Case: Gould v Vaggelas [1985] HCA 75 ; (1984) 157 CLR 215
Outcome: discussed
Because Consort did not become the legal or beneficial owner of the ship at the time at which the purchase money of USD 3.5m was paid to the vendor, the usual measure of damages in tort, being a comparison between the price paid and the value received, cannot be applied: Gould v Vaggelas [1985] HCA 75 ; (1984) 157 CLR 215 at 223 per Gibbs CJ; see too at 232 per Murphy J, 245-246 per Wilson J, 253-255 per Brennan J. 100 I am of opinion that, for the same reasons, damages for any claim in contract in the circumstances of a case like the present cannot be assessed on that comparative basis. This is because J-Mac's contract obliged it to provide a prepurchase survey report which was prepared with reasonable care. It could be expected, as I have held, that Consort would either itself, or through a subsidiary, enter into a contract to purchase the ship. The damage which was in the reasonable contemplation of the parties at the time the prepuchase survey contract was entered into must have been the loss that would flow to whomever was the purchaser. If that were not Consort, then Consort could only have been contemplated to be able to recover a different loss that it suffered itself. 101 In Gould v Vaggelas [1985] HCA 75 ; (1984) 157 CLR 215, Mr and Mrs Gould were the guarantors of their company, Gould Holdings Pty Limited. The Goulds had entered into a contract to buy property induced by fraudulent misrepresentations made by the vendor. The contract provided for the purchaser to be a company to be incorporated, which, in the event, became Gould Holdings. By the time of the trial, Gould Holdings was in liquidation. The liquidator gave evidence that he had no funds and there was no substantive prospect of the company bringing an action to recover damages for the deceit caused by the vendor. The High Court made it clear that it was not open to the Goulds, as shareholders, to sue for the loss which their company had suffered by purchasing the property at a price much greater than its true value. However, the Court held that the Goulds could recover damages for the loss which they personally had suffered and which was separate and distinct from the loss suffered by the company (157 CLR at 220, 228 per Gibbs CJ, 231-232 per Murphy J, 245-246 per Wilson J, 253-255 per Brennan J). 102 Even though the basis for recovery under s 82 of the Act is not governed by common law rules of causation or remoteness or by the measures of damages in contract or tort, I am of opinion that in the present case it is still necessary to identify whether Consort has suffered some loss distinct and separate from that of its wholly owned subsidiary, Rho Beta 7, by entering into and completing the contract of the purchase of the vessel. 103 Consort itself paid for all of the repairs both before January 2001, and after that time when it had assumed the legal and beneficial ownership of the ship. Accordingly, Consort claimed that it suffered the damage in respect of the cost of repairs and restoration as well as the charter hire of the substitute vessels. 104 Having regard to the evidence of the nature and extent of the corrosion and other damaged condition of the ship at the time of purchase, it is clear that if the vessel were to be operated satisfactorily and to be maintained in class, it would have been necessary for extensive repairs and restoration work to be undertaken immediately or in the foreseeable future following completion of the purchase. And, likewise, it would have been necessary for the vessel to be taken out of service while the majority of that work was undertaken so that a substitute vessel or vessels would need to be hired to take the Gazelle Coast's place in Consort's business operations. 113 While it may have been true that just as in Gould v Vaggelas [1985] HCA 75 ; (1984) 157 CLR 215, the subsidiary (Rho Beta 7) may have had a right of action against the wrongdoer (J-Mac) the fact is that without the financial support of the parent, Consort, the right of action could not be realized. In the meantime, Consort had a business to run and needed the ship back in service to do so. Consort's ability to recover its loan, being the purchase price of the vessel, from Rho Beta 7 was substantively diminished by at least the loss in the value of the ship that had to be recognized in Rho Beta 7's books. That loss, may have been offset by the contingent asset of Rho Beta 7's cause of action against J-Mac but, as I have said, the exercise of that right depended upon Consort causing it to occur. Perhaps, that would have been a legally correct and advisable course, but, for the reasons given by Lord Macmillan, the course embarked on by Consort was also reasonably open to it. 114 The purpose for which Consort had engaged J-Mac's services was to receive advice as to the condition of the vessel so that it could be employed in Consort's business. Whether it was employed directly or through one of Consort's subsidiaries mattered not. Once the vessel required, in order to maintain class and efficacy as a trading vessel, the repairs and restoration work, they had to be effected if it were to be available in Consort's business. And, Consort had to spend directly or indirectly the money for those repairs or else it would have lost the whole of the investment made. 115 The position here is similar to that which Gibbs CJ pointed out in Gould v Vaggelas [1985] HCA 75 ; (1984) 157 CLR 215 at 225: 'However it would be quite unreal to determine the extent of the Goulds' loss on the basis that Gould Holdings would recover damages for deceit immediately after the date of settlement of the contract of sale. There was not the least likelihood that such an event would occur. Moreover, there was not the slightest intention that the amount owing by Gould Holdings should be repaid to the Goulds until the company had been trading profitably for some time.' 116 Gibbs CJ went on to say that the fact that the company might have had rights against the wrongdoer, did not mean that the Goulds were precluded from enforcing their own personal rights (157 CLR at 229). His Honour had held that the direct consequence of buying the resort was that Gould Holdings had to procure, in that case, the necessary funds to enable the business to carry on and for that purpose to obtain the necessary guarantees from the Goulds. It was foreseeable that that would occur and therefore it was not unreasonable for the Goulds to have given the guarantees. 117 The situation here is stronger in Consort's favour since it itself was the principal debtor to ANZ, and Rho Beta 7 was, in effect, a surety for the repayment by Consort of the loan. 118 Mr McInnes said that in January 2001 ownership of the vessel was transferred back to Consort and the loan and security documentation was amended. He did not elaborate on precisely how that amendment occurred but I infer that the amendments were to reflect the fact that Rho Beta 7 no longer had any part in the arrangements between Consort and ANZ for the provision of funds with which to first, acquire and, secondly, repair and restore the vessel. He said: 'Effectively no money changed hands between Consort and Rho Beta 7. Rho Beta 7 now has no assets.' 120 There is, of course, in a situation such as the present, a danger that by awarding Consort the damages claimed, J-Mac could be put in the position of having to pay Rho Beta 7 the same damages at a later time if other proceedings had been taken by Rho Beta 7. But, Mr McInnes swore that Rho Beta 7 had no assets. I must therefore infer that the asset comprised in its right of action against J-Mac was no longer available to Rho Beta 7 at 21 July 2005 when he swore his affidavit. Again, the evidence is not in the most satisfactory state, but I am of opinion that even if Rho Beta 7 retained at that time the causes of action it may have had against J-Mac for its prepurchase survey reports, in Rho Beta 7's hands that right of action was as valueless as Gould Holdings' right of action was in Gould v Vaggelas [1985] HCA 75 ; (1984) 157 CLR 215 at 228, 232, 258. The likelihood of Consort recovering anything from Rho Beta 7 in respect of the losses Consort has sustained is, on the evidence before me, negligible. 121 It follows, that Consort has established that it has suffered loss and damage in the sum claimed because any cause of action it may have against Rho Beta 7 is valueless and it, Consort, suffered the loss and damage of the cost of repairs, restoration and the hire of substitute vessels itself. Accordingly, judgment should be entered for the full amount claimed together with interest on the basis which I have indicated. 122 The amount for which judgment will be entered is based on the following calculations as to interest and currency conversion in a calculation prepared by the solicitors for Consort: (a) expenditure in the schedule in Australian dollars $ 2,547,384.34 (b) expenditure in the schedule of USD 297,143 converted at the respective dates of payment to the Australian dollar equivalent $ 495,743.14 (c) interest item by item from repair payment date to today $ 1,287,112.73 $ 4,330,240.21 I certify that the preceding one hundred and twenty-two (122) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 3 July 2006 Counsel for the Applicant: Mr GA Thompson SC with T Sullivan Solicitor for the Applicant: Thynne &amp; Macartney Respondent: No Appearance Date of Hearing: 13 June 2006 and 16 June 2006 Date of Judgment: 3 July 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/833.html