Gore v Montague Mining Pty Ltd [2000] FCA 1214 | Case summary

Causation 31 Even if we are wrong in our conclusion that the third category of negligence was not established on the evidence (i.e. assuming that all his Honour's findings on breaches of duty were correct), we do not think that the respondent was entitled to succeed in its negligence claims. We do not think that the respondent established that the appellants' negligence caused it to sustain substantial damages. (By substantial damages we mean other than negligible damages.) In those circumstances it would be entitled to nominal damages for breach of contract. 32 It is apparent from the primary judge's reasons that, in accordance with pre-trial directions, the respondent filed a statement (among other witness statements) of the proposed evidence-in-chief of Mr Williams. However, at the trial, counsel for the respondent elected not to call Mr Williams. No explanation was offered for this. Mr Williams was present in court for most of the hearing. His Honour, with respect, quite correctly observed as follows: "In that situation it should be inferred that Mr Williams' evidence would not have assisted Montague's case; in particular, his failure to contradict versions of conversations given by Mr Gore means I should accept those versions, they not being inherently improbable: see Jones v Dunkel (1959) 101 CLR 298. I do so." 33 In relation to the absence of an assignment clause, we think that it is appropriate to approach the matter on the basis that Mr Gore's failure to structure the MOA in such a way as to enable the respondent to assign (the first of the two breaches) is subsumed into the second breach of failing to advise the respondent that the MOA should be structured in that way. In other words, Mr Gore's negligence was in failing to advise the respondent that the MOA should contain a clause enabling the respondent to assign all or part of its interest without the need to re-open negotiations with the Filipino parties or, (as an alternative) one which provided that the consent of those parties would not be unreasonably withheld. We do not think that it is sensible to isolate and treat the first breach (structuring the MOA) separately from the second breach. It may have been Mr Gore's duty to insert the assignment clause in a draft of the MOA even without instructions. But at some point it would have been incumbent upon him to draw Mr Williams' attention to the clause (because it might have had significance in his negotiations with the Filipino parties, there being another contender in the offing), give the advice referred to above and obtain instructions. Thus the structuring, if it had occurred, would have flowed from the advice and the seeking of instructions in that regard. 34 On the present state of the authorities (some of which we mention below), the respondent had the burden of proving that the appellants' negligence caused it loss. The traditional approach of a step-by-step consideration, first of causation, and then, secondly, assessment of damages, makes what can be quite a difficult task a little simpler where problems of causation arise. As Debelle J stressed in Hall v Foong (1995) 65 SASR 281 at 301, causation must be established before the Court is required to assess damages. However, the two steps are necessarily related and are often dealt with together - see Sellars v Adelaide Petroleum NL (1994) 179 CLR 297 at 340 and 364. 35 Causation is a question of fact to be answered by applying a commonsense test to the facts of the particular case - see Chappel v Hart (1998) 195 CLR 232 at 238 (per Gaudron J), 243-244 (per McHugh J), 255 (per Gummow J), 268-269 (per Kirby J) and 281-282 (per Hayne J) and the authorities there cited. 36 In the present case, the Court had to decide whether Mr Gore's negligence caused the respondent the loss of a commercial opportunity which was of more than negligible value. The question is a matter of proof of a past hypothetical situation - what would have happened if Mr Gore had given the respondent (through Mr Williams) the advice which he should have given? Would Mr Williams have accepted that advice? If so, would the Filipino parties have agreed to a clause giving the respondent a right to assign without consent or on the basis that such consent would not be unreasonably withheld? 37 It seems to be established that the standard of proof of such a hypothetical question is ordinarily the general civil standard of proof i.e. on the balance of probabilities. As Mason CJ and Dawson, Toohey and Gaudron JJ observed in Sellars at 353: "When the issue of causation turns on what the plaintiff would have done, there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical." 38 In our view, under Australian law, the test for causation in a case such as the present case is a subjective one, that is, what would the respondent have done if proper advice had been given? (See for example McHugh J at 246 and Kirby J at 272 in Chappel v Hart.) But we think that the authorities show that it is quite proper, when applying this test, to have regard to objective pieces of evidence. Otherwise, on occasion, justice would not be done. A person who suffered loss might be dead or have lost his or her memory, but there might be an abundance of other evidence of what that person would have done if properly warned or advised. 39 On the aspect of Mr Williams' failure to give evidence, senior counsel for the appellant relied upon the following passage from Gaudron J's reasons for judgment in Chappel v Hart at 239: "Where there is a duty to inform it is, of course, necessary for a plaintiff to give evidence as to what would or would not have happened if the information in question had been provided." 40 We would not read this part of her Honour's reasons as expressing the opinion that in every "duty to inform" case where causation is in issue, it is necessary for a plaintiff or applicant to be called as a witness. A plaintiff or applicant can give evidence in all sorts of ways short of that. In Bennett v Minister of Community Welfare (1992) 176 CLR 408 (one of the authorities cited by her Honour in the footnote to the above passage) her Honour spoke in terms of it being "… sometimes necessary for a plaintiff to lead evidence as to what would or would not have happened if a particular common law duty had not been performed …". There is nothing in the other two authorities cited by her Honour to suggest that in the present case the respondent was doomed to failure because Mr Williams was not called to the witness stand. 41 Thus the question in the appeal is, as we see it: Was there sufficient evidence before the primary judge to establish, on the balance of probabilities, that if Mr Gore had given the respondent the abovementioned advice about an assignment clause: (a) the respondent would have accepted that advice; and (b) the Filipino authorities would have been agreeable to a clause giving the respondent either an absolute right to assign, or a qualified right based on their consent not being unreasonably withheld; and (c) the absence of such a clause was a material cause of putting the respondent in the situation (in Manila in early January 1997) where it had to accept a less valuable bargain? 42 We have set out above (at paragraphs 18-20) how the primary judge dealt with the issue of causation. However, it is convenient to set out again the following passage: "Orders Although the extent of Montague's damage does not fall for consideration at this time, it is necessary for it to demonstrate some damage; damage is one of the elements of the tort of negligence. This presents no problem to Montague; because of Mr Gore's negligence it suffered a loss of commercial opportunity, at least. Loss of an opportunity to obtain a commercial advantage is compensable damage - see, for example, Chaplin v Hicks [1911] 2 KB 786 and Cellars v Adelaide Petroleum NL (1994) 179 CLR 332 - however difficult the task of assessment may be. Liability is made out." 43 With all due respect to the learned primary judge, and conscious of his record of extensive experience at trial and appellate levels, we have reached the conclusion that in this matter he erred in his approach to the question of causation. We turn first to the two cases cited by his Honour. 44 Chaplin v Hicks was a relevantly different type of case to the present case. In that case the breach of contract itself (ie without more) gave rise to the loss of a chance of winning the competition. It fell into the category of what, in the context of tort, Gaudron J described, in Bennett v Minister of Community Welfare (at 419-420), as a situation where a failure to do something has a direct (physical) consequence such that the failure and the consequence may together be viewed as a positive act. In Sellars the primary judge made a factual finding that the applicants (at first instance) believed in the truth of the representations made to them and that those beliefs were a substantial factor in their decision to enter into what was known as the Poseidon agreement and to decline to proceed further with the draft Pagini agreement. It was that finding of fact which enabled the Court (having accepted the evidence that the re-negotiated Pagini agreement was less valuable than the terms of the draft Pagini agreement) to find that the respondent's contravention of s 52 of the Trade Practices Act (1974) (Cth) had caused the applicants substantive loss. The next stage was to assess the damages by a method which was based on an acceptance that the appellants would have entered into the Pagini agreement on the original terms, but which recognised that although, on the probabilities, the contract would not have been completed, there was a significant chance that it would have been completed. With great respect, it would seem that the primary judge has conflated the fact-finding process by moving too quickly from breach of duty to assessment of loss, in the circumstances of the sort of case where, on the present state of the authorities, that may not be done. As a Full Court of this Court observed in another case involving allegations of professional negligence on the part of a solicitor, WCW Pty Ltd v Bolster & Co (unreported, 6 January 1993) at par 15: "Before this particular case against the solicitor could have been established, the appellant would have had to prove first, that as a result of the solicitor's failure to give the advice, it lost an opportunity to seek warranties that would have provided it with protection in the events which have happened; secondly, that it would have accepted that advice; thirdly, that it would have required such warranties from the vendors; and fourthly, that either the vendors would have agreed to warranties in a form that would have given the appellant a right of action against them in the events which have now happened or, if they had refused to do so, that the appellant would not have signed the contract: see Norwest Refrigeration Services Pty Ltd v Bain Dawes (W.A.) Pty Ltd (1984) 157 CLR 149 at 172-3. Even if a negligent failure to advise can be established, a failure to prove these matters does not merely deprive the appellant of an entitlement to limited damages for the loss of the chance of obtaining protective warranties; it means failure to establish the cause of action: ibid, at 173." 45 As we have mentioned, his Honour had noted the fact that Mr Williams was available to give evidence but did not do so, and the consequences, in terms of credibility, which flowed from such circumstances. But in our view, he fell into error in not dealing with the question whether, in the absence of that evidence, there was sufficient evidence to establish, on a balance of probabilities, what Mr Williams would have done had he been properly advised. 46 There are some other cases which provide a degree of assistance in this particular area of negligent legal advice. The first was the (English) Court of Appeal decision in Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113. That case concerned what was found to be the negligent failure of a solicitor to draw his client's attention to an onerous clause in a sub-lease (the client was a firm of surveyors represented by one of its partners, a Mr Sykes). Despite considerable pressure from the judge at first instance, Mr Sykes candidly told the Court that he did not know whether, had he been given the proper advice, he would have acted otherwise. At 125 Harman LJ said this: "I have searched for a contemporary indication of the way in which the plaintiffs' minds worked and I have found almost nothing and am of opinion that on a balance of probability it is more likely than not that the warning which Mr Rignall was bound to give would have made no impact on the plaintiffs' minds and that they would have disregarded it. If that be so it is, in my judgment, an end of the case and I would allow the appeal." 47 Salmon LJ, at 127-128, observed: "In these circumstances, it seems to me impossible for a court (which cannot hope to know the plaintiffs' business as well as Mr Sykes knew it) to hold that the plaintiffs would probably not have taken the risk of entering into these under-leases. Mr Sykes would not say so. It might be different if there were any facts or contemporaneous documents pointing in the plaintiffs' favour - but there are none. On the contrary, all the known facts and documents strongly suggest that the plaintiffs would have taken the risk of entering into these under-leases even if they had been properly advised by Mr Rignall. … I can see no evidence on which a Court could properly hold that on a balance of probabilities the plaintiffs would not have taken the risk of entering into the under leases at the rents reserved, had they been advised of the true effect of the clauses in question." 48 Karminski LJ agreed. After looking at various possibilities as to how the plaintiffs might have conducted themselves, his Lordship (at 132) said: "On the facts of the present case I am quite unable to find that the plaintiffs have discharged the burden of proof upon them of establishing on the balance of probabilities that any damage at all flowed from the negligence of Mr Rignall." 49 Sykes was cited with apparent approval by Mason CJ and Dawson, Toohey and Gaudron JJ in Sellars at 351, although their Honours referred to some academic criticism of it. It has also either been followed or cited with approval in Lillicrap v Nalder & Son [1993] 1 All ER 724 at 729-730 (Court of Appeal), Hanflex Pty Ltd v N S Hope & Associates [1990] 2 Qd R 218 (Full Court) and Hall v Foong. 50 In Hanflex, Demack J (with whom Kelly SPJ and Kneipp J agreed) saw the case as being very similar to Sykes. Hanflex had received advice from its solicitors that an agreement was binding when, as a matter of law, that was not the case. It sued the solicitors. The primary judge dismissed the action on the basis that he was not satisfied that there had been any breach of contract or negligence on the solicitor's part and that even if there had been any breach, that such breach had caused any loss. This was because his Honour did not believe the evidence given by the directors of the plaintiff that, had they been advised that they could avoid the agreement, they would have taken advantage of that opportunity. The Full Court set aside the primary judge's finding that there had been no negligence, substituted a judgment for nominal damages in the sum of $10 for breach of contract, but otherwise dismissed the appeal. This was because it was clear, on the primary judge's findings, that even if the appellant had received advice that the agreement was not binding, it would not have extricated itself immediately from the business venture concerned. 51 With respect to the Full Court in Hanflex, we do not see that case as being, for present purposes, "very similar" to the situation in Sykes. Hanflex was a stronger case from the viewpoint of the defendants/respondents. They had a credibility finding in their favour to the effect that the plaintiff would not have acted any differently. In Sykes the scale was more evenly poised because Mr Sykes (the honest witness) could not say whether it would have made any difference had he received the advice to which he was entitled. 52 Hall v Foong was another case in which it was found that the defendant solicitors had been negligent. Their negligence was in failing to qualify their advice about the enforceability of a contract. The trial judge found that the plaintiff's failure to settle the dispute over the contract was caused by the erroneous advice given to her by her solicitor. The plaintiff had not been asked either in evidence-in-chief or in cross-examination how she would have acted if her solicitor had correctly informed her of certain preliminary advice from counsel to the effect that the contract was not void (as the solicitor had advised Mrs Foong). Hall v Foong is somewhat complicated by the fact that (see pp 304‑305) the majority were not able to conclude on the facts that there was only one appropriate form of advice which the solicitor could properly have given. That, so their Honours observed, made the absence of a causal link even more pronounced than in Sykes. On the question whether there was sufficient evidence to establish that Mrs Foong would have acted in a manner to her financial benefit if correctly advised, their Honours explored the various alternative courses which she might have adopted. That was one basis upon which the majority held that causation had not been established. Another distinction between that case and the present case is (see p 305) that Mrs Foong did not claim her loss on the basis that her solicitors' negligence had caused her to lose the opportunity of re-considering her position. Their Honours noted that the trial judge had not assessed the loss on that basis and, had he done so, damages would have been assessed for a sum considerably less than those which he awarded. Olsson J dissented on the basis that his Honour considered that there was sufficient in the whole of the evidence for a relevant inference that Mrs Foong would have acted differently had she received proper advice (see p 292). 53 In the present case, in the absence of any oral evidence from the respondent on the point, was there any other evidence (including, of course, documentary evidence) which might assist, one way or the other, in determining how the respondent might have acted? In our view there is some, but not much, and most of it points against the respondent. 54 First, we turn to the question whether or not Mr Williams would, if advised to do so, have instructed Mr Gore to seek to include an assignment clause in the MOA. We agree with the appellants' submission that this may well have depended, to some extent, upon the content of his negotiations with the Filipino parties. 55 The evidence shows that Mr Williams represented the respondent to the Filipino parties as a company having experience and capability, both financial and technical, to carry out gold mining operations. Recital A of the MOA was in those terms. Clause 4 of the MOA provided that the respondent would be the manager and operator for the projects to be undertaken under the FTAA and would provide all technical assistance to the project. In consideration of carrying out those functions at no charge, the Filipino parties agreed to the respondent holding a seventy per cent interest in the project. 56 On 11 October 1996, Mr Williams told Mr Gore: "Originally Bautista was only prepared to give me 60 % but when I said I would be responsible for the technical and management aspects of the project without any fee, Bautista agreed to me holding an additional 10%, giving Montague Mining 70% in all. Montague Mining will put up the capital until the project is commercial." 57 Some, perhaps slight, indication of what might have happened at the negotiation stage if Mr Williams had asked the Filipino parties for a right to assign all or part of the respondent's interest under the proposed MOA may be seen in the events of early January 1997. When the Filipino parties found out that the respondent had contracted to assign part of what it considered to be its interest in the project without having done any work on the tenements, they ejected the respondent from the transaction. 58 It must be acknowledged that this was in the context that the Filipino parties were satisfied that Spinifex had the necessary financial and technical capability. The point is that for Mr Williams to have raised, at the negotiation stage, the matter of the respondent wanting to bring in another party, even before the later joint venture agreement and the FTAA were executed, might have seemed somewhat inconsistent with the image which the respondent was projecting. Mr Williams might well have been acutely conscious of that, and might well have chosen not to complicate or jeopardise the negotiations by raising the question of assignability at that stage. 59 It should be remembered that at the stage when he was negotiating with the Filipino parties, Mr Williams was competing with other mining companies to get an interest in the project. On 22 October 1996 Mr Williams told Mr Gore: "There is a high degree of urgency because of the fact that other mining companies are approaching that will test us, so can you have a draft agreement prepared in the next few days? I am keen to get the Bautista's signed up as soon as possible." 60 In our view, in those circumstances there must have been at least the possibility that had Mr Williams sought to include an assignment clause in the MOA, this would have been an obstacle in the successful conclusion of the negotiations with the Bautistas. It is even more of a possibility, in our opinion, that Mr Williams would have perceived that this could present such an obstacle and that he would have been concerned about that possibility. 61 Then there is the following evidence of Mr Williams' receptiveness to legal advice. 62 On 16 December 1996 Mr Williams handed the Spinifex Agreement to Mr Gore and the following exchange took place: "MR WILLIAMS: "Spinifex are going to pay $25,000 and a further $100,000. I want to execute this agreement straight away but I'd like you to have a look at it first. MR GORE: "Clause 3 provides a warranty that you can assign an interest in the project directly to Spinifex once it has earned its interest." MR WILLIAMS: "Yes". MR GORE: "That would require the consent of the Bautistas. You can't assign any interest without their consent." MR WILLIAMS: "That won't be a problem. I can arrange that with the Bautistas. I am sure that they will consent." MR GORE: "Well, if you can't obtain their consent, that will be a breach of your contract with Spinifex." MR GORE: "Clause 2 of this agreement provides that Montague is representing and warranting to Spinifex that it has good and valid title to the areas the subject of the memorandum of agreement. You know that Montague does not in fact have title - it only has an agreement which gives you an opportunity to acquire title. The Recital is therefore not correct." MR WILLIAMS: "Yes, you are correct. But that's a technical point and in view of the urgency I don't want to raise that point with Spinifex now." " 63 At one stage of the negotiations, the Philippines lawyers retained by the appellants to advise the respondent suggested the clause which would make it clear (presumably to the Philippines authorities) that, until approval of the FTAA, Montague would not participate in the exploration, development and utilisation of the project areas. There is a diary note recording the fact that when that advice was relayed to Mr Williams, his response was that he did not want the clause to go in because the respondent was going to expend $500,000.00 to $1,000,000.00 before the agreement. 64 Another problem with the state of the evidence is that no evidence was called from the Filipino parties as to what their reaction would have been if Mr Williams had included an assignment clause in the draft MOA or had asked them to agree to the inclusion of such a clause. 65 There are three aspects to this evidence. The first is whether the Filipino parties would have agreed to the inclusion of the clause, either one with an unrestricted right to assign, or subject to their consent with such consent not being unreasonably withheld. The second is whether the mere disclosure of the fact that the respondent wished to be able to assign its interests even before the negotiation of the JVA and the FTAA would have caused the Filipino parties to end the negotiations. The third is the likelihood that Mr Williams might well have had a keen perception of the problems which might have arisen if he were to raise the matter at the negotiation stage. 66 We think that it is also worth noting that recital E of the MOA referred to the manner in which the respondent's seventy per cent interest in the project was to be held. It was to be held "… through a project vehicle or structure to be agreed between the parties." (i.e. the respondent and the Filipino parties, emphasis added). The remaining thirty per cent interest was to be held in such manner as the Filipino parties might agree. We consider that this is another, again slight, indication that the Filipino parties would not have been very receptive, at the pre-MOA negotiation stage, to a proposal that the respondent should have the right to assign some or all of its interests under the MOA before the Joint Venture Agreement and FTAA had been executed. 67 His Honour took the view that if the Filipino parties had refused the respondent's request for an assignment clause, then it "probably would have been able to structure [its] arrangement with Spinifex in such a manner to circumvent" the problem. As the appellants point out in their written submissions, this assumes that the Filipino parties would still have been prepared to conclude and sign the MOA even after the respondent had shown its hand. 68 On the other hand, as senior counsel for the respondent pointed out in argument before us, there was some evidence that the Filipino parties were not totally opposed to a co-venturer having the right to assign its interest. This can be seen in clause 17 of the joint venture agreement executed between Spinifex and the Filipino parties on 30 April 1997. However, there was no assignment clause in the memorandum of agreement executed by Spinifex and the Filipino parties on 10 January 1997. As senior counsel for the respondent acknowledged, it was not until the Filipino parties knew that "the money was there" and Spinifex was going to be able to develop the project, that they accepted an assignment clause. Furthermore, the agreement of 30 April 1997 was in fact the FTAA - the more formal type of document which had been contemplated as following the MOA. It is worth noting that the assignment clause in the agreement of 30 April 1997 contained fairly elaborate conditions to the right of assignment, including the provision of detailed information about any proposed assignee and pre-emptive rights in favour of the Filipino parties. 69 Senior counsel for the respondent submitted that it was quite clear as a matter of common sense that the "applicants' negligence" was the cause of the respondent's loss and that there was sufficient evidence of reliance for the primary judge to reach the conclusion that liability had been established. 70 We disagree. In our opinion, the state of the evidence was such that the respondent did not discharge the onus upon it of proving that, on the balance of probabilities:

Gore v Montague Mining Pty Ltd

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Judgment (15 paragraphs)

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