Bassal v Savills (NSW) Pty Limited

[2019] NSWSC 696

Supreme Court

New South Wales

Medium Neutral Citation:	Bassal v Savills (NSW) Pty Limited [2019] NSWSC 696
Hearing dates:	9–10, 13–17, 20–23, 28–31 August 2018
Decision date:	24 July 2019
Jurisdiction:	Common Law
Before:	N Adams J
Decision:	(1) Judgment for the defendant (2) The plaintiffs are to pay the defendant’s costs
Catchwords:	CONTRACTS – joint venture agreement for construction of outlet shopping centre – where joint venture partners signed Exclusive Leasing Agency Agreement with commercial real-estate agency – where agreement was to identify appropriate tenants and refer them to the JV partners for approval – where shopping centre only 55% let at opening – where joint venture partners defaulted on their loans and joint venture failed – whether real-estate agency failed to introduce tenants – whether real-estate agency breached implied term of care, skill and diligence – whether failure to implement any or any adequate leasing strategy – whether breach caused damage – no breach established – whether even if breaches established there was causation – where quantum of economic loss not properly explained   NEGLIGENCE – scope of duty – whether co-extensive – claim that shopping centre would be 90% leased at opening with high-end outlet retailers – whether real estate agency had duty to provide specific outcome – whether failure to take precautions – whether factual causation established in any event
Legislation Cited:	Civil Liability Act 2001 (NSW) Pt 1A, ss 5A, 5B, 5D, 50 Corporations Act 2001 (Cth) Pt 5.7B Environmental Planning and Assessment Act 1979 (NSW) s 96 Evidence Act 1995 (NSW) s 79(1) Retail Leases Act 1994 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Sch 7
Cases Cited:	Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 Bassal v Savills (NSW) Pty Limited [2015] NSWSC 1779 Campbell v Campbell [2015] NSWSC 784 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 352; [1982] HCA 24 Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 522; [1991] HCA 12 Platform Funding Ltd v Bank of Scotland Plc (formerly Halifax Plc) [2009] QB 426; [2008] EWCA Civ 930 Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320
Category:	Principal judgment
Parties:	Terry Bassal (First Plaintiff) Albert Moutalb Bassal (Second Plaintiff) Savills (NSW) Pty Limited (Defendant)
Representation:	Counsel: Ms M Painter SC / Mr G Stapleton (Plaintiffs - until 16 August 2018 and Mr Terry Bassal self represented for both plaintiffs thereafter) Mr M McCulloch SC / Mr T Marskell (Defendant)   Solicitors: First Plaintiff (self-represented from 16 August 2018) Second Plaintiff (self-represented from 16 August 2018) Mr T Howard (Final written submissions only) Wotton and Kearney (Defendant)
File Number(s):	2011/278952
Publication restriction:	Nil

HEADNOTE

[This headnote is not to be read as part of the judgment]

In July 2008, Savills (the defendants) signed an Exclusive Leasing Agency Agreement (“ELAA”) with two joint venture partners in relation to the development of an outlet shopping centre in Campbelltown. The plaintiffs were the directors of one of those two companies involved in the joint venture. The ELAA required Savills to identify appropriate tenants for the Centre and refer them to the joint venture partners.

The Centre was to be a “greenfield” site; it had to be developed as a concept, then built, then leased to retail tenants, and then opened to the shopping public. It was fully funded by a $47.8 million loan from Suncorp Metway Limited (“Suncorp”) with the first (non-capitalised) interest payments due in May 2010.

The Global Financial Crisis hit about a month after the building of the development commenced, which was in late July 2008. A few months later Savills advised the JV partners to defer the proposed opening of the Outlet Centre, which was then scheduled for late 2009. The JV partners refused. A further request to defer the opening was made in October 2009 and again refused. Savills struggled to find high end retailers who were willing to lease at the centre.

The centre opened as ‘Brands on Sale’ in 2009 with only 55% occupancy. The funding arrangements with Suncorp required the Centre to be at least 90% leased with an average net rental income of $400m² in order to be able to repay the loan payments to Suncorp. There was insufficient rental income to pay the interest payments when they first fell due in May 2009 and the JV failed. Both companies walked away from the project by early December 2009. Neither of them still exists.

The plaintiffs brought actions against Savills in both contract and tort. They sued as assignees of causes of actions potentially accrued to the companies involved in the joint venture. A threshold question was whether this assignment was valid. It was agreed that this question did not need to be determined unless it could be shown that those causes of action would succeed.

The plaintiffs argued that Savills was negligent in failing to secure 90% occupancy of the Centre. In particular, the plaintiffs claimed that Savills failed to implement an appropriate leasing strategy, find appropriate lessees and leases, did not allocate adequate human resources to the project and delayed the leasing. Savills submitted that they had fulfilled their contractual obligations and had not breached their duty of care. The primary issues were:

In the contractual claim:

1. Whether Savills owed the plaintiffs a special duty, namely to lease the Centre to 90% occupancy with a particular class of tenants.

2. If not, whether Savills had breached an implied term to exercise reasonable care and skill in leasing the Centre.

In the negligence claim:

1.  Whether Savills had breached its duty of care owed to the JV partners.

Held:

The duty in contract and negligence was co-extensive: Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6, applied.

In relation to the contractual claim

1.  The plaintiffs had failed to establish that Savills owed them a special duty to achieve a particular outcome. There was no clause in the contract requiring them to do so. Therefore, Savills was only required to provide its services under the contract with the same reasonable care and skill as an ordinary professional leasing agent.

Platform Funding Ltd v Bank of Scotland Plc (formerly Halifax Plc) [2009] QB 426; [2008] EWCA Civ 930, considered.

1.  The expert evidence did not establish that Savills failed to act with reasonable care and skill.

In relation to the negligence claim:

1.  As the expert evidence did not show a failure to act with reasonable care and skill, Savills had not breached its duty of care.

Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320, applied.

It was further held that even in the event that Savills had breached its duty of care,

2.  Factual causation could not be established.

March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 ;[1991] HCA 12; Henville v Walker (2001) 206 CLR 459; [2001] HCA 52; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41, considered.

3.  The plaintiffs had not articulated how its case on loss could be assessed.

Judgment

Overview

1. On 27 November 2007, a joint venture agreement was entered into between Campbelltown Factory Outlet Limited as trustee for the CFO Unit Trust (“CFO”) (40% interest) and Pacific Street Properties Pty Ltd as trustee for the Pacific Street Properties Trust (“PSP”) (60% interest). The joint venture agreement (“the JV”) concerned the construction, maintenance and management of a discount designer shopping outlet centre at 32 Queen Street, Campbelltown (“the Centre”).

2. Terry Bassal (“the first plaintiff”) and his father Albert Bassal (“the second plaintiff”) were the directors and shareholders of CFO. Dr Jerry Schwartz was the director and shareholder of PSP.

3. The Centre was to be a “greenfield” site which meant it had to be developed as a concept, then built, then leased to retail tenants, and then opened to the shopping public. It was fully funded by a $47.8 million loan from Suncorp Metway Limited (“Suncorp”) with the first (non-capitalised) interest payments due in May 2010.

4. In July or August 2008, the JV partners signed an Exclusive Leasing Agency Agreement (“the ELAA”) with Savills (NSW) Pty Limited (“Savills”) (“the defendant”). It was proposed, inter alia, that Savills would identify appropriate tenants and refer them to the JV partners for approval. Savills was and is a commercial real-estate agency.

5. The Centre opened on 10 December 2009 by which time it was known as “Brands on Sale”. It was only 55% let as at that date. When the first repayment fell due in May 2010, PSP was able to meet its obligation to Suncorp but CFO was not and defaulted. PSP defaulted shortly thereafter and liquidators were appointed on 25 November 2010. Neither company survived. Both entities were deregistered in early 2018.

6. There is no issue that the JV failed. This case concerns whether the loss suffered by the JV partners was caused by negligence or breach of contract on the part of Savills.

7. The plaintiffs sue as assignees of the causes of action which are said to have accrued to CFO and PSP as the entities that retained Savills. The validity of such an assignment was raised as an issue in the proceedings. Although it is a threshold question for determination it was agreed that it would not be necessary for me to consider the validity of the assignment unless I was of the view that the plaintiffs ought to succeed in these proceedings. I have come to the view that they cannot. For that reason I do not propose to say anything more concerning whether the assignment of the causes of action in this matter was valid.

8. The cause of action was brought both in contract and tort. The plaintiffs claimed that Savills had a duty to provide a specific outcome to the JV, namely, that the Centre would be 90% leased at opening with high-end outlet retailers spending at least $400/m2. It was claimed that due to Savills’ breach of contract/negligence those tenants were not introduced to the JV. If those tenants had been introduced to the JV by Savills, it was argued, the Centre would have been a success.

9. The proceedings were commenced in 2011 and have had a most unfortunate procedural history characterised by the plaintiffs’ decisions to change their legal representatives a number of times. This did not end once the hearing commenced. When the hearing commenced Ms M Painter SC appeared with Mr G Stapleton for the plaintiffs and Mr M McCulloch SC appeared with Mr T Marskell for Savills. On day six of the hearing, senior counsel for the plaintiffs, Ms M Painter SC, informed the court that her retainer had been terminated. Mr Terry Bassal sought an adjournment to obtain new counsel. That adjournment was refused and Mr Terry Bassal proceeded to appear for both himself and his father after that time. It will be necessary for me to set out this procedural history further below to explain why this complex hearing proceeded with a self-represented litigant and why the plaintiffs’ submissions did not always coincide with the pleadings.

10. The evidence comprised a 16-volume court book. In addition to the expert and lay evidence (the plaintiffs relied upon five lay witnesses and the defendant on one), the court book largely comprised the business records of the parties. Those records included loan documents, building contracts as well as correspondence between the relevant players in this failed business venture. A significant portion of the court book comprised email correspondence between the plaintiffs and others and Savills’ employees and others including the lender, marketing and other participants. Letters of offer, leasing schedules and leases pertaining to the retailers who were approached in relation to taking up rental space in the Centre were also before the court.

11. The plaintiffs’ case relied heavily upon expert evidence. Eight expert witnesses provided reports in this matter, six of whom gave evidence in court. The expert evidence came from land valuers, market economists, financial accountants and leasing experts. Four expert conclaves were conducted. Much of this evidence went to questions of loss and causation rather than breach. Despite this extensive expert evidence, the plaintiffs ultimately failed to establish how the damages claim could be assessed.

12. To the extent that the large volume of contemporaneous documents did not always correspond to the evidence of the lay witnesses I have had regard to the observations of Sackar J in Campbell v Campbell [2015] NSWSC 784 at [74] and [76] where his Honour observed:

“A court, in cases involving events which occurred long before the litigation, usually prefers to rely upon contemporaneous, or near contemporaneous, documents, which will often provide valuable and, usually, more revealing, information than what may be flawed attempts at recollection of those facts by persons with an interest in the outcome of the litigation: Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200, per Jagot J, at [1247]. Greater weight is usually accorded to such documents, as often they provide a safer repository of reliable fact, particularly when it is clear that they have been prepared by a person with no reason to misstate those facts in the documents and where there is no suggestion that the documents are other than genuine: Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160, per Kenneth Martin J, at [157].”

13. A significant aspect of the contemporaneous documentation was the minutes taken at each meeting of the partners of the JV and Savills in 2009 and 2010 which were routinely prepared and circulated by the JV’s solicitor. The principal witnesses of fact for both parties, Mr Terry Bassal and Mr Thomas Brown, both accepted the accuracy of these minutes. Although I was required to make some findings of credit in this matter, for the large part the factual findings could be determined based on the contemporaneous documents.

Outlet centres generally

14. Before I turn to consider the evidence, it is helpful to first understand the nature of outlet centres generally. Expert evidence was given about them which can be briefly summarised as follows.

15. Outlet retailing is a concept whereby manufacturers dispose of their surplus and seconds merchandise at discount prices. Traditionally, they were owned and operated by one manufacturer, which allowed for substantial discounts due to the elimination of the middle person. The outlet concept in Sydney first started in Surry Hills and South Sydney and then moved to Homebush and Drummoyne. Factory outlet retailing represents a very small proportion of Australia’s retailing industry. Only 11 such outlets existed in Australia in 2013.

16. In general, factory outlets sell discounted branded goods across broad catchment areas. They have been in operation in Australia since 1997 and are typically around 18,000 square metres with an anchor tenant such as a department store or supermarket, although one of the valuation experts, Mr Mike Steur’s, evidence was that factory outlets may lack major anchor tenants and still be successful. Sixty to 80% of factory outlet centres are clothing retailers. The mix of retailers acts as a key destination within their surrounding region. Key success factors of outlet centres include a high-profile location with a population catchment area of at least 700,000 persons within a 30-minute drive-time. Birkenhead Point and DFO Homebush are both examples of factory outlets which have been successful whereas outer-suburban centres in low-income areas like Mt Druitt and Parramatta have not succeeded and have either been closed or redeveloped.

17. The occupancy costs for any tenant in a shopping centre is usually made up of the following outgoings: a base rental (also referred to as a “net rental”), which is an agreed dollar amount for the floor-space that the tenant is renting; rates, electricity, cleaning etc., which tenants typically pay a proportion of based on their total floor-space in the centre; and a marketing levy. The key difference between gross rental and net rental is that gross rental includes outgoings and marketing on top of the net or base rental level.

18. As will be seen below when discussing the evidence of the market economists and the leasing experts, in comparison to Victoria where there were many outlet stores which were successful, there were in 2008 (and still are) far fewer outlets stores in NSW.

Relevant people

19. The relevant individuals involved with the Centre were as follows.

20. Terry Bassal, the first plaintiff, was a director and shareholder of CFO and the company’s representative with the day-to-day involvement in the development of the Centre between 2008 and 2010. He was also a shareholder in another company named Saxon Developments Pty Limited (“Saxon”) which also worked on the development of the Centre prior to the JV being entered into. Given that Mr Terry Bassal and his father share the same surname, unless I specify otherwise, a reference to Mr Bassal will mean Mr Terry Bassal. Mr Bassal swore three affidavits in the proceedings, on 19 September 2013, 17 September 2014 and 30 July 2016, and was cross-examined.

21. Albert Bassal, the second plaintiff, is Mr Bassal’s father and a director and shareholder of CFO. Mr Albert Bassal was also a director and secretary of Saxon. He was not called as a witness. It was agreed between the parties that he had no day-to-day involvement with the Centre and I do not propose to draw any adverse inference against the plaintiffs by reason of his absence.

22. Dr Jerry Schwartz was the principal of PSP and the decision-maker on behalf of PSP in respect of the JV. Dr Schwartz was not called as a witness.

23. Mr Albert Hadid was an intermediary in the JV. He held a casting vote under the JV Agreement in the event of a deadlock between CFO and PSP. The contemporaneous documentation indicates that he also had some involvement in managing the development of the Centre. Mr Hadid was not called as a witness.

24. Mr Peter Grant was an in-house solicitor employed by Schwartz Family Co. Pty Limited. He provided legal advice to the JV in respect of the leasing of the Centre. He was the person who prepared all of the leasing documentation for the tenants and proposed tenants. Mr Grant was not called as a witness.

Savills’ employees

25. Mr Thomas Brown was at the relevant time the New South Wales director of property management at Savills. He was also responsible for retail leasing. He assumed overall responsibility in a “supervisory role” for Savills’ leasing of the Centre in around April 2008. Mr Brown swore two affidavits in the proceedings, on 25 August 2014 and 4 May 2015, and was cross-examined.

26. Mr Bill Kanellopoulos was the divisional director of retail leasing for Savills between July 2008 and January 2010. He left Savills in January 2010 and took up employment with another real-estate agency. He reported to Mr Brown. He swore two affidavits in the proceedings for the plaintiffs, on 19 September 2013 and 15 February 2016, although only the 19 September 2013 affidavit was read. He was briefly cross-examined.

27. Ms Tamar Zabloudilova was a leasing executive, retail leasing, employed by Savills from 15 September 2008 until 13 March 2013. She was assigned to work on the leasing campaign for the Centre on a full-time basis from February 2009. She also reported to Mr Brown. She was not called as a witness.

28. Ms Vivian Xu was a leasing executive, retail leasing, employed by Savills from at least mid-2008 until 14 August 2013. She reported to Mr Brown and was assigned by him to work on the leasing campaign for the Centre for 50% of her time, subject to Bill’s discretion. She was not called as a witness.

25. Ms Jan Boyd was an employee of Savills (Qld) Pty Limited. She had some limited involvement with the leasing campaign for the Centre and is now deceased.

26. Mr Phil King was employed by Savills as the divisional director, retail leasing, until 11 April 2008. He was Mr Brown’s predecessor as the person within Savills with ultimate responsibility for the Centre. Mr King was not called as a witness.

27. Mr Kevin James was employed by Savills as the divisional director, retail leasing, until 4 March 2008. He had some involvement with the Centre on behalf of Saxon from 2006 until early 2008. Mr James was not called as a witness.

28. Mr Nicholas Bradbury was employed by Savills as a leasing executive, retail leasing NSW, until 27 April 2007 and was involved with Centre on behalf of Saxon in 2006 and 2007. Mr Bradbury was not called as witness.

29. Mr Francois George was a leasing executive employed by Savills between mid-2006 and July 2008 and was involved with attempts to lease the Centre by Saxon in 2006, 2007 and early 2008. Mr George swore an affidavit in the proceedings dated 26 May 2014 relied upon by the plaintiffs but he was not required for cross-examination.

Other

34. Mr Darryl Ashworth was the principal of a retail leasing agency trading as Metier which became involved with the leasing campaign for the Centre in mid-2009. Mr Ashworth swore two affidavits for the plaintiffs in these proceedings but was not cross-examined.

35. Messrs Troy and Jeff Deviesseux were the principals of Retailspace, which was a retail leasing agency which became involved in the leasing campaign for the Centre in April 2009. Neither was called as a witness.

36. Ms Julie Childs and Ms Ivana Maljkovic were employees of Balmain Commercial, the finance broker for the JV. One or both of these women were copied into a large number of emails and attended all meetings of the JV partners. Neither was called as a witness.

37. Mr Fouad Deiri was the principal of DeiCorp Constructions Pty Limited (“DeiCorp”). DeiCorp was the company retained by the JV to build the Centre and also to provide tenancy co-ordination services. Mr Deiri was not called as a witness.

38. Mr Andrew Daniele was an employee of Mosca Pserras Architects (“MPA”). MPA was the firm of architects retained by the JV to design the Centre. Mr Daniele was not called as witness.

39. Mr Robert Hartman was the managing director of Stenton Creed Pty Limited trading as Stenton Capital, a boutique management consulting business retained by several brand-name retailers for site selection and lease negotiations. Mr Hartman swore an affidavit in the proceedings for the plaintiffs dated 10 February 2015 but was not required for cross-examination.

The evidence

40. The lay evidence comprised the evidence of Mr Bassal, Mr Kanellopoulos, Mr Hartman, Mr George, Mr Ashworth and Mr Brown. For the most part the affidavits of these witnesses annexed a large number of contemporaneous documents. Unless I state otherwise I am satisfied of the following facts.

Saxon/CFO: mid 2006–December 2007

41. After leaving high school, Mr Bassal worked in various businesses including a service station and tobacco shop. In July 2000 he and his father incorporated Saxon for the purpose of purchasing and developing commercial and residential properties. Between 2000 and 2005 Saxon developed an industrial complex at Ingleburn, a residential housing project at Prestons and obtained a development application (“DA”) for construction of 84 residential and six commercial units at Campbelltown.

42. In or about mid-2006, Saxon entered into an option agreement to purchase land comprised in Lot 2 DP 539856 and Lots A & B DP 403363, known as 32 Queen Street, Campbelltown, in the State of New South Wales. It was a term of the option agreement that Saxon would be granted permission to lodge a DA in respect of the land with the Campbelltown City Council.

43. The land is located in a suburban main-road, service-orientated area. The site was previously used as a motor vehicle showroom and servicing facility from around 1980 to 2000. Neighbouring developments included a medical centre, Officeworks, Sam’s Warehouse, a former bowling alley and Colonial Motor Inn.

44. On or about 28 September 2006, MPA lodged, on behalf of Saxon, with the consent of the owners of the land, a DA (2537/2006/DA-C) with Campbelltown City Council in respect of the land. It was lodged for the purposes of demolishing the existing buildings on the land and constructing, in their place, a fashion outlet and bulky goods centre with a multi-deck car park.

45. In or about October 2006, Savills provided Saxon with a proposal for the leasing of the Centre. The proposal was headed “Outlet & Bulky Goods Centre Campbelltown NSW Submission 2006” and it outlined Savills’ preferred strategy of establishing a target list of retail operators. The leasing team was to include Mr James, divisional director of retail leasing, and Mr Bradbury, retail leasing executive. Mr Bassal’s evidence was that Saxon was considering a number of leasing agents but ultimately chose Savills.

46. On or about 19 October 2006, Savills and Saxon entered into an “Exclusive Licence and Agency Agreement” (“First Saxon ELAA”). It was a term of the First Saxon ELAA that, in return for a leasing fee, Savills would find and introduce to Saxon such one or more persons as Savills considered might be acceptable as a lessee to Saxon. The agreed leasing fee was 12% of the first year’s gross rental plus GST excluding any incentives.

47. Although neither Mr James nor Mr Bradbury was called as a witness in this matter, Mr George gave evidence for the plaintiff. He was a leasing executive at Savills from about mid-2006 as part of Savills’ “new projects division”. He was employed to find tenants for the Centre and reported to Mr James, who in turn reported to the managing director. He also worked under Mr King until just before Christmas 2007 after which time he reported to Mr Brown.

48. Mr George described two methods he used to find new tenants, one being his connections and previous relationships with retailers who he would call to see whether they were interested and the other being “cold calling” prospective tenants or visiting them in person at shops or stores or head offices.

49. Also in or about October 2006, Saxon obtained a “Statement of Environmental Effects Retail Outlet Centre, Campbelltown” report from Urbis for the DA (“First Urbis Report”). The report was obtained for the purpose of analysing the proposal in relation to its compliance with the relevant policies and statutory controls. That report concluded, inter alia, that the outlet development would be consistent with established land use activities and the established character and future land use direction of the precincts; that the site was “highly suitable and desirable for retail use”; that the site would not result in any significant unacceptable impacts on existing centres; that the development presented an excellent opportunity to significantly increase the number of jobs available in the Campbelltown town centre; that the site was well separated from any existing sensitive land uses; and that “the proposal has been assessed as fully satisfying and consistent with key government planning strategies and statutory plans”.

50. On 20 November 2006, there was a meeting where Savills adopted an agenda summarised as follows: 77 retail sites would be leased over four levels. The target would be “Notable National and International fashion & Homewares brands.” The objective was to “Maintain a strict adherence to retail plan consisting of notable national/international brands”.

51. On or about 10 November 2006, Savills advised Saxon that the land was unimproved and with local authority approval and DA approvals would have a market value in the range of $25 million to $30 million plus GST. The advice was provided in writing by letter written by Mr James.

52. On 22 November 2006, Mr Bradbury of Savills sent a list of proposed retail tenants for the Centre to Mr Bassal and in late 2006 Savills produced and distributed to various prospective retail tenants for the Centre a document titled “The Outlet Centre 32 Queen Street Campbelltown Leasing Pack”.

53. On or about 11 December 2006, Kevin James at Savills advised Saxon of the projected rentals income for the Centre. The projected rental income for the Centre was in the order of $600/m2 net.

54. On 21 December 2006, Charter Hall Group sent Mr Bassal an email outlining interest in investing alongside him in the Centre. Charter Hall Group expressed the opinion that the average net rents per square metre the Centre was expected to achieve were below the rents forecasted by Savills in 2006 (more likely between $400 and $450/m2 gross).

55. In February 2007, Savills prepared certain documents and shared them with Mr Bassal, including documents showing target milestones and rental levels for leasing space in the Centre. The documents indicated Savills’ projection for leasing 90.9% of the space in the Centre by the time it was to open. Savills also prepared a number of documents for Saxon indicating a general timeline of leasing space in the Centre that indicated at opening a percentage of leased shops between 86.5% and 90.9%.

56. By the time the option to acquire the land came to be exercised, the Bassals had incorporated CFO as a corporate vehicle of which they were the directors and members. On 7 March 2007, the land on which the Centre was to be built was purchased for $6.4 million.

57. Also in March 2007, Charter Hall Group reiterated interest in investing in the development of the Centre.

58. On or about 3 April 2007, Campbelltown City Council granted development consent for two years for construction of a fashion outlet, bulky goods centre, multi-deck carpark and the demolition of existing buildings. (A modification of consent was issued on 15 January 2008 for additional basement car parking, reduction of bulky goods stores, deletion of car parking on level three and an increase in retail floor area.)

59. In April 2007, Savills prepared a “leasing pack” for Saxon in respect of the Centre for distribution to various retailers: “The Outlet Centre 32 Queen Street Campbelltown Leasing Pack” (“original leasing pack”). The original leasing pack included details about the trade area with its demographics, income statistics and population forecasts, the location and layout of the site, and proposed plains. Savills also prepared and distributed a media release in respect of the Centre that described that the appointment of Savills was to establish the right mix of national retailers for the Centre. That media release was headed “Exciting New Outlet Centre approved for South West Sydney”.

60. On or about 17 May 2007, Mr Ron Bransdon of LandMark White prepared a valuation report in respect of the Centre (“First LandMark Report”) for the National Australia Bank Ltd for first mortgage security purposes. This report was produced so that the lenders could assess the loan-to-value ratio of any loan they might provide.

61. Mr Bransdon valued the Centre at $87.8 million at completion excluding GST and valued the land with the existing DA at $20 million excluding GST. He was generally positive in 2007. He stated that the “demographics of Campbelltown and the Macarthur region generally seem ideal to support a discount factory outlet.” He noted that it was “critical that a project the size of the subject is expertly managed through the development and leasing program. In this regard the leasing co-ordinator, Kevin James of Savills is understood to be a highly experienced retail negotiator and in addition has lived in the Macarthur Avenue [sic, area] for over 20 years.”

62. The basis of Mr Bransdon’s valuation was the vacant land value with DA approval and gross realisation “as if complete”. Savills prepared a schedule of estimated budgeted rents and targeted rents. The net value of each rental was respectively $7,273,445 and $8,813,705. He stated that “[t]he estimated rentals are slightly higher than those currently achievable in the nearest comparable centres namely Homebush DFO and BrandSmart Parramatta where analysed recent rental have been in the vicinity of $585/m² gross after incentive (generally 6 months rent free) for typical 100 m² – 150 m² shops.” Mr Bransdon took a more “conservative outlook” on estimated rentals based on the budgeted net rentals.

63. On or about 15 June 2007, CFO completed the purchase of the land at 32 Queen Street, Campbelltown.

64. In or about late October 2007, MPA (on behalf of CFO) lodged with the Campbelltown City Council an application to vary the development consent for the Centre. On or about 15 January 2008, the Council approved the modification of consent in respect of DA 2537/2006/DA-C.

65. On or about 1 November 2007, Savills and Saxon entered into a second ELAA related to the leasing of the Centre. It was again a term of this second Saxon ELAA that, in return for a leasing fee, Savills would find and introduce to Saxon such one or more persons as Savills considered might be acceptable as a lessee to Saxon in respect of the Centre. It was also a term of this second Saxon ELAA that the leasing fee would be 12% of the first year’s gross rental plus GST, excluding any incentives. Savills continued to provide to Saxon leasing services in respect of the Centre.

66. On or about 27 November 2007, CFO and PSP entered into the JV arrangement to develop and own a shopping centre at 32 Queen Street, Campbelltown, which the JV intended to operate as a factory outlet centre. From that time Dr Schwartz, as the primary director at PSP, became involved in the project. He had a previous professional relationship with Savills and Mr Brown. The correspondence shows that he conducted much of the written communication with Savills whereas the Bassals’ energies were directed more at the building work.

67. PSP acquired an unencumbered 60% interest in the land. Notwithstanding that PSP had a greater interest in the JV, it was a term of the JV agreement that each of PSP and CFO had equal 50% voting rights. In the event of a deadlock Mr Hadid had a deciding vote. The development of the Centre was to be fully debt funded with some allowance for the possibility that the CFO and PSP would have to inject their own funds should the circumstances require that.

December 2007–July 2008: the JV seeks finance

68. After the JV was entered into Dr Schwartz started seeking finance for the development of the Centre. He was assisted in this regard by Balmain Commercial.

69. On or about 21 December 2007 Mr Brown from Savills attended a meeting with a representative from Suncorp regarding an application for finance by CFO and PSP in respect of the Centre.

70. In or about January 2008, Savills instructed a retail design consultant Retail Workshop Pty Ltd to review approved plans for the Centre and provide recommendations for asset value and functional efficiency improvements.

71. On or about 18 January 2008, Mr Bransdon of LandMark White prepared a second valuation report in respect of the Centre (“Second LandMark Report”). This report was prepared for Balmain Commercial for first mortgage security purposes and provided market valuation for gross realisation “as if complete”. It was in similar terms to the first report, although the JV had since obtained approval pursuant to s 96 of the Environmental Planning and Assessment Act 1979 (NSW) (as the Act was then numbered: see s 4.55 in the current version) to modify the consent for additional basement car parking, reduction of bulky good stores, deletion of car parking on level three and for an increase of the retail floor area. Mr Bransdon noted that the s 96 modification “increases the number of tenancies by 13.5% from 89 in the original DA to 101 (not including 2 cafés and 4 kiosks) and the lettable area by 14% from 13,469m² to 15,388m².”

72. On 30 January 2008, Dr Schwartz informed Mr Brown that the JV was “at the stage of finance” and enquired about “renewed offers to the prospective tenants”. He informed Mr Brown that the financiers needed to know what percentage had been leased and that the financiers sought 30% which the JV had negotiated down to about 20%.

73. The first meeting of the JV was held on 31 January 2008. The minutes of that meeting record that it was decided that Mr Fitzgerald, a retail consultant, should be engaged to provide a report in relation to changes to be considered by the JV such as traffic flow, design, food court, reducing the number of escalators etc. Once his report was approved it was to be provided to the architect along with the existing plans. This was to obtain a quote to redesign the Centre and create a new plan incorporating the changes suggested by Mr Fitzgerald. It was agreed that Dr Schwartz would deal with Savills on behalf of the JV. Dr Schwartz indicated that he would be asking Savills to consolidate the customers that expressed interest in leasing and begin to get them to sign “an intent and subsequently a lease” with as many as possible needed for financing. Thirty per cent was described as “great” and “15-20%” described as “okay”.

74. Also on 31 January 2008, Dr Schwartz emailed Mr King, who was the person responsible at Savills at that time, and told him that he should not “assume that Savills is going to be the leasing agent” for the JV. That is, although Savills had been the leasing agent for Saxon, a decision needed to be made as to whether it would go on to be the leasing agent for the JV. There was then a negotiation about what fees Savills would charge in the event that they became the leasing agent for the Centre as opposed to just for Saxon.

75. The contemporaneous documentation is then somewhat sparse until about July 2008.

76. Mr George’s evidence was that in around February/March 2008 he was at a meeting with Mr Brown when the Centre was discussed. Mr Brown told him that Savills did not know where the project was going at that moment and that if he could do something for the Centre then he should do it, but that he should concentrate on other work. This is consistent with the contemporaneous documentation indicating that Dr Schwartz had other projects he was seeking to develop at the same time. It was common ground that finance had not been secured by that time. I am satisfied that during this early part of 2008 the development was on hold until finance was secured although Savills was still obtaining more letters of offer (“LOOs”) from prospective tenants.

77. By May 2008, Savills had obtained pre-leasing commitments for approximately 30% of the Centre. A document titled “The outlet Centre – Campbelltown, as of 12/5/2008” notes that 16 offers awaiting disclosure statements were signed by that time (Genesis 53, Outlet Books, Bag Scene, Baku, Bright Eyes, Linen Choice, 2 Fuse, MS Menswear, Tommy Franks, Marco Gianni, Red Rooster, Hobbies R Us, two Gloria Jeans shops, Greenapple Kids and Valley Girl).

78. It is significant to note that these pre-leasing commitments were not contracts per se. Rather, they were expressions of interest by retailers who were interested in principal in leasing at the Centre provided other specified preconditions were met, the most important of which was that a suitable mix of tenants leasing at the Centre including large brand names and “nationals”. These LOOs were relied upon by Suncorp in its decision to provide finance to the JV. As will be seen below, most of those names did not ultimately take up the offer.

79. A number of significant events then occurred from June 2008.

80. On or about 23 June 2008, DeiCorp submitted a tender for the construction of the Centre in the amount of $34.48 million. On or about 30 June 2008, the JV accepted DeiCorp’s tender. On or about 7 July 2008, the JV and DeiCorp entered into a building contract with a completion date of 1 September 2009. Construction of the Centre commenced in July 2008.

The debt to Suncorp

81. On or about 6 June 2008, CFO and PSP accepted an offer of finance from Suncorp (“the Loan”). It was a term of the Loan that PSP and CFO grant a mortgage over the land to Suncorp and that the Bassals enter a personal guarantee together with Dr Schwartz limited to the sum of $5 million. The Bassals’ guarantee was limited to $2 million and Dr Schwartz’s to $3 million. It was also a term of the Loan that both CFO and PSP grant to Suncorp a New Registered Company Charge over all of the assets and undertakings of the company including uncalled and unpaid capital.

81. The finance which Suncorp agreed to provide to the JV was $47.8 million across three facilities:

1. Term Loan Facility No.1 in amount of $47.6 million which had a term of 22 months from the date of first drawdown and under which interest could be capitalised;

2. Bank Guarantee Facility No.2 in amount of $200,000 which expired 22 months from the date of first drawdown; and

3. Term Loan Facility No.3 in an amount of $47.8 million which would replace the first two facilities. This facility had a term of 36 months with interest payable monthly and could not be capitalised, with the principal and all outstanding monies to be repaid on the expiry of the term.

83. The facilities provided for two different interest rates: a “Lower Rate” and a “Higher Rate”. The Higher Rate was a 3% premium on the Lower Rate which was payable if interest was not paid by a due date or there was an unremedied event of default.

84. Facilities 1 and 2 were to assist with the construction whereas Facility 3 was a development finance loan being the total of 1 and 2. The Term Loan Facility 3 is described in the expert evidence as a “Corporate Facility”. I too will adopt that terminology. The difference between the Construction Facility and the Corporate Facility was that the latter did not allow for capitalised interest, meaning that the JV would be required to make interest payments in cash once the Centre was, theoretically, up and running.

85. From 30 July 2008 to 30 June 2010 interest accrued and was capitalised under the Construction Facility, meaning that interest was not paid in cash but was instead added to the principal. The capitalisation period was to be for a period of 22 months from the first drawdown on 30 July 2008 until 30 May 2010. For some reason, not apparent on the evidence, the interest continued to be capitalised for 23 months. This is inconsistent with the loan documentation. Under the Construction Facility, interest could be capitalised up to a value of $3,796,780 provided there was no unremedied event of default.

86. In summary, the JV was not required to pay interest in cash until 1 July 2010 and the Corporate Facility was due to be repaid in full 36 months from drawdown of this facility. That meant that $47.8 million was due to be repaid or refinanced on 30 June 2013.

87. On or about 9 July 2008, Mr Bransdon prepared a third valuation report in respect of the Centre, this time for Suncorp, for first mortgage security purposes. Mr Bransdon estimated that the market value of the site had decreased to $14 million given, “[e]conomic conditions are considered to be at their lowest point since the early 1990s.” A characteristic of the Sydney commercial market in 2008, he noted, “has been the absence of significant sales, although the major agents report that there remains good enquiry for quality investment properties but secondary properties are attracting little enquiry.”

88. Mr Bransdon again adopted “a conservative rental base below the budget estimates of the owner and leasing agent”, this time “at an average if $400/m² per annum net ($500/m² per annum gross approximately)”. He reiterated that it was critical the project was expertly managed through the development and leasing program. He noted that, “[i]n this regard the leasing is being co-ordinated by Tom Brown of Savills.”

89. His estimate of the gross realisation from the property “as if complete” had weakened to $83 million (free of GST) based on a higher capitalisation rate of 7.75% per annum net compared with 7.25% and 6.75% in his previous reports. Accordingly, he estimated that the development profit after interest had decreased to $16,301,737.

July 2008–February 2009

90. In either July or August 2008, the JV entered into an ELAA with Savills in which Savills agreed, inter alia, to “find and introduce” to the JV “such one or more persons as they consider might be acceptable as a lessee to” the JV. This ELAA is the contract in relation to which Savills’ duties to the JV are to be found. The version tendered was not dated.

91. Mr Bassal’s evidence was that the ELAA commenced in July 2008 whereas Mr Brown’s evidence was that it commenced in August 2008. During the hearing of the matter, senior counsel for Savills indicated that it was content to proceed on the basis that the relevant date was July 2008 because very little turned on it. I also propose to proceed on that basis. I shall set out this ELAA in more detail below at [332]. It is the alleged breach of this contract which forms the basis of the plaintiffs’ claim.

92. July 2008 thus marked the beginning of the contractual relationship between the JV and Savills. It was also the month that the financing was finalised and the building work commenced.

93. Shortly after the building work commenced the Global Financial Crisis (“GFC”) occurred. The expert evidence was that this was in about August/September 2008 before any leasing had actually commenced.

94. The reason for the delay in the commencement of the leasing formed a critical dispute between the parties at the hearing. It was one of the particulars of negligence relied upon and considerable time was devoted to this issue at the hearing. The plaintiffs’ case was that Savills breached their contractual duty by delaying this process. Savills’ case was that it could not commence the leasing until four matters were attended to, none of which were within their complete control. Those four matters were: waiting for the JV partners to sign off on the budget, waiting for the JV solicitor to provide them with the lease, waiting for the final MPA (architectural) drawings and waiting for an updated report from Urbis. The question of whether the leasing should have commenced without these documents was the subject of expert evidence (see below at [364] to [405])

95. In or about July 2008, Mr Kanellopoulos commenced employment with Savills in the role of divisional director of retail leasing and projects. His supervisor was Mr Brown. His evidence was that shortly after he started work at Savills he was told by Mr Brown at a meeting with Dr Schwartz that Savills was going to “take on” the leasing of the Campbelltown property. Mr Brown told him after the meeting that there were “about 100 shops” in the Centre which was due to open in “September/October 2009”.

96. Mr Kanellopoulos’ evidence was that Mr Brown told him not to follow up any of the retailers on the list of LOOs provided to Suncorp at that time (August–September 2008). He further stated that, “[d]espite Tom telling me that I should ‘leave it for now’”, he did in fact start to follow up the retailers mentioned in it. There was no evidence in the documentation of any specific retailer he followed up on, although on 13 August 2008 he sent an email to Rivers Super Store following an enquiry regarding leasing space, in which he stated, “we have a number of Greenfield and existing projects coming on line this year, in particular Campbelltown Factory Outlet, comprising of some 90 outlets stores (approx) and we anticipate to commence leasing the centre in the coming weeks”. Nor was there any evidence from Mr Kanellopoulos or any contemporaneous documentation as what happened when these retailers in the LOOs were contacted by Mr Kanellopoulos.

97. Mr Brown’s evidence (in cross-examination by Mr Bassal) was after the signed the July 2008 ELAA was signed:

“we went and spoke to the parties that we were dealing with, so like in respect to these letters of offer and all these ones, the work that was done prior with - by those people, in a sense, and we went to all those relevant people and spoke to them and got their feedback at that stage.”

98. Mr Kanellopoulos’ evidence was that from July until November 2008 he had expressed concerns to Mr Brown that he, along with another leasing executive, Ms Zabloudilova, would not be able to have the Centre leased “fully occupied, or close to fully occupied” by the deadline if they did not start working on the project immediately. He told Mr Brown at a meeting in November 2008 that they would only be able to achieve “60 out of 100” tenants by the deadline. Mr Kanellopoulos estimated that Savills would need to get about four leasing executives to meet that deadline. I shall return to the issue of how many were necessary when considering the expert evidence.

99. As for the provision of a lease to Savills, on 14 August 2008 Mr Bassal wrote to Dr Schwartz in which he stated:

“I had a meeting with Savills yesterday and they are still waiting on the lease from Peter Grant. I have expressed my concern to them as we only have 8-9 month to lease the centre taking in consideration there will be 4 month over the xmas break were retailers well not be in a position to talk to us. Can you please have Peter forward a lease to Savills so that they can start leasing.”

(Sic, as in original.)

100. On or about 19 August 2008, Mr Grant provided the first draft of the lease for prospective tenants of the Centre to Savills but it did not have a “discount clause” in it. This is a clause in which the tenant agrees to always have stock on sale at discount prices in keeping with the purpose of the Centre.

101. On 26 August 2008, Mr Bassal wrote to Mr Brown and asked whether he had received the lease. He then stated, “we also need to start meeting on a weekly basis so that we can discuss offers.”

102. On 28 August 2008, Mr Bassal sent an email to Mr Brown chasing up whether he had received the lease yet.

103. In August 2008, Mr Brown suggested a further proposed alteration to the plans for the Centre (by moving the escalators). Emails show ongoing discussion of this issue between Savills and the JV. The revised plans were provided by Mr Daniele on 18 September 2008. The proposed alteration was never actually made. Instead, new floor plans were made that included revision of egress passages. They were provided to Mr Bassal by Mr Mosca on 23 September 2008 and created approximately 200m2 of floor space on each level.

104. On 23 September 2008, Dr Schwartz sent an email to Mr Brown stating simply “Thomas, why do you send this to HIM!” (referring to Mr Bassal). This was in relation to approval of a quote that was sent to Mr Bassal. It is clear from the tone of a number of Dr Schwartz’s emails that he did not get on with Mr Bassal and had a very blunt approach to his email correspondence in general. I do not place any particular significance on this.

105. On 25 September 2008, Mr Daniele provided various architectural drawings to Mr Bassal which were then forwarded by Mr Bassal to Mr Brown and described as the “final drawings”. Mr Brown responded and asked for a copy of the plans with the “new areas” on them. That request appears to be a reference to the size of each individual tenancy in square metres.

“The Budget”

106. There was disagreement between Mr Bassal and Mr Brown as to when the relevant budget was signed off. The budget included, inter alia, agreement between the JV and Savills as to how much rent the JV partners wanted. It allowed Savills to know what deals they could make with prospective tenants and still generate the income the JV partners sought.

107. The first document in evidence concerning the budget was an email on 26 September 2008 from Mr Brown to Dr Schwartz requesting a meeting to “approve the budget”. Dr Schwartz responded that Mr Brown should just meet with Mr Bassal and “get his signature” on the basis that Mr Bassal could be told that Dr Schwartz had already approved the budget.

108. On 29 September 2008, Mr Brown sent the following email to Mr Bassal:

“As discussed on Friday Savills believes that the budget put forward is reasonable and is in the best interests for the retail mix of the centre going forwards.

Please let me know asap if the jv partners agree with your position that 6.8 million is the required net rental for the development.”

109. The content in this email is consistent with discussions about the budget for the Centre having occurred prior to 29 September 2008. It also suggests that Mr Bassal was seeking a total rent of $6.8 million which was higher than the proposed budget put forward by Savills.

110. There was no budget attached to that email or any earlier emails.

111. On 3 October 2008, Mr Brown, Mr Kanellopoulos and Mr Bassal went to lunch at Wild Fire, a restaurant. Mr Brown’s evidence was that this was to discuss the budget. Mr Bassal’s evidence was that he attended this lunch with Mr Brown and Mr Kanellopoulos but does not recall any discussion concerning the budget, only discussion about the Centre. Mr Kanellopoulos did not give any evidence about this lunch. I do not consider that anything turns on the question of whether the budget was discussed at the lunch but given the timing of the lunch in the context of the contemporaneous documents I am satisfied that the topic would have come up. To this extent I do not accept Mr Bassal’s evidence that it did not.

112. Mr Bassal’s evidence was that he discussed the budget with Mr Brown and Ms Childs a number of times between 3 October 2008 and 31 October 2008 and that Mr Brown suggested that a budget be set at $5.3 million. His evidence was that he had an issue with that but there are no emails or minutes that these reasons were ever communicated to Savills.

113. On 27 October 2008, Mr Brown sent an email to Dr Schwartz, Mr Bassal and Mr Hadid attaching a budget and a letter regarding sign off. It contained proposed “budget” rentals and “target” rentals for each shop with the total net rental income projected to be $5,383,151.30 and the total target income projected to be $6,183,385.80. These rentals represent the upper and lower parameters for negotiations as to rent by Savills, on behalf of the JV, with prospective lessees. The letter accompanying this budget sought the signature of each of PSP and CFO to signify their acceptance and was in the following terms:

“As per our recent meetings discussions have been had in respect to the supplied budget rents Savills has proposed for the above project.

Savills believes that it is paramount that the rentals that we go to market with are realistic. If we go out with rentals that are unrealistic, we will damage the Centre’s chances of being leased.

See attached an updated budget with Savills opinion on the budget and targeted rentals. Once we have had agreement on these rentals we can begin the leasing and marketing campaign in full.”

114. There were no versions of any budget created prior to 27 October 2008 contained in the court book.

115. On 29 October 2008, Ms Childs indicated to Savills that she had spoken to Mr Bransdon, and he had indicated that average market rents for the Centre remained in line with his earlier opinion of “around $400 net”.

116. On 30 October 2008, Mr Bassal wrote an email to Mr Brown, Dr Schwartz and Albert Hadid in these terms:

“I have left you a few messages for you to call me regarding signing off on the budget. I will not be signing off as you verbally have told me that you could achieve a minimum budget of $6m last Friday. I agreed with you and got my father to agree (he was asking for a minimum of $6.5m). Call me to discuss as I have not told my father you that you have not sent us the budget at $6m.”

117. Dr Schwartz then forwarded the email to Mr Brown. He described the subject of that email as “Fun & games” and the content of the email was simply “#@!*”.

118. On 31 October 2008, Savills issued a further budget spreadsheet stating the new proposed budgeted net income of $5.97 million and targeted net rental income of $6.474 million.

119. It was not until 3 November 2008 that the JV finally approved the budget. Savills’ case was that the leasing could not commence until the budget was finalised and that Mr Bassal was the cause of the delay. Mr Bassal’s evidence was that the budget had already been finalised in “early 2008” (that is, before the JV ELAA).

120. Mr Bassal was cross-examined about his assertion that there was an earlier version of the budget prior to 27 October 2008. He not able to locate any version of the budget despite being given the opportunity to do so.

121. As for the reasonableness of Mr Bassal’s suggested budget, Mr Bassal submitted that the budget parameters were established in Mr Bransdon’s Landmark White report in January 2008. He recalled that Mr Kanellopoulos proposed for it to be reduced from $5.9 million to $5.3 million at one stage. Mr Bassal explained that he refused to agree on a lower budget because it clashed with Mr Bransdon’s valuations and he knew that the Birkenhead Point outlet centre was achieving much higher rents.

122. As for Mr Brown’s letter dated 27 October 2008 to the JV seeking the JV’s approval of the budget in order to commence the campaign, Mr Bassal submitted that he thought the leasing and marketing campaign was well under way by that time. He denied both that it was difficult to prepare the budget and Mr Brown’s reasons for that. He submitted that his view that the budget should be approximately $6.15 million was based on Mr Bransdon’s valuation report and the signed LOOs. He noted that the revised budget as at 28 July 2009 was $6.4 million.

123. The plaintiffs have failed to establish both that there was any earlier version of the budget. I am satisfied that the budget was not agreed upon by the Bassals until 3 November 2008.

Savills requests that the opening be delayed

124. On 30 October 2008, Mr Brown wrote to Dr Schwartz and asked “have you had a chance to get an idea if the project can be delayed by year”.

125. Dr Schwartz replied to this email stating, “[w]e did discuss your idea of postponement last night (Peter, Julie, Chris Curtain from Melbourne), and generally agreed to bite the bullet and keep moving. A dilapidated building site is a huge turnoff.” Mr Brown responded to this email shortly afterwards by asking, “[i]s it possible to slow the project down as the Retail leasing market is very difficult at present and I don’t want the Centre to be opened half full.”

126. On 11 November 2008, a meeting was held attended by Mr Brown, Mr Kanellopoulos, Mr Bassal, Mr Hadid and Mr Deiri. Mr Brown again asked for the project to be delayed to allow for a proper leasing campaign to be conducted. The JV partners refused to delay but Mr Bassal offered another 2% commission to Savills for additional resources to be dedicated to the leasing campaign. Mr Brown’s evidence was that Albert Bassal was also in attendance at this meeting. The minutes disclose the following comment by Mr Kanellopoulos at the meeting:

“The feedback from retailers at the moment is not good. They are also asking for up to date demographics. We need to obtain an updated Urbis report so we can at least approach potential retailers armed with a current report.”

127. The outcome of the meeting was recorded in an email from Mr Brown sent that day which records the following:

“From the meeting the following issues arose:

1. Need a quote for an update for the Jan 07 Urbis Report. Savills marketing to arrange.

2. Rebrand the Centre. Savills marketing to furnish a quote.

3. Discussed the staging of the centre leasing/opening.

4. Terry approved an extra 2% on the agreed leasing commission for savills for extra resources.”

128. Mr Kanellopoulos did not dispute this aspect of Mr Brown’s evidence.

129. Despite the fact that Mr Bassal accepted the veracity of the minutes of the JV meeting, he disagreed that Mr Kanellopoulos had said anything about negative feedback at that meeting. He also denied that anyone said that retailers were asking for up-to-date demographics. He contended that it was Mr Brown’s idea to get the updated report from Urbis. He further denied that it was Mr Deiri who suggested a staged opening and said that that came from Mr Kanellopoulos. As for the rebranding of the Centre he denied that Mr Brown approached him first rather than Dr Schwartz.

130. I am unable to accept Mr Bassal’s version of what was said at this meeting and the reason for the updated Urbis report being sought. It does not correspond with the contemporaneous records. As with much of his evidence, Mr Bassal’s evidence on this issue was self-serving. His complaint that he did not believe the updated Urbis report to be necessary was not communicated by him to anyone at the time. As will be seen, Mr Bassal’s belated complaint in this regard is no doubt the result of the fact that this second Urbis report was pessimistic regarding the immediate success of the Centre.

128. On or about 12 November 2008, DeiCorp wrote to the JV seeking assurances that the project would not be delayed and explaining the problems that delay would cause.

129. On 14 November 2008, there was an email exchange between Mr Brown and Dr Schwartz in which Dr Schwartz accused Mr Brown of taking advantage of his absence at the JV meeting to increase Savills’ rates. Dr Schwartz wrote to Mr Brown and said “you need to put your best effort into this project anvway [sic], especially with the economic downturn”. There was a further heated exchange between the two of them the result of which is that Dr Schwartz refused to increase the commission. Thus, the additional 2% in commission foreshadowed by Mr Bassal ultimately was not forthcoming as Dr Schwartz refused to agree to it.

130. On or about 16 or 17 December 2008, Dr Schwartz expressed concern to Savills about its performance in leasing the Centre.

131. On 25 November 2008, Mr Brown emailed Dr Schwartz to discuss the rebranding of the Centre further. He suggested moving away from the name being an “outlet” and instead calling it “Queen Street, Your Discounted Brands”. Dr Schwartz agreed with this then stated, “I know Terry (whom you did not CC) would NOT like this because he has future ambitions of more centres.” Mr Brown then emailed back “Do you have a problem if I upset Terry?” to which Dr Schwartz replied “you want to earn some brownie points?”

132. On 5 December 2008, Mr Brown forwarded to Mr Bassal, Dr Schwartz and Mr Hadid an email received from Verve Creative attaching a new name and logo. Mr Brown stated simply: “What about this …: ‘Brands on sale with tagline the centre name?’”

133. On 15 December 2008, Mr Bassal “replied all” to this earlier email asking what was happening with the new logo and other matters including the rubbish compactor and then stated this: “Thomas I have emailed you twice with no answer, if you are unable to supply some simple information how are you ever going to lease 100 shops?”

134. No reply by Mr Brown was included in the evidence before me although Dr Schwartz responded to Mr Bassal indicating that he had approved the new logo and was “eager to commence our marketing campaign as quickly as possible”.

135. On 16 December 2008, Dr Schwartz emailed Mr Brown and copied in Ms Childs and Mr Grant (but not Mr Bassal). The email was in these terms:

“Thomas

You can see that I do support you, but I feel that you are not supporting me, and often do not do the right thing. There are a lot of issues about the leasing, which I’m not going into, other than saying that I am not entirely happy with the performance of Saville’s [sic].

I am concerned that Suncorp is requesting information about the preleasing of a least 30% of the total area. We have on numerous occasions discussed about signing of tenants ‘intent to lease’. Has this been done?

If yes… May please have a copy.

If no…. What are you waiting for.

Thank you,

Jerry”

139. On or about 17 December 2008, Campbelltown City Council approved the modification of consent in respect of DA 2537/2006/DA-C/B.

140. On 17 December 2008, Mr Grant enquired of Mr Brown as to whether he had any comments about the proposed Agreement for Lease that Mr Grant had drafted and that, if anything was required, it could be attended to quickly so “everything can be in place for Agreements for Lease”.

141. On the same day, Mr Grant sent a letter to Mr Brown referring to a telephone discussion that morning and enclosing a “further draft Agreement for Lease”.

142. On 14 January 2009, Mr Bassal emailed Mr Brown (copying in Dr Schwartz and Mr Hadid) in the following terms:

“As you are aware the construction of the outlet centre is due to be completed between September and October. There has been a lot of hard work put into the development. Everybody has done a great job in getting the development to where it is today. I am informing you that the following time table is to meet or we will terminate your contract and appoint a new agent. There has not been one signed contract to date, even though you have 20-30 letters of offer. I know of two potential tenants that phone calls have not been returned. I also leave messages for with no answer.

The following dates for Savills to meet are:

*15% contracts by the 27th February

*30% signed contracts by the 30th April

*70% signed contracts by the 31st July

*90% signed contracts by the 30th September”

143. Mr Bransdon estimated that the site value remained at $20 million but that the market value had increased slightly to $89 million (gross realisation “as if complete” free of GST). He estimated that the development profit after interest had increased to $19,117,557.

144. On 27 January 2009, Mr Kanellopoulos raised several issues in his email to Mr Brown about the preparation of the documentation that would be needed so Savills could “approach the market” and that a meeting with the JV was required to discuss the leasing and the timeframe. No written response to this email is in evidence.

29 January 2009 Urbis Report

145. Following the 11 November 2008 JV partners meeting, a consultancy firm, Urbis, was instructed by Savills to conduct an assessment on the potential retail market for the outlet centre. Mr Brown’s evidence was that reports from Urbis and similar organisations were typically used in the promotional material provided to prospective tenants. He stated that an update was needed because the January 2007 Urbis Report was not as comprehensive as usual and was almost two years out of date. Mr Brown also indicated that an updated report would confirm whether the rentals sought by the JV were commercially reasonable and realistic. Mr Brown was not challenged about this explanation in cross-examination.

146. The 2009 Urbis report stated that its purpose was to “provide a market assessment which looks at the likely trade area to service the new centre as well as the amount of expenditure generated by the trade area.” This report was the subject of heavy criticism by Mr Bassal and significant reliance was placed on it by Savills. It is thus necessary to set out its findings in some detail.

147. The executive summary of the report identified its major findings. It was noted that the trade area for the subject site has been defined to include three sectors. The main trade area with the majority of trade will be drawn from the Local Government Areas (“LGA”) of Campbelltown, Camden and Wollondilly. The tertiary trade area consists of the LGA of Wingecarribee and the Wollongong sector which is made up of the LGA’s of Wollongong Shellharbour and Kiama. As the trade area is not a traditional retail centre, with no provision of fresh food and grocery retailing, it does not lend itself to a primary trade area. Due to the unique tenancy mix, the subject site lends itself to a wider trade area than a traditional non-leading sub-regional centre.

148. The total trade area was found to consist of 575,720 individuals in 2008, with 245,580 individuals residing in the main trade area, 45,810 in the tertiary trade area and the Wollongong sector comprised of 279,330 individuals. The trade area’s demographic characteristics can be summarised as being made up of young Australian-born families whose incomes sit below the Sydney average. Per capita, the total trade area spends $10,529 per annum on retail goods which is 7.4% below the Sydney average. The main trade area spends slightly less on retail goods per annum with the average per capita being $9,925.

149. The report went on to state that using benchmarks based on the average turnover for regional shopping centres, as well as other factory outlet centres, most outlet centres’ turnover is somewhere in the order of $3,500 and $4,500/m². In order for the Centre to reach a minimal sustainable turnover of say $4,000/m² (approximately $56 million in 2008) the Centre would need to achieve a market share of approximately 5% of the outlet-centre-type merchandise market including Wollongong and close to 10% of the broad trade area’s market share excluding Wollongong. The report stated: “This is considered to be very high, based on Urbis’ previous work, market share is generally in the order of 3% and places into question the short term potential of the Centre to reach a sustainable trading level.”

150. Later, at 5.2.2 of the report under the heading “Centre Potential”, a number of difficulties with the proposed centre are set out. The opinion that the typical market share of an outlet centre is in the order of 3% was repeated and then it was observed:

“Therefore we would expect that the subject centre may have some difficult achieving a sustainable turnover level in the short term ad will highly dependent on projected population growth in the region to obtain a long term sustainable trading level.

We also note that the design of the centre may be an issue that influence the turnover potential oft her centre. The proposed design is unconventional in its nature which may adversely impact on the trading potential of the upper level retailing. The location of the car parking all below the first level of retailing may limit pedestrian flow to upper levels. Successful retail centres with multiple levels of car parking generally stack car parking alongside or below and above to maximise internal pedestrian flows. This is an element the may lower trading potential in portions of the centre.

With MacArthur Square located in close proximity, the centre faces strong competition, particularly as it is not located on the retail fringe and lacks any significant anchors. Further competition will be experienced with the refurbishment of Campbelltown Mall and the present expansion of Marketfair Campbelltown.

Urbis is aware that the addition of a supermarket on the subject site is presently being considered. This concept may have some merit in that it will create an anchor for the centre. An ALDI food store would complement the discounted persuasion of the centre whilst providing a retailer not present in the immediate area. With three Woolworths soon to be in a 2km radius (MacArthur Square, Campbelltown Mall and Marketfair Campbelltown) and two Coles supermarkets also located within the same proximity, securing an alternate grocer would establish a point of difference at the centre.

Urbis is aware that Toys R Us is being considered is the major tenant for the centre. Whilst this would provide an alternate anchor and may be popular given that the trade area is made up of young families it is unlikely to be strong enough as an anchor to pull in a considerable amount of trade as a single tenant. Whilst Toys R Us would encourage people to visit the centre for a purpose other than outlet shopping, a large retailer acting as an anchor selling full priced goods seem somewhat incongruent to the discounted nature of the centre.

Factory outlet centres are generally visited less frequently than traditional retail centres as they do not usually contain any fresh food retailing, making the centre a purely destination shopping experience. The inclusion of a supermarket or other strong anchor would allow for more incidental shopping for the specialty retailers, with residents choosing to shop at the centre on a more regular basis. We note however, that a supermarket should not be considered on the site without proper due diligence carried out on the site and will be subject to an appropriate planning review.”

(Sic, as in original.)

151. Under the heading “Conclusion” it was noted that:

“The range of tenants on the site will play a large role in the viability of the centre, without strong anchors to draw in consumers the centre is likely to have a high number of vacant shops and temporary tenancies. Occupancy costs will also play a large role in the success of the centre as a whole. High rents matched with low to average turnovers will deter potential tenants from locating within the centre. The success of the centre therefore is reliant on a number of factors. Rather than over extending and saturating the market, perhaps a viable option in the short term is to consider withholding supply, releasing the centre one stage at a time as demand is established (e.g. level by level).

The success of outlet centres is strongly reliant on providing a sufficient quality mix of national chains and fashion labels. This is what drives an outlet centre’s destination appeal and its ultimate success. To ensure a well balanced mix of tenants, occupancy costs must be manageable, particularly in the establishment period. Also, the ongoing branding and marketing of the centre needs to be considered in order to drive performance. Brands such as DFO have been able to build a strong brand presence with the consumer and retailer like through the ability to undertake wide scale marketing a national basis.”

February 2009–December 2009

152. On 3 February 2009, a meeting of the JV partners was held at Rydges World Square in Sydney. Dr Schwartz, Mr Bassal and Mr Haddad were present as were Mr Brown, Mr Kanellopoulos, Mr Grant, Ms Childs and Ms Maljkovic. The notes taken at that meeting disclose a number of issues were raised at that time.

153. Mr Kanellopoulos addressed the meeting and stated that the “dilemma” for the JV partners was the “rental expectation of the dollars per square metre gross which may differ from market sentiment and expectation”. He said that the previous budget could not be achieved on the current figures as reported by Urbis in its report.

154. Mr Kanellopoulos also stated that realistically the market would expect a rental of $400/m² “it is definitely not realistic to expect $550 or $600 per square metre gross”. The notes record that both “BK and Thomas Brown were at pains to explain this to the meeting.”

155. The notes also record that “both TB and AH make comments critical of the delays in commencing the leasing activities. The representatives of Savills countered that the Urbis report was a necessary preliminary step to achieve and now that this was obtained the way forward could be planned in a uniform way to avoid a confused marketing plan.”

156. The notes go on to record that the “Savills representatives indicated … that they needed a clear direction from the meeting, it had taken six months to agree on a budget and now that the branding was agreed and the Urbis report obtained it was easier to take the next forward step.”

“AH noted that both he and Dr Schwartz had confidence in Savills and reinforced that it was time for Savills to get on and start the leasing progress.

Earlier tenants lists were considered and some tenants were discounted as now being in liquidation or not commercially viable.”

157. Mr Kanellopoulos’ evidence was that he and Mr Brown met with the JV partners in late 2008/early 2009 and Mr Kanellopoulos suggested to them that the Centre open in two stages. Dr Schwartz said, “[t]hat’s not going to happen” and Mr Bassal asked, “[w]hat have you guys been doing all this time?” It is unclear precisely where this fits into the chronology.

158. The leasing commenced shortly after this meeting. By that stage all outstanding matters had been attended to, namely, the budget had been agreed upon, the leases had been provided by Mr Grant, the designs had been provided by MPA and the Urbis report had been provided.

159. The next meeting of the JV parties was on 20 February 2009 with similar persons in attendance. The notes recall that “BK reported that a target list of likely tenants had been prepared - 400 names are on the primary hit list”. Ms Xu and Ms Zabloudilova were approaching those persons. Ms Zabloudilova indicated that “while the ‘high-end’ Retailers were not doing a whole lot at this point in time, those National tenants that had been approached have expressed interest and as soon as some National tenants are definitely interested anchor tenants will be approached by a two prong attack by both Ms Xu and Ms Zabloudilova to co-ordinate interest and get the best possible tenancy mix and placement in the Centre”.

160. Ms Zabloudilova also explained “that the Nationals want to know which anchors where in the Centre and the anchors will want a complete package ready to go which will help build the profile of the Centre for future trading in any case.” The notes also disclose that “the Savills representatives explained that the market mix was crucial to not only enticing new tenants but for the continuing and future viability of the Centre.”

161. None of the documentation records any instruction provided by the JV at or following this meeting about the inconsistency between the projected net rental of $400/m² and the findings in the 2009 Urbis Report.

162. On 25 February 2009, email correspondence involving Mr Kanellopoulos, Ms Xu and Ms Zabloudilova indicated that Rip Curl was interested but they would like Quicksilver, SDS (aka Surf Dive “n” Ski) and Billabong as their neighbours. There were other similar emails to this but I have included this one as an example of the expectations of prospective tenants. It is clear from the emails that the “info pack” for tenants was still not ready by this time.

163. A “Summary of Feedback” document dated 2 March 2009 prepared by Savills shows a long list of retailers who were not interested in any negotiations until they had received confirmation of which “big names” that had already signed up.

164. On 4 March 2009, Mr Kanellopoulos emailed the architect at MPA, Mr Daniele, and copied in, inter alios, Mr Bassal, Mr Hadid, other Savills employees, and Mr Grant. The purpose of the email was to see if there was an area within the Centre that could accommodate David Jones if they came on board. He then stated this:

“Andrew there is no delicate way of putting this to you, we are approaching anchor tenants who are very specific in their requirements and they will bounce you and me off walls all day long, they don’t care. If I was to go back and tell key tenants, no it cannot be done, this centre will be a ‘white elephant’ quicker than you can blink if we do not have the tenancy mix. Every time you say no you are devaluing the centre. Economic times are tough for Savills to source retailers, don’t make it any harder.

Find solutions, provide options, but stop telling me it can’t be done. Sorry this is a hard message, but we need to move forward.”

165. The next meeting of the JV partners was on 6 March 2009. In attendance were Mr Bassal, Mr Hadid, Ms Childs, Mr Kanellopouls, Ms Xu, Ms Zabludilova, Mr Grant, Mr Daniele and Mr Deiri. Topics discussed included the proposed brochure for the Centre. Mr Kanellopoulos warned that there needed to be adequate parking. Other matters discussed were fit-out guides, food in general and the fact that a tenancy coordinator would need to be appointed to design, review and coordinate the shop fit outs. It was noted that David Jones had indicated interest and wanted to take 1400m². The lack of storage in the Centre was addressed as was the question of external signage.

166. The next meeting of the JV partners was on 20 March 2009. Present were Mr Grant, Ms Childs, two representatives from DeiCorp and Mr Bassal. From Savills there was Mr Brown, Mr Kanellopoulos, Ms Xu and Ms Zabloudilova.

167. The notes show under the heading “Leasing Update” that the brochure was now in final form and was ready to distribute. The following was then noted:

“There is a retail target list on the first page and half are being actively pursued. Once that list of retailers is exhausted then the second tier of retailers will be pursued.”

168. Mr Kanellopoulos gave a brief summary of meetings that had already taken place or were scheduled and indicated that a particular tenant was interested but would need to have their current premises lease paid out. Mr Kanellopoulos indicated “that this was now unfortunate industry practice and it was known for operators to buy out key retailers in order to entice them from existing leases to new Centres.” Both Ms Xu and Ms Zabloudilova then went through retailers they were targeting. There was then a discussion about David Jones. It was discussed that there would be likely relocation costs involved in getting them into the Centre but that this was a worthwhile investment as David Jones would anchor the Centre and attract many second-tier tenants who would pay good rents for the chance of being at the Centre.

Plaintiffs’ submissions

574. In response, the plaintiffs submitted that in determining whether the acts or omissions of Savills were a contributing cause of the loss or damage, the Court is not required to find to a degree of certainty what would or would not have occurred if Savills did not breach the contract or its duty of care, e.g. had the right tenancy mix been achieved, and had 90% occupancy been achieved by the time of the opening of the Centre. It is sufficient in order to establish a causal connection if it is likely that the default in the loan obligations to Suncorp would not have eventuated but for Savills’ negligence.

575. The plaintiffs submitted that the rent they sought could not be considered to be unrealistic given that it was consistent with what Savills had initially advised them and the LandMark valuation. They denied that the JV contributed to its own loss by insisting on unreasonable terms or deciding to open the Centre in December 2009.

576. The plaintiffs’ case was that the GFC and their chosen method of financing did not sever any causative connection between Savills’ conduct and the loss which they suffered.

577. It was submitted that a common sense approach is to be applied, and that the defendant’s acts or omissions are not required to be the cause, but only a cause of the loss or damage: March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 522; [1991] HCA 12; Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [14], [61] and [95]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 at [33], [57], [62] and [90]. It is not essential that the contravention, act or omission be the sole cause of the loss or damage but a cause of the loss or damage. It was accepted that there is a point at which, based on common sense, facts or events may become too remote or be too little connected with an outcome to be treated as a cause of the outcome.

578. It was further submitted that in determining that the acts or omissions of Savills were a contributing cause of the loss or damage, the Court is not required to find to a degree of certainty what would or would not have occurred if Savills did not breach the contract or its duty of care e.g. had the right tenancy mix been achieved, and had 90% occupancy been achieved by the time of the opening of the Centre, then it is sufficient in order establish a causal connection if it is likely that the default in the loan obligations to Suncorp would not have eventuated.

Consideration of causation

579. The following consideration proceeds on the basis that, contrary to my findings set out herein, I had been satisfied both that the plaintiffs had established that Savills had breached its duty and also that s 5O of the CLA was not engaged. Section 5D(1) of the CLA provides that:

“(1) A determination that negligence caused particular harm comprises the following elements:

(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and

(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused (scope of liability).”

580. The test in 5D(1) is broadly consistent with the ‘but for’ test in common law (which applies to breach of contract). As Simpson J (as her Honour then was) observed in  Cox v State of New South Wales [2007] NSWSC 471 at [154]:

“What s5D is directed to is the “particular harm” suffered by the plaintiff; and whether the negligence established was a necessary condition for the occurrence of that harm. (This, to my mind, is no more than a statutory formulation of the “but for” test that is familiar in tort law: see, for example, March v E and M H Stramare Pty Ltd [1991] HCA 12; 171 CLR 506; Nader v Urban Transport Authority of NSW (1985) 2 NSWLR 501 at 531, and the authorities there cited.)”

581. The SFASOC pleads the loss as being the loss of the value of the Centre as at June 2010 or November 2013, less the amount which the Centre was ultimately sold by the receivers of CFO and PSP in 2015. There are difficulties with the plaintiffs’ case on loss that I will deal with further below. One obvious difficulty with it is that it is premised on the assumption that both CFO and PSP were not placed into receivership and that the Centre not sold or sold by CFO and PSP as a going concern instead of by receivers seeking to recover the outstanding loan amount owed to Suncorp.

582. The expert evidence as to the impact of the GFC was reasonably uniform. It was accepted that consumer confidence was down during the period in 2008–2009 and it was a difficult time for leasing. On the other hand, if the Centre had been successful, it would be the sort of retail that may have thrived given consumers were looking for a “bargain”. Overall, the weight of the expert evidence was that times were tough for retailing during this period although some retailers and centres were succeeding. I note Mr Bassal’s submission that the expert witnesses who gave evidence that the GFC caused the tenants to be reluctant to commit at the rents sought were all just making excuses for “Savills’ significant over-promise and a severe under-performance”. I do not accept this submission.

583. I shall consider the question of causation in three areas: the JV’s refusal to defer the opening, the financial arrangements of the JV and what the average net rental/success of the Centre was likely to be.

Refusal to defer opening

584. The evidence was that in October and November 2008 Savills suggested to the JV that they should defer the opening of the Centre and this was refused. Mr Bassal offered a 2% increase in commission to Savills at that time but Dr Schwartz would not agree to this. I am satisfied that despite efforts by Savills to defer the opening that advice was not accepted. Ms Cunningham’s evidence was that Savills should have walked away at that stage but instead they continued to attempt to lease the Centre.

585. Ms Cunningham and Mr Carnovale agreed that opening the Centre when it was only half leased “compromised the chances of leasing the balance of the shops” and that “potential retailers visiting the centre will be suspicious as to why, they will apply a high level of caution and will be reluctant to be part of it.”

586. I have examined the evidence of Mr Bassal as to why the JV partners did not heed the advice of Mr Kanellopoulos in October 2009 to defer the opening of the Centre when it became apparent that it would not be near to fully let. His evidence was that the external advertising for Centre was already locked in by mid-September 2009 and deferral would have seen these costs wasted. This evidence emerged for the first time during the cross-examination of Mr Bassal. There was no other evidence that any external advertising campaign was “locked in” and could not be cancelled or deferred without financial cost or penalty to the JV nor what the quantum of any wasted costs would be. Ms Cunningham gave evidence about the timing of the opening of the Centre in these terms in court:

“You could stage the centre, but in my opinion, delaying the opening and even if he had booked and advertising, that’s only the cost of the advertising that’s lost because the opportunity - the greater risk is opening at 50 per cent. The cost of that is detrimental to the project, as Vince has already said, that would be catastrophic to the future success of the asset, so in the broader scheme, cancelling the advertising it’s only a small amount of money that’s been spent versus the overall consequences of opening the centre. Fifty per cent will be far, far greater and much more catastrophic than cancelling an ad campaign.”

587. It seems to me that the better view as to why the JV refused to defer the opening each time Savills requested they do so was that status of the loan facility and pressure to try and get an income stream coming in.

588. I am satisfied that the JV ought to have deferred the opening of the Centre when Savills advised them to do so in October and November 2008 and again in October 2009 but it did not do this. This conduct by the JV severed any causal nexus between any hypothetical breach and any “loss” suffered by the JV.

The finance facility

589. The JV sought to pay for the construction and establishment of the Centre exclusively by way of the debt facility provided by Suncorp and then service that debt from mid-2010 by relying solely on the rental income generated by the Centre. This was a somewhat bold financial model.

590. By July 2010 the capacity for the JV to capitalise the payment of interest had ceased. That meant that they had to commence repayments. I have extracted the relevant email correspondence about this above at [262] and it discloses that when Dr Schwartz emailed Mr Albert Bassal on 7 July 2010 he was concerned that Suncorp may step in and conduct a “fire sale” of the Centre if agreement could not be reached with Suncorp as to its future financing. The response from Mr Bassal was that CFO would not pay any of its obligations under the facility. That is, although PSP continued to make its monthly interest obligations, CFO did not.

591. There was no evidence before the Court as to the financial circumstances of either CFO or the Bassals. What is clear is that CFO did not inject any of its own funds into repaying its debt obligations. It is always possible that if it had done so the appointment of the receivers and managers by Suncorp on 25 November 2010 may have been deferred or may never have happened if the business had been turned around.

592. There was no evidence adduced by the plaintiffs as to the financial circumstances of CFO and PSP during 2009 and 2010. It is unknown whether one or both of them lacked the financial capacity to service the facility. It is possible that CFO and PSP could have serviced the facility through their own resources but elected not to. I am simply unable to make a finding either way. If they were so capable then that would have been a further factor militating against any finding that it was appropriate to extend the scope of Savills liability in this way.

593. Despite the absence of any evidence of their financial circumstances and their ability to mitigate their loss, it is clear that the JV partners, CFO and PSP, elected not to meet their loan repayments. The plaintiffs did not adduce any evidence to establish that the only reasonable course for the JV partners to take was to “walk away”. This is thus another matter that severs any causal nexus between any breach of contract or negligence and any capital “loss” claimed by the plaintiffs.

Would the Centre have ever been successful?

594. Mr Duane’s evidence was that the Centre failed because the catchment area was not large enough, the demographic profile was low-income family households which are not conducive to factory outlet centre customers, the design of the Centre over two levels without direct car parking access to the upper levels; and the downturn in the economy as a result of the GFC. I have considered the fact that, unlike DFO Homebush and Birkenhead Point, Campbelltown is on the edge of the city. Besides easier parking, it was never properly explained by the experts why someone in the trade area of both Campbelltown and DFO Homebush would travel to Campbelltown rather than Homebush to shop.

595. Mr Duane’s evidence was that the Centre would have worked but would not have been a high performing centre. Even Mr Hack’s evidence was that the Centre would not have traded as well as DFO Homebush or Birkenhead Point.

596. The evidence as to what the achievable rent for the Centre square metre was the subject of considerable evidence and submissions. The experts referred to both gross rent and net rent and explained that, on average, $100/m² is deducted from gross rent as outgoings to arrive at net rent. The JV approached the development of the Centre on the basis that it would receive $6.5 million per annum in net rental income if the Centre was fully occupied. For this to occur, a rent of at least $400/m² was required.

597. The weight of the expert evidence was that the Centre was never going to achieve the desired rental income. Mr Duane’s evidence as to the rental was that likely gross rents for the Centre were $365/m² which translated to net rentals of $285/m² to $295/m². Mr Hack was never asked to provide an expert opinion on the likely rent. His evidence concerned the trade area analysis, population growth and generation and potential capture of retail sales. The nature and extent of the disagreement between Mr Duane and Mr Hack was how far that trade area could extend northwards. Mr Steur also assessed the likely net rental. His assessment was that it would be $40 to $75/m².

598. The only evidence as to rent relied upon by the plaintiffs was from Mr Bransdon and his evidence was that he assumed that the Centre would be 90% to fully let at net rentals of $400/m² and $50,000 per annum for kiosks. That is, he was not asked to give an opinion as to rent for the purposes of this hearing. His letter of instruction was to assume rent of $400/m². Although he gave an earlier assessment at the time in 2008, he was not asked to reconsider the matter for the purposes of the hearing.

599. I have considered the question of whether the JV was being unreasonable when it maintained that $400/m² was required for the rent in the Centre. I accept that all of Savills expert witnesses engaged after the fact put the anticipated rental at a much lower rate. When the budget was first proposed Savills suggested a net rent in the amount of approx. $351/m², with a target of approx. $404/m². After the Bassals refused to accept this, the revised budget included an increased rent to approx. $391/m² with a targeted rent of approx. $423/m². (These figures come from the draft and final budgets). After the Urbis report, further doubts were raised with the JV partners concerning the achievable rent. The minutes of the JV meeting in February 2009 (after the Urbis report was obtained) reflect that Savills raised the issue that such a rent might be unreasonable. Despite this, the JV partners still sought that amount, which the experts now agree was not achievable.

600. Had the Centre been as successful as, for example, DFO Homebush, from its opening and had it grown as successfully as that centre did, then $400/m², as predicted at the time, may have been achieved. But the big brands were not interested and this led to less rents being achievable. The relevance of the anticipated rent goes beyond simply the question of whether Mr Bassal was unrealistic in hoping to achieve that level. If the anticipated levels of rent were as estimated by Mr Duane and Mr Steur, then the Centre could not have operated at a profit.

601. I have given careful consideration to the question of what the market rent for the Centre would have been in 2009. As I have already concluded above at [514] to [519] in relation to the evidence of the market economists, the evidence of Mr Steur of $40–$75/m² seems very low compared with the other evidence. One of the reasons for this was that he discounted by 30% due to a “permanent vacancy factor due to design”. I do not consider that it is necessary or appropriate to make such a deduction. I prefer Mr Duane’s evidence of market net rent being $285–$295/m². As set out above, he arrived at that figure after a detailed analysis.

Conclusion on causation

602. For all of these reasons I am satisfied that even if there had been a breach of the contract/negligence, the plaintiffs have not enabled to establish factual causation between the failure of the Centre and the negligence of Savills.

The plaintiffs’ case on loss

603. The plaintiffs’ case as set out in the pleadings and confirmed in the opening address was that the plaintiffs’ case on loss could be categorised in four ways namely: “Loss of Value of the Centre”; “Indebtedness to Suncorp”; “Loss of profits” and “Expenses incurred”. It became clear throughout the hearing that there was no indebtedness to Suncorp (the companies no longer exist). As for the personal guarantees the plaintiffs signed, they were settled for much less amounts as well. On its face, the way the economic loss was pleaded in the SFASOC, the plaintiffs sought to be placed in a superior position to that which the JV companies would have occupied had the breach of contract/negligence not occurred.

604. The outline of the plaintiffs’ written opening submissions essentially repeated what is contained in the pleadings. In her opening address senior counsel submitted that the plaintiffs’ case on economic loss was put on three bases:

1. First, the plaintiffs’ loss could be assessed as $51.5 million as at June 2010 and calculated by deducting the sale price of the Centre in 2015 of $13.5 million from the value of the Centre as at June 2010, said to be $65 million.

2. Secondly, the plaintiffs’ loss could be assessed as $95.5 million as at December 2013 and calculated by deducting the sale price of the Centre in 2015 of $13.5 million from the value of the Centre as at December 2013, said to be $109 million.

3. Thirdly, the plaintiffs’ loss could be assessed as “the loss of excess rent over the interest payments on $47.5 million of debt until December 13 …”

605. I clarified with senior counsel at that time that the case was put in these three bases and it was confirmed that to be the case. Although it was indicated at that time that a schedule of damages would be submitted, no such schedule was ever submitted prior to counsel withdrawing from the matter or at all.

606. The plaintiffs’ final written submissions were prepared by a solicitor who had not been present at the hearing and, with no criticism intended, did not reflect the pleadings. The two relevant dates for the assessment of loss were said to be 21 November 2013 and 10 December 2009. These closing submissions indicated that there are six alternative claims for damages: three arising from the relevant assessment date being 2013 and three arising from the relevant assessment date being 2009. The plaintiffs’ final written submissions asserted that the loss could be assessed on a number of alternative bases as follows:

607. First the loss suffered was $109 million, being the value of the Centre in November 2013. Alternatively, the opportunity the JV lost to obtain that value. From that amount the indebtedness to Suncorp ought to be deducted, being an amount of $47,800,000 (excluding default compounding interest and any other operating costs and receivers costs, which would not have been incurred had there not been default as a result of Savills breaches). This leaves a sum of $61,200,000. To that amount the net income that would have been earned if the Centre had operated from December 2009 to December 2013, which would have been $15,550,994 (being the difference between projected income of $29,359,173 and the interest of $13,808,179). This amount is $76,750,994. If the Court finds that the plaintiffs are entitled to only 40%, being the share of CFO’s interest, then the plaintiffs’ entitlement would be for $46,050,596.

608. An alternative submission was that damages could be assessed on the basis of the expected value of $64.5 million in December 2009 (even though the evidence was that the JV participants would not have sold at this time). Alternatively, the opportunity the JV lost to obtain that value. From that amount should be deducted the amount of indebtedness to Suncorp, being an amount of $47,800,000 (excluding default compounding interest and any other operating costs and receivers costs), which leaves a sum of $16,700,000.

Consideration of loss/damages

609. The plaintiffs failed to articulate their case on lost rental. They did not allege that Savills failed to find and introduce any particular tenant. Again, their submissions focussed on a case that Savills was contracted to achieve a particular outcome and thus the relevant loss was the value of the Centre if it had been 90% leased with quality tenants at $400/m². The relevant dates for assessment were said to be in 2010 (when the receivers were appointed) and 2013. It was never properly explained why 2013 was a relevant date.

609. The SFASOC did not plead this matter as a “loss of chance” case. This was no doubt because the only relevant opportunity which Savills was to provide under the ELAA was to find and introduce prospective tenants to the JV.

610. The plaintiffs asserted that Savills had knowledge of the cost of construction and other expenses, of the financial commitments, the value of the Centre, the need for profit and the effect of default. The contemporaneous documentation suggests that Savills had some awareness of these matters thus I do not accept Mr Brown’s complete denials in this respect. But even if Savills did have all of the knowledge that the plaintiffs claimed it did, I am not satisfied that this knowledge changed the nature of the duty owed to the JV by Savills.

611. The plaintiffs’ case was pleaded solely as one of capital loss. I am satisfied that the capital loss the JV eventually incurred as a result of it defaulting under its finance facility was not “in the reasonable contemplation of the parties” at the time of the ELAA. I accept Savills submission that such an undertaking on its part to bear this loss is to be contrasted with the relatively modest remuneration that Savills was to receive under the ELAA of a retainer of $100,000 to be offset against leasing commissions of 10% of the first year’s gross rent. This “risk v remuneration” balance also satisfied me that such risk was not in Savills reasonable contemplation.

Conclusion

613. I am not satisfied that there was a breach of contract/negligence on the part of Savills. Even if the plaintiffs had been able to establish such breach of contract/negligence on the part of Savills, they have been unable to establish factual causation on the bases I have identified above. In circumstances where there were a number of deficiencies in the way that the plaintiffs sought to establish loss, I am not in a position to calculate any damages.

614. A number of other arguments were raised by Savills. Given the findings I have already made I do not consider it necessary to consider them. The two most significant of those arguments were the effect of the PMA and the question of whether the assignment is valid.

615. Overall, there were a number of deficiencies and difficulties with the plaintiffs’ case. These arose for a number of reasons but were not assisted by the regrettable procedural history of this matter and the fact that Mr Bassal’s lawyers were forced to withdraw from the matter.

616. Having observed Mr Bassal throughout the lengthy hearing, I have no doubt that he passionately believed that the Centre would have been highly successful but for the actions of Savills. For the reasons I have provided the plaintiffs have failed to establish that this is the case.

Orders

617. I make the following orders:

1. Judgment for the defendant.

2. The plaintiffs are to pay the defendant’s costs.

Decision last updated: 26 July 2019