Humphries v Cooke

[2009] NSWSC 1250

CITATION:	Humphries v Cooke [2009] NSWSC 1250 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	24 August 2009 25 August 2009
JUDGMENT DATE :	25 November 2009
JUDGMENT OF:	Price J at 1
DECISION:	1. The plaintiffs' claim be dismissed. 2. There is a verdict and judgment for the defendants against the plaintiffs. 3. The plaintiffs pay the defendants’ costs as agreed or assessed up until 19 February 2009 and from 20 February 2009 on an indemnity basis.
CATCHWORDS:	Negligence - duty of care - solicitors - extent of retainer - Damage - causation - Contract - construction of contract - surrounding circumstances
LEGISLATION CITED:	Civil Liability Act 2002 s 5, s 5D, s 5E Fair Trading Act 1987 s 42
CATEGORY:	Principal judgment
CASES CITED:	Adeels Palace Pty Ltd v Moubarak [2009] HCA 48 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Floruit Holdings Pty Ltd v Sebastian - Builders and Developers Pty Ltd [2009] NSWCA 303 GMA Garnet Pty Ltd v Barton International Inc [2009] FCA 439 Heydon v NRMA Limited (2000) 51 NSWLR 1 Masterton Homes Pty Ltd v Palm Assets Pty Ltd & Ors [2009] NSWCA 234 Mobbs v Kain [2009] NSWCA 301 Nguyen v Cosmopolitan Homes [2008] NSWCA 246 Stojan (No 9) Pty Ltd v Kenway [2009] NSWCA 364 Toll (FGCT) v Alphapharm Pty Ltd (2004) 219 CLR 165 Vodafone Pacific Ltd & Ors v Mobile Innovations Ltd [2004] NSWCA 15 Waste Recycling and Processing Corporation v Global Renewables Eastern Creek Pty Limited [2009] NSWCA 315
PARTIES:	Peter and Janice Lyn HUMPHRIES (Plaintiffs) Peter COOKE (First Defendant) John HARDING (Second Defendant) Tom MICHELSEN (Third Defendant) Robert NEDWICH (Fourth Defendant) David FREESTONE (Fifth Defendant) Dianne L'ESTRANGE (Sixth Defendant) Mark HAGAN (Seventh Defendant)
FILE NUMBER(S):	SC 2007/20316
COUNSEL:	T Morahan (Plaintiffs) M Dicker (Defendants)
SOLICITORS:	Hozack Clisdell Lawyers Pty Ltd (Plaintiffs) Gilchrist Connell Lawyers (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

Price J

25 November 2009

2007/20316 Peter Humphries & Janice Lyn Humphries v Peter Cooke & Ors

JUDGMENT

1 HIS HONOUR: The principal issue that these proceedings raise is that of causation of damages. The defendants who are solicitors in a legal partnership acted for Peter and Janice Humphries (the plaintiffs) in respect of the sale of their property known as 13B Bishop Drive, Milton in the State of New South Wales (the property) to Comsand Pty Ltd (Comsand). Comsand rescinded the contract.

2 By a statement of claim filed 19 September 2007, the plaintiffs claim that in or about December 2004 they retained the defendants and the defendants agreed to be retained to provide legal advice in relation to the sale of property. The particulars of the retainer pleaded in the statement of claim are as follows:

(a) to provide advice on the contract for sale of the property;
(b) to provide advice on an Option Agreement in relation to the sale of the property;
(c) to provide advice on a Put and Call Option in relation to the sale of the property;
(d) to provide advice on the Development Approval for the subdivision of the property;
(e) to advise generally on the sale of the property, its subdivision and the exercise of the option by Comsand.

3 The plaintiffs claim that in or about December 2004 they executed a Deed of Option which incorporated a contract (the contract) for the sale of the property to Comsand at its option. It was a term and condition of the contract that any sale would be subject to development consent from Shoalhaven City Council (the Council) within twelve months of the date of the contract for a subdivision of property. It is common ground that on or about 22 March 2005 the plaintiffs entered into a Put and Call Option Agreement with Comsand. The plaintiffs claim that on 21 June 2005, they were advised by the defendants that Comsand would be exercising its option to purchase the property and that the date of the contract would be 22 June 2005 whereas Comsand had executed and delivered the contract on the previous day and the date of the contract was 21 June 2005.

4 On 22 June 2006, a development consent (DA) for a subdivision of the property issued from the Council. It is not in dispute that Comsand rescinded the contract on 27 June 2006.

5 The plaintiffs claim that through a breach of retainer and negligence and further or in the alternative by misleading or deceptive conduct in breach of s 42 of the Fair Trading Act 1987 by the defendants, they have suffered loss and damage which includes the loss of the bargain in the sale of the property to Comsand.

6 In a defence filed 11 February 2008, the defendants admit that they were retained and that they owed a duty of care to the plaintiffs but dispute that they were retained to provide advice on the development approval of the property. In particular, the defendants say they had no ongoing obligation to monitor the development approval. The defendants deny breach of retainer, negligence, misleading or deceptive conduct and that as a result, the plaintiffs have suffered damage.

The statement of agreed facts and issues

7 The issues in dispute were identified in a joint statement of agreed facts and issues. The defendants dispute the breadth of the retainer pleaded by the plaintiffs. They neither admit that they were retained to provide advice on the development approval of the property nor that the duty of care owed by them to the plaintiffs extended to advice in relation to the development approval.

8 The defendants deny that the contract made a sale conditional upon any consent from the Council within 12 months of the date of the contract. It is the defendants’ case that the contract should be construed to require the approval of the development consent at the time of the making of the contract and not as later amended. A further contention of the defendants is that the plaintiffs breached the contract with Comsand by later amending the development application.

9 The parties disagree on the question of causation of damages. The defendants maintain that any damage suffered by the plaintiffs was not caused by any act or omission on their part. The defendants dispute the quantum and measure of damages.

10 The defendants had denied that they advised the plaintiffs that the date of the contract would be 22 June 2005. During the hearing, the defendants admitted breach of retainer, breach of duty of care and misleading or deceptive conduct only in relation to their failure to expressly inform the plaintiffs that the last day to have the development application approved by the Council was 21 June 2006 and not 22 June 2006.

11 The onus of proof is on the plaintiffs on the balance of probabilities.

Matters of Evidence

12 It is necessary to understand the background to the contract between the plaintiffs and Comsand before embarking upon a consideration of the competing arguments on matters of contractual construction. As there are significant differences between the testimony of the plaintiffs on the one hand and the testimony of William Cordell and Christine Martin on the other, it is appropriate to consider in some detail the evidence of the dealings which led to the sale of the property to Comsand.

Dealings with Hazcorp

13 The plaintiffs were the joint owners of the property which consisted of about 6.4 acres. A house which Janice Humphries agreed was very large and palatial was situated on the property. The house had 5 bedrooms, each with an ensuite, and large public areas. As well as being the plaintiffs’ residence, the house was utilised by them between 2003 to 2006 to conduct a bed and breakfast known as a the “Fairmont Ridge Bed and Breakfast”. The land adjoining the property was owned by Hazcorp Pty Limited (Hazcorp).

14 By a letter dated 5 September 2003 Hazcorp offered the plaintiffs $2.5M for the property “subject to satisfactory Development Consent for a joint subdivision substantially as shown on plans already provided, and or satisfactory Development Consent for filing”.

15 In cross-examination, Mrs Humphries when taken by Mr Dicker, counsel for the defendants, to the words “as shown on plans already provided” said that she had never had plans and the offer from Hazcorp came “out of the blue”. She said that the plan was received after the Hazcorp’s letter of offer and she at no stage received other plans. Mrs Humphries identified the plan that she was referring to as being the plan at ex 2 TB 229 (plan 229). She did not know the exact date that she had received that plan. Mr Humphries testified that he did not think at the time of receiving the Hazcorp offer he had received some plans from Hazcorp but was unsure as it was a long time ago. When Mr Humphries was asked to look at plan 229, he said that he had seen it before, was not sure when but “it might have been just after this time”. He agreed that the land to the left of the line on the plan was the property and the land to the right was Hazcorp’s land. He thought there were approximately 19 lots on his land. Plan 229 was for a proposed subdivision of 48 lots.

16 The plaintiffs agreed to a joint development application being made for a subdivision over both their property and the Hazcorp land.

17 In a letter dated 8 December 2003 Graham Beasley, a registered land surveyor of Rygate and West, surveyors and engineers, submitted a development application to the Council for a 52-lot subdivision on behalf of the plaintiffs and Hazcorp. It was Mr Humphries’s evidence that he had been told that the application for development consent was for a 52-lot subdivision but did not ask to see the plan. Mrs Humphries testified that she understood in December 2003 that the application was for a subdivision of 52 lots of their property and Hazcorp’s land. The development application which was signed by each of the plaintiffs describes the proposed development application as a “52-lot subdivision”.

18 Kerry Rourke’s file note of 17 August 2004 reveals, so far as the Council was concerned, what followed after the application was lodged: ex 2 TB 257. It was identified as SF 9464. Kerry Rourke, it appears, was a senior development planner with the Council. A particular concern of the Council evidently was the loss of prey habitat in close proximity to a powerful owl nest tree. The powerful owl is a threatened species. Other issues relating to flora and fauna were raised by the Council officers. The plaintiffs said they became frustrated and concerned about the delay in the approval of the subdivision and wrote to the mayor and to other councillors. Amongst the matters revealed by the file note was that Mr Humphries met with the mayor and Kerry Rourke on 2 March 2004 to discuss a facsimile sent on 29 February 2004 concerning what was considered by the Council to be deficiencies in the development application.

Dealings with Comsand

19 William Cordell was the sole director of Comsand. He had been involved in the development and subdivision of real estate since about 1990. He was introduced to the property by Christine Martin who was then a real estate agent at LJ Hooker at Ulladulla. Ms Martin was aware that Mr Cordell was interested in purchasing properties in the area for subdivision and development. She rang Mr Humphries in November 2004 and enquired how the sale with the developers (Hazcorp) was proceeding. In her affidavit of December 2008, Ms Martin recounts at paragraphs 8-11 the following conversation with Mr Humphries:

“I said words to the effect:
The reason for my enquiry is that I have a client William Cordell who has just purchased a development site in Ulladulla and is looking for a further development site in particular with subdivision potential. What does your property consist of?

Well Christine, we’ve got a bed and breakfast that sits on 3 blocks of land and I’ve got an application before Council to subdivide the surrounding land into 23 lots in total.

Mr Cordell may be interested in that, would it be possible to view
the property?

I will check on the status of the sale, however, Jan and I would be happy for Mr Cordell to view the property.”

20 Ms Martin states that she telephoned Mr Cordell and said words to the effect:

“I have got a wonderful property at Mollymook which has an existing bed and breakfast with a pending subdivision application for approximately 23 lots surrounding it. Would you be interested in viewing this property?”

21 Mr Cordell in his affidavit of 8 October 2008 recalls words to this effect being said to him by Ms Martin. Mr Cordell asked her to arrange a time and she subsequently rang Mr Humphries.

22 Ms Martin at par 17 of her affidavit states that on or about 8 or 9 November 2004, Mr Humphries dropped a copy of a plan into her office. This was a copy of plan 229.

23 Mr Cordell recalled that Ms Martin showed him a copy of part of what he understood to be the development application before the Council, being a plan which showed that there was a proposed 48-lot development with about 18 whole lots plus a number of part lots totalling approximately 23 lots on the property. Mr Cordell identified the plan to which he was referring as being a copy of plan 229. In his first affidavit at par 8 Mr Cordell states that following his discussion with Ms Martin he undertook an analysis of the costs of developing the property in order to achieve a subdivision. From his analysis, he believed that a subdivision of about 18 lots was commercially viable which, he said, strengthened his interest in the property.

24 In an affidavit of 11 February 2009, Mr Humphries states at par 15 that he did not recall any specific conversation with Ms Martin but was confident “that I at no time informed her that we were subdividing the land into 23 lots. At that time I had no idea that the subdivision was for 23 lots.” Although the heading of the affidavit refers to the affidavit of William Cordell of 14 January 2009, it seems that what was said by Mr Humphries in par 15 was in response to paragraphs 6-12 of Ms Martin’s affidavit.

25 Mr Humphries, however, was cross-examined about the phone call with Ms Martin. Part of the cross-examination was as follows (T 57 L 15-35):

“Q. And she then said to you:

"The reason for my inquiry is that I have a client William Cordell who has just purchased a development site in Ulladulla and he is looking for a further development site in particular with subdivision potential. What does your property consist of?”

She said that?

A. Hmm - Yes.

Q. Then you said:

“Well Christine, we have got a bed and breakfast that sits on three blocks of land and I have an application before Council to subdivide the surrounding land into 23 lots in total.”

A. Hmm.

Q. You said that; words to that effect?

A. I would say so, yes.”

26 As is evident from this passage of cross-examination, Mr Humphries no longer disputes the content of the phone call with Ms Martin.

27 At par 17 of the affidavit of 11 February 2009, Mr Humphries states:

“I cannot recall attending the offices of LJ Hooker and dropping off a copy of a plan. I only had a rough sketch plan at that time.”

28 When cross-examined on this topic, Mr Humphries gave the following evidence (T 58 L 18-26):

“Q. And what I would like to suggest to you is that in early November you dropped a copy of the plan which is at 229 into Ms Martin's office?
A. No.

Q. You deny that?

A. Mm-hmm.

Q. Say yes or no?
A. Sorry, no, I didn't drop that plan off, no.”

29 I found Mr Humphries’s evidence on this part of the case to be less than satisfactory. I do not accept that in November 2004 that he was confined to a rough sketch plan. It is plain that he had either received a copy of plan 229 prior to the letter dated 5 September 2003 from Hazcorp or shortly thereafter. Ms Martin and Mr Cordell are independent witnesses with no apparent interest in the proceedings. Mr Cordell’s claims against the plaintiffs had been finalised in his favour in about October 2006: see [69] below. Both of them recall seeing a copy of plan 229. I am satisfied on the balance of probabilities that Mr Humphries delivered a copy of plan 229 to Ms Martin on or about 8 or 9 November 2004.

30 Mr Humphries recalled in his affidavit of 11 February 2009 that he had two meetings with Mr Cordell at the property. The first meeting was on or about 17 November 2004 and the second on 28 November 2004 when Ms Martin was present as was Mr Cordell’s wife. As to the first meeting he stated that Mr Cordell arrived alone and on a motorcycle at approximately 5pm. He showed Mr Cordell the boundaries of the property. Mr Cordell questioned him about the specifics of trees on the property and indicated that he had a home mill. When they spoke about the plan Hazcorp had submitted to the Council, Mr Humphries states at par 7-8:

“I said to William ‘A plan is in place in Council, a preliminary plan and things could change.’ William replied ‘I am not worried about that as I am doing my own thing.’ I then said to him ‘Is that a deal then?’ He said ‘Yeah’ and we shook hands.”

31 According to Mr Humphries the meeting lasted for approximately one hour and neither did Mr Cordell walk the boundaries of the property nor did he stipulate any requirements as to the development application. During cross-examination, Mr Humphries expressed some uncertainty about the date of this meeting. He thought it was around 11 or 12 November 2004.

32 In her oral testimony, Mrs Humphries said that Mr Cordell arrived at their property around about 17 November. She saw her husband and Mr Cordell shake hands. Shortly after that, her husband told her that Mr Cordell had said “I’m not interested in what Hazcorp’s are doing, I will do my own thing as far as the subdivision.”

33 Mr Cordell on the other hand states that he inspected the property only once which was on 28 November 2004 when he had attended with his wife and Ms Martin. In cross-examination, Mr Cordell said that he rode an old Yamaha motorcycle but had not driven it out to the property in late 2004. He did not remember any meeting on about 17 November.

34 Mr Morahan, counsel for the plaintiffs, in cross-examination took him to the LJ Hooker sales advice notice at ex 2 TB 265-266. That document, which is dated 23 November 2004, advises the defendants of the sale of the property for $2.5M to Comsand. Mr Cordell explained that the sales advice was instigated on 23 November 2004 because he had been having telephone conversations with Ms Martin and had asked his friends, William and Cheryl Roberts, to look at the property. They were involved in the purchase of the Ulladulla Motel. He had been told that there was someone else who wanted the property and he needed to tell the plaintiffs of his decision to buy the property if he was to beat an interested third party to it. He had decided to purchase the property but the purchase was subject to him looking at it properly.

35 In her affidavit at paragraphs 18-22, Ms Martin recounts viewing the property on 9 November 2004 with Bill and Cheryl Roberts who were friends and associates of Mr Cordell. Cheryl Roberts told her that she saw enormous potential in using the house as a function centre and in subdividing the surrounding valley into 20 to 23 blocks. Mr and Mrs Roberts expressed their interest in the property but wished to talk with Mr Cordell about what they had seen.

36 At par 11 of his first affidavit Mr Cordell gives an account of what occurred at the meeting on 28 November 2004:

“On 28 November 2004 when my wife and I attended the property with Christine Martin, we met Mr and Mrs Humphries and we sat in the house and discussed the property over coffee and biscuits. A conversation then occurred in words to the following effect:

‘We have a development application before the Council made jointly with Hazcorp to sub-divide their property and our property into a joint large sub-division. There is a Crown road to be built to the west of the property and Bishop Drive is already gazetted to be built at the top of the property.’

‘I am interested in this property for its subdivision potential and because a DA has already been lodged by you with the Council. There are a lot of trees and scrub that may need to be removed depending on where the homes are to be built on each lot. I should be able to mill some of these trees.’

Mr Humphries said words to the effect:

‘Some of the trees would be useful for milled timber.’

‘The plans are currently before Council and we think they will be approved in under three months.’
We then inspected the property. I was very impressed with the house. There were numerous bedrooms, all with ensuite bathrooms.

‘Your house is magnificent. If I buy this property I will not knock down this house.’

Mr Humphries said words to the effect:

‘That is good to hear as we really like this house as well.’

“We would be interested in living in this house for a period after the sale if that was possible as a term of the sale.’

I said words to the effect:

‘I am sure we can accommodate that.’

I was at Mr and Mrs Humphries’ property for about 1-2 hours.”

37 On the topic of the meeting Ms Martin recalls at paragraphs 29-32:

“ On Sunday 28 November 2004 Mr and Mrs Cordell, myself and Mr and Mrs Humphries met at the property. Annexed and Marked “F” is a copy of my diary for 28 November 2004 recording this appointment. Mr Humphries said words to the effect:
‘We currently have an application before Shoalhaven City Council for a subdivision of 20 to 23 lots. Here is a copy of the subdivision.’ Annexed and marked ”G” is a copy of the plan Mr Humphries showed to Mr Cordell and the rest of the group.’
During the course of the meeting Mr Humphries said words to the effect:
‘We are having difficulty with the application because of the powerful owl which is believed to be residing down in the wetland in the gully. We hope to have this resolved shortly.’
During the course of the meeting Mr Cordell said words to the effect:
‘You house is beautiful. I plan to keep it and use it as a function centre. I am interested in this land for its 20-23 lot subdivision potential and I plan to mill the trees which need removal for the subdivision to go ahead as I am not one to waste anything. I plan to utilise everything as best I can.’
I recall the meeting lasted a couple of hours and all parties were happy with what was discussed. I recall the finer details of the Option to purchase were negotiated. Annexed and marked “H” is a copy of my facsimile to Kennedy and Cooke of 29 November 2004.”

38 The plan referred to by Ms Martin as being annexure “G” is a copy of the plan at ex 2 TB 248 (plan 248). Plan 248 shows a proposed development of 51 lots. The recollections of Ms Martin and Mr Cordell of what was said at the meeting are not in identical terms.

39 Mr Humphries recalls at par 12 of his second affidavit that Mr Cordell was shown a conceptual plan of the subdivision and he said to him words to the effect “this is what can be done”. He was not aware, he states, at that time of the contents of the plan of the subdivision lodged by Hazcorp. In cross-examination, Mr Humphries gave the following evidence (T 63 L 50, T 63 L 1 – 46):

“Q. And what I would like to suggest to you is that you said to Mr Cordell,

We currently have an application before Shoalhaven City Council for a subdivision of 20 to 23 lots.”

That's right; isn't it?

A. Yes, that's right.

Q. And that then you showed to Mr Cordell a copy of the plan which is at page

248 of the bundle and you said, "Here is a copy of the subdivision"?

A. No, no, I didn't have that plan. I didn't show him that plan.

Q. And then I would like to suggest to you that you said in the meeting,

We are having difficulty with the application because of the Powerful Owl which is believed to be residing down in the wetland in the gully.

You said words to that effect; didn't you?

A. Yes that's right, yes.

Q. You said, "We hope to have this resolved shortly"?

A. Yes, that's right.

Q. And Mr Cordell said to you words to the effect, "Your house is beautiful"?

A. Yes.

Q. "I plan to keep it and use it as a function centre"?

A. Yes.

Q. "I am interested in this land for its 20 to 23 subdivision potential"?

A. Yes.

Q. "And I plan to mill the trees which need removal for the subdivision to go ahead"?

A. No.

Q. He said, "I am not one to waste anything. I plan to utilise everything as best I can"?

A. No.

Q. And do you recall how long the meeting lasted?

A. It may have been an hour.

Q. And I would like to suggest to you that you negotiated with Mr Cordell the details of the option to purchase at that meeting?

A. Yes.”

40 It was Mrs Humphries’s evidence that Mr Cordell was not shown plan 248 but was shown plan 229. She agreed that her husband had said to Mr Cordell “we currently have an application before Shoalhaven City Council for a subdivision of 20 to 23 lots” and they were having difficulty with the application because of the powerful owl which they hoped to have resolved shortly.

41 She gave the following evidence in further cross-examination (T 24 L 49 – 50, T 25 L 1 –19):

“Q. And I would like to suggest to you that Mr Cordell said to both of you, "your house is beautiful"?

A. Yes.

Q. And he said "I plan to keep it as a function centre"?

A. That's right.

Q. And he said "I'm interested in the land for its 20-23 lot subdivision potential"?

A. I can't remember him saying that.

Q. You don't recall it?

A. No.

Q. You don't deny it?

A. I do deny it, he never said that.

Q. So it's your evidence that you don't recall it but you deny he said it, is that correct?

A. I am saying he didn't say it.”

42 Whilst there is a difference in the recollection of the plaintiffs as to what was said by Mr Cordell, each of them recalled that Mr Humphries referred to the development application before the Council as having 20 to 23 lots and to their belief that the difficulties being experienced with Council would be resolved shortly. It seems to me to be unusual that Mr Humphries would speak about the development application in this way if he had been previously informed by Mr Cordell that he was not worried about the plan before the Council as he was doing his own thing. I prefer and accept the evidence of Mr Cordell that he was interested in the property for its subdivision potential and because the development application was with the Council. I accept the evidence of Ms Martin and Mr Humphries that Mr Cordell said that he was interested in the property “for its 20 to 23 subdivision potential.”

43 I do not accept that by November 2004 Mr Humphries was unaware of the contents of the plan of subdivision lodged by Hazcorp. Whilst Mr Humphries was uncertain as to when he gave Rygate and West instructions about the development application, he acknowledged that he had been very interested in its outcome as no monies were to be paid by Hazcorp until the development approval was granted. It is evident from meeting with the mayor and the correspondence to councillors that the plaintiffs had actively pursued the grant of a development approval prior to the enquiry from Ms Martin. Ms Martin was an impressive witness and I accept her testimony that Mr Humphries had a copy of plan 248 at the meeting which he showed to those present.

44 Some support for the plaintiffs’ testimony as to what was said by Mr Cordell at a first meeting might be found in Peter Cooke’s (the first defendant) file note dated 7 December 2004: ex 2 TB 276. The file note records under the heading “Issues arising” the following:

“1. Mr Cordell clearly was not particularly interested in the development application by Humphries/Hazcorp for their adjacent properties at the time of discussion of the original deal. He said “I will do my own DA, I am only interested in getting a copy of the flora and fauna report.

2. As the Humphries are experienced property developers themselves they were prepared to agree to a sale [on] favourable terms (e.g. option followed by contract followed by mortgage for $1.75 million) because the deal proposed by Mr Cordell was not subject to any conditions, in particular not subject to the development approval being finalised.”

45 It seems that this file note was made by Mr Cooke when he discussed with the plaintiffs a letter dated 2 December 2004 from South Coast Conveyancing who were acting on behalf of Comsand on the property purchase. The file note, however, stands unhappily with the recollection of Mr Humphries and Ms Martin of what was said at the meeting on 28 November 2004. Furthermore, South Coast’s letter makes it clear that rather than being disinterested in the development application before the Council, Comsand considered it to be a matter of some importance. The letter states at par 6 (ex 2 TB 273-275):

“There is a substantial issue surrounding the development application apparently lodged with consent of the Vendors by Hazcorp Pty Ltd or a third-party on Hazcorp’s behalf. The Purchaser requires the Contract to be conditional on him acquiring the rights over the development consent given by Shoalhaven City Council over the property. It is not clear who is the applicant for the development consent to subdivide the land and who has the rights to execute the development consent if it is granted. If it has been applied for by a party other than the Vendors then the Vendors may have no control over it and appropriate authority or other arrangement will need to be made with the actual applicant. The Purchaser would require that the Vendors procure from whoever the relevant party is, the control over and right to execute the development consent if any granted by Council.”

46 The significance of the development application was recognised by Mr Cooke in the file note which includes:

“3. Accordingly, if the development approval is now central to the proposal the consensus made will need to be reviewed…” (underlining added)

All of the issues noted at paragraphs 5 and 6 of the file note relate to the development application made by the plaintiffs and Hazcorp.

47 I do not accept that Mr Cordell at any stage told Mr Humphries that he was not worried about the development application before the Council and I prefer his evidence that there was only one meeting which was on 28 November 2004. I found Mr Cordell’s testimony of the inspection of the property by Mr and Mrs Roberts and of his decision to beat off other interested purchasers to be a credible explanation for the LJ Hooker sales advice notice dated 23 November 2004. In any event, if the plaintiffs had been under some misunderstanding about Comsand’s position I am satisfied on the balance of probabilities that the importance to Comsand of the approval of the development application before the Council would have been well understood by them after the meeting with their solicitor.

48 In a letter dated 8 December 2004 to the plaintiffs Mr Cooke wrote (ex 2 TB 277):

“Both the option and contract are subject to grant of a DA. It is important that the contract is still on foot when the DA is granted”.

49 Mr Cooke wrote to South Coast Conveyancing on 9 December 2004 (ex 2 TB 279). In that letter he states:

“1. …

(b) Both the option and contract are subject to grant of the DA,

(c) If the DA is approved during the option period, which Mr Beasley of Messrs Rygate and West considers “possible”, settlement is to take place three months from the date of exercise of the option, which is also the date of exchange of contracts.
2. Messrs Rygate and West, Surveyors have had conduct of the Development Application, but it has been made in the name of our clients and the adjoining owner Hazcorp Pty Limited. Even though the DA runs with the land, for abundant caution under the contract our clients will assign all their right, title and interest in the DA to the purchaser.”

50 In a letter to Comsand dated 10 December 2004, Mr Morrissey of South Coast Conveyancing summarised what he understood to be the position between the parties. Mr Morrissey wrote (ex 2 TB 283-284):

“…
3. The only basis on which you can withdraw from the option contract and retain your option fee is if the DA is refused by the council.
4. If you exercise your option and enter into the contract (which will be mandatory if you exercise the option) then the contract is also conditional on the grant of the development approval and if the development approval is not granted within the period of the contract or it is refused you can withdraw and the full deposit including the option fee is refunded.
5. It will be an essential condition of the contract that the vendors assign all their right title and interest in the development approval to you.”

51 All of this correspondence evinces the importance of the development application then before the Council to Comsand of which I am satisfied on the balance of probabilities the plaintiffs were aware.

52 Mr Morrissey had been retained by Mr Cordell as he (Mr Morrissey) had previously acted for him. Mr Cordell was informed that South Coast Conveyancing was a division of the defendants’ firm and Mr Cooke was the plaintiffs’ solicitor.

53 When Mr Morrissey left South Coast Conveyancing in December 2004, Mr Cooke acted for both parties. He obtained Mr Cordell’s express consent to do so. Mrs Humphries, however, testified that when Mr Morrissey left she did not realise that Peter Cooke had taken over the whole matter. Mrs Humphries agreed that she knew at the time South Coast Conveyancing was a division of the defendants’ firm but said she did not realise it was in the same office.

54 On 22 December 2004 Comsand and Mr Cordell entered into a three-month option to purchase the property. The deed of option annexed a contract for the sale of the property for $2.5M: ex 2 TB 287-300.

55 Ms Martin recounts at paragraphs 46-48 of her affidavit that following the entry into the option to purchase she telephoned Mr Humphries and asked how they were going with the DA approval. She recalled he said words to the effect:

“Christine I am having continuing meetings with different people from the ` Council. I am making every effort to get the DA approval through.”

She further recalled that Mr Cordell would call her and enquire what was happening with the development application to which she replied that she would give Peter Humphries a call and find out how it was going. She said this went on for a long period of time.

56 The option to purchase was due to expire on 22 March 2005. After further negotiations the plaintiffs, Comsand and Mr Cordell entered into a put and call option agreement. Mr Cordell explains at par 20 of his first affidavit that the main reasons the put and call option was entered into were the non-approval of the development application and his wish to delay the payment of stamp duty. The put and call option annexed a contract for the sale of the property. The special conditions in the contract include clauses 10, 13 and 14. So far as is relevant, cl 10 is as follows:

“ Sale subject to development consent
10.1 This sale and completion hereof is subject to and conditional upon the vendors obtaining a development consent from Shoalhaven City Council (“the development consent”) for a subdivision of property including the land before [sic] within 12 months of the date of this contract.”

57 Clauses 13 and 14 provide:

“13. Development Application
13.1 As and from completion hereof the vendors transfer all their right, title and interest in the Development Application SF 9464 lodged with Shoalhaven City Council (the Council) in respect of Lot 38 DP829129 and Lot 1 DP508537 on behalf of the vendors and Hazcorp Pty Ltd (the development application).
13.2 If prior to completion the purchaser wishes to approach the Council on the vendors behalf to make amendments or to take further steps concerning the development application the vendors agree to do such things and sign such documents as they are reasonably requested to do, at the purchasers cost.

14 Development by Purchaser

14.1 If the development approval is granted during the vendor finance period the purchasers agree to do such things and sign such documents as are reasonably requested, at the purchasers cost to enable the purchaser to register a subdivision or subdivisions pursuant to the development approval.”

58 On 21 June 2005 Comsand exercised its call option and the annexed contract was signed by Mr Cordell on behalf of Comsand that day and was dated 21 June 2005: ex 2 TB 381. The deposit of $250,000 paid by Comsand on 22 March 2005 was released to the purchasers.

59 On the same day Mr Cooke wrote to the plaintiffs advising them that Comsand would be exercising the option to purchase: ex 2 TB 373. The letter relevantly included the following:

“The purchaser Company will now execute the Contract attached to the Option Agreement and deliver it to our office by 22 June 2005. At that time a binding contract comes into being.

…

We await your (hopefully) early advice on the finalisation of the Development Approval.”

60 It is evident from the terms of the letter that Mr Cooke wrote it before the signing of the contract by Mr Cordell had come to his attention. Following the receipt of the letter the plaintiffs understood that for the purpose of cl 10.1 the date of the contract was 22 June 2005. At no time did Mr Cooke inform the plaintiffs that the relevant date was in fact 21 June 2005. The defendants admit they were in breach of their duty of care to the plaintiffs by failing to expressly inform them of the correct date.

61 The development application before the Council which had been made by the plaintiffs and Hazcorp had not been approved when the put option was exercised and the contract was executed. The hope expressed by Mr Humphries at the meeting on 28 November 2004 that the difficulty with Council would shortly be resolved had not materialised. The evidence discloses that both Mr and Mrs Humphries had a number of meetings with the Council in the first half of 2006 and their concern that the development application would not be granted within the 12 months required by cl 10.1 of the contract increased. In oral testimony Mrs Humphries said that councillors suggested a staged approval process was the best way they could get the development application through. Mrs Humphries gave the following evidence: T 41 L 46-50, T 42 L 1-7:

“…We thought that was great, because that's what William said, he was going to do his own thing with the subdivision. He wasn't relying on Hazcorp, and we thought that's a great thing for William, he can do his own thing because it will be a staged DA.

Q. You came up with the idea of the first approval being 9 lots on the property?

A. That's right. We were trying to do the right thing by William.

Q. By reducing the number of lots from 20 to 23 to 9?

A. He never expressed he wanted that many blocks. He never once told us he wanted that many blocks.”

62 I interpolate here to note my finding at [42] above that Mr Cordell did disclose to the plaintiffs his interest in a 20- to 23-lot subdivision. The overall impression that I had of Mrs Humphries’s testimony was that much of it was deliberately self-serving and could not be relied upon.

63 Mr Cordell was neither advised that the plaintiffs intended to obtain the Council’s approval to a staged subdivision nor of any of the subsequent revisions that were made to the development application. The lack of notification seems to me to be remarkable when one considers Mrs Humphries’s evidence that they were trying to do the right thing by Mr Cordell.

64 Mrs Humphries told Graham Beasley of Rygate and West to do “whatever [he] can to get the DA through”: T 42 L 27. The documentary material reveals that Mr Beasley by a facsimile sent to the Council on 28 April 2006 requested the Council’s advice as to whether it would approve “as a first stage of SF 9464” a subdivision of 9 lots on the (attached) plan: ex 2 TB 384-385. As the Council did not approve this request, Mr Beasley requested the Council on 29 May 2006 to “give consideration to issuing a staged approval for the subdivision with stage 1 being proposed lots 35, 36, 37, 38 and 39 on the enclosed plan”. Mr Beasley wrote that “the approval of these lots as stage 1 of the subdivision will greatly assist our clients (Mr and Mrs Humphries) …”: ex 2 TB 386. Mr Humphries agreed in cross-examination that the reason that the number of the lots was lowered was to try and get the development application through.

65 On 20 June 2006 Mr Beasley forwarded to the Council “a revised plan detailing proposed Stage 1 lots only”. This was for a subdivision of 5 lots on the property which included a subdivision of lots 35 and 36 on which the house stood: ex 2 TB 390-391. On 22 June 2006, the Council gave development consent to “Stage 1 – three (3) lot residential and 1 residue lot subdivision”. The lots approved for subdivision were lots 35, 36 and 37: ex 2 TB 392-405A.

66 Following exchange of contracts Mr Cordell did not contact Rygate and West or the Council about the development application. Mr Cordell said that he had been very busy with other developments and proposals. He was aware that the contract was due to complete on 21 June 2006. As he had not heard from anyone he rang the Council on 22 June 2006 and was informed that a three-lot development application had been approved. The subdivision of lots 35 and 36 was of no benefit to Comsand. Mr Cordell had been considering using the home as a bed and breakfast business in conjunction with his motel at Ulladulla or as a reception centre. The plaintiffs had been informed that he had no intention of demolishing the house. He described being “gobsmacked at the news as [he] thought the application would be approved for a much larger sub-division, but at least 18 lots for the property…” A copy of the development consent was faxed to him. He subsequently instructed a solicitor at Penrith to act on his behalf and a notice of rescission of the contract was served on the plaintiffs on 27 August 2008: ex 2 TB 107-108. The notice of rescission includes the following:

“…
E. The vendor caused to be lodged with Shoalhaven City Council on 19 June, 2006 an amended plan of subdivision without the consent of the Purchaser.
F. Shoalhaven City Council issued Subdivision Consent No SF 9464 on 22 June, 2006, a copy of which is annexed and marked “B”, which consent is for a three (3) lot residential and a one (1) residue lot subdivision and which consent contemplated in condition 2(a) the demolition of parts or the whole of the existing dwelling located upon the land in Certificate of Title Folio Identifier 1/508537, and that consent is subject to conditions that substantially disadvantage the Purchaser.
G. Development Consent for the subdivision as contemplated by the Contract has not been issued within twelve (12) months of the date of the Contract.

67 At par 36 of his first affidavit Mr Cordell states that when he rescinded the contract each of the following matters was important to him:

(a) the fact that the development approval had in his view been given one day late;
(b) that the plaintiffs had lodged an amended development application without consulting him; and
(c) the end result of the development approval was only a three lot subdivision and a residue lot.

68 What was detailed in the notice of rescission supports Mr Cordell’s testimony. Mr Cordell explained that he would not have entered into the put and call option annexing a contract to purchase the property for $2.5M where there was potentially going to be a development approval for a number of lots which was any less than about 18 and excluded a lot with the house.

69 By a statement of claim filed in the District Court on 11 September 2006 Comsand claimed the return of $250,000 being the deposit which had been released to the plaintiffs together with interest. The plaintiffs obtained a loan from the ANZ Bank and a total payment of $258,282.44 was subsequently made to Comsand which included interest, professional costs and filing fees. Mrs Humphries said that the deposit had not been repaid on the receipt of the notice of rescission as they did not have the money and she was waiting for advice from her solicitor. She had not disputed Comsand’s claim for its money but was very upset at the time.

The extent of the defendants’ retainer

70 The defendants dispute that they were retained to provide advice on the development approval for subdivision of the property and contend that they had no ongoing obligation to monitor the development approval.

71 This issue assumed little significance in the way the hearing was conducted. This is hardly surprising given the defendants’ concession that they had failed to inform the plaintiffs that the last date the 12 months expired in cl 10.1 was 21 June 2006. Nevertheless, as it is pleaded, I propose to determine this issue.

72 The particulars of the retainer pleaded at par 4 of the statement of claim and quoted at [2] above appear to be founded on the letter dated 21 June 2005 sent by Mr Cooke to the plaintiffs. The letter is headed “Fee Disclosure Letter” and sets out the terms of the solicitors’ engagement. This letter relevantly states as follows:

“The work you require us to do is act on your behalf in connection with the proposed sale of 13B Bishop Drive, Milton including:
…
- Development Approval, and generally. ” (underlining added)

73 What the underlined words mean is less than clear. The evidence discloses, however, that Mr Cooke was not involved in obtaining a development approval nor did he consider that he would be. The passage in the letter quoted at [59] above manifests the solicitor’s understanding that his retainer did not extend to participation in the grant process when he states that he awaits the plaintiffs’ advice “on the finalisation of the Development Approval”. Mrs Humphries states at par 16 of the affidavit of 18 July 2008 that she did not recall receiving any correspondence from the defendants or having a conversation with Mr Cooke between 21 July 2005 and 22 June 2006. The plaintiffs did not receive a fee note from Mr Cooke for any work relating to the development application. All of the evidence points to activity by Mr Beasley and the plaintiffs (particularly Mr Humphries) in attempting to obtain the approval of the Council. I am not satisfied on the balance of probabilities that the defendants’ retainer did extend to providing advice on the development approval nor that they had an ongoing obligation to monitor it.

Duty of care

74 It is not in dispute that the defendants owed a duty of care to the plaintiffs to exercise reasonable care in the provision of legal services pursuant to their retainer. Negligence is defined in s 5 of the Civil Liability Act 2002 to mean the “failure to exercise reasonable care and skill.”

75 As solicitors practising in conveyancing the relevant standard of care which the defendants owed to the plaintiffs was that which may be expected of a reasonably skilled solicitor acting for a party in the sale of land: see Heydon v NRMA Limited (2000) 51 NSWLR 1 per Malcolm AJA at [146].

76 There was no breach of duty of care by the defendants relating to the ongoing supervision of the development application. The defendants’ breach of duty was confined to the concession they made during the hearing. Speaking plainly, it was Mr Cooke’s duty to exercise the reasonable care and skill of a solicitor who was acting for the vendors in the sale of the property. A paramount consideration was that Mr Cooke’s clients understood that the last day for the development consent under cl 10.1 of the contract was 21 June 2006. Unfortunately, Mr Cooke failed in the duty of care which he owed to the plaintiffs and they understood that the last day was 22 June 2006.

Misleading or deceptive conduct

77 Little time was devoted by the parties to this issue. I have found at [59-60] above that the plaintiffs understood from Mr Cooke’s letter that the date of the contract was 22 June 2005.

78 Section 42(1) of the Fair Trading Act provides:

“A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

79 Section 41(1) provides:

“For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.”

80 Section 41(2) places the onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) on the person. Although Mr Cooke did not give evidence, it was plain from the terms of the letter that at the time of writing it he was expecting the contract to be delivered by the next day. There were, I am satisfied, reasonable grounds for his representation that a binding contract would come into being at that time. I do not find that the representation in that letter was misleading or deceptive conduct contrary to s 42(1) of the Fair Trading Act.

81 As to the defendants’ retainer the irresistible inference to be drawn on the balance of probabilities from all of the circumstances to which I have referred at [73] above is that the plaintiffs knew that the defendants were not involved in the development approval process. I conclude that there was nothing by the defendants which amounted to misleading or deceptive conduct.

Causation of damage

82 The principal head of damage of the plaintiffs’ claim is the loss of the bargain of its sale to Comsand. The plaintiffs also claim damages for the diminution in the value of the property from the date of the contract, the financing costs involved in repaying the deposit to Comsand and the legal fees and interest associated with the District Court proceedings instituted by Comsand.

83 The plaintiffs bear the onus of proving on the balance of probabilities any fact relevant of the issue of causation: s 5E of the Civil Liability Act. The issue of causation is to be dealt with in accordance with s 5D of the Civil Liability Act. As was said by McColl JA in Stojan (No 9) Pty Ltd v Kenway [2009] NSWCA 364 at [141]:

“That requires the Court to consider that the breach of duty identified was a necessary condition of the occurrence of the harm and that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused. Section 5D(1) ‘show’s, the “but for” test [of causation] is now to be … a necessary test of causation in all but the undefined group of exceptional cases contemplated by s 5D(2)’: Adeels Palace at [45], [55].”

84 Section 5D of the Civil Liability Act is as follows:

“(1) A determination that negligence caused particular harm comprises the following elements:

(a) that the negligence was a necessary condition of the occurrence of the harm ( factual causation ), and
(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused ( scope of liability ).

(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent:

(a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and
(b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.”

85 The question is whether the plaintiffs have established on the balance of probabilities that the defendants’ breach of duty, that is, their failure to inform the plaintiffs that the last day for the development consent was 21 June 2006, was a necessary condition of the harm of which the plaintiffs complain and that it is appropriate for the scope of the defendants’ liability to extend to that harm. This is not an exceptional case as contemplated by s 5D(2) of the Civil Liability Act.

86 It has been said that the principles embodied in s 5D of the Civil Liability Act accord with the common law: Nguyen v Cosmopolitan Homes [2008] NSWCA 246 per McDougall J at [70]; Mobbs v Kain [2009] NSWCA 301. The High Court (French CJ, Gummow, Hayne, Heydon and Crennan JJ) in Adeels Palace Pty Ltd v Moubarak [2009] HCA 48 emphasised that where s 5D was engaged, its provisions must apply: see also Stojan (No 9) at [143].

87 The focal point of the defendants’ argument is that even if there had not been a breach of duty on their part, Comsand would have been entitled to rescind the contract and recover its deposit. The defendants contend that the following questions require determination:

(i) Would the Council have issued the development consent by 21 June 2006 (one day earlier)?
(ii) Would the plaintiffs have been able to enforce their contract against Comsand, even if the development consent which the Council gave had been given on 21 June 2006 (one day earlier)?


I propose now the consider each of these questions.

Would the Council have issued the development consent one day earlier?

88 The Court would not find, the defendants argued, that it is more probable than not that development approval would have been given by the Council one day earlier even if it was assumed that the plaintiffs had been advised of the correct date of the contract. The defendants contended that the onus was on the plaintiffs to call evidence from Council officers to establish that it was likely that the development consent would have been granted on 21 June 2006.

89 At par 18 of her affidavit of 18 July 2008 Mrs Humphries states:

“Some days prior to 22 June 2006 I recall having a conversation with a David [Pym] of the Shoalhaven City Council. I was enquiring as to the progress of our Development Application and recall saying to him words to the effect ‘we need Development Approval by 22 June 2006’. He replied with words to the effect ‘yes, we will definitely have it ready’.”

90 Mr Pym was the council officer to whom Mr Beasley had sent an email on 19 June 2006 and the letter dated 22 June 2006. It may be readily inferred that little remained to be done in granting the three-lot and one residue lot subdivision.

91 I have no hesitation in reaching the conclusion on the balance of probabilities that if Mrs Humphries had informed Mr Pym that development approval was required by 21 June 2006 the development consent would have been granted by that day.

If the development consent had been issued on 21 June 2006 could the plaintiffs have enforced the contract for sale against Comsand?

92 The defendants put to me that the substantial variation made by the plaintiffs in June 2006 to the development application lodged in December 2003 amounted to a significant breach of contract. It was said that this entitled Comsand to rescind the contract and recover its deposit. The defendants contended that the plaintiffs lost the bargain of their contract through their own conduct in breaching the contract and any breach of retainer or duty of care by the defendants was not causative of such loss of bargain. That is, even if there had not been a breach by the defendants, Comsand would still have been entitled to rescind the contract.

93 Another argument advanced by the defendants was that on the proper construction of the contract the reference to the development consent in cl 10.1 is a reference to the development consent of the application numbered SF9464 lodged in December 2003 by the plaintiffs and Hazcorp. The plaintiffs had substantially varied that development application and consent had been issued by the Council for a completely different subdivision. The defendants submitted that, as cl 10.1 states that the sale and completion was subject to and conditional upon the vendors obtaining the development consent, the condition had not been satisfied. It was put to me that the plaintiffs could not have insisted on specific performance of the contract and would have lost their bargain.

94 The plaintiffs pointed out that cl 10.1 in its terms referred to “a development consent” from the Council for a subdivision of property including the land within 12 months of the date of the contract. This was defined to be “the development consent”. There was no ambiguity, it was said, in cl 10.1 which contemplates a development consent and a subdivision. It would have been quite easy, the plaintiffs contended, for the solicitors to insert in the contract that the contract was conditional upon a development consent for a certain number of blocks but that was not done. It was submitted that the plaintiffs did exactly what the contract asked for and that was to get a development application through. It was a staged development which was of no great disadvantage to the purchaser because Mr Cordell had the ability to continue negotiating with the Council for the subdivision of the rest of the property. Furthermore, if there was a duty of care on the part of the plaintiffs to inform Mr Cordell of any changes they made to the development application by negotiation with the Council, that is something that should have been enshrined in the contract and it was not. None of the grounds, the plaintiffs argued, specified in Comsand’s notice of rescission would have stood up other than the development consent being granted a day late. The sole cause of the contract falling over was the lateness of the development consent. The contract was rescinded and the plaintiffs lost their bargain. It was put to me that the causal nexus was very close and operative and that causation of damage had been established.

95 The resolution of these arguments depends upon the construction of special conditions clauses 10.1, 13 and 14 of the contract. These special conditions are set out at [56-57] above. I consider that special condition 2 of the contract which contains an acknowledgment by the purchaser “that the provisions of this Contract constitute the full and complete understanding between the parties” is to be given little weight in the present matters of contractual construction.

96 Mr Cordell was cross-examined at some length about the provisions of the contract. Mr Morahan made submissions as to Mr Cordell’s experience with contracts as a property developer and as to his failure to instruct his solicitor to protect his interests. This cross-examination did not, in my opinion, diminish the credibility of Mr Cordell. In any event, I do not consider it is of assistance on the construction question.

97 There has been some evidence of the subjective understandings of the plaintiffs and Mr Cordell as to what these clauses meant. This material is irrelevant on the construction question: Toll (FGCT) v Alphapharm Pty Ltd (2004) 219 CLR 165.

98 In Toll (FGCT) v Alphapharm Pty Ltd, the High Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) said at 179:

“40 This Court, in Pacific Carriers Ltd v BNP Paribas [6], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction [7].”

99 It seems that there is no need for the contract to be ambiguous before being able to use surrounding circumstances as an aid to construction of the contract: Masterton Homes Pty Ltd v Palm Assets Pty Ltd & Ors [2009] NSWCA 234 per Allsop P at [3], per Campbell JA at [113]. In a commercial setting, the business objectives of the parties are to be accounted for and the relevant provisions given a “business commonsense” or a “business-like construction”: Waste Recycling and Processing Corporation v Global Renewables Eastern Creek Pty Limited [2009] NSWCA 315 per Tobias JA at [46]; GMA Garnet Pty Ltd v Barton International Inc [2009] FCA 439 per Barker J at [93]; Floruit Holdings Pty Ltd v Sebastian – Builders and Developers Pty Ltd [2009] NSWCA 303 per Bergin CJ in Eq at [47].

100 I am satisfied on the balance of probabilities that the plaintiffs and Mr Cordell were aware of the following surrounding circumstances as at 21 June 2005 – the time the contract was entered into:

i. In December 2003 Rygate and West had submitted a development application to the Council for a 52-lot subdivision of the property and the adjoining land owned by Hazcorp. Twenty to twenty three of the proposed lots were on the property.
ii. The plaintiffs knew that Mr Cordell was a property developer and that he was interested in the property for its 20- to 23-lot subdivision potential.
iii. The plaintiffs and Mr Cordell knew that the only development application of the property before the Council was the development application submitted in December 2003 and that the Council had not given development consent as outstanding issues had not been resolved.
iv. The plaintiffs understood that Council approval of the development application then before the Council was of central importance to Comsand’s decision to purchase the property.

101 The purpose of the contract was to enable Comsand, a property developer, to purchase the property for a subdivision of at least 18 lots. For this reason Comsand was prepared to pay $2.5M to the plaintiffs. Without the development consent of the Council to the development application then before it, the property was worth substantially less. According to John Austen the current value of the property is $1.335M. This was a commercial contract for the sale of land for subdivision and the contract requires a commonsense business-like construction.

102 Clause 10.1 uses the terms “a development consent” and “the development consent” whereas cl 13.1 identifies “the Development Application” as being “SF 9464” which was lodged with the Council by the plaintiffs and Hazcorp. Another term – “development approval” is used in cl 14.1.

103 Construed literally the language of cl 10.1 supports the plaintiffs’ contention that all that was required was a development consent from the Council by 21 June 2006. The inclusion of the words “for a subdivision of property including the land” (underlining added) in cl 10.1 are however, to my mind, instructive. The verb “including” suggests that the property the subject of the development consent embraces more than the plaintiffs’ land. Development application SF 9464 which was before the Council when contracts were exchanged comprised both Hazcorp’s land and the plaintiffs’ property. The three lots approved for subdivision by the development consent of 22 June 2006 were confined to the plaintiffs’ land. Although there remained a fourth unsubdivided residual lot, I have some hesitation in accepting that the development consent obtained by the plaintiffs fell within cl 10.1 even upon a literal construction of that clause. The underlined words support the view that the term “a development consent” was intended by the plaintiffs and Comsand to be the approval of the development application which had been lodged by the plaintiffs and Hazcorp in December 2003. It seems to me that the language of cl 10.1 is open to two meanings.

104 In matters of contractual construction the whole of the written contract is to be considered, since the meaning of any one part of it may be revealed by the other parts and the words of every clause must, if possible, be construed so as to render them all harmonious one with another: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 per Gibbs CJ at 109.

105 The words of cl 13.1 demonstrate plainly that the sole interest of the plaintiffs and Comsand was development application SF 9464. By cl 13.2 Comsand was expressly given the right to approach the Council to make an application to amend development application SF 9464.

106 An acceptance of the plaintiffs’ argument that, notwithstanding clauses 13.1 and 13.2, they had the right to apply to the Council to amend development application SF 9464 without notice to Comsand does not accord with the commercial reality of the dealings between the parties and would not reflect what a reasonable person would believe that the parties had agreed to by their communications and conduct.

107 Mr Cordell’s surprised reaction to the news of the development consent was understandable. The development consent for a three-lot subdivision and a large residual lot was fundamentally different to the development application made by the plaintiffs and Hazcorp in December 2003 for a 52-lot subdivision with approximately 23 lots being on the plaintiffs’ property. As I have recounted at [66] above, the subdivision of lots 35 and 36 was of no benefit to Comsand.

108 The plaintiffs’ argument that Comsand was not disadvantaged by the development consent as it was for the first stage of a staged development has little merit. The evidence discloses that the applications made by Mr Beasley on behalf of the plaintiffs to the Council in late 2006 were unsuccessful: ex 2 TB 429. In any event, the development consent contemplated by cl 10.1 was to be given by 21 June 2006 and not some date after that.

109 The term “development approval” in cl 14.1 could only mean the approval of development application SF 9464 as lodged in December 2003 or as amended in accordance with cl 13.2.

110 My consideration of the construction of clauses 13.1, 13.2 and 14.1 provides a further foundation for the conclusion that cl 10.1 does not make the sale conditional upon the plaintiffs obtaining any development consent for a subdivision of property within 12 months of the date of the contract.

111 A literal construction of cl 10.1 does not accord with the commercial reality of the dealings between the plaintiffs and Mr Cordell. Reasonable observers with knowledge of the surrounding circumstances would, in my view, attribute to the parties the intention that the terms a development consent and the development consent in cl 10.1 were to apply to the approval of the subdivision lodged by the plaintiffs and Comsand in December 2003. Such a construction is the only sensible and business-like meaning of these terms and accords harmoniously with clauses 13.1, 13.2 and 14.1.

112 Whilst I have found it unnecessary to resort to the pre-contractual correspondence to assist in the interpretation of cl 10.1, it is permissible to do so in the present circumstances: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 per Mason J at 352. The correspondence between the solicitors, the letters to their clients and Mr Cooke’s file note to which I have referred at [44-51] above fortifies the conclusion that I have reached.

113 The end result of my consideration is that even if the development consent had been issued on 21 June 2006 the plaintiffs could not have enforced the contract for sale against Comsand. The development consent did not satisfy the terms of cl 10.1. Any action for specific performance by the plaintiffs against Comsand would have failed. The bargain of their contract would have been lost and Comsand would have been entitled to the return of its deposit. The defendants’ breach of duty was not a necessary condition of the occurrence of the plaintiffs’ harm: s 5D(1) of the Civil Liability Act. The plaintiffs have not established on the balance of probabilities that the defendants’ breach of duty caused any of the harm of which they complain.

114 There is another matter which should not be overlooked. As I have found, the plaintiffs did not have the right to apply to substantially vary the development application upon their own volition and without notice to Comsand. Their failure to notify Comsand of these applications amounted to a breach of an implied obligation to act reasonably and in good faith in the performance of their contractual obligation: Vodafone Pacific Ltd & Ors v Mobile Innovations Ltd [2004] NSWCA 15 per Ipp JA at [125]. The plaintiffs’ unilateral applications for substantial changes to the development application were significant breaches of their contractual obligations. I am not persuaded, however, that these breaches by themselves were such as to deprive Comsand of its bargain as all of the evidence points to the unlikelihood of consent being given by the Council on or before 21 June 2006 to the development application lodged by the plaintiffs and Hazcorp.

115 It is unnecessary to consider the defendants’ arguments concerning possible causes of action by Comsand for misleading or deceptive conduct or negligent misstatement or potential proceedings for rectification.

Orders

116 For the foregoing reasons I make the following orders:

1. The plaintiffs’ claim be dismissed.
2. There is a verdict and judgment for the defendants against the plaintiffs.

Costs

117 In view of the orders I have made, the parties have agreed to the following order as to costs:

The plaintiffs pay the defendants’ costs as agreed or assessed up until 19 February 2009 and from 20 February 2009 on an indemnity basis.

Accordingly, I make that costs order.

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04/02/2010 - Typographical error - Paragraph(s) 95