//
[2019] VCC 2156
General information, not legal advice.
County Court of Victoria
2019-12-18
Original judgment source is linked above.
1 By the time the trial in this matter concluded, the major issue was the measure of damages which the plaintiff, Mortgage Finance Options Pty Ltd ("MFO"), was entitled to recover from the defendant, UniQ Finance Australia Pty Ltd ("UniQ"), due to UniQ's repudiation of an agreement between those parties.
2 MFO is an independent loan writer and holds an Australian credit licence. Vicki Tanner ("Tanner") is the director of MFO. She is a mortgage broker.
3 Veki Brdjanin ("Brdjanin") has been the sole director of UniQ since 2007. UniQ carries on business predominantly as a finance broker in the fields of residential, commercial and construction finance. UniQ has a master agency agreement with Australian Finance Group Pty Ltd ("AFG"). Brdjanin said that, as the master agent, UniQ is responsible for each and every loan written whether it is written by Brdjanin or one of the member authorised representatives.[1] These representatives are people or entities who have a commercial relationship with UniQ. They introduce their own clients for whom they write loans, or they rely upon UniQ and its contacts to generate clients for whom the representative can write loans.
4 On about 11 March 2015, MFO and UniQ entered into the UniQ Finance Contractor Agreement ("Agreement"). Under the Agreement, UniQ agreed to produce potential borrowers for MFO to service. MFO agreed to write loans for such borrowers by submitting applications to a panel of lenders through the services of an aggregator, AFG. UniQ agreed to pay commission to MFO in relation to loans which MFO wrote through AFG. This commission had 2 elements: an immediate up-front fee and a trailing commission. AFG distributed and paid the commission in accordance with instructions given by UniQ. The commission was divided between AFG, UniQ, MFO and sometimes, third parties who referred the particular borrower to UniQ or MFO.
5 As part of her work for MFO, Tanner also mentored new loan writers who sought to join the industry. There was a system whereby established operators such as Tanner mentored new entrants and provided guidance and support. Under the mentoring program, the newcomers worked and obtained the relevant certifications and accreditations which enabled them to operate into the future as finance brokers. For example, with a company like Commonwealth Bank of Australia, a finance broker had to have worked for at least 2 years to gain accreditation as a broker with the bank. When a mentee wrote a loan during the mentoring period, MFO, as mentor, would receive 10% of the commission distributed by AFG. This was known as an override commission.
6 AFG paid commission 2 months after the period in which MFO had earned the commission. So, when MFO earned commission in, say, June 2016, AFG paid the commission in August 2016.
7 On 13 December 2016, the Agreement was terminated. As a result, MFO stopped writing loans for UniQ at that time. Nonetheless, MFO argued that under the terms of the Agreement, UniQ's obligation to pay trailing commission continued beyond the termination. Initially, MFO continued to receive the trailing commission due to it including the override commission from the mentorships which it had with Timothy Bollard ("Bollard") and Ali Haider of Honest Finance Group Pty Ltd ("Honest Finance"), and Mark Daniel ("Daniel"). These payments amounted to approximately $2,500 per calendar month. In addition, MFO earned commission of approximately $1,500 per calendar month from loans written prior to its entry into the Agreement. Accordingly, AFG, after termination of the Agreement still paid MFO approximately $4,000 per calendar month.
8 On 14 September 2017, Brdjanin, as the director of UniQ, wrote an email to AFG stating:
"... effective immediately I wish to cease all trail payments being made to Vicky Tanner and have them revert to UniQ Finance Australia as the master agent."
10 On 6 October 2017, MFO received from AFG $1,635.60 in trail commission payments in relation to loans written before MFO entered into the Agreement with UniQ. However, MFO received no trailing commission or override commissions in relation to loans written during the currency of the Agreement with UniQ. These payments were directed to UniQ.
11 By email on 6 October 2017, Tanner contacted AFG to advise that her normal trail payment was $4,100 per month. She asked why there was a discrepancy with the payment made that day. Later the same day, Vivian Germon of AFG responded by informing Tanner that some of the trails previously paid to MFO were now going to UniQ in accordance with a request made by UniQ.
12 By email sent on 9 October 2017, Tanner wrote to Brdjanin informing him that, contrary to the Agreement, trailing commissions were being diverted from MFO to UniQ at the latter's request. Tanner asked that Brdjanin reverse the instruction given to AFG.
13 Later the same morning Brdjanin responded to Tanner suggesting that she re-read the Agreement between MFO and UniQ. Brdjanin alleged that MFO (or Tanner) on numerous occasions was conducting business and making loans for clients and clients of referral partners introduced by UniQ.[2] This was said to be a breach of the Agreement and done in disregard of their commercial understanding.
14 Tanner also followed up AFG again about the new situation. However, AFG said that UniQ maintained ownership of the commissions in question and AFG carried out the changes as instructed by UniQ.[3]
15 By email on 11 October 2017, Tanner expressed her surprise to Brdjanin about what he had done. She asked whether he intended to reverse the instruction to divert the trailing commission due to MFO. Brdjanin did not respond to the email.[4]
16 By letter dated 20 October 2017, Oceania Lawyers and Consultants ("Oceania Lawyers"), on behalf of Tanner and MFO, wrote to Brdjanin. The letter noted that the Agreement provided for what was to happen to trailing commissions in the event that, as occurred here, the Agreement between the parties terminated. It was said that Clause 7.1(c)(ii) provided that UniQ was to continue paying trail commissions to MFO. The only exception was in the case of "systemic fraud" and even then, UniQ could deduct only the actual loss it incurred. It was said that UniQ had repudiated the Agreement and that Tanner and MFO accepted the repudiation.
17 By email on 27 October 2017, Brdjanin acknowledged receipt of the letter from MFO's lawyers and said he would wait for MFO to commence the foreshadowed proceedings for damages. Upon receipt of MFO's claim, he said that he would brief his lawyers and issue a counterclaim against MFO.
18 On 4 January 2018, MFO issued this proceeding.
19 By email on 21 May 2018, Brdjanin asked Carl Taylor of AFG to commence paying Tanner's trailing commission on the next scheduled trailing commission run. Brdjanin said that no adjustments were required; merely a recommencement of the trailing payments as at the next trail payment run.
20 On the same day, UniQ's former solicitors, Meerkin & Apel, sent an open letter to Oceania Lawyers which said as follows:
"Please note that payment of trail commissions to your client has recommenced, effective for trail commissions accrued in and from April 2018. The amount of $1,843.76 has therefore been remitted to your client...
In the interests of narrowing the dispute, trail commissions will continue to be paid on a monthly basis hereafter until further notice and subject to your client's acceptance of the offer set out below.
Effectively, your client's trail commission was suspended and retained by our client, as accrued from September 2017 to March 2018 (inclusive) in the total amount of $9,471.43 (including adjustment for claw-backs) ...
...our client offers to settle the proceeding and all claims between our respective clients as follows:
We require Terms of Settlement that incorporate the above terms, the usual settlement provisions in relation to non-disparagement, confidentiality and make provision for the disposition of the Court proceedings."
21 The offer was open for acceptance until 4.00pm on 4 June 2018 after which it lapsed. MFO did not accept the offer.
22 By email on 16 August 2018, Paul Ko, a technical analyst at AFG, advised Brdjanin that they stopped Tanner's trailing commission on 20 September 2017 and reinstated that commission on 23 May 2017. Any commission for the intervening period was paid to UniQ. When it reinstated payments to MFO, AFG did not backdate any trailing commissions. It merely paid trailing commission accruing in the future.
23 By letter dated 10 December 2018, Oceania Lawyers wrote to AFG noting that:
Oceania Lawyers said it was instructed that AFG had details of the 67 files in respect of which MFO was paid commission in September 2017 but not paid commission from June 2018 onwards. The solicitors asked for a list of those 67 files and a brief explanation why each of those files was not reinstated.
24 By letter dated 11 January 2019, Skye Miller ("Miller"), legal counsel for AFG, responded to Oceania Lawyers. She said that no commission was paid for the specific files referred to because they had either been discharged, were in default, or had a low balance. She asked that any further queries regarding the commission payments be directed to UniQ.
25 By email on 23 January 2019, Oceania Lawyers asked Miller to explain what was meant by the comment "Vicky's portion reverted to Uniq" in the "Summary" tab of the spreadsheet which she provided. In particular, Oceania sought confirmation that the 39 files bearing that comment were not reinstated to MFO or Tanner.
26 The following day, Miller forwarded a response from the commissions team at AFG. The gist of the response was that the files bearing that notation were those in respect of which the associated commission was paid to UniQ since May 2018.
27 On the first morning of the trial, counsel for UniQ, Mr Thomas applied to amend the Defence and Counterclaim. The proposed amended pleading was apparently sent to MFO's solicitor on Friday 1 November 2019. UniQ sought to make three amendments, the most significant of which was an allegation that MFO breached clause 7.1(a) of the Agreement. During the course of the oral application to amend, Mr Thomas noted an error in the proposed amended pleading and said that the alleged breach was not of clause 7.1(a) but clause 7.1(c) (iii) of the Agreement. Hence, this alleged breach was raised for the first time in court without any prior notice. This took place in circumstances where UniQ did not file any supporting affidavit which explained the nature of the amendment and why it was being sought at this late stage of the proceeding.
28 In a further complication, after counsel for the plaintiff made his submissions on the issue, Mr Thomas said, somewhat remarkably, that he had made another mistake and that the alleged breach which UniQ sought to rely upon was of clause 7.1(c)(iv) of the Agreement. For reasons set out in a ruling given upon the conclusion of UniQ's application, I refused the amendment application and the trial proceeded.
29 Also on the first morning of the trial, Mr Thomas made an open offer to MFO. UniQ's offer was to the effect that, if MFO assigned to UniQ the trailing commissions it was to receive in the future, UniQ would pay MFO within 21 days the sum of $35,000 together with costs to be taxed on scale F as assessed in the Magistrates' Court. MFO did not explicitly respond in court to this offer. From its silence and subsequent conduct I infer that MFO rejected the offer.
30 After some preliminary matters had been attended to, MFO opened its case on the basis that it had a simple claim. It alleged that UniQ repudiated the Agreement by failing to pay and/or by instructing AFG not to pay the trailing commission to which MFO was entitled under the Agreement. Alternatively, it alleged that certain correspondence from UniQ and its failure to reply to other correspondence from MFO constituted a repudiation of the Agreement. MFO contended that by its solicitor's letter dated 20 October 2017, it accepted the repudiation of the Agreement by UniQ and was thereby entitled to damages.
31 MFO quantified its loss as the nett present value of the trailing commissions which it would have received had UniQ duly performed the Agreement. This amount was to be assessed as at the date of repudiation.
32 MFO relied upon the expert report of Dennis Lee ("Lee") of FTI Consulting in assessing its loss. MFO claimed the sum of $121,877.57. This sum comprised the nett present value of the MFO loan book as at the date of repudiation, namely $132,015.00 plus GST of $13,201.50, less trail commission paid since 23 May 2018 on some of the loans written during the currency of the Agreement. The commissions received were $23,338.93.
33 In his opening, Mr Thomas said that it was not disputed that UniQ ceased paying the commissions to MFO and later reinstated them.[5] However, UniQ rejected Lee's assessment of the damages as too generous and incorrect because they did not take into account the true nature of the loan book. UniQ argued that the projections which Lee made were incorrect and not borne out by the actual trailing commissions paid to MFO. As a result, UniQ obtained a second valuation from its valuer, Andrew Firth ("Firth"), which produced a valuation of the loan book as at August 2019 of $27,632.00. This was a substantial reduction on his earlier report where he assessed the fair market value of the loan book at September 2017 as $99,432.00.
34 Mr Thomas proffered reasons why UniQ was justified in terminating the payment of trailing commissions and pursuing a counterclaim. The reasons included an allegation that MFO created and deployed for its own benefit fraudulent invoices. However, on the second morning of the trial, Mr Thomas announced in court that UniQ withdrew:
• all allegations, either express of implied, of fraud by MFO;
and conceded liability to MFO for breach of the Agreement save insofar as it concerned the commission relating to the mentee, Bollard. Curiously, UniQ did not apply the same qualification to Daniel, the other mentee disclosed in the records tendered at court. Thus, UniQ did not accept that, after the reinstatement, MFO should receive the override commissions which were previously payable to it.
35 Because of the concessions made by UniQ during the trial, the issues to be determined appear to be as follows:
(a) is MFO entitled to damages for the override commissions on loans written by Bollard?
(b) at what date are MFO's damages to be assessed?
(c) what is the appropriate quantum of damages?
(d) is the plaintiff entitled to GST on the damages awarded?
Is MFO entitled to damages for the override commissions on loans written by Bollard?
36 On 8 September 2017, MFO received override commissions on each of the 47 loans written by Bollard and Daniel. UniQ acknowledged that MFO received no override commissions from those mentees after the repudiation of the Agreement in September 2017.
37 MFO claims damages for the override commissions not paid in the period after UniQ's repudiation of the Agreement.
38 UniQ's position on the override commissions appears to be that it lacked the authority to instruct AFG about how to allocate the override commissions between the relevant parties. Further, in any event, it says that it was Bollard not UniQ who instructed AFG not to pay the override commissions to MFO.
Who had the authority to instruct AFG about override commissions?
39 The main feature of UniQ's defence on this issue was a commission payment instruction about loans written by Bollard which described Honest Finance as the "member" and Bollard as the "member's authorised representative". The instruction document showed that the member was to receive 85% of both the upfront and trailing commissions, whether or not the member or the member's authorised representative introduced the loan application. Tanner received a 10% override commission and the remaining balance of 5% was payable to AFG as the aggregator.
40 The weight of the evidence is such that, in my view, it is overwhelming likely that the reference on the commission payment instruction to Honest Finance as a "member" is mistaken. The member ought to have been described as UniQ. I have reached this view for a number of reasons. First, whereas there was no evidence (apart from the document I have found likely to be erroneous) of any direct dealing and contractual relationship at the time between Honest Finance (or any other mentee) and AFG, there was such a relationship between UniQ and AFG. UniQ and AFG entered into an AFG Member Agreement in May 2007.[6] Under that agreement, UniQ as the member stated its intention to have a business relationship with AFG[7] and was authorised on a non-exclusive basis to introduce or refer applicants to AFG or a Funder.[8] Pursuant to clause 5.1 of the member agreement, if the member achieved the performance benchmark, then AFG would pay to the member, or as the member directed from time to time, the commission agreed between AFG and the member in accordance with the relevant schedule and the terms and conditions of the agreement.
41 Under clause 5.2 AFG, agreed to: ensure all commissions payable to the member were distributed to the member's nominated bank account; use its reasonable endeavours to ensure all commissions payable to the member were paid in accordance with the current commission payment schedules published by AFG; and provide a commission advice to the member with each payment.
42 Secondly, Brdjanin is the controlling mind of UniQ. He said that UniQ prepared the commission split instruction document.[9] He also said that Honest Finance was a member authorised representative, not a member.[10] Brdjanin was clear in his evidence that UniQ was the master agent and therefore, obligated and responsible for every loan written, whether by Brdjanin himself or one of the member authorised representatives.[11] Brdjanin also spoke of UniQ's status as master agent in some of his correspondence.[12] Brdjanin suggested that Bollard gave instructions to AFG about the commission splits through UniQ as the master agent. Brdjanin said that, because of UniQ's overall responsibility for every loan, it had to sign off on any commission split arrangement between any of the parties which operated under its banner.
43 Thirdly, there were five commission split documents in evidence. Bryce Deledio, the general manager of UniQ Property Pty Ltd, a company related to the defendant, signed each of these documents. He signed them all on behalf of the member, UniQ. These documents were, in accordance with their terms, schedules to the AFG Member Agreement between AFG and UniQ. Deledio signed the commission split document, purportedly on behalf of Bollard as the member. However, there was no evidence of a membership agreement between AFG and Bollard (or Honest Finance, the company of which Bollard was a director). UniQ called Bollard to give evidence. UniQ's counsel did not ask him if Honest Finance had a membership agreement with AFG. This would have been a simple way to adduce relevant evidence. However, UniQ chose not to ask the question. The principle of Jones v Dunkel[13] applies also to the failure by a party to ask a witness called by that party a question in evidence, at least where the most natural inference is that the party was scared to do so. Indeed, a majority of the New South Wales Court of Appeal in Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd,[14] suggested that the omission to ask a question of a friendly witness is more significant in this context than the failure to call the witness. This is because the presumption that the witness's evidence would not have assisted the party's case is stronger than the presumption arising from the failure to give evidence at all. Hence, the court should not draw an inference in favour of a party where the party called a witness who could have given direct evidence of an issue but did not.[15]
44 In my view, it was significant that when Bollard was taken to the commission payment instruction document, he said that he had no recollection of ever seeing it before.[16] If there had been an agreement between Honest Finance and AFG, then Bollard should have seen and recalled the document. This was partly because it was said to be a "schedule to the AFG Member Agreement between the Member and AFG",[17] and partly because it set out the commission payment percentages which Bollard's company would receive.
45 Fourthly, AFG apparently considered UniQ, and not Honest Finance, to be the member. In his email to Carl Taylor and Scott McDonald of AFG, on 14 September 2017, Brdjanin said that he wished to cease all trailing payments made to Tanner and have them revert to UniQ. Charissa Yeap, a relationship manager at AFG, by email the following day informed the AFG customer service manager, Darryl Schmetz, that Tanner was a terminated broker and that the member had advised that it would like to cut all commissions to her with immediate effect.[18] Other correspondence between staff at AFG confirmed that commission on deals which Tanner wrote under the arrangement with UniQ was now to be paid to the member, UniQ, and not MFO.[19] There were no written communications between AFG and Honest Finance in evidence where either of them referred to Honest Finance as a member.
46 In short, UniQ had the authority to instruct AFG about the payment of the override commission. UniQ was the member and had a contractual relationship with AFG. There was at trial no such document produced between AFG and Honest Finance, and Bollard made no claims in this regard of a similar nature to Brdjanin.
Who instructed AFG to stop paying the override commission to MFO?
47 As set out above, Brdjanin instructed AFG to stop the trail payments to MFO. AFG acted upon that instruction from Brdjanin. There was no evidence of Bollard instructing AFG in September 2017 or at all, that MFO should not receive any override payments in relation to loans written by him or Honest Finance. Bollard said that Tanner was his mentor for about two years. In early 2018[20] Bollard contacted Brdjanin to say that he now had some experience in the industry and no longer required a mentor. He asked Brdjanin about Honest Finance receiving the commission which Tanner had been paid on loans originating from him. Bollard said that Brdjanin passed that information onto his assistant Morgan to follow up. Later, Bollard's commission split increased from 85% to 90%. AFG retained its 5% and the remaining 5% went to UniQ.
48 Thus, even if, contrary to my findings, Bollard had contacted AFG to stop the payment of overrides to MFO, Bollard did not act until early 2018. Brdjanin, on behalf of UniQ, had already contacted AFG in September 2017 and terminated the payment to MFO of all commissions in relation to loans made by MFO as a member authorised representative of UniQ.
49 In summary, I find that UniQ stopped the payment of override commission to MFO at the time of repudiation. These payments did not resume. However, the matter of quantum is more complicated.[21]
50 The main area of dispute in this case was the quantum of damages. As set out above, MFO claimed about $122,000, whereas UniQ said the appropriate sum was initially about $99,000 and later, approximately $27,000.
51 Generally, the court assesses damages for breach of contract as at the date of breach.[22] However, that rule is not absolute.[23] It must give way in appropriate cases so that an innocent party recovers the damages which most fairly compensate it for the wrong suffered. The general rule is not followed when it is necessary to do so in the interests of justice or to provide adequate compensation.[24]
52 It is clear that in certain circumstances, a court can take into account events which post-date the breach of contract upon which a plaintiff sues. In Johnson v Perez,[25] Perez sued various solicitors for negligence and breach of contract because legal actions which he had initiated against former employers for injuries sustained at work were dismissed for want of prosecution due to the negligence of the solicitors. The High Court held, by majority, that the damages payable to Perez were to be assessed by reference to an appropriate award at the time the case should have been determined but for the solicitors' negligence. It was not to reflect the level of award current at the time the case against the solicitors was ultimately determined.
53 In Johnson v Perez, all the judges, both the majority and the dissentients, agreed that, generally, damages for breach of contract are assessed at the time of breach. However, that rule would give way if necessary to ensure a plaintiff received an amount of damages which most fairly compensated him for the wrong suffered,[26] or it was necessary to provide adequate compensation,[27] or it was necessary to put the plaintiff in the position he would have been in but for the breach.[28]
54 MFO invoked the general rule about assessing damages as at the date of breach, namely, in September 2017.[29] It contended that a court should only depart from the general rule in order to provide a plaintiff with sufficient compensation - for example, by insulating a plaintiff in a personal injury case from the consequences of inflation.[30]
55 MFO was critical of the reports prepared by UniQ's expert, Firth. I will address the issue of the reports in greater detail later. MFO, apart from criticising the valuation methodology and lack of data made available to Firth, noted that the second Firth report adopted a valuation date of August 2019.[31] This was said to be the wrong date for assessing damages. MFO submitted that valuing the loan book about two years after the date of repudiation was incorrect because it could be subject to manipulation and to other factors which would not have occurred but for UniQ's repudiation of the Agreement.[32] The point made was that UniQ's repudiation of the Agreement could affect the quantum. Because UniQ considered that it maintained ownership over the clients which it introduced to MFO for the purposes of having MFO write loans for them, MFO submitted, for example, that UniQ could have encouraged those clients to refinance or repay their loans.[33] If that occurred, the clients and loans would no longer remain on MFO's loan book and MFO would cease earning commission in relation to those clients.[34]
56 UniQ wanted the court to take account of the matters raised in Firth's second report dated 6 November 2019. This report represented Firth's assessment of the fair market value of the loan book using the capitalisation of recurring revenue methodology as at August 2019. In that report, Firth found that the trailing commission paid in the month of August 2019 was about $1,280, which created an assumed annual trailing commission payment of $15,350. Using a multiple of 1.8, this gave a fair market value of the loan book at $27,632.
57 Notwithstanding my request to UniQ's counsel that he provide me with authorities, statements of principle and helpful cases on the question of post-repudiation events and their effect upon the assessment of damages, the only reference I was given was a single paragraph in his submissions which quoted from Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64.[35] In a case where the defendant urged the court to take into account the loan book valuation which its expert arrived at in reliance upon trailing commissions actually received during the time after repudiation, it was both surprising and disappointing that counsel was unwilling to render more assistance.
58 I should note at the outset one submission which I do not accept.
59 I do not agree with MFO's proposition that a court should only depart from the usual timing for the assessment of damages to provide a plaintiff with sufficient compensation. The courts can have had regard to later facts in order to limit or reduce the damages payable to a plaintiff. In Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co,[36] the respondent waterworks company exercised its statutory power by notice dated 15 October 1898 to prevent the appellant colliery company from proceeding with its intention to work a seam of coal. The colliery company had given notice of its intent in September that year. If the mining had proceeded, the company would have reached the coal in about June 1900 and it would have taken about 2 years from that time to recover all the coal in the nominated site. The colliery company sought statutory compensation for its loss and the matter went to arbitration. In April 1901, the arbitrator made his award. The critical issue between the parties was whether the compensation was to be assessed on the basis of the value of the coalfield in October 1899 or the amount which the appellant could have made from mining the coal. The House of Lords accepted that the proper valuation basis was the profit which the appellant could have made from mining the coal. In that case, if the arbitration had been held soon after October 1898, the arbitrator could have estimated the possible rise or fall in the price of coal over the period in which it would have been mined. Because the arbitration was not held until a later date, the arbitrator had available to him current evidence of the rise in price over the period. It was held that it was wrong to require the arbitrator to disregard this evidence. As Lord Macnaghten said:
"Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?"[37]
60 A similar approach was taken in Golden Strait Corporation v Nippon Yusen Kubishika Kaisha.[38] In July 1998, ship owners chartered their vessel, Golden Victory, to the charterers for seven years. The charterparty provided in clause 33 that both parties had the right to cancel the charter if hostilities or war were to break out between certain countries. It contained an arbitration clause. On 14 December 2001, the charterers repudiated the charterparty and on 17 December, the owners accepted the repudiation. They claimed damages and the matter was referred to arbitration. On 20 March 2003, the second Gulf War commenced. The arbitrator found that, as at 17 December 2001, a reasonably well informed person would have considered that war or substantial hostilities within the meaning of clause 33 was not inevitable or even probable. It was merely a possibility. He found that the earliest date for contractual redelivery of the vessel was 6 December 2005. The arbitrator was satisfied that, had the charterparty not been repudiated in December 2001, the charterers would have exercised their rights under clause 33 to cancel the charterparty when the Gulf War broke out. Accordingly, he awarded damages only until 20 March 2003, and not until the expiration of the charterparty. A majority of the House of Lords held that the arbitrator was correct to limit the damages payable in this way.
62 In the Golden Strait[39] case, the court could readily identify the event or factor which had a major limiting effect on the damages awarded. The event would have occurred irrespective of the repudiation of the charterparty. Because the arbitrator found that the charterer would have exercised its contractual rights to terminate the charterparty when war broke out, the contract would have come to an end in any case in accordance with its terms and restricted the period for which the owner could have received damages.
63 MFO submitted that if UniQ sought to have damages assessed as at the time of trial, then the burden lay upon it to establish that it was in the interests of justice to do so.
64 In Vouzas v Bleake House Pty Ltd,[40] Macaulay J considered whether the plaintiff's damages should be assessed at the time of breach or whether the facts and circumstances of the case justified a departure from the general rule. In doing so, his Honour set out three underlying principles. The first was that the party seeking to have damages assessed at a date other than the conventional date bore the onus of establishing that it was appropriate to do so.[41]
65 Vouzas concerned alleged misrepresentations made during the sale of a hotel freehold which the vendor held out as being subject to a long term lease to a "AAA tenant", namely, the Collingwood Football Club. Prior to the sale, the Collingwood Football Club had, with the vendor's approval, entered into an agreement to assign the lease.
66 At the time of settlement, the purchaser sought to rescind the contract because the vendor's statement had falsely represented the land was leased to the Collingwood Football Club. The vendor claimed that the purchaser's conduct amounted to a repudiation, accepted it as terminating the contract, and attempted, unsuccessfully, to resell the hotel.
67 The purchaser initiated an action to recover its $500,000 deposit. The vendor counterclaimed against the purchaser, seeking damages for the loss of its bargain under the contract. It was on the vendor's counterclaim that the issue as to the correct date to measure the vendor's loss arose.
• the guiding principle was that damages were awarded to place the injured party in the same situation, with respect to damages, as if the contract had been performed;
• the usual rule was that the damages are assessed at the date of the breach;
• the rule was not to be applied rigidly, but might be modified if necessary to do justice to the parties, consistently with underlying principles, having regard to the injured party's intentions and the surrounding circumstances; and
• in addition to the guiding principle as stated, the "underlying principles" included other established principles with respect to damages, including those in relation to the burden of proof, causation, and remoteness.
69 The Court of Appeal in Broughton v B & B Group Investments Pty Ltd[45] examined in detail the authorities relating to the assessment of damages where a breach of contract had occurred. In regard to onus, the Court said:
"The onus lies upon the wronged party to establish that a departure from the general rule - that the date for assessment of damages is the date of breach - is necessary in order for them to be properly compensated."
70 Broughton's[46] case involved a claim for a breach of contract for the sale of a hotel business. The contract was executed by the parties and the purchaser paid a deposit in the amount of $93,000. After conducting a due diligence of the business, the purchaser terminated the contract pursuant to special condition 3.6 of the contract and sought the return of its deposit.[47] The vendor contended that the purchaser had not validly terminated the contract.
71 With respect to damages, the trial judge determined that the vendor was entitled to retain the deposit. In its cross-application for leave to appeal, the vendor argued that damages should have been assessed as at 20 July 2016 - approximately one month prior to trial - as that was the date on which it abandoned its claim for specific performance of the contract and sought damages.[48]
72 The Court of Appeal referred to the reasoning of Gleeson JA in Ng v Filmlock Pty Ltd,[49] in which his Honour held that "a vendor claiming damages assessed at a date later than 'the date of breach' must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima facie or 'usual' measure of damages."[50] The Court of Appeal questioned whether the vendor had "advanced any basis upon which it would have been appropriate for the judge to assess damages as at a date that was subsequent to the date of breach",[51] and determined that "there was nothing in the circumstances of this case which warranted departure from the general rule".[52]
73 The consistent theme in the authorities is that the burden lies with the party urging the court to depart from the general rule. The court must consider whether, having regard to the circumstances of the particular case, it is in the interests of justice to assess damages at some time other than the date of breach.
74 On this basis, if UniQ sought a later date for assessing damages, then it was required to produce evidence which showed that, if damages were assessed at the date of breach, the compensatory principle[53] would have been infringed and an inappropriate award of damages would have followed.
75 The issue about the time for assessing damages arose because UniQ produced during the trial the supplementary report of its expert, Firth. He used actual figures about trailing commissions MFO received in August 2019 to reduce his valuation of the loan book from approximately $99,000 to $27,000.[54] MFO did not object to the late production and tender of Firth's supplementary report.
76 Because of the way in which UniQ conducted the trial, I could well understand why MFO might have thought that UniQ sought to have damages assessed at a later time. Indeed, initially during the trial, I understood UniQ's case to be that I should assess the loss at August 2019 or the time of trial. However, I sought to clarify the position in final address with UniQ's counsel. I raised a couple of times with Mr Thomas whether he was submitting that, in effect, I should assess the damages payable to MFO as at the date of trial rather than as at the date of breach. Mr Thomas was clear that damages were to be assessed at the time of repudiation and he was not asking for an assessment at a later time.[55] While he asked that I take account of Firth's second report as a current valuation of the loan book, the actual calculation of damages was to be done at the time of repudiation.
77 In summary, UniQ did not contend that the damages payable to MFO should be assessed at any time other than the time of breach in September 2017. To that extent, I am not required to decide if some later time is more appropriate. I find that the general rule should be observed and MFO's damages are to be assessed at the time of breach. However, the question remains about the extent, if at all, to which I should take account of Firth's second report and its potential impact on the amount of damages.
78 The basic principle governing quantum for breach of contract is well established - damages should compensate the innocent party for the loss of bargain. This means that MFO should receive an amount in damages which represents the value of the contractual benefit to which it was entitled but of which it has now been deprived. MFO is to be put in the same position, so far as money can do it, as if UniQ had performed its obligations under the Agreement.[56]
79 The innocent party is entitled to the benefit expressed in money of the contractual rights lost, but not to the benefit of more valuable contractual rights than those lost. A plaintiff is not to be put in a position superior to that which would have occurred without the repudiation.[57] Accordingly, if due performance of the contract would have resulted in a loss, then no damages are payable.
80 MFO claimed that it should recover damages as if UniQ performed its obligations under the Agreement.[58] It accepted that, because it was to receive payments into the future, an award of damages represented an accelerated recovery of those moneys.[59] Hence, for the purposes of assessing damages, it was necessary to apply a discount to the future receipts.[60] The damages represented the present value of the future payments due under the Agreement.[61]
81 In its final submissions, UniQ submitted that I should prefer the first report of Firth to that of MFO's expert, Lee.[62] If the court adopted Lee's methodology, it argued that MFO would receive significantly more in damages than it would have received if UniQ had not repudiated the Agreement.[63] UniQ noted that Lee estimated the trailing commissions for the period August 2018 to July 2019 at $33,335, whereas in fact, they totalled $16,975.73.[64]
82 The case was conducted largely on the basis that it was a fight between the two experts.[65]
83 For the reasons which follow, I prefer the report of Lee to that of Firth.[66]
84 First, Lee was asked to perform a valuation of MFO's loss and damage flowing from UniQ's repudiation of the Agreement. UniQ's solicitors did not instruct Firth in identical terms.
85 Lee was asked to perform two valuations of MFO's loan book, which he set out at paragraph 2.3.1 of his report:[67]
(a) the value of MFO's loan book on the basis of the 179 loans in the July 2017 data (in respect of which commission was paid on 8 September 2017) ("Scenario 1"); and
(b) the value of MFO's loan book on the basis of the 129 loans that were included in the July 2017 data (paid 8 September 2017) but excluded from the August 2017 data (paid 6 October 2017) - in other words, the value of the 179 loans in the July 2017 data, less the 50 loans in the August 2017 data ("Scenario 2").
86 Scenario 1 comprised the whole MFO loan book, including those loans written before and during the currency of the Agreement as it stood when UniQ repudiated the Agreement. Scenario 2 was limited to the loans written during the currency of the Agreement. This latter scenario set out the loss and damage which MFO claims against UniQ.
87 In his letter of instruction, Firth was asked to express his opinion on the value of the loan book as at September 2017 when UniQ instructed AFG to cease paying trailing commission, or any other date that was appropriate based on the assumed facts set out in the letter of instruction.[68] The letter of instruction sought Firth's opinion on the value of MFO's entire loan book based on the commission paid in September 2017 (which was the commission earned in July 2017). Firth agreed that he valued the MFO loan book as at September 2017.[69] Firth valued all the loans in the book - he did not differentiate between those written before MFO entered into the Agreement with UniQ and those written during the currency of the Agreement. The letter of instruction did not ask Firth to give an opinion about the loss and damage which flowed from UniQ's repudiation in September 2017.
88 Secondly, Lee was better briefed with more comprehensive source data than Firth.
89 Lee was briefed with extensive source data which he took into account in producing his report. He listed in Appendix 1 to the report the documents forwarded to him for review. They included the AFG recipient created tax invoices and statements for payments made to MFO for the period from February 2016 to October 2017. The documents showed:
• each loan in relation to which MFO received a trailing commission payment;
• in relation to each loan, the outstanding loan amount, commission rate, amount of commission paid to MFO, settlement date, and other loan specific information.
90 Lee said that before he began the valuation, he performed various steps to compile MFO's monthly trailing commission data into a single consolidated list:[70]
(a) he compiled all months' data into one list of trailing commission paid to MFO over the period January 2016 to August 2017 - this data set had 3,001 rows of trailing commission information;
(b) he reconciled the data compiled into the consolidated list against individual monthly data files to ensure the data was correctly compiled; and
(c) he corrected some obvious typographical errors in the data.
91 By comparison, Firth said that the documents produced to him and which he relied upon to prepare his report were the statement of claim, Lee's report and a letter from AFG dated 11 January 2019 which included a spreadsheet.[71] These documents were rather less numerous than the 11 documents set out in the second last page of the letter of instructions from UniQ's solicitors dated 29 March 2019, where the solicitors set out the documents allegedly sent to Firth. Firth did not have either the data from AFG showing the trailing commission MFO was paid at the relevant times or the recipient-created tax invoices and monthly statements for the period February 2016 to October 2017. Accordingly, he was unable to consider the detail of the various loans written including such matters as the terms, the commission rate, and the commission paid. Of necessity, Firth could examine the loans only at a more general level.
92 Thirdly, the methodology which Lee used was more detailed and comprehensive than that adopted by Firth. Lee considered a number of possible valuation methods before deciding upon the discounted cashflow method. He regarded this as the most suitable because the future trailing commissions could be forecast and the loan book had a finite life.[72] Lee adopted a valuation date of 1 August 2017, because this was the month of data immediately before the last month in respect of which trailing commission was paid.[73] Lee engaged in some calculations to arrive at the expected future cashflows of the loan book. The loan book balance at July 2017 was $39,950,914.[74] Lee worked out the future trailing commission rate as a percentage of the loan balance. He calculated the average commission rate in two ways. He used the lowest commission rate on each loan even where the rate increased after 2 or 3 years. Lee found that MFO would receive an annual trailing commission of 0.0930% of the value of the loan book.[75]
93 Lee also had to factor in the decrease in the loan book balance over time. He referred to six sources in order to determine the average life of the loan in the book and concluded that the average loan was between 3.1 - 6.7 years with a midpoint of about 5 years. To be more conservative, Lee treated the average life of a loan as 4.5 years.
94 Using these figures, Lee concluded that the future trailing commission of the loan book under Scenario 2 was $153,352.[76] Because the future payment stream was to be valued once and for all, it was necessary to apply a discount rate. Lee addressed this in section 4.8 of his report.[77] He considered five sources ranging from the Reserve Bank of Australia yield of 2.1% on 5 year government bonds to a range of 5-13.5% in the AFG annual report. The other bodies nominated a rate of 6% or less, except for one which had a range of 5-12.5%. Lee noted that the latter lender used to apply two different discount rates: 12% for loans before June 2014; and 6% for loans after that date. This suggested that the latter were regarded as notably less risky than the former. Lee's examination of the loan book led him to conclude that about 84% of the loans in the book were entered after June 2014 and were therefore less risky.
95 Ultimately, Lee chose a discount rate of 7.5%. He considered that this reflected a rate well above that suggested by three of the five sources he used while being within the range set by the other two. He acknowledged that a majority of the loans were created after June 2014 but that the likely lower level of diversification with MFO warranted a higher multiple.
96 When Lee applied the 7.5% discount rate to the Scenario 2 trailing commission total of $153,352, he arrived at a valuation of $132,015.
97 Lee sought to crosscheck this result. He examined Merger Market, an organisation which provides specialist news analysis and data on financial markets. He found three transactions but none involved a mortgage loan book. He also consulted Capital IQ, a financial markets research tool that provides information on both public and private capital markets. Again, he found no information directly referable to the acquisition of a loan book. Finally, he found two sales of mortgage loan books on the public record. The results from these transactions gave him some confidence about his assessment for Scenario 2. His valuation was lower than that implied by the actual transactions.
98 Firth used the capitalisation of recurring revenue valuation method. This method reflects the market conditions at the valuation date and Firth said it was used to transact mortgage broking loan books.[78]
99 Firth assessed the fair market value of the loan book as at September 2017 by multiplying the amount of the trailing commission received in that month, namely $41,443, by 12 in order to get an assumed annual trailing commission for the loan book. The total was $49,716.
100 Next, Firth had to determine a revenue multiple. The rationale was set out in Appendix 4 of his report.[79] Firth relied upon information in the Radar Results Newsletters for May 2017, March 2018, August 2018 and March 2019. The multiples given for comparable transactions over that time ranged from a low of 1.7 to a high of 2.5. In three of the four periods, the low point of the range was 2.0.
101 Firth decided 2.0 was an appropriate multiple in the context. He said that a recurring revenue multiple at the low end was reasonable because:
(a) the loan book decreased by around 50 loans between July 2017 and August 2017;
(b) it was subsequently noted by AFG in their letter dated 11 January 2019 that "no commission was paid for the specific files because they had either been discharged, were in default or had a low balance".[80]
102 Applying the 2.0 multiple to the annual assumed trailing commission, Firth arrived at a valuation of $99,432.
103 Fourthly, Lee's valuation methodology was thorough and the reasoning clear. He explained the steps he took in a logical manner and took into account the details of the component elements of the loan book - for example, he examined the varying commission rates payable in relation to the loans in the book. He crosschecked his calculations. In my view, his cross-examination did not reveal any major weaknesses or concerns.
104 Firth's approach was more general. He was not provided with, nor sought, the detailed material available to Lee. His methodology was more "rule of thumb" than a nuanced consideration of the component elements of the loan book. Firth simply applied his multiple to MFO's entire loan book without conducting the same level of analysis as Lee did.
105 Firth did not withstand his cross examination as well as Lee. During this process, it became apparent that:
(a) Firth misunderstood or misinterpreted aspects of Lee's report. One error related to paragraph 2.3.1 (b) of Lee's report where he said:
"...on the basis of the 129 loans that were included in the July 2017 data (paid 8 September 2017) but excluded from the August 2017 data (paid on 6 October 2017). In other words, the value of the 179 loans in the July 2017 data (paid on 8 September 2017) less the 50 loans in the August 2017 data (paid on 6 October 2017)."
Firth made two errors with respect to this paragraph. First, he believed that 50 loans were discharged between July 2017 and August 2017. The instructions to Lee did not say this. In fact, the loan book decreased by 130 loans in that month. In cross-examination, Firth sought to avoid his reliance on the decreased number of loans as a reason for determining that the applicable multiple was at the lower end of the range. He said that the quality and overall size of the loan book underlay his opinion as to the appropriate multiple. Tellingly, Firth did not refer to either of these matters in his expert report. This raised the obvious concern - if these matters formed the basis of this aspect of his opinion, why were they not spoken of in his report? Indeed, ultimately, he appeared to abandon his reliance on the smaller loan book as a basis for the multiple selection.
(b) Firth recognised that the reason the loan book decreased was relevant to the applicable multiple and he had not examined this. Firth appeared not to realise that the reduction in loans in the loan book at the time was not due to loans being discharged in the usual course, but due to UniQ's instruction to AFG to redirect the trailing commission payments away from MFO. As a result, it meant that the two reasons Firth gave in his initial report to justify the 2.0 multiple lacked substance and reflected Firth's defective understanding of the situation.
(c) Firth's consideration of, and allowance for, transaction costs in conducting his valuation work was irrelevant in the present context.
(d) Firth mistakenly applied his choice of multiple to the whole loan book, including those loans that were written before MFO and UniQ entered into the Agreement.
(e) Firth relied heavily upon the "Radar Results" publication in arriving at his choice of 2.0 as the appropriate multiple. There was no evidence about the authors or sources of the materials produced or the methodology used to produce the information in the publication. Moreover, it appeared from Firth's testimony that, while he used that part of the data on the website pertaining to the 2.0 multiple, he did not obviously take account of that part of the website which referred to a multiple of 2.7 - 2.8.[81]
(f) Firth performed no crosscheck on his valuation.
106 It was not until re-examination that Firth attempted to conduct a valuation of Scenario 2.[82] Even then, it was more akin to cross-examination as UniQ's counsel put the various figures to Firth and effectively had him agree to those figures. Firth arrived at a value for Scenario 2 of $54,706.90.[83] The fact that it was not until this part of the case (Firth being the final witness) that UniQ sought to grapple with this fundamental issue concerns me. The case had an extensive history and this was the third time it was set down for trial. Firth did two reports and the second of them, although served during the hearing, did not seek to address this critical aspect of the case.
107 Next, I note also that some criticisms Firth made of Lee's report were not made out to my satisfaction.
108 Firth criticised the use of the discounted cash flow method and said it was not used in the marketplace. Whether or not that is correct (it was merely an assertion and not supported by other evidence), it is not directly relevant. The criticism did not go to the heart of the methodology and why it was inapplicable as a matter of principle.
109 Firth seemed to have overlooked, if relevance in the market is important, that Lee had regard to the sale of two other loan books in reaching his opinion. Using the outcomes regarding those books as a guide, the valuations implied by them for Scenarios 1 and 2 in this case were higher than those which Lee arrived at. This suggests, as Lee claimed, that his figures were conservative.
110 Firth was also critical of Lee for not providing his "reasoning and calculations used to increase his original assessment of 5-6% to a discount rate of 7.5%." Lee said in his report that he added a premium to the 5-6% discount range to reflect the greater risk and likely lower level of loan diversification associated with MFO when compared to the listed entity observations. The rate remained higher than two of the sources he used. In any case, the higher discount rate benefited UniQ.
111 Overall, I regarded the Lee report as more persuasive and compelling than Firth's report. Lee was better briefed and focused on the appropriate issue. I consider that Firth was not directed in his reports to consider the specific issue of loss and damage flowing from the repudiation. This does not engender confidence in his first report (the second report being little more than a statement of the actual commission paid in August 2019 and the then current value of the loan book). The second report valued the loan book at $27,634 - a major reduction on the value of the loan book in Firth's earlier report. This valued the loan book in September 2017 at about $99,000. I was also concerned when Firth acknowledged in his cross-examination other errors or shortcomings in his reports or evidence.
112 If one were to take a strict view of Firth's second report, one might argue that it was irrelevant. The valuation was made at August 2019, about two years after UniQ's repudiation of the Agreement. The question arises why any attention should be paid to the valuation when UniQ itself argued that damages were to be assessed at the time of breach.
113 Another perspective is that the figures discussed in the second report raised a relevant question - namely, why was it that Lee estimated the value of the trailing commission for the period August 2018 to July 2019 would be $33,335, when the actual trailing commission received was $16,702? [84]
114 My view was that, due to Firth's second report having become part of the evidence, especially when read with a summary sheet[85] which set out the trailing commission which AFG paid to MFO for the period June 2018 to October 2019 ("the summary sheet"), this discrepancy warranted further investigation. In reaching this view, the summary sheet was important. Firth's report focused on a single month. One did not know whether it was in some way typical or exceptional, and in my opinion, it was not prudent to attach much significance to a single month viewed in isolation. By comparison, the summary sheet covered a period of about 16 months and gave a more detailed picture of the broader context in terms of the amount MFO received as monthly payments including trailing commissions, both within and outside the current claim, and the numbers of loans giving rise to trailing commission.
115 Because the parties in final submissions did not address this matter in any detail, a few days after the hearing finished, I contacted the parties' legal representatives to seek some further submissions regarding:
116 Quite reasonably, MFO did not know how the figure of $16,975.73 was arrived at.[86] UniQ responded that this figure was meant to be the sum of money paid to MFO by way of trailing commission in the period between August 2018 and July 2019.[87] However, it agreed that the figure was incorrect and the true amount was $16,702.73. UniQ argued that, apart from it being common ground that the commission from the Bollard loans was not reinstated after May 2018, the evidence did not disclose what factors might have caused a reduction in trailing commission.[88] UniQ argued that, in the absence of evidence on this causation issue, the court "must" accept that "the only inference to be drawn from the reduction in trail commissions received by the plaintiff is a result of the loans exiting the loan book naturally",[89] being repaid, refinanced or defaulted.[90]
117 On the question of whether UniQ's repudiation caused any reduction in trailing commission payments, UniQ submitted that MFO led no evidence on this matter.[91] Nor, it was said, did MFO lead any evidence about the value of the trailing commissions arising from the loans written by Bollard and Daniel.[92]
118 UniQ argued that its repudiation affected only the recipient of the trailing commission payments and not the quantum of those payments.[93] UniQ contended that, in the absence of evidence to the contrary, the court should accept that the number of loans in the loan book reduced due to "natural causes".[94] I infer that the expression "natural causes" was intended to denote that the process of loan reduction was not influenced or affected by any conduct or action of UniQ (including its admitted repudiation of the Agreement).
119 MFO's response to the request for submissions was more detailed. MFO first re-stated the essence of its closing submissions.[95] It argued that UniQ had the onus of establishing that it was necessary, in the interests of justice, to depart from the general rule that damages should be assessed as at the date of repudiation.[96] It submitted that UniQ pleaded no facts, adduced no evidence, and made no submissions about why it was necessary to depart from the usual rule.[97]
(a) UniQ's repudiatory conduct reduced the trailing commission paid to it;[98] and
(b) the court should not adopt UniQ's argument that it should take into account matters arising after the repudiation.[99]
121 MFO acknowledged that it did not lead evidence about conduct or consequences flowing from the repudiation which might affect the quantum of damages.[100] Its argument was that it was possible that consequences flowing from the repudiation could affect the loan book and its value.[101] The reference to UniQ maintaining ownership of clients and the actions which might flow from that was said to be an example of why the damage assessment should not occur after the date of repudiation.[102]
122 MFO's point was to the effect that it was unsafe and prejudicial to it to assess damages by taking into account the actual payments received by MFO after UniQ's repudiation.[103] The court's task was to assess the value of the loan book at the date of repudiation by reference to the trailing commission which MFO ought to have received in the future, not the amount it actually received.[104]
123 MFO contended that if, contrary to its primary position, the court did examine events after the repudiation, there were two factors which influenced the reduction in the number of loans in the loan book.[105] One was the repudiation itself and the other was the natural attrition of the loan book.[106]
124 In the present case, the state of the evidence creates uncertainty. There is no clear evidence to explain why the reduction in trailing commission was greater than that foreseen by Lee and Firth. MFO led no evidence about this topic. Although the difference in the actual and projected trailing commissions was raised in Lee's cross-examination, he said little about it and offered no explanation about the difference. MFO did not seek to re-examine Lee on the point. Nor did MFO cross-examine Brdjanin about UniQ's behaviour and how its conduct might have had the effect of reducing the number of loans generating trailing commission for MFO.
125 From UniQ's perspective, I reject its assertion that, due to the alleged absence of evidence about what factors might have caused a reduction in trailing commission payable to MFO, the court must accept that the only inference to be drawn is that the reduction in trailing commission was due to the loans exiting the loan book naturally, that is, independent of any action or conduct by UniQ.
126 In my view, this is not the only available inference. For example, it is both logically and practically possible that UniQ acted in a way which encouraged borrowers to terminate the loans written by or through MFO and to refinance those loans through another broker or representative.
127 In part, the problem with the evidence might be due to the late introduction of Firth's second report. It was apparent from Lee's cross-examination that he had not studied that report in any detail having received a copy only on the morning of the day upon which he gave evidence.[107] Although Lee was taken in cross-examination to the difference between the trailing commission postulated in this report and the actual trailing commission received in August 2019 and the likely annual figure in Table A of Firth's second report, Lee said that he could not really comment upon the matter because he had only recently seen Firth's report and did not have access to the data referred to.
128 As commented above, MFO did not seek to re-examine Lee. Nor did it seek any adjournment to obtain instructions or confer with Lee about the new evidence. Similarly, MFO did not apply to re-open its case or to recall any of its witnesses to address the matters raised in Firth's second report. Further, MFO did not lead evidence about the summary sheet and how it might be reconciled with the projections in Lee's expert report.
129 In short, the evidence discloses that Lee projected trailing commission of $37,154 for the year ending July 2019,[108] whereas the actual trailing commission was about $16,696. So the actual figure was approximately 45% of the postulated figure.
130 Another respect in which the evidence is not clear is the period for which UniQ received override commission which would otherwise be payable by Bollard, or his company, to MFO. Initially, from around May 2015, MFO received a 10% override commission in relation to loans written by Bollard. Bollard said he spoke to Brdjanin in early 2018 about Bollard or his company receiving that part of the trailing commission which MFO was paid. Brdjanin contacted AFG and Bollard's percentage of trailing commission increased from 85% to 90%, with UniQ and AFG both receiving 5% and MFO nothing. Brdjanin acknowledged it was quite possible that in October 2019, UniQ received the override commission payment in respect of the loans made by Bollard. A spreadsheet used by Firth and shown to Brdjanin in cross-examination, strongly suggested that AFG paid commission to UniQ in October 2019 in relation to 27 loans made by Bollard. While it is reasonably clear that MFO did not receive the override payments and ceased receiving them around September 2017, it is not obvious what the terms of the arrangement were between MFO, Bollard, and UniQ, and, in particular, for exactly how long MFO was entitled to receive the override commission. For example, it might be the case that, after the expiration of the mentoring period, Bollard or his company was entitled to 90% of the commission and the balance was shared between UniQ and AFG. If that were so, MFO would have no claim to damages in respect of the override commission once the mentoring period ceased.
131 Given that, overall, MFO has the onus of proof regarding its claim, it is difficult to award MFO any substantial damages for the override commission component of its claim. MFO made no submissions detailing how much it received each month before the repudiation in relation to the override commission, the override commission it was not paid after September 2017, and for how long it was entitled to be paid that override commission. I note there was a suggestion in the material that the period of mentorship was about two years. Because the initial commission split instruction sheet in relation to Bollard is dated 25 May 2015, on one view, MFO's entitlement to the override commission would have expired by about June 2017.
132 Alternatively, because Bollard did not raise the matter with Brdjanin until early 2018, MFO's entitlement might have ceased when AFG acted on the request from UniQ to change the commission split made in May 2015 to reflect that Bollard was no longer being mentored.
133 UniQ's evidence about the trailing commission payments challenged only one year of the projections made by Lee. UniQ did not, through Firth or otherwise, comment on the likely trailing commission payments for the years ending July 2020, 2021, and 2022. It made no comment about the year to July 2018, so I assume that UniQ had no issue with the figures for that year. Nor did it give evidence about the potential effect of the actual figures for the year ending July 2019 on the subsequent years. I would infer that, in the normal course of events, if the actual receipts of trailing commission were reduced for the year ending July 2019 and the number of loans dropped over that period from 55 to 40 (as shown in the summary document)[109], then one would expect the trailing commission receipts for later years to also be lower than the projections.
134 The aim of the compensatory principle is to put the injured party in the position it would have been in had the repudiating party performed the agreement. UniQ has focused in its submissions on the position as it now says it exists with the actual trailing commission payments received by MFO. It seems to me that this approach assumes that, but for the repudiation, these are the payments which MFO would have received. The court needs to attempt to value the future payments MFO reasonably expected to receive under the Agreement at the time of repudiation. This involves considering factors which led to the reduction in trailing commissions after the repudiation.
135 I am satisfied that UniQ's repudiation of the Agreement contributed to the reduction in trailing commissions payable to MFO and, consequently, the value of the loan book. Between termination of the Agreement on 13 December 2016 and the repudiation of the Agreement on 14 September 2017, MFO consistently received about $4,000 per month from between about 160 - 179 loans. On the final regular payment before the repudiation, MFO received about $4,144 in trailing commissions in relation to 179 loans.
136 Between UniQ's repudiation of the Agreement and the resumption of trailing commission payments (excluding overrides) on 21 May 2018, MFO received about $1,500 per month on approximately 45 - 49 loans which were written before it entered into the Agreement with UniQ. In circumstances where MFO received no payments for loans written during the currency of the Agreement, UniQ's repudiation caused a reduction in trailing commission payments to MFO of about $2,500 per month between September 2017 and May 2018.[110]
137 After the resumption of trailing commission payments in May 2018, MFO received about $2,700 per month on around 86 loans. Thus, since May 2018, the repudiation has prima facie brought about a reduction in MFO's trailing commission of around $1,300 per month.[111]
138 Apart from this, MFO has received no override payments since September 2017 on the loans written by mentees Bollard and Daniel. Although there was no specific evidence about the amounts involved in these loans or the size of the commission payments, it was apparent that there were 47 mentee loans at September 2017.[112] After May 2018, UniQ continued to receive the override payments on the mentee loans.
139 As to the matter of natural attrition, I am satisfied that this too has contributed to the reduced trailing commission payments for MFO.
140 It appears that only six commission loans were discharged in the period of about 15 months before the repudiation.
141 In September 2017, MFO received trailing commission in relation to 179 loans.[113] In June 2018 after trail commission payments resumed, MFO received commission in relation to 112 loans.[114] As noted above, in May 2018, UniQ received the trail commission payments in relation to the mentee loans. Accordingly, while there were 179 loans extant in September 2017, if the number of mentee loans was still 47 (which was not clear on the evidence), then only 159 remained in May 2018.[115] There was a reduction of 20 loans over a period of about eight months - an average of 2.5 loans per month, a figure greater than in the period before September 2017.
142 On 4 October 2019, MFO received trailing commission payments in relation to 76 loans. MFO argued that when one took account of the mentee loans, then it seemed that 123 of the 179 loans for which MFO received commission in September 2017 remained on foot in October 2019.. The loss of 56 loans from the loan book over a period of 25 months suggests an average monthly loss from the loan book of about 2.25 loans. Again, this rate of attrition is greater than in the period before September 2017.
143 As noted above, MFO's argument depends upon there being 47 mentee loans in October 2019. MFO did not show this clearly on the evidence.
144 It is apparent from the summary sheet that between June 2018 and October 2019:
(a) the number of pre-existing loans for which AFG paid commission to MFO decreased from 45 to 36; and
(b) the number of loans made by MFO under the Agreement with UniQ decreased from 67 to 40.
145 In its submissions, MFO explicitly said that it did not allege that after the repudiation, UniQ, who thought it "maintained ownership" over the clients it introduced to MFO and for whom MFO wrote loans, could have encouraged clients to refinance or repay loans. This would have reduced MFO's anticipated trailing commissions. Because MFO called no evidence about this, and did not cross-examine Brdjanin about it, the court cannot make any findings on this issue. Even if it had been the case that UniQ encouraged clients to refinance or repay early the loans, it was not pleaded as part of UniQ's repudiatory conduct. Accordingly, the court was quite possibly unable to take account of the post-repudiation conduct in awarding damages in any event.
(a) under the Agreement, MFO was entitled to receive trailing commission after termination of the Agreement in December 2016.
(b) UniQ repudiated the Agreement in September 2017 and MFO accepted that repudiation in October 2017.
(c) On about 21 May 2018, UniQ instructed AFG to resume making trailing commission payments to MFO in respect of loans made during the currency of the Agreement.
(d) MFO has received approximately $23,338.93 in payments since 21 May 2018. It has to give credit for these receipts.
(e) The Lee valuation is preferable to the first valuation by Firth.
(f) The second Firth valuation is for the value of the MFO loan book at August 2019 which is approximately two years after the repudiation of the Agreement.
(g) Both parties submitted that damages should be assessed at the date of repudiation and not a later date.
(h) The actual trailing commissions received, as set out in the summary sheet, cannot be ignored and should be recognised in assessing the damages.
(i) To the extent that Firth drew attention to the actual trailing commission payments for August 2019, in effect MFO said that I should infer the downturn in payments was due to the repudiation and UniQ said that I should infer that the downturn was due to the natural effluxion of the loans.
(j) Neither party adduced compelling evidence to explain the discrepancy between Lee's projected trailing commission payments and the actual payments received between June 2018 and October 2019, as set out in the summary sheet.
(k) MFO has received no override commission since September 2017. While there were 47 mentee loans written by Bollard and Daniel generating commission at that time, only 27 remained at October 2019. UniQ received the override payments after September 2017. It is not apparent when MFO's entitlement to the override commission would have ceased but for the repudiation. MFO's evidence is such that it has not persuaded me that it is entitled to all the override commission payable since September 2017.
(l) If one ignores the actual figures in the summary sheet, the valuation of Lee is preferable to that of Firth for the reasons canvassed earlier in the judgment. Further, Firth's valuation takes account of all commission paid to MFO, not just the commission for loans created during the term of the Agreement.
147 In paragraph 4.9.3 of his report, Lee sets out in Table 8, the future trailing commissions under scenario 2 and, using a discount factor of 7.5%, the value of the loan book is as follows:
148 The actual trailing commission for the year ending July 2019 was $16,696, less than half the value of the postulated commission. In circumstances where the evidence is unclear, I infer that, if the actual figure for the period ending July 2019 is around half the postulated figure, the actual figure for the subsequent years is likely to bear a similar relationship to the projected figures. In that case, the value of the MFO loan book is probably in the vicinity of $82,290. This figure is arrived at broadly as follows using the 7.5% discount rate:
149 Depending upon the validity of the assumption that the projected trailing commission will be about double the actual commission, the value of the loan book could vary. From the value of, say, $82,290, MFO has to give credit for the trailing commission paid since 21 May 2018 on loans written during the term of the Agreement, namely $23,338.93 (say, $23,339). Given the inherent uncertainty in this exercise, I find that MFO is entitled to damages in the amount of $58,951.
150 In making the damages assessment, I acknowledge that MFO has the onus of establishing the extent of its loss. But the calculation for damages for breach of contract necessarily involves a degree of hypothesis and pragmatism and the court can take a broad brush approach.[116] As the learned author of Heydon on Contract puts it, "provided there is evidence that the plaintiff has lost something of value, difficulty in assessing its worth is not a bar to recovery of damages in contract".[117] Where precise evidence is available, a court can expect to obtain it. Where such evidence is not available, the court must do the best it can. Where the evidence demonstrates a loss which is serious and involves more than merely nominal damage, but is not as complete or satisfactory as it might be, the court might award the plaintiff less than it sought.[118] Here, MFO could have done more to explain both the discrepancy between Lee's projections and the actual figures in the summary sheet and the implications of the discrepancy.
Is the plaintiff entitled to GST on the damages awarded?
151 During closing submissions on the fourth day of trial, MFO submitted that GST ought to be included in the court's award of damages in order for it to be fairly compensated.
152 UniQ contended that MFO ought not to be entitled to include GST in any award for damages given.
153 Whether GST will be payable is a matter governed by A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("GST Act").
154 GST will be payable when an entity makes a "taxable supply".[119] For the purposes of the GST Act, a taxable supply is made if:
(b) The supply is made in the course of furtherance of an enterprise that the entity carries on;
(c) The supply is connected with Australia; and
(d) The entity is registered or required to be registered.[120]
155 Supply is broadly defined as "any form of supply whatsoever",[121] and includes but is not limited to the supply of services.[122] Consideration is also broadly defined to include any payment, or any act or forbearance, in connection with a supply of anything;[123] and any payment, or act or forbearance, in response to or for the inducement of a supply of anything.[124]
• it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply;[125]
• it does not matter whether the payment, act or forbearance was in compliance with an order of a court, or of a tribunal or other body that has the power to make orders;[126] or
• whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court, or before a tribunal or other body that has the power to make orders.[127]
157 The ATO has issued ruling GSTR 2001/4 regarding the GST consequences of court orders and out-of-court settlements. The Commissioner states it is of the view that, in giving judgment, a court does not make a supply for GST purposes.[128] However, the ruling distinguishes between the court making a supply, and a party to a dispute making an "earlier supply" for the purposes of the relevant proceedings.[129]
• there is a taxable supply on any damages that may be awarded by this court because of section 9 - 15(2A)(a);[130]
• MFO's supply of its services to UniQ is the subject of the dispute and therefore falls within the definition of an earlier supply for the purposes of this ruling;[131] and
• there is a sufficient nexus as there was an earlier supply and therefore a taxable supply which will be subject to GST, which means GST ought to be awarded, otherwise MFO will not receive fair and reasonable compensation.[132]
159 MFO cited Peet v Richmond (No 2)[133] as authority for their position and submitted that they adopted the same submission made in that case regarding the need for the court to take into account the liability to pay GST.
• there is no sufficient nexus between the damages award and GST in the present circumstances, because in the Peet situation it was quantum meruit claim relating to a past supply, whereas in the present case if the plaintiff is awarded GST there will effectively be two amounts of GST payable;[134]
• the damages claim in the hands of the plaintiff will not be a supply, as the supply will be in UniQ's hand when they collect the amounts from AFG and declare them in their BAS returns;[135] and
It was also mentioned by Mr Barr and noted by Mr Thomas during closing submissions that UniQ could potentially get a tax credit if UniQ had to pay GST in circumstances where GST had already been paid on the trailing commissions. Mr Thomas stated that this matter was complicated, but gave no further substantive submission in relation to UniQ being able to claim a credit.[136]
161 I consider that MFO is entitled to be awarded GST as part of its damages claim. I have come to this conclusion for a number of reasons.
162 First, I find that the services provided by MFO by way of the loans it wrote constitute a supply within the meaning of the GST Act. While the ATO has ruled that giving judgment does not constitute a supply for GST purposes, I consider that the services in questions are an "earlier supply", and are thus able to be considered as a "supply" for the purposes of determining whether or not a supply for consideration exists.
163 Secondly, I find that a supply for consideration exists because there is consideration in the form of the payment of damages, which is sufficiently connected to the earlier supply of services by MFO. Therefore, there is a supply for consideration as required under the GST Act.
164 Thirdly, my above findings consequently lead me to find that the supply for consideration constitutes a taxable supply under the GST Act, which means that GST may be payable by MFO as an entity registered for tax purposes.
165 Hollingworth J in Peet[137] held that because the services in question in that case (being a quantum meruit claim) were rendered at an earlier point in time, it was more probable that any orders made would constitute consideration for an "earlier supply" and, therefore, were likely to give rise to a GST liability. In a case such as Peet, if no GST were awarded in the calculation of damages, then the aggrieved party would not receive fair and reasonable compensation.
166 I refer to and adopt the point made by Hollingworth J in Peet that the court is not being asked to determine whether there exists a GST liability between MFO and the Commissioner of Taxation.[138] It is making an award which is reflective of a potential liability which could arise when the judgment sum is paid to the aggrieved party.[139]
167 I consider it appropriate to follow the precedent in Peet regarding how the court should ensure GST is paid to the MFO, but only insofar as it is required to compensate MFO for any liability it may eventually have to pay that tax. This is because the court cannot with complete certainty predict exactly how much, if any, GST will ultimately be payable or paid by MFO. Due to this uncertainty, there is some risk that MFO could be overcompensated if it were to unconditionally receive GST as a part of its damages.
168 As such, I have decided that MFO will provide a tax invoice to UniQ upon request by UniQ. UniQ will pay 1/10th of the damages sum to MFO after receiving such a tax invoice from MFO, in respect of MFO's GST liability. After sending the relevant GST to the Australian Taxation Office, MFO will provide to UniQ documentary proof of the amount of GST it has remitted. MFO will refund to UniQ the balance, if any, remaining after it has remitted the GST. I will hear from the parties as to the precise formulation of the orders, including as to appropriate time periods.
169 I will hear the parties on the form of final order and costs. I direct that the parties file and serve by 4:00pm on 16 January 2020 any material and submissions regarding these matters.
[7] Recital A of the Agreement at CB 280.
[8] Clause 2.1. Funder is defined in clause 12 as "each entity which provides loans or other products".
[14] (1991) 22 NSWLR 389, 419.
[15] See Cross on Evidence 11th edition at [1215].
[22] Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454 at 473; Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355.
[23] Johnson v Agnew [1980] AC 367 at 401.
[24] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 357-8, 367, 386-93.
[27] Ibid at 367 per Wilson, Toohey and Gaudron JJ.
[28] Ibid at 371 per Brennan J and at 380-1 per Deane J.
[29] Plaintiff's Closing Submissions, paragraph 61.
[30] Plaintiff's Closing Submissions, paragraph 63.
[31] Plaintiff's Closing Submissions, paragraph 105.
[32] Plaintiff's Closing Submissions, paragraph 65.
[33] Plaintiff's Closing Submissions, paragraph 64.
[35] Defendant's Outline of Submissions, paragraph 6.
[41] Ibid at [226]. The second principle his Honour considered was mitigation of loss, and the third principle was remoteness of damage. The second and third principles are not relevant to the present case.
[44] [2013] VSC 534 at [219].
[47] Special condition 3.6 stated "Having conducted the Due Diligence the Purchaser will be entitled to deliver a written notice to the Vendor recording its decision not to proceed with this Contract as contemplated in 2.1(b) above.
[48] This argument was not put before the trial judge, however, the Court of Appeal considered it because it was based on legal principle rather than evidentiary matters.
[51] Broughton v B & B Group Investments Pty Ltd [2017] VSCA 227 at [179].
[53] The compensatory principle is that the damages recoverable by the injured party are such sum as will put that party in the same financial position as if the contract had been performed.
[54] It must be observed that the first valuation was as at September 2017, whereas the later valuation was as at August 2019.
[56] Robinson v Harman [1848] EngR 135; (1848) 1 Exch 850 at 855; [1848] EngR 135; 154 ER 363 at 365 per Parke B; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 98 per Brennan J.
[57] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 82.
[58] Plaintiff's Closing Submissions, paragraph 58.
[59] Plaintiff's Closing Submissions, paragraph 59.
[62] Defendant's Outline of Submissions, paragraph 9.
[63] Defendant's Outline of Submissions, paragraph 10.
[65] Defendant's Outline of Further Submissions, paragraph 9.
[66] This is a reference to Firth's first report.
[81] T 212-15. It took no account of the credit due for the resumed payments.
[83] This was exclusive of GST or $60,177.60 as GST inclusive.
[84] In supplementary submissions, UniQ later recognised that the figure of $16,975.73, which appeared in its final submissions, was erroneous and the figure should have been $16,702.73.
[86] Plaintiff's Further Submissions, paragraph 2. The figure appeared in the defendant's submissions.
[87] Defendant's Outline of Further Submissions, paragraph 5.
[88] Defendant's Outline of Further Submissions, paragraph 7.
[89] Defendant's Outline of Further Submissions, paragraph 8.
[91] Defendant's Outline of Further Submissions, paragraphs 8 and 12.
[92] Defendant's Outline of Further Submissions, paragraph 14.
[93] Defendant's Outline of Further Submissions, paragraph 18.
[94] Defendant's Outline of Further Submissions, paragraph 22.
[95] Plaintiff's Further Submissions, paragraph B(I).
[96] Plaintiff's Further Submissions, paragraph 4.
[97] Plaintiff's Further Submissions, paragraph 5.
[98] Plaintiff's Further Submissions, paragraph 8.
[100] Plaintiff's Further Submissions, paragraph 9.
[103] Plaintiff's Further Submissions, paragraph 10.
[105] Plaintiff's Further Submissions, paragraph 11.
[108] CB 105 - Table 4 and CB 108 - Table 8. The value of that future commission was $33,335 after the discount rate of 7.5% was applied.
[110] This comment is subject to the question of natural attrition.
[111] This comment is also subject to the question of natural attrition.
[115] That comprised the 112 and the 47 mentee loans.
[116] N C Seddon & R A Bigwood, Cheshire & Fifoot Law of Contract, (LexisNexis Butterworth, 11th ed, 2017), 23.24
[117] J D Heydon, Heydon on Contract, (Law Book Co., 2019), 26.100.
[118] See, for example, Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513, 525, per Moffitt AP, with whom Hardie JA agreed.
[119] A New Tax System (Goods and Services Tax) Act 1999 (Cth) section s 9-40; see also s 7-1.
Mortgage Finance Options Pty Ltd
Uniq Finance Australia Pty Ltd [2019] VCC 2156
(1991) 174 CLR 64
(2014) 88 NSWLR 146
(1988) 166 CLR 351
(1991) 22 NSWLR 389
(1998) 166 CLR 351
(1959) 101 CLR 298
(1972) 127 CLR 454
(1992) 174 CLR 64