Mills v Walsh

1. [1]

   BELL CJ: I agree with Brereton JA.

2. [2]

   WHITE JA: The circumstances giving rise to this appeal are explained in the reasons for judgment of Brereton JA, which I have had the advantage of reading in draft. I agree with Brereton JA, for the reasons his Honour gives, that Mr Walsh was not a party to the building contract; that Mr Walsh engaged in misleading and deceptive conduct in that, by offering to perform residential building work, he impliedly represented that his company was licensed to perform the building work it offered to do; and that because Ms Zhang, the owner of the property, would not have contracted with Mr Walsh or JSW Property Projects Pty Ltd (“JSW”) had she been so informed, the $500,000 of advances funded by Mr Mills would not have been made but for Mr Walsh’s misleading conduct. I agree with Brereton JA that the liability Mr Mills incurred by allowing his loan account to be debited with the payments made to JSW arose “because of” the misrepresentation (at [100]).

3. [3]

   Ultimately the building works carried out by JSW were of no value to Ms Zhang or Mr Mills because of Mr Mills’ decision, with which Ms Zhang concurred, that rather than continuing with the works, the works should be demolished and a new house built pursuant to a contract with Metricon.

4. [4]

   In a restitutionary claim where services are provided at the defendant’s request, the services themselves, rather than the product of the services, are of immediate benefit to the recipient and found a quantum meruit claim for reasonable remuneration (Brenner v First Artists’ Management Pty Ltd (1993) 2 VR 221 at 257-258). That is a different question from how damages under s 236 should be assessed.

5. [5]

   The services and materials provided by JSW were of no immediate value to Ms Zhang or Mr Mills. Unlike a purchase of shares (as in Potts v Miller (1940) 64 CLR 282; [1940] HCA 43) or a business (as in Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23) they were not assets that could be realised by sale.

6. [6]

   In Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1; [1986] HCA 3, the insurance policy Mr Gates bought provided an immediate benefit to him, even though that benefit was not ultimately realised because he did not incur a disability that triggered the policy. The fact that he was covered for certain events was an immediate benefit.

7. [7]

   By contrast, although Ms Zhang and Mr Mills received the benefit of the provision of services and materials, that benefit had no value to them unless and until the works were completed. Ms Zhang and Mr Mills lived in a granny flat at the back of the property while the works were being carried out because the house was a building site.

8. [8]

   In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55, Brennan J said (at 534) that the loss or damage recoverable under s 82 of the Trade Practices Act 1974 (Cth) (the precursor to s 236 of the Australian Consumer Law) is the loss or damage that would not have occurred if the contravening conduct had not been engaged in. Where the claimed loss or damage consists of the expenditure of money in return for countervailing benefits, no loss or damage is suffered unless an adverse balance is struck (at 536). His Honour continued (at 537):

9. [9]

   In Toteff v Antonas (1952) 87 CLR 647; [1952] HCA 16, Dixon J said (at 650-651):

10. [10]

    What must be set off is the real value to the plaintiff of the thing acquired. The cause of action does not arise until it is reasonably ascertainable that a loss has been suffered.

11. [11]

    At the time JSW’s services were provided it was not reasonably ascertainable that Mr Mills or Ms Zhang had suffered any loss by Mr Mills’ procuring the payments of $500,000 to JSW. On the primary judge’s findings referred to by Brereton JA at [153] they did not suffer loss until they decided not to proceed with the works but to demolish them and rebuild. From the implementation of that decision the $500,000 paid by Mills International at Mr Mills’ expense could be seen to have been wholly wasted.

12. [12]

    Hence the important question is whether Mr Mills’ decision (with which Ms Zhang concurred) not to proceed with the building works partially carried out by JSW but to demolish those works, and to start again, broke the chain of causation expressed by the words “because of” in s 236 of the Australian Consumer Law. That issue was not raised by the pleadings and was not specifically addressed by the primary judge. It was touched on in the appeal in response to questions from the Bench as to whether the decision not to proceed with those works was reasonable. The respondent accepted that the decision was reasonable but submitted that it was Mr Mills’ and Ms Zhang’s own decision, that they had been provided with a cost sheet which showed that the whole thing was too expensive, and they had been given oral updates throughout the project. As Brereton JA observes (at [145]) this arose from the continual evolution and expansion of the project at the request of Ms Zhang and Mr Mills.

13. [13]

    These circumstances are not unrelated to the contravening conduct. Section 4 of the Home Building Act 1989 (NSW) prohibits an unlicensed builder from carrying out residential building work. The holder of a contractor licence, where the contract price exceeds the prescribed amount of $20,000, must ensure that the building contract is in writing and complies with s 7, namely:

14. [14]

    By not disclosing that neither he nor JSW was a licensed contractor, Mr Walsh deprived Ms Zhang of the opportunity to enter into a written contract with a licensed contractor that would have described the work to be carried out, contained the plans and specifications of such work, and specified how variations would be priced.

15. [15]

    On 18 November 2016, Ms Zhang and Mr Walsh were provided with draft plans of works they had requested. Further draft drawings were provided by the architects in December 2016 and further amendments were requested by Mr Mills on 20 December 2016. There were further changes to the plans in February 2017. Ms Zhang and Mr Mills requested continuous changes. Mr Walsh deposed:

16. [16]

    Further changes followed in February and March 2017.

17. [17]

    On Mr Mills’ instructions Mills International paid JSW $500,000 by five $100,000 instalments between 21 November 2016 and 23 March 2017.

18. [18]

    What was lacking was the discipline that compliance with the Home Building Act imposes on both builder and owner of having written contractual plans and specifications and provision as to how variations to the contracted plans and specifications will be priced.

19. [19]

    Ms Zhang deposed that after a meeting in May 2017 with Mr Walsh and Mr Bettini:

20. [20]

    In cross-examination she gave the following evidence:

21. [21]

    Mr Mills gave evidence to similar effect.

22. [22]

    The primary judge did not accept Mr Mills as a credible witness. He did not accept his evidence in any matter of contest other than when his evidence was corroborated or against his interest (at [90]). His Honour found that Ms Zhang overwhelmingly left dealings with Mr Walsh to Mr Mills (at [100]). He preferred Mr Walsh’s evidence to that of Ms Zhang where they conflicted on a particular topic as to whether there was a request for written contracts (at [97]) but otherwise did not make any adverse finding as to her credibility.

23. [23]

    Neither Mr Mills nor Ms Zhang was challenged as to the evidence they gave of what they were told by Mr Bennett.

24. [24]

    In cross-examination Mr Mills denied that the reason for his deciding that the property should be demolished was that because the total cost of completing the renovation works was $1.3 million they might as well just build a new house and that he changed his mind about renovating. Mr Mills was not cross examined specifically on the evidence he gave about what he was told by Mr Bennett of Redwood and Co Pty Ltd, or what he said he was told to the same effect by Mr Dockrill (a structural engineer). However, the judge’s credit findings concerning Mr Mills, which are unchallenged on appeal, mean that Mr Mills’ evidence on these matters should not be accepted.

25. [25]

    No doubt because the parties at trial did not focus specifically on this issue, it was not directly addressed by the primary judge. His Honour merely said:

26. [26]

    In the absence of any specific cross examination of Ms Zhang as to what she and Mr Mills were told by Mr Bennett, and in the absence of any relevant adverse credit finding against Ms Zhang, I would conclude that the reasons that Ms Zhang and Mr Mills decided to demolish the works rather than continue with the renovation was not merely that the cost of the renovation had blown out, but that they had been advised that the work that had been done was poor and would require a lot of work to fix. The correctness of that advice is not relevant to the reasonableness of the decision to demolish.

27. [27]

    Where the conduct of the plaintiff is said to break the chain of causation, that is, at least usually, on the basis that the plaintiff’s conduct was unreasonable. In Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, Winn LJ said (at 168):

28. [28]

    I do not consider that Ms Zhang and Mr Mills were the authors of their own misfortune in demolishing the house. They should not have been put in the position of contracting with JSW in the first place. But for Mr Walsh’s misleading conduct, Ms Zhang would not have contracted with his company. Had she contracted with a licensed contractor, she and Mr Mills would not have been in the position in which they found themselves with no written contract, no contractual plans and specifications, and no provision as to how variations they requested would be priced. Also their decision to demolish rather than to continue with the renovations was motivated not merely by the realisation that the renovations would cost more than what they could obtain from a demolition and rebuild, but by the advice they received that faulty workmanship would need a lot of work to fix.

29. [29]

    Even in the absence of this advice, I would not regard the chain of causation as having been broken by Ms Zhang’s and Mr Mills’ decision to demolish rather than continue with the renovations. Issues of causation may call for the making of value judgments in which considerations of the policy underlying the legal framework play their part (Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55 at 256, [63]; Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at 491, [98]-[99]; and generally Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69).

30. [30]

    In this case the misleading conduct was in the failure to disclose that neither Mr Walsh nor JSW was licensed. The legal framework within which the issue of causation is to be decided includes the consumer protection policy embodied in the Home Building Act. The circumstances in which Ms Zhang and Mr Mills were placed were the very circumstances against which the Home Building Act provided protection for those contracting for the carrying out of residential building works. Mr Mills does not claim damages for Mr Walsh’s or JSW’s breach of the Home Building Act. Nonetheless the scope and purpose of that Act is relevant to the determination of whether damage suffered by Mr Mills was “because of” Mr Walsh’s misleading and deceptive conduct in failing to disclose that neither he nor JSW was licensed to carry out the works which JSW contracted to carry out. If Mr Walsh had disclosed that JSW was not licensed to carry out the works, JSW would not have been engaged and the scenario that developed in which Mr Mills and Ms Zhang were placed in the difficult position in which they were placed would not have arisen. The Home Building Act would have required a licensed contractor to have provided contractual documentation, the absence of which contributed to the breakdown of relations between Mr Walsh and Mr Mills and Ms Zhang. I do not conclude that Ms Zhang and Mr Mills’ decision not to proceed with JSW but to demolish the works broke the chain of causation. Mr Walsh did not dispute that their decision was reasonable.

31. [31]

    In this respect this case stands in contrast with Hellyer Drilling Co v MacDonald Hamilton & Co Pty Ltd (1983) 51 ALR 177; [1983] FCA 283, where the applicant was induced to acquire a drilling rig by misrepresentations as to the capacity of its various components (at 180). Fitzgerald J held that in principle the applicant was entitled to damages for the cost of repairs, the hire of substitute or auxiliary equipment, and the extent to which payments under a lease of the equipment were excessive by reason of the diminished value of the rig, which diminution in value could be assessed by reference to modifications made to the equipment (at 191). The applicant’s main claim for damages concerned the asserted diminution in value. It said that the rig, after derating of its compressor, had an equivalent value to a smaller rig that could be mounted on a smaller, less expensive truck (at 188). Fitzgerald J rejected this comparison on the ground that the applicant had acted unreasonably in derating the compressor. His Honour said (at 192, 194):

32. [32]

    The reason for Fitzgerald J’s observation that it was open to the applicant to act as it did, but it could not charge the respondent for the consequence of its decision, was his Honour’s finding that the applicant had not established that its decision to derate the compressor was reasonable.

33. [33]

    In this case Ms Zhang and Mr Mills acted reasonably in deciding not to proceed with the partially completed works. Indeed, although they might not have appreciated it, had they proceeded, neither they nor any subsequent owner would have had the benefit of residential building work insurance.

34. [34]

    For these reasons, I would allow the appeal.

35. [35]

    By notice of contention, Mr Walsh submits that because Ms Zhang and Mr Mills settled their claim against the architect for $165,000, that attracts the rule against double recovery (Townsend v Stone Toms and Partners (1984) 27 BLR 26 at 38, 40, 49; Bryanston Finance Ltd v de Vries [1975] QB 703 and Boncristiano v Lohmann [1998] 4 VR 82 at 89). I agree. Mr Mills points to the fact that the settlement sum was paid in settlement of both the plaintiffs’ claims for damages and their costs of the proceeding against the architect. There was no separate allocation of the settlement between damages and costs.

36. [36]

    The quantum of costs referable to the claim against the architect was wholly within the knowledge of the plaintiffs. The onus lay on Mr Mills to show what those costs were and how much of the settlement sum was referable to his damages claim (Bryanston Finance Ltd v de Vries at 724). He did not discharge that onus.

37. [37]

    Ms Zhang has not suffered any loss, Mr Mills has proved he suffered loss to the extent of $335,000 ($500,000 minus the $165,000 settlement sum paid by the architect).

38. [38]

    I would make the following orders:

    1. (1)

       Appeal allowed.

    2. (2)

       Set aside the orders of the District Court of 17 December 2021 so far as they concern the first respondent. In lieu thereof, give judgment for the appellant against the first respondent in the sum of $335,000 with interest to be assessed in accordance with s 100 of the Civil Procedure Act 2000 (NSW) up to 17 December 2021. Such judgment to take effect from 17 December 2021.

    3. (3)

       Order that the first respondent pay the appellant’s costs of the appeal and of the proceedings below as between the appellant and the first respondent.

    4. (4)

       Reserve questions of costs between the first respondent and the second respondent.

39. [39]

    BRERETON JA: In the latter part of 2016, the appellant Mr David Mills and his now estranged wife the second respondent Ms Crystal Lu Zhang wished to renovate their residential property at 150 Sydney Street, North Willoughby, of which Ms Zhang is the registered proprietor. They were introduced to the first respondent Mr Haiden Walsh, the sole director and shareholder of JSW Property Projects Pty Ltd (“JSW”). Neither Mr Walsh nor JSW held a licence under the Home Building Act 1989 (NSW) (“HBA”), but Ms Zhang and Mr Mills were unaware of this. Between 18 November 2016 and March 2017, JSW performed works on the property, and Mr Mills’ company Mills International Trading Pty Ltd (“Mills International”) paid JSW a total of $500,000, which was debited to Mr Mills’ loan account with his company. A dispute arose in March 2017, when JSW requested more funds to continue the project and Mr Mills declined to pay, which culminated in JSW ceasing works and leaving the site in April 2017, with the renovations far from complete. In February 2018, Ms Zhang engaged Metricon to demolish the building and rebuild to a different design.

40. [40]

    In the proceedings below, Ms Zhang and Mr Mills as plaintiffs sued JSW, Mr Walsh, and Legge & Legge Architects Pty Ltd, an architectural firm. By the Further Amended Statement of Claim of 18 September 2020, they sought to recover the $500,000 which had been paid to JSW, as moneys had and received, and also (against all defendants) as damages (pursuant to s 236 of the Australian Consumer Law (“ACL”) for misleading and deceptive conduct in contravention of s 18 of the ACL). They also claimed, against JSW and Mr Walsh, damages for breach of the statutory warranties under HBA, s 18B, in respect of the works that had been performed; and against Legge & Legge, reimbursement of $41,000 paid to that firm as architectural fees. However, JSW had been deregistered by ASIC on 20 August 2019 (before the proceedings were commenced). The claim against Legge & Legge was settled, in July 2021, for $165,000. Mr Walsh was therefore the only active defendant at the hearing.

41. [41]

    On 17 December 2021, Weber SC DCJ gave judgment for the defendant. [2] His Honour held that:

    1. (1)

       the building contract was with JSW alone and not Mr Walsh, so that although defects for which compensation of $14,165 would have been appropriate were established, it was not recoverable because JSW, having been deregistered, was not a party to the proceedings;

    2. (2)

       while Mr Walsh had engaged in misleading and deceptive conduct by representing (implicitly, or by silence) that JSW would be licensed when building works commenced without reasonable grounds for doing so, Mr Mills did not rely on the misrepresentation, and although Ms Zhang did rely on it, she suffered no loss, because only Mr Mills incurred any expenditure or liability;

    3. (3)

       in any event, Ms Zhang and Mr Mills failed to discharge the onus of proving that the value of what they received under the contract was less than the $500,000 they had paid.

42. [42]

    Initially, the appeal was brought in the names of both Ms Zhang and Mr Mills. Ms Zhang disputes that she gave instructions for an appeal, and at the commencement of the hearing she was given leave to discontinue the appeal and thereupon ceased to be an appellant, but was joined as second respondent, leaving Mr Mills as the sole appellant. Ms Zhang was at her request excused from further attendance on the hearing of the appeal; any question of costs concerning her was deferred.

Background

1. [43]

   The following account is based on the factual findings of the primary judge, having regard to his Honour’s preference for the evidence of Mr Walsh where there was a conflict, and adverse credibility findings in respect of Mr Mills, which were not challenged on appeal.

2. [44]

   Ms Zhang, who is a pharmacist, approached Mr Walsh as a result of a recommendation from a friend, initially with a view to renovating her pharmacy. They met at her pharmacy in mid-2016, and conversation turned to the possibility of renovating the Willoughby property. Ms Zhang asked Mr Walsh whether he could do some renovation works at her home, and Mr Walsh replied that he probably could. Ms Zhang explained that she wanted to convert part of the home into a self-contained area with a kitchenette.

3. [45]

   Subsequently Mr Walsh attended the Willoughby property, and in the company of Ms Zhang and Mr Mills inspected the site. Mr Mills told Mr Walsh that they wished to undertake a renovation of the front section of the house, so that it would contain four bedrooms instead of three, with all bedrooms to have ensuites. He said that they also wanted a galley kitchen in the front section of the house. These proposed renovations were explained as enabling Ms Zhang and Mr Mills to take in four tenants, rather than three, and allowing the tenants to live in self-contained areas in the front of the house, without interfering with Ms Zhang and Mr Mills’ lifestyle at the rear. Mr Mills said that he wished to keep the renovation simple, and that he did not want to spend more than $100,000.

4. [46]

   There were quite a number of further meetings. At one of these, Mr Mills and Ms Zhang informed Mr Walsh that they now wished to renovate the rear section of the house, as well as the front section. One or other of Mr Mills and Ms Zhang said that they were thinking of a larger renovation, that they wished to get new finishes, and that they wished to change the whole interior design of the house, so that the front and rear sections appeared more unified. They said that they had some ideas about how to achieve this, but needed help with the design. Mr Walsh said that what was now being proposed was a bigger job than had originally been described, and that he would like to involve his friend Didier Bertini, who had a company called Wow Developments Pty Ltd (“Wow Developments”). He said that they had worked together on projects for many years, and that Bertini had experience in boutique home renovations, which he thought was what was now being proposed.

5. [47]

   On 16 September 2016, Ms Zhang, Mr Mills, Mr Bertini, and Mr Walsh met at the property. One of Ms Zhang or Mr Mills told Mr Walsh that they wished to spend about $500,000 on the renovation. Later that day, Mr Mills sent an email to Mr Walsh forwarding some joinery and computer-aided design drawings which had been prepared by an architectural firm, Play Architects Pty Ltd.

6. [48]

   On 20 September 2016, Mr Mills, Ms Zhang, Mr Walsh, Mr Bertini, and Mr Tony Legge (of the architects Legge & Legge), met at a coffee shop known as Maisy’s Café, in Neutral Bay (“the Maisy’s Meeting”). Mr Legge was introduced as an architect, and both Mr Bertini and Mr Legge told Mr Mills and Ms Zhang that they could help them develop a suitable design for the renovations. Mr Bertini assured them that he could manage the project to a high standard, as did Mr Walsh. Mr Mills said that they wished to spend about $500,000 on the renovations, and that they would like to have the work completed by February 2017, to which Mr Walsh responded, “Ok, that can be done”. Mr Legge drew some rough sketches and floorplans, and led a discussion about the design. Ms Zhang and Mr Mills described various items which they wished to have included, and Mr Legge sketched and made notes to reflect their instructions. This was at a fairly high level of generality and lacked detail; the instructions were about the rooms which were to be renovated, with some ideas as to style, but no discussion about finishes and materials, nor as to the cost of particular items. Mr Mills said words to the effect: “Please give me a quote for your work with an estimate, I want to get started as soon as possible after that.”

7. [49]

   Mr Walsh said that at this time he believed that it was possible to have the work then described by Ms Zhang and Mr Mills completed by February 2017, at a cost of around $500,000. He observed, however, that at that stage, the finishes, materials, appliances, and furniture to be used had not been selected, and they would necessarily influence the ultimate cost of the project. That said, Mr Walsh agreed that, in principle, he believed that it was possible to make selections of good quality products and undertake the works, to a high standard, for around $500,000.

8. [50]

   In the course of the meeting, Mr Mills also said words to the effect: “I don’t want to go through Council. I want to avoid doing anything which will require Council approval. I want you to invoice my company and say on the invoices that the work is for an office renovation. I’ll send you the details.” At some point after the Maisy’s Meeting, Mr Mills provided Mr Walsh with the details of his company Mills International to which he wished invoices for the renovations to be addressed, and he also provided the address of Mills International, for use as the address where the building works were ostensibly to be performed.

9. [51]

   Several further meetings took place to discuss the project, usually on-site, in the course of which Ms Zhang and Mr Mills regularly gave further updated instructions as to their preferred design. On 27 September 2016, Mr Legge sent an email to Mr Walsh with a proposed scope of works, initial drawings for the works, and a quote on behalf of Legge & Legge addressed to Wow Developments. According to Mr Walsh, it was not then possible to prepare a finalised quote or estimate for the project, as the clients were still considering the design and regularly updating their instructions; plans and drawings had not been finalised; and the clients had not chosen the materials, finishes, and products to be used – all of which could affect the course of the project and its cost.

10. [52]

    Mr Mills requested an on-site meeting, at which he requested that an invoice be forwarded to Mills International seeking a deposit, and that demolition works commence as soon as possible, with a view to completing the project by February 2017. On 18 November 2016, Mr Walsh sent Mr Mills an email, to which were attached plans for the renovations prepared by Legge & Legge, and an invoice for a deposit of $100,000. The covering email contained the following:

11. [53]

    The invoice, which was on letterhead of “JSW Projects” and was headed “150 Sydney Road Willouby” [sic], contained a skeletal outline of the works to be undertaken. However, various aspects of the design, including fixtures, finishes, appliances and electrical works, remained unresolved. The narrative in the invoice concluded:

12. [54]

    On 21 November 2016, Mills International paid the deposit of $100,000 by direct deposit to JSW’s bank account. No written contract was in place.

13. [55]

    Two days later, on 23 November 2016, work commenced.

14. [56]

    On 21 December 2016, following a request made by Mr Walsh at a site meeting, Mills International paid JSW a further $100,000 by way of a progress payment; at the time, no invoice was issued. On 8 January 2017, Mr Mills’ personal assistant sent an email to Mr Walsh, asking him to call in relation to invoices for the first two payments. Mr Mills said words the effect: “Can you please send me invoices for the progress payments which I have already made to you? Remember to issue them to the company and use the company address for the project.” As a result, on 17 January 2017, Mr Walsh prepared and sent to Mr Mills two invoices in respect of the two payments which had so far been made. These invoices, one of which was a replacement invoice for the 18 November 2016 invoice, were addressed to Mills International, and falsely described the work as being undertaken at the offices of Mills International.

15. [57]

    Meanwhile, the project had continued to evolve and expand, almost daily, at the behest of Ms Zhang and Mr Mills, who requested more than 75 changes to the scope of works – including the addition of a pool, bar, and patio, and the reconfiguration of the electrical installation. There were daily, or almost daily, site meetings between Mr Mills and Mr Walsh. The changes were frequent, and the quality of the works requested high. Inevitably, these changes increased the cost of the project. In response to one such request, on 18 January 2017, Mr Walsh sent Mr Mills a message:

16. [58]

    On 20 January 2017, Mr Walsh requested a further progress payment of $100,000, which was paid by Mills International on 23 January. By this point, JSW had received payments totalling $300,000.

17. [59]

    Still the project continued to evolve and expand, with the inevitable consequence that the cost would increase. Although there had been no overall estimate prepared, Mr Walsh or Mr Bertini advised Mills that special windows from Italy would cost around $150,000; that JSW’s costs of building the deck and concrete area around the pool would add at least $50,000 to the cost of the project; that the electrical works required to install the heated floors, security system and surround sound system would add at least $100,000; that apart from the cost of constructing the pool, the landscaping requested by Ms Zhang and Mr Mills in the pool area would add at least $100,000; and that the general level of quality they were now requesting in terms of finishes, fixtures, and fittings would also increase the cost substantially.

18. [60]

    In early February 2017, Mr Walsh provided to Mr Mills a spreadsheet which estimated the costs of the project to completion at $1,909,569 million, and the costs incurred to date at $561,182. Mr Mills asked whether there was any way to reduce it, and Mr Walsh explained that it was so high “because you and Crystal have been requesting premium fit and finish”. Mr Walsh agreed to revise it with Mr Legge and Mr Bertini.

19. [61]

    On 13 February 2017, JSW submitted an invoice for a further progress payment, and on 17 February Mills International paid JSW a further $100,000, bringing the total to $400,000. Further expensive changes were requested to the design, including marble and smoked glass finishes in the ground floor kitchen and powder room, marble walls and a unique bath on a raised marble slab in the first-floor bathroom, and the evolution of what was to have been a pantry into a fully-fledged second kitchen.

20. [62]

    In February or March, Mr Walsh provided a revised costs plan and Mr Mills made comments on it and requested various invoices and details of items included in it, to which Mr Walsh responded. On 9 March 2017, JSW submitted an invoice for a further progress payment of $100,000. Mr Mills said that he wanted to see a revised costs plan before he would pay this invoice. On 22 March, Mr Walsh provided a further version of the costing sheet, with a total anticipated cost of the project to completion of $1,529,774 (plus $148,700 for a window and $45,000 for parquetry) of which $719,625 was completed. Mr Walsh also gave Mr Mills his physical file, containing all the invoices and quotes which he had received in relation to the project. On 23 March, Mills International paid JSW a further $100,000, in respect of the 9 March invoice, bringing the total amount paid to JSW by Mills International to $500,000.

21. [63]

    On 6 April 2017, Mr Walsh sent Mr Mills an invoice for a further progress payment, supported by a revised costs sheet which indicated a total estimate of $1,341,614 (plus $138,000 for a window and $45,000 for parquetry) of which $625,748.58 was completed. In response to further comments from Mr Mills, on 20 April Mr Walsh provided a still further revised costs sheet, with a total estimate of $1,313,354 (plus $138,000 for a window and $45,000 for parquetry) of which $600,533 was completed.

22. [64]

    From this point, the relationship between JSW and its clients continued to deteriorate. Mr Mills asserted that he was being charged incorrectly. JSW and its subcontractors left the site in mid-April 2017.

23. [65]

    Ms Zhang and Mr Mills obtained a quote from Redwood & Co to take the works to completion for a further $1,333,473, on a “costs plus” basis; that quote was not accepted. Ultimately, they retained Metricon to demolish the entire building and rebuild to a different design, pursuant to which, on 18 August 2018, the partially renovated premises were demolished, in preparation for the Metricon rebuild.

The judgment and the appeal

1. [66]

   In respect of the HBA claim, the primary judge found that only JSW and not Mr Walsh was the party to the building contract, and so Mr Walsh could have no liability in respect of it. [3]

2. [67]

   The restitutionary claim, for moneys paid under the allegedly mistaken belief that the recipient was legally entitled to the payments totalling $500,000 that had been made, also failed, as the recipient was JSW and not Mr Walsh, and neither Mr Mills nor Ms Zhang, but Mills International, was the payer. [4] This is not challenged on appeal.

3. [68]

   In respect of the misleading and deceptive conduct claim, his Honour found that Mr Walsh made one of the pleaded misrepresentations, in a qualified way (that Walsh/JSW would be a licensed builder when works commenced, without having reasonable grounds for doing so), [5] but that Mr Mills did not rely on it, [6] and that although Ms Zhang did so she incurred no loss because she incurred no expenditure or liability; [7] and in any event, Ms Zhang and Mr Mills had failed to establish, and were unable to establish, that they had incurred any loss. [8]

4. [69]

   In essence, the appeal challenges:

   1. (1)

      the conclusion that Ms Zhang suffered no loss or damage because she incurred no liability or expenditure (Ground 1);

   2. (2)

      the conclusion that Mr Mills did not suffer loss or damage, because he did not rely upon any misrepresentation that Mr Walsh and/or JSW were licensed builders (Ground 2);

   3. (3)

      the conclusion that Mr Walsh was not a party to the building contract (Ground 3); and

   4. (4)

      the failure to find that Ms Zhang and Mr Mills had incurred a loss of $500,000 or some other amount (Grounds 4, 5, 6 and 7).

5. [70]

   In addition to submitting that the appeal should be dismissed for the reasons given by the primary judge, Mr Walsh by Notice of Contention contends that:

   1. (1)

      his Honour erred in finding an unpleaded misrepresentation as to a future matter, namely that Mr Walsh had misrepresented, by silence, that if given the work, the parties undertaking the work would be licensed, and thus legally able to undertake the works, by the commencement of the works (Contentions 1 and 2);

   2. (2)

      any damages should be reduced by $165,000 (the amount of the settlement with Legge & Legge) (Contention 3);

   3. (3)

      the misleading or deceptive conduct claim is an apportionable claim, and any damages against Mr Walsh should be apportioned with the concurrent liabilities of JSW and Legge & Legge (Contention 4); and

   4. (4)

      any damages should be reduced, by way of set-off, by any amount found to be owing to Mr Walsh on a quantum meruit basis for the works performed under the contract but not yet paid for (Contention 5).

6. [71]

   It is convenient to deal first with whether Mr Walsh was a party to the building contract, before next considering whether the relevant misrepresentation was made, and whether it caused Ms Zhang and Mr Mills or either of them to change their position, then what if any loss or damage was incurred, and finally what if any deductions, apportionments or set-off should be allowed.

The contract: was Mr Walsh a party (Ground 3)

1. [72]

   His Honour concluded that Mr Walsh was not a party to the contract:

2. [73]

   The parties to a contract are identified according to the objective theory of contract, [9] which involves ascertaining the intention of the parties from their communications and the circumstances in their mutual knowledge, including their evident commercial aims and expectations; their subjective beliefs and intentions are irrelevant, save insofar as they are manifest and shared. [10] However, the post-contractual conduct of the parties may more readily be resorted to for this purpose than for the purpose of construing contractual terms. [11]

3. [74]

   For the purposes of identifying the contracting parties, by far the most significant objective communication was the invoice of 18 November 2016, which unambiguously referred, and referred only, to JSW. The email which covered it was sent from “JSW Projects”, with the email address info@jswprojects.com.au, and bears the “JSW Projects” logo twice in the email signature. The first attachment – the Legge & Legge drawings - refers neither to JSW nor to Mr Walsh, and is neutral. But the second attachment – the invoice designated Quote 1110 – bears the JSW Projects logo at the top of both pages; includes JSW’s email address, ABN, and the name “JSW Property Projects Pty Ltd” in the letterhead on both pages; and makes no reference at all to Mr Walsh. It asked for payment of a deposit of $100,000, and included JSW’s banking details. The deposit was duly paid on 21 November 2016, by direct deposit to the nominated bank account of JSW.

4. [75]

   The appellant submitted that the contract came into existence before the invoice of 18 November 2016 which identified the corporate party, having crystallised when Ms Zhang and Mr Mills accepted that Mr Walsh was capable of doing the work at the price initially envisaged. However, although there were plainly negotiations, which may well have reached the stage that there was a consensus that Mr Walsh or his operating entity would be engaged to perform the works, any such consensus lacked sufficient finality, or certainty as to scope of works or price, to be a contract. Admittedly, these issues were by no means resolved by 18 November, but the payment of a substantial deposit of $100,000 is a strong indication of an intention to be contractually bound. Moreover, the 18 November email is one of the documents which Ms Zhang and Mr Mills pleaded to constitute the contract. Thus the earliest it could be said there was a contract was upon payment of the invoice of 18 November 2016. On any view, there was no contract before that date, and by that date the invoice made clear the contracting party was JSW.

5. [76]

   It was the appellant’s case, as it had been the plaintiffs’ case at trial, not that Mr Walsh rather than JSW was party to the contract, but that both were. However, that would be a commercially extraordinary outcome, particularly in the context that the rationale for using a limited company at all would be to avoid personal liability – a concept of which Mr Mills, who conducted business through his own proprietary company Mills International – was well aware.

6. [77]

   Moreover, the suggestion that Mr Walsh as well as JSW was a contracting party came late to the plaintiffs’ case. There is very little to suggest that Ms Zhang and Mr Mills thought that they were contracting with Mr Walsh personally, until after JSW was deregistered. In the Further Amended Statement of Claim, the contract was pleaded as follows:

7. [78]

   Thus even at the relatively late stage of that further amended pleading, the allegation that Mr Walsh was a party was an alternative pleading.

8. [79]

   In support of the argument that Mr Walsh was a party, the appellant referred to the fact that there was a statutory obligation pursuant to the HBA to provide a written contract for residential building work and to give Ms Zhang and Mr Mills notice of the terms, and that no contract was provided by JSW or Mr Walsh; however, this does not assist at all in identifying the contracting party. The appellant also observed that JSW was but recently registered, so that the claims of experience and expertise made by Mr Walsh, for example at the Maisy’s Meeting, could not have related to it. But this is of little significance; the claims of experience are explicable as relating to those who would carry on work through JSW, and the invoice is unambiguous as to the identity of the contracting party.

9. [80]

   Finally, the appellant referred to unchallenged evidence of Ms Zhang about her dealings with Walsh. However, Ms Zhang did not and could not give evidence as to who was the contracting party. That her conversations were with Mr Walsh personally is of no significance, as corporations must act by human agents. Ms Zhang’s evidence that she had not heard of JSW “until later on”, [12] may well be correct: the parties did not discuss the identity of the contracting party in their pre-contractual conversations. However, it is commonplace in the context of negotiations with small business entities that the principal or point of contact will have an operating entity, and although its identity may not be mentioned in negotiations until the stage of contract, the mere fact that it is not referred to does not mean that the parties intend that the principal be personally bound. If it was Mr Walsh’s operating entity and not himself personally that was to be the contracting party, that had to be disclosed at some stage prior to formation of contract; but it was, unambiguously, in the 18 November 2016 email and invoice.

10. [81]

    Objectively, the documentation relating to the invoice and payment shows that the contract was with JSW and not Mr Walsh. This is consistent with the way the case was pleaded, and with the evidence. These conclusions do not depend on any “concession” made by Mr Mills, [13] nor on any special principle that may apply to the construction of commercial contracts. [14] The primary judge was right to conclude that the contract was with JSW, and not with Mr Walsh.

The misrepresentation (Contentions 1 and 2)

1. [82]

   The respondent complains that the primary judge erred in finding that Mr Walsh had misrepresented, by silence, that if given the work, the parties undertaking the work would be licensed, and thus legally able to undertake the works, by the commencement of the works. That finding is challenged on two bases: first, that a future representation in that form was not pleaded (Contention 1); and secondly, that his Honour misapplied the deeming provision in ACL s 4(2) (Contention 2). The appellants respond that it is not clear that the trial judge found the future representation, as distinct from the pleaded representation to the effect that the builder was licensed (at the time the representation was made); they seek to uphold the judge’s decision on the basis that the pleaded representation ought to have been found and was misleading; and in the alternative, they say that the future representation was made and rightly found to be misleading.

2. [83]

   The only misrepresentation which his Honour found established was pleaded in the Further Amended Statement of Claim as follows:

3. [84]

   At trial, Mr Walsh disputed that any such representation arose. The trial judge identified the issue thus:

4. [85]

   His Honour then reasoned:

5. [86]

   His Honour then proceeded to consider whether that representation was misleading:

6. [87]

   Although the judge concluded that “I thus find that the First Representation is established”, [15] his Honour did this through a process of finding, first, that the representation pleaded was a representation as to a future matter, [16] and, secondly, that there were not reasonable grounds for making it. [17] The consideration of whether there were reasonable grounds for making it is only comprehensible if related to a representation as to a future matter. [18] The ultimate finding that the representation “was established” was intended to mean that a representation in the modified future form both arose and was misleading. This becomes even clearer when viewed in the context of how his Honour dealt with the other pleaded representations (which his Honour found to be not untrue), in respect of each of which his Honour’s ultimate conclusion was that the relevant representation is “not made out” – often on the basis that, though made, it was not shown to be misleading. His Honour’s conclusion “that the First Representation is established” involved a conclusion not only that it was made (in the modified future form), but also that it was misleading and deceptive – that is, that the misrepresentation was established.

7. [88]

   The respondent complained that although he had, in the course of arguing why the pleaded representation did not arise, proposed the modified future version as an illustration of what might arise, that modified version was not pleaded, and the judge ought simply have found that the pleaded (present) representation was not made. It was submitted that the course the judge took deprived Mr Walsh of the ability to lead evidence of “reasonable grounds” which he might otherwise have adduced. The first difficulty with that proposition is that it was Mr Walsh’s pleading that the “JSW Representations”, which included the relevant representation, were, to the extent that they were made, representations as to future matters and that there were reasonable grounds for them. [19] Although before us it was submitted that this could only have related to some and not all of the “JSW Representations”, as pleaded it encompassed the relevant representation.

8. [89]

   The second difficulty is that the evidence of Mr Walsh left no room for further evidence as to “reasonable grounds”. He said: [20]

9. [90]

   In any event, the appellant (ultimately) sought to support the judge’s conclusion on the alternative basis that the pleaded (present) representation arose, and counsel for the respondent properly acknowledged that no prejudice would arise if he were permitted to do so.

10. [91]

    An important part of the legal and commercial background to the negotiations is the HBA, which relevantly provides, by s 5:

11. [92]

    In that context, in my opinion, it was implicit in an offer to perform residential building work that the offeror was licensed, because it was not lawful for it to perform the work contemplated, nor to represent that it was prepared to do so, unless it was licensed. Accordingly, by offering to perform residential building work, Mr Walsh made, or was involved in JSW making, a representation that JSW was licensed to perform the building work it offered to do. The representation arises from the offer to do work which could only legally be performed by a licensed person, and which only a licensed person could offer to do. This was not a representation as to a future matter, but one as to the present status of the builder. As JSW was in fact not licensed, Mr Walsh thereby engaged in misleading and deceptive conduct contrary to ACL, s 18, or was a person involved in such a contravention by JSW.

12. [93]

    In any event, the judge’s finding that Mr Walsh did not have reasonable grounds for representing that the builder would be licensed when works commenced, was correct. It may be accepted, as the respondent submits, that the effect of ACL, s 4(2), is not that the representor bears the onus of proving that it had reasonable grounds for making the representation, but only that it has an onus to adduce some evidence of such reasonable grounds, and that if it adduces some evidence, the deeming provision ceases to apply, so that the question of whether there were in fact reasonable grounds falls to be determined by the Court on the balance of probabilities, with the representee bearing the legal onus of proof. [21] However, his Honour did not misapply s 4(2); his Honour found that Mr Walsh had adduced no evidence of the existence of a reasonable basis for the representation, [22] so that the deeming provision was not disapplied. In any event, even if it were disapplied, the existence of reasonable grounds was negated by Mr Walsh’s own evidence, [23] set out above, so that on balance of probabilities it was established that there were not reasonable grounds. The respondent sought to invoke some further passages in Mr Walsh’s cross-examination as evidence of reasonable grounds, [24] but on close scrutiny it is apparent that this evidence did not relate to his position and state of mind before 18 November 2016, but to a suggestion that he might return to complete the works, after JSW had left the site in April 2017 and its unlicensed status had been discovered.

13. [94]

    Accordingly, I would uphold the finding that Mr Walsh engaged in misleading and deceptive conduct: primarily on the basis that he misrepresented that the entity that would perform the building works was licensed, and alternatively on the basis that he represented that it would be licensed when building works commenced and did not have reasonable grounds for doing so.

Causation (Grounds 1 and 2)

1. [95]

   The primary judge held that Mr Mills did not rely on the contravening conduct. In this respect, his Honour said (emphasis added): [25]

2. [96]

   Ground 2 complains that the trial judge erred in finding that Mr Mills did not rely upon the representation that JSW and Mr Walsh were licensed builders, and should have found that Ms Zhang and Mr Mills relied upon Mr Walsh and his company being licensed builders covered by home warranty insurance and would not have entered into any contract if they had known the true position, in circumstances where (a) the proposition that Mr Mills did not rely upon that representation was not put to him; (b) the fact that Mr Mills was not accepted as a witness of credit did not provide a basis for an inference that he did not rely upon Mr Walsh or JSW being licensed builders; (c) reliance should have been found in circumstances where the obligation to be licensed was a statutory obligation; and (d) Ms Zhang and Mr Mills were seeking and being offered a high-class boutique finish to their home.

3. [97]

   Although the matters referred to in particulars (a) through (d) of the Ground, summarised above, do not in my opinion affect or undermine the primary judge’s lack of persuasion that Mr Mills’ personally relied on the representation, the appellant further submitted that consideration of Mr Mills’ reliance ought to have included consideration of Ms Zhang’s position, because she was the proprietor, so that if she would not have entered into the contract if aware that the builder was unlicensed, Mr Mills would not have caused Mills International to pay the $500,000. In reply to the submission that Ms Zhang’s reliance was the only critical question, as if she had known the truth about the builder, the contract would not have proceeded, the respondent submitted that the relevant counterfactual was simply that Mr Walsh was not at the meeting where the conduct took place (and, implicitly, that some other agent of the builder engaged in the same contravening conduct).

4. [98]

   I do not accept that this is the proper analysis; the true counterfactual involves that the misleading conduct did not take place, and that does not accommodate a scenario in which the misleading conduct could have taken place by a different agent. Otherwise, where there were multiple persons involved in making a misrepresentation, a plaintiff could succeed against none because he or she would have acted upon the misrepresentation of others.

5. [99]

   Here, the proper counterfactual involves that it was revealed that the builder was unlicensed. Ms Zhang gave unchallenged evidence, which the trial judge accepted, to the effect that had she been so informed, she would not have contracted with Mr Walsh or his entity. [26] That evidence is not inherently improbable; to the contrary.

6. [100]

   Notions of “reliance” must not be allowed to obscure that the requirement is only to show a sufficient causal connection between the contravening conduct and the damage suffered, [27] which does not necessarily involve reliance by the plaintiff on the contravening conduct, but may be established where a third party relies on the conduct in a manner which results in loss to the plaintiff. [28] Here, the misrepresentation induced Ms Zhang to enter into the building contract with JSW. Had she not done so, Mr Mills would not have caused the $500,000 to be debited to his loan account with Mills International and paid to JSW, even if he did not personally “rely” on the representation. To the extent that Mr Mills incurred liability in respect of payments made under the building contract to JSW, he did so “because of” the misrepresentation.

7. [101]

   Having reached that conclusion, it is unnecessary to address Ground 1, which contended that the trial judge erred in finding that Ms Zhang had suffered no loss because she had incurred no expenditure, all the payments to JSW having been made by Mr Mills’ company and debited to his loan account. It suffices to conclude that the misrepresentation induced the contract from which flowed the payments made under it, whether by Ms Zhang or by Mr Mills.

Loss (Grounds 4, 5, 6 and 7)

1. [102]

   Ms Zhang and Mr Mills had pleaded that the building works “were so defective and deficient that [they] had no value and made no improvement to the Property”. Their case on loss and damage was then pleaded as follows:

2. [103]

   His Honour rejected this approach, stating that it was necessary for them to prove the value of what they acquired, less what they paid for it. [29] His Honour said: [30]

3. [104]

   His Honour remarked that Ms Zhang and Mr Mills “glibly plead that the works were valueless”, [31] and continued:

4. [105]

   His Honour ultimately found that not only had Ms Zhang and Mr Mills not sought to establish their loss, but they were unable to do so as the value of the works (according to evidence adduced on behalf of Mr Walsh) exceeded the $500,000 which had been paid. [32]

5. [106]

   That conclusion is impugned by Grounds 4, 5, 6 and 7. Ground 4 complains that the trial judge erred in finding that:

   1. (1)

      the involvement and acceptance by Mr Mills of work being undertaken by JSW and Mr Walsh was evidence of the work and materials’ reasonable value;

   2. (2)

      Mr Walsh was denied the opportunity of inspecting the work; and

   3. (3)

      the demolition of the work undertaken on the property by JSW and Mr Walsh was evidence from which an adverse inference could be drawn and the absence of documentary evidence was the responsibility of Mr Mills and Ms Zhang from which an adverse inference could also be drawn.

6. [107]

   Ground 5 contends that the trial judge erred in finding that the demolition of the property was an act of a spoliator and in finding that it deprived Mr Walsh of the opportunity to provide evidence of the value of the work undertaken. Ground 6 is that the trial judge erred in relying on the cost sheets (a document of disputed accuracy provided by Mr Walsh to Mr Mills and Ms Zhang) in determining the value of the work undertaken and determining that the figures recorded therein evidenced the reasonable costs of the work in the absence of records or evidence showing that those costs were reasonable. Ground 7 is that the trial judge should have found that the $500,000 – or some amount determined by the Court doing the best it could – was money that was lost and that Mr Walsh adduced no evidence of the reasonable costs of any work undertaken.

7. [108]

   However, all these grounds seek to undermine, in one way or another, his Honour’s conclusion that Ms Zhang and Mr Mills had not established, and could not establish, that they had incurred any loss or damage for which they should be compensated under ACL s 236.

8. [109]

   The inquiry required by ACL s 236 is as to “the amount of the loss or damage” which the claimant has suffered “because of” the contravening conduct. The assessment of damages for that purpose is informed, though it is not controlled, by common law principles relating to the assessment of damages, particularly for misrepresentation. [33] As was said of the predecessor section – s 82(1) of the Trade Practices Act 1974 – in Wardley: [34]

9. [110]

   The purpose of an award of damages under ACL s 236 for a contravention of the prohibition on misleading and deceptive conduct in s 18, as at common law for misrepresentation, is to compensate the plaintiff for the prejudice or disadvantage it has suffered in consequence of having altered its position under the inducement of the misrepresentation made by the defendant. [35] The aim is to put the plaintiff in the position in which it would have been had the misrepresentation not been made, so far as monetary compensation can do so. [36] Typically, this involves making good the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which it relied, offset by any corresponding advantage in money or money’s worth obtained by the plaintiff from the transaction. [37]

10. [111]

    This requires an inquiry into how the plaintiff changed its position because of the misrepresentation. Often, the answer is that the plaintiff entered into a transaction – to purchase property, or as in this case, to obtain services. Usually, the inquiry proceeds on the basis that had the misrepresentation not been made, the plaintiff would not have entered into the transaction. That is a so-called “no transaction” case. In such a case, at least prima facie, the applicable measure of damages is the difference between the price paid by the plaintiff, and the value it received in return. Unless the value it has received is less than the price it has paid, the plaintiff has suffered no loss.

11. [112]

    A “no transaction” analysis may not always be appropriate. In the present case, it might be hypothesised that but for the misleading and deceptive conduct in question, Ms Zhang and Mr Mills, who plainly wanted to have renovations performed on their Willoughby property, would have entered into a contract at no less a price, albeit with a licensed builder, and as a result received insured as opposed to uninsured works. If that be the correct “counterfactual”, and if it be assumed that they would have paid a licensed builder a similar amount for similar works, then the difference in their position would be that they received uninsured works, when under the counterfactual they would have received insured works. On that hypothesis, their damages might be the difference between the value of the works as performed by JSW, and the value they would have had if they were insured, or the cost of obtaining insurance for them.

12. [113]

    However, this need not be resolved because, in this exercise, the hypothetical alternative transactions into which a plaintiff might have entered are generally regarded as irrelevant. [38] Thus the Privy Council said in United Motor Finance Co v Addison & Co Ltd: [39]

13. [114]

    And Hobhouse LJ, citing that passage, said in Downs v Chappell: [40]

14. [115]

    As Handley explains in Actionable Misrepresentation, [41] there are cases in which damages for lost profits on an alternative transaction have been allowed, [42] but these are cases which require a plaintiff to prove its loss of benefits under a different transaction which was actually in contemplation at the time but was not proceeded with because the plaintiff was induced by the misrepresentation to take another course. Where a defendant alleges that the plaintiff would, but for the misrepresentation, have entered into another transaction on different terms which would have resulted in a loss, the defendant raises a speculative and hypothetical issue on which it bears the onus of proof, and in respect of which it will usually be impossible to adduce persuasive evidence. [43] A case where a defendant attempts to rely on what the plaintiff would have done but for the misrepresentation [44] – a question which the plaintiff did not consider at the time – is therefore to be distinguished from one where the plaintiff claims lost profits or opportunities which were in contemplation at the time. [45] As Leggatt J (as his Lordship then was) said in Yam Seng Pte Ltd v International Trade Corporation Ltd: [46]

15. [116]

    Here, the evidence justifies a “very general inference” that Ms Zhang and Mr Mills would probably have retained an alternative builder to perform renovations to the Willoughby property. But as Mr De Buse legitimately submitted on behalf of Mr Mills, upon what terms and for what outcome is entirely speculative. The defendant neither pleaded nor proved that but for the misrepresentation Ms Zhang and Mr Mills would have entered into an alternative contract, let alone the terms of such a contract and what if any loss they would have incurred under it. In those circumstances it is inappropriate to take into account the hypothetical alternative transaction, [47] and it may be put to one side. Ms Zhang and Mr Mills’ damages fall to be assessed on a “no transaction” basis.

16. [117]

    In a “no transaction” case in which an asset is acquired, it is often said that the measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it, [48] at least “if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired)”. [49] However, the fundamental rule is that the plaintiff should be compensated; the rule which turns on an assessment of value is only a means of giving effect to that overriding compensatory rule; the valuation of assets as at the date of the transaction is “simply a second order rule applicable only where the valuation method is employed”; and whenever the overriding compensatory rule so requires, the Court is entitled to assess the loss flowing directly from the transaction, without any reference to the date of transaction or indeed any particular date. [50] Thus the deduction of true value at the date of the transaction (or for that matter as at any other date) from the price paid is only a guide to the assessment of damages under ACL s 236. [51]

17. [118]

    It is nonetheless an important guide, because ordinarily it will reflect the prejudice or detriment that the representee has incurred. Thus Mason, Wilson and Dawson JJ said in Gates v City Mutual Life Assurance Society Limited: [52]

18. [119]

    To like effect, Mason CJ, Dawson, Gaudron and McHugh JJ said in Wardley: [53]

19. [120]

    And similarly, McHugh, Hayne and Callinan JJ said in Marks v GIO: [54]

20. [121]

    The appellant rightly submitted that the rule in Potts v Miller is not an invariable one. [55] However, what is fundamental is that the purpose of compensation is to remediate the prejudice or disadvantage the plaintiff has suffered in consequence of altering its position under the inducement of the fraudulent misrepresentations made by the defendant, which necessarily involves bringing to account value received against moneys expended.

21. [122]

    The same general principle applies in the context of a contract for services. [56] This is unsurprising, as the principle should be consistent. As Lord Atkin said in Clark v Urquhart: [57]

22. [123]

    To like effect, Lord Steyn said in Smith New Court Securities v Scrimgeour Vickers: [58]

23. [124]

    Applying this in the context of a construction contract, in this Court, Handley JA, with whom Sheller JA and Stein JA agreed, said – after referring to the passage in Wardley cited above – in ADC v White: [59]

24. [125]

    At trial, Ms Zhang and Mr Mills submitted that, having established that they had expended $500,000, it was for the defendant to prove the value of any offsetting benefit. As has been seen, his Honour rejected that submission.

25. [126]

    In Potts v Miller, Dixon J said that the absence of proper evidence of a difference between the price paid and the value received was a reason why the jury’s verdict could not be allowed to stand (emphasis added): [60]

26. [127]

    Gibbs J (as he then was) said in Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd: [61]

27. [128]

    In the same case, Aickin J said: [62]

28. [129]

    In Gates v City Mutual, the claim failed because the appellant failed to prove that the limited cover which he received was worth less than the premiums he paid. [63] In HTW Valuers, the plaintiff failed because it did not discharge its burden of proving that the price it paid for the property purchased was more than the “fair or real value” of the property it had acquired at the date of purchase. [64] In New Zealand, in Canavan v Wright, it was held where there is no evidence of the value of the benefit received, the claim must fail. [65]

29. [130]

    The cases to which reference has been made authoritatively establish that in a “no transaction” case:

    1. (1)

       a plaintiff bears the onus of proving that it has suffered loss;

    2. (2)

       that involves proving that what it has received is worth less than what it paid for it; and

    3. (3)

       where there is no satisfactory evidence of value of the benefit received, a claim for the difference must fail.

30. [131]

    Reference was made in the course of argument to a number of cases in which it has been said that the defendant bears an onus of showing the value of a benefit to be brought to account against the plaintiff. In Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd, [66] the appellants (defendants) (who were commercial carpet retailers in the USA) misrepresented to the respondents (plaintiffs) (who were commercial carpet suppliers in Australia) that they had entered into contracts with customers for the supply of carpet on the basis of (low) prices quoted to them by an executive of the plaintiffs. In order to honour those quotations, the plaintiffs purchased carpets from a third party, Feltex, at a price which resulted a loss of $895,000, being the difference between the price they paid Feltex, and the price they received from the defendants. Feltex later agreed to pay NZ$400,000 to the plaintiffs for a joint advertising campaign promoting the plaintiffs’ and Feltex products. The question was whether that payment should reduce the plaintiffs’ damages from the $895,000. Burchett and O’Loughlin JJ held that the defendants bore the onus of proving that that payment should be taken into account. The issue was whether a sum received from a settlement with a third party should be taken into account in reduction of the damages which the plaintiffs had incurred upon the resale of the goods at a loss. The prima facie damages were calculated by deducting from the price paid to Feltex the offsetting price received on on-sale to the appellants – that is, the conventional basis of deducting value received from expenditure. The case does not suggest that the plaintiffs did not have to prove the resale price in order to show a loss; it was concerned with whether another receipt should also be taken into account in reduction of that prima facie loss, on which question the defendants bore the onus.

31. [132]

    In Tyco Australia Pty Ltd v Optus Networks Pty Ltd, [67] a defective fire suppression system which had been supplied and installed by Tyco at Optus’ Data Processing Centre at Rosebery caused damage to Optus’ computer systems and created significant risks of malfunction and breakdown which would have had serious consequences for Optus. Immediately after the event, Optus commenced a recovery program involving the acquisition of additional computer equipment which was installed in new Data Processing Centres at Castle Hill and Blacktown, and the migration of computer applications from the contaminated equipment at Rosebery to clean equipment at one of the other centres. After cleaning, the contaminated equipment was installed at either Castle Hill or Blacktown, so that at the end of the program, Optus had functioning Data Centres at Castle Hill and Blacktown, and a clean but empty Data Centre at Rosebery. Optus’ damages included the cost of cleaning Rosebery and the cost of converting its Blacktown property into a first class Data Centre. At the time of the event, Optus was negotiating a Business Recovery Program with Digital, which would have entitled it to the use of computer equipment in a suitable Data Centre as a backup facility in the event of a disaster at Rosebery; subsequently, Optus terminated this arrangement. Tyco unsuccessfully claimed that as Optus was able to dispense with this arrangement and save the expenditure it would have incurred under it because of its decision, flowing from the loss, to convert Blacktown to a first class Data Centre, the savings so made should be deducted from its damages. The question was considered by Handley JA [68] in the context of the principle that steps taken by an injured party which have the effect of mitigating its damage must be brought to account, with reference to The World Beauty. [69] Giles JA referred to “the principle that a benefit obtained as a result of reasonable steps taken to mitigate loss is to be brought to account”, [70] and suggested:

32. [133]

    The case did not involve the measure of damages in a no-transaction case by reference to expenditure less value. It involved the different principle that a benefit derived from steps taken in mitigation must be brought to account.

33. [134]

    In Ruthol Pty Ltd v Tricon (Australia) Pty Ltd, [71] the appellant vendor was liable in damages to the respondent purchaser for delay in completion of a contract for sale of land. The purchaser had been the lessee of the land from the vendor. The vendor was held to be entitled to recover from the purchaser/lessee the rent for the period of delay; however, that amount was entirely offset by the purchaser’s damages for breach of contract – unless those damages were reduced to reflect a benefit to the purchaser through not having to pay the purchase money for the period of delay. Giles JA, with whom Santow JA and Hunt AJA agreed, said:

34. [135]

    It will be apparent that this was not a no-transaction case, did not involve the assessment of damages by reference to expenditure less value, and was founded on the “avoided loss principle”.

35. [136]

    The plaintiff in EK Nominees Pty Ltd v Woolworths Ltd [72] claimed, as damages for misleading and deceptive conduct by Woolworths in not disclosing that it no longer intended to enter into a lease of a site, $924,653 for expenditure incurred on the site in the meantime. Relying on Ted Brown Quarries, Woolworths submitted that in order to substantiate its claim that its expenditure had been wasted, EK Nominees was required to prove the difference between the expenditure it incurred and the residual value or benefit accruing to it from that expenditure, and that if EK Nominees failed to do so, it had not discharged its onus to prove its damages and no damages could be awarded. [73] White J, as his Honour then was, rejected this argument (emphasis added):

36. [137]

    The case applies the “avoided loss” principle that has developed in the context of benefits derived from steps taken in mitigation to wasted expenditure more generally; but in the first sentence of the passage just cited his Honour expressly distinguished it from a no-transaction case in which the measure is the price paid less the value received. That is a distinction which was also recognised by this Court in Bartier Perry Pty Ltd v Paltos: [74]

37. [138]

    These cases reflect the principle that where a defendant alleges that the plaintiff has obtained a benefit from taking steps in mitigation of loss, which ought to be brought to account, the onus of showing the value of the benefit lies on the defendant. EK Nominees and Bartier Perry apply that principle to hold that where a plaintiff claims damages for wasted expenditure, the defendant bears the onus of showing the value of any benefit derived from that expenditure which ought to be brought to account. However, they do not purport to affect the rule that in a no-transaction case it is the plaintiff who bears the onus of establishing that it has suffered loss by showing that what it has received is worth less than what it has paid; indeed they expressly distinguish such cases. Nor could they affect that rule, given the various authoritative pronouncements of the High Court of Australia in and since Potts v Miller to which reference has been made.

38. [139]

    It follows that in this case, Ms Zhang and Mr Mills bore the onus of proving that they had suffered loss, in that the value of what they received under the building contract was less than the $500,000 that they paid. The primary judge did not err in holding that it was necessary for Ms Zhang and Mr Mills to prove the value of what they had acquired, less what was paid.

39. [140]

    It does not follow from the circumstance that Ms Zhang and Mr Mills have subsequently demolished the property and rebuilt that they did not receive value under the contract. As the passage cited above from ADC v White indicates, the benefit to a proprietor under a building contract is not any enhancement in the capital value of the land, but the value of the works. Unless defective, this will typically equate with the costs of the works. The benefit is to be seen in the performance of the service, rather than in the end product which the service may or may not produce. [75] Under a building contract, the proprietor receives labour and materials, and the value of what the proprietor receives is the value of that labour and those materials. Works under a building contract do not necessarily enhance capital value. The initial partial demolition works undertaken by JSW would not have enhanced capital value, but were nonetheless of value to Ms Zhang and Mr Mills as a step towards the end which they desired. So were the renovation works, because they were works that Ms Zhang and Mr Mills then wished to have done, even if they subsequently changed their minds and determined instead to demolish and rebuild completely to a different design. This is well-illustrated by the following passage from the judgment of Byrne J in Brenner v First Artists’ Management Pty Ltd: [76]

40. [141]

    Ms Zhang’s evidence was: [77]

41. [142]

    There is some evidence that the cost to take the works to completion would have been in the order of $1.8 million; that was the amount for which Redwood offered to complete them, though the offer was not accepted. [78]

42. [143]

    The entire existing improvements were demolished before a new house was ultimately built by Metricon, to a different design.

43. [144]

    A plaintiff is entitled only to losses that flow from the transaction induced by the deceit. [79] Changes made to an asset or business or expenditure incurred as a result of a decision of the plaintiff which go beyond remediating the damage caused by the wrong do not sound in damages, notwithstanding that they are economically rational decisions; in such a case the additional losses or expenditure are regarded as the result of the plaintiff’s decision, rather than of the misrepresentation. [80] An example of this is provided by Hellyer Drilling Co v MacDonald Hamilton & Co Pty Ltd, [81] in which the applicant, which carried on business as a drilling contractor, purchased a drilling rig, including a compressor, from the respondent, following discussion of the performance capacities of each of the components of the rig. The applicant claimed damages under s 82 of the Trade Practices Act 1974 (Cth) for contraventions of ss 52 and 53, asserting that the respondent had misrepresented the performance capacities of the equipment. The respondent submitted that any losses suffered by the applicant were attributable to its modification of the equipment, in particular to derating the compressor. Fitzgerald J held that the compressor was faulty and did not accord with the statements made to the respondent upon which the applicant relied, but that the applicant failed to adduce acceptable evidence to support a conclusion that derating the compressor was reasonable, although the cost of modification necessary to remove deficiencies afforded some evidence of diminution of value. His Honour said: [82]

44. [145]

    Counsel for Mr Walsh accepted that – apart from the question of notice to Mr Walsh – Ms Zhang and Mr Mills had acted reasonably in demolishing the property and rebuilding. As I understand it, that was a concession that it was an economically rational decision in the circumstances, once it had become apparent that the cost of completing what they had originally aspired to had become prohibitive. But that does not deny that Ms Zhang and Mr Mills received the benefit of works performed by JSW at a time when they wished to have those works performed. In my judgment, the demolition and rebuilding was the result of the decision of Ms Zhang and Mr Mills – albeit an economically rational one – and not of the contravening conduct. The decision was not a result of the misrepresentation, but of their determination that they no longer wished to proceed with so extensive and ambitious a project and wished to undertake an alternative course which was less expensive. That the renovations as proposed were going to cost much more than the original $500,000 budget was not attributable to any misrepresentation by Mr Walsh, but to the continual evolution and expansion of the project at the request of Ms Zhang and Mr Mills. They decided, for sound economic reasons, to change course. This is not a case in which demolition was a step taken in mitigation of damages. As a response which went beyond what was reasonably necessary to remediate any damage caused by the contravening conduct, it is somewhat analogous to the plaintiff shop-owner who takes the opportunity presented by the need to rectify the defects for which the defendant is responsible to carry out a more extensive refit, for the additional costs of which the defendant is not responsible. [83] That Ms Zhang and Mr Mills chose to take a course which rendered the work done and materials supplied under the contract wasted from their perspective does not mean that the work done and material supplied, when rendered, were not of value. Ms Zhang and Mr Mills received labour and materials under the contract, which were of value to them. What was of value to them at the time when they wanted renovations performed is not rendered valueless by their later decision that it was more economical to demolish and rebuild, rather than to complete the renovations.

45. [146]

    It follows that Ms Zhang and Mr Mills received benefits under the building contract, and will have suffered loss because of the contravening conduct only if the value of those benefits is shown to have been less than the $500,000 paid for them.

46. [147]

    The appellant submits that Ms Zhang and Mr Mills were left with no value, as the renovations were not completed, and could not be completed unless JSW were advanced further payments, which they were not obliged to pay. However, this misconceives the exercise in multiple ways. First, the question is not what value they were “left with”, but what value they received. Secondly, the value they received is not the residual value of the improvements, but the reasonable value of the work and materials supplied. Thirdly, incomplete works are not necessarily without value; and they could have been completed by others if not by JSW.

47. [148]

    The value that the proprietor receives under a building contract is the fair market value of materials supplied and reasonable remuneration for work actually done. In the context of a restitutionary claim, Deane J said in Pavey & Matthews Pty Ltd v Paul: [84]

48. [149]

    Thus in a restitutionary claim where unsolicited but subsequently accepted work is done in improving property in circumstances where remuneration for the unsolicited work calculated at a reasonable rate would far exceed the enhanced value of the property, the proper measure of the benefit may be the capital improvement to the proprietor’s land rather than the cost of performing the work. [85] But that is not this case, as the work was requested, not unsolicited.

49. [150]

    If the considerations which Deane J identified as relevant in a restitutionary claim are assumed to be applicable in valuing the work in a case such as the present, reasonable remuneration might be affected by the existence of the defects proved, amounting to $14,165. However, Ms Zhang and Mr Mills did not prove what the consequence of allowing for such defects was on the overall value of the works – or in other words, what was their residual value after provision for the defects. And the finding that defects were established only to that extent refutes their pleaded contention that the works were so defective as to be worthless.

50. [151]

    The circumstance that JSW was not licensed might well have been relevant to the value of the works. It might well have been open to Ms Zhang and Mr Mills to prove that work done and materials supplied by an unlicensed builder were worth less than ordinary rates, or that it would cost an additional amount to procure insurance for them. But they did not essay to do so.

51. [152]

    It is true that, where the evidence though less than satisfactory shows that there has been some loss, the Court will do its best to make an intelligent assessment of the loss. [86] However, the Court cannot presume that the work and materials were without value, and it was not self-evidently so. [87] It does not follow from the circumstance that JSW was not licensed, and the works thus not insured, that they had no value; the circumstance that, under HBA s 94, an unlicensed builder can recover on a quantum meruit if the Court is satisfied that it is just and equitable is indicative that unlicensed works are not necessarily without value.

52. [153]

    Although Ms Zhang and Mr Mills did not endeavour to prove the value of the work and materials they received, or that it was less than $500,000, there was evidence, in the form of the costing sheets tendered on behalf of Mr Walsh, which tend to show that their value exceeded the $500,000 which had been paid for them (and would still have done so had allowance been made for the defects of $14,165), and thus that no loss was suffered. [88] Although the appellant complains, by Ground 6, that the “costs sheets” should not have been admitted as business records (because their author admitted they were wrong and were subject to overcharging, and as such they could not meet the degree of accuracy that underpins the business records exemption), and in any event do not evidence whether those costs were reasonable, they were admitted at the trial without objection, subject to an argument about Evidence Act 1995 (NSW), s 135, which was never articulated. [89] They were supported by robust cross-checks. [90] But even if that evidence be set entirely to one side, as the appellant contends it ought to have been, that would still leave a void of evidence of the value of the benefit received by Ms Zhang and Mr Mills, and no evidence that it was worth less than the $500,000 paid.

53. [154]

    The result is that Ms Zhang and Mr Mills entirely failed to prove that the value of the labour and material that they received under the contract was less than the $500,000 they have paid JSW. It is unnecessary to this conclusion to draw any adverse inference from the demolition of the property or to treat Ms Zhang and Mr Mills as “spoliators” in that respect. The primary judge was right to hold that they had failed to discharge their onus of proving that they had incurred any loss or damage.

Conclusion

1. [155]

   My conclusions may be summarised as follows:

2. [156]

   The primary judge was right to conclude that the contract was with JSW, and not with Mr Walsh.

3. [157]

   Mr Walsh engaged in misleading and deceptive conduct, in that he misrepresented that the entity that would perform the building works was licensed, and alternatively in that he represented that it would be licensed when building works commenced and did not have reasonable grounds for doing so.

4. [158]

   The misrepresentation induced Ms Zhang to enter into the building contract with JSW. Had she not done so, Mr Mills would not have caused the $500,000 to be debited to his loan account with Mills International and paid to JSW. To the extent that Mr Mills incurred liability in respect of payments made under the building contract to JSW, he did so “because of” the misrepresentation.

5. [159]

   Ms Zhang and Mr Mills’ damages fall to be assessed on a no transaction basis. In the context of a contract for services, as in a contract to acquire an asset or business, the purpose of compensation is to remediate the prejudice or disadvantage the plaintiff has suffered in consequence of altering its position under the inducement of the fraudulent misrepresentations made by the defendant, which necessarily involves bringing to account value received against moneys expended. In a “no transaction” case, a plaintiff bears the onus of proving that it has suffered loss; that involves proving that what it has received is worth less than what it paid for it; and where there is no satisfactory evidence of value of the benefit received, a claim for the difference must fail. The primary judge did not err in holding that it was necessary for Ms Zhang and Mr Mills to prove that the benefits they received were worth less than what they paid.

6. [160]

   In a contract for work and materials, the benefit to the proprietor is the value of the work and materials, not the end product. In this case, that value is unaffected by the decision of Ms Zhang and Mr Mills to demolish the renovations and rebuild. Ms Zhang and Mr Mills entirely failed to prove that the value of the labour and material that they received under the contract was less than the $500,000 they have paid JSW. The primary judge was right to hold that they had failed to discharge their onus of proving that they had incurred any loss or damage.

7. [161]

   It follows that Ms Zhang and Mr Mills’ claim was rightly held to fail. This conclusion renders it unnecessary to consider the remaining grounds in the Notice of Contention, by which the respondent contends that any damages should be reduced for various reasons.

8. [162]

   I propose that the appeal be dismissed. Mr Mills must pay Mr Walsh’s costs of the appeal. Any application for costs by or in respect of Ms Zhang should be made by written submission, accompanied by any evidence, lodged and served within 14 days. If any such application is made, the Court will then make further directions for its conduct and determination.