What is the appropriate measure of damage? – Civil right

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The appropriate measure of damages will be determined by the circumstances of the claim in dispute and the remedies sought by the parties, and will primarily be determined by:

  • The nature of the misconduct; and or

  • Whether or not the harm was committed in violation of the relevant statutory or statutory provisions.

By extension, the loss calculation approach and methodologies adopted by a forensic accountant must be consistent with the appropriate measure of damage contemplated by the relief sought by the plaintiff. The application of the wrong measure of damages or the incorrect application of the measure could potentially, in the eyes of the Court, taint the quality of the expert evidence provided.

Examples of remedies associated with more commonly asserted wrongdoing are presented below. The damage measures referred to are not intended to be exhaustive, are generic in nature and may not be applicable in all circumstances.

Common law duties

Breach of contract

The purpose of awarding damages for a breach of contract claim is to place the plaintiff in the position it would have been in had the contract been performed.

Whereas a concurrent action in tort (e.g., misrepresentation) seeks to put the plaintiff in the same position it would have had had the representation not caused the plaintiff to enter into the contract in the first place.

When a party is entitled to damages in contract and tort, it is open to the plaintiff to choose the remedy which produces the most advantageous result. Because measures can produce significantly different results in the amount of damages calculated, a plaintiff’s choice of measure is often influenced by perceptions as to whether a “good deal” or a “bad deal” has been made. was initially concluded.

Breach of fiduciary duties

Below are examples of common law fiduciary duties and the indicative measure of damages (noting that the specific nature of the breach may result in the adoption of alternative measures):









Common law fiduciary duty Common measure of damages for breach of duty
Act in good faith and in the interest of the company Director likely to put the company back in the same situation if no breach had occurred
Avoid conflicts of interest and duties The director can be held liable for losses suffered by the company
Do not exploit or misappropriate a business opportunity of the company Right to profits made by the administrator or a party related to the administrator

Statutory and legislative duties

Breaches of the duties of directors and trustees under the Corporations Act (2001) (Act)

The duties imposed by law on directors and trustees include core duties, insolvency-related duties and other duties, including those specific to certain business activities, including financial services entities. For the legal obligations identified below, the table describes the conventional measure of damages that may be applied in the event of a breach.
























Obligation under the Act

Provision(s) of the law

Common measure of damages for breach of duty

Main missions (including exercising care and diligence, acting for a proper purpose and in the best interests of members/beneficiaries)


· Director (company)

art.180–185

Director/Trustee personally liable to re-establish company/trust in same position if no breach has occurred

· Director (responsible entity of registered MIS)

s.601FD

· Curator

s.283DA

Duty to prevent insolvent trade


· Director (company)

s.588G

Director responsible for indemnifying the company/creditors for debts incurred on reasonable suspicion that the entity is or will become insolvent at the time of incurring the debt

Conflicts of Interest in Related Party Transactions


· Director (company)

art.180 & 184

According to the recourse in the event of a breach of the principal obligations

· Director (responsible entity of registered MIS)

art.601LA–601LE


MIS – Managed Investment Scheme

Deceptive and Misleading Conduct Provisions under the Australian Consumer Law (ACL)

Obligations not to engage in misleading and misleading conduct are set out in Section 18 of the ACL (Sch 2 Competition and Consumer Act 2010 (Cth)).

Although the amount of damages will vary depending on the specific provision of the ACL, the misconduct remedy generally seeks to place the plaintiff in as similar a position as possible had the misconduct not occurred (damages).

However, particular circumstances may justify a different remedy, for example, in situations where the contractual obligations prove to be more onerous than they were at the outset. In such situations, the appropriate measure of damages may involve putting the plaintiff in the same position assuming the misstatement was true (damages).

It is not uncommon for plaintiffs to also allege the loss of an opportunity to sue or to obtain some other business advantage. In such cases, the claimant must be able to justify the price/investment decisions that would have been made but for the wrongful conduct.

Nature of evidence generally required to quantify damages

To quantify damages, forensic accountants generally require
at least:

  • Financial statements for the three years preceding the offending behavior;

  • The financial statements for the relevant years affected by and as a result of the wrongful conduct;

  • Monthly management accounts, monthly trial balances and annual ledgers for the three years preceding the offending behavior;

  • The monthly management accounts, the monthly trial balances and the annual ledgers for the years affected by and following the offending behavior;

  • Copies of the contract and other relevant documents under which the misconduct occurred;

  • Board reports, minutes of key committees (eg audit, governance).

Depending on the claim in dispute, other documents that forensic accountants often need include:

  • Monthly cash budgets/forecasts for the three years prior to the offending behavior;

  • Monthly cash budgets/forecasts for the relevant fiscal years affected by and as a result of the misconduct;

  • Correspondence with financiers, suppliers, customers, shareholders and other stakeholders;

  • Evaluation reports;

  • Documents supporting historical investment decisions (where loss of opportunity is claimed).

Need advice?

Entering forensic accounting early gives you a simple and effective way to proactively manage the costs and risks associated with litigation. Engaging early will help narrow down significant financial and/or accounting issues in litigation and identify critical evidence needed to develop and support the optimal legal strategy. This will help you lay the foundation for building strong and defensible claims.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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