Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

In Commonwealth v Amann Aviation Pty Ltd , Deane J described in the following terms how the general principle may be worked out in practice:

‘The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (i.e. the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act.’ 307 In the context of claims against professionals, the method for assessing the quantum likewise varies depending on the nature of the claim. The two methods common in claims against professionals are a ‘ no transaction ’ basis or an ‘ alternative transaction ’ basis. Each is examined below. Damages on a ‘ no transaction ’ basis A ‘ no transaction ’ case arises when a plaintiff asserts that they would not have entered into a transaction (such as investing in a managed fund or purchasing a property) but for the acts or omission of the defendant. No-transaction damages seek to put the plaintiff in the position they would have been in had they not engaged in the loss-making transaction. Assessing damages on a no-transaction basis involves a subjective assessment of what would have happened had the plaintiff not entered into the impugned transaction. Selig v Wealthsure Pty Ltd 308 provides a good illustration of the assessment of damages on a no-transaction basis. The plaintiffs, investors of modest means, acted on the advice of a financial advisor and invested in a company. That company failed, and the plaintiffs lost the whole of the sum invested. They claimed damages against the financial advisor and others. The plaintiffs were awarded damages for the loss of the principal investment and consequential loss on the basis that had it not been for the defendants’ breaches, they would not have made any investment at all (i.e. a ‘no transaction’ basis). At first instance, Lander J was of the view: ‘If the plaintiffs had been properly advised, they would not have engaged in negative gearing. They could only negatively gear if they had an income of such sufficiency that negative gearing would have been appropriate. When both of them had little or no working capacity, they could not achieve an income of that kind. In reality, and if they had been properly advised, they would not have entered into any speculative investments. If properly advised, they would not have wasted their assets, which was the consequence of [the financial advisor’s] advice. They would have consolidated those assets into the one property as the principal place of residence and sought whatever income was available to people who have no capacity to earn income.’ 309 On appeal to the Full Court, 310 the defendants argued that the plaintiffs were not entitled to damages on a no-transaction basis. They argued there was evidence the plaintiffs would have engaged in an alternative high-risk investment anyway because they needed to generate income to meet the mortgage repayments on the properties they had purchased on the advice that the company they had invested in would generate sufficient income to service the mortgage repayments. They argued that, as the plaintiffs had not proved there was an alternative investment available producing returns similar to those anticipated from the company, they had not proven a loss. 311 307 (1991) 174 CLR 64, 116. 308 (2013) 94 ACSR 308. 309 Ibid [1186]. 310 Wealthsure Pty Ltd v Selig (2014) 221 FCR 1 (the assessment of damages was not the subject of the subsequent High Court appeal). 311 Ibid [222].

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