DAN v MIKE GAFFIKIN MARINE PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL POWELL, COLE and BEAZLEY JJA 31 October 1997, 17 December 1997 [1997] NSWCA 85 VALUE of shares — misleading and deceptive conduct — calculation of damages Powell JA The facts which gave rise to this appeal have been set out in the Judgment prepared by Cole JA, which Judgment I have read in draft. Although I was, at first, disposed to think that the appeal should be dismissed, upon further reflection I have concluded that, while Young J's finding that Mr Dan had been guilty of conduct which was misleading and deceptive should not be disturbed, the order which his Honour made against Mr Dan to give effect to that finding cannot be sustained. In order to understand why this should be so, it is necessary to identify, with precision, what was the loss which the Respondent suffered by reason of Mr Dan's conduct, for it is only in respect of that loss that the Respondent is entitled to be compensated. Although Young J's order appears to have been founded upon the basis that, as the result of Mr Dan's conduct, the Respondent lost its shares - or, at the least, the value of its shares - in Princes Street Marina Pty Ltd ("Princes Street"), that, with respect, was not so. At that time, the Respondent was in default in respect of its debt to Barclays Australia Finance Pty Ltd ("Barclays") which had appointed Mr Brien as its agent to negotiate the sale of the Respondents' shares in Princes Street over which it (Barclays) had security so that it was virtually inevitable that the shares would be sold and that, even if Barclays were, on any sale, to obtain the best price then reasonably attainable, the price received would be less - perhaps significantly so - than the true value of the shares. This being so, it follows, in my view, that the loss which the Respondent sustained - and for which he was entitled to be compensated - as the result of Mr Dan's conduct, which conduct led Barclays to sell the Respondents' shares in Princes Street for far less than Young J held was the best price then reasonably obtainable was the amount - $120,000.00 - by which the actual sale price fell short of the best price then reasonably obtainable for the shares. However, as Barclays has, since the date of delivery of Young's Judgment satisfied the Judgment for that sum which was found against it, Mr Dan's liability to compensate the Respondent must be treated as having been satisfied. As the rights, if any, of Barclays to recover from Mr Dan any part of the amount paid by it to the Respondent were not the subject of debate on the hearing of the appeal, I refrain from comment as to what those rights may be. I agree with the Orders proposed by Cole JA. Cole JA The respondent, Mike Gaffikin Marine Pty Ltd (MGM) sued five defendants. The first was Princes Street Marina Pty Ltd (Princes Street), the second was Dr Alexander Morven Dan, the third Mr Peter Morven Dan, the fourth Circuit Investments Pty Ltd and the fifth Barclays Australia Finance Pty Ltd (Barclays). 2 UNREPORTED JUDGMENTS The action arose in the following circumstances. MGM was a shareholder in Princes Street holding two A class and two B class shares, the former giving an interest in surplus assets and the latter being voting shares. Those shares were held to constitute a 25% interest in the company. The remainder of the shares were owned either by Dr Dan, or Circuit Investments, a company controlled by Mr Dan. MGM had been a tenant of Princes Street, operating a boat broking business at its marina. MGM was indebted to Barclays in a sum of $56,000 which liability was secured over its shares in Princes Street. MGM was in financial difficulty and could not pay its debts. Barclays accordingly appointed an accountant, Mr Brien, as its agent under its charge over the shares to give advice concerning the value of those shares and to negotiate their sale. Ultimately they were sold to Circuit Investments for $45,000. MGM contended that the sale was at an under value, and that the sale was induced by misrepresentations made to Barclays or Mr Brien by Mr Dan. It sued each of the five defendants to whom I have referred grounding its claim against the first four defendants on s52 Trade Practices Act or s42 Fair Trading Act, and its claim against Barclays for equitable compensation for breach of its duties as a mortgagee. Young J found those claims established. His Honour found that Barclays had "sacrificed the plaintiff's interest" in selling the shares for $45,000, his Honour finding they had a value at the relevant time of $317,783. However, Young J found that it was not the duty of Barclays as mortgagee to obtain that value but rather that its obligation was "only to take all appropriate steps to ensure that it did not sacrifice the mortgagor's interest. Accordingly it is necessary to work out what sort of figure would the mortgagee have obtained had it done all that it should have done". His Honour found that figure to be $165,000. Deducting the $45,000 received from Circuit Investments, he ordered Barclays to pay MGM $120,000 by way of equitable compensation. Having found the misrepresentations alleged against Mr Dan established, his Honour assessed the damages payable by Mr Dan at $379,168, being the value of the shares of $317,783 less $45,000 giving a resultant of $272,783, plus interest of $106,385. Barclays has not appealed. Mr Dan has, naming MGM and Barclays as respondents. The appellant has challenged the following four matters: (a) The finding that the value of the minority shareholding of MGM in Princes Street as at July 1991 was $317,783; (b) the finding that Mr Dan's conduct was misleading and deceptive; (c) the finding that the conduct of Mr Dan caused loss of MGM; and (d) the calculation of damages by reference to the difference between the value of shares and the price paid by Circuit Investments. It is convenient to deal with each of those matters in that order. Before doing so, however, it should be noted that the parties accepted at trial and on appeal that: (i) as between mortgagor and mortgagee equitable damages could be awarded as distinct from the taking of accounts between them; (ii) Mr Dan was, in the conduct found adversely to him, engaged in trade and commerce within the meaning of s52 Trade Practices Act and s42 Fair Trading Act. URJ DAN v MIKE GAFFIKIN MARINE PTY LTD (Cole JA) 3 VALUATION OF SHARES Two valuers gave evidence before Young J. The second was a Mr Menitzalis, the valuer called by the appellant, who suggested the shares be valued on a capitalisation of future maintainable dividend basis. Young J rejected that method, and rejected the evidence of Mr Mentzalis. There has been no appeal regarding that rejection. The other valuer was Mr Lonergan who valued the shares on a notional realisation of assets basis, which was the basis adopted by Young J. Mr Lonergan valued the shares as follows:! 'Young J adopted that approach to valuation but held that the discount should be 10%. In addition Young J held that Princes Street was entitled to recover from MGM rental in the sum of $94,876. As MGM held a 25% interest in Princes Street, he added to the valuation he derived one quarter of that sum. His Honour's valuation was thus: Net tangible assets 1,329,183 Less: 10% discount 132,918 1,196,265 25% thereof 299,066 + 25% of rental 23,719 1. Appeal Book, p427-p428. $ $ Net assets at 30 June 1991 832,956 Adjustments Valuation of the Marina 2,200,000 Less: selling expenses ($2.2 million x 3.0%) (66,000) Book value at 30 June 1991 (1,585,232) 548,768 Trade debtors not recovered (10% of $97,129) (9,713) Pre-payments (17,850) Inventory (30% of $64,927) (19,478) Intangibles (300) Other non-current assets (200) 1,334,183 Less: voluntary liquidation expenses (5,000) Net tangible assets 1,329,183 Less: 30% discount (398,755) 930,428 25% thereof 232,607 4 UNREPORTED JUDGMENTS His Honour's calculation was $317,783 but this appears to be a mathematical error. In determining that the appropriate discount was 10%, rather than the 30% proposed by Mr Lonergan, the trial judge had regard to three factors. The first was that the articles of association contained restrictions on transfer of shares. In so doing His Honour followed the remarks of Gibbs J in Gregory v Commissioner of Taxation.2 The second was that the shares being valued were a minority interest in the company. The third was the factor derived from the decision of Hope JA in Mordecai v Mordecai} where his Honour said: "Tt is well established that if property has some special potentiality which only one person would buy, it is to be valued on the basis of a notional sale to that person. The property is not valueless or diminished in value because there would be no other buyers..." Young J had regard to this factor because he found that the parcel of shares had a special potentiality to the Dan interests as their purchase would give those interests 100% control of Princes Street. Mr Lonergan had not taken into account this notion in his valuation. The appellant has submitted that Young J fell into error in: (a) His purported distillation of a "principle" applicable to the present case from the Court of Appeal's decision in Mordecai. (b) Reaching a conclusion that "the Mordecai Principle" negated in some way the matters which Mr Lonergan had considered necessarily contributed to the appropriate discount of 30% which he adopted for the purpose of his calculations. (c) Ignoring matters identified by Mr Lonergan as requiring a significant rather than a "nominal" discount. (d) Ignoring the consideration that the vendor of the shares was a mortgagee. In addition the appellant pointed to the mathematical error to which I have adverted. It is true that Young J referred to the "Mordecai Principle", but only as a convenient shorthand. His Honour did so after setting forth the passage I have quoted from the judgment of Hope JA. The appellant contended on the appeal that: "Contrary to the dictum of Hope JA in Mordecai, the value of a minority shareholding in a private company may well in a particular case be diminished by virtue of the fact that the majority shareholder is for practical purposes the only potential purchaser. This consideration is bound up with the effect of restrictive provisions in the articles of the size of the minority parcel which is being valued." To my mind it is apparent that Young J had to mind the restrictive provisions of the articles, and the size of the minority parcel being valued, for he said so. I see no error in additionally taking into account the notion expressed by Hope JA in Mordecai that, where an asset has a special potentiality which may be realised 2. (1971) 123 CLR 547 at 569; see also Stephen J in Crane v Commissioner of Taxation (1949) ALJR | at 5. 3. (1988) 12 NSWLR 58 at 70. URJ DAN v MIKE GAFFIKIN MARINE PTY LTD (Cole JA) 5 by the only available buyer, that factor may be taken into account. Young J did no more than that. His Honour was quite entitled to take that factor into account in reaching his assessment of the appropriate level of discount. In my view there is no substance in the appellant's submission that the trial judge allowed the concept enunciated in Mordecai to "overwhelm" the factors which led Mr Lonergan to suggest a discount of 30%. Young J was not obliged to accept the evidence of Mr Lonergan. It is not correct to suggest, as the appellant does, that the trial judge did not have regard to the factors referred to by Mr Lonergan as justifying the 30% discount. It is plain from the judgment that his Honour spent considerable time addressing the question of the appropriateness of that discount factor. It is equally obvious that Young J knew that the vendor of the shares was a mortgagee. It is true, as the appellant submits, that in quoting the passage in Fisher and Lightwood on Mortgages (Australian edition) where it said: "The selling mortgagee must obtain the best price for the property in the circumstances." Young J was not accurately stating the law in Australian applicable as at 30 July 19914. Reference to the text book makes plain that his Honour was referring to the obligations on a receiver to obtain "the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold" referred to in s420A Corporations Law introduced to that law by Act No 210, 1992.5 However I do not read the citation of that passage, in a section of the judgment dealing with the duty upon a mortgagee, as distinct from the question of valuation of the shares, to reflect any material error in the valuation exercise which his Honour was undertaking. I see no reason to disturb Young J's finding regarding the valuation of shares other than to correct the mathematical error to which I have referred. MISLEADING CONDUCT Young J found that the following "misstatements were in fact made as charged by the plaintiff": "The allegations are that Mr Dan told Barclays that the Schmutter offer was less than $2 million, that no serious offer had been made by Mr Schmutter for the Marina, that the first defendant was not serious in its efforts to sell and that there had been no serious offers to purchase. Furthermore there was a representation in June 1991 that the financial accounts did not truly represent the first defendant's financial position because it had deteriorated in certain respects." The appellant contends that Young J made no finding as to when these misstatements were made, but then notes, that except for the last misrepresentation they were pleaded to have been made on or about 14 March 1991. As Young J found they were made "as charged by the plaintiff', that constitutes such a finding regarding time. Plainly the last allegation concerning the accounts was found to be made in June. Next, the appellant contends that Young J "never made a finding that there was any... reliance" on those misstatements. That is clearly not so. His Honour found: 4. See Westpac Banking Corporation Ltd v Kingsland & Ors (1991) 26 NSWLR 700 at 709. 5. Tyler, E Fisher and Lightwood's Law of Mortgage (Sydney: Butterworths Australian Edition, 1995) para20.24, p463. Earlier sections make clear that the authors recognised the difference between the English and New South Wales position. See 20.18, p457-p460. 6 UNREPORTED JUDGMENTS "To my mind, the plaintiff has established that at least part of the inducement to Barclays entering into the contract was the representations made by Mr Dan." That passage is not inconsistent with an earlier passage which was addressing representations made "to the plaintiff' as distinct from Barclays. Notwithstanding these apparently conclusive findings of fact adverse to the appellant, counsel for Mr Dan argued, as I understood it, that there was no evidence that the representations were made on the dates pleaded, that there was no evidence that the representations were false, that if they were made and were false nonetheless they had no continuing or operative effect upon Barclay's decision to sell and thus there was no reliance by Barclays on them, and finally that in relation to any found misrepresentation concerning the relevance of the June 1990 accounts to the determination of value of the shares in June 1991, that constituted either a mere statement of opinion or a statement concerning future events. The specific representations pleaded were that on 14 March 1991 Mr Dan represented to Barclays that Mr Schmutter had made an offer of less than $2 million, that the Schmutter offer was not a serious offer, that Princes Street Marina Pty Ltd was not serious in its endeavours to sell the marina and that there were no serious offers to purchase the marina. There was evidence from Mr Schmutter that in early 1991 he had discussions with Mr Dan, obtained figures regarding the marina from him, arranged for his "penciller", being his accountant, to come from Canberra to check the figures of the marina, and discussed with Mr Dan a sale at $2 million, a figure which he maintained as an offer at least until mid-July 1991. There clearly was a serious offer from Mr Schmutter at $2 million.7 Mr Schmutter told Mr Gaffikin of the $2 million offer believing him to be a part owner of the marina. It is equally clear that on 14 March 1991 Mr Donaldson, the area manager for Barclays, telephoned Mr Dan to confirm the $2 million offer from Mr Schmutter, Mr Donaldson having been told of that offer by Mr Gaffikin. His memorandum of 14 March 1991 records that Mr Dan "claims that this is not correct, the amount was somewhat less than that... and that it was not a formal offer". It also records Mr Dan's statement that the "marina represented only a minor part of his business interests and that he was quite happy for it to 'amble along.""'8 Further, another memorandum of 14 March 1991 by Mr Donaldson records that Mr Dan told him on 14 March 1991 that he had "no serious offers at this stage". Whilst not agreeing to a value, and expressing the view that loss of the major tenants would have an adverse impact, he "concede(d) on my prompting that $1.5 million to $2 million would be in the 'ballpark'".9 Further, prior to this, Mr Dan had received on 18 February 1991 from Mr Rydge of Rydge Holdings Pty Ltd, ultimately the purchaser, a written offer to purchase the marina for $3,200,000, subject to certain terms. It is thus plain that the representations pleaded as having been made by Mr Dan to Barclays on 14 March 1991 were established, and the representations made by Mr Dan were false. 6. Appeal Book, p976G-p976I. 7. Appeal Book, p762-p764. 8. Appeal Book, p120. 9. Appeal Book, p121. URJ DAN v MIKE GAFFIKIN MARINE PTY LTD (Cole JA) 7 On 20 March 1991 Barclays recorded in an internal memorandum that the Gaffikin indebtedness to Barclays secured by the charge was $56,000 and "Peter Dan has advised that he is interested in purchasing the remaining shares for this amount. The difficulty is that Gaffikin will only agree to this if Dan will forgive the outstanding liability for rent (which he won't)". The reason Mr Gaffikin would not co-operate was, in part, because he claimed "that some genuine offers of $2 million for the entire marina are to be submitted". In fact genuine offers in excess of that sum had been submitted, although it had been represented by Mr Dan that they had not. The result of this was that the following day, 21 March 1991, Barclays' solicitor's wrote to Mr Dan advising that it was willing to accept Mr Dan's offer of $56,000 for the shares but that if it had to appoint a receiver to effect the sale additional costs would be incurred which would lift the amount of the Gaffikin debt to $65,000. The following day Mr Dan wrote indicating he would pay $65,000 for the shares if a receiver was appointed but would not agree to waive the rental debt owed by Mr Gaffikin.!° Shortly thereafter Barclays issued demands for the payment of monies due to it by Gaffikin in order that it could exercise its charge and sell the shares. In April 1991 Mr Dan's solicitors had prepared a draft agreement for purchase of the shares which was amended in May.!! As agreement could not be reached between Mr Dan and Mr Gaffikin concerning release of the rental owed by Gaffikin interests as part consideration for sale of the shares by a receiver for Barclays to Mr Dan, Mr Dan's solicitors issued a winding up notice to the Gaffikin company in respect of that rental debt. Mr Dan remained willing to purchase the shares for $56,000 as at 4 June 1991, and accordingly Barclays decided to appoint a Mr Brien as their agent, become mortgagee in possession and then sell the shares to Mr Dan.!2 Mr Brien was appointed agent of the mortgagee on 5 June 1991. Having been appointed agent, Mr Brien wrote to Princes Street Marina, for the attention of Mr Dan, asking that the mortgagee's interest in the shares be noted. He apparently had spoken with Mr Dan who had advised that a valuation had been done of the business and he sought a copy of that as well as requesting the supply of "current financial and management accounts of Princes Street Manna Pty Ltd". Mr Brien also sought information from Mr Gaffikin!3. On 7 June 1991 Mr Gaffikin provided certain information but indicated that he had no copies of valuations. He also advised Mr Brien that offers of $1.8 million, and of $2 million from Mr Schmutter had been received but rejected. Mr Dan responded by letter of 14 June 1991, which letter was alleged to ground the remaining misrepresentation. He provided a copy of the accounts for the year ended 30 June 1990 but said: "However, as they are a year out of date and as the composition of the principal business of the Company has changed greatly since, I believe that the accounts are of little use in valuing the Company. The major changes include:- 1. Loss of revenue due to vacating premises by two main tenants 2. Loss of revenue due to vacancies in the Marina berths. 3. Increase in secured loan from ANZ Bank from $1,000,000.00 to 1,400,000.00 and corresponding increase in interest expense. 10. Appeal Book, p123-p125. 11. Appeal Book, pl32, p144. 12. Appeal Book, p174-p175. 13. Appeal Book, p185-p187. 8 UNREPORTED JUDGMENTS 4. Increase in wages expense. 5. Increase in rates, head Lease, Land Tax etc The result of these changes is expected to be a net loss for the past year of at least $200,000.00 and more than that for the current year (ie: 1991 - 1992)."14 (emphasis added) To my mind it is plain that the letter contains statements of the beliefs or expectations of Mr Dan in respect of the year ended 30 June 1991, which financial year was to end in 14 days time. It is equally plain that Mr Dan was expressing the view that because of the supposed diminution in earnings, the value of the company, and thus the Gaffikin 25% of it, was diminished and for that reason "the accounts are of little use in valuing the company", and thus the shares. He did not then, or at any time, reveal that Mr Schmutter had offered $2 million, that in February 1991 he had obtained a professional valuation of the marina of $2.3 million, or that in February 1991 Mr Rydge had offered $3.2 million in writing. Mr Brien considered the information supplied to him regarding Princes Street Marina Pty Ltd. He commenced with the net asset position as shown in the June 1990 accounts of $825,478. The 1990 accounts showing shareholders' equity of $828,478.80 were based on a valuation by the directors of the land and buildings of $1,434,700 resulting in a total value for property plant and equipment of $1,499,476.35.!5 The adjustments which he made were as follows: $ Net Asset position at 30 June 1990 828,478 Add (subtract) adjustments to update to current position 1. Reduction in current receivables (write off Mike (94,876) Gaffikin Marine) 2. Reduction in non current receivable (Jeameau (315,306) Australia Pty Ltd) 3. Increase in Real Property* (based on potential 500,000 $2Million offer and verbal advice Dan re valuation held) 4. Decrease Cash in Hand to current levels (50,000) 5. Increase in Bank Loan facilities (secured) (400,000) (360,182) Adjusted net assets $468,296 25% interest $117,074 *Dan advises of increase in Bank facilities some $200,000 was expended on improvements. If this increase over 30 June 1990 figures was taken up as opposed to "valuation" the adjusted net asset position would be $168,296 and 25% interest $42,074.16 Mr Brien noted in his report to Barclays of 27 June 1991 that "the adjustments made have been subject to information provided by Peter Dan", and later: 14. Appeal Book, p188. 15. Appeal Book, pl84-p186 (Exhibit PX08). 16. Appeal Book, p196. URJ DAN v MIKE GAFFIKIN MARINE PTY LTD (Cole JA) 9 "On the profitability of Princes Street Peter Dan advises the turnover will be approximately 50% down given that both Gaffikin and another major tenant have left (the second tenant leaving June 1991). Given the expenses level is somewhat fixed this would provide potential ongoing losses of upwards of $126,000.00 per annum. The ongoing losses would thus diminish the value of the shareholding."!7 Regarding the valuation of shares Mr Brien wrote: "We have contacted two other parties suggested by Gaffikin who were interested in acquiring the marina. One is no longer interested, the second is still interested but only in the whole. They are not interested in the shareholding offer. Their price for the Real Property and Leasehold is $2Million which would provide a potential return of $117,074 on the subsequent wind up of Princes Street Marina. This is somewhat academic as Peter Dan has indicated he is not prepared to agree to a sale at that price."!8 He then referred to Mr Dan's offer of $40,000 for the shareholding indicating he would counter offer at $80,000 and expected to negotiate a figure within that range. It is to be noted that adjustment 3 increased the value of real property by $500,000 from the figure in the June 1990 accounts. That would result in a valuation of $1,934,700. That adjustment was made against the background of Mr Dan's representation that the Schmutter offer was less than $2 million, and his failure to inform Mr Brien of the valuation of the business he held. The representation pleaded as having been made on 14 June 1991 is dependent, in part, upon a construction of the letter from Mr Dan to Mr Brien of that date. Each of the 5 items referred to deal in whole or in part with reduced revenue or increased expenses, thus affecting operating profits. The exception is item 3 where it is said that there was an increase in the secured loan from $1 million to $1.4 million, with corresponding increase in interest expense. The letter does not address any increase in the assets of the company, and thus the value of the shares. In particular it did not address the value of the realty. A fair reading of the letter is that it expresses a view that, in valuing the shares, the shareholders' equity shown in the 1990 balance sheet had been reduced significantly during the "past year", meaning the year yet to end on 30 June 1991, because of operating losses, and would further reduce in the following year. It is apparent from the evidence, that in addition to the letter of 14 June 1991, Mr Dan had conversations with Mr Brien or his office and gave them information. It is apparent that Mr Brien relied on that information. For example, the 1990 accounts showed as an asset a loan to Jeameau Australia Pty Ltd of $315,306. That is a company associated with Mr Dan. Mr Brien in doing his valuation exercise deducted that sum because Mr Dan told him the debt had been written off. In fact the debt was not written off, as the 1991 accounts showed, and Jeameau was a solvent company able to repay that sum.!9 Thus Mr Brien relied on information given by Mr Dan. It is equally apparent that he did so in relation to his adjustment for increase in real property value. Further, the adjustment made by Mr Brien for a bank loan increase of $400,000 plainly comes from the information provided in the letter of 14 June 1991. In truth the increase in the ANZ loan was $300,000, not $400,000.29 17. Appeal Book, p190. 18. Appeal Book, p190. 19. Appeal Book, p836,839. 20. Appeal Book, p186 (Exhibit DX08). 10 UNREPORTED JUDGMENTS To my mind these are all instances which make clear that Barclays through Mr Brien relied upon information provided to it by Mr Dan in reaching their assessment of the value of the shares, and thus the price at which they would sell. The adjustments made by Mr Brien numbered 2, 3 and 5 were incorrect due to wrong information given to him by Mr Dan. The provision of information both orally and in the letter of 14 June 1991 was for the purpose of enabling the mortgagee through Mr Brien to value the shares. The information was, in respects to which I have referred, false. The "changes" referred to in the letter of 14 June were statements of fact, as was the information given to Mr Brien orally. The letter couples the provision of information, and the provision of the accounts, with the expression of a belief or expectation as to the consequence of the information provided to the profitability of the company and thus the value of the shares. The information and expression of opinion is given by the person having charge of the accounts of the company, and being a director and 75% shareholder. In fact the accounts as prepared for the year ended 30 June 1991 showed that total shareholders equity had increased from $828,478 to $829,223. These accounts were prepared some months after the shares had been sold. The revenue account shows a reduction in operating profit from $76,662 to $745. However there was no reduction in income from marina and licence fees, although there is a writing off of bad debts related in part to Mr Gaffikin's debt. Interest expense reduced rather than increased as did council rates, water rates, land tax, and lease of land expenditure. The import of the letter of 14 June, and the information provided orally, was to diminish the value of the shares by reference to a significant number of matters where diminutions did not occur. It is not without significance that on 12 July 1991, before the contract for transfer of shares was signed, Mr Schmutter made an offer to Mr Dan of $2 million for the marina. Mr Dan did not inform Mr Brien or Barclays of that. Subsequently on 26 July 1991 Barclays' solicitors wrote to Mr Dan's solicitors advising of Barclays' agreement to sell the shares for $45,000. A transfer was forwarded to Mr Dan's solicitors on 29 July. On 30 July Mr Dan had a meeting with Mr Richardson regarding the sale of the marina and he also discussed with Mr Schmutter that sale. On 31 July Mr Richardson made on offer of $2.4 million which was accepted by Mr Dan. Thus immediately the transfer of shares was effected Mr Dan was able to negotiate a sale of the marina at a value considerably higher than any offer of which he had informed Mr Brien or Barclays. Although the sale of $2.4 million did not proceed, on 9 September 1991, six weeks later, Mr Rydge made an offer of $2.8 million to Mr Dan. A figure of $2.85 million was agreed with Mr Rydge in November 1991 although ultimately the sale was settled in March 1992 at a price of $2.6 million. In my view there was plainly evidence capable of supporting the trial judge's findings both on the making of the misrepresentations, their falsity and of the reliance upon them by Barclays. In accordance with established principle, there is thus no basis upon which this Court should interfere with those findings of fact. I would dismiss this aspect of the appeal. THE MEASURE OF DAMAGES Young J held that the measure of equitable compensation payable by Barclays, being a mortgagee exercising the power of sale, was the difference between the price which it could reasonably have been expected to achieve when exercising that power of sale, and the price for which the shares were sold. However, as against Mr Dan, his Honour held that the measure of damages was that flowing URJ DAN v MIKE GAFFIKIN MARINE PTY LTD (Cole JA) 11 from his misrepresentations. The appellant's contention was that as his Honour had found that the proper exercise by Barclays of its power of sale ought to have yielded $165,000, the loss flowing from any misrepresentations by Mr Dan constituting misleading or deceptive conduct could not exceed that sum. As Barclays had paid the difference between that sum and the sale price of the shares, there were no damages payable by Mr Dan. The measure of damages payable by Mr Dan for established breach of s52 Trade Practices Act or s42 Fair Trading Act is the "sum representing the prejudice or disadvantage (the respondent has suffered in consequence of)" his position having been altered as a result of the misrepresentations. It is the "actual damage flowing from" those misrepresentations.?! Young J found that the shares owned by the respondent were valued in July 1991 at $317,783. They were sold as a result of the misrepresentations of Mr Dan, for $45,000. Prima facie the loss suffered by the respondent was the difference between those sums, namely, $268,783. That is so only if it can be said that the respondent's position was altered, or that was the actual damage suffered, from the misrepresentations. There is no reason to presume that a mortgagee exercising a power of sale would receive on sale a price different from the fair value of the shares. The value of $317,783 was assessed by Young J having regard to the restrictions of transfer and the circumstance that the parcel of shares constituted a minority interest. On looking to see whether the price received was reduced from the value of the shares because of the representations, one must take into account the circumstance that the shares were being sold by a mortgagee exercising a power of sale. The mortgagee, in so selling, was entitled to have regard to its interests and to sell at a price different to the true value of the shares. Young J found that $165,000 was "the price that the mortgagee should have received for these shares". It is undoubted that the mortgagee was entitled to and intended to sell the shares because of the mortgagor's default, and would have done so irrespective of any misrepresentation by Mr Dan. It follows, in my view, that if it be correct that the mortgagee "should have received" $165,000 in the proper exercise of its power of sale, it cannot be said that the difference between the value of the shares of $317,783 and the price which the mortgagee should have received of $165,00 resulted from the misrepresentation. The misrepresentations resulted in the price which should have been received of $165,000 being reduced to $45,000. There has been no appeal from the finding that the price which Barclays should have received for the shares was $165,000, nor against the judgment entered against Barclays for $120,000. In those circumstances it is not open to the respondent to contend that, had Barclays not been deceived by Mr Dan, it might have required a price higher than $165,000 or adopted some different mode of sale which would have realised more than that sum. It follows, in my view, that the judgment against Mr Dan should have been in the sum of $120,000 being the loss suffered by the respondent flowing from his misrepresentations. The difference between $317,783 value of shares and the $165,000 which should have been received on sale by the mortgagee, is a difference attributable to the mortgagee exercising a power of sale involving a permissible sale at less than the true value of the shares. 21. Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12.; Wardley Australia Ltd v The State of Westen Australia (1992) 175 CLR 514 at 526-527; Kizbeau Pty Ltd & Ors v W G & B Pty Ltd & Anor (1995) 184 CLR 281 at 290-292. 12 UNREPORTED JUDGMENTS NO ACTUAL DAMAGE ESTABLISHED The appellant's contention was that because Barclays has paid to MGM the $120,000 plus interest by way of equitable compensation for breach of its duty as mortgagee to the mortgagor on sale of the shares, that meant that, had Barclays sold the shares for $165,000, there could have been no complaint against Mr Dan for misleading and deceptive conduct. Thus no damages could be established against him flowing from any misleading or deceptive conduct. I would reject that argument. At the time of trial Barclays had not paid the $120,000 subsequently awarded against it. The respondent was entitled to a judgment against each of Barclays and Mr Dan in that sum, although based on different causes of action. The judgment against Barclays was grounded on equitable compensation, a concept not challenged at the trial or on appeal, whilst the judgment against Mr Dan is grounded on misleading and deceptive conduct, and damages therefore. The fact that, by the time of the appeal, Barclays had paid its judgment does not mean that Mr Dan was not liable to suffer a judgment in a similar sum. Having received $120,000 from Barclays, in accordance with the rider added by Young J, the respondent is not entitled to recover any further sum from Dr Dan, but that does not mean that it was not entitled to judgment against Mr Dan at trial and on appeal. ORDERS Neither the cross-appeal or notice of contention were pressed. I would propose that the following orders be made: 1. Appeal upheld. 2. Order of Young J that the third defendant pay to the plaintiff the sum of $152,783 together with interest be set aside and in lieu thereof judgment be entered for the respondent against Peter Morven Dan in the sum of $120,000 together with interest at Supreme Court rates up to an including 18 July 1995. Note that this judgment has been satisfied by payment by Barclays Australia Finance Pty Ltd. 3. The first respondent pay the costs of the appellant of the appeal but should have, if qualified, a certificate under the Suitors Fund Act 1951 in respect of those costs. The appellant Peter Morven Dan and Barclays Australia Finance Pty Ltd are to pay the first respondent's costs of the trial. Beazley JA I agree with Cole JA. 1. Appeal upheld. 2. Order of Young J that the third defendant pay to the plaintiff the sum of $152,783 together with interest be set aside and in lieu thereof judgment be entered for the respondent against Peter Morven Dan in the sum of $120,000 together with interest at Supreme Court rates up to an including 18 July 1995. Note that this judgment has been satisfied by payment by Barclays Australia Finance Pty Ltd. 3. The first respondent pay the costs of the appellant of the appeal but should have, if qualified, a certificate under the Suitors Fund Act 1951 in respect of those costs. The appellant Peter Morven Dan and Barclays Australia Finance Pty Ltd are to pay the first respondent's costs of the trial. Counsel for the appellant: J M Ireland QC/W G Hodgekiss URJ DAN v MIKE GAFFIKIN MARINE PTY LTD (Beazley JA) Solicitors for the appellant: The Argyle Partnership Counsel for the respondent: S W Robb QC/W Haffenden Solicitors for the respondent: Simon Beverly & Associates