Don’t “Go Light” in Adducing the Evidence Required to Discharge your Client’s Persuasive Onus of Proof
The recent decision of the New South Wales Court of Appeal in Capitalink Pty Ltd v Withnall [2024] NSWCA 172 (19 July 2024) affords the example of a plaintiff going too light in adducing evidence of the damage allegedly suffered by it – as a result of payments made by third parties – in respect of which it bore the persuasive onus of proof in a cause of action upon a guarantee by the defendant. In practice one often confronts payments claimed as damages having been paid by companies or persons associated with the claimant plaintiff. Bell CJ – with whom Leeming and Stern JJA agreed – wrote:
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[9] The invoices in relation to past costs which were addressed to the Appellant, their dates, the amount claimed and by whom they were paid are set out in the Appendix to these Reasons.
[10] Although many (but not all) of the invoices issued by third party contractors in relation to past costs were addressed to the Appellant, the evidence was (and the primary judge accepted) that two companies other than the Appellant, namely LBT Corp Pty Limited (LBT) and Ray White paid the invoices in respect of past costs, including those that had been issued to the Appellant. A large number of other invoices said to relate to past costs incurred to complete DDC’s obligations were addressed to First State Pty Limited (First State) but also paid by LBT. (The invoices paid by Ray White amounted to $19,920.73 and were the subject of ground 7 of the appeal, dealt with at [74]–[80] below.)
[11] Mr David Whitting of Teak Projects Pty Ltd (Teak) was engaged by the Appellant and First State to manage the completion of the townhouses in mid-2019 and he prepared a report in December 2021 detailing “expenditure incurred to date by Capitalink or anticipated to be expended to enable completion of a … 6 dwelling Multi Unit Dwelling” (the Teak Report).
[12] Apart from Mr Whitting, the Appellant’s principal witness was Mr Andrew Kavanagh. He described himself in his affidavit as “one of the ultimate beneficiaries of the shares held on trust by Lisa Maree Young in” Capitalink and as authorised by Capitalink to make his affidavit on behalf of Capitalink. An ASIC search in relation to Capitalink deposed that Ms Lisa Maree Young was the sole and beneficial shareholder of Capitalink.
[13] Andrew Kavanagh deposed to the fact that he made his affidavit from “an examination of Capitalink’s records available to me, or otherwise from information within my own knowledge” and that where he deposed to matters from information and belief, he did so “after having made all relevant inquiries”.
[14] Lisa Maree Young did not give evidence, nor did Mr David Kavanagh. He was identified in Andrew Kavanagh’s affidavit, under the heading “Capitalink’s payment arrangements with family companies”, as Andrew Kavanagh’s brother and the sole director and secretary of LBT. LBT registered a first ranking registered mortgage over the Property on 30 July 2018. That mortgage was not annexed nor was any evidence led as to what it secured. A prior mortgage had been released on 1 July 2016.
[15] Andrew Kavanagh also deposed to the fact that “First State Pty Ltd ACN 155 959 569 (First State) is a company that has as its sole director and secretary my mother-in-law, Lorraine Young.” Lorraine Young was disclosed on the ASIC search as the sole director and secretary of Capitalink. She also was not called as a witness. As has already been noted, and as can be seen in the Appendix, some of the invoices in respect of work alleged to have been done to complete DDC’s obligations were addressed to First State and not to the Appellant.
[16] Andrew Kavanagh gave evidence of (and limited to) his belief that there was:
… an understanding between Capitalink and each of LBT Corp and First State that:
(a) as and when required by Capitalink, LBT Corp/First State pays the financial obligations of Capitalink, which is taken to be monies lent by LBT Corp/First State to Capitalink; and
(b) Capitalink is to pay back LBT Corp/First State, on demand, all or part of the monies that LBT Corp/First State pays on behalf of Capitalink.
No documents were annexed or tendered in evidence which documented this understanding or disclosed any loan account as between the companies referred to. This was of some significance for appeal grounds 5 and 6 dealt with at [34]–[73] below.
[17] On 7 December 2023, the primary judge held that the Respondent’s guarantee pursuant to the Deed was contractually valid and binding but that the Appellant had not established a right to substantial damages on the basis that it had not proved that it was liable for the amounts that had been (past costs) or would be (future costs) paid to complete the project. His Honour made a limited award of nominal damages in the sum of $100 and also ordered that the Appellant pay the Respondent’s costs of the proceedings: Capitalink Pty Ltd v Withnall (No 2) [2023] NSWDC 547 (the primary judgment or PJ).
[18] The thrust of submissions made on appeal in respect of past costs was that they had been incurred for the benefit of the Appellant by LBT and Ray White and that, pursuant to the law of restitution and/ or the doctrine of implied contract, the Appellant was legally obliged to reimburse LBT such that, pro tanto the expenditure which had been made by LBT, the Appellant had suffered loss and damage for which the Respondent was ultimately liable under the guarantee. In the case of expenditure made by Ray White, the Appellant’s position was that Ray White had paid certain invoices from its trust account in the Appellant’s name. This is addressed under appeal ground 7.
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[34] Grounds 5 and 6 of the appeal were that the primary judge should have found that:
(a) “the past costs of completing the works paid by LBT Corp and First State were paid by them at the request of the Appellant”; and
(b) “the Appellant was liable to reimburse LBT Corp and First State for costs paid by them to complete the works (alternatively, for payments made by LBT Corp and First State that discharged a liability of the appellant to the payee).”
In fact, as the Appendix to these reasons shows, while First State was invoiced for some of what were claimed as past costs, the invoices issued to it were paid by LBT. So also, First State did not itself pay any invoices issued to the Appellant.
[35] In support of these grounds, Mr Lawrance raised what was essentially a restitutionary argument in support of these two grounds based upon implied requests (by the Appellant to LBT to pay third party invoices largely issued to the Appellant) and corresponding implied promises on the part of the Appellant to repay LBT.
[36] On this theory, that restitutionary obligation as between the Appellant and LBT/First State, as a result of the latter companies’ discharge of the former’s obligation to third party contractors, would underpin the Appellant’s claim of loss and corresponding right to compensation by the Respondent pursuant to the guarantee. This form of analysis was explained by Leeming JA (with whom Brereton JA and I agreed) in CBRE (V) Pty Ltd v City Pacific Ltd (in liq) [2022] NSWCA 54; (2022) 365 FLR 45 (CBRE) at [32]:
… if there is to be an implied loan, what matters is not so much an implicit request, but rather an implicit promise to repay. A moment’s pause enables this to be seen. An implicit or explicit request to make a payment discharging the obligation of another may amount to a gift, or it may be a form of financial accommodation giving rise to an obligation to repay. What matters for the purpose of the legal character of the transfer of money is whether the person whose obligation has been discharged by the payment has impliedly promised to repay the payer. Obviously, much will depend on the nature of the relationship. If the parties are at arm’s length then a promise to repay may be discerned more readily. On the other hand, if the parties are related, the same implied promise may not so readily be discerned.
[37] Behind these observations there lies a vast body of case law, some of which was expressly relied upon by Mr Lawrance including Lumbers v W Cook Builders Pty Ltd (in liq.) (2008) 232 CLR 635; [2008] HCA 27 (Lumbers) at [89]; Progressive Pod Properties Pty Ltd v AM Green Investments Pty Ltd [2012] NSWCA 225 at [36] , [47] , [59] –[60] (Progressive Pod); O3 Capital Pty Ltd v WY Properties Pty Ltd (2016) 49 WAR 517; [2016] WASCA 82at [74] –[78] (O3 Capital); CBRE at [32]–[36]; IM Jackman, The Varieties of Restitution (2nd ed, 2017, Federation Press) at 125–128.
[38] In short, these authorities are to the effect that, although, in general, the bare fact of the conferral of some benefit upon another does not suffice to establish an obligation to repay the expenditure in providing that benefit (Lumbers at [80]), the law will imply a promise by A, who requests B to pay a third party creditor, to repay B, in the form of the old actions, an action for money paid for and at the request of a party, whether the request was made expressly, or its making was to be implied from the actions of the parties in the circumstances of the case: Lumbers at [89], citing Birmingham and District Land Co Ltd v London and North Western Railway Co (1886) 34 Ch D 261 at 274 ; Way v Latilla [1937] 3 All ER 759 at 765 .
[39] The law will also imply an obligation to repay where a party, A, adopts a payment already made by B which discharges a third party debt of A at least in circumstances where it is understood that B did not intend to discharge A’s debt gratuitously, that is to say, without any expectation of repayment by A such that the original payment was in the nature of a gift.
[40] The primary judge considered that there was insufficient evidence of the relationship and dealings as between the Appellant, LBT and First State to satisfy him that any obligation to repay had arisen by implication from the discharge by LBT of the invoices issued to the Appellant and First State. Indeed, the evidence as to how LBT came to pay invoices addressed to both the Appellant and First State was also exiguous. His Honour was also exercised by the possibility that LBT’s payment of invoices addressed to it may also have been for its benefit (at least since it took a mortgage over the Property). Discharge of a third party’s liability that also benefits the payer may not so readily entail an expectation of repayment: Progressive Pod at [62].
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[50] This was not a case, at least on the evidence before the Court, where third party payments were made by LBT as a result of an express request or authorisation by the Appellant, although they undoubtedly did benefit the Appellant on the assumption that its creditors have not pursued the Appellant and would appear to have treated the debts as having been discharged. In the case of an express request to pay, it has been described as “trite law” that a party who acted on the request is entitled to an indemnity from the requesting party, a classic restitutionary obligation (see Israel v Foreshore Properties Pty Ltd (in liq.) (1980) 54 ALJR 421 at 423 ) although, as Leeming JA (with whom I agreed) observed in CBRE, that decision is “not authority for the proposition that in every case a person who makes payment without consideration at the request and for the benefit of another is entitled to an indemnity” (emphasis added): at [34]. His Honour pointed to the fact that the proposition was styled as a “‘general principle’, its being grounded in a concept of implied contract, and the references to equitable principles and the possibility of identifying a contrary intention” as “all tell[ing] against there being any such rule.”
[51] Accepting this, a request to make a payment might be implied from slight circumstances ( Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 at 241 ) and, as Professor Goode observed many years ago now, “a deliberate officious payment of another’s debt is relatively rare”: RM Goode, Payment Obligations in Commercial and Financial Transactions (1st ed, 1983, Sweet & Maxwell) at 24. But everything turns on the context, circumstances of the case and the evidence adduced. The careful and qualified language of the Western Australian Court of Appeal in O3 Capital at [76] to the effect that
… in a commercial context, it might (generally speaking) readily be inferred that a party laying out money for another person would have an expectation to be repaid, and that the other person, knowing of the payment, might be inferred to have knowledge of that fact
underscores the point that ultimately one is addressing a question of fact, and that is how the primary judge correctly approached the question.
[52] As has been noted, the invoices in relation to past costs which were addressed to the Appellant, their dates, the amount claimed and by whom they were paid are set out in the Appendix to these reasons. The Appendix also sets out those past costs taken from the Teak Report which were invoiced to Ray White and First State.
[53] The fact that the invoices in the Appendix addressed to the Appellant have been paid by either LBT or Ray White makes it easier to imply or infer a request made by the Appellant to the entity which paid the invoice to do so than is the case with respect to the invoices addressed to First State. How they came to be addressed and sent to First State, and the underlying contractual responsibility for undertaking the work to which they related, was not explained in the evidence.
[54] In relation to the invoices addressed to the Appellant, where the evidentiary deficit lay in the opinion of the primary judge was in the paucity of evidence available to support the existence not only of a request to pay but of a corresponding promise by the Appellant to repay LBT, which paid for the vast bulk of the past costs. (The situation in the case of payments made by Ray White is different, in short because, as explained later in these reasons, payments to third party creditors were in fact paid by Ray White from moneys held by it in the Ray White Trust Account for the Appellant’s benefit.)
[55] Mr Lawrance pointed to a body of material said to negative any donative intent by LBT and to support the drawing of an inference or implication that the Appellant agreed to repay LBT for discharging the Appellant’s obligations to third party contractors. With commendable candour, Mr Lawrence conceded that this body of material was “slender”.
[56] Before turning to consider the material relied upon by the Appellant, there are a number of well-known principles (in addition to the observations of Leeming JA in CBRE) which inform the analysis and which were referred or alluded to by Mr Knowles. In Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 (Ferrcom) at 417, Handley JA explained that:
There appears to be no Australian authority which extends the principles of Jones v Dunkel to a case where a party fails to ask questions of a witness in chief. However I can see no reason why those principles should not apply when a party by failing to examine a witness in chief on some topic, indicates ‘as the most natural inference that the party fears to do so’. This fear is then ‘some evidence’ that such examination in chief ‘would have exposed facts unfavourable to the party’: see Jones v Dunkel (at 320–321) per Windeyer J. Moreover in Ex parte Harper; Re Rosenfield [1964–5] NSWR 58 at 62 , Asprey J, citing Marks v Thompson 1 NYS 2d 215 (1937) at 218 , held that inferences could not be drawn in favour of a party that called a witness who could have given direct evidence when that party refrained from asking the crucial questions.
Although Handley JA referred to examining “a witness in chief on some topic”, his Honour’s observations apply equally to a circumstance where a witness’ evidence in chief is supplied by affidavit (or a witness statement adopted in the witness box) but the affidavit does not address a particular topic which it is reasonable to expect the witness was in a position to address (and which is not covered by other evidence, documentary or testamentary).
[57] The same reasoning underpinning the observations of Handley JA in Ferrcom may be seen in Gleeson CJ’s decision in Russo v Aiello (2003) 215 CLR 643; [2003] HCA 53 at [10] :
… when regard is had to the nature of the question about which satisfaction is required, which is a question concerning the reasons for the conduct of the claimant, and is a matter about which the claimant will ordinarily be the person best able, and will often be the only person able, to give information, then a court would be likely to infer that such information as is made available to it by a claimant (which may involve information in addition to that provided to the insurer) is all that a claimant can say by way of explanation of his or her conduct.
[58] In the present case, the relevant conduct of the claimant was the arrangements, if any, between the Appellant and LBT as to reimbursement or repayment of any amounts paid by LBT to discharge obligations of the former (and First State). The only witness put forward by the Appellant on this topic was Andrew Kavanagh. Paragraph 12 of his affidavit has already been referred to at [16] above. His position and that of his relatives in relation to the Appellant, LBT and First State have also been noted at [12]–[15] above.
[59] In Blatch v Archer (1774) 1 Cowp 63 at 65 , Lord Mansfield famously said that “all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.” That principle continues to be of great importance in the everyday work of Australian courts in the ascertainment of contentious facts and the drawing of inferences. Thus, in G v H (1994) 181 CLR 387 at 391 –392; [1994] HCA 48 . Brennan and McHugh JJ stated that:
… when a court is deciding whether a party on whom rests the burden of proving an issue on the balance of probabilities has discharged that burden, regard must be had to that party’s ability to adduce evidence relevant to the issue and any failure on the part of the other party to adduce available evidence in response.
[60] To similar effect, in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14] –[15] , Hodgson JA stated that:
… in deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision. …
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so…
[61] In Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 at [42] , Hodgson JA also observed that:
… where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party’s favour from indirect and second-hand evidence, when the party doesn’t call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation…
See also Shalhoub v Buchanan [2004] NSWSC 99 at [71] ; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 at [440] .
[62] With these principles in mind, I turn to consider the body of material relied upon by Mr Lawrance in support of the Appellant’s case based upon an implied promise to repay.
[63] First, reliance was placed upon two statements made in Andrew Kavanagh’s affidavit (paras [77] and [172]) to the effect that the Appellant “incurred” the past costs. These paragraphs were, unsurprisingly, the subject of objection and there was a debate as to the extent of the primary judge’s evidentiary ruling and, in particular, whether his Honour limited the witness’ use of the word “accrued” to the witness’ understanding. There was a degree of ambiguity upon an examination of the transcript and, while the better view is that his Honour’s ruling did so extend, even if it did not, the evidence was utterly conclusory in a case where the question of whether or not the Appellant had in truth “incurred” the costs for which it had in fact not paid was hotly in contest. No weight could sensibly or reasonably be given to it in these circumstances.
[64] Mr Lawrance next placed reliance upon para 12 of Andrew Kavanagh’s affidavit (reproduced at [16] above). That evidence was limited to evidence of Andrew Kavanagh’s understanding but that understanding was itself of an “understanding” between three companies, the Appellant, LBT and First State, none of which Andrew Kavanagh was an officer or shareholder of. It was evidence of an extremely exiguous character.
[65] Moreover, an understanding of the kind Andrew Kavanagh referred to is one that would, if it existed, be expected to be reflected in documents such as loan accounts and financial statements of each of the companies, including the Appellant. Deductions claimed in annual tax returns would also have been revealing as to how various payments had been accounted for. No such documents were annexed to his affidavit or otherwise tendered notwithstanding his statement that his evidence was in part based upon “an examination of Capitalink’s records available to me”. Applying the principles derived from the cases set out at [59]–[61] above, no favourable inference can be drawn to support the Appellant.
[66] Moreover, the unexplained failure of any of David Kavanagh, Lisa Maree Young or Lorraine Young to give evidence permits the negative inference to be drawn that their evidence would not have assisted the Appellant’s case: Jones v Dunkel (1959) 101 CLR 298 at 308 , 312 and 320 –321; [1959] HCA 8 (Jones v Dunkel). There was no question that those witnesses were in the Appellant’s camp, given Andrew Kavanagh’s reference in his affidavit to LBT, First State and the Appellant being “family companies”. In Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11at [63] , Heydon, Crennan and Bell JJ described the rule in Jones v Dunkel as:
… the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party’s case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue. (Footnotes omitted.)
[67] Next, Mr Lawrance referred to the fact that LBT registered a mortgage over the Property in 2018, and that that mortgage was entered into after some of the “past costs” had been incurred and paid for by LBT and some four years after the Property had been purchased by the Appellant. As such, the mortgage did not appear to represent a refinancing at least of a secured lender as no mortgage was taken out when the property was purchased in 2014 or when the Appellant became registered proprietor of the Property in 2016. The inference which the Court was asked to draw was that the mortgage secured the repayment of moneys owed to LBT by the Appellant, including the moneys paid by LBT to third party contractors to discharge the Appellant’s liabilities.
[68] Moreover, the fact that a mortgage was given by the Appellant to LBT over the Property defeated, to some degree, the notion that payments made by LBT to discharge the Appellant’s debts to third party creditors were gratuitous and understood by the Appellant to have been made with donative intent by LBT.
[69] Allied with the reliance on the mortgage was the fact that, from at least December 2017, ie before the registration of the mortgage, there were regular withdrawals of the balance of funds from time to time sitting in the Ray White Trust Account with payment to LBT. The ledger entries took the form “Withdrawal by EFT to owner LBT Corp Pty Ltd”. These entries certainly supported an inference that the Appellant had directed Ray White to make payments to LBT but whether or not this was by way of a “repayment” to LBT for its discharge of third party obligations as opposed to some other form of financing or in relation to some other obligations was left as a matter of speculation. The description of LBT as “owner” was also opaque.
[70] The absence of any evidence in relation to these matters, coupled with the failure to tender the mortgage or to lead any evidence as to what it secured, works powerfully against the Appellant and the case it sought to put on appeal in relation to past costs. The authorities referred to above are clear that an inference in favour of the Appellant should not be drawn in such circumstances. The onus was the Appellant’s to discharge.
[71] Mr Lawrance also advanced an argument to the effect that, by commencing the proceedings against the Respondent, the Appellant in some way ratified its obligation to reimburse LBT for paying its third party creditors. While the bringing of the proceedings may be consistent with the existence of such an obligation, it assumes the existence of the very obligation whose existence is in question. That obligation either existed or it did not. The position may be contrasted with a case where a third party creditor sued the Appellant in relation to allegedly unpaid invoices. A plea by way of defence that the debt had been discharged by a third party would amount to a ratification of that payment by the Appellant (if not previously adopted) and confirm an obligation by it to make restitution to the party that discharged the debt.
[72] Resolution of grounds 5 and 6 of the appeal is finely balanced but I have concluded that the Respondent was correct in his submission, as was the primary judge in his reasons, that the evidentiary onus which lay on the Appellant was not discharged in relation to the past costs issue and that the material relied upon by the Appellant was insufficient to establish an implied promise to repay by the Appellant. Such an implication is far less readily drawn, as Leeming JA observed in CBRE at [32] where, as here, the parties involved were not at arm’s length. Another way of putting this is to observe that the commercial unlikelihood of one company discharging another company’s liability gratuitously is less so in a “family” group of companies, which was how the only witness authorised to speak for the Appellant, Andrew Kavanagh, described the Appellant’s relationship with First State and LBT.
(emphasis added)
Leeming JA – agreeing with the Chief Justice – added:
[85] I fully recognise that, consistently with the authorities to which the Chief Justice referred, it is not difficult to infer an entitlement to be repaid, even when related companies discharge each other’s obligations. The most important consideration which leads me to conclude that Capitalink did not discharge its onus of establishing a liability to be repaid, is that there was so much that Capitalink could have done to establish its liability to LBT and First State, without undue difficulty if there were ordinary financial statements available, and if not, by testimonial evidence. Capitalink chose to put forward a lengthy affidavit from Mr Kavanagh in support of its case, but that affidavit merely expressed the casual statement that there was an “understanding” that payments made by LBT and First State were “taken to be monies lent by LBT Corp/First State to Capitalink” which were repayable on demand. If the statement were correct, it might be expected that two loan accounts would be readily capable of being produced. Similarly, Mr Kavanagh identified the mortgage, but made no effort to identify the obligations secured by it.
[86] As the Chief Justice observes, the principles stated by Hodgson JA in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at are apposite, notably his Honour’s observation that the court is concerned not just with the question “what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision”. That proposition is undoubted, and was endorsed by J D Heydon, Cross on Evidence (13th ed, 2021, LexisNexis) at 47 [1215] whose endorsement was itself endorsed more recently by Kiefel CJ, Gageler and Jagot JJ in the joint majority reasons in GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32; 97 ALJR 857 at [58] .
[87] I appreciate that it can be difficult to run a relatively small claim, especially where as here there were many issues (including whether the so-called “Deed of Agreement” was a deed, and if not, was there consideration to support the guarantee and was it varied), and the defendant took all the points available to him. But none of that absolves a plaintiff from establishing each element of its case. On balance, I am unpersuaded that Capitalink did that, for the reasons given by the Chief Justice supplemented by the above.
(emphasis added)
In any particular case, of course, it may well be that further evidence is not adduced from a witness called in a plaintiff’s case, or other obvious witnesses in the plaintiff’s “camp” are not called, because of the forensic disadvantage which might emerge from those witnesses if they were taxed in their testimony – in evidence in chief or cross-examination – on particular issues. Thus, in any particular case, forensic decisions need be made by counsel, in consultation with instructing solicitor and the client. No doubt these would be brought to book in making and considering settlement offers.
The full link to the case may be found here.
A similar recent first instance decision adopting the same approach is Victorian X-Ray Group Pty Ltd v Malouf (No 3) [2024] NSWSC 888 (23 July 2024). There the plaintiff sued the defendant solicitors for professional negligence on account of – it was alleged – failing to advise it as defendant in a case in which the solicitors were acting, to the effect that they had no prospects of success. Cavanagh J found no breach of duty but went on, for completeness, to assess the damages on the evidence before him. His Honour found that there was insufficient evidence – in the circumstances pertaining to third party claims – to enable the substantial disputed amounts to be claimed as damages. His Honour wrote:
[328] I will assess damages.
[329] The plaintiffs’ claim for damages is limited to the costs paid to the defendant for their legal services and costs they were ordered to pay to Philips having lost each of the District Court proceedings. Whilst it might be thought that those amounts were capable of agreement or easy determination, the parties were unable to reach agreement on the damages to which the plaintiffs would be entitled because of uncertainty as to who had paid the amounts owing to the defendant and Philips and when those amounts had been paid.
[330] Importantly, the defendant did not take issue with which of the plaintiffs had paid the amounts but took issue on the basis that some of the amounts claimed had not been paid by any of the plaintiffs. That is, it became apparent that some of the costs paid to the defendant during the course of the District Court litigation and/or paid to Philips consequent of orders made against the plaintiffs were actually paid by companies not associated with the District Court litigation for reasons which were not explained. Other companies in the VXG group paid some of the outstanding amounts. Those companies included VXG Carlton and VXG Queensland, and even companies with unrelated names such as Vines Irrigation Pty Ltd and Diagnostic Imaging Services Pty Ltd.
[331] These companies were all under the control of Mr White. He was the sole director and shareholder of quite a number of corporate entities. In their submissions, the parties called these companies “related entities”. The defendant submitted that the plaintiff could not recover amounts paid by these related entities as the plaintiffs have not suffered a loss in respect of those amounts.
[332] The parties agreed that the plaintiffs could only recover amounts paid by way of costs if:
(1) one or either of the plaintiffs had paid such amounts; or
(2) one or other of the plaintiffs had a liability to repay the corporate entity which had paid any amount on account of costs.
[333] In respect of amounts paid by one or other of the plaintiffs, the defendant agreed on the sum of $887,613.12 including interest. However, the plaintiffs maintained that in addition to this sum there are further amounts recoverable by them being amounts:
(1) that were paid to the defendant or Philips on account of costs by the related entities; and
(2) had not yet been paid to Philips (and thus the plaintiffs remained liable to pay such amounts).
[334] Although there was some argument on interest, at least by the end of the further hearing on damages, there appeared to be agreement that:
(1) the sum of $887,613.12 included interest on the amounts paid by the plaintiffs;
(2) to the extent that there was any judgment sum owing by the plaintiffs to Philips in respect of costs, Philips would be entitled to interest on that judgment sum to the date of payment and thus interest must be included up to the date of this judgment or, more accurately the time after judgment (28 days);
(3) in respect of additional amounts that the plaintiffs are entitled to recover, being amounts paid by the related entities, the plaintiffs will not be entitled to interest on those sums because there is no evidence that they would be liable to pay interest to the related entities. Whatever the state of the evidence supporting the plaintiffs’ assertions that the plaintiffs were liable to repay the related entities, there was no evidence which would suggest that the plaintiffs were liable to repay interest at a certain rate or for a certain time.
[335] The issue of substance between the parties on damages is limited to whether the plaintiff has established an entitlement to recover the amounts sought over and above the sum of $887,613.12.
[336] The plaintiff relies on a further bundle of material (Exhibit N) tendered on the further damages hearing. Having said that, that material was reduced from an earlier bundle having regard to agreement reached between the parties on the day. Further, some of the parties’ submissions are no longer relevant.
[337] The plaintiffs acknowledge that the difference between the amounts sought by the plaintiff and the amount allowed by the defendant is approximately $612,069.90 comprising interest in the sum of $206,228.02 and disputed third-party claims of $405,841.88.
[338] The disputed third-party claims comprise amounts not paid by the plaintiffs to the defendants or to Philips but paid by related entities to the defendant or Philips.
[339] The defendant says that the plaintiffs have not established that they have an obligation to repay those related entities. Consequent on the orders I made about service of further evidence, the plaintiffs wrote to the defendant providing a schedule and further evidence in support of their claims. When this did not result in the defendant agreeing, the plaintiffs then served a further affidavit of Mr White (on which the plaintiffs no longer rely) and what purported to be resolutions of a number of corporate entities controlled by Mr White.
[340] On 24 January 2024, each of the related entities and the corporate plaintiffs purported to make resolutions signed by Mr White as the sole director to the effect that the amounts paid by the related entities to the firm and Philips were paid pursuant to loan agreements between those related entities and one or other of the plaintiffs. The effect of the resolutions was said to be to provide evidence that there was a loan agreement between the related entities and each of the plaintiff companies so as to establish that, although the plaintiffs had not actually repaid the amounts paid by the related entities, they had a continuing obligation to repay the related entities.
[341] The defendant objected to the admission of those resolutions into evidence. The defendant originally submitted that the documents might be a sham, but ultimately did not press that submission. Instead, the defendant objected on the basis that the documents contained hearsay and could not be considered business records as they had been produced for the purposes of the litigation or in connection with the litigation.
[342] As I said in my judgment on the admissibility question (see Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 2) [2024] NSWSC 887 ) that must be so.
[343] In circumstances in which the documents were not business records, they were not admissible. As such, the resolutions purporting to establish the obligation to repay were rejected and are not in evidence. Despite that, the plaintiffs maintain that the Court would still be satisfied that there was an obligation on the part of the plaintiffs to repay those related entities any amounts that the related entities paid to the defendant or Philips on account of costs. This is said to be so because:
(1) none of the related entities had any legal obligation to pay any amount;
(2) although there was no record of loan agreements between the parties, I would infer that the basis on which the related entities paid those sums was on the basis of a loan, that is, the related entities were lending the corporate plaintiffs sums to pay the amount required on account of costs. It is just that the plaintiffs did not pay those monies directly to the defendant or Philips; and
(3) the financial accounts of the related entities (which were in evidence as part of Exhibit N) supported that proposition as there were loan accounts operated by each of the companies in favour of Mr White.
[344] The plaintiffs submit that those loan accounts would go up and down depending on the amounts paid and I would infer that one of the reasons the loan accounts varied was because of payments made on behalf of the plaintiff corporate entities and/or Mr White by the related entities. In making these submissions the plaintiffs acknowledged that the evidence on this is somewhat limited.
[345] The plaintiffs submit that in cases in which it is difficult to prove a loss, the Court must do its best to properly compensate the plaintiff, even on limited evidence on damages. The plaintiffs submit that loss may be established even on sparse or unsatisfactory evidence ( Royal Society for Prevention of Cruelty to Animals (Victoria) v Holdsworth [2015] VSCA 243 ). The plaintiffs submit that the Court would not accept that no loss has been sustained in circumstances in which there are difficulties in estimating and proving the loss ( Fink v Fink (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ).
[346] The plaintiffs submit that the Court must strive to do justice between the parties, having regard to the principles of quick, just and cheap litigation and that having regard to the points taken by the defendant, it would take a significant amount of work and period of court time to prove those additional losses seemingly to the satisfaction of the defendant.
[347] The defendant submits that there is no evidence on which the Court could conclude that any of the plaintiffs are liable to repay any sums paid by the related entities to the defendant or Philips on account of costs. There may be a number of reasons why the related entities might have paid those amounts without entering into loan agreements. Further, the defendant submits that the plaintiffs’ suggestion of the existence of loan accounts in favour of Mr White does not assist the plaintiffs because whilst the loan accounts represent monies paid by Mr White lent by Mr White to the related entities, they do not evidence monies lent by the related entities to Mr White. If monies had been lent by the related entities to Mr White or any of the other plaintiffs, such amounts would be recorded in the accounts of the related entities as an asset, being an amount owing to the related entity rather than an amount owing by the related entity.
Determination on damages issue
[348] The plaintiffs are not entitled to compensation by way of damages unless they have suffered the loss which they claim. In respect of the amounts over the agreed sum, the plaintiffs accept that they did not pay those amounts. The only basis on which they could recover those amounts from the defendant is if they have an obligation to reimburse someone else in respect of those amounts. Neither Mr White, the corporate plaintiffs or the related entities entered into any agreements at the time when the payments were made. No documents were created evidencing any loans or any obligations to repay the amounts which were paid by the related entities as authorised by Mr White.
[349] This is not a case in which there is limited or scant evidence supporting the loss. There is no evidence supporting the loss. Further, in order to accept the plaintiffs’ propositions, I would have to find that the accounts finalised by each of those companies were inaccurate because, at the time the payments were made by the related entities, those related entities had further assets, being amounts owed to them. Similarly, in the case of the corporate plaintiffs, the accounts were inaccurate because they had further liabilities, being the amounts payable to the related entities. This seems to have been overlooked by the plaintiffs’ in their attempts to support their contentions (by way of the resolutions).
[350] There is no legal principle which allows one entity, in this case a corporation, to recover as a loss an amount paid by another legal entity, in this case, another corporation, just because the payments were made by that second corporation so as to satisfy obligations of the first corporation.
[351] No doubt Mr White, in the exercise of his control of the many companies of which he was seemingly the sole shareholder, determined when debts were paid and who paid the debts. He directed one company to pay another company’s debts.
[352] It does not seem to me that he can now be taken to have done so on the basis of loan agreements between the companies absent evidence to support that contention.
[353] In the circumstances, the plaintiffs cannot recover the amounts in dispute because they did not pay those amounts, have no ongoing obligation to pay those amounts and have not established that they are liable to repay those amounts. Those amounts do not constitute a loss suffered by the plaintiffs. (collectively or individually).
(emphasis added)
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