Proof of Causation and Damages in Respect of Loss of Opportunity

In a recent decision of the New South Wales Trial Division, Boyded Industries Pty Ltd v Bluth [2023] NSWSC 915 (4 August 2023), Chen J usefully summarised the authorities concerning proof of causation and assessment of damages in a civil claim in negligence or contract for loss of commercial opportunity.  He did so in the context of a professional negligence claim where the defendant solicitor admitted that it failed to advise the plaintiff, in respect of a call option deed it had entered into in respect of land, that if the plaintiff – as it did on instructions to the defendant – lodged a caveat over the land, that would entitle the corporate other party  to the deed to terminate it, the plaintiff thereby losing the benefit of such deed and, in turn, of a personal guarantee by a Mr Fayad provided in respect of it. Causation was found proved and substantial damages were adjudicated. While breach of duty was admitted, contributory negligence and proportionate liability were contended by dint of conduct of the plaintiff’s director, Mr Turner, who was on holidays when he contacted the defendant giving instructions to lodge the caveat which spawned the deed termination. These contentions were rejected. As to contributory negligence, the NSW analogue of the Civil Liability Act 2003(Qld) s 23 was germane. His Honour wrote:

The assessment of whether the plaintiff lost anything of value

[83]  Cases involving professional negligence commonly involve difficult issues of causation, and the assessment of loss. This case is no different. Usually, the difficulties arise because the plaintiff’s case requires the Court to undertake an assessment of these issues based upon a counterfactual analysis: the Court is required, by that analysis, to determine a “what if” scenario — viz., what would have occurred if (here) Mr Bluth had discharged, rather than breached, his duty of care to the plaintiff. I have already assessed, and made findings about, two issues that arise in that analysis: the first was that Mr Turner would have acted on the correct advice and not instructed Mr Bluth to lodge a caveat over the Central Land (see [45], above); the second was that Mr Turner would have rescinded the deed, rather than negotiated an extension of it (see [73]ff, above).

[84]  Two issues remain in the plaintiff’s counterfactual analysis: whether the plaintiff lost anything of value and, if it did, assessing the value of that loss. I address these remaining issues in what follows.

The competing cases: introduction

[85]  The next step in the plaintiff’s counterfactual analysis involves assessing whether the plaintiff lost anything of value: the plaintiff argues it did, whereas the defendant argues it did not.

[86]  The plaintiff’s claim was expressed to be one for damages for a lost commercial opportunity — being, upon the expiration of the call option expiry date, the entitlement to receive payment of $3.5 million following rescission of the deed. It is convenient to describe this, as the parties did during submissions, as the ‘lost opportunity’.

[87]  Put simply, the plaintiff’s argument is: proceeding on the footing that following the expiry of the call option period Mr Turner would have taken steps to rescind the call option deed, and required the payment of $3.5 million, the Gateway entities or Mr Fayad (as guarantor) would have paid that amount. The plaintiff submitted that the circumstances demonstrate that recovery was likely or, at a minimum, there was a significant likelihood of that outcome. To the extent that the plaintiff submitted that it was, in effect presumptively, entitled to recover the full amount (the plaintiff’s primary case), I do not accept that submission. That is because, as the defendant submitted, the amount payable following rescission was in practical terms unsecured — it was a chose in action — and, relatedly, that characterisation of what was “lost” necessarily required an assessment of whether that chose in action had a value. In those circumstances, the plaintiff’s claim could not be characterised as “so high as to be practically certain”:  Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 , 643; [1990] HCA 20 (Malec). Thus, in my view, the plaintiff’s claim is correctly characterised as one for a lost commercial opportunity, as I have described in the preceding paragraph.

[88]  The defendant argued (defendant’s closing submissions at [8]–[10]), and the plaintiff accepted, that the date for the assessment is in fact 28 days from the expiration of the call option deed — the payment was only required to be made within 28 days of receipt of a tax invoice and direction to pay: cll 14.4 and 14.5 — such that the date of assessment should be 12 June 2020. That is, on the plaintiff’s case, the plaintiff was deprived of the $3.5 million payment 28 days after the option deed was rescinded. It followed that the determination of whether the plaintiff lost an opportunity of some value is to be determined at that date. I add: the evidence did not suggest that there was any difference between those dates — essentially, May or June 2020 — in connection with the “financial position” of the Gateway entities and Mr Fayad, and the defendant did not submit to the contrary.

[89]  The defendant’s ultimate position is that the circumstances were such that, even if the Court accepts that Mr Turner would have instructed Mr Bluth to take steps to rescind the deed in May 2020, there was no realistic prospect of any recovery — with the consequence that there could be no recovery of damages by the plaintiff. The defendant thus argued that the chose in action sued upon by the plaintiff was worthless, precluding the recovery of any damages: the “conclusion to be drawn is that the value of the lost opportunity to obtain the benefit of the unsecured promise to pay $3.5 million was so low as to be regarded as negligible or speculative” (defendant’s closing submissions at [39]–[40]).

[90]  The specific focus of the defendant’s submissions in connection with the assessment of the plaintiff’s loss was built upon the finding that it sought — namely, that the most likely scenario was that Mr Turner would have secured an extension of the call option period for 3 years — such that it was ultimately submitted that the time at which the loss should be assessed was in April 2023 (defendant’s closing submissions at [25]).

[91]  The defendant identified April 2023 as being the critical time period for the assessment of the plaintiff’s loss — a submission that was based upon a number of assumed facts, including: (a) the call option period was extended for a further 3 years following the expiration of the call option period on 15 May 2020; (b) the call option deed would have been extended on relevantly identical terms, with the call option period to expire notionally on 15 May 2023; (c) on 13 March 2023 the Gateway entities entered into a contract to sell the Central Land to JQZ Seventeen Pty Limited — an event that would have triggered an entitlement, at that time for the plaintiff to rescind the extended call option deed by reason of cl 14.1(a) (“the Grantor transfers ownership of the Central Land to another person or entity …”); and (d) upon the happening of that event, the plaintiff would have rescinded the extended call option deed serving a notice in writing requiring the payment which the Grantor was required to pay following receipt of “a tax invoice and a direction to pay” within 28 days: cll 14.1, 14.4 and 14.5.

[92]  As I have indicated earlier, the plaintiff’s case was an “all or nothing” one in connection with the rescission issue. The case was put in this way in part because of the recognition that, by April or May 2023, the financial position of the Gateway entities and Mr Fayad was known to be terminal: the Gateway entities were, on 8 May 2023, placed into liquidation and Mr Fayad was the subject of bankruptcy proceedings in the Federal Circuit and Family Court of Australia (Division 2).

[93]  At the same time, the defendant’s written (and oral) submissions did not expressly deal with the detail of the financial position of the Gateway entities, and Mr Fayad as at May or June 2020 — except in a confined way (defendant’s closing submissions at [38]–[40], [41]), and, even then, largely dealing with issues of principle rather than evidence or issues of fact. Nevertheless, the defendant maintained its position that the plaintiff had failed to establish that the Gateway entities (or Gateway group) or Mr Fayad were able and willing to pay the $3.5 million at the relevant time in 2020.

[94]  Before addressing the evidence, I will set out the relevant legal principles that inform the approach to be taken.

The relevant principles

[95]  In order for the plaintiff to succeed in a case that it had lost the opportunity to exercise its option rights under the deed, the plaintiff is required to demonstrate, on the balance of probabilities, that it has, in fact, lost an opportunity of some value, which is not negligible; and, upon demonstration of that fact, it becomes necessary to quantify the value of that opportunity. These principles (and requirements) were established in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 by Mason CJ, Dawson, Toohey and Gaudron JJ (at 355):

On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.

[96]  Brennan J explained the requirement of a plaintiff to demonstrate the loss in these terms (at 367–368):

… Unless it can be predicated of an hypothesis in favour of causation of a loss that it is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss. Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. A constant standard of proof applies to the finding that a loss has been suffered and to the finding that that loss was caused by the defendant’s conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses. In any event, the standard is proof on the balance of probabilities.

[97]  In Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135 (Mal Owen) the relevant principles from Sellars were concisely explained by Barrett AJA at [100]–[101] as involving a two-staged enquiry:

[100]… the joint judgment in Sellars v Adelaide Petroleum NL identifies as two distinct stages relevant to the resolution of a case such as the present. At that first stage, causation must be proved on the balance of probabilities: the question of causation is, after all, “entirely factual, turning on proof of relevant facts and on the balance of probabilities in accordance with s 5E” of the Civil Liability Act 2002 (NSW). The second stage becomes relevant only if causation is established at the first. The issue at the second stage is the assessment of damages; and the focus then is upon the actual value of the lost opportunity which, to that point, has been appraised only as not merely theoretical or negligible. Value must be ascertained at the second stage by reference to “the degree of probabilities, or possibilities, inherent in the plaintiff’s succeeding had the plaintiff been given the chance” of which the plaintiff has been deprived. These are again words used in the joint judgment in Sellars v Adelaide Petroleum NL . (footnotes omitted)

[101]At each of the two stages, therefore, attention must be given to a question relevant to the value of the lost opportunity. At the first stage concerned with causation, the task is no more than to confirm that the value is not in the realms of the merely theoretical or negligible — in other words, to establish, according to the balance of probabilities, that there is some colour of value to the lost opportunity. It is only if the second stage is reached (after causation is established at the first) that anything approaching particular quantification is required. An assessment made at the second stage by reference to the degree of probabilities and possibilities of factual hypotheses may require a process of estimation extending even to a degree of guesswork and may lie at any point within a broad range. (footnote omitted)

[98]  As I have earlier noted, the matter was argued on the basis that the “loss of opportunity” claim was available irrespective of whether the claim was in contract or tort (see Johnson v Perez (1988) 166 CLR 351 , 363; [1988] HCA 64 (Johnson)), a position that presumably was adopted because, in respect of both causes of action, the focus is the same — being upon the value of the commercial interest lost: Tabet v Gett (2010) 240 CLR 537; [2010] HCA 12 at [124] . Given the common approach of the parties, it is unnecessary to deal with this issue further.

[99]  The issue that presently arises is the first stage of the enquiry — viz., determining whether, on the balance of probabilities, the plaintiff lost an opportunity of some value. I am satisfied that the plaintiff lost, in consequence of the negligence of the defendant, something of value — namely, the opportunity to be paid an amount following the rescission of the deed — and that opportunity had some value, not being negligible. My reasons for that conclusion are as follows.

…

[130]  As against Mr Fayad, therefore I am satisfied and find that the loss of opportunity had some value, not being a negligible value.

Assessing the loss: quantification

[131]  The plaintiff submitted that the loss suffered was the chose in action under the deed once terminated — being the right to be paid $3.5 million and, further, that this represented the value of the right (plaintiff’s submissions at [36]).

[132]  In my view, as the defendant essentially submitted, the loss in question — the commercial interest lost — is properly characterised as the loss of the opportunity to be paid $3.5 million. However, given the right was unsecured, its value is not a reflection of the promised amount but a value having regard to the probabilities and possibilities.

[133]  The defendant submitted that if the Court finds that the value of the lost opportunity had a value that was not theoretical or negligible, then the Court is to undertake an assessment of the value of the commercial opportunity having regard to the probabilities and possibilities: the ultimate submission advanced was the plaintiff’s claim required “a very substantial discount” to $3,181,818.00 (defendant’s closing submissions at [25]). The amount identified by the defendant in this submission reflects an argument raised, to the effect that the contractual stipulation provided that the amount to be paid would be exclusive of GST. This argument is dealt with separately (see [150]ff, below).

The relevant principles

[134]  There was no dispute between the parties as to the correct approach to determine the value of that which has been lost: the assessment of value of the lost commercial opportunity is to be “ascertained by reference to the degree of probabilities or possibilities: Sellars at 355. In Searle v Clth (Aust) (2019) 100 NSWLR 55; [2019] NSWCA 127 at [202] (Searle), by reference to Sellars, it was said that this “only requires there to be established on the balance of probabilities that there was loss of an opportunity of some value but does not require it to be shown that the likelihood of that opportunity being realised was greater than 50%”; see also Mal Owen at [100].

[135]  Some other matters should be noted about the task of assessing the value of that which has been lost. First, the fact that the quantum of damages is difficult to assess does not mean that the plaintiff’s entitlement to damages is confined to a nominal sum; rather, the Court must estimate them, as best they can: Fink v Fink (1946) 74 CLR 127 , 143; [1946] HCA 54 ; Sellars at 349. In Fink (at 143) this principle was expressed in these terms:

Where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages.

[136]  Secondly, in relation to the “difficult task” of estimating hypothetical events (and assessment of loss based upon those events), in Searle it was reinforced that damages based upon hypothetical evaluations do not admit to precise calculation (at [206]):

It is not essential for a trial judge assessing damages for loss of a chance to nominate a particular percentage of probability to be attributed to the prospect of the chance being realised, and to insist on this would be prone to artificiality. A global approach not requiring the specification of particular percentages or degrees of probability or possibility was endorsed as acceptable by this Court in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 at [147] . In Malec at 640, Brennan and Dawson JJ said:

… we think it undesirable for damages to be assessed on the footing of an evaluation expressed as a percentage. Damages need not be assessed by first determining an award on the footing that the hypothetical situation would have occurred and then discounting the award by a selected percentage. Damages founded on a hypothetical evaluations defy precise calculations.

[137]  A similar point was made in Mal Owen by Barrett AJA, where it was said that valuing the lost opportunity “may require a process of estimation extending even to a degree of guesswork and may lie at any point within a broad range” (at [101]); see also Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 , 404; [1989] HCA 11 , and Sellars at 368, where Brennan J described the evaluative task to determine the amount or value of the loss suffered to be “a matter of informed estimation”.

Discussion and consideration

[138]  As I have earlier noted, the defendant’s position was that, when assessing the value of the opportunity lost, the circumstances of the case required “a very substantial discount”, a submission that extended to suggesting recovery should be confined to 10% of the amount claimed (which it capped based upon the “GST issue”). The plaintiff, on the other hand, submitted that there should be a modest discount only of the full amount claimed — and to the extent that this was reflected in a discount percentage, submitted that it should be around 10% but no more than 20%.

[139]  The parties did not enumerate specific matters that required consideration (nor, for that matter, did they assign any particular weight to certain matters that called for particular discounting or should inform the ultimate amount), but essentially (so far as the defendant is concerned) relied upon the financial position of the Gateway entities and Mr Fayad, and the uncertainty that inevitably attached to recovering from one or other of them. The position adopted by the parties was presumably a reflection of the fact that although proving a loss of a chance of some value and ascertaining the value of that chance are conceptually distinct steps in the plaintiff’s claim, “in practice it will usually be the same body of evidence that tends to establish both the existence of a loss and the amount to be recovered”: Sellars at 364.

[140]  As I have earlier noted, the matter was argued on the basis that two findings (favourable to the plaintiff) were needed on the issues of willingness, and ability, to pay (so as to permit a conclusion that the plaintiff lost something of value), and, when dealing with the question of the quantification of that loss, confined to the ways referred to in [138]–[139], above.

[141]  In my view an assessment based upon the plaintiff’s hypothesis requires consideration not only of the above, but also of how the claim would have been dealt with by the parties.

[142]  The plaintiff’s entitlement to be paid $3.5 million (subject to the GST issue) was clear, and the defendant did not identify any basis upon which it could, or might, be argued that the Gateway entities or Mr Fayad could have resisted that claim. There was, therefore, a strong legal entitlement to be paid this amount. Nevertheless, it remains at least possible that the Gateway entities and Mr Fayad disputed the claim, and had a basis to do so. In this respect it is well to recall what was said (albeit in a different context) by Megarry J in John v Rees [1970] Ch 345, 402:

As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered …

[143]  Thus, although, as I have said, I consider the claim to be a strong one, it is appropriate to take into account the possibility that there is some basis to resist that payment, or at least part of it. For example, although I separately address this issue, below, the fact that there is a dispute in connection with whether the plaintiff’s entitlement was the claim $3.5 million, or the amount less the GST is a reflection of the need to adjust the value of the plaintiff’s overall claim.

[144]  There is also a further reason to adjust the plaintiff’s claim, being the likelihood of the claim resolving by way of compromise. Compromise is reasonably commonplace, and it is, I think, a reality in the hypothetical circumstances here — particularly, given the financial concerns that Mr Turner had about the Gateway entities and the Dyldam group more generally. At the relevant time, Mr Turner knew very little, at least very little first-hand, about the liquidity — or otherwise — of the Gateway entities (or the Gateway companies) and Mr Fayad. I deal with this in a little more detail in what follows.

[145]  The financial position of the Gateway entities, and Mr Fayad, is, in my view, likely to have been at the relevant time the “great unknown”. What Mr Turner was alive to were media reports that suggested that the Gateway entities — or at a minimum the Dyldam group of which they formed part — were experiencing a degree of financial stress, albeit that the degree of that financial stress was not known to him. Nevertheless, Mr Turner was alive to the possibility that there was a risk that he would not secure any benefit under the deed because of this. This is evident, by way of example, from the fact that Mr Turner instructed Mr Bluth to lodge a caveat on the title to the Central Land in 2018 and, by way of further example, illustrated by Mr Turner sending, to his father-in-law, a newspaper article about Dyldam’s “wind-up challenge” on 6 August 2019, and the response dated 7 August 2019. In my view, particularly given Mr Turner’s expressed concerns about this, in and around this time period, I consider that this is likely to be something that Mr Turner would have seriously entertained and acted upon given his concerns about the financial position of the Gateway entities. Again, I see this as consistent with my assessment of Mr Turner, and his business acumen reflected in his expressed views that it is better to receive something, rather than nothing. Further, I consider that compromise is something that was a distinct possibility from the perspective of the Gateway entities and Mr Fayad. Although during the second half 2019 there is some evidence that the development was progressing (see [111], above), its financial position and the strength of the plaintiff’s claim against the Gateway entities (and Mr Fayad) all point in that direction — namely, that compromise would have been pursued.

[146]  Thus, although litigation (including to judgment) was a possibility, in my view a negotiated resolution of the plaintiff’s claim impresses as a distinct possibility, for the reasons I have given.

[147]  As to when there might have been resolution, that necessarily is a difficult predictive exercise: the claim may have been agreed to, and compromised, in a relatively confined period of time or following the commencement of proceedings if there was some resistance (substantive or tactical) to it. Given the likely confined nature of the issues that arise, and based upon the fact that the time involved in the second Gateway proceedings (from termination of the deed to judicial determination) was around one year, my assessment is that the claim would have been resolved within that same timeframe.

[148]  In my view an appropriate assessment of the value of the loss of opportunity is $2 million.

…

The specific defences: contributory negligence and proportionate liability

[163]  The defendant, by its amended defence, raises two specific defences: contributory negligence and proportionate liability (it being accepted that the plaintiff’s claim is an apportionable claim for the purposes of Part 4 of the CLA).

[164]  The defendant accepts, in raising this defence, three matters that should be noted: first, given the defences both rely upon the same conduct — viz., Mr Turner failing to recall the prohibition on lodging a caveat contained in the deed — there cannot be two discounts (Cam and Bear Pty Ltd v McGoldrick [2018] NSWCA 110 at [101] ); secondly, that “they are primarily responsible for any loss caused by not advising the plaintiff that the Gateway companies would be entitled to terminate the option deed if the plaintiff lodged the caveat in July 2018”; and, thirdly, it is argued that, given Mr Turner’s conduct some “small discount would be just and equitable in the circumstances”.

[165]  The defendant, ultimately, pressed the defence as being one of contributory negligence: that Mr Turner’s error, as argued by the defendant, should be attributed to the plaintiff resulting in an apportionment.

[166]  In the way in which the defendant argues that there has been contributory negligence, under s 5R of the CLA, the question is whether Mr Turner’s omission — if it be that — evidences a want of due care. The Court applies an objective test to the facts and circumstances of the case (s 5R(2)(a)), including what, relevantly here, Mr Turner knew or ought to have known at the time: s 5R(2)(b); Origin Energy LPG Pty Ltd v Bestcare Foods Ltd [2012] NSWCA 407 at [217] ; Libra Collaroy Pty Ltd v Bhide [2017] NSWCA 196 at [269] . If contributory negligence is established, then the Court is obliged to apportion liability under s 9(1)(b) of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW): Boral Bricks Pty Ltd v Cosmidis (No 2) (2014) 86 NSWLR 393; [2014] NSWCA 139 at [47] –[48] ; Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No.2) [2016] NSWSC 1123 at [99] ; Libra Collaroy Pty Ltd v Bhide at [272] .

[167]  As I have noted, above, the defendant’s case is that Mr Turner himself “failed to recall the prohibition on lodging a caveat” and that bespeaks negligence.

[168]  In my view there is no basis to find that Mr Turner was himself negligent nor, in any event, do I consider it to be just and equitable that there be any apportionment. That is for the following reasons.

[169]  First, the defence assumes that Mr Turner not only knew of the existence of cll 8(a) and (b), but also that he understood their legal effect. I am not satisfied that Mr Turner had that knowledge or understanding. The communications that Mr Turner had in the period following the Gateway entities terminating the deed satisfy me that he did not. For example, the email “chain” commencing 22 February 2020 and ending on 24 February 2020 (set out at [67], above) shows, I find, no understanding of the consequences of lodging a caveat on the title to the Central Land nor anything other than a “rudimentary” and incomplete understanding of the ramifications that had resulted from the lodgement of the caveat (see [68] and [75], above). In this regard it is important to note that (a) there was no cross examination of Mr Turner to suggest that he knew and understood these matters; (b) it was not otherwise suggested, by reference to evidence, that he knew and understood these matters — for example, by advice that had been provided by the defendant to Mr Turner.

[170]  Secondly, putting the first matter to one side, the context to the sending of the communication is important: Mr Turner, who was then on holidays overseas, sent on 20 July 2018 a text message to Mr Bluth about lodging a caveat. The defendant’s argument is that Mr Turner should himself have been aware and had in mind, at the time of sending that message, the terms of the deed that had been executed over a year prior. Given these matters, I am unpersuaded that there is any want of due care by Mr Turner. Again, as with the first matter, I would observe that Mr Turner was not cross-examined at all about this issue.

[171]  In my view, the circumstances negate any suggestion that Mr Turner (and, thus, the plaintiff) was negligent in the way alleged. They also demonstrate, in any event, why it would not be just and equitable for there to be any apportionment.

(emphasis added)