Fabcot Pty Ltd v Port Macquarie-Hastings Council - [2010] NSWSC 726

No judgment structure available for this case.

CITATION: Fabcot Pty Ltd -v- Port Macquarie-Hastings Council [2010] NSWSC 726

HEARING DATE(S): 31 May, 1, 2, 3, 7, 8, 9, 10, 15 June 2010

JUDGMENT DATE :
2 July 2010

JUDGMENT OF: Hammerschlag J

DECISION: Summons dismissed. Cross-claim dismissed.

CATCHWORDS: TRADE AND COMMERCE – misleading and deceptive conduct – Fair Trading Act 1987 (NSW) ss 42(1), 61, 68(1) – the first defendant (“the Council”) publicly invited expressions of interest (“EOI”) in purchasing and developing a supermarket development site – the plaintiff (“Woolworths”) and the second defendant (“Coles”) were short-listed and the Council accepted a conditional offer from Woolworths – while it was negotiating with Woolworths the Council also negotiated with Coles – whether the Council’s deliberate failure to tell Woolworths that it was negotiating with Coles (or a third party) was misleading and deceptive, or likely to mislead or deceive – alternatively, whether the Council’s failure to tell Woolworths that the Council was not, or was no longer, negotiating exclusively with Woolworths was misleading and deceptive, or likely to mislead or deceive – accessorial liability on the part of Coles – whether Coles was knowingly involved in that contravention – LOSS – whether Woolworths suffered any loss by the conduct – on the balance of probabilities, firstly, whether Woolworths would have shifted position and secondly, whether the Council would have sold to Woolworths – HELD – the Council’s conduct was in the circumstances misleading or deceptive or likely to mislead or deceive – held further that Woolworths had not established any loss by that conduct – held further that it was not established that Coles knowingly participated in the contravention

LEGISLATION CITED: Fair Trading Act 1987 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)

CATEGORY: Principal judgment

CASES CITED: Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191;
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 2 TPR 48
Yorke v Lucas (1985) 158 CLR 661
Giorgianni v R (1985) 156 CLR 473
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514;
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638
Poseidon Ltd & Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Chappel v Hart (1998) 195 CLR 232
Rosenberg v Percival (2001) 205 CLR 434
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553

PARTIES: Fabcot Pty Ltd - First Plaintiff
Woolworths Limited - Second Plaintiff
Port Macquarie-Hastings Council - First Defendant
Coles Group Property Developments Limited - Second Defendant

FILE NUMBER(S): SC 2009/298679

COUNSEL: R.M. Smith SC with N.J. Owens [Plaintiffs]
A.S. Bell SC with R.W. Potter [First Defendant]
M.A Ashhurst SC with D.A Priestley [Second Defendant]

SOLICITORS: Corrs Chambers Westgarth [Plaintiffs]
Marsdens Law Group [First Defendant]
Lander & Rogers [Second Defendant]

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMERSCHLAG J

2 JULY 2010

2009/298679 FABCOT PTY LTD –V- PORT MACQUARIE-HASTINGS COUNCIL

JUDGMENT

INTRODUCTION

1 HIS HONOUR: This dispute concerns a supermarket development site (“the Land”) in Hayward Street in the central business district of Port Macquarie, a large town on the mid-north coast of New South Wales about 420 kilometres north of Sydney.

2 The plaintiffs (collectively “Woolworths”) and the second defendant (“Coles”) are major Australian supermarket operators.

3 The first defendant (“the Council”) is the municipal council and development consent authority for the Port Macquarie-Hastings Shire. It acquired the Land before 1988 and used it as a car park.

4 In November 2007 the Council (for a second time) publicly invited expressions of interest (“EOI”) in purchasing and developing the Land. Both Woolworths and Coles responded and the Council accepted a conditional offer from Woolworths. In mid 2009 while it was negotiating with Woolworths, the Council also started negotiating with Coles. The Council deliberately did not tell Woolworths. The negotiations between Woolworths and the Council reached an impasse, and the Council sold to Coles.

5 Woolworths says that the Council’s failure to disclose that it was negotiating with another potential buyer was misleading and deceptive or likely to mislead or deceive in contravention of s 42 of the Fair Trading Act 1987 (NSW). Woolworths says that had the Council disclosed to it that it was negotiating with another party, it would have agreed to proceed on the terms required by the Council, and would have bought. Woolworths says that Coles was knowingly concerned in the Council’s contravention.

6 Woolworths says it suffered loss by the conduct of the Council and Coles and claims damages.

7 The Council cross-claims against Woolworths saying that Woolworths engaged in conduct which was misleading by holding out that its position was that it would not proceed with the purchase of the Land unless certain conditions were included in the contract, when its true position was otherwise. The Council says that if Woolworths suffered loss by its conduct, it correspondingly suffered loss by Woolworths’ conduct, and it claims indemnity.

THE PARTIES

Woolworths

8 Woolworths Ltd, the second plaintiff, is a publicly listed company. The first plaintiff (Fabcot) is its wholly owned subsidiary and development arm. The second plaintiff has no employees of its own and is managed by the first plaintiff’s employees. The group owns and operates some 800 Woolworths supermarkets and 2000 other stores across Australia. Other stores include Food for Less supermarkets and Dan Murphy’s liquor outlets. I will refer to the plaintiffs collectively as Woolworths. No relevant distinction was drawn between the plaintiffs for the purposes of these proceedings.

9 At all material times, Woolworths has operated a Food for Less supermarket at the Plaza Centre in the central business district of Port Macquarie. In addition it has a Woolworths supermarket in a shopping centre called Settlement City on the fringe of the central business district about 1.5km away from the Land. It also owns sites adjacent to the Land.

10 At all times material to these proceedings, Mr Ralph Kemmler was Woolworths’ Director of Property responsible for its property portfolio, Mr Tony Oates (who reported to Mr Kemmler) was its National Manager Property Development and Mr Stephen Garmston (who reported to Mr Oates) was its Senior Development Manager.

Coles

11 The second defendant is a member of the Coles group of companies which operates supermarkets and other brand stores nationally. Coles and Woolworths are each other’s major competitor.

12 At all times material to these proceedings, Mr Walter Kullen was Coles’ Development Manager, Mr Tim Boyce was its General Manager of Property, Mr Ben Parkinson was its National Manager Capital Transactions Property, and Mr Paul Pepperell was Manager of Retail Leasing NSW. Ms Rozanne Ginifer was Coles’ in-house lawyer.

The Council

13 Apart from being the owner of the Land, the Council is the statutory authority whose consent is required for its development.

14 At all times material to these proceedings, Mr Anthony Leahy was the Council’s Director of Corporate and Business Services, Mr Barry Owens was a Council officer who reported to Mr Leahy, Mr Andrew Roach was the Council’s General Manager and Mr Jeff Walton was a Council officer.

FACTUAL BACKGROUND

The First Expression of Interest

15 As early as 2002 the Council wished to sell the Land for development and started negotiating with Woolworths. It was proposed that the Council would transfer the Land to Woolworths in return for the transfer to it of the Plaza Centre, plus a cash payment. As part of this development plan Woolworths acquired sites adjoining the Land. In February 2005, Woolworths obtained an Environmental Site Screening Report (“the EIS report”) from an organisation called EIS, which is associated with the engineering firm Jeffery and Katauskas. In late 2005 the negotiations stalled.

16 In late 2005 the Council publicly invited expressions of interest for the purchase and development of the Land. It received expressions of interest from both Woolworths and from Coles, both of whom it short-listed. On 27 March 2006 the Council passed a resolution accepting Woolworths’ proposal. The resolution provided amongst others that “[i]f agreement cannot be reached on the urban design aspects of the proposal within three months, Council shall re-enter negotiations with the other short-listed party”.

17 On 28 March 2006, the Council (Mr Owens) wrote to Woolworths (Mr Garmston):

Expression of Interest S600.130.05.12
Commercial Site Located in Port Macquarie CBD

I refer to our telephone conversation today concerning the above.

At its meeting held on Monday, 27th March 2006 Council considered the proposals from a selected group of the Expression of Interest submissions.

As a result Council has agreed to work with Woolworths on its proposal to achieve a result, which meets the needs and expectations of both parties.

A three (3) month timeframe has been set to conclude the discussions and agree a solution.

18 On the same day the Council wrote to Coles as follows:

Expression of Interest S600.130.05.12 Commercial Site Located in Port Macquarie CBD

I refer to our telephone conversation today concerning the above matter.

At its meeting held on Monday, 27th March 2006 Council considered the proposals from a selected group of the Expression of Interest submissions.

Council has agreed to work with one of the group in an effort to achieve a result which meets the needs and expectations of both parties. Unfortunately the Coles Myer proposal is not the preferred option at this stage.

19 For at least three months thereafter the Council negotiated only with Woolworths.

20 Woolworths presented a design to Council which, amongst others, contemplated acquisition of an adjoining property called Finnian’s Tavern. The proposal also involved 154 car parking spaces being made available for public use and the building of a bus terminal for the Council. In the end result Woolworths was unable to acquire the tavern and it decided not to proceed with the acquisition and development of the Land.

21 On 31 October 2006 the Council (Mr Owens) wrote to Woolworths (Mr Garmston) relevantly as follows:

Expression of Interest S600.130.05.12
Commercial Site Located in Port Macquarie Central Business District being Lot 2 DP850217

I refer to the meeting today at Council’s offices concerning the current proposal by Fabcot Pty Ltd to acquire and develop the abovementioned site.

As discussed the current design proposal submitted by Fabcot and adopted by Council subject to DA assumed the acquisition of the Finnian’s Tavern site. However following a marketing program by the Tavern’s owners we understand a contract has now been exchanged with another party for the purchase and management of the Tavern. As a consequence you advised that Fabcot Pty Ltd has withdrawn its offer to acquire and develop the Council’s site.

22 On 6 November 2006, Mr Leahy sent an email to Mr Garmston, informing him that the Council would be entering into negotiations with the other short-listed parties based on Woolworths’ withdrawal from the process.

23 The Council then resolved to enter into exclusive negotiations with Coles. It gave Coles an exclusive dealing period, which ultimately expired on 11 October 2007 without a contract eventuating.

24 In the meantime, Woolworths had also been looking to open a Dan Murphy’s liquor outlet in the area. One strategy under consideration was to build a freestanding Dan Murphy’s outlet on the adjoining land which it had acquired as part of the defunct land swap proposal earlier discussed with the Council. On 12 December 2006, Woolworths’ Property Committee approved the plan to build the freestanding Dan Murphy’s.

25 In April 2007, at a meeting in relation to the proposed freestanding Dan Murphy’s, Council officers informed Mr Garmston that the Council was in final negotiations with Coles with respect to the Land and that if the negotiations “fell over” there may be an opportunity for Woolworths to re-open negotiations.

26 After the Coles’ exclusivity period came to an end, the Council made contact with Woolworths to ascertain its interest. Mr Garmston was informed that negotiations with Coles had not been conclusive and that Coles’ exclusivity period had ended. Woolworths was advised that the Council would like to negotiate with Woolworths but had to observe “due process” which involved Council issuing a new EOI.

Commencement of the Second Expression of Interest

27 On 20 November 2007 the Council once more publicly advertised for expressions of interest.

28 By letter dated 5 December 2007, Woolworths expressed its interest. Its commercial offer was to acquire the Land for $10 million comprising $7 million cash and the provision of 154 public car spaces and a bus station having a total estimated value of $3 million. Woolworths’ offer stated that it was subject to Woolworths Limited’s board approval and that no binding contract would exist until such approval had been given and contracts agreed and exchanged.

29 By letter dated 13 December 2007, Coles also expressed its interest. Its offer was worth $10,557,000 including a cash contribution of $6,680,000.

30 On 21 January 2008, the Council resolved to accept Woolworths’ offer on certain conditions.

31 By letter dated 7 February 2008, it informed Woolworths that the Council had resolved to accept its offer. It wrote as follows:

EOI 07-17 Commercial Site in Port Macquarie Central Business District

I refer to recent discussions and confirm Council at its meeting on the 21 January 2008 resolved to accept the offer of $7.0m cash for Lot 2 DP850217 from Fabcot Pty Ltd subject to the following conditions:

· The design negotiations will be undertaken generally in accordance with the proposal submitted by Fabcot Pty Ltd with the condition that the sale be completed by 30th June 2008.

· As discussed at our recent meeting a covenant will be placed on the land protecting the 154 car parking spaces in perpetuity and the bus terminal will be retained in Council ownership.

The Contract of Sale document is currently being prepared by Donovan Oates Hannaford. This document does not infer any approvals under the Environmental Planning and Assessment Act under which Act Council will assess any DA. An independent Hearing and Assessment Panel will be appointed to consider the specific application and make a recommendation to Council.

32 On about 27 February 2008, after an investigation into certain financial dealings of the Council related in the main, it seems, to a development known as the Glasshouse, the Local Government Minister sacked the Council and appointed an administrator, Mr Dick Persson. Mr Persson was later succeeded by Mr Gary Payne.

Negotiations between Woolworths and the Council until the Reintroduction of Coles

33 On about 7 April 2008 Woolworths submitted a Development Application to the Council in respect of the Land and Woolworths’ adjoining land.

34 The Council instructed solicitors to commence preparation of a draft contract for sale. A draft was provided to Woolworths on 8 April 2008 and thereafter various drafts were exchanged between Woolworths’ solicitors and the Council’s solicitors.

35 Between April and November 2008 there were extensive dealings between Woolworths and the Council concerning the proposed development. The Council had a number of problems with Woolworths’ Development Application.

36 A common feature of development consents is a requirement imposed upon the developer under provisions of the Environmental Planning and Assessment Act 1979 (NSW) to pay to the consent authority amounts commonly described as developer contributions or levies. These payments are often used to carry out public works, such as water supply and sewerage.

37 On 19 November 2008, the Council sent Woolworths a document entitled “Developer Charges – Estimate” reflecting proposed charges totalling $470,194.80.

38 On 26 November 2008, Mr Garmston of Woolworths wrote to Mr Leahy of the Council as follows:

RE: PROPOSED ACQUISITION OF COUNCIL LAND -
HAYWARD & GORDON STREETS, PORT MACQUARIE

I refer to the current proposal by Woolworths to acquire Council’s car park site at Hayward and Gordon Streets for $7 million pursuant to an expression of interest dated 5 December 2007, and to a previous expression of interest and prior negotiation with Council dating back to October 2002.

The basis of these negotiations has always been underpinned by the premise that in addition to selling its land, Council also required significant contribution by Woolworths towards public amenities and services by way of providing at no cost to Council, 154 public car parking spaces and title to a new bus terminal. Woolworths for its part has accepted this requirement in good faith, but on the understanding that no developer contributions would be required by Council.

With the cost of the Council land negotiated at the height of the real estate boom and the additional cost of public amenities estimated to be in excess of $3 million, Woolworths simply cannot afford to absorb a further $470,000 in developer contributions on the project.

At no stage during the recent negotiations from October 2007 or through the DA process was this issue raised (as expected by Woolworths) and we are now surprised to receive a notice of developer charges dated 19 November 2008 in the amount of $470,194.80.

In the circumstances Woolworths requests that Council waive these developer charges or acknowledge that they are decreased to be satisfied by the provision of alternative public amenities provided by Woolworths being the public car parking and bus terminus.

Alternatively, Woolworths will have to amend its offer to purchase the Council land to $6,530,000 which I may remind you is still well above our offer of $5,890,000 dated 27 April 2007 and Councils own valuation of $5,570,000.

I look forward to Council’s prompt response. [Emphasis added]

39 On 19 December 2008, the Council notified Woolworths that its Development Application had been determined by the granting of deferred commencement consent (“the development consent”). The development consent contained provisions requiring Woolworths to pay developer contributions.

40 On 15 January 2009, Woolworths’ solicitors advised the Council’s solicitors that the developer contributions imposed were unacceptable to Woolworths and that if the Council was unable to reduce them, Woolworths would be compelled to reduce the price that it was prepared to pay. The letter went on to say:

We also note that in our negotiations with the council’s previous solicitors, we requested the inclusion in the contract of an indemnity by the vendor in relation to contamination that may be present on the land. Would you please let us know if you have instructions in this regard.

41 On 4 February 2009, the Council’s solicitors informed Woolworths’ solicitors that the Council was not prepared to make any adjustment to the price. Their letter went on to say:

In relation to the contamination issue, our client is not prepared to provide the indemnity requested by you. Council is aware that either all of the site or part of the site is re-claimed land. The particulars regarding the nature of the fill are unknown, however, the fill is believed to have been the result of reclamation works undertaken along the Koolonbong Creek foreshore reserve a number of years ago.

The adjoining land to 28 Hayward Street, Port Macquarie is owned by your client. That site was a former petrol station which contained underground fuel tanks. Council has previously raised that there may have been fuel leakage from these underground tanks with the risk of potentially contaminating the subject land.

If your client requires any tests to be undertaken, they should arrange for these tests to be undertaken on their own behalf.

42 On 20 February 2009, Mr Oates met with Mr Leahy and Mr Roach at Sydney Airport. The discussion covered amongst others the developer contributions and the indemnity from the Council for land contamination which Woolworths was seeking. According to Mr Garmston, Mr Roach said he would speak with the Council about waiving the developer contributions. He says that Mr Roach asked whether Woolworths wanted to proceed with the development and that he responded “Woolworths is committed to the project subject to the financials”. As to contamination Mr Garmston says the following exchange took place:

GARMSTON: We are still waiting for your lawyers to come back with a contract for the sale, but there is an issue around potential contamination on the site. Woolworths is looking for an indemnity from Council for that contamination. We are concerned because we know the site is filled.

ROACH: Council, because there is an administrator in, is highly averse to any indemnity.

OATES: Maybe the contract could contain a provision where, if Woolworths encounters contamination on the site, Council will accept liability for removing that contaminant up to a limit of $500,000. If the costs of removing the contaminant will exceed that amount, Woolworths would have a right to terminate. Woolworths would be happy with that.

ROACH: That seems sensible. It caps our liability. I will recommend that to Council.

43 A meeting of the Council took place on 25 February 2009. Placed before it was a recommendation that:

a it reaffirm its acceptance of Woolworths’ offer;

b due to the significant public benefit being provided the Council waive the developer contributions attributable to the site; and

c Council provide clauses as outlined to provide indemnity on Council’s land in case of contamination. The clauses outlined were described as clauses that would cover:

· A process to work collaboratively to resolve any contamination issues on Council owned land;

· Council to provide an amount up to $300,000 for any works associated with contamination; and

· If works exceeded this amount parties are able to reopen the negotiation process.

44 At the meeting the Council adopted the following resolutions:

1. That the Council reaffirm its acceptance of the offer for Lot 2 DP 850217 from Fabcot Pty Ltd.

2. That due to the significant public benefit being provided the Council waive the Developer Contributions attributable to the site.

3. Council provide clauses, as outlined, to provide indemnity on Council’s land in case of contamination.

45 On 7 January 2009, solicitors for the Council wrote to Woolworths’ then solicitors (Henry Davis York) requesting Woolworths’ acceptance of the terms of the development consent.

46 On 4 February 2009, the Council’s solicitors (Marsdens) wrote to Woolworths’ solicitors:

We refer to our letter dated 15 January 2009.

We have been provided with a copy of an Expression of Interest Form completed on behalf of Woolworths Limited by Stephen Garmston. The Expression of Interest Form is dated 10 December 2007.

The Section 94A Contribution Plan was reported to the meeting of Port Macquarie Council on 6 August 2007. The proposed plan was placed on exhibition following which it was adopted by Council on 5 November 2007 and commenced on 3 December 2007.

The Expressions of Interest for the development of the above property were advertised on 20 November 2007 with a closing date of 13 December 2007.

The Expression of Interest Form completed on behalf of your client warrants that your client has made their own enquiries and investigations in relation to those matters which may affect their Expression of Interest. At the same time that the Expression of Interest Form was submitted by your client, the Contribution Plan had commenced and was available to your client.

Our client therefore rejects that the Contribution Plan did not exist at the time that your client’s Expression of Interest was lodged and that your client did not understand and that there would be no levy imposed.

Our client is not prepared to make any adjustment of price.

In relation to the contamination issue, our client is not prepared to provide the indemnity requested by you. Council is aware that either all of the site or part of the site is re-claimed land. The particulars regarding the nature of the fill are unknown, however, the fill is believed to have been the result of reclamation works undertaken along the Koolonbong Creek foreshore reserve a number of years ago.

The adjoining land to 28 Hayward Street, Port Macquarie is owned by your client. That site was a former petrol station which contained underground fuel tanks. Council has previously raised that there may have been fuel leakage from these underground tanks with the risk of potentially contaminating the subject land.

If your client requires any tests to be undertaken, they should arrange for these tests to be undertaken on their own behalf.

Please let us know if your client is proceeding with the purchase.

47 On 4 March 2009, Mr Leahy wrote to Mr Garmston informing him of the resolutions that had been passed. With respect to the issue of contamination he wrote:

In regards to the contamination indemnity Council is committed to the following intent within the Contract:

o “A process to work collaboratively to resolve any contamination issues on Council owned land;

o Council to provide an amount of up to $300,000 for any works associated with contamination; and

o If works exceeded this amount parties are able to reopen the negotiation process.”

In this regard instructions will be sent to Council’s Solicitors to arrange for these clauses to be addressed within the Contract. Council would appreciate your early consideration of the Contract to enable a speedy exchange.

48 On 1 April 2009, Mr Ireland of Woolworths’ solicitors emailed Mr Crittenden of the Council’s solicitors as follows:

I am instructed that:

· Woolworths’ [sic] originally required Council to indemnify Woolworths against any costs as a result of contamination of the Council’s land. This was not agreed, but as a compromise, the parties agreed to cap Council’s liability for remediation costs at $500,000;

· without discussion with Woolworths, your client indicated that it had changed its offer to $300,000, but the Council may consider paying up to $500,000 at its discretion;

· when my client queried the change to $300,000 with the General Manager, he advised that it was the Administrator who had amended the cap to $300,000;

· the General Manager advised Woolworths that Council would not “walk away” from its agreement to pay up to $500,000 but that the additional $200,000, if incurred, would need to be managed in some other way; and

· the current proposal outlined in your email below does not offer Woolworths any comfort and is not acceptable to Woolworths.

49 On 2 April 2009, Mr Leahy emailed Mr Walton concerning Mr Ireland’s email as follows:

A couple of things from the email:

· In the meeting it was stated on numerous times that any discussions were subject to the “Council’s” approval.

· We also stated that we would not be signing up to $500k without some level of transparency on what, if any contamination was found

· It was also clearly discussed by both parties that there should be the ability to walk away if it reached a “threshold” or at least the ability to come back and discuss what the next steps might be and at what cost

As usual Garmston is very liberal with the facts and has twisted them to suit himself.

I will talk to Andrew and get back to you.

The Negotiations Continue and Coles Re-enters the Picture

50 On about 16 April 2009, officers of the Council discussed amongst themselves contacting Coles so as to have what one of them described as a “backup plan”.

51 On 20 April 2009, Mr Garmston and Mr Oates met with Mr Payne (the Administrator) and Mr Roach. According to Mr Garmston a conversation to the following effect took place:

PAYNE: Council is very keen to ensure that settlement takes place before 30 June 2009. Can Woolworths meet this deadline?

OATES: That won’t be a problem.

(later in the conversation)

PAYNE: Is Woolworths still committed to the development?

GARMSTON: We definitely are. We want to make sure that we get on top of this contamination issue. We have had a couple of other filled sites around the country where we have had a problem with asbestos. It seems to me that that would be the most likely form of contamination if there is anything on the site.

days, and we will have it all sorted out then. It won’t be a problem.

52 On 23 April 2009, the Council’s solicitors wrote to Woolworths’ solicitors as follows:

Re: Port Macquarie Hastings Council – Sale to Fabcot Pty Ltd
Ppty: 28 Hayward Street, Port Macquarie

· That Council would contribute up to a maximum amount of $500,000.00 in respect of remediation of the site.

· That the area to be used as a permanent bus terminal would be excised from Lot 2 in DP 850217.

30 June 2009

53 On 24 April 2009, Mr Walton wrote to Mr Garmston as follows:

Re: Purchase by Fabcott [sic] Pty Ltd – Council land Hayward and Gordon Streets, Port Macquarie

Reference is made to the proposed sale by Council to Fabcott [sic] Pty Ltd of land in Hayward and Gordon Streets, Port Macquarie.

I have been requested to advise that at the last Council meeting it was resolved to increase the monetary indemnity by Council for any contamination identified on site to a maximum of $500,000.

This limit was generally agreed to by Council and Fabcott [sic] representatives at a recent meeting held in Sydney.

Council’s solicitors have been requested to expedite the necessary amendments to the Contract of Sale to enable any exchange to occur without any further delay.

54 On 15 May 2009, Mr Walton had a discussion with Mr Crittenden (of the Council’s solicitors). Mr Crittenden emailed Mr Walton after the discussion saying amongst others:

55 Later that afternoon, Mr Walton emailed Mr Crittenden saying amongst others the following:

56 As appears below, Mr Crittenden did not advise Woolworths as was contemplated because the Council later decided not to do so and instructed Mr Crittenden accordingly. But, as also appears below, the reason for the change was not revealed by the evidence, because the Council did not call the relevant officers.

57 On 18 May 2009, Mr Leahy and Mr Walton met with Mr Walter Kullen, (Coles’ Development Manager for NSW) regarding a possible sale of the Land to Coles. Mr Kullen asked for a copy of the Development Application which Woolworths had made and plans.

58 On 19 May 2009, the Council (Mr Leahy) wrote to Coles (Mr Kullen) relevantly as follows:

Council Land Hayward/Gordon Streets, Port Macquarie

Reference is made to your meeting yesterday with Jeff Walton and myself to discuss Coles’ interest in Council’s above land.

Council would be willing to consider a sale of this site on the following basis:

• Purchase price $7 million.
• Exchange of contracts before the 31st May 2009 along with settlement by 30th June 2009 or shortly thereafter.
• Provision of 154 public car parking spaces on site in perpetuity.
• Provision of a bus terminal and facilities transferred back to Council as a stratum lot.
• Provision of a temporary bus terminal and facilities during construction of the permanent facilities.

Details regarding the existing Development Approval issued for the site are being prepared and will be forwarded to you shortly.

In addition draft Contracts for the sale of this land will also be sent to you as arranged.

59 On 19 May 2009, Mr Kullen reported by email on his discussions with the Council to officers of Coles including Mr Anthony Pollock (National Investments Manager), Mr Nik Wallis (National Development Manager), Ms Rosemary Condron-Calic (NSW State Retail Leasing Manager) and Mr Pepperell. In his email he said, amongst others:

I refer to my most recent advice regarding discussions I’ve had with Port Macquarie Council last Friday and again yesterday relating to the Gordon Street site that Coles were the underbidder on to WOW in the December 2007 EOI.

Following up on rumours that had come to us, it appears Woolworths has dragged out its position and Council has reached an untenable situation with them in respect to a satisfactory and/or acceptable settlement.

As a result, yesterday’s discussions revolved around Council acknowledging Coles’ continued interest albeit subject to subsequent management and Board review/approval and they have agreed to issue copies of contract documentation to us for consideration.

I noted that Coles would be disappointed if this representation by Council was only going to result in Coles being used as leverage to have WOW act on their previous undertakings and therefore I requested a comfort letter from Council to progress more comprehensive and detailed discussions with Management. Such copy is attached below for your consideration.

Negotiations between Woolworths and the Council Start to Stall

60 On about 21 May 2009, Mr Roach spoke on the telephone with Mr Garmston. A file note created by Mr Roach (who did not give evidence) was in evidence. According to the file note Mr Roach conveyed to Mr Garmston that Woolworths was using the contamination issue to stall signing the contracts and he told Mr Garmston to stop stalling and creating issues and sign. The file note ends with the following statement: “Stephen Garmston then brought up several other issues including the bus terminal, stating that they were deal breakers for Woolworths”. On 21 May 2009, the Council provided Coles with a copy of the 19 December 2008 development consent given to Woolworths.

61 On 27 May 2009, Mr Garmston sent the following email to Mr Roach:

I will be in Port Macquarie tomorrow night - Thursday 28 May - and would like to meet to resolve the contract documentation. Not sure about what time I will arrive but should be around 6.00pm. Could we set aside some time to discuss the following issues - happy to buy you dinner.

1) Agreement to Lease documents - current bus terminal / temporary bus terminal / new bus terminal - this is a new concept arrived today. In principle does not appear to be a concern but does introduce the concept of identifying the temporary bus terminal and deadlines for completion of the development. This now replaces the special conditions in the contract with respect to the bus terminal, temporary bus terminal and permanent bus terminal. I had thought this was covered adaquately [sic] in the developemnt [sic] consent.

2) Development consent now excludes deferred commencement consent which will need to be sorted.

3) Contamination only relates to asbestos. Still no agreement on this issue.

4) Right of recission [sic] due to contamination now applies to Council not Fabcot. This does not make sense. My understanding of our agreement with respect to contamination was Council’s liability was capped at $500k and Fabcot would have the opportunity of conducting some further due diligence between exchange & settlement to satisfy itself as far as reasonably practible [sic] that there was no gross contamination which would give rise to Fabcot recinding [sic] the contract. After settlement our right of recission [sic] fell away. We are now running out of time to do any worthwhile due diligence.

5) Right of first refusal to Fabcot for the bus terminal if to be sold by Council rejected. This is impoprtant [sic] to Fabcot.

We have today gone out to tender for the construction and are very keen to “wrap up” the contract documentation but I am concerned that the lawyers have taken over the process. We may need to sit down together with our respective lawyers and finalise the documentation.

Please call to discuss.

62 On 3 June 2009, Mr Parkinson provided to Mr Roach of the Council (with a copy to Mr Leahy) a draft letter containing a proposed offer by Coles for the Land. The draft had place for the Council to sign written acceptance. It also contained the following proposed confidentiality provision:

Confidentiality

The terms and conditions of this offer are strictly confidential (“Confidential Information”). The Vendor must:

a) Not disclose any of the Confidential Information to any firm, person or body corporate:

b) Not directly or indirectly use, reproduce or deal with the Confidential Information for any purpose without prior written consent of the Purchaser, except on a confidential basis to professional consultants of the Vendor;

c) Ensure that its’ [sic] consultants, employees, sub contractors or other parties over which it has direct or indirect control do not disclose any of the confidential information by any means whatsoever, including but not limited to, any electronic or print medium without the prior written consent of the Purchaser.

Upon acceptance of this offer we will undertake to achieve Coles’ Board approval within 30 days of acceptance of this offer. Please arrange for a copy of this letter to be signed by a duly authorised officer of the Vendor as evidence of acceptance of these terms.

63 On 3 June 2009 Mr Garmston emailed Mr Roach as follows:

Further to our telephone conversation this morning I attach the following correspondence which corroborates our interpretation of the contamination issue as it relates to the Council land.

1) Council letter dated 24 April 2009 confirming Council’s resolution to increase the monetary indemnity for any contamination to $500,000.

2) Report to Council Meeting 25 February 2009 addressing Woolworths request for an indemnity in relation to any contamination and recommendation to work collaboratively to resolve any contamination and provide an amount of up to $300,000 for any works associated with contamination.

3) File notes of our meeting at Sydney Airport on 20 February 2009 where Paul Oates introduced the concept of a capped liability up to $500,000 for the cost of removal/containment of contamination.

Andrew, it is my recollection that our meeting with Gary Payne in our offices on 20 April 2009 was to discuss and agree the amount of capped Council liability, not the definition of contamination, as this had never been raised before. This is also Paul Oates recollection.

64 On the same day Mr Roach responded relevantly as follows:

I agree with your thoughts that we need to sit in a room and sort this out urgently.

65 On 4 June 2009, Mr Garmston wrote to Mr Roach as follows:

Unfortunately our position in relation to the contamination issue is non-negotiable, and this would appear to be the major sticking point (i.e. Council to be responsible for any contamination on its land up to a maximum amount of $500,000 but excluding any contamination which may have leached from the adjoining Fabcot land).

I am sure all the other issues can be resolved and I would suggest the best and quickest way is to have a round table conference with both sets of lawyers in attendance to document what is agreed. As both sets of lawyers are in Sydney it may be best to have the meeting in Sydney, or alternatively a conference by phone hook up. If necessary we could all come up to Port Macquarie, but we need to clear up the misunderstanding on contamination first.

Negotiations between the Council and Coles Progress; Woolworths Still in the Picture

66 On about 5 June 2009, a telephone conference took place between Ms Ginifer (Coles’ in-house lawyer), Mr Kullen, Mr Parkinson, Mr Leahy and Mr Walton. The following exchange occurred:

GINIFER : Are you free to deal with us in relation to the property?

Yes. There is no binding position with Woolworths.

67 Also on 5 June 2009, the Council (Mr Roach) wrote to Coles (Mr Parkinson) relevantly as follows:

Re: Council Land - Hayward /Gordon Streets, Port Macquarie, NSW

Reference is made to your letter dated the 3rd June 2009 and recent discussions between your Walter Kullen and Council's Director of Corporate & Business Services Tony Leahy and Jeff Walton.

I have received advice from the above Council Officers of the outcome of a meeting held yesterday with Mr Kullen regarding the possible sale of this land to the Coles Group.

I understand the discussions were frank and productive.

Following consideration of the matters raised in your correspondence and the outcome of the abovementioned discussions, I am prepared to recommend to Council's Administrator that the land be sold to the Coles Group on the following basis:

· Contracts are subject to Coles Board and Council approval. Both approval timeframes are to be clearly agreed in exchange of letters of intent by 12th June 2009.

· Purchase Price: $7.0m plus GST (if any).

· Contracts to be prepared on a "proceed to completion" basis. That is, it is neither parties intent to withdraw from the transaction.

· The completed Development Application, to the satisfaction of Council, is to be lodged by no later than the 30th June 2009. Council gives an undertaking to determine the application within 62 days from lodgement.

· The approval to incorporate 154 public car parking spaces for the benefit of Council plus a bus terminal and public facilities to the satisfaction of Council, in accordance with draft Contracts already provided.

· Upon completion of the Bus Terminal reconstruction, the Terminal is to be subdivided and transferred back to Council ownership at no cost to the vendor.

· Ongoing management of the 154 public car parking spaces is to be agreed between both parties.

· Payment terms to include the following:-

In addition to the above matters I am also prepared to consider the waiving of Section 94A contributions in light of other streetscape infrastructure being provided over and above normal DA conditions. Council will also provide an "in kind" contribution amounting to a maximum of $300,000 towards any remedial works required, following the identification of any contamination in the form of asbestos that may be located on site during the construction period. This "in kind contribution" will be by way of use of Council facilities such as Council's landfill site.

Would you kindly as a matter of urgency advise your acceptance of this proposal to enable the preparation of reports to be submitted to the Administrator for consideration at a Council Meeting.

68 On 9 June 2009, Ms Ginifer informed the Council that solicitors had been briefed by Coles and were working on the matter with speed.

69 On 10 June 2009 Mr Roach emailed Mr Garmston as follows:

I have asked Tony’s assistant to coordinate a meeting for us all including the lawyers. As your last correspondence was fairly definate [sic] regarding the contamination issue, it would be helpful to know your results from the eight bore holes already taken in the interests of transparency prior to this meeting.

70 The reference to the results from the “eight bore holes already taken” was a reference to the EIS report (obtained by Woolworths in 2005). On receiving Mr Roach’s request for it, Mr Garmston instructed Mr Andrew Loveday, another Woolworths officer, to send the report to Mr Roach and this was done on 11 June 2009.

71 On 12 June 2009, the Council obtained written advice from its solicitors to the following effect:

Having perused the:

1. Expression of Interest document prepared by Council;
2. Response by Fabcott [sic]; and
3. Council’s resolution;

with respect to the sale by Council of the 28 Hayward Street property, I confirm that there is no obligation on Council to proceed with Fabcott [sic] on the matter. Indeed, Fabcott [sic] makes it expressly clear in their response that no binding contract for the sale of the property exists until:

1. the offer is approved by the Woolworth’s board; and
1. contracts are agreed and actually exchanged.

Further, pursuant to our telephone conversation this morning, I indicated to you that the Local Government Act 1993 may alter or affect the above position by placing certain statutory obligations on Council, particularly becuase [sic] of the tendering requirements imposed by that Act.
I confirm that section 55(3) of the Act permits the sale of land by Council without resorting to a tender and there is nothing in the Act that will prohibit Council from disengaging with Fabcott [sic] and/or engaging with Coles.

72 On or about 13 June 2009, Mr Walton of the Council read out to Mr Kullen the summary conclusions in the EIS report.

73 On 16 June 2009 Mr Parkinson spoke to Mr Leahy on the telephone. Mr Leahy told Mr Parkinson that the Council was expecting a final draft letter from Coles and that they would send this to their solicitors upon receipt. During this conversation an exchange to the following effect took place:

PARKINSON: Has Council sought any legal advice to confirm that it is free to deal with us?

LEAHY: Yes and we have been advised that we are free to deal with Coles.

74 On 17 June 2009, the Council wrote to Woolworths relevantly as follows:

Re: Development Consent 2008/224 - Retail & Commercial Centre, Hayward & Horton Streets Street PORT MACQUARIE

Enclosed is the development consent for the above development. Under the terms of the original determination on 17 December 2008 conditions C(10) and C(39) require the payment of development contributions In accordance with the attached Notice of Payment Developer Contributions.
Subsequent to the determination Council resolved on 25 February 2009 that due to the significant public benefit being provided, the Council resolved to waive the Developer Contributions attributable to the site. Accordingly the requirements of conditions C(10) and C(39) are satisfied and payment not required in this regard.

75 On 18 June 2009, the Council wrote to Coles (Mr Boyce) relevantly as follows:

Re: Council Land - Hayward /Gordon Streets, Port Macquarie, NSW

Reference is made to your letter dated the 17th June 2009 and recent discussions between your Mr Ben Parkinson, Jeff Walton and myself regarding the matters outlined in your correspondence dated 17th June 2009.

Following these discussions with Mr Parkinson I am concerned that the proposed sale of this land to Coles has not progressed in any substantial manner following the matters outlined in Council’s letter dated the 5th June 2009.

As you are aware Council is in the final stages of negotiations with another party regarding the sale of this land.

Council is prepared to proceed with the sale of this land to Coles however we require greater certainty than the proposed “letters of intent” currently under discussion.

I have previously indicated that there is a planned meeting with the other party scheduled for tomorrow, Friday, 19th June 2009.

You are given the opportunity to expedite Coles’ immediate intention to proceed with this sale by signing the attached Contract of Sale.

· Purchase Price: $7.0m plus GST (if any).

· Release of deposit amounting to $700,000.00 (10%) at the time of lodgement of the Development Application.

· The Contract is subject to the issue of a Development Application with an application to be lodged no later than the 30th June 2009 or shortly thereafter. (Council gives an undertaking to determine the application within 62 days from lodgement).

· The approval to incorporate 154 public car parking spaces for the benefit of Council plus a bus terminal and public facilities to the satisfaction of Council, in accordance with draft Contracts already provided.

· Upon completion of the Bus Terminal reconstruction, the Terminal is to be subdivided and transferred back to Council ownership at no cost to the vendor.

· Ongoing management of the 154 public car parking spaces is to be agreed between both parties.

· The waiving of Section 94A contributions in light of other streetscape infrastructure being provided over and above normal DA conditions.

· Council will also provide an “in kind” contribution amounting to a maximum of $300,000 towards any remedial works required, following the identification of any contamination in the form of asbestos that may be located on site during the construction period. This “in kind contribution” will be by way of use of Council facilities such as Council’s landfill site.

76 On 18 June 2009, Mr Pepperell emailed a number of Coles officers including Messrs Parkinson, Kullen and Boyce as follows:

Team,

Please find attached draft CAR (signed off by Brendan Togood) for the new Coles on the Council site. The including the existing Coles closure as measured against Do Nothing. (ie: assumes WW's secures the Council site new store ahead of us)

I have discussed the CAR's with Jeff Browning this morning, he has given them his in principle support. (Jeff will sign off the CAR's of following a mtg arranged with him for Monday Morning) The capex for the new store is an estimate only at this stage.

If there is any doubt or debate about the appropriateness of our strategy to acquire the Council site, for a replacement store and the significant positive incremental outcome this provides Coles v's Do Nothing, the attached CAR's should put this debate to rest.

Sam, as discussed, In my discussion this morning with Jeff, he expressed his a very strong desire to secure this opportunity to ensure Coles are not marginalised in this Port Macquarie CBD market for the forseable [sic] future. He sees this as a key opportunity to reinforce our offer in the market, significantly improve our market share and position ourselves to maximise our capture of further growth for the forseable [sic] future. It will also allow us to consider further representation at Settlement city in a strategic and timely manner to suite [sic] our business requirements.

Jeff has well and truly put the challenge to property to do everything feasibly possible and appropriate to ensure we secure this opportunity for his zone.
The key takeouts from the CAR's are:

New Store: (4125 sqm)

· NPV Pre impact: $7.4m

· Pay Back: 2.6 years.

· IRR Pre impact: 36.58%

· ROI Y3 pre impact: 56.58%

· EBIT Y1; $1.6m.

Existing Store:

· Do nothing: EBIT, ($601) NPV: ($554k)

· Closure Incremental: NPV $583k.

· Existing Store EBIT F09 $168K.

New Store incremental:

· NPV Pre impact: $7.76m

· Pay Back: 2.8 years.

· IRR: 36.07%

· ROl Y3: 65.81%

· EBIT Y1; $1.202m.

I have no doubt that unless we move swiftly to secure the acquisition and manage the risks strategicly [sic] to achieve this that WW’s will become aware of the game and the window of opportunity will close very quickly.

77 The acronym CAR stands for Capital Application Request.

78 Mr Boyce responded to Mr Pepperell and others on 18 June 2009 as follows:

Ok, so if this is the path we want to take, we have sent a draft letter to council putting our terms and conditions to them 'in draft form to get some feedback'.

What we need is a one pager that outlines next steps from here, responsibility and timing asap.

Paul, can you take charge of this please.

The Council Indicates to Coles that it is Prepared to Proceed

79 On 19 June 2009, Coles wrote to the Council as follows:

Commercial in confidence
Proposed purchase from Port Macquarie Hastings Council
Property: Hayward/Gordon Streets, Port Macquarie, NSW

Thank you for your letter of 5 June 2009 and for the phone meeting between Ben Parkinson, Jeff & Tony and the subsequent letter of 18 June.

We confirm that we are prepared to proceed on the terms referred to in your letter of 5 June, subject to the following matters:

Purchaser

1. The purchaser will be Coles Group Property Developments Limited (Coles) or a nominee of Coles.

Approvals

2. The contract will be subject to approval by Wesfarmers Board (the Board ) and approval by Council. We confirm that the contract will be submitted to the Board for approval on 29 June 2009, and that the Board's decision will be communicated to Council within 24 hours. We require that Council seeks approval to enter into a contract on the terms of this offer by 25 June 2009 and communicates the decision to Coles within 24 hours.

Parties bound

3. Once Coles and the Council exchange this correspondence, the parties will be bound to negotiate in good faith to agree on and, once agreement is reached, enter into the legal documents needed to effect the transaction. In order for those documents to be finalised, Council will need to provide further details, including plans and specifications, of the works it requires Coles to carry out under the agreement for lease (including the bus terminal, the car park and the public amenities).
Development application

4. Subject to Council providing the necessary details of its required works, Coles will prepare the development application, to which Council (as landowner) will not unreasonably withhold or delay its consent, and Coles will use its best endeavours to submit the development application on or before 30 June 2009. The Council, as landowner, will provide all necessary consents to enable Coles to submit the Development Application. Completion of the contract will need to be conditional on a development consent being granted on conditions that allow Coles to carry out the works contemplated by Coles (in the manner contemplated by Coles), and the works required by Council to construct the bus terminal, public amenities and car park, and to undertake a 2 lot subdivision as contemplated in paragraph 6 below.

Release of deposit

5. As the contract is conditional, the release of the deposit should not occur until the contract becomes unconditional. In the event that Coles terminates the contract the deposit will be refunded to Coles and any interest received shared by both parties.

Subdivision

6. The contract will need to include provisions permitting Coles to create easements and any other covenants or restrictions required to effect the 2 lot subdivision. Following registration of the subdivision plan, the lot on which the bus terminal is situated will be transferred to Council for nominal consideration of $1.00.

Remediation

7. From the date of receipt of acceptance of the terms of this letter by Council, Council will provide Coles with access to the Property to carry out a legal and physical due diligence. Completion of the contract will need to be conditional on Coles' environmental investigations confirming that the property is not contaminated (except to the extent indicated in paragraph 8).

8. The in-kind contribution to remediation of contamination of $300,000 must be GST-exclusive. Council will need to reimburse Coles for any resulting GST liability (and Coles will provide a tax invoice).

9. Coles agreement to proceed in accordance with this letter is on the understanding that Council has disclosed or will immediately after the date of this letter disclose to Coles all material documents and other information which Council has or is aware of concerning contamination of the Property.

This offer and all communications prior to and subsequent to this offer concerning the sale of the property are confidential to the parties and their professional advisers, and must not be disclosed to any other person unless required by law.

On receipt of this letter signed by or behalf [sic] of the Council, it is the intent of the parties to be bound by this letter so that we can proceed to due diligence, progress finalisation of the Development Application and prepare Board papers for submission to our Board for approval.

We hope that you appreciate the commercial reasons for our desire to proceed in this manner. We are committed to transacting with Council as soon as possible, however, you would appreciate the need for a period of time to complete a reasonable due diligence given that the other party that you have been dealing with has had 12 months or more to do such work.

Yours sincerely

80 On 22 June 2009, Mr Boyce emailed Mr Pepperell as follows:

Ta - did you hear from ben about whether wow signed any acquisition contract on friday?

81 The reference to ben was a reference to Mr Parkinson. The reference to wow was a reference to Woolworths.

82 On 22 June 2009, Mr Pepperell emailed Mr Boyce as follows:

No, nothing as yet.

As you probably guessed, the reason for asking in my email, what the next steps should be and if Ben intends arranging a meeting with Council, is to get some feedback and action.

Walter called his council contacts today, that feed back suggests we are still in the game. In those discussions and in response to concerns raised with Council by Ben, Council has asked who in Coles should their Administrator (Gary Payne) talk to in order to provide sufficient comfort to Coles that Council wish to continue to pursue, with urgency, Coles acquisition of the site. As correspondence to date has been under your signatory, Walter recommended that Gary contact you in the first instance.

Tim, you may wish to talk direct with Walter to get his further feed back. Walter will give Ben a catch up call on this and other matters he discussed with Council.

Bottom line, it looks like a good time to pounce.

83 On 22 June 2009, the Council (Mr Leahy) wrote to Coles (Mr Boyce). Amongst others he said:

Council propose that should negotiations of the sale of this land to be successful in the terms of this letter, both parties proceed directly to an exchange of Contracts within 48 hours of a Council resolution to sell to Coles.

…

In relation to remediation, Council will address only matters in relation to contamination as a result of asbestos in the terms of the Special Conditions of the contracts previously issued to Coles with a limit of an in kind contribution to a maximum $300,000.

In the event that any remediation works exceed this figure Council propose that there be a condition to allow both parties to re-negotiate the terms of the Contract.

Matters Start Reaching a Head with Woolworths and the 25 June Meetings

84 On 23 June Mr Garmston emailed Mr Roach as follows:

My apologies for the aborted telephone hook up on Friday - unfortunately our lawyer got involved in a major government issue which took their priority.

In speaking to Tony Leahy on Friday I confirmed the outstanding issues for Woolworths were mainly commercial with the main issue still being contamination. My review of the contract special conditions last week highlighted the following points:

1) The issues of deferred commencement of the DA and possible Land & Environment Court appeal of the Council’s consent has now been superseded and the contract is no longer conditional on theses [sic] issues.

2) HDY suggest a draft section 88B instrument be annexed to the contract setting out the easements required as a result of the bus terminal stratum to be owned by Council (easement for support and any services). HDY can draft this instrument.

3) The contract is now only conditional on on [sic] the parties entering into an Agreement for Lease(s) relating to the bus terminal - depending on whether this issue is considered to be adequately covered by the development consent the contract could be unconditional.

4) Completion by 30 June is looking difficult at this stage.

5) Woolworths will not accept contamination be limited to asbestos.

6) Council is not liable to contribute to any contamination emanating from the adjoining property(s) owned by Woolworths.

7) I do not understand why Council require a right of rescission if it elects not to contribute to remediation - it has already agreed to contribute up to a maximum of $500,000 and anything above this would be bourn [sic] by Woolworths.

8) Woolworths has provided to Council a copy of preliminary environmental investigations undertaken in February 2005 - Woolworths requires consent to undertake further environmental investigations prior to settlement and a right to rescind the contract should those investigations indicate that the property is contaminated to such a degree that remediation is uneconomic. This due diligence is expected to take 2-3 weeks.

9) Woolworths requires a first & last right of refusal to acquire the Council's bus terminal stratum in the event that Council should ever decide to dispose of this property. HDY has suggested a lease and sub-lease arrangement at nominal rentals which cannot be terminated, in order to give Woolworths a caveat able [sic] interest which can be registered on title.
I look forward to meeting with you on Thursday to finalise the contract. If you have any other issues it would be helpful to identify them prior to Thursday in order that they can be considered.

85 On 25 June 2009, the Council met separately with both Woolworths and Coles at the Qantas club at Sydney Airport.

86 There is no dispute about what was said at the meeting with Woolworths. The Council was represented by Messrs Leahy, Walton and external solicitors. For Woolworths, Mr Garmston was present together with external solicitors including Mr Henry Davis. According to Mr Garmston the following conversation occurred:

DAVIS: Next issue to deal with is the contamination issue. The issue, as I understand it, is whether or not Council’s $500,000 contribution to remediate the site will be limited to asbestos only, or whether it will apply to any contaminant, other than something emanating from the adjoining Woolworths land.

GARMSTON: This one is a deal-breaker for Woolworths. We have never agreed to limit Council’s liability to just asbestos, and it is not something that we will agree to.

LEAHY: Council’s current position is that the indemnity will only apply to asbestos and nothing more. I will take back what you say to Council to see if it is willing to pay for general contamination.

GARMSTON: In order to resolve this contamination issue, we want the contract set up to be able to undertake testing between exchange and completion, so that we can rescind the contract if there is contamination and the costs of remediating that contamination will exceed the indemnity. Or, alternatively, we would be willing to enter into a conditional contract and then undertake a site audit statement.

LEAHY: The other aspect of this that we would like Woolworths to consider is the mechanism for paying the indemnity amount. Council would like to be able to pay “in kind” by providing access to Council’s services to undertake the remediate works. Those services would be provided at cost, with no profit margin.

GARMSTON: In principle, I have no difficulty with that.

LEAHY: OK. I will go away and get some instructions on the contamination issue. [Emphasis added]

87 During the course of the Council’s meeting with Coles at the airport, Mr Henry Davis of Woolworths’ solicitors (apparently by mistake) entered the meeting room. He was recognised as Woolworths’ solicitor by Coles officers. Mr Davis recognised the Coles party and apparently informed Woolworths that he had walked into a meeting between the Council and Coles. Mr Garmston’s evidence (which I accept) was that he did not make a connection between what was reported to him and the notion that the Council was negotiating with Coles to sell the Land.

Negotiations between the Council and Woolworths Reach an Impasse and the Council’s Dealings with Coles Progress

88 On 26 June 2009, Mr Leahy had a telephone conversation with Mr Garmston in which he advised him that after discussing his requests for a meeting with the Council’s General Manager and Administrator, the Council was no longer prepared to enter into further discussions regarding the Council’s position. He then sent an email attaching a letter. The email asked for Woolworths’ response by 4pm on Monday 29 June 2009. The letter was as follows:

Council owned land – Short/Hayward Streets Port Macquarie

I refer to our telephone discussion this morning 26th June 2009, as well as our meeting held in Sydney on Thursday, 25th June 2009.

I wish to confirm Council's position in relation to the sale of this land and matters that have reached an impasse in negotiations. Council has considered your concern regarding the matter of contamination and in this regard I wish to confirm that Council is prepared to contribute an "in kind contribution" to a maximum of $300,000.00 towards the remediation of the site if contamination is found during the course of your development of the site.

In addition to this clause Council has considered the previous commitment to the waiving of developer contributions and in this regard is only prepared to waive S94a Contributions and therefore will require the payment of Section 64 Contributions.

You indicated during our recent telephone conversation that you would not accept the above conditions and in this regard would be unlikely to proceed with the purchase of this land.

Council is prepared to allow you to consider this matter and require your formal advice by 4.00pm on Monday, 29th June 2009.

Council looks forward to working with you to achieve a positive outcome in these negotiations.

89 In evidence were file notes of Mr Leahy and minutes prepared by Woolworths’ external solicitors. In relation to contamination the minutes record the following:

6. Contamination

Asbestos

Key Issue is whether the $500,000 contribution by Council applies to any contamination found on the property (except contamination emanating from adjoining Woolworths owned land), or only to asbestos.

· SG advised that this is a deal-breaker - Woolworths has never agreed to limit Council’s liability to asbestos, and will not agree to this.

· TL advised that Council’s position is that the $500,000 must be limited to asbestos.

· TL will go back to Council to get instructions on whether Council will agree to pay the $500,000 for general contamination found on the property.

Environmental testing

· Woolworths wants the ability to do testing between exchange and completion, with a right of rescission.

· As an alternative, Woolworths will agree to enter into a conditional contract and then undertake a site audit statement.

Mechanism for payment of $500,000 by Council

· Council want the $500,000 to be payable “in kind”, through provision of Council services, eg, use of tip/trucks etc. Council’s services will be provided at cost price without profit margin.

· SG agrees with this in principle. [Emphasis added]

90 Before proceeding, Coles wished to drill on the Land for core samples to test for contamination. On Friday 26 June 2009, the Council gave Coles permission to carry investigations out on the following Sunday and gave instructions that the investigations be noted as routine should any Council Rangers be referred to the site by the community. Coles employed a Mr Ben Wackett to do the investigation. Mr Kullen instructed him to avoid any direct discussions on the day with any interested members of the public other than confirming that there were site investigation activities approved by the Council.

91 On 29 June 2009 at 8:56pm, Mr Garmston emailed Mr Roach as follows:

It was disappointing you were unavailable to attend the meeting in Sydney last Thursday with Council’s solicitors and Woolworths [sic] solicitors to finalise the issues raised in my correspondence dated 23 June 2009.

It is even more disappointing to receive Tony Leahy’s email late on Friday afternoon including new conditions proposed by Council and advising that yourself and the Administrator, Gary Payne, are not prepared to discuss these new conditions or Council’s position regarding current negotiations.

I have discussed the current impasse with Paul Oates (National Development Manager) who has offered to meet you in Port Macquarie, and Gary Payne if required, to resolve this matter.

A suggestion Council may wish to consider, which is not far removed from our original agreement, follows.

Put simply, Woolworths originally required an indemnity from Council in respect to any contamination encountered on the Council land (excluding any contamination emanating from the adjoining land owned by Woolworths).

Council was unwilling to provide this indemnity but agreed to cap its liability to a maximum of $500,000. Woolworths agreed to this position provided it was able to undertake further due diligence in respect to any contamination during the period between exchange and settlement, and had a right to rescind the contract should the cost to removal/remediation be excessive (after Council’s contribution).

It is not equitable to expect Woolworths to accept unlimited liability for the cost to remove/remediate contamination on Council’s land which was filled and used by Council, without allowing Woolworths to validate its potential exposure.

Therefore as suggested at our meeting on Thursday 25 June 2009, a compromise would be to allow Woolworths to undertake sampling (at its cost) to determine the extent and cost to remove/remediate contamination (if any), and for Council to contribute an “in kind contribution” (being a new concept in the negotiation) up to a maximum of $500,000. In turn, Woolworths would be responsible for any cost in excess of $500,000 up to a maximum of $500,000. This process should only take about 3-4 weeks. Should the assessment of the excess cost exceed $500,000 Woolworths will have the right to rescind the contract.

It is assumed from discussions with Tony Leahy that “in kind contributions” means use of Council waste disposal sites and transport to those sites using Council trucks. This appears to be workable in principle.

92 Later that evening Mr Roach in turn emailed Mr Payne (the Administrator) as follows:

Below is an email from Steve Garmston that arrived about an hour ago, well after the 4pm cutoff.

I just spoke with Tony who filled you in on the Coles process, so I think we should sit still on this until tomorrow morning when we have Coles’ money & a signed contract & we can then ring Paul Oates. I think Steve has let his personality stuff this one up!

93 On 29 June 2009, Coles’ Property Development Board considered a recommendation to approve its acquisition of the Land. The recommendation was proposed in a paper prepared by Messrs Pepperell and Kullen. It is not necessary to set out in full the contents of the recommendation. It includes the following:

COLES - FOOD, LIQUOR & CONVENIENCE

PROPERTY CAPITAL APPROVAL

PORT MACQUARIE, NSW COLES SUPERMARKETS PROPERTY ACQUISITION, DEVELOPMENT CAPITAL & REPLACEMENT STORE

DEVELOPMENT BOARD 29 JUNE 2009

1 RECOMMENDATION

To approve Coles Group Property Developments (CGPD) acquiring the freehold of 28 Hayward Street, Port Macquarie, NSW for $7,000,000 (excl GST) plus acquisition costs (including IDA) of $490,000 (excl GST).
…

· Council is frustrated with current dealings with Woolworths (who have had the site under exclusive negotiation) and has granted CGPD a restricted time frame to complete a transaction.

…

The subject site is located between Gordon and Hayward Streets, Port Macquarie. As mentioned this land is currently owned by Port Macquarie Hastings Council, and is approximately 6,400m2. Woolworths has for some time been seeking additional representation in Port Macquarie, and had been engaged in negotiations with Council since early 2008 to acquire and develop the site. As such Woolworths has obtained a full DA for a supermarket offer on the land and has had control of the site up until now, however it is understood that there has been no exchange of sale contracts between the parties.

· Purchase Price of $7 million plus gst.

· Provision of 154 public car spaces on site in perpetuity;

· Provision of a bus terminal and facilities situated on 150m2 of space and transferred back to Council as an allotment; and

· Provision of a temporary bus terminal and facilities during construction of the permanent facilities.

94 On 30 June 2009 at 3:08pm, Mr Roach emailed Mr Garmston as follows:

Council has put before you a revised option for consideration of which we have not received your advice on before 4pm yesterday.

Council will not be entertaining any other options. It is time for Woolworths to make a decision.

95 On 30 June 2009 at 3:33pm, Mr Oates emailed Mr Roach as follows:

This quite minor and straightforward issue seems to be derailing the whole project.

We can not agree to a position that is worse for Woolworths than what has been previously agreed with Council. The previous agreement has been formally adopted by Council at your Council’s meeting and has been confirmed in correspondence.

We are at a loss as to why Council appears now to be changing its position. We are happy to be flexible however with a lack of communication it has been very difficult to work out a way forward.

96 At 3:45pm Coles’ solicitors sent a draft contract for the sale of the Land to the Council’s solicitors.

97 At 4:32pm Mr Roach emailed Mr Leahy with instructions to sign the contracts the moment they arrived.

The Council Sells the Land to Coles, Informs Woolworths and Subsequent Events

98 On 1 July 2009, the Council and Coles signed and exchanged contracts for the sale of the Land.

99 On 2 July 2009, Woolworths was informed by the Council that it was no longer proceeding with the sale of the Land to Woolworths. On 2 July 2009, Woolworths (Mr Oates) wrote to the Council as follows:

This is a very serious matter. We do not accept that the terms of the Contract have not been settled, negotiations over the standard and minor issue of contamination on the site is not an unusual or uncommon term of a Contract For Sale. This is not a complex issue. Woolworths have been negotiating in good faith and in accordance with Council's resolution, written correspondence and the EOI.

We are ready to proceed with the project. Woolworths were awarded the EOl by Council, we have been issued a DA from Council, we have designed and documented the project, we have tendered the construction of the project and are ready to award a building contract. We have incurred significant costs not limited to the purchase of other land, legal fees, consultants’ fees, due diligence, site investigations and management time. We have suffered significant losses not limited to the loss of profit and cost in not proceeding with the Dan Murphy's and the refurbishment of the Food For Less supermarket.

140 Woolworths accepted that in order to establish loss it must first establish on the balance of probabilities, that it would have shifted position. If it fails in that quest the matter ends there. If it discharges that onus the question arises what the chances would have been that a sale to it would have eventuated.

141 The first question is thus whether Woolworths would have shifted position as it says it would. The second question is whether if Woolworths would have shifted position, what the chances were that a sale to it of the Land would have happened.

142 Mr Garmston gave evidence (in his third and final affidavit in the proceedings) that had he been aware that the Council was in negotiations with Coles or any other third party, he would have taken a very different approach to negotiations and that at a minimum he would not have threatened to walk away from the negotiations unless he genuinely held an intention to do so. He gave evidence that had he been aware that the Council was negotiating with Coles or any other third party, he would not have become “bogged down” in the details of the contamination indemnity or the development charges. Although he did not have authority to agree to the Council’s terms he says he would have taken the matter immediately to Mr Kemmler with a recommendation that he authorise acceptance of the terms. He says that he would also have notified Mr Oates and discussed his recommendations with him.

143 Mr Oates gave evidence that if Mr Garmston had told him that the Council was refusing to agree to the terms upon which Woolworths was insisting and was also dealing with a third party in relation to the Land (meaning that there was a risk that Woolworths would miss out on the opportunity to acquire the Land) he would have strongly recommended to Mr Kemmler that he authorise the entry into an agreement with the Council on the terms the Council was prepared to accept.

144 Mr Kemmler gave evidence that had he been aware that the Council was dealing with a third party at the same time that it was dealing with Woolworths, and that there was a possibility that Woolworths would miss out on the opportunity to acquire the Land because it was insisting that the Council waive all developer charges and provide a $500,000 all-contamination indemnity as it previously recommended it would, he would have gone back to the approval provided by the Property Committee to determine whether a contract on the terms on which the Council was prepared to sell was within that approval. He says he would have regarded a contract on those terms to fall within the Property Committee approval and would have approved entry into it in his capacity as the Director of Property.

145 In support of their evidence as to what they would have done each of Messrs Garmston, Oates and Kemmler stressed the value of the commercial opportunity which the acquisition and development of the Land represented to Woolworths. Mr Kemmler in particular stressed the strategic importance of the site for Woolworths and that the amounts involved were not significant enough to warrant “letting the deal fall over”.

146 For the reasons which follow, however, I am not satisfied that Woolworths would have shifted position as it says. To the contrary, I think it is more likely than not that Woolworths would not have done so.

147 The evidence of the Woolworths officers as to what they would have done is of course hypothetical. It is in substance no different from the hypothetical type of evidence which McHugh J described in relation to medical issue cases in Chappel v Hart (1998) 195 CLR 232. At [32] in footnote (64) his Honour said:

Human nature being what it is, most plaintiffs will genuinely believe that, if he or she had been given an option that would or might have avoided the injury, the option would have been taken. In determining the reliability of the plaintiff's evidence in jurisdictions where the subjective test operates, therefore, demeanour can play little part in accepting the plaintiff's evidence. It may be a ground for rejecting the plaintiff's evidence. But given that most plaintiffs will genuinely believe that they would have taken another option, if presented to them, the reliability of their evidence can only be determined by reference to objective factors, particularly the attitude and conduct of the plaintiff at or about the time when the breach of duty occurred.

148 In Rosenberg v Percival (2001) 205 CLR 434, in the context of what a patient would have done in the face of a warning about a pending operation McHugh J said the following at 449:

[45]

decided

had

149 In a similar context in Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Samuels AJ said at 581:

It is, of course, true that a patient's evidence about what he or she would have done if told of certain risks may be coloured by the fact that the risks did in fact eventuate; but it is open to a court to disbelieve evidence found to be tainted by hindsight: Manderson, ‘Following Doctors' Orders: Informed Consent in Australia’ (1988) 62 ALJ 430 at 434. Obviously, in endeavouring to ascertain what the plaintiff's response would have been to adequate information had it been conveyed at the appropriate time, a court will be greatly assisted by evidence of the plaintiff's temperament, the course of any prior treatment for the same or a like condition, the nature of the relationship between patient and doctor including pre-eminently, so far as it can be established, the degree of trust reposed in the doctor by the patient. The extent to which the procedure was elective or imposed by circumstantial exigency and the nature and degree of the risk involved will all be matters of considerable importance: see Robertson, ‘Informed Consent to Medical Treatment’ (1981) 97 LQR 102 at 122.

150 At 582 his Honour said:

Moreover, it was correct for the Judge to take heed, as he did, of the likelihood that the appellant’s account of her hypothetical response must be coloured by the catastrophe which the operation brought in its wake.

151 Even accepting (as I do – with the one caveat referred to below) that the after event, evidence of each of Messrs Kemmler, Oates and Garmston as to what they would have done was sincerely given, their evidence was undoubtedly coloured by the knowledge that Woolworths was the runner up and that its major competitor was the winner.

152 An assessment of Woolworths’ behaviour during the course of the negotiations, at the time of and after becoming aware of the transaction with Coles (even up until almost the eve of the trial) does not support, but rather undermines, the conclusion for which Woolworths contends.

153 Firstly, when Woolworths commenced these proceedings it did not take the position which it now takes. The relief originally sought was not for damages on the basis now articulated. Rather, in his original founding affidavit sworn 5 March 2010 Mr Garmston’s evidence was not that had he known the Council was dealing with Coles he would have capitulated (or recommended capitulation) in the negotiations but rather that he would not have instructed Mr Loveday to release the EIS report to the Council as he did on 10 June 2009. Mr Garmston went on to say:

If I had known that Council would not sell the Land to Woolworths, I would, as soon as possible, have actioned Woolworths’ alternative strategy to build a stand alone “Dan Murphy’s” store (pursuant to the terms of the Dan Murphy’s DA), and upgrade the Food for Less store (pursuant to the terms of the Food for Less DA).

154 Woolworths’ affidavits putting its present position were sworn by Mr Garmston on 19 May 2010, Mr Oates on 18 May 2010 and Mr Kemmler on 21 May 2010 each almost on the eve of the trial. This reflects that Woolworths’ present position is one which is recently taken.

155 With respect to Mr Garmston, I should say that there is one respect in which I do not accept his evidence. Implicit in his evidence is that his threat to walk away was made without a genuinely held intention to do so. I do not accept this. He repeated the deal breaker comment on more than one occasion and his now professed lack of sincerity in making it is inconsistent with his own behaviour and intromissions with Woolworths which sanctioned the stand he took. It is to be remembered that he made deal breaker comments without knowing that Coles was in the wings.

156 Secondly, Woolworths’ initial reaction (reflected in its original pleaded case) was that it had a binding agreement with the Council. This is inimical to the conclusion that Woolworths would have capitulated rather than have taken the stance that it in fact did, after it found out about Coles.

157 Thirdly, Woolworths’ tough negotiating stance on the two issues upon which the negotiations foundered was taken against the background that the Council had done a volte-face on developer contributions and, as Woolworths saw it, changed position on contamination.

158 On 25 February 2009, the Council had resolved to waive developer contributions and having written to Woolworths on 17 June 2009, then somewhat remarkably took the position in its letter dated 26 June 2009 that payment of a developer contribution was required. The Council also changed its position on contamination. Its original position was not restricted to an indemnity on asbestos. Woolworths was to my mind justifiably disgruntled by these changes and dug its heels in.

159 When on 19 November 2008 the Council first foreshadowed its intention to levy development contributions, Woolworths reacted (in its letter dated 26 November 2008) saying that it could not “afford to absorb a further $470,000 in developer contributions on the project”.

160 The Woolworths witnesses were cross-examined about this letter and it was put that it reflected a reality that Woolworths could not afford the amount. Their credit was attacked when they pointed out that Woolworths is a substantial entity which could well afford the figure mentioned and pay it if it wanted to. The credit attack failed not least of all because clearly the statement was not to be taken literally. But what it did show was that Woolworths’ assessment of the project, on its merits, was that commercially it could not bear the additional impost. Even recognising that the amount which the Council ultimately wished to levy was less, it was still more than Woolworths anticipated paying.

161 The evidence of the Woolworths witnesses was that in financial terms the difference in position was insignificant having regard to the value of the commercial opportunity both positively (if it got it) and negatively (if it went to its major competitor). The contamination issue was more significant (so much so that – as the minutes of the 25 June 2009 meeting reflect – Woolworths wanted the ability to do testing between exchange and completion with a right of rescission or to have a conditional contract and then undertake a site audit statement).

162 Even accepting that in real terms the difference between the parties’ position, for a corporation of the size of Woolworths, may not have been significant, Woolworths was standing firm on a position of principle. The repeated use of the term “deal breaker” left no doubt that it was prepared to walk away. I am not satisfied that Woolworths would have forsaken its principles even had it been informed that its position was no longer exclusive or that Coles was in the wings. I do not think that Woolworths’ position was mere brinkmanship as it now would have it.

163 By the end of June 2009 it had become obvious that the Council was not going to shift and Woolworths had made it clear that it was not going to do so either. At the 25 June 2009 meeting, Mr Garmston advised that the Council’s position on contamination was a deal breaker, that Woolworths had never agreed to limit the Council’s liability to asbestos and would not agree to this. His position could not have been clearer. Woolworths was accordingly prepared to lose the transaction for what it now says was an insignificant financial consideration. True, its position was taken in ignorance of the Council’s dealings with Coles, and on a basis of an expectation that they were negotiating exclusively, but once the negotiations had become deadlocked because of the intractability of both parties, it is obvious that the Council would wish to sell elsewhere.

164 Mr Roach’s 30 June 2009 email reflects a consciousness that the project was at the risk of derailment. He went on to express a loss as to why the Council appeared to be changing its position and called for another meeting. Even then Woolworths did not change its position. His avowed happiness “to be flexible” does not sit easily with the reality of Woolworths’ intractability.

165 In all the circumstances, I do not accept that if Woolworths had been told Coles was in the wings it would have propelled it to capitulate.

166 Woolworths has fallen well short of establishing that it would have capitulated on the two contentious issues.

167 It follows that Woolworths has failed to establish that it suffered any loss by the Council’s conduct and its claim therefore fails.

168 It also follows that it is unnecessary to consider what the chances were of the Council selling to Woolworths even if it had capitulated. I will nevertheless do so.

169 Woolworths puts that its chances were extremely high and that only a modest discount of 10 per cent should apply to its damages to reflect this uncertainty.

170 Coles puts that Woolworths’ prospects should be assessed “at something in the order of 40%” (namely there should be a discount of 60 per cent).

171 Coles submits that even if Woolworths had changed its position there was a prospect that Woolworths might not have moved fast enough and that Coles would nevertheless have succeeded. The facts demonstrate the speed with which Coles did in fact move. In contrast, as late as 23 June 2009, Woolworths was saying that completion by 30 June was looking difficult and was foreshadowing due diligence of two to three weeks in respect of contamination.

172 Coles puts that Woolworths’ prospects would have been dented by the recent ill will between it and the Council and that at best it would have been a closely run two horse race.

173 I attach little weight to the submission of ill will because the Council nevertheless gave Woolworths the opportunity of buying right up and until 4pm on 29 June 2009. However, I also consider it from certain that Woolworths would have moved swiftly enough to clinch the deal. In all the circumstances I think there is a better, but not much better, than even chance that Woolworths would have succeeded, which I would assess at 55 per cent. I accordingly would have discounted any damages Woolworths had suffered by 45 per cent.

174 It follows further that it is unnecessary to consider whether Coles were knowingly involved in the Council’s contravention of s 42(1) of the Act. I will nevertheless consider that matter.

COLES’ KNOWLEDGE

175 Woolworths puts that Coles had knowledge of the essential elements of the Council’s contravention which it articulated as:

a causing a reasonable expectation in Woolworths that the Council would tell Woolworths if the Council was negotiating with a third party for sale of the Land; and

b on or after 18 May 2009, deciding not to inform Woolworths that it was negotiating with Coles.

176 Woolworths puts as establishing the requisite on the part of Coles the following:

a Coles began negotiating with the Council on 18 May 2009;

b Coles believed that Woolworths had an exclusive negotiating arrangement with the Council which, if not brought to an end, would require the Council to tell Woolworths of its proposal to negotiate with Coles;

c Coles believed as late as 18 June 2009, that Woolworths had not been told of Coles’ involvement. Mr Pepperell’s email is the best objective evidence of that belief;

d Coles took no steps to ask the obvious questions:

i. has Woolworths been told of Coles’ interest?

ii. has the exclusive negotiation period been brought to an end?

e all that Coles was concerned to know was whether the Council was contractually free to sell the Land to Woolworths. This was Mr Boyce’s concern;

f the question which Ms Ginnifer asked the Council on 5 June 2009 was not directed to whether Woolworths had been told of Coles’ interest, or whether Woolworths’ exclusive dealing period had terminated;

g Coles did not want to ask those questions because it did not want the Council to have to tell Woolworths of Coles’ interest, and it did not want to know if the Council had not told Woolworths;

h Coles’ Senior Property Officers are sophisticated businessmen, who had the benefit of considered legal advice;

i Coles was guilty of wilful blindness where Coles believed Woolworths had not been told, and where Coles knew that Woolworths would expect to be told if the Council was negotiating with a third party. The question Ms. Ginifer asked was not directed to finding out the position with Woolworths and its form was deliberate so as to not obtain the true picture. Attention was drawn to the fact that Ms Ginifer was not called;

j the reliance which Messrs Boyce and Parkinson placed on the Council’s statement that there was no binding position with Woolworths does not negative knowledge of the essential elements of the Council’s contravention. If it does, then Coles had knowledge of the essential elements of the contravention before 5 June 2009, and was party to the Council’s contravention up to that time.

177 Woolworths puts additionally as supporting the proposition that Coles knew (or had no basis for believing otherwise) that Woolworths had not been told that the Council was dealing with another party, Coles’ own requirements for confidentiality and its request (albeit unrequited) of the Council for a confidentiality provision.

178 In my view Woolworths fell well short of establishing that Coles at any time (both before and after 5 June 2009) knew of any failure on the part of the Council to meet any expectation in Woolworths that it would be told that the Council was negotiating with another or that Woolworths’ position was not exclusive.

179 Coles knew that the Council had been negotiating with Woolworths pursuant to the Council’s EOI procedure but Coles was told very little about the Council’s dealings with Woolworths, and one would not expect the Council to have revealed this anyway. Coles did not know of the state of negotiations between the Council and Woolworths. Even assuming that Coles knew or believed that at some point the Council was negotiating exclusively with Woolworths, Coles did not know that the Council had not disclosed to Woolworths that its position was no longer exclusive. The Council declined Coles’ request for a confidentiality provision. Moreover, Mr Parkinson gave evidence (which I accept) that he took from the Council’s statement in its 18 June 2009 letter:

Please be advised that a Contract of Sale with similar conditions will be provided to the other party tomorrow. You should also note that Council will proceed with the party that lodges first, their duly signed Contact of Sale with Council in preparation for an exchange of Contracts

180 Woolworths’ submissions placed heavy emphasis on the statement by Mr Pepperell in his 18 June 2009 email:

I have no doubt that unless we move swiftly to secure the acquisition and manage the risks strategicly [sic] to achieve this that WWs will become aware of the game and the window of opportunity will close very quickly

as establishing knowledge or belief on the part of Coles that Woolworths had not been told that Coles or some other third party was now in the picture. Mr Pepperell’s evidence (which I accept) was that his comment was directed to the terms of the transaction rather than awareness on the part of Woolworths that Coles were in the picture.

181 I do not accept, and consider as far fetched, the proposition that Coles was wilfully blind. On its face Ms Ginifer’s question was a general one intended to ascertain whether there was any difficulty for Coles if the Council proceeded with it. The question did not restrict any answer to any contractual inhibition on the Council. The Council’s response was sufficient, in my view to convey to Coles that there was no hurdle. Both Mr Kullen and Mr Parkinson (whose evidence I accept) took from the answer that the Council was free to deal with Coles. The response was certainly sufficient to dispose of any suggestion of knowledge on the part of Coles of the essential elements of the Council’s contravention. The failure to call Ms Ginifer does not alter this.

182 It follows that Woolworths’ claim against Coles fails for the additional reason that it has not established the requisite knowledge for accessorial liability on the part of Coles.

QUANTUM

183 Although it is unnecessary to do so, I will consider the amount of damages I would have assessed had Woolworths suffered any by the Council’s conduct.

184 The damage suffered by Woolworths is the difference between the financial position it would have been in, had the integrated development proceeded and the position in which it is in, that is, without the integrated development, but with the prospect of the refurbishment of the Food for Less store and the new stand-alone Dan Murphy’s.

185 This exercise involves subtracting from the present value of the future revenue of the integrated development (after taking into account its capital cost), the present value of the future revenue of the refurbished Food for Less and the new Dan Murphy’s (after taking into account the capital cost of the refurbishment).

186 Woolworths and Coles each called expert economists who gave their opinion on the future revenue. Woolworths called Mr Shimmin, and Coles called Mr Abery.

187 Woolworths and the Council each called forensic accountants who gave their opinion on the present value of the future revenue. Woolworths called Ms Wright and the Council called Ms Wheatley.

188 Each expert had given an initial report and joint reports were then prepared by the economists (who gave evidence concurrently) and the accountants (who also gave evidence concurrently).

189 I should say at the outset that I found each expert to be an impressive witness.

190 The experts were agreed on the appropriate methodology for the exercises to be carried out in each discipline. The model agreed by the accountants will yield an ultimate figure depending upon the future revenue to be adopted. There was one area of debate on capital cost to which I will refer below.

191 The opportunity which Woolworths lost was lost in perpetuity.

192 The economists directed their analysis to the years 2009-2016. The accountants opined on the net present value of the revenue for that period and calculated the present value of the terminal value as at 2017.

Revenue

193 The economists disagreed on the revenue that would be earned from the notional new Woolworths store. Their methodology was to reach a figure representing the revenue to be earned by supermarkets in the whole of a target area comprising three sectors and then to assess how much of that revenue would be attracted by the notional new Woolworths store. Upon the latter issue they disagreed.

194 It will be sufficient for the resolution of the issue between them to deal only with the year 2012 because that year was used in the debate and the conclusions applicable to that year can be extrapolated to 2016.

195 The economists divided what they described as the Port Macquarie trade area into four zones: primary central (which covered the CBD and fringe), primary west, secondary west and secondary south. Their methodology was to derive an annual dollar figure representing average trading levels for supermarkets across the trading area as a figure per square metre of supermarket space.

196 They took into account additional supermarkets anticipated to come on stream in that year. They agreed on a figure representing the average trading level for all supermarkets in the trading area after the closure of Food for Less and the opening of the new Woolworths, that figure being $8305 per annum based on supermarket space of 41,493 square metres.

197 The essential difference between them was that in Mr Shimmin’s opinion the notional new Woolworths store would do better than the average of the supermarkets in the target area, whereas Mr Abery thought it would fare worse. Mr Abery’s view was that while supermarket space was anticipated to double, population would increase by around only 13 per cent. Each agreed that his conclusions were matters of judgement.

198 Mr Shimmin and Mr Abery opined respectively that the new Woolworths store would attract the following percentage of the revenue which would go to supermarkets in the trading area for food and groceries.

Shimmin

Abery

Primary Central
16.9%

14.9%

Primary West
11.8%

10.4%

Secondary South
6.2%

2.5%

Secondary West
6.2%

4.0%

199 Mr Shimmin’s result was an average trading level for the new Woolworths of $9706 per square metre whereas Mr Abery reached a figure of $7830 per square metre (remembering that the average across the board of supermarkets including but not restricted to Woolworths for the trading area agreed between them is $8305 per square metre).

200 Mr Abery placed emphasis on the fact that after 2012 there is anticipated to come on stream a Woolworths store in a township called Thrumster which is in the primary west sector and more easily accessible from the secondary west and secondary south areas than the new Woolworths would have been. Mr Abery opined that Thrumster would drain business away from the new Woolworths to a greater extent than Mr Shimmin recognises hence the difference between their figures, particularly for secondary south and secondary west. Mr Abery’s 2.5 per cent gives more weight to the fact that Thrumster is on the main road which links secondary west and primary central. Mr Shimmin’s response was an expectation that Thrumster would under-perform and that Mr Abery’s view did not take sufficient account of the fact that many residents from the other sectors travel to primary central on a daily basis for work and other reasons and will therefore shop there.

201 It seems to me that there is some merit in both experts’ positions. They are agreed as to the average across all kinds of supermarkets which were described during cross-examination as including the good, the bad and the ugly. Giving each some weight, the result is that the average figure of all supermarkets across the area is the one most likely to represent the reality. In my view an average trading level of $8305 per square metre for 2012 and the corresponding figures to 2016 should be adopted.

Net Present Value

202 The accountants adopted a conventional methodology according to which terminal value at time n (here 2016) is calculated as the Net Cash Flow for the period ended n + 1 divided by the discount rate adopted less the terminal growth rate, that is:

present value (n) = cash flow (n + 1)

(discount rate – terminal growth rate)

203 They were agreed on a terminal growth rate of two to three per cent and that Woolworths pays an effective tax rate of 27.13 per cent that should be applied.

204 They differed on the appropriate discount rate.

205 Woolworths itself adopts as its weighted average cost of capital 7.78 per cent. This is the rate that Ms Wright adopted. There is some support for the rate from the unchallenged evidence given by Mr David Freiman, Woolworths’ General Manager Property Finance who described this rate as a benchmark which Woolworths uses as a minimum hurdle rate.

206 Ms Wheatley on the other hand carried out her own assessment of the rate starting in a conventional manner with a risk free rate, and applying to it a company beta. She then adjusted for weighting on the basis of Woolworths’ actual market capitalisation and debt reaching a range of 10.47 – 10.52 per cent of which she adopted the midpoint of 10.49 per cent and then made a risk adjustment for the specific project. The risk adjustment was a range between 2.13 per cent and 3.18 per cent reaching a midpoint WACC of 13.15 per cent.

207 The risk free rate which she adopted was 6.45 per cent. However evidence before the Court was that the risk free rate as at October 2008 was in fact 5.22 per cent.

208 Ms Wheatley was challenged on her methodology in taking Woolworths’ actual figures for equity (91 per cent) and debt (9 per cent) rather than adopting a weighting based on the level of debt an enterprise such as Woolworths could reasonably sustain, as one respective textbook writer suggests. Her evidence was that the methodology she adopted was the preferable one in the circumstances and there is no basis on the evidence to find otherwise.

209 I also accept her evidence that an adjustment is required to take into account the risk specific to this particular project rather than adoption (as Woolworths would have it) of a rate based on the entirety of its very substantial enterprise.

210 The conclusion which I reach is that the rate that should be adopted is in accordance with Ms Wheatley’s methodology but adjusted so as to have a starting point of a risk free rate of 5.22 per cent and not the 6.45 per cent she adopted.

Miscellaneous

211 The Council put a submission that Woolworths has not established any loss because the integrated development involved significantly greater budgeted expenditure than the development with which Woolworths will proceed and that Woolworths’ quantification does not take account of the return Woolworths could generate on the difference. I do not accept this submission. It proceeds on the unestablished assumption that because Woolworths budgeted for a greater expenditure it has (or at the relevant times had) an amount equivalent to the budgeted shortfall readily available for investment which it has the opportunity to invest elsewhere. It also fails to take into account the economic costs of such funds as well as the particular risks of any investments Woolworths might make with such funds if it otherwise had them standing idle.

212 Coles put a submission that there should be deducted from Woolworths’ loss the cost to be incurred by Woolworths in refurbishing the Food for Less on the basis that the refurbished premises should be treated as having been realised in the same way as the experts treated the integrated development in order to assess its terminal value. Coles put that only the value of the refurbishment should be treated as having been realised because Woolworths owned the Food for Less site beforehand. I would also reject this submission. The refurbishment of the Food for Less is a reality, not a hypothesis. There is no suggestion that Woolworths will not continue to hold the Food for Less property nor is there any reason to suggest that the value of the refurbishment would be any less than Woolworths spends on it.

THE COUNCIL’S CROSS-CLAIM

213 It follows from what has been said above that the Council was not misled by anything said or done by Woolworths and if it was, it has suffered no loss. Accordingly its cross-claim must fail.

RULING ON PRIVILEGE

214 Evidence was given by witnesses for Woolworths that had they been told, before the Council sold the Land to Coles, that it (the Council) was negotiating with Coles (or some other third person) one thing they would have done was to have sought legal advice.

215 After the Council sold the Land to Coles and when Woolworths became aware of it, Woolworths undoubtedly sought legal advice which one might assume included advice on whether Woolworths had a binding contract with the Council. During the hearing Coles served a Notice to Produce on Woolworths calling for any such advice.

216 Coles (supported by the Council) submitted that Woolworths had waived legal professional privilege with respect to such advice because Woolworths “has put in issue the substance of the legal advice that they would have obtained”. They put that the substance of the actual advice that Woolworths in fact obtained later was “relevant to this issue” and that privilege had therefore been waived.

217 I ruled that privilege had not been waived, and the parties were content for me to provide reasons in my final judgment. I now do so.

218 Woolworths’ position is that it would, at an earlier point in time have obtained advice, but did not. Neither its evidence, nor its position, entailed express or implied reliance as effecting its state of mind on what the advice would have been had it been obtained.

219 Given that Woolworths did not receive advice at the time, and its state of mind at the time was not and could not have been affected by the advice which it subsequently obtained, I do not consider that there was a waiver of the substance of the advice later received.

CONCLUSION

220 Woolworths’ Summons is to be dismissed. The Council’s cross-claim against Woolworths is to be dismissed.

221 Provisionally and subject to what is said below the costs orders will be:

a Woolworths is to pay the Council’s costs and Coles’ costs of the claim.

b The Council is to pay Woolworths’ costs of the cross-claim.

222 Any party wishing to be heard on costs is within fourteen days to serve on the other parties and deliver to my Associate a brief written outline motivating any costs orders sought and the grounds relied upon. If no submissions are received the costs orders will solidify and the parties are to bring in short minutes. If any submissions are received the matter will be re-listed.

223 The parties are also at liberty to carry out quantum calculations in accordance with my reasons which will, if the parties wish be incorporated in a supplementary judgment.

224 The exhibits are to be returned.

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Citations

Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726

Most Recent Citation

Goater v Moree Plains Shire Council [2015] FCCA 2594

Cases Citing This Decision

2

Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167

Goater v Moree Plains Shire Council [2015] FCCA 2594

Cases Cited

22

Statutory Material Cited

2

Chappel v Hart [1998] HCA 55

Rogers v Whitaker [1992] HCA 58

CITATION:	Fabcot Pty Ltd -v- Port Macquarie-Hastings Council [2010] NSWSC 726
HEARING DATE(S):	31 May, 1, 2, 3, 7, 8, 9, 10, 15 June 2010
JUDGMENT DATE :	2 July 2010
JUDGMENT OF:	Hammerschlag J
DECISION:	Summons dismissed. Cross-claim dismissed.
CATCHWORDS:	TRADE AND COMMERCE – misleading and deceptive conduct – Fair Trading Act 1987 (NSW) ss 42(1), 61, 68(1) – the first defendant (“the Council”) publicly invited expressions of interest (“EOI”) in purchasing and developing a supermarket development site – the plaintiff (“Woolworths”) and the second defendant (“Coles”) were short-listed and the Council accepted a conditional offer from Woolworths – while it was negotiating with Woolworths the Council also negotiated with Coles – whether the Council’s deliberate failure to tell Woolworths that it was negotiating with Coles (or a third party) was misleading and deceptive, or likely to mislead or deceive – alternatively, whether the Council’s failure to tell Woolworths that the Council was not, or was no longer, negotiating exclusively with Woolworths was misleading and deceptive, or likely to mislead or deceive – accessorial liability on the part of Coles – whether Coles was knowingly involved in that contravention – LOSS – whether Woolworths suffered any loss by the conduct – on the balance of probabilities, firstly, whether Woolworths would have shifted position and secondly, whether the Council would have sold to Woolworths – HELD – the Council’s conduct was in the circumstances misleading or deceptive or likely to mislead or deceive – held further that Woolworths had not established any loss by that conduct – held further that it was not established that Coles knowingly participated in the contravention
LEGISLATION CITED:	Fair Trading Act 1987 (NSW) Environmental Planning and Assessment Act 1979 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 2 TPR 48 Yorke v Lucas (1985) 158 CLR 661 Giorgianni v R (1985) 156 CLR 473 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 Poseidon Ltd & Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Chappel v Hart (1998) 195 CLR 232 Rosenberg v Percival (2001) 205 CLR 434 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
PARTIES:	Fabcot Pty Ltd - First Plaintiff Woolworths Limited - Second Plaintiff Port Macquarie-Hastings Council - First Defendant Coles Group Property Developments Limited - Second Defendant
FILE NUMBER(S):	SC 2009/298679
COUNSEL:	R.M. Smith SC with N.J. Owens [Plaintiffs] A.S. Bell SC with R.W. Potter [First Defendant] M.A Ashhurst SC with D.A Priestley [Second Defendant]
SOLICITORS:	Corrs Chambers Westgarth [Plaintiffs] Marsdens Law Group [First Defendant] Lander & Rogers [Second Defendant]

Shimmin	Abery
Primary Central	16.9%	14.9%
Primary West	11.8%	10.4%
Secondary South	6.2%	2.5%
Secondary West	6.2%	4.0%