Norcross Pictorial Calendars Pty Ltd v Central Coast Council

[2020] NSWSC 1201

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Norcross Pictorial Calendars Pty Ltd v Central Coast Council [2020] NSWSC 1201

Hearing dates:

24, 25 and 27 August 2020

Date of orders:

4 September 2020

Decision date:

04 September 2020

Jurisdiction:

Equity - Technology and Construction List

Before:

Stevenson J

Decision:

Plaintiffs entitled to damages; Council’s claim for misleading or deceptive conduct to be dismissed

Catchwords:

CONTRACTS – joint venture to develop Council’s land into car park and residential-commercial development

CONTRACTS – parties – whether second plaintiff a successor to first plaintiff and able to sue under joint venture agreement

CONTRACTS – where land contaminated with asbestos and other substances – whether council liable under indemnity – whether claim under indemnity out of time

CONTRACTS – where council agreed to grant easement - where council granted easement and then rescinded motion granting easement – proper construction of easement provision – whether plaintiffs suffered loss

CORPORATIONS – damages – reflective loss – whether shareholder can recover diminution of value of its shareholding that reflects loss of company

CONSUMER LAW – misleading or deceptive conduct – whether first plaintiff’s failure to provide Council with geotechnical report prior to entry into joint venture agreement was misleading or deceptive – whether warranties and indemnities in joint venture agreement should be declared void

Legislation Cited:

Local Government Act 1993 (NSW)

Local Government (Council Amalgamations) Proclamation 2016 (NSW)

Trade Practices Act 1974 (Cth)

Cases Cited:

CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232

Chartbrook Ltd v Persimmons Homes Ltd [2009] AC 1101

Chen v Karandonis [2002] NSWCA 412

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; [1992] FCA 851

Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167

Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53

Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75

Johnson v Gore Wood & Co [2002] 2 AC 1

Kowalczuk v Accom Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343

Olsson v Dyson (1969) 120 CLR 365; [1969] HCA 3

Penrith City Council v Government Insurance Office of NSW (1991) 24 NSWLR 564

Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1882] 1 Ch 204

Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37

Servilleja v Marex Financial Ltd [2020] UKSC 31

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd [2019] 99 NSWLR 317; [2019] NSWCA 11

Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44

Texts Cited:

K Lewison & D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co)

Category:

Principal judgment

Parties:

Norcross Pictorial Calendars Pty Ltd (First Plaintiff)
PTL Land Pty Ltd (Second Plaintiff)
Central Coast Council (Defendant)

Representation:

Counsel:
M Condon SC with N Bentley (Plaintiffs)
R D Marshall SC with E A Walker (Defendant)

Solicitors:
Holman Webb (Plaintiffs)
Central Coast Council Legal (Defendant)

File Number(s):

2017/348639

Judgment

1. On 10 December 2002 the first plaintiff, Norcross Pictorial Calendars Pty Ltd (“Norcross”) entered into a Joint Venture Agreement (“the JVA”) with the predecessor to the defendant, Gosford City Council (“the Council”) to develop land owned by the Council in Pine Tree Lane, Terrigal (“the Land”).

2. The JVA provided that:

1. the Council would subdivide the Land into two parts; the “Car Park Land” and the “PTL Land”;

2. Norcross would construct at its own expense a car park on the Car Park Land, which would remain in the Council’s ownership;

3. as consideration for the construction of the car park, the Council would transfer the PTL Land to Norcross for a nominal consideration and perform its obligations under the Call Option to which I refer at [4] below; and

4. Norcross would develop the PTL Land on its own account by constructing a residential and commercial building.

3. In the JVA the Council gave Norcross a number of warranties and indemnities.

4. Also on 10 December 2002, Norcross and the Council entered a Call Option entitling Norcross to call on the Council to transfer the PTL Land to it or its nominee for a nominal consideration.

5. On 20 January 2004, Norcross and the Council entered into a Deed of Variation that varied the JVA in a manner not relevant to the issue in these proceedings but which otherwise reaffirmed the JVA, including the warranties and indemnities.

6. Norcross constructed the car park on the Car Park Land during 2004 and 2007.

7. On 18 March 2005, by which date the Council had subdivided the Land into the Car Park Land and the PTL Land:

1. Norcross nominated the second defendant, its wholly owned subsidiary PTL Land Pty Ltd (“PTL”), as its nominee to exercise the Call Option;

2. the Council and PTL entered a contract for the sale by the Council of the PTL Land to PTL for $1; and

3. PTL became registered proprietor of the PTL Land.

8. Almost ten years later, on 16 September 2015, PTL entered into a contract (“the Building Contract”) with Richard Crookes Construction Pty Ltd (“the Builder”) to construct a six storey residential and commercial building on the PTL Land. The Building Contract specified 3 March 2017 as the date for practical completion.

9. Work commenced on the site in November 2015.

10. Practical completion was achieved on 21 July 2017. Strata plans for the development of the PTL Land were registered on 28 July 2017.

11. It is common ground that the PTL Land was at all relevant times contaminated with asbestos, acid sulphate soil and general solid waste.

12. It is also common ground that:

1. on 27 July 2016 the Council resolved to grant PTL an “easement and right of carriageway for electrical purposes” (“the Easement”) over the Car Park Land; but that

2. on 23 November 2016 the Council rescinded that resolution.

The parties’ claims

13. PTL, alternatively Norcross, claims damages from the Council under warranties and indemnities in the JVA arising from:

1. the expenses incurred by PTL identifying and removing the contaminated material from the PTL Land; and

2. the delay caused in the development of the PTL Land by the Council’s rescission of its decision to grant the Easement.

14. The Council brings a Cross-Claim alleging misleading or deceptive conduct on the part of Norcross and seeking an order that the warranties and indemnity in the JVA be declared void.

The hearing

15. The hearing before me was conducted with admirable economy. The matter was fixed for hearing for seven days. It was completed in three.

16. I was greatly assisted by the written submissions of counsel. Much of what follows, especially as to uncontroversial background matters, is drawn from those submissions; especially those of the plaintiffs.

Decision

17. PTL is entitled to the damages it seeks.

18. The Council’s cross claim should be dismissed.

The course of events

19. Douglas Partners prepared a geotechnical report in respect of the Land, dated 5 April 2002. Mr Andrew Cochrane, later a director of PTL, was in possession of the Douglas Partners Report since shortly after this date.

20. The Douglas Partners Report contained an analysis of the subsurface of the Car Park Land and the PTL Land and stated:

1. “that actual acid sulphate soils are not present at the locations and depths sampled, however, there appears to be a relatively high potential for acid forming conditions upon oxidation”;

2. “the results of laboratory testing confirm that actual acid sulphate soil conditions are not present within the site. The analysis also confirms the presence of potentially acid sulphate soil conditions using the [relevant] criteria. Based on the results, it is considered that alluvial soils below a depth of about 1.0m exhibit a risk of forming acidic conditions upon oxidation. Residual soils encountered at depth are not considered to be potentially acid sulphate”; and

3. “the results of the assessments suggest possible sporadic occurrence of acid sulphate soil conditions across the site”. (Emphasis added.)

21. Norcross and the Council executed the JVA and the Call Option on 10 December 2002.

22. Mr Cochrane first mentioned the 2002 Douglas Partners Report at a meeting with Council officers on 7 August 2003. The minutes of that meeting record:

“[Mr Cochrane] to provide a copy of our [sic] geotechnical investigation of the site(s) to [Mr Theo Stephanou, an engineer employed by the Council]”.

23. Mr Cochrane provided Mr Stephanou at the Council with the Douglas Partners Report on 17 September 2003.

24. After Norcross built the car park on the Car Park Land, the development of the PTL Land was delayed due to unfavourable market conditions and the global financial crisis. Nothing turns on this delay.

25. The PTL Land development was reactivated in 2015.

26. As I set out at [8], on 16 September 2015 PTL entered the Building Contract with the Builder.

27. To fund construction costs, PTL had a facility with the ANZ bank.

28. The Builder commenced excavation work in November 2015.

29. Almost immediately, the Builder discovered fragments of asbestos sheeting in the fill being excavated. The Builder reported this to PTL’s superintendent, Cadence Australia Pty Ltd (the “Superintendent”).

30. The Superintendent authorised the removal of the asbestos contaminated fill and approved the costs incurred by PTL for the removal.

31. The Builder also excavated, treated and removed acid sulphate soil and general solid waste from the PTL Land.

The Easement

32. On 15 May 2016, PTL requested the Council grant an easement over the Car Park Land for the supply of electricity to the PTL Land.

33. The easement that was requested was over a very small part of the Car Park Land; an area of 1 metre by 5.67 metres. That area was located at the northern border of the Car Park Land, adjoining the south western border of the PTL Land. It would have facilitated the most direct electricity supply to the PTL Land from an existing Ausgrid substation on the Car Park Land.

34. On 27 July 2016, the Council passed the following resolutions:

1. “That Council grant the easement and right of carriageway for electrical purposes over [the Car Park Land], adjacent the existing multi deck car park”;

2. “That Council assess compensation in accordance with the Land Acquisition (Just Terms Compensation) Act 1991”; and

3. “That Council agrees that their costs in the matter are to be met by the applicant.”

35. On 4 August 2016, the Council asked PTL to engage a nominated valuer (“the Valuer”) to undertake a valuation for the compensation payable for the Easement.

36. On 30 August 2016, PTL engaged the Valuer who, on 8 September 2016, produced a report stating that in view of the small area affected by the proposed Easement and the fact that it would not affect any existing access arrangements to the car park on the Car Park Land, nominal compensation was appropriate for the grant of the Easement. The Valuer assessed compensation at $1,000 plus GST.

37. On 23 November 2016, without notice to PTL, and indeed without returning a number of telephone and email enquiries from Mr Cochrane, the Council resolved to rescind its resolution of 27 July 2016 granting the Easement.

38. This necessitated PTL making other arrangements to procure the supply of electricity to the site.

39. The result was that, on 21 March 2017, the Builder claimed an extension of time to achieve practical completion because of a “qualifying cause a delay”. The Builder claimed that the principal cause of the delay was its inability to secure the Easement.

40. The Superintendent granted the Builder a 78 day extension of time.

41. The extension of time was given in respect of working days. The 78 working days’ extension granted by the Superintendent was over an overall period of 104 days.

The issues

42. First, whether PTL was Norcross’s “successor” for the purposes of cl 19.9 of the JVA, the effect of which was, amongst other things, to extend the benefit of the warranties and indemnities in the JVA to a “successor” of Norcross (the “Succession Issue”). This is significant for reasons I set out below.

43. Second, if PTL was not Norcross’s “successor”, whether Norcross is entitled to recover against the Council for loss and damage (the “Loss Issue”).

44. Third, whether:

1. the Council is in breach of warranties in the JVA by reason of the presence of asbestos, acid sulphate soil and general solid waste on the PTL Land (the “Contamination Issue”); and

2. any claim by Norcross or PTL under the indemnities in the JVA in relation to the Contamination Issue is statute barred (the “Limitation Issue”).    

45. Fourth, whether in failing to grant the Easement, and more particularly in rescinding its decision to grant the Easement, the Council acted in breach of its obligations under the JVA (the “Easement Issue”).

46. Fifth, whether, as the Council contends in its Cross-Claim, Norcross engaged in misleading or deceptive conduct for the purpose of s 52 of the Trade Practices Act 1974 (Cth) (“TPA”) so that the warranties and indemnity under the JVA should be declared void under s 87 of the TPA (the “Cross Claim Issue”).

47. Sixth, quantum.

The Succession Issue

48. The party that has incurred the expense associated with the Contamination Issue and the Easement Issue is PTL, rather than Norcross.

49. Norcross, however, is the counterparty to the JVA. PTL is not a party to the JVA and, indeed, was not incorporated until 7 May 2004, several years after the date of the JVA.

50. The question that arises is as to the standing of PTL to bring a claim to damages against the Council in relation to the Contamination and Easement Issues.

51. In the JVA, the promise given by the Council concerning the Easement [1] and the warranties and indemnity relied upon by PTL concerning the Contamination Issue [2] were, in terms, directed to Norcross.

    1. In cl 4.1(a)(iii) – I return to this at [123] below.

    2. In cll 7.1, 7.2 and 15.1(b) – I return to these at [93] to [95] below.

52. The subject of the JVA was stated to be the “Project” which was defined to be:

“ … the subdivision of the Land, the transfer by Council of the PTL Land to [Norcross], and the development of the PTL Land and the Car Park land by [Norcross] construction of the Car Park on the Car Park Land and construction of a residential and commercial building on the PTL Land in each case in accordance with the Project Documents.”

53. The Call Option was executed on the same day as the JVA. The JVA made express reference to it, including at cl 4.1(c) where the Council agreed that it would:

“… observe and perform the obligations on its part (up to and including settlement) contained in the Option and the Contract for Sale”.

54. The JVA and the Call Option were executed as part of the one transaction. Each is available to aid in the construction of the other [3] .

    3. For example see K Lewison & D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co) at [3.03] and the cases there cited.

55. The Call Option provided that:

“In consideration of the parties entering into the Joint Venture Agreement, the [Council] grants to [Norcross] an option for [Norcross] or its Nominee to purchase the [PTL Property]”.

56. “Nominee” was defined as “all of the parties nominated by [Norcross] under clause 2.5” which provided:

“[Norcross] may appoint a Nominee by giving the [Council] … a completed Nominee Option Notice, signed by the Nominee and [Norcross].”

57. Thus, the parties contemplated that:

1. Norcross might nominate another party to become the owner of the PTL Land;

2. that other party would then develop the PTL Land; and

3. that other party would in that circumstance be the beneficiary of the warranties given by the Council in the JVA.

58. On 18 March 2005 Norcross and PTL executed a Nominee Option Notice enabling PTL to become registered proprietor of the PTL Land.

The proper construction of cl 19.9 of the JVA

59. It is in that context that cl 19.9 of the JVA must be construed.

60. Clause 19.9 provided:

“19.9 Successors and Assigns

The obligations imposed and the rights conferred on the parties under this Agreement are binding upon any successor to a party and such successor must upon such succession assume all rights [conferred] and [obligations imposed] by the provisions of this Agreement, mutatis mutandis, as if such successor were named in this Agreement as a party, but this clause does not permit the obligations and rights to be transferred or otherwise dealt with or disposed of by any of the parties (whether upon a sale or upon enforcement of a security or otherwise) otherwise than in accordance with the terms and conditions of this Agreement”. (Emphasis added.)

61. The words that I have added in square brackets (thus “[ ]”) do not appear in the text. It is, however, common ground that they should be inserted in accordance with the ordinary principles of construction as, clearly, “something has gone wrong with the language” used by the parties [4] .

    4. Per Lord Hoffman in Chartbrook Ltd v Persimmons Homes Ltd [2009] AC 1101 at [25]; and see Lewison and Hughes supra at [9.01] and [9.02] and the cases there cited, including Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 at 426-427 (Dixon CJ and Fullagar J); see also the recent discussion by Leeming JA in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd [2019] 99 NSWLR 317; [2019] NSWCA 11 at [6] to [11].

62. In my opinion, Norcross and PTL were correct to submit that, when read as a whole, and in the context of the matters I set out above, [5] the words that the parties have used show that they intended that any “successor” to either Norcross or the Council would have the same rights and obligations vis-a-vis the other as did Norcross and Council in the first place.

    5. Particularly at [53] to [58].

PTL a “successor” to Norcross?

63. The matters that divide the parties are the meaning to be attributed to the word “successor” and as to whether PTL is a “successor” to Norcross for the purposes of cl 19.9.

64. The term “successor” is not defined in the JVA or the Call Option.

65. The word “successor” is used in an earlier provision in the JVA. Thus, in cl 1.2(a)(ii) it is provided, under the heading “Rules for interpreting this document”:

“A reference to … a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator or successor in law of the person”. (Emphasis added)

66. The use by the parties in this provision of the expression “successor in law” is apt to include an entity that succeeds to another by operation of law. That would include the defendant, Central Coast Council. By operation of ss 213 and 220 of the Local Government Act 1993 (NSW) and cll 6, 17, 32 and 33 of the Local Government (Council Amalgamations) Proclamation 2016 (NSW) it is the successor to and transferee of the rights and liabilities of the Council of the City of Gosford.

67. The later use by the parties, in cl 19.9, of the expression “successor to a party” suggests they intended the word “successor” in that expression to have a different, and wider meaning than in the expression “successor in law”.

68. In my opinion, the plaintiffs were correct to submit that a “successor” in the context of cl 19.9 is simply someone who succeeds to the property or rights of another.

69. The JVA and Call Option were, as I have said, executed as part of a single transaction and show that the parties contracted on the basis that a nominee of Norcross might purchase the PTL Land. As the plaintiffs submitted, when both agreements are considered together, it is apparent that at least one intended function of cl 19.9 was to facilitate the continuation of the JVA for the benefit of any party Norcross nominated under the Call Option.

70. On behalf of the Council it was submitted that in order to be a “successor” to Norcross for the purpose of cl 19.9 it was necessary that there be a binding novation of Norcross’s rights and obligations under the JVA, made with the consent of all parties concerned, for Norcross’s nominee to be substituted to the position of Norcross. Reference was made in this regard to the observations of Windeyer J in Olsson v Dyson. [6] His Honour was there stating what is required for there to be a novation of contract. I see nothing in his Honour’s observations that provides any guidance to the question at hand here.

    6. (1969) 120 CLR 365; [1969] HCA 3 at 388-389.

66. Nor do I see anything in the words used by the parties in cl 19.9 to suggest that they intended that a novation of the JVA was necessary in order that party become a “successor” to, relevantly, Norcross for the purpose of cl 19.9.

67. The Council also pointed to provisions in the JVA which impose obligations on Norcross that the parties evidently intended would be obligations of Norcross alone: for example the obligation to “manage the Project” in cl 5.1(a). But nothing in cl 19.9 could have the effect of relieving Norcross of any such obligation. Indeed, after providing for a “successor to a party” cl 19.9 goes on to make clear that the clause does not otherwise permit “the obligations and the rights [under the JVA] … to be transferred or otherwise dealt with or disposed of by any of the parties”.

68. My conclusion is that “a “successor to a party” as referred to in cl 19.9 includes a party nominated by Norcross under the Call Option to purchase the PTL Land; and thus includes PTL.

69. It follows that PTL has “assumed all rights” under the JVA as if it were named in the JVA as a party.

70. Accordingly, and contrary to the Council’s submissions, PTL has standing to enforce the JVA against the Council.

The Loss Issue

76. Norcross submitted that if, contrary to its primary submission, and contrary to my findings, PTL was not its “successor” for the purposes of cl 19.9 of the JVA and thus had no standing to sue the Council for loss suffered, Norcross was entitled to recover damages from the Council on PTL’s behalf, or its own behalf.

77. As to recovering damages on PTL’s behalf, Norcross relied on the observations of Brennan J [7] in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [8] and submitted that Norcross could seek specific performance of the JVA for PTL’s benefit or seek damages on PTL’s behalf on the basis that Norcross was either trustee for the benefit of PTL of the promises made by the Council in the JVA or an agent of PTL authorised by the JVA to sue on PTL’s behalf.

    7. As his Honour then was.

    8. (1988) 165 CLR 107; [1988] HCA 44 at 138-139.

78. These arguments were not pursued with any great enthusiasm in final submissions. A difficulty with them is that PTL did not exist when Norcross entered the JVA. A further difficulty is that a second joint venture agreement made on 30 August 2004 between Norcross, PTL and another company, PTL Holdings Pty Ltd shows that PTL held its interest in the PTL Land as trustee for Norcross (and also PTL Holdings) and not the other way around

79. As to recovering damages on its own behalf, Norcross submitted that as the sole shareholder of PTL it was entitled to recover from the Council the diminution in value of its shareholding caused by PTL’s loss.

80. Norcross relied on the unchallenged evidence given by Mr Kenneth Allen, a director, and ultimate shareholder of Norcross:

“Once the Project had commenced in 2015, it was my intention to arrange, upon completion of the Project, for [PTL] to be wound up and for its assets to be distributed to [Norcross] (its sole shareholder). That is, once the Project commenced it was always intended that the profits of any remaining proceeds from the Project would be passed up from [PTL] to [Norcross]. Once this occurred, it was intended that [Norcross] would be wound up and any assets distributed to the shareholders in [Norcross], which were both companies which are controlled. With this in mind, I provided a personal guarantee to the ANZ Bank for [this PTL]. The ANZ Bank provided the primary financing for the Project …”

81. Norcross accepted that, as a matter of general principle, shareholders cannot sue for the loss suffered by the company in which they hold shares, this being said to be derivative or reflective loss. [9]

    9. For example, Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1882] 1 Ch 204 at 222-223; Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 at 245 (Brennan J)

82. However, Norcross submitted this rule did not apply where the shareholder had suffered loss in its individual capacity, separate from any loss suffered by the company.

83. Norcross referred to the reference with apparent approval by Beazley JA [10] , with whom Heydon and Hodgson JJA agreed, in Chen v Karandonis [11] to the reasoning of Lord Bingham in Johnson v Gore Wood & Co [12] where his Lordship said:

“Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding”. [13]

10. As her Excellency then was.

11. [2002] NSWCA 412 at [39].

12. [2002] 2 AC 1.

13. Ibid at 35.

84. Norcross submitted:

“An essential component of his Lordship’s reasoning was that the reflective loss principle would not apply where the relevant company (in this case, PTL) suffered loss but had no cause of action to sue to recover that loss. In such circumstances, his Lordship considered that a shareholder in the company may sue in respect of the loss, even though the loss was diminution in value of the shareholding”.

85. Norcross did not however adduce evidence of any diminution in value of Norcross’s shareholding in PTL said to have resulted from the Council’s alleged breaches of the JVA.

86. Rather, Norcross relied on what Lord Millett said in Johnson v Gore & Wood [14] :

“ … although a share is an identifiable piece of property which belongs to the shareholder and has ascertained value, it also represents a proportionate part of the company’s net assets, and if these are depleted the diminution of its assets will be reflected in the diminution in the value of the shares. The correspondence may not be exact, especially in the case of a company whose shares are publicly traded, since their value depends on market sentiment. But in the case of a small private company like this company, the correspondence is exact”. (Emphasis added.)

14. Supra at 62.

87. My attention was not drawn to any Australian authority adopting Lord Millett’s assumption of such an exact correspondence.

88. It has recently been rejected by the United Kingdom Supreme Court in Servilleja v Marex Financial Ltd. [15]

    15. [2020] UKSC 31 at [67] and [89] (Lord Reed with whom Lady Black and Lord Lloyd-Jones agreed); [122] and [179] (Lord Sales with whom Lady Hale and Lord Kitchin agreed).

89. Thus, the correct conclusion may be, as the Council submitted, that Norcross has failed to prove it has suffered a separate loss to that suffered by PTL.

90. As I have concluded that PTL was Norcross’s “successor” it is not necessary that I resolve these arguments.

The Contamination Issue

The provisions in the JVA

91. As I have said, it is common ground that the PTL Land was at all relevant times contaminated with asbestos, acid sulphate soil and general soil waste.

92. The JVA contained warranties that the PTL Land was not contaminated.

93. By cl 7.1 the Council represented and warranted to Norcross that:

“(b) the Land is not being used and, so far as the Council is aware, has never been used for any process, operation or activity involving Pollutants, Contaminants or the disposal or storage of Waste;

(c) the property is not Contaminated in any way and has never been a source of Pollution …”

94. By cl 7.2, the Council indemnified Norcross:

“against any loss, claim, liability, cost or expense suffered or incurred by [Norcross] in respect of:

•   any Contamination existing on the Land;

•   any Pollution from the Land;

•   any Environmental Notice, made either before or after completion;

•   carrying out of any Remediation Work; [and]

•   obtaining any remediation report in respect of the Land …”

95. Further, clause 15.1(b) provided that “each of the parties must”:

“ … at all times indemnify and keep indemnified the other party from and against all losses and damages which may arise in respect of any breach of the obligations imposed on the party under this Agreement …”

96. “Contamination” was not defined but “contaminated” was defined to mean:

“that the land is an affected or degraded by the presence of any chemical substance (including but not limited to any Dangerous Good, Hazardous Material, asbestos or any Waste); and

having regard to the use of the land or any other land in its vicinity, the chemical substance creates or may create a risk of harm to the Environment”.

97. “Waste” was defined to mean:

“ … any discarded, rejected, unwanted, surplus or abandoned substance …”

98. As PTL is a successor to Norcross, and thus entitled under cl 19.9 to assume all rights conferred on Norcross under the JVA as if it were named in the JVA as a party, PTL is entitled to enforce the warranty in cl 7.1 and the indemnities in cll 7.2 and 15.1(b) to the same extent as would Norcross; subject of course to proving it has suffered relevant loss or damage.

Out of time?

99. In relation to a claim under the warranties in cl 7.1, the plaintiffs accept that time would run from breach, and that as breach occurred when PTL contracted to buy the PTL Land on 18 March 2005, any claim by PTL under the warranties is now statute barred and out of time.

100. The Council contends that any claim by Norcross or PTL under the indemnities in cll 7.2 and 15.1(b) of the JVA is also out of time because, as is common ground, the PTL Land was contaminated at the time that Norcross and the Council entered the JVA.

101. It follows, the Council submitted, that “an immediate non-contingent obligation to indemnify arose” because there was nothing in cl 7.2 stipulating that a liability would be created (1) if and when loss was ascertained or quantified, or (2) upon a notice being given or recalled on the indemnity being made.

102. I do not agree.

103. What the Council promised to do in cl 7.2 was to indemnify Norcross (and thus by reason of cl 19.9, PTL) against any loss or expense incurred in respect of any contamination.

104. Similarly, under cl 15.1(b) the Council promised to indemnify Norcross (and thus PTL) against loss and damage that may arise by reason of any breach of Council of its obligations under the JVA.

105. Norcross’s and PTL’s right to seek indemnity only arose when one of them suffered such loss and damage; and the Council’s obligation to indemnify only arose when it failed to do what was required of it, that is, give indemnity in respect of that loss or damage. [16]

     16. See for example Penrith City Council v Government Insurance Office of NSW (1991) 24 NSWLR 564 at 568 (Giles J).

106. PTL suffered the loss of which it complains in 2015

107. The time to bring these proceedings commenced then. The claim under the indemnity is not statute-barred.

Asbestos

108. PTL claims $360,878 comprising:

1. the costs of disposal of the asbestos - $64,934.17;

2. the cost of engaging a geotechnical consultant to classify the material removed - $17,079.15;

3. the cost of moving the asbestos from one side to another - $36,371; and

4. further cost of disposing of asbestos - $242,493.68.

109. In final written submissions, the Council accepted that the presence of asbestos in the Car Park Land was “Contamination” for the purpose of the indemnity in cl 7.2 of the JVA and did not dispute the quantum of PTL’s claim.

Acid Sulphate Soil

110. PTL claims $65,661, being the provision made in the Building Contract for “[acid sulphate soil] management plan, excavation and treatment”.

111. The Building Contract made provision for excavation of $221,461. PTL contends that had there been no acid sulphate soil, the cost of excavation and disposal would have been $155,800.

112. In final written submissions, the Council accepted that the presence of acid sulphate soil in the Car Park Land was “Contamination” for the purpose of the indemnity in cl 7.2 of the JVA and did not dispute the quantum of PTL’s claim.

General Solid Waste

113. PTL claims $126,928.10 comprising:

1. the cost of relocation of an undocumented sewer main - $25,917.10;

2. the cost of general waste disposal for the relocation of the sewer line (net of $60 per tonne for 180 tonnes allowed in the Building Contract) - $31,581;

3. the cost of cutting back encroaching footings from adjacent property - $22,698;

4. the cost of removing and disposing of the excavated material and the provision of road base to the footing - $23,898; and

5. the cost of removal of concrete footings along the Pine Tree Lane boundary - $22,834.

114. The Council did not dispute that PTL had incurred these costs but contended that they were not recoverable because the presence of General Solid Waste is not “Contamination” for the purpose of the warranty in cl 7.2 of the JVA.

115. It is true that “Waste” is not “Contamination” unless the land in question is “affected or degraded” by it and it “creates or may create a risk of harm to the Environment”. [17] It is also true that the plaintiffs have not adduced evidence that the “Waste” removed from the PTL Land had either of these characteristics. The plaintiffs have thus not proved that the “Waste” constituted “Contamination”.

     17. See the definitions set out at [96] and [97] above.

116. As the indemnity in cl 7.2 is, relevantly, against loss or expenses incurred in respect of “Contamination” the plaintiffs have not shown that this indemnity has been enlivened.

117. However, the indemnity in cl 15.1(b) is wider and relates to loss arising in respect of any breach by the Council of its “obligations” under the JVA.

118. The Council has admitted in its Response that by giving that warranty it “assumed an obligation to the effect that what was so warranted and represented was true” and that the indemnity in cl 15.1(b) extended to any breach by it of its obligations under the JVA [18] .

     18. List response at [C4(a)].

119. Relevantly to the question of “Waste” on the PTL Land, the warranty in cl 7.1(b) is not directed to whether the PTL Land was “Contaminated” by “Waste” but to the question of whether the PTL Land had ever been used for the “disposal or storage of Waste”. It is common ground that the PTL Land has been so used. It follows that the Council is in breach of its “obligation” under cl 7.1

120. The Council did not dispute that the expenses claimed by PTL arose in respect of that breach.

121. It follows that the indemnity under cl 15.1(b) is thus enlivened, notwithstanding the fact that PTL is now out of time to sue directly for breach of the cl 7.1 warranty.

122. PTL is accordingly entitled to recover the amounts claimed.

The Easement Issue

123. Clause 4.1 of the JVA stated that one of the Council’s “General Obligations” was to:

“promptly … do all things reasonably requested by [Norcross] and necessary to:

…

(iii) sub-divide the Land in the manner disclosed in the Plan of Subdivision and create such easements as shall be requested by [Norcross] (acting reasonably) including a right of carriage way which will permit access to and from Wilson Street to and from the PTL Land across the Car Park Land”

124. As I have set out above, PTL requested the Council to grant the Easement. The Council resolved to do so on 27 July 2016 [19] but on 23 November 2016 resolved to rescind its resolution. [20]

     19. See [34] above.

     20. See [37] above.

125. PTL claims that the Council was obliged to grant the Easement and that it has suffered damage as a result of the Council’s rescission of its decision to do so.

126. The Council offers a number of defences to this claim.

127. First, the Council points to the fact that cl 4.1(a) states that a request for an easement must be by Norcross, rather than PTL, and to the fact that it was PTL, and not Norcross that in fact requested the easement.

128. The answer to this contention is that, for the reasons I have set out, PTL is Norcross’ “successor” for the purpose of cl 19.9 of the JVA and was, in that capacity, entitled to make a request for an easement under cl 4.1.

129. Next, the Council submits that, on the proper construction of cl 4.1, it was only obliged to grant an easement “necessary to allow physical access to and from the PTL land” or, alternatively “necessary” for the purposes of the subdivision generally.

130. I do not agree.

131. The word “necessary” in the chapeau to cl 4.1(a) is directed to what the Council was obliged to do when “reasonably requested” by Norcross (or PTL) to grant an easement. The word “necessary” is not directed to the question of whether the easement was or was not “necessary”.

132. The Council was obliged to do all things “necessary” to, relevantly, create an easement reasonably requested by Norcross (or PTL), a matter emphasised by the parenthetical expression “(acting reasonably)” in cl 4.1(a)(iii).

133. The requirement in the clause of reasonableness is directed to the nature of the request made by Norcross (or PTL), that is, whether it was reasonable to request the easement in question.

134. PTL’s request for the Easement was plainly reasonable.

135. The Easement would have facilitated the most direct and cheapest manner to deliver power to the PTL Land. Evidently, the Council considered PTL’s request reasonable as, in the first instance, it resolved to grant the Easement.

136. Further, the Council has admitted the following allegation in the List Statement:

“On or around 1 June 2016, pursuant to cl 4.1(a)(iii) of the joint venture agreement…[PTL]…orally requested the Council to grant an easement for electricity purposes to comply with the requirements of Ausgrid.” (Emphasis added.).

137. The admitted fact that PTL’s request for the Easement was in order to comply with Ausgrid’s requirements is a further pointer to the reasonableness of the request.

138. It follows, in my opinion, that the Council was obliged to grant the Easement and that its rescission of its resolution to do so was a breach of those obligations under cl 4.1(a) of the JVA.

Quantum

139. PTL’s claim for indemnity in relation to its loss arising by reason of the Council’s rescission of its resolution to grant the Easement is under cl 15.1(b) of the JVA, as the indemnity in cl 7.2 of the JVA is only concerned with “Contamination” and like issues.

140. As I have set out above, under cl 15.1(b), the Council’s obligation is to indemnify PTL against “losses and damages” arising in respect of a breach by Council of its obligations under the JVA: here, its obligation under cl 4.1 of the JVA to grant an easement reasonably required.

141. As I have mentioned [21] on 21 March 2017 the Builder claimed an extension of time for carrying out works under the Building Contract.

     21. At [39] above.

142. The Builder stated in its letter to the Superintendent:

“The qualifying cause of delay is an act, default or omission by [PTL] in NOT been [sic] able to secure an easement lodgement receipt from [the Council] for the power mains feed to be fed directly from the substation to the main switchboard. [The Builder has] NOT been [sic] able to upgrade the substation and provide the necessary permanent power for the buildings [sic] intended purpose.” (Emphasis in original)

143. The Builder continued:

“The impact of the delay is 81 days resulting in a revised Contract Completion Date of 20 June 2017.”

144. On 24 March 2017 the Superintendent issued an “Extension of Time Assessment” in which it recited that the “Cause of Delay” was:

“The [builder’s] claim nominates that delay occurred due to the delay in achieving permanent power on site and the effect of this delay on critical activities in the Contract Works Program.”

145. The Superintendent concluded:

“Pursuant to subclause 34.4 of the General Conditions of the above Contract, we notify herewith the above [extension of time] claim has been assessed and approved for seventy eight (78) days.”

The 37 day point

146. The Council contends that, notwithstanding the Superintendent’s decision to grant an extension of time of 78 days to the Builder, only 37 of those 78 days should be attributed to the Council’s decision to rescind the Easement.

147. The Council pointed to the evidence given by Mr Kerry Edwards, an employee of the Superintendent, to the effect that had the Easement been granted by 31 October 2016, the Superintendent would not have allowed any extension of time and to the fact that Ausgrid approved a redesign connection to power (that is, not using the Easement) on 8 December 2016: 37 days later.

146. But this ignores the reality that the necessity to reconfigure the means by which power was to be connected to the site following the Council’s rescission of the resolution involved more factors than the isolated question of when Ausgrid approved an alternative plan to enable the delivery of power to the site.

147. The Builder’s 21 March 2017 application to the Superintendent for an extension of time referred to many factors occurring after 7 December 2016 which it contended, and the Superintendent accepted, were relevant to the critical path of the project.

148. The question under cl 15.1(b) of the JVA is what loss PTL has suffered by reason of the Council’s breach of its obligation to grant the Easement.

149. By reason of the Superintendent’s decision to grant an extension of time of 78 days, the project was delayed to that extent. In my opinion, PTL was correct to submit that the question of whether or not the Superintendent was contractually correct to certify an extension of 78 days is beside the point. His decision was contractually decisive because, without more, the time for practical completion of the Building Contract was thereby extended.

150. Accordingly, I do not accept that PTL’s damages in respect of the Easement should be calculated by reference to a 37 day, rather than a 78 day, delay.

151. PTL claims $456,410.80 comprising:

1. additional work is carried out by the Superintendent - $72,210.60;

2. the cost of temporary power supply to the lifts used by the Builder - $10,382;

3. additional scaffolding costs - $9,832.24;

4. additional design fees and fees paid to Ausgrid - $3,960.56;

5. cost of substation upgrade and street lighting works - $36,507;

6. cost of amendments to drawings and liaising with Ausgrid - $3,300;

7. 10% builder’s margin – $12,381.13; and

8. interest paid on loan from ANZ over the 78 extra working days (104 days in total) allowed by the Superintendent to the Builder to achieve practical completion by reason of having to secure power to the site otherwise than by the Easement - $318,564.35.

154. In final submissions, the Council took issue only with the amounts claimed in (a), (e) and (h).

Additional work carried out by Superintendent

155. The Council’s dispute concerning this figure was premised on its contention that only a 37 day delay should be attributed to its failure to grant the Easement. As I have not accepted that contention, the Council’s dispute about this figure falls away.

Cost of substation upgrade

156. In relation to this item, Mr Adrian Connell, a project manager employed by the Builder, agreed in cross examination that a component of the amount claimed, that attributable to the supply and installation of cabling was “about the same amount” as would have been incurred in any event had the Council granted the Easement.

157. Accordingly, that component of this item is not recoverable by PTL.

158. The remaining two components of this item concerned a new “termination enclosure”. Mr Edwards said these would not have been needed had the Easement been granted. They are recoverable by PTL.

Interest paid to ANZ

159. PTL seeks to recover the extra interest and fees it was obliged to pay ANZ over the 104 days from 8 March 2017 to 20 June 2017 caused by the 78 working day extension of time granted by the Superintendent to the Builder.

160. PTL relied on its bank statements to show that it had paid an extra $318,564.35 to ANZ over that period.

161. Apart from the “37 day” argument, which I have not accepted, the Council raised two matters.

162. The first was that PTL included in its claim a line fee of $76,250 charged by ANZ on 15 May 2017 that the Council submitted Norcross would have incurred in any event. But, as the plaintiffs submitted, had there been no extension of time under the Building Contract, the loan would have been repaid on 10 May 2017 and the line fee would still been incurred, but at a slightly lower rate: $72,060.44. The Council did not dispute the calculation leading to that figure and I propose to allow it.

163. Second, the Council pointed to the fact that PTL’s calculation of its loss did not take account of the fact that, by reason of the extension of time granted to the Builder, PTL’s drawdowns under its facility had been delayed and that, accordingly, interest did not accrue on PTL’s drawings as early as would otherwise have been the case. On the other hand, as the plaintiffs submitted, the extensions of time meant that PTL ultimately repaid the amount owing to ANZ later than would have been the case absent the extension of time.

164. PTL recalculated its loss to take account of these matters and revised its claim by deducting $33,695.35. Again, the Council did not dispute the calculation leading to that figure.

165. This had the effect of reducing Norcross‘s claim for loss referable to its ANZ facility to $284,869. I propose to allow that figure.

The Cross Claim Issue

166. By its cross claim, the Council contends that Norcross engaged in misleading or deceptive conduct for the purposes of s 52 of the TPA by reason of having failed to disclose to the Council “the contamination risk” disclosed in the Douglas Partners Report prior to entry by Norcross and the Council into the JVA.

167. I have set out the relevant passages from the report at [20] above.

168. As I have said, [22] Mr Cochrane mentioned the report at a meeting with Council officers on 7 August 2003 and provided a copy to Mr Stephanou at the Council on 17 September 2003.

     22. See [22] and [23].

169. The Council’s pleaded case is that:

1. the Douglas Partners Report stated that “there was a significant risk that the Land contained contaminated soils”;

2. Norcross did not disclose the contents of the report prior to entry into the JVA on 10 December 2002;

3. Norcross’s conduct in:

1. proffering the JVA to the Council including the warranty and indemnity in cll 7.1 and 7.2;

2. having knowledge of the contents of the Douglas Partners report; and

3. “failing to disclose” the contents of the Douglas Partners Report to the Council;

was misleading or deceptive within the meaning of s 52 of the TPA;

4. the Council relied on that conduct by entering the JVA in the form that included cll 7.1 and 7.2;

5. the Council will suffer loss if PTL is able to establish an entitlement to rely upon those clauses; and

6. the Court should, pursuant to ss 80 and 87 of the TPA, declare the warranty and indemnity void.

170. The matter pleaded as set out at [169(a)] does not reflect the language in the Douglas Partners Report. The Douglas Partners Report did not state there was a “significant risk” of contamination. Rather, it said there was a “relatively high potential” and “a risk” for acid forming conditions on oxidation and the “potential” for acid sulphate soils to be present.

171. That point aside, the short answer to the Council’s claim is that it has not made out the proposition set out at [169(d)] above, namely that in entering the JVA it relied on Norcross’s failure to disclosure the contends of the Douglas Partners Report.

172. The Council has led no evidence of:

1. who at the Council, faced with revelation of the contents of the Douglas Partners Report, would have decided whether or not to cause the Council to enter into the JVA; or

2. what such persons would have done if apprised of the Douglas Partners Report’s contents.

173. The only evidence led by the Council on this question is that of Mr Stephen Glenn, who is an engineer employed by the Council, and Mr Robert Byrd, who was the solicitor then advising the Council.

174. Mr Glenn said that, had he seen the report:

“I would have recommended that the [relevant] committee bring to the Council’s attention the potential for contamination of the land noted in … the report so the Council could reduce its exposure to risk in negotiations with [Norcross].”

175. Mr Byrd said:

“Had the Report been brought to my attention before the JVA was executed, I would have read the report, noted the reference in it to acid sulphate soil, and then would have advised Mr Ford [a solicitor then employed by the Council and now deceased] of the potential for contaminated soil on the site of the Joint Venture. I was aware at the time that the draft JVA contained warranties and indemnity. I would have explained to Mr Ford the risk of the warranties and indemnities contained in cll 7.1 to 7.4 of the draft JVA being triggered if the land was affected by acid sulphate, and recommended that the Council negotiate with [Norcross] to remove the clauses or, if that was not achieved, to investigate the site to determine if the contamination was present, and if so, advise the Council against executing the JVA at all.”

176. Neither Mr Glenn nor Mr Byrd were decision makers.

177. It appears to me to be a matter of speculation as to what course the Council would have taken had Mr Glenn and Mr Byrd taken the steps the subject of their evidence. It is also a matter of speculation as to what Norcross’s reaction would have been assuming the Council had sought to negotiate with Norcross concerning the inclusion of cll 7.1 and 7.2.

178. The Council had much to gain from the development the subject of the JVA as Norcross agreed to construct the car park on the Car Park Land at no cost to the Council.

179. That points to the improbability that revelation by Mr Cochrane of the tentative conclusions in the Douglas Partners Report would have made any difference to the Council’s decision to enter into the JVA.

180. Further, on 20 January 2004, several months after Mr Cochrane had provided Mr Stephanou with a copy of the Douglas Partners Report, the Council and Norcross executed a Deed of Variation on the JVA in which, amongst other things, the Council and Norcross affirmed the provisions of a JVA; suggesting that the Council was not troubled by the tentative opinions expressed in the Douglas Partners Report.

181. For those reasons, assuming that Norcross did engage in misleading or deceptive conduct, the Council has not shown it suffered any damage “by” that conduct for the purposes of s 87 of the TPA.

182. In any event, I am not satisfied that Norcross did engage in misleading or deceptive conduct.

183. Mr Cochrane denied making a conscious decision to not refer to the contents of the Douglas Partners Report during his meetings with Council officers prior to entry into the JVA. [23]

     23. T79.20.

184. I accept that evidence.

185. Section 52 of the TPA proscribes “conduct” which is misleading or deceptive.

186. Section 4 of the TPA provides that:

1. “a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act”; [24] and

2. that, “a reference to refusing to do an act includes a reference to: … refraining (otherwise than inadvertently) from doing that act”. [25]

   24. Section 4(2)(a) .

   25. Section 4(2)(c)(i).

187. If the Council’s case that Norcross “failed to” disclose the contents of the Douglas Partners Report should be read as an allegation that Mr Cochrane, and thus Norcross “refused” to disclose the report, any such refusal was inadvertent, and thus not “conduct” for the purpose of these provisions.

188. In final submissions, the Council did not put its case on the basis that Norcross has refused to disclose the Douglas Partners Report but rather on the basis that Norcross had remained silent about the report when the Council was reasonably entitled to expect its disclosure.

189. Silence can amount to misleading or deceptive conduct.

190. In Demagogue Pty Ltd v Ramensky [26] Black CJ said:

“Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.” [27]

26. (1992) 39 FCR 31; [1992] FCA 851.

27. Ibid at 32.

191. There is authority that for silence to be actionable as misleading or deceptive conduct, it must be deliberate or intentional. [28] On the other hand, it has been said that the misleading or deceptive quality of remaining silent inheres in the non-disclosure of information rather than a refusal to provide it and that “it does not follow from the fact that a failure to act must be intentional in order to be actionable, that silence must be intentional in order to be actionable” [29] .

     28. See the authorities discussed by Campbell JA, with whom Hodgson and McColl JJA agreed in Kowalczuk v Accom Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 at [359]-[361] and Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288 at 295-296 (Doyle CJ).

     29. CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 at [34] (Nettle JA, with whom Batt and Vincent JJA agreed).

192. Thus, Mr Cochrane’s state of mind may not be decisive on this question.

193. Silence may constitute misleading or deceptive conduct if there is a reasonable expectation that the silence would be broken. Thus in Rafferty v Madgwicks [30] the Full Court of the Federal Court said:

“The authorities recognise that the circumstances in which silence may support a finding of misleading or deceptive conduct are not properly subject to any unifying principle. Nonetheless, the authorities also acknowledge that, if the circumstances of a particular case would give rise to a reasonable expectation that, if a fact existed, it would be disclosed, then the failure to disclose that fact may give rise to an inference that the fact does not exist. In this situation (i.e., where there is such a reasonable expectation), a failure to disclose the existence of that fact could constitute misleading and deceptive conduct.” [31]

30. (2012) 203 FCR 1; [2012] FCAFC 37.

31. Ibid at [278] (Kenny, Stone and Logan JJ) (Citations omitted.).

194. In Fabcot Pty Ltd v Port Macquarie-Hastings Council [32] Sackville JA said:

“While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist”. [33]

32. [2011] NSWCA 167.

33. Ibid at [209] (Citations omitted.).

195. Thus, here, what the Council must show is that it had a reasonable expectation that Norcross would disclose to it what it knew from the Douglas Partners Report about the PTL Land, namely that there was potential for acid forming conditions, such that an inference would arise from Norcross’s silence on that question that the land was not so affected.

196. I am not satisfied that the Council had any such reasonable expectation.

197. The Council is a sophisticated and well-resourced party. It had long owned the Car Park Land and the PTL Land. It was in negotiations with Norcross in relation to a proposed commercial venture. There were many “Project Progress” meetings concerning the venture at which the Council was represented by land use planners, engineers, surveyors and the like as well as its internal solicitor. As Norcross submitted, the Council had access to its own experts who were well able, if instructed, to examine the site.

198. For these reasons, my conclusion is that the cross claim fails.

Conclusion

199. The parties should confer and agree on the orders necessary to give effect to these reasons.

**********

Endnotes

Amendments

07 September 2020 - "at [34]" added to Footnote 29

Decision last updated: 07 September 2020