Connector Park Pty Ltd v RV Pty Ltd
[2018] TASFC 13
•3 December 2018
[2018] TASFC 13
COURT: SUPREME COURT OF TASMANIA (FULL COURT)
CITATION: Connector Park Pty Ltd v RV Pty Ltd [2018] TASFC 13
PARTIES: CONNECTOR PARK PTY LTD
v
RV PTY LTD
FILE NO: 1111/2017
JUDGMENT
APPEALED FROM: RV Pty Limited v Connector Park Pty Ltd (No 2)
[2017] TASSC 22
DELIVERED ON: 3 December 2018
DELIVERED AT: Hobart
HEARING DATE: 4, 5 June 2018
JUDGMENT OF: Geason J, Martin AJ, Marshall AJ
CATCHWORDS:
Damages – Measure and remoteness of damages in actions for breach of contract – Loss of opportunity –Mitigation of damages – Lord Cairns Act – Evidence Act 2001 – Opinion rule – Admissibility.
Aust Dig Damages [4-5] [18] [1137-1138] [1146]
REPRESENTATION:
Appeal
Counsel:
Appellant: N Pane SC, C Groves
Respondent: S McElwaine SC
Solicitors:
Appellant: Dobson Mitchell Allport
Respondent: Shaun McElwaine + Associates
Cross-appeal
Counsel:
Appellant: S McElwaine SC
Respondent: N Pane SC, C Groves
Solicitors:
Appellant: Shaun McElwaine + Associates
Respondent: Dobson Mitchell Allport
Judgment Number: [2018] TASFC 13
Number of paragraphs: 286
Serial No 13/2018
File No 1111/2017
CONNECTOR PARK PTY LTD v RV PTY LTD
REASONS FOR JUDGMENT FULL COURT
GEASON J
MARTIN AJ
MARHSALL AJ
3 December 2018
Orders of the Court:
Leave to amend ground 6 is refused.
The order of the trial judge awarding damages to the plaintiff in the amount of $2,520,000 is set aside.
The matter of assessment of damages is remitted for further hearing and determination by the trial judge in accordance with these reasons and, in particular, in accordance with pars [243]-[266].
The cross-appeal is dismissed.
Serial No 13/2018
File No 1111/2017
CONNECTOR PARK PTY LTD v RV PTY LTD
REASONS FOR JUDGMENT FULL COURT
GEASON J
MARTIN AJ
MARHSALL AJ
3 December 2018
Introduction
In the early 2000s the parties were undertaking subdivisions of adjoining land. On 26 August 2004 they entered into a contract which contained mutual obligations, including a requirement that required the appellant (the defendant) to construct a roadway (the Connector Park roadway) by 6 January 2005, and do all things necessary to ensure the roadway was taken over as a public road maintainable by the Launceston City Council by 6 July 2005. Until the roadway was dedicated as a public road, the respondent (the plaintiff) was unable to proceed with its subdivision.
In breach of the contract, the defendant failed to complete construction of the roadway until 30 June 2008. The plaintiff sought damages for the loss of opportunity to obtain permits for the subdivision 3½ years earlier than it did, which delayed the receipt of income from the sale of lots in the subdivision.
At trial the plaintiff's claim for damages succeeded and the learned Chief Justice awarded damages of $2,520,000. The defendant appeals against that award on grounds primarily concerned with mitigation of damage and erroneous methodology relating to the assessment of damages.
The defendant counterclaimed alleging that the plaintiff had failed to make payments required under the contract. The counter-claim succeeded and the trial judge gave judgment for the defendant against the plaintiff in the amount of $440,000. The plaintiff has cross-appealed seeking that the judgment be set aside on the basis of errors by the trial judge in the construction of the contract.
The major part of the appeal is dismissed, but the appeal is allowed in respect of two issues. The cross-appeal is dismissed.
Background
The land in respect of which the plaintiff undertook the relevant residential subdivision is known as the Mount Pleasant subdivision. The commercial and light industrial subdivision undertaken by the defendant on adjoining land is known as the Connector Park land.
The background to the contract of 26 August 2004 was helpfully summarised by the trial judge:
"The contract
[5] The parties to the contract [dated 26 August 2004] were the plaintiff, the defendant, and the executors of the estate of the late Keith Cameron Holyman. Until his death, Mr Holyman was the owner of the Mount Pleasant estate, which included the historic Mount Pleasant homestead and the land that was subsequently acquired by the plaintiff. Before the execution of the contract on 26 August 2004, the following events occurred:
·On 29 December 1998 the defendant obtained a planning permit from the council for a staged 17-lot subdivision of its Connector Park land. The number of the permit was SD.00.98.051. The permit provided for the construction of roads within the subdivision, including roads extending from the Kings Meadows Connector to the Mount Pleasant land now owned by the plaintiff.
·On 3 August 1999 Mr Holyman entered into a contract with the defendant in relation to about 4 hectares of his land. The parcel in question was adjacent to the defendant's land, and had a small frontage to the northeast onto Ernest Street. It was agreed that the defendant would construct a roadway through that parcel of land from Ernest Street to the balance of Mr Holyman's land; that the defendant would maintain that roadway until it was taken over by the council as a public road; and that Mr Holyman would then transfer the land on either side of that road, comprising about 3.17 hectares, to the defendant. That is to say, Mr Holyman agreed to transfer that land to the defendant in consideration of the defendant constructing through the middle of it a road that was intended to become a public highway. This proposed road was different from the roadway provided for in the August 2004 contract. This roadway was intended to connect to Ernest Street, to the east. The roadway to which this action relates runs south from the land originally owned by Mr Holyman, through the defendant's Connector Park land.
·On 19 December 2003 the council granted a permit, number DA0683/2003, for a 10-lot subdivision of the land that Mr Holyman had agreed to transfer.
·On 29 March 2004 the council granted a second permit, number DA0069/2004, permitting a 14-lot subdivision of the same land.
·The plaintiff contracted to purchase most of the Mount Pleasant estate, including the parcel that was the subject of the 1999 contract, but excluding the homestead and some surrounding land. Part of the purchased land was zoned as rural under the Launceston Planning Scheme 1996.
[6] The principal provisions in the contract of 26 August 2004 were as follows:
·The 1999 agreement between Mr Holyman and the defendant was terminated.
·On settlement the plaintiff would pay the defendant a first instalment of $400,000 plus GST.
·Settlement would take place the following day.
·On settlement the defendant would deliver to the plaintiff copies of planning permits DA0683/2003 and DA0069/2004, and any associated engineering plans or drawings approved by the council.
·On settlement the plaintiff would grant rights of carriageway in favour of the defendant's land over certain roadways between that land and Ernest Street, to subsist until a road provided for in either permit DA0683/2003 or permit DA0069/2004 became a public road maintainable by the council.
·On settlement, the defendant would grant to the plaintiff a right of carriageway over the Connector Park roadway, for the benefit of the land acquired by the plaintiff, to subsist until the Connector Park roadway was taken over as a public road maintainable by the council.
·The defendant would lodge with the council either an application for a permit to subdivide the Connector Park land into one lot bisected by the Connector Park roadway or, alternatively, an application for a minor amendment to permit SD.00.98.051 to bring forward the staging of the roadway lots in its Connector Park subdivision to enable the council to take over the Connector Park roadway once it had been constructed in accordance with certain provisions of the contract, which are set out below.
·The defendant would complete construction of the Connector Park roadway by 6 January 2005 and do all things necessary to ensure that it was taken over as a road maintainable by the council by 6 July 2005.
·Once the Connector Park roadway was taken over as a road maintainable by the council, the plaintiff would pay the defendant a further $200,000 plus GST.
·If the land zoned rural that was included in the plaintiff's purchase was rezoned as residential, the plaintiff would then pay the defendant a further $200,000 plus GST."
It is common ground that the defendant was in breach of the contract by failing to construct the Connector Park roadway until 30 June 2006. On 21 February 2006 the plaintiff instituted proceedings seeking specific performance of the contract and claiming damages. An order for specific performance of the contractual obligations in relation to the roadway was made by a judge of the Supreme Court on 17 June 2008, and construction of the roadway was completed on 30 June 2008. The trial judge found, at [2], that the "bulk of the plaintiff's land remained unsubdivided until the granting of a permit for a subdivision by the council in August 2009" and "a number of subsequent permits were granted as the subdivision was developed in stages".
The trial judge summarised the cases for the parties in the following terms:
"The plaintiff's claim
17 The plaintiff is claiming damages for lost opportunity. The basis for awarding damages for a lost opportunity was explained by French CJ, Kiefel J (as she then was) and Keane J in Badenach v Calvert [2016] HCA 18, 331 ALR 48 at [39]-[41] as follows:
'39 … It may be accepted that an opportunity which is lost may be compensable in tort. But that is because the opportunity is itself of some value. An opportunity will be of value where there is a substantial, and not a merely speculative, prospect that a benefit will be acquired or a detriment avoided.
40 It remains necessary to prove, to the usual standard, that there was a substantial prospect of a beneficial outcome. This requires evidence of what would have been done if the opportunity had been afforded. …
41 The onus of proving causation of loss is not discharged by a finding that there was more than a negligible chance that the outcome would be favourable, or even by a finding that there was a substantial chance of such an outcome. The onus is only discharged where a plaintiff can prove that it was more probable than not that they would have received a valuable opportunity. ...'. [Footnotes omitted.]
18 The plaintiff's contentions are essentially as follows:
·But for the defendant's breach of contract, a public road from the Kings Meadows Connector to the boundary of the plaintiff's land would have been constructed no later than 6 January 2005, and would have been taken over by the council no later than 6 July 2005.
·But for the defendant's breach of contract, the plaintiff would have made applications to the council for planning permits for the subdivision of its land about 3½ years earlier than it did.
·But for the defendant's breach of contract, there was a substantial, not merely speculative, prospect that the plaintiff would have acquired the benefit of subdivision permits from the council about 3½ years earlier than it did.
·The damages for the plaintiff's lost opportunity can be assessed in an appropriate way by undertaking a delayed cashflow calculation of the sort undertaken by Mr Rands [who the trial judge earlier noted, gave evidence to the effect that, as at September 2014, those losses were within the range of $1.879 million to $2.710 million].
The defendant's contentions
19 The defendant's principal contentions in relation to the plaintiff's claim can be summarised as follows:
·It relies upon cl 6.11 of the contract, which provided, 'Time is not of the essence as regards any date or period determined under this document but may be made of the essence by a party giving twenty eight (28) days prior Notice to the other party making time of the essence …'.
·In written submissions filed before the trial, counsel for the defendant argued that the effect of the order for specific performance made on 17 June 2008 was to give the plaintiff an extension of time for the performance of its obligations to construct the roadway.
·The defendant pleaded that 'the plaintiff failed to mitigate its alleged loss by failing to engage another contractor to complete the roadworks within a reasonable time after the alleged breach', and that 'that failure to mitigate severed any causal connection between the loss claimed and the breach alleged'.
·It contended that the plaintiff had not established that its delay in constructing the roadway had resulted in any loss or loss of opportunity by the plaintiff because there were multiple obstacles to the obtaining of a planning permit for a subdivision on the scale ultimately approved on 29 June 2009. It contended that those obstacles included traffic issues, stormwater issues, heritage issues, visual impact issues, demand issues, and issues as to orderly planning.
·It contended that, because of the matters listed above, no loss had been proven, and the plaintiff was entitled only to nominal damages.
·It contended that the calculations undertaken by Mr Rands produced estimates of losses that were excessive because of various errors, omissions and inappropriate assumptions."
Important provisions of the contract
The contract contained mutual obligations relating to various matters, but for present purposes the important clauses are at 5.3–5.8:
"5.3 Connector Park to construct roadway
Connector Park will at its costs within three (3) months of Settlement partially construct the Connector Park Roadway of a sufficient standard to facilitate reasonable access to the Freehold Property by JAC and its contractors to carry out development works on the Freehold Property.
5.4 Access for works
On Settlement Connector Park grants to JAC [the plaintiff] a right of carriageway over the Connector Park Roadway for the benefit of the Freehold Property [the plaintiff's land] until the Connector Park Roadway is taken over as a public road maintainable by Council.
5.5 Equitable interest
Connector Park and JAC acknowledge that it is not intended to register the right of carriageway provided for in subclause 5.4 as a right of way but for JAC to maintain an equitable interest pending dedication of the Connector Park Roadway to the public pursuant to Section 95(1) of the Local Government (Building & Miscellaneous Provisions) Act 1993.
5.6 Connector Park to complete roadway
Connector Park will complete construction of the Connector Park Roadway by 6 January 2005 with appropriately sealed pavements, power and street lighting as specified by Council in accordance with subclause 5.7, and Connector Park will do all things necessary to ensure that the Connector Park Roadway is taken over as a road maintainable by Council by 6 July 2005.
5.7Standard of Roadway
Connector Park will at its cost construct the Connector Park Roadway to the standard specified by Council in conditions 3(d) and 3(e) of permit SD.00.98.051, except that the parties agree that the standard of road over lot 108 referred to in permit SD.00.98.051 will be a minimum width of 9.0m sealed with hot mix on an appropriately constructed pavement. For no additional consideration, Connector Park will allow JAC [the plaintiff] to construct a footpath at JAC's cost within the road reserve covered by the Connector Park Roadway if Council requires such pedestrian access as a condition of any approval for a subdivision of the Freehold Property.
5.8Payment on completion
In consideration for Connector Park completing its obligations as set out in this clause 5:
(a) JAC will pay Connector Park $200,000 plus GST once a certificate is issued in respect of the Connector Park Roadway in accordance with s10(7) of the Local Government (Highways) Act 1982 such that the Connector Park Roadway is taken over as a road maintainable by Council, subject to receipt of a Tax Invoice from Connector Park for that sum; and
(b) JAC will pay Connector Park a further $200,000 plus GST if JAC is successful in rezoning the rural zoned area of the Freehold Property to some form of residential zone under Part 3 of the Launceston Planning Scheme 1996, subject to receipt of a Tax Invoice from Connector Park for that sum."
Reasons of the trial judge
The trial judge first dealt with contentions by the defendant based upon time not being the essence of the contract, and the effect of the order for specific performance made on 17 June 2008. There is no appeal against his Honour's determinations that time not being of the essence made "no difference in relation to the plaintiff's claim" and the order for specific performance "did not result in the defendant somehow ceasing to be in breach of contract".
As to the defendant's claim that the plaintiff failed to mitigate its loss because it failed to engage another contractor to complete the roadworks within a reasonable time after the breach of contract by the defendant, the trial judge noted that the land over which the roadway was to be constructed belonged to the defendant. After discussing briefly the principles relating to ancillary rights which are "reasonably necessary to the effective and reasonable exercise of the right of carriage way granted to the plaintiff" [28], his Honour reached the following conclusions:
"[29] Plainly the right of carriageway [under cl 5.3 of the contract], was granted to the plaintiff so that it and its contractors could use that roadway during the development of its subdivision. It is quite clear that the construction of the roadway in accordance with cl 5.7 of the contract involved doing far more than was reasonably necessary for the effective exercise of the right of carriageway that had been granted for that purpose.
[30] It follows that the plaintiff's rights as the grantee of the right of carriageway fell far short of entitling it to engage a contractor to construct the roadway to the standard required by cl 5.7. It follows that the defence relating to the mitigation of damage must fail. The plaintiff did not have a legal right to complete all the roadworks that the contract required the defendant to complete. It or a contractor could only have completed the relevant works by committing an actionable trespass.
[31] Any attempt by the plaintiff to mitigate its damage by undertaking roadworks would have been likely to give rise to a dispute as to the extent of its rights as the grantee of a right of carriageway. Its duty to take reasonable steps did not require it to undertake works of such a nature that its right to undertake them was not reasonably clear.
[32] Even if a contractor engaged by the plaintiff had completed the required roadworks, more was required before the roadway could be taken over by the council as a public road. The roadway was but one part of the defendant's subdivision. Because of various provisions in the Local Government (Highways) Act 1982 and the Local Government (Building and Miscellaneous Provisions) Act 1993, the taking over of the road by the council could not have occurred until the defendant's subdivision had reached the stage where the plan of subdivision was sealed by the council".
The trial judge discussed what he described as "the saga of the subdivision", and found that "from the time the parties made their contract on 26 August 2004, the plaintiff was making repeated and reasonable efforts to proceed with the Mount Pleasant subdivision beyond Stage 1" [26]. His Honour found that the plaintiff and the plaintiff's group "had the resources necessary to undertake the subdivision of the plaintiff's land" [57] and concluded:
"[58] Having regard to those matters, I am satisfied that, if the defendant had completed the construction of the Connector Park roadway in accordance with the contract by 6 January 2005, then the plaintiff would thereafter have applied to subdivide the Mount Pleasant land for residential purposes, in stages, relying on the availability of the Connector Park roadway as a public highway.
[59] Further, I am satisfied that, but for the defendant's breaches of contract, there was a very substantial prospect that the plaintiff would have acquired the benefit of subdivision approvals from the council years earlier than it did. Plainly a planning permit for such a residential subdivision is of substantial commercial value. It follows that the breaches of contract caused the loss of a commercial opportunity that had a substantial value. It is true that the plaintiff would have needed to satisfy the council as to various matters, including stormwater issues, heritage issues, visual impact issues, demand issues, and issues as to orderly planning. For the reasons that follow, I consider that, if the Connector Park roadway had been constructed when the contract required it to be, the plaintiff's chances of satisfying the council in relation to each of those issues would have been very strong."
The trial judge discussed storm water, heritage and other planning issues, and found that if the construction and dedication of the Connector Park roadway had proceeded in accordance with the contract, there was a "small chance" that these factors might have resulted in delays in the development of the subdivision. His Honour concluded, however, that there was a "very substantial prospect that the plaintiff would have acquired the benefit of the subdivision approval laws from the council with little or no delay" and that the plaintiff was, therefore, "entitled to damages for breach of contract in respect of the loss of opportunity to develop its land for a residential subdivision earlier than was ultimately possible …" [82]. His Honour noted that the risks associated with these various issues were matters to be taken into account when quantifying the damages.
As to quantifying damages, the trial judge accepted evidence led by the plaintiff concerning the value of the lost commercial opportunity to proceed with the subdivision 3½ years earlier, and assessed damages at $2.2 million.
Mitigation of damage
It is appropriate first to consider the defendant's appeal in respect of the issue of mitigation of damage. The grounds relevant to this issue are as follows:
"2 His Honour erred in the finding that the defence relating to the mitigation of damage must fail by failing to find that the plaintiff acted unreasonably in not attempting to engage another contractor to complete the roadworks.
Particulars
The evidence of Dale Luck was that had the plaintiff made efforts to engage another contractor to complete that roadway, then it would have been able to do so for the sum of approximately $131,160.00.
3 His Honour erred in finding that the defence relating to the mitigation of damage must fail by finding (at [32]) that more was required before the roadway could be taken over by the council as a public road.
Particulars
His Honour ought to have found (as the plaintiff contended (see at [18])) that 'But for the defendant's breach of contract, a public road … would have been taken over by council no later than 6 July 2015.'
4 His Honour erred in finding that 'the plaintiff's rights as the grantee of the right of carriageway fell far short of entitling it to engage a contractor to construct the roadway to the standard required by cl 5.7', and that 'The plaintiff did not have a legal right to complete all the roadworks that the contact required the defendant to compete.'
Particulars
His Honour ought to have applied the findings in Bland v Levi [2000] NSWSC 161 at [17]-[22] (cited by His Honour at [27]), and held that completion of all the roadworks that the defendant was required by the contract to complete, fell within the scope of the plaintiff's right of carriageway granted by cl 5.4 of the contract, which right was not limited by either the heading of cl 5.4 or by cl 5.3 of the contract.
5 His Honour erred in finding (at [23]) that 'there will be judgment for the plaintiff against the defendant for $2,520,000 on the claim' by failing to find that the plaintiff cannot be said to have really incurred that loss, which loss might have been avoided by taking such steps as a reasonably prudent plaintiff in its position would have been taken to avoid further loss to itself, namely, by:
a) requesting the defendant to allow the plaintiff or its agent to complete the roadworks; and/or
b) attempting to engage another contractor to complete the roadworks, especially in light of the evidence of Dale Luck that had the plaintiff made efforts to engage another contractor to complete that roadway, then it would have been able to do so for the sum of approximately $131,060.00."
Threshold issue – Lord Cairns' Act
The plaintiff submitted that as the plaintiff "engaged the equitable jurisdiction" of the Supreme Court by seeking an order for specific performance and damages in equity, the common law defence of failure to mitigate damage is not applicable. Further, contended the plaintiff, if this submission is upheld, grounds 2–5 of the appeal must fail.
In its Writ dated 21 February 2006 the relief claimed was as follows:
"1 An order requiring the Defendant to specifically perform each and every one of its constructural obligations pursuant to the agreement in respect of the highway;
2 Damages for breach of contract;"
The third paragraph of the claim sought an injunction in connection with the transfer of the defendant's land.
Based on the provisions of the Lord Cairns' Act, s 11(13) of the Supreme Court Civil Procedure Act 1932 (Tas), provides as follows:
"(13) —
(a)In all cases in which the Court or any judge thereof now has jurisdiction to entertain an application for an injunction against a breach of any covenant, contract, or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant, contract, or agreement, it shall be lawful for the Court or any judge thereof, if it or he thinks fit, to award damages to the party injured, either in addition to or in substitution for such injunction or specific performance, and such damages may be assessed in such manner as the Court or judge directs;
(b)But paragraph (a) shall not be so construed as to empower the Court or a judge to award damages in substitution for an injunction in any case in which no breach of covenant, contract, or agreement, or no wrongful act (as the case may be), has been committed."
In summary, the plaintiff's contentions on appeal were as follows:
· The plaintiff "engaged the equitable jurisdiction" of the Supreme Court because it "primarily sought an order that the [defendant] specifically perform each of its construction obligations referrable to the Connector Park roadway". Hence the Court, pursuant to s 11(13) of the Supreme Court Civil Procedure Act, has power in its equitable jurisdiction to award damages either in addition to or in substitution for specific performance.
· "An award of damages pursuant to this provision is not a common law award: the power is to award damages in equity."
· "Mitigation of loss is a defence and, where it operates, it is a principle of the common law, and there is considerable doubt whether it applies in answer to an equitable claim."
· "Counsel's research for this appeal, has not revealed the existence of any binding authority on the question. The [defendant] simply assumes that mitigation is available in answer to the [plaintiff's] claim for damages in equity. The [defendant's] submissions fail to reason why that is so. It is a threshold issue. The [plaintiff's] submission anchored in first principles, is that common law defences which otherwise apply to reduce the quantum of common law damages claims simply have no application to an award of damages in equity pursuant to Lord Cairns' Act."
· "The power to award damages in addition to specific performance in the concurrent and auxiliary jurisdictions is discretionary: an award may be made if the Court thinks fit. This engages the usual discretionary considerations that apply to the grant of all equitable relief."
· "Logically, if a plaintiff is to be denied all or part of a claim for equitable damages because a court of equity concludes that steps ought to have been taken to avoid or limit the loss, then properly this ought to be a matter of discretion, exercised in accordance with well settled equitable principles and not infected by any notion of a common law defence."
· "The [defendant] did not frame its mitigation point by reference to factors that might have been relevant to the exercise of such discretion. It did not lead evidence in support of factual findings relevant to the exercise of a discretion to otherwise limit the quantum of the damages claim in equity."
The defendant's written submissions contended that the claim for damages in the plaintiff's writ was "framed as for a breach of contract, which is a common law claim". However, the written submissions also acknowledged that in opening before the trial judge, counsel for the plaintiff identified the claim for damages as proceeding in the equitable jurisdiction. Against the background that an order had already been made for specific performance, and in the absence of reason to pursue the injunction, counsel for the plaintiff said (AB 22):
"So, we're only dealing with damages, in addition to specific performance, so we're in the court's equitable jurisdiction."
The plaintiff's closing written submissions plainly identified the claim as advanced in the equitable jurisdiction:
"3.2In the particular circumstances of this case the plaintiff commenced this action and sought firstly specific performance and secondly damages for breach of contract. By proceeding in this way the plaintiff engaged this Court's equitable jurisdiction to award damages in lieu of or consequential upon specific performance [footnoting s 11(13) of the Supreme Court Civil Procedure Act]. It is well-established that a plaintiff may be awarded damages in addition to specific performance. It is often said that the 'measure of damages in equity is the same as the measure of damages at law'. Except in one respect, mitigation which is dealt with below, the plaintiff does not submit in this action that the general approach to the assessment of damages differs as between the common law and equity." [Footnotes omitted.]
The written submissions subsequently canvassed the evidence concerning mitigation of damage and, on that topic, concluded with the following contention:
"7.16Finally, there is a very real question whether the common law defence of failure to mitigate is open in answer to an equitable assessment of damages as a matter of law: for example see the analysis in Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd." [Citation omitted.]
In closing oral submissions, having observed that by commencing proceedings for specific performance the plaintiff had elected to affirm the contract, counsel for the plaintiff said: (AB 688)
"Turning to the effect of specific performance or commencing a proceeding for specific performance, of course, it's axiomatic that the Court's equitable jurisdiction was engaged, which includes the well-known jurisdiction to award damages in lieu of or consequential upon specific performance. Now, there is authority and we don't quarrel with this, that equity follows the law when it comes to the assessment of damages consequent upon a breach of contract in its equitable jurisdiction."
Counsel then referred to the decision of Windeyer J in Wenham v Ella (1972) 127 CLR 454, and added a qualification concerning the application of common law defences such as mitigation of damage:
"… but there is one qualification which your Honour might need to turn your attention to in this case and that is whether common law defences such as mitigation are open to be pleaded in answer to an equitable claim."
In his reasons the trial judge did not identify the claim as based in equity. His Honour spoke on more than one occasion of damages for a breach of contract. Similarly, his Honour did not canvass whether a common law defence of failure to mitigate applied to a claim for damages in equity. In dealing with the question of mitigation, his Honour noted that the plaintiff accepted that, "at least at common law, it had a duty to take all reasonable steps to mitigate its loss" [24] (AB 1932).
Although the pleading in the writ is ambiguous, it is clear that the plaintiff pursued a case at trial that it was entitled to damages assessed in the equitable jurisdiction. It is equally clear that damages were not sought in lieu of specific performance. Albeit in the equitable jurisdiction, the Court was required to assess damages for breach of contract.
As to the application of the principles governing mitigation of loss to the claims for damages in the equitable jurisdiction, in written submissions the defendant challenged the plaintiff's broad proposition that the common law defence of mitigation of loss has no application to an award of damages pursuant to Lord Cairns' Act. The defendant contended that the proposition was "too general and too broad" because:
"(a)under the Lord Cairns' Act provisions, a Court can award equitable damages 'if it … thinks fit … and such damages may be assessed in such manner as the Court or judge directs'; and
(b)(it is submitted that) whether the principles of mitigation should be applied, in any given case, is a matter for the Court in the exercise of its discretion, in order to do justice in the circumstances of the case, applying equitable principles". [Footnote omitted.]
It is unnecessary to embark upon an analysis of authorities or to determine whether, strictly speaking, the common law defence of mitigation of loss can be raised as a defence to a claim for damages in equity. Although approaching the question from different points of view, fundamentally the parties are not in dispute that the power to award damages in equity is discretionary and, where damages are awarded in addition to the remedy of specific performance, the usual factors relevant to the exercise of the discretion are applicable. The plaintiff made this point:
"[22]… logically if a plaintiff is to be denied all or part of a claim for equitable damages because a court of equity concludes that steps ought to have been taken to avoid or to limit the loss, then properly this ought to be a matter of discretion, exercised in accordance with well settled equitable principles and not infected by any notion of a common law defence."
Essentially the defendant made the same point in the passage earlier cited when speaking of the Court doing justice in the circumstances of the case.
Further, bearing in mind that the defendant's case as to failure to mitigate is based solely on the failure of the plaintiff to construct or attempt to construct the Connector Park roadway, as explained in the reasons that follow, the trial judge was correct in rejecting that case. The plaintiff's rights did not extend to constructing the roadway and, even if the plaintiff possessed such a right, it was not unreasonable for the plaintiff not to exercise that right and to pursue other options.
Ancillary Rights
At the heart of the defendant's submission is the proposition that the plaintiff's rights, ancillary to its right of carriageway pursuant to cl 5.4, included a right to construct the Connector Park roadway to the standard specified in cl 5.7. In support of this proposition the defendant advanced the following contentions:
· The right of carriageway under cl 5.4 was granted "for the benefit of the Freehold Property" (the plaintiff's subdivision land) until the Connector Park roadway was taken over by the Council as a public road.
· The right of way granted under cl 5.4 was to facilitate reasonable access "in part as a conjunct to the plaintiff carrying out development work (cl 5.3), and in part as a conjunct to the defendant constructing a road to council's requirements (cl 5.7)". These activities were "for the benefit of the Freehold Property".
· "It follows that the rights ancillary to the grant of right of way must encompass both manners of access contemplated by cls 5.3 and 5.7, because otherwise cl 5.4 would be robbed of its full effect."
· "Given it is the owner of the dominant tenement who, in the exercise of its ancillary rights, may 'do whatever is necessary for the purpose of making it suitable for the exercise of the rights granted' it follows that 'the right to decide what works will be done, what is the thickness of the driveway and the like, are part of the rights that are granted to the dominant owner are a matter for it alone' as was held in Bland v Levi. Once it is accepted that the ancillary right includes one of construction it is, with respect, unclear how there can be any constraint such as that found to exist by the Honourable trial judge." [Footnotes omitted.]
The defendant advanced the broad principle that "a right of carriageway comes with implied ancillary rights including the right to lay or upgrade a carriageway". Reliance was placed upon the following passage from the judgment of Jessel MR in Newcomen v Coulson (1877) LR 5 Ch D 133 at 143–144:
"Now it was conceded to be the principle of law that the grantee of a right of way has a right to enter upon the land of the grantor over which the way extends for the purpose of making the grant effective, that is, to enable him to exercise the right granted to him. That includes not only keeping the road in repair but the right of making a road. If you grant to me over a field the right of carriage-way to my house, I may enter upon your field and make over it a carriage-way sufficient to support the ordinary traffic of a carriage-way, otherwise the grant is of no use to me, because my carriage would sink up to the naves of the wheels in a week or two of wet weather. therefore I think that the defendants have a right to make an effective carriage-way going, as they are going, by the shortest route, and not interfering with the land to a greater extent in width than the width of the street pointed out by the deed itself."
The facts in Newcomen v Coulson were not attended by the complications of a contract and local council requirements. Nor was the situation complicated by any question of permission being granted to obtain access to the land for the purpose of constructing a road. The facts are conveniently set out in the headnote:
"By an award under an Inclosure Act, it was directed that certain of the allottees and the owners for the time being of their allotments should forever thereafter have a way-right and liberty of passage for themselves, their respective tenants and farmers, as well as on foot as on horseback, and with their carts and carriages, and to lead and drive their horses, oxen, and other cattle from the common highway over the east end of the allotments to their respective allotments, doing as little damage to the soil or the corn, grass, or herbage, as might be, and in case the allottees should 'street out' the way, that the same should always remain 11 yards wide, but the road was not to be a way of right for any other persons whomsoever than as aforesaid. The owner of one of the allotments commenced building houses upon it, and began to lay down a metalled road where there had only been an ordinary cart-track over the adjoining allotments."
The defendant also relied upon the judgment of Young J in Bland v Levi [2000] NSWSC 161. His Honour was concerned with a driveway constructed on two separate but adjoining pieces of land owned by the parties in that proceeding. One party was erecting units on its land and, as part of the works, was replacing the driveway in a different form from its existing construction. The other party was objecting and sought urgent relief.
In declining to grant relief, Young J referred to authorities in overseas jurisdictions and reached the following conclusion:
"[22] In summary, the dominant owner may do work on the servient tenement which is reasonably necessary for it to enjoy the right of way in such a way that it causes no reasonable interference with the servient tenement or undue inconvenience to the holder of the servient tenement. The right to decide what works will be done, what is the thickness of the driveway and the like, are part of the rights that are granted to the dominant owner and are a matter for it alone.
[23] Accordingly, it seems to me that it follows that the plaintiffs cannot complaint that they have not been given full and precise details of the work that is to be done."
The plaintiff sought to distinguish the circumstances with which Young J was concerned from those under consideration:
"That case did not concern the construction of a highway. No question of complying with the requirements of a planning permit, as to the standard of construction, was agitated. No statutory provisions applicable to the dedication of private land as a highway, were relevant."
In Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988, Brereton J reviewed a number of authorities and identified the following principles as "clearly established":
"[20] … First, a servient owner has no obligation to construct a right of way granted over its land. Its obligation is limited to the negative one of not obstructing the dominant owner's reasonable use of the right of way …
[21] Secondly, a dominant owner is entitled to construct a road over the site of a right of carriage way ... This is an ancillary right of a dominant owner: incidental to a grant of a right of way, the grantee may enter on the easement to do whatever is reasonably necessary to make the grant effective – including, in the case of a right of carriage way, not only repairing it but making a road so there is a serviceable carriageway over which vehicles can pass in poor conditions as well as in good weather. These cases establish that the right to construct a road includes a right to pave.
[22] Thirdly, however, the right is limited to what is reasonably necessary for the effective and reasonable exercise and enjoyment of the easement.
[23] Fourthly, a servient owner retains, in respect of his or her property the subject of a right of carriage way, all those rights of ownership that are not inconsistent with the exercise by the dominant owner of the rights expressly given or implicitly confirmed by the grant. The corollary is that a servient owners' rights are diminished to the extent that they are inconsistent with reasonable exercise by the dominant owner of its rights." [Citations omitted.]
Brereton J discussed broad principles applicable where a right of way has been granted over land and the owner of the land is under "no obligation to construct a right of way granted over its land". In the circumstances considered by his Honour, the obligation of the owner was "limited to the negative one of not obstructing the dominant owner's reasonable use of the right of way".
The circumstances under consideration were quite different:
· The contract did not grant the plaintiff an unrestricted right of way over the defendant's land. It provided a right of carriageway over the "Connector Park Roadway". That roadway was not only defined in general terms, it was the roadway which the defendant was, pursuant to the contract, obliged to construct.
· Further, the contract contemplated that the plaintiff's right of carriageway would not commence until, within three months of settlement, the defendant had partially constructed the Connector Park roadway (cl 5.3).
· Unlike the circumstances with which Brereton J was concerned where the obligation of the servient owner was limited to the "negative one of not obstructing the dominant owner's reasonable use of the right of way", as servient owner the defendant was obliged to construct the roadway over which the plaintiff was granted right of carriageway.
· If the plaintiff had attempted to construct the roadway, it would have prevented the defendant from carrying out the obligation imposed on it by the contract.
Before turning to the approach of the trial judge to this question, it is appropriate to deal with an issue related to the planning permits which the plaintiff contended provided a complete answer to the suggestion that the plaintiff could have entered onto the defendant's land and constructed the roadway.
The contract provided for the roadway to be built across areas of the defendant's land known as Lots 102, 105 and 108. Construction of a roadway across those Lots was a "development" for the purposes of the governing legislation, which could only be undertaken if a permit was granted by the local Council. As owner of the land, the defendant did not obtain a permit to develop Lot 108 by constructing a roadway until 2008.
The plaintiff's written submissions outlined the evidence concerning Lot 108:
"The evidence before his Honour was to the following effect:
· Planning permit SD0098.051 (AB 787) only provided for the creation of lot 108, not its construction as a highway. That is the effect of clause 1(h). The appellant's planning expert, Mr Shephard, acknowledged this in cross-examination at T 605 L 36 to T 606 – L 5. Self-evidently, it would not have been lawful to construct lot 108 as a highway, absent the grant of a planning permit for its development;
· Lawful approval to construct lot 108 as a highway was not granted until 7 April 2008 when the RMPAT permitted an amendment to planning permit DA0379/2007 (AB 992-996), which then resulted in the issue of amended permit DA0379/2007 (AB 997-1003). Mr Shephard confirmed this in his evidence at T 606 L 5 – T 607 L 30;
· Lot 108 was incapable of being developed as a highway (or even created as a separate lot) inconsistently with the staging requirements of planning permit SD0098.051 (AB 787), as confirmed by Mr Shephard at T 607 L 30 – T 608;
· Planning permit SD0098.051 required the submission of detailed engineering drawings to the council, for approval, prior to the undertaking of work, as specified at condition 3. As the appellant's expert, Mr Luck, confirmed in cross-examination, no engineering drawings for lot 108 were submitted for approval prior to January 2008: T 639 L 1 – T 641 L 20;
· As a condition of the approval of the engineering works, the council required provision of a subdivision bond in the sum of $300,000.00, a component of which included the outstanding work for the construction of lot 108. Mr Luck accepted this in his evidence at T 641 L 10 – T 642 L 15;
· Once the approved construction work had been completed, lot 108 became subject to a 12 month statutory defects liability period as explained by Mr Luck at T 642 L 10 – T 643 L 15." [Footnotes omitted.]
In these circumstances, regardless of any question of the ambit of ancillary rights, the plaintiff could not lawfully have undertaken construction of the roadway on Lot 108 before the permit was granted in 2008.
Counsel for the defendant did not address any submissions to this question. The plaintiff's submission is well founded. The absence of a permit to develop Lot 108 until 2008 is a complete answer to the defendant's case that the plaintiff could have mitigated its loss by constructing the roadway.
Notwithstanding that the absence of the permit with respect to Lot 108 is a complete answer, it is appropriate to deal with the approach of the trial judge to this question, and with his conclusion, which was correct.
It is helpful to provide the context in which the parties entered into the contract of 26 August 2004. That context was summarised by the trial judge when his Honour was considering the counterclaim:
"[11] The purposes and objects of the parties' transaction are clear. The defendant agreed (a) to terminate its contract for the purchase of about 3.17 hectares of land near Ernest Street, enabling the plaintiff to acquire that land from Mr Holyman's executors; and (b) to construct the Connector Park roadway and arrange for it to be taken over as a public road maintainable by the council, so that there would be much better road access to the land that the plaintiff hoped to subdivide. The plaintiff proposed to make money from a large residential subdivision. The acquisition of the 3.17 hectares and the construction of the roadway would help it to achieve that objective. In return, the plaintiff promised to pay the defendant a total of $600,000 plus GST, or $800,000 plus GST if the rezoning of the rural land went through, as well as allowing the defendant a temporary right of way between its Connector Park land and Ernest Street. The amounts that the plaintiff promised to pay may well have been determined by reference not only to the value of the 3.17 hectares and the cost of constructing the roadway, but also by reference to the commercial advantages accruing to the plaintiff as a subdivision developer as a result of the availability of road access to the subdivision site from both Ernest Street and the Kings Meadows Connector. It is significant that the defendant had been proposing to construct the Connector Park roadway in accordance with its subdivision permit of 29 December 1998. The construction of that roadway resulted in advantages to both parties as subdividers of their respective lands."
Clause 4.1 of the contract required the plaintiff to subdivide its land in accordance with either of two permits by 6 January 2005. The plaintiff made a development application to the Council on 20 October 2004. As mentioned, the "saga" of the subdivision was discussed at some length by the trial judge and his Honour concluded that from the time of the contract dated 26 August 2004, "the plaintiff was making repeated and reasonable efforts to proceed with the Mount Pleasant subdivision beyond Stage 1" [26]. In the passages earlier cited from his Honour's reasons [13], it is clear that his Honour also found that the plaintiff's subdivision was unable to proceed because the defendant had not constructed the Connector Park roadway. These findings are not challenged in any ground of appeal.
It is common ground that the planning permit for the plaintiff's subdivision required construction of the Connector Park roadway in accordance with Council specifications reflected in cl 5.7. It was not sufficient for the plaintiff merely to have access across the defendant's land. The plaintiff's development could not proceed unless the roadway was built to the specifications found in cl 5.7 of the contract. It follows that if the plaintiff was to mitigate its loss in the manner suggested by the defendant, the plaintiff would have been required to construct the roadway in compliance with cl 5.7 of the contract.
In the view of the trial judge, it was "quite clear" that construction of the roadway in accordance with cl 5.7 of the contract involved doing far more than was reasonably necessary for the "effective exercise of the right of carriage-way" granted for the purpose of carrying out developments works [29]. In reaching that conclusion, his Honour referred to the requirement in cl 5.7 that "the road be constructed to the standards specified by the Council in conditions 3(d) and (e) of permit SD.00.98.051". His Honour set out the requirements of condition 3(d) of the permit [29]:
"(i)An 11.0m wide, two coat spray seal on an appropriately constructed pavement;
(ii)Linemarking to designate the centreline and the edges of the traffic lanes;
(iii)All required intersection islands designed so as to allow passage of B-Double vehicle [sic] within the road pavement;
(iv)All necessary signage and guide posts;
(v)1.5m wide gravel shoulders on each side;
(vi)Table drains on each side shaped and lined to convey flows at velocities of less than 1.5 m/sec and a flow depth of less than 300mm;
(vii)Road and driveway culverts where required, complete with concrete or masonry endwalls.
(viii)Graded, topsoiled and planted verges."
The trial judge concluded that the ancillary rights of the plaintiff "fell far short of entitling it to engage a contractor to construct the roadway to the standard required by cl 5.7" [30]. His Honour reached the correct conclusion. The requirements of cl 5.7 were well removed from the right to construct a roadway which would support the traffic required by the plaintiff and its contractors in the course of development work associated with the plaintiff's subdivision.
The conclusion reached by the trial judge sits comfortably with the terms of the contract. As the plaintiff pointed out in its written submissions, the "extent of the ancillary rights falls to be ascertained upon a proper construction" of the contract.
The right of carriage-way granted by cl 5.4 commenced on settlement (defined as meaning 27 August 2004 or any other date agreed by the parties), and existed only until the Connector Park roadway was taken over as a public road maintainable by the Council. This limited right of carriage-way was granted in the context of cl 5.3 which required the defendant to partially construct the Connector Park roadway within three months of settlement and to a "sufficient standard to facilitate reasonable access to the plaintiff's property by the plaintiff and its contractors for the purpose of carrying out development works" on the plaintiff's land. The defendant was required by cl 5.6 to complete construction of the Connector Park roadway by 6 January 2005.
Pursuant to the contract, not only was the defendant obliged to partially construct and complete construction of the Connector Park roadway within the times prescribed by the contract, the defendant was entitled to undertake such construction. If the plaintiff had sought to undertake any form of construction of the roadway, it would have been interfering with the rights and obligations of the defendant. The ancillary right for which the defendant contended would be inconsistent with the rights and obligations of the defendant under the contract.
In these circumstances, whatever ancillary rights were possessed by the plaintiff, they did not extend to a right to construct the roadway to the standard and specifications required by cl 5.7.
In addition to these matters, the plaintiff also emphasised the obligations imposed on the defendant by cl 5.6 to do "all things necessary to ensure that the Connector Park roadway [was] taken over as a road maintainable by Council by 6 July 2005". The plaintiff's subdivision could not proceed unless the Connector Park roadway was dedicated as a public road. Even if the plaintiff constructed the roadway in compliance with cl 5.7, it could not take the next step. Only the owner of the land could take this step. Hence cl 5.6 of the contract placed this obligation on the defendant.
Further, to fulfil this obligation the defendant, as the owner of the land on which the road was constructed, was required to comply with the provisions of the Local Government (Highways) Act 1982. For example, s 10 of the Local Government (Highways)Act, imposes obligations on the defendant, as the owner of the land, which the plaintiff submitted are inconsistent with construction of the road by the plaintiff:
"Obligations on landowners opening highways
(1) Where this section applies to a highway opened or to be opened on any land, the owner shall ensure –
(a)that works (in this section referred to as "the construction works" ) are carried out, in accordance with plans and specifications approved by the corporation, for the construction of a road or other way on the land or for the improvement, widening, or other alteration of a road or other way already existing on the land; and
(b)that the road or other way is kept in repair throughout the statutory period."
For these reasons, the limited right of the carriage-way granted to the plaintiff pursuant to cl 5.4 of the contract did not confer on the plaintiff an ancillary right to construct the Connector Park roadway. In particular, it did not confer an ancillary right to construct the Connector Park roadway in accordance with cl 5.7.
Further, for the reasons that follow, even if the plaintiff possessed such an ancillary right, its failure to exercise that right, or attempt to do so, did not amount to a failure to mitigate its loss.
Mitigation of loss – Practical considerations
The written submissions of the defendant summarised the defendant's case with respect to failure to mitigate loss:
"[24] The evidence before the Court capable of sustaining that finding can be summarised as involving:
(a)First, the apparently uncontroversial proposition that the plaintiff (now respondent) was a land development company which necessarily involved it in the constructions of roads and their conveyance to Council; and
(b)Second, the evidence of Dale Luck that a contractor could have been engaged to construct the road at a cost of $131,160.00; and
(c)That the road was completed by 30 June 2008 following a making of an order for specific performance on 19 June 2008." [Footnotes omitted.]
Leaving aside both the legal issues discussed and the finer points of the principles governing mitigation of loss, the broad question is whether the construction of Connector Park roadway was a practical option reasonably open to the plaintiff as a means of mitigating its loss.
First, the trial judge made a relevant finding of fact:
"Any attempt by the plaintiff to mitigate its damage by undertaking roadworks would have been likely to give rise to a dispute as to the extent of its rights as the grantee of a right of carriageway. Its duty to take reasonable steps did not require it to undertake works of such a nature that its right to undertake them was not reasonably clear."
In substance, his Honour found:
· If the plaintiff attempted to undertake roadworks on the defendant's land it was "likely" to give rise to a dispute as to the extent of the plaintiff's rights.
· The plaintiff's rights to undertake roadworks were not "reasonably clear".
Those findings were well founded.
Mr Dean Cocker was the Managing Director of the plaintiff group. He was closely and extensively involved in the development, and conducted negotiations in respect of the contract with Mr Joe Pintarich, the controlling director of the defendant.
Mr Cocker gave evidence that although access was granted in 2004 to exercise the right of carriage-way, there was an occasion in 2005 when access was denied. Mr Cocker wrote to Mr Pintarich by letter of 25 August 2005 and referred to the refusal to allow the contractor to access the plaintiff's land. The letter identified the refusal as a breach of the contract. The letter continued:
"Under clause 5.6 of the Agreement your company also agreed to complete Connector Park Drive by 6 January 2005. Seven and half months after that date no work has been carried out. This is despite requests for you to commence work, and statements by you that you would begin after we assisted you with Gary Wilson's appeal and helped you obtain approval for a s71 agreement over lot 107 at Connector Park.
I expect that due to weather constraints it may not be desirable to start work until Spring. However, in the circumstances where you are refusing to give us any indication as to when you will start, it is appropriate that we register the agreement on title by way of a Caveat and you can't seriously be surprised that we have done so.
All we ask is that you honour your commitments in respect of the right of way and completion of the road – no more, no less. We request that you advise us as to your intentions in this regard as soon as possible before 5 September 2005." (AB 1889)
During cross-examination Mr Cocker explained that the gate was locked most of the time, but if contractors wanted access they would arrive and ask for the gate to be opened. Initially after the contract had been signed there was co-operation, but as time went on the defendant "started to reneg on its commitments and it became un-cooperative as time progressed" (T188).
According to Mr Cocker, by December 2005 the roadway had not been constructed to the boundary of the plaintiff's land as required by the contract. By letter of 12 December 2005 to the defendant, notice was given to the defendant to complete construction of the roadway by 24 April 2006 and that, upon failure to meet that deadline, proceedings would be commenced seeking an order for specific performance and damages (AB 1891).
Mr Cocker gave evidence that on the same day Mr Pintarich telephoned him and expressed his displeasure about the notice to complete. A file note made by Mr Cocker recorded the following (AB 90 and 1893):
"Joe called. Not happy about Notice to Construct Roadway was the message amongst many expletives. He threatened that he may pull out of sale and may not go ahead and he would not build the road. He told me that settlement for the sale of Connector Park was to take place in February 06."
Subsequently, Mr Cocker understood that Mr Pintarich was endeavouring to sell his land without passing on the full obligations to the plaintiff and a caveat was placed upon the land to prevent the sale. Ultimately an injunction was obtained to prevent the sale, and proceedings were commenced on 21 February 2006.
The evidence of Mr Cocker concerning the conversation on 12 December 2005, as recorded in his note, was not challenged in cross-examination.
Mr Cocker also gave evidence that the relationship became "very acrimonious" (AB 103). He described the relationship as "hot and cold" and said that conversations would involve "numerous expletives on Mr Pintarich's part" (AB 103). Although there was challenge in cross-examination to the evidence of Mr Cocker that Mr Pintarich was often threatening, there was no challenge to the evidence that the relationship became acrimonious.
No evidence was led by the defendant to contradict the evidence of Mr Cocker. It is readily apparent that if the plaintiff had attempted to undertake construction of any type of roadway on the defendant's land, there would have been problems with access, and disputes would have arisen between the parties as to the rights of the plaintiff. In the absence of a court order, it is clear that from a practical point of view, it would have been impossible for the plaintiff to have undertaken construction of the roadway.
During cross-examination it was put to Mr Cocker that between April 2006 and December 2007 there was an opportunity for the plaintiff to build the roadway. Mr Cocker responded (AB 269):
"The circumstances that would prevent that would be that the planning was not in place, Council's sign-off with engineering was not in place, that it would be necessary to have a contractor access not just the right of carriage way areas but areas other than that in order for them to carry out the work. In those situations – or that circumstance – they would be trespassing on Connector Park's land. Connector Park was, and in particular Mr Pintarich at the time, aggressively un-cooperative and at the time as well there would have been circumstances that are well-reported at the time where trespassers on his land had met with his car and bull-bar crashing into their vehicle.
…
So the idea that we would be able to send the contractor in to trespass on his land to finish a road that didn't have appropriate planning in place or the staging or have Council sign-off for the engineering and to be trespassing in circumstances where he had been violent to people who trespassed on his land and actually was convicted of assault. In those circumstances I think the suggestion is fanciful."
The cross-examination then challenged Mr Cocker's evidence about threats and intimidation by Mr Pintarich. During that cross-examination Mr Cocker repeated that to suggest that a contractor could trespass on Connector Park's land without approval was "fanciful". He added that there were "a number of contractors who had dealings with Joe in the past and would not want to cross paths with him." (AB 271).
The trial judge did not make any explicit finding about the reliability of the evidence of Mr Cocker. However, his Honour appears to have generally accepted Mr Cocker's evidence and, when it came to dealings with Mr Pintarich, the evidence was un-contradicted. Despite assertions by counsel for the defendant on more than one occasion that Mr Pintarich would give evidence to contradict Mr Cocker, Mr Pintarich did not give evidence.
A reading of the evidence given by Mr Cocker does not disclose any reason to doubt the reliability of his evidence that the relationship became acrimonious and that it was fanciful to suggest that the plaintiff could have undertaken constructions of the road without access problems and other disputes. It was open to the defendant to lead evidence to the contrary, but the defendant chose not to do so.
In addition to these matters, the plaintiff's written submissions referred to the difficulty of recovering costs of construction, and contended that the costs involved if the plaintiff undertook the work would have been significantly in excess of $131,000 (being the figure identified in the defendant's written submissions):
"32Even if one puts aside all of these difficulties, it is fanciful to suggest that the respondent was obliged to expend a considerable sum of money to construct lot 108, not solely for its benefit, but for the benefit of the appellant and members of the public. The opinion of Mr Luck that the estimated cost of the work in 2006 was in the order of $131,000.00 did not withstand scrutiny under cross-examination as revealed at T 633 L 40 – T 638 L 10. In summary his estimates:
· were limited to the cost of constructing lot 108;
· did not include the entire length of road, necessary to be constructed, in order to join with the Kings Meadows Connector; and
· although he had not been requested to express an opinion on the point, he accepted that the total cost would be 'very considerably' greater than his estimates: up to a sum of $250,000.00.
33 The mitigation defence, and the submissions in support, fail to reveal how the respondent, assuming that it had embarked upon the construction obligation, would have recovered the costs of so doing from the appellant and why the appellant ought to receive the considerable economic advantage of having the respondent take over and discharge the constructions obligation which it accepted pursuant to the CPA." [Footnotes omitted.]
It is unnecessary to canvas the evidence in detail. It is sufficient to note that although Mr Luck did not agree that the cost of constructing the entire roadway would have been "very considerably more" than his estimates, he acknowledged that instead of $130,000, "it might have been $200 - 250,000, even" (AB 673).
In the context of the requirement that the plaintiff take all reasonable steps to mitigate its loss, what are "reasonable" steps must depend upon the facts of the individual case. In the circumstances discussed, the following facts are of particular importance:
· The defendant would not have consented to the plaintiff undertaking construction of the Connector Park roadway.
· If the plaintiff had attempted to undertake such roadworks, it would have been met with significant opposition from the defendant, including a locked gate preventing access.
· The right of the plaintiff to undertake construction of the roadway was far from clear. If the plaintiff attempted to undertake the work on the defendant's land it was likely to give rise to a dispute as to the plaintiff's rights in that regard.
· The relationship between the plaintiff and the defendant was, by the latter half of 2005, acrimonious.
· In the absence of a court order, from a practical point of view it would have been impossible for the plaintiff to undertake construction of the roadway.
· Construction of the roadway could not commence until engineering drawings were approved. If the plaintiff was to construct the roadway, the burden would have fallen on the plaintiff to prepare the drawings and lodge them for approval.
· If the plaintiff was to construct the roadway, it would have been required to provide to the Council a bond of $300,000.
· The cost of constructing the roadway would have been significantly more than $130,000 and, if the plaintiff incurred such a cost, it is likely that it would have had difficulty in recovering the cost from the un-co-operative defendant.
In these circumstances if, contrary to our view, the ancillary rights of the plaintiff entitled it to construct the roadway, the requirement that the plaintiff take all reasonable steps to mitigate its loss did not encompass constructing the Connector Park roadway.
In relation to mitigation of loss, the grounds of appeal concern only the decision of the trial judge that the plaintiff did not act unreasonably in not attempting to construct the Connector Park roadway. There is no ground of appeal asserting that in any other respect the plaintiff failed to take steps which were reasonably open to it by way of mitigation of loss.
In written submissions the plaintiff summarised the steps it took "for the express purpose of reducing its loss":
"· The lodgement of various subdivision development applications which did not rely upon highway access over lot 108, and which were confined to highway access pursuant to the existing suburban street network. At T 255, Mr Cocker explained how the respondent attempted to mitigate its loss in this regard. First, it lodged a 57 lot subdivision application that did not rely on access through Connector Park (AB 844-897). The council refused this, for the very reason that access was not proposed through Connector Park. The respondent lodged an appeal to the RMPAT, and engaged in a protracted and costly hearing. The RMPAT upheld the refusal, once again based on insufficient highway access. The respondent spent 'close to hundreds of thousands of dollars' on this exercise;
· The respondent proceeded to promptly develop 17 lots, off Earnest Street, Kings Meadows, pursuant to an extant approval: T 255 L 35-45;
· On 31 October 2006, the respondent sought approval to re-subdivide previously approved allotments off Southgate Drive. The council refused to grant a permit, and once again the respondent appealed to the RMPAT which upheld the council's decision;
· The respondent lodged an appeal with the RMPAT against a decision of the council, in favour of the appellant, which the respondent assessed as likely to delay the construction and dedication of lot 108 as a highway. The respondent secured a decision by consent on 7 April 2008, designed to protect its position;
· The attempt at mitigation, the 60 lot subdivision, had the effect of increasing the loss suffered by the respondent: T 255 L 25-30; "
· The respondent pursued various appeals to the RMPAT, in an effort to have the council's refusal to grant approval for a more modest subdivision, overturned: AB 900-913, 914-931, 1894-1901; and
· The respondent commenced this action on 21 February 2006 and sought specific performance as a further attempt to mitigate its loss." (footnotes omitted)
The trial judge correctly found that from the date of the contract of 26 August 2004, the plaintiff made "repeated and reasonable efforts to proceed with the Mount Pleasant subdivision beyond Stage 1". There is no appeal against that finding.
For these reasons, grounds 2–5 relating to mitigation of loss are not made out.
Ground 6
The original wording of ground 6 of the notice of appeal was as follows:
"6His Honour erred in finding (at [105]) ' … That a payment of $2.2 million in September 2014 would have been appropriate to compensate the plaintiff for its lost commercial opportunity' in that the contrary evidence of Mr Wallace ought not to have been excluded by his Honour (at [95])."
The defendant applied to amend ground 6 to read:
"6His Honour erred:
(a) in determining at [83] that 'Positive cashflows from the sale of lots outside Stage 1 commenced during [Financial Year 2012], have continued ever since, and are likely to continue for years to come'; and
(b) in accepting or adopting the evidence of Mr Blackwood and Mr Rands in relation to positive cashflows commencing in financial year 2012; and
(c) in finding on the basis of findings in relation to positive cashflows at [105] that 'A payment of $2.2 million in September 2014 would have been appropriate to compensate the plaintiff for its lost commercial opportunity'.
by:
(d) Failing to consider whether the figures for 'Net Cash Flow (excluding Stage 1)' and 'Taxable Income – Development' in the spreadsheet prepared by Mr Blackwood (Exhibit P22), and which formed the 'starting point' of the evidence of Mr Rands, properly accounted for cumulative development costs for financial years preceding the 2011-2012 financial year; and/or
(e) failing to make any finding of fact as to what cash the plaintiff respondent had available for investment commencing during the 2011-2012 financial year, when the plaintiff respondent's available cash ought to have excluded moneys paid in satisfaction of losses accumulated in the preceding financial years 2004 to 2011 inclusive; or
(f) Alternatively to (e), and if his Honour did find as a fact that the plaintiff respondent had cash available for investment commencing in the 2011-2012 financial year, as to that finding in circumstances where the evidence before his Honour was that the plaintiff respondent had, in the financial years 2004 to 2011 inclusive, incurred accumulated losses which impacted the plaintiff respondent's cash available for investment; and/or
(g) ruling inadmissible evidence from Mr Wallace which questioned the assumption made by Mr Rands when calculating the available cash for investment, namely that funds outlaid in years 2004 to 2011 for commencement of the subdivision were never repaid and did not affect 2011-2012 financial year positive cash flow."
The application to amend ground 6 was strongly opposed. On 18 April 2018 the Court heard submissions with respect to the amendment. In view of the complexity of the evidence and submissions, the Court decided to hear the application as part of the substantive appeal on the basis that the parties would present submissions with respect to proposed ground 6 as if leave to amend had already been granted.
Both versions of ground 6 challenge the trial judge's assessment of damages. As part of that challenge both versions assert that the trial judge erred in excluding evidence the defendant sought to lead from an experienced accountant, Mr Mathew Wallace.
Mr Wallace – admissibility
It is necessary to consider the context in which some of the evidence of Mr Wallace was excluded.
The factual setting for the assessment of the plaintiff's damages was briefly summarised by the trial judge:
"[83] The development and sale of lots in Stage 1 of the Mount Pleasant subdivision, which was adjacent to Ernest Street, was not delayed by the defendant's breach of contract. No lots were sold in any other stages until the 2011 financial year. But in that year the plaintiff received sales revenue exceeding $2.3 million from the sale of lots in stages other than Stage 1. Positive cashflows from the sale of lots outside Stage 1 commenced during that financial year, have continued ever since, and are likely to continue for years to come.
[84] The plaintiff contends that, but for the defendant's breach of contract in failing to complete the construction of the Connector Park roadway, those positive cashflows would have commenced 3½ years earlier than they did. On the basis of data relating to those cashflows, Mr Rands has expressed an opinion as to the extent of the loss suffered by the plaintiff as a result of delayed cashflows as at September 2014."
The Mr Rands to whom the trial judge referred is Mr Daniel Rands, an experienced chartered accountant who provided a report for the plaintiff (Exhibit P25 AB 1994-2035). Mr Rands relied upon financial figures provided by the finance manager of the JAC group of companies, Mr Stephen Blackwood.
As mentioned, the trial judge found in favour of the plaintiff's case that the first net positive cashflow occurred in 2012. However, in the years 2004 to 2012, subdivision costs of $2,844,134 were incurred by the plaintiff which was an accumulated debt in 2012. In determining the funds available for investment in 2012 and following years, Mr Rands did not take into account the possibility that net cashflow from 2012 onwards might have been used to repay the accumulated debt. Mr Rands calculated the loss on the basis that the net positive cashflow was available for investment. The defendant submitted that before funds were available for investment, the accumulated debt had to be repaid.
In the context of the plaintiff's case as to damages based on the evidence of Mr Blackwood and Mr Rands, the defendant sought to tender a report dated 7 May 2016 by Mr Wallace (Exhibit D17 AB 2036-2427). In his report Mr Wallace set out 16 points of comment upon various sections of Mr Rands' report. Objection was taken to the entire report. The trial judge ruled that most of the 16 points were inadmissible, primarily because the report failed to identify the reasoning underlying the views expressed by Mr Wallace.
Ground 6 as originally worded challenged the award of $2.2 million on the broad basis that "the contrary evidence of Mr Wallace ought not to have been excluded". In written submissions filed on appeal before the application was made to amend ground 6, the defendant narrowed the focus of ground 6 to the "rejection of points 2 and 5 of Mr Wallace's report, as related to the respondents' costs of construction". This position was confirmed in the first set of written submission filed in support of the application for leave to amend ground 6:
"7Ground 6 of the appellant's notice of appeal, as originally drafted, impugned the exclusion by the Honourable trial judge of the evidence of an accounting expert called by the appellant/defendant at trial, Mr Wallace, to the effect that expenses should have been taken into account by the respondents' expert Mr Rands.
8By its outline of submissions in this appeal, the appellant focused its criticism upon the exclusion of items 2 and 5 of Mr Wallace's report, as related to the respondents/plaintiffs' costs of construction which accrued as losses."
Points 2 and 5 of Mr Wallace's report were both identified as concerned with section 6.1 of the report by Mr Rands. Section 6.1 read as follows:
"[6.1]Attached as Appendix 1 is a printout of the spreadsheet prepared by employees of RV Pty Ltd I have been instructed to adopt as reflecting the actual and projected cashflows of the project both as they have and are projected to occur and also how they would have occurred if the roadway was completed three years earlier."
Point 2 of the report by Mr Wallace was as follows:
"2(a) KPMG Appendix 3 is a document from Shaun McElwaine + Associates to Mr Rands. In this document in the section titled 'The Plaintiffs' Financial Accounts and Dealings', Mr Rands is requested to meet with staff of RV Pty Ltd to ask questions relating to the report. Mr Rands seems to have been relying on management data without verification or scrutiny for reasonableness.
(b) The document has missing expenses, formula errors, overstated income forecasts and amounts that are not equalling the RV Pty Ltd column in the consolidated spreadsheets at KPMG Appendix 6.
(c) Errors noted in the following KPMG points numbers 3 to 6."
Point 5 of Mr Wallace's report read as follows:
"5(a) The spreadsheet mentioned in Mr Rands' section 6.1 has formula errors at cells F141 & F143. Effectively the initial cash outlaid for the commencement of the subdivision is missing.
(b) The row heading 'Net Cash Flow (excl State 1)' as mentioned in Mr Rands' section 6.4 first shows the total cash spent on the subdivision in 2006 at $194,957. In 2006 the WIP balance is $1,757,759. How is it possible for the total expenses spent to date to be reported as only $194,957 if the WIP balance is much greater.
(c) It is suggested that $1,562,802.57 is excluded from the cash position of the company in 2004 and 2005 due to the formula errors."
The trial judge regarded point 2 as an introduction to points 3-6. Having ruled that points 3-5 were inadmissible, but having admitted point 6, his Honour expressed the view that nothing in point 2 added anything by way of expert opinion to the opinion expressed in point 6 and, on that basis, ruled point 2 to be inadmissible.
As to point 5, the trial judge regarded it as a criticism of Mr Blackwood's spreadsheet (Exhibit P22). His Honour continued (AB560):
"It's an expression of expert – well, 5(a) is an expression of expert opinion that the cash outlaid for the commencement of the subdivision should have been brought into account but it was not. There is no reasoning in support of that opinion. 5(a) is therefore inadmissible.
5(b) amounts to an expression of opinion that two figures in Exhibit P22 are inconsistent. No reasoning is given as to what makes them inconsistent. 5(b) is therefore inadmissible. 5(c) is a conclusion based on 5(b). It must also be inadmissible."
The guiding principles enunciated in Sellars v Adelaide petroleum NL were discussed by this Court in Doolan v RenkonPty Ltd [2011] TASFC 4, 21 Tas R 156. The Court (Crawford CJ, Blow and Porter JJ) noted that a plaintiff must prove the existence of a loss of chance and opportunity. Further, where "realisation of an opportunity depends on a plaintiff's own decision to take it up, it must be proved on the balance of probabilities that it would have been taken up" at [175].
The trial judge found that, but for the breaches of contract by the defendant, "there was a very substantial prospect that the plaintiff would have acquired the benefit of subdivision approvals from the Council years earlier than it did" [59]. His Honour found that from the date of the contract, "the plaintiff was making repeated and reasonable efforts to proceed with the Mt Pleasant subdivision beyond Stage 1" [56]. Having considered the evidence concerning risks and obstacles with respect to proceeding with the subdivision development, his Honour concluded that there was "a very substantial prospect that the plaintiff would have acquired the benefit of subdivision approvals from the Council with little or no delay" [82]. Further, his Honour found that the breaches of contract "caused the loss of a commercial opportunity that had a substantial value" [59]. Those findings are not challenged.
The plaintiff discharged the burden of proving the loss of a valuable opportunity which it would have taken up. The fact of damage was proven. The extent of the damage in the form of the value of the lost opportunity was not to be assessed by reference to proof on the balance of probabilities. As Brennan J pointed out, determining the value of the loss suffered involves hypotheses and possibilities in respect of which "a valuation is a matter of informed estimation" (368).
The trial judge undertook a process of "informed estimation" as to the value of the loss of opportunity to develop the land earlier than was possible. In this process his Honour had the assistance of the evidence of Mr Rands, who undertook the process of converting future cash-flows into a present value using a common and accepted methodology known as "discounted cash-flow" or "net present value". It was a methodology that the trial judge noted had been accepted in a number of cases involving lost commercial opportunities [94]. There was no error in his Honour's approach to the assessment of the value of the lost opportunity.
As the plaintiff pointed out, the defendant was a subdivider of land and a property developer. It knew that the plaintiff intended to subdivide its land and relied upon the defendant building the Connector Park roadway in accordance with the contract in order to proceed with its subdivision. It would have been obvious to the defendant that by failing to construct the roadway on time, it was delaying the plaintiff's subdivision and causing the plaintiff to suffer financial loss. It would also have been obvious to the defendant that if the plaintiff was able to proceed with its subdivision it would have received income and made use of the income in the ordinary course of its business as a property developer.
For these reasons, leave to amend ground 6 is refused.
Double dipping
Mr Blackwood gave evidence that because of the delay caused by the defendant's breach of contract, a decision was made to use the subdivision project as security for a loan from the Commonwealth Bank. Interest was incurred on that loan and, in his calculations, Mr Rands added interest of $288,349 to the investment return that he assessed could have been achieved if the net positive cashflow had been achieved 3½ years earlier. His explanation was as follows: (AB 2006):
"8.2Under the heading 'After Tax Interest Paid' is the amount I am instructed was paid by RV Pty Ltd to external financiers in the 2011, 2012, 2013 and 2014 financial years, net of associated tax deductions, and I am instructed that these amounts would not have been paid had the roadway been completed as contracted, and proceeds from allotments been received 3½ years earlier."
In the view of Mr Rands, the amount of $288,349 was an economic loss incurred as a consequence of the breach of contract. Hence he added this amount to the value of the lost opportunity to invest net positive cashflow.
Although not a specific ground of appeal, during submissions counsel for the defendant contended that this process involved a form of double dipping. Either the plaintiff could claim the loss of the opportunity to invest the net positive cashflow, or it could claim the interest paid on the Commonwealth Bank loan which would not have been taken out if the net positive cashflow had been received on time. But it could not claim both.
Mr Rands was asked about this issue in cross-examination (AB 436 and 437):
"Well, I put it to you this way: the assumption is that everything is the same and but for the breach there would have been no bank loan then if it was going to return to – if you were going – three and a half years in the model should go back to there is no bank loan, ie, the debt has been repaid, shouldn't it? Wouldn't that give a fairer picture of this as a stand-alone model?.....The parts of the spreadsheet that I have used start with the positive cash flows. So what happened earlier has not been taken into account for the reason I gave that we're not looking at the net present value of the total project.
There's a conflict – do you accept that there's a conflict between claiming lost earnings on surplus funds but wanting to be reimbursed the interest cost of borrowing the money?.....No.
You don't accept that?.....No.
Well, as an example, if there was a hypothetical $100 invested by RV you're suggesting they should be $6.20 in lost investment income?.....Yes.
In the final calculation you're claiming a further $6.20 for interest they had to pay the Commonwealth Bank?.....I've used the actual amounts paid to the Commonwealth Bank.
Whatever it is, but there's a double dipping there, isn't there?.....No. I don't believe there is."
Counsel for the plaintiff re-examined Mr Rands (AB 455):
"You were asked the question about whether you had been double-dipping by reference to the interest claim – you remember that?…..Yes.
You said, 'I don't believe there is'.....No.
–and you were cut off. Why don't you believe there's double-dipping?…..Because I'm instructed that, but for the breach, there would have been no borrowings, therefore no interest. So, so, clearly, the payment of interest is part of the economic loss."
As discussed earlier in these reasons, if the net positive cashflow had been received 3½ years earlier, there were a number of ways in which that cashflow could have been used, including investment, paying off debts or engaging in other subdivisions. Notwithstanding the existence of loans, it was an accepted and legitimate method of assessing the value of the lost opportunity to assess the investment return which would have been received had the funds been available 3½ years earlier. However, that methodology assumes the use of the entire funds for investment.
The methodology adopted by Mr Rands was based on the premise that if the net positive cashflow had been received 3½ years earlier, all of that positive cashflow would have been used for investment. By way of contrast, the claim for interest on the Commonwealth Bank loan is underpinned by the assumption, proved in evidence, that the loan would not have been taken out if the funds had been available earlier. In other words, if the funds had been available earlier, part of those funds would have been used to pay ongoing development expenses, thereby avoiding the necessity of taking out the loan from the Commonwealth Bank. It follows that the amount borrowed from the Commonwealth Bank would not have been available for investment because it would have been used to fund ongoing development expenses.
To the extent of the Commonwealth Bank loan, there is positive evidence as to how the net positive cashflow would have been used if it had been received earlier. In these circumstances, the plaintiff having proved a specific loss arising from the breach of contract, namely, the interest paid on the loan, the amount of interest is the quantum of damage proved by the plaintiff in respect of that loan.
Subject to the issues raised in ground 7, therefore, Mr Rands should have made allowance for the outflow of funds to meet ongoing development expenses. The amount of that outflow is reasonably assessed as the amount borrowed from the Commonwealth Bank. The trial judge was in error in not making allowance for the outflow of funds and in accepting the assessment by Mr Rands which failed to take into account the outflow of funds which would have occurred to meet ongoing expenses rather than borrowing from the Commonwealth Bank.
Ground 7
As appears later in these reasons, the cross-appeal with respect to the counterclaim is dismissed. Ground 7 is, therefore, to be resolved and is as follows:
"7His Honour erred in calculating and awarding damages to the plaintiff for loss of use of moneys without allowing for his finding that the Defendant was entitled to $440,000 by way of counterclaim.
Particulars
The sum used to calculate the damages awarded to the Plaintiff for loss of use of moneys should have been reduced by $440,000 in accordance with the evidence accepted by His Honour as the basis of the allowed counterclaim."
In the proceedings before the trial judge the defendant pursued a counterclaim against the plaintiff for the amount of $440,000. The substance of the counterclaim was summarised by the trial judge:
"[4] There is a counterclaim. The contract required the plaintiff, subject to certain terms and conditions, to pay the defendant $800,000 plus GST in three instalments. The first instalment, amounting to $400,000 plus GST, was paid in 2005. The plaintiff has not paid the second and third instalments, each amounting to $200,000 plus GST. It contends that, on a proper construction of the contract, it was not required to do so because its liability to pay was conditional upon the defendant performing its obligations in relation to the roadway in a timely manner. The defendant contends otherwise, and has counterclaimed $440,000, comprising $400,000 plus 10% GST."
The relevant part of the contract was cl 5.8 which is set out in [10] of these reasons. The trial judge found that although compliance occurred much later than contemplated by the contract, the conditions set out in cl 5.8 which the defendant was required to meet before becoming entitled to the three instalments totalling $800,000, plus GST, were met. The trial judge rejected a contention by the plaintiff that the failure of the defendant to comply with the conditions within the time specified in the contract meant that the defendant was not entitled to the outstanding payments. His Honour gave judgment for the defendant against the plaintiff in the amount of $440,000. That part of his Honour's decision is the subject of a cross-appeal which is discussed later in these reasons.
The substance of the defendant's contentions pursuant to ground 7 is found in the following written submissions:
"[44]The [defendant] submits that in calculating the plaintiff's damages, the honourable trial judge should have, but did not, make allowance for the inevitable outflow of monies which ought to have occurred by payment of the monies which his Honour held were payable under cl 5.8 of the Connector Park Agreement. The issue was raised by the Court in closing submissions [AB 728] but is not addressed in his Honour's reasons.
[45]The appellant submits that it necessarily follows from the success of its counterclaim that the plaintiff's cashflows and profits and losses were necessarily required to be reduced, in consequence of the payments under cl 5.8 falling due."
It is common ground that neither Mr Blackwood nor Mr Rands made allowance for the amounts that the trial judge found were payable upon satisfaction of the conditions in cl 5.8. In closing submissions before the trial judge, counsel for the plaintiff came very close to conceding that allowance should have been made for payment of $400,000 (AB 728):
"HIS HONOUR: What do you say to the proposition that in Mr Rands' calculations, or perhaps – no, sorry – Mr Blackwood's calculations, in the no breach scenario, should he have allowed for an outflow of funds of $400,000?
MR McELWAINE SC: The calculations being necessarily hypothetical, that is a prospect that your Honour may well take into account in assessing the various contingencies.
HIS HONOUR: Mm.
MR McELWAINE SC: If there had been no breach, then at some time after January 2005, there would have been imposed upon the plaintiff a lawful payment obligation, I'd have to accept that, yes, your Honour."
On appeal, referring to the defendant's submission that the trial judge had failed to take into account the amount of $400,000, counsel for the plaintiff said:
"He [the defendant's counsel] might be right about that depending on the cross-appeal so I can put that to one side but your Honour's will have seen from my submissions, once you apply an MPV calculation, it can't be $400,000, it has to be something else."
In written submissions the plaintiff submitted that the sum of $400,000 or $440,000 inclusive of GST, "does not bear a direct mathematical relationship with the range of losses calculated by Mr Rands". After referring to the explanation by Mr Rands that he quantified the loss by having regard to the return which would have been received on the investment of funds had the funds been received 3½ years earlier, the submission continued:
"73 As might be expected, Mr Rands made a number of assumptions (which were not effectively challenged in cross-examination) as to the types of investments, and the rates of return. In each of his calculations, set out at appendices 3-5, he adopted different earning rates and applied a discounted cash flow analysis. As is well understood by accountants, a discount rate is applied to determine the time value of money. A dollar held by a person today is worth more than a dollar held by that person in April 2019.
74 It is for this reason that additional expenditure by the respondent of either $200,000 or $400,000 in 2005, is not to be translated to a reduction in the quantum of damages awarded in either sum: by definition, it is a lesser sum. What it might be will ultimately need to be reassessed by Mr Rands, in the event that this ground succeeds.
75 There are several other points. Blow CJ increased the quantum of the counter claim by $40,000, to allow for GST. In proceeding in this way, his award was plainly excessive. If the correct analysis of His Honour's reasoning is that the appellant, as the supplier, is entitled to receive payment from the respondent, then the appellant is obliged to deliver a tax invoice which includes the GST amount. Upon payment of that amount, the appellant is obliged to account to the ATO for the GST component. The effect of His Honour's order is either that GST has been added twice, or if not the primary amount payable to the appellant has been impermissibly increased, before accounting for GST.
76 The alternative analysis is that no GST is payable upon the award made in favour of the appellant and accordingly His Honour erroneously included GST in the award.
77 Finally, it does not follow that a failure to make allowance for either sum demonstrates reviewable error. The respondent particularised, and Blow CJ correctly understood, the damages claim as one for lost opportunity. The respondent framed the claim within a range of $1,879,840 to $2,710,776, in accordance with the opinion of Mr Rands. Appendix 6 of his report sets out his summary of his various calculations, based on different assumptions about investment rates and discount rates.
78 As is well understood, an assessment of damages for lost opportunity is not required to be proved on the balance of probability. Blow CJ accepted the methodology of the respondent's delayed cash flow calculation and the opinion of Mr Rands. The appellant does not contend that he erred in either respect. He set out the range of figures at [91] and returned to them at [102]. His Honour found that the discount rate was arrived at by Mr Rands as 'the product of what I would call an intuitive synthesis' at [104]. He then found that each of the assumptions made by Mr Rands and Mr Blackwood 'were so conservative that the strict adoption of an earnings rate of 6.2% or 6.6% would not do justice to the plaintiff' at [105] and from this finding he undertook a familiar analysis by doing the best that he could to provide fair compensation to the respondent. He adopted an earnings rate nearer to 9% and a discount rate 'more or less halfway' between 22% and 30% to derive his figure of $2.2M calculated as at September 2014 which he found 'appropriate to compensate the plaintiff for its lost commercial opportunity'.
79 This analysis is an example of the familiar approach to the assessment of damages for a lost, and necessarily hypothetical, opportunity. It was for His Honour to evaluate the relative prospects and to do the best that he could based on the evidence. Accordingly, it does not follow from the fact that because additional expenses of either $200,000 or $400,000 were not taken into account in the evidence of Mr Rands, that the appellant must succeed on this point. The appellant fails to identify how it is said that a failure to take into account the payments would have resulted in a different award. Often it is said that an appellant faces the difficult task of demonstrating that the award is 'out of proportion' to the damage suffered. It is insufficient for the appellant to point to an expense which was not allowed for in the schedule prepared by Mr Blackwood as the award is not framed by reference to a precise mathematical calculation. His Honour reached a value judgment, assisted by the expert opinion evidence, as to an amount of appropriate compensation for the lost commercial opportunity. He was assisted by the evidence of Mr Rands, but ultimately adopted an intuitively reasoned figure which sits well within the possible upper and lower ranges arrived at by Mr Rands. The essential problem for the appellant is that the ground of appeal, and the submissions in support, fail to grapple with the obvious force of the fact that in a lost opportunity assessment, the quantum of damages is necessarily a broad brush assessment involving, a 'degree of speculation and guesswork'.
80 For these reasons, the failure to include an item of expense does not compel the conclusion that in calculating the damages amount his Honour misapprehended the facts or that the amount awarded is so inordinately high as to be a 'wholly erroneous estimate of the damage suffered'." [Footnotes omitted.]
In oral submission on the appeal, counsel for the plaintiff conceded there is "some merit" in ground 7, but emphasised that there is not "a direct mathematical relationship between $400,000 or $440,000 in the net present value analysis". Counsel then contended that if ground 7 was to succeed, "it really should be sent back to Mr Rands to adjust his report and then if there's any dispute about that we could have some cross-examination". Counsel emphasised that the adjustment was something less than $400,000 or $440,000.
As to the issue of $40,000 for GST, counsel submitted that if the judgment was an award of damages, no GST is payable. In that event it would be an error to allow the amount of $440,000 to stand. If, however, the judgment was not an award of damages, but a "payment for supply", counsel submitted the defendant was obliged to provide the plaintiff with a tax invoice for $440,000 which is then paid. In the submission of the plaintiff, the trial judge had "double counted for GST".
The entitlement of the defendant to payment upon satisfaction of specified conditions arises by reason of cl 5.8. Judgment in that regard was not an award of damages. It was a finding that the conditions in cl 5.8 had been satisfied and the defendant was, therefore, entitled to payment of the balance outstanding. The terms of cl 5.8 provided that the defendant was entitled to the specified amounts "plus GST". The judgment of the trial judge was correct in this regard.
As to whether allowance should have been made by Mr Rands for the liability to pay the outstanding amount of $440,000, it is common ground that if the defendant had not breached the contract and the plaintiff had received the net positive cashflow 3½ years earlier, from that cashflow the plaintiff would have been obliged to pay to the defendant the outstanding amount of $440,000. It follows that the cash available for investment would have been reduced by that amount.
Re-assessment
For the reasons discussed, in his assessment of the net positive cashflow that would have been available for investment if it had been received 3½ years earlier, Mr Rands should have made the following allowances:
· The amount borrowed from the Commonwealth Bank would have been used to pay ongoing development costs and would not have been available for investment.
· The plaintiff would have been obliged to pay $440,000 to the defendant thereby reducing the amount available for investment by $440,000.
The trial judge accepted the evidence of Mr Rands and did not make allowances for these amounts. In these circumstances, should this Court endeavour to undertake the re-assessment?
In respect of the payment of $440,000, the plaintiff submitted that it is not a simple mathematical calculation based on deducting the amount of $440,000 from the figures used by Mr Rands. Presumably the plaintiff would advance the same proposition in respect of the amount of the Commonwealth Bank loan. Given the methodology adopted by Mr Rands, I agree with the plaintiff's submission that the matter should be remitted to the trial judge for re-assessment and, if necessary, further evidence from Mr Rands.
Cross-appeal
As discussed, the trial judge upheld the defendant's counterclaim for $440,000. His Honour found that the defendant was entitled to be paid pursuant to cl 5.8 of the Connector Park Agreement for completing construction of the Connector Park Roadway and doing all things necessary to ensure the road was taken over as a road maintainable by council in accordance with cl 5.6 of the agreement.
The trial judge gave his reasons for accepting the counterclaim:
"The counterclaim
[8] It is convenient to deal with the counterclaim before addressing the plaintiff's claim. The outcome of the counterclaim depends upon the interpretation of the introductory words of cl 5.8, namely, 'In consideration for Connector Park completing its obligations as set out in this clause 5 …'.
[9] The defendant contends that, because it undertook all the work required by cl 5.6, it completed 'its obligations as set out in this clause 5', and is therefore entitled to the payment of the two sums totalling $400,000 plus GST. The plaintiff contends that, because the required construction work was not completed by 6 January 2005 as required by cl 5.6, and because the defendant did not do all things necessary to ensure that the roadway was taken over as a road maintainable by the council by 6 July 2005 as required by that clause, it cannot be said that the defendant completed 'its obligations as set out in this clause 5'. It contends that the defendant completed its obligations after the deadlines provided for in cl 5.6, and thus not 'as set out in' cl 5.
[10] The proper approach to the interpretation of the critical words in cl 5.8 is as stated by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, 219 CLR 165 at [40], where their Honours said:
'The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.'
[11] The purposes and objects of the parties' transaction are clear. The defendant agreed (a) to terminate its contract for the purchase of about 3.17 hectares of land near Ernest Street, enabling the plaintiff to acquire that land from Mr Holyman's executors; and (b) to construct the Connector Park roadway and arrange for it to be taken over as a public road maintainable by the council, so that there would be much better road access to the land that the plaintiff hoped to subdivide. The plaintiff proposed to make money from a large residential subdivision. The acquisition of the 3.17 hectares and the construction of the roadway would help it to achieve that objective. In return, the plaintiff promised to pay the defendant a total of $600,000 plus GST, or $800,000 plus GST if the rezoning of the rural land went through, as well as allowing the defendant a temporary right of way between its Connector Park land and Ernest Street. The amounts that the plaintiff promised to pay may well have been determined by reference not only to the value of the 3.17 hectares and the cost of constructing the roadway, but also by reference to the commercial advantages accruing to the plaintiff as a subdivision developer as a result of the availability of road access to the subdivision site from both Ernest Street and the Kings Meadows Connector. It is significant that the defendant had been proposing to construct the Connector Park roadway in accordance with its subdivision permit of 29 December 1998. The construction of that roadway resulted in advantages to both parties as subdividers of their respective lands.
[12] The plaintiff's contention as to cl 5.8 is that a reasonable person would have understood both parties to have intended that the defendant would become entitled to either $200,000 or $400,000, plus GST, if it fulfilled the various obligations imposed by cl 5.8 within the time limits specified in that clause, but that it would be entitled to none of that money if any such obligation was not performed on time, even though the defendant would have a continuing duty to fulfil every such obligation. That is to say, if the defendant completed the construction of the roadway, but did so later than the contract required, then its right to receive payment in respect of the work and materials involved, and in respect of the commercial advantage thereby conferred on the plaintiff, would be lost. The consequences for the defendant would be so extreme in such a situation that I do not think that any reasonable person would regard the parties as having intended cl 5.8 to have the meaning contended for by the plaintiff.
[13] An analysis of the text of the clause gives some support to the interpretation contended for by the defendant. There is no express reference to time limits in the introductory words of cl 5.8. If the parties had intended monies to be payable under that clause only if contractual obligations were fulfilled on time, they could very easily have used words that made such an intention clear. They could have referred to the defendant 'completing its obligations as and when required by this clause 5'. Further the use of the word 'consideration' suggests an intention that the defendant was to be paid for doing what it promised to do, rather than getting paid a bonus, or two bonuses, if its contractual obligations were fulfilled within a certain time.
[14] In my view a reasonable person would not have understood the introductory words of cl 5.8 as meaning that the defendant was to become entitled to payments under that clause only if it completed its relevant contractual obligations in accordance with such time limits as were specified in cl 5.
[15] The Connector Park roadway was taken over by the council. The area zoned rural was rezoned as residential under the Launceston Interim Planning Scheme 2012. Although cl 5.8(b) expressly provided for a payment of $200,000 plus GST only in respect of rezoning 'under Part 3 of the Launceston Planning Scheme 1996', the plaintiff accepts that the superseding of that planning scheme by the 2012 interim scheme makes no difference to its obligations. Once the roadway was taken over by the council, the plaintiff became liable to pay the defendant $200,000 plus GST pursuant to cl 5.8(a). Once the rezoning took effect, the plaintiff became liable to pay the defendant a further $200,000 plus GST pursuant to cl 5.8(b). Those amounts have not been paid.
[16] The defendant is therefore entitled to judgment for $440,000 on the counterclaim. It made no claim for interest."
The plaintiff advanced five grounds in the amended cross-appeal:
"1 At [9-14], he [the trial judge] misconstrued the express provisions of the agreement in writing between the Appellant and the Respondent in that, properly construed, the consideration for the making of payments by the Respondent to the Appellant pursuant to clause 5.8 was conditionally expressed upon satisfaction by the Appellant of each, and every, obligation imposed upon it to construct and dedicate the Connector Park road, as a highway;
2 At [13-14], he [the trial judge] misconstrued the agreement between the Appellant and the Respondent in that, upon a proper construction, clause 5.8 operated as a condition precedent to the making of any payment obligation by the Respondent to the Appellant, and which required strict performance by the Appellant before it became entitled to receive either, or each, of the payments provided for at clause 5.8;
3 At [14], he [the trial judge] impermissibly interpreted the contract by reference to the understanding of a reasonable person, when such interpretation is contrary to the express text of the agreement;
4 At [13-15], he [the trial judge] failed to interpret the agreement between the Appellant and the Respondent by reference to its entire text and purpose and, in so doing, failed to understand that the payments, alone or in combination, provided for at clause 5.8 of the agreement operated as an incentive for the Appellant to complete its contractual obligations within the time specified in the agreement.
5 At [15-16] he [the trial judge] increased the quantum of the counterclaim by $40,000 to allow for GST which was erroneous because:
(i)if the appellant is the supplier pursuant to the Connector Park agreement, then it is entitled as a matter of law to charge and receive payment from the respondent for the GST component of the supply, upon delivery of a tax invoice which includes the GST amount. On this basis, the effect of His Honour's reasoning is to calculate the GST twice; or
(ii)in the alternative analysis, if no GST is payable upon the counterclaim as an award of damages, then His Honour ought not to have made allowance for it."
The main issue for determination on the cross-appeal is whether the amounts due under cl 5.8 remained payable, notwithstanding that the defendant delayed in the construction of the road. There is also an issue concerning whether the GST components of the amounts in cl 5.8 should have been payable.
The plaintiff submitted that the amounts payable under cl 5.8 were an incentive, or in the nature of a bonus, to the defendant to complete the road on time. It submits that it was a precondition for the payment of the amounts under cl 5.8 that the road be completed on time.
During the submissions of counsel for the plaintiff, it was put to him that on his construction of the agreement, no payment would be payable under cl 5.8 if the road was completed one day late. Counsel replied that cl 6.11 of the agreement provided that time was not of the essence unless a notice was given by a party to another party making time of the essence.
On 12 December 2005, Mr Cocker of the plaintiff wrote to Mr Pintarich of the defendant making time of the essence for completion of the roadway by 24 April 2006. Counsel for the plaintiff contended that to complete its obligations under cl 5, the defendant would have had to complete the roadway by that new deadline. On that construction of the effect of the agreement, no payment would be made under cl 5.8 if the roadway was completed on 25 April 2006.
Nothing in cl 5.8 ties the concept of completion of obligations to any particular timeframe. The obligations were to complete the construction of the roadway in accordance with council specifications and do all things necessary to ensure the roadway was taken over as a road maintainable by council.
The defendant ultimately completed the roadway and did all things necessary for it to be taken over as a road maintainable by council. It also provided the tax invoices referred to in cl 5.8. The trial judge rightly characterised a situation where the defendant completed all the work under cl 5.6, but was not entitled to be paid for it, as "extreme". Counsel for the plaintiff correctly observed that such a result discloses a capricious, unjust and unreasonable interpretation which the Court should avoid. As Gibbs J (as he then was) said in Lewis Construction (Engineering Pty Ltd v Southern Electric Authority of Queensland) (1976) 11 ALR 305 at 315:
"… if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust …".
Counsel for the plaintiff submitted that cl 5.8 is unambiguous and is dependent on completion by the defendant of all its obligations. However, as the trial judge pointed out, cl 5.8 does not itself make time an issue. It does not, but could have, referred to completion of obligations as and when required by cl 5. The fact that time was not of the essence supports the trial judge's construction of cl 5 because completion of an obligation cannot include a duty to perform a task within a time which was not mandatory. To say that it became mandatory later is unhelpful when attempting to discern the intention of the parties in drafting cl 5.8
For the above reasons, and the reasons expressed by the trial judge, this aspect of the amended cross-appeal fails.
The plaintiff claims that the trial judge wrongly increased the quantum of the counterclaim by $40,000 to allow for GST. Its argument is succinctly set out at ground 5 of the amended cross-appeal which is quoted at par [16] of these reasons.
The plaintiff's submission is inconsistent with the text of cl 5.8 which refers twice to the payment of $200,000 plus GST.
This issue appears not to have been developed at trial and is not considered in the trial judge's reasons on the counterclaim. However, cl 5.8 of the agreement, by including a reference to GST, appears to acknowledge that the construction of the road is a supply for the purpose of A New Tax System (Goods and Services Tax) Act 1999 (Cth), under ss 9 and 10 thereof. The amount of $40,000 would, in any event, be a sum which the defendant would have been entitled to claim from the plaintiff in respect of its supply of the road.
Clause 6.3 of the agreement refers to GST, and provides:
"6.3 GST
Any consideration provided for in this document for a Supply is expressed to be exclusive of GST, and in the event of GST being payable on a Supply made pursuant to this document:
(a) the Recipient of the Supply will reimburse to the Supplier the amount payable by the Supplier as GST on the Supply; and
(b) the Supplier will give to the Recipient a Tax Invoice for the Supply in a form which complies with the GST Act."
The subclause contemplates GST being payable "on a Supply made pursuant to this document", and cl 5.8 so provides. The plaintiff cannot avoid its obligations to pay GST to the defendant on the amounts referred to in cl 5.8.
For these reasons the cross-appeal is dismissed.
Orders
Leave to amend ground 6 is refused.
The order of the trial judge awarding damages to the plaintiff in the amount of $2,520,000 is set aside.
The matter of assessment of damages is remitted for further hearing and determination by the trial judge in accordance with these reasons and, in particular, in accordance with pars [243]-[266].
The cross-appeal is dismissed.
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