Gillett v Menzies Hold Co 4 Pty Ltd

[2024] WASC 78

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   GILLETT -v- MENZIES HOLD CO 4 PTY LTD [2024] WASC 78

CORAM:   TOTTLE J

HEARD:   26 - 28, 31 JULY & 1 - 4 & 18 AUGUST 2023

DELIVERED          :   22 MARCH 2024

FILE NO/S:   CIV 1262 of 2021

BETWEEN:   JOHN GILLETT

Plaintiff

AND

MENZIES HOLD CO 4 PTY LTD

First Defendant

CRAIGCARE GROUP PTY LTD

Second Defendant

Catchwords:

Contract - Obligation to use all reasonable endeavours to achieve contractual outcomes - Breach of obligation established - Turns on own facts

Damages - Loss of commercial opportunity - Principles applicable to assessing value of lost opportunity - Turns on own facts

Legislation:

Nil

Result:

Judgment for the plaintiff for damages for breach of contract in the sum of $102,000

Category:    B

Representation:

Counsel:

Plaintiff	:	L A Warnick SC & J Calvy
First Defendant	:	S Penglis SC & L Shave
Second Defendant	:	S Penglis SC & L Shave

Solicitors:

Plaintiff	:	Clifford Chance
First Defendant	:	Gilbert + Tobin
Second Defendant	:	Gilbert + Tobin

Case(s) referred to in decision(s):

AIG Insurance Australia v McMurray [2023] WASCA 148

Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

Flanagan v Australian Prudential Regulation Authority [2004] FCA 1321; [2004] 138 FCR 286

Malec v J C Hutton Pty Ltd (1990) 169 CLR 638

Masters v Cameron [1954] HCA 52, (1954) 91 CLR 353

O'Rourke v P&B Corporation Ltd [2008] WASC 36; (2008) 36 WAR 197

Quasar Resources Pty Ltd v APG Aus No 3 Pty Ltd [2023] WASCA 171

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Table of Contents

Introduction

Overview

Pascoe Vale and Plumpton Villa

Agreement and the milestones

All reasonable endeavours

Parties

Construction issues

Breach issues

Stage 1 Development Milestone 3

Stage 1 Development Milestone 4

Stage 2 Development Milestone

Causation and loss

The evidence

The facts

2003 - 2016

December 2016 - March 2017

April - September 2017

September - December 2017

January - March 2018

April - June 2018

July - September 2018

October 2018

November 2018

December 2018

January 2019

February 2019

March ‑ August 2019

September ‑ December 2019

January 2020 - December 2021

Construction issues

General principles

The nature of the primary responsibility obligation

The nature of the 'all reasonable endeavours obligation'

The milestone definitions

Stage 1 Development Milestone 3

Stage 1 Development Milestone 4

Stage 2 Development Milestone

The breaches alleged by Mr Gillett

A preliminary matter

Stage 1 Development Milestone 3

Exclusion from direct communication with Virginia Residential

Failed to act in accordance with reasonable recommendations

Failed to commence negotiations until 14 September 2018

Failed to conduct negotiations with reasonable expedition

Failed to conduct the negotiations within the parameters of cl 14.3(a)(iii)

Stage 1 Development Milestone 4

Exclusion from direct communication with the Council

Failure to act in accordance with reasonable recommendations

Failed to prepare revised drawings with reasonable diligence

Failed to pursue the Stage 1 development application with reasonable diligence with the result that the application was not lodged until 27 April 2018

Failed to respond to the Council's request for information of 22 May 2018 with reasonable diligence

Failed to exercise all reasonable endeavours by reason of lodging the Stage 1 development application under s 47 of the Planning and Environment Act 1987 (Vic) instead of s 72

Failed to exercise all reasonable endeavours by lodging a replacement Stage 1 DA application on 16 August 2018 in an incomplete or inadequate form

Stage 2 Development Milestone

Exclusion from direct communication with the Council

Failed to act in accordance with Mr Gillett's reasonable recommendations

Failed to exercise all reasonable endeavours to assist

Causation - damage - assessment of value of lost opportunity

General principles

Stage 1 Development Milestone payment

Stage 2 Development Milestone

Conclusion

TOTTLE J:

Introduction

1. The central issue in this action is whether the defendants complied with an obligation to use all reasonable endeavours to assist the plaintiff achieve outcomes specified in an agreement.  The agreement was for the sale by the plaintiff, Mr Gillett, of his shares in the second defendant, Craigcare Group Pty Ltd, to the first defendant, Menzies Hold Co 4 Pty Ltd (the Agreement).  Craigcare operated aged care and retirement facilities in Western Australia and Victoria.  The Agreement included terms to the effect that Mr Gillett would receive payment of additional consideration after settlement (milestone payments) if he successfully achieved specified outcomes (milestones) as part of the expansion of Craigcare's Pascoe Vale aged care facility in Victoria.

2. Primary responsibility for 'obtaining' the milestones was allocated to Mr Gillett.  He was required to comply with several stringent conditions when discharging this obligation.

3. The defendants were obliged to use all reasonable endeavours to assist Mr Gillett in obtaining the milestones.  Mr Gillett alleges that the defendants failed to use all reasonable endeavours to assist him and thereby breached the Agreement.  He claims that as a result the milestones were not achieved and he lost the opportunity of receiving the milestone payments.

4. The milestone payments were to be calculated by multiplying $42,250 by the increase in the number of 'allocated places' or 'beds' to be achieved by the expansion of the facility.  When the Agreement was made the parties contemplated that the maximum increase in beds would be 71 and thus, at that stage, the most it was contemplated Mr Gillett could receive by way of milestone payments was $2,999,750.

5. The issues have necessitated the inclusion in these reasons of a lengthy and detailed account of steps taken towards achieving the expansion of Pascoe Vale over a period of some five years.  Before descending into the detail, I will provide an overview and explain how it is that Mr Gillett alleges the defendants breached the obligation to use all reasonable endeavours.

6. As I explain in these reasons, Mr Gillett's claim has succeeded to a very modest extent.  I have found that he is entitled to damages for breach of contract in the sum of $102,000 reflecting the value of a lost opportunity to achieve one of the milestone payments.

Overview

Pascoe Vale and Plumpton Villa

1. Pascoe Vale was a 140-bed aged care facility operated by Glenn‑Craig Villages Pty Ltd, the operating subsidiary of Craigcare.  The facility, located in the Melbourne suburb of Hadfield, was leased from Virginia Residential Pty Ltd, a company controlled by Mr John Alexopoulos.  Mr Alexopoulos played a central role in the events described in these reasons.  Glenn-Craig operated another aged care facility in Victoria known as Plumpton Villa.  Plumpton Villa was leased from Olvap Pty Ltd, a company also controlled by Mr Alexopoulos. 

2. In 2014 Plumpton Vale was expanded pursuant to an agreement (the Plumpton Vale Heads of Agreement) between Glenn-Craig, Olvap and a building company controlled by Mr Alexopoulos.[1]  The essential commercial elements of the Plumpton Vale Heads of Agreement were as follows.  Glenn-Craig acquired adjacent land on which the expanded facility was to be constructed.  The expansion was financed in part by capital contributed by Glenn-Craig in the form of a cash contribution and a transfer of the newly acquired adjacent land to Olvap.  The balance of the capital was contributed by Mr Alexopoulos' interests.  Glenn-Craig's cash contribution was advanced in tranches as the building work progressed.  A building company also controlled by Mr Alexopoulos undertook the building work.  The existing lease of the Plumpton Villa facility was varied to include the expanded facility and the rent was increased in accordance with terms set out in the Plumpton Villa Heads of Agreement. 

   [1] Exhibit 386A.

3. One term of the Plumpton Villa Heads of Agreement, which gave rise to significant controversy in the context of the present dispute, was a term that provided for an increase in the rent to reflect the expansion of the Plumpton Villa facility.  The term stipulated that the rental increase would be the subject of a CPI adjustment from the date the parties had reached an agreement in principle (a date approximately 21 months before the formal agreement).

4. In 2016 Mr Gillett had discussions with Mr Alexopoulos about the potential to expand Pascoe Vale by the acquisition of adjacent properties, 87, 89 and 91 South Street, Hadfield.  On 8 December 2016 Mr Alexopoulos sent a letter to Mr Gillett referring to their discussions.[2]  In the letter Mr Alexopoulos referred to that fact that he and Mr Gillett had discussed the possibility of a 71-bed expansion in a single stage development and an alternative of a 65-bed expansion in a two-stage development process.  The necessity to achieve a rezoning of 87 South Street from an industrial zoning to a residential zoning and the delay this would cause were the reasons why a two stage development was being considered.  In the letter Mr Alexopoulos referred to the Plumpton Villa Heads of Agreement as a template for a heads of agreement for the Pascoe Vale development and he outlined 'key terms' for a single stage 71 bed expansion and a two stage 65 bed expansion.

Agreement and the milestones

[2] Exhibit 7.

1. The Agreement was executed on 24 December 2016 and settlement occurred on 28 February 2017.  In early September 2017 the Agreement was varied by an amendment deed.  The Agreement included a provision, cl 14, identifying the milestones and setting out the parties' rights and obligations in relation to the milestone payments.  Adopting the terminology used in the pleadings the three milestones with which this action is concerned are as follows:

   (a)'Stage 1 Development Milestone 3'.  This was defined as 'agreeing binding terms' with Virginia Residential for it to build Stage 1 of the expansion of Pascoe Vale.  The terms of the agreement were required to be in a form consistent with the Plumpton Villa Heads of Agreement and consistent with the terms provided for in Mr Alexopoulos' letter of 8 December 2016 and 'otherwise on terms reasonably acceptable to [Menzies]'.  The deadline, or to adopt the parties' language, 'sunset date', for achieving this milestone was 28 February 2019.  'Binding terms' were never agreed with Virginia Residential.

   (b)'Stage 1 Development Milestone 4'.  This was defined as obtaining development approval for Stage 1 of the expansion of Pascoe Vale on terms reasonably acceptable to Menzies and consistent with the drawings provided to Menzies in folder 18.03 of the Data Room.  Although the term 'development approval' was used in the Agreement, the term used in the Victoria planning legislation was 'planning permit'.  The parties used the terms 'development approval' and 'planning permit' interchangeably.  The sunset date for this milestone was also 28 February 2019.  Development approval for Stage 1 was granted on 7 May 2019.

   (c)'Stage 2 Development Milestone'.  This milestone was expressed as being contingent on the Stage 1 expansion having less than 71 allocated places.  The milestone was defined as the obtaining of development approval for Stage 2 of the expansion of Pascoe Vale on terms reasonably acceptable to Menzies and consistent with the drawings provided to Menzies in folder 18.03 of the Data Room.  The sunset date was 28 February 2020.  Development approval for Stage 2 was not obtained.

2. The Stage 1 milestone payment did not become payable unless all the Stage 1 milestones were achieved.

3. The references in the definitions of the Stage 1 Development Milestone 4 and the Stage 2 Development Milestone to the drawings in folder 18.03 of the Data Room created a complication that had far reaching effects.  It was common ground that, by the time the Agreement was varied in September 2017, the parties knew that Pascoe Vale could not be expanded in accordance with the drawings in folder 18.03.  This was because those drawings showed the development extending onto 87 South Street.  No part of the expanded facility could be constructed on 87 South Street until it was rezoned from an industrial to a residential zoning.  As I will explain in more detail later, it was common ground that by the time the Agreement was amended all parties understood that the drawings in the Data Room were no longer relevant and the references to the Data Room drawings should be understood as drawings that were required to be reasonably acceptable to Craigcare.   This gave rise to practical consequences.  First, Craigcare, with assistance from Mr Gillett, was required to redesign the expansion.  Secondly, the redesigning process caused delay.  Thirdly, the facility was redesigned with underground parking as opposed to on grade parking and this particular feature of the new design gave rise to arguments between Craigcare and Mr Alexopoulos as to cost and whether the parameters set out in the 8 December 2016 as to financing remained applicable.

All reasonable endeavours

1. Two provisions of the Agreement imposed the 'all reasonable endeavours' obligations on which Mr Gillett's claim is founded:

   (a)cl 14.3(d) provided that Menzies and 'each Group Company must use all reasonable endeavours to assist [Mr Gillett] to obtain the Stage 1 Development Milestones and the Stage 2 Development Milestone on behalf of the Group'; and

   (b)cl 14.3(g)(v) provided that Craigcare 'must provide all reasonable endeavours to assist [Mr Gillett] to obtain the Stage 1 Development Milestones and the Stage 2 Development Milestone.

Parties

1. Two aspects of cl 14.3(d) and cl 14.3(g) require clarification.  First, 'the Group' was defined in the Agreement as Craigcare and its subsidiaries and 'Group Company' was defined as any company within the 'the Group'.  Secondly, even though cl 14.3(g)(v) was expressed as a covenant by Craigcare, it was not a party to the Agreement either in its original form or as varied.  Mr Gillett alleged that Craigcare was bound by the Agreement as varied in September 2017 on various alternative bases.  In summary, he contended that there was a collateral contract between Mr Gillett and Craigcare, alternatively, Menzies executed the amending deed as Craigcare's agent and, in the further alternative, Craigcare was estopped from denying that it was bound by cl 14.3(d) and cl 14.3(g)(v).[3]  The defendants admitted that Craigcare was bound to comply with cl 14.3(d) and cl 14.3(g)(v) though they did not admit the facts underpinning the alternative bases relied on by Mr Gillett.[4]  Beyond saying that the admission was made on instructions, senior counsel for the defendants was reluctant to be drawn on the basis of the admission that Craigcare was so bound.[5]   Be that as it may, I am satisfied that Menzies executed the deed varying the Agreement as Craigcare's agent and that is the basis on which Craigcare was bound by cl 14.3(d) and cl 14.3(g)(v).

Construction issues

[3] Third Second Further Amended Statement of Claim filed 2 August 2023 [14] - [15].

[4] Fourth Further Amended Defence filed 3 August 2023 [14] - [15].

[5] ts 583 - 584.

1. The construction issues concern:

   (a)The nature of the obligation of 'primary responsibility' and whether (i) Mr Gillett had a correlative right to exercise primary responsibility and (ii) whether the conferral of primary responsibility on Mr Gillett involved the imposition of obligations on the defendants in addition to the 'all reasonable endeavours obligation'.

   (b)The ambit of the 'all reasonable endeavours obligation'.

   (c)The construction of the Stage 1 Development Milestone 3 and in particular what is comprehended by the expressions 'in a form consistent with the Plumpton Villa Heads of Agreement' and 'consistent with the terms provided for' in the 8 December 2016 letter.

   (d)The definition of the Stage 2 Development Milestone.

Breach issues

1. The breaches of the 'all reasonable endeavours obligations' relied on by Mr Gillett in relation to each milestone may be summarised as follows:

Stage 1 Development Milestone 3

(a)Craigcare excluded Mr Gillett from direct communication with Virginia Residential and thereby did not allow him primary responsibility for the negotiations and further failed to act in accordance with his reasonable recommendations (statement of claim [18(a)]).[6]

[6] References to the statement of claim are references to the Third Second Further Amended Statement of Claim filed 2 August 2023.

(b)Although in a position to do so by 5 September 2017 Craigcare failed to commence negotiations with Virginia Residential until 14 September 2018 (statement of claim [21]).

(c)Craigcare failed to conduct the negotiations with reasonable expedition (statement of claim [22(a)]).

(d)Craigcare failed to conduct the negotiations within the parameters of the Agreement (statement of claim [22(b)]).

(e)Menzies failed to take any action to assist Mr Gillett obtaining an agreement with Virginia Residential (statement of claim [23]).

Stage 1 Development Milestone 4

(a)Craigcare excluded Mr Gillett from direct communication with the local planning authority, the Moreland City Council (as the Council was then known) (the Council) and thereby did not allow him primary responsibility for obtaining development approval for Stage 1 of the expansion and further failed to act in accordance with his reasonable recommendations (statement of claim [24]).

(b)Craigcare did not act with reasonable diligence in relation to the preparation of revisions of the drawings necessary to enable the development application to proceed with reasonable diligence (statement of claim [28]).

(c)Craigcare did not act with reasonable diligence in relation to the application for development approval to build the Stage 1 expansion with the result that the application was not lodged with the Council until 27 April 2018 (statement of claim [29]).

(d)Craigcare failed to respond to a request for information made by the Council on 22 May 2018 until 16 August 2018 which meant that 16 August 2018 became the effective date for the lodging of the application (statement of claim [30]).

(e)The Stage 1 development approval application was lodged as a new application under s 47 of the Planning and Environment Act 1987 (Vic) and not as an application to amend the approval given for the development of Pascoe Vale as it then existed under s 72 of the Planning and Environment Act 1987 (Vic) as requested by the Council. When the development application was relodged as an amendment application it was in an incomplete or inadequate form (statement of claim [30A], [30B] and [30C]).

(f)Menzies failed to take any action to assist Mr Gillett to obtain development approval (statement of claim [32]).

Stage 2 Development Milestone

(a)Craigcare excluded Mr Gillett from direct communication with the Council and thereby did not allow him primary responsibility for obtaining development approval for Stage 1 of the expansion (statement of claim [33]).

(b)Craigcare failed to act in accordance with the reasonable recommendations of Mr Gillett with respect to the taking of steps to achieve the Stage 2 Development Milestone (statement of claim [33]).

(c)Craigcare did not pursue the rezoning of 87 South Street until after the Stage 1 development application had been approved (statement of claim [33] - [42]).

(d)Menzies failed to take any action to assist Mr Gillett to obtain the Stage 2 Development Milestone (statement of claim [43]).

Causation and loss

1. The defendants argue  that if, contrary to their primary case, any breaches are established, such breaches did not cause Mr Gillett to lose any opportunity of value.

The evidence

1. For the most part the facts were recorded in the contemporaneous documents, particularly email exchanges.  The documentary record was supplemented by lay evidence from Mr Gillett, and for the defendants, from Mr Tony Stephenson, the former Chief Executive Officer of Craigcare, Ms Wendy Waddell, a director of Menzies and Mr Stephenson's successor as Craigcare's Chief Executive Officer, Mr John Hickey, a director of Menzies and Craigcare, and Mr Giovanni Gattini, a director of G2 Urban Planning, a town planning consultancy practising in Victoria.  In addition, opinion evidence was given by two town planning experts, Ms Sophie Jordan for Mr Gillett and Mr Tim Peggie for the defendants and by an architect, Mr Philip Templeton, who was called by the defendants.

2. The existence of the extensive documentary record meant that there were few contested factual issues.[7]  My assessment of competing evidence about the limited factual issues is to be found when those issues arise in the account of the facts set out below.

   [7] ts 196.

The facts

2003 - 2016

1. Mr Gillett acquired his interest in Craigcare in 2003.  At the time Craigcare owned nursing homes and retirement villages in the Western Australia.  By 2016 Craigcare owned aged care facilities in both Western Australia and in Victoria.  In Western Australia it owned facilities in the regional centre of Albany and in Maylands in the Perth metropolitan area.  It had acquired land adjacent to each of these facilities with the intention of expanding them.  It had also acquired a site at Ascot in the Perth metropolitan area and had obtained development approval to build a 164-bed aged care facility on that site.

2. In 2016 a potential purchaser of Mr Gillett's interest in Craigcare was introduced to him by a private equity firm, Liverpool Partners.  That purchase fell through.  Subsequently Liverpool Partners introduced Bain Capital Private Equity (Bain) as a potential purchaser.

December 2016 - March 2017

1. As part of its due diligence Bain requested that Mr Gillett obtain a letter from Mr Alexopoulos outlining his position in relation to the plans to expand the Pascoe Vale facility.  In response to this request Mr Gillett obtained the 8 December 2016 letter from Mr Alexopoulos.[8]  The letter was in the following terms:[9]

   [8] Exhibit 7.

   [9] I have reproduced the text of the documentary exhibits with the typographical, spelling and grammatical errors that appear in the original without identifying each error.

   Dear John

   I refer to our recent discussions regarding the proposal for an extension of the buildings at Lot 3, Virginia Street, Pascoe Vale to provide Glenn-Craig Villages Pty Ltd with greater bedroom capacity for its aged care facility business.

   This letter will help to set out the ideas under discussion, focusing in the main on the proposal for a 71 bed extension.

   Your involvement

   We both have the benefit of our experience together in successfully completing a project with similar features at the aged care facility conducted by you at 3 Plumpton Avenue, Glenroy and held by lease from our related company, Olvap Pty Ltd.  It is worth pointing out to you at the outset that the prospect of not having your own personal skills, energy and resources involved in this project diminishes the value and confidence derived from our past shared experience.

   The project may take two years till completion.  I understand you will be contracted to the buyer for only twelve months.

   Acquisition of adjoining properties

   We understand that you intend to acquire the adjoining properties at 87, 89 and 91 South Street, Hadfield which abut to the north of Lot 3, Virginia Street, Pascoe Vale.  They will be transferred in due course to the proprietorship of Virginia Residential Pty Ltd.  Or alternatively for us to purchase and for you to finance by way of a loan to us.

   In due course the Councils roadway will also need to be acquired, if the council decides to sell.

   Re-zoning - 87 South Street

   It is necessary that there be a re-zoning of 87 South Street, Hadfield (not presently zoned as "residential").  It will be necessary that there be planning approval after re-zoning for the proposed construction of the new/extended building.

   We shall endeavour to seek support for re-zoning of 87 South Street, Hadfield.  If so advised by our planning consultant, it may be possible to make application for planning approval subject to and conditional upon, and hopefully simultaneously with, re-zoning of 87 South Street, Hadfield.

   Time frame - 71 Bed

   We understand that the buyer of Craigcare Group Pty Ltd shares our view that a 71 bed extension is the best objective but it has a concern about time frames.  Given the issues around acquisition of the adjoining properties, re-zoning and planning approval, we are not masters of the time frame.

   Alternative - 65 Bed - Two stages

   I understand that the buyer has an alternative option in mind if delays are encountered which would involve the construction of a 65 bed extension carried out over two stages.  While we are prepared to think about that alternative, given that we are not making hard and fast commitments at this stage on either side, we need not pursue that issue much further.

   Meeting with Buyer Owners & Personnel

   We have a desire to meet with and understand the new operational arrangements which will be in place after the buyer acquires all of the shares in Craigcare Group Pty Ltd.  We wish to develop a working relationship with the buyer which we intend should be as successful as our relationship has been with you.  Please let us know how that task may be advanced.

   Guarantee(s)

   I expect that our assessment of the value of the guarantee provided for the obligations of the tenant of the lease at Lot 3, Virginia Street, Pascoe Vale (and for 73 Plumpton Avenue, Glenroy given to Olvap Pty Ltd) will need to be re-assessed.

   At present I am considering a request for additional security and guarantees by companies who are individuals based in Australia whose balance sheets support the guarantees, perhaps also supported by significant bank guarantees in the nature of security deposits.  We will advance our thinking on that line further when we have had the opportunity of meeting with representatives of the buyer.

   Heads of Agreement

   Using the heads of agreement ultimately adopted for the development of Plumpton Avenue, Glenroy as a template for a new heads of agreement for the Pascoe Vale development seems sensible.  We hope that this heads of agreement might be developed and executed in the short term.

   The key terms are outlined below:

   Option 1 - 71 bed extension

No of bedrooms	71
Properties to be transferred	87, 89 & 91 South Street, Hadfield
Conditions for transfer of properties	Development approval, namely planning approval including re-zoning 87 South Street, Hadfield, plus building permit issued
Sunset date for satisfaction of pre-conditions	30 June 2017 (agreed extensions possible)
Payments
Tranche 1 satisfaction of conditions	$3,825,000.00
Tranche 2 during building works	$1,000,000.00
Tranche 3 practical completion	$2,000,000.00
Total	$6,825,000.00
New rent following adjustment on practical completion	$2,000,000.00

We are less inclined towards the alternative option but it remains a possibility and the details of it are set out below:

Option 2 – 65 bed extension

Stage 1	Stage 2
No of bedrooms	51	14
Properties to be transferred	89 & 91 South Street, Hadfield	87 South Street, Hadfield
Conditions for transfer of properties	Stage 1 development approval consisting of planning and building permits	Stage 2 development approval and building permit
Sunset date for satisfaction of pre- conditions	31 December 2016 (agreed extensions possible)	30 June 2018 (agreed extensions possible)
Payments
Tranche 1 satisfaction of conditions	$2,682,000.00	$1,058,000.00
Tranche 2 during building works	$718,000.00	$197,000.00
Tranche 3 practical completion	$1,437,000.00	$394,000.00
Total	$4,837,000.00	$1,650,000.00
New rent following adjustment on practical completion	$1,810,000.00	$1,943,000.00

As previously indicated, the Plumpton Heads of Agreement will form a guide.  It included the following:

1Craigcare to be responsible for the installation of furniture and effects and compliance with the regulator's requirements in that regard.

2Virginia Residential will prepare Deeds of Variation of Lease.

3Those Deeds of Variation will include new rent, extended building area and number of places, revised guarantee arrangements and provision of total options amounting to 50 years.

I look forward to speaking with you further about these matters.

Yours faithfully

John Alexopoulos

1. It is convenient to identify certain aspects of the letter of 8 December 2016 and its background that were referred to frequently in the negotiations that took place between Craigcare and Virginia Residential in 2018 and 2019.  First, the rent on completion of the expansion was expressed as an annual rate per bed of $9,478.67.  Secondly, though not mentioned in the letter, it appears to have been common ground that Craigcare's contribution of capital in cash was calculated on the basis of $56,338 per additional bed.  Thirdly, the estimated costs of construction were $175,000 per additional bed.

2. On 8 December 2016 a firm of town planners known as Contour Town Planners provided a memorandum advising Mr Craig Tocknell about various aspects of the planning process that were relevant to the expansion of Pascoe Vale.[10]  Mr Tocknell was an employee of Liverpool Partners.  He was an alternate director of Menzies between 10 December 2018 and 21 February 2020 and was a director of Menzies between 21 February and 31 July 2020 and has been an alternate director of Craigcare since 31 July 2020.  The memorandum contained advice on the options for planning approval in the following terms:

   [10] Exhibit 6.

   Options for Planning Approval

   As part of the land has to be rezoned in order to facilitate the whole of the redevelopment proposal, it is not currently possible to lodge a planning permit application for the whole project.  On that basis, and if no. 87 remains part of the redevelopment proposition, it is necessary to consider options associated with a staged approach to the planning approvals process.

   These options in our view are:

   1.Apply for a planning permit to extend the existing building on the existing site as Stage 1, and pursue the redevelopment of nos. 87-91 South Street separately.

   2.Expand Stage 1 to include nos. 89 and 91 South Street.

   3.As noted in Point 1 above, and having pursued a planning permit application for the expansion of the existing facility on the existing site, pursue the redevelopment of nos. 87-91 South Street as a combined Planning Scheme Amendment and Planning Permit Application.

   4.Similarly, if Stage 1 was expanded to include nos 89-91 South Street. pursue the redevelopment of no 87 South Street as a combined Planning Scheme Amendment and Planning Permit Application.

   5.If Stage 1 was to include nos 89-91 South Street, rezone no. 87 either as part of the broader industrially zoned precinct or separately (i.e. without the balance of the precinct), and once rezoned separately pursue a permit application for the final stage.

   In our view, the preferred option is the combination of Point 2 and Point 4.

   In this scenario, the majority of the expansion program is managed through the planning permit application process, and it is only no. 87 that is 'held up' by the need to pursue a rezoning.

   With regard to Point 4, the advantage of combining the rezoning of no. 87 with the final stage planning permit application is that you consolidate two processes into one.

3. The authors of the memorandum recorded that they had received advice from a Council officer about the development proposal to the following effect: the proposed development was supported in principle; there was strategic support to rezone 87 South Street to a residential zone but that the rezoning of 77 to 87 South Street was not a priority for the Council; the Council was unlikely to support a rezoning of 87 South Street in isolation and its preferred approach was for a rezoning of 77 to 87 South Street concurrent with an application for a permit for the development of 87 South Street.[11]

   [11] Exhibit 6.

4. The memorandum contained the following advice about timing:[12]

   [12] Exhibit 6, 7.

   The anticipated timing associated with the necessary planning processes are:

   ·    A planning permit application process typically takes in the order of 4-6 months, and if the application ultimately was the subject of a VCAT hearing, a further 9 months should be factored in.

   ·    A Planning Scheme Amendment (with or without a combined application for planning permit) process typically takes in the order of 18 months.

5. The memorandum contained the following concluding advice:

   Conclusion

   Putting aside the zoning related issues associated with no. 87 South Street, the proposition to consolidate and expand the existing aged care facility enjoys strong planning policy support.

   Furthermore, the rezoning of no. 87 South Street to a residential zone to facilitate the whole of the project also enjoys strong strategic planning support.

   The difficulty is however that the rezoning of this site is not a priority for Council and we need to convene a meeting with key Council officers to advocate the preferred approval process and the 'planning benefits' associated with fast-tracking the project.

6. In 2016 discussions had taken place between Mr Alexopoulos and the Council in relation to the need to rezone 87 South Street.  On 19 December 2016 a Council officer emailed Mr Gattini regarding planning issues on three developments, one of which was Pascoe Vale.  As to Pascoe Vale the officer recorded:[13]

   [13] Exhibit 8.

   This is a follow up to our meeting on Monday 5 December 2016 with yourself, John Alexopoulos, Kate McLaren (Principal Urban Planner) and myself.

   The meeting held on 5 December was regarding a preliminary proposal to extend the existing aged care facility at Virginia St onto the three adjoining properties to the north that front South St (87, 89 and 91 South St).  The parcel of land at 87 South Street is in the Industrial 3 Zone and would require a rezoning.

   As advised at the meeting, the Moreland Industrial Land Strategy (MILS) would support the rezoning of the MILS Area 19 (which includes 87 South Street) to a residential type zone.  We would also support the use of a Section 96A combined permit/amendment process to include the whole MILS Area 19.

   In response to your request for Council to support a 'fast-track' Section 20 (4) Amendment to rezone the land, I can confirm that Council Officers would not support a 'fast track' process.  This is because a full planning scheme amendment that includes consultation with other landowners within the MILS precinct and adjoining land owners, and the opportunity for an independent Panel Hearing, would be a more appropriate process.  Furthermore, there is no strategic imperative to fast track this amendment.  A fast track amendment process would also require the Planning Minister to consider the amendment to be of state significance, which as advised at the meeting, I think would be unlikely.  Sue Vujcevic met with Kirsten Coster on Thursday 15 December who has confirmed the approach and Council Officer response detailed above.

7. In cross-examination Mr Gattini did not accept that he attended the meeting referred to in the Council's email even though he was referred to as having been present.  Mr Gattini said, in effect, that he had no recollection of attending the meeting and he thought it had been attended by his colleague Mr Stephen Coleiro.[14]  I accept that Mr Gattini was a truthful witness but his recollection is inconsistent with an email written some two weeks after the meeting.  Of course, it is possible that the author of the email was mistaken but that seems less likely than Mr Gattini being mistaken in his recollection given that the email was written two weeks after the meeting in question and Mr Gattini was giving evidence nearly seven years after the event.  Ultimately, nothing turns on whether Mr Gattini was present but I think it more likely that he attended the meeting referred to in the email. 

   [14] ts 553 - 554.

8. Before leaving the Council officer's email of 19 December 2016 it is convenient to record that in the Moreland Industrial Land Strategy the properties 77 to 87 South Street had been identified as being surplus to the City of Moreland's industrial zoning needs and had been earmarked for a transition to a residential zone.[15]

   [15] As noted in the Explanatory Report that accompanied the application to rezone lodged on 10 September 2019, exhibit 604, see also observations to the same effect in the Executive Summary of the decision of Planning Panels Victoria dated 10 May 2021, exhibit 653.

9. For the purposes of facilitating the process of undertaking the due diligence that preceded the making of the Agreement, a virtual data room was created.  The documents contained in the Data Room were listed in a 'Data Room Index' that formed sch 5 to the Agreement.  As noted in the Overview it was common ground that the need to rezone 87 South Street before it could be developed necessitated revision of the drawings for the expansion of Pascoe Vale in folder 18.03 in the Data Room.  Using the Data Room Index as a guide, I find that the drawings in the Data Room were the drawings bearing the description 'First Floor Plan_Option 2' and 'Ground Floor Plan_Option 2' dated 6 April 2016[16] (both of which show buildings constructed on 87 South Street) and drawings bearing the description 'Ground Floor Plan' and 'First Floor Plan' both dated 22 November 2016.[17]  Mr Gillett recalled that there was another set of drawings in the Data Room which showed the expansion of the facility on 89 and 91 South Street with car parking on 87 South Street.  Although there were drawings circulated in August 2017 showing car parking on 87 South Street, the contemporaneous documents do not support Mr Gillett's recollection that drawings showing car parking were in the Data Room.[18]

   [16] Exhibits 645A and 645B.

   [17] Exhibits 3 and 4.

   [18] ts 215.

10. On 25 January 2017 Mr Alexopoulos sent a further letter to Mr Gillett setting out Virginia Residential's position in relation to the expansion of Pascoe Vale (the letter was dated 25 January 2016 but it is clear from the context that '2016' is a typographical error).[19]  Mr Alexopoulos proposed that the parties enter into a non-binding heads of agreement and identified a number of matters that he considered were 'pre-requisites' to entry into a binding heads of agreement.  These included a variation to the lease of Pascoe Vale to provide that a change or changes 'affecting 50% of the shareholder and the guarantor' constitutes an assignment of the lease and that an assignment requires the lessee to provide a security deposit equivalent to 18 months' rent.  Mr Alexopoulos proposed, in effect, that following a deemed assignment effected by a change in the shareholding of the lessee, there should be a 'formal request for assignment' and that following, or contemporaneously with the assignment, 'it would then be appropriate to pursue finalisation of a binding heads of agreement'.

    [19] Exhibit 1A.

11. A draft of a document entitled 'Preliminary Heads of Agreement (Non Binding)' (with a footer bearing a date of 25 January 2017) was prepared by Mr Alexopoulos' solicitors in January 2017 and provided to Mr Gillett.  It appears from emails exchanged in late January 2017 that Mr Cavan Reid and Mr David McWilliam both representatives of Bain who subsequently became directors of Craigcare were provided with Mr Alexopoulos' letter to Mr Gillett and the 'Preliminary Heads of Agreement'.[20]  There was no evidence that the document was provided to Mr Stephenson.

    [20] Exhibit 12.

1. The Preliminary Heads of Agreement contained provisions that did not appear in the Plumpton Villa Heads of Agreement.  They were to the effect that the lease of Pascoe Vale would be varied to provide for the refund of the capital contributions on the termination of the lease.[21]  The provisions were complex and the detail is not presently relevant.  As will become apparent, the reason for the introduction of these provisions is that the payment of the capital contributions under the Plumpton Villa Heads of Agreement had given rise to an unexpected tax liability on the part of Olvap and Mr Alexopoulos wished to avoid the imposition of a similar liability in respect of Craigcare's proposed capital contributions to the cost of the expansion of Pascoe Vale.

   [21] Exhibit 11, cl 12.5 and cl 13.5.

2. One aspect of the legal relations between Craigcare and Virginia Residential that emerges from the draft Preliminary Heads of Agreement, which is of significance in relation to the Stage 1 Development Milestone 3 is that Craigcare had guaranteed Glenn‑Craig's rental obligation contained in the Pascoe Vale lease.[22]

   [22] Exhibit 11, cl 14.

3. Following settlement of the Agreement Mr Gillett resigned as a director of Craigcare on 1 March 2017.  On the same day a company controlled by him, Five Cygnet Group Pty Ltd (Five Cygnet Group), entered into an agreement with Craigcare to provide his advice and assistance in relation to the expansion of Pascoe Vale.[23]  This agreement was expressed to terminate on 1 June 2017 unless the parties agreed otherwise.

   [23] Exhibit 23.

4. The directors of Menzies were appointed as directors of Craigcare and, I infer, of its subsidiaries.  Joint meetings of the directors of Menzies, Craigcare and the subsidiaries were held on a regular basis.  The meetings were described as 'Meeting of Directors of the Menzies Hold Co Group including Craigcare and its subsidiaries'.[24]  In effect, the activities of the boards of directors of Menzies and Craigcare were indistinguishable.[25]  The effect of this is that Menzies acted through its subsidiary Craigcare and that the steps taken by Craigcare towards assisting Mr Gillett to achieve the milestones were undertaken on behalf of itself and Menzies.  In these reasons reference to the Board are references to the combined boards of directors of Menzies and Craigcare.  The Board included representatives of Liverpool Partners and I infer that firm had some ownership or financial interest in Menzies.

   [24] Exhibit 120.

   [25] ts 456.

April - September 2017

1. In about April 2017 a dispute arose between Mr Gillett and Craigcare in relation to the Ascot project.  The details are not relevant.  It is sufficient to record that the dispute led to a deterioration in the relationship between the parties.  Mr David McWilliam (by then a director of Menzies) told Mr Gillett that he was not to have any involvement with either the Ascot development or the Pascoe Vale expansion.[26]

   [26] Exhibit 37.

2. On 19 May 2017 Mr Stephenson met Mr Alexopoulos and his son George.  By email sent on 22 May 2017 Mr Stephenson provided the following summary of the discussions at the meeting:[27]

   [27] Exhibit 36.

   John and George

   Thanks for the meeting on Friday.  I thought it was a very good meeting and it provided a good understanding of the projects.  My summary of the meeting is below:

   •We will need to arrange a time to discuss the Pascoe development with Giovanni, your town planner.  While I can be in Melb when required, I thought rather than waiting for me to be in Melb. can I suggest we do a phone hook up with Giovanni this week.  Wednesday or Friday this week would be best for me.

   •Following Giovanni's discussion we can agree on the best way forward to follow up with the Right of Way land with Council

   •The design for the DA can be prepared.  I have been concerned about the additional costs to undertake the two stage project rather than one stage approach.  The rezoning issue is a long term matter so the two stage approach is the only way to get the project going in the short / medium term.

   •After we do the design, you will be able to provide a costing but you understand we aim to work towards the $170k per bed.

   •You have indicated Paul and his team would be interested in potentially doing fit out at Moonee Ponds.  After we have finalised the design for L4 we will have a chat on the scope of works.

   •We discussed your long term preference in holding ownership of Pascoe and Plumpton.  We talked about the potential to have options of the sale of the buildings and you indicated your preference was to retain ownership.  However when I mentioned another option was to have shares in our company you indicated we should provide a paper outlining the arrangements for you to consider.  I have discussed this with David McWilliam and his team will prepare something and then we can have a follow up meeting.

   •Plumpton project was proceeding well and Paul may have the project a little ahead of timeframes.  You and Paul will provide us with an updated of when you think the project may be completed.

   •In regards to Plumpton, the land transfer arrangements was not a tax effective transfer from your perspective, so we would be happy to consider better options for Pascoe Vale.

   Thanks again for the meeting and I look forward to working together in the future.

3. I infer from the contents and general tenor of Mr Stephenson's email that the meeting that he was summarising was his first meeting with Mr Alexopoulos and Mr George Alexopoulos.  The matter referred to in the last 'bullet point' (the tax effectiveness of the land transfer arrangements) assumed some significance in the course of the discussions between Craigcare and Virginia Residential that took place in 2018.

4. In the meantime the dispute between Mr Gillett and Craigcare was the subject of negotiations.  Although the dispute was not resolved finally until early September 2017, by late July 2017 Mr Gillett was once again working on the planned expansion of Pascoe Vale.

5. G2 Urban Planning had worked with Mr Alexopoulos previously in relation to property developments.[28]  Although it was unclear whether at this early stage G2 Urban Planning was formally retained by Virginia Residential or by Craigcare, the firm was responsible for liaising directly with the Council for the purpose of completing all the planning related steps required to enable the two stage development to proceed.[29]  Mr Gattini was communicating with both Mr Gillett and Mr Stephenson at this time.

   [28] ts 554 - 555.

   [29] ts 504 - 505.

6. Mr Gattini gave evidence that in about June 2017 he advised Mr Stephenson that in the absence of the Council committing to resource a planning scheme amendment, that the development of the site for the aged care facility, particularly on the two residential lots should proceed by a planning permit application and 'the balance lot' (87 South Street) could be rezoned by way of a planning scheme amendment.[30]  Mr Gattini canvassed the idea of what was referred to as 'a section 96 application which combines a planning permit in the planning scheme amendment,' but advised Mr Stephenson not to proceed with a combined application 'because it would put the expansion of the facility at risk'.[31]  I accept that Mr Gattini gave advice that Craigcare should proceed by way of a planning permit application for Stage 1 and a separate planning scheme amendment application in respect of 87 South Street.  I have some reservations about the accuracy of Mr Gattini's recollection about the Council's attitude to a planning scheme amendment.  The most reliable evidence of the Council's attitude to a planning scheme amendment whose purpose was to rezone 87 South Street is found in the email of 19 December 2019 from a Council officer to Mr Gattini in which the officer said, 'the Moreland Industrial Land Strategy (MILS) would support the rezoning of the MILS Area 19 (which includes 87 South Street) to a residential type zone' and that the Council would also support the use of a s 96A combined permit/amendment process to include the whole of the MILS area 19 (which included 87 South Street).

   [30] ts 552.

   [31] ts 552.

7. On 14 July 2017 Mr Stephenson reported to a meeting of the Board that Mr Alexopoulos' town planner (and I infer that Mr Stephenson was referring to Mr Gattini) 'had indicated that re‑zoning [of 87 South Street] is 2 years away'.[32]

   [32] Exhibit 62.

8. On 21 July 2017 Mr Stephenson emailed Mr Alexopoulos, his son, Mr George Alexopoulos, and Mr Gattini and stated:[33]

   [33] Exhibit 44.

   I thought we should have a follow up meeting with council to indicate what we would like to do on South St and to see if they would be supportive in any way to either allow a two stage approach or move to change the rezoning in a reasonable time period.

   Giovani, if you are ok with the suggestion, can we arrange a time to meet with council.  I think it would be best that we go representing the ownership of the 3 houses and the owners and operators of Pascoe Vale.  Jamie and I could be available to meet in Melbourne at Council with a little bit of planning.

   The reference to 'Jamie' was a reference to Mr James Drury, Craigcare's senior project architect.

9. Mr Gattini replied to Mr Stephenson's email on the same day and said that the meeting should be deferred for two weeks because the planning manager was on leave.

10. Subsequently on 28 July 2017 Mr Gattini emailed Mr Gillett reminding him of the necessity to provide preliminary plans that were required for the proposed 'pre-application meeting'.[34]   In response to Mr Gattini's request for plans, on 3 August 2017, Mr Stephenson sent Mr Gattini plans for the expansion of Pascoe Vale over two stages.[35]  These plans showed staff car parking on 87 South Street.

    [34] Exhibit 45B.

    [35] Exhibit 52.

11. In a report dated 13 August 2017 prepared for presentation to the Board Mr Stephenson commented on the proposal then under consideration to extend the sunset dates.[36]  He observed:

    [36] Exhibit 58; ts 465.

    By extending the Pascoe Vale Milestone dates by 12 months, the dates would be extended to 1st March 2019 for Milestone 1 and 1st March 2020 for Milestone 2.

    The extension of the Milestone 1 date would place the Group's investment 3 year horizon at risk as the aim would be to complete ramp up of stage 1 prior to the investment exit.  It is expected that Milestone 1 could be achieved prior to the allocated date and although the SPA allocated responsibility for achieving the Milestone to John Gillett, the company would continue to drive the outcome earlier than the due date.  The Company target date for Milestone 1 would be October 2018 which would allow planning approval, construction and ramp up within the investment 3 year horizon.  Stage 2 development approval is likely to require Council rezoning of the industrial zoned property which is not expected to be achieved within 2 years (say by August 2019).  If the rezoning was achieved by this date, the Company's target date for Milestone 2 approval would be December 2019.

12. Mr Stephenson's views about the time it would take to obtain development approval for Stage 2 were consistent with the views in relation to timing expressed in the Contour Town Planners' memorandum of 8 December 2016 though the advice in the memorandum was an application for development approval might take between four and six months.

13. On 28 August 2017 Mr Gattini forwarded to Mr Gillett an email from a Council officer regarding times for the pre-application meeting.[37]

    [37] Exhibit 73.

14. On 29 August 2017 Mr Gattini received an email from a planning officer of the Council in which the officer had stated that the proposal for a Stage 1 expansion of Pascoe Vale that involved the use of 87 South Street for parking would not be approved because of the industrial zoning of that property.[38]  The planning officer said that the Council would require amended plans which did not show any prohibited use on 87 South Street and details of a possible reduction in car parking, another matter raised by Mr Gattini.  I infer from this email that Mr Gattini had sent the Council the 3 August 2017 plans that showed 87 South Street being used for car parking and that the Council's email was a response to those plans.

    [38] Exhibit 140; ts 557.

15. On 29 August 2017 Mr Gillett sent Mr Gattini an email attaching what he described as 'the latest drawing of the ground floor of a scheme which is fully confined to no's 89 and 91 with 55 additional beds and 17 additional car parking spaces' and asked Mr Gattini to telephone him to confirm that various aspects of the plan met 'the scheme requirements'.[39]

    [39] Exhibit 76.

16. On 30 August 2017 Mr Gattini sent a further email to Mr Stephenson and Mr Gillett informing them that one of the Council's planning officers had inquired whether Craigcare would be prepared to initiate a town planning scheme amendment rezoning 87 South Street from an industrial zone to a residential zone and meet the costs of doing so.[40]  In his email Mr Gattini said:

    [40] Exhibit 79.

    Gents on the heels of two discussions now with the Moreland Council Strategic Planners I thought it would be useful to bring you up to speed with the potential rezoning of the Industrial 3 property.

    For several weeks I been complaining to Council that the Industrial 3 Zone is hampering a worthwhile and essential expansion of the age care facility.  It appears that my complaints may be gaining some traction.  Just this instant I received a call from Council asking if Craigcare would be prepared to initiate a planning scheme amendment and give undertakings as to the costs associated with the amendment.  I have asked Council to provide some indication of those costs as part of their response to me as to whether Council will consider a planning scheme amendment formally.  I should know within the next 2 to 3 days whether they will entertain a planning scheme amendment now.  I have assumed the planning scheme amendment will need to include all the properties in the Industrial 3 Zone.  Nothing that I have discussed above negates our ability to move forward with the pre-application and lodge a planning permit for the residential lots only.

    John once I receive the Stage 1 plans I will confirm the meeting with Councils statutory planning department.

17. I pause to observe that the general tenor of Mr Gattini's email is that it conveys good news in the form of a something of a breakthrough - explicitly or at least implicitly the Council has signalled its support for a rezoning of 87 South Street.

18. In cross-examination:

    (a)Mr Gattini was asked whether he had any involvement with the Pascoe Vale project in 2017 other than the conversation in around June 2017 to which he had referred in his evidence‑in‑chief.  He answered:[41]

    [41] ts 554 - 555.

    All I recall is a discussion around the strategy going forward.  I recall discussion around car parking and the inability to use 87 for car parking.  And basically, we wanted plans to be prepared for the planning application.

    (b)Mr Gattini was referred to his email to Mr Stephenson and Mr Gillett of 30 August 2017 and the cross-examination went as follows:[42]

    [42] ts 558.

    And Council was asking if CraigCare would initiate a planning scheme amendment for the land, including number 87, and undertake to pay the cost of the amendment?---That's correct.  This was after a number of discussions to try and get Council onboard with rezoning number 87 in particular.

    Thank you.  And you say towards the bottom – so the third last and second last lines:

    Nothing that I have discussed above negates our ability to move forward with the pre-application and to lodge a planning permit for the residential lots only.

    That's correct.

    And that was your view at the time?---That is my view then.  That is my view now.

19. In re-examination Mr Gattini was referred to the paragraph of his email of 30 August 2017 to which he had been referred in cross‑examination and was asked to give his reasons for his view.  He said:[43]

    [43] ts 560.

    So your Honour, the reasons for my view was that there was no certainty around whether the land 87 would be rezoned.  And so it made no sense to me to advise my client to combine a planning scheme amendment with a planning permit when there was no certainty as to outcome.  We knew at the time that the council would support the expansion of the aged care facility but the ultimate rezoning of 87 was dependent upon some (indistinct) consent from the other landowners facing South Street.  If we would have been able to rezone 87 in isolation, I would have combined the planning application with the planning scheme amendment but council did not support that approach.

20. I have emphasised the word 'combine' in the extract of Mr Gattini's evidence set out above because I understood him to use the word in the sense in which he had used it in his evidence-in-chief when referring to the fact he had canvassed, 'the idea of what is referred to as a section 96 application which combines a planning permit in the planning scheme amendment'.  Mr Gattini's evidence was that his advice to Mr Stephenson was to the effect that a planning permit application in respect of 89 and 91 South Street should not be combined with a rezoning application in respect of 87 South Street.  His advice did not concern the possibility of making an application for a planning permit in respect of 89 and 91 South Street and making a concurrent but separate application for rezoning of 87 South Street.

21. Parenthetically, I note that Mr Gattini made no mention in his evidence of potential opposition to the proposed rezoning by local residents who had concerns about traffic flow and car parking or that this was a reason for not proceeding with the rezoning application until the development application for Stage 1 had been approved.  Further, at no stage in his evidence did Mr Gattini say that he had given advice to Mr Stephenson to the effect that Craigcare should not proceed with the rezoning of 87 South Street because of concerns that local residents had about traffic flow and car parking in the street.

22. Considering Mr Gattini's email of 30 August 2017 with his oral evidence I make four  findings.  First, Mr Gattini considered that the planning permit application in respect of Stage 1 would be jeopardised if it was combined with an application to rezone 87 South Street in a s 96 application.  Second, Mr Gattini considered there was no reason why a planning permit application for Stage 1 could not be made concurrently with an application to rezone 87 South Street.  Third, Mr Gattini did not have concerns that making the rezoning application concurrently with the Stage 1 planning permit application would generate objections from local residents about parking and traffic flow that would jeopardise the planning permit application.  Fourth, any advice Mr Gattini provided in relation to the project reflected his views as I have found them to be.

23. In emails exchanged between them on 30 August 2017 Mr Gillett, Mr Stephenson and Mr Drury expressed qualified support for Craigcare initiating a planning scheme amendment for 87 South Street.  Mr Gillett expressed his views in an email to Mr Stephenson as follows:[44]

    [44] Exhibit 78.

    I am of a view that Craigcare should agree to initiate the rezoning even if it involves the other industrial lots and to provide an undertaking as to costs associated with the proposed amendment providing they are not excessive.

    Would you be in a position to make a decision quickly after Giovanni obtains an estimate of the likely cost?

24. The support for an immediate application for rezoning from Mr Stephenson and Mr Drury was expressed to be subject to the Council's costs being reasonable.  Mr Drury raised an additional concern about the possibility that the owners of other properties that would be the subject of the rezoning from industrial to residential might object to the rezoning because of its potential effect on their businesses.[45]

    [45] Exhibit 78.

1. On 30 August 2017 Mr Gillett emailed Mr Stephenson and outlined further options for the expansion of Pascoe Vale involving the acquisition of 93 South Street and the eventual sale of 87 South Street.  Mr Gillett wrote:[46]

   [46] Exhibit 82 (incorporates exhibit 80).

   As you are aware I have been pursuing various options for the extension your Pascoe Vale facility and would like to suggest another alternative option that we could pursue simultaneously with the re zoning.

   Jamie forwarded to me by email on 13/3/17 the then latest iteration of the layout drawings for the proposed Stages I & Stage 2.  These drawings indicated at the end of Stage 2 there would be a total of 75 additional beds and 24 car parking bays on the ground level of number 87 South Street.

   If instead of car parking on the ground floor of number 87 we utilise this area for additional residential accommodation, with an identical layout to the proposed first floor of number 87, we could achieve an additional 12 beds.  The total number of beds at the end of Stage 2 would therefore be 87 beds instead of 75.

   In order to achieve that number of beds, we would need to provide basement parking on number 89 and 91 South Street for 30 vehicles during Stage 1.  At an estimated cost of between $20,000 and $30,000 per space there will be an additional capital cost of $600k to $900k.  The value of the additional beds inclusive of the PV of the bond uplift will be at least $4.5m at the end of Stage 2.

   However a better option may be to purchase number 93 South Street and build a new building as described above with 87 beds and 30 basement parking bays all in the one Stage.  On receipt of development approval (probably within 12 months) we could sell no 87 and if necessary discontinue the application for rezoning.  On the basis that we could sell no 87 for a similar price to the purchase price of no 93, the additional capital cost would be limited the $600k - $900k cost of providing the basement parking.  The additional value of at least $4.5m clearly offsets the additional capital cost but more importantly we would significantly increase the EBITDA years earlier than originally intended.

   I have asked Giovanni to ascertain the name and contact details of the owner of number 93 and to ascertain if there is an easement for services within the ROW between number 91 and number 93 and if so can we build over the easement.  I have also asked Giovanni to undertake a title search of number 93 in order to ascertain the precise site dimensions.  I will not approach the adjoining owner until Giovanni confirms the status of the easement.

   In the interim could you please have Jamie prepare a layout drawing for a new two storey development over numbers 89, 91 & 93 South Street as described above.  Jamie will need to assume each of those sites and the existing easement have been consolidated into one new lot.

   If Giovanni confirms there is no service easement in the ROW and/or the easement exists and can be built over, I will approach the adjoining owner to ascertain the potential interest in selling, the likely sale price and or any special conditions of sale.

   On receipt of that information I will make a recommendation as to the manner in which we ought to proceed and request that you obtain internal approvals to proceed.

   At the moment we have no option but to pursue the rezoning (subject to likely costs and the undertakings required) simultaneously with pursuing the option of purchasing number 93 South Street.

   I would be pleased to receive your comments.

2. If Craigcare had proceeded, Mr Gillett's alternative proposal, involving the acquisition of 93 South Street and the ultimate sale of 87 South Street, would have involved a substantial departure from the terms provided for in Mr Alexopoulos' letter of 8 December 2016.  I make this observation because Mr Gillett's proposed departure from the development envisaged by the letter of 8 December 2016 contrasts with later complaints made by him to the effect that Craigcare was proposing terms that departed from the terms contained in the 8 December letter.

3. By reply email sent on the same day Mr Stephenson thanked Mr Gillett for his summary and asked when the Council's costs of rezoning (87 South Street) would be known.[47]  Mr Gillett's evidence was that he did not send any estimate of the Council's rezoning costs to Mr Stephenson.[48]  I infer from Mr Gillett's evidence and from the absence of evidence that the Council provided any indication of its costs, that no indication of cost was provided by the Council.

   [47] Exhibit 82.

   [48] ts 129.

September - December 2017

1. By early September 2017 terms had been agreed between Mr Gillett and the defendants to resolve their dispute.  Mr Gillett and Menzies entered into a deed dated 5 September 2017 that by its terms varied the terms of the Agreement.[49]  I reproduce the critical provisions of the Agreement as varied in the section of these reasons dealing with the contractual construction issues.

   [49] Exhibit 91.

2. On 7 September 2017 Mr Gillett emailed Mr Stephenson setting out the expansion plans that he wished Craigcare to pursue.[50]  In his email he wrote:

   [50] Exhibit 95.

   It will be imperative that we have further discussions with council to ensure that once the easement for stormwater drainage is created over the ROW, we are not precluded from building with nil building setback from the boundary of the easement.

   Could you now have Jamie prepare drawings with basement car parking for 30 spaces and 63 beds over two levels contained within the boundaries of numbers 89 and 91 only, as Stage I.

   Stage II will then be built over number 87 once the rezoning is completed and will contain a total of 24 beds over two levels.  On completion the extension will contain 87 beds over two levels with 30 basement parking places.  Please note, with the exception of 12 additional beds on the ground floor of number 87, instead of car parking, this development will be identical to the original two stage project.

   It would be appreciated if Jamie could prepare separate drawings for each Stage.

   I look forward to discussing this further with you at our meeting tomorrow.

3. The reference in Mr Gillett's email to the 'ROW' was a reference to a right of way between 91 and 93 South Street owned by the Council that had to be acquired from the Council if the expansion was to proceed.  The Council agreed to sell the land the subject of the right of way to Craigcare and the acquisition was completed in 2018.

4. On 8 September 2017 Mr Gillett and Mr Stephenson met and discussed the Pascoe Vale expansion project.  On the basis of the expression of his views contained in the emails that had been exchanged prior to the meeting I am satisfied at the meeting Mr Gillett recommended to Mr Stephenson that Craigcare should apply for rezoning of 87 South Street without delay.  I am also satisfied that Mr Stephenson told Mr Gillett that Craigcare would not be proceeding with the application to amend the town planning scheme at that stage.[51]

   [51] ts 74.

5. Mr Gillett's evidence-in-chief was that Mr Stephenson said:[52]

   [52] ts 74.

   we're not proceeding with the town planning scheme amendment until after we have the stage 1 planning permit.  There wasn't a great deal of discussion after that because there wasn't much I could do.  He had made that decision.

6. Mr Gillett presented as a forthright witness.  In the emails sent by him to Mr Stephenson about matters on which they disagreed he was equally forthright.  He expressed his views in direct and trenchant terms.  While it is little surprising that Mr Gillett did not record his disagreement with Mr Stephenson's decision in an email, account must be taken of the background against which the meeting took place, Mr Gillett and Menzies had just executed the deed varying the Agreement and formally resolving the dispute between them.  It is perhaps not surprising that Mr Gillett did not want to instigate a further dispute especially because, as Mr Gillett said, in effect, in his evidence, the decision was one to be made by Mr Stephenson and there was nothing he could do about it.  Further, in an email to Mr Alexopoulos sent on 12 October 2018, referred to later, Mr Gillett suggested that the Council had agreed to fast track the rezoning application.  Even though I find that Mr Gillett was mistaken in his understanding that the Council had agreed to fast track the rezoning process, his understanding may have provided him with some comfort that the Stage 2 milestone would be achieved notwithstanding the deferral of the rezoning request.

7. Mr Stephenson's evidence was to the effect that he decided not to proceed with the rezoning request in September 2017 because he had received advice from Mr Gattini that the rezoning request would jeopardise the Stage 1 development approval.  What advice about rezoning Mr Stephenson received was a hotly contested issue.

8. The advice contained in Mr Gattini's email of 30 August 2017 was clear.  It was to the effect that there was a prospect that the Council would support an application to rezone 87 South Street and, inferentially, subject to the issue of cost, that was something that should be pursued and it would not negate the ability to move forward with an application for development approval for Stage 1.  It is apparent from the emails exchanged between Mr Stephenson, Mr Gillett and Mr Drury that Mr Stephenson understood Mr Gattini's advice in that way. 

9. Against that background, Mr Stephenson's evidence-in-chief was surprising.  It was as follows:[53]

   [53] ts 452.

   Giovanni Gattini was aware local residents of near the aged care centre had concerns about traffic flow and car parking in the street and was concerned that a rezoning would risk the stage 1 development planning approval.

10. In cross-examination Mr Stephenson said that Mr Gattini gave advice to that effect on more than one occasion though Mr Gattini did not put the advice in writing, nor did Mr Stephenson make a note of the advice or report to the Board that advice to that effect had been received and that an application to rezone 87 South Street had been deferred until development approval for Stage 1 had been obtained.[54]  Mr Stephenson said that he regarded obtaining the planning approval for Stage 1 as a higher priority than the rezoning of 87 South Street.[55]

    [54] ts 476 - 478.

    [55] ts 478.

11. There is a conflict between the effect of the evidence of Mr Gattini and Mr Stephenson's recollection of the advice he received from Mr Gattini.  While I accept that Mr Stephenson was a truthful witness, I do not accept his evidence on this issue for the following reasons:

    (a)Relevantly, Mr Stephenson's evidence concerned advice about one aspect of a relatively complicated property development process that was given to him six years before the trial. There is no particular reason why Mr Stephenson should have a good recollection of his discussions with Mr Gattini and my impression is that his recollection was hazy. His initial answer to the defendants' senior counsel's question, 'Are you able to recall today what [Mr Gattini] said to you, what the advice was?' was 'Not precisely, but a concern that the team had was that residents …'. Counsel interrupted Mr Stephenson and asked him to focus on what he could recall Mr Gattini had said to him. It was at that point that Mr Stephenson gave the evidence quoted above at [74].[56]

    [56] ts 452.

    (b)As I have summarised it, the overall effect of Mr Gattini's evidence was that he did not recommend combining the planning application for Stage 1 with the rezoning application in a s 96 application but there was no reason why the planning application for Stage 1 and the rezoning application could not proceed concurrently.  As noted above the tenor of Mr Gattini's email to Mr Gillett and Mr Stephenson was that he had good news to report and if Mr Gattini had harboured concerns about the wisdom of proceeding with a rezoning application before the planning application for Stage 1 had been finalised, it is inconceivable that he would not have mentioned those concerns in his email of 30 August 2017.

    (c)While not decisive, that Mr Gattini's evidence aligns with the evidence of both planning experts (referred to in more detail later) to the effect that the preferred 'pathway' would have been to submit a request for a planning scheme amendment as early as possible after the Council had indicated there was support at officer level for the rezoning and to submit the planning permit application as soon as it was ready, supports the probability that Mr Gattini gave advice to the same effect.

    (d)It must have been obvious to Mr Stephenson that if the rezoning request was not made before the Stage 1 development approval was obtained there was a very significant risk that the Stage 2 Development Milestone would not be achieved.  That being so, it is remarkable that Mr Stephenson did not refer to the advice on which he relied to make his decision to defer the rezoning request either in contemporaneous emails or in any report to the Board.

    (e)I do not attach any weight to the fact that the Council did not provide a cost estimate.  Inferentially, it is likely that the Council was informed that Craigcare did not intend to pursue the rezoning request and there was no necessity to provide an estimate of costs.

12. I infer from Mr Stephenson's email to Mr Gillett of 19 September 2017 (referred to below and in which he refers to discussions about the stages of the expansion) that at the meeting on 8 September 2017 Mr Stephenson and Mr Gillett also discussed the ideas outlined by Mr Gillett in his email of 7 September 2017.  The evidence about these discussions was exiguous.  Mr Gillett gave evidence to the effect that Mr Stephenson had given his 'tacit approval' for a two stage development of the nature described in his email of 7 September 2017 but that the tacit approval was given in the course of a telephone conversation rather than at a meeting.  Mr Gillett's evidence in this respect was imprecise and ultimately he accepted that Mr Stephenson had given him no indication one way or the other before 9 September 2017 that Craigcare agreed to the expansion of Pascoe Vale by the addition of the number of beds proposed by him.[57]  In the absence of support in the contemporaneous documents I am not prepared to find that Mr Stephenson gave tacit approval for any plans in the course of a telephone conversation before 9 September 2017.  I do, however, infer from the fact Mr Stephenson asked Mr Drury to prepare drawings in accordance with Mr Gillett's requests that Mr Stephenson accepted that the ideas summarised in Mr Gillett's email of 7 September 2017 had merit, at least to the extent of warranting the preparation of preliminary drawings.

    [57] ts 135 - 136 and ts 205 - 206.

13. On (Monday) 11 September 2017 Mr Gillett asked Mr Stephenson to instruct Mr Drury to prepare the drawings that were the subject of his email of 7 September 2017 on the basis of a four metre set back from the boundary (the four metre set back was a recommendation made by Mr Gattini).[58]  Mr Gillett asked Mr Stephenson to instruct Mr Drury to expedite the provision of the drawings because Mr Gattini required the drawings in order to arrange a pre-development application meeting with the Council.  Mr Stephenson replied to Mr Gillett and explained that Mr Drury (who ordinarily lived and worked in Perth) was in Victoria and that the drawings would be completed by 19 September 2017.  On 18 September 2017 Mr Gillett asked Mr Stephenson how Mr Drury was progressing with the revised drawings and Mr Stephenson replied to the effect that Mr Drury had encountered some unexpected issues with the Ascot project but he still hoped to have it done.[59]

    [58] Exhibit 100.

    [59] Exhibit 103 (incorporates exhibit 102).

14. On 19 September 2017 Mr Stephenson sent Mr Gillett 'preliminary draft revised Pascoe Extension plans' under cover of an email.[60]  In the email Mr Stephenson made the following 'preliminary comments':

    [60] Exhibit 105.

    The development would be planned in two stages as we discussed with 56 beds stage 1 and 24 beds stage 2. 80 beds in total.  The car park is planned to have 24 parking bays.  John, the beds and parking bays are less than what your initial thought was so, it would be good to get your comment and we will need to ensure we have an adequate parking bay ratio.  Can you have a look at the plans and provide your feedback?

    We will need to assess the site soil conditions to check if there are any contaminants, water tables or services.

    I know we talked about costs of underground parking but I am concern with the relatively small number of parking bays and if we should estimate the costs based on a cost per parking bay or a cost per square metre.  I would be concern the costs would be between $1,500 - $2,000/m2.  What do you think would be reasonable?

15. Mr Gillett was unable to open all the documents attached to Mr Stephenson's email but in emails sent on 20 and 21 September 2017 he provided some comments to Mr Stephenson on what he had been able to open but his main concern was that the drawings were not in a form that would enable Mr Gattini to progress discussion with the Council towards a pre-development application meeting.  In an email to Mr Stephenson sent on 20 September 2017 (relied on by Mr Gillett as particular of his pleaded case) Mr Gillett said:[61]

    [61] Exhibit 107.

    Tony,

    I need the drawings requested previously in order for Giovanni to progress discussions with Council regarding a pre-DA meeting.  I suggest we discuss further with JA once Giovanni has provided us with feedback.

    Please provide the drawings as a matter of priority.

    Regards

    John

16. In an email to Mr Gillett sent late on the evening of 21 September 2017 Mr Stephenson provided Mr Gillett with a plan for the basement and explained:[62]

    [62] Exhibit 108.

    Jamie, has indicated he can get the second floor drawings on Wednesday.  Before he does the work, is there any comments on the drawings provided and do we need to consider any changes?

    He has a busy schedule at the moment with both Plumpton and Mornington being commissioned as well as issues on the development projects.  I hope you understand and we will get the 2nd floor plan to you next week.

17. On 21 September 2017 Mr Stephenson emailed Mr Drury and said:[63]

    [63] Exhibit 110.

    Hi Jamie

    I hope Mornington is going well.

    JG is looking for the 2nd floor design.  See emails below.  I have not promised by a certain date and your highest priority is to get the Ascot JDAP in asap.

    When do you think you could have the Pascoe 2nd floor done?

    Tony

18. On 27 September 2017 Mr Stephenson provided Mr Gillett with drawings showing Stages 1 and 2 of the Pascoe Vale expansion.[64]  The drawings showed an additional 56 beds as part of Stage 1 with basement carparking for 25 cars under 89 and 91 South Street and 24 beds as part of Stage 2.

    [64] Exhibit 113 (incorporated the drawings that formed exhibit 111 that showed the ground and first floor of Stages 1 and 2 but did not include the 'Context Site Plan' or the 'Basement Floor Plan').

19. Mr Gillett provided those plans to Mr Gattini on 28 September 2017 and asked him to confirm that they were sufficient for the purposes of 'a pre-DA meeting with council'.[65]  In that email Mr Gillett informed Mr Gattini that the first stage of the extension would be over numbers 89 and 91 South Street and the initial planning application would be for Stage 1 only and that a separate town planning application would be lodged for Stage 2 once 87 South Street had been rezoned.

    [65] Exhibit 114.

20. Mr Gattini responded on 9 October 2017.  He observed that the plans showed the ultimate development over 87 South Street and stated that:[66]

    [66] Exhibit 116 (incorporates exhibits 118 and 119).

    A stage 1 plan is what we can submit now including lots 89 and 91.  It would show the development contained to two lots with the same setback to lot 87 3 metres will do if the amendment is approved it will be academic.

    For the preapplication meeting the plan should show the scheme in 3 d ie simple massing model. 

1. One further observation may be made.  A theme underlying Mr Gillett's case is that Mr Stephenson did not monitor the work of consultants closely enough and did not 'drive' the Stage 1 development application process.  As a counterpoint to the hindsight bias that may intrude into the assessment of Mr Stephenson's conduct, it is significant that in his report to the Board for the purposes of its meeting on 7 June 2018, he recorded that 'The Town Planning submission has been submitted and the approval may take up to September 2018.'  I infer that his estimate of when the approval would be available was based on advice from G2 Urban Planning with or without input from Graphos.  The point to be made is that in late May 2018 Mr Stephenson's expectation was that the development application would be approved in about three months, that is well within the sunset date. 

2. The allegation that Craigcare failed to pursue the Stage 1 development application with reasonable diligence is not established.

Failed to respond to the Council's request for information of 22 May 2018 with reasonable diligence

1. In summary the chronology is as follows:

   (a)On 22 May 2018 the Council issued a request for information.

   (b)On 12 June 2018 Mr Coleiro of G2 Urban Planning met the Council's planning officers to discuss the request for information.

   (c)On or shortly after 16 July 2018 Graphos completed the further architectural drawings required by the request for information.

   (d)On 13 August 2018 the traffic engineers (TTM Consulting) issued the further traffic engineering report.

   (e)On 16 August 2018 G2 Urban Planning submitted a response to the request for information.  The response included an application to amend the existing planning permit as a replacement application for a new permit that was submitted on 26 April 2018.

2. Approximately 12 weeks (86 calendar days) elapsed between the receipt of the Council's request for information and the response.  The town planning experts differed as to whether the time taken to respond was reasonable.  Mr Peggie thought the request for information was relatively complex and the response time was reasonable.  Ms Jordan thought the information requested in the request for information was not complex, was at least in part outlined in Council's pre-application advice of January 2018 and did not require significant coordination beyond the architect and the traffic engineer.  In her opinion it was unclear why it took Craigcare 12 weeks to answer the request.  Ms Jordan's opinion was that it would have been reasonable to have completed this task within the time allocated by Council, that is, by 21 July 2018 (60 calendar days).

3. In his first report Mr Peggie expressed the following view in relation to the Council's request for information:[453]

   [453] Exhibit 658, [19].

   Council's RFI included a lapse date of two months which recognises that a reasonable amount of additional information had been sought.  Council subsequently approved an extension of the original lapse date.

   I consider that the Council RFI was relatively standard and in line with normal processes.  With an application of this nature there is the need to co-ordinate and manage multiple consultant outputs (specifically architectural drawings) in order to respond to the RFI.  Given the complexity of this process and that this occurred at the end of the financial year, the time in responding to the RFI appears in line with expectations and was reasonable in terms of timing.

   I note that Council had previously provided information as part of its pre-application discussions to suggest that the application should be made under Section 72 of the Planning and Environment Act 1987 – that is as an amendment to an existing permit. I cannot speak as to why this advice was not followed (the original application was originally submitted as a Section 47 application). Despite this, I do not believe this change to the application would have unnecessarily delayed the submission of the RFI or the permit approval overall.

4. In Mr Peggie's second report he responded to the opinions expressed by Ms Jordan in relation to the time taken to respond to the request and made the following observations:[454]

   [454] Exhibit 660, 3.

   6.Following the receipt of the RFI, the applicant sought a meeting with Council to clarify the matters outlined in the RFI.  This meeting is assumed to have occurred in June 2018 (given the direct reference to this meeting in the first RFI response).  Subsequent to this, a new set of architectural plans was prepared by Graphos Architects and dated 16^th July 2018.  These plans were then provided to TTM (Traffic Engineer) to review and provide an updated report that was then provided to the applicant and dated 13^th August 2018.  I noted in my original statement that "with an application of this nature there is the need to co-ordinate and manage multiple consultant outputs" and this is evident from the process described above.  It also demonstrates the iterative nature of requiring outputs from one consultant that are then required to be reviewed by another.  I note that the applicant, on receipt of the traffic advice, promptly provided the RFI response to Council by the 16^th August 2018.

   7.I think the timeframes and process associated with the RFI response are evident and clear.  In this sense, I struggle to reconcile Ms Jordan's statement at Paragraph 80 that suggests that it is "unclear from the information available why it took the permit applicant 12 weeks to produce the required plans in response to a request for further information."

5. Mr Peggie and Ms Jordan were cross-examined about their opinions but the cross-examination did not significantly undermine the views of either of them.[455]

   [455] ts 394 - 405.

6. The following points arise from the expert evidence outlined above coupled with the facts as I have found them:

   (a)The development was relatively complex for a predominantly residential suburban environment,[456] comprising an extension of an aged care facility over three levels that included a basement car park.

   [456] The characterisation 'predominantly residential' is founded upon the site analysis undertaken by Graphos that forms part of exhibit 256, drawing SA04 and takes account of the industrial zoning affecting 87 South Street.

   (b)There were three consultants, G2 Urban Planning, Graphos and the traffic engineers.  G2 Urban Planning co-ordinated the response.  It fell to the architects, Graphos, to undertake the majority of the work required to provide the requested information to the Council.  The traffic engineers could not finalise their report until they had received the revised Graphos drawings. 

   (c)The traffic engineers' report of 13 August 2018 appears relatively limited in subject matter and effect.  My assessment is that much of what is contained in the report appears to replicate, though in greater detail, what was contained in the original traffic engineers' report.  My assessment is supported by Ms Jordan's evidence.[457]

   [457] ts 400.

   (d)Assuming that it took seven days from 16 July 2018 for the final Graphos plans to be received by the traffic engineers, it took approximately three weeks for the traffic engineers to prepare their report.

   (e)The time taken to prepare the traffic engineers' report is not readily explicable by the content of the report itself but the evidence does not enable a finding to be made as to why it took approximately three weeks for the traffic engineers' report to be prepared.

7. Having regard to the matters referred to in the preceding paragraph my impression is that the task of responding to the Council's request for information was not as complex as was suggested by Mr Peggie in his evidence.  G2 Urban Planning was required to co-ordinate the work of only two consultants.  In my view Ms Jordan's evidence more accurately reflects the scope and difficulty of responding to the Council's request for information.

8. It is difficult to make a retrospective assessment of how long it should have taken Craigcare to respond to the request for information on the basis of a limited documentary record (none of the communications between the consultants were adduced in evidence).  It is artificial to expect that such an assessment will generate a single correct answer.  More realistically, it will generate a range within which it could be said that it was reasonable for Craigcare to respond to the request.  In my view, the task of responding to the request for information could have been completed within the time allowed by the Council that is by 21 July 2018.  I do not accept, however, Mr Gillett's contention that the time taken by Craigcare to respond to the request was excessive.

9. Taking Mr Gillett's case at its highest and accepting that Craigcare could have responded to the Council's request for information by 21 July 2018, this does not compel the conclusion that because the response was submitted on 16 August 2018 it failed to exercise reasonable diligence.  In my view, the allegation that Craigcare failed to respond to the request with reasonable diligence is not established.  My reasoning is as follows:

   (a)It was reasonable for Craigcare to rely on consultants to process the development application and for G2 Urban Planning to co‑ordinate the input of the consultants.  Mr Gillett did not contend otherwise nor did he contend that the consultants were not the appropriate consultants to use.  In any event, they were Mr Alexopoulos' consultants and Craigcare had no practical alternative other than to use them.

   (b)The majority of the work required to comply with the request for information had been completed within the 60 day period set by the Council.  It was the last step in a sequential process that caused the 26 day delay that Mr Gillett contended should have been avoided.  Mr Gillett has not identified any step that Craigcare could have taken to avoid or reduce this delay.  There is no evidence to suggest that Mr Stephenson knew in advance that there would be a delay in producing the traffic engineers report and that he failed to do something which he could have done to avoid it.

   (c)Building on the point in (b), it is not possible to identify a point in the process of responding to the request for information at which it ceased to be reasonable for Craigcare to rely on the consultants and that direct action or intervention on its part was required.

10. Independently of the reasoning in the preceding paragraph, in my judgment a delay of 26 days in responding to the request for information was not such as, of itself, to lead to the conclusion that Craigcare had failed to act with reasonable diligence.

Failed to exercise all reasonable endeavours by reason of lodging the Stage 1 development application under s 47 of the Planning and Environment Act 1987 (Vic) instead of s 72

1. In its letter to G2 Urban Planning dated 12 January 2018, which constituted the Council's 'Pre-application Meeting Record', the Council recommended that the Virginia Residential apply to amend the planning permit for the existing facility 'to add the additional land parcels, update the permit description and amend or delete any conditions relating to use'.[458]

   [458] Exhibit 183.

2. Both Ms Jordan and Mr Peggie were of the view that an application could and should have been made under s 47 of the Planning and Environment Act 1987 (Vic) to amend the existing permit.

3. In G2 Urban Planning's letter to the Council of 16 August 2018 that responded to the request for information of 22 May 2018, Mr Coleiro said:[459]

   [459] Exhibit 269.

   As discussed at our recent meeting the Application was lodged as a fresh Permit Application due to the age of the original Permit (over ten years) and the inclusion of the additional parcels of land to the Planning Unit. At our recent meeting it was noted that the Council's preference is to consider the proposal as an amendment to Permit MPS/2007/13/A noting that the process is ostensibly the same. To that end please find attached a Section 72 Application to Amend a Planning Permit Form to replace the Permit Application Form originally submitted.

4. Mr Gillett contended that it was not open to Craigcare to attribute its failure to follow Council's recommendation to the 'poor advice' of 'its agent' G2 Urban Planning.  He pointed out that Craigcare's Board papers asserted that it had a competent 'Development Team' and argued that it should have been able to detect and question the departure from the recommendation in Council's letter of 12 January 2018.[460]

   [460] Plaintiff's closing submissions [103].

5. For their part the defendants contended that the decision to proceed by way of a fresh application was made by G2 Urban Planning - it was their mistake.  The defendants developed an additional argument to the effect that the obligation to use all reasonable endeavours was an obligation to do what was reasonable in the circumstances.  In assessing what was reasonable it was relevant that Craigcare was not itself a property developer and there was no suggestion that it knew or ought to have known what its options were regarding the submission of the application without the benefit of expert advice.  Against that background, Craigcare contended it was not a breach of its reasonable endeavours obligation to have relied on G2 Urban Planning when Mr Coleiro lodged the application as a fresh application as opposed to an application to amend the existing planning permit.  Craigcare added that had it not followed G2 Urban Planning's advice that would constitute a breach of the obligation to use all reasonable endeavours.[461]

   [461] Defendants' closing submissions [89] - [95].

6. I have already expressed my view that it was reasonable for Craigcare to rely on consultants, in particular G2 Urban Planning, to process and manage the development application. Consistently with that reasoning, that the application was made under s 47 of the Planning and Environment Act 1987 (Vic) and not under s 72, did not constitute a failure by Craigcare to exercise all reasonable endeavours to assist Mr Gillett in obtaining the Stage 1 Development Milestone 4. G2 Urban Planning was a specialist planning consultancy based in Melbourne. It had a long association with the Pascoe Vale site (Mr Coleiro 'ran the original application'). It appears from Mr Gattini's communications with Council officers that the consultancy had a good working relationship with the Council. It was entirely reasonable for Craigcare to be guided by G2 Urban Planning without 'second guessing' or checking its work and recommendations.

Failed to exercise all reasonable endeavours by lodging a replacement Stage 1 DA application on 16 August 2018 in an incomplete or inadequate form

1. For the reasons already given it was reasonable for Craigcare to rely on G2 Urban Planning to respond to the Council's request for information made on 11 September 2018 and in so doing Craigcare did not fail to exercise all reasonable endeavours.

Stage 2 Development Milestone

1. Mr Gillett alleges that Craigcare failed to use reasonable endeavours to assist him in achieving the Stage 2 Development Milestone 4 for the following reasons:

   (a)it did not allow him to exercise primary responsibility for satisfaction of the milestone because it excluded him from direct communication with the Council;

   (b)it failed to act in accordance with his reasonable recommendations with respect to the taking of steps required to achieve the milestone; and

   (c)it failed to initiate the town planning scheme amendment that was a necessary pre-condition of obtaining development approval until September 2019 when, even if not objected to, the amendment application would not have been approved in time to enable the development application to be approved by 28 February 2020.

Exclusion from direct communication with the Council

1. For the reasons I have given for rejecting substantially the same allegation made by Mr Gillett in the context of the Stage 1 Development Milestone 3, I find that the manner in which Craigcare communicated with the Council in relation to the rezoning application involved no failure by it to exercise all reasonable endeavours.

Failed to act in accordance with Mr Gillett's reasonable recommendations

1. The 'reasonable recommendation' relied on by Mr Gillett was a recommendation to the effect that an application for the rezoning of 87 South Street should be initiated in September 2017.  I have found that at the beginning of September 2017 Mr Gillett's view, which he expressed to Mr Stephenson, was that the rezoning application should be made immediately.  I will consider whether the failure to act in accordance with Mr Gillett's recommendations amounted to a failure to exercise all reasonable endeavours when considering the more general allegation of a failure to exercise all reasonable endeavours to assist Mr Gillett to which I will now turn.

Failed to exercise all reasonable endeavours to assist

1. In closing submissions Mr Gillett put the allegation as follows:[462]

   [462] Plaintiff's closing submissions [122].

   The gravamen of the claim is that it was open to Craigcare from September 2017 to initiate the rezoning process required to obtain the Stage 2 DA, and Craigcare's obligation to use all reasonable endeavours to assist Gillett to obtain the milestone by the sunset date – having regard to its knowledge of the lead time required for rezoning – required Craigcare to initiate rezoning without delay.

2. The reference to the knowledge of the lead time required for rezoning was a reference to Mr Stephenson's knowledge (recorded in his communications with the Board in July and August 2017) to the effect that rezoning involved a lead time of approximately two years.

3. The defendants contended that Mr Stephenson's decision not to proceed with rezoning 87 South Street in September 2017 was justified by Mr Gattini's advice.  In closing submissions, the defendants summarised what they contended was the effect of Mr Gattini's advice as follows:[463]

   [463] Defendants' closing submissions [104].

   CraigCare received expert advice from Mr Gattini of G2 about the possibility of expediting the rezoning of Lot 87, and Mr Gattini's recommendation was not to seek rezoning prior to Stage 1 DA because the Moreland City Council was not receptive to it at that point in time: T552 and T560; and

   There is no evidence whatsoever that the Moreland City Council would have entertained a rezoning application for Lot 87 prior to Stage 1 DA.  To the contrary, the evidence of Mr Gattini was that the Council was not supportive of rezoning prior to Stage 1 DA: T-560.  Stephenson's evidence was that "Giovanni Gattini was aware local residents of near the aged care centre had concerns about traffic flow and car parking in the street and was concerned that a rezoning would risk the stage 1 development planning approval." (T-450).

4. The defendants also contended that Mr Gillett did not take issue with Mr Stephenson's decision.[464]

   [464] Defence 40A(b) and defendants' closing submissions [103].

5. In their joint statement Ms Jordan and Mr Peggie recorded their views as follows:

   Stage 2 – Planning Scheme Amendment

   Both experts agreed that there was capacity and opportunity to formally request Council to rezone 87 South Street prior to September 2019.

   Both Mr Peggie and Ms Jordan note that the discoverable document CRA.001.012.0243 [exhibit 8 – the Council's email to Mr Gattini sent on 19 December 2016] suggests that there was Council support for the rezoning as early as December 2016.  Had the amendment proceeded earlier there may have been opportunity for the Stage 2 PSA to be approved prior to the February 2020 milestone.

   Both experts agreed that pursuing a Section 96A application for the stage 1 and 2 development with the rezoning of 87 South Street was not the preferred pathway. 

   Mr Peggie and Ms Jordan agree that the preferred pathway would have been to submit a PSA for the rezoning of the land (stage 2) at 87 South Street as early possible after receipt of Council advice that there was support at the officer level for the rezoning.  As noted above, this could have occurred any time after December 2016 when the first meeting was held with Council's strategic planning department or after August 2017 when the second meeting was held.  The lodgement of the permit application for the stage 1 development could have been submitted as soon as the relevant documentation was ready.  The two separate statutory processes could run separately but simultaneously.

1. As I have noted the evidence establishes that Mr Stephenson knew that it was likely to take at least two years to obtain a rezoning of 87 South Street.  When commenting on the extension of the milestone dates in his paper to the Board of 13 August 2017, Mr Stephenson made an allowance of between three and four months to obtain development approval after the rezoning was achieved.  Thus, it must have been apparent to Mr Stephenson in September 2017 that if the Stage 2 Development Milestone was to be achieved by the sunset date of 28 February 2020 it was imperative that the rezoning request should be made without delay because (ignoring September 2017) there were 29 months within which to obtain the rezoning and thereafter obtain development approval for Stage 2 and by his own estimates the process would take approximately 27 months.

2. In their joint statement Mr Peggie and Ms Jordan expressed the view that the planning scheme amendment followed a relatively typical pathway and timeframe for an amendment of its nature.[465]  They agreed that the process was held up by avoidable delays in responding to the Council's request for an environmental assessment (four months) and in the payment of panel fees in the July - September 2021 period (six weeks).

   [465] Exhibit 662.

3. Ms Jordan expressed the further opinion that the rezoning request (referred to as Amendment C179) was delayed because of the progress of another town planning scheme amendment request (numbered C200) that involved a reformatting of the planning scheme.  Ms Jordan expressed her views as follows:[466]

   [466] Exhibit 659, [97] - [99].

   I am of the view that Amendment C179 was most likely delayed, or possibly even placed on hold, for some time until the structure of the translated Planning Scheme was determined as part of Amendment C200.  In this regard, it is anticipated that Amendment C179 was not a high priority to the Council, given it is a relatively small change to the zoning framework and was not of significant strategic importance to the broader area.

   . . .

4. In the joint expert statement Ms Jordan said that her observation about the potential for the planning scheme amendment C200 to have caused some delay to the processing of the planning scheme amendment in respect of 87 South Street was 'supposition'.[467]  Having regard to that characterisation, the possibility that the rezoning of 87 South Street was delayed by the planning scheme amendment C200 may be disregarded.

   [467] Exhibit 662.

5. The request for rezoning was made on 10 September 2019 and the rezoning was gazetted on 24 December 2021 and thus took 27 months and two weeks.  Making an allowance for the avoidable delays of five and a half months, the process was capable of being completed in 22 months.

6. Ms Jordan expressed the opinion that it would take approximately eight months to obtain a planning permit for Stage 2 following rezoning.[468]

   [468] Exhibit 659, [102] and [112].

7. Using the time frame Mr Stephenson had adopted for his report to the Board absent any countervailing factors, a prudent and reasonable person, acting in their own interests and determined to assist in the process of obtaining a rezoning of 87 South Street and thereafter development approval for Stage 2 of the Pascoe Vale expansion would have started the process in September 2017.

8. In my judgment there were no countervailing factors that weighed against starting the rezoning process in September 2017.  As recorded in the factual findings I do not accept that Mr Stephenson had received advice from Mr Gattini that the rezoning process would jeopardise obtaining the Stage 1 development approval.

9. Objectively, there was no prospect of achieving the Stage 2 Development Milestone unless work was started on the rezoning request in September 2017.  Mr Gillett has established that Craigcare failed to exercise all reasonable endeavours to assist him in obtaining the Stage 2 Development Milestone.  That Mr Gillett did not express disagreement with Mr Stephenson's decision to defer the rezoning request until after development approval for Stage 1 was obtained did not operate to excuse Craigcare's failure or otherwise relieve it of the obligation to exercise all reasonable endeavours.

Causation - damage - assessment of value of lost opportunity

General principles

1. Mr Gillett's claim was a loss of opportunity claim.  In Sellars v Adelaide Petroleum NL,[469] the majority of the High Court (Mason CJ, Dawson, Toohey and Gaudron JJ) explained the principles to be applied to claims for damages for lost opportunities resulting both from a breach of contract and the commission of a tort.  In relation to a claim for damages brought in contract their Honours observed:

   [469] Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, 349.

   In the realm of contract law, the loss of a chance to win a prize in a competition resulting from breach of a contract to provide the chance is compensable, notwithstanding that, on the balance of probabilities, it is more likely than not that the plaintiff would not win the competition.  As the contract contained a promise to provide the chance, the breach of the contract resulted in the loss of the chance and that loss was for relevant purposes an actual loss, in the sense in which Dixon and McTiernan JJ. used that expression in Fink v. Fink.  And, where there has been an actual .loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat an award of damages.  The damages will then be ascertained by reference to the degree of probabilities, or possibilities, inherent in the plaintiffs succeeding had the plaintiff been given the chance which the contract promised.

   This approach is not confined to contracts relating to games of chance, sporting contests or other competitions. Fink v. Fink concerned a contract to provide an opportunity for a reconciliation, breach of which was held to entitle the wife to damages.  And there can be no doubt that a contract to provide a commercial advantage or opportunity, if breached, enables the innocent party to bring an action for damages for the loss of that advantage or opportunity (43).  So, in The Commonwealth v. Amann Aviation Pty. Ltd., Mason CJ. and Dawson J. (44), Brennan J. (45) and Deane J. (46) concluded that a lost commercial advantage or opportunity was a compensable loss, even though there was a less than 50 per cent likelihood that the commercial advantage would be realized.  Damages for breach of contract were assessed by reference to the probabilities or possibilities of what would have happened.  (footnotes omitted)

1. The majority referred to what had been said in Malec v J C Hutton Pty Ltd about the approach to the assessment of damages for personal injuries when such a claim depended on an assessment of future possibilities or past hypothetical events,[470] and continued:[471]

   [470] Malec v J C Hutton Pty Ltd (1990) 169 CLR 638, 642 - 643.

   [471] Sellars v Adelaide Petroleum NL (350).

   In Malec v. J. C. Hutton Pty. Ltd., this Court drew a distinction between, on the one hand, proof of historical facts - what has happened - and, on the other hand, proof of future possibilities and past hypothetical situations.  The civil standard of proof applies to the first category but not to the second, particularly when it is necessary to determine future possibilities and past hypothetical situations for the purpose of assessing damages.

   In Malec, Deane, Gaudron and McHugh JJ. explained the way in which the matter is to be approached in these terms:

   'If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring ....  But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages.  Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring.  Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability.'

   The same approach has been adopted in England and Canada.

   Neither in logic nor in the nature of things is there any reason for confining the approach taken in Malec concerning the proof of future possibilities and past hypothetical situations to the assessment of damages for personal injuries.  The reasons which commended the adoption of that approach in assessments of that kind apply with equal force to the assessment of damages for loss of a commercial opportunity, as the judgments in Amann acknowledge.

2. In a claim for damages for a lost opportunity arising from a breach of contract the opportunity will usually be established by proving the contract itself.  In addition, a plaintiff must establish on the balance of probabilities both that the defendant's breach of contract deprived the plaintiff of the opportunity and that the opportunity was real that is, it was more than merely negligible or speculative.  Determination of the value of the lost opportunity involves an evaluation of hypotheses and possibilities the fulfilment of which cannot be proved.  The balance of probabilities has no part to play in this process of evaluation which is undertaken as a matter of informed estimation.[472]

   [472] Sellars v Adelaide Petroleum NL (368) (Brennan J).

Stage 1 Development Milestone payment

1. By cl 14.3(c) of the Agreement Menzies was not required to make the Stage 1 Development Milestone payment unless all the milestones were achieved before the sunset date of 28 February 2019.  Stage 1 Development Milestone 4 was not achieved by 28 February 2019 and the failure to achieve the milestone by that date was not caused by any breach by the defendants of the Agreement.  It follows that Craigcare's breach of the Agreement by failing to use all reasonable endeavours to assist Mr Gillett in achieving the Stage 1 Development Milestone 3 did not cause Mr Gillett to lose the opportunity to obtain the Stage 1 Development Milestone payment.  In these circumstances, it is unnecessary to evaluate the possibility that the Stage 1 Development Milestone 3 would have been achieved had there not been the breach of the Agreement that I have found to have occurred.

Stage 2 Development Milestone

1. Mr Gillett contended that the decision to delay the rezoning process 'clearly resulted in a loss of opportunity to achieve the milestone by the sunset date'.  The contention was developed in closing written submissions as follows (omitting footnotes):

   151.Craigcare did not obtain a Stage 2 DA, but it did achieve the prior requisite of rezoning of 87 South Street.  The rezoning process took over 27 months, from lodgement on 11 September 2019 (TB606) to gazettal on 24 December 2021 (TB655).  However, that does not provide a true indication of what could possibly have been achieved had the breaches not occurred – that is, if rezoning had been initiated in September 2017 and Gillett had been allowed to make direct contact with Moreland Council to drive the process.

   152.Ms Jordan says in her report that if the TPSA (which became Amendment C179) had been initiated in late 2017, the overall processing time might well have been more efficient due to a number of factors, such as the absence of Amendment C200 which was not under consideration until 2020.  Ms Jordan was of the view that Amendment C179 was most likely delayed, or possibly placed on hold, for some time due to issues associated with Amendment C200.  Mr Peggie did not accept this view.

   153.Ms Jordan also noted other delays in the process of obtaining Amendment C179, which could have been avoided by action on the part of Craigcare: provision of the preliminary site assessment on potential contamination, and payment of Panel fees.

   154.Ms Jordan's evidence was that an amendment requiring Panel assessment could take anywhere between 18 months and 2 years.  [Redacted to remove references to matters not admitted in evidence]

   155.Both experts agree that after rezoning occurred, it would have been necessary to apply for a planning permit. Ms Jordan's opinion was that this application could have been made as an amendment application under s 72 and would have taken approximately 8 months. [Redacted to remove references to matters not admitted in evidence] Mr Peggie does, however, note that the key to minimising timeframes is to keep in touch with the relevant individual at Council.

   156.In light of the expert evidence, it is submitted that if rezoning had been initiated in September 2017, managed directly by Mr Gillett and followed up upon gazettal by an immediate application for amendment of the planning permit, there is a high probability that the Stage 2 Milestone could have been achieved by 28 February 2020.

2. In summary the defendants' responsive contentions were to the following effect:

   (a)It is reasonable to allow three months to prepare the rezoning request.  This contention was based on the consensus between the experts that the three months that it took G2 Urban Planning to prepare the rezoning request was reasonable.[473]

   [473] Exhibit 658, [16]; Exhibit 661, [66]; and ts 434 - 435.

   (b)The effect of the evidence of Mr Peggie and Ms Jordan was that it was reasonable to expect the rezoning request to take two years to process.

   (c)Making an allowance for the avoidable delays that occurred (delayed provision of the environmental report and delayed payment of fees) the process of achieving rezoning actually took 22 months.

   (d)A period of eight to nine months should be allowed for obtaining a planning permit after gazettal of the rezoning.

   (e)Adding the period for preparing the rezoning request to the time to process the request and the time to obtain the planning permit gives a total of 33 months and on that basis to achieve the Stage 2 Development Milestone it would have been necessary to start the rezoning process in May 2017.

3. The defendants make an additional argument to the effect that there was no evidence that the Council would have entertained a rezoning request for 87 South Street prior to development approval being granted in respect of Stage 1.  They contended that Mr Gattini's evidence was to the effect that the Council was not supportive of rezoning prior to the grant of development approval for Stage 1.  I do not accept the additional argument because it does not accurately reflect Mr Gattini's evidence (as to which see [76] above) and it does not accurately reflect the attitude of the Council (as to which see [29] ‑ [31], [44] above).

4. The following matters bear upon my evaluation of the possibility of achieving the Stage 2 Development Milestone by obtaining a rezoning of 87 South Street and thereafter obtaining development approval for Stage 2 of the Pascoe Vale expansion.

5. First, for the reasons I have given at [320] I am of the view that the rezoning request could have been prepared in between four and six weeks.

6. Second, making due allowance for the avoidable delays, the rezoning process took 22 months.  In undertaking the process of estimating how long it would take to achieve both rezoning and development approval there is no need to estimate how long the rezoning request would take to process when the actual time taken is known.

7. Third, various estimates have been given as to how long after rezoning the process of obtaining development approval may take.  The 8 December 2016 Contour Town Planning memorandum contained advice to the effect that development approval may take between four and six months.  Ms Jordan's evidence was that obtaining the development approval would take approximately eight months.  I do not understand Ms Jordan's evidence as excluding the possibility that a planning permit could be obtained in less than eight months.  I take the Contour Town Planning advice as establishing the possibility that a planning permit could be obtained in four months.  The time estimates for obtaining the Stage 1 development approval Mr Stephenson provided to the Board and to Mr Gillett in 2018 (and which I have inferred were based on advice received from G2 Urban Planning) were broadly consistent with the Contour Town Planning advice.  There are reasons for concluding that the application for development approval in respect of Stage 2 would have been simpler than the application in respect of Stage 1 and that it was capable of being processed and granted with greater expedition.  The Stage 2 expansion was smaller than the Stage 1.  It did not involve the complication of basement car parking.  And the rezoning request had been granted in the knowledge that Craigcare intended to develop 87 South Street as Stage 2 and it may be inferred that the application would be supported at least in principle by the Council.

8. Considering the factors enumerated in the preceding paragraphs on the basis most favourable to Mr Gillett obtaining rezoning and development approval would take 27 months (one month to prepare the rezoning request, 22 months to consider the rezoning request, and four months to obtain development approval) and on that basis the Stage 2 milestone would have been achieved in November 2019.  Considering the factors on the basis least favourable to Mr Gillett the process would take 32 months to complete (two months to prepare the rezoning request, 22 months to consider the rezoning request and eight months to obtain development approval).

9. In my judgment it cannot be said that the chance of obtaining the Stage 2 milestone was negligible or speculative but I am not persuaded that the chance was higher than 10%.  It was agreed that Stage 2 would make provision for 24 allocated places or beds.  On that basis I assess the value of Mr Gillett lost opportunity as $102,000 ((24 x $42,500) x 10%).

Conclusion

1. I find that Mr Gillett is entitled to damages of $102,000 in respect of the lost opportunity of achieving the Stage 2 milestone payment.

2. I will hear the parties in relation to interest and costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CD

Associate to the Honourable Justice Tottle

22 MARCH 2024