Mimivic Nominees Pty Ltd v Kearney & Tyrell Pty Ltd
[2001] VSC 221
•29 June 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 7216 of 1998
| MIMIVIC NOMINEES PTY LTD and R. & A. ELLIOT PTY LTD | Plaintiffs |
| v | |
| KEARNEY & TYRRELL PTY LTD | Defendant |
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JUDGE: | Hedigan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19, 20 and 23 April 2001 | |
DATE OF JUDGMENT: | 29 June 2001 | |
CASE MAY BE CITED AS: | Mimivic Nominees Pty Ltd v. Kearney & Tyrell Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 221 | |
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DAMAGES – Negligent advice admitted – Failure to estimate correctly cost of sub‑division, particularly storm water drainage costs – Development delayed some years – Whether trading losses could be recovered in addition to reliance losses – Not realistic for plaintiffs to abandon development.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr R. Garrett QC with Mr P. Corbett | Hall & Wilcox |
| For the Defendant | Mr M. Thompson | Herbert Geer Rundle |
HIS HONOUR:
The two plaintiffs in this proceeding are companies in partnership in respect of the development of industrial land. The defendant company carried on the business of land surveying and as planning consultants. The defendants were retained by the plaintiffs to assess the costs of sub-dividing for development 21 acres of vacant land at Cherry Lane at Laverton North, Victoria. The person who primarily handled the matter the subject of this proceeding was the principal of the first plaintiff, Mr Victor Rudewych. The person on behalf of the defendant surveyor who dealt with the plaintiff and provided the advice concerning the land at Cherry Lane was Mr Luke Noonan, who had provided advice to Mr Rudewych in relation to past developments. According to the plaintiffs' statement of claim (and indeed established by the evidence) the plaintiffs retained the defendant for reward to assess the cost of development, which was known by Noonan to be a development for industrial purposes. Rudewych had instructed Noonan that the plaintiffs were proposing to develop the land and to sub-divide it into lots for factories and warehouses. He wanted an estimate of the cost of sub-division prior to purchasing the land. The defendant accepted the retainer and ultimately provided its written estimate of the development costs on 20 June and September 1995 respectively, having provided consultancy and other services to the plaintiffs in respect of the proposed development. Essentially, Mr Noonan estimated the development costs in June of 1995. He assessed the cost of storm water drainage works required in respect of the land (which had two lots for sub-division) at $5,000 and estimated council fees and contributions in respect of storm water drainage for the whole of the land at $1,000. In September the defendant assessed the cost of stormwater drainage for a two lot sub-division at $5,000, no change in council fees. Ultimately Noonan assessed the cost at $17,000, in late 1995. According to the plaintiffs, the defendant did not carry out its task of ascertaining the necessary stormwater drainage works which were required in order to develop the land as proposed and gave a wholly inaccurate estimate of costs of sub-dividing and developing the land. In the event, the net cost to the plaintiffs of effecting stormwater drainage works to develop the land as a two lot sub-division was $458,131. The statement of claim alleged that in reliance upon the surveyor's assessment of the development costs and stormwater drainage costs the plaintiffs entered into an agreement to purchase the land from Dupont Australia Pty Ltd on 10 October 1995. On the 17th it entered into an agreement with CMW Design and Construction to build a warehouse and office facility on part of the land and about a week later entered into an agreement for lease of that part of the land and warehouse (Lot 1) with Wrightson Seeds. By 17 November the plaintiffs entered into a binding contract to purchase the land from Dupont.
The plaintiffs sued the defendant in negligence, for breach of retainer, for breach of warranty, and/or misleading and deceptive conduct. By its statement of claim it made a series of alternative claims in respect of loss. In the first place the plaintiffs claimed that if the defendant had provided an accurate assessment of drainage costs, it would not have bought Cherry Lane but would have purchased land already serviced as to drainage in the William Angliss estate at Laverton. They claim to be entitled to expect a margin of profit calculated at 15.83% before tax as the total cost of developing the land, alternatively, 11%. It is claimed they received a return of only 5.22% of the total cost of development. The cost of developing the land in Cherry Lane was $20,011,871. The plaintiffs claim the difference between 15.38% of $19,987,000 and the gross profit before tax actually made of $1,044,000, this amount is $2,029,398. It also claimed figures in the alternative based on an approximate 11% margin and on the differences in the value of the land purchased with its diminished value.
The plaintiffs alternatively claim the difference in what was asserted to be the true value of Lot 2 of the land (that being the whole of the land other than the Lot 1 which was the Wrightson land), that is, $580,000 and the price paid for it $1,350,000, that is, the sum of $770,000 gross; thirdly, and alternatively, the plaintiffs claim the difference between the two values as at December 1995 ($850,000) assuming it had been offered for sale, with agreement from adjoining land owners to contribute towards the cost of drainage works and the price paid for it $1.35M, that is, the sum of $500,000.
The final basis on which the plaintiffs claim damages was the additional unexpected costs and the expenses performed to construct satisfactory drainage on the land ($458,131) as against the defendant's estimate, $17,000, namely, $441,000 (in round figures).
When the case was called on for hearing it became apparent that there had been no witness statement filed on behalf of the defendant challenging the liability issues, that is, in the sense of negligence or breach of retainer. Before the evidence was embarked upon, the defendant admitted negligence and there was no allegation of contributory negligence.
The plaintiffs’ evidence in the proceeding was primarily that of Mr Rudewych the principal of the first plaintiff, and the plaintiff who had the most to do with the matter. To a lesser extent they relied on Mr Elliott the principal of the second plaintiff, and also some expert witnesses, Mr Babo, Mr Dickinson and others concerning accounting and valuation matters, and damages. The second plaintiff company was essentially a silent partner participating in decision making with Mr Rudewych, the on the ground developer of the joint activity.
According to the evidence (which was throughout in the form of witness statements and with some witness's oral evidence) it would appear that in the course of the partnership the plaintiffs had developed about 22 factories. It was Mr Rudywych who identified Cherry Lane as a suitable site for development. The land in its undeveloped state rose to a natural ridge running through a part of the land with a fall from north-west to south-east with the eastern boundary being flat. The land extended back towards the Melbourne-Geelong Freeway and in fact abutted it. The Certificate of Title to the relevant land which was in evidence showed a statutory drainage easement. The land had a long frontage to Cherry Lane.
The evidence also referred to the William Angliss site which had been a possible alternative development site considered by the plaintiffs but rejected in favour of Cherry Lane, once the costings had been received from the surveyor. The land was to be sub‑divided into two lots. Lot 1 was for Wrightsons Seeds.
There were four developments for Lot 2, namely, Timber Specialists, Kinetek Engineering, Suzuki and Clayton's Kitchens. Neighbours to the development included Hoechst the chemical company, and Containers which would be contributors to any drainage works, as their land would be benefited by them. The storm water drainage for the Wrightson section was sufficient, did not have to be constructed and was capable of being discharged into the existing storm water drain at low cost. However, the others had to go to the rear along the drainage easement.
The Court Book evidence indicated that Mr Noonan of the defendant had written to City West Water seeking details. The balance of the land, however, was very substantial and not less than 600 metres with a significant fall so far as drainage was concerned. The exhibits are in court books, which showed letters from City West to Kearney & Tyrrell in late August of 1995, and further estimates given by Noonan on 21 September 1995 after which Rudewych instructed the defendant to prepare the subdivisional plan. By that stage Wrightson Seeds had expressed interest in respect of Lot 1. By 13 October, Wrightson Seeds was a certain taker of Lot 1 and its developments, and by 16 October the plaintiffs entered into option agreements to purchase the land for $1.35M. On 24 October, subsequent to a design and construction contract for a warehouse and office facility for Wrightsons, planning approval was obtained. By 31 October Wyndham City Council had given a planning permit for the subdivision. The defendant was still involved throughout November with respect both to drainage and other subdivisional matters, including contribution.
Rudewych's evidence was that the plaintiff’s relied on the estimates for construction and drainage prepared by Noonan in deciding to purchase the land. I note that during this period the defendant's estimates for the cost of storm water drainage remained the same although the other costs were rising, including the cost of sewerage which was the main item of increase. According to Rudewych, by the time the likely cost of the four lot development (that is, other than Wrightsons) had risen to $572,000. He was told by Noonan that that was due to increased costs for sewerage works. By mid October Wrightson Seeds had undertaken to lease lot 1. At that time the plaintiff got a formal offer of funding from the ANZ Bank which included a bill acceptance and discount facility for $1.5M which was accepted.
The permits granted by the City of Wyndham for the two lot subdivision of (31 October) contained a condition that provision had to be made for the drainage of each allotment shown on the endorsed plans to the requirements and to the satisfaction of the council as the responsible drainage authority. I am satisfied on the evidence that the plaintiffs were concerned to present the scheme as council driven to improve the prospects of having adjoining land owners such as Hoechst contribute to the cost of the storm water.
I do not overlook that prior to ultimate commitment and whilst the development costs estimated were being considered, the plaintiffs were still in the process of deciding whether to proceed with Cherry Lane or to take the William Angliss site which already had storm water services. The evidence of both Rudewych and Elliott was that they would not have proceeded with Cherry Lane if they had had an accurate identification of cost even in July or September of 1995, a cost that had not been properly considered and advised on by Noonan. According to Rudewych he did not think the council permit conditions which were required (including the 1 in 20 storm event requirement) was uncommon, nor did it cause the plaintiffs concern nor change their assumptions as to the drainage of the site. According to Rudewych, whose evidence I accept, the defendant did not make any comments to him about that condition, nor suggest, even when it adjusted the cost to $17,000, that there was any problem.
Accordingly I find that on 1 November the plaintiff accepted the funding offer from the bank, exercised the option to purchase Lots 1 and 2 for $1.5M, that is, $150,000 for Lot 1 and $1.35M for Lot 2. At this point they were committed irrevocably to the project.
According to Rudewych, Noonan was normally conservative and was prone to over- estimate cost. Kearney and Tyrrell were fully involved in the pursuit of all the steps that were necessary to be taken to obtain registration of the plan of subdivision, including the cost and conditions of water supply and sewerage. The evidence, including the documentary evidence, shows that Rudewych was tracking the figures through and that the storm water contribution figure required from Melbourne Water in respect of the whole of the land was noted on a number of occasions. In any event, Rudewych's evidence was that the estimate provided by the defendant in relation to storm water drainage costs was not in question towards the end of 1995. In mid December, however, Noonan telephoned Rudewych and informed him, "We have a problem with storm water drainage", going on to say there would be additional costs. About this time it started to become apparent that there was going to have to be a divided drainage scheme, that is, draining in different directions because of the contour in the land.
Some time in December, Noonan told Rudewych that council would not certify the plan of subdivision without an agreement to construct drainage and at that time also told him that it would not be possible to drain both lots into Cherry Lane, also that part of the costs of the works (which were not fully explained at that stage but were said to be about $240,000) could probably be recovered from adjoining land owners. It was not until July of 1996 that Rudewych learned that not only were there going to be even more grossly increased costs but if he was to get any contributions from adjoining land owners he was going to have to take the steps to involve them in the matter. The first indication therefore of the necessity for a divided drainage scheme did not occur until December of 1995. The full extent of the obligations did not become clear, according to Rudewych, until 30 July 1996. But by the end of 1995 the plaintiff was committed to Wrightson Seeds, CMW and Dupont. Construction of the Wrightson warehouse was well under way with completion due 1 February 1996. Sewerage works were still going on (the additional cost estimate of which was $240,000) although Noonan told Rudewych there was a possibility of recovering half the cost of that from adjoining land owners. According to Rudewych, even with that level of bad news it was not a realistic option given their commitments to seek to sell Lot 2 where the other major developments would take place, Wrightson Seeds was already in place. According to him, "I did not think we could sell the land without a substantial loss. We were more likely to recoup the estimated cost by further developing the land and obtaining contribution from adjoining land owners". Accordingly, the plaintiffs gave the relevant undertaking to the council which then issued a statement of compliance. The delay in compliance affected the ANZ facility and the plaintiffs had to borrow money from the Elliott Company.
In April 1996 the drainage constructor, WBCM, provided a further estimate of the cost of the drainage scheme and prepared designs to enable the plaintiffs to approach adjoining land owners. In July 1996, until the drainage works were completed in November 1998, the plaintiffs paid out $781,179 in respect of the drainage construction works and received back from adjoining land owners (Containers, Hoechst and Public Records) $348,767. The net cost of the drainage works to the plaintiffs, apart from financing costs, was $432,411, far in excess of the estimate provided by the defendant even as late as December 1995. This obviously had a deleterious effect upon the profitability of the development both on cost and delay grounds. According to the plaintiffs the return on the funds for the development was only 5.1%, although this figure was subsequently corrected by the witness Babo to 5.2269%.
The plaintiffs obtained a loan facility of $377,000 from the ANZ Bank to pay for part of the cost of the drainage works and had fully drawn that figure by September 1997. It was not repaid until July 1998. I will deal with some of these figures subsequently.
The plaintiffs’ expectation was that they would develop Cherry Lane in stages with a yield of about 15% on total capital outlay. The plan was to develop the balance of land as a four lot subdivision to be fully occupied within two years. However, it took more than three years before the lots could be developed, leased and sold, and even then the land had to be developed in such a way as to enable them to meet funding commitments which had not been anticipated and were caused by the delays.
Rudewych specifically said if it were not for the assessments given by Noonan he would not have agreed to purchase the land nor enter into all the associated commitments. He would have purchased the William Angliss estate land with a similar street frontage but which was fully developed as to utilities and drainage. That land was available at the time and offered a return of 15% on capital expenditure over the life of the development.
The substance of this evidence was supported by Mr Elliott, although he was not as hands on as Mr Rudewych. However, he gave further details about their interest in acquiring and developing the land at the William Angliss Estate in Fitzgerald Road. He gave evidence that if he had known the problems and additional costs of developing Cherry Lane he had no doubt that they would not have gone ahead with it. According to both of the plaintiffs, as developers they favoured having a "land bank" so they could quickly respond to opportunities that the market presented. This meant that even if Cherry Lane had not been purchased they would have purchased elsewhere, to continue to carry out their development activities. Mr Elliott, who was an experienced property developer, gave evidence that a return on capital invested of at least 15% was necessary to make a development project viable, that was the rate of return they looked for and generally achieved in development proposals they considered and carried out.
The evidence of Mr Malcolm Semmens, who was a civil engineer with WBCM was as to designing and arranging for the construction of a sewerage connection scheme connected with this land. WBCM were then brought in to give quotes and implement a storm water drainage scheme in respect of the land in 1996. Sketches and costing prepared by Semmens involved the divided storm water drain system. A formal requirement of council having been made, it was Semmens who wrote to the adjoining land owners and included the assessment by him of the preliminary cost estimates of the drainage scheme. By April of 1997, after tenders had been called for, the plaintiff's proportion of the drainage work had reached $376,942, although at that point of time further drainage works were required for one other lot then estimated to be $130,000 extra. Winslow Constructions were retained to perform the works and it took about 12 months. During that period progress claims were made and paid for by the plaintiffs and contributions obtained from each of the adjoining land owners upon completion of the scheme. Those contributions have now been concluded and the evidence is the cost to the plaintiffs was $432,411 The work was ultimately completed in 1998.
The plaintiffs called two witnesses to address the accounting and valuation matters. The accountant, Mr James Babo, who was the accountant for the plaintiffs, gave evidence. Mr Babo had advised the plaintiffs to open a general bank account, and maintain separate bank accounts for each individual development on the Cherry Lane site to enable the expenses of each individual development and receipts to be dealt with as their own individual accounts. Mr Babo's profit and loss summary for each of the six developments undertaken on the land formed part of the evidence in this case. He gave evidence that the summaries were an accurate record of total income and expenses from the Cherry Lane development. Mr Babo's evidence was that that total return on funds expended was 5.2269% of the total capital expenditure. Mr Babo also prepared a summary of income, expenses and percentage of returns in respect of another development undertaken by the partnership at about the same time near Geelong, (called the Tubemakers project), about which Mr Rudewych gave evidence as the closest comparable development they had undertaken about that time. He gave evidence that explained why the net profit before tax on Tubemakers was less than expected and claimed that 15% was usually a reasonable return for projects of this kind. Later evidence, including Babo’s, supported this. The return with respect to an assumed sale price for the Tubemakers project was based on a figure given by the valuer, Mr Dickinson, that an investor seeking to purchase in Cherry Lane would have paid a price for the land that gave a yield of about 9.5% on funds invested. This is not the same as a return on funds invested.
According to Mr Babo, a comparison of the return on funds by the plaintiffs in the Cherry Lane project, using 18.126% as the multiple, the actual profit from Cherry Lane should have been $3.6273M as opposed to a profit actually obtained of $1.0207M.
The evidence of Mr Peter Dickinson of CB Richard Ellis detailed a substantial experience in the valuation of real estate in Victoria. Mr Dickinson gave relevant evidence as to the land at Cherry Lane. Part of his evidence (see Schedule 2) derived from the CB Richard Ellis data base, set out average market initial yields applicable to industrial investments in areas such as Altona North, Laverton, Scoresby and the like, these, said to be taken at random, showed yields generally of 9 to 10%. In his evidence he said that initial yields for new prime design and constructed industrial investments was in the range of 9.5 to 10% for the greater metropolitan area. As to the profit earned by similar developments of comparable land, he considered a hypothetical industrial development model (set out in Schedule 3 annexed to his evidence) in order to provide an indication of the likely level of developer's profit in undertaking that sort of development in late 1995/early 1996. This model replicated prevailing values, interest rates and development costs at the relevant time. According to Mr Dickinson the assumptions made are reasonable and appropriate. The model indicated a return to a developer of 13% of gross realisable value or approximately 15% of total costs.
As to Lots 1 and 2 and Cherry Lane, they had failed to sell at auction in August 1995, being passed in for a figure of $1.351M and were subsequently purchased at this figure by the plaintiffs. The plaintiffs' price was in effect $17.57 per square metre of land area. In Mr Dickinson's opinion the Angliss Industrial Estate, particularly with its Fitzgerald Road frontage, would be considered superior to Cherry Lane because of its closer relationship to the Western Ring Road and access. Cherry Lane, prior to the modern developments constructed by the Mimivic Group, was a secondary location which had experienced little development activity. However, he suggested a value, (taking into account matters set out by him in his evidence,) of the Lot 2 Cherry Lane in the order of $17.70 per square metre. He expressed the view the purchase price paid by the plaintiffs was market price at that time. If it had been sought to be sold in December 1995, by then having the requirement of disclosing that the council required the installation of the full new drainage scheme prior to constructing buildings on Lot 2, he took the view that the minimum diminution in value would have to reflect the order of the cost of the works which were ultimately $432,411. The actual cost of the works of course was $781,179 but a portion of that cost was borne by adjoining land owners. I have already referred to these figures.
Mr Dickinson gave evidence that since a profit margin of a development in that Laverton precinct at about this time was 15% on total cost, a developer/purchaser would discount the land value not only to reflect the proposed costs of drainage works but the developer's profit margin, plus some allowance for contingency. That might push the percentage up to 15% to 20%. This puts the likely minimum value of Lot 2 up to $870,000. Asked to make a comparison of yields in Corio and Laverton (the Tubemakers development being in Corio), Mr Dickinson expressed the opinion that Laverton was an established recognised industrial precinct 12 kilometres from Melbourne where tremendous development activity stemmed from the completion of the Western Ring Road. The Corio (often called Lara) industrial location is a slow developing area. Corio was a riskier investment so one would expect an investor to accept a lower initial yield in the case of a Laverton property as against a Corio property. I will explain this aspect later.
I notice the criticisms made by Mr Thompson for the defendant of the formulation by the plaintiff of their claimed losses and will deal with them. But no challenge was made to what I might call the costs involved with the necessary storm water works that were performed on the property. That is, the reasonableness of the charges that were made by those connected with the letting out of the works, the performing of the works, the supervision and the charges made by the relevant authorities were not cross-examined on.
There was also tendered (the witness not being required to be called) a statement of Mr Phillip Durston. Mr Durston is a professional civil engineer with extensive experience in consulting engineering and local government engineering and a director of the Combes Consulting Group. The majority of his experience was in the area of land development work.
Most of this evidence was irrelevant because of the admission of negligence. He was strongly critical of the failure of Noonan to investigate appropriately. There appeared to be some doubt arising both from the pleadings and the statement as to whether the allowance for drainage costs was in the first place $5,000 and when it became $17,000 and whether that included some figure for road crossings. Documents in the Court Book suggested an allowance of $5,000 was made for the two lot plan. It seems to me that Mr Durston was saying (as other evidence appeared to support) that $5,000 was the Noonan assessment for the cost of draining from the Wrightson Lot straight to the existing drains, (no more than that being required) and that the balance of $12,000 (to bring it up to the $17,000 figure which Noonan came up with as a second figure) related to the other lots. Durston was of the view that the allowance was in effect hopeless and that it appeared to have been assumed that the existing drain was going to be enough to handle the lot.
Almost none of this evidence was challenged, although there was a lengthy cross‑examination of Mr Rudewych. There was some cross‑examination also of Mr Elliott and the expert witnesses but little of it was of any effect. The defendant called no evidence and the substance of all the plaintiffs' evidence remained unchallenged. In my view, Mr Rudewych was an honest and convincing (albeit garrulous) witness and I accept his evidence. It was apparent throughout, not only in the course of his evidence that in his handling of how he would handle the events after the serious miscalculation of the costs of drainage had emerged, he was confident and resourceful. He was primarily driven to strike a balance between generating some cashflow out of the balance of the construction in order to meet the plaintiffs' financial obligations, at the same time coping with the considerable actual expenses occasioned by the unexpectedly large sum required to be found to fund the construction of the drainage system. Mr Rudewych was a very experienced industrial site developer and had had considerable success. As such, it had engendered in him a confidence in his ability to make correct judgments about matters connected with his field of expertise. In my evaluation, his confidence in that respect was not misplaced and in a commercial sense, the plaintiffs coped well with the problem that arose. Some of Mr Thompson's cross‑examination was directed to the issue as to whether or not the plaintiffs had ever truly been interested in acquiring the land at William Angliss estate. I am satisfied that it is probable that had the plaintiffs been provided with correct information about the likely cost of effecting the storm water drainage works in Cherry Lane, notwithstanding that it had some attractions of its own in terms of the long frontage to Cherry Lane, that they were unlikely to have purchased Cherry Lane and developed. Instead they would have purchased land from the William Angliss Estate which was already serviced to drainage. If that had occurred, it would appear on the evidence not only of Mr Rudewych and Mr Elliott, but from the experts who were called, that there was a strong probability that the plaintiffs would have made a profit of 15.38% of the total cost of developing that land. Furthermore, although Mr Thompson chipped away at some of the expert evidence, he failed to dislodge its essentials.
Turning to counsel's submissions, Mr Thompson commenced by submitting that the sole point of controversy in the case was as to whether any compensable loss flowed from the conceded negligence of the defendant, in the way claimed by the plaintiffs. As such, he accepted that the case was concerned only with causation and the extent of loss. He commenced by referring to well-known statements as to the basis for rewarding damages in contract or tort, primarily to place the plaintiff in the position in which it would have been had the contract been performed or the tort not been committed.[1] Thus, he argued, one had to look at what the position would have been if Noonan had not been negligent, that is, if he had given an accurate estimate of the likely drainage cost or otherwise acted with all reasonable care when estimating the likely cost of subdivision, including the cost of storm water drainage. For most of this there can be set aside the drainage cost related to Lot 1 (Wrightson Seeds) because it was non‑contentious that the sum of about $5,000 would be sufficient to effect storm water drainage from it as it could be connected at low cost to the existing drainage systems that were in place. He said that damages ought to be awarded on a reliance basis and not an expectation basis. There had been no warranty that any outcome would be achieved. He referred to statements in Toteff v. Antonas[2]. He submitted that prima facie the measure of damages in a case where a plaintiff purchases land or some other asset by reason of the defendant's misrepresentations is the difference between the price paid and the lesser actual value of the asset acquired. He argued the decisions of the courts with reference to claiming under the Trade Practices Act were analogous to claims in torts and adopted the tortious principle that one recovered only to the extent that one was worse off because of the tort or deceit.[3] He referred to March v. Stramare[4] and Marks v. GIO Australia Holdings Limited & Ors[5] (wherein the High Court endorsed the practical common sense approach to the assessment of causation and loss, that is, the facts were to be considered and it decided whether the particular loss was caused by the act or omission relied on). Whilst Mr Thompson acknowledged the potency of the general principle, I am bound to say that I formed the view that his approach to the evaluation of the facts and consequences was more distinguished by reliance upon the benefits of three or four years' hindsight rather than the practicalities that prevailed in relation to the plaintiffs' obligations at the time of the discovery of the disastrous and negligent underestimate by its surveyors of the cost of dealing with storm water drainage. However, he put the case that damages usually meant the difference between the price paid and the value of the asset and in appropriate cases damages for the loss of opportunity. He argued that the plaintiff was confined to the first claim for relief in the amended statement of claim, paragraph 13. I should say Mr Garrett accepted that the plaintiff could not have the various claims aggregated. And it had always been that they were alternatives on a diminishing scale. Mr Thompson put it that the plaintiffs did not suffer a loss on Cherry Lane but just made a lesser profit than had been anticipated, that the profit that was anticipated and expected could never have been achieved. He argued that even if properly advised they would have gone ahead and would have had to have paid their $430,000 drainage costs and they would still be earning the same profit. He put it that the defendant did not warrant that the land could be developed without significant drainage costs and that this land never had the income earning potential that Mr Rudewych believed. Thus his argument is that the land would have always had the same value, when developed, that it had. What was misunderstood was the value when fully developed. He put it that in December 1995 the plaintiffs had a choice. They were then told for the first time of the real cost of drainage ($240,000) and could have cut their losses and pulled out, but they chose to go on. He said they had a choice and they could have elected to proceed no further with the development, sue for their loss, or they could continue to develop it. By electing to do the latter, they therefore forewent their entitlement to recover damages in the way in which they put and those losses could not be said to have been caused by the defendant's negligence. He referred to Alexander v. Cambridge Credit Corporation[6], and Thomas v. Adams[7]. I am not much aided by these cases, I should say. In particular the more recent of them Thomas v. Adams, was a case of domestic property and not an investment property in respect to which profits were planned and expected. Mr Thompson argued that the plaintiff could have sold off Lot 2 instead of going ahead with the development that there took place and that if they still would have had a substantial return on Lot 1. Essentially he was putting the case that Lot 2 could have been sold off without subdivision but the plaintiffs chose to trade on which turned the whole project into a $20M project. They had not made a large sum on that, a little over $1M, but they might have enjoyed huge profits.
[1]See Commonwealth v. Amann Aviation Pty Ltd (1991) 174 CLR at 99; Butler v. Egg and Egg Pulp Marketing Board (1966) 114 CLR 185, 191.
[2](1952) 87 CLR 647 at 650 per Dixon J.
[3]See Sellars v. Adelaide Petroleum NL (1992) 179 CLR 332 at 355 and Gates v. City Mutual Life Association Limited (1985-6) 160 CLR 1, 12-13.
[4](1990-91) 171 CLR 506.
[5](1998) 196 CLR 494.
[6](1987) 9 NSWLR 310.
[7](2000) NSWCA 127.
He argued that according to Mr Semmens, by April of 1996 they almost had a complete understanding of the heavy cost of drainage. They were experienced developers and made the decision to go on and to make a large expenditure in order to turn a profit. He claimed the subsequent diminution or losses were caused not by the defendant but by commercial factors and that the reliance losses ceased when they elected to proceed knowing of the negligence of Noonan. He said that having decided to go on and the result not being what they expected they sued the defendant as though it was underwriting their decision to go ahead and spend $20M.
Mr Thompson put it that if losses were caused and not too remote he said the figure of 15.38% on the $20M expenditure was not established as a proper loss on the evidence. He said that the William Angliss alternative purchase was no guide and that these developers had never made as much as 15% on any other project. He said the disappointing result was probably the consequence of a lack of analysis and the feasibility studies and an over confidence by the plaintiffs in their evaluation of the situation. He also argued that there was no satisfactory evidence as to what commercial activity, if any, the plaintiffs would have undertaken if they had not proceeded with Cherry Lane. He contended that there had to be positive evidence that the plaintiffs would have used funds in a particular alternative manner and the likely profits would have been made.[8] He argued that there was no evidence here sufficient to establish what the plaintiffs would have done had they not acquired Cherry Lane. The only serious suggestion was William Angliss which was a mere hypothesis. No specific site was identified and no prospective tenants. Also, William Angliss was less attractive because it did not have a road frontage similar to Cherry Lane and because of the possible need for road works which would have involved risk of delay and cost escalations. Essentially, he said the plaintiffs were looking for a risk-free investment. He said the evidence of Dickinson and Babo based on Tubemakers as a comparative study was unsatisfactory and that average yields at the time (see Dickinson) were only 9½ to 10%.
[8]See City of Botany Bay Council v. Jazabas Pty Ltd (2001) NSWCA 94.
Mr Garrett's submissions on behalf of the plaintiffs commenced with an emphasis upon the original suit by his clients in contract tort and the Trade Practices Act although it appeared that the Trade Practices Act aspect receded into the distance. He noted that there had been a late admission of negligence and no contributory negligence alleged. He commenced with a strong criticism of the absence from the defendants' pleading, that is, a failure to plead failure to mitigate a loss. This omission, in view of the defence argument, was a serious omission, an omission of substance to the claim based on breach of retainer. He relied upon the test of causation as pronounced in March v. Stramare. If the statutory causes of action were to be considered then the general principle is that a statutory cause of action will arise when a plaintiff suffers loss and damage "by" the contravening conduct of another. This was understood as taking up the same common law practical or common sense concept subject only to the modifications or supplementations that might arise by provision of the legislation. Although the matter was not pursued in detail, the differences in a legal-technical sense as to damages arising under the two limbs of Hadley v. Baxendale for the purposes of the law of contract ought be viewed as having a similar test at least as to remoteness although it is not customarily viewed as a matter of causation. It would commonly be viewed as a loss arising from breach in the ordinary way or a loss specifically in the contemplation of the parties.
He emphasised that causation was not to be viewed in the abstract but having regard to the circumstances and in particular what the defendant had promised to do and ought to have done.
He noted that the defendant had estimated the development costs for Cherry Lane on the basis that the storm water for the 21 acre site could drain into the existing drain in Cherry Lane and that it set the relevant cost of $17,000 on that basis. It was this fallacious and uninformed assumption that led to the admission of negligence since that drain could not accommodate the massive storm water generated in run off-from the whole land. The evidence indicated that a drainage system had to be established across the land of adjacent land owners to the Melbourne Water open outfall drains some considerable distance away from the subject land. He noted that the implemented scheme was not challenged in the course of the giving of evidence about it as being unreasonable nor that it cost a total of $781,179, net $432,411 to the plaintiffs allowing for contributions received. He put it simply that if Mr Noonan had performed his duty then the plaintiffs would not have bought the land. He claimed that essentially the plaintiffs were not challenged on this point. It was not put to the plaintiffs that even if Mr Noonan had done what the retainer required the plaintiff would have proceeded all the same. This was put by way of argument but never put to the plaintiffs, he contended. He put it that of the 21 acre site some 15 to 19 acres of surface area had to be able to drain into a drain. The existing drain was alright for Lot 1 (only two acres) but was not sufficient for the remaining 19. It was on this account that the complex and expensive works that were ultimately done were done and why they took the time they did. Mr Noonan ought to have identified the fact that the existing drain could not service that whole land. Noonan did not perform his duty. Had he done so they would never have bought the land. But they did buy the land and they bought it on reliance upon what he said about this issue. He referred to Durston's evidence about how the land surveyor ought to have gone about the performance of his duty. He argued that if Noonan had done what he was obliged to do, he would not only have identified the want of capacity in the existing drain and the need for further works, but also should have identified what those additional works would have been, their likely cost and the need to pay for them. This meant the plaintiffs had to pay for them entirely although they might, and probably would, recoup contribution. But they would have to be responsible for project managing the drainage scheme, at cost. Rudewych's evidence was that this was not explained nor appreciated until after July of 1996. Mr Garratt argued that the breaches and misleading conduct of Mr Noonan "continued to have a baleful effect" until well into 1996 and probably early 1997 when it was understood what was involved in the works, a matter which Noonan ought to have advised his clients about in August of 1995. That was not only a matter, he put it, of looking at alternative draining but to warn them they would have to supervise, implement and bear the cost of (and take measures to recoup) the cost of the drainage works. He criticised Mr Thompson for suggesting that the original representation did nothing more than induce the purchase of the land, claiming that it induced them not only to purchase it but to enter into a host of critical commitments, including in respect of drainage. He pointed out that even when Noonan told them the cost was in the order of $240,000 that that was a woefully inadequate estimate even at that time. At that point the plaintiffs agreed to provide an undertaking to Council, "Because we had no choice" and that selling Lot 2 was not a realistic option given their commitments and the need for full disclosure of all conditions. He emphasised that the plaintiffs not only had a commercial difficulty but they had acquired and undertaken, as a consequence of Noonan's negligence, obligations of a serious far reaching kind which if not performed would have led to proceedings. He emphasised that those matters were important in differentiating cases such as Koh v. Tay[9] and the Adams case from this case. He reminded me of the evidence of Rudewych writing a letter to the City of Wyndham in words that were based upon Noonan's statement to him as to what the City of Wyndham required, confirming that the plaintiffs would undertake to provide drainage to the land known as Lot 2. Thus in absolute reliance upon Noonan they undertook the further obligation. Noonan had told them they could lay off about half of these costs and to write to the City of Wyndham in that way. He said the plaintiffs were to be put in the position in which they would have been if the retainer had been properly performed[10]. Had Noonan performed his contract properly he would have ascertained all of the matters that subsequently emerged at the outset. Noonan, however, ignored matters such as the contours of the land and the capacity of the existing drain. Had he not done so, that is, had he not ignored them, appropriate estimates would have been given in August of 1995. If the land surveyor had performed its retainer, the plaintiffs would not have bought the land or entered into the commitments they did enter into by mid December 1995 – see the evidence of Rudewych and Mr Elliot’s, witness statement paragraph 6. Thus it was put the plaintiffs were entitled to recoup reliance losses under the law of contract and that is how they claim it under contract.
[9](1999) W.A.SC 197.
[10]See Amann Aviation.
As far as negligence was concerned the land surveyor was in breach of his duty to take reasonable care to ascertain the development costs in relation to the land in order to protect the plaintiffs from financial loss in relying on their assessment.[11] Thus he put the simple proposition that it was intended the plaintiffs rely on Noonan's assessments and they did. They are therefore to be put back in the position in which they would have been if the tort had not been committed, that is, the land would not have been purchased and the commitments would not have been entered into. Thus, his case was simple enough, that under both contractual and tortious claims the plaintiffs claimed and pursued reliance loss. And he also put it (but did not in the whole of the circumstances understandably much develop) the case of misleading and deceptive conduct was established. Its essentials were that the defendant was an expert retained to advise about development costs and there was no basis in fact for the projection of storm water drainage costs of $17,000. Its conduct was misleading and deceptive or likely to do so, according to an objective characterisation. Bona fides of the representor was in this context irrelevant, if it existed.
[11]See Kenny & Goode Pty Ltd v. MGCIA Limited (1992) 199 CLR at 143.
It seems to me impossible to think that there is any doubt that the plaintiffs relied upon the defendant to assess the development costs and produce projections to assess the overall viability of developing land. Rudewych said as much. The evidence showed that figures presented meant a cost of under $2.1M for the 21 acres, that is, about $100,000 per acre. According to Rudewych that was the figure he used up until the rude news in December of costing the storm water component. Both Rudewych and Elliott gave evidence that the cost of servicing the land had to be ascertained before they would proceed with the purchase. Thus it was put that the result of the negligence was that the land threatened to cost in excess of an extra $37,000 per acre and ended up costing in excess of an extra $20,500 per acre. It cannot be doubted that the combination of the additional costs and the inevitable delay in the completion of the development of the land as a result of the necessity to implement the drainage scheme would strongly suggest that the plaintiffs would not have proceeded to buy the Cherry Lane site. Fundamentally the point was put that the plaintiffs would not have outlaid nearly $20M in the development of Cherry Lane over three years, generating a return on funds of 5.2269% but would have employed those funds in their development business at a probable return of 15.38% or at worst 11.053%. As I understood it this basis of claim is the plaintiff's primary claim. It is put in the alternative that because its basis is that the $781,000 (that it net $432,000 to the plaintiffs plus borrowing costs) would not have been expended at all. Mr Garratt rejected the suggestion that the plaintiffs might have sought not to develop Lot 2 and simply develop Lot 1, pointing out that council required in its permit as a condition that drainage be provided in respect of all two lots Noonan had said the same thing. He also argued that the position of the plaintiffs by mid December 1995 was then critical (this was in answer to Mr Thompson's submissions that they might just have walked away). They had already entered into contracts to purchase Lots 1 and 2 on the plan of subdivision when registered, they had an implied obligation to use their best endeavours to procure registration of the plan of subdivision. They had enforceable obligations to the vendor, Dupont. They could not get the plan of subdivision, any subdivision, registered in the Office of Titles without a statement of compliance from the council and council would not issue a statement of compliance unless the plaintiffs accepted the conditions of the planning permit for the whole subdivision.[12] The funding from the ANZ Bank for the purchase of Lots 1 and 2, and for the developing Wrightson’s block required the giving of first registered mortgage over each title before the facilities could be drawn down. That could only occur, he argued, if the purchases of the two lots were settled so that the plaintiff could obtain title and give those mortgages. If the plaintiffs did not proceed their position was impossible, he contended. They would not have had the funding from the bank to carry out the Wrightson Seeds development which was already substantially under way and had to be completed by 1 February 1996 with a liquidated damages penalty of $5,000 per week for delay. Guarantees had been entered into amounting to $590,000 over their personal assets. If they could not get title to Lot 1 or Lot 2, they would have been in breach of contract to Dupont. He said that the plaintiffs had to borrow money from Elliott personally to pay the builder until the ANZ facilities could be drawn against. They would have been facing claims from the builder, WBCM and the ANZ in respect of those obligations. He claimed that it was never put to the plaintiffs that they could have cut their losses and simply sold in mid December or any other time, and it was clear that Rudewych would have hotly denied that. Also, he argued that Noonan had told Rudewych in December of 1995 that the likely net additional costs would be about $120,000. This was wrong, seriously wrong, but at that time, so Mr Garratt put it, the far worse scenario would be in not proceeding the consequence of which would produce losses substantially in excess of that amount. Further, he said, once they proceeded and acquired title they could not easily sell Lot 2. Mr Dickinson had said it would have been imprudent without securing the agreement of adjoining land owners which was not obtained until 1997. Since the planning permit issued for the subdivision required the implementation of a full drainage scheme it must be said that the market value of the land was likely to be low, because of the cost of the drainage works and an additional sum to reflect the risk and delay in development. I note that there was no challenge to the evidence of Mr Dickinson on this point. It should also be stated that in December of 1995 the negligence and misleading conduct of the defendant had not come to an end and the true cost still had not been unearthed. It really did not become known until Semmens became involved and reported in June 1996. Mr Garrett was critical that these matters were not put to the plaintiffs whilst in the witness box but were in effect saved up to be argued.
[12]See Rudewych's evidence, paragraph 38
Mr Garrett relied upon Kizbeau Pty Ltd & Ors v. W.G. & B. Pty Ltd & Anor[13]. That was a misleading and deceptive conduct case. In the judgment of Brennan, Deane, Dawson, Gaudron and McHugh JJ it was stated[14] -
"Actions based on s.52 are analogous to actions for torts. It follows that in assessing damages … the rules for assessing damages in tort, not the rules for assessing damages in contract, are the appropriate guide in most, if not all, cases. In an action for damages for deceit for inducing a person to enter a contract to purchase, which is an action that is closely analogous to an action for damages for breaches of s.52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. Nevertheless, although the value is assessed at the date of acquisition, subsequent events may be looked at in so far as the illuminate the value of the thing as at that date. A distinction is drawn, however, between establishment events that arise from the nature of the use of the thing itself and subsequent events that effect the value of the thing but arise from sources supervening upon or extraneous to the cause of inducement. … In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business. All of these principles are appropriate in the assessment of damages under s.82 or a breach of s.52 of the Act as induced a person to purchase a business."
[13](1995) 184 CLR 281
[14]At 290 – 291.
I daresay that it is likely that since the decision in Marks v. GIO Australia Holdings Limited & Ors[15] that the general statements in Kizbeau about the tortious principles in relation to claims under the Act may be subject to considerable modification. But the statement about damages previously cited is still likely to be the law, that is, that there are cases in which the damages may be expanded by the circumstances and thereby include, say, trading losses. All members of the court in Marks accepted there was no basis for confining relief under s.82, to analogous actions in contract or tort. Marks was a s.82 case. In the joint judgment of McHugh, Hayne and Callinan JJ in Marks it was stated[16] that notwithstanding that the remedies provided by ss.82 and 87 are not to be confined by analogies with tort or otherwise that the inquiry in both cases (the Act and deceit) is to find out what damage flowed in the sense of being caused by the deceit or contravention.
"Leaving aside questions of remoteness of damages in assessing damages for deceit … the damages for deceit will be the sum representing the loss suffered by the plaintiff because the plaintiff altered its position in reliance on the defendant's misrepresentation."
[15](1998) 196 CLR 494.
[16]Paragraphs 40-42
The defendant referred in reply to the decision of Dutney J in Mandwellana Pty Ltd v. Dames & Moore Pty Ltd[17]. Having read that decision, I do not find it of much relevance to this case. The circumstances there involved were notably different and so were the issues to be determined. The issues of election to continue, and causation, were not dealt with, nor was it necessary for his Honour to consider the question here raised as to the right of the plaintiffs to recover trading losses as ancillary to reliance loss. I note that neither Kizbeau nor Gould v. Vaggelas were referred to. Moreover, it does not appear that the plaintiff in that case raised the issue as to recovery of loss of opportunity damages, that is, as a consequence of losing the chance to generate returns from a different commercial environment (as here). In fact, in Mandwellan the plaintiff later sought leave to re-open its case to lead evidence, inter alia, of loss of opportunity to invest in another venture. Dutney J refused leave.[18]
[17](2000) QGC 432.
[18]See the ruling later made on 20 December 2000..
I address the issue of causation. There was not any real dispute between the parties with respect to contract tort and misleading and deceptive conduct. The causal connection would have to be shown between breach and the occurrence of loss and damage. Neither counsel argued much about the differences in the formulations of the test for causation in each cause of action. It is probably true that the limbs of Hadley v. Baxendale control remoteness of loss and damage rather than causation but in the present context that is of no significant difference. Loss as flowing naturally in the usual course of things from a breach of contract here complained of, do not strike me as being materially different to the tortious test. It may even have been capable of being argued that the kind of loss ought to have been regarded as being in the contemplation of the parties at the time the contract was entered into but no such argument was advanced. Both parties accepted that the modern test of causation as pronounced in March v. Stramare is a practical common sense concept of causation, not bedevilled by philosophical concepts of cause and consequence but by a relatively simply and practical test of whether the loss sustained ought reasonably be viewed as having been caused by the breach or tort or misconduct, i.e. not as an abstract concept but in the context of all of the circumstances, having regard to what the defendant had promised or undertaken and ought to have done.
The defendants' negligence in this case was, in my judgment, undoubtedly causative of the losses sustained because they arose as links in a chain forged by the extraordinary and unexplained breach by the experienced surveyor. The evidence indicated that the defendant, Mr Noonan, had worked on many projects for the plaintiffs. As such, it would be well known by the defendant that the plaintiffs relied absolutely on the defendant for soundly based estimations of the development costs of Cherry Lane.
The unchallenged evidence of Mr Durston made it clear that the surveyor was obliged to undertake a thorough investigation before preparing its estimates and if it could not do so "it was normal to specifically qualify the servicing costs report with assumptions necessarily made". This was not the case with respect to the original estimate. He was also clearly of the view that no proper attention was paid to the contours of the land and the capacity of the existing drains. He specifically stated, "If they had been considered, the rest would have followed." The contents of the estimates in relation to storm water would never have been given in the form that they were given; the problem, its solution and the impact of the problem and the solution, would have been identified in August 1995 or shortly thereafter. Noonan's failure to identify the relevant matters clearly led the plaintiffs into proceeding with the development which involved a plan of subdivision and all of the necessary planning and costs involved, not only with the building of premises on Lot 1 but the development of the premises and services of the other purchasers of the various sections in Lot 2.
According to Rudewych, in evidence which I accept, Noonan specifically advised the plaintiffs, (even whilst giving a gross underestimate of the real cost of the drainage works), that they would only have to meet half of the $240,000 then estimated by him in December of 1995. I conclude that if Noonan had identified the drainage problems and costs at the outset the plaintiffs likely would never have bought the land and would have diverted their attention to acquiring land at William Angliss. Both Rudewych and Elliott said so and were not challenged about that in any serious way. Of course the cost of storm water drainage blew out to more than $780,000 of which the plaintiffs had to carry $432,000. It not only involved the vast cost. As the evidence indicated, from mid 1996 onward it involved large scale construction works at great cost.
The evidence also showed that the time and cost of managing the task of obtaining contributions from the neighbouring land owners towards the new drainage works were required to be carried out by the plaintiffs. What was a relatively straightforward subdivision of an industrial estate project turned into a nightmare of difficulties that went on for years. In my judgment, this was an inevitable consequence and flow on from the necessity to do the difficult and expensive storm water drainage works and to no other significant cause.
The evidence showed that the Melbourne Water open outfall drains were a considerable distance away from the subject land, a matter that ought to have been identified by the defendant. The plaintiffs are to be put in the position in which they would have been if the retainer had been properly performed[19]. If Noonan had performed his retainer appropriately, he would have ascertained that the existing storm water drain was hopelessly inadequate and pursued the investigations that ought to have been done, advised the plaintiffs about those matters so that they would have learned of the need to project manage the draining scheme and to assess the cost and time implications of the substantial works. Both Rudewych and Elliott said they would not have bought the land if these matters had been done and would not have entered into the commitment which they did in mid December 1995. I accept their evidence.
[19]See Amann Aviation.
So far as the claim under the Trade Practices Act is concerned, I do not find it necessary to analyse this in much detail at all. The advice and conduct of the defendant was in trade and commerce and contained representations as to both present and future matters. It was misleading and deceptive and, if anything, the range of recovery under this cause of action is capable of being wider than that under tort of contract.[20]
[20]See Marks v. GIO 501-4 per Gaudron J, 510-512 per McHugh J, Hayne and Callinan JJ.
To the extent that Mr Thompson sought to submit there was no reliance upon these matters, I reject his submission. Mr Rudewych's evidence clearly established reliance upon the figures produced by Noonan. Indeed, the total figure finally given in 1995 for a two lot subdivision, including but not confined to storm water figures, was $180,000, the very figure relied upon by Mr Rudewych to get an extension of the options from Dupont. In any event, as I say, it was not put to either Rudewych or Elliott that neither of them relied upon the defendant's exercise of care, skill and diligence in advising as to the development costs of the land. In my estimation, this was because it was clear that they had. Elliott (who was in some other respects a nervous and uncertain witness due to a life threatening involvement in a tragic event) was clear about the need that there be an independent professional assessment of the development costs of the Cherry Lane land before they acquired it for their so-called "land bank". It would seem that had the cost and delay necessarily to be occasioned by the substantial drainage scheme been known then, the plaintiffs would not, as they said, have proceeded to buy the Cherry Lane site.
Mr Thompson urged strongly that the plaintiffs should, as soon as they realised towards the end of 1995 that the cost of the drainage works were much greater and the cost had risen (although it was then only one-third of the ultimate cost), that the plaintiffs should have sold off Lot 2 and also Lot 1 if it could, got out of the scheme and claimed such damages as then prevailed. My outlining of a number of the facts in the matter will have already drawn attention to the difficulties with this proposition. The plaintiffs' case was that it was too late. At 15 December 1995, progress claims from CMW totalled $298,000 (round figures for all of these figures). Work in progress with respect to the Wrightsons' Lot 1 development as of 15 December was about two‑thirds done. The third claim was $361,460. The plaintiffs, as the documents in the Court Book showed, had given a number of bank guarantees which totalled about $650,000. They had entered into agreements with Wrightsons Seeds, with a clause obliging them to pay liquidated damages at $5,000 per week in respect of delayed completion by 1 February. Had the plaintiff not completed the contract for the sale of Dupont, there would have been a substantial claim for damages or an attempt to enforce specific performance of the contract of sale. Any claim for damages would have been for the loss of the value of the land on re-sale which was bound to be substantial. Indeed, the argument about the sale of Lot 2 is disfigured by the encumbrance that the obligation lay upon the plaintiffs to disclose the requirement to complete the drainage works over the whole of the land so that any purchaser would itself have been faced with the costs and delays as to the use of the land, bound to seriously depreciate the price. Moreover, the plaintiffs were well established developers of industrial estates and premises for persons in industry. Non‑completion of a contract of that kind was bound to have affected its reputation. There was already a contract with WBCM in respect of sewerage works which had to be done (the total cost of those was $240,000). Some claim in respect of that was certain. Moreover, the Bank had claims in respect of personal assets provided as security, pending obtaining title to the land. It would appear likely that if the plaintiffs did not proceed, they would not get title. During 1996, of course, other parties were seeking to have their land developed. In my view, this concatenation of obligations and potential vast losses makes it clear that the position of the plaintiffs was far too acute to decide to walk away. Not only had they entered into contracts to purchase Lots 1 and 2 when registered, they had an obligation to give their best endeavours to secure registration of the plan of subdivision. It is not to be forgotten the planning permit for the subdivision required the provision of drainage and, according to Noonan (who was probably right), the council would not issue a statement of compliance which was a pre-condition to the plan of subdivision being registered in the Titles Office unless the plaintiff accepted the conditions of the planning permit for the subdivision. This included the full complement of storm water works. The Bank funding obliged the plaintiff to give a first registered mortgage over each title before the facilities could be drawn down. Doubtless something may have been able to be managed about draw down, but it does indicate that the plaintiffs' situation with respect to their financier was such that they had to get title. Also, if the plaintiffs pulled out they would not have had funding from the bank to finish the Wrightsons Seeds development on Lot 1. It can be seen from this melancholy litany that the plaintiffs would have been facing claims from the builder, Dupont, WBCM, the ANZ and Wrightsons in respect of obligations already entered into. It did not appear to me to be put clearly to the plaintiffs that they could have cut their losses and sold in mid December 1995. As I have indicated, this seems to be a matter reserved to final address. Moreover, since Noonan told Rudewych in December 1995 that the likely net additional cost would be $120,000 only, the consequences of the disastrous errors made by Noonan were not so great at that time as to have led the plaintiffs to breach all the outstanding obligations. Noonan was wrong again and doubtless had not taken the steps to know not only the likely cost occasioned by the difficulties of drainage and contour but the substantial time that would be involved as well as cost.
I note Mr Dickinson in his evidence said it would not have been a prudent step to sell Lot 2 without securing the agreement of the adjoining land owners who stood, at cost, to benefit from the storm water works. Dickinson's evidence was not particularly startling in this aspect. He said once the implications of the requirement became plain, the market value of the land fell by the likely cost of the drainage works and a further amount to reflect risk and delay to the development on the land. I add that s.32 of the Sale of Land Act 1962 would have obliged the vendor when selling Lot 2 to have disclosed the requirement in the vendor's statement. It would seem likely that Lot 2, if sought to be sold under the defendants' scenario, would have attracted a very low price indeed. It must not be forgotten that the full extent of the plaintiffs' exposure was still not known only because of the breach of retainer by the defendant. Unhappily those breaches continued for some time.
I have already cited some passages from various authorities. It may be that in many cases, as the courts have held, that the proper measure of damages in torts and, subject to Marks v. GIO, cases of misleading and deceptive conduct is the difference between the real value of the asset acquired and the price paid for it. See the passage cited in Kizbeau at 290-91. But as the other passages referred to in Kizbeau indicate, the law does permit compensation for additional losses.[21] In my view it would be absolutely unreasonable to seek to restrict the plaintiffs to the difference between the value of Lot 2 and the price paid for it, not only for the reasons to which I have referred but because the wrongs inflicted on the plaintiffs led them to enter into obligations with respect to drainage which were not completed until 1998. It was only in July 1996 that they learned that they had to project manage the scheme and the full extent of the costs was only learned in 1997 when the tenders for the works came in.
[21]See Gould v. Vaggelas (1985) 157 CLR 215 at 221-2, 255, 266; Poseidon v. Adelaide Petroleum NL (1994) 179 CLR 332.
I am also satisfied that the defendants' conduct caused not only the additional costs but a loss of expected return on funds. Naturally, the costs and delays produced additional funding costs. The land had to be sold in land and building packages to occupiers, rather than selling them as tenanted industrial premises to possible investors. Thus the costs were higher and the yields were less. Rudewych gave ample evidence of the pressures to sell in order to repay bank debt, so much so that they were not even able to hold one developed lot as an investment in their land bank.
In my view, there are helpful analogies with the case of Kenny and Goode v. MGICA. That was, as is known, a case of a negligent valuation but it is a case which warrants the added dimension to the measure of damages depending upon the facts, that is, a case where damages are not confined to the difference between the market value and the land at its real price. The court was concerned to doubt the applicability of the decision of the House of Lords in Banque Bruxelles Lamberts v. Eagle Star Insurance Company Limited[22] in which it was held that the valuer was liable to a lender entering into negligence only for the consequences of a valuation being wrong, not the consequences of the lender into some loss making transaction in reliance upon the valuation. The appellants had contended that to treat a valuation as cause of a subsequent transaction and the loss arising from it was to apply the "but for" test of causation, rejected by the majority in March v. Stramare. Gaudron J, in an illuminating judgment, stated[23] –
"One of the problems most frequently encountered in the area of causation is imprecision of language. When a person claims to have taken, or refrained from taking a particular course of action in reliance upon another's representation, the critical question, assuming the representation is one that might reasonably be relied on is whether, but for that representation he or she would have taken that action. In that context, 'but for' does not signify a sine qua non or causative factor which, although necessary, is not sufficient to produce the result in question. Rather, it signifies the decisive consideration or one of the decisive considerations for taking the course of action in question. It was in the former sense the 'but for' test was rejected as the exclusive test of causation in March v. Stramare. In the sense of asking whether a representation is a decisive consideration, 'but for' is always the test of reliance
Moreover to identify the loss suffered by a person who has entered into a transaction in reliance upon another's advice has the whole of the loss flowing from that transaction, save to the extent that it is, in law, referrable to his or her own actions or some supervening event, is not to apply the 'but for' test of causation. …
As the valuation was the decisive consideration in MGICA's decision to insure the loan from Permanent Custodians to Beca, it is simply common sense to treat that transaction as resulting from the valuation. And subject to a qualification shortly to be mentioned, once that is accepted it is also common sense to hold a valuer responsible for the loss arising out of the transaction, save for the extent it is attributable to some other cause."
[22](1997) AC 191.
[23]At paragraph 19.
It is not necessary for me to indicate the qualifications her Honour had in mind but they involved the parties themselves agreeing to limit the scope of the duty of the legal consequences of its breach, a matter not relevant in this case.
Her Honour identified another qualification, that a factor contributing as a foreseeable risk of loss is not to be treated as a supervening cause if the risk that eventuates is one which would have been suffered even if the information or advice were correct. See too the reasons of McHugh J, paragraph 44.
In this case the representations and conduct of the defendant were not confined to the cost of the drainage works, although that became the critical matter. They were retained to advise in respect of all the matters within the surveyor's brief in relation to the acquisition and registration of the land and obtaining of a plan of subdivision for the development. The surveyor was well aware of the development and was well aware from previous transactions with these plaintiffs of what they would do, that is, that they intended to develop the land over a period of time in order to manage a profit on the capital outlaid.
The plaintiffs' claim for loss is founded in the first place in this way. If the defendant had provided an accurate assessment of drainage costs, the plaintiffs would have not purchased Cherry Lane at all but probably would have purchased land at the William Angliss estate, Fitzgerald Road, Laverton. This land was already serviced to drainage but there was some prospect of some expenditure on roads. Based upon the evidence of the experts called, the plaintiffs claim that they were expected or were entitled to expect to return a margin of profit calculated at 15.38% before tax for the total cost of developing the land, or alternatively, 11.0523% before tax of the total cost. Instead their profit on the development here was only 5.2269% of the total cost of the development.[24] The plaintiff says the cost of developing the land in Cherry Lane was $20,011,871, that is, that was the outlay of the capital cost. Accordingly, they claim the difference between 15.38% and $19,987,904 and the gross profit before tax actually made $1,044,741. This total is $2,029,398.64 based upon Mr Babo's figures. An alternative way it was put in this same context was to take the difference between 11.053% of the figure $2,209,263 and the gross profit before tax actually made ($1,044,741) being a total of $1,164,522.
[24]See the evidence of Mr Babo.
The alternative scenarios proposed by the plaintiffs involve ignoring the concept of extrapolating a likely percentage return on the total cost of the land development, that is, the sum that would have been returned upon the use of the expended funds either at William Angliss or any other similar development, it being contended that having regard to the history of the plaintiffs and their operations they were bound at that time to have pursued other avenues of investment development. As an alternative, however, the plaintiffs put the following cases, the difference in the true value of Lot 2 as at December 1995 $580,000 on the assumption that it was offered for sale without securing an agreement from adjoining land owners to contribute to the cost of drainage and the price paid for it, $1.35M, namely, $770,000. The land value figure is derived from Mr Dickinson's evidence.
The third alternative here was to claim the difference between the true value of Lot 2 as in December 1995 assessed at $850,000 on the basis that it had been offered for sale with agreement from the adjoining land owners to contribute towards the cost of drainage works and the price paid, one three five oh, namely, the net cost there is $500,000. Alternatively, a claim is formulated based upon the additional unexpected costs and expenses of works formed to construct satisfactory drainage on the land, namely, $458,131.47, the net figure referred to me on several occasions. From this had to be deducted the cost of drainage works for a four lot subdivision of 17,000, giving a total of $441,131.47.
Mr Thompson attacked the claimed losses and the use of Tubemakers, Corio which was an unsatisfactory measuring stick. He said the plaintiffs had never attained 15% on funds in the past and he claimed that the yields shown in the evidence of Dickinson of 7% or 8% and on Tubemakers 11% supported this submission. However, in my view Mr Thompson is mistaken as to the evidence on yields as being a figure concerned with average return on capital invested over the whole of the project. This accounts, in my view, for the claim by Mr Thompson at one point that he did not understand how the case was being put. "Yield" to an investor is the rent that would be obtained as rent on land, over the cost of the land. That is why it is an annual figure. One has an annual return over a cost, so you get a certain percentage per annum yield. This is used to be contrasted with a return on funds for a developer which is gross profit over total outlay. The return on funds is not an annualised figure at all but a whole of project figure. That is why from time to time in the course of the evidence the reference to percentage return was emphasised as being on the whole of the capital outlaid for the project. The Tubemakers project was one which had been sold and the exercise was done to be able to get a later comparative return on funds by extrapolating the Corio yield because that was a project being pursued by the plaintiffs at approximately the same time. This enabled Dickinson, who was aware of the yield on the Corio project, to adjust it with respect to an investor in the western suburbs and thereby calculate from the higher purchase price, producing a higher return on funds. Indeed, the figure was 18.3%, higher than is here claimed. This is why Schedule 2 of Mr Dickinson's statement sets out with respect to the number of properties, the sale prices, the lease terms, the provisions as to rent review and expressing the yields which are broadly in a band of 9% to 10% or a little over. Mr Dickinson's hypothetical industrial development model in his schedule illustrated the return to a developer of 13% of gross realisable value, approximately 15% of total cost. This figure of 15.38% became the basis of the Babo calculations. Mr Dickinson was of the view that the Corio industrial location was not as buoyant as the Laverton area, which is most closer to Melbourne and the Western Ring Road. Thus he thought the investment risk profile at Corio was higher than that at Laverton which led him to conclude that an investor purchaser (not developer) would be prepared to accept a lower initial yield in the case of a Laverton property as opposed to a Corio property.
It is not absolutely clear to me why an of 11.053% return on total expenditure was included as an alternative. Babo's evidence indicated that the yield of 9½% on the funds invested in respect of Tubemakers would have produced a sale price of $2.736M. In fact, according to Dickinson's records, it was sold in September 1995 at $2,570,000M. That was a yield of 10.11%. This in effect made the return on funds for Tubemakers in excess of 18%. Although Babo gave a figure as to what the actual profit for the plaintiffs would have been in respect of Cherry Lane on the basis of 18.126% return on funds (the actual profit then would have been $3.627M as opposed to a profit obtained of $1.020M, rounded off figures), no case was pressed to use 18% as a multiple. The alternative figure of 11.0523% is presumably derived as a return on funds invested for the Tubemakers project and indeed the evidence of Babo said that. No‑one explained to me how Babo's evidence gave a return on funds invested in the Tubemakers project as 11.0523%. No‑one specifically explained to me the difference but I conclude that the differences in the two stated figures for return on funds with respect to Tubemakers, namely, 11.0523% and 18.126% is accounted for by the Babo assumption that a sale price for Tubemakers would have been $2.736M derived from a yield of 9.5% contrasted with the actual figure extracted by Dickinson from the data bank kept by Richard Ellis. I take the view that a figure of 15.38% as a return on funds is an acceptable figure, supported by the evidence of the very experienced Mr Dickinson. No other figures were presented to me to enable some alternatives to be calculated other than the two figures of 11% approximately and 18% approximately derivable as a return on funds with respect to Tubemakers, depending upon what figure was chosen as the purchase price or sale price. In any event, I conclude that the real basis for the plaintiffs' claim is based upon the evidence that had the defendant carried out its retainer without negligence and performed its duty as a whole project surveyor, thus accurately informing the plaintiffs of (i) the necessary outlays, (ii) the extra expenditures involved, (iii) the time that might be taken in order to complete it, and (iv) the involvements of adjoining land owners in relation to contribution, they would not have entered the project but would have invested in the William Angliss estate or something similar and thereby gained a return of about 15% on the funds outlaid on this project.
The defendant at one time was proposing to call but did not call another valuer named Perrin. It did not take up much of these matters either with the plaintiffs or their witnesses. In those circumstances, I see no valid reason not to accept the figure presented by Mr Dickinson as an appropriate return on funds for a project. Accordingly, in accordance with those calculations, I conclude the plaintiffs are entitled by way of judgment the sum of $2,029,398.64. I will hear counsel on the question of costs.
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