Gazebo Hotels Pty Limited v Bugledich

[2003] FCA 476

FEDERAL COURT OF AUSTRALIA

Gazebo Hotels Pty Limited v Bugledich [2003] FCA 476

GAZEBO HOTELS PTY LIMITED (ACN 000 184 985) V JULIAN ATTILA BUGLEDICH AND J & MB HOLDINGS PTY LIMITED (ACN 080 657 772)

N 3009 OF 2002

JACOBSON J
16 MAY 2003
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3009 of 2002

BETWEEN:

GAZEBO HOTELS PTY LIMITED
ACN 000 184 985
APPLICANT

AND:

JULIAN ATTILA BUGLEDICH
FIRST RESPONDENT

J & MB HOLDINGS PTY LIMITED
ACN 080 657 772
SECOND RESPONDENT

JUDGE:

JACOBSON J

DATE OF ORDER:

16 MAY 2003

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        The application be dismissed.

2.        The applicant pay the respondents’ costs of the proceedings. 

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3009 of 2002

BETWEEN:

GAZEBO HOTELS PTY LIMITED
ACN 000 184 985
APPLICANT

AND:

JULIAN ATTILA BUGLEDICH
FIRST RESPONDENT

J & MB HOLDINGS PTY LIMITED
ACN 080 657 772
SECOND RESPONDENT

JUDGE:	JACOBSON J
DATE:	16 MAY 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. The first respondent (“Mr Bugledich”) was responsible for the management of the Gazebo Hotel in Sydney (“the Sydney Hotel”) for approximately 12 months from April 2000.

2. The principal question which arises in these proceedings is whether Mr Bugledich acted negligently in breach of his contractual duties or his statutory duties under s 180 of the Corporations Act 2001 (Cth) in giving instructions to an employee to reject forward function bookings.

3. The instructions were said to have been given in about June or July 2000 and the effect of them was that the employee rejected bookings, or enquiries for bookings. for functions which were to be held from about April of the following year.

4. The applicant claims that Mr Bugledich was negligent because it was his duty to maximise the profits of the enterprise and, in order to do so, he was required to take bookings for functions up to the date on which the hotel was due to close.  The applicant’s case is that in the period during Mr Bugledich’s employment, no fixed closing date was set or notified to him and that Mr Bugledich did not inform the applicant of the rejection of the bookings. 

5. Mr Bugledich has defended the proceedings upon the basis that he was informed by Mr Sydney Fischer (“Mr Fischer”), the Chief Executive Officer and controlling shareholder of the company which owned the Sydney Hotel that it would close in December 2000 for conversion to strata home units.  Thus, Mr Bugledich’s case is that he was notified of the proposed closing date with sufficient certainty to justify rejection of the bookings for a period well after the date on which the Sydney Hotel would be closed.  Mr Fischer denies that he provided that information to Mr Bugledich. 

6. Resolution of this issue turns upon whether I accept the evidence of Mr Bugledich or Mr Fischer.  No issue of principle arises. 

7. Mr Fischer’s evidence was that the question of whether the bookings should be rejected was a matter which Mr Bugledich was required to raise at weekly management meetings.  These meetings were held every Wednesday and were chaired by Mr Fischer.

8. Mr Fischer’s evidence was that he told Mr Bugledich that he was required to raise all important matters affecting the profitability of the Sydney Hotel at the Wednesday meetings.  Mr Fischer does not contend that he informed Mr Bugledich specifically that he was to take up the matter of rejection of function bookings at Wednesday meetings.  However, Mr Fischer’s position is that the matter fell within his standing instructions to Mr Bugledich.

9. There were no minutes of the Wednesday meetings.  However, Mr Fischer’s evidence was that Mr Bugledich did not put the rejection of the bookings before any of the Wednesday management meetings.  

10. Mr Fischer’s evidence of the failure to notify the meetings of rejection of the bookings was corroborated by two witnesses, Mr Lexley Brown (“Mr Brown”) and Mrs Dominique Home (“Mrs Home”).  They were both officers of the Gazebo Hotels group of companies who attended the Wednesday management meetings.  Mrs Home is Mr Fischer’s daughter.

11. Mr Bugledich did not contend in his evidence that he specifically notified the Wednesday meetings of his rejection of the bookings.  The gravamen of his case was, as I have said, that he was notified of a December 2000 closing date by Mr Fischer.  His evidence was that he discussed this with Mr Fischer outside the Wednesday meetings and that statements to the same effect were made at the management meetings. 

12. There was a further claim of negligence against Mr Bugledich.  It was said that he failed to take adequate steps to secure the Sydney Hotel’s continued participation in an airline-hotel package arrangement known as the Ansett “Great City Deals” Programme.

13. This claim also turns on questions of fact.  In particular, as to the reason why the Sydney Hotel was not included in Ansett’s “Great City Deals” Programme after March 2001.

    The Background Facts

14. The Sydney Hotel was owned by a company which is related to the applicant.  Both of those companies are members of the Australian Development Corporation Pty Limited Group (“the ADC Group”).

15. Mr Fischer is the Chief Executive Officer of the companies in the ADC Group.  He has been in the construction industry for approximately 50 years.  He has a wealth of experience in that industry.  Some years ago, the ADC Group diversified its activities to include the ownership and operation of four hotels.

16. The Sydney Hotel was built by a related company of the applicant in about 1968.  The building is situated at Elizabeth Bay. The applicant later took on the operation of hotels at Parramatta and Brisbane and an apartment hotel in Canberra.  Each of the hotels was managed by a hotel manager.

17. Some time before March 2000, Mr Fischer had decided to sell, or get out of, the hotel business.  Most importantly, by March 2000 he had plans which were well advanced for the conversion of the Sydney Hotel to strata apartments.

18. In about March 2000, Mr Fischer telephoned Mr Bugledich.  He told Mr Bugledich that he was thinking of getting out of the “hotel game” and that he needed a manager to take over the management of the hotels “in the interim”.

19. At that time the Sydney Hotel was being managed by Mrs Home.  She was described by Mr Fischer as the “temporary general manager” of the Sydney Hotel.  It appears that she was also then acting as the general manager of the four hotels which comprised the Gazebo Hotels Group.

20. There were good reasons for Mr Fischer to approach Mr Bugledich.  He needed an experienced manager to manage the hotels during what was likely to be a difficult period when the hotel business was being wound down.  Mrs Home was acting as a temporary manager following the resignation of the previous manager.  Mr Fischer knew Mr Bugledich who had worked for him as manager of the Brisbane Hotel in the 1980s.  Moreover, Mr Bugledich was a very experienced hotel manager.  On his own evidence, he is one of the most experienced managers in the Asia-Pacific region.

21. Mr Bugledich gave evidence that he had three meetings with Mr Fischer before he took up his employment.  He says that in at least one of the conversations he was quite blunt with Mr Fischer stating words to the effect “Why would I want to work with you?” and “You don’t have a good reputation in the industry.”

22. Mr Bugledich also says that during one or more of the conversations Mr Fischer told him that he had plans to convert the Sydney Hotel to apartments, that he wanted to close the Sydney Hotel as soon as possible after the Olympic Games in September 2000 and that a development application had been, or was soon to be, lodged.

23. According to Mr Bugledich, he told Mr Fischer that, from what Mr Fischer had said to him, the development application would be approved by August or September 2000 and contracts would be let by November of that year.  Mr Bugledich’s evidence was:-

    “I then said why don’t we stay open until December and then close in about mid December.  He said that sounds fine to me.”

24. On 7 March 2000, Mr Bugledich wrote to Mr Fischer.  The letter included the following:-

    “Thank you for the opportunity to discuss the future plans for Gazebo Hotels and whether I can assist in your plans.  As mentioned in our discussions I am willing to assist in firstly trying to implement a plan of operational and profit improvement for your group of hotels.  The ultimate objective at this stage is to improve operations that will lead to improved profits and possible disposal of the assets at some future stage.  Not withstanding the changes you are planing (sic) for the Elizabeth Bay hotel.

    …

    My recommendation is that I will assume the role of Group General Manager (or a title that you feel suitably describes the position) to manage the operations, and assets, to an agreed standard.  In effect I will be your Asset Manager.  This will give us the opportunity to assess the direction and relationship we may need to fulfil your future requirements.

    If you do decide to sell the properties, then I am willing to assist and guide in this process, and, I would like to discuss some way of having an incentive to maximise the proceeds from the sale.  This does not need to be discussed in the first instance I am merely raising this as a point for discussion later.

    I have attached a draft proposal, which we can use as the basis of an agreement, that will give us the outline of the working relationship.”

25. The draft proposal was for an agreement between the applicant and J&MB Holdings Pty Ltd (“J & MB”), which is the second respondent in these proceedings.

26. The draft included the following terms:-

    “1.      Julian Bugledich will be engaged in a consulting capacity to fulfil the role of ‘Group General Manager’.

    2.The principle (sic) objective is to implement a plan and manage and oversee all aspects of the hotel operation for all 4 hotels contained within the group.

    3.This will include overseeing and working with managers involved in the Hotel Operations, Marketing and Sales, and financial aspects of the group.

    4.JB will oversee the management of the assets and report to the Chairman of the group.

    5.It will be JB’s responsibility to implement the policies of the group in accordance with the owner’s instructions.

    6.…

    7.Remuneration:  Fee for the above services will be $5000 per week.  Plus Gazebo Hotels will meet all out of pocket expenses associated with fulfilling the position.

    …

    13.JB will assist to the best of his ability to facilitate the wishes of the company and to maximise profits so as to realise the best result possible for the company.”

27. With one exception, Mr Fischer accepted Mr Bugledich’s draft proposal at a meeting in March 2000.  The exception was that the agreed remuneration was altered to $4000 per week. 

28. The effect of the arrangements between the parties was that there was a contract between the applicant and J & MB for that company to provide Mr Bugledich’s services upon the basis of the draft written proposal (subject of course to the altered remuneration) and an employment agreement between the applicant and Mr Bugledich on the same terms.

29. Mr Garth Steggles (“Mr Steggles”) was present with Mr Fischer and Mr Bugledich at one of the meetings in March 2000.  Mr Steggles was the general manager of Australian Development Corporation Pty Ltd (“ADC”) from January 2000 until June 2000.  He was Mr Fischer’s “second in command” during that period.

30. Mr Steggles’ evidence of the meeting corroborates the evidence given by Mr Bugledich that there was discussion of the development application for the Sydney Hotel.  Mr Steggles’ evidence was that Mr Fischer said that the Sydney Hotel would be “up for reconstruction in the new year”, ie 2001.

31. Mr Steggles gave other evidence of conversations which he had with Mr Fischer (in the absence of Mr Bugledich) as to Mr Fischer’s marketing plans for the sale of the strata apartments and of his expectation as to when the development application would be approved by the Council.

32. The effect of these conversations was that Mr Fischer told Mr Steggles that the development application would be approved by the Council in July or August 2000, that Mr Fischer planned to commence presale of the apartments during the Olympic period, ie September 2000, and that there would be a strong marketing campaign at around that time.

33. Mr Steggles prepared a feasibility study which was based upon the development application being approved by August 2000 and it showed that construction of the apartments was due to commence in January 2001. 

34. Although Mr Steggles did not put a date on the conversations which he had with Mr Fischer or a date on which the feasibility study was prepared, the effect of his evidence was that these matters were the subject of regular discussion with Mr Fischer in the period up to the date when Mr Steggles left the employ of ADC in June 2000.

35. Moreover, Mr Steggles’ evidence was that the ADC Group’s plans for the redevelopment of the Sydney Hotel as disclosed in the feasibility study were still in place as at June 2000. 

36. Mr Bugledich commenced his employment on 10 April 2000. He says that he had a conversation with Mr Fischer on or about that date in similar terms to the conversation set out at [23].

37. The Sydney Hotel operated on the basis of budgets prepared for financial years ending 30 June.  Mr Fischer said in his evidence that hotel managers were expected to try to meet performance levels in accordance with the budget and also to maintain expenditure levels within the budget.

38. Mr Bugledich gave evidence that, before 30 June 2000, he prepared a budget for the Sydney Hotel with Mr Michael Marston, who was the Group Administration Manager.  Mr Bugledich says that Mr Marston and himself tabled the budget at a weekly management meeting before 1 July 2000.

39. According to Mr Bugledich, he told the meeting that the budget was  prepared to the end of November 2000 because the Sydney Hotel was expected to close in December 2000.

40. Mr Fischer and Mr Brown gave evidence that the budget was prepared for the full twelve-month period from 1 July 2000 to 30 June 2001.

41. The five-month budget to November 2000 to which Mr Bugledich referred was not produced in evidence.  Nor, however, did the applicant produce in evidence a twelve-month budget for the period from 1 July 2000 to 30 June 2001.  The only budget which was tendered by the applicant was a budget for the year ending 30 June 2000.

42. The development application was lodged with the South Sydney Council on 17 April 2000.  Approximately two months later, on 20 June 2000, the Council notified the applicant that details of the application had been forwarded to adjoining landowners whose enjoyment may be detrimentally affected by the proposed development.  Those persons were informed in the ordinary way of the period for lodging objections to the development.

43. It must have been obvious to the applicant when it received the Council’s letter of 20 June 2000 that it would not be long before the plan for redevelopment would become public knowledge.

44. Mr Bugledich gave evidence that after the applicant received notification from the Council, he had a conversation with Mr Brown to the effect that Mr Brown was concerned about any contingent liabilities that might be in place for function bookings.  According to Mr Bugledich, Mr Brown said that he would like him not to commit to any bookings that might incur a liability which the Sydney Hotel could not meet. 

45. According to Mr Bugledich, he had a conversation with Mr Fischer in about July 2000, the effect of which was that the marketing agents wanted to set up a sales office for apartments in the Hotel and to put up a model display in the building.  The conversation is said to have included words to the effect that the agents planned to do this before the Olympics as there would be an opportunity to pre-sell apartments to overseas visitors.

46. The first of the function cancellation letters was sent on 19 July 2000.  Further letters were sent on 25 July 2000.  Other letters were sent during the period from August 2000 to October 2000.

47. On 25 July 2000, the Australian Financial Review reported that Mr Fischer planned to develop the Sydney Hotel.  The article stated that Mr Fischer had applied to the South Sydney Council for development approval and that the decision was expected before the end of 2000. 

48. On 7 August 2000, the applicant entered into an agreement with AHS Hospitality Group Pty Ltd (“AHS”) for the company to provide housekeeping services to the Sydney Hotel.  Significantly, clause 10.3 of the agreement provided that the applicant guaranteed the operation of the contract only until 30 November 2000.  If either party wished to terminate the agreement after that date, it could do so by two months notice in writing.

49. In late August 2000, there were newspaper reports that casual housekeeping staff at the Sydney Hotel had been sacked.  According to the newspaper reports, the hotel union was concerned that this step had been taken to avoid the need to make redundancy payments to employees.  The articles referred to the planned closure of the Sydney Hotel after the Olympic Games.

50. It appears that there was a dispute with the Union because, in September 2000, the applicant and the Union entered into an agreement which provided for certain named employees to be offered re-employment as casual employees of the Hotel.

51. On 29 September 2000, Mr Bugledich sent a memorandum to all supervisors of housekeeping.  The memorandum stated that Mr Bugledich had advised them that the applicant and AHS had come to a mutual understanding to terminate the contract for the provision of housekeeping services for the Sydney Hotel.  This was to become effective almost immediately. 

52. The memorandum also stated that “as we are aware, the Hotel will close in approximately four months or so, depending upon various circumstances.” (ie approximately late January 2001).

53. The memorandum concluded by referring to a decision to reduce the number of supervisors and offering them the alternative of transfer to lower paid duties or taking voluntary redundancy.

54. Shortly afterwards, a housekeeping employee, Ms Carmen Rojas’, position was made redundant.  However, an agreement was entered into in mid November 2000 which provided for certain payments to be made to her by the applicant.

55. The importance of this agreement is that it referred to the memorandum of 29 September 2000 and stated that the Sydney Hotel was intended to be closed in approximately four or five months, ie by mid March to mid April 2001.   The agreement was signed by Mr Fischer on behalf of the applicant.

56. On 20 December 2000, Mr Bugledich wrote a memorandum to Mr Fischer and Mr Brown.  The memorandum stated:-

    “The present circumstances surrounding the Gazebo are quite different to a normal operation.  The fact that the hotel is due to close at some stage has some quite significant effects on the business
    Because of the impending closure it is without question that we have lost either bookings or enquires (sic) due to the uncertainty.
    We are constantly trying to ensure that the hotel remains in inbound programs.  Even with our assurances that we will give suitable notice of the closure, we still have wholesalers who have not included us in their brochure due to the uncertainty.
    Ansett Holidays, Travelmood, have not included us in their brochures but left us on their list of hotels.”

57. The development application for the Sydney Hotel was approved by the South Sydney Council on 7 February 2001.   However, there was a delay of nearly 12 months before the closing date of the Sydney Hotel.

58. During March 2001, relations between Mr Bugledich and Mr Fischer deteriorated.  Mr Bugledich resigned from his positions with the applicant with effect from 16 March 2001.

1. In June 2001, a related company of the applicant began issuing contracts for sale of the units off the plan.  The first contract was exchanged in July 2001.  It was a term of the mortgage over the Sydney Hotel that a sale of 40% of the units off the plan be achieved in order to secure construction finance.  Consent of the mortgagee was not obtained until late 2001 and a decision was then made to close the Sydney Hotel for commencement of construction in January 2002.

   The Claim for Rejection of Function Bookings

2. All of the “bookings” were rejected at the initiative of Mr Bugledich.  He gave instructions to Ms Loewensohn in June or July 2000 to reject the bookings.  A series of letters was issued in standard form.  The letters were signed by Ms Loewensohn but they were sent on Mr Bugledich’s instructions.

3. The booking requests or inquiries were not in evidence but the rejection letters set out details of the proposed functions.  The letters were dated from 19 July 2000 to 26 October 2000.  Each letter specified the date of the proposed function.  The dates varied from April 2001 to November 2001.

4. There was also evidence that telephone inquiries were received for functions to be held in or about the same period.  These inquiries were also turned away.

5. The evidence does not establish the status of the “bookings”, ie whether they were merely inquiries or whether a commitment was in fact to be made.  Certainly, no deposits were paid.  Also, the respondents called evidence to establish that a number of the recipients of the rejection letters did not intend to book the Sydney Hotel for the nominated function.  This is a matter which would affect the quantum of any loss if I should find against the respondents on the question of liability.

6. Nevertheless, it is clear that a decision to reject function bookings was a matter which would have affected the profitability of the applicant.  It was not a matter which could be characterised as a routine day-to-day decision within Mr Bugledich’s general jurisdiction as general manager of the Sydney Hotel or as group general manager of the Gazebo Hotels Group.

7. I accept Mr Fischer’s evidence that he told Mr Bugledich in his employment interviews that non-routine matters affecting the profitability of the hotels were to be submitted to the Wednesday management meetings for approval.

8. It follows in my opinion that the decision to reject the function and conference bookings was a matter which Mr Bugledich was required to submit to the Wednesday management meetings and that he was bound to seek approval of the meeting before giving instructions to Ms Loewensohn to reject the bookings.

9. I also accept Mr Fischer’s evidence that Mr Bugledich did not inform the Wednesday management meetings of the cancellation of the bookings or of his decision to turn away inquiries for bookings for functions to be held during the following year.

10. The reason I do so is that Mr Fischer’s evidence on this issue was corroborated by Mr Brown and Ms Home and it is consistent with contemporaneous documents.

11. Mr Bugledich prepared, or supervised the preparation of weekly financial reports which he presented to the Wednesday management meetings.  The reports contained a section dealing with function bookings.  There was no reference in the reports to the cancellation or rejection of the function bookings. 

12. If Mr Bugledich did inform the Wednesday management meetings of the rejection of the bookings, it would have been a simple matter to have made reference to this in one or more of their reports.  It is true that the functions were to be held after the week which was the subject of each of the reports but the rejection of future function bookings was so significant that this section of the report provided the obvious place to make mention of that fact if indeed it occurred.

13. A finding that Mr Bugledich did not notify the Wednesday management meetings of the rejection of bookings for the year 2001 seems to me to be compelling because Mr Bugledich did not give any affirmative evidence that he had notified the Wednesday meetings of this fact.

14. His counsel put to Mr Fischer in cross-examination a statement said to have been made by Mr Bugledich at a June or July 2000 management meeting that “you might find that there appears a significant number of entries in the banquet cancellation section of the weekly reports in the next month or so.”

15. Mr Fischer had no recollection of this statement.  The terms of the statement as put to Mr Fischer, no doubt on instructions from Mr Bugledich, were somewhat vague.  Mr Bugledich deposed to no such statement in his evidence.

16. The question which then arises is whether Mr Fischer informed Mr Bugledich, outside of the Wednesday management meetings, of the anticipated closure date with a sufficient degree of certainty to justify Mr Bugledich’s decision to reject the bookings.

17. Mr Fischer denied that he did so.  However, there were a number of aspects of Mr Fischer’s evidence which I could not accept and they were sufficiently important to lead me to the view that I could not accept his denial.

18. Nevertheless, it does not follow merely from this that I must find that Mr Fischer informed Mr Bugledich of the anticipated closure date in the terms alleged by Mr Bugledich.  Disbelief of Mr Fischer’s denial does not amount to positive evidence of the opposite of what I have disbelieved; see Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 87 per Barwick CJ.

19. Nor do I regard Mr Bugledich as an acceptable witness.  I will refer below to the reasons why I regarded the evidence of both Mr Fischer and Mr Bugledich with some scepticism.  It follows from this that I cannot accept their evidence unless it is independently corroborated or supported by objective facts.

20. The most telling evidence in favour of the proposition that Mr Fischer did inform Mr Bugledich of the December 2000 closing date is to be found in the testimony of Mr Steggles.  His evidence was untarnished by allegiance to either party and I accept him as a witness of truth. 

21. Mr Steggles was cross-examined upon the basis that the cash flow/feasibility report which he prepared was merely a draft which was subject to various contingencies.  However, he said in clear terms on a number of occasions that he was provided with information by Mr Fischer and the architects that the development application would be approved by August 2000. 

22. When he was pressed in cross-examination, the following exchange took place:-

    “You really had no idea when the DA would be issued, did you?---No, I was – that is incorrect.  I was given evidence.  I don’t produce something like this off the top of my head with no help from other people.  I was advised from the architect, I was advised from Mr Fischer, I was advised through the people who are the agents in regard to selling about their time lines.  I put the thing together from an analytical point of view but it cannot be put together without accessing information from the relevant people.  So I don’t make up – I didn’t make up my mind about when the DA would go in or when it would be approved.  That was based on evidence provided to me by the architect and others, including Mr Fischer.

    Well, at the time the architect spoke to you do you know ether a  DA application had been made? --- My recollection is that the DA went into the council in April of 2000 and my recollection is that that was to be out by somewhere around July or August of 2000, particularly before the Olympics started which was the date that I remember.” 

23. Later he said that he was told by the architects that the development application “should be out by August”.  He was pressed again about the lack of certainty as to when a development application might be issued in the following question and answer:-

    “You knew that it was not possible for anybody to say with certainty that a DA would be issued on or by any specific date, didn’t you?---The thing is – the questioning is saying to say: yes, I believe in this, but the fact is this is working backwards.  This is saying:  if we need to have a marketing plan put to agents then we have to have the DA by August.  That was to go before the Olympics which were in September of 2000.”

24. Mr Steggles also said that he was dealing with banks and financial institutions upon the basis of the cash flow projections which he prepared and, indeed, that he prepared refinancing schedules with Mr Fischer which showed no income coming from the Sydney Hotel after December 2000.

25. It was put to Mr Steggles in cross-examination that the projected date for commencement of construction of January 2001 was only an assumption which could be changed without affecting the substance of the report.  However, Mr Steggles’ response was that this was the date which was considered to be the most likely when the document was prepared.

26. Mr Steggles was also asked about the fact that construction costs in the cash flow report were not spread over a period of time as would normally be done in such a document.  His answer was that the document was prepared at an early stage and that it was acceptable to Mr Fischer. 

27. It seems to me to follow from Mr Steggles’ evidence that the applicant had a clear business plan which was in place during the period from about March 2000 to at least June 2000.  This plan was predicated upon the need to have the development application for the Sydney Hotel approved by August 2000 so that marketing could commence in about August of that year so as to enable pre-sales to take place in the period from September 2000 to January 2001.  The business plan assumed that 40% of the apartments would be sold “off the plan” in that period which would then enable construction finance to be put in place for a January 2001 commencement date.  Moreover, this plan was adopted in order to deal with the fact that existing finance for the Sydney Hotel matured in December 2000. 

28. In my view, it would have been quite extraordinary if Mr Fischer did not inform Mr Bugledich of the timing for the proposed redevelopment involved in this business plan.  Mr Bugledich was the manager of the Sydney Hotel and the Group General Manager of the Gazebo Hotels Group.  He needed to be given this information with some certainty to enable him to properly discharge his duties.  I do not accept that Mr Fischer kept Mr Bugledich in the dark about his plans.

29. When Mr Fischer gave evidence on day 2 of the case in November 2002, he said that he could not remember that Mr Steggles had prepared timelines for the development of the Sydney Hotel.  However, after Mr Steggles gave evidence on the third day of the hearing, the proceedings were adjourned until March 2003.  During the adjournment, Mr Fischer filed an affidavit in response to Mr Steggles’ evidence.

30. Mr Fischer was cross-examined on his further evidence when the case resumed in March 2003.  He said that the timeline prepared by Mr Steggles was only an estimate and that as soon as he saw it he knew that it was inadequate.  Indeed, Mr Fischer was quite disparaging of Mr Steggles and said that Mr Steggles did not understand the cash flow/feasibility report.  Indeed, Mr Fischer said that he told Mr Steggles that the document “wasn’t worth the paper it was written on”.  Nor, according to Mr Fischer, did he know where Mr Steggles obtained the information which enabled him to make the assumptions which underlay the cash flow/feasibility report.  He denied that the document was based on instructions which he provided to Mr Steggles. 

31. I do not accept this evidence.  I have no doubt that, if Mr Fischer had told Mr Steggles that the document was inadequate, he would have instructed his counsel to put this to Mr Bugledich in plain terms.  No such suggestion was put to Mr Steggles.

32. Moreover, the change in Mr Fischer’s evidence between November and March seemed to me to be quite remarkable.  In November he could not recall Mr Steggles’s timeline but in his affidavit and in cross-examination he remembered it and gave evidence of it in vivid terms.  If Mr Fischer had thought the timeline was not worth the paper it was written on and had told Mr Steggles of that fact in my view he would not have forgotten about it when he gave his evidence in November.

33. The importance of Mr Steggles’ evidence must have been obvious to Mr Fischer.  His attempt to disparage Mr Steggles and his denial that he was the source of the information contained in Mr Steggles’ cash flow/feasibility report were detrimental to Mr Fischer’s credit.

34. But attempts at disparagement were not limited to Mr Fischer’s evidence.  Mr Bugledich made some observations about Mr Fischer in his affidavit which, in my view, were made purely for the purpose of harming Mr Fischer’s reputation.  Although Mr Bugledich denied it, I find that he tried to portray a most negative image of Mr Fischer in order to advance his own prospects of success in the proceedings. 

35. The account which Mr Bugledich gave of his initial meetings with Mr Fischer was at odds with the impression conveyed in Mr Bugledich’s letter of March 2000.  Mr Bugledich’s evidence suggested a dismissive, if not disrespectful tone in statements such as “Why would I want to work with you?”  The letter is to the opposite effect.

36. An oddity of Mr Bugledich’s evidence in chief was that he asserted that he took control of the initial meeting with Mr Fischer and advised him to close the Sydney Hotel in December 2000 purely upon the basis of Mr Fischer’s estimate of when the development application would be approved and on the basis of Mr Fischer’s desire to close “as soon as possible after the Olympics”.

37. Counsel for the applicant pointed to a number of concessions made by Mr Bugledich in cross-examination which suggested that Mr Bugledich’s account of the meeting could not be correct.  Mr Bugledich conceded that, until he knew with absolute certainty the closing date of the Sydney Hotel, it was necessary to take as many bookings as possible.  He knew that there was no guarantee as to when the development application would be issued and he knew that Mr Fischer was not in a position to know when a development application would be issued. 

38. Mr Bugledich also conceded that he knew that Mr Fischer did not want to close the Sydney Hotel without having obtained a development application.  Mr Bugledich could put it no higher than that there was a possibility that a development application would be issued by December 2000.

39. These concessions by Mr Bugledich do suggest that, as a matter of commercial prudence, it may have been unwise, and indeed impossible, to set a fixed closing date until the development application was approved.  As counsel for the applicant submitted, why would Mr Fischer, a most experienced developer, have set a fixed closing date without an approved development application, perhaps leaving a valuable capital asset earning no income for a considerable period of time.

40. The short answer to this proposition is that the business plan on which Mr Fischer was proceeding provided for this timetable.  I do not accept that it was Mr Bugledich who set the closing date.  Rather, it seems to me that the existence of the business plan points strongly in favour of a finding that Mr Fischer told Mr Bugledich of the date by which the development application was to be obtained and the closing date at or about the time when Mr Bugledich commenced his employment in April 2000. 

41. It was an essential part of the business plan that the Council approve the development application no later than August 2000.  This would enable pre-sales to take place during an optimal marketing period and construction to commence in January 2001.  It is true that Mr Fischer did not have the power to secure approval of the development application by a certain date.  Nevertheless, I do not regard as tenable the proposition that Mr Fischer had no expectation as to when the development application would be approved.  He conceded that he anticipated receiving approval within four months, that is by August 2000, and he blamed the architects and the Council for the delay.

42. It is not to the point to refer, as Mr Fischer did in his evidence, to the delays which were eventually encountered.  This was no more than bootstraps reasoning which Mr Fischer put forward, with the benefit of hindsight, in order to justify his denial that he had set a fixed closing date.

43. Of course, the applicant was dependent upon the Council as to when development approval could be secured and upon what terms.  But as an experienced developer who was intent upon realising the reconstruction of the Sydney Hotel, I do not accept that Mr Fischer would have had anything but a firm expectation that he and his architects could secure the approval in accordance with the estimated timetable, ie by August 2000.

44. I accept Mr Bugledich’s evidence that Mr Fischer told him with sufficient confidence of the fact that development approval would be secured in August 2000 and that the hotel would close in December 2000.

45. The business plan also provides the answer to another submission made by counsel for the applicant that, unless the closure date was set with certainty, the practice in the hotel industry was not to reject bookings because offloading of over bookings was a common feature of the hotel business.  That is to say, here, I find that the closure date was set with certainty and it was notified to Mr Bugledich.  Thus, there was no need to consider the possibility of off loading bookings after December 2000 because the Sydney Hotel was to be closed by that date.

46. There were a number of other items of evidence which support the view that Mr Fischer was working toward a December 2000 closing date.

47. First, there was the five-month budget for the period to 30 November 2000 to which I referred at paragraphs [37] to [41] above.  If such a budget was produced, and I find on the evidence before me that it was, this was in marked contrast to the Sydney Hotel’s ordinary management practice of preparing annual budgets for the full financial year.

48. The only budget which Mr Fischer adduced in evidence was a budget for the year ending 30 June 2000.  If there were in truth a budget for the year ending 30 June 2001, it would have been most material to the applicant’s case.  I would therefore have expected it to be tendered by the applicant.  Such a budget would have answered Mr Bugledich’s contention that the only budget which he prepared was for the five months ending 30 November 2000.

49. Moreover, a budget for the year ended 30 June 2001 would have provided affirmative evidence of the applicant’s case that it was its intention to keep the Sydney Hotel open beyond the December 2000 closing date.  Also, it would have provided the obvious starting point for the determination of any loss suffered as the result of the alleged breach.

50. The applicant’s failure to tender a twelve-month budget for the year ended 30 June 2001 is telling.  I find that no such budget was prepared.  I reject the evidence of Mr Fischer that there may have been such a budget.  I also reject the evidence of Mr Brown that such a budget was prepared.  Mr Fischer’s evidence that he did not know why the 2000 budget was the only one which was attached to his affidavit was another matter which affected his credit.

51. The second item of evidence which supports the finding that a December 2000 closing date was set with certainty and that Mr Bugledich was notified of it is the AHS agreement to which I referred at [48] above. Clause 10.3 of the agreement under which the applicant guaranteed the operation of the contract only until 30 November suggests that the applicant had a firm plan to close the Sydney Hotel by, or shortly after that date. No other explanation was offered by the applicant.

52. The third item of evidence is the memorandum of 29 September 2000 to which I referred at paras [51] to [53] above.  This was based upon an anticipated closure date for the Sydney Hotel of  January 2001.  It is true that the memorandum referred to a closing date in four months “or so” and that it included the words “depending upon various circumstances”.  This left some room for variation but not the sort of open-endedness which Mr Fischer sought to urge upon me.

1. Indeed, Mr Fischer must have known that the applicant was still working to a January 2001 closing date in September 2000 because the memorandum of 29 September 2000 was recited and a fixed closing date was mentioned in the Carmen Rojas agreement of November 2000 which was signed by Mr Fischer.  I referred to this agreement at paragraphs [54] to [55] above.  There had been some slippage in the closure date by November 2000 but it was sufficiently precise to support the basic tenor of Mr Bugledich’s case.

2. The applicant made much of the fact that Mr Bugledich did not refer in his memorandum of 20 December 2000 (see [56] above) to the contention that he had previously been advised that the hotel was to close in December.  Nor, it was submitted, did the letter refer to any statement by Mr Bugledich that he had authorised the cancellation of bookings upon the basis of the anticipated December closing date.

3. However, it seems to me that the memorandum of 20 December 2000 was addressing the then existing circumstances.  I do not think it was incumbent upon Mr Bugledich to state in the memorandum, as part of the history of the matter, the previous plans for a closing date in December 2000 or to his rejection of bookings.

4. In summary, I accept many of the criticisms made by the applicant’s counsel of Mr Bugledich’s evidence.  His evidence was at times inconsistent and, in my view, he demonstrated the tendency to alter his evidence to suit the questions he was asked.  However, in my opinion, the basic thrust of his case, namely that he was notified by Mr Fischer of a December closing date, was supported by the evidence of Mr Steggles and by the objective facts to which I have referred.

5. It is unnecessary for me to make a finding as to whether Mr Bugledich had a conversation with Mr Brown in the terms referred to in [44] above.

   Conclusion on Claim for Rejection of Bookings

6. It follows that, in my opinion, Mr Fischer notified Mr Bugledich outside of the management meetings of a closing date of the hotel with sufficient certainty, ie December 2000, to justify Mr Bugledich’s decision to reject the bookings.  I find that Mr Fischer so informed Mr Bugledich during the period from March or April 2000 to June or July 2000.

7. I also find that no change in the timetable was notified to Mr Bugledich until about late September 2000.  At around that time, he either ascertained himself by independent inquiry or he was notified that there had been a delay in the development approval.  This pushed back the estimated closing date.  Initially, the new date appears to have been set at January 2001.  Clearly enough, there were further delays but I find that, even in October 2000 when the last of the rejection letters was sent, Mr Bugledich was justified in assuming that the Sydney Hotel would not have its doors open to be able to cater for the functions.

8. Moreover, it seems to me to be likely that the anticipated closing date of December 2000 was a matter which was discussed at one or more of the Wednesday management meetings.  Whether or not Mr Bugledich said it or whether Mr Fischer referred to it at the meetings is not to the point.  The issue was too important to the business of the hotel for the matter not to have been a topic of discussion at the meetings.

9. In my view, an unsatisfactory aspect of the applicant’s case was that the management meetings were not minuted.  The meetings were an important part of the corporate governance of the hotels in the Gazebo Hotels Group.  Decisions such as the anticipated date for development approval and the proposed closing date of the Sydney Hotel, whether they were fixed in stone or pure estimates, ought to have been the subject of a written record.

10. It is sufficient for me to dismiss the claim of negligence against Mr Bugledich upon the finding I have made that he was notified of the December closing date with sufficient certainty to justify his decision to reject the bookings.

11. However, Mr Bugledich also contended that he told Mr Fischer outside of the Wednesday management meetings of his decision to reject the function bookings.

12. There is no independent evidence which supports such a finding.  In my view, it is unlikely that Mr Bugledich did inform Mr Fischer of this fact.  It seems to me that if it was sufficiently important to tell Mr Fischer outside of the Wednesday meetings of his rejection of the bookings, it was a matter which would have been the subject of discussion at the Wednesday management meetings.    For reasons which I have referred to above, I find that the matter was not raised at the Wednesday management meetings.  Accordingly, I find that Mr Bugledich did not inform Mr Fischer outside of those meetings.

Whether, in any event, the applicant suffered a loss by reason of the rejection of the bookings

1. In view of the findings I have made on the question of liability, it is unnecessary for me to deal with this issue.  However, I propose to make some short observations on the question of quantum.

2. The only references to the “bookings” were contained in the rejection letters.  There was evidence from some of the recipients of the rejection letters that the functions would not have been held at the Sydney Hotel in any event.  There was also evidence from Ms Loewensohn, the applicant’s Food and Beverage Manager, that only 5% of all inquiries which were received at the Sydney Hotel actually resulted in bookings.  I accept her evidence.

3. In my opinion, it follows that the claim for damages is founded upon a premise which has not been established, namely that each of the cancellation letters would have matured into a booking.  On Ms Loewensohn’s evidence, no more than 5% of them would have done so.  The terms of the cancellation letters of themselves do not establish that the ‘bookings’ were any more than inquiries about the possibility of holding the functions at the Sydney Hotel.

4. Moreover, the absence of any budgets or any other contemporaneous documents for the period in 2001 when the functions were to have been held casts doubt on the accuracy of the assumption made by the expert who quantified the loss.  She assumed a profit margin of 65% based upon historical records.  However, there was no evidence of any records of functions which were actually held at the Sydney Hotel after March 2001. 

5. In my view, once it became public knowledge that the Sydney Hotel was to be redeveloped, any future function bookings would have been achieved only at a substantial price discount.  Indeed, it was incumbent upon the applicant to inform potential patrons of the proposed redevelopment so as not to contravene s 52 of the Trade Practices Act.  It seems to me to follow that a further discount in the applicant’s claim for damages would have been required to accommodate a lower profit margin resulting from the price discounting which would have been necessary to secure any bookings.

6. In my view, even if Mr Bugledich was in breach of his contractual or statutory duties, which I have found that he was not, any loss suffered by the applicant was minimal.

   Ansett “Great City Deals” Claim

7. There is no dispute that the Applicant was a member of the Ansett “Great City Deals” programme up to March 2001.  Information about all the current listings for such programmes was included in the folder of documents which Mrs Home gave to Mr Bugledich upon his appointment and Mr Bugledich’s evidence was that he was aware of the programmes and their importance.

8. Nor is there any dispute between the parties that the Applicant was not included in the Ansett “Great City Deals” programme for the April 2001 quarter (April, May and June).

9. There is no dispute that membership of the Ansett “Great City Deals” programme generated significant income for the Applicant.  Mrs Home was not challenged about this in cross-examination.

10. Mrs Home’s evidence was that in April 2001 after Mr Bugledich resigned she became concerned about the lack of room bookings emanating from Ansett.  Upon investigation she discovered that the rates submitted to Ansett for the April 2001 quarter of the Ansett “Great City Deals” programme were higher than the rates submitted and accepted by Ansett for the previous quarter.

11. The applicant’s case was that an uncompetitive room rate had been submitted to Ansett and that this was the reason why Ansett had not included the Sydney Hotel in the programme.  Mr Bugledich was said to have been responsible for the change in rate.

12. The short answer to the claim is that I accept the evidence of Ms Fiona Edgar.  She was employed by Ansett Australia Holidays in the position of Product Manager during the relevant period.  Her evidence was that it was a mandatory requirement for inclusion in the programme that Ansett be provided with a guarantee that the Sydney Hotel would be open for the entire twelve month duration of the programme, that is to say, for the period from April 2001 to March 2002.

13. Ms Edgar’s evidence is that the information which she received from the applicant did not satisfy her that the Sydney Hotel would be open for the required period.  Moreover, she said that she informed Ms Barbara Maunsell, who was the applicant’s Director of Sales and Marketing, that the Sydney Hotel could not be included in the programme because the applicant could not guarantee that the Sydney Hotel would be open for the period which was required by Ansett.  Nothing in the cross-examination of Ms Edgar affected the force of this evidence.

14. It follows that there is no basis for the suggestion that Mr Bugledich was responsible for the fact that the Sydney Hotel was not included in the programme.

    Orders

15. The orders I propose to make are that the application is dismissed with costs.

I certify that the preceding one hundred and thirty-seven (137) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Date:              16 May 2003

Counsel for the Applicant:	Mr M Christie & Mr M S N White
Solicitor for the Applicant:	Graham Nicholls (Legal Officer for Australian Development Corporation Pty Ltd)
Counsel for the Respondent:	Mr H Stowe
Solicitor for the Respondent:	Selby Levitt
Date of Hearing:	20 March 2003
Date of Judgment:	16 May 2003