Berry v CCL Secure Ltd

The High Court has unanimously allowed an appeal against part of a judgment of the Full Federal Court of Australia, holding that in a case where a defendant had terminated an agreement by deceptive means, the balance of probabilities showed that the defendant would not have used lawful means. The burden of proof thus shifted to the defendant to show that it would in fact have used lawful means, which it failed to establish.

Facts

The case involved Securency Pty Ltd (now called CCL Secure Ltd), a company incorporated as part of a 50-50 joint venture between the Reserve Bank of Australia and Innovia Films Ltd, which produced polymer banknotes. They sought to expand the market for polymer banknotes to other countries. They entered into an agreement with Dr Benoy Berry to assist them in their efforts to bring polymer banknotes to Nigeria. Dr Berry and his company GSC entered into an agreement to act as Securency’s agent in negotiations with the Nigerian government. A term of that agency agreement was that Dr Berry and GSC would be entitled to a 15% commission on the net invoiced sales of opacified polymer to the Nigerian government. The agency agreement was to be automatically renewed every two years, unless terminated in accordance with the agreement.

Securency decided it did not want Dr Berry involved in the negotiations after all, after another company with which he was associated became involved in legal action against the Nigerian government. Securency persuaded Dr Berry to sign a termination of agency agreement on the purported basis that this was necessary before it could set up a joint venture with him and GSC in Nigeria to establish an opacification plant there. It also entered into a ‘Heads of Agreement’ with him regarding the formation of a joint venture to establish the plant. Securency told Dr Berry that he would still be their agent and would still obtain the commission. This was not in fact the case. They deliberately deceived him in order to terminate his involvement in the project, although they kept up a pretence that the agency was still on foot in communications with Dr Berry. They proceeded to use other agents, and Dr Berry only discovered his involvement in the project had been terminated after news reports publicised allegations that Securency had bribed public officials in various countries.

Dr Berry and GSC sued Securency pursuant to s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) for misleading and deceptive conduct in the course of trade or commerce. The primary question for the appeal was as to how damages should be calculated.

The trial judge decided that Securency had engaged in misleading or deceptive conduct by duping Dr Berry. The fraudulent nature of Securency’s conduct meant there was no room for Securency to argue that it would have legally terminated the agreement and damages should have been assessed on that basis (in fact Securency gave evidence that it terminated all agency agreements in 2010). Instead, damages were assessed on the assumption that the agency agreement would have continued and been automatically renewed, with commissions based on actual sales to Nigeria by Securency, less allowances for expenses that Dr Berry did not have to incur, up to the date of trial.

The Full Court of the Federal Court overturned the trial judge’s decision. It held that while the termination of the agency was by fraud, this did not obviate the need to assess the counter-factual: on the balance of probabilities it was necessary to consider what Securency would otherwise have done if the wrongful conduct had not occurred. They considered that Securency would have validly terminated the agency agreement on 30 June 2008 by 30 days’ notice given on 1 June 2008, and calculated damages on that basis.

Part of the background to the appeal was a decision of the Full Court of the Federal Court, Pitcher Partners Consulting Pty Ltd v Neville’s Bus Service Pty Ltd [2019] FCAFC 119, a case of deceit and misleading or deceptive conduct, in which the Court held that there was a qualification to the general proposition that a claimant bears the onus of proving damages: namely, that in cases where loss has been suffered by reason of a deliberate wrong, the court should assess the damages in a robust manner relying on the presumption against wrongdoers whose actions have made an accurate determination problematic.

Dr Berry appealed to the High Court of Australia, making three arguments:

  1. That the court should assess damages in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party whose actions made an accurate determination so problematic (said to derive from Armory v Delamirie and to be recognised by the Full Court of the Federal Court in Pitcher Partners).
  2. That a wrongdoer should not be heard to set up a lawful means alternative to escape or reduce its liability in damages while at the same time retaining the benefit of its wrong, and, moreover, that the court will not allow the wrongdoer to set up hypothetically innocent intentions and consequences unless they are truly independent of the wrong, relying on the High Court’s previous decisions in Potts v Miller, Gould v Vaggelas and Commonwealth v Amann Aviation Pty Ltd. Therefore, a wrongdoer must be able to point to some matter wholly independent of its wrongdoing which would have justified the wrongdoer lawfully achieving the result achieved by the wrong.
  3. In the alternative, that a wrongdoer alleging that, but for its contravening conduct, it would have deployed lawful means to bring about the same detriment to the victim, must at least prove on the balance of probabilities that there was a “substantial prospect” that it would have acted in that way, relying on Malec v J C Hutton Pty Ltd and Sellars v Adelaide Petroleum NL.

It was the third argument which was ultimately upheld by the unanimous court.

Bell, Keane and Nettle JJ (the majority):

The effect of the agency termination letter

First, the majority said at  [26] – [27] that there was no question of the termination letter being “ineffective” or “invalid”, as this would mean Dr Berry’s only remedy was commissions until the agreement was lawfully terminated. However, transactions entered into by fraud are voidable, not void, and a party is able to affirm the transaction and sue for losses arising under it, as in this case. Moreover, they said that insofar as the trial judge suggested that an hypothetical counterfactual was precluded as a matter of law because to do otherwise would allow Securency to take advantage of its fraud, this was incorrect. At [27] they said:

Permitting a fraudster to plead and prove a lawful counterfactual which, but for its fraud, the fraudster would have pursued, is not in any sense to permit the fraudster to take advantage of its fraud. As will be explained, it is to do no more than to limit the amount recoverable by the victim to the amount of loss or damage which the victim is shown to have suffered “by” the contravening conduct within the meaning of s 82 of the TPA. That accords with the general principle at common law that a wrongdoer is not required to compensate a victim for loss which the wrongdoer does not cause, even where the cause of action is the tort of deceit. By contrast, if his Honour meant to convey that, in circumstances where a party has resorted to fraud to achieve an objective which it was open to achieve by lawful means, it becomes more difficult, if not impossible, to draw an inference that, but for the fraud, that party would have chosen to proceed by lawful means, then, as will be explained, his Honour’s process of reasoning was entirely consistent with established principle and authority.

Ultimately, it did not matter in this case as the majority found that Securency did not prove that there was a real possibility that it would have otherwise terminated the agency agreement.

They then considered each of Dr Berry’s arguments.

First argument: onus of proof

At [28] – [30], the court considered what the onus of proof was upon the claimant to successfully make out a claim pursuant to s 82 of the Trade Practices Act. Dr Berry had the burden of proof to show the existence and amount of the loss or damage he suffered as a result of the contravention of s 52. This depended upon the value inherent in the agency agreement and what would have happened if the misleading conduct had not occurred. Ultimately, at [30], the majority found that it was not necessary to consider the correctness of the presumptions in Pitcher Partners, but at [29] they offered the following comments in obiter dicta:

While a claimant bears the legal burden of establishing the amount of its loss or damage, the nature and circumstances of the wrongdoer’s conduct may support an inference or presumption that shifts the evidentiary burden. That accords with the principle encapsulated in Armory v Delamirie that, where a wrongdoer has destroyed or failed to produce evidence which the innocent party requires to show how much he or she has lost, it is just that the wrongdoer should suffer the resulting uncertainty. Hence, in that case, since the defendant by his wrongful conversion of the plaintiff’s stones, and failure to produce them at trial, had made it impossible for the plaintiff to prove the quality of them, the stones were presumed to be of the highest quality and value. One relevant modern application of that principle is reflected in this Court’s decision in Amann Aviation, in which it was held that where, upon acceptance of the Commonwealth’s repudiation of a contract, Amann claimed damages for loss of the contract, Amann was entitled to recover “reliance damages” assessed on the basis of a rebuttable presumption that the net benefits to which Amann would have been entitled under the contract (if the contract had not been rescinded) would have been sufficient to cover the expenditure which Amann incurred pursuant to the contract. As Brennan J explained, because the Commonwealth had repudiated the contract and thereby deprived Amann of the ability to establish that the contract would have returned sufficient to recoup Amann’s contractual expenses, it was to be presumed that Amann would not have incurred its expenditure in reliance on the contract without a reasonable expectation that its performance of the contract would have returned it sufficient to recoup its expenses, and thus it was just that the Commonwealth should bear the ultimate onus of proving at least a prospect that Amann’s returns under the contract would not have been sufficient to recoup that expenditure. By contrast, as Brennan J observed, if a claimant seeks “expectation damages” for the loss of a chance that, had an agreement run to term, it may have been renewed or extended, the onus is on the claimant to establish those facts, although, even then, since the existence and degree of such an hypothetical possibility is, by reason of the wrongful termination of the contract, incapable of proof on the balance of probabilities, it is considered just that the wrongdoer should suffer the resulting uncertainty to the extent that proof to the level of a real (more than negligible) possibility is regarded as enough. The worth of the chance is then valued by a process of informed estimation.

Second argument: innocent hypothesis

At [31], the majority noted that damages for torts such as deceit had a relaxed remoteness text which allowed for all losses flowing ‘directly’ from the breach, as established by Potts v Miller and Gould v Vaggelas, so long as the cause was intrinsic and not extrinsic to the deceit. However, the majority said there was nothing in Potts v MillerGould v Vaggelas or Amann Aviation to suggest that a wrongdoer cannot be heard to set up a lawful means alternative ascertaining matters of causation. Instead, Amann Aviation emphasised that the purpose of compensatory damages in the common law is fair and adequate compensation, not punishment, and that “artificial forms of reasoning” are rejected “in favour of allowing tribunals of fact to give such probative force to evidentiary materials as they think fit having regard to all the circumstances of the case”.

Third argument: Sellars

At [32] – [33], the court noted that in Sellars, the High Court held that if a claimant established that a contravention of s 52 of the TPA caused the loss of a commercial opportunity of some value, it was possible to calculate the value of the lost opportunity by reference to possibilities which were speculative and incapable of proof on the balance of possibilities, as long as they could be evaluated as a matter of informed estimation (by parity of reasoning with Malec and Amann Aviation).

In this case, Dr Berry managed to establish that there was a non-negligible chance that the agency agreement would continue beyond 30 June 2008, even though it failed to establish such an opportunity on the balance of probabilities. In fact, the majority regarded it as probable that the agency agreement would have continued until 30 June 2010, and consequently, damages were to be calculated on that basis.

Commentary on Pitcher Partners

At [34] – [36], the majority noted that Pitcher Partners had held that there was a qualification to the general proposition that a claimant bears the onus of proving damages, as it argued that in cases where damage has been suffered by reason of a deliberate wrong, the court should assess the damages in a robust manner relying on the presumption against wrongdoers whose actions have made an accurate determination problematic. There were said by the majority to be three lines of authority upon which the Full Federal Court had relied:

  1. Cases where a wrongdoer is made to suffer the uncertainty resulting from its own conduct (see eg, Armory v Delamirie and Amann Aviation);
  2. Cases of deliberate wrongdoing where the object of damages is to compensate the claimant for all the loss it has suffered so far as money can do (see eg, Palmer Bruyn & Parker Pty Ltd v Parsons and Gould v Vaggelas) which are to be contrasted with negligence which seeks to curtail liability for policy reasons;
  3. Going beyond cases where the nature of wrongdoing makes it impossible for the claimant to prove the precise amount of damage suffered to cases in which the wrongdoing thrusts a claimant into a difficult task of proving a past hypothetical (see eg, Houghton v Immer (No 155) Pty Ltd, McCartney v Orica Investments Pty Ltd and Tyco Australia Pty Ltd v Optus Networks Pty Ltd).

In Pitcher Partners the claimant had entered into a contract on the faith of the company’s accountants’ negligent advice that amounts received under the contract would be sufficient to cover the cost of finance leases which the claimant was required to enter into as part of the contract, and the accountants, although now aware of the error, deliberately concealed their error from the claimant when they took over the finance leases. The Full Federal Court held that the claimant was entitled to recover damages for misleading and deceptive conduct on the basis that, if they had not been deceived, the claimant could and would have renegotiated the amounts payable under the contract to cover the costs of the finance leases. It also held that that it was unnecessary for the claimant to prove on the balance of probabilities that it would have been successful in renegotiating the contract: it was enough that there was a “sufficient likelihood” of that occurring to permit the court, using the “robust approach” justified by the accountant’s contributions to the claimant’s difficulties of proof, to award damages equal to the full costs of the finance leases.

The majority doubted the Full Federal Court’s conclusion that the claimant was entitled to damages equal to the full costs of the finance leases. The Full Federal Court had held that it was enough that there was “sufficient likelihood” of renegotiating the leases (particularly in light of the nature of the wrong committed) to justify recouping the full costs of the leases. However, the approach should have been taken that once it was established on the balance of probabilities that the defendant’s wrong caused the loss of opportunity, the value should be discounted according to the likelihood that, assuming the claimant had been able to exploit the opportunity, it might not have resulted in all of the gain that was hoped for.

The majority declined to comment upon whether Pitcher Partners had taken a correct approach in relation to deceit (which had been proven concurrently with misleading and deceptive conduct in that case). However, it said in relation to damages pursuant to s 82:

Where a claimant establishes on the balance of probabilities that misleading or deceptive conduct contrary to s 52 has caused the loss of a commercial opportunity of some value (not being a negligible value), the value of the lost opportunity is to be ascertained by reference to hypotheses and possibilities which, though they may not be capable of proof on the balance of probabilities, are to be evaluated as a matter of informed estimation. But, to repeat, this matter is capable of resolution without resort to that principle.

Consequently, the principles in Sellar were reiterated.

The principles applicable in this case

At [37], the majority noted that if a contract is terminated for anticipatory breach, or terminated as a result of misleading and deceptive conduct, as in this case, the claimant bears the onus of proving on the balance of probabilities what the objective value of the contract would have been if it had not been terminated. Any assessment must take account of the possibility that events might occur which render the contractual rights less valuable.

The majority went on to outline the situation where there are different ways in which a wrongdoer could have performed the contract:

More generally, if there are two or more ways in which a wrongdoer could lawfully have performed a contract which is rescinded for anticipatory breach, it is to be assumed that, but for rescission, the wrongdoer would have adopted the mode of performance most beneficial to the wrongdoer. And so, if the contract was lawfully terminable at the instance of the wrongdoer, it must be valued accordingly and, subject to the evidence, not as if it were bound to continue.

However at [38] they say that this should not mean that the mere existence of the wrongdoer’s right to terminate the contract automatically restricts the damages that can be awarded. The question is rather whether, absent rescission, the wrongdoer would have terminated the contract, which requires the court to have regard to all the facts and circumstances of the case, including events extraneous to the contract that were within the control of the wrongdoer, such as the need to retain third party custom. They cite Lavarack v Woods of Colchester Ltd  as authority for the proposition one must not assume that a wrongdoer would cut off its nose to spite its face by controlling such events so as to reduce its legal obligations to the claimant and incurring greater loss in other respects. Consequently, they conclude that it would be wrong to conclude that Securency would have treated Dr Berry any differently to other agents and terminated his agency agreement before 30 June 2010.

At [39], they state certain principles which govern the behaviour of those who have engaged in fraud and the shifting of the burden of proof:

Furthermore, although a claimant bears the burden of proof in the sense of the ultimate burden of establishing its case on the balance of probabilities, the burden of proof in the sense of introducing evidence is liable to shift constantly “according as one scale of evidence or the other preponderates”. Consequently, where, as here, it is established on the balance of probabilities that a wrongdoer purposely chose to achieve a certain result by means of a calculated deceit, the natural inference is that the wrongdoer was not and would not have been prepared to bring about that result by lawful means. As the majority observed in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd, the conventional perception is that members of our society do not ordinarily engage in fraudulent conduct. That perception, which underpins the need for clear evidence of fraud, implies that a person would not intentionally mislead another without sufficient cause to do so. So, in the absence of contrary evidence, it may be inferred that the reason for engaging in the fraud was sufficient to dissuade the fraudster from proceeding by lawful means. The evidential burden thereupon shifts to the fraudster to adduce evidence sufficient to establish that, if it had not acted as it did, it would have been prepared to bring about the same result by lawful means. And in the absence of such evidence, it is fair to infer that there was not a realistic possibility of that occurring.

Consequently, the burden of proof shifted to Securency to prove that there was a real possibility that it would have terminated the contract with Dr Berry and GSC by lawful means. At [43] – [59], the majority set out detailed reasons as to why Securency had failed to prove it would have terminated the contract, and in fact, to the contrary, it was important to it to pretend it was still on foot. Thus the appeal was allowed.

Gageler and Edelman JJ (the minority):

Gageler and Edelman JJ agreed with the general reasoning of Bell, Keane and Nettle JJ’s judgment, however added their own reasons in a short judgment. They said at [63] that it was sufficient to dispose of the appeal to say that Securency failed at trial to discharge the evidentiary onus imposed upon it and had failed to disprove that Dr Berry and GSC’s loss and damage had been caused by their misleading and deceptive conduct.

They noted at [63] that given that the claim was made under s 52 of the Trade Practices Act, it was unfortunate that the trial judge had “couched [his reasons] in the conclusory language of a common law action in deceit.” In fact, they said at [64], s 82 is a statutory claim for damage which requires a connection between the loss or damage and the contravention of s 52 through the requirement that the loss or damage “must be sustained ‘by’ the contravention”, and instructs that “the measure of compensation is ‘the amount of’ the loss or damage sustained.”

Thus, at [65], they note that the first step is for the claimant to identify loss or damage suffered as a result of the contravention:

The plaintiff … bears the legal onus of proving that the identified loss or damage has been suffered by the contravention of which they complain and of establishing the amount of that loss or damage. The plaintiff bears, in other words, the ultimate burden of establishing both the required connection with the contravention and quantum by inferences drawn from the whole of the evidence. That legal onus is constant.

However, at [66], they note that the evidentiary onus is different, and often shifts during the trial. Dr Berry and GSC did not formulate the loss they claimed to have suffered by the misleading or deceptive conduct of Securency in terms of the loss of contractual rights under the Agency Agreement, which would have been easy to prove. In that event, Dr Berry and GSC would have been entitled to the value of the contractual rights under the Agency Agreement that they gave up at the date of termination, along with the degree of possibility that the agreement would have continued to exist into the future.

Instead, Gageler and Edelman JJ note at [67] that Dr Berry and GSC chose to formulate the loss they claimed to have suffered by the misleading or deceptive conduct of Securency exclusively in terms of the loss of commission they would have received under the agency agreement had the agency agreement not been terminated. This required them to prove that the misleading or deceptive conduct of Securency caused the loss by proving on the balance of probabilities the counterfactual that, but for Dr Berry having signed the termination letter in reliance on the misleading or deceptive conduct so as to bring the agency agreement to an end, the agency agreement would have continued and commission would have been paid under it.

From [68] – [73], they noted that in order to prove this, all Dr Berry and GSC had to show was that the agency agreement was designed to automatically renew, and the mere existence of a right to terminate was not determinative. The burden then shifted to Securency to prove the fact that the agency agreement would not have continued. In proving this, they sought to rely on evidence of witnesses from Securency, but these witnesses were disbelieved by the trial judge, and that should have been sufficient to dispose of the matter. The Full Court’s error was that it held that was “no reason to assume in the counterfactual that Securency would not have acted to terminate the Agency Agreement at the time when that agreement would otherwise have been automatically renewed.”

Finally, at [74], Edelman and Gageler JJ noted that they would prefer to defer the consideration of Pitcher Partners to a later case:

Our preference is to defer consideration of the correctness of the reasoning of the Full Court of the Federal Court in Pitcher Partners Consulting Pty Ltd v Neville’s Bus Service Pty Ltd to a case in which adoption or rejection of a “robust” approach to fact-finding against the interests of a party found to have engaged in dishonest misleading or deceptive conduct is determinative.

 

High Court Judgment [2020] HCA 27 5 August 2020
Result Appeal allowed
High Court Documents Berry v CCL Secure Pty Ltd
Full Court Hearing [2020] HCATrans 69 3 June 2020
Special Leave Hearing [2019] HCATrans 204 18 October 2019
Appeal to FCAFC [2019] FCAFC 81 24 May 2019
Trial decision [2017] FCA 1546 19 December 2017

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