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Aghion, Daniel --- "Proving the money trail: The importance of causation in lost opportunity claims" [2019] PrecedentAULA 17; (2019) 151 Precedent 4

PROVING THE MONEY TRAIL

THE IMPORTANCE OF CAUSATION IN LOST OPPORTUNITY CLAIMS

By Daniel Aghion

The law of lost opportunity to gain a commercial advantage is well-known. If, on the balance of probabilities, the plaintiff proves that the defendant caused a loss of some value, then the plaintiff succeeds. The evaluation of the lost opportunity is a matter for damages, not causation.^[1]

Proof of the lost opportunity, on the balance of probabilities can, however, be difficult. The plaintiff is required to adduce evidence of something that did not occur. This can present practical problems.

The recent case involving the actor Rebel Wilson is an example of the difficulties that can be faced in trying to prove a lost opportunity claim.^[2] In that case, the trial judge relied upon the ‘grapevine effect’ to infer that a defamed actor’s reputation was damaged to the point where she was deprived of significant income from potential starring roles in Hollywood movies. The Victorian Court of Appeal reversed the trial judge, and held that insufficient evidence had been led to causally link the defamation with the inability to land those roles. Special leave was refused.

THE BASIC PRINCIPLES

Tort law is restitutionary. Its aim is to restore the plaintiff – as innocent victim of the defendant’s default – to the position they would have been had the tort not been committed, so far as the court is able to do so.

In purely economic loss claims, the defendant’s conduct may have caused the plaintiff to suffer a loss or be denied the opportunity to make a gain, or perhaps both. This scenario commonly arises in representation cases or claims against economic professionals, where the plaintiff has acted in reliance upon a negligent misstatement or upon negligent advice and by consequence has suffered detriment.

In Gates v City Mutual Life, the High Court held that, if the plaintiff’s reliance upon the defendant’s representation:

‘...has deprived him of the opportunity of entering into a different contract ... 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’.^[3]

The causal link between the defendant’s negligence and the plaintiff’s lost opportunity is assessed on the balance of probabilities. If the plaintiff proves that it has suffered a loss of some value, then the causal link is made out. The evaluation of the lost opportunity is a matter for damages, not causation.^[4]

In Malec v JC Hutton Pty Ltd, Deane Gaudron and McHugh JJ said:

‘If the law is to take into account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high – 99.9%, or very low – 0.1%. But unless the chance is so low as to be regarded as speculative – say less than 1% – or so high as to be practically certain – say over 99% – the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction that has a 51% probability of occurring, but to ignore altogether a prediction which has a 49% probability of occurring. Thus the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability.’^[5]

PROVING THE FACT OF THE LOST OPPORTUNITY – CAUSATION

The plaintiff must show that the opportunity provided a substantial and not merely speculative prospect of acquiring a benefit. Such an opportunity can be regarded as of value and therefore as loss or damage.^[6]

This often requires the plaintiff to model and adduce evidence of a hypothetical set of facts, sometimes described as a ‘counterfactual’. The counterfactual is directed to proving what the plaintiff would have done – or refrained from doing – but for the defendant’s negligence.^[7]

A simple example is an action against a legal practitioner for negligently failing to advise of a limitation period. In this example, the counterfactual requires proof that the plaintiff would have commenced the otherwise-barred proceeding within time, and that the prospects of success in that proceeding were substantial and not merely speculative.

A more complex counterfactual might require the plaintiff to adduce proof of how certain negotiations may have progressed or how third parties may have acted. In Allied Maples Group v Simmons & Simmons,^[8] the plaintiff acquired all of the shares of a competitor company (K). In doing so, the plaintiff acquired certain unwanted liabilities of K. The plaintiff successfully sued its solicitors, alleging that they negligently failed to advise the plaintiff to negotiate for a warranty from a solvent associate of K (G). The plaintiff adduced evidence that G would have given a warranty for K’s liabilities, if asked to do so.

LOSS OF A CHANCE IS RELEVANT TO DAMAGE, BUT NOT CAUSATION

In Badenach v Calvert,^[9] a solicitor was instructed to prepare a will which gave the entirety of the estate to a person whom the testator had treated as his son (Calvert). A will in that form was executed, but it was challenged by a step-daughter who successfully claimed provision out of the estate. Calvert alleged that the solicitor had negligently failed to advise the testator to make inter vivos transfers to Calvert so as to deplete the estate and avoid potential family maintenance claims. There was no evidence as to what the testator might have done if that advice was given to him.

Calvert contended that his claim was analogous to a ‘loss of a chance’,^[10] and thus he only needed to prove that there was a chance that the testator might have acted in the manner he alleged.

The majority of the High Court disagreed. Chief Justice French and Kiefel and Keane JJ confirmed that reference to ‘loss of a chance’, when considering causation in a tortious claim, confuses the distinct legal tests for causation and damage. They also said that loss of a chance was a lesser test, and did not reflect either the common law or the statutory test for factual causation.^[11] The test for causation remains as set out in Sellars.^[12] The Court did acknowledge that, once causation was established on the balance of probabilities, loss of a chance may form part of the assessment of damages.

Calvert failed because there was no evidence of a substantial prospect that the testator would have chosen to undertake the inter vivos transactions. Therefore, he did not prove that there was any loss of a valuable opportunity.^[13]

PROVING THE AMOUNT OF THE LOST OPPORTUNITY – DAMAGES

Proof on the balance of probabilities that some opportunity was foregone is proof only of a loss of some value. The amount of the damages suffered by the plaintiff must still be proven. This requires evaluating the chance of an uncertain event occurring.^[14]

In the example above of a solicitor who negligently fails to advise of a time-bar, the plaintiff would need to adduce evidence of the quantum of the hypothetical claim.

Because the lost opportunity did not eventuate, evaluation of the amount foregone necessarily involves an estimate. Precision will not always be possible.

It is well established that difficulty in assessing a loss is not a bar to assessing that loss.^[15] But if the plaintiff has evidence, then it should be led. In JLW (Vic) Pty Ltd v Tsiloglou, Brooking J dealt with this notion in some detail. His Honour noted that:

‘A plaintiff cannot recover substantial as opposed to nominal damages unless he proves both the fact and the amount of the damage ... If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages ... he must put the tribunal in the position of being able to quantify in money the damage he has suffered ... So juries in personal injuries cases are often directed that the plaintiff must prove to their satisfaction what he has suffered and will suffer and what is fair and reasonable compensation in respect of that. It is often said that the amount of the damage must be proved with certainty, but this only means as much “certainty” as is reasonable in the circumstances ... Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can.’^[16]

...

‘Of course in cases where a court is entitled to expect evidence which will enable an estimate of the plaintiff’s loss to be made, the plaintiff can recover substantial damages which do not reflect the whole of his actual loss if he at least proves facts which enable some part of his loss to be quantified.’^[17]

DEFAMATION – SPECIAL CIRCUMSTANCES?

In the tort of defamation, the causal link between damage to reputation and economic loss (whether claimed as special damages, or in aid of general damages) can at times be difficult to prove. There are several principles that a plaintiff may call in aid. Two of them were central to the appeal in Wilson’s case.

The first is the ‘grapevine effect’. It is a metaphor for the way in which reputational damage may spread. In respect of general damages, it has been described as follows:

‘It is precisely because the “real” damage cannot be ascertained and established that the damages are at large. It is impossible to track the scandal, to know what quarters the poison may reach: it is impossible to weigh at all closely the compensation which will recompense a man or a woman for the insult offered or the pain of a false accusation.’^[18]

The second is ‘Andrews damages’.^[19] In Andrews, the plaintiff led evidence of a decline in business after publication of the libel. This was not in aid of special damages, which were not claimed, but to assist the jury to understand the effect of the defamation upon the plaintiff’s business. The plaintiff’s purpose was to support and enlarge its claim for general damages. In Chakravarti v Advertiser Newspapers Ltd, Gaudron and Gummow JJ said in obiter that proof of general loss of business may also be used to establish special damage.^[20]

WILSON’S CASE

In Wilson’s case, an international film actor was defamed by a series of print magazine and online articles. The plaintiff had not claimed actual financial loss arising from termination of contracts to appear in certain films. Nor did the plaintiff lead direct evidence that persons who read the false articles made consequential decisions to exclude her from film roles. She instead relied upon the grapevine effect of the defamation, and led evidence of her diminished reputation in the critical Hollywood market subsequent to the publications. The trial judge concluded that the plaintiff’s demonstrable loss of income in certain financial years was caused by the grapevine effect and awarded special damages of nearly $4 million. In doing so, His Honour reasoned inferentially to establish the necessary causal link.^[21]

On appeal to the Victorian Court of Appeal, there was no challenge to the jury verdict that the plaintiff had been defamed. Relevantly for the purpose of this article, the publisher challenged the trial judge’s finding that the plaintiff had suffered special damage. The Court of Appeal reversed the trial judge’s findings, and held that the evidence adduced on behalf of the plaintiff was insufficient to establish a causal link between the defamation and the loss of income. In the alternative, the Court of Appeal held that the evidence was insufficient to establish Andrews damages.

As to the claim for loss of income, the Court of Appeal identified three errors in the trial judge’s conclusions on causation:

(1) that the plaintiff had proved on balance of probabilities that the opportunity for which she contended had existed and had been lost;

(2) that the plaintiff had proved on balance of probabilities, assuming such opportunity had been established, that the grapevine effect in the United States, in respect of the articles published in Australia, was a cause of that lost opportunity; and

(3) that there was, in particular, a loss of an opportunity to earn US$15 million from being cast in lead or co-lead roles in three Hollywood feature films during the period from mid-2015 to the end of 2016.^[22]

The plaintiff’s witnesses, being her agent and an expert witness, did not know of the defamatory articles at the relevant time and were unable to identify a film role that was denied to the plaintiff because of those articles.^[23] Further, the Court of Appeal held that the grapevine effect of the publications was overstated or inoperative.^[24] Nor could the plaintiff advance any particular project in respect of which she had been shunned.^[25]

As to Andrews damages, the Court of Appeal narrowed the scope of such claims. It noted that the defamation cases which preceded Andrews and in which special damages had been awarded for loss of business, involved businesses with a ‘floating and transitory class’ of customers such as innkeepers. The Court of Appeal in Wilson’s case emphasised the following passage from Mahoney JA, who was in dissent in Andrews:

‘[An earlier case of Ratcliffe v Evans] referred to the tendency of the law to allow a degree of generality in allegations against a wrong-doer; to the fact that a fall in business was the kind of result apt to flow from the wrong in question, and to the difficulties of proof, which, in some cases, would exist in proving loss more particularly.’^[26]

The Court of Appeal preferred a cautious rather than liberal approach towards the proof required to support an award of Andrews damages.^[27]

The Court then rejected the plaintiff’s alternate claim to Andrews damages, for similar reasons to its rejection of her claim for loss of income. Specifically, the Court concluded that the plaintiff was unable to prove, to the standard of the balance of probabilities, that she had experienced a decline in business, and this was fatal to her claim for Andrews damages.^[28] Furthermore, the plaintiff’s business contacts and potential witnesses were not analogous to the ‘floating and transitory class’ of customers on which Andrews damages were traditionally based. Her claim therefore did not fall into a traditional Andrews category of damages.^[29]

The Court therefore allowed the appeal and set aside the judgment for special damages. For other reasons, the general damages judgment of $600,000 was upheld.

CONCLUSION

Wilson’s case has implications for lawyers who practise in defamation. It has reduced the scope to claim Andrews damages – that is general or special damages founded upon a general decline in business. It might be said that, post-Wilson’s case, there is little practical difference between a claim for special damages based upon conventional proofs and a claim based upon a general decline in business.

If that proposition is correct, then there might be no scope for Andrews damages to apply to special damage claims. This is despite the obiter statement in Chakravarti, that such claims are open. Having said that, the Court of Appeal noted (correctly, with respect) that each case will depend upon its own facts.^[30] Specifically, a court will tolerate more generalised evidence of causation if the plaintiff’s reputation is damaged among a ‘floating and transitory class’ of customers.

When viewed in the broader context of tort law, however, the decision in Wilson’s case is consistent with established law. It reinforces the general proposition that a lost opportunity claim requires proof of the causal link between the defendant’s conduct and an opportunity of some value that was foregone. As in Wilson’s case, the proofs are particularly difficult when they rest upon the decision of a third party to bestow or not to bestow the claimed benefit.

Daniel Aghion BA LLB (Mon) LLM (Melb) is a barrister with chambers in Melbourne, and is a member of the Queensland, Victorian and Tasmanian Bars. He specialises in civil litigation, including economic torts. EMAIL aghion@chancery.com.au.

^[1] Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 (Sellars), 355 per Mason CJ, Dawson, Toohey and Gaudron JJ.

^[2] Bauer Media Pty Ltd v Wilson (No. 2) [2018] VSCA 154 (Wilson’s case), special leave refused in Wilson v Bauer Media Pty Ltd & Anor [2018] HCATrans 238 (16 November 2018).

^[3] (1986) 160 CLR 1, 13 per Mason, Wilson and Dawson JJ.

^[4] Sellars; Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537 (Tabet), [124] per Kiefel J.

^[5] (1990) 169 CLR 638, 643.

^[6] Tabet.

^[7] See, for example, Sanpoint Pty Ltd v V8 Supercars Holding Pty Ltd [2019] NSWCA 5 [118]-[121] per Beazley P, McFarlan and Leeming JJA.

^[8] [1995] EWCA Civ 17; [1995] 4 All ER 907. Because of what was said in Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440, the statements of principle in Allied Maples may not be good law in Australia. Having regard to the proofs that were deployed in Allied Maples however, the result probably remains correct.

^[9] [2016] HCA 18; (2016) 257 CLR 440 (Badenach).

^[10] As in contract, where the contract confers a chance upon the plaintiff to gain a particular benefit such as a prize in a contest. See, for example, Chaplin v Hicks [1911] 2 KB 78.

^[11] Civil Liability Act 2002 (Tas), s13(1)(a). Similar provisions exist in the civil liability legislation in most Australian states and territories.

^[12] The Sellars test for causation is described above. See note 1.

^[13] Badenach, [34]-[41] per French, Kiefel and Keane JJ. Gordon J made similar findings at [92]-[99]; Gageler J did not decide the question.

^[14] Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473 per Sheller, Stein and Giles JJA, citing with approval Norris v Blake [No. 2] (1997) 41 NSWLR 49 per Clarke JA, Handley and Sheller JJA agreeing.

^[15] See, for example, Howe v Teefy [1927] NSWStRp 41; (1927) 27 SR (NSW) 301.

^[16] [1994] VicRp 16; [1994] 1 VR 237, 241.

^[17] Ibid, 243.

^[18] Ley v Hamilton (1935) 153 LT 384.

^[19] From Andrews v John Fairfax & Sons Ltd [1980] 2 NSWLR 22.

^[20] (1998) 193 CLR 519, 558-9 [98].

^[21] Wilson’s case, [261]-[263].

^[22] Ibid, [334] and [545].

^[23] Ibid, [429] and [446].

^[24] Ibid, [486].

^[25] Ibid, [514].

^[26] Ibid, [557], citations omitted.

^[27] Ibid, [558].

^[28] Ibid, [573].

^[29] Ibid, [575].

^[30] Ibid, [565].