the damages which he awarded to the Goulds. That method resulted in their being awarded the equivalent of their net losses arising from the purchase of South Molle Tourist Resort by Gould Holdings and from the subsequent conduct of the business by that company. In employing that method, Connolly J. placed considerable reliance upon the decision in Doyle v. Olby (Ironmongers) Ltd. However, the decision in that case was ultimately dependent upon its own facts and should not be allowed to obscure the principle that fundamentally the measure of damages for deceit in a case of sale and purchase is the difference between the value of the thing bought at the time of purchase and the purchase price.

18. It is essential to bear in mind that what the Goulds initially did was to subscribe for two shares in the capital of Gould Holdings and to lend, in effect, a sum of money to that company. They did not purchase the tourist resort in reliance upon Vaggelas's fraudulent misrepresentations; the purchase was by the company. Nor did the Goulds continue to run the tourist resort for some time after the purchase was made; it was the company which did that. There is no reason why the calculation of the Goulds' loss should not be made at the time at which the expenditure which was said to result in loss to them was made. Indeed, failure to do so in my view led the trial judge to confuse their position with that of the company.

19. At the time Gould Holdings purchased the tourist resort it suffered a loss as a direct result of the fraudulent misrepresentations which induced the purchase. The business was worth less than it was represented to be and at that time, upon the findings of the trial judge, the company had a cause of action in deceit against the Vaggelases and the vendor companies. Whether or not, assuming that the company will succeed in the action which it has commenced, it will be necessary to assess its loss at the time of purchase or whether it will be appropriate to employ some method such as that adopted by the trial judge for the calculation of damages, need not concern me here. What is important is that the company suffered loss at the time of purchase as a direct result of the inducement fraudulently offered by Vaggelas. It was tricked into buying the tourist resort by statements representing it to be something which it was not and its worth was less than it was represented to be. With this may be contrasted the position of the Goulds. They were not tricked into subscribing for shares in the company by any representations that the shares were, or would be, something which they were not. Nor were they tricked into lending money to the company by any representation that the transaction was, or would be, other than it was. Moreover, at the time they acquired the shares and made the loan, the Goulds suffered no loss. They received exactly what they had bargained for. Even if their position is assessed at the time of the purchase of the tourist resort by the company and by reference to that event, the Goulds suffered no loss by reason of what they did. The company suffered a loss at that time but that loss gave rise to a good cause of action which, if pursued to judgment, must, it appears from the evidence, have allowed recovery by enabling the amount of the judgment to be set off against the amount of purchase price which remained to be paid. The Goulds, as the sole shareholders in Gould Holdings, were entitled to the benefit of the company's assets which must be taken to have included the cause of action in deceit. Upon this basis, their investment in the company caused them no loss. See Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No.2) (1982) 2 WLR 31, at pp 48-49. It is true that the investment turned out to be less profitable than the Goulds anticipated but that was because of the events which ensued; it was not a direct consequence of the fraudulent misrepresentations made by Vaggelas, however much it may have followed as an indirect consequence.

20. The expenses which the Goulds incurred after their initial investment were for the purpose of keeping the company trading. They were not tricked into giving guarantees or mortgaging property by the deceit of Vaggelas nor could their losses in this regard be said to be the direct consequence of the fraudulent misrepresentation of the tourist resort. This can be tested quite simply. If, despite the misrepresentations, Gould Holdings had nevertheless been able to carry on the business of the tourist resort successfully and to meet its liabilities, the company would have still had its action for damages for deceit based upon the difference between the value of the business as it was represented to be and its real value at the time of purchase. But it could not be suggested that the Goulds would in that event have had any claim. The loss which they in fact suffered was because of the unprofitability of the tourist resort and the failure of the company and was not in any sense a direct consequence of Vaggelas's fraudulent misrepresentations. What the Goulds did was to keep the company going by arranging for it to be provided with funds or credit. They did this because the company continued to carry on business, not because they were induced to do so by the misrepresentations made by the Vaggelases. It may be conceded that the company continued to carry on business because of those misrepresentations, but that is not the same thing. It was the company, not the Goulds, which continued to carry on business, thereby necessitating further financial contribution by the Goulds. If the company suffered direct consequential loss from Vaggelas's deceit in addition to paying more for the business than it was worth, then any action to recover that loss must be by the company. It cannot be recovered indirectly by the Goulds in an action to recover their investment.

21. The majority in the Full Court, in rejecting the conclusions of the trial judge, recognized the distinction between the position of Gould Holdings and that of the Goulds themselves but sought to overcome the problem by "identifying the respondents with the company and depriving the company of the right to further relief". On any view such an approach cannot be sustained. The result would be to afford to the Goulds a derivative action for which there is no legal basis and which would, in any event, be defeated by the rule in Foss v. Harbottle [1843] EngR 478; (1843) 2 Hare 461 (67 ER 189). Moreover, even if it could be done, it would be quite wrong to bar any claim for deceit which Gould Holdings might have. That company has substantial creditors who ought not be deprived of the benefit of any such claim. This latter consideration would, even if there were no other reason, preclude Gould Holdings from being treated as the alter ego of the Goulds in the manner adopted by the Court of Appeal in Esso Petroleum Co. Ltd. v. Mardon (1976) 1 QB 801.

22. For these reasons I do not think that the Goulds ought to have succeeded in their counterclaim for damages for deceit. I would dismiss the appeal and allow the cross appeal.

ORDER

Appeal allowed and cross appeal dismissed with costs

Judgment of the Full Court of the Supreme Court of