Lahoud v Lahoud - [2009] NSWSC 623

No judgment structure available for this case.

CITATION: Lahoud v Lahoud; Lahoud v Lahoud [2009] NSWSC 623

HEARING DATE(S): 14, 15, 16, 17, 21, 22 and 24 April 2009

JUDGMENT DATE :
3 July 2009

JURISDICTION: Equity Division

JUDGMENT OF: Ward J

DECISION: Damages awarded to plaintiffs in 3606 of 2001. Judgment for plaintiffs in 3582 of 2007.

CATCHWORDS: DAMAGES – measure and remoteness of damages in actions for breach of contract – order made in previous hearing that Victor Lahoud interests perform contract – enquiry as to damages suffered by Joseph Lahoud interests resulting from Victor Lahoud interests’ failure to transfer residential units for period of six years – Joseph Lahoud interests claimed damages referable to lost rent from units or interest on capital value of units – whether loss of income would be presumed from failure to transfer income-producing asset – consideration of Wenham v Ella and Hadley v Baxendale – held that Joseph Lahoud interests had only established loss of rents from particular leases existing at time of breach until expiry of those leases (and, in one case, an option lease) and had otherwise failed to establish loss. - CONTRACTS – general contractual principles – order made in previous hearing that parties execute Deed of Settlement in performance of obligation in Terms of Settlement – Deed substantially similar to Terms – Victor Lahoud interests exercised right under Deed to audit – whether Deed created new right to audit – if Deed created no new right, whether reasonable time for exercise of right under Terms had elapsed – whether right to audit should be construed to mean audit of specific figures or audit of project profits – held that Deed created new right to audit – if not, reasonable time had not elapsed – right to audit construed to mean a right to audit of project profits.

LEGISLATION CITED: Civil Procedure Act 2005
Industrial Relations Act 1996
Supreme Court Act 1970

CATEGORY: Principal judgment

CASES CITED: Anthanasopoulos v Moseley (2001) 52 NSWLR 262
Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99
Australian Woollen Mills Pty Limited v Commonwealth (1954) 92 CLR 424
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Ballas v Theophilos (1957) 98 CLR 193
Baume v Commonwealth (1906) 4 CLR 97
BHP Coal v O & K Orenstein & Koppel [2008] QSC 141
Bilambil-Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465
Boreland v Docker [2007] NSWCA 94
Broken Hill Metals v Roberts (WACA, unreported, 18 August 1994)
Buckman v Rose (1980) 1BPR 97059
Business and Professional Leasing Pty Limited v Akuity Pty Limited [2008] QCA 215
Castle Constructions Pty Limited v Fekala Pty Limited (2006) 65 NSWLR 648
Champtaloup v Thomas [1976] 2 NSWLR 264
Chen v Lord Energy Limited [2002] HKFCA 11
Chinnock v Marchioness of Ely (1864) H & M 220; 71 ER 447
Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337
Commissioner of State Revenue v Pinesales Pty Limited (2007) 34 WAR 360
Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520
Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64
Concut Pty Limited v Worrell (2000) 176 ALR 693
Coulls v Bagot's Executor & Trustee Co Limited (1967) 119 CLR 460
Dalton v Ellis; Estate of Bristow (2005) 65 NSWLR 134
Davies v Littlejohn (1923) 34 CLR 174
De Visme v De Visme (1849) 1 Mas & G 336; 41 ER 1295
Ellmore (Maitland) Pty Limited v Tull (1995) 7 BPR 14,305
Esdaile v Stephenson (1822) 6 Madd 366; 56 ER 1131
Esso Australia v Australian Petroleum Agents’ & Distributors’ Association [1999] 3 VR 642
Farah v Say-Dee (2007) 230 CLR 89
Finesky Holdings Pty Ltd v Minister For Transport For Western Australia [2002] WASCA 206
Flureau v Thornhill (1776) 2 Wm Bl 1078; 96 ER 635
Ford-Hunt v Ragbhir Singh [1973] 1 WLR 378
Friend v Brooker [2009] HCA 21
G W Sinclair & Co v Cocks [2001]VSCA 41
Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235
Gorst v Lowndes (1841) 11 Sim 434; 59 ER 940
Government Insurance Office (NSW) v Johnson [1981] 2 NSWLR 617
Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231
Hadid v Australis Media (unreported, Sperling J, 30 June 1997)
Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145
Handley v Gunner [2008] NSWCA 113
Hart v MacDonald (1910) 10 CLR 417
Hensley v Reschke (1914) 18 CLR 452
Hexiva Pty Limited v Lederer (No 2) [2007] NSWSC 49
Hick v Raymond & Reid [1893] AC 22
Hoad v Scone Motors [1977] 1 NSWLR
Hobartville Stud v Union Insurance (1991) 25 NSWLR 358
Hughes v Pellicciari (1982) 2BPR 97139
Hungerfords v Walker (1989) 171 CLR 125
In re Figgis [1968] 2 WLR 1173
In re Thackwray and Young's Contract (1888) 40 Ch D 34
Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 97
Investmentsource v Knox Street Apartments [2007] NSWSC 1128
Jaques v Millar (1977) 6 Ch D 153
Jones v Gardiner [1902] 1 Ch 191
Jones v Schiffmann (1971) 124 CLR 303
King v Poggioli (1922-1923) 32 CLR 222
Lahoud v Lahoud (No 2) [2005] NSWSC 1019
Lahoud v Lahoud [2002] NSWIRComm 182
Lahoud v Lahoud [2003] NSWIRComm 179
Lahoud v Lahoud [2005] NSWSC 509
Lahoud v Lahoud [2006] NSWSC 126
Lahoud v Lahoud [2006] NSWCA 169
Lawrence v Finance Corporation of Australia Limited (unreported, Powell J, 2 November 1990)
Lord Energy Limited v Chen [2000] HKCA 506
Makita v Sprowles (2001) 52 NSWLR 705
Malding Pty Limited v Metcalfe [1990] ANZ ConvR 110
Marconi Systems v BHP Information Technology (2003) 128 FCR 1
Martech International v Energy World Corp (2006) 234 ALR 265
Masters v Cameron (1954) 91 CLR 353
McLean v Grace [1953] NZLR 566
Millar v Candy (1981) 38 ALR 299
Mitchell v Crimmin (1945) 47 WALR 46
Olympic Holdings v Lochel [2004] WASC 61
Palasty v Parlby [2007] NSWCA 345
Pargiter v Alexander (1995) 5 Tas R 158
Philips Electronics Australia Ltd v Insight Oceania Pty Ltd [2009] NSWCA 124
Phillips v Lamdin [1949] 2 KB 33
Proctor v Chahl [2008] NSWSC 1252
Re Longlands Farm [1968] 3 All ER 552
Re Strand Music Hall (1865) 35 Beav 153; 55 ER 853
Reid v Moreland Timber (1946) 73 CLR 1
Reschke v Hensley [1913] SALR 105
Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363
Robinson v Waddington (1849) 13 QB 753; 116 ER 1451
Royal Bristol Permanent Building Society v Bomash (1887) 35 Ch 390
Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568
Savage v Norton [1908] 1 Ch 290
Sellars v Adelaide Petroleum (1994) 179 CLR 332
Shaw v Harris (No2) (1992) 3 Tas R 167
Spencer v Hanson Pastoral Co Pty Limited (1979) 2 BPR 9151
State of New South Wales v Burton [2008] NSWCA 319
Stoke-on-Trent City Council v Wass Limted [1988] 3 All ER 394
Strickland v Grieve (1996) NSW Conv R 55-762
Sunley (B) & Co v Cunard White Star Ltd [1940] 1 KB 740
Sweeney v Coffey [1999] NSWCA 38
Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140
Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93
Telina Developments Pty Ltd v Stay Enterprises Pty Limited [1984] 2 Qd R 585
The Mediana [1900] AC 113
The Susquehanna [1926] AC 655
Tim Barr v Narui Gold Coast [2009] NSWSC 49
Vanmeld v Cussen (1991) 121 ALR 619
Waters v Maynard (1924) 24 SR (NSW) 618
Watson v Foxman (1995) 49 NSWLR 315
Wenham v Ella (1972) 127 CLR 454
Westwood v Cordwell [1983] 1 Qd R 276
Wilson v Nightingale (1846) 8 QB 1034; 115 ER 163
Woodman v Rasmussen [1953] St R Qd 202
Yates v Mobile Marine Repairs [2007] NSWSC 1463
York Air Conditioning v The Commonwealth (1949) 80 CLR 11
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Zapulla v Perkins [1978] Qd R 92
Zorbas v Titan Properties (Aust) [2005] NSWSC 440

TEXTS CITED: Buckleys Law of Companies
Carter on Contract
Furmston M (ed) The Law of Contract Butterworths, London, 2003
McGregor on Damages
McLauchlan, David ‘Contract Interpretation: What Is It About?’ (2009) 31 Sydney Law Review 5
Nicholls, Donald, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 Law Quarterly Review 577
Ritchie’s Supreme Court Practice
Ritchie’s Uniform Civil Procedure NSW
Spigelman, J J ‘From Text to Context: Contemporary Contractual Interpretation’ (2007) 81 Australian Law Journal 322

PARTIES:
Joseph Lahoud (First Plaintiff in 3606 of 2001, First Defendant/First Cross Claimant in 3582 of 2007)
Joseph Lahoud & Associates Pty Limited (Second Plaintiff in 3606 of 2001 and Second Defendant/Second Cross Claimant in 3582 of 2007)
Victor Lahood (First Defendant in 3606 of 2001 and First Plaintiff/First Cross-Defendant in 3582 of 2007)
Castle Constructions Pty Limited (Second Defendant in 3606 of 2001 and Second Plaintiff/Second Cross-Defendant in 3582 of 2007)
Solidare Pty Limited (Third Defendant in 3606 of 2001 and Third Plaintiff/Third Cross-Defendant in 3582 of 2007)

FILE NUMBER(S): SC 3606 of 2001; 3582 of 2007

COUNSEL: M D Einfeld QC with him Mr S J Phillips (Victor Lahoud parties)
S Epstein SC with him Mr P J Gow (Joseph Lahoud parties)

SOLICITORS: Aitken McLachlan Thorpe (Victor Lahoud parties)
Robertson Saxton Primrose Dunn (Joseph Lahoud parties)

154

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

FRIDAY 3 JULY 2009

3606/01 JOSEPH LAHOUD & ANOR V VICTOR LAHOUD & 2 ORS
3582/07 VICTOR LAHOUD & 2 ORS V JOSEPH LAHOUD & ANOR

JUDGMENT

1 Before me for hearing were two separate proceedings, to which two brothers, Joseph Lahoud and Victor Lahoud, (and one or more associated entities) are party. Both matters, broadly speaking, arise out of orders made following the determination by Palmer J of the substantive issues in the earlier of the two proceedings before me. At the commencement of the hearing, I made orders that the two sets of proceedings be heard together and that, to the extent relevant, evidence in each proceeding be evidence in the other.

2 As they are on opposite sides in the respective proceedings, I propose for convenience to refer to Joseph Lahoud and Joseph Lahoud & Associates Pty Limited (the plaintiffs in 3606/01 and the defendants in 3582/07) as the “Joseph Lahoud interests” and to refer to Victor Lahoud, Castle Constructions Pty Limited and Solidare Pty Limited (the defendants in 3606/01 and the plaintiffs in 3582/07) as the “Victor Lahoud interests”.

3 In the first set of proceedings (3606/01) (“the damages proceedings”), Palmer J, in May 2005, found that Terms of Settlement, which had been signed on 6 February 2001, recording an agreement for the dismissal by consent of proceedings then before the Industrial Relations Commission of New South Wales, were binding on the parties. Orders were subsequently made by Palmer J on 13 October 2005 that there be an enquiry “as to the amount of damages which the [Joseph Lahoud interests] have sustained (if any) by reason of the [Victor Lahoud interests’] failure to perform their obligations under the Terms of Settlement”.

4 The damages enquiry before me is all that now remains to be determined in the damages proceedings. The relevant obligation for the purposes of the damages enquiry relates to the transfer of certain property to the Joseph Lahoud interests, compliance with which did not occur until February 2007.

5 In the second set of proceedings (3587/07) (“the audit proceedings”), the Victor Lahoud interests seek declaratory and other relief consequent upon the election by them on 6 February 2007 for an audit to be carried out pursuant to clause 2 of a Deed of Settlement which was signed by the parties on 5 February 2007 in compliance with an order by Palmer J (again made in the damages proceedings) that the Joseph Lahoud interests execute such a deed by way of specific performance of the Terms of Settlement. The Joseph Lahoud interests deny any entitlement on the part of the Victor Lahoud interests to an audit but, further, say that if there remains any such entitlement then any audit is to be limited to an audit of the “figures” contained in Annexure A to the Terms of Settlement (as opposed to an audit of the profit of the Cammeray development to which those figures related).

Summary

6 In summary, for the reasons set out below, I have reached the following conclusions:

(i) on the damages enquiry, the amount of damages which the Joseph Lahoud interests have established were sustained (by reason of the Victor Lahoud interests’ failure until 21 February 2007 to transfer certain home units in accordance with the Terms of Settlement) is the actual rent paid by the tenants of each of the said home units for the period from 6 August 2001 to the date of expiry (in accordance with their terms) of the respective leases which were on foot as at 6 August 2001 in respect of those premises (and, in the case of Unit 31, the actual rent paid under the ensuing option lease to 1 June 2003) less the monthly outgoings over the relevant period for each of the Units as itemised in the Second Further Amended Particulars of Claim, together with simple interest thereon from the date of receipt of the rents in question at the Supreme Court interest rates; and

Background

· Genesis of current disputes

7 Although the disputes between the parties date back over at least the past ten years, the factual background to the disputes before me is relatively confined. Joseph Lahoud is an architect who has been involved for some years in the acquisition, development and sale of properties in the Lower North Shore. Victor Lahoud is a property developer. The genesis of the current disputes was a dispute between the brothers as to moneys claimed by the Joseph Lahoud interests in respect of property development projects in which Joseph and Victor had been involved for some years. One of those developments was of a property in Cammeray; another was of a property in Northbridge. Industrial Relations Commission proceedings were commenced in 1999 by the Joseph Lahoud interests in relation to disputes over these developments. The 1999 Industrial Relations Commission proceedings were dismissed by consent on 6 February 2001 in accordance with the agreement recorded in the Terms of Settlement.

· Terms of Settlement

8 Two aspects of the Terms of Settlement are relevant (directly or indirectly) to the present disputes: the agreement for the sale or transfer to the Joseph Lahoud interests of two home units in the residential/commercial development at Sailors Bay Road, Northbridge in which the brothers had been involved (which is relevant to the damages enquiry) and the agreement for the payment to the Joseph Lahoud interests of a sum in relation to the profits of the Cammeray development (which is relevant to the audit claim).

9 The first relevant aspect of the Terms of Settlement is the obligation imposed by paragraph 2 of the Terms of Settlement on Castle Constructions Pty Limited (“Castle Constructions”) to pay to Joseph Lahoud (ie to him personally, the obligation not being one owed jointly to the Joseph Lahoud interests) the proceeds of sale of two home units (to which I refer, collectively, as “the Units”), those being specified in the Terms of Settlement as Unit 4 and another unit (not including Unit 18 or 24) in the Northbridge development to be nominated by Joseph Lahoud by 4.00 pm on that day. The second unit, apparently not nominated by Joseph Lahoud until 19 February 2001, was Unit 31.

10 The parties agreed to certain conditions in relation to the sale of the Units, as set out in Schedule 1 to the Terms of Settlement. Paragraph 1 of Schedule 1 provided that Joseph Lahoud was to instruct solicitors and agents in relation to each sale and that the Victor Lahoud interests were to provide all assistance, instructions and documents reasonably required to effect each sale. Paragraph 3 of Schedule 1 provided for the Joseph Lahoud interests to use their best endeavours to achieve the highest price available for each property and for Joseph Lahoud to set the reserve price for any auction sale.

11 Paragraph 8 of Schedule 1 provided that:

In the event that the units cannot be sold and completed within six months then the [Victor Lahoud interests, ie jointly] shall take a transfer in specie of the units and pay all costs and disbursements and duties.

12 The Units were not sold within the six month period, thus triggering the obligation of the Joseph Lahoud interests to take a transfer in specie of the Units (and, implicitly, the obligation of Castle Constructions, the then registered proprietor, to transfer the Units). (In fact, as I understand it, little was done in relation to the sale of the Units between February and August 2001, presumably because a dispute arose shortly after the Terms of Settlement were signed which led to a challenge to the enforceability of the Terms of Settlement (a matter to which I refer later). Joseph Lahoud did, however, obtain a marketing proposal from a real estate agent (Mr Edward Mazzoni) on 13 February 2001 with a view to the sale of the Units and obtained advice as to the likely market value of the Units at that time.)

13 There may be an argument that the relevant obligation was not, on a proper construction of the Terms of Settlement, triggered until 7 August 2001, on the basis that the period of time “within six months” of 6 February 2001 would not expire until the conclusion of 6 August 2001 – see generally Gorst v Lowndes (1841) 11 Sim 434; 59 ER 940, Wilson v Nightingale (1846) 8 QB 1034; 115 ER 163, Robinson v Waddington (1849) 13 QB 753; 116 ER 1451, In re Figgis [1968] 2 WLR 1173, Strickland v Grieve (1996) NSW Conv R 55-762; (1995) 7 BPR 14-376, Proctor v Chahl [2008] NSWSC 1252. However, as the parties have agreed upon 6 August 2001 as being the relevant date, I have proceeded upon that basis. In any event, the use of 7 August rather than 6 August would have no relevance to any issue presently before me other than, perhaps, a very marginal effect upon the quantum of damages.

14 It is accepted by the parties, for the purposes of the present damages enquiry, that the transfer of the Units did not occur until 21 February 2007 when there was delivery to the Joseph Lahoud interests of the relevant title documents. (It had earlier been asserted by the Joseph Lahoud interests that in fact compliance did not occur until 27 February 2007, because of disputes as to the provision of vacant possession and delivery of keys. However, Senior Counsel for the Joseph Lahoud interests (Mr Epstein SC) in opening advised that for their part the Joseph Lahoud interests were content to treat 21 February 2007 as the relevant date of compliance (T 4) and said that, insofar as some of the Joseph Lahoud interests’ submissions referred to a 27 February 2007 transfer date, this should be read as 21 February 2007.) Accordingly, 21 February 2007 is the agreed end date of the period of delay for the purposes of this damages enquiry.

15 It is the failure to transfer the Units in specie (not any breach of the antecedent obligations in relation to the contemplated sale of the Units prior to 6 August 2001), which is the subject of the current damages claim. The enquiry is limited to what damage, if any, the Joseph Lahoud interests have suffered as a result of the delay in the transfer to Joseph Lahoud of the Units from 6 August 2001 to 21 February 2007. Strictly speaking, the reason for the delay is irrelevant to the damages enquiry. However, as some of the events since 2001 bear upon the issues for determination, and by way of background, I have set out a summary of what transpired between 2001 and 2007.

16 The second relevant aspect of the Terms of Settlement is that which relates to the audit claim. Paragraph 1 of the Terms of Settlement provided for Castle Constructions to pay to Joseph Lahoud, by bank cheque no later than 6.00 pm 6 February 2001, the sum of $570,000. That sum (which was duly paid on the date the Terms of Settlement were signed) represented a share out of the estimated profits of the Cammeray property development in which the brothers had been involved.

17 Victor Lahoud had indicated to Joseph Lahoud, shortly before the Terms of Settlement were agreed, that the net profits of the Cammeray development would be in the order of $1.5 million. However, on the morning the Terms of Settlement were signed, certain “figures” were provided to Joseph Lahoud which showed a lower net profit for the project. Joseph Lahoud did not accept that those figures (which form part or all of Annexure “A” to the Terms of Settlement) were accurate. His legal advisers told him that he could seek to have a provision included in the Terms of Settlement allowing for an audit. The Victor Lahoud interests acceded to the request for such a provision on the basis that there should be a right on both sides to elect to have an audit carried out. This led to the balance of paragraph 1 of the Terms of Settlement, in which provision was made for either party “to elect to have the figures audited”.

18 Shortly after the Terms of Settlement were signed, Victor Lahoud raised the issue of an error in his profit calculations for the Cammeray project (errors in the calculation of the sum of $570,000 having been discovered by his accountants) (see letter dated 7 March 2001, p 144 revised audit tender bundle). There followed communications between the parties’ lawyers (which I will consider in more detail later) in relation to the profit calculations, which led to Victor Lahoud’s eventual exercise, or purported exercise (in October 2002), of the right to have an audit carried out of the kind contemplated by the Terms of Settlement. It is accepted that no such audit took place. (Although at one stage Victor Lahoud did assert that an audit had been carried out and demanded payment of a sum said to be owing as a result, ultimately, any suggestion that there had been an audit under the Terms of Settlement was rejected by both sides.)

· Commencement of proceedings after Terms of Settlement

19 Paragraph 7 of the Terms of Settlement contained an agreement by the parties to enter into a deed “in accordance with this agreement”, such deed to include the additional terms outlined in paragraph 9(a) and (b), namely releases and a clause requiring Joseph Lahoud to complete the necessary documents to transfer shares held by him in, and resign as a director of, the companies associated with Victor Lahoud (Castle Constructions and Solidare).

20 There was some delay in the finalisation of the terms of the proposed deed, initially due to the time taken by the parties seeking advice as to the tax implications or structuring of the settlement. (Palmer J noted, in his May 2005 judgment, that a great deal of the negotiations both on 5 and 6 February and thereafter were concerned with tax issues – Lahoud v Lahoud [2005] NSW 509 at [38].)

21 According to evidence which was before the Court of Appeal, preparation of a draft deed had already commenced before the Terms of Settlement were signed. There were further drafts, including one produced on the evening of 5 February 2001 to which reference was made by Hodgson JA in the Court of Appeal.

22 Insofar as I make reference to the existence of various draft deeds and to the fact that advice was sought as to the recitals/terms contained therein, I do so by way of background only as I do not consider them relevant to the tasks of construction with which I am faced in the audit proceedings. Neither Mr Epstein nor Mr Einfeld sought to identify any omission from the Deed of Settlement ultimately executed of a provision contained in an earlier draft which might negative an inference that the Deed of Settlement bears a meaning positively rejected by the deletion (see Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 352-353 per Mason J, Esso Australia v Australian Petroleum Agents’ & Distributors’ Association [1999] 3 VR 642 at 647-648 per Hayne J and Zaccardi v Caunt [2008] NSWCA 202 at [35] per Campbell JA).

23 Mr Epstein stated that I was able (and ought) to look outside the four corners of the Deed of Settlement, even absent any ambiguity in its terms, and I accept that this is the case (Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 at [22] per Allsop P; Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [7]-[13] per Spigelman CJ). However, neither Counsel suggested that the negotiations themselves ought to be rendered admissible other than to the extent that they tend to establish the objective background facts which were known to the parties, to establish the subject matter of the contract or to evidence deletions or omissions of the kind mentioned above (see J J Spigelman, ‘From Text to Context: Contemporary Contractual Interpretation’ (2007) 81 Australian Law Journal 322 at 331-334; PhilipsElectronics Australia Ltd v Insight Oceania Pty Ltd [2009] NSWCA 124 at [46]; cf Donald Nicholls, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 Law Quarterly Review 577 and David McLauchlan, ‘Contract Interpretation: What Is It About?’ (2009) 31 Sydney Law Review 5).

24 By letter dated 12 February 2001, Tillyard & Callanan forwarded a draft deed to Windeyer Dibbs (acting for the Joseph Lahoud interests), noting that the deed had been agreed and “we will arrange exchange on 15 February”. The Joseph Lahoud interests apparently signed the deed so forwarded to them and their lawyers advised that this had been done on 15 February 2001. However, Tillyard & Callanan on that date advised Windeyer Dibbs that “the amendments to the draft DA prepared by you are currently with our clients’ tax advisers and we hope to finalise our position in the next day or so … “.

25 It appears that Victor Lahoud had sought advice from accountants (Castletons) in relation to the tax implications of the deed for both himself and Castle Constructions on or about 12 February 2001 (the same day on which his legal representatives had forwarded what they described as an “agreed” deed) (see letter dated 19 February 2001 from Castletons to Victor Lahoud, p 213 revised damages bundle). Advice was also sought by Tillyard & Callanan from another firm of accountants (A D Hills & Co Services Pty Limited) (letter 21 February 2001 p 218 revised damages tenders bundle). The upshot was that new draft recitals were prepared, which were not agreed by the Joseph Lahoud interests.

26 The Joseph Lahoud interests were given advice from Windeyer Dibbs and from accountants (Crispin & Jeffery) as to the deed (also apparently to ensure the transactions which had been agreed upon were structured in a tax effective way) (see eg letter dated 28 February 2001 from Windeyer Dibbs to Joseph Lahoud, p 223 revised damages tender bundle).

27 By letter dated 7 March 2001 (p 144 revised audit tender bundle), Tillyard & Callanan wrote to Windeyer Dibbs conveying their clients’ complaints as to the delay in finalisation of the terms of the deed and advising that:

If no response is received on terms acceptable to our client, which terms must acknowledge the spirit and intent of our respective clients’ agreement, namely that payment of proceeds of sale of units to your client shall be deductible in the hands of our client, then our client will consider that the spirit and intent of the agreement between your client and our client will not have been achieved, and our client cannot proceed on that basis.

28 In late March 2001, Cowley Hearne took over the conduct of the matter from Windeyer Dibbs for the Joseph Lahoud interests and demanded execution of the deed which they said had been agreed by both parties (letter dated 26 March 2001). In response, by letter dated 28 March 2001, Tillyard & Callanan (somewhat inconsistently with what had been said in their 12 February letter, presumably written on their clients’ instructions) advised that the deed annexed to their 12 February 2001 letter was not acceptable to their clients.

29 By letter dated 29 March 2001, Cowley Hearne’s response was to assert that the parties were bound to execute and exchange the “agreed Deed of Agreement” and failing this their instructions were to enforce the Terms of Settlement and the said deed.

30 By letter dated 3 April 2001, Tillyard & Callanan repeated their assertion that the deed submitted on 12 February 2001 had not been agreed by Victor Lahoud. The Victor Lahoud interests then asserted (by letter dated 17 April 2001 from Tillyard & Callanan to Cowley Hearne, p 148 revised audit tender bundle) that the Terms of Settlement were conditional on the honouring of a private (or collateral) agreement between the two brothers (which agreement was in due course said to relate to possession of their late father’s watch and the sharing of expenses in respect of the care of their handicapped brother, Riad). The Victor Lahoud interests contended that, by Joseph Lahoud’s actions (there referring, it would seem, both to the delay in effecting exchange of the Deed and to Joseph Lahoud’s denial of the alleged private agreement), Joseph Lahoud had evinced an intention to repudiate the “overall agreement”.

31 The position of the Victor Lahoud interests, as communicated to the Joseph Lahoud interests in April 2001, was that either performance of the “entire overall agreement” should be effected or they would accept the “repudiation” by Joseph Lahoud of the agreement (by which it appears they were referring to the Terms of Settlement).

32 This correspondence produced no acceptance by the Joseph Lahoud interests of the alleged private agreement and, by letter dated 2 July 2001, Tillyard & Callanan wrote to Cowley Hearne, advising that they had concluded that Joseph Lahoud was repudiating the agreement reached on 5 and 6 February 2001 and that their client accepted that repudiation and considered “the agreement rescinded ab initio” (p 172 revised audit tender bundle).

33 The litigious fallout from the dispute over the alleged private agreement was traced by Campbell J (as his Honour then was) in his judgment handed down on 10 March 2006 (on indemnity costs applications made by the Joseph Lahoud interests in the damages proceedings – Lahoud v Lahoud [2006] NSWSC 126). As it assists in understanding the manner in which the claims were particularised before me, I summarise (in part with reference to some of the factual background outlined by Campbell J) the way in which the litigious saga unfolded as follows:

· On 2 May 2001, the Joseph Lahoud interests filed a notice of motion in the 1999 Industrial Relations Commission proceedings (that is, in the proceedings which had already been dismissed on 6 February 2001) seeking a declaration that the Terms of Settlement were binding and orders in the nature of specific performance. (It is not clear to me whether in so doing they were seeking to compel execution of the deed said to have been agreed as at 12 February 2001, though nothing turns on this.)

· On 5 July 2001, the Victor Lahoud interests filed a notice of motion in the 1999 Industrial Relations Commission proceedings seeking a declaration that any agreement reached on 5/6 February 2001 had been repudiated by the Joseph Lahoud interests and an order for repayment of the sum of $570,000.

· In mid/late July 2001, the Joseph Lahoud interests commenced proceedings in this Court to extend caveats which had been lodged over the title to the Units.

· On 5 November 2001, the Victor Lahoud interests commenced fresh proceedings in the Industrial Relations Commission seeking an order under s 106 of the Industrial Relations Act 1996 to declare void ab initio the Terms of Settlement.

· On 22 November 2001, the Joseph Lahoud interests filed a notice of motion in the 2001 Industrial Relations Commission proceedings, alleging that the Commission had no jurisdiction and an estoppel arising from the Terms of Settlement in the 1999 proceedings.

· On 21 February 2002, the Joseph Lahoud interests filed an amended summons in the Supreme Court proceedings, seeking, among other things, a declaration that the parties had settled their proceedings before the Industrial Relations Commission of New South Wales (by the Terms of Settlement) and an order that the Victor Lahoud interests specifically perform and carry into effect the Terms of Settlement, provide access keys and details of the Units and transfer the Units.

· On 9 August 2002, the 2001 Industrial Relations Commission proceedings were permanently stayed by Glynn J (Lahoud v Lahoud [2002] NSWIRComm 182). The Victor Lahoud interests appealed from that decision and, in June 2003, a Full Bench of the Commission allowed that appeal (Lahoud v Lahoud [2003] NSWIRComm 179).

· By early 2004, Federal Court proceedings had been commenced by the Victor Lahoud interests alleging misleading and deceptive conduct in relation to the entry into the Terms of Settlement.

· In March 2004, there was argument before Nicholas J as to the question of transferring the Industrial Relations Commission proceedings to this Court. A Further Amended Summons was filed by the Joseph Lahoud interests in the Supreme Court proceedings, on 10 March 2004 seeking a further declaration that the transfers be freed and discharged from all encumbrances and, in the alternative, declarations that the Terms of Settlement did not express the true intention of the parties and were executed under a common mistake by reason of the failure of the Terms of Settlement to specify that the Units should be transferred to Joseph Lahoud or his nominee freed and discharged from all encumbrances. An order for rectification of the Terms of Settlement to that effect was sought.

· In April 2004, Nicholas J ordered the transfer to this Court of the two notices of motion in the 1999 Industrial Relations Commission proceedings and of the 2001 Industrial Relations Commission proceedings. The Federal Court proceedings were by consent subsequently transferred as well, so that all matters were brought before this Court, and effectively subsumed, as I understand it, into the damages proceedings (although each of the 1999 and 2001 Industrial Relations Commission proceedings and the Federal Court proceedings, as transferred, were given separate matter numbers). The Statement of Claim of the Victor Lahoud interests in the Federal Court proceedings became the Cross-Claim in the damages proceedings.

· Damages Proceedings

34 By mid 2004, therefore, there were before this Court proceedings (the damages proceedings) in which, on the one hand, the Joseph Lahoud interests were seeking specific performance (and rectification) of the agreement contained in the Terms of Settlement to transfer the Units (and that such transfer be free of all encumbrances) and, on the other hand, the Victor Lahoud interests were alleging that such agreement had been induced by a misrepresentation made by Joseph Lahoud and were seeking that the Terms of Settlement be declared void ab initio under s 106 of the Industrial Relations Act or otherwise set aside (as well as contending that the agreement constituted by the Terms of Settlement had been repudiated and was no longer on foot or, alternatively, that the Joseph Lahoud interests were estopped from enforcing the Terms of Settlement).

35 By an Amended Notice of Cross Claim filed on 12 October 2004, the Victor Lahoud interests further claimed (by reference to the matters alleged in paragraphs 12-14) the repayment of the sum of $570,000 paid to Joseph Lahoud on 6 February 2001. Paragraph 12 pleaded the audit provision in paragraph 1 of the Terms of Settlement and paragraph 13 pleaded that an audit (though not expressed to be pursuant to an election made under the Terms of Settlement) had been carried out by Castletons, accountants, which it was said had disclosed that the profit of the Cammeray development was less than the profit calculations. Paragraph 14 pleaded an entitlement to the difference between the sum of $570,000 and the lesser profit calculation.

36 By a subsequent Further Amended Notice of Cross Claim, a claim was also made against the Joseph Lahoud interests based on the alleged collateral contract between the brothers.

37 At a directions hearing on 14 February 2005, Palmer J expressed the view that if Victor Lahoud’s version of the facts were to be correct he would be able to obtain the remedy he sought (under the alleged collateral agreement) without reliance on s 106 of the Industrial Relations Act. Shortly thereafter, on 9 March 2005 the Victor Lahoud interests advised that the s 106 claim was not pressed. (Nevertheless, I note that Campbell J was not prepared later to conclude that the s 106 claim had been hopeless, in circumstances where the Full Bench of the Industrial Relations Commission had overturned Glynn J’s summary disposal of the claim; his Honour noting ([2006] NSWSC 126 at [40]) at that stage that the law concerning the extent of the jurisdiction of the Commission under s 106 was labile.)

38 The damages proceedings were heard by Palmer J in May 2005.

39 Before me, it was submitted by Mr Epstein SC that during the May 2005 hearing the Victor Lahoud interests had abandoned their claims based on the alleged unenforceability of the Terms of Settlement. This was denied by Senior Counsel for the Victor Lahoud interests (Mr Einfeld SC) and I was taken to the Further Amended Notice of Cross-Claim from which it is apparent that the relief still sought (at least on the pleadings) included a declaration that the Terms of Settlement be set aside.

40 What was expressly noted as having been abandoned at the start of the hearing before Palmer J was the claim for repayment of the $570,000 by reference to the audit pleaded in paragraphs 12-14 (those paragraphs having been deleted). The prayer for relief so abandoned sought a declaration as to the obligation to repay the difference if the audited profit was less than $570,000. A claim for return of the $570,000 was said still to be sought on a restitutionary basis or as relief under the Trade Practices Act 1974.

41 Nevertheless, it would appear from the transcript of argument on 17 May 2005 that the position of the Victor Lahoud interests, expressed through Senior Counsel then appearing for them (Mr Weber SC), was that they did not seek to deny the Terms of Settlement but, rather, were seeking to enforce the collateral agreement. Victor Lahoud was cross-examined before Palmer J on this position and accepted (in cross-examination on 20 May 2005) that his position from 2 July 2001 onwards was that all aspects of what had been agreed on 5 and 6 February were no longer applicable and that this was his case up to the hearing:

Victor Lahoud: My position is, was that I wanted the terms of agreement enforced in totality, or not enforced. That was my position. (T 133.46)

42 In an exchange with Mr Weber during opening submissions, Palmer J observed, in effect, that insofar as Victor Lahoud was content to observe the terms of the written agreement but really wanted the private agreement performed, the nub of the case was for specific performance of the alleged collateral agreement.

43 Mr Weber’s response accorded with Victor Lahoud’s explanation in cross-examination of his position, namely that (absent carriage of the alleged private agreement into effect) the Victor Lahoud interests opposed enforcement of the Terms of Settlement and said they should be set aside.

· Determination of substantive issues in damages proceedings

44 Ultimately, Palmer J found against the Victor Lahoud interests on the alleged collateral agreement. His Honour did not prefer the credit of Victor Lahoud over the credit of Joseph Lahoud (and noted that he was not satisfied that the evidence of Victor Lahoud’s lawyers unequivocally corroborated Victor Lahoud’s evidence) ([2005] NSWSC 509 at [127]-[128]).

45 While it was later put to Campbell J (on the indemnity costs application) that the allegations by Victor Lahoud were baseless and known to be so, Campbell J did not accept that, at the time Victor Lahoud had made the allegations as to a private agreement, he must have realised they were false. His Honour noted that on Palmer J’s findings the case was decided having regard to the onus of proof but that his Honour had not found that the claim was “a complete concoction” on Victor Lahoud’s part ([2006] NSWSC 126 at [16]-[17]).

46 Palmer J held that the Joseph Lahoud interests were entitled to specific performance of the agreement recorded in the Terms of Settlement. However, orders were not finally made by his Honour until October 2005. This is because on 17 June 2005, when the matter came before his Honour for the making of orders to reflect his reasons for judgment, there was an argument over two aspects of the orders – first, as to whether the parties should be ordered to execute a deed (in accordance with paragraph 7 of the Terms of Settlement) and, secondly, as to the construction of paragraph 8 of Schedule 1 of the Terms of Settlement (namely as to whether the order should be for the transfer in specie of the Units subject to, or free of, encumbrances over those properties).

47 As to the first of the contentious issues which had arisen in relation to the orders, on 17 June 2005, Mr Epstein submitted that an order for execution of a deed would be “quite illusory” and later, in similar vein, that it would be “unnecessary and illusory”. Palmer J, during the course of submissions, observed that all that the court could require specific performance of in this regard would be simply to incorporate “perhaps in tidier form” the very words of the Terms of Settlement in a deed, his Honour accepting that: “It is, I think, sadly apparent that the principal parties in this litigation are incapable of any sort of resolution of their difficulties. Everything will have to be decided by the court”. The matter was adjourned at that stage for later argument as to the construction of paragraph 8 of Schedule 1 (and as to other issues relating to a requested stay of any orders and the question of costs).

48 On 22 July 2005 the matter came back before Palmer J. At that stage the question of vacant possession of the Units was raised (seemingly, for the first time, though this had been noted in the Points of Claim filed in June 2005). Mr Epstein noted that although there was no registered lease on the title, there were indications in the material from the Victor Lahoud interests of a tenancy said to be current with respect to the property (there referring, it would seem, to Unit 31). Mr Epstein submitted that the Victor Lahoud interests ought to be required to provide the plaintiffs with vacant possession, saying: “In the absence of any evidence to the existence of such a tenancy, the [Joseph Lahoud interests] press for their ordinary entitlement to vacant possession on completion”.

49 At that stage, evidence was apparently produced of a lease of Unit 31 which, according to Mr Gyles of Counsel then appearing for Victor Lahoud, was to terminate early the following year (ie early 2006). It was noted that Unit 4 was occupied by the brothers’ handicapped brother, Riad, and was not subject to any lease, so Mr Gyles indicated there was “no issue so far as vacant possession of that if that’s what Joseph wants”.

50 In relation to the question of an order for the execution of a deed in accordance with paragraph 7 of the Terms of Settlement, Mr Epstein again argued that such an order would be a purposeless procedure. Palmer J evidently did not accept this submission, nor was it accepted by Counsel for the Victor Lahoud interests that the Deed would be purposeless. Indeed, Mr Gyles pointed, so far as the utility of a deed was concerned, to the fact that it was to cover additional items, saying that “to the extent that matters obviously enough the acquisition of those shares or the transfer of those shares is something that is of significance.”

51 Palmer J said, during argument (T 277), “At first blush, at least it seems to me, that if one is to have specific performance of a contract, then one is to have specific performance of the whole of the contact except insofar as specific performance is impossible. It might be pointless or of little point but if performance is possible then one cannot, as it were, order specific performance of parts of a contract which are considered desirable but not parts which one considers relatively undesirable”.

52 His Honour noted that a requirement that the parties enter into a deed in accordance with this agreement was not impossible of performance and neither did it require further agreement between the parties:

If they are able to agree upon something or other to be inserted additionally that’s fine that is a matter of new agreement. If they are not able to agree, specific performance of that obligation seems to me simply requires there be cast into the form of a deed simply the provisions of paragraph 2 and 3 and whatever. In other words, if they are not able to agree on word changes, even so much as the variation of a comma or any punctuation marks, then the very words of the document are incorporated in the deed and that’s it.

53 Mr Epstein referred his Honour to the evidence that the parties had previously tried but failed to agree upon the terms of such a deed and had become embroiled in a dispute as to whether Victor Lahoud was bound to execute a deed in the form which his solicitor had approved, but Palmer J observed that that was because they were trying to add into the deed additional matters.

54 Palmer J (T 281) (albeit in the context of the example which had been put that there might be a dispute if Joseph Lahoud refused to hand over the shares) said, somewhat presciently: “If that arises, that dispute will be heard by another judge thank goodness in proceedings for specific performance of the deed”. (My emphasis)

55 In his reasons for judgment published on 13 October 2005 (Lahoud v Lahoud (No 2) [2005] NSWSC 1019), Palmer J noted (at [20]-[21]) that:

Crude and inelegant though it might be as a piece of drafting, the deed required by clause 7 need contain no more or less than the provisions of the Terms of Settlement,

56 His Honour also noted that, ultimately, Mr Epstein had indicated that he would not resist an order for specific performance of that paragraph of the Terms of Settlement.

· Deed of Settlement

57 As part of the relief granted, his Honour declared that paragraph 7 of the Terms of Settlement (for execution of a deed) should be specifically performed and carried into execution; and ordered that the Victor Lahoud interests execute a deed to be tendered by the Joseph Lahoud interests containing the Terms of Settlement other than Schedule 2 to those terms. That order was stayed pending the unsuccessful appeal by the Victor Lahoud interests against his Honour’s decision.

58 Following dismissal of the appeal on 30 June 2006, a draft deed was tendered on 6 July 2006 by the solicitors who were by then acting for the Joseph Lahoud interests (baron & associates) to the solicitors who were by then acting for the Victor Lahoud interests (Aitken McLachlan Thorpe).

59 On 2 August 2006, Aitken McLachlan Thorpe forwarded an amended Deed of Settlement the amendments to the first draft being said, “to reflect certain obligations which as at 6 February 2001 were to take place but have since taken place”. A deed in that amended form (the Joseph Lahoud interests apparently accepting the proposed amendments) was executed on 5 February 2007 after some debate (to which I refer later) as to the timeframe within which certain obligations were to be performed (the Victor Lahoud interests having apparently taken a position that the six month sale process would be reactivated under the deed).

60 As executed, clause 2 of the Deed of Settlement (which broadly incorporated the matters contained in paragraph 1 of the Terms of Settlement but, significantly, with a change in tense in the opening sentence) provided, relevantly:

… Either party may elect to have the figures audited by an accountant to be agreed or, in default of agreement, as nominated by the President of Institute of Chartered Accountants. If on audit, the audited profit exceeds the said profit calculation, [Joseph Lahoud] is to be paid one half of the difference by [the Victor Lahoud parties]. If on audit, the audited profit is less than the said profit calculation, [Joseph Lahoud] will pay the [Victor Lahoud parties] one half of the difference.

61 The opening sentence of clause 2 (not reproduced above) was one which operated to acknowledge receipt of the sum of $570,000 rather than being framed (as was its counterpart in the Terms of Settlement) in prospective terms. Further, in its amended form the clause referred to a past belief, held in February 2001 (ie not making any assertion as to the state of belief in February 2007) as to the accuracy of the figures on which the $570,000 sum was calculated.

62 Almost immediately after execution of the Deed of Settlement, the Victor Lahoud interests, by letter dated 6 February 2007, notified the Joseph Lahoud interests of their election to have an audit conducted pursuant to clause 2 of the Deed of Settlement.

63 The Joseph Lahoud interests responded by denying, in effect, that there was, as at 6 February 2007, any subsisting entitlement on the part of the Victor Lahoud interests to an audit. It was asserted by baron & associates that the claim in respect of an audit had been abandoned in the damages proceedings (presumably by reference to the deletion of paragraphs 12-14 of the Amended Notice of Cross Claim and the corresponding prayer for relief).

64 The Joseph Lahoud interests in the audit proceedings before me maintain that the right to elect for an audit under paragraph 1 of the Terms of Settlement had expired by 5 February 2007 and that no new right to an audit was conferred by the execution of the Deed of Settlement. Clause 2 of the Deed is said to be, in effect, otiose.

Issues

65 The issues to be determined, therefore, are as follows:

1. In the damages proceedings , have the Joseph Lahoud interests established that they suffered any compensable loss as a result of the delay in transfer to them of Units 4 and 31; and, if so, what is the quantum of that loss?

In the audit proceedings

1. Damages

Particularisation of damages claims

66 The Joseph Lahoud interests were ordered to particularise the damages claimed by them. For that purpose, four successive documents (described as “Particulars of Damage”) were filed by the Joseph Lahoud interests. Mr Epstein contends that these are not pleadings and should not be read as such. However, they represent the only formal articulation of the basis on which the Joseph Lahoud interests claim that they have suffered damage by reason of the delay in transfer to them of the Units and should in my view be read with some particularity. The current version is to be found in the Second Further Amended Particulars of Damage. There, the claim for damages is principally propounded as a loss of rent claim (although various alternative damages claims were also particularised). Although the Joseph Lahoud interests did not at the hearing press all of these alternative claims, it is relevant to note what they were in light of the submissions made by Mr Einfeld as to the absence of proof of any actual loss.

67 The Joseph Lahoud interests’ principal claim (still maintained) is that they lost the net rental income (actual and, for the time during which there was no actual income, potential market rental income) from the Units for the period 6 August 2001 until 21 February 2007. The Joseph Lahoud interests further claim that interest is payable on the loss of rental on a compounding interest basis or, alternatively, on a simple interest basis.

68 Unit 31 was leased for most of the period to Mitsui (Australia) Pty Limited. Copies of the successive leases were in evidence before me. Unit 4 was leased for only a small part of the period, it being occupied for most of the time by the Lahouds’ handicapped brother. The primary basis for relief is said to be damages calculated by reference to actual rentals for Unit 31 and market rentals for Unit 4. (It was submitted in opening by Mr Epstein that the Victor Lahoud interests cannot rely on the fact that (by leasing one or both Units) they had disabled themselves from providing vacant possession as at August 2001 in order to argue that the actual rental for Unit 31 would not have continued (T 8).) A “presumption of continuance” of receipt of rents was urged by Mr Epstein (T 300).

69 Valuation evidence was relied upon in relation to the rental loss claimed for each of the Units on the assumption either that the unit was fully leased for the period (being the primary claim) or that it was leased over the period but with a discount assuming “normal vacancy”.

70 In the Second Further Amended Particulars of Damages the claimed damage is articulated thus: “they lost the net rental income from those properties [the Units] and the interest on that income”.

71 In the Principal Contentions of Fact and Law dated 3 April 2009, served on behalf of the Joseph Lahoud interests, the loss of rent claim is put on the basis that the Joseph Lahoud interests (having, in effect, paid the purchase price for the Units on 6 February 2001 when they agreed to the dismissal of their Industrial Relations Commission proceedings) “were wrongfully deprived of the benefit of their bargain, relevantly comprising the income stream available from the Northbridge properties, throughout the period 6 August 2001 to 27 [21] February 2007”. (My emphasis)

72 The first alternative damages claim (paragraph 12 of the Second Further Amended Particulars of Damage) (not pressed before me) was for a loss of $87,000, being a loss of capital value of the Units. This was put on the basis that, had the Victor Lahoud interests not defaulted in their obligations under the Terms of Settlement, and had sales of the Units been effected in accordance with the provisions of the Terms of Settlement, it was likely that the net proceeds of sale would have come into the hands of the Joseph Lahoud interests by no later than 30 June 2001 in an amount of $1,382,000 (corresponding to a gross sale price of $800,000 for Unit 31 and a gross sale price of $600,000 for Unit 4) less certain sales expenses. It was said that the market value of the two properties by the time they were transferred was no greater than $1.295 million, being $710,000 for Unit 31 and $585,000 for Unit 4. Hence, the loss of capital value was put in the amended particulars at $87,000.

73 Insofar as this becomes relevant to the interest damages claims, there is a dispute as to whether there was any such loss of capital value. On the values propounded by the Victor Lahoud interests’ expert, the Units in fact increased in value by just under $400,000; on the Joseph Lahoud interests’ experts’ figures by a lesser sum (about $150,000). Joseph Lahoud conceded in cross-examination that he knew, at the time the claim for loss was presented, that the value attributed to the Units (in paragraph 12 of the Second Further Amended Particulars of Damages) exceeded the value which had been placed on them by his own valuer (T 112) and that even on his own case the value of the Units had increased between 2001 and 2007.

74 The second alternative claim (paragraph 13 of the Second Further Amended Particulars of Damage) (not pressed at the hearing) was a claim for loss of use of the said sale proceeds of $1.382 million over the period from 1 July 2001 to the date of transfer. In particularising the loss so claimed, it was said that it is likely that the Joseph Lahoud interests would have invested those funds in the purchase of a particular property in Castlecrag for a price of $1.3 million and that the value of that property by 27 [21] February 2007 had appreciated so as to have had a market value as at that date of at least $2 million.

75 Paragraph 13 had earlier also encompassed a claim for an additional loss referable to the alleged raising of investment funds through a mortgage over the Castlecrag property once acquired, and investing those funds with a specified rate of return. This additional component of the second alternative claim was deleted before the matter came before me.

76 Another alternative claim had been set out in paragraph 14, but this was abandoned by the time the Second Further Particulars of Damages document was filed. Paragraph 14 had pleaded in the alternative to 13, that had the purchase of the Castlecrag, or a similar, property not come about, then the funds available in or about July 2001, ($1.382 million) would have been invested in the acquisition of a property development site in North Sydney in July 2003 (and prior thereto in an AMP or similar investment product) producing a specified rate of return. There was no evidence before me as to any loss on this basis.

77 Paragraph 15 of the Second Further Amended Particulars of Damages particularised a further alternative claim, based on the assumption that the Joseph Lahoud interests would have received the said sale proceeds of $1.38 million and invested them in blue chip AMP investments. Again, this was not pressed.

Claims pressed at hearing

78 At the hearing, Mr Epstein advised the Court that the claims for losses as particularised in paragraphs 13 and 15 were not pressed and nor was the claim for the capital value loss set out in paragraph 12 (though he noted that the Joseph Lahoud interests did maintain a claim for interest under s 100 of the Civil Procedure Act 2005 for the damages calculated by reference to the lost rental income; the precise nature of which claim is considered later in these reasons).

79 Those alternative claims were not pressed on the basis that the Victor Lahoud interests had (during opening submissions) withdrawn a scenario (referred to by Mr Epstein as “the so-called sale scenario”, in which Mr Epstein suggested the parties had been “ensnared” (T 11)) to the effect that the damages which flowed from the obligation to transfer the Units should be reduced having regard to the failure to sell the Units prior to 6 August 2001.

80 Mr Einfeld indeed confirmed at the commencement of the hearing before me that the Victor Lahoud interests were not approaching the damages claim on the basis of an hypothesis that the units would have been sold prior to August 2001 (cf paragraph 11(a)(i) of the Victor Lahoud interests’ Statement of Issues and Contentions, which seemed to say just that), though contending that 11(a)(i) of the Statement of Issues and Contentions was a factually accurate statement (T 55).

81 Suffice it to say that the result of the various concessions made at the outset of the hearing of the damages enquiry was that the Victor Lahoud interests do not now suggest that any regard should be had to what the position would have been if the Units had been sold prior to August 2001 and the Joseph Lahoud interests particularise their claim to damages solely on the loss of rental basis (plus a claim for interest under s 100 of the Act). (Joseph Lahoud was, however, cross-examined on the evidence he had filed in support of the so-called Castlecrag property alternative scenario to the effect that, had it been relevant, I would have concluded that the failure to sell the Units prior to 6 August 2001 was not likely to have been a matter which caused the inability of Joseph Lahoud and his then partner to acquire the Castlecrag property.)

82 Joseph Lahoud gave evidence in support of his claim for damages. (No affidavit evidence of Victor Lahoud was relied upon in either of the proceedings.) Expert evidence was adduced on behalf of both parties as to the market value of each of the Units, both in 2001 and in February 2007. Other valuation evidence (at pp 174, 175, 177-179, 181-182 of the revised damages tender bundle) (marked, at Mr Epstein’s request, as MFI 1) obtained for mortgage and stamp duty purposes was sought to be tendered by Mr Epstein on the basis that the court would thereby be “better equipped” to evaluate the evidence of the real estate experts called by the respective parties. None of that material was put to Mr Juniper in cross-examination nor was it referred to in Mr Hubbard’s report. I rejected that evidence (not being compliant either with the Expert Witness Code required under the Rules or with the Makita v Sprowles (2001) 52 NSWLR 705 principles) for the reasons set out in my ex tempore judgment on 21 April 2009, adopting the reasoning of Barrett J in Tim Barr v Narui Gold Coast [2009] NSWSC 49 (see also McDougall J in Investmentsource v Knox Street Apartments [2007] NSWSC 1128)).

83 In respect of Unit 4, the valuer called by the Victor Lahoud interests, Mr Juniper, valued it at $420,000 as at March 2001 and $590,000 as at February 2007, compared with values of $525,000 (July 2001) and $600,000 (February 2007) as assessed by Mr Hubbard, the valuer called for the Joseph Lahoud interests. In respect of Unit 31, the two valuers assessed its value at the said times as follows: Mr Juniper - $715,000/$942,000; Mr Hubbard - $725,000/$800,000. On either of the expert valuer’s valuations the “reserve” prices which Joseph Lahoud deposed he had in mind for a sale prior to August 2001 (totalling $1.4 million) were above market, thus putting the $87,000 loss of capital value claim (had it been maintained) on very shaky ground.

84 There was evidence that the value of the Units had been recorded in the tax return of the Joseph Lahoud Family Trust for the year ended June 2001 (and I understand this was also reflected in Joseph Lahoud’s own financial records at the relevant time(s)) at $1.1 million in aggregate (which broadly accords with Mr Juniper’s assessment of market value as at February 2001). Joseph Lahoud accepted that he had adopted $1.1 million as the value of the Units in those books and records.

85 Although each of the valuers was cross-examined at some length on their valuations, it was ultimately submitted by Mr Epstein that any enquiry into the fluctuating capital values of the Units was beside the point, on the basis that even on the valuation evidence most favourable to the Victor Lahoud interests there would still be a substantial net loss if interest were to be taken into account (T 303). I consider this submission in due course.

Position of the Victor Lahoud interests

86 There is no dispute that, as at 6 August 2001, the Units were each tenanted and thus that had the Units been transferred in specie to the Joseph Lahoud interests at that date they would have taken subject to the leases. The primary basis of the defence by the Victor Lahoud interests to the loss of rent damages claim was that the Joseph Lahoud interests had not established that the Units would have been retained and rented out over the relevant period (in preference, say, to the Units being sold and the funds utilised for other purposes, or to one or both of the Units being retained but not rented out).

87 Although the Victor Lahoud interests had also contended that the lost rental claimed was overstated, during the course of the hearing the parties reached agreement as to the net rental figures to be adopted for each of the Units if I were to find for the Joseph Lahoud interests on their loss of market (ie not actual) rental claim. Those compromise figures are set out in Exhibit K and total $104,675.01 for Unit 4 and $171,719.00 for Unit 31.

88 Further in answer to the Second Further Amended Particulars of Damages, the Victor Lahoud interests claim that no loss or damage was suffered, by reason of the fact that any loss occasioned by failure to perform obligations under the Terms of Settlement was suffered not by Joseph Lahoud but by the Joseph Lahoud Family Trust of which Joseph Lahoud is the trustee and that, as was conceded by Joseph Lahoud (T 71), no loss or damage was suffered by Joseph Lahoud & Associates by reason of the failure to transfer the Units to Joseph personally nor is any of the loss asserted in the particulars of damage referable to it. I consider this defence later.

Relevant legal principles

89 The authority which was said by Mr Epstein to be most closely on point, and on which he placed much reliance, is Wenham v Ella (1972) 127 CLR 454. There the purchaser had brought a claim for damages in lieu of specific performance following the failure of the vendors to deliver a 6/20ths share, as tenant in common, of real property which was described by the trial judge as an “investment property producing income”. The trial judge, apparently having evidence before him that the property was producing “dividends” of $192 per month, said:

sale but there is nothing in the evidence to lead me to find that he would have received any less return from the money thereby received

90 The parties did not cavil with the general proposition that the proper measure of damages in contract is that enunciated in Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 that:

Where a party sustained 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 has been performed.

91 The dispute between them was, rather, what the Joseph Lahoud interests must prove in order to satisfy the onus on them to establish loss sustained as a result of the delayed transfer to them of the Units.

92 On one level, there is no difficulty in answering the question as to what would have been the position had the Victor Lahoud interests performed their obligation to transfer the units in specie in August 2001: the Joseph Lahoud interests would have obtained the freehold reversion in the Units and would have held the title subject to the leases which were then on foot (and with an entitlement to require the incumbent tenants to attorn to them for the rent). The Joseph Lahoud interests would then have had the opportunity (as would any registered proprietor of the Units) in due course (and, depending on whether they sold them at once, from time to time) to decide whether to continue to rent out one or both of the Units (whether to the incumbent tenant(s) or to other potential tenant(s)), or to sell one or both of the Units, or for Joseph Lahoud to live in one (as he ultimately did in the case of Unit 4) and sell or rent the other, (or even, as Mr Epstein says, to give one or both away).

93 In passing, I note that paragraph 7 of Schedule 1 to the Terms of Settlement provided:

7. The Applicants understand and accept that the sale of the units referred to in Clause 2 of the Terms of Settlement shall be subject to any existing tenancy and leasing rights unless same can be terminated prior to completion in accordance with the Residential Tenancies Act.

94 Therefore, the Terms of Settlement themselves contemplated that the Units might (if sold during the six month period allowed for such a sale to be completed) be tenanted at the time of sale. There is no similar acknowledgement in relation to a transfer of the Units under paragraph 8 of Schedule 1 to the Terms of Settlement and, indeed, the question whether there was an obligation on the part of the Victor Lahoud interests to transfer the Units with vacant possession at one stage became an issue, as will be seen later.

95 What the above does not address is what is the pecuniary loss (if any) which actually flowed from the delay in transfer of the Units.

96 Mr Epstein submitted that the ordinary measure of damages referable to a failure to transfer an income-producing asset is the income produced from that asset. In effect, his argument was that, this being the “normal” measure of damages, it is sufficient to show that the Units were (or, perhaps, were of their nature capable of being) income-producing properties in order to sustain a claim for loss of rental and that there is no onus on the Joseph Lahoud interests (or on any plaintiff in their position) to establish (nor should the court look to) what they (or that particular plaintiff) would, or would be likely to, have done had the incoming-producing property (in this case, the Units) been transferred.

97 Mr Epstein pointed out that in none of the judgments in Wenham was there any suggestion that Mr Ella had proved, or was required to prove, that his intended or probable course of action (had the land actually been transferred to him) was to retain that land and to continue to enjoy the income stream available from it. (As I noted during argument, there was, however, a suggestion in the trial judge’s judgment that the outcome might have been different had there been evidence to suggest that a lesser return would have been received by the plaintiff had the property been sold. Therefore, the alternative uses to which the property might have been put seem, at least to some extent, to have been something which the trial judge considered could have been relevant in determining the question of damages.)

98 Mr Epstein submitted that speculation about what a plaintiff might have done with the property to which he or she was contractually entitled was only speculation in the absence of some demonstration that the plaintiff would have used the property in a less remunerative fashion than in fact the property was used by the guilty party (T 8); in effect, as I understand his submissions, thus suggesting that the onus is cast on the guilty party to show that the plaintiff would not have used the property in such a way as to produce the “normal” damages.

99 It was further submitted by Mr Epstein that the breach by the Victor Lahoud interests was a continuing breach and that it would be unrealistic and artificial to ask what the Joseph Lahoud interests would have done on or at each point in time after 6 August 2001 had they obtained title to the two properties (particularly given that it was said to be manifest that there was not any prospect of this happening unless a court ruled in their favour in the litigation which was by then already on foot in that regard).

100 Reliance was placed by Mr Epstein on the observation by Walsh J (at 466) in Wenham that there was:

Error … in treating rules which constitute useful guidance in the ascertainment of damages as rigid rules of universal application – instead of treating them as prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation for breach of contract (at 466).

Commonwealth of Australia v Amann Aviation Pty Limited

Jones v Schiffmann

Amann,

101 Accordingly, it was submitted by Mr Epstein that in assessing damages in this kind of case no regard is to be had to the personal proclivities of the particular plaintiff, as opposed to those of the reasonable man, citing Mason CJ and Dawson J in Amann said (at 80):

and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained

102 Pausing there, at the very least it would seem that what was contemplated by their Honours was that the plaintiff would adduce evidence from which a court could objectively determine that, arising out of or created by the contract, there was an expectation on the part of the plaintiff of a certain outcome as a result of performance of the contract (that being an expectation with a likelihood of attainment). Where there might potentially be a number of expected or possible outcomes (sale/rent/personal use or perhaps even charitable donation, as suggested by Mr Epstein), in the absence of an express statement of intent in the contract itself one would need to look elsewhere in order objectively to determine the plaintiff’s expectation.

103 While the amount of damages is to be commensurate with the plaintiff’s expectation, as objectively determined, regard must still be had to the position of the particular plaintiff, since it is his or her “expectation” (and not that of a reasonable person in his or her position), that is being protected by the award of damages. Put another way, if the particular plaintiff in question could not have derived or retained income from the asset in question (for whatever reason) then the mere fact that the asset was an income producing one cannot mean that there was a loss suffered by the plaintiff by reference to the income another plaintiff might have derived over the period.

104 As I discuss later in these reasons, it is important to note that the Joseph Lahoud interests never asserted an argument based upon loss of use of property per se. The loss of rent scenario was only ever put on the basis that the Joseph Lahoud interests had lost the rent (or the opportunity to receive rent) which, as a natural and foreseeable consequence, would be presumed to have flowed to them (T 301.18). The claim was not put on the basis that the Joseph Lahoud interests should be compensated for the loss of the use of the Units in and of itself and abstracted from the loss of any benefit flowing (whether presumably or actually) from that use. A loss of use per se has been recognised and compensated in relation to certain types of claim. While, in those cases, the loss of use is sometimes valued by reference to market rental (or interest upon capital value), the loss which is there being compensated is the loss of use and those measures are invoked simply as a means of valuing the use. For the reasons set out later in this judgment, I do not think it appropriate to determine whether such damages would have been available in the present case.

105 In support of his contention that it is not appropriate to enquire as to (nor necessary to adduce evidence in relation to) what the particular plaintiff would have done in the circumstances, Mr Epstein placed heavy reliance upon Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145:

It is an anterior, more fundamental point what Joseph Lahoud would have done. What this particular gentleman would have done is not a proper subject for inquiry in a case of this type. Absent some claim for special damages in the second limb Hadley v Baxendale (T 300.40 and see para [112] below).

106 The principal difficulty which I have with Mr Epstein’s argument is that it seems to be predicated on the rule in Hadley v Baxendale governing not simply remoteness but also causation of damage (and/or, if his clients’ damages claims were to be formulated as a claim for the loss of a chance, the assessment of the value of the chance so lost). The fact that loss of the income stream may be the natural and foreseeable loss from failure to transfer an income-generating asset (as submitted by Mr Epstein) does not address the question of causation or proof of loss.

107 The rule in Hadley v Baxendale allows recovery of damages “such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. It does not, however, suggest that damages which, as a matter of fact, have not arisen or have not been caused by the breach are recoverable simply because they were reasonably foreseeable or were damages of a kind which might naturally arise from the breach.

108 Many different types of damages might be fairly and reasonably considered as arising naturally from the breach of a particular contract. However, if, they do not in fact arise by reason of the breach, they are not recoverable simply because they might reasonably have been foreseen. This may be more readily apparent in cases where the damages claimed are other than the loss of future profits/opportunity, since claims for loss of opportunity necessarily involve a degree of hypothesis.

109 So, for example, where one party breaches a contractual duty to take reasonable care when engaging in a potentially harmful activity, the suffering of that harm is a consequence arising naturally from the breach. However, if the breach of duty does not in fact cause any such harm, no damages for breach of contract with reference to such harm would be recoverable. Similarly, where the parties have entered into what transpires to be a loss-making contract, there is no recovery for profits which might have been expected to be earned at the outset.

110 There seems to me to be no principled reason why Hadley v Baxendale should have a more extensive operation in relation to loss of opportunity cases than it does in the case of other breach of contract claims. Indeed, to operate otherwise would seem liable to produce results contrary to the “ruling principle” enunciated in Robinson v Harman.

111 The distinction between remoteness and causation was clearly recognised (in the context of loss of opportunity/future benefit cases) in the judgment of McHugh J in Amann (at 174):

But the contemplation of the parties goes to the issue of remoteness, not causation. Foreseeability is not relevant to the issue of causation in a civil case

Chapman v Hearse

Hadley v Baxendale

The contemplation of the parties marks the boundary of the liability for loss or damage caused by a breach of contract. It is a limit on, and not a ground of, liability.

Australian Blue Metal Ltd v Hughes

Rudi's Enterprises Pty Ltd v Jay

Stickney v Keeble

Laurinda v Capalaba Park Shopping Centre Pty Ltd

425 The purchase price (a sum of $1.00) however, was neither paid nor tendered. There was no evidence as to any response to the letter in effect exercising the right to purchase the business. Muir J said (at [48]-[49]):

The right [of Akuity] to acquire the x-ray equipment could be exercised only by payment of the sum of $1.00 unless BPL agreed to the contrary. It may also be the case, as BPL contends, that the right could not be exercised until all instalments of rent were paid. But, whatever the position, no restrictive view can be taken of what amounted to a reasonable time within which to exercise the right in the peculiar circumstances of this case. BPL, it may be inferred, did not want the equipment. Akuity had possession of it. Once the termination took place it may be inferred, safely, that until the litigation was resolved any tender of the sum of $1 would have been futile.

Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd

Kelly v Desnoe

Nyhuis v Anton

Grieve v Enge

Akuity had made it plain in its December 2003 letter that it wished to exercise its right and BPL was thus acquainted with Akuity's position.

426 The present case is, of course, somewhat different in that, here, the Victor Lahoud interests were maintaining (and litigating on the basis of) what transpired to be an incorrect characterisation of the legal relationship then existing between the parties. Also, the question as to whether or not Akuity had been excused from tendering performance is an issue not relevant to the present case. That said, it is clear that Muir JA considered, as circumstances relevant to the assessment of reasonable time, both the existence of litigation between the parties which would determine their contractual rights (and which rendered further action to exercise the parties’ contracted rights as pointless) and the fact that one party had acquainted the other with its desire to exercise its contractual right.

427 Therefore, while the existence of the litigation itself is a circumstance which (having been brought about by the Victor Lahoud interests) should not bear on what is considered to be a reasonable time, the Joseph Lahoud interests’ representation that the audit ought not be conducted until after disposal of the litigation is in my view a clear factor which operates to extend what might otherwise be said to be a reasonable time.

428 For completeness I note that, insofar as Joseph Lahoud interests argued that considerations of practicality as to the continuing existence of the necessary audit evidence made it the case that six years was an unreasonable time, there was no evidence to support this. I was asked to infer that this would be the case. I do not see, in the circumstances where the parties have been embroiled in disputes over a lengthy period that such a difficulty is likely to arise. I think it more likely that the parties would have (and been advised to have) taken care to preserve documents of potential relevance (lest they suffer from any contra spoliatores presumption).

Question 3 – Profit/profit figures

429 Mr Epstein submits that it is clear that, in the language both of the Terms of Settlement and Deed of Settlement, the audit was an audit of “the figures” and was not for an audit of “the profit”. It is said that the concept of “profit” is not sufficiently precise to make it susceptible to audit; and that an “audit” involves the review of a task which has already been performed but does not involve that task being performed again. Mr Epstein referred to Buckleys Law of Companies for the submission that “profit” is susceptible of a variety of meanings.

430 Mr Einfeld, in response, points to the definition of “audit” in the Concise Oxford Dictionary, 7th Ed, to mean “official examination of accounts” such as, for example, the accounts of the Cammeray Project. It is submitted that the balance of clause 2 contemplates a comparison between the audited profit of the Cammeray Project and the calculation in Annexure A and that the same distinction was drawn by the handwritten annotations to the Terms of Settlement, there being thus no warrant to confine the meaning of the term “audit” in the manner suggested by Joseph.

431 It seems to me that the fact that “profit” may be used in a variety of contexts does not mean that the word is too uncertain to be capable of meaning in the Deed of Settlement or, for that matter, in the Terms of Settlement. In an audit context, I find it hard to believe that an auditor appointed by the Institute to carry out an audit of the profits of the development would not be able to form a view as to what, ordinarily, would be regarded as the audited profit of a development project and hence I do not accept the first of Mr Epstein’s submissions in this regard.

432 It is also submitted by Mr Epstein that a variety of legitimate accounting methods might be used to calculate the figures for the profit calculation of a property development project and that, where the extent to which some or all of the possible indirect costs of the property development project report may be brought to account is a matter which is capable of a variety of equally valid approaches, the choice of which approach to use is not per se a matter of audit.

433 It was submitted that the profit calculation figures in the Terms of Settlement were chosen on the basis of a particular approach as to the treatment of the indirect costs of the project and that it could form no part of any audit that a different approach to the treatment of indirect costs now be propounded. There was no direct evidence of this. Rather, as I understand it, I am asked to infer that this was what had been intended by reference to what was comprised by Annexure A and inferences to be drawn from the way in which the project had previously been treated in the accounts.

434 Mr Epstein, thus, submitted that it was relevant to take into account what the parties understood to be the basis of the accounting used for the project up to the point at which they had agreed to provide for either to elect for an audit. He submitted that it was demonstrable from the company’s own accounting material that a valid way of accounting for the profit was the concept used in the Terms of Settlement and that, in the absence of anything else, a change in methodology would not be regarded an audit of the profit calculation figure (T 287).

435 For those reasons, it was said that it should be declared that, in any audit undertaken under the Terms or the Deed, the audit is confined to the figures appearing to annexure “A” to the Terms of Settlement alone.

436 Mr Einfeld submitted that there was nothing ambiguous in the Deed of Settlement, that the accounting records tendered by the Joseph Lahoud interests were historical material predating the Deed of Settlement and was inadmissible as an aid to construction. However, I admitted (at first provisionally and later subject to relevance), over the objections of the Victor Lahoud interests, various MYOB records and accounting documents said to show the basis on which the company (Castle Constructions) had previously accounted for the revenue/expenses of Cammeray project.

437 In this regard, particular reference was made to the treatment of overheads. It was said that if (as the accounts suggest) historically there was no apportionment in the accounts of the company as between overheads in respect of various projects, it would be inappropriate (or impossible) now to attribute a share of overheads to one particular project. Similarly, it was said that if other expenses (such as depreciation) had not historically been attributed to particular projects, they should not now be included.

438 In response, Mr Einfeld submitted that the Joseph Lahoud argument would have to go further than to show that historically expenses had been dealt with in a particular way, but would also have to show that the parties did not contemplate that an auditor carrying out an audit of the project would bring into account costs which might have been omitted from a MYOB document, say, the day before Terms of Settlement were signed, but which were nevertheless undeniably referable to project profits. He submitted that “audit profit” in the Deed of Settlement could only mean profit from the Cammeray project.

439 While Mr Einfeld submitted that the Deed is clear on its face (and, as such, extrinsic evidence was not necessary, or perhaps even admissible, to construe its terms – as to which, see para [23] above), he nevertheless took the position that if this were not the case then the court would be entitled to have regard to the fact that what had passed between the parties is reference to profit overall without confinement and without excluding overheads or any particular costs that might have been omitted from Annexure A. Mr Einfeld submitted that if Joseph Lahoud had anticipated ascertaining the gross profit from the Cammeray project, as it appeared he had from the conversation with his brother to which he had deposed, he must accept that all costs, including acquisition costs (such as stamp duty and deposit) as well as labour and site costs, would have to be taken into account. Since Annexure A did not include, for example, the deposit (a cost which must have been expected to be brought into account), it must be clear that the contemplated audit would go beyond the figures in Annexure A.

440 Mr Epstein, on the other hand, says that the context in which the Deed of Settlement must be construed is that the relationship was in the nature of a joint venture (T 420) and, as part of the settlement, the claim for Joseph Lahoud’s expenses on the project was to be the subject of a reimbursement to him; in other words the settlement was not just to give him a share of the profits but to put back in Joseph Lahoud’s pocket money by which he was otherwise out of pocket (and, hence, it could not have been expected that the profit could go down substantially).

441 Reference was made by Mr Epstein to the handwritten amendments which made it clear that the parties contemplated the profit could go up or down. In that regard, as I understand it, Mr Epstein says that since the sale costs were fixed the profit could never go up (and hence the audit must have been intended to be limited to Annexure A figures or it would be one sided). If so, it is hard to understand why Joseph Lahoud was concerned to press for an audit in the first place. It can only realistically be thought that he considered it likely that the profits would increase if expenses were found not to have been included properly – hence the request for an audit.

442 Annexure A does not necessarily deal only with direct costs. Some of the entries in Annexure A disclose the movement of funds which may or may not have reflected overhead costs.

443 If the consequence of the stance taken by the Joseph Lahoud interests would be that amounts, which in my view must unquestionably form part of the overall costs of the project (such as stamp duty or the deposit paid on the purchase), would be excluded from the overall profit calculations (as they were not included in the “figures”) then this counts heavily against Mr Epstein’s submission on the third question.

444 Ultimately, I think it is a matter for the auditor appointed to determine what properly should be treated as project costs to be taken into account in determining the net profit of the project (by reference to accepted industry standards and having taken into account whatever submissions may be made by the respective parties). I do not see the scope for dispute on this issue as a reason for holding that the clause itself does not allow for an audit of the project profit.

445 A pre-contractual conversation can form part of the objectively known surrounding circumstances to which the court may have regard. The issue of pre-contractual conversations was dealt with by Beazley JA, with whom Mason P and Ipp JA, agreed in Boreland v Docker [2007] NSWCA 94:

[70] Alternatively, if there is some ambiguity in the terms of the offer, in the sense that more than one possible construction of its terms is available, then the surrounding circumstances also support the construction which I prefer. In accordance with the principles in Codelfa Constructions v State Rail Authority and Royal Botanic Gardens and Domain Trust , that ambiguity is resolved by having regard to the content of the conversation between the second respondent and the appellant so as to objectively determine the surrounding circumstances known to the parties.

446 In Boreland, Beazley JA treated (at [72]) the fact of a known and communicated desire of one party as a relevant objective fact. Here, I think what emerges from the evidence of the conversation between Victor and Joseph Lahoud on the morning of 6 February 2001 is that the provision for an audit was included in the Terms of Settlement in circumstances where Joseph Lahoud had expressed disbelief as to the profit attributed by his brother to the Cammeray project. The relevant objective fact is that the parties were seeking a mechanism by which any doubts or concerns by the parties as to the profit could be independently resolved.

447 Once the conversation between Victor and Joseph Lahoud is taken into account, it seems to me beyond question that what was intended by the audit provision was to enable both Joseph Lahoud and Victor Lahoud to have independent verification, if either so chose, of what the net profits were. Joseph Lahoud’s position was that he did not accept that the profits of the project could be so low (having regard to the estimate previously given to him by his brother and, it would seem, on the basis that it made no commercial sense for what in effect might then be said to be a loss-making project to be pursued). The audit provision was intended to resolve that concern. It could only do so in a sensible way if what was to be the subject of the audit was the “profit” of the project, not simply the figures on which the profit had been estimated for the purposes of the sum referred to in the Terms of Settlement.

448 Mr Epstein complained that at no stage had the Victor Lahoud interests provided any meaningful or useful information as to the nature of the alleged audit errors. However, that does not seem relevant to the construction of the Deed of Settlement itself.

Conclusions re audit

449 Accordingly, I answer the agreed questions for determination as follows:

1. (a) Yes

(b) No.

(b) Again, not applicable. Had this question arisen for determination, I would have answered “No”.

450 It follows from the above, and in accordance with the agreement reached between the parties as to the outcome of the answers to the agreed questions, that the Victor Lahoud interests are entitled to the declaration in paragraph 1 of the Amended Statement of Claim in the audit proceedings and the orders in sub-paragraphs 2(a), (b) and (c) thereof, and the Amended Defence and Amended Cross-Claim of the Joseph Lahoud interests shall be dismissed. I note the parties’ agreement that this dismissal be with the intent that the Joseph Lahoud interests shall not at any future time make any claim against the Victor Lahoud interests in or in relation to the subject matter of their Amended Defence and Amended Cross-Claim.

Relief

451 In the damages proceedings I propose to order that the Victor Lahoud interests pay to the Joseph Lahoud interests the sum which represents the actual rent (less monthly outgoings) paid for each of the Units from 6 August 2001 to the expiry of the leases then on foot for each Unit (and, in the case of Unit 31, under the ensuing 12 month option lease) plus interest on a simple interest basis at Supreme Court rates. The parties may wish to agree the exact figure for the purposes of the order to be made.

452 In the audit proceedings the appropriate orders, having regard to the basis on which the agreed questions were posed for determination, will be:

2. An order that the Joseph Lahoud interests specifically perform and carry into effect the Deed of Settlement by:

(a) taking reasonable steps to agree upon the identity of a person to carry out an audit pursuant to clause 2 of the Deed of Settlement;

(b) signing the Deed of Indemnity required by the Institute of Chartered Accountants in Australia so as to enable the default nomination, by its President, to take effect;

(c) otherwise taking all reasonable steps to enable the contractual process of audit referred to in clause 2 of the Deed of Settlement to take effect.

3. A declaration that the term “audit” where respectively used in the Terms of Settlement and the Deed of Settlement allow an audit of the profits of the Cammeray project and not merely an audit of the figures appearing in Annexure A to the Terms of Settlement.

4. The Amended Defence and Amended Cross-Claim be dismissed.

453 I will hear the parties as to costs and as to whether any further orders are required in order to give effect to the audit process (noting that the agreed orders 2(a) – (c) do not encompass all of the orders sought in this regard in the Amended Statement of Claim filed in the audit proceedings).

**********

Citations

Lahoud v Lahoud [2009] NSWSC 623

Most Recent Citation

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20

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Statutory Material Cited

3

Proctor v Chahl [2008] NSWSC 1252

Zaccardi v Caunt [2008] NSWCA 202

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CITATION:	Lahoud v Lahoud; Lahoud v Lahoud [2009] NSWSC 623
HEARING DATE(S):	14, 15, 16, 17, 21, 22 and 24 April 2009
JUDGMENT DATE :	3 July 2009
JURISDICTION:	Equity Division
JUDGMENT OF:	Ward J
DECISION:	Damages awarded to plaintiffs in 3606 of 2001. Judgment for plaintiffs in 3582 of 2007.
CATCHWORDS:	DAMAGES – measure and remoteness of damages in actions for breach of contract – order made in previous hearing that Victor Lahoud interests perform contract – enquiry as to damages suffered by Joseph Lahoud interests resulting from Victor Lahoud interests’ failure to transfer residential units for period of six years – Joseph Lahoud interests claimed damages referable to lost rent from units or interest on capital value of units – whether loss of income would be presumed from failure to transfer income-producing asset – consideration of Wenham v Ella and Hadley v Baxendale – held that Joseph Lahoud interests had only established loss of rents from particular leases existing at time of breach until expiry of those leases (and, in one case, an option lease) and had otherwise failed to establish loss. - CONTRACTS – general contractual principles – order made in previous hearing that parties execute Deed of Settlement in performance of obligation in Terms of Settlement – Deed substantially similar to Terms – Victor Lahoud interests exercised right under Deed to audit – whether Deed created new right to audit – if Deed created no new right, whether reasonable time for exercise of right under Terms had elapsed – whether right to audit should be construed to mean audit of specific figures or audit of project profits – held that Deed created new right to audit – if not, reasonable time had not elapsed – right to audit construed to mean a right to audit of project profits.
LEGISLATION CITED:	Civil Procedure Act 2005 Industrial Relations Act 1996 Supreme Court Act 1970
CATEGORY:	Principal judgment
CASES CITED:	Anthanasopoulos v Moseley (2001) 52 NSWLR 262 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 Australian Woollen Mills Pty Limited v Commonwealth (1954) 92 CLR 424 Bak v Glenleigh [2006] NSWCA 10 Ballas v Theophilos (1957) 98 CLR 193 Baume v Commonwealth (1906) 4 CLR 97 BHP Coal v O & K Orenstein & Koppel [2008] QSC 141 Bilambil-Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465 Boreland v Docker [2007] NSWCA 94 Broken Hill Metals v Roberts (WACA, unreported, 18 August 1994) Buckman v Rose (1980) 1BPR 97059 Business and Professional Leasing Pty Limited v Akuity Pty Limited [2008] QCA 215 Castle Constructions Pty Limited v Fekala Pty Limited (2006) 65 NSWLR 648 Champtaloup v Thomas [1976] 2 NSWLR 264 Chen v Lord Energy Limited [2002] HKFCA 11 Chinnock v Marchioness of Ely (1864) H & M 220; 71 ER 447 Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Commissioner of State Revenue v Pinesales Pty Limited (2007) 34 WAR 360 Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 Concut Pty Limited v Worrell (2000) 176 ALR 693 Coulls v Bagot's Executor & Trustee Co Limited (1967) 119 CLR 460 Dalton v Ellis; Estate of Bristow (2005) 65 NSWLR 134 Davies v Littlejohn (1923) 34 CLR 174 De Visme v De Visme (1849) 1 Mas & G 336; 41 ER 1295 Ellmore (Maitland) Pty Limited v Tull (1995) 7 BPR 14,305 Esdaile v Stephenson (1822) 6 Madd 366; 56 ER 1131 Esso Australia v Australian Petroleum Agents’ & Distributors’ Association [1999] 3 VR 642 Farah v Say-Dee (2007) 230 CLR 89 Finesky Holdings Pty Ltd v Minister For Transport For Western Australia [2002] WASCA 206 Flureau v Thornhill (1776) 2 Wm Bl 1078; 96 ER 635 Ford-Hunt v Ragbhir Singh [1973] 1 WLR 378 Friend v Brooker [2009] HCA 21 G W Sinclair & Co v Cocks [2001]VSCA 41 Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 Gorst v Lowndes (1841) 11 Sim 434; 59 ER 940 Government Insurance Office (NSW) v Johnson [1981] 2 NSWLR 617 Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231 Hadid v Australis Media (unreported, Sperling J, 30 June 1997) Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Handley v Gunner [2008] NSWCA 113 Hart v MacDonald (1910) 10 CLR 417 Hensley v Reschke (1914) 18 CLR 452 Hexiva Pty Limited v Lederer (No 2) [2007] NSWSC 49 Hick v Raymond & Reid [1893] AC 22 Hoad v Scone Motors [1977] 1 NSWLR Hobartville Stud v Union Insurance (1991) 25 NSWLR 358 Hughes v Pellicciari (1982) 2BPR 97139 Hungerfords v Walker (1989) 171 CLR 125 In re Figgis [1968] 2 WLR 1173 In re Thackwray and Young's Contract (1888) 40 Ch D 34 Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 97 Investmentsource v Knox Street Apartments [2007] NSWSC 1128 Jaques v Millar (1977) 6 Ch D 153 Jones v Gardiner [1902] 1 Ch 191 Jones v Schiffmann (1971) 124 CLR 303 King v Poggioli (1922-1923) 32 CLR 222 Lahoud v Lahoud (No 2) [2005] NSWSC 1019 Lahoud v Lahoud [2002] NSWIRComm 182 Lahoud v Lahoud [2003] NSWIRComm 179 Lahoud v Lahoud [2005] NSWSC 509 Lahoud v Lahoud [2006] NSWSC 126 Lahoud v Lahoud [2006] NSWCA 169 Lawrence v Finance Corporation of Australia Limited (unreported, Powell J, 2 November 1990) Lord Energy Limited v Chen [2000] HKCA 506 Makita v Sprowles (2001) 52 NSWLR 705 Malding Pty Limited v Metcalfe [1990] ANZ ConvR 110 Marconi Systems v BHP Information Technology (2003) 128 FCR 1 Martech International v Energy World Corp (2006) 234 ALR 265 Masters v Cameron (1954) 91 CLR 353 McLean v Grace [1953] NZLR 566 Millar v Candy (1981) 38 ALR 299 Mitchell v Crimmin (1945) 47 WALR 46 Olympic Holdings v Lochel [2004] WASC 61 Palasty v Parlby [2007] NSWCA 345 Pargiter v Alexander (1995) 5 Tas R 158 Philips Electronics Australia Ltd v Insight Oceania Pty Ltd [2009] NSWCA 124 Phillips v Lamdin [1949] 2 KB 33 Proctor v Chahl [2008] NSWSC 1252 Re Longlands Farm [1968] 3 All ER 552 Re Strand Music Hall (1865) 35 Beav 153; 55 ER 853 Reid v Moreland Timber (1946) 73 CLR 1 Reschke v Hensley [1913] SALR 105 Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 Robinson v Waddington (1849) 13 QB 753; 116 ER 1451 Royal Bristol Permanent Building Society v Bomash (1887) 35 Ch 390 Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 Savage v Norton [1908] 1 Ch 290 Sellars v Adelaide Petroleum (1994) 179 CLR 332 Shaw v Harris (No2) (1992) 3 Tas R 167 Spencer v Hanson Pastoral Co Pty Limited (1979) 2 BPR 9151 State of New South Wales v Burton [2008] NSWCA 319 Stoke-on-Trent City Council v Wass Limted [1988] 3 All ER 394 Strickland v Grieve (1996) NSW Conv R 55-762 Sunley (B) & Co v Cunard White Star Ltd [1940] 1 KB 740 Sweeney v Coffey [1999] NSWCA 38 Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 Telina Developments Pty Ltd v Stay Enterprises Pty Limited [1984] 2 Qd R 585 The Mediana [1900] AC 113 The Susquehanna [1926] AC 655 Tim Barr v Narui Gold Coast [2009] NSWSC 49 Vanmeld v Cussen (1991) 121 ALR 619 Waters v Maynard (1924) 24 SR (NSW) 618 Watson v Foxman (1995) 49 NSWLR 315 Wenham v Ella (1972) 127 CLR 454 Westwood v Cordwell [1983] 1 Qd R 276 Wilson v Nightingale (1846) 8 QB 1034; 115 ER 163 Woodman v Rasmussen [1953] St R Qd 202 Yates v Mobile Marine Repairs [2007] NSWSC 1463 York Air Conditioning v The Commonwealth (1949) 80 CLR 11 Zaccardi v Caunt [2008] NSWCA 202 Zapulla v Perkins [1978] Qd R 92 Zorbas v Titan Properties (Aust) [2005] NSWSC 440
TEXTS CITED:	Buckleys Law of Companies Carter on Contract Furmston M (ed) The Law of Contract Butterworths, London, 2003 McGregor on Damages McLauchlan, David ‘Contract Interpretation: What Is It About?’ (2009) 31 Sydney Law Review 5 Nicholls, Donald, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 Law Quarterly Review 577 Ritchie’s Supreme Court Practice Ritchie’s Uniform Civil Procedure NSW Spigelman, J J ‘From Text to Context: Contemporary Contractual Interpretation’ (2007) 81 Australian Law Journal 322
PARTIES:	Joseph Lahoud (First Plaintiff in 3606 of 2001, First Defendant/First Cross Claimant in 3582 of 2007) Joseph Lahoud & Associates Pty Limited (Second Plaintiff in 3606 of 2001 and Second Defendant/Second Cross Claimant in 3582 of 2007) Victor Lahood (First Defendant in 3606 of 2001 and First Plaintiff/First Cross-Defendant in 3582 of 2007) Castle Constructions Pty Limited (Second Defendant in 3606 of 2001 and Second Plaintiff/Second Cross-Defendant in 3582 of 2007) Solidare Pty Limited (Third Defendant in 3606 of 2001 and Third Plaintiff/Third Cross-Defendant in 3582 of 2007)
FILE NUMBER(S):	SC 3606 of 2001; 3582 of 2007
COUNSEL:	M D Einfeld QC with him Mr S J Phillips (Victor Lahoud parties) S Epstein SC with him Mr P J Gow (Joseph Lahoud parties)
SOLICITORS:	Aitken McLachlan Thorpe (Victor Lahoud parties) Robertson Saxton Primrose Dunn (Joseph Lahoud parties)