Luigi Iacullo v Remly Pty Limited, Dominic Iacullo and Lillian Iacullo (DA Proceedings)

[2012] NSWSC 190

Supreme Court

New South Wales

Medium Neutral Citation:	Luigi Iacullo v Remly Pty Limited, Dominic Iacullo and Lillian Iacullo (DA Proceedings) [2012] NSWSC 190
Hearing dates:	28 November 2011 to 2 December 2011; 6 to 9 December 2011
Decision date:	07 March 2012
Jurisdiction:	Equity Division
Before:	Black J
Decision:	Proceedings dismissed. Plaintiff to pay Defendants' costs.
Catchwords:	CONTRACTS - Formation - Whether Plaintiff established consideration for alleged agreement - Whether agreement contained alleged terms - Whether those terms were breached. TORTS - Negligence - Duty of care - Whether Plaintiff established duty of care. EQUITY - Fiduciary duties - Whether pleaded duties established.
Legislation Cited:	- Environmental Planning and Assessment Act 1979 (NSW) - Environmental Planning and Assessment Regulation 2000 (NSW) - Conveyancing Act 1919 (NSW) s 66G
Cases Cited:	- Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs apptd) (in liq) [2009] VSCA 238; (2009) 25 VR 411 - Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; (1954) 92 CLR 424 - Beaton v McDivitt (1987) 13 NSWLR 162 - BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 - Breen v Williams [1996] HCA 57; (1996) 186 CLR 71; 138 ALR 259 - Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 - CJD Equipment Pty Ltd v A & C Constructions Pty Ltd [2009] NSWSC 1362 - Cowan v Scargill [1985] Ch 270 - Macquarie Bank Ltd v Meinhardt (NSW) Pty Ltd [2010] NSWSC 1228 - News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 - Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 - Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 - Precision Products (NSW) Pty Ltd v Hawkesbury City Council [2008] NSWCA 278; (2008) 74 NSWLR 102 - Rail Corporation New South Wales v Fluor Australia Pty Ltd [2009] NSWCA 344 - Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562 - Tame v New South Wales [2002] HCA 35; (2002) 211 CLR 317 - Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515
Category:	Principal judgment
Parties:	Luigi Iacullo (Plaintiff) Remly Pty Ltd (First Defendant) Dominic Iacullo (Second Defendant) Lillian Iacullo (Third Defendant)
Representation:	Counsel: G. A. Moore (Plaintiff) D. A. Smallbone (Defendants) Solicitors: Kreisson Legal (Plaintiff) Allsop Glover (Defendants)
File Number(s):	10/385874

Judgment

1. This is the second of three proceedings which were heard together commencing 28 November 2011. The Plaintiff, Mr Luigi Iacullo (to whom I will refer, without disrespect, as "Luigi") brings proceedings against Remly Pty Ltd ("Remly"), his brother Mr Dominic Iacullo (to whom I will refer, without disrespect, as "Dominic") and his brother's wife Mrs Lillian Iacullo (to whom I will refer, without disrespect, as "Lillian"). Luigi seeks a declaration that Remly breached its "fiduciary obligation" to Luigi to prosecute a development application lodged with Canterbury City Council on 9 September 2004 throughout the period 4 August 2006 to 6 May 2009; a declaration that Dominic and Lillian as directors of Remly caused it to breach that obligation; damages against Remly, Dominic and Lillian and equitable compensation.

1. As I have noted in my judgment in proceedings 2007/257623 ("Remly proceedings"), Luigi was a co-owner of a property situated at Moorefields Road, Roselands ("Property O") as owner of a one-half share as tenant-in-common and Dominic and Lillian together owned the other half share in that property as tenants-in-common. By consent, the Court appointed trustees for sale of Property O on 29 February 2008 and the property was subsequently sold to Moorefields Road Pty Ltd, an entity associated with the current tenant of the property, on 18 May 2009 with settlement taking place in July 2009.

1. Luigi relies on matters on which he also relied in the Remly proceedings, including a contention that he and Dominic had discussed the desirability of acquiring a special purpose entity to develop Property O and acquire adjoining properties; the identification of an adjoining property, at [number omitted] Remly Street, Roselands ("Property A"); the allegation that he and Dominic together negotiated with the then owners of Property A to purchase Property A from them in a shelf company's name to be acquired as trustee for a proposed unit trust; and advice provided by an architect to Luigi and Dominic in October 2003 that they should purchase a further property at [number omitted] Moorefields Road, Roselands in the State of New South Wales ("Property B").

1. Luigi contends that, on or about 12 September 2006, Dominic on behalf of Remly, himself and Lillian purported to exclude Luigi from participating in the development of Properties O, A and B. On the basis of the findings which I have made in the Remly proceedings, Dominic initially took the position that Luigi could participate in the development if he paid his proportionate share of the costs and accounted to Dominic for the interest which Dominic claimed in another development at Hogben Street, Kogarah and later took the position that he would proceed with the development on his own but would pay Dominic an amount on completion of the development. I have found in the Remly proceedings that Dominic at least sought to place conditions on Luigi's involvement in the development, including the requirement that he contribute to the costs of it, in 2004 rather than first occurring on 12 September 2006 as Dominic contends. In any event, Luigi was at all times a co-owner of Property O and had the rights attaching to co-ownership in respect of the relevant property, which included the right to require the sale of the land if he was dissatisfied with the proposed development of it. Luigi ultimately exercised that right by obtaining orders for the appointment of trustees for sale of the land from the Court.

Additional findings of fact

1. I refer to and generally do not repeat the findings which I have made in the Remly proceedings. However, it is necessary for me here to reach additional findings in respect of the progress of the development application for Property O ("the DA") which are relevant to these proceedings.

1. Remly lodged the DA with Canterbury City Council with Luigi's consent and that of Dominic and Lillian as the registered proprietors of Property O on 9 September 2004, proposing a multiple unit development of 35 dwellings comprising 10 three bedroom terrace-style dwellings, 22 two bedroom apartments plus 3 one bedroom apartments on Property O and a dual occupancy development of two dwellings on Property A. Remly claimed existing use rights in relation to Property O in support of the DA.

1. There was subsequent correspondence between Remly and Canterbury City Council between November 2004 and July 2005.

1. By letter dated 19 September 2005, Canterbury City Council had accepted that Property O (but not Property A or Property B) had the benefit of existing use rights in accordance with the relevant provisions of the Environmental Planning and Assessment Act 1979 (NSW) and Regulation. Up to 29 March 2006, a property with the benefit of those rights could, with Council's consent, be changed to another use that was "prohibited" under its current zoning so a development including multiple units could be submitted on Property O based on existing use rights (Laidlaw [4.4]). From 29 March 2006, the Environmental Planning and Assessment Regulation 2000 (NSW) were amended so that an existing use could be changed to another use, but only if that other use could be carried out with or without development approval under the Act, so a new development approval for multiple unit housing could not have been considered for approval on Property O (Laidlaw [4.5]). Reliance on existing use rights meant that a development on Property O was likely to be able to achieve a greater development yield, but still needed to be environmentally acceptable and of a form, height and scale that was compatible with surrounding development (Laidlaw [4.10]).

1. From October 2005, Canterbury City Council sought further information from Remly in relation to the DA and that information was not provided, or not fully provided, over an extended period.

1. By letter dated 8 February 2006, Canterbury City Council wrote to Remly expressing concerns with the DA, particularly as to the height of the development and the desirability of a wider driveway from Moorefields Road (CB 10/1049, T348).

1. Remly contracted to acquire Property B by a contract for sale of land dated 11 May 2006, settlement of which took place on 11 August 2006. By letter dated 4 August 2006, Canterbury City Council wrote to Remly and advised that the Council would allow Property B to be substituted for Property A in the DA and also requested copies of amended plans and additional information. Remly failed to meet the date requested by Canterbury City Council for a response.

1. Dominic's evidence is that, in late August or September 2006, he was advised that Canterbury City Council was unlikely to approve the development proposed by Remly on Property O and that Remly was likely to have to appeal to the Land and Environment Court (Dominic 26.5.11 [38]).

1. In March 2007, Luigi advised Lillian that he wanted to sell Property O and Dominic did not then agree to sell the property. Luigi wrote to Dominic confirming his wish to sell Property O on 27 March 2007.

1. Further correspondence took place between Canterbury City Council and Remly in July, August and September 2007 and further information was not provided to Council within its requested timing.

1. By Summons filed on 16 November 2007, Luigi sought orders under s 66G of the Conveyancing Act 1919 (NSW) for, inter alia, the sale of Property O.

1. By letter dated 18 December 2007, Canterbury City Council determined the DA adversely to Remly on the basis that it had been provided with insufficient information and advised that an application for the review of that decision could be lodged within twelve months.

1. Orders were made by consent on 29 February 2008 for the appointment of trustees for sale of Property O.

1. In December 2008, Remly brought an appeal in the Land and Environment Court from Canterbury City Council's determination dated 18 December 2007. The appeal continued in the first half of 2009, with Dominic progressing the matter slowly and advising the Land and Environment Court that he did not intend to cause Remly to incur the costs of preparing evidence unless the successful tenderer for the purchase of Property O was prepared to reach an agreement with Remly in that regard. Dominic's evidence was that he did not seek to proceed further after the commencement of proceedings in the Land and Environment Court until he knew who would own Property O and whether the owner would wish to be involved in the proposed development and that he and Lillian were funding Remly and were facing significant legal costs in relation to proceedings in the Land and Environment Court (Dominic 30.3.11 [62]).

1. After Property O was sold by the trustees for sale, Remly put further evidence before the Land and Environment Court and an agreement was reached between Canterbury City Council and Remly that would permit the development to proceed. That agreement provided for a development of 22 dwellings on Property O, comprising 4 dual level two bedroom townhouses; 3 three level, three bedroom townhouses; 10 single level two bedroom apartments; 3 dual level two bedroom apartments; and 2 three level, three bedroom apartments. Development consent in accordance with that agreement was subsequently granted by the Land and Environment Court.

Luigi's contractual claim

1. Luigi contends that an agreement was formed between him and Dominic, on behalf of Remly, Dominic and Lillian between 7 November 2003 and 9 September 2004 containing terms including those pleaded in the Remly proceedings, to the effect that:

• Remly would carry out the development of Property O as agent for Luigi and Dominic and Lillian;
• Remly would carry out the development of Property O and any adjoining properties which were acquired by it ("the Roselands development");
• In order to fully exploit the development potential of Property O, it would be necessary for Remly to purchase properties which adjoined Property O;
• Remly would lodge a DA in relation to the Roselands development with Canterbury City Council;
• Remly would prosecute the DA with due diligence; and
• Dominic and Lillian would do nothing to cause Remly to fail to prosecute the DA with due diligence.

The particulars provided for that agreement correspond to some of the particulars provided in the Remly proceedings.

1. As I noted in my judgment in the Remly proceedings, an enforceable contract requires that consideration be established in the form of a price in return for the exchange of the relevant promise or a quid pro quo: Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; (1954) 92 CLR 424 at 456-7; Beaton v McDivitt (1987) 13 NSWLR 162 per Kirby P at 168, per McHugh JA at 182; Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs apptd) (in liq) [2009] VSCA 238; (2009) 25 VR 411 at [62]. Although the agreement contains some of the same terms as the agreement pleaded in the Remly proceedings, the consideration on which Luigi relies to establish it differs, and includes his making available his half interest in Property O (implicitly, for the development) and the additional element of his making available his share of the sum of $5,000 per month out of the income received from Property O.

1. I do not consider that Luigi has established that his making available his half interest in Property O for the development was consideration for the alleged agreement. In my view, and having regard to the events which I have set out at some length in my judgment in the Remly proceedings, the probability is that Luigi initially permitted Property O to be included in the DA, notwithstanding the brothers' then lack of agreement as to fundamental issues in respect of the development, because Luigi as co-owner of Property O would benefit from any development of the property. It should be noted that he also ceased to make Property O available when he was successful in obtaining orders from the Court for sale of the property.

1. I also do not consider that Luigi has established that he made available his share of the sum of $5,000 per month out of the income received from Property O as consideration for the alleged agreement. First, it was not established that, during the period the alleged agreement was formed, there was any discussion or consensus reached between the parties to the effect that he would make available his portion of the $5,000 per month as consideration for the alleged promises. The conversation on 2 August 2004 as to the debits made by Dominic to the Property O account as to which Luigi gives evidence does not establish that Luigi agreed to those debits, and indeed indicates that he protested that amount being debited to that account (Luigi 20.4.11 [31]). Luigi accepted in cross-examination that, as far as he knew in August 2004, Dominic had made a unilateral decision to withdraw money from the partnership account (T124).

1. Second, the amounts of $5,000 withdrawn by Dominic and Lillian from the Property O account were treated as loans to them, rather than as a contribution by Luigi to the costs of the development, in facsimiles dated 19 September 2006 and 14 November 2006 in respect of 2005 and 2006 Business Activity Statements for the partnership and it appears that Luigi did not then object to that treatment (Exs D1, D2, D8, T147).

1. Third, the position now advanced by Luigi is inconsistent with the position he advanced in the accounting undertaken by the trustees for sale of Property O ("the Trustees") where he contended that Dominic and Lillian had appropriated those monies without his authority rather than utilised those monies in accordance with an agreement with him. By letter dated 19 June 2009 to the Trustees (CB 13/2301), Luigi contended that Dominic and Lillian were accountable for the amount of $5,000 per month taken from the Property O account from August 2004 to May 2007 and claimed the amount of $154,000. That position was reiterated in a letter dated 13 November 2009 from Luigi's solicitors to the Trustees (CB 13/2276). That position is inconsistent with Luigi having contributed his share of those amounts as consideration under the alleged agreement. The determination by the Trustees was in accordance with the position which Luigi urged upon them and treated those amounts as, in effect, an unauthorised drawing by Dominic and Lillian to be debited to Dominic and Lillian's loan account in respect of Property O in determining the balance of account. Neither party has challenged that aspect of the determination, although each has challenged other aspects of the Trustees' decision which are the subject of my judgment in proceedings 2007/257124.

1. In my view, the position put by Luigi to the Trustees and the Trustees' treatment of that amount is consistent with the evidence before me, which indicates that Dominic and Lillian simply appropriated the amount of $5,000 per month from the Property O account because of what they perceived as Luigi's failure to contribute to the costs of that property. In my view, amounts which were appropriated by Dominic and Lillian without Luigi's authority and are to be repaid to him on that basis cannot constitute consideration given by him in respect of the alleged agreement.

1. In these circumstances, I do not find that consideration for the alleged agreement is established and this is sufficient to result in the failure of the contractual claim. However, I should add that I would also not have found the pleaded terms of the alleged agreement to be established. The first four of those terms are said to be partly express and partly implied and the fifth and sixth terms are said to be implied. The basis for implication of such terms are well-established: BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266; Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 442.

1. The first pleaded term, that Remly would carry out the development of Property O as agent for Luigi and Dominic and Lillian, overlaps with but is more expansive than the seventh pleaded term in the Remly proceedings. The evidence on which Luigi relied in support of this term was paragraph 100 of his affidavit sworn on 4 November 2010 which related to the establishment of Remly and the Remly Street Unit Trust and paragraph 20 of his affidavit sworn 20 April 2011 which related to his involvement in coordinating consultants to ensure that the development application was lodged. This evidence did not, in my view, establish any express obligation on the part of Remly in these terms. I do not consider that such a term would be implied. An unqualified obligation of that character would make little sense in circumstances where the terms of Council's consent to the development, the costs, profitability and economic viability of the development and the availability of funding to carry it out had not yet been established, and the pleaded term also has the difficulty that it would require Remly to carry out the development of Property O without providing any basis for funding it to do so or imposing any obligation upon Luigi to contribute to the costs of that development. I do not consider that such a term is either so obvious that it goes without saying or is fair and equitable so as to be implied.

1. The second pleaded term would require Remly to carry out the development of Property O and the development of any adjoining properties which were acquired by it, also without providing any basis for funding of the development or imposing any obligation upon Luigi to contribute to the costs of that development. As I have noted above, the evidence did not establish any express obligation on the part of Remly to carry out the development in these terms. Again, I do not consider that such a term would be implied, where an unqualified obligation of that character would make little sense in circumstances where the terms of Council's consent to the development, the costs, profitability and economic viability of the development and the availability of funding to carry it out had not yet been established. I do not consider that such a term is either so obvious that it goes without saying or is fair and equitable so as to be implied.

1. The third pleaded term appears to be a recital of a fact rather than an imposition of an obligation. The fourth pleaded term would require Remly to lodge the DA and corresponds to the sixth term pleaded in the Remly proceedings. That term was not breached since Remly did lodge the DA.

1. The fifth and sixth terms correspond to the eighth and ninth pleaded terms in the Remly proceedings and would require Remly to prosecute the DA with "due diligence" and Dominic and Lillian to do nothing to cause it to fail to do so. In my view, no such obligations are implied for the reasons I have set out in my judgment in the Remly proceedings.

1. Although the pleading is not entirely clear, it appears the alleged breaches of contract are Dominic's and Lillian's causing Remly to fail to meet a first date set by Canterbury City Council of 1 March 2006 (Second Further Amended Statement of Claim [30]) and a second date set by Canterbury City Council of 25 August 2006 (Second Further Amended Statement of Claim [38]); Dominic on behalf of himself, Lillian and Remly wrongfully excluding Luigi from the development of Property O, Property A and Property B on or about 12 September 2006 (Second Further Amended Statement of Claim [39]); Dominic's and Lillian's causing Remly to fail to meet a third date set by Canterbury City Council of 14 August 2007 (Second Further Amended Statement of Claim [41]) and writing to Council in the terms of a letter dated 21 August 2007(Second Further Amended Statement of Claim [42]); and Luigi's and Lillian's causing Remly to fail to meet a further date set by Canterbury City Council of 12 October 2007 (Second Further Amended Statement of Claim [45]). Further events are pleaded in respect of proceedings in the Land and Environment Court which may be intended to give rise to a further allegation of breach although that allegation is not clearly pleaded.

1. It will immediately be apparent that the six pleaded terms and six (or possibly seven) acts pleaded as breaches give rise to a significant number of combinations. I do not think it is necessary for me to deal with each of them seriatim, particularly where I have not found either the agreement or its terms to be established.

1. The alleged breach in respect of the exclusion of Luigi from the development in September 2006 appear to relate to the first and second pleaded terms which relate to the carrying out of the development. Had I found the agreement to have been established and to contain the first and second terms, I could not have found the pleaded breach - which depends in substance on a unilateral exclusion from September 2006 - to be established having regard to my findings in the Remly proceedings. On those findings, Dominic did not seek to exclude Luigi from the development of Property O and throughout recognised that it would be impossible to do so when Luigi was co-owner of Property O, unless Luigi accepted Dominic's offer to buy him out of the development initially made in late 2003 and repeated in June 2004. I do not consider that the events which I have outlined in my judgment in the Remly proceedings, involving Dominic's insistence, probably from early 2004 and certainly from June 2004, that Luigi personally contribute to the funding of the Roselands development in order to participate in it, could be characterised as an exclusion of the character pleaded.

1. The fourth pleaded term was not breached since Remly did lodge the DA with Canterbury City Council.

1. The alleged breaches in respect of the dealings with Canterbury City Council appear to relate to the fifth and sixth pleaded terms which relate to the prosecution of the DA. Luigi's submissions make clear that he does not complain about any failure to prosecute the DA prior to August 2006 and accepts that, having regard to the content of Canterbury City Council's letter to Remly dated 8 February 2006, it was necessary for Remly to amend the development plans to limit any development to a maximum two storey development, with an attic level totally within the confines of the roof pitch. However, Luigi does complain about the failure to prosecute the DA in the period from 4 August 2006.

1. The steps involved in progressing the DA after that date were not simple and were likely to have involved significant costs. The planning expert jointly retained by the parties, Ms Laidlaw, identifies a number of steps that were open to Remly to prosecute the DA following receipt of Canterbury City Council's letter dated 4 August 2006, which would have involved the engagement of a surveyor, traffic consultant, an architect to address specific design concerns; resolving issues as to garbage management; and the submission of amended plans, an amended survey and traffic report to Council. Ms Laidlaw notes that Council would likely then have undertaken a detailed assessment of that proposal and is likely to have required further design amendment and further information at that stage, which would in turn have required the engagement of specialist consultants by Remly, whose work would have required a number of weeks to be completed (Laidlaw [5.18]). Ms Laidlaw notes that Council would then have advertised and notified affected parties of the development application and that this was in turn likely to have given rise to the need for further design amendments to address residents' concerns and it would have been necessary for Remly and the architect to continue to liaise with Council and provide information as and when requested in that regard.

1. Dominic acknowledged in cross-examination (as was plainly the fact) that he did little or nothing to progress the development application between August 2006 and December 2007 (T399) and that he was happy to "sit on [his] hands" and wait for the outcome of Council's decision. I understand his evidence to be that he took that position by reason of frustration with Council's position following an initial indication that Property B could be used for access to the development, his purchase of Property B and Council's subsequent change of position, which led to his willingness to have the matter determined in the Land and Environment Court.

1. There were further delays in progressing that matter in the Land and Environment Court where Dominic appears to have represented himself in the early stages of the proceedings. I do not accept Luigi's contention that these involved any intent to ensure that development approval was not obtained prior to the sale of the property, in circumstances that Dominic then had no assurance that Remly, he, Lillian or any cooperative third party (as distinct from Luigi, who was free to lodge a competing bid for the property and in fact did so) would be the successful purchaser and therefore no assurance that he would gain from any development approval granted after the sale of the property.

1. The Defendants rely on several defences to the alleged contractual breaches. First, they contend that if (which they deny) Remly was appointed as agent, it was an implied term and condition of that appointment that it was not obliged to proceed with any step that would expose it to any liability, cost or expense unless it was put in funds to do so; or alternatively it was an implied term and condition of that appointment that Luigi and Dominic and Lillian should indemnify Remly in respect of all liabilities, costs and expenses reasonably incurred by it in so acting, including in respect of any adjoining property purchased by it for the development as agent; and it was an implied term and condition of that agreement that Luigi, Dominic and Lillian should contribute to the liabilities, costs and expenses incurred by Remly in acting as that agent in proportion to their respective proprietary shares in Property O (Defence [5]-[7]).

1. The Defendants also contend that, if the alleged agreement included terms that adjoining properties were to be acquired by Remly as trustee for Luigi, Dominic and Lillian (which they deny), then there were also terms and conditions of the agreement that Remly, if obliged to proceed with any such purchase, was not obliged to do so unless it was put in finds for that purchase and was entitled to indemnity from Luigi, Dominic and Lillian in respect of all its liabilities, costs and expenses reasonably incurred by it in purchasing, holding and developing that property; and, as between Luigi, Dominic and Lillian, they should contribute to the indemnity to which Remly was entitled in proportion to their respective proprietary shares in Property O, being 50% respectively.

1. The Defendants contend that, if the alleged agreement was entered into, then Luigi's failure to make contribution to the relevant costs and expenses constituted a breach of the relevant conditions or alternatively repudiation of the alleged agreement. The Defendants also contend that, if the alleged agreement existed, it was a condition that Luigi should, while the agreement subsisted, make available his half interest in Property O for the purpose of the relevant development, and any promises by the Defendants were dependent on and conditional on Luigi's doing so. The Defendants contend that, from the date of Luigi's application for the appointment of trustees for sale, or alternatively the appointment of those trustees, that condition failed and the Defendants were under no obligation to perform the alleged agreement; or alternatively Luigi repudiated that agreement and Dominic and Lillian accepted that repudiation when orders for sale of Property O were made by consent and Remly acquiesced in the making of those orders. Alternatively, the Defendants contend that the agreement was frustrated by the appointment of trustees for sale.

1. I do not consider that it is necessary for me to address these defences given the findings which I have reached above.

Luigi's claim for breach of a duty of care

1. Luigi also contends that, throughout the period 9 September 2004 to 18 May 2009, Remly as the agent of, inter alia, Luigi owed a duty of care to Luigi to prosecute the DA with due diligence. Luigi contends that a duty of care arose because, relevantly, Dominic and Lillian knew or had the means of knowing that Luigi was vulnerable and unable to protect himself from their want of reasonable care; the duty did not unreasonably interfere with the Defendants' commercial freedom; and the damage followed from the occurrence of activity within their control.

1. In Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 at 220 [105], McHugh J identified five principles as relevant to the determination of whether a duty of care exists in cases of pure economic loss, namely reasonable foreseeability of loss; indeterminacy of liability; autonomy of the individual; vulnerability to risk; and knowledge of the risk and its magnitude. The case law indicates that reasonable foreseeability of loss is not of itself a sufficient basis to impose a duty of care: Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562 at 576; Tame v New South Wales [2002] HCA 35; (2002) 211 CLR 317 at 329. A plaintiff's "vulnerability", in the sense of an inability to protect itself from the consequences of a failure to exercise reasonable care, and an assumption of responsibility coupled with known reliance are factors supporting such a duty. The plurality noted in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at 530 [23] that:

"... vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant."

1. The decision in Woolcock indicates that other factors relevant to the existence of a duty of care may include assumption of responsibility and known reliance, and the plurality in Woolcock noted that there was an overlap between those concepts and the concept of vulnerability. In Woolcock , Callinan J (who agreed with the plurality and McHugh J that a duty of care had been established) identified the factors in Perre that had led to a finding that a duty of care existed as being that the plaintiffs "were in a very exceptional and vulnerable position in which they had no opportunity of protecting themselves by a contractual term or condition"; foresight of the likelihood of harm; knowledge of an ascertainable class of vulnerable persons; the helplessness of that class in the circumstances of the case; the control exerted by the defendant; and the causal link between that control and the damage that was suffered; see also CJD Equipment Pty Ltd v A & C Constructions Pty Ltd [2009] NSWSC 1362 at [241]-[243].

1. The question of what steps a plaintiff could have taken to protect his or her own interests is significant to an assessment of his vulnerability. In Woolcock , the plurality pointed to the fact that the purchaser of a building had not sought a warranty that the building was free from defect from the original owner and to the purchaser's failure to take an assignment of the rights which the original owner may have against others in respect of defects in holding and held that it had not been established that the purchaser could not have protected itself against the economic loss allegedly suffered: Woolcock at [31], [110]-[111]; Macquarie Bank Ltd v Meinhardt (NSW) Pty Ltd [2010] NSWSC 1228 at [32]. In Woolcock , McHugh J also observed at [94] that:

"[T]he capacity of a person to protect him or herself from damage by means of contractual obligations is merely one - although often a decisive - reason for rejecting the existence of a duty of care in tort in cases of pure economic loss."

1. In Precision Products (NSW) Pty Ltd v Hawkesbury City Council [2008] NSWCA 278; (2008) 74 NSWLR 102 at [105], Allsop P referred to vulnerability as the "most important" of the features which will give rise to a duty to prevent economic loss; see also Rail Corporation New South Wales v Fluor Australia Pty Ltd [2009] NSWCA 344 at [130]. In CJD Equipment v A & C Constructions at [245], McDougall J approved academic commentary to the effect that:

"[I]t is for a plaintiff, alleging a duty of care to avoid economic loss, to plead, particularise and prove vulnerability: specifically, why, in the circumstances of the particular case, it could not protect itself against the consequences of negligence on the part of the defendant."

1. While Luigi's submissions identified the relevant legal test set out in Woolcock , he did not advance substantive submissions as to why it was satisfied in the relevant circumstances. I accept that, in general terms, it was reasonably foreseeable that delay in proceeding with a development application could cause economic loss to Luigi in his capacity as a co-owner of Property O. However, I do not consider that Luigi was relevantly vulnerable. Luigi could have sought to protect his position by negotiating appropriate contractual protections prior to granting his consent to the development application, or withdrawing that consent if he were dissatisfied with the progress of the development application. As a co-owner of the property, he had the ability to approach Canterbury City Council in respect of the progress of the development application and indeed, if he wished to do so, to deal with Canterbury City Council separately from Luigi. He in fact took that course after he had sought and obtained the appointment of the trustees for sale.

1. Had I found that Remly, Dominic or Lillian owed a duty of care to Luigi in respect of the progress of the development application, a question would have arisen as to the steps which they would have needed to take in order to avoid breach of that duty. No evidence was led before me as to the steps which would be taken by a person exercising reasonable care in similar circumstances and neither party made any substantive submissions as to whether any inferences could be drawn from Ms Laidlaw's evidence in that regard. Doing the best which I can in the absence of such evidence in submissions, it does not seem to me that either Remly, Dominic or Lillian would have breached such a duty of care, for the reasons which I set out below.

1. The issues which they faced were complex; it appears that Dominic had received advice that the prospects of a result in the Land and Environment Court were more favourable than those in dealing directly with Council; and the fact that Dominic and Lillian would have been required to fund the costs of the consultants required to undertake that work from their own resources, in circumstances where there appears to have been no agreement with Luigi that they would be reimbursed for those costs. The position was further complicated by Luigi's indication in March 2007 that he would require the sale of Property O and the steps he later took to achieve that result and the uncertainty of who would purchase the property and whether the price paid would be increased in proportion to the costs incurred by Remly, Dominic and Lillian in pursuing development approval. The delays in progressing the DA before Council were consistent with achieving an ultimate determination of the DA in the Land and Environment Court in accordance with the advice which Dominic had received. The later delays in progressing the matter in the Land and Environment Court were consistent with Remly seeking to minimise the costs of those proceedings, until the position in respect of the sale of Property O was clarified, consistent with the position which Dominic communicated to that Court. I do not consider that that approach was shown to be inconsistent with the exercise of a reasonable care in the circumstances in which Remly, Dominic and Lillian found themselves.

Claim for breach of fiduciary duty

1. Luigi also contends that, throughout the period 9 September 2004 to 18 May 2009, Remly owed a fiduciary duty to Luigi by reason of the alleged agreement and because Luigi was in a position of particular vulnerability to Remly in that he as distinct from Remly was not able to prosecute the DA with due diligence, even if he had been aware of information required by Canterbury City Council to be furnished in order to progress the DA. The particulars of the fiduciary relationship provided by Luigi indicate that a fiduciary relationship is said to exist between Dominic and Lillian as fiduciaries and Luigi as principal by reason of the fact that they were co-owners of Property O and "joint venturers" in the Roselands development in relation to which Luigi on the one hand and Remly, Dominic and Lillian on the other had reached the alleged agreement. I have dealt with these allegations as to the basis for the fiduciary relationship in my judgment in the Remly proceedings, and held that no fiduciary duty was established on that basis.

1. Luigi also contends that he was in a position of particular vulnerability to Dominic and Lillian in that they were the directors and shareholders of Remly and he as distinct from they was not able to cause Remly to prosecute the DA with due diligence, even if he was aware of information required by Canterbury City Council to be furnished in order to progress the DA. I have reviewed the authorities as to when fiduciary duties will arise in my judgment in the Remly proceedings. The proposition that Luigi was in a position of vulnerability to Remly does not, without more, establish a fiduciary duty: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 541; Pilmer v Duke Group Ltd (in liq) [2001] HA 31; (2001) 207 CLR 165 at 217 per Kirby J.

1. The content of the "fiduciary" duty owed by Remly is alleged to have been an obligation to prosecute the DA with due diligence. This is a positive obligation of a kind which cannot constitute a fiduciary obligation under Australian law: Breen v Williams [1996] HCA 57; (1996) CLR 71; (1996) 138 ALR 259. In any event, any fiduciary obligations will reflect the scope of the parties' contractual engagement and no such obligation can be established where I have found there was no corresponding contractual obligation on Remly to prosecute the DA.

1. The second pleaded fiduciary duty is alleged to have been owed by Remly, Dominic and Lillian "to act in good faith in the best interests of [Luigi]" and corresponds to the similar duty alleged in the Remly proceedings. As I noted in my judgment in those proceedings, that is a positive duty typically owed by the trustee of an express trust ( Cowan v Scargill [1985] Ch 270 at 287) , not a proscriptive duty of the kind recognised as a fiduciary duty under Australian law: Breen v Williams above. That duty has not been established for the reasons I have indicated in my judgment in the Remly proceedings.

1. The next pleaded duty is that Remly, Dominic and Lillian must not place themselves in a position where their personal interests might conflict with Luigi's interests. As I noted in my judgment in the Remly proceedings, there is no evidence that such an undertaking was given expressly and it is difficult to see why one should be implied, with the result that Luigi's personal interests should always be given priority to the interests of Remly (as, on Luigi's case, the entity conducting the development) or the interests of the parties generally. I do not consider that duty was established.

1. The next pleaded duty, not to make improper use of Remly's position, appears to reflect the statutory duties which are owed by a director to a company. I do not consider that such a duty is established, for the same reason the other pleaded fiduciary duties are not established.

1. The matter alleged to establish the breach of fiduciary duty in these proceedings is the failure to prosecute the DA up to 18 May 2009 (when Property O was sold by the trustees for sale). The pleading does not identify how that failure is said to breach the pleaded "fiduciary" duties. In submissions, Luigi contended that a breach of fiduciary duty was established because, from August 2006 until May 2009, Dominic "sat on his hands" by causing Remly to fail to prosecute the DA until the Council adversely determined it for lack of sufficient information and that this course involved Remly preferring its own interests to the interests of Luigi. Even if (contrary to my view), the relevant duties had been established, I do not consider the factual basis of that allegation was established. I cannot see any interest of Remly (or, indeed, Dominic and Lillian) which would be served by taking that course so as to bring about the failure of the DA, since Remly, Dominic and Lillian would gain no advantage from the sale of the property at a lower value without a DA unless it or they (rather than Luigi or a third party) could acquire it at that lower value. There was no reason for Remly, Dominic and Lillian to believe that they were more likely to acquire Property O than Luigi or a third party, where Luigi could and did place a competing bid to acquire the property from the Trustees.

Quantification

1. The findings which I have reached above mean that it is ultimately not necessary for me to reach a finding as to quantification. However, I should indicate the findings I would have reached in that regard in case the matter proceeds on appeal. Luigi contends that, by reason of the failure to prosecute the DA up to 18 May 2009, when Property O was sold by the Trustees, he suffered loss and damage when Property O was sold on 18 May 2009 without the benefit of a DA for the sum of $1,250,000. Luigi claims damages being half of the difference between what the property would have been sold for had the DA approval been obtained prior to its sale and that amount.

1. Ms Laidlaw expresses the view that, had Remly addressed all outstanding matters sought by Council and submitted the relevant plans and information to Council, then a development consent should have issued by 14 August 2007. However, she qualifies this conclusion by noting that timely responses by the architect and other consultants were not wholly within Remly's control and that Remly also did not have control over whether Council provided timely responses or its willingness to continue negotiations to achieve an outcome it would support.

1. Ms Laidlaw notes that there were constraints on the development of Property O including the impact and amenity of the buildings and vehicular access constraints. She expresses the view that a "maximum yield" of 24 dwellings would more likely than not have been approved by Council based on the building design and the circumstances of the site (Laidlaw [5.28]). However, Ms Laidlaw also points to Council's concern as to vehicular access constraints and indicates that she would not have expected that Council's position in that regard would have materially differed had the traffic report been provided in 2006/2007 from that which was achieved in negotiations in the Land and Environment Court, namely 22 dwellings.

1. On balance, Ms Laidlaw suggests that, had the plans been amended in 2006/2007 to 24 dwellings, it would be more likely than not that Council would have approved such a proposal. I do not consider that I should proceed on that basis, since the breach alleged against Remly is a failure to progress the DA diligently, not a failure to have the foresight to lodge a DA at an earlier point for slightly more than the number of dwellings which Council in fact approved in later negotiations in the Land and Environment Court. The wisdom of that course is clear with hindsight, but there is no evidence before me that diligence or reasonable care on Remly's part would have led it to putting that particular proposal to Council prior to the sale of Property O.

1. In my view, any quantification should instead be undertaken on the basis of approval of a DA for 22 dwellings, being the number of dwellings which was ultimately achieved by Remly in its settlement with Council, the position for which Dominic and Lillian contended and which was addressed by Luigi in the alternative. This approach is reinforced by the view expressed by Ms Laidlaw that the result achieved from negotiations before the Land and Environment Court was a reasonable compromise for the development of the land, achieving a density double that which could normally have been achieved under the relevant zoning and an overall building bulk well in excess of that which would normally be associated with a low-medium density residential area, and that, although a slightly greater yield could have been obtained by negotiations with Council, that was not guaranteed.

1. There was a difference between Mr Hunter and Mr Paris, the expert valuers retained by the respective parties, as to the likely value of a development site with development approval for 22 dwellings. Mr Hunter valued a development site with development approval for 22 units by a direct comparison at $2,540,000 and Mr Paris valued such a site on that basis at $1,530,000. It will be noted that Mr Hunter's valuation attributes a premium of $1,290,000 for obtaining development consent, by comparison with the sale price achieved by the trustees for sale without development consent, whereas Mr Paris' valuation attributes a premium of $280,000 for development consent.

1. Both Mr Hunter and Mr Paris were well-qualified and experienced and they agreed as to a significant number of matters in a joint expert conference. Mr Hunter's primary basis of valuation was a direct comparison based on comparable development sites involving medium density yields and Mr Paris also undertook his valuation on the basis of comparable development sales. Mr Hunter adopted a hypothetical development as a secondary methodology, using a hypothetical development to calculate a residual land value. Mr Paris criticised the use of a hypothetical development valuation as unduly sensitive to the assumptions made and inputs into that valuation, and gave convincing evidence as to the impact of relatively small changes of assumptions on such a calculation. I prefer the direct comparison approach which was common to both valuations.

1. Both Mr Paris and Mr Hunter agreed that no site which was directly comparable to the Moorefields Road development site was available. Mr Hunter and Mr Paris adopted two common sales in their reports, being a property at Beverley Hills and another property at Belfield. Each of them took into account several factors, which appeared to be relevant to the proper exercise of their professional judgment, including the frontage of comparable properties, the attractions of mixed use developments and other matters. Mr Paris' valuation makes reference to restricted access to the site with difficulty of ingress and egress to the main building area through a long and narrow driveway and to the fact that the main building is land-locked with restricted exposure and outlook. Mr Hunter treated the narrow access to the site as potentially a virtue, raising the possibility of development of a "private gated security style estate". Mr Paris also pointed to the need for demolition and significant excavation on the site. Mr Paris applied a further discount to the site on the basis of the difficulty of obtaining construction finance at the time of the global finance crisis in May 2009 where there was a contamination issue in respect of the site. Mr Hunter gave little weight to that matter, on the basis that he had made informal inquiries about the contamination issue which suggested that the cost of remedying it would be minimal.

1. Subject to one matter, neither party contended that either expert had fundamentally miscarried in his approach to the valuation of Property O. The one exception is that Luigi submitted that I should reject the "double discount" which he contended arose from Mr Paris' approach to contamination and construction finance and that I should then have regard to the two comparable sales which were common between the two valuers or otherwise should split the difference between the two valuations after excluding the "double discount". On balance, I prefer Mr Paris' approach to the issue of contamination to that of Mr Hunter, where the development conditions imposed upon the site required compliance with a relatively detailed remediation action plan. Mr Hunter's belief that any contamination could be remedied at low cost was not supported by any other evidence; and it seems unlikely that a purchaser of the site would not have given weight to the work which would be required to comply with that action plan and the risk that significant costs would be incurred in determining the price it would pay to acquire the site.

1. If the adjustments made by Mr Paris for contamination and associated matters were made to Mr Hunter's figures, then his valuation for a development site with development approval would be would be reduced to $2,161,398, whereas Mr Paris' corresponding valuation would, as noted above, be $1,530,000.

1. After having made that adjustment, I can see no basis for preferring one valuation to the other where the differences between them reflect matters of professional judgment and neither expert was shown to have made any obvious error in that regard. Accordingly, the preferable course (which, subject to the dispute noted above, neither Counsel strongly contested) seems to be to adopt the average of the two figures, namely $1,845,700 as the price for which Property O was likely to have sold with development approval for 22 units. If, contrary to the findings which I have made above, Luigi had established the other elements of his case, I would have held that he was entitled to recover damages of $505,700.

Orders and costs

1. On the basis of the findings which I have made above, the proceedings should be dismissed. The Plaintiff should pay the Defendants' costs of the proceedings.

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Decision last updated: 09 March 2012