Re: ROBERT SMITH and MARIE SMITH

And: THE COMMONWEALTH BANK OF AUSTRALIA and MR R. DUNGAN

No. S G46 of 1990

FED No. 80

Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIAN DISTRICT REGISTRY

GENERAL DIVISION

Von Doussa J.(1)

CATCHWORDS

Trade Practices - banker and customer - bank manager introducing one customer to a leasehold hotel business offered for sale by another customer - bank manager acting as go between for the customers - bank manager giving advice to the prospective purchaser on the suitability of the business and on the merits of the proposed purchase - whether sufficient disclosure of conflict of interest - whether the advice was erroneous - whether any reasonable basis for beliefs of the bank manager - whether misleading or deceptive conduct - whether duty of care owed by the respondents - whether the respondents in breach of fiduciary obligations - error by the bank manager as to whether the landlords had agreed to extend the term of the hotel lease - applicants paid too much for the hotel business - measure of damages under s.52 of the Trade Practices Act 1974 - assessment of pecuniary compensation in equity for breach of fiduciary obligations.

HEARING

ADELAIDE

#DATE 11:3:1991

Counsel for the applicants: Mr R.W. Evans

Solicitor for the applicants: Poveys

Counsel for the respondents: Mr N.W. Morcombe

Solicitor for the respondents: Mr N.P. Anderson

ORDER

Judgement for the applicants against the respondents for $102,500.

The question of costs be reserved for further consideration.



NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The applicants ("Mr and Mrs Smith") seek relief for loss and damage which they suffered by purchasing the leasehold business known as the "Weeroona Hotel" at Wallaroo in the State of South Australia for an excessive price. They allege they entered into, and completed, the contract to purchase the hotel business in reliance upon oral advice received from the second respondent ("Mr Dungan"). Mr Dungan at relevant times was the manager of the Kadina branch of the first respondent ("the Bank"). The applicants allege that the advice was misleading and deceptive, was negligent, and was given in breach of fiduciary duty.

2. The applicants prior to the purchase of the hotel business lived in Kadina, which is close to Wallaroo. They had been customers of the Kadina branch of the Bank since 1964. Mr Smith at that time was employed by farmers in the area. From 1967 to 1974 he and Mrs Smith in partnership were sharefarmers. From 1974 onwards Mr Smith was employed by farm machinery distributors. In 1988 he was the area manager for Massey Ferguson, and he also conducted a small rubbish removal business. Mrs Smith was employed at the local school in a secretarial position. They operated a cheque account and savings accounts at the Bank. Their experience in business matters and their understanding of financial matters was limited.

3. For two to three years before 1988 Mr and Mrs Smith had been considering purchasing a business. Mr Dungan moved to Kadina and took up the position of branch manager early in 1987. Mr and Mrs Smith in the past had sought advice from the branch manager on financial matters, and they discussed with Mr Dungan during 1987 the prospects of them buying several different hotels. By January 1988 Mr Dungan understood that Mr and Mrs Smith were seeking to buy a hotel, or hotel licence, it being their intention if they could do so to give up their employment and manage the business. They intended to sell their house property in Kadina to provide part of the finance for the venture, and would look to the Bank to lend them the balance.

4. The leasehold of the Weeroona Hotel was owned by a company ("the vendor") and the hotel business was managed by its two directors. The applicants were informed that the business was for sale, and were introduced to the directors of the vendor, by Mr Dungan in February 1988. The vendor and the two directors were also customers of the Kadina branch of the Bank. The contract for sale and purchase was signed on 3 March 1988, and completion occurred on 20 April 1988.

5. It is the applicants' case that they sought advice from Mr Dungan about the suitability of the purchase of the hotel business on the terms which the vendor had nominated, and that he assumed the role of their adviser in relation to the transaction. In the circumstances it is contended that the respondents come under a common law duty of care to advise with reasonable care, and that a fiduciary relationship arose between the applicants and the respondents. It is contended that the respondents broke their fiduciary duties by acting in conflict of interest, as the Bank had a direct interest in ensuring that a sale of the hotel business occurred at a high price to enable loans to the vendor by the Bank and by the Commonwealth Development Bank to be discharged.

6. The respondents deny liability. They concede that at all times Mr Dungan was acting within the scope of his authority as a bank manager, but they say that their relationship with the applicants was no more than the ordinary relationship of banker and customer. Mr Dungan did not advise generally on the transaction. On the contrary he informed the applicants that as the vendor was also a customer of the Bank, he had a conflict of interest. Paragraph 4 of the defence, in part, pleads:
   
   

"The Respondents say that Dungan informed the first named Applicant that the Applicants should seek accounting advice and provided the first named Applicant with the name of Mr Clarke.



(sic) The Respondents further say that Dungan told the first named Applicant that the purchase was a matter to be decided by him and that Dungan could take no part in the negotiations between the Applicants and the vendors and that the employment of a broker was a financial matter that the Applicants should take into consideration."

Mr Clark is a registered tax agent employed by a firm of chartered accountants. It is common ground that Mr Dungan gave his name to Mr Smith, but the circumstances and timing of the referral to Mr Clark are important issues in the case.

7. The fee simple of the Weeroona Hotel was owned by E.C. and P.A. Parker. The vendor was both the leaseholder and the holder of the relevant liquor licence. What was offered for sale was the balance of the existing lease held by the vendor which, subject to the exercise of rights of renewal, was for a term expiring on 20 July 1992, the transfer of the liquor licence, the goodwill of the hotel, the stock, and a small quantity of plant and equipment. Unusually most of the plant and equipment used in the hotel was owned by the landlords and comprised part of the subject matter of the lease. The contract price to which the applicants agreed was $160,000 plus stock at valuation. The vendor's plant and equipment included in the sale had a value not exceeding $10,000.

8. The value of the interests purchased by the applicants was the subject of considerable evidence. For the applicants evidence was given primarily by John Gregorson Murphy, a licensed valuer and hotel broker. I accept the expertise of Mr Murphy, and generally his evidence. On the footing that the lease would expire, and was unlikely to be renewed, in July 1992 he considered the market value of the interests purchased by the applicants, excluding stock, to be $80,000 at the date of sale to the applicants. He added that the unusually short duration of the balance of the lease would have made the hotel licence very difficult to sell, and this in turn makes the exercise of valuation difficult. Had the balance of the term of the lease been longer, the value would have been greater; if the lease could have been extended by a further two years the value could have increased by about $20,000. The length of the term of the lease available to the purchaser was all important. In valuing this hotel the critical question was whether the landlords would renew the lease on its expiry in July 1992. Mr Murphy assumed renewal to be unlikely as the landlords owned several hotels and on occasions in the past had re-entered at the expiry of a lease. Whilst it was not uncommon in South Australia for "Brewery" hotels with short term leases to be traded at relatively high values on the expectation that the lease would be renewed as a matter of course, this was uncommon with other hotels. With a hotel such as the Weeroona the market value should, in Mr Murphy's opinion, be fixed on the assumption that the lease at its expiry would probably not be renewed, and the goodwill component of the purchase price would have to be amortised over the balance of the term of the lease.

9. Evidence was also led by the applicants from Kym Ivan Brockhouse, and by the respondents from Brian John Lilley, both of whom are chartered accountants. Their evidence touched on the possibility of valuing the goodwill of the hotel by extrapolating revenue and expense forecasts from the known (but incomplete) past trading figures and discounting the likely future cash flow to arrive at a present value. The evidence illustrates the difficulties in this exercise, and the wide range of results possible by varying the criteria upon which the calculations are made. The notable feature of the evidence from the chartered accountants is their agreement that had a competent accountant been asked to advise the applicants as to the financial aspects and wisdom of a purchase of the hotel lease, the accountant would have immediately referred to a hotel valuer and broker (such as Mr Murphy) to obtain a valuation, and that valuation would have been basic to the advice tendered by the accountant. Discounted cash flow forecasts, if they were done at all, would have been very much of secondary importance. Both witnesses were agreed that had the accountant received advice that the vendor's interests in the hotel had a market value of $80,000 or thereabouts, the proper advice would be against purchasing at or about the price of $160,000, whatever the cash forecasts suggested by the past trading figures. The advice would have been to pay about the market value advised by the broker, and no more.

10. The discounted cash flow calculations prepared by Mr Lilley were, in my view, unduly optimistic having regard to the past trading figures available. Those figures, being incomplete, had a significant bias in favour of the best seasonal periods, and in the last period which Mr Lilley has taken as his base, there is a marked improvement in the ratio of gross profit to gross sales over earlier years which could well be explained by the fact that an incomplete year has been adopted. I doubt that Mr Lilley's calculations adequately allow for these matters. But even on his forecasts, taken in isolation from other considerations, the purchase of the hotel business at around $160,000, if the lease were to expire in July 1992, could not be recommended, and would be marginal even if the balance of the term of the lease was extended by two years to July 1994. Whilst there is room to argue over the true value of the interest in the hotel business acquired by the applicants - a topic to which I return later - it is clear, and I so find, that those interests were worth much less than the applicants paid for them in April 1988; and that had they been reasonably and properly advised by an accountant or by a hotel broker, they would not have agreed to buy the hotel business at the contract price.

11. The circumstances surrounding the sale and purchase of the hotel business are to be gleaned from the evidence from the applicants, Mr Clark, Mr Forbes who is the solicitor from Messrs Poveys who prepared the contract documents, and from Mr Dungan, as well as from various documents that came into existence at the time. I accept the evidence of Mr Clark, and of Mr Forbes so far as it goes, but unfortunately his recollection of the events, except where refreshed by contemporaneous notes, was meagre. I do not doubt that the parties themselves endeavoured to give an honest account of what happened, but unfortunately their memories were poor and were shown by other evidence to be unreliable in some respects. Mr Dungan had very little independent recollection of what happened and was prone to reconstruct an exculpatory version of events according to what he now thinks he "would" or "would not" have done. Although it is not possible to accept all of Mr Smith's evidence I have reached the conclusion that his evidence generally is to be preferred to that of Mr Dungan as being the more reliable and accurate. Mrs Smith's memory of the events is very poor. I do not think it is safe to place weight on her recollections such as they are.

12. I make the following findings of fact. In early January 1988 the applicants had discussions with Mr Dungan about the prospect of them acquiring a motel proposed to be constructed in Kadina. Information gathered by the applicants from the builder and his agent were given to Mr Dungan. I accept Mr Smith's evidence that he received handwritten advice about the proposal which went beyond saying merely that the Bank would not finance the applicants into the motel. At about this time the applicants consulted Mr Dungan in his office on information they had obtained about a holiday resort on Kangaroo Island. Mr Dungan suggested they inspect the resort. They did so and then conferred again with Mr Dungan who, I am satisfied, gave them advice which again went beyond whether the Bank would finance the transaction if the applicants proceeded. In late January and early February 1988 the applicants discussed with Mr Dungan information they had obtained about the Kadina Hotel and the Belalie Hotel. In early February 1988, to the knowledge of Mr Dungan, the applicants were in active pursuit of a business.

13. On Saturday, 13 February 1988 Mr Dungan approached the applicants in the street at Kadina. He informed them that he knew of a hotel that was for sale which could be of interest to them, and suggested they come into the Bank office on Monday. The applicants had an appointment to see a hotel broker who was selling the Kadina Hotel on Monday, so an appointment was made for the morning of Tuesday 16 February 1988.

14. On 16 February Mr and Mrs Smith attended Mr Dungan's office. He informed them that the hotel he had mentioned on Saturday was the Weeroona Hotel. He discussed the nature of the hotel business briefly, and showed the applicants a "Form 6" - a statutory schedule of information which the vendor of a business must supply under the Land Agents, Brokers and Valuers Act 1973 (S.A.). The Form 6 gave particulars of the leasehold interest of the vendor, the asking price, and incomplete trading figures for the past three financial years. Mr Dungan said the hotel was being sold privately (i.e. not through an hotel broker). The applicants also related information they had gathered the preceding day about the Kadina Hotel. There was discussion about the two hotels. The Kadina Hotel was a "Brewery Hotel" with an extremely short lease which made it difficult for the Bank to lend against. I think it is probable that Mr Dungan informed the applicants that the Bank could not arrange finance on that hotel. I find that in the course of the discussion Mr Dungan said the Weeroona Hotel would be a good hotel for the applicants, that it would be a better purchase than the Kadina Hotel and it would be within their financial reach. He also said that as the remaining term of the lease expired in July 1992, Mr Smith should approach the landlords to see if they would extend the lease. A longer lease would make the purchase easier to finance. He said that the vendor had obtained an extension of the lease from the landlords when it acquired the hotel. It seems that what was contemplated was an enquiry whether the lease would be extended by a further two year term, as the existing lease had been for two years with two rights of renewal each for two years. Mr Smith says he made a page of notes at this meeting (part of exhibit A3) but I think it is more likely most of his notes were made at a later stage. The meeting was a fairly short one which ended on the understanding that the applicants would inspect the hotel the following weekend. Following this meeting the applicants did not again discuss with Mr Dungan the Kadina Hotel, or any other hotels that had been under consideration by them.

15. Mr Dungan says that at the meeting on 16 February, and early during it, he disclosed his position of conflict to the applicants. It is common ground that he said that the vendor was a customer of the Bank but the evidence is to the effect that the disclosure did not go much beyond this. Mr Smith says Mr Dungan said words to the effect that he had a conflict as the Bank acted for the vendors and he had to be careful what he said. At one point in their discussions Mr Dungan said he could not disclose the amount of the hotel takings which were banked as that was confidential information. Mr Dungan's account of what he said was: "Words to the effect that I am a banker for both people. I am going to have difficulty helping you with anything that might prejudice the other party."

16. The applicants inspected the hotel on Sunday 21 February 1988 and Mr Smith met again with Mr Dungan in his office on Monday 22 February 1988. Mr Smith says there was discussion about the hotel, its trading figures and profitability, its suitability for the applicants, and its value. Some of these topics were discussed again over the next few days. It is common ground that besides the two meetings in Mr Dungan's office on 16 and 22 February 1988 Mr Smith and Mr Dungan had other meetings and spoke together by telephone on several occasions. It is not possible to find with any confidence when each topic was discussed. It is probable that some of them were discussed more than once. However I am satisfied and so find that either on 22 February 1988 or at some time prior to Friday 3 March 1988 when the contract for sale was first executed the following matters took place.

17. The Form 6 trading figures were discussed in detail, and a copy of the document was given to Mr Smith. Mr Dungan said that the net profit could be improved. He said the figures disclosed were tax figures. There were certain "non cash" items included. He said it would be desirable to see the vendor's books (one purpose apparently being to gauge the seasonal fluctuations in takings and the revenue received for different aspects of the business).

18. I am not satisfied that Mr Dungan said that the vendor was taking more than the figures disclosed. I think that Mr Smith has misunderstood what was being said to him about the use of "tax figures" in the Form 6. However I find that Mr Dungan did say something to the effect that he knew what the takings of the hotel were and that the business was a good purchase.

19. At one meeting between Mr Dungan and Mr Smith, probably later than 22 February 1988 but before 3 March 1988 Mr Smith produced five pages of hand written notes and calculations he had made in relation to the Form 6 trading figures. He had attempted to construct an estimate of future trading income and expenditure, and then set against the estimated net profit anticipated outgoings to the Bank to repay borrowings which would be required and notional "wages" to the applicants. The calculations were made on the assumption that the hotel lease had only four years to run. The result produced by the calculations caused Mr Smith to question the profitability of the business with Mr Dungan. I find that Mr Smith said, referring to his calculations, that at the end of the lease period the applicants would have worked for four years for only $50,000. Mr Dungan did not study the figures (if he had he may have noted that Mr Smith's tax treatment was wrong and the after tax result - on the calculations - would be even less). He referred instead to figures attached to the Form 6 and said the directors of the vendor were each drawing $650 per week and it was a good business.

20. In the course of these discussions Mr Smith asked whether the applicants should offer less than $160,000. Mr Dungan replied to the effect "The vendors say that they will not accept less." The possibility of offering less was not further pursued.

21. The discussion over Mr Smith's calculations also led into the topic of the term of the lease. Mr Dungan referred to a court case which could provide a precedent to prevent a landlord ejecting a tenant at the termination of a lease on premises like the hotel, but said the applicants could not be assured of that. Mr Dungan by that stage had suggested Mr Smith speak to the landlords about an extension, but it is likely that the landlords were not spoken to until later.

22. In the course of the discussion over the calculations Mr Smith said that he did not have an accountant and would like to have one as he did not think he was qualified to assess the figures himself. It is common ground the question of the need for an accountant came up before the contract for sale was executed. Mr Smith says Mr Dungan's response was to the effect that an accountant would cost more money, that the applicants were at their financial limits, and that he (Mr Dungan) was able at that stage to advise them on the accountancy side, but he would get the applicants an accountant if the purchase went ahead. Mr Dungan denies that he would have responded as Mr Smith says. I have already set out the pleading in paragraph 4. of the defence. It is established by the evidence of Mr Clark, and supported also by a note made by Mr Smith in his diary at the time, that Mr Dungan did not give Mr Clark's name to Mr Smith until Monday 7 March 1988. Mr Smith says he was telephoned by Mr Dungan that day, and given Mr Clark's name as a person who would advise the applicants about tax and the financial records which they would be required to keep in the business. Mr Clark says this was the topic about which he was consulted by Mr Smith when they first met on 10 March 1988. Earlier that week (i.e. on or after 7 March 1988) Mr Dungan had telephoned Mr Clark, who was known to him, to say the applicants had just purchased the hotel, that he had given them Mr Clark's name, and Mr Clark's firm was to get the tax work. I find that the events concerning the engagement of an accountant occurred as Mr Smith says. I find that in the events which happened Mr Dungan must have realised that Mr Smith was seeking accounting advice on the financial implications of the Form 6 figures and about the wisdom of purchasing the business at the asking price when he raised the question of the need for an accountant.

23. It is convenient at this point to consider the circumstances in which Mr Dungan came to be in possession of information which he had in February 1988 about the Weeroona Hotel. The vendor and its directors had been customers of the Bank at Kadina from the time the hotel was acquired by them in 1986. However Mr Dungan did not meet the directors until he moved to Kadina as the branch manager. It was suggested in the applicants' case that Mr Dungan had a friendship with the directors which went beyond that of banker and customer. That is not established, but in a country town it would not be uncommon for a bank manager to see customers from time to time in a social setting, as Mr Dungan did with all the parties. In 1986 the Commonwealth Development Bank had advanced money to the vendor to purchase the hotel. By January 1988 the balance of that loan stood at approximately $61,500 and the vendor also had an overdraft with the Bank of about $25,000. The accounts of the directors were however substantially in credit as they were accustomed to be. The vendor had not at any stage defaulted on its obligations to the Bank, and Mr Dungan did not doubt the capacity or the intention of the company, and the directors, to discharge their obligations. In January 1988 the directors of the vendor told Mr Dungan - in the course of his duties with the Bank - that they intended selling the hotel. No satisfactory explanation was offered in evidence by Mr Dungan as to why on 16 February 1988 he had a copy of the Form 6, a document prepared by the vendor's accountant Mr Haselgrove on 9 February 1988. However there is a letter on the Bank file dated 10 February 1988 addressed to the manager of the Kadina branch from Mr Haselgrove which enclosed the Form 6 "further to our telephone discussions". Mr Dungan concedes he would not have shown the Form 6 to the applicants unless he had the prior consent of the vendor. The inference clearly is that when Mr Dungan learned of the vendor's desire to sell, he informed the directors of the interest of the applicants and undertook the role of bringing the two parties together. An advantage to the vendor if the sale could be arranged through an introduction by Mr Dungan would be a saving on the commission which would be paid if the sale were put through a hotel broker in the normal way. Mr Dungan conceded this advantage was mentioned by one of the vendor's directors. Mr Dungan assumed the role of introducing the parties and acting as their go between. In the events which followed an hotel broker was not engaged.

24. It is established from documents in Messrs Poveys' file that they were instructed by a facsimile transmission from Mr Haselgrove at 5.14 p.m. on 22 February 1988 to prepare the contract for sale at the price of $160,000 plus stock at valuation. Details were given and the contract was to be subject to finance from the Bank at Kadina. It seems that after the applicants' meeting with Mr Dungan on 22 February, Mr Dungan spoke either directly to Mr Haselgrove or to the vendor's directors indicating the probability that the applicants would go ahead. It could have been no more as the applicants had not decided definitely to go ahead at this stage. The contract for sale was prepared with expedition and forwarded by Messrs Poveys to Mr Haselgrove the next day under cover of a letter which asked if Messrs Poveys were also to act for the purchasers as well as the vendors. There is no evidence that the applicants were aware that instructions were given on 22 February 1988 for the preparation of the contract. The evidence rather suggests that in the days which followed Mr Smith was considering the Form 6 figures, and discussing the topics referred to above with Mr Dungan.

25. At some stage in those discussions, probably on the same occasion as the need for an accountant was discussed, Mr Smith asked whether the transaction should go through a broker. Mr Dungan said that if a broker were employed this would add to the cost and the vendor would put up the asking price to cover the broker's fee. Mr Dungan said a broker was unnecessary and he could arrange for the paper work to be prepared. Either then or on another occasion he said Messrs Poveys could handle all the paper work if the applicants agreed to their acting for both sides which would be cheaper than if the applicants instructed other solicitors. The applicants gave their consent to this course to Mr Dungan.

26. At some stage before 3 March 1988 the applicants must have indicated to Mr Dungan their preparedness to purchase the hotel at the asking price as all parties to the proposed sale met in Mr Dungan's office on 3 March 1988 and signed the contract for sale.

27. I find that in making their decision to purchase the hotel business the applicants relied on the statements made by Mr Dungan which amounted to advice in favour of the transaction. Had the advice been that the hotel business was not worth in the order of $160,000 plus stock I am satisfied that the applicants would not have agreed to purchase the hotel unless the purchase price was reduced to a figure which Mr Dungan would recommend.

28. That advice in favour of the purchase of the hotel was given by Mr Dungan prior to 3 March 1988 receives further support from Mr Smith's evidence about a conversation which they had later. In a conversation with one of the landlords shortly after 11 March 1988 Mr Smith was informed that the vendor had purchased the hotel business in 1986, with an effective 6 year lease, for $95,000. In a note book Mr Smith prepared a calculation which divided $95,000 by 6 and multiplied the result by 4. He took the calculation to Mr Dungan and asked whether the price to be paid by the applicants should not have been $63,333.00. I accept Mr Smith's evidence that Mr Dungan said that is not how you work out the price, that Mr Smith was worrying too much, and that neither he nor the Bank would lend on an overpriced business.

29. In accordance with the requirements of the Land Agents, Brokers and Valuers Act 1973 (S.A.), the vendor is obliged to serve on the purchaser of an interest in land a "Form 18" which sets out prescribed particulars including a statement of "cooling-off" rights which exist by virtue of the Act. The purchaser may by written notice notify the vendor of the purchaser's intention not to be bound by the contract for sale. The notice if duly given has the effect of rescinding the contract. The notice must be given, where the Form 18 is served before the making of the contract, within two clear business days after the day on which the contract is made, and where the Form 18 is served after the making of the contract but more than 10 days before the date for completion, within two clear business days after the form is served.

30. It is clear from notes on Messrs Poveys' file that although the vendor by its directors, and the purchasers, signed or initialled each page of the contract for sale and an annexed Form 18 on 3 March 1988, the Form 18 had not been completed on behalf of the vendor at that stage. The notes suggest that it was not completed until after 8 March.

31. At some stage the text of the contract was amended as it was initially drawn to provide for the purchasers to take over various leases of chattels which were in fact owned by the vendor and were to be the subject of sale. It is far from clear on the evidence when these amendments were made, but as it is clear that the amendments were made in Messrs Poveys' office I think the probability is that the amendments were typed in Messrs Poveys' office on Friday 11 March 1988 when Mr Smith attended on Mr Forbes. This conclusion is supported by a note in Mr Smith's diary of 11 March 1988 "Weeroona Hotel Rob and Bruce signing changes on contract to purchase" (Rob and Bruce are the vendor's directors). On this sequence of events the contract for sale in its amended form was not made until 11 March 1988, and the cooling off period had not expired at the time of Mr Smith's attendance on Mr Clark on 10 March or on Mr Forbes on 11 March.

32. The amended contract and the completed Form 18 were returned in final form to Messrs Poveys not later than Tuesday 15 March 1988 when a copy was lodged with the Licensed Premises Division together with an application to transfer the liquor licence. Completion under the contract for sale occurred as soon as approval for the transfer of the liquor licence to the purchasers was granted.

33. The respondents contend that whatever the role played by Mr Dungan up to 3 March 1988, and whatever advice he may have given to the applicants before the contract for sale in its initial form was signed, the applicants received advice from Mr Clark and from Mr Forbes at a time when the cooling off period was still running. With the benefit of the advice from these people the applicants, by taking no steps to avoid the contract, affirmed it. The respondents contend that intervention of advice from Mr Clark and Mr Forbes broke the causal link between the conduct of Mr Dungan and loss or damage suffered by the applicants as a result of proceeding with the purchase of the hotel business. I do not accept this contention. The applicants, through Mr Smith, had been advised against consulting an accountant on the merits of the transaction before signing the contract for sale by Mr Dungan. He had advised them to the effect that the transaction was favourable to them, and they had decided to proceed on the strength of that advice. There was no reason for the applicants to question the financial virtue of the transaction with either Mr Clark or Mr Forbes, and Mr Dungan did not expect them to be getting advice on the merits of the transaction from either person. I have already found that Mr Smith's visit to Mr Clark was for a quite different purpose. There is no evidence that Mr Clark in fact gave any advice to Mr Smith on the merits of the transaction. Mr Clark was told the contract was already made.

34. The range of topics discussed between Mr Smith and Mr Forbes was more extensive, but again there is no evidence that Mr Smith sought advice on the merits of the transaction, or that any advice was given to him which ran counter to what Mr Dungan had said. Had he sought such advice Mr Forbes would have found himself in an obvious position of conflict where he should not continue to act for both sides to the transaction. Mr Forbes did not draw Mr Smith's attention to the applicants' rights at that stage to "cool off" or advise him that the applicants should consider doing so. During their meeting Mr Smith signed the application for the transfer of the liquor licence and, on my findings above, there must have been some discussion about the amendments to the contract for sale. Mr Smith also handed Mr Forbes a copy of the hotel lease which he got from someone, perhaps the vendor. Concern was expressed by one of them about the short duration of the balance of the lease, and Mr Smith said he was to ring the landlord about an extension of the term. The position in relation to the duration of the lease had not changed from the preceding week when the applicants decided to proceed with the transaction.

35. On 11 March 1988 Mr Forbes and Mr Clark spoke by telephone. Mr Clark says he rang Mr Forbes as a matter of courtesy to inform him that he would be handling the tax work for the applicants. In the course of their discussion he said that it would be desirable to get an extension of the lease, but that was his own observation and not something which he had said to Mr Smith, or was saying on Mr Smith's instruction. Mr Forbes telephoned Mr Dungan, and Mr Dungan said the Bank would finance the deal even if the lease were only for two years with one right of renewal for two years (i.e. to expire in July 1992). These telephone conversations may have occurred after Mr Smith had left Mr Forbes' office. The evidence about these conversations lends no support to the respondents' contention that the applicants received advice on the merits of the transaction from either Mr Clark or Mr Forbes.

36. There was considerable debate during the trial as to the possible significance of words written into clause 27.2 in biro in the hand of Mr Forbes on one only of the three signed copies of the contract for sale, which words had later been struck out. The parties had initialled this alteration but no witness at trial could offer any explanation as to when the writing or the striking out occurred, or when the initialling took place. The typed text of clause 27 relevantly reads:
    
    

"27. This Agreement is subject to and conditional upon:- 27.2 The landlord of the premises consenting to the transfer of the existing lease of the premises from the Vendor to the Purchaser on or before the settlement date;..."

37. The handwritten words inserted after "date" and before the semi-colon read "and agreeing to grant a further 2 year right of renewal to the Purchaser". It was part of the respondents' case that Mr Smith spoke to the landlord, probably before 3 March 1988, and again around 11 March 1988, and from what the landlord said concluded that the landlord had agreed to extend the lease by two years. On about 14 March 1988 Mr Smith received a letter (Exhibit A5) dated 11 March 1988 from one of the landlords which read:
    
    

"Re-Lease Weeroona Hotel



I Eric Charles Parker, Lessor confirm that I will consider granting a further 2 year lease at the expirey (sic) date of the current lease of the Weeroona Hotel. Subject to satisfactory negotiations between the Lessor and Lessee, under the same conditions that apply to the existing lease.



Signed; E.C. Parker"

The respondents contend that Mr Smith treated this letter as confirmation of the landlords' agreement to extend the lease for a further two years from July 1992 and proceeded with the contract for sale under this mistaken belief - a mistake of his own making. The respondents contend that the appearance of the words in Mr Forbes handwriting indicates that he had given advice to the applicants about the need to obtain a further two year term, and that the striking out of the words indicates that when the contract was finally executed Mr Smith believed - on information received independently of Mr Dungan - that the lease had been extended. A difficulty with this hypothesis is that when the contract was finally executed (by the parties initialling a series of amendments on 11 March 1988) Mr Smith was still awaiting receipt of the letter dated 11 March 1988, and on the other evidence it is clear that on 10 and 11 March 1988 Mr Smith knew the lease ran only to July 1992.

38. Speculation as to when and why these handwritten amendments were made to one of the copies of the contract for sale produces no likely explanation. I am however satisfied that Mr Smith at no time believed that the landlords had agreed to extend the lease. He says that when he spoke to Mr Parker before 3 March 1988 Mr Parker said only that he would send a letter saying he would consider extending the lease, i.e. a letter in terms of the letter dated 11 March 1988. The question of the extension of the lease was raised in discussion between Mr Smith and Mr Dungan on 3 March 1988. It is clear that Mr Smith had reported that a letter was to come, but as it had not arrived Mr Dungan telephoned Mr Parker. Mr Dungan's reference to this communication in the Application for Advance dated Monday 7 March 1988, an internal bank document which he prepared, reads:
    
    

"Existing lease has 4 half years to run. Landlord has indicated to me he will renegotiate out a further two years though it is unlikely this will occur prior to settlement - accordingly repayments have been set within existing lease."

This notation suggests that it was Mr Dungan, not Mr Smith, who was under a misapprehension that the landlord had agreed to extend the lease.

39. In his evidence Mr Dungan said that when he prepared the application, although loan repayments and forecasts were predicated on the existing lease to July 1992, he thought there was only a 1 in 100 chance that the lease would not be renewed. It was on the assumption that the lease would be renewed for at least a further two years that he wrote that the value of the leasehold estate, for security purposes, was $150,000. (The value of the business would have included the plant and equipment of approximately $10,000 as well). I think it is probable that Mr Dungan was shown the landlords' letter of 11 March 1988 before completion, but whether this was so or not, Mr Dungan did not check before completion whether the landlords had definitely agreed to extend the lease.

40. There was no reasonable basis then or at any time before completion for Mr Dungan to proceed on the footing that the purchaser of the hotel business would have secure tenure beyond July 1992. His mistaken belief to the contrary could well explain why he gave the advice which I have found that he did to the applicants. Unfortunately the advice was wrong. In the absence of a reasonable basis for the belief that the landlords had agreed to extend the lease beyond July 1992 there was no reasonable basis for believing that the value of the leasehold was in the order of $150,000, or anything like that sum. Mr Dungan's calculations in the application of likely net profit from the hotel, hardly justify his statements to the applicants that the hotel business would be a good hotel for them, and that it would be within their financial reach, even on the basis that they could recoup their capital outlay to buy the goodwill of the business over 6 years. On his calculations the statements are clearly unjustified if the capital had to be recouped over 4 years. The application for an advance sought approval to a scheme whereby, after a short period of bridging finance whilst the applicants' house was sold, the applicants would put up $95,000 and the Bank would advance the balance of the moneys to pay the purchase price, and for stock and initial running expenses. The application was approved by Branch Lending Administration on 10 March 1988 subject to a satisfactory valuation from the Bank's Valuers' Department. The valuation was a routine internal requirement of the Bank for its own purposes to check the sufficiency of the proposed security. Mr Dungan instructed one of the Bank's valuers, Mr Mudge, on 14 March 1988. Mr Mudge's valuation became available on about 30 March 1988. Unfortunately Mr Mudge was instructed that the landlords had agreed to extend the lease to 6 years, and he conducted his valuation on this basis. His valuation concluded:
    
    

GOING CONCERN VALUATION OF THE LEASEHOLD OF THE WEEROONA HOTEL Plant (as per contract) 9,000



Stock 18,000



Leasehold 138,000



165,000

The valuation of the leasehold was below the purchase price, but the valuation offered the Bank sufficient security to cover its proposed loan and the transaction proceeded. The applicants were not informed of the valuation.

41. It was not until about March 1989 when the applicants were discussing their trading figures with Mr Clark that they sought advice from anyone other than Mr Dungan about the value of the hotel business. Mr Clark sought advice from Mr Murphy. Thereafter the applicants sought legal advice, which led to the present proceedings.

42. It was suggested at trial by counsel for the applicants that Mr Dungan's failure to insist that the transaction be handled by a hotel broker was a cause of the applicants' predicament. I reject this. What prompted Mr Smith's enquiry was his belief that hotels were normally sold through brokers. That is so, but brokers customarily act for the vendor, and had the vendor instructed a broker, whatever duties the broker owned to advice on value would have been owed to the vendor, not to the purchasers. The engagement of a broker by the vendor - which would have met the applicants' present criticisms about Mr Dungan's conduct - would not have exposed them to the advice which they contend they should have got.

43. I have already held that the applicants misunderstood what was said to them by Mr Dungan about the Form 6 containing taxation figures. It was initially part of the applicants' case that Mr Dungan knew from the bankings of the vendor that the takings did exceed the takings shown in the Form 6. Mr Dungan denied this, and banking records do not necessarily establish the contrary. Then the applicants' case shifted to contend that the takings, as evidenced by the bankings, were less. Instead of alleging that the Form 6 understated the revenue, an overstatement was alleged, the suggestion being first that the lower takings were a cause of concern to Mr Dungan which must have heightened his interest in seeing the hotel business sold for a high price; and secondly, that as the turnover was lower than represented this contributed to the applicants' losses. These contentions I also reject. There is nothing evident on the banking transactions of the vendor and its directors which supports the contention either that the Form 6 figures were wrong, or that Mr Dungan had any reason to be concerned that the vendor might default on its obligations to the Bank. It is to be noted that in paragraph 14(vi) of the statement of claim it is alleged that the Form 6 accurately reflected the takings. There is no evidence to indicate that the turnover and expenses of the hotel prior to the sale were otherwise than represented in the Form 6. The gross takings and expenses of the applicants in the months which followed were less favourable than the results shown in the Form 6, but as a matter of probability this was due to factors other than falsity in the Form 6, such as borrowing costs and stamp duty, a change in proprietors, the onset of the winter season, a loss of custom from football followers, and a new wine store in the district. The business which the applicants acquired was in accordance with the vendor's representations. They got what they contracted for - the problem is that they paid too much for the business.

44. The relationship of banker and customer does not necessarily give rise to a fiduciary relationship even in the case of longstanding customers: James and Ors v. Australia and New Zealand Banking Group Ltd and Others (1985-1986) 64 ALR 347 at 391. A bank will have its own interests to service. Where a customer approaches a bank to provide finance for a transaction, in obtaining particulars of the proposed transaction and in assessing the implications of the transaction, the bank will commonly do so entirely for its own ends. In such cases the bank will not be subject to the duties of a fiduciary, nor will it owe a duty of care to the borrower to exercise an advisory function in relation to the merits of the transaction. However there will be cases where a bank goes further and assumes the role of an adviser. Where it does so, depending on all the circumstances of the case, the bank may become a fiduciary to the customer (Woods v. Martins Bank Ltd and Anor (1959) 1 QB 55; T.G. Youdan, "Equity Fiduciaries and Trusts" (1989) pp 49-55) and also come under a general duty of care to exercise reasonable care and skill in the provision of advice (Chiarabaglio and Anor v. Westpac Banking Corporation (1989) ATPR 40-971 at 50,623-50,625; Box v. Midland Bank Ltd (1979) 2 Lloyds Rep 391). The obligation resting on a bank in a particular case depends on the facts and is not to be treated as if it were a matter of pure law: Woods v. Martins Bank Ltd and Anor at 70.

45. In the present case I consider the Bank and Mr Dungan became fiduciaries to the applicants by reason firstly of the role assumed by Mr Dungan as adviser to the applicants on the merits of the transaction, and secondly of the dual role adopted by Mr Dungan in acting for both vendor and purchaser in the transaction: see P.D. Finn "Fiduciary Obligations" (1977) para.581. It does not matter that the dual role was a self appointed one carrying no reward from either party: Walden Properties Ltd v. Beaver Properties Pty Ltd and Anor. (1973) 2 NSWLR 815 at 833. The applicants' case was that the fiduciary obligations were broken by the respondents acting for the applicants in conflict with the Bank's own interests as lenders to the vendor. It is true that the Bank had a theoretical interest in the price received by the vendor as it, and the Commonwealth Development Bank, held security over the hotel business, but there was never any reason to doubt that the loan would be repaid even if the sale price were much less than the vendor's asking price. In my opinion the more apparent and very real conflict which arose was one between the interests of the vendor and those of the applicants. The limited disclosure made by Mr Dungan of his conflict of interest, that he was banker for both parties, failed dismally as a disclosure sufficient to properly inform the applicants of the role which he had assumed in the transaction for the vendor. His role was not simply that of banker. It is no part of a banker's usual role to become his client's representative in offering the client's business for sale.

46. Even where a person who undertakes the role of acting for both vendor and purchaser in a sale transaction makes full disclosure to each party of that role, events may arise which make it impossible for that person to properly discharge his duties. As Bray C.J. observed in Jennings v. Zilahi-Kiss (1972) 2 SASR 493 at 511-512 "The man who undertakes to serve two masters may easily find himself in a position where he must be false to one and possibly to both". Even if Mr Dungan had disclosed to the applicants that he was acting for the vendor in presenting the Form 6 and in giving particulars of the hotel business he would still have been placed in an impossible position when the applicants sought his advice on the merits of the transaction, and enquired whether they should offer less than the vendor's asking price. He could give no answer on these matters without running into conflict with his duty to at least one side in the negotiations. In the circumstances of this case Mr Dungan ought never to have advised the applicants at all on the merits of the transaction: cf Woods v. Martins Bank Ltd and Anor at 73. He should have explained to them the need to get advice on the questions raised by them from someone who was independent. When Mr Smith asked if he should seek accounting advice, he should have been told to do so. In my opinion the applicants have established a breach of fiduciary duty by the respondents. It is of no moment that the respondents have acted without fraudulent intent, or even innocently: Nocton v. Lord Ashburton (1914) AC 932 at 969.

47. In my opinion the respondents also came under a duty of care to exercise reasonable care and skill in fulfilling the advisory function which Mr Dungan assumed. In relation to earlier business proposals which the applicants had taken to Mr Dungan, his advice to the applicants had gone beyond advising them whether or not the Bank would make finance available. The applicants were relying on Mr Dungan for guidance and advice on the merits of the proposals. In relation to the Weeroona Hotel this must have been apparent to Mr Dungan when Mr Smith made repeated contact with him to discuss the Form 6 figures, to show him calculations based on those figures, to question different aspects of the hotel business, and to raise the topic of seeking advice from an accountant. It must have been clear to Mr Dungan that the applicants were seeking his advice as they trusted in his superior knowledge, and that they would rely on his answers. These enquiries were on a serious business matter. I find that in answering the enquiries made of him in the way he did, Mr Dungan intended the applicants to act on those answers. It was reasonably foreseeable that if the advice or information given by Mr Dungan turned out to be incorrect, the applicants would be likely to suffer loss. These findings fulfil the conditions on which a duty of care is imposed on someone who gives information: San Sebastian Pty Ltd and Anor v. The Minister Administering The Environmental Planning and Assessment Act 1979 and Anor (1986) 162 CLR 340 at 355, 372. The advice which he gave about the suitability of the hotel business for the applicants and about the desirability of obtaining advice from an accountant was wrong. It was negligent advice.

48. The applicants also allege a contravention of s.52 of the Trade Practices Act 1974. The statements made by Mr Dungan about the merits of the transaction were expressions of opinion, and predictions. They were statements expressing his belief. In Global Sportsman Pty Ltd and Anor v. Mirror Newspapers Ltd and Anor (1984) 55 ALR 25 at 31 a Full Court of this Court said:
    
    

"A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s 52(1) of the Act."

There was no reasonable basis for the statements about the suitability of the hotel business for the applicants. It is admitted that the Bank is a corporation for the purposes of the Trade Practices Act and at material times was engaging in trade and commerce. The Bank, through Mr Dungan, engaged in conduct that was misleading or deceptive. Mr Dungan was knowingly concerned in that conduct within the meaning of s.75B(1)(c) of the Trade Practices Act: Yorke and Anor v. Lucas (1985) 158 CLR 661.

49. I turn now to the question of damages. Counsel for the applicants contends, upon the premise that but for the advice given by Mr Dungan which the applicants relied on, they would not have proceeded with the transaction, and that the proper measure of damages should include three components:
    
    a) The difference between the contract price of $160,000, and $60,000
    
    

being the market value of the business, excluding stock, at 6 June



1989. This was the date of the valuation given by Mr Murphy. It is contended that the value of the business at this day should be taken as until then the applicants were not aware that they had paid too much.

b) The sum of $59,465 being the difference, after adjustment for

income tax, between what the applicants would have received had each of them continued in the employment which they held immediately before purchasing the hotel business, and the net profits received from the hotel up to 30 June 1990. See the calculation made by Mr Brockhouse in exhibit 18.

c) Compound interest on components (a) and (b).

50. It is convenient to first consider the measure of damages to be allowed under s.82 of the Trade Practices Act in respect of the contravention of s.52. Sub-section 82(1) provides:
    
    

"82.(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

In Munchies Management Pty Ltd and Anor v. Belperio and Anor (1988) 84 ALR 700 at 713 a Full Court of this Court said:

"It has generally been assumed that because 'loss or damage' is used to identify both the gist of the action under s 82 and the measure of what is recoverable, the prejudice with which s 82 is concerned is analogous to the class of injuries to financial or other economic interests with which the so-called economic torts are concerned. Hence, it has been said that, in general and at least where the contravention in question has been of s 52, the measure of damages in deceit will provide an appropriate analogy: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; 63 ALR 600. But there may be an engagement in misleading or deceptive conduct where there was a failure to speak out in circumstances where this was called for: Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489-90; 68 ALR 77; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 at 95. In such cases, a better analogy in respect of pecuniary remedy may be found in the treatment of the errant fiduciary who inflicts loss by failure to disclose to the plaintiff what he was bound to reveal: Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (16 FCR at 420-1)."

The method of assessment of damages in tort for deceit involves an affirmation of the contract of purchase. In the instant case the analogy is appropriate as the applicants have remained in the business. Indeed as the business has shown signs of improvement in more recent times they have no intention of quitting it. The usual measure of such damages would be the amount by which the price paid for the business exceeded its true value at the time of purchase. The assessment of the true value at that time would take into account in the appropriate case the chance of losses being sustained in carrying on the business: Munchies Management Pty Ltd v. Belperio at 706-708; Henjo Investments Pty Ltd and Ors v. Collins Marrackville Pty Ltd (1989) 89 ALR 539 at 552-553 per Lee J. Whilst this is the general rule of practice by which damages are assessed, particular cases may arise where in addition consequential losses may be awarded. The damages will include consequential losses where those losses flow directly from the fraudulent inducement: Gould and Anor v. Vaggelas and Ors (1985) 157 CLR 215 at 221, 242, 254-255, 267. Gibbs C.J. at 221-222 said:

"There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business."

51. Gould v. Vaggelas and Doyle v. Olby (Ironmongers) Ltd and Ors (1969) 2 QB 158 are cases where it was held that consequential losses flowed directly from the fraudulent inducement. In each of those cases the misrepresentations related to matters fundamental to the profitable operation of the business. The misrepresentations concerned the level of income and of expenses. In Henjo, supra, consequential losses were also awarded. The consequential losses there flowed from a misrepresentation as to the number of seats approved by the local authority in the operation of a restaurant business. In each of these cases the misrepresentation related to matters fundamental to the operation of the business.

52. Here the misleading and deceptive conduct which has been established did not concern the operation or characteristics of the business, save indirectly insofar as the statements that the hotel business would be suitable for the applicants, and that it would be within their financial reach, and the implication that $160,000 was a reasonable price, go to the value of the business. It is probable that these statements were the product of the mistaken belief of Mr Dungan that the lease was secure for at least six years. I have already commented that the net profits achieved by the applicants in running the hotel were probably due to factors unrelated to representations made about the operation of the business as disclosed in the Form 6. "Losses" due to those unrelated matters would not be recoverable in tort for deceit: cf Brown v. Jam Factory Pty Ltd (1981) 53 FLR 340 at 353-354.

53. The applicants' case has been presented on the footing that the hotel lease will expire in July 1992. On that assumption the hotel business was not suitable for the applicants and was not within their financial reach as the likely profits for the business represented by the Form 6 trading figures could not provide the applicants both remuneration for their time as managers and recoupment of the payment for goodwill amortised over the balance of the lease. The loss and damage sustained by the applicants arises because they paid too much.

54. The claim for the difference between the actual net profit of the hotel business as conducted by the applicants, and their earnings had they remained in their earlier employment cannot be sustained for another reason besides the fact that the net profits of the business were due to factors unrelated to error in statements made by Mr Dungan. It is quite clear that the applicants had by 1988 decided to purchase a business which they would operate together, and to give up their employment and to sell their house property as soon as they did so. It is pure speculation what their position may have been had they not purchased the Weeroona Hotel. The only matter that emerges as a probability is that they would not have continued indefinitely in their employment.

55. Further, even if I am wrong in finding that this is not a case where consequential trading losses should be allowed as damages, the applicants realised by June 1989, if not much earlier, that they had paid too much for the hotel business and that it was not suitable for them for that reason. They could have endeavoured to sell the hotel business then and sue for their losses. However they chose not to do so. Subject to allowing a reasonable time to sell the business once they realised the true position - and there is no evidence as to how long it may have taken to effect a sale - the applicants could not recover consequential losses thereafter.

56. In my opinion if the appropriate analogy for guidance in this case is the measure of damages in deceit, the applicants' damages under s.82 of the Trade Practices Act would be the difference between the true value of the hotel business in April 1988 and what the applicants paid for it, together with interest to compensate them for the cost of borrowing that sum at commercial rates from the Bank.

57. The applicants have also made out their claim in negligence. The measure of damages in tort may differ according to whether the tort is deceit or negligence. In State of South Australia v. Johnson (1982) 42 ALR 161 at 169-170 the High Court said:
    
    

"The principle which underlines the award of damages in tort is, generally speaking, that of restitutio in integrum. The object is to restore the plaintiff to the position in which he would have been placed if the wrongful act had not been committed. The measure will vary as between deceit and negligence. In deceit, the plaintiff recovers the difference between the amount paid and the value of the property acquired, the object being to place him in a position equivalent to that which he would have occupied had the transaction not taken place. The defendant being guilty of a deliberate wrong, the damages will include the whole loss directly flowing from the fraudulent inducement because, as Lord Denning MR declared in Doyle v Olby (Ironmongers) Ltd (1969) 2 QB 158 at 167, 'it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen'. It is otherwise in cases of negligent misrepresentation. Although the wrongdoer is liable for the damage which flows directly from his wrongful act or omission, the plaintiff's damages are limited to that which was reasonably foreseeable. This limitation applies in accordance with the general principle in negligence."

58. In Gould v. Vaggelas, Gibbs C.J. at 223-224 expressed the view that whether damages in deceit are limited to damage which is reasonably foreseeable remains an open question. But whatever the answer to this question, it is clear that the measure of damages in negligence will not exceed the damages which would be allowed in deceit. The applicants do not improve their position by seeking damages in negligence for foreseeable losses.

59. It remains to consider the applicants' contention that they are entitled to a greater sum by way of compensation for breach of fiduciary duty, and that in the circumstances of this case the pecuniary remedy available under s.82 should be equivalent to the remedy obtainable in equity. Compensation in equity may be awarded for breach of a fiduciary obligation: see for example Nocton v. Lord Ashburton (1914) AC 932, McKenzie v. McDonald (1927) VLR 134, and Farrington v. Rowe, McBride and Partners (1985) 1 NZLR 83 at 93, 99. In exercise of the equitable compensation jurisdiction a defendant may be ordered "to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury": Nocton v. Lord Ashburton at 952. The intent of an order for compensation is that which a court strives to achieve in awarding damages in an action for deceit. "In deceit, the plaintiff recovers the difference between the amount paid and the value of the property acquired, the object being to place him in a position equivalent to that which he would have occupied had the transaction not taken place": South Australia v. Johnson, at 170. It became necessary in Nocton v. Lord Ashburton for the House of Lords to consider the equitable remedy of compensation as a finding of actual fraud was negated. Had the finding of fraud made in the Court of Appeal been upheld the order for an inquiry as to damages in deceit made in that Court would have fully compensated the plaintiff. As it was, the House of Lords upheld the order of the Court of Appeal although on the ground that the plaintiff was entitled to compensation in equity. Viscount Haldane L.C. at 958 said:
    
    

"The proper mode of giving relief might have been to order Mr Nocton to restore to the mortgage security what he had procured to be taken out of it, in addition to making good the amount of interest lost by what he did. The measure of damages may not always be the same as in an action of deceit or for negligence. But in this case the question is of form only, and is not one which it is necessary to decide."

60. The obligation of a defaulting fiduciary is essentially one of effecting a restitution. As Street J. (as he then was) observed in Re Dawson; Union Fidelity Trustee Co. Ltd v. Perpetual Trustee Co. Ltd (1966) 2 NSWR 211 at 216:
    
    

"...the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract."

The obligation to make restitution is not necessarily limited by common law concepts of foreseeability and remoteness. But in the present case where the default of the fiduciary caused an immediate pecuniary loss quantified by the difference between the price paid and the real value of the business I am unable to discern any difference in the principles which will be applied on the one hand in quantifying damages in the tort of deceit and on the other hand in quantifying compensation in equity. On either approach, in this case the pecuniary award (be it assessed as damages or compensation) will be the difference between the true value of the hotel business at April 1988 and $160,000 together with interest. As to inclusion of interest as part of the order for compensation see also Holmes v. Walton (1961) WAR 96. Even on an assessment of damages in negligence interest should now be included as a component: Hungerfords and Ors v. Walker and Ors (1988) 84 ALR 119.

61. The true value of the hotel business in April 1988 is a matter of contention between the parties. Although the applicants' case was presented on the footing that the lease will not be renewed in July 1992, and Mr Murphy expressed his opinion as to the market value of the business on the basis that renewal was unlikely, the respondents contend that the applicants have failed to prove this fact. It is contended that whilst at April 1988 the enforceable lease, assuming options to renew were exercised, would expire in July 1992, the landlords had not indicated that they would not renew the lease thereafter, and later events have not changed the situation. If the lease is renewed for a substantial period the applicants will suffer no loss. It might even turn out that they acquired the goodwill for less than its true value. It is contended that the applicants have not proved a loss.

62. Whilst the true value of the business is to be assessed at April 1988, it is proper to have regard to events which have happened subsequently which throw light on what that true value was: Potts v. Miller (1940) 64 CLR 282 at 289-290, 299. If it had been established by evidence at trial that the landlord would not under any circumstances renew the lease that would confirm that the assumption on which Mr Murphy valued the business was correct, and I would find that the true value at April 1988 was $80,000 plus stock. On the other hand, had evidence established that the lease would certainly be renewed that would show the assumption to be wrong, and the true value of the goodwill as at April 1988 would be higher than Mr Murphy opined.

63. The onus rests on the applicants to prove the extent of their loss, and in a case like the present, to prove the true value of the business: Potts v. Miller at 300. Surprisingly no evidence was led by the applicants from the landlords. In cross-examination of Mr Smith a letter from the landlords' hotel broker to the applicants dated 21 June 1990 was proved. That letter relevantly reads:
    
    

"We refer to your question regarding a renewal of the lease at the end of the (sic) this current renewal, and advise that after discussions with Mr Parker he is of the opinion that if he re-leases the property at the end of the term now being granted he would not re-lease the furniture and plant but sell it to the tenant. He has indicated that he would give serious consideration to any reasonable proposal which you may have along those lines and looks forward to hearing from you."

Mr Smith said the applicants have not followed up the question of renewal with the landlords as they have been awaiting the outcome of this litigation. Had the applicants explored the term on which the lease might be renewed the Court could proceed on a sure foundation to assess what loss the applicants have suffered. The letter contemplates that a renewal of the lease may be granted but on terms which are significantly different to the present lease. In particular the applicants would be required to purchase plant and equipment which could have a value of as much as $40,000-60,000. The evidence of Mr Murphy on the value of the plant and equipment is little better than an informed rough estimate of the value as at April 1988, and allowance would have to be made for depreciation in the meantime. The sale of the plant and equipment to the applicants could be expected to significantly reduce the rental but as the rent presently is modest as a percentage of turnover the savings may not offset the value of the money required to be outlaid. Even if the lease were renewed for a long term, the applicants would probably suffer some loss. Notwithstanding that the burden of proof as a matter of law rests on the applicants I do not think that the unsatisfactory state of the evidence means that the applicants have failed to prove any loss at all. Mr Murphy's evidence establishes that the market value, upon the assumption that the lease was unlikely to be renewed, was much less than the applicants paid for it. The uncertain factor existing then which could lead to a finding that the true value differed from Mr Murphy's opinion was the chance of renewal of the lease beyond July 1992. The likelihood of renewal of the lease is almost as clouded now as it was in 1988, although the chances of renewal are, I think, to be assessed as slightly higher now than they would have appeared in 1988. The expiry date is much closer and the landlords are now expressing a willingness "to give serious consideration to any reasonable proposition". As a matter of probability on the evidence I find that the chance of renewal of the lease was higher in 1988 than Mr Murphy assumed for the purpose of his valuation, and is slightly higher now than it was then. But there is still no certainty that the lease will be renewed. The assessment of the chance of renewal can be no more than a broad exercise of judgment. If later events show that the chance has been assessed too favourably to the respondents that will be a consequence of the unsatisfactory state of the evidence. I assess the true value of the hotel business at April 1988 at $100,000 plus stock. The damages, or pecuniary compensation, necessary to restore the applicants to the position they would have been in but for the wrong of the respondents is $60,000 plus interest. Compound interest rates in line with those actually charged to the appellants by the Bank should be adopted. Utilising the interest factor supplied by the respondents to enable this calculation to be made, I assess the interest component, in a round figure, at $42,500 to the date of judgment.

64. There will be judgment for the applicants against the respondents for $102,500.