La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 210 of 2010

BETWEEN: LA TROBE CAPITAL & MORTGAGE CORPORATION LIMITED (ACN 007 332 363)

AND: HAY PROPERTY CONSULTANTS PTY LTD (ACN 006 368 985)

JUDGES: FINKELSTEIN, JACOBSON AND BESANKO JJ DATE OF ORDER: 19 January 2011 WHERE MADE: MELBOURNE

1. The appeal be allowed.
2. The orders below made on 18 March 2010 be set aside and in lieu thereof it be ordered that: (1) There be judgment in favour of the appellant in the sum of $259,291.35. (2) The respondent pay the appellant's costs of the trial.
3. The respondent pay the appellant's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 210 of 2010

BETWEEN: LA TROBE CAPITAL & MORTGAGE CORPORATION LIMITED (ACN 007 332 363)

AND: HAY PROPERTY CONSULTANTS PTY LTD (ACN 006 368 985)

JUDGES: FINKELSTEIN, JACOBSON AND BESANKO JJ DATE: 19 January 2011 PLACE: MELBOURNE

Introduction 1 This appeal concerns the quantum of damages which a secured lender may recover where it lends money in reliance on a negligent valuation of a security. The principal issues raised are whether the lender can recover its opportunity cost and, if so, what it must prove to obtain recovery. 2 The facts are largely uncontroversial. The appellant, La Trobe Capital & Mortgage Corp Ltd (La Trobe), is the responsible entity of the La Trobe Australian Mortgage Fund (the Fund). The Fund is a managed investment scheme regulated by the Corporations Act 2001 (Cth). The principal activity of the Fund is to invest members' funds in interest-bearing investments. 3 In 2004, La Trobe received an application for a loan of $2.4 million from Jet Constructions Pty Ltd (Jet). Jet proffered real property as security. La Trobe engaged the respondent, Hay Property Consultants Pty Ltd (Hay), to value the property. Hay valued the property at $4 million (exclusive of GST), which was a substantial over-valuation. Hay accepts that, in making the valuation, it: (1) breached the terms of its retainer; (2) acted negligently; and (3) contravened s 52 of the Trade Practices Act 1974 (Cth) (TPA). 4 La Trobe lent the amount to Jet relying on Hay's valuation. The loan was secured by a first mortgage over the property. The term of the loan was one year, commencing on 17 August 2004. Interest was payable at 9.5% per annum (variable). 5 It was accepted at trial that if the property had been valued at less than $4 million, La Trobe would not have made the loan. It has not been suggested that, if it had been given a proper valuation, La Trobe would still have proceeded with the loan, but for a lesser amount. 6 Jet made various payments in discharge of its obligations to La Trobe. Initially, it paid $228,000 in "pre-paid interest". It paid $26,400 as a brokerage fee, $36,000 as a loan application fee, and $55 as a settlement disbursement fee (those amounts being deducted from the principal lent). Jet also made interest payments totalling $227,460. 7 When the time for repayment arrived, Jet defaulted. In consequence, La Trobe took possession of the property and sold it. The purchaser defaulted but La Trobe retained the deposit of $125,000. It again sold the property, this time for $2.2 million (plus GST). That sale was settled on 26 June 2007. 8 In its action against Hay, La Trobe claimed damages under several heads. First, it claimed a capital loss, being the difference between the $2.4 million loan and the net proceeds of sale of the property (taking into account the forfeited deposit). Interest on the lost capital was also sought. 9 Second, La Trobe claimed damages for "loss of income". The contention was that but for the valuation it would have lent $2.4 million to another borrower on similar terms. So, it was said, La Trobe was deprived of the chance to earn interest from this hypothetical transaction. The lost income is the difference between the interest that would have been received in the hypothetical transaction and the interest actually received from Jet. 10 At trial the judge found that La Trobe had suffered no loss. First, he said that La Trobe's loss on the loan should be assessed on an aggregated basis, incorporating both lost capital and lost income. Second, he found that La Trobe failed to prove it lost any income. In this connection La Trobe led evidence, over objection, that it would have entered into an alternative loan. The judge held that this evidence did not establish the loss claimed. It followed, so the judge said, that when assessed on an aggregated basis, La Trobe actually made a profit on the loan - the money received by La Trobe (the aggregate of the forfeited deposit, the proceeds from the sale of the property and interest) was more than La Trobe's capital outlay. 11 The appeal raises three questions: (1) Should damages for loss of capital and loss of income be assessed on a segregated or basis?; (2) Was the judge correct in admitting the evidence regarding the existence of alternative loan opportunities?; and (3) What is the correct approach for assessing whether La Trobe has suffered a loss from being deprived of an opportunity to make an alternative investment? 12 Before dealing with these questions something should be said about the basis on which the argument about damages has been conducted. In its pleadings, La Trobe sought identical damages in respect of its breach of contract, negligence and TPA claims. In his judgment, the judge only considered damages under the TPA cause of action. It has not been suggested that La Trobe's position would have improved if the judge had also dealt with its claims in contract or tort. I will proceed on the same basis, but with a word of caution. It is a risky business to assume that the assessment of damages in tort claims and contract claims will produce the same result. There are many examples where that will not be so. As it turns out this is not a case where it makes a difference.

Aggregation or Segregation? 13 La Trobe claims damages for a capital loss of $189,035, calculated as follows: Capital advanced $2,400,000.00 Less Net recovery from the sale of the property -$1,996,913.00 Reverse GST input credit -$9,052.00 Reverse for amount incorrectly deducted -$80,000.00 from net recovery of sale Forfeited deposit -$125,000.00 Total loss $189,035.00

14 La Trobe's loss of income claim is calculated (somewhat differently to the way La Trobe put it) as follows: Income from alternative loan Interest which would have been earned in the period from 17 August 2004 (date funds were advanced to Jet) to 26 June 2007, at rate of 9.5%. $652,143.24 Less Fee which Fund would have been obligated to pay to the manager of 1.25% -$2,458.54 Pre-paid interest and other interest payments - $455,460.00 Total loss $194,224.70

15 Mr Riordan SC, who with Mr Madder appears for Hay, argues that it is artificial for La Trobe to segregate its damages claims. He suggests that the artificiality is demonstrated by the following hypothetical: The claimant is negligently advised to invest $100 in a speculative share. The investment pays dividends in the first year of $150 but it then fails and the claimant does not recover the capital of $100. After the failure, the claimant has $150 and is in a better position than if he had invested his $100 capital in government bonds and recovered $5 in interest plus the return of the capital. 16 On the facts of this hypothetical, the difference between an aggregated and segregated approach lies in the manner in which the dividend is taken into account. Under the segregated approach, the dividend is set off against the income foregone on the bond, such that there is no lost income overall. But there remains a capital loss of $100. With the aggregated approach, the dividend is set off not only against the foregone bond income but also against the lost capital, with the result that there is no aggregate loss (in fact there is an aggregate gain of $45). 17 As a general proposition, the aggregated and segregated approaches might reach different results whenever the investment actually made by the plaintiff achieves either a capital return or income greater than what would have been received in the hypothetical alternative investment. The difference is important in this case. Hay disputes that La Trobe has suffered any loss of income as a result of entering into the loan - it says that La Trobe received more income from Jet's interest payments than it would have received from an alternative investment. If La Trobe has received more income from lending to Jet than it would have received from an alternative investment, then the question is whether that additional income can be set off against La Trobe's capital loss. 18 The judge assessed the claimed capital loss on a stand-alone basis. Nevertheless, in doing so he took Jet's prepaid interest into account, holding that, once the prepaid interest was taken into account, La Trobe had not shown any capital loss. Rather, it had made a small profit. He then considered separately La Trobe's claim for loss of income. 19 In setting off Jet's prepaid interest against La Trobe's capital loss, the judge relied upon I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109. A secured lender sued a valuer who had, in contravention of s 52 of the TPA, over-valued a mortgaged property. The trial judge found that the plaintiff had contributed to its loss by failing to take reasonable steps to assess the credit-worthiness of the borrower. The principal issue before the High Court was whether the liability of a defendant who contravenes s 52 is affected if the plaintiff did not take reasonable care to protect his/her own interests. The High Court affirmed the principle that, under the provisions then existing, liability may arise under the TPA even where the contravening conduct is not the sole cause of the plaintiff's loss: at [33] (per Gleeson CJ); [57] (per Gaudron, Gummow and Hayne JJ); [89] (per McHugh J); and [210] (per Callinan J). It is worth noting that the TPA has since been amended - now, by reason of s 82(1B), a failure to take reasonable care can be taken into account in assessing damages. 20 The High Court also considered a separate argument raised by the valuer that, at least in respect of lost interest, the cause of the lender's loss should have been regarded as the lender's failure to take steps to assess the borrower's credit-worthiness. The Court rejected this argument. Gleeson CJ (at [34]) and Gaudron, Gummow and Hayne JJ (at [64]) held that there is no reason to distinguish between principal and interest in considering the loss to the lender. McHugh J said (at [123]) that the lost interest, being the opportunity cost of lending in reliance on the flawed valuation, was as much a part of the lender's loss as the lost principal. 21 In my respectful view, the trial judge's approach is not supported by I & L Securities. In that case all the High Court found was that, for the purposes of causation, the lender's loss of income and loss of capital were both caused by the faulty valuation. It did not suggest an approach to the assessment of damage under which income received would be taken into account when assessing one head of damage (La Trobe's loss of capital), but income foregone would be separately assessed as another head of damage. At the very least, if losses are to be assessed on a segregated basis, there should be a comparison of like with like, setting off income received against income foregone. 22 The proper approach where a plaintiff is alleged to have received a benefit as a result of the defendant's act is to distinguish between two questions: (1) Should the benefit be taken into account at all in assessing damages?; and (2) If yes, how should the benefit be taken into account? 23 As regards whether the benefit should be taken into account, the starting point is to have regard to the compensatory goal of assessing damages - in a case like this, it is to put the plaintiff in the same position (or as close to the same position as a monetary award allows) as if there had been no breach of contract, no tort committed or no contravention of the TPA. In simplistic terms, this suggests that both losses and benefits accruing to the plaintiff as a result of the defendant's acts should be taken into account in assessing damages. 24 However, the aim of restoring the plaintiff to his/her position but for the defendant's act is not absolute. One important qualification is that not all benefits which allegedly result from the defendant's breach are necessarily taken into account in assessing damages. For example, in Lavarack v Woods of Colchester Ltd [1967] 1 QB 278, an employee had been wrongfully dismissed. The dismissal released the employee from his contractual obligation to not, without the employer's consent, become engaged or interested in any other concerns. This allowed him to work for, and acquire shares in, another company, Martindale Electrique SA. The value of those shares rose under the employee's good management. He also invested in, but did not work for, another company, Compagnie Francaise de Ventilation. That investment also proved to be profitable. The Court of Appeal held that the profit from Ventilation should not be taken into account in assessing damages. Although the employee was only at liberty to make the investment because of his wrongful termination, the Court of Appeal considered that the benefit was of a collateral nature not directly resulting from his dismissal: at 290 per Lord Denning MR and at 300 per Russell LJ. On the other hand, the profit from the Martindale investment was to be taken into account, the employee having been freed to enhance the value of his investment in Martindale through his efforts: at 291 per Lord Denning MR and at 300-301 per Russell LJ. 25 In other cases, difficult issues have sometimes arisen as to whether a particular benefit should be set off against damages, courts having regard to how directly the benefit can be said to have arisen out of the defendant's breach, or the plaintiff's acts in mitigation of that breach: Ruthol Pty Ltd v Tricon (Australia) Pty Ltd (2005) 12 BPR 23,923, [51]; see also McGregor on Damages (18th ed, 2009) [7-106]-[7-136]. 26 If a benefit is to be recognised, how should the benefit be taken into account? The answer to this question is more straightforward. As a matter of principle, there seems to be no basis for taking into account a benefit on a segregated basis; that is, setting off a benefit against losses of a similar character, but not against losses of a different character. If the broad aim is to restore the plaintiff to his/her position but for the defendant's breach, then it is artificial to ignore a benefit simply because it is of a different character to the loss pleaded by the plaintiff. In Lavarack, for example, the capital gain the employee made on his shares in Martindale and the income he gained from employment with that company were set off against his loss of income claim for wrongful dismissal. Likewise, in Erie County Natural Gas & Fuel Co Ltd v Carroll [1911] AC 105, the defendants had, in breach of contract, cut off the supply of gas to the plaintiffs. The plaintiffs then constructed gas works using a substitute source of gas and later sold the works at a profit. The Privy Council held (at 117) that the plaintiffs were only entitled to nominal damages, having secured substitute gas services at a price effectively below the contract price. Notably, the Privy Council did not segregate the capital gain from the plaintiffs' loss of supply claim. 27 The High Court's approach in I & L Securities indirectly supports an aggregated approach. In that case, capital and income losses were treated as indivisible from a causation perspective. As it happened, the lender had not received any income from the loan it had made but, presumably, any income would equally have been indivisible from a calculation of loss perspective. It would be a strange result if capital and income were treated as part of the same loss for the purposes of causation, but when assessing damages the losses (and any corresponding benefits) were segregated. 28 An aggregated approach to assessing damages does not suggest, of course, that in other legal contexts no distinction should be drawn between capital and income. For instance, courts regularly consider loss of income and loss of capital as separate heads of damage. However, this is largely done for convenience and does not mandate that the heads of damage must be quarantined from one another for all purposes. 29 In the instant case the benefit received by La Trobe (ie payments made by Jet under the loan) is a benefit that should be taken into account in assessing La Trobe's damages. That is, La Trobe's damages should be assessed on an aggregated basis so that all the benefits La Trobe received from the loan are to be set off against all its losses.

Loss of Income 30 La Trobe's loss of income claim is to be assessed by reference to what it would have received had it not lent money to Jet, rather than by reference to what La Trobe would have received if Jet had not defaulted: Swingcastle Ltd v Gibson [1991] 2 AC 223. La Trobe accepts this and has framed its claim accordingly. It says that it would have lent money ($2.4 million) to another commercial borrower on similar terms to the Jet loan: ie the foregone interest is effectively the same as the interest La Trobe would have received from Jet. 31 To put La Trobe's lost income claim in its proper perspective, it is necessary to provide some further background regarding the nature of La Trobe's investment activities. As the responsible entity of a managed investment scheme, La Trobe controlled a fund to which its members contributed. It offered its members several options for directing how their contributions should be invested. During the relevant period, there were three options on offer. 32 One option was to direct the money to be invested in "pooled mortgage" investments. This involved the member's contribution, along with the contributions of other members who had given a like direction, being invested collectively in a pool of assets. Those assets largely comprised mortgage-backed investments and a small portion of cash and cash-like investments. Pooled mortgage investors did not take an active role in managing the pooled mortgage investment portfolio. Distributions to pooled mortgage investors were made monthly on a proportional basis out of income from pooled investments. Some income was reserved for liquidity purposes to support future distributions to pooled mortgage investors. 33 Another option was the "select mortgage" option. This involved the member directing that his/her funds be invested in a particular mortgage-backed investment. Distributions to the member were paid out of interest paid by the borrower. Select mortgage members bore the risk of borrowers defaulting. Select mortgage members would regularly receive a "shopping list" of potential investment opportunities in select mortgages. Select mortgage members played a far more active role in managing their investments than pooled mortgage investors. 34 The final option was to invest in a cash management account (CMA), which invested in cash, term deposits, bank bills and mortgage-backed investments. This was the "default" option for members who had not directed that their contributions be made into either the pooled mortgage investments or select mortgage(s). Members could redeem contributions in the CMA on 24 hours notice. 35 At trial, La Trobe tendered a witness statement by one of its senior managers, Mr Gidman. In his witness statement, Mr Gidman explained the process typically followed when dealing with a new loan application, which was broadly as follows: (a) The application would be referred from a broker to a loan underwriter. The loan underwriter would then either reject the application or refer the application to Mr Gidman or one of his colleagues. (Mr Gidman sat near the team of underwriters and would regularly liaise with them.) (b) On referral, Mr Gidman (or a colleague) would make a preliminary assessment of whether the Fund might be interested in making the loan. This involved assessing the likely level of interest from select investors, and whether the loan would be suitable for investment from pooled mortgage or CMA funds. If there was a risk that the loan might not be sufficiently subscribed by select mortgage members and if the loan was unsuitable for investment by pooled mortgage or CMA funds, Mr Gidman would advise the loan underwriter that there was "insufficient investor interest". Otherwise, Mr Gidman would advise the loan underwriter that the Fund was interested in funding the loan. (c) If the Fund was interested, the borrower would submit a formal loan application. La Trobe would then undertake credit checks and other checks and obtain a formal valuation of the securities. Upon the necessary conditions being satisfied, Mr Gidman would provide final funding approval and a formal offer would be made and accepted. The loan would then be made. (d) Having made the loan, the Fund would then effectively "offer" the loan internally to investors. The loan might be offered to select mortgage members, advertised on the "shopping list", and/or become part of the pooled mortgage or CMA assets. 36 Mr Gidman also gave evidence regarding the Jet loan. He said that the loan had been made following the usual process. After the loan had been made, La Trobe "offered" the loan to select mortgage investors and the pooled mortgage class. Around half of the funds lent were allocated to select mortgage and pooled mortgage investors. Although there seems to have been some debate at trial about the legal consequences of this internal allocation process, this was not agitated on appeal. 37 The controversial aspect of Mr Gidman's evidence concerns what he said La Trobe would have done had it not lent $2.4 million to Jet. In his witness statement, Mr Gidman gave the following evidence (adopting the numbering of his witness statement): 77. In August 2004 [the time the Jet loan was made], the demand by potential borrowers for loans was greater than the money available in the Fund. I recall that, in the period 2002 to 2005, the number of loans rejected at the initial enquiry stage, due to insufficient interest of members, was between 1 and 5 per day. [redacted] based on my knowledge and experience of the type and number of applications for loans that the Fund was receiving, one or more loan applications totalling $2.4 million was rejected by La Trobe after the loan to Jet Constructions was made. 78. Had the loan to Jet Constructions not been made, the Fund would have had available to it the funds which were advanced to Jet Constructions (i.e. $2.4 million) to invest in a loan to another commercial property developer, which loan would have been secured by a mortgage over real property having a loan to value ratio of not more than 60% (i.e. valued at $4 million or more). 79. The $2.4 million lent to Jet Constructions would have been lent to another borrower or borrowers if it had not been lent to Jet Constructions. The demand for commercial loans of the type made to Jet Constructions as at July/August 2004 exceeded the funds held by the Fund available for such loans. 80. Since the inception of the Fund in 1999 there have been consistently more applications or inquiries for finance than there have been funds available. La Trobe does not keep statistics or details on rejected loan inquiries. I know this because I have been working at [the Fund manager] since 1992 and have been involved in all aspects of the management and investment of the Fund. 81. Loan inquiries and/or applications can be rejected for many reasons, including the nature of the borrowing, location or security type, but also because there are insufficient funds available to make the type of loan being sought. 38 In a further witness statement, Mr Gidman said he believed that the rate at which the monies lent to Jet would otherwise have been lent was between 9.5%-10% between August 2004 and June 2007. He based this evidence on records kept by La Trobe detailing standard interest rates applicable to different loans in the relevant period.

The admissibility of Mr Gidman's evidence 39 At trial, Mr Riordan objected to paragraphs 77 to 80 of Mr Gidman's witness statement and renewed this objection on appeal. The nub of the objection was that neither Mr Gidman nor any other La Trobe witness provided direct evidence of any particular investment foregone as a result of entering into the Jet loan. All that Mr Gidman did in the objected evidence, Mr Riordan submitted, was make a series of unsubstantiated, generalised assertions. 40 The formal grounds of objection were threefold. First, it was put that the evidence was inadmissible by reason of s 76 of the Evidence Act 1995 (Cth). The section provides that: "[e]vidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed". Mr Riordan characterises Mr Gidman's "assertions" as opinions. Second, it was argued that Mr Gidman's evidence was irrelevant (see s 56(2) of the Evidence Act), for the reason that opinions without substance are irrelevant. Third, it was put that the evidence should have been excluded under s 135 of the Evidence Act, because counsel was unable to cross-examine Mr Gidman about his opinions without knowing the evidence on which those opinions were based. 41 Mr Wyles SC, who with Ms Foley appeared for La Trobe at trial, contested each ground. It was said that Mr Gidman's evidence was relevant to its loss of income claim. It was denied that Hay's counsel suffered any forensic disadvantage on the basis that it was open to counsel to cross-examine Mr Gidman on the considerable material put forward by him and La Trobe. As to the opinion ground, Mr Wyles said that much of Mr Gidman's evidence was as to facts not opinions and, to the extent that it was opinion evidence, it was admissible by virtue of s 78 of the Evidence Act. That section provides that "the opinion rule does not apply to evidence of an opinion expressed by a person if: (a) the opinion is based on what the person saw, heard or otherwise perceived about a matter or event; and (b) evidence of the opinion is necessary to obtain an adequate account or understanding of the person's perception of the matter or event". 42 The judge admitted the evidence, ruling (transcript at 38) that: The first sentence at paragraph 77, in my view, is not an opinion. The second part of paragraph 77 and paragraphs 78, 79 and 80 contains opinion which is based on what the witness [perceived] about the matter, concerning the ability of the funds to make loans to other people. I'm satisfied that the evidence sought to be adduced is not unfairly prejudicial. The central issue appears to me to be the quality of the evidence, rather than its acceptance into evidence.

Was the evidence opinion evidence? 43 Mr Riordan emphasised the oft-cited definition of an opinion as "an inference from observed and communicable data". In the absence of any direct evidence regarding particular loan investments which were foregone, Mr Riordan argued that the impugned evidence was inference based on unarticulated factual observations. 44 It has often been observed that the distinction between evidence of fact and evidence of opinion is difficult to draw. The distinction is memorably described by Professor Wigmore as a "self-justifying dogma" which cannot survive close scrutiny: 7 Wigmore on Evidence (Chadbourn rev 1978) s1919 pp 14-15. One problem with the distinction is its artificiality; as the Australian Law Reform Commission (ALRC) has noted, there is really a continuum between fact and opinion, the former passing imperceptibly into the other at some point: ALRC, Evidence (Interim) Report, Report no 26 (1985), v 1, [738]. It might be said that the more concrete the evidence, in the sense that the more grounded the evidence is in a witness' direct observation or perception of an event, the more likely it is to be factual in nature. It is, however, always a question of degree. 45 In many ways, the essence of Mr Riordan's complaint is that Mr Gidman's evidence involves assertions which are not fully particularised. So, for example, it is said that Mr Gidman has drawn an inference by saying that, after making the loan to Jet, La Trobe rejected loans amounting to $2.4 million, without particularising any specific loans rejected. In some cases it may be that an unparticularised statement will be inferential in nature. Thus, a summary as to the effect of a conversation may well be an opinion, albeit admissible lay opinion: Connex Group Australia Pty Ltd v Butt [2004] NSWSC 379. In other cases, a recollection of an observation may be imperfect, but not be inferential. A traffic officer might testify that s/he has observed thousands of vehicles without recalling the precise number. This evidence is not inferential. For example, in Guide Dog Owners' & Friends' Association Inc v Guide Dog Association of New South Wales & ACT (1998) 154 ALR 527, the chief executive officer of a guide-dog association gave evidence regarding whether the terms "seeing eye" and "seeing eye dogs" had a particular association with another guide-dog organisation. He said that: "All persons with whom I have so dealt have used the terms 'seeing eye dog' and 'guide dog' interchangeably and have not used such terms to distinguish between any particular organisation or its method of training guide dogs". Objection was taken that this was opinion evidence because the witness did not give particular instances of the use of the expressions. Sackville J found (at 532) that the sentence was a statement of fact, not opinion. The sentence purported to record, in a "rolled-up form", the manner in which persons have used the terms "seeing eye dog" and "guide dog". 46 Where evidence is not fully particularised, the dividing line between what is opinion and what is fact is not always easy to draw and clearly depends on the extent to which the evidence goes beyond the witness' direct observations or perceptions. While a lack of particularity may affect the weight to be given to the evidence, it does not necessarily render it inadmissible as opinion evidence. 47 Portions of the impugned evidence are, in my view, clearly statements of fact rather than opinion. For example, Mr Gidman's recollection about the average number of loans being rejected on a daily basis (paragraph 77) and his recollection that La Trobe did not keep statistics or details of rejected loan enquiries (paragraph 80) are not inferences in any relevant sense. The final sentence in paragraph 77, that La Trobe had rejected one or more loan applications totalling $2.4 million, does not, when read in context, involve an inference. Mr Gidman is effectively saying that, although he could not recall rejections of specific loans, his general recollection was that one or more loans totalling $2.4 million were rejected at some point after the Jet loan was made. This seems to me to be no less of a direct observation than if Mr Gidman had been able to point to a particular loan being rejected. 48 I am of the same view regarding the several instances where Mr Gidman said (at paragraph 77) that demand for La Trobe loans exceeded the available funds. To say that this is an inference is the equivalent of saying that it is an inference that many is greater than few, or that a giant is taller than a toddler. A simple statement of relativity cannot sensibly be described as an inference in the relevant sense - it is a direct observation. Where the constituent facts forming the basis of the comparison are not particularised, this may go to the weight of the evidence of the comparison. But that is separate from whether the comparison is in the nature of an opinion. 49 My approach regarding relative statements is analogous to the approach taken by the Full Federal Court in Bank of Valletta PLC v National Crime Authority (1999) 90 FCR 565. In that case, the National Crime Authority (NCA) served a mandatory notice to attend and produce on a Maltese bank operating in Australia. The bank challenged the validity of the notice, one ground being that the NCA could have applied, under Maltese anti-money laundering laws, to Maltese authorities for assistance with investigations in relation to a "suspect". At trial a senior investigator at the NCA stated that "the information then available [to the NCA] did not identify any particular suspect person in relation to any offence [under the relevant Maltese law]". The Full Federal Court rejected the Bank's argument that this evidence was opinion evidence, observing (at [22]): "[I]t is a statement about a negative fact. The circumstance that the statement concerns that material does not make it an inference from observed and communicable data any more that it would be such an inference if a witness were to depose that a file did not contain any document printed on yellow paper". 50 It could equally be said that if a witness were to depose that a file mostly contained documents printed on yellow paper, this would not involve an inference. 51 Mr Gidman also made statements about what La Trobe would have done but for the loan. He said (in paragraphs 78 and 79) that if the money had not been lent to Jet it would have been lent to another commercial property developer on similar terms to the Jet loan. This implicitly involves (at least) two broad propositions: (1) that La Trobe had an opportunity (or opportunities) to make a loan (or loans) on similar terms to the Jet loan; and (2) that La Trobe would have taken one of those opportunities, had it not lent money to Jet. 52 As regards the first proposition, it is difficult to see how Mr Gidman's statement can be characterised as an inference. It is, in my view, simply an unparticularised statement of fact. 53 The second proposition is more complicated. There is a line of Australian authority which suggests that evidence as to what a person would have done in a hypothetical circumstance is not an opinion for the purposes of s 76 of the Evidence Act. In Allstate Life Insurance Co v ANZ Banking Group Ltd (No 5) (1996) 64 FCR 73, an employee of a funds manager gave evidence that, had a debenture issuer made full disclosure about its activities, he would not have recommended that the managed fund invest in the debentures. Lindgren J held (at 75) that the evidence was not an opinion under s 76, the evidence purporting to be "'direct' evidence from the person uniquely placed to give it, of what that person would have done in a hypothetical situation". Lindgren J (at 76) rejected a submission that the employee could have put on evidence about what his usual practice was in assessing an investment prospect, but should have stopped short of saying what he would have done if there had been disclosure. To do so, Lindgren J observed (at 76), would be contrary to the "most reliable evidence" objective of the opinion rule. 54 Allstate has been followed in later cases. In Hughes Aircraft Systems International v Airservices Australia (1997) 80 FCR 276, an aviation authority had, in conducting a tender process, breached its contract with the plaintiff tenderer. The plaintiff sought damages for loss of a chance of being awarded the contract. The authority attempted to lead evidence from its board members about how they would have acted, but for the breaches. Following Allstate, Finn J held (at 280) that the evidence was not opinion evidence (although the evidence was rejected on other grounds). 55 Allstate was also followed by the New South Wales Court of Appeal in Seltsam Pty Ltd v McNeill [2006] NSWCA 158, [122]. The Court noted (at [121]) that while the evidence of what a person hypothetically would have done may be affected by hindsight, and the weight given to it reduced accordingly, it nonetheless remained "the only direct evidence available of the state of the person's mind". 56 An issue that arises here is whether the Allstate approach applies where the person is giving evidence not about how they personally would have acted in a hypothetical situation but, rather, how someone else would have acted. In both Allstate and Seltsam the evidence related to how the witness personally would have acted hypothetically; here, Mr Gidman's evidence is about how La Trobe would have acted. 57 In Hughes, the central issue was how the aviation authority would have acted, and the evidence given by board members as to how they personally would have acted was only relevant to show how the authority might have acted. The situation here is, in some respects, not dissimilar to Hughes. What must be borne in mind is that, as a corporate entity, La Trobe's state of mind is discernable through its board and employees. Mr Gidman is a senior manager responsible for, and with an intimate knowledge of, La Trobe's investment practices. His evidence is likely to be, to use the terminology of Lindgren J in Allstate, the "most reliable evidence" of what Latrobe, as a corporation, would have done had it not lent money to Jet. 58 For the reasons I have expressed, the impugned passages are not opinions for the purposes of s 76 of the Evidence Act. It is, therefore, unnecessary to consider whether the passages would nonetheless be admissible in accordance with s 78.

Was the evidence irrelevant? 59 In my view, Mr Gidman's evidence was plainly relevant to La Trobe's claim for lost income, relating as it does to the opportunities that existed for making alternative loans and the lack of funds otherwise available to make those loans. It may be accepted that some of the evidence can be described as incomplete. For example, the final sentence in paragraph 77 states that La Trobe rejected loan application(s) totalling $2.4 million after lending to Jet. Mr Gidman did not go on to say why the loans were rejected. This does not make the sentence irrelevant. That La Trobe rejected loans is relevant. The reason for rejecting the loans is also relevant, and may or may not be found elsewhere in Mr Gidman's evidence. 60 A more fundamental challenge to the evidence is that the evidence is too abstract in nature (ie lacking particularity) to be relevant. I simply do not accept the allegation. The evidence is not at all "abstract". Almost all of it is factual, even if it is not fully particularised.

Should the evidence have been excluded under s 135? 61 Section 135 relevantly provides that a court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party. At trial Mr Riordan said that because Mr Gidman's evidence was unsubstantiated, (1) the evidence was of limited probative value and (2) Hay was prejudiced because Mr Riordan was unable to effectively cross-examine Mr Gidman, not knowing the factual bases for his evidence. It would be unfair, Mr Riordan argued, to be forced to "blindly" cross-examine Mr Gidman, at the risk of prompting Mr Gidman to elaborate on his evidence and make out La Trobe's case. 62 The judge rejected this submission, holding that none of Mr Gidman's evidence would prejudice Hay. An appeal court may only interfere with a judge's discretionary decision consistently with the principles in House v R (1936) 55 CLR 499; see also Collaroy Services Beach Club Ltd v Haywood [2007] NSWCA 21, [49]. In my view, there has not been any error demonstrated in the judge's exercise of his discretion that would justify overturning his decision. To the contrary, if I were to consider the matter afresh, I would admit the evidence. Too much, in my view, is nowadays made of the need to have at hand every piece of information imaginable to enable effective cross-examination to take place. Perhaps there are a handful of cases where the discretion to refuse evidence should be exercised. But that can hardly be so here where the evidence is straightforward and could easily be challenged if untrue. 63 It must also be remembered that to exclude evidence under s 135, there must be compelling circumstances for the exclusion. The discretion should only be exercised where the prejudice substantially outweighs the probative value of the evidence, for only then will the admission of the evidence cause "unfair prejudice". 64 It is true that the meaning of the term "unfair prejudice" has been somewhat contentious. The ALRC explained the risk of unfair prejudice as being the danger that the evidence might be used in an improper, perhaps emotional, way: ALRC, Evidence (Interim) Report, Report no 26 (1985), v 1, [644]. Clearly, a risk of that kind is much greater in the context of jury trials. However, there are also numerous authorities that suggest that an unfair prejudice may arise from procedural considerations: see Odgers, Uniform Evidence Law (9th ed, 2010) [1.3.14560]. 65 Mr Riordan refers to two authorities in support of his submission. The first is the Guide Dogs case. The applicant, a guide dog organisation, argued that the terms "seeing eye dog" and "guide dog" were particularly associated with the applicant. It claimed that the respondent, another guide dog association, had committed the tort of passing off and had contravened s 52 of the TPA by using the term "seeing eye dog" in relation to its services. The Chief Executive Officer of the defendant gave evidence the following evidence: 19. Since I became chief executive officer of the Association, I have had extensive dealings with members of the public and the media in New South Wales and the ACT in relation to guide dogs. I have travelled to all States of Australia except Western Australia and the Northern Territory to represent the Association on [sic], and have had dealings with members of organisations interested in providing assistance to blind and vision impaired persons. All persons with whom I have so dealt have used the terms "seeing eye dog" and "guide dog" interchangeably and have not used such terms to distinguish between any particular organisation or its method of training guide dogs. 20. Often acquaintances of mine, who know that I am the chief executive officer of the Association, will, in general conversation, ask me a question in words to the effect: "How are the seeing eye dogs?" or "How are the guide dogs?" or "How are the blind dogs?". The term "guide dogs", "seeing eye dogs" and "blind dogs" are used about equally by persons speaking to me in these conversations. Recently, in a discussion with friends at my golf club, one of my friends was complaining about his family dog and another said words to the effect: "You should give it to Joe, he will turn it into a seeing eye dog." Objection was made to the final sentence of paragraph 19 and all of paragraph 20. 66 Sackville J determined (at 532) that the final sentence of paragraph 19 should be excluded under s 135, but that paragraph 20 should not be excluded. In respect of the final sentence of paragraph 19, Sackville J said (at 531-2) that the evidence was of limited weight, the witness having made no attempt to recount the nature and context of the conversations. Without having that context, the plaintiff did not have a full and fair opportunity to test the opinion in cross-examination, particularly given that the opinion went to the most critical issue to be resolved. On the other hand, he said (at 532-3) that the evidence in paragraph 20 gave sufficient substance of particular conversations (even though some were not precisely identified) and did not purport to characterise their effect in terms of the issues in the case. 67 A number of observations can be made about the Guide Dogs decision. The first is that the decision to exclude the last sentence of paragraph 19 was based on Sackville J concluding that it concerned opinions about the effect of conversations. The requirements for giving evidence about the effect of conversations are more stringent than for most other forms of evidence. Professor Wigmore explained that when a witness testifies about an ordinary act or occurrence, there is no requirement, for admissibility purposes, that the whole of the deed or occurrence be offered or taken together. On the other hand, where the evidence reproduces a conversation, it is necessary for at least the substance of the conversation to be reproduced so as to allow it to be properly interpreted in context: 7 Wigmore on Evidence (Chadbourn rev 1978) Ch 73. The second observation is that Sackville J admitted the evidence in paragraph 20, notwithstanding that full particulars were not provided about most of the conversations. So long as the substance of the conversations was apparent, there was no unfair prejudice to the applicant in not knowing the precise particulars of the conversations, such as where and when they took place. 68 The second case upon which Mr Riordan relied was another decision of Sackville J, Seven Network Ltd v News Ltd (No 8) (2005) 224 ALR 317. An employee of the applicant, Seven Network, gave contentious evidence about his assessment that Seven had a number of strategic advantages in adapting to developments in the emerging pay TV market. The employee's opinions about those advantages were high-level and abstract in nature. The respondents accepted that the evidence was admissible to the extent that it showed that the witness held the expressed opinions. However, the respondents argued that the evidence should be excluded if used to prove the truth of the belief or the facts relied upon in forming that belief. This was because the evidence was effectively expert evidence tendered without complying with the requirements governing the admissibility of expert evidence, as to which see Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705. Sackville J accepted the respondents' argument. He noted (at [22]-[24]) that the witness' opinions concerned highly complex and contentious issues, without divulging any basis for those opinions. Given the very large volume of documents in the case, he said it would be difficult to test in cross-examination any further evidence ascertained about the basis of the opinions. 69 In my view, the cases upon which Mr Riordan relied are far removed from the present case. It is important that Mr Gidman's evidence be read as a whole and in context. He testified as to various matters regarding the opportunities for La Trobe to invest in alternative mortgage-backed loans at the time it lent money to Jet, the terms on which such loans might have been made, and the fact that opportunities were foregone as a result of lending to Jet. The evidence has clear limitations, which both Mr Gidman and counsel for La Trobe frankly conceded. Some of the evidence could not be substantiated through documents, particularly in relation to loan rejections. Some of the evidence was not as specific as it might have been, such as when Mr Gidman could not recall particular instances of loans that were rejected. 70 But there is nothing particularly unusual about Mr Gidman's evidence. It is no different to any other evidence commonly given in the absence of documentary evidence and without perfect recollection. Counsel for Hay could have responded in a variety of ways. For example, he might have challenged the credibility of Mr Gidman in cross-examination, if such a course were warranted. He might have asked questions of Mr Gidman about ambiguities in his evidence or about any inconsistencies between his evidence and other available evidence. Alternatively counsel could have chosen not to cross-examine Mr Gidman at all, and submit that La Trobe had not discharged its onus of proof. Indeed, this is, in effect, what happened at trial, with only limited questions being asked to confirm that Mr Gidman could not recall specific loan applications that had been rejected. 71 Where a litigant faces evidence from his/her opponent that is in some respects ambiguous or unsubstantiated, counsel has a strategic choice to make about how to deal with the shortcomings. Counsel may choose to explore and seek to expose those shortcomings in cross-examination, at the risk of allowing the witness to remedy the position through further evidence. Alternatively, counsel may choose to leave the evidence as is. To be faced with a strategic decision is not to be burdened with a forensic disadvantage. The possibility of helping an opponent make out his/her case is one of the risks of cross-examination. 72 I appreciate there may be some cases where the witness, having given the barest of evidence in chief, has the potential to "ambush" an opponent with new, unanticipated evidence under cross-examination and for which there is no reasonable opportunity to test. In Seven Network (No 8), for example, given the volume of documents and the complexity of the issues involved, there was clearly a risk of ambush. Similarly, in Guide Dogs there was such a risk where the witness made a bald statement regarding the effect of numerous conversations without providing any context to those conversations (although it is noteworthy that further evidence was allowed where relatively limited substance was given about the conversations). 73 This case did not present the risk of ambush. Mr Gidman gave detailed evidence supported, where possible, by lengthy documentation attached to his witness statement. It was clear that, in some respects, Mr Gidman simply could not give more specific evidence and, to that extent, there was nothing unexpected that was likely to arise in cross-examination. The issues about which Mr Gidman gave evidence were well understood and, where further clarification might have been given, it would hardly have come as a surprise to counsel. For example, it is true, as Mr Riordan pointed out, that Mr Gidman did not directly explain how, on the one hand, La Trobe had foregone loan opportunities due to lending money to Jet while, on the other, La Trobe's financial statements recorded substantial cash at hand. One possibility, which is clearly averted to by Mr Gidman in his witness statement, is that the cash was required to be held for liquidity purposes. This, perhaps, was not spelt out by Mr Gidman as well as it could have been, but that is not to suggest that counsel suffered a forensic disadvantage. Similarly, it is true that Mr Gidman did not directly state that, after lending to Jet, La Trobe rejected loan applications due to lack of funding. Mr Gidman did say, however, that (1) loans had been rejected and (2) loan applications can be rejected due to insufficient funds. Again, if counsel had cross-examined about this, it would hardly have come as a surprise if Mr Gidman had clarified his position unfavourably for Hay's case.

Did La Trobe establish that it had lost income? 74 The judge held that La Trobe failed to prove that it had suffered a loss of income as a result of lending to Jet. He said (at [37]): I am not satisfied that La Trobe has proved, on a balance of probabilities, that there was a particular loan or loans that were not entered into by reason of La Trobe entering into a loan agreement with Jet. Mr Gidman's evidence is vague and imprecise and an insufficient foundation for this aspect of La Trobe's case. As counsel for Hay submits, there is no evidence that there ever existed a particular loan application which was acceptable on all terms to La Trobe, but which La Trobe did not accept due to insufficient funds by reason of the Jet loan. 75 La Trobe complains about the judge's approach on the basis that it ignores the nature of its claim as being a loss of a chance claim. If the true character of its claim had been appreciated, the standard of proof which was required, so La Trobe says, was less than the standard applied by the judge. And, according to the appropriate standard, La Trobe says it had made out its case. 76 The starting point is to characterise the true nature of La Trobe's claim. It is obvious that it is a claim sounding in damages. The claimed damages are those resulting from the loss of the use of money that was lent to Jet which, but for Hay's negligent valuation, would have been employed in a profitable loan. The "profit" is the interest La Trobe would have charged the hypothetical borrower. 77 Dealing with the loss of use of money, for some time it was not clear whether this was a recoverable head of loss at common law. There was a line of cases to the effect that loss suffered by the non-payment of damages could not be recovered except as interest pursuant to statute: see eg President of India v Lips Maritime Corp [1988] AC 395, 424-5. On the other hand, the House of Lords stated (at 410-11) that loss caused by the non-payment of a debt due by contract could be recovered, but only if the loss fell within the second limb of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145. 78 The question whether at common law a court could, in addition to awarding damages for breach of contract or tort, include in its award damages by way of interest for the loss of use of money was considered by the High Court in Hungerfords v Walker (1988) 171 CLR 125. In that case, due to an error by the plaintiff's accountants, there was an overpayment of income tax to the Commonwealth. The plaintiff established that some of the overpaid amounts would have been employed to pay off loans which had been taken out to fund a profitable business. The plaintiff sued to recover, by way of damages, an amount equal to the interest he would have avoided paying had he not paid the money to the Commonwealth. 79 The High Court held that the opportunity cost of money being paid away as a result of breach of contract or negligence was compensable. In their joint judgment Mason CJ and Wilson J said (at 143) that a plaintiff was entitled to full compensation for the loss caused by the defendant's wrong, subject to rules of remoteness and mitigation. They went on to say (also at 143) that: Judged from a commercial viewpoint, the plaintiff sustains an economic loss if his damages are not paid promptly, just as he sustained such a loss when his debt is not paid on the due date. The loss may arise in the form of the investment cost of being deprived of money which could have been invested at interest or used to reduce an existing indebtedness. Or the loss may arise in the form of the borrowing cost, ie, interest payable on borrowed money or interest foregone because an existing investment is realized or reduced. Later (at 146) Mason CJ and Wilson J said that "opportunity cost should not be considered to be too remote when money is paid away or withheld". 80 Brennan and Deane JJ (at 152) put the matter succinctly: [T]here is no acceptable reason why the ordinary principles governing the recovery of common law damages should not, in an appropriate case, apply to entitle a plaintiff to an actual award of damages as compensation for a wrongfully and reasonably and foreseeably caused loss of the use of money. To the extent that the reported cases support the proposition that damages cannot be awarded as compensation for the loss of the use of a specific sum of money which the wrongful act of a defendant has caused to be paid away or withheld, they are contrary to principle and commercial reality and should not be followed. 81 What remains controversial, and what was in controversy in this case, is what a plaintiff must prove to show s/he has suffered an opportunity cost. To unravel the controversy it is necessary to consider separately questions of causation and quantification. According to orthodox principle, a tortfeasor or contract breaker is liable for the injury that is caused by his/her wrongful conduct. The question whether a wrongful act caused a particular loss is to be determined on the balance of probabilities. As Lord Reid put it in Davies v Taylor [1974] AC 207, 212-13: "When the question is … whether a certain event did or did not happen … the court must decide one way or the other. There is no question of chance or probability. Either it did or it did not happen … If the evidence shows a balance in favour of it having happened then it is proved that it did in fact happen". 82 On the other hand, in the assessment of damages the court is often required to determine what will happen in the future or what could have happened but for the defendant's wrongful conduct. In that event, the court estimates the likelihood of the thing happening. The degree of likelihood must then be reflected in the award. 83 What is it, then, that La Trobe must prove on the balance of probabilities and what is simply a matter of estimation? La Trobe accepts that it must prove, on the balance of probabilities, that Hay provided a negligent valuation. As things turned out, negligence was admitted. It also accepts it must prove on the same standard that it suffered some loss as a result of that negligence. As to the quantification of that loss, the opportunity cost (ie the chance it lost by reason of the wrong to make a profitable substitute loan) must simply be assessed. 84 The best known case involving the loss of a chance to make a gain is Chaplin v Hicks [1911] 2 KB 786. The claimant entered into a beauty contest organised by the defendant. Fifty entrants were to be selected for interview and from those 12 to be offered a theatrical engagement. The claimant was selected as one of the 50 but, through the defendant's breach of contract, was not told in time. The Court of Appeal held that she was entitled to damages for the lost chance of winning an engagement. This chance was, said Fletcher Moulton LJ (at 795) "[t]he very object and scope of the contract". The damages were assessed proportionately with what the chances of gain were thought to be. 85 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 is another important case. The directors of Adelaide Petroleum entered into parallel negotiations with two companies, Poseidon Ltd and Pagini Resources NL, to acquire the directors' shareholding in Adelaide Petroleum as part of a restructure. Sellars signed an agreement to that effect on behalf of Poseidon. Later Poseidon claimed that Sellars did not have its authority to make the agreement. Accordingly, Adelaide Petroleum entered into a less favourable agreement with Pagini and sued for the lost opportunity to make a better arrangement with Poseidon. The question in issue was whether, to make out its claim for damages under s 82 of the TPA for a contravention of s 52, it was necessary for Adelaide Petroleum to prove on the balance of probabilities that a benefit would have been obtained from the opportunity to continue its negotiations with Pagini and, if so, the extent of that benefit. The alternative view was that it was only necessary for Sellars to establish the elements of the cause of action on the balance of probabilities. 86 The High Court acknowledged (at 335) that a distinction is required to be drawn between, on the one hand, proof of causation and proof of loss and, on the other, proof of the value of the damage for which recovery is sought. As to causation and the incurring of loss, that was to be determined on the balance of probabilities. But, when it comes to the assessment of damages, which involve consideration of future possibilities as well as past hypothetical facts, that only needs to be assessed according to "the degree of probability that an event would have occurred, or might occur" with the award of damages to be adjusted to reflect the degree of probability: at 350, citing Malec v J C Hutton Pty Ltd (1990) 169 CLR 638, 643. 87 Brennan J put the proposition succinctly (at 368): Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point where there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. A constant standard of proof applies to the finding that a loss has been suffered and to the finding that that loss was caused by the defendant's conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses. In any event, the standard is proof on the balance of probabilities. Although the issue of a loss caused by the defendant's conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation. 88 Applying those principles, La Trobe established (by admission) that Hay has committed an actionable wrong. 89 The assertion that had money not been lent to Jet, La Trobe would have entered into another loan on the same terms as the Jet loan is a hypothetical. Although it is a hypothetical the cases say that a plaintiff must establish on the balance of probabilities that s/he would have taken action to obtain the lost benefit: Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, 1610. There is, to my mind, no doubt that Mr Gidman's evidence established the relevant hypothesis. 90 Having reached the point that a loss is established, its value must be estimated. That must be done no matter how difficult the task, even if some guesswork is involved: JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237, 241; Waribay Pty Ltd v Minter Ellison [1991] 2 VR 391, 398. What is required is to estimate the chance of La Trobe finding a substitute borrower willing to borrow on the same terms, whether or not the chance of this happening is more or less than even: Mallett v McMonagle [1970] AC 166, 176.

What went wrong at trial? 91 Mr Gidman's evidence was tendered to show what the value of the loss was. That evidence has been referred to. But it was the answers that Mr Gidman gave in cross-examination that were the foundation upon which the judge found against La Trobe's loss of use claim. It is best to set out this evidence. 92 Mr Gidman was asked whether he could remember any particular loan which La Trobe had rejected because it had not had available to it the money advanced to Jet. It is instructive to set out the questions asked of Mr Gidman (transcript at 41): Counsel: It's fair to say, isn't it, that you can remember no such loans which were rejected, and would have been accepted but for the Jet Corporation loan? Gidman: I can remember cases of loans not being accepted but exact loans, no. Counsel: You mean not accepted for any reason or because of the Jet Corp loan? Gidman: For a number of reasons, including because of Jet. Counsel: Can you remember the details of any loan application during that period which was rejected? Gidman: I can remember certain parts of loans but not the exact details of each loan, no. Counsel: Okay. I'll put it to you that you can remember no part of a loan which you can say was rejected because of the fact that the Jet loan corporation advance had been made? Gidman: To be able to identify a particular loan, no, but I do know that loans - Counsel: No, no. Just from your own knowledge, you've got no recollection of a particular loan? Gidman: The full details of a particular loan, no. Counsel: Any details of a particular loan that falls into that category? Gidman: No. 93 In reaching the conclusion that La Trobe had not proved its claim, the judge placed much reliance on St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245. The facts of that case are remarkably similar to this case. St George Bank claimed damages (lost capital and foregone interest) resulting from an overvaluation of an apartment that was given as security for a loan. The valuation was established to be negligently carried out. The Bank alleged that it would not have entered into the loan but for the negligent valuation. A County Court judge rejected the claim. The Court of Appeal upheld that finding. It seems that the bank did not lead evidence of what it would have done had it not lent any money on the negligent valuation. Counsel for the bank submitted that it was obvious the bank was in the business of lending money and the judge should have assumed that the bank would have entered into a profitable transaction on comparable terms. 94 Nettle JA, with whom the other members of the Court of Appeal agreed, said (at [25]): [T]he incurrence of such losses [as claimed by the bank] must be proved. It is not enough for a party like the Bank simply to assert that, because it is in the business of lending money, it must follow that it has suffered a loss equal to the return on funds which it might have achieved if it had entered into a successful transaction at the same rate of return as the failed transaction. At best, the opportunity foregone represents a loss of a chance to invest in a more successful transaction and, depending on the facts of a case, the value of the loss may have to be discounted significantly to allow for the vicissitudes of chance. In this passage Nettle JA is dealing with two issues: (1) proof of a head of loss; and (2) the value of that loss. This is made clear when one reads what Nettle JA said two paragraphs later (at [27]): Generally speaking, the value of the chance foregone by a lending institution as the result of entering into an improvident transaction (and thereby foregoing the opportunity of entering into a more beneficial transaction) is the net rate of return or spread which would have been generated upon the alternative transaction after bringing to account the cost of funds and other expenses which would have been incurred in connection with the alternative transaction. In the absence of evidence, there is little reason to suppose that the cost of funds and expenses for one transaction is the same as for another. Moreover, in order to provide a truly accurate reflex of the damage actually incurred as a result of not entering into a more satisfactory transaction at an identified rate of return, the spread should ordinarily be discounted to allow for possibilities such as that the funds invested in the improvident transaction could not have been placed in another more acceptable transaction; and the risk that, even if so placed, the other borrower might still have defaulted. He went on (at [28]): Maybe, in some cases, the evidence will be such as to permit of a broad brush technique of approximation … Usually, however, it is only by going through the steps that one can come to an accurate assessment of the value of the opportunity foregone. Otherwise … it is impossible to do more than speculate about the approximate proportionate chance of the Bank placing the money in a more satisfactory transaction and one can do no more than speculate about how advantageous to the Bank any such alternative transaction would have been. 95 One must be very careful with Nettle JA's approach. On one reading he seems to be applying the same standard of proof to the issue of causation and the assessment of loss. That, of course, is an impermissible approach. Even if Nettle JA was deciding the case on the basis that assessing the value of the lost chance did not involve any particular burden and only required an estimation of the chance involved, he seems not to have applied what I regard as the correct approach, which is to assess the damages, no matter how difficult the task and no matter that the task involves speculation. I say nothing about his complaint that the bank failed to show that it would have made a substitute loan (ie that the bank had suffered a loss). That was required to be proved on the civil standard. That the inference which counsel said should be made was not accepted is a matter about which judges may well differ. 96 Be that as it may, that Mr Gidman could not identify any particular borrower who would take the substitute loan is beside the point. What is important is that, according to his unchallenged evidence, there was a chance that La Trobe could have lent the money to another borrower on the same terms and at the same rate as it had been lent to Jet. Not only was there a chance of that happening, but Mr Gidman's evidence shows that it was likely that another loan would be made: there were more potential borrowers than money available and La Trobe could not satisfy the demand of potential borrowers.

Calculating the value of the lost opportunity 97 It is convenient to calculate the value mathematically. This is not to suggest that the assessment of damages in this kind of case can be precise; rather the aim is to provide an analytical framework for the assessment. 98 It is helpful to begin with some definitions: Let "LO" be the lost opportunity Let "P" be the probability of realising the opportunity Let "V" be the value of the opportunity LO = P × V 99 The next step is to calculate V: V = M × (1 - C) where M = the maximum value of the opportunity and C = the value of any contingencies M = net income from a substitute loan M = interest that would have been earned on a substitute loan less the 1.25% management fee M = $652,143.24 × 0.9875 M = $643,991.45 C = the risk of default. According to La Trobe's product disclosure statements the value of loans in arrears as a percentage of total loans is between 1.07-1.27% for the 2002-03 and 2003-04 financial years. Some arrears may have been rectified and some may not. Of those that are not, in most cases La Trobe would recover all its capital and outstanding interest payments and would, consequently, suffer little or no loss. Accordingly the risk of loss on default is de minimis and C= 0% Therefore, V = $643,991.45 100 The next step is to calculate P: Based on Mr Gidman's evidence it is a near-certainty that La Trobe would have lent $2,400,000 to one or more borrowers on the same terms as it lent to Jet. I will allow 5% for the possibility that an alternative loan may not have been entered into. Therefore, P = 95% 101 The final step is to calculate LO: LO = P × V LO = 0.95 × $643,991.45 Therefore, LO = $611,791.88 102 This shows that La Trobe lost an opportunity worth $611,791.88.

Calculating La Trobe's net loss 103 La Trobe sustained a capital loss of $189,035 as well as an opportunity loss of $611,791.88, which gives a gross loss of $800,826.88. The gains which La Trobe made from its loan to Jet must be offset against its gross losses (whether they are capital or income losses). 104 La Trobe received $455,460 of income from Jet out of which it had to pay a 1.25% management fee. This left a net gain of $449,766.75. Therefore, La Trobe's net loss = $800,826.88 - $449,766.75 = $351,060.13.

Result 105 I would allow the appeal with costs and substitute for the judge's orders: (1) Judgment in favour of the appellant in the sum of $351,060.13; and (2) the respondent pay the appellant's costs of the trial. I would also order the respondent to pay the appellant's costs of the appeal. I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 19 January 2011 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 210 of 2010

BETWEEN: LA TROBE CAPITAL & MORTGAGE CORPORATION LIMITED (ACN 007 332 363)

AND: HAY PROPERTY CONSULTANTS PTY LTD (ACN 006 368 985)

JUDGES: FINKELSTEIN, JACOBSON & BESANKO JJ DATE: 19 January 2011 PLACE: MELBOURNE

REASONS FOR JUDGMENT JACOBSON AND BESANKO JJ 106 We have had the advantage of reading the reasons for judgment of Finkelstein J. We respectfully agree with what his Honour has said about the admissibility of Mr Gidman's evidence. The primary judge did not err in admitting that evidence and the respondent's notice of contention must be rejected. 107 In our respectful opinion, the primary judge erred in concluding that the applicant had not established loss for the purposes of s 82 of the Trade Practices Act 1974 (Cth) ('Trade Practices Act'). 108 The decision of the High Court in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 ('Sellars') sets out the principles to be applied to the point in issue. That case, like this case, involved a claim under s 82 of the Trade Practices Act. The loss claimed in that case was a commercial opportunity to enter into an alternative and more favourable transaction. The trial judge had found that it was more probable than not that, but for the contravening conduct, the applicant would have entered into the alternative transaction. However, he discounted the damages to 40 per cent because he considered that although there was more than a speculative possibility that the agreement would have been completed, it was more probable than not that the agreement would not have proceeded. He awarded the applicant 40 per cent of the benefits which would have flowed from the alternative transaction. The trial judge's approach was upheld by the Full Court of this Court and then by the High Court. 109 The plurality (Mason CJ, Dawson, Toohey and Gaudron JJ) examined the approach to the determination of damages where a claim is made for a loss of commercial opportunity following a breach of contract, or the commission of a tort or the contravention of s 52(1) of the Trade Practices Act and a claim under s 82 of that Act. 110 Their Honours said that the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue of whether the applicant has sustained loss or damage. It follows that the applicant must prove on the balance of probabilities that he or she has suffered some loss or damage. In a case such as Sellars, an applicant established that some loss or damage was sustained 'by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value)'. The value of the lost opportunity was then to be determined 'by reference to the degrees of probabilities or possibilities' (at 355). 111 Brennan J wrote separate reasons for judgment. On the point presently under consideration we do not think that his Honour's approach differed in any material respect from that of the plurality. His Honour said (at 368): Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point where there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. Although the issue of a loss caused by the defendant's conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation. (Citations omitted.) 112 It seems to us that the question is whether an applicant has established on the balance of probabilities that there was another commercial opportunity of some value or there were other commercial opportunities of some value. An applicant who is able to establish a particular opportunity which has been lost as a result of contravening conduct will no doubt have an easier path to establishing what is necessary for the purposes of recovery. At the same time, an applicant in a case such as this who can do no more than point to the fact that he or she is in the business of lending money and was making loans at the time of the improvident loan is likely to fail to establish the loss of a commercial opportunity of some value. 113 However, in our respectful opinion it is an error to proceed on the basis that unless an applicant can establish a particular alternative transaction he or she cannot establish a lost commercial opportunity of some value. We think that this is where the primary judge erred. His Honour said (at [37]): The above analysis is persuasive. In the current case I am not satisfied that La Trobe has proved, on a balance of probabilities, that there was a particular loan or loans that were not entered into by reason of La Trobe entering into a loan agreement with Jet. Mr Gidman's evidence is vague and imprecise and an insufficient foundation for this aspect of La Trobe's case. As counsel for Hay submits, there is no evidence that there ever existed a particular loan application which was acceptable on all terms to La Trobe, but which La Trobe did not accept due to insufficient funds by reason of the Jet loan. (La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Ltd [2010] FCA 250.) 114 The analysis to which his Honour refers in this passage is the analysis by Nettle JA in St George Bank Limited v Quinerts Pty Ltd [2009] VSCA 245. We do not think that there is any inconsistency between what we have said and what was said by Nettle JA. We do not read his Honour's reasons as suggesting that a particular alternative transaction must be proved before recovery is allowed. The fact is that the evidence in the case before Nettle JA was insufficient to satisfy his Honour that there was a lost commercial opportunity of some value. 115 It is true that the evidence relied on by the appellant in this case being the evidence of Mr Gidman was very general. Nevertheless, it was not seriously challenged. Counsel for the respondent confined himself to eliciting from Mr Gidman that he could not identify a particular alternative transaction. We are satisfied having regard to Mr Gidman's evidence that the appellant established a lost commercial opportunity of some value. 116 The determination of the value of that opportunity is more difficult because on the evidence it is impossible to be precise. We think it more probable than not that an alternative transaction would have been entered into, but at this stage of the inquiry it is the probabilities and possibilities which must be assessed. We think a small allowance should be made for the possibility that an alternative transaction would have proved improvident. Of course, it is true, as Finkelstein J points out, that the history of defaulting loans suggests that the risk of loss on that account was very low, but we would not be disposed to discount it entirely, particularly as the loan to Jet Constructions Pty Ltd ('Jet'), presumably made after all proper checks and inquiries, proved improvident. We would allow 5 per cent for the integer "C" in the formula set out in the reasons for judgment of Finkelstein J (at [98]-[102]). The other consideration it seems to us is that in the absence of evidence of a particular alternative transaction available at the time of the loan to Jet, some allowance should be made for the fact that an alternative transaction may not have been entered into at the same time and for the same period. In other words, there may have been some delay in securing an alternative transaction. Recognising that it is difficult to be precise, nevertheless we would place a figure of 85 per cent on the integer 'P' in the formula set out in the reasons for judgment of Finkelstein J. On our calculations, that leads to a loss of $259,291.35. 117 We would allow the appeal and set aside the primary judge's orders. In lieu of the primary judge's orders, we would order that there be judgment in favour of the appellant in the sum of $259,291.35 and that the respondent pay the appellant's costs of the trial. The respondent should also pay the appellant's costs of the appeal. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson and Besanko.