Australia: What is the correct approach in determining whether a secured lender has lost an opportunity to make a profit from an alternative investment?

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Last Updated: 17 March 2011
Article by Selva Veeriah

La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Limited [2011] FCAFC 4

This case involved a lender suing a valuer for damages for a lost opportunity to make an alternative investment.

The Full Federal Court of Australia determined that, in assessing damages, the Court should first inquire into whether it was more probable than not that the lender would have entered into an alternative loan transaction. If so, it should proceed to inquire into the degree of probabilities and possibilities and, assign a value to the lost opportunity.


The plaintiff lender controlled funds belonging to a managed investment scheme. It received an application for a short-term loan. The borrower offered a property as security for the loan. The lender retained the defendant valuer to value the security. The loan was granted and secured by a first mortgage over the property. The borrower paid a security deposit. The lender also deducted a sum for prepaid interest before releasing the balance of the loan to the borrower.

The borrower paid further interest but then defaulted on repayment. The lender took possession of the property and sold it. The net proceeds of sale were insufficient to satisfy the amount owing because the property was sold for far less than the valuation amount.

The lender sued the valuer for breach of retainer, duty of care, and misleading and deceptive conduct under the Trade Practice Act 1974. The lender alleged that it would not have made the loan if the valuer had given a proper valuation. The valuer accepted liability. The case proceeded to trial on the issue of damages.

The lender claimed damages for loss of capital being the difference between the loan amount and the net proceeds of sale (accounting for the security deposit).

The lender also claimed for loss of income being the difference in interest received from the borrower and what it claimed would have been received from a hypothetical alternative transaction on similar terms.

Decision at first instance

With respect to the claims for loss of capital and income, the lender contended that the two claims should be looked at together. The trial judge, however, looked at the claim for loss of capital on a stand-alone basis. The trial judge set-off the security deposit, prepaid interest, and proceeds of sale against the loss of capital and concluded the lender had not suffered any loss. In fact, the lender had made a small profit on the capital amount.

With respect to the claim for loss of income, the lender contended the nature of this claim was for a loss of chance to enter into alternative profitable loan transactions. Therefore, there was no need to show particular loans forgone due to the transaction with the borrower. It argued the evidence led (over objections) had sufficiently established the availability of other profitable opportunities. The trial judge disagreed and concluded there was no particular loan that the lender could have entered into if it had not loaned the money to the borrower.

Consequently, the trial judge awarded no damages.

The lender appealed. Three issues arose on appeal. Firstly, should loss of capital and loss of income be assessed on a segregated or aggregated basis? Secondly, should the trial judge have admitted the lender's general evidence as to available opportunities without particularising any specific loans rejected?

Thirdly, what is the correct approach in determining whether the lender has suffered a loss of opportunity from making an alternative investment?

Decision on appeal

The Full Federal Court found in favour of the lender.

The Court said the purpose of damages is to restore the lender to its position (or as close as money can do) as if the breach or wrong had not occurred. This requires both losses and benefits flowing directly from the loan contract to be aggregated. There was no basis for treating the benefits on a segregated basis by setting-off benefits against losses of similar character but not losses of a different character. This approach was artificial and defeated the purpose of awarding damages.

The Court then proceeded to assess the claim for the loss of opportunity.

For the first stage, the Court inquired into whether it was more probable than not that the lender would have entered into an alternative transaction. The lender was required to show that on the balance of probabilities there was another commercial opportunity of some value (not being of negligible value). There was no requirement to prove a particular opportunity forgone but the lender must do more than just point to the fact that it is in the business of money lending and was making loans at the relevant time. It must establish both the historical facts and any necessary hypothesis to support its claim.

The Court was satisfied that it was more probable than not that the lender would have entered into an alternative loan transaction. The lender's general evidence, although with some limitations, had been rightly admitted. The lender had proved that it had lost a commercial opportunity of some value.

For the second stage, the Court inquired into the degree of probabilities and possibilities of the alternative transaction to assign a value. The Court acknowledged that this was a more difficult exercise and it was impossible to be precise on the facts.

This exercise was a matter of informed estimation. Allowances were made for possible delays in securing the alternative loan transaction and the possibility it might turn out to be unprofitable.

As a result, the Court, by a majority, determined there was an 85% chance the lender would have entered into an alternative profitable loan transaction. The Court assigned 5% to the possibility of the alternative loan transaction turning unprofitable. It is unclear what percentage was assigned for delays. Interestingly, the minority determined the loss at 95%.


This decision indicates that it is not sufficient for a party seeking damages for a lost opportunity to allege that, due to the nature of its business, it would have entered into an alternative profitable investment. It is still required to adduce facts and figures to show the probability of it having occurred. Only then will a Court proceed to value the lost opportunity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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