Garden State Packers v Lancken

[2000] NSWSC 139

CITATION:	Garden State Packers v Lancken [2000] NSWSC 139 revised - 31/03/2000
CURRENT JURISDICTION:	Common Law Professional Negligence List
FILE NUMBER(S):	SC 10002 of 1997
HEARING DATE(S):	17 November 1999, 14-16 December, 1999, 3 March 2000
JUDGMENT DATE:	10 March 2000
PARTIES :	Garden State Packers Pty Limited (Plaintiff) Stephen Lancken, Steve Fuller, Sharon Bowles and Anthony Hatzis trading as Owen Hodge & Sons (Defendants)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr. N.C. Hutley, SC with him Mr D Pritchard (Plaintiff) Mr. R Darke (Defendants)
SOLICITORS:	Corrs Chambers Westgarth (Plaintiff) Ebsworth & Ebsworth (Defendant)
CATCHWORDS:	TORTS - solicitors' negligence and breach of retainer - damages - whether extend to loss of profits - failure of ascertain status of closed road through property - impediment to purpose for which land was purchased - purpose known to solicitors - loss of chance - loss of opportunity to obtain the closed road land at no additional cost and thus the profits - purchase of land would not have proceeded at additional cost - chance percentage assessed at fifty percent
CASES CITED:	Braid v W L Highway & Sons [1964] EG 451 Hawkins v Clayton (1988) 164 CLR 539 Kienzle v Stringer (1982) 35 OR (2d) 85 Malec v J C Hutton Pty Limited (1990) 169 CLR 638 Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 Vulic v Bilinsky [1983] 2 NSWLR 472
DECISION:	See Paragraph 38

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
PROFESSIONAL NEGLIGENCE LIST

WINDEYER J

FRIDAY 10 MARCH 2000

50073/96 GARDEN STATE PACKERS PTY LIMITED v LANCKEN & ORS T/AS OWEN HODGE & SON

JUDGMENT

General Outline

1    The plaintiff, Garden State Packers Pty Limited (GSP) sues the first, second and third defendants as partners in the solicitors' firm of Owen Hodge & Son for breach of retainer and in negligence in their acting for GSP in the purchase of a property known as Belvedere, near Leeton. GSP claims that because a parcel of land which had originally been a road (the closed road) separated some of the land acquired, it could not be used properly for the purpose of growing potatoes, for which it was acquired. The claim against the fourth defendant has been resolved. I will refer to the three remaining defendants collectively as the defendants.

Facts

2    Mr Nick Moraitis controls a group of companies which has as its main business, the sale of washed and packed potatoes into supermarket chains. Potatoes are purchased from growers or through the markets and on-sold to supermarkets, such as Coles, Woolworths, Jewel and the like. To protect his supplies, Mr Moraitis decided to make his business "vertically integrated", in his case meaning that not only would he sell potatoes to major chains, having purchased them from growers or through the markets, but he would also grow potatoes for on-sale to his wholesaling companies thereby protecting his lines of supply and also ensuring that he would not be held to ransom by growers who knew he had contract orders to fulfil. GSP was to be the potato grower.

3    Mr Moraitis had dealings with the Galluzzo family, who were experienced potato farmers, over a number of years. They had three properties including Belvedere in the Riverina area. Belvedere was mortgaged to Elders Rural Finance Limited (Elders) and the Galluzzo's were in default of the mortgage. Mr Moraitis engaged a Dr. Teplitzky to advise him on the question of purchase of Belvedere when it became known that Elders was preparing to exercise its power of sale as mortgagee.

4    Dr. Teplitzky reported, not altogether favourably, on the property in a memorandum of 16 April 1992 and a further memorandum of 1 May 1992. In essence he reported the property was well suited to potato growing; that it was not as well managed as it could be; that yields of ten to twelve tonnes per acre could be obtained in lieu of the seven to eight tonnes being obtained; that six hundred acres should be put down to potato crops as opposed to the existing four hundred acres; and that capital expenditure necessary to achieve full productivity would be about $335,000. He did not recommend purchase of Belvedere for above $300,000.

5    Belvedere was owned by Mr Frank Galluzzo. It comprised Portions 40, 41, part 42, 51, 52 and 53 in the Parish of Burt being land in Folio Identifier 1/748612 and Folio Identifier Auto Consol 15523-241). The land which is part of Portion 42 is now Lot 1 in Deposited Plan 748712; Portions 40 and 41 are now Lots 40 and 41 in Deposited Plan 750876; and Portions 51, 52 and 53 are now Lots 51, 52 and 53 in Deposited Plan 750898.

6    This land was mortgaged to Elders under Mortgage X255950 dated 20 November 1987. The amount secured and due under the mortgage by July 1992 was about $720,000. Portions 41 and 42 were divided by the closed road which comprises an area of four hectares and which is shown as a road on the relevant deposited plan. Memorandum V418741 was incorporated into the mortgage. It provided in clause 10(c) that the mortgagor appointed the mortgagee his attorney in his name, inter alia, "to do any act matter or thing which the mortgagor should do or have done hereunder". Under clause 4 of the mortgage the mortgagor covenanted that on closure of the dedicated road separating portion 42 from portion 41 he would promptly inform the mortgagee of the closure and "thereafter enter into a collateral mortgage in favour of the mortgagor of the closed road in terms similar to this mortgage … ".

7    In December 1988 Mr Frank Galluzzo obtained the closure of the road between portion 41 and portion 42 and acquired title to the closed road. It became Lot 1 in Deposited Plan 722056. He did not mortgage it to Elders as he was required to do.

8    The Galluzzo family had supplied potatoes to Fresh Farm Products and other companies in the Moraitis Group and had a long association with Mr Moraitis. From 1989 there were involved discussions between the Moraitis interests and the Galluzzo interests about joint ventures for the growing of potatoes on the three Galluzzo properties of which Belvedere was one. Moneys were from time to time advanced by the Moraitis companies, Nickpack Pty Limited and Farm Fresh Products Pty Limited to the Galluzzos on various securities.

9    By 1991, the Galluzzos were in default under their mortgage to Elders. Mr Brady the lending manager for Victoria, the Riverina and Tasmania for Elders, took charge of the account. By late 1991 he had decided that it would be necessary to realise on the security. In April 1992 Mr Moraitis made an offer of $300,000 for the Galluzzo farm, meaning Belvedere. This was increased in May to $325,000. A copy of the second Teplitsky report was apparently sent to Elders when making the increased offer, which was said by Moraitis to be final.

10    On 14 July 1992, Dominic Galluzzo, Theresa Galluzzo and Frank Galluzzo signed a letter of consent to the sale by Elders of Lot 1 in DP 748712 for $325,000 to a company in the Moraitis group pursuant to the power of sale under the Elders mortgage, or in the alternative, consent to the assignment of the mortgage held by Elders for $325,000. In either case, the consent was on the basis that such sale or assignment would be accepted in satisfaction of the debt to Elders from which the Galluzzos would be released. Nobody suggests that all the land comprising Belvedere was not intended to be included in this document. This agreement was said to be subject to the sale or assignment occurring within four weeks and completion within a further two weeks and another condition was that if that did not occur then Elders could sell by public auction. Elders then accepted the Moraitis offer, which, although it had apparently originally been intended that the security should be purchased, was altered to an agreement under which the land would be purchased from Elders exercising its power of sale. There were other problems with the letter of consent to which I will refer, not the least of which was the purpose of the assignment if somehow or other the value of the security was to be reduced to $325,000.

11    Contracts for the purchase were exchanged on 7 October 1992 and settlement took place on 5 February 1993. A copy of the mortgage document was attached to the contract for sale.

12    The property was farmed for potatoes and irrigated by means of five centre pivot irrigation circles. When a circle was watered it was by means of a long irrigation arm set on wheels with many spray jets from the arms. The pivot arm proceeded in a radius around the centre pivot, the water coming from a pipe leading to the centre of the pivot. Four of the pivot circles required the irrigator to cross part of the closed road. The irrigators could be moved but the positions of the centre pivots were static.

13    I am satisfied that Mr Moraitis thought that he was purchasing all the land farmed including the closed road. It is clear that it was incorporated in the general area of Belvedere and not regarded as separate. He did not consider the land in question a road, but rather considered everything within the external boundary of Lot 1 and Portions 40, 41, 51, 52 and 53 to be land subject to the contract. Insofar as Exhibit 3 might have directed attention to the mistakenness of this view, being a fax from Dominic Galluzzo to Mr Moraitis with copies of documents showing that Frank Galluzzo had acquired the closed road land, Mr Moraitis said he did not get that fax and that it was not brought to his attention. I should say that even if it were, without some evidence from Dominic Galluzzo as to what took place before transmission, it is certainly not clear that Mr Moraitis would have understood its import. There is no such evidence. I accept the evidence of Mr Moraitis on this point. Additional support for this comes from the fact that throughout subsequent negotiations the evidence discloses no suggestion that anybody ever suggested the purchase was made with knowledge of the problems. I accept that Elders thought that all land was included as did Mr Moraitis. It is admitted that the defendant was negligent in failing to advise the plaintiff that the land the subject of the agreement did not include the closed road area.

14    The Galluzzo family were engaged by Mr Moraitis to manage the farm which GSP had purchased. Towards the end of 1993 there were problems or complaints about their management and Mr Moraitis decided to dismiss them as managers, ordering them to leave. He then employed the Brosso family as managers. There were serious disputes between the Moraitis and Galluzzo interests as to the ownership of various items of farming equipment. It was at this stage that Frank Galluzzo asserted his title to the closed road, began to fence it off, denied access to the Moraitis interests and their managers, now the Brosso family, and threatened to dig up the water pipes which cross the road if any attempt were made to water the crops by using the water supply from the pipes which crossed the closed road area. When this was reported to Mr Moraitis by Mr Brosso, Mr Moraitis said the land was his and to turn Galluzzo off it.

15    Mr Brosso obtained advice from solicitors in Narrandera that the closed road was owned by Mr Frank Galluzzo. Mr Moraitis instructed Mr Russell Hodge, a former member of Messrs. Owen Hodge & Co and probably then still a consultant, to do what was necessary to obtain title to the road land. Mr Hodge apparently has some experience as a mediator. He proceeded to work on three fronts, namely to seek an assignment from Elders of its mortgage; to seek the purchase of the land from Mr Galluzzo; and to get LawCover interested in some way. This last approach can be disregarded as nothing was achieved. Contact was made with Elders through Mr Brady seeking an assignment of the mortgage. There is some confusing evidence about payment of $5,000 for this. Mr Brady denied any formal agreement. It is not relevant to decide the issue, its only relevance is to show the steps taken by the Moraitis interests to solve their problems. At this stage Elders entered a caveat against the title to the road through arrangements with Messrs Owen Hodge. In May 1994, the solicitors for Elders offered to assign whatever the rights of Elders were in the road to GSP for $110,000, Elders claiming that it had lost the benefit of a crop lien. Mr Moraitis refused this approach and after that there were no further negotiations with Elders, although the risk to Mr Galluzzo if GSP obtained assignment was used as a bargaining point in the attempt to obtain transfer from Mr Galluzzo. The solicitor for Mr Galluzzo refuted the claim that there was any risk by stating the effect of the arrangement made with Elders of 12 July 1992 was that Elders claim was fully satisfied on payment of $325,000. Mr Hodge said that Mr Day, the solicitor for Mr Galluzzo, said that no moneys were due to Elders. Mr Day said he had a fax confirming that, but that fax was not put into evidence.

16    From August 1994 onwards Mr Hodge turned his attention to obtaining transfer from Mr Galluzzo. His approach was not to offer a particular sum, but get Mr Galluzzo to agree to sell first. He said Mr Moraitis was willing to pay whatever was necessary to get the closed road in. There was other litigation between the Moraitis interests and the Galluzzo interests at the time and Mr Day was not willing to treat the various claims separately. A mediation meeting was arranged at the chambers of a barrister instructed by Mr Day which was not a success. Mr Hodge says that settlement was eventually arranged between himself and Mr Dominic Galluzzo in November 1995. On the somewhat strange evidence of Mr Hodge the catalyst to the agreement was his agreement to go to Brisbane to give "some limited character evidence" for Dominic Galluzzo who was charged with a serious drug offence. The agreement reached was for the transfer of the enclosed road for $45,000, for certain pivots to be transferred by the Moraitis interests to Mr Frank Galluzzo for one dollar and for GSP to withdraw its claim against a company owned by the Galluzzo interests in respect of those pivots and for GSP to deal with Elders to obtain a release of any claim which Elders maintained against the road. There were some problems with Elders as that company sought $45,000 presumably for the withdrawal of its caveat, but this difficulty was somehow surmounted. Contracts were exchanged and settlement took place on the same day, namely 29 February 1996. GSP says that by that time it was too late for a 1996 winter crop to be planted on the pivot areas affected by the road. I accept that and it is not disputed.

Plaintiff's claim

17    The claim of GSP is for the sum of $45,000 and the loss of profits through its inability to farm the land. The summons in fact sought $55,000 as the purchase price for the land, but I took this up at the hearing with counsel for the plaintiff, who said nothing against $45,000 being correct and I proceed on that basis.

Restrictions on use of property where road land access denied

18    At the time access was denied there were five pivots available on Belvedere. That does not mean that five irrigators were available as they could be moved from one pivot centre to another pivot centre. The evidence is that pivot area one (P1) had been over-cropped and required to be rested from potato growing and planted with a green nitrogenous crop to restore its fertility. Mr Brosso intended to use pivot areas 2, 4 and 5 for the growing of winter crops and pivot 3 for the growing of the summer crop, which on the evidence is mainly used for seed for the winter crop. By the time the winter crop for 1995 was planted arrangements had been made to get water to pivot 5 which did not involve the use of pipes crossing the road. It was then possible to irrigate 125 acres out of a total of 200 acres of this pivot area without crossing the closed road with the irrigator. The major part of the plaintiff's claim is for the profits claimed to be lost because those areas 2, 4 and 5 or later part of 5 were not available to it for farming. During the period some potatoes were grown on pivot 1. There is a question, to which I will return, as to whether or not the income from those potatoes should be deducted from the plaintiff's claim, as it was not proposed to use that land.

Extent of Liability

19    The defendants admit breach of contract of retainer and negligence in failing to exercise reasonable care and skill towards the plaintiff in failing to ascertain the property purchased did not include the enclosed road; in failing to advise GSP of this; in failing to ascertain the closed road was owned by Frank Galluzzo; and in failing to advise GSP of this last fact. The defendants deny the other claims of the plaintiff, namely that they were in breach of contract and in breach of their duty of care towards the plaintiff in failing to take reasonable steps to protect the interests of the plaintiff in connection with the agreement; in failing to have carried out or advised a survey of land; in failing to take steps to ensure the road land was included in the contract; in failing to advise the plaintiff that Elders could compel Mr Galluzzo to mortgage the land to it and thus enable it to sell; in failing to take steps to ensure that Elders took the necessary steps to enable it to sell; and finally in failing to advise GSP that if Elders did not sell to it then it should acquire the road land from Galluzzo.

20    The plaintiff has an additional claim based on misleading and deceptive conduct. It will not be necessary to deal with this in view of the decision to which I have come, there being no defence based on contributory negligence.

21    There is no evidence of the survey question and it can be disregarded. On the other matters the evidence of Mr Moraitis is quite clear. He said that he was prepared to pay $325,000 for the property and that he did not know that the closed road was not included in the area contracted to be purchased. Had he known that to be the case, then he would not have continued with the purchase unless that land were got in. I accept that evidence. In his statement he said he would not have been prepared to pay more than $325,000 for the property to secure the closed road. In cross-examination he was not quite so firm, stating the price could never be final until agreed, but he was not convincing on this and I find he would not have paid more. The report of Dr. Teplitsky would support this. Mr Brady of Elders, who had authority to make decisions on this sale, said that had he known of the problem, he would have taken steps to obtain the necessary authority to sell the closed road, either by requiring Galluzzo to grant the mortgage that he had contracted to grant or if Galluzzo had refused to do this, to take steps to force him to do so. He said he would act on the advice of solicitors. He did anticipate that there could be difficulty in securing the mortgage from Galluzzo. The consequence of failing to ascertain that the closed road was not included in the land purchased resulted in either GSP not obtaining title to the road at no additional cost or in GSP losing the opportunity to acquire the land at no extra cost.

22    The grounds of negligence or breach of retainer which were not admitted, could only flow from the admitted negligence or breach. If the defendants did not realise the problem with the closed road, and they did not, then they could hardly have been negligent in failing to take steps to get the road in. The question to be decided is what flows from the admitted failings taken with the facts set out in the preceding paragraph

23    It is fair to the solicitors to say that this is not a case of gross negligence or anything approaching that category of fault. Nevertheless, questions of access and status of roads loom large in country conveyancing and in this case a reasonably careful perusal of the mortgage which gave power to the vendor to sell, a copy of which was attached to the contract, should have raised a question over the status of the road requiring answer.

Damages

24    This question requires consideration under two sub-headings: first whether the claim extends to loss of profits or is limited to the difference between the purchase price and the value of the land purchased; second whether the claim is for loss of chance or for loss based on certainty of result if there were knowledge of the defect before purchase.

25    In the usual case of defect in a property or in title, not known to a purchaser as a result of negligence of a solicitor, the measure of damages is the difference between the price paid and the value of the property at the date of purchase. In this case the difference was at most $192,000. But as counsel for the plaintiff pointed out, the usual case involves a property with a defect incapable of remedy by the vendor prior to the contract being entered into. Thus in the case of a property purchased without any means of access the damages would generally be the cost of acquiring access through adjoining land, or if that were not possible, then the difference between the purchase price paid and the value of the property without access. The question in this case (subject to loss of chance considerations) is whether the fact that the defendants were aware of the intended use of the property entitles the plaintiff to loss of the income it claims it would have earned from the property in the absence of any defect. As I said I have accepted the plaintiff's evidence the property would not have been purchased had the defect been known.

26    The defendants were well aware of the intentions of GSP for the property and its proposed use. They had been involved in detailed negotiations with the Galluzzo interests for some years. There is no question about lack of proximity in the relationship between the plaintiff and defendants. The defendants knew that the property was being acquired for the purpose of producing first grade potatoes. The loss caused by failure to acquire the road was a loss which was a reasonably foreseeable consequence of the breaches of duty claimed by the plaintiff and admitted by the defendants. In other words, once it is established, and here it is conceded, that the defendants failed to ascertain the ownership of the closed road, it was reasonably foreseeable that the lack of ownership of that land could seriously impede the purpose for which the property (including the closed road) was intended to be put, so that unless the economic loss suffered is too remote to be recovered, which is not the case here, the defendants would be liable to the plaintiff for that loss subject to any question of mitigation, unless of course it was unreasonable to keep the property and attempt to acquire the closed road land: See Hawkins v Clayton (1988) 164 CLR 539 per Deane J at 579. While damages for loss of profits are not usual in actions against solicitors for negligence in property purchase transactions, that does not mean they are not recoverable. They have been allowed in Braid v W L Highway & Sons EG 451 and Kienzle v Stringer (1982) 35 O.R. (2d) 85.

Loss of a chance or direct loss of profits

27    Mr Hutley, SC for the plaintiff argued that this was not a loss of chance case. He said that it should be found on the balance of probabilities had the problem with the closed road become known prior to exchange of contracts then GSP would have obtained title to the closed road as part of the purchase for no additional consideration. In the alternative he said that if it were a loss of chance case it was a "virtual certainty" that the closed road would have been got in, so that any discount was inappropriate. In this second alternative he relied on Vulic v Bilinsky [1983] 2 NSWLR 472 at 485, but that was a case where a solicitor had failed to bring a claim for personal injuries arising out of a motor vehicle accident within time and the chance of that particular action failing was infinitesimal. That is not the position with the present case. What the plaintiff lost here and what it claims it lost was the opportunity to obtain the closed road land at no additional cost and therefore the opportunity to make profits was not available as it was not the owner of the closed road land.

28    I find that the plaintiff would not have proceeded had it known the closed road was not included. That is not contested. I do not consider the argument that this is not a loss of chance case to be correct. The claim for loss of profits depends upon the claim that had the position of the closed road been ascertained and advised to GSP prior to exchange (and I think the same position would arise if advised prior to settlement in view of the common mistake) then the closed road would have been acquired either from Elders or from Galluzzo for no additional consideration. I have already determined as a fact that the plaintiff would not have paid more for the land and this finding I should add is supported by the claim of the plaintiff in the present action for the price for which it ultimately acquired the closed road. It follows that the entitlement of the plaintiff to damages on the basis of loss of chance is to be determined in accordance with the principles laid down by Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 and Malec v J C Hutton Pty Limited (1990) 169 CLR 638.

29    It is for the plaintiff to establish what was the likelihood of success in obtaining the closed road land. On one view the obvious means of establishing an almost one hundred percent chance would have been to have called Mr Frank Galluzzo and accordingly one might be entitled to think that failure to call him goes against the strength of the plaintiff's case. But failure to call him may be explained by the antipathy between Mr Moraitis and the Galluzzo family, although it was not established that this antipathy still exists. Both sides agreed no inference should be drawn from the absence of evidence from Mr Galluzzo. The argument of the plaintiff is that it would have got in the land, either directly from Galluzzo or as a result of Elders requiring Galluzzo to honour his covenant to grant a mortgage. As to the first there was an incentive to Galluzzo to so act because, if the sale went through at $325,000, he was relieved of liability to Elders of an amount of $400,000 or perhaps he and his family were. I accept that this would depend upon the strict terms of the agreement not being required to be adhered to but I consider the parties acted upon the basis that the agreement remained in force, at least at the time of the contract and its completion. Mr Brady said so in his statement although in oral evidence he did say that his solicitor had expressed some doubt about this, but that I think was as a bargaining tool only. As to the second means of getting in the land, Mr Hutley argued that the evidence of Mr Brady made it clear that he would have done whatever was necessary to force Galluzzo to comply with his covenant to grant a mortgage to Elders over the closed road. There was obviously some pressure on Mr Brady to bring to some conclusion the dealings with Galluzzo. On the evidence of Mr Brady, in the absence of co-operation, proceedings for specific performance or a mandatory injunction would have been taken. During submissions I did suggest that Elders could have acted under the power of attorney clause to execute a mortgage as attorney for Galluzzo as mortgagor. While that suggestion was taken up with some enthusiasm, I do not think I should accord much weight to it. Mr Brady did not suggest it as a possibility; there is no evidence from the solicitors for Elders that it was a course open to Elders; and counsel for the plaintiff had not put this forward as a means of achieving the aim. In addition the co-operation of Mr Galluzzo in producing the Certificate of Title would have been required to obtain registration of the mortgage so executed, without which it would have been necessary to obtain an order for production. Judges who normally sit in Equity should be careful to resist giving weight to their own views of appropriate action in conveyancing matters when they are trying common law claims for negligence.

30    Counsel for the defendants argued as to the first course that it was unlikely to have eventuated because Mr Moraitis made it quite clear that while he was engaging the Galluzzos as managers he wanted little to do with them. In fact he may already have decided to dismiss them. The evidence at pages 30 to 33 of the transcript makes it clear that his relationship with Galluzzo was not that of friendship. As to the second means of getting in the road, the chances of its succeeding in reasonable time depended either upon co-operation by Galluzzo or the obtaining of some quick relief from the court or upon someone coming to consider the power of attorney provision and deciding to act upon it. Apart from the incentive of obtaining a discharge, co-operation was not particularly likely. The Galluzzos had an action in this Court to set aside the loan security documents, which they were threatening to pursue. While on its face the statement of claim in that action does not indicate a strong claim, the action did exist and points against co-operation. It also suggests that an action to enforce compliance with the covenant would not have proceeded without difficulty and some delay. There is no certainty that Elders would have been willing to put up with this delay. Equally there is no certainty that the plaintiff company would have been prepared to accept any delay involved in getting in the land nor that it would have entered into a contract with Elders conditional upon the closed road being got in.

31    On consideration of the facts on both sides I have come to the conclusion that they are reasonably evenly balanced and that the chance percentage should be assessed at fifty percent.

Loss of Profits

32    The plaintiff put into evidence reports from two experts, Messrs. Ivey and Hutchins and they both gave evidence. The defendant put into evidence various reports from Mr Brown of Hassell & Associates Pty Limited. All three are highly qualified in the agricultural field. However, it should be understood that Mr Brown's main report was given without the benefit of having visited the property. The relevant evidence in the reports and of the experts relates to estimated yields, prices and cost of production. There was no significant difference between the experts on costs. Nor was there was significant difference on the average prices which could have been obtained for potatoes from the Flemington Markets. The seasons in question spanned a period of very high prices for potatoes. GSP however claimed that its loss should be calculated on the prices that the Moraitis Group would have paid for its potatoes based on the prices paid to other growers for premium potatoes purchased through the Flemington Markets. The unchallenged evidence of Mr Stephen Moraitis, the purchasing manager of Nickpack, was that he would have caused Nickpack to purchase whatever potatoes were available from GSP at the same prices as were paid for potatoes purchased through the markets. There is no reason to think that the Moraitis companies paid more than was necessary to secure their produce. It might have been thought that the price paid to GSP could have reflected the income tax position of the various group companies, but as there was no questioning on this I see no reason not to accept the evidence of Mr Stephen Moraitis.

33    The point of departure between the experts is really on the question of yields. Apart from some variation in freight costs the general costs of production are incurred whatever the yields over the years. No records for production for previous years from Belvedere were available. The Brosso family or various members of that family changing from time to time owned a property called "Glenfyne" at Narrandera and had farmed it with potatoes since 1974. It was close to Belvedere and had similar soil, perhaps slightly better. Mr Hutchins was familiar with both properties. He said that, properly managed, similar yields could be expected from Belvedere as were obtained from Glenfyne. Mr Antonio Brosso and his son, Tony who was to manage Belvedere, said much the same thing. Mr Hutchins accepted certain figures for yields which were put forward in the statement of Mr Antonio Brosso, which he accepted as reasonable based upon his knowledge of both properties. The oral evidence of Mr Antonio Brosso was that the yields were higher then those accepted by Mr Hutchins and on which Mr Hutchins based his figures for lost income. The evidence of Mr Tony Brosso was that the yields from Glenfyne for the relevant years averaged seven to ten tonnes per acre and ten to fourteen tonnes per acre for the summer crops. The average winter crop yield accepted by Mr Hutchins was 8.5 tonnes per acre and the average summer crop yield was twelve tonnes per acre, and this forms some basis for considering that his estimated yield should be accepted. There are no actual figures for Glenfyne for the relevant period and it is fair to say that the evidence given is not supported by any records. As against this evidence Mr Brown at first established likely yields from the Australian Bureau of Statistics figures for the relevant area. I am satisfied that the evidence establishes that these did not provide a satisfactory basis to establish the likely yield. In a subsequent report, having had the benefit of the yields from the P1 area for the 1994 winter crop, Mr Brown reworked the figures using the 1994 figures with an actual yield as a starting point, adjusting it for the subsequent winter crops in accordance with a multiple obtained by using the Australian Bureau of Statistics figures of yields for the Murrumbidgee Irrigation Area. However, he agreed in cross-examination that when determining potential yields without the benefit of figures from previous years for the same property, a comparison with yields from similar comparable properties was the next best approach and he also agreed that the skill of the manager was most important. It is accepted that the Galluzzos were not top class managers but the Brossos were. In all the circumstances I consider that the evidence of Mr Hutchins should be accepted as to the yield lost, but that these figures should be discounted to some extent because nothing is certain in agriculture and there is always the possibility of disease and different climatic occurrences even where properties nearby are concerned. This was accepted by the plaintiff. I find that the 1994 yields from the P1 area could not be a satisfactory starting point. That is because the clear evidence is that this circle had been over-cropped and needed resting. I consider that a reduction of 15% in estimated income should be made as a reasonable allowance for contingencies such as disease, differences in rainfall and possible storms and the general natural disasters which can befall any farmer.

34    The loss of income based on the Nickpack prices calculated by Mr Hutchins, which is a figure which I accept, was $6,089,267. Eighty-five percent of that amounts to a figure of $5,175,876. From that should be deducted expenditure of $2,344,915 bringing a net loss of $2,830,961.

35    GSP did plant potatoes on the P1 pivot area in early 1994 when access to the road land was denied. The defendant argued that the net profit from this crop should be deducted from the plaintiff's claim for loss of profits. The plaintiff argued that as no claim was ever made for loss of production from the P1 area there should be no deduction. The evidence shows that GSP did not intend to use P1 for potato production until its fertility was restored. It is clear it changed its position on this when it was not possible to adhere to the planned schedule for planting on the other pivot areas. I consider that the income earned from the 1994 winter crop harvested from P1 must be brought to account in the claim for loss of profits, it being income that was earned only because the expected income was not available. In other words it was not income which would have been earned in any event. The gross sales provided $270,680. There is no direct evidence of the cost of production. However, leaving aside the year of extremely high prices in 1995, a reasonable figure for cost based on the Moraitis prices and the experts' reports is 60% of sales. I take that figure and determine the net profit is 40% of $270,680, namely $108,272. That figure should be deducted from the figure of $2,830,961 bringing about a figure for loss of profits of $2,722,689. There was other income produced from vegetables grown on the land outside the pivot centres and on P1 and P5. The necessary adjustments have been made for the P1 area. Insofar as income was earned from other areas that has no bearing on the profits lost from the pivot areas. Neither does income from vegetables grown on P1. There is no evidence that they - as distinct from potatoes - would not have been grown there in any event.

36    Subject to any question of interest then the amount of damages to which the plaintiff is entitled should be calculated as follows:

Loss of Profits: $2,722,689
Cost of land $ 45,000

$ 2,767,689

calculated at 50% loss of chance $ 1,383,844

Mitigation

37    The defendant's expert agricultural consultant, Mr Brown of Hassell & Associates Pty Ltd put forward various ways in which he said the loss the plaintiff claims could have been mitigated. These can be summarised as:

1. Increased production from pivot 1.

2. Modifying the irrigation system to allow some use of the pivots.

3. Moving the equipment to other farms or leasing other farms.

4. Lifting yields by means of a major soil development programme.

In addition to these means the defendants claim that the plaintiff should have accepted an offer of Elders to assign the mortgage for $110,000 using that to obtain title to the closed road land. It is possible to deal with each of these briefly. I accept the evidence of Mr Moraitis and Mr Hodge that it was expected the road problem would be solved in a short time. I also find that the efforts of Mr Hodge to obtain a solution were reasonable and that Mr Moraitis was prepared to pay what was necessary to get title to the road. Taking that into account, apart from the one crop grown on pivot 1, I do not accept that the plaintiff was bound to grow further crops in that area and further degrade the soil there without resting it. While I consider the income earned from potatoes which were grown on pivot 1 must be brought into account because it had not been intended to grow potatoes on that pivot until the problem arose and thereafter it was decided to do so, I do not accept that it was necessary to continue with this as from the evidence of Mr Hutchins it was not a desirable course. So far as modifying the irrigation system is concerned the evidence of Mr Hutchins, which I accept, is that this could have been done at a cost of over $500,000. While Mr Moraitis agreed in hindsight that this might have been wise expenditure to bring in a possible income of double that amount, I do not consider that the plaintiff was bound to incur that expenditure when it was expected the problem would be solved and when on the evidence it did not have those funds available, at least not without borrowing. Other less drastic changes proposed were shown by the evidence not to be practicable due to the topography. Mr Brown had not visited the property when he gave his mitigation report. So far as moving the equipment to other farms or leasing other farms was concerned, there is no evidence from the defendant that any such farms were available and certainly the Moraitis interests did not own any other farm. The evidence is that there is a shortage of available land in the relevant area and that water rights are in short supply. There is nothing to support the claim about lifting yields. That leaves the claim that the plaintiff should have accepted the offer of Elders to assign the mortgage for $110,000. As I stated earlier there were negotiations which did not come to fruition for an assignment for the sum of $5,000. While the evidence is not conclusive I consider that on the balance of probabilities no advantage would have accrued to the plaintiff company had it obtained an assignment. That is because it is more likely than not that Mr Galluzzo, as mortgagor, obtained a release from Elders upon Elders receiving the purchase price from the plaintiff of $325,000. Mr Hodge was satisfied by Mr Day that nothing was due to Elders from Mr Galluzzo. Mr Brady says that the solicitor for Elders regarded it as arguable that Elders retained some claim because of a past lien over the potato crop. I consider that more an effort to obtain some additional money from the plaintiff company than evidence that there was any such right or that an assignment of the security would have had any purpose. In those circumstances I do not think that the defendants have established that the plaintiff failed to take appropriate steps to mitigate its loss. No doubt it could have taken steps of a minor nature to change the direction of the water pipes at an earlier stage, but failure to do so in the circumstances should not bring about a reduction in the damages.

Conclusion

38    The plaintiff is entitled to judgment for the sum of $1,383,844 plus an amount to be determined for interest. It will be necessary for the interest to be calculated and the parties should attempt to agree on that and I will stand the matter over to a date which I will fix for any submissions on interest and for a final judgment figure.

Last Modified: 09/25/2000