FEATURE ARTICLE -
Advocacy, Issue 93: Sep 2023
The decision in RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd [2023] VSCA 182 (11 August 2023) provides a good example of the impact – upon a claim for damages for repudiatory breach of contract for wrongful termination – of a no fault termination clause otherwise contained in such contract. The gravamen of the decision underscores the view that an evidentiary onus lies squarely with the contract party found liable for breach to prove facts bearing on the hypothetical likelihood that the termination clause would have been exercised in any event. So much is not to say, of course, that – on a Malec v JC Hutton Pty Ltd basis – at some later point in the contractual term the no fault termination may not have been exercised by the party in breach. The Court of Appeal of Victoria (McLeish, Niall and Macaulay JJA) wrote apropos of that issue:
[1] RW & ME Smith Pty Ltd (the applicant), is a company owned by Robert Smith, a truck driver, and his wife. The applicant delivered concrete for the respondent, Boral Resources (Vic) Pty Ltd (‘Boral’), under a cartage agreement (‘the Agreement’). On 9 July 2015, Mr Smith and another employee of the applicant helped employees of Boral replace a broken drive chain on an elevator at Boral’s concrete plant. The broken chain was preventing Boral from loading concrete onto trucks. After the successful repair, and the plant resuming operations, Boral summarily terminated the Agreement because of what it alleged was the applicant’s serious misconduct when assisting with the repair. Despite the summary termination, and with Boral’s consent, the applicant continued to provide cartage services to Boral until October 2015 when it finally ceased doing so.
[2] In August 2020 the applicant commenced proceedings in the County Court alleging that Boral unlawfully terminated the Agreement in breach of its terms. In the alternative, the applicant contended that if the applicant breached the Agreement, the conduct giving rise to the breach was done at Boral’s direction. Accordingly, Boral was estopped or otherwise prevented by ss 20 or 21 of the Australian Consumer Law (‘ACL’) from relying upon its own conduct in order to terminate the Agreement.
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[4] On 30 May 2022, a County Court judge dismissed the applicant’s claim. The judge found that the applicant had not proved that the summary termination was wrongful. But even if the termination was wrongful, the judge found that Boral would have terminated the contract on three months’ notice in any event, and the applicant would have suffered the same financial consequences. The judge also found that the applicant had released Boral from any liability and was precluded from an award of damages by the operation of cls 3.1 and 3.2 of the Second Deed. The applicant now seeks leave to appeal that decision on nine grounds.
[5] For the reasons that follow, leave to appeal will be granted, the appeal allowed, the orders made by the County Court will be set aside and in their place judgment will be entered for the applicant for damages in a sum to be assessed upon the matter being remitted to the County Court.
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Factual background
[11] Boral is a large supplier of concrete and other building materials. In 1988, Boral became the owner of a concrete plant in Swan Hill (‘Swan Hill Plant’). Prior to 1988, the Swan Hill Plant had been owned by a company called Readymix.
[12] The applicant is a company, incorporated on 8 July 2003, which is owned and operated by Robert Smith, and his wife. Mr Smith had contracted with Readymix to supply concrete to the Swan Hill region from about 1970. Mr Smith continued working at the Swan Hill Plant once Boral took over ownership. From 1999, Mr Smith was the exclusive contractor to deliver concrete to all of Boral’s customers in the Swan Hill region.
[13] From 2001 to 2011, Mr Smith was subcontracted to act as the full-time plant operations manager at the Swan Hill Plant. From 2011, he returned to providing concrete cartage services for Boral.
The Agreement
[14] On 1 August 2014, the applicant and Boral entered into the Agreement which was titled a ‘Concrete Cartage Agreement’. It had a term of 5 years from commencement (ending 30 September 2019), with the potential for two extensions of 2 years and 1 year respectively.
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[17] Clause 22 was headed ‘Termination’ and provided that:
22.2 Boral may, by written notice to the Contractor, immediately terminate this Agreement or any Cartage Works being undertaken by the Contractor if the Contractor commits a material or wilful breach of any of the terms of this Agreement, including:
(a) refusal or failure to perform any Cartage Works;
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(f) breach of any Applicable Laws, including Chain of Responsibility Laws.
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22.4 Either party may, at its absolute discretion, terminate this Agreement at any time upon 3 months’ written notice to the other party.
22.5 Upon termination by Boral under this clause 23 [sic], except to the extent otherwise required by Applicable Laws, the Contractor’s only right to compensation will be for Cartage Works performed up to the time of termination and at the Cartage Rates specified in this Agreement, and the Contractor will not be entitled to any other form of compensation from Boral respect of such termination.
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Would Boral have terminated the Agreement on three months’ notice?
[129] Next, we must determine whether the judge was correct to find that, even if Boral’s termination on 22 July 2015 was unlawful, Boral would have terminated the Agreement on three months’ notice in any event, so that the applicant suffered no loss as a consequence of Boral’s breach.
[130] In short, the judge found that even if Boral had not immediately terminated the Agreement on 22 July 2015 in reliance upon its power of summary termination provided by cl 22.2, it would nonetheless have given the applicant a three month notice of termination under cl 22.4, exercisable at its absolute discretion, thus ending the Agreement in that time frame.
[131] The mere existence of a right to terminate on notice does not automatically cap the amount of damages that may be awarded: Berry v CCL Secure Pty Ltd (2020) 271 CLR 151 , 175 [36] (Bell, Keane and Nettle JJ) (Berry). Whether Boral would have given the applicant three months’ notice of termination under cl 22.4 of the Agreement presents an issue of fact. Boral called no evidence to this effect. No one from Boral was called to say what Boral would have done, and why. Nonetheless, the judge was prepared to infer from four facts we reproduced above…that Boral would have terminated the Agreement.
[132] In the hypothetical scenario that is being considered, it must be assumed that Boral would have understood that the applicant had not breached the Agreement by reason of what occurred on 9 July 2015: Wills Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 318 at [122] (Macfarlan JA) (Wills). We accept that this does not mean, of itself, that the applicant’s conduct would have been ignored or that Boral would have adopted a more benign approach. But it is a significantly different scenario to the one Boral evidently believed itself to be facing on 21 and 22 July 2015. Not only is it to be assumed that Boral would have been advised, and understood, that it could not have lawfully terminated the Agreement, it is also to be assumed that it would have understood that the tasks Mr Smith and Mr Pickering performed on 9 July were not tasks which they were obliged to perform by the Agreement. That is, unlike Mr Congram, they were merely performing gratuitous services to assist Boral.
[133] The applicant, and before its incorporation Mr Smith, had a very long combined history of involvement with Boral. Only 11 months before the incident, Boral had again entrusted the task of delivering its concrete in and around Swan Hill exclusively to the applicant. It had done so after the occurrence of the earlier disciplinary incident which had occurred in June of 2014. From the evidence led at trial, it cannot be ascertained whether Boral’s decision to terminate the applicant was made after considering other possible responses, short of termination, or to what extent the decision might have been finely balanced. There was no evidence that Boral was otherwise looking for some reason to rid itself of the applicant or Mr Smith.
[134] It is plain that the services provided by the applicant remained valuable to Boral and would have needed to continue. Indeed, Boral needed Mr Smith to make a further delivery mid-way through the meeting that was called to terminate the Agreement. If Boral terminated the Agreement on three months’ notice it would have had to secure another contractor. It could not have assumed that the applicant would make its own vehicles available to a new contractor. In these circumstances, getting rid of a long standing contractor would potentially involve an exercise of cutting off its nose to spite its face: Berry at [38] (Bell, Keane and Nettle JJ).
[135] Since finding the facts in question did not involve the trial judge relying on any advantage by reason of seeing and hearing witnesses, we are in as good a position as the trial judge to draw any inference from those facts: Warren v Coombes (1979) 142 CLR 531. In the absence of any direct evidence on this point, we would not infer that it was more probable than not that Boral would have terminated the five year contract one year into its term, because of the incident, if it understood that the applicant had not breached that contract.
[136] Even if we postulate a situation in which all the facts remain the same except for Boral’s understanding as to the nature of its legal right to terminate the Agreement summarily (Wills at [122]), Boral failed to establish the probability of its alternative factual hypothesis. Boral’s failure to adduce any direct evidence on this point is, in our view, fatal to any finding in its favour.
Conclusion and orders
[137] In consequence of its success on the appeal, the applicant seeks an order setting aside the judge’s dismissal of its claim and substituting an order that there be judgment for the applicant in the sum of $818,772 with interest and costs, or alternatively that the matter be remitted to the County Court for the assessment of loss and damage.
[138] Since the judge concluded that the applicant had not established its claim of unlawful termination of the Agreement, and that the claim was released in any event, and further that Boral would have terminated on three months’ notice, the judge found there was ‘no need to assess the [applicant’s] putative loss and/or damages claim’.
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[143] There are a number of issues that could be raised, about which we have heard no argument. They include:
(a) Whether the correct basis upon which to assess the loss of bargain is to assess the net present value of the income the applicant would have earned for the life of the contract.
(b) If so, how long should the entitlement to income be projected? What facts should be taken into account on that analysis?
(e) Should Mr Jensen’s figures be accepted as correct?
[144] It is not clear to us whether Boral disputed the conceptual measure of loss underlying Mr Jensen’s second valuation but merely took issue with the calculation and some of the assumptions made. That measure is the basis upon which the applicant sought an order for damages in this Court.
[145] In this state of affairs, we are not able to make a determination of damages in the absence of full argument on both facts and law. Moreover, we consider that because the judge declined to make any of the necessary primary factual findings, such as how long the contract might have proceeded, it is not appropriate that we should undertake that task as if at first instance.
[146] In all the circumstances it is appropriate to remit to the County Court the question of the assessment of damages to the applicant on the footing that:
(a) Boral breached the Agreement by wrongfully purporting to exercise a right of immediate termination;
(b) Boral’s breach prevented the applicant from performing the Agreement and earning revenue from that performance;
(e) Boral failed to prove that it would have terminated the Agreement upon three months’ written notice;
(d) the applicant is entitled to judgment, with costs, with damages to be assessed; and
(e)the parties led the evidence at trial upon which they intended to rely for the assessment of loss and damage should the applicant succeed on its claim.
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(emphasis added)
The decision of the High Court of Australia in Berry v CCL Secure Pty Ltd (2020) 271 CLR 151 – referred to by the Court above – is instructive in this regard as to the reach of the shift of the evidentiary onus. Bell, Keane and Nettle JJ wrote:
[29] While a claimant bears the legal burden of establishing the amount of its loss or damage, the nature and circumstances of the wrongdoer’s conduct may support an inference or presumption that shifts the evidentiary burden. That accords with the principle encapsulated in Armory v Delamirie that, where a wrongdoer has destroyed or failed to produce evidence which the innocent party requires to show how much he or she has lost, it is just that the wrongdoer should suffer the resulting uncertainty. Hence, in that case, since the defendant by his wrongful conversion of the plaintiff’s stones, and failure to produce them at trial, had made it impossible for the plaintiff to prove the quality of them, the stones were presumed to be of the highest quality and value. One relevant modern application of that principle is reflected in this Court’s decision in Amann Aviation, in which it was held that where, upon acceptance of the Commonwealth’s repudiation of a contract, Amann claimed damages for loss of the contract, Amann was entitled to recover “reliance damages” assessed on the basis of a rebuttable presumption that the net benefits to which Amann would have been entitled under the contract (if the contract had not been rescinded) would have been sufficient to cover the expenditure which Amann incurred pursuant to the contract. As Brennan J explained, because the Commonwealth had repudiated the contract and thereby deprived Amann of the ability to establish that the contract would have returned sufficient to recoup Amann’s contractual expenses, it was to be presumed that Amann would not have incurred its expenditure in reliance on the contract without a reasonable expectation that its performance of the contract would have returned it sufficient to recoup its expenses, and thus it was just that the Commonwealth should bear the ultimate onus of proving at least a prospect that Amann’s returns under the contract would not have been sufficient to recoup that expenditure. By contrast, as Brennan J observed, if a claimant seeks “expectation damages” for the loss of a chance that, had an agreement run to term, it may have been renewed or extended, the onus is on the claimant to establish those facts, although, even then, since the existence and degree of such an hypothetical possibility is, by reason of the wrongful termination of the contract, incapable of proof on the balance of probabilities, it is considered just that the wrongdoer should suffer the resulting uncertainty to the extent that proof to the level of a real (more than negligible) possibility is regarded as enough. The worth of the chance is then valued by a process of informed estimation.
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[33] Similarly, in this matter, if the state of the evidence were that, although it did not establish on the balance of probabilities that, but for Securency’s misleading or deceptive conduct, the Agency Agreement would have continued beyond 30 June 2008, it nevertheless established that there was a more than negligible chance that, but for Securency’s misleading or deceptive conduct, the Agency Agreement would have continued beyond that date, Dr Berry and GSC would have been entitled to claim that the measure of their damages fell to be determined by reference to the hypothetical possibility that, but for Securency’s misleading or deceptive conduct, Securency would have waited a substantial time after 24 February 2008 before terminating the Agency Agreement. In that event, and subject to questions of the way in which the matter was conducted below, it would have been necessary to undertake an assessment of the likelihood of the various hypothetical possibilities and to compute an award based on that assessment. But, as will be explained, in fact the state of the evidence was and is that it establishes on the balance of probabilities that, but for Securency’s misleading or deceptive conduct, the Agency Agreement would have continued until 30 June 2010; and so, therefore, the assessment of damages is properly to be undertaken on the basis of the commissions which would have been payable under the Agency Agreement up to that point.
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[35] … But, as has been seen, previous decisions of this Court concerning the recovery of damages for lost commercial opportunities — regardless of whether they are commercial opportunities to earn an extension or renewal of a contract, as in Amann Aviation, or to negotiate a new contract, as in Sellars, or even to institute proceedings for the recovery of damages, as in Malec — have held that, once it is established on the balance of probabilities that the defendant’s wrong caused the loss of opportunity, the value of the loss falls to be determined (and discounted) according to the assessed degree of likelihood that, assuming the claimant had been able to exploit the opportunity, it might not have resulted in all of the gain that was hoped for. …
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(emphasis added)
