Ground 1 and damages in deceit
94 In Toteff v Antonas 87 CLR at 650, Dixon J expressed the principle of damages in deceit, as follows:
In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant.
95 Sir Owen then proceeded to deal with the application of this to the fraudulent inducement by a vendor of a whole business, the case before the Court. Sir Owen said (at 650) in respect of such a case:
if the transaction stands and is not disaffirmed or rescinded, what is recoverable is 'the difference between the real value of the property, and the sum which the plaintiff was induced to give for it" per Abbott LCJ in Pearson v. Wheeler [(1825) Ry. & Mood. 303 at p. 304; [171 E.R. 1028 at p. 1029]]. As Sir James Hannen P. in Peek v. Derry [(1887) 37 Ch. D. 541 at p.594; cf. (1889) 14 App. Cas. 337] pointed out, the question is how much worse off is the plaintiff than if he had not entered into the transaction.
96 As Dixon J then noted: "the point of the application of this doctrine lies in identifying 'the transaction'". The error of the primary judge in that case was to identify the "transaction" as the purchase of the goodwill only (and so to limit damages to goodwill), because the representations (as to takings) concerned goodwill, and not stock or plant and equipment. In fact, the deceit (albeit about takings) had caused the expenditure on the purchase of the whole business and so the plaintiff was entitled to what he had paid diminished by the value of what he got. It was in that context that Dixon J said at 650-651:
The measure of damages in an action of deceit consists in the loss or expenditure incurred by the plaintiff in consequence of the inducement on which he relied diminished by the corresponding advantage in money or moneys worth obtained by him on the other side: Potts v. Miller. You look to what he has been induced to part with as the initial step. He is entitled to say that but for the fraud he would never have parted with his money… But he cannot recover the entire price he has paid unless the thing prove wholly worthless. If the thing has any appreciable value the damages must be reduced pro tanto…It must not be forgotten that after all deceit is an action on the case for special damage incurred in consequence of the defendant's fraudulent inducement.
(Citations omitted.)
97 Gould v Vaggelas 157 CLR 215 concerned the deceit of vendors of a business to persons who were not the purchaser, but who had formed and controlled the purchaser. The Court discussed, amongst other things, the circumstances in which the plaintiff would be entitled to recover damages beyond the difference between the real value of the property at this time of purchase and what the plaintiff paid for it, as discussed in Potts v Miller [1940] HCA 43; 64 CLR 282 at 289 and 297, and Toteff at 650-651. Gibbs CJ said at 220-221 and 223:
The usual rule is, however, only a special application of the general principle that "In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant": Toteff v. Antonas. In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement …
…
In a case such as the present, where the plaintiffs were not purchasers, the measure of damages is the sum which represents the loss which the plaintiffs have suffered because they altered their positon in reliance on the fraudulent misrepresentation.
(Citations omitted.)
98 In Wardley 175 CLR at 530, Mason CJ and Dawson, Gaudron and McHugh JJ referred to what Dixon J had said in Potts v Miller 64 CLR at 297:
It will be noticed that, even in such a case, Dixon J. spoke in Potts v. Miller (an action in deceit) of the measure of damages consisting in "the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or money's worth obtained by him on the other side". It is that amount that, in such a case, represents "the prejudice or disadvantage" the plaintiff "has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant", subject to any consequential damage.
(Citations omitted.)
99 In Smith New Court Securities Ltd v Citibank NA [1997] AC 254, the House of Lords discussed damages in deceit, and dealt with the judgments of the Court of Appeal in Doyle v Olby (Ironmongers) [1969] 2 QB 158. What is clear from the judgments of Lord Browne-Wilkinson and Lord Steyn (agreed in by Lord Keith of Kinkel and Lord Slynn of Hadley) is that there is no inflexible rule-based approach to the assessment of damages in deceit in English Law.
100 Lord Browne-Wilkinson commenced (at 262) with the well-known statement of Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39 concerning the need for compensatory reparation in damages to award a sum that will as nearly as possible place the party who has been injured in the same position as it would have been had it not sustained the wrong. But there was an important qualification to that very general statement. In cases of malice or international wrong, Lord Blackburn said:
There could be no doubt that there you would say that everything would be taken into view that would go most against the wilful wrongdoer - many things which you would properly allow in favour of an innocent mistaken trespasser would be disallowed as against a wilful and intentional trespasser on the ground that he must not qualify his own wrong, and various things of that sort.
101 Lord Browne-Wilkinson then noted the doubts expressed by Lord Atkin in Clark v Urquhart [1930] AC 28 at 67-68 about the line of cases summarised in McConnel v Wright [1903] 1 Ch 546 which were applied by Dixon J in Potts v Miller 64 CLR at 299-300; that application by Dixon J being described by Lord Browne-Wilkinson as "loyal", but Dixon J being "plainly unhappy with it", as reflected in Toteff.
102 Lord Browne-Wilkinson then approved the expression of the matter by Lord Denning MR and Winn LJ in Doyle v Olby (Ironmongers) Ltd at 167 and 168:
Lord Denning at 167:
The object of damages is to put the plaintiff in as good a position, as far as money can do it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages are limited to what may reasonably be supposed to have been in contemplation of the parties. In fraud, they are not so limited. The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say: 'I would not have entered into this bargain at all but for your representation. Owing to your fraud, I have not only lost all the money I paid you, but, what is more, I have been put to a large amount of extra expense as well and suffered this or that extra damages.' All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen. For instance, in this very case Mr. Doyle has not only lost the money which he paid for the business, which he would never have done if there had been no fraud: he put all that money in and lost it; but also he has been put to expense and loss in trying to run a business which has turned out to be a disaster for him. He is entitled to damages for all of his loss, subject, of course to giving credit for any benefit that he has received. There is nothing to be taken off in mitigation: for there is nothing more that he could have done to reduce his loss. He did all that he could reasonably be expected to do.
Winn LJ at 168:
It appears to me that in a case where there has been a breach of warranty of authority, and still more clearly where there has been a tortious wrong consisting of a fraudulent inducement, the proper starting point for any court called upon to consider what damages are recoverable by the defrauded person is to compare his positon before the representation was made to him with his position after it, brought about by that representation…
103 The specific problem being addressed there was the inflexibility of a rule fixed in time (the time of the transaction) and fixed in formula (the difference between what was paid and the value received). The expression of the matter, however, went further: the actual damages directly flowing from the fraudulent inducement.
104 Lord Steyn reflected (at 279-280) upon the justification for distinguishing between deceit and negligence:
It may be said that logical symmetry and a policy of not punishing intentional wrongdoers by civil remedies favour a uniform rule. On the other hand, it is a rational and defensible strategy to impose wider liability on an intentional wrongdoer. As Hart and Honoré, Causation in the Law, 2nd ed. … observed, an innocent plaintiff may, not without reason, call on a morally reprehensible defendant to pay the whole of the loss he caused. The exclusion of heads of loss in the law of negligence, which reflects considerations of legal policy, does not necessarily avail the intentional wrongdoer. Such a policy of imposing more stringent remedies on an intentional wrongdoer serves two purposes. First it serves a deterrent purpose in discouraging fraud. Counsel for Citibank argued that the sole purpose of the law of tort generally, and the tort of deceit in particular, should be to compensate the victim of civil wrongs. That is far too narrow a view. Professor Glanville Williams identified four possible purposes of an action for damages in tort: appeasement, justice, deterrence and compensation: see "the Aims of the Law of Tort" (1951) 4 C.L.P. 137. He concluded, at p. 172:
"Where possible the law seems to like to ride two or three horses at once; but occasionally a situation occurs where one must be selected. The tendency is then to choose the deterrent purpose for tort of intention, the compensatory purpose for other torts."
And in the battle against fraud civil remedies can play a useful and beneficial role. Secondly, as between the fraudster and the innocent party, moral considerations militate in favour of requiring the fraudster to bear the risk of misfortunes directly caused by his fraud. I make no apology for referring to moral considerations. The law and morality are inextricably interwoven. To a large extent the law is simply formulated and declared morality. And, as Oliver Wendell Holmes, The Common Law … observed, the very notion of deceit with its overtones of wickedness is drawn from the moral world.
(Emphasis added.)
105 It is unnecessary, and perhaps not wise at an intermediate appellate level, to express agreement with all of this passage, beyond noting that Gummow J approved of the emphasised part in Palmer Bruyn and Parker Pty Ltd v Parsons [2001] 14 HCA 69; 208 CLR 388 at 413 [78]. Also, it can be stated, as Lord Blackburn's qualification to the general principle in Livingstone v Rawyards made clear, that the rule of responsibility concerned (a rule against dishonesty, as opposed to a rule against breach of contract or mere carelessness) undoubtedly plays a key part in the approach to assessment of damages and to causation: Environmental Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 at 29.
106 After discussing a number of authorities, Lord Steyn said at 283:
In my view the orthodox and settled rule that the plaintiff is entitled to all losses directly flowing from the transaction caused by the deceit does not require a revision. In other words, it is not necessary in an action for deceit for the judge, after he had ascertained the loss directly flowing from the victim having entered into the transaction, to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred.
107 This expression of the matter is conformable with the expression of the matter by Dixon J in Toteff at 650 and 651 ([96] above).
108 Other parts of the expression of the matter by Lord Steyn in Smith New Court Securities received support from the Court in HTW Valuers 217 CLR at 666-668 [63]-[66] to the effect that the circumstances of the case, such as the plaintiff being locked into the business or position by reliance on the fraud, may permit compensation for all loss flowing directly from the transaction without further limiting rules.
109 Relevant to these considerations are the proper considerations of proof when fraud is involved. In Houghton v Immer (No 155) Pty Ltd [1997] NSWSC 608; 44 NSWLR 46, at 59, Handley JA (with the agreement of Mason P and Beazley JA) expressed the principle derived from Armory v Delamirie (1722) 1 Stra 505; 93 ER 664, as follows:
… the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party "whose actions have made an accurate determination so problematic".
110 The above expression of the matter drew from the reasons of Hodgson J (as his Honour then was) in LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) (1989) 24 NSWLR 499 at 508. As Giles JA said in McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [149]-[154] (Macfarlan JA agreeing), it is a principle not limited to a reduction in the need for proof when the relevant evidence was in the control of the other party, as an instance of Lord Mansfield's dictum in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970 that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted." In LJP Investments the defendant had engaged in a deliberate trespass by putting scaffolding on the plaintiff's land to use in construction work on its own adjacent land. Damages involved understanding what the defendant would have done in order to assess the benefit to it from the deliberate trespass. Hodgson J said in 24 NSWLR 499 at 508:
It is impossible to be certain about which course [the defendant] would have taken, if it had refrained from trespassing: [its] own unlawful act in trespassing, plus the absence of any of [its] decision-makers from the witness box, have made such a decision highly problematic… [I]n these circumstances the Court is justified in taking the course taken in Armory v Delamirie…and resolving the question of value against the party whose actions have made an accurate determination so problematic.
111 As Giles JA said in McCartney v Orica at [152], this was not limited to the absence of the defendant's decision-maker; the defendant's "own unlawful act in trespassing" created the need for findings on an uncertain matter.
112 In McCartney v Orica a central issue was whether an entity called Clos (through a Mr Remy Bontoux) had been deliberately enticed away from a subsidiary of Orica in knowing breach of covenant by Mr McCartney. The trial judge (White J, as his Honour then was) said (set out by Giles JA on appeal at [148]):
I do not think that I should readily infer that it was likely that Clos would have left Bronson & Jacobs in the absence of the Defendants' conduct when the conduct was directed at achieving that very goal. One might well ask why the Defendants did what they did if they thought that Clos would have changed distributors in any event. Mr Sullivan's answer to that question was to say that their conduct should be seen as an example of abundant caution. But it is clear that they went to considerable lengths to attract Clos away from Bronson & Jacobs. As a consequence of their conduct, it is impossible to know now with any certainty what Clos would have done. That uncertainty should not be allowed to operate in the Defendants' favour.
113 The criticism of the appellant wrongdoer that this was outside Armory v Delamirie because it had nothing to do with evidence being in control of the wrongdoer (and went merely to absence of proof) was rejected by Giles JA.
114 In Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333, Giles JA said at [246]:
Tyco was a wrongdoer, and on the questions of fact involved in valuing the benefit to Optus of keeping the equivalent leftover equipment could not insist on an unrealistic level of proof. The presumption against the wrongdoer in Armory v Delamirie (1722) 1 Sta 505; 93 ER 664 goes beyond where the wrong has positively made it difficult for the victim to prove its damages, and extends to where the wrong has thrust the victim into a difficult task of proving a past hypothetical: see generally Waddams, "Damages: Assessment and Uncertainties", (1998) 13 JCL 5L5, and in particular at 58 the dictum of Learned Hand J in L Albert & Son v Armstrong Rubber Co 178 F 2 d 182 (1949) at 189, speaking of proof of what would have been earned had a contract been performed, that 'it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other'.
115 Armory v Delamirie, LJP Investments 24 NSWLR at 508, and Houghton v Immer 44 NSWLR at 59 were expressly approved by the High Court in Murphy v Overton 216 CLR at 416 [74].
116 These passages reveal that the general proposition that the claimant has the onus to prove its damages is qualified in circumstances where the (deliberate) wrong has caused the position of uncertainty or difficulty of proof. Even in cases of breach of contract where it has become difficult or impossible for the plaintiff to prove it would have recovered its expenses from the performance of the contract, the onus shifts to the defendant to prove that the plaintiff would not have done so, or that the contract was worthless: Amann Aviation 174 CLR at 94-95 (Mason CJ and Dawson) 106-107 (Brennan J) and 128 (Deane J); and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [163] per Hodgson JA (Allsop P and Macfarlan JA agreeing); and see Waddams op cit at 58 and HK Lücke "The So-Called Reliance Interest in the High Court" (1994) 6 Corporate and Business Law Journal 117 at 142-147.
117 In a concurring judgment in McCartney v Orica, Young JA identified other sources of authority in Equity and elsewhere for the approach in Armory v Delamirie as understood and expressed by Giles JA.
118 It is against this background of authority that the facts must be examined here. For the moment we will deal with the matter by reference to the approach of the primary judge, and ground 1 of the appeal.
119 By March and April 2014, NBS had entered into the contract, but had not committed itself to the finance leases of the transfer-in buses. By then, Mr Stewart (and, through him, the appellants) had discovered that a significant premise on which NBS had worked, that the Annual Contract Price included an amount for the costs of transfer-in buses that reflected the formula that was applied by TfNSW, was wrong and that NBS had in error (caused by Mr Stewart and Pitchers) underbid by $660,000 per annum. In April 2014, Mr Stewart, knowing that NBS was relying on his calculations of this very matter to enter the Westpac leases, chose to cover up dishonestly his and Pitchers' error and to deceive his own client knowing it would rely upon his communications to enter into the leases. Thus, it can be accepted, as submitted by NBS, that the direct consequence of the deceitful conduct of Mr Stewart and, through him, the appellants was that NBS assumed direct liabilities not covered by the line item represented by TfNSW subvention, to the knowledge of Mr Stewart and the appellants.
120 Whilst it can be accepted that it may have been a breach of contract on the part of NBS not to undertake the responsibility of the leases for the transfer-in buses, the evidence of Mr Calabro was clear. He would not have permitted NBS to undertake the liabilities and almost halve his margin. The hypothesis that is there set up - what would have happened? - was answered by the primary judge (as to which see below). Thus, it may not be correct to say in an unqualified way that the liability was non-existent prior to taking up the leases. It was provisional, recognising that there were difficulties in NBS merely walking away from the contract. Therefore, in that sense, NBS moved from a position of provisional loss to one of certain loss.
121 It was as if Mr Calabro had asked the question: "If we execute these Westpac leases, are we covered by what we will receive from TfNSW by way of indemnification or subvention for the cost of assuming the transfer-in buses?"; and as if Mr Stewart had answered "Yes", knowing the true answer was "No, we made a mistake in the bid; you will be $660,000 per annum short."
122 Thus the difficulty of knowing everything that would have happened thereafter begins with the deceit itself and its consequences. It is then compounded when NBS begins to appreciate the problem in the months afterwards. Mr Stewart (and so Pitchers) refuses to admit error, and, amongst other things, seeks to lay blame on NBS. As Mr Calabro perfectly reasonably said in cross-examination, he could not go to TfNSW for a renegotiation in circumstances where his accountant was either denying a mistake or saying it was his (NBS') responsibility for undercutting the bid. This further lack of openness and honesty, so closely related to the actionable deceit, made it even more difficult to ascertain and prove what would have happened contemporaneously had the deceit and associated dishonourable or dishonest conduct of Mr Stewart and the appellants not taken place. In the light of the fundamental matters of the importance of the subvention to the whole process ([35]-[40] above), the clear attitude of Mr Calabro as to what he would have done ([41]-[42] above) and the evidence as to the likelihood of probabilities drawn from the considerations set out at [43]-[52] above there was ample basis to conclude that the liability of an additional $660,000 per annum was the loss directly caused by the deceit.
123 It can be accepted that implicit in the conclusion of this loss is the alternative of an identical contract with a different line item for subvention by TfNSW. The question is whether NBS proved enough to conclude that that alternative, if not proven by the evidence on the balance of probabilities, was a sufficiently real possibility that, even if uncertain, should be taken as something to be dealt with robustly against the appellants, as deceitful wrongdoers, who made an accurate determination problematic, by their wrongs.
124 The fact that no officer from TfNSW was called by NBS does not undermine this conclusion. TfNSW had no contemporaneous knowledge of the issue, a fact brought about by the covering up of the error by the appellants, even after the deceit had been acted on and then discovered, or so NBS (correctly) thought. The appellants, through their wrong, caused the difficulties of proof. A witness from TfNSW was equally available to the appellants to call to throw light on what TfNSW would or might have done if asked to renegotiate the contract (or earlier to permit a varied bid). Looking at the matter robustly in the way discussed in Houghton v Immer, it was open to the primary judge to conclude that the direct loss flowing from the deceit was the capital value of the $660,000 per annum as the prejudice or disadvantage suffered as a consequence of NBS altering its position under the fraudulent inducement. If the question of what TfNSW would have done was uncertain, that uncertainty was brought about, not insignificantly, by the conduct of the appellants as wrongdoers and by them (as much as NBS) in not calling third parties, years after the event to speculate on entirely hypothetical questions on matters that would not have materially concerned them. In such circumstances, it was appropriate to rely on the presumption against the wrongdoer, the onus of proof and resolving doubtful questions against the appellants whose actions have made an accurate determination problematic.
125 But, in any event, the primary judge made a finding (at [243] of the reasons) that NBS would have successfully renegotiated the contract. In our view, it was not necessary for that finding to be made, but its making concludes the matter. The appellants did not set out to prove and did not prove that NBS would have been unsuccessful. For the reasons given by the primary judge and the reasons discussed below, there was sufficient likelihood of that occurring as to permit the Court, using the robust approach referred to above because of the contribution of the wrongdoer to the difficulties of proof, to conclude that the loss flowing from the deceit was the capital value of the annual revenue shortfall of $660,000.
126 Nevertheless, was the finding on the balance of probabilities in [243] made in error? In our view, no. The absence of evidence from someone from TfNSW was as much an apparent choice of the appellants as NBS. No inference of a Jones v Dunkel kind should be drawn. There was no false assumption of an admission by the primary judge at [157] of his reasons. The acceptance of the appellants at trial was said to be what NBS would have done: put in an increased bid or seek a variation to the contract. The evidence of Mr Calabro comfortably proved those matters. The other bids and bidders could have been proven by either side. In the context where it could be shown that the bid of NBS, even with the correction, comfortably beat the incumbent ([237] of the reasons and [43]-[44] above), Mr Stewart's evidence referred to by the primary judge at [238], the scale of the changes to the overall tender and to NBS' margin ([47], [49] above, respectively) and a robust approach to the fact finding for the reasons already discussed, we would draw the same conclusion as the primary judge. In addition, the primary judge's conclusion should be given significant respect by the recognition of the advantage he had in hearing all the evidence unfold and in assessing the evidence of Mr Calabro and Mr Stewart referred to at [237] and [238] of the reasons (see [43], [45] above): State Rail Authority (NSW) v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; 160 ALR 588 at 619-620 [89]-[91] per Kirby J, adopted by Gleeson CJ, Gummow and Kirby JJ in Fox v Percy [2003] HCA 22; 214 CLR 118 at 125-126 [23] and 129-130 [33]; and see also Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at 435-436 [24].
127 The appellants have shown no error in the primary judge's finding at [243] of his reasons that had NBS been told of the error before executing the leases it would have successfully renegotiated a variation to the contract.