G.W.G. Leviny Pty Limited & Ors v Morgan Corporate Limited S68/1995 [1995] HCATrans 440 (15 December 1995)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S68 of 1995

B e t w e e n -

G.W.G. LEVINY PTY LIMITED

First Applicant

GEOFFREY WILLIAM LEVINY

Second Applicant

JULIET DENTON LEVINY

Third Applicant

and

MORGAN CORPORATE LIMITED

Respondent

Application for special leave to appeal

DAWSON J

GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 DECEMBER 1995, AT 11.57 AM

Copyright in the High Court of Australia

MR A.R. EMMETT, QC: If it please your Honours, I appear with my friend, MR A.S. MARTIN, for the applicants. (instructed by Barker Gosling)

MR N.C. HUTLEY: May it please your Honours, I appear with my learned friend, MR M.J. LEEMING, for the respondent. (instructed by Minter Ellison)

DAWSON J: Mr Emmett.

MR EMMETT: May it please your Honours, there are two equally significant reasons, in our submission, why your Honours would grant leave in this case. The first is that it would be unsafe, with respect, to let the holding of the Court of Appeal stand, bearing in mind that certain of the findings, at least by one of the majority, were simply wrong in the light of the evidence and the facts, and those findings seem to have been very significant in the determination of the matter by that member of the court.

GAUDRON J: It does not sound like a promising start for the grant of special leave if you are inviting the Court to look at the facts anew.

MR EMMETT: The facts are very straightforward, your Honours, and I will take your Honours to them very briefly. Secondly though, in our submission, and equally important is that the majority in the Court of Appeal wrongly applied a rule of this Court in relation to the assessment of damages, that is, that while the general principle is that in a case such as in contravention of the Trade Practices Act a plaintiff is entitled to be put in the position in which it would have been but for the tort or the deceit or the misleading conduct, the court applied a particular rule which may be applicable in some cases, namely, where the only conduct induced is the purchase of property. The majority slavishly followed a rule which, in our submission, simply would have no application in the light of the circumstances of this case.

DAWSON J: But no one suggests that rule is invariable. It is the starting point, is it not? It may be a question as to whether it is applicable in a particular case - in this particular case - but it does not raise a point of principle, does it?

MR EMMETT: With respect, the way in which it was put by the majority is that the rule is applicable no matter what, where there is any purchase of property. That seems to be the way in which Mr Justice Meagher and Mr Justice Handley decided the matter.

DAWSON J: They did not decide it consequential of damages not recoverable, did they?

MR EMMETT: No, but they said in a circumstance where some conduct is induced in reliance upon the misleading conduct and that conduct is the purchase of property, then all you need to look at is some basis for valuing the property - - -

DAWSON J: That is right in relation to some forms of property, is it not?

MR EMMETT: Indeed.

DAWSON J: I mean, shares I suppose is the perfect example.

MR EMMETT: Quoted shares, yes, and that, with respect, is one of the vital mistakes that was made by Mr Justice Handley. The subject matter of this transaction were units in a unit trust. Mr Justice Handley mistakenly thought that the units were listed and that there had been dealings in the units within a short time after the purchase and, on that basis, he concluded that the property was such as would be appropriately the subject of application of the rule; that is, that the property was easily disposable immediately after acquisition and therefore its value must be what it was sold for on the market. Now, that was just wrong. It appears to have been a total misapprehension on his Honour's part. It is that sort of concern that in - - -

DAWSON J: Do you say special leave should be granted to correct that mistake?

MR EMMETT: Indeed; otherwise there is a real miscarriage of justice. That is the first basis upon which I put the matter, that it really is a matter which calls for this Court to re-examine what was done in the Court of Appeal because there is otherwise a complete miscarriage of justice if one of a majority made his decision on the basis of a complete misunderstanding of what the facts were. Can I take your Honours - - -

DAWSON J: Yes, can you take us to that where that appears?

MR EMMETT: Yes. Mr Justice Handley's decision begins at page 47. Page 48, in the middle of the page, he says:

The admitted misleading and deceptive conduct of the appellant induced Mr and Mrs Leviny to cause their company to invest $166,000 of its own funds in the purchase of units.....At relevant times these units were listed and tradeable on the Stock Exchange.

That is simply wrong.

The public issue of these units was oversubscribed -

that is correct -

and for some time after the units were listed they changed hands at prices which approximated that paid by the respondent company.

So far as we are able to tell, there is simply no evidence of that at all.

DAWSON J: But what difference would all this make? The fact is they were marketable as securities.

MR EMMETT: But that is the question. That was never looked at. There is certainly no finding by the trial judge that - - -

DAWSON J: It is a matter of inference, is it not, that there was some market for them, whatever the price would have been?

MR EMMETT: With respect, your Honour, that is one of the problems. Could I hand up to your Honour a chronology that just puts some of this in context.

DAWSON J: I mean, they bought them, so presumably they could sell them.

MR EMMETT: No, they subscribed for them. That is the difference. They subscribed in February 1990. The subscriptions list did not close until April. So there can be no suggestion they could sell them before the prospectus was fully subscribed.

DAWSON J: True.

MR EMMETT: It was due to close on 30 April. The evidence was that there were lots of subscriptions and it closed on 20 April. There is no suggestion that they could have been sold in the meantime. There simply could not be a market in units issued under a prospectus which had not yet closed and which had not yet become unconditional.

Within a matter of two months after the subscription lists closed redemption was suspended because there had been such a run on them. Now, in that sort of circumstance how can one say an inference should be drawn, if there is no clear evidence one way or the other, that there was a market in these things? There was certainly no finding by the trial judge. He simply noted some contentions advanced on behalf of the defendant that that was the situation.

GAUDRON J: But how can this Court deal with the matter if there are no relevant findings?

MR EMMETT: What should have happened is that the Court of Appeal either remitted the matter back to the trial judge or the division to deal with the matter on the basis of some correct principle if the trial judge erred in an application of principle.

GAUDRON J: But it is very difficult to say that, is it not, Mr Emmett, because in a case such as this it really is finding the facts so as to determine what is the applicable law?

MR EMMETT: With respect, there were findings which supported the appropriate principle. If your Honours were with the applicants in relation to the application of the principle in the circumstances, then the judgment of the Court of Appeal would simply be set aside and the finding of the trial judge would be reinstated. He found damages on the basis that this was not a case where you looked simply at whether the property could be sold again because there was simply no basis for holding that. He found, in effect, that what had been induced was an acquisition of a safe investment on the basis that the property was going to be held for two years. The evidence was that it was not until 20 months or so after the purchase that the plaintiffs discovered the misrepresentation and the finding was common; it was admitted that but for the representation they simply would not have acquired these units in the first place.

It really is, with the greatest respect, cloud-cuckoo-land to say that these applicants could have sold these units immediately after they had subscribed for them in circumstances where there was no evidence that anybody had or that anybody could and simply to say, on that basis, "Give judgment for the defendant on the basis there was simply no damage". At best, if the court were satisfied that the trial judge had applied a wrong principle, the matter should have been referred back to the trial judge for assessment of damages in accordance with the appropriate principle. So that, your Honours, in our submission, would not be required to make any findings of fact at all.

DAWSON J: What do you say was the correct principle for the trial judge to have applied?

MR EMMETT: That which he did and which Mr Justice Mahoney outlined, in our submission.

DAWSON J: That these were a long-term investment and, in those circumstances, you do not look just at the market price the day after the purchase or the day after the misleading conduct has been revealed. What is the - - -

MR EMMETT: The principle is that stated by Mr Justice Mahoney on page 36, in our submission. Having set out what Mr Walker's submissions were at line 6, about line 13:

The submissions assume that it is the value of the asset, as measured by the price which it would bring on sale at the time of the tort, which determines the quantum of the damages recoverable.

I do not think that Potts v Miller and the succeeding cases operate in the inflexible manner which Mr Walker's submissions suggest. In my opinion, the Potts v Miller line of cases illustrates the decision by the courts that, where what is involved is, and is merely, the acquisition of an asset, the measure of damages is that there stated. But, I think, these decisions do not establish that, in every case where the acquisition of an asset takes place as a consequence of a tort, the damages are limited in that way.

DAWSON J: But how do you apply that? Let us assume that it is just shares and I purchase shares with the intention of retaining them for five years. But they are only shares and the market value goes down. But why am I able to take advantage of that fact? Why am I not tied to the fact that the day after I acquired the shares they were saleable? Now, you may answer that by saying they were not saleable the day after here and they may not really have been saleable in the circumstances until you knew of the misrepresentation. I do not know.

MR EMMETT: That is why there should be appropriate findings of fact.

DAWSON J: Why do you apply this principle when it could be applied to any asset?

MR EMMETT: Because of the findings that were made below that this purchase was acquired to the knowledge of both parties for two years. It was not something that was just acquired as property that could then be disposed of.

GAUDRON J: Yes, but I do not understand by that of itself should make any difference. It might be different if you can establish that the circumstances were such as was known to the parties that by reason of their being secured they could not be sold as a practical matter at any stage. I mean, that might be a different thing but why nearly two years down the track?

MR EMMETT: Because it showed that what was induced was not just the purchase but the purchase and the holding of the asset. Now, the fact is - the evidence was that the plaintiffs did not know until some 21 months after they had purchased that there had been a misrepresentation as a consequence of which it was too late to sell them and retrieve their investment.

DAWSON J: You see, the loss which they suffered they suffered when?

MR EMMETT: It is a continuing loss. Because they were induced to purchase and to hold on to the investment for two years, as both parties expected would happen, their loss was suffered every time they lost the opportunity of realising their asset.

DAWSON J: I can follow the argument which is a familiar one, Dalby's Case and so on, that you suffer a loss at a particular point of time, that because you cannot offload the thing, you have to keep on the business in order to try and sell it and you may suffer consequential loss which you add to the loss which you suffered at the time that you acquired the asset. But you are not differentiating these two things.

MR EMMETT: It perhaps does not matter whether you characterise it as consequential loss or otherwise. If it is consequential loss, then it was clearly wrong to do what the Court of Appeal did.

DAWSON J: But that is not what Justice Mahoney is saying and I find difficulty in the proposition he puts forward.

MR EMMETT: But what he is saying is that when one looks at the circumstances of this case, as was the finding below - and the majority did not interfere with this as such - the finding below was that the purchase was induced on the basis that it would be retained for a period of approximately two years. So that what one says is the conduct is not just the purchase of the property but it is also the retaining of that property for that period.

GAUDRON J: Where does the principle of mitigating one's loss fit into a case like that?

MR EMMETT: If the plaintiff was aware that the value was going down and it should dart in and sell, then that can be pleaded and it is a factual matter as to whether they acted unreasonably in hanging onto their property for as long as they did, but that was never the issue. The only question was - it was common ground that it was bought on the basis it would be held for two years. Had the plaintiffs known that the misrepresentation was false, in other words, if immediately after they had subscribed they were told, "By the way, there's a personal guarantee", then it might have been relevant to inquire whether, in those circumstances, it would have been appropriate for them to mitigate their loss by selling at the best price they could get. Had they done that, there could be no question that whatever they got would have to have been given credit for.

There simply was not an inquiry into that matter. The majority in the Court of Appeal simply said, "We think these things could have been sold immediately after you bought them, without referring to the evidence or making any findings of fact. Therefore, we slavishly apply the principle which is applicable only where the facts establish that the property is immediately sellable or resaleable". It is clear from Mr Justice Handley's judgment that he simply mistook the facts in those circumstances.

That is really the thrust of the matter in so far as we put it on the first ground which your Honour Justice Gaudron thought was just the facts. It is not simply the facts but that the facts are really are a miscarriage of justice if, as we submit, the majority failed to take account of the evidence.

GAUDRON J: How was the claim in this regard pleaded?

MR EMMETT: The difficulty with looking at that sort of question is the way in which the trial ran. There were a number of alternative causes of action pleaded. There was a fair bit of evidence given and Mr Justice Cole expressed a tentative view as to credit, namely, that he would accept the plaintiffs' version of the facts as to representations and not the defendant's. That led to discussions between the parties as a result of which a lot of defences were withdrawn and admissions were made which were then set out by the trial judge. There was some debate then between the parties as to what was the cause of action which remained and a comment was made along the lines, "Well, you can only win once. It doesn't matter whether you have got some other cause of action".

The matter then proceeded simply on the basis of an assessment of damages and the claim that was always made by the plaintiffs was, "We were induced to buy these and to keep them for two years. It wasn't until November 1991, some 20-odd months after we had bought them, that we found out about the misleading conduct. By then it was too late; the units were virtually worthless". So that the complaint was we purchased and were induced to retain by the misrepresentation.

DAWSON J: I can understand that if you put it on the basis of consequential loss. They suffered the loss, albeit maybe they did not know it at the time that they bought the units or shortly thereafter but, because of the circumstances, the consequence of that was that they were unable to get rid of them and the price went down further and they became virtually worthless. I know you say it does not matter but it does in terms of analysis.

MR EMMETT: We put it on that basis.

DAWSON J: Because one then does not have to confront Potts v Miller and all of those cases.

MR EMMETT: But we did in the alternative put it on the basis this was consequential loss. That is in paragraph - - -

DAWSON J: You seem to have a liking for Justice Mahoney's formulation of the - - -

MR EMMETT: No, I put that first but if your Honour will look at our outline we then refer at paragraph 21 and following, in effect, to the reference to the subsequent conduct as consequential loss. In other words, the loss that we suffered was hanging onto them and it is during that period of time that the diminution in value occurred, assuming one can accept, although we say there is no evidence to support it, that there was a market in the first place. But the thrust of it is not that we simply were induced to buy but we were induced to buy and retain for that period and that is when the loss was suffered. Now, if that is consequential loss, then that is within the exception in any event and clearly the majority applied a wrong principle.

GAUDRON J: But is there a finding that you were induced to buy and retain? That would be critical, I should have thought, on that argument.

MR EMMETT: That is not the precise language that is used. Can I take your Honours to the finding at page 6, at the top of the page:

The consequence of the transaction.....was the exchange of a cash sum of $166,000 for units which were subject to market fluctuation in circumstances where, as was known to both the Company and Morgan, the intention was to hold the units purchased for a period of approximately two years before reconverting them to cash for expenditure on a proposed prawn farm.

Then at the bottom of the page, at about line 21:

This is not a usual case of a misrepresentation inducing the purchase of property. Morgan knew that the Company required a safe investment which could be realised, hopefully with profit, within two years to enable the proceeds to be used in an anticipated project.

Now, that is the finding of fact, that the parties induced not only the purchase but the holding for a period of two years. That is what the majority simply failed to take account of. May it please your Honours.

DAWSON J: Thank you, Mr Emmett. Mr Hutley.

MR HUTLEY: Your Honours, we have prepared a small bundle of documents relating to some of the evidence in the case and in relation to the conduct of the case. The conduct of the case, being the last matter which my learned friend dealt with, is perhaps the matter to which one should turn first. This is dealt with by his Honour Mr Justice Meagher in the application book at pages 41 to 43. What occurred was that the case was conducted from the outset on the basis of a series of representations; both representations relating to the character of the investment, whether it is safe, secure or otherwise, and what was described by Mr Justice Meagher as a "collateral representation", that is, a representation relating to the presence or absence of guarantees.

At a point during the case a series of admissions were made consequent upon some remarks by the trial judge, Mr Justice Cole. Those admissions are set out at page 42 of the application book at lines 1 to 10. That was the whole case on liability. Thereafter, the only issue was an issue of damages. Taking up a question which fell from your Honour Justice Gaudron, the sole case on reliance can be identified in point 4. There was never a case run of a continual reliance in retaining the investment consequent upon the offending representation being a representation in relation to the guarantees. Therefore, in the way the case was conducted, the cause of action was complete at acquisition, it was not a continuing one.

So no case could be made such as was suggested by my learned friend in submissions. The sole inquiry was what loss had been suffered on the completion of the wrongful conduct being the acquisition of the assets. That is the first point. Next, your Honours, thus the safety, lack of safety or security of the asset was never an issue in the case as it finally came to be run.

DAWSON J: Even assuming what you say that the initial loss was incurred on acquisition, the nature of the asset was such that you could not get rid of them?

MR HUTLEY: Right.

DAWSON J: And that there was a consequential loss suffered.

MR HUTLEY: I come to that point now, your Honour. My friend referred to the reference in Mr Justice Handley's judgment to it being on the stock exchange. His Honour was wrong in that regard. But every judge found that the assets were marketable. Mr Justice Mahoney, in his - and if I can take your Honours through it. At page 32, line 10, of the application book, his Honour found:

The investment was made on or about 20 February 1990. At that time the units were worth on the market what the Company paid for them, viz, 82 cents per unit.

There was evidence of eight private transactions in relation to these assets and that appears at application book, page 9, in the judgment of Mr Justice Cole.

The error by Mr Justice Handley as to them being listed or not was not central to his reasoning. The important point was that all judges were of the view that there was a market. Now, there may have been a disagreement as to, as it were, the liquidity of that market. That is a matter, no doubt, for evidence. Mr Justice Mahoney thought they were obviously marketable because he found that they had a value on the market. Mr Justice Cole took the view of a number of private transactions and took the view that they perhaps were not as readily saleable on the secondary market as otherwise. That is just a question of fact. Mr Justice Meagher clearly considered that they were marketable in the sense with which we are concerned.

Now, the next point my learned friend made is that the majority erred in, as it were, "slavishly" - I think was his word - applying the decision in Potts v Miller. Mr Justice Handley expressly accepts at page 49 between lines 5 and 10 that that is a rule that is to be applied with flexibility. His Honour has earlier referred to Gould v Vaggelas and other formulations which is essentially the Potts v Miller point. He said:

In the present case the time of the purchase was 20 February, 1990. With due respect to the trial Judge, I cannot accept that the measure of damages in the present case is to be ascertained at a date two years later. Nevertheless the principle is not to be applied mechanically.

His Honour considered that in the current circumstances it was not one which justified a deviation from the normal measure in contra distinction to Mr Justice Mahoney. That distinction essentially, in our respectful submission, is to be found in how they characterised the expectation of the parties as to the duration of the investment.

Mr Justice Mahoney formulated it as a matter that the parties were known to be committed to a two-year investment. Mr Justice Meagher was of the view that they, in effect, appreciated from the outset that the assets were ones of a fluctuating nature and, therefore, could be sold depending upon the fortunes of the investment. Mr Justice Handley took a similar approach. Therefore, at the heart of that which was between them was a difference as to what the parties mutually expected about this investment. It ranged from commitment to, I think, expectation in aim in Mr Justice Handley; that is an aim to hold them for two years, to Mr Justice Meagher's characterisation of it is that they consider themselves fully at liberty to sell. Those are essentially factual matters and, therefore, no question of principle is thrown up by this case.

DAWSON J: What do you say as to the fact that misrepresentation was not revealed until some time after they had acquired the shares?

MR HUTLEY: The representation was utterly irrelevant to the decision to retain or otherwise. In effect it was, as Mr Justice Meagher referred to it, collateral to the source of their loss. The source of their loss was, in effect, the collapse of the property market in Melbourne and Sydney.

DAWSON J: Once you buy an asset it behoves you to keep your eye on its price if you can.

MR HUTLEY: Mr Justice Mahoney refers to situations where one is acquired and committed to hold for a period.

GAUDRON J: That is what worries me about this case. Were these shares or these units not secured along with the others?

MR HUTLEY: Yes, they were but there was no evidence, as Mr Justice Meagher said, and no one attempted to prove that the plaintiffs were not fully in a position to refinance at will. There was just no inquiry as to whether they were tied in or not, your Honour, because it was not relevant because there never was a case run that they retained the assets in reliance on the representation.

GAUDRON J: May it not have been consequential loss if they retained the assets because they were in no position to discharge the security; the assets having been purchased as part of a total package that was secured?

MR HUTLEY: This was not run as a consequential loss case, with respect, your Honour, because there were separate findings in respect of consequential loss which were sought as consequential loss. One of the difficulties with this case as any way a vehicle is that the case was run on a certain basis to two-thirds of the way through it. Then a series of admissions were made and that really, in effect, truncated the case. The relevance or irrelevance of the evidence which had gone before was a matter really upon which the appellate judges differed. For example, Mr Justice Meagher considered since there had never really been a full hearing to finality on security and other assets, they were irrelevant to the way the case was then run.

Mr Justice Mahoney disagreed on that having regard to the way the case was run arguably. Mr Justice Handley seemed to have agreed with Mr Justice Meagher. Therefore the case is a not appropriate vehicle for a number of reasons. Firstly, it may well go off on essentially how the parties chose to run it on the basis of the admissions. Secondly, and more fundamentally in our submissions, it is essentially a factual difference between the three judges on the Court of Appeal as to the degree to which the mutual contemplation of the parties left the applicant for special leave at liberty to sell or not.

GAUDRON J: Mr Emmett says that at least that much should go back for further findings but you say there was no evidence.

MR HUTLEY: There was just a difference of judgment as to the conclusions to be drawn and, in fact, the majority have agreed that, in effect, they were at liberty to sell. Mr Justice Meagher finds that, Mr Justice Campbell - - -

GAUDRON J: But that seems to be made without regard to this parcel being part of a total package that was secured.

MR HUTLEY: Your Honour, it was never argued. The evidence and the case was not put as "we were trapped". Mr Justice Cole did not even rely upon the fact that the case was they had been, because of their, for example, financial embarrassment, unable to get out of the assets because of the presence of the security. His Honour at first instance based it on the fact that their contemplation was that they would hold it. It was not run and it was not suggested that they could not get out.

GAUDRON J: But that is a question of evidence.

MR HUTLEY: That is just a question of evidence.

GAUDRON J: Was there evidence or was there not?

MR HUTLEY: Your Honour, the appeal books go for about four volumes. I have not searched that out.

McHUGH J: They could not get out after the redemption of the units was suspended on 16 July, could they?

MR HUTLEY: Without suffering significant loss?

McHUGH J: Yes.

MR HUTLEY: Well, they could get out. There would, no doubt, be a secondary market of some variety against the contingency and, your Honour, there is no inquiry and there seems to be no findings about how wealthy or otherwise the applicants for special leave were. They were, for all one knows, in a position to discharge this obligation at will from cash resources. Certainly there have been no findings in that regard. Those are our submissions, your Honours.

DAWSON J: Thank you, Mr Hutley. Mr Emmett.

MR EMMETT: Several matters in relation to my learned friend's observation that every judge found the assets were marketable. First of all, reference was made to page 9 of the judgment of the application book being part of a judgment of Mr Justice Cole at line 14:

evidence was placed before me of eight private transactions -

Those transactions were in 1991 and 1992, so again Mr Justice Handley seems to have gone off the rails in terms of misapprehending the evidence. There was no evidence of any transfer at all before redemption. So far as my learned friend relied on what Mr Justice Mahoney said, all that he said was at that time the units were worth on the market what the company paid for them but that means yes, you could buy them at that price. There is no evidence that anybody sold them at that price.

So that there simply is not any finding by Mr Justice Mahoney or Mr Justice Cole that these things were marketable at the time, simply an assumption made by Mr Justice Handley on the basis of an erroneous understanding of the facts and Mr Justice Meagher simply made the bald assertion at the time of the purchase, at the top of page 41:

It was apparently a popular investment.

They are the only matters which the majority relied upon without reference to evidence and without reference to any findings by the trial judge to support a conclusion that these units had a value as at 20 February 1990.

McHUGH J: Well, that the applications were prematurely closed, were they not - - -

MR EMMETT: Ten days early, yes. The subscription was on 20 February.

McHUGH J: I appreciate that.

MR EMMETT: The subscriptions did not close until 20 April, so there was no way in which they could have been sold in the meantime and within ten weeks after that they were suspended; that is redemption was suspended.

DAWSON J: Thank you, Mr Emmett. Whilst the points raised by counsel for the applicant may involve questions of principle, the course which the action took and the absence of necessary findings of fact make this case an unsuitable vehicle for the consideration of those questions. Special leave is refused.

MR HUTLEY: I seek costs, your Honour.

DAWSON J: Mr Emmett?

MR EMMETT: I do not wish to say anything about costs.

DAWSON J: With costs.

AT 12.33 PM THE MATTER WAS CONCLUDED