Longden v Kenalda Nominees Pty Ltd [2003] VSCA 128

Longden v Kenalda Nominees Pty Ltd [2003] VSCA 128 - VSCA 2003 case summary — Zoe

[37]

The judge also observed that it was significant that the McDonald material omitted a range of costs which his Honour identified and which he said would have been incurred by the Nunawading store. Furthermore, his Honour was of the view that some of the major items of estimated costs in relation to the Nunawading business, such as advertising, were unrealistically low. Importantly, his Honour obviously had considerable doubts about the credibility of the McDonald report which essentially constituted Mr. McDonald's evidence-in-chief. The report, dated 2 May 2001, states that it has been prepared for the purpose of establishing the value of "the opportunity costs" of the Frankston business and that data from the Nunawading store has been "extrapolated" to arrive at the value of the appellant's lost opportunity to conduct the Frankston business. It seems clear enough that the report was prepared on the basis that the Nunawading store was then operational (and profitable). It was only during the cross-examination of Mr. McDonald, however, that it was learned that, in October 2000, the Carol chain had plans to close the Nunawading business and that it was in fact closed in January 2001 about four months before the publication of the report. On its face, therefore, the claim in that report that the store operated at a profit was inconsistent with it being shut down. Mr. McDonald was unable to provide a satisfactory explanation why the business, which was supposed to have been profitable, was closed (or why the report was written on the apparent footing that the store was, at that time, a going concern when in fact it had been closed for some months). It seems to me that, in the circumstances, his Honour was well justified in saying that the closure of the store "... unexplained as it is, substantially reduces the confidence that I have in the figures that Mr. McDonald did proffer." This observation applied as much to Mr. McDonald's evidence that related to the profitability of the Nunawading store as it did to his opinion about the value of the "opportunity cost" namely, the capital value of the Frankston business. There were other deficiencies in the Nunawading financial material that were noted by the trial judge. I have referred to some of them[17] and the remainder need not be referred to in detail. Overall, however, it is plain, as I have said, that his Honour was not satisfied that Mr. McDonald had established the profitability or the value of the Nunawading business (at least to the point where it could be regarded as being relevant to the assessment of the value of the appellant's lost opportunity to conduct a profitable business) or what was the value of the "opportunity cost" of the Frankston business that was lost to the appellant by reason of the respondent's breach.

[42]

I now turn to Mr. Riordan's argument that, even if his Honour was not satisfied on the balance of probabilities that the Frankston business would have been profitable, given that one could not exclude the real possibility that it could have been profitable, the judge should have assessed the value of the commercial opportunity and his failure to do so amounted to an appealable error. In support of this claim, counsel relied, in the main, on certain observations by members of the Court of Appeal in Takaro. In that case the negligent refusal of the Minister to consent to the issue of shares to a foreign corporation led to the failure of a property development which the plaintiff was to undertake. The trial judge[19] rejected the claim made by the plaintiff to recover damages for the lost commercial opportunity on the ground that "it was improbable that Takaro could have achieved and maintained a profitable operation" although he could not exclude such a possibility. The Court of Appeal overturned the decision, saying that the correct approach was to ascertain first, whether, in the absence of the negligent conduct, there was some prospect that the development would have been profitable and then to value the lost opportunity by reference to the degree of probabilities or possibilities.[20] Woodhouse, P. said[21], in effect, that the judge below failed to assess the chance of success only because the plaintiff had not demonstrated that the success of the project was "more probable than not". The President went on to say that the correct test involved an analysis by reference to possibilities as well as probabilities. Cooke, J. considered[22] that the approach adopted by the trial judge (namely that the plaintiff was not entitled to damages if the consortium would have failed on the balance of probabilities) left "out any possibility of the ultimate success of the whole project. If there was some real possibility it must have had some commercial value, however hard to assess, and damages should have been awarded accordingly."

[45]

Thus, the first matter that the appellant had to establish as a pre-condition to an entitlement to substantial damages was that she suffered a loss being something of value[31], by reason of the respondent's breach. That loss, said the appellant, was the loss of the chance to conduct the Frankston business. But, by itself, that would not amount to a relevant loss because, for example, the Frankston business might not have generated sufficient income to cover its outgoings, including the rent payable under the lease agreement.[32] As Brennan, J. explained in Sellars[33] "... the loss of a mere opportunity to acquire a benefit is not in itself a loss, but the loss of a benefit will be such a loss if the plaintiff proves that he could and would have taken the opportunity and that the benefit would then have been yielded". In order to establish that being deprived of the opportunity to conduct the Frankston business amounted to a loss for relevant purposes, it would have been sufficient for the appellant to prove, on the balance of probabilities, that the opportunity had some value which was not negligible.[34] The appellant could have established that by showing that there was a reasonable, as distinct from a speculative, possibility that the Frankston business would or might have produced a profit. As Brennan, J. said in Sellars[35] "... opportunities to acquire commercial benefits are frequently valuable in themselves, not only when they will probably fructify in a financial return but also when they offer a substantial prospect of a financial return. ... Provided an opportunity offers a substantial, and not merely speculative, prospect of acquiring a benefit that the plaintiff sought to acquire or of avoiding a detriment that the plaintiff sought to avoid, the opportunity can be held to be valuable."[36] And the assessment of the quantum of that benefit would necessarily involve the evaluation of hypothetical situations and future possibilities, or put another way, the matter would be resolved by reference to the degree of probabilities and possibilities.[37]

[47]

In Sellars the court was required to assess damages for misrepresentation in circumstances where the plaintiff Adelaide Petroleum withdrew from negotiations for the completion of the then draft Pagini agreement due to the wrongful conduct of the defendants. The plaintiff claimed that it thereby lost or had foregone the opportunity of completing the Pagini agreement and deriving commercial benefit from it. The principal uncertainties were whether, but for the defendants' wrongful conduct, the plaintiff would have entered into the Pagini agreement and even if it had, whether various conditions precedent to its performance would have been satisfied. The methodology adopted by the trial judge in assessing damages for such loss was effectively endorsed on appeal by the High Court[40]. His Honour was persuaded on the balance of probabilities that the Pagini agreement would have been entered into but for the defendants' wrongful conduct, and that there was more than a speculative chance that it would have been performed, i.e., that the conditions precedent would have been satisfied. His Honour considered that the loss of opportunity was to be measured by reference to the benefits that were foregone when the plaintiff declined to proceed with the negotiations with respect to the Pagini agreement. But the learned judge also recognised that, because of the uncertainties surrounding the entry into the contract and its performance, the actual loss could not be assessed simply by equating it with the benefits foregone. Nevertheless, his Honour considered it appropriate to take as a base, or as a starting point, for assessment of the value of the lost opportunity or the benefit foregone, the amount of that benefit on the assumption that the agreement would have been concluded (and performed). In order to establish the amount of that benefit on this hypothetical basis, the plaintiff led evidence from, inter alia, an accounting expert as to what would have been its benefits from the agreement had it been concluded and performed[41]. Once the amount of the benefit, calculated on this hypothetical basis and by reference to probabilities and possibilities, was established his Honour discounted the various component parts of the profit foregone by amounts up to 60 per cent to allow for the probability that the agreement would not have proceeded and treated the resultant amount as the value of the lost opportunity to the plaintiffs by reason of the breach.

At a glance

Court

Decision date

Before

Source

Judgment (82 paragraphs)

Parties

Cases Cited (1)