The Causation Question in Pure Economic Loss, Lost Opportunity Claims Thursday 14 April 2016 S B Mcelwaine SC

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The Causation Question in Pure Economic Loss, Lost Opportunity Claims Thursday 14 April 2016 S B McElwaine SC

What is pure economic loss?

1. I am not able to point to a crisp definition. It is more often recognised than defined. It is not physical injury to a person or property, even though financial loss may be suffered in consequence; i.e. where an injured plaintiff recovers damages for past and future economic loss. That is a type of secondary economic loss. In Perre –v- Apand Pty Ltd1 each of Gleeson CJ and Gummow J approached the definition in different ways. Gleeson CJ pointed to a:

‘Lack of precision in the concept of financial or economic loss. Physical injury to person or property is usually readily identifiable, even if it may take time to manifest itself. However, the concept of financial or economic loss or harm is wide enough to comprehend a variety of circumstances or contingencies, some of which may be indirect and difficult to identify or measure... If the matter were at large, how would a court set about identifying, and estimating, the kinds of financial loss which might sound in damages? What kinds of detriment, harm or disadvantage, would be treated as financial loss? The law of tort is a blunt instrument for providing a remedy for many kinds of harm which may be suffered as a consequence of someone else’s carelessness, and which are capable of being described as financial.’2

2. Gummow J said:

‘The phrases "economic loss" and "pure economic loss" were used in argument and in many of the authorities to which the Court was referred. However, in Miller v United States Steel Corporation, Posner J, having spoken of the use of the term "economic loss" to distinguish it from an injury to the plaintiff's person or property, continued: "It would be better to call it a 'commercial loss,' not only because personal injuries and especially property losses are economic losses, too - they destroy values which can be and are monetized - but also, and more important, because tort law is a superfluous and inapt tool for resolving purely commercial disputes. We have a body of law designed for such disputes. It is called contract law." One may accept the first point made by his Honour without adopting the second. As is indicated in more detail later in these reasons, the so-called "economic torts" provide the legal means for the resolution of a range of commercial disputes which are beyond the reach of contract law. Nevertheless, in Miller, Posner J went on to refer, with evident approval, to the "increasing number of jurisdictions" in which it is held "that tort law provides no remedy in a case in which the plaintiff is seeking to recover for a commercial loss rather than damage to person, property, or reputation". He added: "The insight behind the doctrine is that commercial disputes ought to be resolved according to the principles of commercial law rather than according to tort principles designed for accidents that cause personal injury or property damage."’3

1 (1999) 198 CLR 180. 2 At [6]. See further his observations in Catanach –v- Melchoir (2003) 215 CLR 1 at [4] where he observed: ‘the distinction between what is often called pure economic loss, and loss, including financial loss, flowing from injury to person or property, is not always clear, or satisfactory.’ 3 At [167]. 2

3. Claims for pure economic loss are most usually pursued for breach of contract. In that sphere such claims do not cause difficulty as what is most usually sought to be recovered is compensation for a bargained economic advantage, which was not delivered. Necessarily such claims turn upon ‘breach of an antecedent promise to afford an opportunity.’4

4. As will be seen, the causation question is approached differently in contract and tort cases.

5. Some claims for pure economic loss are not, on the surface, obviously so categorised. Take Bryan – v- Maloney5 the well-known case of a builder’s liability, for defective construction, to a subsequent purchaser of a home. In that case the nature of the building defects led to distortion and cracking in the building. The damages claim was particularised at trial calculated by reference to the reasonable estimated cost of repair. On the face of it the damage caused by the negligence was physical; and the damages claimed were the repair costs. However, the Court classified the claim as one for economic loss observing:

‘Mr Bryan was negligent in building the house with inadequate footings; the damage sustained by Mrs Maloney was the loss involved in the decrease in value of the house resulting from the inadequacy of the footings and its consequences... The economic loss involved is the amount which would necessarily be expended in remedying the inadequate footings and their consequences...’6

6. Another example is the class of case one frequently against legal practitioners where a claim for damages for personal injury is not commenced within the statutory time period. The negligence of the solicitor causes loss being the inability to pursue an action for personal injuries either as of right or by reason of a discretionary extension to the limitation period7. In Hunt & Hunt Lawyers –v- Mitchell Morgan Nominees Pty Ltd8 Bell & Gageler JJ (albeit in dissent in the result) exampled such cases in the following terms:

‘One is the case of a solicitor whose negligent omission leads to his client's claim for personal injuries being dismissed for want of prosecution or becoming statute barred. It has been pointed out that in such a case the loss that is caused by the solicitor's negligence is "the loss of a cause of action for personal injuries" and that what is compensated in damages is the value of that lost cause of action. The fault of the person who was or would have been the defendant in the actual or putative action for personal injuries gives rise to the cause of action that is lost. Through the combined faults of that person and the solicitor, the client may be out of pocket. But the harm caused by that person and the harm caused by the solicitor are separate and distinct. The harm caused by that person is personal injuries. The harm caused by that person is not the loss of the cause of action. The harm caused by the solicitor is the loss of the cause of action, not the personal injuries. The analysis would be no different if the cause of action that is lost by reason of the negligence of the solicitor, instead of being for personal injuries, is for damage to property or for economic loss.’9

7. Generally the decision in Hunt & Hunt –v- Mitchell Morgan Nominees is useful as it collects a number of examples of claims for pure economic loss, in the context of the application of the proportionate liability provisions of the Civil Liability Act 2002 (NSW), which do not materially differ

4 Tabet –v- Gett (2010) 240 CLR 537 at [47], Gummow ACJ. 5 (1995) 182 CLR 609. 6 At 616, Mason CJ, Deane & Gaudron JJ. 7 Johnson –v- Perez (1989) 166 CLR 351 at 360, Mason CJ. 8 [2013] HCA 10 (2013) 247 CLR 656. 9 At [97]. See also French CJ, Hayne & Kiefel JJ at [38]. 3

from the corresponding Tasmanian provisions. There is an important distinction between damage and damages which the plurality explained as follows:

‘In the identification of the damage or loss that is the subject of the claim, it is necessary to bear in mind that damage is not to be equated with what is ultimately awarded by the court, which is to say the "damages" which are claimed by way of compensation and which are assessed and awarded for each aspect of the damage suffered by a plaintiff. Damage, properly understood, is the injury and other foreseeable consequences suffered by a plaintiff. In the context of economic loss, loss or damage may be understood as the harm suffered to a plaintiff's economic interests. It has already been observed that the Civil Liability Act equates "harm" with damage to property and economic loss which results from a failure to exercise reasonable care and skill.’10

8. Further, as their Honours point out ‘it will almost always be necessary to identify, with some precision, the interest infringed by the negligent act.’11 That is because: ‘its identification is also necessary for a proper understanding of the harm suffered and for the determination of what acts or omissions may be said to have caused that damage.’12

9. The decision is also important, for present purposes, in that economic loss ‘need not be derived from proprietary rights or obligations’13 and extends to an economic interest which is compensable by money.

10. Examples of recent claims for pure economic loss which have been considered by our Full Court include Calvert –v- Badenach14, a claim by a disappointed beneficiary brought against a solicitor responsible for drawing the will of a testator, Kronenberg –v- Bridge15, a breach of contract and misleading and deceptive conduct claim by homeowners against a builder for the lost opportunity of being able to have the work undertaken at less cost, Blackley Investments Pty Ltd –v- Burnie City Council16, a claim by a developer against a local council for the lost opportunity of being able to undertake a commercial development on land the subject of a repudiated contract and Doolan –v- Renkon17 a claim for damages by a client against a solicitor for negligence in failing to give advice which, had it been given, would have enabled the client to avoid an onerous contract.

11. It is not productive, nor necessary for present purposes, to seek to define or illustrate claims for pure economic loss in any greater degree. Somewhat obviously all cases turn upon the individual facts and circumstances.

Loss of a chance

12. The starting point is usually the early contract case of Chaplin –v- Hicks18. The defendant initiated a competition, from which twelve women were to be selected and then given theatrical engagements. The plaintiff was initially selected and was invited by the defendant to an interview. By reason of a postal delay, the defendant deprived her of an opportunity to participate further. She claimed damages on the basis that the breach of contract deprived her of a lost chance of selection for a future engagement. The defendant did not assert that no contract had been entered

10 At [24]. 11 At [25]. 12 At [25]. 13 At [26]. 14 [2015] TASFC 8. 15 [2014] TASFC 10. 16 (No 2) [2011] TASFC 6 and (No 3) [2013] TASFC 12. 17 [2011] TASFC 4. 18 [1911] 2 KB 786. 4

into: but rather contended that the plaintiff, at best, was entitled only to nominal damages. The argument failed. Vaughan Williams LJ characterised the plaintiff’s claim as follows:

‘The moment the jury find that she did not have a reasonable opportunity of presenting herself on the particular day, we have a breach attended by neglect of the defendant to give her a later opportunity; and when we get a breach of that sort and a claim for loss sustained in consequence of the failure to give the plaintiff an opportunity of taking part in the competition, it is impossible to say that such result and such damages were not within the contemplation of the parties...’19

13. The jury awarded her the not inconsiderable sum of £100.

14. The leading Australian contract case is Commonwealth of Australia –v- Amann Aviation Pty Ltd20. That case concerned a contract made by Amann to provide aerial surveillance services for the benefit of the Commonwealth. Amann breached it. The Commonwealth purported to serve notice of termination, which was invalid. Amann treated the notice as a repudiation, accepted it and then claimed damages. It succeeded. Amongst the heads of damage awarded Amann received compensation for the value of the chance, which it contended, that the contract would have been renewed by the Commonwealth after expiry of its initial three year term. On the los of opportunity claim the reasoning of Brennan J is particularly instructive. He said:

‘Unexpressed benefits are frequently of an intangible kind or are otherwise of uncertain value but difficulty in evaluating a contractual benefit is no barrier to recovery of damages where the defendant is bound to provide the benefit but has failed to do so... When a commercial contract is breached, it would be erroneous to evaluate the benefits which a plaintiff would have been entitled to receive had the contract been performed by reference solely to the stipulated remuneration for performance if the plaintiff is entitled to acquire, by performance of the contract, other commercial advantages. ... An evaluation limited to benefits expressly stipulated would not truly reflect the situation in which the plaintiff would have been if the contract had been performed, nor would it lead to an award of damages which would place the plaintiff in that situation. The other commercial advantages must be evaluated, and evaluation may require consideration of the nature of the plaintiff’s business, the opportunities available to the plaintiff to exploit the advantage and, if there be a market for a particular advantage, that market. Among the commercial advantages to which a plaintiff might be entitled as of right by performing a contract is an opportunity to obtain a profitable engagement under another contract, an opportunity not amounting to a right to a further engagement.’21

15. Lost opportunity claims in tort are necessarily of a different character. A tortfeasor (putting aside cases of intentional infliction of loss) does not promise or warrant a particular outcome but is subject to a duty to exercise a reasonable degree of skill, care and competence in particular factual situations where such duty is recognised. Thus, the solicitor engaged by a client to commence litigation does not promise that the client will achieve a successful outcome. The duty is to exercise a reasonable degree of care in the commencement and conduct of the litigation which duty, if discharged, may be of economic benefit to the client.

16. It does not follow, however, that claims in tort for lost opportunities may not be brought. This is illustrated by Gates –v- City Mutual Life Assurance Society Ltd22, a case of negligent misstatement combined with misleading and deceptive conduct contrary to section 52 of the Trade Practices Act

19 At 791. 20 (1991) 174 CLR 64. 21 At 102-103. 22 (1986) 160 CLR 1. 5

1974, as it then was. The impugned conduct was a statement that a disability clause in a superannuation policy, which the plaintiff subsequently entered into, had a particular effect upon the occurrence of illness or injury. It did not. The plaintiff established the misstatement but ultimately failed to prove loss. Mason, Wilson & Dawson JJ dealt with tortious lost opportunity claims as follows:

‘Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed. The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract.’23

17. The plaintiff failed because he did not adduce evidence that he could and would have entered into an alternative insurance contract which provided the represented benefit.

18. In some tort cases the loss of the right to obtain a benefit is of itself compensable. In the context of a statute barred cause of action Brennan J in Sellars –v- Adelaide Petroleum NL (1994) 179 CLR 332 observed:

‘The loss of a mere opportunity to acquire a benefit is not in itself a loss, but the loss of the benefit will be such a loss if the plaintiff proves that he could and would have taken the opportunity and that the benefit would then have been yielded... However, the loss of a right to obtain a benefit is itself a loss in respect of which an amount may be recovered. When a plaintiff’s cause of action becomes statute barred by reason of the negligence of a solicitor, the loss is identified as the unavailability of the barred cause of action.’24

19. His Honour drew attention to Kitchen –v- Royal Airforce Association25 where it was said:

‘The question is, has the plaintiff lost some right of value, some chose in action of reality and substance? In such a case, it may be that its value is not easy to determine, but it is the duty of the court to determine that value as best it can.’26

20. Claims for misleading and deceptive conduct27 are dealt with similarly28.

Causation

23 At 13. 24 At 362. 25 (1958) 2 All.E.R. 241. 26 At 251. 27 Section 52 Trade Practices Act 1974 and now section 18 of the Australian Consumer Law. 28 For example La Trobe Capital & Mortgage Coproration Ltd –v- Hay Property Consultants Pty Ltd [2011] FCAFC 4, a claim by a mortgage lender based on an overstated valuation, included a claim for revenue which it was said would otherwise have been earned if the mortgage funds had been deployed elsewhere; Sellars –v- Adelaide Petroleum NL (1994) 179 CLR 332, a claim for damages for breach of contract, negligence and misleading and deceptive conduct where the award of damages included compensation for the lost opportunity of entering into a different contract which was being negotiated when the misleading conduct occurred. 6

21. Section 13 of the Civil Liability Act 2002 applies to all claims for a breach of duty. Relevantly it provides: ‘prerequisites for a decision that a breach of duty caused particular harm are as follows: (a) the breach of duty was a necessary element of the occurrence of the harm (factual causation).’ In Strong –v- Woolworths Ltd29 French CJ, Gummow, Crennan & Bell JJ said of the equivalent provision in New South Wales that: ‘the determination of factual causation is a statutory statement of the but for test of causation: the plaintiff would not have suffered the particular harm but for the defendant’s negligence.’30 That statement is useful if you act for a defendant. Often it does not assist a plaintiff. Despite this judgment, French CJ, Hayne & Kiefel JJ in Hunt & Hunt Lawyers –v- Mitchell Morgan Nominees Pty Ltd said:

‘The proper identification of damage should usually point the way to the acts or omissions which were its cause. Causation is largely a question of fact, to be approached by applying common sense to the facts of the particular case. This is not to deny that value judgments and policy have a part to play in causation analysis at common law and, as has been observed, both factual causation and scope of liability elements are referred to in section 5D(1) of the Civil Liability Act.’31

22. In the next paragraph their Honours refer to and apply the March –v- Stramare Pty Ltd32 causation approach. I am not able to reconcile the reasoning in each case.

23. The statutory cause of action for misleading and deceptive conduct adopts different language. Section 236(1)(a) of the ACL speaks of a person who ‘suffers loss or damage because of the conduct of another person.’ The former provision, section 82 of the Trade Practices Act 1974, required loss or damage to have occurred ‘by’ the impugned conduct. Of that provision it was said in Wardley Australia Ltd –v- Western Australia33 that the March –v- Stramare common sense approach was appropriate.

24. In contract cases causation must be proved to link the breach to the damage which it is said was suffered in consequence. The practical approach to causation is, once again, employed.

25. In all cases it is sufficient that the damage suffered was a cause of the loss; the plaintiff need not demonstrate that it was the predominant or substantial cause34. The impact of this rule is now affected by the proportionate liability provisions35.

What must be established?

26. At this point the causation question can become very interesting. Sometimes causation is a question of historic fact but often it is not. And the approach in contract and tort cases differs.

27. Sellars –v- Adelaide Petroleum NL36 arose out of parallel commercial negotiations between Adelaide Petroleum, Poseiden Ltd and Pagini Resources NL. The object of the negotiations was to sell the

29 (2012) 246 CLR 182. 30 At [18]. 31 247 CLR 646 at [43]. 32 (1991) 171 CLR 506. 33 (1992) 175 CLR 514. 34 Henville –v- Walker (2001) 206 CLR 459 at [97], Frost –v- Warner (2002) 209 CLR 509 at [84] and Tame –v- NSW (2002) 211 CLR 317 at [254]. In cases where it is said that there were multiple causes, then it is for the defendant to plead and prove them by third party or proportionate liability proceedings or defences. For example, Placer (Granny Smith) Pty Ltd –v- Thiess Contractors Pty Ltd (2003) 215 CLR 374. 35 Civil Liability Act 2002 sections 43A – 43G and Competition & Consumer Act 2010, Part VIA, from section 87CB. 36 (1994) 179 CLR 332. 7

shareholding of certain directors in Adelaide Petroleum as part of a corporate reconstruction. In May 1988 the negotiations with Pagini resulted in the submission of a draft contract to Adelaide Petroleum for consideration. In June 1988 the directors of Adelaide abandoned the negotiation with Pagini and entered into a heads of agreement with Poseiden which had been negotiated by its employee, Sellars. After the agreement was signed the Board of Poseiden advised Adelaide that Sellars had exceeded his authority and Poseiden would not be bound by the agreement. Adelaide regarded this as a repudiation, accepted it and then resumed negotiations with Pagini which resulted in an agreement on less favourable terms. Adelaide then commenced proceedings for breach of contract, negligent misstatement and for misleading and deceptive conduct against Sellars and Poseiden.

28. At trial French J (as he then was) upheld the claims and awarded substantial damages, including damages for lost opportunity. The Full Court of the Federal Court dismissed an appeal, as did ultimately the High Court.

29. There is no doubt that the claim was for damages for economic loss for a lost opportunity which the High Court characterised as:

‘The prejudice or disadvantage which the respondents suffered in the present case was the loss of the opportunity or chance of securing commercial benefits which entry into the Pagini agreement and completion of it would have brought. The lost opportunity or chance, assuming it to have value, is a form of economic loss.’37

30. The appellants argued in the High Court that the claimants failed to discharge the civil standard of proof on the causation question: specifically it was said that it was more likely than not that the Pagini agreement would not have been completed. The reasoning of the Court draws an important distinction. Factual causation must be established on the balance of probability but the assessment of damages in this type of case, may proceed in accordance with possibilities or probabilities. However, this is subject to further refinement where the causation question turns upon hypothetical decision-making of the plaintiff, on the one hand, and of third parties, on the other.

31. Dealing first with decision-making by the plaintiff the plurality said:

‘When the issue of causation turns on what the plaintiff would have done, there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical.’38

32. Necessarily this is a matter of inference because evidence as to what a plaintiff would or would not have done is not admissible by reason of section 13(3)(b) of the Civil Liability Act 2010. Brennan J, in a separate judgment, expressed the same view39.

33. When the causation question turns on not what the plaintiff would have done, but upon what a third party might have done or what outcome the plaintiff might have received (for example by pursuing a claim to trial), causation is assessed differently. On this aspect the plurality reasoned as follows:

‘Damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of section 52(1), should be ascertained by reference to the Court’s assessment of the prospects of success of that

37 At 348 per Mason CJ, Dawson, Toohey & Gaudron JJ. 38 At 353. 39 At 367. 8

opportunity had it been pursued... On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue of 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 valuless 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.’40

34. What does this mean? The first portion of the quote is not to be confused with the second. The first is concerned with the assessment of damages question: it is not concerned with causation. On the causation question an applicant must on the balance of probability prove that loss or damage was sustained. In some cases the onus is discharged by proving some loss or damage which may be characterised as the loss of a commercial opportunity with some value. Does it follow that the lost opportunity may be characterised as loss in itself? That question was answered affirmatively by the Full Court in Doolan –v- Renkon Pty Ltd41 where the Court characterised the plaintiff’s loss of the opportunity of avoiding an onerous contract, had the solicitor alerted the plaintiff to this prospect. The Court reasoned as follows:

‘66. In this case, the first question which needed an answer before proceeding to the evaluation issue, was whether Renkon had lost an opportunity of some value. Subsumed within that question is the issue of whether Renkon had established that it was more likely than not that it would have taken up or pursued the opportunity. It is quite clear that the trial judge found that the opportunity to surrender the lease or utilise the right to do so was an opportunity of some value but a key point in the appeal is whether, despite the absence of an explicit statement, her Honour impliedly found on the balance of probabilities that Renkon would have taken up that opportunity, and thus established its loss as a result of the breach. The alternative position is that her Honour conflated issues of causation and evaluation, and that by inference, having found that there was a less than 50 per cent chance that the lease would have been surrendered, was not so satisfied. The intermediate position is that no actual relevant finding was made, in which case, counsel for the appellants accepted that this Court could make its own findings to the extent it felt able. 67. In our view, although it was not directly expressed, and there is room for some ambiguity, it is implicit in the trial judge's approach that her Honour found that Renkon had established that it was more likely than not that it would have pursued the opportunity afforded by the right to surrender the lease. ... 68. If we are wrong about that, then we take the view that on the whole of the evidence, a finding on the balance of probabilities that Renkon would have sought to surrender the lease within the relevant time, or used the right in negotiations with Ambrose, was open and one which ought to have been made. The difficulty is that, oddly enough, the direct question of what Renkon would have done had it been advised of the opportunity was not asked.’

35. Similarly, in Calvert –v- Badenach42, each of Porter and Estcourt JJ characterised the claim of the disappointed beneficiary, to a greater share of the estate free of a TFM claim, as ‘a case where the loss of chance is the damage itself’43.

40 At 355. My emphasis. 41 [2011] TASFC 4. 42 [2014] TASSC 61. 43 At [134] per Estcourt J. 9

36. The difficulty in this approach, in my view, is that it conflates the damage and damages questions. In this regard I draw attention to the appeal to the High Court from the decision in Calvert –v- Badenach. One of the appeal grounds contends that the Full Court erred in its approach to the causation question; specifically that the Court resolved it on a speculative basis.

37. At trial Blow CJ dismissed the plaintiff’s claim because he was not satisfied on the balance of probabilities that the testator would have joined in the creation of a joint tenancy nor implemented any other step to ‘deplete his estate or frustrate a possible claim’ under the TFM Act44.

38. In the Full Court the plaintiff recharacterised his claim as one for damages for lost opportunity. Only Porter and Estcourt JJ dealt with the causation question. The plaintiff’s case as framed for lost opportunity depended upon the hypothetical decision-making of a third party (the testator), assuming that the solicitor gave advice as to mechanisms which might be implemented to frustrate or defeat a claim pursuant to the TFM Act. It also depended on decision-making by him, assuming that the testator was prepared to create joint tenancies.

39. One of the appeal grounds to the High Court contends that the Full Court erred in that it failed to resolve the causation question by reference to the but for test required by section 13 of the Civil Liability Act 2002 and impermissibly speculated upon the causation question. In answer to these contentions, counsel for the respondent characterised the lost opportunity of a better outcome as damage in itself. Kiefel J, in argument, tested that proposition as follows:

‘Kiefel J: The step that you take though once you get to 3.3 is to fasten it, as you have said, on loss of chance and that is to acknowledge that the respondent’s case is that the loss of chance is itself the damage. You avoid causation all together by fastening on the loss of chance as damage itself. Mr Wilson: We do not avoid causation in this sense. We accept that section 13(1)(a) applies and if one applies the ‘but for’ test one says but for the solicitor’s failure to make inquiries and give advice has the beneficiary lost something of value, the chance of the testator acting differently. Then one moves to the assessment of chance. Kiefel J: As damage? Mr Wilson: That is the Allied Maples process of reasoning. Kiefel J: How does that square with what was said in Tabet –v- Gett?’45

40. This exchange highlights conceptual difficulty of treating the causation requirement as satisfied by characterisation of the damage claimed as loss of itself. Conceptually, the separate questions are easily identified if one adopts the ‘what if’ question. That is to say, what if the defendant had given the advice, had acted differently or had not omitted to take some step, each as alleged by the plaintiff? What position would the plaintiff have then been in either in accordance with the historical facts or the various competing hypotheses? In such circumstances, would the plaintiff have been in a better or worse position?

41. Characterising the damage which is claimed as the loss itself deflects attention from the causation question. Hopefully the High Court will find it necessary to deal with this separate appeal ground in Badenach –v- Calvert.

42. I return to Sellars –v- Adelaide Petroleum. The separate concurring decision of Brennan J is in my opinion the more satisfactory analysis, especially when one turns to a consideration of hypothetical

44 Calvert –v- Badenach [2014] TASSC 61 at [32-33]. 45 [2016] HCA Trans 43. 10

decision-making by third parties. I draw attention to one or two passages, even though they are somewhat long. First commercial opportunities. His Honour said:

‘As a matter of common experience, opportunities to acquire commercial benefits are frequently valuable in themselves, not only when they will probably fructify in a financial return but also when they offer a substantial prospect of a financial return. The volatility of the market for speculative shares testifies to both the valuable character of commercial opportunities and the difficulty of assessing the value of opportunities which are subject to serious contingencies. Provided an opportunity offers a substantial, and not merely speculative, prospect of acquiring a benefit that the plaintiff sought to acquire or of avoiding a detriment that the plaintiff sought to avoid, the opportunity can be held to be valuable. And, if an opportunity is valuable, the loss of that opportunity is truly "loss" or "damage" for the purposes of s.82(1) of the Act and for the purposes of the law of torts. In a statute which is intended to govern commercial transactions, it would be pedantically inappropriate to exclude the loss of a valuable commercial opportunity from the categories of "loss" and "damage" in s.82(1) of the Act.

However, a causal relationship between the loss of such an opportunity and the defendant's contravening or tortious conduct must be proved before any issue of assessment of the amount of the loss arises. As the Full Court of the Federal Court observed in Enzed Holdings v. Wynthea ((65) [1984] FCA 373; (1984) 57 ALR 167 at 183.): "If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. ... We emphasize, however, that the principle applies only when the court finds that loss or damage has occurred." Although the loss of a valuable opportunity and the assessment of its amount are concepts that can be logically separated, 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. That evidence may establish the loss of a valuable opportunity more clearly than the value of the opportunity lost. The court approaches the determination of these issues in different ways, as discussed later in this judgment.’46

43. What is important about these observations is his Honour’s reference to a ‘substantial prospect’ in his characterisation of the lost commercial opportunity which is said to have been lost. And it is plain from this reasoning that determination of this issue stands apart from the question of assessment of damages. Secondly, on the question of competing hypotheses he said:

‘Even in a case where a plaintiff is suing for damages for negligence occasioning personal injury, causation of the personal injury is proved only by the adoption of an hypothesis that that injury would not have befallen the plaintiff but for the negligence of the defendant. But, as Hotson v. East Berkshire Area Health Authority ((70) [1988] UKHL 1; (1987) AC 750 esp. at 792.) shows, if the facts preclude the adoption of that hypothesis, the plaintiff fails to establish an essential element in the cause of action. Of course, in many cases it is clear that the loss would not have befallen the plaintiff if the defendant had not been guilty of contravening or tortious conduct. In those cases, there is no need to advert to hypotheses when determining the issue of causation of loss or damage: the chain of causation will appear, if at all, from the historical facts allegedly intervening between the conduct of the defendant and the loss or damage suffered by the plaintiff. In respect of those alleged facts, the plaintiff bears the onus of proof on the balance of probabilities. But what is the standard of proof in cases where the issue of causation depends on competing hypotheses? There is no reason why the balance of probabilities should not be the standard of proof required to establish both causation and the existence of a loss, though that standard is inappropriate

46 At 364. 11

to the assessment of the amount of a loss where the assessment is merely an evaluation of future possibilities. ... 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. Although the issue of a loss caused by the defendant's conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation ((74) See Fink v. Fink [1946] HCA 54; (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ). However, where the amount of a loss depends upon the happening or non-happening of some event, it is unnecessary to speculate on the possibility that it might have happened ((75) Johnson v. Perez [1988] HCA 64; (1988) 166 CLR 351 at 368-369.) and it is impermissible to do so. A plaintiff seeking to prove the amount of a loss does not obtain the right to argue for a possibility by refraining from adducing evidence of the fact. Nor, in my opinion, is it necessary or permissible to speculate on the prospects that a court might have awarded a pecuniary sum to a plaintiff who has lost a cause of action. The court will determine what, if anything, it would have awarded in an action to enforce that cause of action and that determination determines whether anything of value was lost and what its value was ((76) ibid at 372; but cf. Amann Aviation (1991) 174 CLR at 119 per Deane J). Neither of these situations is relevant to the present case.’47

44. His Honour’s analysis requires, in a case of competing hypotheses, that the plaintiff must establish the hypothesis said to be in favour of the opportunity lost on the balance of probability. If the plaintiff fails to discharge this onus, that is the end of the matter. And it is not sufficient in discharge of this onus for a plaintiff to approach the matter in a speculative way. The obligation is to prove loss of a substantial prospect of acquiring a benefit or, correspondingly, avoiding a detriment. To illustrate this I return, again, to the facts of Calvert –v- Badenach. It was accepted before Blow CJ and the Full Court that it was open to the solicitor to give a range of advice to the testator had the topic been the subject of discussion when the will was drawn. The plaintiff’s case turned upon the hypothetical assessment of decision-making by the testator. The chance claimed by the plaintiff may never have eventuated. The range of hypothetical outcomes at least included:

(a) do nothing, and let a judge make a determination in the event that the daughter prosecuted a TFM claim; (b) make complete amends with the daughter, by bequeathing to her the whole, or substantially the whole, of the estate; (c) make a substantial bequest to the daughter, in cash or of real estate, in the hope of forestalling a TFM claim; (d) make a more modest bequest in the hope of forestalling a TFM claim; or

47 At 367-368. 12

(e) take steps to defeat a claim, which may have been partially or wholly effective, depending on the value of assets retained.

45. The argument in the High Court now turns upon whether the plaintiff failed to prove by inference that the testator would have taken some step to his advantage; i.e. whether he failed to prove a better outcome hypothesis as more probable than the competing worse outcome which he suffered. This is the point made by Brennan J in Sellars –v- Adelaide Petroleum in the passage quoted above. The argument is that the plaintiff failed to discharge this onus; confirmed by the rejection of his speculative claim by Blow CJ.

46. Had the plaintiff proved that the testator would have taken some step to his advantage (he did not need to establish which), the onus would have been discharged. One would then move to the question of assessment of the relative value of competing outcomes by reference to possibilities. Or at least that is the argument which sits unresolved in the High Court.

47. The approach of the Full Court in Calvert –v- Badenach is to be contrasted with Tabet –v- Gett48. That appeal concerned medical negligence where a doctor failed to order a scan of a patient at an earlier point in time than he did. The evidence was that the scan would have revealed a brain tumour. The patient’s condition subsequently deteriorated and she suffered irreversible brain damage once the tumour was detected and treated. The patient claimed damages for the loss of the chance of a better medical outcome had the doctor not been negligent. The High Court denied the claim. The Court refused to apply the contract approach to the causation question in a claim for damages in tort for personal injury. It did not apply the reasoning in Sellars –v- Adelaide Petroleum by analogy. That is because the Court refused to classify the loss of the chance as damage in itself. Kiefel J, with whom Hayne & Bell JJ agreed, focused upon the causation question. Her Honour reasoned as follows:

‘143. Resort to the language of "chance" cannot displace the analysis necessary for the determination of the issue of causation of damage. Properly analysed, what is involved in the chance referred to in this case is the possibility, to put it at its highest, that no brain damage would occur or that it would not be so severe. They are the "better medical outcomes" involved in the chance. Expressing what is said to be the loss or damage as a "chance" of a better outcome recognises that what is involved are mere possibilities and that the general standard of proof cannot be met. Thus the appellant could only succeed if the standard of proof is lower than the law presently requires. 144. Gregg v Scott confirmed for the United Kingdom that the general standard of proof should be maintained with respect to claims for damages for medical negligence. Lord Nicholls was the only member of the House of Lords to consider that the law should not require proof on the balance of probabilities and should recognise a person's prospects of recovery as real. The Supreme Court of Canada in Laferrière v Lawson confirmed that if a case did not meet the test of causation applying the general standard of proof, then recovery should be denied. 145. The general standard of proof required by the common law and applied to causation is relatively low. It does not require certainty or precision. It requires that a judge be persuaded that something was probably a cause of the harm the plaintiff suffered. Historically the standard may have been chosen in order to minimise errors in civil jury trials, but it nevertheless serves also to accommodate a level of uncertainty in proof. 152. The appellant is unable to prove that it was probable that, had treatment by corticosteroids been undertaken earlier, the brain damage which occurred on 14 January 1991 would have been avoided. The evidence was insufficient to be persuasive. The requirement of causation is not overcome by redefining the mere possibility, that such

48 (2010) 240 CLR 537. 13

damage as did occur might not eventuate, as a chance and then saying that it is lost when the damage actually occurs. Such a claim could only succeed if the standard of proof were lowered, which would require a fundamental change to the law of negligence. The appellant suffered dreadful injury, but the circumstances of this case do not provide a strong ground for considering such change. It would involve holding the respondent liable for damage which he almost certainly did not cause.’

48. In short the Court refused to lessen the causation requirement in claims for personal injury where it is said that the plaintiff was deprived of the opportunity of a better outcome, by reason of medical negligence. In my view this approach is mandated by sections 13 and 14 of the Civil Liability Act 2002 and, for the reasons above, the classification of a lost opportunity as ‘damage in itself’ is unprincipled.

49. The approach of the High Court is to be contrasted with, what has become, an influential decision of the English Court of Appeal in Allied Maples Group Ltd –v- Simmons & Simmons49. That case concerned a claim for damages against a firm of solicitors arising out of warranties given by a vendor in a contract of sale. The plaintiff pleaded that the solicitors were negligent in failing to advise that the warranty clause was inadequate and, in consequence, it was said that the plaintiff lost the opportunity of negotiating a more appropriate warranty clause with the vendor. The case is unsatisfactory because it went to the Court of Appeal on a pleading point. In any event the issue presented for the court was framed by Stuart-Smith LJ as follows:

‘In these circumstances, where the plaintiffs’ loss depends upon the actions of an independent third party, it is necessary to consider as a matter of law what is necessary to establish as a matter of causation, and where causation ends and the quantification of damage begins.’50

50. The Court rejected the submission made on behalf of the solicitors that the plaintiff must establish that the third party would have acted ‘so as to confer the benefit or avoid the risk to the plaintiff’51.

51. On this question his Lordship reasoned:

‘All the plaintiffs had to show on causation on this aspect of the case is that there was a substantial chance that they would have been successful in negotiating total or partial (by means of capped liability) protection. ... The prospects of success depends on all of the circumstances of the case and the third parties’ attitude must be a matter of inference.’52

52. Millett LJ reasoned differently to the majority on this point and in my view his reasoning is far more satisfactory. He identified three categories of case:

• where the outcome is not dependent on the unrestricted volition of a third party, since his decision must be justifiable by objective criteria; • cases where the outcome ‘depends upon whether the third party who had been properly advised would have acted in accordance with his own interests’; and • ‘cases where the outcome appears to depend on the unrestricted volition of a third party but where there are objective considerations which make it possible to predicate how he would have acted.’53

49 (1995) 1 WLR 1602 (1995) 4 All.E.R. 907. 50 At 1609. 51 At 1611. 52 At 1614. 53 At 1623-1624. 14

53. His Lordship regarded the lost opportunity claim as purely speculative and not maintainable. He reasoned as follows:

‘The chance of which the plaintiff’s claim to have been deprived is the chance that they might have negotiated better terms from their vendors. In the absence of evidence from Gillow, what would have been the outcome of such negotiations is a matter of pure speculation. No case has gone so far as to allow damages in such a situation, and in my view it would be wrong to do so.’54

54. Regrettably the view of Millett LJ did not prevail. The outcome of the case is summarised in McGregor on Damages55 as follows:

‘In the third category for cases in which the claimant’s loss depends on the hypothetical action of a third party, whether in addition to action by the claimant or independently of it. Here the claimant need only show that he had a substantial chance of the third party acting in such a way as to benefit him. In the case before the Court, therefore, the claimants had to show on the balance of probabilities, before any recovery was possible, that they would have sought a degree of protection against the contingent liability; it was held that in this they succeeded. However, they needed to show only that there was a significant chance, which could be less than likely, that the third party would have been prepared to afford them this protection.’56

55. The author further observes: ‘since Allied Maples, cases of loss of a chance consequent on negligent advice have proliferated.’57 Self-evidently the reason is obvious: the decision in Allied Maples has permitted plaintiffs to establish causation, where the facts turn on decision-making by a third party, otherwise than on the balance of probability. That approach is inconsistent with Tabet –v- Gett and Sellars –v- Adelaide Petroleum. We may shortly know more about this when the High Court publishes its decision in Badenach –v- Calvert.

54 At 1625. 55 19th Ed (2014). 56 At [10-057]. 57 At [10-071].