CONTRACT – breach – solicitor’s retainer – failure to pursue proceedings against third party – loss of commercial opportunity of recovery – proceedings later successful – no recovery due to third party’s bankruptcy – whether solicitor’s breach caused loss of valuable opportunity – whether plaintiff entitled to damages – assessing damages for loss of valuable opportunity

Mal Owen Consulting Pty Ltd v Ashcroft [2018] NSWCA 135

Basten JA:

  1. According to general law principles, there are two critical distinctions to be drawn in formulating the recoverable loss, namely (a) between that which is recoverable for breach of contract and that which is recoverable in tort, and (b) between injury to commercial interests and personal injury. Where there is the loss of an opportunity to obtain a commercial advantage, the harm suffered will be constituted by that loss of opportunity. Further, where the claim is in contract, the actual occurrence of the harm is not an essential element of the cause of action and, unlike a claim in tort, is not part of the damage which must be proved on the balance of probabilities in order to complete the cause of action.
  2. These principles are well established in the general law. They are commonly sourced to Chaplin v Hicks. [5] The plaintiff, Ms Chaplin, was selected to take part in a competition for a theatrical engagement. The defendant, an impresario, in breach of his contract with Ms Chaplin failed to give her the opportunity to compete for one of 12 positions, valued at £780. She was allowed to recover the amount of £100 by way of damages for the loss of opportunity. The Hon James Edelman, writing extra-judicially, has said that Chaplin v Hicks “has been cited in hundreds of subsequent cases in both the law of torts and the law of contract.” [6] As explained by Dixon and Fullagar JJ in McRae v Commonwealth Disposals Commission, [7] “[t]he broken promise itself in Chaplin v Hicks was, in effect, ‘to give the plaintiff a chance’”. Similarly, a solicitor who agrees to undertake proceedings on behalf of a client does not promise to achieve an outcome, but merely to take steps to ensure that the client has the best opportunity or chance of obtaining a favourable outcome. Thus, in Commonwealth v Amann Aviation Pty Ltd [8] the plaintiff incurred expenditure on the basis of a repudiated contract where its prospects of making a substantial profit rested on its prospect of securing a renewal of the contract. [9] In discussing the assessment of such a loss of a chance, Deane J stated: [10]

“If, for example, what the plaintiff has lost by reason of the defendant’s repudiation or breach of contract is a less than 50 per cent but nonetheless real and valuable chance of winning some contest or prize, of being the successful tenderer for some commercial undertaking or of deriving some other advantage, in circumstances where a court can decide that a proportionate figure precisely or approximately reflects the chance of success but can do no more than speculate about whether, but for the defendant’s wrongful act, the plaintiff would have actually won the contest, prize or tender or derived the advantage, it would affront justice for the court to hold that the plaintiff was entitled to no compensation at all for the lost chance of competing or striving or for the wasted expenditure which was incurred in obtaining or performing the contract.”

  1. The issue of damages for a lost opportunity was comprehensively reviewed by the High Court in Sellars v Adelaide Petroleum NL. [11] That case did not turn upon a breach of contract, but a claim for damages under s 82 of the Trade Practices Act 1974 (Cth), a cause of action which required the proof of loss or damage. [12] However, the joint reasons commenced with a statement relevant to a breach of contract claim: [13]

“In the realm of contract law, the loss of a chance to win a prize in a competition resulting from breach of a contract to provide the chance is compensable, notwithstanding that, on the balance of probabilities, it is more likely than not that the plaintiff would not win the competition. [14] As the contract contained a promise to provide the chance, the breach of the contract resulted in the loss of the chance and that loss was for relevant purposes an actual loss, in the sense in which Dixon and McTiernan JJ used that expression in Fink v Fink. [15] And, where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat an award of damages. The damages will then be ascertained by reference to the degree of probabilities, or possibilities, inherent in the plaintiff’s succeeding had the plaintiff been given the chance which the contract promised.

This approach is not confined to contracts relating to games of chance, sporting contests or other competitions. And there can be no doubt that a contract to provide a commercial advantage or opportunity, if breached, enables the innocent party to bring an action for damages for the loss of that advantage or opportunity. [16]

  1. The joint reasons in Sellars, after referring to statements in Johnson v Perez, [17] Kitchen v Royal Air Force Association, [18] and of Deane J in Amann Aviation, stated: [19]

“Of course, Johnson, Kitchen and the example given by Deane J are cases of breach of contract.”

The statement by Deane J, approved in Sellars as an example of a claim in contract, was to the following effect:

“[A] plaintiff whose action against a third party has become statute-barred by reason of a defendant solicitor’s breach of contract may recover damages by reference to the court’s assessment of what the chance of success in the action against the third party would have been even though that assessment is 50 per cent or less.”

  1. To similar effect, Brennan J stated in Sellars: [20]

“The cases where a plaintiff seeks damages only for breach of a contractual promise to afford the plaintiff an opportunity to acquire a benefit are in a different category from cases under s.82(1) and cases in tort where damage is the gist of the cause of action. In a case like Chaplin v. Hicks, the relevant loss is identified by the contractual promise to afford the plaintiff an opportunity to acquire a benefit or to avoid a detriment. [21] A breach of the promise to afford that opportunity necessarily establishes that the loss flows from the breach. In contract cases, a plaintiff may be entitled to nominal damages for loss of the opportunity promised even though the plaintiff fails to prove what, if any, value performance of the unfulfilled promise would have had.”

  1. That reasoning was affirmed in Tabet v Gett, [22] a case approving the refusal of this Court to allow damages for the loss of a chance of a better outcome in relation to a claim for personal injury resulting from medical negligence. In addressing the issue of principle, Gummow ACJ stated:

“[47]   It should be said immediately that the principles dealing with recovery of damages for breach of contract offer no appropriate analogy. The action for breach of contract lies upon the occurrence of breach, but that in negligence lies only if and when damage is sustained. This has significance for the application of limitation statutes. But it has the further and relevant importance identified by Brennan J in Sellars …. This is that in a negligence action, unlike an action in contract, the existence and causation of compensable loss cannot be established by reference to breach of an antecedent promise to afford an opportunity.”

Kiefel J (with whom Hayne and Bell JJ and Crennan J agreed) adopted a similar view:

“[123]   It was recognised in Sellars v Adelaide Petroleum NL that a loss of the opportunity to obtain a commercial advantage or benefit is loss or damage for the purposes of s 82(1) of the Trade Practices Act 1974 (Cth), where the cause of action arose under s 52(1) of that Act. Previous decisions allowing for recovery had been based in contract, where the breach of the promise to provide the chance itself gave rise to the loss of that chance. [23] But as Brennan J said, in cases under s 82(1), ‘as in cases of tort where damage is the gist of the action, a lost opportunity may or may not constitute compensable loss or damage’ and it must be proved in some other way. [24]

[124]   What cases in contract, such as The Commonwealth v Amann Aviation Pty Ltd and Sellars v Adelaide Petroleum NL, have in common is that the commercial interest lost may readily be seen to be of value itself. [25] The same cannot be said of a chance of a better medical outcome or a person’s interest in it. Lord Hoffmann observed in Gregg v Scott that most cases where there has been recovery for loss of a chance have involved financial loss, where the chance itself can be regarded as an item of property. [26] And in Sellars v Adelaide Petroleum NL Brennan J observed that, ‘[a]s a matter of common experience, opportunities to acquire commercial benefits are frequently valuable in themselves’. So long as an opportunity provides a substantial and not merely a speculative prospect of acquiring a benefit, it can be regarded as of value and therefore loss or damage. [27]

  1. There is nothing in Badenach v Calvert, [28] on which the trial judge placed significance, inconsistent with this line of authority. Badenach involved a claim in negligence brought by the beneficiary under a will whose expectation had been significantly reduced by a family provision claim by the daughter of the testator by an earlier marriage, for whom no allowance had been made in the will. The beneficiary sued the testator’s solicitor. The claim was in negligence, not contract. Accordingly, as in Tabet, loss was an essential element of the cause of action. There was no reference in Badenach to claims for breach of a contract to provide a commercial opportunity.
  2. Once it is accepted that a claim lies for breach of a contract promising a commercial opportunity, the calculation of loss must be undertaken by an assessment of possibilities, in the manner recognised in Malec v J C Hutton Pty Ltd. [29] That step was not taken in the present case.
  3. That being the position under the general law, it is necessary to consider whether that position has been modified by statute, and, in particular, by the Civil Liability Act 2002 (NSW).

  1. Once a cause of action for breach of contract has been established on the balance of probabilities, the assessment of the loss suffered by the plaintiff is to be undertaken in accordance with the principles explained in Malec v J C Hutton Pty Ltd. [39] Thus the plurality stated in Sellars: [40]

“[W]e consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1), should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind.”

Barrett AJA:

  1. In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4, Mason CJ, Dawson, Toohey and Gaudron JJ said (at CLR 355):

“[W]e consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1), should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind.

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

  1. The court’s task, in relation to the issue of causation, is thus to assess the prospects of success of the opportunity had it been pursued. Such an assessment depends on proof by a plaintiff according to the balance of probabilities that he or she has sustained some loss or damage because deprived of an opportunity having value beyond merely theoretical or negligible value. As French CJ, Kiefel and Keene JJ pointed out in Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 at [40], there must be a determination, according to the balance of probabilities, whether there was a substantial prospect of a beneficial outcome; and the plaintiff’s onus in that respect is discharged only by proof that it was more probable than not that an opportunity of value would have been received but for the defendant’s negligence.
  2. The process just described goes to the issue of causation. It represents the first of what the joint judgment in Sellars v Adelaide Petroleum NL identifies as two distinct stages relevant to the resolution of a case such as the present. [49] At that first stage, causation must be proved on the balance of probabilities: the question of causation is, after all, “entirely factual, turning on proof of relevant facts and on the balance of probabilities in accordance with s 5E” of the Civil Liability Act 2002 (NSW) [50] . The second stage becomes relevant only if causation is established at the first. The issue at the second stage is the assessment of damages; and the focus then is upon the actual value of the lost opportunity which, to that point, has been appraised only as not merely theoretical or negligible. Value must be ascertained at the second stage by reference to “the degree of probabilities, or possibilities, inherent in the plaintiff’s succeeding had the plaintiff been given the chance” of which the plaintiff has been deprived. These are again words used in the joint judgment in Sellars v Adelaide Petroleum NL.
  3. At each of the two stages, therefore, attention must be given to a question relevant to the value of the lost opportunity. At the first stage concerned with causation, the task is no more than to confirm that the value is not in the realms of the merely theoretical or negligible – in other words, to establish, according to the balance of probabilities, that there is some colour of value to the lost opportunity. It is only if the second stage is reached (after causation is established at the first) that anything approaching particular quantification is required.  An assessment made at the second stage by reference to the degree of probabilities and possibilities of factual hypotheses may require a process of estimation extending even to a degree of guesswork [51] and may lie at any point within a broad range.
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