Netline Pty Ltd v QAV Pty Ltd

[2022] WASCA 131

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   NETLINE PTY LTD -v- QAV PTY LTD [2022] WASCA 131

CORAM:   BUSS P

ALLANSON J

SMITH J

HEARD:   3 MAY 2022

DELIVERED          :   6 OCTOBER 2022

FILE NO/S:   CACV 55 of 2020

BETWEEN:   NETLINE PTY LTD

First Appellant

KATHRYN ISABEL LANCE

Second Appellant

AND

QAV PTY LTD

Respondent

ON APPEAL FROM:

Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA

Coram:   MASTER SANDERSON

Citation: NETLINE PTY LTD -v- QAV PTY LTD [2020] WASC 23

File Number            :   CIV 1289 of 2014

Catchwords:

Contract - Breach of contact - Assessment of damages - Mitigation of loss - Whether the Master's approach to the assessment of the appellants' damages was flawed

Legislation:

Nil

Result:

Appeal allowed
Orders of the Master made on 6 May 2020 set aside

Appellants' application for the assessment of damages remitted to a judge of the General Division for rehearing and determination according to the law

Category:    B

Representation:

Counsel:

First Appellant	:	Mr L A Warnick
Second Appellant	:	Mr L A Warnick
Respondent	:	Mr A P Hershowitz

Solicitors:

First Appellant	:	Vogt Graham Lawyers
Second Appellant	:	Vogt Graham Lawyers
Respondent	:	Lawton Gillon

Case(s) referred to in decision(s):

Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10

Castle Constructions Pty Ltd v Fekala Pty Ltd [2006] NSWCA 133; (2006) 65 NSWLR 648

Chand v Commonwealth Bank of Australia [2015] NSWCA 181

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Copperart Pty Ltd v Bayside Developments Pty Ltd (1996) 16 WAR 396

Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd [2022] NSWCA 65

Elliott v Reading [1999] WASCA 11

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1

Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711

Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351

Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235

Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507

Morrison v Town of Victoria Park [2007] WASCA 164

Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq) [1989] VR 184

Netline Pty Ltd v QAV Pty Ltd [2020] WASC 23

Netline Pty Ltd v QAV Pty Ltd [No 2] [2015] WASC 113

Netline Pty Ltd v QAV Pty Ltd [No 2] [2015] WASC 113 (S2)

Nikolaou v Papasavas, Phillips & Co [1989] HCA 11; (1989) 166 CLR 394

Shaddock & Associates Pty Ltd v The Council of the City of Parramatta (No 1) [1981] HCA 59; (1981) 150 CLR 225

Sotiros Shipping Inc and Aeco Maritime SA v Sameiet Solholt (The 'Solholt') [1983] Lloyd's Rep 605

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272

TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130

The Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v The Pontypridd Waterworks Company [1903] AC 426

Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603

Watts v Rake [1960] HCA 58; (1960) 108 CLR 158

Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454

Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105

Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105

JUDGMENT OF THE COURT:

1. This appeal from a decision of Master Sanderson is concerned with the Master's assessment of the appellants' loss flowing from the respondent's wrongful refusal to continue to perform its obligations under an agreement between the appellants and the respondent.

The background facts

1. At all material times the appellants have been the owners of an apartment (the Premises) in an apartment complex known as Ascot Village.  At all material times the respondent has provided caretaking and letting services for Ascot Village.  The appellants and the respondent made an agreement for the provision by the respondent to the appellants of services in respect of the Premises.

2. On or about 29 February 2008, the appellants and the respondent made an agreement known as a split return agreement (SRA).  The SRA provided, relevantly and in essence, that the respondent would let the Premises to third party customers and would remit the proceeds to the appellants after deducting a letting fee of 50% of the proceeds plus goods and services tax.

3. By letter dated 16 December 2013, the respondent purported to terminate the SRA with effect from 18 March 2014.  The appellants contended that the respondent was not entitled to terminate.  The appellants commenced proceedings against the respondent in the General Division of the Supreme Court.

4. In March 2015, the proceedings in the General Division were tried before Beech J.  When the trial began the appellants were seeking a declaration that the respondent's notice of termination was ineffective to terminate the SRA.

5. During the trial the respondent opposed the making of a declaration on the basis that the declaration would be inutile.  Beech J asked counsel for the respondent whether the respondent would continue to perform the SRA if the court found that there was no right to terminate.  After taking instructions, counsel for the respondent informed his Honour that the respondent did not want to be in a relationship with the appellants.

6. Ultimately, Beech J allowed the appellants to amend their claim to seek specific performance of the SRA.

7. On 2 April 2015, Beech J delivered judgment and published reasons.  See Netline Pty Ltd v QAV Pty Ltd [No 2].[1]  Beech J held that, while the respondent was not entitled to terminate the SRA, an order for specific performance of the SRA should not be made.  Rather, the appellants should be awarded damages to be assessed.

   [1] Netline Pty Ltd v QAV Pty Ltd [No 2] [2015] WASC 113.

8. Beech J said that:

   (a)his Honour was not satisfied that the appellants had sufficient continuing trust and confidence in the respondent to militate in favour of an order for specific performance of the SRA [102]; and

   (b)further, from the respondent's perspective, the relationship with the appellants was damaged beyond repair and unworkable [103].

9. On 29 July 2015, Beech J published supplementary reasons.  See Netline Pty Ltd v QAV Pty Ltd [No 2].[2]  In those reasons his Honour said [9]:

   The damages to be assessed are [the appellents'] loss flowing from the wrongful refusal of [the respondent] to continue to perform the [SRA].

   [2] Netline Pty Ltd v QAV Pty Ltd [No 2] [2015] WASC 113 (S2).

1. Subsequently, Master Sanderson assessed the appellants' damages.  On 13 August and 23 October 2019, there was a hearing before the Master.  On 6 February 2020, the Master delivered judgment and published reasons.  See Netline Pty Ltd v QAV Pty Ltd.[3]

   [3] Netline Pty Ltd v QAV Pty Ltd [2020] WASC 23.

The Master's reasons and orders

1. The Master noted that the parties were agreed that the SRA was terminated as at 2 April 2015, when Beech J delivered judgment [4].

2. The Master said that upon termination of the SRA the parties were in 'legal limbo' [5]. However, the parties '[f]or the first and only time throughout this litigation … reached an agreement' [5]. The agreement was made on 15 April 2015 and was for a term of three months. Pursuant to the agreement, the respondent agreed to pay the appellants a fixed sum for the use and occupation of their unit.

3. The Master found that on 13 July 2015 the appellants and the respondent entered into a new agreement (the New Agreement) for the provision by the respondent to the appellants of services in respect of the Premises.  The New Agreement provided for a fixed return to the appellants of $589 per week [8] - [10].

4. The Master also found that, before entering into the New Agreement, the respondent had presented the appellants with two alternatives: the New Agreement with the fixed return or a 'reinstatement of the split return agreement shorn of its fiduciary aspects' [6]. The appellants chose the first of the alternatives, namely the fixed return arrangement.

5. The Master recognised that, in making the choice between the two alternative forms of agreement offered by the respondent, the appellants were acting in mitigation of their loss [14]. The Master reasoned [14]:

   When [the two alternative forms of agreement were] offered [the appellants] really had no alternative but to accept one or other of the proposals put to them.  Had they had not done so they would not have been mitigating their loss.  The [appellants] fully appreciated they could not manage the unit themselves.  So they accepted what was in effect a fixed income agreement.  But they could have accepted the split return agreement.  The fact they decided on the fixed income agreement rather than the split return agreement was their decision and any difference in income between the two agreements was a matter for the [appellants].  They made an election and they must live with the consequences.

6. The Master then noted the following [15]:

   (a)the appellants asserted that 'they were not in a position to trust [the respondent] and if they had accepted the split income agreement it would, of necessity, have depended for its efficacy on the honesty of [the respondent]';

   (b)accordingly, the appellants asserted that they were justified in accepting the fixed income agreement and that any difference in the income to be derived from the two alternative proposals should sound in damages; and

   (c)the Master accepted that the appellants did not 'trust' the respondent 'in the non-legal sense that word is generally used'.

7. Next, the Master referred to a deed poll executed by the respondent on 14 June 2019. The Master said that '[b]ecause of its importance to the outcome of [the damages assessment]' the Master would 'quote the deed poll in full' [16]. Curiously, despite that observation the Master did not state why or how the deed poll was important.

8. The Master said that the respondent had 'made good its defence' to the appellants' claim.  The Master elaborated [17]:

   I am satisfied the present arrangements reflect [the appellants'] decision to enter into a fixed return agreement rather than a split income agreement.  That was their election.  If they had gone the other way they may have been better off.  But it was their choice.  While I accept they did not trust [the respondent] I am not satisfied that faced with two choices they could not have accepted the split return agreement.  After all, the thrust of [the appellants'] action before Beech J was an attempt to maintain the status quo - that is the split income agreement.  It is inconsistent for them to advance that case on the one hand and then, having been unsuccessful in obtaining the specific performance order to not accept effectively what they wanted when it was actually offered to them.

9. The Master said he was not satisfied that the appellants were entitled to an award of damages [18]. The Master added that, in those circumstances, it was unnecessary for him 'to canvass the extensive expert evidence which was tendered by the parties' [18]. Nevertheless, the Master expressed the view that the appellants were 'getting a return now which is commensurate with what they would have got had they had been successful in obtaining an order for specific performance' [18].

10. Finally, the Master fixed the appellants' 'entitlement' with respect to their claim for damages 'at a nominal $10' [19].

11. On 6 May 2020, the Master made formal orders in relation to the assessment of the appellants' damages, including an order that the respondent pay the appellants damages in the sum of $10.

The appellants' ground of appeal

1. The appellants' ground of appeal alleges that:

   (a)the Master erred in law in finding at [14] of his reasons that the appellants made an election when they entered into the New Agreement with the respondent; and

   (b)the Master should have found that, in entering into the New Agreement, the appellants were engaging in conduct in mitigation of their loss.

The respondent's notice of contention

1. The respondent filed and served a notice of contention.  The ground specified in the notice alleges that the deed poll referred to by the Master at [16] of his reasons provides, in substance, for the same return to the appellants as the SRA and, consequently, the appellants have not suffered any loss.

2. At the hearing of the appeal, counsel for the respondent abandoned the notice of contention (appeal ts 34).  Counsel, in making the abandonment, reserved the right to rely upon the ground specified in the notice in the event that this court allowed the appeal, set aside the Master's orders and remitted the appellants' application for the assessment of damages to the General Division of the Supreme Court for rehearing and determination according to law (appeal ts 34).

Counsel for the appellants' submissions on the ground of appeal

1. Counsel for the appellants submitted that, absent any question of mitigation, the loss suffered by the appellants would have been the loss of profits which the appellants could have made if the respondent had continued to perform the SRA for the balance of its term.

2. It was submitted that a plaintiff who has acted reasonably and justifiably in the circumstances will not be debarred from recovering its actual loss merely because the defendant asserts that, by taking some other course, the loss might well have been less.  The question is not whether there was a better way for the plaintiff to proceed, but whether the manner in which the plaintiff did proceed was reasonable.  The defendant bears the onus of proving that the plaintiff failed to take reasonable steps to mitigate its loss.

3. Counsel contended that, in the present case, the Master's task was to assess the amount the appellants had lost by reason of the respondent's wrongful refusal to perform the SRA, reduced by the greater of the loss which the appellants actually avoided and the loss which the appellants, acting reasonably, should have avoided.

4. Counsel did not challenge the Master's finding that, before entering into the New Agreement, the respondent presented the appellants with two alternatives: on the one hand, the New Agreement (with the fixed return) and, on the other, a 'reinstatement of the split return agreement shorn of its fiduciary aspects' [6] (the modified split return agreement).  Counsel also did not challenge the Master's finding that, as between those alternatives, the appellants chose the fixed return agreement.

5. Counsel's challenge was to the Master's characterisation of the appellants' choice and its consequences.

6. It was submitted that:

   (a)Although the Master recognised that in making the choice between the two alternatives the appellants were acting to mitigate their loss, the Master did not apply the applicable legal principles in assessing the choice.  The Master merely held, in effect, that because the appellants had made an 'election' between the alternatives, they must automatically have their loss assessed by deduction of the profit they would have received from the more financially rewarding of the alternatives, namely the modified split return agreement.

   (b)The Master's analysis was erroneous because he failed to assess the appellants' choice by reference to the concept of reasonableness; in particular, whether the respondent had established that, in choosing the fixed return agreement in preference to the modified split return agreement, the appellants had acted unreasonably.

   (c)The Master did not consider the reasonableness of the choice the appellants actually made.

Counsel for the respondent's submissions on the ground of appeal

1. Counsel for the respondent accepted that the Master did not, at least expressly, determine the appellants' claim for damages by, first, assessing the amount of the appellants' loss by reason of the respondent's wrongful refusal to perform the SRA and then determining the amount of the loss which the appellants had avoided and then determining whether there was any additional loss which the appellants, acting reasonably, should have avoided.

2. Counsel argued that, on a fair reading of the Master's reasons as a whole, the Master did find that the appellants had acted unreasonably in failing to enter into the modified split return agreement with the respondent.

3. Counsel accepted that the Master did not determine the amount of the loss which the appellants had avoided by entering into the New Agreement or the amount of the loss which the appellants would have avoided had they entered into the modified split return agreement.

4. Counsel also argued that by choosing to enter into the New Agreement the appellants '[broke] the chain of causation' (appeal ts 18).  Counsel sought to explain that submission by asserting that:

   (a)the SRA was terminated as at 2 April 2015 (when Beech J delivered judgment);

   (b)when the SRA was terminated the appellants had not suffered any actual loss but had merely suffered a prospective loss;

   (c)the prospective loss only became an actual loss as a result of subsequent steps taken by the appellants, namely their choice to enter into the New Agreement rather than the modified split return agreement; and

   (d)the appellants' choice to enter into the New Agreement was a novus actus interveniens of the kind that occurred in Chand v Commonwealth Bank of Australia.[4]

   [4] Chand v Commonwealth Bank of Australia [2015] NSWCA 181.

The merits of the ground of appeal

1. The general principle governing the measure of damages for breach of contract is that the innocent party is to be placed in the same position, so far as money can do it, as if the contract had been performed.  See Tabcorp Holdings Ltd v Bowen Investments Pty Ltd;[5] Commonwealth v Amann Aviation Pty Ltd;[6] Shaddock & Associates Pty Ltd v The Council of the City of Parramatta (No 1);[7] Wenham v Ella.[8]  The innocent party is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss).  See Gates v City Mutual Life Assurance Society Ltd.[9]  The innocent party should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss suffered by reason of the breach of contract.  Ordinarily, this involves a comparison between the position in which the innocent party would have been if the breach of contract had not occurred and what, relevantly, represents the position in which the innocent party is in after the occurrence of the breach.  See Amann Aviation (116) (Deane J).

   [5] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 [13] (French CJ, Gummow, Heydon, Crennan & Kiefel JJ).

   [6] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 80 (Mason CJ & Dawson J).

   [7] Shaddock & Associates Pty Ltd v The Council of the City of Parramatta (No 1) [1981] HCA 59; (1981) 150 CLR 225, 237 (Gibbs CJ).

   [8] Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, 471 (Gibbs J).

   [9] Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1, 11 ‑ 12 (Mason, Wilson & Dawson JJ).

2. The innocent party bears the onus of proving, according to the applicable measure, that it has suffered damage and that the loss it claims was caused by the defendant's breach.  See Castle Constructions Pty Ltd v Fekala Pty Ltd;[10] Chand [130].

   [10] Castle Constructions Pty Ltd v Fekala Pty Ltd [2006] NSWCA 133; (2006) 65 NSWLR 648 [24] ‑ [25] (Mason P; Beazley JA agreeing).

3. Although damages for breach of contract are ordinarily to be assessed as at the date of the breach (Johnson v Perez[11]), the critical date for the assessment of loss of bargain damages is the date on which the innocent party terminates.  See Wood Factory Pty Ltd v Kiritos Pty Ltd;[12] Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq);[13] Copperart Pty Ltd v Bayside Developments Pty Ltd;[14] Elliott v Reading.[15]  Accordingly, where the innocent party terminates the contract for breach of an essential term or for repudiation, loss of bargain damages are ordinarily to be assessed as at the date of termination.

   [11] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351, 367 (Wilson, Toohey & Gaudron JJ).

   [12] Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105, 146 ‑ 149 (McHugh JA).

   [13] Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq) [1989] VR 184, 189 (Kaye & Southwell JJ).

   [14] Copperart Pty Ltd v Bayside Developments Pty Ltd (1996) 16 WAR 396, 401 (Kennedy J).

   [15] Elliott v Reading [1999] WASCA 11 [47] (Ipp J; Malcolm CJ & Pidgeon J agreeing).

1. The date as at which the innocent party's loss of bargain damages are to be assessed does not mean that evidence is excluded of events occurring after that date.  Evidence of subsequent events which are relevant to the assessment process may be taken into account.  For example, subsequent events may be relevant to the value of the lost bargain or whether the innocent party has mitigated its loss.  See Nangus (189) and, more generally, Willis v The Commonwealth;[16] Johnson v Perez (368 ‑ 369); Nikolaou v Papasavas, Phillips & Co.[17]  As Latham CJ explained in Willis (109):

   [W]here actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best.  Damages are awarded for injury actually suffered and for prospective injury.  Prospective injury can only be estimated with more or less probability. But where the extent and character of what would at one time be described as prospective injury depends upon the happening or non-happening of a particular event and that event has in fact happened, it is unnecessary to speculate as to whether or not this event might happen and, if so, when. In such a case prospective damage (or diminution of damage) has become actual.

   See also, to similar effect, the speech of Lord Macnaghten in The Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v The Pontypridd Waterworks Company,[18] which was cited with approval in Nikolaou (404).  Willis involved a claim under fatal accidents legislation and Bwllfa & Merthyr was concerned with a claim for compensation for the diminished value of land as a result of the exercise of statutory powers.  In our opinion, the statements of principle from those authorities are applicable to the assessment of damages for breach of contract (including loss of bargain damages).

   [16] Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105, 109 (Latham CJ).

   [17] Nikolaou v Papasavas, Phillips & Co [1989] HCA 11; (1989) 166 CLR 394, 403 ‑ 404 (Wilson, Dawson, Toohey & Gaudron JJ).

   [18] The Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v The Pontypridd Waterworks Company [1903] AC 426, 431.

2. There is a clearly established conceptual difference between the measure of damages, on the one hand, and the doctrine of mitigation, on the other.  Although the onus is on the innocent party to prove, according to the applicable measure, that it has suffered damage and that the loss it claims was caused by the defendant's breach, the onus is on the defendant to prove that the innocent party has failed to take reasonable steps to mitigate its damage, and to demonstrate the extent to which there has been a failure to mitigate.  See Watts v Rake;[19] Metal Fabrications (Vic) Pty Ltd v Kelcey;[20] TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd;[21] Goldburg v Shell Oil Co of Australia Ltd.[22]

   [19] Watts v Rake [1960] HCA 58; (1960) 108 CLR 158, 159 (Dixon CJ).

   [20] Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, 512 ‑ 513 (Murphy J; Brooking & Nicholson JJ agreeing).

   [21] TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, 158 (Hope JA; Meagher JA agreeing).

   [22] Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711, 714 (Sweeney & Ryan JJ).

3. The 'requirement' that an innocent party mitigate its loss arises on breach, subject to the question of knowledge, and not when the innocent party first suffers or notices loss.  See Bak v Glenleigh Homes Pty Ltd;[23] Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd.[24] The innocent party is not 'required' to take all possible steps to mitigate its loss, but only those steps which are reasonable.  See Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd.[25]

   [23] Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10 [3] (Handley JA).

   [24] Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd [2022] NSWCA 65 [75] (Gleeson JA; Macfarlan JA & Simpson AJA agreeing).

   [25] Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603 [134] (Hayne J).

4. The innocent party is not, of course, under a 'duty' to mitigate its loss.  The innocent party may act as it thinks fit, but the defendant is only liable for that part of the innocent party's loss that has been caused by the defendant's breach.  In other words, the innocent party cannot recover loss that could, by the taking of reasonable steps, have been avoided.  See Chand [180] ‑ [181]. As Ward JA (Bathurst CJ & Beazley P agreeing) noted in Chand [181], Sir John Donaldson MR (delivering the judgment of the Court of Appeal of England and Wales) emphasised in Sotiros Shipping Inc and Aeco Maritime SA v Sameiet Solholt (The 'Solholt')[26] that the innocent party cannot recover loss that was avoidable if the innocent party had taken reasonable steps because that loss is not regarded as loss caused by the defendant.

   [26] Sotiros Shipping Inc and Aeco Maritime SA v Sameiet Solholt (The 'Solholt') [1983] Lloyd's Rep 605, 608.

5. The test of reasonableness which is applied to the steps taken or not taken by the innocent party is not a high standard.  See Morrison v Town of Victoria Park;[27] Chand [182]. The innocent party will not have acted unreasonably merely because the defendant can suggest other and more beneficial action if it was reasonable for the innocent party to act as it did. See Karacominakis v Big Country Developments Pty Ltd.[28]  The question whether the innocent party took reasonable steps to mitigate its loss depends upon the facts and circumstances of the particular case.  See Morrison [38]. For example, it is a question of fact whether, in a particular case, the innocent party acted reasonably in refusing to enter into a new contract with the defendant after the innocent party terminated the contract in question for breach. See Morrison [44] ‑ [45].

   [27] Morrison v Town of Victoria Park [2007] WASCA 164 [37] (Wheeler JA; Pullin & Buss JJA agreeing).

   [28] Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235 [187] (Giles JA; Handley & Stein JJA agreeing).

6. In the present case, the measure of the appellants' damages for the respondent's breach of the SRA was the amount of money that was necessary to place the appellants in the same position, so far as money could do it, as if the SRA had been performed, less the amount of the loss which the appellants had avoided (for example, by letting the Premises to third party customers).  A further deduction would be necessary if the respondent proved that the appellants had failed to mitigate their loss.

7. In our opinion, the Master's approach to the assessment of the appellants' damages was flawed.

8. First, on a fair reading of the Master's reasons as a whole, the Master did not assess the amount of the appellants' loss by reason of the respondent's wrongful refusal to perform the SRA and then determine the amount of the loss which the appellants had avoided and then determine whether there was any additional loss which the appellants, acting reasonably, should have avoided.

9. Secondly, although it was common cause before the Master (and in the appeal) that:

   (a)the respondent presented the appellants with two alternatives, namely the New Agreement (with the fixed return) and the modified split return agreement;

   (b)the appellants chose the New Agreement (with the fixed return); and

   (c)in making the choice between the two alternatives, the appellants were acting to mitigate their loss,

   the Master did not apply the well established legal principles in determining whether the appellants had taken reasonable steps to mitigate their loss.

10. The Master said that the appellants 'could have accepted the [modified] split return agreement', but they decided to accept the fixed return agreement. The Master added that this was the appellants' decision and 'any difference in income between the two agreements was a matter for [the appellants]'. The Master then said that the appellants had made an 'election' between the two alternatives and, having made this 'election', the appellants 'must live with the consequences' [14].

11. Later in his reasons, the Master reiterated that it was the appellants' 'election' to enter into 'a fixed return agreement rather than a split [return] agreement'. The Master observed that if the appellants 'had gone the other way they may have been better off', but 'it was their choice'. The Master accepted that the appellants did not trust the respondent. However, the Master was 'not satisfied that faced with two choices they could not have accepted the [modified] split return agreement' [17].

12. The Master also noted that 'the thrust of [the appellants'] action before Beech J was an attempt to maintain the status quo' by an order for specific performance.  The Master commented that it was 'inconsistent for [the appellants] to advance that case [before Beech J] on the one hand and then, having been unsuccessful in obtaining the specific performance order to not accept effectively what they wanted when it was actually offered to them', namely the modified split return agreement.

13. The Master concluded that he was 'not satisfied [the appellants] are entitled to any [award of] damages' [18].

14. It is apparent that the Master's conclusion that the appellants were not entitled to any award of damages was materially influenced by the Master's erroneous resort to and application of the concepts of 'election' and 'inconsistency'.

15. It is, of course, true that in a sense the appellants made an 'election' in that they chose the New Agreement in preference to the modified split return agreement.  However, that was not the issue.  It was necessary for the Master to resolve the alleged failure of the appellants to mitigate their loss by reference to whether, having regard to all relevant facts and circumstances (including the fact that the appellants did not trust the respondent), the appellants' decision to enter into the New Agreement was reasonable.  The Master did not address that issue.

16. Similarly, it is, of course, true that in a sense the appellants' choice of the New Agreement in preference to the modified split return agreement was 'inconsistent' with the case they had, at least initially, advanced before Beech J. However, that was not the issue. It was necessary for the Master to resolve the alleged failure of the appellants to mitigate their loss in the manner we have described generally at [53] above. As we have mentioned, the Master did not address that issue.

17. The Master's characterisation of the appellants' decision to enter into the New Agreement as involving an 'election' or an 'inconsistency' was not a proper basis for deciding, in effect, that the appellants had failed to mitigate their loss.

18. Further, the Master's statement that he was 'not satisfied that faced with two choices [the appellants] could not have accepted the [modified] split return agreement' [17] indicates that the Master may not have approached the issue of mitigation on the basis that the onus was on the respondent to prove that the appellants had failed to mitigate their loss.  Further and in any event, that statement does not accord with principle in that the relevant enquiry was whether the appellants had acted reasonably in entering into the New Agreement and not merely whether the appellants could or could not have accepted the modified split return agreement.

19. The question was whether the appellants had acted reasonably in entering into the New Agreement and not whether the appellants had acted unreasonably in failing to enter into the modified split return agreement.  On a fair reading of the Master's reasons as a whole, the Master did not find, having regard to all relevant facts and circumstances, that the appellants had acted unreasonably in entering into the New Agreement.

20. Counsel for the respondent's submission that, by choosing to enter into the New Agreement, the appellants '[broke] the chain of causation' (appeal ts 18) should be rejected.  When the SRA was terminated as at 2 April 2015 the general principle governing the measure of the appellants' damages for the respondent's breach of the SRA was that the appellants were to be placed in the same position, so far as money could do it, as if the SRA had been performed.  When the SRA was terminated the appellants had not merely suffered a prospective loss.  They had suffered an actual loss, namely the loss of the benefit of the SRA.  The events which occurred after the termination of the SRA were relevant to the avoidance by the appellants of their actual loss and not to the conversion by the appellants of a prospective loss to an actual loss.  In particular, the appellants' decision to enter into the New Agreement did not convert a prospective loss to an actual loss.  By entering into the New Agreement, the appellants avoided some of the actual loss they had suffered upon termination of the SRA.

21. Counsel for the respondent's reliance on Chand is misplaced.  That case is plainly distinguishable.  In Chand, the appellant sent a redemption request to the respondent bank on 25 September 2007 in relation to investments which the appellant had made through the respondent's subsidiary.  The investments were 'high risk' and 'highly geared'.  The respondent failed to implement the redemption request.  If the respondent had implemented the redemption request, the appellant would have received a net amount of about $1,034,000 and would not have continued to be exposed to the high risk associated with the investments.  After he became aware that the respondent had failed to implement the redemption request, the appellant did not send a further redemption request to the respondent.  Between 25 September 2007 and 7 November 2007, the net redemption value of the appellant's investments exceeded their net redemption value as at 25 September 2007.  Between 8 November 2007 and 13 December 2007, the net redemption value of the investments exceeded $1,000,000 on all but 14 days.  After 13 December 2007, as a result of the global financial crisis, the value of the appellant's investments fell and the appellant lost all or at least a substantial part of the money he had invested.  The appellant alleged in proceedings against the respondent that the respondent was liable in damages for breach of contract in failing to implement the redemption request.  The respondent eventually admitted the breach, but asserted that it was only liable for nominal damages.  The Court of Appeal of New South Wales held that the appellant had acted unreasonably in not sending a further redemption request and in failing to adopt his previous market monitoring process, having regard to the investments being high risk, the volatility of the market and his knowledge of the facts giving rise to the breach of contract.  The appellant suffered no actual loss as at the date of breach having regard to the value of the investments as at that date.  The appellant's decision not to send a new redemption request and his decision not to adopt his previous market monitoring process constituted a novus actus interveniens.  Those decisions were deliberate, freely made and informed.  The appellant knew the facts constituting the breach of contract and knew that, absent a new redemption request, his investments would not be redeemed and he would remain financially at risk.

22. The ground of appeal has been made out.

Conclusion

1. We would allow the appeal.  The orders of the Master made on 6 May 2020 should be set aside.  The appellants' application for the assessment of damages should be remitted to a judge of the General Division of the Supreme Court for rehearing and determination according to law.  Counsel should be heard as to the precise form of this court's orders, including the orders that should be made as to the costs of the proceedings before the Master and the costs of the appeal.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

BS

Associate to the Honourable Justice Buss

6 OCTOBER 2022