Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 12)

No judgment structure available for this case.

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 12) [2019] NSWSC 916
Hearing dates: 9 December 2016; 14 February 2017; 4, 20 October 2017; 13, 16, 17 November 2017; 18 December 2017; 9 May, 21 June 2019.
Decision date: 17 July 2019
Jurisdiction: Equity
Before: Kunc J
Decision:
Application to re-open refused; gross sum costs order made; parties to bring in short minutes to finalise damages enquiry

Catchwords:
COSTS - Party/Party - Bases of quantification - Factors relevant to the court’s discretion when quantifying costs – Whether gross sum costs order should be made where successful plaintiff was liable to defendant under several interlocutory costs orders – Civil Procedure Act 2005 (NSW), s 98(4)(b)

COSTS - Party/Party - Exceptions to general rule that costs follow the event - Offers of compromise/Calderbank offers – Plaintiff succeeds on basis not pleaded at the time defendant rejected Calderbank offer – Plaintiff’s application for indemnity costs from date of Calderbank offer rejected

COSTS - Party/Party - General rule that costs follow the event - Proceedings discontinued or dismissed – Plaintiff (in effect cross-claimant) to pay defendant’s costs on the indemnity basis where claim not pressed after Court declines to deal with claim on the papers

DAMAGES - Measure and remoteness of damages in actions for tort - Measure of damages - Assessment of mesne profits for trespass by landlord against tenant where rights included 103 year lease to build and operate car park and private hospital – Damages assessed as at date cause of action arose

PROCEDURE - Judgments and orders - In general – Whether leave to reopen argument should be granted – Whether argument said to have been overlooked had been put
TORTS - Trespass - Trespass to land and rights of real property – Measure of damages – Trespass by landlord against tenant - Assessment of mesne profits where rights included 103 year lease to build and operate car park and private hospital – Damages assessed as at date cause of action arose
Legislation Cited: Civil Procedure Act 2005 (NSW)
Evidence Act 1995 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300
Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342
Calderbank v Calderbank [1975] 3 All ER 333
Colgate-Palmolive Company v Cussons Pty Ltd [1993] 46 FCA 536; (1993) 46 FCR 225
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1
Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588
El Ali v Tritton [2019] NSWCA 111
Hamod v State of New South Wales [2011] NSWCA 375
Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640
Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351
Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 149
Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587
Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 11) [2017] NSWSC 1249
Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344
South Eastern Sydney Area Health Service v King [2006] NSWCA 2
South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99
Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418
Wentworth v Rogers [2002] NSWSC 921
Texts Cited: Fleming’s The Law of Torts edited by C Sappideen and P Vines, 10th Ed, Law Book Co, 2011
Macquarie Online Dictionary
Category: Principal judgment
Parties:
Proceedings 2000/34949
Macquarie International Health Clinic Pty Ltd (Plaintiff)
Sydney Local Health District (Defendant)
Proceedings 2010/90340
Sydney Local Health District (Plaintiff)
Macquarie Health Corporation Ltd (Defendant)
Representation:
Counsel:
9 December 2016
S Kanagaratnam (Plaintiff)
J Stoljar SC; M R Elliott (Defendant)

14 February 2017
R E Dubler SC; S Kanagaratnam (Plaintiff)
I M Jackman SC; M R Elliott (Defendant)

4 & 20 October 2017
E A J Hyde; S Kanagaratnam (Plaintiff)
D Williams SC; T Marskell (Defendant)

13 November 2017
S Kanagaratnam (Plaintiff)
D Williams SC (Defendant)

16 & 17 November 2017
R E Dubler SC; E A J Hyde; S Kanagaratnam (Plaintiff)
D Williams SC; B D Kaplan (Defendant)

18 December 2017
R E Dubler SC; S Phillips (Plaintiff)
D Williams SC; B D Kaplan (Defendant)

9 May 2019
S Kanagaratnam (Plaintiff)
D Williams SC; B D Kaplan (Defendant)

21 June 2019
N Hutley SC, S Phillips; S Kanagaratnam (Plaintiff)
D L Williams SC; B D Kaplan; S Scott (Defendant)

Solicitors:
S Moran & Co (Plaintiff 2000/34949, Defendant 2010/90340)
Clayton Utz (Defendant 2000/34949, Plaintiff 2010/90340)

File Number(s): 2000/34949; 2010/90340
Publication restriction: No

Judgment

Summary

The Court delivered its principal judgment on damages on 10 November 2016: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587 (the “Principal Judgment”). Defined terms in the Principal Judgment have the same meaning in these reasons. These reasons must be read with the Principal Judgment.
In addition to giving reasons for some interlocutory decisions, this judgment is intended to resolve the remaining questions regarding the calculation for Macquarie’s damages in relation to the Hospital Site, the parties having informed the Court that the calculations regarding the Car Park Site have been able to be done to give effect to earlier reasons of the Court. These reasons also resolve Macquarie’s applications in relation to costs and a recent application to reopen by the Health District.
The Court’s conclusions may be summarised as:

The Health District’s recent application in relation to what is defined as the Threshold Issue (see paragraph [17] below) is rejected because it was never argued and the Court is not satisfied there is a proper basis to allow it to be argued at this final stage. In any event, had it been argued the Court would have decided the Threshold Issue adversely to the Health District.

In accordance with the usual rule that damages are calculated as at the date the cause of action arose, damages in the nature of mesne profits in relation to the Hospital Site are to be calculated from (and discounted back to) 17 March 2000, being the date of commencement of the Health District’s trespass on the Hospital Site. The Court adopts Mr Stone’s calculation of those damages as set out in Appendix C2 to his second report dated 13 October 2017 which calculated damages of $21.791 million and Supreme Court simple interest of $30.772 million up to 18 September 2017. The interest figure will have to be updated to whatever date final orders are made.

As to Macquarie’s costs applications:

Given that the basis on which Macquarie ultimately succeeded was not pleaded at the time of its Calderbank Offer to the Health District, Macquarie’s application for its costs on the indemnity basis from the date of that offer is refused;

The Health District is to pay Macquarie’s costs of the proceedings (comprising for these purposes the Damages Enquiry, the L&E Proceedings and the Guarantee and Indemnity Proceedings) assessed in the gross sum of $4,643,000 (noting that in these reasons, all references to costs are exclusive of GST);

The Health District is to pay Macquarie’s costs of the Guarantee and Indemnity Proceedings on the indemnity basis, such costs being included in the Court’s gross sum costs order; and

The Court being satisfied that it is appropriate to make a gross sum costs order, it is unnecessary for the Court to determine Macquarie’s application for interest on costs.

Procedural history after delivery of the Principal Judgment

It is necessary to set out the procedural history of what followed after delivery of the Principal Judgment, if only to explain why the hope of the Court, and no doubt shared by the parties, that the remaining issues could be resolved promptly in one further hearing proved to be unfounded. Without intending to be critical of anyone, the subsequent history was consistent with what had gone before, namely that new issues seemed to arise at every turn.
On 9 December 2016 a directions hearing was held after the parties had an opportunity to review the Principal Judgment. Directions were made for the parties and their experts to produce reports and otherwise endeavour to identify what issues remained outstanding for the Court’s determination. The matter was fixed for further hearing in early 2017.
On 14 February 2017 a hearing was conducted with the various experts in relation to the final calculation of damages. Five reports had been produced. The outstanding issues in relation to the Car Park Site, such as they were, were resolved with one exception. Similarly, considerable progress was able to be made by the Court making some determinations, there and then, of issues which the parties raised in relation to the Hospital Site. I indicated at the time that I did not propose to prepare separate judgments on those issues, but gave my reasons issue by issue on the transcript. It was also at this hearing that the Court was informed that the Health District would not be pressing further its Amended Statement of Claim in proceedings 2010/90340 (the “Guarantee and Indemnity Proceedings”), what was in effect its cross-claim against Macquarie and referred to as such in paragraph [646(4)] of the Principal Judgment.
While the Court was able to resolve a number of consequential issues raised by the parties, it became apparent that four additional issues would require further evidence and argument.
A further hearing was held on 9, 10 and 11 May 2017 in relation to the four additional issues. I delivered my reasons in relation to those four additional issues on 18 September 2017 (Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 11) [2017] NSWSC 1249). Having answered those questions, it was certainly the Court’s expectation that the parties would be able to make the final damages calculations, such that the only outstanding issue would be costs. I was informed at that time that the calculation in relation to damages for the Car Park Site had been done (presumably subject to the Court answering the additional issues to the extent they related to the Car Park Site) and that one of Macquarie’s experts was standing by to complete the damages calculation in relation to the Hospital Site on the basis of the answers provided in the Court’s latest judgment. I listed the proceedings for the hearing of any costs applications on 20 October 2017.
The proceedings were relisted on 4 October 2017 on the application of the Health District. Among other things, Macquarie had informed the Health District that it (Macquarie) wished to make an application in relation to costs incurred between the Court of Appeal’s decision and the commencement of the damages hearing and that Macquarie also wished to make an application for a gross sum costs order. It also became apparent that the Court may be required to resolve some remaining issues between the experts in relation to the damages calculation for the Hospital Site. Finally, the parties accepted that at least identifying the final parameters of the damages calculation could impact upon the costs arguments.
Accordingly, the Court decided to split out any final damages hearing from the costs hearing. The date of 20 October 2017 that had already been fixed was converted into an occasion on which the Court would hear any arguments in relation to the final damages calculations for the Hospital Site. Directions were also made to prepare for a hearing of any costs applications on 16 and 17 November 2017.
On 20 October 2017 the Court received further evidence from the parties’ experts in relation to the damages calculation for the Hospital Site. Issues concerning the bed day rate and grossing up for taxation were able to be clarified and resolved between the parties during the course of argument without the need for formal determination by the Court. This left a debate about the methodology for calculating the mesne profits in relation to the Hospital Site. In the course of that argument, the Court requested that an additional calculation be done. Directions were made for the parties to provide further calculations and any submissions by 1 November 2017.
The further submissions referred to in the preceding paragraph resulted in a further disagreement about the application of the methodology that had apparently been agreed by the parties. Directions were made to enable that aspect of the matter to be dealt with as part of the forthcoming costs hearing.
On 16 and 17 November 2017 the Court heard additional argument in relation to the damages calculation and the first part of the argument in relation to costs. Over the Health District’s objection, the Court admitted the evidence of Macquarie’s costs expert, Mr Dudman. Reasons for that are given at paragraph [142] to [154] below. As a result of the admission of Mr Dudman’s evidence and the course of further argument, it became apparent that it was in the interests of the just, quick and cheap resolution of the costs dispute (to the extent that was going to be possible) that further work would need to be undertaken by the parties’ costs experts. Directions were made in relation to that and arrangements were made for the Court to sit on the first day of the vacation, 18 December 2017. The parties’ arguments in relation to Macquarie’s costs application were concluded on that day.

A final application - introduction

The proceedings were to take yet another, unexpected turn.
On 6 May 2019 (when, unbeknown to the parties, delivery of judgment in relation to the various outstanding issues was imminent) the solicitor for the Health District sought to have the proceedings relisted. In a subsequent letter that was provided to my associate, the reasons for that relisting were explained by the Health District’s solicitors:

“1. The Trial Judge does not appear to have given any consideration to the Threshold Issue raised by the defendant as to the applicability of the user principle to vacant land.
2. It was, and remains, the defendant’s case that the user principle applied to the Hospital Site involved an amount of the market rental of the land in its existing state or use (i.e. in vacant condition without the existence of a hypothetical hospital): see, e.g., defendant’s conspectus dated 30 June 2015 at [5]-[6], [8], [21.1]-[21.2], [22], [36], [43]-[44]; defendant’s submissions on issue 2 dated 30 June 2015 at pp 44-45 [30]-[36]; defendant’s submissions dated 22 July 2015 at p 57 [5]; and defendant’s submissions on issue 2 dated 14 August 2015 at [4].
3. It may be that the Court took the view that the Threshold Issue had been abandoned. The defendant did not, and does not, abandon its position on that Threshold Issue. The defendant will seek that his Honour clarify his intentions in relation to that matter and, to the extent that his Honour thinks appropriate, to address that Threshold Issue.”

The proceedings were relisted on 9 May 2019. On that occasion, Senior Counsel for the Health District handed up a document dated 9 May 2019 entitled “Outline of Submissions of the Defendant”, which included (emphasis added):

“1.   These submissions are made in support of the application of the defendant, the Sydney Local Health District (SLHD), to re-list these proceedings before Kunc J for consideration of an argument that it perceives has not been addressed in the principal reasons for judgment (Principal Judgment).
2.   The purpose of the re-listing of the proceedings is to enable SLHD to advance submissions as to the following propositions:
a)   The Court has not, as yet, determined the issue raised by SLHD's written and oral submissions that, to the extent that the user principle is applicable to the assessment of the damages to be awarded to the plaintiff, Macquarie International Health Clinic Pty Ltd (Macquarie), in respect of the Hospital Site, it required the Court to treat the land upon which SLHD trespassed on the basis of its existing state and/or use during the period of the trespass.
b)   SLHD's argument to that effect was not, and has not been, abandoned.”

The emphasised proposition advanced in paragraph 2(a) of that outline was referred to by the parties, and now by me, as the “Threshold Issue”. I made directions for the filing of a notice of motion, evidence and submissions and fixed that motion for hearing on 21 June 2019.

A final application – the motion and arguments

In accordance with the directions I had made, the Health District filed a notice of motion on 13 May 2019 which included these prayers for relief:

“1.   Leave be granted to the defendant in Proceedings 2000/34949 and 2010/90340 to advance submissions:
(a)   the subject of its written submissions dated 9 May 2019;
(b)   (in particular) that the Court has not, as yet, determined the issue raised by the defendant's written and oral submissions that, to the extent that the user principle is applicable to the assessment of the damages to be awarded to the plaintiff in respect of the Hospital Site, it required the Court to treat the land upon which the defendant trespassed on the basis of its existing state and/or use during the period of the trespass;
(c)   (in particular) that the defendant's argument to that effect was not, and has not been, abandoned.
2.   Irrespective of the answer to paragraph 1(c) above, the Court rule as to the Threshold Issue as described in the defendant's submissions dated 9 May 2019.
3.   The Court determine the plaintiffs entitlement to damages on the Threshold Issue.
4.   To the extent necessary, leave be granted to the defendant to re-open Proceedings 2000/34949 and 2010/90340 to argue the issues the subject of paragraphs 1-3 above.
5.   The Court review, revise, recall or supplement its reasons for judgment dated 10 November 2016 for the purposes of determining the issues the subject of paragraphs 1-3 above.”

On the hearing of the motion, Mr N Hutley of Senior Counsel appeared for Macquarie with Mr S Phillips and Mr S Kanagaratnam of Counsel. Mr D L Williams of Senior Counsel appeared with Mr B Kaplan of Counsel for the Health District.

A final application – what the Principal Judgment said

Before turning to the parties’ arguments in relation to this application, it is helpful to recall what the Court decided in the Principal Judgment.

“173. What emerges clearly from the foregoing statements of principle is that in Australia mesne profits are the means by which damages for trespass are awarded. Furthermore, the calculation of those mesne profits is done by reference to the user principle. The user principle means that the Court is not concerned with whether or not the innocent party could or would have used the land in question or whether the wrongdoer can demonstrate that it may have been able to gain some advantage if it had, in fact, negotiated with the innocent party for the use in question. In my view, the user principle requires a robust and straightforward inquiry firmly based upon what in fact occurred: what was the wrongful use and what is a market or going rate for that use?
174. This conclusion has the consequence that the Court must disregard the way in which the Health District put much of its case. Without intending any criticism, a great deal (but by no means all) of the complexity in, and length of, these proceedings flowed from the Health District postulating and seeking to prove a number of hypothetical counterfactuals. The most striking of these were the Health District’s contentions that Macquarie would never have been able to build the hospital, or if it had, that the hospital would have been an economic disaster for Macquarie. These submissions (supported by a large amount of factual and expert evidence) were advanced in support of the ultimate proposition that Macquarie had, in fact and law, suffered no loss by reason of the Health District’s trespass and had been saved from economic ruin.

…
179.   The Health District’s case acknowledged the application of the user principle but sought to avoid its consequences by describing what Macquarie had lost as being an enforceable right that gave Macquarie “a contractual entitlement to exploit an opportunity” to do certain things (see paragraphs [154] to [157] above). That characterisation of an “opportunity” was the Health District’s conceptual gateway through which it sought to introduce hypothetical counterfactuals and analyses of the kind used in loss of chance cases. The Court accepts Macquarie’s submission that this is not a loss of a chance case and that it would be wrong to assess damages by reference to the principles used in cases of that kind.
180.   The Health District’s characterisation is wrong because what Macquarie was deprived of was its contractual right to the possession of and, consequently, operation and development of the sites. Introduction of the gloss of “opportunity” adds nothing because most, if not all, contracts could be described as giving a contractual entitlement to exploit an opportunity of some kind. The user principle keeps the Health District’s conceptual gateway firmly closed because it ignores whether the innocent party could have, would have or even wanted to exercise its right to use its land in the way that the trespasser used the land.
181.   All of that having been said, it must be accepted that Macquarie’s case in relation to the Hospital Site in particular presents some novel features insofar as no similar case has been able to be found, despite the extraordinary legal resources the parties devoted to these proceedings. In a case presenting novel features I take as my touchstone Allsop P’s invocation in Bunnings (at [174]) of the “rules of compensatory damages sensibly and flexibly applied”. That approach does not exclude a sensitivity on the part of the Court to the need to avoid undercompensation or overcompensation within the context of the principled application of the user principle.”

The effect of the Health District’s submission in the present application is that the description of the Health District’s case in paragraph [179] of the Principal Judgment reproduced above was at least incomplete because it failed to acknowledge or deal with the Threshold Issue as a logically anterior question. The Health District’s application requires the Court to answer two questions:

Had the Threshold Issue been presented at the hearing as an issue for resolution? Macquarie submitted that it had not been argued by the Health District, nor had any such argument been abandoned by the Health District because no such argument had been advanced in the first place. However, Macquarie also accepted that if the Court decided that the Threshold Issue had been raised, then the Court should now go on to determine it.

Even if the Court decided that the Threshold Issue had not been raised at the hearing, should the Health District be permitted to raise it now? The Health District submitted that it was only a question of law which required no further evidence and was exactly the kind of issue which, if raised for the first time on appeal, would be allowed to be argued in accordance with cases such as Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 and Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.

A final application – the facts

The Health District relied on an affidavit from its current solicitor on the record, Ms Karen Ingram of Clayton Utz. What follows was not in dispute.
Clayton Utz had been instructed in mid-2015 by the Health District in relation to issues concerning the private hospital that was to be built by Macquarie. However, Clayton Utz was not retained in relation to the Damages Enquiry before me. During the Damages Enquiry, up to and including a short time after delivery of the Principal Judgment, the Health District was represented by Bolzan & Dimitri Lawyers and Mr G Burton of Senior Counsel with Mr P Bruckner of Counsel.
Shortly after delivery of the Principal Judgment on 10 November 2016, Clayton Utz received instructions from the Health District to take over the conduct of the Damages Enquiry from Bolzan & Dimitri Lawyers. New counsel were also briefed, including Mr I Jackman of Senior Counsel.
At the time of delivering the Principal Judgment, a further directions hearing was fixed for 9 December 2016. On that occasion Mr Jackman SC was unavailable and Mr J Stoljar of Senior Counsel was briefed on short notice to appear for the Health District at that directions hearing. Mr Stoljar SC has had no further involvement with the matter.
Further changes occurred to the Health District’s team of counsel in connection with the various hearings that then took place during 2017.
Ms Ingram’s evidence about the events which led to the present application was:

“27.   In mid to late 2018, Clayton Utz received instructions to carry out work which was preliminary and preparatory to any appeal from any orders that would be made in the future by Kunc J and it instructed Mr Williams SC and Mr Kaplan of Counsel to assist with that preparatory work. These instructions were received in circumstances where judgment had been reserved by Kunc J on the remaining issues to be resolved in the damages inquiry (including costs) since 18 December 2017.
28.   The preparatory work carried out comprised the following steps.
29.   First, consideration was given to potential grounds of appeal from any orders that would be made by his Honour at the conclusion of these proceedings. This preliminary work was carried out in about November 2018.
30.   Second, consideration was given to the proper application of the user principle and whether it was potentially misapplied in the Primary Judgment. This work was carried out from about November 2018 to February 2019.
31.   Third, in early February 2019, further work was carried out by SLHD’s current legal representatives as to the question whether arguments concerning the potential misapplication of the user principle had been raised sufficiently by SLHD before Kunc J in the damages inquiry.
32.   In the course of performing this step, Clayton Utz and SLHD's counsel were required to review a significantly large volume of material, including relevant parts of the court transcript, relevant exhibits and the parties’ written submissions in the damages inquiry. The court transcript consisted of over 5,000 pages and the written submissions over 2,600 pages.
33.   Further review of the parties’ written and oral submissions led to the conclusion, in about March 2019, that the Threshold Issue had been raised by SLHD during the damages inquiry. I note that those parts of SLHD’s written and oral submissions in the damages inquiry that deal with this argument are identified in SLHD's written submissions dated 9 May 2019.
34.   Fourth, from about March to April 2019, work was carried out by SLHD’s counsel seeking to ascertain why the Threshold Issue, which was advanced in SLHD’s written and oral submissions in the damages inquiry, had not been dealt with in the Principal Judgment. This process involved further review of SLHD’s written and oral submissions, parts of the expert evidence and the Principal Judgment to ascertain whether it had been overlooked or whether there was another potential explanation.
35.   In about April 2019, there was identification of possible confusion as to SLHD's concession in the damages inquiry as to the residual land value method being the appropriate methodology for the calculation of damages in respect of the Hospital Site (on the assumption that there existed on that site a hypothetical private hospital) as a possible explanation for why the argument was not dealt with by Kunc J in the Principal Judgment.
36.   At no time prior to April 2019 had it been identified that there was potential confusion about SLHD’s concession (to the extent that it could be capable of being understood as an abandonment of the Threshold Issue).
37.   On 11 April 2019, Clayton Utz attended a conference with SLHD’s counsel regarding the preparatory work being undertaken. Certain advice was received.
38.   As stated below, the Threshold Issue was not intended to be, and is not, abandoned by SLHD. In circumstances where the argument is not dealt with in the Primary Judgment, and was not, and is not, abandoned by SLHD, I convened a meeting with Counsel and SLHD to seek instructions about relisting the damages inquiry proceedings before his Honour.”

Macquarie did not rely on any affidavit evidence in opposition to the Health District’s application. However, Macquarie did submit that it was highly relevant to the determination of the application that the Health District had not obtained evidence from any of its legal representatives who had had the actual carriage of the Damages Enquiry hearing on the question of whether the Threshold Issue had been advanced or what consideration, if any, had even been given to the Threshold Issue by those acting for the Health District at the time.
Each party provided to the Court a lever arch folder of extracts from the pleadings, submissions and transcript of the Damages Enquiry to which they made reference in support of their respective contentions.

A final application – the parties’ submissions

The Health District’s submissions may be summarised as:

No final orders have yet been made in relation to the Damages Enquiry, therefore no application is required to set aside any orders or judgment. The Court has not yet completed its consideration of the proceedings. However, to the extent that an application to reopen is required, the Health District relied on the inherent power of the Court to reopen a hearing for the purpose of, relevantly, reviewing and varying reasons for judgment before any judgment or order has been entered. The Health District urged application of the conclusion of Barrett J (as his Honour then was) in Wentworth v Rogers [2002] NSWSC 921 at [9] that a single judge whose decision can be appealed “should allow reopening after judgment where it is obvious to that judge that the decision has miscarried and that the miscarriage may be rectified and the situation retrieved by attention to the matter by that judge rather than by an appeal court”. The Health District drew attention to statements which I made at the directions hearings, including on 9 December 2016 and 13 November 2017, that parties should not consider them as shut out from addressing matters arising from the Principal Judgment.

The Health District’s argument on the Damages Enquiry had proceeded in two basic steps:

The Threshold Issue, namely that the user principle required damages to be assessed in respect of the Hospital Site in its existing state and/or use;

If the Threshold Issue were decided adversely to the Health District, then in assessing damages on the basis of land containing the hypothetical private hospital, it was necessary to take into account the possibilities and probabilities involved in the building and operating of such a hypothetical private hospital (the “Hospital Damages Case”).

While the Hospital Damages Case had been considered at length in the Principal Judgment and determined adversely to the Health District, the Threshold Issue did not appear to have been determined, at least in any express way.

“At various points in its written submissions” the Health District had pointed out that what Macquarie was claiming were damages that were beyond the scope of the user principle because they did not focus on the “actual” use of the Hospital Site during the period of the trespass. Attention was drawn to references in other documents which were to the same effect. Various highlighted passages made it clear that the Health District contended that the land upon which the Health District was found to have trespassed was the “vacant” Hospital Site and not the Hospital Lease or the Hospital Site on which the hypothetical private hospital had been built.

Macquarie had understood that the Threshold Issue was part of the Health District’s case. This was particularly apparent in Macquarie’s “Outline of Closing Submissions in Reply” dated 17 July 2015, in which Macquarie had said (emphasis added):

“3.   In an attempt to circumvent the user principle, the defendant’s conspectus raises four principal themes which then pervade its submission at every level:
(1)   what the defendant should pay should be related to its actual use of the property and the returns which it has derived from the property: DS Consp. [5], [8], [21.3(8)], [43];
(2)   market rent should be assessed by reference to a hypothetical sale of the plaintiff’s interests at the date of dispossession, based only upon information known at that date: DS Consp. [16], [17], [24]-[33];
(3) what should be valued as at 17 March 2000 is the “plaintiff’s intention and capacity to fulfil its contractual obligations” to exploit the benefit of the leases: DS Consp. [16], [22], [34]; see also [5]. [6.5], [6.6], [21.3(9)], [21.7];
(4)   when assessing market rent, only the “existing state and usage” of the sites should be brought to account: DS Consp. [5], [8], [22], [36], [43]; DS Issue 2 p. 45[35].
4. These four themes are the building blocks for the defendant’s contention that a zero or low award is a “just outcome” (DS Consp. [1]-[3], [7], [9]).
5.   Each is fundamentally flawed.”

Insofar as the Health District advanced evidence and submissions in relation to the Hospital Damages Case, it did so to meet the case that was brought by Macquarie. In doing so, the Health District did not abandon, expressly or impliedly, its submission that the user principle, properly understood, required mesne profits to be based on the existing use or state of the Hospital Site during the period of the trespass.

As Ms Ingram’s evidence demonstrated, there has been no delay on the part of the Health District in bringing its concerns about the Threshold Issue to the attention of the Court. Furthermore, for the Court now to entertain the Threshold Issue would not cause any relevant prejudice to Macquarie because the Health District was relying upon arguments made in the existing submissions and was not seeking to adduce further or fresh evidence.

Macquarie’s submissions may be summarised as:

Macquarie cited a number of authorities in support of the proposition that the jurisdiction to reopen or otherwise allow further argument, even where final orders had not been made, was an exceptional one. Particular emphasis was placed on this passage in the judgment of Mason CJ in Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300 at 302-303:

“4. These examples indicate that the public interest in the finality of litigation will not preclude the exceptional step of reviewing or rehearing an issue when a court has good reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law. As this Court is a final court of appeal, there is no reason for it to confine the exercise of its jurisdiction in a way that would inhibit its capacity to rectify what it perceives to be an apparent error arising from some miscarriage in its judgment. However, it must be emphasized that the jurisdiction is not to be exercised for the purpose of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put. What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to re-argue their cases.”

In reliance on that passage, Macquarie submitted that what the Health District was seeking to do was an attempt to bring about a rehearing where Macquarie had failed to present its arguments in all its aspects; that in the present case there was no misapprehension about Macquarie’s case and to the extent there was, it was entirely because of the way in which Macquarie presented its case and, to allow the application would in fact be to permit a backdoor method of the Health District rearguing its case after a completely different legal team had spent many months poring over the evidence, submissions and transcript looking for appeal points.

Nowhere had the Health District articulated the Threshold Issue as being an issue anterior to and distinct from the Hospital Damages Case. To paraphrase Mr Hutley SC’s somewhat colourful description, if the Health District had a “killer” point that was a true “threshold issue”, and therefore capable of being dispositive of the whole case with a zero damage result for the Health District, then one would expect it to have been raised with pellucid clarity. But it was nowhere to be found in the pleadings, or in any of the written or the oral submissions, some of which were inconsistent with the Threshold Issue.

The Threshold Issue had never been abandoned because it had never been raised. The Health District’s entire case in relation to the Hospital Site had been predicated upon an acceptance that, in this case, the determination of mesne profits was to be done by, in effect, valuing the opportunity represented by the Hospital Lease. The Health District’s argument was that the value was zero for a number of reasons, essentially that Macquarie neither could nor would have ever built the Hospital. The Court rejected this argument.

Insofar as Macquarie had responded to the Health District’s reliance on the “existing state or user” argument (see paragraph [30(5)] above), it had correctly recognised that this was not a threshold or dispositive issue. Rather, it recognised that the Health District had contended, at the end rather than at the beginning of its argument, that if it was accepted that the contractual opportunity had no value, and in the absence of any other evidence from Macquarie, one had to fall back on the market rental value of the Hospital Site as it was. This value was simply the rent which the parties had determined Macquarie should pay to the Health District, such that in this ultimate scenario Macquarie’s damages would again be zero.

Insofar as the Health District relied upon selected passages in various materials to which the Health District had drawn to the Court’s attention, context was all important. When that context was taken into account, the Court would be satisfied that the passages identified by the Health District did not evidence a separate and anterior Threshold Issue.

As a discretionary matter, the Health District’s delay in bringing the present application and the delay it would cause in the delivery of the final judgment if the application were granted, both militated against granting the application. The Health District had the benefit of extremely competent representation by senior and junior counsel and solicitors after the retainer of Clayton Utz in relation to the Damages Enquiry not long after the Principal Judgment was delivered. No suggestion that the Court had failed to deal with the Threshold Issue was made at either the directions hearing immediately after the Principal Judgment was delivered or at any of the further substantive hearings concluding on 18 December 2017. Furthermore, if the Health District’s application were granted, there would be further delay because Macquarie would want the opportunity of a further hearing so that the Threshold Issue could be addressed properly, which would of itself then result in a further delay in the final resolution of the proceedings.

A final application – resolution

For the following reasons, the Court concludes that the Threshold Issue was never raised. Moreover, in the exercise of the Court’s discretion, I decline to grant the Health District leave to reopen the hearing of the Damages Enquiry to enable the Threshold Issue to be argued. It is no less a reopening of the hearing even if the Health District does not propose to adduce additional evidence and says all its arguments can be found in the various submissions already before the Court.

Before turning to an objective consideration of the Court record in these proceedings, it is necessary to make some subjective observations to dispose of the Health District’s submission or concern that the Court may have thought that the Threshold Issue had been abandoned. Insofar as the subjective awareness of the trial judge may be relevant, I record in the interests of candour that I never regarded the Threshold Issue as having been abandoned because, subjectively speaking, I never understood it to be an argument that was raised by the Health District.
That conclusion, of course, does not end the matter because it is necessary for me to consider the objective record of the hearing against the possibility that I had failed to appreciate, or had overlooked, the Threshold Issue notwithstanding that as a matter of objective fact it had been raised for determination before me. I will now set out the eight reasons why, as an objective matter, I conclude that the Threshold Issue was never raised.
First, Mr Williams SC properly conceded that nowhere in any of the written materials or transcript had the Threshold Issue ever been put to the Court in the terms, or with the potentially dispositive significance, for which the Health District now contended. He accepted that the words “threshold issue” had never been put to the Court, nor had the submission which is now described as the Threshold Issue ever been put as something that had to be decided separately and before the Court moved on to some other question.
Second, the Principal Judgment concluded:

645.    The Court will appoint a further directions hearing in these proceedings at a mutually convenient time after the parties have had an opportunity to consider these reasons. Without limiting the matters which the Court expects the parties to have considered for the purposes of that directions hearing, those matters include:
(1)   Without inviting re-argument, the identification of any obvious factual errors or omissions in these reasons;
(2)   Whether any issue which the Court has considered it unnecessary to determine needs to be answered to enable the final damages calculations to be made;
(3)   Whether there are any additional matters which, because of these reasons, the experts say they require the Court to answer to enable the final damages calculations to be made;
(4)   What aspects (if any) of the Health District’s cross-claim are still to be pressed and further steps required to facilitate the efficient hearing of those matters; and
(5)   The most timely and cost effective way in which arguments as to the costs of the enquiry can be determined.
646. Consistently with the parties’ obligations under s 56 of the CPA, to the extent issues emerge from these reasons which require resolution to enable the final damages calculations to be made, the Court urges the parties to exhaust all avenues of compromise before matters are presented to the Court on a contested basis. So far as possible, the Court expects the parties to work towards all outstanding matters being dealt with at one further substantive hearing.”

In delivering the judgment on 10 November 2016, on which occasion Mr Burton SC appeared for the Health District and Mr Phillips of Counsel appeared for Macquarie, the following exchange occurred (emphasis added):

“HIS HONOUR: That brings me to the fifth and final point, which is what do we do next? Page 207 of the reasons I set out a list of matters that I invite the parties to think about. I am not suggesting that that is an exhaustive list. No doubt there will be other matters that arise, but my intention is that we will meet again in about four weeks' time when the parties have had an opportunity to digest the reasons and think about these issues, for a directions hearing where we discuss the best way forward.
BURTON: I think there is an agreed date of Thursday, 8 December. That was the date that seemed to be common between the parties.
PHILIPS: I think that had been agreed, Thursday, 8 December.
HIS HONOUR: Very well, we will fix it for directions on that occasion. What I have said, and I would like the parties to try and work towards, and I accept it may not be possible, is that we only have one more substantive hearing, and we would appoint a date sometime in the first half of next year, for argument on the cross-claim, for argument, which I hope there will not be, but I accept there may be, as to areas of dispute that arise from the working out of these reasons.
One thing I would like early notice of at the directions hearing is if the experts come and look at what I have done and say there is something else I need to determine, then I would like to do that as quickly as possible. So that is a matter that I would expect the parties to have discussed and come back to me with a position on in four weeks' time because I would not let that wait, unless it had to, for a further hearing next year.
I would rather be told what I need to go away and work out, and try and work it out as quickly as possible. But the ultimate result is to get to a point where I can actually make orders for sums certain, whatever they happen to be. Is there any other matter that the parties want to raise at this stage?
PHILIPS: No, your Honour.
BURTON: No, your Honour, thank you.”

Both the conclusion of the Principal Judgment and what occurred at the time of its delivery support Macquarie’s submission that the Court made it clear that if any party thought something had not been properly dealt with in the Principal Judgment, they would be heard in relation to that question.
Neither at the directions hearing which next followed the delivery of the Judgment, nor at any of the subsequent hearings during 2017, did the Health District suggest that the Threshold Issue had been raised and not dealt with. If the Threshold Issue was as important and as obvious as the Health District now contends, I have absolutely no doubt that in litigation as hard fought as this, such a fundamental omission would have been raised. Quite properly, the Health District has not expressly raised as an explanation its change of legal personnel after the delivery of the Principal Judgment to explain its failure to raise the concerns which it now has in relation to the Threshold Issue. Even if it had, given the skill and experience of its new legal team, I would have given no weight to any such attempted explanation.
Third, nowhere in any of the written materials or parties’ submission is the Threshold Issue expressed as a threshold or preliminary point that was capable of disposing of the case. I accept Mr Hutley SC’s submission which I have set out in paragraph [31] above. I also accept the submission he made that if the Threshold Issue was being put in the way for which the Health District now contends, it is inconceivable that someone (including the Court itself) would not have given some attention to the possibility of a preliminary issue being posed, even if only to be disregarded.
Fourth, the Health District has not offered any explanation why it has not called any of its former legal advisers who actually had the conduct of the matter up to and including the time of the Principal Judgment to give evidence in support of its contention that the Threshold Issue was raised. While not in and of itself determinative, the fact that the Health District has not filed any such evidence or offered any explanation fortifies me in the overall conclusion which I have reached.
Fifth, during the course of final submissions, the Court sought clarification from the parties in relation to the methodology for calculating mesne profits. In order to provide context, I set out more than the critical passages (which are emphasised):

“(T5029:34-48)
DUBLER: Your Honour, we are up to the Hospital Lease and the mechanism for judging mesne profits for the Hospital Lease, the Hospital Site. We say it's a question of deriving the market rental or the letting value.
Can I firstly take you to the evidence and the defendant's submissions to suggest that firstly there's a lot of common ground between the parties. Then if I could respectfully request that your Honour just see that and then we can debate how that fits in with your Honour's thinkings and musings and where we are on the state of authorities.
We say, as I submitted previously, that there's a lot of common ground in the evidence. There’s a deal of common ground on the submissions and there’s one big point of difference, and that’s about the correct term or hypothetical term that should be assumed for valuing market rent.
…
(T5030:28-5031:43)
HIS HONOUR: I think you’re taking me to this as the first of your examples of what I think you said were matters of agreement between the parties.
DUBLER: Yes.
HIS HONOUR: Are you telling me that, as you understand it, the parties agree that the correct method of determining your loss in relation to the hospital is this methodology--
DUBLER: Yes.
HIS HONOUR: --as opposed to your contention which Mr Palassis has also done some calculations in relation to? What I’m trying to work out is, have the parties, by agreement, taken from me the task of determining what the correct way of working out the measure of loss is?
DUBLER: Yes.
HIS HONOUR: Is that right, Mr Burton?
BURTON: Yes, in broad terms I think that’s right. Both sides use the DCF residual land value but they differ, and my friend has fairly said the areas of major difference. I think this is encompassed in what he said that they differ on integers such as discount rate, on the inputs, of course, on the method to avoid double counting. The plaintiff says effectively you use the whole of lease cash flows and don’t take account of any double count in that. We say that needs to be adjusted. Even if you use the whole of lease cash flows you need to do something to avoid the fact that they are whole of lease cash flows.
And we also say the residual, the way the residual is treated, we are at issue about because my friend uses Mr Palassis to say simply then that just goes to the lessor. We don’t say that. Mr Gower very strongly doesn’t. Mr Palassis, we say, agrees because Mr Palassis said that you need a deep market to do that. A deep market is, I think he said, two or more people, and on the evidence we would say there isn’t the deep market of the players at the time and, in any event, Mr Palassis also said that in the discount rate he hasn’t taken into account the sort of special factors.
It’s not special value but the factors that Mr Gower has taken into account around the formula of beta times market risk plus risk free rate for the cost of equity, and if you don’t take it into account there you need to take it into account in the negotiation, and Mr Gower makes that point and also makes the point that if the discount rate, as Mr Palassis seems to have done, is applied across the portfolio by the entity that is acquiring, they’ve got other hospitals, then they’re not going to give the whole of that value to the lessee in this one,
HIS HONOUR: Thank you, that’s helpful, but what I wanted to make perfectly clear, because it’s a very important point as far as I’m concerned, is it common ground between the parties that the method of calculating what are called mesne profits in this case in relation to the Hospital Lease is what Mr Palassis describes as a methodology akin to a residual land value assessment? Is that common ground?
BURTON: Subject to the matters I’ve mentioned, which include that negotiation on the actual amount paid, I think the actual method of doing it - you discount the cash flows back and end up with an NPV and it’s either negative or positive, and then what you do with that is at issue, but the method of doing that is not at issue as we understand it, yes.
DUBLER: Could I take you to the defendant’s submissions in reply, which is what I was relying upon? And my friend confirms there’s a lot of difference between us but the methodology isn’t the main area.
BURTON: Sorry, yes, the minor point was we say it’s negative so therefore your Honour won’t get to the point about the negotiation or what you do with the residue because there isn’t any residue; it’s a negative NPV.”

By the time of final submissions, both Mr Dubler SC and Mr Burton SC had been in this case for many years, including the original liability proceedings heard by Nicholas J. To my observation, and with great respect, their knowledge of the history of these proceedings and their clients’ cases was intimate and encyclopaedic. I accept Macquarie’s submission that, for present purposes, it is highly significant that the qualifications expressed by Mr Burton SC to my question made no reference to the Threshold Issue. I have no doubt that if the Threshold Issue was being relied upon in the way that the Health District now says it was, Mr Burton SC would either himself or after reminder from one of his team, have included in the qualifications which he gave to my answer a reminder that there was an anterior and potentially dispositive issue about which the parties were in fierce disagreement.
Sixth, Schedule A of the Principal Judgment sets out the issues identified by the parties for determination, a framework which they prepared at my request to enable the orderly disposition of the Court’s reasons. The preliminary legal issues identified were:

“A.   PRELIMINARY LEGAL ISSUES
1.   Period of trespass
What is the period over which damages are to be assessed?
2.   Mesne Profits
What is the nature of trespass damages and mesne profits, including compensatory and restitutionary aspects?
3.   Methods for assessing trespass damages
What are the relevant methodologies for assessing the plaintiff’s claim for trespass damages?
4.   Application to plaintiff’s claim
What are the relevant assumptions to make in assessing the plaintiff's claim?
5.   Position of plaintiff and position of the defendant
In the assessment of mesne profits or market rent, to what extent should the Court have regard to the actual position of the plaintiff and the defendant and the way in which each party says it would have behaved after 17 March 2000?”

Had the Threshold Issue been one that was being raised in the way for which now the Health District contends, it would have been an obvious question to include in the preliminary legal issues. It was not included.
Seventh, I accept Macquarie’s submission that Macquarie’s outline of the Health District’s case (reproduced in paragraph [30(5)] above) correctly identifies that the Health District’s reliance on existing state and usage was an ultimate fallback position which became relevant only if the Court accepted that the contractual rights represented by the Hospital Lease had no value because of Macquarie’s unwillingness or inability to build the private hospital. Macquarie’s outline not only does not support, but also contradicts, the submission that the Health District had raised the Threshold Issue.
Finally, I accept Macquarie’s submission that the various pleadings, submissions and transcript passages upon which the Health District relies do not, in context, support the proposition that the Threshold Issue was raised during the hearing of the Damages Enquiry that gave rise to the Principal Judgment. The context demonstrates the opposite. I will give some examples.
The Health District submitted that it had pleaded the Threshold Issue in paragraph 7(a) of its points of response.
In Macquarie’s Fourth Further Amended Points of Claim re Damages Inquiry, Macquarie said:

“12. The plaintiff claims damages for trespass, being a claim for mesne profits measured by applying a reasonable rate of return per annum on the market value of the Hospital Site over the period 17 March 2000 to the date possession is restored, or alternatively, measured by the market rent for the Hospital Site over the same period or alternatively, measured in the manner pleaded at paragraph 2(d)(i) of the Reply.”

By its Points of Response to Fourth Further Amended Points of Claim re Damages Inquiry, the Health District responded (emphasis added):

“7(a)   admits that mesne profits is a form of damages for trespass known to law but does not admit that any of the plaintiffs alternative claimed bases of measurement or calculation is a claim for or measure or calculation of mesne profits as known to law or otherwise is a form of claim for or measure or calculation of damages for trespass known to law;
(b)   says that any of the plaintiff's bases of claim or bases of measurement are too speculative, undefined and uncertain as to be capable of recognition, determination and assessment;
(c)   says that the bases of or calculation of mesne profits known to law should take into account the following matters (in addition to other matters taken into account in such bases or calculation);
(i)   the Interdependence of the construction deed, the Hospital Lease, the carpark lease, the carpark sub-lease, the co-ownership agreement and the car parking management agreement (“the Transaction Documents"), which Interdependence was found by Hon Justice Nicholas at [645]-[650] of his Honour’s reasons and was not challenged on appeal;
(ii)   the rent payable by the plaintiff under the terms of the Hospital Lease and the carpark sub-lease;
(iii)   the chance that the defendant would have terminated the construction deed, the Hospital Lease, the carpark lease and the carpark sub-lease, had the trespass not occurred (under the respective default provisions of those Transaction Documents, by reason of default under those Transaction Documents);
(iv)   the revenue received by the defendant, and the loss suffered by the plaintiff, by reason of the trespass;
(v)   the breaches (prior to 17 March 2000) by the Plaintiff of the construction deed (as found and declared by the Court of Appeal, and also comprising the failure by the plaintiff to complete the construction of and open the private hospital and the carpark in accordance with the plaintiff's obligations in the Transaction Documents);
(vi)   the capacity and willingness of the plaintiff to construct the private hospital;
(vii)   the commercial feasibility of constructing the private hospital;
(vili)    the willingness of any putative tenant to lease the carpark and the private Hospital Leasehold sites (either separately or together);
(ix)   the terms upon which the plaintiff (as at 17 March 2000) was willing to part with possession of the carpark and the private Hospital Leasehold sites and the terms on which the defendant was willing to permit such parting with possession;
(x)   the absence of material use by the defendant of the private Hospital Leasehold sites during the period of trespass;
(xl)    the building and operation by or on behalf of the defendant of a multi-storey covered carpark, including in the structure or preserving beneath the structure the existing grade spaces, behind King George V Building (“the Susan Street carpark") for public and/or staff use.”

Even taken in isolation, I do not agree that, read fairly, paragraph 7(a) of the Health District’s response raises the Threshold Issue. In my respectful view, it also does not do so when read in context, particularly when read with paragraph 7(c) I understand from those pleadings, and I am satisfied that it was the case the Health District ran, that for Macquarie’s claim to be mesne profits known to law, it would have to take into account the various matters set out in paragraph 7(c). This was the notification of the Health District’s case that when all the relevant contingencies were taken into account, there was no loss because Macquarie would not or could not have built the private hospital.
Next, there is a certain irony that the only point at which an argument along the lines of the Threshold Issue was raised with the plaintiff appears to have been by the Court arguendo in relation to the valuation of the Hospital Lease (T5015:4-T5016:38):

“HIS HONOUR: That may be right if the analogy is the right analogy at the end of the day, because this is now trespassing in the Hospital Lease area, and I understand it relates also to the car park, but in relation to the Hospital Lease, if you knew nothing about this case and just looked at what the book says as to how mesne profits should be calculated, one might say, well, what you get is the rental value of that piece of dirt on which the hospital was meant to be constructed, with whatever zoning or anything that attaches to it. The valuer just goes in and says, "Here's a piece of land. What's the rental value of that piece of land?"

That is a different thing to the value of the lease, because what mesne profits looks to is the land. So simpliciter what's the rental value of that piece of land.
DUBLER: Yes, well, it's more or less how we put our Hospital Lease point.
HIS HONOUR: Yes, but my point is: Is there a distinction between the Hospital Lease it's not the property lease, it's the not the lease, it's not your exclusion from the lease that's being valued. It's your exclusion from the land.
DUBLER: Yes.
HIS HONOUR: What's the value of the land?
DUBLER: Yes.
HIS HONOUR: Well, that's not affected by the lease on this theory.
DUBLER: No, I see.
HIS HONOUR: It's just you've got a right to occupy some land. They've been occupying it. What's the rental value of that piece of land?
DUBLER: But the trouble with that is that one has to be if focussed on what's the interference in the right and the right is the property rights under the lease and so what is then valued is the value of the remaining period of the lease on a deferred annual basis which we say is the result of that line of authority. In some ways it could mean over compensation if you focus on the land rather than the lease.
HIS HONOUR: No, the other way. I would have thought there's a much greater risk of over compensation if we focus on the lease.
DUBLER: Well, we say that that is the correct debt. So what is the value of the rights that are interfered with, at least that is how it was put in Bunnings.
HIS HONOUR: The right that was interfered with in Bunnings was an asset, this is the problem that we are dealing with quite a different thing. The rights in Bunnings and all these other things were things that by their nature, as I said to you earlier, were capable of being exploited by letting or hiring.
DUBLER: Being used lawfully.
HIS HONOUR: Being used lawfully doesn't matter. A piece of land, an apartment, a pallet, but that's not what we're dealing with in relation to the Hospital Lease, if you look at it as the Hospital Lease. If you look at it as the land, well, it's a piece of land.
DUBLER: Yes. I'll come back to that when we deal with the Hospital Lease.
HIS HONOUR: I just thought I should flag it because you're looking at a proposition here that fairly and squarely I understand perfectly the point you make in 34 but that is a point that can only work if what we're looking at is the lease rather than the land.
DUBLER: Yes. If one is looking at the land and not the lease, then how do we get into the area of default anyway?
HIS HONOUR: Precisely.
DUBLER: So that's the first proposition.
HIS HONOUR: Precisely on that basis.
DUBLER: Your Honour says to me, "Well if we get rid of the default you're valuing the land not the lease", and I said, "Well it's close to that anyway", but what we are looking at is the value of the land with its potentiality, and you can't value land with ignoring the fact that it's well down the track of getting a hospital on it and that's how you make money out of it.
HIS HONOUR: But then I get down to the problem that as we know, I think we discussed during the course of some of the expert evidence, there's no market for a ten or 15 year lease, an opportunity to build a hospital for just ten or 15 years.”

Nowhere does the transcript record that line of argument was taken up by Mr Burton SC for the Health District to the effect that the Court had there put what was a fundamental and anterior argument being raised by the Health District.
The Health District also relied upon the fact that in paragraph 21.1 of its closing submissions conspectus it said:

“21.1 The plaintiff’s claimed methods of measurement or calculation are not forms of mesne profits or otherwise forms of trespass known to law”.

The Health District submitted that, thereby, the Threshold Issue was “squarely put”. This part of the Health District’s closing submissions conspectus repeats or paraphrases the pleadings set out in paragraph [50] above. For the same reasons given above, I am not satisfied that the formalistic recitation of the pleading raises the Threshold Issue “squarely” or otherwise. Taken as a whole, the closing submissions conspectus provides quite a different picture. It commences with what are described as “fundamental considerations” which include (emphasis added):

“1.   This conspectus addresses the plaintiff’s new case from the amendments for which leave was granted, on conditions, by orders dated 26 September 2014. However, it also draws on the plaintiff’s changes of case to illustrate what, in the defendant’s submission, is a just outcome.
2.   Underlying any structure of issues or particulars, the plaintiff seeks to focus on the fact that it was out of possession for 14 years because of a non-compliant section 129 notice as the CA found (overturning Nicholas J on that point), and that it is entitled to monetary recompense as a just outcome.
3.   The defendant submits such an outcome is not meritorious per se, does not automatically follow and in the overall circumstances of this case would not be just.
4. This case differs from the norm in trespass. Usually what has been interfered with is actual possession of land or other property, or possessory rights to either, which has an existing state or usage, and which has been actually used by the trespasser in that existing state or which could have been used by the trespasser in a manner capable of reasonably certain definition in that existing state: “use of property that earns or is capable of earning a profit”: Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420 at [173] per Allsop P for the plurality. For instance, an apartment building has been or could have been used for rental as apartments, vacant land was used or could have been used for storage or pasturage (saving the trespasser the costs of finding the alternative and re-locating there); equipment was used or could have been used in the business or for its purposes.
5.   In contrast, the plaintiff is not content with the net revenue (if any when rental due to the defendant as head lessor is taken into account) from the defendant’s actual use of the private hospital and carpark leasehold and sub-leasehold sites in their existing state and usage, which has been the subject of an open offer in the defendant’s points of response from the outset of the inquiry: see para 9(4) in the original points of response filed 17 October 2012 and repeated in each subsequent response to a change in the plaintiff’s case. On the plaintiff’s case, it was dispossessed of two leasehold sites, for the first 14 years out of leases which still have 85 years of tenure to run as at 30 November 2014 and which had approximately 89 years of tenure as at the date of the CA reasons and orders in late 2010. The plaintiff’s claim is for a value for the temporary loss of those possessory rights beyond the sites in their existing state or usage. The value claimed lies in the contractual right by way of opportunity to use both sites beyond their existing state or usage and that opportunity is contingent upon the plaintiff fulfilling its contractual obligations to realise the opportunity; the sites are not “earning or capable of earning a profit” in the manner and value claimed until that occurs. …
…
8.   The Court does not, on the authorities and as a matter of principle and justice, have to give the plaintiff money just because it was dispossessed. The damages sought in trespass, beyond nominal damages to vindicate possessory rights, are compensatory, not penal. Definition of what the plaintiff has “lost” in terms of value of temporary interference with its property rights (in this case, possessory rights) must take into account the nature of those rights as outlined above - an opportunity whose realisation was contingent on fulfilment of contractual obligations, beyond the defendant’s actual usage of the site in its existing state, on performance of which obligations the plaintiff was in essential default. To the extent that damages for trespass contain a restitutionary element or overtone within compensation (which is controversial, particularly where the plaintiff has from the outset, as required by the Court of Appeal, made an election and that election has been for compensation not an account of gain or benefit to the landlord4), the usual focus in restitution is on actual gain or benefit to the defendant. As already stated, actual gain or benefit to the defendant has been the subject of an open offer in the defendant’s points of response from the outset of the inquiry: see para 9(4) in the original points of response filed 17 October 2012 and repeated in each subsequent response to a change in the plaintiff’s case.
9.   The primary touchstone of the authorities on damage for trespass appears to be to find a mechanism that achieves a just and principled outcome in the circumstances of the case that recognises the nature and use of the property or possessory right interfered with.
10.   A market rental, or reasonable rate of return, or investment return on assignment or compensation value, at the unadjusted levels for which the plaintiff contends and on the plaintiff’s methodology of assessment, would be grossly dysfunctional, not just disproportionate, and not a just or principled outcome in the circumstances of this case given the nature and consequent effect on value of “loss” of the possessory rights in question in this case as outlined above.”

After summarising the parties’ positions, the document concludes:

“22. In essence, the plaintiff was and is in no position to derive more value from the leasehold sites than the defendant actually derived, because the plaintiff could not and would not have exploited the contractual opportunity beyond the existing state of the land at the start of the trespass and was thereby in default of its contractual obligations, on which the value of the opportunity afforded by the plaintiff’s possessory rights depended. To the extent that is not already taken into account in the risk and value assessment as part of the exercise of expertise, it is taken into account to adjust the plaintiff’s recovery.”

It then goes on to a section headed “Legal Principles” which commences by referring back to the fundamental considerations:

“23. The fundamental considerations, as reflected in authority, to achieve a just and principled outcome in the circumstances of this case have been outlined in 1-11 above and are explored further below. The stages by which that outcome is reached are first dealt with.
24. As a top-line benchmark, one engages in an exercise of expertise through valuation to establish the hypothetical value (if any) of the possessory rights interfered with apart from the particular circumstances of the case. In other words, the exercise of expertise is directed to the value to a hypothetical acquirer apart from the plaintiff of the possessory right with its contractual entitlements and obligations and the associated risks of realising the opportunity which was the character of those rights.”

The subsequent analysis of the authorities includes (emphasis added):

“36. What is “reasonable”, “appropriate in all the circumstances” and will recognise the special nature of the claimed right interfered with in this particular case requires an analysis of and adjustment for nature and state of the possessory right in question and the nature of its use. The focus of the existing authority has been on property rights in their existing state and use. Any contractual obligations are related to the existing state and use; opportunities for use derive from the existing form and use. Thus, in Inverugie, the trespass was to leased apartments operating as part of an existing hotel business with the usual opportunities and risks of that existing business and, it appears, the usual lease covenants appurtenant to an existing building used for such existing business. In Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420, [2011] NSWCA 342, there was no contractual relationship between the dispossessed and the converter but the property (pallets) were existing and had a defined existing use arising directly out of and defined by their existing state. Anything beyond the existing state and use would introduce something “special in the particular case”: Megaw LJ in Swordheath Properties Ltd v Tabet [1979] 1 WLR 285 at 288, cited with approval by the PC in Inverugie [1995] 1 WLR at 717H.
37. By contrast, and perhaps uniquely, in the present case the possessory right of which use was lost, and for which loss is to be measured by a reasonable rental appropriate in all the circumstances, was the plaintiff’s contractual entitlement (with interdependent obligations) to exploit an opportunity to change the existing state and use. While the sites were interdependent in development, the focus of opportunity on the carpark site was to change the existing permitted limited interim occupancy use to achieve more than limited RPA staff patronage by completing the carpark consent conditions and substantially commencing stage 1 of the private hospital and to add a further 199 car spaces by substantially commencing stage 2 of the private hospital. The focus of opportunity on the Hospital Site was to substantially commence, build and open the private hospital. The contractual entitlement to realise the opportunity was contingent on contractual obligations to achieve the changes to existing state and use, as to which the plaintiff was in essential default at the commencement of the period of trespass.”

Only at the conclusion of its legal analysis (conformably with the approach to the argument as summarised by Macquarie set out in paragraph [30(5)] above) does the conspectus record reliance on the Health District’s actual usage of the Hospital Site (emphasis added):

“43. The defendant’s actual usage of the plaintiff’s possessory rights has been in their existing form and use and has fully utilised that existing form and use. Absent evidence of a reasonable rental for the possessory rights in their existing form and use being higher than what the defendant has actually derived by net positive outcome (if any) from that actual usage, the defendant accepts, and as stated above has accepted from the outset, that an appropriate proxy is the actual outcome from actual usage. In Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420, [2011] NSWCA 342, which did not involve any contractual relationship between the dispossessed and the converter, the plurality in the CA at [179]-[181] placed emphasis on demonstrating matters that are based in compensation and actual usage; in Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285 at [338]-[339], Edelman J pointed to the authoritative allowance for deductions “to reflect expenses which the plaintiff would have incurred if the plaintiff had been in occupation”.

Nowhere in the closing submissions conspectus is there anything expressly or implicitly to the effect of the Threshold Issue. The value of the existing form and use of the Hospital Site is relied on at the end of the Health District’s chain of reasoning and not at the forefront as an anterior and potentially dispositive question.
The Health District also drew attention to paragraphs [35] and [36] of its written submissions dated 30 June 2015 concerning the calculation of mesne profits. However, again, I accept Macquarie’s submission that those paragraphs need to be read in context. They are part of a document which includes (emphasis added):

“8   A number of basal propositions should be kept firmly in mind. These include:
(a)   Trespass is a tort.
(b)   The general and formative rule regarding compensatory damages (in both tort and contract) is that they are to be assessed on the basis of putting the injured party, so far as it is financially possible to so do, in the same position as the party would have been had the wrong not occurred - no more and no less".
(c)   Nevertheless, the common law “pragmatic as ever” has long recognised that there are “many commonplace situations” where the strict application of this principle in relation to the recompense for interference with rights of property would not do justice to the parties and have developed exceptions to the general rule. These have been looked upon as being exceptions to the general rule.
(d)   In these “exceptions”, the compensation for the wrong done is measured by another yardstick. The ‘first and best established’ exception is the claim for mesne profits for trespass to land: other exceptions or situations (which by analogy applied the principles of assessment of mesne profits) include claims for detinue and conversion, for patent infringement and for the assessment of damages awarded in lieu of a final injunction.
(e)   The yardstick for mesne profits is that they are ordinarily calculated by reference to the “reasonable letting value” or “reasonable rent” or “market rental” of the land or chattel the subject of the trespass and use. This is referred to as the “user” principle.
(f)   There is a tension within both English and Australian authority as to whether the user principle is, in fact, a compensatory or restitutionary remedy or a combination both.
(g)   The primary touchstone of the authorities on damage for trespass appears to be to find a mechanism that achieves a just and principled outcome in the circumstances of the case that recognises the nature and use of the property or possessory right with which the defendant has interfered.
(h)   The Court must be wary that whatever the measure utilised, it does not lead to over-compensation. The Court must not give “greater measure of relief than would be justified by the nature of [the claimant’s] right”.

Then paragraphs [35] and [36] need to be read in their specific context:

“Need for an “existing” use
30   A significant qualification on the availability of mesne profits is that the possessory right of use that has been interfered with must be a “use” that has existence. If it does not have an existence, it necessarily follows it cannot be wrongfully used.
31   An analysis of the authorities demonstrates without exception that each claim for damages was for the wrongful interference or invasion of land or chattels in an existing and identifiable state and use. They demonstrate that the land or chattel has been or could have been used in their existing states or could have been used in a manner capable of reasonably certain definition in that existing state.
32   In the limited number of cases where contractual obligations are attached to the claimant’s land or chattels, those contractual obligations (and entitlements) were related in a readily realisable manner to the existing state and use of the land or chattel. That is to be contrasted with plaintiff’s claim here.
33   The plaintiffs claim here is that its contractual entitlements should be front and centre when determining the possessory right it lost by the defendant’s trespass, namely, its contractual entitlements with attendant obligations to realise and exploit the opportunity to change the existing states and use of the car park and Hospital Leasehold sites. But that is not the possessory right use of which was lost by the defendant’s trespass. It was not lost because the opportunity to exploit it was illusory. It was illusory and had no real existence because it was incapable of fulfilment by the plaintiff (Conspectus [36]-[37]).
34   It follows if the possessory right claimed to be interfered with does not have existence (in a commercial or practical sense), there can no loss to compensate.
35   Consistent with authority, the court should have regard to the existing state and use of the plaintiff’s possessory right when assessing the defendant’s liability, if any, to mesne profits and their value.
36   In this regard (Conspectus [43]) SLHD’s actual usage of the plaintiff’s possessory rights has been in their existing form and use. it is uncontroversial that the defendant’s actual gain has been the subject of an open offer to the plaintiff since the defendant’s first response to the plaintiff original points of claim.”

Nevertheless, as with the partly excluded costs, some allowance for the contentious excluded costs should be made to reflect the Court’s acceptance of the likelihood that were a detailed assessment of the contentious excluded costs ever to be undertaken (the cost of which I am certain would be disproportionate to the benefit to be obtained in improving the accuracy of any assessment), some of Macquarie’s costs that should be excluded would be identified. Doing the best I can, and consistently with the view I took in relation to the partly excluded costs, I am satisfied that justice will be done to both parties, but in particular to the Health District, if 10% of the contentious excluded costs identified by the experts were excluded from Macquarie’s total claims. This requires a deduction of $56,790.30.

Costs – adverse costs: Mr Milou

The experts identified $279,471.25 of costs in relation to Macquarie’s Car Park Site damages expert Mr Milou ($225,700 of this were his fees). In their joint report, the experts said:

“Mr Milou
45.   We identified a further category of costs which was not included by either party in its summaries of the Adverse Costs which we consider should be taken into account as a Partly Excluded Cost, and that was the work relating to the report of Mr Milou.
46.   Mr Milou was an expert relied upon by Macquarie in relation to the valuation of the Car Park. The transcript of day 6 of the hearing records Mr Dubler SC explaining that Mr Milou’s reports addressed both a scenario of lost profits and one of mesne profits (pages 286 and 287 of the transcript).
47.   Thus, it was likely that the cost of retaining him, including the instructions provided to him, conferences with counsel and work assisting him, was partly thrown away when his evidence on the loss of profits was no longer useful.
48.   Due to the fact that the parties themselves had not identified Mr Milou as a witness which might be taken into account as an Adverse Cost we have placed the costs relating to his reports (up to 26 September 2014) in a separate calculation.”

Macquarie submitted that none of the costs associated with Mr Milou should be excluded because all of his evidence and reports remained relevant and was relied upon by Macquarie on all of the issues relating to damages in connection with the Car Park Site. Macquarie drew attention to the fact that in its points of claim filed after the granting of the Second Amendment Application, it expressly relied upon seven reports of Mr Milou which had been served in the proceedings to that date.
The Court accepts Macquarie’s submission for the reasons identified in paragraph [229] above. The profitability of the Car Park Site in matters such as daily fees and operating expenses, which were considered by Mr Milou, all remained relevant for the mesne profits case. However, for the reasons given in paragraph [230] above, I am satisfied that a similar 10% allowance should be made in relation to the costs identified as relating to Mr Milou prior to the time of the Second Amendment Application. This means that a further $27,947.12 should be deducted from the total amount of costs claimed by Macquarie.

Costs – adverse costs: conclusion

The position reached thus far can be summarised as follows:

$8,142,775.78

[Amount claimed by Macquarie as set out in Joint Experts’ Report]

- $890,721.52

[Excluded costs]

- $55,952.50

[Mr Wright]

- $107,798.36

[Allowance for partly excluded costs]

- $56,790.30

[Allowance for contentious excluded costs]

- $27,947.12

[Allowance in relation to Mr Milou]

Total $7,003,565.98

For the purposes of the calculation that follows, I will round that figure for Macquarie’s claimed costs to $7,000,000.
The costs experts agreed that once the Court had come to a view as to the appropriate deductions for adverse costs, it would then be necessary to consider their respective methodologies as to how the Court should arrive at a gross sum costs order.

Costs – the experts’ approaches

I have already set out Mr Dudman’s description of his methodology in paragraph [146] above. In summary, after making specific deductions on the various invoices, he applied what he referred to as “further global reductions” in varying percentages. Importantly, as will also be apparent from the extract from his report in paragraph [146] above, Mr Dudman said that he had made allowance for the adverse costs issue. However, it was very difficult, if not impossible to tell exactly for what amount and on what basis he had done that. This did reduce the weight I thought should be given to Mr Dudman’s overall conclusions.
Ms Vine-Hall’s report took issue with a number of fundamental matters in Mr Dudman’s report, in particular how S Moran & Co’s fees and Mr Dubler SC’s fees would be treated on an assessment. I will return to this. Like Mr Dudman, Ms Vine-Hall applied various percentage deductions based on her knowledge and experience. For reasons which I have already explained, her report did not take make any deductions for the adverse costs issue.
Before I express any further views on the relative merits of the experts’ reports, and because the Court is engaged in a broad brush exercise, a useful starting point is to look at the outcomes of each of the experts globally as to their assessments on the ordinary basis.
In his initial report (as corrected by him later), Mr Dudman expressed the view that on assessment Macquarie would likely recover $6,893,498.63 of total costs incurred of $8,324,666.65. This represents a recovery of 82.80%.
Mr Dudman prepared a second report dated 17 December 2017 in which he took into account the excluded costs from the joint experts’ report (but not any deductions for the partly excluded costs, contentious excluded costs, Mr Milou or Mr Wright). He also sought to incorporate the Recent Costs which I have discounted as set out in paragraph [210] above. In his second report, Mr Dudman opined that Macquarie would recover costs of $6,792,895.54 from total costs expended of $8,461,422.79. This represents a recovery of 80.28%. Because it does take into account the agreed excluded costs, I will treat Mr Dudman’s second report as the more reliable and authoritative one for the purposes of the comparison I am making.
In her report, Ms Vine-Hall expressed the opinion that Macquarie would recover $5,981,147.86 from a total claim of $8,135,494.48. This represents a recovery of 73.52%.
In making this global comparison I have not overlooked that Ms Vine-Hall’s report does not take account of adverse costs. That does not, in my view, invalidate the comparison of the outcomes of the methodology which each of the experts applied. The issue of adverse costs goes to the starting point of the amount of Macquarie’s claim, not to the proportion between the claim and what might be recovered.
The point I draw from this comparison is that the overall percentage rate of recovery arrived at by the experts is not all that far apart when considering the broad brush nature of the exercise in which the Court is engaged.

Costs – resolution

For the following three reasons I prefer Ms Vine-Hall’s approach;

Overall, Ms Vine-Hall’s report demonstrates a closer engagement with the financial and practical detail of the case. This includes her identifying some mathematical errors and double counting in Mr Dudman’s report. That engagement with detail has substantive consequences. For example, in relation to senior counsel, Mr Dudman considered the daily and hourly rates that were charged to be reasonable and likely to be recovered in full on a costs assessment. In her report, Ms Vine-Hall engaged more precisely with what senior counsel was charging, and when, and analysed the issue by reference to what costs assessors were allowing for senior counsel in particular years, as well as referring to the Costs Assessor’s Rules Committee’s Guideline for Senior Counsel’s Rates in 2016. This is only one example of a more precise approach demonstrated in Ms Vine-Hall’s report. In making this observation and in fairness to Mr Dudman, I should record that he made plain in his report that he had been given only ten days in which to prepare his report.

The most substantial differences in principle between Mr Dudman and Ms Vine-Hall were how two related matters would be treated: the relatively low rates charged by Macquarie’s solicitors and the very high reliance on junior counsel and, in particular, senior counsel for the day to day management of the matter. I found Ms Vine-Hall’s analysis of both of these issues more persuasive than Mr Dudman’s approach. Ms Vine-Hall’s views on these matters, with which I agree, are set out in her report:

“106.   I agree with Mr Dudman that the rates charged by S Moran & Co are low compared to the market rates during the period 2012 - 2017; however, I do not agree with the suggestion at paragraph 63 of Mr Dudman’s report that the low hourly rates and the transference of most of the work to counsel reflects “strong management” of the costs by Macquarie.
107.   What Mr Dudman has characterized as strong management, that is the transference to counsel of work that would normally have been conducted by a solicitor has, in my opinion, resulted in higher costs.
108.   This is because counsel’s fees are generally presented in a manner which is less transparent to that required of solicitors and thus harder for a cost consultant to review for reasonableness, and also the rates charged by counsel may be higher than those charged by a solicitor for the same work.
…
125.   I refer to paragraph 79 of Mr Dudman’s report. I agree with Mr Dudman that in a matter that is conducted without over reliance on counsel, a litigant is likely to recover a greater percentage of counsel’s fees than the reductions generally suffered by solicitors’ fees.
126.   I do not agree with Mr Dudman’s opinion in paragraph 83 of his report that a litigant generally recovers 90%-95% of counsel’s fees, as the range of recovery will depend on many issues including the rates charged and the nature of the work undertaken. Thus, in circumstances such as the conduct of the Proceedings utilising counsel for the work generally undertaken by solicitors, it is likely that there would be a much greater percentage reduction, particularly in senior counsel’s fees, to reflect the unusual management of the Proceedings.
…
134.   I agree with Mr Dudman’s opinion that a rate of “generally” “$8000 to $8800 per day and $800 to $880 per hour for senior counsel is reasonable and likely to be recovered in full on cost assessment” for work in 2016-2017; however, this rate does not apply across the whole of the period and is inconsistent with the costs agreement in exhibit “PWM Costs” to Ms Moran’s Affidavit.
136.   Mr Dudman has not provided details of the manner in which he has addressed the fact that senior counsel was undertaking much of the work usually undertaken by junior counsel and that there may have been a significant overlap/duplication of effort between junior and senior counsel.
…
139.   In my experience of reviewing files in commercial litigation, the preparation of a bundle of documents for use in the proceedings is generally undertaken by either a junior lawyer or junior counsel at rates of 50% of the rate charged by Mr Dubler SC.
…
142.   In my experience, the almost daily work conducted by Mr Dubler SC reflects an over reliance on senior counsel by both the solicitors and by junior counsel. The costs resulting from this method of work practice, particularly given the high hourly rates charged by Mr Dubler take this matter out of the ordinary range and this is an issue which should be reflected in the calculation of a figure for a gross sum cost award.”

For the following reason, I was left with a lingering concern about the reliability of Mr Dudman’s approach when he presented his second report. As I have already noted, that report sought to take into account both the agreed excluded costs of $890,721.52 and the Recent Costs in their full amount of $329,397.32. Notwithstanding the extensive work undertaken by the experts to identify and agree on the excluded costs of $890.721.52, Mr Dudman’s corrected figure for Macquarie’s recoverable costs in his first report of $6,893,498.63 was only reduced by $100,603.09 to $6,792,895.54. When cross-examined about this apparently quite small difference notwithstanding the large amount of agreed excluded costs, Mr Dudman’s answers were to the effect that he had already taken into account adverse costs in his first report. He may well have done so. The difficulty from the Court’s point of view is that the way in which his reports were prepared meant that it was not really possible to come to a clear understanding as to how this was so. This apparent discrepancy left residual doubt in my mind about the reliability of Mr Dudman’s approach and his willingness as an expert to make proper concessions where it may not have been in his client’s interests to do so.

In coming to the conclusion that I should prefer Ms Vine-Hall’s approach, it is not necessary for me to resolve some particular areas of dispute between her and Mr Dudman. In particular, they disagreed as to what (if any) allowance should be made for Macquarie’s in-house solicitor Ms Cousins or for work done by the firm of Bruce & Stewart. The fees involved, for example, in relation to those two disputes represent 1.46% of the $7,000,000 claim under consideration and are de minimis for the purposes of a gross sum costs order in this case.
In accepting Ms Vine-Hall’s approach to these central questions, I am not to be taken as being critical of Macquarie or its legal advisers for the way in which they chose to deploy the various legal resources available to them. However, the principles underlying the assessment of costs engage different considerations from those which might justify particular cases being run in particular ways. Whether something will or will not be recoverable on assessment is but one of many factors that clients and their lawyers take into account in making decisions as to how to run litigation.
Based upon the outcome of Ms Vine-Hall’s report (see paragraph [242] above), for the purposes of a gross sum costs order I propose to allow 73.52% of the $7,000,000 total costs incurred as determined in paragraph [235] above. This gives a figure of $5,146,400. However, that is not the end of the matter. Two further deductions need to be considered.

Costs – a general discount?

First, there is the question of whether the Court should make a further global percentage reduction as is often done in the case of gross sum costs orders. The basis for doing so was explained by Brereton J (as his Honour then was) in Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640:

“56. The first defendant submits that there should be a further global percentage reduction of 15%, for two main reasons: first, because on assessment, even on the indemnity basis, a successful party invariably recovers something less than its actual costs, typically 15% where the assessment is on an indemnity basis; and secondly, the necessarily broad-brush approach of the court to assessment on a lump sum basis – involving some risk that the sum includes costs that would not be recovered on assessment – coupled with the savings to the costs creditor in time and costs through avoiding a detailed assessment, and the loss to the costs debtor of the opportunity to scrutinise and object to a detailed bill, has resulted in a practice of applying a discount on lump sum assessments.
57. While it is undoubtedly the usual practice of the court when making a lump sum costs order to apply a discount for the reasons mentioned, that does not mean that the Court must apply a percentage discount to the sum sought by the successful party, [31] and the Court "must be astute not to cause an injustice to the successful party" by applying "an arbitrary 'fail safe' discount on the costs estimate submitted to the court". [32] Thus if the court can be confident that there is little risk that the sum includes costs that might be disallowed on assessment, the case for a discount is seriously undermined.”

I was initially of the view that this was a case in which it would have been appropriate to make a general discount of 20%. Given the large sums involved and the complexity of the issues, and bearing in mind the rationale identified by Brereton J, the making of a gross sum costs order will result in a significant saving to Macquarie, but also deprive the Health District of the opportunity to engage in what would, I have no doubt, have been a detailed scrutiny of Macquarie’s bill. However, I will reduce the proportion of the further general discount to 15% to reflect the higher degree of certainty that has been obtained through the assistance of the experts in identifying a significant sum of money as excluded costs. 15% of $5,146,400 is $771,960.
As explained in paragraph [210] above, I propose to allocate the Recent Costs of $269,000 towards that discount, so that only $502,960 ($771,960 - $269,000) need be further deducted from the $5,146,400. This gives a final gross sum costs figure of $4,643,440 which I shall round to $4,643,000. This conclusion is subject only to the determination of whether there should be one further discount.

Costs – A discount for Macquarie’s lack of success?

The Health District submitted that if the Court was minded to make a gross sum costs order, there should be a discount of 20% from whatever Macquarie was otherwise entitled to recover in order to reflect Macquarie’s lack of success on a number of issues. The Health District submitted:

“52.   In the Damages Inquiry, Macquarie was unsuccessful, or partly unsuccessful, on the following issues:
a)   Claim for “Escalation Costs” abandoned.
b)   Aspects of Macquarie’s claims as to the “user principle”.
c)   Legal restrictions on pricing in the Development Consent.
d)   Revisitation of opinion evidence of Ms Griffiths.
e)   Reduction of fit-out for shell-only areas.
f)   FFE for initial construction.
g)   Position at the end of the trespass.
h)   Bed day inflation rate 2005-2024 of 3.8 per cent opposed to 4.0 per cent contended for by Macquarie.
i)   Bed day inflation rate 2024-2099 of 2.8 per cent as opposed to 4.0 per cent as contended for by Macquarie.”

In making this submission, the Health District accepted that it would not be appropriate in a matter of this kind for the Court to attempt to apportion costs in respect of discrete issues, but that in adopting a broad brush approach there should be a reduction in Macquarie’s costs by an appropriate percentage amount, in this case 20%.
The Health District also called in aid the fact that while Macquarie was likely to obtain approximately $85 million, a substantial proportion of which was for interest (plus potentially a tax gross up), Macquarie had previously quantified its claim as high as $260 million and, thereafter, at various points on a “best case” basis down to $140 million.
There will be cases where the usual rule that costs should follow the event will be ameliorated by the recognition that it would be unjust to visit all of the costs on the unsuccessful defendant where the successful plaintiff claimed much and won little, or won notwithstanding having lost on many of the issues that were litigated. Cases can exhibit either or both of these features. The Court’s underlying concern in such cases is one of proportionality.
In this case there is no unfairness or disproportionate outcome for the Health District to pay all of Macquarie’s costs on the ordinary basis as assessed by the gross sum costs order. The Damages Enquiry was large and complex litigation, fought between two well-resourced and sophisticated litigants. I observed in the Principal Judgment:

“77 Before leaving this account of the procedural history of the enquiry, I should record that, contrary to the impression that history might give, there was much practical co-operation between the parties. It would not do justice to what occurred if the Court did not acknowledge the many occasions during a long and complex hearing when solicitors and counsel, without resiling from the vigorous advocacy of their client’s respective positions, found sensible ways to accommodate disagreements and save time and, it is to be hoped, costs.”

Without resiling from that observation, this was nevertheless a case in which every point that could properly be taken was taken and no quarter was given or asked. Macquarie has been successful in obtaining a judgment for a very large sum of money. To get to that point both parties put forward many issues, some of which they won and some of which they lost. In the total scheme of this litigation, I am unable to accept that either the difference between what Macquarie claimed and received, or the number of discrete issues on which it might have failed, are of such magnitude or significance to warrant a departure from the usual outcome that the Health District as the unsuccessful defendant should pay all of Macquarie’s costs of the enquiry as assessed by the Court.
The orders which the parties bring in should include an order that the Health District should pay Macquarie’s costs of the Damages Enquiry, the Guarantee and Indemnity Proceedings and the L&E Proceedings assessed on a gross sum basis as $4,643,000.

Conclusion

The Court will direct the parties to prepare short minutes of order giving effect to these reasons and such other orders consistent with the Court’s earlier judgments as are necessary to bring the Damages Enquiry [1] to a formal conclusion.
1. In these reasons I have adopted the convention of referring to this process as an “enquiry” because it was an “enquiry” that was ordered by the Court of Appeal: see paragraph [28] of the Principal Judgment. The parties’ submissions and the transcript have not been consistent between “enquiry” and “inquiry”. This reflects the truth of the observation in the Macquarie Online Dictionary for “en-” that “corpus evidence shows that in Australian English a distinction in meaning has arisen between ensure and insure. In other cases, for example, enquire and inquire, the forms are interchangeable.”

Endnote

Amendments

17 July 2019 - Amendment to paragraph 250.

Decision last updated: 17 July 2019

Key Legal Topics

Areas of Law

Civil Litigation & Procedure

Legal Concepts

Limitation Periods
Costs
Injunction
Trespass
Causation

Actions

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Citations

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 12) [2019] NSWSC 916

Most Recent Citation

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2024] NSWDC 233

Cases Citing This Decision

5

Sydney Local Health District v Macquarie International Health Clinic Pty Ltd (No 2) [2020] NSWCA 316

Sydney Local Health District v Macquarie International Health Clinic Pty Ltd [2020] NSWCA 274

In the matter of Glenvine Pty Limited (in liquidation) [2020] NSWSC 1017

Cases Cited

21

Statutory Material Cited

3

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 11) [2017] NSWSC 1249

Suttor v Gundowda Pty Ltd [1950] HCA 35

Medium Neutral Citation:	Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 12) [2019] NSWSC 916
Hearing dates:	9 December 2016; 14 February 2017; 4, 20 October 2017; 13, 16, 17 November 2017; 18 December 2017; 9 May, 21 June 2019.
Decision date:	17 July 2019
Jurisdiction:	Equity
Before:	Kunc J
Decision:	Application to re-open refused; gross sum costs order made; parties to bring in short minutes to finalise damages enquiry
Catchwords:	COSTS - Party/Party - Bases of quantification - Factors relevant to the court’s discretion when quantifying costs – Whether gross sum costs order should be made where successful plaintiff was liable to defendant under several interlocutory costs orders – Civil Procedure Act 2005 (NSW), s 98(4)(b) COSTS - Party/Party - Exceptions to general rule that costs follow the event - Offers of compromise/Calderbank offers – Plaintiff succeeds on basis not pleaded at the time defendant rejected Calderbank offer – Plaintiff’s application for indemnity costs from date of Calderbank offer rejected COSTS - Party/Party - General rule that costs follow the event - Proceedings discontinued or dismissed – Plaintiff (in effect cross-claimant) to pay defendant’s costs on the indemnity basis where claim not pressed after Court declines to deal with claim on the papers DAMAGES - Measure and remoteness of damages in actions for tort - Measure of damages - Assessment of mesne profits for trespass by landlord against tenant where rights included 103 year lease to build and operate car park and private hospital – Damages assessed as at date cause of action arose PROCEDURE - Judgments and orders - In general – Whether leave to reopen argument should be granted – Whether argument said to have been overlooked had been put TORTS - Trespass - Trespass to land and rights of real property – Measure of damages – Trespass by landlord against tenant - Assessment of mesne profits where rights included 103 year lease to build and operate car park and private hospital – Damages assessed as at date cause of action arose
Legislation Cited:	Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300 Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 Calderbank v Calderbank [1975] 3 All ER 333 Colgate-Palmolive Company v Cussons Pty Ltd [1993] 46 FCA 536; (1993) 46 FCR 225 Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 El Ali v Tritton [2019] NSWCA 111 Hamod v State of New South Wales [2011] NSWCA 375 Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 149 Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587 Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 11) [2017] NSWSC 1249 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 Wentworth v Rogers [2002] NSWSC 921
Texts Cited:	Fleming’s The Law of Torts edited by C Sappideen and P Vines, 10th Ed, Law Book Co, 2011 Macquarie Online Dictionary
Category:	Principal judgment
Parties:	Proceedings 2000/34949 Macquarie International Health Clinic Pty Ltd (Plaintiff) Sydney Local Health District (Defendant) Proceedings 2010/90340 Sydney Local Health District (Plaintiff) Macquarie Health Corporation Ltd (Defendant)
Representation:	Counsel: 9 December 2016 S Kanagaratnam (Plaintiff) J Stoljar SC; M R Elliott (Defendant) 14 February 2017 R E Dubler SC; S Kanagaratnam (Plaintiff) I M Jackman SC; M R Elliott (Defendant) 4 & 20 October 2017 E A J Hyde; S Kanagaratnam (Plaintiff) D Williams SC; T Marskell (Defendant) 13 November 2017 S Kanagaratnam (Plaintiff) D Williams SC (Defendant) 16 & 17 November 2017 R E Dubler SC; E A J Hyde; S Kanagaratnam (Plaintiff) D Williams SC; B D Kaplan (Defendant) 18 December 2017 R E Dubler SC; S Phillips (Plaintiff) D Williams SC; B D Kaplan (Defendant) 9 May 2019 S Kanagaratnam (Plaintiff) D Williams SC; B D Kaplan (Defendant) 21 June 2019 N Hutley SC, S Phillips; S Kanagaratnam (Plaintiff) D L Williams SC; B D Kaplan; S Scott (Defendant) Solicitors: S Moran & Co (Plaintiff 2000/34949, Defendant 2010/90340) Clayton Utz (Defendant 2000/34949, Plaintiff 2010/90340)
File Number(s):	2000/34949; 2010/90340
Publication restriction:	No

$8,142,775.78	[Amount claimed by Macquarie as set out in Joint Experts’ Report]
- $890,721.52	[Excluded costs]
- $55,952.50	[Mr Wright]
- $107,798.36	[Allowance for partly excluded costs]
- $56,790.30	[Allowance for contentious excluded costs]
- $27,947.12	[Allowance in relation to Mr Milou]
Total $7,003,565.98

[2019] NSWSC 916

17 July 2019

Key Legal Topics

Areas of Law

Civil Litigation & Procedure

Legal Concepts

Limitation Periods

Costs

Injunction

Trespass

Causation