Case: Potts v Miller [1940] HCA 43 ; (1940) 64 CLR 282
Outcome: cited
Lehane J analysed a series of High Court, Full Federal Court and New South Wales Court of Appeal authorities: Potts v Miller [1940] HCA 43 ; (1940) 64 CLR 282, Toteff v Antonas [1952] HCA 16 ; (1952) 87 CLR 647, Gould v Vaggelas [1985] HCA 75 ; (1985) 157 CLR 215, Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3 ; (1986) 160 CLR 1, Wardley Australia Ltd v Western Australia [1992] HCA 55 ; (1992) 175 CLR 514, Kizbeau Pty Ltd v WG &amp; B Pty Ltd [1995] HCA 4 ; (1995) 184 CLR 281, Morgan Corporate Ltd v GWG Leviny Pty Ltd (1995) ATPR 41-414, Munchies Management Pty Ltd v Belperio Pty Ltd (1988) 58 FCR 274 and Netaf Pty Ltd v Bikane Pty Ltd (1990) 26 FCR 305. 327 One of the arguments of the valuer appellant was that the courts below should have restricted damages to the difference between valuation and true value at the time of valuation, in accordance with the Potts v Miller line of cases. The valuer's negligence, it was said, was not the cause of the further loss which resulted from a "supervening event", the fall in the market. The case was thus the converse of Flemington Properties where the defendant valuer had sought to claim the benefit of a post-valuation rise in the market. 328 Two elements of Kenny are relevant for present purposes. First, the retainer of the valuer specifically raised the question of value extending over a period into the future. As McHugh J commented at [59], the terms of the valuation made the case a "poor vehicle" to determine the correctness of the principle for which the valuer contended. Once the true nature of the representation as to value was properly understood, the statements in Potts v Miller , relied on to limit liability to the difference between the loan and the true value at time of the valuation, had no application to the case: at [62]. See also per Gummow J at [80] and per Kirby and Callinan JJ at [121]. 330 By contrast, in Morgan Corporate a majority of the New South Wales Court of Appeal (Meagher and Handley JJA, Mahoney JA dissenting) held that the Potts v Miller rule applied where units in a property trust bought at 82 cents were worth about that at the time of purchase but declined over three months to three cents and were worth one cent at the time of trial. Liability flowed from the defendant's misleading and deceptive conduct in relation to the personal liability of directors of the plaintiff. Thus the wrongdoing in the case did not involve anything in relation to future value. Meagher JA said at 40,592, speaking of a reformulation in Wardley of the Potts v Miller rule, ...one is conscious that the rule ... has as its fundamental postulate that a purchaser of property can always resell it. One knows that this may not always be so. In the present case, for example, it may have been that if the company sought to resell the units once the price of the units began to slide it would have found itself in the position where it could not have sold without redeeming the mortgage yet been unable to redeem the mortgage without recourse to the proceeds of the resale, which might have been insufficient of [sic] that purpose. Suffice it to say that no such case was pleaded or proved. 331 In Flemington Properties at 316 Lehane J disagreed with that statement. But as long as it is kept in mind that the Potts v Miller rule is not a rigid and inflexible one, the negotiability or otherwise of the property in question seems to be both a sensible rationale of the rule and a guide to possible exceptions. 334 Unlike Henderson, Morgan Corporate , and Kenny , the present case on the respondents' version (which, as it happens, I do not accept) is one of general market increase after the transaction. The transaction, however, was one partly caused by the respondents' wrongful conduct. There seems to be an unfairness in a respondent mitigating or eliminating its liability in such circumstances. Had the representations or valuations been true, at the time of trial the property would have been worth more than the representors' or valuer's figure. This is another way of looking at the point McHugh J makes in Kenny . The "true value" at the time of purchase will include an assessment of the prospects for future increase (or decline) in value. When an increase has in fact occurred by the time of trial, it should not affect the Potts v Miller assessment of the aggrieved party's loss: difference between price paid and true value at time of purchase. The exceptional case of unforeseeable boom between purchase or trial does not arise in the present case there is no suggestion of a property boom in North West Coast farming properties between 2001 and 2007. The evidence is all to the contrary.