John David Nicholson v Hilldove Pty Ltd (ACN 114 760 771)
[2014] VSCA 158
•30 July 2014
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2013 0167
| JOHN DAVID NICHOLSON | Appellant |
| v | |
| HILLDOVE PTY LTD (ACN 114 760 771) & ORS | Respondents |
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| JUDGES | OSBORN, WHELAN and SANTAMARIA JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 25 June 2014 |
| DATE OF JUDGMENT | 30 July 2014 |
| MEDIUM NEUTRAL CITATION | [2014] VSCA 158 |
| JUDGMENT APPEALED FROM | [2013] VSC 500 (Sifris J) |
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DAMAGES — Contractual damages — Contract for sale of hotel business — Condition precedent that within nine months the purchaser enter lease with the freehold owner of hotel — Contract repudiated by vendor — Whether purchaser lost opportunity to sell the contract to the highest bidder — General principles as to the assessment of damages discussed and applied.
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| Appearances: | Counsel | Solicitors |
| For the Appellant | Mr C R Northrop with Ms K Bowshell | Williams Winter |
| For the First, Second and Third Respondents | Mr T Woodword SC with Mr J S Mereine | Minter Ellison |
OSBORN JA:
I agree that the appeal should be dismissed for the reasons given by Whelan JA.
WHELAN JA:
In a judgment delivered on 14 December 2012, Sifris J found that the appellant, Mr Nicholson, and the first respondent (‘Hilldove’) had entered into a binding contract on 15 September 2011 for the sale by Hilldove to Mr Nicholson or his nominee of the business of the Crown Hotel in Lilydale.[1] The trial judge also found that Hilldove repudiated that agreement on 7 February 2012 when it and the second respondent (‘Terrabridge’) contracted with one David Tomsic to sell him the hotel business, which was Hilldove’s, and the freehold, which was Terrabridge’s. Other findings made were unfavourable to Mr Nicholson; in particular, it was found that Hilldove had not undertaken to procure a lease of the hotel for Mr Nicholson or his nominee from Terrabridge. After an unsuccessful application by Mr Nicholson to reopen the case on the basis of fresh evidence concerning the lease issue,[2] Sifris J conducted a trial on the issue of damages and in a judgment delivered on 30 September 2013 concluded that Mr Nicholson had failed to prove any loss.[3] After a further hearing and a further judgment dealing with costs issues, on 25 October 2013 Sifris J awarded Mr Nicholson nominal damages of $100 and made costs orders generally favourable to Hilldove and Terrabridge.[4]
[1]Nicholson v Hilldove Pty Ltd [2012] VSC 598 (the ‘liability judgment’).
[2]Nicholson v Hilldove Pty Ltd [2013] VSC 231 (the ‘re‑open judgment’).
[3]Nicholson v Hilldove Pty Ltd [2013] VSC 500 (the ‘damages judgment’).
[4]Nicholson v Hilldove Pty Ltd [2013] VSC 578 (the ‘costs judgment’).
Mr Nicholson now appeals those orders on the grounds that in the damages judgment the trial judge made factual errors.
By the time of the damages trial, Mr Nicholson’s case on damages was that he had lost the opportunity to ‘sell’ the contract which he had with Hilldove to the
‘highest bidder … by nominating that person as purchaser’ and that ‘at least one person able to operate the business was prepared to pay $1 million.’ The person referred to was Mr Tomsic.
Hilldove’s case on damages was that if there had been no repudiation Mr Nicholson would have nominated a company named Eden Hotels Pty Ltd (‘Eden Hotels’) without any payment and that, in any event, Mr Tomsic would not have paid $1 million or any other sum to be nominated under the contract which Mr Nicholson held. In substance, the trial judge found in favour of Hilldove on both of those grounds.
The factual errors which it is said that the trial judge made are set out in Mr Nicholson’s three grounds of appeal.[5] Without reproducing all of the terminology in the grounds of appeal, the errors are said to be the following:
(1)the judge erred in finding that Mr Tomsic would not have purchased the business without a lease when on the evidence he did purchase the business without a lease;
(2)the judge erred in finding that any loss would not be Mr Nicholson’s. He should have found Mr Nicholson lost the opportunity to nominate Mr Tomsic as purchaser in return for payment by Mr Tomsic of $1 million; and
(3)the judge should have found Mr Tomsic would have paid Mr Nicholson $1 million for nomination if Mr Tomsic had known that Mr Nicholson’s contract was enforceable.
[5]The grounds of appeal are set out in the notice of appeal dated 8 November 2013. The fourth ground of appeal in that notice was abandoned during the course of the appeal hearing.
In order to understand how the respective cases on damages were put as well as the trial judge’s reasons it is necessary to briefly review relevant aspects of the progress of the litigation and of the judgments delivered prior to the damages judgment.
Progress of the litigation up to the liability trial
Mr Nicholson issued this proceeding against Hilldove, Terrabridge and one Benjamin Niall, the sole director of both Hilldove and Terrabridge, on 17 April 2012. In the statement of claim annexed to the writ he alleged that an agreement had been concluded between himself and Hilldove for the purchase by him of the hotel business conducted at the Crown Hotel in Lilydale. Mr Nicholson relied upon a document signed by him and Mr Niall dated 14 December 2011 and entitled ‘Heads of Agreement’. The agreement was with Hilldove. Hilldove was not the owner of the premises, Terrabridge was. Amongst other things, the Heads of Agreement set out in tabular form the following:
Lease term:10 Χ 10 Χ 10 Χ 10
Commencement rental: $680 000
Rental increase increases [sic]: 3% annually
Market review: At the end of each term
Bank guarantee: The purchaser is to provide a Bank Guarantee equivalent to six months rent.
The Heads of Agreement also contained conditions precedent to be satisfied within nine months, one of which was:
The registered proprietor of the freehold premises of the Hotel entering into a lease with the Purchaser on terms acceptable to the Purchaser.
In his statement of claim, Mr Nicholson alleged that it was an implied term of the Heads of Agreement that Hilldove could and would procure from Terrabridge a lease on the agreed terms.
The statement of claim alleged that, notwithstanding Mr Nicholson’s agreement with Hilldove, Hilldove and Terrabridge had entered into a binding contract to sell the business and the freehold to someone else. The statement of claim alleged:
Neither the identity of the purchaser nor any further particulars of the transaction were disclosed or are known to the plaintiff.
The statement of claim alleged that unless restrained Hilldove intended to sell the business to another party and that in breach of the Heads of Agreement Hilldove had not procured a lease of the premises from Terrabridge. The statement of claim also alleged that Hilldove had represented that it could and would procure a lease and that that representation was misleading and deceptive.
The relief sought in the statement of claim included the following:
A.An order that [Hilldove] be restrained from selling the business known and operated as the Crown Hotel, Lilydale to any person other than [Nicholson].
B.An order that [Hilldove] complete the sale of the Crown Hotel, Lilydale to [Nicholson] on the terms provided by the Heads of Agreement entered into on 14 December 2012 between [Nicholson] and [Hilldove].
C.An order that [Terrabridge] grant [Nicholson] a lease of the land on the terms set out in the Heads of Agreement entered into on 14 December 2012 between [Nicholson] and [Hilldove].
…
G.Alternatively to A, B, C, D, E and F, damages at common law.
H.Alternatively to A, B, C, D, E and F damages pursuant to section 82 of the [Competition and Consumer Act 2011].
No particulars of damage were provided at that stage. The plea was that unless Hilldove was restrained from selling the business to another purchaser Mr Nicholson would suffer loss and damage.
In the statement of claim Mr Niall was alleged to be ‘involved in’ a contravention of the Competition and Consumer Act 2011 in relation to the alleged misleading or deceptive conduct.
On the same date that the writ was issued, a summons seeking interlocutory injunctions restraining Hilldove from selling the business and Terrabridge from granting a lease to any person other than Mr Nicholson was issued. Mr Nicholson’s affidavit in support emphasised the special value of this particular hotel.
Upon the return of that summons on 1 May 2012, Croft J fixed the proceeding for trial on 29 May 2012 after undertakings were given by Hilldove and Terrabridge not to complete sales of the business and the land to a company associated with Mr Tomsic named Supreme Crown Pty Ltd. On 29 May 2012, Sifris J vacated the trial date and refixed the matter for 25 June 2012.
On 25 June 2012 the trial before Sifris J began. In opening, Mr Nicholson’s senior counsel addressed the relief sought in the following terms:
You will have seen that we seek injunctive relief and specific performance. We seek specific performance of the heads of agreement on the terms provided by the heads of agreement and we seek an order that Terrabridge grant us a lease of the land on the terms in the heads of agreement. We seek alternative relief to the same effect under the Competition Act.
Alternatively, to those forms of relief we seek in paragraph G damages either in common law or at paragraph H, pursuant to the Competition Act. That’s where Mr Stillwell’s report will come in. Mr Stillwell’s report we will seek to rely upon in order to quantify damages which ought to be paid to us and Mr Stillwell has performed some calculations about the value of the business brought back to present value.[6]
[6]Transcript of Proceedings, Nicholson v Hilldove Pty Ltd (Supreme Court of Victoria, SCI 2012 2198, Sifris J, 25–28 June 2012, 17–19 July 2012 and 13–14 August 2012) 26–7 (the ‘liability transcript’).
Mr Nicholson’s senior counsel referred to the fact that Mr Stillwell’s report was objected to. She submitted that if the judge were ‘minded’ to determine the liability issues first then the objection to the report would ‘evaporate’. Senior counsel for Hilldove and Terrabridge explained to the trial judge that the objection to the report was that it had been served very late without any prior warning that a case for damages would be advanced. Reference was made to the fact that the damages calculated in the report were between $9 million and $64 million calculated over a 40‑year period.
The trial judge decided to defer any issue of damages.
Until final submissions on 13 August 2012, Mr Nicholson pursued the claim for specific performance. In Mr Nicholson’s final written submissions dated 10 August 2012 that was still the relief sought, the submission being that damages would be inadequate. During the course of final oral submissions, Mr Nicholson’s counsel indicated that that form of relief was no longer sought.[7]
[7]Liability transcript 669.
Liability trial and liability judgment
Some aspects of the evidence given during the liability trial are relevant.
Consistently with the relief he was then seeking (specific performance), Mr Nicholson in his evidence-in-chief gave a detailed explanation as to why this particular hotel was one which he wished to acquire.[8] He described the characteristics which it had which made it attractive to him and which he said were not otherwise available. Whilst Mr Nicholson spoke in terms of why the hotel was valuable to him, he also made it clear that he was not intending to complete the purchase himself. In his evidence-in-chief he said:
[I]t was my intention to nominate Eden Hotel Group … Eden Hotel Group is a group of people, investors — sorry, a group of investors from Dominion and some other investors.[9]
[8]Liability transcript 71.
[9]Liability transcript 54.
The reference to Dominion was a reference to Dominion Hotel Group Pty Ltd, a company which had retained Mr Nicholson to identify hotel businesses which it might acquire. Mr Nicholson explained in his evidence-in-chief that at that time Dominion was not planning on purchasing any further hotels.
During his cross‑examination Mr Nicholson confirmed that it had not been his intention to purchase the business in his own name and that it was his intention that the purchase would be undertaken by Eden Hotels.[10]
[10]Liability transcript 81–2.
At the conclusion of his evidence, in answer to questions from the trial judge, Mr Nicholson said that he had been seeking to acquire this particular hotel for some time.[11]
[11]Liability transcript 164.
In the liability trial, Mr Tomsic was called as a witness by counsel for Hilldove and Terrabridge. His evidence was that he began negotiations to acquire the Crown Hotel in Lilydale in January 2012 and that a price was agreed and a document signed on 7 February 2012 whereby he bought the business and the freehold from Hilldove and Terrabridge for $14.5 million.
He then explained dealings which he had had with Mr Nicholson concerning another hotel, the Cross Keys Hotel, and the Crown Hotel at Lilydale. He said that he had tried to purchase the Cross Keys Hotel but that Mr Nicholson had ended up buying it. At a time which is not entirely clear from his evidence, save that it was after 7 February 2012, he made an offer to a broker to be communicated to Mr Nicholson of $750 000 for the contract to buy the Cross Keys Hotel. He said the offer was put in writing by his solicitors. His evidence was that in response the broker told him that he could acquire the Cross Keys but that he had to also pay a million dollars for Mr Nicholson ‘to walk away from Lilydale’.[12] Mr Tomsic said he was not prepared to do that as he considered that he had already bought the Crown Hotel at Lilydale. In cross‑examination he said these conversations were around the end of February or the start of March.[13] He clarified that his response to the suggestion made to him by the broker was that he would not agree to it and if that meant he did not get the Cross Keys Hotel that he was prepared to accept that[14] — they are not the words that Mr Tomsic used, but that is the meaning.
[12]Liability transcript 291.
[13]Liability transcript 305.
[14]Liability transcript 307.
The broker who was the intermediary on these dealings, Mr Stephen Cropley, also gave evidence. He confirmed that Mr Tomsic had not been interested in the proposal and that the transaction concerning the Cross Keys Hotel had not proceeded.[15]
[15]Liability transcript 529.
Hilldove sought to resist the claim that a concluded agreement had been reached on a variety of bases, all of which the judge rejected. The trial judge concluded that the agreement with Mr Nicholson was binding.
So far as damages are concerned, relevant findings that were made in the liability judgment were as follows:
·Terrabridge was not a party to the agreement. There was clearly no agreement for a lease, none was intended and none had been pleaded.[16]
·Whether Mr Nicholson or his nominated purchaser could obtain a lease would depend upon negotiations with Terrabridge.[17]
·Hilldove had not assumed any responsibility for procuring a lease under either the express or implied terms of the agreement.[18]
·Hilldove had not represented that a lease would be concluded on the terms set out in the Heads of Agreement.[19]
[16]Liability judgment [120].
[17]Liability judgment [120], [123].
[18]Liability judgment [124], [125].
[19]Liability judgment [133].
It is also noteworthy that in the liability trial considerable attention was given to a document referred to as the ‘Eden memorandum’. This is a memorandum prepared in January 2012. Its express purpose was to seek investment to facilitate the acquisition of a number of hotels, one of which was the Crown Hotel. In the liability trial, each side relied upon different parts of the document either in support of a conclusion that an agreement had been reached between Hilldove and Mr Nicholson or in support of a conclusion that it had not. One thing which is clear is that the document treats the Crown Hotel as being an acquisition, or potential acquisition, by Eden Hotels. The document had been approved by Mr Nicholson, and in cross‑examination he conceded that he had read it and had been satisfied with its accuracy. The trial judge referred to these matters in the liability judgment, accepted Mr Nicholson’s evidence about it, and broadly accepted that the document was not inconsistent with a final agreement having been reached as Mr Nicholson alleged.[20]
[20]Liability judgment [90]–[93].
In that context it should also be noted that the last sentence of the Eden memorandum reads as follows:
Should you have any questions please contact John Nicholson of EDEN Hotel Group on [phone number specified].
In the liability trial the Eden memorandum was significant on the issue of whether a final agreement had been reached or not. However, whatever view one takes on that issue it is clear that the Eden memorandum treats the Crown Hotel as an asset or proposed asset of Eden Hotels. It was that aspect of the Eden memorandum that became significant in the damages trial.
Mr Nicholson succeeded in the liability trial but the findings made concerning the lease represented a significant obstacle to recovery of damages on the basis calculated in Mr Stillwell’s expert report. If there was no entitlement to a lease, and if Terrabridge was determined not to facilitate the agreement Hilldove had made, a damages case premised on the assumption that Mr Nicholson had lost a business to be valued by reference to profits earned over a substantial period into the future was flawed. The developments which next occurred in relation to the application to re‑open the case and then the provision of particulars of loss and damage must be understood in that context.
The application to re‑open
By a summons filed 4 March 2012, Mr Nicholson applied to set aside the liability judgment and to reopen the liability phase of the trial. He made the application on the basis that there was fresh evidence of such importance ‘that it would affect the quantum phase of the trial’.[21]
[21]Re‑open judgment [8].
The ‘fresh evidence’ was said to be evidence that a lease had been in existence between Terrabridge and Hilldove dated or effective from 1 May 2011. The judge described the context of the application in the following terms:
In the final analysis the Agreement was subject to the execution of a lease on the terms contemplated. However there was no obligation on the part of Terrabridge or Hilldove to grant or procure such a lease. It was a matter for negotiation between the parties. Clearly Nicholson has lost the opportunity to negotiate such a lease. Without a lease he would not have gone ahead with the purchase of the hotel.[22]
The trial judge was not satisfied that the matters put constituted fresh evidence in the requisite sense but, as he recognised himself, in the course of the application to re‑open he in fact heard the evidence which it was said would alter the position.[23] He concluded that it was more likely than not that no lease between Terrabridge and Hilldove had existed.[24]
[22]Re‑open judgment [6].
[23]Re‑open judgment [38].
[24]Re‑open judgment [20].
There had once been a lease between Hilldove and Terrabridge, but it had concluded on 19 October 2011.[25]
[25]Re‑open judgment [28].
The judgment contained the following passage:
If contrary to my view, there was a Lease and the existence of such a lease does constitute fresh evidence, I am not persuaded that this would in any event assist Nicholson.
The bargain struck by the parties contemplated the negotiation of a lease on certain terms. Both parties proceeded on the assumption that there was no lease in existence. If there was a lease in existence they (or perhaps only Nicholson) proceeded on a wrong assumption.
The court cannot simply rewrite the Agreement between the parties and assume for the purposes of the damages claim a different contract to that executed by the parties because it represents a better loss of opportunity case. A different cause of action needs to be pleaded that has as its loss, the loss of opportunity to take assignment of the Lease. However, all this is academic because there was no Lease.[26]
[26]Re‑open judgment [35]–[37].
The particulars of loss and damage
The expert report of Mr Stillwell had set out a calculation of loss and damage but no particulars of loss and damage were provided until 21 May 2013 when particulars were provided under cover of a letter from Mr Nicholson’s solicitors. These particulars were so provided in compliance with directions made by the trial judge on 10 May 2013. The particulars read as follows:
In the circumstances found by the court on 14 December 2012 and 7 May 2013 to exist, the plaintiff’s loss is the loss of opportunity to sell the Heads of Agreement to the highest bidder who was able to operate the business.[27]
[27]The particulars are on the court file enclosed in a letter addressed to the associates to Sifris J and copied to other parties including the solicitors for Hilldove and Terrabridge.
By an amended statement of claim dated 7 June 2013, particulars of loss and damage were given in the same terms as those previously provided, save that the words ‘by way of the plaintiff nominating that person as purchaser of the business’ were added to the existing paragraph quoted above and a new paragraph was added which read:
At least one person able to operate the business was prepared to pay $1,000,000 to the plaintiff if the plaintiff would nominate him as the purchaser of the business.
As the material relied upon by Mr Nicholson made clear, the person ‘able to operate the business’ and ‘prepared to pay $1,000,000’ was Mr Tomsic.
Damages trial
The damages trial began on 2 September 2013. The first witness was Mr Nicholson himself. He had sworn an affidavit on 16 May 2013 which was tendered. In that affidavit he recounted some of the circumstances relating to the sale and swore:
It was my intention to secure the purchase at $6,000,000 and then determine who I would nominate as the purchaser at a later date, although I expected it would be Eden.
The sequence of events in relation to Mr Tomsic set out in that affidavit is difficult to follow. Mr Nicholson separated what he swore about offers between he and Mr Tomsic concerning the Cross Keys Hotel and the Crown Hotel from what he swore about his awareness of a dispute with the vendor ‘and possibly Tomsic’ regarding the Crown Hotel.
Mr Nicholson’s senior counsel in opening professed difficulty in understanding what was the defendant’s case concerning Eden Hotels.[28] The point seems to me to have been quite apparent. The plaintiff’s case was that absent the repudiation he would have sold the contract to the ‘highest bidder’. Hilldove’s case was that absent the repudiation he would have nominated Eden Hotels, which would have attempted to complete the contract. A claim premised on that course, which Hilldove contended is the course which would have been followed, on an assessment of damages would have confronted the significant obstacle represented by the fact that there was no lease and no entitlement to a lease. It seems to me that Mr Nicholson’s affidavit avoided addressing this issue.
[28]Transcript of Proceedings, Nicholson v Hilldove Pty Ltd (Supreme Court of Victoria, S CI 2013 2198, Sifris J, 2, 3 and 15 September 2013) (the ‘damages transcript’).
In his cross‑examination, Mr Nicholson, not without reluctance, agreed that he would most probably have nominated Eden Hotels and that he would not have wanted the hotel to go to someone else.[29] Perhaps the clearest part of his evidence on this issue was at the end of his cross‑examination in the following interchange:
I suggest to you that, if circumstances had been different and Hilldove had performed the contract, Eden would have done exactly the same thing back in early 2012, it would have sought a venue operator’s licence in order to get hold of that hotel? --- I would have thought so, yes.
In order for all that to happen, you needed to nominate Eden, didn’t you? --- Once I had a contract, yes.
And you would have nominated Eden as soon as you could? --- If I had a contract, most probably.[30]
[29]Damages transcript 74–77, 100–101.
[30]Damages transcript 101.
At the damages trial it was Mr Nicholson’s counsel who called Mr Tomsic. Mr Tomsic had sworn an affidavit which was also tendered. In that affidavit he referred to the dealings he had had concerning the Cross Keys Hotel and the Crown Hotel. He swore that he telephoned Stephen Cropley, the broker, and told him that he would pay Mr Nicholson $750,000 for the contract which Mr Nicholson held in relation to the Cross Keys. He swore that a few days later Mr Cropley called him and told him that Mr Nicholson had agreed to the $750,000 for the Cross Keys but that Mr Nicholson also wanted $1 million for a contract he had to purchase the Crown Hotel. Tomsic swore:
I told Cropley that I would not pay Nicholson $1,000,000 for the Crown Hotel contract as I had already bought the Crown Hotel.
Mr Tomsic’s affidavit concluded:
If I had known that Nicholson had an agreement to buy the Crown Hotel business and that the agreement I had was not enforceable as a result, I would have made an offer to Nicholson, to purchase the right to buy the Crown Hotel business from Nicholson.
I would have offered John the least amount possible to acquire the Crown Hotel. I had offered $750,000 for the Cross Keys Hotel and the Crown Hotel is a more profitable venue with more gaming machines. On that basis, I would have been prepared to pay John $1,000,000 for the Crown Hotel contract, which was what he had previously asked for it.
In oral evidence-in-chief, Mr Tomsic explained his thinking behind making an offer for the Cross Keys Hotel and repeated his evidence that Mr Nicholson’s response to his offer of $750,000 for the contract on the Cross Keys Hotel had been conditional on payment of $1 million to walk away from Lilydale. Mr Tomsic said that he had responded with ‘you’re dreaming’.[31]
[31]Damages transcript 170.
In cross‑examination, Mr Tomsic agreed that the situation with the lease in relation to the Cross Keys Hotel had been very confusing. He agreed that he would have wanted to see all the relevant documents before he committed himself and that he would have had them looked at by a lawyer.[32] He repeated that he had not been prepared to pay anything for the Crown Hotel because he had already bought it.[33] The judge took up that suggestion and put to him that although he did not consider he needed to pay anything because he had already bought it, there might be value in eliminating someone who contended that they had a contract, and Mr Tomsic agreed with that proposition but observed: ‘I never knew there was another contract’.[34] He said that if there had been another contract he would have paid $1 million or even $2 million ‘because I wanted the pub’.[35] Mr Tomsic repeated this comment when asked by counsel whether he would pay $1 million when he could get it for nothing.[36]
[32]Damages transcript 176–7.
[33]Damages transcript 177–9.
[34]Damages transcript 180–1.
[35]Damages transcript 180.
[36]Damages transcript 181.
Mr Tomsic was questioned about solicitors reviewing documents. In substance, he agreed that if an acquisition involved the transfer of a lease, like the Cross Keys Hotel, he would have his solicitor carefully review the situation but he said that when the acquisition involved freehold, as his acquisition of the Crown Hotel did, he did not see that as really mattering.[37] He did agree that if he was paying Mr Nicholson $1 million to buy a contract, he would want to see what he was buying and would want to see the terms of the agreement. He said:
Yeah, I would have wanted to see what lease he had on it, that’s correct.[38]
[37]Damages transcript 182–183.
[38]Damages transcript 183.
Mr Nicholson’s contract provided, as one of the conditions precedent to be satisfied within nine months, that a lease be entered into with the proprietor of the freehold. Mr Tomsic rejected the suggestion that if he had known that the contract contained that provision he would have just waited for the stipulated period to expire. He said, in substance, that he would not have taken the risk of someone else coming in.[39] Mr Tomsic emphasised that he was not going to pay a million dollars ‘for nothing’, but that if he had to pay it in order to ‘guarantee the contract’ he would have paid it.[40]
[39]Damages transcript 183–5.
[40]Damages transcript 185–186.
At the end of Mr Tomsic’s evidence, the trial judge asked some questions. Mr Tomsic confirmed that in transactions where the freehold was not being bought the leases are very important.[41] He also confirmed that he had never seen the Crown Hotel contract that Mr Nicholson alleged he had.[42] He agreed that he would have investigated ‘the lease situation’.[43] The interchange concluded as follows:
It would have been important to you before you paid a million to Mr Nicholson, to have a look and see what the lease was like for the Crown Hotel? --- Yes.
Particularly if the vendor of the business was not the landlord? --- That’s correct.
You’d want to see a copy of the lease? --- That’s correct, to see what was in it, that’s 100 per cent.
If there was no lease? --- If there was no lease?
Yes? --- I’m sort of lost. What do you mean, if there was no lease?
If there was no lease between the vendor and the landlord? --- If there was no lease between the vendor and the landlord? Well then, you haven’t got a business.[44]
[41]Damages transcript 190.
[42]Damages transcript 190–191.
[43]Damages transcript 191.
[44]Damages transcript 191–2.
In further questions from counsel arising out of the trial judge’s questions, counsel for Mr Nicholson confirmed with the witness that he had bought the freehold and that there had never been any challenge to his contract to buy the freehold, and counsel for Hilldove had Mr Tomsic confirm that his purchase of the freehold and the business was a ‘package’.[45]
[45]Damages transcript 192.
The damages judgment
In the damages judgment, the trial judge gave a brief account of proceedings to date and set out the basis of the claims made and the defence. He foreshadowed his conclusion early that Mr Nicholson had ‘failed to establish that any party was prepared to pay any amount for such nomination as purchaser under the Agreement’.[46]
[46]Damages judgment [15].
The first matter the trial judge dealt with was the issue of whether in fact the plaintiff would have nominated Eden Hotels rather than selling to the highest bidder, as was the basis of his particularised claim for loss and damage. The trial judge concentrated on the contemporaneous documents, including the Eden memorandum to which I referred earlier, and other documents (some of which Mr Nicholson had not discovered) which made a compelling case that Mr Nicholson’s plan was to nominate Eden Hotels in the expectation that Eden Hotels would then acquire and operate the hotel. His Honour reviewed the contemporaneous documentation to late January 2012 and concluded as follows:
The question is what would have happened if Hilldove had not repudiated the Agreement by the sale to interests associated with Tomsic. In these circumstances there is every reason to believe and it is certainly more probably than not — as the events to this point and subsequently demonstrate — that Nicholson would have nominated Eden Hotels. Everything was on track for such a nomination and on the evidence it is inconceivable that it would not have taken place.[47]
[47]Damages judgment [31] (citations omitted).
His Honour then continued a detailed review of the contemporaneous documentation from late January 2012 to mid‑2012 and concluded:
In my opinion, having regard to this detailed chronology of the facts, it is more probable than not, and I find, that Nicholson would have nominated Eden Hotels had the matter proceeded to the execution of a Contract of Sale. The evidence suggests that this was always contemplated and expected. The Crown Hotel was always intended to be part of the portfolio of Eden Hotels from the outset. The Crown Hotel was referred to in the original Eden memorandum and continued to be included in subsequent models, budgets and spread sheets for many months. The Crown Hotel would almost certainly have been dealt with on the same basis as the Tankerville Arms and the Knox Tavern. The conclusion is inescapable and is supported by the evidence of both Nicholson and Dunstan.[48]
[48]Damages judgment [54].
Whilst the trial judge principally relied upon the contemporaneous documentation in reaching the conclusions I have set out, he also referred to Mr Nicholson’s own evidence in that regard and to the evidence of a director of Eden Hotels, Mr Dunstan. He observed, as was the fact, that there was no evidence that Eden Hotels would have paid Mr Nicholson for the nomination.[49]
[49]Damages judgment [56].
The trial judge might have concluded his judgment at that point on the basis that Mr Nicholson had simply failed to establish the first premise of his loss and damage claim, namely, that he would have sold the contract to the ‘highest bidder’. His Honour, however, went on to deal with the position in relation to Mr Tomsic.
Mr Tomsic swore that he would have paid $1 million to secure the Crown Hotel if he had seen it as necessary or desirable to do so. The question which the trial judge asked was: ‘Would he have paid $1,000,000 simply for the right to negotiate a lease’.[50] The judge said that although this was not specifically put to him, his conclusion was that it was more probable than not that Mr Tomsic would not have done so. The judge observed that in any event the matter would never have got to that stage, because if Hilldove had not repudiated the agreement, Mr Nicholson would have nominated Eden Hotels. The judge observed that the only reason that Mr Nicholson was prepared to entertain an offer from Mr Tomsic was because Hilldove denied that the agreement was enforceable.[51] On this point the trial judge concluded:
Finally, and in any event, I am far from satisfied that in the event that Tomsic was prepared to pay $1,000,000 for the right to negotiate a lease — a matter not specifically put to him — that such amount would have in the circumstances been retained by Nicholson.[52]
[50]Damages judgment [59].
[51]Damages judgment [60].
[52]Damages judgment [61].
Submissions on the appeal
The appellant’s submissions in support of its grounds of appeal concentrate on the evidence concerning Mr Tomsic. They focus on Mr Tomsic’s evidence that in order to secure the Crown Hotel he would have been prepared to pay $1 million. It was submitted that the judge had erroneously focused upon the fact that Mr Nicholson did not, under his contract, have an entitlement to a lease which, it was submitted, was not a relevant problem because Mr Tomsic was able to acquire the freehold and he in fact did acquire the freehold. In relation to the nomination of Eden Hotels, the submissions made relied upon the uncontested evidence that Mr Nicholson had had no obligation to Eden Hotels to nominate it as purchaser. The submission continued:
It was this freedom of constraint which empowered the Appellant to nominate a purchaser for a fee, and which if it had been exercised, would have resulted in Tomsic paying him $1,000,000.
On behalf of Hilldove and Terrabridge, the submission was that the appellant simply ignores and refuses to address the fact that the judge had found that had the agreement not been repudiated, Mr Nicholson would have nominated Eden Hotels and would not have sold the contract to the ‘highest bidder’, being Mr Tomsic or anybody else. In relation to Mr Tomsic, it was submitted that the judge was right in his analysis of the evidence and that Mr Tomsic, when he said he would pay $1 million to secure the hotel, was unaware that the contract which Mr Nicholson held did not entitle him to a lease. As Mr Tomsic had observed, without a lease there was no business.
Counsel for Hilldove and Terrabridge submitted that an appellant who attacks a finding of fact must satisfy the court that the primary judge’s finding was wrong. The correct approach in an appeal of this kind is that recently set out by this Court in Waterfall v Antony.[53] Recognising the natural limitations which exist because this Court must proceed wholly or substantially on the record, this Court is obliged to conduct a real review of the trial and of the reasons. This Court gives respect and weight to the conclusion of the trial judge, but having reached its own conclusion cannot shrink from giving effect to it.
[53][2014] VSCA 44 [9]–[17].
Applicable legal principles as to assessment of damages
There was no dispute of substance between the parties in relation to the legal principles which are applicable.
It is well settled in Australian law that damages in contract are to be measured according to the rule in Robinson v Harman that
where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.[54]
[54](1848) 1 Ex 850, 855; 154 ER 363, 365 (Parke B) cited with approval in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80 (Mason CJ and Dawson J), 98 (Brennan J), 134–5 (Toohey J), 148 (Gaudron J), 161 (McHugh J) (‘Amman’).
The rule requires the following: identification of the subject of compensation; proof of causation (namely that the breach of contract was the cause of the loss); and measurement of the damages.
The loss identified by Mr Nicholson is a loss of an opportunity to sell the agreement to purchase the Crown Hotel business to the highest bidder.
In respect of causation, a plaintiff must prove on the balance of probabilities that as a result of the breach of contract he or she sustained ‘some’ loss or damage.[55] Causation must be proved before any issue of assessment of the amount of the loss arises.[56]
[55]Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 355 (Mason CJ, Dawson, Toohey and Gaudron JJ) (‘Sellars’).
[56]Ibid 364 (Brennan J).
Where loss of an opportunity is claimed, as is the case here, the court must assess ‘the prospects of success of that opportunity had it been pursued.’[57] This will normally require evidence of the ‘plaintiff’s objectives and the contingencies in the way of their achievement.’[58] The plaintiff is required only to prove that there is some degree of probability or possibility that the opportunity would have been taken up and the court will adjust the award of damages to reflect that degree of probability accordingly.[59] Consequently, a lost commercial advantage or opportunity will be compensable even where the chance of achieving the opportunity is less than 50 per cent.[60] No damages will be awarded for a loss of an opportunity where the chance of achieving the opportunity is so dependent on the unrestricted volition of another that it is impossible to say that there is any assessable loss resulting from the breach.[61] Neither will damages be awarded where the chance is so speculative that it is impossible to put a value on the loss.[62]
[57]Ibid 355 (Mason CJ, Dawson, Toohey and Gaudron JJ).
[58]Ibid 365 (Brennan J). See also Ibid 355–6 (Mason CJ, Dawson, Toohey and Gaudron JJ).
[59]Ibid 350, 355 (Mason CJ, Dawson, Toohey and Gaudron JJ) accepting and applying the reasoning in Malec v J C Hutton Pty Ltd (1990) 169 CLR 638, 643 (Deane, Gaudron and McHugh JJ).
[60]Ibid 349 (Mason CJ, Dawson, Toohey and Gaudron JJ) citing with approval the reasoning in Amann (1991) 174 CLR 64, 92 (Mason CJ and Dawson J), 102–104 (Brennan J), 118–9 (Deane J).
[61]Fink v Fink (1946) 74 CLR 127, 134–5, 143 (Dixon and McTiernan JJ) citing Chaplin v Hicks (1911) 2 KB 786, 792–3.
[62]Amann (1991) 174 CLR 64, 126 (Deane J).
Difficulty in assessing the damages will not cause a claim for damages to be defeated.[63]
[63]McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, 411–2 (Dixon and Fullagar JJ, with whom McTiernan J agreed); ibid 125 (Deane J).
Analysis of the grounds of appeal
Mr Nicholson entered into a contract to buy a business. That contract was repudiated by the vendor, Hilldove. Mr Nicholson initially sought specific performance of the agreement and by service of an expert’s report foreshadowed a claim for damages calculated by reference to the value of the returns projected for the business over a long period of time. These claims assumed that, absent the repudiation, the business would have passed to Mr Nicholson or his nominee, and that that person would have obtained the benefits of the future returns of the business.
In the liability trial Mr Nicholson succeeded in establishing that an enforceable agreement had been made; but findings were also made which represented a significant obstacle to his obtaining substantive relief. Those findings were that he did not have an agreement for a lease, and that he had no entitlement, in contract or on any other basis, to obtain a lease or compensation for failure to obtain one. On the basis of those findings, his contract, as a vehicle for delivering the projected returns of the business to him or his nominee, was deficient. An inquiry into the prospects of he or his nominee obtaining a lease from Terrabridge might well have resulted in an unfavourable outcome for him. That inquiry was never undertaken because Mr Nicholson, no doubt foreseeing these problems, changed tack. He no longer sought compensation on the basis that the future returns of the business would have been delivered to him or his nominee but rather suggested that absent repudiation he would have sold his rights under the contract to ‘the highest bidder’ and that that highest bidder would have been Mr Tomsic.
For the reasons which the trial judge gave, this new approach to damages was flawed. It was founded on the premise that, absent repudiation, Mr Nicholson would have sold the contract to the highest bidder. The evidence established that that was simply not so. He would have nominated Eden Hotels if there had been no repudiation.
It seems to me that the case which Mr Nicholson was really putting on appeal was that if Mr Tomsic and Hilldove had known that Mr Nicholson’s contract would be held to be enforceable, they would have taken a different approach to negotiations with him once the dispute occurred and Mr Tomsic would have paid him $1 million. That proposition was also not established by the evidence because Mr Tomsic was never asked to address in his evidence the true character of what it was that Mr Nicholson had to sell. His surprise when the proposition was put to him that there was no lease is obvious from the transcript. It seems to me that the effect of his evidence was that if there was no lease Mr Nicholson had nothing to sell. The evidence did not establish that Mr Tomsic was prepared to pay $1 million for what it was that Mr Nicholson had to sell.
The answer of Mr Nicholson’s counsel on the appeal to these propositions is that the absence of a lease would not have inhibited Mr Tomsic because he was able to buy the freehold and he did in fact do so. This raises a theoretical possibility which might have had substance if: the evidence had not established that, absent the repudiation, Mr Nicholson would not have been dealing with Mr Tomsic in any event (because he would have nominated Eden Hotels); and if Mr Tomsic had given evidence about what he would have done had that scenario (separately dealing with Terrabridge for the freehold and Mr Nicholson for the business) presented itself. Neither of those conditions exists.
The fact that Mr Nicholson had no obligation to nominate Eden Hotels is not to the point. The evidence establishes that that is what he would have done, whether he had an obligation to do it or not.
Conclusions
Turning specifically to the grounds of appeal, my conclusions are as follows:
1.Ground one asserts that the primary judge erred in finding on the evidence that Mr Tomsic would not have purchased the Crown Hotel without a lease to operate it when on the evidence Mr Tomsic did purchase the business without a lease. This ground fails because absent repudiation the evidence establishes that Mr Nicholson would have nominated Eden Hotels. In any event, there is no evidence about what Mr Tomsic would have done had he known what the terms of Mr Nicholson’s contract were and, in particular, had he known that there was no entitlement to a lease. Perhaps he would have dealt with Mr Nicholson in relation to the business and Terrabridge in relation to the freehold, perhaps he would not. The evidence is silent on the issue.
2.Ground two asserts that the trial judge erred in finding that on the evidence any loss ‘would not be the appellant’s’ and that he should have found that the
appellant, as the purchaser, lost the opportunity to nominate Mr Tomsic in return for a payment of $1 million. The trial judge did not find that any loss was not the appellant’s, he found that the appellant would not have sold the contract to the highest bidder, he would have nominated Eden Hotels. Eden Hotels perhaps could have brought a claim as undisclosed principal. It then would have confronted the problem of the absence of an entitlement to a lease. Or, Mr Nicholson might have advanced a claim based on the premise that he would have nominated Eden Hotels arguing that as promisee he could recover a loss suffered by Eden Hotels notwithstanding that he was neither agent nor trustee for Eden Hotels. The legal basis for such a claim in Australia is uncertain.[64] Or, Mr Nicholson might have sought to establish a loss he suffered on the basis of benefits which would have flowed to him had Eden Hotels been nominated.[65] But all of that is speculation. No such claims were made.
3.In the third ground of appeal it is asserted that the trial judge should have found that Mr Tomsic would have paid the appellant $1 million for nomination as purchaser ‘if he had known that the Heads of Agreement was enforceable by the Appellant’. The evidence does not establish that. Mr Tomsic did not know what the terms of the agreement were. He did not know that Mr Nicholson had no entitlement to a lease. He said in his evidence that if there was no lease there was no business.
[64]Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 118–9 (Mason CJ and Wilson J), 138–9 (Brennan J), 173 (Gaudron J). Cf Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (‘McAlpine’); Family Food Court (a firm) v Seah Boon Lock [2008] 4 SLR 272; [2008] SGCA 31.
[65]This is the approach adopted by Lord Goff of Chieveley and Lord Millett (both in dissent) in McAlpine [2001] 1 AC 518.
In my opinion, the appeal should be dismissed.
SANTAMARIA JA:
I have had the benefit of reading the reasons of Whelan JA, and I agree with
them.
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