IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Anor [2017] QCA 313

SUPREME COURT OF QUEENSLAND

CITATION: IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Anor [2017] QCA 313

PARTIES: IW & CA PRICE CONSTRUCTIONS PTY LTD ABN 50 301 203 933 as trustee for COASTAL BUILDING INSURANCE CLAIMS & REPAIRS TRUST (appellant) v AUSTRALIAN BUILDING INSURANCE SERVICES PTY LTD ACN 162 498 599 (first respondent) BRUCE WILLIAM CARRIGAN (second respondent)

FILE NO/S: Appeal No 3961 of 2017 / SC No 9993 of 2013

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane – [2017] QSC 39 (A Lyons J)

DELIVERED ON: 19 December 2017

DELIVERED AT: Brisbane

HEARING DATE: 26 October 2017

JUDGES: Gotterson and Morrison and McMurdo JJA

ORDERS: Appeal allowed.Vary the orders under appeal by deleting Order 2(c).Orders 1 and 2 are otherwise affirmed.The parties are to make submissions in writing with respect to the costs at first instance and of the appeal, not to exceed two pages, within seven days of the publication of these reasons.

CATCHWORDS: APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE INFERENCES OF FACT INVOLVED – WHERE FACTS IN DISPUTE – where the appellant and the first respondent entered into a business sale contract whereby the first respondent purchased the appellant’s business – where the terms of contract included in the sale the business’ goodwill, fixtures, plant and equipment, stock in trade and work in progress (“WIP”) – where only $50,000 of the $600,000 purchase price was paid to the appellant – where the appellant received in excess of $380,000 in respect of WIP which it did not remit to the first respondent – where the respondents contend the appellant, by the conduct of its principal director, breached implied obligations under the contract by making false representations to a major client of the business (CGU) – where the respondents submit CGU allocated repair contracts away from the business as a result of this breach – where CGU began reallocating repair work to the first respondent after several months – where the first respondent claims lost profits for this period and lost goodwill – where the learned trial judge awarded damages for lost profits and lost goodwill – whether the learned trial judge erred in finding the goodwill of the business “was inevitably damaged” – whether the learned trial judge erred in her findings with respect to factual causation / APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE FINDINGS BASED ON CREDIBILITY OF WITNESSES – GENERALLY – where the business sale agreement included a clause providing for the assignment of a telephone finance lease agreement – where the appellant claims damages by way of indemnity from the first respondent for payments made by it under the lease agreement after the contract completion date – where the principal director of the appellant gave evidence that to his knowledge the appellant was continuing to make payments under the lease – where no invoices, payment receipts or other documentary evidence of payment was tendered – whether the learned trial judge erred in finding the payments had not been made / APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – EXCESSIVE OR INADEQUATE DAMAGES – GENERAL PRINCIPLES – DAMAGES EXCESSIVE – where the first respondent claimed damages for lost profits – where the second respondent gave evidence as to the number of contracts and average price for each such contract the first respondent would have received from CGU in the relevant period – whether the learned primary judge erred in accepting the second respondent’s quantification of the lost profits / Federal Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605; [1998] HCA 42, cited

COUNSEL: R J Anderson QC, with B A Vass, for the appellant / R G Bain QC, with P Travis, for the respondents

SOLICITORS: North Coast Law for the appellant / Axia Litigation Lawyers for the respondents

GOTTERSON JA: The appellant, IW & CA Price Constructions Pty Ltd, was trustee of a business trust known as “Coastal Building Insurance Claims & Repairs Trust”. Mr Ian Price was the principal director of the appellant. As trustee, the appellant carried on a building insurance claims repair work business under the business name “Building & Insurance Repair Services QLD” at Warana on the Sunshine Coast. A major source of work for the business was the insurer, CGU Insurance Ltd.

The second respondent, Mr Bruce Carrigan, is the principal director of the first respondent, Australian Building Insurance Services Pty Ltd. From about February 2011 to about June 2013, the second respondent worked in the appellant’s business. During this time, the second respondent negotiated with Mr Price to acquire the business. The appellant and the first respondent entered into a business sale contract dated the 19 June 2013 whereby the first respondent purchased the business on a “walk in walk out” basis for $600,000.¹ The second respondent guaranteed the performance of buyer’s obligations under the contract.

The contract was completed on 1 July 2013. Under the terms of contract, the contract price was payable as to $50,000 on the date of completion and as to the balance, by five payments of $90,000 each (the first payable on 31 January 2014 and the last on 31 January 2016) and a single payment of $100,000 payable on 31 July 2016.² Interest was payable on outstanding instalments at an indicative rate which the parties agreed was 7 per cent per annum. Only the $50,000 payable on completion was paid.

Why the instalments thereafter were not paid is explained by events that occurred after completion. Under the terms of contract, the business sold included its goodwill, fixtures, plant and equipment, stock in trade and work in progress (“WIP”).³ After 1 July 2013, the appellant received a total of $382,180.57 in respect of WIP to which the first respondent was entitled. The appellant initially asserted an entitlement to be paid for the WIP. It never remitted the amount received to the first respondent.

Further, from the first respondent’s point of view, the appellant, by the conduct of Mr Price, had breached implied obligations that it had under the contract: the appellant had failed to do all things necessary to enable the first respondent to have the benefit of its contract; and the appellant had acted in a way which had hindered or prevented the first respondent from obtaining the benefit of the contract. Broadly speaking, there were two dimensions to the loss which the respondents alleged were caused by these breaches, lost profits and lost goodwill.

The profits lost were those which the first respondent maintained it would have earned had CGU not allocated repairs contracts away from it in the period October 2013 to January 2014 as a result of interventions by Mr Price. Two major storm events occurred in the Sunshine Coast and Wide Bay regions in November 2013. The property damage caused by them would have led to profitable repair contracts with CGU. The resultant loss of profits was quantified by the respondent as being in excess of $500,000.

The lost goodwill was quantified for the respondent at $213,586. That amount was alleged to represent an enduring loss to the goodwill of the business acquired by the first respondent on account of Mr Price’s conduct. Together, the unremitted WIP and the claimed losses well exceeded the unpaid purchase price.

The proceeding and the claims made

The appellant commenced a proceeding in the Supreme Court of Queensland against the first respondent, as first defendant, and the second respondent, as second defendant, in October 2013. The proceeding was tried in October 2016.

The appellant’s claim was for the total amount of $668,223.87 comprised of the unpaid $550,000, interest thereon to the 4 October 2016 of $102,973.31, and an amount of $15,250.56 in respect of a telephone lease which was current at the completion of the contract. The appellant had initially claimed an additional amount for work done by it which had not been finished or invoiced by the completion date, on the basis that the first respondent had been paid for it and was liable to remit it to the appellant. That amount was ultimately not pursued.⁴ At trial, the appellant accepted that the payments for WIP it had received, in total $382,180.57, were to be set off against its claim, reducing the claim to $286,043.30.⁵

The respondents defended and counterclaimed for the unremitted WIP payments, an additional amount of $25,425.02 for WIP, $505,015 for loss of profits and the unremitted WIP payments, $916,890 for diminution in the value of the goodwill of the business.⁶ Mr Price was joined as a third party by the respondents.

The losses to which I have referred were pleaded as having arisen as a result of representations made by Mr Price to Mr Kris Kyriazapoulos (“Mr Kyris”), CGU’s Supplier Development Manager, after the first respondent invoiced CGU for repair work that had been commenced by the completion date and which the first respondent finished. The alleged representations were that:⁷

the first respondent was in breach of the business contract;

the first respondent was not entitled to the payment of invoices for WIP completed by the first respondent after the completion date;

CGU should pay the appellant for that work.

The respondents alleged that those representations caused CGU to allocate repair work away from the business that the first respondent had acquired.⁸

The claim for loss of profits was in accordance with the amount calculated in a report prepared by Mr Steven Ponsonby, chartered accountant, of Forensic Accounting Pty Ltd dated 7 April 2016 (“First Report”).⁹ The loss of profits calculation was revised to an amount of $598,675 at the trial after a CGU document made available on third party disclosure, Exhibit 19,¹⁰ had been tendered during cross-examination of Mr Ponsonby. It had not been available to him when he prepared the First Report. Further, the claim for diminution of goodwill was subsequently reduced to $213,586. in reliance upon another report prepared by Mr Ponsonby, Exhibit 18, dated 28 September 2016 (“Second Report”).¹¹

In reasons published on 21 March 2017, the learned trial judge made findings and stated a series of conclusions. Her Honour found in favour of the appellant on its claims with the exception of the telephone lease claim. As to the respondents’ claims, she rejected the additional amount for WIP but found recoverable lost profits proved at $598,675. She also found that the first respondent had sustained a recoverable diminution in goodwill which she assessed at $95,000.¹²

After receiving submissions from the parties on costs and the form of orders that would carry the conclusions into effect, the learned primary judge made the following orders on the 12 May 2017:¹³

“1. The defendants pay to the plaintiff $550,000, together with interest at the agreed rate of 7% per annum of $122,250.69 from 1 February 2014 to the date of judgment;

The plaintiff pay to the first defendant $1,075,855.27 together with interest calculated as follows:

the sum of $382,180.27, together with interest under s 58 of the Uniform Civil Procedure Rules 1999 (Qld) of $80,528.74 from 7 November 2013 to the date of judgment;

the sum of $598,675, together with interest under s 58 of the UCPR of $120,056.91 from 1 January 2014 to the date of judgment;

the sum of $95,000, together with interest under s 58 of the UCPR of $19,999.77 from 8 November 2013.

The plaintiff pay the first defendant’s costs of the proceedings, including all reserved costs (but excluding Third Party Proceeding costs), to be assessed on the standard basis up until 13 April 2016 and from 13 April 2016 on the indemnity basis.

There be no order as to costs that are solely attributable to the Third Party Proceeding.”

The appeal

On 18 April 2017, the appellant filed a notice of appeal in anticipation that orders would be made giving effect to her Honours conclusions.¹⁴ That document has been superseded by several versions of an amended notice of appeal, the most recent of which was filed after the hearing of the appeal. In summary, the appellant seeks orders allowing the appeal, setting aside the orders made at first instance, and substituting orders that the respondents pay to it the amounts of $550,000 and $15,250.26, each with interest; that it pay the first respondent the amount of $382,180.27 with interest, and that the respondents pay the appellant’s costs of the proceeding at first instance. No cross-appeal or notice of contention has been filed.

The appellant categorised the grounds of appeal set out in the amended notice of appeal into four topics, namely:

proof of loss of goodwill to the business (Ground 1);

causation (Grounds 2-6);

quantification of the lost profits (Grounds 7 and 8); and

the telephone lease (Ground 9).

The appellant’s written and oral submissions addressed those topics rather than each ground of appeal individually. It is convenient to adopt that categorisation for the purpose of deciding this appeal. I propose to consider the topics in the order in which they were addressed in submissions.

Proof of loss of goodwill

I mention at this point that in her reasons, the learned primary judge referred to the first defendant as “ABIS”, the second defendant as “Carrigan”, and the third party as “Price”. Her Honour referred in her reasons to the discussion of goodwill as a legal concept in the High Court decision of Federal Commissioner of Taxation (Cth) v Murry.¹⁵ She then made the following findings:

“[139] In determining whether there has been a diminution of the goodwill, I have had particular regard to the fact that CGU became inextricably caught up in the dispute and that Price was clearly making incorrect assertions about ABIS and Carrigan, which would inevitably have affected the standing that Carrigan and ABIS had with CGU. I also accept the force of the argument, drawn from what was outlined in Commissioner of Taxation (Cth) v Murry above, that during the period it was cut off, ABIS was unable to conduct the Business “in substantially the same manner and by substantially the same means that [had] attracted custom to it” before the breaches occurred. At trial Carrigan described the steps that would usually be taken by ABIS to secure work from CGU and I am satisfied Carrigan and ABIS were prevented from taking those steps to secure work and produce income, because ABIS was barred from being allocated any work from CGU. This was despite being a reputable member of CGU’s Building Panel.

[140] Taking into account that CGU was one of ABIS’ biggest clients and indeed prior to October 2013 work allocated to ABIS by CGU made up over 27% of ABIS’ profits, I am satisfied that the goodwill of the Business was inevitably damaged. The real issue is to what extent.”

The learned trial judge noted that for his revised calculation of the diminution in goodwill, Mr Ponsonby had assessed the value of goodwill of the business at 30 June 2013 and at 30 June 2014, and then subtracted the latter from the former. He had determined the value of goodwill at each date by valuing the business overall on a going concern basis. Mr Ponsonby accepted in the Second Report that some material made available to him was incomplete.¹⁶ Having regard to that and to criticisms of his methodology which her Honour thought were appropriately made in cross-examination,¹⁷ she found that the diminution on the value of goodwill claimed of $213,586 had not been established.¹⁸

Her Honour continued:

“[152] In Benward Pty Ltd & Ors v Metal Deck Roofing Pty Ltd & Ors¹⁹ when Palmer J was undertaking the quantification of Goodwill he stated that “No exactness can be achieved in the task” and that it depends very much on “impression and a sense of balance”.²⁰ Accordingly, I consider that a significant reduction should be applied in the case given the factors I have referred to above, and, doing the best I can, I consider a figure in the order of $95,000 is a more appropriate figure for the loss of Goodwill.”

Appellant’s submissions: The appellant submitted that the respondents had failed to prove that any diminution of goodwill of the business in the long term was caused by the pleaded representational conduct attributed to Mr Price. Even if his conduct had disrupted the flow of repair work from CGU, that had been for the short term and was to be compensated for by the award of damages for loss of profits.

Respondents’ submissions: The respondents submitted that certain evidence-in-chief given by the second respondent was sufficient to ground a finding that the goodwill of the business had been diminished in the long term by Mr Price’s representations to CGU. Alternatively, it was submitted, that was a matter that might be inferred.

Discussion: I preface my discussion with the observation that, for reasons which follow, I would dismiss the appeal as it relates to the award of damages for loss of profits up to 13 January 2014, the date on which CGU began reallocating repair work to the first respondent. I also record my concurrence with the approach of the learned primary judge in not accepting Mr Ponsonby’s revised calculation of diminution in goodwill. Apart from the reasons for not accepting it outlined by her Honour, the calculation assumed that any diminution in goodwill between 30 June 2013 and 30 June 2014 was to be attributed to the pleaded conduct of Mr Price. No basis for such an assumption was established in the evidence. Also the calculation was limited to the year following the completion date, and on that account, was not suited to reveal any trend in the value of goodwill in the longer term.

In the end, the learned primary judge approached quantification of diminution in goodwill pragmatically. But underlying the award of damages was the finding at [140] challenged by the appellant, that the goodwill of the business “was inevitably damaged”. I understand her Honour to have meant that the resultant damage to goodwill was permanent. Yet the factors to which she referred in the immediately preceding paragraph as causative of the damage centred upon the interventions by Mr Price. On the respondents’ case, they had led to the temporary allocation of repair work by CGU away from the first respondent until 13 January 2014.

I accept the appellant’s submission that there is an absence of evidence that Mr Price’s pleaded conduct caused a diminution of the value of the goodwill of the business beyond that date and into the long term. To the extent that goodwill may have been impaired temporarily while work was allocated away from the first respondent, the loss is to be recompensed by an award of damages for loss of profit sustained during that time.

As to the second respondent’s evidence-in-chief to which the appellant has referred,²¹ it is descriptive of the way in which the first respondent would do work for insurance company clients including CGU, and how he would maintain personal contact with various insurance company officers to keep the first respondent on their respective preferred supplier panels. However, this plainly was not direct evidence that any goodwill was lost after allocation of repair work by CGU back to the first respondent had resumed. Senior counsel for the respondents, who had not been trial counsel, acknowledged as much during the course of argument of the appeal.²²

I turn to the respondents’ alternative submission that it was open to the learned trial judge to draw an inference that Mr Price’s pleaded representations to CGU had caused a loss of goodwill in the long term. To my mind the submission lacks a sound foundation. Apart from the dearth of relevant fact in the first respondent’s evidence-in-chief, no evidence was adduced by the respondents from other insurers or, for that matter, competitor repairers, to the effect that the first respondent’s reputation as a supplier of repair services had been impaired in the long term by the temporary allocation of repair work away from the first respondent, or at all.

For these reasons, I consider that there was an insufficient evidentiary basis to allow the learned primary judge to have made a finding of loss of goodwill for which the appellant is legally obliged to recompense the first respondent by way of damages for breach of contract. I would therefore set aside Order 2(c) made on 12 May 2017.

Causation

This topic concerns findings made by the learned trial judge that conduct by Mr Price caused CGU to direct work away from the first respondent. Her Honour found that such conduct was in breach of contract. The topic has a continuing relevance in this appeal for the award of damages for loss of profits during the period in which CGU temporarily allocated repair work away from the first respondent until allocation to it resumed on 13 January 2014.

The learned trial judge made findings as to the escalation of a dispute between the appellant and the first respondent after the completion date concerning entitlement to payment for WIP. Significant findings were:

“[13] The dispute escalated on 13 August 2013 when Price sent an email²³ to Carrigan requesting payment for invoices from ‘Meecam Constructions’ totalling $273,727.85. Price claimed the invoices were raised by the Business prior to settlement. Price is a director Meecam Constructions.²⁴ The invoices from Meecam were immediately disputed by Carrigan as there had been no involvement with that company. It would seem clear that the invoices were only generated on 13 August 2013 and therefore could not yet have been incorrectly paid to ABIS as Price claimed.

[14] On 16 August 2013 Price sent a further email to Carrigan which stated:²⁵

“On another note I would like to have a response as what you intend to do about the invoices attached to the email I sent to you Tuesday [13 August] this afternoon.

Sorry Bruce but I need to know what you intend to do about the mounting debt that you owe us.

I am sending an email to Matt Hill in relation to all the invoices that we raised prior to the end of June to ensure that they get payed [sic] into our account & not yours.”

(Mr Hill was a senior manager at IAG, the parent company of CGU)

…

[17] On 26 August 2013 Price responded to Carrigan’s email of 16 August 2013 setting out what he believed was still owed to the plaintiff by ABIS under the Contract. In particular Price wrote next to one invoice number, “If you have been paid for this then the invoice was paid on our ABN not yours. I will be requesting that NRMA pay us & seek reimbursement from you. This is steeling [sic]”.²⁶ It is understood that the basis for these requests was Price’s claim that the plaintiff company was entitled to these payments under the alleged oral terms of the Contract. This claim was abandoned on the first day of this trial.

…

[20] On 30 September 2013 Carrigan made a diary note of a telephone call from Kris Kyris of CGU, who indicated that the Business had been “cut off due to litigation with Price.”²⁷ CGU subsequently began to “disallocate” work from the Business.²⁸

[21] On 9 October 2013 Carrigan sent an email to Kyris of CGU which confirmed that legal action had been taken against ABIS. Carrigan requested a meeting with Kyris to ascertain “how best to deal with this matter to prevent any further escalation by [the plaintiff] and to prevent disruptions to our relationship”.²⁹

…

[24] On 7 November 2013 Carrigan requested via email that CGU make all future payments to ABIS. A copy of the relevant part of the Contract was attached to this email.³⁰ Kyris agreed that all future payments would be made to ABIS but advised that the defendants would have to follow up payments that had “already been cleared” with the plaintiff, and that further clarification was needed to ascertain the correct payee for invoices that had been raised prior to 1 July 2013.³¹

[25] On 8 November 2013 Price sent an email to Kyris attaching a copy of the plaintiff’s Claim and Statement of Claim, advising that ABIS was “in breach of their agreement”.³² Price gave evidence that he sent this email on the advice of his then solicitors.³³ The same day Kyris of CGU telephoned Carrigan and Carrigan’s contemporaneous file note records that Kyris informed him that “he had spoken to Ian [Price] and Ian advised that all invoices raised against purchase orders prior to 1 July 2013 belonged to him under the contract of sale”. He also recorded that Kyris stated that “Ian further advised that ABIS has breached the contract of sale and that he is taking legal action”.³⁴ During this phone call Kyris also advised Carrigan that ABIS was “shut off from work” and that ABIS had to resolve the matter with the plaintiff within a week and not further involve CGU.”³⁵

Her Honour made adverse findings against Mr Price’s creditworthiness and reliability. She considered him to have been “not totally frank in many of his answers” and “rather augmentative, evasive and overly defensive in his answers”.³⁶ By contrast, she considered that the second respondent was “a thoughtful and careful witness with a good memory for the events in question”.³⁷

A significant factual issue in the case was whether Mr Price had contacted Mr Kyris on about 30 September 2013 and told him that litigation between the appellant and the respondents was on foot. It will be recalled that the second respondent’s diary note dated that day recorded Mr Kyris informing him that his company had “been cut off – due to litigation with Price”.³⁸

In evidence-in-chief, the second respondent gave the following account of his telephone conversation with Mr Kyris on 30 September 2013:³⁹

“---Well, from what I could recollect it was that basically Mr Price had advised him that they were taking legal action against me for breach of contract and – or agreement and he was – Mr Kyriaz said he’s basically going to turn us off.”

Mr Price, however, maintained that the first time he spoke to anyone at CGU about the dispute was in a telephone conversation with Mr Kyris on 7 November 2013 which he followed up with an email on the following day confirming that the first respondent was in breach of contract and attaching the Statement of Claim in the proceeding.⁴⁰ He denied any prior conversation with Mr Kyris about disputed payments.

The learned trial judge examined the evidence given by Mr Price, the second respondent and Mr Kyris on this subject. She regarded Mr Price’s evidence as neither truthful nor credible in light of other evidence.⁴¹ Her assessment was that Mr Kyris was “an honest enough witness” but that he did not have a detailed recollection of events.⁴² Her Honour accepted the second respondent’s evidence of his telephone conversation with Mr Kyris. It was supported not only by the diary note made on 30 September 2013 but also other contemporaneous records, including emails between the parties.⁴³

Her Honour made a number of findings with respect to Mr Price’s post-completion actions towards CGU and their consequences. The findings include the following:

“[103] I also consider, given my analysis of the evidence outlined above, that Price actively informed CGU that it should pay the WIP amount to Price Constructions and not to ABIS. I consider this was done by Price before 30 September 2013.

[104] I also consider that, on the same grounds, Price failed to inform CGU that it should not pay to Price Constructions the WIP Amount, or any part of it, and that CGU should pay the WIP Amount to ABIS.

[105] Furthermore I consider that Price’s actions after 1 July 2013 were such that not only were CGU aware of [the] dispute about the WIP, but were also being informed that Price Constructions was entitled to those amounts. Indeed Price commenced proceedings on 22 October 2013 claiming as much and in this regard I note that CGU continued to incorrectly pay amounts for WIP under the Contract to Price Constructions. Furthermore after commencing these proceedings on 22 October 2013 Price not only sent a copy of the Statement of Claim to Kyris at CGU on 8 November 2013 but, in the email which attached the document, he stated that ABIS “are in breach of our agreement.”⁴⁴

[106] Given my findings outlined above, I conclude that Price by that very conduct disparaged ABIS to CGU.

[107] I am also satisfied that CGU began dis-allocating work to ABIS from early October 2013 until mid-January 2014.”

The learned primary judge considered that Mr Price’s conduct amounted “in the very least to a breach of the implied duty to cooperate given [the first respondent] did not get the benefits of the contract”. As well, because of the conduct, the appellant did not fulfil its obligation not to hinder or prevent the receipt by the first respondent of the benefit of the contract. In correspondence with both the first respondent and CGU, he had asserted a right to payments to which neither he nor the appellant were entitled. He had fundamentally undermined the first respondent’s ability to establish a good working relationship with CGU, the major client of the business, in the first five months after the completion of the contract.⁴⁵

As to factual causation, her Honour made findings that Mr Price’s conduct did cause loss to the first respondent. Relevantly, her Honour found:

“[124] I do not accept the argument that any dis-allocation of work was not due to Price’s actions. I consider that Price’s actions had everything to do with the flow of work stopping. In this regard I consider the email from Kyris at CGU to Carrigan dated 10 January 2014⁴⁶ to be critical to this finding. That email was in the following terms:

“Hi Bruce, Just confirming what we discussed today.

CGU is prepared to commence re-allocating claims as of Monday 13 January.

All tax invoices will be paid into current ABN.

All monies paid to BIRS, but owed to Ian Price, is the responsibility of BIRS (ABIS) to redirect funds.

If contact is made by Ian Price, seeking unpaid or incorrectly paid funds, CGU will deem that BIRS have not taken control of the matter and may potentially affect contract renewal in 2014.

Aside from the above its BAU” (my emphasis).

[125] In my view the unmistakeable conclusion from that email, particularly the section emphasised, is not only that the CGU work was cut off but it was cut off because of Price’s complaints to CGU about the defendants.”

Her Honour concluded that, consistently with legal principle, the appellant, by the conduct of Mr Price, had caused loss to the respondents. She said:

“[126] I do not consider there to be any reason not to hold Price legally responsible for the losses to the defendants that, on the facts, were caused by his actions. There were no supervening acts between Price’s conduct and the losses sustained and there have been no submissions by counsel for either party that would suggest that the losses sustained by the defendants in this case were too remote to be considered outside the scope of causation.

[127] In my view, the actions of Price and Price Constructions caused loss to the defendants.”

Appellant’s submissions: The appellant did not challenge the findings of the learned primary judge as to credit so far as Mr Price was concerned.⁴⁷ Nor did it challenge the findings in relation to events on 30 September 2013.⁴⁸

The appellant criticized the finding made by her Honour at [125] of the Reasons. It was inconsistent, the appellant argued, with the respondents’ pleaded case which particularised representations as having been made by Mr Price by the email sent on 8 November 2013 to Mr Kyris.

Further, the appellant submitted that the real cause of the allocation of repair work away from the first respondent was that litigation was on foot; and not Mr Price’s conduct. It was suggested that the second respondent’s diary note dated 30 September 2013 tended to confirm that that was so.⁴⁹

The appellant emphasised that the second respondent had communicated with Mr Kyris on 9 October 2013. At that point, the former confirmed that litigation was on foot and sought a meeting with CGU’s legal department to discuss it and to prevent disruption to the business relationship. This communication referenced previous discussions between the second respondent and Mr Kyris about the dispute and, it was submitted, brought to Mr Kyris’ attention that the dispute had the potential to impact upon CGU.⁵⁰ In this way, the second respondent himself brought the dispute to the attention of Mr Kyris well prior to 8 November 2013 when Mr Kyris advised the second respondent that CGU had “shut ABIS off from work”.⁵¹

The appellant contended that it was this conduct by the second respondent that was the effective cause of CGU’s allocation of repair work away from the first respondent. Alternatively, his conduct substantially contributed to it.⁵²

The appellant also submitted that the loss of profits were not recoverable by way of damages for breach of contract.⁵³ At the date of contract, they were not reasonably foreseeable as likely to result from the breaches which her Honour had found.⁵⁴

Respondents’ submissions: The respondents submitted that the findings as to causation contained many strands and were infused with factual determinations including those as to credibility and reliability.

The respondents had not confined their pleaded case to representations made by Mr Price in the email he sent on 8 November 2013. The diary note dated 30 September 2013 had been properly disclosed. It had been the subject of cross-examination. No procedural unfairness had occurred in reliance upon it.

The respondents rejected the appellant’s proposition that it was the litigation that had caused CGU to allocate work away from the first respondent. As her Honour found, it was Mr Price’s persistence in seeking payment from CGU for WIP to which it was not entitled in a manner that disparaged the first respondent by accusing it of breach of contract, that strained the commercial relationship between CGU and the first respondent’s business.

The respondents submitted that the finding that CGU began allocating repair work away from the first respondent from early October 2013⁵⁵ was justified by the evidence.⁵⁶ Significantly, that was before the second respondent emailed Mr Kyris on 9 October 2013. That email did not cause CGU to begin allocating repair work away from the first respondent.

As to causation according to legal concepts, the respondents submitted that a reduction in work from CGU was clearly damage of a kind that was within the reasonable contemplation of the parties as likely to be sustained were the appellant to breach the contract in the manner her Honour found that it was breached. The resultant loss of profits was therefore recoverable as damages.

Discussion: I reject the appellant’s submission to the effect that the evidence allowed only of a finding that CGU allocated repair work away from the first respondent because of the single fact that litigation had begun between the appellant and the respondents with respect to entitlement to payment for WIP. CGU was not a party to that litigation; no relief against it was thereby sought.

The findings by the learned primary judge with respect to the escalation of the dispute and Mr Price’s conduct in badgering CGU with unjustified claims for payment for WIP and in unjustifiably accusing the respondents of breach of contract, were well supported by the evidence. Her Honour’s further finding that they, together with the commencement of the litigation, combined to manoeuvre CGU to a position where it decided to direct repair work away from the first respondent, at least until the disputes between the appellant and respondents were resolved, was equally supported by the evidence.

I interpret the reference in the diary note dated 30 September 2013 to the taking of legal action as being a reference to the most recent step in the escalation of the dispute. It does not appear to be an exhaustive statement of the reasons why repair work was to be allocated away from the first respondent.

Nor do I accept that the respondents had tied their case to representations made by Mr Price by email on 8 November 2013. While the pleading referred to that email as a particular of the making of the representations, the pleading intimated that more precise particulars would be supplied as to dates when the representations were made.⁵⁷ As the respondents correctly submit, the diary note dated 30 September 2013 was disclosed. Moreover, the second respondent was cross-examined about his conversation with Mr Kyris on that date.⁵⁸ Plainly, the appellant was not denied procedural fairness in this respect.

As well, the appellant’s attribution to the second respondent of responsibility for the allocation of work away from the first respondent cannot be accepted. The communication on which the appellant relies occurred on 9 October 2013. That was after CGU, on the evidence, had begun to direct work away. It is, with respect, fanciful to suggest that it was this communication that impelled CGU to take that step.

In summary, the appellant has not succeeded in its challenge to the findings of the learned primary judge with respect to factual causation. There is, in my view, no merit in its associated challenge with respect to the finding concerning legal causation. It is, in my view, quite clear that is must have been within the reasonable contemplation of the parties at the time of contract that were Mr Price, for the appellant, to disparage the first respondent to CGU in the badgering way that her Honour found that he did, then CGU might well direct work away from the first respondent, at least until it had been informed that disputation between the appellant and the first respondent had come to an end.

Quantification of lost profits

In his First Report, Mr Ponsonby estimated that the turnover of repair work from CGU that the first respondent lost was worth $1,476,294.⁵⁹ He assessed the first respondent’s average cost of sales at 65.79 per cent. Applying that rate, he calculated the cost of sales for that turnover as being $971,279. The turnover would, therefore, have yielded a profit of the difference, $505,015.

The second respondent gave evidence that the first respondent would have received at least 70 contracts from CGU to repair hail damage caused by the storms in November 2013.⁶⁰ Based on his experience with other hailstorm events, particularly in Chinchilla and Brisbane, he considered that the average price for each such contract would have been $25,000.⁶¹

Exhibit 19, to which I have referred, revealed that CGU entered into 658 repair contracts as a result of hailstorms in the Sunshine Coast area in November 2013. None of them was allocated to the first respondent. The average contract price was $12,033.72. Some 83 per cent of the claims were in the $20,000 and below range.

The learned primary judge considered that Exhibit 19 substantiated the second respondent’s claim that the contracts that the first respondent would have been awarded by CGU would have had an average contract price of $25,000. She observed:⁶²

“…I accept the analysis, as indicated by Exhibit 19, that 83% of the claims were under $20,000 but the average value of the remaining claims was $48,561.54. This is consistent with an average of $25,000. The calculation of the Gross Receipts Figure is ($25,000 x 70) which is $1,750,000.”

Her Honour continued:

“[134] Ponsonby’s First Report⁶³ shows that the cost of each CGU claim was in the order of 65.79% which produces a net profit of $598,675 based on Exhibit 19, which I note that Ponsonby did not have access to until he was shown it during cross examination. In his First Report Ponsonby calculates the loss to be $505,015. Given the contents of Exhibit 19 I consider that it is correct to calculate the loss at $598,675. Ponsonby gave evidence that he had done that calculation himself and that was his conclusion if the source of the information in Exhibit 19 could be verified as coming from CGU, which was ultimately satisfied.

[135] Accordingly I am satisfied that $598,675 is the figure which represents the loss of profit during the storm event due to the dis-allocation of work.”

Appellant’s submissions: The appellant submitted that the learned primary judge had erred in calculating loss of profits based on Exhibit 19. The average price for all contracts was $12,033.72 and, after deduction of GST, was $10,830.35. When Mr Ponsonby’s rate for cost of sales was applied to that figure, for 70 contracts, the profit would have been $259,354.39.⁶⁴

The appellant’s primary submission was that the respondents had failed to quantify the profits that the first respondent had lost and that there should be no award of damages on that account. Senior Counsel for the appellant explained that the figure of $259,354.39 was illustrative of deficiencies in the respondents’ proof of quantum. It was not ventured by the appellant as the damages that ought to have been awarded.⁶⁵

Respondents’ submissions: The respondents submitted that the adoption of 70 contracts at an average contract price of $25,000 had a sufficient evidentiary basis in the second respondent’s testimony. It was not impaired in cross-examination. Moreover, it was, as her Honour observed, supported by Exhibit 19.

According to Exhibit 19, one of the first respondent’s principal competitors, Rowlo Constructions, had received 73 of the Sunshine Coast storm repair contracts awarded by CGU. The second respondent had testified that the first respondent was one of CGU’s favourite and best equipped contractors for major repair contracts. There was, the respondents submitted, no reason not to think that the first respondent would not have received as many.

As well, Exhibit 19 provided some support for the average contract price estimate of $25,000. The 111 contracts (17 per cent), for more than $20,000 must have had an average price of $48,561.54. Were the first respondent to have received a substantial number of them and a substantial number of contracts in the upper end of the lower range, then an average contract price of the order of $25,000 would have resulted.

Discussion: I am unpersuaded that there was an insufficient evidentiary basis for a finding that loss of profits was proved at $598,675. In the first place, there was the first respondent’s evidence as to the number of contracts lost and an average contract price for them and there was Mr Ponsonby’s evidence as to the percentage rate for cost of sales. None of that evidence was discredited in the cross-examination.

I do not accept the appellant’s criticism that Exhibit 19 did not support the second respondent’s evidence. It did for the reasons given by the respondents in their submissions to which I have referred. Further, the appellant’s calculation adopts an unproved assumption that the average contract prices stated in Exhibit 19 are inclusive of GST and assumes that, notwithstanding the first respondent’s preferred contractor or status with CGU, it would have received an “across the board” average of lower priced contracts.

It is true that Exhibit 19 showed that 264 of the 658 contracts had been awarded to “Non Managed Suppliers”. It is possible that those suppliers were not CGU’s preferred suppliers and that they may have been awarded a substantial number of the 111 more valuable contracts. However, none of that was explored in cross-examination.

The telephone lease

Standard Condition 15.1 of the contract provided that, with the consent of the owner or service provider (but not otherwise), the Seller assigns to the Buyer and Buyer accepts at the date of completion, the benefit and burden of, inter alia, the agreements set out in Item N(b).⁶⁶ Item N was headed “Plant & Equipment”.⁶⁷ Item N(b) stated “Leased – refers to Schedule “B””. Relevantly, Schedule B listed “Telephone System”. This, it was accepted, was a reference to a finance lease agreement that the appellant had entered into with Telstra on 26 March 2013 (“the lease”).⁶⁸

The lease was of telecommunications equipment. It ran from 2 May 2013. A total rental payment of $391.40 was to be paid per month for the 48 months of the lease. Clause 4.4 of the lease permitted assignment of it with Telstra’s prior written consent. Such consent was not, it appears, obtained for an assignment of the lease by the appellant to the first respondent.

Standard Condition 15.3 of the contract stated:⁶⁹

“If any Service Agreement is not terminated by the date of Completion and if clause 15.1 does not apply, then:

the Buyer agrees to perform that Service Agreement on behalf of the Seller; and

the Buyer must indemnify the Seller against all liability arising from any such Service Agreement in respect of any act, matter or thing which occurs on or after the date of Completion.”

(By virtue of a provision in Standard Condition 15.1, the lease was a “Service Agreement”)

The learned primary judge recorded that the appellant, as plaintiff, claimed a total of $15,250.26 which it claimed it was entitled to be paid “by way of indemnity pursuant to Standard Condition 15.1”. This claim was disallowed because her Honour was not satisfied that the appellant had proved that it had made payments under the lease beyond the completion date. She noted that Mr Price had given evidence that, so far as he was aware, he was continuing to make payments under the lease.⁷⁰ However, no invoices, payment receipts or other documentary evidence of payment was tendered.⁷¹

Appellant’s submissions: The appellant submitted that Mr Price had given evidence that monthly payments had been made under the lease since the completion date. Her Honour’s finding as to his evidence was incorrect.⁷² The evidence was sufficient to establish a right to indemnity for the amount claimed under Standard Condition 15.3.⁷³

Respondents’ submissions: The respondents submitted that the learned trial judge had not misunderstood Mr Price’s evidence. He did not give compelling evidence that the amount claimed had been paid. There was no supporting documentary evidence. Given her Honour’s findings with respect to Mr Price’s credibility, it was appropriate for her to hold “such unconvincing and uncorroborated oral evidence insufficient to discharge the appellant’s evidentiary burden”.⁷⁴

Discussion: A perusal of Mr Price’s evidence-in-chief reveals that he was asked, first, whether he (meaning the appellant) had been making the monthly payments since the date of completion. His answer was “Yes, we have”. He was then asked whether he was continuing to make these payments now. He responded “As far as I’m aware they – yes, we do”.⁷⁵

The answer to the first question was evidence that the monthly payments had been made since the date of completion. However, the answer to the second question tended to undermine the reliability of the first answer. It was apt to suggest a degree of assumption on Mr Price’s part rather actual knowledge on his part that the payments were made.

In circumstances where the oral evidence of payment was less than convincing, an unfavourable finding with respect to Mr Price’s reliability had been made, and no corroborating documentary evidence of any payments was tendered, I am quite unpersuaded that her Honour was bound to find on the balance of probabilities that the payments had, in fact, been made. The appeal on this topic has not, in my view, been made out.

I note that the learned primary judge in her reasons did refer to Standard Conditions 14.⁷⁶ That Standard Condition related to telecommunication services. It was not relevant, in my view, to the appellant’s claim with respect to the lease. However, notwithstanding the reference to it, the operation of that condition was not integral to her Honour’s rejection of the claim.

Disposition

For the reasons given, I would allow the appeal and set aside Order 2(c). Orders 1 and 2 ought otherwise be affirmed. Since the appeal has been allowed in part, there may be consequences for the orders made in respect of the costs at first instance. I would invite the parties to make submissions in writing with respect of those costs and the costs of the appeal. I observe that notwithstanding the success of the appeal, I would be disinclined to vary the orders already made with respect to the costs of the third party proceeding.

Orders

I would propose the following orders:

Appeal allowed.

Vary the orders under appeal by deleting Order 2(c).

Orders 1 and 2 are otherwise affirmed.

The parties are to make submissions in writing with respect to the costs at first instance and of the appeal, not to exceed two pages, within seven days of the publication of these reasons.

MORRISON JA: I have read the reasons of Gotterson JA and agree with those reasons and the orders his Honour proposes.

McMURDO JA**:** I agree with Gotterson JA.

Footnotes

1. AB270-288. ↩

2. Special Condition 2.1. ↩

3. Standard Condition 3.2. ↩

4. Appellant’s Outline of Submissions, para 4. ↩

5. Reasons [37], [38]. ↩

6. Amended Defence to Third Further Amended Statement of Claim filed 29 September 2016, para 36: AB1340-1341. ↩

7. Further Amended Counterclaim, para 28: AB1338-1339. ↩

8. Ibid para 34(d): AB1339. ↩

9. Exhibit 15 p 50: AB410. ↩

10. AB1109. ↩

11. Sch 1, p 1: AB1105. ↩

12. Reasons [154]-[157]. ↩

13. AB1536–1537. ↩

14. AB1548–1551. ↩

15. [1998] HCA 42; (1998) 193 CLR 605 at [23].