ANTONIADES v KYRIACOU and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, POWELL and COLE JJA 20 November 1997, 18 December 1997 [1997] NSWCA 24 negligent misrepresentation - calculation of damages — consequential loss and capital gain. FACTS The first respondents relied on statements made by the second respondent and the conduct of their solicitor, the appellant, in their purchase of a property from which they sought to conduct a wedding reception business, that attached to the property were existing use rights. These rights were not made out in proceedings in the Land and Environment Court to restrain the first appellants from carrying out their wedding reception business. The first respondents sold the property and the appellant appeals that part of damages calculated to effectively bestow a "super profit" on the first respondent and the contributions between the appellant and second respondent. The Council cross-appealed that his Honour erred in his finding of reliance. HELD (1) There is no operation of any claim for capital gain in the calculation of quantum: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 followed. (2) Per Cole JA: The issue of capital gain in the calculation of consequential loss was not raised below and should not be raised on appeal. (3) His Honour Dunford J made no error in calculating the apportionment of responsibilities of the appellant and second respondent. (4) The decision by his Honour Dunford J not to calculate the rent collected by the first respondents as set off to the quantum of damages is correct as the rent almost exactly matched the losses of the company from which rent was collected. (5) The cross-appellants claim must fail because his Honour accepted the cross-defendants evidence which he is entitled to do, and that was redolent of reliance. Meagher JA In this matter, the plaintiff and his wife (together with their family company) sued the Kogarah Municipal Council and Miss Sophie Antoniades for damages arising out of the purchase by them of certain land at 28 Carlton Crescent Kogarah Bay, a suburb of Sydney. They won before Dunford J, from whom this appeal is brought. They sought to buy the property in order to conduct thereon the business of evening wedding receptions. Some short time before the proposed auction of the property on 12 September 1989, Mrs Kyriacou, the female plaintiff, rang the Council and said that the following conversation took place: "IT rang the council and asked to be connected to the Town Planning Department, which I was. When the man answered the phone I said, Could I speak to someone who knows about the property at Kogarah Bay called "Bay Vista"? and he said "I know that property I can help you. "T said "I am Mary Kyriacou and my husband and myself are interested in purchasing this property." I said, '"Who am I speaking to?" and he said, Michael Bronotte, I am with the Planning Department" I said, >My husband and myself are interested in purchasing this property and continuing its current business 2 UNREPORTED JUDGMENTS which is a wedding reception business and I am ringing to confirm that it has been advertised with existing use rights and I am ringing to confirm that it does have these rights. "He said "I will go and get the file, I won't be a moment." He left the phone and came back and said, "I have it in front of me." I said "I'm very concerned it does have existing use rights because I have to sell my home and borrow heavily to purchase this property and I will have to give up my beautiful home and live in a small flat on the property and I just want to confirm it does have these rights. "He said, Everything is all right, it does have existing use rights and it has been there forever, that place has been there forever." I said, "That's great, because my husband and I want to go into this new venture and build up the business. "He said, "With existing use rights you can increase its current use by 10 per cent with council approval." I said, "I don't think there is really much we can do because it is an old Federation home and I cannot see what extension work we would do but the information you have given me is quite helpful and I feel in a position to go and bid for this at the auction and thank you very much." His Honour believed her. She said she then telephoned Miss Antoniades, the present appellant, and instructed her to act for her husband and their company concerning the purchase. During one of her conversations with the appellant the question of existing uses arose, when the appellant suggested further contact with the Council on the matter, and Mrs Kyriacou replied "there was no problem with continuing with the current business of wedding receptions." Mrs Kyriacou never knew (because no one ever told her) that to be a valid "existing use" the use had to have existed continuously since at least 1951 and possibly 1946. In the present case the business of wedding receptions was a prohibited use according to the zoning as it stood in 1989, and was not an existing use, because, although its use as a wedding reception building had existed for many years, there seems to have been some time in the early fifties when it was not so used. However, misled by the Council and unprotected by their solicitor, Mr and Mrs Kyriacou bought the land on 12 September 1989 for $1,425,000, believing that the conducting of wedding receptions on the land was an existing use. Mr and Mrs Kyriacou continued to use the premises for the purposes of conducting wedding receptions. (Indeed more so than an "existing use" would have justified if it existed. They expanded the business by more than 10% in intensity, and they used the land for a second purpose as well, viz as a depot for hire cars. His Honour found this was not relevant for the purposes of this case.) The Council originally believed that the conducting of wedding receptions on the land was an existing use; but, prompted by complaining neighbours, eventually discovered the truth and there followed a court case in the Land and Environment Court, where the Council obtained an injunction against Mr and Mrs Kyriacou for conducting on the land a business which was a prohibited use. His Honour found that the solicitor was negligent in tendering the advice it did to Mrs Kyriacou, that she and her husband relied on that advice, and that reliance resulted in damage. There were a number of sub-headings of her negligence, but basically it was found that she was negligent in failing to explain to her clients what was meant by the concept of "existing use", and further by neither satisfying herself whether there was an existing use nor by obtaining an informed direction from the clients not to do so. URJ ANTONIADES v KYRIACOU and ORS (Meagher JA) 3 His Honour also found the Council liable in negligence, that the appellant was two-thirds responsible for the plaintiff's losses and the Council was one-third liable. The appellant has appealed from his Honour's orders, and the Council has cross-appealed. The appellant, Miss Antoniades, submitted that the plaintiffs never proved that there were no existing use rights. This seems to me a most extraordinary submission. If there were a possibility of the presence of an existing use, presumably that would have been canvassed in the Land and Environment Court. But no such possibility was canvassed. Indeed, quite the opposite. In that case, Stein J said "...in the course of the hearing it became clear that the Respondents could not invoke existing use rights... The defence based on alleged existing use rights was for all intents and purposes abandoned and the Respondents made no such submission in final address." Moreover, in the case presently on appeal, both the appellant and the Council could successfully have rebutted the plaintiff's case against them if they could have established an existing use, but they made no effort to do so; they were prepared to conduct this litigation on the basis that no such existing use could be found. Indeed, Dunford J said as much: "The case has been fought on the basis that the premises did not have existing use (sic) because they had not been used continuously for wedding receptions since the relevant date." It was submitted on Miss Antoniades' behalf that his Honour failed to give a credit for Mr and Mrs Kyriacou's gain on the capital value of the land against the damages he awarded in their favour. It is necessary to refer to his Honour's findings of fact. They are that a) Mr and Mrs Kyriacou paid $1.425 million for the property (on the basis that it had existing use rights) in September 1989; b) at that time its real value (without the existing use rights) was $850,000; c) the resale value when they sold it at auction in July 1992 was $1.005 million; d) the increase in value of the land in that area (which for some reason is called "St. George") between the two dates was 7%; e) such a 7% rise would have been $59,000; f) and therefore, insofar as the actual increase in value (ie $1.005m minus $850,000, or $155,000) exceeds $59,500, there was a "super profit" for which an allowance should be made in the defendants' favour. This is, on its face, an attractive submission. The plaintiffs ought not be allowed to convert a tortious injury into a lucrative investment. Nonetheless, I think the submission ought to be rejected. In the first place it was never raised for consideration by Dunford J. In the second place, his Honour's finding is in accordance with the decision of the High Court in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 530 "Tn the case of a fraudulent or negligent misrepresentation which induces the plaintiff to enter into a contract to purchase property, the plaintiff's loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the contract and the value of the property at the date of the contract." This, it seems to me, leaves no room for the operation of any claim for capital gain. In the third place, the law in contract likewise largely disregards any question of capital gain. Thus, under the old authorities, the damages for breach of a contract for the sale of land was the difference between the contract price and the value of the land at the date of breach - except insofar as capital gain inflated the latter figure it was disregarded. Even under the more modern view typified by Johnson v Agnew [1980] AC 367 the measure seems to be the difference between the contract price and the value of the land at the date "the contract is lost" 4 UNREPORTED JUDGMENTS (whatever that means); but there is no suggestion that any capital gain (or, for that matter, loss) made between the date "the contract is lost" and the date of hearing is to be taken into account. And, in the fourth place, as Powell JA pointed out in argument, one could hardly make an allowance for capital gain without also making an allowance for holding costs, mortgage interest, rates, land tax and the like - matters which were not in evidence. For these reasons I would not accede to this submission. The solicitor's next submission was an attack on the relative responsibilities between the defendants as determined by his Honour, two thirds to the solicitor, one third to the Council. I view this argument with some sympathy. However, his Honour made no factual error, and I am unable to detect any error of law. Nor can his Honour's conclusions be considered indefensible. In these circumstances I do not see how we can interfere in the exercise of his Honour's discretion. The solicitor's final submission was that his Honour's ruling was wrong with regard to the rents received by Mr and Mrs Kyriacou from their company Bonhomie Pty Ltd over the three years in question. Their rents amounted to $100,000. That company nominally ran the wedding reception business. The rents were not taken into account by his Honour in reduction of the plaintiff's verdict because the amount of the rents paid by the company and received by Mr and Mrs Kyriacou was almost exactly matched by the losses made by that company. I can see nothing wrong with that decision. The Council's submissions in support of its appeal were twofold: a) The plaintiffs did not rely on the Council, and therefore there was no duty of care on the Council, and b) for the same reason, there was no causal link between the Council's behaviour and the plaintiffs' damages. These were really the same submission. They were bolstered by a citation of carefully selected quotations from Mrs Kyriacou's evidence in which she seemed to say that the plaintiffs' reliance on the appellant was total and on the Council nil. However, his Honour has found that the appellant and the Council were concurrently tortious and together caused the plaintiffs' loss. This necessarily included a finding that the plaintiffs relied on the Council as well as their solicitor, and such a finding must be based, at least in part, on the demeanour of the respective parties. Indeed the evidence of Mrs Kyriacou which I have already quoted, and which his Honour believed, is redolent of reliance on the Council. In my view both appeals should be dismissed with costs. Powell JA I agree with Meagher JA. Cole JA GROUNDS 3 AND 4 The plaintiff claimed damages against the Council for negligent misrepresentation and against the solicitor for negligence. The claim for damage was particularised in paral7 of the further amended summons in the following terms: "Particulars of damage:- a. the difference in value of the property for residential purposes as against a wedding reception centre. b. Costs of proceedings in the land and Environment Court. c. Costs of finance of the property together with costs associated with the purchase and resale of the property. URJ ANTONIADES v KYRIACOU and ORS (Cole JA) 5 d. Costs associated with the developing and refurbishing of the premises as a wedding reception centre including loss of wages and income opportunity for the plaintiffs. e. Consequential damages. f. Inconvenience and vexation."! The defendants did not admit the damage claimed. In submissions the solicitor contended that, the damage claimed under particular (a) should not be calculated by deducting the value of the property without existing use rights from the value of the property with existing use rights. It contended that the damages should be assessed by reference to the actual loss on resale.2 Under the method advocated by the plaintiff the damage, apart from consequential loss, was $575,00 being the difference between $1.425 million paid on the assumption that the property had existing use rights, and its value without those rights determined as being $850,000. The solicitor's contention was that the damage should be the difference between the $1.425 million paid on 12 September 1989 and the $1.05 million sale price on 4 July 1992, that is, $420,000. Dunford J rejected the solicitor's contention stating: The alternative method of assessment pressed on behalf of the second defendant namely the difference between the purchase and sale prices $420,000 would in any event need to have regard to the 7% increase in values in the St George area in the relevant period and when the percentage is deducted from the sale price it reduces it to $934,650 leaving a difference of $490,350. However having regard to the lapse of time between the purchase and the sale I consider the comparison between the September 1989 purchase price and the valuation at that date as a more reliable assessment of the plaintiff's loss and in any event it is in accordance with the authority I have cited above. As consequential loss, the plaintiff claimed and was granted the following: Stamp duty on purchase $63,865.00 Solicitors costs on purchase $ 1,920.00 Costs of resale $12,320.00 Land & Environment Court costs $61,128.00 Land & Environment Court costs of Council $30,026.00 Improvements to property $20,000.00 In addition interest was awarded. It was not contended on behalf of the solicitor at trial that in awarding consequential loss, as distinct from the difference in value at the date of purchase between the property with and without existing use rights, there should be taken into account any increase in the value of the property between date of purchase and date of sale on the assumption that the purchase value was that determined as appropriate absent existing use rights. However, on appeal, the solicitor has sought to argue that the difference between the assumed $850,000 purchase price of the property absent existing use rights, and its subsequent resale for $1,005,000, namely $155,000, constitutes a profit which ought to be deducted from the other awarded consequential losses. Having regard valuer's evidence that there had been a general increase in 1. Appeal Book p6F-N. 2. Appeal Book p1405D. 6 UNREPORTED JUDGMENTS domestic property values in the period between purchase in September 1989 and resale in July 1992 of 7%, which equates to a $59,500 increase in the value of the property assuming it was worth $850,000, such a figure of $59,500 should be deducted from the "profit" or "capital gain" figure of $155,000. The remaining $95,5000 was said to be a "super profit" which should be deducted from the other sums awarded by way of consequential loss. That argument was not put at trial, nor was the case argued on that basis. It is true that the damages issue was at large in the sense that the damages claimed were not admitted. However there was no issue at trial concerning whether consequential damages, as distinct from difference in value between the property with and without existing use rights at date of purchase, should have deducted from them any increment in value realised above the determined value of the property at date of purchase without existing use rights. Nor were submissions in that respect advanced at trial by the appellant solicitor. If those submission had been advanced it may have been possible for them to be addressed by evidence. For example, the argument may have been available to the plaintiffs that as they intended to purchase commercial premises, the 7% factor referred to was irrelevant as it related to domestic premises. Additional evidence may have been available to be called concerning any movement in commercial premises values. In my view, the matter not having been raised at trial, it should not be permitted to be raised on appeal. Accordingly I would dismiss these grounds of appeal. Otherwise I agree with the reasons and orders proposed by Meagher JA. Appeal dismissed with costs. Counsel for the appellant: D Fagan SC/G Cummins Solicitors for the appellant: Colin Biggers & Paisley Counsel for the first respondent: H Nicholas QC/P Finch Solicitors for the first respondent: James A Moustacas & Co Counsel for the second respondent: W Davison SC/P Clay Solicitors for the second respondent: Norton Smith & Co