The case, Talacko v Talacko [2021] HCA 15, concerned the restitution of properties in Eastern Europe and the loss of opportunity to have those properties restored to family members in Australia.

In this case, an uncle fraudulently transferred the family property to his sons to avoid paying a judgment sum of €10 million.  The question for the Court was whether the uncle’s transfer of property to his sons was an action that caused immediate loss, or did the family need to take all reasonable steps necessary to undo the transfer before the loss truly accrued?

The judgment provides important clarification between a loss of a chance or opportunity, and the loss of the value of rights. 

  • A true loss of opportunity claim is where a defendant’s act deprives the plaintiff of an opportunity to which the plaintiff was not yet entitled, and that deprivation constituting an immediate loss.[1] Examples are a loss of opportunity in commercial cases, where a business opportunity is lost, and personal injury cases, where the opportunity for a better medical outcome is lost.
  • The loss of the value of a right or chose in action (which before the Court’s judgment in Talacko, was difficult to distinguish from a loss of opportunity claim), concerns an instance where the plaintiff has an existing right, and the defendant’s tortious act reduces or extinguishes the value of that right.[2] That value may even be quantified by reference to the likelihood of future events.  Alternatively, the loss may relate to tangible property, where damages are calculated by reference to the cost of repair or the cost of replacement of that property. 
  • Another scenario to consider is where there is a risk of incurring a future loss (being the chance of a loss, rather than the loss of a chance). As the High Court held in Wardley Australia Ltd  v Western Australia (1992) 175 CLR 514, the mere risk of future loss is not considered to be loss or damage.

In good news for all judgment creditors, the High Court held that a fraudulent act to make it materially more difficult to recover a judgment debt will cause immediate loss, as it falls into the category of an existing right that has been impaired. 

The other important aspect of the decision is that the court confirmed that legal fees incurred in trying to undo a fraud are also compensable loss.  Again, this will smooth the path for victims of fraud to bring claims against wrongdoers to recover the full amount of their loss.

Facts

The dispute arose between three siblings – Jan Emil, Helena and Peter (Siblings) – whose parents once owned numerous properties across Germany and what was then known as Czechoslovakia.  Those properties were acquired by the Communist regime.

When the Communist regime came to an end in 1989, the Siblings had the right to have those properties restored to them, considering their parents had passed away.  The Siblings entered an agreement whereby Jan Emil, being a Czech citizen at the time, would have the properties restored to him, who would then hold the properties on trust for the Siblings.

In 1991, the properties were restored to Jan Emil.  However, Jan Emil refused to transfer those properties to his siblings in accordance with their interest, and thus kept them enjoying their fruits.  Helena, and Peter’s executors[3] then commenced proceedings in the Supreme Court of Victoria claiming a breach of fiduciary duty (1998 Proceedings).  Those proceedings however, were settled prior to trial, and in 2001, Jan Emil entered into an agreement with Helena, and Peter’s executors whereby he would transfer the titles to particular properties (2001 Agreement).  If Jan Emil failed to do this, the agreement provided that he would pay Helena, and Peter’s executors a monetary remedy.

Lo and behold, Jan Emil failed to transfer those properties to Helena, and Peter’s executors.  Accordingly, the latter parties reinstated the 1998 Proceedings and sought an order that Jan Emil pay them equitable compensation in accordance with the 2001 Agreement.

In 2008, the Victorian Supreme Court held that Jan Emil had breached the terms of the 2001 Agreement, and that Helena, and Peter’s executors held valuable rights to be considered in a quantum hearing.

In 2009, Jan Emil executed a number of agreements where he transferred the ownership of the relevant properties to his sons, David and Paul (Donation Agreement).  Later that year, the Victorian Supreme Court quantified Helena’s loss and Peter’s executors’ loss at €10 million (Judgment Debt). 

As a result of the Donation Agreement, Jan Emil became bankrupt.  Accordingly, Helena, and Peter’s executors could not enforce the Judgment Debt against Jan Emil in the Czech Republic.[4]

Proceedings subject to the High Court appeal

Proceedings were commenced in the Czech Republic against David and Paul seeking an order to set aside the Donation Agreement under Czech law (Donation Agreement Proceedings).  Proceedings were then also commenced by Helena’s executor[5] and Peter’s executors in the Supreme Court of Victoria concerning the tort of unlawful means conspiracy against Jan Emil, his wife Judith, and their two sons, David and Paul.  As Jan Emil passed away in 2014, and considering his two sons lived in the Czech Republic, Judith, as the widow of Jan Emil and executor of his estate, came to be the main defendant in these proceedings.  At first instance, McDonald J held that all the elements for tortious conspiracy were made out, apart from the final element, being proof of damage or loss.

Consideration of loss at first instance

At trial, Helena’s and Peter’s executors claimed that there were two forms of loss. First, that the Donation Agreement prevented them from recovering the Judgment Debt as a result of Jan Emil’s bankruptcy (First Claimed Loss).  Secondly, that they incurred loss as a result of the costs of seeking to enforce the Judgment Debt in the Czech Republic (Second Claimed Loss).

McDonald J held that the First Claimed Loss was not a true loss until the Donation Agreement Proceedings were concluded, because the loss was contingent on the findings of the Czech courts in those proceedings.[6] 

His Honour also held that the Second Claimed loss was not a true loss for two reasons:[7]

  • If the Judgment Debt could not be enforced in the Czech Republic, then there could not have been any loss of costs for seeking to enforce the Judgment Debt in the Czech Republic; and
  • The costs of the Donation Agreement Proceedings were still contingent, as Helena’s and Peter’s executors could have lost in those proceedings and faced adverse costs consequences.
Consideration of loss on appeal

The Victorian Court of Appeal (VCA) overturned the trial judge’s findings in relation to the First Claimed Loss.  The Court accepted that there was an immediate loss to Helena’s and Peter’s executors upon the execution of the Donation Agreement because that agreement impeded the prospect of enforcement of the Judgment Debt.  The VCA characterised that loss as loss of an opportunity and held that the value of that opportunity, and the impact of the Donation Agreement upon it, were to be quantified in a damages hearing.[8]

The Court also overturned the trial judge’s findings in relation to the Second Claimed Loss, recognising the expenses of seeking to un-do the Donation Agreement to be a loss.[9]  As to the alleged contingent nature of the costs, the VCA held that the expenses incurred in the Donation Agreement Proceedings were not contingent as they were costs already incurred by Helena’s and Peter’s executors and any recovery of them on an indemnity basis in the Donation Agreement Proceedings was only a mere possibility.

Quantum hearing

The Court of Appeal then remitted the matter back to the trial judge to assess the quantum of the loss.  His Honour found that:

  • Helena’s and Peter’s executors’ chances of successfully enforcing the Judgment Debt were quantified at 75%. However, the Donation Agreement then reduced that chance to zero. 
  • Helena’s and Peter’s executors’ chances of succeeding in the Donation Agreement Proceedings were assessed at 20%, and that this remaining chance should be offset against the damages payable.
  • Helena’s and Peter’s executors had incurred considerable cost in pursuing Jan Emil’s sons.

The loss was then assessed as 55% of the initial judgment sum (being 75% less 20%).

The difficulty with this judgment was that it had concluded that there remained a chance of recovering the Judgment Debt in full.  In effect, McDonald J had concluded that there had been a chance of recovering the loss, as well as a loss of a chance.  This was the conundrum that the High Court considered to be worthy of special leave.

Issues for the High Court to consider

Judith appealed, saying that the VCA had made an error and the chance had not yet been lost. 

The family’s cross-appeal argued that the loss had been truly perfected, and that the 20% offset should have never been taken into consideration.

The question the High Court had to consider was whether Helena’s executor, as well as Peter’s executors, had suffered loss or damage so as to complete the tort of unlawful means conspiracy.

Findings of the High Court

In a unanimous judgment, the Court dismissed the appeal, upholding the decision of the Victorian Court of Appeal.  In doing so, the High Court framed the case as ‘better described as the loss of the value of their rights or chose in action, rather than a loss of chance or loss of opportunity’.[10]

The High Court’s consideration of the First Claimed Loss

The Court considered two parts to the First Claimed Loss.  The first part was whether the VCA erred in holding that the Donation Agreement had caused the loss of a chance to recover the Judgment Debt.  The second part took into consideration whether the Donation Agreement Proceedings were an extant chance to be taken into account in determining whether there was loss for Helena’s and Peter’s executors.  The Court noted that the parties’ submissions focussed on the loss of a chance, and in doing so, clarified that there are two categories that must be distinguished:

  • Instances where a defendant’s tortious act deprives a plaintiff of an opportunity or chance to which the plaintiff was not entitled but where such deprivation constitutes an immediate loss; and
  • Instances where a defendant’s tortious act reduces or extinguishes the value of a plaintiff’s existing right, where the value might be quantified by reference to the likelihood of future events.[11]

In relation to the first part of the First Claimed Loss, the Court considered that this case fell into the second category.  That is because, it was shown that the existence of a loss will be proved where the tort caused a ‘permanent impairment of the value of the plaintiff’s right’.[12]  In this instance, there was value in the Judgment Debt, as it could have been enforced against Jan Emil, but because of the Donation Agreement and Jan Emil’s resulting bankruptcy, that value was lost.[13]

The Court also considered whether the claim concerned the risk of a future loss – as considered in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 – which is not considered to be an incurred loss.  The Court distinguished this case from Wardley as this case had an existing right – being the enforcement of the Judgment Debt – that was impaired by virtue of the Donation Agreement, whereas in Wardley, there was no existing right.[14]  The effect of the Donation Agreement, was for the Judgment Debt to become worthless, as it could not be enforced against Jan Emil.  For the High Court, that was sufficient to form a loss to Helena’s and Peter’s executors. 

In relation to the second part of the First Claimed Loss, Judith submitted that the Donation Agreement Proceedings were in effect, an extension of the enforcement of the Judgment Debt, and thus that the 20% chance of recovery still existed for Helena’s and Peter’s executors.  The Court rejected this submission, holding that the Judgment Debt stemmed from a breach of the 2001 Agreement by Jan Emil, and as highlighted above, the value of that right was reduced to nought by virtue of the Donation Agreement.[15]  The Donation Agreement Proceedings on the other hand concerned a different prospect of recovery (being against David and Paul) in relation to a different claim (being the setting aside of the Donation Agreement under Czech law).[16]  Therefore, they could not be conflated as being the same chance.

The High Court’s consideration of the Second Claimed Loss

In relation to the Second Claimed Loss, Judith contended that the expenses of the Donation Agreement Proceedings remained a contingent loss because they might ultimately be recovered.  The Court disposed of this argument by restating that the reasonably incurred costs of litigation, in an attempt to reduce losses caused by wrongdoing, are a loss.[17]

Judith also advanced a new submission in the High Court that the expenses of the Donation Agreement Proceedings were irrecoverable because the Donation Agreement Proceedings might “fail for reasons that have nothing to do with the conspiracy” such as some particular “aspect of Czech law”.  The Court also disposed of this argument by highlighting that if this submission had been made in the courts below, it might have been met with expert evidence about the approach that the Czech courts might take.[18]

Accordingly, the grant for special leave on the Second Claimed Loss was revoked.  Therefore, the Court considered that Helena’s and Peter’s executors had incurred a loss, and that the tort of unlawful means conspiracy was perfected.

[1] Talacko v Talacko [2021] HCA 15, [40].
[2] Ibid.
[3] Peter died in 1995.  Thereafter, his executors pursued his claims.
[4] See Talacko v Bennett (2017) 260 CLR 124.
[5] As Helena passed away in 2012.
[6] Talacko v Talacko [2015] VSC 287, [164]-[168]. 
[7] Talacko v Talacko [2015] VSC 287, [171]-[173]. 
[8] Bennett v Estate of Talacko (Decd) [2017] VSCA 163, [111]-[112]. 
[9] Bennett v Estate of Talacko (Decd) [2017] VSCA 163, [102]-[104] and [112]. 
[10] Talacko v Talacko [2021] HCA 15, [4].
[11] Talacko v Talacko [2021] HCA 15, [40].
[12] Ibid, [43].
[13] Ibid, [46]; quoting Chaplin v Hicks [1911] 2 KB 786, 793 and 796.
[14] Ibid, [47]-[50].
[15] Ibid, [55].
[16] Ibid, [56].
[17] Ibid, [60].
[18] Ibid, [62].
The contents of this article are intended to provide general information and commentary only. It is not intended to constitute legal advice, and has been prepared based on applicable law at the date of publication (17/05/2021).