[2005] HCA 59
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Judgment (15 paragraphs)
[1]
Background
It is necessary at this stage to outline in more detail the events surrounding the exercise by Bankwest of its rights under the security documents, as this provides the basis on which the appellants say the primary judge should have drawn the inference that the respondent's misleading or deceptive conduct was "a" material factor in the decision taken by Bankwest.
The appellants borrowed $7,205,000 from Bankwest under a debt facility entered into on 8 September 2008. They entered into a design and construct contract with Jabbcorp Construction Management Pty Limited (Jabbcorp) to build a 10-storey mixed use development on the Brighton-Le-Sands property owned by the appellants (the Brighton-Le-Sands Property) (see at [2]). The loan was repayable on 2 August 2010, 18 months from initial drawdown. It does not seem to be disputed that it could only be repaid out of the eventual proceeds of sale of the development.
The general terms of the loan facility with Bankwest included an "Event of Default" clause, entitling Bankwest to demand immediate repayment if, inter alia, there was, in its reasonable opinion, a change in circumstances which materially adversely affected the borrower's ability to observe the borrower's obligations or the value of any "Security Property" (cl 16.1(h)) (see at [3]).
A condition of the loan facility (which it was accepted had been met) was that there be three qualifying pre-sales (i.e., "off the plan" sales) totalling at least $3 million. The relevant contracts were those dated 7 October 2008 (Lots 9 and 10) and 15 January 2009 (Lot 12), respectively. Those off-the-plan sales contracts contained provision (cl 42) making completion conditional on the registration of the strata plan with a "sunset date" of between 22 and 24 months from the date of contract.
As adverted to above, the security given by the appellants to Bankwest included a mortgage over the Brighton-Le-Sands Property and a personal guarantee by Mr Sikos, supported by a mortgage over the Rowley Street Property, as well as a fixed and floating charge between Bankwest and Mistrina (see at [4]). BankWest, Mistrina and Jabbcorp entered into a Builders Tripartite Deed which, inter alia, gave Bankwest the right to assume Mistrina's obligations under the building contract after an "Event of Default" under any security interest held by Bankwest (colloquially known as a "Step-In" right) (see at [5]).
The design of the building included a raft slab (see at [6]). Jabbcorp required a structural engineering certificate that the design complied with the Building Code of Australia and relevant Australian standards (see at [6]). The respondent erroneously certified, by the Certificate, the structural design of the slab. Jabbcorp relied on the Certificate in deciding to commence construction incorporating the raft slab and would not have commenced construction without it (see at [8]).
In April 2010, when construction was well advanced (up to level eight of the building) (see at [11]), a complaint by the owner of an apartment in a neighbouring property led to the discovery that the raft slab was non-compliant with the relevant building code and standards and posed a risk to the integrity of the neighbouring property by laterally transferring load to it. The respondent issued the Stop Work Order and work was suspended on 21 April 2010 (see at [11]).
Shortly before Jabbcorp stopped work, Mr Jabbour (the principal of the builder) informed Bankwest's representative, Mr Veitch (the Business Development Manager, Commercial Banking NSW), that it was highly likely that works would cease and that the reason for the cessation of work was that the respondent had informed him that no further work could continue until the structural issues had been resolved (see at [14]).
At about this time, Bankwest retained a quantity surveyor (Mr John Portelli of JPQS Quantity Surveyors) to prepare an initial audit report for the project (the Initial Audit Report) (see at [15]). The primary judge (at [15]) noted that the evidence did not reveal why Bankwest took that step and said that the evidence suggested that Mr PortelIi had become involved from at least 19 April 2010 (that is, before the Stop Work Order). Mr Portelli provided the Initial Audit Report on 12 May 2010 (see at [18]), in which he stated that Jabbcorp had provided a schedule which provided a completion date by 15 July 2010 but that, in his opinion, a more realistic completion date was 15 October 2010 (see at [19]); and stating (at [1.4.1]) that, "given that the construction was suspended on 21st April 2010 (approximately 4 weeks), this programme will need to be reassessed once works recommence".
On 18 May 2010, Mr Veitch sent an email to each of Mistrina's solicitor, Mr Jabbour and Mr Portelli, seeking further clarification in relation to the cost to complete and referring to other issues (see at [23]). The respondent notes that the email includes a complaint as to documentation that had been requested by Bankwest but not provided and that it referred to proposed building contract amendments. The email referred to a recommended extension to the sunset date under contracts for pre-sold units to 15 April 2011 which it was said "may need to be further extended due to the current stop work". The email also referred to a meeting to be attended by "all parties" the following day. That meeting (on 19 May 2010) was attended by representatives of each of Bankwest, Mistrina and Jabbcorp. A director of Mistrina (Ms Constantinou) was present and gave evidence at the hearing that Bankwest's representative was "very upset" with Jabbcorp's response to Bankwest's query as to when work would recommence (T 26.35-45).
On 20 May 2010, Mr Jabbour reported to Bankwest, in an email copied to Mr Portelli, that an updated construction program would be submitted as soon as Jabbcorp had definite instructions from its professional indemnity insurer and a date of recommencement (see [27]). Mr Jabbour also informed Bankwest that all documentation requested to date had been provided, and attaching outstanding documentation. The appellants note that no updated construction program was thereafter provided by Jabbcorp and point out that Bankwest made its demand on the appellants shortly thereafter (see below).
On 26 May 2010, Bankwest demanded the immediate repayment of the entirety of the loan then outstanding ($3,870,053) (the Demand). The Demand did not identify any "Event of Default" relied upon to accelerate repayment (which, as the primary judge noted, was otherwise only due on 2 August 2010 - [28]). That demand was not met and, on 3 June 2010, Bankwest appointed the Receivers (see at [28]-[29]). The Deed of Appointment recorded, relevantly, that "[t]he Bank, being entitled under the powers conferred by it by the Charge and the Mortgage appoints the Receivers…" (at [29]). At some point after the appointment of the Receivers, Bankwest caused the appellants to enter into Deeds of Variation to the three existing off-the-plan sale contracts so as to extend the sunset dates to 30 April 2011.
The respondent points out that, later (in September 2010), there was discussion (to which Ms Constantinou was privy) concerning the proposed remediation works, including that they would be the subject of a competitive tender and that, on 2 October 2010, Bankwest told Ms Constantinou that once the remediation works were completed it was intended that the development be handed back to Mistrina. In October 2010, however, Bankwest advertised the Brighton-Le-Sands Property for sale and, on 18 November 2010, sold the property at auction (albeit that this sale was not in fact completed).
The remediation works took some 12 months. A certificate of structural adequacy of the new foundations was issued by the respondent on 3 March 2011 (see at [31]). On 14 July 2011, the Receivers sold the land (with the building still only partially complete) for $4.975 million, leaving a net deficit owing by the appellants to Bankwest of $1.584 million (see at [32]). Bankwest later obtained an order for possession of the Rowley Street Property, which was sold on 5 September 2012. Bankwest accepted the amount received in full and final settlement of its claim (see at [33]).
[2]
Primary judgment
As noted above, the primary judge held that the appellants had not established causation. His Honour noted that the parties had agreed that the loss of profits claim (the quantum of which was agreed at $2,665,360 on the assumption that the building had been completed in September or October 2010) was properly to be characterised as one for the loss of a commercial opportunity (see [49], [51]) and had also agreed the quantum of the loss in relation to the Rowley Street Property (see [50]).
His Honour said (at [52]) that no opportunity was lost to the appellants by Bankwest simply making the Demand; rather, the opportunity was lost at the earliest when Bankwest appointed the Receivers and at the latest when the land was sold. His Honour did not consider that anything turned on the precise time that the opportunity was lost. I interpose to note that the appellants say that they lost their opportunity to make a profit on the development no later than 21 April 2010, when construction work ceased as a result of the serious structural defect. The respondent takes issue with this.
His Honour also said (at [55]) that proof that the conduct complained of played a, or a sufficient, part in inducing Bankwest to act as it did required evidence of Bankwest's motivation.
After referring to a passage from Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 (at [14]-[15] per Hodgson JA) (see at [56]), his Honour identified (at [57]) the fundamental difficulty for the appellants as being that adverted to above (see at [7]) and went on to say (at [58]-[59]) that:
58. Which factors (if any) the Bank took into account, and the level of importance (absolute and relative) which it attributed to them, have been left as matters of conjecture. Just as it may be conjectured that the conduct complained of was material, it may be conjectured that it played no role at all or would have played no role had all the other concerns of the Bank, including concerns about things done and not done by the plaintiffs themselves, been allayed.
59. It is an assumption in the plaintiffs' case that the Bank was legally entitled to act as it did. However, the Bank may have got it entirely wrong. The Bank may not have acted lawfully. We will never know. If it acted unlawfully, there would be significant doubt that the conduct complained of could have caused the loss. It is to be recalled that the plaintiffs apparently initiated a challenge to the appointment of the Receivers.
[3]
Appeal grounds
The appellants raise the following grounds of appeal:
1. The learned primary judge erred in holding that the respondent's misleading and deceptive conduct in contravention of section 52 Trade Practices Act 1974 (Cth) did not cause the appellants to suffer the loss and damage found by his Honour for the purpose of section 82 Trade Practices Act 1974 (Cth).
2. The learned primary judge ought to have held that the respondent's misleading and deceptive conduct caused the appellants to suffer the loss and damage found by his Honour for the purpose of section 82 Trade Practices Act 1974 (Cth).
[4]
Notice of contention
By notice of contention filed on 19 June 2020, the respondent contends that the decision of the primary judge should be affirmed on the ground that:
1. The loss and damage suffered by the Appellants was not by the act of the Respondent done in contravention of a provision of Part IV or V within the meaning of section 82 of the Trade Practices Act 1974 (Cth) as such loss was not foreseeable in even a general way by the Respondent.
[5]
Notice of cross appeal
By notice of cross-appeal filed on 29 June 2020, the respondent cross-appeals on the following grounds:
1. The primary judge erred in finding that Cross-Respondents would have been afforded the opportunity they claimed to have lost by applying a standard of proof which considered reasonable possibilities rather than the balance of probabilities.
2. The primary judge ought to have applied a standard of proof which required the Cross-Respondents to prove, on the balance of the probabilities, that they would have been afforded the opportunity they claimed to have lost.
3. The primary judge ought to have found that the Cross-Respondents failed, on the balance of probabilities, to prove that they would have been afforded the opportunity they claimed to have lost and, as a result, suffered no loss of opportunity.
4. The primary judge erred by applying a 15% discount to the loss of opportunity suffered by the Cross-Respondents having regard to the finding at [72] that state of the evidence made it extremely difficult to approach the value of the opportunity in a sensible and rational fashion.
5. The primary judge should have applied discount of 80% to 90% to the loss of opportunity suffered by the Cross-Respondents having regard to the finding at [72].
[6]
Appellants' submissions
As noted above, the appellants raise two related grounds of appeal. It is to be noted that the appellants proceeded to cast their submissions around two, asserted errors of the primary judge that are not necessarily coterminous to each of the two grounds. It is convenient to proceed to dispose of the appeal in that way.
[7]
The first asserted error
The first asserted error involves the submission that the primary judge erred on the issue of causation in the application of the principles set out in Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 (Henville v Walker) in a critical respect, namely that the appellants only needed to establish that the misleading or deceptive conduct "materially contributed to the loss" (see at [106] per McHugh J, with whom Gummow J agreed at [152]) and, thus, it was sufficient that the contravention was a cause of the loss or damage.
In particular, the appellants submit that the primary judge erred in not applying the principle articulated in Henville v Walker that, where a misrepresentation has induced a person to embark on a course of conduct or where there is a situation where a person makes misrepresentations that are intended to play a critical role (and do play that role) in another person deciding whether or not to proceed with a course of action, the reliance of the representee is either "the decisive consideration or one of the decisive considerations for taking the course of action in question" and "[b]ecause it is decisive, the misrepresentation is correctly seen as causally connected with the course of action that follows" (see at [119], quoting Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 at [19] per Gaudron J).
It is submitted that, in the present case, the respondent's misleading and deceptive conduct was "at least one of the decisive considerations" for the appellants proceeding with the development; that, had the respondent not engaged in misleading or deceptive conduct, Jabbcorp would not have constructed the building in accordance with the fundamentally defective design; and that (citing McHugh J in Henville v Walker at [134]), if there had been no misrepresentation, the appellants "would not have embarked on the course they did and the loss they suffered would have been avoided".
The appellants say, in effect, that once the primary judge concluded that the respondent's misleading or deceptive conduct was at least one of the decisive considerations for the appellants' proceeding with the development according to the defective raft slab design (citing [8]), his Honour should not have embarked upon any further enquiry as to causation; rather, his Honour should have concluded that the misleading or deceptive conduct, being a decisive consideration in the appellants' proceeding, was "causally connected with the course of action that followed".
[8]
The second asserted error
As noted, the second asserted error is that his Honour erred in concluding that Bankwest's enforcement of its security was a matter of "conjecture". In that regard, the appellants emphasise the distinction between a conjecture (or "mere guess") and an inference drawn from the whole of the evidence (see Spigelman CJ in Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [85], his Honour there quoting Lord Macmillan in Jones v Great Western Railway Co (1930) 144 LT 194 at 202). The appellants say that the primary judge ought to have held that the proper inference to be drawn was that a reason for Bankwest's action was the structurally defective state of the building and resulting delay in completion.
Pausing here, the appellants seem to put this as an alternative asserted error and say that, if correct on the first, it is unnecessary to deal with this issue. Meanwhile, the respondent says that this asserted error raises an anterior issue to the first.
In short compass, the appellants' argument is that the evidence disclosed only one material change which fell into the category of cl 16.1(h) at the time that Bankwest exercised its security (namely, the serious structural defects which had come to light).
In addition to the matters referred to above, the appellants place significance in this context on the following: that Bankwest had reason to be concerned about the value of its security (since the building was near completion but had fundamental structural defects, including defects which imperilled the structural integrity of the adjoining property) (see at [11]); that construction work was suspended (see at [11]); that the Initial Audit Report advised Bankwest of the "structural defect" raised by a neighbouring practising structural engineer and noted inter alia that construction work was suspended and that "[a] resolution to this issue is yet to be determined" (see [1.16.1]); that those structural defects required substantial remedial works and it was uncertain how long such works would take and thus when construction would re-commence; and that the uncertainty was exacerbated by demands made by the owners of the adjoining structure (those owners having obtained their own engineering and legal advice).
The appellants also point to the fact that it took 12 months to complete the remediation works before construction work could recommence (see [31]). I interpose to observe that, while this may have reinforced in hindsight the reasonableness of a decision taken at the relevant time, it could not then have been known how long the remedial works would eventually take. With that said, no doubt the uncertainty would only have exacerbated Bankwest's concern (which the respondent accepts it had - see AT 24.20) as to the structural defect issue.
[9]
Respondent's submissions
As adverted to above, it is not disputed by the respondent that the provision of the Certificate induced Jabbcorp to commence and construct a defective structure which necessitated a redesign and caused delay and additional costs. However, what it disputed was that it was established that those circumstances were relied on by Bankwest as an event of default and induced Bankwest to make the Demand accelerating the outstanding loan.
[10]
Grounds of the notice of appeal
The respondent says that the appellants, having assumed the evidentiary burden of establishing that the conduct complained of played a (or a sufficient) part in inducing Bankwest to act as it did, failed to meet that evidentiary burden. The respondent says that there is no suggestion by the appellants that the primary judge was in error in describing the evidentiary burden they faced (in the terms set out at [55] of the primary judgment).
As the respondent did at first instance, emphasis was placed by the respondent on the fact that the appellants did not call any witness from Bankwest nor did they identify the relevant witness or witnesses who made the decision to issue the Demand and to appoint the Receivers and then sell the property. The respondent says that there were three relevant decisions by Bankwest and no explanation as to the basis for those decisions: the Demand on 26 May 2010; the appointment of the Receivers on 3 June 2010; and the further decision to try and sell the Brighton-Le-Sands Property at the end of 2010 (AT 12.23). The respondent points to the matters identified by the primary judge (at [61]-[66]) in that regard. It is also noted that the appellants did not adduce into evidence the mortgage under which Bankwest purported to appoint receivers, nor of what terms would have permitted Bankwest to appoint receivers or under what provision or provisions Bankwest purported to act (see [66]).
The respondent says that the gravamen of the appellants' argument is that the Demand was issued by Bankwest as a result of the design error coming to light, that being the "one material change" which led to the issue of the demand. The respondent argues that this is a "false narrative" and says that the evidence is to the contrary (noting that the appellants have not pointed to any evidence which was overlooked or misunderstood and which may provide a different factual complexion on the issue of causation).
In this regard, the respondent points out: that there is evidence that Mr Portelli was appointed prior to the Stop Work Order (see [22]); that the Initial Audit Report of 12 May 2010 identified a number of issues and concerns which Mr Portelli held about the state of the development (as described at [20]); and that Mr Portelli's recommendations to Bankwest (see as described at [21]) included the suspension of progress payments under the design and construct contract with Jabbcorp. (I interpose to note that the appellants cavil with the proposition that they have placed "great emphasis" on Mr Portelli and say that his report on the structural problems leading to the suspension of construction is relevant but that their case is made out without Mr Portelli's report. It is further said that nothing turns on the timing of his retainer, which the appellants nevertheless note was at approximately the same time that Mr Jabbour informed Bankwest that it was likely that the works would stop.)
[11]
Notice of contention
As raised by its notice of contention, the respondent argues that the causative requirements are not met by the appellants simply demonstrating some factual connection between the misleading or deceptive conduct in question and a loss suffered; rather, it is said that such loss must also be foreseeable in a general way by the respondent as the contravenor (referring to what was said by McHugh J in Henville v Walker at [136] and to what was said in that case by Gleeson CJ at [18]). The issue thus raised is whether an award of damages for breach of s 52 has any constraints based on remoteness.
In this regard, the respondent draws an analogy to s 5D of the Civil Liability Act 2002 (NSW) (Civil Liability Act) and poses the question as to whether the causal requirement involves considerations of both factual causation and legal causation. Reference is made to what was said by Gleeson CJ in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 (see at [25]-[26]) and to his Honour's observations in Travel Compensation Fund v Robert Tambree t/as R Tambree and Associates (2005) 224 CLR 627; [2005] HCA 59 (see at [29]-[30]) to the effect that questions of causation may, in appropriate circumstances, involve normative considerations with the relevant norms derived from legal principle and that the primary task is to apply the relevant legislative norms.
The respondent submits that, on the assumption its conduct was a cause of the appellants' loss, it is not consistent with the statutory purpose that this loss be recoverable. It is submitted that it cannot be the case that a plaintiff need only prove some factual connection to the conduct in order to recover any and all loss that may be suffered regardless of its nature or character; and that such an approach would make a professional service provider (such as the respondent) an unwitting underwriter of the success or failure of a commercial venture. It is submitted that this is not the statutory purpose of s 82. The respondent says that the unfairness of this in the present case is illustrated by the fact that the remediation works ultimately undertaken were performed at a cost of less than $350,000 whereas what is here claimed is the appellants' overall commercial loss on the failure of the development.
As to the appellants' reference to what was said by Gaudron J in Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209; [1999] HCA 64 (Boland) (see at [105]), the respondent says that this does not address the present issue but, rather, only liability under s 52, noting that her Honour observed (at [106]) only that it is possible that damages under s 82 are not limited either by the foreseeability of consequential damage or remoteness.
[12]
Notice of cross-appeal
If, contrary to the respondent's submissions, it is held that the misleading or deceptive conduct of the respondent was a cause of the loss of opportunity suffered by the appellants, then the respondent says: first, that the loss of opportunity said to have been suffered was not, in fact, proven by the appellants to the requisite standard (relying on Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 (Badenach) at [38]-[41]); and that, if damages are to be assessed, they should be discounted by 80% to 90%.
As to the first of those propositions, the respondent says that it is not enough for the appellants to point to some chance of a beneficial outcome in completing the development and repaying the loan facility; rather, it must be established on the balance of probabilities that, notwithstanding their default under the loan facility, the appellants would have been allowed by Bankwest to complete and realise the development.
The error of the primary judge about which the respondent here complains is not in respect of the statement of legal principle as to the assessment of damages for a loss of opportunity but as to the evidentiary burden which the appellants must discharge in respect of the existence of such an opportunity (the respondent citing Olympic Holdings Pty Ltd v Lochel [2004] WASC 61 at [121]-[123] per McLure J, as her Honour then was, and Doolan v Renkon Pty Ltd (2011) 21 Tas R 156; [2011] TASFC 4 at [60]-[61]).
The respondent says that the existence of the relevant commercial opportunity in the present case depended not only on the appellants proving they would have acted so as to pursue that opportunity but also that Bankwest would have let them pursue that opportunity. It is submitted that the primary judge failed to recognise or address the essential role of Bankwest in the creation and continued existence of the commercial opportunity in question between 2 August 2010 and the repayment of the loan facility and that his Honour erred (at [72]) in approaching this issue as one which goes to the value of the opportunity, rather than its existence. It is said that the implicit, but erroneous, assumption was that Bankwest would act in a particular way from 2 August 2010 when that was a matter which had to be proven by the appellants on the balance of probabilities (and was not).
In particular, it is submitted that the approach of the primary judge incorrectly assumes, without proof, that Bankwest would have been content not to be repaid on 2 August 2010 if the building works were sufficiently advanced. It is submitted that, even excluding the misleading or deceptive conduct, the Court could not be satisfied that Bankwest would not have acted in exactly the manner it did, whether based on one or more of the other issues referred to in the Initial Audit Report or for some other unknown or undisclosed reason. In that regard, it is noted that: as at 2 August 2010, the appellants were liable to repay an amount in excess of $3,870,053; the only source by which the appellants could make such a repayment was the sale of the individual lots within the development (as Ms Constantinou accepted in cross-examination - T 38.20-23 and T 38.45); and, while there were three off-the-sale contracts on foot, their completion depended on the registration of the strata plan (and there was no evidence adduced by the appellants as to when this would have occurred).
[13]
Appellants' response re notice of contention and cross-appeal
As to the submissions made by the respondent in relation to the foreseeability of loss, the appellants say: first, that there is no legal or factual basis to limit the respondent's liability to the cost of rectification where a misleading or deceptive design results in fundamental structural defects resulting in the developer suffering substantial financial loss; second, they emphasise that, although McHugh J in Henville v Walker referred (at [136]) to the circumstance where "the loss and damage was not reasonably foreseeable even in a general way by the contravener", in Boland, Gaudron J concluded (at [105]) that "liability for contravention of s 52 [of the Trade Practices Act] does not depend on proximity or the reasonable foreseeability of loss" (and they refer also to her Honour's comments at [66]); third, that, even if the language of McHugh J is adopted, it was here "foreseeable even in a general way" that the appellants would suffer damage, including the loss of the opportunity to complete the project profitably (noting that the problem of a secured creditor calling up its loan is the kind of problem that could naturally arise from delays and additional costs). In that regard, reference is also made to White J's observations in Dawson (at [111]). It is submitted that it is significant that McHugh J's conclusion on the recoverability of the extensive losses in Henville v Walker indicates that his Honour did not adopt a narrow concept of foreseeability.
Insofar as reference is made to the actual knowledge of Mr Hasham, it is said that there is no reference to any evidence as to his state of mind and, in any event, any enquiry about foreseeability would not be determined by Mr Hasham's lack of knowledge. The appellants say that the respondent has not demonstrated the evidentiary basis for its assertion that the loss caused was not reasonably foreseeable to it.
As to the respondent's submissions in relation to the loss of opportunity claim, the appellants note (and the respondent does not dispute) that the primary judge summarised the relevant legal principles and that his Honour referred to Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 (Sellars) (at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ and at 364 per Brennan J, as his Honour then was). Reference is also made to Badenach (at [39]).
[14]
Determination
To my mind, whether one approaches the asserted errors in the order in which they appear in the notice of appeal or in the manner urged by the respondent is a moot point. There is no issue as to the primary judge's recognition of the correct principles to be applied - it is clear (from [74]) that his Honour accepted that it would have been sufficient for the appellants to establish that the conduct complained of played "a material part" in Bankwest's decision for it to have established causation. The difficulty for the appellants was that his Honour did not find that the evidence established this. I see no error in the articulation of legal principle in this regard. However, with respect to the primary judge, I consider that his Honour erred in not determining that the structural design defect issue was a material cause of Bankwest taking over the development. Had such a finding been made, his Honour would have accepted that there was a relevant and requisite causal connection between the misleading or deceptive conduct and the loss that was sustained by the appellants.
I am of the view that, irrespective of the absence of evidence from an officer of Bankwest to elucidate the decision-making processes of the bank, there is, on the whole of the evidence, an overwhelming inference to be drawn that the cessation of the building works due to the structural design defect (and the ensuing uncertainty as to when the construction would be completed) was "a" material cause of the decision by Bankwest to step in and exercise its rights under the security documents. Indeed, to my mind, it might well even be permissible to infer that the defect was, in the events that happened, the only material factor that led to that decision. However, it is unnecessary to reason in that way because it is sufficient that it was a material cause.
More particularly, I do not accept that such a conclusion is no more than conjecture. It is the most obvious (and probable) inference to be drawn from all of the facts. To suggest that other problems in relation to the development would be relevant issues but not the delay and ongoing uncertainty arising out of the structural defects is counter-intuitive.
Insofar as the respondent refers (at some length) to the failure to adduce evidence before the Court at first instance, the difficulty is that the respondent expressly disavowed at the hearing any submission that an adverse inference (of the kind identified in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8) should be drawn and the primary judge did not draw any such inference. The fact that there were other ways in which the appellants might better have made out their case is not to the point (see Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165] per French CJ, Gummow, Hayne, Crennan, Kiefel, as her Honour then was, and Bell JJ).
[15]
Amendments
27 May 2021 - Typographical errors at [84] and [89]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 27 May 2021
Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29
Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aust) Pty Ltd [2016] FCA 158
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; [1996] 4 All ER 769
Stryke Corporation Pty Limited v Miskovic [2007] NSWCA 72
Travel Compensation Fund v Robert Tambree t/as R Tambree and Associates (2005) 224 CLR 627; [2005] HCA 59
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55
Texts Cited: Jeannie Marie Paterson and Elise Bant, 'Misrepresentation, Misleading Conduct and Statute Through the Lens of Form and Substance' in Andrew Robertson and James Goudkamp (eds), Form and Substance in the Law of Obligations (2019, Hart Publishing) 403
Justice James Edelman, McGregor on Damages (20th ed, 2018, Thomson Reuters)
Justice Mark Leeming, 'Statutory Interpretation as Private Law' in Prue Vines and M Scott Donald (eds), Statutory Interpretation in Private Law (2019, The Federation Press) 28
Category: Principal judgment
Parties: Mistrina Pty Ltd (In Liquidation) (First Appellant/First Plaintiff)
The Estate of Elias Sikos (Deceased) (Second Appellant/Second Plaintiff)
Australian Consulting Engineers Pty Ltd (Respondent/Defendant)
Representation: Counsel:
M Christie SC with J Steele and R Thrift (Appellants/Plaintiffs)
TW Marskell with A Emmerson (Respondent/Defendant)
Solicitors:
Gillis Delaney Lawyers (Appellants/Plaintiffs)
Wotton & Kearney (Respondent/Defendant)
File Number(s): 2020/00076913
Publication restriction: Nil
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity (Technology and Construction List)
Citation: [2020] NSWSC 130
Date of Decision: 26 February 2020
Before: Hammerschlag J
File Number(s): 2015/00378374
HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellants (Mistrina Pty Ltd (in liquidation) and the estate of the late Mr Elias Sikos) entered into a contract with Jabbcorp Construction Management Pty Limited to build a mixed use development on a property owned by them in Brighton-Le-Sands (the Brighton-Le-Sands Property). The development was funded by a facility entered into with Bankwest. The loan was repayable on 2 August 2010, 18 months from initial drawdown. It did not appear to be disputed that the loan could only be repaid out of the eventual proceeds of sale of the development. The security given by the appellants included a mortgage over the Brighton-Le-Sands Property and a personal guarantee by Mr Sikos, supported by a mortgage over another property (the Rowley Street Property).
Bankwest, Mistrina and Jabbcorp entered into a Builders Tripartite Deed which, inter alia, gave Bankwest the right to assume Mistrina's obligations under the building contract after an "Event of Default" under any security interest held by Bankwest.
The design of the building included a raft slab. Jabbcorp required a structural engineering certificate that the design complied with the Building Code of Australia and relevant Australian standards. The respondent erroneously certified the structural design of the slab (the Certificate). Jabbcorp relied on the Certificate in deciding to commence construction incorporating the raft slab and would not have commenced construction without it.
In April 2010, when construction was well advanced, the owner of an apartment in a neighbouring property, a practising structural engineer, complained and this led to the discovery that the raft slab was non-compliant and posed a risk to the integrity of the neighbouring property. The respondent issued a "Stop Work Order" and work was suspended.
The appellants suffered substantial loss in relation to the development after Bankwest exercised its rights under the security documents and sold both the then partially complete building development and the Rowley Street Property.
It was not disputed before the primary judge that, in providing the Certificate, the respondent, in trade or commerce, engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (which, though now repealed, still applied to the appellants' claim). It was also not disputed that the building would not have been constructed in accordance with the defective structural engineering design had it not been for the respondent's misleading or deceptive conduct.
Ultimately, the appellants' case was put as a loss of opportunity case: that the respondent's misleading or deceptive conduct had caused Mistrina the loss of opportunity to make a profit from the development and had caused the loss by Mr Sikos of the Rowley Street Property.
The primary judge held that causation was not established. In particular, the primary judge held that the appellants had failed to adduce evidence sufficient for a factual finding that the structural defect and delay were a, or a material, factor in the decision of Bankwest to take the project away from the appellants. The primary judge considered that it was a matter of conjecture that the structural defects causally contributed to Bankwest enforcing its security and thus to the appellants' loss.
The appellants appealed on two grounds, in effect asserting that the primary judge ought to have held that the respondent's misleading and deceptive conduct caused the appellants to suffer the loss and damage. The respondent filed a notice of contention seeking to affirm the decision on the basis that the loss was not a foreseeable consequence of the appellants misleading or deceptive conduct. The respondent also filed a cross appeal asserting errors in relation to the primary judge's finding, in obiter dicta, as to loss of opportunity and the indicative discount (of 15%) that the primary judge indicated would have been applied had the appellants succeeded.
Held (per Ward JA; Macfarlan JA and Leeming JA agreeing), allowing the appeal and dismissing the cross appeal:
1. There was an overwhelming inference that the defect was a material cause of Bankwest taking over the development and that was sufficient to establish causation: at [1]; [88]-[94]; [105].
2. The loss of opportunity was, at the very least, foreseeable in a general way: [1]; [100]; [106].
3. The assessment of damages for loss of opportunity exhibited many characteristics of a discretionary judgment and, in any event, the evidence provided ample basis for the conclusion reached in relation to a 15% discount: [1]; [102]-[103]; [107].
Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 381; [1981] HCA 4; McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [110]-[128]; Bennett v Talacko [2020] VSCA 99 at [108], considered.
1. Leeming JA, in obiter (Macfarlan JA agreeing): it is unnecessary to determine whether s 82 of the Trade Practices Act 1974 (Cth) is subject to the limitation (generally or in a case such as the present) that the loss and damage be foreseeable at least in a general way: [1], [106].
His Honour also said (at [67]) that:
67. The JPQS Report identified various problems with the development and clarifications and information which had not been given. It is a matter entirely for conjecture which of these factors (if any) ultimately motivated the Bank to act.
His Honour (at [68]) referred to the following matters as providing no basis "let alone a solid or reasonable one" for the finding (which it was said the appellants needed in order to succeed) that the conduct played a, or a sufficient, part in inducing Bankwest to act as it did: that Bankwest may have been "very upset"; that the structural defect, delay and stop work may have been of concern to Mr Veitch or to Bankwest; that progress payments (including for variations) were made up to shortly before the letter of demand; and that the demand followed shortly after Mr Portelli's report.
Having concluded that the appellants had not established causation, his Honour went on briefly to consider the question whether Bankwest would have taken the development away in any event and proceeded, in obiter, to value the opportunity which the appellants had lost (see [71]-[74]).
Relevantly, the respondent had contended that the appellants had not established that Bankwest would otherwise have allowed them to take the development to completion and had argued that the appellants would inevitably have defaulted in repaying the loan when it fell due on 2 August 2010, because the project would not by then have been completed and they would not have been able to pay Bankwest whereupon Bankwest would have taken the development away from them anyway (see [36]). The respondent had also argued that, if the appellants were held to have established the claim for the lost opportunity, a significant discount should be applied to the value of that claim because of other factors which could or would have induced Bankwest to take away the project anyway (see [37]). The respondent had also argued remoteness and contributory negligence (see [38]-[39]).
The primary judge said (at [72]) that:
72. It is common cause that the development, if left to the appellants, would have been completed no later than mid to late September 2010. This is based on the expert testimony of Mr McIntyre, an engineer and programming expert. I think there is a reasonable possibility that the development could and would have been completed earlier. [Mr Jabbour] gave evidence that it would have been completed in mid-July 2010. It must be accepted that there were reasonable prospects that the development would not have been completed by 2 August 2010, the deadline for repayment. But by 2 August 2010, the development would have been close to completion. The evidence does not provide a reasonable foundation to conclude that, had [the appellants] got to 2 August 2010 but the development was not completed, the Bank would have taken it out of their hands at that time. Of course that possibility would have been present but the structural defect would have been remedied and completion would, other things being equal, have been only weeks away. …
Pausing here, the reference in the above passage to the structural defect having been remedied seems to be a slip, since the counterfactual here being considered is as to when construction would have been completed had there been no structural defect in the first place (i.e., because there had been a properly certified slab design).
His Honour went on to say (at [72]):
72. …I think that the chance of the Bank taking the development away is a question which goes to the value of the opportunity rather than its existence or loss. The state of the evidence makes it extremely difficult to approach the value of the opportunity in a sensible and rational fashion.. There is, for example, no evidence about the Bank's view of the project as a whole, its lending policies, or its consideration from time to time of its prospects. Justice does not dictate that a figure be plucked out of thin air: Troulis v Vamvoukakis [1998] NSWCA 237 at 14. Termination was, of course, a possibility and the value of the opportunity should be discounted by the prospects of it.
His Honour noted (at [73]) that, apart from the possibility of termination, there were other risks which could have impacted the appellants' profit. His Honour indicated that, if his Honour were to have applied a discount, he would have applied a total discount of 15%.
As to remoteness or contributory negligence, his Honour said (at [74]):
74. Very little was put by [the respondent] on the subjects of remoteness or contributory negligence. I do not propose to deal with these matters apart from saying that, in my view, it would have been sufficient for [the appellants] to establish that the conduct complained of played a material part in the Bank's decision for it to have established causation. So far as contributory negligence may be relevant, I do not consider that the transaction with the Bank was so inherently risky that it could be considered to be negligent on the part of the plaintiffs to have entered into it. I do not consider that reasonable foreseeability has any meaningful role to play in the present context.
The appellants also note the distinction drawn by McHugh J in Henville v Walker (at [78]) between causation and the calculation of any damage. It is said that it is because the misleading or deceptive conduct need only have "materially contributed" to the loss that it will be rare that damages will be reduced. It is noted that, after Henville v Walker, s 82(1B) was introduced, providing that damages may be reduced if the claimant suffers loss and damage as a result partly of the claimant's failure to take reasonable care. The appellants point out that a defendant bears the onus of proving that the plaintiff's loss or damage should be reduced (citing Caffey v Leatt-Hayter (No 3) [2013] WASC 348 at [516] per Beech J, as his Honour then was). They say that although, in the present case, the respondent relied on "contributory negligence", the primary judge noted that very little was put by the respondent on this (see [74]) and his Honour did not accept the respondent's submission (see [39]; [74]).
The appellants also point to the finding (at [72]) that, but for the structural defect, on 2 August 2010 the appellants would have been close to completion of the development and that Bankwest would not likely have taken the development out of the appellants' hands.
The appellants say that the factual background to the exercise by Bankwest of its rights was thus that the serious threat to the structural integrity of the building adversely affected Bankwest's security. They note that Bankwest's expert advisor (Mr Portelli) drew this to Bankwest's attention and that the "flurry" of correspondence on the issue as to when construction would recommence, followed by the meeting at which Bankwest's representative was "very upset" with the state of affairs (see at [26]; T 26.43), was followed soon thereafter by Bankwest exercising its rights.
The appellants place significance on the observations by his Honour (at [72]), to which I have referred above, that, based on the expert evidence of an engineer and programming expert, had the development been left to the appellants then the development would have been completed by September that year and there was a reasonable possibility that the project would have completed even earlier; and also his Honour's observation that, although repayment to Bankwest was due in August, the evidence did not support the proposition that Bankwest would have taken the property out of the appellants' hands at that time.
The appellants say that, in those circumstances, his Honour erred in holding that the appellant's case (in particular with respect to Bankwest's action) was based on conjecture. They say that his Honour ought to have held that the proper inference to be drawn from the evidence was that a reason for Bankwest's action was the structurally defective state of the building and resulting delay in completion (referring to what was said by Beach J in Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aust) Pty Ltd [2016] FCA 158 at [85]-[88] as to the distinction between an inference and conjecture). They say that there are objective facts from which the inference should be drawn and that this is not a case of conflicting inferences. They also point to the fact that the primary judge did not draw an inference that Bankwest acted unlawfully (see [59], referred to above), albeit that his Honour referred to that as a possibility.
It is submitted by the respondent that the Initial Audit Report does not permit the inference that: the design issues were the reason for Mr Portelli's appointment and the preparation of the Initial Audit Report; the design issues assumed any higher or different status than the numerous other problems Mr Portelli had identified; nor, because of any of these problems, Bankwest should issue the demand and then seek to realise its security if the outstanding amount under the loan facility was not repaid.
The respondent says that the email sent by Mr Veitch to Mistrina's solicitors on 18 May 2010 is the only document in evidence that gives any insight into the motivation of Bankwest at that time, and that this refers to several issues. It is submitted that the email indicates that Bankwest was prepared to deal with any issues as to the delay caused by the design error by further extending the sunset dates under the off-the-plan sales contracts. As to the evidence of Ms Constantinou that the bank was "very upset" at the meeting held on 19 May 2010 and attended by Mr Veitch, the respondent says that this has almost no probative value in the absence of any explanation as to what specifically it was about which Bankwest was upset. Further, the respondent points to his Honour's comments (at [64]) to the effect that the level of Mr Veitch's authority was not established, that he may not have played any part in Bankwest coming to any relevant decision and his authority may not have extended to him doing so.
The respondent maintains that the evidence does not permit an inference reasonably to be drawn that Bankwest held any particular state of mind at particular times prior to the issue of the Demand on 26 May 2010 and the decision to realise its security (in around October or November 2010). The respondent says that the appellants' argument assumes that the decision to issue the Demand was the event which caused the loss complained of (on the basis that Bankwest had, by 26 May 2010, irrevocably decided on a course of action which would eventually see the development sold) and that this was not the case, pointing to his Honour's finding that the making of the Demand was not causative of any loss (see [52]). The respondent says that the evidence reveals that Bankwest had made no decision to realise its security prior to at least October 2010 (referring to the events around that time that are set out above); and says that there was plainly a change in Bankwest's approach after that (but, relevantly, no evidence about what led to this change). The respondent says that this highlights the need for the appellants to identify the relevant individuals within Bankwest and their reasons or motivations for making the decision(s) in question. The respondent further says that the appellants' argument does not allow for the fact that "individuals make decisions and they may later change their mind with the considerations or circumstances which led to one decision not necessarily having any relevance or causal potency in respect of a subsequent decision".
Pausing here, the appellants say that the events of September to October 2010 are irrelevant because the development was never in fact handed back to the appellants. They further say that the respondent's submissions as to the motivation of Bankwest relate only to the second way in which they put their case on appeal; and, in response to the complaint that there was no evidence as to the powers of the mortgagee to appoint a receiver and on what terms, they point to s 109(1)(c) of the Conveyancing Act 1919 (NSW) and say that, in any event, it was not in dispute that as a result of the building's structural defects there was an event of default and that Bankwest was entitled to demand the repayment of the outstanding loan. Further, the appellants emphasise that a finding of causation can be made in the absence of direct evidence (referring in particular to what was said in Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 (Lithgow City Council) at [93]-[94] per Crennan J).
The respondent next submits that "for all the Court knows" Bankwest may have been "utterly indifferent" to the misleading or deceptive conduct of the respondent or may have acted as it did "for some entirely unrelated or collateral purpose". As to this submission, the appellants say: first, that it was (and is) not their case that the respondent misled Bankwest (rather, their case is that the respondent misled the appellants by misleading their builder); second, that it is inherently and highly improbable that Bankwest would have been "utterly indifferent" to the building's serious structural defects; third, that they need only establish that the building's serious structural defect was a cause for Bankwest taking the steps that it did (noting Hayne J's observation in Henville v Walker at [163] that "seldom, if ever, will contravening conduct be the sole cause of a person suffering loss" (emphasis in original)); and, fourth, that the suggestion that Bankwest possibly acted "for some entirely unrelated or collateral purpose" is not supported by any evidence, and an inference to that effect could not be drawn. As to the last, it is said that the same applies to the primary judge's statement that Bankwest may not have acted lawfully (see [59]). Further, it is said that, even if one were to elevate these possibilities from the status of conjecture to that of inferences, that would not meet the appellants' case (referring again to what was said by Crennan J in Lithgow City Council at [93]-[94]).
In this regard, reference is made by the respondent to Digi-Tech (Aust) Ltd v Brand [2004] NSWCA 58 (Digi-Tech) as to the evidentiary burden where a plaintiff alleges reliance on a misrepresentation which induced it to enter into a transaction causing loss (see at [159]) and says that the same must apply here where it is alleged that the conduct in question induced or caused Bankwest (a third party) to take a step or steps which caused the appellants to suffer loss. In response to this, the appellants say that it is irrelevant to the present case, noting that conduct may be a direct or effective cause of the loss if it was an essential part of the chain of causal events that, ultimately, led to loss (citing ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1, [2014] FCAFC 65 at [1377]). It is said that, as in Hampic Pty Ltd v Adams [1999] NSWCA 455 (see at [35]) and Elias v Alloha Formwork & Construction Pty Ltd [2017] NSWSC 1546, the reliance by the appellants' builder is sufficient in that it led to the appellants' loss.
As to the first of the asserted errors, the respondent says that the primary judge correctly identified (see at [43]) the relevant principle in Henville v Walker (which the appellants accept is the case) and (which the appellants dispute) that the analysis of the primary judge never got so far as having to apply Henville v Walker as the appellants failed, as a question of fact, to prove that the misleading or deceptive conduct of the respondent was a cause of Bankwest acting in the manner that it did. The respondent says that it was not in dispute in Henville v Walker that the misrepresentation in question was one matter which induced entry into the transaction (rather, the issue was whether this was sufficient to satisfy the causal requirements of s 82); whereas, in the present case, the very issue was whether the misleading or deceptive conduct by the respondent was a decisive consideration, or played a role, in Bankwest acting as it did. The respondent submits that the appellants in their written submissions have impermissibly sought to recast their case on appeal and to argue for the first time that the person who made the relevant decision (for the purpose of the analysis of McHugh J in Henville v Walker) was Jabbcorp and not Bankwest. (The appellants cavil with this.)
As to the second error, the respondent says that if it is not resolved in the appellants' favour then the proper application of Henville v Walker does not arise as the necessary factual finding that the respondent's conduct was a cause of the loss will not have been established. The respondent says that the suggestion that the discovery of the design error was the only "material change" enlivening the rights of Bankwest under the loan facility and which led it to issue the letter of demand is incorrect. The respondent points again to the unchallenged finding that the issue of the demand was not causative of any loss. Emphasis is placed on the following: that it was unclear precisely when Mr Portelli was engaged (and the nature of his instructions); that the Initial Audit Report identified several difficulties that beset the development (not just the design error); and that Mr Veitch was not proven to be a relevant decision-maker within Bankwest.
As to the debate as to the meaning of conjecture (which the respondent says may be a mere a guess but may also be a possibility), reference is made to what was said in Carr v Baker (1936) 36 SR (NSW) 301 by Jordan CJ (see at 306) as to conjecture ranging from the "barely possible" to the "quite possible". The respondent says that, at its highest, the appellants' case does no more than raise the possibility that the misleading or deceptive conduct played a role in the decisions of Bankwest that led to what transpired (and that what the appellants are actually here inviting the Court to do is to guess).
In response to this submission, the appellants argue that the respondent has misconstrued the effect of the critical passage in Henville v Walker. The appellants emphasise that in the present case the primary judge concluded that there had been reliance on the Certificate and they say that, at least where a representee has embarked upon a course of conduct (for example, by entering into a construction contract), and the reliance of the representee is "one of the decisive considerations for taking the course of action in question", the misrepresentation is "correctly seen as causally connected with the course that follows" (see Henville v Walker at [119]). The appellants say further that it was always their case that it was Jabbcorp (and thus the appellants) who relied upon the Certificate thereby causing loss to the appellants.
Further, the respondent says that the decision of White J, as his Honour then was, in Dawson v LNG Holdings Pty Ltd [2008] NSWSC 137 (Dawson) is of no assistance as his Honour's finding (at [111]) was made in the context of alleged intervening events which severed the chain of causation in the circumstances of that case (which did not involve the provision of professional advice), not as some general observation as to foreseeability.
It is submitted that the presence of Mr Hasham (the principal of the respondent) as a witness is not an evidentiary prerequisite to a finding that the loss claimed by the appellants was not reasonably foreseeable in even a general way by the respondent. It is said that there was no allegation (or evidence) that the respondent was on notice, or should have been on notice, of the appellants' financing arrangements, nor that these arrangements and the ability of the appellants to make a profit depended on the respondent not causing any delay to the development, though the issue of remoteness and reasonable foreseeability under s 82 was expressly pleaded by the respondent. Thus, it is said that there was nothing for Mr Hasham to prove or disprove in terms of his state of mind.
The respondent says that the primary judge assumed a "benign attitude" by Bankwest to default and that this attitude would continue for an extended period of time (and possibly into 2011) and that, even so, there can be no reasonable basis to arrive at any inference about hypothetical past events (such as whether, in the absence of the design issues, Bankwest would have been content for the appellants to remain in default for a prolonged period or, if it was initially, would not have changed its mind and called for repayment). It is submitted that it was for the appellants to prove that Bankwest would have allowed the appellants to complete and realise the development, despite being in default under the facility from 2 August 2010; that the appellants failed to do so and, hence, have not discharged their evidentiary onus to prove that an opportunity to realise the development was actually lost.
As to the second of those propositions (and for essentially the same reasons), the respondent says that the discount of 15% applied to the primary judge's notional assessment of damages should be substantially increased if, contrary to its submission, a loss of opportunity has been established by the appellants. It is said that the error as to the first of the propositions identified above also infected the primary judge's assessment of the discount.
It is submitted that, if a loss of opportunity was suffered, its value is a matter of extreme speculation in the absence of any understanding as to whether Bankwest would adopt and maintain the position of a "benevolent lender" towards a borrower who was likely to be in default for some time. Thus, the respondent says that if a loss of opportunity has been proven by the appellants, it should be discounted by 80% to 90% as had been contended for at first instance (it being said that this would reflect the "other risks" referred to by the primary judge - see at [73]) and would also acknowledge the "inherent uncertainty which necessarily attaches to projecting the hypothetical past". It is said that the discount should reflect the fact that the development continued "at the pleasure of" Bankwest as it could have taken the development away from the appellants at any time after 2 August 2010 and prior to the appellants coming into sufficient funds to repay the loan.
The appellants say that, in the present case, Mistrina had an opportunity to construct the building, sell the units and make a profit; and that that opportunity "had some value (not being negligible value)" (citing Sellars at 355). As to the value of that opportunity, to which the primary judge applied a discount of 15%, the appellants say that this Court should be slow to interfere with his Honour's determination of an appropriate discount. It is noted that an assessment of damages has many of the characteristics of a discretionary judgment (referring to Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 381; [1981] HCA 4 (St Helens Farm) per Mason J, as his Honour then was); and that this has been emphasised where the dispute concerns the appropriate discount in a loss of opportunity case (citing Bennett v Talacko [2020] VSCA 99 (Talacko) at [108] per Beach, McLeish and Niall JJA). It is said that describing the value as a matter of speculation "takes matters nowhere" (citing Sellars at 349).
The appellants say that his Honour's conclusion (rejecting the proposition that, had the appellants got to 2 August 2010 but the development was not completed, Bankwest would have taken it out of their hands at that time) is consistent with the proposition that Bankwest, acting rationally, is unlikely to have exercised its right as mortgagee to acquire an interest in an incomplete building which was close to completion. It is submitted that, here, the issue was whether the defective slab design was a cause of Bankwest enforcing the mortgage (i.e., a cause of the appellants' loss of the opportunity to complete the project); and that this question should be answered in the affirmative; and what then arises is the assessment of the value of this opportunity. It is submitted that the contravening conduct was a cause of the loss of that opportunity which had some value (cf Sellars at 355).
I accept the appellants' submission that the available evidence demonstrates that Bankwest was concerned about the suspension of works and the consequent "blow outs" in time and cost; and that whether Mr Veitch or another person at Bankwest was the relevant decision maker is largely irrelevant, as it is clear that Bankwest and its solicitors had knowledge that construction had stopped and as to the resultant unknown delays and costs of rectification (and, more generally, the resultant risks to the venture and recovery of the lending). Apart from the fact that the respondent does not identify any other relevant material change at around the time that Bankwest issued the Demand (instead, simply pointing to the various other issues raised in the Initial Audit Report), it is sufficient that the discovery of the building's serious structural defects and likely delay in construction were matters capable of falling within the "Event of Default" clause under the security documents. Again, I consider that, on the evidence before the primary judge, the proper inference to be drawn was that a material cause of the decision by Bankwest to exercise its rights under the security documents was the defect in the design of the raft slab; and this is sufficient to establish causation.
Furthermore, one would not lightly draw an inference that Bankwest had knowingly acted unlawfully (or improperly) in exercising its rights as mortgagee (and, in this respect, I note authorities such as McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835 at 850-851; [1906] HCA 1 and Financial Ombudsman Services Ltd v Utopia Financial Services Ltd [2016] WASCA 55 at [48]-[55] per Le Miere J). Rather, in the absence of anything to suggest an improper purpose, the only reasonable inference is that Bankwest must have considered that there was an available "Event of Default" and, however the collation of the numerous issues in relation to the building development is or was viewed, the issues raised by the defective design of the raft slab must have been a material factor at the time. In this regard, and albeit not squarely the same, I have in mind what was said by Gageler and Edelman JJ in Berry v CCL Secure Pty Ltd [2020] HCA 27 (at [66]) that:
66. The practical burden of introducing evidence − the so-called "evidentiary onus" − is a different matter. In the pre-trial and trial processes that lead up to a court ultimately having to determine whether a plaintiff has discharged the legal onus of proof by inferences drawn from the whole of the evidence, the practical burden of introducing evidence can and often does shift. Whether, and if so how and to what extent, an evidentiary onus might shift from a plaintiff during the conduct of an action depends in large measure on how the plaintiff chooses to formulate the loss or damage claimed to have been suffered, and on how the parties thereafter choose to join issue on the questions of connection with the contravention and quantum that arise in respect of the chosen formulation. Much, in other words, depends on the pleadings.
The fact that Bankwest had opportunities to change its mind (and seems to have considered handing the development back to the appellants) is not to the point. As events transpired, it is clear that the defective structural design was a cause of its decision to issue the Demand and that this ultimately led to the loss of opportunity.
As to the notice of contention (and cross appeal), the question as to the engagement (or otherwise) of remoteness rules (and, particularly, a reasonable foreseeability delimitation) in this context has not been authoritatively determined (see, for example, the observations in Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 at 286-287).
In relation to a comparable (though, I emphasise, not identical) statutory prohibition in the United Kingdom (see s 2(1) of the Misrepresentation Act 1967 (UK)), it is well-established that the measure of damages is based in tort, not contract, and the prevailing view in the authorities is that the relevant tortious measure is that for deceit (see, for example, Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (Royscot) at 304-5; [1991] 3 All ER 294 per Balcombe LJ). If the analogy to the tort of deceit be accepted, then it would arguably follow that the remoteness rules in deceit would apply (and, therefore, that no reasonable foreseeability delimitation ought to be imposed).
Having said this, I observe that the applicability, or otherwise, of principles from the tort of deceit was left open by Lord Browne-Wilkinson (at 267) and Lord Steyn (at 283) in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; [1996] 4 All ER 769. It has also been criticised, extra-curially, by, amongst others, Justice Edelman (who has described the approach in Royscot as "unfortunate" - see McGregor on Damages (20th ed, 2018, Thomson Reuters) at [49.056]).
I note, also, that the tort of deceit has been prominent in defining the scope of liability under the Australian statutory regimes (see, particularly, Henville v Walker at [19] per Gleeson CJ, [130]-[134] per McHugh J; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69 at [41] per McHugh, Hayne and Callinan JJ, [102]-[103] per Gummow J, [137]-[138] per Kirby J; and HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [65] per Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ; and see further Jeannie Marie Paterson and Elise Bant, 'Misrepresentation, Misleading Conduct and Statute Through the Lens of Form and Substance' in Andrew Robertson and James Goudkamp (eds), Form and Substance in the Law of Obligations (2019, Hart Publishing) 403).
As to the analogy with s 5D of the Civil Liability Act here urged by the respondent, I respectfully note what has been said on this topic, extra-curially, by Leeming JA (see, for example, 'Statutory Interpretation as Private Law' in Prue Vines and M Scott Donald (eds), Statutory Interpretation in Private Law (2019, The Federation Press) 28).
While expressing no concluded view on the matter, for my part, I see the loss suffered here as a reasonably foreseeable consequence of the misleading and deceptive conduct. I also feel some hesitation concerning the relevance, or at least probative value, of evidence as to Mr Hasham's (and, more generally, the respondent's) knowledge (and, in any event, none was adduced). In this connection, my observations above concerning the overwhelming inference to be drawn, and related matters, apply equally here, again noting the language of McHugh J and that (as submitted by the appellants) it was here "foreseeable even in a general way", if not more so, that the appellants would suffer damage, including the loss of the opportunity, noting that a secured creditor calling up its loan is the very sort of event that could naturally arise from delays, additional costs and the discovery of such significant structural defects. I also do not see that such a statutory construction would have the effect that professional service providers would thereby become unwitting underwriters of commercial risk (as the respondent suggests). It is unnecessary here to say anything more in relation to this.
Finally, as to the extant issue raised on the cross-appeal as to the discount to be applied, it must be emphasised that the primary judge considered, albeit in obiter, this issue and determined that a 15% discount would apply. The primary judge observed (see at [74]) that very little was put by the respondent on the question of remoteness or contributory negligence and said that such considerations would also factor into a determination as to discount.
In this regard, while it being unnecessary to express any firm view, I see force to the submission for the appellants that an assessment such as this exhibits many characteristics of a discretionary judgment (see St Helens Farm at 381 and Talacko at [108]) and, accordingly, that this Court would be reluctant to interfere unless satisfied that the exercise of such discretion has miscarried.
That aside, the finding by the primary judge on the evidence that the appellants would (but for the structural defects) on 2 August 2010 have been close to completion of the development tells against a more substantial discount. Although perhaps an optimistic view, the unchallenged expert evidence as to the likely time for completion (but for the structural design issue) provides ample basis for the conclusion that the primary judge reached. It would not accord with commercial common sense for a lender to step in and take over a partially complete building at such a late stage of construction. Hence the conclusion that Bankwest would not likely have taken the development out of the appellants' hands at that stage has commercial sense.
Accordingly, I propose the following orders:
1. Appeal allowed with costs.
2. Cross-appeal dismissed with costs.
3. Set aside the orders made on 26 February 2020 and in lieu thereof order that judgment be entered in favour of the first appellant in the sum of $2,265,556 and in favour of the second appellant in the sum of $1,105,000.
LEEMING JA: I agree with Ward JA that the appeal should be allowed and the cross-appeal dismissed. On the principal point, it was common ground that Mistrina would satisfy the test for causation posed by s 82 of the Trade Practices Act if it established that the structural design defect materially contributed to the loss. I agree, for the reasons given by Ward JA, that there is an overwhelming inference that the defect was a material cause of the Bank taking over the development. It was obvious that the defect would cause delay. It was obvious that the defect would introduce further uncertainty - as to cost and timing of completion - into a project which had already taken longer and cost more than had been anticipated. While there is force in the point emphasised by the respondent that a number of other matters were of concern to officers within the Bank at the time, it would be wholly remarkable if the new dimension of delay and expense introduce by the discovery of the defective slab were not material.
By its notice of contention, the respondent contends that the loss and damage was not foreseeable "even in a general way", picking up what was said by McHugh J in Henville v Walker (2001) 206 CLR 459; [2001] HCA 52. It is unnecessary to determine whether s 82 is subject to that limitation (either generally, or in a case such as the present), a matter left open by the joint judgment in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526; [1992] HCA 55 and in this Court in Stryke Corporation Pty Limited v Miskovic [2007] NSWCA 72 at [63]. I agree with Ward JA, for the reasons her Honour gives at [100], that the loss of the opportunity was, at the very least, foreseeable even in a general way.
I agree with what Ward JA has written concerning the cross-appeal, which accords with the approach adopted in this Court in McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 in [110]-[128], and in other intermediate courts (some are collected in Maritime Union of Australia v Fair Work Ombudsman [2015] FCAFC 120 at [34]).