Damages on 'no-transaction' basis

Introduction

In our August publication we discussed the case of Wealthsure Pty Ltd v Selig27in the context of the Federal Court's application of the proportionate liability regime.28 We now take a look at how the approach adopted by the Federal Court in that case and the approach adopted by the Supreme Court of Queensland in the case of Jamieson & Ors v Westpac Banking Corporation29 provide some useful guidance on claims for damages made on a 'no-transaction' basis.

Judgment in Wealthsure

In 2004 and 2005 Mr and Mrs Selig (the Seligs) invested $450,000 in Neovest Ltd. This was on the financial advice of Mr Bertram, who was the authorised representative of Wealthsure Pty Ltd (Wealthsure). The investment was part of a negative gearing strategy concerned with the purchase of three properties in the suburb of Wynnum (the Wynnum units).

The investment failed and the Seligs commenced Federal Court proceedings against Mr Bertram and Wealthsure (among others) seeking damages arising from, and as a consequence of, the lost investment.

At first instance judgment was entered in the Seligs' favour and damages were assessed in the sum of $1.7 million. The basis of this assessment was to return the Seligs to the financial position they would have been in had they not proceeded with the investment, ie a 'no-transaction basis'.

The award of $1.7 million comprised the initial investment, transaction costs, borrowing costs, refinancing costs and loss of equity and capital arising from the purchase of the Wynnum units and the forced sale of properties owned by the Seligs prior to receiving the investment advice. The award also included an interest component in the approximate sum of $750,000.

Wealthsure and Mr Bertram appealed against the decision at first instance. Of most relevance was the appellants' assertion that the judge at first instance should have found that the Seligs had not established any loss as a result of the investment advice because they did not prove what they would have done in the absence of the proven breaches. They submitted that the Seligs were not entitled to damages on a no-transaction basis because the evidence indicated that once the Seligs entered into contracts to purchase the Wynnum units they had no option other than to proceed with the investment because no alternative investment strategy would have earned sufficient income to meet the mortgage payments on the Wynnum units.

The appellants referred to the cases of BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 2)30 and Copping v ANZ McCaughan31 in support of their appeal. In the former case the Victorian Supreme Court declined to award damages to the applicant because the applicant had not proved what it would have done had it not contracted with the respondent as a result of the respondent's misrepresentation. In the latter case the Full Court of the Supreme...