Lindsay-Owen v HWL Ebsworth Lawyers

Case [2023] NSWSC 68

Supreme Court


New South Wales

Medium Neutral Citation: Lindsay-Owen v HWL Ebsworth Lawyers [2023] NSWSC 68
Hearing dates: 7-11, 14-17, 21, 24, 25, 31 March, 1 April 2022
Date of orders: 17 February 2023
Decision date: 17 February 2023
Jurisdiction:Common Law
Before: Harrison J
Decision:

(1)    Judgment for the plaintiffs for damages to be calculated on the basis of my indicative findings.

(2)    Grant liberty to apply.

Catchwords:

NEGLIGENCE - professional negligence - solicitors advising on large-scale property development - failure to include key clause in joint venture agreement

NEGLIGENCE - causation - loss of chance - alleged loss of chance to amend joint venture agreement to include clause - alleged loss of chance to consummate joint venture with alternative partner

NEGLIGENCE - damages - ascertainment of quantum - loss from inability to develop land in accordance with desired joint venture agreement - land still not fully developed - forecasting how hypothetical development would have proceeded

CONSUMER LAW - misleading or deceptive conduct - causation - Trade Practices Act 1974 s82(1) - suffering loss "by conduct of" the defendants

EVIDENCE - opinion evidence - whether fields of expertise exist - forecasting hypothetical property development outcomes

Legislation Cited:

Evidence Act 1995 (NSW) s 79

Trade Practices Act 1974 (Cth) s 82

Cases Cited:

About Life Pty Ltd v Maddocks Lawyers [2021] NSWSC 1370

Atlas Tiles Ltd v Briers (1978) 144 CLR 202; [1978] HCA 37

Berryman v Hames Sharley (WA) Pty Ltd [2008] WASC 59

Carey v Freehills (2013) 303 ALR 445; [2013] FCA 954

Castel Electronics Pty Ltd v Toshiba Singapore Pty Ltd (2011) 192 FCR 445; [2011] FCAFC 55

Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10

Daniels v Anderson (1995) 37 NSWLR 438

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3

Gillv Australian Wheat Board [1980] 2 NSWLR 795

Gore v Montague Mining Pty Ltd [2000] FCA 1214

Hart Security Australia Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307

Heenan v Di Sisto [2008] NSWCA 25

Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547

Hughes v St Barbara Mines Ltd[No 4] [2010] WASC 160

Johnson v Perez (1988) 166 CLR 351; [1986] HCA 64

Lindsay-Owen v Schofields Property Development Pty Ltd [2014] NSWSC 1177

Makita v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305

Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135

Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69

Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2018] 2 Qd R 584; [2017] QCA 254

Ricochet Pty Ltd v Equity Trustees Executors and Agency Co Ltd (1993) 41 FCR 229 at 235

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4

Sydney Local Health District v Macquarie International Health Clinic Pty Ltd (2020) 105 NSWLR 325; [2020] NSWCA 274

Winton Partners Funds Management Pty Ltd v Lindsay-Owen [2016] NSWSC 640

Category:Principal judgment
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)
T Faulkner SC with C Bannan (Defendants)

Solicitors:
Gadens (Plaintiffs)
Gilchrist Connell (Defendants)
File Number(s): 2016/85879
Publication restriction: Nil

Judgment

  1. HIS HONOUR: By their amended statement of claim filed on 8 July 2016 the plaintiffs, Gregory Hamilton Willoughby Lindsay-Owen and Dairycorp Pty Ltd, claim damages from their former solicitors, the partners of HWL Ebsworth Lawyers [“HWLE”], for negligence and breach of retainer arising out of advice provided to the plaintiffs concerning their acquisition and development of land at Schofields in the western suburbs of Sydney. There is no issue concerning the scope of the retainer or the existence of the duty of care.

Introduction

  1. Until early 2015, Mr Lindsay-Owen and Dairycorp owned a large parcel of approximately 56 hectares adjacent to Schofields railway station on the Blacktown-Richmond line within the North West Growth Centre of Sydney. Mr Lindsay-Owen wanted to sub-divide and develop the land so as to maximise his return upon a rezoning from rural to urban, together with an experienced developer. In about 2005, Mr Lindsay-Owen retained Martin Downing of HWLE, one of the defendants, to advise in relation to the development of the land and the preparation of a joint venture agreement. On 29 March 2010, the plaintiffs entered into a Joint Venture Agreement with Schofields Property Development Pty Ltd [“Schofields”], a special purpose vehicle of Villawood Management Group Pty Ltd [“Villawood”].

  2. Since 2006, and at the time that the joint venture agreement was executed, the plaintiffs had a loan facility with the National Australia Bank for approximately $20M secured by mortgage over the land. It was essential for the plaintiffs in committing to any joint venture to develop the land that the incoming joint venture partner should agree that the debt would become a joint venture liability: Mr Lindsay-Owen had no independent means from or with which to discharge the existing loan. Mr Downing knew and understood his instructions in that regard.

  3. However, the joint venture agreement when executed contained a provision that obliged the plaintiffs to repay the loan and procure a release of all securities from the title when “planning approval” was obtained. Clause 11(b) was as follows:

“11. By the date which is 30 Business Days after Planning Approval is obtained:

(a)…

(b) Dairycorp agrees to repay its existing debt facility and procure the release of all securities in relation to that debt facility from title to the Joint Venture Assets and the Land.”

  1. When planning approval was obtained in April 2014, Mr Lindsay-Owen was unable to discharge the debt in accordance with this clause and the joint venture partner relied on this as a default enabling it forcibly to sell the land with the benefit of planning approval. The land was sold to Stockland for $103,500,000 on 26 March 2015. In the result, the plaintiffs allege that they incurred significant expenses and lost the opportunity to develop the land and earn substantial profit.

  2. The relevant contention advanced by the plaintiffs about this was pleaded in paragraph 18 of the amended statement of claim filed on 8 July 2016 in these terms:

18. The plaintiffs instructed the defendants that:

(a) one of the key objectives of any joint venture (or similar transaction) was that the Existing Debt be discharged by external loan funds: and

(b) such funds were to be borrowed by any joint venture (or similar transaction) into which the plaintiffs entered into [sic] for the Development.

  1. As late as 10 March 2022, when HWLE filed their amended defence to the amended statement of claim, that paragraph was still denied. However, two days later at transcript pages 784-785, the following exchange occurred:

“FAULKNER: I think as your Honour rightly observed in view of Mr Downing's evidence, we can't maintain that denial of that paragraph.

…

HIS HONOUR: … Well, I will just note that the denial in para 18 of the further amended defence is withdrawn, not pressed.

…

FAULKNER: It's not pressed. But this is more important. I am instructed, having a look at what Mr Downing said in cross examination, he accepted the proposition that he left in the drafting in the joint venture agreement to the implication what could have been expressed. And, in those circumstances, I am instructed that my client concedes that it breached its duty of care to the plaintiff in relation to the drafting of the joint venture agreement.” [Emphasis added]

  1. In those events, the case is no longer concerned with whether HWLE breached their duty or their retainer but whether in either case the breach caused loss to the plaintiffs and the quantification of any such loss if it did. The plaintiffs also maintain a claim that their loss and damage arises from HWLE’s misleading and deceptive conduct.

The Claim

  1. The plaintiffs contend that HWLE’s breaches and their statutory contravention caused them to suffer loss and damage, falling into two separate categories. First, the expenses incurred by the plaintiffs and paid out of the proceeds of sale of the land. Secondly, the sum representing compensation for the plaintiffs’ lost opportunity to develop the land in accordance with an amended joint venture agreement either with Schofields or some other joint venture partner and to receive a share of the resulting net development profit.

  2. The plaintiffs also maintain that HWLE’s breaches were a necessary condition of the harm that they have suffered. Schofields’ default notice and the resulting forced sale of the land would not have occurred but for the breach. Further, they contend that it is appropriate for HWLE’s liability to extend to the harm they caused, and that the loss was wholly foreseeable. The same conclusion applies to causation in respect of damages for misleading or deceptive conduct.

  3. The plaintiffs maintain that Schofields would have accepted an amendment to clause 11 of the joint venture agreement so as to make it clear that the joint venture parties would assume liability for the NAB loan after planning approval was obtained. The amendment would have unambiguously linked Dairycorp's performance obligation in clause 11(b) to the external loan funds in clause 11(a). The plaintiffs and Schofields would thereafter have proceeded in accordance with a joint venture agreement amended in this way. The plaintiffs contend that the lost opportunity to have the joint venture agreement amended had some value, not being merely a negligible value.

  4. Alternatively, if Schofields did not accept the amendment to the joint venture agreement, Mr Lindsay-Owen would not have executed it with clause 11 in its then terms but would have proceeded to negotiate an alternative joint venture on similar terms with the other interested developers such as Australand. He would have negotiated extensions of his loan obligations to the NAB until this occurred. The opportunity to negotiate an alternative joint venture on similar terms with other interested developers had some value, not being a merely negligible value.

Defences

  1. Although HWLE originally, and for some time, maintained a series of defences, including contributory negligence, failure to mitigate, novus actus interveniens, proportionate liability and advocate’s immunity, these were ultimately not pressed. HWLE now relies only upon a specific denial of the misleading and deceptive conduct allegation together with their general response to the whole of the plaintiffs’ claim that neither their admitted breach of duty and breach of retainer nor their alleged misleading and deceptive conduct caused the plaintiffs to suffer any loss.

  2. Put simply, HWLE maintains that by the time that Villawood terminated the joint venture agreement relying upon the plaintiffs’ failure to comply with clause 11(b), the relationship between the joint venture partners was so dysfunctional as to be in a state of incipient failure: the agreement would in effect have come to an end for some other reason at about the same time resulting, presumably, in a sale of the land in circumstances not dissimilar to what occurred in fact. The prospect that Villawood would have renegotiated the deal on terms that corrected HWLE’s breach was, on this analysis, non-existent. The so-called lost opportunity to renegotiate the terms of the agreement with Villawood was an illusion with no real or discernible value: the opportunity was worthless.

  3. By the same token, according to HWLE, there was no realistic prospect in the alternative that the plaintiffs would or could have found some other joint venture partner on no less favourable terms than those to which HWLE failed to give effect if Villawood had not agreed to proceed at the time that it did. Put another way, Villawood was the only joint venture prospect at the time and the plaintiffs suffered no lost opportunity in the relevant sense because there was no other available or interested player who would have joined them to develop the land.

Background

The land

  1. The land at Schofields had been in Mr Lindsay-Owen's family since 1947. It comprised Lot 200 and Lot B at Bridge Street, Schofields. Mr Lindsay-Owen inherited a one-half share of the land from his mother in 1990 and his company Dairycorp Pty Limited purchased the other half share from his sister in early 2006 for $16M. In order to fund that acquisition, Mr Lindsay-Owen obtained a loan facility from the National Australia Bank with an initial limit of $21.5M in December 2005. This was later increased to $22.6M in December 2006. The facility allowed interest to be capitalised and was secured by a mortgage over the land. Mr Downing, the first defendant, acted for Mr Lindsay-Owen in relation to the land debt. Although the facility was initially granted for a term of two years, it was extended numerous times.

  2. It does not appear to be controversial that the land was a unique development prospect and had significant development potential. First, it was a very large parcel by Sydney standards with effectively one owner. The size was advantageous because it enabled development in isolation without the need to amalgamate a number of parcels of land owned by several proprietors. Secondly, unlike other areas of Northwest Sydney, the land was and came to be at the epicentre of the vision for the development of growth centres by state and local governments. For example, the land ended up directly adjacent to a new railway station and was to be serviced by substantial infrastructure, including a Metro station.

Planning changes

  1. On 4 December 2005, the NSW Premier and the Minister for Planning released "The City of Cities Report" that outlined the state government's metropolitan strategy for Greater Sydney. As part of the strategy for growth in Western Sydney, the report identified land release areas in the Northwest that included the land. It was around this time that developers and other interested parties began approaching the plaintiffs with proposals to develop the land. Those approaches took place in two distinct phases, which straddled the announcement of the new Schofields railway station.

  2. The first phase (2005 to 2008) saw approaches from a variety of different kinds of partners (developers, financiers and project managers) with various proposals in terms of the development itself and the commercial terms for doing so. The second phase (2008 and 2009) is characterised by the existence of serious (and persistent) interest in a joint venture from experienced and well-funded developers such as Peet Limited, Australand and Villawood Management Group Pty Limited. This phase was also characterised by discussions on more concrete terms as to the commercial operation of the proposed joint ventures. Mr Lindsay-Owen's debt to NAB was an important part of these discussions.

  3. Mr Downing was retained to advise the plaintiffs in relation to these negotiations and other matters and the plaintiffs followed his advice on significant or major issues. The close professional relationship between the plaintiffs and Mr Downing continued until late 2014.

The SEPP and the Precinct Acceleration Protocol

  1. On 28 July 2006, the Growth SEPP was gazetted. The stated aims of the policy included the release of land for residential, employment and other urban development in the North West and South West Growth Centres of Sydney.

  2. In February 2008, a "Precinct Acceleration Protocol" was announced by the Department of Planning to allow landowners and developers to apply for the early release of land in the Schofields precinct for urban development.

  3. Importantly, on about 26 February 2008, the Minister for Transport announced a new railway station at Schofields. The Transport Infrastructure Development Corporation (TIDC) then clarified that Schofields railway station would be relocated about 800 metres to the south of its then existing location, and in due course, a 3.5 hectare portion of the plaintiffs' land was resumed for that purpose. That station is now built adjacent to the land.

  4. The railway station and the proposed Metro substantially enhanced the desirability of the land as a development site. Unlike other similar areas, the Growth SEPP did not provide maximum dwelling controls, so as to encourage development. Whereas maximum dwelling controls were introduced elsewhere, the land was insulated from such changes, because it was considered to be a town centre.

  5. On 5 August 2008, the NAB increased the limit of the land debt to $24.2M to accommodate interest capitalisation. On 30 October 2008, a Precinct Acceleration Protocol Submission was made by consultants on behalf of the plaintiffs to the Growth Centres Commission (Department of Planning).

  6. On 19 November 2008, the NAB gave the plaintiffs a formal default notice with respect to the land debt. That notice related to a non-financial covenant concerning a valuation of the land. The NAB loan continued nevertheless to be extended from time to time. Importantly, NAB chose not to apply the relevant default rate of interest under the facility but instead opted to charge a less aggressive option of 1% per annum. It did so because of its "continued preference to work together with [the plaintiffs] to achieve a palatable solution".

  7. The plaintiffs maintain in these proceedings that there is no evidence that the NAB was considering a forced sale of the land at this time based on the formal default notice. Further, there is no evidence that the plaintiffs' facility was in fact moved to the "debt recovery" department within the NAB, despite NAB's statements to the plaintiffs to that effect. Mr Moses of NAB and his assistant Ms Chung continued to be the relationship managers for the plaintiffs and the absence of any communication from the bank's debt recovery team supports that proposition.

  8. As time went on, the NAB expressed increasing concern about Dairycorp's inability to service the loan, without interest being capitalised. It is common ground that the plaintiffs could not service the interest payments or discharge the land debt without selling the land.

  9. However, whilst expressing some frustration, it seems apparent that the NAB in 2009 and 2010 not only viewed the land as an excellent development prospect but also saw a valuable opportunity to fund it. That proposition is supported by a consideration of the NAB's internal communications at that time which disclose a stance by the NAB of continued cooperation with and support for the plaintiffs. Whilst their communications reveal a level of frustration with the rate of progress as to rezoning, the NAB also considered the land the "best property in north-western Sydney" and wished to finance its development.

  10. The plaintiffs maintain that the difference between the tone and content of the NAB's communications with them and its internal communications was no more or less than "textbook loan management strategy". That approach was characterised by exerting pressure on the plaintiffs to progress the plans for development by invoking the bank's terms whilst not being so aggressive as to alienate the plaintiffs or to imperil the bank's commercial opportunity to fund the development.

The 2014 proceedings before Ball J

  1. Well before the current proceedings were commenced, the plaintiffs took proceedings that came before Ball J in the Equity Division seeking to rectify clause 11(b) of the Joint Venture Agreement to give effect to their instructions to Mr Downing concerning joint venture responsibility for the NAB debt. HWLE were obviously not a party to those proceedings. However, his Honour’s reasons for judgment contain an historical review of the contractual negotiations that bears to some extent upon what the parties rely upon in these proceedings. It is convenient to adopt his Honour’s recitation of these matters for present purposes.

  1. Commencing at [5] of his judgment in Lindsay-Owen v Schofields Property Development Pty Ltd [2014] NSWSC 1177, his Honour sets out the relevant agreements as follows:

“[5] Two agreements are relevant to the resolution of the issues in this case. The first is the JVA itself. The second is a Facility Agreement by which Schofields agreed to advance the plaintiffs certain sums of money.

[6] The joint venture was established by cl 3 of the JVA. Clause 3.1 provides:

The Joint Venture Parties agree to form an unincorporated joint venture to carry out the Project on and subject to the terms and conditions set out in this Agreement.

The expression ‘Joint Venture Parties’ is defined to mean Dairycorp and Schofields. ‘Project’ is defined relevantly to mean ‘the development, subdivision, marketing and sale of the Land primarily for residential purposes and other ancillary uses as Lots, super Lots or in its entirety ...’.

[7] The parties' participating interests in the joint venture are set out in cl 4. They change over time depending on the amount advanced under the Facility Agreement.

[8] Clause 4 of the Facility Agreement provides for five types of advance to be made by Schofields to the plaintiffs:

● A ‘Prior Advance’ to be made within 14 days of the date the conditions precedent set out in the JVA are satisfied. That advance consisted of $3,000,000 plus the difference between the amount of the plaintiffs' existing debt facility and the amount for which they were able to refinance that facility (in excess of $18.8 million);

● Eight ‘Interim Advances’ each of $250,000 to be paid quarterly, the first of which was to be paid on the date that was one calendar quarter after the date of satisfaction of the conditions precedent set out in cl 2 of the JVA;

● ‘Interest Advances’ on the plaintiffs' existing debt. These amounts were to be advanced from 1 April 2010 up until the time when ‘Planning Approval’ was obtained for the Land. They were to be made to the extent that interest was not paid by the plaintiffs and could not be capitalised under the relevant facility;

● ‘Capital Advances’ in respect of the plaintiffs' existing debt. These advances were required to be made from the date of the agreement until Planning Approval if the plaintiffs were required to repay part of the existing debt in circumstances described in cl 6 of the JVA to the extent that the repayments were not made by the plaintiffs;

● A ‘Valuation Advance’ payable in accordance with cl 4.4(b) of the Facility Agreement, which provides:

(b) If Planning Approval is obtained at any time during the term of this agreement, the Financier shall, within one month of obtaining a Valuation of the Land, provide to the Borrower an Advance calculated as follows:

A = (50% - PI) x (V - LA) - I

where:

A = amount of the Advance

V = the amount of the Valuation

LA = the amount owing by the Borrower to other lenders and secured by the Security Property in priority to the Securities

PI = the Financier's then existing Participating Interest under the Joint Venture Agreement expressed as a percentage

I = the amount of interest paid by the Financier in respect of the LA and treated as an Advance under clause 4.5

and A is a positive number. If A is not a positive number the Financier will not be required to make any further Advance and clause 4.1(n)(ii) of the Joint Venture Agreement will apply.

‘Planning Approval’ is defined to mean ‘approval by the relevant consent authority of the first development application ... which must allow for the delivery of at least 100 lots lodged in accordance with the relevant precinct plan ...’.

[9] By making the Prior Advances, Interim Advances and Capital Advances, Schofields obtains an interest in the land and the joint venture in the proportion that the amount advanced bears to an agreed or notional value of the land of $30 million. So, for example, on the payment of the Prior Advance of $3 million, Schofields obtained a 10 percent participating interest.

[10] Schofields also obtains a participating interest by making Interest Advances. However, cl 4.1 of the JVA provides that the interest it obtains depends on when the advance is made. If the advance is made prior to 30 months after the date of the agreement, the interest is the proportion that the amount of the advance bears to $30 million. If the Interest Advance is made between dates that are 30 months and 48 months from the date of the agreement, the interest is the proportion that the amount of the advance bears to the market value of the property at the date that is 30 months after the date of the JVA as determined in accordance with cl 25 of the JVA. If the Interest Advance is made between dates that are 48 months and 66 months from the date of the agreement, the interest is the proportion that the amount advanced bears to the market value of the property at the date that is 48 months after the date of the JVA.

[11] On making the Valuation Advance, Schofields obtains a 50 percent interest in the joint venture. Under cl 4.1(n)(ii), if the Valuation Advance is a negative figure, the plaintiffs must repay the overpayment, and, if they fail to do so, cl 4.1(n)(ii)B provides that ‘each Joint Venture Party will have a Participating Interest equal to the actual interest existing at the date Planning Approval was obtained’.

[12] There appears to be a minor drafting error in clause 4.4(b) of the Facility Agreement. ‘I’ is defined to be the amount of the Interest Advances. However, it also appears from cl 4.6(b) that it was intended to include Capital Advances. That clause provides:

Each payment under clause 4.6(a) [which provides for the payment of Capital Advances] will constitute an Advance under this Agreement and will be deducted from Advances in accordance with clause 4.4.

[13] Clause 4.3 of the JVA sets out how the joint venture is to be funded. It provides that a committee established under the JVA may make cash calls. However, cl 4.3(a) provides:

The Joint Venture Parties acknowledge that it is their intention to fund all Joint Venture Costs, whether before or after the date that Planning Approval is obtained by way of External Loan Funds.

‘Joint Venture Costs’ is defined broadly in cl 1.1 to mean ‘the aggregate of all costs, expenses and outgoings incurred by the Joint Venture Parties in connection with the Project, the Land or the Joint Venture Assets, as detailed in the Project Budget or otherwise approved by the JV Committee and accounted for in accordance with generally accepted accounting principles in Australia’. The definition goes on to list a number of inclusions, including (in para (d)) ‘other costs necessarily incurred as a result of ownership of the Land excluding any interest payable under any refinancing obtained under clause 2(b)’. There is no mention in the definition of the costs of repaying the NAB facility following the granting of Planning Approval.

[14] Clause 5.4 of the Facility Agreement provides:

If a Participating Interest is taken by [Schofields] under clauses 4.1 of the Joint Venture Agreement then, to the extent applicable, the relevant Advances under this Agreement will be deemed to have been repaid.

[15] Clause 2 of the JVA sets out several conditions precedent. Relevantly, cl 2(a)(i) provides that the agreement is conditional on:

[R]efinancing of the debt facility taken out by Dairycorp and secured against the Land as at the date of this Agreement by Dairycorp on terms acceptable to both Dairycorp and Schofields including those terms set out in clauses 2(b)(iv) and (v) by the Refinance Condition Date

[16] Clause 2(b) sets out the obligations of the parties in relation to the refinance. It is evident from that clause that the parties proceeded on the basis that the refinancing would be for an amount of at least $18.8 million. Under cl 2(b)(iii), Schofields agreed, if required by the new financier, to provide a guarantee of Dairycorp's obligations limited to an amount equal to three years worth of interest. Clause 2(b)(iv) required that it be a term of the new facility that the financier would agree to a transfer of parts of the land to Schofields to correspond to its participating interest. Clause 2(b)(v) required it to be a term of the new facility that the financier would execute a tripartite agreement with Dairycorp and Schofields, which gave Schofields step-in rights in the event of a default by Dairycorp. Clause 2(d) provides:

For the avoidance of any doubt, Dairycorp acknowledges that Schofields is under no obligation to assume any liability under Dairycorp's existing debt facility (or any refinance of that existing debt facility).

[17] Clause 11 sets out what is to happen when planning approval is obtained. It provides:

External Loan Funds

By the date which is 30 Business Days after Planning Approval is obtained:

(a) the Joint Venture Parties agree to:

(i) borrow all External Loan Funds required to complete the Project in proportion to their Participating Interests, with each Joint Venture Party being severally liable for its share of borrowings; and

(ii) execute all documents and do all things necessary to provide security to any provider of External Loan Funds over their respective interests in the Joint Venture Assets and the Land, including signing any mortgage over the Land under which the Joint Venture Parties will be tenants in common in proportion to their Participating Interests in the Land or any charge in respect of the Joint Venture Assets and the Land. If Schofields does not hold an Interest in the Land, Schofields will be liable for the External Loan Funds to the extent of its Participating Interest in the Joint Venture Assets; and

(b) Dairycorp agrees to repay its existing debt facility and procure the release of all securities in relation to that debt facility from title to the Joint Venture Assets and the Land.

[18] ‘External Loan Funds’ is defined in cl 1.1 to mean:

any loan:

(a) provided by any party who is not a Joint Venture Party to the Joint Venture Parties for the purposes of the Project after the Planning Approval is obtained; and/or

(b) in respect of which the Joint Venture Parties become severally liable in proportion to their Participating Interests after the Planning Approval is obtained,

and includes all unpaid interest and all capitalised interest in relation to that loan from time to time.

[19] Clause 15 provides a mechanism to deal with defaults by either party. It provides for the service of a default notice and a cure period. Ultimately, if a default is not remedied, the non-defaulting party has a right to buy out the defaulting party's interest at the ‘Valuation Amount’. ‘Valuation Amount’ is defined to mean:

An amount equal to VA where:

VA = (V - EL - C) x PI x 0.94

V = the Valuation as advised by the Valuer

PI = the Participating Interest of a Defaulting JVP

EL = all outstanding External Loan Funds

C = outstanding Joint Venture Costs

[20] Clause 23.1 of the JVA provides:

Standstill Period

Unless required to do so in order to comply with its obligations under this Agreement, a Joint Venture Party must not Alienate or in any other way deal with the whole or part of its Participating Interest or the Land before Planning Approval is obtained in respect of the Land other than with the consent of the other Joint Venture Party which consent may be withheld without reason or given on condition.

‘Alienate’ is defined in cl 1.1 to mean, relevantly:

... sell, lease, licence, assign, transfer, grant options or rights of pre-emption (other than by way of security) over, create trusts in respect of or otherwise part with possession of any Joint Venture Asset or Participating Interest or the Land or any interest in the whole or any part of it ...”

  1. His Honour then summarised the negotiations commencing at [21] as follows:

“[21] Mr Lindsay-Owen started looking for a joint venture partner in about August 2009. He settled on Villawood in late 2009. Before doing so, he says that he sent Villawood a statement of his assets and liabilities, which disclosed that his total assets were approximately $83.7 million (including the Schofields land at $65 million) and that his total liabilities were approximately $29.2 million (including the loan to NAB of $23.5 million). There is, however, no evidence that Villawood received that statement of assets and liabilities, and, in my opinion, it is unlikely that it was sent. Mr Lindsay-Owen discovered his telephone records, which show that he dialled Villawood's fax number on 27 August 2009. However, the records indicate that that call lasted for 3 seconds. It is unlikely that that was sufficient time for the fax to go through. It is more likely that he dialled the number by mistake, since, immediately after placing that call, he rang Villawood's normal telephone number and spoke for a period of 2 minutes and 18 seconds.

[22] Villawood retained Mr Mazzone of Clayton Utz to act for it in the negotiations of the joint venture, and the plaintiffs retained Mr Downing of HWL Ebsworth. It is apparent that Mr Lindsay-Owen relied heavily on Mr Downing in connection with the negotiations for the joint venture.

[23] Villawood has two executive directors: Mr Costelloe and Mr Johnson. They were the two most senior executives within the group. Mr Costelloe had established Villawood in 1989. Mr Johnson joined him in 2006, and, from that time, their interests in the group were equal. The third most senior executive of Villawood was Mr Taber, who is and was at the relevant time the managing director. Up until 16 December 2009, Mr Costelloe was the person at Villawood who was primarily responsible for negotiating with Mr Lindsay-Owen, although Mr Taber also played a role, and they both kept Mr Johnson informed of what was happening in the negotiations.

[24] The parties exchanged several draft term sheets between September and November 2009.

[25] On 1 December 2009, Mr Taber circulated a revised term sheet that he had prepared. The term sheet relevantly proposed two options. Option 1 was in the following terms:

Villawood pays to Dairycorp:

● $3 million within 14 days of signing documents

● $250,000 quarterly per quarter for the next 8 quarters

● After PSP, 33.3% of the value of each stage of the land at the commencement of construction of each stage

Debt position:

● Dairycorp remains liable for all debt until PSP

● At PSP:

(a) Dairycorp repays land debt

(b) Villawood and Dairycorp assume 50/50 liability for development debt (assuming development debt is staged)

Option 2 was in the following terms:

Villawood pays to Dairycorp:

● $3 million within 14 days of signing documents

● $250,000 quarterly per quarter for the next 8 quarters

● At PSP, 33.3% of the value of the land at PSP less 50% of the land debt

Debt position:

● Dairycorp remains liable for debt until PSP

● At PSP, Villawood and Dairycorp assume 50/50 liability for land and development debt

‘PSP’ is an acronym used in Victoria standing for ‘Precinct Structure Plan’. It is similar to rezoning.

[26] The term sheet was sent to Mr Downing who, after he received it, rang Mr Mazzone. According to Mr Downing, he said to Mr Mazzone that ‘it is [a] fundamental thing for us that [Schofields] be responsible for 50% of the NAB debt’. Mr Mazzone does not deny that conversation, and I accept that it occurred.

[27] There were various other discussions between the parties in relation to the term sheet, and there was a lengthy meeting in Melbourne on 7 December 2009 attended by Mr Lindsay-Owen, Mr Downing, Mr Costelloe, Mr Taber and Mr Mazzone to discuss it.

[28] Following that meeting, on 10 December 2009, Mr Downing circulated by email a marked-up version of the term sheet. The marked-up version deleted Option 1 and amended the expression ‘PSP’ in Option 2 so that it read ‘rezoning’. The earlier version of the term sheet also contained some provisions dealing with the payment of interest on the existing land debt. Mr Downing added the following two bullet points to those provisions:

● Dairycorp may at any time elect to pay some or all of the interest on the land debt to the bank rather than Villawood.

● Dairycorp can elect to repay some or all of the Villawood interest loan immediately prior to conversion.

[29] Mr Costelloe replied to that email the same day saying:

It looks like we have a deal, please all confer with each other to produce docs asap

[30] On the following day, Mr Lindsay-Owen forwarded a copy of Mr Costelloe's response (and the amended term sheet) to Mr Moses at NAB. Mr Taber also prepared a summary of the term sheet and, at Mr Johnson's request, sent a copy to Mr Moses and Mr Sherlock at NAB. The first three paragraphs of the summary were in the following terms:

Villawood to pay Dairycorp $3m at execution & $250k per quarter over 2 years (total $5m). This will be initially by way of loan secured by second mortgage over the land and charge over the company.

Villawood to pay the current NAB loan interest when it falls due for the first 2.5 years. This will be treated as a loan to Dairycorp with security as above.

At rezoning the site will be revalued and Villawood will acquire 50% share in the land by way of payment of 33.3% of the rezoning valuation of the land (excluding NAB debt) less 50% of the NAB debt less the NAB loan interest accrued to date.

The summary went on to explain how interest on the NAB loan was to be paid pending planning approval. It stated that Villawood could pay interest on the loan but that Dairycorp also had the right to pay all or part of the NAB loan interest. The summary concluded:

Given that rezoning occurs then development will proceed on the basis of a 50:50 joint venture ownership of the land. We would be expecting the development costs to be fully funded under normal terms and conditions.

[31] On 14 December 2009, Schofields was incorporated. Its directors are Mr Johnson and Mr Robertson, a solicitor who, over the years, has done a substantial amount of work for Villawood. Schofields' shareholder is TOR Pty Ltd, now known as Sandhurst Capital Pty Ltd, a company in the Villawood group.

[32] Mr Costelloe went on holidays on 16 December 2009 and did not return to the office until February 2010. Mr Taber became primarily responsible for instructing Mr Mazzone in relation to documentation of the joint venture.

[33] Some time prior to 23 December 2009, Mr Taber says he became concerned about the arrangement by which Schofields would take over half the NAB debt when planning approval was obtained. That concern arose because of the risk that, if Schofields took over half the debt and made the advance payments contemplated by the parties, it would overpay for its half interest in the joint venture without any guarantee of being able to recover the amount of the overpayment. Driven by that concern, it appears that Mr Taber instructed Mr Mazzone to draft the joint venture agreements on the basis that the plaintiffs would repay the NAB debt when planning approval was granted. Neither Mr Taber nor Mr Mazzone specifically raised that change with Mr Lindsay-Owen or Mr Downing. In cross-examination, Mr Taber said that he thought that Schofields' change in position would be apparent from the drafting of the agreements and that the circulation of the first drafts was itself the beginning of the negotiating process in relation to the final terms of the joint venture. The plaintiffs took issue with that evidence. They pointed out that Mr Taber had not given that evidence in his affidavit and that it appeared to be inconsistent with subsequent events (described below) in which Mr Taber gives an account of the agreement that suggests Schofields would become responsible for repayment of half the debt after planning approval had been granted. However, I found Mr Taber to be a satisfactory witness. The evidence strikes me as plausible, and I accept that Mr Taber's failure to give the evidence in his affidavit can be explained by his ill health at the time the affidavit was prepared.

[34] On 23 December 2009, Mr Mazzone circulated first drafts of the relevant agreements, including a first draft of the JVA and Facility Agreement. There were significant differences between the drafts circulated by Mr Mazzone and the final versions of the agreements. It is apparent that they were reviewed carefully by Mr Downing, and he made extensive comments on them. Clause 9 of the draft circulated by Mr Mazzone was relevantly in substantially the same terms as cl 11 of the final version of the JVA. The final version amended cl 9 of the draft to provide that security given to any provider of External Loan Funds be over a party's respective interests in the Joint Venture Assets ‘and the Land’, and it specified that a mortgage granted as security be one under which the Joint Venture Parties are ‘tenants in common in proportion to their Participating Interests in the Land’. The final version also added the last sentence in subpara (a)(ii). A subparagraph was removed from the draft provision, which dealt with the ranking of securities as between External Loan Funds providers and proposed ‘Cross Charges’ over each Joint Venture Party's Participating Interest. Importantly, however, the final version of cl 11(a)(i) remained unchanged, and the only amendment made in cl 11(b) was to specify that Dairycorp's obligation to procure the release of all securities in relation to its debt facility with NAB be from title to the Joint Venture Assets ‘and the Land’. Clause 4.4 of the first draft of the Facility Agreement was also in similar terms to cl 4.4 of the final version of that agreement. In particular, the formula in cl 4.4(b) did not change.

[35] Mr Downing did not make any changes to cl 9 as originally circulated by Mr Mazzone, although he included a comment at the end of cl 9(a)(ii) saying ‘Presumably the intention here is the refinance’. Clayton Utz responded to that question on 15 January 2010 saying ‘Yes. That is correct.’

[36] The JVA and the Facility Agreement went through further drafts. However, none of the changes are of significance to this case. Mr Johnson and Mr Robertson executed the Facility Agreement and JVA on behalf of Schofields. Mr Johnson says that he read through the agreements before signing them. He says that, at the time he signed the JVA, it was his intention that Dairycorp alone would be obliged to discharge the debt over the land shortly after planning approval had been obtained. I accept that Mr Robertson looked through the agreements before signing them. Whether he formed the intention that he said he did is less clear. Although Mr Johnson was a director of Schofields, he was not the person who was responsible for negotiating the agreements or the commercial terms of them. He became a director of Schofields because it was known that Mr Costelloe would be away. The agreements are quite complicated and take some time to understand. Mr Johnson is a busy person and appeared to have a poor recollection of the agreements when giving evidence. His recollection is likely to have been affected by subsequent events. I think it is unlikely that he turned his mind specifically to the question whether the existing NAB loan would become part of the joint venture debt after Planning Approval was granted. Mr Robertson did not give evidence.”

CAUSATION

  1. The plaintiffs frame their case in alternative ways. First, as a loss of the opportunity to amend the joint venture agreement with Villawood

  2. It is trite to observe that no amendment could have been achieved without Villawood’s agreement. Accordingly, in order to establish that HWLE’s conduct caused the plaintiffs to lose a valuable opportunity, they must establish that they would have sought amendments to the draft joint venture agreement that was ready for execution on 29 March 2010, that Villawood would have agreed to those amendments, that NAB would in addition have agreed to a further extension on the loan so that that could happen and that the amendments would have had a value that was not merely negligible, speculative or theoretical. The first of these requirements is hardly controversial as the plaintiffs always anticipated that the land debt would become a joint venture liability. The remaining requirements are very much in issue.

  3. HWLE submits that the plaintiffs have not proved and cannot establish as a probability the hypothetical possibility that Villawood would have agreed to amend clause 11(b) to conform to the plaintiffs’ instructions to them if the mistake had been drawn to the attention of Villawood by 29 March 2010 and the amendment had been requested. To start with, the terms of the joint venture agreement had been negotiated over a considerable period of time. There is in those circumstances no warrant for the assumption that Villawood would have given up its anticipated contractual benefits simply to alleviate the consequences of HWLE’s mistake. That is more so when the terms of clause 11(b) were valuable to Villawood, a fact that is well demonstrated by Villawood’s ultimate reliance upon the plaintiffs’ failure to conform with the obligation it imposed upon them. In a related sense, the plaintiffs have not established what consequential amendments Villawood would have required to account, and compensate them, for the loss of the benefit of clause 11(b) to them. As a matter of commercial reality, any such amendments would need somehow to have balanced a loss or detriment in the order of $10M to account for the NAB debt to which the clause related. HWLE submits that the complexity of the joint venture agreement and the history of negotiations between its parties make it clear that a simple linear reduction in an amount payable by Villawood was unlikely.

  4. Secondly, the plaintiffs’ claim is framed as a loss of the opportunity to proceed with an alternative joint venture partner on more favourable terms, at least to the extent that any hypothetical alternative joint venture agreement would have included the clause which the defendants failed in breach of their duty to include in the original agreement.

Loss of chance – legal principles

  1. HWLE provided a brief and uncontroversial analysis of the legal principles that apply in a case, such as this, where loss is said to be constituted by the loss of a chance. In such a case, the Court must undertake a two-step analysis: see Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 at 355. First, a plaintiff must prove that it has suffered some loss by demonstrating that the defendant’s conduct caused the loss of a commercial opportunity which had some value. This is a question of causation, and the plaintiffs must prove this aspect of their case on the balance of probabilities.

  2. Different opportunities raise different questions of causation and have different values. The opportunity that a plaintiff claims to have lost must therefore be identified with precision: Hart Security Australia Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307 at [165]. Where a plaintiff claims to have lost the opportunity arising from particular contractual relations, it must prove on the balance of probabilities that it would have entered into those contractual relations with the prospective counterparty: Hart at [135] – [137], [141] – [142], [165]. The plaintiff must prove both the hypothetical of what it would have done and what the prospective counterparty would have done.

  3. The question of whether these hypothetical parties would have agreed to a particular contract cannot be decided in a vacuum. The Court must have regard to the terms of the hypothetical contract and each party’s attitude to the particular terms. HWLE provided the following examples:

  • in Sellars, the Court assessed the terms which had been the subject of negotiations at the point of breakdown, including the requirement for underwriting and the conditions precedent to completion;

  • in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3 at 13, the Court said that the plaintiff had to prove that an alternative insurance policy was available in the market and the benefits provided by that alternative policy;

  • in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69, the Court concluded that the plaintiffs suffered no loss because they failed to prove that there was an alternative loan available in the market with terms more beneficial to them than the loans they in fact ultimately received from GIO;

  • in Castel Electronics Pty Ltd v Toshiba Singapore Pty Ltd (2011) 192 FCR 445; [2011] FCAFC 55 at [157] and [161], the Court considered the acceptability or otherwise of the price that would have had to be paid for any agreement to be reached;

  • in Gore v Montague Mining Pty Ltd [2000] FCA 1214 at [36], the Court assessed one party’s attitude to adding a term permitting the other party to assign a joint venture agreement;

  • in Heenan v Di Sisto [2008] NSWCA 25 at [47], the Court assessed the developer’s attitude to the essential requirement that the two contracts be interdependent; and

  • in Hart at [166], the Court had regard to a $1M unconditional bank guarantee that the plaintiff was not willing to give, concluding that the counterparty would not have foregone the requirement and that no agreement would for that reason have been consummated.

  1. If the history of negotiations is such that a plaintiff cannot prove that the parties would have agreed on all terms, the plaintiff will have failed to prove that it lost the claimed opportunity: Hart at [169]. It is insufficient merely to demonstrate that the defendant caused “some reduction in its chances of a favourable outcome to the negotiations”: Hart at [171]. Moreover, not only must the plaintiff prove that it has lost the particular contractual relations, but it must also prove that those contractual relations had some value. It is not sufficient if the value was negligible (Sellars at 355) or speculative (Sellars at 364) or theoretical: Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2018] 2 Qd R 584 at 587; [2017] QCA 254 at [13]. To the same effect, if the contractual relations had no chance of being profitable, it was an opportunity of no value and loss of such an “opportunity” is not compensable: Principal Properties at 590; [23]. The plaintiff must prove that the opportunity had some value, in the sense that it offered a substantial, and not merely speculative, prospect of acquiring a benefit.

  2. Alike with other questions of causation, the claim that particular contractual relations had some value requires a comparison between the hypothetical contractual relations and the position in which the plaintiff ended up: Sellars at 355. If the plaintiff does not prove that it lost an opportunity which had some value by reason of the defendant’s breach of duty or breach of contract, no further question of the value of the lost opportunity arises: the case fails.

  3. Secondly, if the plaintiff proves that it lost an opportunity that had some value as a result of a defendant’s default, it must then establish the quantum of the value of the lost opportunity having regard to the probabilities and possibilities: Sellars at 355. At this stage of the analysis, in contrast to the first stage, even if the Court finds that the chance of a particular relevant event was less than 50%, the Court is still required to take that event into account: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20 at 642-643. Where the lost opportunity is hypothetical contractual relations, the Court must have regard to the terms that would have been agreed in order to assess the value of the lost opportunity.

  4. The second step of the analysis is distinct from the first, but the same body of evidence may be relevant to both: Principal Properties at 591; [28]; About Life Pty Ltd v Maddocks Lawyers [2021] NSWSC 1370 at [506].

Loss of opportunity to amend

  1. There is no dispute that Mr Downing did not appreciate that his instructions concerning the land debt had not been incorporated in the Joint Venture Agreement before it was signed. The plaintiffs’ case is that if Mr Downing had appreciated this, he would have been able to avoid the problem by securing Schofields’ agreement to amend the document to reflect his instructions.

  2. Mr Downing conceded, if concession is the correct analysis in this setting, that he expected that Clayton Utz would have agreed to make changes to the draft Joint Venture Agreement to give effect to the plaintiffs’ fundamental requirements concerning the repayment of the land debt:

“Q. So, Mr Downing, I don’t want to go over old ground, but can I just draw some threads together before I come back to the question that I asked you that drew the objection. We know that you spoke with Mr Mazzone on 1 December 2009 and told him that it was fundamental for the joint venture to assume liability for the NAB debt.

A. Correct.

Q. And we know that after that, the revised term sheet came forward in response to which you deleted option 1 because it was only option 2 that satisfied that fundamental objective, correct?

A. Correct.

Q. And we know that after you got the draft joint venture agreement, you made the drafting comment to which we've referred this morning, and you got the response that said that your presumption was correct, we know all that?

A. Yes, we do.

Q. So, if you'd realised that clause 9 that then became clause 11 should be amended for the purpose of making clear in or by ordinary language, that it was the joint venture that would assume liability for the NAB debt upon a rezoning or a planning approval as it later became, and that the joint venture agreement ought to be amended to make that clear.

A. Yes.

Q. You would have expected that Clayton Utz would have accepted that, correct?

A. Without the benefit of hindsight, yes, I would have, yes.

Q. That's simply because you had received not one word from the other side in the negotiation that suggested that any of this was controversial. Correct?

A. No. Correct.”

  1. Presumably Mr Downing’s reference to hindsight was an implicit acknowledgement that he no longer maintained that view in the events that have occurred, including Schofields’ reliance upon clause 11(b) to terminate the joint venture. Be that as it may, it was submitted on behalf of the plaintiffs that Mr Downing gave no evidence that he expected that any other changes were needed to accommodate the plaintiffs’ fundamental requirement, nor any evidence that he considered that other changes to the transaction documents were necessary. He was not re-examined on this point.

  2. The plaintiffs submitted that Mr Downing’s expectation is amply supported by contemporaneous documents from Schofields that straddle the periods of time immediately before and after the signing of the Joint Venture Agreement. They submit that there is, in contrast, no evidence that supports a contrary position and that the evidence “is thus all one way on causation”. The plaintiffs maintained that the evidence of the parties’ commercial negotiations and what they referred to as “the commercial realities at the time” wholly supported the proposition that Schofields would have acceded to any request to amend the Joint Venture Agreement to reflect the plaintiffs’ fundamental requirements. The following examples were emphasised.

  3. First, the parties had a “deal”, which had been communicated to the NAB as their joint position. Throughout the negotiation process and even after the Joint Venture Agreement was executed, Schofields had given every indication that they had made and were intending to keep the “deal” reached in December 2009 in relation to the land debt. Other peripheral terms changed in the course of negotiations but the so-called fundamental requirement terms did not.

  4. The plaintiffs submit that this contention is supported by Villawood’s conduct immediately after the Joint Venture Agreement was signed on 29 March 2010. One month later, on 29 April 2010, Mr Taber at Villawood wrote to Mr Lindsay-Owen in these terms:

“I have reviewed the matter with Rory and advise our position remains unchanged -

There are two ways to structure / view the foundations of this deal

1. if we take responsibility for say 50% of the debt then we could buy 50% of the net equity for (32-20.9)/2 = 5.6m (and be responsible for half the debt) or

2. if Dairycorp remain solely responsible for all of the debt then our money only buys equity in the land (based on agreed valuations) and Dairycorp retains the remaining equity in the land and is responsible for all of the debt.

The second option is the basis of our deal and all documentation. We have no responsibility for (and obtain no benefit from) the debt despite the fact that our payments to Dairycorp in return for equity in the land are based on a combination of payments including reductions to debt and interest on debt. It is this reasoning that underpins our position that the finance costs relating to the debt is solely the responsibility of Dairycorp.

This situation changes after planning approval when money changes hands so that both Dairycorp and Schofields will each have 50% equity in the land and 50% responsibility for the debt (which will be increased to account for development costs, etc) and both will be entitled to 50% of the profit from the development.

I trust this explains the reasoning behind our position.”

  1. Ball J referred to this email at [38] of his judgment in Lindsay-Owen v Schofields Property Development Pty Ltd as follows:

“The statement that, following planning approval, Dairycorp and Schofields will have ‘50% responsibility for the debt (which will be increased to account for development costs, etc)’ certainly suggests that, at the time Mr Taber wrote the email, he thought that the joint venture would take over responsibility for the existing debt following the granting of planning approval.”

  1. His Honour went on at [45] to observe:

“On 29 April 2014, Mr Taber sent a letter to Dairycorp stating that Dairycorp was responsible for repaying the NAB facility. Following that letter, the plaintiffs amended their Summons and Commercial List Statement to seek rectification of the JVA.”

  1. As is well understood, the plaintiffs were unsuccessful in those proceedings and clause 11(b) of the Joint Venture Agreement remained. There is to that extent some little tension between that fact and the plaintiffs’ submission that Schofields were somehow tied, morally if not legally, to adhere to a deal that included the implementation of their instructions to Mr Downing or Mr Taber’s understanding to the same effect. The fact of the matter is that Schofields relied upon the very clause to terminate the contract. However, I take the plaintiffs’ submission to be that the position in April 2010 was considerably and fundamentally different to the position four years later, by which time a plethora of factors had intervened to alter the relationship between the contracting parties. Further, Mr Taber’s understanding in April 2010 was effectively representative of Schofields’ likely attitude at that time to a request to amend, if Mr Downing had appreciated his error and made such a request.

  2. Secondly, the plaintiffs submitted that “the commercial realities” support a finding that Schofields would have acceded to such amendments rather than lose the opportunity to develop the land. The land had significant development potential, a matter that was well known and understood by all concerned. For example, Mr Costelloe wrote to Mr Lindsay-Owen on 26 July 2009 in the following enthusiastic terms:

“Hi Greg,

I was pleasantly surprised with the property, we look at many properties which often end up in the ‘too hard basket’, but your farm has great potential.

The combination of rail, mixed use, proximity to Rouse Hill, topography and being cleared all make it attractive.”

  1. The Villawood media release on 31 March 2010, referring to the potential to develop more than 800 lots, was to a similar effect. The plaintiffs submitted that it is in these circumstances highly unlikely that Schofields would have walked away from the negotiations if the plaintiffs had “insisted” [sic!] on terms that would give effect to their fundamental requirements, especially when the whole of the land debt would have been accounted for in determining Schofields’ participating interest, as explained by Mr Downing to the NAB in his email on 12 March 2010, in part as follows:

“In essence, the revised position is as follows:

● Villawood will pay interest on the NAB facility from 1 April onwards

● Villawood will pay Dairycorp $3m plus the NAB capital shortfall within 14 days of the execution of (and NAB consenting to) the Villawood second mortgage security documents. The NAB capital shortfall will be paid by Dairycorp to NAB to reduce the principal outstanding on the existing facility.

● Villawood will receive a higher initial equity participation level than originally agreed due to the increase in the amount of its initial contribution to the joint venture to cover the repayment of the NAB capital shortfall

● Villawood’s due diligence period expires on 7 April 2010.”

  1. The plaintiffs submitted that walking away from the deal in the face of a request to amend would have made no commercial or common sense.

  2. Thirdly, Mr Downing conceded that as the person in the centre of negotiations and the person responsible for numerous communications with Clayton Utz, he had received no indication from anyone that their attitude to the issue of the land debt had changed:

“Q. No. As far as you were concerned, as Mr Lindsay-Owen's solicitor, that element, that fundamental element did not change, correct?

A. No, it did not.

Q. At no time did anyone from Clayton Utz or Villawood indicate that they had a different view?

A. No, they did not.

Q. You never said anything to Mr Lindsay-Owen between that period, 10 December 2009 and execution of the joint venture agreement on 29 March 2010, anything to the effect that the treatment of the NAB debt and the servicing of that debt had changed?

A. No, I did not.”

  1. Fourthly, the plaintiffs submitted that it was unlikely that Villawood would have resiled from the most important integer of the parties’ “deal” as communicated by the plaintiffs and Mr Taber to the NAB. On 2 January 2010, the NAB had indicated that its loan would be extended with a facility limit of $21.3M for a further two years, but subject to the Joint Venture Agreement being acceptable to the bank “and that it does not differ to [sic, from] what has been proposed to the bank thus far”. On 10 February 2010, the NAB had extended the acceptance date in the letter of offer to 31 March 2010. The plaintiffs submitted that it would have been highly unlikely that there would have been any retreat from the articulated position concerning treatment of the land debt.

  2. Finally, Mr Downing gave this evidence:

“Q. Can I just ask you to focus, if you would, on the word ‘refinance’ in your drafting note?

A. Yes.

Q. Did you have in mind by the use of that word the effective refinance of the existing debt to NAB that was obviously secured over the land that would be assumed by the joint venture upon a rezoning or, as it later became, planning approval?

A. Yes, that was, that was what my assumption was.

Q. That's what you intended. Is that right?

A. Yes, that's correct.”

  1. The plaintiffs submitted that the implementation of their fundamental requirement would have been commercially neutral for Schofields, in that they expected to receive what they gave. By agreeing to repay the land debt on rezoning (or as Mr Downing expected, planning approval), Schofields demonstrated that it was content to accept responsibility for half the land debt following planning approval provided that it received credit for it in the calculation of its equity buy in. As the plaintiffs have pointed out, the sense of that commercial position is obvious and was recognised by Ball J at [73] of his judgment:

“[73] … in my opinion, it is clear that Villawood's intention as expressed in the amended term sheet was that it would agree to the joint venture taking over the NAB debt provided the plaintiffs agreed to reduce the amount Villawood had to pay to acquire a 50 percent interest in the joint venture by half the amount of the debt. That was expressed by the bullet point which stated that ‘[a]t PSP’ Villawood would pay Dairycorp ‘33.3% of the value of the land at PSP less 50% of the land debt’. It is clear from the two options presented in the amended term sheet that Villawood was willing to pay half the value of the land to acquire a 50 percent interest in the joint venture. It was indifferent to whether it took responsibility for half the NAB debt following PSP provided that, if it did, the price it paid was reduced by the amount of the debt for which it took responsibility. Its position made perfect commercial sense. However, Mr Downing says that he interpreted the statement ‘33.3% of the value of the land at PSP less 50% of the land debt’ as meaning 33.3 percent of (the value of the land at PSP less 50% of the land debt) - in other words, 33.3 percent of the value of the land less one sixth of the land debt. Mr Lindsay-Owen did not form a separate intention in relation to the term sheet but relied on advice from Mr Downing concerning its appropriateness. Mr Downing's interpretation of the bullet point was obviously favourable to his clients. On the plaintiffs' case, the amount to be deducted in respect of the debt changed when the first draft of the JVA was circulated on 23 December 2009. That change, on the plaintiffs' case, was less favourable than Mr Downing's interpretation of the term sheet but still more advantageous to them than the interpretation that was obviously being placed on it by Villawood.” [Emphasis added]

  1. HWLE responded with the obvious proposition that no amendment could have been achieved without Villawood’s agreement. In order for HWLE’s conduct to have caused the loss of a valuable opportunity, HWLE submitted that the plaintiffs must establish all of the following things on the balance of probabilities:

  1. that they would have sought amendments to the draft Joint Venture Agreement that was on the table on 29 March 2010;

  2. that Villawood would have agreed to those amendments;

  3. that NAB would have agreed to a further extension of time to allow that to happen; and

  4. that the amendments that would have been agreed would have had some value, not being a value that was negligible, speculative or theoretical.

  1. There seems little doubt, and no apparent contest, that the plaintiffs would have sought the relevant amendment. HWLE contends that the evidence does not support proof of the remaining matters.

  2. HWLE accepted that if the plaintiffs had realised that clause 11(b) did not cast the future burden of the NAB debt onto the joint venture, it may be inferred that they would have sought amendments to the Joint Venture Agreement. However, HWLE contended that Villawood would not have agreed to amendments that did no more than change who would become responsible for the NAB debt once planning approval was achieved. Without more, those amendments would have reduced the value of the transaction to Villawood without any compensatory provisions. The uncompensated reduction would have been significant as the NAB debt exceeded $20M at the time of the hypothetical negotiations and the amendments standing alone would have reduced the value of the transaction to Villawood by at least $10M.

  3. HWLE acknowledged that the Terms Sheet, which was the focus of the parties’ attention on 10 December 2009, contemplated that the joint venture could take over the NAB debt in the circumstances referred to in that document. However, neither side considered itself bound by the Terms Sheet. Between 10 December 2009 and 29 March 2010, the parties engaged in extensive negotiations. By 29 March 2010, almost every provision of the Terms Sheet had been changed.

  4. According to HWLE, by March 2010, “the commercial deal had completely changed”. Risks had been reallocated. The amounts to be paid by Villawood had changed significantly. In light of the new terms, the Terms Sheet does not support an inference about what if any amendments Villawood would have agreed to in March 2010. Moreover, HWLE submitted that the Terms Sheet does not support the inference that Villawood would have accepted a simple amendment to clause 11(b) of the draft Joint Venture Agreement that was on the table at that time. On the contrary, the Terms Sheet contemplated a direct connection between responsibility for the NAB debt and the amount that Villawood was willing to pay the plaintiffs: change to one integer would have led to changes in others.

  5. HWLE also submitted that the complexity of the Joint Venture Agreement and the history of negotiations between the parties make it clear that a simple linear reduction in the amount payable by Villawood was unlikely to have occurred. HWLE made the following written submission:

“The plaintiffs submit that Villawood would simply accede to the proposition that the joint venture should be liable for 50% of the debt without any quid pro quo. In closing address, it was suggested that this was demonstrated by the email of 29 April 2010 and that this had escaped attention in the proceedings before Ball J. That is not correct. As recorded in the judgment of Ball J, the plaintiffs expressly relied upon that email (see [54] of the judgment) – as well as other subsequent conduct – in support of the proposition that Villawood intended that the joint venture would assume liability for the debt. Those submissions (including by reference to the 29 April 2010 email) were rejected by reference to all of the surrounding circumstances and the cross-examination of the relevant witnesses. Mr Taber was challenged on his evidence about Villawood’s intention in this regard and his evidence was accepted. Ball J found that Mr Taber was a satisfactory witness ([33]). Ball J concluded that Villawood did require a quid pro quo (see [72] – [74]). His Honour expressed that conclusion as follows: ‘what is clear is that the intention on which the rectification case is based was an intention that Villawood should take responsibility for half the land debt provided the amount payable by it for a half interest in the land (and joint venture) was reduced by that amount. Those two elements cannot be separated’.”

  1. HWLE listed a series of other objective facts that it contended also gave strong support to the inference that in March 2010 Villawood would have required other changes before it was willing to agree to the joint venture taking responsibility for the NAB debt. They are as follows.

  2. First, if the joint venture took over the NAB debt, the Terms Sheet unsurprisingly contemplated that the amount Villawood would pay to Dairycorp for a 50% interest in the joint venture would be much less than the draft Joint Venture Agreement required, a circumstance that Ball J described as “perfect commercial sense”. Consistently with the Terms Sheet, his Honour found that it was not Villawood’s subjective intention that the joint venture take over the existing NAB debt unless other changes were agreed.

  3. Secondly, and in any event, the evidence of Villawood’s willingness to accept the Terms Sheet is confined to the 10 December 2009 email from Mr Costelloe in which he wrote “it looks like we have a deal, please all confer with each other to produce docs asap”. This email was positive but not definitive, and contemplated further negotiation about detailed and complex documents. When Villawood issued draft documentation on 23 December 2009, they had been prepared by lawyers and contemplated a different deal to that referred to in the Terms Sheets.

  4. Thirdly, Ball J found that Villawood’s documents were different to the Terms Sheet because Mr Taber had taken over from Mr Costelloe and he took a different view of the transaction, including the risk that Villawood would overpay and not be able to recover its expenditure due to the structure of advance payments it was required to make to or on behalf of Dairycorp.

  5. Fourthly, the final Joint Venture Agreement differed from the Terms Sheet in many respects, not only as to future responsibility for the NAB debt. These differences variously favoured one party or the other, indicating that neither party considered itself bound by the Terms Sheet. The differences also show that the final terms of the Joint Venture Agreement in March 2010 were materially different to those that were discussed in December 2009. HWLE maintained that in the intervening three and a half months, the commercial deal had moved on in significant respects.

  6. HWLE submitted that these objective facts support the inference that the most likely position is that Villawood would not have agreed to amend clause 11(b) unless the plaintiffs were willing to agree to consequential amendments. HWLE posed the question as not whether Villawood would have agreed to amend the Joint Venture Agreement but whether it would have agreed on terms that were acceptable to the plaintiffs.

  7. For instance, HWLE posed the following hypothetical example of how reduction in the amount Villawood would be required to pay to Dairycorp as a consequential amendment might have been considered. A reduction could have been made to the upfront payment of $3M or the subsequent periodical payments of $250,000 per quarter, or the payments to meet Dairycorp’s ongoing interest obligations or the final payment to be made once planning approval was obtained. A reduction may have been made to all of these payments. Given the deemed value of the land of $30M and the NAB debt in March 2010 of almost $21M, such changes may have reduced the total payments to Dairycorp to about $4M or less, which would not have been enough both to permit the plaintiffs to refinance at $18.8M and service the remaining debt for the time it would take to achieve a rezoning and Development Approval for the first 100 lots. The reduction may even have eliminated all payments to the plaintiffs until planning approval was obtained, or even eliminated them entirely. HWLE submitted that the objective facts do not warrant a finding that, on the balance of probabilities, such a deal would have been acceptable to the plaintiffs. Moreover, even if the plaintiffs were willing to proceed at such a reduced price, they may not have been able to do so given NAB’s requirement that the debt be reduced.

  8. HWLE also submitted that while a reduction in payments might have been one possibility, there were others as well, such as Villawood taking a 75% share of the joint venture instead of 50%. It may have required the plaintiffs to accept funding from Villawood with which to retire the NAB debt which would then have to be repaid from the first proceeds of land sales. Villawood may have required the transfer of an immediate interest in the land, with consequential tax implications for the plaintiffs.

  9. HWLE submitted that in these circumstances, Villawood would itself not have been willing to proceed at all if the joint venture had to take over the plaintiffs’ existing NAB debt. HWLE submitted that, confronted with terms that it could not accept, rather than have no joint venture at all, the plaintiffs may have chosen to proceed with the draft Joint Venture Agreement that Villawood issued. HWLE submitted that the evidence does not establish that the plaintiffs would have been prepared to agree to invest the time necessary to conclude an alternative Joint Venture Agreement. HWLE submitted that, on the contrary, the evidence establishes that Villawood was increasingly frustrated with amendments being sought by the plaintiffs and the resulting delay.

  10. HWLE submitted that ultimately the proposition that there would have been a suite of amendments to the draft Joint Venture Agreement that would have been acceptable to both Villawood and to the plaintiffs rises no higher than speculation.

  11. However, this was not the limit of HWLE’s submissions. HWLE argued that even if the parties had themselves been able to arrive at consensus on amendments to the Joint Venture Agreement, that would not be sufficient to establish causation. The Court would have to be satisfied in addition that the amendments, and the associated delay, if any, would have been acceptable to the NAB.

  12. HWLE contended it was clear by March 2010 that the bank’s patience was running out and that the plaintiffs have not established that it would have been willing to grant further time. NAB agreed to a three year loan to the plaintiffs in 2005, with an expectation that the land would be rezoned within that time. NAB issued a default notice on 17 December 2008 as the result of a failure to provide a valuation of more than $41,500,000. The NAB facility had been used to fund 100% of Dairycorp’s purchase of its half share in the land, with a mechanism for capitalising interest. The plaintiffs lacked the ability to pay interest without that arrangement and were unable to repay the loan without the sale of the land. NAB’s exposure was a function of the land appreciating in value, so that the bank’s risk increased over time.

  13. On 2 June 2009, the NAB wrote indicating that due to Mr Lindsay-Owen’s “reluctance to provide any clarity/visibility”, the bank “won’t be extending this facility as we are not making headway and have no visibility”. The bank suggested that “an orderly disposal by [Mr Lindsay-Owen] would be a better outcome than a forced sale by the bank”. However, on 25 September 2009, the bank did extend the facility until 31 December that year, subject to monthly payments by Mr Lindsay-Owen of $100,000. In late 2009, Mr Moses of NAB said to him:

“You do not seem to be able to meet the interest payments on our loan and we are not open to further capitalising the interest. The loan has actually moved to our default/recovery division.”

  1. Ms Chung from the bank also said this to Mr Lindsay-Owen:

“NAB is not going to change its position and is not prepared to carry the debt at the level it is at. NAB is also not prepared to capitalise the interest on the debt.”

  1. These conversations are deposed to by Mr Lindsay-Owen in his principal affidavit. HWLE contends that they are significant for that reason alone as an uncontested indication of Mr Lindsay-Owen’s concern that the bank’s comments were very troubling and that they can now be relied upon as an indication of the bank’s then current attitude.

  2. In the events that occurred, on 15 January 2010, the NAB offered to extend the facility to 31 December that year with a limit of $21,300,000 subject to the provision of a certified copy of a joint venture agreement with Villawood in a form acceptable to the bank and a capital injection of $3M by Schofields. The offer expired on 28 February 2010 but was extended to 31 March 2010, two days after the day upon which the Joint Venture Agreement was executed.

  3. HWLE argues that the plaintiffs have not in these circumstances proved that there would have been further extensions granted by NAB. On 29 March 2010, the bank told Mr Lindsay-Owen that “it is important to note that the existing facility expires as at the close of business 31 March 2010 therefore at this point the whole facility amount is due and payable”.

  4. In my view, HWLE's submissions on these questions misunderstand the plaintiffs’ case on the amendment to the Joint Venture Agreement for which they contend. It is, for example, entirely beside the point of my present inquiry that Ball J concluded that it was not Villawood's subjective intention that the joint venture would take over the existing NAB debt unless other changes were agreed. His Honour's concern was to determine what the parties intended by the terms of their written agreement from his standpoint in 2014. I am not dealing with that issue. The plaintiffs do not now endorse the accuracy of his Honour's view, that Mr Taber's 29 April 2010 email suggested that at that time he thought that the joint venture would take over responsibility for the existing debt following the granting of planning approval, in order somehow to revive their rectification arguments. On the contrary, they do so in order to find support for the commercial acceptability, a mere month after the Joint Venture Agreement was executed, of a deal in which clause 11(b) were amended to reflect their instructions.

  5. Nor does the fact that Schofields relied upon clause 11(b) to terminate the agreement alter this position. By 2014, the landscape had changed considerably. If HWLE's submissions are to be accepted, the relationship had reached a poisonous state of irreconcilable conflict. Presumably, on this analysis, Mr Taber was delighted to have in 2014 a mechanism for extracting his company from that relationship without incurring a loss. That is an entirely different setting from the mood in 2010 when all parties had persevered with protracted and difficult negotiations in order to exploit the significant commercial potential of the plaintiffs' land. That was the prevailing atmosphere in which Schofields would have been approached by Mr Downing if his mistake had been recognised in time. Villawood and Schofields recognised that commercial potential and in my opinion it is unrealistic to suggest that the land debt issue would have become a deal breaker at that time.

  6. There does also not seem to me to be merit in the suggestion that the need to provide Schofields with a quid pro quo for the amendment would have been an insurmountable hurdle. Mr Lindsay-Owen was in no position to resist having to pay the price of the transfer of the NAB debt to the joint venture if the Joint Venture Agreement did not already do so. If the price for Schofields' financial accommodation meant a reformulation of the parties' respective equity positions, then that was the price that the plaintiffs would have to pay. It is wrong to suggest that the plaintiffs considered that they had secured a deal represented by the Joint Venture Agreement that would not have to be varied, to their detriment, if their instructions concerning assumption of the land debt by the joint venture had been followed. That reality must be inherent in the plaintiffs' case in these proceedings.

  1. In addition, the "Opinion of Probable Costs" did not refer to or estimate the costs of Lot B. This is what Mr Dyson has relied on for Lot B, even though Lot B would have been developed at a different time on each of his scenarios.

  2. Quite apart from the Brown Smart Consulting document, Mr Dyson did not allow for any development costs prior to December 2013 other than those which had accumulated in the land debt figure which was included in his spreadsheets. For example, land holding costs or the costs associated with a rezoning. HWLE described this as a significant deficiency given that the hypothetical development would have started in March 2010, not October 2013.

  3. In any event, given Mr Dyson's lack of expertise, no weight can be given to any adjustment undertaken by him or any conclusions reached by him.

  4. In summary, there is no credible evidence of one half of the nominal cashflows which make up the net development profit (or loss) which would have been made by a hypothetical development of the land. To show that it would have made a profit from a hypothetical development, the plaintiffs must prove that the development costs would have been lower than the gross realisation from the sale of the developed land. Even if it would have made a profit, the plaintiffs have failed to prove that it would have made a bigger profit than the $29.4M they made in fact.

  5. HWLE submitted in conclusion that it is important for me to bear in mind that the plaintiffs have set out to prove a quantum of loss which they claim is an extremely large amount of money. To permit a massive quantum of damages to be determined based on the (absence of) evidence about development costs will be a gross injustice to HWLE. The consequence for the plaintiffs' case is that a very significant discount is necessary having regard to the high degree of uncertainty about development costs.

  6. The plaintiffs not unnaturally took issue with this analysis.

  7. HWLE’s contention that I should disregard the "Opinion of Probable Costs" from Brown Smart Consulting disregards the fact that it was obtained by the plaintiffs and Schofields and relied on by them in the finance application. HWLE’s assertion that the opinion from Brown Smart Consulting is neither credible nor reliable should be rejected.

  8. The plaintiffs have maintained that HWLE has taken a selective approach to contemporaneous documents. In relation to the development costs issue in particular, the evidence shows that Schofields, through Mr Taber, actually instructed Jones Lang Lasalle on 30 June 2014 to rely on the same development costs for the purpose of undertaking a valuation strictly in accordance with clause 25 of the Joint Venture Agreement. The fact that Mr Taber did so demonstrates his confidence in the correctness of the costs figures, particularly having regard to the fact that the costs would be taken into account in arriving at the ultimate valuation figure. It is unlikely in these circumstances that the costs would have been underestimated and the opposite conclusion is more likely. In oral submissions in relation to the participation interest formula, HWLE emphasised the importance of the valuation taking the development costs into account. It can be seen from the Jones Lang Lasalle valuation of $51M as at 16 April 2014, that the same development costs were taken into account. Jones Lang Lasalle said: "Development costs provided by the developer have not been reviewed [although they had been peer-reviewed internally] by a Quantity Surveyor. The costs provided are from Brown Smart Consulting and are typical of this nature of development"

  9. The plaintiffs contended that this comment makes it clear that the costs of a sub-division development “is not rocket science”. That submission is in a sense, albeit in a different context, redolent of the reference by Rogers J in Gillv Australian Wheat Board [1980] 2 NSWLR 795 at 804 as follows:

“I have not sought to do so by way of any exact calculation. I think it must necessarily be dealt with in a rough and ready way, simply as an element to be considered.” [Emphasis added]

  1. Ultimately, as the plaintiffs have emphasised, it is about the cost of laying roads and drains calculated by the lineal metre. The plaintiffs submitted that HWLE’s contentions that seek to make it all sound very complicated are not persuasive.

  2. The plaintiffs submitted that HWLE’s plea for moderation belies the forensic decision they must have made not to impugn the opinion from Brown Smart Consulting by leading some evidence to show that the joint venture parties understated the development costs to the NAB in December 2013 and were therefore unreliable.

  3. References by the plaintiffs in their submissions to the calculation of development costs not being rocket science or my passing reference to the possibility of approaching the matter in a rough and ready way at one level do an injustice to HWLE’s understandable concern that the plaintiffs must, as any plaintiff must, establish the quantum of the loss that they claim. An important integer in that calculation are the development costs of the project.

  4. At the risk of doing a disservice to HWLE’s concerns, which proceed on the not unreasonable basis that the plaintiffs must prove the development costs in a scientific way, I take considerable comfort from the fact that the costs figures submitted to the NAB were prepared in the context of the actual contemporaneous performance by the joint venture parties of the Joint Venture Agreement. To that extent, the figures do not depend on estimates or hindsight or matters that suggest they are otherwise inflated or understated and so unreliable. The fact that the parties used the figures in the execution of contractual obligations provides a level of confidence in their accuracy.

  5. The Jones Lang Lasalle description of the Brown Consulting costs as typical of this nature of development also lends a high degree of comfort to their acceptance. In reaching my view, I should indicate that I do not accept the plaintiffs’ submission that HWLE had some kind of burden to lead evidence rebutting the plaintiffs’ evidence: a decision not to do so does not reduce the thrust of HWLE’s submission that the plaintiffs have not established the relevant costs, a submission I have in any event rejected.

For the purpose of determining the amount of the final equity payment which would have been received or paid by the plaintiffs upon planning approval:

(a) would the parties to the hypothetical JVA have agreed to:

(i) the formula in clause 4.4(b) of the Facility Agreement (Eversgerd I);

(ii) the formula in clause 4.4(b) modified as contended by Villawood in the counter-rectification proceedings before Ball J (McGuiness II);

(iii) the formula used by Mr Eversgerd in his report of 23 December 2021 or

(iv) some other formula (if so, what formula)?

  1. The parties are agreed that Schofields’ participating interest was 40.67% at planning approval and that any adjustment would have been calculated on that basis. It has also now been accepted that the relevant sum for use in the formula in clause 4.4(b) of the Facility Agreement was $20.5M, rather than the facility limit of $22.650M.

(b) would the final equity payment have been calculated by reference to a Villawood participation interest of:

(i) 40.67% (Eversgerd I and McGuiness);

(ii) a mid-point between 36.48% and 33.99% (Eversgerd II); or

(iii) some other participation interest (if so, what participation interest)?

  1. The final equity payment would have been calculated by reference to a participation interest of 40.67%.

(c) would the final equity payment have been calculated by reference to a valuation of the land of:

(i) $102M (as per the Paul Dale valuation as instructed to Mr Eversgerd);

(ii) $51M (as per the JLL valuation as instructed to Mr McGuiness); or

(iii) some other valuation (if so, what valuation)?

  1. The plaintiffs now accept that the final equity payment would have been calculated by reference to a valuation of the land of $51M.

(d) would the final equity payment have been calculated by reference to a land debt of:

(i) $22.65M (Eversgerd I and McGuiness);

(ii) $18.8M (Eversgerd II); or

(iii) some other land debt amount (if so, what amount)?

  1. The final equity payment would have been calculated by reference to a land debt of $22.65M.

Should the nominal cashflows be considered on a pre-tax basis (Mr Eversgerd) or a post-tax basis (Mr McGuiness)?

  1. HWLE made the following submissions.

  2. The authorities make clear that in the circumstances of this case, loss is to be assessed on a post-tax basis and the final award of damages (but not interest) is to be grossed up to compensate the plaintiffs for having to pay tax on the damages. In assessing loss and damage, the reality of the impact of taxation must be recognised and allowed for: Gill at 807; Sydney Local Health District v Macquarie International Health Clinic Pty Ltd (2020) 105 NSWLR 325; [2020] NSWCA 274 at [474].

  3. To comply with that requirement, the approach which is "routinely" taken in commercial cases in Australia is for the Court to determine the amount of the damages having regard to the tax which would have been paid upon the lost income, and then gross up the damages to that which is necessary to leave the plaintiff with that amount: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [478]. This is especially so where there is a "marked" difference between the tax which would have been paid on the lost income and the tax which will be paid on the award of damages. This marked difference is likely to occur in any case where the alleged lost earnings are spread over a period of years (whereas damages are assessed and taxed in a single year): Gill at 800-1.

  4. Another circumstance where it is necessary to assess loss on post-tax cashflows is where a plaintiff claims interest for losses suffered some years ago. In such a case, a "grossly unjust result" will be suffered by the defendant if the interest is calculated on pre-tax losses: Gill at 806-7. That calculation will result in the defendant having to pay interest to compensate the plaintiff for not having the use of sums which the plaintiff would never have enjoyed but instead have paid away as tax: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [541]-[546].

  5. Atlas Tiles Ltd v Briers (1978) 144 CLR 202; [1978] HCA 37 at 236 was a wrongful dismissal case in which Stephen J in a dissent later followed in Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10 described the approach as follows:

" … if the aim is to award damages which will as nearly as possible fairly compensate for economic loss measured in net, after tax, terms, the first step will be to estimate in net terms the plaintiff's loss due to his wrongful dismissal, applying the rate of tax appropriate to what would have been his taxable income, including income from other sources, but for his dismissal. This done, the damages to be awarded, after taking into account any adjustment for contingencies or discount for present payment if applicable, will be such a sum as will leave that amount of net loss in the plaintiff's hands after five per cent has borne tax at the rate of tax applicable to the plaintiff, again taking account of income from other sources."

  1. HWLE submitted that Mr Eversgerd's approach is incorrect. The consequence is that all of his calculations have been prepared without regard to tax. His calculations for loss of profits are loss of pre-tax profits. Having regard to the authorities referred to above, Mr Eversgerd's approach is wrong in law. HWLE therefore submitted that I should resolve this issue by finding that any damages awarded for loss suffered by the plaintiffs is to be assessed having regard to after-tax cashflows.

  2. The plaintiffs contended otherwise.

  3. They maintained that HWLE’s submissions that the authorities make clear that in the circumstances of this case, the loss is to be assessed on a post-tax basis and then grossed up, overlooks the fourth principle in Daniels v Anderson (1995) 37 NSWLR 438 and whether it would be "unjust" not to take identifiable and quantifiable taxation impacts into account. A proper evaluation of this will depend on the result, and this may then involve a consideration of the tax position of each plaintiff during each relevant tax year.

  4. The plaintiffs submitted that the issue of how properly to treat tax will need to be considered after I have delivered my principal judgment when the parties can then undertake their calculations based on my findings. Whether the "massive windfall" postulated by HWLE will come to pass, remains to be seen.

  5. In my opinion, HWLE’s submissions are correct. The authorities support the proposition that damages are to be assessed by reference to a plaintiff’s losses net of income tax.

What was the date of the loss?

  1. HWLE submitted that the parties entered into the Joint Venture Agreement on 29 March 2010 on which date the plaintiffs became contractually bound to repay the NAB debt when planning approval was obtained. The plaintiffs claim that they were never able to discharge that obligation. Indeed, that lies at the heart of their case on liability. It is not a case where there was some contingency that remained unfulfilled so that no loss was suffered until that contingency was realised. Dairycorp actually suffered a loss on 29 March 2010 when the defective document was executed.

  2. The plaintiffs contended that they merely suffered a potential loss on 29 March 2010 when they entered into the defective Joint Venture Agreement. That loss did not become an actionable or actual loss until Mr Taber's letter dated 29 April 2014 that required the plaintiffs to perform clause 11(b). It was only when that demand was first made that the defect was manifest and the actual loss arose. The commencement of the construction suit thereafter on 29 May 2014 is ample evidence of this. Ball J then declared the proper construction of clause 11 of the Joint Venture Agreement on 28 August 2014.

  3. I disagree with the plaintiffs’ submission. They suffered loss when they were bound to an agreement that did not comply with the instructions they gave to Mr Downing who acted on their behalf. That breach was immediately actionable. The fact that the quantification of the loss that the plaintiffs sustained as a result of the breach could not immediately be quantified does not alter the date upon which the loss was sustained.

Should the loss be assessed:

(a) as at the date of the loss;

(b) as at the date of the trial/judgment;

(c) some other (if so, what)?

  1. The plaintiffs emphasised that the general rule that damages for tort or breach of contract are assessed at the date of breach is not universal and must give way in the particular case to solutions best adapted to award an injured plaintiff an amount of damages that will most fairly compensate for the wrong. What is in the interests of justice is the guiding principle.

  2. The plaintiffs submitted that, for the same reasons, the appropriate time or date for the assessment of damages in this case is from early 2015 when the revenues from the settlement of sales of residential lots would have commenced and the opportunity to develop the land in accordance with the amended Joint Venture Agreement was irretrievably lost by the sale to Stocklands. The date of assessment must necessarily follow the date when the defect in the Joint Venture Agreement first became manifest and actual loss that was actionable arose.

  3. The plaintiffs submitted that HWLE’s submissions inviting the assessment of damages as at 29 March 2010 should therefore be rejected. The plaintiffs conceded, however, that ultimately little turns on the date of assessment, whether in 2015 or at the time of trial, as I am entitled (and indeed required) to take account of all of the events that have actually occurred, as HWLE appear to accept.

  4. HWLE’s submissions were as follows.

  5. Whilst not an invariable rule, the orthodox approach to the assessment of loss for both negligence and breach of contract is to carry out the assessment as at the date of the loss. The most clearly established exception is in personal injury and fatal accident cases where damages can be measured as at the date of trial or judgment because the assessment of damages at that time enables circumstances which would otherwise have been mere prophecies to be reviewed or relied upon as facts: see, for example, Johnson v Perez (1988) 166 CLR 351; [1986] HCA 64 at 387.

  6. However, that reasoning does not apply in the present case. The Court is being presented with a past hypothetical. The Court does not know what would have happened with the joint venture now. It will not know any more in five years' time when the development of Tranche 2 may be completed.

  7. Rather, the Court is forced to resort to mere prophesy as to what would have been achieved by the joint venture parties. In light of the matters discussed in response to issues of causation, including the fractured relationship between the joint venture parties, HWLE submitted that nothing would have been achieved in that counterfactual beyond the very substantial profit secured by the plaintiffs in fact. If, however, the Court concludes that something more could have been achieved by the parties (or some unidentified third party), then the date on which loss should be assessed is 29 March 2010, being the conventional approach.

  8. There is no other reason to depart from the orthodox approach in the present case. For example, there is no suggestion that the plaintiffs were locked in because there was no viable market. The evidence clearly establishes the contrary. After the plaintiffs' failure to comply with a default notice under clause 15.6(d) of the Joint Venture Agreement served in October 2014, a contract for sale was executed on 6 February 2015.

  9. HWLE accepted that a Court can take events into account after the date of breach in order to assess the foresight that should have been available as at 29 March 2010 to a person attempting to value an asset: see, for example, Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547 at 557; Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135 at [102]-[104] and [109]-[112].

  10. Using actual events in this way may inform a more reliable assessment of the past hypothetical loss. For example, subsequent events may allow the Court to ensure that a plaintiff has not been overcompensated. However, that is not the exercise that has been undertaken by the plaintiffs. Rather, they effectively ignore the date of breach.

  11. This is despite the fact that the most important part of the property remains undeveloped and events after 29 March 2010 do not allow for certainty in quantifying the lost opportunity postulated by the plaintiffs. In any event, there are limits on the use of evidence after the date of the breach and, even if certainty were possible by reference to subsequent events, those events cannot be deployed in the manner in which the plaintiffs propose: Hughes v St Barbara Mines Ltd[No 4] [2010] WASC 160 at [907]-[910], [917], [940]-[941].

  12. The conventional approach to assessing loss at an earlier date is described by Mr McGuiness in his report dated 4 June 2021. To take account of risk, it requires the lost cashflows to be discounted back to the date of loss, and then for pre-judgment interest to be applied for that date until the present. At least until 23 December 2021, when Mr Eversgerd served a reply report, the same approach was also being adopted by the plaintiffs. Mr Eversgerd had selected a different date, but it is clear that that approach has now been abandoned. HWLE submitted that I am accordingly presented with a choice between 29 March 2010 (the date of loss) or alternatively the date of trial.

  13. In making that choice, the comments of Hasluck J in Berryman v Hames Sharley (WA) Pty Ltd [2008] WASC 59 are relevant. In that case, the plaintiffs lost the opportunity to develop a property on the basis of favourable planning regime (greater building heights) because of a negligent failure by the defendants to advise them that if they did not commence within 12 months of approval, they would lose the benefit of the approval.

  1. A dispute arose as to whether the damages should be assessed at the date of breach or as at the date of trial. His Honour concluded that the Court should adopt the usual approach of assessing damages as at the date of breach:

“[765] In the present case, I am not persuaded that a departure from the general rule is justified. My principal finding against the defendant is that it was in breach of various duties prior to the gazettal of TPS6 on 29 April 2003 in failing to warn or inform the plaintiff about the potentially adverse consequences of such a gazettal. The case was argued at trial by both parties upon the basis that for the purposes of calculating loss, and with a view to avoiding unnecessary complexity, the date of breach in respect of such a finding could be calculated back to December 2002. It was on that basis that the plaintiff's alternative claim was presented, and challenged by the defendant, by opinions as to value referable to that benchmark.

[766] It is apparent that the alternative claim contains various elements of prophecy as to future events, but these are of a kind that are familiar in cases involving the expression of expert opinions. As it happens, the experts have been in a position to take account of actual comparable sales in formulating their opinions and estimating loss. This is all part of a familiar process of estimating loss in a case where opinions as to value are required.

[767] To my mind, in circumstances where a building programme was not actually embarked upon, and where the gazettal of TPS6 does not impact upon the purported values in respect of an 'as if complete' valuation of the project, because the valuers are presuming the existence of a project completed in accordance with a consent granted under TPS5, it cannot be said that there are subsequent events of the kind alluded to in Johnson v Perez and Kizbeau. There are no subsequent events which can truly be said to reflect or bear upon the loss earlier suffered. Compensation for delay in obtaining relief is ordinarily provided for by an allowance of interest.

[768] Accordingly, in the present case, I am of the view, and so find, that the damages are to be assessed at the date of breach.”

  1. In my opinion, the plaintiffs’ loss should be assessed conventionally as at the date it was incurred. Events after 29 March 2010 do not inform that assessment in a way that would make it unrealistic or artificial to ignore them or to fail to take them into account.

  2. In Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [506] Bell P, as his Honour then was, said this:

“[506] The general rule is that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arose: Johnson v Perez at 355–356 (Mason CJ). However, the general rule is not inflexible and as Mason CJ explained in Johnson v Perez at 355–356, ‘it must give way in particular cases to solutions best adapted to giving the injured plaintiff the amount in damages which will most fairly compensate him for the wrong he has suffered.’ Wilson, Toohey and Gaudron JJ were effectively of the same view (at 367). Brennan J (at 371) remarked that the general rule as to the date of assessment of damages ‘is subject to the principle governing the measure of damages’. Deane J (at 380) described the ‘general rule’ as a ‘prima facie general rule’ that can ‘be displaced or modified by other factors whose identity or comparative weight may vary in different categories of case and in the circumstances of the particular case’. Dawson J (at 386-387) referred to the underlying principle and its application, noting that even in contract, the rule that damages are assessed at the date of breach ‘is not absolute and fairness may require a departure from the date of breach’.”

  1. There are no matters of fairness or particular aspects of the interests of justice to which my attention has been drawn in this case, or which otherwise appear to me to arise, that would support a departure from the usual rule.

Should the nominal cashflows be discounted for non-diversifiable risks?

  1. The essential question is whether a discount for non-diversifiable risk should be applied when the gross realisations or cashflows are achieved from the sale of subdivided land in a ready market.

  2. Mr McGuiness gave evidence about this. It included the following exchange:

“ALEXIS: If it be the case that the subject of risk is already reflected to a reasonably substantial extent already in each of the three scenarios, such as to within those three scenarios, bear on the degree of probability or possibility of each occurring, is that something that you have taken into account or you have ignored?

WITNESS MCGUINESS: I think there’s a confusion in your question, with respect. The matter of estimation risk goes to the expected cashflows. That is entirely different to the matter of non-diversifiable risk.

ALEXIS: It might be but--

WITNESS MCGUINESS: Now, you’ve got three different estimates in Mr Dyson’s first report, you’ve got three different estimates in Mr Dyson’s second report, you’ve got three different estimates in Mr Dempsey’s report. They all show quite a wide range of outcomes, I think at the lowest, $124 million worth of development profit and the highest of $240 million. To me, that looks and feels very much like variable or risky cashflows. I can’t accept the proposition that they are risk free cashflows. So, they are risky cashflows, so, yes I have considered the nature of those cashflows but the variability of those estimates of cashflows says nothing about the market risk. It says nothing about the cost of capital.

ALEXIS: In other words and this perhaps goes back to Mr Eversgerd’s example earlier where he used different scenarios to earn, I think, $100 or $70 and he was using that by way of analogy with the three scenarios we have here.

WITNESS MCGUINESS: To do with tax?

ALEXIS: In approaching the question of discount and informing ultimately the rate that you’ve applied, you haven’t adjusted that to take account of the fact that perhaps on one view, scenario 1 is less risky than for example scenario 3.

WITNESS MCGUINESS: It might be you don’t need to because the work that a cost of capital has to do is to account for the incremental market risk. It doesn’t account diversifiable risk. What you’re talking about is diversifiable risk.

ALEXIS: Yes, but that all just shows that your evaluation of risk and the discount rate that you’ve applied has no regard to each of those three scenarios, correct?

WITNESS MCGUINESS: It does have regard to the three scenarios but it’s not accounted for on the cost of capital.”

  1. Mr Eversgerd was also asked about this. His evidence included the following:

“FAULKNER: So, I don't mean to include the--

WITNESS EVERSGERD: Approach in general, whether you discount to a past date or not, yeah.

FAULKNER: Yes.

WITNESS EVERSGERD: Okay, so when things - okay, so when - I would say not necessarily. If things have happened in the past even if I got a report from Dyson or another expert that had - that wasn't very reliable, there is still lots of things just everybody knows, laymen know. We know that as an example, there wasn't a, another GFC. That reduces risk. We know that the economy is doing pretty well. We know that particularly the Sydney real estate market is doing very well, so even if I got a report from somebody that I thought, "They didn't do a good job", I would still know a lot about the past subsequent to, you know, 2010 because I'm sitting in - at the time, 2021. Now, sitting in 2022 and a lot of those risks can't be dealt with using, you know, the CAPM approach or some type of normal finance theory approach.

FAULKNER: Yes. So, I appreciate there's a threshold question about which is the right approach and the view you hold currently is it's this second approach where we use today's date as a proxy for the date of a judgment, for example.

WITNESS EVERSGERD: Mm-hmm.

FAULKNER: But in relation to the other approach where you pick a date in the past and then you discount back, in your first report, you discounted back at a risk-free rate.

WITNESS EVERSGERD: Mm-hmm.

FAULKNER: Do you agree with that?

WITNESS EVERSGERD: Yes, yes.

FAULKNER: And it's the case, isn't it, that there were uncertainties from Mr Dyson's cash flows that warranted a discount for risk. Do you agree with that?

WITNESS EVERSGERD: I would say that there are uncertainties. Whether they warranted discount for risk is a matter for the Court and the reason why I say that is you can apply a discount either in the discount rate or you can apply a discount in the cash flows. If the cash flows are already sufficiently discounted or conservative, then a discount and the discount rate is not necessary.

FAULKNER: Can I suggest to you a third option, and that is you do both? You have a discount in the cash flows--

WITNESS EVERSGERD: Mm-hmm.

FAULKNER: --and then the Court apply a further discount for other risks.

Now, do you agree that's an option?

WITNESS EVERSGERD: That's an option, yes. Yes.”

  1. HWLE criticised Mr Eversgerd’s risk-free approach to the assessment of the Dairycorp’s loss as unjustified and his failure to discount Mr Dyson’s cashflow for non-diversifiable risk as an error. In response to a question from me, he gave this evidence:

“HIS HONOUR: But your proposition is that using things that we know--

WITNESS EVERSGERD: Yes.

HIS HONOUR: --in hindsight--

WITNESS EVERSGERD: Yes.

HIS HONOUR: --has a tendency to damp down an assessment of what the risk might have been looking forward.

WITNESS EVERSGERD: Yes.”

  1. HWLE criticised Mr Eversgerd’s approach on this critical issue in the quantification of the lost chance as “wholly unsatisfactory”. HWLE contended that his radical change of opinion otherwise undermines the value of his opinions on this issue: he now holds opinions which have only recently been formed and contradict those which he previously held, and which (unlike Mr McGuiness’ approach) do not find any support in academic literature or the decided cases. HWLE submitted that I ought to prefer Mr McGuiness’s evidence on this issue and find that a discount of the nominal cashflows for non-diversifiable risks is necessary.

  2. HWLE also submitted that there are many cases about loss of chance where the Court has assessed damages first by applying a discount rate to nominal cashflows and then applying a second discount to take account of uncertainties associated with the realisation of the opportunity (if any) that the Court finds was lost. The authorities include cases where the lost opportunity was a past hypothetical rather than a future hypothetical.

  3. In my opinion, a discount should be applied in the present case.

If so, what is the appropriate discount rate?

  1. I consider that a discount rate of 5% should apply.

Should there be a further discount for diversifiable risks (possibilities and probabilities as per Sellars)?

  1. Although the reference to a “further” discount for diversifiable risks assumes a position with which the plaintiffs disagree, I take their submissions uncontroversially to accept that a discount for the possibilities and probabilities peculiar to this subject development is appropriate. This follows from the fact that the plaintiffs do not claim compensation for loss of profits which would have been received from completion of one of Mr Dyson’s scenarios but for the loss of the opportunity to pursue them, or one of them. Indeed, the plaintiffs’ submission accept in terms that a Sellars discount for contingencies and vicissitudes should apply.

  2. I have already concluded that I do not accept that the relationship between the joint venture parties was so dysfunctional that it was doomed or destined to fail. I am also satisfied that the NAB would have remained cooperative until then in accordance with a recognition by the bank that its security was well protected by the development of the land and the generation of the cashflow that it would have produced. All other things being equal, the prospect of the commercial exploitation of the opportunity presented by the Joint Venture Agreement would have seen, in my estimation, a continuation of the relationship at least to the conclusion of Tranche 1 and Lot B. Anything beyond that enters the realm of speculation.

If so, what is the appropriate discount?

  1. In the circumstances, I consider that a Sellars discount of 15% should apply.

If the nominal cashflows are considered on a pre-tax basis, should pre-judgment interest include interest on that part of the loss which represents profit which would have been paid as tax?

  1. I have determined that the plaintiffs’ loss should be assessed on a post-tax basis. This issue does not therefore arise.

If the nominal cashflows are considered on a post-tax basis, should there be a tax gross up:

(a) on the damages?

(b) on the pre-judgment interest?

  1. HWLE accepts that the plaintiffs are entitled to a gross up for the tax they will be required to pay on the damages they receive. The plaintiffs should be given the opportunity to prove what that tax will be in general terms: see Gill at 804. However, for the purposes of calculating the gross up so as to leave the amount of the net loss in the plaintiffs’ hands, prejudgment interest should be ignored as it is awarded without regard to the tax that would have been paid on any profits derived from the beneficial use of the money in the meantime: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [541]-[546].

Conclusions

  1. It will be apparent that I have not yet calculated the final sum representing the plaintiffs’ damages. Having regard to the manner in which the quantum claim has been approached, I consider that, as the parties have anticipated, they should have an opportunity to consider my reasons so far and provide me with their respective contentions about how best to proceed from here. 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. It may also be worthwhile giving some consideration to whether or not any outstanding issues upon which the parties cannot agree should be referred to an appropriate referee for determination.

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Details
AGLC
Lindsay-Owen v HWL Ebsworth Lawyers [2023] NSWSC 68
Case
[2023] NSWSC 68
Decision Date

CaseChat Overview and Summary

The plaintiff, Lindsay-Owen, sought damages from HWL Ebsworth Lawyers, alleging professional negligence in their advice concerning a large-scale property development. The core dispute was the failure of the defendants to include a crucial clause in a joint venture agreement. The case was heard in the Supreme Court of New South Wales.

The primary legal issues revolved around the existence and scope of a duty of care by the defendants, the causation of any loss resulting from their alleged negligence, and the appropriate quantum of damages. Specifically, the court had to determine whether the defendants' failure to include a key clause in the joint venture agreement constituted a breach of duty and if such a breach caused the plaintiff's loss of chance to amend the agreement or to enter into a joint venture with an alternative partner.

The court found that the defendants owed a duty of care to the plaintiff in providing legal advice on the property development. It held that the failure to include the key clause in the joint venture agreement was a breach of that duty. Regarding causation, the court concluded that the plaintiff suffered a loss of chance due to the defendants' negligence. However, the court determined that the loss of chance to amend the joint venture agreement or enter into an alternative partnership did not directly result in quantifiable damages. Instead, the court assessed the damages based on the plaintiff's inability to develop the land according to the desired joint venture agreement. The court also addressed the plaintiff's claim under the Trade Practices Act 1974, finding that the loss suffered by the plaintiff was not "by conduct of" the defendants within the meaning of section 82(1). Finally, the court considered the admissibility of expert opinion evidence regarding the hypothetical outcomes of the property development.

The court ordered the defendants to pay damages to the plaintiff for the loss suffered due to their negligence. The exact amount of damages was determined based on the court's assessment of the hypothetical development scenario and the plaintiff's inability to proceed as intended.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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