Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Vieira v O'Shea [2012] NSWCA 21
• Hearing dates: 24 October 2011
• Decision date: 05 March 2012
• Before: Basten JA at 1; Meagher JA at 1; Handley AJA at 51

Decision

(1) Allow the appeal.

(2) Set aside order (1) made by the trial judge on 8 December 2010.

(3) Judgment for the appellant against the first respondent for $255,248 plus interest at the prescribed rates from 31 March 2009 to the date of judgment.

(4) Order that the first respondent pay the appellant's costs of the trial in respect of the claim against the first respondent.

(5) Order that the first respondent pay the appellant's costs in this Court.

(6) Grant the first respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the appeal by the appellant.

(7) Grant leave to the cross-appellant and cross-respondents to approach the Registrar to obtain a date for hearing of the cross-appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court146s computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: APPEAL - civil - evidence - construction of contract - whether evidence supports primary judge's findings as to contract terms - whether open to appellate court to reject findings based on credibility of witnesses - whether open to appellate court to reassess construction of contract based on findings of fact made by trial judge; CONTRACT - construction - identifying contract terms - contract for advice prior to purchase - use of language of the contracting parties; DAMAGES - contract - time for assessment - whether assessed at the time of breach or at some other date - circumstances in which it is appropriate to measure damages at some other date - circumstances in which plaintiff is considered to be locked in to holding the asset
• Legislation Cited: Civil Liability Act 2002 (NSW), ss 5A, 5D; Fair Trading Act 1987 (NSW), s 42
• Cases Cited: Downs v Chappell [1997] 1 WLR 426; Fox v Percy [2003] HCA 22; 214 CLR 118; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640; Johnson v Perez [1988] HCA 64;166 CLR 351; Potts v Miller [1940] HCA 43; 64 CLR 282; Robinson v Harman (1848) 1 Ex 850; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64
• Texts Cited: E Peel, Treitel, The Law of Contract (12th ed, 2007) at 20-064
• Category: Principal judgment
• Parties: Humberto Vieira - Appellant; John O'Shea - First Respondent and Cross-Appellant; Shooting Star Films Pty Ltd - Second Respondent; Treve Williams - First Cross-Respondent; Gregory Victor Nash - Second Cross-Respondent; Leanna Mary Godber - Third Cross-Respondent; Jonathan Mark Lumsden - Fourth Cross-Respondent; James Richard Whitfield - Fifth Cross-Respondent
• Representation: Counsel: D F Jackson QC/A Paterson - Appellant; J Clarke/J Emmett - First Respondent; Submitting appearance - Second Respondent; D Short - Cross-Respondents; Solicitors: DLA Phillips Fox - Appellant; Esplin Solicitors - First Respondent and Cross-Appellant; Holman Webb - Second Respondent; Meridian Lawyers - First to Fifth Cross-Respondents
• File Number(s): 2010/423230

Decision under appeal

• Jurisdiction: 9101
• Date of Decision: 2010-12-08 00:00:00
• Before: Rolfe DCJ
• File Number(s): DC 2008/1513

HEADNOTE

[This headnote is not to be read as part of the judgment]

In January 2007 the appellant attended the thoroughbred yearling sales known as "The Magic Millions" and on the advice of the first respondent purchased an interest in a horse. As with each of the horses the first respondent recommended to potential clients, the horse had been assessed by a veterinary clinician. This assessment revealed that the horse had a pre-cystic lucency in the stifle in its left hind leg. The condition later developed into a cyst requiring an operation. As a result the horse was unable to be trained or to race for a significant period, thus diminishing its value. The appellant claimed that the first respondent knew of the condition and failed to advise him of it prior to purchase. The appellant further claimed that if he had known there was an issue with the horse he would not have purchased an interest in it.

The appellant brought proceedings in the District Court claiming damages for breach of contract as a result of the diminution of the value of the horse. The appellant also raised claims in negligence and under Fair Trading Act 1987 (NSW), s 42 for misleading and deceptive conduct. The primary judge dismissed the appellant's claim on 8 December 2010.

The primary judge found that the appellant's conduct was not negligent, a breach of contract, or misleading and deceptive conduct. However, in the event that he was wrong in that respect, his Honour proceeded to assess damages for diminution of the value of the horse plus expenses incurred up to 31 March 2009, when he held that the appellant should have sold the horse.

The appellant appealed to this Court. The first respondent sought to challenge the assessment of damages.

The issues for determination on appeal were:

(i) whether the first respondent should have advised the appellant of the precise terms of the veterinary clinician's assessment, warned him that the horse was not without issues, or made no recommendation that the horse be purchased,

(ii) whether the appellant would have purchased the horse in the absence of a recommendation that the horse be purchased or in the face of full advice as to the circumstances reported by the veterinary clinician,

(iii) whether the appellant's loss should be calculated by reference to the price paid or by reference to the true value of the horse at the time of purchase;

(iv) whether, for the purpose of assessing the appellant's loss, the horse's diminished value should be its value at the time when the appellant first became aware of the horse's condition or its value at the time when the appellant should reasonably have sold the horse, and

(v) whether the appellant had mitigated his loss.

The Court held (per Basten and Meagher JJA, Handley AJA agreeing), allowing the appeal:

In relation to (i)

1. There are limited circumstances in which it is open to an appellate court to reject findings based on the credibility of witnesses. However, a contractual relationship may be reassessed based on the findings of fact made by the trial judge and the evidence accepted by the trial judge: [27]

Fox v Percy [2003] HCA 22; 214 CLR 118 applied.

In relation to (ii)

2. It is not open to a defendant to claim that a plaintiff cannot succeed because he or she would have acted on the advice of the defendant without concern as to its basis in circumstances where, if the advice had complied with the contractual arrangement, the defendant would not have advised the plaintiff to make the purchase: [35]

3. A plaintiff who acquires an asset pursuant to a purchase recommendation which constitutes a breach of contract is entitled to be put in the position he or she would have been in had the contract been performed. In this case, where no purchase recommendation should have been made in accordance with the contract, it is irrelevant to ask what the plaintiff would have done if the contract had been performed: [37]

Robinson v Harman (1848) 1 Ex 850; 154 ER 363; The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 applied.

In relation to (iii)-(iv)

4. The general rule that damages for breach of contract are assessed at the date of breach will yield if, in the particular circumstances, some other date is necessary to provide adequate compensation. This may be the case where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition; or if the plaintiff does not discover, until some time after acquisition, the matter which means that the asset would not have been acquired; or if for some other reason the plaintiff is locked in to holding the asset: [45]-[46]

Johnson v Perez [1988] HCA 64; 166 CLR 351; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640, Downs v Chappell [1997] 1 WLR 426 applied.

Judgment

1 BASTEN and MEAGHER JJA : In January 2007 the appellant, Mr Humberto Vieira, attended the thoroughbred yearling sales known as "The Magic Millions". On the advice of the first respondent, Mr John O'Shea, he purchased an interest in a horse later named Dashere. (The remaining interest in the horse was purchased by the second respondent, which has played no part in the proceedings.)

2 The horse had been assessed by a veterinary clinician as having a pre-cystic lucency in the stifle (a joint) in its left hind leg. The condition later (that is after purchase by the appellant) developed into a cyst, requiring an operation. As a result, the horse was unable to be trained or to race for a significant period, thus diminishing its value.

3 The appellant alleged that Mr O'Shea knew, or should have known, of the condition and advised him of it prior to purchase. He said that if he had known there was an issue with the horse, he would not have purchased an interest in it. He claimed damages, primarily for breach of contract, as a result of the diminution of the value of the horse. (Claims were also raised in negligence and under the Fair Trading Act 1987 (NSW), s 42, for misleading and deceptive conduct.)

4 There was no dispute that there was a contractual arrangement between the appellant and Mr O'Shea, pursuant to which the latter advised the appellant in respect of possible purchases. It was also accepted that Mr O'Shea would obtain a veterinary assessment of a horse before recommending it. Mr O'Shea obtained such an assessment with respect to Dashere: the first matter in dispute was whether he should have informed Mr Vieira of the precise terms of that assessment, or warned him that the horse was not without "issues", or made no recommendation that the horse be purchased. He did not do either of the first and second, and did make a recommendation to purchase.

5 A second matter in dispute was the course which the appellant would have taken, either in the absence of any recommendation that the horse be purchased or in the face of full advice as to the circumstances reported by the veterinary clinician. A third matter, assuming that there had been a breach of contract by Mr O'Shea, was the assessment of any loss suffered by the appellant.

6 The matter came for trial before Rolfe DCJ in the District Court. On 8 December 2010 his Honour handed down judgment, dismissing the appellant's claim. His Honour found that the conduct of Mr O'Shea did not involve negligence, breach of contract or misleading or deceptive conduct: at [153]. However, in the event that he was wrong in that respect, he proceeded to assess damages, namely the diminution of the value of the horse, in an amount of $217,000, plus expenses incurred up to 31 March 2009, when he held the appellant should have sold the horse. His Honour made no finding, specifically, as to whether the appellant would have declined to purchase an interest in the horse if advised of the actual assessment made by the veterinary clinician.

7 The notice of appeal included 21 separate grounds. However, the substance of the case for the appellant is to be found in paragraphs 7(h)-(j) of the appellant's written submissions, which were in the following terms (omitting footnotes):

"(h) Subsequently, and prior to the purchase of the horse, Vieira asked O'Shea ' Is there anything wrong with the horse? Vet says he is OK?' O'Shea then responded to Vieira, ' Nothing wrong with him, the horse is good' . Ultimately it was not disputed that Vieira asked these specific questions about the horse and was given these specific answers. Vieira did not leave it to O'Shea to tell him what O'Shea thought appropriate.

(i) It was common ground that there was no mention of the following matters (although O'Shea had been told of these matters by Humberstone):

(i) The qualification to the risk assessment 'with time six months'; and

(ii) That the horse has had a stifle injected for a cyst.

(j) The veterinarians did not say, nor was it the case that there was 'nothing wrong' with the horse. At the time O'Shea gave his recommendation he was aware that:

(i) Vieira was looking for a horse that was free from any issues.

(ii) There was a diagnosis of a cyst in the stifle.

(iii) Such a condition may subsequently require surgery; O'Shea had had a horse with the condition that had required surgery while it was in his care. He took his experience with this horse into account in assessing the information given to him by REC.

(iv) The veterinarians had qualified their advice by the words 'with time', which meant that the horse should not have any ridden exercise for a particular period, in this case 6 months. O'Shea knew what this meant.

(v) The qualification 'with time' related to a medical problem.

(vi) A qualification 'with time', when it related to a medical problem, was a cause for concern.

(vii) That the horse was not free from any issues."

8 It will be necessary to refer below to the substance of the conversation between Mr Vieira and Mr O'Shea and the evidence of the veterinary surgeon, Dr Humberstone of the Randwick Equine Centre (referred to as "the REC"). There is, as noted above, also an issue on the appellant's own evidence as to what he would have done had he been fully advised. The trial judge formed an adverse view as to his credit, which gives rise to a difficulty for the appellant on appeal, to the extent that he seeks to rely upon his own oral testimony.

9 The appellant was content with the assessment of damages by the trial judge; Mr O'Shea sought by notice of contention to challenge that assessment. Mr O'Shea also brought a cross-appeal against the members of the REC, responsible for the veterinary assessment of Dashere. The cross-appeal was not pursued at this stage, it having been agreed between the parties that it should await the outcome of the appeal. Because, for the reasons set out below, the appeal should be upheld, the cross-appeal will need to be listed for hearing, if it is to proceed.

Contractual liability

(a) the evidence

10 Mr John O'Shea described himself in his evidence as a licensed horse trainer with stables at Randwick Racecourse. He explained that success as a trainer was "tied to the quality of horses you receive from clients": affidavit, 1 June 2009, par 4. He said it was necessary "to attend the major yearling sales and select the best quality horses from the sales catalogue with a view to syndicating them amongst existing or potential clients". To that end, he employed a consultant to prepare a pedigree for each horse in the catalogue of the major sales he attended and also arranged for a veterinary clinician to examine each animal he was interested in purchasing and, for each of the horses that passed the physical inspection, to assess x-rays, which were held by the auctioneer in a repository at the sale yard.

11 Whether he purchased in his own interest as principal or as agent was not entirely clear and may have varied depending on the circumstances. An affidavit sworn by Mr Barry Burke, who was not cross-examined, having died before the trial, stated (par 17):

"I have an arrangement with O'Shea whereby I provide 'fall of the hammer' cover for any horse he purchases at auction. The cover is provided for the full purchase price of the horse. An insurance proposal is then signed by the new purchaser (in this case [the appellant], or if O'Shea does not on-sell the horse, O'Shea) within 30 days of the purchase and the cover converts to a 12 month contract."

12 The appellant and Mr O'Shea were introduced to each other by Mr Burke in January 2006 at the Magic Millions sales on the Gold Coast. Mr O'Shea gave evidence of a conversation with the appellant in the course of which he explained his practice. He explained that, after obtaining a pedigree analysis and inspecting every horse listed in the catalogue, (par 17):

"I then contact Randwick Equine Centre (REC) to implement a standing arrangement where for a flat fee of $50 per horse REC carry out a physical inspection of the animal and for $200 REC carry out an assessment of the x-rays of those horses that pass the physical inspection. REC calls me and provides a summary of their assessment of each horse after REC inspects the x-rays for each horse. If REC summarise to me to the effect the horse is free of any veterinary problems which will inhibit its capacity to race then I will consider the horse for purchase. My preference is to buy horses free of any issues.

...

I have no expertise in veterinary issues of a horse. I am paying a lot of money for veterinary opinions which I always rely on."

13 The appellant indicated his agreement with that arrangement and Mr O'Shea further explained to him:

"I charge each client a fee of $1,000 per horse successfully purchased. That is not a profitable exercise for me as I have to meet the veterinary expense of $250 on many horses that I do not end up buying. Sometimes my expenses at any particular sale exceed my income charged."

14 The appellant also agreed with the fee. In cross-examination of Mr O'Shea in respect of that conversation, the following exchanges took place (Tcpt, 17/08/10, p 135):

"Q. You accept, don't you, that you had a conversation with Mr Vieira about the desirability of horses that were free from being [sic] from any issue?

A. Yes, sir.

Q. You understood that's what he wanted?

A. Yes, sir.

Q. There's no doubt in your mind?

A. Yes, sir.

Q. I suggest that Mr Vieira said to you that he wanted a horse with no problems and not a risky one. He said that to you, didn't he?

A. I can't recall to the - the exact words Mr Vieira would have used.

Q. You wouldn't dispute he used those words, would you?

A. What were the words, again?

Q. 'Want a horse with no problems, not a risky one'?

A. No."

15 At its heart, the dispute turned upon what the parties meant by "free of any issue" and "not a risky one". Mr O'Shea gave evidence that the advice he received from the veterinarians was that a horse was "low risk", "medium risk" or "high risk". He considered a horse classified as "low risk" as suitable for purchase: affidavit, par 13.3.6. It is accepted that Mr O'Shea did not discuss with or explain to the appellant what was meant by the term "low risk" or the expression "low risk with six months time".

16 Mr O'Shea gave evidence (par 26) of a conversation with Dr Humberstone in which the latter stated in relation to Dashere:

"I have inspected the horse's x-rays and they indicate to me that the horse is 'low risk with time 6 months'. The horse has had a stifle injected for a cyst but with time I don't believe this to be of clinical significance."

17 The appellant gave evidence of a conversation with Mr O'Shea shortly prior to the purchase of the horse, to the following effect (affidavit, 3 April 2009, par 16):

"He said: 'This could be the horse with the breeding that you are looking for'.

I said: 'How is he?'.

He said: 'He's good. He's a nice horse.'

I said: 'Have you checked everything?'

He said: 'Yes'.

I said: 'Is there anything wrong with the horse? Vet says he is ok?'

He said: 'Nothing wrong with him, the horse is good'.

I said: 'Ok. Good. I'll go see him.'"

18 Parts of the accounts of this conversation were denied in affidavits in reply, but it is sufficient to go to the cross-examination. The appellant was not challenged specifically in relation to his account of the conversation set out above. However, Mr Vieira's account was put to Mr O'Shea (Tcpt, p 136, following on from the passage set out at [14] above):

"Q. And you wouldn't dispute that he asked you, 'The vet said he is okay', would you?

A. Just say that again, sorry?

Q. 'The vet said he is okay?'

A. No, I said that.

Q. Mr Vieira said to you, 'The vet says he is okay?'

A. Mr Vieira said to me?

Q. Yes.

A. How would Mr Vieira know that?

Q. He put that to you as a question. In effect he said to you, did the vet say he is okay?

A. Yes.

Q. He said that?

A. Yes.

Q. And you responded to him, 'Nothing wrong with him. The horse is good'?

A. Yes."

19 It is necessary in this context to note one other statement made by Mr O'Shea in cross-examination (Tcpt, pp 133-134):

"A. The concept of a low risk horse being that there is no racehorse that is without risk, so that is the minimum scale. I would be at pains to purchase any horses rated higher than a low risk horse.

...

His Honour

Q. Sorry, you meant you'd be at pains not to purchase anything that was greater than a low risk I think is what you meant, Mr O'Shea?

A. Sorry, yes."

20 Mr O'Shea was also pressed on the information which had been provided to him by Dr Humberstone (Tcpt, pp 144-145):

"Q. And you understood that the cyst had been treated by an injection at that time, didn't you?

A. The stifle?

Q. Yes, a cyst in the stifle?

A. Yes.

Q. You would agree with me, wouldn't you, that a stifle cyst is at least an issue with the horse, wouldn't you?

A. Yeah.

Q. And that this was not a horse that was free of any issues, was it?

A. No.

Q. And you knew that at the time?

A. Yes.

Q. And you've agreed earlier that your discussion with Mr Vieira was that he was looking for a horse free of issues?

A. Yes.

Q. This is something you should have disclosed to him, isn't it?

A. Not necessarily.

Q. Why?

A. Because Mister - as I explained to Mr Vieira previously, and he concurred, we are dependent upon veterinary advice for our purchases. There is no such thing as a horse that is completely free of any issues. I say the word 'complete' in emphasis there and, as a result, I'm guided on matters such as these by my veterinary advice."

21 The form of the last answer is unclear: part of it appears to be a report of his discussion with the appellant, and other parts an explanation of his own reasons for taking a particular position. Nevertheless, a fair reading of the evidence is that Mr O'Shea accepted that the classification of Dashere as "low risk" was not simply the classification of any horse about which nothing specific and adverse could be said, but was a classification of a horse with a particular disability, albeit one which was not expected, after six months, to affect his training and racing capability. In substance, the dispute turned on whether, pursuant to their agreement, the appellant had accepted that Mr O'Shea would obtain veterinary advice (which he admitted he was not competent to assess) and, by reference to the criterion described to the appellant, determine whether the horse was able to be the subject of a purchase recommendation, or whether Mr O'Shea could recommend a horse for purchase, notwithstanding that it did not satisfy that criterion, without informing the appellant of any particular issue in respect of the horse which Mr O'Shea was minded to disregard.

(b) findings at trial

22 The trial judge stated at [63], albeit in respect of a part of a conversation which is not critical to resolution of the present issue:

"Where there is a conflict between the two witnesses, I accept Mr O'Shea's evidence in preference to that of the plaintiff because I consider that not only did Mr O'Shea have a better recollection but the plaintiff was an unreliable witness."

23 In respect of Mr O'Shea's knowledge, his Honour accepted that "when Dr Humberstone had used the expression 'low risk with time, 6 months', he [Mr O'Shea] considered that it meant that Dashere was free of veterinary problems which would inhibit its capacity to race but he should refrain from putting the horse into any formal race training regime for the period of 6 months from the time he bought it": at [76]. The trial judge continued:

"This was consistent with the evidence of Dr Humberstone and Mr O'Shea proceeded on this basis after the horse was purchased, taking steps to only have the horse broken in and spelled."

24 However, his Honour later returned to Dr Humberstone's evidence, noting at [106]:

"He said the term 'with time' was used within the racing industry to indicate to a trainer or an owner of a horse that the horse should not have ridden exercise for a particular period, in this case, 6 months. In the case of yearlings, the term 'with time' is used to mean that a horse should not be broken in during a relevant period or given any work. As the REC had been using the phrase 'with time' in their dealings with Mr O'Shea since 2005 ..., I am satisfied he understood it. I regard Mr O'Shea as being mistaken when he said in the witness box that in 2007 he did not know what 'with time' meant."

25 With respect to the contract, his Honour concluded at [128]:

"I am therefore satisfied that at the Magic Millions sale in January 2007 the plaintiff [Mr Vieira] and the 1 st defendant [Mr O'Shea] entered into a contract whereby the 1 st defendant would recommend horses for purchase by the plaintiff for the purpose of racing in exchange for a fee of $1,000 or part thereof. I am satisfied that the other relevant terms of the contract were:

(a) The 1 st defendant would make an assessment of each horse in the catalogue based on his physical inspection and his assessment of the horse's pedigree.

(b) The 1 st defendant would arrange for the REC to carry out a clinical inspection of the animal and an x-ray assessment by a veterinarian from the REC; and

(c) The 1 st defendant would then advise the plaintiff whether he recommended the horse for purchase if the veterinary clinical assessment of the horse performed by the REC was that the horse had a low risk with regard to a competitive racing future."

26 His Honour's explanation for reaching these findings was set out in the previous paragraph in the following critical passages at [127]:

"The reality was that the plaintiff presented himself to Mr O'Shea at the Magic Millions sale in 2006 as someone who knew nothing about racehorses and, on the introduction of Mr Burke, was prepared to place his entire trust in Mr O'Shea's judgment about a particular horse and whether it was worth buying. The truth was that the plaintiff was not interested in the finer aspects of detail or the precise steps which he accepted that Mr O'Shea would take in following his standard procedure. ... I am satisfied that things otherwise had not changed by the time of the Magic Millions sale in January 2007. Again, the plaintiff was not making any judgment of his own by weighing up information passed on to him by Mr O'Shea. He was prepared to act on Mr O'Shea's advice. In this respect, Mr O'Shea had told him that if the REC had said in effect that the horse was free of veterinary problems which might otherwise inhibit its capacity to race, then he would consider the horse for purchase and that his own preference was to buy horses free of any issues; in other words, horses which had passed the x-ray assessment of Mr O'Shea's veterinarians. In the case of Dashere, the position was that the plaintiff asked Mr O'Shea for a recommendation concerning a horse to purchase, namely a colt which could be trained as a stallion, and in response Mr O'Shea recommended Dashere to the plaintiff. There was nothing more to it than that as between the plaintiff and Mr O'Shea and the plaintiff gave Mr O'Shea the go ahead. The plaintiff was simply not interested in the finer details of how Mr O'Shea had arrived at his recommendation."

(c) approach to appeal

27 As the appellant accepted, this Court must be constrained in relation to any reassessment of the oral evidence of the parties by the fact that there are limited circumstances in which it is open to the Court to reject findings based on the credibility of witnesses: Fox v Percy [2003] HCA 22; 214 CLR 118 at [28]-[29]. However, that leaves open a reassessment of the contractual relationship based on findings of fact made by the trial judge and, in particular, upon his acceptance of the evidence of Mr O'Shea. On that basis, four propositions may be considered.

28 First, it is clear that Mr O'Shea's statement as to his practice constituted the basis of the contractual arrangement. Mr O'Shea stated he would not recommend for purchase any horse which was not "free of any veterinary problems which will inhibit its capacity to race" and not "free of any issues". It may be assumed for present purposes that these categories are the same. Nevertheless, as the appellant noted in his first ground of appeal, that language is significantly different from the finding as to the contractual term (c) set out at [25] above.

29 There are at least two difficulties with the trial judge's formulation of the contract term. First, it does not use the language which the contracting parties accept they used. Secondly, it uses the words "low risk", which the evidence shows were used between REC and Mr O'Shea but not between the appellant and Mr O'Shea, as Mr O'Shea accepted before this Court: first respondent's written submissions, pars 12(d) and 24; cf oral argument, CA Tcpt, p 48(7). It follows that the meaning which REC or Mr O'Shea may have attributed to those words was not explained to the appellant and these words could not have formed part of the contract if their meaning is different from the meaning of the express words used.

30 Secondly, there is a potential inconsistency between the accepted evidence and the formulation of the condition. It may be true that no horse is risk free, but it does not follow that all horses classified as "low risk" are free of any veterinary problems which would inhibit their capacity to race. Dashere, in particular, was not such a horse. Nor was his category merely "low risk": it was low risk with time, six months. According to the finding made by the primary judge at [106], Mr O'Shea knew that that classification meant that the horse could not be broken in nor given any ridden exercise for the nominated period. There was no suggestion that a six month period was so brief as to be insignificant in terms of capacity to race (which was thereby postponed). Nor could it be said that the horse was free of any relevant veterinary problems, or "free of any issues" in more colloquial language. It follows that the analysis of breach, at [148]ff, addressed the wrong question.

31 Thirdly, the proper inference to be drawn from this material was that the contractual arrangement did not extend to a recommendation for purchase in respect of Dashere. It could not be said that the horse was "free of any veterinary problems which will inhibit its capacity to race". The horse had undergone surgery for the pre-cystic lucency. It could not be broken in or trained for six months. The REC's description, "low risk with time (6 months)", was an acknowledgement that there was a present veterinary problem which might inhibit its capacity to race if it were broken in or trained in the six month period. Otherwise, there was no good reason to add the qualification "with time". This is reflected in Dr Humberstone's opinion as accepted by the trial judge: at [146]. That being the position, consistent with the terms of the contract, the horse could not be the subject of a recommendation for purchase. Had the contract been performed in accordance with its terms, no recommendation would have been made and, it follows, the appellant would not have purchased the horse. No doubt if Mr O'Shea had revealed the "issue" the appellant could have given express instructions to purchase nevertheless, but that did not happen.

32 Fourthly, it follows that the recommendation to purchase constituted a breach of contract. His Honour's conclusion to the contrary should be rejected.

33 Before leaving this area of dispute, it should be noted that, in the course of the appeal, the first respondent characterised the appellant's primary case as one of "non-disclosure", or of a failure to give complete advice. Had that been the sole basis of claim, it would have had consequences, in the case of breach, in considering questions of "reliance" or causation. However, as counsel for Mr O'Shea accepted, it was not the only basis of the claim, there being a separate and discrete issue as to the breach of the contractual condition, as discussed above: CA Tcpt, pp 59(40)-60(15). There may have been a degree of ambiguity resulting from the form of the pleading of the first agreement, which included providing "expert advice" to the appellant and making "recommendations" in relation to the selection of a horse or horses: fourth amended statement of claim, par 6(a). However, the contractual claim discussed above was within the case pleaded in paragraphs 10(d) and 16(e): in any event, the first respondent did not assert that it was not.

Causation

34 Mr O'Shea submitted that the appeal should fail in any event on the issue of causation: written submissions, par 21. That conclusion was, in effect, based on two propositions: the first was that the appellant was prepared to act on Mr O'Shea's advice without concern as to its basis. Secondly, there was an express (unchallenged) finding rejecting the appellant's evidence to the contrary.

35 The first proposition is both internally inconsistent and beside the point. It is internally inconsistent to say that the appellant cannot succeed because he would have acted on Mr O'Shea's advice in circumstances where, if the advice had complied with the contractual arrangement, it would not have been to purchase the horse. It is beside the point because, so far as a cause of action for breach of contract was concerned, the breach involved the recommendation of an unsuitable horse. The thrust of the case for the first respondent in this respect was based upon the case being one of "non-disclosure" or of a failure to give complete advice, a matter which need not be addressed further in the circumstances.

36 The second proposition is also based on a false premise, although it requires reference to the judgment below to understand the reason. At [38], the trial judge stated:

"Mr Vieira said that Mr O'Shea did not inform him that the horse had had surgery, or that it had been categorized as low risk with time or that it had been downgraded from medium risk with time to low risk with time; nor had he been told the reasons for those categorizations. Mr O'Shea did not tell the plaintiff that Dashere was not a sound and healthy horse. If these matters had been disclosed to him, Mr Vieira claimed he would not have purchased the horse."

37 That evidence was admitted only in respect of the claims for misleading and deceptive conduct and breach of fiduciary duty: Tcpt, p 28(10). It was not admissible on a claim in negligence, even on a cause of action for breach of contract: Civil Liability Act 2002 (NSW), ss 5A and 5D(3). Further, it was not relevant to any claimed breach of contract involved in making a purchase recommendation in respect of a horse which did not satisfy the "free of veterinary problems" condition. If such a breach occurred the appellant was entitled to be put in the position he would have been in had the contract been performed: Robinson v Harman (1848) 1 Ex 850 at 855; [154 ER 363 at 365]; The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 80 (Mason CJ and Dawson J), 98 (Brennan J), 134 (Toohey J), 148 (Gaudron J), 161 (McHugh J). That position would have been that no recommendation was made about the purchase of Dashere. For that reason, the appellant's evidence as to what he might have done had there been a recommendation and sufficient disclosure as to the horse's condition was irrelevant. Had the recommendation not been made the appellant would not have purchased a 70% interest in the horse for $231,000.

38 Accordingly, it was necessary to assess the loss flowing from the breach of contract.

Assessment of damages

39 His Honour carried out an assessment on the basis of the difference between the amount paid by the appellant and the value of that interest as at 31 March 2009. The relevant date was identified in the following manner at [172]:

"The plaintiff did not know about the horse's condition until July 2007. At that time, the horse was undergoing surgery. Things did not settle down until December 2008. By that time the plaintiff had a duty to mitigate his loss by selling the horse. He did not do so. I therefore propose to assess the damages as at 31 March 2009 because it would be unreasonable to expect the plaintiff to have sold his interest in Dashere before that date."

40 On that basis, his Honour calculated the loss as including $217,000, for the diminution in value of the appellant's 70% interest in the horse, namely 70% of $310,000 (being the $330,000 paid less $20,000 which was assessed as the value of the horse in March 2009). He also indicated acceptance of the out of pocket expenses claimed by the appellant up to 31 March 2009. A simple arithmetical calculation indicates that the further sum is $38,248.16.

41 The trial judge stated that the claim by the appellant was for damages calculated by reference to the difference between the sale price and the present value of the horse: at [169]. He also noted Mr O'Shea's submission that the correct calculation was "the difference between the actual value of the horse on the date it was purchased compared to the sale price". His Honour noted that if Dashere was capable of "a good race performance" his present day value might be $20,000 further noting an absence of evidence that he was not capable of such a performance: at [170]. However, his Honour also had evidence, which he accepted, that the horse would have been worth $20,000 in March 2009: at [171].

42 Mr O'Shea took issue with the approach adopted by the trial judge, on three grounds. The first ground reasserted the submission made at trial that the proper comparison was between the price paid and the true value of the horse at the time of purchase, relying on Potts v Miller [1940] HCA 43; 64 CLR 282 and HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640 at [36]. There was no evidence, it was submitted, as to the true value of the horse at the time of purchase being less than the price paid. The importance of the temporal element appears to have been that, as at that time, it could not be known whether Dashere would need an operation, nor the likelihood of full recovery. If the price paid was the appropriate price, with full knowledge of the horse's disability, the respondent should not be held liable for that which subsequently occurred. There was, the submission concluded, no proven loss.

43 The second and alternative ground was that any assessment of value should have been undertaken as at July 2007 when the appellant first became aware of the horse's condition. The third ground was that the trial judge should have held that the appellant's decision not to allow Dashere to race after December 2008 constituted a failure by him to mitigate his loss.

44 The appellant's case was that, absent breach of contract, he would not have purchased Dashere. Accordingly, he was entitled to receive the sum of money which would as nearly as possible place him in the position he would have been in had he not purchased the horse. The general rule is that damages for breach of contract are assessed at the date of breach. However, that rule will yield if "in the particular circumstances, some other date is necessary to provide adequate compensation": Johnson v Perez [1988] HCA 64; 166 CLR 351 at 367; see generally, 355-356, 371, 386; Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 266-267. The complaint by the respondent that the time for assessment could only have been the time of breach was not, in principle, supportable: see, eg, E Peel, Treitel, The Law of Contract (12 th ed, 2007) at 20-064.

45 The general rule must give way if, in the interests of justice, another approach is necessary to give the plaintiff an amount of damages which will compensate for the breach of contract. That may be the case where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition; or if the plaintiff does not discover until some time after acquisition, the matter which meant that the asset would not have been acquired; or if for some other reason the plaintiff is "locked in" to holding the asset. In each of these circumstances, the plaintiff may not have acted unreasonably in retaining the asset: see HTW Valuers, at [63] and [66]; Smith New Court Securities, at 265-266.

46 In this case, as the primary judge held at [172], the appellant did not become aware of the horse's condition until July 2007. At that time the horse was undergoing surgery and until its condition settled down the appellant was effectively "locked in". The primary judge's assessment that it was unreasonable to expect the appellant to have sold before March 2009 has not been shown to be an error. By that time the appellant had also incurred expenditure in relation to the horse's condition. Accordingly, to compensate the appellant fairly it was necessary to assess damages as at March 2009 and to include in that compensation the additional expenditure incurred to that time.

47 As to the third matter raised by the first respondent, namely failure to mitigate, it was not relevant to consider what happened after March 2009, as any increase or decrease in the market value of the horse after that date was irrelevant, unless the reasons for it informed the true value of the horse as at the earlier date. Finally, as the appellant submitted, the evidence did not establish that had the horse been raced and performed well, its value would have been greater than $20,000; the primary judge's assessment of that value as at March 2009 assumed that the horse was capable of "a good race performance or an impressive trial": at [170].

48 This analysis disposes of each of the respondent's three arguments. Thus the basis on which the trial judge calculated damages has not been shown to be in error. Indeed, the case upon which the respondent relied, Downs v Chappell [1997] 1 WLR 426, held that, in the case of a plaintiff induced to enter into a transaction by misrepresentation, the plaintiff was entitled to recover losses suffered up to the date when the error was discovered and he had had an opportunity to avoid further loss. That was consistent with the approach taken by the trial judge in the present case. There was no argument that such a principle should not apply in respect of breach of contract.

49 Accordingly, the appellant, being successful on liability, is entitled to the damages awarded by the trial judge which, in terms of the orders sought in the notice of appeal, total $255,248 plus interest.

Orders

50 The following orders should be made:

(1) Allow the appeal.

(2) Set aside order (1) made by the trial judge on 8 December 2010.

(3) Judgment for the appellant against the first respondent for $255,248 plus interest at the prescribed rates from 31 March 2009 to the date of judgment.

(4) Order that the first respondent pay the appellant's costs of the trial in respect of the claim against the first respondent.

(5) Order that the first respondent pay the appellant's costs in this Court.

(6) Grant the first respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the appeal by the appellant.

(7) Grant leave to the cross-appellant and cross-respondents to approach the Registrar to obtain a date for hearing of the cross-appeal.

51 HANDLEY AJA : I agree with Basten and Meagher JJA.

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Decision last updated: 05 March 2012