Chowder Bay Pty Ltd v Paganin
[2017] FCA 332
•3 April 2017
FEDERAL COURT OF AUSTRALIA
Chowder Bay Pty Ltd v Paganin [2017] FCA 332
File number: WAD 461 of 2013 Judge: BARKER J Date of judgment: 3 April 2017 Catchwords: CONSUMER LAW – whether respondents engaged in misleading or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) – where applicants invested in joint venture for development of a resort pursuant to syndicate agreements – joint venture debt to be repaid from sale of villas comprising the resort – whether first and second respondents were involved or engaged in misleading or deceptive conduct as directors of companies – companies applied to bank for a loan facility to finance the development – securities given by applicants to bank in respect of loan facility – whether valuations prepared by the third and fourth respondents for bank were misleading or deceptive
CONSUMER LAW – whether applicants suffered loss or damage pursuant to s 82 of the Trade Practice Act 1974 (Cth) – applicants claim bank relied on valuations in providing financing for resort development – whether such reliance caused applicants to suffer loss – whether applicants entitled to damages for loss of opportunity to have development property sold – whether applicants entitled to recover legal costs incurred in related proceedings – whether related proceedings commenced as “defensive proceedings”
Legislation: Trade Practices Act 1974 (Cth) ss 52, 82
Fair Trading Act 2012 (WA)
Legal Profession Act 2008 (WA)
Cases cited: ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65
Advanced Buildings Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1995) ATPR (Digest) 46-144; [1995] FCA 236
Bennett v Elysium Noosa Pty Ltd (in liquidation) (2012) 202 FCR 72; [2012] FCA 2011
Caason Investments Pty Ltd v Cao [2015] FCAFC 94
De Bortoli Wines Pty Ltd v HIH Insurance Ltd [2012] FCAFC 28
Digi-tech (Australia) Pty Ltd v Brand (2004) 62 IPR 184; [2004] NSWCA 58
Finishing Services Pty Ltd v Lactos Fresh Pty Ltd (2007) ANZ ConvR 93; [2006] FCAFC 177
Hampic Pty Ltd v Adams [1999] NSWCA 455
I&L Securities Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
Marks v GIO Australia Holding Ltd (1998) 196 CLR 494; [1998] HCA 69
McBride v Christie’s Australia Pty Ltd [2014] NSWSC 1729
McCarthy v McIntyre [1999] FCA 784
QNI Resources Pty Ltd v Sino Iron Pty Ltd [2016] QSC 62
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4
Townsend v Roussety and Co (WA) Pty Ltd (2007) 33 WAR 321; [2007] WASCA 40.
Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69
Date of hearing: 14-18, 21-24, 29 March and 4 May 2016 Date of last submissions: 30 May 2016 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 481 Counsel for the Applicants: Mr GS Clarke QC with Mr PJ Hannan Solicitor for the Applicants: Feinauer Commercial Lawyers Counsel for the First Respondent: Ms PE Cahill SC with Mr DM Fairweather Solicitor for the First Respondent: Cardinal Litigation + Dispute Resolution Counsel for the Second Respondent: The Second Respondent appeared in person Counsel for the Third and Fourth Respondents: Mr SM Davies SC with Mr SC Sudweeks Solicitor for the Third and Fourth Respondents: Jackson McDonald ORDERS
WAD 461 of 2013 BETWEEN: CHOWDER BAY PTY LTD ACN 008 898 959
First Applicant
MARK PATTERSON
Second Applicant
BADENPORT PTY LTD ACN 008 931 842 (and others named in the Schedule)
Third Applicant
AND: DAVID ARTHUR PAGANIN
First Respondent
CHARLES WILLIAM EDWARD ROBERTSON
Second Respondent
M3PROPERTY (WA) PTY LTD ACN 074 470 563 (and another named in the Schedule)
Third Respondent
JUDGE:
BARKER J
DATE OF ORDER:
3 APRIL 2017
THE COURT ORDERS THAT:
1.As against each respondent, the application be dismissed.
2.Unless a respondent indicates within 7 days of today that it wishes to move for a costs order on some other terms, the applicants do pay the costs of each respondent, to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BARKER J:
In November 2006, Ibex Capital Pty Ltd provided to each of the applicants, amongst other prospective investors, an Investment Memorandum by which they were invited to join in a proposed joint venture called the Aqua Development syndicate. The joint venture proposal involved the redevelopment of a former caravan park at Busselton, in the South West of Western Australia, as a short-stay resort development.
On 27 March 2007, each of some 23 syndicate members, including the applicants, executed syndicate agreements and subscribed the sum of $500,000 to the joint venture. The syndicate agreements comprised the following documents:
·a Unit Trust Deed 2007 between Aqua Resort Pty Ltd as trustee and the syndicate members as unit holders;
·an Investor Agreement between Ibex Capital, Aqua Resort (as trustee for the Aqua Unit Trust), Ibex Aqua Pty Ltd and other syndicate members as investors;
·the Aqua Joint Venture Agreement between Ibex Capital, Aqua Resort (as trustee for the Unit Trust), Ibex Aqua and other syndicate members as joint venturers; and
·the Aqua Development Management Agreement between Ibex Capital, Aqua Resort (as trustee for the Unit Trust), Ibex Aqua and other syndicate members as villa owners.
The syndicate agreements disclosed the following structure:
(a)Under the Unit Trust Deed, each syndicate member held one twenty-third of the units issued in the Unit Trust, the trustee of which was Aqua Resort.
(b)The construction and development of the resort would be undertaken by the three participants in the joint venture, being Ibex Capital as to a 9.89% undivided share, Aqua Resort as to a 43.65% undivided share and the 23 syndicate members as to a 2.02% undivided share each (totalling a 46.46% collective total share).
(c)Ibex Aqua was appointed by the joint venturers as development manager for the construction and development of the syndicate resort.
(d)Each syndicate member would be allocated a separate portion of the resort property, together with a share of the common property as tenants in common on registration of the plan of subdivision and partition, and syndicate members would become registered as the proprietor of such land, on which a Grove Villa would be constructed by the syndicate.
(e)Syndicate members would execute irrevocable powers of attorney in favour of Ibex Aqua.
(f)Apart from the $500,000 paid by each syndicate member, joint venture costs and expenses to construct and complete the development would be paid by borrowed monies, giving rise to joint venture debt, which debt was to be repaid from the sale of villas comprising part of the developed resort, other than syndicate members’ villas and Ibex Capital’s villas, and being 13 Resort or Grove Villas and four Ocean View or Bay Beach Villas (Sale Villas).
(g)Any profits from the sale of the Sale Villas, after the retirement of all joint venture debt, would be distributed to the joint venturers, according to their respective interests in the joint venture.
(h)The interest of each syndicate member comprised:
(i)Their interest in the joint venture.
(ii)Their units in the Unit Trust.
(iii)Prior to allocation of the separate lots on which their allocated Resort or Grove Villas would be built, as tenants in common, with others, on the land at 605 Bussell Highway, Broadwater, Western Australia, being the land comprising and described as lot 100 on diagram 78126 on Certificate of Title Volume 1949 Folio 200 (the resort property).
(iv)After allocation of their lots, and partition of their respective interests, as a registered proprietor of the lots of land at the resort property on which their allocated Resort or Grove Villas would be built, together with their share of the common property of the resort property.
On 18 April 2007, the syndicate members received units in the Unit Trust.
In April and May 2007, the syndicate members executed irrevocable powers of attorney in favour of Ibex Aqua.
On 21 October 2009, the syndicate members were registered as proprietors of the following lots on survey strata plan 54628, together with a share of the common property as tenants in common with other syndicate members. The applicants were registered in respect of the following lots:
·Lot 38 – Chowder Bay Pty Ltd;
·Lot 37 – Mr Mark Patterson;
·Lot 28 – Badenport Pty Ltd;
·Lot 4 – Lesuer Pty Ltd;
·Lot 29 – Mr Teddoro Del Borello; and
·Lot 8 – Arredo Pty Ltd.
While the applicants do not seek relief in this proceeding by reference to any representations conveyed by the Investment Memorandum, they do plead that by the Investment Memorandum the Ibex companies (Ibex Capital, Ibex Aqua and Aqua Resort) misleadingly represented to members of the public, including them, that generally:
·an investment was likely to achieve a return on completion of the proposed resort development;
·the Sale Villas were likely to be able to be sold at their estimated sale price on completion, to pay off the debt used to finance the development and construction of the resort;
·the 13 Resort or Grove Villas that were to be sold to the public were likely to sell between $950,000 and $1.1 million based on comparable sales in which such prices had been achieved with arguably inferior locations, and lower levels of amenity and quality of design;
·upon completion of the development, there existed reasonable grounds to estimate that the Resort or Grove Villas of syndicate members would be worth $990,000 or thereabouts;
·it was realistic for the syndicate members to achieve a 61.5% gross return on equity;
·the estimated selling prices of completed Resort or Grove Villas and Ocean View or Bay Beach Villas were based on reasonable assumptions and were likely to be achieved, and the estimated selling price of completed villas were based upon comparable sales evidence of similar villas;
·syndicate members’ liability would be limited to their interest in the syndicate;
·it was reasonable to expect that syndicate members would be required to pay their share of the outstanding balance on the completion of the construction and development of the syndicate resort, in the vicinity of $105,000, subject to other matters, pleaded as follows:
– if such amount was not paid, a syndicate member’s liability was limited to the member’s villa being sold, with the proceeds of sale being remitted to the member less the member’s share of the outstanding balance and any costs associated with the sale;
– no recourse would be had to individual investors beyond their interest in the project or the value of that interest, to repay the cost of the construction and development of the syndicate resort.
In April 2008, the Ibex companies applied to St George Bank (amongst other financial institutions) for a loan facility to fund the construction and development of the resort pursuant to the syndicate agreements.
In May 2008, the Bank made an indicative finance proposal to the Ibex companies.
In June 2008, the Bank commissioned a valuation from Egan Valuers (now M3Property (WA) Pty Ltd, the third respondent) in relation to:
·the resort property “As Is”, being an unencumbered freehold title;
·the resort property “As If Complete”, with 42 vacant survey strata lots; and
·the resort property “As If Complete”, with the resort fully constructed and developed.
In about mid-July 2008, the Bank received a written 1 June 2008 Egan valuation from Egan Valuers representing the following values as at 1 June 2008:
·an “As Is” unencumbered freehold value of $17.2 million, GST inclusive;
·an “As If Complete” value, with 42 vacant survey strata lots, of $32.268 million, GST inclusive; and
·a fully constructed and developed value of $69,856,500, GST inclusive.
In late October 2008, the Bank commissioned an updated valuation from Egan Valuers, who then provided in early November 2008, the 30 October 2008 Egan valuation, which was to the effect that the values had not changed since the 1 June 2008 Egan valuation.
By a 3 October 2008 letter, Ibex Capital wrote to syndicate members attaching various materials, including an extract of a valuation table from the 1 June 2008 Egan valuation.
By a facility offer dated 10 November 2008 from the Bank as lender to Ibex Aqua and Aqua Resort as borrowers, the Bank offered to provide the borrowers with a loan facility with a total limit of $32.3 million, on terms that included a loan‑to‑value ratio (LVR). The offer was accepted.
As security for the facility, each syndicate member was required to provide, and did provide, guarantees and indemnities, as well as mortgages over their lots registered in the resort.
The Bank advanced the first drawdown under the facility on or about 23 December 2008.
The resort was constructed and completed in about November 2010.
On 10 December 2010, the Ibex companies corresponded with syndicate members, including the applicants, advising that their villa values were significantly below the Egan valuation figures of 2008, represented in the 3 October 2008 letter to syndicate members; that the Ibex companies were unable to sell the remaining Sale Villas; and that the facility was required to be repaid in full by 31 December 2010.
The applicants say that this was the first notice they had received that suggested there were financial problems with the joint venture.
Mr David Arthur Paganin (the first respondent), who with Mr Charles William Edward Robertson (the second respondent), was one of the two directors of the Ibex companies, and resigned as a director of the companies on 26 November 2010. Mr Robertson remained as a director.
In April 2011, the Bank appointed Messrs Theobald and Herbert as receivers and managers to the borrowers, pursuant to the charges it held. In October 2011, the receivers issued demands to syndicate members for payment of the outstanding balance said to be due and owing under the syndicate agreements in sums well beyond the values of their villas at that time, even though the sale of the remaining Sale Villas had not yet occurred or been completed.
Between November 2011 and December 2011, the Bank also issued demands and default notices to syndicate members.
As a consequence of the demands issued by the receivers and managers of the borrowers and the Bank, the applicants, among other syndicate members, commenced proceeding WAD497/2011 in this Court on 8 December 2011 (which is referred to in these reasons as the 497 Proceeding). The 497 Proceeding was settled on 11 June 2013 between the relevant syndicate members and Westpac Banking Corporation (as successor to the Bank); and on 13 November 2013, between them and the receivers and managers of the borrowers.
Chowder Bay, the first applicant in this proceeding, and Sienna Holdings WA Pty Ltd (which is not a party to this proceeding), commenced a separate proceeding in this Court, WAD277/2011, in July 2011, seeking relief from the enforcement of contracts each had made independently of the joint venture for the purchase of an Ocean View or Bay Beach villa (which proceeding is referred to in these reasons as the 277 Proceeding). The 277 Proceeding was settled between Chowder Bay and the receivers and managers of the borrowers in May 2013.
The applicants now allege that:
·M3Property (as Egan Valuers) engaged in misleading or deceptive conduct at material times in contravention of Commonwealth and Western Australian consumer legislation; and seek an award of damages against it;
·Mr Blake William Smith (the fourth respondent), who at material times was a director of Egan Valuers and was involved in the preparation of the two valuations provided by Egan Valuers to the Bank, was knowingly concerned or involved in Egan Valuers’ misleading or deceptive conduct; and engaged in misleading or deceptive conduct by his own conduct in contravention of the relevant consumer legislation; and seek a consequential award of damages against him; and
·each of Mr Paganin and Mr Robertson (who are referred to in places in these reasons as the directors) engaged in misleading or deceptive conduct; and were knowingly concerned in or involved in misleading or deceptive conduct by the Ibex companies in contravention of the relevant consumer legislation; and seek an award of damages against each of them.
The applicants claim that they suffered the following loss and damage as a result of the matters of which they complain:
(1)Loss of their $500,000 initial subscription to the syndicate.
(2)Loss of their interest in the joint venture property.
(3)Alternatively, loss of the value of their respective registered properties as at the date of the deed of settlement with Westpac in the 497 Proceeding.
(4)Loss and damage resulting from their compliance with the terms of the deed of settlement with the Ibex companies.
(5)Legal costs in relation to their conduct of the 497 Proceeding.
In summary, the applicants say that, but for the contraventions they have pleaded, the Bank would not have lent the funds for the resort development and they would not have been exposed to the losses they now claim.
Chowder Bay makes a separate, but similar, claim for damages in respect of its acquisition of the Bay Beach Villa it separately agreed to buy, including for the costs associated with the 277 Proceeding.
The applicants submit that nine propositions underlie their pleaded cases, and that, having regard to the evidence adduced at trial, each proposition has been made out so that they are entitled to the relief they seek.
The nine propositions are put in the following terms:
·Proposition 1: The 1 June 2008 Egan valuation and the 30 October 2008 Egan valuation were misleading or deceptive, such that had they not been so misleading or deceptive, the “As If Complete” valuations of the resort would have been substantially lower than $69,856,500 (including GST) ($67,785,197 excluding GST).
·Proposition 2: The presale schedules provided by the Ibex companies to Egan Valuers were misleading or deceptive.
·Proposition 3: The Ibex companies engaged in misleading or deceptive conduct between the receipt of the 1 June 2008 Egan valuation and the 30 October 2008 Egan valuation by failing to provide instructions to Egan Valuers to correct the 1 June 2008 Egan valuation.
·Proposition 4: The 3 October 2008 letter to each applicant as a syndicate member was misleading or deceptive.
·Proposition 5: Mr Smith was liable for, or in relation to, the 1 June 2008 Egan valuation and 30 October 2008 Egan valuation on the basis that he was the author of the two valuations and involved in their preparation.
·Proposition 6: Mr Paganin and Mr Robertson are liable for, or in relation to, the presale schedules, and the failure to correct the 1 June 2008 Egan valuation.
·Proposition 7: Mr Paganin and Mr Robertson are liable for, or in relation to, the 3 October 2008 letter to syndicate members, including the applicants.
·Proposition 8: The applicants relied upon the 3 October 2008 letter, such that, had the valuation table of the villas of the resort provided with the letter disclosed substantially lower values, they would not have executed the guarantees and mortgages which the Bank required as securities for the facility to Ibex Aqua and Aqua Resort.
·Proposition 9: The Bank relied upon the Egan valuations in agreeing to provide the facility, such that, if the “As If Complete” valuations of the resort had been substantially lower than $69,856,500 (GST included) ($67,785,197 GST excluded), and the applicants had not provided the guarantees and mortgages, the Bank would not have provided the facility and the resort would not have been built.
Each of the respondents deny the allegations made against them or that the applicants are entitled to the relief sought against them in any event.
In the circumstances, it is appropriate to determine the pleaded liability questions by answering the question or questions posed by each of the nine propositions relied on by the applicants. The answers have regard to the applicants’ cases as pleaded.
WERE THE 1 JUNE 2008 EGAN VALUATION AND THE 30 OCTOBER 2008 EGAN VALUATION MISLEADING OR DECEPTIVE, SUCH THAT HAD THEY NOT BEEN SO MISLEADING OR DECEPTIVE THE “AS IF COMPLETE” VALUATIONS OF THE RESORT WOULD HAVE BEEN SUBSTANTIALLY LOWER THAN $69,856,500 (INCLUDING GST) ($67,785,197 EXCLUDING GST)?
This question reflects the applicants’ Proposition 1.
The pleadings
The applicants submit that the allegations in [38] to [44] of the statement of claim have been proven. In those paragraphs the applicants plead:
38.(a) Neither the 1 June 2008 Egan Valuation, nor the November 2008 Egan Valuation were provided to or seen by the applicants before the events referred to in paragraphs 36 and 37.
(b)However, Ibex Capital provided an extract of the 1 June 2008 Egan Valuation to Syndicate Members, including the applicants, under cover of a letter dated 3 October 2008 (the 3 October 2008 letter).
(c)The said extract from the 1 June 2008 Egan Valuation was a one page document entitled ‘Proposed Aqua Resort Gross Realisation As If Complete’, which provided, inter alia, a ‘Value/Contract Price (GST incl)’ for each of the Syndicate Members’ Allocated or Grove Villas, the Ibex Villas and the Sale Villas, totalling $69,856,500 (the Egan Valuation Table). Copies of the Egan Valuation Table, in colour and in black and white, are Annexure B hereto.
39.The 1 June 2008 Egan Valuation provided, inter alia, as follows:
(a)On page 3 of the Executive Summary:
The Aqua Resort site was purchased in May 2007 by Ibex Capital Pty Ltd and Aqua Resort Pty Ltd together with a further 25 separate parties. The 25 individual parties will each acquire one residence within the completed resort and we understand Ibex Capital will retain two units. The parties have made considerable contributions to the acquisition price of the land and these contributions will form part of the overall purchase price of the individual residences and strata lots. Bearing this in mind, a total of 27 units may be considered presold, leaving a further 15 units comprising 12 Grove Beach Houses and 3 Bay Beach Houses to be sold on the open market. We understand that a further three of these units are now Under Contract. Two of the three under arm’s length contracts are residences 18 and 21, both of which are Bay Beach Houses.
(b)On page 4 of the Executive Summary:
Purpose of Valuation:
To determine the current market value of the freehold interest in the above-mentioned property ‘as Is’ and ‘As if Complete’ assuming issue of vacant survey strata lot titles and completion of the proposed beach houses. The valuation has been prepared for asset management and mortgage security lending purposes.
(c)On pages 5 and 6 of the Executive Summary:
Assumptions, Conditions and Limitations:
2.This valuation is current as at the date of valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period (including as a result of general market movements or factors specific to the particular property). We do not accept liability for losses arising from such subsequent changes in value.
12.We have assumed that the 25 existing investors have entered into presale contracts for the purchase of vacant survey strata lots and construction of the proposed beach houses.
13.Liability for the valuation is extended to St Gorge Bank Limited for lending purposes subject to the bank sighting the additional contracts and being satisfied that the 25 presales are legitimate market transactions with reasonable deposits or investment funds forwarded to and held by the developer.
14.We have assumed that the presale contracts will reach settlement at the contracted prices within a 2 month time frame from completion of the civil works and issue of individual Certificates of Title. The valuation is based on the construction time frame included with the Sizer Builder’s Cost Estimate (16 months) with further allowance of 4 months for construction of civil works prior to the building contract commencing.
(d)On page 1 of the Valuation:
1.Instructions & Terms of Reference
In response to instructions received from Mr Jenny Sheldrick of Ibex Capital Pty Ltd and Kylie Gilbey, Business Development Manager, Property Finance WA, St George Bank Ltd, an inspection has been made of the above-mentioned property on 1 June 2008 for the purpose of advising the current market value ‘As Is’ and ‘As If Complete’ assuming issue of 42 survey strata titles, for asset management and mortgage security lending purposes.
In accordance with the Land Valuers Licensing Act 1978, Licensed Valuers Code of Conduct and the Australian Property Institute, value ‘As If Complete’ means:
A valuation that assumes the proposed development to be in a completed state as at the date of valuation and reflects current market conditions as at the date of valuation. The market value of the proposed improvements as detailed in the report assumes that all construction has been satisfactorily completed in all respects at the date of this report. The valuation reflects the valuer’s view of the market conditions existing at the date of the report and does not purport to predict the market conditions and the value at the actual completion of the improvements because of the time lag. Accordingly, the ‘as If Complete’ valuation must be confirmed by a further inspection by the valuer, initiated and instructed by the lender, on completion of improvements. The right is reserved to review and if necessary, vary the valuation in this report if there are any changes in relation to the project itself or in property market conditions and prices.
40.By the 1 June 2008 Egan Valuation, and the November 2008 Valuation, Egan Valuers represented in trade or commerce to St George (the Egan representations) that:
(a)25 Syndicate Members had entered into presale contracts for the purchase of vacant survey strata lots and construction of the proposed beach houses at the prices indicated in the ‘Value/Contract Price (GST incl)’ column of the Egan Valuation Table.
(b)The 25 Syndicate Member presale contracts at those prices were legitimate market transactions with reasonable deposits or investment funds forwarded to and held by the developer.
(c)The 25 Syndicate Member presale contracts would reach settlement at the contract prices indicated in the said column, within a two month time frame from completion of the civil works and issue of Certificates of Title.
(d)Residences 18 and 21, both Bay Beach Houses, or Ocean View Villas, had been presold under arm’s length contracts, with a purchase price for each of $3,031,500.
(e)Residences 19 and 24, also both Bay Beach Houses, had been presold under contracts to Ibex Capital, with a purchase price for each of $3,031,500.
(f)The As If Complete value of the Grove Beach Houses and the Bay Beach Houses of the syndicate resort as at 1 June 2008, and as at November 2008, was $69,856 ,500.
41.The Egan representations were misleading or deceptive, or likely to mislead or deceive as:
(a)There were 23 Syndicate Members , not 25.
(b)The 23 Syndicate Members had not entered into any presale contract for the purchase of vacant survey lots and construction of the proposed Grove Beach Houses, on their respective Syndicate Members’ Lots, at the prices indicated in the ‘Value/Contract Price (GST incl)’ column of the Egan Valuation Table, or at any price. The Syndicate Members had subscribed $500,000 to join the Aqua Joint Venture, and had agreed to be subject to the obligations of, and enjoy the rights under, the Syndicate Agreements.
(c)There were no presale contracts by the 23 Syndicate Members at those prices, or any other prices, and no deposits were paid and no investment funds had been forwarded to and held by the developer. Syndicate Members’ $500,000 subscription was paid to or at the direction of Ibex Capital by them by the end of March 2007, and had been used to fund the purchase of the Aqua Resort Property land, and the issuance of units to Members in the Aqua Unit Trust.
(d)There was to be no settlement of the 23 Syndicate Member presale contracts at those prices, within a two month time frame from completion of the civil works and issue of the Certificates of Title, or at all. Syndicate Members were under no obligation under any presale contracts, or under the Syndicate Agreements, to pay any further monies to the developers at those times.
(e)Residences 18 and 21, both Bay Beach Houses, had been presold under contracts dated 8 March 2008, each at purchase prices of $2,795,000, not $3,031,500.
(f)Residences 19 and 24, also both Bay Beach Houses, had not been presold under any contracts to Ibex Capital with a purchase price of $3,031,500, or at any other purchase price.
(g)The As If Complete value of the Grove Beach Houses and the Bay Beach Houses as at 1 June 2008, and as at November 2008 was not $69,856,500, but substantially less than that.
42.Further:
(a)The dollar figures contained in the column of the Egan Valuation Table entitled ‘Buildings Pool and Fitout (GST incl)’, being $819,500 in relation to the Grove Beach Houses and $1,336,500 in relation to the Bay Beach Houses, were misleading or deceptive or likely to mislead or deceive as:
(i)those construction cost figures were substantially above the construction cost figures referred to in the 1 June 2008 Egan Valuation at pages 18 and 19; and
(ii)those figures had no reasonable basis.
(b)The ‘Value/Contract Price (GST inc)’ figures in the Egan Valuation Table concerning the Grove Beach Houses, and the Bay Beach Houses, had no reasonable basis in comparable sales because the 1 June 2008 Egan Valuation had no regard to the contractual limitations on Syndicate Members’ ability to re sell or re-finance their Grove Beach Houses indicated in paragraphs 21(a), (b), (c), 24(a), (b), 25(a), (b) and 33(c), (e) hereof (the Contractual Limitations).
(c)The ‘Value/Contract Price (GST) incl’ figures in the Egan Valuation Table concerning the Grove Beach Houses and the Bay Beach Houses had no reasonable basis.
(d)The valuation of the Grove Beach Houses and the Bay Beach Houses in the November 2008 Egan Valuation were misleading or deceptive, or were likely to mislead or deceive, because no allowance was made for adverse changes in market conditions between 1 June 2008, and the end of October 2008.
43.Accordingly, the ‘Value/Contract Price (GST incl)’ figures in the Egan Valuation Table concerning the Grove Beach Houses and the Bay Beach Houses, were misleading or deceptive or likely to mislead or deceive.
44.Had the 1 June 2008 Egan Valuation and the November 2008 Egan Valuation not been misleading or deceptive as aforesaid, then the As If Complete valuations of the Grove Beach Houses and the Bay Beach Houses by Egan Valuers would have been substantially lower than $69,856,500.
(Emphasis as in original.)
The evidence
In his primary evidence – most of which is not challenged as to its narrative aspects, but is challenged as to the question of the relevance of the price schedules to the valuation opinions he formed in preparing the two Egan valuations for the Bank – Mr Smith explained that on 16 April 2008, Mr Jonny Sheldrick of Ibex Capital telephoned him about providing a valuation for the resort development for mortgage security purposes and that he then met with Mr Sheldrick and Mr Robertson on 21 April 2008. That was the only meeting he could recall with either man prior to completing the 1 June 2008 Egan valuation. There were other communications, however, by email or telephone.
Soon after this, Ms Kylie Gilbey of the Bank formally instructed Mr Smith and Egan Valuers (together, the valuers) to conduct the valuation for mortgage security purposes and the report was to become and remain the property of the Bank, and to be kept confidential. This evidence, which I accept, means that the Bank, not the Ibex companies, were Egan Valuers’ client.
Soon after, by email dated 5 June 2008, Mr Sheldrick provided Mr Smith with materials including the strata plan, the typical Bay Beach (Ocean View) and Grove (Resort) Villa plans, the Shire of Busselton development application approval, the land purchase contract, a villa price list and sale schedule, and a list of third party sales.
Mr Sheldrick advised Mr Smith in an email that the Bank’s lawyers were reviewing the sales contract documentation and that Ibex would forward the sales contract to him once any amendments had been made, and that the construction pricing and contract terms were still being finalised but that information would be forwarded to him when it was finalised. As explained below, there is no contest that such information was relevant to the valuation task, as was the material referred to in the preceding paragraph.
By about 9 July 2008, when he had not had received these additional materials, Mr Smith emailed Mr Sheldrick and, in particular, asked whether the sales contract had been completed yet, and that if the documents that he sought were not available he would need to make comment in his report.
Later that day he received from Mr Sheldrick a range of other documents, but not the sales contract he had asked for. That same day he also received some other information about the main pool costings, a third party sales schedule and the builder’s schedule of costings. He was told that the final sales contract was being “updated/amended” and should be completed by the end of that week.
On 11 July 2008, Mr Sheldrick emailed Mr Smith a copy of a proforma contract of sale by offer and acceptance and power of attorney.
On 13 July 2008, Mr Smith requested details of the costs of tennis courts, plunge pools, the fit out and window treatments.
Following further exchanges, on 15 July 2008, Mr Smith emailed Mr Sheldrick to ask whether Australian Securities and Investments Commission (ASIC) had provided confirmation that the project was not a managed investment scheme (MIS). He made this inquiry, he said, because he wanted to ensure that a particular exclusion clause in Egan Valuers’ professional indemnity insurance was not enlivened. He was advised the same day that the syndicate was not considered by Ibex to be a MIS.
Mr Smith worked on the Egan valuation during May and June 2008, and into July 2008.
He said he obtained title searches for the property, visited and inspected the property and made handwritten notes and sketches. He also took photographs of it, which he later attached to his valuation report. He also believes he carried out some internet searches to obtain publicly available information about the property, which revealed that Ibex Capital had purchased the land in April 2007 for $9,483,663.
He said he reviewed the planning consent and did not consider any of the conditions of the development to be particularly onerous, in the sense that they would either delay the development or be very expensive to meet.
He did not consider the short‑stay condition would impact adversely on the value of the villas to be constructed.
He considered all conditions could be satisfied within four months.
He reviewed the construction costings, planning materials and other documentation which had been provided to him by the Ibex companies.
He said he reviewed the proforma contract of sale and power of attorney documentation for the project, which had been sent to him, and understood that individual purchasers would be required to settle the land component of the acquisition upon the availability of titles and the individual purchasers would appoint Aqua Resort (the developer) to enter into a building contract for a fixed lump sum on their behalf to construct and furnish the villas, and complete the common area infrastructure and improvements.
He understood the balance of the contracted purchase price of the individual villas would be payable within seven days of practical completion of the construction contract.
He also understood that Aqua Resort Management Pty Ltd (the property manager) would be responsible for letting the individual beach villas once completed.
He said the contract of sale outlined the substance of the power of attorney and the proposed terms and conditions of the letting agreement and the property management agreement, and he understood purchasers would be required to enter into them as a condition of entry into the contract of sale.
Mr Smith said he researched and considered recent sales activity involving similar properties in the region, comprising both vacant land suitable for development and short‑stay tourist accommodation. He said his analysis was set out at Pt 11 of the 1 June 2008 Egan valuation at p 24 and onwards. He said that in order to identify recent comparative sales, he accessed Landgate sales data, which he produced in evidence.
He said that when undertaking the valuation process in June 2008, he also had access to listings of properties that were on the market at that time, but not sold. He said it was, and is, his practice to review the websites of real estate agencies to access information relating to current listings.
He was not, however, he said, aware of and was not provided with the agreements that governed the relationship between syndicate members and the Ibex companies. He said he did not ask for any such agreements as he did not consider them relevant to the market valuation assessment.
He also said that at the time he did the 1 June 2008 Egan valuation, he held the view that any limitations on the investors’ rights to dispose of or deal with their villas were irrelevant, as the purpose of the valuation was for the Bank to ascertain how much it could realise if it had to take possession. Accordingly, he said he valued the resort property on the assumption that there were 42 unencumbered survey strata titles in accordance with the draft survey strata plan annexed to his valuation, and that the nature of any rights that the Ibex companies held was irrelevant.
Having had regard to the details of the proposed resort development, Mr Smith said that in June 2008 he had recently performed valuations of the Vasse residential development in Newtown and the Provence industrial development in East Busselton, and was aware of the state of the market at that time and outlined his views as to the state of the market at pp 21 and 22 of the 1 June 2008 Egan valuation. He said that, while he appreciated the market had slowed, he had no way of estimating the extent to which the market may slow or fall beyond the date of the valuation. He said the number of property transactions at the time had reduced significantly, which meant the sales evidence that was available was relatively limited and made it difficult to predict the extent of any market movements. He was of the view that the project would be successful in the sense that the developers would be able to sell the villas. Significantly, in my view, that was because he understood from the information provided to him that the majority had been presold, leaving only 15 villas to be sold. He said that given the time it would take to construct the resort, the developers had a window of 12 to 18 months to sell the remaining lots, which he considered sufficient time.
Ultimately, he said, having regard to comparable sales evidence, he formed the opinion that the land commanded a market value in the order of $480 per square metre to $500 per square metre and that this was well supported given the beachfront position, extensive presales and planning consent received by that time. That yielded a total value of $16,796,160 to $17,496,000 and so he arrived at an estimate of $17.2 million inclusive of GST ($16,498,515 exclusive of GST). His view concerning the “extensive presales” should be noted.
He said that, in addition to the direct comparison method, he used two other methods – the static valuation analysis and a discounted cash flow analysis – as a “checking mechanism” to test the veracity of his preliminary opinion. Both methods are based on an assessment of potential gross realisation from the sale of the developed villas. Each involved the preparation of a “reverse feasibility”. In his evidence he explained the methodology involved. It is not particularly contentious, in my view.
In order to consider the potential revenue that could be derived from the sale of the proposed villas in the resort, he took into account sales evidence from within local tourist accommodation resorts, permanent residential areas and satellite towns, including Eagle Bay and Bunker Bay. He came to the view that the proposed Bay Beach Villas at Ibex’s asking price of some $3 million to $3.2 million were priced at the upper end of the market. However, given what he considered to be their absolute beachfront position, he thought the price range was within market parameters. He also took into account instructions that four of the seven Bay Beach Villas had already been sold, which indicated a reasonable level of demand, even though they were sales to parties associated with the development.
He noted that the asking price of the Grove Beach Villas, inclusive of all costs, was $1,058,000 to $1,708,500, depending on proximity to the beachfront. He took into account the longer than average development timeframe and the length of time that would be available to sell the villas, and provided for a risk allowance of 25%. The results of each of the static valuation analysis and the discounted cash flow analysis, in the region of $16.5 million, he said, gave him “comfort”. I accept that it did. The estimated value he had arrived at using a direct comparison approach, he concluded, represented a fair market value of the land on an “as is” basis.
He further valued the vacant survey strata lots at $32,268,000 (GST inclusive) or $30,196,697 (GST exclusive).
In accordance with the Bank’s instructions, he also provided an “in one line” value for the resort on an “as if complete” basis of $55,660,000 nett of GST by applying a discount of 20.32% on gross realisation inclusive of GST, and 17.89% of gross realisation excluding GST.
As to the presales that he referred to in the valuation, Mr Smith said it was, and is, his practice to sight copies of any presale contracts. He said the level of presales before development impacts upon value because it provides some guidance as to demand and confirms acceptance in the marketplace, and so reduces the risk to the developer.
He noted in his evidence that, under cover of an email dated 5 June 2008, Mr Sheldrick sent him various materials including a document entitled “Aqua-Villas Price List”, which he referred to in his evidence as the “presale schedule”.
He said he noted that the presale schedule listed various villas that would be developed, the size of each and the price, broken down into land and building components. He noted the column which indicated whether a villa was “Available” or “Sold”. Of the 41 villas, he observed 28 were described as “Sold”. He said he understood from that, that 23 had been sold to syndicate members, two to the Ibex companies or associated entities, and three to third parties (two of which, being villas 18 and 21, were Bay Beach Villas).
He added that based on his review of the contract of sale, the power of attorney, the presale schedule, and the third party sale schedule he had received, he understood that syndicate members and third parties were to purchase villas on the terms set out in the contract of sale. These purchases, he considered, provided the revenue for the development that he assumed for the purpose of his reverse feasibility alternative valuations.
He said that, having requested a copy of each of the presale contracts, but not having received any, he indicated in his 1 June 2008 Egan valuation, statements to the Bank that he had not had access to them and had not been able to verify them. I note that the statements read:
12.We have assumed that the 25 existing investors have entered into presale contracts for the purchase of vacant survey strata lots and construction of the proposed beach houses.
13.Liability for the valuation is extended to St George Bank Limited for lending purposes subject to the bank sighting the additional contracts and being satisfied that the 25 presales are legitimate market transactions with reasonable deposits or investment funds forwarded to and held by the developer.
In relation to the later, confirmatory 30 October 2008 Egan valuation, Mr Smith explained that on 28 October 2008, Ms Gilbey of the Bank sent him an email advising that the Bank had approved a facility for the resort development and requesting an updated valuation from him or, alternatively, an extension of the date of the 1 June 2008 Egan valuation so the Bank could rely on it for an additional three months.
I note that in the email, Ms Gilbey asked Mr Smith, amongst other things, to “confirm the current level of presales”. As to this, in her email Ms Gilbey told him that she would get Mr Robertson (“Charlie”) to confirm the current level of presales with him. Accordingly, Mr Smith said, he did not understand the Bank required him personally to verify the presales. On the face of it, I accept Mr Smith’s understanding was not unreasonable. Later, he received an email from Mr Sheldrick saying he understood the Bank had forwarded instructions and confirmed the Bank had requested that Ibex Capital provide him with confirmation of the level of presales. Mr Sheldrick then annexed an updated schedule of presales.
Mr Smith said he inspected the property on 30 October 2008 and took photographs. He then reviewed the 1 June 2008 Egan valuation, considered Ibex Capital’s confirmation of presales and the updated schedule of presales, which included a further sale since June to another third party, and considered “data on the state of the market at that time, including recent comparable sales and listings”.
He then prepared an updated report dated 3 November 2008 (the 30 October 2008 Egan valuation) and emailed it to the Bank. In it, he confirmed that he had received the updated presales schedule that indicated a further villa had been sold. He did not detail the “data” he said he had also considered.
In a covering letter dated 3 November 2008, Mr Smith again cautioned the Bank to obtain copies of the presale contracts to confirm their authenticity, as liability for the valuation was extended subject to them being confirmed as acceptable to the Bank. The letter contained the following statement:
We have been provided with an updated presale schedule from Ibex Capital (copy attached) indicating one further sale since our original valuation. Proposed Lot 1 has been sold at list price however, as with our original assessment, a copy of the contract has not been provided. We recommend that St George Bank obtain copies of the presale contracts to confirm their authenticity as liability for our valuation is extended subject to these contracts being confirmed as arm’s length.
(Emphasis as in original.)
Very soon after this, Ms Gilbey, by email dated 4 November 2008, informed Mr Smith:
We also note that 25 of the pre-sales are not arms length as they are syndicate members involved in this deal and one is to the builder so, could you please confirm the valuation on this basis.
Mr Smith then amended the earlier 3 November 2008 covering letter as follows:
We have been provided with an updated presale schedule from Ibex Capital (copy attached) indicating one further sale since our original valuation. Proposed Lot 1 has been sold at list price however, as with our original assessment, a copy of the contract has not been provided. We recommend that St George Bank obtain copies of the presale contracts to confirm their authenticity as liability for our valuation is extended subject to these contracts being confirmed as acceptable to the Bank.
(Emphasis as in original.)
In other words, the Bank’s advice that the investors’ transactions were not arm’s length did not affect the substance of the valuation, but Mr Smith remained concerned to ensure the contracts existed, and left it to the Bank to be so satisfied.
He said he used bold type when making the last statement as it was a matter of importance. He wanted to ensure the Bank understood he had not sighted any of the contracts. I accept his explanation.
As to the value in November, Mr Smith said that when he reviewed the 1 June 2008 Egan valuation he appreciated that market activity remained slow. He said the slowdown limited the amount of direct sales evidence that was available. For that reason, he said, it was not until the first three to six months of 2009 that the extent of the downturn in the market started to become apparent. He said that at the time he prepared the 30 October 2008 Egan valuation, however, he did not appreciate the extent to which the market would fall over the coming months.
In cross-examination by senior counsel for the applicants, Mr Smith confirmed that he assumed that the 25 existing investors had entered into presale contracts for the purposes of vacant survey strata lots and construction of the proposed beach houses, and that they existed. He also confirmed that he had assumed that the presale contracts would reach settlement at the contracted prices within a two month timeframe from the completion of the civil works and issue of individual certificates of title.
When asked, by reference to the Aqua villa price list schedule he had received, whether he had considered it appropriate to adopt what the developer had put forward as to the land value of the investor villas, Mr Smith answered, “Yes”, adding: “The market evidence I considered supported the pricelist”.
A little later, in relation to fitout costs, when asked whether his evidence was that he took the list price and made adjustments and was content with the list price, Mr Smith answered “No. They were contract prices as far as I was concerned”.
He further added that, where it said “Sold” on that schedule, he accepted that as a fact, and confirmed that what he did was he took the proforma contracts and made adjustments based on the assumption that the structure applied across the board – that is, to the “sales” of all villas.
When asked whether he was satisfied, given all of the work he did to consider the market, that it all worked out that the developers had got it exactly right, including GST, in the price list, Mr Smith responded:
Valuation is not an exact thing. If you – there’s a range and if the – if the contract price falls within what the evidence says is reasonable, then there’s no reason why the contract price can’t be adopted. After all, it is a negotiation between two parties.
(transcript p 818).
This evidence, in my view, is of some significance, as explained further below, in the circumstances of this valuation.
When further pressed by counsel about the value of, say, lot 2 as disclosed on the schedule, whether he had made a calculation to reach $1,096,500 as though there was a contract, when there was not one, he said, “No” and that the value was based on the evidence that he had market evidence, and also the presale contracts which he considered provided “reasonable evidence and a reasonable guide”. This latter evidence, as explained below, I also consider significant.
Senior counsel for the applicants cross‑examined Mr Smith as to the comparable evidence that Mr Smith said he had relied upon in coming to his initial valuation, within which he said the prices were comparable, including unit 14, 77 Gifford Road, Dunsborough, which was “for sale” in May 2008. Mr Smith explained that, once sold, a valuer has conclusive evidence as to what the property would have achieved.
Mr Smith was further cross‑examined by senior counsel for the applicants concerning his statement that, at the time he made the valuation, he could not have foreseen the downturn in the market, by reference to the Commonwealth Treasury and other material. I should say here that I do not consider that Mr Smith should have come to some different view to that which he did about the downturn in the market any earlier than he did by reference to those materials.
Cross‑examination also dealt with the question of the 30 October 2008 Egan valuation and the question of whether Mr Smith in fact considered any “recent comparable sales and listings” when he renewed the 1 June 2008 Egan valuation. When asked what data he had taken into account and whether he had checked whether the Gifford Road property, which had been advertised for sale in May 2008 for $2.8 million, had been sold, he said that he had, and recalled it had sold for $2.45 million.
When further pressed as to how that sale would be comparable to a Bay Beach Villa, as at 31 October 2008, Mr Smith considered that sale was “within the basket of evidence”. He was pressed as to how it would justify a value for a Bay Beach Villa in the resort at a figure of more than $3 million as at 31 October 2008. In my view, his attempts to do so lacked cogency.
Mr Smith did not accept, as Mr John Martin had in his expert report and evidence when earlier called by the applicants, that prices had peaked in the Western Australian property market in 2007. He did accept, however, that the Regency Beach Club sales to which Mr Martin had referred, were comparable and to be taken into account. He accepted it was one of the “few pieces of evidence” to which one could actually draw a comparison.
When cross-examined by senior counsel for Mr Paganin, Mr Smith acknowledged that he inferred at material times that all the units, other than lots 18, 21 and 27 were not third party sales, but rejected the suggestion that they were not “arm’s length sales”. He stated that he was more than comfortable that they were arm’s length sales – at least in June 2008.
He confirmed that he took into account two of the resort development third party sales. When he was asked whether he had included the syndicate member lots, he answered “no”, but then indicated he did not see a “great distinction” between a third party sale and a syndicate member sale and confirmed they were not “in there” – meaning, not mentioned in the valuation. When challenged that there was a reason for that, Mr Smith replied: “The reasons would be – no, I don’t see a big distinction; but then I …”.
When he was then asked:
And they don’t form any part of your assessment of the comparable sales evidence. For the comparable sales method of deriving … the total revenue from the developed lots being sold; that’s the case?
He replied:
They’re not – yes. No. They’re not in the basket of evidence.
When pressed again by senior counsel for Mr Paganin as to whether the reason he had stated in his report that a total of 27 units “may be considered” presold was because he understood that for the syndicate members they were not arm’s length transactions, he responded that his understanding was that the syndicate members would enter into a contract similar to any outside purchaser and that they would then enter into a contract or a construction contract through a power of attorney (transcript p 838). He thus did not contradict his earlier evidence on this question and did not, in my view, accept the premise of the question that, at material times in June, he did not consider the investor “sales” to be arm’s length.
When asked if he had not had the price list information, would he not have undertaken the same exercise of taking that price list and seeing how the comparable sales in the market aligned to it, he answered, “yes”. And he said he would have come to the same conclusion because the price list met with the market evidence, thereby suggesting the prices were not material to his valuation.
As to the warning to the Bank, concerning not having sighted the presale contracts, in the 30 October 2008 Egan valuation, and the change in wording from the warning given in the 1 June 2008 Egan valuation, he was asked whether the reason for the change was because he now had to modify the assumptions and treat the syndicate members transactions as not arm’s length transactions, and had to assume that for the purposes of the valuation, he answered, yes. But it must be said that up until that point, Mr Smith plainly assumed the investor transactions were arm’s length.
In re-examination, Mr Smith added that he not only had regard to the Regency Beach Club as providing a reasonable guide for comparable analysis purposes, but also Smith’s Beach, Bunker Bay and Caves Ridge Development. He said there was nothing along the Broadwater area (near the project site) because the development was unique in that location. He said he also considered Gifford Road, Halcyon, Dunsborough Beach Cottages and Geographe Bay Resort Cove.
He said he did not agree with Mr Martin’s proposition that rarely will costs equate to value, although in some cases it does.
When he was asked again about the use he had made of the presales to syndicate members information, he answered that he considered that:
Because there were 23 sales, they couldn’t be ignored. It’s not a huge market and so if those syndicate members were the types of buyer that would buy in that type of development in that location then they should be taken into consideration as market evidence.
This answer, I consider to be of some significance, as explained below.
Mr Martin gave valuation evidence on behalf of the applicants before Mr Smith gave his. It is appropriate now to consider his opinion about value and methodology in the light of Mr Smith’s evidence. Mr Martin considered that, without any regard to the 23 syndicate members’ lots, the highest value that could be placed on the resort, as at 1 June 2008, was $45,550,000.
Mr Martin, an experienced valuer with Australian Property Consultants (APC), prepared what he described as a “retrospective report and valuation” of the Aqua resort. He was asked to provide his opinion as to what the valuation of that property was at 1 June 2008 and 30 October 2008 on an “As If Complete” fully constructed, gross realisation GST exclusive market value of the whole of the resort basis. At that same date, he was also asked to provide the market value of the land only, being a single englobo site; and as to the market value of each individual survey strata lot. He later made a supplementary report, which I will come to, which had regard to the two Egan valuations.
Mr Martin acknowledged at the outset of his report and in his oral evidence that, in preparing a retrospective valuation, with the benefit of hindsight he may have had a different perspective on market and economic conditions and future trends than those prevailing as at the retrospective dates of valuation: the physical characteristics of the property may have changed; and in conducting a retrospective assessment, there can be a greater degree of subjectivity and possible “margin of error” in comparison to current valuations – especially when the timeframe between the dates of inspection and valuation are significant due to the difficulty in accessing and confirming factual data applicable as at the retrospective date of valuation.
The valuers contend there is no evidence to establish that this settlement sum represented any discount on the amount that Chowder Bay was liable for as a consequence of its failure to complete the sale contract.
Consideration
In the circumstances, as I have found in relation to the 497 Proceeding, I consider it was not unreasonable for Chowder Bay to commence the 277 Proceeding, although why it chose to sue the Bank is not clear.
While the valuers also raise submissions about the unreasonableness of the applicants not pursuing all respective respondents at the same time, and instead proceeding against the Bank and the Ibex companies at first, and then the directors and the valuers in this proceeding at a later time, I do not consider that forensic decision to be an unreasonable one.
Whilst, at least in principle, the costs of the 277 proceeding might, at least to some extent, together with the settlement sum, be considered recoverable in this proceeding, had the misleading and deceptive conduct action been established, as the directors submit there really has been little emphasis placed on the extent to which the 277 Proceeding could have succeeded. Little evidence has been led in respect of the purchase of the Bay Beach Villa under a separate contract not to do with the joint venture, and why that contract was liable to be upset.
If the misleading and deceptive conduct action had been made out, I would have declined to make any award of damages in respect of the 277 Proceeding because the evidence, in the event, is insufficient to satisfy me that the proceeding had a reasonable chance of success, as well as because of the general evidentiary difficulties in identifying the expenses actually incurred, which I have canvassed above in relation to the 497 Proceeding.
CONCLUSION AND ORDERS
For these reasons I would dismiss the applicants’ originating application.
I will hear from the parties as to the orders that should now be made including as to the costs of the proceeding.
I certify that the preceding four hundred and eighty-one (481) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. Associate:
Dated: 3 April 2017
SCHEDULE OF PARTIES
WAD 461 of 2013 Applicants
Fourth Applicant:
LESEUR PTY LTD ACN 052 291 639
Fifth Applicant:
TEDDORO DEL BORELLO
Sixth Applicant:
ARREDO PTY LTD ACN 009 256 606
Respondents
Fourth Respondent:
BLAKE WILLIAM SMITH
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