Radferry Pty Ltd & Anor v Starborne Holdings Pty Ltd & Ors [1998] FCA 1689 (18 December 1998)

Last Updated: 31 December 1998

FEDERAL COURT OF AUSTRALIA

DAMAGES - measure of damages - quantification of damages- deceit - breach of contract - misleading and deceptive conduct - ss 82 and 87 of Trade Practices Act 1974 (Cth).

Trade Practices Act 1974 (Cth), ss 52, 82, 87

Federal Court of Australia Act 1970 (Cth), s 51A

Federal Court Rules O 55 r 8

Gould v Vaggelas (1983-85) 157 CLR 215 Followed

Marks v GIO Australia Holdings Ltd [1998] HCA 69 (11 November 1998) Followed

Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23 Refd

Troulis v Vamvoukakis (Unreported NSWCA 40502/97, Gleeson CJ, Mason P, Stein JA, delivered 27 February 1998) Refd

Enzed Holdings Ltd v Wynthea Pty Ltd [1984] FCA 373; (1984) 57 ALR 167 Refd

Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 Refd

Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 Followed

McConnel v Wright [1903] 1 Ch 546 Refd

B.O. Morris Ltd v Perrott and Bolton [1945] 1 All ER 567 Refd

Midland Mortgage Aust Ltd v Harkness (1994) 35 NSWLR 150 Refd

RADFERRY PTY LTD & ANOR V STARBORNE HOLDINGS PTY LTD & ORS

QG 37 of 1998

Cooper, Marshall, Dowsett JJ

Brisbane

18 December 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 37 of 1998
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:	RADFERRY PTY LTD (A.C.N. 011 018 867) FIRST APPELLANT LOUIS ZENONOS, SAM ZENONOS AND JOHN ZENONOS SECOND APPELLANTS
AND:	STARBORNE HOLDINGS PTY LTD (A.C.N. 071 108 453) RESPONDENT
AND BETWEEN:	STARBORNE HOLDINGS PTY LTD (A.C.N. 071 108 453 CROSS-APPELLANT
AND	RADFERRY PTY LTD (A.C.N. 011 018 867) FIRST CROSS-RESPONDENT LOUIS ZENONOS, SAM ZENONOS AND JOHN ZENONOS SECOND CROSS-RESPONDENTS

JUDGES:	COOPER, MARSHALL & DOWSETT JJ
DATE OF ORDER:	18 DECEMBER 1998
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The appeal is allowed.

2. The cross-appeal is allowed.

3. Paragraphs 1, 2 and 3 of the orders below are set aside and in lieu thereof, the following orders are made:-

(i) The respondents are to pay the applicant the sum of $90,000 and interest thereon to 27 April 1998 in the amount of $5653.

(ii) The first respondent is to pay to the applicant the sum of $257,000 and interest thereon to 27 April 1998 in the amount of $16,142, so, however, that the applicant is not to recover, in all, more than the sum of $257,000 and the sum of $16,142 for interest.

4. The first appellant is to pay the respondent's costs of the appeal and cross appeal.

5. The respondent is to pay the second appellants' costs of the appeal and cross appeal.

6. All parties have liberty to apply with respect to costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND dISTRICT REGISTRY	QG 37 of 1998
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	RADFERRY PTY LTD (A.C.N. 011 018 867) FIRST APPELLANT LOUIS ZENONOS, SAM ZENONOS AND JOHN ZENONOS SECOND APPELLANTS
AND:	STARBORNE HOLDINGS PTY LTD (A.C.N. 071 108 453) RESPONDENT
AND BETWEEN:	STARBORNE HOLDINGS PTY LTD (A.C.N. 071 108 453 CROSS-APPELLANT
AND	RADFERRY PTY LTD (A.C.N. 011 018 867) FIRST CROSS-RESPONDENT LOUIS ZENONOS, SAM ZENONOS AND JOHN ZENONOS SECOND CROSS-RESPONDENTS

JUDGES:	COOPER, MARSHALL & DOWSETT JJ
DATE:	18 DECEMBER 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

THE CLAIMS

The applicant, Starborne Holdings Pty Ltd ("Starborne") sued Radferry Pty Ltd ("Radferry") and Louis Zenonos, Sam Zenonos and John Zenonos (the "Radferry directors") for damages and other relief arising out of the sale by Radferry to Starborne of a coffee shop business previously conducted by Radferry. Initially, Starborne sought rescission of the sale contract dated 16 January 1996 or a determination that it was void ab initio, but subsequently, it elected to affirm the contract and pursue claims for damages for misleading and deceptive conduct pursuant to ss 82 and 87 of the Trade Practices Act 1974 (Cth), for fraudulent misrepresentation, for negligent misrepresentation and for breach of contract.

In the course of the negotiations leading up to the contract, the Radferry directors made certain representations as to trading figures derived by Radferry in the period from September until December 1995. These figures were contained in a document described as a "summary report". The learned trial judge found that the figures were grossly and deliberately inflated for the purpose of inducing Mr Jacobsen, a principal of Starborne, to purchase the business. His Honour upheld claims under the Trade Practices Act and in deceit, awarding damages against all respondents. As we have said, there was also a claim in contract. The summary report was annexed to the contract. Pursuant to clause 8.1 of the standard form "Contract Business Sale", the vendor of the business:-

"states and assures the purchaser that except as otherwise disclosed in this contract:

...

(i) the trading figures and other financial data relating to the business, particulars of which are set out in any schedule, annexure or appendix to this Contract, are true and correct in every particular."

In view of the finding that the figures in the summary report were not accurate, it follows that Radferry was also in breach of this warranty and liable for damages accordingly. His Honour said in his reasons at AB p 1406:-

"I am not prepared to make any attempt to assess the quantum of the claim against the first respondent in contract in the absence of evidence as to the true value of the business at contract date."

This passage implies a finding of breach of contract. In that case, even if damages could not be quantified on the evidence, Starborne was entitled to judgment for nominal damages. No challenge is made to the findings of fraudulent misrepresentation, breach of contract and of conduct contrary to s 52 of the Trade Practices Act. The issues raised by the appeal and cross-appeal relate solely to the quantification of loss. It is necessary that we consider the appropriate measure for each cause of action.

MEASURE OF DAMAGES IN DECEIT

In Gould v Vaggelas (1983-85) 157 CLR 215 at 220-2, Gibbs CJ said:-

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

The usual rule is, however, only a special application of the general principle that "In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant" ... In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement ...

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

At 254-5, Brennan J (as his Honour then was) said:-

"In Potts v Miller, Dixon J. stated the general rule:

`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.'

That formulation of the rule was adopted by the Court in Beim v Collins. However, damages are limited to those that flow directly from the fraudulent inducement ...

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, ... 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."

At 265-7 Dawson J said:-

"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; ...

The observance of the distinction between the tortious and the 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 Dixon J. referred to ... the dissatisfaction expressed by Lord Atkin ... 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 ... And now the decision in Doyle v Olby (Ironmongers) Ltd 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 ... 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. ... 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 ... 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."

MEASURE OF DAMAGES FOR BREACH OF CONTRACT

The measure of damages in contract appears sufficiently from the above extract from the judgment of Dawson J in Gould v Vaggelas.

MEASURE OF DAMAGES UNDER SS 82 and 87 OF THE TRADE PRACTICES ACT

Under the Trade Practices Act, the question is a little more complex. However, since delivery of the judgment under appeal, the matter has been clarified by the decision of the High Court in Marks v GIO Australia Holdings Ltd (1998) HCA 69 (judgment delivered 11 November 1998). That was a case in which the various appellants had borrowed moneys from one or other of the four respondents. It was found at the trial that the respondents had, prior to the loans, represented to the appellants that they would charge interest at a rate calculated on a particular basis. Subsequently, the respondents indicated that they intended to depart from that basis. Despite the representations, the various loan agreements permitted this course. The trial judge found that the respondents had engaged in misleading and deceptive conduct in representing that the mechanism for calculating interest would not be changed during the lives of the loans. His Honour also found that the appellants had relied upon such representations and as a result, had been induced to take the loans. The trial judge assessed damages in each case as the difference between the amount of interest calculated in accordance with the represented method and that actually charged by the bank. These awards were said to be pursuant to s 82(1) of the Trade Practices Act which provides:-

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

The trial judge declined a claim for relief under s 87 of the Act which provides relevantly:-

" (1) Without limiting the generality of section 80, where, in a proceeding instituted under, or for an offence against, this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IV, IVA or V, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 80A or 82, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

(1A) Without limiting the generality of section 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of the subsection) in contravention of a provision of Part IVA or V or on the application of the Commission in accordance with subsection (1B) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.

...

(2) The orders referred to in sub-sections (1) and (1A) are:

...

(d) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;

... "

On appeal in Marks, the Full Court held that neither s 82 nor s 87 permitted an award of damages because, as the increased interest rates were still lower than those otherwise available to the appellants, they had not suffered loss. By majority, the High Court upheld this decision. Of the majority, the reasoning of Gaudron and Gummow JJ differed to some extent from that of the other three, McHugh, Hayne and Callinan JJ, who said:-

(at par 34) "... s 82 provides in effect, that the loss or damage that may be recovered by action is the amount of the loss or damage suffered `by conduct of' another person that was done in contravention of Pts IV or V. It contains no stated limitation of the kinds of loss or damage that may be recovered and contains no express indication that some kinds of loss or damage are to be regarded as too remote to be recovered ..."

(at par 36) "... the powers given under s 87(1) and (1A) are powers to make "such order or orders as the Court thinks appropriate ... if the Court considers that the order or orders concerned will compensate [the person wronged] in whole or in part for the loss or damage, or will prevent or reduce the loss or damage"."

(at par 37) "... among the many forms of order that can be made under s 87 is an order:

"directing the person who engaged in the conduct ... to pay to the person who suffered the loss or damage the amount of the loss or damage"."

(at par 38) "It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s 87, is likely to suffer) loss or damage `by conduct of another person' that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit or with equity but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies."

(at par 41) "This is not to say that no help can be had from the common law in deciding what damages may be allowed under s 82 in cases of conduct contravening s 52. Very often, the amount of the loss or damage caused by a contravention of s 52 will coincide with what would have been allowed in an action for deceit. But that is because the inquiry in both cases is to find out what damage flowed from (in the sense of being caused by) the deceit or contravention. Leaving aside questions of remoteness of damages in assessing damages for deceit (a question that was left unresolved in Gould v Vaggelas), the damages for deceit will be the sum representing the loss suffered by the plaintiff because the plaintiff altered its position in reliance on the defendant's misrepresentation. But the analogy cannot be pressed too far. It should not be pressed to the point of concluding that the only damages that may be allowed under s 82 are those that would be allowed in an action for deceit. The question presented by s 82 is not what would be allowed in deceit, it is what loss or damage has been caused by the conduct contravening the Act."

(at par 42) "It follows, then, that a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct. And even this inquiry may not conclude the question. Analysing the question of causation only by reference to what is, in essence, a `but for' test has been found wanting in other contexts and it may well be that it is not an exclusive test of causation in this area either. But that is not a question which we need to consider in this case. For the moment it is enough to say that s 82 requires identification of a causal link between loss or damage and conduct done in contravention of the Act."

(at par 43) "If loss or damage is shown to have been suffered or to be likely to be suffered, orders of the kind prescribed by s 87 may be made. Proof of loss or damage (actual or potential) is therefore the gateway to the s 87 remedies. But the identification of loss or damage is important in the operation of s 87 not only for this reason but also because the power to make orders under s 87 is limited to making orders `if the Court considers that the order or orders concerned will compensate ... in whole or in part for the loss or damage or will prevent or reduce the loss or damage ...'. That is, the Court can make orders under s 87 only in so far as those orders will compensate (or will prevent or reduce) the loss or damage that is identified."

(at par 46) "The loss or damage spoken of in ss 82 and 87 is not confined to economic loss. ... But loss or damage caused by a contravention of the Act will often be economic loss. As was said in Wardley `[e]conomic loss may take a variety of forms'. But central to them all, when it is said that the loss was, or will probably be, caused by misleading or deceptive conduct, is that the plaintiff has sustained (or is likely to sustain) a prejudice or disadvantage as a result of altering his or her position under the inducement of the misleading conduct."

(at par 47) "The bare fact that a contract has been made which confers rights or imposes obligations that are different from what one party represented to be the case does not demonstrate that the party that was misled has suffered loss or damage ..."

(at par 48) "A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted. Thus, the party that is misled will have suffered loss if a chose in action which was acquired was worth less than the amount paid for it. There may well be other ways in which it might suffer loss or damage. For example, consequential loss may be suffered. But no loss of that kind was alleged in this case and, putting that kind of loss to one side, we focus only on loss said to be suffered by the making of the contract."

(at par 49) "It is necessary, then, to determine whether the value of what was acquired is less than what was paid. How is value to be assessed? It is to be assessed objectively, not according to what either or both of the parties to the contract believed that it would obtain from the contract. That is, the value of what in fact was acquired is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it. It is only by comparison with the value assessed in this way that there can be an assessment of whether the party that is misled could have obtained some greater benefit or incurred less detriment. What is important is what that party could have done, not what it might have hoped for or expected. ..."

(at par 53) "... we do not accept that a person suffers injury simply because a hoped for advantage does not materialise. The central inquiry is what consequence has the contravention of the Act had on the party in question. That requires comparison between the position in fact of the party which alleges loss and the position that would have obtained had there been no contravention."

(at par 54) "That is not to be taken as confining the operation of s 87 to cases where loss or damage has been sustained. It is not confined in that way; it applies to cases in which it is shown that a person is likely to suffer loss or damage. But the inquiry remains an inquiry about whether it is likely that as a result of the contravention the party concerned will suffer some prejudice or disadvantage. If, as we consider to be the case, the bare fact that making a contract different from what was represented is not loss or damage, something more must be shown to be likely to occur in the future before it can be said that it is likely that loss or damage will be suffered."

In quantifying damages pursuant to ss 82 and 87, a court is not bound by the doctrine developed in connection with causes of action in tort and contract but must have regard to the tests prescribed by the sections. That loss must be demonstrated by a comparison "between the position in fact of the party which alleges loss and the position that would have obtained had there been no contravention". In the present case, the starting point must be an enquiry as to the value of the assets acquired as compared to the price paid for them. That is the rational starting point simply because Starborne acquired assets pursuant to the contract, which assets it has chosen to retain. They must be valued if the exercise prescribed in Marks is to be performed.

EVIDENCE AS TO QUANTUM

The measure of damages for all presently relevant purposes required an assessment of the value of the business at the time of acquisition. This was the point at which his Honour experienced difficulty, having regard to the findings of fact which he had made. We stress five aspects of the case in this regard. Firstly, Radferry had operated the business only since September 1995. The figures in the summary report were for the period from September to mid-December. Prudence dictates a cautious approach to using such figures for other than historical purposes. Secondly, it appears to be common ground that the rent obligation borne by Radferry and transferred to Starborne was excessive having regard to the commercial value of the site. After going into possession, Starborne was able to negotiate a substantial rent reduction. Thirdly, his Honour formed the view that for a significant period of time after its acquisition, Starborne had not fully exploited the business. It seems likely that his Honour inferred that Starborne and the Jacobsens had been deterred from doing so by the hopeless position in which they perceived themselves to be and by their other business commitments. However his Honour found that in October 1997, perhaps motivated by their success in negotiating rent relief, they commenced to make appropriate efforts to derive a profit and did so. Fourthly, his Honour concluded that, subject to certain adjustments, Starborne's trading figures for the five months from October 1997 to February 1998 gave a fair indication of the profitability of the business at the date of acquisition. Fifthly, the lease of the relevant premises expires on 25 September 2000. Hence, at the time of acquisition, this business had no guaranteed long term future, particularly in view of the irregular rent position.

Valuation of a business is often difficult and always a matter of judgment. Usually, it involves evidence of the trading history of the business in question and of the value of its tangible assets, coupled with evidence, based upon market experience, as to the price likely to be paid for the business having regard to those matters. Starborne relied principally upon the evidence of Paul James Vincent, an accountant. Unfortunately, much of Mr Vincent's report presented "our assessment of the economic loss suffered by Starborne Holdings Pty Ltd" rather than a valuation of the business. However, in that process, Mr Vincent attempted to calculate what he described as a "capital loss" and a "loss of opportunity". In calculating the capital loss, Mr Vincent considered a number of different approaches. He fixed the value of the tangible assets at $11,271, relying upon a valuation from another source. The lease was not included as a tangible asset, presumably because it was to be dealt with elsewhere. Mr Vincent formed the preliminary view that the minimum value of the business as at 16 January 1996 was the value of the tangible assets. He opined that "any additional value attributed to the business would be as a result of current market demand for a business such as this and any goodwill in existence." (AB 1017-1018) He further observed that:-

"The business has not made a significant profit nor is there any likelihood of significant profits being earned in the foreseeable future. Therefore, there appears to be no financial benefit at all which would be obtained from the ownership of this business, other than the ownership of the assets. On this basis, there can be no value placed on goodwill at 31 July 1997."

At AB 1019, Mr Vincent recorded that the business was "not trading very profitably". At AB 1020, he observed, "that the business was unprofitable, and that it is unlikely that it would even become very profitable whilst paying such a high rental". From this Mr Vincent inferred that the value of the business at the time of purchase was nil. In other words, even the tangible assets had no value. His Honour expressly rejected this evidence upon the basis that Starborne had been able to derive a profit for the period from October 1997 to February 1998 after, as his Honour found, the Jacobsens had made the decision to exert themselves. However Mr Vincent also gave oral evidence, some of which is of assistance for present purposes. At AB 347-9, Mr Vincent described a valuation method based on capitalisation of net profits. He performed an exercise which started with an assumed net annual profit of $143,000, before deduction of any payment to the owner by way of salary. He assumed that the sum of $50,000 would represent a fair salary, leaving a true net profit of $93,000. He suggested that the market would apply a capitalisation rate of 25 per cent to that figure, meaning that a buyer would expect an annual return of 25 per cent on the invested sum. In other words, the net annual profit of $93,000 should be multiplied by four to show the likely purchase price. There was also a substantial amount of evidence as to the costs and profitability of similar businesses, but it does not appear that his Honour acted on any of this.

In the course of argument before us, counsel for the Radferry parties suggested that in using the capitalisation method, a rate higher than 25 per cent might be adopted. It does not appear that a higher rate was suggested at the trial, nor does it seem that Mr Vincent was challenged on this point in cross-examination. Since argument of the appeal, we have enquired of counsel as to the source of the higher capitalisation figure. We were told that it was calculated having regard to the affidavit of Colin Stevenson Leing Mackie filed on 18 March 1998. Mr Mackie gave evidence of the estimated net profits and sale prices of four different coffee shops. Those figures certainly suggest a higher capitalisation rate, but it is not clear whether the net profit figures are after deduction of owners' salaries, nor is it clear whether the sale prices are actual sale prices or asking prices. The terms of the affidavit might be thought to suggest the latter. In cross-examination (AB 343-5) it also emerged that two of the profit figures were merely estimates of potential profitability for new businesses.

The principal valuation evidence called on behalf of the Radferry parties came from Mr Lindsay Gilbert Wright. His approach was to value identifiable tangible assets and then to add an amount for goodwill. He valued the tangible assets at $108,000 and then sought to assess the net annual profit level before deduction of financing and leasing costs, tax and owner/operator/manager's salary. Assuming the rent relief which had been negotiated, he fixed the annual profit at $60,425 and assuming no rent relief, at $20,925. In the former case, he calculated that a purchaser would pay an amount not exceeding one year's net profit for goodwill. To derive the value of the business he therefore added that sum to the value of the tangible assets, together with a further amount of $5,000 for stock. Assuming no rent relief, he considered that the net profit was such that a person would pay no amount for goodwill, so that the value of the business would be limited to the value of the plant, equipment and stock There is a substantial discrepancy between the value of the tangible assets used by Mr Vincent and that used by Mr Wright. It is not clear how we might resolve that dispute given that his Honour appears not to have done so.

APPROACH ADOPTED BY THE TRIAL JUDGE

As we have said, his Honour made no award for breach of contract. In respect of the other causes of action, his Honour awarded damages under two heads. Firstly, he awarded $92,600 for the period up to the date of the judgment. The first step in deriving this figure was to fix the net "represented" profit over the period of trading by Radferry, based upon the figures contained in the summary report, excluding the figures for the week commencing 26 September which was said to be abnormal. The net monthly profit was found to be $11,409. His Honour then calculated the actual monthly profit derivable under what he described as "effective management". This was based upon the actual profit derived by Starborne for the five months from October 1997 to February 1998, inclusive. This figure was said to be $7,552 per month. The difference of about $3,860 was multiplied by an appropriate factor to derive a figure of $92,600 as the damages "to date".

At the time of trial, the lease had some thirty months to run. His Honour considered that Starborne was also entitled to be compensated:-

"... for the future prejudice it will suffer from the fraud in so far as achievable profits may be lower than represented profits, should it carry on the business for the remainder of the lease to which it is now bound and which it took by assignment from the first respondent" (AB 1405)

His Honour left it to the parties to calculate a sum:-

"... which would need to be invested now at 10 per cent (the rate referred to in O 35 r 8) to produce an income of $3,860 on the last day of April next and of each of the ensuing 29 months, to the intent (sic) that both the capital sum so invested and all interest earned on that sum will be exhausted in contributing to this monthly income, when the last of the 30 payments is assumed to be made. This sum should then be reduced by 20 per cent to allow for the adverse contingencies I have mentioned and the resulting figure added to the $92,600" (AB 1405-1406).

His Honour indicated that Starborne should recover judgment against all of the Radferry parties for the total of the two sums, with interest from the date of the application, in the case of Radferry, and from the date of their joinder, in the case of the Radferry directors. Subsequently, judgment was given against Radferry and the Radferry directors in the sum of $174,268.47 with further judgments for interest against Radferry in the amount of $16,059.12 and against the Radferry directors in the amount of $13,243.07. These figures were apparently the result of the consultation process proposed by his Honour.

THE APPEAL

Numerous difficulties attended the calculation of damages in this case, particularly because Mr Vincent, on behalf of Starborne, pitched the case very high, asserting that the business was worth nothing at the time of purchase. His Honour was not attracted to that view and rejected it, largely because of its demonstrated profitability after October 1997. It was submitted on behalf of Radferry and the Radferry directors that the consequence of this was that damages had not been proven and that Starborne should therefore have failed in the action. Some support for this approach is to be found in the decision of the High Court in Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23. Aickin J said at 38:

"However, the consequence of the rejection of Dr Solomon's evidence was that there was simply no evidence of the value of the resource. General Quarries had failed to provide any evidence upon which the extent of the loss which it claimed could be estimated or calculated. In the absence of any evidence of the quantum of damages, the judgment of Hanger CJ cannot be sustained."

We were also referred to the decision of the Court of Appeal of New South Wales in Troulis v Vamvoukakis (Unreported - judgment delivered 27 Feb 98), in particular to the judgment of Gleeson CJ at 15 as follows:-

"As Deane J observed in The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 118-119, the limitations of the crucial process, or the nature of the subject matter in question, often mean that the task of assessing damages involves a pragmatic exercise of a kind traditionally left to the good sense of a jury. Where, however, what is involved is the valuation of the goodwill of a business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air."

In Enzed Holdings Ltd v Wynthea Pty Ltd [1984] FCA 373; (1984) 57 ALR 167 at 183, the Full Court of this Court (Sheppard, Morling and Wilcox JJ) said:-

"The principle is clear. If the Court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages. We should add that we can see no reason why this principle should not apply in cases under the Trade Practices Act as well as in cases at common law. We emphasis, however, that the principle applies only when the Court finds that loss or damage has occurred. It is not enough for a plaintiff merely to show wrongful conduct by the defendant."

We do not understand these comments to be in conflict. Clearly, the court must do the best it can with the evidence available. This does not compel it to make good a total lack of evidence upon which any rational inferences can be based sufficient to permit the quantification of loss. If the applicant fails to adduce any relevant and acceptable evidence, then the court cannot fill the gap. However such a result is undesirable. Where there is some acceptable evidence, the court will do its best. Two other observations should be made. Firstly, it sometimes happens that one or other party, by the way in which it conducts the case, leaves open only one basis for calculation. If the factual sub-stratum of that basis is not proven to the satisfaction of the court, then the party in question may be left with no fall-back position. In that case, it is the party's own fault if it fails for lack of evidence, and it should not be heard to complain of that consequence. Secondly, where an applicant fails to provide a detailed and rational basis for the assessment of damages, leaving the court to do the best it can with the evidence, it should not complain if the court takes a conservative approach to the exercise. In this case, there was an abundance of evidence for use in assessing damages. That his Honour rejected the easy path offered on Starborne's behalf by Mr Vincent did not leave it without any evidence as to trading results or the appropriate method of calculation. It did, however, make the job much more difficult.

We find ourselves unable to agree with the approach taken by the learned trial judge in assessing damages for deceit and under the Trade Practices Act. The award represented the difference between the profits likely to be derived by the business, had the representations been true, and actual derivable profits. This was closer to the approach in contract than to the appropriate methods discussed above. For the purposes of the claim in deceit, Gould v Vaggelas (supra) prescribes a comparison of the value of the property acquired with the price paid for it. This exercise was also required for the purposes of the Trade Practices Act claim, although it may not have produced a definitive result for those purposes.

There are a number of other criticisms with which we must deal as they may affect our calculation of damages. As we have said, his Honour inferred that the adjusted profit figure for the period from October 1997 to February 1998 indicated the potential profitability of the business at the date of acquisition. However, the Radferry parties point to an arithmetical error in his Honour's calculation of the relevant adjustments. His Honour excluded certain items of expense from the outgoings for the period from October 1997 to February 1998, arriving at a net profit for the five month period of $37,756, showing a monthly figure, as it was said, of about $7,550. The Radferry parties submit that the total net profit for the five months from October 1997 to February 1998 inclusive was $19,284.19. The various items of expenditure which his Honour disallowed were:-

Consultancy fees paid to Mr Jacobsen $ 5,300.00

Wages paid to Mrs Jacobsen ($300 per week for five months) $ 6,500.00

Vehicle expenses for November 1997 $ 4,545.00

Legal and accountancy fees for February 1998 $ 6,129.50

Private expenses $200 per month for five months $ 1,000.00

TOTAL $23,474.50

Adding this to the net profit figure of $19,284.19 yields an adjusted net profit figure for the five month period of $42,758.69 and a monthly figure of $8,551.74, as opposed to the figure of $7,550 adopted by his Honour. This suggests an error in the calculations. The validity of this criticism was not challenged by Starborne.

The Radferry parties also complain of certain aspects of the approach taken by his Honour in calculating the value of the business as represented. Prima facie, this figure was not relevant to the assessment of damages in deceit or under the Trade Practices Act. However, had his Honour addressed the question of damages for breach of contract, it would have been relevant. As we consider that the learned trial judge ought to have done so, it is necessary that we deal with these criticisms.

The first criticism is that his Honour used the figures for the months of October, November and December 1995, as represented in the summary report, to calculate the profitability of the business as warranted. It is submitted that Starborne did not "rely on" the figures contained in the summary report but rather upon modifications of them which Mr Jacobsen had worked out for himself, and that this should have been reflected in the quantification of damages. It is difficult to advance this argument in view of the finding that Mr Jacobsen acted in reliance upon the contents of the summary report, but as the value of the business as warranted is only relevant to the claim in contract, it does not matter. Radferry warranted the truth of the figures in the summary report. The measure of damages in contract requires an assessment of the value of the business "as warranted". The question of reliance is, in this context, irrelevant.

Secondly, Radferry points out that the figures for the October 1997-February 1998 period used in assessing the actual value of the business included items of expense which were not foreshadowed in the summary report, including Workers' Compensation payments, accounting and legal fees, bank charges, computer costs, insurance, and payments for repairs and maintenance. It is submitted that such expenses should also have been taken into account in valuing the business as warranted because they would inevitably have been incurred in a full year of trading, even if they had not been incurred during the period covered by the summary report. The validity of this argument depends upon the true meaning of the warranty. Clearly enough, it was a warranty as to the outgoings during the relevant period. It cannot be sensibly argued that Radferry warranted that no other types of expense, that is beyond those identified for the period in question, would be incurred in running the business. We venture to suggest that even the least experienced of potential purchasers would have anticipated expenses of the kind mentioned above. In that case, it would be necessary to take account of them in any valuation exercise because a prudent purchaser would have done so in fixing the amount he or she was willing to pay for the business.

We have examined the trading figures for the five months from October 1997 to February 1998 and identified a number of such additional items of expenditure. The total amount over the five month period is something less than $7,000 including a Workers' Compensation payment of $2,282.65. Only one such payment occurred in the five month period. It was probably an annual or bi-annual payment. (We have excluded a figure of $6,129.50 for legal and accounting fees because his Honour excluded it from his calculations, considering that it was an extra-ordinary item, probably attributable to this litigation.) In quantifying the value of the business as warranted for the purposes of a claim in contract, it would be necessary to take these payments into account.

THE CROSS-APPEAL

Starborne also criticises two aspects of his Honour's reasons:- the inference that Starborne and the Jacobsens had "underperformed" prior to October 1997, and the allowance, in calculating the profitability of the business thereafter, for the fact that Starborne had been able to negotiate a rent rebate. A consequence of these matters was his Honour's rejection of Mr Vincent's valuation.

It was submitted that, at the trial, it was not put to Mr Jacobsen that Starborne had been underperforming (or not exploiting the business fully) prior to October 1997. It was, in effect, asserted that such a suggestion had not been an issue at the trial. This is a somewhat surprising assertion since it is clear from his Honour's reasons at AB 1398 that the way in which the Jacobsens conducted the business was very much a live issue. It is true that his Honour rejected most of Starborne's criticisms, but there was one exception. This appears at AB 1400 where his Honour said:-

"I have said that there is a qualification to my rejection of the respondent's argument that the poor trading results achieved by the applicant was (sic) due to inefficiencies in its own operation of the shop. It is clear that Mr Jacobsen, by early March 1996 - very quickly indeed - became disenchanted with the turnover he achieved. Moreover, by 10 April 1996, after Mr Jacobsen had discovered that the Zenonoses had given the AMP turnover figures much lower than those contained in the summary report, he was alleging that the explanation for the applicant's poor results was that it had been defrauded by the Zenonoses. In July 1996, the applicant gave the respondents notice that it had rescinded the contract. Consistent with this, on 2 August 1996, the applicant advised the respondents that it was then operating the business only `in a provisional or caretaker capacity', the role in which it said it was continuing to run the business as late as November 1996. It was only about six months ago, ie, in October 1997, according to Mr Jacobsen, that the applicant decided not to pursue rescission but to retain the business and claim damages only."

His Honour then set out turnover figures for various periods from early 1996 until February 1998 and continued:-

"I accept that the Jacobsens are reasonably efficient operators. Trading conditions, as evidenced by Mr Vincent's work, were pretty well uniform in the twelve months to December 1996 compared with the twelve months to December 1997. A substantial part of the explanation for the applicant's failure earlier on to achieve the sort of turnovers it has in the last five months should therefore, I think, be taken as due to its not having exerted itself as fully as it could have, because it long ran the business on the basis that it was only maintaining it, so as to be in a position to return it to the first respondent when its entitlement to rescission was confirmed by the court. The substantial improvement in turnover achieved in the last five months evidences the kind of results which I think the applicant would have achieved if it had exerted itself from the outset to the extent it now does. The applicant is not entitled to recover as damages in either deceit or under s 82 (of) the Trade Practices Act trading losses flowing from its having elected to run the business at a lower level than that at which it could have run it: it can only recover losses caused solely by the deception practised on it ..."

By paragraph 17 of the amended defence, the Radferry parties alleged that any loss suffered by Starborne was caused or contributed to by decline in trade, including a decline in pedestrian traffic in the vicinity, and by deficiencies in Starborne's conduct of the business, including serving poor quality food, poor public relations, changing the range of products, not working appropriate hours, not working hard enough, poor service of customers, purchasing inappropriate amounts of food, serving inappropriately sized portions and poor display.

The issue of the level of the efforts made by the Jacobsens was a live issue at the trial, although the motivation for their relative inactivity may not have been. The evidence capable of supporting his Honour's finding is somewhat slender. The first aspect is the trading results themselves, although it is clear from the submissions on behalf of Starborne that it is possible to find other explanations for the improvement in late 1997 and early 1998. The second is correspondence from Starborne's solicitors to Radferry's solicitors in which it was alleged that Starborne had rescinded the contract and that such rescission was denied by Radferry. The first letter, dated 2 August 1996, recorded that these proceedings had been commenced and asked whether the solicitors had instructions to accept service. The letter then stated:

"Our client is currently operating the business in a provisional or caretaker capacity. On the writer's return from vacation on 13 August 1996 we will advise you of the conditions upon which our client will continue to operate the business. However, you should note that our client in operating the business does not resile from its contention that it has validly rescinded the business contract. Indeed, our client's activities are consistent with the valid rescission of the business contract."

A second letter dated 15 November 1996 said:-

"As we pointed out in our letter of 2 August 1996 our client is currently operating the business in a provisional caretaker capacity. Our client is treating itself as a caretaker of the business and all losses which it is now incurring or has incurred since settlement have been, and will be to your client's account. If your client wishes to retain possession of the business, please let us know."

Radferry submits that these letters indicated an intention to operate the business at something less than its optimal level. This may be arguably so, although another interpretation would be that the solicitors were appropriately guarding against any suggestion that Starborne's remaining in possession constituted an affirmation of the contract. See, for example, Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 especially at 223-226. Whilst one might infer from these letters that Starborne would not be actively seeking to expand the business, it is difficult to see that they could, by themselves, be the foundation for an inference that it proposed to run the business at other than a reasonable level of activity. One might, however, suspect that the level of motivation would not be high.

Reference was also made to a passage in the evidence at AB 218 when his Honour asked Mr Jacobsen:-

"When did you first - do you recall when you first came to the view that you might want to keep the shop rather than insist on the whole deal being cancelled and the shop being given back?"

Mr Jacobsen answered:-

"Yes, about six months ago, your Honour, as business started to improve."

The trial was conducted in March 1998. It is said that his Honour's inference that the business started to improve because the Jacobsens elected to put more effort into it is inconsistent with this evidence in that Mr Jacobsen said that he decided to keep the business after it had started to improve.

There was evidence from witnesses called on behalf of Radferry that the Jacobsens were not working hard in the business. Mr L Zenonos, one of the Radferry directors, said at AB 702-3 that he attended at the shop on a number of occasions after he had sold it and that on no occasion did he see Mr or Mrs Jacobsen there. Mr J Zenonos, another Radferry director, said at AB 826 that Mr Jacobsen had failed to adopt a "hands-on" approach and did not attend on a full-time basis as he was involved in other business pursuits. A witness called Alfio Casella said that he was a regular customer and that he noticed that Mr Jacobsen and his wife were often not at the shop. He said that Mr Jacobsen told him that he had other businesses. There was other evidence to this effect, although all of it seems to have come from one or other of the Radferry directors or from Mrs O'Keefe. His Honour appears not to have placed great weight upon the evidence of customers such as Mr Casella and not to have accepted much of the evidence of the Radferry directors and Mrs O'Keefe. However he may have accepted them to the extent that their evidence supported his inference as to the efforts made by Mr & Mrs Jacobsen.

Although the evidence is, as we have already observed, rather limited in scope, we find ourselves unpersuaded that there was no evidence upon which his Honour could have based the inference that Starborne had failed appropriately to exploit the business. The improvement in performance and the election to affirm the contract, as objective facts closely connected in time, might well lead to an inference that the Jacobsens' attitude to the business had changed. Another explanation is, of course, that the improvement in the business led to the change in attitude. There is no direct evidence of any increased efforts on the part of the Jacobsens, although it might reasonably be inferred that having decided to keep the business, they would work harder. It is likely that his Honour was influenced by his views of Mr Jacobsen as a witness. Although we feel a certain degree of discomfort about the inference drawn by his Honour, we conclude that we would not be justified in interfering. There was some evidence to support it, and the learned trial judge's view of Mr Jacobsen may have been relevant. In those circumstances, an appellate court should be slow to interfere.

The finding is imprecise in the sense that it is difficult to know how Starborne's lack of commitment may have manifested itself and how this may have detracted from the profitability of the business. However such matters are not difficult to imagine. An owner who is not at the business, or does not work hard when there, might hire additional staff without reducing his or her own salary. Alternatively, failure to work hard might result in delays in service, discouraging customers. In both cases, profitability might well be reduced. From this inference, his Honour concluded that the performance of the business in the latter part of 1997 and early 1998 gave a good indication of its capacity as at the time of acquisition, and that Mr Vincent's opinion as to value was not reliable. These conclusions were open in the circumstances.

The second major criticism made by Starborne was that in his calculations of profitability for the October 1997 - February 1998 period, his Honour took into account the rent reduction negotiated with the landlord, thus increasing the actual profitability of the business. Both parties sought to rely upon the decision of the High Court in Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281. The court was concerned with the sale of a motel business on leased premises, the owner of which was the vendor of the business. Prior to the contract the vendor had carried on its business in a way which was inconsistent with the conditions of a relevant planning permit. These conditions were not disclosed to the purchaser. After the purchase, the vendor, as owner, applied for appropriate variations to the permit which were eventually granted. For the period following the purchase, and up until the final variation of the permit, the purchaser carried on the business in a way which was inconsistent with it. In proceedings for damages pursuant to the Trade Practices Act, the question was whether the value of the business should be fixed taking into account the fact that the business had been operated without regard to the permit conditions for a considerable period of time and that the conditions had been subsequently varied, both of which factors increased the value of the business. At 291 the court (Brennan, Deane, Dawson, Gaudron and McHugh JJ) said:-

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

The principle is clearly demonstrated in their Honours' consideration of the decision of the English Court of Appeal in McConnel v Wright [1903] 1 Ch 546 where the plaintiff applied for shares in a company (Standard) on the faith of a representation in a prospectus that Standard had acquired shares in another company (Globe). Those shares were not acquired until some days after the allotment of shares to the plaintiff. Their Honours said of this decision at 292-3:-

"The English Court of Appeal held that, as the representation was fraudulent and the value of the plaintiff's shares had to be assessed as at the date of allotment, it was not `the material point' or `not to the point' that Standard subsequently acquired the shares in Globe.

No doubt McConnel does support the proposition that the subsequent amendment of (the planning permit) is not an automatic answer to Kizbeau's claim for damages and would not be an automatic answer even if (the new condition) were absent from the conditions. But it does not follow that the possibility, as at the date of sale, of (the permit) being amended was irrelevant or that the action of the Council in amending that condition ... has no evidentiary weight in determining the value of the business acquired by Kizbeau. Nor, in the light of the authorities on post sale takings to which we have referred and to other authorities to which we shall refer, can McConnel be regarded as laying down a universal proposition that, in determining the value of a thing as at a specified date, all events subsequent to that date are irrelevant.

Although the Court of Appeal held in McConnel that the subsequent acquisition of the shares in Globe was not an answer to the plaintiff's case, their Lordships accepted that the likelihood, as at the date of the allotment, of the shares being subsequently acquired was a relevant matter to consider in assessing the value of the shares allotted to the plaintiff. Thus Collins MR said:-

`The position is this, and anybody assessing the damage will have to consider it: What is the difference between the value of the property as it was represented and the property without this large asset in it, having regard to the possibility, certainty, or uncertainty of that asset ever being in fact acquired?'

Romer LJ pointed out that, if there was a substantial risk that the shares in Globe would not be acquired, the value of the shares in Standard allotted to the plaintiff "were not worth what they were represented to be worth by the prospectus, which was the price paid for them by the plaintiff". Cozens-Hardy LJ referred to the "material risk at the date when the plaintiff acquired his shares that the statement (in the prospectus) would not be made good".

Thus, McConnel does not support the contention of Kizbeau that Northrop J was correct in assessing damages on the basis that (the planning permit) would remain unaltered during the business relationship of the parties. On the contrary, McConnel establishes that his Honour should at least have considered the likelihood, as at the date of purchase, that (the planning permit) might be amended during the lease or one of its renewals."

The present case is very similar to that with which the High Court was concerned in Kizbeau. In that case, the purchaser had acquired the potential benefit of a change in the planning conditions as a result of the acquisition of the business. Their Honours said at 296:-

"In this case, the valuation process required an assessment of the future revenues of the business and that in turn depended in part upon the scope of the conditions in the town planning permit. As at the date of purchase, the possibility of changes to those conditions may have seemed remote, and not every additional or modification of them would necessarily be relevant in assessing the damages suffered by Kizbeau. But the changes that were made to the conditions in March 1991 were not irrelevant to that assessment, nor could they fairly be regarded as the result of a supervening or extraneous event. It is true that an outside agency - the Council - brought about the amendment ... But they were changes to the conditions that regulated the use of the premises at the time of purchase and they undoubtedly flowed from a reconsideration by the Council of the nature of the business conducted on the premises and the use to which each part of the premises could be put for the purpose of that business. Once those changes occurred, they affected the future revenues and, consequently, the value of the business. The changes in conditions, once they occurred, gave the best indication or reflection of the revenue-earning capacity of the business to be conducted on the leased premises."

Similar observations can be made about rental in this case. It may not have seemed very likely, as at the date of acquisition, that the landlord would offer a rent rebate, but once Starborne became tenant of the premises, it was in a position to benefit from any such reduction, should it occur. It was also in a position to treat with the landlord with a view to bringing about that result. It follows that in assessing the subsequent profitability of the business, it was appropriate to take into account the reduced rental. There may be room for argument as to the extent to which the landlord was bound by the new arrangements and as to whether it might resile from the variation. It is likely that should Starborne wish to sell the business, the sale price would be reduced to some extent to reflect this uncertainty. Further, it should be kept in mind that the final reduction in rent was not negotiated until late 1997, although temporary rebates were granted for some earlier periods.

OPPORTUNITY LOSS

Starborne claims to recover more than any sum likely to be disclosed by a comparison of the actual value of the business at the time of acquisition with the price paid for it, such additional amount to be measured having regard to the lost opportunity to derive profits from the investment of capital. We will consider this matter in the next part of the judgment in which we consider the proper approach to quantification of Starborne's loss.

QUANTIFICATION OF DAMAGES - DECEIT

As we have said on a number of occasions, the starting point for this calculation is the difference between the value of the business at the time of acquisition and the price paid for it. Several methods of valuation were contemplated in the evidence and in argument. Starborne submits that we should simply apply the evidence of industry average earnings to proven gross turnover. In some cases, a court may be forced to adopt this approach, although we have reservations about it. Average figures necessarily imply that some of the integers used to calculate the average are above, and some below that average. Whilst the party urging the adoption of such an approach may choose to accept any disadvantage inherent in it, it should not generally be permitted to force such acceptance upon the other side. Where, as here, actual information concerning income and expenditure is available, it will generally be better to use it rather than to resort to industry averages. We say this notwithstanding the unreliable and patchy nature of the available evidence in this case. The capitalisation method suggested by Mr Vincent in his evidence and the summation method used by Mr Wright appear to be open on the evidence. The latter method is difficult to adopt in view of the substantial difference between Mr Wright and Mr Vincent as to the value of plant and equipment, which difference was not resolved by the learned trial judge. In those circumstances, Mr Vincent's capitalisation approach is to be preferred. That method requires the identification of a relevant net profit figure and the application to it of an appropriate capitalisation rate.

For reasons which we have given, we are bound by the finding of fact that the trading history of the business in the five months from October 1997 to February 1998 gives a reasonable guide to its prospects as at the date of acquisition. Subject to making appropriate adjustments to reflect the contingencies associated with the rent question, we therefore take the corrected figure of $8,550 as the basic net profit reasonably derivable from the business as at the date of acquisition. As we have previously pointed out, his Honour adjusted the actual figure by deleting certain items which appeared to be either private expenditure on behalf of the Jacobsens or payments to them, together with other unusual items not apparently attributable to the conduct of the business. Thus the figure is "before" owner's salary. This shows an annual profit of $102,600. From that must be deducted the allowance of $50,000 to represent owner's salary, leaving $52,600. This deduction is not intended to reflect any actual benefit derived (or not derived) by the Jacobsens or by Starborne. We are engaged in the process of calculating the price likely to be paid by a buyer in the market place, following the process prescribed by Mr Vincent. As to the capitalisation rate, we see no basis for adopting any rate other than that suggested by Mr Vincent, namely 25 per cent. This shows the value of the business at the time of acquisition as $210,400, but this figure makes no allowance for the effects on the value of the uncertainty concerning the rent position.

With the benefit of hindsight we know that in September 1997, final agreement was reached concerning the rent rebate for the balance of the term. Prior to this, a number of short term agreements had been negotiated. The total amount of rent paid for the five months from October 1997 to February 1998 (inclusive) was a little over $27,000, showing an average monthly rent of about $5,400. The total for the nineteen months from March 1996 to September 1997 is a little over $100,000, a monthly average of about $5,300. Thus, the rent was fairly constant throughout the whole period from the date when Starborne took possession of the business on 19 February 1996 until February 1998. In other words, the rent component in the figures for October 1997 - February 1998, used as the basis for calculating the value of the business as at the date of acquisition, accurately reflects the actual rent position for the whole period from acquisition until February 1998. Thus no further adjustment is necessary in this respect. A buyer would, however, take account of the remaining uncertainty to which we have referred. In the circumstances a valuation of $200,000 is appropriate. The purchase price was $290,000, and so the quantum of loss demonstrated by this method is the sum of $90,000.

As we have said, Starborne claims a further amount as "opportunity loss". Clearly, items of loss beyond diminution in value may be recoverable in appropriate cases. See Gould v Vaggelas (supra) at 222 (per Gibb CJ), at 255 (per Brennan J) and at 266 (per Dawson J). Not infrequently, allowance is made for trading losses because they are, in effect additional investments of capital designed to keep the business going. To the extent that trading losses were made in this case, his Honour's findings attribute them to the Jacobsens' conduct of the business rather than to the misrepresentation. Starborne's claim for opportunity loss appears to be for lost profits, reflecting returns which might have been derived from another business which, it says, it would have purchased had it not bought this business.

As was pointed out in Gould v Vaggelas by Dawson J at 266:-

"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. ... 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".

As we understand it, the valuation exercise, recommended by Mr Vincent and performed above, is designed to reflect a purchaser's probable assessment of the value of the business, having regard to actual trading figures and desired returns on investment. The capitalisation rate is chosen taking into account the various contingencies of business and life. Thus the difference between the value of the business at acquisition and the price largely represents lost future profits, discounted to reflect contingencies. Once it is realised that the value of the business reflects future profitability, it is difficult to see any justification for allowing a further sum calculated by reference to the anticipated profitability of another, unidentified business.

Arguments of this kind are prompted by a perception that it is "unfair" that the outcome in contract should be "better" than that in deceit or under the Trade Practices Act. Gaudron J, in Marks (supra) at paras 12-17, explains the fallacy of such a perception. Once this explanation is understood, it is reasonably easy to accept that apparently different financial consequences may flow from a breach of contract as opposed to those flowing from an actionable deceit which caused a party to enter into that contract. In the former case, the contract breaker has sold a warranty to which the law will, in one way or another, hold him or her. In the case of deceit, there is no such warranty, and the law does not pretend otherwise.

The measure of damages is designed to return Starborne to the position it would have been in had there been no contract. Starborne's argument is that, had there been no fraud, it would have acquired another, profitable business and traded profitably thereafter. Logically, it is possible that a victim of deceit may establish that had he not entered into a particular contract to acquire a business, then he or she would have acquired another. The victim may even prove the likelihood of profitability in that business, although there would always be a need to allow for contingencies. The victim may not have acquired a good business, or a good business may have done badly for some extraneous reason. Starborne actually seeks, by way of so-called "opportunity loss", an amount equal to the notional profit of a business worth the purchase price actually paid, for the period up to October 1997, after which the business was, in fact, trading profitably. There are two answers to this claim. Firstly, the learned trial judge attributed at least part of the lost profits for that period to Starborne's own conduct. Secondly, once it is realised that the valuation of a business reflects expected future profitability, there is no logical basis for this additional claim. Lost profit is reflected in the primary calculation. There should be no award beyond the sum of $90,000, other than for interest which is, of course, also a return on money.

Section 51A of the Federal Court of Australia Act 1970 (Cth), requires an award of interest. Pursuant to O 35 r 8 the rate on judgments from 1 January 1996 until 25 September 1997 was 12 per cent. It is presently 10.5 per cent. We apply those rates by analogy. The cause of action arose on the date of entering into the contract, 16 January 1996 although the purchase price (other than the deposit) was not paid until 19 February 1996. The award, although described as a capital valuation, actually reflects lost opportunity to derive profits. As at the date of judgment, 27 April 1998, Starborne had traded for 2 years and 2 months. The remaining term of the lease was 2 years and 5 months. In the circumstances, it would be appropriate to allow interest on half of the judgment, representing the moneys of which Starborne was deprived prior to judgment. That sum accumulated progressively following acquisition. The interest award should reflect that fact. This is usually achieved by halving the appropriate rate. We award interest on $45,000 at 6 per cent from 19 February 1996 until 25 September 1997 and at 5.25 per cent thereafter until the date of judgment in the action, namely 27 April 1998. The sum of $45,000, at 6 per cent per annum for 1 year and 7 months, shows $4275. The same sum, at 5.25 per cent per annum for 7 months, shows $1378. The total interest award is $5653.

QUANTIFICATION OF DAMAGES - TRADE PRACTICES ACT

Starborne claims the same award as in contract (discussed below) or that claimed in deceit (discussed above). For the reasons already given, the starting point is the same as that for the measure of damages in deceit. Pursuant to ss 82 and 87, it is necessary that an applicant demonstrate a loss (or in the case of s 87, a likely future loss) in order to attract an award of damages under either section. The award is to be, under s 82, the amount of the loss, and under s 87, such as to compensate for the loss or to prevent or reduce it. Whilst Marks (supra) at para 49-53, contemplates the possibility of compensating an applicant for a lost opportunity to achieve "some greater benefit", it does not follow that claims under ss 82 and 87 will naturally attract damages equivalent to those for loss of bargain in contract. Indeed, Marks establishes that such is not the case.

Starborne argues that had it not acquired this business, it would have acquired another for the same price, which would have been profitable. Accepting this at face value, it must be kept in mind that such a business could be expected to yield a profit appropriate to a business having that capital value, not the profit attributable to a business as warranted. Starborne will be compensated for those lost profits by the primary calculation which recognises the extent to which the actual profitability of the business fell short of the notional profitability represented by the purchase price. The inevitable link between expected future profitability and purchase price must be kept in mind at all times. The capitalisation method of valuation directly recognises this link. For the reasons already given, all demonstrated loss caused by the actionable misconduct is adequately reflected in the primary calculation. Again, the award should bear interest as explained above.

QUANTIFICATION OF DAMAGES - CONTRACT

This calculation requires an assessment of the price which a purchaser would pay for the business as warranted. Radferry did not warrant that the income and outgoings in the summary report would be maintained, but the value of a business, with that history of profitability as at the date of purchase, would reflect that history, the expectation being that history would be a guide to the future. As previously mentioned, some adjustment may be necessary to reflect items of expense inevitably to be incurred, but not mentioned in the summary report. As we have said, the total of such amounts for the five month period from October 1997 to February 1998 was something under $7,000 of which an amount in excess of $2,000 represented either a bi-annual or annual payment. Allowance ought be made for additional monthly outgoings totalling between $1,000 and $1,400. Accordingly, we reduce his Honour's figure of $11,409 to $10,200.

In calculating the actual value of the business at the date of acquisition, account was taken of the possibility at that date that a rent reduction might have been negotiated in the future. This contingency was shown by subsequent events to be of substantial value. It might be thought that this factor ought also be taken into account in assessing the warranted value at that time. This would have the effect of increasing the award. We did not understand Starborne to advance this argument. It is a difficult matter. Had the warranties been made good, the circumstances which led to the rent reduction may not have occurred. There are other problems with the figures. The actual rent figure for October 1998 ($2561.78) was very much less than the monthly rental thereafter (about $8,000). This may have been an incentive concession by the lessor, but whatever its nature, it had the effect of substantially reducing the rent for the period upon which the calculation of warranted value has been made, the ultimate effect being to increase that value. A further problem is that the figures from the summary report used by his Honour to calculate the trading profit for the period 1-16 December 1995 appear to include rent for the whole of December whilst the other figures, including takings, are only for the 16 day period. There were no submissions on any of these matters, and in those circumstances, we feel it inappropriate to consider them further.

Mr Vincent's exercise requires, as its starting point, the profit figure before deduction of owner's salary so that the notional figure of $50,000 can be deducted. This is of some importance as an existing owner may be taking out more or less than that sum by way of salary. He or she may or may not be working full-time in the business. It is virtually impossible to fix the amount which Radferry was paying by way of owner's salary. The summary report shows substantial items paid as wages in cash and by cheque, totalling over $30,000 for the period from 26 September to 16 December 1995. The manager of the business was one of the Radferry directors, Mr Sam Zenonos. In both his affidavit and in his oral evidence, he was anxious to present an image of himself as something of a playboy who was taking substantial amounts of cash out of the business. It is likely that this was part of the smoke screen designed to conceal the misrepresentations inherent in the summary report, the allegation of substantial cash drawings explaining the ultimate destination of much of the profit allegedly derived from the business. Mr S Zenonos asserted that he had no other source of income during the relevant period and that he had deposited substantial amounts in various bank accounts, all of it derived from the business. He said that he also spent other amounts from cash drawings. His bank accounts for the period from the beginning of October until mid-December show deposits totalling about $19,000, of which all but about $3,000 was deposited in cash. Other deposits may have been made by cheque. His Honour did not generally accept Mr Zenonos's evidence.

Other evidence indicates that for the purposes of an insurance claim, Mr Zenonos indicated that his drawings from the business were about $800 per week, but there is no evidence as to the accuracy of that estimate. Any amount added back to reflect this item will operate to increase the value of the business as warranted and therefore the award of damages. It would be unfair to Starborne to assume that nothing was paid out of the business to Mr Zenonos, and that is unlikely to have been the situation. The best that we can do is to assume the correctness of the estimate of $800 per week. That amount (or about $3500 per month) should be added back into the net profit figure. Thus the net profit per month before deduction of owner's salary would be $13,700, giving a total annual figure of $164,400, from which must be deducted $50,000 for the notional owner's salary, showing $114,400. An appropriate capitalisation rate must be applied to this figure. We see no reason to adopt any figure other than that suggested by Mr Vincent, namely 25 per cent. This shows a value for the business of $457,600. The measure of damages in contract is therefore derived by deducting the true value of the business, ($200,000) from the value as warranted ($457,000), showing $257,000

Again, half of the judgment should bear interest from 19 February 1996 until 25 September 1997 at 6 per cent and thereafter until 27 April 1998, at 5.25 per cent, showing $12,207 and $3935 respectively, a total for interest of $16,142.

ORDERS

The awards in deceit and under the Trade Practices Act relate to the same loss. The various respondents engaged jointly in the conduct which led to the awards. There seems to be no reason why the judgment could not go against them jointly. See "McGregor on Damages", 16th ed., para 2087. Strictly speaking, there should be separate orders in respect of the deceit and Trade Practices Act claims, but as the award is the same in each case, this does not matter.

The award in contract is against Radferry only and so must be in a separate judgment. However, the award includes the subject matter of the awards in deceit and under the Trade Practices Act. The orders should ensure that there is no opportunity for double satisfaction. See B.O. Morris Ltd v Perrott and Bolton [1945] 1 All ER 567 at 570 and Midland Mortgage Aust Ltd v Harkness (1994) 35 NSWLR 150 at 159.

The orders on the appeal and cross-appeal will be as follows:-

(a) Allow the appeal and cross-appeal.

(b) Set aside paragraphs 1, 2 and 3 of the orders below. Substitute new orders as follows:-

1. The respondents pay to the applicant the sum of $90,000 and interest thereon to 27 April 1998 in the amount of $5653.

.

2. The first respondent pay to the applicant the sum of $257,000 and interest thereon to 27 April 1998 in the amount of $16,142, so, however, that the applicant is not to recover, in all, more than the sum of $257,000 and the sum of $16,142 for interest. .

His Honour's order as to the costs below should stand.

As to the costs of this appeal, the second respondents, the Radferry directors, have been successful in reducing the amount of the judgment against them. On the other hand, Starborne has been successful in obtaining a substantial judgment against Radferry for damages for breach of contract. In those circumstances Radferry should pay Starborne's costs of the appeal and cross-appeal. Starborne should pay the Radferry directors' costs of the appeal and cross-appeal.

In view of the rather complex order as to costs, and as argument was not heard on the issue, should the parties wish to submit that some other order ought be made, they are to be at liberty to make submissions in writing within fourteen days of publication of this judgment. Such submissions are to be forwarded to the District Registrar at Brisbane by that date for transmission to the members of the court, a copy thereof being delivered on the same day to the solicitor on the record for the opposing party or parties. Each party is to be at liberty to reply to any such submissions by delivering that reply to the District Registrar at Brisbane within seven days of receipt of the submissions in question, on the same day delivering a copy thereof to the solicitor on the record for the opposing party or parties.

All parties have liberty to apply.

I certify that this and the preceding thirty-two (32) pages are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 18 December 1998

Counsel for the Appellants:	Mr R.V. Hanson QC and Mr M.M. Varitimos
Solicitor for the Appellants:	Bateman Makridakis
Counsel for the Respondent:	Mr J.C. Bell QC
Solicitor for the Respondent:	Burns Jameson
Date of Hearing:	12 November 1998
Date of Judgment:	18 December 1998