Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd

[2015] NSWSC 354

Supreme Court

New South Wales

Medium Neutral Citation:

Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2015] NSWSC 354

Hearing dates:

11 – 14 August 2014

Date of orders:

02 April 2015

Decision date:

02 April 2015

Jurisdiction:

Equity Division

Before:

Robb J

Decision:

(1)   Order that the plaintiff’s claim be dismissed.

(2)    Order the plaintiff to pay the defendants’ costs of the proceedings.

(3)    Order that the exhibits may be returned forthwith in accordance with the Rules

Catchwords:

CONTRACT – principles governing identification of parties to a contract – identification of parties to heads of agreement – principles governing whether heads of agreement are enforceable – circumstances in which the subsequent conduct of the parties may be taken into account to determine the context in which the contract was entered into – finding that heads of agreement constituted a binding contract – circumstances in which an implied obligation may exist upon the parties to negotiate the terms of formal contractual documents – principles governing termination of a contract for repudiation – conduct of one party capable of being a repudiation of the contract – significance of other party being in breach of the contract – other party also not ready and willing to perform the contract – termination of contract for repudiation not effective.

  DAMAGES -- principles governing the assessment of damages for breach of heads of agreement – consideration of the difficulties involved in assessing the quantum of damages for breach of a heads of agreement where the parties have not finally agreed all of the terms of the formal documentation – need to make proper allowance for all contingencies

Legislation Cited:

Environmental Planning and Assessment Act 1979 (NSW)

Cases Cited:

Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Air Tahiti Nui Pty Ltd v McKenzie [2009] NSWCA 429; (2009) 77 NSWLR 299
Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153
Carpenter v McGrath (1996) 40 NSWLR 39
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
Centennial Coal Co Ltd v Xstrata Coal Pty Ltd [2009] NSWCA 341; (2009) 76 NSWLR 129
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd [2013] VSC 464
Filadelfia Projects Pty Ltd v Entirity Business Services Pty Ltd [2011] NSWSC 116
Fishlock v Campaign Palace [2013] NSWSC 531
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Idameneo Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329
Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007-2008) 233 CLR 115
Lahodiuk v Pace [2013] NSWSC 512
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
Lederberger v Mediterranean Olives Financial Pty Ltd ; (2012) 38 VR 509
Mackay v Dick [1881] 6 App Cas 251
Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113
Perini Corporation v The Commonwealth [1969] 2 NSWR 530
Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154
Plumore Pty Ltd v Handley (1996) 41 NSWLR 30
QBE Ensure its Australia Ltd v Vasic [2010] NSWCA 166
Ruthol Pty Ltd v Tricon Australia Pty Ltd [2005] NSWCA 443
Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261
Stratton Finance Pty Ltd v Webb [2014] FCAFC 110
Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248; (2008-2010) 75 NSWLR 1
Tatts Group Ltd v The State of Victoria [2014] VSC 302
Tomko v Palasty [2007] NSWCA 25
United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429

Texts Cited:

J W Carter, Carter on Contract, (2001)

Category:

Principal judgment

Parties:

Harold R Finger & Co Pty Ltd (plaintiff)
Karellas Investments Pty Ltd (first defendant)
Karellas Group Pty Ltd (second defendant)

Representation:

Counsel: DH Murr SC/J Horowitz (plaintiff)
CR Newlinds SC/D Barnett (first and second defendants)

Solicitors: Reid & Vessely (plaintiff)
Williams Love & Nicol (first and second defendant)

File Number(s):

2012/171813

Publication restriction:

None

Judgment

The proceedings

1. The plaintiff’s claim against the defendants is for damages for the alleged repudiation by one of them of a contract in which the relevant defendant agreed to enter into an agreement to lease, and then a lease, of premises owned by the plaintiff, for the purpose of conducting a supermarket business. The plaintiff says it terminated the contract upon the basis of the repudiation by the defendant.

2. The plaintiff is Harold R Finger & Co Pty Ltd (Finger). Finger has at all relevant times been the owner of the property at 21 – 23 Erskineville Road, Newtown (the Property). Finger was represented in its dealings with the defendants by Harold Finger and his son, Ben Finger. Ben Finger undertook most of the negotiations and communications with the defendants on behalf of Finger.

3. There are two defendants, Karellas Investments Pty Ltd (Karellas Investments) and Karellas Group Pty Ltd (Karellas Group). There is an issue in the proceedings as to which of the defendants was a party to the contract upon which Finger sues, if there was such a contract. The uncertainty arises because the document that is said to constitute the contract refers on most occasions to “Karellas Group”, without specifically naming any party, or using the words “Pty Ltd” as part of the description of the party on behalf of whom the l document was signed. I will use the word “Karellas” in situations where it is convenient to refer to the defendants generally, without identifying a specific defendant.

4. In par 6 of its statement of claim Finger alleges that Karellas Investments was the party to the contract “or, in the alternative” Karellas Group. Accordingly, Finger claims that one or other of the two defendants was the party, not both of them.

5. Vasilli Karellas and Andrew Karellas represented Karellas in their dealings with Finger. Both were directors of Karellas Investments and Karellas Group.

The plaintiff’s pleaded case

6. Finger’s statement of claim was filed on 30 May 2012. The following analysis focuses on the allegations in the statement of claim that are primarily relevant to the matters in issue between the parties.

7. Finger alleges in par 5 that, by a document dated 21 December 2009, Finger made a contract with Karellas Investments or, in the alternative, with Karellas Group. I will generally call this document the “heads of agreement”. It started out as a letter of offer dated 21 October 2009 sent on behalf of "Karellas Group" to Finger. After negotiations, and the making of a number of amendments, the final version of the letter of offer was signed on behalf of Finger and "Karellas Group" and dated 21 December 2009, although the signing of the final version of the document took place at a later date. The parties called the document the “heads of agreement” during the proceedings).

8. The primary obligation upon Karellas under the contract is alleged in par 7 in the following terms:

"By the contract, [Finger] and Karellas agreed:

(1)   [Finger] and Karellas would enter into an agreement for lease, by which:

(a) [Finger] or nominee would grant to [Karellas Investments] or nominee; and

(b) [Karellas Investments] or nominee would take,

a lease of a supermarket building to be constructed on the land, for a term of 15 years from the commencement of trade, and otherwise on the terms and conditions set out in the contract; and

(2)   That the parties or their nominees would respectively grant and take a lease of the supermarket building on those terms.

9. The part of this allegation that is of most significance is the use of the words "and otherwise on the terms and conditions set out in the contract" to describe the terms of the lease (other than the identification of the subject premises and the term in years). Finger’s allegation is that all of the other terms and conditions were either set out in the contract, or they could be determined following the performance of an obligation imposed on the parties to settle the formal documentation.

10. The particulars to par 7 identify, as the particulars of the alleged contract, the 21 December 2009 heads of agreement, the then current approved plans for the reconstruction of the building on the Property referred to in the heads of agreement, and terms implied by the express terms or implied as a matter of law.

11. Finger then sets out in par 8 the terms of par 24 of the heads of agreement:

24.   Binding agreement

Although it is intended that a formal agreement for lease will be executed based on the Karellas Group standard documentation, including the commercial terms in this letter, it is intended that acceptance by you of the terms and conditions of this letter will create a binding heads of agreement between you and the Karellas Group.

12. While in par 7(1) of the statement of claim Finger alleges that the lease terms were to be "otherwise on the terms and conditions set out in the contract", clause 24 of the heads of agreement stated that the agreement for lease would be based on the Karellas Group standard documentation, including the commercial terms in the letter. Paragraph 9 of the statement of claim sets out the terms of par 22 of the heads of agreement. That term states that the offer has been approved by the Karellas Group Board. That approval would be operative for a period of 12 months. If formal documentation was not executed within that time, Karellas Group could elect to terminate the agreement and withdraw from the project.

13. Finger alleges in par 10 that it follows from the terms alleged in pars 8 and 9 that the parties were subject to implied obligations to act reasonably, and within 12 months of the date of the letter to settle the terms of formal documentation for an agreement for lease "embodying the terms and conditions set out in the contract (with such variations or further terms as the parties might subsequently agree on)”; and to execute the formal documentation.

14. Finger alleges in par 11 that the terms alleged in par 10 were essential terms of the contract.

15. In par 12 Finger pleads that, between December 2009 and June 2010, the parties carried out negotiations with a view to reaching agreement on variations to the agreed terms and reaching agreement on additional terms, and settling the terms of the formal documentation "embodying the terms and conditions set out in the contract and the varied and additional terms that were agreed to".

16. Paragraph 13 pleads the terms of an email sent by Vasilli Karellas to Ben Finger on 8 June 2010. The email said: "The conclusions in the report obviously changes [sic] the basis that we have been proceeding [sic]. With this level of turnover and on the proposed lease terms the business is not viable for us."

17. Finger then pleads in par 14 the effect of a letter dated 9 June 2010 from Karellas’ solicitor to the solicitor for Finger, which is the letter that Finger alleges was, together with the email of the previous day, a repudiation of the contract by Karellas. The precise allegations made by Finger should be set out:

… The letter said or implied the following:

(1) Karellas would "not be proceeding with the…proposed Lease on the current proposed terms".

(2) The contract of 21 December 2009 did not bind the parties, and in particular, Karellas, to settle the terms of and then execute formal documentation containing terms and conditions as alleged in paragraph 10 (1) above. This is implied in the third paragraph of the first page of the letter, where it is said:

(a) That there was no executed agreement for lease;

(b) That the terms of the lease were still being negotiated;

(c) That the contract of 21 December 2009 outlined some (and by implication, not all) of the intended lease conditions;

(d) That there had been "significant changes" to the terms as contemplated by the contract; and

(e) That there were a number of "important matters" that had not been discussed as at December 2009.

(3) The contributing factors to Karellas' decision included:

(a) Concern about the impact of future development on the site on the supermarket business; and

(b) A market analysis report, commissioned and recently received – believed by [Finger] to be the report referred to in paragraph 13 above – that showed:

(i) Significantly reduced turnover to what Karellas had factored into their business analysis; and

(ii) That there were limitations on the possible turnover that could be achieved in the area, having regard to the size of the supermarket been currently proposed.

(4) Karellas was willing to continue negotiations:

(a) "[To] see if a suitable outcome could be achieved for both parties"; and

(b) "[To] see if the proposed lease terms could accommodate the above matters", i.e. the matters referred to in paragraph 14 (3) above.

(5) By implication, Karellas was not willing to continue negotiations except for the purposes referred to in paragraph 14(4) above.

18. Finger then alleges in par 15 that, by the statements in Vasilli Karellas' 8 June 2010 email and the solicitor's 9 June 2010 letter (being the communications referred to in pars 13 and 14 of the statement of claim), Karellas repudiated the contract. It did so because it:

(1) Indicated that it was refusing to perform the contract according to its terms, by settling the terms of and then executing formal documentation containing terms and conditions as alleged in paragraph 10(1); and

(2) Indicated that it would perform the contract only if and to the extent that it suited it to do so, that is, not with a view to settling terms of formal documentation in accordance with the contract, but rather with a view to negotiating commercial terms more favourable for itself than those agreed to in the contract.

19. Paragraph 15(1) reinforces the conclusion that the statement of claim alleges that, unless there were variations or further terms to which the parties actually agreed, the terms of the lease were to be those required by the heads of agreement.

20. Finger pleads in par 16 that, by its solicitor's letter dated 16 August 2010, it expressly accepted Karellas' repudiation, and terminated the contract, with the result (as alleged in par 17) that it lost the benefit of the contract, and otherwise suffered loss and damage.

21. On about 16 May 2011 Finger entered into an agreement for lease with Woolworths Ltd (par 18). Finger’s claim for damages is set out in Schedule 1 to the statement of claim. The total loss claimed is $3,191,868, constituted by the difference between the net present value of the rent and other payments that Karellas agreed to pay, and the net present value of the rent and other sums payable by Woolworths under its lease, plus interest, plus other consequential losses. I will consider Finger’s damages claim separately below, in relation to the schedules handed up by Finger in final submissions.

22. It is necessary to take note of a number of matters that were not pleaded by Finger in its statement of claim, which appear to be relevant to the matters in issue between the parties, and the manner in which the case was conducted.

23. First, Finger did not plead that, at some date before the alleged repudiation of the contract by Karellas, the parties following their negotiations had come to a concluded and binding agreement about varied and additional terms to be included in the formal documentation, other than the terms required by the heads of agreement. Finger merely acknowledges that the final agreement for lease and lease terms could include varied or additional terms, and it pleads that the parties carried out negotiations with a view to reaching agreement on variations and additional terms to the agreed terms. It did not plead the content or result of those negotiations, and did not allege that any agreements were concluded so that the terms in the heads of agreement were varied in a way that bound the parties.

24. Secondly, Finger did not plead that, in fact, the conclusions reached in the market analysis report referred to by Finger in pars 13 and 14(3)(b) of its statement of claim were correct, so that the supermarket would not have been viable, if undertaken under a lease containing the terms required by the heads of agreement. The plaintiff only pleads (in par 13) that Vasilli Karellas' 8 June 2010 email said that "the business is not viable for us".

The Property and the original development

25. As I have noted, one of the particulars of the contract given by Finger was the then current approved plans for the making of alterations to the existing building, referred to in the heads of agreement. I will call this development approval the “Original Development Approval”.

26. At the date of the heads of agreement there was erected on the Property an older style commercial warehouse building that covered substantially the whole of the site (the Building). The Property was of irregular shape with six sides, five of which adjoined a number of roadways, and the sixth adjoined a neighbouring factory. The other sides abutted Erskineville Road, Gowrie Street (two sides), Railway Lane and Angel Lane. The Building had an older style sawtooth roof. The roof was apparently of relatively light construction, and the evidence shows that only two structural columns were necessary to support the roof in the part of the Property that was proposed to be used as the trading area for the supermarket. An area within the Property was set aside as a car park. Vehicular access could be gained to the car park along Gowrie Street from Erskineville Road in one direction and along Angel Lane and Railway Lane from the other. That access appears to have been relatively confined. The Property is located in the inner City of Sydney, at Newtown, between Newtown and Erskineville railway stations. That is a busy area of the City, with relatively limited parking opportunities.

27. The Original Development Approval was granted by the City of Sydney to operate from 24 September 2009, in accordance with Development Application No D/2009/537, dated 20 April 2009. It was granted in respect of a series of drawings by Brian Meyerson, an architect, dated 6 April 2009, and described as “Revision B”. One of the conditions upon which the approval was given was that only hand-held baskets could be provided to customers of the supermarket, and the use of trolleys was prohibited.

28. Ben Finger provided the DA consent conditions, as well as the survey of the Property, to Vasilli and Andrew Karellas, as attachments to an email dated 23 October 2009. He said: “You can see presently there are only two columns within the trade area floor plate, but as discussed this will change to allow for any future upper level”. Ben Finger sent the plans approved by the Council to Vasilli and Andrew Karellas on 27 October 2009. These plans, being Revision B, provided for a trading area abutting Erskineville Road, a single storey back office behind the trading area, a loading area, and space for parking 16 cars.

Revision C

29. At the beginning of the negotiations between Finger and Karellas, Ben Finger provided plans for what was called the “Newtown Project” to Vasilli Karellas on 17 September 2009. (He also provided plans concerning Finger’s proposed development at Botany, which Karellas were apparently also considering. That opportunity was not pursued by Karellas, and is not material to the dispute).

30. The plans provided on 18 September 2009 were called Revision C. A number of features of Revision C appear to be significant to the present dispute. The ground floor plan shows an area abutting Erskineville Road described as “area for future access to upper floor 22 m²”. It also shows an area on the same side of the building, but at the back of the back office, described as “area for potential substation… 15 m²”. Both of those areas are excised from the larger area described as “trading area & back office”. No structural columns are shown in the trading area and back office. There is a loading area behind the trading area and back office, between that area and the parking area. The position of the wall between the loading area and the trading area and back office appears to have been moved in comparison to the plans approved with the Original Development Approval, in a way that increases the floor area of the trading area and back office. There appear to be four structural columns in the parking area, and as I understand it, provision is made for the construction of a number of walls in connection with a staircase within the parking area, that would give access to a plant room on the roof. The area for the back office is a single level, without a mezzanine floor.

29. Revision C allows for the construction of what is described as “proposed Bondeck slab” (see Ex A 1374). The slab is only shown as being constructed over the trading area and back office. There is no Bondeck slab at the first floor level above the loading dock and car park. I infer that the intention in providing for the slab was to permit Finger to undertake further development of the Property at a later time, and was intended to form the base for any further development above the trading area and back office. As I read the plans approved by the Council in relation to the Original Development Approval, they did not allow for the construction of a new roof slab. Revision C shows a new ceiling to be constructed over the trading area, the back of house and the loading area. The Original Development Approval allowed for the construction of this new ceiling. The new ceiling is shown under the proposed Bondeck slab. Revision C shows an existing slab over the car park that appears to create a mezzanine level over the car park. The notes state that this existing slab is to be retained.

30. Revision C also contains the following statement in respect of the area generally used as the car park: “existing area – no use proposed”.

31. The aspect of Revision C that only places the Bondeck slab over the proposed trading and back office areas would suggest that any future additional development to take place over the Property that required a concrete slab as a base would only take place over the trading and back office area. That conclusion is reinforced by the statement that no use was proposed in respect of the car park area, as to which there would, in any event, be no superimposed concrete slab.

32. This is a convenient point to note that Finger claimed in final submissions that Karellas knew from day one there was an intention to put a slab on top, and to do an upper level development of some kind (T 112). Finger also submitted that Karellas “must’ve been aware of what the scope of it was; the whole top storey was going to be done” (T 113). Finger referred to clause 3.50 of the first draft of the lease that was prepared before the heads of agreement was executed. This provision contemplated a general reservation by Finger of the right to alter the Building (other than the area proposed to be leased to Karellas (the Premises)). The clause did not contemplate any particular development. Having regard to Revision C, there was an intention to put a slab on top, but only on top of the trading and back office areas. Finger has not made good its claim that from the outset Karellas knew that Finger had an intention to put a first floor slab over the whole site area of the Property, and to construct a further development over the whole of that area. There is no evidence that, by the date of the heads of agreement, Karellas were made aware that Finger retained the right to further develop the Property in a way that would require any different slab at first floor level than was depicted in Revision C, or to develop the car park and loading dock areas for any new use.

Negotiation of heads of agreement

35. As I have noted above, on 17 September 2009, Ben Finger sent to Vasilli Karellas an email that attached plans for Finger’s Botany and Newtown projects.

36. On 15 October 2009, Ben Finger informed Vasilli Karellas that the total gross floor area, of what I understand to be the trading area and the back office, was 841 m².

37. On 21 October 2009, Andrew Karellas sent an email to Ben Finger in which he stated: "We are pleased to make the following offer for rental on 21 – 23 Erskineville Rd Newtown". The email attached a letter of offer, “One Concept layout plans for store”, and a design brief.

38. The letter of offer is on the letterhead of "karellasgroup", under a wavy line device. The letter is marked "Subject to Karellas Group board approval". Karellas Investments Pty Ltd is nominated as the tenant. The rent is specified at $675 per square metre per annum gross. Provision is made for the letter to be signed by Andrew Karellas as a director of "Karellas Group".

39. The letter of offer contained the following clause 15:

Master Plan

We understand that the Landlord has the right to develop the property in a pre-determined, orderly manner. However, we will expect such works to be in accordance with Karellas Group trading requirements.

It is essential for Karellas Group to understand the proposed development direction of this property for the future. If further development is proposed, it must be shown on a master plan, approved by Karellas Group, and included in the documentation.

40. As will be seen, the final sentence of this draft clause 15 was deleted from the version of the heads of agreement that the parties signed.

41. It also contained a clause 17 concerning “Amenity Provisions”. Only the first two paragraphs of the draft clause 17 set out below survived into the final version of the heads of agreement.

Amenity Provisions

Karellas Group requires a number of covenants to ensure that premises standards are maintained. These are not intended to impose onerous conditions on the Landlord, but are necessary to ensure that the Karellas Group supermarket trades to its optimum level. These provisions include requirements relating to car parking, biulding re-development, management standards, strata titling and services, and preservation of the arrangements shown on the site plan referred to below.

Karellas Group will rely on the preservation of these covenants, rights and amenities over the term of the lease. These are fundamental to the ongoing success of the supermarket and will be specified within the lease. Failure by the landlord to observe these principles will result in Karellas Group suffering sales and profitability losses that result from a breach by the landlord. The Landlord will be required to compensate Karellas Group for any losses and must work to maintain a trading environment consistent with that presently contemplated.

Site Plan

Site plan depicting the store, balance of the development, car parking and traffic arrangements to and from the site must be attached to the lease. The site plan is to be prepared by your consultants and approved by Karellas Group.

It must include the following components:

[20 bullet points are then listed for such matters as external and internal signage, car parking layout, lighting, pedestrian entry points, and similar details relevant to the operation of the proposed supermarket].

We look forward to the opportunity to collaborate throughout the design phase and to review detailed plans so as to provide our comments on issues including entry statements, weather protection, trolley access, services, loading dock area, car parking, internal vehicle circulation, lighting, customer access, and public safety and customer amenities.

The final plans and specifications for the development will be subject to Karellas Groups approval.

42. The single page layout plan attached to the 21 October 2009 email depicts five rows of supermarket bays containing 174 bays. (The parties used the term “gondolas” to refer to these bays). The 22 m² area excised from the previous plans is described as "owners area for future access to upper floor". No structural columns supporting the roof are shown. The layout plan provides for an area described as "trolley park".

43. The “design brief" is dated 7 October 2009, and sets out "Karellas Investments Building Requirements" for technical matters including hydraulic services, roller shutter/sliding doors, identification signage, fire services, mechanical services and electrical and communication services.

44. On 27 October 2009, Karellas' accountants, Walter Turnbull, sent a letter to Finger "to provide a statement of financial position for the purposes of securing a lease for the commercial property at 21 – 23 Erskineville Road”. The letter advised that the Karellas Group operated three supermarkets at Cremorne, Blaxland and Pyrmont through "the Karellas Family Trust # 3”. The letter stated:

With regard to providing evidence that the company is able to service the annual lease payments for Newtown of $567,675 we would prefer not to provide the financial statements of the business, as it contains commercially sensitive information. We can however confirm that we have prepared cash flow forecasts for Karellas Family Trust # 3 (the trading entity) up until the year ended 30 June 2012 which show the business generates sufficient cash flow to service the above-mentioned proposed lease payments.

45. The letter did not identify the company or other entity that was the trustee of the Karellas Family Trust #3.

46. Walter Turnbull sent a further letter to Finger’s accountant on 28 October 2009. The letter gave the gross sales and net trust profit for Karellas Family Trust No. 3, for operating its three existing supermarkets for each of three years as follows.

30 Jun 07	30 Jun 08	30 Jun 09
Gross sales	$44,089,446	$58,169,323	$69,712,474
Net trust profit	$1,970,649	$885,004	$2,821,186

47. On 29 October 2009, Mr David Toole, solicitor, who said that he was acting for the Karellas Group, forwarded to Harold Finger by email an incomplete draft agreement for lease, which contained a draft lease in the fourth schedule. The draft agreement for lease that was attached referred to Karellas Investments as the tenant, and provided for signature by that company. The draft lease also described the tenant as being Karellas Investments.

48. Mr Toole stated in his email that he had received instructions to prepare the agreement for lease and the lease, and that he had almost finished the draft lease. He expressly noted that the attached agreement for lease was only a draft, and said: “I have not had an opportunity to confirm my instructions as to the terms of the Agreement”. A copy of the email was sent to Vasilli and Andrew Karellas. It is a common practice for solicitors to send draft agreements to the party for whom they do not act, on the basis that the draft is subject to the client’s instructions, when solicitors are confident that the client is likely to approve the terms of the draft in substance, and that the draft does not contain terms that the client will be likely to reject, or consider to be damaging to the client’s bargaining position. There is no evidence that Vasilli or Andrew Karellas expressed any objection to any of the terms in the draft agreement for lease, before the heads of agreement was signed.

49. The draft lease that was included in the draft agreement for lease and which was apparently intended to be the fourth schedule to the draft agreement for lease) contained a clause 14.12 called "Alterations to the Building", which provided:

Subject to clause 10.1, the Landlord reserves the right from time to time to enlarge, alter or reduce the Building (other than the Premises, subject to the Landlord’s rights in relation thereto under this Lease) and to carry out construction or demolition works in any part of the Building (other than the Premises). The landlord will pay reasonable compensation to any interruption to the business conducted on the Premises.

50. Clause 14.13(c) permitted the Landlord, subject to clause 10.1, to enter upon the Premises and to use the whole or any part thereof for carrying out or effecting any of the works contemplated by clause 14.12.

51. The reference to clause 10.1 appears to be in error, as that provision has no apparent relevance, and clause 11.1 is a covenant by the landlord for quiet enjoyment.

52. By a further email dated 29 October 2009, Mr Toole sent another first draft lease to Harold Finger, which contains some different terms to the draft lease that was provided as a schedule to the draft agreement for lease.

53. Clause 3.50 is in the same terms as clause 14.12 of the earlier draft lease. Clause 3.51.1.1.1 has the same effect as clause 4.13(a).

54. Clauses 3.112 to 3.119 are found under the heading "Strata conversion & stratum conversion". Relevantly, they provided:

3.112 In this clause 'strata conversion' means a subdivision of the Premises for the Building by strata subdivision under the Strata Titles (Freehold Development) Act 1973…or any other legislation permitting such a subdivision.

3.113 The Tenant acknowledges that the Landlord is entitled to carry out a strata conversion at any time during the term of this Lease.

3.114 The Tenant will, within 28 days of the Landlord's written request to do so, sign and return to the Landlord any consents and other documents necessary to enable the Landlord to carry out the strata conversion and the Tenant will make no objection or claim for compensation in relation to the strata conversion…

3.115 If this strata conversion occurs:

3.115.1.1.1 any reference in this lease to the Building will be deemed to be a reference to the buildings comprised in the registered plan or plans of which the Premises form part…

3.115.1.1.3 this lease will be amended (by a variation of lease at the Landlord's cost) in any respect that is necessary to ensure that this lease reflects the fact that the strata conversion has been carried out…

55. "Building" is defined in Schedule 1 to the draft Lease as meaning

all the buildings and improvements erected or to be erected on the land at 261 – 263 Chalmers Street, Redfern and includes the Premises… but if the strata conversion has taken place, then the Building will mean the strata lot of which the Premises forms part.

56. It appears that the solicitor has adapted documents that concerned a proposal that Karellas Group would lease different premises in Redfern.

57. The terms of these initial draft documents prepared by Karellas’ solicitor have significance for an important issue that will be considered below. In the context of considering the issue of whether the heads of agreement constituted a concluded and binding contract, it will be necessary to consider whether the document was sufficiently complete to enable the heads of agreement to provide the basis for an enforceable contract, particularly in respect of covenants to protect Karellas in relation to any future additional development of the Property that Finger might carry out. In that respect, as will be seen, it may be significant that clause 24 of the heads of agreement provide that the formal documents will be “based on the Karellas Group standard documentation, including the commercial terms in this letter”. That will give rise to the question whether Karellas had standard documentation, and whether that documentation contained provision for future alterations to the Property by Finger. The point for present purposes is that, as I have noted, there is an appearance from the reference to the premises in Redfern that Karellas’ solicitor was using Karellas’ standard documentation, as a precedent for his draft documents. Those draft documents do contain covenants that deal with the issue of the future development of the Property.

58. Mr Toole sent a second draft of the letter of offer to Harold Finger on 30 October 2009. The draft was now headed "Binding heads of agreement". The chapeau to the numbered paragraphs had been changed from "we have pleasure in presenting this offer" to "we have pleasure in presenting this binding offer". The draft amended clause 1, concerning Premises, refers to the annexure of a copy of the current approved plans. (As has been considered above, the approved plans for the Original Development Approval were Revision B). Clause 1 contains a statement: “This offer is based on the plans (Reference DA 15 Revision C dated 1/10/09)”. It changes the lettable area to approximately 863 m², which includes the area of 22 m², which was originally intended to be excised from the demised premises to give the plaintiff access to the upper floor for the purpose of some future development of the Property. It notes that the landlord had reserved the right to excise this area from the area subject to the lease. If that right was exercised, the landlord was required to pay all costs, and the rent was to be reduced proportionately.

59. An email dated 2 December 2009 from Harold Finger to Vasilli Karellas made the following relevant requests for amendments to the draft letter of offer:

Further to our discussion yesterday and once you are satisfied to proceed with the changes, could your solicitor amend and resend the Heads of Agreement to me.

Just to confirm in point form these changes…

2) A methodology to calculate any loss's (sic) caused by future building…

11) Delete reference to "area for trolley storage".

15) Please delete the sentence, "If further development is proposed…and included in documentation".

60. The last amendment set out above was the only change sought to the draft clause 15.

61. Vasilli Karellas responded to this email on 10 December 2009, to advise that he would consider the new terms, and that the offer in the heads of agreement had lapsed. Following receipt of this email, Harold Finger suggested on 11 December 2009 that the most appropriate way to discuss the heads of agreement was for him and Ben finger to discuss the outstanding issues in person with Andrew and Vasilli Karellas.

62. That meeting occurred on 14 December 2009. During the course of the discussion hand written amendments were made to the draft of the heads of agreement dated 2 November 2009. At the end of the process, the amended draft was signed, and the bottom of each page initialled, by Harold Finger and Vasilli Karellas, and dated. Vasilli Karellas signed in the capacity of director “Karellas Group”.

63. Relevantly for present purposes, the following amendments were agreed, and the requisite changes made to the draft letter of offer.

64. The rent was reduced from $675 to $620 per square metre per annum gross.

65. The second paragraph within clause 11, called "Design Brief", had originally provided: "Suitable areas for the convenient storage of trolleys and the placement of communications equipment must be provided in locations outside the Premises". It was changed so that the reference to "trolleys" became "trolleys/baskets", and the words "must be provided in locations outside the Premises" were deleted.

66. In clause 15, concerning the "Master Plan", the sentence "If further development is proposed, it must be shown on a master plan, approved by Karellas Group, and included in the documentation" was deleted.

67. Additionally, the wording in clause 17 under the heading “Site Plan”, which had appeared in earlier versions of the draft heads of agreement, was omitted. That had the effect, that, where the first paragraph of clause 17 refers to provisions relating to “preservation of the arrangements shown on the site plan referred to below”, there was in fact no reference to such a site plan. The provision concerning the site plan was deleted in the final version of the heads of agreement.

The final terms of the heads of agreement

68. Subsequently, an engrossment of the heads of agreement dated 21 December 2009 was prepared, and executed by Harold Finger and Andrew Karellas. (The document was actually signed on behalf of the parties later on about 19 January 2010). It relevantly provided:

karellasgroup

PRIVATE AND CONFIDENTIAL

21 December 2009

Ben Finger

Haben

12 Excell St

Banksmeadow NSW 2019

Dear Mr Finger,

RE: New Store Project at Newtown 21 – 23 Erskineville Rd, Newtown NSW

Further to our recent discussions, we have pleasure in presenting this binding offer to enter into an Agreement for Lease and Lease with our organisation for the above-mentioned new supermarket premises, on the following terms and conditions.

1.   Premises

This offer is based on the plans (Reference DA 15 Revision C dated 1/10/09) with the final version to be attached to the lease. A copy of the current approved plans are attached to this letter and marked "A". In the event of further amendments, redesigns or changes to configurations, Karellas Group reserves its right to amend this offer.

2.    Lease Area

This offer is based on supermarket building of approximately 863 m² lettable area which will be confirmed on final survey and adjusted accordingly…conforming to the Karellas Group Design Brief as referred to below.

The approximate lettable area of 863 square meters includes an area of 22 m² that is highlighted on the attached plans. The Karellas Group confirms that the Landlord has reserved the right to excise this area from the area subject to the Lease. If you elect to do so the Landlord will pay all costs relating to any change to the fit-out of and also cost related to the disruption to the operation of the Supermarket. The rent under this Lease is to be reduced proportionally to the reduction of that lettable area at the time you commence work to refit this area.

During this refit period and while the business is being disrupted a further reduction in rent will apply by the following method.

The % fall in pre-refit turnover will be reflected by the same % reduction in payable rent.

Extra Area

If extra storage area is made available above the car park and is beneficial for the extra area to be leased by the supermarket payable rent of $350 m²-$450 m² needs to be negotiated and confirmed when relevant.

3.    Tenant

Karellas Investments Pty Limited…or Nominee

4.    Landlord

Harold R Finger or Nominee

5.    Initial Lease Term

15 years from commencement of trade.

6.    Options to Review

1 × 10 years

1 × 5 years

7.   Permitted Use

As per DA Conditions

Retail sales including but not limited to supermarket and ancillary purposes, banking facilities, the sales of alcoholic liquors and beverages, tobacco, pharmacy and the dispensing and sale of pharmaceutical products.

8.    Commencement Date

The lease will commence on the date on which Karellas Group commences trading from the new Premises.

9.    Occupancy Costs

Base Rent

$620 per square metre per annum gross, payable each calendar monthly (sic) in advance.

Base Rent Review

CPI Increase yearly up to and including year 5.

From Year 6 it will be either the greater of, 3% of audited GST exclusive turnover figures or the base rent at the end of year 5.

…

11.    Design Brief

A design brief will be issued which will contain Karellas Groups current standard Specification. The landlord is to deliver a turn-key supermarket premises in accordance with the obligations contained in the Specification.

Suitable areas for the convenient storage of trolleys/baskets and the placement of communications equipment.

Transmittal documents for the Specification will be attached to the Agreement for Lease. The delivery of the premises in accordance with this specification will be a condition of the lease.

12.    Programming

The Landlord must provide a development program acceptable to Karellas Group which specifies the date of handover following practical completion, for inclusion in the Agreement for Lease. The landlord must comply with the construction program, with normal industry allowance for delays.

It is essential from the opening date that Karellas Group has the full enjoyment of the property. The landlord will have to satisfy specified completion criteria before Karellas Group will commence to trade, including the Car park complete and fully accessible;

If these criteria are not met but Karellas Group commence to trade, Karellas Group will pay 1% of turnover instead of base rent from commencement of trade until all criteria are met.

13.    Fit out Period

Following the practical completion of works as detailed in the Specification, Karellas Group will require a period of eight – 12 weeks to fit out the store prior to opening. The Landlord is to provide uninterrupted access to the Premises for this purpose.

The Landlord and Karellas Group will endeavour to coordinate building works for the fit out to be done prior to the above 8 – 12 weeks fit out period.

…

15.    Master Plan

We understand the Landlord has the right to develop the property in a pre-determined, orderly manner. However, we will expect such works to be in accordance with Karellas Group trading requirements.

It is essential for Karellas Group to understand the proposed development direction of this property for the future.

…

17.    Amenity Provisions

Karellas Group requires a number of covenants to ensure that premises standards are maintained. These are not intended to impose onerous conditions on the Landlord, but are necessary to ensure that the Karellas Group supermarket trades to its optimum level. These provisions include requirements relating to car parking, wielding re-development, management standards, strata titling and services, and preservation of the arrangements shown on the site plan referred to below.

Karellas Group will rely on the preservation of these covenants, rights and amenities over the term of the lease. These are fundamental to the ongoing success of the supermarket and will be specified within the lease. Failures by the landlord to observe these principles will result in Karellas Group suffering sales and profitability losses that result from a breach by the landlord. The Landlord will be required to compensate Karellas Group for any losses and must work to maintain a trading environment consistent with that presently contemplated.

18.   Car Parking

Karellas Group requires that the area designated on the site plan for car parking will remain as designated supermarket car parking, irrespective of future development at all times. Karellas Group requires the dedication and use of 16 parking spaces but not limited to, to be reserved exclusively for its customers. If the site was to be expanded we would like first option on additional car parks.

Customer parking will be managed by Karellas Group Pty Ltd with boom gates and will be free of charge for a period of time yet to be established.

Please note that it is a specific requirement of the Design Brief that the car park must be completed upon handover to Karellas Group Pty Ltd.

…

21.    Specific Performance Following Board Approval

That Landlord must acknowledge that Karellas Groups' agreement to proceed is based on the Landlord's commitment to the project and to the Landlord's development programs. The Landlord must acknowledge that Karellas Group is incurring costs in the negotiation and documentation process and has allocated capital for the completion of the supermarket within the nominated period. If the Landlord fails to perform in accordance with the agreements and approvals, or markets or sells the property (in whole or in part) then Karellas Group may withdraw from the project and claim for costs and loss of profits.

Notwithstanding the above, the Landlord may seek and must obtain Karellas Groups' consent to a sale or other dealing with the ownership of the property. Karellas Groups' consent will not be unreasonably withheld if the Landlord can satisfy Karellas Group that the purchaser has the capacity to undertake the development and the Landlord guarantees the completion of the store and all other aspects of the agreement to Karellas Group's satisfaction.

22.    Documentation & Approvals

This offer has been approved by the Karellas Group Board. The approval by the Karellas Group Board will be operative for a period of 12 months from the date of this letter. If formal documentation is not executed within that time, Karellas Group can elect to terminate the agreement and withdraw from the project.

This offer is subject to finalisation of development plans, programming, Scope of Works specification and finishes to Karellas Group satisfaction.

23.    Documentation Costs

Each party will pay its own costs (including legal costs) in connection with the negotiation and preparation of the relevant documentation.

Karellas Group will prepare the Agreement for Lease and Lease documentation and will pay stamp duty (if applicable) on this Lease (other than any fines or penalties imposed as a result of the Landlord's default) and registration fees (if applicable) of this Lease.

24.    Binding Agreement

Although it is intended that a formal agreement for lease will be executed based on the Karellas Group standard documentation, including the commercial terms of this letter, it is intended that acceptance by you of the terms and conditions of this letter will create a binding heads of agreement between you and the Karellas Group.

…

Yours Sincerely

KARELLAS GROUP

Vasilli Karellas

Director

69. Clause 1 of the heads of agreement refers to the attachment (marked “A”) of the then current approved plans. There were no plans annexed to the final version of the heads of agreement. The omission was not explained. It may be because Revision C was an evolution of the approved plans, and clause 1 makes it clear that Revision C was intended to be the operative plans.

70. It must be noted that Revision C was a plan of the whole Property, and not just the Premises that were proposed to be leased to Karellas. The whole of the Property was of prime interest to Karellas because, although it would only take a lease of the Premises, it needed the use of the car park, the loading dock, and the plant room, for the successful operation of the proposed supermarket. Clause 1 referred to amendments, redesigns or changes to configuration of the whole Property.

71. Clause 22 expressly gave Karellas a right to terminate the agreement if the formal documentation was not executed within 12 months. Nothing is said expressly about Finger having a similar right. However, there is also a statement that: “The approval … will be operative for a period of 12 months from the date of this letter”. It could not have been intended that Karellas alone could have terminated, but Finger would be left in indefinite limbo. The proper way to construe clause 22 is that it impliedly gave to Finger the same right that it expressly gave to Karellas.

72. The heads of agreement dated 21 December 2009 differs from the letter of offer with the handwritten changes that was dated 2 November 2009 and signed on 14 December 2009 in a number of respects.

73. First, the words at the beginning of the latter "BINDING HEADS OF AGREEMENT" were deleted from the heads of agreement.

74. Secondly, the last two paragraphs of clause 2 in the document dated 21 December 2009, concerning a further reduction in rent during the refit period, if the landlord elected to use the 22 m² of excised area, and the extra storage that may be made available in the car park, were added.

75. Finally, in clause 3 concerning the tenant, in the earlier letter of offer Karellas Investments Pty Ltd was the only tenant identified, but this had been changed in the heads of agreement to "Karellas Investments Pty Ltd… or Nominee".

Legal principles governing identification of parties to contracts

76. The problem that must be addressed is: assuming for the present that the heads of agreement is capable of being a final and binding contract, which of the Karellas companies was party to it?

77. The problem arises because the term “Karellas Group” was used most frequently in the heads of agreement to describe the relevant Karellas entity, but there are other indications that point inconsistently to one or the other Karellas company being the party. (Even Mr Toole described himself as acting for “Karellas Group” in his 29 October 2009 communications).

78. Finger submits that Karellas Investments was the party to the heads of agreement; and in the alternative, that Karellas Group was. Karellas submit that Karellas Group was the only party, if there was a binding contract. The evidence does not show why the parties make these inconsistent submissions, and it would not be appropriate for the Court to speculate as to the reason.

79. It will be necessary first to consider the legal principles that govern how the parties to a contract should be identified.

80. In Air Tahiti Nui Pty Ltd v McKenzie [2009] NSWCA 429; (2009) 77 NSWLR 299 at [28], Allsop P and Handley AJA in a joint judgment (Hodgson JA agreeing) said the following:

[28] The identity of the contracting party is to be determined looking at the matter objectively, examining and construing any relevant documents in the factual matrix in which they were created and ascertaining between whom the parties objectively intended to contract. This is, to a point, a process of construction similar to the task of identifying whether a clearly contractual document (such as a bill of lading) is made with one party or another (such as a shipowner or time charterer): The Starsin at 770 and the cases considered in Wilford et al Time Charters (5th Ed Informa Publishing 2003) Ch 21. Where the documents are silent or ambiguous, but there is undoubtedly a contract, the identity of the parties must be determined objectively from the surrounding circumstances: see Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170 at 174; Protean (Holdings) Ltd v American Home Assurance Co (1985) 4 ANZ Ins Cas 60-683 at 74,055–74,056; Coulls v Bagot’s Executor and Trustee Co Ltd [1967] HCA 3; 119 CLR 460 at 477 at 478-479 and 486.

81. The Victorian Court of Appeal in Lederberger v Mediterranean Olives Financial Pty Ltd[2012] VSCA 262; (2012) 38 VR 509 at [19] put the principle in the following way:

Identification of the parties to a contract must be in accordance with the objective theory of contract. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had. The process of construction requires consideration of not only the text of the documents, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. This, in turn, presupposes knowledge of the genesis of the transaction, the background, and the context in which the parties are operating. [Footnotes omitted]

82. There is also a question of whether, and if so how, the Court may have regard to the conduct of the parties after the date of the contract to identify the intended parties.

83. The Court of Appeal in Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 left open the question whether it is permissible to look at post-contractual communications and conduct in order to determine whether a contract with a particular party existed: at [2] (Basten JA); at [59] (Campbell JA, Beazley JA agreeing).

84. In Tomko v Palasty [2007] NSWCA 25, Basten JA (Mason P agreeing) added that “[e]xcept to the extent that [subsequent conduct of the parties] constitute admissions by one or other party, they are largely equivocal”. In that same case, Einstein J (Mason P agreeing) considered the Pethybridge case and found that “evidence of post-contractual conduct is admissible on the question of whether a contract was formed”: at [67]. In his Honour’s view (at [68]), that meant that:

subsequent communications may legitimately be used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract, where an issue concerns whether a particular person was a party to that contract.

85. In Lederberger, the Victorian Court of Appeal considered the question whether the trial judge erred in determining the identity of the parties by reference to post-contractual conduct. The Court set out the key principles elucidated by Heydon JA (as he then was, Mason P and Ipp AJA agreeing) in Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-4, particularly the following:

The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed. [Citations omitted]

86. The Court accepted an argument that the general principle in contractual interpretation does not permit the use of post-contractual conduct of the parties as an aid to the construction of the contract. The Court continued (at [31]):

But we are not inclined to think that this now well-settled principle has affected the second principle stated by Heydon JA in Brambles Holdings so as to have precluded the trial judge from relying upon tax returns filed after the tax effective scheme contracts had been signed, in order to ascertain whether the respondents and the partners of the partnership had entered into the agricultural contracts.

The legitimacy of the Court’s taking into account conduct after the date of the contract to determine the identity of the parties was accepted by Ball J in Filadelfia Projects Pty Ltd v Entirity Business Services Pty Ltd [2011] NSWSC 116, where his Honour said:

[38] There are two principal difficulties with Mr Barlow’s second submission… Second, it is clear that post-contractual conduct can be taken into account in determining whether a contract was formed: see, for example, Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at 14,569–70 per Kirby P; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [25]. Necessarily, that extends to the question whether it was formed between particular parties, since contracts do not exist in the abstract…

Was Karellas Investments or Karellas Group party to the heads of agreement?

87. There are a number of facts that were known to the parties that occurred before the heads of agreement was signed that form part of the context that is relevant to the answer to this question.

88. The design brief dated 7 October 2009, that Andrew Karellas sent to Ben Finger as an attachment to an email on 21 October 2009, was described as “Karellas Investments Building Requirements”.

89. The draft agreement for lease that Mr Toole sent to Harold Finger on 29 October 2009 made provision for Karellas Investments to be nominated as the party, and for the agreement to be executed on behalf of Karellas Investments.

90. Both of these events would tend to suggest to Finger and its solicitor that the intention was that Karellas Investments would be the contracting party.

91. Against that, as I have mentioned, in his 29 October 2009 email, Mr Toole said that he acted for “the Karellas Group”. He did not add the words “Pty Ltd”. The use of the word “the” in the description of the client would ordinarily suggest that Mr Toole acted for a group of companies in the commonly understood meaning of that expression; that is, a parent or holding company and a number of companies that were its subsidiaries. Unfortunately, Mr Toole’s description of his client is unhelpful. There is no evidence that the two Karellas companies formed a group in that commonly understood sense, or that any of the persons involved had that understanding. The two companies were in effect sister companies, in the sense that the shares in each were owned by persons who appear to be related (as they had the surname Karellas).

92. The heads of agreement is on the letterhead of “karellasgroup” and the letter contains a provision for signature that shows that it was intended to be signed on behalf of “Karellas Group”.

93. It is true that “Karellas Group” is part of the name of Karellas Group, but it does not necessarily follow that the use of the expression was intended to refer to that company, with the words “Pty Ltd” simply being omitted. In all the circumstances the use of the expression “Karellas Group” appears most likely to be the result of unfocused thinking, and a failure by all of the persons concerned in the preparation of the heads of agreement to give proper attention to an essential detail. Notwithstanding what I have said above about their not actually being a Karellas Group within the ordinary meaning of that expression, the loose use of the term Karellas Group seems to refer to the Karellas interests (whatever they might be).

94. By far the greatest number of references in the heads of agreement is to “Karellas Group” (letterhead, footer, clauses 1, 8, 9 (×3), 10 to 16, 20 to 23 and 25). There is a reference in clause 2, clause 19 and clause 24 to “the Karellas Group”. Clause 22 contains a reference to “the Karellas Group Board” as well as a reference to “Karellas Group”.

95. Clause 18 concerns car parking and initially refers on two occasions to “Karellas Group”. It then, however, refers specifically to “Karellas Group Pty Ltd” in relation to who will manage customer parking, and that the “car park must be completed upon handover to Karellas Group Pty Ltd”.

507. That, logically, introduces the need to assess the probability that Finger could viably have proceeded with the more restricted development, and that it would have made a profit. That is another issue that is entirely a matter for speculation. Notwithstanding that the issue of whether Finger’s damages should be reduced by the amount of the profit that it made on the residential development was squarely raised by Karellas’ defence, the only evidence on the subject of whether Finger could successfully have constructed a residential development within the confines of the heads of agreement consisted of nothing more than an assertion to that effect by Ben Finger in cross-examination.

508. I bear in mind that Giles JA in Ruthol at [44] restated the principle that the guilty party bears the burden of proving that loss has been avoided, and the extent to which it has been avoided. However, there is a real question in this case as to the extent to which the burden of adducing evidence shifted to Finger, as the only party whose knowledge and intention, and experience, was relevant to the issues that would arise in the assessment of its damages out of the further redevelopment of the Property. Finger has sought to deal with all of the difficulties and complexities that naturally arise out of the task of attempting to assess the damages to which it would have been entitled by denying that they exist. The result has been that Finger’s damages claim is, with respect, in the nature of an ambit claim. That has seriously exacerbated the difficulty involved in making an objective assessment of the quantum of loss.

509. If it becomes necessary to determine the amount of the damages to which Finger is entitled, and if that task must be undertaken on the present evidence, and without the advantage of further submissions, the Court would be driven to making a global assessment of general damages, doing the best it could, allowing for all perceived doubts and contingencies.

510. I should record that there were a number of additional issues raised by Karellas in their final written submissions concerning the assessment of damages. It will be appropriate to leave those issues for further consideration, if that becomes necessary.

Orders

566. I make the following orders:

1. I order that the plaintiff’s claim be dismissed

2. I order the plaintiff to pay the defendants’ costs of the proceedings

3. I order that the exhibits may be returned forthwith in accordance with the Rules.

567. In par 508 above I have stated that Finger had not provided a calculation of the reduction in rent referred to in that paragraph.  That was an error.  Finger’s solicitor provided the calculation as an attachment to an email sent to my chambers on 22 August 2014, after judgment was reserved.  Karellas have not delivered any response to that email.  It has been placed on the file.  

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