AVWEST AIRCRAFT PTY LTD as trustee for AVWEST AIRCRAFT TRUST -v- CLAYTON UTZ (A FIRM) [No 2] [2019] WASC 306 (28 August 2019) - WASC 2019 case summary — Zoe

WAWASC

AVWEST AIRCRAFT PTY LTD as trustee for AVWEST AIRCRAFT TRUST -v- CLAYTON UTZ (A FIRM) [No 2] [2019] WASC 306 (28 August 2019)

[2019] WASC 306

Supreme Court of WA|2019-08-28|Before: Vaughan J

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Source facts

Court

Supreme Court of WA

Decision date

2019-08-28

Before

Vaughan J

Source

Original judgment source is linked above.

Judgment (798 paragraphs)

[1]

Mid‑morning on 17 September 2010 the plaintiff, AVWest Aircraft Pty Ltd (AVWest), requested that its solicitors ‑ the defendant Clayton Utz (CU) ‑ review four clauses of a draft Cabin Modification Agreement (CMA) and make appropriate amendments by way of mark‑up.
Two solicitors employed by CU reviewed the CMA for about 42 minutes. Later that day the solicitors had no more than a 12 minute telephone conversation with AVWest's representative about the draft CMA. Amendments were recommended. In due course CU charged AVWest $1,183.60.
AVWest now claims against CU in negligence and contract for alleged failure to exercise reasonable skill, care and diligence in the performance of the retainer. On AVWest's case the alleged breach sterilised $US31 million in capital. AVWest seeks damages to compensate it for alleged loss of opportunity due to the $US31 million not being available for deployment in its business. Based on expert evidence the amount claimed is $US36,961,330.
For the reasons developed below I have concluded that:
- In performing its retainer CU failed to exercise reasonable skill, care and diligence.
- CU's negligence caused AVWest to suffer compensable loss; it was deprived of a valuable commercial opportunity, namely, the opportunity to negotiate the CMA on more beneficial terms that would have resulted in AVWest obtaining a materially higher settlement sum at an eventual mediation with the counterparty to the CMA.
- However, AVWest has not established that, had it received non‑negligent advice, it would not have proceeded with the CMA and an associated purchase of an aircraft for $US31 million. Accordingly, AVWest has not succeeded on its loss of opportunity case based on CU's negligence causing or materially contributing to the $US31 million purchase price not being available for deployment in AVWest's business. It was this case that grounded the claim for damages exceeding $US36.96 million.
- The damages for the case on which AVWest has succeeded are quantified in an amount of $US546,725.

[55]

The documentary evidence included versions of the draft CMA with handwritten annotations of Mr Hodgkinson[71] and Ms Bailey.[72]
Mr Hodgkinson's version of the draft CMA included highlighting and annotations to cl 8, cl 10.1, cl 10.2, cl 12, cl 17 and cl 20. There was no notation as to cl 10.3. In par 1 of cl 10.1 and cl 10.2 the word 'gross' in the phrase 'gross negligence' was struck through. Paragraph 2 of cl 10.2 was highlighted. The more significant annotations were as to cl 12 (the warranty provision), cl 17 (dealing with 'Termination‑Remedies') and cl 20 (the governing law and jurisdiction clause).
Ms Bailey's version of the draft CMA included highlighting and annotations to cl 10.1 (but only par 1 thereof), cl 10.2, cl 12, cl 17 and cl 20. There was no notation as to cl 10.3. Again in cl 10.1 and cl 10.2 the word 'gross' was struck through where it appeared in the phrase 'gross negligence'.
Later that day a telephone conversation occurred between Mr Burton, Mr Hodgkinson and Ms Bailey.[73]
Mr Hodgkinson and Ms Bailey did not give evidence. Witness statements as signed by Mr Hodgkinson and Ms Bailey had been filed and were referred to in CU's written outline of opening submissions.[74] So too in opening senior counsel for CU referred, albeit briefly, to the intended evidence of Mr Hodgkinson and Ms Bailey.[75] Accordingly, I infer that a forensic decision was made by CU not to call Mr Hodgkinson and Ms Bailey.
For that reason the only evidence of what was discussed in the telephone conversation consisted of Mr Burton's recollection and some documentary evidence.
Mr Burton's recollection was limited. He did not recall the conversation with Mr Hodgkinson and Ms Bailey in any detail. Mr Burton's evidence, which I accept, is that the only thing he could specifically recall was that he was told to have the word 'gross' deleted from the words 'gross negligence' in cl 10. Otherwise Mr Burton could not recall Mr Hodgkinson or Ms Bailey giving any advice which raised anything he should be concerned about.[76]
However, after the telephone call Ms Bailey prepared an internal memorandum.[77] The contents of the file note are important and bear repeating in full:

[67]

As well as consulting CU, Mr Burton provided the draft CMA to an insurance broker. He did so by a 17 September 2010 email, sent 12.14 pm, that asked the broker to review the insurance clause and provide comments.[83] The broker responded that day (at 4.40 pm) confirming that, while the insurers had a preference that the indemnity be limited, the insurers would agree to note and include the indemnity and insurance conditions of the draft CMA in its current state. Otherwise the email noted: 'We recommend that you run the Indemnity agreement past your lawyer, which you confirmed you had already done.'[84]
Accordingly, the telephone call between Mr Burton and the CU solicitors had occurred before 4.40 pm on 17 September 2010.
On 20 September 2010 Mr Pelet followed‑up Mr Roberts seeking comments on the draft CMA.[85] However, there was no immediate response. That was the position even through cl 1.4 of the ASA could potentially have been triggered in the absence of execution of the CMA.
For reasons I will come to, the explanation for AVWest's delay in responding on the terms of the draft CMA is that AVWest (and Mr Roberts in particular) was awaiting the outcome of an inspection report on the Aircraft.
AVWest Pty Ltd's general manager and head engineer oversaw a pre‑buy inspection of the Aircraft.[86] The findings from the inspection were emailed to Mr Roberts and Mr Burton on 29 September 2010.[87] On 4 October 2010 Mr Roberts sent an email to Mr Rodaro referring to the issues on inspection.[88] That resulted in AVWest issuing a formal Discrepancies Notice under the ASA on 5 October 2010.[89] Apart from noting items to be remedied by the seller, the Discrepancies Notice provided for cl 1.4 of the ASA to be amended so that the time for execution of the CMA was extended to 12 October 2010. In due course Air Luther accepted the Discrepancies Notice, thereby effecting the proposed variation to cl 1.4 of the ASA.
It is apparent, however, that at around this time there were also communications between Mr Roberts and Mr Rodaro with a view to identifying precisely what costs of rectification would be borne by the seller and what was to be covered in the cabin modification.[90]
On 6 October 2010 Mr Roberts sent Mr Rodaro and Mr Pelet an email attaching a marked‑up copy of the draft CMA showing the amendments sought by AVWest.[91] A number of the amendments as sought were consistent with the recommendations in Ms Bailey's internal memorandum. In particular:
- In par 1 of cl 10.1 AVWest struck out the words 'regardless of the negligence, active, passive or any other type, of Comlux, its directors, officers, employees or agents'.[92]
- In par 1 of cl 10.1 and cl 10.2 AVWest replaced 'gross negligence' with 'negligence'.[93]
- In cl 12 (the warranty clause) AVWest adopted the defined expression 'Work', struck out (iv) and amended the clause such that Comlux AS (rather than AVWest) would be liable for transportation or relocation costs.[94]
- In cl 17.2 (the remedy clause) AVWest corrected the typographical error identified by CU.[95]
Accordingly, by adopting CU's suggested appropriate amendments, AVWest relied on CU's advice. There was, I find, reasonable reliance in this regard. CU put forward the amendments as being appropriate following its review of the nominated clauses of the draft CMA. It was acknowledged in Ms Bailey's file note that AVWest intended to amend as CU directed in the teleconference.
The amendments to the draft CMA did not adopt CU's recommendations in one respect. The amendments to cl 12 did not replace the term 'services' with the word 'Works'.[96] Mr Burton explains that as an oversight.[97] I accept that evidence. It is inherently plausible given that CU's recommendations were otherwise implemented.
Other amendments were AVWest's own work. For example, AVWest sought lesser amounts for the required insurance policies (cl 11).[98] AVWest also sought liquidated damages of $US2,000 per day, without cap, to commence immediately upon failure to effect delivery on the redelivery date (cl 14).[99]
Mr Pelet responded to Mr Burton (rather than Mr Roberts) on 8 October 2010.[100] With cl 10 there was acceptance of the struck out words within par 1 of cl 10.1.[101] But Mr Pelet rejected the changes providing for 'negligence' instead of 'gross negligence' (in cl 10.1 and cl 10.2).[102] Mr Pelet also rejected AVWest's proposed amendments to the liquidated damages clause.[103] And, as to the warranty provision, Mr Pelet rejected AVWest's changes that provided for Comlux AS to meet for transportation and relocation costs.[104]
On 11 October 2010 Mr Roberts sent Mr Pelet an email that attached a further amended version of the draft CMA.[105] Among other things the covering email stated:

[77]

On 7 November 2010 there was a fire in a hangar occupied by Comlux AS. (The hangar was owned by the Indianapolis Airport Authority, leased to Signature Flight Support Corporation and then sub‑leased to Comlux AS.)[127] The Aircraft was parked in the hangar at the time of the fire.
The fire caused damage to the Aircraft's airframe and engines.[128]
There was little direct evidence before me as to the cause and effect of the fire. The documentary evidence included an AirSafety Network report dated 7 November 2010.[129] This suggested that the hangar fire was caused by a short in an emergency generator during a power outage. However, as will be seen, the precise cause of the fire was never identified. The initial report cannot be accepted as being conclusive on the cause of the fire. Otherwise the report concluded that the fire burned for three hours.
Also tendered was a corrosion report dated 24 May 2012 obtained by the then solicitors for AVWest.[130] The report explained ‑ as CU accepted in opening[131] ‑ that the Aircraft was at the opposite end of the hangar relative to the fire. However, firefighters cut a ventilation hole in the wall of the hangar near the Aircraft. This facilitated fighting and extinguishing the fire. It also resulted in a flow of hot gases over and around the Aircraft which caused damage to the Aircraft. Specifically there was visible damage to the empennage including warping of the elevator of the horizontal stabiliser, separation of the left hand faring under the horizontal stabiliser from the vertical stabiliser and discoloration of several components of the empennage.[132]
On 9 November 2010 AVWest's insurance broker, Austbrokers ABS Aviation Pty Ltd, gave notice to the Insurers of a claim for indemnity under the policy of insurance for $US35 million.[133]
On 22 December 2010 the Insurers agreed to indemnify AVWest under the insurance policy. However, the Insurers reserved their right to make an election between viable repair or constructive total loss.[134] On 26 April 2012 (ie some 17 months after the fire) the Insurers elected to repair the Aircraft.[135] In the interim, as might be expected, there was considerable correspondence between AVWest, its Insurers and solicitors acting for AVWest and the Insurers. AVWest also obtained various damage assessment reports. Among other things AVWest sought assistance from the Aircraft's manufacturer, Bombardier Inc (Bombardier). Eventually, on 26 March 2012, AVWest commenced proceedings against the Insurers.[136]
It will be necessary to refer to some of those materials later in these reasons. CU claimed that the delay in resolution of AVWest's insurance claim had implications for causation and remoteness of damage.

[102]

The references in the preceding paragraph to 'on a proper construction' are to be understood ‑ having regard to cl 20 of the draft CMA ‑ as referring to the proper construction of the clauses under the law of Indiana.
In oral closing submissions senior counsel for AVWest informed me that the first alleged breach was not alleged to have any causative effect. It was pressed as being no more than indicative of an allegedly negligent approach to the performance of the retainer.[167] Accordingly, it is the other four alleged breaches as particularised which are of primary significance for the proper determination of the proceedings.
In its written opening submissions CU suggested that intellectual agility was needed to navigate AVWest's claim for damages.[168]
In substance, however, AVWest advanced a loss of opportunity claim posited on various counter‑factual bases. Two main possibilities were canvassed: either that there would have been 'no transaction' or that there would have been an 'alternative transaction'. However, under one of the 'alternative transaction' scenarios the position for the quantification of damages was said to be the same as if there was 'no transaction'.
The 'no transaction' case saw damages being quantified on the basis that ‑ had CU not acted in alleged breach of its retainer ‑ the terms of the CMA would not have been agreed and the transactions for the purchase of the Aircraft (under the ASA) and the cabin modification and refurbishment (under the CMA) would not have proceeded. In that hypothetical circumstance, on AVWest's case, it initially would have retained the $US31 million purchase price for the Aircraft. The $US31 million would then have been available for use, and used, in the purchase and sale of other aircraft and aircraft positions, generating a profit. The notional profits which were never derived because of the unavailability of the $US31 million were said to quantify the loss of opportunity.[169]
The 'alternative transaction' case saw damages being quantified on the basis that ‑ had CU not acted in alleged breach of its retainer ‑ the CMA would have been agreed in different terms. Different hypothetical scenarios were then posited depending on the form that the CMA might have allegedly taken in the particular counter‑factual scenario as posited.
One scenario as pleaded was that the CMA as negotiated would have provided AVWest with an indemnity for all loss suffered as a result of damage to the Aircraft including consequential loss. Then, as on AVWest's case the $US31 million would have been recouped without delay, quantification was the same as under the 'no transaction' case.[170]
Another pleaded scenario was that Comlux AS would have agreed to delete the exclusion in par 2 of cl 10.1 of the draft CMA (thereby, on AVWest's case, providing for liability for damage to the Aircraft's airframe and engine where caused by Comlux's negligence), but not cl 10.3 (meaning that the consequential loss exclusion was maintained), and AVWest would have agreed to proceed on that basis.[171]
In written closing submissions AVWest propounded its case in terms that had CU given proper advice there were four possible scenarios:[172]
- Scenario 1: There would have been no amendment to cl 10 of the CMA (because Comlux AS would not have agreed to any substantive amendments) and AVWest would nevertheless have proceeded with the CMA and the ASA.
- Scenario 2: Comlux AS would have agreed to delete the airframe and engine exclusion in par 2 of cl 10.1, but not the consequential loss exclusion in cl 10.3, and AVWest would nevertheless have proceeded with the CMA and the ASA.
- Scenario 3: The same as Scenario 2, but ‑ in addition to deletion of the airframe and engine exclusion in par 2 of cl 10.1 ‑ Comlux AS would have agreed to delete the requirement in par 2 of cl 10.1 that any damage be due to Comlux AS's negligence. In those circumstances AVWest would have proceeded with the CMA and the ASA despite continuation of the consequential loss exclusion in cl 10.3.
- Scenario 4: AVWest would have walked away from the draft CMA and the ASA because Comlux AS would not have agreed to delete the cl 10.3 consequential loss clause. This is the 'no transaction' case.
None of the four scenarios as propounded in AVWest's closing submissions included that mentioned in par 122 above. It was not contended that there was a possible scenario in which Comlux AS would have agreed to amend the draft CMA by the deletion of the cl 10.3 consequential loss exclusion. Accordingly, the pleaded scenario, as opened, that the CMA as negotiated would have provided AVWest with an indemnity for all loss suffered as a result of damage to the Aircraft including consequential loss, was not advanced in closing. The reason for that will become apparent on consideration of Mr Pelet's evidence.
Nor, in AVWest's closing, was any scenario posited whereby AVWest would have walked away from the draft CMA and the ASA because Comlux AS would have refused to delete the airframe and engine exclusion in par 2 of cl 10.1.[173] Accordingly, such a variant on the no transaction case need not be considered. It was not advanced as a possible scenario within the catalogue of possibilities that AVWest posited in closing submissions.
In written closing submissions CU asserted that, at trial, AVWest's alternative transaction case was 'essentially abandoned'.[174] I do not accept that suggestion. Both Scenario 2 and Scenario 3 were posited as alternative transactions. In oral closing submissions senior counsel for CU also contended that Scenario 3 was not open on AVWest's pleaded case.[175] In reply senior counsel for AVWest relied on pars 46(a) and (c) of the FRSOC as opening up Scenario 3.[176]
Those particulars to par 46 of the FRSOC provide:

[104]

I do not consider that the posited Scenario 3 fairly arises under pars 46(a) and (c) of the FRSOC. Paragraph 46(a) contemplates a CMA providing for a complete indemnity in respect of loss suffered as a result of damage to the Aircraft including for consequential loss. Accordingly, it contemplates no consequential loss exclusion in terms of cl 10.3 of the CMA. But Scenario 3 is premised on AVWest proceeding with the CMA and the ASA despite Comlux AS refusing to delete cl 10.3. Paragraph 46(a) also does not, in terms, provide for a deletion of the requirement that any damage have been caused by Comlux AS's negligence. In my view par 46(a) posited the loss of opportunity case outlined in par 122 above ‑ one that was not advanced in AVWest's closing submissions.
Scenario 3 relies on evidence of Mr Pelet given in a supplementary statement filed eight days before the commencement of trial.[177]
I have re‑read AVWest's written opening submissions. On a fair reading they do not, in my opinion, open Scenario 3. That is unsurprising. Those opening submissions were filed before Mr Pelet's supplementary statement.[178] Nor, re‑reading the transcript of the oral opening by senior counsel for AVWest, was Scenario 3 explicitly raised as a separate scenario. The most that was put by way of the alternative transaction case was to refer to the counterfactual evidence.[179] This included referring ‑ by number only ‑ to pars 2 to 5 of Mr Pelet's second statement.[180] In opening senior counsel for CU advanced its understanding of AVWest's pleaded case on the alternative transaction basis conformably with the pleading in the FRSOC and AVWest's written opening submissions.[181] It could not be said that CU was alive to the suggested Scenario 3.
In my opinion Scenario 3 is outside AVWest's pleaded case. Nor can it be said, given the fleeting reference by paragraph number only to the relevant passage from Mr Pelet's supplementary statement, that the trial was conducted on the basis that Scenario 3 was open as an alternative transaction on AVWest's loss of opportunity case. I accept CU's submission that liability cannot be visited on it in the form of Scenario 3.
In any case, for reasons discussed below, I am not satisfied that the substance of the evidence given in pars 2 and 3 of Mr Pelet's second statement is reliable and speaks to the position in 2010. I reject that evidence (see pars 535 to 551 below). Accordingly, even if ‑ contrary to my opinion ‑ Scenario 3 was open on AVWest's pleaded case, it failed.
As to the second scenario under the 'alternate transaction' case (ie Scenario 2), CU denied that AVWest was deprived of an opportunity to enter into a CMA that provided it with an indemnity, from Comlux AS, in respect of loss (other than consequential loss) suffered as a result of damage to the Aircraft caused by the fire to the extent it was caused by the negligence or wilful misconduct of Comlux.[182] CU claimed, on the proper construction of cl 10 according to the law of Indiana, that was the actual effect of clause 10.1 of the CMA as executed.[183] More generally, CU claimed that it was implausible and commercially unreasonable that AVWest would have decided to terminate the purchase of the Aircraft under the ASA; that too meant there was no relevant deprivation of an opportunity and no loss of a chance.[184]
CU also claimed by way of defence that:

[122]

CU, by its solicitors, sought that Comlux produce various documents including the contracts referred to in pars 14 and 17 of Mr Pelet's first statement. In the letter requesting production it was said that CU was content for Comlux to redact details of the customers and the purchase price to maintain confidentiality.[230] Correspondence followed between the Indianian attorneys for Comlux and the solicitors for CU. On 5 April 2018 Comlux's attorneys provided extracts of the indemnity provisions from the contracts referred to in par 17 of Mr Pelet's first statement. The letter also provided further information regarding the contracts, eg the type of work, the type of aircraft, date of agreement, the legal representation of the counterparty and whether the indemnity provision was negotiated.[231] Comlux refused to provide more complete versions of the third‑party contracts.
AVWest sought to tender the indemnity extracts as part of the trial bundle.[232] I understand that tender to be part of the outstanding objection.
Having failed to obtain complete copies of the contracts, CU made application to the court. That application, by chamber summons dated 18 April 2018, was heard on 3 May 2018 and lengthy oral reasons were delivered on 4 May 2018. As well as dealing with the Comlux documents there was a wider application for further and better discovery of various other documents. So far as the Comlux documents were concerned CU sought the endorsement of the court to obtain the documents in Switzerland (through the issue of a letter of request in accordance with Ch 1 of the Hague Evidence Convention) and the United States of America (under s 1782 of Title 28 of the US Code). The application was refused for the reasons then provided.
CU's written opening submissions were filed on 10 May 2018. They referred to ‑ and apparently relied on ‑ part of Mr Pelet's intended evidence, namely, the statements made by Mr Pelet at pars 14 to 15 as to the standard nature of cl 10.1 and cl 10.3 of the CMA and what Mr Pelet would have advised if amendment was requested to the consequential loss clause at cl 10.3 of the CMA.[233]
Mr Pelet's second statement commenced by clarifying and providing more detail as to what was said at pars 15 and 16 of his first statement (pars 1 to 5). Essentially this too is hypothetical evidence of what Mr Pelet would have done if AVWest had asked for amendments to par 2 of cl 10.1 and cl 10.3.
Then, however, in support of what was said in par 17 of his first statement, Mr Pelet referred to the indemnity clause extracts as were provided to CU in early April 2018 (par 6). Mr Pelet went on to assert that, with the exception of the indemnity provisions and the further information he provided in the second statement, the contracts had provisions which were not relevant to the subject matter of the litigation (par 7). Mr Pelet then gave some additional information as to each contract for which there was an extract (par 7) and the effect of the indemnity clause (par 8). Mention was also made of the draft contract referred to in par 17 of the first statement (par 9) and that copy in its final form (par 10). AVWest sought to tender redacted versions of those documents.[234]
Finally, Mr Pelet made reference to the March and April 2018 correspondence that had passed between CU's solicitors and Comlux's attorneys (par 12).
Mr Pelet gave evidence by video‑link. He was cross‑examined over about one and a half hours by senior counsel for CU.[235] In part there was cross‑examination on the indemnity extracts and the redacted contracts. More generally there was cross‑examination on the two statements themselves and Mr Pelet's involvement in the negotiation of the ASA and the CMA. Before any cross‑examination, however, Mr Pelet stated in examination‑in‑chief that he needed to rectify par 17 of the first statement. The statement that there was one occasion where he had agreed to remove the airframe and engines exclusion was said to be incorrect. Mr Pelet said that he had not been in a case where Comlux would assume the entire liability of the aircraft.[236]
The first objection to admission of Mr Pelet's evidence was on the grounds of fairness. It was said to be inherently unfair that documents had not been produced which would enable CU to test the veracity of Mr Pelet's evidence. Here the complaint was not just that only extracts of the third‑party contracts had been provided. CU had also sought production of documents that evidenced negotiations between Comlux and third‑parties.
The submission was not grounded on any suggested failure by AVWest to give proper discovery. AVWest did not have the documents. The documents were documents of Comlux or Comlux AS ‑ entities that were located overseas and beyond the jurisdiction of the court.
I accept, in a criminal context, that there is a discretion to exclude otherwise admissible evidence where its admission would be unfair to an accused such as when the prejudicial effect of the evidence exceeds its probative value.[237] Two things should be noted about the discretion. First, the rule is not grounded in general notions of fairness. It is informed by weighing probative value and unfairly prejudicial effect. Second, it arises in a criminal context. CU was unable to refer me to an authority providing for a similar discretion in a civil proceeding. There are other jurisdictions in which such a discretion has been provided by statute.[238] But it is not to be found in the Evidence Act 1906 (WA).
As to the existence of the discretion in a civil context, Cross on Evidence (11th Edition) states:

[124]

I am not satisfied that there is a discretion to exclude admissible evidence in a civil proceeding on mere grounds of 'fairness' as asserted by CU. If such a discretion exists in the more confined scenario where the probative value of the evidence is outweighed by its prejudicial effect ‑ which has been said by three members of the High Court to be highly doubtful in proceedings other than criminal proceedings ‑ the present case is not one where I would have exercised the discretion. Mr Pelet's evidence is potentially of significant probative value. It has no prejudicial effect in the sense in which the discretion is normally employed in a criminal context. Evidence is not unfairly prejudicial merely because it may tend to support the case of the other party or damage the case of the objector. Unfair prejudice suggests that the evidence is such that there is a real risk that the tribunal of fact may use the evidence to make a decision on a basis not logically connected to the relevant factual issue.
Nor, in my opinion, was there any merit in the suggestion that there was unfairness in Mr Pelet giving evidence in circumstances where Comlux had not produced the documents sought by CU. This was not a case where CU was unable to cross‑examine Mr Pelet. To the contrary senior counsel for CU conducted a rigorous and effective cross‑examination. The materials made available by Comlux were sufficient to test the credibility and reliability of Mr Pelet's evidence. There was no intimation in CU's written submissions in support of the objection that Mr Pelet's cross‑examination was impaired or impeded in any way by the non‑production of the full contracts or the documents that evidenced the negotiations leading to the contracts.
It is also difficult to understand how the asserted 'unfairness' could have impacted on Mr Pelet's evidence outside of the third‑party contracts.[240] Were there a discretion to exclude admissible evidence on grounds of fairness I would have limited consideration of exercise of the discretion to Mr Pelet's evidence as to the third‑party contracts.[241] That is all the more so where CU's written opening submissions themselves relied on part of Mr Pelet's intended evidence (see par 168 above).
CU's second ground of objection relied on the best evidence rule. Self‑evidently this objection must be confined to the evidence as to the third‑party contracts (although it also applies to the indemnity extracts and the redacted draft and final contract as referred to in par 17 of the first statement).
The 'best evidence' rule requires that a party produce the best evidence that the nature of the case allows. Any 'non‑best' evidence is excluded. It is seen most often in the context of documentary evidence. There, if a party wishes to rely on the contents of a document, the original must be produced. Secondary evidence is only admissible if the original cannot be produced and the reason for its absence is explained.[242]
As that statement of the best evidence rule illustrates, the rule is subject to exceptions, ie there are cases in which the contents of a document may be proved by secondary evidence.[243] That is what AVWest seeks to do in the present case. It seeks to prove the contents of the indemnity clauses in the various third‑party contracts by the various extracts and the redacted contracts.
AVWest contends that the documentary evidence it seeks to adduce is the best evidence available to it; and the absence of the originals is explained.
That submission must be accepted. The originals of the third‑party contracts are not in the possession, power or control of AVWest. They are documents of Comlux or Comlux AS. AVWest, like CU, has no more than copies of the extracts and redacted contracts as provided by Comlux's attorneys in Indiana. Comlux has refused to provide any better version of the third‑party contracts. Accordingly, AVWest cannot produce the originals of the documents. The reason for non‑production is explained.
One exception to the best evidence rule arises where it is impossible to enforce the production of a document because the person in possession of the original ‑ being a stranger to the litigation ‑ is beyond the jurisdiction of the court. In that circumstance secondary evidence as to the contents of the document is admissible.[244]
The exception applies. Comlux and Comlux AS are strangers to this litigation. They are also beyond the jurisdiction of the court: Comlux is located in Switzerland; Comlux AS in the United States of America. How could AVWest compel production of the originals of the third‑party contracts? Only by the means attempted, unsuccessfully, on the part of CU in its pre‑trial application seeking to bring about production of the documents. (And, so far as Ch 1 of the Hague Evidence Convention is concerned, in defiance of a decision of the Full Court of this court that s 110 of the Evidence Act 1906 (WA) cannot be used solely to obtain the production of documents.)[245] In practical terms it was impossible to compel production of the third‑party contracts. Secondary evidence is admissible to proof the contents of the documents.
Accordingly, I overrule CU's objection, based on the best evidence rule, to the admissibility of the indemnity extracts and the redacted draft and final contract as referred to in par 17 of Mr Pelet's first statement. Those documents ‑ together with Mr Pelet's evidence more generally ‑ are admitted into evidence. (I will, however, continue to refer to Mr Pelet's statements as MFI 18A and MFI 18B. That was the designation used in the parties written and oral closing submissions.)
In due course it will be necessary to make factual findings based on Mr Pelet's evidence. This section of my reasons has only considered the question of admissibility. I accept that the non‑production ‑ by Comlux and Comlux AS of complete versions of the third‑party contracts ‑ is potentially relevant to the weight to be given to Mr Pelet's evidence.

[125]

Before trial the parties had filed expert reports from two retired judges of the Indiana Supreme Court.
Among other things the retired judges were asked to opine on matters concerning the proper construction of cl 10 of the CMA as a matter of Indiana law. However, the experts were not asked to respond to the same questions. AVWest instructed its expert, Theodore Boehm, to express an opinion as whether, on the proper construction of cl 10 of the draft CMA, there was a risk that Comlux AS would not be liable for damage to the Aircraft's airframe and engines while the Aircraft was in Comlux AS's care even if the damage was caused by Comlux AS's negligence or gross negligence. CU's expert, Frank Sullivan, was asked for his opinion as to the likely conclusion in respect of the parties' intentions in drafting cl 10 ‑ in particular as to the allocation of risk between the parties under the CMA as a whole.
Accordingly, Messrs Boehm's and Sullivan's reports went beyond informing the court as to the relevant principles and content of the law of Indiana. The experts were instructed to, and did, apply those principles in expressing an opinion on matters that were in issue in the litigation.
During AVWest's opening I questioned why the experts' evidence on the application of the principles of law that apply in Indiana was admissible. Senior counsel for AVWest said that it was not. That concession was properly made. The content of foreign law is proved as fact; but application is a matter of law for this court. Subject to an exception that is presently irrelevant, evidence of opinion as to the proper application of foreign law to fact is not admissible.[246] Senior counsel for CU pressed for admission of the evidence on a different basis. The retired judges' evidence was said to be relevant and admissible as evidence of what advice an Indiana attorney might have given had advice been sought. I rejected that basis for admissibility in a ruling provided in the course of the trial.[247]
In the result Messrs Boehm's and Sullivan's reports were admitted into evidence ‑ and have the status of evidence ‑ only so far as they addressed the relevant principles of the law of Indiana. The parties conferred on which parts of the reports met this criteria. The reports were highlighted in yellow to identify which part of the reports were to be received as expert evidence. The rest of the reports ‑ in which, among other things, the two respective experts applied the principles of the law of Indiana to the construction of the CMA ‑ were received as submission only.[248]
In substance there was agreement between Messrs Boehm and Sullivan as to the relevant principles of contractual construction under the law of Indiana. I will address those principles ‑ which are similar to the principles which apply as a matter of Australian law ‑ in assessing CU's defence based on the proper construction of cl 10 of the CMA.

[126]

To my regret I have been delayed in the production of these reasons. Because of that I have sought to take steps to ensure that there has been no impairment of my capacity to properly assess the parties' cases and the evidence given at trial.
I have found, in preparing these reasons, that I continue to have a clear impression and recollection of the witnesses (although less so with Kevin Harvey). In particular I had a continuing recollection of Mr Roberts and Mr Burton. Both gave evidence in person over some three days and were the subject of extensive cross‑examination by senior counsel for CU. My recollection of the manner and conduct of the witnesses in giving evidence was assisted by the contemporaneous notes that I made during the trial. In forming an assessment of the veracity and reliability of the witnesses I have reconsidered those notes. I have not, however, simply adopted those initial impressions of the witnesses. Rather, I have reviewed my notes in the context of a fuller subsequent reconsideration of the witness statements, the transcript and the contemporaneous documents as adduced in evidence.
In addition, I had the benefit of substantial written closing submissions[249] and detailed oral closing submissions.[250] Both parties, very helpfully, made considered submissions as to the credit and reliability of the key witnesses. Illustrations with accompanying transcript references were provided to support those submissions. I found that of considerable assistance in traversing the significant bulk of evidentiary materials before me. Accordingly, I have not simply relied on my recollection of the evidence but, with the assistance of the parties' submissions, have re‑visited and carefully considered the primary materials.
It will be apparent that ‑ although I have a strong recollection of the material witnesses ‑ my conclusions as to credit and reliability are not demeanour based (although, where necessary, I have made observations as to the manner in which evidence was given). In particular I have not drawn an adverse conclusion about the credibility of the evidence of any witness based on his demeanour.
In that regard, as will be seen, CU made submissions that Mr Roberts and Mr Burton were evasive and non‑responsive in their answers in cross‑examination. I accept that on occasion both Mr Roberts and Mr Burton were non‑responsive. Also, Mr Roberts was prone to speech making. But a degree of non‑responsive answering is unsurprising given the length of Mr Roberts' and Mr Burton's cross‑examinations and the combative nature of the cross‑examinations. Viewing the evidence as a whole, I do not accept that the instances of non‑responsiveness relied on by CU justify a finding that either witnesses' veracity or reliability is tainted. There is a difference between a non‑compliant witness who wishes to ensure that he or she understands the question ‑ or that his or her evidence is not taken out of context ‑ and a witness determined not to provide a damaging answer no matter what. Mr Roberts and Mr Burton were witnesses of the former type rather than the latter type.
In short, consistent with my general approach to the evidence, I have assessed the witnesses' written and oral evidence in the context of the contemporaneous documents and objectively established facts. I have done so having re‑considered the witness statements and the transcript, together with the contemporaneous materials, with the benefit of the parties' written and oral closing submissions.

[127]

Before turning to Mr Roberts as a witness I should make some more general observations about Mr Roberts. Indeed, Mr Roberts' antecedents, ability and attitude are of considerable importance in assessing the reliability of Mr Roberts' evidence as to what he would have done in terms of AVWest's counterfactual case.
At an early age Mr Roberts commenced working for the Multiplex Group. Multiplex conducted a business of construction, development, funds management and property ownership. At that time the entity was privately owned, having been founded by Mr Roberts' father. Multiplex Group became listed on the Australian Stock Exchange in December 2003. Mr Roberts worked for Multiplex from 1989 to June 2007. During part of that time he was a director and sat on the entity's credit committee. Mr Roberts left Multiplex Group just prior to its sale to an overseas entity (at which time the Roberts family sold its remaining interests in Multiplex Group).
Accordingly, from an early age Mr Roberts has been immersed in large scale commercial enterprise. Mr Roberts referred in his witness statement to the business philosophy and approach to risk that informed his business activities as a result of growing up through the Multiplex business. Mr Roberts suggested that Multiplex recognised that to limit or control risk was to bring greater certainty of project profitability. As will be seen, while accepting that business cannot be without risk altogether, Mr Roberts claimed to have been ingrained with a risk control culture.
Mr Roberts commenced to run his own personal investment business in 2001. Those investment activities, through Warburton group, were quite diversified. As well as aviation related businesses Mr Roberts was involved in investment activities in relation to aquaculture, equities, hedge and managed funds and property development and management.
Mr Roberts is a non‑executive director of two public companies. He is also either on the board of or a patron of certain not‑for‑profit organisations.
In his oral evidence Mr Roberts came across as being extremely interested and knowledgeable in relation to aviation in general and the business of aviation in particular. Mr Roberts himself said that he had a 'keen interest' in aircraft.[251] Mr Roberts has been involved in flying and operating aircraft since 1991. It was readily apparent, from both Mr Roberts' oral evidence and the contemporaneous documents, that Mr Roberts had an extensive technical knowledge of executive jet aircraft and a wider understanding of the aviation industry and market. In particular, Mr Roberts plainly had an exceptional understanding of the Bombardier Global Express and the market for it and other similar aircraft.
In 2010 Mr Roberts was highly skilled in the executive jet aircraft business. He was also, in my estimation, a shrewd and experienced business person. Coupled with those two attributes Mr Roberts enjoyed a large network of relationships with both aircraft suppliers and potential purchasers.
In written submissions AVWest contended that Mr Roberts was a hard bargainer and negotiator.[252] I agree. Mr Roberts' preparedness to negotiate to his commercial advantage was readily apparent in the negotiations as to the ASA and the CMA. Initially Mr Roberts sought to obtain a turn‑key arrangement. Having been unable to negotiate a turn‑key arrangement ‑ and thus being subject to delivery risk ‑ Mr Roberts sought to mitigate that risk in two ways. First, by the introduction of cl 1.4 of the ASA. The necessity for agreement as to the draft CMA enabled AVWest to assert commercial pressure on both Air Luther and Comlux AS. As Mr Roberts explained, it gave him 'leverage' to ensure that the CMA was on acceptable terms.[253] (It also gave AVWest continued bargaining power vis‑à‑vis Air Luther on the acquisition of the Aircraft.) Second, by the terms of the heavily negotiated liquidated damages clause in the CMA.
Equally, in my opinion, the events surrounding the negotiations as to the ASA and the CMA amply demonstrated that Mr Roberts was prepared to employ such commercial advantage as he enjoyed to his benefit.
I am satisfied, for example, that Mr Roberts deliberately delayed in responding to Mr Pelet's emails of 14 and 20 September 2010 about the draft CMA. Mr Roberts wished to first receive the inspection report on the Aircraft. Had the CMA been executed AVWest would have had a lesser bargaining position in dealing with the Aircraft's defects. However, with the CMA yet to be finalised, Mr Roberts could continue to negotiate with both Air Luther and Comlux AS (through Comlux) to achieve ‑ at a lesser cost ‑ rectification of defects (by Air Luther) and the required works by way of cabin modification and refurbishment (by Comlux AS). Without finalisation of the CMA both Air Luther and Comlux knew that AVWest was not fully committed to the purchase of the Aircraft. AVWest could have walked away. That threat, even unspoken, enhanced the strength of AVWest's overall bargaining position. All things being equal both Air Luther ‑ and Comlux as its broker ‑ would be more willing to give matters away until the ASA became unconditional. Accordingly, it suited Mr Roberts to go slow on the review of the draft CMA; and so Mr Roberts ‑ although in a position to respond ‑ delayed in responding to Mr Pelet. Mr Roberts took the risk that Air Luther might treat the ASA as terminated. But it was a calculated risk.
Mr Roberts struck me as a particularly astute and shrewd business person, one well used to seeking to extract commercial advantage, who would not shrink from employing an advantage he had obtained. In that respect Mr Roberts was prepared to take commercial risks. As will be seen, however, Mr Roberts' approach was one of undertaking measured risk ‑ he weighed risk and commercial outcome and sought to balance risk as against the transaction as a whole.
In terms of Mr Roberts as a witness the parties made diametrically opposed submissions. AVWest contended that Mr Roberts was a careful and impressive witness. Mr Roberts was said to have given his evidence honestly, carefully and with close attention to detail. AVWest also suggested that much of Mr Roberts' witness statement evidence was not challenged directly or at all. By contrast CU alleged that Mr Roberts was an unsatisfactory witness who gave non‑responsive and evasive answers. It was suggested that, if a question answered honestly would have given a damaging answer, Mr Roberts would seek ‑ by various means ‑ to deflect and not provide an answer; and that Mr Roberts would seek to put a 'spin' on the contemporaneous records. CU contended that Mr Roberts approached his evidence as an exercise in advocacy ‑ being prepared to maintain an untenable stance so as to advance AVWest's case ‑ giving evidence in content and manner that was calculated to advance AVWest's interests as Mr Roberts perceived them to be.
In view of those submissions, and the importance of Mr Roberts' counterfactual evidence to the proper disposition of the case, I have reviewed Mr Roberts' evidence (both his witness statements and his oral evidence) with more than usual care. I have paid particular attention to the matters raised in CU's written closing submissions and, where footnoted, the passages of transcript as highlighted in those submissions.[254] For those exchanges which were substantially reproduced in CU's written closing submissions as constituting non‑responsive or evasive answers I have taken the added measure of re‑visiting an audio recording of Mr Roberts' evidence.
Some of the complaints are minor. For example, it is of no account that Mr Roberts was initially unsure about which aircraft he was referring to in a 14 October 2010 email.[255] When given the opportunity to fully consider the email chain Mr Roberts accepted that he was referring to the Aircraft.[256] So too CU overreached in suggesting that Mr Roberts' evidence was incorrect insofar as he said the form of contract to purchase Bombardier Global Express XRS SN 9310 was 'in effect, settled' at the time AVWest advanced $US40 million.[257] A draft of the contract was attached to a contemporaneous email and the contract was executed the next day.[258] The complaint that Mr Roberts could not explain why AVWest did not claim lost profits by reason of an inability to invest in Bombardier aircraft positions in a mediation position paper in the litigation against Comlux AS[259] overlooked the fact that cl 10.3 was included in the CMA whereas, in the present case, damages were sought to be quantified on the basis that there was no transaction.
CU also sought to suggest that there were particular instances where Mr Roberts' evidence was inconsistent with contemporaneous records.[260] I do not accept that submission. There were occasions where Mr Roberts referred to things which were not in a contemporaneous document (eg that Bombardier had agreed to refund an advance if no agreement was reached). But to observe that something said in evidence was not reflected in the contemporaneous documents does not mean that the evidence was inconsistent with the documents.
Nor, in my opinion, is there substantial merit in CU's contention that there was an inconsistency between Mr Roberts' evidence at trial and what was said in an affidavit sworn in other proceedings.[261] At trial Mr Roberts denied the cross‑examiner's proposition that AVWest had undertaken a huge risk in advancing Bombardier an amount of $US35 million in the absence of a written contract.[262] In affidavit evidence in other proceedings Mr Roberts had recounted a conversation in which he outlined to a Bombardier representative the risks of a similar (but later) transaction.[263] Mr Roberts explained that he was using what he could to present a case of perceived risk to get the best possible commercial terms, ie presenting a view so as to 'leverage ... the transaction to the best of [AVWest's] advantage'.[264]
I accept that latter evidence of Mr Roberts. The earlier affidavit evidence does not provide any sound basis to impugn Mr Roberts' evidence before me. Mr Roberts' explanation does, however, reinforce the view I have formed that Mr Roberts was a particularly astute and shrewd business person who sought to obtain commercial advantage and was prepared to apply it to his benefit.
There are, however, a number of instances where Mr Roberts gave non‑responsive answers ‑ or answers that responded and then went on to provide matters of clarification or explanation which went well beyond what was asked of Mr Roberts.[265]
Often such conduct raises a question as to veracity. On this occasion, having reconsidered the materials as a whole and the passages relied on by CU in particular, I am not satisfied that Mr Roberts was an evasive witness or that ‑ where non‑responsive ‑ Mr Roberts engaged in selectivity to try and shape the evidence to better suit AVWest's case as he understood it to be.
Some of the instances relied on by CU do not, in my view, bespeak non‑responsiveness. A witness is not non‑responsive simply because he or she does not agree with the cross‑examiner's proposition and goes on to explain why that is so. Moreover, I do not accept that where Mr Roberts sought clarification of a question ‑ or could not recollect matters ‑ that he was being disingenuous. There were numerous very general questions put to Mr Roberts where clarification was required. That same generality explained much of Mr Roberts' tendency to seek to amplify his answers. And the fact that Mr Roberts was unable to recollect certain details from events long ago was unremarkable. Mostly, however, Mr Roberts demonstrated a very strong capacity for recollection. For example, once his memory was refreshed with documentation, Mr Roberts was able to explain the essential components of the very complicated transaction concerning a Gulfstream G550 aircraft (see further par 334[266]) below).266 Similarly, when asked in re‑examination, Mr Roberts was able to give an unusual amount of detail as to the discrepancies that were apparent on inspection of t[267]Aircraft.267 Mr Roberts presented as a person of considerable fastidiousness and precision.
I do not accept CU's broad submission that Mr Roberts was an unsatisfactory witness and its corollary that I should give Mr Roberts' evidence little weight unless against interest or corroborated by contemporaneous materials.
In finding, as I do, that Mr Roberts was an honest witness, it does not follow that I must or will accept all of his evidence. It is also necessary to consider the reliability of Mr Roberts' evidence. Honest witnesses may still be mistaken in their evidence. The question of reliability is particularly acute when assessing Mr Roberts' counterfactual evidence. I accept that Mr Roberts honestly believed that his hypothetical evidence was a true account of what he would have done. It is, however, evidence given with the benefit of hindsight and knowing of the hangar fire and the complications that then arose in recouping the value of the Aircraft as against the Insurers and Comlux AS. The reliability of that evidence falls to be assessed in accordance with the approach that I have outlined earlier.
Also relevant to reliability is that, while essentially a witness of truth, Mr Roberts was, in my view, prone to exaggeration and some overstatement. That was particularly evident in his evidence as provided by witness statement. For example:

[133]

Similar exaggeration was, at times, apparent in cross‑examination. For example, in relation to the $US35 million advance to Bombardier in April 2010 Mr Roberts suggested that all the documentation was in final form ready for execution at the time of the advance.[277] That was not the case.[278] Indeed, draft documentation was still being circulated in June 2010.[279]
Of more direct relevance to the counterfactual evidence was Mr Roberts' evidence that the insurance in relation to the Aircraft was 'secondary'[280] or an 'additional second layer of protection'.[281] In context ‑ particularly in par 73 of Mr Roberts' witness statement ‑ the suggestion was that this is what Mr Roberts was thinking at the time in entering into the CMA and completing the purchase of the Aircraft under the ASA. That is all the more so when Mr Roberts' evidence was that he would not have gone ahead if his capital and profit were not protected[282] and that was not the place of the insurance as he (Mr Roberts) was expecting to have the relevant risk for his capital and profit placed on Comlux AS.[283]
However, in cross‑examination Mr Roberts said that he was not aware of AVWest's obligation to obtain insurance for the Aircraft under cl 11.1 of the CMA at the time of entry into the CMA.[284] Accordingly, Mr Roberts' evidence as seeing the insurance as an additional second layer of protection was an exaggerated reconstruction of what he would have been thinking at the time.
These instances of exaggeration do not cause me to reconsider my assessment of Mr Roberts as an honest witness. It is, however, a circumstance to be taken into account in determining the reliability of Mr Roberts' evidence ‑ and in particular the reliability of Mr Roberts' counterfactual evidence.
Some other parts of Mr Roberts' evidence require further consideration. For example, Mr Roberts' evidence as to his approach to risk (both in general and in the specific context of cl 10.1 and 10.3 of the draft CMA). Also, the evidence as to AVWest's dealings with Bombardier following the fire. I am satisfied, however, that these parts of Mr Roberts' evidence do not affect the conclusion I have reached that ‑ subject to the tendency to aggrandize and overstate ‑ Mr Roberts' was an honest witness endeavouring to give truthful answers.

[134]

By training and professional qualification Mr Burton is an accountant. Mr Burton, as Warburton group's chief financial officer, was a significant witness for AVWest. Mr Burton's evidence went to matters such as:
- the Warburton group and his and Mr Roberts' respective roles within the group;
- AVWest's business and financial performance;
- Mr Burton's involvement with contracts used in the aviation industry (including the process adopted for review of contracts);
- the negotiation of the ASA;
- the receipt of the draft CMA;
- the relationship with CU and the 17 September 2010 engagement of CU to review and amend the specific clauses within the draft CMA;
- contact with the insurance broker in relation to cl 11 of the draft CMA; and
- negotiations with Comlux AS and finalisation of the CMA.
Importantly, as will be seen, Mr Burton gave counterfactual evidence as to what he (Mr Burton) would have done had CU given certain advice as to par 2 of cl 10.1 and cl 10.3 of the draft CMA.
In written closing submissions CU contended that Mr Burton was an unsatisfactory witness. CU suggested that Mr Burton was evasive and non‑responsive and gave tailored evidence with an eye to what would assist AVWest's case rather than recounting what had actually happened. It was also said that Mr Burton failed to make reasonable concessions. CU submitted that I should give little weight to Mr Burton's evidence unless it was against interest or corroborated by contemporaneous documents.
I reject that submission. Mr Burton was a poised and precise witness. His evidence was measured and generally responsive. Where, however, Mr Burton was pressed with questions of ambiguous generality, Mr Burton refused to make generalisations. I do not view that as bespeaking evasiveness. Rather, I consider that Mr Burton was being deliberate and precise in his answers. Mr Burton agreed with a description of himself as an organised and meticulous planner. That is how Mr Burton came across in both his evidence and the contemporaneous documents. I consider that Mr Burton was an honest witness doing his best to assist the court with an accurate recollection of events. Moreover, Mr Burton's evidence was generally reliable.
I accept that there were occasions on which Mr Burton was non‑responsive.[285] I consider that had more to do with the dynamic that evolved between Mr Burton and the cross‑examiner in the course of cross‑examination than reflecting a conscious attitude by Mr Burton to give a sanitised or selective account. On occasions what might otherwise be thought to be non‑responsive was instead Mr Burton shying away from the generality of the question and seeking to give a precise and careful answer.[286] So, for example, rather than accept that the purchase of particular aircraft was funded by loans from related parties (thereby connoting an advance for a particular purchase), Mr Burton clarified that related party loans were provided to AVWest and AVWest used those funds to acquire aircraft.[287] And, contrary to CU's submission, Mr Burton was prepared to make concessions. For example, on the important subject of whether Mr Hodgkinson said he was not qualified to advise on law other than Australian law, Mr Burton accepted that Mr Hodgkinson might well have said that (see par 328 below).
On occasions the cross‑examiner sought to impugn Mr Burton's evidence by what was, with respect, arm‑chair logic rather than commercial reality.
For example, it was suggested that Mr Burton's evidence was absurd so far as he would not accept the proposition that, in the negotiation of contracts, the less time left for negotiation the harder it was to get amendments through.[288] Mr Burton's refusal to accept the cross‑examiner's thesis was, I consider, entirely explicable. It is a matter of commercial notoriety that hard‑nosed bargainers will seek to slip in amendments at the last minute so as to maximise the chances that the other party will yield so as to retain a commercial bargain that is otherwise acceptable. As Mr Burton explained in re‑examination, absence of time may be a benefit because of the other side's desire to close the transaction.[289]
Mr Burton came across as an experienced and capable business executive. He gave cogent explanations for the practices adopted by AVWest in its dealings with Bombardier and more generally.[290] While, as discussed further below, some of those dealings involved transactional risk, undertaking risk is an intrinsic part of carrying on business. Mr Burton did not exhibit any misconceptions as to the undertaking and management of business risk.
While I accept that Mr Burton was an honest witness, and that his evidence was generally reliable, there are two aspects of his witness statement evidence that I consider to be exaggerated. First, at pars 57 and 58 of his first statement Mr Burton gave evidence as to why he sought advice from CU about the four specific clauses within the draft CMA. In circumstances where, as will be seen, Mr Burton had a very limited specific recollection of the 17 September 2010 telephone conversation with the CU solicitors, that evidence can be no more than after the event reconstruction. Yet it is presented as if Mr Burton is recounting his then state of mind. It also extends well beyond what is stated in Mr Burton's 17 September 2010 email to CU. Second, at par 58 of his first statement Mr Burton said that he did not have much prior experience at that time with indemnity or limitation of liability provisions. The documentary evidence established that was not the case. Such clauses were a common feature in the contracts entered into by AVWest and AVWest Pty Ltd (see par 495 below).
I am not satisfied that the identified portions of Mr Burton's witness statement evidence are reliable. I reject that evidence. However, for the avoidance of doubt I accept ‑ as stated in par 58 of Mr Burton's first statement ‑ that at the relevant time Mr Burton did not know the meaning of, or difference between, the terms 'special', 'consequential', 'incidental' or 'exemplary' damages. The distinction between these concepts escapes many lawyers; there was nothing to suggest that Mr Burton, as an accountant, was aware of the applicable distinctions in the legal concepts implicit in the wording of cl 10.3.

[135]

CU contended that Mr Pelet's evidence should be treated with care and given little weight. CU submitted that it could not test the veracity of Mr Pelet's evidence. I reject that latter contention for the reasons given in overruling CU's evidentiary objection grounded on fairness (see par 178 above).
I will deal with the extent to which I accept Mr Pelet's evidence as part of the counterfactual. At the moment my observations are more general.
While, having said that Mr Pelet's evidence should be given little weight, CU did not challenge Mr Pelet's credit. There was no basis to do so. Mr Pelet was an independent witness who responded to questioning in cross‑examination as a careful and particular commercial lawyer. I am satisfied that Mr Pelet was an honest witness doing his best to give truthful answers. In coming to that conclusion I am conscious that Mr Pelet was in error in his first statement, at par 17, when he stated that there was an occasion where, at the request of a counterparty, he agreed to remove the equivalent of the airframe and engine exclusion in par 2 of cl 10.1 of the CMA.[291] However, Mr Pelet was at pains at the outset of his evidence to correct the mistake. Mr Pelet clarified that he had not been involved in a case where Comlux would assume the entire liability of an aircraft.[292]
I acknowledge, however, that to the extent Mr Pelet gives hypothetical evidence on AVWest's counterfactual case it is necessary to apply caution to that hindsight evidence. That is all the more so since, as Mr Pelet stated, September 2010 was an early stage in the existence of Comlux AS in the United States[293] and the CMA for AVWest was one of the first he had discussed and negotiated as legal counsel for Comlux AS.[294] Also, Comlux AS's standard contract evolved from that point.[295]
Accordingly, there was no established practice at the time Mr Pelet negotiated the CMA. In the absence of a settled practice it is more difficult to reach a state of satisfaction on the balance of probabilities as to the likely attitude and conduct of Comlux AS at the time of negotiation of the draft CMA.

[136]

Kevin Harvey is an attorney admitted to practice in Indiana in the United States of America. He is a partner of the firm Allen Wellman McNew Harvey LLP, having joined that firm in 1997. Between late October 2012 and into 2016 Mr Harvey acted for AVWest in the Underwriters litigation and AVWest's claim against Comlux AS.
Mr Harvey gave evidence by witness statement.[296] He was cross‑examined via video link. In written closing submissions CU accepted that Mr Harvey was a witness of truth. I agree. In his oral evidence Mr Harvey provided thoughtful and responsive direct answers to the questions directed to him. Mr Harvey was able, where necessary, to correct misapprehensions that arose in relation to documents in the litigation in the United States of America. Mr Harvey was a compelling and impressive witness. I accept Mr Harvey's evidence.
It will be necessary, later on, to examine some of Mr Harvey's evidence about the settlement between AVWest and Comlux AS and the view he formed as to the merits of the settlement. For now, however, I will make mention of the circumstances in which the constructional issue as to par 2 of cl 10.1 of the CMA emerged as an issue in Mr Harvey's consideration of the litigation affecting the Underwriters and Comlux AS.
The litigation had commenced in October and November 2012 (see pars 94 to 95 above). AVWest's Australian solicitors had briefed Mr Harvey with a draft statement of claim that[297]lied on cl 10.1.297 The initial complaint as drafted by Mr Harvey also referred to [298]10.1 of the CMA.298 Mr Harvey accepted that this was based on par[299]2 of cl 10.1.299 In March 2013 Comlux AS filed a pleading which raised an argument as to the proper construction of cl 10.1 and cl 10.3 (see pars 96 to 97 above). But at that time AVW[300]'s proceedings against Comlux AS were stayed.300 While, in November 2013, Mr Harvey [301]k some steps in the Underwriters' litigation,301 prosecution of AVWest's claim a[302]nst Comlux AS did not resume until June 2014.302 Shortly thereafter Mr Harvey prepared the amended complaint (see par [303] above). Various pre‑trial steps then ensued.303
At this time Mr Harvey was alive as to the issues created by cl 10.3 of the CMA. In a 13 February 2014 letter Mr Harvey stated:

[138]

In early August 2014 Comlux AS filed its answer and additional defences to AVWest's amended complaint (see par 102 above). Comlux AS continued to rely on its preferred construction of cl 10.1 and cl 10.3.
Following the answer and additional defences to AVWest's amended complaint the Australian solicitor for AVWest raised its ability to rely on cl 10.1 and cl 10.2 of the CMA in the context of cl 10.3 of the CMA and asked that Mr Harvey provide a preliminary analysis of his views as to how cl 10.3 pertained to AVWest's ability to proceed with its claim.[305] Those instructions were confirmed on 2 December 2014 when AVWest's Australian solicitor sought Mr Harvey's considered advice on the proper construction of cl 10.1, cl 10.2 and cl 10.3.[306] A memorandum was not prepared until January 2015.[307] Somewhat confusingly, the memorandum focussed on the interaction of cl 10.2 and cl 10.3. There was no mention of cl 10.1. I say somewhat confusingly as the June 2014 amended complaint had referred to cl 10.1 of the CMA rather than cl 10.2 (see par 101 above). Mr Harvey suggested that AVWest proceed on the basis that cl 10.2 applied to negligence claims and cl 10.3 applied to contractual claims. On that basis the consequential loss exclusion would only apply to the breach of contract and warranty claim in the amended complaint; it would not apply, according to Mr Harvey, to the negligence and bailment claims being pursued by AVWest.
Mr Harvey gave evidence, and I accept, that at this time he did not consider or turn his mind to the meaning and effect of cl 10.1 of the CMA.[308] At this time (January 2015) Mr Harvey did not have any particular concerns about cl 10.1.[309]
However, as more procedural steps were taken, Mr Harvey's attention was drawn to cl 10.1.[310] For example, at a 24 November 2014 pre‑trial conference Comlux AS's attorney had made reference to damage limitations imposed by the CMA.[311] And in January 2015 Comlux AS's attorney again suggested to Mr Harvey that the CMA 'prohibits any claim for lost profits and prohibits any claim for damages to the airframe or any attached engines or equipment'.[312] Mr Harvey understood the reference to airframe and engines to be a reference to cl 10.1.[313] However, at the time Mr Harvey did not consider it necessary to respond to the argument based on cl 10.1; he thought Comlux AS was more focussed on seeking to restrict liability to $US100,000 based on the cap in cl 14.[314]
After a settlement in the Underwriters litigation the parties began to focus on a mediation in the proceedings between AVWest and Comlux AS. In a 14 October 2015 email the attorney for Comlux AS stated:

[148]

Two accounting experts were called as to quantification of damages. AVWest called Campbell Jackson of Ernst & Young. CU called John McGuiness of McGrath Nicol.
Both Mr Jackson and Mr McGuiness had impeccable credentials as experts. Despite that, somewhat unusually, each side criticised the other side's expert in their approach to giving evidence before the court. CU claimed that Mr Jackson had limited ability to give impartial assistance to the court. AVWest suggested that Mr McGuiness was cavalier and provided an estimate of loss so wildly divergent from reality that its application was unsupportable.
The experts' dealings with each other left a lot to be desired. As is common the experts were ordered to confer and provide a joint expert report. The JER was to provide a summary and set out matters of agreement and points of difference (referencing each expert's position on the points of difference). That attempt to narrow differences ‑ and highlight the issues for determination ‑ failed conspicuously. The JER[331] is some 81 pages (mostly in small font and sometimes very small font) with very little agreement. Indeed, there was limited ability to even agree on the points of difference. More disconcerting were the unnecessarily personal attacks that each expert made of the other's work and conduct in the context of preparation of the JER.
The experts' approach to the JER was simply unhelpful. The JER ‑ which should guide the court's consideration of the issues that are the subject of the competing expert evidence ‑ was unsuitable for the function it was supposed to fulfil. It provided no assistance to the court. The experts misconceived the purpose of the JER. A joint expert report should provide succinct identification of: (1) the matters on which the experts are agreed; and (2) the points of difference between the experts ‑ explaining, by reference to the expert reports, the reasons why each expert holds his or her opinion. It is not an opportunity to re‑state what is already in an expert report. All the more so it is not an opportunity to disparage the conduct of the other expert.
In giving evidence in person, however, both experts endeavoured to provide expert assistance. The oral evidence was given in conclave following a protocol in which counsel for both parties, most helpfully, had identified topics for the concurrent evidence with suggested questions for the oral evidence‑in‑chief of the expert witnesses. Counsels' identification of the relevant topics highlighted the experts' areas of disagreement and made up for the deficiency in the JER. The experts gave considered oral evidence that focused on those areas in dispute. The nitpicking and confrontational approach evident in the JER fell away. I am satisfied that each expert genuinely attempted to do his best to assist the court by providing opinion evidence based on his specialised knowledge. I reject the criticisms levelled at Mr Jackson and Mr McGuiness based on their respective approach to giving evidence.
The experts did, however, have substantially different methodologies as to quantification of damages. That will be discussed later in these reasons. However, the accounting evidence was directed to the quantification of damages in Scenario 4 and ‑ at least inferentially ‑ Scenario 3. AVWest has failed in its case on those two scenarios. Accordingly, the expert accounting evidence has proven of no practical utility to the eventual disposition of the case.

[150]

The nature of AVWest's business assumed importance in its case on damages. A fuller understanding of AVWest's operations is also necessary to put in context its counterfactual case.
I have already referred to three things of importance. First, that AVWest was a member of the Warburton group. Second, that the Warburton group was a private investment and operating group controlled by Mr Roberts. At the time of the material events that are in dispute in the litigation Mr Roberts was the sole director of AVWest. Third, between 1 July 2010 and 30 June 2014 AVWest's core business activity was the purchase and sale of aircraft (new and pre‑owned) and aircraft positions. At trial such 'aircraft positions' were sometimes referred to as 'slots'.
Mr Roberts was the sole director of the various companies within the Warburton group including AVWest. Mr Roberts was responsible for, and took, all material business and financial decisions in relation to the Warburton group entities.
Mr Burton was the chief financial officer of the Warburton group. Mr Burton's principal role was to assist Mr Roberts in managing the group's financial affairs. Mr Burton reported to Mr Roberts and liaised closely with Mr Roberts on all material matters of finance and administration. However, at the time the Aircraft was acquired, Mr Roberts was solely responsible for negotiating the commercial terms of deals in which the Warburton group (including AVWest) were involved. Accordingly, where an issue arose on any terms of a transaction which was likely to have a material impact, Mr Burton sought Mr Roberts' direction on how he (Mr Roberts) would like to proceed. Mr Burton was not authorised to make such decisions ‑ and in practice did not make such decisions ‑ without reference to Mr Roberts. The final terms of any contract required Mr Roberts' approval.
Accordingly, Mr Roberts was the directing mind and will of AVWest (and the Warburton group more generally).
The Warburton group consisted of various companies and trusts. In his first witness statement Mr Roberts explained that the investment activities of the various entities within the Warburton group were driven by his (Mr Roberts') decisions as to allocation of capital having regard to the need for diversification and management of business risk.[332] Mr Roberts also said that in the 2010 year he (Mr Roberts) had committed more of his (Mr Roberts') and the Warburton group's capital to AVWest's business than any other investment. Accordingly, as at the end of 2010 Mr Roberts was reluctant to commit more capital to AVWest.[333]
At trial frequent reference was made to the $US31 million as being 'capital'.
I understood those references to be to capital in a colloquial sense rather than a technical legal or accounting sense. AVWest conducted business as trustee of a trust. The trust had a limited settled sum. At the relevant time AVWest's financial statements showed it as having limited equity ($2.658 million as at 30 June 2010 and $5.232 million as at 30 June 2011).[334] The funding available to AVWest was instead primarily loan amounts introduced by entities associated with Mr Roberts. For example as at 30 June 2010 AVWest had net non‑current liabilities of some $85 million from entities associated with Mr Roberts.[335] Those related party loans were interest free and unsecured.[336]
Mr Roberts chose how to deploy his available funds and what amount would be made available to AVWest. In cross‑examination Mr Roberts explained that there was not a capital 'contribution' to AVWest but rather a capital 'allocation'.[337] This was the amount of capital that Mr Roberts was prepared to put into the business.[338]
Funding was available to AVWest from sources other than Mr Roberts. For example, AVWest had a United States dollar loan facility with GE Capital with advances equating to about $US25 million as at 30 June 2010 and about $US27.3 million as at 30 June 2011.[339] The facility limit was increased to $US36 million in February 2011[340] and later that calendar year to $US60 million.[341] That form of funding was not Mr Roberts' preferred option because of the necessity for a personal guarantee.[342] There was also evidence that AVWest obtained loan funds from a trust associated with Mr Roberts' sister (A$18.5 million in August 2011, $US10 million in October 2011 and $US7.5 million in September 2012).[343]
In cross‑examination Mr Roberts acknowledged the loans from the trust associated with his sister. However, Mr Roberts said that AVWest did not need the loans.[344] Earlier Mr Roberts had said that, if he needed to obtain further funds to invest in other aircraft over the period to December 2013, he was able to do so.[345] AVWest did not need to borrow the money.[346] AVWest had its own capital and was not reliant on third parties to invest further capital.[347]
As already mentioned, Mr Roberts held a keen interest in aircraft. AVWest Pty Ltd's charter business had commenced in 2002. Mr Roberts' witness statement evidence was to the effect that, from 2008, he began developing AVWest's business model of purchasing new and pre‑owned executive jets and 'aircraft positions' (ie contracts for the manufacture and delivery of aircraft in the future) to be on‑sold to third‑parties for profit.[348] Elsewhere Mr Roberts said that in late 2009 AVWest became the investment vehicle for the new and pre‑owned aircraft sales business of the Warburton group.[349] That evidence was something of an exaggeration. As mentioned, there was no formal 'business model' (see par 223(1) above) and the date of 2008 was inaccurate (see par 223(2) above). And in other sworn evidence Mr Roberts dated the development of AVWest's business of purchasing executive aircraft for re‑sale for profit from early 2010 (when the relationship with Bombardier was establ[350]ed) rather than 2008.350
Mr Burton described AVWest's business of buying and selling aircraft and aircraft positions as being in its infancy in 2010.[351] That, for reasons essayed below, is correct. I assess the business as only commencing operations in around July 2010 after AVWest finalised arrangements with Bombardier. Prior to that time, while there were occasions on which AVWest bought and sold aircraft, the relatively few transactions that can be identified were ad hoc and arose out of the charter business.
In his first witness statement Mr Roberts explained what attracted him to AVWest's business of buying and selling aircraft and aircraft positions for profit:

[152]

There was a second aspect to AVWest's business model. In addition to its understanding of the market for the executive jet aircraft, and its use of Mr Roberts' network for on‑selling such aircraft, AVWest applied its specialist expertise to develop fit‑out specifications for the refurbishment of pre‑owned aircraft and the manufacture of new aircraft.
AVWest's business was spectacularly successful. AVWest's financial statements for the years ended 30 June 2011 to 30 June 2014 were tendered in evidence. The year ended 30 June 2011 saw net profit of only $2,575,358 (a result that was adversely affected by a substantial loss on foreign currency exchange).[353] But subsequent years saw profits of $23.683 million (2012),[354] $15.693 million (2013)[355] and $87.650 million (2014).[356]
Before turning to AVWest's relationship with Bombardier and CU it is convenient to digress and deal with evidence given as to the process AVWest employed in reviewing and executing contractual documentation.
Consistent with Mr Roberts' position as directing mind and will of AVWest, it was AVWest's usual practice, when negotiating contracts, for Mr Roberts to negotiate the commercial terms. However, Mr Burton took responsibility for coordinating the review and drafting of legal documentation. As required Mr Burton was authorised to obtain legal and other professional advice. Mr Burton saw his role as being to get any commercial deal formally documented and into shape for Mr Roberts' approval. Mr Burton dealt with the mechanics of the contract to ensure that the contractual provisions reflected what Mr Roberts had negotiated and that the transaction was completed in an orderly and timely manner.
Mr Burton had a well‑developed process for the review of contractual documentation.[357]
It was AVWest's usual practice that, where necessary, Mr Burton would brief Mr Roberts as to any advice provided when lawyers were engaged. However, Mr Burton would not raise the matter with Mr Roberts unless the advice revealed an issue with a clause raising a concern or requiring further negotiation. Where an issue was revealed Mr Burton would raise the matter with Mr Roberts. Mr Roberts would then review the clause and decide how he (Mr Roberts) wished to deal with the issue. If, however, the legal review did not reveal any issues, there would be nothing for Mr Burton to report up the line to Mr Roberts. Mr Roberts would then generally just sign the contract (assuming that he remained content with the commercial aspects of the transaction).
Mr Roberts would not necessarily read the contract. He (Mr Roberts) relied on his relevant executive (eg Mr Burton) to raise any concerns based on the commercial terms and specific risk issues that Mr Roberts asked to be addressed.[358]
Mr Roberts suggested that his main focus in giving instructions to his executives to review contracts was to preserve capital and preserve profit.[359] Mr Burton did not corroborate that evidence ‑ although he (Mr Burton) did assert in his witness statement that Mr Roberts was generally cautious about taking on risk and attempted to 'lay off' risk to the other party in a transaction or otherwise minimise risk.[360] That is evident in AVWest's approach to negotiation of the ASA and the CMA (eg seeking to avoid delivery risk by a turnkey arrangement and the introduction of substantial liquidated damages).
I accept that Mr Roberts' standing instructions to Mr Burton in reviewing commercial documentation was to seek to mitigate risk and to preserve capital and profit. That approach is consistent with the assessment I have formed as to Mr Roberts more generally and my assessment that Mr Roberts was an honest witness. It is also borne out by AVWest's actions. It is, in my view, an unexceptional direction. In substance the instruction was not to lose the investment while still seeking to make money. Plainly this is an aspect of good risk management. Nevertheless, as CU observed, at heart it is no more than a basic business goal. But, as is discussed further below, this does not mean that Mr Roberts would refuse to undertake any risk. Mr Roberts accepted that business cannot be without risk altogether.[361]

[158]

Later in April 2010 AVWest advanced $US35 million to Bombardier.[366] At trial it was suggested by CU that this demonstrated that Mr Roberts had a willingness to assume risk. This is considered below at pars 356 to 373.
Draft documentation between AVWest and Bombardier to give effect to the initial transaction was still being negotiated in early June 2010 (see pars 341 to 353 below). The initial Bombardier 'slots' were dated 14 July 2010 (see pars 334(5) and 338 below).
In his 22 August 2017 affidavit Mr Roberts explained that AVWest and Bombardier did not, in April 2010, discuss the structure by which the aircraft would be resold to the third‑party buyer (par 38). Eventually, when occasion arose to do so (see par 334(5) below), this was done by a termination agreement. AVWest received a refund of its initial instalment of the purchase price together with a 'premium' or profit on the on‑sale of the aircraft position (par 41).
The terms of the Bombardier termination agreements did not become standardised until May 2012.[367] But, as established by Mr Roberts' affidavit evidence, the structure of the dealings with Bombardier had a continuing pattern whereby:
- AVWest would purchase an aircraft for future delivery from Bombardier at a negotiated price including an agreed advance payment (this being documented in an Aircraft Purchase Agreement) (pars 45, 46(a), 47(a) ‑ (b)); and
- on sale of the aircraft to a third‑party buyer AVWest received repayment of the amount originally advanced and the net profit on the sale of the aircraft to the third‑party (this being documented in a Termination Agreement) (pars 45, 46(b), 47(e)). Bombardier would also enter into a replacement Aircraft Purchase Agreement with the third‑party purchaser (pars 45, 46(c), 47(d)).
In substance, Bombardier sold aircraft (for future delivery) to AVWest for on‑sale to third-party buyers. Accordingly, the arrangement concerned 'aircraft positions'. Bombardier did so on generous terms in order to obtain an up‑front cash payment from AVWest. AVWest obtained the eventual net profit on the on‑sale to the third‑party buyers. In discussion with senior counsel for AVWest I questioned whether AVWest was providing a form of mezzanine financing. Senior counsel accepted, in a practical sense, that the arrangement could be so understood. Senior counsel suggested, however, that what AVWest was doing was cash flowing the production of the aircraft. In that way the relationship with Bombardier could be described, in part, as a form of financing.[368]
Mr Roberts preferred to put the dealings between AVWest and Bombardier in the more neutral terms that the parties had a business relationship.[369] He accepted, however, that on one occasion that relationship involved AVWest advancing $US100 million to Bombardier.[370] In respect of that, and other advances prior to documentation and execution of an Aircraft Purchase Agreement, AVWest was in substance a financier to Bombardier.
For AVWest a key benefit of the Bombardier arrangement was leverage. For example, albeit in a slightly different context, Mr Roberts' first statement explains:

[166]

The evidence included reference to a number of prior occasions on which CU had performed legal services for AVWest or an associated entity. This included many dealings between Mr Burton and Mr Hodgkinson.
The first was in August 2007. Mr Burton instructed CU to attend on the settlement of an aircraft on behalf of the seller. The written instructions provided that 'a review of the Aircraft Sale Agreement is expressly excluded'.[386] Despite that, Mr Hodgkinson provided advice noting that the agreement 'adequately protects the interests of the Seller' and referred to an indemnity provision.[387]
Mr Burton considered Mr Hodgkinson to be thorough and conscientious.[388]
Later, in September 2007, CU was instructed to 'review and amend' four specific agreements. Separately CU was asked to advise on a specific area of aviation law ‑ the application of the 'cabotage' principle in foreign jurisdictions to charter operations and non‑scheduled flights.[389] The advice was tendered.[390] It was a detailed three page letter of advice.
There was a clear distinction between 'review and amend' type instructions and specific advice type instructions. For example, in November 2008 Mr Burton instructed Mr Girdler on the proposed termination of a guarantee. Mr Girdler was asked to provide 'comments in relation to whether you consider clauses 5 and 6 ... to be fair and reasonable and what would be expected in such circumstances'.[391] In cross‑examination Mr Burton was asked to confirm that he did not want a four page letter of advice about what the document meant. Mr Burton said that he did not ‑ Mr Burton said that he had specifically asked Mr Girdler to look at clauses 5 and 6.[392]
A 'review and amend' type instruction was more common than an instruction for specific advice. I have already referred to a number of such instructions. Others included in the documentary evidence are:
- a 23 October 2007 instruction to 'review and provide your comments' as to a draft aircraft sale agreement (with AVWest Pty Ltd as purchaser);[393]
- a 2 November 2007 instruction to 'review the Seller's changes and provide your comments';[394]
- a 4 December 2007 instruction on a helicopter purchase agreement to 'review and provide your comments as a matter of urgency';[395]
- a 23 December 2007 instruction to 'review and amend';[396]
- a 15 January 2008 instruction to 'review the Agreements and provide your comments in relation to AVWest's rights of termination and refund of the deposits';[397]
- a 21 April 2008 instruction to 'review and provide your comments' on a helicopter sale agreement;[398]
- a 18 June 2008 instruction to 'review the draft Agreement and provide your comments[399] (purchase of a new Gulfstream G650);
- a 9 February 2009 instruction to 'review and amend where you consider appropriate' (as to a draft aircraft sale agreement already amended by Mr Burton);[400]
- a 18 May 2009 instruction to 'review and provide your comments' on a contract to purchase a helicopter;[401] and
- a 20 April 2010 instruction on an aircraft sale agreement to purchase a Bombardier Global Express to 'review the draft and provide your comments and suggested amendments addressing the comments that I have inserted'.[402]
The nature of the instructions showed Mr Burton ‑ and thus AVWest ‑ to be commercially experienced and a sophisticated user of legal services.[403] Mr Burton was prescriptive in his instructions. Often he directed attention ‑ and only sought CU's input ‑ to specific clauses; and otherwise limited CU's role. Frequently Mr Burton had already conducted a comprehensive review of the draft document and provided CU with detailed comments or draft marked‑up amendments. Mr Burton also accepted that on numerous occasions he would amend standard agreements to use in particular transactions.[404] Indeed, on an early occasion where Mr Burton instructed CU to prepare a sale agreement to sell a helicopter Mr Burton asked CU to use a form of agreement that AVWest Pty Ltd had used earlier as a base.[405]
As Mr Burton said in cross‑examination, he would ‑ where possible ‑ define the scope of the works to be performed by CU.[406]
In addressing draft commercial agreements Mr Burton had a preference to control the scope of CU's work and to discuss matters orally before anything was committed to writing. That is evident in the 17 September 2010 instructions. An earlier example is provided by a 23 October 2007 email in connection with an intended purchase:

[168]

Mr Burton explained that he found discussing matters to be an efficient way of approaching such dealings with solicitors.[408]
In re‑examination Mr Burton explained that he liked to speak to solicitors about a task before providing an instruction. In Mr Burton's opinion it avoided everyone going off on a tangent.[409] Mr Burton saw a difference between providing legal advice and improving a transaction.[410] Moreover, Mr Burton did not want documents to be unnecessarily complicated.[411] Nor did Mr Burton wish to re‑invent the wheel. For example, as well as using AVWest standard contracts, on another occasion a preference was expressed to prepare documentation consistent with a past contract to expedite matters.[412]
The documentary evidence included an example of Mr Burton seeking to confine the time spent on instructions.[413] However, this was not a feature of Mr Burton's instructions. There were also a handful of instances in which Mr Burton sought CU's services on a more urgent basis.[414]
In written closing submissions CU sought to make something of the fact that Mr Burton perceived Mr Girdler and Mr Hodgkinson as having different skills. I accept that was the case. Mr Burton considered that Mr Girdler was a person from whom to obtain advice on contractual type matters.[415] However, Mr Burton understood that Mr Hodgkinson's speciality was aviation law as he, Mr Hodgkinson, had a background in the aviation industry.[416] In reality nothing turns on the different skill sets of Mr Girdler and Mr Hodgkinson. AVWest instructed CU as a leading Australian firm of commercial solicitors. Both Mr Girdler and Mr Hodgkinson were employed by CU. And, in any case, when regard is had to the range of instructions that Mr Hodgkinson performed for AVWest and associated entities on behalf of CU, it is plain that Mr Hodgkinson was frequently engaged to review and amend agreements for the sale and purchase of aircraft. Mr Hodgkinson thus had a commercial transactional skill set as well as specific knowledge of aviation related matters.
Something that assumed importance was whether AVWest knew that CU was an Australian law firm rather than an international law firm. That is pertinent to the first particular of the alleged breach of duty ‑ the alleged failure by CU to advise it was not able, or qualified, to advise about how the terms of the draft CMA would be construed under the law of Indiana.
The umbrella retainer agreement[417] establishes that AVWest knew that CU was an Australian law firm. The firm's office locations are specified as Sydney, Melbourne, Brisbane, Perth, Canberra and Darwin. Hourly rates are provided for work performed in some of those locations. There is no suggestion of any international presence or expertise. Mr Burton knew that CU was an Australian law firm.[418] More specifically, Mr Burton confirmed that Mr Hodgkinson never professed to be qualified to practice law in ‑ or to be skilled in the law of ‑ the United States of America.[419] Mr Burton did not recollect a specific occasion when Mr Hodgkinson said that he was not qualified to advise on law other than Australian law; but he accepted that Mr Hodgkinson might well have said that.[420]
In cross‑examination Mr Burton denied that, in instructing Mr Hodgkinson, AVWest and its associated entities did so within the bounds of his (Mr Hodgkinson's) expertise as an Australian lawyer.[421]
I do not accept that characterisation (the answer being by way of a conclusion rather than evidence per se). Mr Burton (and AVWest) knew that CU was an Australian law firm. Mr Burton accepted that Mr Hodgkinson may well have mentioned that he was not qualified to advise on law other than Australian law ‑ and did so before the transaction concerning the Aircraft and the draft CMA. That acceptance is reflected in the contemporaneous documentary records. I have previously referred to a 20 April 2010 instruction (see par 319 above). Mr Burton's email providing that instruction attached an email providing suggestions as to overseas legal representatives. Mr Burton was asked about the email in cross‑examination and said that he did not recollect the context in which it was provided to Mr&#160[422]dgkinson.422 The reasonable inference, and the inference that I draw, is that Mr Burton provided Mr Hodgkinson with details of lawyers in Bermuda because he (Mr Burton) knew that CU was an Australian law firm and Mr Hodgkinson was only qualified as an Australian lawyer. Accordingly, to the extent that the transaction had an overseas element it was necessary that overseas lawyers be retained.
AVWest and Mr Burton knew that CU was an Australian law firm. Neither CU nor Mr Hodgkinson were retained other than as Australian lawyers to provide legal services within the limits of their knowledge, experience and expertise as Australian lawyers.
Another thing of importance at trial was the extent to which ‑ at the time of the retainer in relation to the draft CMA ‑ CU was aware of AVWest's business.
I am satisfied that, in a general sense, CU was aware that AVWest's business included the buying and selling of aircraft. In so stating I have sought to distinguish between AVWest and AVWest Pty Ltd. For example, the 17 August 2007 email (see par 15 above) concerned AVWest Pty Ltd; it was sent before AVWest was even incorporated. (That email was also in the context of AVWest Pty Ltd buying and selling aircraft for the executive charter business rather than the more active buying and on‑selling of aircraft and aircraft positions as was eventually established by AVWest.) There is also evidence that CU acted for AVWest Pty Ltd in December 2007 on a helico[423]r 'slot'.423 But, as mentioned, it is necessary to distinguish between AVWest and AVWest Pty Ltd. In that regard there is documentary evidence which satisfactorily establishes that CU knew that AVWest was engaged in the buying and selling of aircraft.
That documentary evidence consists of the following:

[178]

It appears from AVWest's written closing submissions that termination of these further three aircraft positions did not occur until after September 2010.[445] Only the Messum Ltd Gulfstream G550 and the Bombardier Global Express XRS SN 9387 transactions occurred before 17 September 2010. (The Bombardier Global Express SN 9310 on‑sale involved the on‑sale of a completed aircraft rather than a position.)
Prior to September 2010 CU was retained on the on‑sale of the Bombardier Global Express XRS SN 9387 position (see par 334(5) above)). However, CU was not retained generally on the Bombardier transactions. There was no suggestion in Mr Burton's or Mr Roberts' witness statements that CU was generally aware of the arrangements AVWest had secured with Bombardier. Nor was such an assertion made in their oral evidence. Nevertheless, in closing submissions AVWest contended that CU had knowledge of AVWest's mid‑2010 multi‑deal transaction with[446]mbardier.446
AVWest's submission that CU was aware of the Bombardier arrangement was based on a draft heads of agreement between AVWest and Bombardier having been sent to CU in June 2010. The circumstances in which this occurred must, however, be understood.
The heads of agreement is entitled 'Settlement of Purchase of Bombardier Global Express XRS, Serial No 9310 and Purchase of Various Other Bombardier Aircraft'.[447] It recites that AVWest had competed negotiations for the settlement of the purchase of Bombardier Global Express SN 9310 and the purchase of various Bombardier Global Express aircraft (recital A). The draft heads then say that the agreement was entered into to set out terms and conditions for the full and final settlement of SN 9310 and the sale and purchase of six other aircraft (recital B). The heads of agreement contemplated a particular assignment clause to be included in the future aircraft purchase agreements (cl 3.1(a)(iv)). Such a clause would have facilitated the on‑sale of aircraft positions. The payment terms for the aircraft (including SN 9387) were also nominated (cl 4 ‑ cl 7). Apart from SN 9387 these uniformly saw an initial deposit and much higher green aircraft and balance payments on delivery and completion (the proposed payment terms being consistent with the figures mentioned in pars 334(5) and 338 above).
Accordingly, the heads of agreement was consistent with the Bombardier arrangement as I have described it. It was, however, watermarked with the notation: 'Draft for Discussion Purposes'.
The circumstances in which the draft heads of agreement were provided to CU appear from the documentary evidence.
On 8 June 2010, at 9 am, Ms Bailey received a telephone call from Mr Burton. Ms Bailey's ensuing handwritten file note records:

[184]

The versions of the draft heads of agreement attached to Ms Bailey's email shows that the documents have been reformatted.
I appreciate that, as CU did not call Ms Bailey, I might more confidently draw an inference that ‑ given what appears in these documentary materials ‑ CU was aware of the terms of the draft heads of agreement. But the inference must be open. I am not satisfied that there is an available inference that Ms Bailey read and was aware of the draft terms. Ms Bailey was not asked to review the draft terms. To the contrary Ms Bailey was specifically told that no review was required. Ms Bailey was asked, as a favour, to arrange secretarial assistance with reformatting of the document. Given the limited time within which Ms Bailey responded, the materials are inconsistent with Ms Bailey doing any more than what was requested of her. I am not satisfied that Ms Bailey (or anyone else at CU) read and was aware of the terms of the draft heads of agreement.
I am not satisfied that, by reason of the draft heads of agreement, CU was aware of AVWest's mid‑2010 multi‑deal transaction with Bombardier. Even if, contrary to my finding, the receipt of the draft means that CU should be attributed with knowledge of the terms of that document, that does not establish that CU was aware of the Bombardier arrangement: the evidence does not disclose that CU was informed on the consummation of the contemplated transaction which, at 8 June 2010, was in draft and for discussion purposes only.
In summary, as at mid‑September 2010 CU knew that AVWest was engaged in the buying and selling of aircraft. Primarily that knowledge was of aircraft that had been purchased for delivery and use in the charter business of AVWest Pty Ltd. But there were two instances ‑ the aircraft position in relation to the Gulfstream G550 and the completed Bombardier Global Express SN 9310 aircraft ‑ where the aircraft position and the aircraft were on‑sold for profit. CU was involved in the on‑sale of the Gulfstream G550 aircraft position but not the Bombardier Global Express SN 9310. Further, while CU was not aware of AVWest's mid‑2010 multi‑deal transaction with Bombardier, CU did act on ‑ and therefore was aware of ‑ the July / August 2010 on‑sale of the Bombardier Global Express XRS SN 9387 aircraft position.
Accordingly, to a limited extent ‑ consistent with the fact that AVWest's business of buying and selling aircraft and aircraft positions for profit was in its infancy ‑ CU was aware that AVWest had on‑sold positions for profit. CU was aware of the July 2008 Gulfstream G550 transaction and the July / August 2010 Bombardier Global Express XRS SN 9387 transaction.

[187]

Mr Roberts' approach to risk was said to be one of the reasons why his counterfactual evidence should be accepted.
CU, by its senior counsel, conducted an extensive cross‑examination of Mr Roberts directed in part to his attitude to risk. So too Mr Burton was cross‑examined as to his observations about Mr Roberts' attitude to risk. Mr Burton rejected the cross‑examiner's thesis that Mr Roberts was prepared to engage in risky behaviour.[455] I accept that evidence insofar as senior counsel for CU was seeking to suggest that Mr Roberts was prone to engage in imprudent and highly risky activities. It is consistent with the finding I have made as to Mr Roberts' standing instructions to Mr Burton to seek to mitigate risk and to preserve capital and profit (see par 295 above). In his cross‑examination Mr Roberts maintained the position that he had never had a strong appeti[456]for risk.456 Mr Roberts also rejected the proposition that he would bypass risk controls where he saw an opportunity to ma[457]a profit.457 This evidence must, I consider, be understood in the context of Mr Roberts other evidence of 'measured risk' (discussed in more detail below). I do not accept that Mr Roberts was the type of person who would throw caution to the wind and bypass risk controls just because there was a potential for profit. Rather ‑ while seeking to mitigate against assuming unnecessary risk ‑ Mr Roberts was prepared to take a calculated risk where appropriate given the exigencies of the commercial opportunity that he was presented with.
In short, consistent with his attributes of commercial astuteness and shrewdness, Mr Roberts acted rationally. Mr Roberts weighed risk and reward and ‑ to the extent possible ‑ sought to minimise the risks to which his enterprise was exposed.
It was, however, CU's position that Mr Roberts' asserted 'ingrained risk control culture' did not exist in reality. In cross‑examination and written closing submissions CU referred to a number of aspects of AVWest's dealings with Bombardier and others to refute the assertion. They were:

[196]

Mr Roberts also spoke of the assessment and management of risk as being an 'attritional process'.[466] This meant walking through the various issues and working out how best to mitigate them.[467]
It is this idea of 'measured risk' that, in my opinion, gives the best insight into Mr Roberts' approach to risk. It was not the case that Mr Roberts was risk averse in the sense of not being prepared to assume any risk. Mr Roberts accepted that risk was a part of business. But, as a starting point, Mr Roberts would seek to mitigate or minimise risk. That is evident in his approach to negotiation of the ASA and the CMA. It is also evident in as much as the evidence showed that Mr Roberts had sought to identify purchasers for the on‑sale of the Aircraft well before it was purchased.[468] Ultimately, however, Mr Roberts weighed risk and reward consistent with his experience and standing as an astute business person.
The matters relied on by CU (see par 361 above) do not persuade me that Mr Roberts was the type of person who would engage in highly risky behaviour just because there was money to be made.
Two aspects may be rejected summarily. First, as to the fifth matter, I do not accept that Mr Roberts engaged in brinksmanship in deferring the response to Comlux on the draft CMA. I have already explained why, in my view, that course was commercially expedient and advantageous to AVWest (see par 210). I also accept Mr Roberts' evidence that AVWest was assessing and reviewing the pre‑purchase inspection to ensure that it captured all the technical specifications and discrepancies that needed to be attended to so that this could be dovetailed into Comlux AS's modification and refurbis[469]nt works.469 Second, as to the sixth matter, I see no risky behaviour being exhibited in relation to AVWest's approach to arranging insurance cover on the Aircraft. Enquiries as to the availability of insurance were made at an early stage. True it is that the actual insurance cover was not in place before AVWest arranged for the transfer of the $US28 million balance of the purchase price. However, the funds were transferred to an escrow agent. The insurance cover was in place at the time of completion. That was all that was necessary.
The lack of legal review of the mid‑2010 Bombardier contracts (the third matter) is explained by the circumstance that CU had previously reviewed an Aircraft Purchase Agreement in the same form (as to the Bombardier Global Express SN 9310).[470]
The matters relied on by CU which have given me the most pause in assessing Mr Roberts' attitude to risk are the very large amounts AVWest was prepared to advance to Bombardier without security or documentation. Two specific instances were highlighted ($US40 million on 30 April 2009 and a further $US35 million in April 2010). However, in closing submissions CU identified that in the period to mid‑2014 AVWest advanced funds to Bombardier before contracts were entered into in 16 out of 42 transactions (some 40 per cent). A total of $US158.365 million was outlaid in this way.
Limited precautions were undertaken. For example, after sending the $US40 million an email was sent stating that the funds were sent in good faith on the basis that they were to be refunded if an Aircraft Purchase Agreement was not executed.[471] There was a similar approach to the subsequent $US35 million. But there AVWest, by Mr Burton, proposed a side letter setting out that the money was to be refunded if the parties did not reach a finalised agreement.[472] In the event the side letter was signed and returned the next day.[473] Nevertheless, it would have been better commercial practice to insist on Bombardier providing confirmation of the obligation to refund before transferring the funds. Proceeding after the event saw AVWest undertake unnecessary transactional risk.
The more significant issue ‑ and the one pressed by senior counsel for CU in cross‑examination of Mr Roberts and Mr Burton ‑ was the credit risk assumed by AVWest. As to that, Mr Burton gave evidence that Bombardier was experiencing cashflow difficulties.[474] However, Mr Roberts explained that the relevant division of Bombardier wished to improve cashflow and meet particular cashflow and sales targets for its business unit.[475] Mr Roberts stated, and I accept, that there was a significant difference between an entity having a cashflow problem and a requirement to meet a cash target.[476] There was however, at least in theory, a solvency risk in any event. Any person advancing money on an unsecured basis assumes a solvency risk. Mr Roberts gave evidence to the contrary;[477] but in context that was dealing with whether Bombardier represented an actual credit or solvency risk rather than a theoretical risk. Mr Roberts' refusal to accept the cross‑examiner's proposition does not, in my view, impact adversely on his credit.
Mr Roberts' evidence ‑ which was never contradicted[478] ‑ was that at the time Bombardier was a listed entity with a $10 billion market capitalisation.[479] Mr Roberts was able to compare Bombardier's balance sheet with that of a well‑known second tier Australian banking institution and make the point that Bombardier was twice the size of that entity.[480] Bombardier had $1 billion in available cash and facilities.[481] According to Mr Roberts he understood Bombardier to have a B plus credit rating.[482] In re‑examination Mr Roberts explained that he (Mr Roberts) had requested that his 'chief investment officer' (a Hugh Currie) undertake due diligence of Bombardier ‑ something that continued on an ongoing basis.[483] That demonstrates Mr Roberts' approach to the assessment of the risk presented by the Bombardier advances and informs the view Mr Roberts expressed, in cross‑examination, of Bombardier that he had no doubt that Bombardier would repay the funds if agreement was not reached on the proposed transactions.[484]
In those circumstances I accept Mr Roberts' evidence that he was not 'taking a gamble on Bombardier's financial ability to repay' (that being the proposition advanced by CU in cross‑examination).[485]
I am also satisfied that the advances and dealings with Bombardier are consistent with the concept of 'measured risk' that Mr Roberts espoused in his evidence. That is all the more so when one takes into account the advantageous terms Mr Roberts secured with Bombardier ‑ and the spectacular financial performance that AVWest reported as a result of the Bombardier arrangement.

[198]

A duty of care arises where a solicitor is instructed by a client, for reward, to act in connection with a proposed commercial transaction. The solicitor owes a duty to the client in both contract and tort. However, as CU sought to emphasise, the scope of the duty is variable. For that reason it is often unhelpful to try to describe the duty in the abstract. Moreover, as Gordon J emphasised in Badenach v Calvert, the scope and content of the duty of care is not determined retrospectively, ie by asking what could have been done to prevent the loss or damage.[486]
Having offered that caution, a number of relevant principles appear in the authorities:
- The duty of the solicitor depends on the particular retainer and upon the particular circumstances of the individual case.[487]
- The duty is to exercise reasonable care and skill in the provision of professional advice. Ordinarily the standard of care and skill is that reasonably expected of legal practitioners. Where, however, the solicitor professes to have a special skill in a particular area of the law, the standard of care required is that of the ordinary skilled person exercising and professing to have that special skill.[488]
- Often, by way of shorthand, it will be appropriate to characterise the duty as one to exercise the skill, care and diligence expected of a 'reasonably competent solicitor'.[489] (That might, in a particular case, have to be adjusted so that the standard is appropriate to a member of the profession with the relevant specialist skills.)
- Where advice is sought as to whether a transaction can be implemented in a particular way there is a duty to warn a client of any material risk. A risk is material if a reasonable person in the client's position would be likely to give significance to it or if the solicitor is aware (or should reasonably be aware) that the particular client, if warned of the risk, would be likely to give significance to it.[490]
- The scope of the duty may vary depending on the characteristics of the client. An inexperienced client may need explanation and advice before entry into a commercial transaction that would be pointless ‑ or perhaps an impertinence ‑ for an experienced businessperson.[491]
- A solicitor is not normally required to warn an experienced business client of the possibility that an opinion, although firmly held, may not prevail.[492]
- There is no implied undertaking that advice is correct. The duty is to apply the relevant degree of skill and exercise reasonable care in carrying out the advice. Accordingly, the only implied undertaking is that the requisite degree of skill and care had been exercised in the giving of the advice.[493]

[202]

I accept, in principle, that circumstances of urgency are relevant to what is required such that a solicitor exercises reasonable care and skill in the performance of a retainer. However, as Hasluck J's examples show, the passage relied on was concerned with urgency in a different context ‑ ones where more than usual 'boldness' was called for. And urgency will not be an answer for all things. For example, if urgency meant that the solicitor was unable to adequately perform his or her retainer ‑ say to review and amend clauses within a commercial agreement to ensure that they were fairly weighted ‑ it would be incumbent on the solicitor to say so and decline the instructions.
In every case the nature of the legal services to be provided, and the scope of the related duty of care, will depend on the circumstances in which the solicitor's services are sought. The chief consideration will be what the solicitor is asked to do, ie the instructions given to the solicitor. Also important will be the nature of the transaction. But in a given case other considerations will be relevant, eg the urgency of the situation and the standing, experience and sophistication of the client.
In the present case one should not lose sight of the fact that there was an umbrella retainer agreement that governed the relationship between AVWest and CU (see pars 18 to 19 above). That both provided for CU's key obligation ‑ to perform work with professional skill and diligence acting as AVWest independent legal advisers ‑ and obligations on the part of AVWest (cl 1).
I should also make the point that, in this particular case, one of the things to be taken into account is the long‑standing relationship between the parties and the manner in which CU was commonly instructed and the way in which CU performed those instructions. AVWest did not seek formal advice as a matter of course. AVWest, through Mr Burton, was a sophisticated consumer of legal services and was quite directional in its requirements of CU. That was the position in the instructions of 17 September 2010. CU was asked to review and make appropriate amendments to four specific clauses of the draft CMA. CU was not asked to address every conceivable matter that might arise. Nor, based on past dealings, was AVWest seeking ‑ or prepared to pay for ‑ advice bearing on possibilities that were far‑fetched or of minor importance.
It should also be appreciated that the conduct of CU is to be assessed by the yardstick of the care, skill and diligence expected of a reasonably competent solicitor in the position of CU at the time the retainer was performed with the knowledge CU then had available. The adequacy of CU's conduct is not assessed with the benefit of hindsight. What is relevant is what CU knew, or ought to have known, at the time; not what became known afterwards.

[207]

Buss JA then went on to quote extensively from the reasons of McPherson AJA in Heydon v NRMA Ltd and also referred to the observations of Malcolm AJA in that case.[505]
Buss JA's conclusion is consistent with what was said by French CJ, Kiefel and Keane JJ in Badenach v Calvert. Their Honours observed that a solicitor owes a duty to his or her client in both contract and tort; and the scope of the solicitor's duties in tort will usually be set by the terms of the retainer. [506] However, Gaegler J observed that differences of view had emerged on whether performance of his or her duty may require a solicitor to take action to protect the client's interests beyond the function specified in the retainer. His Honour stated that the question need not be determined in the appeal.[507] Gordon J stated that the terms of a solicitor's retainer determines the work to be done and therefore the scope and content of the duty in contract and in tort.[508]
There is, however, a line of first instance decisions in Western Australia which might be read as suggesting that a solicitor (or other professional person) might, in particular circumstances, be required to go beyond a specifically agreed professional task or function if that is necessary to avoid a real and foreseeable risk of economic loss being sustained by the client.[509]
I have carefully read those single instance decisions. I consider it is not necessary to do more than note their existence. Townsend v Roussety & Co (WA) Pty Ltd is binding on me and establishes the relevant legal principle for determination of the dispute before me.
Senior counsel for AVWest drew my attention to a decision of the Court of Appeal subsequent to Townsend v Roussety & Co (WA) Pty Ltd ‑ the decision of Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd.[510] This concerned an appeal from a summary judgment granted on an application for compensation under s 140 of the Transfer of Land Act 1893 (WA). A caveat was lodged, following advice from solicitors that the appellant had a caveatable interest, but it was found in other proceedings that the interest did not entitle to appellant to lodge an absolute caveat.
In the course of his reasons for decision Buss JA observed:

[213]

I well appreciate that the former Chief Justice was engaged in the exercise of construing a contractual expression. But the example I have highlighted in italics is of more general application. In the same way that, implicitly, a lawyer advises his or her client by preparing a commercial agreement, it might be questioned how ‑ in reviewing and amending clauses within a commercial agreement ‑ a solicitor is not implicitly advising the client. A solicitor is not retained to review and amend in the abstract. He or she is usually asked to review and prepare amendments consistent with what is reasonably necessary to protect the client's interests.
What, then, was the scope of CU's retainer from AVWest in relation to the draft CMA? The following matters are material.
First, CU was retained by AVWest as an Australian law firm to provide legal services within the limits of CU's knowledge, experience and expertise as a firm comprising Australian lawyers who were only qualified to advise on Australian law (see pars 327 to 331 above).
It is the case that the draft CMA provided, by cl 20, that it was governed by and was to be construed in accordance with the law of Indiana. That must have been obvious to Mr Burton. This was one of the clauses Mr Burton asked CU to review. Mr Burton was familiar with the concept of a governing law provision as the transactions he looked at from time to time often had an international component to them.[516]
Accordingly, CU was not retained to advise on the proper construction or meaning of the specified clauses of the draft CMA as a matter of Indiana law. CU's remit was to review and suggest appropriate amendments bringing to bear CU's skills and expertise as Australian lawyers. CU was to review the draft CMA and recommend appropriate amendments from the perspective of an Australian lawyer.
Second, the retainer was urgent. Mr Burton wanted to get back to Comlux AS soon as practicable that day. Accordingly, AVWest was not ‑ as CU submitted ‑ seeking a formal advice. But AVWest was seeking appropriate amendments to ensure that the specific clauses adequately protected its interests consistent with the twin tasks of review and suggestion of appropriate amendment being performed that day.
Third, the retainer was limited. CU was asked to review the four nominated clauses and suggest appropriate amendments. In considering and suggesting appropriate amendments CU was to adopt as its metric the principle that the clauses were to be fairly weighted between the parties, ie not one sided.
Fourth, in seeking that CU review the specified clauses of the draft CMA, and make appropriate amendments, it is implicit that CU was to advise so far as was reasonably necessary to adequately protect AVWest's interests in the transaction (consistent, however, with the principle that the clauses were to be fairly weighted). Bearing in mind the proviso that the clauses not be one sided, the 'appropriate amendments' were those reasonably necessary to provide adequate protection of AVWest's interests. Advice in this respect was an implicit part of CU's retainer. So too CU was to advise where the clauses were not fairly weighted or were one sided.
This fourth, and final, aspect of CU's retainer ought not to be viewed as controversial. First, CU pleaded that it was requested to provide advice[517] and that Mr Hodgkinson provided advice confined to matters of Australian law.[518] The review and suggestion of appropriate amendment was not for mere window dressing; in context it could only be to ensure that the relevant clauses of the draft CMA provided adequate protection for AVWest's interests. Second, it is readily apparent from Ms Bailey's file note that CU did so advise. Recommendations were made. As to the warranty clause the second dot point in Ms Bailey's file note suggested an amendment based on a concern as to a potential ambiguity inherent in cl 12 of the draft CMA. Third, adequate protection of AVWest's position was consistent with past dealings (see eg par 322 above) and what Mr Hodgkinson had sought to ensure even when review of an agreement was expressly excluded (see par 315 above).
I do not accept that CU's retainer was limited to a quick review of the nominated clauses within the draft CMA to see if they were consistent with industry norms (that being the scope of the retainer as suggested by CU in closing). Rather, CU was retained by AVWest to review the nominated clauses and suggest appropriate amendments to the draft CMA in the way that I have explained above. In particular, it was implicit within CU's retainer that CU was to advise where amendment was reasonably necessary to provide adequate protection for AVWest's interests. Also, given the specific reference to ensuring that the provisions be fairly weighted and not one sided, CU was to advise where that was not the case. Neither aspect of the advice implicit in the retainer required that CU produce a formal advice or opine on whether there were available competing constructions (and, if so, which was the more likely meaning). However, in order to suggest appropriate amendments ‑ and safeguard against the draft CMA being one sided ‑ it was necessary that CU grapple with the meaning and effect of cl 10. CU could not discharge its retainer without proper consideration of cl 10 and appreciation of the potential constructional risks that cl 10 presented for AVWest. Only that type of 'review' would inform CU's other task of suggesting 'appropriate amendments' to the four draft clauses.

[221]

I find that Ms Bailey's file note sets out what ‑ in answer to Mr Burton's request for review and appropriate amendments of the four clauses of the draft CMA ‑ CU provided to AVWest by way of advice.
There is no reason to doubt that Ms Bailey's file note is anything other than a faithful record of the conversation between the parties. The file note itself took 0.4 hours (twice the length of the conversation). That suggests it was quite comprehensive. And there are two other things that suggest the file note recorded what was stated in the conversation. First, the file note is consistent with a number of the annotations to Mr Hodgkinson's and Ms Bailey's hard copies of the draft CMA. Second, the proposed amendments suggested in the file note were, with one exception, adopted in AVWest's eventual response to Mr Pelet.
In closing submissions CU contended that Ms Bailey's file note was not a transcript of the telephone call and did not pretend to be a complete record. CU went on to suggest that the absence of any reference to cl 10.3 in the file note did not mean that there was no discussion in relation to cl 10.3. According to CU it meant only that no amendments were recommended to cl 10.3 and nothing substantial was said about cl 10.3 to warrant mention in the file note. I took CU to be suggesting that there was a discussion about cl 10.3 to that effect.[525]
I reject that submission. If it was the case that something was said about cl 10.3, and no amendment was recommended, CU could have called one or both of Mr Hodgkinson or Ms Bailey to give evidence of what was said in the telephone conversation. I cannot infer the suggested additional content of the telephone conversation from the file note alone. CU's suggestion is no more than speculation without basis. The absence of any proper basis for the inference is all the more so where there is no handwritten annotation by either Mr Hodgkinson or Mr Bailey as to cl 10.3. It is also material that the file note does expressly refer, as to the governing law provision in cl 20, that no amendment was recommended. It is then to be expected that, had such a conversation occurred in relation to cl 10.3, Ms Bailey would have mentioned it in the file note.
Ms Bailey's file note is quite comprehensive when it is recalled that the telephone conversation was no longer than 12 minutes in length. In my opinion it is open, in the absence of any reference in the file note to cl 10.3, to conclude by way of inference that there was no discussion of cl 10.3. The inference is fortified by the absence of annotations to cl 10.3 in CU's working drafts. I may draw the inference with more confidence as neither Mr Hodgkinson nor Ms Bailey gave evidence.
I am satisfied, based on the file note and the other matters I have mentioned, that there was no discussion between Mr Burton and the CU solicitors about cl 10.3 of the draft CMA. The advice provided in relation to cl 10 was limited to that which is recorded in Ms Bailey's file note.

[223]

AVWest alleged breach in five respects (see par 115 above). The first particular of alleged breach concerned alleged failure to inform AVWest of CU's inability to advise on the proper construction of the draft CMA under the law of Indiana. That may be discarded immediately.
CU was retained as an Australian law firm to review and recommend appropriate amendments from the perspective of an Australian lawyer. AVWest knew that CU was an Australian law firm and did not require that CU do more than an Australian lawyer could do. Given the past dealings between CU and AVWest ‑ and AVWest's knowledge of CU's position as an Australian law firm ‑ the suggested advice that CU was not able, or qualified, to advise on how the terms of the draft CMA would be construed under the law of Indiana would have been surplusage. In the particular circumstances of the relationship between AVWest and CU advice to that effect was not required for CU to meet the requisite standard of care. In any case, as senior counsel for AVWest confirmed in oral closing submissions, this alleged breach was not alleged to have any causative effect.
The second alleged breach concerned cl 10.1 (alleged failure to advise that there was a risk that under par 2 of cl 10.1 Comlux AS would not be liable to damage to the Aircraft's airframe or engines). The third and fourth alleged breaches concerned cl 10.3 (failure to advise that there was a risk that Comlux AS would not be liable for any consequential loss and failure to advise that cl 10.3 was not fairly weighted and was one‑sided against AVWest). The fifth alleged breach was that, considering cl 10 as a whole, there was a risk that AVWest had extremely limited rights to recover damages against Comlux AS if the Aircraft was damaged while in its possession ‑ even if the damage was due to Comlux's negligence or gross negligence.
In opening its defence CU observed that it was unclear what the fifth alleged breach added to the second, third and fourth particulars of alleged negligence. I agree. Nothing specific was suggested by AVWest in its closing submissions (oral and written). Accordingly, I will consider the question of breach based on the case presented by the second, third and fourth categories of alleged breach.
Before considering the alleged breaches I will make some more general observations.
CU cross‑examined Mr Roberts and Mr Burton on the basis that cl 10 was lengthy, complicated and apparently complex.[526] I agree with that characterisation of cl 10. Clause 10 is not an easy read. For example, before amendment par 1 of cl 10.1 consisted of 196 words but only two sentences. It conflated two legal concepts: the grant of a release and a covenant to indemnify. At least three legal standards are employed: negligence, wilful misconduct and gross negligence. The complexity of cl 10 as a whole is greater. What is the role of par 2 of cl 10.1 vis‑à‑vis par 1 and clause 10.2? How is cl 10.2 to be read insofar as it is subtly differentiated from par 1 of cl 10.1? And, in cl 10.3, what are 'special, consequential incidental or exemplary damages'? It is readily understandable why a layperson ‑ even a sophisticated client like AVWest and Mr Burton ‑ would have referred the clause to a lawyer.
CU also cross‑examined on the basis that, had cl 10.1 been read at the time, it would have been obvious that, were one party to rely on the clause, the other party might put forward an alternate argument as to what the clause meant.[527] That too is correct. But that provides no answer to whether CU performed its retainer with the required standard of care. Part of CU's role in suggesting appropriate amendments was to provide clarity where reasonably necessary so as to adequately protect CU's interests ‑ particularly where the ambiguity would otherwise result in a one sided provision.
In addition to the apparent length and complexity of cl 10 there are three general observations as to how CU performed its retainer.
First, while the retainer was urgent, there is no suggestion in the contemporary materials that the urgency adversely affected CU in its review and compilation of the suggested appropriate amendments. The CU solicitors contacted Mr Burton rather than the other way around. Mr Hodgkinson and Ms Bailey were not pressured to complete the retainer. Rather, Mr Hodgkinson and Ms Bailey did so at a time of their choosing; and thus, no doubt, at a time when they were comfortable that they were in a position to discuss the issues with Mr Burton.
Second, consistent with the first matter I have mentioned, Ms Bailey's file note contains no qualification to the effect that further consideration of the draft CMA ‑ or cl 10 in particular ‑ was necessary or desirable. As far as the parties were concerned nothing further was to be done. CU was no longer to mark‑up amendments to the draft CMA. Mr Burton informed Mr Hodgkinson and Ms Bailey that he would amend as they had directed. The discussion of next steps gave the CU solicitors an opportunity to say words to the effect: 'We would, if possible, like to further consider the indemnity provision and provide you with a more considered view as to any appropriate amendments'. But nothing to that effect was stated. Mr Burton was entitled to proceed on the basis that ‑ with the amendments as suggested ‑ CU had completed its review and clause cl 10 of the draft CMA adequately protected AVWest's interests and was not one sided.
Third, while mention has been made of the 0.7 hours spent in review and the 0.2 hours on the telephone call to Mr Burton, it must be appreciated that that was the time taken for all four of the clauses. As Ms Bailey's file note shows the telephone call also covered the other three clauses. Limited time must have been spent on the governing law clause (cl 20) and the termination and remedies clause (cl 17). However, judged on the file note, about equal time must have been spent on the warranty clause (cl 12) and the indemnity clause (cl 10).
Accordingly, at most, Mr Hodgkinson and Ms Bailey would have spent about 5 minutes in discussing cl 10 with Mr Burton.
In now turning to the putative breaches I first remind myself of three things. First, I must eschew hindsight. CU's actions are to be judged by what it did at the time, in the circumstances that it confronted at the time, uninfluenced by the fire and the issues that later confronted AVWest in its dealings and litigation with Comlux AS. Second, I must put to one side any view as to the proper construction of cl 10.1 and cl 10.2 under the law of Indiana. (Indeed, to assist in this regard I prepared this section of my reasons without having drafted my conclusions on the proper construction of cl 10.) CU did not have the luxury of time that I have been afforded in reaching my conclusion. Nor has CU had the benefit of the expert assistance I have received as to the relevant principles of the law of Indiana and the comprehensive submissions that the parties made before me. And, more importantly, it was never part of CU's retainer to reach such a conclusion and offer such advice. CU was to review the draft CMA and suggest appropriate amendments from the perspective of an Australian lawyer. Third, AVWest was a sophisticated consumer of legal services. Nevertheless, in identifying particular clauses and seeking that CU review and suggest appropriate amendments AVWest was seeking CU's legal expertise.
In relation to cl 10, CU advised AVWest of:

[225]

The recommended amendments then provided for changes to cl 10.1 and cl 10.2 with a view to changing the threshold from gross negligence to negligence.
Ms Bailey's file note is silent on whether CU saw the possibility of AVWest making a claim under the CMA arising under cl 10.1, cl 10.2 or both cl 10.1 and cl 10.2. Nor does the file note demonstrate that CU performed even the most rudimentary analysis of the text, structure and context of cl 10 as a whole (as, for example, I endeavoured to do at pars 43 to 47 above when first describing cl 10 as it appeared in the draft CMA).
By implication, however, it is more likely than not that CU was referring to or relying on both cl 10.1 and cl 10.2. Clause 10.2 is apparently engaged in CU's analysis insofar as the indemnity in favour of AVWest, as initially drafted, is said to be dependent on a threshold of gross negligence (explaining the recommendation to adopt the lesser standard of negligence). So the initial portion of the file note (ie the first sentence in the passage reproduced in par 435 above) is discussing the effect of cl 10.2. But, viewing the cl 10.2 indemnity as a general position, CU offer the exception that AVWest bear all liabilities arising from Comlux AS's negligence 'unless the loss was damage to the aircraft while in the care of Comlux' (see the second sentence in the passage reproduced in par 435 above). Two things should be noted. First, the reference to the exception arising while the aircraft was in the 'care' of Comlux AS; and negligence (rather than gross negligence) being the relevant condition for Comlux AS to have to meet loss in the form of damage to the Aircraft when in the care of Comlux AS. Accordingly, this second sentence in the CU file note can only be a reference to par 2 of cl 10.1. Second, the reference is to the Aircraft without acknowledgement of the parenthetical exclusion of '(excluding airframes and/or any attached or installed engines or equipment)'.
The exception provided by CU's proviso of 'unless' the loss was damage to the Aircraft while in the care of Comlux AS conveyed ‑ in context ‑ advice that Comlux AS was liable for its negligence where the loss was damage to the Aircraft while in the care of Comlux. It did so without referring to the exclusion to the exception, ie loss of or damage to client property (such as the Aircraft) while in Comlux AS's care, custody or control excluding airframes and attached engines.
Advice as to cl 10.1 and cl 10.2 of the draft CMA in those unqualified terms was, in my opinion, incompatible with the exercise of the skill, care and diligence to be expected of a reasonably competent solicitor. CU failed to exercise reasonable care to provide accurate, complete and balanced advice. CU also failed to exercise reasonable care to warn AVWest of a material risk.
A reasonably competent Australian legal practitioner would have read cl 10 of the draft CMA and identified that it had four parts:

[230]

A reasonably competent Australian legal practitioner, exercising the skill, care and diligence expected of him or her, would have identified that on this plain reading of cl 10 there were a number of incongruities. For example, while cl 10.2 provided AVWest with the benefit of an indemnity by Comlux AS for loss of or damage to property, par 1 of cl 10.1 ‑ on its terms ‑ released Comlux AS absolutely from all liabilities and losses for loss of or damage to the Aircraft. However, par 2 of cl 10.1 saw Comlux AS assuming liability if negligent for loss of or damage to certain of AVWest's property (excluding airframes and attached engines) while in Comlux AS's care, custody or control. Accordingly, a number of constructional questions arose. For example, did cl 10.2 only apply to property other than 'Client property' (so as to maintain scope for operation of the release in par 1 of cl 10.1 and the assumption of liability in par 2 of cl 10.1)? So far as Comlux AS assumed liability under par 2 of cl 10.1 in respect of 'Client property' in certain respects, did the exclusion as to airframes and engines have implications for the proper construction of cl 10.2? And did that mean that cl 10 imposed liability on Comlux AS in respect of a very limited class of property belonging to AVWest, ie only its property excluding airframe and attached engines and then only if: (1) the property was in Comlux AS's care, custody or control; and (2) the loss of or damage to the property was caused by Comlux AS's negligence or gross negligence?
In my opinion, having conducted a review of cl 10 as a whole, a reasonably competent Australian solicitor would have recognised the potential adverse implications of the exclusion in par 2 of cl 10.1. Indeed, senior counsel for CU cross‑examined Mr Roberts on the basis that, had he read the draft CMA, Mr Roberts ‑ a non‑lawyer ‑ would have appreciated that one argument would have been that Comlux AS was liable for loss of or damage to the property excluding the airframes and attached or installed engines or equipment.[529]
The reasonably competent Australian legal practitioner performing the retainer accepted by CU was not required to seek to resolve the ambiguities latent in cl 10 of the draft CMA. The reasonably competent solicitor would recognise that, as the draft CMA was governed by the law of Indiana, the proper construction of the clause was outside his or her competence. But the reasonably competent Australian legal practitioner, exercising the skill, care and diligence expected of him or her, would have recognised ‑ based on his or her plain reading of the clause as a whole ‑ that cl 10 of the draft CMA was pregnant with these issues of constructional choice.
CU's advice as recorded in the 17 September 2010 file note did not recognise these issues. Instead it proceeded on the basis that Comlux AS was liable for its negligence where the loss was damage to the Aircraft while in the care of Comlux. Importantly, no mention was made of the parenthetical exclusion to Comlux AS's liability, ie that the liability for loss of or damage to AVWest's property appeared ‑ on its face ‑ to exclude loss of or damage to airframes and attached engines. That, in my opinion, was a critical omission. The advice provided by CU was incomplete in a significant respect.
A reasonably competent Australian solicitor, exercising the skill, care and diligence expected of him or her, would have recognised that there was a material risk that the exclusion in par 2 of cl 10.1 of the draft CMA meant that Comlux AS was not liable for loss or damage to the Aircraft's airframe and engine. He or she would have informed AVWest and Mr Burton of this risk. Informing AVWest of that material risk was necessary to provide accurate, complete and balanced advice about whether cl 10 adequately protected AVWest's interests and the clause was fairly weighted between the parties.
In addressing cl 10.1 and cl 10.2 of the draft CMA CU's performance of its retainer for AVWest was deficient in the way I have explained. Accordingly, in my opinion, CU did not exercise reasonable skill, care and diligence. AVWest has established that CU breached its duty of care by failing to advise that there was a material risk that the exclusion in par 2 of cl 10.1 of the draft CMA meant that Comlux AS would not be liable for damage to the Aircraft's airframe or engines even though the Aircraft was in Comlux AS's care and the loss was caused by Comlux AS's negligence.
In closing submissions CU sought to answer the negligence claim in two ways.
First, CU suggest that, on the proper construction of cl 10 in accordance with the law of Indiana, AVWest released Comlux AS from any loss or damage to AVWest's property other than to the Aircraft's airframe and any attached or installed engines or equipment. This, if correct, may be an answer to AVWest's damages case. But it does not answer the breach of duty aspect of AVWest's negligence case. The gist of CU's negligence is its failure to advise AVWest of the material risk that Comlux AS's liability did not extend to the Aircraft's airframe and engines. That is not gainsaid by the happenstance that, on its proper construction, cl 10 allowed AVWest a remedy. In any case CU was not retained to advise on the proper construction of the draft CMA according to the law of Indiana.
Second, CU placed considerable importance on the evidence and actions of Mr Harvey.
CU said that Mr Harvey's initial view of the meaning of par 2 of cl 10.1 was the same as CU's. CU also said that it took three years, and much prompting, before Mr Harvey thought differently. That required research and consideration far in excess of that available to CU. CU pointed out that Mr Harvey formed his view in the ordinary course of his duties, in the absence of urgency, and with the necessary legal qualifications to opine on the construction of the CMA under Indianian law.
I accept that Mr Harvey initially proceeded on the basis that AVWest could claim against Comlux AS under par 2 of cl 10.1 (see par 247 above). However, that was in a context where considered advice was not sought and Mr Harvey was instructed to file a complaint to avoid the expiration of an imminent limitation period. Mr Harvey's task was not the same as CU's retainer to review the clauses of the draft CMA and suggest appropriate amendments. When the litigation in the United States of America resumed Mr Harvey focussed on the indemnity under cl 10.2 rather than cl 10.1 (see pars 250 to 251 above). That remained the position up to the mediation (see par 258 above). It is correct, however, that Mr Harvey remained unconcerned by the parenthetical exclusion in par 2 of cl 10.1 for a considerable time ‑ and over a period during which it was raised by Comlux AS's attorney and Mr Harvey prepared a formal advice and three drafts of a mediation position paper (see pars 250 to 258 above).
That said, CU's reliance on Mr Harvey to answer the claim of negligence is misplaced.
The mere fact that another lawyer initially came to the same conclusion as CU does not mean that CU acted with reasonable skill, care and diligence. CU's argument to the contrary suffers from an unstated erroneous premise: that the other lawyer met the standard of acting with reasonable skill, care and diligence. That has not been established. Moreover, the approach that was taken by an Indiana lawyer, applying Indiana law, is not relevant, in my view, to whether an Australian lawyer acted with reasonable skill, care and diligence as a matter of Australian law. In any case Comlux AS's attorney expressed a different view to Mr Harvey from the outset (see pars 96 to 97 above). If, despite my view that Mr Harvey's initial misapprehension as to the significance of the exclusion in par 2 of cl 10.1 raised a false issue, Mr Harvey's evidence and actions are of importance, Mr Harvey's approach cannot be considered in isolation. The issue was readily apparent to Comlux AS's attorney.
The other reason no parallel can be drawn between CU and Mr Harvey is the different nature of their respective retainers. Mr Harvey was not asked to review cl 10 of the draft CMA and make appropriate amendments with an objective of ensuring that the provisions were fairly weighted. Mr Harvey's task was based on the CMA as executed; he was to prosecute the litigation against Comlux AS in the way that best suited AVWest and gave it the best prospects of success.
CU's failure to exercise reasonable skill, care and diligence in relation to cl 10.3 of the draft CMA is starker.
Nothing was said about cl 10.3 in the 17 September 2010 telephone conversation between the CU solicitors and Mr Burton (see par 421 above). In its closing submissions CU make the point, and I accept, that AVWest and its associated entities had executed numerous aircraft contracts with consequential loss exclusion clauses by September 2010 (see pars 495 to 497 below). But that does not answer the failure to address cl 10.3 in circumstances where Mr Burton had specifically requested that CU review and suggest amendments to cl 10. Clause 10.3 is part of cl 10.
The omission to address cl 10.3 occurred despite Mr Burton's instruction that he wanted the provisions to be fairly weighted between the parties and not one sided. In form cl 10.3 is reciprocal. But the practical reality is that only AVWest was likely to suffer substantial consequential loss in the event of a breach of or failure to perform under the CMA. In that sense cl 10.3 was one sided and not fairly weighted. A reasonably competent Australian legal practitioner, exercising the skill, care and diligence expected of him or her, would have recognised that circumstance and raised this aspect of cl 10.3 with AVWest.
Accordingly, had it acted with reasonable skill, care and diligence CU ought to have raised cl 10.3 with Mr Burton. CU should have informed AVWest that:
- On the face of cl 10.3 there was a material risk that cl 10.3 had the meaning and effect that Comlux AS would not be liable for any consequential loss arising out of or in connection with its failure to perform under the CMA; for example, a claim for loss of profit.
- Clause 10.3 was not fairly weighted between the parties, and was one sided, because only AVWest was likely to suffer substantial consequential loss and the other sort of damage covered by cl 10.3.
CU failed to do so. Accordingly, CU breached its duty of care in performance of its retainer vis‑à‑vis cl 10.3.
In closing submissions CU argued that it had not breached its duty in relation to cl 10.3. First, it was said that Mr Burton had read cl 10.3 and it was clearly expressed and capitalised. CU said that, beyond reading the clause to Mr Burton, it was not clear what else CU needed to say to tell Mr Burton what it meant. Second, CU said that cl 10.3 was a clause which it would reasonably have expected Mr Burton to be familiar with given that such clauses appeared in AVWest's standard contracts which Mr Burton routinely reviewed.
I accept that Mr Burton read cl 10.3. Mr Burton's evidence was that his standard practice was to read every clause in an agreement.[530] Also, a type of consequential loss exclusion clause was included in AVWest's standard contracts and in many of the aircraft contracts AVWest had executed. That is established by the schedule prepared by CU as part of its written closing submissions as referred to below (see par 497 below).
These matters are, however, no answer to CU's breach of its duty of care. AVWest asked CU to perform a particular retainer and CU agreed to perform that retainer. CU cannot excuse its failure to carry out that retainer with reasonable skill, care and diligence by the suggestion that AVWest did not really need the legal services as sought because the risk ought to have been self‑evident on Mr Burton's reading of the provision and having regard to the previous aircraft contracts he had been involved in. In any case, considered from an Australian lawyers' perspective, the appropriate approach to the construction of such exclusion clauses has excited a variety of different views; it has been said, for example, that the concept of 'consequential' loss does not have a fixed and settled legal meaning.[531] In those circumstances it should not have been remarkable that Mr Burton sought CU's advice as to cl 10.3. All the more so since Mr Burton did not know the meaning of the term 'consequential' damages (see par 238 above).
One further thing should be said about cl 10.3 of the draft CMA and how CU should have acquitted its retainer in respect of cl 10.3.
On the evidence at trial a consequential loss exclusion clause was a standard type clause across the range of aircraft contracts that AVWest and its associated entities entered into.[532] Indeed, it was a type of provision that AVWest itself employed (as did AVWest Pty Ltd). Had CU exercised reasonable skill, care and diligence, as a reasonably competent solicitor, in addressing cl 10.3 with Mr Burton CU would have informed him that the sort of consequential loss exclusion clause evinced by cl 10.3 was standard. As a consequence CU would have advised AVWest and Mr Burton that it would be unlikely that any deletion of or modification to cl 10.3 would be acceptable to Comlux AS.[533] Such an explication of cl 10.3 was necessary and appropriate to provide accurate, complete and balanced information and advice about cl 10.3.

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Malec concerned assessment of damages in a personal injuries context. However, the reasons for the approach apply equally to the assessment of damages for loss of a commercial opportunity.[536]
Damages for deprivation of a commercial opportunity are ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. With a tortious claim the claimant must prove on the balance of probabilities that it has suffered some loss. That is done by demonstrating that the breach caused the loss of a commercial opportunity which had some ‑ non‑negligible ‑ value. Assessment of the value is then determined by reference to the degree of probabilities or possibilities.[537]
An opportunity will be of value where there is a substantial, and not a merely speculative, prospect that a benefit will be acquired or a detriment avoided.[538]
Accordingly, it is necessary to distinguish between causation and assessment of damages. The initial question of causation (ie has the wrong caused the loss of a chance) is decided on the balance of probabilities.[539] But quantitative assessment proceeds according to the degree of probability that the events would have occurred, provided that the probability is not so low as to be speculative or so high as to be practically certain.[540] It is ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued.[541]
The question of causation is now guided by s 5C of the Civil Liability Act 2002 (WA). The Act retains the two‑stage analysis previously found in the general law. The court is required to determine factual causation and then determine the appropriate scope of the defendant's liability.
Section 5C(1)(a) of the Civil Liability Act 2002 (WA) contains a requirement of factual causation. In substance it requires the application of a but‑for test of causation.[542] AVWest must prove, on the balance of probabilities, that but‑for CU's failure to give the advice contended for, AVWest would have had a valuable opportunity. Was the 'fault' (CU's failure to advise) a necessary condition of the occurrence of the 'harm' (the deprivation of the relevant alleged commercial opportunity)?
The question of factual causation is to be determined by considering what AVWest would have done if CU had not been at fault.[543] The breach being one of a failure to act, the question of causation is resolved by determining the difference between the state of affairs as they existed after the negligent act or omission, and the state of affairs that would have existed had the negligent act or omission not occurred.
Where the realisation of a commercial opportunity depends on the claimant's own decision to take it up, the claimant must prove ‑ on the balance of probabilities ‑ that the opportunity would have been taken up.[544]
That latter causation issue is potentially important for the proper disposition of AVWest's no transaction case based on Scenario 4. The relevant commercial opportunity, as confirmed by AVWest's pleaded case,[545] is one of deprivation of the opportunity to terminate the ASA in the event that Comlux AS did not agree to enter into the CMA on the basis that the cl 10.3 consequential loss exclusion was deleted. Accordingly, to succeed on its Scenario 4 case AVWest must prove, on the balance of probabilities, that had Comlux AS refused to delete cl 10.3 of the draft CMA, AVWest would have walked away from the transaction and the purchase of the Aircraft under the ASA would not have proceeded. AVWest's written closing submissions sought to answer this burden.[546]
If the issue of factual causation is resolved in favour of the claimant, there is also, under s 5C(1)(b) of the Civil Liability Act 2002 (WA), a normative aspect (which may require the application of precedent) to establishing causation. It must be appropriate for the scope of CU's liability to extend to the harm so caused to AVWest. The court must consider whether and why responsibility for the harm should or should not be imposed on CU.[547]
The foregoing discussion on the applicable principles for a claim for damages for loss of opportunity have focussed on a tortious claim. AVWest's claim is for breach of a coextensive obligation in tort and in contract. At trial no submissions were made suggesting that there was any relevant distinction based on the nature of the cause of action. To the contrary AVWest's submissions dealt singularly with the concept of damages for deprivation of a commercial opportunity irrespective of whether ‑ to use its words ‑ the deprivation 'occurred by reason of breach of contract or tort'.[548]
On occasions a difference will arise in a claim for breach of contract. In tort damage is the gist of the action; it must be proved on the balance of probabilities to complete the cause of action. In contract, however, the cause of action is complete on proof of breach. That explains why, in a contractual 'loss of a chance' case, breach of a contract to provide a commercial advantage or opportunity enables the innocent party to bring an action for damages for the loss of that advantage or opportunity[549] (even if sometimes only for nominal damages).[550]
It is not immediately obvious that the retainer between AVWest and CU was a contract to provide a commercial advantage or opportunity. CU did not covenant to provide a chance; its obligation was to perform the work the subject of the retainer with professional skill and diligence acting as CU's independent legal adviser. Nevertheless, as McLure J (as her Honour then was) explained in Olympic Holdings Pty Ltd v Lochel, a plaintiff is entitled to damages for loss of any foreseeable chance or opportunity of benefit that can be causally linked to a contractual breach. Recovery extends to the loss of a chance which was not promised but which would have been created by performance of the contract.[551]
McLure J went on to state:

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These passages from Olympic Holdings Pty Ltd v Lochel were referred to with approval by a Full Court of the Supreme Court of Tasmania in Doolan v Renkon Pty Ltd.[553] That case is directly on point. It concerned a claim against a solicitor for professional negligence. The claim was advanced both in contract and in tort. The Full Court addressed the various authorities concerning where damages for breach of contract may be awarded for the loss of a chance or opportunity.[554]
In Doolan v Renkon Pty Ltd the members of the Full Court confirmed that where the realisation of an opportunity depends on a claimant's own decision to take it up, it must be proved on the balance of probabilities that the opportunity would have been taken up. In substance the court held that it cannot be said that the breach has caused any loss unless it is proved that the claimant would have acted on an opportunity.[555] Later it was explained that, while what had to be established was whether the claimant had lost an opportunity of some value, subsumed within that question was the issue of whether the claimant had established that it was more likely than not that it would have taken up or pursued the opportunity.[556]
On the authority of Doolan v Renkon Pty Ltd and Olympic Holdings Pty Ltd v Lochel it makes no difference whether AVWest's Scenario 4 'no transaction' case is determined in contract or in tort. In either case AVWest must prove, on the balance of probabilities, that had Comlux refused to delete cl 10.3 of the draft CMA, AVWest would not have proceeded with the transaction under the CMA and the purchase of the Aircraft would have fallen through. In contract that must be affirmatively established if AVWest is to prove that it lost an opportunity of some value.
Often the same body of evidence will be relied on to establish the loss of a valuable opportunity and the assessment of its amount.[557] That, with the exception of the quantum and expert accounting evidence, was the position in the present case. Among other things AVWest relied on the evidence of Mr Burton and Mr Roberts (as to what would have happened had CU given certain advice) and Mr Pelet (as to what would have happened had AVWest sought to negotiate the terms of cl 10 of the draft CMA).
It is convenient to commence examination of AVWest's counterfactual case by reference to the 'no transaction' case advanced as Scenario 4. In doing so, when it comes to the evidence of Mr Roberts and Mr Burton, it is necessary to relate the counterfactual evidence more generally. Mr Roberts and Mr Burton's evidence as to what they would have done in relation to amendment of cl 10.1 and cl 10.3 is intertwined.

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In substance, if Mr Burton was informed of the issues as to par 2 of cl 10.1 and cl 10.3 ‑ and possibly having first unsuccessfully sought to obtain amendments to overcome the issues ‑ Mr Burton would have raised the issues with Mr Roberts. It would then be for Mr Roberts to decide how to proceed.
I accept that evidence. It was consistent with Mr Burton's review role. As Mr Burton stated in re‑examination, and I accept, it was not for Mr Burton to discard legal advice.[566] I consider it would have been most unlikely that Mr Burton would ignore legal advice received by AVWest. Mr Burton may have been chief financial officer of the Warburton group; but Mr Roberts controlled the Warburton group, including AVWest, and was the natural person who stood to benefit ‑ or lose ‑ from the transaction under consideration. Given the relationship between Mr Burton and Mr Roberts, and Mr Roberts' and Mr Burton's respective status as 'owner' and 'employee', it was for Mr Burton to report to Mr Roberts. It is inherently probable that Mr Burton would have done so.
CU sought to suggest, however, that Mr Burton would not have asked Comlux AS to delete cl 10.3. There was ‑ in CU's submission ‑ nothing about cl 10.3 that would have raised a red flag. CU thus contended that Mr Burton would not have suggested to Mr Roberts that the draft CMA should be amended to delete cl 10.3. The submission relied on the fact that AVWest executed numerous contracts before and after the draft CMA that contained a consequential loss exclusion clause of similar effect to cl 10.3.[567]
In cross‑examination Mr Burton was taken to numerous 'consequential loss' type provisions that were found in aircraft contracts entered into by one of AVWest or AVWest Pty Ltd.[568] Mr Burton did not recollect ever making a recommendation not to execute a contract containing a consequential loss exclusion clause.[569] Importantly, Mr Burton stated that such clauses were 'repeat clauses' in the contracts and 'on that basis' he accepted them.[570] Mr Burton did profess, however, to be unfamiliar with the implications and legal meaning of such clauses[571] and to be unclear on what they meant.[572]
Nevertheless, as Mr Burton accepted in cross‑examination, in the time to negotiation of the draft CMA neither Mr Burton nor AVWest had ever once sought to exclude a consequential loss clause of the type in cl 10.3. Indeed, AVWest employed a similar clause itself in its standard contracts.[573]
As part of its closing submissions CU produced a schedule that summarised the consequential loss clauses in some of the aircraft contracts executed by AVWest, AVWest Pty Ltd and their associated entities. I have reviewed that schedule against the relevant contracts to confirm that its contents are correct. The schedule, with some additional trial bundle references and minor corrections, is substantially reproduced in annexure 'A' to these reasons. Two things are apparent from the summary. First, it is undeniable that a consequential loss exclusion clause was a standard feature of the many aircraft contracts to which AVWest and its associated entities were a party. Second, AVWest and its associated entities were prepared to assume a consequential loss exclusion clause time and time again.
There were also examples of AVWest having accepted consequential loss exclusion clauses in the specific context of cabin modification and refurbishment contracts.[574]
The cross‑examiner undertook the same exercise of directing Mr Roberts' attention to contracts excluding consequential loss akin to cl 10.3 of the CMA.[575] There was limited utility in the exercise. Mr Roberts had already accepted that he had seen a similar clause or similar clauses in other Aircraft Purchase Agreements.[576] However, as Mr Roberts explained, he had not seen that form of clause often as he would not necessarily read such contracts. Mr Roberts relied on the review conducted by his executives.[577] He did not go into detail in respect of the individual clauses.[578]
AVWest's own employment of, and willingness otherwise to assume, a consequential loss exclusion clause has given me considerable pause in deciding whether I should accept Mr Burton's evidence as to what he would have done in relation to cl 10.3 of the draft CMA had CU provided non‑negligent advice of the type that would have been provided by a reasonably competent solicitor exercising reasonable skill, care and diligence. That is all the more where, in the relevant counterfactual, Mr Burton would also have been advised that cl 10.3 was standard and it was unlikely that Comlux AS would accept the deletion of or any modification to cl 10.3. Despite these countervailing matters I am satisfied that Mr Burton would have brought the issue to the attention of Mr Roberts (perhaps having first sought unsuccessfully to negotiate the deletion of cl 10.3). There are two things that compel this conclusion. First, as I have explained, unresolved matters arising from legal advice became a 'commercial call' for Mr Roberts rather than Mr Burton. Second, this was one of AVWest's first full cabin refurbishments and its first such contract with Comlux AS.[579] As an organised and capable business executive, one who was a meticulous planner, it is inherently likely that Mr Burton would have taken a cautious approach and escalated the issue to his employer.
Accordingly, AVWest's case based on cl 10.3 turns on what Mr Roberts would have caused AVWest to do had CU given non‑negligent advice of the type I have found should have been given (see pars 459 and 465 above).
Interestingly, Mr Roberts' first witness statement did not expressly state what, if anything, he would have done had cl 10.3 of the draft CMA been brought to his attention. Rather, as will be seen (see par 505 below), the first statement was directed to dealing with what Mr Roberts would have done had concerns as to par 2 of cl 10.1 and its apparent airframe and engine exclusion been raised with him. More generally Mr Roberts stated that, as no issues were raised with him, he (Mr Roberts) proceeded on the basis that there were no material legal risks that AVWest needed to consider when negotiating the draft CMA or agr[580]ng to it.580
However, in his second statement Mr Roberts said:

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That evidence was challenged in cross‑examination.[582] AVWest's Browne v Dunn submission is not made out as to this part of Mr Roberts' counterfactual evidence. Indeed, because the evidence was challenged there was re‑examination on the subject. Mr Roberts was asked why he disagreed with CU's proposition (as advanced in cross‑examination) that, had it been suggested that cl 10.3 be deleted and Comlux AS refused, AVWest would still have been prepared to proceed with the CMA. Mr Roberts said that: 'we wanted to ensure that our profits were maintained'. When probed further by senior counsel for AVWest Mr Roberts explained that he was referring to the profits that 'we would have derived out of the sale' of the Aircraft.[583]
Mr Roberts' first statement provided the following counterfactual evidence:
1. I was not involved in the engagement of Clayton Utz to provide advice in relation to the CMA. As was our usual practice, if there had been an issue identified by Clayton Utz with the CMA, I expected that Tim Burton would have brought it to my attention.
2. As Tim did not raise any issues with me, including in relation to the limitation of indemnity and liability clauses that were contained in the CMA, I proceeded on the basis that there were no material legal risks that AVWest needed to consider when negotiating the CMA or agreeing to it.
3. Had I been told that there was a severe limitation of liability under the CMA, and more specifically that Comlux would not be liable (or that there was a real risk that Comlux would not be liable) for any loss or damage to the airframes or installed engines or equipment while the Aircraft was in Comlux's custody for the purpose of carrying out the refurbishment works, I would have treated the CMA with caution. In doing so, I would have sought further advice from Clayton Utz to explain the extent of the limitation.
4. I then would have assessed the risk of AVWest entering into the Aircraft Purchase Agreement. Had I known that Comlux's liability was (or that there was a real risk that Comlux's liability was) limited to only the cost of replacing the interior of the Aircraft (which, at the time of the fire, was virtually valueless), I would have tried to negotiate an amendment to the limitation of liability clause with Comlux. Further, in the first instance, I would have pushed back and requested that we revert back to my preferred commercial arrangement whereby we settle the Aircraft once the CMA had been performed. If this had failed, I would have endeavoured to agree a position whereby I was fully indemnified by Comlux. Failing that, I would not have proceeded with the transaction.
5. If it had been explained to me that Comlux was not liable (or that there was a real risk that Comlux would not be liable) for any loss or damage to the airframes or installed engines or equipment while the Aircraft was in Comlux's custody (and as such, was only potentially liable up to a value of around $US1 million for an aircraft which AVWest had just purchased for $US31 million), AVWest would not have proceeded with the Aircraft Purchase Agreement. I would not have been able to reasonably agree on the terms and conditions of the CMA. This would have meant that the Aircraft Purchase Agreement would have been terminated. AVWest would have been entitled to recover from Air Luther the $US3 million deposit it had already paid. Further, it would have had no obligation to pay the balance of the purchase price meaning that AVWest would have had $US31 million available to it to invest in other aircraft or aircraft positions in the usual course of its business. As I have advised earlier, there were many aircraft available at the time for us to purchase at wholesale rates and then on‑sell for retail value which at the time had a profit delta of circa $US5 million.
6. The risk of proceeding with the Aircraft Purchase Agreement would have been too great had I been advised of the limitations of Comlux's liability. Given that this was our first refurbishment project, and for an aircraft that was paid in full, I was wanting to mitigate whatever risk I could to ensure the timely and quality delivery of the Aircraft and its associated completion works. (emphasis added)
In short, reading the two statements together, if cl 10.3 was raised as a concern: first, Mr Roberts would have sought to revert to a turnkey arrangement; second, failing that, Mr Roberts would have sought to be fully indemnified by Comlux AS ‑ including as to loss of profit and consequential loss; third, failing that, AVWest would not have proceeded with the transaction. The turnkey arrangement had already been rejected. It was not a viable alternative. Based on Mr Pelet's evidence, which I have already accepted, Comlux AS would not have yielded to AVWest had AVWest sought the deletion or amendment of the cl 10.3 consequential loss exclusion in the draft CMA. Accordingly, the question is whether ‑ as implicitly asserted by Mr Roberts in his second statement ‑ he (Mr Roberts) would have caused AVWest to not proceed with the purchase of the Aircraft under the ASA on Comlux AS refusing to delete or amend cl 10.3 of the draft CMA.
For reasons already given the resolution of this question is not simply dependant on whether or not Mr Roberts was a credible and reliable witness. I accept that Mr Roberts genuinely believes ‑ looking back now ‑ that AVWest would not have proceeded with the transaction had CU given appropriate advice about cl 10.3 and Comlux AS refused to budge on the inclusion of the provision. However, that evidence must be considered in light of the contemporary materials, objectively established facts and the apparent logic of events
A number of factors support the proposition that AVWest would not have proceeded.
First, I have found that Mr Roberts was an honest witness doing his best to give truthful evidence. Accordingly, Mr Roberts' evidence is something that I give weight to. I note in particular that there was a robust cross‑examination in which, among other things, senior counsel for CU suggested forcefully that he (Mr Roberts) would not have been prepared to terminate the ASA and abandon the purchase of Aircraft by reason of Comlux AS insisting on cl 10.3.[584] Mr Roberts rejected the suggestion in its various iterations and did so emphatically. Mr Roberts said that if his profit and capital were not protected he would have walked away from the transaction.[585]
That said, as I have previously endeavoured to explain, while I accept that Mr Roberts was an honest witness the question is not one of credit alone. Reliability must be considered. There are issues as to the reliability of Mr Roberts' evidence. It is infused with hindsight. And, as I have noted, Mr Roberts was prone to exaggeration. It is far easier to be unequivocal about what one would have done in the past when having the benefit of 20:20 hindsight.
Second, AVWest had sought CU's advice. Why would AVWest ignore it? In substance, the advice having been given, Mr Roberts would have appreciated that cl 10.3 meant that the profit on the purchase of the Aircraft was at risk while Comlux AS carried out the modification and refurbishment works. Against this, however, had CU provided non‑negligent advice AVWest would have appreciated that cl 10.3 was a standard clause that Comlux AS would be unlikely to delete or modify. So too another aircraft cabin interior refurbisher would be likely to seek to exclude consequential loss.
Third, AVWest was approaching the transaction cautiously as this was one of AVWest's first full cabin refurbishments (according to Mr Roberts this was the first such project)[586] and its first such contract with Comlux AS.
Fourth, there were some specific instances that Mr Roberts recalled which informed why he might have been reluctant to assume the exclusion of consequential losses. Mr Roberts referred to a previous incidence in a hangar evidencing his appreciation that extensive damage might be caused to an aircraft when hangered.[587] Also relevant was the delay experienced in delivery of the Bombardier Global Express XRS SN 9310. The potential for delay was of more serious concern with the Aircraft since AVWest would have paid the full purchase price of $US31 million. That capital would be sitting in Comlux AS's hangar during any delay in completion of the modification and refurbishment works. Against that, AVWest negotiated specific modifications to the draft CMA to offset delay risk (see pars 75 to 79 above).
Fifth, Mr Roberts was a hard bargainer and negotiator.
Sixth, the inclusion of cl 1.4 in the ASA ‑ and AVWest's preparedness to delay the negotiation of the CMA beyond the five business days provided for execution of that agreement ‑ showed that AVWest was prepared not to proceed with the purchase of the Aircraft. Clause 1.4 shows that AVWest wanted to be able to abandon the overall transaction if the CMA could not be concluded on appropriate terms.
Seventh, as was emphasised by Mr Roberts, there were other pre‑owned aircraft available for purchase from the aircraft re‑sale market.[588] Accordingly, AVWest may have been more willing not to proceed with the purchase of the Aircraft as it was not limited to purchasing the Aircraft from Air Luther. Against that, cl 10.3 was a standard clause and ‑ on the counterfactual ‑ AVWest and Mr Roberts would have appreciated that this was the case. There was no evidence that AVWest would have been able to purchase an alternative aircraft, for modification and refurbishment, with a cabin modification agreement that did not exclude consequential losses.
There are a number of countervailing factors that support the proposition that AVWest would have proceeded with the CMA, and the purchase of the Aircraft, despite cl 10.3 even if CU had provided the non‑negligent advice.
First, it is of considerable significance that AVWest and its associated entities were prepared to enter into numerous aircraft contracts ‑ both before and after the ASA and the CMA ‑ containing consequential loss clauses. Not all involved the same risk for AVWest. Indeed, in circumstances where it, or its associate, was selling an aircraft the clause might have been considered protective. But the fact is that AVWest was comfortable to assume a consequential loss exclusion as being a standard transactional feature. This extended to examples where AVWest accepted consequential loss exclusion clauses in the specific context of cabin modification and refurbishment contracts (see par 498 above).
Second, consistent with the first factor, there was no evidence that AVWest would have been able to purchase an alternative pre‑owned aircraft with a cabin modification agreement that did not exclude consequential losses. So, if Mr Roberts was not willing to proceed due to cl 10.3, there was no obvious alternative. But at the time Mr Roberts already had one potential on‑purchaser ‑ Tabcorp Holdings Ltd ‑ and was generally aware of other potential buyers in the market.[589] The strong likelihood is that Mr Roberts would have wanted to proceed with some transaction.
Third, Mr Roberts had successfully negotiated to purchase the Aircraft at a good price. According to Mr Killingsworth the purchase price of $US31 million was some $US1.610 million below market value. Mr Roberts said himself, in a 14 October 2010 email, that he had purchased the Aircraft for the lowest price a Bombardier Global Express XRS had ever been sold for.[590] In cross‑examination Mr Roberts confirmed that this must have been his understanding at the time he sent the email.[591] The overall position was enhanced by the intended modification and refurbishment under the CMA. For a further $US1.049 million the market value of the Aircraft was to appreciate by some $US3.5 million (see pars 262 and 265 above).
Fourth, building on the previous factor, Mr Roberts was very confident that AVWest would be able to on‑sell the refurbished Aircraft for a profit.[592] According to Mr Roberts there was 'no doubt' that the Aircraft could be on‑sold for profit;[593] and there was a substantial profit to be made because there would be a substantive uplift on value after refurbishment.[594]
Fifth, AVWest always intended to take out insurance cover in relation to the Aircraft. Indeed, the draft CMA contemplated that AVWest would maintain all risk aircraft ground and flight hull insurance covering the Aircraft including engines. I acknowledge that Mr Roberts described insurance as secondary. Nevertheless such insurance ‑ while imperfect (as shown by the protracted dispute that eventuated with the Insurers) ‑ did go a long way to protecting AVWest's capital. I appreciate that Mr Roberts was not content with merely protecting capital. He also wanted to preserve profit. That could not be achieved through insurance. But the insurance cover was a relevant factor as to risk.
There are thus a number of factors ‑ both for and against ‑ relevant to whether AVWest (under the auspices of Mr Roberts) would have been prepared to proceed with the CMA and the purchase of the Aircraft had Comlux AS refused to delete or modify cl 10.3 in the counterfactual where CU gave non‑negligent advice and AVWest sought to negotiate on the inclusion of cl 10.3.
In assessing those factors, and forming an overall assessment, consideration must be given to Mr Roberts' approach of undertaking measured risk. What, weighing risk and commercial outcome and seeking to balance risk as against the transaction as a whole, would Mr Roberts have done?
Taking into account and weighing the various factors for and against ‑ applying the notion of 'measured risk' as espoused by Mr Roberts ‑ I am not reasonably satisfied that, on the counterfactual, AVWest would have walked away from the draft CMA and the purchase of the Aircraft had Comlux refused to delete cl 10.3 of the draft CMA. To the contrary, I find that it is more likely than not that, had CU provided non‑negligent advice, AVWest would have accepted the consequential loss exclusion clause in cl 10.3 of the draft CMA and proceeded with the transaction to purchase the Aircraft. Accordingly, CU's omission made no material difference to AVWest's course of action. AVWest has not established that CU caused any harm in the sense of depriving it (AVWest) of any valuable commercial opportunity.
While I give it weight, I nevertheless treat Mr Roberts' self‑serving hindsight evidence with some caution; its probative effect is not determinative. I have mentioned one general aspect of his evidence that adversely affects the reliability of Mr Roberts' evidence. In addition, there is little objective evidence to independently confirm the reliability of the hypothetical evidence. The evidence as to specific reasons for likely refusal to accept cl 10.3 is not compelling. The risk of damage to the Aircraft (ie loss of capital) was ameliorated by insurance. The risk of delayed delivery was the subject of specific negotiation. The inclusion of cl 1.4 in the ASA ‑ while indicative of Mr Roberts' commercial acuity and a general preparedness not to proceed with the purchase of the Aircraft ‑ was grounded in bringing about immediate execution of the ASA[595] while providing AVWest with leverage on the scope works under the CMA.[596] That is confirmed by the wording of the original draft of cl 1.4 (see par 29 above). It was not to address legal terms such as a consequential loss exclusion. It is, however, correct that AVWest was approaching the transaction cautiously in the sense that it had sought legal advice as to the cl 10 indemnity including cl 10.3. But that alone does not mean that AVWest would have refused to entertain the risk posed by cl 10.3. As Mr Roberts accepted, business cannot be without risk[597]together.597
While non‑negligent advice would have caused AVWest to appreciate the issue posed by cl 10.3, and would likely have caused AVWest to seek its deletion, AVWest and Mr Roberts would also have been advised that a consequential loss clause was standard and Comlux AS was unlikely to agree to cl 10.3 being deleted or modified. In those circumstances, as he was acting rationally and measuring risk against the benefit of the transaction as a whole, I do not accept that the mere fact that AVWest's potential profit was unprotected would have resulted in Mr Roberts walking away from the transaction. To the extent Mr Roberts' evidence suggested to the contrary it was an overstatement and unreliable.
To my mind the far more salient aspect of the objective facts is that, having taken available steps to mitigate risk, Mr Roberts was aware that the Aircraft was being purchased for a good price and its on‑sale would be at a substantial profit.
I do not accept that Mr Roberts would have measured the risk (and commercial outcome) on the basis that it was likely that the Aircraft would be damaged in Comlux AS's hangar. Self‑evidently it was a possible risk. But, viewed prospectively, it was a relatively low risk. As to the Aircraft itself AVWest had aircraft insurance. The insurance cover would not protect profit. But what could? The consequential loss exclusion clause was a standard provision. Mr Roberts, acting rationally and measuring possible risk against what he was confident would be a substantial profit, was unlikely to abandon the proposed transaction altogether. That was all the more so given the time and effort already expended and the fact that AVWest had a potential on‑purchaser. While other pre‑owned aircraft might be available for purchase, refurbishment and on‑sale there was no evidence that AVWest could obtain a cabin modification agreement that did not exclude consequential loss. Any suggestion to that effect is belied by the evidence that such clauses were standard (see pars 465 and 495 to 499 above) and on the counterfactual Mr Roberts would have appreciated that was the case (see par 465 above). So, while an alternative aircraft might have been purchased, the problem posed by a clause like cl 10.3 of the draft CMA would remain. Walking away from the purchase of the Aircraft would not overcome the problem.
In the circumstances the risk posed by cl 10.3 of the draft CMA was one that, measured in accordance with Mr Roberts' approach, he would more likely than not have assumed given the favourable purchase price of the Aircraft and the likelihood of substantial profit on an on‑sale of the Aircraft. Otherwise the likely profit (already notionally created on Mr Roberts' view of the transaction) would have been foregone. This conclusion is consistent with and confirmed by AVWest and its associated entities being prepared to enter into various aircraft contracts (including for cabin modification and refurbishment) that contained a consequential loss exclusion clause.
The position is not altered by the fact that Mr Roberts was a hard bargainer and negotiator. No doubt Mr Roberts would have sought to negotiate cl 10.3 out of the draft CMA. But, on Comlux AS rebuffing that attempt, Mr Roberts would have had to approach the issue applying his notion of measured risk. Nor is the position altered by the fact that Mr Roberts was a shrewd and astute business person seeking to obtain and employ commercial advantage. That, if anything, emphasises that Mr Roberts would have measured the risk and ‑ having done so ‑ proceeded with the CMA, despite its retention of cl 10.3, and AVWest would have purchased the Aircraft under the ASA.
AVWest has not established that ‑ on the counterfactual that CU gave non‑negligent advice as to cl 10.3 of the draft CMA ‑ AVWest would not have proceeded with the purchase of the Aircraft under the ASA on Comlux AS refusing to delete or amend cl 10.3 of the draft CMA. AVWest's case based on Scenario 4 fails.

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Under AVWest's 'Scenario 2' Comlux AS would have agreed to delete the airframe and engine exclusion in par 2 of cl 10.1, but not the consequential loss exclusion in cl 10.3. 'Scenario 3' sees the same modification to the draft CMA. However, in addition to deletion of the airframe and engine exclusion in par 2 of cl 10.1, under AVWest's Scenario 3 as propounded in closing Comlux AS would have agreed to delete the requirement in par 2 of cl 10.1 of the draft CMA that any damage be due to Comlux AS's negligence. In substance Comlux AS would be liable for all loss or damage to the Aircraft while in Comlux AS's care, custody or control.
Mr Pelet's evidence is important in assessing the degree of probabilities or possibilities of Scenario 2 and Scenario 3.
In his first statement Mr Pelet stated:
1. If during the negotiation of the terms of the cabin modification agreement, AVWest had asked for the words '(excluding airframes and/or any attached or installed engines or equipment)' to be deleted from the second paragraph of Article 10.1, I would have been prepared to entertain the amendment particularly if the refusal of the amendment was seen as a potential deal breaker for AVWest. I would have approached Comlux Aviation Service's management and sales team and sought their instructions in relation to the request ... [598]
Accordingly, Mr Pelet's evidence by his first statement was only in terms of removal of the airframe and engines exclusion in par 2 of cl 10.1 of the draft CMA; it did not contemplate Comlux AS assuming liability for the Aircraft while in its care without negligence on Comlux AS's part. At one point in his cross‑examination Mr Pelet departed from that, suggesting that in the statement he was referring to a case where Comlux AS would assume total liability.[599] That is not what is provided by pars 16 and 17 of the first statement. Indeed, in par 16 of the first statement Mr Pelet goes on to explain that his understanding of the practical effect of removing the airframe and engine exclusion was that, in the event of damage to the Aircraft caused by Comlux AS's negligence, the damage would be covered by Comlux AS's hangar insurance. The tension between what was said in the first statement, and what was sought to be explained by it in cross‑examination, is indicative of issues in reliability in accepting at face value Mr Pelet's hypothetical hindsight evidence.
Importantly, in Mr Pelet's first statement the evidence was put in terms of being 'prepared to entertain amendment'. It was not that there would have been amendment. It was also put in terms of having to approach Comlux AS's management for instructions.
However, Mr Pelet went further in his second statement. He said:
1. In relation to making amendments to cabin modification agreements, the decision to amend the agreement was either left to me or my recommendation to amend the agreement was invariably accepted by the management and sales team. Thus if AVWest had asked for an amendment to the proposed cabin modification agreement between it and Comlux Aviation Services, LLC ('Comlux') to the effect that Comlux would be liable for any and all damage to the Aircraft caused by Comlux's negligence or wilful misconduct, I would have agreed to that request.
2. If I had been pushed hard enough in the negotiations and upon verification of Comlux's insurance coverage, I would have been prepared to agree for Comlux to assume liability for damage to the Aircraft however caused while the Aircraft was in Comlux's care custody and control.
3. I would have been prepared to agree to such amendments because I would not have wanted Comlux to risk losing the cabin modification agreement on those issues and, in this particular case, because I would not have wanted to jeopardise the aircraft sale agreement between AVWest and Air Luther which Comlux Management AG had negotiated on behalf of Air Luther AG ...[600] (emphasis added)
So, in his second statement, Mr Pelet's evidence is not merely in terms of being prepared to entertain amendment to the airframe and engines exclusion. It has become that he (being either the relevant decision maker or the person the decision makers would have deferred to) would have agreed to amendment to remove the exclusion. Moreover ‑ grounding what became AVWest's 'Scenario 3' in closing ‑ Mr Pelet says that he would have gone further. Not only would the airframe and engine exclusion have been removed. Mr Pelet would also have agreed for Comlux AS to assume liability to the Aircraft however caused, ie Comlux AS's liability would not have been dependent on its negligence, gross negligence or wilful misconduct.
In oral closing submissions senior counsel for CU contended for a different reading of par 3 of Mr Pelet's second statement. It was said that Mr Pelet was simply expanding on what he says he would have done in par 2.[601] I consider that is not a fair reading of par 3 read in the context of pars 2 and 4 of Mr Pelet's second statement.
However, Mr Pelet's evidence ‑ particularly the evidence in the second statement ‑ must be understood in the context that Mr Pelet commenced his examination‑in‑chief by clarifying that he had never been involved in a case where Comlux (or Comlux AS) had assumed entire liability in relation to a customer's aircraft.[602] That too casts significant doubt on the reliability of the evidence given in par 3 of Mr Pelet's second statement.
In cross‑examination Mr Pelet was asked whether it was difficult to say, in giving evidence, what he would have done eight years earlier. Mr Pelet responded that in 2010 he would most probably have referred the matter to management. In 2018, given experience and developed precedents, he would not. Accordingly, Mr Pelet accepted that there was a difference between what he would have done in 2018 and what he would have done in 2010.[603] That difference was seemingly reflected in par 16 of the first statement and par 2 of the second statement. Mr Pelet went on in cross‑examination to accept that what was stated in par 16 of the first statement was more reflective of how Mr Pelet would have approached the matter in 2010 and par 2 of the second statement was more reflective of how he would deal with the situation in 2018.[604] That must also be the case with par 3 of the second statement. Indeed, in re‑examination Mr Pelet confirmed that had Comlux been asked to assume full liability on an aircraft he would have referred to and discussed the matter with his colleagues in the United States of America.[605]
Accordingly, in assessing Mr Pelet's evidence I consider that the more reliable evidence is what was stated by Mr Pelet in par 16 of his first statement. That is all the more so given that, as I have said, Comlux AS and Mr Pelet did not have an established practice as to cabin modifications agreements in 2010 (see pars 242 to 243 above).
Mr Pelet explained that in any commercial transaction there was a back and forth between the parties. The dealing between AVWest and Comlux was no different. An example was AVWest's change of 'gross negligence' to 'negligence', Mr Pelet's initial rejection of that change, AVWest's re‑introduction of the proposed amendment and Comlux's concession on the point (see pars 72, 76 and 78 to 79 above).
In cross‑examination Mr Pelet said that, had he been asked to remove the airframe and engine exclusion in par 2 of cl 10.2 of the draft CMA, he initially would have rejected that request.[606] But when asked again whether he would have been most likely to say 'no' to the amendment Mr Pelet responded:

[246]

Senior counsel for CU then asked for confirmation of the word 'contemplated'. Mr Pelet responded in the affirmative.[608] Essentially, although acknowledging the relatively low value of the CMA, in stating that he would have contemplated the amendment Mr Pelet had regard to two things. First, even a $US1 million contract was an important contract. That was especially so as it was in the early stages of the company in the United States of America. Second, because of the connection between the ASA and the draft CMA, the sale of the Aircraft was at stake. So, in Mr Pelet's mind, it was actually a much bigger contract.[609]
It is, however, significant that Mr Pelet's oral evidence was only that he would have contemplated an amendment to par 2 of cl 10.1 of the draft CMA to remove the airframe and engines exclusion. That represented a considerable retreat from the unequivocal 'would have agreed' in Mr Pelet's second statement. In substance Mr Pelet's unprompted use of the word 'contemplated' ‑ which senior counsel for CU was careful to confirm (thereby allowing Mr Pelet an opportunity to introduce the 'I would have agreed' as appears in Mr Pelet's second statement) ‑ saw Mr Pelet reverting to the lesser position of possible 'contemplated' amendment rather than inevitable agreement. In short, in his oral evidence Mr Pelet affirmed a like position to that expressed in his initial statement (where Mr Pelet said he 'would have been prepared to entertain the amendment').
Based on the matters I have referred to, I am not satisfied that the substance of the evidence given in pars 2 and 3 of Mr Pelet's second statement is reliable and speaks to the position in 2010. I do not accept that evidence. Apart from the inconsistencies I have detailed it is highly significant that Mr Pelet has never been involved in a situation where Comlux AS had assumed total liability for damage to an aircraft however caused while the aircraft was in Comlux AS's care.
The rejection of the substance of the evidence given in par 3 of Mr Pelet's second statement means that ‑ as well as being unpleaded ‑ AVWest's Scenario 3 also fails on the facts. There is no remaining evidence to support Scenario 3.
In rejecting the evidence given in pars 2 and 3 of Mr Pelet's second statement I am conscious that AVWest made a Browne v Dunn submission in which Mr Pelet's evidence was characterised as being unchallenged. I reject that submission. It will be apparent from what I have already said that:

[253]

Accordingly, there was no failure to challenge Mr Pelet on the substance of the evidence given in pars 2 and 3 of his second statement. Nor, as concerns the rule in Browne v Dunn, is there anything improper in rejecting evidence given by witness statement when it is inconsistent with evidence elicited in cross‑examination or re‑examination.
I have rejected the substance of the evidence given in pars 2 and 3 of Mr Pelet's second statement on the basis that it is unreliable for the purposes of what would have occurred in 2010. I am nevertheless satisfied ‑ in terms of what was stated in par 16 of Mr Pelet's first statement and by Mr Pelet in cross‑examination ‑ that had AVWest sought deletion of the airframe and engines exclusion in par 2 of cl 10.1 of the draft CMA he, Mr Pelet, would have entertained or contemplated the amendment. I accept also that, as an initial response, Mr Pelet would have rejected the amendment. But Mr Roberts was a tenacious negotiator. I have no doubt that, had CU recommended the amendment, it would be something that AVWest continued to push beyond an initial rejection. That is what happened with the 'gross negligence' change. Accordingly, Mr Pelet, would have entertained or contemplated the amendment. There was thus a chance that ‑ had CU made an appropriate recommendation ‑ AVWest would have been able to negotiate amendment to the draft CMA whereby the airframe and engines exclusion was removed.
I am satisfied (subject to the construction question that I must deal with shortly) that the opportunity to effect amendment to par 2 of cl 10.1 of the draft CMA represented a valuable opportunity. An aircraft's airframe and engines are the bulk of the aircraft. An exclusion of liability for those components was of commercial value to Comlux AS. That was why it was included in the draft CMA. The utility of the exclusion is self‑evident from the defence run by Comlux AS in the litigation in the United States of America (see pars 97 and 102 above). The loss of the chance to bring about the posited amendment constituted deprivation of a valuable commercial opportunity within the sense established in Sellars v Adelaide Petroleum NL.
Accordingly, ignoring the construction question, AVWest has proven that it suffered a loss as a result of CU's breach. It then becomes necessary to assess the prospects of AVWest successfully negotiating for an amendment of the draft CMA whereby Comlux AS agreed to the airframe and engines exclusion in par 2 of cl 10.1.
In that regard I accept, consistent with what is stated in par 16 of Mr Pelet's first statement and in cross‑examination, that ‑ while Mr Pelet would have entertained or contemplated the amendment ‑ he would have approached Comlux AS's management and sales team and sought their instructions on the request. That is particularly the case where the CMA for AVWest was one of the first Mr Pelet had negotiated as legal counsel for Comlux AS (see pars 242 to 243 above).
Mr Pelet said that he would have to get approval for amendments to cl 10 of the draft CMA from someone at Comlux AS in the United States of America.[610] There was limited evidence as to the likely attitude of Comlux AS management in September or October 2010 were amendments to have been sought to cl 10.1 of the draft CMA. Mr Pelet did say at par 2 of his second statement that his recommendation to amend a cabin modification agreement was invariably accepted by management. But, for reasons already given, that spoke to 2018, not 2010 when there was no established practice. Mr Pelet also said in cross‑examination that management would have followed his recommendation.[611] But, in the context of Mr Pelet's evidence more generally in cross‑examination, that evidence spoke more to 2018 than 2010. It is not a reliable barometer of what would have occurred in 2010 at a time when Mr Pelet did not have an established practice in the negotiation of cabin modification and refurbishment agreements for Comlux AS in the United States of America.
I do accept, however, that Mr Pelet could not recall any occasion when his legal recommendation had not been adopted.[612] That evidence ‑ in re‑examination ‑ self‑evidently spoke to the whole of Mr Pelet's involvement with Comlux AS from late 2008 to 2018.
Mr Pelet also drew a distinction between 'pure legal clauses' and other clauses. Mr Pelet was the one negotiating and giving advice on pure legal clauses.[613] Mr Pelet characterised cl 10 of the draft CMA as a pure legal clause.[614] It was, however, a clause that had obvious commercial consequences. Presumably that is why par 3 of Mr Pelet's second statement ‑ and its rejected asseveration of unequivocal preparedness to agree to assume liability for damage to the Aircraft howsoever caused while in Comlux AS's possession ‑ was nevertheless premised on verification of Comlux AS's insurance coverage. The only evidence as to Comlux AS's insurance cover in 2010 was that it had 'hangar keeper's insurance'[615] (the specific terms of which were not explored before me) and the risk of being exposed to consequential losses was not covered by insurance.[616]
Mr Pelet explained in his first statement that Comlux AS's preference was and is for customers to rely on their own insurance if an aircraft is damaged rather than for Comlux AS to have to call on its insurance.[617] That explained why cl 10.1 and cl 10.3 were standard provisions and why, according to Mr Pelet, it was Comlux AS's general but not invariable practice to negotiate contracts which retained those standard provisions.[618] Comlux AS's insurance expectations were readily apparent in cl 11 of the draft CMA and the imposition on its client of an obligation to maintain all risk aircraft ground and flight hull insurance covering the Aircraft including engines.
The matters discussed in pars 555 to 559 above are all relevant in assessing the degree of probabilities or possibilities of Scenario 2.
Also relevant are the two things that Mr Pelet emphasised in cross‑examination as justification for his position that ‑ if asked ‑ he would have contemplated changes to par 2 of cl 10.1, namely:

[263]

In its written closing submissions CU accepted that, had AVWest requested amendment to par 2 of cl 10.1, there was a chance that Comlux AS would have agreed. It was said, however, that it was only a chance, not a certainty. CU submitted that the chance was low ‑ less than 50 per cent.[629] In reply AVWest submitted that there was no evidentiary basis for CU's submission that the chance was 'low'.[630] It was said that there was a significant chance.[631] AVWest's submission relied heavily on the evidence of Mr Pelet that he would have agreed to the amendment ‑ evidence that I have rejected as not speaking to the position in 2010.
It is a given that AVWest would have negotiated strongly for the posited amendment to par 2 of cl 10.1. All the more so if the amendment had been recommended by CU. AVWest followed CU's other recommendations. But, as shown by the stance taken on liquidated damages and the warranty clause, Mr Pelet and Comlux AS were no commercial pushover. I consider that Mr Pelet and Comlux AS would have approached any removal of the airframe and engine exclusion from the perspective that it exposed Comlux AS to additional risk on what was a relatively low value cabin modification and refurbishment contract (albeit still an important contract with ramifications for a larger contract involving one of Comlux's other clients). Mr Pelet and Comlux AS would also have been informed by the understandable commercial desire to have customers look to their own insurance rather than Comlux's insurance. But the fact that Comlux AS had hangar keeper's insurance militated somewhat against the risk.
There is one other significant factor. The suggested amendment would not impact ‑ causing the additional risk to bite with actual liability ‑ unless the loss or damage was proximately caused by Comlux AS's 'negligence or gross negligence'. And consequential loss was excluded by cl 10.3. As a matter of commercial reasonableness it is difficult to suggest in the course of ongoing negotiations that a service provider, with care of a valuable item such as an aircraft, should not be liable for direct loss or damage to the property where the loss or damage is caused by the service provider's own negligence ‑ and even all the more so the service provider's gross negligence. It bespeaks a somewhat unpalatable attitude of all care but no responsibility.
Accordingly, as a matter of logic, AVWest had a commercially defensible ‑ indeed manifestly reasonable ‑ basis for insisting that par 2 of cl 10.1 in the draft CMA be amended to delete the airframe and engines exclusion. That ought to have been recognised as such by Mr Pelet and Comlux AS.
Standing back, weighing the various matters I have referred to as a whole, I do not accept CU's characterisation that the chance of Comlux AS amending par 2 of cl 10.1 to delete the airframe and engines exclusion was low. I accept that there was a significant chance. In view of the commercial reasonableness of the posited amendment, and the other matters raised by Mr Pelet in explaining why he would have contemplated the amendment, I assess the chance as being as likely as not. I find that there was a 50 per cent chance that ‑ had AVWest sought the amendment ‑ Comlux AS would have agreed to amend par 2 of cl 10.1 of the draft CMA by deleting the airframe and engine exclusion.

[269]

CU argued that any 'amounts' sought after the transaction concerning the Aircraft were not reasonably foreseeable at the time of the retainer.[635] It was this line of defence that grounded the dispute between the parties as to the extent of CU's knowledge about AVWest's business (see pars 314 to 355 above).
AVWest contended that it was not a question of whether the amounts of the loss as claimed was reasonably foreseeable; rather, the relevant question was whether the kind of loss was foreseeable. I accept that submission. A defendant solicitor is liable for damage resulting from his or her breach if, at the time of entry into the retainer, a reasonable person in the defendant's position would have had damage of that kind in mind as not unlikely to result from a breach.[636] The inquiry is not as to whether the actual loss suffered was foreseen: it is whether a loss of the kind sustained could have been foreseen.
In Scenario 2 Comlux AS would not have been able, in answer to AVWest's claim in the litigation in the United States, to raise the exclusion in relation to loss or damage to the Aircraft's airframe and engines as arguably found in par 2 of cl 10.1 of the CMA. As developed further in the next section of these reasons, the only material issue would have been whether the damage to the Aircraft was caused by Comlux AS's negligence. Thus the relevant loss is the loss of opportunity to reach a superior compromise with Comlux AS (Comlux AS no longer being able to rely on a defence based on the proper construction of par 2 of cl 10.1 of the CMA and the apparent exclusion of liability in relation to the airframe and engines).
I have used the term 'superior compromise' as I am satisfied, on the balance of probabilities, that AVWest would have recovered more against Comlux AS had par 2 of cl 10.1 not contained the parenthetical exclusion as to airframes and engines. I develop my reasons for that finding when dealing with quantification in the next section of these reasons (see pars 638 to 697 below).
The likely diminution in the settlement amount obtained at the mediation with Comlux AS, which AVWest could have avoided had the CMA been drafted conformably with the position posited by Scenario 2, satisfies the remoteness test. That sort of financial loss would have been well within the contemplation of the parties at the time of entry into the retainer. A reasonable person in the position of CU would have had in mind damage in the form of an inferior litigation outcome following a weakened contractual position vis‑à‑vis AVWest's contractual counterparty as being not unlikely to result from a failure to exercise reasonable skill, care and diligence in reviewing and suggesting appropriate amendments to cl 10 of the draft CMA.
Accordingly, CU's remoteness defence fails in relation to AVWest's case based on Scenario 2.
I have not addressed CU's remoteness defence in relation to AVWest's no transaction case under Scenario 4. It is not necessary to do so given my conclusion that Scenario 4 fails for other reasons. If, however, another view is taken on appeal, I have made the necessary factual findings as to the extent of CU's knowledge of AVWest's business of buying and selling aircraft and aircraft positions.

[286]

CU's preferred construction focussed on cl 10.2. It was contended that the breadth of the words 'any property whatsoever' made it clear that the release and indemnity applied to the Aircraft including the airframe and engines.[640] According to CU's construction the parties' intention in drafting cl 10 was to allocate to Comlux AS the risk of any loss of, damage to or destruction of the Aircraft.[641]
Clause 10.2 cannot be considered in isolation. The law of Indiana (like Australian law) requires that the text of a contractual provision be read in context and construed so as to give meaning to each phrase in harmony with the contract as a whole.
Construing cl 10.2 as constituting an undertaking to reimburse AVWest for damage or loss to the Aircraft, including the airframe and engines, conflicts with the release in par 1 of cl 10.1. The release is in emphatic terms. The CMA should be interpreted, at least at the inception of the process, by having regard to the plain language of the contract. It cannot be overlooked that the starting point of cl 10 is to provide Comlux AS with the benefit of a broad release by the unqualified words of par 1 of cl 10.1. The release provided by par 1 of cl 10.1 specifically extends to 'any property whatsoever (including, without limitation, the Aircraft)'. Thus the Aircraft is specifically identified as falling within the terms of the release. By contrast, in cl 10.2 as relied on by CU, there is no specific explication of what property falls within the indemnification. The inserted words of explanation in par 1 of cl 10.1 are lacking in the use of the phrase 'any property whatsoever' in cl 10.2. The use of the different terminology in par 1 of cl 10.1 and par 10.2 strongly suggests that different property was being contemplated by the two clauses. As par 1 of cl 10.1 includes the Aircraft the difference in terminology suggests that cl 10.2 does not.
The broad release in par 1 of cl 10.1 is qualified by the assumption of potential liability in relation to property of AVWest in par 2 of cl 10.1. Paragraph 2 is the 'more specific term' which controls the general position in par 1. That is confirmed by the use of the phrase '[n]otwithstanding the foregoing paragraph' at the commencement of par 2. However, Comlux AS only assumes liability in a limited respect: first, the assumption is only for 'Client property', ie property owned by AVWest; second, the assumption excludes AVWest property answering the description of an airframe and its attached or installed engines; third, the assumption is only as to the included property in the care, custody or control of AVWest; fourth, the assumption is only to the extent that the loss or damage to the included property in Comlux AS's care is proximately caused by Comlux AS's negligence.
The indemnity in cl 10.2 must be read conformably and harmoniously with the release in cl 10.1. Clause 10.1 manifests the parties' objective intent that Comlux AS is released from liability for loss or damage to the Aircraft save to the extent that liability is assumed in the very specific terms provided in par 2 of cl 10.1. It is illogical to suggest that, by cl 10.2, Comlux AS indemnifies AVWest against the same loss for which AVWest released any claim under cl 10.1. Doing so conflicts with two of the important applicable principles of contractual construction under the law of Indiana: each phrase and term ought, where possible, be construed so as to have a harmonious meaning with operative effect; and the more specific (here cl 10.1) controls over the general.
A reading of cl 10 which allocates the risk of loss or damage to the Aircraft to AVWest, rather than Comlux AS, is also consistent with cl 11. AVWest was to maintain all risk aircraft ground and flight hull insurance covering the Aircraft including its engines.
In considering the interaction of cl 10.1 and cl 10.2, and par 1 and par 2 within cl 10.1, I have not mentioned the last sentence of par 2: following Comlux AS's assumption of potential liability AVWest 'releases any rights it may have against Comlux ... for any loss of or damage to such property from any other cause'. As will be seen the 'such property' is AVWest's property in the care of Comlux excluding the airframe and engines. But that does not mean that the airframe and engines are not the subject of a release; they remain the subject of the broad release under par 1. It is only that confined property within the assumption of potential liability under par 2 of cl 10.1 that falls out of the broad release in cl 10.1. The reinstatement of a release as to 'any other cause' then ensures that Comlux AS's potential liability in respect of the confined property is only one where the loss or damage is proximately caused by its negligence or gross negligence.
What, then, is the scope of the indemnity provided to AVWest by cl 10.2? It cannot be to property the subject of the release in par 1 of cl 10.1 (eg the Aircraft). And there is no need for it to extend to the property the subject of the assumption of potential liability in par 2 of cl 10.1; that property is governed by the more specific terms of cl 10.1. Rather, cl 10.2's indemnity is concerned with loss or damage to third‑party property. That reading of cl 10.2 is consistent with the second sentence of the provision and the requirement for Comlux AS to negotiate any claim or defend any action brought against AVWest.
Construing cl 10.2's indemnity as applying to liability incurred by AVWest due to loss or damage to third‑party property ‑ not AVWest's property as addressed more specifically in cl 10.1 ‑ harmonises cl 10.1 and cl 10.2.
In the materials adopted as submissions CU advanced six reasons in support of the proposition that, by cl 10.2, the parties intended to allocate the Comlux AS the risk of any loss or damage to the Aircraft (including the airframe and engines) and cl 10 should be construed accordingly.[642]
First, it was said that the release and indemnification of AVWest by Comlux AS for all claims and liabilities caused by Comlux's negligence or wilful misconduct reflected the ordinary, customary and expected allocation of risk. CU also said that such an allocation was required to prevent a moral hazard. Both of those matters may be accepted. But the task is to determine, objectively, the intent of the parties as manifested in the terms of the CMA. The exercise is not advanced by asking what might be expected or what is more desirable.
Second, it was noted that AVWest had maintained this position in the litigation against Comlux AS. It appears that, under the law of Indiana, all relevant extrinsic evidence may be considered. But I assess this as having no weight whatsoever for the proper construction of cl 10. AVWest simply advanced the position it had to contend for in order to obtain a potential recovery.
Third, it was pointed out that the indemnity in par 1 of cl 10.1 had an exclusion in the event of wilful misconduct or negligence. That did not apply to par 1's release. Rather, par 2 of cl 10.1 provides for the exception to the release. It was said that the exclusion to the par 1 cl 10.1 indemnity was consistent with cl 10.2 allocating to Comlux AS the risk of all loss or damage to the Aircraft caused by Comlux AS's wilful misconduct or negligence. That is debatable. But in any event it is too broad. It overlooks the more specific allocation of risk in relation to loss or damage to the Aircraft as evinced in cl 10.1.
Fourth, reliance was placed on the insurance provisions. I have already referred to cl 11.1. The obligation on AVWest to insure the Aircraft, including its engines, tells against CU's preferred construction. Clause 11.2 required Comlux AS to maintain comprehensive aviation general liability by way of insurance coverage. This was to include aviation premises, products and completed operations and hangarkeepers liability for a combined single limit on bodily injury and property damages in the amount of $US150 million. Insurance as to products and completed operations liability would be intended to protect Comlux AS from any negligent work, or the sale or distribution of a faulty product, in the event its product or work caused injury or damage after the Aircraft was returned to AVWest. That is consistent with cl 10.2 applying to require Comlux AS to indemnify AVWest where its (Comlux AS's) negligence or wilful misconduct caused loss or damage to third‑party property resulting in a liability to or claim against AVWest.
Fifth, mention was made of the limited warranty in cl 12. The warranty did not apply to the consequences of negligence other than by Comlux AS. I do not see that as supporting CU's preferred construction. Rather it is necessary to prevent the warranty being completely redundant.
Sixth, CU referred to the history of the CMA's drafting. It was said that the substitution of 'negligence' for 'gross negligence' and the deletion of cl 10.1's 'regardless of the negligence ... of Comlux AS' demonstrated contract negotiations consistent with cl 10 allocating to Comlux AS the risk of loss or damage to the Aircraft caused by its wilful misconduct or negligence. That might have been AVWest's subjective intention. But that is not what matters. For the reasons given it is the objective intention, as manifested in cl 10.1, that is controlling of the proper construction of cl 10.
CU's preferred construction of cl 10 ‑ one that asserted that Comlux AS had agreed to indemnify AVWest against loss or damage to the Aircraft (including airframe and engines) arising from Comlux AS's negligence or wilful misconduct ‑ relied on reading cl 10.2 on its plain terms unaffected by cl 10.1. In seeking to explain how the broad construction of cl 10.2 was maintained in the face of cl 10.1 of the CMA attention was directed to the second sentence of par 2 in cl 10.1. This provides:

[290]

Thus the exception for airframes and engines means that the release in the second sentence of par 2 of cl 10.1 does not apply to such property.
Where the argument breaks down is the insistence that the second sentence in par 2 of cl 10.1 establishes the only applicable release ‑ which has the allied submission that cl 10.2 then establishes the applicable rule for airframes and engines. I do not accept that reading of cl 10. Paragraph 2 of cl 10.1 qualifies the general release in par 1. That is evident by the use of '[n]otwithstanding' as a word of proviso. But it only does so for the AVWest property within the contemplation of par 2. If property of AVWest in Comlux AS's care is not caught by par 2 (which is the position with airframes and engines) it falls within the general release. That is not altered by the second sentence of par 2. The second sentence of par 2 is only operating in the field opened up by par 2's qualification to the general release in par 1 of cl 10.1; it provides no foundation to ignore the par 1 release outside of par 2's scope of operation.
I do not accept that, viewed objectively, the par 2 limited release trumps the par 1 general release. Nor that the cl 10.2 indemnity is controlling of the cl 10.1 releases. That is particularly so in relation to property consisting of the Aircraft. Paragraph 1 of cl 10.1 is clear in its expression that the general release includes loss or damage to the Aircraft.
CU advanced a series of reasons to support its construction based on the release in the second sentence of par 2 of cl 10.1 and cl 10.2. [648] Some of those repeated the arguments addressed earlier in dealing with cl 10.2 and do not require further consideration. I will deal with the other matters.
First, it was said that the contrary construction did not properly consider the effect of the introductory word '[n]otwithstanding' in par 2. I disagree. In my opinion CU's preferred construction overstates the effect of the proviso by suggesting that it means the general release becomes redundant beyond the property the subject of par 2. Nor is there merit in the suggestion that, had it been intended airframes and engines were to be excluded, there would have been wider language in par 2, eg the provision would have been expanded along the lines of 'notwithstanding the foregoing paragraph and cl 10.2 and cl 12 ...'. The real exclusion is effected by the general release in par 1 of cl 10.1. Paragraph 2 is simply carving out an area in which Comlux AS assumes a potential liability.
Second, it is suggested that it is unlikely that the ten word parenthetical exception in par 2 of cl 10.1 is controlling of the 156 word cl 10.2. That misconceives which provision is controlling. The true controlling provision is cl 10.1 and its general release ‑ including as to the Aircraft ‑ which is qualified in specific respects by par 2 of cl 10.1.
Third, it is noted that insofar as loss or damage to the airframe and engines is released Comlux AS is excused from its gross negligence. I agree that is a surprising and undesirable scenario. It is also inconsistent with the apparent thrust of negotiations. But the applicable principles of Indiana law confirm that I must assess outward manifestation of intention, as found in the text in context, rather than subjective intent or expectations. The text of cl 10 read as a whole and in the context of the CMA is inconsistent with CU's preferred construction.
CU also seek to resist cl 10.1's specific reference to the Aircraft by suggesting that, having once so explained the phrase 'any property whatsoever', the parties saw no need to say it again. That strikes me as no more than assertion and a particularly weak assertion. Objectively, if the same property was intended, the same terminology would have been used in both cl 10.1 and cl 10.2. But there would then have been a conflict between cl 10.1 and 10.2 that does not arise on CU's non‑preferred construction.
On the proper construction of cl 10 of the CMA, and in the events that happened, AVWest was unable to recover loss or damage to the Aircraft's airframe or engines even where the loss or damage was caused by Comlux AS's negligence. Such loss or damage was caught by the general release under par 1 of cl 10.1 and was not something for which Comlux AS assumed a potential liability under par 2 of cl 10.1. Nor was loss or damage to the Aircraft's airframe or engines claimable under the indemnity in cl 10.2; this only applied to AVWest's liabilities for loss or damage to third‑party property. CU's preferred construction of cl 10, relying on the indemnity under cl 10.2, is not the correct construction of the CMA.
Accordingly, AVWest did suffer a compensable loss. It lost the opportunity to negotiate out the parenthetical exclusion and was thereby deprived of the opportunity to recover loss or damage to the Aircraft's airframe or engines where the loss or damage was caused by Comlux AS's negligence. The damages attributable to that loss must now be quantified.

[298]

Particulars were provided of Comlux AS's alleged negligence. Among other things the claim presented in the mediation position paper was that Comlux AS breached its duty of care by: failing to properly inspect the hangar for safety issues; placing the Aircraft in a building that had known safety hazards; placing the Aircraft in a building that lacked an adequate fire detection system; placing the Aircraft in a building that did not have a fire protection system; and ignoring fundamental fire protection principles and industry standards in the manner in which it maintained the hangar.[659]
Comlux AS's position for the purpose of mediation was that AVWest had not presented any credible evidence that Comlux AS was negligent.[660] Comlux AS advanced the position that, at worst, assuming liability it might be liable for up to 20 per cent of the damage to the Aircraft ‑ which Comlux AS put as totalling some $US1.396 million before any claim for interest ‑ plus costs, expenses and attorney's fees.[661] That put an inferred value on the claim of some $US280,000 and interest and costs. Accordingly, the picture presented in the Comlux AS's mediation position paper would only have warranted a low settlement offer based on the claim having nuisance value. Yet the eventual settlement was $US5 million. The substantial nature of the settlement amount belies any characterisation of AVWest's negligence claim as being not viable or doomed to fail. The inference I draw from the size of the settlement is that AVWest had a real and not fanciful claim in negligence. Comlux AS must have thought as much in being prepared to settle at the $US5 million.
Apart from the settlement amount the viable nature of AVWest's negligence claim against Comlux AS is confirmed by my assessment of the claim (see pars 671 to 692 below) and by Mr Harvey's evidence on the subject.
Although acknowledging the inherent risks, Mr Harvey's evidence was that he believed AVWest had a strong case for negligence against Comlux AS.[662] Mr Harvey gave detailed and rational reasons for that conclusion.[663] Among other things Comlux AS had admitted that the cause of the fire was an electrical fault.[664] Mr Harvey saw that as significant because there was a documented record of electrical hazards ‑ meaning that the issue was identifiable on inspection of the building ‑ but Comlux AS did not conduct any electrical inspections on taking over the hangar.[665] In addition, as CU itself accepted, Mr Harvey was an honest and ‑ as I have found earlier ‑ a compelling and impressive witness.
Third, CU contended that there was no evidence by which the court could quantify the loss suffered by reason of:

[301]

I will return to the difficulty in quantifying the damages suffered by AVWest. Before doing so, however, it is necessary to mention some principles. Loss being established the court is obliged to do its best to quantify the damage.[666] It may be that the value of the loss is not easy to determine but it is the duty of the court to determine that value as best it can.[667] It is acknowledged that doing its best to quantify loss may involve the court in a degree of speculation or guesswork.[668] Here, however, it is necessary to distinguish between a case where a claimant cannot adduce precise evidence of loss and a case where, although apparently able to do so, the claimant has not adduced such evidence.[669]
The obligation on the court to do the best it can on the evidence before it depends on the circumstances of the case. The proper approach is an evaluative one influenced by such considerations as the nature of the question including its amenability to precise proof or assessment, the availability and control of evidence and the onus of proof. Considerations such as the assessment of evidence according to the power of the party to adduce it will be important to such an evaluation.[670]
CU's breach has thrust AVWest into the difficult task of proving a past hypothetical; it cannot insist on an unrealistic level of proof.[671]
Fourth, CU said that it was not entirely clear what AVWest claimed by way of quantum. The point was made ‑ and I accept ‑ that the accounting experts did not quantify the alternative transaction case. Otherwise CU observed that insofar as AVWest made a claim for lost profit against Comlux AS based on reselling the Aircraft for $36 million (relying on Mr Killingsworth's expert evidence) there was contemporaneous evidence of Mr Roberts offering the Aircraft for sale at $US35.5 million refurbished (having initially floated an 'asking price' of $US36 million).[672] For reasons that should be apparent that raises a false issue: quantification under Scenario 2 occurs without consideration of any loss of profit claim.
I do not accept that there was a lack of clarity in relation to AVWest's claim for damages under Scenario 2. It was set out in detail in AVWest's written closing submissions.[673] In substance AVWest's contention is that had the construction risk been removed (the counterfactual on which Scenario 2 proceeds) AVWest would have had the valuable chance of having: (1) settled for a materially higher sum at the Comlux AS mediation; and (2) done so at an earlier stage.[674] It is said that this chance was lost and should be quantified and compensated for.
As its starting point in the quantification exercise AVWest pointed to the loss claimed in the mediation with Comlux AS.[675] After one adjustment this comprised $US16,018,095 calculated as follows:

[302]

AVWest suggested that, of the $US16,018,095, the lost profit claim was not recoverable given the effect of cl 10.3. I accept that for the purpose of mediation Comlux AS would have placed little or no weight on this aspect of AVWest's claim. In its mediation position paper AVWest advanced an argument which sought to confine the operation of cl 10.3 to contractual rather than negligence claims.[680] That argument is unconvincing. In any case Comlux AS retaliated by stating that it intended to file a motion for summary judgment on the lost profit claim should the case not settle at mediation.[681] The attitude evinced in that statement is the best evidence of the value Comlux AS attributed to the lost profit claim.
AVWest also said that the amount in respect of costs, expenses and attorneys' fees would not be recoverable. That was consistent with the agreed principles as to the law of Indiana.[682] This too would have been known to Comlux AS, by its attorneys, and no value would have been attributed to this component of the quantum sought by AVWest at the Comlux AS mediation.
The 'maintainable value' (those being the words used by AVWest in its written closing submissions)[683] of AVWest's claim against Comlux AS in Scenario 2 was thus $US8,703,321.[684]
In fact AVWest recovered $US5 million from Comlux AS. Subject to one additional matter, discussed at pars 693 to 696 below, the difference between the $US8,703,321 and the $US5 million is the highwater mark of AVWest's damages claim under Scenario 2 (before allowing the necessary discount based on my assessment that there was a 50 per cent chance that Comlux AS would have agreed to amend par 2 of cl 10.1 of the draft CMA by deleting the parenthetical airframe and engines exclusion). Scenario 2 could, at most, have seen AVWest recover an additional $US3,703,321 at the Comlux AS mediation.
In theory ‑ as was confirmed in Mr Harvey's evidence[685] ‑ there were two risks that informed the eventual compromise reached by AVWest and Comlux AS as a result of the mediation:

[305]

I have already recounted Comlux AS's pleaded defence based on the airframe and engine exclusion (see pars 97 and 102 above). It will be recalled that the issue was also raised informally with Mr Harvey on a number of occasions but, at least initially, he did not see it as a concern (see pars 251 to 254 above). On 8 December 2015 (on the eve of the mediation) the issue was raised again by Comlux AS's attorney (see par 255 above) prompting AVWest's Australian solicitor to raise the matter and Mr Harvey to consider the effect of cl 10.1 of the CMA more closely (see pars 257 to 258 above). Importantly, the issue was raised squarely ‑ and emphasised by underlining ‑ in Comlux AS's mediation position paper (see pars 105 to 106 above). Accordingly, the construction question was plainly on the table as a significant variable in the context of the mediation.
The position evinced by Comlux AS for the purpose of mediation was that:
- Due to cl 10.1 of the CMA Comlux AS could not be held liable for any damage to the Aircraft's airframe and engines.
- The fire caused little or no damage to any part of the Aircraft that would not be covered by the exclusion for damages to the airframe and engines.
- Based on cl 10 alone the amount of damages AVWest could recover was low.
In his witness statement Mr Harvey recounted advising Mr Roberts that he (Mr Harvey) viewed the language of cl 10 as creating a 'significant risk' that it would be construed as excluding any claim by AVWest for loss of the Aircraft's airframe and engines even if caused by Comlux AS's negligence or gross negligence.[686]
At the time of mediation Mr Harvey's view was that the construction issue in relation to par 2 of cl 10.1 was a greater risk for AVWest than its risk on establishing that Comlux AS was negligent.[687] Mr Harvey also described the construction issue as a 'more immediate risk'[688] and a 'primary hurdle'[689] or 'more prominent concern'.[690] One of the reasons for this was that Mr Harvey believed that, had the case not settled at mediation, Comlux AS would have likely filed a motion for partial summary judgment seeking a ruling that AVWest could not proceed on the negligence claim on the proper construction of cl 10.1.[691] There was a basis for Mr Harvey's concern. As mentioned, Comlux AS had foreshadowed a summary judgment application against AVWest's lost profit claim based on cl 10.3.[692] If that was to happen then it would have made sense for Comlux AS to also agitate the constructional question presented by par 2 of cl 10.1.
Mr Harvey also gave evidence ‑ which I accept ‑ that:

[307]

That was consistent with Mr Harvey's other evidence that the construction question was a more immediate and prominent concern. It was also consistent with Mr Harvey's view that AVWest had a strong negligence case (see par 633 above) but that the outcome on the construction question in relation to par 2 of cl 10.1 was a risk either way where no‑one could be in a position to necessarily predict [694] outcome.694
AVWest's appreciation of its risk on the two issues is likely to have been mirrored by Comlux AS. Comlux AS was represented by attorneys who had identified at an early stage the constructional issue that arose by reason of the airframe and engines exclusion in par 2 of cl 10.1. Based on the mediation position paper prepared on Comlux AS's behalf its attorneys were competent and diligent. It is more likely than not, and I find, that the amount Comlux AS were prepared to offer AVWest at mediation to settle the claim was discounted by reason of the constructional defence advanced by Comlux AS based on the airframe and engine exclusion. That stance was the counterpoise to, but consistent with, Mr Harvey's evidence that he considered the $US5 million settlement reasonable ‑ and something he recommended ‑ given the risk of the CMA being construed against AVWest's interest.[695]
The issue for me is to assess in dollar terms the impact of Comlux AS's defence based on par 2 of cl 10.1's airframe and engine exclusion on the settlement amount. To what extent did the availability of the defence reduce the amount Comlux AS was willing to offer to settle the litigation? And to what extent did the risk posed by the parenthetical exclusion reduce the amount AVWest was willing to accept to resolve the litigation?
I have expressed the task in terms of determining the settlement value under Scenario 2 rather than ‑ as is more common ‑ the value of the lost opportunity of obtaining damages at trial under Scenario 2. As AVWest presented its case by reference to the loss of opportunity to reach a superior compromise I consider the appropriate metric is what might otherwise have been obtained at the mediation rather than following a trial at which the substantive merits of the negligence claim were determined. However, ordinarily the task of determining the settlement value of a lost claim is likely to be similar to the task of determining the value of the lost opportunity of obtaining damages at trial.[696]
The task of quantification has considerable difficulty. For example, as Mr Harvey stated in his evidence, he could not readily quantify how the offers and counter‑offers at mediation played out in relation to the respective issues.[697] I am, however, reasonably satisfied on the balance of probabilities that AVWest would have achieved a materially higher settlement sum in the Comlux AS mediation had the CMA not contained the airframe and engines exclusion in par 2 of cl 10.1. That is the likely position as a matter of logic. The constructional difficulty presented by the parenthetical exclusion provided Comlux AS with a defence of considerable merit. If evidence be required ‑ and I consider the finding is established simply by the objective facts and the inherent logic of AVWest's position under the CMA ‑ Mr Harvey's evidence also supports my conclusion (see pars 645 and 648 to 652 above). But how much higher the settlement might have been cannot be exactly known or precisely quantified. The principles I have referred to at pars 635 to 637 above are apposite in the circumstances. This is a case where AVWest cannot adduce precise evidence of loss.
In undertaking the quantification exercise I recognise that the $US5 million settlement amount must already include a component that reflects Comlux AS's view as to the risk that its airframe and engine exclusion defence would not be successful. Had Comlux AS not priced in any risk that the constructional defence might be overcome it would ‑ as a matter of logic ‑ only have proposed a very low settlement and would not have entertained the substantial settlement that in fact occurred. It would, however, have been apparent to Comlux AS's attorneys (and therefore to Comlux AS) that an ambiguity arose as to the proper construction of cl 10 of the CMA. Mr Harvey, for AVWest, had presented a respectable argument in support of AVWest's preferred construction in AVWest's final mediation position paper.
Accordingly, the $US5 million actual settlement amount took into account the possibilities that the airframe and engines exclusion defence would or would not be successful. It follows that ‑ in the counterfactual world of Scenario 2 ‑ the absence of any defence based on par 2 of cl 10.1's airframe and engine exclusion impacts by eliminating the possibility that Comlux AS might successfully employ the defence. The remaining substantive issue between the parties was whether AVWest could make good its negligence case against Comlux AS. The effect of the uncertainty caused by the airframe and engine exclusion defence (and consequent disadvantage to AVWest's position in the Comlux AS litigation) may be gauged by assessing AVWest's position had negligence been the only live issue and comparing it to the settlement in fact achieved.
In this respect the analysis is broadly analogous to that which was employed by Brennan CJ in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd in describing the liability of an insurance broker as against its insured where the broker's negligence results in the insured having a weakness in its case against the insurer:

[312]

The second question is easier to answer than the first. I am comfortably satisfied that the $US5 million settlement was reasonable.
The test of reasonableness is objective. Accordingly, it is not satisfied by evidence that the parties thought the settlement was reasonable; nor why they thought it was reasonable. Whether a settlement is reasonable depends on the circumstances at the time of settlement (assuming the claimant acted reasonably in discovering the circumstances material to settlement). Evidence of legal advice is material but not conclusive. The reasoning that supports the advice is important insofar as it reveals why it was thought reasonable to compromise the claim at that level. The court should also be satisfied that the negotiations were conducted with proper care and skill. The settlement must reflect the claimant's true prospects of success ‑ albeit recognising that there may well be an appropriate discount due to the inherent uncertainty of litigation and the benefit not having to incur unrecoverable costs in proceeding to trial.[700]
In short, the question of reasonableness is to be determined based on a reasonable assessment of the risk faced by AVWest if the claims against Comlux AS were to proceed to trial and judgment.[701]
By way of a mitigation defence CU contended that the $US5 million amount AVWest settled for following the mediation with Comlux AS was lower than the amount which AVWest should and would have obtained had it reasonably sustained and argued its claim against Comlux AS. In opening two deficiencies were alleged in the way in which AVWest proceeded: (1) participating in the mediation without proof that Comlux AS had been negligent; and (2) accepting Comlux AS's construction of cl 10.1.[702]
Those criticisms are misplaced. Plainly AVWest did not accept Comlux AS's construction of cl 10.1. An alternate construction was advanced in AVWest's final mediation position paper (see par 258 above). Perhaps recognising that its original contention was overstated, CU's contention in its closing submissions was more muted. CU suggested that the argument as advanced by Mr Harvey should have been put with more confidenc[703]nd force.703 I reject that contention. The position advanced in AVWest's mediation position paper on the proper construction of cl 10.1 and cl 10.2 was measured and credible. AVWest, by Mr Harvey, acted reasonably to counter the constructional defence being advanced by Comlux AS. In any case, the defence represented by the airframe and engines exclusion represented a known material risk that could not be resolved without curial determination.
Nor is there substance in the complaint that AVWest participated in the mediation without proof that Comlux AS had been negligent. In this regard CU's contention echoed the sabre rattling found in Comlux AS's mediation position paper.[704] But the reality was otherwise. There was a record of documented electrical hazards in the hangar which were catalogued in AVWest's mediation position paper[705] (this being of significance given Comlux AS's admission that the fire was caused by an electrical fault).[706] More generally AVWest's mediation position paper, when read in the light of Mr Harvey's testimony,[707] established that AVWest proceeded to mediation with a credible evidentiary case by which to establish negligence on the part of Comlux AS (see pars 629 to 630 and 633 above).
CU's failure to establish its mitigation defence does not mean that AVWest has satisfied its onus in proving that the Comlux AS settlement was reasonable in the circumstances. I am, however, satisfied that the $US5 million was reasonable. The settlement followed a formal mediation before a retired judge. The parties first exchanged comprehensive mediation position papers. AVWest received competent legal advice as to its risks and prospects in the litigation; and eventually received and relied on legal advice that recommended it accept the settlement in light of the risks that it faced. The eventual settlement of $US5 million represented a substantial part of the viable claim amount of around $US8.7 million.
Significantly, the $US5 million figure was not solely the product of negotiation. Based on the documentary evidence the parties came to an impasse at $US4 million.[708] The mediator then proposed and recommended the $US5 million as being in each party's interest to accept.[709] The eventual settlement figure was the product of arms' length negotiations, by sophisticated commercial parties who were competently advised, and was informed by the independent view of a retired judge as to what was in each party's interests to accept.
The reasonableness of the settlement with Comlux AS might be thought to be self‑evident based on my conclusion as to the proper construction of cl 10 of the CMA and the effect of the airframe and engines exclusion in par 2 of cl 10.1. However, it is wrong to judge reasonableness in light of what is now known. At the time of the mediation the potential for AVWest to fail in the litigation against Comlux AS due to the construction was a material risk not a certainty. That risk appeared on the face of the CMA and was articulated in Comlux AS's pleadings and mediation position paper. It justified, in my view, a substantial discounting of the claim. The significant doubt as to the possible fate of the litigation was exacerbated by the potential for the construction point to be determined adversely to AVWest on a summary judgment application.
The settlement as negotiated discounted the viable component of the claim by about 40 per cent.[710] Viewing the situation AVWest confronted at mediation, and recognising that Comlux AS's defence was prima facie justifiable on a plain reading of cl 10.1, I am satisfied that a significantly greater discount would have been reasonable. Accordingly, I am satisfied that the $US5 million settlement was more than reasonable. In written opening submissions senior counsel for AVWest described the Comlux AS settlement as an 'outstanding outcome' for AVWest.[711] I consider that to be an apt description. AVWest's comparative success in its claim against Comlux AS is to CU's benefit.
Accordingly, I am satisfied that the $US5 million settlement was reasonable. I must then assess what AVWest would have recovered against Comlux AS had the CMA been amended in accordance with Scenario 2, ie the airframe and engines exclusion had been negotiated out. What would AVWest have recovered by mediation had the litigation essentially turned on whether or not AVWest could establish negligence on the part of Comlux AS?
The exercise ultimately involves assessing what the action was worth.[712] However, given the case presented by AVWest, I am assessing the worth of the action in a mediation context rather than at trial.
The assessment requires a broad brush approach.[713] Necessarily it involves a degree of impression. The starting point is to identify the factors bearing on AVWest's prospects of success and evaluate their significance. From there I should assess the value of the claim for settlement purposes by applying a discount to take account of the uncertainties that would have attended AVWest's prosecution of the negligence claim and Comlux AS's defence of it. The last step necessitates a value judgment.
Two matters of primary importance are the evidentiary summaries, and statement of respective positions, as found in AVWest's and Comlux AS's mediation position papers.[714] They demonstrate what was known and was being contended by AVWest and Comlux AS at the time of the litigation. Indeed, the mediation position papers are the most reliable evidence of the parties' then belief as to the material facts pertinent to the Comlux AS litigation.
At trial there was no discussion as to whether the mediation position papers could be received as proof of their contents. I am not satisfied that I can so rely on the mediation position papers. That is particularly the case as against CU; any admissions against interest in AVWest's position paper would constitute an exception to the hearsay rule but that possibility cannot apply to CU. Nevertheless these documents demonstrate what AVWest and Comlux AS understood to be the material facts as at the time of the mediation. It is AVWest's and Comlux AS's then understanding of the material facts (rather than the actual facts) which would have informed the parties' position at mediation in December 2015 and in settling thereafter. Accordingly, in assessing what the action was worth ‑ and what was lost ‑ by way of a mediated outcome I can rely on the mediation position papers. That is particularly so insofar as, on the most important of the material 'facts', there was a large amount of commonality as between AVWest and Comlux AS.
Also of importance is the objective fact that there was a settlement at $US5 million. That alone establishes that ‑ contrary to the position evinced in Comlux AS's mediation position paper ‑ there was a negligence case of considerable merit.
I have also considered whether I should take into account, and place weight on, Mr Harvey's evidence that he considered AVWest to have a strong case in negligence. In the context of whether a settlement is reasonable the evidence of the relevant legal advisers is not only relevant and admissible but often important.[715] I am, however, here concerned with another issue: the assessment of the range of the likely settlement had AVWest's mediation with Comlux AS been confined to the question of negligence rather than the reasonableness of the settlement. The reason why the contemporaneous legal advice is relevant in assessing the reasonableness of a settlement is that it tends to negate the hypothesis that the claimant acted unreasonably in entering into a settlement.[716] That rationale is not applicable in assessing the value of AVWest's negligence claim. For that reason I consider I should not have regard to Mr Harvey's evidence on to the merits of AVWest's negligence claim when assessing the likely Comlux AS settlement under the Scenario 2 counterfactual.
The 'facts' favourable to AVWest's prospects and the value of its claim for mediation purposes were as follows:

[325]

Mr Harvey gave uncontradicted evidence ‑ and I accept ‑ that under the law of Indiana a tenant who takes possession of leased premises is responsible for injuries resulting from its negligence absent fraud or concealment.[734] Mr Harvey also made reference to Indiana having a 'comparative fault law' meaning that if negligence was 51 per cent attributable to Comlux AS there would be a recovery of 51 per cent of AVWest's damages.[735] That is not relevant for the assessment of value under Scenario 2's counterfactual. In Scenario 2 there is a contractual claim for negligence under the notionally modified par 2 of cl 10.1 rather than a tortious claim. Otherwise no evidence was adduced as to the state of the law of Indiana on the subject of negligence (although there were various unverified statements in the mediation position papers). In those circumstances there is a presumption that the relevant law of Indiana is the same as that of Western Australia. I will assess the claim by reference to the general law of negligence.
I am satisfied that, based on what was known and believed by the parties at the time of the Comlux AS mediation, objectively AVWest had a reasonably strong negligence claim against Comlux AS.
On the available evidence the damage to the Aircraft was caused by a fire that originated as an electrical fire. The fire emanated from a wall or floor space within the hangar, premises of which Comlux AS was occupier and sub‑tenant. The hangar had a history of electrical defects and electrical code violations. Accordingly, the likely inference ‑ and the one I consider would objectively have been drawn by the parties in proceeding to mediation ‑ was that the fire was caused by some electrical defect originating in a cavity (ie a wall or floor space) used to provide electrical services to the hangar.
Comlux AS did not know of those electrical issues before the fire. But it had not conducted any inspection to consider the electrical safety of the hangar. Nor ‑ since Comlux AS did not know of the historical electrical issues ‑ had it conducted any other investigations into the adequacy of the electrical system within the hangar.
It was, in my opinion, strongly arguable that Comlux AS failed to exercise reasonable care in proceeding to use the hangar to house commercial aircraft without conducting any such investigations or inspection. There was a strong argument that it was reasonably foreseeable that such an installation ‑ constructed 45 years before but with subsequent modifications ‑ might have potential electrical faults which would result in an electrical fire. Such a risk of electrical defects was not insignificant. The risk of electrical defect causing an electrical fire within the hangar posed a serious risk in circumstances where: (1) there was no fire detection or suppression system in the hangar ‑ in the absence of a hangar wide sprinkler system a fire might spread quickly; and (2) the hangar was to be used and was used to house extremely valuable commercial aircraft. Putting those two matters together there was a reasonable likelihood that any electrical fire might spread and cause serious economic harm. Conducting a pre‑occupation electrical safety inspection would have been a relatively inexpensive activity. All the more so making a routine inquiry with the hangar's owner, the Indianapolis Airport Authority, which would have disclosed the hangar's history of electrical defects and electrical code violations thereby making plain the need for a pre‑occupation electrical safety inspection.
Accordingly, based on what was known and believed by the parties at the time of the Comlux AS mediation, I assess that AVWest had a reasonably strong negligence claim against Comlux AS. It was strongly arguable that, as incoming sub‑tenant and occupier of the hangar, Comlux AS failed to take reasonable precautions against the risk of harm to aircraft owners whose aircraft were housed in the hangar by not conducting any investigations into ‑ or independent inspection of ‑ the electrical system within the hangar.
The posited negligence claim was not open and shut. Apart from the inherent litigation uncertainty that affects any claim there are two matters which might have meant that AVWest would fail in the negligence claim.
First, while I assess the risk of electrical defect causing an electrical fire as being reasonably foreseeable as a not insignificant risk, there is a respectable argument to the contrary. Also, viewed through the prism of mediation, it was always possible that subsequent evidence may adversely affect AVWest's position.
Second, there was a causation hurdle for AVWest to overcome.
I do not consider it material that Comlux AS's experts had concluded that the fire was not caused by any act or omission of Comlux AS; nor that AVWest had not yet procured an expert report that attributed fault to Comlux AS. There was time for expert reports in the lead up to trial. And the important fact was that Comlux AS conceded that the fire commenced as an electrical fire. Nevertheless a causation issue remained. The precise cause of the fire had not been identified. Given the significant time that had passed between the fire and the mediation ‑ and that the issue had been explored previously in the context of the Insurers' litigation against Comlux AS ‑ there was an objective likelihood that the precise cause of the electrical fire might not be able to be determined. As Mr Harvey put it, the ignition sequence had not been identified.[736]
The lack of apparent ability to prove the precise cause of the electrical fire presented a causation issue for AVWest's negligence case against Comlux AS. AVWest may not have been able to establish that the fire would not have occurred had Comlux AS conducted reasonable investigation into, and inspection of, the hangar's electrical system. There would have been forensic difficulties in proving the negative on the balance of probabilities in circumstances where the precise electrical fault was never identified.
For the reasons given, viewed in the prism of what was established and common cause at the time of mediation, I assess AVWest as having had a reasonably strong negligence claim. That assessment is confirmed by the substantial settlement amount achieved at mediation. There were, however, uncertainties as to AVWest's position in the litigation against Comlux AS over and above the usual inherent uncertainty that attends litigation. Standing back, and adopting a broad brush approach, as a matter of impression I assess AVWest's claim against Comlux AS (in the counterfactual world of Scenario 2) as having a value for mediation based on applying an overall discount of 25 per cent to 35 per cent of the maintainable viable claim ‑ in other words as being worth between a range of $US5,657,159 to $US6,527,481[737] with a mid‑point of $US6,092,325.
I adopt that mid‑point as the amount that AVWest would have recovered against Comlux AS as the outcome of mediation had the CMA been amended conformably with Scenario 2. Accordingly, applying the 50 per cent discount for the loss of chance (refer to par 567 above) I quantify AVWest's damages in an amount of $US546,162.50 which ‑ for the sake of simplicity ‑ I round down to $US546,160.
In finalising my view on the value of AVWest's negligence claim against Comlux AS I have ‑ as something of a check and balance ‑ considered the fact that the actual settlement amount was $US5 million. Given the likely adverse impact of the availability of Comlux AS's defence based on the par 2 cl 10.1 parenthetical exclusion it might be thought that the value of the negligence claim unaffected by the defence was more than the $US6.09 million I have come to. Despite that instinctive reaction I am satisfied that the assessment I have reached is appropriate. There are two reasons that explain the limited, although still materially higher, difference between the actual settlement and the assessed value. First, I am working off the maintainable value of the claim in Scenario 2 (as was suggested by AVWest in its closing submissions). This is some $US8.7 million. However, on its face Comlux AS was facing a considerably higher claim in excess of $US16 million. That might have caused Comlux AS to be willing to entertain a higher range by way of settlement. Second, as AVWest itself contended in opening, it achieved an outstanding outcome in the settlement with Comlux AS. The difference between the assessed value and the actual settlement amount would have been greater had AVWest not obtained such a beneficial settlement.
AVWest also contended that an amount for legal costs should be added to the amount assessed as being its loss of opportunity to settle against Comlux AS for a materially higher amount.[738]
I do not consider any substantial allowance to be justified. The bulk of the costs, expenses and attorney's fees were incurred on the claim against the Insurers rather than the claim against Comlux AS. AVWest assessed the costs as being $US1,089,065 against the Insurers and about $US278,167 against Comlux AS.[739] The costs against the Insurers would have been incurred in any event. To the extent that AVWest's costs incurred in pursuing Comlux AS were higher due to the presence of the parenthetical exclusion in par 2 of cl 10.1 of the CMA there is, in theory, a compensable loss. But this was not a matter that impacted on Mr Harvey's consideration of the litigation until very late in the piece ‑ on the eve of mediation well after the bulk of the costs had been incurred.
No evidence was specifically directed to the time Mr Harvey spent in modifying AVWest's mediation position paper to answer the construction point. In cross‑examination senior counsel suggested that analysis of the invoices produced by Mr Harvey's firm referred to Mr Harvey having spent some eight hours on the question. Mr Harvey had no recollection and said that his invoice would provide the best evidence.[740] The materials as tendered included Mr Harvey's invoice for the work done in preparing for and attending mediation.[741] Following AVWest's Australian solicitor's email of 9 December 2015 there are a series of notations on the invoice which are directed to addressing the construction issue and finalising the mediation statement in light of the additional issue. Those entries ‑ over 9 to 12 December 2015 ‑ total 8.4 hours but some of that time appears to have been spent on the mediation position paper more generally. I am only able to identify 5 hours that is directly attributable to the par 2 cl 10.1 parenthetical exclusion.
Applying that 5 hours at Mr Harvey's hourly rate of $US230 per hour there is an incremental cost of $US1,150 in dealing with the parenthetical exclusion in par 2 of cl 10.1 of the CMA. In circumstances were no other additional cost is readily identifiable, and it was within AVWest's power to produce positive evidence on the matter, I find that only the $US1,150 is proven as an additional allowance by way of damages for the costs of pursuing the litigation against Comlux AS. Discounted by 50 per cent this increases the damages as quantified by an amount of $US575.
Accordingly, I quantify AVWest's damages due to CU's negligence as being $US546,735.

[328]

The expert accounting evidence was directed to the quantification of damages in Scenario 4. It assumed that, had AVWest received different advice from CU, the $US31 million purchase for the Aircraft would have been retained by AVWest and used in its business. AVWest also relied on the expert accounting evidence in Scenario 3. This was on the assumption that, under Scenario 3, it would not have been necessary for AVWest to commence proceedings against Comlux AS at all. Rather, according to AVWest, Comlux AS would simply have paid the amounts claimed against it for the loss of the Aircraft and then made a claim for reimbursement on its own hangar keepers insurance.
I have found that AVWest fails on the facts so far as its case is based on the posited counterfactuals as ground Scenario 3 and Scenario 4 (Scenario 3 also being not open on the pleadings).
Accordingly, it is strictly unnecessary to deal with the expert accounting evidence. I consider, however, that I should deal with the questions of principle that arose in the experts' respective methodologies. That might be useful if the matter proceeds further and a different view is taken on appeal. However, because of the view I take of the two methodologies, it is not possible to come to a provisional quantification under Scenarios 3 and 4 in precise dollar terms. Had I determined that Scenarios 3 or 4 were made out on the facts it may have been necessary to re‑list the matter for a further hearing to facilitate calculation of the amount of damages under the relevant Scenario.
In dealing with the questions of principle I will not recount the totality of the experts' evidence. That evidence was voluminous. AVWest's expert, Mr Jackson, prepared two initial reports. The first is 27 pages[742] and the second is 28 pages.[743] CU's expert, Mr McGuiness also prepared two initial reports (each responding to Mr Jackson's reports). The first is over 200 pages (including attachments)[744] and the second is 89 pages (including attachments).[745] The JER is 81 pages and must be read with a two page note of corrections as prepared by Mr McGuiness.[746] Post‑hearing Mr McGuiness prepared a further 57 page report on a cell‑by‑cell review of Mr Jackson's appendix C to the JER (which was the successor to the appendix D in Mr Jackson's original report).[747] The experts also gave oral evidence in conclave over some nine hours.
Full recitation of the detail of that evidence would have been a considerable task that would only have further delayed the delivery of these reasons. It was also, in my view, a disproportionate task given the way the facts had fallen out in terms of proof of the counterfactual.
There are, however, some factual findings that should be made based on the lay evidence.
First, it was suggested to Mr Roberts in cross‑examination that there was no opportunity that AVWest forwent as a result of funds being tied up in the purchase of the Aircraft. Mr Roberts rejected that proposition saving that there were several such opportunities.[748] I accept Mr Roberts' evidence. It is inherently probable that, if AVWest had additional capital for deployment, it would have applied such funds in more of the lucrative arrangements AVWest had negotiated with Bombardier. The evidence showed that Bombardier was willing and indeed eager to pursue business with AVWest to assist in meeting divisional cash flow targets.
Second, it was the case that, had AVWest retained the $US31 million, it would have been deployed in AVWest's business and used to invest in aircraft or aircraft positions. Mr Roberts gave evidence to that effect which I accept:

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CU's expert, Mr McGuiness, produced a number of different loss figures. Five scenarios were posited.[759] Four of those were a combination of the experts' preferred models and inputs: Alternative A (Mr Jackson's model and inputs); Alternative B (Mr McGuiness' model and Mr Jackson's inputs); Alternative C (Mr Jackson's model and Mr McGuiness' inputs); and Alternative D (Mr McGuiness' model and inputs). Alternative E provided an estimate of loss based on the funds of $US31 million being applied against AVWest's loans payable. That need not be considered further. This was not the way in which AVWest presented its case on loss. For each of the scenarios Mr McGuiness produced a variant based on what was referred to as 'Responsive Loss Period and All Transactions' and 'Alternative Loss Period and Pre‑Owned Transactions'.
The 'Responsive Loss Period' covered 20 September 2010 to 23 December 2013 (ie until recoupment of the $US30 million). This was, broadly, the period considered by Mr Jackson. However the 'Alternative Loss Period' was a lesser period; it involved assessment of loss to the period in which AVWest could have invested in another aircraft and then received the benefit of that alternate transaction. The 'All Transactions' analysis included aircraft positions or slots whereas the 'Pre‑Owned Transactions' analysis did not.
I understood the Alternative Loss Period and Pre‑Owned Transactions calculation to reflect CU's views on remoteness. On CU's case any damage beyond the loss of profit on the on‑sale of a single pre‑owned aircraft was too remote.
Mr McGuiness' different scenarios and variants produce a confusingly large number of different loss figures. It is appropriate, in my view, to focus on the figures that result from Alternative D, ie Mr McGuiness' method and Mr McGuiness' inputs. In his oral evidence Mr McGuiness agreed that it was Alternative D that was the relevant practical alternative for comparison with Mr Jackson's estimate of loss.[760] On this basis as set out in his second report Mr McGuiness' estimates of loss were:[761]

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The substantial difference between the two experts' assessment of loss was a function of two things. First, the experts adopted very different methods in assessing loss. Second, the experts had differing inputs. It is first necessary to deal with the experts' competing models for assessing loss.
Mr Jackson's loss model adopted an ex‑post approach which relied on a rate of return analysis. It sought to assess what profit AVWest's business would have generated for the relevant period had it (AVWest) had the $US31 million based on the rate of return derived from AVWest's financial statements and actual cash flows over the same period. The calculation was carried forward until the $US31 million was notionally all but recouped from the recovery against the Insurers. By contrast Mr McGuiness' loss model adopted an ex‑ante approach which discounted lost profits back to a date of breach (20 September 2010) relying on a discounted cash flow (DCF) analysis.
More specifically, Mr Jackson analysed the average rate of return AVWest obtained in buying and on‑selling aircraft and aircraft positions in 50 transactions over the 2011 to 2014 financial years.[764] The annual rates of return as noted in Mr Jackson's appendix C to the JER were 14 per cent (2011), 16 per cent (2012), 22 per cent (2013) and 91 per cent (2014). The overall average annual return on funds invested was 25 per cent.[765]
Mr Jackson also calculated the average number of days between the purchase and on‑sale of an aircraft for those transactions. This produced a figure referred to as 'aircraft turnover (in days)'.[766] On some occasions the relevant cash inflow was not received on the sale date. Initially Mr Jackson calculated the aircraft turnover employing an on‑sale date based on the day that AVWest received 50 per cent of the cash inflow for the aircraft.[767] But in the JER and its amended appendix C calculations Mr Jackson eliminated the requirement for 50% of the cash inflow to be received when calculating the aircraft turnover.[768] This resulted in significantly reduced figures for aircraft turnover.[769]
A monthly rate of return (based on the relevant year's average annual rate of return calculated from the primary materials) was applied to the $US31 million with that 'lost profit' being notionally reinvested into AVWest's business in accordance with the aircraft turnover (days) calculation.[770] In substance this saw capitalisation upon the occurrence of the expiration of each aircraft turnover days period. Accordingly, the change in recognition as to when on‑sale was effected, as was adopted for the JER calculations, had the effect of increasing Mr Jackson's loss of profit calculation. That is evident in as much as Mr Jackson's initial report provided for turnover of four additional aircraft with a fifth being purchased in August 2013.[771] However, the calculations in appendix C to the JER projected five additional aircraft with a sixth being purchased in June 2013.[772]
The implicit assumption for Mr Jackson's model was that AVWest's financial performance as evidenced by the transactions in fact performed over the relevant period would have been replicated in all the additional transactions AVWest would have performed had it had the additional $US31 million to deploy in its business. In this regard Mr Jackson acknowledged that his calculation assumed a consistent product mix with the additional aircraft purchased and sold with the notionally returned $US31 million.[773] But the implicit assumption went further than that; it also assumed like returns and like time periods to effect an on‑sale. Mr Jackson did so by applying a pooled approach to the funds available to AVWest (which was consistent with how AVWest viewed its capital.)[774]
Mr McGuiness' DCF analysis developed two sets of cash flows: the actual cash flows and what he referred to as 'but‑for' cash flows. The latter were the expected cash flows had the loss causing event not occurred ‑ here, relevantly, the cash flows had AVWest retained the $US31 million. The significant steps in the estimate of the 'but‑for' cash flows were described at par 9.4.5 of Mr McGuiness' initial report.[775] Essentially:
- there was a monthly accounting of the inputs in 'but‑for' cash flows (summarised in annual periods);
- the estimate began with the timing of additional income from an aircraft transaction marked on an annual 'mark‑up' percentage being applied to the $US31 million;
- there was a deduction for variable costs based on 1.5 per cent of sales;
- income tax was provided for;
- an adjustment occurred to put the additional profits after tax to cash flows after tax;
- the 'but‑for' cash flows were converted from United States dollars to Australian dollars using monthly exchange rates; and
- the 'but‑for' cash flows in Australian dollars were discounted at a weighted average cost of capital of 10 per cent.
The difference between the actual and but‑for cash flows had to be discounted back to the date of loss to assess loss. Mr McGuiness explained that a discount was appropriate to account for the time value of money and the non‑diversifiable risk associated with the cash flows. The discount applied was based on the weighted average cost of capital. Mr McGuiness was thus attempting to perform an incremental analysis of the expected change in the cash flows of AVWest's business as against what actually happened to which a discount was applied to bring the loss back to the date of the wrong.[776]
Mr Jackson accepted that a DCF ex‑ante analysis was, in theory, an appropriate methodology for estimating the damage suffered by reason of the loss of the use of the $US31 million.[777] He also described it as a commonly adopted approach.[778] However, Mr Jackson employed his ex‑post rate of return analysis as that was the way in which he (Mr Jackson) was instructed to calculate loss.[779] Nevertheless, in his evidence Mr Jackson supported his model on the basis that it was a very simple, and conservative, calculation that reflected the actual return AVWest could have generated on a pool of $US31 million from November 2010 to December 2013.[780]
Mr Jackson was critical of Mr McGuiness' DCF analysis on the basis that it employed an artificial sales price and an artificial purchase price.[781] By contrast Mr Jackson said that his analysis was based on the actual results of AVWest's business to determine the return based on what actually happened.[782] Properly understood, however, this goes to a debate as to one of the inputs to be employed (ie Mr Jackson's 'rate of return' versus Mr McGuiness' 'mark‑up calculation') rather than use of Mr Jackson's ex post rate of return model and Mr McGuiness' ex ante DCF model.
AVWest contended that Mr Jackson's model should be accepted. Three things were relied on. First, it was said that the model was derived from AVWest's actual financial statements and cash flows. As the model was based on the actual performance of AVWest's business there was said to be 'nothing speculative' about the quantum derived through the model. Second, AVWest pointed to the relative simplicity of its business; it was said that the court was not required to predict a complex future outcome as might arise in a variated business with multiple profit centres. AVWest contended that the fundamental business structure would not have altered with a $US31 million injection of capital. AVWest argued that there was a very high degree of probability, if not inevitability, that had the capital been deployed in AVWest's business it would have generated a return in the same manner as the actual funds used in the business. Third, it was said that there was no need for a DCF analysis as the period over which returns would have been generated was fixed at between 1 November 2010 and 23 December 2013.
In short, AVWest relied on what was said to be the 'relative certainty' of Mr Jackson's model.
CU argued that a rate of return method was not applicable for an estimate of loss. Rather, according to CU, it was something used to analyse a prospective investment. CU argued that Mr McGuiness' DCF analysis commended itself as a conventional approach that was consistent with the principle of determining loss by comparing the position AVWest would have been in but‑for the wrong and its actual position following the wrong.
Where one is concerned with a specific hypothetical investment it will often be proper to: (1) assess what is most likely to have been the return on that investment; (2) deduct the return actually achieved; and (3) depending on the circumstances, make an allowance for contingencies.[783] However, the claimant must establish how its capital would have been used if it had the opportunity.[784] What is required depends on the circumstances of the case. A rate of return cannot be assumed. For example, in the absence of evidence there is little reason to suppose that the cost of funds and expenses for one transaction is the same as for another.[785]
This was not a case where AVWest failed to establish how the $US31 million in funds would have been used. Nor is it a case where a rate of return had to be assumed. Mr Jackson's ex post rate of return model was based on actual returns across a substantial portfolio of aircraft transactions involving the purchase and sale of both pre‑owned aircraft and new aircraft or aircraft positions. However, the assessment of damages was not concerned with what would have ensued from a single hypothetical investment. Rather, as Mr Jackson stated, his model assumed a consistent product mix and applied the annual average rate of return and turnover days as calculated across the range of completed aircraft transactions in a particular year. Consistent with that data set Mr Jackson's eventual assessment was concerned with the hypothetical performance of AVWest at an entity level on an ongoing basis rather than the likely outcome of a specific hypothetical investment.
This is not to say that an ex post rate of return model may never be used in a case like the present where what is in issue is the ongoing performance of a business rather than a specific investment. And, for the first and second reasons advanced by AVWest, the available financial data and nature of AVWest's business made this case one where such a model had substantial merit ‑ and all the more so, as will be seen, when considering the applicable inputs to be employed. (By contrast I see AVWest's third reason as having no force; the fixing of a date to which the putative loss of profits is to be calculated cannot impact on the necessity or otherwise of a DCF analysis.) I accept that the ex post rate of return model is an available model. But that does not answer the issue of principle that arose as between the accounting experts. The real question is which of the two methods is the preferable model in this particular case.
I am persuaded that Mr McGuiness' ex ante DCF analysis is the preferable model by which to quantify AVWest's damages in Scenario 4 (and Scenario 3 so far as that would employ the same analysis as in Scenario 4).
Had AVWest succeeded in establishing Scenario 4 it would have been entitled to be placed in the same position, so far as money can do so, as if the wrong had not occurred ‑ put positively, as if non‑negligent advice had been given. AVWest is correct in its submission that there is no single method of quantifying loss. I agree that the appropriate measure depends on the circumstances of the particular case. But in this case a DCF analysis of the type propounded by Mr McGuiness accorded with principle in that it established ‑ discounted to the date of breach ‑ the difference between AVWest's position had it had the $US31 million to deploy (ie but‑for the breach) and AVWest's actual position.
That conclusion is made easier by Mr Jackson's acceptance (consistent with his duty as an expert to assist the court) that an ex ante DCF analysis of the type propounded by Mr McGuiness is commonly adopted and was an appropriate methodology for estimating the damage in this case.
The conventional nature of the ex ante DCF analysis, and its acceptance by AVWest's expert as being an appropriate method to measure loss in the present case, are two factors that support its acceptance over Mr Jackson's ex post rate of return model.
One substantial difficulty with Mr Jackson's model is that it proceeds on the assumption that AVWest would have derived profits in accordance with the calculated actual rate of return over the relevant period.[786] Making such an assumption in the case of a hypothetical specific investment is one thing; it is another when seeking to estimate ongoing performance at an entity level. The distinct and relatively simple nature of AVWest's business meant that it was possible to make the assumption; but that does not mean that the assumption should be made when there is another acceptable model. Apart from the nature of AVWest's business there was no evidence to support the assumption. There were, for example, no budgets or forecasts for AVWest's performance for the financial years over the period 2011 to 2015. And, while I accept Mr Roberts' evidence that the $US31 million would have been applied in AVWest's business ‑ and there were additional opportunities to buy and sell aircraft and aircraft positions that were not undertaken ‑ there was no lay evidence as to the likely effect on AVWest's business had the $US31 million been available to it.
The soundness of the assumption is also called into question by the volatility of AVWest's business. As calculated by Mr Jackson the rate of return varied from 14 per cent to 91 per cent. The difference in Mr Jackson's two estimates of loss ‑ and the effect I describe below if various post‑24 December 2013 transactions are excluded ‑ also shows that the model is extremely sensitive to the criteria adopted for aircraft turnover days and whether particular transactions are included in the calculations.
Another self‑described material 'constraint' on Mr Jackson's ex‑post rate of return analysis was that it did not take into account the time taken to earn the return.[787] Self‑evidently a 10 per cent gross return derived over one year is very different to a 10 per cent gross return derived over three years. Mr Jackson's model did not distinguish between the two in calculating a rate of return. The time for on‑sale was relevant in determining aircraft turnover. But that went only to the rests at which capitalisation occurred by notional reinvestment. It did not address the fact that Mr Jackson calculated a non‑time based rate of return (admittedly by grouping a number of transactions that completed in the relevant financial year) but then applied the resulting rate of return as if it were an annualised or monthly figure.
There were a number of other matters which adversely affected the rigour of Mr Jackson's model:

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As to the last matter, in cross‑examination Mr Jackson accepted that including the post‑24 December 2013 transactions had the effect of increasing the rate of return for the 2014 financial year.[790] He was unable to say to what extent it increased the loss of profits figure. Using the Excel spreadsheet that informs Mr Jackson's model[791] it is possible to eliminate the additional five transactions. This sees the loss profit figure reduce to $US33,219,008 (from the $US39,172,277).
CU made a further submission as to the rigour of Mr Jackson's model. It was suggested that two of the 50 aircraft transactions as formed the data set for the analysis were in fact transactions of another company, AVWest Trading Trust Pty Ltd, and should have been excluded from the calculations.[792] I do not accept that submission. CU's written closing submissions went on to state that the transactions were highlighted in green in the annexure C to the submissions. There was no highlighting in green. I was, however, informed that the submission rested on aircraft identified as SN 9346 and SN 8060.[793] Income from the sale of those aircraft was distributed to AVWest and reported in AVWest's financial statements.[794] Accordingly, I consider that those transactions ought to be included in the relevant data set for analysis.
Nevertheless, were it necessary to have done so, for the reasons previously given I would have quantified the loss in Scenario 4 (and Scenario 3) by employing Mc McGuiness' ex ante DCF analysis rather than Mr Jackson's ex post rate of return model.
Insofar as I prefer Mr McGuiness' DCF model it would have been necessary, had Scenario 4 or Scenario 3 been established, to determine the appropriate discount rate.
Mr McGuiness used a discount rate of 10 per cent in his DCF analysis. Mr Jackson agreed that was reasonable, but preferred an approach of dividing the 10 per cent by 0.7 to arrive at a pre‑tax cost of capital of 14.28 per cent.[795] Mr McGuiness viewed the cost of capital as an after‑tax measure and conducted the net present value analysis based on after tax cash flows. For reasons that will become apparent I would not, in the present case, have notionally reduced the amounts available to AVWest by an amount to reflect a liability to pay tax. The analysis would have ignored tax altogether on the basis that distributions to beneficiaries would have been re‑lent to AVWest and thus been available for continued deployment in AVWest's business. Accordingly, for consistency, had it been necessary to quantify Scenario 4 the discount would have been based on Mr Jackson's pre‑tax cost of capital of 14.28 per cent.

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In addition, in written closing submissions CU criticised Mr Jackson for not making an adjustment in respect of AVWest's non‑core business activity.[796] Mr Jackson was instructed to, and did, exclude AVWest's loss‑making aircraft hire and charter business from his calculations.[797] Had this been included it would have reduced AVWest's overall rate of return.[798] I am satisfied that no adjustment is required in this respect. First, I am concerned with the loss arising from not being able to deploy the $US31 million in AVWest's business of buying and selling aircraft and aircraft positions. The loss across the hire and charter business is a known constant unaffected by CU's wrong. Second, on Mr McGuiness' own figures the 'other income' from the hire and charter business represented A$5,001,395 of a total net income of in excess of A$254 million. The loss making aspect of this non‑core business activity was insignificant in the context of AVWest's overall financial performance and is immaterial for the purposes of estimating loss. Indeed, that was the substance of Mr McGuiness' evidence. In conclave Mr McGuiness said that he would not expect the additional business activity to have any significance in terms of assessment of loss as it was not a significant revenue stream.[799] In light of this evidence from CU's own expert it is surprising that the submission was maintained in CU's written closing submissions.
Each of the matters as propounded by Mr McGuiness had an effect of reducing the overall loss as calculated.
The experts' supplementary reports provided estimates of the reduction attributable to the various inputs.[800] For example, Mr Jackson estimated that discounting the future cash flows ‑ one of the features of the DCF analysis I consider to be preferable ‑ resulted in a reduction of $US4.61 million as against Mr Jackson's initial $US22.66 million loss figure.[801] I will refer to these estimates when addressing the inputs. However, it should be understood that there are two difficulties with these reconciliation amounts. First, they were only performed as to Mr Jackson's pre‑JER loss amount (the $US22.66 million) rather than the amount advanced in the JER (the $US39.17 million). Second, when the effect of the various inputs are totalled they come to an amount that is greater than the overall difference between Mr Jackson's estimate of loss and Mr McGuiness' estimate of loss. To that extent there must be some overlap between the effect of the differing inputs.
Accordingly, the reconciliation amounts are useful in explaining the relative significance of the differences in the various inputs. But they cannot be used to provide a precise dollar figure by way of a provisional quantification of loss under Scenario 4.

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The most significant point of difference was the 'rate of return' calculation adopted by Mr Jackson and the 'mark‑up' calculation adopted by Mr McGuiness. Mr Jackson estimated that this resulted in a $US10.74 million difference.[802]
Broadly, the difference arose in calculating profits (for Mr Jackson) and estimated cash flows (for Mr McGuiness). There was a fundamentally different approach adopted by the two experts in determining the relevant purchase and sale prices of the aircraft bought and sold by AVWest in aircraft transactions concerning 'slots' or 'aircraft positions'. Mr Jackson calculated a rate of return based on the applicable actual cash payment and expenses paid by AVWest to arrive at AVWest's total cash outflow. Accordingly, with the Bombardier aircraft positions only the advance payments as actually made were taken into account (together with any expenses). There was no regard to the total purchase price as set out in the Aircraft Purchase Agreement. By contrast Mr McGuiness' mark‑up calculation relied on the purchase prices as contracted.
The difference can be illustrated with the following example in relation to an aircraft described as Bombardier Global 7000 No 1.[803]
This concerned a Bombardier aircraft position that resulted in a terminated transaction. Under the Aircraft Purchase Agreement with Bombardier AVWest was to purchase the aircraft for $US58 million. AVWest made a $US1 million deposit payment on 31 January 2011. AVWest also incurred expenses of $US150,000. The aircraft position was on‑sold to a third‑party. Under the Aircraft Purchase Agreement for the on‑sale the third‑party was to purchase for $US62 million and a further $US1,995,000 for certain optional items. AVWest received a gross benefit of $US8,495,000 comprising a termination payment of $US5,995,000, a refund of the $US1 million deposit and the benefit of a $US1,500,000 credit memorandum.
Mr Jackson's 'rate of return' calculation used this formula[804] (where 'ROI' is the return on investment or rate of return):

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Accordingly, Mr McGuiness' mark‑up calculation is 12.63 per cent.[810]
Mr McGuiness contended that his mark‑up calculation was correct for a number of reasons. First, Mr McGuiness said that AVWest was contractually obligated to pay the purchase price. Accordingly, a capital allocation should be made to the contracted purchase price rather than just the cash outflow. Mr McGuiness said it was a fundamental principle of finance that capital could only be allocated once.[811] Second, Mr McGuiness pointed to the very high rates of return that otherwise arose. For example, there was an occasion where the return on one transaction was infinity because AVWest on‑sold an aircraft position without making an initial cash payment. Mr McGuiness said it was a fundamental principle of finance that money machines did not exist.[812] Third, Mr McGuiness relied on various financial measures as reasonableness checks. However, these assumed that the contractual purchase price figure ought to be taken into account. Accordingly, these can be put to one side.
By contrast Mr Jackson justified his 'rate of return' calculation on the basis that this reflected what had actually happened: for the 34 relevant transactions (ie the aircraft positions or slots) AVWest only paid ‑ at most ‑ the deposit (ie the advance payment) and received a refund of the deposits and a termination payment or credit amount.[813] That was not really contested by Mr McGuiness. In cross‑examination Mr McGuiness accepted that his mark‑up calculation included a sale price never in fact received.[814] It followed, equally, that it employed a purchase price never in fact paid.
The commercial reality is that, as shown by Mr Jackson's appendix C, over the period to 30 June 2014 AVWest outlaid $US696.959 million to generate cash inflows of $US869.454 million and a net cash flow surplus of $US172.495 million. In my view it is appropriate to adopt those actual amounts rather than to use notional purchase and sale prices which did not represent the reality of AVWest's business operations under the arrangements with Bombardier. Accordingly, had it been necessary to quantify the loss under Scenario 3 or Scenario 4, I would have employed Mr Jackson's 'rate of return' input rather than Mr McGuiness 'mark‑up' calculation.
Mr Jackson also sought to justify his preferred approach on the basis that, under the Bombardier arrangements, AVWest was only at risk for a portion of the deposit.[815] There was support for that in Mr Roberts' evidence.[816] The evidence was that Bombardier had an obligation to find an on‑purchaser and that there was a limitation of liability to 7.5 per cent of the purchase price providing AVWest with an ability to walk‑away from the aircraft position transaction. Given that I would have preferred the actual payments and receipts to the notional amounts in any case it is unnecessary to express a view as to whether this provides a complete answer to Mr McGuiness' argument that a business cannot allocate its capital twice.

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Mr McGuiness' inputs to his model introduced a concept of 'days delay'. In substance this was a calculated figure which represented the time between the completion of an aircraft transaction and entry into another. It built in a lag during which there would be no reinvestment. The effect of the 'days delay' concept was substantial. In Mr Jackson's second report he put the effect as reducing the loss by $US2.82 million.[817]
According to Mr McGuiness the introduction of a 'days delay' integer was necessary as an analysis of AVWest's aircraft sales showed that there was a delay after the sale of an aircraft and the purchase of the next aircraft. Mr McGuiness said it was necessary to acquire then sell and then purchase again before further transactions could occur.
Mr Jackson did not accept that the 'days delay' concept reflected the reality of AVWest's business. He gave two reasons for that view. First, having analysed the 50 purchase and sale transactions over the four years, on each occasion there was an aircraft purchased there was also an aircraft to sell. Second, throughout the four years multiple aircraft purchases were being 'loaded up' before a sale occurred.[818] Aircraft were purchased in anticipation of future transactions.[819]
Mr McGuiness accepted that there was always aircraft stock on hand.[820]
The introduction of a concept of days delay will be apt where the analysis proceeds in a linear way. If there were a series of purchases and sales of pre‑owned aircraft, one after the other, then inevitably there would be a lag between the sale of one aircraft and the purchase of another. This, I consider, is what underpins Mr McGuiness' idea of days delay. But such a linear approach is not reflective of the reality of AVWest's business. AVWext was buying and selling multiple aircraft at the same time, not one after the other. It was for this reason that damages were being quantified on the basis that the $US31 million was deployed in the business rather than in a single aircraft. The same rationale underpins (correctly in my view) Mr Jackson's approach to a product mix of purchase and sale of pre‑owned aircraft and aircraft positions. Indeed, in oral evidence Mr McGuiness confirmed that he too had modelled the effect of the $US31 million being an investment in a mix of products.[821] Mr Jackson confirmed that this was the effect of Mr McGuiness' model.[822]
In the circumstances there is no need to adopt Mr McGuiness' concept of 'days delay'. It does not reflect AVWest's business operations. Nor is it consistent with measurement of the putative loss arising from an inability to deploy the $US31 million in the business as distinct from an individual aircraft. I appreciate here that both experts are agreed as to the necessity to employ the concept of aircraft turnover. But there the figure is required to best approximate a period for capitalisation and reinvestment of gains into the business as a whole.

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AVWest conducted its business as trustee of a trading trust. Mr McGuiness noted that AVWest would not be taxed as its net profit would be distributed to beneficiaries. Nevertheless, in Mr McGuiness' opinion, the estimate of cash flows required an assessment of income tax. Mr McGuiness therefore presented an estimate of loss based on after tax cash flow values utilising a flat tax rate of 30 per cent. Mr McGuiness also relied on the fact that where an after tax cost of capital provides the discount rate the cash flows to be discounted should be after tax cash flows (an 'apples and apples' approach). The latter is easily overcome, however, by employing a pre‑tax cost of capital.[823] Mr McGuiness accepted that, in theory, using a pre‑tax discount rate with pre‑tax cash flows should give the same number as an after‑tax discount rate with after‑tax cash flows.[824]
Mr Jackson's estimate was that Mr McGuiness' tax adjustment effected at $US2.29 million reduction in the loss estimate.[825] Mr McGuiness put the reduction at $US2.298 to $US2.335 million,[826]
It was common ground that AVWest would not pay income tax over the loss period. Rather, as trustee of a trust, income distributions would be taxed in the hands of the beneficiaries. Mr Jackson confirmed that AVWest did not in fact pay tax in the subject period.[827] In those circumstances the only possible adjustment for income tax would have been if the beneficiaries had sought that the amounts as distributed be paid over (in whole or part). Then those funds would no longer be available for deployment in AVWest's business. That would affect calculations based on notional reinvestment (but as to the whole of the taxable profit so distributed rather than Mr McGuiness' flat tax rate of 30 per cent). But there was no suggestion that payment out to the beneficiaries had occurred. Nor, in circumstances where the beneficiaries were associated with Mr Roberts, was it suggested to him in cross‑examination that this would have occurred.
In my opinion it was appropriate to assume that distributions to beneficiaries would have been reinvested in AVWest's business. That is consistent with what occurred. On that basis no allowance needs to be for the distribution of income. Nor, all the more so, is any after‑tax adjustment to cash flow required. However, as previously discussed, the discount rate for the DCF analysis has to be adjusted to reflect the fact that the weighted average cost of capital is to be applied to pre‑tax cash flows.

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Mr McGuiness opined that AVWest would incur additional or variable costs in relation to deriving additional sales from alternative investments over the loss period. He accounted for A$5.25 million in fixed costs and variable costs of 1.5 per cent of sales.[833] Mr Jackson's second report introduced some additional $US88,191 in stepped fixed costs over the 2012 to 2014 financial years. However, he made no allowance for variable costs and otherwise commented that AVWest's overhead costs appeared relatively fixed.[834]
Mr Jackson estimated that the introduction of the variable costs integer had an effect of $US1.44 million[835] whereas Mr McGuiness put it at $US151,405 to $US1.533 million.[836] (The difference between Mr McGuiness' two amounts is so large as to suggest that there might be some recording error in the lower figure.)
In his first report Mr McGuiness analysed AVWest's cost structure and formed a view that there was a fixed component and a variable component. A series of calculations were presented to justify variable costs figure of 1.5 per cent of sale.[837]
The commercial reality is that the putative loss is concerned with an inability to complete a further four to six aircraft transactions over a period of three years, ie one or two transactions a year. During that time some fifty aircraft transactions were completed. Based on the evidence the commercial negotiations and administrative arrangements on the part of AVWest were substantially performed by Mr Roberts and Mr Burton respectively. No doubt there would be additional costs. For example, on a pre‑owned aircraft I expect Mr Roberts would have required technical staff to assess the aircraft. There would have been travel and accommodation costs. But all of that would be captured in the expenses paid by AVWest which were taken into account in Mr Jackson's model. Mr Jackson gave evidence as such; the variable expenses specifically related to each aircraft transaction were included in the individual aircraft profit and loss statements on which the aircraft transactions data set was based.[838]
I am not satisfied that there were additional variable costs of in the order of $US300,000 per aircraft as suggested by Mr McGuiness' additional input. If there were such variable costs I expect there would have been supporting evidence more convincing than Mr McGuiness' a priori reasoning. I note also that Mr McGuiness' adjusted expenses charts show that AVWest's operating costs and administrative expenses were relatively flat across the 2011 to 2013 financial years (although increasing in 2014).[839] That is so despite the fact that there were six transactions in 2011, 19 transactions in 2012 and 10 transactions in 2013.[840] Had there been a variable costs component of the size and nature of that suggested by Mr McGuiness I would have expected that the expenses for 2012 would have been substantially higher for 2011 and 2013. They were not.
In any case I see no reason to expect that Mr Roberts and Mr Burton would have required additional assistance to complete a further four to six aircraft transactions over the three years. The additional hypothetical transactions are not so numerous that it is to be expected that additional resources would have been required. I would not adopt Mr McGuinness' additional 1.5 per cent of sales for variable costs.

[365]

I am presently unable to provide a provisional quantification under Scenarios 3 and 4 in precise dollar terms. I am confident that the versions of the accounting experts' models ‑ in the form of the Exhibit 47 Excel spreadsheets that were tendered ‑ could be manipulated to do so having regard to the conclusions I have come to as a matter of principle. However, I have not attempted the task. First, AVWest has not succeeded on Scenario 3 or Scenario 4. Second, the task is essentially computational and I consider it could be done more efficiently and effectively by the parties (perhaps with some behind the scenes assistance from Mr Jackson and Mr McGuiness).
Accordingly, had AVWest succeeded on Scenario 3 or Scenario 4, I would have invited the parties to confer and carry out the necessary computational exercise. I would have requested that this employ Mr McGuiness' ex ante DCF model but adopt Mr Jackson's rate of return figures in calculating the cash flows. For the avoidance of doubt, for the 2014 financial year I would have adopted the figure of 66 per cent and the aircraft turnover days figure as calculated once the five post‑24 December 2013 aircraft transactions are eliminated (taking into account any additional alteration based on what now follows). I would also have adopted Mr Jackson's earlier figures for aircraft turnover, ie the figures employed before the change in approach evinced in the calculations for appendix C to the JER. I consider that to be appropriate as Mr Jackson and Mr McGuiness were in agreement on those figures before the change in approach in Mr Jackson's appendix C to the JER.[842] I would not have adopted any of Mr McGuiness' other adjustments.
In the unlikely event that the parties were unable to agree the result of that computational exercise I would have held a short hearing to review and then rule on the competing calculations. It would also have been necessary to consider an appropriate 'loss of chance' discount in accordance with the principles discussed at pars 466 to 471 above.

[370]

Those, in substance, were the contentions advanced in CU's closing submissions. CU accepted that a defendant will remain liable for further damage if an intervening event is in no way abnormal and in the ordinary course of things.[849] CU submitted, however, that the three year delay in reaching the insurance settlement was the result of quite unusual and independent decisions made by AVWest as to how AVWest conducted itself in its dealings with the Insurers as to the insurance claim.[850]
CU contended that: [851]
- AVWest did not leave it to the Insurers to investigate the claim and decide how to proceed. Rather, it (AVWest) maintained control of the Aircraft and the process throughout.
- AVWest engaged legal representatives and experts to engage in an intense battle with the Insurers pressing for the Insurers to write off the Aircraft.
- AVWest pressed Bombardier and Comlux, as the Aircraft's manufacturer and logical repairer, as to the extent to which they could and should repair and support the Aircraft (both during and following repair). Over time Bombardier's support for the Aircraft reduced such that it would not repair the Aircraft and there was questionable support for repair by another. It was said that Bombardier's position had an effect on whether other repairers were willing to repair.
- AVWest's relationship with Bombardier could be seen as having a significant effect in Bombardier's attitude to the repair of the Aircraft.
The upshot of the submission was a contention that, at most, the period over which any loss of profit claim should run was not the three years before recoupment of the $US30 million but rather the Alternative Loss Period as used by Mr McGuiness.[852]
I have not found that CU is liable for any costs, disbursements or interest claimed in relation to the claim made against the Insurers under the insurance policy. Nor have I found that CU is liable for any amounts alleged to arise from the asserted delay in resolution of the insurance claim. Logically only AVWest's loss of profit claim grounded in Scenarios 3 or 4 could answer that description (that claim arising from AVWest's inability to deploy the $US31 million in its business until recoupment of the $US30 million from the Insurers).
On that basis the issues surrounding the resolution of AVWest's claim against the Insurers have fallen away.
I will, however, deal with the substance of CU's contention. In doing so I do not intend to recount the totality of the evidence that CU relied on. The pleaded case as to unreasonable delay relied on some 28 communications together with an action in this court commenced by AVWest against the Insurers (action CIV 1500 of 2012). CU filed detailed written submissions, extending over 80 paragraphs, which summarised this and other correspondence as well as evidence given by Mr Roberts in cross‑examination.[853] I was urged to read the correspondence[854] and have done so. For its part AVWest contended that CU's summary did not convey the full import of the correspondence. Nor, according to AVWest, was the summary accurate (here, in part, it was suggested that CU's summary was selective both as to the extracts from the correspondence and what was sought to be drawn from Mr Roberts' evidence).[855] AVWest responded to CU's 80 paragraph summary with its own detailed response extending over 55 paragraphs.
A complete recitation of that evidence, and the inferences contended for by CU, is not justified in circumstances where AVWest's loss of profit claim based on Scenarios 3 and 4 fails for other reasons. I will instead give truncated reasons to explain why, had it been necessary to decide the causation and remoteness arguments raised by CU in relation to AVWest's dealings with the Insurers, I would have resolved the issues against CU.
The total delay between the date on which AVWest made a claim under the insurance policy (9 November 2010) and the eventual payment under the settlement with the Insurers (late December 2013) was about three years. CU's pleaded case divided the delay into three categories, each of which was said to be unreasonable: delay in the Insurers granting an indemnity under the insurance policy (9 November 2010 to 22 December 2010); delay in the Insurers electing to repair the Aircraft (22 December 2010 to 26 April 2012); and delay between the repair election and the compromise between AVWest and the Insurers which saw AVWest receive the $US30 million (26 April 2012 to late December 2013).[856]
The time taken for the Insurers to grant indemnity was less than two months. I do not accept that such a timeframe was unreasonable. The Insurers were dealing with events overseas and a potentially large liability. I accept that correspondence sent by or on behalf of AVWest asserted that the Insurers had acted unreasonably.[857] Those communications strike me as little more than posturing to gain a negotiating advantage.
There was, however, a significant delay between the grant of indemnity and the Insurers' election to repair the Aircraft. In the course of the 16 months it took for the Insurers to make the election:

[385]

Mr Roberts gave oral evidence that it was vital to returning the Aircraft to service that Bombardier support the Aircraft once repaired.[890] I accept that evidence; it is self‑evident that an aircraft in service requires the ongoing support of its manufacturer (eg in terms of technical bulletins and supply of parts).[891] CU contended that Mr Roberts' evidence to that effect was inconsistent with evidence he gave denying that Bombardier's refusal to support the repair of the Aircraft assisted to apply pressure to the Insurers.[892] There is no inconsistency. The initial evidence concerned support post‑repair. The latter evidence was concerned with whether Bombardier would itself repair or support the process of repair.[893] There was no reason why someone other than Bombardier could not repair the Aircraft. Indeed, the Insurers sought to effect just that outcome.
In terms of CU's wider contention I accept that AVWest initially sought to control the dealings with Bombardier. Mr Roberts was asked to acknowledge that, but did not answer the question directly. He said that this had been left to AVWest's solicitors.[894] I accept that evidence. The correspondence as a whole shows that from a very early stage AVWest's solicitors had the primary conduct of the dealings involving the insurance claim. It is, however, obvious that AVWest took a keen interest in whether the Aircraft could be repaired; and, if so, whether it would be airworthy and whether Bombardier would support the Aircraft. Mr Roberts accepted, for example, that as owner of the Aircraft its 'repairability or otherwise' was something of interest to him.[895] That is hardly surprising. The Aircraft represented a $US31 million asset. Any aircraft owner in AVWest's position was objectively likely to have had similar concerns.
I do not accept, however, that there was anything in the course of dealings that broke the chain of causation. There was no intervening event (all the more so an intervening act or omission on the part of AVWest) which independently caused the delay on the part of the Insurers in coming to an election.
CU argued that the dispute between AVWest and the Insurers was not in the ordinary course of things. The implicit suggestion was that Bombardier's decision not to support the repair of the Aircraft ‑ and the consequential delay in the election ‑ was as a result of AVWest's business relationship with Bombardier. (For example, annexure E to CU's written closing submissions interposed references to the business being conducted between Bombardier and AVWest within the references to the dealings between AVWest and the Insurers on the repair of the Aircraft.) I reject that assertion. It was never pleaded. There was, however, an ongoing implicit criticism in Mr Roberts' cross‑examination that AVWest used its relationship with Bombardier to bring about Bombardier's change of position thus increasing the likelihood that the Insurers would elect to pay out the insured sum rather than repair the Aircraft (on the basis that the Aircraft was not repairable). The attack was made more overt in CU's written closing submissions insofar as CU challenged Mr Roberts' evidence that there was no nexus between AVWest's commercial relationship and Bombardier's support or otherwise.[896] There was no concrete basis for either suggestion. Bombardier's initial willingness to perform the repair was always qualified. And, as Mr Roberts stated in cross‑examination, after Bombardier undertook the Phase II assessment it became aware of matters that concerned it in effecting repair and supporting repair of the Aircraft.[897]
When requested, in February / March 2012, to ask Bombardier to reconsider its position, Mr Roberts did so. CU submitted that the request was 'muted at best'.[898] I do not accept that submission. Mr Roberts expressly asked that Bombardier provide the Insurers with all necessary assistance. Mr Roberts also asked that Bombardier support the repair of the Aircraft. It was never suggested that this was a contrivance.
Viewed as a whole, the evidence discloses that AVWest pressed the Insurers ‑ and did so at times quite firmly ‑ to make an election as to whether to repair the Aircraft or pay out the insured sum. AVWest was acting prudently, and well within its rights, in so doing. AVWest acted as one might expect an aircraft owner in its position to act. What followed after the Insurers' decision to indemnify is not, in my view, properly characterised as abnormal or outside the ordinary course of things when considering the nature of the insurance claim and the matters that were properly of concern to both AVWest and the Insurers.
Things did not rest with the Insurers' election to repair. CU also contended that there was unreasonable delay between the Insurers' election to repair and the eventual settlement.
After the election AVWest sought further damages reports.[899] There was also a further dispute between AVWest and the Insurers as to whether AVWest would pay for some interior works the subject of the CMA.[900] In the context of ongoing correspondence AVWest, by its solicitors, took the opportunity to remind the Insurers that if, for whatever reason, the Insurers were unable to repair the Aircraft restoring it to its original condition, that would be unacceptable.[901] There was even a debate as to the form of the authority that AVWest was to provide.[902] AVWest also continued to make enquiries of the extent to which Bombardier would support the Aircraft.[903]
CU attached importance to the terms of a 10 July 2012 email passing between the representatives of the Insurers:

[394]

A claimant's damages may have to be reduced to the extent to which it is just and equitable to do so to reflect the claimant's responsibility for the losses suffered. Specifically, by s 4(1) of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA), a court is authorised to apportion damages in any claim founded on an allegation of negligence[916] where: (1) the defendant is guilty of an act of negligence which was conducive to the happening of the event which caused the damage; but (2) the claimant could by the exercise of reasonable care have avoided the consequences of the defendant's act or is otherwise guilty of contributory negligence.
The question of whether AVWest contributed to its loss by failing to take reasonable care for its interests turns on a factual investigation. The inquiry focusses on AVWest's conduct.
CU's duties and responsibilities vis‑à‑vis AVWest are a relevant factor. CU had been a long‑standing legal adviser to AVWest and its associates and had performed numerous similar exercises of contractual review and amendment. It was proper for AVWest to rely on CU to perform its retainer as a competent solicitor acting with reasonable skill, care and diligence.[917]
I do not accept that there was contributory negligence on the part of AVWest as alleged by CU.
CU first alleged that AVWest should have given CU wider and clearer instructions as to what it (AVWest) wished to know. In part this drew upon the suggestion that AVWest never sought CU's advice. That suggestion is wrong for the reasons given in determining the scope of CU's retainer. More generally AVWest's instructions, by Mr Burton's email of 17 September 2010, were sufficient. Any suggestion that CU did not know what was expected of it is belied by the matters that were canvassed in the subsequent telephone conversation between Mr Burton and the CU solicitors as recorded in Ms Bailey's file note. CU did provide advice as to some of the four identified clauses of the draft CMA, including their meaning and effect, and recommended appropriate amendments. In any case if CU was under any misapprehension as to its task the uncertainty could have been clarified with Mr Burton.
As to the second reason, it is true that Mr Burton could have instructed CU on a more timely basis. But I do not accept that this alone amounted to a failure to exercise reasonable care. The retainer was confined and, consistent with CU's usual prompt servicing of AVWest's and its associated entities requests for legal services, there was every reason to expect that CU would be able to turn the instructions around.
In any case CU responded to the instruction at a time of its choosing. There was no suggestion in the telephone conversation (as recorded in the file note) that the urgency had affected CU in its review of the draft CMA. There is no sound basis to infer that CU's review had been compromised because AVWest sought a response the same day. Had it been the case that CU had not been afforded sufficient time to perform the retainer, ie review and suggest appropriate amendments, a reasonably competent legal practitioner, exercising the skill, care and diligence expected of him or her, would have declined the instructions. Alternatively, the reasonably competent solicitor would have suggested that AVWest seek an extension of the cut‑off date under cl 1.4 of the ASA.
Accordingly, if there was contributory negligence on this aspect ‑ and I consider there was not ‑ the reduction in damages to reflect AVWest's responsibility for the damage would have been extremely modest.
Lastly CU suggests that, the negotiation of the draft CMA ceasing to be urgent, AVWest should have reverted to CU or approached attorneys based in Indiana for more comprehensive advice. That suggestion is misconceived. CU performed its retainer in the manner expressed in Ms Bailey's file note. CU did not inform Mr Burton that further consideration of the draft CMA was necessary or desirable. In the circumstances Mr Burton was entitled to proceed on the basis that CU had completed its review and, with the amendments as suggested, the CMA would adequately protect AVWest's interests and was not one sided. There was no lack of reasonable care in proceeding without obtaining further advice.
In short, there was no contributory negligence on the part of AVWest such that it should bear some responsibility for the loss as suffered. CU's contributory negligence defence fails.

[395]

CU contended that Mr Burton and Warburton Group Pty Ltd were concurrent wrongdoers. In opening the concurrent wrongdoer defence CU said that Mr Burton's and Warburton Group Pty Ltd's actions had caused AVWest's loss in two respects: (1) by the delay in referring the draft CMA to CU; and (2) by the limited terms (ie review and amend) which confined the scope of CU's retainer. CU said that the latter was due to Mr Burton's delay in acting and failing to take reasonable and proper steps to obtain advice.[918]
In closing submissions CU repeated those matters and also said Mr Burton's and Warburton Group Pty Ltd were concurrent wrongdoers in not reverting to CU to reconsider the position after the urgency dissolved.[919]
The parties were at issue in whether, in instructing CU, Mr Burton was acting for AVWest (AVWest's contention) or acting in his capacity as an employee of Warburton Group Pty Ltd and on behalf of Warburton Group Pty Ltd insofar as it provided management services to AVWest (CU's contention). The relevance of this is that a claimant cannot be a concurrent wrongdoer. If Mr Burton was acting as chief financial officer of AVWest, rather than as an employee of Warburton Group Pty Ltd, the proportionate liability regime under s 5AK(1) of the Civil Liability Act 2002 (WA) had no application.
It is unnecessary to resolve that difference between the parties. Let it be assumed that CU is correct and that, despite appearances, Mr Burton was acting in a capacity other than as an officer of AVWest. The matters CU relies on to assert that Mr Burton and Warburton Group Pty Ltd were negligent vis‑à‑vis AVWest are the same matters it relied on to assert that AVWest was guilty of contributory negligence. For the reasons that AVWest did not fail to take reasonable care for its interests so too neither Mr Burton nor Warburton Group Pty Ltd failed to exercise reasonable care. Neither is a concurrent wrongdoer with CU. Neither, by an act or omission amounting to a failure to take reasonable care, caused the loss that is the subject of AVWest's claim.
CU's concurrent wrongdoer defence fails.

[396]

AVWest has established its claim but only to the extent of $US546,735. Judgment will be entered in favour of AVWest against CU in that amount.
Under Scenario 2 AVWest sought pre‑judgment interest under s 32 of the Supreme Court Act 1935 (WA) from December 2015. Interest was sought at the rate of return AVWest earned on its capital investments. Alternatively, interest was sought at a rate of 6 per cent per annum (the rate prescribed pursuant to s 8(1) of the Civil Judgments Enforcement Act 2004 (WA)).[920]
The date of December 2015 coincides with the Comlux AS mediation.
Documentation of AVWest's settlement with Comlux AS did not conclude until 17 February 2016 (see par 106 above). That is the date when, had non‑negligent advice been provided, any superior settlement amount would have been received in Scenario 2's counterfactual. On that basis the earliest date I would contemplate for any award of pre‑judgment interest would be 17 February 2016. However, it is clear that by this time AVWest was well aware that it might have a claim against CU (see pars 110 to 111 above). The proceedings were not commenced until 8 July 2016. The delay in commencement was unexplained.
The purpose of an award of pre‑judgment interest is to compensate a claimant for the period it has been deprived of a monetary amount that the court has determined the claimant is entitled to.
The award of pre‑judgment interest involves the exercise of a judicial discretion. In the exercise of discretion, in circumstances where no explanation is proffered for non‑commencement of the litigation until 8 July 2016, I will only award pre‑judgment interest from 8 July 2016. There not being any suggestion of prior opportunity for CU to meet a putative liability to AVWest, interest should only run from the commencement of proceedings. I will also provide for interest at 6 per cent per annum. That is the rate prescribed for judgment debts under s 8(1) of the Civil Judgments Enforcement Act 2004 (WA).
I will hear from the parties as to costs.

AVWEST AIRCRAFT PTY LTD as trustee for AVWEST AIRCRAFT TRUST -v- CLAYTON UTZ (A FIRM) [No 2] [2019] WASC 306 (28 August 2019)

At a glance

Court

Decision date

Before

Source

Judgment (798 paragraphs)

The task of quantification under Scenario 3 and Scenario 4

Differences as to the inputs employed by the competing models

Conclusion on quantification under Scenario 3 and Scenario 4

Legislation Cited (5)

Cases Cited (39)