Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey and the persons listed in Schedule A to this Statement of Claim trading as at all material times Sparke Helmore (No 5)

[2021] NSWSC 1499

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey and the persons listed in Schedule A to this Statement of Claim trading as at all material times Sparke Helmore (No 5) [2021] NSWSC 1499

Hearing dates:

8-9 November 2021

Decision date:

19 November 2021

Jurisdiction:

Common Law

Before:

Adamson J

Decision:

(1)   Judgment for the plaintiff against the defendants.

(2)   Direct the parties to provide to my Associate within seven days agreed calculations of the judgment sum in accordance with these reasons.

(3)   Subject to order (4), order the defendants’ to pay the plaintiff’s costs of the proceedings.

(4)   If any party wishes to apply for a different costs order to the order in (3) above, such application is to be made in writing to my Associate within seven days, together with any evidence and submissions in support.

Catchwords:

CONTRACTS AND NEGLIGENCE — plaintiff claims damages for alleged negligence and breach of retainer and duty of care — defendants knew that if notices to extend the Registration Date were not given by certain dates purchasers would have an automatic entitlement to rescind and receive their deposit — defendants told the developer of the effect of contractual provisions but the developer did not appreciate their import or know whether it was entitled to an extension — the developer gave instructions to defendants to extend Registration Dates by agreement or notice — date on which notice had to be given was never set out in the numerous schedules provided by the defendants to the developer — defendants would have appreciated that when notices were sent that they were invalid in respect of contracts for two Lots — defendants were negligent and breached their retainer by not alerting the developer to the imminent deadline for service of notices — reasonable care required the defendants to seek instructions from the developer to ascertain whether they ought send notices to purchasers — not satisfied that defendants advised the developer that it had a defence to the claim for declarations that contracts had been validly rescinded in associated Equity proceedings or that its conduct in respect of the proceedings was negligent or amounted to breach

NEGLIGENCE — Defences — Contributory negligence and apportionment — persons alleged to have contributed to the harm taken as agents of the developer rather than potential wrongdoers — the contractual provisions were relatively complex for non-lawyers and the developer was entitled to rely on the defendants’ expertise — developer cannot bear full responsibility for monitoring dates by which extension of time notices had to be given — a reasonable person in the position of the developer would have appreciated the import of the provisions and realised that notices had to be given by certain dates — failure to take reasonable precautions against a risk of harm established — reduction for the developer’s contributory negligence

NEGLIGENCE — Damages — but for the defendants’ negligence, the developer would have instructed the defendants to serve notices to extend time — developer received less for the Lots because of the defendants’ breach — factual causation and scope of liability established — not satisfied that the scope of the defendants’ liability extends to consequential loss arising from the need to re-sell the Lots or legal costs associated with the Equity proceedings —plaintiff entitled to interest at court pre-judgment rates under s 100 of the Civil Procedure Act 2005 (NSW)

Legislation Cited:

Civil Liability Act 2002 (NSW), ss 5A, 5B, 5C, 5D, 5E, 5O, 5R, 5S, 34

Civil Procedure Act 2005 (NSW), s 100

Conveyancing Act 1919 (NSW), s 88B

Corporations Act 2001 (Cth), s 459G

Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6

Calderbank v Calderbank [1975] 3 All ER 333

Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522; [1985] HCA 37

Rennie Golledge Pty Ltd v Ballard (2011) 82 NSWLR 231; [2012] NSWCA 376

Renold Australia Pty Ltd v Fletcher Insulation (Vic) Pty Ltd [2007] VSCA 294

Scottsdale Homes Pty Ltd v Gemkip Pty Ltd [2008] QSC 326

Stambolziovski v Nestorovic and Camanaro Prestige Properties Pty Ltd t/as Sydneyhome Real Estate [2015] NSWCA 332

Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642

Walton t/as Pitcher Walton & Co v Efato Pty Ltd [2008] NSWCA 86

Watson v Foxman (1995) 49 NSWLR 315

Yager v Fishman & Co [1944] 1 All ER 552

Texts Cited:

Practice Note SC Gen 16

Category:

Principal judgment

Parties:

Shoal Bay Beach Constructions No. 1 Pty Ltd (Plaintiff)
Mark Hickey and the persons listed in Schedule A to this Statement of Claim t/as at all material times as Sparke Helmore (Defendants)

Representation:

Counsel:
D Weinberger (Plaintiff)
A Zahra SC / J Burnett (Defendants)

Solicitors:
Di Girolamo Lawyers (Plaintiff)
YPOL Lawyers (Defendants)

File Number(s):

2019/204638

Judgment

Introduction

1. By statement of claim filed on 2 July 2019, Shoal Bay Beach Constructions No. 1 Pty Ltd (the plaintiff) claims damages for alleged negligence and breach of contract against Mark Hickey and others, trading as Sparke Helmore Lawyers (the defendants).

2. The plaintiff is the assignee of Shoal Bay Beach No. 1 Pty Ltd (the developer). From about early 2014, the developer constructed and developed 53 units on land which it owned on Bullecourt Street in Shoal Bay (the property). It eventually sold the units. On 18 June 2018, the Federal Court made an order for the winding up of the developer and the appointment of a liquidator. On 13 March 2019, the developer’s liquidator assigned to the plaintiff all of its claims against the defendants.

3. Although the plaintiff puts its case on breach on various bases, the plaintiff alleged that the defendants’ breach was their failure to alert the developer to the dates by which extension of time notices would need to be served on the purchasers of Lots 50 and 52 to avoid such purchasers becoming entitled to rescind the contracts within seven days of the Registration Dates, as occurred. The plaintiff submitted that, had the defendants alerted the developer to the dates in sufficient time, the developer would have been able to validly extend the Registration Date under the contract and the purchasers would not have been entitled to rescind.

4. The plaintiff claims damages on the following bases:

1. the differential between the sale price in the original contracts and the price at which each of Lots 50 and 52 was ultimately sold;

2. the costs incurred by the developer and the costs of the purchasers for which it became liable as a result of proceedings brought in the Equity Division of this Court by the purchasers of Lots 50 and 52 for declarations that the rescission of their contracts was valid and for orders that the deposits be returned (the Equity proceedings); and

3. interest on (1) and (2) at the commercial rates at which the developer was borrowing funds at the relevant times.

5. The defendants denied that they were negligent or in breach of contract. They contended that, on several occasions, they explained to the developer how the contract worked by reference to specific clauses and the relevant Registration Dates for each contract. The defendants submitted that the developer was a sophisticated client which engaged experts who were well aware of the significance of the Registration Dates and the potential for the purchasers to rescind if no valid notice for extension was served in time. Further, the defendants submitted that if they were found to be liable, the developer was entitled to no more than nominal damages as it could not establish that it would have issued extension of time notices to the purchasers of Lots 50 and 52 had it been alerted to the issue in time or that, if it had, the purchasers would not have validly rescinded in any event. In the alternative, the defendants submitted that the damages ought be limited to the differential between the price in the rescinded contract and the price at which the unit was ultimately sold. They argued that interest ought be at court rates, rather than at the commercial rates claimed by the plaintiff. They submitted that the costs of the litigation were not caused by the defendants and were, in any event, too remote.

The facts

6. It is necessary, for the purposes of determining breach, causation and damages for the facts to be addressed in considerable detail, since they inform the matters of which the defendant was aware at relevant times, the context in which advice was given, and the consequences of what occurred. This narrative summary is required, including to avoid hindsight reasoning. The facts against which these issues are to be determined are as follows.

The developer and Adrian Mastronardo

7. Carmelo Adrian Mastronardo (known as Adrian) was a director of the developer from 21 October 2013 to 23 November 2016 and from 25 January 2017 onwards. He was its principal, made all key decisions regarding the development and was, as he put it, “in full control”. He was an experienced property developer, having been the project director between about 1984 and 2009 at Remo Corporation Pty Ltd, a family construction and property business, which had undertaken substantial off-the-plan developments. He was also a director of Veritas Property Group Pty Limited (Veritas) from its incorporation in 2007 until 2019 (other than for a short period in 2012).

8. Mr Mastronardo became bankrupt on 23 September 2020 on the application of the Commonwealth Bank of Australia. The developer was the plaintiff’s sole shareholder. The developer was deregistered but was subsequently reinstated by this Court (Rees J) on 6 August 2021, for the purposes of these proceedings. Shortly thereafter, Mr Mastronardo’s sister, Antonella, became a shareholder of the plaintiff company.

9. By the time of the hearing on 8 November 2021, Mr Mastronardo had been a director and secretary of at least 19 different companies.

10. When Mr Mastronardo was cross-examined by reference to the standard form contract for the sale of the lots in the development on the property, he said that he never looked at the contract because he was not interested in checking that its terms were acceptable. He described his way of doing business, which I accept, as follows:

“My general way of operating is I just appoint people very good at what they do and rely on them to do the job and just, basically, I - you know, I’m not a real reader.  That’s not one of my - that’s not my role, to read the contract.  My role is to manage the operation and make sure I’ve got the right people in the right place.”

11. Mr Mastronardo explained that he was not particularly concerned with individual clauses of contracts. He would ask the builder how long it needed to build the building and then allowed a margin of, say, 50%, which would then be incorporated into the contracts for sale. He was also concerned to give the developer flexibility to accommodate delays such as those caused by wet weather.

The experts engaged by the developer

12. Mr Mastronardo concerned himself with the “big picture” and surrounded himself with experts to deal with the mechanics of the development. To that end, he engaged several people to manage and progress the development of the property on behalf of the developer and in accordance with his instructions. These people included Ben Suttor, Geoff Gazzard, Ian Mirels and Guy Robinson.

13. Mr Suttor was a director of Suttor Innovation, a firm engaged in building project management and development. He was a very experienced building construction development project manager who had worked for Multiplex. Mr Suttor was in charge of “setting up all the construction and the rollout” of the Shoal Bay development and reported directly to Mr Mastronardo. Mr Mastronardo had instructed Mr Suttor to liaise with the defendants regarding the contracts for sale.

14. Mr Mirels was a chartered accountant who had worked at Ernst & Young and Franklins. He was the general manager of Veritas from December 2002 to June 2011 before he became Chief Financial Officer of the Johnson Property Group from July 2011 to June 2014. He was engaged by the developer to work about two days a week. He reported directly to Mr Mastronardo, who expected him to liaise with the defendants on such matters as the Registration Date, taking into account how long the builder indicated it would need to complete the development. As far as Mr Mastronardo was concerned, Mr Mirels was “the key player in the contracts” and if something needed Mr Mastronardo’s attention, he expected that Mr Mirels would pick up the phone and call him. Mr Mastronardo described Mr Mirels’ role as the manager of the builder, the agent and the sales.

15. Mr Robinson, the managing director of Robinson Real Estate, a real estate agency, was engaged by the developer to sell apartments in the Shoal Bay development. He reported primarily to Mr Mirels and had little to do with Mr Mastronardo directly once the project was underway.

16. Mr Gazzard is a chartered accountant, experienced Chief Financial Officer and Chief Executive Officer, who has been the accountant for Veritas since 2016.

Borrowings by the developer

17. By Facility Agreement dated 30 March 2015, the developer agreed to borrow the cumulative sum of $13 million from Balanced Securities Limited (Balanced Securities) at an “Acceptable Rate” of 11.95% per annum and a “Higher Rate” of 8% above the Acceptable Rate per annum. The funds were guaranteed by a company, Cladroan Investments No. 1 Pty Ltd (Cladroan), and Mr Mastronardo and secured by registered mortgage over the property.

18. The developer also borrowed working capital in the sum of $1 million from Optima Funding Pty Ltd (Optima) at an “Acceptable Rate” of 19.75% per annum and a “Higher Rate” of 29.75% per annum. The loan from Optima was approved on 17 July 2015.

19. On 12 August 2015, Optima entered into a Facility Agreement with the developer (as borrower) and Cladroan and Mr Mastronardo (as guarantors), in which Optima agreed to make $1 million available to the developer. The advances were guaranteed by Cladroan and Mr Mastronardo. The “Acceptable Rate” was defined to mean 19.75% and the “Higher Rate” was defined to mean 10% more than the Acceptable Rate.

20. On 7 July 2017, Optima entered into a Facility Agreement with the developer (as borrower) and Elip Pty Ltd (Elip) and Mr Mastronardo (as guarantors) whereby Optima would advance additional working capital to the developer at an “Acceptable Rate” of 18.95% and a “Higher Rate” of 10% above the Acceptable Rate. This loan was increased on 22 December 2017 and provided an additional amount of $400,000, over the existing loan of $700,000, giving rise to a total of $1.1 million.

The defendants’ retainer

21. In about February 2014, the developer retained the defendant to act as its solicitors for the Shoal Bay development. In its fee proposal, the defendants’ firm represented that it “has the requisite technical and commercial skills in the area of strata developments and is considered the leading firm in the [H]unter [r]egion in the provision of legal services in this area.” The defendant represented that Mr Hickey would be the partner responsible for the work and that he would be assisted by Andrew Ferguson, Senior Associate. Helen Murray, Special Counsel, took over the day-to-day conduct of the matter from Mr Ferguson in December 2015 and Nicole Faulkner, a paralegal, also performed work on the matter.

22. The defendants’ retainer included the following aspects of the development:

1. the acquisition of the property by the developer;

2. the preparation of a master contract for the sale of the units on the property;

3. the preparation of instruments pursuant to s 88B of the Conveyancing Act 1919 (NSW), if required, and the preparation of by-laws for the purposes of the strata scheme for the development, if required;

4. the preparation of individual contracts for the sale of apartments “off the plan” as registered strata lots;

5. the sale of the strata lots to the purchasers; and

6. other matters relating to the development, including the registration of documents.

23. The defendants communicated with the developer orally and by email. On occasion, they copied Mr Mastronardo into the emails but generally they communicated directly with the persons engaged by the developer who are referred to above. In about April 2014, the defendants were instructed to prepare a standard contract for the sale of the lots. They obtained the developer’s instructions on matters such as the wording of the contracts from Mr Suttor and Mr Robinson, without reverting to Mr Mastronardo.

The contracts for sale of lots in the development

24. The developer started to market the lots in early 2014. The clauses of the contracts will be referred to in more detail below. In substance, the contracts provided for a “Registration Date” (being the date by which certain documents, including the Strata Plan, had to be registered) which was to be a certain period after the Contract Date. There was also provision to enable the developer to extend the Registration Date by a period of up to six months, as long as a valid notice was given at least one month prior to the Registration Date. If registration of the relevant documents had not occurred prior to the Registration Date, either party had an automatic right to rescind the contract. The purchaser was required to rescind within seven days of the Registration Date and, in that event, was entitled to have the deposit returned.

25. The first contracts specified a Registration Date (see below) of 18 months from the Contract Date. For example, on 20 June 2014, a contract was entered into between the developer as vendor and Alfio and Katia Arlotta as purchasers for Lot 40 for the total sum of $490,000. The Registration Date was 18 months from the Contract Date. Thus, the Registration Date for that contract was 20 December 2015.

26. Later contracts (including for Lots 50 and 52) specified a Registration Date of 12 months from the Contract Date.

27. On 15 December 2014, Mr Ferguson sent a document entitled “Updated Sales Schedule” to Mr Mirels which included the properties sold to that date, being Lots 4, 8, 9, 15, 19, 22, 24, 25, 27, 28, 29, 30, 32, 33, 34, 35, 37, 38, 39, 40, 42 and 43. The schedule included a column headed, “Sunset Date (*6 month extension is also available in addition)”. The term “Sunset Date” was used by the parties as an alternative term for Registration Date. The Sunset Date for Lot 40 was recorded in the schedule as 20 December 2015, being 18 months after the Contract Date. Neither the requirement that notice of an extension be given one month prior to the Sunset Date, nor the actual date for such notice in respect of any given lot, was apparent from any of the schedules provided by the defendants to the developer.

28. Mr Mirels examined the schedule carefully, as is evident from the following response sent a couple of hours later:

“Andrew please delete comment for unit 204. Price is actually $389k”

29. Later that day, 15 December 2014, Mr Mirels and Mr Ferguson exchanged emails as follows:

“Mirels:    Andrew are those sunset dates with allowable extension? Or are they drop dead dates that buyers can rescind?

Ferguson:    The dates don’t include the 6 months extension

Mirels:    Andrew please can you also include a sentence re 6 month extension and date with this extention [sic]. Do we automatically get this extention [sic] or only under certain circumstances?

Ferguson (who attached the special conditions to his email):

Refer to special condition 43 of the Contract regarding extensions. The extension must be notified a minimum of 1 month prior to the Registration Date and the reasons you can delay are set out in 43.1 a to 43.1 e.

43.1e. is very wide.”

30. On 17 March 2015, Mr Ferguson sent an email to Mr Mirels which appears to answer a question asked of him by Mr Mirels in an earlier email:

“3.   As you know, the sunset dates are set out in the Sales Schedule. The earliest sunset date is 16 November 2015.

Question: Will an extension to the dates be needed or is the construction timing OK?

Answer: Not yet. Completion expected December 2015. 6 month extension for delays is noted. Noted you need to exercise right to extend one moth [sic] prior to sunset date.”

31. Mr Ferguson sent a further Updated Sales Schedule to Mr Mirels on 10 July 2015, which included details of all lots for which contracts had been exchanged. As with the previous version, it included a column headed “Sunset Date (*6 month extension is also available in addition)”.

The contract for the sale of Lot 52

32. On 6 August 2015, a contract was entered into for the sale of proposed Lot 52 between the developer, as vendor, and Gregory and Georgina Forbes, as purchasers for the sum of $800,000, of which $80,000 was paid as a deposit on exchange of contracts. The contract contained additional provisions beyond those contained in the 2005 edition of the standard form contract for the sale of land. These additional provisions included the following.

33. Clause 31 defined “Builder” as “the builder or builders appointed by the Vendor or on behalf of the Vendor from time to time to construct the Development.” “Completion Date” was defined as the date for completion pursuant to cl 48. “Extended Registration Date” was defined to mean 18 months from the Contract Date. “Registration Date” was defined as 12 months from the Contract Date. “Strata Documents” were defined to mean the Strata Plan, the By-Laws, and any necessary s 88B instrument.

34. Clause 42 made provision for conditions precedent to completion. It relevantly provided:

“42.1   Completion of this Contract is subject to and conditional on:

…

b.   the registration at the LPI [Land and Property Information] of the required Strata Documents to complete the sale of the Property to the Purchaser on or before the Registration Date;

…

42.2    Subject to clause 43, if any of the conditions precedent contained in clause 42.1 are not satisfied on or before the Registration Date, either party may rescind this Contract by written notice to the other party and neither will have any claim against the other except for any antecedent breaches .

42.3    Where the Purchaser rescinds this Contract pursuant to clause 42.2, the Purchaser must serve the Vendor a valid written notice of rescission not later than seven (7) days after the Registration Date or Extended Registration Date, as the case may be, time of the essence. If the Purchaser does not rescind within that time then the right of rescission lapses immediately.

…”

35. Clause 43 provided for time for registration to be extended as follows:

“43 Extension of time for registration

43.1    A minimum of 1 month prior to the Registration Date, and despite any other clause in this Contract, the Vendor may extend the Registration Date by each day the Vendor or the Builder has been delayed by reason of:

a.    inclement weather or conditions resulting from inclement weather;

b.    any civil commotion, combination of workmen strikes or lockouts affecting the progress of the Development or affecting the manufacture or supply of materials for the construction of the Property;

c.    any matter or thing beyond the control of the Vendor including but not limited to a delay in supply to the Vendor or the Builder or a delay experienced by the Vendor in dealing with its consultants or a delay in obtaining any necessary consents, certificates, licences, not limited to any Consents of any kind from Council or other authority or Government Agency or registering the Strata Documents;

d . a delay in any Consent required for construction of the Development by Council or other Government Agency; or

e.    anything else beyond the Vendor's control.

43.2    A certificate by the Builder in relation to extensions of time under this clause 43 is final, conclusive and binding on the parties.

43.3    Extensions of time under this clause 43 cannot be claimed whereby the Registration Date is extended beyond the Extended Registration Date.”

36. Clause 48 relevantly provided:

“48   Completion

48.1 The Completion Date is the later of the following:

a. 35 days after the date of this Contract;

b. 14 days after the Vendor notifies the Purchaser in writing that all conditions precedent in clause 42.1 have been satisfied; and

c. 14 days after the Vendor serves the Purchaser with an occupation certificate within the meaning of the Environmental Planning and Assessment Act 1979 (NSW) (being an interim occupation certificate or a final occupation certificate) in relation to the Property.

48.2 The Purchaser acknowledges:

a. written notification from the Vendor’s solicitors that the conditions precedent contained in clause 42.1 have been satisfied is conclusive evidence the conditions precedent have been satisfied; and

b. the Purchaser may not take any Action on the validity of the notice referred to in clause 48.2a.”

37. I accept Mr Mastronardo’s evidence that he had not read the contracts for sale and that he relied on those people the developer had engaged and the defendants to monitor such matters as the Registration Date and any need for an extension of time.

The contract for the sale of Lot 50

38. It was common ground that the contract for the sale of proposed Lot 50 had relevantly identical terms to the contract for the sale of proposed Lot 52, save that the purchaser was Madeleine Forbes, the sale price was $725,000, of which $72,500 was paid on exchange, and the date on which the contracts were exchanged was 7 August 2015. Thus, the Registration Date for Lot 52 was 6 August 2016 and for Lot 50 was 7 August 2016.

Delays in the progress of the development on the property

39. On 12 August 2015, Mr Ferguson sent a further schedule to Mr Mirels under cover of an email in which he said, “Updated schedule attached as requested.” The Sunset Date for the contract for the sale of Lot 40 was identified in the schedule as 20 December 2015. By this time, contracts for the sale of Lots 50 and 52, had been exchanged. There was no date in the Sunset Date column for these lots but, as with other entries, the date on which contracts had been exchanged (6 August 2015 for Lot 52 and 7 August 2015 for Lot 50) were set out in the final column in the schedule.

40. On 27 October 2015, Mr Mirels and Graeme Schmarr (a real estate agent from PRD Port Stephens who had been engaged by the developer to assist with the sale of the lots) sent an email to all the purchasers of lots in the development, informing them that, as a consequence of wet weather, the expected completion date had to be adjusted to January or February 2016. They also informed purchasers that there were only 13 units left. Mr Mastronardo explained that he encouraged his team to communicate with purchasers and keep them well informed as part of “public relations.”

41. On 23 November 2015, Mr Mirels asked Mr Ferguson for another “list and status”. In response, Mr Ferguson provided another updated sales schedule in a similar format to those which had previously been provided. As with the one provided in August 2015, the Sunset Date for Lots 50 and 52 was blank.

42. In December 2015, a dispute arose between Mr Mastronardo and Mr Mirels concerning the latter’s remuneration for work performed on the development which was to include a unit in the development. It would appear that the dispute was resolved as Mr Mirels continued to work for the developer and liaise on its behalf with the defendants.

43. On 21 December 2015, the Arlottas, the purchasers of Lot 40, rescinded their contract by notice which was sent by their licensed conveyancer to the defendants. Mr Ferguson sent it to Mr Mirels in an email which included the following explanation:

“The sunset date for this Contract was 20 December 2015.”

44. At Mr Mirels’ request, Mr Ferguson forwarded the email to Mr Mastronardo. Although Mr Mastronardo could not recall reading the email, he said in cross-examination that he would have spoken to Mr Mirels about it and told him to “sort it out.” He did not appear to be particularly troubled by the rescission of the contract for the sale of Lot 40 because it was one of the early lots and therefore part of a “cheaper release” which meant that there was a reasonable prospect of the developer making money on the resale.

45. On 30 December 2015, Mr Mirels wrote to Ms Murray (who had assumed conduct of the file in December 2015) and Ms Faulkner as follows:

“A unit in level 4 recently rescinded due to sunset date. Please can you confirm which unit and that this was a genuine rescission and not a change in contract name to a related party.”

46. On 12 January 2016 (following what I infer was the summer break for the defendants’ firm), Ms Murray responded by informing Mr Mirels that “[a]partment 410 (Lot 40) rescinded on 21 December 2015.” She continued:

“Contracts were exchanged on 20 June 2014 and the vendor failed to register the plan within 18 months i.e. by 20 December 2015.”

47. By email sent on 18 February 2016, Mr Mirels asked Ms Murray to provide an updated sales status schedule with Sunset Dates. He explained that “[w]e are having an issue with the builder and PC [practical completion] will [be] reached a lot later than expected.” On 19 February 2016, Ms Murray sent an updated sales schedule with Sunset Dates. It recorded the Sunset Dates for Lot 52 as 6 August 2016 and for Lot 50 as 7 August 2016, being 12 months after the respective Contract Dates. Mr Mastronardo did not recall seeing the document although he accepted that he had “probably gone through something of this nature” with Mr Mirels. He confirmed that he was “more interested in the prices we’re achieving, what sort of take up we had, that sort of stuff, not so much all this sort of detail.”

48. On 23 February 2016, Ms Murray sent a further email to Mr Mirels as follows:

“I recently provided you with an updated sales schedule showing the Sunset Date relevant to all exchanged contracts.

If the vendor wishes to extend the Registration Date in the contracts, special condition 43 applies. This clause requires that a minimum of 1 month prior to the Registration Date (i.e. the Sunset Date) the vendor can extend the Registration Date for any of the following:

… [list of reasons for delay taken from cl 43.1 above]

…

The notice must include a certificate by the Builder outlining the reason the extension to the Registration Date is required.

From a review of the Sunset Dates, you will need to issue extension notices to the following purchasers and notices need to be sent 1 month before the dates below.

[A table which included contracts for sale with Sunset Dates in April 2016 was set out in the email.]

The Extended Registration Date is the date 18 months after the contract date so an extension will be a further 6 months.

Where Sunset Dates for other purchasers have already passed, if the purchaser did not exercise its right to rescind under cl 42.2 within 7 days of the original Registration Date the purchaser cannot now rescind.”

[Emphasis in original.]

49. Mr Mirels forwarded this email to Mr Mastronardo with the following text (which was copied to Ms Murray):

“If we can get builder to sign off on delays as per below items in Helen’s [Ms Murray’s] email (inclement weather, strike and then a very broad term of whatever etc) then we can exercise option in contract for sale to extend sunset date. It gets tricky because for example Ian Gordon advised the roof re-design which caused delay according to builder has not been accepted by us as an acceptable delay for LDs so it’s not that straight forward. I have asked Greg to please provide a list of delays that doesn’t prejudice you with Builtform. I will then send to Helen to draft letter and put purchasers on notice. According to Helen you only get extension for time proven and not an automatic extension for 6 months (Helen by copy please confirm).

Helen please can you talk through with Adrian [Mr Mastronardo] as he might have some ideas.”

50. At 7.10am on 24 February 2016, Mr Mirels sent an email to Ms Murray asking her to call Mr Mastronardo and explain it to him. Mr Mirels also wrote:

“In the meantime I am also trying to get information from our newly appointed construction manager (Greg Hastie) to provide to you.”

51. Ms Murray does not recall having telephoned Mr Mastronardo in response to this email and has not been able to locate a file note of any such conversation.

52. At 9.02pm on 24 February 2016, Mr Mirels sent an email to Ms Murray with the subject heading “Extension letter” as follows:

“1) Do you have builder info to sen[d] to purchasers?

2) Fabio Valero is chasing FHO [First Home Owner] I sent you.”

53. Ms Murray responded by email sent at 10.03am on 25 February 2016 as follows:

“A draft notice is attached.

Someone connected with building needs to add up the actual delay days and insert them into the document.

I have plucked the suggested reasons for delay from Greg Hastie’s email but they can of course be changed.

Days of delay can be up to 6 months . 182 days.”

54. The attached draft was in the following terms:

“Notice of Extension of Time

Pursuant to clause 43 of the Contract and as the builder appointed from time to time by the vendor we certify the following delays which permit the vendor to extend the registration date as follows:

(a) Inclement weather or conditions resulting in inclement weather [ ] days

(b) A delay in supply to the vendor or the Builder [ ] days

(c) A delay in the vendor dealing with consultants [ ] days

(d) Matters beyond the vendor’s control relating to design and construction changes [ ] days and

(e) Suspension of contractors on the Development by the vendor [ ] days.

Total days extension [ ] days.

Date:

For and on behalf of the Builder.”

55. Mr Mirels forwarded Ms Murray’s email to Greg Hastie (the new construction manager) and asked him to “insert details as per below. This is urgent for extension of time.” Mr Hastie’s signature block on the email identified him as “Director, Cost Consulting & Project Management” of AltusPageKirland.

56. At 1.44pm on 25 February 2016, Mr Hastie sent an email to Ms Murray and Mr Mirels entitled “Extension Letter” as follows:

“Please find the attached.

I have based the delay periods on:

1. Current extension of time to 17 March per the superintendent, and have based all of this delay on inclement weather

2. Anticipated delay of 1 month due to supplier delays

3. Anticipated delay of 2 months due to design changes

Let me know if this is acceptable.”

57. The attached notice said:

“Notice of Extension of Time

Pursuant to clause 43 of the Contract and as the builder appointed from time to time by the vendor we certify the following delays which permit the vendor to extend the registration date as follows:

(a) Inclement weather or conditions resulting in inclement weather 85 days

(b) A delay in supply to the vendor or the Builder 30 days

(c) Matters beyond the vendor’s control relating to design and construction changes 61 days.

Total days extension 176 days.

Date:

……………………………………..

For an on behalf of the Builder”

58. At 1.54pm on 25 February 2016, Mr Mirels wrote to Ms Murray and asked her to finalise the notice so that he could send it to the Building Superintendent, Todd Corbett, for sign off. He said:

“We won’t be able to get the current builder to sign however hopefully we will have a new builder on site soon and will ask them for a sign off for other upcoming expiring contracts for sale.”

59. At about this time, the original builder left the site. This caused inevitable delays in construction but also meant that there was no builder who could certify the delay for the purposes of a notice of extension of time of the Registration Dates of the contracts. The developer hoped to overcome this problem by having the Building Superintendent sign such a notice in the period when there was no builder on site.

60. At 3.55pm on 25 February 2016, Ms Murray sent an amended notice which included a sign-off by “Building Superintendent, Todd Corbett – RPS”. At 4.34pm on 25 February 2016, Mr Mirels sent an email to Mr Mastronardo, which was copied to Ms Murray, Mr Gazzard and Mr Hastie, in which he asked Mr Mastronardo whether it was “ok to send [the draft notice] to Todd Corbett to sign.” In the same email, Mr Mirels wrote:

“Helen will then advise purchasers (as listed below) on the respective due dates of an extension of time to the sunset date.”

61. The email contained a table with three columns, the apartment number, the name of the purchaser and the “Current Registration Date (Sunset Date)”. The email concluded:

“Please note in accordance with the contract for sale the builder should be the person to actually sign this letter. Once you have appointed new builder we will ask him to sign this letter.

Helen (by copy) in that regard, I think we should only send Todds (superintendent) letter to the minimum number of above list by reference to due date pending actual builder sign off. Hopefully that won’t be long now. Do you agree?”

62. At 4.41pm on 25 February 2016, Ms Murray responded to Mr Mirels as follows:

“I agree we should only issue the interim letter to those whose sunset dates are between 1 and, say 10 April.

If it will take longer to appoint a builder and have the letter resigned let me know.”

63. On 26 February 2016, Mr Mirels sent the draft notice to Mr Corbett for his signature. On 29 February 2016, Mr Hastie sent an email to Mr Corbett and Mr Mirels, which was copied to Ms Murray, asking him to sign the notice and return it that morning.

64. On 29 February 2016, Mr Corbett responded to Mr Mirels and Mr Hastie (in an email copied to Ms Murray):

“I advise it is my opinion the works have been delayed by:

• 85 days due to inclement weather or conditions resulting from inclement weather; &

• Circa 61 days due to matters beyond the vendor’s control relating to design & construction changes (eg: Level 5 etc).

or circa 146 days total noting I’m not in receipt of an EOT [Extension of Time] claim from the Building Contractor for the circa 61 days due to matters beyond the vendor’s control relating to design & construction changes (eg: Level 5 etc).”

65. On 29 February 2016, Mr Hastie emailed Ms Murray (copied to Mr Corbett and Mr Mirels) asking her to adjust the notice in accordance with Mr Corbett’s response and reissue it for signing. Further correspondence ensued with Mr Corbett, who indicated that he was not comfortable signing the notice as he had not made any determination regarding the 61 days which were allegedly beyond the vendor’s control. Ultimately, he agreed to sign off for 85 days and sent a signed notice to that effect at 2.55pm on 29 February 2016.

66. On 29 February 2016, following receipt of the signed notice from Mr Corbett, Mr Mirels and Ms Murray spoke on the phone. Ms Murray noted what Mr Mirels said (but not her responses) in a file note as follows:

“…

- for anything which is immediate

- do notices for 1^st weeks only. Wants to wait for new builder to be appointed then re-assess position

- ring each week + see if they should be extended!”

67. On 1 March 2016, the defendants sent letters to the solicitors for the purchasers of Lots 32 and 33 which enclosed Mr Corbett’s extension of time notice.

68. On 16 March 2016, Mr Mirels sent the extension of time notice to Mr Mastronardo (copied to Ms Murray) and said:

“Greg Hastie needs to confirm it[’]s accurate/ current and then James can sign.”

69. Mr Mastronardo responded to Ms Murray (copied to Mr Gazzard and Mr Mirels):

“What you have sent is what James will sign, I notice it has Todd’s name at the bottom

Helen, please amend as required, liaise with Geoff and he will organise James to sign and return to you today.”

70. Further emails were exchanged on 16 March 2016 in which Mr Hastie said that Mr Corbett had confirmed the extension of time for the weather but that the additional 61 days was “based on nominal delays and not actual delays.” He foreshadowed further delays. The defendants were unaware of who “James” (referred to in Mr Mastronardo’s email above) was. Mr Mirels confirmed that he was from Fortis Development and Construction Co (Fortis) and “is the new builder stepping into the existing construction contract with Builtform to complete the works.” Mr Mastronardo subsequently confirmed that it was intended that “he [James Maruzza of Fortis] will finish all the works.”

70. Ms Faulkner amended the notice of extension of time to include the 61 days in addition to the 85 days for inclement weather and to identify Mr Maruzza as the person who was to sign the notice. The notice was signed in that form by Mr Maruzza on 16 March 2016. As far as the evidence reveals, Fortis remained the builder on site until the construction of the development was completed.

71. The evidence does not reveal when Fortis became the builder on the site or when Builtform left the site. Mr Mastronardo was unsure of the precise timing. He recalled that he was “in discussions with a few builders at the time” and “[a] lot of things were going on.” Mr Mastronardo said, in cross-examination, that the departure of the builder put a “bad stigma on the project” although “the market was still strong”. He said that it was “not a good thing to happen on a project.” He became very concerned because he “need[ed] to deliver projects and complete them and bring the money back in the door.”

72. On 18 March 2016, Ms Faulkner sent an updated schedule to Mr Mirels in the usual format. She recorded in the column entitled “Sunset Date (*6 month extension is also available in addition)” the original Sunset Date and any extension which had been notified and the date on which it had been notified. The schedule indicated that extension notices had been served for contracts with Sunset Dates in April and May 2016.

73. On 21 March 2016, Mr Gazzard sent an email to Ms Murray and Ms Faulkner asking them, at Mr Mastronardo’s request, to amend the schedule which had been sent on 18 March 2016 “to reflect the actual latest sunset date incorporating the extensions plus a column for the $ deposit being held.” Later that day, Ms Faulkner sent the amended list to Mr Gazzard.

Attempts to negotiate extensions to the Registration Date with the purchasers of Lots with Registration Dates in June and July 2016

75. On 22 March 2016, Ms Murray, Mr Mastronardo and Mr Gazzard spoke on the phone. Ms Murray recorded in a file note what she was told as follows:

“June-July

- get an EOT [extension of time]

- $100,000 more

- In the next 7 days

no builder on site

completion May/June

currently ref. [illegible]

31 Dec October

answer asap

variation of contract

benefit in the escalation of price”

76. Ms Murray’s affidavit evidence as to the import of the file note (which was tendered by Mr Weinberger, who appeared on behalf of the plaintiff) was as follows:

“‘Rather than issue extension of time notices under the contracts, we want to negotiate an extension for an agreed period of time with each of the purchasers’

‘We will start by negotiating with the contracts that are due for completion in June and July 2016. The purchasers will probably agree because the units are worth $100,000 [more] and they would want the benefit of the increase in value'

‘We need to negotiate the extensions in the next 7 days’

‘There is no builder on site at present but we think we can complete in May or June 2016'

‘We are currently refinancing’

‘We want the extensions to be until 31 December. No, they should be until 31 October’

‘Can you draft letters inviting the agreed extension and request answers as soon as possible.’”

77. Mr Mastronardo explained his rationale for seeking the purchasers’ agreement to the extensions in his cross-examination as follows:

“… whatever contracts are going to expire that we can’t force the purchaser to extend any further, we’re just going to have to negotiate a new contract, basically.  And the ones there, you need to speak - we’re not going to escalate the price, although the price had gone up.  They would’ve benefit.  And that was basically - call it the carrot to have them remain in the purchase of the unit, so that would’ve made it easier for us to - because we were short of funds, because the builder - whatever happened there, and we needed to raise more money.  So, the funder wanted to know what’s at risk, which was - earlier was at about 4 - $3 million that could fall over.  So, those ones there were our focus because that’s - you know, a bird in the hand’s two in the bush.  So, we just wanted to make sure that those people remained as purchasers.  It was easier to - yes.”

78. Following this conversation on 22 March 2016, Mr Gazzard sent an email to Ms Murray attaching a schedule of sales in which he highlighted in yellow all contracts which had a Sunset Date before the end of July 2016. He said:

“As discussed please find attached. I have highlighted all contracts to expire before the end of July. If you could please prepare the letter to send to these buyers requesting them to extend the sunset date until the end of October using the wording re non-escalation as discussed with Adrian [Mr Mastronardo].”

79. Mr Gazzard’s schedule included the following totals at the columns of money amounts:

Sale price	Deposit	Contracts at risk	[Balance]	[Properties] at valuation
$18, 419,700 -$1,674,518 (GST) $16,745,182 (NET)	$1,745,710	$4,044,000 -$367,636 $3,676,364	$14,375,700 $13,068,818	$11,110,000 -$1,010,000 $10,100,000 $6,060,000 $13,068,818 $19,128,818

80. Mr Mastronardo was not precise about time but he recalled that he wanted to raise funds on the project and “the funder wanted to make sure that we had enough sales to cover the funding.” He told Mr Gazzard to make sure that every contract is “binding and none of them can fall over”. Mr Mastronardo explained in cross-examination:

“[W]e didn’t have the builder at that time, everything was on hold, what’s going to be our worst-case scenario in terms of what contract can we rely on at the end of the project to be settled?  So, that’s what I would have [been] trying to achieve out of that.”

81. Mr Mastronardo wanted the contracts “at risk” of being rescinded by the purchasers to be identified so that the developer could “get those contracts to re-engage”.

82. Again, Mr Mastronardo confirmed that he was more concerned about the “big picture” and would have relied on Mr Mirels and Mr Gazzard to “sort it out.” He added:

“My general practice with my team is I talk to them on the phone.  I don’t like reading a lot of stuff.  That’s not my strong point.”

83. On 24 March 2016, the defendants sent letters in the following form to the solicitors or conveyancers for the purchasers of Lots 4, 9, 15, 19, 30, 32, 33, 36 and 43 (being the lots with Sunset Dates which were due to expire in June and July 2016):

“Contracts were exchanged on [date].

Accordingly the Registration Date for the purposes of special condition 42 is [date].

The vendor instructs us that it will not achieve completion of the project by the Registration Date. While the vendor is able to make an extension of time claim pursuant to special condition 43 of the contract our client would prefer to vary the Registration Date from the current Registration Date to a new Registration Date of 31 October 2016.

Would you please take your client’s instructions as to whether you[r] client is prepared to extend the registration date as set out above and we will provide you with a Deed of Variation for execution by your client. We request that you respond to this request no later than 6 April 2016 so that up-to-date information can be provided to our client’s financier for the continued financing of the project.

If your client will agree to vary the Registration Date to 31 October 2016 our client’s financier may require the parties to enter into a Deed of Variation.”

84. Mr Mastronardo confirmed in his affidavit evidence that as at 26 March 2016, he was still “seeking a new builder to complete the development.” At that time he did not believe that the development could have been completed by June 2016 because the following matters were still required to be done to achieve Practical Completion and obtain registration of the Strata Plan, including notifying the Local Council of Practical Completion; inspection by a building certifier; lodgement of the proposed Strata Plan; obtaining consents from the financiers and mortgagees of the property; and lodging documents with the Land Registry Services.

85. At 6.57am on 29 March 2016, Mr Gazzard wrote to Ms Murray asking whether there had been any progress on extension of sunset dates. At 8.09am on 29 March 2016, Ms Murray responded by informing him that the letters had been sent out by facsimile but that, given the Easter break (Easter Day was 27 March 2016), she would not expect any response until later that week “at the earliest”. At 8.13am on 29 March 2016, Mr Gazzard asked Ms Murray to email a copy of the letter to him. She responded by sending the pro forma letter but he requested that she send a copy of “every letter sent out” and a “list of who they were sent to”. Mr Gazzard concluded his email by saying, “[w]e need this urgently.”

86. A file note made by Ms Murray on 29 March 2016 recorded that she had a telephone conversation with Mr Gazzard on that day. She recorded:

“Office copies of letters is fine. How many went out? All on spreadsheet, Which clause lapses. The right of rescission 42.3 I will email to him.”

87. At 4pm on 29 March 2016, Ms Murray sent an email to Mr Gazzard as follows:

“Clause 42.3 attached says;

‘Where the Purchaser rescinds this Contract pursuant to clause 42.2, the Purchaser must serve the Vendor a valid written notice of rescission not later than seven (7) days after the Registration Date or Extended Registration Date, as the case may be, time [is] of the essence. If the Purchaser does not rescind within that time then the right of rescission lapses immediately.’

Where the notice is not served in time the right to rescind lapses.”

88. At 4.01pm on 29 March 2016, Ms Faulkner sent an email to Mr Gazzard which attached copies of all of the letters the defendants had sent to the lot owners referred to above.

89. On 29 March 2016, Mr Schmarr sent an email updating the purchasers, which forwarded the following “message from [Mr] Mastronardo” as follows:

“As you are aware the project is currently running behind schedule. Firstly, what is beyond our control, for example the amount of inclement weather experienced, namely 85 days to date; there is not much we can do about that. However, the previous builder has been unable to suitably resource our project and accordingly I have made the decision to replace the builder with a new builder, Fortis Constructions, who are a reputable builder with a fantastic track record and who have the necessary resources to complete [the Shoal Bay development] expeditiously.

The projected new construction completion date will now be 30 June 2016. While this delay has had its downside it also has had its upside as your unit value has increased since you purchased. Based on the Sydney market statistics we consider this will continue in Shoal Bay as well.”

90. Mr Forbes (the co-purchaser of Lot 52) responded to Mr Schmarr, expressing his disappointment with the delay. On 30 March 2016, Mr Schmarr forwarded this exchange to Mr Mastronardo, who responded to Mr Schmarr (which was copied to Mr Mirels):

“I see the problem with updates.

I think in future we don’t tell them nothing they have contracts exchange and we just stick to the contract, if they expire then we can resell them for more I guess”

91. Later that day, Mr Mastronardo wrote to Mr Mirels (copied to Mr Schmarr) and told him to “sort it”. In cross-examination, Mr Mastronardo denied that he was “not particularly sympathetic to Mr Forbes’ concerns” and maintained: “I like my purchasers happy.”

92. On 30 March 2016, Ms Faulkner sent Mr Gazzard a schedule which identified those purchasers who had agreed to an extension of the Registration Date to 31 October 2016 (which at that time was only the purchasers of Lots 19 and 33). On 31 March 2016, Ms Faulkner sent a revised list, which added the agreements of Lots 4 and 9. On 4 April 2016, Mr Gazzard wrote to Ms Faulkner and asked her whether answers had been received from all purchasers to whom requests for extension had been sent. She responded and informed him that the purchasers of apartments which corresponded with Lots 15, 30, 32, 39 and 43 had not yet replied but that she had called their solicitors and been told that they were still waiting for responses from their clients.

93. At some time in early April 2016, Mr Mastronardo increased the prices of the remaining units. He explained the reason for the increase as follows:

“[T]ypically what we normally do, we tend to - once we’ve got our debt covered, we tend to - you know, so we start - when we start selling we always sell at a cheaper price and sort of - well, you know, I don’t want to call them a loss leader but basically we just increase the - the less units on the project, you know, the more we can sort of push the price.”

94. On 11 April 2016, Mr Gazzard asked Ms Faulkner for an update about further responses. She confirmed that she had phoned the purchasers’ solicitors, who were still waiting for responses from their clients. Ms Faulkner sent a further updated list on 13 April 2016 which recorded the agreement of the purchasers of Lots 4, 9, 19, 30, 33 and 43 and confirmed that “[a]ll outstanding purchasers were chased up yesterday.”

95. The developer required the information which was repeatedly being sought from the defendants because of their attempts to refinance the development. On 13 April 2016, Mr Gazzard wrote to Mr Mirels (copied to Mr Mastronardo) as follows:

“Please see attached a spreadsheet I prepared for funding purposes. Ian this needs to be updated for the latest prices. I need to send to Steve [Hodges] asap. Ian can you please send me the latest price list after Adrian increased them last week and I also need confirmation that the ground unit has in fact been sold so I can update the attached and how much for. Please Ian I am not highlighting or bolding any text but I urgently need to get this to Steve so we can get the funding back on track.”

96. Mr Mastronardo’s response to the email was to instruct Mr Gazzard to “chase up” the defendants to see if any more purchasers had agreed to extend the Registration Date. On 4 May 2016, Ms Faulkner sent a further schedule which indicated that she was expecting confirmation of the agreement by the purchaser of Lot 15 to an extension in the week commencing 9 May 2016; the solicitor for the purchaser of Lot 32 was still waiting for a response from the client and the solicitor for the purchaser of Lot 39 was recorded as having recommended that the client agree to an extension and that confirmation was expected in the week commencing 9 May 2016. Later on 4 May 2016, Mr Mirels asked Ms Faulkner what the legal position was with the two who had not elected to extend and whether they were locked in or still able to “get out of [the] contract.” The evidence does not reveal Ms Faulkner’s response to that question.

97. On 31 May 2016, Mr Mirels asked Ms Faulkner to send an updated schedule. In an updated schedule provided on 1 June 2016, the date of exchange of contracts for Lots 50 and 52 was correctly recorded as 7 and 6 August 2015 respectively and the Sunset Dates for these contracts as 7 August 2016 and 6 August 2016 respectively. Mr Mastronardo did not recall whether Mr Mirels had discussed the document with him. He explained that the position had changed and said:

“Look, by that stage, we had funding.  Everything was rolling.  There wouldn’t have been any real reason for them to - other than if something was going - something needed my input.”

98. On 4 May 2016, Mr Mastronardo communicated with Steven Hodges, the Senior Credit Manager of Balanced Securities, about an unregistered mortgage over one of the properties he owns on Pile Street in Gladesville and a valuation of that property. At 10.23am on 4 May 2016, Mr Mastronardo told Mr Hodges by email that he was waiting on a fourth valuation, which he hoped would be forthcoming and would enable a further drawdown of $525,000. Mr Hodges responded that “[t]hat payment will be crucial for going forward.” Mr Mastronardo, in a further email to Mr Hodges said that the valuation would be ready “tomorrow sometime” and further: “[t]hey sold next door last week for 7.095M- I’m only looking to achieve 5.5M on the val.”

99. Mr Mastronardo confirmed that he had told Mr Hodges that he expected that the development and sales of the units would be completed by July 2016. These communications led to a further email from Mr Hodges to Mr Mastronardo at 1.35pm on 4 May 2016 which said:

“If it all pans out as you plan, we will be releasing the caveat [lodged in respect of the unregistered mortgage] in July when the sales come in.”

100. On 31 May 2016, Mr Mirels asked Ms Faulkner for an updated schedule, which she provided on 1 June 2016. As with earlier versions, the schedule indicated that the Sunset Dates for Lots 52 and 50 were 6 August 2016 and 7 August 2016 respectively.

101. On 31 May 2016, Mr Schmarr, on behalf of the developer, sent an update email to purchasers of lots in the development, including Mr Forbes, which said:

“Subject: The Shoal Apartments | A message from the Managing Director of Veritas Property Group

As we are nearing completion of construction I am pleased to advise that our new builder is progressing really well and we are expecting construction completion to be end of June or early July.

Please take this opportunity to let family and friends know that there are only 11 units left and they can still secure a unit now at the current prices. On completion there will be another price increase.”

102. Mr Mastronardo explained that a strata plan can be registered before Practical Completion or the issuance of an Occupation Certificate because a Strata Plan can be registered as long as the walls between strata units are fixed.

103. Ms Murray was on annual leave between 6 June 2016 and 7 July 2016.

The first alleged breach and its consequences

104. No instructions were given to the defendants prior to 6 July 2016 to give notice to the purchasers to extend the Registration Date for Lot 52 or prior to 7 July 2016 to give notice to the purchaser to extend the Registration Date for Lot 50. Accordingly, when these dates passed without a notice having been given, the purchasers of those lots obtained a right to rescind their contracts, as long as the right was exercised within 7 days of the Registration Dates (6 and 7 August 2016).

105. As at July 2016, Mr Mastronardo knew that the construction of the development on the property had not yet been completed, that no occupation certificate had been issued and the strata plan had not been lodged for registration.

106. On 14 July 2016, Mr Gazzard sent an email to Ms Faulkner, Mr Mastronardo and Mr Mirels, which was copied to Ms Murray in which he said:

“We are expecting to obtain OC [occupation certificate] within 4 weeks . Registration will be after that (I am told up to 4 weeks). Can you please check the sunset dates on the attached spreadsheet and advise if they are correct ? I note some are expiring in August/September if they are in fact correct – please check. What does this mean if they are correct ?

Please treat as urgent.”

107. Following this email, Ms Murray spoke to Mr Mirels and “the Project Surveyor”, who may have been Mr Gazzard. Her confirmation email, sent at 10.57am on 15 July 2016, is referred to below.

108. On 15 July 2016, Ms Murray and Mr Mirels spoke on the phone. Mr Mirels instructed her to issue extension of time notices for any contracts with Sunset Dates in July or August 2016. Following that conversation, at 10.57am on 15 July 2016, Ms Murray sent an email to Mr Gazzard, which was copied to Mr Mastronardo and Mr Mirels, in which she said:

“I discussed the steps to completion with Ian Mirels and the Project Surveyor yesterday

Given we have

1 issue of Occupation Certificate

2 Council endorsement of the Strata Plan

3 LPI registration (usually 3/4 weeks itself)

to get through we recommend the same Extension Of time Notices served earlier are now served on those purchasers with July, August and September registration dates.

197. The validity and effectiveness of the notices of extension of time, had they been sent, is not the question. In the present case, the question is whether the purchasers of Lots 50 and 52 would have challenged the notices, had they been sent in time, on the basis outlined by Mr Zahra. The only evidence on the subject is that on 20 July 2016 and in subsequent correspondence, the purchasers’ solicitor, Mr Coelho, informed Ms Murray of his view that the notices were invalid as they were not sent in time. No suggestion was raised as to an alternative objection which the purchasers could have made to the validity of the notices. I am not satisfied that there is any real possibility that, had the notices been sent in time, the purchasers would otherwise have objected to the notices or rescinded on an alternative basis.

198. I consider that the requirements of factual causation and scope of liability (s 5D(1) of the Act) are met. I am satisfied that, but for the defendants’ negligence, the developer would have instructed the defendants to serve notices to extend time. In that event, the purchasers would not have had a right to rescind the contracts and the developer would not have suffered loss amounting to the sum of the differential between the original contract price for Lot 52 ($800,000) and the actual price obtained for Lot 52 ($675,000) of $125,000 and the differential between the original contract price for Lot 50 ($725,000) and the agreed figure for the value of Lot 50 ($522,500) of $202,500.

199. Mr Weinberger submitted that even if I were not satisfied that the second allegation of negligence (negligent advice about the developer’s rights against the purchasers of Lots 50 and 52) was made out, the plaintiff was still entitled to be compensated for the amounts expended by the developer on legal costs in the Equity proceedings because they were incurred as a result of the negligent failure to alert the developer to the deadline for extension of time notices.

200. I accept that factual causation within the meaning of s 5D(1)(a) of the Act is made out for damages on this second basis, since it is merely a restatement of the “but for” test and had the contracts not been rescinded, the Equity proceedings would not have been commenced and the costs would not have been incurred.

201. I am not, however, satisfied that it is appropriate for the scope of the defendants’ liability to extend to the harm so caused (as required by s 5D(1)(b) of the Act). The defendants gave correct legal advice to the developer as to its position. The developer chose to retain other solicitors who may have given different advice. I do not accept Mr Weinberger’s submission that there is an analogy between the developer’s position in September 2016 and that of a person who has been negligently injured by, say, a motorist, and who then seeks medical attention as a result of the injuries sustained and is further injured as a result of the negligence of a doctor or hospital. It is well established that in the latter case, the original tortfeasor (the driver of the motor vehicle) is liable for the subsequent negligence of the doctor or hospital: Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522; [1985] HCA 37.

202. Further, the present case is to be distinguished from cases relied on by Mr Weinberger, such as Walton t/as Pitcher Walton & Co v Efato Pty Ltd [2008] NSWCA 86 (Pitcher Walton). In Pitcher Walton, it was held that a solicitor negligently failed to file a notice under s 459G of the Corporations Act 2001 (Cth) (to set aside a statutory demand) within the requisite time. This failure resulted in a presumption of insolvency. The Court (Tobias JA, Beazley and Giles JJA agreeing) found, at [92] and [95]-[97], that the client’s legal costs of rebutting the presumption and being found liable for the costs of the application for an order winding up the client fell within the kind, type or class foreseeable as a result of the solicitor’s negligence and was “not unlikely to flow from the breach”.

203. In the present case, after the defendants had negligently failed to alert the developer to the deadline for the notice to extend time, the defendants gave the developer non-negligent advice as to its true legal position. The defendants attempted, unsuccessfully, to obtain a better result for the developer than the true legal position by negotiation. The developer then chose to terminate the defendants’ retainer and obtain advice from new solicitors. Contrary to the defendants’ advice (as to the true legal position), the developer initially took an untenable position in the Equity proceedings. The developer subsequently received advice from counsel, briefed by the new solicitors, which accorded with that given to the developer by the defendants, after considerable costs had been incurred. The developer then capitulated and was ordered to pay the purchasers’ costs, including for a period on an indemnity basis. I am not persuaded that it is appropriate that the defendants ought be liable for the loss suffered by the developer after it terminated the defendants’ retainer in these circumstances. I am not satisfied that the type of loss (costs incurred in resisting a proper claim for relief) fell within the reasonable contemplation of the defendants as being not unlikely to flow from the breach. Accordingly, I reject this aspect of the damages claim.

Claim for interest

208. Mr Weinberger submitted that the developer’s loss (and therefore the damages to which the plaintiff is entitled) included interest at commercial rates assessed by reference to the cost of its finance. He relied on business records which comprised statements from Balanced Securities and Optima which recorded the amounts outstanding to the developer from time to time.

209. An injured party may be entitled to an award of damages which includes interest if the injured party can show that it incurred interest at a higher rate than the court rate for pre-judgment interest as a result of the defendants’ breach. In the present case, although the developer was out of pocket as a result of the rescission of the contracts (which was caused by the defendants’ breach), it has not shown that it was liable to pay interest as a consequence. The evidence of its financial affairs is insufficiently clear to draw that inference.

210. The evidence of the developer’s indebtedness is insufficient to show a connection with the development of the property. Mr Mastronardo’s evidence was that he was involved with “several different projects at the time”. Further, there are entries which are extraneous to the development of the property by the developer. For example, one of the Optima statements records that there was a loan of $629,884 from Optima to Elip, the trustee of the discretionary trust of which Mrs Mastronardo was the sole beneficiary. The same statement records a loan to Mr Mastronardo of $300,000 which was drawn down on 22 December 2017 on the developer’s account with Optima. Other entries in the statements of Balanced Securities and Optima are similarly opaque, such that it cannot be known how much of the plaintiff’s indebtedness to these lenders arose from matters concerning the development of the property and how much related to other projects or to other persons or entities. It is also of significance that the developer’s indebtedness to Balanced Securities was nil prior to February 2017.

211. The liquidator’s report to creditors dated 3 August 2018 recorded that Veritas owed the developer over $1.5 million. I am not satisfied, on the evidence adduced, that, had the funds for Lots 50 and 52 been received pursuant to the original contracts, they would have been applied to reduce the developer’s indebtedness to Balanced Securities and Optima.

212. Mr Mastronardo, as the plaintiff’s director, was in a position to give evidence to shed light on the state of the company’s financial affairs and the particular entries on the statements of Balanced Securities and Optima. Where a witness does not give evidence in chief on a material topic, it can be inferred that his or her evidence would not have assisted the case of the party with whom the witness is associated: Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418–19 (Handley JA); see also Stambolziovski v Nestorovic and Camanaro Prestige Properties Pty Ltd t/as Sydneyhome Real Estate [2015] NSWCA 332 at [51] (Ward JA, Beazley P and Emmett AJA agreeing).

Conclusion on quantum of damages

213. The developer’s loss (and therefore the plaintiff’s damages) are to be assessed by a comparison between the developer’s position but for the breach and the developer’s position because of the breach.

214. But for the breach, the contracts for Lots 50 and 52 would have been completed by about early 2017 (the date on which the Strata Plan was registered was 24 October 2016). Because of the breach, the developer received $125,000 less for Lot 52 and is taken to have received $202,500 less for Lot 50 (having regard to the agreement as to its value as at 1 January 2017) than the contract price with the original purchasers. I am not persuaded that these damages ought be reduced to take account of the prospect that the sales to the original purchasers would not have proceeded, since I regard that prospect as being so slim as to be immaterial. For the reasons given above, I am not persuaded that there was any real prospect that the purchasers would have challenged the notice of extension of time, had it been given in time, or that they would have jeopardised their deposits by terminating on any other basis.

215. The plaintiff has failed to prove that it suffered any other consequential loss arising from the need to re-sell Lots 50 and 52, such as marketing, advertising or legal costs, or through its continued ownership of those lots. Accordingly, although these matters form part of the particulars of damage, no award for these items has been made out. The plaintiff is not entitled to interest on the deposit for any period prior to its return to the original purchasers since that which was earned ought to have been paid to the developer pursuant to cl 35.1(e)(i) of the sale contracts since its entitlement arose whether the contracts were completed (as would have occurred but for the defendants’ breach) or rescinded (as occurred as a consequence of the defendants’ breach).

216. The plaintiff is otherwise entitled to interest at Court pre-judgment interest rates (its claim for interest at commercial rates having failed) under s 100 of the Civil Procedure Act 2005 (NSW) in accordance with Practice Note SC Gen 16. The parties have agreed to perform the calculations and provide short minutes of order to reflect the agreed calculations.

Costs

217. The parties requested that I make a costs order but also grant liberty to the parties to make an application for a different costs order, if the circumstances warrant it. As the plaintiff has been successful in obtaining judgment for more than nominal damages, the general rule that costs follow the event applies: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

Orders

218. For the reasons given above, I make the following orders:

1. Judgment for the plaintiff against the defendants.

2. Direct the parties to provide to my Associate within seven days agreed calculations of the judgment sum in accordance with these reasons.

3. Subject to order (4), order the defendants’ to pay the plaintiff’s costs of the proceedings.

4. If any party wishes to apply for a different costs order to the order in (3) above, such application is to be made in writing to my Associate within seven days, together with any evidence and submissions in support.

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Amendments

19 November 2021 - "the plaintiff to pay the defendants' costs" replaced by "the defendants’ to pay the plaintiff’s costs" in Order (3) - coversheet, [218]

Decision last updated: 19 November 2021