Lindsay-Owen v HWL Ebsworth Lawyers

[2025] NSWSC 891

Supreme Court

New South Wales

Medium Neutral Citation:

Lindsay-Owen v HWL Ebsworth Lawyers [2025] NSWSC 891

Hearing dates:

5 August 2025

Date of orders:

12 August 2025

Decision date:

12 August 2025

Jurisdiction:

Common Law

Before:

Harrison CJ at CL

Decision:

See [64]

Catchwords:

CIVIL PROCEDURE – professional negligence by solicitors – calculation of damages – UCPR 20.14 – where parties were directed to provide ‘the usual form of order’ for reference of four disputed taxation accounting issues to experts – where the defendants contend none of the issues should be referred – whether the issues should be referred to appropriate experts for consideration and report – where defendants contend two issues have already been decided by the Court or ‘dealt with’ – where issues raise complex matters of tax accounting practice – where all four issues should be referred

NEGLIGENCE – damages – calculation of damages – final issue to be determined by the court in proceedings – competing versions of issue – timing of hypothetical cashflows – parties agree the issue has not been determined – expert evidence – application of 5% discount for non-diversifiable risk – whether the joint venture would have distributed the project proceeds to the joint venture participants on the agreed dates – whether distribution of the proceeds would have been postponed past the date of receipt until 31 July 2016 – interpretation of clauses in Joint Venture Agreement prescribing mechanism for distribution of project proceeds –where parties had a ‘toxic’ or disharmonious relationship – consideration of mercantile reality and modern commercial conduct

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW), r 20.14

Cases Cited:

Lindsay-Owen v HWL Ebsworth Lawyers [2025] NSWSC 829

Lindsay-Owen v HWL Ebsworth Lawyers (No 2) [2024] NSWSC 541

Lindsay-Owen v HWL Ebsworth Lawyers [2023] NSWSC 68

Category:

Procedural rulings

Parties:

Gregory Hamilton Willoughby Lindsay-Owen (First Plaintiff)
Dairycorp Pty Limited (Second Plaintiff)
Martin Downing & Ors Trading as HWL Ebsworth Lawyers (First to One Hundred and Sixth Defendants)

Representation:

Counsel:
T Alexis SC with P Afshar (Plaintiffs)
D Lloyd SC with C Bannan (Defendants)

Solicitors:
Gadens (Plaintiffs)
Gilchrist Connell (Defendants)

File Number(s):

2016/85879

Publication restriction:

Nil

Judgment

1. HIS HONOUR: I published reasons for judgment on 28 July 2025 directing the parties to provide me with what I described as the usual form of order for reference of four disputed tax accounting issues to suitably qualified experts pursuant to UCPR 20.14: see Lindsay-Owen v HWL Ebsworth Lawyers [2025] NSWSC 829. My decision about whether or not to make orders in the agreed terms was subject to hearing argument with respect to the defendants’ contention that none of these issues should be referred to experts. The parties’ submissions on that question, as well as on issue 2, which it is agreed I should decide, were listed for hearing on 5 August 2025. I reserved my decision.

Issue 2

2. The parties are agreed that this issue has not been determined. The defendants do not suggest that it has been decided by me in either of my previous judgments or that for some reason the plaintiffs are foreclosed by my earlier findings from raising it now. The only question is whose approach is correct.

3. The competing versions of Issue 2 were formulated by the parties as follows:

“Issue 2: Timing of the hypothetical cashflows

Plaintiffs’ version

From what date or dates should the 5% discount for non-diversifiable risk be applied back to the date of loss?

Defendants’ version

In the hypothetical counterfactual, when would the joint venture have distributed the proceeds of the joint venture to the joint venture participants:

(a) (plaintiffs) on various dates from 28 February 2015 to 31 July 2016; or

(b) (defendants) at the completion of the project on 31 July 2016.

If the answer is (a) above, when would distributions have been made and what would be the amount of each such distribution?

Plaintiffs’ submissions – Issue 2

4. The plaintiffs contend that the 5% discount for non-diversifiable risk should be applied from the dates that valuers Dyson and Dempsey considered the hypothetical cashflows of project proceeds would have been received by the joint venture. Their evidence was that such proceeds would have been received by the joint venture in tranches from February 2015 to April 2016. The defendants argue in contrast that the discount should be applied from one date, namely 31 July 2016, which would have the effect of increasing the amount of the discount calculated over a longer period. The plaintiffs maintain that this would unfairly reduce the amount of their damages.

5. In the plaintiffs’ further updated damages calculations, the hypothetical cashflows net of joint venture costs are discounted from the postulated dates of receipt in the period from 28 February 2015 to 30 April 2016. The defendants assert that it should be assumed that all of the project proceeds would have been distributed on 31 July 2016 and that the discount should be applied from that date.

6. The plaintiffs note the following matters in support of their position with respect to the determination of this question.

7. Damages are to be assessed by reference to the difference in the project proceeds of the joint venture net of costs on the hypothetical scenario and the actual scenario. I found that the date of loss was 29 March 2010: see Lindsay-Owen v HWL Ebsworth Lawyers [2023] NSWSC 68 [my first judgment] at [326]-[328]. Both the net hypothetical and actual cashflows are to be discounted back to that date.

8. In their joint report dated 1 February 2022, Messrs Dyson and Dempsey were of the opinion that the hypothetical cashflows would have been received progressively and in tranches on dates identified between 28 February 2015 and 30 April 2016. They netted costs from gross realisations by reference to the costs of each tranche based on Brown Consulting's opinion with an adjustment upwards for escalation in costs. They determined the "development profit" as at the end of each tranche or stage of development in the period from 28 February 2015 to 30 April 2016.

9. Clause 17.4 of the Joint Venture Agreement prescribed the mechanism for the distribution of project proceeds to the joint venture parties:

“17.4 Distribution of Project Proceeds

(a) Unless otherwise agreed by the Joint Venture Parties and subject to clause 17.3, there will be no distribution of Project Proceeds to either of the Joint Venture Parties prior to the date that Planning Approval is obtained.

(b) After the date that Planning Approval is obtained, the Project Manager will distribute the Project Proceeds, whether received before or after the date that Planning Approval is obtained, as follows:

(i) First, to the Joint Venture Parties, to discharge any GST liability of the Joint Venture Parties in relation to the Project; and

(ii) Second, the balance to the Joint Venture Parties in proportion to the Joint Venture Parties’ respective Participating Interests, which the Project Manager must apply on behalf of the Joint Venture Parties:

A. First, to repay all outstanding External Loan Funds;

B. Second, to pay all outstanding Joint Venture Costs; and

C. Third, the balance to the Joint Venture Parties in proportion to the Joint Venture Parties’ respective Participating Interests. …”

10. That clause permitted distribution of profits to the joint venture parties after the date of development approval. In my first judgment at [359], I favoured Mr Dempsey's calculations based on Mr Dyson's scenario 1 for assessing the hypothetical cashflows:

“The burden of my findings on lost development profits is that Mr Dempsey’s calculations on the basis of Mr Dyson’s scenario 1 most closely represent the loss suffered by the plaintiffs under that head. I accept that some further clarification of that conclusion may be required.”

11. I had also earlier found at [353] of my first judgment that the discount for non-diversifiable risk should be 5%. In Lindsay-Owen v HWL Ebsworth Lawyers (No 2) [2024] NSWSC 541 at [174]-[188] [my second judgment], I found that that rate was compounding.

12. The plaintiffs also draw attention to the defendants’ contention that the hypothetical cashflows should be taxed in the years that Messrs Dyson and Dempsey said they would be received by reference to the period from February 2015 to April 2016.

13. In his 4 June 2021 report, Mr McGuiness discounted the hypothetical cashflows from the dates that Messrs Dyson and Dempsey said they would be received back to the date of the loss on 29 March 2010. Mr McGuiness has since changed his approach based on his instructions that all cashflows should be discounted from 31 July 2016 back to the date of loss.

14. Having regard to these matters, the plaintiffs contend for the following reasons that their approach to Issue 2 should be preferred.

15. First, Mr Dyson was of the opinion in his 27 May 2020 report that the joint venture would receive project proceeds on various dates between 28 February 2015 and 30 April 2016 which would accordingly have been available at those times for distribution by the joint venture to the joint venture parties. I accepted Mr Dempsey's calculations based on Mr Dyson's scenario 1. Mr Dyson postulated the receipt of project proceeds and the dates of receipt for each tranche or stage. The first of those dates was February 2015: the last of those dates was April 2016. Messrs Dyson and Dempsey then agreed upon the range of settlement dates for land sales, when revenues would have been received by the joint venture, between February 2015 and April 2016. Gross profit was then calculated by reference to the costs as at those dates estimated by Brown Consulting. The plaintiffs submitted that the “logical result of their analysis was that the joint venture parties would have received net profits progressively in the period from 28 February 2015 to 30 April 2016”.

16. The plaintiffs criticise the defendants' position, that the joint venture parties would have retained the accumulating development profits for over sixteen months until a single distribution on 31 July 2016, as one based on an "assumption" rather than any evidence. The plaintiffs contend that that position is inconsistent with the evidence of Messrs Dyson and Dempsey that the joint venture would have received the distributable profits in full at the end of each tranche or stage.

17. Secondly, the plaintiffs submit that the defendants' "assumption" is inconsistent with the business logic underlying the hypothetical scenario and the fact that the plaintiffs were parties to a joint venture.

18. The plaintiffs insist that there is no apparent reason why the joint venture parties would not have distributed substantial profits that they earned from each tranche, as and when they were received. There was certainly no evidence to that effect. On the contrary, the plaintiffs submit that the evidence supports their approach as to the timing of distributions.

19. Clause 17.4 of the Joint Venture Agreement permitted such distributions after the date of planning approval. Moreover, the joint venture parties actually distributed the proceeds of the RMS sale as soon as it was received: see my first judgment at [158]-[160] and my second judgment at [30]. The plaintiffs contend, and the defendants dispute, that the RMS distribution makes it more likely than not that the joint venture parties would have distributed the profits as and when they were received.

20. Thirdly, Mr McGuiness' position, on which the defendants' "assumption" rests, is internally inconsistent. On the one hand, he contends all cashflows should be taken to have been received and distributed on 31 July 2016. On the other hand, he contends (see defendants’ Issue 1 position) that the cashflows should be taxed in the respective financial years spanning the period from 28 February 2015 to 30 April 2016. The latter approach assumes the receipt of profits by the plaintiffs progressively, whereas the former approach assumes receipt on one date. Accordingly, the plaintiffs maintain that whilst the question of the timing of taxation ought to be referred, there is an irreconcilable tension between Mr McGuiness’ approach and the defendants’ position on the timing of discounting.

21. Fourthly, the plaintiffs contend that the defendants' position is “unprincipled”. That is said to be so upon the basis that my judgments make it clear that the application of the 5% discount is, in part, to account for the time value of money. The actual cashflows are discounted from the date of the settlement of the sale to Stocklands. The hypothetical cashflows should be treated in the same way. The plaintiffs insist that the defendants base their position on their "assumption” and ignore the fact that on the valuers' evidence the joint venture would have received the profit by reference to the completion of each tranche or stage.

22. In summary, the plaintiffs submitted that I would reject the defendants' contention in relation to the date of cashflows at 31 July 2016 for the purposes of discounting. Instead, I would find that the net project proceeds on the hypothetical scenario would be discounted back from the dates on which they would have been received, based on the valuers' evidence.

Defendants’ submissions – Issue 2

23. It is important to observe that, as already mentioned, the defendants no longer maintain that the plaintiffs are seeking to re-agitate this issue or that they should not be permitted to do so. The defendants’ written submissions dated 4 August 2025 adopted that stance in detail and at length. However, the defendants’ position was made clear by Mr Lloyd of senior counsel on 5 August 2025: the defendants no longer maintain that I have made a finding that precludes the plaintiffs’ from now seeking my decision on Issue 2:

“ALEXIS: … So the next question is whether there’s a finding that prevents this issue from still remaining alive. And our submission is that there is no finding that addresses the precise question of timing on the scenario 1 cash flow - okay, well, I’m not sure if your Honour heard that, but there’s no suggestion that there is a finding that prevents this. So if that’s noted, then I don’t need to take time on going back to your Honour’s liability judgment to make that point.

HIS HONOUR: No finding on Issue 2, it’s a question of what’s the correct approach?

ALEXIS: Yes, yes. So, your Honour, I’m grateful for what my learned friend has indicated [sotto voce] at the bar table. So I’m really responding to the written submissions that we got yesterday, and we’ve read that there to be a proposition against us that there is some res judicata or issue estoppel preventing your Honour determining this issue and I take from our learned friend’s concession that that’s no longer pressed.

…

ALEXIS: … but my learned friend is nudging me - and properly so - that I’m effectively fighting a false issue. I’m happy to be told that.

HIS HONOUR: On Issue 2?

ALEXIS: On Issue 2. So, it’s not suggested there’s a finding that prevents your Honour from dealing with this now.

…

HIS HONOUR: I’m not looking for a dispute when there isn’t one.

LLOYD: I know your Honour isn’t.

HIS HONOUR: Your submissions, ending para 42 of your outline for today’s hearing, meet Mr Alexis’ submissions that he’s been dealing with all morning head-on, that’s the timing issue.

LLOYD: Yes, but we do say as the first point that it’s not open, but not because your Honour has found anything about it. We accept there’s no finding, there’s no res judicata or issue estoppel point put about Issue 2.

HIS HONOUR: No, I understand that.

LLOYD: It’s just that the only reason I’m saying it - and why I just said to Mr Alexis what I said sotto voce is that--

HIS HONOUR: You’re not saying I can’t decide it now, you’re saying that the decision should be different.

LLOYD: Correct, we do raise that your Honour shouldn’t decide it now, but it’s got nothing to do with res judicata or issue estoppel.

HIS HONOUR: Why do you say I shouldn’t decide it now?

LLOYD: Because when I show your Honour some parts of the history, we would say that the plaintiffs have approached the timing issue today is different, and they shouldn’t be entitled to depart from the case. But that’s got nothing to do with a finding or a res judicata. It’s a point that I’m not going to spend much time on, I’m going to spend my time on the issue of substance.

…

LLOYD: And while I’m on my feet, could I just say in the hope that it helps my friend, a lot of the detail about the evidence before your Honour about the timing of receipt of proceeds by the joint venture, that’s not in issue either. Those dates that your Honour has been taken to in the joint report, and the various underlying reports, about the timing of receipts by the joint venture, none of that is in issue, all a matter of common ground.

But the timing question that we take issue with is a different timing question. That is, the distribution, finally, of proceeds to the joint venture parties in accordance with 17.4. So, when your Honour said to Mr Alexis - I didn’t want to interrupt, but I’m on my feet now, does your Honour--

HIS HONOUR: Sorry, I’m interrupting you, we’ll be all over the shop if I don’t be quiet. But Mr Alexis’ point is that those dates would be the same. In other words, they wouldn’t sit in an account until some time in 2016.

LLOYD: I understand, and that’s what we’re litigating. It’s just that your Honour did ask at one point whether it was going to be necessary for your Honour to effectively - these are my words, not your Honour’s - get into the detail about those.

HIS HONOUR: I did ask about--

LLOYD: Your Honour will not need to go anywhere near it. Those dates about receipts by the joint venture are a matter of common ground. As I understand it, they have been for a long time.

HIS HONOUR: So, do your submissions ending in para 2 then simply address the issue of the date to apply the discount?

…

LLOYD: May it please the Court. Can I go directly to Issue 2, your Honour? As your Honour knows from my earlier intervention, if it can be called that, the defendants’ position - and it seems clear - is that the issue that is now called Issue 2 has not been determined by your Honour.”

24. Mr Lloyd thus clarified, despite the contrary approach set out in the 4 August 2025 submissions, that the only dispute that I am asked to decide on Issue 2 is the date or dates from when the 5% discount for non-diversifiable risk is to be applied back to the date of loss or, in terms of the defendants’ rhetorical formulation of the issue, would the joint venture have distributed the proceeds to the joint venture parties as and when the profits were received by the joint venture from time to time in 2015 and 2016 or not until 31 July 2016.

25. In the events that occurred, the defendants’ submissions distilled to the following points.

26. First, the plaintiffs’ submission that the adoption of their proposed dates is in accordance with the evidence of the valuers is not correct. On the contrary, the evidence of the valuers was directed to the date on which the joint venture would receive funds, not to the subsequent question of when funds would be paid to the plaintiffs as joint venture parties.

27. Secondly, the plaintiffs’ submission, that there is no apparent reason why the joint venture parties would not have been able to distribute the funds immediately as they came in, should not be accepted. There are three reasons why this would not have occurred. To start with, in any joint venture, even where there is an harmonious relationship between or among the parties, there may be a reluctance to distribute funds in circumstances where the expenses have not yet been paid. Next, in this case, the relationship between the parties was toxic. The defendants contended that the notion that they could or would have immediately distributed funds on each of the various dates on which funds came in is fanciful. For example, there is evidence to suggest that the joint venture parties could not even agree to attend a meeting together. Lastly, and in any event, the terms of the joint venture agreement are inconsistent with any early distribution. On one view, which Mr Eversgerd accepted, the Joint Venture Agreement provided that the development proceeds would be held back in order to ensure that sufficient funds were available to meet the development costs.

24. Thirdly, the plaintiffs have submitted that the defendants' approach fails to recognise the benefit associated with the receipt of cashflows. In the defendants’ view, that is also not correct. The benefit of cashflows received by the joint venture accrue to the joint venture according to the cashflows determined by the Court. The issue now being considered is the time at which the joint venture would have distributed the funds to the plaintiffs.

25. Fourthly, the plaintiffs submitted that there is an inconsistency between Mr McGuiness adopting the date of 31 July 2016, and his assumption that cashflows would be taxed, including in the period between 28 February 2015 and 30 April 2016. The defendants’ response was that, whatever cashflows are received prior to 30 June in each financial year, tax would be paid in May of the following year. That is conventional, and accords with reality. If development proceeds were received on 31 July 2016, tax would have been paid in May 2017. The plaintiffs assert that the first payment would have been made in February 2015. In that event, tax would have been paid in May 2016 as income received in the 30 June 2015 financial year. The defendants submitted that there is therefore no inconsistency.

26. Finally, the defendants contended that their view that, hypothetical distributions of net development proceeds would have been paid on 31 July 2016, is not “unprincipled” for the suggested reason that the actual distributions are discounted from the date of settlement. The dates for the actual receipt of profits are known. They are therefore discounted from the dates on which they occurred. The present question instead relates to the hypothetical distributions, and in particular when they would have occurred.

Discernment – Issue 2

31. In my opinion, the joint venture would have distributed the proceeds to the joint venture participants as and when they were received, or for present purposes, on the dates upon which it is agreed that the development profits would have been received by the joint venture.

32. To start with, but generally, it strains any realistic understanding of modern commercial conduct to suggest that joint venture parties engaged in a large scale development of a substantial tract of urban land would have been content for the distribution of their respective shares of the proceeds of the joint venture to be avoidably delayed or postponed past the date of receipt, in this case until 31 July 2016, and therefore beyond their beneficial control in the accounts of the joint venture unless there were some legitimate and compelling reason why that should happen. None of the arguments proffered by the defendants appears to me to qualify as either legitimate or compelling. There are several reasons for this.

33. First, nothing contained in clause 17.4 of the Joint Venture Agreement, or in any other clause for that matter, specifically provides for the distribution of project proceeds at a particular time or stage of the joint venture apart from by reference to the presently irrelevant limitation relating to the date when planning approval is obtained. The obligation imposed upon the project manager to distribute such proceeds after repayment of all outstanding loan funds and joint venture costs is otherwise unconstrained.

34. On one view, the expressions “all outstanding External Loan Funds” and “all outstanding Joint Venture Costs” might suggest that no distribution of project proceeds could occur at any time before the end of the Joint Venture Agreement so as to undermine the plaintiffs’ position on this issue. Neither party suggested such an interpretation should apply. There would appear to be good reasons for that.

35. Clause 17.6 provides as follows:

“17.6 Final Reconciliation Statement

Despite clause 17.4, prior to the last distribution of Project Proceeds or within 14 days of the end of this Agreement, the Joint Venture Parties must procure the Project Manager to:

(a) pay all outstanding Joint Venture Costs; and

(b) prepare, as soon as practicable after the sale of the last Joint Venture Asset and all of the Land, a final reconciliation statement which calculates:

(i) the amounts owing to each of the Joint Venture parties; and

(ii) the amounts actually distributed to each of the Joint Venture Parties,

over the term.”

36. The reference to a “final reconciliation” necessarily contemplates the possibility that the project manager will or might have made earlier distributions of project proceeds to the respective joint venture parties in accordance with clause 17.4. Similarly, the reference to “the last distribution of Project Proceeds” contemplates the same possibility. Finally, clause 17.6(b)(ii) specifically refers to amounts actually distributed to each of the joint venture parties “over the term”. “Term” is defined in a way that is inimical to any submission that earlier distributions of project proceeds were not permitted by clause 17.4.

37. I am also not attracted to the submission that the plaintiffs should incur a notional liability to pay income tax on their share of project proceeds before they are actually received. The defendants’ submissions in my opinion confuse the date by which the plaintiffs will be entitled to receive project proceeds with the date which, or income tax year in which, they will be required to return any such income for tax purposes. I posed the question to Mr Lloyd as “when would I as a partner become liable to pay tax on my [yet] to be distributed share?” Without intending or implying any criticism of Mr Lloyd, his response was that my question was difficult but he understood why I had asked it. I remain of the view that there is a flaw in the defendants’ argument that suggests that a liability to pay tax on project proceeds could arise before or independently of an entitlement to a distribution of such proceeds.

38. The argument that the Joint Venture Agreement provided that the project proceeds would be held back in order to ensure that sufficient funds were available to meet the development costs also does not accord with the terms of the agreement. Clause 17.4 specifies the order of priorities for the distribution of project proceeds. That clause is predicated upon the existence of a net surplus of funds after the discharge of the two specified categories of liabilities. A prudent project manager might be expected to comply with clause 17.4 but the clause does not foreclose the ability to distribute project proceeds if it appears to the project manager that it is appropriate to do so.

39. It should also be noted that a significant aspect of the defendants’ approach to this issue is to emphasise the extent to which the plaintiffs’ experts offered opinions about when the joint venture would or may have distributed net development proceeds to the joint venture parties. For example, in his first report, Mr Eversgerd said that no proceeds would have been distributed to the plaintiffs until the entire development had been completed. He explained that his opinion was based upon clause 17.4 of the Joint Venture Agreement. Added to this is the defendants’ criticism of the plaintiffs’ experts, such as Messrs Eversgerd and Murphy, to the extent that they have arguably changed their “opinions” on the question of when distributions would have occurred.

40. However, the plaintiffs are not bound by the opinions offered by their experts unless and until I accept them as persuasive or determinative of some particular issue. By definition, I have not yet done so. That is particularly so when the factors informing the opinions are, as in the present case, matters of assumption, or subjunctive predictions about what would have occurred, or which relate to or derive from the particular expert’s interpretation of the relevant contract. The answer to the question raised by Issue 2 may be assisted by expert contributions but is not automatically determined by them.

41. Finally, the defendants relied to a significant degree upon a submission to the effect the that the relationship between the joint venture parties was so toxic or poisonous that their disagreements would have entirely frustrated the interim implementation of clause 17.4. I discussed this argument with Mr Lloyd in the following terms:

“HIS HONOUR: In summary, if I am not asking you to do injustice to your submissions, why do you say they’d have left [the project proceeds] in the JV account until July 2016 and not taken partial distributions as and when it was possible to do so?

LLOYD: I hope my answer to that won’t do a disservice to our point being the two key points are first, contrary to what’s been put by our friends, cl 17.4 did not permit unless the joint venturers agreed interim distributions in that way. Second - and I’m going to show your Honour the parts of it--

HIS HONOUR: It didn’t prevent it, though.

LLOYD: Quite. And so that’s what leads to the second point. What your Honour is then being required to determine, really, as a factual question, is when the joint venturers would have agreed to--

HIS HONOUR: And why wouldn’t they have agreed as soon as they - to use a rather pejorative and avaricious-sounding term - as soon as they could get their hands on it?

LLOYD: Because they couldn’t agree on anything on the matters that I’ve addressed your Honour on and your Honour’s found. But more importantly, when I show your Honour the proper way in which cl 17.4 works about the requirement before proceeds are distributed to the joint venturers to account for all of the expenses of the joint venture, it would have required an exercise in trust and cooperation to be satisfied that those expenses could have been properly accounted for if there’d been a program of interim distributions agreed. That’s the--

HIS HONOUR: Interim distributions of their nature take account of the possibility that later adjustments could be made for mistakes or areas where there was disagreement, couldn’t they? In other words, we don’t agree about how much you should get now, having regard to interest payments and costs of acquisition, but we’ll make an interim distribution now because we’re all interested in getting our hands on some money. And if it turns out at a later time that you’ve got too much or I’ve got too little, we’ll make an adjustment at the end. Isn’t that the way people who are in business to make money approach things?

LLOYD: Certainly some people, that is the way in relationships of trust, that is exactly the way people might approach it, and they could have approached it in this case in that way. But what your Honour is confronted with here now is a finding on the balance of probabilities about what would have been more likely on the counterfactual, having regard to these joint venturers.

HIS HONOUR: But is that submission based solely or principally on the fact that they’re at each other’s throats, so I should not assume that there’d be any in-specie distributions to participants in the JV until the very end? Is that your submission?

LLOYD: That’s certainly part of it, but informed by the expert evidence that has been led before your Honour by both parties in this case, where until the plaintiffs identified that it mattered to them, had been proceeding on what we would say was the obvious, that these people would not have been able to agree on an interim distribution regime having regard to the way cl 17.4 worked.

HIS HONOUR: Why would [they] have been any more likely on 31 July 2016 to agree on a final distribution if they were so at each other’s throats, as it were?

LLOYD: They wouldn’t have needed to agree; that’s the whole point.”

42. I understand that argument. However, in my experience, as a matter of mercantile reality, the parties’ disharmonious relationship in this case would not have stood in the way of the practical realisation of the fundamental rationale for their agreement. They were in it to make money. It might have been different if the parties were locked in a dispute about the proportions in which they were respectively entitled to share in the proceeds. Although there was at one stage a flavour of such a disagreement in a different context, it is not germane to the present issue. The joint venture parties in fact had a fundamentally common interest in the early or regular distribution of project proceeds. The distributable sums were not inconsiderable. In my opinion, they would not have remained completely undistributed to the joint venture parties until 31 July 2016.

43. In my view, the net project proceeds on the hypothetical scenario should be discounted for non-diversifiable risk at 5% to the date of loss from the agreed dates on which they would have been received by the joint venture.

Issues 1, 3, 4 and 5

44. The parties’ competing versions of these issues are as follows:

Issue 1: Taxation of the pre-tax cashflows and the proper approach to the calculation of loss

Plaintiffs’ version

Should tax be calculated at the date of loss, or at some other time?

Defendants’ version

Is it appropriate to calculate loss:

(a) (plaintiffs) using hypothetical pre-tax cashflows and deducting the actual pre-tax cashflows, discounting the difference to 29 March 2010, and determining the tax payable on that notional amount and then making an allowance for carry forward tax losses used by Dairycorp; or

(b) (defendants) using hypothetical post-tax cashflows (assuming tax was paid on 15 May in the years following the financial years in which the cashflow occurred), and deducting actual post-tax cashflows, and discounting the difference to 29 March 2010?

Issue 3: Tax actually payable on the sale of the land

Plaintiffs’ version

Is the tax actually paid by the plaintiffs relevant to the calculation of the post-tax losses? If so, how?

Defendants’ version

If the defendants’ position on Issue 1 is accepted, are any adjustments required to the tax actually payable on the sale of the land to derive the actual post-tax cashflows? If so, what adjustments are necessary?

Issue 4: Allocation of cost base

Plaintiffs’ version

Is the allocation of the cost base for the purpose of calculating capital gains tax relevant to the calculation of the post-tax losses? If so, how?

Defendants’ version

If the defendants’ position on Issue 1 is accepted, how should the $23m cost base that is available to GLO be apportioned?

Issue 5: Tax treatment of award of damages

Plaintiffs’ version

Is the plaintiffs’ award of damages to be treated as income or as revenue on the capital account?

Defendants’ version

If the plaintiffs’ position in relation to Issue 1 is accepted, is the plaintiffs’ award of damages to be treated as income or revenue on the capital account for the purpose of calculating the gross up for the tax payable on the damages?”

45. I have elsewhere expressed the view that these issues raise complex matters of tax accounting practice and are, subject to the defendants’ opposition, properly questions that could be referred to appropriate experts for consideration and report pursuant to UCPR 20.14: see Lindsay-Owen v HWL Ebsworth Lawyers [2025] NSWSC 829.

Issue 1

46. The defendants contend that this issue should not be referred to experts for determination because it has already been decided by me. They refer in that respect to [325] of my first judgment dealing with the question of whether the nominal cashflows should be considered on a pre-tax basis as contended by the plaintiffs or on a post-tax basis as contended by the defendants. I found that the authorities supported the proposition that damages are to be assessed by reference to the plaintiffs’ losses net of income tax. The defendants contend that that is a direct finding that the plaintiffs’ loss should be assessed having regard to post-tax cashflows and that the plaintiffs’ now seek to advance a position that is contrary to that finding.

47. Unless I misunderstand the point of Issue 1 – which is entirely possible – the finding I made at [325] of my first judgment and the subject of Issue 1 are different. That portion of my first judgment dealt with the question of whether the plaintiffs’ damages were to be assessed before or after tax. Issue 1 is not concerned with the tax treatment of damages but with the date or time at which tax on damages should be calculated.

48. However, on the assumption for present purposes that the defendants are correct, there is no difficulty in my opinion referring Issue 1 to the experts. If I am correct and the issues are different, the tax experts will deal with the different question that is raised. If the defendants are correct and the issues are the same, the tax experts will presumably identify that fact and say so.

Issue 3

49. Issue 3 relates to the tax actually paid on the sale of the land. It only arises if the defendants' position on Issue 1 is preferred: the tax actually paid is irrelevant on the plaintiffs' approach.

50. The defendants accept that there is no debate about the tax actually paid. However, the plaintiffs now suggest that I should disregard tax benefits associated with certain payments actually made. The result is to amend the figure for tax in fact paid and replace it with a notional figure.

51. The defendants contend that this issue has been dealt with and should not be referred to experts: the parties led evidence as to the actual cashflows and it was common ground that the tax actually paid by the plaintiffs was $4.4 million. Paragraph [1.3.23] of Mr Murphy’s first report confirmed that the amended notice of assessment for 30 June 2015 records an actual tax liability for that amount.

52. The plaintiffs wish to suggest that the figure of $4.4 million should be replaced with a notional figure of $8.7 million for actual tax paid. The defendants contend that it was incumbent on the plaintiffs to have brought this argument forward earlier, and at least before the second hearing in November 2023.

53. The very nature of the dispute raises questions of tax accounting practice and procedure. The question of whether this issue raises a matter that was not but should have been referred to earlier appears to depend on tax accounting expertise.

54. I consider that Issue 3 should be referred.

Issue 4

55. As at 31 July 2016, Mr Lindsay-Owen had a revenue asset cost base of $23 million, half of the value of the land: see [1.3.19] and [2.2.2(d)] of Mr Murphy’s first report. This issue relates to how it should be allocated.

56. In his first report, Mr Murphy said that he had apportioned each year on the basis of land size sold each year: [2.2.2(d)]. The defendants contend that this was not a matter of assumption or instruction, but an opinion based on Mr Murphy's expertise. He said:

“GLO has a deduction of $23 million to apply against the net revenue income derived. This has been apportioned each year on the basis of land size sold each year, including the RMS Land.”

57. That statement appears after a similar statement in respect of total development costs, in respect of which Mr Murphy said "total development costs… have been allocated based on the proportion of the land size sold each year (excluding the RMS Land) on the basis of square metres… this is considered the most reasonable basis for apportioning the total development costs": [2.2.2(c)].

58. Mr Murphy expressed the opinion that that was the appropriate allocation of the cost base. Mr Moore agreed: see Mr Moore’s first report at [6.6.2] where he said that Mr Murphy's calculations in respect of that question appear reasonable.

59. The defendants submit that that should be the end of the matter and that the plaintiffs should not now be permitted to agitate this question: Mr Murphy should not be permitted to impugn his own evidence.

60. Unless I am mistaken, I have not decided this issue. The defendants do not suggest that I have. Their proposition appears to be that I should decide the issue now without specialised tax accounting expertise that would be provided by a reference. However, I do not consider that I am presently equipped to do so without independent expert assistance on the issue.

57. I consider that Issue 4 should be referred.

Issue 5

62. This issue has not previously been the subject of evidence from either party or findings by me. However, the defendants contend that it does not arise on their approach to Issue 1. As will be apparent from what appears above, the correct approach to Issue 1 remains to be decided.

63. I consider that Issue 5 should be referred.

Orders

64. I make the following orders:

1. Order pursuant to UCPR 20.14 that the issues listed in the SCHEDULE be referred for enquiry and report to Mr Paul King and Mr Tony Samuel (referees).

2. Direct that (without affecting the Court's powers in relation to costs) the plaintiffs and the defendants are jointly and severally liable to pay the referees’ reasonable fees.

3. Direct that the parties deliver to the referees forthwith a copy of these orders together with a copy of UCPR Pt 20 Div 3.

4. Direct that:

1. subject to 4(b) and 4(c) hereof, the provisions of Pt 20, r 20 shall apply to the conduct of proceedings under the reference;

2. the reference will commence within seven (7) days of these orders being made, unless otherwise extended by the referees;

3. the referees consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination to be made including, if the referees think fit:

1. the making of inquiries by telephone;

2. communication with experts retained on behalf of the parties; and

3. receiving evidence and submissions from the parties.

4. any evidence in chief before the referees shall, unless the referees otherwise permit, be by way of written reports or statements signed by the maker of the statement;

5. the referees submit their report to the Court in accordance with Pt 20, r 23 addressed to the Associate to Harrison CJ at CL on a date that is no later than two (2) calendar months after the date in 4(b).

5. Note that any amendment to the issues, to which reference is made in order 1, whether by agreement or on a contested basis, is to be the subject of an order made by the Court.

6. Note that if for any reason the referees are unable to comply with the orders for delivery of the report to the Court by the date in these orders, the referees are to provide to the Associate to Harrison CJ at CL an interim report setting out the reasons for such inability and an application to extend the time within which to deliver the report to the Court to a date when the referees will be able to provide the report.

7. Grant liberty to the referees or any party to seek directions with respect to any matter arising in proceedings under the reference upon application made on 24 hours' notice or such less notice ordered by the Court.

8. Reserve costs.

SCHEDULE

Issue 1: Taxation of the pre-tax cashflows and the proper approach to the calculation of loss

Plaintiffs’ version

Should tax be calculated at the date of loss, or at some other time?

Defendants’ version

Is it appropriate to calculate loss:

(a) (plaintiffs) using hypothetical pre-tax cashflows and deducting the actual pre-tax cashflows, discounting the difference to 29 March 2010, and determining the tax payable on that notional amount and then making an allowance for carry forward tax losses used by Dairycorp; or

(b) (defendants) using hypothetical post-tax cashflows (assuming tax was paid on 15 May in the years following the financial years in which the cashflows occurred), and deducting actual post-tax cashflows, and discounting the difference to 29 March 2010?

Issue 3: Tax actually payable on the sale of the land

Plaintiffs’ version

Is the tax actually paid by the plaintiffs relevant to the calculation of the post-tax losses? If so, how?

Defendants’ version

If the defendants’ position on Issue 1 is accepted, are any adjustments required to the tax actually payable on the sale of the land to derive the actual post-tax cashflows? If so, what adjustments are necessary?

Issue 4: Allocation of cost base

Plaintiffs’ version

Is the allocation of the cost base for the purpose of calculating capital gains tax relevant to the calculation of the post-tax losses? If so, how?

Defendants’ version

If the defendants’ position on Issue 1 is accepted, how should the $23m cost base that is available to GLO be apportioned?

Issue 5: Tax treatment of award of damages

Plaintiffs’ version

Is the plaintiffs’ award of damages to be treated as income or as revenue on capital account?

Defendants’ version

If the plaintiffs’ position in relation to Issue 1 is accepted, is the plaintiffs’ award of damages to be treated as income or revenue on the capital account for the purpose of calculating the gross up for the tax payable on the damages?

65. I note finally that I have decided Issue 2. Once the referees have determined issues 1, 3, 4 and 5, I will expect the parties to calculate the plaintiffs’ post-tax loss, interest from the date of loss to 30 September 2025 and the gross-up for tax.

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Decision last updated: 12 August 2025