Leakes Rise Pty Ltd v Leakes Road Property Development Pty Ltd
[2022] VSC 440
•5 August 2022
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2019 04492
| LEAKES RISE PTY LTD (ACN 625 706 658) | Plaintiff |
| v | |
| LEAKES ROAD PROPERTY DEVELOPMENT PTY LTD (ACN 620 781 106) | Defendant |
| – and – | |
| JEAN-FRANCOIS BRASSE (trading as ROWSON BRASSE & CO) | Third Party |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5, 7, 11, & 12 April, 19 May 2022 |
DATE OF JUDGMENT: | 5 August 2022 |
CASE MAY BE CITED AS: | Leakes Rise Pty Ltd v Leakes Road Property Development Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2022] VSC 440 |
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DAMAGES – Third party negligently drafted s 32 statement – Sale of Land Act 1958 – Plaintiff sought to rescind contract for sale of land and claimed repayment of deposit paid to defendant – Plaintiff’s claim against defendant settled on reasonable terms – Defendant claimed damages from third party equivalent to settlement sum paid to plaintiff – Defendant failed to establish that its loss was caused by the third party’s negligence – Alternative claim for damages based on wasted agent commission and legal fees paid to third party – Whether defendant also entitled to recover as damages from the third party costs incurred in defending the plaintiff’s claim for damages – Whether the defendant’s loss mitigated by the portion of the deposit monies retained by the defendant under the terms of settlement compromising the plaintiff’s claim – Whether the defendant’s loss mitigated by the benefit to the defendant of having retained the deposit paid by the plaintiff until the settlement of the plaintiff’s claim – Sale of Land Act 1958 ss 32, 32K – Evidence Act 2008 s 38 – Supreme Court (General Civil Procedure) Rules 2015 r 11.04.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | M Borsky QC with R Kruse | Maddocks |
| For the Defendant | S Stuckey QC with W Rimmer | Zervos Lawyers |
| For the Third Party | T Mitchell (5, 7, 11 & 12 April 2022) C Caleo QC with T Mitchell (19 May 2022) | Colin Biggers & Paisley |
HIS HONOUR:
Introduction
This proceeding arises out of a dispute relating to the sale of a property located at 1212–1218 Leakes Road, Rockbank (‘property’). The plaintiff, Leakes Rise Pty Ltd entered into a contract on 6 August 2018 to purchase the property from the defendant, Leakes Road Property Development Pty Ltd. The sale was not completed, in circumstances where the plaintiff served a notice of rescission on the defendant pursuant to s 32K of the Sale of Land Act 1962 (‘the Act’). The notice was based on non-disclosure of a Growth Areas Infrastructure Contribution (‘GAIC’) liability in excess of $1.6 million attaching to the property. The non-disclosure was the result of admitted negligence by Mr Brasse, the solicitor for the defendant. The defendant joined Mr Brasse as the third party to these proceedings, alleging that he was obliged to indemnify the defendant for any losses as a result of the non-disclosure.
On 6 April 2022, which was scheduled to be the second day of the trial, the parties attended a judicial mediation. The claim between the plaintiff and the defendant was resolved on the basis that the defendant paid the plaintiff $815,881 of the $1.755 million deposit previously paid by the plaintiff to the defendant upon entering the contract for the purchase of the property.
The defendant’s primary claim against Mr Brasse is for damages of $815,881. It submits that, in circumstances where the contract was terminated due to the plaintiff’s default, it had a contractual right to retain the full sum of $1.755 million. The defendant submits that as a result of Mr Brasse’s negligence, the plaintiff acquired a prima facie right to rescind the contract and to recover the full amount of its deposit: $1.755 million. The defendant submits that its compromise of the plaintiff’s claim whereby it paid the plaintiff $815,881 was a reasonable compromise. It submits that Mr Brasse is liable to indemnify it for this sum.
The defendant contends that the loss caused by Mr Brasse’s negligence is the loss of a contractual right to retain the full amount of the deposit. On 7 April 2022 following the judicial mediation, the defendant was granted leave to amend the third party statement of claim. In its amended pleading the defendant claims that its loss is the $815,881 it agreed to pay the plaintiff pursuant to the compromise reached at the judicial mediation. In the alternative, the defendant claims damages on a failed transaction basis. The defendant claims $613,531.02 being the costs thrown away and liabilities incurred as a result of the sale to the plaintiff not having proceeded.
Mr Brasse submits that the loss sustained by the defendant was not the loss of a contractual right to retain the full amount of the deposit. Rather he submits that the defendant’s loss is the value of the lost commercial opportunity to complete the sale transaction with the plaintiff. Mr Brasse submits that when assessing this loss the starting point is the $550,000 difference between the $17 million the defendant ultimately received when it subsequently sold the property Waatercove Pty Ltd and the $17.55 million it would have received if the sale to the plaintiff had been completed. However, Mr Brasse submits that it is necessary to adjust this figure, and in particular to set off the $939,119 of the deposit monies which had been retained by the defendant. Mr Brasse submits that when allowance is made for the deposit monies retained by the defendant, it has suffered no loss as a consequence of Mr Brasse’s negligence.
Issues for determination: primary claim
The following issues arise for determination of the defendant’s primary claim for recovery of the settlement sum of $815,881:
(a) Is the defendant’s claim for recovery from Mr Brasse of the $815,881 paid to the plaintiff in compromise of the plaintiff’s claim for damages (‘settlement sum’) a category of loss and damage recognised by the law?
(b) If the defendant’s claim for recovery of the settlement sum is a recognised category of loss and damage, in order to establish that the loss was caused by Mr Brasse’s negligence, does the defendant have to establish the following counterfactual:
if Mr Brasse had not been negligent in drafting the s 32 statement and the plaintiff was on notice of the $1.6 million GAIC liability, the plaintiff would still have proceeded to enter the contract for purchase of the property, albeit not armed with a prima facie right of rescission under s 32K of the Act (‘the counterfactual’)?
(c) If the defendant does have to establish the counterfactual, does the defendant’s failure to call direct evidence from the plaintiff that it would have entered the contract if aware of the $1.6 million GAIC liability mean that the defendant has not established the counterfactual?
(d) If it is not necessary for the defendant to lead direct evidence from the plaintiff to establish the counterfactual, does the documentary evidence relied upon by the defendant support a finding that the plaintiff would have entered the contract for purchase of the property, if it had been aware of the GAIC liability?
The defendant’s claim for recovery of the settlement sum is a recognised category of loss and damage
In Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (‘Unity Insurance’)[1] an insurance broker agreed to obtain insurance for Rocco Pezzano (‘the insured’) in respect of the insured’s business premises. During the currency of the policy a fire occurred at the premises. The insurer refused to indemnify the insured because of material non-disclosure of prior claims. The non-disclosure was caused by the broker who failed to disclose 11 claims that the insured had made against insurers during the previous 13 years.[2] The insured sued the insurer for $1,720,287.04 for breach of contract and sued the broker for breaching its duty to exercise reasonable care and skill. The insurer, relying on s 28 of the Insurance Contracts Act 1984 (Cth) contended that it was entitled to reduce its liability to nil because of the non-disclosure. The insured, on the advice of senior counsel, settled the action against the insurer for $900,000. In the action against the broker, the trial judge awarded the insured the difference between $1,720,287.04 and the $900,000 which the insured accepted from the insurer.[3]
[1](1998) 192 CLR 603 (‘Unity Insurance’).
[2]Ibid 610 [12].
[3]Ibid 610–1 [15].
In Unity Insurance, Brennan CJ stated:
When an agent is under a duty to exercise reasonable skill and care in negotiating a contract between the principal and a third party but fails to perform that duty whereby the third party asserts an entitlement to deny the principal’s rights under the contract, the damages which the principal who compromises a claim to enforce those rights against the third party may recover against the agent are the difference between what the principal would have obtained from the third party had the agent exercised reasonable skill and care and what the principal could reasonably obtain by compromise with the third party. [4]
[4]Ibid 608 [4]; see also 618–9 [41] (McHugh J), 626–7 [67] (Gummow J), 652 [128] (Hayne J).
In Protec Pacific Pty Ltd v Steuler Services GmBH & Co KG (‘Protec Pacific’)[5] a manufacturer made a misleading representation that its polyethylene product was suitable for use as a liner for tanks at a mine. The installer of the liner and the owner of the mine settled proceedings. The installer subsequently brought proceedings against the manufacturer claiming damages for the settlement sum. The Court of Appeal accepted that, subject to establishing that the settlement sum was reasonable, the amount paid by the installer by way of settlement of the damages claim was a recoverable head of damages.[6] However, because the installer had failed to establish that the settlement sum was reasonable, it failed to prove its loss.[7] There is no issue in the present proceeding as to the reasonableness of the settlement sum.[8]
[5][2014] VSCA 338.
[6]Ibid [741]–[742].
[7]Ibid [10].
[8]Transcript of Proceedings, T 141 L 27 (11 April 2022); Third Party, ‘Closing Submissions dated 12 April 2022’, [42].
It is common ground that Mr Brasse was subject to a duty to exercise reasonable skill and care in the preparation of the s 32 statement and breached that duty by failing to disclose the $1.6 million GAIC liability. As a result of this negligence the plaintiff acquired a prima facie right to rescind the contract. As such, the plaintiff had a prima facie right to the return of the deposit it paid the defendant upon entering the contract. It is common ground that the $815,881 settlement sum is a reasonable compromise of the plaintiff’s claim.[9] Unity Insurance and Protec Pacific are authority for the proposition that the defendant’s claim against the third party for recovery of the settlement sum is a claim for loss and damage recognised by the law.
[9]Ibid.
Mr Brasse submits that by claiming the settlement sum the ‘defendant misidentifies what it has lost’.[10] Mr Brasse submits that the judgments of the New South Wales Court of Appeal in Heenan v Di Sisto (‘Heenan’)[11] and Williams v Pagliuca (‘Williams’)[12] are authority for the proposition that the loss suffered by a vendor whose solicitor’s negligence vitiates a contract of sale, where the land is subsequently resold, is the loss of the commercial opportunity to enforce the original contract of sale.
[10]Third Party, ‘Closing Submissions in Reply dated 17 May 2022’, [6].
[11][2008] NSWCA 25 (‘Heenan’).
[12][2009] NSWCA 250 (‘Williams’).
I accept the submission of Mr Caleo QC, who appeared with Mr Mitchell for Mr Brasse on the final day of hearing, that in both Williams and Heenan the vendor’s loss was characterised as the loss of a commercial opportunity to enforce a contract vitiated by the solicitor’s negligence.[13] In both Heenan and Williams, the claim for damages against the negligent solicitors was not the quantum of a settlement sum paid to a third party to compromise a claim arising from the solicitors’ negligence. Rather, the claim was based on the difference between the sale price under the contract vitiated by the solicitors’ negligence and the lower price subsequently obtained under new contracts of sale. Heenan and Williams are not authority for the proposition that where a party pleads and establishes a category of loss recognised at law, a court can disregard such loss on the basis that the party could have characterised its loss in a different way. Neither Heenan nor Williams support a finding that notwithstanding that the defendant’s claim for recovery of the settlement sum is a recognised category of loss and damage, the loss should nevertheless be characterised as the loss of the commercial opportunity to complete the sale of the property under the contract with the plaintiff.
[13]Ibid [58] (Sackville JA); Heenan (n 11) [30] (Giles JA, Mason P and Mathews AJA agreeing).
The defendant could have pleaded a claim for loss constituted by the loss of the commercial opportunity to complete the contract with the plaintiff. It did not do so. Rather, as it was entitled to do, it elected to plead and sought to prove a claim for loss comprised of the settlement sum paid to the plaintiff in compromise of the plaintiff’s claim for recovery of the full deposit of $1.755 million.
In Berry v CCL Secure Pty Ltd[14] the High Court unanimously upheld an appeal from a judgment of the Full Court of the Federal Court which assessed damages recoverable under s 82 of the Trade Practices Act 1974 (Cth) on the basis that a contract would have been lawfully terminated on the provision of 30 days’ notice. Gageler and Edelman JJ, who agreed with the plurality that the appeal should be upheld, noted that s 82 of the Trade Practices Act requires the suffering of loss and damage, a connection between the loss and damage and the contravention, and that the measure of compensation is the loss and damage sustained.[15] Gageler and Edelman JJ stated:
[14](2020) 381 ALR 427.
[15]Ibid 453 [64].
‘Economic loss may take a variety of forms’ all of which involve the identification of some ‘prejudice or disadvantage’ that has occurred. Plaintiffs pursuing the statutory action are initially responsible for formulating how such loss or damage as they claim to have suffered is to be identified. The initial question must always be: ‘what loss or damage does the plaintiff allege’? The plaintiff then bears the legal onus of proving that the identified loss or damage has been suffered by the contravention of which they complain and of establishing the amount of that loss or damage. The plaintiff bears, in other words, the ultimate burden of establishing both the required connection with the contravention and quantum by inferences drawn from the whole of the evidence. That legal onus is constant…
Dr Berry and GSC did not formulate the loss they claimed to have suffered by the misleading or deceptive conduct of Securency in terms of the loss of contractual rights under the Agency Agreement. Had they formulated their loss in that way, they would have proved that the misleading or deceptive conduct of Securency was sufficiently connected with the identified loss by proving nothing more than that Dr Berry signed the termination letter in reliance on the misleading or deceptive conduct. There being no dispute that the termination letter was effective to bring the Agency Agreement to an end, the amount of their loss would have been the value of the contractual rights under the Agency Agreement that they gave up at the date of termination.
…
Dr Berry and GSC chose instead to formulate the loss they claimed to have suffered by the misleading or deceptive conduct of Securency exclusively in terms of the loss of commission they would have received under the Agency Agreement had the Agency Agreement not been brought to an end by the termination letter.[16]
[16]Ibid 453–4 [65]–[68] (emphasis added).
Gageler and Edelman JJ noted that Dr Berry and his company could have, but did not, formulate the loss claimed in terms of the loss of contractual rights under the agency agreement they entered into with Securency, and that if they had, their loss would have been proved merely by showing that the termination letter was signed in reliance on the misleading and deceptive conduct.[17] Instead, the loss was formulated in terms of the loss of commission they would have received under the agency agreement had it not been brought to an end, and that:
It was common ground that the formulation of their loss in that way required them to prove that the misleading or deceptive conduct of Securency caused the loss by proving on the balance of probabilities the counterfactual that, but for Dr Berry having signed the termination letter in reliance on the misleading or deceptive conduct so as to bring the Agency Agreement to an end, the Agency Agreement would have continued in existence and commission would have been paid under it.[18]
Gageler and Edelman JJ concluded that this onus would have been discharged by pointing to the provision for automatic renewal in the agreement. The burden of showing that the agreement would have been terminated through the exercise of a contractual right to terminate then fell to Securency:
‘The function of pleadings is to state with sufficient clarity the case that must be met’ and thereby to ‘ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and … to define the issues for decision’. A plaintiff should be expected to plead all material facts on which the plaintiff relies to constitute the statutory cause of action, including any counterfactual on which that plaintiff relies to establish the requisite causal link between identified loss or damage and identified misleading or deceptive conduct. In the same way, a defendant resisting the statutory action should be expected to plead any different counterfactual on which that party might rely to deny the causal link. Unless and to the extent that the parties choose to depart from the pleadings in the way they go on to conduct the trial, choice between the competing pleaded counterfactuals on the balance of probabilities should then exhaust the fact-finding that is required to be undertaken by the court on the issue of causation.[19]
[17]Ibid 454 [67].
[18]Ibid 454 [68].
[19]Ibid 455 [72].
Although the judgment of Gageler and Edelman JJ concerns the assessment of damages in a claim under s 82 of the Trade Practices Act, their reasoning applies equally to the identification and assessment of loss in a negligence action. The defendant, as the party claiming to have suffered loss and damage as a result of Mr Brasse’s negligence, is responsible for formulating by its pleadings how the loss and damage it claims to have suffered is to be identified. It did so by identifying the loss or damage as being the settlement sum paid in compromise of the plaintiff’s claim for recovery of the deposit. Having identified this loss, the defendant bore the onus of proving that the loss was suffered as a result of the Mr Brasse’s breach of duty. Whether the defendant has discharged this legal onus is not answered by the third party’s contention that the proper identification of the defendant’s loss was the loss of a commercial opportunity to complete the contract with the plaintiff.
In Unity Insurance, Brennan CJ addressed the nature of the onus to prove loss where a party alleges it has suffered loss as a consequence of the negligence of the third party and the loss consists of a settlement sum paid to compromise a proceeding arising from the third party’s negligence:
The onus is on a plaintiff seeking damages in tort or more than nominal damages in contract to establish the nature and extent of the damages suffered as the result of the defendant’s negligence. Where the damages claimed are the difference between what could have been obtained from a third party but for the defendant’s negligence and the sum accepted in settlement of the plaintiff’s rights against the third party, the plaintiff must prove that that sum equals or exceeds what was reasonably obtainable in the circumstances from the third party having regard to the effect of the defendant's negligence on the plaintiff’s rights against the third party.[20]
[20]Unity Insurance (n 1) 608 [5].
The defendant has established the nature and extent of the loss it suffered as a consequence of paying the settlement sum in compromise of the plaintiff’s claim for recovery of the full deposit of $1.755 million. However, it is still necessary to address the question of whether the defendant’s loss was caused by Mr Brasse’s negligence.
Does the defendant need to prove the counterfactual?
The defendant submits that in order to establish that its loss was caused by Mr Brasse’s negligence, it is not necessary for it to prove that, if Mr Brasse had not been negligent and the plaintiff had been put on notice of the $1.6 million GAIC liability, the plaintiff would still have entered the contract albeit without having a prima facie right of rescission which flowed from the defective s 32 statement. Mr Brasse submits that in order to discharge the onus of proving that its loss was caused by his negligence, the defendant must prove on the balance of probabilities that the plaintiff would have entered into the contract if it was on notice of the GAIC liability. If the plaintiff, on notice of the GAIC liability, would not have entered the contract, no deposit monies would have been paid to the defendant and there would have been no occasion for the defendant to compromise a claim by the plaintiff for the recovery of the deposit.
The defendant submits:
The loss represented by the compromise that in fact was the outcome of this litigation was a result of the contract that was in fact entered into, which in fact became the subject of litigation, which in fact was compromised on reasonable terms. The question whether the contract would not have been entered into in the first place does not enter into it.[21]
[21]Defendant, ‘Closing Submissions dated 2 May 2022’, [25].
In support of this submission, the defendant relies upon the High Court’s judgment in Unity Insurance. This reliance is misplaced because the trial judge at first instance made an express finding addressing the counterfactual of whether the insured would have been able to obtain insurance but for the broker’s non-disclosure. McHugh J referred to the following finding of the trial judge:
His Honour found that the insured would have obtained insurance of the kind obtained from the insurer even if it had disclosed the history of prior claims. This finding was based on the evidence of an expert in the industry who said that, while he was not sure at what cost or on what terms cover would be given, he thought that cover would have been obtained even after full disclosure of the previous claims. The witness said that the premium payable for the policy in those circumstances ‘would be a bit higher’ than normal. He conceded in cross-examination that not all insurers would have provided cover. However, he thought that a reasonable insurer would have done so. His Honour entered judgment for the insured in the sum of $1,041,166.[22]
[22]Unity Insurance (n 1) 611 [16] (citations omitted).
The significance of this finding is that it constitutes a finding of the hypothetical counterfactual of the broker not being negligent; ie if the broker had disclosed the insured’s full claims history:
(a) the insured would have obtained insurance from another insurer; and
(b) any claim for indemnity would not have been met with an arguable defence of non-disclosure under s 28 of the Insurance Contracts Act.
The defendant submits:
On the issue of factual causation, each of the Chief Justice, Justice McHugh, Justice Gummow and Justice Hayne explicitly conclude that where a person in the position of Mr Brasse renders a contract between their client and a third party arguably avoidable, and the third party claims to avoid it, causation of loss is complete without more, either straight away or when a settlement is entered into. They do not suggest that any counterfactual analysis about whether that contract would otherwise exist is involved in the process.[23]
[23]Defendant, ‘Closing Submissions dated 2 May 2022’, [46] (citations omitted) (emphasis in original).
It is correct that in the passages referred to in the defendant’s submissions, Brennan CJ and McHugh, Gummow and Hayne JJ did not directly address the issue of causation by reference to a counterfactual analysis. It was unnecessary for them to do so because of the express finding at first instance that, but for the negligence of the broker, the insured would have been able to obtain insurance without the insurer being armed with a non-disclosure defence under s 28 of the Insurance Contracts Act. In light of the counterfactual finding at first instance, Unity Insurance does not support the proposition that, in order to establish that its loss was caused by the third party’s negligence, it is unnecessary for the defendant to establish that the plaintiff would have entered into the contract if aware of the GAIC liability.
It is well established that in order to prove that loss has been caused by negligence it is necessary to engage in a counterfactual analysis. It is necessary to consider two matters. First, what the position would have been had the wrongdoer not been at fault in the relevant sense. Second, whether in that event the incident productive of injury or damage would have been prevented or not occurred.[24]
[24]Garzo v Liverpool/Campbelltown Christian School [2012] NSWCA 151, [170]–[172]; Strong v Woolworths (2012) 246 CLR 182, 196 [32]; Lewis v Australian Capital Territory (2020) 381 ALR 375, 384 [35], [37] (Gageler J), 413–4 [151], 424 [178] (Edelman J); Kozarov v Victoria (2022) 96 ALJR 405, 421 [91]–[92], 422 [95] (Gordon and Steward JJ), 424–5 [112] (Edelman J), 416 [57] (Gageler and Gleeson JJ); Wallace v Kam (2013) 250 CLR 375, 383 [16].
The event which caused the defendant’s loss was the plaintiff entering into the contract to purchase the property from the defendant armed with a prima facie right of rescission as a result of Mr Brasse’s negligence. The counterfactual analysis requires consideration of whether, absent Mr Brasse’s negligence, the plaintiff would still have entered the contract, albeit not armed with a right of rescission.
Would the plaintiff have entered the contract if it was aware of the GAIC liability?
In addressing this question, two issues arise for consideration. First, in circumstances where the defendant did not call direct evidence from the plaintiff, should the Court draw an inference from documentary evidence that the plaintiff would have entered into the contract if aware of the GAIC liability? Second, if it is permissible to have regard to documentary evidence, does the evidence support the inference that the plaintiff would have entered the contract?
If, contrary to its primary submission, the defendant bore the onus of proving that the plaintiff would have entered into the contract,[25] Mr Stuckey QC, who appeared with Mr Rimmer for the defendant, submitted that the Court should infer that Mr Alom (the plaintiff’s sole director) ‘knew about GAIC liability and its likely amount by April 2018 and would still have entered into this contract if the third party had included the GAIC certificate in the vendor’s statement’.[26]
[25]Defendant, ‘Closing Submissions dated 2 May 2022’, [65].
[26]Ibid [86].
Whether Mr Alom, if aware of the $1.6 million GAIC liability, would have caused the plaintiff to enter into the contract, is to be proven by the defendant on the balance of probabilities in accordance with the ordinary principles of proof under s 140 of the Evidence Act 2008.[27] However, before addressing the evidence that was led by the defendant, it is necessary to consider the evidence which the defendant could have, but did not, lead. In this regard, despite settling its dispute with the plaintiff on 6 April 2022, the defendant did not call Mr Alom to give evidence as to whether he possessed knowledge of the specific GAIC liability attaching to the property and whether the plaintiff would have entered into the contract if he had known about it.
[27]Third Party, ‘Closing Submissions in Reply dated 17 May 2022’, [11].
Counsel for Mr Brasse submitted that the defendant’s failure to call Mr Alom must be taken into account in deciding whether the defendant’s evidentiary onus is discharged. They submitted that if the defendant sought a finding that Mr Alom possessed knowledge of the $1.6 million GAIC liability he should have been called by the defendant to give direct evidence as to the extent of his knowledge.[28]
[28]Third Party, ‘Closing Submissions in Reply dated 17 May 2022’, [14]; see also Transcript of Proceedings, T 348 L 4–7 (19 May 2022).
A court will exercise caution in drawing inferences in favour of a party who bears an evidentiary onus and fails to lead direct evidence from a witness who could have been called. This was recognised by Lord Mansfield in Blatch v Archer[29] where his Lordship noted:
it is certainly a maxim that all evidence is to be weighed according to the proof which was in the power of one side to have produced, and in the power of the other to have contradicted.[30]
[29](1774) 98 ER 969.
[30]Ibid 970.
In Payne v Parker (‘Payne’),[31] Glass JA stated that the ‘principle [in Blatch v Archer] may be invoked for a deficiency in the evidence … of a party bearing the legal onus of proving an issue’ and that its effect would be that ‘the direct evidence of the party carrying the onus may be more readily rejected, and the inferences for which he contends may be treated with greater reserve’.[32] This principle is not unqualified, as Hodgson JA explained in Cook’s Construction Pty Ltd v Brown:[33]
… In my opinion, where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party’s favour from indirect and second-hand evidence, when the party doesn’t call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation…[34]
[31][1976] 1 NSWLR 191 (‘Payne’).
[32]Ibid 201.
[33][2004] NSWCA 105.
[34] Ibid [42] (emphasis added).
Accordingly, whether the principle in Blatch v Archer applies to the evidence led (and not led) by the defendant turns on whether there is a valid explanation for failing to call Mr Alom. The defendant submits that as it was, prior to settlement of their dispute, being sued by Mr Alom’s company, Mr Alom was not available to be called by the defendant. It submits Mr Alom was not in the defendant’s camp and as such the defendant had no obligation to call him.[35]
[35]Transcript of Proceedings, T 212 L 3 (11 April 2022).
During the trial, in response to this submission, the Court observed that if the defendant called Mr Alom to give evidence, it would likely be granted leave to cross-examine Mr Alom as an unfavourable witness under s 38 of the Evidence Act 2008.[36] Prior to the commencement of the trial the plaintiff filed a witness statement of Mr Alom which foreshadowed that he would give evidence that the plaintiff would not have entered the contract for the purchase of the property if he had been aware of the GAIC liability. This foreshadowed evidence was plainly unfavourable to the defendant’s claim against Mr Brasse.
[36]Ibid T 211 L 12 (11 April 2022); T 276 L 17 (12 April 2022).
In response, counsel for the defendant relied on the decision of the New South Wales Court of Appeal in Fabre v Arenales (‘Fabre’).[37] Fabre involved the application of the rule in Jones v Dunkel. I accept that authorities which have considered the rule in Jones v Dunkel are relevant to the application of the principle in Blatch v Archer.[38]
[37](1992) 27 NSWLR 437 (‘Fabre’).
[38]ASIC v Hellicar (2012) 247 CLR 345, 441–5 [250]–[259] (‘Hellicar’); ASIC v Rich [2004] NSWSC 963, [440]; Quintis Ltd (Subject to Deed of Co Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N16FA15350 (2021) 385 ALR 639, 704 [257]; Ho v Powell (2001) 51 NSWLR 572, 576 [16]; Payne (n 31) 201 [6]; Transcript of Proceedings, T 280 L 12–3 (12 April 2022).
In Fabre, the plaintiff, Ms Fabre, sued the defendant, Mr Arenales in negligence arising from the defendant’s driving of a car in which she was a passenger. Mr Arenales’ case was conducted by his insurer, the Government Insurance Office. Ms Fabre submitted on appeal that the defendant’s failure to call Mr Arenales resulted in a Jones v Dunkel adverse inference. Mahoney JA, with whom Priestley and Sheller JJA agreed stated:
The significance to be attributed to the fact that a witness did not give evidence will in the end depend upon whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so. But there are circumstances in which it has been recognised that such an inference is not available or, if available, is of little significance. The party may not be in a position to call the witness. He may not be sufficiently aware of what the witness would say to warrant the inference that, in the relevant sense, he feared to call him. The reason why the witness is not called may have no relevant relationship to the fact in issue: it may be related to, for example, the fact that the party simply does not know what the witness will say. A party is not, under pain of a detrimental inference, required to call a witness ‘blind’.
These matters are of relevance in the present case. A Jones v Dunkel inference may not arise if, for example, a witness has a reason for not telling the truth or refusing to assist and the party who may call him is aware of this.[39]
[39]Fabre (n 37) 449–50.
The judgment in Fabre preceded the enactment of s 38 of the Evidence Act 1995 (NSW). Judgments which postdate the enactment of s 38 have taken account of the potential to cross-examine an unfavourable witness when addressing the question of whether an adverse inference should be drawn from the failure to call an available witness. In Ho v Powell,[40] Hodgson JA stated:
However, plainly a deliberate decision was made not to call the appellant, who was in court available to give evidence. It seems clear that the only relevant evidence that the appellant could have given in the case concerned the role of the respondent’s negligence in the causation of the accident: the appellant’s own liability was admitted. The case was no doubt being conducted in the name of the appellant by the appellant’s insurer, so the choice not to call the appellant was probably not that of the appellant himself. However, if there was some difficulty with calling the appellant, other than that his evidence would not have supported his case on causation, then this difficulty could itself have been the subject of evidence. Furthermore, under s 38 of the Evidence Act 1995, if his evidence was unfavourable to his case, his counsel could have sought leave to cross-examine him, even though the case was being conducted in his name: s 38(7) overcomes the contrary view taken in Vocisano v Vocisano (1974) 130 CLR 267 in relation to earlier statutory provisions.[41]
[40](2001) 51 NSWLR 572.
[41]Ibid 577 [18] (emphasis added).
In Westpac Banking Corporation v Velingos,[42] Mr and Mrs Velingos had a loan taken out over their home by their son, Ikey Velingos. He used the money for his own benefit. When Westpac sought to take possession of the home, the Velingoses counterclaimed under the Contracts Review Act 1980 (NSW), claiming that Westpac knew or ought to have known that its loan was not to be used for their benefit. As to whether the Velingoses should have called their son to give evidence of a meeting held with the bank officer, Schmidt J stated:
Ikey Velingos, the obvious witness who could have corroborated their evidence, was also not called. That he was not called because he was the person who had ‘ripped off’ Mr and Mrs Velingos, is not an adequate explanation for his absence, given their evidence as to his whereabouts and their ongoing relationship. Any difficulties with his evidence could have been dealt with by way of an application under s 38 of the Evidence Act 1995.[43]
The court concluded that a Jones v Dunkel inference could be drawn from the failure of the Velingoses to call their son.
[42][2011] NSWSC 607.
[43]Ibid [78].
In RHG Mortgage v Ianni,[44] the Iannis had entered into a loan agreement with RHG, but claimed they were misled by their son, Joe Ianni, as to the nature of the agreement. An issue arose as to whether a Jones v Dunkel inference could be drawn against the Iannis for their failure to call Joe to give evidence. McColl JA (Emmett JA and Sackville AJA agreeing) referred to Fabre but concluded that a Jones v Dunkel inference was appropriate, despite the fact that Joe had misled and induced his parents to enter into the transaction. Relevantly, McColl JA considered that s 38 of the Evidence Act ‘could be prayed in aid if Joe had become “unfavourable“ once called’.[45]
[44][2015] NSWCA 56.
[45]Ibid [90].
The defendant’s failure to call Mr Alom is not justified by reason of Mr Alom not being in the defendant’s camp. The defendant’s failure to call Mr Alom is a matter to which I have had regard in determining whether the defendant has established on the balance of probabilities that the plaintiff would have entered into the contract for the purchase of the property if the s 32 statement had disclosed the $1.6 million GAIC liability.
The defendant’s failure to call Mr Alom does not diminish the strength of the evidence which it actually led.[46] Notwithstanding its failure to lead direct evidence from Mr Alom, if the documentary evidence led by the defendant is of sufficient strength, it could support a finding that the plaintiff would have entered into the contract for the purchase of the property if the s 32 statement had disclosed the $1.6 million GAIC liability.[47]
[46]Hellicar (n 38) 412–4 [164]–[170].
[47]Cf Shalhoub v Buchanan [2004] NSWSC 99.
Evidence led by the defendant
Evidence of previous transactions
Counsel for the defendant tendered evidence of previous transactions which Mr Alom had entered into through another company under his control, Homeington Building and Developments Pty Ltd (‘Homeington’). The defendant submits that these documents evidence Mr Alom’s awareness of GAIC liability generally, from which it could be inferred that he knew of the GAIC liability attaching to the property.
On 2 December 2015, Homeington purchased a property at 140 Kenning Road, Tarneit for $3.5 million.[48] The s 32 statement for this transaction disclosed a GAIC liability of $435,610.11,[49] representing 12.45 per cent of the purchase price. On 14 February 2017 Homeington sold this property,[50] attaching a s 32 statement which disclosed a GAIC liability of $442,259.41.[51] On 17 February 2016, Homeington purchased a property at 525 David Road, Mount Cottrell for $4.15 million.[52] The s 32 statement for this transaction disclosed a GAIC liability of $486,527.76,[53] representing 11.72 per cent of the purchase price. On 12 December 2016, Homeington purchased a property at 95 Gard Road, Mount Cottrell for $3 million.[54] The s 32 statement for this transaction disclosed a GAIC liability of $434,612.23,[55] representing 14.49 per cent of the purchase price. On 10 December 2017 Homeington sold this property,[56] attaching a s 32 statement which included a GAIC Certificate of No Liability.[57]
[48]CB182–4, ‘Contract of Sale dated 2 December 2015’.
[49]CB240, ‘GAIC Certificate dated 21 August 2015’.
[50]CB508, ‘Contract of Sale dated 14 February 2017’.
[51]CB588, ‘GAIC Certificate dated 6 February 2017’.
[52]CB245–6, ‘Contract of Sale dated 17 February 2016’.
[53]CB290, ‘GAIC Certificate’.
[54]CB386–8, ‘Contract of Sale dated 12 December 2016’.
[55]CB478,’GAIC Certificate dated 29 October 2014’.
[56]CB895, ‘Contract of Sale dated 10 December 2017’.
[57]CB928, ‘GAIC Certificate of No Liability dated 27 June 2017’.
The defendant submitted that these transactions support an inference that Mr Alom was aware that GAIC liability may be incurred in entering into transactions for the purchase of land but that the disclosure of GAIC liability did not dissuade him from entering into contracts for the purchase of properties.[58] The defendant submits this conclusion is reinforced by the fact that whereas the GAIC liability of $1,623,196.36 represented 9.25 per cent of the $17.55 million purchase price of the property, the GAIC liabilities in connection with Mr Alom’s previous transactions represented higher percentages of the respective purchase prices.[59]
Evidence of Mr Alom’s pre-contractual conduct
[58]Transcript of Proceedings, T 80 L 13–27 (5 April 2022).
[59]Ibid T 80 L 30–1 (5 April 2022).
Mr Ketan Patel, a director of the defendant, gave evidence that the defendant was repeatedly approached by Reliance Real Estate on behalf of Mr Alom in relation to the purchase of the property prior to entry into the First Option Agreement. This evidence supports a finding that Mr Alom was very interested in purchasing the property. However, it does not support a finding that Mr Alom would have been equally enthusiastic if aware of the $1.6 million GAIC liability attaching to the property.
The defendant also relies upon documentary evidence which suggests that prior to settlement the plaintiff offered subdivided lots of the property for sale, even though the defendant was still the owner of the property at that time. The plaintiff drafted agreements titled Deed of Joint Venture Agreement. The plaintiff entered into 13 such agreements between 23 June and 2 August 2018.[60] Under a joint venture agreement dated 23 June 2018, the plaintiff expressed its intention to subdivide and develop the property.[61] Under the agreement, ‘contributors’ were to contribute to the costs of subdivision and development in exchange for an option to purchase a nominated lot at the completion of the project.[62] The contribution amount under the agreement was $205,000, of which $50,000 was payable immediately. Counsel for the defendant submitted that the agreement:
appears to be an attempt to avoid the restrictions of s 9AA of the Sale of Land Act which prohibits sales off an unregistered plan of subdivision, except where there is a deposit of no more than 10 per cent and except where that deposit must be held in the trust account of a solicitor, conveyancer or real estate agent.[63]
[60]CB5385, ‘Deed of Joint Venture Agreement dated 23 June 2018’; CB5728, ‘Deed of Joint Venture Agreement dated 24 June 2018’; CB5782, ‘Deed of Joint Venture Agreement dated 6 July 2018’; CB5828, ‘Deed of Joint Venture Agreement dated 6 July 2018’; CB5880, ‘Deed of Joint Venture Agreement dated 12 July 2018’; CB5968, ‘Deed of Joint Venture Agreement dated 12 July 2018’; CB6002, ‘Deed of Joint Venture Agreement dated 14 July 2018’; CB6052, ‘Deed of Joint Venture Agreement dated 20 July 2018’; CB6100, ‘Deed of Joint Venture Agreement dated 20 July 2018’; CB6250, ‘Deed of Joint Venture Agreement dated 27 July 2018’; CB6304, ‘Deed of Joint Venture Agreement dated 30 July 2018’; CB6357, ‘Deed of Joint Venture Agreement dated 31 July 2018’; CB6433, ‘Deed of Joint Venture Agreement dated 2 August 2018’.
[61]CB5384–5, ‘Deed of Joint Venture Agreement dated 23 June 2018’.
[62]CB5385–6, ‘Deed of Joint Venture Agreement dated 23 June 2018’.
[63]Transcript of Proceedings, T 92 L 9 (5 April 2022).
The contribution amount, as defined in the joint venture agreement comprised various sums, including ‘any Growth Area Infrastructure Charge (GAIC) and development contributions charge associated with the Land’.[64] The defendant submitted that these agreements demonstrated Mr Alom to be ‘a very experienced and canny developer’ who had in effect passed GAIC liability onto the ultimate purchasers of the property by factoring GAIC liability into the pricing of the listed lots.[65]
[64]CB5389, ‘Deed of Joint Venture Agreement dated 23 June 2018’.
[65]Transcript of Proceedings, T 92 L 20–6, T 95 L 21–5 (5 April 2022); T 224 L 21–3 (11 April 2022).
The defendant also led evidence of a meeting between Mr Brasse and the plaintiff’s solicitor Mr Bartalotta on 16 May 2018 in which the two solicitors discussed the contract of sale.[66] A draft copy of the contract belonging to Mr Brasse[67] includes handwritten notes dated 16 May 2018.[68] I infer that these notes were made by Mr Brasse. The notes include the statement ‘GAIC and outgoings okay’.[69] A typed file note authored by Mr Brasse dated 16 May 2018 refers to his ‘[l]ong conversation with Dominic [Bartalotta]’ in which Mr Brasse and Mr Bartalotta ‘[d]iscussed GAIC… GAIC is okay’.[70] The file note also records that they ‘discussed the Special Conditions in the Contract’ which were ‘all in order except that we need to deal with Special Condition 19’. Special condition 20 of the contract of sale stipulated that the plaintiff would be liable for payment of the GAIC liability attaching to the property.
[66]CB1435–6, ‘Email from Mr Bartalotta to Mr Brasse dated 16 May 2018’; CB1438, ‘Email from Mr Brasse to the Defendant dated 16 May 2018’.
[67]Transcript of Proceedings, T 220 L 29 (11 April 2022).
[68]CB5075, ‘Draft Copy of the Contract of Sale’.
[69]Ibid.
[70]CB5099, ‘File Note dated 16 May 2018’.
By an email dated 17 May 2018, Mr Bartalotta informed Mr Brasse that the plaintiff ‘is keen to exercise his option pursuant to the Deed signed on 20 February 2018 and this will be done if agreement for a put and call option cannot be agreed to by 12 noon on Monday 21st May 2018’.[71]
Post-contractual conduct
[71]CB5130, ‘Email from Mr Bartalotta to Mr Brasse dated 17 May 2018’.
As to evidence which postdates the contract of sale, Mr Stuckey pointed to documents evidencing the plaintiff’s ‘major problems borrowing the necessary funds in 2019 to allow it to settle the purchase’.[72] Mr Patel gave evidence that the plaintiff was repeatedly unable to acquire adequate finance to fund the purchase of the property.[73] The defendant points to the plaintiff’s inability to raise sufficient funds to settle the contract as supporting an inference that the plaintiff’s inability to raise finance was the real reason for the rescission of the contract. This submission is a dual-edged sword. I accept that the evidence establishes that the plaintiff, despite repeated attempts, was unable to raise the funds necessary to settle the contract. However this evidence also supports an inference that if the plaintiff had been aware that in order to settle the contract it would have to raise a further $1.6 million, there is a real prospect that the plaintiff would have walked away from the transaction.
[72]Defendant, ‘Closing Submissions dated 2 May 2022’, [82(n)-(v)].
[73]Transcript of Proceedings, T 166 L 28–30, T 175 L 23–6 (11 April 2022).
Consideration of the defendant’s evidence
Counsel for Mr Brasse submitted that the defendant had failed to establish that if the plaintiff had been aware of the GAIC liability it would still have entered into the contract to purchase the property. They submitted that much of the evidence relied upon by the defendant did not bear on the issues in question: Mr Alom’s knowledge of the GAIC liability attaching to the property and the impact of this knowledge on the plaintiff’s entry into the contract.[74] They submitted that evidence which post-dated Mr Alom’s entry into the contract was of limited probative value in proving by inference his state of mind at the time of entry into the contract in August 2018.[75]
[74]Third Party, ‘Closing Submissions in Reply dated 17 May 2022’, [14].
[75]Ibid [15].
Mr Brasse submits that there is an important distinction between general knowledge of the existence of GAIC liability and specific knowledge of the quantum of the GAIC liability attached to the property and whether it fell to the plaintiff as the prospective purchaser to pay that sum.[76] In this regard, counsel noted that under the subheading ‘Growth Areas Infrastructure Contribution (“GAIC”)’, the s 32 statement states that ‘[a]ny of the following certificates or notices must be attached if there is a GAIC recording’.[77] Among the documents required to be disclosed is the GAIC certificate, which Mr Brasse ticked to indicate that a GAIC certificate was attached (though in the event omitted to attach to the s 32 certificate).[78] However, another document required to be disclosed is ‘[a]ny certificate of deferral of the liability to pay the whole or part of a GAIC’.[79] This reflects the fact that GAIC liability may attach to land without falling to be paid by the prospective purchaser, if the vendor has not deferred liability in whole or part.[80] In the s 32 statement prepared by Mr Brasse, the tick-box requiring disclosure of a certificate of deferral is not ticked, and no deferral certificate was attached. Counsel for Mr Brasse submitted that the absence of any deferral certificate might have led Mr Alom to believe that the defendant had not deferred GAIC liability until the next dutiable transaction, such that Mr Alom would have been entitled to believe that GAIC liability had already been paid.[81] I accept this submission.
[76]Transcript of Proceedings, T 354 L 15–23 (19 May 2022).
[77]CB1778, ‘Section 32 Statement dated 3 August 2018’, [7.2].
[78]CB1779, ‘Section 32 Statement dated 3 August 2018’, [7.2(g)].
[79]Ibid [7.2(b)].
[80]Planning and Environment Act 1987, s 201SM.
[81]Transcript of Proceedings, T 354 L 6–14 (19 May 2022).
The defendant has failed to establish that the plaintiff would have entered into the contract to purchase the property if the s 32 statement had referred to the $1.6 million GAIC liability. The fact that Homeington previously entered into transactions attracting GAIC liability does not support an inference that Mr Alom knew that the GAIC liability attaching to the property was $1.6 million. These documents were said to evidence Mr Alom’s general awareness of GAIC liability, from which it could be inferred that he knew of the GAIC liability attaching to the property. The documentary evidence establishes that Homeington entered into transactions attracting GAIC liabilities. However, there is no evidence that Mr Alom had personal knowledge of the particulars of those sales. Even if those matters were borne out by the evidence, it does not follow that Mr Alom was aware of the $1.6 million liability for which his company would become liable.
The thirteen joint venture agreements entered into by the plaintiff do not establish that Mr Alom knew of the $1.6 million GAIC liability attaching to the property. As counsel for Mr Brasse submitted, the fact that the contribution amount under the joint venture agreements included GAIC liability is not decisive. The contribution amount covered a broad range of potential costs incurred in the development of the property.[82]
[82]Ibid T 351 L 12 (19 May 2022).
The strongest evidence in support of the inference that Mr Alom had knowledge of the $1.6 million GAIC liability is the file note dated 16 May 2018 which records a conversation between Mr Brasse and Mr Bartalotta. The file note records that Mr Brasse and Mr Bartalotta ‘[d]iscussed GAIC… GAIC is okay’.[83] Counsel for the defendant submitted that as Mr Brasse, the author of the file note, was not called to give evidence, it is appropriate to draw a Jones v Dunkel inference that any evidence he may have given concerning the 16 May 2018 conversation with Mr Bartalotta and the associated file note would not have furthered his case.
[83]CB5099, ‘File Note dated 16 May 2018’.
The file note records that Mr Brasse and Mr Bartalotta discussed GAIC and that ‘GAIC is okay’. The file note does not record any discussion of the quantum of GAIC liability. However, by his amended defence dated 21 December 2021, Mr Brasse admitted that he and Mr Bartalotta ‘discussed the amount of the GAIC, and the fact that the Property was subject to GAIC of “about 10%”’.[84]
[84]CB43, ‘Amended Defence dated 21 December 2021’, [6].
I accept the defendant’s submission that a Jones v Dunkel inference should be drawn in respect of Mr Brasse’s failure to give evidence. If called to give evidence, Mr Brasse could have denied or otherwise given context to the contents of the file note. I infer from his failure to give evidence that his evidence about the file note would not have assisted his case. However, this inference does not lead to the conclusion that Mr Alom knew the quantum of GAIC liability attaching to the property. That conclusion would require an inference that Mr Bartalotta relayed to Mr Alom the details of his conversation with Mr Brasse. There is no proper evidentiary foundation for the drawing of this inference.
The plaintiff’s promises to pay the GAIC liability under the option deed and special condition 20 of the contract do not support a finding that Mr Alom knew the quantum of the GAIC liability and whether it had been deferred. The clause in the option deed merely states that:
The Purchaser promises to pay the Growth Areas Infrastructure Contribution (GAIC) and other levies, taxes, and fees associated with Land, insofar as those liabilities are referable to the Settlement Period.[85]
[85]CB994, ‘Option Deed dated 20 April 2018’.
As Mr Stuckey QC accepted, this clause only supports a finding that Mr Alom knows that GAIC exists.[86] The special condition is likewise silent on the quantum of the liability:
The Purchaser shall be liable for all liability arising from the imposition of the Growth Area Infrastructure Contribution (GAIC) pursuant to the provisions of the Planning andEnvironment Act (or under any other Act and their regulations) and the Purchaser indemnifies the Vendor against the GAIC liability arising from and in connection with this Contract and the resulting transfer of the Property to the Purchaser.[87]
[86]Transcript of Proceedings, T 404 L 4 (19 May 2022).
[87]CB1840, ‘Contract of Sale dated 3 August 2018’.
Evidence post-dating the entry into the contract is of limited probative value. There is evidence that Mr Alom acquired knowledge of the $1.6 million GAIC liability when the deferral certificate was issued by the State Revenue Office on 11 July 2019.[88] This occurred 11 months after the contract was entered into on 6 August 2018.
[88]CB2217, ‘GAIC Certificate dated 11 July 2019’; Transcript of Proceedings, T 52 L 25 (5 April 2022).
Conclusion
The defendant has established the nature and extent of the damage it suffered as a result of compromising the plaintiff’s claim for recovery of the $1.755 million deposit. As a consequence of Mr Brasse’s negligence, the plaintiff was armed with a prima facie right of rescission and a right to seek recovery of the deposit paid under the contract. The settlement sum of $815,881 is a category of loss recognised by the law. In order to prove that this loss was caused by Mr Brasse’s negligence the defendant must prove on the balance of probabilities that but for Mr Brasse’s negligence the plaintiff would not have been armed with a right of rescission. This requires the defendant to establish that if the s 32 statement had disclosed the $1.6 million GAIC liability the plaintiff would still have entered the contract, albeit not armed with a right of rescission. The defendant has failed to establish this and has therefore failed to establish that the loss of $815,881 was caused by Mr Brasse’s negligence.
The defendant’s alternative claim for damages
In light of the conclusion set out above it is necessary to address the defendant’s alternative, failed transaction claim for damages. There are four components of the defendant’s alternative claim for damages:
(i) $454,545.54 in commission paid to Reliance Real Estate upon entering the contract for sale of the property to the plaintiff;[89]
[89]It is common ground that the GST component of the $500,000 agent’s commission should be excluded.
(ii) Rates and taxes totalling $75,989.52 incurred during the period between the plaintiff’s rescission of the contract and the sale of the property to Waatercove Pty Ltd on 17 March 2021;
(iii) $9,752.47 in legal fees paid to Mr Brasse;
(iv) The costs of defending the plaintiff’s claim for recovery of the $1.755 million deposit.
The loss occasioned by the payment of the agent’s commission was a direct result of Mr Brasse’s negligence which armed the plaintiff with a right of rescission. The commission was wasted as a result of the failure of the transaction. The defendant has therefore established a loss of $454,545.54.
The defendant has failed to establish that Mr Brasse’s negligence caused it to incur rates and taxes totalling $75,998.52 for the period between 21 August 2019 when the plaintiff served a notice of rescission and 17 March 2021 when the property was sold to Waatercove Pty Ltd. The defendant’s alternative claim for damages is premised upon having failed to establish that the plaintiff would have entered into the contract if aware of the GAIC liability. The defendant’s liability to pay rates and charges was not caused by Mr Brasse’s negligence. It was a by-product of the defendant’s ownership of the property until March 2021. I accept Mr Patel’s evidence that the defendant was not prepared to accept less than $17 million for the sale of the property[90] and that prior to receiving the offer from Waatercove Pty Ltd the defendant had not received an acceptable offer to purchase the land.[91]
[90]Transcript of Proceedings, T 185 L 21–2 (11 April 2022).
[91]Ibid T 188 L 17–21 (11 April 2022).
The defendant claims as damages $9,752.47 paid in legal fees to Mr Brasse. The actual amount paid by the defendant was $6,816.39, with the balance being paid by the plaintiff.[92] Mr Brasse accepts that this is an amount which the defendant is entitled to claim as damages.
[92]CB1991, ‘Tax Invoice dated 21 November 2019’; CB2004, ‘Tax Invoice dated 18 December 2018’; CB2077, ‘Tax Invoice dated 9 January 2019’; CB2083, ‘Tax Invoice dated 5 March 2019’; Transcript of Proceedings, T 193 L 12–26 (11 April 2022).
The defendant also claims damages for its actual costs reasonably incurred in defending the action brought by the plaintiff. The defendant submits that the judgment of the Full Court of the Federal Court in Gray v Sirtex Medical Ltd (‘Sirtex’)[93] is authority for the proposition that costs incurred in a proceeding can be recovered as a head of damage in the same proceeding against a wrongdoer who has caused the costs to be incurred.[94]
[93](2011) 193 FCR 1 (‘Sirtex’).
[94]Defendant, ‘Closing Submissions dated 2 May 2022’, [108].
In Sirtex, the University of Western Australia (‘UWA’) sued Dr Gray alleging breach of contractual and fiduciary obligations. Sirtex was alleged to have been knowingly involved in Dr Gray’s breach of fiduciary obligations. Sirtex commenced a cross-claim against Dr Gray for damages alleging a contravention of s 10 of the Fair Trading Act 1987 (WA). Sirtex alleged that as a result of Dr Gray’s misleading and deceptive conduct it lost the opportunity to resolve the claims made against it by UWA. UWA’s claim against Dr Gray and Sirtex was dismissed with costs.[95] However, part of Sirtex’s cross-claim against Dr Gray was upheld. Dr Gray was ordered to pay Sirtex $1,762,224.33. The damages award was comprised of various categories of legal costs incurred by Sirtex in defending the UWA proceedings, after deducting the party-party costs payable by UWA, and Sirtex’s costs of its cross-claim against Dr Gray.[96]
[95]University of Western Australia v Gray (No 20) (2008) 246 ALR 603, [19].
[96]University of Western Australia v Gray & Ors (No 28) (2010) 185 FCR 335, see [147]-[187].
Dr Gray’s primary ground of appeal was that the trial judge erred in holding that the legal costs incurred by Sirtex in the proceedings could be recovered as damages in the proceeding. The Full Court upheld the appeal in part. It rejected Dr Gray’s contention that the trial judge erred in holding that the costs incurred by Sirtex in defending the UWA proceeding could be recovered as damages. It upheld the appeal insofar as the awarded damages included Sirtex’s costs of its cross-claim against Dr Gray.
The facts of Sirtex are analogous to the present proceeding. Sirtex had been required to defend proceedings instituted by UWA arising out of Dr Gray’s alleged breaches of contractual and fiduciary obligations. In the present proceeding the defendant has had to defend proceedings instituted by the plaintiff arising out of the negligent drafting of a s 32 statement by Mr Brasse. The defendant submits that just as the Full Court upheld an order that Dr Gray pay as damages the costs incurred by Sirtex in defending the UWA proceeding, the costs it has incurred in defending the plaintiff’s claim should be awarded against Mr Brasse as damages.
The Full Court approved of the following passage from the judgment of Devlin LJ in Berry v British Transport Commission (‘Berry’),[97] as a correct statement of the law:[98]
It follows that if as a result of a breach of contract… or a tort… a person brings unsuccessfully an action against a third party or loses an action brought by a third party, he may recover against the wrongdoer who has broken his contract or committed the tort the costs of the suit; and he will get all the costs he has reasonably expended. The wrongdoer may not argue that the plaintiff is entitled only to party and party costs, notwithstanding that this is all he could or would have got from the third party, if he had been successful.[99]
[97](1962) 1 QB 306.
[98]Sirtex (n 93) [24], [26].
[99]Ibid [24].
In Berry the plaintiff sought as damages in a claim for malicious prosecution the costs incurred in defending a criminal proceeding at first instance and on appeal, less the costs which had been awarded to her. The damages which were awarded were based on the costs incurred in a separate proceeding.
Having referred to Berry, the Full Court cited the following passage from the judgment of the Court of Appeal in Lonrho v Fayed (No 5):[100]
[100][1994] 1 All ER 188.
In Lonrho Evans LJ set out the general principle, as he described it, that no claim lies, as between the parties to a civil action for the recovery of any balance of the costs actually incurred in defending the action which are not awarded to the successful defendant by the costs order made in the action. Stuart-Smith LJ at 1505 and Dillon LJ at 1497 each expressed themselves to the same effect.
However Evans LJ went on to state that:
There is authority, however, that no such bar exists to a claim for unrecovered costs against a third party, that is, against a person who was not a party to the original action. Such claims are common place as damages for breach of contract, and they have been admitted also in tort: per Devlin LJ in Berry v British Transport Commission. The measure of such damages under the old costs rules was the difference between the plaintiff’s costs of the action taxed as between solicitor and client and as between party and party: McGregor on Damages, p 459 para 713.
That a defendant’s costs of an action may be recovered as damages against a third party in separate proceedings, a proposition supported by the authority to which we have just referred, is acknowledge as correct in law by Dr Gray. The rationale for this proposition, again acknowledged by Dr Gray, is that the third party was not a participant in the prior litigation and the Court had no opportunity to adjudicate on the issue of costs between the third party and the plaintiff.[101]
[101]Sirtex (n 93) [28]–[30] (emphasis added).
The Full Court rejected Dr Gray’s contention that because the cross-claim by Sirtex was brought in the same proceeding as the claim by UWA against Sirtex, the principle that costs of a civil proceeding are not recoverable as damages in that proceeding or a later proceeding, applied:
As Dr Gray would have it, because the cross-claim against him by Sirtex was brought in the same ‘proceeding’ as the claim by UWA against Sirtex, then the general principle that ‘costs of a civil proceeding are not recoverable as damages in that proceeding or in a related or subsequent proceeding’ applies.
However, when regard is had to the rationale for the principle it is plain enough that although Dr Gray was a co-defendant and thereby he was a participant in the proceeding brought against Sirtex by UWA, it was unnecessary for French J to adjudicate in the proceeding between Sirtex and UWA on the issue of costs claimed as damages as between Sirtex and Dr Gray in the cross-claim.
Importantly, a cross-claim is a separate proceeding: O5, r 11(123) of the FCR; Grundy v Lewis (1995) 62 FCR 567. It follows that a costs order made in the same proceeding commenced by UWA against Sirtex is not a costs order made in the proceeding commenced by Sirtex by cross-claim against Dr Gray…
This case is but an example of the related but different principle that a defendant’s (unrecoverable) costs of an action may be recovered as damages against a third party in a separate proceeding: Hammond, Berry, and Lonrho to which we have referred and which principle, as we mentioned, is acknowledged by Dr Gray. To the extent that Penn v Bristol & West Building Society and McCourt state to the contrary we would not follow them.[102]
[102]Ibid [33]–[37].
Contrary to the defendant’s written submissions Sirtex is not authority for the proposition that costs incurred in a proceeding can be recovered in the same proceeding against a wrongdoer who has caused them to be incurred. A critical underpinning of the Full Court upholding the damages comprised of the costs incurred by Sirtex in defending the UWA proceeding, was the fact that the cross-claim in which it sought recovery of those costs as damages was a separate proceeding from the UWA proceeding. It is therefore necessary to address the question of whether the plaintiff’s proceeding for recovery of the $1.755 million deposit is a separate proceeding from the proceeding commenced by the defendant against Mr Brasse.
Rule 11.04(1) of the Supreme Court (General Civil Procedure) Rules 2015 provides:
A claim by a third party notice shall be commenced by filing a third party notice in the Court whereupon the third party shall become a party to the proceeding.
The effect of r 11.04(1) is that a third party becomes a party to the proceeding.[103] The proceeding instituted by the plaintiff against the defendant is not a separate proceeding from the third party proceeding. It follows that the costs incurred by the defendant in resisting the plaintiff’s claim are not recoverable as damages against Mr Brasse because the costs have been incurred in the same proceeding.
[103]Financial Wisdom Ltd v Newman (2005) 12 VR 79, 90 [28].
Queanbeyan Leagues Club Ltd v Poldune Pty Ltd (‘Queanbeyan’)[104] is another example of the importance of determining whether the proceeding in which the costs have been incurred is a separate proceeding from that in which the costs are claimed as damages. In Queanbeyan, a cross-claimant sought to recover from a third party as damages costs which had not been recovered from a plaintiff. Section 78(4)(a) of the Supreme Court Act 1978 (NSW) joined a cross claimant as a party to the proceeding. Part 52A r 8 of the Supreme Court Rules 1970 (NSW) provided that a party to a proceeding in the court shall not be entitled to recover any costs of or incidental to the proceeding from any other party to the proceedings except under an order of the court. Hamilton J held that the combined effect of s 78(4)(a) and Pt 52A r 8 was that the cross-claimant could not recover as damages from the third party costs which it had not recovered from the plaintiff.[105]
[104][2000] NSWSC 1100.
[105]Ibid [46].
The defendant has established loss of $454,545.54 being wasted agent’s commission and $6,816.39 in legal fees it paid to Mr Brasse. It remains necessary to address Mr Brasse’s submission that this loss is offset by two items:
(v) $939,119 of the $1.755 million deposit retained by the defendant following the compromise of the plaintiff’s claim; and
(vi) $213,300 being the value of the benefit derived by the defendant from its use of $3.55 million which it retained until the settlement of the plaintiff’s claim on 6 April 2022.
Does the $939,119 retained by the defendant reduce the quantum of damages Mr Brasse is liable to pay?
The defendant submits that notwithstanding that the retention of the deposit monies was by way of a compromise of an action which had been caused by Mr Brasse’s negligence, the $939,119 should not be taken into account in the assessment of the defendant’s financial loss arising from Mr Brasse’s negligence. The defendant submits:
The decision in Redding v Lee (1983) 151 CLR 117 re-committed this country to the test in Espagne. The test is said to be a general one, and that it requires the Court to consider the nature of the benefit that the defendant seeks to set off against the damages, and to inquire whether the person or body supplying it intended that the plaintiff should enjoy it in addition to the damages they might acquire from the defendant.[106]
[106]Defendant, ‘Closing Submissions dated 2 May 2022’, [121] (citations omitted).
Applying this test the defendant submits that the $939,119 which it retained from the deposit paid by the plaintiff was not in respect of any damage that it suffered, but rather concerned a legal right to retain money.
In an action in tort a plaintiff is entitled to damages which will put the plaintiff in the same position they would have been in had they not been injured. A plaintiff cannot recover more than they have lost.[107] Notwithstanding this general rule, the common law recognises two types of receipts which are not to be brought into account in the assessment of damages for financial loss, even though the sums have been received as a result of the injuries for which the plaintiff sues:
[107]Redding v Lee (1983) 151 CLR 117, 133 (‘Redding’).
(vii) monies payable to a plaintiff under a contract of insurance which the plaintiff has taken out; and
(viii) gifts made by a benevolent third party seeking to improve the position a plaintiff is placed in as a consequence of their injuries.[108]
[108]Ibid 122.
In National Insurance Company of New Zealand Ltd v Espagne (‘Espagne’)[109] the High Court rejected a contention that the award of an invalid pension to an injured plaintiff permanently blinded by the negligence of the defendant which gave rise to the cause of action, should be taken into account in assessing damages to be awarded. Windeyer J, with whom Dixon CJ generally agreed,[110] stated:
So far as any rules can be extracted, I think they may be stated, generally speaking, as follows: In assessing damages for personal injuries, benefits that a plaintiff has received or is to receive from any source other than the defendant are not to be regarded as mitigating his loss, if: (a) they were received or are to be received by him as a result of a contract he had made before the loss occurred and by the express or implied terms of that contract they were to be provided notwithstanding any rights of action he might have; or (b) they were given or promised to him by way of bounty, to the intent that he should enjoy them in addition to and not in diminution of any claim for damages. The first description covers accident insurances and also many forms of pensions and similar benefits provided by employers: in those cases it is immaterial that, by subrogation or otherwise, the contract may require a refund of moneys paid, or an adjustment of future benefits, to be made after the recovery of damages. The second description covers a variety of public charitable aid and some forms of relief given by the State as well as the produce of private benevolence. In both cases the decisive consideration is, not whether the benefit was received in consequence of, or as a result of the injury, but what was its character: and that is determined, in the one case by what under his contract the plaintiff had paid for, and in the other by the intent of the person conferring the benefit.[111]
[109](1961) 105 CLR 569 (‘Espagne’).
[110]Ibid 574.
[111]Ibid 599–600.
Dixon CJ stated:
On the other hand there may be advantages which accrue to the injured plaintiff, whether as a result of legislation or of contract or of benevolence, which have an additional characteristic. It may be true that they are conferred because he is intended to enjoy them in the events which have happened. Yet they have this distinguishing characteristic, namely they are conferred on him not only independently of the existence in him of a right of redress against others but so that they may be enjoyed by him although he may enforce that right: they are the product of a disposition in his favour intended for his enjoyment and not provided in relief of any liability in others fully to compensate him. This is readily seen in the case of benevolence. If a fund is raised by subscription for the benefit of a badly injured neighbour obviously this cannot operate in relief of the liability of a man who negligently caused the injury. So in a contract of accident insurance; where in the absence of special stipulation the insurer will not succeed by subrogation or otherwise to the insured’s right of recourse against others in the case of injury by their negligence. But for the reason given it does not follow that the negligent parties can treat the insurance as operating in relief of their liability. It was effected by the money of the plaintiff for his own benefit in the event of an accident, a benefit both independent of and cumulative upon whatever right of redress against others might arise out of the circumstances of the accident.[112]
[112]Ibid 573.
In Redding v Lee[113] the High Court followed Espagne and concluded that in the assessment of damages to be awarded for personal injuries caused by negligence, invalid pension payments granted for permanent incapacity to the injured plaintiff pursuant to the Social Security Act 1947 (Cth) should be disregarded. However, a majority of the Court held that in the assessment of damages for personal injuries caused by negligence, unemployment benefits should be deducted from the plaintiff’s loss of wages up to the trial arising from the negligence. Gibbs CJ, who formed part of the majority in disregarding invalid pension payments, but was in the minority in disregarding unemployment benefits stated:
It may rightly be said that the test suggested in National Insurance Co. of New Zealand Ltd. v. Espagne is far from precise, and that its application can lead to differences of opinion in particular cases, as the authorities amply demonstrate. However, it is difficult to suggest a more exact criterion once it is accepted, as it must be, that justice requires that certain benefits must be disregarded in the assessment of damages notwithstanding that they would not have been received but for the injuries for which the plaintiff sues and notwithstanding that in fact they have mitigated the plaintiff’s loss.[114]
[113]Redding (n 107).
[114]Ibid 125.
Mason and Dawson JJ, with whom Deane J generally agreed,[115] who were in the majority in disregarding invalid pensions but who included unemployment benefits in the assessment of damages, stated:
The decisions relating to pensions reflect the problems which have arisen in pursuing the selective approach. Pensions have very often been disregarded in assessing damages for loss of earning capacity. Thus, an invalid pension payable under the Social Services Act 1947 (Cth), as amended, (‘the Act’) (National Insurance Co. of New Zealand Ltd. v. Espagne), a pension payable on compulsory retirement pursuant to the Superannuation Act 1916 (N.S.W.), as amended, (Graham v. Baker), a disability pension under the Police Regulation (Superannuation) Act 1906 (N.S.W.), as amended, (Paff v. Speed) and a superannuation benefit payable under a contributory scheme (Jones v. Gleeson) were disregarded in the assessment of damages…
In addition to pension and superannuation benefits and benefits arising from benevolence, all of which may be disregarded provided their purpose is to confer a benefit on the plaintiff irrespective of the plaintiffs right of action against the tortfeasor, it is necessary to identify two other broad categories of benefits, the first of which will in general be disregarded and the second of which will in general have to be brought into account in the assessment of damages.
The first category concerns proceeds from insurance policies, such as those received by the plaintiff in Bradburn. The second category comprises benefits provided to the plaintiff which are a substitute, or partial substitute, for wages.[116]
[115]Ibid 168.
[116]Ibid 134–5, 138–9 (citations omitted).
Deane J stated:
Espagne has now stood for more than twenty-one years. It has been referred to in many subsequent cases in this Court without challenge to its authority. It has been followed and applied as a matter of course in innumerable cases by courts responsible for assessing damages as compensation for personal injury in negligence cases.[117]
[117]Ibid 167.
Deane J dismissed the appeal in Redding v Lee ‘solely on the basis that the decision in Espagne is in point and should be followed’.[118]
[118]Ibid 168.
The principles in Espagne have been applied on many occasions in the assessment of damages in personal injuries claims for the purpose of determining whether benefits received by a plaintiff should be taken into account to reduce an award of damages. The types of benefits which have been considered include pensions paid on retirement,[119] free hospitalisation,[120] care provided by a spouse,[121] nursing home expenses,[122] voluntary services provided by a stranger,[123] and motor vehicle compensation.[124]
[119]Paff v Speed (1961) 105 CLR 549.
[120]Jensen v Burnham [1966] QWN 51.
[121]Cornish v Watson [1968] WAR 198.
[122]Handley v Datson [1980] VR 66.
[123]Budget Rent a Car Systems Pty Ltd v Van Der Kemp [1984] 3 NSWLR 303.
[124]Manser v Spry (1994) 181 CLR 428.
The principles in Espagne have also been applied by courts, albeit much less frequently, in the assessment of damages unrelated to personal injury claims. In Wollington v State Electricity Commission Victoria (No 2)[125] the Full Court of the Victorian Supreme Court rejected a contention that ex gratia payments made by the Victorian Government to bushfire victims should be deducted from damages otherwise payable:
To adapt the language of Dixon, C.J. in Espagne’s Case, quite clearly the money received by the respondent from the Government had the additional or distinguishing characteristic that it was received by him independently of the existence in him of a right of redress against others but so that it might be enjoyed by him even though he enforce that right. The money was not received independently of the existence in him of the capacity to rebuild from his own resources, indeed the amount of it was only calculated or arrived at after an assessment of the measure of that capacity; but independently of the existence in him of any right against third parties.[126]
[125](1980) VR 91.
[126]Ibid 100.
The authorities referred to above support a finding that certain types of pension payments, ex gratia payments and in-kind benefits may be disregarded from the assessment of a plaintiff’s loss and damage, even though the receipt of the benefit is a consequence of the wrongdoer’s negligence.
The defendant accepts that it compromised the plaintiff’s claim for recovery of the full deposit of $1.755 million in order to mitigate the loss it suffered as a consequence of Mr Brasse’s negligence.[127] In Powercor Australia Ltd v Thomas[128] Osborne JA (with whom Warren CJ and Bongiorno JA agreed) stated:
The third rule is that where the plaintiff does take steps to mitigate the loss to him consequent upon the defendant's wrong and these steps are successful, the defendant is entitled to the benefit accruing from the plaintiff’s action and is liable only for the loss as lessened; this is so even although the plaintiff would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being ones which were required of him under the first rule. Put shortly, the plaintiff cannot recover for avoided loss.[129]
[127]Transcript of Proceedings, T 125 L 2–9 (7 April 2022).
[128][2012] VSCA 87.
[129]Ibid [52].
In British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (‘British Westinghouse’)[130] Haldane LC stated:
As James L.J. indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.[131]
…
I think that this decision illustrates a principle which has been recognized in other cases, that, provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.[132]
[130](1912) AC 673 (‘British Westinghouse’)
[131]Ibid 689.
[132]Ibid 690.
In the present proceeding the defendant compromised the plaintiff’s claim for recovery of the full deposit. The plaintiff’s cause of action was a direct consequence of Mr Brasse’s negligence which armed the plaintiff with a prima facie right of rescission and a claim for the return of the full deposit. The deed of settlement pursuant to which the defendant retained $939,119 was not an independent transaction unrelated to the defendant’s negligence action against Mr Brasse.
An authority not referred to by the parties but which warrants consideration is the judgment of the Full Court of the Federal Court of Australia in Monroe Schneider Associates (Inc) & Anor v No.1 Raberem Pty Ltd & Ors (‘Monroe Schneider’).[133] Monroe Schneider carried on business in the USA as a commercial carpet retailer. No.1 Raberem (‘Solomons’) carried on business in Australia as commercial carpet wholesalers, retailers and installers. Monroe Schneider falsely informed Solomons that they had entered into contracts with customers for the supply of carpet on the basis of prices quoted to them by an executive of Solomons. In order to honour these quotations, Solomons purchased carpet from a third party (‘Feltex’) at a price resulting in considerable losses. Feltex later agreed to pay NZ$400,000 to Solomons for an advertising campaign jointly promoting the products of Feltex and Solomons. At trial Solomons were awarded damages because of Monroe Schneider’s fraud. Monroe Schneider appealed the award of damages. It contended that the NZ$400,000 should have been taken into account in reducing the damages payable to Solomons.
[133](1991) 33 FCR 1 (‘Monroe Schneider’).
A majority of the Full Court of the Federal Court (Burchett J, O’Loughlin J agreeing) concluded that the payment of NZ$400,000 should be disregarded in assessing the loss sustained by Solomons as a consequence of Monroe Schneider’s fraud:
In my view, the principle of Espagne is applicable generally, and not merely as a rule in actions for damages for personal injuries. To the extent that the payment of NZ$400,000 was a response by Feltex NZ to its understanding that Solomons were deserving (whether morally, or for the sake of the importance to Feltex NZ of its relations with them) of assistance in an unfortunate predicament, I think the principle has direct application to the present case. In the words of Dixon CJ the benefit has the distinguishing characteristic that it was conferred on Solomons ‘independently of the existence in [Solomons] of a right of redress against others’.[134]
[134]Ibid 26 (Burchett J, O’Loughlin J agreeing).
Burchett J also addressed the question of whether the NZ$400,000 payment should reduce Solomons’ entitlement to damages in accordance with the principle in British Westinghouse that, when in the course of a plaintiff’s business the plaintiff takes action arising out of a transaction which reduces his loss, the reduction of loss may be taken into account even though the plaintiff was under no duty to take the steps resulting in the reduction of loss:[135]
If these principles are applied to the present case, it may be said that the occasion of the arrangement with Feltex NZ was the situation in relation to the carpet transaction. But any direct link was denied by the refusal of Feltex NZ to amend its price in relation to that transaction. What followed was a collateral transaction, involving separate obligations in respect of advertising and promotion (unrelated to the cause of action in deceit and the loss flowing from it), the benefits and disadvantages of which were simply not explored at the hearing.[136]
[135]British Westinghouse (n 130) 689.
[136]Monroe Schneider (n 133) 28.
The judgment in Monroe Schneider is an example of the application of the principles in Espagne to a benefit received by a plaintiff from a third party where the benefit was not in the nature of a pension payment or a payment under an insurance contract. The judgment in Monroe Schneider is authority for the proposition that the principles in Espagne are not confined to cases involving claims for negligence resulting in personal injury. The NZ$400,000 which Feltex NZ paid to Solomons had the character of an ex gratia payment, being a response by Feltex NZ to its understanding (whether morally for the sake of the importance to Feltex NZ of its relations with Solomons), of providing assistance to Solomons. The character of the NZ$400,000 payment is distinguishable from the $939,119 retained by the defendant under the terms of settlement of the plaintiff’s claim for recovery of the full $1.755 million deposit. Further, the NZ$400,000 was paid to Solomons by Feltex NZ pursuant to an agreement which was unrelated to Solomons’ cause of action in deceit against Monroe Schneider.
I agree with the observation of Hargrave J (as his Honour then was) in Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd[137] that the assessment of damages in Monroe Schneider turned upon the particular facts of the case.[138] Both the character of the NZ$400,000 payment received by Solomons from Feltex NZ and the fact that the agreement pursuant to which that payment was made was unrelated to Solomons’ cause of action in deceit against Monroe Schneider are significant distinguishing features from the facts of the present case.
[137][2013] VSC 464.
[138]Ibid [326].
I accept the defendant’s submission that it is necessary to address the question of whether the plaintiff intended that the defendant’s retention of the $939,119 deposit monies would not diminish its entitlement to damages from the third party for negligence.
The defendant did not lead direct evidence from the plaintiff or any office holder of the defendant which sheds light on the question whether the plaintiff intended that the $939,119 would not reduce the quantum of damages which the defendant could recover from Mr Brasse. Mr Alom signed the deed of settlement on behalf of the plaintiff. He could have given direct evidence as to the plaintiff’s intentions but was not called as a witness by the defendant. The defendant submits:
Even more clearly, the Plaintiff cannot be said to have intended the amount of the deposit retained by the Defendant to be enjoyed in lieu of Mr Brasse’s obligation to pay damages. It paid the money originally because it had a contractual obligation quite unrelated to Mr Brasse or the damage. It compromised to allow the Defendant to retain more than half of it because that reduced the risk of it losing all. There is no intention discoverable there to reduce Mr Brasse’s liability. It is a quite unrelated set of interests.[139]
[139]Defendant, ‘Closing submissions dated 2 May 2022’, [123].
The principle in Espagne is an exception to the general rule that sums received by a plaintiff in consequence of a defendant’s negligence will be taken into account in the assessment of damages for financial loss. The defendant, as the party seeking to bring itself within the exception to the general rule, bears the onus of establishing that the plaintiff intended that the $939,119 would not reduce the damages payable to the defendant as a consequence of Mr Brasse’s negligence.[140]
[140]Law Society of New South Wales v Glenorcy Pty Ltd (2006) 67 NSWLR 169, 184 [77] (‘Glenorcy’); ZAB v ZWM [2021] TASSC 64, [78]; Amaca Pty Ltd v Werfel (2020) 138 SASR 295, 439 [555] (‘Amaca’).
In Griffiths v Kerkemeyer,[141] Stephen J stated:
No hard and fast rule can and should be laid down as applicable to all of that great variety of other types of subventions which may come before the courts. For many of them what was said in Parry v Cleaver and, in Australia, by Windeyer J in Paff v Speed and in greater detail in National Insurance Co of New Zealand Ltd v Espagne per Dixon CJ and per Windeyer J will provide the answer. As Windeyer J pointed out, in appropriate cases the intent of the provider will be determinative, so that, where the intent is that the injured person shall enjoy the benefits of the subvention in addition to whatever rights he may have against the wrongdoer, the value of the subvention will not go in diminution of damages to be awarded to the injured person.[142]
This passage was cited with approval by the Full Court of the South Australian Supreme Court in Amaca Pty Ltd v Werfel:[143]
We accept that, depending on the evidence, there may be cases where it is open to contend that even where a service is provided at a cost, it is a markedly discounted cost, in truth provided as a form of charitable subvention. Where the evidence shows that it was never intended that the defendant should benefit from that charitable subvention, the defendant usually remains liable to meet the loss even where the third party has paid or otherwise met the relevant loss or outlay. There was, however, no evidence led from the service provider to show that what was paid was in the nature of charity, or indeed anything other than what the service provider was prepared to accept.[144]
[141](1977) 139 CLR 161.
[142]Ibid 175–6.
[143]Amaca (n 140).
[144]Ibid 439 [555].
In Law Society of New South Wales v Glenorcy Pty Ltd & Ors,[145] a solicitor received funds advanced by his clients as part of a mortgage loan scheme under which the solicitor lent out the funds and remitted interest to the client. The mortgages were false. The solicitor concealed this by purporting to remit interest payments to his clients which were paid from other misappropriated funds. The clients made a claim against the New South Wales Fidelity Fund. The fund made payments to the clients but made allowance for the purported interest on the fictitious loans. The New South Wales Court of Appeal held that the purported interest payments should be taken into account in quantifying the clients’ pecuniary loss arising from the defalcations:
The payments were not within the exceptional classes identified by Windeyer J in his influential judgment in the National Insurance Co of New Zealand Ltd v Espagne at [598]-[600]. They were never made as part of some contract (like a contract of insurance) stating or implying that the remitted ‘interest’ was to be provided notwithstanding any right against the Fund. Nor were they made voluntarily and for the benefit of the clients in the sense that gifts to an injured plaintiff are disregarded in assessing tortious compensation.[146]
[145]Glenorcy (n 140).
[146]Ibid 184 [77] (Mason P, McColl and Basten JJA agreeing).
In the present proceeding there is no direct evidence as to whether the plaintiff intended that the $939,119 was not to be taken into account in reducing damages payable by Mr Brasse to the defendant. In the absence of direct evidence the intention of the plaintiff, if any, is to be discerned from the terms of the deed of settlement pursuant to which the defendant retained $939,119.[147] The deed of settlement makes no reference to the defendant’s claim against the third party. There is no provision of the deed which supports an inference that the plaintiff intended that the $939,119 would not reduce the quantum of damages payable to the defendant. In circumstances where the deed makes no reference to the third party proceeding or Mr Brasse’s potential liability to the defendant for damages I infer that the plaintiff had no intention one way or the other as to whether the $939,119 would reduce any potential liability of Mr Brasse to pay damages to the defendant.
[147]Cf Securities Exchanges Guarantee Corp v Aird (2001) 161 FLR 420, 445 [100], 445–6 [104]–[105].
The retention of $939,119 was a consequence of Mr Brasse’s negligent drafting of the s 32 statement. The defendant has failed to discharge the onus of establishing that the plaintiff intended that the $939,119 would not reduce Mr Brasse’s liability to pay the defendant damages. The $939,119 should be taken into account in the quantification of the damages Mr Brasse is liable to pay the defendant, with the result that Mr Brasse is not liable to pay the defendant any damages.
Did the defendant receive a benefit from the $4.055 million it retained between 1 March 2019 and 6 April 2022 which reduces the quantum of damage Mr Brasse is liable to pay?
It is common ground that as of 1 March 2019 the defendant had received $4.055 million as part payment of the purchase price for the property. Five hundred thousand dollars of that sum was paid by the defendant to Reliance Real Estate as agent’s commission. The defendant had available for its use the sum of $3.555 million from 1 March 2019 until 6 April 2022. In its defence to the plaintiff’s claim the defendant admitted the sum of $2,334,119.11 was payable to the plaintiff. Notwithstanding this admission, it retained those funds until 6 April 2022. The defendant denied that it was liable to return to the plaintiff the 10 per cent deposit of $1.755 million. Under the terms of settlement reached on 6 April 2022, $815,881 of the 10 per cent deposit was returned to the plaintiff.
Mr Brasse submits that the benefit which the defendant received by having the use of $3.55 million for a period of three years should be set off against any liability which he has to pay the defendant damages. As I have determined that the sum of $939,119 is to be set off against Mr Brasse’s liability to pay damages, the resolution of this aspect of Mr Brasse’s defence is of no practical consequence. Nevertheless, for the sake of completeness I shall address the matter.
The defendant submits that it did not enjoy any financial benefit from the use of the $3.55 million. It points to the evidence of Mr Patel that upon receipt of the $3.55 million the funds were immediately disbursed to the defendant’s shareholders.[148] I reject this submission. The fact that the funds were disbursed to the defendant’s shareholders does not detract from the fact that the receipt of the funds conferred a financial benefit on the defendant.[149]
[148]Transcript of Proceedings, T 195 L 17–20 (11 April 2022).
[149]Cf National Australia Bank v Bond Brewing Holdings Ltd [1991] 1 VR 386, 594, 597.
Although the defendant did receive a benefit from the $3.555 million it retained from 1 March 2019 until 6 April 2022, this benefit does not reduce the quantum of any damages Mr Brasse’s is liable to pay. The $3.555 million was part payment by the plaintiff for the purchase of the property. The receipt and retention of these funds was unrelated to Mr Brasse’s negligence. Consequently, the benefit which the defendant derived from retaining the funds does not reduce Mr Brasse’s liability to pay damages to the defendant. However, ultimately nothing turns on this finding as Mr Brasse’s liability to pay damages is extinguished by the $939,119 of the deposit which it retained under the Deed of Settlement with the plaintiff.
Conclusion
Mr Brasse is not liable to pay the defendant damages. The defendant’s primary claim for damages of $815,881 based on recovery of the settlement sum paid to the plaintiff fails because the defendant has not established that this loss was caused by Mr Brasse’s negligence. The defendant’s alternative claim for damages fails because its loss of $454,545.54 agent’s commission and $6816.39 legal fees is offset by the $939,119 it retained from the deposit.
I shall provide the parties with an opportunity to make submissions on the costs of the proceeding. The defendant is not precluded from making an application for orders that Mr Brasse pay the costs which it has incurred in defending the plaintiff’s claim. Mr Brasse accepts that the Court’s discretion to order costs might extend to making an order that Mr Brasse pay the costs incurred by the defendant in defending the plaintiff’s claim.
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