Micro Developments Pty Limited v Rockdale City Council - [2006] NSWSC 1400

No judgment structure available for this case.

CITATION: Micro Developments Pty Limited v Rockdale City Council [2006] NSWSC 1400

HEARING DATE(S): 10 and 11 April 2006, 6, 7, 8 and 9 November 2006

JUDGMENT DATE :
22 December 2006

JUDGMENT OF: Bergin J

DECISION: Plaintiff entitled to $1,461,280 plus adjustment for interest and tax

CATCHWORDS: [DAMAGES] - Quantification of plaintiff's damages resulting from defendant's negligent misrepresentation in relation to zoning of land.

CASES CITED: City of Botany Bay v Jazabas Pty Ltd [2001] NSWCA 94
Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1
Jazabas Pty Ltd v City of Botany Bay Council [2000] NSWSC 58

PARTIES: Micro Developments Pty Limited - Plaintiff
Rockdale City Council - Defendant

FILE NUMBER(S): SC 50164/02

COUNSEL: BW Rayment QC/ GJ Grogin - Plaintiff
MR McCulloch SC/ GJ Gemmell - Defendant on 10, 11 April 2006
PR Garling SC/ GJ Gemmell - Defendant on 6, 7, 8, 9 November 2006

SOLICITORS: John Orford & Associates - Plaintiff
McCabe Terrill Lawyers - Defendant

- 53 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

22 DECEMBER 2006

50164/02 MICRO DEVELOPMENTS PTY LIMITED v ROCKDALE CITY COUNCIL

Introduction

1 The plaintiff, Micro Developments Pty Limited, a property developer, commenced these proceedings on 25 September 2002 when it filed a Summons seeking damages from the defendant, Rockdale City Council, for negligent misrepresentation in relation to the zoning of a property at 147 Russell Avenue, Dolls Point (the Property). At the time of the purchase of the Property, the defendant issued a certificate under s 149 of the Environmental Planning and Assessment Act 1979 in which it certified that the Property was zoned Residential 2(c2), a zoning that permitted the construction of residential home units. The plaintiff purchased the Property in 1997 for $640,000 in reliance upon the zoning in the s 149 Certificate with the intention of developing the Property into residential home units. The Property was in fact zoned 2(b1), a zoning that did not permit the development of residential home units. In its Defence filed on 18 October 2002 the defendant admitted that it was negligent in representing that the Property was zoned Residential 2(c2).

2 Although liability is not in issue, the parties are diametrically opposed as to the way in which the plaintiff’s damages should be quantified. This meant that the expert accountants were not able to reach any agreement, not because of their unwillingness to assist the Court but rather because they were constrained by their respective instructions. The plaintiff claims that but for the defendant’s negligent conduct it would not have purchased the Property. It claims that its damages should be quantified on the basis that but for that conduct it would have been able to develop more properties than it was able to develop between 1997 and the date of trial. The plaintiff, with the assistance of its expert, has constructed what has been referred to as a “parallel universe” in which “Hypothetical” properties are purchased and developed. The plaintiff claims that this parallel universe of four, or even five Hypothetical developments, is what would have been achieved but for the defendant’s negligent conduct. These Hypothetical developments are constructed on the basis of assumptions the plaintiff’s expert was instructed to adopt. Those assumptions are said to be reasonably available from the way in which the plaintiff operated its property development business.

3 The defendant claims that the plaintiff acted unreasonably in: (a) holding onto the Property after it was informed of its correct zoning; and (b) failing to develop the Property within the confines of its correct zoning. The defendant claims that even if the plaintiff’s conduct in holding on to the Property in the hope that the defendant would rezone it was reasonable, the plaintiff’s loss should be measured on the basis of only one Hypothetical development. In these circumstances it is necessary to analyse the way in which the plaintiff conducted its business and developed its properties over the years to the time it purchased the Property. It is also necessary to review the conduct of both parties after the plaintiff purchased the Property. History of proceedings

4 This matter has had a somewhat chequered history. On 28 November 2003 it was fixed for hearing for 3 days commencing on 8 March 2004. On 27 February 2004 that hearing was vacated because the defendant had recently passed a resolution that the parties thought may affect the assessment of damages. It is apparent that the parties anticipated that the defendant might rezone the Property and the matter was adjourned on a number of occasions in 2004 and 2005 to accommodate the Council meetings. On 15 July 2005 the matter was listed for hearing on 14 November 2005 for 5 days. On 11 November 2005, after further problems were discovered in relation to the development of the Property, the November hearing dates were vacated and the matter was fixed for hearing on 10 April 2006.

5 I commenced the hearing of this matter on 10 April 2006 when Mr BW Rayment QC and Mr GJ Grogin, of counsel, appeared for the plaintiff and Mr MT McCulloch SC and Mr GJ Gemmell, of counsel, appeared for the defendant. On the second day of the trial, the parties sought an adjournment of the proceedings because the defendant was meeting on 19 April 2006 and it was anticipated that an application by the plaintiff for development approval of the Property was to be considered at that meeting. The parties were concerned that the defendant’s decision might affect the assessment of the plaintiff’s damages. On 28 April 2006 the matter was listed part-heard, on 6 November 2006 for four days. The hearing continued on 6, 7, 8 and 9 November 2006. On those days, Mr PR Garling SC appeared in place of Mr McCulloch, otherwise the appearances remained the same. The Facts

6 The plaintiff has been developing property, mainly residential home unit developments in the St George area, since 1981. The three active directors of the plaintiff are George Daniel, Harry Kastrounis and George Staikos. The other three directors are the wives of the three active directors. Mr Daniel identifies possible sites for development, determines suitability of the site for development and negotiates the purchase including supervising the contract negotiations. He liaises with councils, lodges relevant applications and arranges for the marketing and sale of the developed property. Mr Kastrounis organises and supervises the various trades and workers on the construction sites. Mr Staikos deals with contractual matters with sub-contractors and the purchasing of building materials. Developments History 1982-1998

7 During the period 1982 to 1998, the plaintiff developed 16 properties. Those developments were as follows:

1. December 1981 – December 1982:
Developed 39-41 Carrington Avenue, Hurstville . 9 home units.

2. February 1983 – September 1983:

81-83 Dora Street, Hurstville

3. April 1984 - January 1985
Developed 10 Hillcrest Avenue, Hurstville. 6 home units.

4. June 1984 – May 1985
Developed 3 and 5 Bond Street, Hurstville. 8 home units.

5. February 1985 – November 1985
Developed 89-91 Dora Street, Hurstville . 9 home units.

6. April 1985 – February 1986
Developed 61-63 Gray Street, Kogarah . 8 home units.

7. February 1986 – January 1987
Developed 54-56 St Georges Parade, Hurstville . 9 home units.

8. December 1985 – December 1989
Developed 1-5 Pearl Street, Hurstville. 21 home units.

9. April 1986 – May 1988:

159-163 Penshurst Street, Penshurst

9A. 1988 – 1989:

100/104 Stoney Creek Road, Beverley Hills.

Purchase price $180,000. Sale $285,000. Gross profit 33.6%.

10. May 1987 – July 1988:

56-58 Premier Street, Kogarah

11. 1989 – May 1996:
11, 98 and 101 Harp Street, Campsie. A former brick pit.
Purchase price $1.8 million
September 1995 – May 1996:
Partially developed part of the land into two factories.
Development costs $519,254. Sales $1,007,500. Net profit $487,246.
Balance of Land leased to tenants as open space.

12. April 1990 – October 1991:

33-35 Letitia Street, Oatley

Gross profit margin 30.8%

13. December 1991 – April 1993:

55 Villiers Street, Rockdale.

14. August 1993 – July 1994:

144 Russell Avenue, Dolls Point.

15. February 1994 – March 1995:

8-10 Selman Street, Sans Souci

16. October 1995 – April 1997:

2-6 Selman Street, Sans Souci

The plaintiff’s “usual practice”

8 Mr Daniel gave affidavit evidence that it was the plaintiff’s usual practice to purchase a property for the next development whilst it was still constructing/selling its then current development. On a number of occasions the plaintiff purchased properties by way of option agreement and would make application to the relevant council for development approval of the site the subject of the option agreement. The development approval process usually took between 6 and 12 months and it was during this period that the plaintiff would exercise its option and settle the purchase. Mr Daniel’s affidavit evidence was that “ordinarily” the plaintiff financed the purchase of the properties with borrowings from the plaintiff’s Bank by way of commercial bill facilities. Development costs were usually financed by a combination of bank borrowings and proceeds of sales from previous developments. Mr Daniel claimed that the plaintiff would own between one and three properties at any one time.

9 Borrowings were secured by the residential homes and other properties owned by the directors of the plaintiff. Prior to the purchase of a development site, Mr Daniel would make inquiries in relation to the land value, the cost of construction, and the estimated sales of individual units. Land value was assessed on the size, location, ease of building on the site (including the level of the site), and current values of development sites in the area. The plaintiff’s draftsman would be consulted as to a proposed building on the site with the requisite number of units. Inquiries would also be made with the council to ensure that the sizes of the proposed units complied with the council’s building code.

10 As a general rule, when making an assessment of the construction costs, Mr Daniel considered past development costs to approximate construction costs. In 1997 he used an allowance of $90,000 as a rule of thumb for the building of a two-bedroom unit. The average size of a unit developed by the plaintiff (excluding balcony and garage) was 85 square metres. The assessment of the value of the land was done by constant appraisals of land value in the area of the proposed site. Prior to finalisation of the negotiations to purchase the development site, Mr Daniel’s practice was to calculate the profit margin sought in the development. If he considered that the profit margin would be greater than 25% of the land and construction costs then the plaintiff would proceed with the purchase.

The Property 1997-1999

11 In 1997 the then owner of the Property contacted Mr Daniel and offered it for sale. In about March 1997 Mr Daniel visited the defendant’s planning section and inquired as to the zoning of the Property. He was informed that it was zoned 2(c2), and that the plaintiff could build units on the Property as long as it complied with the defendant’s building code. On 2 April 1997 the plaintiff entered into a 6-month option agreement to purchase the Property. Between 2 April 1997 and 14 July 1997 Mr Daniel and the plaintiff’s draftsman had a meeting with the planning officer of the defendant. The planning officer advised Mr Daniel that the relevant building code allowed for the development of up to 9 home units. On 14 July 1997 the plaintiff submitted a development application (DA) to the defendant and on 13 October 1997 the plaintiff exercised its option to purchase the Property. The contract included the offending s 149 Certificate. On 26 November 1997 the plaintiff settled the purchase of the Property.

12 On about the same date as the settlement of the purchase of the Property the defendant refused to consent to the plaintiff’s DA because the proposed development was too bulky for the site. After this refusal, Mr Daniel and the plaintiff’s draftsman had another meeting with the defendant’s planner in relation to a new plan for the development. The planner advised that the new plan looked “OK” and suggested that the plaintiff lodge it with the defendant. On 20 April 1998 the plaintiff lodged its second DA. On 18 September 1998 the defendant refused to consent to the second DA on a number of bases including: unacceptable aesthetic appearance; allotment size being below the standard; unsatisfactory bulk, height and external appearance; unsatisfactory impact on privacy of adjoining properties; and poorly located landscaping. The plaintiff resolved to appeal to the Land and Environment Court in respect of the defendant’s refusal of its second DA and commenced proceedings in that Court on 1 June 1999.

13 By letter dated 21 May 1999 the defendant notified the plaintiff that at its meeting on 21 April 1999, it has resolved to “defer certain land” from the draft Local Environmental Plan (LEP) 1998 - the City Wide Plan. The defendant advised the plaintiff that the Property was identified as one of the “deferred matters” and that it was the defendant’s intention to rezone the Property from Residential 2 (c2) to Residential 2 (b2). The defendant claimed that the purpose of the proposed new zoning was “to encourage a variety of housing types, including low-density (one and two storey housing and dual occupancies) and medium density (single storey villa and two storey townhouse) development”.

14 On 2 June 1999 the defendant wrote to the plaintiff advising that it had prepared a Draft Local Environmental Plan (LEP) that sought to change land use zones and planning controls in respect of various properties within suburbs, including San Souci. Although the address of the Property has been referred to as both Dolls Point and Sans Souci, nothing turns on that difference. That letter included the following:

In particular, the draft Plan applies to land at No. 147 Russell Avenue, Sans Souci. This land is currently zoned Residential 2(c2).The draft Plan seeks to rezone this subject land at Residential 2(b2). It is intended that the proposed 2(b2) zone will provide planning controls more consistent with both the current use and development potential of the land.

15 That letter went on to invite written submissions by no later than 5 July 1999. On 10 June 1999 the plaintiff filed an application for expedition in the Land and Environment Court on the basis of the defendant’s recent correspondence. On 16 July 1999 the defendant’s solicitors in those proceedings wrote to the plaintiff’s solicitors confirming the conversation of the previous day between Mr Cole of the defendant’s solicitors and Mr Orford of the plaintiff’s solicitors. That letter included the following:

In accordance with advice at that time please find enclosed herein copy of Rockdale Local Environmental Plan No. 22 which identifies the subject site as zoned 2(b1).We have also enclosed an extract from the Rockdale Planning Scheme Ordinance for the 2(b1) zone. You will see from this that residential flat buildings as is the subject of this appeal are prohibited.Accordingly, we are instructed that the application cannot be approved having regard to this threshold question.

16 On 29 July 1999 the Land and Environment Court proceedings were, by consent, dismissed with an order that the defendant pay the plaintiff’s costs. Requirement to repay the Bank

17 As I have already said, the plaintiff ordinarily obtained finance by way of loan or commercial bills from its banker to fund the purchase of the properties for development. It also obtained finance from its banker to fund that part of the construction costs that were not funded by the proceeds of sale of the previous development. The Bank would allow the plaintiff to repay the loans out of the sale proceeds of the various developments. The plaintiff had obtained finance of $710,000 from the Bank to purchase the Property on the basis that the Property would be developed. By letter dated 4 November 1999 the Bank required repayment of that amount by 31 March 2000 because at that time the Property was not a development site.

18 Mr Daniel gave evidence in relation to what he described as the plaintiff’s “financial capacity” and claimed that in June/July 1999 it did not have any cash funds available to it. At that time it was developing and constructing the Kings Road, Brighton property and he claimed that all available funds had been allocated to that development. Mr Daniel gave evidence that the proceeds from the sale of the Kings Road development were used to extinguish the commercial bill facility of $710,000. He claimed that the plaintiff would otherwise have used those funds to purchase a site similar to the Property and commence another development similar to that proposed for the Property.Potential acquisitions

19 Mr Daniel described an auction that he attended at Ramsgate Road, Ramsgate in about November 1999. The land was approximately 900 square metres and, in Mr Daniel’s view, was comparable to land on which the developments had been completed at Chapel Street, Rockdale and Villiers Street, Rockdale. The Ramsgate Road property was sold at auction for $1.83 million. Although Mr Daniel attended the auction he did not make a bid, however he said that if the plaintiff had purchased the property it would have developed it into ten two bedroom units, each of approximately 85 square metres. He estimated development costs of $1.5 million, sales revenue at $550,000 per unit with a profit of approximately $2 million. Mr Daniel also looked at a property in Bellevue Street, Kogarah. He was of the view that the land was comparable to developments at Kings Road, Brighton and Pearl Street, Hurstville. The owner offered to sell the property to the plaintiff for $2.2 million.

20 Mr Daniel claimed that at this time the plaintiff was, on its history, in a rather unique position. It was holding the Property which did not have immediate development capacity and, as he saw it, the property had absorbed $710,000 which otherwise would have been available to fund a new development.

21 Mr Daniel claimed that but for the negligent misrepresentation by the defendant the plaintiff would have purchased an alternative development site for an amount of approximately $900,000 in the Dolls Point area. He claimed that it would have had a break of 2 to 3 months following the Kings Road development and it would then have commenced development of the new site. He claimed that such development would have been completed in approximately March/April 2001. He claimed that in the course of developing that property a further purchase with funds borrowed from the Bank would have occurred. He also claimed that the plaintiff would have developed that other property to completion in December 2002. He also claimed that during the development of that property a further property would have been purchased, developed and completed in about August 2003.

22 The case advanced by the plaintiff is that once it had paid off the commercial bill of $710,000 and once it made the decision to hold on to the Property, it was unable to operate its business in the manner in which it had up to that time including purchasing the next property whilst developing the current property. Mr Kastrounis

23 Mr Kastrounis purchased a residential home at 12-14 Junction Road, Peakhurst in 1992. When he purchased this property it was his intention that he would subdivide it into four separate titles and build four homes on each of the properties. It was his intention to give one of these houses to each of his children. Mr Kastrounis gave evidence that “due to the problems with the planning approval” of the Property he turned his attention to the development of the Peakhurst property. He claimed that plans were drafted and submitted to Council in late 1999. Construction commenced in February 2001 and the development was completed in September 2002. Mr Kastrounis’ son, who had previously been employed with the plaintiff, worked on the construction of these four homes.Mr Staikos

24 Mr Staikos purchased a residential home at 26 Samuel Street, Peakhurst in 1991 with the intention to develop that site and build three homes for his three daughters. Mr Staikos said that “following the difficulty of the purchase” of the Property and the incorrect zoning, he decided that he would build on the site in Samuel Street. He lodged plans with the Council in December 1999 for the building of two townhouses and a villa which was subsequently approved. Building was commenced in May 2000 and completed in December 2000.Other developments after 1997

25 The plaintiff purchased and developed the following properties in the period after 1997:

June 1997 – September 1998

17-19 Chapel Street, Rockdale

1998 – December 1999

61-65 Kings Road, Brighton

1997 – August 2005

Harp Street

Campsie

March 2000 - 2003

87 Gungah Bay Road, Oatley

26 Although the Gungah Bay Road, Oatley property was purchased in March 2000, construction did not commence until May 2002. Mr Staikos gave evidence that “the delay in respect of the commencement of this work was due to lack of available funds”. Mr Staikos also gave evidence that this was a significantly smaller project than the plaintiff’s other developments because the cost of development sites had increased significantly over the period from 1999 to 2002. He also seemed to claim that the size of this development was a consequence of the considerable uncertainty with the Property.145 Russell Avenue, Dolls Point

27 On 15 January 2004 the defendant’s solicitors wrote to the plaintiff’s solicitors enclosing a Planning Report in relation to the Property. That letter advised that, “a report is being prepared recommending to the Council that the consultant’s opinion as to the preferred option is adopted”. The enclosed report was entitled “Planning Report: Zoning Options January 2004. Rockdale City Council. Proposed Rezoning of 147 Russell Avenue, Dolls Point”. This report also referred to the neighbouring property at 145 Russell Avenue, Dolls Point. It included the following:

Development Context

Rezoning options

Option 1

Option 2

Conclusion

The preferred option is to:
1. rezone the subject site 2(c) under the Rockdale Local Environmental Plan and
2. encourage amalgamation with the adjacent site to the west and
3. prepare a site specific Development Control Plan (option 2/scenario 2).

28 In February 2004 the plaintiff received a letter dated 30 January 2004 from the defendant’s solicitors. That letter advised that the consultant’s report had been listed before the Development Committee the previous week but had been adjourned to the next meeting the following Thursday. The letter included the following:

The acting Director for Planning Services informs us that he expects the Committee to adopt the recommendation in the Consultant’s report.If that is the Committee’s determination the matter will be referred to the Council meeting the following week. If the Development Committee recommended that the Consultant’s recommendations be adopted he, the acting Director, would expect the Council to accept the determination of the Development Committee.If those events came to pass then the Council’s offices would commence all of the administrative things relevant to a re-zoning. As you would be aware, it is the Minister for Planning which signs a Draft LEP and that the draft does not become a planning instrument until the Minister has approved it.The acting Director believes that the ordinary administrative process which the Council is engaged in would approximately six (6) months to complete.That a property can be represented as being zoned particularly can only be made after the Minister has signed the planning instrument under the powers vested in the Environment Planning Assessment Act.That the Council has progressed in a particular way is relevant, in our opinion to the assessment of the Plaintiff’s damages.It is also relevant to the Plaintiff’s evidence as to why it has continued to hold the land.We will be unable to file a statement until the current Council processes are completed.We therefore give you notice that we expect to be instructed to serve a statement in connection with the matters currently being considered for determination.The Plaintiff’s current evidence is that if the land was re-zoned it would have a significant impact on reducing the plaintiff’s losses.While we appreciate that we are still wondering around in a hypothetical zone it is our opinion that it will probably be unrealistic for the Court to assess the Plaintiff’s damages on the current evidence if the Council adopts the recommendations in the Consultant’s report.

29 Between February 2004 and December 2004 there were numerous discussions between the plaintiff and the defendant concerning the Property. In July 2004 the plaintiff purchased 145 Russell Avenue, Dolls Point, for $2.05 million. The plaintiff borrowed $2.05 million to purchase 145 Russell Avenue at an interest rate of 7.5%. Plans were lodged with the defendant to develop 18 units on the double block, 145-147 Russell Avenue.

30 On 6 December 2004 the defendant’s solicitors wrote a further letter in the following terms:

We refer to the recent resolution by the Council in relation to the rezoning of the Plaintiff’s land.It seems to us that the Plaintiff achieved what it set out to achieve after it decided not to sell the land.The Court has adjourned the matter for further Directions 4 February 2005 in the expectation that the litigation will be concluded or alternatively the Plaintiff is a long way along the track to preparing the case for trial and the Defendant informed of the value of the case propounded against it and the particular case which it is required to meet.Our client remains ready to consider the Plaintiff’s intentions.

31 There was another misdescription of the zoning in the Consultant’s report, this time in relation to 145 Russell Avenue. The Consultant’s Report referred to the zoning of that property as 2(c) and that the Property was to be rezoned to 2(c) from 2(b) so that 145 Russell Avenue and the Property could be developed as suggested in the Consultant’s report. It was apparently in 2005 that the defendant realised that 145 Russell Avenue was zoned 2(b). The plaintiff then found that it had two properties with different zonings – 145 Russell Avenue with 2(b) and the Property with 2(c) (having been changed from 2(b)). The plaintiff, at the defendant’s suggestion, amended its DA to accommodate the two different zonings and on 3 May 2006 the defendant granted its approval of that DA. The proposal as approved is for 10 residential units and 4 two-storey townhouses with basement car parking.The plaintiff’s financial capacity

32 As referred to in the evidence of Mr Daniel and Mr Staikos, the plaintiff claims that its incapacity to proceed with its developments in the manner in which it had previously was caused by the defendant’s conduct. It claims that one of the consequences of the defendant’s conduct was the Bank’s requirement for it to repay the funds it had borrowed to purchase the Property. The plaintiff also claims that the development at Gungah Bay Road was smaller because of the limitation on its finances at that time.

33 When the directors were cross-examined on 10 April 2006 the defendant had available to it Annexure C to the report of Mr Gower, its expert, dated 6 February 2004. That annexure was based on the financial statements of the plaintiff for the period 30 June 1986 to 30 June 2002. It disclosed that in the year 2000, $255,000 was paid as “directors’ fees”. That is the only year in which any directors’ fees are recorded as having been paid. Annexure C also discloses that for the period 1986 to 1992 inclusive there was no provision for superannuation. In the period 1993 to 1997 the provision for superannuation was $5,214 (1993), $7,499 (1994), $11,082 (1995), $10,915 (1996) and $12,900 (1997). In the years 1998 to 2001 inclusive provision for superannuation was as follows: $44,247 (1998), $129,721 (1999), $143,807 (2000) and $148,039 (2001). The gross profit recorded in the year 2000 was $1.677 million with a net profit of $1.141 million.

34 Notwithstanding that this information was available to the defendant at the time the directors were cross-examined, no questions were asked of any of the directors based on these figures. There was no suggestion made to any of the directors that the amounts identified in Annexure C for directors’ fees of $255,000 and superannuation of $143,807 in the 1999/2000 year would have been available to fund, at least in part, further developments. It was of course at this time that Mr Staikos and Mr Kastrounis had diverted their energies away from the plaintiff’s business to develop their private projects.

35 Mr Garling accepted that “history” was against him in relation to the failure to cross-examine on Annexure C. However, he submitted that his client was entitled to rely upon the contents of Annexure C in support of its submission that its conduct did not cause the plaintiff to lose four (and perhaps five) Hypothetical developments. Mr Garling submitted that Annexure C reflects the plaintiff’s financial position in the relevant years when the plaintiff was claiming its progress was “stymied” in consequence of the defendant’s conduct. I am satisfied that it is appropriate to have regard to the contents of Annexure C when considering the plaintiff’s financial position but at the same time to have regard, where necessary, to the fact that the directors were not cross-examined on these figures.Was it reasonable not to sell the Property?

36 A critical matter that will affect the quantification of the plaintiff’s damages is the determination of the question whether it was reasonable for the plaintiff to hold on to the Property rather than sell it after it was advised of the correct zoning of the Property.

37 Mr Daniel’s affidavit evidence was that the plaintiff did not sell the Property because it was anticipated that the defendant may at some point rezone the land to a suitable zoning for a development. This anticipation was based in part on the environs of the Property including a number of home unit buildings. He claimed that if the plaintiff had sold the Property in 1999 when the defendant advised it of the zoning misdescription, it would have incurred a significant loss because the property would have been sold for an amount of about $660,000 with no appreciable capital gain from the purchase price in 1997. Mr Daniel also claimed that the plaintiff would not have been able to find a replacement property for the Property in 1999 for the same price because property prices had increased substantially during that time. This evidence seems rather inconsistent. If prices had increased substantially, then it seems reasonable to assume that any sale of the Property would have benefited from those increases.

38 In any event, it is clear that the plaintiff was optimistic that the defendant would rezone the Property to enable it to proceed with a development of the kind originally envisaged. The evidence establishes that there were numerous discussions between the plaintiff and the defendant in relation to the prospect of the Property being rezoned. Indeed the correspondence from the defendant’s solicitors suggests that the defendant, or at least its lawyers, were apparently doing their best to progress the matter so that the plaintiff could pursue the development of the Property. The defendant’s solicitors’ letter in January 2004 which enclosed the Consultant’s report, was a cause of the plaintiff’s purchase of 145 Russell Avenue. However the plaintiff does not bring a separate cause of action in respect of this later misdescription. Instead it relies upon it as part of the relevant factual matrix for the quantification of its damages.

39 Mr Garling submitted that the statements in the Consultant’s report may not amount to statements of the defendant. This is not a matter that is necessary to decide, however I am of the view that the contents of the Report and the defendant’s solicitors’ letters are relevant to the assessment of the reasonableness of the plaintiff’s conduct in holding on to the Property. It seems to me that the plaintiff was led to believe throughout the period that not only would it be able to develop the Property but that it could enlarge its vision and create a more profitable development by the consolidation of 145 Russell Avenue and the Property. I am satisfied that it was reasonable for the plaintiff to hold on to the Property in the hope that the defendant would rezone it. However that does not mean that the plaintiff was entitled to willingly slow down the progress of its developments and then look to the defendant to compensate it for that deceleration. What would have happened if the plaintiff had not purchased the Property?

40 The plaintiff submitted that if the Property had not been purchased and a property unaffected by the plaintiff’s negligent misrepresentation had been purchased it would have been “turned over” like the other properties in the development history referred to earlier in this judgment and depicted in Ex 5 (a copy of which appears at the end of this judgment). It was submitted that in the usual way the plaintiff would have obtained development approval within approximately 12 months, constructed the development and sold the developed property. It was also submitted that the plaintiff would have repaid the borrowings out of the sale proceeds of the developments. Mr Rayment submitted that the plaintiff was not a “moth baller” but a “trader” of its stock, the land. It was submitted that the plaintiff would purchase a new development site as it developed the last site; it would sell that development whilst developing another site; and the proceeds of sale would be used in part to fund the costs of the new development. It was submitted that had the plaintiff not purchased the Property, it would have proceeded with four (possibly five) Hypothetical developments.

41 Mr Garling submitted that the reality can be gleaned from what actually occurred in the plaintiff’s development history (Ex 5) and also from Annexure C. Exhibit 5 depicts an incomplete history of the plaintiff’s developments. The developments in the 1980’s referred to earlier in this judgment are consistent with the pattern of purchasing, developing and selling and at the same time purchasing the next development and using the sale proceeds to fund the construction costs of the next development. The two exceptions to this process are Harp Street and Kings Road. The Harp Street property was quite different in that after the factories were sold the remaining land was leased for approximately 8 years until sale. The explanation for this was that there were environmental issues with the use of the land, it having previously been used as a brick pit. Annexure C records rental income as follows: $161,679 (1996); $165,821 (1997); $187,922 (1998); $244,146 (1999); $248,137 (2000); $285,140 (2001); and $192,947 (2002). It is apparent from Ex 5 that Harp Street was not sold until 2005, however the figures from the financial statements are only available to 2002. The initial lot of the Kings Road property was held for some years before it was consolidated with the additional two lots and then developed. It was sold in 1999/2000 and some of the sale proceeds were used to repay the $710,000 that the Bank required to be repaid because it did not consider that the Property was at that time a “development site”.

42 Apart from these two exceptions the plaintiff’s pattern of development over the years to 1997 is reasonably consistent, with the funding of the purchase of prospective development sites from bank borrowings; the funding of development costs from a combination of proceeds of sale from the previous development and from bank borrowings; and the purchase of the next development site whilst the current site is developed.

43 The defendant relied upon internal banking documents that suggest that in and after 2002 the plaintiff was retiring debt apparently to avoid large interest bills. It was submitted that this was a change in the way the plaintiff approached its developments. It is true that there was a change in the way the plaintiff funded its operations. However, that was a change, at least in part I accept, caused by the Bank’s requirement for repayment of the $710,000 and the uncertainty surrounding what the defendant would do in relation to the zoning of the Property. I am not satisfied that I can take a great deal from the retirement of debt post the unfortunate events surrounding the Property.

44 However it is curious that Mr Kastrounis and Mr Staikos diverted their energies away from the business of the plaintiff to their personal projects at a time when one would have thought they could have put their energies into the plaintiff’s operations. Although Mr Staikos was not cross-examined in relation to the development of his private project, Mr Kastrounis was challenged as to his claims that it was the problems with the planning approval of the Property that caused him to turn his attention to the development of his private property. In his affidavit evidence, Mr Kastrounis had claimed that the plans for his private property were submitted to Council in late 1999. However, in cross-examination Mr Kastrounis was shown a letter from the Hurstville City Council dated 5 January 1998 in which “Development Application S98/97” was approved conditionally. That DA related to Mr Kastrounis’ private property and it is clear it had been submitted in 1997. The following evidence was given in cross-examination (tr 86):

Q. This is a letter which you received from the Council in January 1998, is that correct?
A. Well, I don’t remember but if this say, yes.

Q. It is likely, isn’t it, that you were doing work relating to the work at Junction Road before late 1999 as you said in your affidavit?
A. Before 1999?

Q. Let me put it to you in a different way Mr Kastrounis. Was what you were intending to tell the Court in your affidavit about Junction Road, was what you were trying to tell the Court in your affidavit that because of the problem with 147 Russell Avenue, you turned your attention to the property at Junction Road?
A. Yes.

45 It was suggested to Mr Kastrounis that he was taking steps towards the development of that property in late 1997 and that it was prior to him becoming aware of any problem with the zoning of the Property. In response to this suggestion Mr Kastrounis said (tr 87-88):

No, I don’t agree with that because, as I said, I bought the property in ‘92 intending one day I will build something for my kids and I always try to find the opportunity, the money to start. All the money, I got it from the bank under my name and my kids. Micro had nothing to do with that at all. I had my son work, he is a builder, qualified builder on the site, but as I said kids, they know everything. I had to be there because they know nothing. At that time Micro had no job at all but this is what my intention was with this property, nothing else.

46 I am satisfied that Mr Kastrounis turned his attention to his private property before he became aware of the problem with the development of the Property. It is obvious that his DA for Junction Road would have been submitted in late 1997 because the Council considered it on 23 December 1997. I do not accept that it was the problems with the planning approval that caused him to turn his attention to the development of Junction Road. I am satisfied that he intended to develop that property in any event. If Mr Kastrounis and Mr Staikos were able to develop seven houses between the two of them in the period of 1999 to 2001 I would have thought that their energies could have assisted the plaintiff in developing more than the Gungah Bay Road development. Both Mr Kastrounis and Mr Staikos gave evidence that it was always their respective intentions to develop those personal properties for their children. I am of the view that even if the plaintiff had not purchased the Property both Mr Kastrounis and Mr Staikos would more probably than not have diverted their energies to their private projects at about the same time they actually diverted their energies in this way.

47 Another matter that requires determination is the reasonableness of the assumptions made by the plaintiff’s expert accountant, Mr Bryant, to form his conclusion that the plaintiff’s loss is to be measured on the basis of four (and perhaps five) Hypothetical developments. It is necessary to refer to both the valuation evidence and the accounting evidence because the accountants relied, in part, upon the valuation evidence in reaching their respective opinions.

Valuation Evidence

48 The plaintiff relied upon a valuation of the Property dated 11 July 2000 by Alan Steege, registered valuer and partner of the firm McLennan Steege Smith & Associates. Mr Steege was instructed to carry out retrospective market valuations of the Property as at 13 October 1997, 15 July 1999 and 25 February 2000. Mr Steege valued the Property as at 13 October 1997 at $500,000, as at 15 July 1999 at $660,000 and as at 25 February 2000 at $720,000. Mr Steege was not required for cross-examination.

49 The plaintiff also relied upon the opinion of Mark Casemore, a certified practising valuer with the firm Clisdells Valuations at Rockdale. Mr Casemore inspected the Property on 13 March 2006. His valuation considered two scenarios, the first relating to compliance with Development Control Plan, DCP 77 effective 11 February 2005 and the second, development as a single site with a density no greater than surrounding developments, for example 2(b). On the assumption of compliance with DCP 77 – residential 2(c) Mr Casemore valued the Property at $1.3 million. Assuming compliance with residential 2(b) Mr Casemore valued the Property at $900,000.

50 Mr Casemore also received instructions on 8 November 2006 in which his opinion was sought as to the reasonableness of the assumptions in relation to four Hypothetical properties. In respect of each Hypothetical property Mr Casemore’s opinion was sought on: (a) the price for which the plaintiff could have bought a property; and (b) the net selling price of all of the units after development. The four Hypothetical properties were: Hypothetical 1997 property; Hypothetical 1999 property; Hypothetical 2001 property; and Hypothetical 2003 property. The assumptions upon which the opinion was sought in respect of each of the properties was as follows:

Hypothetical 1997 property

Hypothetical 1999 property

Hypothetical 2001 property

Between July and September 2001 the plaintiff would have purchased a property (or combined two or more) for $2.0 million on which it could have built 12 units with an average selling cost of $460,000 per unit, less $8,000 per unit in selling costs; with total proceeds of $5,424,000, assumed to be received between April and June 2004.

Hypothetical 2003 property

Between April and June 2003 the plaintiff would have purchased a property for $1.8 million, on which it could have built 9 units with an average selling cost of $520,000 per unit, less $8,000 per unit in selling costs; with total proceeds of $4,608,000, assumed to be received between January and March 2006.

51 Mr Casemore’s opinion of 8 November 2006 related only to the price for which the plaintiff could have purchased properties at the assumed relevant times. He did not provide a net selling price for all units after development costs but did provide some sale prices of units where available. Mr Casemore concluded that it was reasonable to assume: (a) developments were available at the proposed time periods in the assumptions; (b) properties could be purchased for at least the original price projections as indicated; and (c) the projected sale prices of the completed strata units were reasonable.

52 The defendant relied upon the opinion of Terence Michael Dundas, registered valuer, of Egan National Valuers (NSW). Mr Dundas expressed the opinion that the current market value of the Property as at 27 October 2006 was $1.53 million. He was also asked to advise on the “state of the home unit market” between 1986 and 2006 restricted to the Sydney home unit market. Mr Dundas’ evidence was that from 1986 to 1987 the market showed modest growth; from 1987 to late 1988/early 1989, the market experienced boom conditions with values basically doubling in just over a year; through the early 1990s the market languished and confidence evaporated with values either retreating or remaining neutral; by the mid to late 1990s confidence in the market had begun to build and values were beginning to rise; through the late 1990s values continued a steady, strong upward trend; in the early 2000s confidence in the market was high and prices increased steadily until late 2003; interest rates declined in the early 2000s, but began to rise in late 2003; from early 2004 real estate values initially stabilised, but then retreated particularly in 2005 and up until June 2006.

53 The defendant also relied upon the valuation opinion of Geoffrey Ronald McGuirk, a registered valuer, also with Egan National Valuers. Mr McGuirk provided an opinion on the proposed development of 145 -147 Russell Avenue as approved by the defendant on 3 May 2006. On the assumption that completion was to a high standard in keeping with market requirements of the locality Mr McGuirk expressed the opinion that at 13 June 2006 $8,220,000 in sales revenue could be achieved.

54 The plaintiff relied upon the opinion of Robert Stirling Macansh, a senior quantity surveyor employed with the firm BMT & Associates in Sydney. Mr Macansh was asked to provide an opinion on the construction costs of the proposed development at 145-147 Russell Avenue referred to in an affidavit sworn by Mr Daniel on 18 March 2005. Mr Macansh expressed the opinion that the estimate of the total construction costs of $250,000 per unit was fair and reasonable.

The Expert Accountants

55 The plaintiff relied upon the reports of Mark Brindley Bryant, Chartered Accountant, a consultant with, and former partner of, Ernst & Young. The defendant relied upon the reports of Goodwin Cullimore Allen Gower, Chartered Accountant and principal of the firm GCA Gower & Co. These experts were retained soon after proceedings were commenced in 2003 and their various reports have accommodated the changed conditions over the years.

56 Mr Bryant has five reports dated: 14 March 2003; 15 December 2003; 27 May 2005; 10 November 2005 and 24 March 2006. Mr Gower has three reports dated: 24 October 2003; 6 February 2004 and 4 October 2005. Put shortly, Mr Bryant makes assumptions in respect of the plaintiff purchasing Hypothetical properties in 1997, 1999, 2001 and 2003. He compares what could have happened had those Hypothetical properties been purchased and developed to what actually happened in respect of: the Property; the purchase, development and sale of Gungah Bay Road; and the notional sale of the Property. On the other hand Mr Gower limits the plaintiff’s loss in his first report to the holding costs of the Property and the value of delay in receipt of development profits on the 1997 Hypothetical property. In his final report Mr Gower takes into account the development of 147-145 Russell Avenue and concludes that the plaintiff has suffered no loss.Mr Bryant’s Report – 14 March 2003

57 In his first report dated 14 March 2003 Mr Bryant made the following assumptions:

(a) Micro would not have purchased the Property if it had known the true zoning of the property.

(c) If Micro had purchased the Hypothetical 1997 Property and not the Property, by December 1999: (i) it would have purchased a development site with the characteristics of the property referred to in paragraph 57 of Mr Daniel’s statement of 14 March 2003 (the “Hypothetical 1999 Property”); and (ii) it would not have purchased Gungah Bay Road.

(d) Had the plaintiff not purchased the Property, it would also have purchased a further development property in 2001 with the characteristics of the property referred to in paragraph 63 of Mr Daniel’s statement of 14 March 2003 (the “Hypothetical 2001 Property”).

e) In relation to the Hypothetical 1997 Property, the Hypothetical 1999 Property and the Hypothetical 2001 Property (collectively the “Hypothetical properties”), the purchase and development costs, and the sale proceeds would have been as summarised in Appendix 5.

f) Each development would have been funded by debt to purchase the initial purchase of each property, and the plaintiff’s own funds for the development costs. The borrowings used to purchase the property would have been repaid once the development was completed and sold.
g) The expected development costs, including interest, and sales proceeds for Gungah Bay Road are as shown in Appendix 5.
h) The current market value of Russell Avenue is $800,000 (after selling costs).
i) The problems resulting from purchasing Russell Avenue caused the plaintiff to lay off, in December 1999, two employees who were each paid $800 per week. No other significant costs savings have been made.

58 Having made the assumptions referred to above Mr Bryant then went on to compare what actually happened with what “should have happened”. In respect of what actually happened Mr Bryant concluded that the net cash flow the plaintiff had actually experienced, adjusted to assume a sale of the Property, was $380,720. Mr Bryant compared that cash flow with the cash flows that the plaintiff would have experienced “but for” purchasing the Property reaching a cash flow after tax of $3,240,070.

59 In quantifying the plaintiff’s loss before interest Mr Bryant made the following calculation:

What should have happened $3,240,070Less: what actually happened $380,720The plaintiff’s loss after tax $2,859,350The plaintiff’s loss grossed up for tax (@ 30%) $4,084,768

60 Mr Gower’s first report reviews Mr Bryant’s first report and then quantifies the loss that the defendant claims the plaintiff suffered. In reviewing Mr Bryant’s report Mr Gower suggested that as a consequence of Mr Bryant’s reliance upon his assumptions as instructed, he failed to consider the following matters:

(1) The uncertainties as to whether the plaintiff would have been able to successfully acquire the 3 Hypothetical Properties for the assumed prices and at the assumed times;

(2) The uncertainty as to whether the plaintiff would have been able to obtain Development Approval within the assumed time frames;

(5) The uncertainty in relation to the achievement of the sales proceeds on each of the properties; and

(6) The alleged inconsistency of the assumptions that Mr Bryant was instructed to adopt compared to the actual behaviour of the plaintiff in relation to the Property both before and after July 1999. Mr Gower claimed that until July 1999 the plaintiff had held the Property for nearly two years and had made two unsuccessful Development Applications and was bringing an appeal to the Land & Environment Court which may have been refused.

61 Mr Gower expressed the view that the plaintiff had not consistently achieved the gross profits commensurate with the level of gross profits that Mr Bryant had assumed in relation to the Hypothetical properties. That was said to be so because the plaintiff had historically taken longer than one year on average to complete each development, or it had not historically achieved the level of gross profits on its developments that Mr Bryant had adopted in relation to the Hypothetical properties. Mr Gower had access to the plaintiff’s financial statements for the financial years ending 30 June 1986 to 30 June 2002. He took figures from those statements and reached an average gross profit of $382,518 in those years. Mr Gower was critical of Mr Bryant for failing to take into account inflationary movements over the period and failing to take into account the time value of money by discounting future losses back to the present date. Mr Gower concluded that if the plaintiff’s alleged loss of development profits had been based upon the historic trading results it would be substantially lower than that reached by Mr Bryant.

79 Mr Rayment submitted that I should quantify the plaintiff’s damages consistently with the approach adopted by Rolfe J in Jazabas Pty Limited v City of Botany Bay Council [2000] NSWSC 58. That was a case in which the plaintiff relied upon representations made by the Council that the subject land was not affected by any Council policy to restrict development by reason of certain risks. The plaintiff claimed that had the Council disclosed that the land was so affected it would not have purchased the land. Rolfe J held that the Council was obliged to disclose that the land was so affected and accepted that had the Council disclosed the true position the plaintiff would not have purchased the land. On the question of damages, Rolfe J held that the plaintiff would have pursued other development operations and utilised capital and the time of its directors in the pursuit of those operations from which it would have derived profits: at [210]. In noting the plaintiff’s submission in that case (which are similar to those made in this case) Rolfe J said:

[210] … This was the course which [the directors] had followed over a number of years and, it was submitted, they would have continued to pursue it through the plaintiff and the plaintiff would have derived profits therefrom. However, because of the Council’s negligent statements, the plaintiff entered into the contract, and, by doing so, tied up loan funds and the time of [a director]. That deprived the plaintiff of those funds and that time, which otherwise would have been used on other projects.

80 Rolfe J noted that because the plaintiff had made a profit on the eventual sale of the land, such profit had to be deducted from any damages for the loss of opportunity to which the plaintiff was entitled: at [211]. His Honour was asked to hypothesise on what the plaintiff would have done but for the Council’s negligence and further as to what profit it would have derived. After referring to the passage in Gates cited above, his Honour considered whether the plaintiff’s reliance on the Council’s misrepresentation deprived it of the opportunity of entering into other development contracts from which it would have made a profit. His Honour described that loss as being referable to “opportunities forgone” by reason of such reliance.

81 After reviewing the other relevant authorities (Malec v JC Hutton Pty Limited (1990) 169 CLR 638; Sellars v Adelaide PetroleumNL (1992) 179 CLR 332; Fightvision Pty Limited v Onisforou (1999) 47 NSWLR 473; Hungry Jack’s Pty Ltd v Burger King Corporation [1999] NSWSC 1029 and Marks v GIO Australia Holdings Limited (1998) 196 CLR 494) Rolfe J concluded that the plaintiff had held on to the land because it hoped it could be developed or disposed of most advantageously. In that case the plaintiff was in the habit of completing only one development at a time, with little overlapping with other developments. His Honour concluded that on the history of the building activities of the plaintiff and taking into account the fact that there was ample land available it was “reasonable to assess damages” on the basis that the plaintiff would have achieved four developments per year except for one year during which there was a dispute on foot between the directors. Once his Honour reached that conclusion he considered the competing expert opinions as to quantum. His Honour reduced the damages for, inter alia, the vicissitudes which he described as “somewhat arbitrary and depend upon the assessment of what had, and was likely to happen so far as the plaintiff was concerned in the future” [305].

82 The Court of Appeal by majority (Mason P and Beazley JA) upheld an appeal by the Council on the basis that there was no breach of duty of care (if a duty existed) and that the misleading or deceptive conduct cases were not made out: City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94. Rolfe J’s approach to the assessment of damages was not challenged on the appeal. The dissentient, Fitzgerald JA, said:

262. The trial judge assessed the profits which Jazabas would have earned from other developments if it had not purchased the land at $1,273,129.00. That figure was calculated on the basis that Jazabas would have earned an average profit of $151,563.00 from each of 12 additional developments, discounted by 30% to take account of the uncertainties associated with the hypothesis on which Jazabas’ claim was based. His Honour then deducted $54,297, being the profit which he assessed Jazabas had made on the sale of the land. The difference, $1,218,832.00, was awarded to Jazabas as damages.

…

83 Mr Daniel’s evidence that the plaintiff would not have purchased the Property had it known the truth in relation to the zoning was not seriously challenged. I accept that the plaintiff would not have been interested in purchasing the Property had it known its true zoning. Mr Garling submitted that Mr Rayment’s description of the plaintiff’s claim as a “no transaction” case is misconceived. He submitted that in reality the plaintiff has converted a “no transaction” case into a partial transaction case by keeping the Property after it was advised of the zoning misdescription. It was submitted that what the plaintiff did was to sit on its hands from the time it became aware of the misrepresentation, allow its directors to turn their energies to their own projects, complete only one much smaller project in the period from 1999 to the time of the trial and then look to the defendant for the equivalent of five Hypothetical developments. It was submitted that to behave in such a way is fundamentally unreasonable. I understand that the defendant’s position is that the plaintiff could have done far more than it did and that the defendant’s conduct did not cause the plaintiff to lose the opportunities to do four (or five) Hypothetical properties, however the fact of the matter is that this is a case in which the plaintiff would not have entered into the transaction if it had known the truth about the zoning of the Property.

84 The defendant claimed in its defence that the plaintiff failed to mitigate its loss by its failure to sell the Property and by its failure to develop the Property consistently with the correct zoning. I have already concluded that it was reasonable for the plaintiff not to sell the Property and thus this aspect of the defendant’s defence fails. There was no cross-examination of any of the directors of the plaintiff in respect of the alleged failure to develop the Property in line with the correct zoning and there was no evidence called by the defendant on this aspect of the matter. In those circumstances the second aspect of the defendant’s defence fails.

85 It seems that after all their reports, the experts agree that the plaintiff lost forever the opportunity to develop the Hypothetical 1997 development. Of course the plaintiff seeks damages for four, or even five Hypothetical developments. Mr Rayment submitted that the assumptions made by Mr Bryant were not seriously challenged. It is true that many of the assumptions made by Mr Bryant are perfectly reasonable. However, there are some aspects to those assumptions that are not reasonable in the light of the evidence. This is no criticism of Mr Bryant. He was instructed to accept the assumptions without qualification and he did so. Mr Bryant was instructed to assume that the plaintiff would have purchased properties for development and that the developments would have occurred at a pace that was consistent with the pace of the developments prior to 1997. I am not satisfied on the evidence that the plaintiff would have pursued the developments after 1997 at the pace at which it pursued the developments prior to 1997.

86 I have already referred to the evidence given by Mr Kastrounis in relation to the development of his private property. It is clear that he was planning that development from at least late 1997. That was at a time when the plaintiff was unaware of the misdescription in the zoning of the Property. I am satisfied that Mr Kastrounis was going to develop his property irrespective of the problems that arose in relation to the Property. I am also satisfied that more probably than not, Mr Staikos was going to do the same in respect of his private property. In my view the diversion of the energies of both Mr Kastrounis and Mr Staikos affect the number and timing of the developments that the plaintiff would otherwise have been able to complete.

87 There are also the uncertainties to which Mr Gower referred in his report. The fact that the plaintiff took 2 years to reach the Land and Environment Court is a matter to be taken into account in considering the uncertainties of Development Applications. Mr Bryant’s “parallel universe”, as Mr Rayment put it, does not take into account any of the vagaries of the world of Development Applications, development approval processes and/or appeals from refusals of Development Applications. Those uncertainties need to be factored into the quantification of the plaintiff’s damages.

88 Another matter that needs to be taken into account is the plaintiff’s evidence that it was not able to proceed with the developments in the same manner as it had prior to 1997 because the Bank changed its attitude to the plaintiff’s operations when the Property was no longer a development site. As I have said earlier, I am of the view that the plaintiff’s approach in this regard is somewhat wrong-headed. If the Property was unencumbered it was available for use as security for borrowings on future developments. Additionally, Annexure C to Mr Gower’s report demonstrates that there were significant fluctuations in the property sales figures from 1994 to 2000 with the highest revenue recorded for the two-year period 1999/2000 of $6.15 million. Those proceeds were from 17-19 Chapel Street and Kings Road. Annexure C also demonstrates that there were funds available to the plaintiff in the period 1999/2000 to use in the development of other properties. There was at least the amount of $255,000 paid as “Directors’ Fees” and the amount of $143,807 paid as “superannuation” totalling $398,807 in the year 2000. That year also recorded the highest sales revenue of $4,071,000 and the highest net profit of $1,141,666. I am not satisfied that the Bank’s requirement for the plaintiff to repay $710,000 stymied the plaintiff’s capacity to proceed with further developments. It seems to me that there were a combination of factors that slowed the plaintiff’s progress, including importantly the private projects of Mr Staikos and Mr Kastrounis.

89 It is necessary to recognise that the plaintiff made a profit on Gungah Bay Road ($400,000). It is also necessary to consider the anticipated position in respect of the development of 145-147 Russell Avenue. The figure reached by Mr Bryant for the projected profit was $1.45 million on the basis of a development of 18 units. The development that is now approved is 10 units and 4 townhouses. There are a number of figures that need to be taken into account in the assessment of the projected profit on the proposed development. There is the expenditure of $710,000 (the purchase price/costs of 147 Russell Avenue) and $2.2 million (the purchase price of 145 Russell Avenue) totalling $2.91 million. Mr McGuirk expressed the view that the selling prices of the units and the townhouses would total $8,220,000. If one reduces that figure by $822,000 for GST the total figure of $7,398,000 is reached. The quantity surveyor, Mr Macansh, reviewed the costs of construction referred to by Mr Daniel and concluded that they were reasonable. Taking into account $2.5 million for 10 two bedroom units and $1.3 million for 4 townhouses, totalling $3.8 million, and adding that figure to the expenditure figure of $2.91 million a figure of $6.71 million is reached. Further costs relating to interest on loans, council’s fees and the like need to be taken into account. Mr Rayment submitted that once that is done a total of approximately $8.335 million is reached which is greater than the total proceeds anticipated by McGuirk. In those circumstances it was submitted that the proposed development at 145-147 Russell Avenue may well be close to a “break even” or may even suffer a loss. This, like most other aspects of the Hypothetical world relied upon by the plaintiff, suffers from uncertainties. It may be that the development will return a profit to the plaintiff, but much will depend upon the efficiencies of the construction, the actual costs of construction and the property market at the time of the proposed sales. I am of the view that it is reasonable to assume that there will be a relatively modest profit adjusted for uncertainties to $400,000.

90 It also has to be remembered that Mr Dundas’ evidence established that in the period during which the plaintiff lost the opportunity to develop the 1997 Hypothetical property, the property market was experiencing an upward trend. It was not until 2001 and later that confidence really returned to the market.

91 In final submissions the plaintiff claimed that Mr Bryant’s fifth report encapsulates the way in which the plaintiff puts its damages claim. The principal loss claimed is $3,141,835 adjusted to $5,719,866 for interest and grossing up for income tax. I am not satisfied that reasonableness equates to the quantification of the plaintiff’s loss as equivalent to four or five Hypothetical developments. Mr Bryant’s assumptions need to be adjusted to take into account the matters to which I have referred above. This process is not one attended by precision. The very nature of the creation of the “parallel universe” introduces an element of conjecture and there is an element of value judgment involved in the process. However one should be guided by the touchstone of reasonableness.

92 Taking into account all of the matters to which I have referred above, and doing the best I can on the figures available from Mr Bryant and Mr Gower, I am satisfied that it is reasonable to quantify the plaintiff’s damages to recognise the loss of the 1997 Hypothetical development with the addition of a figure that recognises the loss of a portion of a second Hypothetical development. Mr Garling was concerned to defend his client when Mr Rayment submitted that it had “dithered” in relation to the rezoning of the Property and 145 Russell Avenue. However I am satisfied that Mr Rayment’s description of the defendant’s conduct is rather understated. The lack of care with which the defendant attended to its business in relation to both the Property and 145 Russell Avenue has caused delay to the plaintiff in the development of 145-147 Russell Avenue. The additional figure that I intend to award to the plaintiff takes that delay into account.

93 Mr Gower valued the loss of the 1997 Hypothetical development at $836,172. Mr Bryant valued it at $1,061,280. I am satisfied that Mr Bryant’s valuation is a reasonable one and that the uncertainties that affect the later calculations do not affect this calculation. I am satisfied that the plaintiff is entitled to $1,061,280 in respect of the lost 1997 Hypothetical development. I am not satisfied that the defendant’s conduct caused the plaintiff to lose the opportunity to develop four Hypothetical developments. I am however satisfied that damages equal to the lost 1997 Hypothetical development would not properly compensate the plaintiff for its loss. After taking all the above matters into account I am of the view that it is reasonable to award to the plaintiff an additional amount of $400,000. That brings the award to the total figure of $1,461,280. This figure will need to be adjusted for interest and tax. The parties should bring in Short Minutes to reflect the final figure for the entry of judgment in the plaintiff’s favour together with an agreed order as to costs. If the parties are unable to agree on a costs order I will hear argument when the matter is listed at 9.30 on 1 February 2007.

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Citations

Micro Developments Pty Limited v Rockdale City Council [2006] NSWSC 1400

Most Recent Citation

Rockdale City Council v Micro Developments Pty Ltd [2008] NSWCA 128

Cases Citing This Decision

1

Rockdale City Council v Micro Developments Pty Ltd [2008] NSWCA 128

Cases Cited

8

Statutory Material Cited

0

Jazabas v Botany Council [2000] NSWSC 58

Hungry Jacks v Burger King [1999] NSWSC 1029

Malec v JC Hutton Pty Ltd [1990] HCA 20

CITATION:	Micro Developments Pty Limited v Rockdale City Council [2006] NSWSC 1400
HEARING DATE(S):	10 and 11 April 2006, 6, 7, 8 and 9 November 2006
JUDGMENT DATE :	22 December 2006
JUDGMENT OF:	Bergin J
DECISION:	Plaintiff entitled to $1,461,280 plus adjustment for interest and tax
CATCHWORDS:	[DAMAGES] - Quantification of plaintiff's damages resulting from defendant's negligent misrepresentation in relation to zoning of land.
CASES CITED:	City of Botany Bay v Jazabas Pty Ltd [2001] NSWCA 94 Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 Jazabas Pty Ltd v City of Botany Bay Council [2000] NSWSC 58
PARTIES:	Micro Developments Pty Limited - Plaintiff Rockdale City Council - Defendant
FILE NUMBER(S):	SC 50164/02
COUNSEL:	BW Rayment QC/ GJ Grogin - Plaintiff MR McCulloch SC/ GJ Gemmell - Defendant on 10, 11 April 2006 PR Garling SC/ GJ Gemmell - Defendant on 6, 7, 8, 9 November 2006
SOLICITORS:	John Orford & Associates - Plaintiff McCabe Terrill Lawyers - Defendant