Monroe Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd

[1992] HCATrans 89

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A37 of 1991

B e t w e e n -

MONROE SCHNEIDER ASSOCIATES

(INC) & BARRY SCHNEIDER

Applicants

and

NO 1 RABEREM PTY LTD,
NO 2 RABEREM PTY LTD and

NO 3 RABEREM PTY LTD

Respondents

Application for adjournment

and application for special

leave to appeal

BRENNAN J
TOOHEY J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 13 MARCH 1992, AT 11.12 AM

Copyright in the High Court of Australia

Monroe 1 13/3/92

MR D.M.J. BENNETT, QC: If the Court pleases, in that matter I appear with my learned friend, MR R.J. MANUEL for the applicant. (instructed by Piper Alderman)

MR T.A. GRAY, QC: If the Court pleases, I appear with my

learned friend, MR M.F. BLUE for the respondents.

(instructed by Fisher Jeffries)

BRENNAN J: Yes, thank you, Mr Bennett.

MR BENNETT:  Your Honours, we seek that the application be

adjourned on the basis which has been put in the

documents, but may I say this. The main item of

prejudice, on the basis of which the adjournment

was sought, has been removed by a concession made

by my learned friend in his submissions.	Our main
concern was that if we proceeded with the

application one argument against the application

would be that it might be hypothetical, because if
we were to succeed in the application which has now

been made to the Federal Court, to set aside the
previous trial on the basis of fraud and subsequent

evidence, then this application and the appeal

would be hypothetical.

Now my friend, in his submissions, has

indicated that he eschews any submission to that

effect. So long, therefore, as the court does not

regard that as a factor in relation to the special leave application, the prejudice to us is removed.

However it is, we would submit, entirely a matter

for the court, whether the court considers it

appropriate to proceed with an application for

special leave which would, if that application to

the Federal Court were to succeed, would become

moot. That is entirely a matter for the Court and

we simply place it in the hands of the Court to

determine. I do not wish to say more about it.

BRENNAN J: Are you arguing for an adjournment at this

stage, Mr Bennett?

MR BENNETT:  Your Honour, I submit that the matter should be

adjourned because, on the basis that the Court

would otherwise be embarking on what may be a

hypothetical exercise, but as I have put, I cannot

put any matter of prejudice in support of that in

view of the concession which is made and so long as

the Court is of the view that the fact that it may

be hypothetical is not a factor against special

leave. We therefore simply say it is a matter for

the Court whether it wishes for the matter to

proceed today or not.

BRENNAN J:  We shall here what Mr Gray has to say,

Mr Bennett.

Monroe 13/3/92

MR BENNETT: If the Court pleases.

MR GRAY:  May it please the Court, the application to

adjourn is opposed. The Court has our short precis

of submissions in that respect. We say, if the Court pleases, that there is no prejudice to my learned friend's client in the matter proceeding;

there is prejudice to my client in the matter not

proceeding, a prejudice which cannot be compensated

for by any usual orders. An order for costs thrown

away does not carry with it any necessary prospect

of it being met and, further, there has been

frequent use of the Australian appellate process in

the use of delaying the enforcement of proceedings

in the United States. We further say, if the Court

pleases, that the lateness of the application

remains unexplained and -

BRENNAN J:  We do not need to hear you any further, Mr Gray.

MR GRAY: If the Court pleases.

BRENNAN J: Yes, Mr Bennett. The Court will continue to

hear the matter.

MR BENNETT:  If the Court pleases. I should just say this,

Your Honour, so the Court does not have any

contrary impression:  we have lodged a bond in the

United States proceedings for the full amount and

the proceedings are set down to be heard on

1 April.	Your Honour, I will proceed with the
matter.

Your Honours, there are three questions which

arise, all in relation to the failure of the court

to allow a credit in relation to the $400,000 which

the respondents received from Feltex. The first

point, Your Honours, the major point, is the

applicability of the British Westinghouse test

rather than the Espagne principle to commercial

damages.

That was a matter on which the judges of the Full Federal Court differed. Mr Justice Burchett

held that the principle of Espagne and

Redding v Lee applied to commercial damages, so

that if one could see that a commercial partner or

a person who dealt commercially with a defendant

had made a payment to the defendant arising out of

the matters giving rise to the cause of action, and

in reduction of the damage caused by the facts

giving rise to that cause of action, but made the

payment for general commercial reasons rather than

because of an obligation to make them, then that

was res inter alios acta and the principle of

Monroe 3 13/3/92

National Insurance Company of NZ Limited v Espagne

and Redding v Lee applied.

Our contrary argument, which was accepted by

Mr Justice Beaumont, was that the principle of

Redding v Lee and Espagne and the other cases is

really confined to quasi-charitable or charitable

donations. There are the Bushfire cases where

there have been bushfire relief funds, there have

been Pension cases where pensions have not been

taken into account, and there have been cases where

relatives have assisted with money where someone

has been injured, and so on. And one can well understand the reason why, in those cases, one

would not give any deduction from the defendant's

verdict.

But that is not this case. This was a case

where there was a document which was headed - the

document between Feltex and the respondents was

headed "Re Monroe Schneider". It dealt with the

matters arising out of the dispute, which was the
subject-matter of this litigation, and Feltex

agreed, for commercial reasons, to give credits of

$400,000. It is our respectful submission that to

apply the principles of Espagne and Redding v Lee

to that sort of case is simply wrong and the

correct approach is that one should apply the
general British Westinghouse principle that where,

arising out of the same series of events, out of

the same transactions, the respondent is able to
mitigate its loss commercially by persuading some
other party to pay money arising out of those
events, that, we submit, is a matter for an

appropriate deduction.

That is an important question. There is no

case which discusses it in the way I have put it.

There is no case which discusses, does Espagne and

Redding v Lee apply in a commercial context to a

payment made for commercial reasons, and by

commercial reasons I mean the desire to continue a

trading relationship and general factors of that

sort, and what the majority has done is to

assimilate those factors to the quasi-charity

cases.

BRENNAN J: Is there any necessary conflict between the

Espagne approach and that of British Westinghouse?

MR BENNETT:  We would submit, yes, Your Honour, because if

one applies the British Westinghouse approach

strictly, it would result in Espagne payments being

deducted. But there is a policy reason which the

courts have laid down in Espagne and Redding v Lee,

why such payments are not deducted.

Monroe 13/3/92

BRENNAN J: But, does the British Westinghouse approach go

to the extent of saying that all payments received

by the plaintiff, emanating from what might be

regarded as the source of the plaintiff's loss, are
recoverable? Is it not linked to the cause of the

loss?

MR BENNETT:  Your Honour, it is a little further than that.

The way the principle is put is at page 126 of the application book, where the purple passage from

British Westinghouse is set out, and the passage is

this, it is a short sentence:

" ..... when in the course of his business (the
plaintiff) 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 -

Now, here the evidence is that the problem having

arisen, arising out of our representations and the

sale and the subsale, the respondents went to their

supplier, to Feltex, and said, "Look, here is the
problem, here are the events which have occurred",

and in a discussion headed re Monroe Schneider,

they said, "We will pay $400,000." That,

Your Honour, is something which we would submit was

obtained in consequence of a very proper action by

the respondents, in an attempt to mitigate their

damage and reduce their loss. But having done so,

they then say it is res inter alios acta.

The damages in this case are calculated as the

difference between what Solomons paid Feltex and
what Solomons received from us. That is the
measure of damages, and yet when they go to Feltex

and recover $400,000, effectively off their price, that is not taken into account because the payment

from Feltex is voluntary and made for commercial

reasons.

BRENNAN J:  Is the very problem not this, Mr Bennett? You

say, "effectively off their price", as I understand

the judgments in the courts below, that was the

question that was debated. If it was effectively

off their price, then your party succeeded. If it

was not effectively off the price, but was in truth

a collateral and unrelated transaction, then you

failed and the majority view was that this was a

transaction which, though originating in terms of

negotiation out of the unfortunate situation as the

court saw it, in which Solomons was placed,

resulted in Feltex standing firm by their prices,

refusing to give any deduction from the price, but

making a collateral arrangement which, it was

thought, might show some goodwill towards Solomons.

Monroe	13/3/92
MR BENNETT:	Your Honour, that, with respect, is a matter of

characterization rather than a matter of fact and

it really begs the question to say that it is

something which is collateral or it is something

which is not effectively off the price. That

surely cannot make any difference. It is the

objective facts, which make the difference. The

objective facts are three: one, Solomons went to

Feltex, disclosed the situation they were in; two, the parties then agreed in terms of the document

appearing at pages 123 and 124; and three, the

$400,000 was then allowed and paid or taken into

account in the contras between the two companies.

Now, once one has those objective facts - and

really very little more, because there was hardly

anything more that was relevant to this issue; this

was not the issue which took most of the 33 days -

to say that is collateral or is not collateral,

really is to beg the question. The question is,

where the payment is made by Feltex for commercial

reasons, but arising out of the transaction, in the matter appearing in that document, does one, on the

one hand, simply apply the British Westinghouse

test that I have read and said, "Well this was an

effort to mitigate which succeeded.", or does one
say, as the court said, "We do not even get to that
question, because the fact that it was paid, other

than as a result of a legal obligation, means that

we are in Espagne and Redding v Lee territory.".
And that, we submit, is the error of law and it is

an important question, it arises frequently in

relation to damages.

No court has yet said whether Espagne and

Redding v Lee apply, when one party to a commercial

transaction, in relation to which it has a cause of

action against someone, goes to someone else and

says, "Look, arising out of this, will you make a

payment, because we deal with you a lot and it is

in your interest to keep our goodwill?", and the

other party says, "Yes", no case has discussed
that.	And the court has decided it on the basis of

what we respectfully submit is a wrong principle.

And that is the first point, which we submit is

important and undecided.

The second point, or second aspect, because it

is very closely related - it is really, in a sense,

almost the same point - is that the court placed

great weight on the intention of the donor. What

the majority did was to say, "Well, Feltex did not

intend this to come off whatever damages you got

from Monroe Schneider and therefore the payment is
one in relation to which you cannot take it off".

Now, we would submit, that cannot be the test.

Even take the simpler case of an injured worker:

Monroe 6 13/3/92

suppose one has an injured worker who continues to

be paid by his employer his full salary, with no

ties and no deduction. The employer may pay that

for good trade union reasons, for good employer

relations reasons, but one would not say, "Well, he

has lost his wages because he did not have the

right to recover them." Nor could it matter in

that situation that the employer says, "I do not

intend to this to come off your verdict." That

cannot be the relevant test. The test must be

whether there has been a loss and that depends on

the relationship between the two payments.	But
where the court fell into error, we would
respectfully submit, is to do it by way of
characterization.

In Fagnan and Fratelli's case, which we have

referred to in 2(a), Lord Justice Salmon

specifically said that the intention of the parties

was irrelevant.	Your Honours do not need to go to
that case;	I can tell Your Honours about it very

briefly. It was a case where there was a contract

for sale of goods which were being imported into

Italy by the buyer. The goods were defective and

late, and there were various breaches by the

sellers, and the buyers rescinded. There were then

proceedings between buyer and seller and the seller

sought to have the goods attached in Italy in

relation to liabilities of the seller arising out

of those proceedings.

BRENNAN J:  The buyer, not the seller, sought to have them

attached?

MR BENNETT:  The buyer sought to have them attached, yes,

Your Honour. Then when they were sold by the

public officer, by the Italian sheriff or his
equivalent, the buyer purchased the goods very,

very cheaply and made a big profit. Then the buyer

sued and claimed he was not bound to take that into

account because it was a separate transaction.

In the course of discussing it and saying no,

it was all part of a continuous transaction and

therefore one must look at the overall results to

the party, which is of course, we would submit, a

sensible and practical approach, His Lordship

specifically said that the intention of the parties
to the payments was irrelevant. It was quite

irrelevant whether either the sheriff or the

sellers intended those proceeds to be taken into

account, and it was certainly irrelevant that the

plaintiff buyers themselves did not intend it to be

taken into account. When they bought the goods, they did not intend there to be a deduction from

their damages, but of course that made no

difference.

Monroe 13/3/92

BRENNAN J: But that is a very different case, Mr Bennett.

That is a case where the buyers secured the sequestration of the property in order to buy it in cheap again, having refused to take delivery at the

original contract price. The transaction was

simply one of the continued relationship between

buyer and seller. The court said look at the whole

transaction before you decide what the sellers have

lost.

MR BENNETT:  Your Honour, that is all we say here. We say

there is a transaction between three parties,

Feltex, selling to Solomons, sub-selling to Monroe

Schneider. The damages are the difference between

the two figures, and there is subsequently, arising

out of this transaction, and we would say a proper

attempt to mitigate loss, a payment back.	We
submit that is clearly within the same area.	It is
arising out of the same transaction.

Your Honours see at page 123, where the

document is set out, it is headed Re:	Monroe
Schneider Associates.	What is then said is,

"Solomons will pay Feltex for" the very carpet in

question, and the prices are set out. Then there

are some other matters referred to, and then it is

said that Feltex will pay 200,000 on two

occasions - that is paragraph 3 - and then

paragraph 4:

We understand and accept that Solomons loss

is ..... The difference between -

these items, less the 400,000. That is paragraph c

on the top of page 124.

The document clearly treats it as being the

same transaction. There is virtually no other

evidence, and the reasons why the Westinghouse rule is not applied are the two reasons which we say are

wrong: one, that Espagne governs because there was

no obligation to pay, and two, that Feltex did not

intend, or should not be presumed to intend, Monroe

Schneider to have benefited. Neither of those, we

submit, are reasons which take it out of the

general British Westinghouse or Fagnan rule. We

submit again, although it is an aspect of the same

point, that is a matter of importance.

The third aspect concerns onus. What

Justice Burchett held was that the onus lay on the

applicants to demonstrate that the $400,000 was

wholly retained for the benefit of the present

respondents.	What His Honour said was, "Look, it
was an advertising grant.	It may have been used up
on advertising which was worthless;	it may or may
not have been worth $400,000 to them.	We do not

Monroe 13/3/92

know any of that, and the onus lay on us to

establish that."

What we submit is that that ignores the

exception to the exception principle. Once we had

shown that there was $400,000 paid and that there

was the appropriate relationship between that

$400,000 and the subject-matter of the cause of

action, then the onus must shift. If it is a

question of demonstrating that although it was paid there were strings attached, other things had to be done, or advertising was not the full value of the

money, they were matters in relation to which the

onus lay on the other side.

We draw the analogy of The Glendarroch, which

is the case which lays down the principle that

although the onus is on the party who asserts an

exception to bring something within the exception,

the onus lies back on the first party where it

relies on an exception to the exception. That is

really the principle here.	We proved that the
$400,000 was paid. We have made out our case.	If
someone wishes to show that it was paid but not
really worth $400,000 or that it was spent on
advertising which was not worth that amount, that
is something as to which the onus must lie the
other way.

Yet that was one of the reasons why His Honour

Justice Burchett denied us the benefit of the

set-off. He said, "You have not proved, the onus

being on you, that it was worth $400,000 to them,

and that they got the full benefit of the payment

which was made to them."	We submit the onus lies
the other way on that.

Your Honour, those are the issues. They are

all short points. The whole appeal, one would have

thought, would take half a day or less. They are very short points of law. They arise frequently,

we would respectfully submit, in relation to

commercial damages, and they are important; and

certainly in relation to the first one, the

important and undecided question, and in relation

to the second one, one where we submit the court is

simply wrong on decided authority.	May it please
the Court.

BRENNAN J: Yes, Mr Gray.

MR GRAY:  May it please the Court, there are a number of

alternative lines of reasoning that led to the

appeal being dismissed in the decision of the trial

judge at first instance and the primary basis of

finding in favour of the respondents at trial and

by the majority on the appeal was one of fact.

Monroe 9 13/3/92

That is perhaps best demonstrated in the judgment

of Justice Burchett, in particular the Court will

find that in the book at pages 169-170. Having

been through a number of the authorities,

Justice Burchett, at about line 20, commences a short passage that summarizes the first point in

these words:

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.

And that is a matter on which there was evidence.

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.

That they were not explored, is in itself

significant. The argument presented to the

learned trial judge seems to have been limited

to the proposition that the arrangement was a

disguised reduction in the price of the

carpet. This proposition was rejected on the

facts. Since it was dependent upon questions

of the credit, particularly, of

Mr Myer Solomon, it would be impossible to

overturn the decision of the trial judge on

appeal in that respect, and counsel for the

appellant did not attempt that task.

So we say that the primary reason for this

particular argument being rejected was one of fact

and it was not just simply a matter of the

construction of the letter, the text of which is

set out in the application book. That letter was

confirmatory of a meeting at which a number of
persons attended, and of which quite substantial

evidence was given, some of which is set out in the

judgment of Justice von Doussa and some in the

appellate judgments.

So we say that on that ground alone, perhaps a

primary question of fact or characterization, that

there was a factual decision made by

Justice von Doussa that was open on the evidence

presented, involved an appraisal of matters of

credibility and demeanour, and in the circumstances

Justice Burchett has correctly analysed the matter,

that the appeal court simply could not interfere.

Monroe 10 13/3/92

The passage in the trial judge's judgment that deals with the matter is generally from pages 86 to 92 of the application book and, just turning

briefly to that, the Court will see that, at the

foot of page 86, line 22 or thereabouts, the

particular matter comes to be addressed and

thereafter - on page 87 - follows His Honour's

findings of fact based on a body of evidence led,

both oral and documentary.

In particular, at the foot of page 87, at

line 23, this appears:

Mr Myer Solomon -

in the course of the meeting with Feltex

explained the financial predicament of

Solomons. He asked if Feltex NZ would

consider reducing their prices. Feltex NZ

refused.

Now that evidence has been accepted by the trial

judge.	My learned friend, to succeed ultimately on
appeal, has to have that finding reversed.	What
they did instead was to:

offer to assist Solomons by participating in

an advertising campaign in Australian designed

to increase the sales of both companies.

Now, the letter that followed did, as my learned friend has said, identify that the problems in part

that Solomons faced involved problems dealing with
transactions between Monroe Schneider, but the end

result of that letter is that in the event of

Solomons having some recover against Monroe

Schneider they had to, in turn, make a recoupment

to Feltex. That is of importance when one comes to consider whether in fact any ultimate benefit flows

to Solomons because we say there was, on one view,

no benefit shown; on the other, upon restitution

Monroe Schneider still must pay the full amount because Solomons in turn have to make repayment to

Feltex in the event of their having recovery.

Those matters were dealt with in the

judgments; perhaps conveniently dealt with in the judgment of Justice Burchett, on this occasion in

the application book at pages 148 and 149. Again,

if I could invite the Court's reference to those

passages. At page 148, line 20, the passage

starts:

It is not at all obvious that the learned

trial judge was bound to regard the receipt of

the $NZ400,000, in these circumstances, as

Monroe 11 13/3/92

involving a net benefit, in some ascertainable

and calculable amount, which should be set off

against the respondents' loss.

Then Justice Burchett draws on Simonius Vischer -

we say the principles are obviously correct - and

then he proceeds thereafter to conclude that one

simply cannot say on the evidence that there was a

net benefit and, in particular, he comes to deal

with the matter that Solomons in the event of

recovery would be facing a repayment to Feltex.

So we say that the second string, as an

alternative, is that whatever the finding of fact

is, it was not shown that there was a net benefit

in this case, and applying the principles of

restitution, in particular, at the end of the day,

if Monroe Schneider were relieved of this payment

and paid the lesser amount, Solomons is still in

the position of having to repay moneys to Feltex so
that restitution will not be achieved and the

defrauding party would have money in pocket at the

expense of the victim.

Then, if the Court pleases, turning to the

next alternative, it was that if, contrary to the

factual finding, this was not a collateral or

independent matter, nevertheless it could not be

called in aid by Monroe Schneider and Associates on

the principles set out in Espagne's case and

Redding v Lee.

Now, if the Court pleases, my learned friend,

Mr Bennett, put the argument below that that case

did not extend to a commercial situation. The

judgment of Justice Burchett, in particular, traces

through the number of cases that have extended that

principle, certainly to non-personal injury cases,

and our submission to the court below and the

finding of Justice Burchett was that it was not, on

limited authority, one of general principle, and we

say that that is plainly right.	But that point
would only ever be - - -

BRENNAN J: Mr Gray, is that plainly right? If two parties

are dealing with each other and one suffers a loss

in relation to the purchase price of goods and then

goes off to see whether the supplier will

gratuitously change the price of goods so that the

loss will be diminished and the supplier does

gratuitously change the price of the goods, is the

loss still the same?

MR GRAY: Well, if I might just side-step that question by

saying that that is not the factual situation

below.

Monroe 12 13/3/92

BRENNAN J: Well, I understand that, but let us assume here

that, instead of the arrangement that was made

between Feltex and Solomons, Feltex had said, well

we are not going to change our prices, but none the

less, off your next invoice, we will deduct

$400,000 as a general goodwill gesture.

MR GRAY:  Yes well, we say in that circumstance, if the

Court pleases, that it would not be brought to account on damages, because it was not intended in

any way to benefit the wrongdoer; it was a

gratuity. If, on the other hand, Feltex had said,

we are going to reduce this invoice, well then, the

proper characterization would be that it was

intended to reduce the damages. Ultimately it is a

question of fact. The matter of principle in

Espagne's case, we say, is of general application

and remains true. What is in debate is the

intention of Feltex as to whether it is a reduction in price or not. In the situation that Your Honour

the presiding Judge posed, dealing with a later

invoice, we say it is a gratuity, a benevolence; in

the former, a reduction on that invoice, we say

that it would be truly a reduction of the price and

therefore would go to reduce the loss.

BRENNAN J: Let us assume that it was the one transaction

only, the first invoice, and the supplier then

said, well, since you are in difficulties we will

reduce the price in this case, not by reducing the

components of the invoice, but simply by passing a

general credit to you of $400,000.

MR GRAY: Again, we say it would be a question of fact.

Was it intended to be truly a reduction in the

price, although described in that way, or was it

intended to be simply a gratuitous payment to a

party in commerce who was in difficulty?

BRENNAN J: It would be both in those circumstances, and

does that not raise the problem?

MR GRAY: Well, if the Court pleases, if it was both the

matter may be for debate, but that involves a

factual finding that would involve reversing the

trial judge here on his finding of fact. He made a

very clear finding that Feltex had not intended

this to be in diminution of the price, or coming

off a later invoice as a matter of a gratuity, but

it was a sum of money to be used for a specific

purpose, namely, an advertising campaign, and that

sums of money in this way were not unusual. They

have been paid before because of long-standing

arrangements between these companies.

So it was a circumstance where there was a

commercial benefit to Feltex in saying, "We can

Monroe 13 13/3/92

help you out of your financial difficulty by giving

you the chance to increase your sales of our

products through an unrelated advertising

campaign", and specifically refused to reduce their

prices in any way because they said they were as

low as they could possibly be. So, with the

greatest respect, one can only get to the

discussion that is now taking place and the

analysis of the law upon a reversal of the learned

trial judge's findings of fact; and as

Justice Burchett indicated, involving an acceptance

of the evidence of Mr Myer Solomon, his credibility

in regard to what transpired at the meeting that

then led to the letter.

If the Court pleases, there are further

grounds on which Justice Burchett, in particular,

found on which the applicants would fail. One was

the principle that a party guilty of fraud cannot

be seen to benefit from his fraud, and that stands

as an independent ground for refusing to reduce the

damages. That appears at page 152 and thereafter

in Justice Burchett's reasons, and we say

independently of any matter under challenge, that

part and that reasoning is correct, and again would
be fatal to the appeal in this case regardless of

other points raised by my friend.

Further, on the question of onus of proof,

both the trial judge and the majority on appeal

found that the onus lay on the applicants before

this Court, and in particular, Justice Beaumont did

not, on our reading, simply deal with the question

of onus. Justice von Doussa, in his reasons, cited

a South Australian case of Volpato.

Justice Burchett, in particular, from pages 145 to

148 of the application book, set out all the other cases along with Volpato that support the position of the onus of proof lying with the party alleging

a failure to mitigate or some special reason for a

deduction from damages.

So, if the Court pleases, we say that there

are a variety of alternative grounds for the
applicant failing ultimately in this matter quite
independently of any particular dispute said to
exist upon the cases. If the Court pleases, they

are the reasons we put for opposing special leave.

BRENNAN J: Thank you, Mr Gray. Mr Bennett.

MR BENNETT: If the Court pleases. If Your Honours go to

pages 169 to 170, the reference at the bottom of
page 169 to "a disguised reduction in the price of

the carpet" is not a matter of fact at all, it is a
forensic description or forensic characterization

of objective facts. And it is nothing to do with

Monroe 14 13/3/92

credibility and demeanour. On one view, as a

matter of forensic argument, one might say, "This

is just a disguised reduction"; the other side

might say, "This was a completely independent act

of munificence". But both those are nothing more

than forensic conclusions in relation to objective

facts. What is in issue is the relationship

between the events and the payment, and it is on

that relationship that the Court must make its

decision.

BRENNAN J:  What is the relationship that must be found

before the $400,000 is to be taken into account?

How do you describe it?

MR BENNETT: The simplest way, Your Honour, is: it arises

out of an attempt to mitigate damage.

BRENNAN J: Simply that?

MR BENNETT: Yes, Your Honour.

BRENNAN J: That is far too broad, surely.

MR BENNETT: Well, Your Honour, I suppose in a sense that

may itself involve some circularity but the

necessary relationship, Your Honour, is this, that

where the payment arises out of a continuing series

of events caused by the events giving rise to the

original cause of action, or the transaction which

gave rise to the original cause of action, that

must be sufficient.

BRENNAN J: That is very similar to the principle expressed by Lord Justice Mustill in the case which is cited

at the bottom of 167 and 168, the causal link, in

other words.

MR BENNETT: Yes, Your Honour, that is one way of putting

it. There are various ways it can be put but

however one puts it one cannot do what the court

did here, which was to say, "We reject it because

there was no legal obligation to pay", which is the

Espagne and Redding v Lee test which, in my

respectful submission, cannot be right; or "We

reject it because the intention of Feltex would not

have been to benefit the wrongdoer" which, in my

respectful submission, cannot answer the question.

BRENNAN J: But if the question is: was the fraud found

against MSA because of the payment of 400,000, then

that is a question of fact, is it not?

MR BENNETT:  No, Your Honour, it is a little broader than

that. It is the transaction rather than the actual

fraud, because the first question is: what loss

did Solomons suffer? May I just put this example

Monroe 15 13/3/92

to Your Honour. Suppose after the relevant events

Solomons goes to Feltex and says, "We have suffered

a loss because of this transaction, because we now

difference", and Feltex says, "Yes, we are

have bought from you at a high price and sold to

sympathetic with your position and we want to

continue doing business with you. We will reduce

the price". There cannot be any doubt there. Why

should it make any difference how Feltex describes

it, how Solomons describes it, what Feltex intends

or what Solomons intends?

BRENNAN J:  The answer may be because those are factors

which are relevant to the characterization of the

payment as a payment which is relevantly connected

to the transaction or to the fraud.

MR BENNETT:  Your Honour, they may be in some cases, but they are certainly not decisive. What is decisive

is what is the relationship and, ultimately, what

is the loss? In my respectful submission here, one

does not need to reject the argument about

disguised reduction in price or to accept that

argument. One simply says, "What are the objective

facts?", and then says, "Is that a sufficient
relationship or not?"

Even if, as Your Honour puts to me, one is entitled to look at the intention of the parties,

and even to look at what they call the transaction,

which we would dispute, but even if one can, they

cannot be decisive considerations. In the

employment situation, can it be decisive that the

employer says to the employee, "We won't call this

salary; we'll call it gift, and that way you won't

have to account for it"? Or can it be relevant

that the employer says to the employee, "I want it

noted" - and the employee says, "I want it noted

too" - "but we intend this payment not to be taken

off the verdict". Neither of those can affect the result. The result is the employee has not

suffered a loss. You cannot create a loss which

has not been suffered by describing it a particular

way or by having an intention that it should not be

taken into account. Either one has suffered the

loss or one has not. In my respectful submission,

the fallacy in the majority judgment and the fallacy in the way my friend puts it is that question of characterization.

Your Honour, we would submit nothing on page 87 really goes against what we have put. The

top part of 87 shows the relationship of the loss

to the events. It says indeed at line 5:

Monroe 16 13/3/92

Mr Barry Solomon anticipated that the losses

of Solomons could be in the order of

$A200,000-300,000 -

that is in this transaction

He hoped that it might be possible to

negotiate more favourable pricing with Feltex

NZ. The full magnitude of Solomons' loss did

not become apparent ..... until later -

and then, "Feltex insisted".

So, it is very much a matter of going to

Feltex and saying, we have made these losses on

this transaction; please mitigate these. And, my

friend's other point makes that even stronger,

because my friend's other point is, he refers to

the bit in the agreement which refers to paying

something back if you get it back from MSA. Now,

Your Honour, that if anything shows more clearly

than any other aspects, the relationship between

the two. What these parties were negotiating over

was this transaction, and how the loss resulting

from this transaction should be adjusted. And, in

my respectful submission, they cannot, by choosing

to characterize a payment in a particular way,

increase the liability on the wrongdoer and, in my

respectful submission, that is what effectively has

been done here.

Finally, in relation to Espagne, may I just

say this, that none of the cases cited by

Mr Justice Burchett, we would submit, establish

that the Espagne rule applies in this sort of

commercial situation. It certainly has been

applied beyond personal injury; it has been

applied, for example, in bushfire cases and in

England in one case involving negligent

conveyancing, but that is very different to this

here where, as in Fagnan, it is the transaction of	sort of commercial situation we are dealing with
sale between Feltex and Solomons which is at the
root of the transaction, and the ultimate issue is, for these carpets, what did Solomons have to pay Feltex.

In relation to onus, I merely repeat, we

concede fully that we bear the onus on proving the

deduction, but what I submit is that when my friend

then says, yes, we got $400,000, but we had to pay

certain other things, advertising, and that may not

have been at the same benefit, those are matters as

to which the onus has shifted; it is a sub onus,

rather than an initial onus.	May it please the
Court.

Monroe 17 13/3/92

BRENNAN J: Thank you, Mr Bennett.

The applicant submits that the principle of

mitigation of damage stated in British Westinghouse
Electric and Manufacturing Company Limited v

Underground Electric Railways Company of London

Limited (1912) AC 673, applied in this case.

However, that principle required the court to

consider whether the fraud found against the
applicant or the transaction in which the fraud
occurred was at once the cause of the loss suffered

by Solomons and of the benefit, if benefit there

was, received by Solomons from Feltex.

This was a question of fact found against the applicant and the finding deprives the case of the

capacity to give rise to an issue of principle. At

the trial it appears that the applicant's case was
that the $400,000 received from Feltex was a

disguised reduction of the price. That proposition

was rejected by the trial judge and affirmed by the

Full Court. The case was decided on the facts and

the facts as found show that the case does not give

rise to a question of principle justifying the

grant of special leave. Accordingly, special leave

will be refused.

MR GRAY: Application is made for costs, if the Court

pleases.

TOOHEY J:  Mr Gray, in relation only to that matter? What

about the motion for adjournment?

MR GRAY:  Costs are sought in regard to the motion for

adjournment. That was opposed. We say that it was brought at the last minute, without explanation for

delay and that the costs should go to both matters.

BRENNAN J:	Mr Bennett.
MR BENNETT: Well, the application for adjournment, in a

sense, became moot because of the concession; the

concession having been made, the application ceased

to have the force it had when initially made and in

my respectful submission, for that reason, there

should be no order in relation to the costs of the

application for adjournment, but of course I have

nothing to say about the costs of the application

for special leave.

BRENNAN J:  The application will be dismissed with costs and

the application for adjournment will be dismissed,

also with costs.

AT 12.02 PM THE MATTER WAS ADJOURNED SINE DIE

Monroe 18 13/3/92