I OVERVIEW

In Australia, monetary relief is available under common law, equity and statute. Determining whether a plaintiff is entitled to a damages award and the quantum of that award will require consideration of those three sources of law, the type of claim being made and the remedial purpose of the award.

i Common law

At common law, damages generally serve a compensatory purpose for the defendant's tort or breach of contract. The monetary remedy normally aims to place the plaintiff in the position he, she or it would have been in had the breach of duty not been committed.

ii Equity

Both equitable compensation and an account of profits are generally available for breaches of equitable obligations. Equitable compensation can be distinguished from damages by the characteristics unique to it, including its discretionary nature. An account of profits focuses on the gains made by the defendant via breach of the relevant equitable obligation rather than on the plaintiff's loss.

iii Statute

Statute will often also provide a monetary remedy. The extent to which common law or equitable principles apply to such a claim is a question of statutory construction. The questions of construction that the court will need to consider will be whether and to what extent the statutory provisions modify the operation of general law principles. As such, the measure of relief will be dependent on the particular statutory provision.

iv Non-compensatory damages

Punitive, gain-based and liquidated damages also may be available in exceptional circumstances where compensatory damages are deemed to be an inappropriate response to the breach.

v Punitive and exemplary damages

Punitive damages are occasionally awarded for certain wrongs recognised by common law to punish the wrongdoer and deter the commission of future wrongs, but the traditional view is that they are not available for breaches of equitable obligations.2

vi Restitutionary damages

The availability of a gain-based award in response to a common law wrong has occasionally been recognised, most often in cases where the defendant tortiously interfered with the plaintiff's right to goods3 or land.4 The term 'restitutionary damages' is sometimes used as a label to describe all such awards for common law wrongdoing, but it has also been suggested that it is necessary to distinguish between two measures of gain in this context: one based on the immediate transfer of value to the defendant that is entailed by the wrong and one based on the consequential profits that accrue to the defendant as a result of the wrong, which is sometimes labelled 'disgorgement'.5 While both measures of gain have also exceptionally been awarded for breach of contract in England, Australian courts have been reluctant to allow for gain-based recovery for contractual breach.6

vii Liquidated damages

At common law, liquidated damages are available where parties contract for a fixed amount of damages to be payable for a breach of contract in circumstances where the predetermined amount is a genuine pre-estimate of the loss likely to flow from the breach rather than a sum intended to punish or deter the breach. Equity may also deem a sum payable on the happening of an event other than breach ('the primary stipulation') as 'penal' and hence irrecoverable where it is 'out of all proportion' to the interests protected by the primary stipulation,7 or where it 'is properly characterised as having no purpose other than to punish'.8

II QUANTIFICATION OF FINANCIAL LOSS

i Introduction

The aim of awarding damages, at least in commercial cases, is generally to put the plaintiff in the financial position he, she or it would have been in had the relevant breach of duty not occurred.9 But in upholding this principle, various subsidiary matters arise, including how the plaintiff's counterfactual financial position is to be quantified and which consequences resulting from the breach are included in this assessment. A number of these subsidiary matters are now addressed.

ii Evidence

A plaintiff claiming damages is expected to adduce evidence that is available and typically adduced in that type of claim. Where a plaintiff does not adduce such evidence, he or she cannot complain of the non-award of damages or of a lesser quantum of damages than would have been obtained if the evidence had been adduced.10

iii Date of assessment

Typically, damages arising from a breach of contract are assessed at the date of the breach, but courts will depart from this general rule 'whenever it is necessary to do so in the interests of justice'.11 Damages arising from a tort are also typically assessed at the date on which the cause of action arose. However, in personal injury cases and death cases, damages are normally assessed at the date of judgment.12

Mitigation

It is important for a plaintiff to identify the applicable date of assessment for its cause of action as it will affect the date from which the court expects a plaintiff to act reasonably and attempt to minimise loss caused by the defendant's wrongdoing.13 If the plaintiff failed to act reasonably, he or she will not be awarded damages for losses that could reasonably have been avoided.14 Plaintiffs who take reasonable steps to mitigate loss are entitled to be compensated for the costs of taking such reasonable steps, even where the costs of taking such action overall increases the loss suffered.15

iv Financial projections

Future loss

Damages must compensate the plaintiff on a once-and-for-all basis. As such, the lump sum award must encompass not only the loss already suffered by the plaintiff but also any causally attributable losses that the plaintiff is likely to suffer in future. A plaintiff will be entitled to an award of damages to compensate future loss if he or she can establish, on the balance of probabilities, that the defendant's wrongdoing caused loss of a non-negligible opportunity that the plaintiff would have taken advantage of.

v Assumptions

In quantifying the plaintiff's loss, a court may be entitled to make certain assumptions about the value of what has been lost or about what would have happened had the breach not occurred. For example, the value of goods tortiously damaged or not delivered in breach of contract is generally measured by reference to the market price, at least where an available market exists, and it may be that, when a plaintiff claims damages following an acceptance of the defendant's contractual repudiation, it is assumed that the plaintiff would have been able to perform its own remaining obligations under the contract.16 It is a matter of debate as to whether these various assumptions are necessarily rebuttable or are sometimes irrebuttable.

vi Discount rates

Above, we described circumstances where a plaintiff can claim for loss of opportunity and future losses. If the plaintiff is awarded damages to compensate for loss that has yet to occur, the plaintiff is essentially receiving an advance payment of that loss. An adjustment must be made to account for the accelerated receipt in the form of discounting the damages to present value.17

In commercial cases, market rates of interest will be considered an appropriate discount rate,18 but in personal injury and death cases, state jurisdictions have their own statutory provisions prescribing a fixed discount rate. In the Northern Territory, New South Wales, Queensland, South Australia and Victoria the discount rate is 5 per cent.19 In Western Australia the discount rate is 6 per cent.20

vii Currency conversion

Damages awarded in foreign currency will generally be converted into Australian dollars using the spot foreign exchange rate at the date of judgment.21

viii Interest on damages

Courts in most Australian jurisdictions22 have a statutory discretion to award interest on damages.23 Common to those jurisdictions are three principles that courts must have regard to when exercising their power to award interest on damages.

First, the power is discretionary, and depending on legislation, the court must consider whether or not to award interest, for what period the interest calculation is to run, the rate of interest and on what portion of damages that interest will be applied. Second, the object of the power to award interest is to compensate plaintiffs for being kept out of damages and so the prima facie time for when interest starts to accrue is the point in time when the breach is said to have occurred.24 Third, the statutory provisions regarding interest do not apply to cases of dishonoured bills of exchange.25

ix Costs

Costs generally follow the event, meaning that the successful party is entitled to recover costs from the other side unless there is a good reason to justify a contrary order.26 Reasons that might deprive a successful party from recovering its costs include where the damages awarded are 'nominal',27 where the successful party misbehaved in relation to either the subject of the conduct of the proceedings or where the successful party rejected a settlement offer or offer of compromise, and failed to obtain an order or judgment on the claim no more favourable to such offer.28

x Tax

Awards of damages may be subject to taxation if categorised as income, indemnity or capital gain. Losses that would have been taxable, but for the wrong, and which then form the basis for an award of damages, will not necessarily still be considered taxable. An example of such losses are those forming the basis for an award of damages in certain personal injury cases.29

III EXPERT EVIDENCE

i Introduction

A plaintiff seeking an award of damages must establish and assess losses suffered with as much certainty as the circumstances permit. Expert evidence can assist in persuading the court whether on balance the threshold of certainty has been met. Expert evidence adduced to assist the court in calculating damages are subject to the same rules of expert evidence in general.

ii The role of expert evidence in the calculation of damages

Expert evidence is particularly useful where scientific, technical or other specialised knowledge might assist the court in understanding evidence or facts at issue.

The common law position is that expert evidence cannot usurp the role of a judge in his or her function in calculating damages. If experts were allowed to answer the 'ultimate issue', and the answer is accepted by the court, then 'the chances of success on an appeal on fact are slight indeed, since there is direct and acceptable evidence on the very point at issue'.30 This 'ultimate issue' rule does not prevent questions being put to the expert witness that causes him or her to consider a hypothetical scenario where he or she is asked to assume the facts stated in evidence to be true.31

The common law's 'ultimate issue' rule has been abolished by statute.32 Although expert evidence cannot be deemed inadmissible solely because it goes to an 'ultimate issue', the rule still has utility as a caution for judges to 'exercise particular scrutiny when experts move close to the ultimate issue, lest they arrogate expertise outside their field or express views unsupported by disclosed and contestable assumptions'.33

iii The court's role in excluding and managing expert evidence

Courts are able to consider and manage expert evidence that goes to proving the quantum of damages in accordance with the same principles applicable to the assessment of expert evidence generally. The Evidence Act34 contains provisions addressing the admissibility of expert opinion. Although not all expert evidence is opinion, the rules relating to the admissibility of non-opinion expert evidence are generally analogous to that of expert opinion.

Generally, evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.35 This exclusionary opinion rule does not apply if the person expressing the opinion has specialised knowledge based on the person's training, study or experience, and that opinion is wholly or substantially based on that knowledge.36

Heydon JA's judgment in Makita37 provides a summary of the principles relating to the admissibility of expert opinion:

In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of 'specialised knowledge'; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be 'wholly or substantially based on the witness's expert knowledge'; so far as the opinion is based on facts 'observed' by the expert, they must be identified and admissibly proved by the expert; and so far as the opinion is based on 'assumed' or 'accepted' facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of 'specialised knowledge' in which the witness is expert by reason of 'training, study or experience', and on which the opinion is 'wholly or substantially based', applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight.

Where an expert's opinion is admissible, courts are still unlikely to be persuaded by the evidence or to accept the expert's conclusions in circumstances where the expert relied upon flawed assumptions. In Norris v. Blake,38 the New South Wales Court of Appeal considered the differing opinions expressed by a number of experts that related to the respondent's likely life expectancy in a personal injury claim. The economic loss ultimately awarded was dependent on the respondent's life expectancy. The court held that a relevant factor was the assumption held by many of the experts that the respondent would be in a persistent vegetative state. The court went on to conclude that the primary judge was entitled to discount those opinions because of his Honour's finding that the respondent was not in fact in a persistent vegetative state.

iv Independence of experts

In most jurisdictions within Australia an expert can be retained by either one or multiple parties to the proceedings, but the expert must remember that his or her paramount duty is to the court and not the parties retaining them.39 Experts are duty bound to assist the court impartially and so must maintain a level of independence.

This duty to the court means that an expert cannot be 'an advocate for the cause' of the party retaining them. However, it does not mean that experts are required to refrain from giving evidence where they are a party to proceedings, have a material interest in proceedings, or are employed by a party to proceedings. Relationships of this kind do not necessarily infer that an expert cannot give impartial and objective evidence, nor that they will act as advocates for the party retaining them.40 Rather, these are factors relevant to the assessment of the weight to be given to the expert's evidence at trial.41

v Challenging experts' credentials

A party can challenge an expert's credentials by asserting that the expert does not possess 'special knowledge, skill, experience or training about a matter'.

If the expert is found to not possess the relevant special knowledge, skill, experience or training about a matter, his or her evidence will be inadmissible.

In establishing whether or not the expert possesses the relevant special knowledge, skill, expertise or training, first the relevant field of expertise must be identified and then the judge must consider the skill of the witness purporting to be an expert.

Each opinion or piece of evidence adduced must then wholly or substantially fall within the identified field of the witnesses' expertise. A chartered accountant, although able to express opinions about accounting standards, cannot necessarily give evidence relating to the conduct of a company director.42 Another example where opinion is not wholly substantially based on the witness' specialised knowledge is where a chartered accountant is retained to write a report in which he or she restates the books of a publicly traded company, where that company is alleged to have misrepresented its financial position. Assuming that the accountant has no other expertise, he or she cannot then also be retained to calculate the true market value of the company's shares had the company not misrepresented its financial position (i.e., the accountant cannot calculate the loss suffered by an investor who bought the company's shares). In that case, the latter opinion, although relating to and following on from the calculations based on accounting expertise, falls substantially outside the accountant's field of expertise.

vi Novel science and methods

Experts engaged to quantify damages in securities actions use a method of quantitative linear regression involving event studies. Event studies aim to quantify effects on share price caused by information (or rather misinformation) released to the market. This method of quantification arose out of US securities fraud litigation. Event studies assume a semi-strong efficient capital market hypothesis and require experts to select a relevant market or industry share index and obtain data for the movement in that index over a relevant period and compare it to the share price of the subject company to establish statistically significant linear trend by way of regression analysis.43 Then, by comparing the actual share price immediately after the disclosure of information and a predicted price using the aforementioned trend, an expert concludes that the difference in those prices is the dollar value attributable to the disclosure of the information.

IV RECENT CASE LAW

i Market Based Causation in Re HIH Insurance Ltd (in liq) [2016] NSWSC 482 (HIH Insurance [2016]), Re HIH Insurance Ltd (in liq) [2017] NSWSC 380 (HIH Insurance [2017]) and TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v. Myer Holdings Ltd [2019] FCA 1747

The decisions of the Supreme Court of New South Wales in HIH Insurance [2016] and HIH Insurance [2017] and the recent decision of the Federal Court of Australia in Myer provide some clarity for shareholders, companies and directors on how Australian Courts will approach market-based causation in cases concerning loss arising from misleading and deceptive conduct claims involving securities.

Prior to these decisions there was doubt about whether market-based causation was accepted by Australian courts. Competing lines of argument have often been put before courts about the extent to which reliance had to be established: was direct reliance on misleading and deceptive statements required, or was indirect reliance sufficient? The latter view relies on a concept of market-based causation to establish causation irrespective of whether plaintiffs had relied directly on misleading and deceptive statements. It contends that a causal link is established where the price of securities is affected by the misleading or deceptive information.

The facts of the cases

HIH Insurance [2016] and HIH Insurance [2017] related to multiple claims by investors who acquired shares in HIH Insurance Limited (HIH) at an artificially inflated market price. HIH was a public company listed on the ASX. It was placed into liquidation in 2001 and admitted that its FY1999 financial statements, FY2000 interim financial statements and FY2000 final statements contained representations that were misleading and deceptive.44 These representations 'conveyed to the market an over-optimistic impression of HIH's financial position and prospects'.45 The statutory causes of action required investors to show that they had suffered loss 'by' the contravening conduct, in this case the misleading and deceptive financial statements.46

Myer involved claims brought by shareholders who acquired shares in Myer Holdings Ltd, a public company listed on the ASX, in reliance on profit forecast announcements Myer made to the market about its net profit after tax that were alleged to be misleading and deceptive. In September 2014, Myer announced that it expected profit growth for FY2015, and in March 2015 it announced that its net profit after tax was significantly less than its FY2014 results.47 Upon the March 2015 announcement being made, Myer's share price dropped by around 10 per cent. Shareholders alleged that the making of the September 2014 announcement engaged Myer's continuous disclosure obligations, and that Myer's failure to correct that announcement amounted to misleading and deceptive conduct.48 Assessment of damage was a central issue in the conduct of the case and the Myer defence.

The decision

Direct causation is established by the plaintiff shareholder proving that he or she read and relied on certain market announcements when making their investment decision and that the misleading information resulted in the price of the shares purchased being inflated. In contrast, in both the HIH Insurance cases and Myer, the plaintiffs contended that even if they had not personally relied upon the misleading and deceptive statements in their decision to acquire shares, by establishing that the defendants' conduct had caused the market price for the shares to be inflated, the element of causation was established.49

Accordingly, the wording of these statutes was critical in considering whether loss could be established via indirect causation. Justice Brereton interpreted the word 'by' to express 'the notion of causation without defining or elucidating it'.50 He followed Mason CJ's judgment in March v. Stramare,51 which stated that for a sufficient causal link to be established, it must be shown that the contravening conduct 'caused or materially contributed to' the loss.52 In this vein, Justice Beach confirmed that the word 'by' does not suggest that reliance is a necessary condition, opening up the possibility that causation may be established indirectly.53

Thus, Brereton J found that it was not necessary to prove each investor's individual reliance on the misleading or deceptive financial statement and that a causal link could instead be established by showing that HIH made misleading or deceptive representations in relation to its financial statements, the market was deceived into a misapprehension that HIH was trading more profitably than it really was and had greater net assets than it really had, HIH shares traded at an inflated market price and investors paid that inflated market price to acquiring shares, thereby suffering loss.54 This causal link is referred to as indirect market-based causation.

Justice Beach endorsed this approach in Myer when determining whether the omission to correct the September 2014 announcement inflated Myer's share price, and that investors who acquired shares after that announcement did so at an inflated price.55 However, fatal to the applicant's case on this analysis was a factual finding that the market was sceptical of the September 2014 announcement and instead anticipated a lower profit result, effectively negating any inflation to Myer's share price.56

Following on from the HIH Insurance [2016] decision, Brereton J considered the issue of quantum in HIH Insurance [2017]. Generally, the measure of damages in these types of cases is 'the difference between the price [the plaintiff] paid and the price they would have paid had the contravening conduct not occurred but all other factors had remained constant'.57 A complicating factor in calculating the quantum of loss was that shareholders had purchased shares while their market price was inflated by misrepresentations, but then subsequently sold some of those shares within the inflated period. Various approaches were suggested to Brereton J for consideration, including a 'last-in-first-out' (LIFO) approach, a 'first-in-first-out' (FIFO) approach and a proportionate approach. A proportionate approach requires treating the shares sold during the inflationary period as being proportionately drawn from the shares owned prior to the inflationary period and the shares acquired during the inflationary period. Brereton J held the LIFO method to be the favoured approach because it requires the shareholder to account for any inflationary benefit received on a share sale.

Indirect market-based causation and 'fraud-on-the-market' approaches

The principle recognised by Brereton J is similar but not identical to the well-established 'fraud-on-the-market' doctrine recognised by the United States Supreme Court in Basic v. Levinson.58 The key difference between the two doctrines is that, under the approach recognised in HIH Insurance [2016], there is no need to establish reliance. In contrast, the American doctrine provides plaintiffs with a presumption of reliance on the integrity of the market price of securities affected by the misrepresentation, which it is open to the defendant to rebut with sufficient evidence.

Notably in Myer, Justice Beach dismissed the US doctrine of fraud on the market as irrelevant to the Australian jurisdiction. The driving force for the doctrine, being a response to the requirement in US securities legislation to prove reliance, is absent in the corresponding Australian legislation.59 Further, imposing the doctrine would rather confusingly mean that in cases of misleading and deceptive conduct by omission a shareholder must prove they relied upon undisclosed information of which they were unaware.60

ii Breach of Trust and Equitable Compensation in Kerr v Australian Executor Trustees (SA) & Ors [2019] NSWSC 1279 (AET)61

In Australia, the status of equity as a body of law distinct from common law is the subject of an enduring debate.62 Some jurists contend that the two have fused, so that the principles applicable to one may alter those applicable to the other.63 Others assert this to be a fallacy, arguing that equity follows its own 'coherent body of principles'.64 In the recent AET decision, the Supreme Court of New South Wales considered whether common law principles of causation reasoning apply in the determination and quantification of equitable compensation.

The facts of the case

AET concerned a plantation timber managed investment scheme in which investors, called covenantholders, purchased covenants entitling them to a rateable share in the proceeds of milled timber. The forestry scheme was structured such that timber was grown and sold by forestry companies who were contractually obliged to pay the timber sale proceeds to AET. AET, who acted as trustee for the covenantholders' investments was required under the trust arrangements to hold and distribute to covenantholders proceeds from the sale of timber to which covenantholders were entitled.

The trust arrangement afforded several protections to covenantholders to ensure payment by the forestry company to AET, most significant of which was the registration of encumbrances over the land upon which timber was grown. The encumbrances were a form of security akin to a statutory mortgage that conferred upon AET a power of sale over the land if the forestry company defaulted in its obligations.

In early 2008, the forestry company was acquired by Gunns Limited, a major Australian forestry enterprise. Some years after the acquisition, Gunns and the forestry company provided a charge to the ANZ Bank as security for moneys lent to the Gunns Group. Then, in early 2011, Gunns encountered financial difficulties and moved to sell off several of its non-core assets, including the forestry scheme assets. The sale process culminated in March 2012, with AET and the forestry company entering into an agreement with a third party purchaser to sell the forestry scheme's trees and land for A$33.9 million and A$4.8 million respectively. Under the sale agreement, covenantholders were to receive amounts proportionate to their interests in the trees and land.

To enable a clear title pass to the purchaser, AET agreed to the requirement that it discharge the encumbrances which it held over the land. Fatally for the covenantholders, AET discharged the encumbrances without insisting upon upfront payment nor an alternative form of security, and instead agreed to the sale proceeds referable to covenantholders' interest to be paid into the forestry company's bank account. In the events that happened, the forestry company did not have its own bank account, and the proceeds were paid directly into an overdraft account in the name of Gunns and were subsumed by the ANZ Bank's charge and entirely lost to the covenantholders.

Covenantholders moved to have the Court appoint an additional trustee, Mr Kerr, to the forestry scheme to investigate and commence proceedings against AET alleging a breach of trust. The proceeding was heard in the New South Wales Supreme Court before Stevenson J, who found that AET had committed a breach of trust by failing to obtain upfront payment or negotiate alternative security. Stevenson J was then required to determine whether that breach of trust had caused covenantholders to suffer losses. Essentially, the court was tasked with determining whether or not equitable compensation is determined by reference to the common law principles of remoteness and foreseeability of loss.

The decision

In resolving the issue of causation, Stevenson J distinguished the analysis of causation at common law from the applicable test for equitable compensation. While at common law a plaintiff must satisfy the tests for foreseeability and remoteness of loss, his Honour found that the applicable test was whether 'but for' the breach, the covenantholder loss would not have occurred.65 In other words, the plaintiff 'need only establish that the loss was caused “by”, “by reason of”, or “as a result of” the wrongful conduct'.66 Once a causal link is found, equity does not require an examination of foreseeability or remoteness. His Honour referred to the reasoning in Ancient Order of Foresters In Victoria Friendly Society Ltd v. Lifeplan Australia Friendly Society Ltd, that because equity is concerned with vindicating an equitable obligation that has been breached, the 'but for' test of causation is sufficient irrespective of other contributing causes.67

It was accepted by the parties that if AET had insisted on payment or alternate security the timber and land sale transaction would have proceeded. Mr Kerr positively contended that in the counterfactual transaction that would have occurred if AET did not breach its duties the covenantholders would have received their interests in the timber proceeds. Stevenson J accepted on the evidence that Mr Kerr had satisfied his onus position and rejected AET's arguments that in the counterfactual transaction the covenantholders would have received a lesser amount because Gunns and the ANZ Bank would not have agreed to provide upfront payment or alternative security. Critically, Stevenson J having found that 'but for' the breach, the covenantholder loss would not have occurred was, on the evidence presented by AET, not prepared to speculate against the covenantholders as to what may or may not have subsequently transpired.

Causation in equitable compensation

Stevenson J's decision in AET confirms that the assessment of quantum in cases seeking equitable compensation does not entertain considerations of what would or ought to have happened but for a breach of fiduciary duties. Rather than adopting a 'fused' approach that assimilates common law principles and equity when determining causation,68 equity applies a distinct approach that is only concerned with protecting plaintiffs against breaches of equitable duties.

iii General Damages for Defamation in Bauer Media Pty Ltd v. Wilson (No. 2)

While the above cases discuss the role common law and equitable principles play in determining the availability and quantification of damages, it is important to consider the extent to which statute modifies these principles.

In Australia, defamation legislation applies a cap to the maximum amount that can be awarded for general damages. General damages comprise lump sum awards for both pure compensatory loss and aggravated damages. They are limited to a prescribed amount that can only be exceeded 'if, and only if, the court is satisfied that the circumstances of the publication of the defamatory matter to which the proceedings relate are such as to warrant an award of aggravated damages'.69 However, an award for damages must still have an appropriate and rational relationship to the harm suffered by a plaintiff.70 In other words, the cap may be exceeded when a defendant's improper or unjustified conduct, or conduct in bad faith, justifies an award for aggravated damages. However, an award must still be proportionate to the harm suffered. The recent high-profile case of Bauer Media Pty Ltd v. Wilson (No. 2)71 considered the effect this cap has on damages for non-economic loss in defamation proceedings.

The facts of the case

In 2015, Bauer Media published several magazine and online articles alleging that Ms Wilson, a prominent Australian actor, was a serial liar. Ms Wilson commenced proceedings in the Supreme Court of Victoria alleging that the articles were defamatory and had caused her to suffer loss, which she identified to include disrepute, humiliation and loss of future work.

At trial, Ms Wilson was successful in receiving an award of A$650,000 for general damages, which included aggravated damages, and A$3,917,472 for special damages.72 On appeal, Bauer Media contested the quantum of damages. One of Bauer Media's grounds of appeal was that the trial judge had erred in exceeding the statutory cap for general damages.

The decision

Bauer Media argued that the proper construction of the statutory cap required the trial judge to award aggravated damages separately from pure compensatory damages, and that only aggravated damages may exceed the statutory cap.73 The substance of this submission was that where a court assesses pure compensatory damages to exceed the statutory cap, and considers aggravated damages to be warranted, a plaintiff will only receive pure compensatory damages in the capped amount, and then receive a separate award for aggravated damages that may exceed the cap.

The Court of Appeal rejected this argument, finding that neither the language of the legislation nor the intention of Parliament mandated, expressly or implicitly, a separate award for aggravated damages. Doing so would place courts in the 'impossible situation' of ascertaining the unquantifiable, being what should be awarded specifically to console a plaintiff's hurt feelings and compensate for their reputational damage.74 The court considered that a literal reading of the legislation provided that where a court awards aggravated damages, it is entitled to exceed the statutory cap in respect of both pure compensatory and aggravated damages.75

It was further put by Bauer Media that some of the trial judge's findings in relation to conduct warranting aggravated damages should be set aside.76 Specifically, Bauer Media submitted that the trial judge erred in finding that it was not justified in defending the proceedings and it was improper for a defence of triviality to be run, that it had failed to apologise to the plaintiff, and that it had disclosed confidential information in publishing the defamatory material.

In setting aside these findings, the Court of Appeal reassessed damages for non-economic loss to be in the amount of A$600,000. The decision confirms that awards for general damages are made as a lump sum, and where aggravated damages are warranted, an award can exceed the statutory cap in respect of the whole of an award for general damages.

This approach was adopted in another high-profile defamation case involving the actor, Geoffrey Rush: Nationwide News Pty Ltd v. Rush.77

iv Breach of Contract and Quantum Meruit in Mann v. Paterson Constructions Pty Ltd

What the appropriate measure of damages is, where a claimant provides work or services pursuant to a contract, and that contract is breached or repudiated by the other party before payment is made, is the subject of a recent decision of the High Court of Australia. Prior to Mann v Paterson Constructions Pty Ltd, the Australian law permitted claimants to elect between contractual damages or a claim for restitution based on quantum meruit for a 'fair market value' of the work or services provided notwithstanding that these two forms of relief are based on different principles and often yield different results.

An entitlement to contractual damages will arise upon a breach of contract. What the innocent party may recover will be informed by the contract price, how much they owe under the contract and the losses incurred by reason of the breach. Conversely, a claim for quantum meruit will arise when a repudiating party is unjustly enriched by virtue of failing to make payment for work or services provided by another party, and it would be unconscionable for that party to retain the benefit of the work or services.78

As set out in Sopov v. Kane (No. 2), claims of quantum meruit rest upon the legal fiction that upon repudiation the contract is void from its inception, so that any clause stipulating the amount of payment to be made no longer exists.79 In its place, a claimant's entitlement to payment will be determined by what the 'fair market value' of the work or services conferred to the other party is. Consequently, prior to the High Court's decision in Mann v Paterson Constructions Pty Ltd in cases of this kind, where the value of the work performed exceeded the contractual entitlement, claimants elected to be compensated on the quantum meruit measure.

The facts of the case

Mr and Mrs Mann entered into a contract for the construction of two double-storey terraced houses with Paterson Constructions Pty Ltd. After the first terrace house had been completed and handed to the Manns, but before completion of the second terrace house, a dispute arose over, among other things, moneys claimed for variations to building works. The Manns purported to terminate the contract and exclude Paterson Constructions from the site. In response, Paterson Constructions commenced proceedings in the Victorian Civil and Administrative Tribunal (VCAT), alleging that the conduct of the Manns constituted repudiation and purported to accept that repudiation.80 VCAT found that the Manns had wrongfully repudiated the contract and that, pursuant to Sopov, Paterson Constructions was entitled to recover payment for the works on a quantum meruit basis. That quantum meruit entitlement was calculated by reference to evidence from a quantity surveyor in the amount of A$1,606,313, whereas the amount that could have been recovered by contractual damages was A$971,000.

The Manns appealed the decision of the VCAT to the Supreme Court of Victoria.81 Their primary ground of appeal, that the VCAT had either misunderstood or misapplied the principles applicable to assessing the value of a quantum meruit claim, and that the proper test was to assess a value on the basis of what was 'fair and reasonable' which required consideration of the contract price, was dismissed. Justice Cavanough (at first instance) and then the Court of Appeal held that the Court was bound by the decision of Sopov. Sopov held that where an owner's wrongful repudiation of a building contract is accepted by the builder, the contract is deemed void from the beginning, and that where the builder elects to claim in quantum meruit, that claim is assessed independently of the contract by reference to the value of the benefit conferred on the owner.

The Manns appealed to the High Court. In Mann v Paterson Constructions Pty Ltd [2019] HCA 32, the High Court of Australia considered (1) whether a party accepting repudiation of a contract is entitled to be paid upon a quantum meruit as an alternative to contractual damages, and (2) if a quantum meruit claim is available, should the contract price provide a ceiling to the quantum that may be recovered.82

As to (1), the majority considered three different scenarios in which quantum meruit was sought by the builder. The first was for works subject to progress payments that were due prior to termination, the second for works performed but subject to a progress payment post termination, and the third for variations. For the first and last of these scenarios, the majority held that the builder was restricted to contractual remedies and could not pursue quantum meruit. However, the majority's reasoning differed with Keifel CJ, Bell and Keane JJ holding that the ability to elect between claims improperly subverted an agreed, contractual allocation of risk,83 and Gageler J reasoning that the contractual right to payment was enforceable by an action in debt which left no room for an alternative claim.84 For the second scenario, the majority held a quantum meruit claim was open, either on the basis of a non-contractual claim based on debt,85 or a total failure of consideration giving rise to restitution.86

In answering (2), the majority held that a quantum meruit claim is capped by reference to the contractually agreed price. Gageler J reasoned that this was to prevent a plaintiff from accruing an unfair benefit,87 while Nettle, Gordon and Edelman JJ saw the cap as a way of preserving the parties' agreed allocation of risk.88


Footnotes

1 Simon Morris is a partner and Thomas Riddell is an associate at Piper Alderman. The authors acknowledge the contributions of Dr David Winterton and Amir Chowdhury to the previous editions of this chapter.

2 See Harris v. Digital Pulse Pty Ltd (2003) 56 NSWLR 298 (Heydon JA).

3 See Bunnings Group Ltd v. CHEP Australia Ltd [2011] NSWCA 342; (2011) 82 NSWLR 420 at [172]–[175], [177]–[178], considering damages assessment for conversion or detinue.

4 For trespass to land, see Houghton v. Immer (No. 155) Pty Ltd (1997) 44 NSWLR 46 and Inverugie Investments v. Hackett [1995] 1 WLR 713 (PC).

5 See J Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart 2002).

6 See Hospitality Group Pty Ltd v. Australian Rugby Union Ltd (2001) 110 FCR 157; compare Attorney General v. Blake [2001] 1 AC 268.

7 See Paciocco v. Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28, [57] (French CJ and Kiefel J).

8 ibid. [165] (Gageler J).

9 Livingstone v. Rawyards Coal Co (1880) 5 App Cas 25, 39 (Lord Blackburn).

10 Luna Park (NSW) Ltd v. Tramways Advertising Pty Ltd (1938) 61 CLR 286.

11 Johnson v. Perez (1988) 166 CLR 351, 356.

12 O'Brien v. McKean (1968) 118 CLR 540.

13 Simply Irresistible Pty Ltd v. Couper [2010] VSC 601.

14 Hasell v. Bagot, Shakes & Lewis Ltd (1911) 13 CLR 374, 388.

15 Fox v. Wood (1981) 148 CLR 438, 148.

16 See the discussions in YP Barley Producers Ltd. v. Robertson (EC) Pty Ltd [1927] VLR 194 and, more recently, Flame SA v. Glory Wealth Shipping Pte Ltd (The Glory Wealth) [2013] EWHC 3153 (Comm).

17 Sellars v. Adelaide Petroleum NL (1994) CLR 332.

18 Pennant Hills Restaurants Pty Ltd v. Barrell Insurances Pty Ltd; sub nom Barrell Insurances Pty Ltd v. Pennant Hills Restaurants Pty Ltd (1981) 145 CLR 625.

19 Personal Injuries (Liabilities and Damages) Act 2003 (NT) Section 22; Civil Liability Act 2002 (NSW) Section 14; Civil Proceedings Act 2011 (Qld) Section 61; Civil Liability Act 1936 (SA) Sections 3 and 5; Civil Liability Act 2001 (Tas) Section 28A; Wrongs Act 1958 (Vic) Section 28I.

20 Law Reform (Miscellaneous Provisions) Act 1941 (WA) Section 5.

21 Brown Boveri (Aust) Pty Ltd v. Baltic Shipping Co (1989) 15 NSWLR 448, 464.

22 But not in Tasmania.

23 Judiciary Act 1903 (Cth) Section 77MA(2)(a); Federal Court of Australia Act 1976 (Cth) Section 51A(2)(a); Federal Circuit Court of Australia Act 1999 (Cth) Section 76(4)(a); Court Procedures Rules 2006 (ACT) r1616(6)(a); Supreme Court Act 1979 (NT) Section 74(2)(a); Civil Procedure Act 2005 (NSW) Section 100; Civil Proceedings Act 2011 (Qld) Section 58; Supreme Court Act 1936 (SA) Section 30C(4)(a); District Court Act 1991 (SA) s39(4)(a); Magistrates Court Act 1991 (SA) Section 34(4)(a); Supreme Court Act 1986 (Vic) Section 60(2)(a); Supreme Court Act 1935 (WA) Section 32(2)(a).

24 Grincelis v. House (2000) 201 CLR 321.

25 Judiciary Act 1903 (Cth) Section 77MA(2)(c); Federal Court of Australia Act 1976 (Cth) Section 51A(2)(c); Federal Circuit Court of Australia Act 1999 (Cth) Section 76(4)(c); Court Procedures Rules 2006 (ACT) r1616(6)(c); Supreme Court Act 1979 (NT) Section 74(2)(c); Civil Procedure Act 2005 (NSW) Section 100(3)(d); Civil Proceedings Act 2011 (Qld) Section 58(4)(b); Supreme Court Act 1935 (WA) Section 32(2)(c).

26 Milne v. A-G (Tas) (1956) 95 CLR 460, 477.

27 Alltrans Express Ltd v. CVA Holdings Ltd [1984]1 All ER 685.

28 Singleton v. Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 2013, 108, Uniform Civil Procedure Rules 2005 (NSW) Rules 42.15-42.15A.

29 Atlas Tiles v. Briers (1978) 144 CLR 202, 223.

30 Joseph Crosfield and Sons Ltd v. Techno-Chemical Laboratories Ltd (1913) 29 TLR 378, 379.

31 R v. Smith (1915) 11 Cr App R 229, 238.

32 Evidence Act 1995 (Cth), Section 80; each jurisdiction in Australia has its own Evidence Act, but they have been made uniform throughout almost all Australian jurisdictions.

33 R v. GK (2001) 53 NSWLR 317 (per Mason P).

34 Evidence Act 1995 (Cth).

35 id., Section 76.

36 id., Section 79.

37 Makita (Australia) Pty Ltd v. Sprowles (2001) 52 NSWLR 705, [85].

38 (1997) 41 NSWLR 49, 79.

39 Expert witness code of conduct Sch 7 UCPR; Federal Court of Australia Expert Evidence Practice Note (GPN-EXPT), Annexure A.

40 See Sydney South West Area Health Service v. Stamoulis [2009] NSWCA 153, [211]–[219]; compare Guy v. Crown Melbourne Ltd [2017] FCA 1104.

41 Rush v. Nationwide News Pty Ltd (No 5) [2018] FCA 1622, [37]–[38].

42 Australian Cement Holdings Pty Ltd v. Adelaide Brighton Ltd [2001] NSCW 645, [6].

43 Justice Beach, 'Structural and Forensic Developments in Securities Litigation', International Commercial Law Conference, Inner Temple, Inns of Court, London, 29 June 2016.

44 HIH Insurance [2016] NSWSC 482, [3].

45 id., at [38].

46 Trade Practices Act 1974 (Cth) Section 82(1); Corporations Act 1989 (Cth) Section 1005.

47 [2019] FCA 1747 at [3]–[4].

48 [2019] FCA 1747 at [5]–[6].

49 See Trade Practices Act 1974 (Cth) Section 52; see Corporations Act 1989 (Cth) Sub-sections 995 and 999. Note that these particular provisions have since been repealed and replaced.

50 HIH Insurance [2016] NSWSC 482.

51 (1991) 171 CLR 506, 514.

52 HIH Insurance [2016] NSWSC 482, [37].

53 [2019] FCA 1747 at [1519].

54 id., at [75].

55 [2019] FCA 1747 at [1633]-1672].

56 [2019] FCA 1747 at [1716].

57 id., at [74].

58 485 US 224 (1988). The continued correctness of the doctrine was also approved in Halliburton Co v. Erica P John Fund Inc 134 S Ct 2398 (2014).

59 [2019] FCA 1747 at [1535].

60 [2019] FCA 1747 at [1523].

61 The decision in Kerr v AET & Ors [2019] NSWSC 1279 is the subject of an appeal. At the time of publication the appeal has been heard and judgment has been reserved.

62 See generally The Hon Justice Michael Kirby AC CMG, 'Equity's Australian Isolationism' (2008) QUT Law & Justice Journal 444.

63 See J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (Butterworths LexisNexis, 5th ed, 2002), [2-130].

64 See The Hon Justice Michael Kirby AC CMG, 'Equity's Australian Isolationism' (2008) QUT Law & Justice Journal 444, 446; Pilmer v. Duke Group Limited (In Liq) (2001) 207 CLR 165, 231 [173]; see generally R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (Butterworths LexisNexis, 4th ed, 2002).

65 [2019] NSWSC 1279 at [371].

66 [2019] NSWSC 1279 at [367], citing AHRKalimpa [32] citing Ancient Order of Foresters in Victoria Friendly Society Ltd v. Lifeplan Australia Friendly Society (280) 360 ALR 1, 6 [9], 24–25 [84]–[88], 45 [179]; Youyang Pty Ltd v. Minter Ellison Morris Fletcher (2003) 212 CLR 484, 502 [44].

67 [2019] NSWSC 1279 at [366], citing Ancient Order of Foresters in Victoria Friendly Society Ltd v. Lifeplan Australia Friendly Society (280) 360 ALR 1, 25 [88].

68 See generally Permanent Building Society (in liq) v. Wheeler (1994) 11 WAR 187, 247; Bristol and West Building Society v. Mothew [1998] Ch 1, 16–17 per Millett LJ.

69 See Defamation Act 2005 (VIC) Section 35. This provision is replicated in the defamation acts of all other states.

70 id., at Section 34.

71 [2018] VSCA 154.

72 See Wilson v. Bauer Media Pty Ltd [2017] VSC 521.

73 Bauer Media Pty Ltd v. Wilson (No. 2) [2018] VSCA 154, [180]–[181].

74 id., at [226].

75 id., at [259].

76 id., at [140]–[149].

77 [2020] FCAFC 115.

78 The origins of restitution for unjust enrichment, and the requirement for there to be some form of unconscionability, is set out in Australian Financial Services and Leasing Pty Ltd v. Hills Industries Ltd [2014] HCA 14.

79 (2009) 24 VR 510, 517 [21] (Sopov).

80 See Paterson Constructions Pty Ltd v. Mann [2016] VCAT 2100.

81 See Mann v. Paterson Constructions Pty Ltd [2018] VSC 119 and Mann v. Paterson Constructions Pty Ltd [2018] VSCA 231.

82 For a thorough discussion on the judgment, see David Winterton and Tim Pilkington, 'Mann v Paterson Constructions Pty Ltd: The Intersection of Debt, Damages and Quantum Meruit' (2020) 44 Melbourne University Law Review (forthcoming).

83 [2019] HCA 32 at [19].

84 [2019] HCA 32 at [63].

85 [2019] HCA 32 at [87].

86 [2019] HCA 32 at [176]–[179].

87 [2019] HCA 32 at [90]–[101].

88 [2019] HCA 32 at [205].