Read CPD 7 - Claims for Consequential Pecuniary Loss by Richard Douglas S.C. and John Faulkner text version

CLAIMS FOR CONSEQUENTIAL PECUNIARY LOSS R J Douglas SC J Faulkner [18 April 2007]

Introduction....................................................................................................................... 1 Character of consequential pecuniary loss ..................................................................... 2 Contract ............................................................................................................................. 3 Tort................................................................................................................................... 18 (a) (b) Negligence ........................................................................................................ 19 Intentional Torts ............................................................................................. 22

Misleading and Deceptive Conduct (TPA) ................................................................... 33 Equity ............................................................................................................................... 38 The Lesson ....................................................................................................................... 43

Introduction

1.

In this paper we consider recoverability of consequential pecuniary losses (which losses it is assumed have been proved as causally attributable to the breach, contravention or legal right in question) and the tests for such recovery in different causes of action.

2.

We canvass the principles pertaining to limits of recoverable damages, mainly in a commercial context, in the nature of lost profit, wasted expenditure or necessary expenditure caused by the conduct of a wrongdoer.

3.

In the context of a raft of causes of action we consider the touchstone concept of remoteness of damage.

Character of consequential pecuniary loss 4. Pecuniary loss, whether due to a breach of contract or physical injury to person or property, includes a loss of profits, costs of repair or replacement and out of pocket expense. 5. The distinction between pecuniary and non-pecuniary loss is most readily exemplified by general damages for pain and suffering and loss of amenity of life in a personal injuries case. Such damages, whilst compensated in monetary terms, are not pecuniary in character because they do not compensate for the loss of any financial benefit. One may contrast a loss of earnings or earning capacity, or out of pocket expense suffered as a consequence of an impairment caused by physical injury. 6. 7. Consequential loss must be contrasted with normal loss. Normal (or direct or usual) loss is that category of loss that every plaintiff would most likely suffer in the same situation. 8. For example physical damage caused to a motor vehicle in a car accident due to the negligent conduct of another is normal damage. That normal (or direct or usual) damage will ordinarily be measured by the cost of repairing the vehicle, but sometimes by its pre-damage value if repair is prohibitive. Obviously this damage, will differ in amount depending on the extent of the damage and the type of vehicle, but, as a general proposition, it is normal or the usual damage.

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9.

In contract normal damage will be the direct net cost to the injured party of a breach of contract. Again, in the event of physical damage to property, the normal loss will be the cost of repairing that damage.

10. 11.

Consequential loss is any recoverable loss which transcends normal loss. In the above example of the damaged vehicle, if it was a taxi that was damaged the plaintiff may be able to recover his loss of net profit whilst the taxi was off the road in addition to its repair. Such a loss of profit is a consequential loss.

12.

So too the costs incurred by a solicitor for net purchase cost (but not periodic rent) of a substitute vehicle to replace his Jaguar used for income earning in his practice, the vehicle negligently damaged in a motor vehicle accident: see Zappulla v Perkins.1

13.

Consequential loss is not necessarily synonymous with damages under the second limb of the rule in Hadley v Baxendale2. Obviously, in the vehicle damage example already treated, if the loss of earnings whilst the taxi was off the road were being considered in a contractual sense, they would fall within the first limb of Hadley v Baxendale but nonetheless are consequential losses peculiar to the special circumstances of a particular plaintiff.

Contract 14. A contract is an instrument governing the commercial relationships between the parties thereto. As such a breach of a contract generally manifests in a pecuniary loss to the innocent party to breach.

1 2

[1978] QdR 92 (FC) Discussed in more detail below

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15.

The normal loss is usually the market value of the promise not performed. It could, alternatively, be described as the market value of the benefit promised under a particular contract but not received.

16.

That basic pecuniary loss, in a contractual context, will be the value of the property, money or services that have not been conveyed, paid or provided, less (in the sense of defrayed by) any corresponding costs that would have been incurred the injured party procuring the benefit of same.

17.

A claim for lost profit is a consequential loss. In Commonwealth of Australia v Amann Aviation Pty Ltd3the defendant Commonwealth refused to accept the contracted surveillance services to be provided by the plaintiff Amann. The losses sought by Amann were the recovery of its wasted expenditure4 in performing its contract less the residual value of the aircraft. It is common, and tactically advantageous in certain circumstances to pursue the loss by couching it in terms of wasted expenditure rather than a loss of profit.5

18.

As the High Court remarked in Amann, contracts are presumed to be such that if performed the contracting party will recover its expenditure.6 In a case such as Amann, it would be extremely difficult, if not impossible, to prove, the net profit (or loss) that would have been achieved had the contract been performed, it was permissible it was found to frame the case as one for wasted expenditure.

19.

The result, there, was that the evidentiary onus fell on the defendant to prove that the contract would not have been profitable and that the expenditure would either not have been recovered or only partly recovered rendering the plaintiff's damage either nominal or reduced to the extent that the wasted expenditure would have been lost. The reason for this shift in onus was stated by Brennan J as justified

3 4

(1991) 174 CLR 64 Ibid at 85 per Mason CJ and Dawson J where there Honours considered wasted expenditure a subset of, rather than an alternative to, a loss of profit claim 5 ibid at 85 6 ibid at 86 and per Brennan J at 105

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because "the breach of the contract itself makes it impossible to undertake an assessment on the ordinary basis."7 20. In McRae v Commonwealth Disposals Commission8 the plaintiff salvage company recovered as damages the amount of the agreed purchase price of the foundering tanker warranted as located on the Jourmand Reef and its wasted expenditure in reliance on defendant's promise that there was an oil tanker in that particular location. 21. The plaintiff, there, recovered notwithstanding that it could never have shown that a profit would have eventuated because the ship did not exist. The court found the plaintiff was entitled to recover (inter alia) its wasted expenditure, leaving the onus on the Commonwealth to prove that if the hypothetical ship did exist that the plaintiff would not have recovered its expenditure; such an onus proved an unsurmountable burden. 22. Other archetypal consequential pecuniary losses that may be recovered by a plaintiff would include the costs of defending legal proceedings, the legal costs in defending those proceedings and any damages awarded against them for which it is liable as a consequence of any breach of contract by a defendant. This often arises in claims for breach of professional duty (eg, solicitors' breach of retainer). But such damages must not be too remote. 23. In Oxley County Council v MacDonald; Brambles Holdings Ltd v MacDonald 9 Brambles contracted to deliver to the Council certain electrical equipment. Brambles breached an implied contractual term to load the equipment onto the truck for delivery with reasonable care. As a consequence of this breach of contract an employee of the Council suffered personal injury and the Council was

7 8

Ibid at 106 (1951) 84 CLR 377 9 [1999] NSWCA 126

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found partially liable to the injured worker and Brambles was also found partially liable. 24. The New South Wales Court of Appeal found that the Council's liability to the worker was a matter for which it was entitled to recover from Brambles as consequential loss for breach of contract. 25. The Court, however, refused to allow Brambles to recover any of its liability to the injured worker from the Council due to a breach of an implied term by the Council to unload the electrical equipment with due care. The Court considered that such a loss was too remote on the basis that it was too uncertain to have been within the reasonable contemplation of the parties:10

68 Accordingly s5 (1) of the 1946 Act does not affect Oxley' right to recover s damages for breach of contract. The amount of the damages would be measured by the damages and the costs Oxley was ordered to pay to the plaintiff and its own costs of the proceedings brought by the plaintiff against it, less any amount paid by Brambles on account of those damages and costs. 69 Brambles' claim in contract is not so clear. It was obliged to carry the goods to the Oxley depot and there deliver them on its truck. Oxley had the obligation of unloading. No doubt it was contractually obliged to do so so as not to damage Brambles' property or injure Brambles' employee or contractor. But the damages for breach of the contract which Brambles now claims to recover, being the amount of its liability to the plaintiff, were, in my opinion, too remote. I say this for the following reasons. The degree of probability that Oxley' breach of the s contract would cause Brambles to suffer loss as the result of a claim against it by an employee of Oxley for injuries suffered was such as to make the loss wholly unpredictable; see generally Greig & Davis, The Law of Contract, at 1376. In my opinion, damages for the loss which Oxley suffered as a result of the injury to its employee and its liability as employer to that employee could fairly and reasonably be considered to arise according to the usual course of things from Brambles' breach of its contractual obligation to load and secure the goods with reasonable care and skill. However, I do not think that the possibility of Brambles' liability to Oxley' employee flowing from the consequence of Oxley' s s failure to unload the goods with reasonable care and skill could fairly and reasonably be considered to arise according to the usual course of things; compare Florida Hotels v Mayo at 598. Nor do I think such damages could

the argument by Brambles was in fact a novel but unsuccessful attempt to avoid the consequences of the decision in Astley v Austrust Pty Ltd (1999) 197 CLR 1 which informed the manner in which the Council farmed its claim against Brambles

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reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as not unlikely to occur; compare Hadley v Baxendale (1854) 9 Ex 341 at 355; 156 ER 145 at 151; Koufos v C Czarnikow Limited [1969] 1 AC 350 at 388; Alexander v Cambridge Credit Corporation (1987) 9 NSWLR 310 at 363 and following per McHugh JA. 70 In Wenham v Ella (1972) 127 CLR 454 at 466-7 Walsh J said: "Lord Wright [in Monarch Steamship Co Limited v Karlshamns Oljefabriker (A/B) [1949] AC 196] went on to say that remoteness `is in truth a question of fact' [1949] AC at 223 and he cited a passage from the speech of Lord Haldane in an earlier case, to the effect that the apparent discrepancies found in the statements of general principles governing damages are due mainly to the varying nature of the particular questions which have arisen in different cases and to the need to mould the expression of the general principles, in applying them to the circumstances of particular cases. Lord du Parcq expressed agreement with what Lord Wright had said and added [1949] AC at 232: `Circumstances are so infinitely various that, however carefully general rules are framed, they must be construed with some liberality, and not too rigidly applied. It was necessary to lay down principles lest juries should be persuaded to do injustice by imposing an undue, or perhaps an inadequate, liability on a defendant. The court must be careful, however, to see that the principles laid down are never so narrowly interpreted as to prevent a jury, or judge of fact, from doing justice between the parties. So to use them would be to misuse them.' " 71 In my opinion, justice between the parties requires that the loss suffered by Brambles in consequence of Oxley' breach of contract be treated as too remote. s Accordingly, the claim by Brambles against Oxley in contract must fail. (our emphasis)

26.

In Florida Hotels Pty Ltd v Mayo 11, the Hotel owner (the plaintiff) settled a personal injury claim against it by a person working on the construction of a swimming pool at the hotel. The hotel had engaged the defendant architects to construct the pool and it contained an express term that they would supervise the pool's construction. The High Court determined that the architects had breached its contract by failing to adequately supervise construction of the swimming pool and allowed the hotel to recover, as consequential pecuniary loss, its damages being the settlement with the injured worker.

11

(1965) 113 CLR 588

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27.

Having identified briefly the type of case that may involve a claim for consequential pecuniary loss, and how such a case may be framed, it is necessary to review the principles upon which damages in contract are recovered and the limitations on such recovery. This requires a consideration of the basic rule for recovery of damages in contract and then a review of the limiting factors, generally pooled under the rubric "principles of remoteness".

28.

The general rule for the awarding of contractual damages at common law was stated by Parke B in Robinson v Harman12 as follows: The rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. 13

29.

In Amann Mason CJ and Dawson J said: The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence damages for breach of contract are often described as `expectation damages'.14

30.

The standard formulation for determining the recoverability of damages for breach of contract is contained in Hadley v Baxendale15as follows: Where two parties have made a contract which one of them has broken, the damages which the other party ought to recover in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have

(1848) 18 LJ Ex 202, 1 Exch 850 at 855, 154 ER 363 this statement has stood the test of time see - Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12 at [29]; Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 65 at 80 per Mason J and Dawson J; at 98 per Brennan J; Wenham v Ella (1972) 127 CLR 454 at 471 14 p. 80 15 156 ER 145 at p. 151

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been in the contemplation of both parties at the time they made the contract, as the probable result of the breach. (our emphasis) 31. The Hadley v Baxendale formula was explained by Asquith LJ in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd16: For this purpose, knowledge `possessed' is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the `ordinary course of things' and consequently what loss is liable to result from a breach of contract in that ordinary course. That is the subject matter of the fist rule in Hadley v Baxendale. But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possess of special circumstances outside the `ordinary course of things' of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the `second rule' so as to make additional loss also recoverable. (our emphasis) 32. The criticism of Asquith LJ's statement which ensued may arise from a concern with his nomenclature rather than the substance of his Lordship's formulation. The major difficulty seems to be in his description of the level of knowledge required in a contract case to be that which at the time was "reasonably foreseeable as liable to result from the breach." 33. That criticism is most apparent in Lord Reid's decision which was followed generally by the majority in Czarnikow Ltd v Koufos17. In any event the following is his Lordship's formulation of the rule: The crucial question is whether on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss

16 17

[1949] ALL ER 997; see also Sydney Jacobs, Damages in a Commercial Context p. 55 [1969] 1 A.C. 350 at 385 (the latter formulation expressly adopted by the High Court in Wenham v Ella (1972) 127 CLR 454 at 471-2 and other cases)

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flowed naturally from the breach or that loss of that kind should have been within his contemplation. (our emphasis)

34.

Lord Reid opined that not every type of damage, even if reasonably foreseeable at the time the contract was made, was necessarily considered as "arising naturally" or in "the usual course of things". His Lordship observed18:A type of damage which was plainly foreseeable as a real possibility but which would only occur in a small minority of cases cannot be regarded as arising in the usual course of things or be supposed to have been in the contemplation of the parties.

35. 36.

Lord Reid's formulation has been preferred and applied in Australia.19 McHugh JA (as McHugh J then was), when a member of the New South Wales Court of Appeal, afforded a helpful analysis of the distinction between the contractual formulation of reasonable contemplation and that in negligence of reasonable foreseeability. In Alexander v Cambridge Credit Corp Ltd20, his Honour considered that the test of "reasonable contemplation" was a stricter test. His Honour opined:21 In later cases (eg H Parsons (Livestock) Ltd V Uttley, Ingham & Co Ltd [1978] QB 791 at 807), there has been a tendency to play down the distinction between reasonable foreseeability and reasonable contemplation as semantic only. However, I think that the difference is a real one which results in a significant narrowing of liability. The word contemplation seems to be used in Koufos in the sense of `thoughtful consideration' or perhaps `having in view the future'. It emphasises that, if the parties had

18 19

ibid at p. 389; see also McGregor on Damages discussion at [6-150 to 6-152] Wenham v Ella (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd (1986) 61 ALJR 80 at 86; see also Amann Aviation (supra) per Brennan J at 99 ­ although contrast Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 which seemed to adopt the reasonably foreseeable formulation 20 (1987) 9 NSWLR 310 at 365; see also Stuart Pty Limited v Condor Commercial Insulation Pty Limited [2006] NSWCA 334 which is considered below 21 at 365

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thought about the matter, they would really have considered that the result had at least a `serious possibility' of occurring. The actual decision in Hadley v Baxendale bears out the proposition that the contemplation test limits the area of potential liability. For it is surely reasonably foreseeable as a serious possibility that a millshaft was required for the operation of the mill and that a launderer and dyer might have special contracts with a lucrative profit margin. Yet the losses to the plaintiffs arising from those circumstances were not recoverable.22 (our emphasis) 37. So:· the defendant in Victoria Laundry, in breach of a contract to deliver a boiler to a working laundry, may be liable for the loss of use of that boiler in the day-to-day operations of the laundry or for hiring costs of a replacement boiler.23 But the defendant was not, without actual knowledge, liable for the consequential loss of profit on a particularly lucrative contract with a third party due to the late delivery. · in Hadley v Baxendale the defendant was not liable for the consequential pecuniary loss of profits sustained due to a delay in delivering the broken millshaft to the boilermaker to be used as a model for a new one, they not being aware, nor ought they have been, that the shaft was actually required to operate the mill. 38. These principles have recently been considered by the New South Wales Court of Appeal in Stuart Pty Limited v Commercial Insulation Pty Limited.24 That concerned a contract between the appellant contractor and the Commonwealth to replace insulation in properties as part of the Sydney Aircraft Noise Insulation Program. The contractor sub-contracted some of this work out to the respondent subcontractor. Each property sub-contracted to the subcontractor was the subject of a separate contract.

22 23

This statement by McHugh J was also referred to in Oxley County Council (supra) at [69] Which may be a form of consequential loss but is still within the first limb of Hadley v Baxendale 24 [2006] NSWCA 334

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39.

The subcontractor performed its obligations under the sub-contract in respect one property negligently. It did not box the down lights. The insulation ignited as a consequence and the property caught on fire. As a result of the fire caused by the subcontractor's negligence, the contractor lost the benefit of further like allocated work with the obviously disquieted Commonwealth. It sued the subcontractor for its consequential pecuniary loss of profits (or potential profits). The trial judge dismissed the appellant's claimed loss of profits on the basis that they were too remote.

40.

Beazley JA considered the authorities in detail. Her Honour rehearsed and adopted the pertinent observation by Mason P in Castle Constructions Pty Limited v Fekala Pty Limited25: (T)he law is conscious of the injustice of visiting the party in breach with the consequences of a loss that was not within the party's reasonable contemplation when contracting.

41.

Following on from this, Beazley JA observed that:(T)he reason for this is because, were it otherwise, the defaulting party may have lost the opportunity to make an informed decision as to whether or not to have accepted the risk. ... so as to decide whether to accept the risk would include having sufficient information to assess whether insurance cover for risks concerned ought to be obtained.26 (our emphasis)

42.

Ultimately Beazley JA (with whom Ipp JA and Tobias JA generally agreed) concluded that the loss of the potential further allocation of work was not a loss within the reasonable contemplation of the parties as a likely result of the respondent's breach of contract causing a fire.

25 26

[2006] NSWCA 133 at [39] Stuart at [52]

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43.

The court contrasted the position where the contractor may have been liable to the owner for the loss and damage,27 or the replacement of the subcontractor with another subcontractor, causing delays and some loss. However, the consequential loss claimed, namely the allocation of work under the head contract with the Commonwealth, was not such a loss.

44.

Further, Beazley JA found the subcontractor would have been unlikely to have accepted such a risk, it being disproportionate with the contractual benefit it stood to receive. In the circumstances the appellant failed to establish an entitlement to the consequential pecuniary loss claimed on the basis that it was too remote.

45.

Finally, Beazley JA concluded that, as the insulation material being a fire retardant, the catastrophic result was "not likely to occur"28 in the sense considered in Koufos.

46.

Thus limitation of recovery of consequential pecuniary losses for a breach of contract, as opposed to a claim in negligence fits within Lord Steyn's sliding scale in Smith New Court Securities v Scrimgeur Vickers 29, which discussed in more detail below.

47.

Historically, on the footing of a decision of the House of Lords in Liesbosch, Dredger v Edison, SS30, it was held that a loss did not fall to be aggravated, and thereby amplifying the damages, by the claimants inability to mitigate that loss due to that claimant's impecuniosity.

48.

The comment of Luntz31 is that:-

27 28

The property damage or the normal loss in this case Stuart at [102] 29 [1997] AC 254 30 [1933] AC 449 31 Assessment of Damages for Personal Injury and Death (Fourth Edition ­ 2002) para 2.7.9

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This decision has been repeatedly distinguished in property damage cases and, though it was applied in a few personal injury cases, the High Court has since so narrowed its application in this area that it is likely to have little scope.

49.

Luntz cites as its authority for the lastmentioned approach, inter alia, the decision of the High Court in Fox v Wood32, where Gibbs CJ, with whom Aicken and Wilson JJ agreed, allowed, in a personal injury damages claim, tax deducted from a worker's gross receipts received by way of statutory workers' compensation, the gross amount charged on the damages recovered, since it has increased the loss:-33:The receipt of the compensation was a natural and foreseeable consequence of the injuries, and the repayment is not, as was suggested in argument, a special loss due to the financial embarrassment of the respondent, within the principle of Liesbosch, Dredger v Edison. The act of the respondent in accepting the payments was not a superseding course of the respondent's loss on repayment: see Chapman v Hearse.

50.

Another example of the application of this approach is Watts v Turpin.34 There the plaintiff was entitled to recover loss of profits from cultivation of commercial avocado trees because he could not afford to replant them (they being lost for want of watering) until he was awarded damages.35

51.

The incurring of an expense, consequent upon liquidated moneys or unliquidated damages being wrongfully withheld from the party incurring such expense, has been addressed in a number of the authorities.

32 33

(1981) 148 CLR 438 At 441-442 34 (1999) 21 WAR 402 (Full Court of the Supreme Court of Western Australia) 35 See at 418-420, the award for economic loss being made notwithstanding that the loss of the trees occurred following the accident because a neighbour did not water the trees

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52.

In England, the Court of Appeal addressed the issue in Wadsworth v Lydall36, allowing of recovery of interest charged by a third party in respect of a borrowing necessitated by the defendant's breach. Wadsworth was a contract case.

53.

A similar principle was recognised in Australia, in the High Court, in Hungerfords v Walker.37 There the claim was pursued in contract and negligence. The issue in Hungerfords was whether, in a professional negligence (breach and, concomitantly, of breach of retainer) claim against certain accountants concerning excessive income tax paid, the plaintiff was entitled to recover interest which it commercially incurred on the funds of which it was deprived by reason of the wrongful payments.

54.

The High Court determined in the affirmative. Mason CJ and Wilson made some useful comments in relation to recoverability not just in respect of such lastmentioned opportunity costs, but also expense incurred, by dint of being wrongfully deprived of moneys, whether liquidated or unliquidated damages38:The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money. Opportunity cost, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money. But, even in the case of incurred expense, it is at least strongly arguable that a plaintiff' loss or damage represented by this expense is s not too remote on the score of foreseeability. In truth, it is an expense which represents loss or damage flowing naturally and directly from the defendant' s

36 37

[1981] 1 WLR 598 (1990) 171 CLR 125 38 At 143-145

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wrongful act or omission, particularly when that act or omission results in the withholding of money from a plaintiff or causes the plaintiff to pay away money. The truism that there is no cause of action for the late payment of damages is sometimes proffered as a justification for not compensating loss by way of incurred expense and opportunity cost for money paid away or withheld. True, a defendant commits no tort by contesting the plaintiff' claim for damages or for s that matter by contesting the plaintiff' claim to recover a debt. But the problem s is not concerned with finding a cause of action; rather it is a problem of defining the limits of recoverable damages for an established cause of action. The argument for denying the recovery of incurred expense and opportunity cost in the sense already discussed rests on the more limited proposition that a plaintiff is not entitled to compensation for late payment of damages otherwise than in the form of interest in accordance with the relevant statutory provisions. As a matter of logic and principle, as well as commercial reality, this proposition has little to commend it in the circumstances of the present case. Incurred expense and opportunity cost arising from paying money away or the withholding of moneys due to the defendant' wrong are something more than the s late payment of damages. They are pecuniary losses suffered by the plaintiff as a result of the defendant' wrong and therefore constitute an integral element of the s loss for which he is entitled to be compensated by an award of damages. Fitzgerald J. made this very point in Sanrod v. Dainford (1984) 54 ALR 179 when he said (at p 191): "(W)hatever may be the position otherwise in respect of damages under the (Trade Practices) Act, I can myself perceive no difficulty in accepting that, when money is paid in consequence of misleading conduct, the loss suffered by that conduct includes not only the money paid but also the cost of borrowing that money or the loss from its investment, as the case may be: cf Frith v. Gold Coast Mineral Springs Pty. Ltd. (1983) ATPR 40-339; affirmed (1983) ATPR 40-394; 47 ALR 547. Interest awarded as a component of damages in such circumstances is not for loss of the use of the money awarded as damages, but for loss of the use of the money paid over in consequence of the misleading conduct and is directly related to the misleading conduct." Notwithstanding that these remarks were made in relation to the payment of money in consequence of misleading conduct, the underlying principle is one of wider application. The point is that the loss of the use of the money paid away is so directly related to the wrong that the loss cannot be classified simply as due to the late payment of damages. See also General Securities Ltd. v. Don Ingram Ltd. (1940) SCR 670 (the plaintiff recovered a business loss incurred as a borrower in consequence of the lender' breach of obligation to s advance the money) and Pelletier v. Pe Ben Industries Company Ltd. (1976) 6 WWR 640 (damages awarded on a contract to purchase a truck in consequence of the defendant' wrongful dismissal of the plaintiff from his employment). s These cases proceed on the proposition that the cost of borrowing money to avoid a loss caused by a breach of contract is recoverable and not too remote. (our emphasis)

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55.

In Ladgen v O'Connor39, the House of Lords recently dealt with a claim in negligence when the plaintiff's car was damaged and required repair. The plaintiff was unemployed and could not afford to pay for a replacement vehicle whilst such repair ensued. That plaintiff entered a written agreement with a credit hire company whereby the company provided a hire car at no cost to him by way of provision of a 26 week credit facility, and allowed for that company to recover its charges from the negligent driver's insurers and an insurance policy to provide payment in the event of non-recovery within that period.

56.

The fees involved in those services were reflected at a higher rate for the car hire than equivalent spot hire rate charged by traditional hire car firms. The defendant there admitted liability but disputed the claim for damages, including the sum of £659 in respect of the credit hire company's charges.

57.

The plaintiff succeeded all the way through to and including the decision of the House of Lords.

58.

Lord Nicholls of Birkenhead observed40:A financially well placed plaintiff will be able to hire a replacement car, and in the fullness of time obtain reimbursement from the negligent driver's insurers, but an impecunious plaintiff will not. This cannot be an acceptable result. The conclusion I have stated does not mean that, if impecunious, an innocent motorist can recover damages beyond losses for which he is properly

39 40

[2004] 1 AC 1067 At paras [6], [7]

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compensatable. What it means is that in measuring the loss suffered by an impecunious plaintiff by loss of use of his own car the law will recognise that, because of his lack of financial means, the timeous provision of a replacement vehicle for him costs more than it does in the case of his more affluent neighbour. In the case of the impecunious neighbour someone has to provide him with credit, by incurring the expense of providing a car without receiving immediate payment, and then incur the administrative expense involved in pursuing the defendants' insurers for payment. (our emphasis)

59.

Lord Hope of Craighead, in like fashion, observed41:It is not necessary for us to say that the Liesbosch was wrongly decided. But it is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him: talem qualem, as Lord Collins said in the Clippen's Oil case [907] AC 291, 303. The rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages.

(our emphasis) 60. Perhaps this provides scope, in some instances, following Campbell's Cash and Carry Pty Ltd v Fostif Pty Ltd42, for a claimant to recover, as consequential loss, the funds borrowed or garnered, and other expenses incurred, in litigation funding for dispute. Tort 61. Torts causing damage to person, property and the tort of deceit and some forms of conversion are also the subject of the dichotomy between normal and consequential damage. Generally the normal measure of pecuniary loss in tort in so far as it relates to goods constitutes the market value of the goods destroyed or converted. Consequential pecuniary losses recoverable in tort concern analogous

41 42

At [61] (2006) 80 ALJR 1441

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situations with those regarding breach of contract. Such consequential losses may include wasted expenditure, loss of profits and medical expenses. 62. Whilst the types or categories recoverable, theoretically, in contract and tort cover much the same ground, the test for actual recovery, or limitations on recovery in the sense of remoteness, differ. It is in this sense that it is worth considering some of the different torts and the application of these basic principles to some relevant examples. This is important because the manner in which principles of remoteness dictate recoverability of damages is, in large measure, determined by the nature of the tort relied upon for protection by a particular claimant.

(a) Negligence

63.

Damages in negligence, whether for consequential pecuniary loss, or otherwise, are recoverable if they are of a type and nature reasonably foreseeable by the defendant at the time of the defendant's wrongful act.43

64.

Formulating a test for limiting liability for consequential pecuniary loss in negligence based on principles of remoteness has proven difficult and the logical evolution of the foreseeability test limited by considerations such as proximity and policy remains a difficult area in principle and practice. This is particularly so where issues of pure economic loss is concerned.44

65.

The examples discussed above in relation to consequential pecuniary loss in contract above are often analogous to situations where such loss will be recoverable in negligence. For example if a defendant negligently damages a plaintiff's goods the normal measure in tort will be the replacement cost of the goods. But it is reasonably foreseeable that such damage may also result in a loss

43

Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No1)) [1961] AC 388 ­ this decision jettisoned the previous `direct consequence' test articulated in Polemis and Furness Withy & Co [1921] 3 KB 560 (CA) 44 see for example Bryan v Maloney (1995) 182 CLR 609; Perre v Apand (1999) 198 CLR 180

19

of profit or a loss of use of the goods and that consequential pecuniary loss will be recoverable. 66. It may also be that the loss recoverable will sometimes extend to even an unusually lucrative contract because the loss of profit on a contract with a third party may well be reasonably foreseeable although not within the "reasonable contemplation". In this sense the loss of a very lucrative dying contract in a situation analogous to Victoria Laundry, as considered by McHugh J A in Alexander v Cambridge Credit Corp Ltd, may have been reasonably foreseeable and therefore recoverable in a negligence claim but not in contract. 67. Further cases, for example, involving negligent advice inducing for example a party to enter into a disadvantageous bargain may give rise to dual losses in the sense agitated by the plaintiff in HTW Valuers v Astonland Pty Ltd. 45 68. That approach would involve the ordinary damages for negligent misrepresentation, namely the difference between what was paid for the property in reliance on the representation and its real value assessed at the date of acquisition. It would then take into account matters which may be considered consequential pecuniary losses including the decrease in the value of that property from that date until the date of trial, subject to such losses be attributable to the initial negligence, together with other holding costs and interest on funds borrowed to purchase the property, trading losses and interest on those trading losses. 69. Expenses incurred as a consequence of the negligent conduct are consequential losses that may be recoverable by a plaintiff. For example, hiring costs associated with a replacement machine that has been negligently damaged, whilst repairs are being effected will be recoverable.

45

(2004) 217 CLR 640 referred to at 668-669 although this approach was not considered by the High Court in the circumstances

20

70.

The test in negligence is less demanding than in contract. Generally speaking, if the nature and type of damage is a reasonably foreseeable consequence of a proven breach of duty it will be recoverable. So, if consequential pecuniary loss is a foreseeable consequence of a proven breach recovery is not limited to formulations such as "likely consequence" or a "serious possibility" or even `reasonably probable"46, consequential loss may recoverable even if there was only a relatively small risk of it being sustained.47

71.

In a personal injury context, losses to injured persons or dependants consequent upon attempted and successful suicide following injury have been characterised, in numerous instances, as not being too remote: see Lisle v Brice48 and the cases referred to therein.

72.

This lastmentioned outcome is fact sensitive. Absent psychiatric injury ensuing, any suicide induced outcome is likely to be found too remote.

73.

In RTA v AMP49 the deceased husband of the plaintiff widow suffered physical and then psychiatric injury in a negligently caused work accident in 1993. He recovered from the latter. Later, in 1998, he applied to the court for a limitation extension. After being cross-examined he felt he was being characterised as a "fool and a liar", became depressed and committed suicide.

74.

There it was found the loss to the estate and the dependants (inter alia) was too remote. Heydon JA (as Heydon J then was) observed:

146 The Deceased' suicide in response to the proceedings was "quite unlikely s according to the natural and ordinary course of things". It was a fortuitous event, because no reasonable person would have thought of it as being within "the range

Jaensch v Coffey (1984) 155 CLR 549 at 561-3 Shirt v Wyong Shire Council [1978] 1 NSWLR 631 at 642 ­ cf Hughes v Lord Advocate [1963] AC 837 at 858 48 [2002] 2 QdR 168 (CA) 49 [2001] NSWCA 186

47

46

21

of possible consequences" after the 27 February 1993 accident for a person of normal susceptibility. The same is true of the Deceased' depression after 24 s April 1998. 147 Counsel for the Plaintiff knew of no instance in his experience when a party to litigation had committed suicide in consequence of the manner in which that party was treated by the legal representatives of an opposing party. The law reports reveal no instance of a plaintiff in civil litigation doing this. Nor do they reveal any case in which a plaintiff in civil litigation developed a psychiatric illness by reason of the behaviour of the opposing legal representatives. Since these events happened in this case, they are obviously capable of having been foreseen, in the sense that they were not beyond the realms of all possibility in relation to a person of the Deceased' susceptibility. But they were not s reasonably foreseeable for a person of normal susceptibility. They were reactions to the hearing, but irrational reactions. They were reactions beyond what a person in the Defendant' position on 27 February 1993, applying criteria of reason to a s person of normal fortitude, would contemplate. In ordinary experience people of normal fortitude only commit suicide because they are suffering great physical, mental or emotional stress. Litigation generates stress of a kind in persons of normal fortitude, but not stress of a magnitude or kind making either suicide or a psychiatric illness a reasonably foreseeable response. Litigation can generate disappointment, outrage, distress, worry, anxiety, anger and shame in persons of normal fortitude, but these reactions are qualitatively different from psychiatric illness or suicide: Morgan v Tame (2000) 49 NSWLR 21 at [32] per Spigelman CJ. (our emphasis)

(b)

Intentional Torts

75.

We do not intend to deal with all of the possible torts in this section. The discussion will be limited to the tort of deceit and conversion, and briefly detinue (this being analogous, in the relevant sense, to conversion).

76.

Courts have over the years adopted a policy of imposing more extensive liability on intentional wrongdoers than on those that are merely careless.50 That also seems to be accepted by the Victorian and Queensland Courts of Appeal as discussed below in relation to conversion.

50

Smith New Court Securities v Scrimgeur Vickers (1997) AC 254 at 280 per Lord Steyn; see also Doyle v Olby (Ironmongers) Ltd (1969) 2 QB 158.

22

77.

In deceit the normal measure of damage is that assessed by reference to the extent to which the innocent party has altered its position in reliance upon the offending conduct. A good example of the recovery of consequential losses can be found in Archer v Brown.51

78.

Briefly stated, Archer involved a plaintiff who was fraudulently induced to part with £30,000 to purchase shares from the defendant. The defendant, in truth, did not own the shares. The English Court of Appeal opined that the plaintiff was entitled to recover the ordinary measure of damage, in that case the £30,000 paid, but he was also entitled to recover consequential losses (though they were not described as such) namely the bank interest on the loans taken out by him to complete the fraudulent transactions.

79.

It is probably worth noting that the defendant, there, was aware that the plaintiff required a bank loan to complete the relevant contracts; although, respectfully, that would seem irrelevant as `but for' the fraud the plaintiff would not have entered into the contract in the first place.

80.

In that case the plaintiff was also awarded a small amount to compensate him for loss of earnings on his earlier job whilst he pursued the fraudulent opportunity and some compensation whilst he looked for new employment.

81.

The English case of Doyle v Olby (Ironmongers) Ltd52 espoused that an intentional wrongdoer is liable for all of the loss that flows as a direct consequence of the deceit including consequential loss not limited to losses that are reasonably foreseeable or within its reasonable contemplation. In Doyle the plaintiff was tricked, by fraud to purchase a business that he would have otherwise refused.

51 52

[1985] QB 401 [1969] 2 QB 158 at 167 per Lord Denning

23

82.

In South Australia v Johnson53 the High Court explained the Doyle case as follows: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'.54

83.

In Marks v GIO55 the High Court left open the question of whether or not principles of remoteness of damage apply to a cause of action in deceit. It may be, in light of the discussion in Johnson, that this issue is limited to situations where analogies are being drawn between damages for the tort of deceit and damages under the TPA rather than a commentary on the position of the application of principles of remoteness to the tort of deceit.

84.

Generally speaking, where the deceit involves an inducement to purchase a business or some other income earning asset loss of profits cannot be claimed. This is because the remedy is to place the claimant in the position it would have been in but for the deceit. To allow a loss of profits claim would be to allow an expectation loss only claimable in contract. However, a loss of an opportunity to earn profits on another enterprise, lost due to the deceitful conduct, has been allowed56, albeit with the assessment subject, as usual, to a Malec57 discount.

85.

In conversion the demarcation between normal and consequential loss is more apparent. The principles are as follows:

(1982) ALR 161 ibid p. 170 55 [1998] 196 CLR 494 at 512 [41] per McHugh, Hayne and Callinan JJ and note their Honours' reference to the fact that this question was left unresolved by Gibbs CJ in Gould v Vaggelas (1985) 157 CLR 215 at 223-224 56 East v Maurer [1991] 1 WLR 461 CA see also McGregor at [41-027]; cf Sellers v Adelaide Petroleum NL (1994) 179 CLR 332 (TPA) 57 See Malec v J C Hutton Pty Ltd (1990) 169 CLR 683

54

53

24

(a) the ordinary measure is the value of the goods converted as at the date of conversion; (b) a party wronged may also be entitled to consequential losses suffered subject to considerations of remoteness.58 86. In conversion consequential loss is the loss beyond the value of the goods or the usual measure.59 Examples of consequential pecuniary loss in conversion would include the loss of use of the goods in a business or loss of a contract of resale due to the unlawful detention. 88. Until recently there had been no detailed consideration of the principles upon which recovery of consequential losses in conversion may be obtained at an appellate level in Australia. The issue has now been considered by the Court of Appeal in each of Victoria and Queensland. 89. National Australia Bank Ltd v Nemur Varity Pty Ltd60 involved the conversion of cheques due to the fraud of an insurance intermediary. The intermediary had represented to the plaintiff insurance broker that he had a binder agreement with a USA insurance company specialising in the placement of commercial truck insurance. The premiums were paid by the client to the plaintiff broker, who then paid them to the intermediary who was then to purchase insurance policies on behalf of the plaintiff broker's clients. 90. The intermediary fraudulently indorsed the cheques to itself or related parties. The plaintiff sued the defendant bank, NAB, in conversion, amongst other things. In conversion the broker claimed the face value of the cheques61 together with consequential loss characterised as a loss of business. The loss of business case

58

87.

General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR 644 at 649 per Diplock LJ 59 Kuwait Airways Corp v Iraqi Airways Co [2002] AC 883 60 (2002) 4 VR 252 61 its normal or direct loss and over which there was no dispute

25

was agitated on the basis that as no cover was actually purchased by the converted cheques the plaintiff's clients became disgruntled when claims difficulties arose and took their business elsewhere. This caused pecuniary loss to the plaintiff. 91. At first instance the trial judge found for the plaintiff and awarded consequential loss for the loss of business. The Victorian Court of Appeal disagreed. It found that the consequential loss was not caused by the NAB's conversion, but rather by the fraud of the insurance intermediary. However, as significant time was spent arguing the correct test for consequential pecuniary loss in conversion the court went on to consider that issue in a detailed obiter. On that basis Callaway JA and Batt JA, in particular, would not have allowed the consequential loss claimed in conversion on the basis that it was too remote. 92. Batt JA made the following observations62: ... conversion is a tort of strict liability ... and, as such, is to be found at the lower or less culpable end of what Lord Steyn in Smith New Court called `a sliding scale from strict liability to intentional wrongdoing'. Negligence of course is to be found midway along the sliding scale, for it requires fault in the sense of the failure to measure up to the standard of reasonable care. His Lordship (in whose judgement on the measure of damages three other members of the House of Lords agreed) was of the view that there was a justification for differentiating between the extent of civil liability for civil wrongs depending where in that sliding scale the particular civil wrong fitted in. It might, therefore, be said that a more stringent test of remoteness, satisfied only by express notice or special knowledge, is required for conversion than for negligence. (our emphasis) 93. Batt JA also concluded63:Thus some more stringent test of remoteness than reasonable foreseeability is required for the strict liability tort of conversion. The

62 63

per Batt JA at [58] supra at para 64

26

obvious candidate seems to me that stated in France v Gaudet, namely, express notice or special knowledge. (our emphasis) 94. In qualified concurrence with Batt JA, Phillips JA observed64:Certainly, as at present I incline generally to the views taken by Batt JA with respect to remoteness of damage, and in particular his opinion that reasonable foreseeability is not the appropriate test in the case of conversion. If, however, the true test depends rather more upon notice or knowledge (as his Honour opines) it may be that the formulation of the test as propounded by Callaway JA will turn out to be more durable than the actual words used in France v Gaudet. 95. Callaway JA said65: I also agree with his Honour [speaking about Batt JA] that the measure of damages for consequential loss in conversion is not reasonable foreseeability. Liability in conversion is strict: like liability for breach of contract, which is also strict, it lies at the opposite end of the spectrum from deceit and is quite unlike negligence, The ordinary measure is the value of the chattel and consequential damages require some knowledge (or express notice) on the part of the defendant of facts whereby additional loss of the relevant kind is likely to result. To put the point another way, the consequential loss must be of a kind that should have been within the contemplation of the defendant as a likely consequence of having regard to the defendant's knowledge (or express notice) of the facts. There is, to that extent, a closer analogy with damages for breach of contract than with damages for negligence. The dicta in France v Gaudet were well founded. (our emphasis) 96. The dicta in France v Gaudet66 above referred to is that of Mellor J, where his Honour observed67:-

64 65

supra at [4] supra at [9] 66 (1871) LR 6 QB 199 67 ibid p. 205

27

It is not necessary to determine whether notice is or is not necessary in trover, in order to enable a plaintiff to recover special damage which cannot form part of the actual present value of things converted, as in the case of withholding of the tools of a man's trade, in which the damage arising from the deprivation of his property is not, and apparently cannot be fixed at the time of the conversion of the tools. In that case, however, we are inclined to think that either express notice must be given, or arise out of the circumstances of that case. The point is not determined in Bodlley v Reynolds ...; but we think that there must have been evidence of knowledge on the part of the defendant that in the nature of things inconvenience beyond the loss of the tools must have been occasioned to the plaintiff. (our emphasis)

97.

In Rapid Roofing Pty Ltd & Ors v Natalise Pty Ltd & Ors68 the Queensland Court of Appeal agreed with the dicta in Nemur Varity.69 Rapid Roofing involved, amongst other things, a claim by the plaintiffs for damages in conversion against the defendants. At first instance the court held that the male second defendant had converted the plaintiff's property and awarded damages against him in the sum of $70,000 on the premise that the unlawful detention of the plaintiffs' goods had resulted in the loss of a contract, or probably more accurately the chance of a loss of contract, with a third party. The defendants successfully appealed to the Court of Appeal.

98.

The Court found that there was no conversion however went on to consider the issue of damage. In this respect Keane JA (Williams JA and Atkinson J concurring) noted70: The plaintiffs face a second difficulty in attempting to support the assessment of damages in reliance upon the loss of profit on sales to Mr Taschner's company. There was no evidence that the defendants were ever informed by the plaintiffs that the purlin machine was required by the

68 69

[2007] QCA 94 Ibid at [71]-[74] per Keane JA 70 at [70]

28

plaintiffs for the purpose of a profitable contract with Mr Taschner's company. Indeed, there is no suggestion that the plaintiffs put the defendants on notice at all as to the purpose for which the purlin machine was required at the time of the plaintiffs' demand for the return of the goods. In these circumstances, the plaintiffs failed to establish a basis on which they could be awarded damages for the profits foregone in fulfilling any orders from Mr Taschner. (our emphasis)

99.

This statement adopts the contractual formula applying the dicta in Nemur Varity. This dicta was also adopted by Macready M in the NSW Supreme Court decision of Macrocom Pty Ltd v City West Centre Pty Ltd. 71

100.

Macrocom involved a claim for, amongst other things, conversion relating to the loss of use of satellite telecommunications equipment. The plaintiff was in the business of sale of wholesale telecommunications capacity involving the transmission of bulk trunk capacity to carriers, ISPs and large corporations.

101.

After lease negotiations with the defendant fell through regarding the situation of this satellite equipment, the defendant denied the plaintiff access to it and the plaintiff sued for damages in (inter alia) conversion. No claim was made for the value of the equipment, but rather the pecuniary loss associated with inability to sell unused ISP capacity from the equipment.

102.

Macready M accepted the test as propounded by Batt JA and Callaway JA in respect to remoteness of damage. His Honour focussed on the contractual formulation and ultimately concluded that the proper test was whether the "consequential loss was of a kind that should have been within the contemplation of the defendant" as opposed to the foreseeability test72.

71 72

[2003] NSWSC 898 see [43] [44] where his Honour rejected the foreseeability test in deference to the test propounded in Nemur

29

103.

The loss was found to be not too remote: 47 In this case, the actual consequential loss was the loss of the opportunity to sell a bi-directional 45 megabit satellite service. As is apparent from the discussion above, the defendant need not have contemplated this precise loss but rather the kind of loss suffered and then it must have considered that that loss had a serious possibility of occurring. I turn now to a consideration of the facts as they were known to the defendant. ... 50 The defendant certainly knew that the plaintiff's business involved the use of satellite communications. It also knew that the business included the use of that service by the plaintiff and also its customers. It is also plain that the business using the equipment was intended to be carried on elsewhere if an appropriate lease could not be obtained. It must have been obvious to the defendant that converting the equipment would prevent the plaintiff from being able to access the satellite. On the facts it knew this would interfere with the plaintiff's business and prevent it providing that satellite access to its customers. ... 52 The defendant knew that it would be interrupting the use by the plaintiff and its customers of a satellite service and that the provision of that service was a business of the plaintiff. As is apparent from Victoria Laundry loss of business in respect of contracts reasonably to be expected is recoverable but not some particularly lucrative contract. As will be apparent from the discussion later such a lucrative contract is not involved in this case. Accordingly, the loss is not too remote.

104.

The issue has also been considered in the English Court of Appeal and the House of Lords.

105.

Saleslease Ltd v Davies73 is a decision of the English Court of Appeal. In that case the plaintiff leased equipment (described as an "M.O.T. testing machine") to a tenant of the defendant. The tenant went into default under the lease with the defendant and his tenancy was terminated. For reasons that are not relevant here, the equipment was left at the defendant's premises, by virtue of an agreement between the plaintiff and the defendant. The hope was that the premises could be

73

[1999] 1 W.L.R. 1664

30

leased and that the incoming tenant could be persuaded to lease, as well, the equipment. 106. Sometime later the plaintiff secured an agreement from another person who was prepared to lease the equipment on apparently unusually favourable terms and asked the defendant to allow them to collect the goods. The defendant refused to release the goods unless the plaintiff paid him for the reinstatement of the premises, holding costs and other expenses. 107. The plaintiff responded by threatening legal proceedings and put the defendant on notice that if the machine was not released it would be claiming damages in the sum of £12,303.74, ascribed as the loss it would sustain due to a failure to be able to lease the machine on favourable terms. It did not mention however that this would be a particularly lucrative and unusual lease. 108. The plaintiff, ultimately, claimed damages of about £8,000 being the difference between what it alleged the lost lease would have achieved and the sale price obtained for the goods. The plaintiff succeeded at first instance and the defendant appealed the assessment of damages. The appeal was allowed. 109. Waller LJ confirmed the statement of principle espoused by McGregor on Damages (16th Ed) that a "plaintiff's loss of profits on contracts made with third parties has tended to form too remote an item of damage. That such loss may be recoverable is recognised, but it has been allowed only where it could have been anticipated by the defendant."74 110. It is worth noting that the Court of Appeal, or at least Waller LJ, determined the remoteness issue on the basis of the foreseeability of loss. This formulation of the

74

Saleslease per Walter LJ at 1669 F-G ­ the passage cited remains in the 17th ed. of McGregor on Damages at 1109/1110 para. 33-066. See also Butler-Schloss LJ at 1677 F-G.

31

test was largely adopted by the House of Lords in Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5).75 111. For Macready M in Macrocom considered the English decisions unhelpful in that they appeared, to be applying the foreseeability of loss test rather than the preferred contractual formulation. 112. On reviewing those decisions, that is not necessarily so. Whilst the nomenclature of foreseeability is used, it seems that it is being applied in a much stricter sense, more analogous with the contractual formulation. In any event, if the UK courts, apropos to conversion cases of this nature, are applying the test applicable to negligence cases then that approach must now be considered suspect in Australia given the dicta in the Queensland and Victorian Appeal Courts. 113. Demonstrating this point, in Saleslease the converter was put on notice of the loss that was likely to be sustained if the goods were not released yet the majority of the Court of Appeal, Butler-Schloss and Waller LJJ, found that this was not sufficient notice in the circumstances as there was no way of the defendant knowing, without being specifically advised, that the delay in returning the goods could have prevented the plaintiff from otherwise entering into a contract to lease the equipment elsewhere. This, with respect, seems to be applying a contractual formulation. 114. Regardless of the actual formulation used in Saleslease, it was not suggested there that the dicta in France v Gaudet (adopted in Nemur Varity), was wrong. 115. The practical consequence is that a party wronged, or likely to be wronged, by a conversion or potential conversion, would be well advised to bring home to the converter, when demand for the return of goods is made, the specific consequential loss that will or is likely to be suffered if the goods are not returned.

75

[2002] 2 WLR 1352

32

116.

If there is likely to be a loss of a particularly lucrative or unusual contract this should be stated expressly and with some particularity in the demand. That will then be good evidence to assist in establishing an entitlement to such a loss. Without it, a plaintiff's claim for consequential pecuniary loss in conversion not reasonably contemplated objectively, will fail.

117.

There are of course other types of conversion that may fall into a different position on Lord Steyn's "sliding scale". For example, where conversion is committed intentionally it may be that the principles of remoteness, limiting damages recoverable if the conversion is either unintentional or mistaken, will not apply and the same considerations as apply to deceit will govern such a situation. At this stage there is no direction from the appellate courts as to how this issue will be determined.

118.

In our view the same principles as apply to conversion apply in detinue and we do not intend to repeat them. Whilst there is a slight difference in the formula for normal loss in dentine, namely the value of the chattel detained and damages for detention; beyond that it is consequential loss.

119.

That principles of remoteness apply to consequential loss in detinue was stated by Denning LJ in Strand Electric and Engineering Co Ltd. v Brisford Entertainments Ltd.76

Misleading and Deceptive Conduct (TPA) 120. Like negligence, damage is the gist of a cause of action for misleading and deceptive conduct in contravention of s 52 of the TPA, this being a consequence of the use of the word `by' in both s. 82 and 87 of the Trade Practices Act 1974 (Cth) and their analogues in ss 6, 99 and 100 of the Fair Trading Act 1989 (Qld).

76

[1952] 2 QB 246 at 254 cited with approval by his Honour Mr Justice Giles LG-in Gaba Formwork Contractors v Turner Corporation Ltd (1991) 32 NSWLR 175 at 181.

33

121.

Consequential loss would include an opportunity forgone due to reliance on misleading conduct. In Gates v City Mutual Life Assurance Society Ltd 77the plaintiff claimed damages for misleading and deceptive conduct, amongst other things, based on a misleading representation regarding the content of a Total Permanent and Disablement ("TPD") clause in his life insurance policy.

122.

The High Court opined that the plaintiff had failed to establish that the TPD cover actually purchased was not worth the price paid and, consequently no loss was sustained. However, it was considered that it was open to the plaintiff to prove that he had suffered consequential loss being the loss of opportunity to enter in to a contract for TPD insurance with another entity that was more favourable to him. The plaintiff did not, or was unable to, do.

123.

Further Mason, Wilson and Dawson JJ's explanation in Gates may be seen as setting the parameters for the distinction between `expectation loss' and `consequential loss': 78 The Act does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provisions of Pts IV and V. Accordingly, it is for the courts to determine what is the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of the relevant provisions. Two established measures of damages, those applicable in contract and tort respectively, compete for acceptance. In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed ­ his is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been in had the tort not been committed (similar to reliance loss). (our emphasis)

77 78

(1986) 160 CLR 1 per Gibbs CJ and see Mason, Wilson and Brennan JJ at p. 15 ibid at 11-12

34

124.

Gaudron J warned against transposing the distinction between reliance and expectation loss to causes of action outside of contract.79 And noted it may be misleading to 80so demarcate in TPA cases.

125.

In HTW Valuers (Central Qld) Pty Ltd v Astonland v Pty Ltd 81 the normal measure of damages was found to be the purchase price less the true value of the property purchased at the date of purchase. Consequential losses would be losses suffered in addition to that measure.

126.

In Gould v Vaggelas82, Wilson J83 predicated the law in respect to the requirement of establishing loss caused by the breach as follows: If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representations. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract.

127.

To prove damages pursuant to s.82 of the TPA for a breach of s. 52 the claimant must establish a causative link between the conduct and the loss and damage suffered. It does not need to prove that it was the sole or substantial motivating factor upon which it relied.84 It needs to demonstrate no more than it was "a

79 80

Marks (supra) at 502 ibid 503 81 (2004) 217 CLR 640 82 (1985) 157 CLR 215 83 at 236 84 Marks v GIO Australia Holdings (1998) 196 CLR 494 at 532 per Gummow J

35

cause" of the loss or damage sustained.85 It seems that damage caused `by' the conduct in breach of the Act is the amount the plaintiff is legally able to recover.86 128. The better view is that the common law principle of remoteness, in assessing consequential pecuniary loss, is inapt under ss. 82 and 87 of the TPA. 129. In Marks v GIO Australia Holdings87 McHugh, Hayne and Callinan JJ observed:

It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s. 87, is likely to suffer) loss and damage "by conduct of another person" that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s. 82 or s. 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s. 82(1), or that the orders that may be made under s. 87, should be limited by drawing some analogy with the law of contract, tort, or equitable remedies. Indeed the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit (eg s. 52) or with equity (eg. 51AA) but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies. (our emphasis) 130. Dealing further with analogies the court observed88: This is not to say that no help can be had from the common law in deciding what damages may be allowed under s. 82 in cases of conduct contravening s. 52. Very often, the amount of the loss or damage caused by a contravention of s. 52 will coincide with what would have been allowed in an action for deceit. But that is because the inquiry in both cases is to find out what damage flowed from (in the sense of being caused by) the deceit or contravention. Leaving aside questions of remoteness of

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 125 per Gaudron, Gummow and Hayne JJ. 86 I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 87 [1998] 196 CLR 494 at p. 510 [38] 88 ibid p. 512 at 41

85

36

damages in assessing damages for deceit (a question that was left unresolved in Gould v Vaggelas), the damages for deceit will be the sum representing the loss suffered by the plaintiff because the plaintiff altered its position in reliance on the defendant's misrepresentation. But the analogy cannot be pressed too far. It should not be pressed to the point of concluding that the only damages that may be allowed under s. 82 are those that would be allowed in an action for deceit. The question presented by s. 82 is not what would be allowed in deceit, it is what loss or damage has been caused by the conduct contravening the Act. (our emphasis) 131. Thus, it seems that, insofar as the TPA is concerned if loss or damage is proven to be caused by the misleading and deceptive conduct a defendant's liability will, arguably, not be limited by considerations of remoteness; at least not as traditionally applied in the general law. 132. More recently the High Court has referred to the principle of remoteness when discussing s. 82 damages. In HTW Valuers v Astonland89 Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ stated that "Analysis of the tests for remoteness of damage in contract, in tort and under the s. 82 may make a difference on the particular facts."90 Such a statement seems to assume that reference to some formulation of remoteness may be applicable to TPA cases. 133. If it is the case that the principle of remoteness of damage does not apply so as to limit the extent of the loss claimed, for TPA s 52 contravention, then an arguably unjust or at least a harsh decision can be visited on a defendant albeit does so honestly and reasonably. It may be that Lord Steyn's sliding scale, by the very nature of the wording of s. 52 and its interaction with ss 82 and 87, is rendered otiose in such a situation. However, such a result will be tempered, hopefully, because the High Court has stated that the measure of compensation is "the

89 90

(2004) 217 CLR 640 Ibid at 649 [14]

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amount of" the loss or damage sustained;91 the compensation falls to be assessed so as to achieve a fair or just outcome.92 134. Further insofar as s. 87 is concerned, it may be that the smorgasbord of remedies available requires a thorough consideration so as to do justice between the parties.93 Equity 135. In reality damages are not usually awarded in equity. Parties usually obtain an account of profits or equitable compensation. Further, it is not an easy task to analyse an entitlement to monetary compensation in terms of normal and consequential loss. 136. A beneficiary or cestui que trust wronged by a fiduciary's breach of duty (at least that of fidelity or acting in the interests of the cestui que trust) is entitled to be reinstated, by equitable compensation, to the position they would have been in but for the breach of the fiduciary's obligation to act in the beneficiary's interest. Such injured party also may avail other remedies available including account of any profits or constructive trust.94 137. An account of profits is available to lift from the fiduciary of any profit made commensurate with the breach of duty. It is available even in cases where it may be thought to result in a windfall to the injured party. The policy reason behind this is that the fiduciary should not profit from its breach. "The remedy does not depend either on the principal's loss or on whether the principal could have

I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 per Gaudron, Gummow and Hayne JJ at 126 92 Astonland (supra) at 667 [65]; Marks v GIO (supra) at 503-504 [17] , per Gaudron J; at 510 [38], 512 [41], per McHugh, Hayne and Callinan JJ; at 529 [103], per Gummow J and at 549 [152], per Kirby J 93 Akron Securities Ltd v Iliffe (1997) 41 NSWLR 3534 94 Boardman v Phipps [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; Pilmer v Duke Group Ltd (2001) 207 CLR 165

91

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earned the gain".95 The authorities in this regard are well summarised, and were applied in Say-Dee Pty Ltd v Farah Constructions Pty Ltd96, a case where the beneficiary was offered, but refused to participate in a venture the subject of fiduciary obligations. 138. An account of profits, like all equitable remedies, is discretionary. The court may award an account for only a proportion of the profits.97 139. In Re Dawson98 Street J determined that a defaulting trustee was liable to repay the trust not only monies that were lost to the trust in breach of trust, but also at an exchange rate more beneficial to the trust as at the date of the decision rather than the date of breach together with interest.

140.

What can be gleaned from this is that a fiduciary in breach of duty will be required to reinstate its fiduciary to the position it would have been in had the breach not occurred. This will sometimes involve a windfall to the fiduciary over and above any loss sustained and, in that sense is incongruous with the essential principle of awarding compensation but is allowed on grounds of policy.

141.

Some aspects of a fiduciary's duty may entail exercising reasonable care, in contract acting (per se) solely in the beneficiary's interest. Is there scope here for invoking the common law concepts such as remoteness of damage?

142.

In Bristol and West Building Society v Mothew99, in 1998 the English Court of Appeal, after referring to like views in the Western Australian Full Court in Permanent Building Society (In liquidation) v Wheeler100, observed that101:-

95

Re Dawson (dec'd) (1966) 84 WN (Part 1) (NSW) 399 at 404-405 per Street J; Meagher Gummow & Lehane's "Equity Doctrines & Remedies" 4th ed. at 201 [5-245] 96 [2006] NSWCA 309 (special leave granted) 97 Warman International Ltd v Dwyer (1995) 182 C.L.R. 544. 98 (supra) 99 [1998] Ch 1 100 (1994) 11 WAR 187 at 235, 236, 237 and 239.

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It is...inappropriate to apply the expression (fiduciary) to the obligation of a trustee or other fiduciary to use proper skill and care in the discharge of his duties. If it is confined to cases where the fiduciary nature of a duty has special legal consequences, then the fact that the source of the duty is to be found in equity rather than the common law does not make it a fiduciary duty. At common law and equity each develop the duty of care, but they did so independently of each other and the standard of care required is not always the same. But they influenced each other and today the substance of the resolving obligations is more significant than there particular historic origin. 143. The learned authors of Meagher, Gummow and Lehane describe these remarks as "elegant, almost lapidary". 102 144. It is submitted that the remarks are broadly consistent with the earlier judgment (inter alia) of Gaudron and McHugh JJ in Breen v Williams.103 Their Honours observed the mere existence of a fiduciary relationship did not cover the field in terms of a fiduciary's obligation, in that "the duties and obligations which arose from their fiduciary relationship could only come from those aspects of the relationship which exhibited the characteristics of trust, confidence and vulnerability that typify the fiduciary relationship."104 145. Recent observations by the High Court, again obiter dictum, in Youyang Pty Ltd v Minter Ellison,105 militate against any relaxation short of statutory reform even with this character. 146. The facts in that case are not critically important for present purposes save to say that the defendant Minters, a firm of solicitors, acted for the promoters of an

101 102

Mothew at 16. Meagher, Gummow and Lehane "Equity Doctrines and Remedies" (4th edition ­ 2002 - Edited by Meagher, Heydon and Leeming) at [5-295]. 103 (1995-1996) 186 CLR 71. 104 Breen at 108 per Gaudron and McHugh JJ. 105 (2003) 77 ALJR 895.

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investment scheme but also as trustee of certain fund certificates. The plaintiff investor suffered loss because of loss of benefit of the certificates. 147. The court, consisting of Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ, in a unanimous decision, found for the plaintiff but remarked: [36] Equity provides a range of remedies for breach of express, resulting, implied and constructive trust and apprehended and repeated breach. This appeal concerns the provision of a money remedy for breach of an express trust. The nature of that remedy may vary to reflect the terms of the trust, and the breach of which complaint is made. Generalisations may mislead. [37] This is not a case of providing a remedy to restore or replenish funds thereafter to be held on trusts yet to be fully performed. Here, Minters did not hold the moneys for indeterminate or contingent beneficial interests. The result is that the right of Youyang after 24 September 1993 was not to have duly administered a restored trust fund by an order of the nature exemplified in Partridge v Equity Trustees Executors and Agency Co Ltd. There, in a suit brought by the residuary beneficiaries of a testamentary trust, an order was made that the trustee pay a specified sum to the estate of the testator "to be invested and held on the trusts of the will". [38] As already indicated, this was a case of breach of duty by a trustee; the complaint was not one merely of the imprudent exercise of a power, for example of a power of investment, by failure to employ the care and diligence which equity requires. Where the complaint is of maladministration of this kind, then it has been said in the English Court of Appeal in Bristol and West Building Society v Mothew: "Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution." This view of the matter has been approved by the New Zealand Court of Appeal in Bank of New Zealand v New Zealand Guardian Trust Co Ltd, on the footing that the stricter view of liability for breaches of trust causing loss to the trust estate and for breaches of the fiduciary duties of loyalty and fidelity is not required where the complaint concerns failure to exercise the necessary degree of care and diligence.

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[39] Given the nature of the present case, those questions do not arise on this appeal. However, there must be a real question whether the unique foundation and goals of equity, which has the institution of the trust at its heart, warrant any assimilation even in this limited way with the measure of compensatory damages in tort and contract. It may be thought strange to decide that the precept that trustees are to be kept by courts of equity up to their duty has an application limited to the observance by trustees of some only of their duties to beneficiaries in dealing with trust funds.

[40] The point appears from the statement by McLachlin J in Canson: "The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not selfinterest, at its core, and when breach occurs, the balance favours the person wronged." Whatever the qualification to these principles which might flow in some cases from acceptance in Australia of the reasoning in Bristol and Bank of New Zealand, they applied to the present case with undiminished cogency." (our emphasis)

148.

These remarks are redolent of careful subscription by the High Court to the mantra, in the sphere of fiduciary obligation, that fiduciaries conduct themselves "at a level higher than that trodden by the crowd."106 That even where the duty is merely one of skill and care which springs (only coincidentally) from equity.

149.

On 19 September 2006 the High Court gave special leave to appeal in Say-Dee Pty Ltd v Farah Constructions Pty Ltd. Although a case concerning causation, it

106

See Meinhard v Salmon 164 NE 545 (1928) at 546 per Cardozo C J, recorded in Meagher, Gummow and Lehane at [2-315].

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promises a careful consideration of the application of common law damages principles, such as remoteness of damage, in claims in equity. The Lesson 150. The lesson is this: never assume a loss causally resulting from a wrong, whatever the cause of action, is necessarily claimable. It must (except, the better view is, in deceit or in equity) satisfy the requisite test of remoteness. Each case is fact sensitive. Richard Douglas SC John C Faulkner

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Information

CPD 7 - Claims for Consequential Pecuniary Loss by Richard Douglas S.C. and John Faulkner

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