Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [No 5]
[2014] WASC 76
•14 MARCH 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: ROSEBRIDGE NOMINEES PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA [No 5] [2014] WASC 76
CORAM: LE MIERE J
HEARD: 10 DECEMBER 2013
DELIVERED : 14 MARCH 2014
FILE NO/S: CIV 1235 of 1999
BETWEEN: ROSEBRIDGE NOMINEES PTY LTD
Plaintiff
AND
COMMONWEALTH BANK OF AUSTRALIA
First DefendantCORRS CHAMBERS WESTGARTH (A FIRM)
Second DefendantWFB PTY LTD
Third Defendant
Catchwords:
Practice and procedure - Statement of claim - Amended particulars - Particulars of loss and damage - Particulars are inadequate
Legislation:
Fair Trading Act 1987 (WA), s 77, s 79, s 82, s 87
Town Planning Development Act 1928 (WA)
Trade Practices Act 1974 (Cth), s 52
Result:
Application to disallow amendments to the statement of claim granted
Application to prevent plaintiff relying on expert reports dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr R I Viner QC & Mr M N Blandford
First Defendant : Mr R W Douglas
Second Defendant : Mr A T Macknay
Third Defendant : Mr M J Lang
Solicitors:
Plaintiff: Angove Law Pty Ltd
First Defendant : Clayton Utz
Second Defendant : MDS Legal
Third Defendant : Jackson McDonald
Case(s) referred to in judgment(s):
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Hart‑Roach v Public Trustee (Unreported, WASC, Library 980044, 11 February 1998)
Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [No 4] [2013] WASC 353
LE MIERE J: The defendants have applied for orders that the particulars to [71] of the statement of claim be struck out and that the plaintiff not be permitted to rely upon the expert reports of Mr Gilmour and Mr Garmony as evidence at the trial of the action. The plaintiff resists both orders. Before going to the particulars and the expert reports it is necessary to say something about the matters in issue in the action and its procedural history.
Events leading to this action
The plaintiff (Rosebridge) leased from Victor Gubgub premises in Fremantle on which Rosebridge carried on a nightclub business under the name 'Metropolis' as trustee of a unit trust. Rintag Pty Ltd, as trustee for another unit trust, owned land in Northbridge. Rosebridge and Rintag had common directors including Mr Grego. Rosebridge and Rintag engaged the third defendant, WFB, to procure project finance to construct a nightclub on the Northbridge site. Rosebridge says that in reliance upon representations by WFB concerning finance facilities and approvals, Rintag entered into construction contracts and Rosebridge advanced funds to Rintag in connection with the construction. In 1996 WFB arranged and Rosebridge, Rintag and the first defendant, the Commonwealth Bank of Australia (CBA), entered into a loan agreement (Loan Agreement) under which CBA agreed to provide loans to Rosebridge and Rintag. The second defendant, Corrs, were the solicitors for CBA.
Rosebridge contends that it was a condition of the Loan Agreement that Rosebridge would give CBA a mortgage over its lease. Corrs advised CBA that the Metropolis lease was void and unenforceable because approval had not been given by the Western Australian Planning Commission (WAPC) before it was entered into. WFB, CBA and Corrs each made representations, or caused representations to be made, to Rosebridge to the effect that unless the consent of the WAPC was obtained prior to the lease being executed, the lease was entered into in breach of the Town Planning Development Act 1928 (WA) (TPDA) and was illegal and void. Rosebridge says that those representations were false in that the lease was valid and enforceable. CBA refused to advance any further funds to Rosebridge in accordance with the Loan Agreement unless and until Rosebridge and Gubgub executed a new lease to which the WAPC consented in place of the existing lease. Rosebridge says that that was to the advantage of CBA because Rosebridge had given a charge to Beneficial Finance of the assets of Rosebridge which included the Metropolis lease and as a result the Metropolis lease could not be mortgaged to CBA.
Rosebridge surrendered the first lease and on 9 March 1996 executed a second lease with Gubgub. The second lease contained terms substantially similar to the first lease, except that the second lease did not contain a term to the effect of the rent review cap. The first lease provided for a rent review each 12 months. The rent review cap provided that the reviewed rent would not exceed 15% more than that payable for the preceding 12 months. Rosebridge says that because it had to pay increased rent it had to reduce its expenditure on promoting the business and its revenue consequently fell.
In March 1997 Rosebridge and Rintag entered into agreements for the sale to Emerald Entertainment Australia Pty Ltd of Rosebridge's Fremantle Metropolis nightclub business and a nightclub business carried on by Rintag in Northbridge. Rosebridge and Rintag also entered into an agreement with Emerald (the Management Agreement) which, amongst other things, provided for Rosebridge to manage the Fremantle Metropolis nightclub business. Rosebridge pleads in its reply that the Management Agreement provided as follows:
1.Rosebridge was to manage the business.
2.Rosebridge was to pay all expenses associated with carrying on the business.
3.Emerald was to pay to Rosebridge and Rintag an annual fee equating to the gross revenue of the Fremantle Metropolis business and the Northbridge business minus the sum of $2,072,000 and to increase to $3,840,000 during any second term of the Management Agreement.
4.Rosebridge and Rintag were to remit the sum of $89,334 per month ($1,072,008 per annum) to Emerald which was to increase to $222,000 per month ($3,840,000 per annum) during any second term of the Management Agreement.
5.Rosebridge and Rintag were to pay the sum of $1,000,000 to a joint bank account on or before each anniversary of the date of the Management Agreement. The funds were Emerald's but would be held as security for the performance by Emerald of its obligations under the Management Agreement.
Rosebridge says that by June 2000 the Metropolis Fremantle business could not meet the rent obligations for the premises and the landlord re‑entered and took possession of the premises, as a result of which Rosebridge lost the right to occupy the premises and lost the Metropolis Fremantle business.
Course of this action
In March 1999 Rosebridge commenced this action to recover the losses it claims to have suffered as a result of the conduct of the defendants. Rintag was deregistered and has taken no part in this litigation. The original statement of claim was dated 10 January 2000 and filed on 11 January 2000. On 23 October 2006 Master Sanderson ordered that the question whether the first lease was illegal and void under s 20 of the TPDA should be tried as a preliminary issue. The preliminary issue was heard on 4 December 2006. The Master found that the Commission's approval of the first lease had been required under the TPDA s 20 and, because it had not been obtained, the lease was illegal and void. The appellants appealed. On 8 May 2008 the Court of Appeal allowed the appeal and declared that the first lease was not in breach of s 20 of the TPDA.
The current statement of claim was filed on 1 January 2009. On 10 May 2011 the court made orders with a view to the action proceeding to trial including orders that the plaintiff file and serve its witness statements by 1 July 2011. Subsequently the plaintiff foreshadowed amending its statement of claim on a number of occasions. The amended or substituted statements of claim proposed by the plaintiff and the outcome of the process is set out in my judgment in Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [No 4] [2013] WASC 353. On 25 September 2013 I refused the plaintiff leave to amend its statement of claim.
Current statement of claim
The statement of claim raises the following causes of action. Paragraph 7 pleads that Gubgub leased the premises to Rosebridge for a period expiring on 31 May 2011 ‑ the first lease. Paragraph 24 pleads that WFB engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA) by making the April 1995 statements and the May 1995 statements which conveyed to Rosebridge and Rintag the Finance Approval Representations pleaded in [20]. The Finance Approval Representations were to the effect that finance had been approved for the purpose of construction of Metropolis Northbridge. Paragraph 22 pleads that the Finance Approval Representations were false or misleading or deceptive because no potential financiers had made written offers of finance or offers of finance capable of acceptance by Rintag or for similar reasons. Paragraph 25 pleads that WFB breached the duties of care it owed to Rosebridge by making the Finance Approval Representations.
Paragraph 36 pleads that WFB contravened TPA s 52 by making the WFB Lease Statements which are pleaded in [32]. The WFB Lease Statements are statements to Rosebridge to the effect that, unless the consent of the WAPC was obtained prior to the First Lease being executed, the First Lease was entered into in breach of the TPDA and was illegal and void. Paragraph 37 pleads that WFB breached its duty of care to Rosebridge by making the WFB Lease Statements.
Paragraph 43 pleads that Corrs contravened TPA s 52 by making the Corrs Lease Representation pleaded in [40] or the Alternative Corrs Lease Statements pleaded in [41]. The Corrs Lease Representation and Alternative Corrs Lease Statements are said to have conveyed a representation to Rosebridge that the First Lease was illegal and void and that a new lease had to be entered into.
Paragraph 49 pleads that CBA contravened s 52 of the TPA by making the CBA Lease Statements pleaded in [45] to WFB, which [50] pleads caused WFB to make the WFB Lease Statements to Rosebridge. The CBA Lease Statements are to the effect that, unless the consent of the WAPC was obtained prior to the First Lease being executed, the First Lease was entered into in breach of the TPDA and was illegal and void. Paragraph 53 pleads that CBA breached its duty of care to Rosebridge by making the CBA Lease Statements. Paragraph 60 pleads that CBA contravened s 52 of the TPA by reason of the Corrs Lease Statements or alternatively the Alternative Corrs Lease Statements, which by reason of s 84 of the TPA was conduct engaged in by CBA.
Paragraph 64 pleads that CBA breached the Loan Agreement by refusing to advance funds in accordance with the Loan Agreement unless Rosebridge and Mr Gubgub executed a new lease to which the WAPC consented in place of the First Lease.
In summary, Rosebridge alleges the following causes of action against the defendants:
(a)negligent misstatement by CBA and WFB;
(b)breach of contract by CBA;
(c)misleading or deceptive conduct by CBA, Corrs and WFB.
Rosebridge pleads that each or any one of those breaches or contraventions has caused it to suffer the following loss and damage:
(a)Additional rent payable during the 1998, 1999 and 2000 financial years in the total sum of $725,999.
(b)Reduced profits of $4,936,067 or thereabouts as a consequence of Rosebridge's inability to properly advertise and market Metropolis Fremantle being constrained by the requirement to pay higher rent.
(c)Further particulars will be provided after the exchange of expert evidence.
Rosebridge claims damages pursuant to TPA s 82, or s 79 of the Fair Trading Act 1987 (WA) (FTA) or compensation pursuant to TPA s 87 or FTA s 77 against CBA, Corrs and WFB. Rosebridge also claims common law damages against CBA and WFB.
The amended particulars
On 5 November 2013 I directed the plaintiff to file and serve any further minute of proposed particulars of loss and damages (Minute of Particulars) and any further minute of proposed further amended statement of claim, and that each defendant should file any objections to the Minute of Particulars. I directed that the court would hear and determine any objections to the Minute of Particulars and any objections to the use at trial by the plaintiff of the 18 March Grego witness statement, and the expert reports of Gilmour and Garmony at a special appointment.
On 28 October 2013 the plaintiff filed a minute of proposed amendments to the statement of claim. The proposed amendments consist of amendments to the particulars of loss and damage pleaded at [71] of the statement of claim. Paragraph 71 with the proposed amended particulars of loss and damage is as follows:
71.By reason of the matters pleaded in paragraph 65 to 70 above, Rosebridge has suffered loss and damage.
PARTICULARS OF LOSS AND DAMAGE
71.1By a letter dated 8 March 1995 acknowledged by Gubgub on the 24th April 1995 Gubgub advised the Plaintiff that he as Lessor would agree to an extension of the First Lease for a term expiring in 2020 which gave rise to a reasonable expectation by the Plaintiff that it would be able to carry on the Metropolis Fremantle business from the Premises until 2020.
71.2Rosebridge was required to pay higher rent under the Second Lease which caused Rosebridge:
(a)loss of cash flow and working capital from which to finance the ongoing operations of Metropolis Fremantle; and
(b)loss of ongoing financial ability to engage live entertainment performances at and properly promote, advertise, and market Metropolis Fremantle with consequent loss of patronage, revenue and profit;
(c)default in payment of the higher rent under the Second Lease, repossession of the Premises by Gubgub under the Second Lease and closure of the Metropolis Fremantle business in November 2000.
71.3Had Rosebridge not had to surrender the First Lease and execute the Second Lease, Rosebridge would have expected to have continued occupation of the Premises and conducted the Metropolis Fremantle business thereon until the expiry of the term on 31 May 2011 or an extended term until 31 May 2020.
71.4Thereby and by reason of the foregoing Rosebridge has suffered loss and damage being:
(a)additional rent payable during the financial years ended 30 June 1998, 30 June 1999, and 30 June 2000 and expenses: $830,374
(b)loss in market value of Metropolis Fremantle as a result of having to surrender the first Lease and enter into the Second Lease; alternatively:
(i)with a term expiring 31 May 2011; or $875,766
(ii)with a term expiring 31 May 2020: $904,446
(c)loss in market value of the Metropolis Fremantle business as at 8 March 1996 when the Second Lease was entered into due to the Lessor retaking possession of the Premises in June 2000: $4,466,000
(d)loss of profits to May 2020; or $13,972,023
(e)alternatively, loss of profits to May 2011; or $9,476,251
(f)alternatively, loss of profits to November 2000: $4,936,067
(g)other losses, being:
(i)the refurbishment of the Premises by the Respondent under the First Lease the benefit of which was lost upon surrender of the First Lease and entering into the Second Lease: $1,437,479
(ii)financing costs of the refurbishment: $18,428
(iii)legal and valuation costs thrown away: $100,634
(iv)costs incurred by Rosebridge painting the Premises under the Second Lease: $68,000
(v)payment by Rosebridge in satisfaction of personal guarantees under the Second Lease subsequent to November 2000: $120,000
(vi)loss of the use of $75,000 rental bond which Rosebridge had to pay under the First Lease: $34,069
(h)compound interest at market rates determined by the Court for loss of use of the losses and damage suffered by Rosebridge from the date incurred to the date of judgment in this action.
The matters pleaded in [65] to [70] are to the following effect. On or about 9 March 1996 Rosebridge surrendered the first lease and executed the second lease. The second lease contained terms substantially similar to the terms of the first lease except that the second lease did not contain a term to the effect of the rent review cap. Rosebridge surrendered the first lease and executed the second lease in reliance upon the various representations by the defendants to the effect that the first lease was illegal and void. Had the defendants not engaged in the wrongful conduct alleged, that is misleading and deceptive conduct in breach of TPA s 52, breach of duty of care by CBA and WFB and CBA's breach of the Loan Agreement, Rosebridge would not have surrendered the first lease or executed the second lease.
Defendants' objections
CBA filed written submissions and made oral submissions concerning the particulars of loss and damage and the expert reports of Mr Gilmour and Mr Garmony. Corrs adopted the submissions of CBA. WFB adopted the submissions of CBA and made some additional written submissions. I will refer to the submissions made by CBA and adopted by the other defendants as the defendants' submissions.
The defendants submit that the proposed particulars impermissibly purport to partly plead a case of new, unpleaded agreements and new, unpleaded loss which depends on unpleaded material facts and alleged statements of Gubgub, who passed away since the proceedings were commenced. Secondly, the defendants say that Rosebridge seeks to rely on the report of Mr Gilmour dated 28 February 2013 and of Mr Garmony dated 28 February 2013 which are inconsistent with the statement of claim and expressly depend upon unpleaded allegations of material fact with the result that the opinion reports are inadmissible. Thirdly, Rosebridge claims damages for alleged losses suffered by a business after it had been sold by Rosebridge, does not claim any loss for diminution of purchase price and instead claims, without any pleaded foundation, that the sale should be entirely ignored for the purpose of calculating loss, and further fails to account for or disclose the proceeds of sale which are relevant to the alleged insolvency which is said to have caused alleged consequential loss. The defendants say that those defects have the result that Rosebridge has not properly disclosed its case or its case is fatally defective.
The plaintiff's case on damages
Before considering the defendants' objections to the particulars and the expert reports it is convenient to outline the plaintiff's case that it suffered loss and damage as a result of the defendants' wrongful conduct.
The plaintiff says that its case is a 'no‑transaction case' in the sense that the plaintiff would not have entered into the detrimental second lease and carried on business under it but for the false statements that the first lease was void or the breach of contract by CBA. The plaintiff says that the loss it suffered is a matter of causation and causation is a matter of common sense. Further, the plaintiff says that it is for each party to lead by lay or expert witnesses the evidence they consider establishes their contended outcome on losses to be recovered if liability is established. The losses which Rosebridge says were caused by the alleged breaches by each defendant, or any one of them, and the consequences of those breaches are set out in the new particulars to [71] of the statement of claim.
Paragraph 71.1 says that Rosebridge had a reasonable expectation that it would be able to carry on the business from the premises until 2020. For reasons I give later I will not allow that amendment. In considering the particulars in [71.1] to [71.4] I will disregard any particulars of claims which are based on a claim that Rosebridge had a reasonable expectation that it would be able to carry on the business from the premises until 2020.
Particular 71.2 and 71.3 say in effect that if Rosebridge had not surrendered the first lease and executed the second lease it would have continued to occupy the premises and conducted the nightclub business on those premises until the expiry of the first lease on 31 May 2011. Rosebridge was required to pay higher rent under the second lease which caused loss of cash flow and working capital and consequently a loss of financial ability to engage live entertainment performances and market the business. Those matters led to a loss of patronage, revenue and profit. As a result Rosebridge defaulted in payment of the rent under the second lease, the premises were repossessed by the landlord and the business closed in November 2000.
The categories or heads of loss and damage are then set out and quantified in [71.4]. The heads of loss and damage, and their quantification, are based on the report of Mr Gilmour. It is convenient to outline his report.
Gilmour report
Mr Gilmour has made an expert report dated 28 February 2013 in relation to the loss and damage suffered by Rosebridge. Mr Gilmour was instructed to give his opinion of the costs or losses incurred by Rosebridge by reason of entry into the second lease as at 9 March 1996, having regard to the loss in market value of the business by reason of entering into the second lease, or alternatively the market value of the business as at 8 March 1996. In addition he was asked to give his opinion of the costs or losses incurred by Rosebridge by reason of entering into the second lease having regard to additional rental expenses and legal and valuation costs incurred by Rosebridge as a result of entry into the second lease and some other identified costs, and additional rent expenses and legal and valuation costs incurred by Rosebridge as a result of entry into the second lease together with some other costs referred to. Mr Gilmour was instructed to conduct his analysis on two alternative bases. The first is that the first lease ran to June 2011. The second is that the first lease ran to June 2020. For the reasons set out below I disallow the pleading that the plaintiff had an expectation that the lease would run until June 2020. Accordingly, I will disregard Mr Gilmour's report insofar as it is on the basis that the first lease would run to June 2020.
In s 2 of his report Mr Gilmour sets out his opinion of the relevant costs or losses incurred by Rosebridge by reason of entry into the second lease. That opinion is based on the assumptions set out in s 3 of the report. The assumptions set out in s 3 of the report include the following:
(a)The rent payable and paid under the first lease from its commencement to 31 May 1996 was $108,000 per annum, $120,000 per annum to 31 May 1997 and thereafter would be determined and notified by the landlord;
(b)In 1996 Rosebridge and Rintag began discussions with Emerald Entertainment Australia Pty Ltd for the sale of the Fremantle and Northbridge businesses to Emerald. On 18 November 1996 CBA wrote to Emerald approving an advance to Emerald to purchase the assets of the Fremantle and Northbridge businesses. On 19 November 1996 CBA wrote to Rintag and stated that if the Northbridge business had not been sold by December 1997 the bank reserved the right to impose a line fee on the facility and also to impose additional covenants.
(c)On or about 10 March 1997 Rosebridge and Rintag entered into a transaction with Emerald for the sale of the Fremantle and Northbridge businesses to Emerald, which included a structure where a management agreement was entered into between Rosebridge, Rintag and Emerald and Rosebridge, and Rintag would continue to operate their respective businesses and receive a share of the profits (the Emerald Transaction).
(d)The funding for the Emerald Transaction was provided by CBA to Emerald.
(e)Rosebridge says that it entered into the Emerald Transaction by reason of commercial necessity created by the loss of the 15% rent review cap and additionally because of the letter written by CBA on 19 November 1996.
(f)Subsequent to the Emerald Transaction, Rosebridge managed and operated the Fremantle business pursuant to the management agreement with Emerald.
(g)On 2 April 1997 the landlord notified Rosebridge that the rent for 1 June 1997 to 31 May 1998 would be increased to $625,000 per annum. Rosebridge disputed this amount. An amount of $412,500 per annum was agreed to and paid by Rosebridge pending the rental determination. In early 1999 the rent was determined to be $386,162 per annum for the disputed period. There was no refund to Rosebridge as the additional rental amounts paid were credited towards moneys for rent.
(h)The rent charged and paid for the subsequent period, 1 June 1998 to 31 May 1999 was $413,208, and for the period from 1 June 1999 to 31 May 2000 it was $454,524.
(i)From early 1999 Rosebridge began to default on rent payments due under the second lease. As a consequence of the rent defaults, the landlord took possession of the premises on or about 20 June 2000.
The Emerald Transaction is pleaded by Rosebridge in its reply. However, Rosebridge does not plead that it entered into the Emerald Transaction by reason of commercial necessity created by the loss of the 15% rent review cap or because of the letter written by CBA on 19 November 1996. In its written submissions Rosebridge says that it does not rely upon the Emerald Transaction as a ground for any cause of action against any defendant or for any claim of loss, damage or compensation. Mr Gilmour was instructed that when assessing the profits which Rosebridge could have achieved under the first lease he should assume that the Emerald Transaction did not occur.
Mr Gilmour sets out his opinion:
(a)of the costs or losses incurred by Rosebridge by reason of entry into the first lease assuming the first lease ran to 31 May 2011;
(b)whether entry into the first lease was a material and not insignificant cause of the failure of the Fremantle business in June 2000; and
(c)of the profits Rosebridge achieved under the second lease to June 2001 compared to the profits which Rosebridge could have achieved under the first lease to 31 May 2011.
Subparagraphs (a), (b) and (c) of [71.4] of the new particulars to [71] are each derived from that part of Mr Gilmour's report which is concerned with 'Costs or Losses Incurred by Rosebridge by reason of entry into the [second lease] assuming the [first lease] ran to 31 May 2011'.
At [4.14] of his report Mr Gilmour says that the rent paid by Rosebridge under the second lease in excess of that which would have been paid under the first lease is an additional cost incurred by Rosebridge by reason of entry into the second lease. Mr Gilmour calculates the additional cost by reference to the derived annual rental amounts from 1 June 1996 to 31 May 2000 to be $830,374. That differs from the amount set out in the 2009 statement of claim but it is not necessary to explore the difference at this time.
Mr Gilmour opines that the loss in market value of the Fremantle business as at 8 March 1996 as a result of having to surrender the first lease and enter into the second lease is $875,766. The methodology adopted by Mr Gilmour is to identify the related rental cash flows arising from each of the first lease and second lease over the remaining term of the leases and then calculate the difference in the net present value of each of these cash flows as at 9 March 1996. Whether that is an appropriate methodology and whether the opinion should be accepted are not matters which need to be addressed at this time.
Mr Gilmour opines that the market value of the Fremantle business as at 8 March 1996 is $4,466,000. The basis on which he reached that opinion is set out in appendix G to his report. Mr Gilmour assesses the market value of the Fremantle business as at 8 March 1996 using the capitalisation of future maintainable earnings (FME) methodology. Mr Gilmour's assessment of FME is set out in section E of appendix G to his report. He says that '[t]o determine the FME of the Fremantle business … I have calculated the Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA") of the Fremantle Business as reported in the financial statements … for the period 1 July 1991 to 30 June 1995'. On that basis Mr Gilmour arrives at a four year average adjusted EBITDA of $1,276,000. Mr Gilmour then multiplies that FME (four year average) by a capitalisation multiple. Mr Gilmour explains how he assesses the capitalisation multiple in section F of annexure G to his report. There Mr Gilmour says that the earnings multiple applied in a valuation based on maintainable earnings must reflect, as a minimum, the risks of the business, the future growth prospects of the business and the time value of money. Different multiples are used for application to different measures of earnings. Mr Gilmour concludes that an appropriate EBITDA multiple for the capitalisation of the FME of the Fremantle business as at 8 March 1996 is 3.5.
Mr Gilmour assesses the profits of Rosebridge achieved under the second lease to June 2001 compared to the profits which Rosebridge could have achieved under the first lease to 31 May 2011. The methodology adopted by Mr Gilmour is set out in section 7 of his report. He there says that in undertaking this assessment he first identified the actual profits that Rosebridge achieved under the second lease from 18 March 1996 to 30 June 2001 by reference to its financial statements and other source documents. He then prepared financial forecasts to estimate the profits which Rosebridge could have achieved under the first lease from 18 March 1996 to 31 May 2011. His assessed loss of profits is the difference between the actual profits and the forecast profits for each time period. Mr Gilmour assesses that loss of profits to be $9,476,000.
Finally, in section 6 of his report Mr Gilmour considers whether the entry into the second lease was a material and not insignificant cause of the failure of the Fremantle business. Mr Gilmour says that he assessed the profitability of the Fremantle business at the EBITDA level both including and excluding the impact of the increased rent under the second lease. He adjusts his EBITDA analysis to estimate the 'Free Cash Flow' of the Fremantle business, being the cash available for distribution to equity and debt providers or reinvestment in the business. Mr Gilmour then considered the cumulative impact of the increased rent payments under the second lease on the cash flow of the Fremantle business. Mr Gilmour says that his analysis results in a total cumulative cash impact of $513,000 by the end of financial year 1999, a year in which the Fremantle business was operationally cash flow negative. He then says that because the Fremantle business had no cash reserves and no further borrowing capacity it was required to seek savings in operating costs and other expenditure in order to fund the additional rent payments. Mr Gilmour says that in his opinion the entry into the second lease was a material and not insignificant cause of the failure of the Fremantle business taking into account the following key factors:
1.the additional rent resulted in the Fremantle business being unable to cover its financing costs in FY1999 from free cash flow;
2.there was a cumulative reduction of funding of $513,000 in the two years ended 30 June 1999 for a business that had no cash reserves and no further borrowing capacity during this period; and
3.in order to balance the books, key expenditure on promotion and entertainment was reduced with a subsequent impact on turnover, and capital expenditure, a necessary expense in the business's industry, was minimised.
Particulars of loss and damage ‑ [71.1]
Paragraph 71.1 of the particulars raises a discrete issue. Paragraph 71.1 of the particulars of loss and damage should be disallowed on two grounds. First, it raises a new case without any explanation for the delay in amending the pleading and to the prejudice of the defendants. Secondly, it may prejudice, embarrass or delay the fair trial of the action because it fails to properly inform the defendants of the case they have to meet in relation to the claim raised.
The case put forward by the plaintiff in its statement of claim before the amendment of the particulars of loss and damage is that had the defendants not engaged in the conduct complained of, Rosebridge would not have surrendered the first lease and executed the second lease. The loss and damage claimed was the additional rent payable under the second lease, that is the difference between the amount payable under the first lease and the second lease, and reduced profits as a consequence of Rosebridge's inability to advertise and market the business being constrained by the requirement to pay higher rent. It is expressly pleaded in [7] that the first lease was for a period expiring 31 May 2011. The loss and damage was claimed for the 1998, 1999 and 2000 financial years. That is the period of time from the execution of the second lease until the landlord retook possession of the premises in June 2000. The claim that the plaintiff had a reasonable expectation that it would be able to carry on the business from the premises under the terms of the first lease until 2020, or under any terms until 2020, is different from and inconsistent with the case pleaded prior to the amended particulars.
In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 the High Court has confirmed that leave to amend pleadings will not be granted simply on the basis that the amendment raises an arguable issue. Applications for leave to amend pleadings at all stages are subject to the principles of case management which include the just and cost effective resolution of the issues between the parties. The matters relevant to a just resolution of the plaintiff's claim requires the plaintiff to provide some explanation for its delay in seeking the amendment if the court's discretion is to be exercised in its favour and to the disadvantage of the defendants. The plaintiff has provided no explanation for the delay in seeking the amendment. The delay is to the disadvantage of the defendants. Particular 71.1 asserts that the plaintiff had a reasonable expectation that the plaintiff would be able to carry on the Fremantle business from the premises until 2020 by reason of a letter dated 8 March 1995 and acknowledged by Gubgub on 24 April 1995, by which Gubgub advised the plaintiff that he would agree to an extension of the first lease for a term expiring in 2020. Gubgub is now deceased. The defendants cannot investigate the circumstances surrounding that letter by making inquiries of Gubgub. The plaintiff claims damages on the basis that it would have occupied the premises until 2011 or alternatively until 2020. In either case the damages are calculated on the basis that, but for the conduct of the defendants, the plaintiff would have occupied the premises on the terms of the first lease. However, when Gubgub was asked to execute a new lease in 1996 he did so on the terms of the second lease not the first lease. The particulars do not disclose on what basis the plaintiff claims that Gubgub would have extended, or agreed to extend, the first lease for a term expiring in 2020 when in 1996 Gubgub agreed to execute a new lease only on the terms of the second lease. The defendants are prejudiced in investigating those matters because Gubgub has died.
The nature and importance of the amendment to the plaintiff cannot be overlooked: Aon Risk Services [102]. The amendment at [71.1] is important to the plaintiff in that it provides the foundation for the plaintiff to claim loss in market value of Metropolis Fremantle for a term expiring in 2020 rather than a term expiring in 2011 and to claim loss of profits to 2020 rather than 2011. However, the difference in the amount claimed for loss in a market value with a term expiring in 2020 rather than 2011 is not great ‑ $909,446 compared with $875,766. The difference in claimed loss of profits is greater, $13,972,000 compared with $9,476,000, but it is not at all clear how the plaintiff will establish the claim for loss of profits to 2020. The pleading at [71.1] is not that the plaintiff had a legally enforceable right for the lease to be extended to 2020 or that Gubgub was under any obligation to grant a new lease to 2020. When Gubgub was asked to execute a new lease in 1996 he refused to grant a new lease on the same terms as the first lease. In those circumstances it is not at all clear how the plaintiff might make good a claim for loss of profits to 2020.
The particulars in [71.1] are embarrassing because they do not make clear what the plaintiff's case is. The particulars do not say that Gubgub was bound, whether by an enforceable agreement, by estoppel or otherwise, to extend the first lease until 2020 on the same terms including the rent review cap. The pleading is that Gubgub had advised the plaintiff that he 'would agree' to an extension of the first lease to 2020 which gave rise to 'a reasonable expectation' by the plaintiff that it would be able to carry on the business on the premises until 2020. In addition to not saying that the plaintiff had any legal or equitable right to obtain an extension of the first lease until 2020, the particulars do not say that such an extension would be on the same terms as the first lease, including the rent review cap.
The plaintiff's subjective expectation is not relevant. The objective content of the plaintiff's expectation is not clear. The pleading refers to an expectation but the plaintiff did not submit that this was put forward as a loss of chance case and it is not pleaded as such. Furthermore, it is difficult to understand the plaintiff's case that, but for the conduct of the defendants, Gubgub would have, or is likely to have, extended the lease or granted a new lease on the same terms as the first lease on the expiry of the first lease in circumstances where he refused to execute a new lease on the same terms in 1996 and would only agree to execute a new lease on the terms of the second lease.
The amendment to the particulars of loss and damage in [71] by inserting [71.1] should be disallowed.
Paragraph 71.2
Paragraph 71.2 is not new except for subpar (c). Subparagraph (c) is somewhat obscure. It is common ground that in March 1997 when Rosebridge and Emerald entered into the Emerald Transaction, Rosebridge assigned the second lease to Emerald and thereafter operated the nightclub business pursuant to its management agreement with Emerald. After March 1997 Emerald became liable to pay the rent under the second lease. Particular (c) read with the introductory words of [71.2] says that Rosebridge defaulted in payment of the rent under the second lease, Gubgub repossessed the premises and the Fremantle business closed in November 2000. Those particulars are inconsistent with the plea in [9] of the defence and [2] of the reply that Rosebridge sold the business to Emerald and, in the absence of some further material facts, is inconsistent with Rosebridge having assigned the second lease to Emerald and Emerald being liable to pay the rent under the second lease.
Paragraph 71.3
This paragraph says that if Rosebridge had not had to surrender the first lease and execute the second lease, it would have expected to have continued occupation of the premises and conducted the Metropolis Fremantle business there until the expiry of the term on 31 May 2011. This particular is vague and ambiguous and does not properly inform the defendants or the court what the plaintiff's case is. The particulars do not say whether the plaintiff's case is that but for surrendering the first lease and executing the second lease Rosebridge would have continued to occupy the premises as lessee and to conduct the business as proprietor until the expiry of the term on 31 May 2011, or whether it is that the plaintiff would have continued occupation of the premises and conducted the business until the expiry of the term as manager under the Management Agreement. The uncertainty and embarrassment is enlarged by the statement in Mr Gilmour's report that one of the assumptions on which his opinion is based is that Rosebridge entered into the Emerald Transaction by reason of commercial necessity created by the loss of the rent review cap and because of the letter of CBA of 19 November 1996 on the one hand and the statement by the plaintiff's counsel that the plaintiff does not rely upon the Emerald Transaction as a ground for any claim of loss or damage on the other hand.
Paragraph 71.4
Paragraph 71.4 says that Rosebridge has suffered the following heads of loss and damage (omitting references to a term expiring 31 May 2020 or loss of profits to May 2020):
(a)additional rent payable during FY 1998, FY 1999 and FY 2000 and expenses;
(b)loss in market value of Metropolis Fremantle as a result of having to surrender the first lease and enter into the second lease;
(c)loss in market value of the Metropolis business as at 8 March 1996 when the second lease was entered into due to the lessor retaking possession of the premises in June 2000;
(e)loss of profits to May 2011;
(f)alternatively, loss of profits to November 2000;
(g)other losses being …
(h)compound interest …
These heads of damage are claimed cumulatively not alternatively, except for loss of profits to May 2011 or alternatively loss of profits to November 2000. It is not apparent from the statement of claim or the particulars what is the difference between items (b) and (c), although it appears from Mr Gilmour's report that item (b) is a capitalisation of the increased rent, and hence decreased cash flow between 9 March 1996 and 31 May 2011, whereas item (c) is the capitalisation of future maintainable earnings of the business to 31 May 2011.
Senior counsel for Rosebridge declined to state how or on what basis or in what circumstances the plaintiff may be entitled to recover all of the heads of damage in [71.4] (a) to (f). Senior counsel said that it would be a matter to be determined at trial after all of the lay and expert evidence was in.
That is not an answer to the failure of the pleading to properly disclose the plaintiff's case. The statement of claim with the new particulars may prejudice, embarrass or delay the fair trial of the action. Pleadings may be struck out on this ground:
… because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general.
Hart‑Roach v Public Trustee (Unreported, WASC, Library 980044, 11 February 1998) 8 - 9 (Murray J).
Particulars are inadequate
The rules and practice of this court do not permit trial by ambush. The plaintiff must lay its cards on the table so that all the true issues are identified and can be fairly tried in due course. The degree of precision required in a pleading, or particulars, will depend upon the particular case. In some cases the delivery of witness statements may obviate the need for greater particularity in a pleading. In other cases a fair trial will require greater clarity, precision and openness in the pleading and particularising of a party's case. In this case it is necessary so that the defendants may know whether and how they are able to resist the plaintiff's damages case. Unless the defendants know how the plaintiff puts its case they will not be able to put on lay or expert evidence in response and will not know how to cross‑examine the plaintiff's witnesses. Furthermore, the court will not be able to assess the relevance, and hence admissibility, of evidence, including expert evidence, adduced by the plaintiff.
The particulars fail to properly inform the court or the defendant of the plaintiff's case on damages. It is not apparent on what basis the plaintiff may claim cumulatively all of the heads of damage claimed under [71.4]. Importantly, the particulars do not disclose whether the plaintiff's claim is put on the basis that if the plaintiff had not surrendered the first lease and executed the second lease it would have remained as lessee of the premises and proprietor of the business or whether the plaintiff's case is that it would have entered into the Emerald Transaction and after March 1997 carried on business as manager of the nightclub under the Management Agreement. The statements by the plaintiff's counsel that this is a 'no transaction' case adds to rather than lessens the confusion. As a general rule, in a no transaction case detriments are weighed against credits. The plaintiff's damages are assessed by adding up, on one side of the account, all sums the plaintiff has paid out by reason of the contravention or breach and on the other side of the account one adds up all the benefits received by the plaintiff. That exercise cannot be undertaken unless the court knows whether the plaintiff's case is that if the plaintiff had not abandoned the first lease and executed the second lease it would have remained as lessee and proprietor of the night club business until 2011, or if its case is that it would have done so until March 1997 and thereafter derived benefits as manager of the nightclub under the Management Agreement.
The difficulties and embarrassment arising from the particulars are compounded by Mr Gilmour's report. Senior counsel for the plaintiff says that the heads of damage in [71.4] are based on Mr Gilmour's report. Mr Gilmour says that his opinion is based, amongst other things, on the assumption that Rosebridge entered into the Emerald Transaction by reason of commercial necessity created by the loss of the rent review cap and additionally because of the letter written by CBA on 19 November 1996. However, senior counsel for Rosebridge informed the court that the plaintiff does not rely upon the Emerald Transaction as a ground for any claim of loss or damage.
The plaintiff should not be permitted to amend its statement of claim to plead its damages in a way that is embarrassing and fails to inform the court or the defendant of the basis on which the plaintiff puts its case. The amendments to the particulars of loss and damage in [71] will be disallowed. If the plaintiff wishes to claim loss and damage in addition to, or different from, the loss and damage pleaded in the 2009 statement of claim then the plaintiff must give particulars of its claim which properly informs the court and the defendants of the basis on which its claims are brought. The plaintiff may put its case in the alternative but if so that must be made clear.
Gilmour report
If the plaintiff's particulars of loss and damage remain as they are particularised in the 2009 statement of claim then substantial parts of Mr Gilmour's report will be inadmissible because they are not relevant to the plaintiff's case as pleaded. Furthermore, parts of Mr Gilmour's report may be inadmissible on the basis of the basis rule. The basis rule is described in the 9th edition of Cross on Evidence as follows:
The opinion is not admissible unless evidence has been, or will be, admitted, whether from the expert or from some other source, which is capable of supporting findings of primary fact which are 'sufficiently like' those factual assumptions 'to render the opinion of the expert of … value' [29045].
Mr Gilmour relies upon opinions or facts stated in reports by Mr Tait and Mr Todd. The plaintiff has not filed or served witness statements or expert reports from either Mr Tait or Mr Todd.
I will not make any order to the effect that the plaintiff may not rely upon the report of Mr Gilmour or the report of Mr Garmony at this time because the plaintiff may amend its statement of claim or deliver further particulars of loss and damage which render parts of Mr Gilmour's report relevant and admissible and the plaintiff may seek leave and file and serve witness statements or expert reports from Mr Todd and Mr Tait.
Conclusion
The plaintiff's amendments to [71] of its statement of claim will be disallowed. If the plaintiff wishes to amend its claim by delivering different or additional particulars of loss or damage, or otherwise amending its statement of claim, it should do so within a limited time. Furthermore, if the plaintiff wishes to lead expert or non‑expert evidence from Mr Todd, Mr Tait or any other person to provide a basis for the reports of Mr Gilmour or Mr Garmony that should be done within a limited time.
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