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Tort – unlawful means conspiracy

Charles Dickens’ great literary work, Bleak House, centres on the fictional proceeding of Jarndyce v Jarndyce, a legal dispute between family members that carried on through several generations.

In Victoria, the courts have had their own, real-life, version of Dickens’ fictional case, which culminated in the High Court decision of Talacko v Talacko [2021] HCA 15 (12 May 2021).

The High Court decisionis the final chapter of a legal dispute that spanned some 20 years and two generations of the Talacko family and employed a revolving door of solicitors and counsel (including this author in hearings before McDonald J and Sloss J) with multiple parallel proceedings (including proceedings for contempt: see R v Witt [2016] VSC 19).

The story begins with Alois and Anna Talacko. Alois and Anna had three children: Helena, Peter and Jan Emil. They owned substantial property which included: five buildings in the centre of Prague (the Prague Properties), about 17 hectares of agricultural land at Repy located on the outskirts of Prague, about 0.8 hectares of agricultural land in Kbely (being a suburb of Prague), a 368-hectare private forest plantation at Sucha in the north-east of Slovakia and an apartment building and adjacent vacant land in Dresden, East Germany (collectively, the Properties).

In 1948 the Talacko family fled their home in Czechoslovakia and settled in Australia. All of the Properties were seized by the communist regime then in power in Czechoslovakia or (in the case of the Dresden property) in East Germany.

Alois and Anna died in 1964 and 1984 respectively. Following the Velvet Revolution in 1989, Communist rule came to an end in Czechoslovakia. Properties seized by the regime were returned, by the new Czech. Republic, to their previous owners if those owners met certain conditions which included having Czech citizenship.

In 1991 Jan Emil applied for the restitution of the Prague Properties. At the time Jan Emil was the only sibling who had applied for and obtained Czech citizenship and was eligible to seek their restitution. In 1992 Jan Emil had most of the Prague Properties restored to him as well as the Repy, Kbely and Sucha properties.

And here is where the trouble begins. Helena and Peter claimed, and Jan Emil denied, that there had been an agreement between the siblings that any interest recovered by them, in their parents’ properties, would be held in trust for all of them to share in equally.

In 1998 Helena and Peter’s estate (Peter having died in 1995) brought proceedings in the Victorian Supreme Court against Jan Emil. The proceeding settled two days after the commencement of the final hearing. Clause 1 of the written settlement agreement provided that Jan Emil would transfer title in certain properties to persons nominated by Helena and those claiming through Peter’s will.

Clause 6 provided that, if Jan Emil failed to comply with clause 1, he would be required to pay equitable compensation. Some time later Jan Emil refused to execute the documents for the transfer of the properties.

Helena and Peter’s estate subsequently applied to reopen the 1998 proceeding and leave to enter judgment against Jan Emil for compensation under clause 6. Jan Emil argued that he had not breached the settlement agreement and that clause 6 was otherwise void for uncertainty.

In 2008, following a trial on issues of liability only, Osborne J found against Jan Emil in favour of the respondents. In November 2009, Kyrou J determined the quantum of equitable compensation payble by Jan Emil (Judgment Debt). But, in May 2009, Jan Emil executed three donation agreements by which he transferred the Prague Properties and the properties in Repy and Kbely to his sons; David and Paul (Donation Agreements).

Both sons had relocated to Prague with their families after the commencement of legal proceedings. Jan Emil, denuded of these properties, was declared bankrupt in 2011. In 2012 the respondents obtained a certificate from the Pronthonotary of the Supreme Court of Victoria certifying the Judgment Debt with a view to recovering that debt in the Czech Republic.

But in May 2015 (after Jan Emil’s death in 2014) Sloss J declared that the consequence of Jan Emil’s bankruptcy was that the certificate was invalid (note that the High Court upheld Sloss J’s decision in 2017).

Importantly, in 2009, after Jan Emil entered into the Donation Agreements, the respondents commenced proceedings in the Supreme Court of Victoria against Jan Emil, his wife and sons (the Jan Emil Family) claiming that, together, they had committed the tort of unlawful means conspiracy.

In April 2015, McDonald J held that the respondents had proved all of the requirements to establish the tort save for loss and damage. McDonald J held that the respondents had not proved that they suffered any of the various categories of loss alleged, which included being prevented from recovering the Judgment Debt by the Donation Agreements and the costs and losses incurred by the respondents in seeking to recover the Judgment Debt.

McDonald J considered that any alleged loss was contingent on whether the Czech courts would have enforced the Judgment Debt and whether they would have made any costs orders in the respondents’ favour.

The respondents’ appealed successfully to the Court of Appeal. The Court of Appeal accepted that the respondents had suffered an immediate loss as a consequence of the Donation Agreements, being a loss of opportunity to enforce the Judgment Debt, and costs.

The Court of Appeal noted that the prospects of enforcement of the Judgment Debt in the Czech courts was an issue that went to the quantum of damage, not its existence. As to the costs incurred in seeking to enforce the Judgment Debt, the Court of Appeal did not consider this loss to be contingent at all.

The court observed that these costs had actually been incurred and any recovery by way of a costs order on an indemnity basis was only a mere possibility. The matter was remitted to McDonald J to determine quantum.

McDonald J considered that prior to the Donation Agreements, the respondents had a 75% chance of recovering the Judgment Debt and, after the Donations Agreements had been entered into, a 20% chance. Therefore, McDonald J assessed the respondents’ loss to be 55% of the Judgment Debt plus their costs. The respondent unsuccessfully appealed to the Court of Appeal, complaining that the 20% discount was too harsh.

The Jan Emil Family appealed to the High Court and the respondents’ cross-appealed. In a unanimous decision, delivered in a single set of reasons, the High Court dismissed the appeal and allowed the cross-appeal.

The High Court observed, at [40], that a loss of an opportunity includes two categories of loss: “(i) 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 (ii) 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.”

The High Court noted at [41], citing HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLT 640 at 656, that quantifying the value of the lost opportunity in respect of both categories can depend on “estimating the significance of events which are, or may be, yet to come”. And, in respect of the second category, it must be shown that there has been a permanent impairment of the value of the plaintiff’s existing right.

The High Court, at [49], accepted that the respondents’ loss fell within the second category and that the loss was permanent by reason of the fact that Jan Emil had denuded himself of the properties; indeed that had been Jan Emil’s intention when he executed the Donation Agreements.

Although the High Court acknowledged, at [47], the correctness of the Jan Emil Family’s submission, citing Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 (Wardley), that the mere risk of future loss does not count for loss or damage, the High Court, at [48], considered that Wardley was disintguishable from the present case because the respondents, unlike in Wardley, had an existing right (the Judgment Debt).

In respect of the quantification of that loss, the High Court considered, at [58], that the 20% reduction of damages amounted to an “unjustifiable shift of the risk of those speculative proceedings from the wrongdoers to the victims”.

The High Court noted that it had not been shown that there was any real value to the respondents in the enforcement proceedings in the Czech courts.

As to the respondents’ legal costs in seeking to enforce the Judgment Debt, the High Court, at [60], noted that, as a matter of principle, costs of litigation that are reasonable incurred in an attempt to reduce losses by wrongdoing are a head of loss.

Accordingly, the High Court made orders dismissing the Jan Emil Family’s appeal and allowing the respondent’s cross-appeal. And an order varying orders made by McDonald J, in the Supreme Court of Victoria, to award the respondents damages at 75% of the Judgement Debt (that is without the 20% discount).

Dr Michelle Sharpe is a Victorian barrister practising in general commercial, real property, disciplinary and regulatory law, 03 9225 8722, email msharpe@vicbar.com.au. The full version of this judgment can be found at austlii.edu.au.

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