Nader v Ronca

Supreme Court of NSW|2013-05-08|Before: Kunc J, Gzell J

Summary 1This is an inquiry into damages to which the Defendants say they are entitled because the Plaintiff obtained the interlocutory extension of a caveat upon proffering the usual undertaking as to damages but ultimately failed at trial. 2The Plaintiff ("Mr Nader") contended that he had agreed with the Defendants ("Mr and Mrs Ronca") for them to sell him their Pendle Hill restaurant and the land on which it stood (the "Land") for $1,150,000. Mr Nader lodged a caveat over the Land relying upon the interest he said had been created by the alleged agreement (the "Caveat"). 3Mr & Mrs Ronca issued a lapsing notice. Mr Nader commenced these proceedings for specific performance of the alleged agreement. Upon Mr Nader giving the usual undertaking as to damages (the "Undertaking"), the Caveat was extended until the proceedings were determined. 4Justice Gzell ultimately found that no agreement had been entered into. His Honour refused Mr Nader's claim for specific performance, ordered him to pay Mr and Mrs Ronca's costs and discharged the Caveat. 5Mr and Mrs Ronca now claim compensation from Mr Nader in reliance on the Undertaking. That claim fails.

The critical disputed fact - was a sale of the Land delayed by the extension of the Caveat? 28Mr R W Tregenza of Counsel, who appeared for Mr and Mrs Ronca, invited the Court to infer one additional and, for their case, essential fact. That fact was, as he put it (T32:43-45 and T33:32-33) that the extension of the Caveat caused a deferral in the marketing and consequent sale of the Land for the seven months the Caveat was in place in reliance on the Undertaking (emphasis added). 29This additional fact is essential to Mr and Mrs Ronca's claim that the Undertaking caused them the loss for which they now seek compensation. Putting it another way, it is a finding that on the balance of probabilities the Land would have been sold to someone in April 2012 had the Caveat not been extended. Therefore, it was submitted, Mr and Mrs Ronca had paid seven months interest on the Mortgage while the Caveat was on foot that they would otherwise not have paid. 30In support of the inference Mr and Mrs Ronca pointed to these facts: (1)they had the Land on the market through Raine & Horne, Parramatta before the Caveat was extended; (2)they ceased to market the Land once the Caveat had been extended (but for which the Land would have stayed on the market); (3)once the Caveat was discharged and the Land returned to the market in early May 2012, a contract for sale was entered into seven months later; and (4)Mr Nader's own expert valuer (whose report I rejected but who gave some oral evidence) had described the Land "as a very good commercial property with major potential". 31Ultimately, Mr Tregenza submitted (T33:39) that "it is a commonsense inference which may be drawn". I disagree. 32I find that the extension of the Caveat caused a seven month delay in marketing the Land. However, the evidence relied upon by Mr and Mrs Ronca does not satisfy me on the balance of probabilities that a "consequent sale" was also delayed. 33Mr and Mrs Ronca submitted that they did not have to identify any particular sale that was delayed. As a matter of principle that is correct, although their case would have had a different outcome had they proved that an actual purchase had been delayed or lost due to the extension of the Caveat (see, for example, Moraitis Fresh Packaging (NSW) Pty Limited v Fresh Express Australia Pty Limited [2010] NSWSC 704 ("Moraitis") where McLaughlin AsJ awarded compensation representing the value of an opportunity to sell property to a third party that was lost due to the existence of inter partes undertakings equivalent to an injunction). 34There is no evidence, for example, that the third party which ultimately bought the Land - or any other potential purchaser - was even interested in buying the Land during the life of the Caveat, let alone actually delayed in or dissuaded from purchasing the Land by the existence of the Caveat during that period. Without evidence of that kind the facts relied on by Mr and Mrs Ronca are insufficient to support the inference for which they contend. 35I therefore do not find that any delay in marketing the Land caused by the extension of the Caveat also caused a delay in the sale of the Land.

Mr and Mrs Ronca's submissions 36Mr and Mrs Ronca submitted that at all material times the Land was for sale. The extension of the Caveat prevented them from selling the Land for seven months, during which time they paid $40,220.81 in interest on the Mortgage. 37Damages are recoverable for loss which is the "natural consequence" of the Caveat (Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 ("Air Express") at 312 per Gibbs J. 38Mr Nader knew that Mr and Mrs Ronca wanted to sell the Land. Additional interest incurred on a mortgage secured on the Land was the natural consequence of the Caveat. Compensation was sought in the amount of that additional interest.

Mr Nader's submissions 39Mr A T Martin of Counsel, who appeared for Mr Nader, ultimately made three fundamental submissions. 40First, the loss claimed was not causally related to the Caveat. In particular, Mr and Mrs Ronca had not shown that there was any interested or committed purchaser who would, but for the Caveat, have bought the Land during the term of the Caveat and thereby relieved Mr and Mrs Ronca from the interest payments. 41Second, it was submitted that the claim was contrary to the authorities, referring in particular to Moraitis and Lee v Ross & Ors (No 2) (2003) 11 BPR 20,991; [2003] NSWSC 507 ("Lee"). 42Third, even if the Court was satisfied that there was some loss, a failure to mitigate and other matters concerning how Mr and Mrs Ronca organised their business affairs meant that the Court could not determine the quantum of that loss.

The applicable legal principles 43In European Bank Limited v Evans (2010) 240 CLR 432; [2010] HCA 6 at [29] ("European Bank"), the High Court identified the approach to be taken in an inquiry for damages said to arise from the usual undertaking as to damages under the materially identical predecessor to UCPR Part 25, rule 25.8 (emphasis in original): On the inquiry before Gzell J the first question was "What is the loss that is now alleged?", the second "Did that loss flow directly from the order of 18 May 2004?" and the third "Could the loss sustained have been foreseen at the time of that order?" The inquiry presented by the third question is an inquiry as to whether a loss of the kind actually sustained could have been foreseen. Contrary to the submission by the respondent, Mr Evans, the inquiry is not as to whether the actual loss suffered was foreseen at the time the undertaking was given. 44The first question ("What is the loss that is now alleged?") is factual. I shall return to it when considering the resolution of the issues. 45The second question ("Did that loss flow directly from the order?") raises an issue of causation. This was considered at length by the High Court in Air Express which was later approved by the High Court in European Bank. 46In Air Express Aickin J inquired into damages said to arise from an undertaking as to damages given in connection with proceedings before the High Court. His Honour primarily followed the approach of Brett LJ in Smith v Day (1882) 21 Ch D 421 to the effect that damages in the context of an undertaking should be assessed by analogy with the contractual principles set out in Hadley v Baxendale (1854) 9 Exch 341 [156 ER 145]. 47This led his Honour to state the principle to be (at 266-267): In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case. No doubt the view as expressed in the two decisions of the Court of Appeal [scil Smith v Day and Schlesinger v Bedford (1893) 9 TLR 370] does not constitute a rigid rule and circumstances may sometimes require a different approach. However it will in my opinion be seldom that it will be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time. 48His Honour went on to say (at 268; citations omitted): It is important in all cases, and particularly in the present case, to bear in mind the distinction adverted to in many of the cases ... between damages flowing from the injunction and damages flowing from the litigation itself. There may not in every case be any difference between the two but, where there is a difference, it is essential that the damage flowing from the litigation should not be confused with the damage flowing from the interlocutory injunction. This is necessary required by the form of the undertaking itself. 49In Air Express, the undertaking had been given on the grant of an interlocutory injunction to restrain the original defendants to the action, the Commonwealth and the Secretary of the Department of Transport, from issuing permission to the defendant applicant and another company under customs regulations to import freighter aircraft into Australia. On the inquiry as to damages, Aickin J ultimately found against the defendant on the question of causation. His Honour held (at 282) that it was probable that once the action was commenced the Secretary would not have issued the permission and therefore the defendant had not established that the loss it had incurred from its inability to import the aircraft flowed from the grant of the injunction. 50On appeal to the Full Court of the High Court, Aickin J's approach was unanimously upheld. Three of the four judges comprising the Full Court expanded upon the question of causation. Gibbs J said (at 313; emphasis added): The Court should no doubt scrutinize with care an assertion by a plaintiff that loss which has been suffered by a defendant has resulted from the litigation rather than from the making of an interlocutory order, since a plaintiff should not be allowed to evade payment of the price which he has agreed to pay for the grant of the injunction. In the end however the question becomes one of fact: did the making of the order cause the loss? The onus of proof must, in accordance with general principles, lie on the defendant who asserts that he sustained damage by reason of the order. It was submitted on behalf of the appellant that it is enough that the making of the order should have been a cause of the damage, so that if both the making of the order and the continuance of the litigation are concurrent causes the undertaking will be applicable. However, in almost every case in which an injunction is granted the injunction will play some part in causing the party bound by it to act in accordance with its terms. To order a plaintiff to pay damages where it appears that the party bound by the injunction would have acted as he did even if the injunction had not been granted, would be to give the undertaking an effect obviously not intended. The party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered. It was further submitted that the onus lies on the plaintiff, against whom the undertaking is sought to be enforced, to disentangle any damage arising from the litigation from that which was caused by the making of the order. However, the onus of proof does not shift in this way; the defendant, who seeks to enforce the undertaking, must prove that the damage he has sustained was caused by the making of the order. 51Similarly, Stephen J (at 320) said: It follows that it is for the claimant under an undertaking to establish by evidence, or by inference from evidence, a prima facie case both that the grant of the injunction was a cause of his damage and that but for it he would not have suffered that damage. 52Finally, Mason J said (at 324, emphasis added): For this reason little is to be gained in the present case from an examination of the myriad authorities which deal with causation of damage in contract, tort and other situations many of which were pressed upon us in argument. We are better advised to look to the purpose which the undertaking as to damages is designed to serve and to identify that causal connection or standard of causal connection which is most appropriate to that purpose. The object of the undertaking is to protect a party, normally the defendant, in respect of such damage as he may sustain by reason of the grant of the interim injunction in the event that it emerges that the plaintiff is not entitled to relief. It is no part of the purpose of the undertaking to protect the defendant against loss or damage which he would have sustained otherwise, as for example, detriment which flows from the commencement of the litigation itself. That is loss or damage which the defendant must bear himself, as he does when no interim injunction is sought or granted. Consequently, it is for the party seeking to enforce the undertaking to show that that damage he has sustained would not have been sustained but for the injunction. (emphasis added) 53The third question posed in European Bank ("Could the loss sustained have been foreseen at the time of that order?") was explicated in that case. European Bank is authority for the proposition that the third question is an inquiry as to whether a loss of the kind actually sustained could have been foreseen. The inquiry is not as to whether the actual loss suffered was foreseen at the time the undertaking was given. In European Bank that question was decided by Gzell J's finding at first instance that the plaintiff knew that the injunction would deprive the defendant bank in that case from the opportunity of deploying its funds in the way which became the subject of its damages claim.

Resolution - the first question 54I shall now answer the three questions identified in European Bank on the facts of this case. 55The answer to the first question - "What is the loss that is now alleged?" - is not completely straightforward. Mr and Mrs Ronca originally put their case on the basis that their loss was the interest which they paid during the time they "were forced to retain" the Land while the Caveat was extant. However, in the course of argument, Mr Tregenza appeared to depart from this position by disengaging the alleged loss from the interest payments made during the life of the Caveat and referring to the additional seven months' interest which Mr and Mrs Ronca had to pay due to the delay caused by the Caveat in marketing and selling the Land. 56What appeared to be a shift in Mr and Mrs Ronca's position may be a distinction without a difference. However, I find it difficult to imagine recoverable heads of damage consequent upon an undertaking as to damages that relate to something which did or did not occur while the caveat or injunction was in place. 57While it does not make a difference to the outcome in this case, the better analysis must be that the alleged loss for which Mr and Mrs Ronca might be entitled to compensation must be those interest payments actually made while the Caveat was in effect. This is because if causation is made out, it is those payments that "flow directly" from the order.

Resolution - the second question 58The second question can be framed for the purposes of this case as follows: "Did the obligation to pay interest under the Mortgage flow directly from the extension of the Caveat on 20 September 2011?" In accordance with the dicta in Air Express, in order to produce an affirmative answer to this question, Mr and Mrs Ronca bear the onus of satisfying the Court on the balance of probabilities that the alleged damage (the interest paid on the Mortgage) would, but for the extension of the Caveat, not have been suffered. 59In this case it means that the Court must be satisfied on the balance of probabilities that Mr and Mrs Ronca would not have paid the interest between September 2011 and April 2012 even without the Caveat. They have failed to discharge that onus for three reasons. The second question is therefore answered in the negative. 60First, as set out in paragraphs 28 to 35 above, the Court is not satisfied that the delay in marketing the Land actually delayed any sale of the Land that might otherwise have occurred. The only evidence is that the Land was ultimately contracted to be sold, notwithstanding a delay in marketing caused by the Caveat, in December 2012. Therefore, the Court cannot find that Mr and Mrs Ronca would not have paid the interest on the Mortgage in the absence of the Caveat, it being common ground that the only way they could discharge the Mortgage and cease paying the interest was to sell the Land. 61Second, even if Mr and Mrs Ronca had established that the extension of the Caveat had caused a seven month delay in both the marketing of the Land and a "consequent sale", the seven months are co-extensive with the life of the Caveat. Therefore, even without the extended Caveat, the interest payments sought to be compensated would still have been made. 62Third, in circumstances where Mr and Mrs Ronca had to sell the Land to bring their obligation to pay interest on the Mortgage to an end and there is no finding that they lost an opportunity to sell the Land while the Caveat was on foot, their interest payments on the Mortgage during that period did not flow directly from the extension of the Caveat. Rather, the direct cause of their obligation to pay that interest was their inability to discharge the Mortgage from any other sources and not the extension of the Caveat. 63The conclusion I have reached is consistent with authority. 64In the foundational case of Smith v Day (1882) 21 Ch D 421, an interlocutory injunction was granted to restrain building works. The only damage claimed under the undertaking was the alleged loss of the benefit of an agreement for a lease of part of the property. However, the Court found that there was no binding agreement to take a lease and therefore concluded that no damage had been suffered. 65In the present case, the only way Mr and Mrs Ronca could have ceased making the interest payments was to have sold the Land. They have not proven that any sale of the Land which would have been available to them could not have been made or was otherwise lost during the life of the Caveat. 66In Moraitis, the unsuccessful plaintiff, in return for an undertaking as to damages, obtained an undertaking from the defendant which had the effect of an interlocutory injunction restraining the defendant from selling certain assets. McLaughlin AsJ was satisfied that because of the undertaking (equivalent to an injunction) the defendant had lost the opportunity to sell the relevant assets to a third party and ordered the plaintiff to compensate the defendant accordingly. 67However, the defendant in Moraitis also claimed as damages its interest on borrowings which could not be retired due to the lost sale opportunity. Of this claim his Honour said (at [40]): In essence, this head of damages is grounded upon the impecuniosity of the Defendant. The impecuniosity of one party is not a matter upon which (at least in the circumstances in the instant case) that party can look to the other party for recompense. 68His Honour's conclusion, and the facts of the case before him, are on all fours with the present case. 69A similar conclusion as to the irrecoverability of interest was reached by Palmer J in Lee. However, I should note that the reasoning underlying Palmer J's conclusion is not entirely comparable because his Honour was dealing with an application for compensation under s 74P(1) of the Real Property Act 1900 (NSW). The statutory language as to causation is in different terms (albeit generally to the same effect) to the general law which I must apply. 70This failure to demonstrate causation illustrates the difficulty for parties such as Mr and Mrs Ronca in recovering compensation when they are unable to prove the loss of an actual sale due to the extension of a caveat. The contractual principles concerning damages which apply analogously in the present case do extend to damages for loss of a chance (Chaplin v Hicks [1911] 2 KB 786). Those principles could apply in a case such as this, but Mr Tregenza expressly disavowed them as part of his clients' case. In any event, there is insufficient evidence to enliven them.

Resolution - the third question 71Even if the answer to the second question is wrong, Mr and Mrs Ronca also fail on the third question "Could the loss sustained have been foreseen at the time of that order?". 72In approaching this question, I bear in mind that European Bank decided that the third question is an inquiry as to whether a loss of the kind actually sustained could have been foreseen rather than that the actual loss suffered was foreseen at the time the undertaking was given. In the present case that invites an inquiry as to whether it could have been foreseen that, by reason of the extension of the Caveat, Mr and Mrs Ronca would have had to continue to pay interest on a mortgage over the Land. 73In answering the third question it is important to look at the circumstances at the time the Caveat was extended rather than with the benefit of hindsight arising from knowledge of the loss now alleged. I do not understand the High Court's formulation of the third question to involve a departure from Aickin J's statement of principle in Air Express (at 267) that "it would in my opinion be seldom that it would be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time" (emphasis added). 74This reference to knowledge is consistent with the analogous application of the principles in Hadley v Baxendale. The first limb of Hadley v Baxendale looks to knowledge which might reasonably be imputed to the parties in all the circumstances. The second limb allows damages to be recovered in respect of risks of which the defendant had actual knowledge. 75There is no evidence that Mr Nader had any actual knowledge that the Land was subject to a mortgage in respect of which Mr and Mrs Ronca might be making interest payments. 76Mr Tregenza submitted that "this is just an ordinary incident of Australian life ... where a property is owned there is always a real possibility of it being subject to a mortgage" (T43:33-36). That may be true, as far as it goes. However, I do not conclude that the possibility that a property might be mortgaged is so great or notorious that Mr Nader ought reasonably have been aware of the likelihood that Mr and Mrs Ronca were making interest payments on a mortgage over the Land. Nor does the fact that Mr Nader knew the Land was for sale suggest he should have known it was mortgaged. 77The third question is therefore also answered in the negative.

Orders 78Mr and Mrs Ronca have failed and costs should follow the event. 79Mr Tregenza submitted, against this eventuality, that some allowance should be made (he suggested a reduction of 30%) in the costs Mr and Mrs Ronca should pay to reflect the fact that the valuation report prepared by Mr Nader's expert, Mr Azar, was rejected. On the other hand, beyond presumably having to consider Mr Azar's report, Mr and Mrs Ronca's legal advisers (justifiably as it turned out) came to the view that the report would not be admitted into evidence and did not retain an expert valuer on behalf of their clients. 80In circumstances where that decision was taken and no additional expenses were incurred by Mr and Mrs Ronca responding to Mr Azar's report, the approach to costs suggested on their behalf is unfair. In the exercise of my discretion as to costs, however, I do not think Mr and Mrs Ronca should have to pay Mr Nader's costs of a report that was, in my opinion, clearly inadmissible. Those costs at least would include Mr Azar's fees and the legal advisers' time instructing and reviewing the report and preparing Mr Azar's affidavit. 81Accordingly, I make the following orders: (1)Upon inquiry, I find that the Defendants suffered no damages consequent upon the usual undertaking as to damages given by the Plaintiff to the Defendants on 20 September 2011. (2)The Defendants' Notice of Motion filed 15 October 2012 is dismissed. (3)The Defendants are to pay the Plaintiff's costs of that Notice of Motion other than the Plaintiff's costs of and incidental to the affidavit of Simon Azar sworn 18 January 2012 and the valuation report annexed to that affidavit. (4)The exhibits be returned forthwith. oOo

Amendments 14 May 2013 - amdended plaintiff's solicitor Amended paragraphs: coversheet 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: 14 May 2013

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