Hudson Investment Group Ltd v Atanaskovic
[2013] NSWSC 64
•11 February 2013
Supreme Court
New South Wales
Medium Neutral Citation: Hudson Investment Group Ltd v Atanaskovic [2013] NSWSC 64 Hearing dates: 6 February 2012; 7 February 2012; 8 February 2012; 10 February 2012 Decision date: 11 February 2013 Before: Simpson J Decision: (1) Verdict for the defendants.
(2) The plaintiff to pay the defendants' costs.
Catchwords: TORTS - NEGLIGENCE - professional negligence - breach of contract - claim for damages - legal practitioner retained to draft deed - whether breach of legal practitioner's duty of care - whether drafted in contravention of implied instruction - implied instruction superseded by subsequent communication - whether drafting caused loss or damage - verdict for defendants - plaintiff to pay defendant's costs Cases Cited: Australian Hardboards Ltd and Others v Hudson Investment Group Ltd [2006] NSWCA 146
Australian Hardboards Ltd v Hudson Investment Group Ltd [2007] NSWCA 104
Hudson Investment Group Ltd v Australian Hardboards Ltd & Ors [2006] HCATrans 617
Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 931
Hudson Investment Group Ltd v Australian Hardboards Ltd and Others [2005] NSWSC 716Category: Principal judgment Parties: Hudson Investment Group Ltd (Plaintiff)
John Ljubomir Atanaskovic (First Defendant)
Diana Angela Chang (Second Defendant)
Daniel Lee Farrugia (Third Defendant)
Anthony Geoffrey Hartnell (Fourth Defendant)
John Edward Mannix (Fifth Defendant)
Mark Stephen Pistilli (Sixth Defendant)
Daniel David Simmons (Seventh Defendant)Representation: Counsel:
J Kelly SC/N Furlan (Plaintiff)
A J Payne SC/R M Foreman (Defendants)
Solicitors:
Piper Alderman (Plaintiff)
Middletons (Defendants)
File Number(s): 2007/265085
Judgment
These proceedings are the latest (and, it is to be hoped, the last) chapter in a litigious saga involving a contractual arrangement enshrined in a Deed ("the Entitlement Deed") executed on 8 June 2001. It will be necessary in due course to refer to some of the preceding chapters in the litigation history. The present proceedings involve claims by the plaintiff of professional negligence and breach of contract against the defendants, specifically in relation to the drafting of the Entitlement Deed.
The contractual arrangements the subject of the Entitlement Deed involved Hudson Investment Group Ltd, Australian Hardboards Ltd, Wingate Properties Pty Ltd, Hudson Timber and Hardware Ltd, and other entities. In various documents to which it will be necessary to refer, the names of the corporate entities involved have been contracted in different ways. For the purpose of these reasons, it will be convenient to adopt the contractions used in the Entitlement Deed. I will refer to Hudson Investment Group Ltd as "Hudson"; to Australian Hardboards Ltd as "Hardboards"; and to Hudson Timber and Hardware Ltd as "Timber".
The contractual arrangements involved Hudson, Hardboards (a wholly owned subsidiary of Hudson) and Timber (a company in which Hudson held a majority shareholding).
In 2001 Hardboards was the owner of a substantial parcel of land in Bundamba in Queensland, which it proposed to develop. Towards that end, Hudson proposed to sell the whole of its shareholding in Hardboards to Timber. The purpose of the Entitlement Deed (as stated in Recital C) was to entitle Hudson to participate in and have the benefit of "the potential future benefits associated with the development and Disposal of the Land". It was agreed between Hudson and Hardboards that, on the occurrence of certain events, Hardboards would pay Hudson the amount of $10 million. I will refer below in more detail to other relevant provisions.
The original Statement of Claim was filed on 5 June 2007. A Further Amended Statement of Claim (the operative originating process) ("the FASOC") was filed on 15 December 2010. It names the eight partners of a firm of solicitors trading under the name "Atanaskovic Hartnell" as defendants. It was an employed solicitor of Atanaskovic Hartnell who drafted the Entitlement Deed. Essentially, the FASOC pleads claims by Hudson against Atanaskovic Hartnell in both contract and tort (negligence), which are identical in substance. The claim is that in drafting the Entitlement Deed as he did, the employed solicitor (Mr Jamie Restas) failed to discharge the duty of care that he (and Atanaskovic Hartnell as his employer) undoubtedly owed to Hudson. The claim primarily involves two clauses in the Entitlement Deed which are said (and conceded) to be contradictory. They are set out in [21] below.
History and background
I propose to recount in some detail, as nearly as possible in chronological order, much of the history of the dealings involving the parties to the Entitlement Deed and Atanaskovic Hartnell. The relevance of much of this will not be immediately apparent but will, I hope, be explained in due course.
Prior to 8 June 2001, Hudson was a public company listed on the Australian Stock Exchange. It employed Mr Bruce McLeod as Managing Director. Hardboards was a wholly owned subsidiary of Hudson. Hudson held a majority of shares in Timber. As at 8 June 2001, Hardboards owned a large parcel (in excess of 300 hectares) of land in Bundamba in Queensland. Hardboards proposed to develop the land into an industrial and business park. On 27 November 2000 Hardboards and Hudson signed Heads of Agreement with respect to the proposed development. (Also party to the Heads of Agreement were two additional companies, Wingate Properties Pty Ltd and A H Group Ltd. It is unnecessary to refer to these companies again.)
Hudson retained Atanaskovic Hartnell as its solicitors. A partner in Atanaskovic Hartnell, Mr Danny Simmons, was involved in the retainer. Working under his supervision and direction were two employed solicitors, Michael Kyriac, and Mr Restas. Between October 1998 and October 2001 Mr Restas regularly worked with Mr Simmons on a variety of matters concerning the Hudson group of companies. In the course of this work, Mr Restas had frequent contact with Mr McLeod. Mr McLeod gave instructions to Mr Restas on these matters in a manner that led Mr Restas to believe that Mr McLeod was "not an unsophisticated client [and had] a significant degree of knowledge and experience in commercial legal transactions, and commercial finance transactions" (affidavit of Mr Restas, para 21). Mr McLeod's practice was to give Mr Restas "succinct directions", and to review the documents Mr Restas produced; where he did not require variation, amendment or alteration, the document produced was acceptable to him (para 22).
Some time prior to 8 May 2001, Hudson agreed to sell all of its shareholding in Hardboards to Timber. By letter to Mr Simmons bearing that date Mr McLeod instructed Atanaskovic Hartnell to prepare a "simple Purchase and Sale Agreement", and to advise on other implications of the proposal.
Under the heading "Background or prior to acquisition", Mr McLeod instructed Mr Simmons as follows:
"2. HGL [Hudson]/AHL [Hardboards] had entered into a Joint Venture ('JV') with Wingate Properties Pty Ltd whereby the 322 hectares of the Ipswich property held by AHL has and will be developed by the joint venture. As part of the Purchase and Sale Agreement it has been agreed that the first $10 million profit earned by AHL on the JV on a pretext basis will be paid to HGL. A deposit of $5 million will be paid on the signing of the Purchase and Sale Agreement and the balance of $5 million will be paid as JV profit are realised (what are the tax implications?).
The 322 hectare (sic) of land consisting of the Wingate joint venture is valued at $10 million at Directors Valuation." (bold added)
In paragraph 12 of the FASOC, Hudson pleads that it instructed Atanaskovic Hartnell that the documentation:
"... should provide that in the event the ultimate control over, or ultimate beneficial ownership in, the Land or any part or parts of it, changed in any way on or before the fifth anniversary of the date of the [Deed], Hardboards must pay to [Hudson] the first $10 million of the proceeds received by Hardboards in relation to the disposal of the Land or any part or parts of it, less any deposit that had been paid ..." (bold added)
Whether such an instruction was given or not is in dispute. To the (limited) extent that it is necessary to do so, I shall return to deal with this factual matter.
In the first instance, Mr Simmons allocated to Mr Kyriac the task of drafting the required documents. Later that month, Mr Kyriac provided his first drafts of a "Share Purchase Agreement" and an "Entitlement Deed". Inter alia, the draft Entitlement Deed recited that:
"B. Hudson provided Hardboards with the opportunity to own the Land and to enter into the Joint Venture and in consideration of which Hardboards agreed to pay to Hudson $10,000,000 out of proceeds it receives from any Disposal of the Land." (bold added)
Under the heading "Payment Terms", the draft contained the following:
"(a) Subject to clause 3(b), Hardboards shall make payment of the Consideration Amount to Hudson, in cash by bank cheque and without set off or deduction, within five business days of Hardboards receiving any Benefit from any Disposal of the Land (or any part thereof).
(b) To the extent that any Benefit received by Hardboards from any Disposal of the Land is less than the Consideration Amount, Hardboards shall pay the full amount of that Benefit to Hudson and the Consideration Amount shall be reduced accordingly. Hardboards shall remain obliged under clause 3(a) until the full amount of the Consideration Amount has been received by Hudson.
(c) ...
(d) ..." (bold in original)
The "Consideration Amount" was defined to mean "10,000,000".
On 28 May 2001 Mr Simmons transferred the matter from Mr Kyriac to Mr Restas. Mr Restas was given Mr Kyriac's drafts of the Share Purchase Agreement and the Entitlement Deed. Initially, Mr Restas concentrated his attention on issues concerning the Share Purchase Agreement, to which he proposed a number of amendments.
In a conversation with Mr McLeod on 31 May 2001 that encompassed various other matters it is not necessary to recount, Mr Restas sought and obtained Mr McLeod's confirmation that his instructions were given on behalf of Hudson; Mr Restas recommended that Timber obtain independent advice. This was because Mr McLeod was not only Managing Director of Hudson but also a Director of Timber and Mr Restas perceived a potential conflict of interest. Mr McLeod declined (apparently on behalf of Timber) to take that course, and said that Timber would have an independent director and Mr Alan Scadden, who then held the position of joint company secretary and "General Manager Risk and Compliance" in Hudson, to review the contract on behalf of Timber. Mr Restas confirmed this in an email to Mr McLeod on 31 May 2001. It is of some importance that thereafter Mr Restas regarded his professional obligation as being to Hudson. His role was not to protect the interests of either Timber or Hardboards.
After completing work on the Share Purchase Agreement, and after some further conversations with Mr McLeod, Mr Restas turned his attention to Mr Kyriac's draft Entitlement Deed. Some time was then taken up by Mr Restas in attempting to consolidate the two draft agreements into a single document, to be called a Share Purchase Agreement. In this context he gave express consideration to whether the Share Purchase Agreement ought to contain a prohibition on partial sales of the land. He included a draft clause to that effect in the fifth draft (clause 6.4). He did this because he considered that that best protected Hudson. In effect, such a provision, if included in the contract documentation, would require Hudson's consent, by way of waiver of the prohibition clause, to the disposal of anything less than the whole of the land. This would open the way for Hudson to negotiate the terms and conditions upon which it would grant its consent.
A principal concern of Mr Restas at this time was whether the provision (in whatever document it was contained) ought to provide for payment, to Hudson, of the first $10 million from profit from sales, or from consideration received from sales (or the proceeds of sales) (see paras [10] and [11] above). Plainly, the latter would be more favourable to Hudson, and that is what eventually found its way into the final Entitlement Deed.
Notwithstanding Mr Restas' advice, Mr McLeod instructed him (on 7 June 2001) that he had decided to revert to the use of two separate documents, to be called a Share Purchase Agreement and an Entitlement Deed. Mr Restas then prepared the two documents, incorporating as clause 4 in the draft of the Entitlement Deed the substance of what had been clause 6.4 in the fifth draft of the Share Purchase Agreement. (This became clause 5 in the Entitlement Deed as ultimately executed.) Clause 5 contained the prohibition on partial sales of the land (see [21] below).
On 7 June 2001 Mr Restas sent a copy of the draft to Mr McLeod by email, specifically drawing Mr McLeod's attention to clause 4 of the draft. He said:
"Clause 4 effectively requires HTL [Timber] to obtain HIG's [Hudson's] consent in relation to part disposals, disposals that are not on arm's length terms and disposals that are not for cash."
On the following day (8 June 2001) the Entitlement Deed was executed. It is this Entitlement Deed that is the subject of the claim of professional negligence/breach of contract against Atanaskovic Hartnell.
The Entitlement Deed contained the following relevant provisions:
"RECITALS
A ...
B ...
C Hudson proposes to sell all of the issued shares in the capital to [sic - of] Hardboards to Hudson Timber and Hardware Ltd ... and, in connection with that sale, Hudson wishes to ensure that it retains the ability to participate in, and have the benefit of, some of the potential future benefits associated with the development and Disposal of the Land in accordance with the Heads of Agreement.
D ...
OPERATIVE PROVISIONS
1. DEFINITIONS
'Deposit' means $3.5 million;
'Disposal' has the meaning as defined in clause 4;
'Land' has the meaning as that term is defined in the Heads of Agreement [By the Heads of Agreement, the "Land" was defined to include specific land owned by Hardboards identified by lot numbers, but with certain exclusions.];
'Mortgage' means the mortgage in the form required by Hudson;
'Sunset Date' means the fifth anniversary of the date of this deed [ie 8 June 2006].
2. DEPOSIT
(a) On signing this deed, Hardboards must pay the Deposit to Hudson.
(b) Hudson must:
(i) invest the Deposit until the earlier of the Disposal Date and Sunset Date ...
(ii) withdraw the Deposit and accrued interest on the required date and pay it to the party entitled to the Deposit under Clause 2(d).
(c) interest on the Deposit is payable to the party entitled to the Deposit under Clause 2(d).
(d)(i) subject to paragraph (ii), Hudson is always entitled to the Deposit
(ii) Hardboards is entitled to the Deposit if:
(A) this Deed is terminated in accordance with Clause 3(e); and
(B) a Disposal does not occur prior to the Sunset Date and Hardboards has complied with its obligations under Clause 6(a).
3. CONDITIONS PRECEDENT
... (see below)
4. PAYMENT
The parties agree that if the ultimate control over, or ultimate beneficial ownership in, the Land changes in any way (a 'Disposal') on or before the Sunset Date, Hardboards must, on the date of the Disposal, pay to Hudson the lesser of the following amounts:
a $10,000,000 less the Deposit; and
b the value of the aggregate consideration received by Hardboards in relation to the Disposal less the Deposit.
5. DISPOSAL UNDERTAKING
Hardboards agrees that it will not undertake a Disposal:
(a) which does not involve Hardboards ceasing to have all control over, or all of its beneficial ownership in, the Land; and
(b) unless it is on arm's length terms and the consideration to be received is cash payable as at the date of the Disposal.
6. BEST ENDEAVOURS
... (see below)
7. NOTICE
Hardboards shall give Hudson prompt notice of Hardboards entering into any arrangement in respect of, or in any way dealing with the Land, which notice shall include a copy of any such agreement or arrangement.
8. SECURITY
Hardboards shall grant Hudson the mortgage as and when required by Hudson."
Clause 3 specified a number of "Conditions Precedent". Clause 3(a) provided for immediate termination of the Entitlement Deed if the conditions were not satisfied by 27 July 2001, or later date agreed upon. Clause 6(a) required Hardboards to use its best endeavours to develop and dispose of the Land before the Sunset Date.
On 7 June 2001, Mr McLeod advised Mr Restas that the deposit of $3.5 million had been paid. Whether this was correct or not was the subject of a dispute to which I will (although briefly) return.
On 20 June 2001 and on or about 5 September 2001 Deeds of Amendment of the Entitlement Deed were executed. Each was subsequently held by Einstein J to be void: Hudson Investment Group Ltd v Australian Hardboards Ltd and Others [2005] NSWSC 716.
In January 2003 part of the land was transferred to A H Bremer Park Pty Ltd, which was then a wholly owned subsidiary of Hardboards, and ultimately to Bremer Business Park Pty Ltd. This transfer became known as the "Capral Transfer". A sum of $2 million was paid by Bremer Business Park Pty Ltd to A H Bremer Park Pty Ltd for the transfer (affidavit of A J Meers, para 13).
In August 2005 another parcel of the land was transferred to Seahampton Pty Ltd, for a consideration of $7.5 million paid to Hardboards. This became known as the "Seahampton Transfer". None of the proceeds of either sale was paid to Hudson.
It is unclear whether notice of these transfers was, as required by clause 7 of the Entitlement Deed, given by Hardboards to Hudson.
The Litigation
The litigation to which I referred commenced in 2004. On 21 May 2004 Hudson filed a Summons in the Commercial List of the Equity Division of this Court (No 50066/04) seeking a variety of orders and declarations. It named as defendants Hardboards, Timber, A H Bremer Park Pty Ltd, Mr McLeod and a Mr Peter Holland (a director of Hudson). The relief sought included declarations that both the first and second Deeds of Amendment were void (as having been signed by Mr McLeod without the authority of Hudson) and an order that the Entitlement Deed be specifically performed. (It is unnecessary to recount the various other orders and declarations sought.)
The Summons came on for a hearing before Einstein J on 4 July 2005 which proceeded over several days. No issue concerning the construction of any part or clause of the Entitlement Deed was litigated.
On 12 August his Honour gave judgment. As mentioned above he held both Amendment Deeds to be void, and indicated his intention to order specific performance of the Entitlement Deed (as executed on 8 June 2001). He required the parties to formulate a minute of orders reflecting his conclusions and findings.
Eventually, the parties having apparently being unable to agree on a form of orders that would reflect his Honour's conclusions, and after a further hearing, his Honour made a series of orders: Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 931.
Hardboards appealed to the Court of Appeal, challenging the declarations of invalidity of the Amendment Deeds. Hudson cross-appealed, raising an issue with which it is not necessary here to deal. Except for a variation in one of Einstein J's orders, both appeal and cross-appeal were dismissed: Australian Hardboards Ltd and Others v Hudson Investment Group Ltd [2006] NSWCA 146.
Hudson sought, but was refused, special leave to appeal to the High Court: Hudson Investment Group Ltd v Australian Hardboards Ltd & Ors [2006] HCATrans 617.
On 19 July 2006 Hudson filed a notice of motion in the same proceedings seeking orders with respect to the implementation of the orders of Einstein J as varied by the Court of Appeal. On 20 July 2006 Hardboards commenced separate proceedings against Hudson in the Equity Division (No 3839/06). These proceedings post-dated the sunset date stated in the Entitlement Deed. Hardboards sought a declaration that, on the proper construction of the Entitlement Deed, there had been no change in the ultimate control or ultimate beneficial ownership of the land prior to 8 June 2006 (the sunset date) and a consequential declaration that no moneys were payable by it to Hudson. This would appear to involve reliance upon clause 4, although the evidence does not disclose the nature of the argument proposed to be advanced. It further sought an order for payment by Hudson of $3.5 million. This was plainly a reference to the deposit; the prayer was based upon the assumption that the deposit had been paid but was repayable under clause 2(d)(ii) of the Entitlement Deed.
Hudson's notice of motion was promptly met by a notice of motion filed on behalf of Hardboards, seeking a stay of the notice of motion pending resolution of Hardboards' summons in proceedings 3839/06.
On 3 August 2006 Hudson retaliated by seeking a stay of Hardboards' summons (proceedings 3839/06). By further notice of motion filed on 15 August 2006 in proceedings 50066/04 Hardboards sought to amend its earlier notice of motion by adding a prayer for summary dismissal of Hudson's notice of motion.
On 1 September 2006 in a hearing in proceedings 50066/04 before Einstein J, Hudson filed in court an amended notice of motion, seeking, inter alia, an order that Hardboards pay to Hudson the sum of $6.5 million or, alternatively, an order that Hardboards pay to Hudson the value of the aggregate consideration received by Hardboards for the two transfers less the sum of $3.5 million, and an order for an inquiry into whether or not the deposit had been paid in accordance with clause 2(a) of the Entitlement Deed.
On 21 August 2006 Gzell J dismissed Hudson's notice of motion of 19 July, and ordered that proceedings on Hardboards' summons (proceedings 3839/06) be stayed until further order of the Court.
Hardboards sought leave to appeal against the decision of Gzell J. On 4 May 2007, by majority, the Court of Appeal granted leave to appeal, but dismissed the appeal: Australian Hardboards Ltd v Hudson Investment Group Ltd [2007] NSWCA 104. On 8 June 2007, Hudson and Hardboards compromised all proceedings between them. They did this by executing a "Settlement and Release Deed" pursuant to which Hardboards agreed to pay Hudson the sum of $6.1 million.
That concludes the account of the relevant facts and circumstances.
The evidence in the proceedings
Prior to the hearing of this matter, I was provided by both parties with numerous lever arch folders containing documents, respectively entitled "Plaintiff's Individual Tender Bundle" and the "Defendants' Individual Tender Bundle". Included in the plaintiff's tender bundle were affidavits deposed by Peter John Meers on 13 October 2008, Allan James Scadden, sworn 11 March 2011, Brendan Patrick Halligan on 3 October 2008, Francis Yeung Wai Choy on 3 November 2006, and Neville James Moses on 13 October 2008. Mr Moses' evidence was tendered as expert evidence concerning the practice and professional standards of solicitors drafting commercial deeds. The evidence of Mr Halligan and Mr Choy was directed to the question of whether the deposit of $3.5 million had or had not been paid. Mr Meers had been a director of Hudson between 1 March 2000 and 1 February 2002, and was appointed a non-executive director of Hudson on 27 November 2003. Essentially, his evidence recounted the history of the litigation concerning the transactions, and the settlement thereof. Each of these gentlemen also gave oral evidence. Also contained in the plaintiff's material was an affidavit of Allan James Scadden sworn 11 March 2011 to which it is not necessary further to refer.
The defendants' tender bundle contained an affidavit of Mr Restas sworn 1 July 2009, and other affidavits (Charles James Cawley, sworn 17 June 2009, and expert reports of Paul Barry Matthews, dated 9 September 2009 and 13 May 2011). Only Mr Restas was called, and the remaining affidavits were not read.
I mention in detail this material because there is some confusion concerning the remainder of the material that was formally admitted. Exhibit B (T 159) consists of pages 1290 - 1996 of volumes 4 and 5 of the plaintiff's tender bundle. The remaining documentation was not formally tendered or admitted into evidence.
Exhibit 1 is made up of volumes 1 to 4 of the defendants' tender bundle. The remaining documentation was not formally tendered or admitted into evidence. However, in final submissions, some reference was made to documents that are not contained in what I have just identified.
The plaintiff's claim
In final submissions, Hudson claims:
(i) that Atanaskovic Hartnell were instructed that the first $10 million of the proceeds of any sale (whether of the whole or of any part) of the land was to be paid by Hardboards to Hudson. (The salient part of this contention is that the instructions contemplated and envisaged, whether explicitly or implicitly, that the land might be sold in stages, or in separate parcels);
(ii) that, in including in the Entitlement Deed (in clause 5) an express prohibition on partial sales of the land, Atanaskovic Hartnell acted contrary to that instruction;
(iii) that, by reason of the inclusion of clause 5 in the Entitlement Deed:
"there is only one certain circumstance in which Hudson is entitled under the deed to enjoy the right to be paid the first $10 million of the proceeds of the land, relevantly, a change in the ultimate beneficial ownership of the whole of the land ..." (bold added);
(iv) that, when Hardboards disposed of parts of the land (in contravention of clause 5) uncertainty arose as to:
(a) the entitlement of Hudson to be paid under clause 4;
(b) the measure of any damages for breach of clause 5;
(v) that, as a consequence of what it characterises as negligent drafting of the Entitlement Deed by Mr Restas, Hudson became engaged in protracted and expensive litigation.
In this respect, the final written submissions contain the following:
"21. In what was a serious departure from the standard practice, Mr Restas prepared the Entitlement Deed in such a manner that it resulted in many years of expensive litigation as to the true meaning of the agreement because of the way it was drafted."
(vi) that the damage suffered by Hudson is to be quantified at $6,867,712.33 (including interest to 9 January 2012).
Although there is no separate claim made by Hudson in relation to the deposit of $3.5 million, nevertheless it was claimed that that figure ought to be a component of any damages awarded. This was because, on Hudson's contention, the deposit was not paid.
Moreover, although initially the quantification of damages was said to include the costs of litigation (and that claim appears to have been maintained in para 21 of Hudson's final written submissions), that claim was deleted when the FASOC was filed on 15 December 2010 and a Schedule of Loss and Damage filed on behalf of Hudson contained the following:
"10. For the purpose of simplifying the damages claim, HIG [Hudson] does not claim its costs of proceedings No 50066 of 2004 as part of its damages in these proceedings."
Resolution
I have mentioned that some time in the hearing was taken up with the factual dispute as to whether or not the deposit had been paid. This involved some analysis of company books of account. It is quite unnecessary to resolve this issue. On behalf of Hudson, it was conceded that, even if the deposit had not been paid, the failure to pay was not connected with the negligence or breach of contract alleged against Atanaskovic Hartnell. Since it is fundamental that damages can be awarded only for losses consequent upon any established breach of duty or breach of contract, that part of the claim must fail. I do not propose to take further time in dealing with either the evidence or the argument in respect of the deposit.
Another factual issue concerned the instructions that had been given to Atanaskovic Hartnell. I have extracted above the precise formulation of the instruction Hudson pleads was given to Atanaskovic Hartnell. It plainly includes the possibility of the sale of the land in separate portions.
There is no direct evidence that an instruction in the terms pleaded in the FASOC, whether orally or in writing, was given. Mr Restas has denied, on oath, that such an instruction was given (affidavit of Jamie Restas, 1 July 2009, para 17(b) and (c)).
The letter of instruction from Mr McLeod (8 May 2001) does not, either expressly or implicitly, refer to partial sales of the land. The issue to which Mr Restas directed his attention concerned whether the entitlement of Hudson to $10 million was from the profits or the proceeds of sale of the land. In cross-examination Mr Restas gave a comprehensive account of his communications with Mr McLeod in the preparation of the documentation, including the Entitlement Deed. Mr McLeod did not provide an affidavit, nor give oral evidence. One may speculate that his absence from the witness box had something to do with adverse findings concerning his credibility made by Einstein J. In order to establish the entitlement instruction, Hudson relied upon various documents that were in evidence.
The significant words in dispute are the words "or any part or parts of it" [ie the land] which appear twice in the entitlement instruction as pleaded. The issue is whether Atanaskovic Hartnell were instructed to prepare a deed in terms that recognised the possibility of part disposals of the land, that is, the disposal of the land in segments or tranches. There was, of course, no evidence of any discussion had by Mr McLeod with either Mr Simmons or Mr Kyriac, or any oral instructions given by him to them. I do not find that instructions were given to Atanaskovic Hartnell in the terms pleaded in paragraph 12 of the FASOC.
However, I do consider that, in all of the circumstances, it was envisaged, certainly by Hudson, and probably by Mr Restas, that the land would be disposed of other than as a sale of the whole 322 hectares. It is accepted by both parties that that was implicit in the way clause 4 of the Entitlement Deed was framed. It is also a commonsense approach to a transaction of the kind under consideration.
It was therefore argued that clause 5, in direct contradiction of that assumption, was negligently drafted, and drafted in contravention of the (at least) implicit instruction and common understanding.
That may be so, except for one important item of evidence. That is the email from Mr Restas to Mr McLeod explicitly drawing his attention to clause 5 and explaining the reasons for it having being included (see [19] above). At an early stage in these reasons I have set out the evidence concerning Mr Restas' prior dealings with Mr McLeod. It is a reasonable inference that Mr McLeod read and understood Mr Restas' email and, even if tacitly, but in accordance with past practice, accepted the advice Mr Restas gave and the resulting clause. In other words, even if an instruction had been given in the terms pleaded in paragraph 12 of the FASOC, that instruction was overtaken by later events. Mr McLeod's instruction to proceed with two separate documented agreements, contrary to Mr Restas' advice, clearly establishes that he was actively involved in the process.
Even if I were wrong in that conclusion, the inclusion of clause 5 has not been causative of any loss or damage to Hudson. The clause was not an issue in any of the litigation involving the parties. It has nothing to do with the failure of Hardboards to make payments to Hudson in accordance with clause 4 following the Capral and Seahampton transfers, nor the failure (if it be the case) of Hardboards to give notice to Hudson of the proposed transfers. Any adverse consequences to Hudson have arisen out of non-compliance with the terms of the Entitlement Deed.
On behalf of Hudson it is claimed that it has been delayed in its receipt of the proceeds of sales to which it was entitled.
The Capral sale and the Seahampton sale together yielded $9.5 million. Hudson was entitled to payment from those proceeds, subject to the deduction of $3.5 million representing the deposit (whether, in reality, it was or was not paid). In other words, Hudson was entitled to payment of $6 million. On settlement of the various proceedings, it was paid (in 2007) $6.1 million.
I accept that there was a period of delay (between 2005 and 2007) before Hudson received the money to which it was entitled. However, again, this is not attributable to any aspect of the drafting of the Entitlement Deed. It is attributable, it seems, to default on the part of Hardboards in honouring its obligation under the Entitlement Deed. It may be attributable to Hudson's failure to protect its own interests in enforcing the provisions of the Deed. In part at least, that may depend on what notice Hudson had of the transfers.
It was contended that any failure on Hudson's part to take steps to enforce its rights under the Entitlement Deed could, in turn, be attributed to the clumsiness of the drafting, and the consequent uncertainty as to the meaning of either clause 4 or clause 5, and that this was the cause of the litigation. However, as can be seen from the account of the litigation above, none of it was directed to the construction of either of those clauses. The first litigation that involved any construction of any part of the Entitlement Deed was Hardboards' summons (No 3839/06) filed on 20 July 2006, seeking a declaration that there had been no change in the ultimate control or ultimate beneficial ownership of the land. This appears to involve reliance upon clause 4, not clause 5. In any event, the suggestion is purely speculative. There is no evidence that Hudson withheld attempting to enforce its rights under the Entitlement Deed to any such uncertainty.
I do not accept that Hudson has sustained any loss at all; it has recovered the money to which it was entitled under the Entitlement Deed in respect of the proceeds of sale. True it was, there was some delay in its receiving those funds, but, as I have said, that was not because of the manner in which the Entitlement Deed was drafted. If it is correct that Hudson has not been paid the deposit of $3.5 million, that is entirely attributable to its own failure to ensure that it was paid. It has nothing to do with the drafting of the Entitlement Deed. So much was conceded.
The consequence of these conclusions is that there will be a verdict for the defendants. The plaintiff must pay the defendants' costs. The orders I make are:
(1) Verdict for the defendants.
(2) The plaintiff to pay the defendants' costs.
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Decision last updated: 11 February 2013
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