[2020] QSC 125
General information, not legal advice.
Supreme Court of Queensland
2020-05-21
Ryan J
Original judgment source is linked above.
For the reasons I have expressed at [16] to [21] above, where, as here, a party's causation hypothesis depends on establishing a particular counterfactual scenario to establish the alleged causal link between breaches of contract and the loss which it is said would have eventuated if the conduct which the party impugns had not occurred, that counterfactual scenario must be pleaded and particularised in accordance with the rules of pleading.
[70] The plaintiffs in Sanrus had only pleaded part of that case. One of the reasons why the plaintiffs were not permitted to run their unpleaded counterfactual case was that they had not set out their case with sufficient specificity to allow the defendants the chance, by their evidence, to engage with the matters alleged in the unpleaded case. In his Honour's view, neither the pleadings, the course of the lay evidence, the contents of Mr Freeman's reports, nor the plaintiffs' opening submissions fairly revealed to the defendants that the plaintiffs were advancing the unpleaded advice case.
[71] In response to the Manthey Parties reliance on Sanrus, the plaintiffs made the point that it was a case about the admissibility of evidence - not about pleadings (although the plaintiffs acknowledged that the pleadings governed the evidence which might be led). The plaintiffs submitted, in effect, that the issues for Bond J in Sanrus were different from those confronting me and I ought to bear that in mind when considering the Manthey Parties' reliance on that case.
[72] The plaintiffs argued that their case was not similar to the plaintiff's case in Sanrus. Sanrus concerned a joint venture to develop land. The plaintiffs in Sanrus were asserting that "but for" the breach of the joint venture agreement, certain things would have happened. That was not the plaintiffs' case here. It concerned a chattel - the engine. The submissions continued -
... The pleading is that the first and second defendants assert ownership to it, contrary to the pleaded joint venture, and they have denied ... the interest of the first plaintiff, at least, in the ... engine.
So why is that different? Well, it's different because it's not pleaded here that had they not breached the joint venture, then the engine would have been developed and would have achieved some commercialisation. That's not the case pleaded ...
... Sanrus is not authority for the proposition that you must plead a counterfactual to make good a loss of commercial opportunity. But it is authority for the proposition that if you do plead a counterfactual, well then you must plead it adequately and in accordance with the rules ...
[73] I was referred to paragraph [21] of his Honour's decision (see above). The plaintiffs emphasised that their case did not depend on a contention that the engine would have reached a certain level of development - rather, their case was it had been taken away from the joint venture.
Graham & Linda Huddy Nominees Pty Ltd & Anor v Byrne & Ors [2016] QSC 221 ('Huddy v Byrne')
[74] The two plaintiffs in this case were companies associated with Mr Huddy. Huddy decided to go into business - through his companies - with Mr Byrne, through Byrne's companies. The first to the fifth defendants in the matter were Byrne and his associated companies. The sixth defendant was a solicitor. She applied for the striking out of the statement of claim as against her. The statement of claim included a claim for loss of opportunity.
[75] One of the business' projects related to the acquisition of land called "the Eagle Farm Road Property", which was owned by Queensland Rail ('QR'). In the course of the parties collaborating to acquire the land, they entered into a Heads of Agreement and the QR Assignment Agreement. The sixth defendant acted for the plaintiffs in connection with those documents.
[76] The plaintiffs alleged that the sixth defendant acted (or omitted to act) negligently in certain ways which were in breach of contract, negligent and in breach of her fiduciary obligations and that, as a consequence of her acts or omissions, the second plaintiff suffered loss.
[77] The plaintiffs' pleading included the following -
- By reason of each of the breaches of duty pleaded in paragraphs 110 and 111 in relation to the completion of the QR Assignment Agreement [the second plaintiff] has suffered loss and damage being:
(a) that part purchase price between [the second plaintiff] and PWT for the purchase of the leasehold interests in the Eagle Farm Road Property under the Heads of Agreement that has been paid in the form of monies that Huddy [the first plaintiff] and [the second plaintiff] caused to be advanced to Byrne and his various corporate entities ... in anticipation of the Heads of Agreement, which monies have not been repaid notwithstanding the QR Assignment Agreement has become impossible of performance and the Heads of Agreement is at an end;
(b) the transaction costs incurred in attempting to complete the QR Assignment Agreement, being:
[78] The sixth defendant submitted that this pleading was deficient for several reasons, including because the plaintiffs had failed (among other failings) to allege that but for the breaches of contract or negligence, the QR Assignment Agreement would have been completed. She submitted that the plaintiffs had failed to plead, as they must, a relevant counterfactual scenario to establish the alleged causal link between the breaches of contract or negligence and the loss.
[79] Jackson J considered that there was a potential difficulty with the pleading in paragraph 114(a) and -
- [24] ... the allegation that the loss alleged in par 114(a) was caused by the breaches of contract or negligence alleged against the sixth defendant in par 110. The purchase price paid referred to in par 114(a) is the purchase price referred to in paras 35 and 36 of the FASOC. It was paid when the Heads of Agreement were entered into. How that sum is a loss suffered by the acts or omissions alleged against the sixth defendant for the first group of causes of action, relating to the later QR Assignment Agreement, is not apparent.
[80] It was at about this point in his Honour's judgment that he discussed the relevant case law, as set out in Sanrus by Bond J. Of relevance to the present matter are certain parts of Jackson J's discussion of the authorities which were omitted by Bond J. Those parts follow.
[81] At [26] Jackson J quoted further from Chesterman J's judgment in Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd (my emphasis) -
... Douglas J put it this way in LBS Holdings Pty Ltd v The Body Corporate for Condor Community Title Scheme 13200 & Ors [2004] QSC 229 (at para [3]):
'... The principle relied on is that facts must be set out which lead to a reasonable inference that the acts complained of and the loss claimed stand to each other in the relation of cause and effect and that the plaintiff must plead the necessary facts showing that causal link ...'
His Honour referred to Dow Hager Lawrance v Lord Norreys & Ors (1890) 15 App Cas 210 at 221 and Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd & Ors [1987] FCA 84; (1987) 14 FCR 215 at 221 - 222. In the first of those cases Lord Watson had said:
'There must be a probable, if not necessary, connection between the fraud averred and the injurious consequences which the plaintiff attributes to it; and if that connection is not sufficiently apparent from the particulars stated, it cannot be supplied by general averments. Facts and circumstances must in that case be set forth, and in every genuine claim are capable of being stated, leading to a reasonable inference that the fraud and injuries complained of stood to each other in the relation of cause and effect.'
[82] Jackson J then discussed the application of the Civil Liability Act 2003 (Qld) ('CLA') and the factual causation element required by section 11 of that Act. At [29] his Honour said -
The loss alleged in par 114 of the FASOC is loss suffered "[b]y reason of each of the breaches of duty pleaded in paragraphs 110 and 111". The breaches of duty alleged in par 110 are breaches of tortious or contractual duties to take reasonable care or exercise reasonable skill. The factual causation element required under s 11 of the CLA must inform the facts to be pleaded by way of causation for a loss of the kind alleged in par 114.
In a case to which s 11 of the CLA applies, that part of the necessary causal condition is the requirement of factual causation, to be determined on a "but for" basis. Accordingly, in a case like the present where the breaches of contract and negligence alleged are breaches of duty within the meaning of s 11, and the relevant causal conditions include "what the [plaintiff] who suffered harm would have done if the [defendant] had not been so in breach" the question is what the particular plaintiff would have done. This part of the assessment must be made on the balance of probabilities.
[84] His Honour concluded that the current plea of causation for the loss alleged in 114, that "by reason of" the breaches of duty alleged, the second plaintiff suffered the loss alleged in 114(a) was inadequate. The paragraph was struck out with leave to re-plead.
[85] The sixth defendant also made a complaint about paragraph 115 of the pleadings, which asserted that -
115. By reason of each of the breaches of duty pleaded in paragraphs 112 and 113 in relation to the negotiations for the acquisition of the freehold to the Eagle Farm Property [the second plaintiff] has suffered loss and damage, in the sum of at least $14,500,000 being that lost opportunity to acquire the freehold to the Eagle Farm Road Property, particulars of the amount of loss and damage from losing such opportunity, in advance of expert evidence, include:
[86] The sixth defendant submitted that the loss alleged involved the assumed counterfactual that - but for the alleged breaches of contract or negligence - the second plaintiff would have acquired the Eagle Farm Road Property, but that was not expressly alleged. She submitted that the assumption was that the second plaintiff "could and would" have acquired the freehold, but the pleadings did not allege how that could or would have occurred.
[87] The plaintiffs submitted that the allegation in 115 was a clear allegation of a "lost opportunity to acquire the freehold" and that the loss claimed valued that opportunity at 100 per cent of the difference between the value of the land and the price that the plaintiff would have paid for it. His Honour explained that the difference between the sixth defendant's submission, that the model of loss claimed was that the second plaintiff "could and would" have acquired the land, and the plaintiff's submission that the model of loss claimed was a "lost opportunity to acquire the land", was one of legal significance. (I note the similarities between the different conceptualisations of the model of loss in the present case to those in Huddy v Byrne.)
[88] Jackson J discussed the legal significance of the distinction, commencing at [36]. His Honour discussed Sellars in which, as above, the court adopted an analysis which began with whether, on the balance of probabilities, there was a loss of a valuable opportunity.
[89] His Honour found that the plaintiffs in Huddy v Byrne were not required to plead or prove that the second plaintiff could and would have acquired the Eagle Farm Road Property. His Honour continued -
- [42] ... In the first place, it is enough to allege, to an extent that complies with the pleading rules, that they have lost the opportunity to acquire that land and that the opportunity was valuable.
- [43] However, proof that there was a commercial opportunity to acquire the land and that it was valuable is not proof that the plaintiff has lost that opportunity. As a matter of logic, the necessary causal conditions which demonstrate that a plaintiff has lost a valuable commercial opportunity will almost always include that the plaintiff would have done the voluntary acts or omissions required on its part to pursue or avail itself of that opportunity. The same part of the necessary causal conditions was reflected in the "would" part of the now discarded formulation that a plaintiff was required to prove that it "could and would' have obtained the alleged lost benefit.
...where a plaintiff alleges loss of a valuable commercial opportunity, the plaintiff should in most cases also allege the extent of the loss it says it suffered on the possibilities. It is not sufficient for a plaintiff to simply allege a 100 per cent possibility of obtaining the hoped for or expected benefit, leaving it open to contend that the issue to be decided by the court is the actual degree of likelihood anywhere between 100 per cent and 1 per cent. To require a plaintiff to formulate its case with all reasonable precision does not detract from the power of the court to grant relief generally other than that specified in the pleadings, subject to the application of rules of procedural fairness.
[92] His Honour found that 115 mostly measured up. It alleged a loss of a valuable commercial opportunity which it identified with particularity. And it alleged the amount of damages claimed, from which it might be inferred that the loss alleged on the possibilities was 100 per cent. But it did not allege what the plaintiff would have done to obtain the hoped for benefit. The reader was left to infer what the hypothetical past transactions might have been. They should have been pleaded. Paragraph 115 was struck out with leave to re-plead it.
[93] As I have noted above, the plaintiffs argued that the Manthey Parties' reliance on this decision, particularly for the statements made at [50] (at my paragraph [90]), was misplaced. After emphasising the phrase which I have emphasised in [50] (at my [90]), the plaintiffs submitted in writing -
- [23] However, reliance on Huddy in this case is misplaced. In that case, the plaintiff alleged a breach of duty by its solicitor. That duty was alleged in contract and in tort, but the substance of the action was the same, namely, that the solicitor had been negligent. A claim for a breach of duty imported the need, pursuant to s 11 of the Civil Liability Act 2003 (Qld) to plead and prove factual causation. This can be clearly seen in paragraphs [28], [29], [44] and [53] of his Honour's judgment.
- [24] The present case is entirely different. Here is alleged that the relevant joint venture parties contracted for the promise of a share in any benefits realised upon the commercialisation of the engine ...
[94] The plaintiffs then referred to -
- Brennan J's observations in Sellars at 359 (above at my paragraph [48] and in bold) in which his Honour differentiated cases in contract and tort (and under section 82 of the TPA); and
to make the point that their cause of action was complete upon breach.
Aklia Holdings Pty Ltd v The Carter Group Pty Ltd (in liq) & Ors [2017] QSC 75 ('Aklia')
[95] The Manthey Parties relied on this case for their argument that there was no "coherent causation hypothesis" pleaded in paragraphs 50 - 52.
[96] One of the issues in Aklia was the pleading of the plaintiff's loss of chance case. Aklia was one of three companies which held shares in the corporate trustee of a unit trust ('TCG'). The three shareholder companies were parties to an agreement intended to govern their relationship with TCG. As per the agreement, the directors of TCG were persons associated with the three shareholder companies - Birk (for Aklia), Ball and Sa. Aklia claimed that Ball and Sa caused it to be deprived of its shares in TCG by causing its shares to be transferred to the other two shareholder companies. Aklia alleged that the transfer was wrongful and without its consent, and that it had caused it loss in several ways including by way of a loss of a chance. Bond J found Aklia's pleading of its loss of chance case deficient.
[97] Speaking broadly, Aklia alleged that upon the wrongful transfer of its shares, it lost its ability to control the distribution of TCG's funds; the management of the sale of the business run by TCG; and the way in which TCG's debts were paid. It alleged that -
43B But for the occurrence of the matters pleaded in paragraph 43A herein [the share transfer]:
(b) [Aklia] would have been able to exercise its powers and ability as a shareholder to cause [TCG] to pay its debts, as and when they fell due, including to the Commissioner of Taxation; and/or
(c) [Aklia] would have been able to cause [TCG] to sell the business of TCG; and
(d) it is more likely than not that [TCG] would not have been placed in liquidation.
43C As a result of the consequences and effect of [TCG], as pleaded at paragraph 43B herein, [Aklia]:
(a) lost the chance to prevent [TCG] from being placed into liquidation ...;
(b) lost the chance to recover, from [TCG], distributions from the Unit Trust which had been assigned to [Aklia] ...; and
(c) as a result, has lost all prospect of recovering from [TCG], distributions from the Unit Trust which had been assigned to -Aklia] ...
(a) [Aklia] suffered loss and damage being the amount which [Aklia] could have received but for the matters pleaded in paragraph 43C above, calculated as follows -
[98] The defendants applied to have struck out paragraphs 43B, 43C and 44(a)..
[99] Bond J observed that one of the difficulties for the defendants in being able to demonstrate that Aklia had no prospect of succeeding on this claim was their inability to identify just what it was about what Aklia said it could and would have done that Aklia had no real prospect of demonstrating. His Honour said (my emphasis)-
- [42] That was not their fault because, in truth, the case pleaded by Aklia in ...[43B](b), [43B](c), [43B](d) and [43C] is deficient. The generality of the language used does not actually convey what it was that Aklia would have been able to do to achieve each of the outcomes mentioned in [43B](b), [43B](c) and [43B](d). The defendants are left entirely in the dark as to the nature of the chain of events which Aklia says it could have instituted which would have achieved those outcomes. It has failed to plead the material facts which establish the causal link between the counterfactual of it having the shares and the units and the outcomes on which it relies. If the damages case truly is a case of damages for loss of a valuable chance, these matters are the means by which the chance is both shown to be lost and demonstrated to be valuable ...
- [43] In argument before me Aklia contended that either by:
Aklia could have taken steps which could and would have achieved the outcomes referred to in [43B]. It should be permitted to do so at trial.
[44] If that is so, then the steps which it says it could and would have done should be pleaded and the connection between those things and the outcome articulated. Senior Counsel for Aklia took me to other aspects of the evidence which suggested bases on which it might be thought that the opportunity was valuable ... but again if considerations of this nature are said to be matters which suggest that the opportunity lost was valuable, then they are matters which should have been pleaded
[100] His Honour struck out [43B], [43C] and [44](a), with leave to re-plead.
Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2017] QCA 254; [2018] 2 Qd R 584 ('Principal Properties')
[101] This matter involved a claim for damages for the loss of an opportunity to acquire and develop land at a profit. The appellant contended that the primary judge was wrong in law to hold that there was no compensable loss because of the probability that the appellant would have lost money from the development. The appellant succeeded. The Court of Appeal found that the opportunity to develop the land at a profit, which was denied to the appellant, had a value.
[102] McMurdo JA, with whom Philippides JA and Boddice J agreed, discussed damages for a lost opportunity (footnotes omitted)-
- [12] A contract to provide a commercial opportunity, if breached, enables the innocent party to bring an action for damages for the loss of that opportunity. There may be a compensable loss of a commercial opportunity, even though there is a less than 50 per cent likelihood that, if pursued, the opportunity would have resulted in a financial return.
- [13] In order to recover substantial, as distinct from nominal, damages on this basis, a plaintiff must establish that the lost commercial opportunity had some value. If the opportunity had no more than a theoretical or negligible value, then no compensable loss has been caused. The fact that some loss or damage was caused must be proved on the balance of probabilities. If that fact is proved, it is then for the court to assess the extent of the plaintiff's loss. The value of the lost opportunity must then be "ascertained by reference to the degree of probabilities or possibilities" of relevant factual hypotheses ...
- [14] Thus, in Chaplin v Hicks, the plaintiff suffered a compensable loss when she was deprived of the chance to win, with a financial reward, a competition (which the defendant had promised to provide). The plaintiff's chance had a value, although, more probably that not, she would not have won the competition. The degree of likelihood of winning the prize was relevant for the valuation of that chance in the assessment of her damages.
- [15] ... [His Honour considered Brennan J's judgment in Sellars.]
- [16] Consequently, the improbability of a profit from the pursuit of a commercial opportunity is no necessary bar to the recovery of substantial damages for the loss of that opportunity ...
[103] The plaintiffs submitted that it was enough for them to prove a breach of contract - without needing to prove a loss on the balance of probabilities - to establish a reasonable cause of action. The Manthey Parties submitted that the plaintiffs were obliged to prove loss on the balance of probabilities.
[104] In addition to their primary submissions, the Manthey Parties submitted - and I did not understand this submission to have been contradicted by the plaintiffs - that neither Chaplin v Hicks nor Tabet v Gett stood for the proposition that a plaintiff could receive substantial, rather than nominal damages, upon proof of a breach of contract.
[105] Referring also to Principal Properties, the Manthey Parties submitted that the loss (or the way in which it was sustained) had to be pleaded "with proper material facts". The real question, they submitted, was whether the pleading contained all of the facts to establish that a loss was suffered on the balance of probabilities and the facts upon which a court might assess damage.
[106] They referred me to rule 155(4) of the Uniform Civil Procedure Rules 1999 which states -
... a party claiming damages must specifically plead any matter relating to the assessment of damages that, if not pleaded, may take an opposing party by surprise.
[107] They submitted that the questions they raised about the pleading at 50 to 52 and the nature of the opportunity and how it would have been realised are facts which would, if not pleaded, take the Manthey Parties by surprise.
[108] The plaintiffs submitted, essentially, that on a proper understanding of their pleading, they had not failed to properly plead causation. Their causation hypothesis did not depend on a counterfactual scenario. Causation was established upon proof of the breach of contract - and the pleading in paragraph 50 was not deficient.
[109] Establishing the claim for substantial damages was a matter of evidence. It was all about probabilities and possibilities as the High Court had explained. The plaintiffs had provided in paragraph 51 their estimate - that the "probability of the opportunity" was "80%". That was sufficient. Proving its value was a matter of evidence. The plaintiffs submitted (referring to Brennan J in Sellars and the notion that a commercial opportunity was self-evidently valuable) that - not only might it be inferred as a matter of common commercial experience that an opportunity is of value - it was directly pleaded at paragraph 52 that it was worth $1 million. That was enough.
[110] It seems to me that the Manthey Parties do not seriously disagree with the plaintiffs' position that on their pleading as it stands, at least in so far as paragraph 50 is concerned, their cause of action in contract is pleaded sufficiently and nominal damages may be available. Indeed, the Manthey Parties say so much in their written submissions.
[111] There is no doubt, as several of the cases discussed illustrate, that a contract to provide a commercial advantage or opportunity, if breached, enables an "innocent party" to bring an action for damages for the loss of that advantage or opportunity. In other words, the loss of a chance to "win", resulting from a breach of contract, is compensable. As in Chaplin v Hicks, if the contract contains a promise to provide a chance to "win" and the contract is breached and the promise is broken, then the breach of contract has caused the loss of that chance. Of course, the loss must be an actual loss of some value. But, as the cases establish, there is value in commercial opportunities - even in those where a profit is not guaranteed or unlikely. (And I did not understand the Manthey Parties to be suggesting that the opportunity said to be lost in this case was not valuable.)
The complaint about the pleading of the fourth defendant's knowledge
[126] The Manthey Parties submitted, in effect, that the pleading of the fourth defendant's knowledge, in paragraph 61 of the 3FASOC, was deficient because it did not contain facts from which it might be inferred that Brenda Manthey knew that she had received property which had been distributed in breach of trust.
[127] Under the heading "Unauthorised payments from AEDC", the pleadings assert, at paragraph 58, that between certain dates, the first defendant caused AEDC to make certain payments from AEDC's bank account ('Unauthorised Payments'). Paragraph 59 asserts that the Unauthorised Payments were not for the purpose of the Joint Venture or the Common Intention. Paragraph 60 asserts that AEDC acted in breach of trust in making the Unauthorised Payments.
[128] The Manthey Parties apply for the striking out of the word "fourth" in paragraph 61 which states -
Each of the first, second, fourth and fifth defendants received their respective Unauthorised Payments knowing that:
ii they were not entitled to receive funds held by AEDC.
[129] Referring to rule 150(1)(k) of the Uniform Civil Procedure Rules 1999, the Manthey Parties submitted that it was necessary to plead that Mrs Manthey had notice of the trust pleaded in paragraph 28 of the 3FASOC. And, by reference to rule 150(2), it was necessary to plead the facts from which her knowledge might be inferred. It was not sufficient for the plaintiff to rely upon the allegation that Mrs Manthey knew that the payments were not in furtherance of the commercialisation of the engine. On its own, that did not establish that Mrs Manthey knew she was not entitled to receive the funds because she was not alleged to have knowledge of the trust.
[130] The breach of trust allegation followed from the pleading in paragraph 28, which was the final paragraph of the section of the 3FASOC headed "The relationship between the parties from December 2015". Paragraph 28 stated -
In the premises pleaded in paragraphs 20 to 27 above, it is to be inferred that AEDC would hold the Intellectual Property, and any product developed during the course of the Joint Venture or Common Intention, on trust for the benefit of the first plaintiff and the first, second and third defendants, in proportion to their proposed respective interests in the Joint Venture...
[131] It may be noted that Mrs Manthey is not referred to in paragraphs 20 to 27. It is asserted, in paragraph 4 of the 3FASOC, that she and her husband, Steven, were the directors of SC Manthey Pty Ltd, the fifth defendant. It is also asserted, in paragraph 18, that AEDC paid the fifth defendant $1 million for the engine prototype and associated designs. Mrs Manthey is not otherwise mentioned in the 3FASOC.
[132] In defending their pleading, the plaintiffs argued that it was sufficient to assert that Mrs Manthey had the actual knowledge she is said to have in paragraph 61. That was enough to found liability under Barnes v Addy (1874) LR 9 Ch App 244. And reading paragraph 61 together with paragraphs 4 and 18 was enough, they submitted, "to get past a strike out".
[133] The Manthey Parties referred me to Peter Davis & Ors v Halliday Financial Management Pty Limited & Ors [2014] NSWSC 1371. That case concerned the sufficiency of a pleading of actual knowledge that a representation was untrue. As is the case here, to defend the pleading, counsel for the plaintiffs said that they were not required to allege any other material fact standing behind the fact that they wished to prove, namely, actual knowledge. The response to the allegation of actual knowledge might simply and appropriately be a denial.
[134] In striking out the allegations of actual knowledge, with leave to replead the facts by which it was alleged that the defendants had the relevant actual knowledge, Kunc J said -
- [25] ... the inquiry as to whether an allegation has been sufficiently made does not stop at the point of identifying that a bare factual allegation of the kind the law requires to be made has been pleaded. A further inquiry needs to be answered, namely, "whether the cause of action is pleaded at the level of particularity that is sufficient to define the issues and inform the other party of the case that it has to meet, in the context of the particular allegations" [citing Young Investments Group Pty Ltd v Mann & Ors ; It is against that further inquiry that the proposed amended statement of claim fails.
[137] Paragraphs 51 and 52 of the 3FASOC are struck out, with leave to re-plead.
[138] To the extent to which it refers to the fourth defendant, paragraph 61 of the 3FASOC is struck out with leave to re-plead.
[139] The Manthey Parties have been substantially successful. Unless a party wishes to submit to the contrary, I order that the respondents to this application (the plaintiffs) pay the Manthey Parties' costs. If a party wishes to submit to the contrary, then they must so notify my associate by 4 pm on 26 May 2020, in which case further directions will be made.
Hookey & Anor
Manthey & Ors [2020] QSC 125
Aklia Holdings Pty Ltd v The Carter Group Pty Ltd (in liq) & Ors [2017] QSC 75, considered
Banks v Alphatise Pty Limited [2014] NSWSC 1437, distinguished
Executor Trustee Aust Ltd v Peat Marwick Hungerfords [1995] SASC 4918; (1994) 15 ACSR 556, cited
Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 221, distinguished
Mutton v Baker [2014] VSCA 43, distinguished
Peter Davis & Ors v Halliday Financial Management Pty Limited & Ors [2014] NSWSC 1371, considered
Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2017] QCA 254; [2018] 2 Qd R 584, considered
Sanrus Pty Ltd & Ors v Monto Coal 2 Pty Ltd & Ors (No 7) [2019] QSC 241, distinguished
Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537, applied
[17] The Manthey Parties complained that, in paragraphs 50 to 52, the plaintiffs make no attempt to plead precisely how they are said to have suffered a loss as a result of the alleged breach of contract as the authorities required them to. They submitted that the 3FASOC fails to plead sufficient facts to make out an arguable case that the relevant defendants caused the plaintiff to lose a valuable commercial opportunity.
[18] In writing, developing that argument, the Manthey Parties submitted that -
- [16] A claim for damages for the loss of a commercial opportunity involves two stages.
- [17] First ... the plaintiff must prove not only that there was a breach of contract by the defendant, but that the breach caused the loss of an identifiable commercial opportunity: Hart Security Australia v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659 at 687 [13].
The cases where a plaintiff seeks damages only for breach of a contractual promise to afford the plaintiff an opportunity to acquire a benefit are in a different category from the cases under s 82(1) and cases in tort where damage is the gist of the cause of action. In a case like Chaplin v Hicks, the relevant loss is identified by the contractual promise to afford the plaintiff an opportunity to acquire a benefit or to avoid a detriment [McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377 at p 412]. A breach of the promise to afford that opportunity necessarily establishes that the loss flows from the breach. In contract cases, a plaintiff may be entitled to nominal damages for loss of the opportunity promised even though the plaintiff fails to prove what, if any, value performance of the unfulfilled promise would have had [Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286 at pp 301, 312] But in cases arising under s 82(1) of the Act, as in cases of tort where damage is the gist of the action, a lost opportunity may or may not constitute compensable loss or damage. In such cases, the existence and causation of a compensable loss cannot be proved by reference to an antecedent promise to afford an opportunity. The plaintiff, who bears the onus of proving a loss suffered as the result of the defendant's contravening or tortious conduct, must prove the existence and causation of the alleged loss in some other way. The manner of discharging the plaintiff's onus will presently be mentioned.
[54] The Manthey Parties relied particularly on this case.
[55] The Sanrus litigation involved a joint venture between the plaintiffs and the defendants to exploit coal at Monto in Queensland (the 'Monto Coal Project'). The plaintiffs complained that the defendant, Monto Coal 2, breached the joint venture agreement by deciding to suspend all work on the Monto Coal Project, among other alleged breaches. Essentially, the plaintiffs claimed that, by reason of the impugned conduct of Monto Coal 2, they lost the opportunity to earn a profit from the sale of coal and to receive royalties therefrom. They also lost their opportunity to sell their interests in the joint venture at a value which would reflect the stage to which the Monto Coal Project would have advanced had the impugned conduct not occurred.
[56] This particular decision in the Sanrus litigation concerned the defendants' objections to the plaintiffs' expert evidence in the context of the plaintiffs' pleading. As his Honour, Bond J, explained -
- [7] ... The defendants contended (and I agree) that it had become apparent for the first time during the course of the submissions that the plaintiffs sought to advance a case in reliance on the proposed evidence of Mr Freeman [an expert], which suggested that it was part of their counterfactual case to contend that expert advice would have been given and acted on from time to time during the three years prior to the time the Stage 2 Feasibility Study would have been prepared, not just in the form of the Stage 2 Feasibility Study itself. The defendants contended that the plaintiffs could not be permitted to advance such an unpleaded case and that the evidence of Mr Freeman could not be received for that purpose ...
[57] The Manthey Parties relied upon Bond J's statements and observations about the pleading required in a loss of opportunity case to make their argument that the plaintiffs' pleading was deficient. His Honour said (my underlining, bold as emphasis in original) -
- [16] Rule 149 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) requires plaintiffs to set out a statement of all the material facts on which they rely, including by stating specifically any matter that if not stated specifically might take another party by surprise. Of course, the purpose of pleading material facts is not just to avoid surprise: it is to enable the pleader's case to be defined and confined and to enable the defendants to plead to that case, thereby defining and confining the issues for decision. That is reinforced by the terms of r 157 UCPR.
[20] As the Full Court of the Federal Court said in Oztech Pty Ltd v Public Trustee of Queensland [2019] FCAFC 102 at [30]:
(1994) 179 CLR 332
(2010) 240 CLR 537
(2016) 339 ALR 659
(1951) 84 CLR 377
(1938) 61 CLR 286
(1987) 14 FCR 215
(2012) 293 ALR 537
[90] Observing that he had not been referred to any authority which discussed the required elements of pleading, his Honour articulated the following relevant propositions (my emphasis) at [50] -
[91] His Honour added - at [51] -
[112] In my view, in this case - unlike in Sanrus - the plaintiffs are able to establish causation for their loss by proof of a breach of the implied term of the joint venture agreement and without resort to a counterfactual scenario. Of course, a counterfactual scenario may be required in a breach of contract case to establish a link between the breaches of contract alleged and the loss suffered - as it was in Sanrus - but it is not required in this case.
[113] In my view and notwithstanding the way Bond J expressed himself at [19] in Sanrus, it is not the case that a plaintiff must prove a relevant counterfactual scenario to establish the alleged causal link between breaches of contract and loss. Indeed, his Honour clarified the position at [21] and [23](b) in Sanrus. See too Jackson J's second proposition in Huddy v Byrne at [50].
[114] As the authorities to which Jackson J referred in Huddy v Byrne make plain, it is necessary to plead facts which lead to a reasonable inference of a causal link between the breach and the loss. Sometimes, that might require pleading a counterfactual. But not in every case.
[115] In my view, in this case, once the plaintiffs' case is understood, the link between the breach and the loss is established on the facts pleaded. The plaintiffs' complaint is not that the Manthey Parties failed to develop the engine as they had agreed to do - in which case a counterfactual scenario may have been necessary to establish the causal link between the breach and the loss. Instead, broadly speaking, the plaintiffs' complaint here is that, in breach of their agreement with Hookey, the Manthey Parties (or some of them), in effect, cancelled the joint venture; denied any arrangement to develop the engine for their joint benefit; disposed of the engine; and hid its specifications and other intellectual property associated with it. The loss claimed by the plaintiffs was the loss of the opportunity to be part of the venture which might have led to the development of the engine to the point at which profits and royalties might have flowed therefrom. In other words, the plaintiffs' case is that the defendants have broken their promise to give him a chance at a commercial opportunity.
[116] The plaintiffs' position is akin to the position of the plaintiff in Chaplin v Hicks. As Brennan J in Sellars explained, the relevant loss is identified by the contractual promise to afford the plaintiff an opportunity (in this case, by being part of the joint venture) to acquire a benefit. That loss may be established upon proof of the breach alleged. In that sense, the pleading is adequate. And, as the cases make plain, nominal damages for the loss of the opportunity may be available - even if the plaintiff fails to prove the value that performance of the unfulfilled promise would have had.
[117] The plaintiffs submitted that my acceptance of the proposition that their loss may be established on proof of the breach alleged, in effect, got them home and the pleading was not therefore liable to strike out. But the plaintiffs here seek more than nominal damages. For the breach of contract, they seek damages of at least $800,000.
[118] As Bond J reinforced in Sanrus, the purpose of pleading material facts is not just to avoid the other party being taken by surprise: it also enables the pleader's case to be defined and confined, so as to permit a defendant to meaningfully respond to it, thereby defining and confining the issues for decision.
[119] In my view the pleading in paragraphs 51 and 52 are deficient. As presently pleaded, they do not allow for a meaningful response by the Manthey Parties. Further, the plaintiffs cannot be permitted to establish the facts pleaded as broadly as they are pleaded in paragraphs 51 and 52 in whatever way they think fit.
[120] The plaintiffs' pleadings do not, in clear and unambiguous terms as required, explain the basis of their claim in paragraph 51 that the "probability of the opportunity referred to in paragraph 50 above occurring was 80%." Does that probability attach to the loss in 50(a) or (b) or both? Are the plaintiffs suggesting that there was a 20 per cent chance that Hookey might not wish to proceed with the joint venture? Or are they suggesting that there was a 20 per cent chance that something else - other than a breach of contract - might have interfered with the occurrence of the opportunity? Or is it intended to suggest that there was a 20 per cent chance that there might be no market for an interest in the joint venture? Or is it intended to suggest something else altogether?
[121] Nor, in my view, is it sufficient for paragraph 52 to nominate $1 million as the value of the lost opportunity without more.
[122] As the authorities establish, where the breach of a contract has resulted in the loss of a commercial opportunity, whilst estimating the loss in dollar terms may be difficult, damages will be ascertained by reference to the degree of probabilities or possibilities inherent in a successful outcome had the plaintiff been given the chance to engage in the commercial opportunity.
[123] So as to ensure that the defendants understand the case they have to meet and to plead to it, and to ensure they are not taken by surprise, the plaintiffs are required to plead the assumptions or methodology or similar upon which the identification of an 80 per cent probability of the opportunity occurring, and the valuation of the lost opportunity at $1 million, are based.
[124] It follows that I consider that paragraph 50 sufficiently pleads the causal link between the breaches alleged and the loss suffered by the plaintiffs. However, paragraphs 51 and 52 are inadequate. They will be struck out, with leave to re-plead.
[125] In deciding to grant leave to re-plead, I have taken into account the Manthey Parties' arguments that I ought not to grant such leave because the plaintiffs had have ample opportunity to improve their pleading and have been unable to do so. I have compared the previous pleadings with the 3FASOC. I have also considered Brown J's earlier decision in this matter ([2018] QSC 207), at which time the pleadings were in a different state. I do not consider that the point has been reached at which a court might say there is no chance of an adequate pleading of this issue.
[135] Counsel for the Manthey Parties brought to my attention a case to the contrary: Banks v Alphatise Pty Limited [2014] NSWSC 1437 (Brereton J). In that case, his Honour disagreed with Kunc J that the facts from which it is contended that an inference of actual knowledge should be drawn are material facts that must be pleaded in a pleading. His Honour explained that a defendant did not need particulars to know whether or not to admit actual knowledge.
[136] Regardless of the difference of opinion in New South Wales, the present proceeding is governed by the Uniform Civil Procedure Rules 1999 (Qld). Rule 150(1)(k) requires knowledge to be specifically pleaded. Rule 150(2) requires any fact from which knowledge is claimed to be an inference to be specifically pleaded. The pleading of Mrs Manthey's knowledge does not comply with the rules. The allegation against Mrs Manthey is a serious one. She is entitled to know the facts upon which it is contended one might draw an inference of her actual knowledge that she received funds in breach of trust. There is nothing in the 3FASOC (nor was my attention drawn to anything in the evidence) from which Mrs Manthey's alleged knowledge might be inferred. It follows that paragraph 61 - to the extent that it concerns Mrs Manthey - will be struck out, with leave to re-plead.