Case: Potts v Miller (1940) 64 CLR 282
Outcome: applied
The contract for purchase was entered into on 18 May 2005 and was completed on 6 June 2005. The purchase price was $2,050,000. The first applicant claims the difference between the purchase price and the value of the motel at the time of purchase, based upon the true results, of $1,060,000, together with some consequential losses related to financing. The evidence relates to the date of completion rather than that of contract, but it is agreed that nothing turns upon that in this case. The first applicant's claim accords with the conventional measure of damages in a case such as this it is often referred to as the Potts v Miller basis (a reference to Potts v Miller (1940) 64 CLR 282). The respondents say that that measure is inappropriate in the present case as the purchaser did not rescind but elected to operate the motel profitably with improving results such that by the time of trial the motel was worth at least as much, if not more, than the purchase price paid. As will appear, I reject the respondents' contention. The respondents also contest the valuation of the motel as at the time of purchase and do not accept the consequential losses. 5 At the time of the decision of the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 it was well established that, in the case of the purchase of property induced by misleading statements, the correct measure of damages (apart from consequential losses) was obtained by deducting the true value of the property at the date of the purchase from the purchase price. It is not necessary to go beyond the analysis of the authorities by the Full Court in Expectation Pty Ltd v PRD Realty Pty Ltd [2004] FCAFC 189 ; (2004) 140 FCR 17 at [252] [258]. It is submitted on behalf of the respondents that HTW Valuers 217 CLR 640 fundamentally changed the situation. I do not agree. In that case, the plaintiff, not the defendant, was seeking to rely upon events subsequent to the transaction. The actual decision affirms the Potts v Miller measure of damage but points out that subsequent events can throw light upon the true value of the property at the time of the transaction ( HTW Valuers 217 CLR 640 per Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ at [34] [40]). That principle is well known in valuation law and practice and had been referred to by the High Court in Kizbeau Pty Ltd v WG &amp; B Pty Ltd [1995] HCA 4 ; (1995) 184 CLR 281 , particularly at 291 296 per Brennan, Deane, Dawson, Gaudron and McHugh JJ. The Court went on to consider an alternative approach proposed by the plaintiff, that is, that the measure of damages would be the price paid minus the benefits left in its hands at the time of trial it being a case where there had been a significant decline in value by the time of the trial. The Court indicated that there may be circumstances in which that approach would be appropriate ( HTW Valuers 217 CLR 640 at [63] [67]). The decision in Murphy v Overton Investments Pty Ltd [2004] HCA 3 ; (2004) 216 CLR 388 points in the same direction. This flows from the principle that a plaintiff induced by misleading conduct to enter into a transaction is entitled to be fully compensated. The same principle led to additional consequential losses being awarded in Gould v Vaggelas [1985] HCA 85 ; (1984) 157 CLR 215. That reasoning does not support the view, espoused by the respondents in this case, that the party responsible for the misleading conduct can benefit from an increase in value in the property acquired by the time of trial. 6 I do not accept the proposition that the first applicant could not retain the property and claim damages on a Potts v Miller basis. No authority was cited in support of it and it is contrary to authority in the High Court from Holmes v Jones [1907] HCA 35 ; (1907) 4 CLR 1692 onwards. 7 It is common ground that the value of this motel is to be assessed by capitalisation of the annual net return. It is, thus, necessary to arrive at the annual net return and a capitalisation rate having done so, the formula is: 100 [rparenmid] capitalisation rate &#215; net return = value. The respective valuers disagree about each integer. 8 The first applicant's valuer, Mr Ron Roberts, took the 50-week period from November 2003 to October 2004 to assess the annual net return. That was the period for which the primary records maintained by the vendors were available and it incorporated summer and winter seasons and holiday periods. The primary documents were analysed by accountants retained by the first applicant. With some adjustments to that analysis, Roberts deduced a net weekly income of $3,058 with the net annual return being $159,023.