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15 Oct 2020

Conjecture or inference: winning your case through inferences in the absence of direct evidence

By Jodi Steele SC

Design engineers may be liable for misleading conduct if they certify designs that are non-compliant with relevant standards, including for loss caused to parties with whom they do not have a contractual relationship.

The Court may infer that a third party acted for a particular reason in the absence of direct evidence if the available evidence rises above mere conjecture.  This is important because it is not always possible to obtain evidence from third parties.

Parties involved

The plaintiffs (whom I represented) were developers of a mixed-use strata project. They entered into a building contract, financed by BankWest. The builder engaged a structural engineer (the defendant) who provided a misleading structural certificate.  The certificate incorrectly stated that the structural design of the development complied with the Building Code of Australia.  

The defect in the structural design was not discovered until the development was substantially complete (9 out of the 10 levels had been completed). The neighbouring building had become subject to dangerous structural loads.  Work on the development was suspended after injunctions were threatened.

BankWest demanded repayment of its loan prior to the expiration of the facility. The plaintiffs were unable to repay the loan and BankWest appointed receivers and took over the development. 

The plaintiffs lost their opportunity to complete the development and lost the land, the opportunity to derive profits and the value of other security.

The plaintiffs sued the defendant engineer for misleading conduct.

At trial, indirect reliance accepted but causation found to be a matter of conjecture

In Mistrina Pty Limited v Australian Consulting Engineers Pty Ltd [2020] NSWSC 130, the trial judge accepted that:

  • to succeed, it was sufficient for the plaintiffs to have relied upon the builder who in turn relied upon the engineer’s misleading certificate – a case of “indirect reliance”. Framing the case in this manner enabled the plaintiffs to overcome the hurdles posed to a developer (or subsequent owner) suing a sub-contractor in negligence as a result of the High Court’s decision in Brookfield Multiplex Ltd v Owner’s Corporation 61288.
  • but for the structural defect, the development would have been completed at or shortly after the plaintiffs’ facility with BankWest expired.
  • the appropriate discount for the loss of opportunity was only 15%.

However, the trial judge did not accept that an inference could be drawn that BankWest demanded repayment and appointed a receiver because of the structural defect as there was no direct evidence from BankWest and the bank’s reasons for taking over the development was a matter of conjecture.  The trial judge reasoned that the plaintiffs could have led direct evidence, but they failed to do so.  It was found that in the absence of any direct evidence from the bank, it was impossible to know whether the bank acted unlawfully in appointing receivers. Thus, the plaintiffs failed to prove causation.

Issues on appeal

The developer appealed contending that the Court should have inferred that the Bank demanded repayment and appointed a receiver because of the structural defect. By notice of contention and cross-appeal, the engineer argued that the loss was not foreseeable and too remote to be recovered, and that the discount of 15% was too low.

Court of Appeal finds inference overwhelming: direct evidence unnecessary

In Mistrina Pty Limited v Australian Consulting Engineers [2020] NSWCA 223, the Court of Appeal held whilst there was no direct evidence from BankWest, there was an overwhelming inference that the structural defect was a material cause of BankWest taking over the development.  It was not conjecture, it was the most obvious and probable inference to be drawn from all of the evidence.

The fact that there were other ways in which the appellants could have proved their case was irrelevant.  A Court ultimately must determine whether a party has discharged its onus of proof by inferences drawn from the whole of the evidence before the Court.

A Court would not lightly draw an inference that a party knowingly acted unlawfully or improperly.  In the absence of any evidence to suggest that BankWest acted for an improper purpose, the only reasonable inference was that BankWest must have considered that it could exercise its power to demand repayment under the terms of the facility and that however the numerous issues in relation to the building development were viewed, the issues raised by the defective structural design must have been a material factor. 

Test of remoteness under section 236 of Australian Consumer Law?

The engineer’s contention raised the question as to whether recovery under section 236 of the ACL is subject to a limitation of remoteness such as reasonable foreseeability. The Court of Appeal found that given the overwhelming inference, it was foreseeable that a secured creditor may call up its loan where additional delays and costs arose as a result of a serious structural defect.

Force in submission that discount for loss of opportunity effectively discretionary

The Court of Appeal agreed with the trial judge’s discount of 15% for contingencies, and accepted that there was force in the submission that an assessment of the loss of opportunity is effectively a discretionary judgment and thus one that it would be reluctant to overturn on appeal.

We would like to extend our congratulations to Jodi Steele who was recently appointed as Senior Counsel to the NSW Bar.

Jodi Steele SC has a broad commercial practice specialising in construction, professional liability and employment disputes.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.