Castle Constructions Pty Limited v Fekala Pty Limited

[2004] NSWSC 672

CITATION:	Castle Constructions Pty Limited v Fekala Pty Limited & Ors [2004] NSWSC 672
HEARING DATE(S):	19 and 20 July 2004
JUDGMENT DATE:	30 July 2004
JURISDICTION:	Equity
JUDGMENT OF:	Acting Master Berecry at 1
DECISION:	See paragraph 77
CATCHWORDS:	DAMAGES -- measure of damages -- when assessed -- knowledge of purchaser's intention -- test of reasonableness and likelihood of loss - MITIGATION -- reasonable steps to mitigate -- ordinary course of business -- external factors -- would it have been prudent to accept vendor's offer
CASES CITED:	British Westinghouse Electric and Manufacturing Co Limited v Underground Electir Railways Co of London Limited [1912] AC 673 C Czarnikow v Coufos [1969] 1 AC 305 Commonwealth of Australia v Amman Aviations (1991) 174 CLR 64 Cottrill v Steyning and Littlehampton Building Society [1966] 1 WLR 753 Diamond v Campbell Jones [1962] Ch 22 Dunkirk Colliery Company v Lever [1878] 9 Ch D 20 Hadley v Baxendale (1854) 154 ER 145 Payzu Limited v Saunders [1919] 2 KB 581 Robinson v Harman (1848) 154 ER 363 SmithNewcourt Securities Limited v Citibank [1997] AC 254 Sotiros Shipping Inc & Anor v Sameiet Solholt (The "Solholt") [1983] 1 Llyod's Rep 605 The Clippens Oil Company Limited v The Edinbrugh District Water Trustees [1907] AC 291 Wenham v Ella (1972) 127 CLR 454
PARTIES :	Castle Constructions Pty Limited - plaintiff Fekala Pty Limited and others- defendants
FILE NUMBER(S):	SC 3812/01
COUNSEL:	D Officer QC and KJ Williams for plaintiff MW Young for defendants
SOLICITORS:	Aitken McLachlan Thorpe for plaintiff Nugent Wallman & Carter for defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Acting Master Berecry

Friday 30 July 2004

3812/01 Castle Constructions Pty Limited v Fekala Pty Limited & Others

JUDGMENT

1 MASTER: On 28 June 2001 the plaintiff, as purchaser, and the defendants, as vendors, entered into a contract for sale of land at 5-7 Rose Street, Eastwood (Eastwood). The sale price for the property was $3 million. The plaintiff payed the deposit of $300,000.

2 By late July a dispute had arisen between the parties. The fixtures and fittings had been removed and on 1 August 2001 the plaintiff commenced these proceedings seeking, inter alia, a declaration that the contract included the in sale items of plant and equipment.

3 On 14 August 2001 the defendants served a notice to complete on the plaintiff requiring completion by 3pm on 29 August 2001, time being of the essence. Notwithstanding that the notice was issued by the defendants the defendants were unable to complete on that date and the plaintiff terminated the contract.

4 On 28 August the defendants’ solicitors informed the plaintiff’s solicitors that they would be unable to complete on 29 August and advised that they were withdrawing the notice to complete and extending the date for completion to 12 September.

5 The plaintiff ignored the second notice to complete and on 25 September 2001 filed an amended summons seeking a declaration as to the validity of the termination of the contract. Subsequently, on 28 September 2001, the defendants filed a cross claim seeking, inter alia, specific performance of the contract.

6 On 26 February 2002 Windeyer J held that the plaintiff had validly terminated the contract and referred the question of damages to a Master for enquiry. The defendants’ cross claim was dismissed. The defendants lodged an appeal, however, on 6 September the Court of Appeal dismissed that appeal.

7 There are two matters to be determined on the referral. Firstly, whether or not the plaintiff has sustained damages as a result of the breach by the defendant and if so, the extent of those damages. Secondly, whether the plaintiff had taken steps to mitigate its loss.

Background

8 The defendants were mortgagees of a property known as 5-7 Rose Street, Eastwood. They offered to sell the property to the plaintiff. On 28 June 2001 a contract for sale of land was entered into. The contract provided for completion on the forty second day after 28 June 2001, ie 9 August 2001. On 14 August 2001 the defendants served a notice to complete on the plaintiff fixing 3pm on 29 August 2001 as the time and date for completion. Time was of the essence for both time and date.

9 On 27 August 2001 the defendants’ solicitor forwarded to the plaintiff’s solicitor a draft settlement statement and a form of transfer for execution. On 28 August 2001 the defendants’ solicitors wrote to the plaintiff’s solicitors waiving completion by 3pm on 29 August and extending it to 3pm on 12 September 2001.

10 On 29 August 2001 the plaintiff’s solicitor attended the defendants’ at 11.55am with the necessary cheques for settlement. There was a discussion about the validity of the extension of the settlement. The plaintiff’s solicitor left, but returned at 2.55pm and was once again advised by the defendants’ solicitor that the defendant was not ready to complete. Thereafter, on that day the plaintiff sent a notice of termination.

11 On 11 September 2001 the defendants had the transfer signed by all vendors and was ready to settle by 3pm on 12 September. Settlement did not take place.

12 The business of the plaintiff is that of a developer and builder of commercial and residential sites. The company has operated as a developer since 1978. The evidence of Victor Lahoud, the sole director of the plaintiff, was that he identifies and selects sites which are suitable for redevelopment. Once a property is purchased he then proceeds to obtain development consent from the local authority. The company then either sells the site with the benefit of the development consent of the local council or constructs the buildings on the site for sale. Most of the company’s projects since 1992 have resulted in the sale of sites with the development consent rather than carrying out construction on the sites. Mr Lahoud’s evidence was that where he sees an opportunity to purchase more than one site during a current development phase if, in his opinion, it has good investment value and the potential to develop in the future, the company would then purchase that site. The company also has a policy in relation to whether it will construct buildings on the site or merely obtain development consent from the local council and then on sell to a larger builder. His evidence was that where the site will accommodate more than 24 units or town houses the company’s policy is to obtain development consent from the local council and then on sell the site with the development consent to another builder. Another factor in considering whether or not the company will construct is the proximity of the project to the plaintiff’s offices at Northbridge. As a general rule his evidence was that anything within a five kilometre radius of Northbridge is regarded as a potential construction site rather than merely obtaining development consent and then on selling. Since 1985 the plaintiff has only constructed six projects. The remaining projects have been on sold to other developers once the plaintiff obtained the development consent from the local council.

13 Mr Lahoud’s evidence was that he is continually researching and looking at new sites with the potential to develop. However, it is not every site that he inspects that the company ultimately enters into a contract to purchase the site. His evidence was that the nature of the business requires him to be continually inspecting sites and determining the potential of those sites.

14 On or about 2 June 2001 Mr Lahoud saw an advertisement in the Sydney Morning Herald advertising for sale by way of auction the Eastwood property. The property was advertised with vacant possession and zoned commercial.

15 On or about 21 June 2001 Mr Lahoud spoke with Mr Peter Matthews from Ray White Real Estate who were listed as co-agents in the advertisement. Mr Lahoud advised Mr Matthews that the plaintiff was principally a developer of residential and commercial property.

16 The auction was to take place on 28 June 2001. On 27 June 2001 Mr Lahoud meet with Mr David Wolski, an architect, with the view of having Mr Wolski prepare a development application for the site. The following day, 28 June 2001, Mr Lahoud attended the auction of the property and was ultimately the successful bidder. The contracts were exchanged and Mr Lahoud handed over a cheque in the sum of $300,000 being the deposit under the contract. At the conclusion of the auction he met Mr James Carter who was the solicitor acting for the mortgagees on the sale.

17 During July the plaintiff consulted with and gave instructions to Mr Wolski to prepare the development application to be lodged with Ryde Council. The company also instructed a registered surveyor and a town planner to work with Mr Wolski with a view of obtaining development consent from the Ryde Council. Throughout July, August and September 2001 there was consultation with Ryde Council’s town planner with a view to ensuring that the application by the plaintiff ultimately received favourable consideration by the Council.

18 On or about 24 July 2001 Mr Lahoud had a conversation with a Mr Roberts who was a director of the mortgagor of Eastwood. During that conversation Mr Roberts informed Mr Lahoud that there was a dispute between the mortgagees and the mortgagor and that the mortgagor would be taking steps to ensure that that dispute went to court. Mr Roberts implied that any court case would be lengthy and would involve Castle Constructions as well as the mortgagees. Subsequently, there was a further conversation with an associate of Mr Roberts who indicated that a deal could be done between the mortgagor and Castle Constructions if Castle Constructions were to give the mortgagor a lease of the premises and were to fit out the premises with the necessary fixtures and fittings to the sum of approximately $1 million. Those discussions did not go any further.

19 There was now some concern by Castle Constructions about the success of the project. The plaintiff did not want to get involved in litigation which may render the project uneconomical.

20 In accordance with the company’s practice, Mr Lahoud continued to look for other potential sites. In late July the plaintiff gave instructions to its solicitor to approach the defendant with a view each party giving releases in respect of the contract, that there be mutual rescission. Ultimately that did not find favour with the defendants. At about this time Mr Lahoud continued to look at other sites which may have some potential for the plaintiff. Two sites in particular were considered, one at Cammeray and one a Waitara. However, in relation to the Waitara property he was informed by the estate agent that the property had sold. So far as Cammeray was concerned the company had discussions on 27 July 2001 with a real estate agent and gave instructions to make an offer for that property. The agent informed the plaintiff that the asking price for the property was $3.6 million but that he believed that $3.3 million would be sufficient to enable it to be purchased. Mr Lahoud’s instructions on behalf of the plaintiff were to make an offer of $2.8 million.

21 After the plaintiff terminated the Eastwood contract on 29 August he instructed the agent in respect of the Cammeray site to make a bid for $3.1 million. Shortly thereafter the agent informed him that another party was very close to purchasing the property and informed Mr Lahoud that the plaintiff would have to move quickly to secure the property.

22 Mr Lahoud’s evidence was that the Cammeray site would only be pursued on the basis that as a result of the termination of Eastwood the deposit would be refunded and that that deposit could be used as the deposit for the purchase of the Cammeray site. The defendant declined to return the deposit and the plaintiff, therefore, did not pursue the purchase of Cammeray.

23 The plaintiff asserts that as a result of the failure of the defendant to complete the contract it lost the opportunity to develop the Eastwood site. Alternatively, by refusal to refund the $300,000 deposit the plaintiff was unable to proceed with the purchase of the Cammeray site. Therefore, the plaintiff asserts that it has sustained damages as a result of the breach of the contract by the defendant.

Damages

24 It is submitted by the defendant that the damages that are sought by the plaintiff are damages to be assessed at the date of breach of the contract namely 29 August 2001. It is submitted that the plaintiff’s measure of damages is the difference between the price that it bargained to purchase the property and the market value of the property at the date of default. Further, it is submitted that as there is no evidence of what the market value was of the property as at 29 August 2001 there is no evidence that the plaintiff has sustained any loss.

25 In Robinson v Harman (1848) 154 ER 363 at 365; the court said:

“Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

26 In Hadley v Baxendale (1854) 156 ER 145 at 151; the court said:

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie according to the usual course of things, from such breach of contract itself, or such as may be reasonably be supposed to have been within the contemplation of the parties, at the time they made the contract , as the probable result of the breach of it.”

27 In Wenham v Ella (1972) 127 CLR 454 at 463; Barwick CJ also referred to what had been contemplated by both parties at the time the contract was made in the event of there being a breach.

28 In Smith and Newcourt Securities Limited v Citibank [1997] AC 254 at 265; the court said:

“The general rule in other areas of the law has been that damages are to be assessed as at the date the wrong was committed. But recent decisions have emphasised that this is only a general rule: where it is necessary in order to adequately compensate the plaintiff for the damage suffered by reason of the defendant’s wrong a different date of assessment can be selected. Thus in the law of contract, the date of the breach is ‘not an absolute rule: if to follow it would give rise to an injustice, the court has power to fix such other date as may be appropriate in the circumstances.’”

29 In Diamond v Campbell Jones [1962] Ch 22; the court said that in order to recover loss of profits which would have been made on a development the plaintiff must establish that the defendant had actual knowledge at the time of making contract of how the plaintiff proposed to deal with the property. In that case the court was not prepared to impute such knowledge to the defendant. Buckley J said:

“Special circumstances are necessary to justify in imputing into a vendor of land that the purchaser intended to use it in any particular manner.”

30 In Cottrill v Steyning and Littlehampton Building Society [1966] 1 WLR 753 at 756 the claimant entered into a contract to purchase certain land with the view of developing the land. In breach of the contract the defendant sold the land to a third party. Dealing with the question of special circumstances the court said that the defendants knew that the claimant intended to develop the land. Therefore, special circumstances where established which entitled the claimant to have damages assessed by reference to the profits which both parties contemplated that he would make. Accordingly, damages were assessed at the market value of the land at the date of completion of the development less expenses attributable to carrying out the development.

31 In Commonwealth of Australia v Amman Aviations Pty Limited (1991) 174 CLR 64 the court stated that the award of damages for breach of contract for the purpose of protecting the plaintiff’s expectation of receiving the defendant’s performance the onus of proving damages lies on the plaintiff and any damages awarded are to be determined objectively rather than subjectively ascertained. That is, the plaintiff must prove, on the balance of probabilities, that his expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being a mere expectation.

32 Brennan J at pages 98 and 99 reviewed some of the authorities that I have already referred to; his Honour also cited an English authority, C Czarnikow Limited v Coufos [1969] 1 AC 305 at 385. His Honour cited the following passage of Lord Reid:

“The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”

33 The plaintiff relies on expert valuation evidence put on by Craig Miller. In his report of 4 April 2003 Mr Miller assesses the valuation of the property as $7,280,000 based on the council’s consent to a development application for the site. Mr Miller’s report was not challenged. Therefore, as a starting point the value of the property can be accepted as being $7,280,000 if the plaintiff had acquired the property and obtained the consent of Ryde Council for its development application and then on sold the site. The evidence of Mr Lahoud is that the expenses associated with the project would come to approximately $3,582,000. Those expenses include the purchase of the Eastwood land as well as the work that had been performed in relation to the development application and the legal and promotional costs in relation to the on sale of the property. Thus, on the plaintiff’s evidence, the net profit would have been $3,698,000.

34 The plaintiff also seeks to add to that a sum for the fixtures and fittings that were wrongfully removed from the property. In relation to those items the evidence is very unsatisfactory. Figures ranging from $300,000 to $500,000 were given as the damages sustained by the wrongful removal of those items. However, there was no evidence before me which established any figure in relation to those items. In the absence of any such evidence I am not prepared to make an assessment of the loss, if any, sustained by the plaintiff in respect of those items.

35 It is clear on the authorities that I have cited that the damages are based on what the parties may have reasonably contemplated at the time the contract was made. The plaintiff’s evidence is that the property was zoned commercial and was advertised as a commercial site. The plaintiff’s discussions with the defendants’ agent included advice that it was a developer and that it was looking to develop the site. It is clear from the name of the plaintiff company that its business is that of construction and developing properties for the purpose of making a profit.

36 In my view, having regard to the evidence of the conversation with the defendants’ agent, the way in which the property was advertised and the nature of the plaintiff’s business, the defendants had knowledge that the plaintiff intended to develop the site. Therefore, in my view at the time that the contract was entered into it was contemplated by both parties that the plaintiff was acquiring the site for the purposes of developing it. The measure of damages, ie the loss that flowed naturally from the breach is the difference between the value of Eastwood according to the valuer less the expenses associated with the acquisition of the site, development and marketing of the site.

37 Therefore, the measure of damages that the plaintiff is entitled to recover, subject to the defendants’ submissions in relation to mitigation, is as follows:

Value of 5-7 Rose Street Eastwood $7,280,000
according to the valuer’s report

Less:

Purchase price of land $3,000

Stamp duty $151,000

Architect’s fees (pre-DA lodgement) $31,897.50

Architect’s fees (post-DA lodgement) $16,500

Town planner’s fees $2,420

Hydraulic consultant’s fees $1,250

Fees payable to council in connection $500
with pre-lodgement application

Fees payable to council on lodgement $7,368
of DA

Legal expenses relating to purchase $4,281.46

Legal expenses relating to dispute $15,443
about sale of plant and equipment

Legal expenses on sale of property $8,562

Fees for promotion of sale of property $35,000

Agent’s commission on sale of property $145,600

Overhead expenses $150,000

TOTAL EXPENSES $3,582,190.46

38 Therefore, the amount of damages, round out, sustained by the plaintiff as a result of the breach by the defendants is an amount of $3,698,000.

Mitigation

39 The plaintiff must take all reasonable steps to mitigate the loss to him consequent upon the defendants’ wrong and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction to avoid. In British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] AC 673 at 689 Viscount Haldane LC said:

“The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a claimant the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.”

40 In Payzu Limited v Saunders [1919] 2 KB 581 at 586 McCardie J posed the following question in relation to mitigation:

“The question, therefore, is what a prudent person ought reasonably to do in order to mitigate his loss arising from a breach of contract. … the plaintiffs … were fully entitled to consider the terms in which the offer was made, its bona fides or otherwise, its relation to their own business methods and financial position, and all the circumstances of the case; … Many illustrations might be given of the extraordinary results which would follow if the plaintiffs were entitled to reject the defendant’s offer and incur a substantial measure of loss which would have been avoided by their acceptance of the offer.”

41 A criterion for reasonableness, stated concisely in the words of James LJ in Dunkirk Colliery Company v Lever [1878] 9 Ch D 20 at 25, which was cited with approval by Viscount Haldane LC in British Westinghouse, supra, is that the plaintiff is not ‘under any obligation to do anything other than in the ordinary course of business’.

42 Also, relevant to the question of mitigation is the plaintiff’s financial ability to take steps in mitigation. In The Clippens Oil Company Limited v The Edinbrugh District Water Trustees [1907] AC 291 at 303 Lord Collins said:

“In my opinion the wrongdoer must take his victim talem qualem, and if the position of the later is aggravated because he is without the means of mitigating it, so much the worse for the wrongdoer, who has got to be answerable to the consequences flowing from his tortious act.”

43 In relation to mitigation it is a question of whether or not the plaintiff acted reasonably in all the circumstances. In Sotiros Shipping Inc & Anor v Sameiet Solholt (The “Solholt”) [1983] 1 Lloyd’s Rep 605 at 609 the Court commented:

“If they could have found a different but identical ship, clearly it would have been reasonable that they should have bought it and the price of that purchase would have established the measure of their loss. However there is no suggestion that any such vessel was available. This left them with the alternative of buying Solholt .”

44 It was submitted on behalf of the defendant that the plaintiff failed to act reasonably to mitigate his loss by firstly failing to take up the defendants’ offer to complete the contract for Eastwood and secondly it failed to engage in an alternative development.

45 The plaintiff’s evidence was that it only ever conducted one project at a time unless an opportunity arose which Mr Lahoud regarded as an outstanding opportunity for future development. Although in cross examination Mr Lahoud’s evidence was that it was only after the termination of the contract that the plaintiff showed interest in the Cammeray property that is not borne out by the affidavit evidence. It is clear that in late July the plaintiff, through Mr Hargrave, was making enquiries and, in fact, put in a bid in respect of the Cammeray property. Therefore, whilst the contract was still on foot in relation to the purchase of Eastwood the plaintiff was making enquiries about alternate sites.

46 In paragraph 46 of Mr Lahoud’s affidavit of 28 March 2003 he raises a number of complaints about the actions of the defendants in not accepting the termination of the contract on 29 August 2001. He was extensively cross examined on the matters contained in that paragraph. Mr Lahoud agreed that Cammeray would have been a site where the plaintiff would have constructed units rather than merely obtain the development consent of the North Sydney Council and then on sell the site with the development consent to another developer. He estimated that the profits that would have been derived from the Cammeray site would have been approximately $4,311,000. In paragraph 42 of that affidavit he stated that the plaintiff had the potential to make a profit in excess of $4 million in respect of the Cammeray site or alternatively, that the plaintiff would have purchased a site of similar potential to the Eastwood site and also achieved a profit in excess of $4 million.

47 Mr Lahoud agreed that the second half of 2001 and into 2002 was the best period recorded in respect of development and construction of residential and commercial sites. However, his evidence was that that did not necessarily mean that there was an abundance of properties on the market for purchase. His evidence was that the plaintiff would only be a position to acquire either Cammeray or another site, should one be on the market, if the defendants’ accepted the termination and refunded the deposit. His evidence was that he would use the refund of the deposit moneys from Eastwood as deposit moneys in respect of Cammeray.

48 Mr Lahoud’s evidence was the he was concerned that the plaintiff might be placed in a tight financial position should it purchase Cammeray and then be ordered to complete the purchase of the Eastwood property or, alternatively, be liable for damages for breach of contract. However, in December 2001 it appears that the plaintiff acquired a site known as Walker Street, North Sydney.

49 Exhibit 2 is an expert report prepared by Claude Jugmans, on behalf of the defendants, in respect of the financial affairs on the plaintiff. The report was prepared on 26 May 2004. Mr Jugmans was not called for the purposes of cross examination either on his affidavit or on the contents of the report. The report, therefore, is unchallenged except to the extent that counsel for the plaintiff submits that Mr Jugmans addressed the wrong questions in preparing his report. The plaintiff’s submissions, in part, are that he has prepared his analysis on the assumption that the Eastwood property would have been purchased by the plaintiff in August 2001. However, paragraph 7.9 of the report sets out the two scenarios upon which Mr Jugmans has prepared a cash flow analysis of the plaintiff. The first scenario deals with the complaint by the plaintiff and the purchase the Cammeray property. The second scenario is based on the complaint against the defendant and on the purchase by the plaintiff of both the Eastwood and the Cammeray properties. Schedule 6A to the report is the projected cash flows of the plaintiff in accordance with scenario one, ie where Eastwood was not purchased. Schedule 6B is scenario two, which involves an analysis based on the purchase of Eastwood in August 2001. Therefore, it can be seen that the analyses have been done in the alternative.

50 Having regard to the fact that the report has not been challenged, other than to the appropriateness of the approach taken by Mr Jugmans, it would appear that each scenario demonstrates that the plaintiff at all material times had sufficient funds, or access to funds, which would have enabled it to purchase Cammeray and still have contingency funds available in respect to any liability concerning Eastwood.

51 Schedules 1A - H to the report set out the trading account for the plaintiff financial years ended 30 June for the years 1993 to 2001. It is apparent from those schedules that in those five years when the plaintiff undertook new projects in two of those years the plaintiff undertook more than one project. In 1994 projects were commenced in Victoria Avenue, Chatswood, Abbott Street Cammeray and Sydney Street, Willoughby. In 1995 projects were commenced in Mowbray Road, Chatswood and at Northbridge. That is not inconsistent with Mr Lahoud’s evidence that when an outstanding opportunity arose more than one project would be undertaken in a particular year. However, what the schedules do demonstrate is that there were times when the company was conducting anything up to three projects as the same time.

52 Schedule 2 sets out the rental account for the financial year ended 30 June for the years 1993 – 2001. With the exception of the first two years each year from 1995 onwards showed a profit. For 2001 the profit was just under $168,000.

53 Schedules 3A and B show the financial facilities available to the plaintiff applying each of the scenarios as at 1 July 2001. In schedules 3A and B there is an analysis based on mortgage borrowings at 66% of the value of various properties and concludes that the total financial facilities available to the plaintiff as at 1 July 2001 was just over $7 million (scenario 1) and $9 million (scenario 2). Although the analysis is done as at 1 July 2001 the plaintiff’s asset position did not change after that date. However, the assumptions applying to schedules 3A and B, 4A and B and 6A and B appear to be wrong in respect of Walker and Murray Streets as clauses 9.18 and 9.19 assume that were purchased in December 2001 (Walker Street) and settled in December 2001 (Murray Street). Therefore, until January 2002 the total finance available should be reduced by approximately $1.9 million. The Jugmans’ report concludes (paragraphs 4.1 and 4.2) that:

“4.1 In our opinion, the pre-tax annual rate return that the Plaintiff would expect to achieve on each further dollar invested in its business at 29 August 2001, based on the return achieved by the Plaintiff over the period from 1993 to 2001, is 31.51% (refer paragraph 10 below).
4.2 In our opinion, as a result of the Complained of Conduct, the Plaintiff was not compelled to forego any of its property activities, being constructions or developments, in the period from 29 August 2001 to 11 September 2002 (refer paragraph 11 below).”

(i) Failure to repurchase from the defendants

54 The defendants submit that it was always open to the plaintiff to purchase the Eastwood property. Although the defendants were not in a position to settle on 29 August 2001 it is submitted that the defendants were ready and willing to settle by 12 September 2001. The defendants’ position is that because of the cross claim it is abundantly clear that the defendants were at all times willing to sell the property to the plaintiff. The defendants rely on Payzu Limited v Saunders, supra, that the plaintiff could have mitigated its loss by accepting the defendants’ offer to purchase the property.

55 However, the plaintiffs submit that as early as 27 August 2001 the defendants’ offer to the plaintiff was not for completion of the contract on the terms of the contract. By letter of 27 August 2001 the defendants’ solicitor wrote to the plaintiff’s solicitor as follows:

“Our clients offer to settle all claims between the parties on the following bases:
1. The date for completion to be extended to 21 September 2001 with time of the essence;
2. Interest to run until completion in accordance with the contract;
3. Your client execute a deed in the form enclosed which abandons all claims by your client against our clients and embodies the terms of this letter. The deed is to be executed and forwarded to us by close of business on 28 August 2001;
4. Supreme Court proceedings brought by your client be discontinued with no further order as to costs, but with the existing costs order to stand; and
5. Your client to provide us with an executed deed of transfer for the execution of the mortgages.”

56 What was now being offered by the defendants was settlement of any claims either current or in the future that each had against the other together with completion of the contract. The first basis of the letter, it must be inferred, that it is completion in accordance with the terms and conditions of the contract dated 28 June 2001. The second basis is consistent with special condition 35 of the contract. Bases three and four relate not to the contract but to the current and any prospective claims either might have against the other.

57 The plaintiff was concerned about the attitude of the mortgagor. The plaintiff’s evidence is that the mortgagor had informed the plaintiff that if the sale were to proceed there would be legal proceedings between the mortgagor and the mortgagee which would tie up the property and involve the plaintiff. This was a significant consideration for the plaintiff as the nature of the business conducted by it involved a smooth turnover of properties and thus maintaining cash flow and profitability. The concern to the plaintiff was that if it became embroiled in litigation it may have funds which would be subject to the payment of interest but not receiving any income in the meantime.

58 The defendants’ offer remained on the table up until Eastwood was sold. However, in addition to the terms of the letter of 27 August 2001 by late September the plaintiff was also faced with a cross claim.

59 The cross claim sought specific performance as well as damages and various other incidental matters. Prima facie, the ground had moved again and the defendants’ offer of 27 of August now had an element of damages attached. However, there was no evidence to suggest that the offer of 27 August 2001 was withdrawn. The defendants were silent in relation to giving up its rights in relation to the cross claim. The claim for specific performance indicated the defendants’ willingness to complete but not necessarily a willingness to abandon any claim for damages. Mr Lahoud’s evidence was that on his calculations the probability was that if the defendants succeeded and obtained damages those damages could run as high as $940,000. This was tested by counsel for the defendant, however, Mr Lahoud was unshaken on his evidence and his opinion was that liability could have been as high as $940,000. Therefore, that was a relevant consideration that the plaintiff had to take on board in determining whether or not to accept the defendants’ offer.

60 There was evidence that not all the mortgagees were prepared to complete. However, that was in the context that they were not prepared to negotiate the sale price. The offer by the defendant was on the terms and conditions of the contract dated 28 June 2001.

61 Would it have been reasonable for the plaintiff to accept the offer of the defendant and purchase Eastwood thus mitigating its loss? In my opinion it is clear that the offer was on the same terms and conditions of the contract, the defendants’ offer was bona fide. Until Eastwood was sold sometime in the first half of 2002 the defendants were at all times willing to sell the property to the plaintiff. The offer was not contrary to the plaintiff’s business method. It was in the business of buying and selling properties suitable for development. The plaintiff’s judgment was that this was such a site. The plaintiff’s financial position through this period was such that it had the capacity to purchase the property. In my opinion it would have been reasonable to accept the offer. However, were there other circumstances which might not make it prudent to accept the offer?

62 Would it have been prudent to purchase the property knowing of the threat of litigation by a disgruntled mortgagor? In late July when Mr Lahoud became aware of the threat of the mortgagor he offered to rescind the contract. The basis if the offer was the cost and uncertainty any potential litigation would have on the commercial objectives of the plaintiff. In my opinion but for the threatened litigation there would have been no reasonable basis for the plaintiff not to have completed the purchase. The threatened litigation was a significant factor in weighing up all matters. That the defendant did not abandon its claim for damages supports the plaintiff’s decision not to accept the offer. I do not think that it was unreasonable for the plaintiff.

(ii) Failure to engage in an alternative development

63 The defendants submit that it was always open to the plaintiff to acquire another site, either prior to the failure of the Eastwood contract or alternatively, once the plaintiff had terminated the contract to acquire another site and thus mitigate any loss that is sustained by the defendants’ breach in respect of the Eastwood contract. The defendant relied on Mr Jugmans’ report to establish that the plaintiff had either funds to acquire Cammeray or alternatively, the resources to raise funds to purchase Cammeray. It was put to Mr Lahoud that at all times the plaintiff had those resources available to it to purchase Cammeray. Whilst Mr Lahoud was evasive in some of his answers he conceded that there were sufficient resources which would have enabled the plaintiff to acquire Cammeray regardless of whether or not the plaintiff was forced to also complete the contract for the purchase of Eastwood. Mr Lahoud also conceded that if the plaintiff had been unsuccessful before Mr Justice Windeyer it would have been in a position to on sell the site with development consent by September 2002.

64 It would have also been in a position with respect to Cammeray to have either continued with the construction of the units on that site or alternatively, sell that site with the development consent. I assume that is on the basis that the preparation of the development consent would have taken approximately six months and thus the site with the development consent could have been on sold by February or March of 2002 thus making the profit asserted by Mr Lahoud in his affidavit of 28 March 2003 at paragraph 142.

65 The evidence does not disclose that the acquisition of an alternate site was not within the ordinary business of the plaintiff having regard to the acquisitions of 1994 and 1995 and the stated policy of the plaintiff to acquire second sites in any event where Mr Lahoud regarded them as outstanding prospects, nor does the evidence disclose that the plaintiff would be taking on an economic risk that could not be regarded as reasonable for the purposes of mitigating its losses.

66 From the analysis by Mr Jugmans the plaintiff’s assets and borrowing capacity would have permitted it to purchase Cammeray or an alternate site. In any event the plaintiff was only committed to the deposit of $300,000 in the second half of 2001. The plaintiff terminated the contract on 29 August 2001, that termination was not accepted by the defendants, the plaintiff’s existing summons was then amended to seek a declaration in relation to the validity of the termination that matter was not heard until early 2002. Throughout that period of time there was no obligation on the part of the plaintiff to make available any other funds in respect of Eastwood. True it may have been that had the plaintiff been unsuccessful then it would have needed to marshal its assets to complete the purchase of Eastwood.

67 However, it was always open to the plaintiff to change its position in relation to Cammeray from one where it was carrying out the construction of the site to one where it merely obtained development consent from the council and then on sold the site with the development consent.

68 If Cammeray had have been purchased in late August early September, or a similar site, then in all probability the plaintiff could have on sold that site by March 2002. Although Cammeray was not purchased it seems to me, from the evidence, that the plaintiff did not strongly pursue that purchase. An offer of $3.1 million was made but the evidence is silent about how keen the plaintiff was to purchase that site. The evidence is, of course, that because the deposit was not released the plaintiff was no longer interested in pursuing Cammeray. However, had Cammeray been pursued it would seem to me that the funds that it had available generally could have been used for the development of that site, notwithstanding that the deposit was still held by the defendant.

69 If the plaintiff had been unsuccessful in relation to its proceedings it does not necessarily follow that upon judgment being entered against the plaintiff it would have had to immediately complete the contract. Of course, the defendant did not accept the decision at first instance and went on to appeal. The matter was not finally determined until September 2002. There may have been good grounds for the plaintiff to appeal had the plaintiff lost at first instance. If that were the case and had the plaintiff got a stay on the decision at first instance it might not be under an obligation to purchase Eastwood until after a determination of the Court of Appeal.

70 It could not be said that the requirement to purchase either Cammeray or another alternative site would be regarded as not being in the ordinary course of the business of the plaintiff company. There is evidence which demonstrates that the company has, over the last 10 years, acquired more than one site in a 12 month period from time to time for the purposes of either development or construction. Therefore, the acquisition of another site at some stage after August 2001 was within the scope of the way in which the plaintiff had undertaken its activities. It was admitted by Mr Lahoud that the period of the second half of 2001 and the first half of 2002 saw the best ever conditions in the property development market. Whilst from time to time it may have been difficult to acquire properties Mr Lahoud agreed that properties were coming on the market which would have enabled the plaintiff to acquire an appropriate site without an unnecessarily long downtime between availability in the market place. The plaintiff’s purpose was the acquisition of properties for either development or construction. The suggestion that the plaintiff could have acquired either another property in lieu of Eastwood or another property in addition to Eastwood would not take that activity outside the parameters of the guidelines that Mr Lahoud put in place for the plaintiff. Therefore, the purchase of another site would have been within the ordinary course of business of the plaintiff.

71 The report of Mr Jugmans analyses the financial affairs of the plaintiff and comes to the conclusion that the company had either sufficient resources or access to resources which would have enabled it to acquire either a property in lieu of Eastwood or a property in addition to Eastwood. The plaintiff did not challenge the schedules to Mr Jugmans’ report. With the reservation I express in paragraph 53 I therefore, accept his analysis in relation to the acquisition of Cammeray. It is clear from his analysis that the plaintiff was in a position to acquire such a property without involving the plaintiff company to unreasonable exposure in respect of its finances.

72 Mr Lahoud’s evidence was that the plaintiff was reluctant to acquire an alternative site in case the Court found that the termination was invalid and made orders for specific performance and damages in accordance with the cross claim. His evidence also was that the plaintiff would only have entered into a contract to purchase an alternate site if the deposit money had been returned by the defendants and that both parties abandoned any claim against each other. Thereafter, the plaintiff’s evidence is that it took no steps to acquire an additional or alternate site because of the pending litigation initially in this Division and subsequently the appeal.

73 However, the report prepared by Mr Jugmans indicates that in December 2001 or January 2002 the plaintiff did acquire other properties. Whilst there is no direct evidence concerning when either the Walker Street or Murray Street properties were acquired the report of Mr Jugmans at paragraphs 9.18 and 9.19 assumes that each property was settled or purchased in December 2001. The estimated value given for those properties was in respect of Walker Street $1.9 million and in respect of Murray Street $954,000. Clearly a significant acquisition was made by the plaintiff sometime after August 2001.

74 In The “Solholt”, supra, the Court was of the opinion that to mitigate its damages it would have been reasonable for the appellants to purchase another ship. In that case there was not another ship available. The business of the appellants was that of shipowners. The reasoning of the Court seems to be that although acquiring another ship may be regarded as a business opportunity it nevertheless was open to the appellants, if a ship was available, to purchase a ship and that any difference in price would be the measure of damages they would be entitled to recover.

75 That situation is analogous to the present matter. The plaintiff was in the business of acquiring suitable properties. When it terminated the contract Cammeray was available. By purchasing Cammeray the plaintiff would have been operating within its business parameters and there would have been some mitigation of any loss caused by the defendants’ breach of the contract.

76 Therefore, I am of the view that the plaintiff has not taken all reasonable steps to mitigate the loss to it consequent upon the defendants’ breach of the contract.

77 Therefore, I find that the plaintiff is not entitled to any damages as a result of the breach of contract by the defendant. I order the plaintiff to pay the defendant's costs of the enquiry.

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Last Modified: 08/03/2004