Yuan v O'NEILL - [2020] SASC 49

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
YUAN & ORS v O'NEILL & ANOR
[2020] SASC 49
Judgment of The Honourable Justice Livesey
9 April 2020
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
LANDLORD AND TENANT - AGREEMENTS FOR LEASE - BREACH
The first and second appellants filed a claim for compensation in the Magistrates Court against the respondents. The claim, made under the Retail and Commercial Leases Act 1995 (SA), alleged that the respondents had caused the loss of or diminution in the goodwill of a business they operated through a company, being the third appellant (“the goodwill claim”). The premises from which the business operated was leased by the first and second appellants from the respondents. The goodwill claim was founded on a number of alleged breaches of the lease.
Following a trial in the Magistrates Court, but before the Magistrate delivered her reasons, the first and second appellants elected to not renew the lease for a further term.
The Magistrate dismissed the goodwill claim. She held that the goodwill belonged to the company and that the company could not press any claim based on a breach of the lease to which it was not a party. In any event, the Magistrate found that the alleged loss of or diminution in the company’s goodwill had not been proved.
In this Court, the appellants relied on Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145, and submitted that the respondents knew at the time of entering into the lease that the business would be conducted through the company and, it was said, this knowledge was sufficient to enable the goodwill claim to be made by the first and second appellants as an item of special loss, even though that loss was sustained by the company and not by them. In the alternative, and relying on Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, the appellants contended that this case fell within an exception to the general rule that a party cannot claim compensation for loss suffered by a non-party.
In relation to the Magistrate’s finding that there was no loss proved in connection with the goodwill claim, the appellants submitted that the loss crystallised when the first and second appellants declined to exercise the option to renew the lease, and that it could be estimated even though precise evidence was not available to the Court.
The respondents pressed a cross-appeal by which they challenged the Magistrate’s jurisdiction to entertain claims other than those based on remedies available under the Retail and Commercial Leases Act 1995 (SA). They also submitted that any claims based on breaches of a Settlement Agreement that the parties had entered into some years after the lease commenced should not have been considered as they had not been pleaded. Finally, the appellants contended that the Magistrate erred in finding that a loss of or diminution in goodwill was available in connection with the breach of an implied term of good faith under the Settlement Agreement.
Held, dismissing the appeal and cross-appeal:
1. Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 provides no basis to permit the first and second appellants to make a claim for loss suffered by the company but not by them.
2. In any event, the evidence relied upon by the appellants did not support the proposition that, before entry into the lease, the respondents knew that the business would be operated through the company.
3. There is no broad-based exception to the general rule that a party cannot claim loss that it has not suffered but which has been suffered by a non-party and the "Panatown principle" cannot be applied in the circumstances of this case.
4. Whilst some material suggested the possibility that the company had goodwill, there was no proof of its existence or value, and no loss was proved.
5. The Magistrate had jurisdiction to entertain a claim for damages for breach of the Settlement Agreement and it was not suggested that the respondents (as cross-appellants) were prejudiced by the failure to explicitly plead reliance upon the Settlement Agreement in circumstances where each side well understood the case of the other.
6. It was open to the Magistrate to find that there was an implied term to act in good faith under the Settlement Agreement even though, on the facts of this particular case, any breach of that term did not underpin the damages claim that ultimately succeeded.
Magistrates Court Act 1991 (SA) s 8, s 10; Magistrates Court (Civil) Rules 2013 (SA), r 3; Retail and Commercial Leases Act 1995 (SA), s 3, referred to.
Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, discussed.
Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65; Dunlop v Lambert (1839) 6 Cl & F 600; 7 ER 824; Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; Gould v Vaggelas (1985) 157 CLR 215; Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145; Hungerfords v Walker (1989) 171 CLR 125; Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217; Johnson v Perez (1988) 166 CLR 351; Koufos v C Czarnikow Ltd [1969] 1 AC 350; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; Robinson v Harman (1848) 1 Ex 850, 855; 154 ER 363; Roman Catholic Trusts Corporation v Van Driel Ltd [2001] VSC 310; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; The Albazero [1977] AC 774, considered.

YUAN & ORS v O'NEILL & ANOR
[2020] SASC 49
Magistrates Appeal: Civil
Livesey J:
Introduction

This is an appeal against the dismissal of one aspect of a compensation claim made under the Retail and Commercial Leases Act 1995 (SA). The first and second appellants (Mr Yuan and Ms Yang) made a claim for lost goodwill in a business which they operated through their company, Dan and Amy’s Pty Ltd (the company), the third appellant in this appeal. The business comprised the Terowie Roadhouse, Motel and Caravan Park located on the Barrier Highway at Terowie in the mid-north of South Australia (the business).
A lease of the premises from which the business operated was entered into by Mr Yuan and Ms Yang, as lessees, and the respondents Mr O’Neill and Ms Griese, as lessors, on 21 December 2014 (the Lease).[1]
[1] The first and second appellants (the appellants) are a married couple, as are the respondents.
The claim for damages for the loss of or diminution in the goodwill of the company’s business was made by Mr Yuan and Ms Yang in their capacity as lessees and founded on alleged breaches of the Lease (the goodwill claim). The company was not a party to the Lease. Although other claims were made at trial, many of which were rejected, they are no longer in issue.[2]
[2] These included claims relating to various breaches of the Settlement Agreement, one of which is referred to later in these reasons.
The Magistrate dismissed the goodwill claim because the goodwill belonged to the company and not to Mr Yuan and Ms Yang, its directors and shareholders. The Magistrate found that the company could not press any claim based on a breach of the Lease to which it was not a party. Additionally, she found that no loss had been proved for the goodwill claim.
The appeal put those findings into issue, advocating that there had been an error in law in failing to apply the “second limb” of Hadley v Baxendale[3] as well as the “Panatown principle”, an exception to “the general principle that a plaintiff may only recover damages for a loss which he has himself suffered” (the general rule).[4]
[3] (1854) 9 Ex 341; 156 ER 145.
[4] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 522 (Lord Clyde).
Mr O’Neill and Ms Griese press a cross-appeal by which they challenge the Magistrate’s jurisdiction to entertain claims other than those based on remedies available under the Retail and Commercial Leases Act 1995 (SA). They also say that claims based on the Settlement Agreement, entered into on 11 August 2017 some years after the Lease commenced (the Settlement Agreement), should not have been considered because they were not pleaded. Finally, they say that the Magistrate was wrong to find that a loss of or diminution in goodwill was available in connection with the breach of an implied term of good faith under the Settlement Agreement.
By Notice of Alternative Contention the respondents also assert, in effect, that there could be no claim for loss of or diminution in goodwill in circumstances where, following the trial but before the Magistrate delivered her reasons, Mr Yuan and Ms Yang elected not to renew their Lease for a further five-year term.
Disposition of the appeal and cross-appeal
Following the hearing of the appeal on 17 March 2020, on 18 March 2020 I dismissed the appeal and the cross-appeal.
In essence, the appellants failed to prove that there was any loss of or diminution in the company’s goodwill, and the invitation to wield what was termed the “judicial broad axe” should be declined where to do so effectively involved speculation in an evidentiary vacuum.
The respondents did not show that the Magistrate lacked jurisdiction, nor did they show that any defect in the pleadings caused any inconvenience (let alone prejudice), and the findings based on an asserted breach of the implied duty to act in good faith were open to the Magistrate.
These are my reasons.
The events leading to trial
Between December 2014 and February 2017 Mr Yuan and Ms Yang operated the business through their company selling petrol, drinks and food (whether takeaway or in the café within the roadhouse), and offered seven motel rooms and six caravan park sites for accommodation.
The relationship between the parties soured and soon became acrimonious. In February 2017 Mr O’Neill and Ms Griese issued a Notice to Rectify, alleging various breaches of the Lease. That was followed on 30 March 2017 by a Notice of Termination of Lease and they took unilateral action to lock Mr Yuan and Ms Yang out of the premises. Soon after the eviction, on 3 April 2017 Mr Yuan and Ms Yang commenced proceedings in the Magistrates Court, obtained an injunction and a trial was listed to commence in August 2017.
The parties resolved their differences at a mediation before trial, and the compromise was reflected in the Settlement Agreement entered into on 11 August 2017. The company was a party to the Settlement Agreement. Pursuant to the terms of the Settlement Agreement the parties assumed various obligations. A number of these were reciprocal. Mr O’Neill and Ms Griese agreed to withdraw the Notice of Termination of Lease and to provide a signed apology which Mr Yuan and Ms Yang had the right to display at the roadhouse for a period. Mr O’Neill and Ms Griese also agreed to pay a settlement sum.
Whilst it was a term of the Settlement Agreement that the parties provide mutual releases and discharges arising out of the eviction, they explicitly agreed that the Lease remained in full force and effect and was binding. Nothing in the Settlement Agreement prohibited the issuing of fresh notices in respect of any further default.
Regrettably, the acrimony remained. After Mr Yuan and Ms Yang re-entered the premises in August 2017, they were denied free access to a water tank, hot water system and septic tank. Mr O’Neill and Ms Griese had erected a gate which barred access. A request for the keys to the lock on that gate was refused.
In addition, in breach of the Settlement Agreement, Mr O’Neill and Ms Griese failed to instruct their bank to engage its valuer to calculate the percentage that the demised premises bore to the overall area assessed for rates and taxes. This percentage would have enabled Mr Yuan and Ms Yang to calculate and claim any refund to which they may be entitled for rates and taxes which they had paid for the whole of the property and not merely for the demised premises. Instead, the valuer was instructed to calculate the relevant percentage based on the difference in property values between the whole area and the demised premises. The difference between those two calculations may have been a refund in the order of nearly 19 per cent of the rates and taxes paid.[5]
[5] Magistrate’s Reasons, [84]-[86]. The valuer calculated, using property values, that the demised premises comprised 53.75 per cent of the whole, whereas the appellants contended that it was, by area, only 34.9 per cent of the whole, a difference of 18.85 per cent.
There were also a number of incidents that Mr Yuan and Ms Yang alleged involved a breach by Mr O’Neill of the obligation to provide quiet enjoyment and which they said were designed to intimidate and force them to abandon the Lease. For example, in October 2017 it was alleged that Mr O’Neill photographed Mr Yuan whilst he was cleaning a gutter and yelled at him “leave my property”. In January 2018 Mr O’Neill came onto the demised premises without notice and it is alleged that he yelled at Mr Yuan or Ms Yang “go back to China, you have no water”. There were other incidents.
In July 2018 Mr Yuan and Ms Yang commenced further proceedings in the Magistrates Court. In August 2018 Mr O’Neill and Ms Griese served a Notice of Breach of the Lease containing 43 alleged breaches.
The matter came on for trial before the Magistrate in November 2018 and was concluded in March 2019, after a hearing over a number of days.
A significant development after the trial but before judgment was that the appellants gave notice to the respondents that they did not intend to renew the Lease at the end of the five-year term for a further five-year period, with the result that the Lease was due to terminate on 21 December 2019.
In consequence, the respondents filed an application on 31 October 2019 seeking summary judgment, or alternatively, seeking to strike out those aspects of the appellants’ claims that sought orders requiring that certain obligations be performed pursuant to the Lease. That application appears to have been addressed as part of the final resolution of the matter.
On 29 November 2019, the Magistrate delivered reasons and made orders. In essence, she accepted only those claims made by the appellants that concerned the respondents’ obligation to procure a report from which a calculation could be made regarding a refund on the rates and taxes paid by the appellants. In all other respects, their claims failed.
Given the imminent termination of the Lease, the Magistrate held that there was no utility in proceeding to order that the parties take any action to rectify any alleged non-compliance with the Retail and Commercial Leases Act 1995 (SA), or indeed to make any declaration or orders regarding the “voidability” or termination of the Lease.[6] There has been no complaint from the parties about that approach.
[6] Magistrate’s Reasons, [25].
The Magistrate rejected the respondents’ counterclaim. The question of costs was deferred.
The appeal and cross-appeal
The appellants press 11 grounds of appeal. On the hearing of the appeal these were put into three categories:
1A complaint about the finding that there was no privity of contract (appeal grounds 3.1-3.6 inclusive);
2A complaint about the knowledge of the respondents concerning the existence of the company as the entity through which the appellants’ business was conducted (appeal grounds 3.7, 3.8); and
3A complaint about the finding that there was no loss proved in connection with the goodwill claim (appeal grounds 3.9-3.11 inclusive).
For their part, the respondents pressed three grounds by way of cross-appeal:
1A complaint that the Magistrate had no jurisdiction or power to hear and determine claims based on a breach of the Settlement Agreement “based on jurisdiction other than that conferred by the Retail and Commercial Leases Act 1995 (SA)” (cross-appeal ground 3.1);
2A complaint that the claims founded on breach of the Settlement Agreement were not supported by any pleading about a breach of contract and the appellants had not sought to amend their pleadings to plead that case (cross-appeal ground 3.2); and
3A complaint that there was no implied duty to act in good faith under the Settlement Agreement “in respect of the claim for diminution in goodwill” (cross-appeal ground 3.3).
The Notice of Alternative Contention asserted that the decision should be upheld for reasons other than those relied upon by the Magistrate, being:
1There is no goodwill in the business operated by the company by reason of the lessees’ election not to renew “and accordingly no possible diminution of goodwill” (ground 1);
2The election not to renew the Lease “infects the reliability of the ‘evidence’ … that the Appellants led in support of their diminution of goodwill case” rendering it “wholly irrelevant, unreliable and of no weight at all” (ground 2);
3The conduct alleged to give rise to diminution in goodwill was incapable of diminishing goodwill (ground 3); and
4There is no cause or link, or evidence of a cause or link, between the conduct alleged to give to rise a diminution in goodwill and any actual diminution in goodwill (ground 4).
The finding regarding privity of contract
The respondents contended at trial that any goodwill claim could only be made by the company and not by Mr Yuan and Ms Yang and, because the company was not a party to the Lease, it was not entitled to recover any damages for breach of the Lease.
To this, the appellants countered that there was evidence that the respondents knew at the time of entering the Lease that the business would be conducted through a company. The learned Magistrate held:
I do not accept that the lessors either acquiesced [in] or had actual knowledge of the fact that the company was operating the business and would suffer any losses as a result of any breaches. I accept that the lessors would have become aware of such an arrangement at least shortly prior to, and at the time of, signing the Settlement Agreement. There is no doubt that under the Settlement Agreement, where a breach was causative loss to the applicant company the lessors are liable to the applicant company as, in that case there is a privity of contract.
For these reasons, the claims for the company’s alleged loss of goodwill and the losses alleged to have arisen out of access to an electricity meter, the demised premises, the sink and the fire safety equipment, where pleaded as stemming from breaches of the Lease, must fail.
As mentioned, only the goodwill claim remains in issue.
On the hearing of the appeal counsel for the appellants relied upon the fact that Mr O’Neill had signed what was described at trial as the “Unigas Agreement” before entry into the Lease. Reliance was also placed on passages in the cross-examination of Mr O’Neill which, it was said, proved that Mr O’Neill knew that the business would be conducted through the company at the time of entry into the Lease. This knowledge was said to support a finding for the purposes of the “second limb” of Hadley v Baxendale,[7] sufficient to enable the goodwill claim to be made by Mr Yuan and Ms Yang as an item of special loss, even though that loss was sustained by the company, and not by them.
[7] (1854) 9 Ex 341; 156 ER 145.
As an alternative, counsel relied on what was described as the “Panatown principle”.
I shall address each. However, before doing so it is, I think, useful to consider some basic principles concerning damages claims in connection with a breach of contract.
In Robinson v Harman Parke B explained:[8]
… where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with the respect to damages, as if the contract had been performed.
[8] (1848) 1 Ex 850, 855; 154 ER 363, 365.

It is usual following Hadley v Baxendale to ask whether damages are the presumed or the known consequences of a breach of contract. These are sometimes described as general or special loss, or “first limb” and “second limb” claims.[9] A “first limb” claim permits a plaintiff to recover those damages that may fairly and reasonably be considered to have arisen naturally (that is, according to the usual course of things) from a breach of contract, and which are necessary to put the party who sustained loss in the same position as if the contractual obligation had been performed.[10] As Lord Reid explained in Koufos v C Czarnikow Ltd:[11]
The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.
[9] Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145. See also Wenham v Ella (1972) 127 CLR 454, 471 (Gibbs J).
[10] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80-82 (Mason CJ and Dawson J).
[11] [1969] 1 AC 350, 385.
As for a “second limb” claim, it was explained in Hungerfords v Walker that:[12]
The object of the second limb in Hadley v. Baxendale was to include loss arising from special circumstances of which the defendant had actual knowledge when that loss does not fall within the first limb because it does not arise from “the ordinary course of things” of which the defendant has imputed knowledge: see Victoria Laundry.[13]
[12] (1989) 171 CLR 125, 142 (Mason CJ and Wilson J).
[13] Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 539.
The High Court has emphasised that what was in the contemplation of the parties invariably “depends upon a consideration of the terms of the contract in the light of the matrix of circumstances in which it was made”.[14] Indeed, whilst it is often unnecessary to determine whether a loss falls under the first limb or the second limb of Hadley v Baxendale,[15] it will usually assist a plaintiff to be able to point to what the defendant was told or apprised concerning the reason for the contract at the time of entry into it.
[14] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 92 (Mason CJ and Dawson J).
[15] Wenham v Ella (1972) 127 CLR 454, 472 (Gibbs J); Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653, 673 (Brennan J).
This brief review illustrates what appears to be a misconception in the case made for the appellants. The so-called “limbs” of Hadley v Baxendale are intended to delineate the types of loss that may be claimed by a party to the contract, depending upon whether the loss can be said to have arisen naturally, according to the usual course of things, as distinct from whether the loss arose from special circumstances actually known to the defendant. That is, losses about which the defendant has imputed knowledge as distinct from actual knowledge. Hadley v Baxendale has nothing to say about the circumstances in which a party may sue for loss sustained by a non-party. As Gibbs CJ explained in Gould v Vaggelas:[16]
It is of course elementary to say, as was said in Prudential Assurance Co. Ltd. v. Newman Industries Ltd. [No. 2],[17] “that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested”. Any loss suffered by Gould Holdings as a consequence of the fraud can be recovered only by the company itself. Even if the company had not commenced an action within the limitation period, its failure to enforce its own rights would not have enhanced the rights of the Goulds: see Prudential Assurance v. Newman Industries [No. 2]. However, although the Goulds cannot recover damages merely because Gould Holdings has suffered damage, and cannot recover damages which are merely a reflection of a loss suffered by the company, they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company. That this is so is clear in principle, but if authority is needed, the judgment in Prudential Assurance v. Newman Industries provides it.
(Citations omitted.)
[16] (1985) 157 CLR 215, 219-220.
[17] [1982] Ch 204, 210.
Accordingly, Hadley v Baxendale provides no basis to permit Mr Yuan and Ms Yang to make a claim for the goodwill lost by their company, and not by them.[18]
[18] Shareholders do not own the property of a company, see R v Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428, 434-435 (Latham CJ), citing, as might be expected, Salomon v Salomon& Co [1897] AC 22 and Macaura v Northern Assurance CoLtd [1925] AC 619.
In any event, the evidence relied upon by the appellants does not support the proposition that, before entry into the Lease, Mr O’Neill knew that the business would be operated through the company (or any company), and the company might be at risk of loss in the event of breach.
The Magistrate made a clear, adverse finding to the effect that, although Mr O’Neill signed the Unigas Agreement, he signed only the last page and he did not see the balance of the document which revealed the existence of the company.[19] The Magistrate also found that Mr O’Neill did not know about the company when he insisted that Mr Yuan and Ms Yang sign the Lease.
[19] Magistrate’s Reasons, [55]-[58].
In order to disturb these findings, it is of course necessary for the appellants to demonstrate error.[20] Having considered the evidence relied on at the appeal, and the course of the trial, I am not convinced that these factual findings were wrong. I think that they were correct.
[20] Lee v Lee (2019) 93 ALJR 993, [55] (Bell, Gaegler, Nettle and Edelman JJ).
Mr Yuan gave evidence during examination in chief that he had asked Mr O’Neill whether they could “sign the lease contract with the company” but that this was refused.[21] He also said that Mr O’Neill signed the application for the LPG auto gas service which named the applicant as the company, and he and his wife as guarantors (being the Unigas Agreement). Mr Yuan did not describe the circumstances of the signing, nor did he explain what was actually handed to Mr O’Neill. He did not say that he was present when Mr O’Neill was given the Unigas Agreement. He did not say that he was present when Mr O’Neill signed it. Mr Yuan was not cross-examined on these matters.
[21] T21.
When he gave evidence in chief, Mr O’Neill said that he first became aware of the existence of the company “once we had issues with [the appellants] and things happened in court”.[22] Although he said he signed the Unigas Agreement, he did not explain exactly what he saw when he signed it.[23]
[22] T328.
[23] T337.
Under cross-examination Mr O’Neill gave somewhat inconsistent evidence about whether he learned about the existence of the company before the initial proceedings that were resolved at mediation or before the proceedings that proceeded to trial.[24] However, Mr O’Neill remained adamant that he had no knowledge of the existence of the company before the Lease or before proceedings commenced.[25] When it was put to him that he had insisted that Mr Yuan and Ms Yang sign the Lease, he agreed, explaining that “if it was a business, then that business could then go broke and I would not have no comeback on anyone for outstanding rent or anything”.[26]
[24] T390-392.
[25] T393-394.
[26] T393.
Contrary to the argument pressed on appeal, this evidence is not inconsistent and it was not misunderstood by the Magistrate. Mr O’Neill clearly said that he refused a request that the Lease be signed in the name of a business and he also said that he did not know anything about the existence of a company through which the business would be conducted. These propositions are not inconsistent.
Mr O’Neill was pressed with the fact that a previous operator of the business (Mr Prakash Mehendi through Eco Telecom Pty Ltd) was also required to sign a lease in an individual capacity rather than through a company. Again, Mr O’Neill agreed that he did insist that the previous lessee sign “[i]n his personal name” but, consistent with his earlier evidence, said that he knew nothing about the company through which that previous operator conducted his business.[27]
[27] T394.
On the question of the Unigas Agreement, and as the Magistrate found, Mr O’Neill was adamant that he saw the page which he signed, page 49 of the exhibit, but no other page or portion of the document. He did not see “the one document” as a whole. He disagreed that he was dishonestly asserting that he had not seen the balance of the document because it created problems for his case.[28]
[28] T397-400.
Mr Yuan was recalled at the close of the evidence for further cross-examination. Although what Mr Yuan had said about telling Mr O’Neill about the existence of the company and giving Mr O’Neill the Unigas Agreement had been put into issue during the cross-examination of Mr O’Neill, no application was made to lead further evidence by way of rebuttal. There was no attempt made to call Mr Prakash Mehendi, the witness to the signatures of Mr Yuan and Mr O’Neill on the Unigas Agreement, or to explain his absence.
The failure to make any application to lead further evidence to address these matters was not explained on the appeal. However, the appellants accepted on appeal that they bore any burden of proving that Mr O’Neill knew about the company for the purposes of their argument that the case came within the second limb of Hadley v Baxendale.
Accordingly, the position in which the Magistrate was left was that Mr Yuan had given some evidence on matters that the appellants regarded as important, but that evidence had been put into issue by the answers given by Mr O’Neill under cross-examination and, although Mr Yuan was recalled for further evidence, he was not asked any further questions about these matters. The witness to Mr O’Neill’s signature, Mr Prakash Mehendi, was not called.
Whilst the failure to call a witness, or to ask questions of a witness, can provide a basis upon which to draw an adverse inference,[29] that was not the approach taken at trial or by the Magistrate. She simply rejected the propositions advanced by the appellants as they were “not supported by the evidence”.[30]
[29] Indeed, the adverse inference arising from the failure to ask a question of a witness who has been called may be stronger than the adverse inference arising from the failure to call a witness, see the discussion in Australian Securities and Investments Commission v Rich (2009) 236 FLR 1, [449]-[453] (Austin J).
[30] Magistrate’s Reasons, [57].
This was an issue on which the appellants bore any relevant burden of proof. Mr Yuan’s evidence was somewhat equivocal, and the page of the Unigas Agreement signed by Mr O’Neill (page 49 of the exhibit) does not obviously look like it formed part of a larger document. A plain reading of that page suggests, as the Magistrate found, that it was a stand-alone document.
In these circumstances, there is no basis to conclude that the Magistrate’s findings were glaringly improbable or contrary to compelling inferences or, indeed, contrary to incontrovertible documentary or other objective evidence.[31] As I have explained, given the course of the trial, I think that the findings were correct.
The Panatown principle
[31] State Rail Authority (NSW) v Earthline Constructions Pty Ltd (In liq) (1999) 73 ALJR 306, [4], [7] (Gaudron, Gummow and Hayne JJ).
The appellants’ argument on appeal was premised on the proposition that no goodwill claim had been made by the company at trial and that the only claims available for breach of the Lease were those available to Mr Yuan and Ms Yang as lessees.[32]
[32] I leave to one side whether in fact a goodwill claim might have been made by the company for a breach of the Settlement Agreement. That case does not appear to have been pressed, despite the contrary assumption made in the cross-appeal.
It was contended that Mr Yuan and Ms Yang “for a substantial number of breaches were left without any remedy in damages” leaving “a legal black hole” in relation to damages.[33] It was also contended that the law had developed “a realistic and practical solution to this which would otherwise arise where a breach of contract would go uncompensated through an absence of privity between the party suffering the loss and the party causing such”, and that it was an error “in law in failing to apply the Panatown principle to permit the lessees to recover the loss/diminution of the goodwill, owned by the company”.[34]
[33] Appellants’ Summary of Argument, [5]-[6].
[34] Appellants’ Summary of Argument, [6]-[7].
In my view, this alternative way of putting the claim must also be rejected.
Alfred McAlpine Construction Ltd v Panatown Ltd (Panatown)[35] concerned a claim by an employer for substantial damages, as distinct from nominal damages, in respect of seriously defective work and delays in the construction of an office block and carpark by a building contractor on a site owned by another company, albeit in the same group of companies as the employer. The building contractor had also entered into a “duty of care deed” with the owner of the site, by which the owner acquired a direct remedy against the contractor in respect of any failure by the contractor to exercise reasonable skill, care and attention within the scope of the contractor’s responsibilities.
[35] [2001] 1 AC 518.
An arbitrator rejected the building contractor’s preliminary objection that the employer was not entitled to recover substantial damages. A High Court judge reversed that ruling but this was, in turn, reversed by the Court of Appeal. On appeal to the House of Lords, a majority held that because the duty of care deed provided the owner with a direct remedy against the building contractor for the losses resulting in the contractor’s defective performance of the contract with the employer, there were no grounds upon which the employer, having suffered no financial loss, was entitled to anything more than nominal damages.
No occasion arose, therefore, to consider any “exception” to the general rule referred to earlier in these reasons.[36]
[36] At [5].
Nonetheless, the appellants relied upon Panatown on the basis that it recognised an exception to the general rule which should have been applied by the Magistrate. Reference was made to the well-known decision of Lord Diplock in The Albazero.[37] That case referred to the so-called rule in Dunlop v Lambert[38] regarding claims made for losses sustained in connection with “all forms of carriage including carriage by sea itself where no bill of lading has been issued”.[39]
[37] [1977] AC 774.
[38] (1839) 6 Cl & F 600; 7 ER 824.
[39] The Albazero [1977] AC 774, 847 (Lord Diplock).
This exception was initially only applied to commercial contracts concerning the carriage of goods, and related policies of insurance upon those goods where “the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss”.[40]
[40] The Albazero [1977] AC 774, 847 (Lord Diplock).
Whilst in Panatown Lord Clyde also considered cases where it might be supposed that the parties intended that their contract should benefit a third party, it is clear that his Lordship did not recognise an exception based upon that broad proposition.[41]
[41] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 530.
The exception has been extended to building contracts. In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (to which Lord Clyde referred), there was evidence that both the contractor and the employer knew that the property the subject of a building contract would be occupied or purchased by third parties.[42]
[42] [1994] 1 AC 85, 115 (Lord Browne-Wilkinson).
It is clear from Lord Clyde’s reasons that he was not prepared to find that the exception applied in favour of Panatown (given the duty of care deed), and it is doubtful whether it had ever been applied beyond contracts concerning the carriage of goods or building and construction. In particular, his Lordship rejected what was termed in the argument before him as the “broader ground”, which he described as follows:[43]
I turn accordingly to what was referred to in the argument as the broader ground. But the label requires more careful definition. The approach under The Albazero exception has been one of recognising an entitlement to sue by the innocent party to a contract which has been breached, where the innocent party is treated as suing on behalf of or for the benefit of some other person or persons, not parties to the contract, who have sustained loss as a result of the breach. In such a case the innocent party to the contract is bound to account to the person suffering the loss for the damages which the former has recovered for the benefit of the latter. But the so-called broader ground involves a significantly different approach. What it proposes is that the innocent party to the contract should recover damages for himself as a compensation for what is seen to be his own loss. In this context no question of accounting to anyone else arises.
[43] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 532.
Even so, Lord Clyde expressed himself in very broad, general terms regarding what he described as a “more realistic and practical solution”:[44]
… a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss, than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss.
[44] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 535.
It is clear from the reasons of the majority that none were prepared to embrace any general exception to the general rule in these terms.
Lord Jauncey of Tullichettle rejected the argument against the “general rule”.[45] As for the “narrow ground”, based on Dunlop v Lambert, his Lordship emphasised that the exception was available for breach of a contract where it was within the contemplation of the contracting parties that breach would likely cause loss to an identified or identifiable stranger to the contract, rather than to the other contracting party.[46] He too rejected the “broader ground” upon which the employer’s claim was made, notwithstanding recognition of it in construction cases, because the employer had sustained no financial loss and because the owner had a direct right of action under the duty of care deed.[47]
[45] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 562-563.
[46] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 568.
[47] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 574.
Lord Browne-Wilkinson found that the direct action available to the owner under the duty of care deed was “fatal to any claim to substantial damages made by Panatown against [the building contractor]” but, again, his Lordship recognised the exception only in the context of building contracts.[48] Whilst he too rejected the “broader ground”, he was influenced by a report by the Law Commission and the passage of the Contracts (Rights of Third Parties) Act 1999 (UK) c 31, finding that there was “little inducement” for the courts to develop the rights of third parties in a case where, as he explained it, “a third party has himself the right to enforce the contract against the contract breaker”.[49]
[48] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 576-577.
[49] Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 578.

It is clear, then, that the House of Lords was prepared to recognise some scope for application of an exception to the general rule in cases where third parties might be left without remedies in connection with the carriage of goods and in connection with building contracts. The same might be said of the Australian High Court in connection with some insurance claims available to those liable in respect of injuries sustained at building sites.[50]
[50] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. For recent analyses of the High Court’s relaxation of the doctrine of privity in connection with insurance contracts, see Benson v Rational Entertainment Enterprises Ltd (2018) 97 NSWLR 798, [109]-[124] (Leeming JA); Foster v QBE European Underwriting Services (Australia) Pty Ltd [2018] NSWSC 440, [41]-[52] (Rothman J).
Common to these cases, however, is the notion that there exists no broad-based exception to the general rule that a party to a contract cannot claim loss which it has not suffered but which has been suffered by a non-party. Of course, I leave to one side cases where the terms of the contract confer the right to recoup non-party loss. As Panatown itself shows, where there is an available contractual right there is no need to call upon any exception.
There are, it seems to me, four reasons why there is no scope for recognition of an exception to the general rule in the circumstances of this case.
The first reason is that the appellants failed to prove that they sustained any loss in connection with the goodwill claim, let alone the extent of any diminution or loss. I shall explain that later in these reasons. In those circumstances, this is not a proper case in which to determine whether it is appropriate to recognise an exception which would constitute a radical departure from the general rule applying to the recoverability of damages for breach of contract.
The second reason is that this issue was not raised at trial and was raised for the first time on appeal. Notwithstanding that the respondents at trial relied throughout upon the point that the company was not party to the Lease, the Panatown principle does not appear to have been argued. Ordinarily, parties are bound by the conduct of their case at trial and they are unable to raise new points on appeal.[51] It is possible that, had this issue been raised at trial, there might have been further evidence, including further cross-examination, about the extent to which (if it all) the parties entered the Lease in the knowledge that it was likely to benefit the company or, perhaps, “the business” regardless of the precise entity through which it was to be operated by the appellants.
[51] University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481, 483 (The Court).
The third reason is that this is neither a case involving the carriage of goods nor one involving a building contract. It goes beyond the circumstances recognised in Panatown.
The fourth reason is that the Panatown principle does not appear to have been applied in Australia. The cases the appellants referred to, at most, recognise the decision of Lord Clyde, but certainly do not apply it nor suggest that it forms part of the common law of Australia.[52] Although in Roman Catholic Trusts Corporation v Van Driel Ltd the Supreme Court of Victoria considered the approach in Panatown, ultimately it was not applied because the Court was dealing with a very different situation: the party that had sustained loss was reimbursed for that loss by a non-party.[53]
[52] The appellants cited Transpacific Fish Exports Pty Ltd v Austmarine Pty Ltd [2005] SASC 147, [186] (Bleby J); Stanley v Layne Christensen Company [2006] WASCA 56, [27]-[28] (Wheeler JA); Australian Goldfields NL (In liq) v North Australian Diamonds NL (2009) 40 WAR 191, [49] (McLure JA); Pourzand v Telstra Corporation Ltd [2012] WASC 210, [205] (Edelman J).
[53] [2001] VSC 310, [108]-[109] (Hansen J). The arrangement in that case might well be characterised as a third party subvention, as to which see, for example, F.Y.D. Investments Pty Ltd v Promptair Pty Ltd (No 2) [2019] FCA 419, [296]-[309], [389] (White J).
For these reasons, the appeal grounds relating to the complaint about “privity of contract” fail. Likewise, the appeal grounds concerning the suggested knowledge of the respondents about the existence of the company as the entity through which the business would be conducted, and which might sustain loss, also fail.
The goodwill claim: no loss proved
The Magistrate observed that no specific amount was claimed for loss of or diminution in goodwill, nor was any evidence tendered which assisted the assessment of that loss.[54] In her reasons she explained:[55]
… the applicants have tendered no evidence to support their claim for diminution of goodwill and any loss consequential upon that. Generally, such an assessment is a technical one, requiring evidence of an expert in this area, such as an accountant. No evidence was produced and I consider the evidence tendered by the applicants to be inadequate in that regard. In the circumstances, I find that the applicants’ claim for loss of goodwill fails.
[54] Magistrate’s Reasons, [113].
[55] Magistrate’s Reasons, [127].
The case made on appeal was that the loss in connection with the goodwill claim crystallised when the appellants “declined to exercise the option for renewal for a further 5 years”. It was contended that this “achieved the intent and purpose of the Respondents in putting the lease to an end”.[56] The appellants also submitted:[57]
… as a matter of common sense damage to the goodwill was caused by the Respondents’ breaches. No reasonable person would be prepared to buy into a business in those circumstances. It is virtually the complete destruction of the goodwill.
[56] Appellants’ Summary of Argument, [33].
[57] Appellants’ Summary of Argument, [31].
It was asserted that the conduct of the respondents “must have an adverse effect on the ability of the Appellants to sell the business, including the goodwill”.[58] The appellants urged that any “mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can”:[59]
Where precise evidence is not available the court must do the best it can. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages.
(Citations omitted.)
[58] Appellants’ Summary of Argument, [32].
[59] Citing Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 83 (Mason CJ and Dawson J); Jones v Schiffmann (1971) 124 CLR 303.
I reject these submissions.
Ordinarily, loss claimed for a breach of contract must be assessed as at the date of the breach, and not later.[60] What must be shown is that the breach caused loss and damage, with the damages measured by the amount necessary to put the appellants into the position they would have been had there been no breach of contract (here, the Lease).[61] In the case of lost goodwill, that will usually require proof that the business is less able to attract custom and, in consequence, is less saleable. That is usually supplemented by demonstrating what price could have been commanded in a sale of the business before, as compared with after, the conduct comprising the breach. That will rarely, if ever, be proved by evidence from the operator standing alone and without reference to what has been done by the operator to endeavour to sell the operator’s business in the relevant market.
[60] Johnson v Perez (1988) 166 CLR 351.
[61] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 11-12 (Mason, Wilson and Dawson JJ).
Here there was no detailed evidence of efforts to sell, nor about the likely market for any sale. Apart from a sale that failed for reasons apparently unconnected with the lessors (finance could not be obtained, see below), no evidence was adduced from which one might derive any particular price or value for the business at any stage.
Nonetheless, the trial was not conducted on the basis that the goodwill claim had not already crystallised. That required evidence which addressed necessarily hypothetical matters: assuming a sale, what would the outcome likely be? The problem emphasised by the Magistrate was that she was given no material with which to determine loss by the time of trial. The argument that loss only crystallised after the trial, when notice was given of an intention not to exercise the option to extend, was only made after the trial. That is, of course, a case that is different to the case made at trial and inconsistent with it.
On the appeal, there was a tendency to refer to goodwill as if there was no question about its existence. The inference was that there could be no room to doubt its existence or meaning in this case. For example, I was taken to the 2017 and 2018 financial statements of the company in which “goodwill” was disclosed in the balance sheets at $90,000 “at cost”. Who made these entries and on what basis they were made was not explained. There are accounting standards relevant to entries such as these, and they do not necessarily equate to what might be paid for the “goodwill” of a business in the event of its sale. I received no submissions on whether these financial statements were relevantly probative of the damages issue, or if they were, whether they might be akin to self-serving assertions made out of court, or to statements made by the company’s accountants and therefore prima facie inadmissible hearsay for the purposes of proving the existence and value of the company’s “goodwill”.[62]
[62] Ordinarily, these are matters depending upon specialised knowledge, Australian Securities and Investments Commission v Rich (2005) 190 FLR 242, [277]-[278] (Austin J), rather than simply interpreting the balance sheet, [281]-[284]. As well, the basis for the expression of opinion must ordinarily be made clear and proved: see Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 and Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588, but cf Quick v Stoland Pty Ltd (1998) 87 FCR 371, 378 (Branson J), 382 (Finkelstein J). The Australian Accounting Standards Board standard for Intangible Assets, AASB 138 at [48], shows, for example, that internally generated goodwill is not to be disclosed as an asset. What might be appropriately reflected in a financial statement cannot be confused with what might be paid for a business, over and above the value of plant and equipment or other tangible assets.
The leading authorities on goodwill were not addressed in any detail on the hearing of the appeal.[63] As the High Court has recently reiterated, goodwill is “notoriously difficult to define”, being a legal term as well as an accounting or business term, and any definition in one context is “more often than not inappropriate in another”.[64] In Commissioner of State Revenue (WA) v Placer Dome Inc (Placer Dome)[65] the High Court described its earlier decision in Federal Commissioner of Taxation v Murry (Murry)[66] as marking “a watershed”. The Court recognised that the majority in Murry accepted that “goodwill for legal purposes is property”,[67] stating:[68]
… the legal concept of goodwill has three different aspects – property, sources and value – and what unites those aspects is the “conduct of a business”.
[63] Box v Federal Commissioner of Taxation (1952) 86 CLR 387, 395-397 (Dixon CJ, Williams, Fullagar and Kitto JJ); Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65, [52]-[71] (Kiefel CJ, Bell, Nettle and Gordon JJ).
[64] Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65, [52], [55] (Kiefel CJ, Bell, Nettle and Gordon JJ).
[65] (2018) 93 ALJR 65, [65] (Kiefel CJ, Bell Nettle and Gordon JJ).
[66] (1998) 193 CLR 605.
[67] Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65, [71] (Kiefel CJ, Bell, Nettle and Gordon JJ), citing Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, [22] (Gaudron, McHugh, Gummow and Hayne JJ).
[68] Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65, [70] (Kiefel CJ, Bell, Nettle and Gordon JJ).
The majority then addressed each aspect but emphasised that, for each, the attraction of custom remained the critical focus of, and central to, the legal concept of goodwill.[69]
[69] Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65, [70] (Kiefel CJ, Bell, Nettle and Gordon JJ).
In 1901 Lord Lindley had described goodwill as “whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others”.[70] In Placer Dome the High Court added that:[71]
… [g]oodwill, to accountants, clearly means something different than goodwill to lawyers. There is no concept of negative goodwill in law. Goodwill for accounting purposes is essentially subjective, reflecting the excess that a purchaser is willing to pay for a business or the discount a seller is willing to accept for the same. In this sense, it is essentially a balancing item. However, as a matter of law, the existence or otherwise of goodwill is objectively ascertained.
(Citation omitted.)
[70] Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217, 235.
[71] (2018) 93 ALJR 65, [53] (Kiefel CJ, Bell, Nettle and Gordon JJ).
As the Magistrate recognised in this case, it is usual where goodwill is in issue to lead evidence regarding the financial records and trading of the relevant entity, and to adduce expert opinion evidence having regard to that material as well as the relevant circumstances in which the entity is trading or operating. Some attempt might then be made in a case such as this to determine what might have been paid for the business before, as well as after, the conduct complained about, or perhaps before and after a selected date.[72] In this way, the court might then be furnished with the evidentiary material with which to determine the existence and value of goodwill, and whether it was damaged by the alleged breach of contract. None of that was done in this case.
[72] Spencer v The Commonwealth (1907) 5 CLR 418.
The approach taken by the appellants to determine whether there was any goodwill associated with the company and if so, its value, was difficult to follow. It appears to involve the following steps:
1Although the 2017 and 2018 financial statements of the company disclosed increases in sales and income, this was not relevant because the goodwill claim was not based on reduced earnings but on diminished value arising from the respondents’ breaches of the Lease.[73]
2When Mr O’Neill sold the business for $90,000 to the purchaser who ultimately sold it to the appellants (Prakash Mehendi and Eco Telecom Pty Ltd), the plant and equipment was then valued between $25,000 and $30,000 (according to the evidence given by Mr O’Neill under cross-examination at the trial).
3So, it was said, the value of goodwill at that time (a time not specified and about which there was no evidence) must have been between $60,000 and $65,000.
4During the course of the Lease the appellants negotiated a sale of the business for $135,000. It is said that the goodwill was then between $105,000 to $110,000 because the plant and equipment (again using Mr O’Neill’s evidence) could be valued between $25,000 and $30,000. There was no evidence that the plant and equipment utilised by the appellants was the same plant and equipment that had been utilised by Mr O’Neill, or for that matter by Mr Mehendi. I was told during the hearing of the appeal that the $135,000 sale did not proceed because the purchaser could not obtain finance (I received no submissions on the relevance or otherwise of a sale contract which did not proceed to completion).[74]
5An affidavit from the appellants’ solicitor filed on 6 November 2019 was referred to, but no submissions made about it. It was not referred to in the reasons of the Magistrate. The respondents objected to reliance upon it because it was not admitted into evidence and it was based upon impermissible hearsay, which could only have come from Mr Yuan and Ms Yang.[75] Whilst I have not read it, I assume that the untendered affidavit explains why the Lease was not renewed. There is no explanation for the failure to adduce admissible evidence, or indeed to re-open the case, so as to put admissible evidence before the trial court.
[73] Appellants’ Summary of Argument, [30]; exhibit P48.
[74] For example, see the consideration given to the many authorities on unaccepted offers by the Court of Appeal in Auxil Pty Ltd v Terranova [2009] WASCA 163.
[75] Respondents’ Outline of Argument, [29.2].
As may be obvious, whilst this material suggested the possibility of goodwill associated with the business operated by the company, it did not represent proof of its existence or value.
In these circumstances, the Magistrate was left with no evidence with which to determine whether there was any goodwill associated with the business, nor to assess its value and whether that value had changed during the subsistence of the Lease, or indeed after it.
Whilst one might surmise that acrimonious relations with a difficult landlord could conceivably impact on the ability of the business to attract custom, there was no evidence of that fact. On the contrary, the sale contract for $135,000 which was not completed might well suggest otherwise.
There is no explanation for the failure to adduce evidence, including expert opinion evidence, regarding the existence or value of any goodwill in the appellants’ business. That is so whether the exercise is undertaken before the conduct about which the appellants complain, after the alleged breach of the Lease, by the time of trial, or indeed by the time of the Magistrate’s judgment.
Whilst there are many authorities that implore courts to award damages even if the evidence does not permit calculation in a precise way, this case does not involve any mere question of difficulty of calculation.[76] It cannot be said, on the state of the evidence as it was at trial, that it was established that there was any likelihood of some substantial element of loss which the court was required to take into account when assessing damages.[77] Rather, this is a case where there remains considerable doubt about whether there is or was any loss. In my view, that is for two reasons:
1First, the appellants have not adduced evidence to prove over time the existence or value of goodwill associated with the company’s business, nor have they explained their failure to do so. As the observations of the High Court in Placer Dome suggest, goodwill can be a difficult concept and its existence and value cannot simply be assumed. Whilst the appellants point to their decision not to extend the Lease and wish to explain that in a way that reflects adversely on the respondents, there is no evidence on that point. That absence of evidence was, properly and frankly, conceded on appeal. All the Court knows is that the appellants have not renewed the Lease and that it likely terminated in accordance with its terms in December 2019. There may be any number of reasons for that. However, the fact is that there is no evidence.
2Secondly, and perhaps critically, in this evidentiary vacuum it cannot be assumed that the conduct of the respondents caused any loss of or diminution in goodwill. That proposition is not axiomatic. For example, though the appellants (rightly) complain about the conduct of the respondents, it is very far from clear that this had a deleterious impact on the custom of the business or the capacity of the appellants to obtain a fair price for it in the event of a sale. This is not a case, for example, akin to Medlin v State Government Insurance Commission where there was evidence that the plaintiff resigned his employment by reason of symptoms caused by injuries referable to the tortfeasor’s wrong, with the result that the consequences of his resignation had to be brought to account in the assessment of damages.[78]
Put differently, even if the respondents’ conduct conceivably caused some loss of or diminution in goodwill, the fact that the Lease was not extended could equally account for its loss or diminution.[79]
[76] See, for example, Giorginis v Kastrati (1988) 49 SASR 371, 375-376 (von Doussa J, with whom King CJ and Legoe J agreed).
[77] Cf Russell v J Hargreaves & Sons Pty Ltd (1956) 30 ALJ 533.
[78] (1995) 182 CLR 1.
[79] As has been said in a different context concerning the proof of negligence, the evidence must do more than give rise to conflicting inferences of equal degrees of probability, see Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1.

It is not going too far to say that the Court does not know what has become of the appellants’ Lease and business. There is no agreed fact or document proving that the Lease actually terminated. As for the business, whilst the implication is, and the course of argument on appeal assumed, that it was simply shut down and closed, that was not said so expressly. To reiterate, there is simply no evidence of it nor, importantly, of the reasons why it might have been shut down and closed.
In a different context, it has been said that the Court will not guess when it knows:[80]
… where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best.
[80] Johnson v Perez (1988) 166 CLR 351, 368 (Wilson, Toohey and Gaudron JJ) citing Willis v The Commonwealth (1946) 73 CLR 105, 109 (Latham CJ).
However, it must also be right to say that the Court will not guess when it does not know because the “actual facts”, without explanation, have not been put before the court.
Although, at times, the appellants’ case was put as one involving the “loss of a chance” to sell goodwill, and authorities were cited that are relevant to the assessment of damages for the “loss of a chance”,[81] this case does not involve what is usually regarded as the “loss of a chance”. Typically, cases involving that concept are concerned with proof on the balance of probabilities that some substantial loss or damage has been sustained,[82] and a question arises as to whether that loss will be higher or lower according to events about which there can be no proof, whether because they are future events, or because they are hypothetical events such as trading under a missed commercial opportunity.
[81] Appellants’ Summary of Argument, [39].
[82] Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113, 124 (Harman LS), 128-129 (Salmon LS); Hotson v East Berkshire Area Health Authority [1987] AC 750, 782; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332.
In the case of a personal injury claim, whether the plaintiff can return to work and exploit impaired earning capacity provides one example.[83] In a breach of contract claim, the loss of the opportunity to exercise an option to renew a contract that has been wrongfully terminated provides another example.[84] In those examples the prospect of the opportunity manifesting will usually be determined according to the degree of probability or possibility associated with its occurrence.[85]
[83] Mann v Ellbourn (1974) 8 SASR 298.
[84] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.
[85] Malec v J C Hutton Pty Ltd (1990) 169 CLR 638.
In Sellars v Adelaide Petroleum NL the High Court held that damages for the deprivation of a commercial opportunity will depend upon proof on the balance of probabilities that there is some loss or damage sustained, being the loss of a commercial opportunity which had some value, with the damages then ascertained by reference to degrees of probability or possibility.[86]
[86] (1994) 179 CLR 332, 355 (Mason CJ, Dawson, Toohey and Gaudron JJ).
This case is different. The appellants have neither proved the existence of goodwill, nor whether it had any value. It is no answer to say that a similar business conducted from the same premises on an earlier occasion by a different operator appeared to have some goodwill.
More fundamentally, the appellants did not prove that, insofar as the respondents breached the Lease, that caused a loss of or diminution in goodwill, or at what time that occurred. Insofar as they founded upon their unilateral decision not to renew the Lease, a case necessarily different to the case they made at trial, the evidentiary uncertainties simply multiply.
As already mentioned, it is equally open to conclude that even if there were some goodwill in the business, it was dissipated when Mr Yuan and Ms Yang decided (no doubt for their own good reasons) not to continue with the Lease.[87]
[87] Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1.
The appeal grounds concerning the proof of loss associated with the goodwill claim fail.
The cross-appeal
The essence of the respondents’ complaint is that the proceedings were commenced pursuant to the Retail and Commercial Leases Act 1995 (SA) and, accordingly, pursuant to the statutory jurisdiction conferred by s 10(1a)(ab) of the Magistrates Court Act 1991 (SA). They say no claim was available or pleaded in connection with any breach of the Settlement Agreement.
This complaint, it seems to me, can only relate to the claim which concerned the refund of rates and taxes. All other claims made in connection with any breach of the Settlement Agreement were rejected. The goodwill claim was only made in connection with the breach of the Lease. That was reiterated on appeal.
It is clear that the complaints made by the appellants were agitated at trial on the basis that they gave rise to compensation pursuant to s 68 of the Retail and Commercial Leases Act 1995 (SA).
Equally, it is clear that those complaints were agitated on their merits and each side had every opportunity to adduce evidence, and to test or contradict the evidence of the other party.
At trial the appellants contended that their complaints, including the goodwill claim, should be the subject of compensation under the Retail and Commercial Leases Act 1995 (SA). Insofar of claims were available under the Settlement Agreement, the appellants contended that this was a “collateral agreement” within the meaning of s 3(1) of the Retail and Commercial Leases Act 1995 (SA). The Magistrate rejected the “collateral agreement” contention,[88] and no complaint about that is made on appeal.
[88] Finding that the settlement agreement was plainly neither antecedent to nor contemporaneous with the lease relying, amongst other authorities, on Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133, 139 (Knox CJ); Heilbut, Symons & Co v Buckleton [1913] AC 30; Mason v Diakos [2009] SADC 55; Diakos v Mason [2010] SASCFC 37.
However, the respondents (as cross-appellants) say that the Magistrate could not allow any relief based on a breach of the Settlement Agreement. This is put as a matter going to jurisdiction, quite apart from the pleadings.
The respondents accepted that, by s 8(1)(a) of the Magistrates Court Act 1991 (SA), the Magistrate had power to hear and determine an action (whether at law or in equity), including a common law breach of contract action, provided only that the amount claimed did not exceed $100,000.
Leaving to one side the complaint about the state of the pleadings, in my opinion there was no jurisdictional impediment to the Magistrate determining a claim based on an asserted breach of the Settlement Agreement provided the damages did not exceed $100,000.
So far as the pleadings issue is concerned, the respondents emphasised the general rule that a party is bound by its pleadings.[89] However, it was not suggested that the respondents were surprised or inconvenienced, let alone prejudiced, by the failure to explicitly plead reliance upon the Settlement Agreement in circumstances where each side appeared to well understand the case of the other, and the respondents had every opportunity to meet the appellants’ case (and, in most respects, did so successfully).[90]
[89] Citing Banque Commerciale SA (In liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 286-287 (Mason CJ and Gaudron J).
[90] Cf Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175.
In the circumstances, there is much to be said for the Magistrate’s reliance upon r 3(1)(a) of the Magistrates Court (Civil) Rules 2013 (SA) and her obligation to “in all things promote the expeditious, economical and just conduct and resolution of an action or proceeding” and, in so doing, avoid any strict or technical approach which might otherwise undermine the obligations emphasised in r 3.[91] As the Magistrate recognised, pleadings are “only a means to an end” and:[92]
… if the parties in fighting their legal battles choose to … disregard [the pleadings] and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.
[91] Boral Resources (SA) Ltd v Civil Mining Solutions Pty Ltd [2018] SASC 151, [17] (Doyle J). See also the approach of Gray J in Battye v Shammall (2005) 91 SASR 315 (FC).
[92] Citing Gould v Mount Oxide Mines Ltd (In liq) (1916) 22 CLR 490, 517 (Isaacs and Rich JJ), cited in Kidd v Regional Skills Training Pty Ltd [2019] SASC 144, [49], [53] (Hinton J).
The respondents acknowledged on appeal that the pleadings complaint could easily have been met by an amendment that simply referred to that which had already been pleaded, and which then cited reliance upon the Settlement Agreement, without more.
In my opinion, this ground of cross-appeal must fail.
Finally, the respondents complain by cross-appeal that the Magistrate erred in law in finding that they were required to act in good faith in respect of the Settlement Agreement. It is difficult to know why this complaint was pressed. The only claims that survived or that were considered on appeal concerned the goodwill claim and the claim for a refund of rates and taxes.
Neither of these was ultimately put as depending upon the breach of a term implied under the Settlement Agreement. The goodwill claim was based on a breach of the Lease, not the Settlement Agreement. The claim made for a refund of rates and taxes turned on the breach of a specific provision of the Settlement Agreement, not the breach of an implied term. Accordingly, even if successful, this ground of cross-appeal could not assist the respondents (as cross-appellants).
On the hearing of the appeal the respondents did not challenge the proposition that a duty to act in good faith is a term usually to be implied by law in every commercial contract.[93] Rather, the respondents said that the authorities relied upon by the Magistrate concerned contracts that were different to the Settlement Agreement, and it was difficult to conceive what role the duty to act in good faith might play in circumstances where there either was, or there was not, a breach of the Settlement Agreement which either was, or was not, actionable.[94]
[93] In Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49, [581]-[596] Bleby J agreed with GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 208-209 (Finn J) that the duty of good faith and fair dealing applied to all contracts and that the implication could not be excluded by an "entire agreement" clause, cf Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382, [22] (Parker J).
[94] Territory Sheet Metal Pty Ltd v Australia and New Zealand Banking Group Ltd (2010) 26 NTLR 1; Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286.
This seems to me to take too narrow a view of the Settlement Agreement. It is plain from a reading of that agreement, together with the reasons of the Magistrate, that the intention of the parties at the time of entry was to enable both parties to obtain the benefit of their bargain, as well as to reaffirm that the Lease remained in full force and effect. The obligations on the parties were, in a number of respects, reciprocal. The conduct complained of had the effect of impeding the appellants in the conduct of their business and in their enjoyment of the Lease. As it turns out, the appellants were able to invoke a specific clause of the Settlement Agreement in order to support the orders ultimately made by the Magistrate regarding the claim for a refund of rates and taxes. That does not mean, however, that the term implied by law did not arise, nor that it had not been breached. Having said that, there has been some debate about whether a breach of the obligation of good faith can ever lead to an award of damages, as distinct from assisting to demonstrate that there has been a breach of a substantive term which does sound in damages.[95] As this issue was not argued on this appeal, it is not appropriate to express a view about that debate.
[95] See Elisabeth Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths, 2003) [6.18], [8.2]. This may be contrasted with cases where the breach of the implied term permits the conclusion that there has been a repudiation which sounds in damages. See by way of example only, Burger King v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558, [185]-[187], [429] (Shelter, Beazley and Stein JJA); Edensor Nominees Pty Ltd v Anaconda Nickel Ltd [2001] VSC 502, [182]-[187] (Warren J).
In my view, it was open to the Magistrate to find that there was a term implied by law as she described even though, on the facts of this particular case, any breach of that term did not underpin the damages claim that ultimately succeeded, nor the goodwill claim that failed.
In the circumstances, the ground of cross-appeal concerning recognition of an implied term of good faith under the Settlement Agreement fails.
It is unnecessary to consider the Notice of Alternative Contention. Although my reasons for the disposition of the appeal recognise some of the points made, it is not necessary to express any concluded view about each of the alternative contentions.
Conclusion and orders
After announcing the dismissal of the appeal and the dismissal of the cross-appeal the parties made submissions regarding costs, following which the Court ordered that there would be no order as to costs.
The orders of the Court were as follows:
1The appeal is dismissed.
2The cross-appeal is dismissed.
3There is no order as to the costs of the appeal or the cross-appeal.