CATCHWORDS TRADE PRACTICES - misleading and deceptive conduct - representations of anticipated takings from cafe business - whether findings of trial judge should be set aside. DAMAGES - offer to acquire lease - offer not accepted by lessee - whether lessee's damages should be reduced by the full amount of the offer. LIMITATION OF ACTIONS - date from which limitation period should commence where loss - contingent damage sufficient when loss ascertained or reasonably ascertainable. Trade Practices Act 1974 (Cth): ss52, 82, 87 Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514; discussed. Potts v Millar (1940) 64 CLR 282; applied. Gould v Vaggelas (1985) 157 CLR 215; applied. KAREDIS ENTERPRISES PTY LIMITED AND GREENFRIARS PTY LIMITED v RITA ANTONIOU AND MICHAEL ANTONIOU No NG002 of 1995 CORAM: BURCHETT, HILL & SACKVILLE JJ PLACE: SYDNEY DATED: 5 JULY 1995 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG002 of 1995 ) GENERAL DIVISION ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: KAREDIS ENTERPRISES PTY LIMITED AND GREENFRIARS PTY LIMITED Appellants AND: RITA ANTONIOU AND MICHAEL ANTONIOU Respondents CORAM: BURCHETT, HILL & SACKVILLE JJ PLACE: SYDNEY DATED: 5 JULY 1995 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The appeal be allowed in part. 2. The judgment in favour of the applicant be set aside. 3. Application be remitted to Justice Einfeld to determine in accordance with law: (a) whether cause of action under the Trade Practices Act 1974 statute barred; and if so (b) whether the applicants should succeed in their claims at common law; (c) the damages, if any, to which the applicants are entitled, having regard in particular to the amount the respondents are entitled to recover on the cross-claim. 4. Judgment on cross-claim set aside. 5. Cross-claim be remitted to his Honour to determine the amount of rent payable by the applicants. THE COURT DIRECTS THAT: 1. The appellants file and serve written submissions on the question of costs within seven days of these reasons being delivered. 2. The respondents file and serve written submissions in reply within a further seven days of being served with the appellants' submissions. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG002 of 1995 ) GENERAL DIVISION ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: KAREDIS ENTERPRISES PTY LIMITED AND GREENFRIARS PTY LIMITED Appellants AND: RITA ANTONIOU AND MICHAEL ANTONIOU Respondents CORAM: BURCHETT, HILL & SACKVILLE JJ PLACE: SYDNEY DATED: 5 JULY 1995 REASONS FOR JUDGMENT BURCHETT & HILL JJ: The appellants, Karedis Enterprises Pty Limited ("Enterprises") and Greenfriars Pty Limited ("Greenfriars") (hereafter sometimes referred to also as "the landlords"), appeal against the judgment of a judge of this Court holding that they had engaged in conduct which was misleading or deceptive, in breach of s52 of the Trade Practices Act 1974 ("the Act") and were liable in damages pursuant to s82 of that Act to the respondents, Mr and Mrs Antoniou ("the Antonious"). Judgment at the same time was entered in favour of Enterprises and Greenfriars on a cross-claim for rent and other outgoings less certain amounts, together with interest, in the sum of $120,000. However, the learned trial judge disallowed to the present appellants on their cross-claim the sum of $102,679, being the difference between the rent which the Antonious had contracted to pay under the lease and the lower rent payable by a new tenant to whom the premises had been let. Enterprise and Greenfriars appeal also against his Honour's orders with respect to the cross-claim. The claim brought by the Antonious arose out of the circumstances in which they entered into a lease on 14 October 1988 to operate a coffee lounge under the name "Palace Cafe" in an arcade at Neutral Bay owned by Enterprises and Greenfriars. As pleaded damages were sought not only pursuant to s87 of the Act but also at common law. The common law claims were pleaded both in fraud and in negligence. The Antonious claimed that they had been induced to enter into a lease of the Palace Cafe by reason of certain oral representations made by Mr Karedis, the principal of both Enterprises and Greenfriars and a real estate agent instructed by him, a Mr Hargreaves. The principal representation relied upon was a representation by Mr Karedis that the cafe should take $14,000 to $15,000 per week, having regard to the fact that the site was the best location in Neutral Bay. The lease was entered into on 14 October 1988 and the cafe opened for business on 12 December 1988. The Antonious traded until 17 February 1991, some two years and three months after the cafe opened. On 20 February 1991 the landlords entered into possession. At that stage the Antonious were $90,793.38 in arrears of rent. It was the case for the Antonious that the representation said to have been made by Mr Karedis was made on 13 or 14 September 1988 at a meeting at which were present Mr Karedis, Mr Karedis's architect, Mr Gietz, Mr Hargreaves and Mrs Antoniou. Mr Antoniou had no business experience and limited understanding of financial affairs and left most decisions to his wife. It was the case for the landlords that the meeting had not taken place until 12 October. The significance of these dates was that in late September Mrs Antoniou had applied to a branch of Westpac Banking Corporation for a loan to finance the fit out of the cafe. In response to a request for financial details, she, in association with an accountant, had prepared a cash flow chart showing projected takings and costs over a one year period. The financial information showed takings varying from month to month but averaged $13,800 per week. The loan, in the form of an overdraft, was approved by Westpac before the end of September and replaced subsequently by an equipment lease on 2 March 1989. The landlords denied that any representation as alleged had been made. Notwithstanding that Mrs Antoniou was definite that the meeting had occurred and the representations had been made before the bank cashflow forecast had been prepared and a finding by his Honour that her evidence "was a credible and creditable presentation", his Honour concluded that Mrs Antoniou was mistaken and that the meeting had occurred on 12 October 1988, by which time the Westpac loan had already been undertaken. No explanation was ever forthcoming as to how the accountant's figures prepared for Westpac had been derived, although clearly on his Honour's finding the figures could not have been derived from any representation made by or on behalf of the landlords. In finding that the meeting occurred in October, his Honour was influenced by diary entries of Mr Gietz and Mr Hargreaves, principally the former, although it must be said that the diary entries were really not determinative of whether a meeting was in fact held in October. They were consistent with there having been an attempt to arrange a meeting at that time, whether or not that meeting took place. There was also evidence referred to in the judgment appealed against of correspondence in September 1988 which suggested that by that time the Antonious had made a decision to take a lease of the premises and that the matter was in the hands of their solicitors. The question whether the representation was in fact made and if so whether it had been relied upon by the Antonious in entering into the lease was a question which depended upon whether the balance of evidence of the Antonious was to be believed when evidence of the appellants that the meeting took place in October rather than in September had been accepted. In denying that he had made the representation complained of, Mr Karedis said that he had no interest in the potential takings of his prospective tenants, leaving all the relevant calculations and necessary enquiries up to his agent, Mr Hargreaves. He denied that there had been any discussion of lease rates, terms and conditions of the lease or turnover of the shop in any meeting at which he was present. Mr Hargreaves had no memory of the conversation at all and Mr Gietz said that he did not recollect any discussion concerning details of the lease, rental rates or any other like matters, although he admitted that it was possible that such a discussion did occur without contribution by him. Matters of inference were referred to on both sides to support the assertion of the representation or its denial. His Honour was of the view that these matters were of little assistance either way. In the result his Honour was forced to decide the issue on the conflicting testimony of Mr Karedis and Mrs Antoniou. He said: "Nevertheless, after closely considering the evidence, and giving some weight to what I concluded was the greater credibility of Mrs Antoniou, I have resolved the matter in favour of the applicants." Accordingly, his Honour found that during the meeting on 12 October 1988 Mr Karedis represented that the business would take between $14,000 and $15,000 a week, based in part upon his opinion that the position was a prime one. It was conceded that there was no reasonable basis for such a representation as regards takings and that if found to be made the representation was misleading or deceptive. His Honour then turned to the question whether the representation as found had been relied upon. In concluding that it had, his Honour attributed special weight to the fact that Mr Karedis was a successful older businessman to whom inexperienced younger people of the same ethnic origin would look with confidence. The lease was not signed until two days after the representations were found to have been made. By 12 October, although the Antonious had signed an offer to lease, that offer carried with it no legal obligations or rights. While his Honour accepted the proposition that the financial submission to Westpac could be taken as supporting the case of the landlords that the real commercial decision had been made prior to the representation having been made, his Honour found that the representations played some part in the decision to enter into the lease, albeit that it was only one of the factors upon which the Antonious relied. His Honour found that the Antonious had no idea what the takings of such a business would be and while Mr Karedis would have been in the same position, held that it was likely that the Antonious thought that Mr Karedis did have considerable knowledge of the matter or at least a better knowledge than they possessed. His Honour found that Mr Karedis had much more of an idea than the Antonious. His Honour commented upon the fact that the Antonious had made no real attempt to rationally assess the viability of the cafe and that their decision to 17 enter the lease was "extremely unwise and commercially incompetent". While this would be a matter that would found a defence of contributory negligence, his Honour correctly pointed out that contributory negligence was not a defence to an action for damages under s82 of the Act, a matter not challenged in the present appeal. In the end his Honour accepted as "likely" that the Antonious had relied upon the representation. He said: "I accept as likely that they pinned their ultimate decision on Mr Karedis who, as an older experienced person of their own ethnic group, would in their assessment have been unlikely to lead them astray when he predicted how the business would go." In a passage in the judgment which came close to finding that Mr Karedis had been guilty of fraud and would certainly be consistent with such a finding, his Honour said: "In selecting the Antonious over the other applicants for the shop who were unwilling to pay the higher asking rent because they knew the business could not pay on such a basis, Mr Karedis placed his own immediate financial position ahead of truth, the practicalities and the interests of the applicants. Perhaps he thought that the takings would reach $14,000 per week, perhaps not. Either way his assessment was an impossible target the very size of which induced the applicants to go on with the proposed lease and open the business." The Antonious relied also upon continued representations made after the lease had been entered into. These later representations, said to have been made by Mr Karedis and Mr Hargreaves, repeated the initial representations as to potential takings. It was the case for the Antonious that by making these subsequent representations, the Antonious were encouraged to continue trading in circumstances where they might otherwise have abandoned the lease and mitigated their losses. His Honour found the additional representations to have been made. In so doing his Honour said that issues of credibility "heavily favoured the applicants". He pointed to the fact that it was in the interests of the landlords for the Antonious to continue trading as another tenant was unlikely to be obtained at the same rent. Accordingly, the best way for the landlords to maximise their returns was to retain the Antonious as tenants. His Honour said: "I believe that the repetition of the representations had the effect of encouraging the applicants to continue trading when wisdom and reality would have suggested that they sell...". Although certain other representations were alleged to have been made and other causes of action were pleaded, his Honour made no finding regarding them. His Honour calculated damages by reference to the amount which the Antonious had spent in commencing the business, together with their accumulated trading losses. His Honour found that on average the business lost $1,800 per week from December 1988 until December 1990. An offer had been made through Mr Hargreaves to the Antonious in December 1990 to sell the business for $120,000 which, if accepted, would have put a final end to the accumulation of their losses. His Honour was of the view that reasonable mitigation would have led to the acceptance of that offer and so held that losses accrued after that time should not be allowed and that a proportion of the foregone purchase price should be deducted from the losses earlier accrued. In the event his Honour deducted $40,000 from the offer to allow for contingencies such as the delay in completion, legal costs and agent's commission. Ultimately his Honour calculated the damages at $167,200 as follows: "Capital expenditure (from savings) $ 35,000 Accumulated trading losses (2 x 52 x $1,800) $187,200 Interest $ 25,000 $247,200 LESS portion of rejected purchase price $ 80,000 $167,200" The claim under the Act was defended by the landlords on the basis, inter alia, that the proceedings had not been commenced within three years after the date on which the cause of action accrued (s82(2) of the Act) and was thus statute barred. His Honour concluded that the cause of action had not accrued until, at the earliest, December 1989. Since the proceedings were commenced on 20 November 1992, his Honour found that the proceedings were not statute barred. We shall return to his Honour's reasons for that finding later. The appellants' submissions in respect of the claim made by the Antonious against them fell into three groups, namely, submissions as to liability, submissions as to damages and a submission that his Honour should have found the proceedings under the Act statute barred. We shall deal with each of these submissions separately. THE APPELLANTS' SUBMISSIONS ON LIABILITY Counsel for the appellants attacked both his Honour's findings that the representations, initial and subsequent, had been made, and that they had been relied upon. At the forefront of these submissions was the finding made by his Honour that the meeting at which the initial representation was made occurred on 12 October and not in September. It was submitted that to accept, contrary to Mrs Antoniou's evidence, that the representation had been made in October meant that Mrs Antoniou's evidence had been to a great deal false and that his Honour had failed to appreciate this. It was submitted also that his Honour had failed to appreciate that before the meeting took place in October, a firm decision had been made to enter the lease and commence the business which decision was in the course of being implemented. It was said that the evidence had not been corroborated by the bank manager and Mrs Antoniou's father and that his Honour had not given adequate weight to the evidence of Mr Hargreaves and Mr Gietz. It might be said of these last mentioned submissions that neither the accountant nor the father had been cross-examined, that Mr Gietz had not denied that the representation might have been made and that Mr Hargreaves had no recollection at all of the meeting. The same submissions were said to lead to the conclusion that the Antonious had not relied upon any representation made by Mr Karedis. Counsel for the appellants attacked also his Honour's findings as to the subsequent representations. This attack was founded upon a submission that Mr Karedis had not made the pre-contractual representation, that Mrs Antoniou's evidence as to events prior to the lease being entered into was false and that the motives attributed to Mr Karedis in respect of the subsequent misrepresentations were entirely hypothetical. It was also submitted that the post-contractual representations had not been relied upon and that this had been conceded by Mrs Antoniou in cross-examination. With respect there is no substance in these submissions. It can certainly not be said that his Honour failed to take into account the conflict between his finding as to the date of the meeting and Mrs Antoniou's evidence or the steps that had been taken prior to the lease being entered into. In arriving at his findings, both that the representations had been made and that they had been relied upon, his Honour had to choose ultimately between the conflicting testimony of Mr Karedis and Mrs Antoniou. His Honour found Mrs Antoniou to have greater credibility than Mr Karedis. Indeed, as his Honour said in the context of the subsequent representations "issues of credibility ... heavily favoured the applicants". Further, in arriving at his Honour's conclusions, his Honour was acutely conscious not only of the financial material produced to Westpac and the steps taken by the Antonious prior to 12 October 1988, but also whether the probabilities favoured the case of Mr Karedis over that of Mrs Antoniou. In short, the case was one where the credibility of witnesses entered into the final factual finding to a very substantial degree. In SS Hontestroom v SS Sagaporack [1927] AC 37 at 47 Lord Sumner pointed out that: "... not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone." That well known passage has been adopted by the High Court in a number of cases. Reference need only be made to Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178; Brunskill v Sovereign Marine and General Insurance Co Ltd (1985) 59 ALJR 842 at 844; Warren v Coombes (1978-9) 142 CLR 531 at 537 and Paterson v Paterson (1953) 89 CLR 212 at 222. As McHugh J, with whose reasons Mason CJ, Deane, Dawson and Gaudron JJ agreed, in Abalos made clear, this principle may operate even where no express reference is made in the judgment appealed against to demeanour or credibility. Where, as here, specific findings of credibility have been made, the principle is self-evident. The present is not a case where the findings of the learned trial judge can be seen to be clearly wrong on other grounds, such as being inconsistent with other established facts or glaringly improbable. Nor is it such a case as Warren v Coombes, depending upon inferences as much open to be made by the appellate court as by the trial judge. The appellants' submissions should accordingly be rejected. THE APPELLANTS' SUBMISSIONS ON DAMAGES The appellants' submissions on damages went to four matters. First it was said that the amount of initial capital expenditure paid out of the Antonious' savings had been overstated by the sum of $20,000 in that this amount had been refunded to them subsequently. Second it was submitted that it was only in respect of the second year of trading that Mrs Antoniou had said she relied upon the representation of takings. Accordingly it was submitted that only one year's trading losses should have been allowed rather than two. Third it was submitted that his Honour should not have reduced the sum of $120,000, being the offer for purchase not accepted by the Antonious, by an amount of $40,000 for contingencies. Rather it was said the whole amount should have been allowed. Finally it was submitted that his Honour had erred in calculating interest on damages before making a deduction in relation to the rejected purchase price. The first submission should be accepted. The evidence was that on 17 October 1988 an amount of $20,000, being part of the $35,000 of capital expenditure, was paid by Mrs Antoniou to a builder. This amount was refunded into the account of the Antonious on 6 March 1989 as part of a total amount of $139,240 credited to that account. That amount was credited when the overdraft account, so far as it related to set up expenses, was replaced by the proceeds of equipment leasing. Thus clearly the amount of capital expenditure of $35,000 used by his Honour as the first step in calculating the damages should be reduced to $15,000. For the Antonious, however, it was submitted that while the money had gone to reduce the overdraft and for that reason it was not double counted, since it thus went to swell the amount of losses which the Antonious suffered. That would be so if those losses had been calculated by his Honour, as had been submitted at the trial, by reference to the sum of the cost of the original fit out together with the amount owing to Westpac and debts unpaid. However, this was the approach which his Honour rejected. Rather, his Honour assessed damages by taking the average trading loss from December 1988 until December 1990 and multiplying the weekly figure derived by two years (2 x 52). The $20,000 figure did not enter into the calculation of the trading losses and accordingly the submission would seem to be correct that there was in fact a double counting of the $20,000. In so holding we take no account of the apparent concession by Mrs Antoniou that there had been a double counting as the context in which that concession was given was somewhat confusing. The second submission is clearly fallacious. In support of the second submission, counsel for the appellants took us to evidence of a conversation between Mr Karedis and Mrs Antoniou, given by Mrs Antoniou and said to have occurred in the second half of 1989, in which in response to Mr Karedis saying to her that she should be taking $14,000 to $15,000 per week, Mrs Antoniou had replied "not in the first year". In other evidence Mrs Antoniou said that she had expected to reach the represented level of trading close to the end of the first year of trading. It does not follow, however, from this evidence that the losses incurred by the Antonious should be restricted to one year of trading, namely, that year after the expiration of the first year. The Antonious entered into the lease in consequence, as his Honour found, of the misleading and deceptive representation of Mr Karedis. It was that misrepresentation which led to the total loss suffered by the Antonious. The misrepresentation did not lead to a loss only in respect of the profits of the second year. The third submission must likewise be rejected. The calculation of damages is not a matter of precise mathematical computation. No doubt had the offer to purchase the lease been accepted there would have been legal and estate agency fees as well, perhaps, as accounting fees. These would have reduced the gross amount of the offer to some extent which may possibly have been less than the $40,000 amount which his Honour deducted. On the other hand, it may with equal force be said that the allowance of any of the $120,000 was favourable to the appellants since the offer may indeed never have come to fruition as a contract to purchase. Just as evidence of an offer will not be accepted as evidence of value, so the mere existence of an offer in a particular amount does not mean that the offer will fructify to a contract. It was appropriate, therefore, that his Honour make some allowance for the contingency that it would not. Doing the best that he could, his Honour arrived at a deduction of $40,000. This Court should not interfere with his Honour's finding. The submission that his Honour erred in calculating interest on damages before making a deduction in relation to the rejected purchase price, was not vigorously pursued. The calculation of $25,000 for interest was not made by his Honour by reference to actual amounts of interest which were incurred to their bankers by the Antonious. His Honour rather assumed an average amount of debt of around $75,000 over the two years and calculated interest accordingly. This assumption was made as an estimate of the actual interest which the Antonious had incurred on trading losses and so did not require there to be taken into account any capital received on the assumed sale of the lease. This is particularly so because his Honour proceeded on the basis that the losses terminated as at the date on which the offer was made, that is to say, 12 December 1990. Thus no interest was in fact calculated for any period after the assumed proceeds of sale could have been paid. THE LIMITATION QUESTION Although it occupied only a short part of the appeal, the most substantial issue raised by the appellants concerned the limitation question. Section 82(2) of the Act makes it clear that the period of limitation of three years for bringing a claim under the Act commences when the cause of action under s.82(1) accrues. That will be not until actual loss or damage has been sustained. The High Court in Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 considered the question of when loss or damage was sustained in the context of an indemnity induced by misleading or deceptive conduct. The judgment makes it clear that loss or damage will not necessarily be suffered at the time a contract is entered into on the faith of misrepresentations made by a respondent. The question will be one of fact. In a simple case where a plaintiff purchases an asset on the faith of a misrepresentation and that asset is shown by evidence to have been worth less than it was represented to be, the loss or damage has generally been held to have been suffered at the time the contract was entered into or perhaps at the time when the purchase money under the contract is paid. The measure of damages in an action brought under the Act in such a case will be the same as that applicable in an action in deceit, namely, the difference between the value as represented and the real value at the time the asset was acquired: Potts v Miller (1940) 64 CLR 282; Gould v Vaggelas (1985) 157 CLR 215 at 220 and cf Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12. However, the High Court in Wardley made it clear that in other cases the disadvantageous character or effect of an agreement entered into on the faith of a misrepresentation might not be ascertained until a future date. Mason CJ, Dawson, Gaudron and McHugh JJ drew a distinction between a case where there was but a potential for loss and one where that potential had come to fruition as an actual loss. Their Honours illustrated this by reference to the decision of von Doussa J in SWF Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) 6 ANZ Insurance Cases 76,688; [1990] ATPR 51,599. In that case actual rather than prospective loss did not occur until the insured became entitled to demand payment under the policy, assuming that it had been as represented, and when the insurer indicated prior to the making of demand that it would not indemnify the insured against such demand. At 527 their Honours point out a distinction between detriment and damage and the obvious injustice that would arise if a plaintiff were compelled to institute proceedings before the existence of his or her loss was ascertained or ascertainable. Their Honours return to this theme at the conclusion of the judgment (at 533) holding that where the claim is in respect of a contingent loss to which an applicant is subjected, loss is not incurred until the contingency is fulfilled. Brennan J was of the same opinion. Speaking of a loss arising from entry into an agreement where both benefits and burdens flow from the agreement, his Honour said (at 536-7): "The cause of action created by s82(1) has several elements, but it is a cause of action for the recovery of money representing loss or damage suffered by the plaintiff - `the amount of the loss or damage'. The loss or damage includes, of course, economic loss or damage which the plaintiff suffers. A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs ... But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne - that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance can not be struck until certain events occur, no loss is suffered until those events occur. The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is `worse off than if he had not entered into the transaction'." His Honour's reference to "reasonably ascertainable" echoes the remarks of Mason CJ, Dawson, Gaudron and McHugh JJ to which reference has already been made. Deane J in Wardley emphasised that the question when loss was incurred was one the answer to which would vary in accordance with the facts of a particular case, a view consistent with the other judgments delivered by the Court. On the facts in Wardley, although entry into the indemnity placed the State of Western Australia in an economically disadvantaged position, its liability at that time had not come home. It did so only when subsequent events gave rise to an actual or certain financial detriment. Toohey J likewise rejected the application of a universal rule to all cases arising under the Act and pointed to the necessity of considering the pleadings to identify the loss or damage claimed to have been suffered. The present is a case where the mere entry into the lease produced only a situation where the Antonious had the potential to suffer loss. That loss could only be calculated by reference to receipts and outgoings of the business over time. Certainly it could not be said at the time the lease was entered into that they had actually incurred loss or damage as distinct from potential or likely damage. In the language of the majority in Wardley: "... the disadvantageous character or effect of the agreement [could not] be ascertained until some future date when its impact upon events as they unfold[ed] [became] known or apparent... It was only when their loss was ascertained or ascertainable that it could be said that they had suffered loss." The learned judge below recognised that the mere entry of the lease did not equate to the suffering of loss. His Honour said: "But this situation did not manifest itself immediately. The applicants' claim relates to future takings that they did not contemplate, and no-one could have contemplated, would be available from the first day of trading. The applicants were obliged to wait at least 12 months to see if the projections regarding takings were realised before they could show a misrepresentation upon which to base an action. The misrepresentation acquired its nature not from the fact that it did not come true but because, in the circumstances in which it was made, there were no reasonable grounds upon which it could have been made. Although the applicants were, from the beginning, tied into rental obligations far in excess of the value of the leasehold, and expert advice could have appraised of them of that situation as soon as or before they entered the lease, it was not until some time later, I find at least one year after trading commenced, that trading had settled into a pattern demonstrating that they were suffering losses as a result of the representations." It was for this reason his Honour concluded that the cause of action did not arise until a date not earlier than December 1989. In supporting his Honour's conclusions, senior counsel for the Antonious produced a document said to be a summary based on a cash book in evidence, of average weekly takings in 1989 and 1990 and of losses incurred on average weekly trading over the two year period. Far from assisting his case, the document showed that in the period from the opening of the cafe until December 1989, in only one month, June 1989, did the average weekly takings reach $8,269.70. Putting aside the first two months of trading where average takings did not exceed $4,000, the average weekly takings in September 1989 were only $5,423.67 and in December 1989 $7,834.08. Counsel for the Antonious pointed to the effect which the subsequent misrepresentations might have had on these figures in inducing the Antonious to continue trading. Reference can also be made to other evidence which showed that financial problems quickly appeared in the course of trading and that in mid-1989 advice was taken from an accountant. He analysed tradings and revealed that average weekly takings over three weeks to 14 May 1989 were $7,633 with average weekly expenses of $5,323. On those figures there was left only $2,310 for overhead costs including rent, equipment lease and other minor costs. The accountant concluded that every week the shop was losing $2,310. He recommended that the Antonious approach the landlords for a substantial rent review and cut costs. As his Honour notes, after this advice was received labour and food costs were revised and on a further analysis based on two weeks' takings in June of $8,567 the accountant concluded that $4,693 would be available for overhead recovery. At least at this stage the accountant was of the view that the Antonious could cover the loan programme and trade out of their difficulties but that the figures would require regular monthly review. It does not seem that the figures were thereafter reviewed and indeed rental ceased to be paid as from June 1989. His Honour's conclusion as expressed seems to have depended upon an obligation that the Antonious wait at least twelve months to see if the projections regarding takings were realised. With respect to his Honour it is difficult to see how any such inflexible rule could be applied. The question for determination in a case such as the present, consistent with the views expressed by their Honours in the High Court in Wardley, will be when was it that the loss which the Antonious ultimately suffered (or a more than negligible part of it) was either ascertained by them or reasonably ascertainable? No question in the present case arises as to the point of time at which the loss was in fact ascertained. Essentially therefore the question was an objective one, namely, at what time could it be said that it was reasonably ascertainable that the Antonious would suffer loss. This was a question of fact to be determined by reference to the trading figures of the cafe business. It is not a question which could be resolved by reference to an arbitrary period of twelve months. On the figures prepared by counsel for the Antonious, it would seem likely that by some time before December it was reasonably manifest that the cafe business would never take anything like the represented weekly takings and that each week losses would continue to be incurred which were unlikely ever to be made up. However, it would also be necessary to take into account both the advice given by the accountant and the fact that from at least June rental ceased to be paid. In our view it would be inappropriate for an appeal court to embark upon a study of the evidence which bears on the issue. Clearly the question is one on which expert accounting evidence would have been useful. We were not taken by counsel for either party through all relevant evidence that would bear upon the matter and are of the view that the appropriate course is that the matter be remitted to his Honour to determine as a matter of fact when the loss which the Antonious ultimately suffered was reasonably ascertainable, for that would be the time when the cause of action accrued. As presently advised, however, we think it is likely that that time would be sooner than December 1989. This leads us, however, to another point. As noted earlier in this judgment, the Antonious relied not only upon a claim arising under the Act but also upon causes of action arising at common law and especially fraud. His Honour found no need to make findings on the common law claims, having found for the Antonious on the claim arising under the Act. Should, however, it turn out that the claim under the Act was statute barred, it will be necessary for his Honour to consider the common law claims and especially the claim in fraud to which no defence of contributory negligence would be available. The limitation period in respect of an action in tort under the general law will not be limited to the three years prescribed by s82(2) of the Act. As already indicated his Honour stopped short of a finding of fraud, although some comments in the judgment suggest that such a finding might reasonably have been made. It is accordingly our view that the matter should be remitted to the learned trial judge to determine when losses suffered by the Antonious were reasonably ascertainable and if it should turn out that their claim under the Act was indeed statute barred, to consider whether they should succeed in the common law claims. THE ARGUMENT ON THE CROSS-CLAIM His Honour's conclusions on the cross-claim were criticised by counsel for the landlords. It was submitted that his Honour had erroneously reduced the damages payable to the landlords on the basis that there was a provision in the original lease to the Antonious for a rent review after two years. His Honour said: "In my opinion there is a clear inference from the facts that any such market review would have substantially reduced the rent to a level close to what the respondents actually received under the new lease." For this reason, therefore, his Honour gave no damages on the cross-claim in respect of the difference between the rental payable under the lease to the Antonious and that payable under the lease by the tenant who went into possession after the cafe had been vacated by the Antonious. It was submitted that his Honour erred by not taking into account the fact that the rent review clause did not permit a reduction of rent but merely required an increase. We agree. The question of rent review was dealt with in the first appendix to the lease which described the rent shown in Item 3 of a schedule (that is to say the fixed rent) as being the "minimum rent". The lease provided for that fixed rent to be increased in the second year by ten percent and as to the third year provided as follows: "The Minimum Rent payable for the third year of the term shall be the greater of: (a) the current annual open market rent value of the demised premises as at the Review Date (herein called the `current rent') based on a Lease between a willing Lessor and a willing Lessee ... and (b) the Minimum Rent payable for the second year of the term increased by 10% thereof." In these circumstances the inference drawn by his Honour that the market review would have substantially reduced the Antonious' rent to a level close to the rent actually received by the landlords does not appear to us to be open. Accordingly the cross-claim should further be remitted to his Honour to determine the amount of rental obligation which the Antonious remained liable to pay under the lease to them. Prima facie that would seem to be the rent payable in the second year (that is to say the original rent increased by ten percent) but then increased by a further ten percent. Given that rental review had been refused by the landlords, it hardly seems likely that the landlords would have voluntarily reduced the rent at the Antonious' request. No attention was given during the course of the appeal to the relevant figures so that it will be incumbent upon the judge below to determine the amount of additional damages payable under the cross-claim which is said to be $102,679 plus interest. We would, however, point out that in the event that the Antonious are held entitled to damages, either under the Act or at common law, their damages would be increased by the additional rent which, under the cross-claim, would be payable to the landlords. We would accordingly allow the appeal in part and remit the matter to his Honour in the respects already indicated. Before making orders, however, we would wish to hear the parties on the question of costs. We would direct the appellants to file and serve written submissions on that question together with draft short minutes of order to give effect to these reasons within seven days of these reasons being delivered. We would further direct the respondents to file and serve within a further seven days written submissions in reply. I certify that this and the preceding twenty-nine (29) pages are a true copy of the Reasons for Judgment herein of their Honours Burchett & Hill JJ. Associate: Date: 5 July 1995 IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) NO. NG 002 OF 1995 GENERAL DIVISION ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: KAREDIS ENTERPRISES PTY LIMITED AND GREENFRIARS PTY LIMITED Appellants AND: RITA ANTONIOU AND MICHAEL ANTONIOU Respondents CORAM: BURCHETT, HILL & SACKVILLE JJ PLACE: SYDNEY DATED: 5 JULY 1995 REASONS FOR JUDGMENT SACKVILLE J: I agree with the conclusions and reasoning of Burchett and Hill JJ. However, I wish to add some observations on the limitations point. In Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514, the High Court considered the time at which loss had been sustained by a party who had entered into an agreement creating an executory and contingent liability. The Court held that, where a person is induced by misrepresentations to enter such an agreement, that person does not suffer a loss for the purposes of s.82 of the Trade Practices Act 1974 until the contingency is fulfilled: at 533, per Mason C.J., Dawson, Gaudron and McHugh JJ. The precise holding in Wardley does not necessarily mean that a person suffers a loss for the purposes of s.82 only when he or she knows, or has the means of knowing, that a particular transaction has produced financial disadvantages that outweigh the advantages. The actual decision in Wardley rested on the fact that: "[i]f an action is commenced before [the contingency is fulfilled], it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred." Wardley, itself, was therefore not a case where the party which had been misled had in fact sustained a loss at the relevant time (that is, in accordance with objective criteria supported by evidence at a subsequent trial), but did not then have the knowledge or the means of ascertaining that such a loss had occurred. The reasoning of the Court does, however, support the proposition that, at least in the case where the disadvantageous character of a transaction cannot be ascertained at the outset, a loss is not sustained until the plaintiff or applicant ascertains, or has the means available to ascertain, that he or she has been prejudiced by entry into the transaction. Potential loss is not enough. The judgment of the majority says this (at 527): "When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of "loss or damage". And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel the plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of under-compensation or overcompensation, the risk of the former being the greater." This passage suggests that, where the applicant has been induced by misleading and deceptive conduct to enter a lease, as in the present case, no loss is sustained unless and until the existence of the loss is ascertained or ascertainable by the applicant. The significance of "events as they unfold" is that they bring home, or should bring home, to the lessee that the obligations imposed by the lease exceed the value of any off-setting benefits, such as the lessee's entitlement to conduct a business on the leasehold premises. It would seem that a loss is not sustained simply because evidence given at a subsequent hearing demonstrates, with the benefit of hindsight, that the prejudice or disadvantage in fact sustained by the lessee after taking possession and paying rent outweighed any offsetting advantage. The judgment of Brennan J. in Wardley (at 536-537) is to the same effect: "A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur. The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is 'worse off than if he had not entered into the transaction'". (footnotes omitted) Deane J. pointed out in Wardley (at 540) that the High Court, in Hawkins v Clayton (1988) 164 CLR 539, had rejected a suggested qualification to the principle that the requirement of loss or damage as an ingredient of a cause of action is satisfied as soon as relevant loss or damage is sustained. The suggested qualification was that, in claims in negligence for economic loss, time does not begin to run for the purposes of the limitations legislation until the plaintiff or applicant discovers, or with reasonable diligence could have discovered, that the loss has been sustained. However, his Honour (at 540) also pointed out that the "rejection of such an overriding qualification does not, however, alter the fact that, in some of the cases where an action lies in negligence for pure economic loss, no relevant loss is actually sustained or suffered and no cause of action for damages accrues unless and until some actual adverse consequence of the negligence is known or becomes manifest." In Hawkins v Clayton itself, three members of the Court considered the application of the Limitations Act 1969 (NSW) to a cause of action in tort for economic loss, although the point ultimately turned on the date the plaintiff executor assumed office or took control of the assets of the particular estate. Gaudron J. (at 600-602) addressed the question of when a cause of action for negligence causing economic loss accrues: "It may, for example, be relevant to consider the precise interest infringed by the negligent act or omission. In actions in negligence for economic loss it will almost always be necessary to identify the interest said to have been infringed to determine whether the risk of loss or injury to that interest was reasonably foreseeable and whether a sufficient relationship of proximity referable to that interest was present so as to establish a duty of care. If the interest infringed is the value of property, it may be appropriate to speak of a cause of action in negligence for economic loss sustained by reason of latent defect as accruing when the resultant physical damage is known or manifest, for as was explained by Deane J. in Heyman (1985) 157 CLR [404,] at 505, it is only then the actual diminution in market value occurs. If, on the other hand, the interest infringed is the physical integrity of property then there is a certain logic in looking at the time when physical damage occurs, as was done in Pirelli [[1983] 2 AC 1]. So too, if the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible. ... Physical loss imports damage sustained by a physical object whether it be property or person. Economic loss, on the other hand, imports loss sustained by a juristic entity in relation to the assets or liabilities of that entity. The various and complex economic relationships which are a feature of present day economic organisation suggest that loss may manifest itself in various forms, and it is for this reason that there may be occasions when it is necessary to identify precisely the interest which has been infringed. It would be too simplistic to restrict analysis of economic loss merely to a consideration of reduced value or increased liability. However, a consideration of reduced value suffices in the present case, for the loss sustained by Mr Hawkins was the difference between the value of the assets of the estate when they came under his control as executor and the value they would then have enjoyed had he then held them in the same capacity and had they been properly managed from the time of the death of the testatrix." In proceedings under s.52 and s.82 of the Trade Practices Act it is often the case that a purchaser acquires an asset on the faith of a false representation and that asset is shown, by subsequent evidence, to have been worth less at the time of the purchase than the price paid. It is also often the case that the purchaser, at the date of acquisition, neither knows nor has the means of knowing that the representations are false, nor that the business is worth less than the price paid. To use the language of the majority in Wardley, it would seem unjust to compel such a purchaser to institute proceedings before the existence of his or her loss is ascertained or ascertainable by that person. In a case of this kind, the principle to be applied may be that referred to in Wardley (at 530) as the approach taken in the "English decisions". These support the proposition that: "where the plaintiff is induced by negligent misrepresentation to enter into a contract and the contract, as a result of the negligence, yields property or contractual rights of lesser value, the plaintiff first suffers financial loss on entry into the contract, notwithstanding that the full extent of the plaintiff's financial loss may be incapable of ascertainment until some later date." Another approach is to determine the date damage has been sustained by reference to the nature of the interest infringed, in accordance with the approach taken by Gaudron J. in Hawkins v Clayton. Where a business is purchased, the interest is presumably the value of the business. On one view, the value of the business and therefore the loss is always "ascertainable" at a particular date, since it is only necessary for the purchaser to seek appropriate expert advice as to that value. On the other hand, the existence of a loss is not necessarily ascertainable by the purchaser at that time, unless the purchaser has some reason to suspect a disparity between the price paid and the true value of the business. Finally, it is arguable that the reasoning in Wardley should be extended to cases involving the purchase of an asset, even where there are no apparent countervailing benefits or detriments as the result of the transition. From the purchaser's perspective, the existence of a loss may not be ascertainable until events unfold On this approach, a loss would not be sustained for the purpose of s.82 until the purchaser had either ascertained or, acting reasonably, should have ascertained, that the asset was worth less than the price paid for it. Whatever the position in relation to the acquisition of an asset, the present is a case where the Antonious obtained both advantages and disadvantages from the lease transaction, which they were induced to enter by the appellant's misleading conduct. It was not the entry into the lease which of itself produced the loss. The lease may have enabled the lessees to pursue a profitable undertaking. The losses claimed by the Antonious flowed from the pursuit of a particular business which they were encouraged to undertake by the appellants' representations. Only when the course of events allowed the lessees the opportunity to ascertain that the business could not succeed was loss sustained in the relevant sense. In a case of this kind, in order to determine whether loss had been sustained at a particular stage after the lease had been entered into, I think it is necessary to inquire whether the lessees had ascertained, or could reasonably have ascertained, that they were worse off than if they had not entered into the transaction. In the circumstances of the present case, it is difficult to see how the Antonious, acting reasonably, could have failed to ascertain by the second half of 1989 that they had sustained losses in the relevant sense. However, I agree that the matter should be remitted to his Honour to make findings of fact on the issue. I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Dated: 3 July 1995 Heard: 22 May 1995 Place: Sydney Decision: 5 July 1995 Appearances: Mr P. Biscoe QC and Mr J. Gleeson instructed by Andrew Thorpe, appeared for the applicant. Mr B.W. Collins QC and Mr P.J. Hayes instructed by Paltos and Cumming, appeared for the respondents.