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

No judgment structure available for this case.

New South Wales

Court of Appeal

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

HEARING DATE(S): 18 March 2008

JUDGMENT DATE:
5 June 2008

JUDGMENT OF: Giles JA at 1; Hodgson JA at 119; Campbell JA at 120

DECISION: Appeal and cross-appeal dismissed.

CATCHWORDS: Negligence - council misstates zoning of property - property developer purchases it - can not develop for home units - retains property - years later zoning changed and property developed - assessment of developer's loss - claimed money tied up in property and unable to carry out a series of developments - whether developer's retention of property was failure to mitigate- whether reduction in development activities due to money being tied up in property - open to trial judge to make broad assessment of loss - other issues concerning tax and interest as part of assessment.

CATEGORY: Principal judgment

CASES CITED: Banco de Portugal v Waterlow & Sons Ltd (1932) AC 452;
Bowen v Blair (1933) VLR 398;
Chappel v Hart [1998] HCA 95; (1998) 195 CLR 232;
Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1933] FCA 259; 26 IPR 261;
Fink v Fink (1946) 74 CLR 127;
Jazabas Pty Ltd v City of Botany Bay Council [2000] NSWSC 58;
Malec v J C Hutton Pty Ltd (1990) 169 CLR 368;
Patel v Hooper & Jackson (1999) 1 WLR 1792;
Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434;
Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5;
Sellers v Adelaide Petroleum NL (1992) 179 CLR 332;
Seltsam Pty Ltd v McNeill [2006] NSWCA 158; (2006) 4 DDCR 1;
State of New South Wales v Moss [2000] NSWCA 13; (2000) 54 NSWLR 536;
Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422.

PARTIES: Rockdale City Council - Appellant
Micro Developments Pty Ltd - Respondent

FILE NUMBER(S): CA 40180/07

COUNSEL: R W Seton SC & G J Gemmell - Appellant/Cross-respondent
B W Rayment QC & R Scruby - Respondent/Cross-appellant

SOLICITORS: McCabe Terrill, Lawyers - Appellant/Cross-respondent
Philip Sim & Associates - Respondent/Cross-appellant

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 50164/02

LOWER COURT JUDICIAL OFFICER: Bergin J

LOWER COURT DATE OF DECISION: 22 December 2006; 14 March 2007 (interest and costs)

LOWER COURT MEDIUM NEUTRAL CITATION: Micro Developments Pty Ltd v Rockdale City Council [2006] NSWSC 1400; Micro Developments Pty Ltd v Rockdale City Council, Bergin J, 14 March, unreported (interest and costs)

CA 40180/07
ED 50164/02

GILES JA
HODGSON JA
CAMPBELL JA
Thursday 5 June 2008

ROCKDALE CITY COUNCIL v MICRO DEVELOPMENTS PTY LTD

Judgment

1 GILES JA: In November 1997 Micro Developments Pty Ltd (“Micro”), a property developer, purchased for development 147 Russell Avenue, Dolls Point (“the property”) in reliance upon the zoning Residential 2(c2) in a section 149 Certificate issued by Rockdale City Council (“the Council”). The zoning 2(c2) permitted with consent development for residential flat buildings. The property was in fact zoned 2(b1), a zoning which permitted dwelling-houses or with consent medium density development by way of villas and townhouses, but which did not permit development for residential flat buildings. The Council admitted negligence in representing that the property was zoned 2(c2).

2 Micro had purchased the property for development by the construction of home units. It had dealings to that end with the Council, in which the Council continued to treat the property as zoned 2(c2). In July 1999 the Council told Micro of the correct zoning.

3 Micro did not sell the property. It retained it until, in early 2005, the property was rezoned 2(c2). Micro then undertook a development on the property together with the adjoining 145 Russell Avenue.

4 In proceedings brought in September 2002, but in the circumstances later described heard in April and November 2006, Micro claimed that it suffered loss because its money was tied up in the property and it was unable to undertake other developments as it otherwise would have done. It claimed damages as compensation for its loss.

5 Bergin J assessed Micro’s damages at $2,668,652. Her Honour arrived at its loss on the basis of inability to carry out one hypothetical development plus an additional figure considered necessary to provide adequate compensation, to which was added tax and interest. She ordered the Council to pay Micro’s costs.

6 The Council appealed and Micro cross-appealed. The Council contended that the damages were excessive, Micro contended that the damages were inadequate, and the Council also contended that her Honour’s costs order was erroneous. The grounds of appeal and cross-appeal were varied, and will be detailed later in these reasons. They were concerned with Micro’s retention of the property, the extent to which Micro was prevented from carrying out other developments, and some questions as to addition of tax and interest.

Micro’s property development

7 Micro had undertaken property development, mainly residential home unit developments in the St George area, since 1981. Its three active directors were Mr George Daniel, Mr Harry Kastrounis and Mr George Staikos, the other directors being their wives. Mr Daniel had been a real estate agent in the St George area for many years. The trial judge said -

“Mr Daniel identifies possible sites for development, determines suitability of the site for development and negotiates the purchase including supervising the contract negotiations. He liaises with councils, lodges relevant applications and arranges for the marketing and sale of the developed property. Mr Katstrounis organises and supervises the various trades and workers on the construction sites. Mr Staikos deals with contractual matters with sub-contractors and the purchasing of building materials.”

8 Micro usually purchased a property for its next development while it was still constructing and selling a current development. It often took an option and applied for development consent and in due course exercised the option. The trial judge said, and appeared to accept -

“Mr Daniel’s affidavit evidence was that ‘ordinarily’ the plaintiff financed the purchase of the property with borrowings from the plaintiff’s Bank by way of commercial bill facilities. Development costs were usually financed by a combination of bank borrowings and proceeds of sales from previous developments. Mr Daniel claimed that the plaintiff would own between one and three properties at any one time.”

9 Obtaining development consent normally took six to twelve months, and was undertaken while a current project was continued to completion. The bank facility was secured over the directors’ residences and other property owned by Micro. As well as properties in the course of development, until August 2005 Micro owned industrial land at Harp Street, Campsie, a former brick pit, which it had purchased in 1989 and partially developed; it retained about three hectares of the land.

10 The trial judge set out the developments undertaken by Micro from 1982 to April 1997. The development activity was broadly in accordance with the rolling series of developments. Micro completed a development at Selman Street, Sans Souci in April 1997. From June 1997 to September 1998 it carried out a nine home unit development at Chapel Street, Rockdale, with construction commencing in November 1997. It had held a property at Kings Road, Brighton since 1990, and in 1998 it purchased adjoining properties and it undertook a fifteen home unit development on the consolidated site from August 1998 until December 1999. In March 2000 it purchased a property at Gungah Bay Road, Oatley and from May 2002 to April 2003 it undertook a two townhouse and villa development on that site.

11 Micro did not exclusively engage in the rolling series of developments. It had held the Kings Road property for some years, and had held the industrial land at Harp Street, Campsie from which it gained rental.

The purchase of and dealings with the property

12 The owner of the property offered it for sale to Micro in early 1997. In 1993-4 Micro had carried out a development of six residential units at 144 Russell Avenue, opposite the property. Mr Daniel considered the property a good buy for Micro’s next development. On enquiry from the Council, Micro was told that the zoning for the property was Residential 2(c2) and that it could construct residential home units so long as it complied with the relevant building code.

13 On 2 April 1997 Micro took an option to purchase the property. The section 149 certificate issued by the Council was an annexure to the contract part of the option agreement, and stated the zoning as 2(c2). Mr Daniel verified the zoning from the certificate, as it was his intention to construct home units. On 14 July 1997 Micro lodged a development application for residential home units, having previously met a Council planning officer and discussed the number of home units to construct.

14 On 13 October 1997 Micro exercised the option, and the purchase of the property was completed on 26 November 1997. The purchase price was $640,000, which was wholly provided by Micro’s bank under a commercial bill facility for $710,000. At about the time the purchase of the property was completed the Council refused development consent.

15 Micro met the Council’s planning officer with a proposed new plan for the development. The planning officer advised that it seemed acceptable, and on 20 April 1998 a second development application was lodged for a three storey block of home units. On 18 September 1998 the Council refused development consent on a number of grounds, including unacceptable aesthetic appearance, allotment size being below the standard, unsatisfactory bulk, height and external appearance, unsatisfactory impact on privacy of adjoining properties and poorly located landscaping.

16 Micro decided to appeal to the Land and Environment Court against the refusal of development consent. After obtaining a supporting consultant’s report, it filed its application in that Court on 1 June 1999.

17 Shortly prior to the commencement of the proceedings, on 21 May 1999 the Council wrote to Micro advising that it was its intention to re-zone the property from 2(c2) to 2(b2). Zoning as 2(b2) did not permit the construction of residential home units, and the Council said that the purpose of the proposed new zoning was “to encourage a variety of housing types, including low-density (one and two storey housing and dual occupancies) and medium density (single storey villa and two storey town house) development”. On 2 June 1999 the Council wrote to Micro advising that it had prepared a Draft Local Environmental Plan under which the property would be re-zoned 2(b2), saying that it was intended that the proposed 2(b2) zoning “will provide planning controls more consistent with both the current use and development potential of the land.”

18 This caused Micro to apply for expedition of the Land and Environment Court proceedings, which it did by an application filed on 10 June 1999. Perhaps because that brought fresh attention to the zoning of the property – the evidence did not explain why it occurred – on 16 July 1999 the Council’s solicitors in the proceedings wrote to Micro’s solicitors advising that the property was in fact zoned Residential 2(b1). They said that under that zoning residential flat buildings were prohibited, and accordingly that the development application could not be approved “having regard to this threshold question”.

19 Steps were taken to confirm the correct zoning, and upon confirmation there was no point to Micro’s proceedings. On 29 July 1999 the proceedings were dismissed by consent, with an order that the Council pay Micro’s costs.

20 In October 1999 Micro was told by its bank that the $710,000 commercial bill facility should be re-paid from the proceeds of another of Micro’s developments, because the facility had been provided on the basis that the property was a development site and it was no longer a development site. On 4 November 1999 the bank wrote to Micro extending the facility, but requiring re-payment of the $710,000 out of the Kings Road development by 31 March 2000. The profit from the Kings Road development was nearly $2,900,000, and the facility was in due course repaid.

21 Micro brought proceedings against the Council in the Federal Court, but discontinued the proceedings after jurisdictional objection was taken. On 25 September 2002 Micro commenced proceedings against the Council claiming damages for misrepresentation of the zoning. In its defence filed on 18 October 2002 the Council admitted negligence. In due course a hearing date was fixed for 8 March 2004.

22 In early 2004 the Council obtained a report into re-zoning of the property. There was no direct evidence of why it turned its attention to the rezoning, but it was said in the report that the “single allotment” was one of the deferred areas from the 2000 Local Environmental Plan and was deferred “because of issues relating to the site could not be resolved at the time of gazettal [sic]”. The consultant proposed as the “preferred option” re-zoning the property from 2(b1) “to the same zone as currently surrounds the subject site, that is 2(c)”, encouraging its amalgamation with the adjoining 145 Russell Avenue “currently zoned 2(c)”, and preparing a site specific Development Control Plan for an amalgamated development. In fact 145 Russell Avenue was within the 2(b) zoning.

23 On 15 January 2004 the Council’s solicitors sent a copy of the consultant’s report to Micro’s solicitors, and advised that it would be recommended that the preferred option be adopted. On 30 January 2004 the solicitors wrote saying that it was expected that the recommendation would be approved by the Council’s Development Committee and referred to a Council meeting, and that it was expected that the Council would accept the determination of the Development Committee. The Council meeting was to be in about two weeks time, and thereafter it would take about six months to complete the administrative procedures for the re-zoning. The letter said -

“That the Council has progressed in a particular way is relevant, in our opinion to the assessment of the Plaintiff’s damages.

It is also relevant to the Plaintiff’s evidence as to why it has continued to hold the land.

We will be unable to file a statement until the current Council processes are completed. We therefore give you notice that we expect to be instructed to serve a statement in connection with the matters currently being considered for determination.

The Plaintiff’s current evidence is that if the land was re-zoned it would have a significant impact on reducing the plaintiff’s losses.

24 The hearing fixed for 8 March 2004 was vacated by consent. According to Mr Daniel, over the following twelve months there were “numerous discussions with members of Rockdale City Council concerning the rezoning of the property”.

25 In July 2004 Micro purchased 145 Russell Avenue, for $2,050,000, borrowing the entire purchase price from its bank on a commercial bill facility. By the time of purchase it was known to Mr Daniel that 145 Russell Avenue was in fact within the 2(b) zoning, permitting townhouses but not home units, and Mr Daniel said that Micro purchased it “going by the Council’s report that the two properties together would get 18 units”. Micro lodged with the Council plans to develop eighteen units on the double site 145-147 Russell Avenue. The correct zoning does not seem to have been acted upon until, at a later time, Micro amended its development application at the Council’s suggestion to accommodate the two different zonings.

26 On 6 December 2004 the Council’s solicitors wrote referring to “the recent resolution by the Council in relation to the rezoning of the Plaintiff’s land” and saying that it “seems to us that the Plaintiff has now achieved what it set out to achieve after it decided not to sell the land”. The letter ended, “Our client remains ready to consider the Plaintiff’s intentions”, and appears to have been a veiled invitation to settle the proceedings.

27 On 11 February 2005 the property was re-zoned to Residential 2(c2). 145 Russell Avenue remained within the 2(b) zoning.

28 After the vacation of the hearing date of 8 March 2004 the proceedings had been adjourned from time to time because of the proposed re-zoning, and on 15 July 2005 they were listed for hearing on 14 November 2005. Shortly before that date the hearing was again vacated, according to the trial judge “after further problems were discovered in relation to the development of the Property”. The hearing was fixed for 10 April 2006. It began on that date, but was adjourned on 11 April 2006 in anticipation that Micro’s development application for the double site would be considered at a Council meeting on 19 April 2006 and because the parties were concerned that the decision might affect the assessment of Micro’s damages.

29 On 3 May 2006 the Council granted development consent for a total of ten home units on the property and four town houses on 145 Russell Avenue.

30 The hearing resumed on 6 November 2006, and proceeded to its conclusion. The evidence and submissions included addressing the profit expected from the development on the double site.

The trial judge’s reasons

31 Micro’s case at trial, through the evidence of Mr Daniel, was that it would not have purchased the property if it had known that the zoning was 2(b1), but would have purchased a similar property which could be developed by construction of residential home units as the next in its series of developments. It said that when the 2(b1) zoning became known in July 1999 all its funds were committed to the Kings Road development, that the proceeds from that development were used to pay off the commercial bill facility for $710,000, and that had it not been necessary to use the proceeds in that way they would have been used to develop another site similar to the property. In the course of the development of the site a further property would have been purchased and developed, and so on; further, it was said (and here with evidence from Mr Staikos) that the Gungah Bay Road development was delayed and was smaller than it would otherwise have been because of lack of funds. The profit from that development was $400,000. The trial judge said -

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

32 Mr Daniel gave evidence of attending an auction of a potential development site at Ramsgate in about November 1999. He did not make a bid. He gave evidence that if Micro had purchased the property it would have developed it in a way he described with an estimated profit of about $2,000,000.

33 The Council’s case at trial began that Micro had unreasonably failed to sell the property in the latter part of 1999, after the 2(b1) zoning became known. There was evidence that the property’s value so zoned in July 1999 was about $660,000, and the Council said that sale would have significantly restored Micro’s funds. On the Council’s case, also, Micro would not have continued to undertake developments as it had in the past, for a variety of reasons including that it was retiring debt in order to avoid large interest costs, that Mr Kastrounis and Mr Staikos turned their attentions away from Micro to some personal projects, and that any shortage of funds as a result of the purchase of the property asserted in Micro’s case was not as severe as was claimed (for example, Micro obtained the finance of $2,050,000 in July 2004 to purchase 145 Russell Avenue) and was not the reason for the reduction in Micro’s development activities.

34 Based on instructions which included that, had its funds not been locked up in the purchase of the property, Micro would have undertaken further developments as described by Mr Daniel, Micro’s expert Mr Mark Bryant arrived at loss to Micro on the basis of four or perhaps five hypothetical developments. The four hypothetical developments were called the Hypothetical 1997 development, the Hypothetical 1999 development, the Hypothetical 2001 development and the Hypothetical 2003 development Purchase prices, construction costs and selling prices after development were the subject of valuation and other evidence. Mr Bryant’s final report arrived at a loss of $5,719,000, grossed up for tax and inclusive of interest.

35 Mr Bryant’s reports were met by reports of the Council’s expert Mr Goodwin Gower. Mr Gower proceeded upon different assumptions, and arrived at Micro’s loss on the basis of the holding costs of the property and the delay in receipt of proceeds of the Hypothetical 1997 development, less the estimated proceeds of the ultimate development of 145-147 Russell Avenue. On that basis, which assumed that Micro had reasonably retained the property, Mr Gower concluded that there was no loss.

36 The trial judge accepted that Micro would not have purchased the property had it known the correct zoning. She rejected the Council’s submission that Micro had failed to mitigate its loss, holding that it was reasonable for Micro not to sell the property.

37 The trial judge considered that the experts agreed that Micro lost the opportunity to carry out the Hypothetical 1997 development, but did not accept the assessment of loss based on the four or five hypothetical developments. Her Honour was “not satisfied on the evidence that the plaintiff would have pursued the developments after 1997 at the pace at which it pursued the developments prior to 1997” (at [85]), her reasons referring in this regard to the diversion of the energies of Messrs Kastrounis and Staikos affecting the number and timing of the developments Micro would otherwise have been able to complete, and to uncertainties in ability to acquire the hypothetical properties at the assumed prices and the assumed times; in whether development consents would have been obtained within the assumed time frames; and in achieving the profits assumed at the assumed times. The need to go to the Land and Environment Court in relation to the property was given as an illustration of possible delay.

38 The trial judge was also not satisfied that Micro was prevented from undertaking developments. She observed that the property was available as security for borrowings for future developments, and -

17-19 Chapel Street

Kings Road

39 The trial judge summed up (at [88]) -

“I am not satisfied that the Bank’s requirement for the plaintiff to repay $710,000 stymied the plaintiff’s capacity to proceed with further developments. It seems to me that there were a combination of factors that slowed the plaintiff’s progress, including importantly the private projects of Mr Staikos and Mr Kastrounis.”

40 The trial judge said that it was “necessary to recognise” that Micro made the $400,000 profit on the Gungah Bay Road development, and that it was “also necessary to consider the anticipated position in respect of the development of 145-147 Russell Avenue” (at [89]). Mr Bryant had arrived at a profit of $1,450,000, but on the basis of an eighteen unit development. Micro had submitted that the development of ten home units and four townhouses would break even or even suffer a loss. The trial judge found that it was “reasonable to assume that there will be a relatively modest profit adjusted for uncertainties to $400,000.”

41 The trial judge observed that it also had to be remembered that the evidence of the valuers “established that in the period during which the plaintiff lost the opportunity to develop the 1997 Hypothetical property, the property market was experiencing an upward trend. It was not until 2001 and later that confidence really returned to the market”.

42 The conclusions to which her Honour came were expressed -

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

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

43 The parties thereafter agreed on the adjustment for tax, being the addition of $454,834 to the $1,061.280 and of $171,429 to the $400,000. They disagreed on the adjustment for interest.

44 In reasons delivered on 14 March 2007 the trial judge held that interest should be awarded on the $1,061,280 from 1 November 2001 as the date on which the proceeds of the Hypothetical 1997 development would have come in. Contrary to the Council’s submission, she held that interest should be awarded on the $400,000, and that the interest should be awarded from 1 July 2005 as “the end date of the third Hypothetical”. In the reasons the trial judge also noted a submission by the Council that she had not given it credit for the “relatively modest profit” of $400,000 on the development of 145-147 Russell Avenue, and stated that she did take it into account.

45 The trial judge then dealt with costs. She did not accept the Council’s submission that she should moderate the order because Micro had failed to establish loss on the basis of the four or five hypothetical developments, and ordered that the Council pay Micro’s costs of the proceedings.

46 The judgment for $2,668,652 was made up of -

Lost Hypothetical 1997 development	$1,061,280
Adjustment for tax	$454,834
Additional amount	$400,000
Adjustment for tax	$171,429
Interest on $1,061,280	$518,999
Interest on $400,000	$62,110
$2,668,652

Retaining the property

47 The Council relied on the grounds of appeal -

“1. Her Honour was in error in finding that the respondent acted reasonably in determining to retain the property 147 Russell Avenue, Dolls Point (“the Property”) when it learnt that Rockdale City Council (“the Council”) had provided to it an incorrect zoning certificate.”

48 The Council submitted that, if the grounds were upheld, Micro’s loss was the holding costs for the property until notional resale and the loss on the notional resale, plus compensation for delay in the Hypothetical 1997 development as calculated by Mr Gower. With tax and interest to date, the Council said that the damages would be $665,774.

49 There were difficulties in this assessment of Micro’s loss, including its restriction to delay in the Hypothetical 1997 development rather than loss of the development. Upholding the grounds may not have negated damages for loss referable to that development, and may only have deprived Micro of the additional $400,000 awarded by the trial judge, plus tax and interest. Upholding the grounds would be material to the cross-appeal, in which Micro contended for loss from the four or five hypothetical developments. However, I do not think that the grounds should be upheld.

50 The trial judge’s reasons on mitigation of loss were -

“ Was it reasonable not to sell the Property?

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

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

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

It seems to me that the plaintiff was led to believe throughout the period that not only would it be able to develop the Property but that it could enlarge its vision and create a more profitable development by the consolidation of

145 Russell Avenue

and the Property

51 I have emphasised in this passage the sentences which under ground 7 were said to express an erroneous factual finding. The words “throughout the period” in the second of the sentences meant the period of correspondence from Micro’s solicitors, that is, from January 2004, and the sentence was in relation to that period entirely justified. It is not so clear that the first sentence referred to the same period. If referring to earlier times, it was correct to the extent that Mr Daniel gave evidence of contacting Council members, although they told him that the Council did not want to rezone the property.

52 I do not think it necessary to resolve whether the trial judge made a slip in this regard, as I consider that her conclusion was correct. I should say of the trial judge’s summary of Mr Daniel’s evidence at [37] that I do not see the inconsistency which troubled her Honour, because the comparator with the 1999 value of $660,000 was the 1997 value of the property zoned 2(b1), not its purchase price in the belief that it was zoned 2(c2).

53 The important time for whether Micro failed to mitigate its loss was the latter part of 1999, after Micro had confirmed that the property was zoned 2(b1). The Council submitted, beyond its submission as to an erroneous factual finding, that it was not enough that Mr Daniel anticipated rezoning at some future time and was optimistic that it would occur, and that the Council should not have to bear the consequences of Micro’s decision to take the risk of a future rezoning; and it said that prior to 2004 there were no favourable discussions between Micro and the Council in relation to the prospect of the property being rezoned from which Mr Daniel could have been optimistic.

54 Micro was obliged to take reasonable steps to mitigate the loss suffered by the Council’s negligence in representing that the property was zoned 2(c2); not meaning that it was subject to a legal duty, but meaning that it could not recover damages for loss which it could have avoided by reasonable steps which it failed to take. The Council bore the burden of establishing that Micro had acted unreasonably and failed to mitigate its loss.

55 Whether Micro failed to take reasonable steps to mitigate its loss is a question of fact. However, mitigation of loss involves a plaintiff’s obligation (in the sense above) to act in the interests of the defendant. As was succinctly said of what is required of a plaintiff in Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 at 9 per Yeldham J, “the standard is not a high one, since the defendant is a wrongdoer”. In the classic case of Banco de Portugal v Waterlow & Sons Ltd (1932) AC 452, in part concerned with recovery of the costs of remedial steps, Lord Macmillan said at 506 -

“Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment, the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

56 Micro could have sold the property in the latter part of 1999, although at a loss taking into account holding costs. Its funds would have been restored to the extent of approximately $660,000. But its development activities had already been disrupted. In the belief that the property was zoned 2(c2), it had spent about two years with the property as a development project: hence the damages in respect of loss of the Hypothetical 1997 development.

57 So far as the reasonableness of retaining the property as a future development project turned on the likelihood of rezoning, that was less critical if, as the trial judge found, Micro had funds to use in the development of other properties and repayment of the $710,000 did not stymie its capacity to proceed with future developments. The reasonableness of Micro’s retention of the property involved the consequences of not regaining the $660,000, and the Council was in something of a dilemma in contending, as in substance it did, both that Micro should have sold the property in order to restore its funds and that Micro had not been impeded in its development activities by lack of the $660,000. Equally, in asserting loss measured at over $5,000,000 from lack of funds, Micro gave support to unreasonableness of its conduct. As will appear, in my opinion the trial judge’s findings as to Micro’s capacity to proceed with future developments should be upheld, and the effect on Micro’s development activities was not a compelling factor in addressing unreasonableness.

58 Mr Daniel gave evidence that at all material times three-storey blocks of home units adjoined the property at the rear and on one side, with a two-storey block of town houses on the other side. He said in an affidavit that Micro had always been “hopeful” that the property would be rezoned 2(c2) and that “[i]t would seem to me the appropriate zoning due to the nature of the buildings immediately adjacent to its boundaries and in the general vicinity of the Property”. In oral evidence he said that he believed Micro had no choice but to hold onto the property because a replacement site was so expensive, but also that it was kept in order eventually to build on it and make a profit and he hoped to persuade the Council to change the zoning so that home units could be built. He agreed that later in 1999 Micro’s solicitors were told that the Council did not want to rezone the property, and said that he “contacted a couple of the council” who told him the same, but also said that “[w]hen we found out we proceeded with court cases in which occurred a year later or whatever to have the council change their mind to rezone that land”. He said that although he was told that the Council was not interested in rezoning, Micro went to court “so maybe to rezone the land”.

59 The Council relied particularly on Mr Daniel’s evidence -

60 I do not think that these questions in the terms of hope and risk, although agreed to, fully characterised Micro’s conduct. There is no doubt that in 1999 the Council was against a 2(c2) zoning – in the mistaken belief that the property was zoned 2(c2), it proposed rezoning to 2(b2). But the adjacent development gave reason to question that zoning for low density and medium density development was appropriate or would continue; the consultant’s report, although later, described in some detail the residential flat buildings in the surrounding area and the consultant thought that medium density development of the property would be difficult due to site constraints (that being one reason for the preferred option). In fact the Council deferred the zoning of the property from the 2000 Local Environmental Plan, and did rezone it. Whether or not with some effect from Micro’s proceedings – and the Council plainly considered that rezoning was material to Micro’s damages – Mr Daniel was proved right. The hope that the property would be rezoned was rationally based and was justified; the measure of the reciprocal risk that the property would not be rezoned was found in the fact that it was rezoned.

61 Micro’s business included holding land for opportune development, see the Kings Road development and the Harp Street land. So far as the trial judge’s reference to numerous discussions with Council may have referred to the period from the latter part of 1999 until the end of 2003, favourable discussion was not borne out in the evidence, but in my opinion the Council failed to establish that Micro unreasonably retained the property.

62 The Council referred to Patel v Hooper & Jackson (1999) 1 WLR 1792 as an illustration of a plaintiff’s failure to mitigate loss by selling a property purchased in reliance on the defendant’s negligent advice. The case does not add to the principles, and is an illustration on its own facts.

63 The Council also submitted to the effect that it should be found that the cause of Micro’s loss, at least beyond that referable to the lost Hypothetical 1997 development, was Micro’s unreasonable failure to sell the property. It follows from what I have said that the submission should not be accepted.

Assessment of Micro’s loss

64 The Council appealed on the ground -

a. There was no basis for, and her Honour did not give adequate reasons for, the award of a sum of $400,000 to represent a loss to the respondent of a portion of a ‘second hypothetical development’;

b. Her Honour failed to allow a credit in favour of the appellant, of the sum representing the likely profit on the proposed development of the Property;

65 Micro cross-appealed on the grounds -

“1. That her Honour erred in finding that if the respondent had not bought the subject land, Mr Kastrounis would have diverted his energies away from the respondent’s business in order to develop private properties.

2. That her Honour erred in holding that the development application lodged by Mr Kastrounis in 1997 showed that his affidavit evidence that plans were lodged in late 1999 for the development of his children’s property was incorrect.

3. That her Honour erred in finding that if the respondent had not bought the subject land, Mr Staikos would have diverted his energies away from the respondent’s business in order to develop private properties.

4. That her Honour erred in failing to hold that if the subject property had been sold in 1999 there would have been no appreciable capital gain.

5. That her Honour erred in finding that the respondent willing [sic] slowed down the progress of its developments after 1997.

6. That her Honour erred in holding that appeals from the refusal of hypothetical development applications needed to be factored in to the quantification of the respondent’s damages.

7. That her Honour erred in holding that it was reasonable to assume that there would be a relatively modest profit of $400,000, or any profit, arising from the future development of the subject land by the respondent.

8. That her Honour erred in taking into account in assessing the respondent’s damages any such profit.

66 The trial judge was faced with a difficult task, one requiring findings as to many past hypothetical events and to some extent future hypothetical events and the relationships between them. Each of the Hypothetical 1997 development and the subsequent hypothetical developments turned on a number of hypothetical events. The precision of the calculations in which Messrs Bryant and Gower engaged was illusory. Consistently with the principles found in Malec v J C Hutton Pty Ltd (1990) 169 CLR 368 and Sellars v Adelaide Petroleum NL (1992) 179 CLR 332 it was open to the trial judge to arrive at a broad assessment. According to those principles, her Honour could first find on the balance of probabilities whether Micro had lost the opportunity to undertake other development(s) and value that lost opportunity according to the prospects of its success had it been pursued. But that did not necessarily mean valuing the opportunity according to discounted profits of hypothetical developments. The task was to arrive at what could only be an estimate of Micro’s loss. In any case where precision is not possible or not realistic the court must arrive at the loss despite the difficulty of doing so, including when the loss is from breach of contract (Fink v Fink (1946) 74 CLR 127) or from negligent advice (Bowen v Blair (1933) VLR 398): see generally State of New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536 in the reasons of Heydon JA.

67 In Jazabas Pty Ltd v City of Botany Bay Council [2000] NSWSC 58, another case of a property developer purchasing land which it otherwise would not have purchased, Rolfe J found that it was “reasonable to assess damages” on the basis of a number of lost developments and applied a reduction for vicissitudes. On appeal Fitzgerald JA, who dissented in the result and was the only member of the Court to address damages, said of the use of figures for lost profits from the developments -

“276 The figures used by the trial judge, (i.e., 12 developments at a profit of $151,653.00 per development and a profit on the resale of the land of $54,297.00), appear to indicate that his Honour’s assessment of damages was a precise exercise undertaken on the basis of reliable evidence. The reality is that the assessment of Jazabas’ compensation necessarily involved value judgments and conjecture based on evidence which was not and could not accurately establish what would have, but had not, occurred. There is always room for disagreement in such circumstances, and it is often possible to criticise statements made by a trial judge to attempt to provide a rational explanation for an assessment when proof of the basis of the assessment is “necessarily unattainable.” Appellate intervention is not warranted unless there is patent error or the amount awarded is plainly wrong or unjust.

277 That could not be concluded in the present case. For example, as the trial judge noted, the reduction of 30% which he applied for ‘vicissitudes’ was “somewhat arbitrary”. Although the Addendum to his Honour’s judgment does not expressly say so, the course which he adopted suggests to me that he considered that the figures which he had used, including the reduction factor of 30%, adequately catered for the competing factors which the parties relied on and that the total at which he had arrived was a just compensation for Jazabas on the necessarily inconclusive evidence on which his assessment had to be based.

68 It is plain from the trial judge’s reasons that in her assessment she sought to take account of a complex of considerations: the pace of Micro’s pursuit of developments; the availability of sites and the progress and profitability of development projects; the funds Micro would have devoted to developments; the profits which it had made and would make; and other matters. The $400,000 was an additional amount, awarded as a matter of judgment in the broad assessment whereby, together with the $1,061,280, Micro would be properly compensated for its loss. The overall figure, in Fitzgerald JA’s words, was considered to adequately cater for the competing factors which the parties relied on and to be just compensation for Micro. In the circumstances of this case, the trial judge was entitled to take such an approach and correctly did not purport to engage in a precise calculation.

(a) Appeal ground 2a

69 The Council submitted that the $400,000 was in the nature of a buffer as occurs in personal injury claims, and that “such an award is not available in a case of this kind”. I do not agree. The $400,000 was undoubtedly an estimation, but so in truth was the $1,061,280, and the trial judge’s estimation was of lost profits from development activities in the order of $1,860,000 against which credit for the $400,000 estimated profit on the 145-147 Russell Avenue development was given. (This anticipates rejection of the Council’s ground 2(b), see below.) The estimation was not by way of a buffer, and was open to the trial judge. It was non-specific compensation for the effect on Micro’s development activities of the purchase of the property which it would not otherwise have purchased.

70 The complaint of lack of reasons should not be accepted: of its nature, further reasons could not be given for the addition of the $400,000.

71 The Council submitted that the reason for the award of the $400,000 “appears to relate to what her Honour found to be a lack of care with which [the Council] attended to its business in relation to both the Property and 145 Russell Avenue and the delay it had caused to [Micro]”. The Council relied in this respect on the trial judge’s references at [92] to lack of care and delay, and said that it was erroneous to award the $400,000 as damages for lack of care and delay in relation to the lateness of disclosure of the true zoning and in attending to re-zoning: it said that the trial judge had “found damages against [it] for a further wrongful act which was never the subject of a claim”.

72 These submissions misapprehended the references to lack of care and delay. The subject was the 145-147 Russell Avenue development. There was delay in fact, in the trial judge’s view caused by the Council’s lack of care. The delayed receipt of profits from that development was taken into account in Micro’s favour as part of what I have called the complex, the estimated profit of $400,000 in relation to that development being taken into account in the Council’s favour. The damages were at all times for the negligence in representing that the property was zoned 2(c2), not for some other wrongful act, the delay being amongst the facts relevant to the assessment of Micro’s loss.

(b) Appeal ground 2b

73 Ground 2b can be dealt with shortly. The trial judge said that it was necessary to consider the anticipated profit from the 145-147 Russell Avenue development, and arrived at the profit of $400,000. On the reasons as a whole, it was plainly taken into account. In the reasons of 14 March 2007, after the matter had been raised by the Council, the trial judge said that she had taken it into account. This ground is without substance.

(c) Appeal ground 2c

74 The Council submitted that the credit given to it should have included the rent received by Micro from leasing the property until it was developed. One of Mr Bryant’s reports included a figure for rent received, less holding costs and after tax, of $5,920.

75 Neither the Council nor Micro took the Court to the trial judge’s reasons for arriving at the profit of $400,000. I have earlier referred to them. It does not appear to have been suggested to the trial judge that the Council should have credit for any return to Micro prior to development as well as the profit on development, and on the basis on which the trial judge came to the $400,000 the $5,920 was not of significance.

76 The Council submitted that the likely profit for which a credit should have been allowed was more than $400,000. It said that the inclusion of 145 Russell Avenue in the development “in all probability dragged the profitability of the overall project down”, and that the 145 Russell Avenue development should have been excluded from consideration. Presumably it was meant that the town houses on 145 Russell Avenue were a less profitable development than the home units on 147 Russell Avenue, but the submission was unsupported by reference to evidence at the trial. Indeed, unless the town houses if separately considered showed a loss their exclusion would appear to reduce the profit for which the Council was given credit. I do not think reason has been shown to displace the trial judge’s profit figure.

77 The Council’s principal submission was that the trial judge should have given it credit not for a profit on the 145-147 Russell Avenue development, but for the increase in value of 147 Russell Avenue after it was rezoned 2(c2). The valuations were said to range range from $1,300,000 to $1,530,000. It was said, without specific reference to evidence, that after holding costs and a CPI factor the increase in value was $515,000.

78 The submission should not be accepted. Micro in fact undertook the 145-147 Russell Avenue development. Its business was property development. Development of the property was within the Council’s reasonable contemplation in 1997. The development was in conjunction with 145 Russell Avenue, but that was no surprise to the Council which had effectively promoted it by adoption of the consultant’s preferred option, and a joint development was also within the Council’s reasonable contemplation. Unless Micro acted unreasonably in undertaking the development of the double site, Micro’s damages were properly assessed on the basis that the property had been developed as it was developed, and it was neither suggested to Micro’s witnesses nor part of the submission that Micro had acted unreasonably.

(d) Cross-appeal grounds 1, 2 and 3

79 These grounds can be considered together. The trial judge found that Messrs Kastrounis and Staikos diverted their energies away from Micro’s business to their private projects, and (at [46]) that more probably than not they would have done so at the time they did even if Micro had not purchased the property; that is, that Micro’s development activities would have slowed quite apart from any effect of purchasing the property. This was part of the complex of matters taken into account in the assessment of Micro’s loss.

80 The trial judge said that Mr Kastrounis claimed that it was “the problems with the planning approval of 147 Russell Avenue” that caused him to turn his attention to a private development at Junction Road, Peakhurst. She found that the development application had been submitted in late 1997, because it had been approved in December 1997. She implicitly did not accept Mr Kastrounis’ evidence that the plans for the development had been submitted in late 1999 and it was then that he started to “think what to do on it”.

81 Mr Staikos said in an affidavit that he decided to build on a site at Samuel Street, Peakhurst after the incorrect zoning of the property had become known. He lodged plans with the council in December 1999, and carried out the building work in 2000. The trial judge noted that he was not cross-examined.

82 The trial judge expressed her overall conclusion -

Gungah Bay Road

83 Micro submitted that Mr Kastrounis in fact did no work on the Junction Road development, other than perhaps demolition, until 2001, and that the earlier obtaining of development consent was not properly described as turning his attention away from Micro. As to Mr Staikos, it submitted that in the absence of cross-examination it was not open to find that he would have turned his attentions away from Micro in any event.

84 The trial judge was entitled to find that Mr Kastrounis had not been correct in his claim, and to reject that he turned his attention to the Junction Road development because of “the problem with the planning approval of 147 Russell Avenue”. Mr Staikos said that he decided to build at Samuel Street “following the difficulty of the purchase of 147 Russell Avenue and identifying the incorrect zoning for the property”, and was not more explicit as to causation as distinct from timing. The question for the trial judge was whether these things would have happened anyway, and there were reasons to find that they would. As the trial judge noted at [44], at the time “one would have thought they could have put all their energies into the plaintiff’s operations”. It is necessary to recall the trial judge’s finding that Micro’s capacity to proceed with further developments was not stymied, and the limited activity in only the Gungah Bay Road development could readily be seen as a slowing in progress due in part to attention to the private projects which would have in any event occurred. The trial judge clearly enough took into account whether Messrs Kastrounis and Staikos would have deferred developments for the benefit of their children. In my opinion, the trial judge’s findings were open to her and should not be disturbed.

(e) Cross-appeal ground 4

85 This ground was not addressed in submissions. Its relevance is not apparent.

(f) Cross-appeal ground 5

86 The trial judge did not find that Micro willingly slowed down the progress of its developments after 1997. In relation to whether it was reasonable not to sell the property she said at [39] that reasonably retaining the property “does not mean that the plaintiff was entitled to willingly slow down the progress of its developments and then look to the defendant to compensate it for that declaration”, but that was not a finding. The finding at [88] was that “a combination of factors slowed the plaintiff’s progress, including importantly the private projects of Mr Staikos and Mr Kastrounis”. From the reasons as a whole, other factors included the “upward trend” in the property market (at [90]) and a decision not to use available funds in the development of other properties (at [88]).

87 Micro’s submissions concerning diversion of the energies of Messrs Kastrounis and Staikos went also to this ground. Its submissions otherwise seemed to be that Mr Daniel had given evidence that Micro would have purchased a site in 1997 and undertaken a development after completing the Kings Road development, and then purchased another site in 1999, and that “four developments would have been done”, and that he was not challenged in cross-examination; and also that it was not put to Micro’s witnesses that the property could have been used as security to obtain funds or that it had available funds with which to engage in developments.

88 It is clear that availability of funds was an issue in the proceedings, and that the parties put their respective cases through the experts. The property self-evidently could be used as security. Mr Daniel’s evidence by way of assertion attracted caution similar to that spoke of in warning cases such as Chappel v Hart [1998] HCA 95; (1998) 195 CLR 232 at 246, 272-3; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [26], [87]-[89], [158] and [221] and Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 at [226], but more widely applicable, see for example Seltsam Pty Ltd v McNeill [2006] NSWCA 158; (2006) 4 DDCR 1 at [121]. It was subject to the trial judge’s findings on the whole of the evidence. In my opinion, no error has been shown in her Honour’s conclusion that Micro’s development activities were slowed otherwise than by reason of the purchase of the property.

(g) Cross-appeal ground 6

89 As I have noted, in the uncertainties to which the trial judge referred in carrying out the hypothetical developments she gave the need to go to the Land and Environment Court as an illustration of possible delay. Micro submitted that it was erroneous to take that matter into account, because the best evidence of uncertainties in obtaining development consents was Micro’s history and there was no evidence that Micro had ever before needed to go to the Land and Environment Court. The answer to the submission is that Micro’s history included the occasion of going to the Land and Environment Court in 1999, as part of a delay in the order of two years up to that time in obtaining development consent with respect to the property. The difficulty encountered by Micro was a strong remainder of what could occur. The need to go to the Land and Environment Court was a factor properly taken into account amongst the uncertainties.

(h) Cross-appeal ground 7

90 To return to the trial judge’s arrival at a profit of $400,000 for the 145-147 Russell Avenue development, her Honour said -

147 Russell Avenue

145 Russell Avenue

145-147 Russell Avenue

91 Micro repeated on appeal the figures of $8,220,000 and $7,398,000 from Mr McGuirk’s evidence, noting that he valued as at June 2006 and not at the likely completion time in 2008 and accepted in cross-examination that there might be realised more or less than his estimate as at June 2006. It repeated the figure for construction costs. (The submission gave the figure as $8,335,000, which is not correct and is the total cost figure as submitted to the trial judge with the addition of “interest on loans, council’s fees and the like”: at [89]. I take the intended figure to be $6,710,000.) It accepted that account had to be taken for uncertainties, but submitted that the only relevant uncertainty was sale price and, if it could vary up or down, Mr McGuirk’s figures should be accepted.

92 The acknowledgement that account should be taken for uncertainties, a concession properly made, makes this ground difficult. Construction costs were approximate and could vary from the estimates, and sale prices could vary. The construction costs were in fact not for the 145-147 Russell Avenue development as it came to be. The basis for the “interest on loans, concerned fees and the like”, which on the figures at [86] in the trial judge’s reasons was a total figure of $1,625,000, was not explained in submissions. While a development project may be carried out at a loss, there is some incongruity in Micro contending that the 145-147 Russell Avenue development into which it entered would suffer a loss; its development history did not show a previous loss, and it plainly had considerable expertise, and no doubt it would do its best to bring in a profit. I am not persuaded that the trial judge was wrong in her conclusion.

(i) Cross-appeal ground 8

93 I do not understand this ground to have been maintained. Micro put submissions to the effect that, if damages were assessed on the basis of four or five hypothetical developments, the deduction should be of the stand-alone value of the property rather than any profit on the 145-147 Russell Avenue development. That depended on otherwise succeeding in the cross-appeal, and in the view I take does not arise.

(j) Cross-appeal ground 9

94 No written submissions were made additional to those in support of grounds 1 to 6. There was a suggestion in Micro’s oral submissions in the manner the trial had proceeded that the trial judge’s approach to the assessment of Micro’s loss, particularly in relation to diversion of the energies of Messrs Kastrounis and Staikos, was not open to her, but the transcript references on which Micro relied give no support to it. In my opinion, no error has been shown in rejection of the four or five hypothetical developments as the basis for Micro’s loss.

Interest

95 The Council appealed on the grounds -

“3. Her Honour erred in ordering interest on the value of the lost 1997 hypothetical development.

96 The Council accepted that, if Micro’s loss was confined to the $1,061,280 referable to the Hypothetical 1997 development, the interest on that sum would be properly awarded. It submitted, however, that if the loss included the additional $400,000 or any other such sum, interest should not be allowed on the loss referable to the Hypothetical 1997 development, because the assumption on which the $400,000 was awarded was that the profits from the Hypothetical 1997 development were put back into Micro’s business in carrying out further hypothetical developments. It said that Micro should not be compensated for loss of the use of the money derived from the Hypothetical 1997 development, because it had notionally used those profits and the $400,000 in substance included compensation for not receiving the profits in about November 2001.

97 The Council referred to Jazabas Pty Ltd v City of Botany Bay Council, in which Rolfe J refused interest on the profits from a series of hypothetical developments because (at [28]) “the money was [notionally] immediately used to finance the next project, the profit providing part of the funds needed”. On appeal the majority did not deal with damages, but Fitzgerald JA said of a claim to interest on the amount of the notional profit from each hypothetical development -

“275 On the trial judge’s approach to the assessment of damages, Jazabas was not deprived of that notional profit. It received it and invested it, without deduction for taxation, in the next development or series of developments. In other words, in the theoretical exercise which the assessment of damages involved, Jazabas received and invested profits to which it was entitled in other developments as and when it became entitled to those profits.”

98 It is not entirely clear that Fitzgerald JA endorsed Rolfe J’s reasoning to refusal of interest, since it appears from his Honour’s following paragraphs set out earlier in these reasons that he considered that the assessment of the developer’s compensation was not susceptible of precision and (at [278]) that there was “no cogent reason for [the Court] to conclude that Jazabas is entitled to compensation in a significantly different sum from the amount awarded … “.

99 Micro submitted that the trial judge did not award the additional $400,000 on the basis that Micro would have put the profits of the Hypothetical 1997 development back into its business. It pointed to her Honour’s statements at [91] that she was not satisfied “that reasonableness equates to the quantification of the plaintiff’s loss as equivalent to four or five Hypothetical developments” and at [93] that she was not satisfied that the Council’s conduct caused Micro to lose the opportunity to develop four hypothetical developments. Although at [92] the trial judge described the additional figure as one which recognised the loss of a portion of a second hypothetical development, it said that this did not mean it was compensation for profits lost from a development undertaken using the profits from the Hypothetical 1997 development. And Micro said that this appeared from the trial judge’s reasons of 14 March 2007 in which she said in relation to the additional $400,000 -

“It is clear that I was not in a position to accede to the plaintiff’s claims of the other alleged lost Hypotheticals, but that I formed the view that to ensure that the plaintiff was compensated for its loss appropriately, that some figure should be awarded taking into account the capacity of the plaintiff to proceed with other developments albeit, not the ones that it claimed it would have proceeded with.”

100 Micro submitted that, from the trial judge’s reasons as a whole including the clear intention that the lost profits from the Hypothetical 1997 development should bear interest (see at [93], that the $1,461,280” will need to be adjusted for interest and tax”), the broad assessment of the additional $400,000 was not a figure derived from ploughed back profits. It said that the approach of Rolfe J in Jazabas Pty Ltd v City of Botany Bay Council did not apply.

101 In my opinion, Micro’s submission should be accepted. As I have earlier explained, Micro’s damages could not be the subject of precise calculation. It was open to the trial judge to assess the damages as a sum in respect of the lost Hypothetical 1997 development plus an additional sum as a broad assessment of Micro’s loss, and while the additional sum had to do with capacity to proceed with other developments. Further, while proceeds of sales from previous development may usually have been used to finance development costs, plainly not all proceeds were used, see the directors’ fees and superannuation totalling nearly $400,000 paid in 2000. The trial judge’s description of the additional sum as one which recognised the loss of a portion of a second hypothetical development indicated that she did not have in mind a development into which the profits of the Hypothetical 1997 development had been put. In my opinion, the approach taken by Rolfe J in Jazabas Pty Ltd v City of Botany Bay Council was not enlivened, and no error has been shown in including interest on the value of the lost Hypothetical 1997 development.

102 As to interest on the additional $400,000, the trial judge said in her reasons of 14 March 2007 -

“Mr Garling submitted on behalf of the defendant that no interest should be awarded on this figure because, in effect, it would result in double counting or double compensation because it was really an award to ensure that the plaintiff was not under-awarded and in doing so, it received an amount for the delay in the time of receiving its award of damages.

I disagree with that submission. It seems to me that the award of $400,000 was not an award to compensate the plaintiff for the delay. It was, in fact, an award of damages, an award for the loss of it suffered by reason of the defendant’s misconduct. The date from which the interest should be awarded is more complex.

The plaintiff has calculated interest on the $400,000 from either 15 November 2002 or 15 February 2006 and then, it seems, it has taken an average of the amounts between those two figures.

My approach is perhaps a little more simplistic. It seems to me that doing the best I can to ensure that the defendant is treated fairly and the plaintiff receives an appropriate award, the date of 1 July 2005 is the appropriate date being the end date of the third Hypothetical. Accordingly, I intend to award interest on the figure of $400,000 from 1 July 2005.”

103 In its written submissions the Council contended that the trial judge had “failed to expose her reasoning”. That is not correct. The reasoning was exposed; it was necessary that the Council establish that the reasoning or the result was erroneous.

104 Perhaps recognising this, in oral submissions the Council’s primary submission was that the $400,000 was a form of buffer assessed as at the date of judgment, and accordingly should be regarded as including compensation for any loss of use of money beyond loss of use of the sum referable to the Hypothetical 1997 development, so that no interest on it should be awarded. As a fall-back position, the Council submitted that the $400,000 should be understood as money which would have been obtained over time, so that interest awarded should be at half rate.

105 The primary submission was much the same as the submission made to the trial judge, and her Honour’s disagreement with it shows that she had not arrived at the $400,000 on the basis that it included compensation for loss of use of the money which she had described as a figure which “should be awarded taking into account the capacity of the plaintiff to proceed with other developments albeit, not the ones it claims it would have proceeded with”. I have earlier rejected submission that the $400,000 was in the nature of a buffer. The $400,000 was intended by the trial judge to represent loss suffered at a past time, at time subsequent to the November 2001 date taken as the date on which the money from the Hypothetical 1997 development would have come in and which the trial judge put at 1 July 2005. Again, precision was not possible. The selection of 1 July 2005 was, as it had to be, a somewhat arbitrary result of the trial judge’s opinion of fair treatment to the Council and receipt by Micro of “an appropriate award”. No error has been shown in the exercise of the trial judge’s discretion in awarding this pre-judgment interest.

Tax

106 The Council appealed on the ground -

“5. Her Honour erred in ordering that the sum of $400,000 be grossed up for taxation.”

107 The experts had made their calculations in gross figures less tax to arrive at net figures. The $1,061,280 was a figure net of tax, and it was common ground that it was necessary to add tax back into the figures traded by the experts.

108 The Council’s submission was similar to its submission in relation to interest on the additional $400,000. It submitted that the $400,000 was by way of a buffer and included such tax as might be payable in respect of the loss for which it was intended to compensate. I do not agree, for reasons similar to those I have accepted in relation to interest on the $400,000. In my opinion it is clear from the trial judge’s reasons that the additional amount of $400,000 was arrived at by regard to the net figures in the experts’ calculations, and did not include tax.

Costs

109 The Council appealed on the ground -

“6. Her Honour erred in ordering the appellant to pay the entirety of the respondent’s costs in light of the fact that the respondent failed to prove to a significant measure the claim which it sought to make with respect to subsequent hypothetical developments.”

110 Micro relied at the trial on five reports provided by Mr Bryant, the later reports in part responding to Mr Gower’s reports but also evolving from two hypothetical developments to five hypothetical developments. The trial judge noted at [91] that in final submissions Micro claimed that Mr Bryant’s fifth report encapsulated the way in which it put its damages claim.

111 In her reasons of 14 March 2007 the trial judge said -

“Mr Garling’s submission is that albeit that costs must follow the event, there should be some adjustment to exclude the reports of Mr Bryant in the second, third, fourth and fifth reports; they being reports effectively dealing with the Hypotheticals that were not the subject of an award in the terms, at least, of Mr Bryant’s reports.

As I have said in the course of submissions today, the costs of modern commercial litigation in many respects are crushing and something must be done to make it easier for litigants to have access to this Court. One of the major costs has been recognised and identified as the costs of expert opinions to assist a judge in the course of trial.

It may be appropriate in due course in cases where opinions are proffered and rejected, that the costs of obtaining those opinions may be excised or excluded from the costs award. In this instance, I do not intend to do that having regard to the outcome of this case.

It is true, as I have said, that the plaintiff did not achieve what it sought but what it did achieve was a figure of $400,000, which I reached having regard to the way in which the plaintiff puts its case.

112 The Council’s submission on appeal was the same as that recorded by the trial judge, namely that there should have been an adjustment to the costs order to reflect that the second to fifth reports of Mr Bryant were (as it was put by the Council) “not of any use to the court”. The Council took up the trial judge’s reference to crushing costs in commercial litigation, and submitted that the trial judge was in error in not giving effect to what she said in that respect.

113 I do not think it correct that the later reports were of no use to the court. The trial judge declined to exclude the costs of obtaining the later reports “having regard to the outcome of this case”, and while recognising that Micro did not achieve what it sought said that it did achieve the additional $400,000 “which I reached having regard to the way in which the plaintiff puts its case”. Her Honour’s reasons contain an extensive consideration of the various reports, and in my understanding the trial judge meant that the later reports provided material which was of some assistance, perhaps limited, in coming to the broad assessment of the $400,000, even though she did not accept the four or five hypothetical developments.

114 The trial judge was exercising a discretion, and it was necessary that the Council show an error or errors in the nature of those described in House v The King (1936) 55 CLR 499. The trial judge took account of Micro’s failure to obtain damages on the basis of four or five hypothetical developments, and of the submission that the case to which the second to fifth reports of Mr Bryant were directed was not upheld. Although it was not articulated, the Council’s complaint came down to a complaint that the exercise of discretion was unreasonable or plainly unjust.

115 It is well established that a successful claimant will ordinarily receive full costs, although failure on a clearly dominant issue or clearly separable issues may bring adjustment to the costs. In Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1933] FCA 259; 26 IPR 261 the Full Court said at [29] -

“Where there is a mixed outcome in proceedings the question of apportionment of costs is very much a matter for the discretion of the trial judge. The exercise of such a discretion will often depend upon matters of impression and evaluation.”

116 That Micro’s case was not fully accepted was not a compelling reason to deprive it of the costs of the later reports, and the trial judge’s exercise of her discretion was not unreasonable or plainly unjust. In my opinion, the challenge to the exercise of her discretion has not been made out.

The result

117 Neither the appeal nor the cross-appeal should be upheld. While the Council challenged more aspects of the trial judge’s decision than Micro, both the appeal and the cross-appeal were substantially concerned with the manner in which she came to the $1,061,280 plus $400,000. Rather than cross-orders for costs, which, in the absence of agreement, would require assessments, I consider that a just position between the parties is to make no orders for costs of the appeal and the cross-appeal.

118 I propose the order that the appeal and cross-appeal be dismissed.

119 HODGSON JA: I agree with Giles JA.

120 CAMPBELL JA: I agree with Giles JA.

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Citations

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

Most Recent Citation

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CITATION:	Rockdale City Council v Micro Developments Pty Ltd [2008] NSWCA 128
HEARING DATE(S):	18 March 2008
JUDGMENT DATE:	5 June 2008
JUDGMENT OF:	Giles JA at 1; Hodgson JA at 119; Campbell JA at 120
DECISION:	Appeal and cross-appeal dismissed.
CATCHWORDS:	Negligence - council misstates zoning of property - property developer purchases it - can not develop for home units - retains property - years later zoning changed and property developed - assessment of developer's loss - claimed money tied up in property and unable to carry out a series of developments - whether developer's retention of property was failure to mitigate- whether reduction in development activities due to money being tied up in property - open to trial judge to make broad assessment of loss - other issues concerning tax and interest as part of assessment.
CATEGORY:	Principal judgment
CASES CITED:	Banco de Portugal v Waterlow & Sons Ltd (1932) AC 452; Bowen v Blair (1933) VLR 398; Chappel v Hart [1998] HCA 95; (1998) 195 CLR 232; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1933] FCA 259; 26 IPR 261; Fink v Fink (1946) 74 CLR 127; Jazabas Pty Ltd v City of Botany Bay Council [2000] NSWSC 58; Malec v J C Hutton Pty Ltd (1990) 169 CLR 368; Patel v Hooper & Jackson (1999) 1 WLR 1792; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5; Sellers v Adelaide Petroleum NL (1992) 179 CLR 332; Seltsam Pty Ltd v McNeill [2006] NSWCA 158; (2006) 4 DDCR 1; State of New South Wales v Moss [2000] NSWCA 13; (2000) 54 NSWLR 536; Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422.
PARTIES:	Rockdale City Council - Appellant Micro Developments Pty Ltd - Respondent
FILE NUMBER(S):	CA 40180/07
COUNSEL:	R W Seton SC & G J Gemmell - Appellant/Cross-respondent B W Rayment QC & R Scruby - Respondent/Cross-appellant
SOLICITORS:	McCabe Terrill, Lawyers - Appellant/Cross-respondent Philip Sim & Associates - Respondent/Cross-appellant
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 50164/02
LOWER COURT JUDICIAL OFFICER:	Bergin J
LOWER COURT DATE OF DECISION:	22 December 2006; 14 March 2007 (interest and costs)
LOWER COURT MEDIUM NEUTRAL CITATION:	Micro Developments Pty Ltd v Rockdale City Council [2006] NSWSC 1400; Micro Developments Pty Ltd v Rockdale City Council, Bergin J, 14 March, unreported (interest and costs)