Sellars v Adelaide Petroleum Nl & Ors; Poseidon Limited v Adelaide Petroleum Nl

[1992] HCATrans 300

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IN THE HIGH COURT OF AUSTRALIA	•
Office of the Registry

Perth No Pl3 of 1992

B e t w e e n -

MARK SELLARS

Appellant

and

ADELAIDE PETROLEUM NL,
TOPEND RESOURCES NL,

LYTTON NOMINEES PTY LIMITED,

MOUBLON PTY LIMITED,

PAUL GEOFFREY NAUGHTON,
DAVID BRIAN CLARKE,
MICHAEL WILLIAM ATKINS,
SWIRL PTY LIMITED,
GUINEVERE NOMINEES PTY LIMITED,
MACQUARIE BANK LIMITED,
SOUTH AUSTRALIA INDUSTRIAL

MINERALS PTY LIMITED,

WINDAMURAH PTY LIMITED

Respondents

Office of the Registry

Perth No Pl4 of 1992

B e t w e e n -

POSEIDON LIMITED

Appellant

and

Sellars(2)	1	13/10/92
MASON CJ BRENNAN J DAWSON J TOOHEY J GAUDRON J

ADELAIDE PETROLEUM NL,
TOPEND RESOURCES NL,

LYTTON NOMINEES PTY LIMITED,

MOUBLON PTY LIMITED,

PAUL GEOFFREY NAUGHTON,
DAVID BRIAN CLARKE,

MICHAEL WILLIAM ATKINS,

SWIRL PTY LIMITED,

GUINEVERE NOMINEES PTY LIMITED,
MACQUARIE BANK LIMITED,
SOUTH AUSTRALIA INDUSTRIAL

MINERALS PTY LIMITED,

WINDAMURAH PTY LIMITED

Respondents

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON TUESDAY, 13 OCTOBER 1992, AT 10.04 AM

Copyright in the High Court of Australia

MR M.J. McCUSKER, QC:  May it please the Court, I appear

with my learned friend, MR J. GILMOUR, for the

appellant, Poseidon Limited. (instructed by

Claudio Shaw)

MR C.L. ZELESTIS, QC:  May it please Your Honours, with my

learned friend, MR G.R. HANCY, I appear for the

appellant, Sellars. (instructed by Phillips Fox)

MR J.D. HEYDON, QC:  I appear with MR S.J. ARCHER and

MR P.A. TOTTLE for the respondents in both

appeals, Your Honours. (instructed by Clayton

Utz)

MASON CJ:	Mr Mccusker.
MR McCUSKER:	May it please the Court, I have an outline of

submissions as required, and I hand up five

copies, and three additional copies.

MASON CJ: Thank you.
MR McCUSKER:	Your Honours, I hope that it may be some

assistance if I refer very briefly to the
background facts just to get the flavour of the

case, but I do not propose to take Your Honours in any detail through those facts since they are not,

other than of background relevance. They were that

on 27 May 1988 - they all appear from the trial

judge's reasons - there were concurrent

negotiations taking place between the respondents,

whom I will call for convenience, Adelaide - the

respondents, Adelaide, and a company called Pagini

Resources, or their representatives, and Poseidon

Limited, essentially through its representative,

Sellars(2) 2 13/10/92

Mr Sellars, the second appellant in these proceedings.

Those negotiations were for the sale of shares

in Adelaide essentially; Adelaide being a company
which, as the learned trial judge described it, was
very short of cash and had expenditure commitments

to meet on oil exploration properties, which it

would not be able to meet in its present state. On

27 May negotiations with Pagini had reached the

point where Mr Ryan of Pagini sent draft agreement

to Mr Atkins of Adelaide, which draft was made

subject to various conditions precedent, and that

is set out at pages 99 to 100 of volume 1 of the

appeal book.

That was on 27 May and Mr Atkins made notes on

it, referred to at page 104 of the appeal book,

including a note of -

"Major Issues"

this appears at line 10, being:

"Schroders must underwrite -

Prior to that date there had been - it was part of

the contemporaneous activities - a board meeting of for the acquisition of the shares in Adelaide, and
there was a briefing paper referring to major

weaknesses in the proposal, and the major weakness

that was perceived and is the running thread

throughout the case, was the lack of any so-called

cash flow producing assets by Adelaide, to enable

it to service its future commitments, and the

decision at that meeting referred to by the trial

judge, or the comment made by Mr de Crespigny at
that meeting, was that Poseidon should only proceed

if such cash flow producing assets could be secured

and to secure them meant not only locating and

being able to acquire from the then owner suitable

cash flow producing assets, it meant also being

able to raise the funds by some form of
underwritten share issue. That appears in the

trial judge's reasons at pages 137 to 140. Then, the learned trial judge refers in his

reasons to what then followed from the Poseidon

Adelaide negotiations. There was a meeting on

12 May between Mr Sellars for Poseidon and Paterson

and Elliston, two people from Morgans, the brokers

who were ultimately nominated in the heads of

agreement between Adelaide and Poseidon, as the

brokers who were to underwrite a proposed small

issue of $2.8 million. And, at that meeting, there

was a discussion with the brokers of Adelaide's

Sellars(2) 3 13/10/92

need for cash flow producing assets, and that

appears at pages 160 to 161 of the trial judge's

reasons.

So, that is how matters stood really towards

the end of May. Then on 6 June - bearing in mind,

Your Honours, on 27 May there had been this draft

agreement produced and sent to Adelaide but not

responded to - the Poseidon board authorized a

contract to be entered into to acquire the Adelaide

shares but conditional upon it securing cash flow

assets funded by a substantially larger capital

raising than $2.8 million, as would necessarily be

the case.	The reference to that appears at
pages 188 to 190 of the trial judge's reasons.	On
10 June heads of agreement were settled between
Poseidon and Adelaide and they contained a

condition precedent that a $2.8 million share issue

by Adelaide be underwritten by Paul Morgans, the

brokers. The agreement appears at pages 194 to

197; it is reproduced in the trial judge's reasons.

It is referred to also by the trial judge briefly

at page 79 at point 30, just as a reference to

it - just above point 30.

On 14 June a Mr Webb and a Mr McLeod,

directors of Poseidon, affixed the seal, signed the

agreement, on behalf of Poseidon, notwithstanding

the fact that the agreement did not contain within it a condition precedent directed to the obtaining

or securing of cash flow producing assets. The

explanation given and referred to by the learned

trial judge for them doing that, which was contrary

to the decision of the board that it should,

subject to cash flow producing assets - was that

they were persuaded by Mr Sellars that, based on

his discussions with the brokers, unless cash flow

producing assets were secured, then the condition

precedent actually contained in the agreement that

there be an underwritten share issue of

$2.8 million by Paul Morgans, could not or would

not be met.

May I jump ahead to the learned trial judge's findings, based on expert evidence given by

representatives of Morgans and others, that the

heads of agreement or the condition precedent

contained in the heads of agreement for an

underwritten share issue of $2.8 million would

probably not have been met. On the day before the

heads of agreement with Poseidon were signed by

Mccloud and by Webb, Mr Atkins of Adelaide, who had

been left, as it were, dangling on a string since

27 May when it sent a draft agreement for

consideration, Mr Ryan of Pagini rang Mr Atkins of

Adelaide and asked what had happened to the Pagini agreement, and the learned trial judge referred to

Sellars(2) 4 13/10/92

that at page 105 at point 10, when he said that

Atkins of Adelaide did not mention the signing of

at the time or the settling of the Poseidon

agreement and it was left on the basis that he

would be in touch later, but the following day, or

a few days later, Mr Ryan of Pagini read in the

newspaper of the fact that the Poseidon Adelaide

agreement had been signed and, of course, that

effectively closed off any further negotiation

between Adelaide and to the alternative contract

with Pagini.

Then, on 3 July Mr Sellars gave

Mr de Crespigny, who at that stage was and had been

for three days, the chairman of directors of

Poseidon, a copy of the heads of agreement which de Crespigny immediately saw when he read it was

not consistent with the larger transaction

providing for the securing of cash flow producing

assets and a correspondingly larger underwritten

share issue authorized by the board, and reference

to that appears, Your Honours, at page 214 of the

trial judge's reasons through to page 215. That

meeting, as the trial judge notes at page 215,

ended with Mr Sellars somewhat abjectly apologizing
for having committed the company, in effect, to an
agreement not consistent with the board's
intentions and providing only as a condition
precedent for the smaller share issue without the

securing of cash flow assets.

He explained his rationale, which was that

unless the larger issue were made for the purpose
of obtaining cash flow producing assets, the
condition precedent actually contained in the heads

of agreement would, in his view and understanding,

not be met, but nevertheless he apologized and

indeed offered his resignation, which was not

accepted. That appears at page 215.

On 5 July Mr de Crespigny and Mr Naughton,

one of the respondents from Adelaide, discussed the

agreement which had been signed and which

His Honour accepted on the evidence of

Mr Naughten - this appears at page 218, lines 20 to

25 and following - which Mr de Crespigny accepted

to be a binding agreement and said that they should

work within its terms. So, notwithstanding that

de Crespigny saw that the agreement was

inconsistent with what the board had intended and

contemplated, nevertheless he said he accepted that

it was binding and the company would work within

it. His Honour said:

De Crespigny's recollection was that he said

if the agreement were binding, Poseidon would

honour it.

Sellars(2) 13/10/92

Mr Naughton said that he accepted that it was a

binding agreement and that they should work within

its terms. So either way there was no question of

any resiling from the agreement. On 6 July,

Mr de Crespigny and Atkins met - Atkins of

Adelaidde - and de Crespigny said that neither he nor Zehnder would join the board and he would tell

Morgans, the proposed underwriters, that if they

accepted the underwriting agreement that was

provided for in the condition precedent, they would

be on their own, and that appears at page 222.

That was all preconditioned by Mr de Crespigny

saying, "We will honour the agreement according to its terms; we accept that it is binding, but it is

not what we wanted and if it proceeds on the

smaller basis of simply a $2.8 million share issue,

without securing cash flow producing assets,

neither I nor Mr Zehnder", who was another member

of the Poseidon board and whose name had been put

forward as a proposed member of Adelaide board if

the deal proceeded, "will join the Adelaide board

and I will tell Morgans that they do proceed with

the proposed underwriting agreement", that is,

enter into one, "they will be on their own",

meaning, one would take it, in terms of any

assistance being given to the raising of the

capital issue. I interpolate there, Your Honours,

that there was no term of the agreement that

Poseidon would assist in the raising of the capital issue or assist Morgans if they entered into an

underwriting agreement nor was it alleged that

there was such a term.

On 18 July following those discussions - and

there was some intervening to and fro - Poseidon's

solicitors wrote saying that Poseidon would comply

with the heads of agreement if required, but if the

limited restructuring - that is the $2.8 million

issue - proceeded, Poseidon would not assume

management control of the restructured Adelaide and Zehnder and de Crespigny - de Crespigny had already

said, in fact, would not join the Adelaide board,

and His Honour refers to that at pages 224 through

to 228 of his reasons in exchange of

correspondence. There is also reference to it

earlier in his reasons where he gives a helpful and

succinct summary at page 80 point 15.

On 29 July 1988 Adelaide's solicitors treated

the stand of Poseidon in not being prepared to

undertake that it would take over the management of

Adelaide if it were restructured on the smaller

basis and that it was not prepared to undertake

that Zehnder and de Crespigny would join the

Adelaide board if so restructured, as constituting

a repudiation of the contract, and on behalf of

Sellars(2) 13/10/92

Adelaide, its solicitors purported to accept that repudiation and terminated the heads of agreement.

That was the position as at 29 July. They then

sought, the evidence is, to resurrect the

negotiations with Pagini but without success, and
ultimately an agreement with Pagini was entered

into in the following year but on terms

substantially less advantageous to Adelaide than

the terms which were being mooted in the middle of

1988; in May/ Jun_e 1988.

The case, Your Honours, was fought on several

fronts. It was alleged by the applicants, the
present respondents, that there were certain
implied terms of the heads of agreement; those
issues at this level have fallen by the wayside.

It was also alleged that the representations that

were made by Sellars in the course of negotiation

which led to the heads of agreement constituted
misleading or deceptive conduct. Essentially the

representations amounted to express representations

that Zehnder and de Crespigny would join the board

of Adelaide upon completion of the heads of

agreement and a representation which was to be

implied, or perhaps was expressed as well, looking

at the various material put forward, to the effect

that upon completion of the agreement, the heads of

agreement that was being negotiated, Poseidon would

take over the management of Adelaide.

I interpolate there, Your Honours, that of course it could not do that until completion of the

agreement, that is, until the conditions precedent

to the agreement were met, and there were two: one

was the obtaining of an underwriting agreement with Morgans for the proposed $2.8 million issue and the other was the approval of the shareholders of the

company, Adelaide, of the proposed agreement.

The learned trial judge's findings, so far as

they are presently relevant, were that Morgans

would probably have declined to underwrite the

proposed $2,8 million issue provided for in the

heads of agreement and his findings there appear at

page 242 to 243. So that, in effect, the

probability was that the Poseidon agreement,

conditions precedent, would not have been

fulfilled. I should add there that there was

evidence from Morgans to the effect that even if

Mr de Crespigny and Mr Zehnder have said that they would join the board and that Poseidon would take

over the management of Adelaide, it would have made

no appreciable difference to the outcome, that is, the condition precedent, the Morgans' underwritten

$2.8 million issue would not have taken place;

would not have been met.

Sellars(2) 7 13/10/92

MASON CJ:	Was there any finding to that effect?
MR McCUSKER:	I can turn it up for Your Honour, yes, I think

there was. I will come back to that, Your Honour.

MASON CJ: Yes.

MR McCUSKER:  Of course, the person who gave that evidence,

Your Honour, and who was speaking as to the

intention and attitude of Morgans, who were the

nominated underwriter in the heads of agreement,

a Mr Elliston, there was evidence that he was the

person ·who had the primary running of this matter

and had the decision-making. I should add -

Your Honours may have noticed from the reasons - that a Mr Counsell was a member of the firm of

Morgans and was also on the board of Adelaide, and

Mr Counsell was privy to discussions that were

taking place in the negotiation stage about the

securing of cash flow assets, but His Honour the

trial judge found that anything said to Mr Counsell

in those negotiations was not said to him in his

capacity as a director of Adelaide.

Page 242 point 30 through to page 243 at the top, where His Honour said:

Allowing for my reservations about Paterson's

evidence and having regard to the views of

Elliston -

that is the man from Morgans -

and Counsell's impending disengagement -

Counsell was the director of Adelaide on the board

of Morgans, but was about to leave Morgans, so he

had increasingly less say in the business of

Morgans -

from Morgans, I am satisfied that if Morgans	(SA) had been asked to underwrite the
placement of 7 million shares at 40 cents each
contemplated by the Heads of Agreement, it would, in all probability, have declined.

Second, His Honour found that Poseidon, through

Sellars and Webb - Webb, we remind Your Honours,

was one of the two directors of Poseidon who, on

14 July signed the heads of agreement on behalf of

Poseidon, knowing that it did not provide for the

larger issue required to secure cash flow assets,

but accepting Mr Sellars' statement, which was to
the effect that without the larger issue and the
securing of cash flow assets, the condition

precedent, as it stood, could not be met.

Sellars(2) 13/10/92

Poseidon through Sellars and Webb, by affixing

his signature to the agreement, His Honour found,

represented that Poseidon intended to honour the

agreement according to its terms. That finding

appears at page 266. The perhaps slightly subtle

point in that is that the Poseidon board had, prior

to the affixing of the seal to the heads of

agreement, resolved, in effect, that it would only
approve of an agreement which provided for the
securing of cash flow producing assets, since, as

Mr de Crespigny explained, without that the company

could go nowhere; it would not have the means of

servicing its commitments. So, the intention of

Poseidon was that it should only enter into an agreement which provided for that. His Honour

found that Poseidon, through Sellars and Webb,

represented that Poseidon intended to honour that

heads of agreement, which provided only for the

smaller capital raising.

BRENNAN J: Where is this taking us, Mr Mccusker?

MR McCUSKER:  It is really just to get to the point of

determining, Your Honour, the basis of the claim for compensation for loss or damage, and if I am

going into it in too much detail, Your Honour, I

will desist, but I thought it might be helpful to

know what the background is, rather than simply

plunge into the discussion. I do not suggest that

that particular point of itself has any direct

bearing on the matter.

His Honour also found that there were

representations that Poseidon would proceed to take

over the management of Adelaide upon completion of

the agreement and that it had no such intention,

absent the cash flow producing assets acquisition.

MASON CJ:	The problem with the way that you are dealing with the case, Mr Mccusker, is it is very difficult
for us, in the abstract, to relate these particular
Would it not be more convenient to come to that findings to submissions that you are going to make.
part of your case where you put your critical
submissions and then invoke such findings of fact
as you need to, to make the points good.
MR McCUSKER:	Very well, Your Honour, I am happy to do that.

I did not want to simply refer to the essence of a

point in the appeal without Your Honours

understanding - - -

MASON CJ: 

No, true, but your account of the facts looked at

this moment as if it were developing a life of its
own.

MR McCUSKER: 

I am conscious that it cannot, Your Honour.

Sellars(2) 9 13/10/92

If I could simply conclude on the basis of

His Honour's findings - I am not going into any

further factual matters - that he found that, at

page 270:

The applicants had declined to proceed with the Pagini transaction, because they relied

upon representations made by Poseidon.

Through its officer, Sellars. That appears at

line 15, Your Honours, and His Honour continued:

That such a decision will lay a proper

foundation for a claim for damages is apparent

from the joint judgment of Justices Mason,

Wilson and Dawson in Gates -

case. His Honour also found, at page 271, that:

the damages -

for which compensation was to be awarded -

are to be determined by assessing what was

lost as a result of the -

decision by Adelaide -

to turn away from the Pagini transaction.

That appears at page 271, line 10. The decision to

turn away from the Pagini transaction really

evinced itself at the time of the heads of

agreement was settled on 10 June. There was no

actual communication to Pagini that Adelaide had

decided not to proceed, it was simply there for all

to see. And His Honour said that:

the loss -

was to be -

measured by reference to the benefits that

were foregone when the applicants decided not

to continue their negotiations with Pagini

Resources.

That observation appearing at page 272 in the trial

judge's reasons.

That, in our submission, then raises the question of whether the applicants had proved, as

part of their case, that there were benefits

foregone by them when they decided not to continue

negotiations with Pagini but to conclude a contract

with Poseidon. The proposed Pagini contract, which

is set out in full, as to which there was no final

Sellars(2) 10 13/10/92

meeting of minds, would have contained, it was common ground, certain conditions precedent as

well. That is, conditions precedent just as the

Poseidon heads of agreement contained conditions

precedent inter alia requiring a raising of funds,

this company being cash starved.

Now, His Honour found, and I refer here to the

outline of submissions, at page 269, that a

substantial factor in the respondents' decision to

sign the heads of agreement was their belief:

that Poseidon intended to take over the

management of ADP and to proceed ..... without

any reservation or qualification -

and the decision to contract with Poseidon caused

Adelaide to abandon negotiations for a conditional

contract with Pagini. He then held, at page 271,

line 10 - made the observation I have just referred

Your Honours to - they were entitled to be compensated for loss resulting from that decision,

a decision induced by the "misleading or deceptive

conduct" and that the loss was to be measured by

the benefits foregone.

In paragraph 3 of our outline, Your Honours,

it is submitted that the trial judge should at that

point have determined as a threshold question

whether, had the Pagini transactions not been

abandoned but continued, it was probable that the

respondents would have derived a financial benefit

by pursuing them. That was something which the

present respondents were obliged to prove on the balance of probabilities. If the answer to that question, that threshold question, were

affirmative, then the next step would be to assess

the value of the foregone financial benefits that

were proved, on the balance of probabilities, would

have flowed from the Pagini transaction, and

offsetting against those financial benefits the	benefits which they in fact did derive from the
contract actually made in the following year with
Pagini.

The effect of the trial judge's finding at

page 279, at point 20, brief though the observation

is, is, in our submission, a finding that, as a

matter of probability, the respondents would not

have derived a financial benefit from pursuit of

the transaction with Pagini. His Honour said -

BRENNAN J: What was the nature of the financial benefit

that was said to have been open for acquisition?

MR McCUSKER: Primarily, Your Honour, although there were

several benefits, the sale of their shares to

Sellars(2) 11 13/10/92

Pagini. The proposal in both cases was that the

respondents should sell their shares in Adelaide to

Pagini and in the second place to Poseidon, so

that, in each case, those companies would acquire a

major, though not majority, interest in Adelaide.

BRENNAN J: Sale of shares by?

MR McCUSKER:  Sale of shares by the director vendors who

were Naughton, Clarke and Atkins, and they had -

there are various companies associated with them

under their control.

MASON CJ: That is the respondents other than Adelaide?

MR McCUSKER:  Yes. Adelaide itself could not sell its own

shares.

BRENNAN J:  The benefit being what?

MR McCUSKER: Well, the benefit being the price that they

would receive, which incidentally was contracted

for with Poseidon, and was being pursued at about

the same level with Pagini at 40 cents per share,

which was, on the evidence, fairly substantially

above the then market price for the shares. That

was perhaps explicable on the basis that it was a

block of shares, but it was a higher than market

price.

DAWSON J: What about Adelaide itself?

MR McCUSKER: Adelaide's main interest was that there should

be an issue of shares - this is in connection with

Pagini, Your Honour?

DAWSON J: Yes.

MR McCUSKER:  An issue of shares to the proposed purchaser.

There would be a fresh issue which, in part, would

be taken up by the purchaser. If I could just

turn, Your Honour, to the draft agreement - - -

DAWSON J: Well, an injection of capital.

MR McCUSKER:  An injection of capital, I suppose, is the

short - Your Honour, at page 99 of volume 1 there

is a short note as to the effect of the proposed

Pagini agreement, starting at line 15:

ADP was to issue and allot to Pagini Resources or its nominee the following -

and there is listed there the different classes of

shares and options which were to be allotted.

Sellars(2) 12 13/10/92

BRENNAN J: 

Now, is this the only place we can find what the

contents were of the proposed agreement between
Pagini and Adelaide?

MR McCUSKER: 

No, Your Honour, it is set out more fully, I

think - we do have a supplementary volume from

which I could provide Your Honour a copy of the

agreement - that is the draft agreement that was

sent on 26 May - but the conditions precedent are

set out in the agreement.

BRENNAN J: 

I would just like to understand what are the

respective financial advantages which are said to
be open to acquisition in the event that the

agreement was brought to a conclusion.

MR McCUSKER: Well, the agreement is referred to at

page 99 - that is the draft agreement I stress,

Your Honour.

BRENNAN J: Yes.

MR McCUSKER: Starting at page 99 at line 15. There was to

be an issue and allotment to Pagini of those shares

that were set out there. Pagini was to - - -

BRENNAN J: Just pausing there for a moment, is it a

financial advantage to a corporation to issue

shares at a market value, or what the corporation

takes to be a market value?

MR McCUSKER:  In our submission, no, Your Honour. I am

simply referring at the moment to what the

agreement, or the draft, provided for.

BRENNAN J: Yes, I appreciate that.

MR McCUSKER:  But we say no. Pagini then was to pay

Lytton - it appears at line 25, "and Moublon the

amount of $2,475,000" - their company was

associated with the directors of Adelaide:

for the acquisition of their ADP shares. By

cl.5 it was to pay $1,925,000 of that amount

on Completion and a further $550,000 upon the

acquisition by Naughton and Clarke of ADP's

Australmin and Sabminco shares -

there was to be a cross-dealing between these

companies so that, as part of the proposed deal,

Naughton and Clarke were to have purchased from

Adelaide shares which it held in two companies

called Australmin and Sabminco, and they were to do

that out of the purchase price that they were

getting for the shares being sold by their

companies in Adelaide.

Sellars(2) 13 13/10/92

BRENNAN J:	Was there any financial advantage said to exist in the contract for the sale of shares by Lytton
Nominees and Moublon to Pagini or in the sale by
ADP of Australmin and Sabminco's shares to Naughton
and Clarke?

MR McCUSKER:  Yes. There was evidence given by a Mr Gorey

as to the financial benefits that would flow and

therefore the loss that was suffered, or said to be

suffered. He gave evidence on behalf of the

present respondents, setting out calculations which his reasons, as to what those benefits were said to

be, or advantages were said to be.

BRENNAN J:  Can you tell us what those findings were?

MR McCUSKER:	Yes, Your Honour. page 272 where, at line 5, His Honour starts by way	Volume 2, starting at
of preface:

There was no certainty and many contingencies

attaching to the successful conclusion of the
Pagini transaction. It is app~opriate however
to take as a base for assessment, the amount

of the benefit foregone on the assumption that

an agreement with Pagini would have been

concluded in June 1988.

And then he refers to the evidence of Gorey, an accountant called by the applicants, who gave

calculations as at three dates, and at page 273 he

refers to, starting at line 15:

Gorey's calculation of loss as at

26 April 1989 identified capital and revenue

losses -

being -

Losses incurred by directors and their

associated entities in relation to the sale of

ADP shares.

Now, the loss that is referred to there,

Your Honour, is the difference between the sale

price of the shares held in Adelaide by the

directors and their associated entities and the

price that was ultimately obtained for those shares

the following year under the contract that was made

with Pagini. The loss of opportunity to Naughton

and Clarke - - -

TOOHEY J: Sorry, just before you leave that, Mr Mccusker,

it was not then calculated by reference to the

price payable under the agreement had it gone ahead

and what might have been or would have been the

Sellars(2) 14 13/10/92

market value had that agreement proceeded to

completion; it is the difference between the

contract price and the price ultimate obtained.

MR McCUSKER:  No, the ultimate basis upon which damages were

assessed was the difference between the price that they might have got in June or July, or whenever a

Pagini contract might be expected to have been

completed, and the ultimate price that they did

get. There was an offset for that which was the

following year.

TOOHEY J: But when you say the price that they might have

got had the agreement proceeded to completion, that

was in fact fixed, was it not?

MR McCUSKER:  Might have got, in the sense - yes - would have got had the agreement proceeded, yes.

GAUDRON J: And one assumes that the price that was

ultimately obtained when the Pagini agreement went

ahead was somewhat higher than the market price at

the time the first agreement did not go ahead.

MR McCUSKER:  I am not able to answer that directly,

Your Honour, whether that assumption is correct. There was evidence as to the market value of the

shares in mid-1988 being less than the sale price

provided for both under the Pagini contract and

under the Poseidon contract, but as to the

following year, I do not think there is evidence of

that, or if there is, there is no finding as to

that.

GAUDRON J:  Why would it be taken into account if they were

lower?

MR McCUSKER:  If the share price was lower?

GAUDRON J:  Lower when the Pagini contract eventually did go

ahead?

MR MCCUSKER:  I think Your Honour's assumption is probably

correct, that it must have been at least market

price or higher, or else an offset of that nature

would not be brought into account. It would have

to be a higher offset to allow for the true market

value, one would have thought.

GAUDRON J:	I will assume that unless I am told otherwise.
MR McCUSKER:	I think that is a fair assumption,

Your Honour, yes. Nothing turned on it in terms of the calculation of the loss. If I could just go on

with the question raised by Your Honour

Justice Brennan, there is also referred to at 273, line 25:

Sellars(2) 15 13/10/92

The loss of opportunity -

is one of the benefits lost

to Naughton and Clarke to buy Australmin

shares at a price which would have allowed

them to make a profit on resale.

Now they were shares, Australmin shares, owned by

Adelaide which, as part of the transaction between

Adelaide and its directors and Pagini, were to be

purchased by Clarke and Naughton at a figure that

was stipulated and paid for out of the purchase

price of the shares, the Adelaide shares, that they

and their associated entities were selling to

Pagini.

Now, evidence was given that had that

occurred, there would have been an opportunity to

make a profit by Naughton and Clarke on the sale of

those shares. Then:

Losses to Lytton and Moublon arising from

failure to receive the proposed Pagini

transaction payout on management agreements.

To explain that, there were in existence management

contracts between Adelaide, a public company, and

Lytton and Moublon, two companies which are part of

the range of respondents to this appeal, associated

with Naughton and Clarke and as part of the Pagini

transaction, it was proposed that Pagini buy out the management contracts which would result in a

capital payment to Lytton and Moublon on the buy-

out. And then, finally the further loss identified

was:

Losses incurred by ADP because the rights

issue or placement contemplated by the Pagini

transaction did not go ahead.

And then His Honour has set out - - -

BRENNAN J:  Now, just before you proceed, for any of those

items to amount to a loss, it was necessary to

compare the price that might have been realized

under the proposed heads of agreement - - -

MR McCUSKER:	With Pagini?
BRENNAN J:	- - - with some other figure.
MR MCCUSKER:	Yes.

BRENNAN J: Market price in the case of 1 and 2; value of

the management agreement in the case of 3; and I

am not sure what in the case of 4. Now, was any

Sellars(2) 16 13/10/92

attention given to the comparison between the

proposed contract figures in relation to each of

those items and some other figure with which a

comparison should be made?

MR McCUSKER:  The comparison, Your Honour, that was made was

between the proposed contract figure for the sale

of the shares and the figure that was ultimately

realized. It was the difference between those two

figures which was the ultimate award - the basis

for the award.

BRENNAN J: That seems to me to suggest that there has been

a radical misconception. If, on day one, A agrees

to sell to B his shares for $2 when the market
price is $1, he has obviously lost if the contract

goes off the benefit of the dollar profit.

MR MCCUSKER:  Yes.

BRENNAN J: If on a subsequent day he agrees to sell his

shares for $3 at a time when the market price is

$4, then there is far from any loss of benefit,

even though there has been an increase from $2 to

$3 in the sale price.

MR McCUSKER:  Yes. Is Your Honour referring there to the -

there are two different things, of course. There

is the proposed capital placement and there is the

proposed sale of the share price?

BRENNAN J:  I was referring there to the sale of the share

price, which is numbers 1 and 2. I am yet to

understand the nature of a loss in the case of an

issue of shares at what might be thought to be the

current market value of the shares in that

corporation.

MR McCUSKER:  The approach taken on the sale of the loss on

associated companies was to show that at the time	the sale of the shares by the directors and their
that the negotiations with Pagini were broken off,
less than the sale price provided for under the
the market price of the shares was substantially agreement was terminated on the ground of its alleged repudiation, it was not possible to obtain
that price - there were negotiations to sell this
block of shares. I think there was some evidence
that it was not possible to sell those shares for a
higher figure than the figure that was ultimately
realized the following year. There were various negotiations pursued.

So I think it does meet the point that

Your Honour has raised with me as to the

comparison. It was a question of testing the

Sellars(2) 17 13/10/92

market by trying to find a buyer for this block of

shares and the block of shares was ultimately sold,
but at a lower price than originally contemplated
by pursuing negotiations through to the following

year.

BRENNAN J:  Do I take it there was no market for that block

of shares except to a purchaser of the kind of

which Poseidon and Pagini were representative?

MR McCUSKER:  No, that is not so, but there was no market at

a higher price than the price that was ultimately

obtaineq in the following year.	I think that is
really the essence of it.	The evidence of the

applicants was that they continued to try to sell

their shares, but at no time until the following

year were they able to find a buyer at the price

that they then realized, or above that price.

As to the second item, at page 274 in the

summary that His Honour has given us there, the

loss of profit on the sale of Australmin shares,

that came down to a question of what the fixed

price for the Australmin shares was in the draft

Pagini agreement, and on the assumption that that

would have been the price paid, evidence was given

by Naughton and Clarke to support their claim that

had they bought them at that price, they could have

sold them and made a profit of the amount shown

there.

BRENNAN J:  Was there a countervailing benefit then to the

vendor, Adelaide, by not selling?

MR McCUSKER: There must have been, Your Honour, because it

follows that if Adelaide retained those assets and
that was their value, then the benefit was

retained.

BRENNAN J: Yes.
MR MCCUSKER:	And then the:
Capital loss on termination of management
agreements -

that too, I think, in a sense, is subject to the

same comment. There was a countervailing benefit

in the sense that the management agreements

continued, but there were management agreements, I

think, which Adelaide had difficulty in servicing

because of its shortage of cash. So the payout

figure for the management agreements was a figure

which was, on the evidence, in excess of the true

value of the management agreements, and although

there was a countervailing benefit by not

terminating the management contracts, nevertheless

Sellars(2) 18 13/10/92

there was a loss that was assessed.	I think that
is the approach that was taken.

DAWSON J:  Is there any evidence why Pagini would enter into

this agreement, what advantages it would get from

it when he may have been paying more than the

market price in the last instance you mentioned?

MR McCUSKER:  There was evidence to the effect that it was

thought that the combining of Pagini and Adelaide's

petroleum interests would - I think the word that

was used was, have a synergistic effect on the two,

which in common parlance - I think Mr Ryan of

Pagini said that - the effect in simpler terms I

think being that he thought that one plus one

equalled more than two, that by combining the two

companies there would be some value, but

Your Honour - - -

DAWSON J: And at the time the agreement was abandoned, were

the amounts still negotiable?

MR McCUSKER:  They were certainly still negotiable,

Your Honour. Mr Ryan, on behalf of Pagini, gave

evidence that he thought that at that point they

had a sound basis for further negotiation. There

were various matters still to be ironed out. A

chief point of difference on the evidence, which

His Honour has referred to, is that whereas the

Adelaide people through their negotiator were insistent that Schroders, a merchant banker, should back the proposed Pagini underwriting, from day one

Schroders were not prepared to do so, and Ryan said

he had made that clear, but there seemed to be this

lack of meeting of minds between the two parties on

that point; indeed to the point where, on 26 May

when the draft agreement was sent, one of the notes

made by Mr Atkins of Poseidon was that Schroder's

participation - His Honour set it out in his

reasons - was still a question there.

So they were negotiable, yes, but I must say

that His Honour has found that it was more likely

than not, I think, that an agreement of that nature

and in those terms, would have been made, but there

was then the further question, because those terms
included all kinds of conditions precedent, of what

benefit at the end of the day would such an

agreement have yielded.

DAWSON J: And did His Honour fix a date as to when it would

have been made?

MR McCUSKER:	I do not think he did, Your Honour - - -
DAWSON J:	Do not hold us up now.

Sellars(2) 19 13/10/92

MR McCUSKER:  Yes. His Honour said, at page 278, at the top

of the page, that:

although there were matters unresolved between

the, including the role of Schroders, the

probability of an agreement being reached

basically along the lines of the "Aide

Memoire" and the draft of 27 May, was high.

And as I have already found, there was at

least an even chance that the necessary

underwriting for the agreement to proceed

would have been secured. The principal

contingencies therefore relate to conditions
precedent embodied in the draft agreement.

But in answer to Your Honour's question, I do not think His Honour did find the date on which such an

agreement would have been concluded. He simply

said that there was a high probability that an

agreement along the lines of that draft would have

been concluded.

The allegation, Your Honour, in the statement of claim, at page 12, line 15, of volume 1, is

that:

In reliance on the representations ..... on or

about 10 June 1988 -

the applicants -

declined to enter into an agreement with

Pagini Resources NL ("the Pagini Agreement) by

which Pagini Resources NL would obtain control

of Adelaide and pursuant to which -

and the various proposed terms are there set out.

But 10 June is unhelpful because that is simply the

date upon which the heads of agreement with

Poseidon were signed so that it thereby evinced an

intention not to proceed with negotiations with

Pagini. There was nothing as at 10 June by way of any concluded or semi-concluded agreement with

Pagini and His Honour has not found that as at that date an agreement would have been concluded with

Pagini. So I do not know the basis upon which

His Honour, in terms of dates, made the finding

that a Pagini agreement would have been concluded

except to say perhaps reasonably soon, but that

does not help us very much. There was, as

His Honour remarked, a number of matters still

unresolved between the parties before an agreement

could be reached.

Your Honours, I referred, in paragraph 4 of the outline, to what His Honour said at page 279,

point 20, and it is our submission that what he says

Sellars(2) 20 13/10/92

there is, in effect, a finding that on the balance
of probabilities, the applicants would not have

derived any financial benefit or yield by pursuing a

contract with Pagini, and if that is the correct

analysis, then, in our submission, no compensation

for loss or damage should have been awarded because

the applicants had failed to prove on the balance of

probabilities that they have suffered any loss or

damage.

His Honour, in awarding, in effect,

compensation for loss of chance, did recognize

there are certain logical difficulties and problems

with that approach. The reference there in

paragraph 5 to 227 should be a reference,

Your Honours, to 277, at line 10.

BRENNAN J: Sorry, where is that, Mr Mccusker?

MR McCUSKER: In paragraph 5, Your Honours, I have referred

in line 2 to 227. That is a typing error; it

should be 277, line 10.

TOOHEY J:  Mr Mccusker, could you just direct us to the finding which is referred to in paragraph 4. I

know it is identified as being on page 279, that it

was probable that the negotiations with Pagini
would have yielded no financial benefit.

MR McCUSKER:	Yes, Your Honour:
Accepting that the discounting exercise
associated with -

this is at lines 15 to 20 -

.•... I assess that the benefit foregone as

calculated by Gorey should be discounted to

40% to allow for the probability that the

agreement would not have proceeded.

TOOHEY J: But that is a different question, is it not? I

took paragraph 4 to be saying that the effect of
the finding is that, had the negotiations been

pursued, it was probable that they would have

yielded no financial benefits, but the finding on

page 279, as I understand you to be putting it, is

that it was a finding that it is unlikely that the

agreement would have proceeded.

MR McCUSKER: Well, His Honour is saying that there was a

probability, as I understand his reasons, that the

agreement with Pagini would not have proceeded.

This is, by "proceed", I take His Honour to mean,

would not have proceeded to completion because the

conditions precedent raise that probability.

Sellars(2) 21 13/10/92

TOOHEY J: Yes, I understand that, but that seems to be a

finding that, at best, from your point of view,

that it is unlikely that the negotiations with

Pagini would have been consummated. But that is not quite the same thing as saying that, had the negotiations proceeded, they would have yielded no

financial benefits, unless that is what you mean by

the sentence that begins at the bottom of page 2

and goes over to the top of page 3 of your

submissions.

MR McCUSKER: Well, yes, that is what I mean, Your Honour.

TOOHEY J: 

You mean, it would have yielded no financial

benefits because there would have been no
agreement?

MR McCUSKER: 

No, because even if there had been an

agreement, there would have been no ultimate

benefit derived from the agreement by reason of the

fact that there were various contingencies.

His Honour has looked at all the contingencies and

has said, in the end, having weighed them all up

that - I suppose one can put it this way, there was

only a 40 per cent chance that benefits might have

been yielded by any contract ultimately entered

into with Pagini.

BRENNAN J: Because the contingencies would not have been

satisfied, is that - - -

MR McCUSKER: That is so, Your Honour, yes. There were

various contingencies. The chief contingency, but

not the only one, was the question of an

underwriting agreement. The evidence given on

behalf of Poseidon, which was strong from a number

of sources, including Morgans, was that at that

particular time the financial climate was such that

it was very difficult to raise capital for a

petroleum exploration company which this was.

So it is against that background that

His Honour is weighing the various contingencies

and comes, in our submission, to a clear conclusion

that the prospects of the proposed agreement with

Pagini, whether or not it was entered into,

ultimately yielding a benefit were no more than

40 per cent.

DAWSON J: But that is your case, is it not? You say, "This

is the wrong approach." What you should be

assessing here, if anything, is the loss of the

chance at entering into the agreement. When you

look in determining contingencies, you did not lose

anything at all.

MR McCLUSKER: That is so.

Sellars(2) 22 13/10/92

DAWSON J:  Not be looking at the loss which, if you had

entered into the agreement - what you had lost if
you had entered into the agreement, that is the

loss of chance on the basis that the agreement was

entered into.	I am not putting that very well,
but - - -

MR McCUSKER:  We say that what the judge should do is to

look at all of the contingencies, including those

that relate to the prospect of an agreement being

signed at all in that form or at all, and the

prospect of the various conditions precedent to

such an agreement being met, and at the end of that

making an assessment of what the prospects were had

the Pagini negotiations been continued with, what

the prospects were of the applicants gaining any

financial benefit or advantage at all from having

done that.

DAWSON J: Really you say perhaps they did lose the chance of entering into the agreement, but when you look at all the contingencies, that was a worthless

thing because it never would have been entered into

anyway.

MR McCUSKER: It never would have been - - -

MASON CJ: Completed.

MR MCCUSKER: Completed, yes. If I could put it - - -

DAWSON J: It never would have been entered into. That is,

the negotiations would never have resulted in an

agreement.

MR McCUSKER:  No, we do not put it quite like that,

Your Honour. We say that if you look at all the

contingencies attached to the proposed
agreement - - -

DAWSON J: Yes, I follow.

MR McCUSKER: 

- - - even if it had been entered into, the

prospect of it yielding a benefit was remote;
certainly less than probable. If we could, as it

were, just to illustrate the position: suppose

conversely in the course of negotiations with
Pagini there had been representations whilst there

were simultaneous discussions and negotiations with

Poseidon, representations which induced Adelaide to

enter into an agreement with Pagini, thereby

destroying their opportunity to conclude the heads
of agreement with Poseidon.

Evidence might well have been given in such an

eventuality if Pagini had been sued by Adelaide for

compensation for loss of profit that might have

Sellars(2) 23 13/10/92

been yielded from pursuing negotiations with

Poseidon but although the conclusion of a heads of agreement with Poseidon was probable, it was in the
end probable that that would have yielded no

benefit. I say that second point arises from the

evidence of the brokers that they would not have

underwritten the proposed issue, and therefore the

condition precedent would not have been met under

the Poseidon agreement and therefore there would

have been no benefit because the contract would not

have been completed.

So to come back to His Honour the

Chief Justice's observation, our case is not

assessment of loss of chance of entering into the
agreement with Pagini; it is that the trial judge

has viewed the matter in its entirety and said that

at the end of the day, even though they probably

would have concluded an agreement with Pagini, it

would not have been completed.

DAWSON J:  If I entered into an agreement with you on

condition that I raise sufficient capital by

winning the lottery, you would say you cannot go on

and look then at the agreement and see what I would

have lost had that condition been satisfied,

because the likelihood is so remote that really the

whole thing was worthless.

MR McCUSKER:  Or even if it was said that there was some

reasonable prospect but it was probable that you

would not win.

TOOHEY J: But there are several steps involved, are there

not, Mr Mccusker? I am not sure that they are not

being merged somehow here. There is the

probability that an agreement would have been made

with Pagini; there is the probability that that

agreement, having regard to the conditions

precedent, would have in fact been consummated; and

there is the probability as to whether, had the	first two steps been taken, the agreement would
have produced any financial benefit to Adelaide.
But they are not the same thing, are they?

MR McCUSKER:	No, they are not the same thing.
TOOHEY J:	From your point of view, it may be advantageous.

Each has an element of uncertainty attached to it.

MR MCCUSKER:  Of risk about it, yes.

TOOHEY J: But when the trial judge uses the word

"proceeded" in line 20 of page 279, I take it he is

saying that the agreement would not - or he is

referring to the probability that the agreement may

not have proceeded to completion?

Sellars(2)	13/10/92
MR McCUSKER:	To completion. That is as I understand it,

Your Honour, yes.

MASON CJ: That links up with what he says at page 107, at

the top of the that page, where he says:

Agreement having been reached, the questions

whether the conditions precedent would have

been fulfilled and the necessary capital

raising achieved, remain to be considered.

MR McCUSKER:  Yes, that is so, Your Honour. It is the same

point.

BRENNAN J:  Mr Mccusker, you have special leave to appeal on

a very limited ground.

MR MCCUSKER:  I do, Your Honour.

BRENNAN J: The limited ground appears at page 393. Correct

me if I am wrong, but as I understand the point as

it now appears, it is this: accepting that if the

contract had been made, had been entered into and

had been completed, there would have been losses of

the order that the trial judge found. It is more

probable than not that the agreement would have
been entered into, but it is more probable than not
that the agreement would not have been completed.

The question for our determination is whether, in the light of that last finding, any award of

damages is appropriate, is that right?

MR McCUSKER: That is so, Your Honour, that is the essence

of it.

BRENNAN J: 

So we can proceed on the basis that but for the

lack of probability of completion, you would not be
here.

MR McCUSKER: That is so, I think, Your Honour, yes.

GAUDRON J: The question I suppose then is: what value did

the contract have if it probably would not be

completed?

MR McCUSKER: That is another way of putting it,

Your Honour, yes. Coming back to Your Honour

Justice Toohey's point if I may, that although

there may be several steps, that each of those

steps is an essential part of proof that on the
balance of probabilities loss or damage has been

suffered.

TOOHEY J: Yes, I understand. You say the respondents could

fail at each of those steps.

Sellars(2) 13/10/92

MR McCUSKER:  Yes. The steps are all towards establishing

or answering a question, "Have the respondents benefit?"

proved on the balance of probabilities that they
did suffer a loss?" or, putting it conversely,
"Have they proved on the balance of probabilities
that had they proceeded with the negotiations with

Could I remind Your Honours of what His Honour

Justice Brennan said in Norwest Refrigeration v
Bain Dawes, (1984) 157 CLR 149. That case,

Your Honours, concerned the breach of duty, not by

Bain Dawes in fact, but by the Geraldton
Fisherman's Co-Op to advise the plaintiff in that

case of certain survey requirements that had to be

attended to if its insurance policy was to be

valid. Because of the failure to inform the

plaintiff of those various requirements, the

plaintiff found that when the relevant fishing boat

was burnt, it had no insurance cover.

His Honour Justice Brennan said at page 172,

dealing with the question of proof of damage -

there were two approaches taken in the case to

proof of damage, Your Honours. One was to raise

the question of whether, had the plaintiff been

informed of these conditions or the lack of cover because of the conditions not being completed, it

might have obtained insurance cover from another

company and so ensured that the vessel was still

covered by insurance during the period that it was

under repair.

A second alternative approach was to consider

whether the plaintiff had established that if it

had been informed of the conditions, it would have

taken steps to comply with the conditions

promptly - there was a fairly leisurely fitting-out

process taking place up in the north of the State -

and so fulfil the conditions of the policy so it

would be covered. There was an argument raised by

counsel for the respondent, the Fisherman's Co-op,

that in effect it was not established that there

was any damage because neither of those points

could be shown. His Honour Justice Brennan said

half-way down page 172:

The present case is not similar to Chaplin v

Hicks where the question was the value of a

contractual right "to receive
consideration ..... in the distributive award of

definite and material benefits".

His Honour went on to deal with what happened in

Chaplin v Hicks. A little later he said:

Sellars(2) 26 13/10/92

But in the present case, there is no

contractual right to be valued either in a

substantial sum or in a nominal amount. The

question is whether a specific loss sustained

by Norwest - the absence of effective

insurance of the Sonoma when she was lost -

was caused by the Co-operative's negligence.

The immediate opportunities which Norwest lost

when it was not informed of the Co-operative's

failure to obtain effective insurance are not

themselves heads of damage to be valued as

though they were compensable lost rights.

They are links in an alleged chain of

causation. The other links in the chain were

the fact that Norwest could have obtained

effective insurance elsewhere or could have

satisfied the conditions of the fleet policy

and the fact that Norwest would have adopted

one of those courses to obtain effective

insurance. A failure to prove either of those

links in the chain did not mean that Norwest

could recover diminished damages for loss of a

chance to obtain insurance; it meant failure

to establish the cause of action.

DAWSON J: The proposition is this: you cannot prove that

you suffered damage by loss of a chance unless you

prove on the balance of probabilities that you had

the chance.

MR McCUSKER:  No, our proposition, Your Honour, is that you

cannot prove under section 82 that you have

suffered loss or damage unless you prove on the

balance of probabilities that you would have gained

a financial benefit by taking an alternative path.

I am not sure that it is the same concept at all.

DAWSON J:  I am not sure at all it is the same thing.

MR McCUSKER:  Our submission is not that you -

DAWSON J: But that is what Justice Brennan is saying there.

He can answer for himself, but - - -

BRENNAN J: In due time.

DAWSON J: But you do not get to the situation of the loss

of a chance if you have not proved on the balance
of probabilities that you have the chance in

contractual terms.

MR McCUSKER:  That is certainly the case, but we would say

that the issue goes further than that. Even if you

prove that you could and would have entered into a

proposed contract with he and Pagini, that is not

enough. You must also show that it, on the balance

of probabilities, would have yielded - - -

Sellars(2) 27 13/10/92

DAWSON J: Exactly. The contract is there, but if you prove

on the balance of probability that it would come to

nought, there was never a chance.of making a profit

out of it.

MR MCCUSKER:	Yes.
DAWSON J:	We are saying the same thing.
MR McCUSKER:	I am sorry, yes, we are ad idem on that. That

really was the approach taken, although it must be
said that there was a question as to the way the

case was argued within Gates' case, where the Court

in Gates' case said that Gates could not succeed in

his claim for in effect the benefits that he

thought he was going to obtain under the particular

policy unless he could show that he could and would

have entered into a policy with some other company

from which he could and would have derived

financial benefit. So there are two steps, but

each of them is an essential step for the plaintiff

to establish.

TOOHEY J: But are those two steps properly raised by your

ground of appeal? It complains that:

the court erred in holding that there was

evidence that the Respondents suffered loss by

reason of the lost opportunity to conclude and

complete a contract with Pagini Resources NL

when there was no evidence that the completion

of that contract was probable.

If there was evidence that the completion of the

contract was probable in the sense that has been

discussed earlier, namely that the contingencies

would have been fulfilled, is there anything in the

ground of appeal that then independently asserts a

lack of evidence that it was probable that the

respondents would have derived some financial

benefit from the agreement as completed?

MR McCUSKER:  Your Honour, that is what the ground of appeal

is intended to raise by the word "completed", but I

take Your Honour's point.

TOOHEY J:  I must confess it does not seem to me to raise it

precisely. It seems to focus upon the question as to whether it was probable that the contract would

have been completed. It may be said it was

probable that the contract would have been

completed but had it been completed, there was no

evidence that the respondents would have derived

any financial benefit.

MR McCUSKER:  The judge's finding was that it was not

probable.

Sellars(2) 28 13/10/92

MASON CJ:  I cannot understand why your ground of appeal is

not framed in those terms.

MR McCUSKER:  I take the blame for that. This was certainly

intended to be raised by the ground of appeal.	I
think in the course of the discussion on the
special leave application, it was made clear that
the essence of this ground was intended to be the
same as the - it was intended to be that, Your Honour, and it was intended also, although

differently worded, to raise the same point as the

notice of appeal of the second appellant which

appears at page 387, line 20.

MASON CJ:	I would have thought that was the correct way of expressing it.
MR McCUSKER:	Yes, I think it is, with respect, Your Honour.

As I say, it was thought to be made clear at the

special leave application that there was no

difference in the approach of the two appellants.

Indeed, His Honour Justice Deane was at pains to

ensure that there was not any difference between

the two approaches. Could I perhaps take

Your Honours back to the outline at paragraph 5 and

the approach that was taken by His Honour the trial

judge at page 277, line 10. His Honour there

referred to observations made by the Federal Court

in the David Securities case, but those
observations to which he referred at page 277 were,

in our submission, made obiter.

The outcome of that case was that the Full

Federal Court was not prepared to interfere there with the trial judge's finding that the applicants

had failed to satisfy him on the balance of

probabilities that if they had been advised of the
possibility of selective hedging in that case,

which was the complaint, that they would have taken

steps which were open to them and which would have

prevented loss. Your Honours, the citation for

that case is (1990) 23 FCR 1, at page 26.

All of this, Your Honours, raises I think

essentially the question of whether a claimant or

an applicant can be awarded under section 82

compensation for loss or damage where he or she has

failed to show on the balance of probabilities that

a particular benefit would have been derived but

for the conduct complained of. In other words, is

the Court permitted under section 82 to simply

award damages for loss of a chance that there might

have been some benefit, although on the balance of

probabilities there would not have been a benefit

derived?

Sellars(2) 29 13/10/92

The approach that we submit was taken clearly

and approved by the Full Court of the Federal Court

in David Securities was that there has to be proof

on the balance of probabilities that alternative
steps could and would have been taken, so

preventing loss in that case. Sykes v Midland

Bank, (1971) 1 QB 113 at pages 129 to 130 is at

page SO, volume 1, of the green volume of

authorities, Your Honours.

MASON CJ:  It is very helpfully put together so that the

page numbers in the report are obliterated.

MR McCUSKER:  Yes, I see that, I am sorry.

BRENNAN J: What is the number at which it appears?

MR MCCUSKER: It is at pages 129 to 130.

MASON CJ: But what about the page number of the volume?

MR McCUSKER: Page 58, Your Honours. The court there in

Sykes's case referred to Chaplin v Hicks, saying

it:

was a very different case from the present.

That was a case in which the plaintiff

contracted for a chance to win a benefit in a

competition. The defendant in breach of

contract deprived the plaintiff of that

chance. This court held that, if the chance

was capable of valuation (as they concluded it
was), the plaintiff was entitled to

substantial damages for being deprived of it.

They went on to say at page 130C:

If advice given negligently or in breach of

contract has on a balance of probability

caused the plaintiff to act to his detriment,

I have never before heard it suggested that

the degree of that probability has anything to

do with the assessment of damage. To hold

that it has would, in my view, be contrary to

principle and authority. Otter v Church,

Adams, Tatham & Co cannot help the plaintiffs

because clearly the judge in that case came to

the conclusion that it was overwhelmingly

probable that damage had been caused to the

estate by the defendant's breach of contract
to exercise reasonable care and skill. In the
present case it was not proved that

Mr Rignall's failure to exercise reasonable

care and skill was a cause of the plaintiffs'
executing the underleases.

Sellars(2) 30 13/10/92

The prospect in that case clearly existed that had the proper advice been given, then the underleases in question might not have been executed, but

although it was a prospect, the court held that it

had not been proved on the balance of probabilities

that that would have been the case and that
therefore on the balance of probabilities, loss

would have been avoided. So here, although there

was a prospect that a Pagini contract may have been

concluded and yielded financial benefit, it had not

been proved on the balance of probabilities that

that would have occurred. In our submission,

without that proof, then there is no proof of loss

or damage compensable under section 82.

TOOHEY J:  Mr Mccusker, in directing our attention to

section 82 of the Trade Practices Act, are you suggesting that the matter is to be approached

differently by reason of that section, or that it

would be the same approach whether it were an

action under the statute or an action for

misrepresentation or a negligent misstatement?

MR McCUSKER:	Your Honour, it may be a different approach, because the starting point is the statute.
Although analogies with tort or even contract
perhaps may be of some assistance, the question to
pursue is whether there has been proof of loss or
damage. It is not necessarily helpful to refer to
cases such as Chaplin v Hicks which, though that case does illustrate a particular point, still does
not bear at all directly on section 82. Our
submission is that since it is clearly an onus on
the plaintiff or the applicant to prove on the
balance of probabilities loss or damage, proof that
he probably would not have derived a benefit from
an alternative course, means he must fail because
there is no proof of loss or damage.

TOOHEY J: Yes, but putting loss of a chance to one side, in

the context that we are concerned with here, do you

suggest there is a difference of approach between

damages at common law and damages under section 82?

MR McCUSKER:  If one puts aside loss of a chance,

Your Honour, the approach taken by this Court in

Gates' case of course was that generally speaking,

a tortious measure of damages is appropriate. We

do not seek to challenge that approach in

principle, but it may not necessarily be the only

approach open. It is in the end a question of the

words of the statute and what they mean. What they

do not say is that the applicant is entitled to be

compensated for the loss of a chance of gaining a

benefit.

Sellars(2) 31 13/10/92

TOOHEY J:  I have invited you to put that situation to one

side.

MR McCUSKER:  Yes, I am sorry. Apart from that, it is only

of some assistance to refer to the approach taken

in tort and in contract, which of course are two

different approaches: one reliance, and one

expectation loss. It is better, in our submission,

to simply determine what on the ordinary meaning of

the statute is meant by the words "loss or damage".

MASON CJ: Surely when "loss or damage" are used in the

statute, are they not used against the background
that the law has well developed conceptions of loss

or damage?

MR McCUSKER:  It may be, Your Honour, although there is -

perhaps it is only a matter of semantics, but it is

interesting to note that it does not talk about

damages, which is the usual term in law, but "loss

or damage". There may have been something in the

draftsman's mind that sought to bring this area of

compensation away from the common law.

GAUDRON J:	Why in this case do we regard the financial benefit that would have ensued if the contract had
been completed as the loss or damage rather than
the contract itself? Your argument seems to make that assumption.

MR McCUSKER:  Yes. It is of course a matter of approach,

Your Honour, but - - -

GAUDRON J: It may direct two different answers. If it is

the contract that is the loss which had, let us

say, a 40 per cent chance of producing a profit at

a certain amount, what you have lost in a sense is
a chance. If on the other hand the loss is the

financial benefit that you would have received if

it had been completed, then it would seem that your

argument about looking to see whether on the

balance of probabilities it would have been

completed may have some merit, but I am lost at the

earlier point. Why do we go to that point rather

than the mere contract? The probabilities of it

being entered into were bound to be high.

MR McCUSKER:  I put it this way, Your Honour: though

various steps can be imposed, there is no logical

reason for simply stopping at the point of signing

a contract, because signing a contract is only a

step on the way towards getting the benefit. The

complaint is not that we lost the contract which

gave us in turn a chance, whatever it might have been, to get some money. The complaint must be:

we lost money.

Sellars(2) 32 13/10/92

GAUDRON J: But why must that be the complaint?

MR McCUSKER:  Because the award which is sought is not - the

award is a money award which is sought.	It is not
some reinstatement of another contract.

GAUDRON J: Yes, but you could value a contract if it gave

you a chance, presumably.

MR McCUSKER:  With respect, no more in this context than it

would be realistic to value the chance or prospect

of success of a cause of action which has been lost

by a solicitor's negligence. As I think again

Justice Brennan said fairly recently, one must not

presuppose that there was any, as it were, market

for chances of causes of action. The real question

is not whether there has been a lost chance, for

example, the steps leading towards a contract may have been a chance to put forward to Mr Ryan some

further information regarding the company. There

are various steps that might have led to the

formation of the contract, but they are only steps

along the way towards the ultimate gaol which is

money.

DAWSON J: But it means a closer analysis than that, does it

not, Mr Mccusker? You only suffer damages if you

on the balance of probabilities have lost something

of value.

MR MCCUSKER:  Yes.

DAWSON J: A contractual chance is something of value, and

you have to assess what its value is, but until you

get to the point of a contractual chance, you have

not proved any loss on the balance of

probabilities. In other words, on the balance of

probabilities you would have had no contractual

chance; on the balance of probabilities you have

lost nothing of value.

MR McCUSKER:  When Your Honour refers to contractual chance,

it is coming very close to the kind of contract for

a chance that was referred to in Chaplin v Hicks.

We say that kind of contract for a chance must be sharply distinguished from the circumstances such

as this which are, I would think, not all that

uncommon where there is - - -

DAWSON J:  I do not see why you have to sharply distinguish

it. In the situation you are positing, on the

balance of probabilities there was no chance
because the contract would never have been carried

through to completion.

MR McCUSKER:  Put that way, I agree, Your Honour, yes. I

was concerned that you were suggesting -

Sellars(2) 33 13/10/92

DAWSON J: Yes, it is not a sharp distinction at all.

MASON CJ: There was a contract. That is the assumption we

are making at the moment, or there would have been

a contract.

MR McCUSKER: There would have been a contract.

MASON CJ: There would have been a contract.

MR McCUSKER:  But no chance of completion, or there

was

MASON CJ: But that was not the finding, was it: "No chance

of completion" - - -

MR McCUSKER:  No, it was probable that it would not have

been completed.

MASON CJ: That is right, it is probable it would not have

been completed but that is consistent with there

being an existence of a chance that it would be

completed.

MR MCCUSKER:  Yes, I accept that.

DAWSON J: But on the balance of probabilities, it would not

have been completed.

MR McCUSKER: That is so, Your Honour.

DAWSON J: So, on the balance of probabilities, there was no

chance of any profit?

MR McCUSKER:  Yes, put that way - with respect, Your Honour,

I misunderstood the earlier proposition.

MASON CJ: That discussion indicates, does it not, that you

have to displace Chaplin v Hicks? Chaplin v Hicks

has no application to a case of this class.

MR MCCUSKER: It does.

BRENNAN J:  You have to distinguish between the situation

which leads to the conclusion of the contract, that

is, to the making of the contract as to which

Chaplin v Hicks has manifestly nothing to say and

the position, once the contract is entered into, as

it probably would have been, in which event Chaplin

v Hicks may have something to say.

MR McCUSKER:  Chaplin v Hicks, of course, was a claim based

in contract and it was essentially a claim for

damages for loss of bargain, so in that respect it is not similar to this, the bargain being that the defendant would give the plaintiff reasonable

opportunity to present herself for possible

Sellars(2) 13/10/92

selection as one of the 12 ladies who would then be judged by the newspaper readers, and various prizes awarded. So it was a claim for damages for breach

of contract, and it was a claim for the loss of the bargain which was in itself a bargain for a chance,

and, Your Honours, what was lost there clearly was

of some value. If I could put it this way,

Your Honours, it is a different circumstance

because what was being contracted therefore was the
chance itself.

We are looking here at a defendant in a claim

under section 82 which, if there is to be an
analogy, is more closely analogous to tort, where

the claim is not against the defendant for
breaching the contract and failing to give the

plaintiff the chance to do something under the

contract, this is a claim for a loss suffered - a

financial loss suffered, it is said, by having

discontinued negotiations with the other party.

And there is a distinction, not only a factual

distinction but a distinction in principle, between

the two kinds of situations.

DAWSON J: But the probability is the chance will never

arise. If I entered a contract with Tattersalls by entering into a lottery, I have purchased a chance,

it might not be worth much, but there it is and it

is possible to value it as being a breach of

contract. But if the contract with Tattersalls is

subject to a condition precedent which on the

balance of probabilities will never be satisfied,

on the balance of probabilities I never have a

chance.

MR MCCUSKER:  Yes.

MASON CJ: But this is not a contract that is subject to a

condition precedent, is it?

MR MCCUSKER:  Yes, it is, Your Honour.

MASON CJ: It is?

MR MCCUSKER:	Yes.
MASON CJ:	I thought it was - assume the contract is entered

into, is it not a contract that then gives rise to condition precedence in relation to performance or

completion?

MR McCUSKER:  Yes. There are conditions precedent as to the

signing of an underwriting agreement and as to

various other matters including the approval of the

Papua New Guinea Government and so on. Yes, I

think that probably is correctly formulated,

Sellars(2) 35 13/10/92

Your Honour, with respect. But it still comes to

the same question - - -

DAWSON J: Is there a distinction between conditions

precedent and conditions subsequent in this

content?

MR McCUSKER:	It is a condition precedent to performance, or to completion I should say, certainly described by
His Honour as conditions precedent at page 100
throug_h to page 101.  Your Honour the Chief Justice
- to take up Your Honour's remark, clause 3.1 in
the draft agreement, state:

The obligations of Pagini to sell and Adelaide

Petroleum to purchase the Contract

Shares ..... are subject to the fulfilment of all of the following conditions precedent.

Now, Your Honours, if I could just revert briefly

to the outline, paragraph 7 of the outline makes
the point that, in our submission, Chaplin v Hicks

does not assist in this context, and we refer to

what was said by this Court in Gates' case, that in

the context of a claim under section 82 no question could arise of damages for loss of a bargain, which

is essentially what Chaplin v Hicks dealt with.

Chaplin v Hicks dealt with damages for loss of a

bargain, the bargain being to give the contestant a

chance to be selected. So that observation of

Chief Justice Gibbs appears at page 6 of the High

Court report at point 9, where His Honour said:

Actions based on ss. 52 and 53 are

analogous to actions in tort and the remedy in

damages provided bys. 82(1) appears to adopt

the measure of damages applicable in an action

in tort. That sub-section refers to loss or

damage by the conduct of another that

contravened a provision of Pt IV or Pt V; it

therefore looks to the loss or damage flowing

from the offending act of the other person.

The acts referred to in ss. 52 and 53 do not

include the breach of a contract, and in

awarding damages under s. 82 for a breach of

either of those sections, no question can
arise of damages for loss of a bargain.

And if I could refer Your Honours to what was also

said by this Court in Gates' case, the same report

at page 12, in the joint judgment of Their Honours

Justices Mason, Wilson and Dawson, at about point 8

of that page, referring to what Justice Dixon said

in Toteff v Antonas, in an action in deceit,

Their Honours said:

Sellars(2) 36 13/10/92

As his Honour then pointed out, it is a

question of determining how much worse off the

plaintiff is as a result of entering into the

transaction which the representation induced

him to enter than he would have been had the

transaction not taken place. This entitles

the plaintiff to all the consequential loss

directly flowing from his reliance on the

representation ..... at least if the loss is

foreseeable.

Their Honours then went on to consider the position

in the United States regarding expectation loss.

DAWSON J: Is there any difference between conditions

precedent and conditions subsequent in this context

if either when not met will dissolve the parties

from the contractual obligation?

MR McCUSKER:	I would submit, not, Your Honour. I have always had trouble with conditions precedent and
conditions subsequent when they arise in this kind of context, but they are after all here - - -

DAWSON J: They are conditions which prevent the performance

- if they are not met, prevent the contract being

performed.

MR MCCUSKER:  Yes.

TOOHEY J: There might be an evidentiary onus distinction.

MR McCUSKER:  There could be in a given case, yes, but it is

not this case.

DAWSON J:  And if they prevent the contract being performed,

prevent the chance of a profit arising?

MR McCUSKER:  Yes, that is so. Here the conditions were

conditions as to the purchase. They condition the

obligation to buy and to sell the shares. So, in
other words, they were conditions, the failure of

which simply prevented payment from being made.

MASON CJ:  You do accept, do you, that if there is a chose

in action arising under a contract, that is in the

nature of the proprietary right, loss of which is

compensable in damages?

MR MCCUSKER: In contract, yes.

MASON CJ: But why not, for example, under section 82 if

there has been misleading or deceptive conduct that

results in the loss of such a contractual right

such as chose in action?

Sellars(2) 37 13/10/92

MR McCUSKER:  Yes, I would in some terms, yes, Your Honour.

There could be a loss, for example, of a debt, and that that would be a loss of chose in action which would be compensable under section 82.

DAWSON J:  But for the chose in action, for the loss to be

compensable, you would have to show that it

probably had some value.

MR McCUSKER:  Yes. If the debt probably would not have been

paid then there is no loss compensable under

section 82.

MASON CJ: But why do you have to introduce the notion of

probability once there is established to be a chose

in action, arising from a concluded contract?

MR McCUSKER:	Because the notion of probability governs the question, which is the question to be determined
under section 82 and that is, has the applicant
established that he has suffered a loss and if, on
the balance of probabilities, he has not
established that, however many steps there may be
towards the ultimate realization of a profit, at any point it is shown on the balance of
probabilities that the step would not have been
fulfilled, the condition would not have been
fulfilled, he has failed to establish a loss.

MASON CJ: But if the contract, by virtue of its existence,

creates the chance of a benefit, why is not the

loss of the chance of the benefit?

MR McCUSKER:  Because on the balance of probabilities the

chance would have yielded no benefit.

MASON CJ:  I do not follow that, that is the difficulty from

my point of view. I would have thought that once

you established the existence of a chance .....

arising under a contract then it is a matter of

evaluating that chance.

MR McCUSKER:	Your Honour, I certainly would not say that that line of reasoning is not open. I think
Lord Mackay has said this is a very difficult area
of the law, this particular area, but in my
submission there is a certain unreality about awarding damages or awarding compensation for loss
when stepping back from the various steps and
looking at the whole, the probability is that no
yield, no benefit would have resulted and therefore there is no proven loss. There were these two
divergent - two quite different steps which lead to
two quite different conclusions.

If I could put it another way, Your Honour, as

well: if, in commerce, someone came along and said,

Sellars(2) 38 13/10/92

"Here is a contract" - I am not suggesting this is

an appropriate approach, but if someone came along

and said, "Here is a contract subject to conditions

which probably will not be met, but I think there

is a 30 or 40 per cent chance, in fact I can show

you that they might be met, will you pay me 30 or

40 per cent of X million dollars?", I think it

unlikely that the answer would be "Yes".

MASON CJ: But you are putting another argument, are you

not, that when one analyses the contract in this
case, when you look at the relevant chose in

actions that you can say that those choses in

action, that is the chose in action that entitles

you to perform this, is itself conditional.

MR McCUSKER: It is itself conditional, yes.

MASON CJ:  And because it is conditional in that sense it is

a matter then, you say, of establishing probability

rather than evaluating the chance?

MR McCUSKER:  Yes, although we would say, Your Honour,

taking up as another chose in action a debt, that

even if the debt were not conditioned but the

position of the debtor was shown to be such that he

was on the verge of bankruptcy and it was therefore

improbable the debt would be paid. Again one would

say that because it was improbable that the debt

would be paid, therefore there was no loss shown

even though there was a possibility, and I am

talking here of a possibility of more than one per

cent.

BRENNAN J:  To put it to the practical test: if there had

been an agreement struck with Pagini containing all

these contingencies, would the champagne have been

broken out and would the price of the Adelaide

shares have risen that day?

MR McCUSKER:	The answer is a resounding no, Your Honour.
BRENNAN J:	Why, why not?
MR McCUSKER:	Because there were too many contingencies. It

was improbable that the contract would be, in the

end, performed.

BRENNAN J: That may be so, but in the commercial worlds

contingencies are frequently encountered and you

might be - they are in there for a show, surely, at

that stage.

MR McCUSKER:  It depends on the optimism of the Adelaide people I suppose, Your Honour.

Sellars(2) 39 13/10/92

MASON CJ:  I can imagine the triumphant media release that

would have followed this.

MR McCUSKER:  Yes. My learned junior suggests that another

way of looking at it, Your Honour, is to

hypothesize a situation where Pagini had said that,
negotiations continuing, "We will not sign an

agreement until these various conditions are all

met, but if and when they are met then we will sign

an agreement". It is just the other side - - -

BRENNAN J:	It is not quite the other side, because once you have got the agreement you have got the implied
obligation of the parties to do nothing to prevent
the conditions being fulfilled.
MR McCUSKER:	Yes. But if there were an agreement on the

part of Pagini, an undertaking to sign such an

agreement if and when the conditions preceded were

fulfilled, there probably would also be such an

implied obligation stemming from Mackay v Dick, I

think, but looking at it in that light and given

that it was improbable the conditions precedent

would be fulfilled, it would hardly be a cause for

breaking out the champagne, Your Honour, it would

simply be a less than probable prospect of

something coming out of the Pagini transaction or

negotiations. And once it is given that it was less than probable there is simply no basis for

compensating for loss. An award of compensation

made on the basis that has been made here which is

essentially in reliance upon the loss of chance

principle in Chapman v Hicks, first, departs, in

our submission, from what this Court has said in

Gates and, second, gives an applicant a real

windfall, because what the applicant is getting is

compensation for something that on the balance of

probabilities he would never have got had the

Pagini negotiations been pursued.

MASON CJ:  Now, where are we now, about paragraph 12 of your

outline?

MR McCUSKER:  I think we are, Your Honour, yes. I have not

referred, in the course of my discussion with you,

to Doyle v Olby, but I think Doyle v Olby does

reflect the same approach that we espouse.

MASON CJ: Yes.

MR McCUSKER:  As was Norwest Refrigeration v Bain Dawes and,

in our submission, what was said by this Court in

Malec v Hutton was all directed to assessment of

loss or damage, it was not directed to the

threshold question of whether the plaintiff has

established that he has suffered any loss or damage

on the balance of probabilities. The danger of

Sellars(2) 13/10/92

Chaplin v Hicks being used, as it were, ad lib in

the field of compensating for loss or damage was

referred to by the court in Hotson v East Berkshire

H.A., (1987) 1 AC 750. It is in the volume - - -

MASON CJ: Page 106?

MR McCUSKER:  Page 106, especially at page 782 - I think you

do have the page numbers in that particular part,

Your Honour - towards the foot of that page where

Lord Bridge said, line G:

There is a superficially attractive

analogy between the principle applied in such

cases as Chaplin v Hicks (award of damages for
breach of contract assessed by reference to

the lost chance of securing valuable

employment if the contract had been performed)

and Kitchin v Royal Air Force Association

(damages for solicitors' negligence assessed
by reference to the lost chance of prosecuting
a successful civil action) and the principle

of awarding damages for the lost chance of

avoiding personal injury or in medical
negligence cases, for the lost chance of a

better medical result which might have been

achieved by prompt diagnosis and correct

treatment. I think there are formidable difficulties in the way of accepting the

analogy. But I do not see this appeal as a

suitable occasion for reaching a settled

conclusion as to whether the analogy can ever

be applied.

Then he continued at page 783, line A:

But if the plaintiff had proved on a balance

of probabilities that the authority's

negligent failure to diagnose and treat his

injury promptly had materially contributed to

of no principle of English law which would the development of avascular necrosis, I know	have entitled the authority to a discount from
the full measure of damage to reflect the
chance that, even given prompt treatment,
avascular necrosis might well still have
developed.

That, we say, is consistent with the principle that

we are submitting should be applied, and that

Chaplin v Hicks where the question involved damages

for breach of a contract to give a chance, should

be confined to that kind of case.

Now, the cases on solicitors' negligence which

involve loss of a cause of action raise a different

question entirely. There is there a cause of

Sellars(2) 41 13/10/92

action which is being lost and in Johnson v Perez, 166 CLR 351, at page 366 and page 372, this Court

has dealt with that matter. In the joint judgment

of Justices Wilson, Toohey and Gaudron, about

point 7 of that page, Their Honours said:

When an action has been dismissed for

want of prosecution due to the negligent

conduct of a solicitor, the client has lost

the opportunity to bring that claim to trial

and recover damages in respect thereof. As

already indicated, in some cases it may be
appropriate to describe the loss as the loss
of a chance for there may be various

contingencies bearing on the likelihood that

the plaintiff would have recovered judgment

against the defendant and further that any

such judgment would have been met. When those

contingencies have been foreclosed by

agreement or by the decision of the primary

judge in the trial of the claim against the

solicitor, the way is open for the judge to

proceed to the assessment of damages ..... The

first component in that assessment is the

amount of damages likely to have been awarded

by the court -

so that the second stage, we say. And perhaps I

could also refer to what His Honour Justice Brennan

said at page 372, where His Honour pointed out,

starting at the foot of page 371:

It has been said that, when a plaintiff loses

a cause of action, the court should determine

its value by estimating, if need be, the

plaintiff's prospects of success in the

original action: Kitchen v Royal Air Force

Association. Lord Evershed MR pointed out

that, where it is plain that the plaintiff

would have succeeded in the original action,

the plaintiff has lost what he would have

recovered; equally where it is plain that the

plaintiff would have failed in the original

action, the plaintiff has lost nothing of
value. But, his Lordship said, if it is
uncertain whether the plaintiff would have

succeeded in the original action -

"The question is, has the plaintiff lost some

right of value, some chose in action of

reality and substance? In such a case, it may

be that its value is not easy to determine,

but it is the duty of the court to determine

that value as best it can."

But there is a right which is possessed, I

interpolate. His Honour said:

Sellars(2) 42 13/10/92

That is not to say that, when the plaintiff's chance of success in the action against the

original defendant can be estimated at a

particular percentage, the plaintiff's loss is to be calculated as a corresponding percentage of what would have been the assessment of his

damages if he had wholly succeeded in a trial

of his lost cause of action. The value of the

lost cause of action cannot be assessed as

though there were a market for doubtful causes

of action in damages for personal injury. The
value of the lost cause of action is not what
a speculator would be prepared to offer the
plaintiff as the price of an assignment of the

cause of action. The plaintiff's loss being whatever monetary compensation he would have

received at the time he would have received it

but for his solicitor's negligence, the court

must find whether or not he has lost something

of value. If he would have failed in the

original action, he has lost nothing; if he

would have succeeded, he has lost what he

would have received at the time he would have

received it; if the action would have been

compromised, he has lost what he would have been paid in settlement at the time when he would have been paid. Or, if it is doubtful
whether or not he would have succeeded in the

action and it is not probable that the action

would have been compromised, the court

assessing the damages must determine as best

it can on the balance of probabilities whether

the plaintiff would have succeeded (and, if

so, to what extent) or failed.

All of that, in our submission, with respect, is

consistent with what we say is the approach to be

taken, although we would add that it is not helpful

to look at cases of lost causes of action which

which is not a lost cause of action, it is a claim	involve a different consideration from the present,	for a loss of money that is said to have been money
that would probably have been derived in pursuing a
different line of negotiation.

May it please Your Honours, unless there is

anything further you would like me to address

Your Honours on, they are our submissions on this ground of appeal.

MASON CJ: Yes, thank you, Mr Mccusker. Mr Zelestis?

MR ZELESTIS:  May it please Your Honours, may I hand up our

outline of submissions.

MASON CJ: Thank you. Yes?

Sellars (2)	13/10/92
MR ZELESTIS:	May I begin by directing Your Honours'

attention again to the way in which His Honour the

trial judge dealt with this question, beginning at

page 270, where His Honour said, in effect, that

Gates was the foundation from which he would assess

damages. Gates was the principle which he would

apply. He cites a passage from Gates at the bottom

of 270 and 271.

Now, we seek to place some emphasis,

Your Honours, upon what is at 271 line 5 in the

extract from Gates. In this entire extract cited

the Court in joint judgment says several times that

the way that this unsuccessful appellant might have

succeeded would have been had he shown "that he

could and would have" obtained another policy

yielding the benefits represented. And in the last

sentence at 271 line 5, the Court said that:

In this respect the measure of damages in tort

begins to resemble the expectation element in

the measure of damages in contract save that

it is for the plaintiff to establish that he

could and would have entered i~to the

different contract.

Now, we say, with respect, the critical words there are "save that" because they are the words which

highlight the difference between the approach in a

case of breach of contract where, if there was some

expectation of a benefit from the performance of a

promise, His Honour is immediately into the process

of assessing the value of that lost performance. the other case where there is section 52 misconduct

which is alleged to have caused loss, where the

contention is that at the end of a long pathway

with many steps in it a benefit was potentially

available. In the latter case one does not pick an

artificial point along the way of the pathway and

say, "We will draw the line there", let us say for

the moment", the making of the contract" and say, "Well at that point the loss, for the purposes of section 82(1), has been suffered, one has to see

whether what is an all or nothing context, whether

the all would have, on the balance of

probabilities, been obtained, because if on the
balance of probabilities the nothing side of the

result would have been obtained there is no loss.

So, in our respectful submission, the trial

judge, with due respect to His Honour, has not

entirely, although partly for a reason I will

mention in a moment, understood the significance of

these concluding words of this passage. I say,

partly, because at page 277, beginning at line 10,

His Honour saw some logical difficulty with the

Sellars(2) 44 13/10/92

notion that a loss of a chance was actual loss or

damage for the purpose of section 82. He said at

13:

For if there be a finite probability which is

less than even, that a benefit would have been

obtained but for the impugned conduct, how can

it be said that the loss of that benefit has

been proved to the required standard?

So he seems there to have in mind a true

understanding of what, we would say, Gates was

holding·, but then, we would say, is misled by something which was said in David Securities. His Honour goes on to say:

It is perhaps not an entirely satisfactory

answer to say that the existence of the chance

is proven to the required standard.

And I will return to that, but then he says:

That nevertheless seems to have been accepted

in the cases. This form of reasoning is

implicit in the recent judgment of the Full

Court in David Securities.

And he then cites from David a passage in which

senior counsel for the third respondents, who were

accountants, held liable for a breach of duty in

relation to advice which they ought to have given

to a foreign currency transactor - counsel for the

liable party said that:

it was for the appellants to establish at the

trial that on the balance of probabilities

there was a real chance that if the third

respondents had performed their duties ..... the

appellants would have taken steps to avoid the

loss allegedly sustained by them,tt

Now, in our respectful submission, it is important

to understand the context in which that observation

was made in David, because, in our respectful

submission, as properly understood, it does not

convey the impression which His Honour understood

it to convey.

May I take the Court to David Securities which

is at page 168 in the green book, towards the end

of volume 1, and can I begin by directing the

Court's attention to where the Full Court of the Federal Court in a joint judgment deals with the

liability of the third respondents whose liability

is considered in this passage Justice French relied

upon, at page 24 of the report, page 191 of the

book - sorry that is the end of the road. The

Sellars(2) 45 13/10/92

beginning of the road is rather page 18 of the

report, page 185 of the book. Towards the bottom

of the page there was a bold heading which precedes
the discussion of the case against the third
respondents, and one sees that there was firstly a
"claim in contract" and then (i) deals with the
first element of it; that was dismissed, (ii) on

19, that was dismissed, but (iii) at the top of

page 20 about point 3:

The judge held that Mr Morgan was in

breach of his duty to the appellants "both in

failing to advise them ..... " -

so, there was a finding of a breach of contract

against the accountant, the third appellants there.

And then a few lines down, claim in tort is dealt

with and there was a finding of a breach of duty in tort. So, the court here was faced with concurrent

liability and, in our respectful submission, for

that reason did not need to turn its mind to

whether there would be, in this context, a

different approach to, firstly, proving the fact of

damage and, secondly, assessing the amount of

damages.

When the court came to deal with it at 24, page 191 of the book, under the heading B,

Their Honours spoke simply about the respondents

being in breach of their duty and drew no

distinction whatsoever between tort and contract,

and then proceeded to discuss the cases. They

mention both "contact" and "tort" at the top of 26

and it is on 26 that we find that passage which His Honour Justice French relied upon where the

expression was to prove, "on the balance of

probabilities there was a real chance" of avoiding

loss.

Now, in our respectful submission, what was

meant there by a "real chance" is to be gleaned

from what Their Honours then proceeded to do,

because they proceeded to set out what the

trial judge had found and declined to interfere.

What the trial judge had found at about point 5 on

the page was this - he had asked himself the

question:

Arn I satisfied on the balance of

probabilities that if Mr Morgan had monitored
the loan ..... and taken action which would have prevented the loss from the risk .•... It is not

something which I can easily infer, and in the

end I am left uncertain -

But the question he asked was not, "Arn I satisfied

there was a real chance?". He asked himself the

Sellars(2) 46 13/10/92

question, ".Am I satisfied on the balance of

probabilities that action would have been taken to

avoid the loss?". And over the page, 27 to

complete the trial judge's approach, at line 2:

Since the onus lies on the applicants to prove

their case it follows that, in my view, the

applicants must fail.

And then Their Honours in the Full Court:

We are not persuaded that we should

interfere with the finding of the trial judge that the appellants had failed to demonstrate

that they had suffered any loss -

Now, if by real chance at the top of 26 that the

court had meant something less than proving on the

balance of probabilities, with respect, one would

have expected them to say that the trial judge had

posed the wrong question and it seems, with

respect, that the better view of the judgment is

that real chance meant something more than a less

than 50 per cent chance that what Their Honours

were really meaning was, one had to show on the

balance of probabilities that loss would have been

avoided.

Of course, it is a little curious because if

there had been a breach of contract one might have

said, "Well, let's just assess the value of the

lost promise to provide competent and careful

advice.", but here as I say, what the trial judge

did was ask himself quite a different question.

So, in our respectful submission, there was

discernible error in the way in which

Justice French approached it because His Honour did

not fully appreciate the context in which the
remarks which he cited from David were made.

the possible view of these facts that the loss by	raised by various members of the court concerning Let me deal more directly with the point
Adelaide and its directors were suffered at the
point at which they could have made a contract with Pagini.

In our respectful submission, one has to first

of all appreciate what it is said that Adelaide and

its directors would have done but for the

misleading or deceptive conduct. The case is not

one in which they would have sought to make a

contract with Pagini for the intrinsic value of that contract. The opportunity which they were

denied on His Honour's finding was an opportunity

to pursue a course of conduct, many steps in it,

which might have yielded a benefit. In our

Sellars(2) 47 13/10/92

respectful submission, it is artificial to

interrupt that course of conduct at one point and

say, "Well, at that point there was actual loss or

damage which can then be valued.". And to pick up

and perhaps take further one of my learned friend,

Mr McCusker's examples: if one applied the

approach postulated, which was to say that the loss

occurred when the contract would have been made,
much would then turn upon the particular way in
which the parties chose to deal, whether the

conditions precedent were identified and required

to be satisfied before any contract was signed, or

that the contract was signed as the first event

with the traditions embodied therein.

Now here, there was a variation that was not

quite as clear cut as there being a contract.

Here, what was contemplated at the stage of the

draft Pagini agreement was that there would first

be underwriting. So, underwriting was a true

condition precedent. That emerges at 104, a little

obliquely but nevertheless not in any doubt. At

104 line 6, it is said that:

He also noted that the agreement -

referring to the draft agreement -

did not appear to be conditional on
underwriting even though there was provision

for an underwriting agreement to be annexed.

Now, although the agreement is not in the book, in

fact what it said was there was a provision on a

page, it had a heading annexure E and it had the

words "insert" or I think, "underwriting

agreement", if not "insert underwriting agreement".

Sorry, it just had, "Annexure E underwriting

Agreement.".

BRENNAN J:  Do we need to see this document?

MR ZELESTIS:	Your Honour, we have taken the liberty of preparing a supplementary volume which has some
other materials which might have been relevant in
it, which has in it, the underwriting agreement, and perhaps I should seek Your Honour's leave to
either hand up now or after the hearing that
volume.

MASON CJ: But why the volume?

MR ZELESTIS: Well, perhaps the document.

MASON CJ: At the moment you are only pressing us towards

the underwriting agreement.

Sellars(2) 48 13/10/92

MR ZELESTIS: Yes. I am simply making the point, and

perhaps I need to seek leave only to hand up the

agreement at the end of the day.

MASON CJ: Yes.

MR ZELESTIS:	I am simply making the point that here the steps contemplated at the time the negotiations
were broken off were: secure an underwriting
agreement, enter into an agreement with Pagini,
achieve fulfillment of the various conditions to
which my learned friend took the Court.
Now, when His Honour below said that there was a high chance an agreement would have been made, he
question, "Would they have signed the agreement?".
was, with respect, dealing separately with the obtaining of the underwriting, and he dealt with
that at 246 at line 15 concluding a long
discussion:

In my view, while it cannot be said that

there was a high probability that the

necessary underwriting would have been secured

for the ADP/Pagini merger to proceed, it did

have a reasonable likelihood of success. In

the circumstances, I assess that likelihood as

at least an even chance.

Now, Your Honours, in the hope that it might assist

Your Honours, we have prepared a summary of the

contingencies together with a note of His Honour's

assessment of them and the page references. May I

seek to hand that up to show the Court in a summary

way what were the contingencies in the way of

securing a benefit from this proposed transaction.

I have listed them in an order which does not

completely reflect the party's intentions because,

as I say, B really comes before A. His Honour

dealt with them individually. He does not seem to

have dealt with them at pages 278 to 279

cumulatively. He did that a little later. As to

the agreement being reached he said, "High";

underwriting, "At least an even chance"; bank

approval, "At least an even chance"; breach of the

agreement. "No basis for speculating", and that is

more, with respect, an approach you would take when

you were assessing damages rather than finding

proof of the fact of damage.

The shareholders approving the transaction,

"Unlikely it would have been withheld"; treasurer's

consent, "Likely"; and then a very important

condition, Pagini had to obtain some financial

accommodation in order to be able to perform the

Sellars(2) 49 13/10/92

proposed agreement, and His Honour says,

"A reasonable prospect".

Now, having assessed all of those chances,

His Honour then attempted to approach the matter globally and, although he did not say it, he no

doubt bore in mind the fact that the more elements

there are, the more contingencies there are to a

compound event, the more does the overall chance

decline because of the need as a statistical matter to multiply the probabilities of each chance by the

other.

He concludes at 279 that, in effect, there is

only a 40 per cent chance of the agreement

proceeding to completion. In other words, in our

respectful submission, a finding that was more

probable than not that no benefit would have been

obtained from this transaction. Now, as I have

said, and perhaps laboured, our submission is that

Adelaide, the respondents, were not seeking to make

a contract with Pagini as the end of the road; that

was not their object. Their object was to obtain a

benefit and we would, with respect, adopt Justice

Brennan's analysis of Norwest and apply it here.

The making of the contract was merely a point in a

link in a chain of causation. The question is:

could they have made a contract and would it have

yielded a benefit?

BRENNAN J: That analogy may be defective because if one

says loss consists or loss is established when

somebody is worse off than that person would

otherwise be - I am speaking of economic loss
here - then there may be, somewhere along the path

of this case, whereas there was not in the Bain

Dawes case, where one could say Adelaide were

better off when they had the contract signed than

they would have been without the contract being

signed.

MR ZELESTIS:  Your Honour, one can conceive of a case in

which the execution of the contract produced

something of marketable value. There is no

evidence of that here and, in this respect, we say

it is distinguishable from the solicitor's

negligence cases because it is possible to view
those cases as involving not the loss of the cause

of action which is statute barred or for some other

reason cannot be pursued but the loss of the right

to prosecute the cause of action because, in those
cases, that right itself has value because we all

know that in the prosecution of claimed causes of

action settlements occur.	One does not always have
to decide whether the cause of action existed.	It
is not an all or nothing situation.

Sellars(2) 50 13/10/92

But here on the evidence, there is no

foundation for finding in our submission that the

contract itself would have been a thing of

independent value which could then be the subject

of an award of damages; but we would not, in our

respectful submission, shut out that possibility as

a possibility under section 82. It all depends upon the context. But here it was not the case

sought to be put against these appellants. The

case put against them was really the Pagini

benefits were not obtainable or there was a loss of

a chance to obtain the Pagini benefits, the

benefits that would have come from completion, by

reason of the misleading or deceptive conduct.

So, in my respectful submission, the trial

judge erred, and in the Full Court, although it is

perhaps unnecessary to take Your Honours to it, the

matter was dealt with really as a question of
assessment of damages rather than facing the
question whether loss or damage had been proved on
the balance of probabilities.

Now, Johnson v Perez, which my learned friend mentioned, one must also bear in mind that in that

case it had been held below and was not contested

on appeal that the lost causes of action would have

succeeded; there was a finding on the balance of

probabilities of that. So, in truth it did not

involve a question of assessing the lost chance of proceeding, there having been a finding that there

would have been success below.

We respectfully share His Justice French's

difficulty with the logic of saying that a lost

chance is capable of proof on the balance of
probabilities because a chance, as we say in our
outline, is really nothing more than an assessment

of the prospect of occurrence, of an event. It is not itself an agreement and one does not prove the

loss of a chance on the balance of probabilities.

One can identify the existence of some prospect of

an event occurring but to assess on the balance of
probabilities one must be assessing whether the
event will occur, not whether the chance of it
occurring exists. And here, as we have laboured,

it was not the opportunity to negotiate with Pagini

which Adelaide was seeking, it was the opportunity

to obtain a benefit at the end of a path of

negotiation and contract.

Now, there are observations in the House of

Lords in Davies v Taylor in the context of a fatal

accident claim in which it is suggested that a

40 per cent chance of success by a widow would

ground an award proportioned to the 40 per cent.

Let me just turn up 253 in the book, it begins.

Sellars(2) 51 13/10/92

The passage is at 255. At 213, the right-hand

page, about point 2 Lord Reid said:

"Injury" in the Fatal Accidents Act does

not and could not possibly mean loss of a

certainty.	It must and can only mean loss of
a chance.	The chance may be a probability of

over 99 per cent but it is still only a

chance ..... If the balance of probability were

the proper test what is to happen in the two cases which I have supposed of a 60 per cent

and a 40 percent probability -

and His Lordship goes on to discuss that and reject

the balance of probability test. Nevertheless the

widow failed in that case.

At first blush that may seem to say that when

seeking to prove the fact of loss and damage one

can succeed with a less than 50 per cent outcome.

In our respectful submission, that is not what

His Lordship or the House of Lords was holding. The case, we say, can be explained on the basis that the injury referred to in the Fatal Accidents

Act, the injury for which the damages were to be

proportioned, was merely the loss of a relative who

had a potential capacity to provide financial

benefits and that what the House of Lords was truly

speaking of here was assessment for damages it

being, in the end, a question of construction of

the relevant statute there as to what injury meant.

And that really brings me back to section 82(1) itself. In the end, I suppose, this

case is a case about the proper construction of

that section and, in our respectful submission,

there is no foundation for reading the words "loss

or damage" as meaning anything less than actual
loss or damage proved on the balance of

probabilities. It is not section 52 alone which

confers a cause of action, it is section 52 in

combination with section 82(1) which confers a

cause of action.

The effect of construing section 82(1) as

including lost chances would really be, with

respect, to read it as if it referred to the

likelihood of damage being suffered. You could get

compensation if there was a likelihood of you

suffering damage. Now, one must bear in mind that this Act, throughout Part IV, of course, refers to "likely event" when it wishes to, and there is

specific mention in various parts of section 87 of

the "likelihood of damage", but in contract

section 82(1) itself confines itself to "loss or

damage", albeit as the Full Federal Court said in

Wardley, referring to "loss or damage" in two

Sellars(2) 52 13/10/92

senses, begins by speaking of "the fact of loss or damage", we would say, the element of the cause of

action, and ends by referring to "the amount of the

loss or damage".	One might substitute there "the
amount of damages".

It is our respectful submission that there is

a clear distinction between the two uses of the

expression and that when one is dealing with "the element of the cause of action", like every other
element it must be proved on.the balance of

probabilities, and that is not satisfied merely by

saying that there was a chance of suffering a loss.

TOOHEY J: But what is the cause of action in the present

case, Mr Solicitor?

MR ZELESTIS:  The cause of action in the present case that

was sued upon, we say, truly understood, was for

the loss of benefits that could and would have been

obtained from the Pagini transaction.

TOOHEY J: Well, is that the cause of action? The cause of

action is presumably misleading or deceptive

conduct.

MR ZELESTIS:  Damages for misleading and deceptive conduct,

we would say, Your Honour, and the damages

identified were the lost benefits said to be

available from the Pagini transaction. This was

not a case, of course, in which there was any claim

for wasted expenditure, as perhaps there might have been. It was not that kind of case. It was really

seeking to try and get an expectation benefit, but not in a contract context and the way the case was

formulated in the pleadings was that it was said

that they failed to get the benefits. The way it

was fought seems to have been that there was a

chance of obtaining the damages. But we say the

chance case was not open. Really, the only case that was available on the proper construction of	section 82(1) was a case that they could and would
have obtained benefit; could have made a contract and would have.

TOOHEY J:  You mean, the probabilities are that they would

have?

MR ZELESTIS:  The probabilities here on the findings are

that they would not have.

TOOHEY J:	No, I am not asking you about the findings but the way in which you are putting the argument.	If
there is a finding that a party, the applicant,
would have entered into a contract, or the
probabilities are that the applicant would have entered into a contract, do you say that is not
Sellars(2)	53	13/10/92

enough for the purpose of recovering damages under

section 82?

MR ZELESTIS:  Not in a case such as this where what is said

is that there were benefits which would have flowed

from the contract. The contract in itself was not

a thing of value to be traded in the market.	Had
it been a thing of value to be traded in the market, then we can see an opportunity for a section 82 claim as the discussion with

Justice Brennan a moment ago made clear, but here

the case was not one where it was said that a

contract could have been made on the balance of

probabilities which was itself, a thing of value.

What was said was that there was a lost

opportunity to pursue the Pagini transaction. The

only way the benefit could have been obtained would
have been through the satisfaction of all the

conditions and the sale of the shares, the capital

raising and all of the things which were going to

yield benefits.

MASON CJ: What do you mean by "thing of value" in that

context?

MR ZELESTIS: Well, having a value in itself; a value which

one could assess on the basis, for example, that

there was a market for the sale of those contracts.

MASON CJ:  But why does it have to be a market value to be a

thing of value?

MR ZELESTIS: Otherwise, with respect Your Honour, it really

is no more than to be one step in a long chain of

causation which may or may not lead to an outcome.

There is no opportunity for the wronged party to

break the chain at some point and say, "Well I can

realize the value of this contract. I do not have

to see if the conditions are fulfilled, I will sell

it for a profit or for a sum and let someone else
worry about the conditions".	In such a case you

might say that there is proved, on the balance of

probabilities, the fact of loss or damage, but if

it does not have that kind of value, to try and

attribute a value to it based upon the possibility

of contingencies being fulfilled is really just to

identify one step in a series of steps and it is a

step at which the respondents themselves could

never have stopped and realized the benefit.

It is for that reason that we say that to draw

the line there is really artificial and does not

really reflect the true nature of what the

respondents were seeking to do and what they were

deprived the opportunity of doing.

Sellars(2) 54 13/10/92

Your Honours, might I just mention that we had

in our outline of submissions a decision of the

Victorian Full Court in Waribay v .Minter Ellison.

I do not wish to take the Court to it, but merely

to mention that in the context of that discussion
it seems from the way in which the pleadings are

set out in the case, although it was not discussed

directly in the majority judgment, it seems that

there were concurrent findings, if not concessions

of liability, in contract and in tort. So the

discussion of the approach to the assessment of

damages for a lost chance there is coloured, once

again by that fact and perhaps the passage upon

which we wish to rely is not as helpful as we first

thought because it is capable of being read in a

context in which contract and tort were both

available as avenues for relief.

In our respectful submission, one can draw

upon the analogy in tort in this case and in tort, of course, one does not require damages or obtain damages merely for an increased risk of harm. An otherwise uninjured plaintiff, for example, in a

personal injuries context does not obtain damages

merely because the prospect of him suffering some

eventual calamity or illness is increased by some

exposure to a noxious substance. One has to have

the fact of harm proved before one gets into

assessing all of the contingencies. And we say

.Malec's case, was solely about assessment of

damages, it was not about proving the fact of the

damage. The fact of the damage, in our respectful

submission, must always be proved on the balance of

probabilities.

My learned junior reminds me that although

His Honour said that there was a high probability that an agreement would have been reached with

Pagini, His Honour did not make a finding as to

precisely the terms. It is put at 278 that:

the probability of an agreement being reached

basically along the lines of the "Aide

Memoire" and the draft of 27 May, was high.

So, His Honour seems to have really been

considering there more the question whether in fact

some arrangement would have been reached with

Pagini which would have proceeded to the stage of

making the conditions relevant.

In our respectful submission, Chaplin v Hicks

and the contract cases have no bearing here other

than as a contrast with the approach because there

what the party who is seeking damages has suffered
as the loss of the performance of a promise and

where the element of chance lies and being

Sellars(2) 55 13/10/92

contracted for the courts will readily assess the
value of the lost chance, and so the position is
otherwise in tort where one does not recover for
the lost expectation of a benefit, where one
recovers for something that is a detriment in the

negative sense, really, denying an opportunity here

to pursue a course of conduct, and one does not get

damages really for having the opportunity denied.
One must always investigate whether on the balance

of probabilities the outcome would have been

successful.

There was also in this case, although not

raised squarely, I should say, if at all, by our

ground of appeal. It is perhaps necessary to bear
in mind the outcome of a successful appeal by the

appellants here because His Honour below also found

Poseidon in breach of contract and did not fully

proceed to assess damages because, on a provisional

assessment of them, the amount was going to be less

than section 52 and section 82 damages.

But if the appellant succeeded here, although

it does not, of course, concern the appellant whom

I represent, one would need to address the question

of what happens to the contract case. Now, in the

Full Court there was a rather odd position which

was Justice Sheppard agreed with the other justices

and Justice Lee seemed to be of the view at 367

that in truth Justice French had found no damages

he simply dealt with the question of

had been suffered as a result of the contract case. matter,

repudiation at 344. I simply mention that as a

corollary of a successful outcome of the appeal for

these appellants. Those are our submissions.

MASON CJ: Yes, thank you, Mr Zelestis. Mr Heyden.

MR HEYDON:  If Your Honours please, could I hand up eight

copies of a summary of argument.

MASON CJ:	Mr Heyden, we will take the opportunity of reading this over the adjournment.	We will resume
at 2.15 pm.

AT 12.53 PM LUNCHEON ADJOURNMENT

Sellars(2)	56	Mr HEYDON, QC	13/10/92
UPON RESUMING AT 2.18 PM:
MASON CJ: Yes, Mr Heyden.

MR HEYDON:  Your Honours, could I deal with three points of

detail briefly at the outset? Two of them are in

response to questions that Justice Brennan asked

this morning. One question ..... finding as to when

the Pagini contract would have been made. We

submit that His Honour has, in effect, made a

finding that it would have been made in June 1988,

which, Your Honour will remember, was the month

after the third draft, the 27 May draft - to which

Mr Mccusker referred. The references in support of

that are page 272, lines 9 to 11, where

Mr Justice French speaks of that date as being an

assumption; together with pages 244, lines 14 to 15

and 245, line 29. The significance of the latter

two passages is that he is there discussing the

possibility of getting underwriting in the first

half of 1988. As Mr Zelestis showed, an

underwriting agreement was going to be entered

contemporaneously with the main Pagini agreement

and he concluded that underwriting was, more likely

than not, to take place at that time. So that

appears to be where he dates the contract.

The second matter of detail is this: again,

in discussing the conditions that had to be

satisfied under the proposed Pagini agreement,

Your Honour made reference to the implied duty

under the general order to the parties not to

obstruct the fulfilment of those conditions. The

actual agreement went further than that because

there was an expressed duty imposed on them to co-

operate in bringing those conditions to pass. That

appears at page 101, lines 16 to 19.

BRENNAN J: That is the Pagini agreement?
MR HEYDON:	The Pagini agreement, yes. Page 101 is the page

after His Honour has set out verbatim the

conditions and on that page at lines 16, 17 and 18,

he summarizes clause 3.4 as follows:

The parties were to take all practicable steps

within their respective powers to enable the

conditions to be fulfilled

Probably nothing turns on that, but it indicates

that there was no element of win about

co-operation.

Sellars(2) 57 13/10/92

The third matter is on the same subject. The

Chief Justice, I think, expressed the view that

these conditions were conditions precedent to

performance and not to the existence of an

agreement at all, and we would submit that is

correct. Page 100 at the very beginning sets out

the clauses and makes that clear. It follows that

the law which Justice Mason, as he then was, set

out in Perri v Coolangatta Investments Pty Ltd,

(1982) 149 CLR 537, at pages 551 to 552 would

apply, that is to say, contractual rights and duties would have existed from the moment the

Pagini agreement was entered. Those conditions did

not derogate from that, though non-performance of

them would entitle the innocent party to terminate,

or either party to terminate.

Can I then make this preliminary point about

the appellants' submissions. There are two sides

to those submissions. The appellants have made

plain what one side is. The side that they have

directed attention to is that if there is only a

49 per cent chance of obtaining a financial

benefit, from which they were deflected by

deceptive conduct, their contention is that

Adelaide receives nothing. What they have not

said, but which must be implicit in their

submission, is that if there had been a 51 per cent

chance of financial benefits, Adelaide would get

the totality of those benefits.

What Mr Justice French actually did was work

out, as it were, the full benefit that would have

been recovered if the contract had been performed

and discounted those figures down, mostly by

40 per cent; in one instance by 30 and in another

instance by 20. But it seems to follow, from our

learned friend's submissions, that if

Mr Justice French had found that there had been a 51, 55, 60 per cent possibility we would not have

recovered 60 per cent of the maximum possible, but
rather the whole of the maximum possible.	So their

submission is an all or nothing submission. It

allows - - -

DAWSON J:  I do not understand that, Mr Heydon. I do not

understand that. I had thought they had said that

if you could prove on the balance of probabilities
there would have been loss then it is a matter of

assessing that loss.

MR HEYDON:  Your Honour, then, is understanding their

submission to mean that you take into account at

that second stage of assessment, as it were, any

discount or any figure less than 100.

DAWSON J:  You assess what the loss was, yes.

Sellars(2) 58 13/10/92

MR REYDON:	Yes, well it - - -
DAWSON J:	And if it is a loss by way of loss of a chance

you assess the value of the chance.

MR REYDON:  It seems then that one assesses the value of a

chance if the chance is more than 51 per cent, but

gives it no value whatever if it is less than

51 per cent.

DAWSON J: That is right. If you do not prove the loss of a

chance on the balance of probabilities you do not

get anything. If you do not prove any loss on the

balance of probabilities.

MR REYDON:  Can I turn to the question, which is essentially

a question of statutory construction, as to whether

section 82, or bears a meaning that supports that

approach? We submit there is nothing in the

express statutory language that supports it and one

has to bear in mind - - -

BRENNAN J: What about the word "suffers"?

MR REYDON: But, Your Honour, we would submit that you

cannot extract from the word "suffers" any notion

that if, in this instance, a chose in action would probably have come into being but there was a less

than 50 per cent chance of it proving to be fully valuable, that that word has the consequence that

no recovery can take place. I mean, the word might

have been "experienced" or "incurs".

BRENNAN J:  It depends what denotation you give to the terms

"loss or damage".

MR REYDON:  Yes. We accept that we have to prove loss or

damage, and we submit we did prove loss or damage

because we proved to the trial judge's satisfaction

that there was a high chance, or a high possibility

or probability, of the Pagini contract being

entered. Once that is accepted, it follows - - -

DAWSON J:  I was just going to ask, what is the standard of

proof?

MR REYDON:  The civil standard.

DAWSON J: The balance of probabilities?

MR REYDON:  Yes. Perhaps there is one qualification to

that. I will be taking the Court to an authority

on this later, but His Honour was talking about

what I will call a "hypothetical" fact, as distinct

from a past "historical" fact. The law appears to

apply one approach to past historical facts, which

are either proved to have existed or not to have

Sellars(2) 59 13/10/92

existed on the balance of probabilities. It takes

a somewhat different approach where it is concerned

with future events, or where it is concerned with

events which, though had they happened they would

have happened in the past, they can only be

examined on a hypothetical basis because in truth

the occasion for them to take place never arose in this instance because the Pagini negotiations were

terminated. So that there never actually was a

Pagini agreement in working out, (a) whether a

Pagini agreement would have been entered, and (b)

whether it would have been fully performed. One is

dealing with hypothetical events relating to the

past.

In that area there are authorities in this

Court that indicate that one does not apply the balance of probabilities test of the type that is

familiarly applied with relation to ordinary

historical facts, but rather looks at ranges of

possibilities and degrees of likelihood. When

Mr Justice French assigned a high degree of

probability to the entry into the agreement, his

language is consistent with that approach to the

problem. If that approach is applied faithfully or

rigorously, then it would follow that one is not

applying the conventional balance of probabilities

in civil cases, the type of standard, because that

relates only to, as I say, conventional past

historical events.

DAWSON J: This argument is predicated upon there being a

loss because there is a loss of a chose in action.

But what if the chose in action is valueless?

MR REYDON:  What if the chose in action is valueless? the chose in action is valueless there would If

probably not be any loss or damage. Here we have a

finding that the chose in action was worth

40 per cent of the full value of performance, as to

most of it and the lower percentage as to the other	two items. In other words, what ordinary
experience would teach one, which is that a
contractual right does have value, otherwise one
would not go to the trouble of bargaining for it
and paying for it by consideration, is supported by
that finding of the trial judge.
Given that it had value in that sense, the deprivation of it from Adelaide was loss or damage.
Whether one goes on in a logically second stage to
then assess what it is worth in money terms, or
whether assessment is, in effect, just another side
of the same coin may not matter very much. But, at all events, the answer to Your Honour's question is if it had no value at all there would be no loss or
damage. If it had some value, even though it might

Sellars(2) 60 13/10/92

be very low, there would be some loss or damage,

though it might not sound very much in the way of

money.

I am not sure whether Justice Brennan was

wishing to direct anything to me.	I was sort of
partially answering it.

BRENNAN J:  The loss or damage in question here, which you

say has been suffered by the plaintiff, is the loss

of the cause in action.

MR HEYDON:	The loss of a chose in action.
BRENNAN J:	The chose in action.
MR HEYDON:	You could call it a chose in action or a

commercial opportunity. In Johnson v Perez,

166 CLR 351, at page 391, for example,

Justice Dawson indicated that those expressions

were interchangeable. Here, because of the fact
that they were conditions precedent to performance,

there was a right in the contracting parties to

hold each to performance, so long as those

conditions, in due course, were satisfied. It was

not open to any party simply to walk away. Any party who wanted to walk away would have had to have paid a price for walking away, and if that

party simply walked away, he could have been sued

for damages. And if he had been sued for damages

it would have been necessary to engage in the sort

of analysis that Mr Justice French engaged in to

calculate what sort of a chance, or what sort of a

possibility or likelihood there was that the full

financial benefit would eventually have been

gained.

Now, a chose in action is a proprietary right,

and it remains a proprietary right even though it

may be conditional upon events happening, or

contingent upon certain things happening. It has a
value.	Your Honour, in widely different places
this morning, asked a couple of questions.	One

was, "Would Adelaide have broken out the champagne

the moment they signed the agreement?" And another

one was, "Would Adelaide have been better off with

the contract signed than without the contract

signed?" Noe, whether or not they would have

broken out the champagne, they would have been

better off because to drag an expectancy, or a

hope, into the sphere of contractual commitment is

to have improved one's position. One has curial

sanctions for the enforcement of the bargain, even

though there are conditions attached to it.

Sellars(2) 61 13/10/92

DAWSON J: But is it not, at the end of the day, the

position you put such that a person who probably

would have suffered no loss recovers damages?

MR HEYDON:  No. We more likely than not suffered loss,

because we lost a chose in action. There was only

a 40 per cent chance that the full financial

advantages of that chose in action would have come

into our hands. But to have such a chance is to

have something valuable.

GAUDRON J:  But it was an all or nothing value at the end of the day, was it not?

MR HEYDON:  Yes, yes. But that -

GAUDRON J: And the probabilities are that at the end of the

day it would have been valueless?

MR HEYDON:  Probabilities in the sense of that term that one

uses when one speaks of future events?

GAUDRON J: Yes.

MR HEYDON:  Could I just perhaps endeavour to just make one

small point about whether or not this was valuable.

It is a transaction which would have had to have

been disclosed to the appropriate stock exchanges
because it may well have affected the price of the

companies' shares. It is a transaction which might

well have to appear in the balance sheets of the

companies to reflect the advantages and obligations

under the contract. In those circumstances it did

have present value and that present value was lost

as soon as the negotiation was caused to be broken

off.

The fact that it is an all or nothing matter

at the end of the day as to whether one would

receive 100 per cent of the potential gains or only

40, 30, 20 per cent - - -

GAUDRON J:  Or nothing. You were not going to get at the

end of the day 40, 30 or 20 per cent, were you?

MR HEYDON:  We were going to get the whole lot or nothing.

Yes. But at the moment of the breach of duty,

which I suppose is the moment when the deceptive

conduct causes to cease to deal with Pagini, at

that moment we had suffered loss because we had

suffered the loss of an opportunity that had some

value.

DAWSON J:  Mr Heyden, you are not suggesting that nominal damages is the measure of value, are you?

Sellars(2) 62 13/10/92

MR HEYDON:  No. Well, nominal damages would not appear to

be available under section 82.

DAWSON J: That is right. Can you have a valueless chose in

action?

MR HEYDON:  Yes.

DAWSON J: Well maybe this was that.

MR HEYDON:  No, with respect.

DAWSON J:  Why not? Maybe on the balance of probabilities

this was that - - -

MR HEYDON: Well, I am repeating a submission, but the

appropriate test is not the conventional balance of

probabilities test for analysis of the value of

this right, rather it is the approach one uses for

hypothetical or future - - -

DAWSON J:  But that seems to be skipping one step. to prove loss, probable loss, before one then sets One has

out to assess it. If one has a valueless chose in
action on the balance of probabilities then one has
not suffered loss, one never gets to the point of

assessing loss.

MR REYDON:  If a chose in action, which gives you a

40 per cent chance of getting something worth
several million dollars is not valuable, what is

valuable, I rhetorically inquire?

DAWSON J:  But the other way of looking at it is if it is a

40 per cent chance, in fact probably you will never

receive anything from the possession of that chose

in action. But that is the dilemma.

MR HEYDON:  Yes. It might be a convenient moment if I can

take the Court to an authority which, in our

submission, conveniently encapsulates a number of

the matters I have been putting. It is part of

Justice Deane's reasons for judgement in the

Commonwealth v Amann Aviation Pty Ltd, 174 CLR 64.

The passage, and it is a long one, and I will not

read it all but invite appropriate reflection on

it. It begins at page 118. There is a heading at

the top of that page "Loss of a chance" and if one

drops down about a third of the way, just after the

reference to footnote 18. He says:

In many cases, proof of the full extent of the

loss or injury sustained will involve

establishing an evidentiary foundation for

positive and detailed ultimate findings by the

court upon the balance of probabilities.

There are, however, cases where considerations

Sellars(2) 63 13/10/92

of justice or the limitations of curial method

render ultimate findings, about what would

have been or will be, impracticable or

inappropriate. In such cases, damages must be

assessed on some basis other than findings

about what would have ultimately happened if

the repudiation or breach had not occurred or

about the precise ultimate implications of the

situation which exists after the repudiation

or breach. In particular, it may be

appropriate that damages be assessed by
reference to the probabilities or the

possibilities of what would have happened or

will happen rather than on the basis of

speculation that probabilities would have or

will come to pass and that possibilities would

not have or will not. If, for example, what
the plaintiff has lost by reason of the

defendant's repudiation or breach of contract

is a less than 50 per cent but nonetheless

real and valuable chance of winning some
contest or prize, of being the successful
tenderer for some commercial undertaking or of

deriving some other advantage,.in

circumstances where a court can decide that a

proportionate figure precisely or

approximately reflects the chance of success

but can do no more than speculate about

whether, but for the defendant's wrongful act,

the plaintiff would have actually won the

contest, prize or tender or derived the

advantage, it would affront justice for the

court to hold that the plaintiff was entitled

to no compensation at all for the lost chance

of competing or striving or for the wasted
expenditure which was incurred in obtaining or
performing the contract. In such a case,

considerations of justice require that the

plaintiff be entitled to recover the value of

the lose chance itself and that the defendant

be not allowed to take advantage of the

effects of his own wrongful act to escape

liability by pointing to the obvious, namely,

that it is theoretically more probable than

not that a less than 50 per cent chance of
success would have resulted in failure.

That, of course, is the position here.

Thus, for example, a plaintiff whose action

against a third party has become

statute-barred by reason of a defendant

solicitor's breach of contract may recover
damages by reference to the court's assessment

of what the chance of success in the action

against the third party would have been even

though that assessment is 50 per cent or less.

Sellars(2) 64 13/10/92

In our submission, the same would be true in tort.

It is not only the positive value of a

chance of a benefit which may, in appropriate

circumstances, require to be taken into

account in the assessment of damages ..... The

injury involved in being subjected to a

significant possibility of future detriment

may also, of itself, found an award of

damages. If, for example, a plaintiff has

sustained physical injury caused by the

repudiation or breach and there is a

significant chance or possibility that a

particular adverse complication may result in
the future but a court can do no more than

speculate about what will in fact occur, the

plaintiff may recover damages for that chance

or possibility of future detriment even though

the evidence would not sustain a finding that

there is a more than 50 per cent chance that

the complication will in fact ensue.

And then, if I can skip over the next few

lines and come to about line 10 on page 120.	He
says, in effect, that one cannot formulate
exhaustive rules.

It suffices for the purposes of the present

case to say that damages should be assessed on

that basis in a case where the extent of the

final loss or injury actually sustained by

reason of the repudiation or breach depends

upon what would have happened or what will

happen and the circumstances are such that the
court can identify or estimate a precise or
approximate proportionate chance of benefit or

detriment but can do no more than speculate,

on the basis of probabilities and

possibilities, about what would have or will

actually come about.

Then he sets out four examples of cases, the first

is a Chaplin v Hicks type cases, the second is:

where the extent of the lost benefit or

eventual detriment depends wholly or partly

upon how a discretionary decision ..... will be

made -

The third is:

where the extent of the lost benefit or

eventual detriment depends wholly or partly

upon the extent to which a commercial

opportunity, activity or undertaking would

have been or will be successful or

unsuccessful -

Sellars(2) 65 13/10/92

pausing here, the opportunity to have contractual
performance may be regarded as falling into that

category. And fourthly, he says "other cases where

lack of information" and so forth, makes it

impossible to do anything but speculate to a

degree, but:

common sense and common experience enables an

estimate of the approximate extent of the

chance that a particular benefit would have been or will be actually obtained or that a particular detriment will be or would have

been actually sustained.

May I note that an example given of the third

category is the New Zealand case in footnote 24 of

Takaro Properties Ltd v Rowling, which was, of

course, a negligence case, so that His Honour is,

as it were, talking both of contract and tort at

this point.	On 121 he gives an example of a fourth
case:

a case where a person has sustained physical

injury caused by a wrongful act but the

inadequacy of current medical skills or

knowledge enables no more than a conclusion

about probabilities or possibilities based on

clinical observation of other cases - He then refers to Malec v J.C. Hutton Pty Ltd. In

the bottom half of that page he quotes from what

Justices Brennan and Dawson wrote:

"The fact that the plaintiff did not work is a

matter of history, and facts of that kind are

ascertained for the purposes of civil

litigation on the balance of probabilities:

if the court attains the required degree of

satisfaction as to the occurrence of an

historical fact, that fact is accepted as

having occurred. By contrast, earning

capacity can be assessed only upon the
hypothesis that the plaintiff had not been

tortiously injured: what would he have been

able to earn if he had not been tortiously
injured? To answer that question, the court

must speculate to some extent. As the

hypothesis is false - for the plaintiff has been injured - the ascertainment of earning capacity involves an evaluation of

possibilities, not establishing a fact as a

matter of history. Hypothetical situations of
the past are analogous to future

possibilities: in one case the court must

form an estimate of the likelihood that the
hypothetical situation would have occurred, in
the other the court must form an estimate of

Sellars(2) 66 13/10/92

the likelihood that the possibility will
occur. Both are to be distinguished from

events which are alleged to have actually

occurred in the past."

Pausing there, the reference to "possibilities" and

"likelihoods" indicates that there is a kind of -

one could talk about this as "probabilities" or

"possibilities" and depending on which point on the

scale one is looking at it particular words - - -

TOOHEY J:  Mr Heyden, an applicant does not come to the

Court and say "I have suffered probable loss".	An
applicant comes to the Court and says "I have
suffered loss, and in demonstrating that I have

suffered loss I may have to, in the circumstances

of the case, point to probabilities, maybe

possibilities, both in demonstrating that I have

suffered loss and in the quantification of that

loss." There does not seem to me to be any sort of

inconsistency involved there. But I just baulk at

the idea - and I am not suggesting that this is

your submission - that probable loss is what has to
be demonstrated. Is it not loss that has to be

demonstrated?

MR HEYDON: 

I suppose what has to be demonstrated is the

existence, as a matter of history, of facts or
events, which have caused a loss and in this case
the historical event is the deceptive conduct that

caused the Pagini negotiations to be terminated.
That caused a loss because there and then an

opportunity was destroyed which, according to

His Honour, would have led to a contract and which,

further according to His Honour, led to a lower

likelihood or risk or outcome of some financial

performance.

BRENNAN J: That perhaps raises the difficulty of evaluating

that hypothetical contract that might have been

entered into with Pagini and it seems to me to

be - - -

MR HEYDON:  Of which there was a high probability.

His Honour's finding was a high probability of

entry.

BRENNAN J: Yes, I appreciate that bit it was one which,

none the less, did not occur. It is the

hypothetical - - -

MR HEYDON:  The respondents, the appellants here stopped us.

We do not know - - -

BRENNAN J:  But you need not trouble about that. My concern

is this, that even assuming that there was a

finding that they would have entered into that

Sellars(2) 67 13/10/92

contract without doubt, is it right to take the

financial benefits that would have resulted from

completion of that contract, and to evaluate the

contract as a piece of property, or a chose in

action, by discounting the ultimate benefits by

proportions relevant to the judge's estimate of the

possibility of occurrence? Why does it follow that

this contract, at the time that the opportunity to

enter into it was foregone, is to be valued by

reference to the prospects of the contingencies

occurring or not occurring?

MR HEYDON:  On t_he one hand, I suppose, if you valued it by

reference to some more favourable standard than the

global assessment of the respective contingencies,

that would be unfair to the respondents. But if

you valued it at something much less than that

approach it would be unfair to the applicants, to

the Adelaide parties, because they have lost

something and that is an attempt to arrive at a

monetary equivalent for what they have lost.

BRENNAN J: 

It just seems to me that when you have got a

compounded series of contingencies, some at
60 per cent, some at 20 or whatever it might be,

that by discounting by an average, say, of 40, one

might not have got anywhere near what the actual
value of the chose in action was at the time when

that loss was suffered.

MR HEYDON: 

May I make this point: the appellants do not complain here of the precise figures or adjectives

which Mr Justice French used, they did not complain

of 40, 30 or 20. If, with respect, Your Honour is

complaining - that it is a complaint perhaps

outside the parameters of the appeal, but if
Your Honour's proposition is that it does not

really matter whether Mr Justice French was

approximately right or not, it is just a hopeless

would be to make section 82 damages very much an enterprise that should never be engaged in, that enclosure of their own, quite different from the

approach used in relation to personal injuries,

contractual damages and contractual or tortious

damages for solicitors who have caused causes of

action to go away.

One rhetorically asks, ttWhat is there in section 82 to justify that?tt The cause of action

created by 52 and 82 is not only a cause of action

that applies over a very wide range of facts, it is

obvious that a central type of recovery the section

is concerned with is purely pecuniary or financial

loss. That is so because of the definition of

"loss or damage" includes the word "injury" by
reason of section 4L, I think it is, of the Act,

which is to indicate that the central type of

Sellars(2) 68 13/10/92

damages was pecuniary. Something of commercial

value can be in the realm of property, it can be in

the realm of a contractual proprietary right or a

contractual non-proprietary right, and it can be

less protected or less precise than that. But to

have spent a few months in dealing with the Pagini

people is to have given something valuable to the

Adelaide people because they were close towards,

but not certain of getting some advantage, some

dollars and cents advantage.

Now, if the consequence of the construction

propounded of section 82 by our learned friends is

that there can be no recovery, with respect, it

does have a sharply narrowing effect on section 82

and seems to put it on a different basis from

general law notions of damages.

GAUDRON J: Mr Heydon, could I ask you this: on your

argument, when did the loss occur?

MR HEYDON: 

When the Adelaide people signed the Poseidon

agreement and thereby irrevocably prevented
themselves from entering into the Pagini agreement.

GAUDRON J: And that was before this hypothetical contract

would have been entered into? It must have been.

MR HEYDON:  Yes, it must have been, because otherwise it

would not have been hypothetical but actual, but

very close in time, because the month of June was

the month selected by His Honour.

GAUDRON J: So, what was lost was an opportunity, in a

sense, which is actually, at least conceptually,

different from the loss of a chose in action, but

exists?

MR HEYDON:  Yes.

GAUDRON J: Yes. Now, why does one, which I think on your

argument you do, treat them as the same?	Because
valuing an opportunity is not necessarily	the same
as valuing a chose in action.

MR HEYDON:  Indeed not. The value will no doubt usually be

lower, assuming no special terms in the contract.

There may well still be a value. Can I put it this

way: assume negotiations began with Pagini in

February; as the parties move closer and closer to

some contractual performance, preceded by

contractual agreement, the thing of utility - if I

can use a mutual expression - that Adelaide had,

was rising. It was becoming more useful to it.

Their prospects were improving. In commerce -

section 82 and 52 are operating in a commercial

world in this type of case - that can be valuable.

Sellars(2) 69 13/10/92

GAUDRON J: Yes, but it seems to me you do not get to the

stage or you may not get to the stage where the

hypothetical contract would have come about. That

may be a fact. The fact that it would probably

have come about - we will call it "fact" - may be a

matter you would take into account in valuing the

opportunity, but your argument seems to be that
what you value is the chose in action that would

have come about, not the opportunity.

MR HEYDON:  Yes, but there may be no difference.

GAUDRON J: Well, yes, well there may be, but I -

DAWSON J: Except in terms of time there is not any

difference, is there, because a chose in action is

really only an opportunity to make profit?

MR HEYDON: Well, yes, Your Honour, with respect, it

is -

DAWSON J:	It may have come closer to the chose in
MR HEYDON:	There is a gap in time and if, in that gap in time, there is a conversion of close negotiations
into contract, then the gap in time has been used to bring people closer. But it is not an essential part of our argument that Mr Justice French made
that finding about the high probability of entering into the contract, though it may not be necessary for the Court, in deciding this case, to push the area of the law or anything beyond that finding, if
I can put it that way.  I think that is all I can
say on that; is there anything - - -
GAUDRON J:	No.
MR HEYDON:	Your Honours, what I wanted to do, and I do not

think I need do it because the general themes which

page 122 he then quotes from Justices Gaudron,	Justice Deane was sounding has been set out, but on
McHugh and himself in Malec v Hutton and he says
the same sort of things as Justices Dawson and
Brennan had said on the preceding page. In
particular, in the middle of 122, there is this:

The probability may be very high - 99.9 per

cent - or very low - 0.1 per cent. But unless

the chance is so low as to be regarded as

speculative - say less then 1 per cent - or so

high as to be practically certain - say over

99 per cent - the court will take that chance

into account -

There is then a reference to Lord Diplock at the bottom of the page, and at the top of 123 there is

a development of the theme that because of the

Sellars(2) 70 13/10/92

difficulty of calculating probabilities in this

sense in relation to future or hypothetical events,

it would be an unjust and, in a way, irrational

dividing line to select 50 per cent probability as the point of division. I do not think I need read

any more, but the passage as a whole up to 126 we

would invite consideration of.

If I can change the subject slightly,

Mr Sellars' notice of appeal and Mr Sellars'

counsel, in particular, have criticized the courts

below· for treating the issue as one involving the

assessment of damages, as distinct from proof of

the fact of damage. Our short submission is that

where one is dealing with section 82(1) it is very

difficult, even conceptually, to draw the

distinction for this reason - 82(1) provides that:

A person who suffers loss or damage by -

deceptive conduct -

may recover the amount of the loss of damage

by action.

In other words, the identification of the loss or

damage is almost, if not completely, coincident

with the task of determining what the amount of

that loss or damage is. What is more, we would

submit, that Justice Deane's analysis, if it be

accepted in Amann's case, indicates that for

practical purposes the two issues are not, in

truth, to be distinguished.

Now, there is one case I should devote some

attention to - it was cited this morning - that is

Gates' case, (1986) 160 CLR 1, if I could invite

the Court to get that. Our learned friends, I

think, rely particularly on what appears on page 13

in the joint judgment of Justices Mason, Wilson and

Dawson in the central paragraph on the page. They,

in particular I think, would wish to place weight

on the words, half-way through that paragraph that,

in effect, there can be a recovery for profits to

be made under a loss contract:

if the plaintiff can establish that he could

and would have entered into the different

contract and that it would have yielded the

benefit claimed.

We would submit there is no doubt that Adelaide has

established to the satisfaction of the courts below

that it could and would have entered into the

different contract, the Pagini contract. Our

learned friends say, "But you have not established

that it would have yielded the benefit claimed."

Sellars(2) 71 13/10/92

Now, the first observation, or first submission we

make about this is that that case had very little

to do with the factual circumstances that are

before this Court. Mr Gates' position was

discussed at the bottom of page 13 and at the top

of page 14. The first point made at the bottom of

page 13 is that Mr Rainbird, the insurance company

representative, persuaded him to take out

disability insurance.

There is nothing to suggest that the appellant

would have been minded to obtain insurance of

this type had it not been for Mr Rainbird.

Likewise, there is nothing to suggest that,

had he known that the respondent did not offer

disability insurance on the terms suggested by

Mr Rainbird, he would have sought out some

opportunity of taking out the insurance with

another company. There was no evidence from

the appellant that this is what he would have

done.

So that the precise issue here, the problem of a

finding of a probability of entry into a contract,

but only a 40 per cent overall probability of its
performance, that that difficulty or that factual

circumstance was simply not thrown up in Gates'
case and we would submit that the case is not

determinative of the present problem.

We also submit that the words "it would have

yielded the benefit claimed" are consistent, or at

least not inconsistent, with the sort of submission

we are putting. We say that partly because

immediately after those words appears a reference

to Esso Petroleum Co Ltd v Mardon, and if one looks

at Lord Denning's reasons for judgment in that case
at page 121, he appears to be talking about the

happening of future events, and therefore the

happening of probabilities and possibilities that

may be less than 50 per cent likely. What is more,

in the next sentence:

the lost benefit is referable to opportunities

foregone -

we would submit is, at least, not inconsistent with

the type of submission we put. In short, whatever

the Court's conclusions ultimately about the

submissions we are making today, we submit Gates'

case is not inconsistent with them.

Your Honours, the course of the debate has

drawn out from me the submissions I wish to put.

Unless there is anything additional the Court wishes to raise, those will be our submissions.

Sellars(2) 72 13/10/92

MASON CJ: Thank you, Mr Heyden. Mr Mccusker.

MR McCUSKER: Three matters, Your Honours. First, may I

refer to the New Zealand decision of Takaro

Properties v Rowling, (1986) 1 NZLR 11, that my

learned friend, Mr Heyden, mentioned. There are
two things to be said about that. In the facts in

that case, at page 69 the Court of Appeal there

made clear that it was referring to the asset of

which the company had been deprived, which was a

real asset, which the court thought had some

measurable value. The case went on appeal to the

Privy Council and there is a comment on the
Privy Council approach which appears in Cootes

article, "Chance and the Burden of Proof in

Contract and Tort", (1988) 62 ALJ 761. The comment

by the learned author observes that the approach
taken by the New Zealand Court of Appeal seems to
have been the subject of some doubt on the part of
the Privy Council, although in the end the

Privy Council found it unnecessary to determine whether the approach taken by the Court of Appeal

in New Zealand was a correct approach there, it

holding on the appeal that it had not been shown

that the mnister was negligent. So the matter went

off on a different matter in the New Zealand Court

of Appeal.

My learned friend's outline makes the proposition that the learned trial judge valued the

lost opportunity. Your Honours, can I refer to

page 271 and following where it is submitted it is

clear that the learned trial judge was not

approaching it on a question of lost opportunity,

he was making, as it saw it, an assessment of the

value of the benefits foregone, but having said

that that is what he was doing, we submit that the

threshold question was not properly addressed, that

is: was it proved on the balance of probabilities

that there had been any loss suffered by the

applicants, and he, having found that, erred in
going the way that he did.	Nor did he approach it

on the basis of assessment of a value of chose in

action. There was no question of the learned trial

judge approaching it in that fashion. He was

endeavouring to determine the value of benefits

foregone and the short answer was that there had

been no loss shown to have been suffered.

BRENNAN J:	Do you mean that the case was not fought on the basis of the value of the foregone contract?
MR McCUSKER:	It was not fought on the basis of the value of the foregone contract. It was fought on the basis
of the loss which had been shown to have been
suffered, if any, and the contention for the
respondents was that since had the Pagini contract

Sellars(2) 73 13/10/92

been concluded there still would not have been any
benefits flowing from it. It was not appropriate

to say that this was a question of valuing the

contract, it was a question of determining - this

was the respondents' approach to it - what loss, if

any, had been suffered.

BRENNAN J:  Is this case now to turn on some question of

pleading?

MR McCUSKER:  No, Your Honour, no. In the end it simply

turns on the question of what is the meaning and
the application of section 82(1) of the Trade

Practices Act.

BRENNAN J: Well then, if that be so, and if the facts give

rise to a case of the kind which Mr Heyden is

putting forward, namely that there was a loss of a
probable chose in action to which some value should

be attached, then what is your response to that?

MR McCUSKER: Well, that is not the way it was approached,

but we would say that in any event the judge's

finding that, as a matter of probability, no

benefits would have flowed from the contract,

meant, in the absence of anything else, that there

was no value to be attached to the chose in action.

Whilst some choses in action may have been shown to

have a value in some circumstances, the only value

that could be attached to this was if, as a matter

of probability, benefits would have been derived. In this case the judge found that it was a matter of probability they would not have been derived.

He then, nevertheless, with some misgivings,

clearly expressed misgivings about the approach

which he thought nevertheless was warranted by

reason of dicta in David Securities. With some

misgivings he then nevertheless set out to

determine a value of a lost chance, that some

benefits might have been derived.

GAUDRON J:	Is one of the difficulties in this case this: that assume you could put a value on the contract
in any event, it is a value that would change from
time to time and the question would be - with no
value at the end, some greater value when it was entered into, presumably - - -

MR McCUSKER: Well yes, that is quite so, Your Honour.

GAUDRON J:  - - - and the question seems to be what its

value was before it was entered into?

MR McCUSKER:  Yes, the value of such a hypothetical

contract, and Your Honour is quite correct, of

course, that on the facts of this case it would be

a movable feast, it would be a changing value

Sellars(2) 13/10/92

depending upon the contingencies and the extraneous

circumstances that might affect the fulfilment of

the conditions. So it certainly would have a

change in value, but there was no - the approach

was not, "Here is a contract which has some value

as a chose in action"; the approach as the learned

trial judge's reasons clearly show was to determine

what the value of the benefits foregone - - -

DAWSON J: Yet people do not enter into contracts which have

no value, do they?

MR McCUSKER: Well, I think that, Justice McHugh said in

Amman's case that it is a matter of commercial

notoriety that people quite often do and that, with

respect, is the case. One cannot presuppose that

when a contract is entered into it has a positive

value. Indeed, it may have a negative value for

one of the contracting parties. That may well have

been the case in the Pagini mooted contract, where,

had it been entered into, it would have certainly

again closed off other avenues of negotiation and to that extent would be a fetter, and as a matter of probability there would be no benefits flowing

from it and that clearly is a detriment.

On that point, my learned friend, Mr Heyden,

suggested that because the entry into of such a

contract would probably have to be notified to the

stock exchange and may need to appear in the

balance sheet - and let us suppose that is so,

although we do not accept the latter point -

therefore one must ascribe some value to it but, of
course, all kinds of matters must be notified to
the stock exchange without them being of positive

value to the company obliged to notify them and,

similarly, matters may be required to be notified

in a balance sheet of a company as, for example, a

contingent liability, but it does not mean that

there is any value to be ascribed to the chose in

action.

Your Honours, one way of looking at that

trial judge taking the first step suggested by my learned friend, Mr Zelestis, as the appropriate

approach that my learned friend suggested, to the

step, that is, was it probable that an underwriting

agreement would have been obtained, and let us

suppose that the learned trial judge said yes, it

was probable that that would have occurred, which

is a first step towards getting a contract, which

seems, when one looks at the contract, to have been

probably the situation: first, get your

underwriter before you sign a contract, because

without the underwriting agreement annexed to the

contract there could not be a contract, and if the

Sellars(2) 75 13/10/92

finding had been that it was probable that an

underwriting contract would have been entered into,
but not probable that there would have been

thereafter a contract which might in turn have led to profit - or led to a benefit - is it to be said

that because the underwriting agreement was itself

a chose in action, that it had to have ascribed to

it some value.

In our submission, that is no more valid a

proposition than to say that one has to ascribe in

these circumstances a value to the hypothetical

contract itself; the Pagini contract itself. Each

of those two steps is no more than a step towards

the goal of a possible benefit and if the - - -

DAWSON J: That is not really the way the case is put

against you, is it?

MR MCCUSKER:  No, it is not. I am simply hypothesizing that

and saying that no more could one, in those
circumstances, ascribe a value to the underwriting
agreement than one can to the contract itself, the

hypothetical contract. In neither case, unless the

ultimate goal is shown to be probable that is a

benefit. In neither case can you ascribe a value

to the intermediate steps.

DAWSON J: But what is said against you is, "Look, if you had said all these things to Adelaide, 'Look you

are silly to enter into this contract; the chances are it will never come to anything, and Adelaide -

it is a failure.' And he says, 'It's not valueless

to me. I want to take my chances and I will, and

you are depriving me of that opportunity'". That

is the way it is put, "And that is what I have

lost."

MR McCUSKER:

The claim by Adelaide was not the claim of the

value of the lost contract; it was the claim for

benefits foregone and that is the way - - -

DAWSON J:  It was a claim for a lost opportunity which it

said was valuable to it. Now maybe there were

chances involved in it, but it says it was

something it lost which it did have. That is what

it is.

MR McCUSKER: Well, as I say, Your Honour, the learned trial

judge's approach was to determine what the value of

the benefits foregone was, that is as he clearly

predicated the reasons at page 278, and he was not

setting about determining the value of the chose in

action, which would not justify - as, I think,

His Honour Justice Brennan raised as a question, it

would not justify necessarily simply saying, "What

is the chance of some benefits flowing?" If it is

Sellars(2) 76 13/10/92

40 per cent, or 30 per cent or 20 per cent, well

then, apply that as a mathematical exercise, apply

that to the 100 per cent of benefits that

hypothetically might have flowed from the contract.

That suggests that a contract from which no benefit

would probably flow nevertheless has a value

determining upon the degree of chance, and that is

not what the learned trial judge, in fact, did.	He
applied a formula to benefits foregone, as he saw
it.

BRENNAN J:  Mr Mccusker, is there not something wrong with

the proposition that says, "Here the Adelaide

interests had the prospect of a contract which, if

everything had gone well would have resulted in a

net benefit to them of, say, $1 million? The

prospects of their getting $1 million were not

50:50 because of all these contingencies; they were

only of the order of about 40:60; they have lost

that, true, but in the end what they have lost is
nothing". That just seems to be a strange

proposition to my way of thinking.

MR McCUSKER: Well, Your Honour, I think, in the outline of

submission of my learned friend, it was suggested

that this works an injustice. It may be said that

whenever one applies the standard proof of

probability, there is a danger of an injustice, but

that is the standard of proof - - -

BRENNAN J: Only if you treat probability as relevant to

past facts in which event the prospect of injustice

is eliminated. If you adopt the Malec v Hutton

approach and say past facts balance of

probabilities, hypothetical and future facts

proportionality.

MR McCUSKER:	As to the chances of their happening?
BRENNAN J: Yes.

MR McCUSKER: Well, Your Honour, as to past fact, the

application of the probability test can work an

injustice just as well. It might not seem so

patent, but it can certainly work an injustice

equally as an application to hypothetical future

events.

DAWSON J: But are you not working on past facts here?

MR MCCUSKER:  No.

DAWSON J: Yes, you are, are you not? The opportunity was

lost and you value that opportunity - if it is

valueless.

Sellars(2) 77 13/10/92

MR McCUSKER: Well, that is true and the opportunity - if

one approaches it that way as the evaluation of a

past fact, one sees straight away that on a balance

of probabilities that past fact, the lost

opportunity, was of no value because the

probabilities, as His Honour found, showed that

there would be no benefit to be derived. Can I

just mention, Your Honours, that my learned friend

also referred to Amman's case and some dicta there.

The dicta of His Honour Justice Deane in Amman's

case was all in the context of breach of contract

and His. Honour made that clear. My learned friend

has referred Your Honours to page 118 of Amman's

case, but at page 116 at point 8, His Honour

commenced by saying:

For that reason, the discussion of principle

in this judgment should be read as confined to

such an action -

and he was talking there about a cause of action in

contract -

and as not necessarily applying to a cause of

action in, for example, negligence
notwithstanding that much of the reasoning is

applicable to a cause of action in tort and

that some of the authorities referred to

(including Malec v Hutton) are negligence
cases.

My learned friend has not directly referred to the submissions that appear in his outline at

paragraph 6 where he puts it that:

It seems that the very purpose of the
deceptive conduct for which the Appellants

habve been held responsible was to ensure that

ADP would lose the Pagini contract.

Now, I am not sure whether that argument is

abandoned by not being referred to, but in case it

is not - - -

MR HEYDON: It was not abandoned.

MR McCUSKER:	Could I say this, Your Honours, that the references that my learned friend has raised there
to the appeal book are references to the fact that Sellars saw that unless there was a contract
concluded with Adelaide by Poseidon, then there was
a prospect that Adelaide would enter into a
contract with some other party. That is what he
saw. But at the same time, there was no suggestion in the evidence or the findings that Poseidon did
not wish, indeed was anxious, to conclude and complete the contract with Adelaide. It was not a

Sellars(2) 78 13/10/92

matter of ensuring that Adelaide would lose the

Pagini contract but, rather, Poseidon would secure

a contract and it really, in the end, does not
assist to say that that was the underlying purpose.

In our submission, further, where it is put that:

the test -

this is at the top of page 4 -

propounded ..... is over-artificial and unjust

to demand that there be at least a 51% chance

of recovery -

that is not the way that the appellants put their

argument. They do not put it in terms of here must

be a 51 per cent recovery at all. They put it in

terms that there must be a finding that on the

balance of probabilities a benefit would have been

yielded from the pursuit of the negotiations with

Pagini. It is as simple as that.

May it please Your Honour, I have no further

submissions in reply.

MASON CJ:  Thank you, Mr Mccusker. Mr Zelestis? By the

way, do you have a copy of that draft underwriting

agreement for us?

MR ZELESTIS:  I do not have it separately yet, Your Honour,

but I shall procure it by the end of the day.

MASON CJ: If you would.

MR ZELESTIS:  Thank you. Your Honours, the answer to my

learned friend, Mr Heydon's submission which is

based upon the contract being the loss, in our

respectful submission, is this: that where the

contract which it was said would have been made,

was one which could only have yielded benefits

through performance, you have a proved loss on the

balance of probabilities unless you can prove on

the balance of probabilities that performance would

have yielded benefits.

In other words, one has to prove that on the balance of probabilities there was a value, one

does not prove that merely by identifying the

contract and then saying, "But we will assess the

value by reference to some lower probability or

possibility". The concept of it having value is

part of the notion of loss or damage which we are

searching to find proved on the balance of

probabilities. And as I say, where the only way of

obtaining a benefit is through performance, one

necessarily gets to the second question identified

in Gates, "Would a benefit have been yielded?"

Sellars(2) 79 13/10/92

Here, one can look at it another way, perhaps

slightly differently. What the respondents owned

were shares and one of them was a company which had

assets and obligations and a potential to issue

shares, and they, on their contention, lost an
opportunity to do something with their shares and

with their potentiality. But it was not just an

opportunity to make a contract and stop there, as I

said earlier. It was an opportunity, really when

analysed carefully on the facts, to go to the end

of the path and benefit.

Now, the trial judge plainly did not approach

this case on the basis that the contract was the
loss and its value to be assessed. His Honour

started with the benefits assessed at 100 per cent

and sought by a process of discounting to reach a

value of the lost opportunity. With respect, it

does not follow that because His Honour said that

there was a high chance of the Pagini agreement

being made, and at least an even chance of
underwriting being secured, that His Honour has

found on the balance of probabilities that a

contract with Pagini would have been made.

His Honour has not considered the two as a compound event on their own. He has gone through

each of the contingencies and assigned some degree

of likelihood to each of them independently. So

one cannot turn those two findings into one single

finding, and it is apparent from the way the

judgment is written that the case was not fought in

that way.

As to Malec's case, in our respectful

submission, it is clear from the passage at

page 640 which introduces the main judgment in

which other Justices agreed, that the case was

concerned only with assessment, and as I said

earlier, the other side of the coin, of course, is

risk of loss.

If one compensates a party for losing a

contract which on the balance of probabilities did

not have value, why does one not get compensation
for an increased risk of harm which on the balance
of probabilities would not produce the disastrous

outcome of a disease? One cannot have, with

respect, one without the other, and we know that

the law does not compensate for the increased risk

of harm, unless you prove on the balance of

probabilities a material contribution to an actual

illness, or an actual condition. Those are our

respectful submissions.

Sellars(2)	80	13/10/92
MASON CJ:	Thank you, Mr Zelestis.	The Court will

consider its decision in this matter.

AT 3.24 PM THE MATTER WAS ADJOURNMENT SINE DIE

Sellars(2) 81 13/10/92