On 5 August 2020, the High Court of Australia allowed an appeal in Berry v CCL Secure Pty Ltd [2020] HCA 27 about the calculation of damages for a breach of the civil prohibition on misleading or deceptive conduct in the former section 52 of the Trade Practices Act 1974 (Cth) (TPA), now section 18 of the Australian Consumer Law.
The key takeaways
In assessing damages in a case where the termination of an agreement is induced by misleading or deceptive conduct, the wrongdoer, not the claimant, bears the onus of proving that they would have used lawful means to achieve the same result in the counterfactual scenario.
The practical impact? CCL Secure was required to pay $27 million in damages plus costs of both appeals to Dr Berry, rather than $1.78 million awarded by the Full Federal Court because CCL Secure (the wrongdoer) didn’t present evidence strong enough to discharge the onus of proving it would have terminated its agreement with Dr Berry lawfully.
The background
The defendant, CCL Secure Ltd (previously Securency Pty Ltd) (Securency) and the plaintiffs, Dr Benoy Berry and his company GSC, joined forces in 2004 to bring polymer banknotes to Nigeria. They joined forces under an agency agreement.
Dr Berry had experience doing business in Nigeria and signed an agreement to become Securency’s agent and to negotiate with the Nigerian Government about the Government’s adoption of polymer banknotes.
Under the agency agreement, Dr Berry and GSC would be entitled to a 15% commission on the sale value of the polymer (used to create the banknotes) sold to the Nigerian Government. The agreement automatically renewed every 2 years, unless terminated by giving 30 days’ written notice.
In late 2007, a Securency representative falsely led Nigerian officials to believe that, amongst other things, Securency was willing to establish a production plant in Nigeria if the Nigerian Government converted all of its banknotes to polymer. This was a false assurance. Dr Berry was unaware that it was a false assurance.
Shortly after, the Nigerian Mint placed substantial orders for banknote polymer. Securency hatched a plan to replace Dr Berry and GSC as their agents in Nigeria, retrospectively to deny them of their commission on the sale.
It was held that Securency deliberately deceived Dr Berry into signing a number of documents, including an agency termination letter, by falsely telling him that it was a part of ‘routine’ administration and that after signing it, the existing agency agreement would continue.
Dr Berry sued Securency under section 52 of the TPA for misleading or deceptive conduct (now section 18 of the Australian Consumer Law).
Getting to the High Court
The trial judge, Rares J, held that Securency had engaged in misleading or deceptive conduct in its treatment of Dr Berry.
Because Securency’s conduct was fraudulent in nature, damages were assessed on the basis that Dr Berry’s agency agreement would have been renewed and continued until the trial date. This included any commission on the actual sales of polymer to Nigeria, minus any expenses over the full term of his agency agreement, which would have been until Securency terminated all of its agency agreements in June 2010.
Rares J’s decision was overturned by the Full Court of the Federal Court (McKerracher, Robertson and Lee JJ) which held that Securency’s fraud should not prevent an assessment under the former section 82 of the TPA of the counterfactual – what Securency would have done if it had not deceived Dr Berry.
On the balance of probabilities, the Full Court found that if Securency had not fraudulently terminated the agency agreement with Dr Berry, it would have validly terminated it anyway on 30 June 2008. This reduced quantum of damages available to Dr Berry, who then appealed to the High Court.
The decision and reasoning
Key to this case is the High Court’s assessment of the counterfactual – i.e., what Securency would have done had it not fraudulently terminated its agreement with Dr Berry.
The general rule in assessing damages where a contract is terminated as a result of misleading or deceptive conduct, is that the party claiming damages bears the onus of proof in establishing, on the balance of probabilities, what the value of the contract would have been.
Where there are multiple ways a wrongdoer may have performed the contract in the counterfactual, it is assumed the wrongdoer would choose the option most beneficial to them.
In this case, the question was ultimately whether Securency would have terminated the contract immediately (in June 2008), as decided by the Full Federal Court; or when Securency terminated all of its agency agreements (in June 2010), as decided by the Rares J.
The majority of the High Court (of Bell, Keane and Nettle JJ) held that because Securency terminated the agreement with Dr Berry through fraud, the evidential burden shifted to Securency, requiring it to prove that, if it had not terminated the agreement fraudulently, it would have terminated Dr Berry’s agreement immediately (in June 2008) through lawful means.
That is, the majority found that the onus of proof shifted to Securency because by purposefully choosing to engage in wrongful and fraudulent conduct, it was inferred that they would not have been prepared to do it lawfully.
Ultimately, the High Court disagreed with the Full Federal Court and decided there was not enough evidence to discharge this reversed onus of proof – there was not a realistic probability that Securency would have terminated Dr Berry’s agency agreement sooner than its other agents in June 2010.
Consequently, the High Court upheld Rares J’s analysis during the trial at first instance and overturned the Full Federal Court’s decision – awarding Dr Berry damages of $27 million (a substantially higher amount than the $1.78 million awarded by the Full Court of Federal Court) plus costs of both appeals.
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